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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-12846
SECURITY CAPITAL INDUSTRIAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 74-2604728
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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14100 EAST 35TH PLACE
AURORA, COLORADO 80011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(303) 375-9292
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Shares of Beneficial Interest, par value New York Stock Exchange
$0.01 per share
Series A Cumulative Redeemable Preferred Shares New York Stock Exchange
of Beneficial Interest, par value $0.01 per
share
Series B Cumulative Convertible Redeemable New York Stock Exchange
Preferred Shares of Beneficial Interest, par
value $0.01 per share
Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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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 Regulation 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. [_]
Based on the closing price of the registrant's shares on March 12, 1998, the
aggregate market value of the voting shares held by non-affiliates of the
registrant was $1,657,026,451.
At March 12, 1998, there were outstanding approximately 117,388,358 common
shares of beneficial interest of the registrant.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1998 annual
meeting of its shareholders are incorporated by reference in Part III of this
report.
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TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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PART I
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1. Business........................................................... 1
Security Capital Industrial Trust.................................. 1
SCI Growth and Operating Strategy.................................. 3
SCI International Operating System(TM)............................. 3
Investment Strategy................................................ 7
Customers.......................................................... 9
Leases............................................................. 11
Property Management................................................ 11
Capital Markets.................................................... 12
SCI Management..................................................... 13
Officers and Trustees of SCI....................................... 15
Employees.......................................................... 25
Competition........................................................ 26
Environmental Matters.............................................. 26
Insurance Coverage................................................. 26
2. Properties......................................................... 26
The Partnerships................................................... 41
SCI Development Services........................................... 44
Unconsolidated Subsidiaries........................................ 44
3. Legal Proceedings.................................................. 45
4. Submission of Matters to a Vote of Security Holders................ 45
PART II
5. Market for the Registrant's Common Equity and Related Stockholder
Matters............................................................ 46
Dividend Reinvestment and Share Purchase Plan...................... 48
6. Selected Financial Data............................................ 49
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 50
Overview........................................................... 50
Results of Operations.............................................. 52
Environmental Matters.............................................. 57
Liquidity and Capital Resources.................................... 57
Funds from Operations.............................................. 61
7A. Quantitative and Qualitative Disclosure About Market Risks......... 62
8. Financial Statements and Supplementary Data........................ 62
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure Matters....................................... 62
PART III
10. Directors and Executive Officers of the Registrant................. 63
11. Executive Compensation............................................. 63
12. Security Ownership of Certain Beneficial Owners and Management..... 63
13. Certain Relationships and Related Transactions..................... 63
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 63
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PART I
ITEM 1. BUSINESS
SECURITY CAPITAL INDUSTRIAL TRUST
Security Capital Industrial Trust ("SCI") is the largest publicly held,
U.S.-based global owner and operator of distribution properties based on
equity market capitalization. SCI is an international operating company
focused exclusively on meeting the distribution space needs of international,
national, regional and local industrial real estate users through the SCI
International Operating System(TM). SCI distinguishes itself from its
competition by being the only entity that combines all of the following:
1. An international operating strategy dedicated to providing services to
the 1,000 largest users of distribution facilities worldwide;
2. An organizational structure and service delivery system built around
the customer--SCI believes its service approach is unique to the real
estate industry as it combines international scope and expertise with
strong local presence;
3. A disciplined investment strategy based on proprietary research that
identifies high growth markets with sustainable demand for SCI's
distribution facilities;
4. Over 275 professionals in 37 offices in the United States, Mexico and
Europe which SCI believes comprise the deepest and most experienced
management team in industrial real estate; and
5. Over 2,500 customers globally.
The cornerstone of SCI's operating strategy is the SCI International
Operating System(TM) comprised of the Market Services Group, the Global
Services Group and the Global Development Group that utilizes SCI's
international network of corporate distribution facilities to meet customer
expansion and reconfiguration needs globally.
SCI engages in the acquisition, development, marketing, operation and long-
term ownership of distribution facilities. SCI has the resources to provide a
full array of financial, development and operating services, including: (i)
expertise in market research, (ii) building and land acquisition and due
diligence, (iii) master-planned distribution park design and building
construction, (iv) marketing, asset and leasing management and (v) capital
markets and financial operations.
SCI deploys capital in markets with excellent long-term growth prospects and
in markets where SCI can achieve a strong market position through the
acquisition and development of flexible facilities for warehousing,
distribution and light manufacturing uses. SCI expanded its operations into
Mexico and Europe in the first half of 1997 to meet the needs of its targeted
national and international customers as they expand and reconfigure their
distribution facility requirements globally. With six target market cities
identified in Mexico and 20 identified in Europe, SCI believes that there are
significant growth opportunities internationally. SCI is building its
organization in both Mexico and Europe as part of the SCI International
Operating System(TM).
SCI's highlights include:
. As of January 31, 1998, SCI was servicing over 2,500 customers in the
United States, Mexico and Europe, including 336 global customers of which
209 were multiple market customers, and refrigerated warehousing in which
SCI has invested had over 975 customers in the United States and 4,750
customers in eight countries in Europe.
. As of January 31, 1998, SCI's distribution portfolio contained 92.5
million square feet in 1,019 buildings and had an additional 9.3 million
square feet under development in 63 buildings for a total of 101.8
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million square feet in 1,082 buildings. The total aggregate cost of the
101.8 million square feet (including properties under development at total
budgeted cost) is $3.172 billion (an average of $31.16 per square foot).
. As of January 31, 1998, SCI's stabilized portfolio of 86.6 million square
feet was 96.35% leased (95.01% occupied), and the total operating
portfolio of 92.5 million square feet, which includes 5.9 million
pre-stabilized square feet, was 93.60% leased (91.48% occupied).
. During 1997, a total of 28.1 million square feet of distribution space
was leased in 1,017 transactions through the operation of the SCI
International Operating System(TM). During 1997, rental rates on new and
renewed leases on previously leased distribution space for the operating
portfolio increased an average of 19.2%.
. In 1997, SCI acquired 6.35 million square feet of distribution space in
the United States and internationally for a total expected investment of
$207.84 million in 28 transactions, for an average cost of $32.73 per
square foot. In addition, during 1997, SCI invested $85.6 million in
U.S.-based refrigerated warehousing totaling 78.6 million cubic feet
either operating or under development, and in January 1998, invested in
European refrigerated warehousing totaling 180 million cubic feet with a
net cost of $395.0 million.
. During 1997, SCI commenced development of 9.7 million square feet of
distribution space in 31 target market cities in the United States,
Mexico and Europe with a total expected investment of $370.3 million.
Inventory building starts totaled 6.3 million square feet in 1997 and
corporate distribution facility starts totaled 3.4 million square feet
during 1997. In addition, as of January 31, 1998, SCI was in active
negotiations for 6.3 million square feet of additional corporate
distribution facility projects on a global basis. Since inception, SCI
has completed developments totaling 26.0 million square feet (excluding
dispositions of 1.6 million square feet), which were 86.93% leased and
89.50% leased or committed as of January 31, 1998.
. As of January 31, 1998, SCI owned 1,634 acres of development land, and
had fixed price options and rights of first refusal to acquire 505 acres
and 36 acres, respectively, which in the aggregate will permit the
development of approximately 37.2 million square feet of additional
distribution space in 32 target market cities. Also, as of January 31,
1998, SCI had an additional 656 acres under letters of intent or
contingent contracts, subject to the completion of due diligence, which,
if acquired, will permit the development of approximately 12.0 million
square feet of additional distribution space. Of the total acres owned or
controlled through options, rights of first refusal, letters of intent or
contingent contracts at January 31, 1998, 2,567 acres were in the United
States, 231 acres were in Mexico, and 33 acres were in Europe.
. During the third quarter of 1997, SCI became an internally managed REIT
when it acquired the operations of Security Capital Industrial
Incorporated (the "REIT Manager") and SCI Client Services Incorporated
(the "Property Manager") owned by Security Capital Group Incorporated
("Security Capital") in exchange for 3,692,023 Common Shares of
Beneficial Interest, par value $0.01 per share (the "Common Shares") (the
"Merger"). See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview--Consummation of Merger
Transaction."
. Security Capital, SCI's largest shareholder, which owned approximately
42.5% of SCI's Common Shares as of March 12, 1998, has provided common
equity investment capital to SCI at the same times and on the same terms
made available to public investors and other shareholders. On a fully
diluted basis, Security Capital owned 36.8% of SCI's Common Shares as of
March 12, 1998.
. SCI's long-term debt as a percentage of long-term book capitalization
(including accumulated depreciation) was 28.0% at December 31, 1997. At
March 12, 1998, SCI had $275.0 million of borrowings outstanding under
its $350 million unsecured line of credit facility and had $200.0 million
due to NationsBank of Texas, N.A. ("NationsBank") on an unsecured bridge
loan due March 31, 1998.
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SCI GROWTH AND OPERATING STRATEGY
Based on extensive research, SCI was formed in June 1991 to take advantage
of two strategic opportunities: first, the opportunity to build a distribution
and light manufacturing asset base at prices significantly below replacement
cost and a land inventory at attractive prices; and second, to create, for the
first time, a national operating company which would differentiate itself from
its competition through its ability to address and service a corporate
customer's distribution facility requirements on a national, regional and
local basis. SCI expanded its operations into Mexico and Europe in the first
half of 1997 to meet the needs of its targeted national and international
customers as they expand and reconfigure their distribution facility
requirements globally. With six target market cities identified in Mexico and
20 identified in Europe, SCI believes that there are significant growth
opportunities internationally. SCI is building its organization in both Mexico
and Europe as part of the SCI International Operating System(TM). Consistent
with SCI's objective of expanding the services platform for its targeted
customer base, in 1997 the SCI International Operating System(TM) expanded to
serve the refrigerated warehousing needs of its customers where it is
efficiently establishing an international refrigerated warehousing network,
positioning SCI to become the global leader in this rapidly consolidating
industry. SCI's objective is to achieve long-term sustainable growth in cash
flow through (i) focusing its investments in markets with excellent long-term
growth prospects and markets where SCI can achieve a strong market position
through the acquisition and development of flexible facilities designed for
warehousing, distribution and light manufacturing uses; (ii) the SCI
International Operating System(TM) comprised of the Market Services Group, the
Global Services Group and the Global Development Group as described below; and
(iii) ownership or control of a significant inventory of land to enable SCI to
take advantage of market opportunities and accommodate expansion or corporate
distribution facility requirements of customers through development of new
facilities.
SCI's operating strategy is to achieve significant market presence in each
target market city and selected submarkets of those cities through
acquisitions and master-planned distribution park development. SCI defines
market presence not only in terms of square feet of buildings and acres of
development land owned, but also by the extent of SCI's relationships with
customers having current and expected future distribution space needs in such
markets. SCI's growth and operating strategy is designed not only to meet the
needs of today's distribution space users, which means providing functional,
cost-effective facilities and a comprehensive level of service, but also to
shape the future trends of the industry through innovation, service and
product leadership consistent with SCI's long-term investment horizon.
SCI INTERNATIONAL OPERATING SYSTEM(TM)
The SCI International Operating System(TM) is designed to provide
substantial benefits to existing and prospective SCI customers, including:
Relocation Capability. User requirements can change frequently. SCI's
presence in 37 U.S. target markets and seven of its 26 targeted international
markets for distribution space permits SCI to accommodate the needs of its
customers by moving an existing customer within a market or between markets
both nationally and globally.
Expansion Capability. SCI, through its development program, land inventory
and existing facilities, works with existing and prospective customers who
have expansion requirements to meet their growing business needs. Expansion
may result in relocating a customer to larger SCI spaces in a given market or
in developing a corporate distribution facility for such customer.
Centrally Coordinated Program. SCI provides a single point of contact for
multi-location global users of distribution facilities through Global Services
Group professionals who are charged with building long-term customer
relationships and ensuring that all SCI services and products are consistent
in quality. SCI's experience
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to date suggests that many major corporate customers prefer working with one
firm to meet their distribution facility requirements.
Corporate Distribution Facilities Services. SCI's team of development
professionals are focused on building facilities that meet SCI customers'
needs and that incorporate the latest technology with respect to building
design and building systems. SCI has developed consistent standards and
procedures that it strictly adheres to in the development of all of its
facilities throughout the United States and internationally.
The SCI International Operating System(TM) provides an exceptional level of
customer service including development on an international, national, regional
and local basis through its 210 professionals, and is a key component of SCI's
growth and operating strategy. The SCI International Operating System(TM) is
comprised of the three groups described below: the Market Services Group, the
Global Services Group and the Global Development Group.
Market Services Group. This group is comprised of 25 market officers
("Market Officers"), a managing director in Europe, four regional directors
and 120 property management and leasing professionals. Market Officers have
extensive experience (with an average of over 14 years) in marketing
distribution space and are responsible for understanding the needs of existing
and prospective customers in their respective markets. To meet such needs,
Market Officers utilize their extensive knowledge of local market conditions,
including the cost and availability of alternative space, and are supported by
their team of property management and leasing professionals. Additionally,
Market Officers have access to information regarding existing SCI customers
who are expanding or relocating to various markets. A key role of the Market
Officers is assisting the Global Services Group in identifying SCI customers
with international or national, multi-market requirements. SCI believes that
the Market Officers' access to national and international SCI resources
provides significant stature and profile and improves their ability to serve
customers in the local market.
On a regular basis, each Market Officer communicates with senior management
for guidance on lease terms, as well as for international, national and local
marketing assistance, and is able to take advantage of SCI's fully integrated
international development and service capabilities. Market Officers do not
develop projects or borrow or commit capital; they focus strictly on creating
and maintaining relationships with distribution space users and industrial
brokers, marketing SCI's products and identifying potential corporate
distribution facilities services, acquisition and leasing opportunities in
their target market cities.
Global Services Group. The Global Services Group, comprised of 10
professionals, is dedicated to providing service to the largest 1,000 users of
distribution space and is focused on making SCI the preferred provider of
distribution space to these companies. The Global Services Group is
headquartered in Denver and Amsterdam and has regional offices in Atlanta,
Chicago, Houston, the Los Angeles metropolitan area and the New York City
metropolitan area. A key function of this group is identifying companies whose
reconfiguration and expansion of their distribution networks will create
multi-market and/or corporate distribution facilities services opportunities
and coordinating SCI services to those companies with the respective Market
Officers and the Global Development Group. Global Services Group professionals
build long-term relationships with SCI international and national customers
and provide a single point of contact to simplify and streamline the execution
of such customers' international and national distribution space plans. An
ancillary benefit is research insight into international and national
distribution and logistics trends gained through continuous interaction with
Global Services Group clients.
Global Development Group. The Global Development Group, comprised of 50
professionals, focuses substantial research and development efforts on
creating industry-leading master-planned distribution parks and buildings. Its
members have extensive experience in development and construction of these
facilities.
The Global Development Group is comprised principally of architects,
engineers and construction professionals who oversee every aspect of the land
planning and building design processes. This group also monitors the
construction process and oversees the performance of third-party general
contractors. The group's
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corporate distribution facility specialists and project managers (with an
average experience level of over 16 years) operate regionally to better serve
their markets. The project managers supervise each project with continual
oversight from SCI headquarters, pursuant to uniform standards, procedures and
specifications which have been carefully designed to achieve consistent
quality.
SCI believes the depth and breadth of the Global Development Group enhance
the effectiveness of the Global Services Group and give the Market Officers a
distinct competitive advantage for development and corporate distribution
facilities services opportunities in their respective markets.
The SCI International Operating System(TM) with its customer focus and
service level, single point of contact and distribution solutions on a global
basis, offers significant potential in building relationships, as well as
additional business, with its global customers in a rapidly consolidating
industry.
FOCUS ON RESEARCH-BASED GROWTH-ORIENTED MARKETS AND CUSTOMER DRIVEN EXPANSION
Based on its proprietary research, SCI focuses on selected distribution
markets in the United States, Mexico and Europe where supply and demand
factors permit high occupancies at increasing rental rates. Management
believes the research indicates that demand for distribution and light
manufacturing space in SCI's target markets should be stable to strong in the
near to medium term which should have a positive effect on leasing rates and
cash flow growth. SCI believes that the primary factors influencing future
supply and demand for distribution real estate in SCI's target market cities
will be continued job and population growth, related regional and local
company growth, reconfiguration of distribution networks, and quality and cost
of labor. In addition, SCI believes that the short construction cycles
targeted for SCI's distribution facilities, fragmented ownership and
undercapitalization of local developers also contribute to the attractive
supply and demand fundamentals in SCI's target markets.
SCI focuses on three types of distribution investment markets: export/import
growth markets, low cost manufacturing markets and growth distribution
markets. As a result of customer demand, SCI expanded its operations into
Mexico and Europe in the first half of 1997 to meet the needs of its targeted
national and international customers as they expand and reconfigure their
distribution facility requirements globally. SCI believes that the investment
opportunities in Mexico and Europe provide significant growth opportunities
for SCI as it expands its service platform.
Additionally, during 1997, SCI expanded into refrigerated warehousing
through an unconsolidated subsidiary's investment in CS Integrated LLC
("CSI"). As of December 31, 1997, SCI's unconsolidated subsidiary owned 77% of
CSI which operated or had under development 78.6 million cubic feet of
refrigerated warehousing facilities in the United States, and SCI's investment
in and advances to its unconsolidated subsidiary totaled $85.6 million. In
January 1998, an unconsolidated subsidiary of SCI acquired Frigoscandia AB
("Frigoscandia"), for a net cost of $395 million. SCI believes that
Frigoscandia is Europe's largest owner of refrigerated warehousing facilities
with 90 facilities in eight European countries totalling over 180 million
cubic feet and over 4,750 customers. SCI believes that the capital-intensive
nature of refrigerated warehousing creates significant barriers to entry,
limiting new competitors. As a result of SCI's ongoing research into key
logistics trends, SCI believes that refrigerated warehousing represents an
important investment opportunity which should create significant shareholder
value. See "Item 2. Properties--Unconsolidated Subsidiaries."
Export/Import Growth Markets. The dollar volume of U.S. exports increased
from $250.2 billion in 1987 to $678.3 billion in 1997, an increase of 171.1%,
as reported by the U.S. Census Bureau, Foreign Trade Division. The dollar
volume of U.S. imports increased from $477.4 billion in 1989 to $877.3 billion
for 1997, as reported by the U.S. Census Bureau, Foreign Trade Division.
SCI intends to capitalize on this trend by targeting key ports (air, sea and
land) which are well positioned to benefit from continued combined growth in
trade with the Pacific Rim, Mexico and Europe. The total dollar
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volume of exports from the United States to these three international trade
areas grew by approximately $142.2 billion between December 31, 1987 and
December 31, 1997, as reported by the U.S. Census Bureau, Foreign Trade
Division. In line with SCI's strategy to target key ports, SCI entered both
the Rotterdam and Amsterdam markets during 1997. Rotterdam is the largest port
in the world and, in addition to its ability to accommodate all sizes of
ocean-going vessels, its success is linked to its comprehensive infrastructure
that facilitates distribution throughout Europe by air, rail, truck and
waterways. Schiphol Airport in Amsterdam is the thirteenth largest airport in
the world based on passenger and cargo volume. SCI believes that the growth in
exports and imports represents favorable growth prospects for related
distribution space.
Low Cost Manufacturing Markets. SCI has targeted markets that possess long-
term cost and quality of labor advantages for domestic and foreign
manufacturers. One important influence on SCI's target market cities in Mexico
and on those with close proximity to Mexico is the impact of the maquiladora
(U.S./Mexico twin plant) program, which encourages companies to manufacture
and assemble products close to the Mexican border. After paying a nominal
value added tax, companies participating in this program ship finished
products into the United States or to foreign countries for distribution or
further processing. Export and import trade between the United States and
Mexico exceeded $71.3 billion for the twelve month period ended December 31,
1997, as reported by the U.S. Census Bureau, and should continue to be
positively affected by the North American Free Trade Agreement. Mexico ranked
as the second largest trading partner with the United States for the twelve-
month period ended December 31, 1997. SCI believes that the prospects for low
cost manufacturing growth in these target markets are excellent.
Growth Distribution Markets. The distribution markets that SCI targets must
have access to transportation networks, including interstate highways, rail
service, air cargo, intermodal facilities and/or port terminals. They must
also offer cost advantages in terms of transportation rates, rental costs and
state income and inventory taxes. Finally, there must be strong overnight
truck delivery area demographics within a 500-mile radius. Examples of these
markets include Amsterdam and Rotterdam in Europe, and Seattle, Dallas,
Columbus and Indianapolis in the United States.
MARKET PRESENCE
In each target market city for which SCI has not yet achieved critical mass
(or in selected submarkets in large distribution markets such as Dallas and
Atlanta), SCI intends to become one of the major distribution space owners and
operators within a four to seven year period. SCI believes that significant
market presence will provide the following benefits:
Value Enhancement. The significant local owners and developers in a given
market can usually generate above-market performance as measured by lease
rates and occupancy because of their ability to reduce turnover through
meeting their customers' needs to either expand or contract, by relocating
them within existing inventory of distribution space or by developing new
facilities. SCI believes that providing this flexibility permits it to realize
higher effective lease rates and lower levels of ongoing tenant improvement
investment. Effective implementation of this strategy requires a critical mass
of customers and space and ongoing communication between customers and the
Market Officers. SCI believes it has achieved this critical mass in the
following 27 target markets in the United States: Atlanta, Austin, Birmingham,
Charlotte, Chattanooga, Cincinnati, Columbus, Dallas/Fort Worth, Denver, East
Bay Area (San Francisco), El Paso, Houston, Indianapolis, Kansas City, Las
Vegas, Memphis, Nashville, Oklahoma City, Orlando, Phoenix, Portland, Reno,
Salt Lake City, San Antonio, South Bay Area (San Francisco), Tampa and
Washington, D.C./Baltimore.
Maximum Market Exposure. Size and market presence provides visibility and
access to and knowledge of potential leasing and corporate distribution
facilities services transactions. The industrial brokerage community and
corporate users are often motivated to develop a relationship with the
significant owners and developers in a particular market in order to achieve
their respective business objectives. The opportunity to compete for the
majority of customers' space requirements in each target submarket is a
crucial factor in achieving SCI's operating objectives.
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INVESTMENT STRATEGY
SCI's investment strategy is to build an international distribution network
in its target markets at prices significantly below replacement cost and to
build an inventory of land at attractive prices to support its corporate
distribution facilities services and master-planned distribution park
development programs. SCI's investment activities focus on developing and
acquiring distribution facilities with prospects for long-term cash flow
growth.
INVESTMENT ANALYSIS
Prospective investments are analyzed pursuant to several underwriting
criteria, including purchase price, replacement cost, competition and other
market factors, and prospects for long-term growth in cash flow. SCI's
development or acquisition decision is based upon the expected contribution of
the property to long-term cash flow growth. The expected cash flow
contribution is based on an estimate of lease revenues assuming a stabilized
vacancy factor which is generally 7%, less expenses not reimbursable by
customers incurred in operating the property. Future estimates of residual
value and, generally, the effects of debt financing are not considered in the
calculation.
For distribution facilities which SCI has acquired, stabilized operations
generally have been achieved six to 12 months after acquisition. The
underwriting criteria for development projects allow 12 months from shell
completion for achievement of stabilization; however, on average stabilization
has been achieved in less than 12 months. In 1997, for all development
projects that reached stabilization, the average time from shell completion to
stabilization was 7.1 months. "Stabilized" means that capital improvements,
repositioning, new management and new marketing programs (or development and
marketing, in the case of newly developed properties) have been completed and
in effect for a sufficient period of time (but in no case longer than 12
months) to achieve stabilized occupancy (typically 93%, but ranging from 90%
to 95%, depending on the submarket and product type) at market rents. SCI has
been successful in increasing overall occupancies on acquired and developed
properties during their initial months of operations resulting in an occupancy
rate of 95.01% for stabilized properties owned as of January 31, 1998.
The economic contribution of properties cannot be predicted with certainty,
and no assurance can be given that acquired or developed properties will
contribute to increased cash flow, or that acquisitions and developments will
be available on favorable terms in the future.
INVESTMENT IN GENERIC DISTRIBUTION FACILITIES
SCI has a strong preference toward facilities which are generic, meaning not
highly specialized, and therefore appealing to a broad base of potential
customers and easily modified for use by different customers at reasonable
costs. SCI believes generic distribution space will generate superior cash
flow with low on-going capital needs. In addition, SCI believes it has
developed an industry-leading product design. This product incorporates design
guidelines and construction standards that make usage more convenient for the
customers and also minimizes ongoing maintenance requirements and costs. Over
the long term, SCI expects these characteristics to enhance cash flow.
Development of Master-Planned Distribution Parks. SCI's development
activities concentrate on the development of industry-leading, master-planned,
full-service distribution parks in target markets that demonstrate both strong
demographic growth and excellent industrial real estate fundamentals, and in
which SCI can achieve a significant market presence. SCI also develops
facilities for major corporations and strong regional companies within the
distribution parks, and occasionally on a stand-alone basis, that are designed
as generic distribution buildings. The 50 professionals comprising the Global
Development Group focus on creating industry-leading, master-planned
distribution parks. These professionals have extensive experience in
development and construction of such facilities.
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SCI is taking advantage of opportunities to purchase land at or below market
prices in order to provide a land inventory to meet the expansion and
relocation needs of SCI's existing customer base and to further penetrate its
target markets. At January 31, 1998, SCI owned 1,634 acres of development
land, and had fixed price options and rights of first refusal to acquire 505
acres and 36 acres, respectively, which in the aggregate will permit the
development of approximately 37.2 million square feet of additional
distribution space in 32 target market cities. Also, as of January 31, 1998,
SCI had an additional 656 acres under letters of intent or contingent
contracts, subject to the completion of due diligence, which, if acquired,
will permit the development of approximately 12 million square feet of
additional distribution space. Master-planned park development is a key
component of SCI's objective of achieving long-term sustainable growth in cash
flow.
SCI's parks provide extensive customer services and typically range in size
from 25 to 150 acres in order to create strong identity and to permit
economies of scale with respect to providing customer services. SCI's master-
planned distribution parks include controls, covenants and regulations
intended to maintain and enhance the long-term desirability of the parks and
thereby attract and retain high quality distribution and light manufacturing
customers. Each park's service personnel coordinate a variety of services such
as snow removal, customer move-ins, landscaping maintenance and air
conditioning repairs.
Inventory Building Program. In SCI's master-planned distribution parks, SCI
commences development of an inventory building when it perceives an emerging
demand in a specific submarket from both existing SCI customers who are
expanding and potential new customers whose leases for their current space are
approaching expiration. By having an appropriate supply of distribution space,
SCI can meet the expansion needs of existing customers and can accommodate new
customers. From inception through January 31, 1998, SCI completed or commenced
development of 24.0 million square feet of inventory buildings with a total
expected investment of $858.8 million, including 200,000 square feet disposed
of to date, in 33 target market cities in the United States, Europe and
Mexico.
Corporate Distribution Facilities Services. Building facilities for
customers enhances SCI's ability to meet customers' needs. SCI's corporate
distribution facility program is targeted to distribution customers whose
facility requirements are generic, not special purpose, so as to facilitate
the property's future marketability and functionality. From inception through
January 31, 1998, SCI completed or commenced development of corporate
distribution facilities totaling 11.6 million square feet with a total
expected investment of $410.8 million, including 1.4 million square feet that
have been disposed of through January 1998. In addition, as of January 31,
1998, SCI was in active negotiations for 6.3 million square feet of additional
corporate distribution facility projects globally.
Acquisition of Distribution Space. SCI's acquisition activities focus on
distribution space because of the expected predictability and stability of the
cash flow from such facilities. Distribution space provides more predictable
cash flow because it requires minimal levels of capital investment in
specialized tenant improvements. Additionally, the initial investment in
tenant improvements can often be utilized by subsequent customers without
major renovation or alteration. In general, only cosmetic repair and
replacement is required to re-tenant vacant spaces.
The Acquisitions and Due Diligence Group, comprised of 19 professionals, is
responsible for property and land acquisitions and related due diligence
globally. SCI's strategy for distribution space acquisitions has three
principal components.
The first component is market coverage. In addition to the professionals in
the Acquisitions and Due Diligence Group, the 25 local Market Officers also
assist in identifying opportunities in their respective markets. This staffing
commitment permits in-depth acquisitions coverage of SCI's target markets and
thorough due diligence conducted in accordance with uniform procedures.
8
<PAGE>
The second component is the attainment of critical mass within each target
market through acquisitions of distribution space and customers in targeted
submarkets and then opportunistically adding additional assets as attractive
opportunities arise. SCI believes it has achieved critical mass in 27 target
market cities in the United States as of January 31, 1998.
The third component of SCI's acquisition strategy is the concentration on
transactions under $5 million. SCI's commitment to identifying and completing
multiple transactions under $5 million results in reduced competition from
institutional buyers due to their size or occupancy level. The local presence
of the Market Services Group also enables the Acquisitions and Due Diligence
Group to pursue under-leased properties which can benefit from intensive local
management and marketing. Between January 1, 1993 and December 31, 1997, SCI
completed 150 acquisitions of $5 million or less.
PRODUCT CLASSIFICATION
The industrial real estate on which SCI focuses is typically used for
storage, packaging, assembly, distribution and light manufacturing of consumer
and industrial products. SCI divides industrial properties into two
categories: distribution (which can also accommodate light manufacturing and
assembly customers) and service center. SCI's objective is to focus its
acquisition and distribution park development activities primarily on generic
distribution facilities with an average office finish level of less than 10%.
Due to typically increased costs of retrofitting customer spaces, service
center product will be acquired only on a very limited basis as part of
portfolio acquisitions in which the majority of product being acquired is bulk
distribution. As of January 31, 1998, the buildings in SCI's operating
portfolio of 92.5 million square feet contained 9.9% office finish.
Distribution. SCI's distribution space is adaptable for both distribution
and light manufacturing or assembly uses. SCI's operating portfolio included
98.9% of such product at January 31, 1998 based on square feet. The following
characteristics generally define the distribution facilities which SCI owns
and intends to acquire or develop in the future:
<TABLE>
<CAPTION>
TYPICAL RANGE
------- -----
<S> <C> <C>
Clear Height............ 22 ft.-24 ft. 18 ft.-30 ft.
Building Depth.......... 180 ft.-240 ft. 140 ft.-300 ft.
Loading................. Dock Dock or Dock and Grade
Parking Ratio........... 0.9 spaces/1,000 sq. ft. 0.5 spaces/1,000 sq. ft.-
2.0 spaces/1,000 sq. ft.
Average Square Footage
Per
Customer............... 28,687 sq. ft. 4,500-200,000 sq. ft.
Site Coverage........... 45% 30-50%
</TABLE>
Service Center. Under SCI's definition, service centers are multi-customer
buildings that have a higher percentage of office space than distribution
properties and only have grade-level loading as opposed to truck dock loading.
Service center product constituted 1.1% of the square feet in SCI's operating
portfolio as of January 31, 1998.
CUSTOMERS
CUSTOMER BASE OBJECTIVE
SCI's objective is to develop a customer base in each target market city
which is diverse in terms of industry concentration and represents a broad
spectrum of international, national, regional and local distribution space
users who have potential for growth in demand for space.
9
<PAGE>
SCI had over 2,500 customers (2,944 customer leases) in 84.5 million square
feet of occupied space and 336 global customers of which 209 were multiple
market customers at January 31, 1998. Certain square footage characteristics
of these leases, representing a mix of local, regional and global customers,
are summarized as follows:
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF OF TOTAL
SQUARE FOOTAGE LEASED LEASES SQUARE FOOTAGE
--------------------- ------ --------------
<S> <C> <C>
0--10,000............................................ 1,107 6.90%
10,001--25,000....................................... 903 17.70
25,001--50,000....................................... 499 20.86
50,001--100,000...................................... 280 23.66
100,001 and above.................................... 155 30.88
----- ------
Total................................................ 2,944 100.00%
===== ======
</TABLE>
SCI believes that having a large number of customers with generic space
requirements in each submarket will provide the opportunity to maximize cash
flow through intensively managing its customer base. At the same time,
exposure to overall occupancy declines is reduced by achieving a broad
spectrum of customers in each submarket. SCI's largest customer accounted for
less than 1.0% of SCI's 1997 rental income (on an annualized basis), and the
annualized base rent for SCI's 20 largest customers accounted for less than
12.4% of SCI's 1997 rental income (on an annualized basis).
As of January 31, 1998, SCI's 336 global customers leased 38.8% of SCI's
operating distribution space portfolio of 92.5 million square feet, as
compared to 299 global customers that leased 35.6% of SCI's operating
distribution space portfolio of 81.6 million square feet at January 31, 1997.
DIVERSIFIED CUSTOMER LEASE EXPIRATIONS AND RENEWALS
Between January 31, 1998 and December 31, 1998, leases representing
approximately 18.7% of the leased square feet in SCI's portfolio will expire,
creating opportunities for SCI to increase rents upon renewal or replacement
of those leases. The following table shows for SCI's properties as of January
31, 1998: (i) the aggregate number of leases expiring, (ii) the square footage
subject to such leases, (iii) the percentage of total square footage
represented by such leases, (iv) the annual base rentals represented by such
leases and (v) the percentage of annual base rentals represented by such
leases:
<TABLE>
<CAPTION>
NUMBER SQUARE PERCENTAGE OF ANNUAL PERCENTAGE OF
OF LEASES FOOTAGE TOTAL SQUARE BASE RENT ANNUAL BASE
EXPIRING(1) EXPIRING FOOTAGE EXPIRING(2) RENT EXPIRING(2)
----------- ---------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
1998.................... 734 15,760,647(3) 18.66% $ 54,090,612 16.38%
1999.................... 672 14,878,338 17.62 53,277,156 16.14
2000.................... 630 15,215,262 18.02 58,740,180 17.79
2001.................... 344 10,794,076 12.78 44,555,268 13.50
2002.................... 356 13,055,779 15.46 53,883,048 16.32
2003.................... 55 4,199,545 4.97 16,772,424 5.08
2004.................... 42 2,155,828 2.55 8,641,224 2.62
2005.................... 33 1,905,189 2.26 8,842,380 2.68
2006.................... 31 2,669,764 3.16 11,875,908 3.60
2007.................... 38 2,885,908 3.42 14,286,618 4.33
Thereafter.............. 9 934,045 1.10 5,136,636 1.56
----- ---------- ------ ------------ ------
Total............... 2,944 84,454,381 100.00% $330,101,454 100.00%
===== ========== ====== ============ ======
</TABLE>
- --------
(1) Assumes customers do not exercise renewal options.
(2) Excludes all expenses and common area maintenance charges paid or
reimbursable by customers.
(3) Includes 1,186,994 square feet of space leased on a month-to-month basis
as of January 31, 1998.
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<PAGE>
CUSTOMER OCCUPANCY
The following table shows the number of operating properties owned by SCI on
each date reflected, the total square footage of such properties and the
historical percentage physical occupancy of such properties on such date. As
previously indicated, SCI commenced operations in June 1991, and acquired
operating properties from unaffiliated third parties.
<TABLE>
<CAPTION>
STABILIZED
OPERATING PORTFOLIO PORTFOLIO (1)
------------------------------- --------------------
NUMBER OF SQUARE SQUARE
PROPERTIES FOOTAGE OCCUPANCY FOOTAGE OCCUPANCY
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1997(2)....... 1,005 90,842,484 92.02% 85,111,069 95.45%
December 31, 1996.......... 942 80,556,110 91.21% 71,106,728 96.27%
December 31, 1995.......... 751 58,493,330 93.48% 49,296,615 96.74%
December 31, 1994.......... 526 39,053,995 92.40% 32,409,549 98.36%
December 31, 1993.......... 164 11,393,881 91.22% 8,385,646 99.90%
December 31, 1992.......... 17 1,911,204 91.18% 1,649,195 100.00%
December 31, 1991.......... 3 406,000 100.00% 406,000 100.00%
</TABLE>
- --------
(1) See definition of Stabilized in "--Investment Strategy--Investment
Analysis."
(2) Operating properties at December 31, 1997 include recently completed
development properties in initial lease-up (2.9 million square feet
completed in the fourth quarter of 1997) which impacts the overall
occupancy percentage at December 31, 1997.
Based on information compiled by the CB Commercial Property Information
Management System, occupancy rates for industrial properties that can
accommodate a customer requiring 100,000 or more square feet in major U.S.
cities were relatively stable from 1992 through the end of 1997. Properties
covered include both vacant and occupied available space in existing and
under-construction buildings within six months of completion. SCI has not
independently verified this information.
LEASES
Net leases, modified gross leases and gross leases as of December 31, 1997
represented 55.85%, 41.54% and 2.61%, respectively, of the total square
footage under lease by SCI's customers. Under net leases, real estate taxes,
insurance costs and operating expenses are passed through to customers. Under
modified gross leases, real estate taxes and insurance costs in excess of
specified amounts and operating expenses are passed through to customers.
Under gross leases, the landlord pays all real estate taxes, insurance costs
and operating expenses.
PROPERTY MANAGEMENT
SCI provides active and effective local management in order to increase cash
flow and to enhance the long-term economic performance of its properties. In
order to provide a higher level of service to its customers, SCI initiated
direct property management services in January 1994 through the Property
Manager, an affiliate of Security Capital, that provided property management
services exclusively for SCI properties. Effective September 9, 1997, SCI
acquired the Property Manager (see "--SCI Management" below) and merged it
into a subsidiary of SCI. SCI's property management group seeks to provide
exceptional customer service and attention to customer needs. The group
develops and implements proprietary operating, recruiting and training systems
to achieve consistent levels of performance and professionalism in all target
market cities it manages. This group has substantially improved the occupancy
and rental income for under-leased properties acquired by SCI.
As of January 31, 1998, SCI's property management group provided services in
37 target market cities in the United States, Mexico, and Europe and was
actively managing 90.0 million square feet (97.28%) of SCI's operating
portfolio of 92.5 million square feet.
11
<PAGE>
CAPITAL MARKETS
SCI believes that a successful REIT must have the ability to access the
equity and debt markets efficiently and expeditiously. SCI's capital markets
ability permits it to capitalize on the acquisition and development
opportunities which it believes exist in its target market cities. In order to
more efficiently raise capital and enhance relationships with major
institutional sources of capital, SCI utilizes Security Capital Markets Group
Incorporated ("Capital Markets Group"), a registered broker-dealer subsidiary
of Security Capital. Capital Markets Group has assisted in or arranged
securities offerings for SCI, including:
. In August 1992, SCI received a commitment for a $40 million investment
from Security Capital at a price of $10.00 per Common Share;
. In March 1993, SCI received commitments for $200.0 million of net
proceeds, at a commission cost of less than 0.01% (paid to an
unaffiliated third party), from a private offering of Common Shares to
shareholders and institutions at a price of $11.00 per share;
. In December 1993, SCI received commitments for $157.5 million of net
proceeds, with no commission cost, from a private offering of Common
Shares to shareholders, employees and accredited investors at a price of
$11.50 per share;
. In March 1994, SCI completed its $37.5 million initial public offering of
Common Shares at a price of $11.50 per share, with no commission cost,
and began trading on the New York Stock Exchange ("NYSE");
. In June 1994, SCI completed a $100 million public offering of Common
Shares to shareholders and third parties at a price of $15.125 per share,
with no commission cost;
. In October and November 1994, SCI raised $266.9 million of net proceeds
from a public offering of Common Shares at a price of $15.25 per share,
with an average commission cost of 2.39%;
. In March 1995, SCI raised $198.0 million of net proceeds from an
underwritten public offering of fully amortizing, long-term senior
unsecured debt securities;
. In May 1995, SCI raised $123.5 million of net proceeds from an
underwritten public offering of fully amortizing, long-term senior
unsecured debt securities;
. In June 1995, SCI raised $130.4 million of net proceeds from an
underwritten public offering of Series A Cumulative Redeemable Preferred
Shares of Beneficial Interest, par value $0.01 per share (the "Series A
Preferred Shares"), with an average commission cost of 3.15%;
. In September and October 1995, SCI completed a $250.0 million public
offering of Common Shares to shareholders and third parties at a price of
$15.375 per share, with no commission cost;
. In February 1996, SCI raised $192.3 million of net proceeds from an
underwritten public offering of Series B Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per
share (the "Series B Preferred Shares"), with an average commission cost
of 4.25%;
. In May 1996, SCI raised $197.8 million of net proceeds from an
underwritten public offering of fully amortizing, long-term senior
unsecured debt securities;
. In September and October 1996, SCI completed a $175.6 million public
offering of Common Shares to shareholders and third parties at a price of
$17.25 per common share, with no commission cost;
. In October 1996, SCI completed a $35.1 million public offering of Common
Shares to third parties at a price of $17.25 per common share, with no
commission cost;
. In November 1996, SCI raised $97.1 million of net proceeds from an
underwritten public offering of Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest, par value $0.01 per share (the "Series C
Preferred Shares"), with an average commission cost of 2.50%;
12
<PAGE>
. On February 4, 1997, SCI raised $99.1 million of net proceeds from an
underwritten public offering of fully amortizing, medium-term unsecured
debt securities under its medium-term note program established in
November 1996;
. On February 7, 1997, SCI raised $80.4 million of net proceeds from an
underwritten public offering of Common Shares, with an average commission
cost of 5.25%;
. On July 11, 1997, SCI raised $98.7 million of net proceeds from an
underwritten public offering of long-term senior unsecured notes due
2017;
. On August 6, 1997, in connection with the consummation of the Merger, SCI
commenced a rights offering to sell 4,970,352 Common Shares at $21.00 per
share. On September 9, 1997, SCI offered an additional 994,070 Common
Shares at $21.00 per share to third party subscribers of the rights
offering. Net proceeds from these offerings totaled $124.9 million; and
. On December 22, 1997, SCI raised net proceeds of $200.0 million from a
private placement of 8,416,667 Common Shares at a price of $24.00 per
share. SCI paid Capital Markets Group $2.0 million for their services in
connection with the offering.
. On March 12, 1998, SCI commenced an underwritten public offering of
3,750,000 Common Shares with net proceeds to SCI of $24.045 per share.
The offering provides for a 30-day over-allotment option of up to 562,500
Common Shares. Net proceeds to SCI would be $90.2 million or up to $103.7
million if the over-allotment option is exercised in full. The offering
is expected to close on March 18, 1998.
SCI is contemplating making an offering (the "Contemplated Preferred Share
Offering") of approximately $125 million of preferred shares having terms
substantially similar to SCI's Series C Preferred Shares. There can be no
assurances, however, that the Contemplated Preferred Share Offering will be
consummated on these terms.
SCI has a $350.0 million unsecured revolving line of credit agreement with
NationsBank as agent for a bank group. Borrowings bear interest at SCI's
option, at either an annual rate equal to the lesser of (a) the greater of the
federal funds rate plus 0.5% and the prime rate, or (b) LIBOR plus .95%, based
upon SCI's current senior debt ratings. Additionally, there is a commitment
fee ranging from .125% to .20% per annum of the unused line of credit balance.
The line is scheduled to mature in May 1999 and may be extended for an
additional year with the approval of NationsBank and the other participating
lenders; if not extended, at SCI's election, the line will either (a) convert
to a three year term note, or (b) continue on a revolving basis with the
remaining one year maturity. All debt incurrences are subject to a covenant
that SCI maintain a debt to tangible net worth ratio of not greater than 1 to
1. Additionally, SCI is required to maintain an adjusted net worth (as
defined) of at least $1.25 billion, to maintain interest payment coverage of
not less than 2 to 1, and to maintain a fixed charge coverage ratio (as
defined) of not less than 1.75 to 1. As of December 31, 1997, SCI was in
compliance with all covenants contained in the line of credit, and as of March
12, 1998, $275.0 of borrowings were outstanding on the line of credit. On
October 1, 1997, SCI extended its $15.0 million short-term discretionary
unsecured line of credit with NationsBank through October 1, 1998 and
increased the amount to $25.0 million. The rate of interest and the maturity
date of each advance will be determined by agreement between SCI and
NationsBank at the time of each advance. There were no borrowings outstanding
on this credit line as of March 12, 1998. Additionally, on January 16, 1998,
SCI borrowed $200.0 million from NationsBank in the form of an unsecured
bridge loan due March 31, 1998.
SCI MANAGEMENT
SCI's success depends upon management's ability to provide strategic and
day-to-day management, research, investment analysis, acquisition and due
diligence, development, marketing, asset management, capital markets, asset
disposition, management information systems support and legal and accounting
services. The majority of these services are provided internally by SCI's
management, while certain other services are provided by Security Capital
pursuant to an administrative services agreement ("Administrative Services
Agreement") as discussed below under "--Administrative Services Agreement."
Internalization of Management and Consummation of Merger Transaction. During
the third quarter of 1997, SCI became an internally managed REIT when it
acquired the operations of the REIT Manager and the
13
<PAGE>
Property Manager owned by Security Capital in exchange for 3,692,023 SCI
Common Shares (the "Merger). Following the Merger, SCI became an internally
managed REIT and personnel employed by the REIT Manager and the Property
Manager became employees of Security Capital Industrial Management
Incorporated, a wholly owned subsidiary of SCI ("Security Capital Industrial
Management"). SCI believes the internalization of management will have a
positive impact on earnings growth as the company continues to grow. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Consummation of Merger Transaction."
Administrative Services Agreement. Upon closing of the Merger, SCI entered
into the Administrative Services Agreement with Security Capital for services
which include, but are not limited to, payroll and human resources, cash
management, accounts payable, MIS support and other computer services,
research, investor relations and insurance, legal and tax administration.
These services are provided in exchange for a fee equal to Security Capital's
direct cost of providing the service plus an overhead factor of 20%, subject
to a maximum of approximately $2.0 million during 1997 and $5.1 million for
1998. In 1997, $1.1 million was paid to Security Capital under the
Administrative Services Agreement. The Administrative Services Agreement,
which expires on December 31, 1998, provides for automatic renewals of
consecutive one-year terms, subject to approval by a majority of the
independent Trustees.
SCI believes that the quality of management should be assessed in light of
the following factors:
Management Depth. SCI believes that management should have several senior
executives with the leadership, operational, investment and financial skills
and experience to oversee the entire operations of the REIT. See "--Officers
and Trustees of SCI."
Strategic Vision. SCI believes that management should have the strategic
vision to determine an investment focus which provides favorable initial
yields and long-term growth prospects. SCI's management has demonstrated its
strategic vision by focusing on building an international distribution network
at prices below replacement cost and a land inventory at attractive prices.
SCI also focuses on selected distribution markets where demographic and supply
factors have permitted high occupancies at increasing rents, conditions which
are consistent with the long-term demographic forecast for SCI's target market
cities. In addition, SCI differentiated itself from its competition through
the SCI International Operating System(TM), as the first international
operating company that was able to address and service a corporate customer's
distribution space requirements on an international, national, regional and
local basis. See "--SCI Growth and Operating Strategy" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Research Capability. SCI believes that management should have the means for
researching markets to determine appropriate investment opportunities. SCI
divides its target market cities into numerous submarkets for analysis
purposes. As part of the Administrative Services Agreement, Security Capital
Real Estate Research Group Incorporated ("RERG"), an affiliate of Security
Capital, devotes substantial time to research, on a submarket-by-submarket
basis, under the supervision of the Managing Directors of SCI; hence, RERG
supplements SCI's strategic focus and investment program.
Investment Committee Process. SCI believes that internal investment
committees should provide discipline and guidance to the investment activities
of the REIT in order to achieve its investment goals. The eleven members of
SCI's investment committee have a combined 164 years of experience in the real
estate industry. See "--Officers and Trustees of SCI." The internal investment
committee receives detailed written analyses and research, in a standardized
format, from SCI's acquisition personnel and evaluates all prospective
investments pursuant to uniform underwriting criteria prior to submission of
investment recommendations to the investment committee of the Board. The
quality of the investment committee process is evident from the ability of SCI
to achieve its investment goals. From inception through December 31, 1997, SCI
has generally realized its projected initial returns and growth from
distribution property investments.
Acquisitions Capability/Due Diligence Process. SCI believes that management
should include experienced senior personnel dedicated to acquiring investments
and performing intelligent and thorough due diligence. SCI
14
<PAGE>
employs 19 full time acquisition and due diligence professionals and has
developed uniform systems and procedures for due diligence. As described under
"--Investment Strategy--Investment in Generic Distribution Product," SCI's
acquisition and due diligence group has screened and selected a large volume
of successful investments.
Development Capability. SCI believes that by internally developing projects,
management can capture for the REIT the value which normally escapes through
sales premiums paid to successful developers. SCI's 50 development
professionals have substantial development experience, as described in "--
Officers and Trustees of SCI." SCI has engaged in substantial development of
distribution space at attractive yields and believes that development will
provide growth when the market for acquisitions becomes less favorable. From
inception through January 31, 1998, SCI has commenced or completed development
of 35.6 million square feet of distribution space with a total expected
investment of $1.270 billion, including 1.6 million square feet that has been
disposed of through January 31, 1998. SCI has commenced development of 78
master-planned parks in 33 target market cities in the United States, Mexico
and Europe. As of January 31, 1998, SCI owned 1,634 acres of additional land
and had fixed price options and rights of first refusal to acquire 505 acres
and 36 acres, respectively, which in the aggregate will permit the development
of approximately 37.2 million square feet of additional distribution space in
32 target market cities. Also, as of January 31, 1998, SCI had an additional
656 acres under letters of intent or contingent contracts, subject to
completion of due diligence, which will permit the development of
approximately 12 million square feet of additional distribution space. See "--
Investment Strategy--Investment in Generic Distribution Product."
Operating Capability. SCI believes that management can substantially improve
Funds from Operations, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Funds from Operations," and see
"Item 6. Selected Financial Data," by actively and effectively managing
assets. SCI conceived of and developed the SCI International Operating
System(TM) to effectively operate SCI's business and provide customers with an
exceptional level of coordinated, comprehensive services, including property
management. The management of SCI's distribution facilities is controlled and
effectively administered through the SCI International Operating System(TM).
Capital Markets Capability. SCI believes that management must be able to
effectively raise equity and debt capital in order for SCI to achieve superior
growth through investment. As set forth under "--Capital Markets", Capital
Markets Group, a subsidiary of Security Capital, has successfully assisted in
or arranged funding for SCI's investment program, including SCI's initial
public offering in March 1994 after which SCI commenced trading on the NYSE.
Following the acquisition of the REIT Manager in September 1997 as described
under "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview--Consummation of Merger Transaction," SCI has
the capability in-house to raise debt and equity capital or may use the
services of the Capital Markets Group for a fee to arrange such offerings as
in the December 1997 private equity placement described under "--Capital
Markets."
Communications/Shareholder Relations Capability. SCI's success in capital
markets and asset acquisition activities can be enhanced by management's
ability to effectively communicate SCI's strategy and performance to
investors, sellers of property and the financial media. SCI has full time
personnel who prepare informational materials for and conduct periodic
meetings with the investment community and analysts.
SCI believes that successfully combining the foregoing attributes
significantly enhances a REIT's ability to increase cash flow and its market
valuation. SCI's cash flow from operating activities and market valuation have
increased under the current administration.
OFFICERS AND TRUSTEES OF SCI
Trustees and Senior Officers of SCI
Members of SCI's investment committee are designated by an asterisk (*).
*K. DANE BROOKSHER--59--Mr. Brooksher was elected as a Trustee in October of
1993 and as Co-Chairman and Chief Operating Officer of SCI in November 1993,
and is Co-Chairman and Chief Operating
15
<PAGE>
Officer and a Director of Security Capital Industrial Management since
September 1997. Mr. Brooksher was Co-Chairman and Chief Operating Officer of
the REIT Manager from January 1994 to September 1997, and a Director of the
REIT Manager from November 1993 to September 1997. Prior thereto, Mr.
Brooksher was Area Managing Partner and Chicago Office Managing Partner of
KPMG Peat Marwick, independent public accountants, where he served on the
Board of Directors and Management Committee and as International Development
Partner for Belgium and the Netherlands. Mr. Brooksher's term as Trustee
expires in 1999.
*STEPHEN L. FEINBERG--53--Mr. Feinberg was elected as a Trustee in January
1993. Since 1970, he has been Chairman of the Board and Chief Executive
Officer of Dorsar Investment Co., a diversified holding company with interests
in real estate, manufacturing and venture capital. Mr. Feinberg is also a
Director of Security Capital Preferred Growth, Continental Transmission
Corporation (private investment company), Harvill Press Limited and Feinberg
Foundation, Inc. He was formerly Chairman of the Board of St. John's College
and a member of the Board of Visitors and Governors of St. John's College. He
is a former director of Farrar, Strauss and Giroux, Inc. (private publishing
company), Molecular Informatics, Inc., Border Steel Mills, Inc., Springer
Building Materials Corporation, Circle K Corporation, EnerServ Products, Inc.,
and Texas Commerce Bank-First State. Mr. Feinberg's term as Trustee expires in
1999.
DONALD P. JACOBS--70--Mr. Jacobs was elected as a Trustee in February 1996.
Mr. Jacobs has been a member of the J. L. Kellogg Graduate School of
Management of Northwestern University since 1957, and Dean since 1975. Mr.
Jacobs is a member of the Board of Directors of Commonwealth Edison and its
parent company, Unicom, First National Bank of Chicago, Hartmarx Corporation,
Whitman Industries and Unocal Corporation. He was formerly Chairman of the
Public Review Board of Andersen Worldwide. From 1990 to 1992, Mr. Jacobs was
Chairman of the Advisory Committee of the Oversight Board of the Resolution
Trust Corporation for the third region; from 1975 to 1979, Chairman of the
Board of AMTRAK; from 1970 to 1971, Co-Staff Director of the Presidential
Commission on Financial Structure and Regulation; from 1963 to 1964, Senior
Economist for the Banking and Currency Committee of the U.S. House of
Representatives. Mr. Jacobs' term as Trustee expires in 1998.
JOHN T. KELLEY--57--Mr. Kelley has been an Advisory Trustee of SCI since
January 1993. He is also a Trustee of Security Capital Pacific Trust ("PTR"),
a REIT affiliated with Security Capital and Chairman of Pacific Retail Trust
(ownership and development of infill retail properties in the southwestern
United States). From 1987 to 1991, Mr. Kelley was Chairman of the Board of
Kelley-Harris Company, Inc., El Paso, Texas (real estate investment company);
from 1968 to 1987, he was Managing Director, LaSalle Partners Limited,
Chicago, Illinois (corporate real estate services). Mr. Kelley is also a
director of Security Capital Group and a former director of Tri State Media.
*IRVING F. LYONS, III--48--Mr. Lyons was elected as a Trustee in March 1996
and as Co-Chairman and Chief Investment Officer of SCI in March 1997, and as a
Director and Co-Chairman and Chief Investment Officer of Security Capital
Industrial Management since September 1997. From December 1993 to March 1997,
he was Managing Director of SCI; from December 1993 to September 1997, he was
Managing Director of the REIT Manager and a Director of the REIT Manager from
January 1994 to September 1997. Prior thereto, Mr. Lyons was the Managing
Partner of King & Lyons (a San Francisco Bay Area industrial real estate
development and management company) since its inception in 1979, where he was
responsible for supervising development, asset management and day-to-day
activities. Mr. Lyons has been involved in the development of over 3.5 million
square feet of industrial space in the San Francisco Bay Area. Mr. Lyons' term
as Trustee expires in 1998.
*WILLIAM G. MYERS--70--Mr. Myers was elected as a Trustee in January 1995.
He is also a Trustee of PTR, a REIT affiliated with Security Capital. Mr.
Myers is Chief Executive Officer of Ojai Ranch and Investment Company, Inc.,
Santa Barbara, California, which he founded in 1963 (agri-business and other
investments). Mr. Myers serves as a Director of S.E.E. International; the
Library of Congress, James Madison Council; California Historical Society
Foundation; and St. Joseph's Health & Retirement Foundation. He is also a
Director of the Santa Barbara Botanic Garden, Chalone Wine Group and the
Nature Conservancy. Mr. Myers' term as Trustee expires in 2000.
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JOHN E. ROBSON--67--Mr. Robson was appointed a Trustee as of April 1, 1994.
Since October 1993, Mr. Robson has served as Senior Advisor of BancAmerica
Robertson Stephens, a San Francisco-based investment banking company. From
1989 to 1992, Mr. Robson served as Deputy Secretary of the United States
Treasury. From 1986 to 1989, Mr. Robson was Dean and Professor of Management,
Emory University School of Business Administration. From 1977 to 1985, he
served as President and Chief Executive Officer and as Executive Vice
President of G.D. Searle & Co. (pharmaceutical and consumer products). Mr.
Robson is currently a director of Calgene Inc. (agricultural products),
Northrop Grumman Corporation (aerospace) and Monsanto Company. Mr. Robson's
term as Trustee expires in 2000.
*THOMAS G. WATTLES--46--Mr. Wattles was elected as a Trustee in January
1993; he was a Director of SCI's predecessor since its formation in June 1991
and has been Non-Executive Chairman since March 1997. He has been Non-
Executive Chairman and a Director of Security Capital Industrial Management
since September 1997. Mr. Wattles was Co-Chairman and Chief Investment Officer
of SCI from November 1993 to March 1997, and Managing Director of SCI and the
REIT Manager from January 1993 to November 1993. From November 1993 to
September 1997, he was Co-Chairman and Chief Investment Officer of the REIT
Manager, and a Director of the REIT Manager from June 1991 to September 1997.
Mr. Wattles' term as Trustee expires in 1999.
*WALTER C. RAKOWICH--40--Managing Director of SCI since December 1997 and
Senior Vice President of Security Capital Industrial Management since
September 1997, where he has responsibility for the Mid-Atlantic region. From
November 1994 to December 1997, Mr. Rakowich was Senior Vice President of SCI;
from November 1994 to September 1997, he was Senior Vice President of the REIT
Manager and Vice President of the REIT Manager from July 1994 to November
1994; from October 1993 to June 1994, a consultant to SCI in the area of due
diligence and acquisitions. Prior thereto, from 1985 to September 1993, Mr.
Rakowich was with Trammell Crow Company, where he was involved in the
acquisition, development, financing, marketing, management and disposition of
property and was a Senior Vice President and Principal beginning in 1992.
*JEFFREY H. SCHWARTZ--38--Managing Director of SCI since December 1994,
where he has overall responsibility for all European and Asia-Pacific
investment activities and operations. He has been a Director of Security
Capital Global Realty since November 1997 and Managing Director of Security
Capital Industrial Management since September 1997. Mr. Schwartz was Managing
Director and a Director of the REIT Manager from October 1994 to September
1997. Prior thereto, Mr. Schwartz was a founder and managing partner of The
Krauss/Schwartz Company, one of the largest industrial real estate developers
in Florida.
*JOHN W. SEIPLE--39--Managing Director of SCI since December 1997 and Senior
Vice President of Security Capital Industrial Management since September 1997,
where he has responsibility for the Southeast region. From November 1994 to
December 1997, Mr. Seiple was Senior Vice President of SCI; from November 1994
to September 1997, he was Senior Vice President of the REIT Manager, and Vice
President of the REIT Manager from October 1993 to November 1994. Prior
thereto, from January 1992 to June 1993, Senior Vice President.
*ROBERT J. WATSON--48--Managing Director of SCI since January 1993 and
Managing Director and a Director of Security Capital Industrial Management
since September 1997. From November 1992 to September 1997, Mr. Watson was a
Director and Managing Director of the REIT Manager.
Other Officers
ROBERT O. ALTER--38--Vice President of Security Capital Industrial
Management since September 1997, where he is corporate distribution facilities
officer in the Southeast region, and Vice President of SCI since August 1995;
from August 1995 to September 1997, Vice President of the REIT Manager.
GARY E. ANDERSON--32--Vice President of Security Capital Industrial
Management since September 1997, where he is responsible for marketing in
SCI's Mexico target markets and Vice President of SCI since September 1996;
from September 1996 to September 1997, Vice President of the REIT Manager;
from August 1994 to
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August 1995, Mr. Anderson was a member of the Management Development Program;
in June 1994, Mr. Anderson received his M.B.A. from the Anderson Graduate
School of Management at UCLA.
*NED K. ANDERSON--50--Senior Vice President of Security Capital Industrial
Management since September 1997, where he has responsibility for the Pacific
region; previously he had Market Officer responsibilities for the San
Francisco Bay Area, and Senior Vice President of SCI since December 1993; from
January 1994 to September 1997, Senior Vice President of the REIT Manager.
Prior thereto, from 1985 to December 1993, he was a partner at King & Lyons,
where he directed the development, leasing and management of the 250 acre
Bayside Business Park in Fremont. He also helped oversee King & Lyons East Bay
properties, which total 2.5 million square feet of buildings.
GREGORY J. ARNOLD--42--Vice President of Security Capital Industrial
Management since September 1997 where he is a member of the Global Services
Group with responsibilities for SCI's national clients in the northeast
region, and Vice President of SCI since January 1996; from January 1996 to
September 1997, Vice President of the REIT Manager; from January 1995 to
September 1995, Project Executive and General Manager for ROI Realty Services,
Inc.; from November 1985 to January 1995, Equity Vice President and Senior
Leasing Specialist at LaSalle Partners in Washington, D.C.
GREGORY A. BAUER--36--Vice President of Security Capital Industrial
Management since December 1997 with Project Manager responsibilities for the
Southeast region, and Vice President of SCI; from July 1996 to December 1997,
he was Project Manager for the Southeast region. Prior thereto, from May 1994
to July 1996, he was Project Manager of the Facility Group; and from July 1992
to May 1994, he was Project Manager of Gibbs & Register, Inc.
LISA M. BENNETT--34--Vice President of Security Capital Industrial
Management since September 1997, where she is controller for the Global
Development Group, and Vice President of SCI since June 1995; from June 1995
to September 1997, Vice President of the REIT Manager. Prior thereto, Ms.
Bennett provided accounting services for the Global Development Group from
October 1993. Ms. Bennett is a Certified Public Accountant.
CLAUDE A. BILLINGS--57--Vice President of Security Capital Industrial
Management since September 1997, where he is a member of the Global Services
Group, and Vice President of SCI since January 1994; from January 1994 to
September 1997, Vice President of the REIT Manager; from March 1991 to
February 1994, Senior Vice President and Regional Manager of the Staubach
Company, a Dallas, Texas corporate real estate service firm.
ERIC D. BROWN--37--Vice President of Security Capital Industrial Management
since September 1997, where he is the Regional Property Manager for the
Central region, and Vice President of SCI since December 1996; from December
1996 to September 1997, Vice President of the REIT Manager; from May 1994 to
September 1997, Vice President of Client Services with property management
responsibilities for Austin, Brownsville, El Paso and San Antonio, Texas.
MARK R. CASHMAN--37--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Dallas, Texas, and Vice President of SCI since November 1995. Prior
thereto, from January 1995 to November 1995, Vice President of Security
Capital Pacific Trust where he was a member of the asset management group;
from September 1992 to January 1995, First Vice President/Portfolio Manager
with First Nationwide Financial Corporation in Los Angeles, California, where
he was responsible for the property management department holdings throughout
the western United States.
JOHN M. CLINTON--41--Vice President of Security Capital Industrial
Management since December 1997, where he is responsible for the Dallas
Metroplex and San Antonio markets, and Vice President of SCI; he has acted as
Project Manager for SCI since September 1994. Prior thereto, from April 1991
to September 1994, he was Engineering Group Leader for the Superconducting
Super Collider Laboratory.
STEPHEN M. CLOUD--35--Vice President of Security Capital Industrial
Management since December 1997 where he is responsible for marketing
activities and leasing in the Washington, D.C. area, and Vice President of
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SCI; from November 1995 to December 1997, he was a marketing representative of
SCI. Prior thereto, from August 1988 to October 1995, he was a Senior
Associate with CB Commercial Real Estate.
JAMES D. COCHRAN--37--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Denver, Colorado and Kansas City, Kansas, and Vice President of SCI since
March 1994; from August 1988 to March 1994, Vice President for TCW Realty
Advisors, where he was responsible for industrial acquisitions in southern
California.
PAUL C. CONGLETON--43--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Houston and Austin, Texas, and Vice President of SCI since January 1995;
from January 1995 to September 1997, Vice President of the REIT Manager; from
October 1990 to December 1994, Principal with Overland Company, a property
management, development and investment services firm in Tucson, Arizona.
R. STAN CONWAY, JR.--34--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Atlanta, Georgia, and Vice President of SCI since November 1994; from
November 1994 to September 1997, Vice President of the REIT Manager; from
October 1989 to October 1994, Vice President of Marketing for Bullock, Terrell
and Mannelly.
MICHAEL S. CURLESS--34--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Indianapolis, and Vice President of SCI since August 1995; from August
1995 to September 1997, Vice President of the REIT Manager; from June 1989 to
August 1995, Marketing Director with Trammell Crow Company, where he was
responsible for the development and marketing of industrial projects.
DAVID B. DANIEL--31--Vice President of Security Capital Industrial
Management since September 1997, where he has been a member of the due
diligence team since April 1995, and Vice President of SCI since June 1996;
from June 1996 to September 1997, Vice President of the REIT Manager. Prior
thereto, from February 1994 to April 1995, Senior Underwriter with Remsen
Partners Ltd. in New York, New York, where he was involved in all phases of a
loan origination and securitization program; from May 1992 to February 1994,
Associate Consultant with Kenneth Leventhal & Co. in Houston, Texas and New
York, where he performed due diligence and evaluation on a variety of real
estate transactions.
MARK H. DEGNER--36--Vice President of Security Capital Industrial Management
since September 1997, where he is responsible for portfolio acquisitions and
dispositions, and Vice President of SCI since April 1994; from April 1994 to
September 1997, Vice President of the REIT Manager; from October 1988 to April
1994, Manager for the Hahn Company in San Diego, California, where he was
Manager of Development and Acquisitions, Corporate Development and, most
recently, Dispositions.
GREGORY S. DELONG--45--Vice President of Security Capital Industrial
Management since September 1997, where he is the corporate distribution
facilities officer for the Pacific Region, and Vice President of SCI; from
August 1995 to August 1997, he was a self-employed consultant for corporate
real estate site acquisition. Prior thereto, from January 1993 to August 1995,
he was Vice President of Acquisitions for Pacwest Development in the western
U.S.
DAVID A. DITZ--43--Vice President of Security Capital Industrial Management
since December 1997 where he is a member of the Global Development Group with
project management responsibilities for the Central Region, and Vice President
of SCI; from August 1995 to December 1997, he had project management
responsibilities for the Pacific Region. Prior thereto, from January 1992 to
August 1995, he was founder and principal of True Adams Company.
WILLIAM H. EAGER--57--Vice President of Security Capital Industrial
Management since September 1997, where he is a member of the Global Services
Group and Vice President of SCI since June 1996; from June 1996 to September
1997, Vice President of the REIT Manager. Prior thereto, from June 1976 to
June 1996, Mr. Eager
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was a First Vice President of CB Commercial where he was involved in over $350
million of industrial real estate transactions.
FRANK H. FALLON--36--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
in Memphis, Nashville and Chattanooga, Tennessee, and Vice President of SCI
since January 1995; from January 1995 to September 1997, Vice President of the
REIT Manager. Prior thereto, Mr. Fallon was with Trammell Crow Company from
March 1987 to December 1994, where he was responsible for leasing, management,
acquisition and disposition of industrial properties in the Dallas/Fort Worth,
Texas area.
GABE L. FINKE--32--Vice President of Security Capital Industrial Management
since September 1997, where he is a member of the European operations group
and Vice President of SCI since September 1996; from September 1996 to
September 1997, Vice President of the REIT Manager. Prior thereto, Mr. Finke
was a member of the Management Development Program from July 1994 to August
1995; in May of 1994 Mr. Finke received his M.B.A. from the Harvard Graduate
School of Business Administration.
KURT R. FULLER--39--Vice President of Security Capital Industrial Management
since September 1997, where he has Project Manager responsibilities for tenant
improvement construction in the San Francisco Bay Area, Reno, Portland,
Seattle and Salt Lake City, and Vice President of SCI since October 1994; from
October 1994 to September 1997, Vice President of the REIT Manager; from
February 1989 to October 1994, Project Manager/Estimator for Wentz Builders,
Inc. in San Carlos, California, where he was responsible for managing tenant
improvement and special projects.
JOHN R. HANSON--47--Vice President of Security Capital Industrial Management
since September 1997, where he has Project Manager responsibilities for the
Pacific region, and Vice President of SCI since May 1995; from May 1995 to
September 1997, Vice President of the REIT Manager; from July 1994 to May
1995, Vice President of Jack & Cohen Builders, Inc. in Palo Alto, California,
where he was responsible for a wide variety of construction projects; from
January 1991 to July 1994, Project Director of Jack & Cohen.
LARRY H. HARMSEN--37--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for San Diego and Orange County, California, and Vice President of SCI since
February 1995; from February 1995 to September 1997, Vice President of the
REIT Manager; from January 1988 to February 1995, Vice President/Managing
General Partner with Lincoln Property Company in Southern California, where he
was responsible for all aspects of asset and property management for a
portfolio of office and industrial space containing over 2.5 million square
feet.
DONALD L. HARRIER--39--Vice President of Security Capital Industrial
Management since September 1997, where he has Project Manager responsibilities
for the Pacific region, and Vice President of SCI since May 1994; from May
1994 to September 1997, Vice President of the REIT Manager; from May 1993 to
May 1994, Senior Partner with Donald L. Harrier, AIA, Architecture; from
August 1986 to May 1993, Project Director with DES Architects & Engineers in
Redwood City and Fremont, California, where he was involved in project
management, architecture and marketing.
JAMES JACHETTA--44--Vice President of Security Capital Industrial Management
since September 1997, where he has project manager responsibilities for the
Pacific region, and Vice President of SCI since December 1996; from December
1996 to September 1997, Vice President of the REIT Manager. Prior thereto,
from October 1995 to October 1996, Mr. Jachetta was a project manager
consultant to SCI; from May 1992 to September 1995, mortgage broker with
Southern Cal Financial Group in Newport Beach, California.
KENT W. JOHNSON--44--Senior Vice President of Security Capital Industrial
Management since September 1997, where he heads the Global Services Group, and
Senior Vice President of SCI since July 1995; from July 1995 to September
1997, Vice President of the REIT Manager; from March 1994 to June 1995,
National Director for Sequent Computer Systems, where he was recognized as
World-Wide Manager of the Year; from January 1977 to March 1994, with IBM in
various positions, including National Account Director and Branch Manager.
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M. GORDON KEISER JR.--53--Senior Vice President of Security Capital
Industrial Management since September 1997, where he is Chief Financial
Officer and is responsible for accounting, financial reporting and financing,
and Senior Vice President of SCI since October 1995; from October 1995 to
September 1997, Senior Vice President of the REIT Manager; from August 1988 to
October 1995, Senior Vice President of JMB Realty Corporation, where he was
responsible for corporate finance and capital markets financing. Previously,
he was with KPMG Peat Marwick. Mr. Keiser is a Certified Public Accountant.
DOUGLAS A. KIERSEY, JR.--37--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Seattle, Washington and Portland, Oregon, and Vice President of SCI since
May 1994; from May 1994 to September 1997, Vice President of the REIT Manager;
from September 1983 to May 1994, a member of the Industrial/Technology Group
at Cushman & Wakefield of Oregon, Inc., where he specialized in the sale and
leasing of industrial properties.
JEFFREY A. KLOPF--49--Senior Vice President and Secretary of SCI and
Security Capital Group since January 1996 and Security Capital Industrial
Management since September 1997; from January 1996 to September 1997, Senior
Vice President and Secretary of the REIT Manager. Prior thereto, from 1988 to
December 1995, Partner with Mayer, Brown & Platt, where he practiced corporate
and securities law. Mr. Klopf provides securities offering and corporate
acquisitions services to SCI and its affiliates and oversees the provision of
legal services to SCI and its affiliates.
WAYNE P. KLOTZ--42--Vice President of SCI since December 1997, where he is
responsible for Project Management of Development and Construction in
Washington, D.C., Baltimore, Maryland and Virginia markets; from April 1996 to
December 1997, he was Project Manager for SCI with similar responsibilities.
Prior thereto, from April 1995 to April 1996, he was Senior Project Manager
for R.W. Murray Construction Co.; and Vice President Corporate Services
Group/The Service Company from October 1993 to April 1995.
ROBERT A. KRITT--36--Vice President of Security Capital Industrial
Management since September 1997, where he has responsibility for coordinating
corporate distribution facilities in the Mid-Atlantic region, and Vice
President of SCI since November 1991; from November 1991 to September 1997,
Vice President of the REIT Manager; from January 1991 to December 1992, Vice
President of Security Capital Pacific Incorporated, the REIT Manager for
Security Capital Pacific Trust, where he was responsible for acquisition due
diligence.
EDWARD F. LONG--41--Vice President and Controller of SCI since January 1996,
where he supervises accounting and financial reporting; Vice President of
Security Capital Industrial Management since September 1997; from June 1995 to
January 1996, Controller for SCI Client Services; from January 1996 to
September 1997, Vice President and Controller of the REIT Manager; from
December 1990 to June 1995, Director of Financial Services for Coopers &
Lybrand in Central Florida and the Carolinas. Mr. Long is a Certified Public
Accountant.
DONALD W. MADSEN--54--Senior Vice President of Security Capital Industrial
Management since September 1997, where he supervises development services
related to construction management and corporate distribution facilities, and
Senior Vice President of SCI since July 1993; from July 1993 to September
1997, Senior Vice President of the REIT Manager; from July 1992 to June 1993,
Vice President, Business Development for Windward, Ltd., a Dallas, Texas-based
design/build general construction company.
DAVID W. MAJORS--54--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Albuquerque, New Mexico and El Paso, Texas, and Vice President of SCI
since December 1996; from December 1996 to September 1997, Vice President of
the REIT Manager; from September 1988 to September 1996, President and Chief
Operating Officer of Remington Capital Group in Dallas, Texas where he was
responsible for all aspects of development of corporate distribution, office
and retail facilities.
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CHRISTOPHER R. MANLEY--27--Vice President of Security Capital Industrial
Management since September 1997, with Market Officer responsibilities for
Tampa, Orlando and South Florida, and Vice President of SCI; from September
1993 to September 1997, he was a member of the Security Capital Industrial
Trust Acquisitions/Due Diligence team.
BRIAN N. MARSH--33--Vice President of Security Capital Industrial Management
since September 1997, where he has Market Officer responsibilities for
Columbus, Ohio, and Vice President of SCI since January 1995; from January
1995 to September 1997 Vice President of the REIT Manager; from June 1990 to
January 1995, with Pizzuti Realty Inc., in Columbus, Ohio, where he was
responsible for master planning, development and marketing of a 400-acre-plus,
mixed-use development.
J. THOMAS MERCER--38--Vice President of Security Capital Industrial
Management since September 1997, where he is corporate distribution facilities
officer in the Central Region, and Vice President of SCI since January 1995;
from January 1995 to September 1997 Vice President of the REIT Manager; from
September 1987 to January 1995, Senior Marketing Representative with
Friendswood Development Company in Houston, Texas, where he completed over $15
million in land transactions. Prior thereto, Industrial Leasing Specialist
with The Horne Company in Houston, Texas, where he leased more than 500,000
square feet of industrial space.
*STEVEN K. MEYER--49--Senior Vice President of Security Capital Industrial
Management since September 1997, where he has responsibility for the Central
region of the United States, and Senior Vice President of SCI since December
1995; from December 1995 to September 1997, Senior Vice President of the REIT
Manager; from September 1994 to December 1995 Vice President of the REIT
Manager; from 1990 to July 1994, Executive Vice President with Trammell Crow
Company, where he directed leasing and development activities for the
Industrial Division.
JOSEPH H. MIKES--37--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for the Chicago area, and Vice President of SCI since August 1995; from August
1995 to September 1997, Vice President of the REIT Manager; from March 1988 to
August 1995, Senior Director of Opus North Corporation, where he managed
office and industrial real estate activities.
MICHAEL E. MILLER--44--Vice President of SCI since October 1997, where he is
responsible for Security Capital Logistar International operations in Central
Europe, including Poland, the Czech Republic, and Hungary. Prior thereto, from
October 1996 to September 1997, he was an Executive Vice President of CEENIS
Property Fund; from January 1996 to October 1996, he was a Managing Partner of
Belmont Capital; from October 1989 to December 1995, he was Director of
Aetna's Investment Management Group.
RICK D. MIRANDA--44--Vice President of Security Capital Industrial
Management since September 1997, where he has Project Manager responsibilities
for the Pacific region, and Vice President of SCI since December 1996; from
December 1996 to September 1997, Vice President of the REIT Manager. Prior
thereto, from April 1996 to September 1996, President of Realty Development
Management Services, Inc. in Newport Beach, California, where he was
responsible for all aspects of development and construction of office and
industrial facilities; from May 1995 to March 1996, Vice President with Arnel
Development Company in Costa Mesa, California, where he was responsible for
the design and construction of a retail center; from August 1987 to February
1995, Vice President with Bramalea U.S. Properties in Oakland, California,
where he was responsible for development, design and construction management
for the Pacific region.
R.A.D. MORTON, III--40--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for El Paso, San Antonio and Rio Grande Valley, Texas and Vice President of
SCI since July 1993; from July 1993 to September 1997, Vice President of the
REIT Manager; from January 1991 to July 1993, President of The Morton Group,
which specialized in corporate industrial real estate services, asset
management and development services.
DAVID S. MORZE--37--Vice President of Security Capital Industrial Management
since September 1997, where he has Market Officer responsibilities for Reno,
Nevada and Salt Lake City, Utah, and Vice President of
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SCI since March 1995; from March 1995 to September 1997, Vice President of the
REIT Manager; from May 1993 to March 1995, Director of Marketing for Northern
California for SARES*REGIS; from January 1993 to May 1993, Real Estate
Consultant to The Moreno Bavarian Corporation in Portola Valley, California.
MICHAEL NACHAMKIN--44--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for New Jersey/I-95 Corridor and Vice President of SCI since March 1996; from
March 1996 to September 1997, Vice President of the REIT Manager; from 1984 to
February 1996; Director of Investment Sales, Leasing, Land, Tenant
Representation and Marketing at Cushman & Wakefield of New Jersey.
AUGUST J. NAPOLITANO--50--Vice President of Security Capital Industrial
Management since September 1997, where he is a member of the Global Services
Group, and Vice President of SCI since May 1995; from May 1995 to September
1997, Vice President of the REIT Manager; from November 1992 to December 1994,
Director/Branch Manager of Cushman & Wakefield in Orange County, California,
where he managed all aspects of the Newport Beach and Anaheim Commercial
brokerage offices.
JAMES R. NASS, III--36--Vice President of Security Capital Industrial
Management since September 1997, where he has had Project Manager
responsibilities for the Mid-Atlantic Region since December 1996 with the
former REIT Manager; from March 1997 to September 1997, he was Vice President
of the former REIT Manager. Prior thereto, from March 1989 to December 1996,
he was a Project Manager for Opus North Corporation.
EDWARD S. NEKRITZ--32--Vice President of Security Capital Industrial
Management since September 1997, where he is responsible for coordinating the
national leasing program, overseeing environmental issues and providing asset
management and legal services, and Vice President of SCI since September 1995;
from September 1995 to September 1997, Vice President of the REIT Manager;
from October 1990 to September 1995, attorney with Mayer, Brown & Platt, where
he specialized in commercial real estate transactions, including acquisitions
and dispositions, leasing, development and zoning.
PETER J. NIELSEN--51--Vice President of Security Capital Industrial
Management from September 1997, where he has Project Manager responsibility
for corporate distribution facility projects, and Vice President of SCI since
March 1994; from March 1994 to September 1997, Vice President of the REIT
Manager; from November 1984 to February 1994, Vice President of Project
Development for Dueck Group of Companies, a development firm in Denver,
Colorado.
WILLIAM D. PETSAS--40--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Phoenix, Arizona, and Vice President of SCI since July 1994; from July
1994 to September 1997, Vice President of the REIT Manager; from June 1993 to
June 1994, Mr. Petsas was a consultant to SCI in the area of due diligence and
acquisitions; from May 1992 to May 1993, Mr. Petsas was a director of business
development for residential properties in the Southwest for Trammell Crow
Company.
JOHN R. PICCHIOTTI--37--Vice President of Security Capital Industrial
Management since December 1997, and has had Market Representative
responsibilities in Chicago, Illinois, since joining SCI in March 1996, and
Vice President of SCI. Prior thereto, from September 1994 to March 1996, he
was the Area Director for Southwest Suburban Chicago, Young Life; from July
1989 to September 1994, he was with Grubb and Ellis Company.
THOMAS M. RAY--35--Vice President of Security Capital Industrial Management
since September 1997, where he is responsible for coordinating corporate
distribution facilities in the Pacific region, and Vice President of SCI since
March 1996; from March 1996 to September 1997, Vice President of the REIT
Manager. Prior thereto, a member of the corporate distribution facility group
since September 1995; from October 1994 to September 1995, Mr. Ray supervised
land acquisitions in due diligence; from August 1994 to October 1994, a member
of the land acquisitions due diligence group; from March 1994 to August 1994,
a member of the management Development Program where he assisted with
multifamily portfolio acquisitions.
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BETTY J. REMSTEDT--52--Vice President of Security Capital Industrial
Management since September 1997, where she provides accounting, financial
analysis and budgeting services with respect to SCI's Pacific region
properties, and Vice President of SCI since December 1993; from December 1993
to September 1997, Vice President of the REIT Manager; from December 1988 to
December 1993, Chief Financial Officer of King & Lyons.
GERALD W. RICKER--50--Vice President of Security Capital Industrial
Management since January 1998, where he is a member of the Global Services
Group, and Vice President of SCI. Prior thereto, from March 1993 to January
1998, he was Senior Vice President for Development at Hilton Hotels
Corporation; from March 1991 to February 1993, he was Owners' Representative
for the National Education Association.
MICHAEL J. RUEN--31--Vice President of Security Capital Industrial
Management since December 1997, where he has Market Officer responsibilities
for Birmingham, Alabama, and Chattanooga, Tennessee, and Senior
Leasing/Marketing responsibilities for Atlanta, Georgia, and Vice President of
SCI; from February 1995 to November 1997, he was Senior Leasing Manager for
SCI Client Services. Prior thereto, from January 1992 to January 1995, he was
Senior Associate for Koll Real Estate Services.
CALVIN R. SCHREINER--40--Vice President of Security Capital Industrial
Management since December 1997, where he is responsible for capital
improvements of SCI's portfolio, and Vice President of SCI; from July 1995 to
December 1997, he was Due Diligence Regional Construction Manager for SCI in
the Southeast and Mid-Atlantic regions. Prior thereto, from November 1988 to
July 1995, he was Construction Manager/Estimator in Business Development for
Raytheon Engineers & Constructors.
STEVEN O. SPAULDING--56--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Las Vegas, Nevada, and Vice President of SCI since May 1993; from May 1993
to September 1997, Vice President of the REIT Manager; from June 1992 to May
1993, Area Manager with Dermody Properties in Las Vegas, where he was
responsible for its management portfolio and new development activities.
RICHARD H. STRADER--38--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Charlotte, Raleigh-Durham and Winston-Salem, North Carolina, and Vice
President of SCI since June 1994; from June 1994 to September 1997, Vice
President of the REIT Manager; from October 1987 to May 1994, Mr. Strader was
with the Dallas Industrial Division of Trammell Crow Company, where he was the
Managing Director of the Central and Southwest Dallas Industrial office since
1990.
CHARLES E. SULLIVAN--40--Vice President of Security Capital Industrial
Management since September 1997, where he has Market Officer responsibilities
for Mexico and Vice President of SCI since October 1994; from October 1994 to
September 1997, Vice President of the REIT Manager; from July 1989 to October
1994, Senior Industrial Broker with Cushman & Wakefield.
DAVID ANDRE TIRMAN--42--Vice President of SCI since September 1997, where he
is responsible for European project management. Prior thereto, from September
1990 to August 1997, he was Senior Development manager with Euro Disney S.A.
and the Walt Disney Company.
JEFFREY M. TODD--40--Vice President of Security Capital Industrial
Management since September 1997, where he has Project Manager responsibilities
for corporate distribution facility projects, and Vice President of SCI since
January 1995; from January 1995 to September 1997, Vice President of the REIT
Manager; from November 1994 to January 1995, Project Manager for Smallwood,
Reynolds, Stewart, Stewart & Associates, Inc., where he was responsible for
managing industrial architecture; from June 1984 to November 1994, Project
Architect for Wakefield/Beasley & Associates.
JAMES E. TROUT--35--Vice President of Security Capital Industrial Management
since September 1997, where he has Project Manager responsibilities for the
Central Region, and Vice President of SCI since June 1995;
24
<PAGE>
from June 1995 to September 1997, Vice President of the REIT Manager; from
June 1993 to June 1995, a member of the Global Development Group; prior
thereto, from February 1992 to May 1993, Real Estate Consultant with Douglas
A. Edwards, Incorporated in New York, New York.
MARY JANE VIETZE--44--Vice President of Security Capital Industrial
Management since September 1997, where she is responsible for accounting and
financial reporting and Vice President of SCI since April 1996; from April
1996 to September 1997, Vice President of the REIT Manager. Prior thereto, a
member of the accounting group since September 1993; from July 1990 to
September 1993, Senior Accountant for Price Waterhouse. Ms. Vietze is a
Certified Public Accountant.
ROBIN P. R. VON WEILER--41--Senior Vice President of SCI since October 1997,
where he is responsible for Global Customers, Corporate Distribution Facility
Program and Marketing. Prior thereto, from April 1982 to September 1997, he
was Vice Managing Director, Real Estate Agent and Corporate Advisor for DTZ
Zadelhoff V.O.F. in Rotterdam, the Netherlands.
EDWIN D. WAGERS--54--Vice President of Security Capital Industrial
Management since September 1997, where he has Project Manager responsibilities
for the Mid-Atlantic region of the United States, and Vice President of SCI
from January 1995; from January 1995 to September 1997, Vice President of the
REIT Manager; prior thereto from April 1991 to December 1994, Chief Operating
Officer of National Real Estate Development at Muirfield Village Development
in Columbus, Ohio.
DAVID L. WELCH--36--Vice President of Security Capital Industrial Management
since September 1997, where he has Market Officer responsibilities for
Washington, D.C. and Baltimore, Maryland, and Vice President of SCI since
February 1995; from February 1995 to September 1997, Vice President of the
REIT Manager; from September 1992 to January 1995, Associate Senior Vice
President with Carey Winston Co. in Washington, D.C., where he managed the
leasing and marketing program for over 1.5 million square feet of industrial
space in Northern Virginia.
WILLIAM ROBERT WENDT--39--Vice President of Security Capital Industrial
Management since December 1997, where he has Market Representative
responsibilities for the Austin area, and Vice President of SCI; from
September 1994 to November 1997, he was a Marketing Representative for SCI for
the Austin area. Prior thereto, from May 1993 to September 1994, he was an
industrial broker with Oxford Commercial and Cushman & Wakefield.
JAMES E. WHITE--41--Vice President of Security Capital Industrial Management
since September 1997, where he has Market Officer responsibilities for
Cincinnati, Ohio and Louisville, Kentucky, and Vice President of SCI since
July 1995; from July 1995 to September 1997, Vice President of the REIT
Manager; from July 1994 to July 1995, Senior Regional Director with First
Industrial Realty Trust, Inc. in Southfield, Michigan. Prior thereto, Chief
Financial Officer with Damone/Andrew Enterprises in Troy, Michigan from August
1989 to July 1994.
JAMES P. WILSON--53--Vice President of Security Capital Industrial
Management since September 1997, where he has Project Manager responsibilities
for the Southeast region, and Vice President of SCI since October 1994; from
October 1994 to September 1997, Vice President of the REIT Manager; from March
1988 to October 1994, Vice President of Development and Construction for The
Krauss/Schwartz Company.
EMPLOYEES
Prior to September 9, 1997, SCI had no employees. In connection with the
internalization of the management functions, all individuals previously
employed by the REIT Manager and the Property Manager became employees of SCI.
SCI has approximately 450 employees and believes its relationship with its
employees to be good. SCI's employees are not represented by a collective
bargaining agreement.
25
<PAGE>
COMPETITION
In general, there are numerous other industrial properties located in close
proximity to each of SCI's properties. The amount of rentable space available
in any target market city could have a material effect on SCI's capacity to
rent space and on the rents charged. In addition, in many of SCI's submarkets,
institutional investors and owners and developers of industrial facilities
(including other REITs) compete for the acquisition, development and leasing
of industrial space. Many of these persons have substantial resources and
experience.
SCI operates nationally and internationally and has no markets with a
concentration of investment in excess of 10% of its total portfolio
investment. In SCI's major markets, 1997 vacancy rates are below the average
rates for the period from 1991 through 1997. (Source: CB Commercial/Torto
Wheaton Research). Competition for acquisition of existing distribution
facilities from institutional capital sources and other REITs has increased
substantially in the past several years.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous substances. The
presence of such substances may adversely affect the owner's ability to sell
such real estate or to borrow using such real estate as collateral. SCI has
not been notified by any governmental authority of any non-compliance,
liability or other claim in connection with any of the properties owned or
being acquired at December 31, 1997, and SCI is not aware of any environmental
condition with respect to any of its properties that is likely to be material.
SCI has subjected each of its properties to a Phase I environmental assessment
(which does not involve invasive procedures such as soil sampling or ground
water analysis) by independent consultants. While some of these assessments
have led to further investigation and sampling, none of the environmental
assessments has revealed, nor is SCI aware of, any environmental liability
(including asbestos-related liability) that SCI believes would have a material
adverse effect on its business, financial condition or results of operations.
No assurance can be given, however, that these assessments and investigations
reveal all potential environmental liabilities, that no prior owner or
operator created any material environmental condition not known to SCI or the
independent consultants or that future uses or conditions (including, without
limitation, customer actions or changes in applicable environmental laws and
regulations) will not result in unreimbursed costs relating to environmental
liabilities.
INSURANCE COVERAGE
SCI currently carries comprehensive liability, fire, flood, earthquake,
extended coverage and rental loss insurance with respect to the properties
with policy specifications and insured limits customarily carried for similar
properties; however, an uninsured loss could result in loss of capital
investment and anticipated profits.
ITEM 2. PROPERTIES
The following tables set forth certain information with respect to SCI's
distribution properties owned as of December 31, 1997. No individual property,
or group of properties operated as a single business unit, amounts to 10% or
more of SCI's consolidated total assets at December 31, 1997 nor does the
gross revenue from any such properties amount to 10% or more of SCI's
consolidated gross revenues for the fiscal year ended December 31, 1997.
26
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE OF PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE RENTABLE ACCUMULATED
YEAR ACQUIRED NO. OF OCCUPANCY SQUARE SCI INVESTMENT DEPRECIATION
OR COMPLETED BLDGS. (1) FOOTAGE (2) (1) (1)
------------- ------ ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
OWNED
AT DECEMBER 31, 1997
Atlanta, Georgia
Central / Atlanta 1996 4 100.00% 347,560 $ 3,304,252 $ --
Chattahoochee 1996 1 100.00 120,000 1,619,425 --
I-20 / West / Fulton 1994, 1995, 1996, 1997 36 88.39 3,433,149 73,941,690 5,095,745
I-85 / Airport 1994, 1995, 1996, 1997 17 87.86 924,142 35,897,666 2,558,538
I-85 / Northeast 1994, 1995, 1996, 1997 44 87.10 3,830,428 104,617,284 5,734,626
----- ------ ---------- -------------- ------------
102 88.39 8,655,279 219,380,317 13,388,909
----- ------ ---------- -------------- ------------
Austin, Texas
I-35 / Central 1994, 1995, 1996 12 98.03 648,939 23,848,680 1,217,258
I-35 / North / Mopac 1993, 1995, 1996 8 87.22 563,600 18,357,519 1,099,365
I-35 / South 1994, 1995, 1996 12 97.07 725,874 24,255,898 2,072,635
----- ------ ---------- -------------- ------------
32 94.53 1,938,413 66,462,097 4,389,258
----- ------ ---------- -------------- ------------
Birmingham, Alabama
I-459 / South /
Perimeter 1994 2 100.00 606,850 17,052,059 1,778,829
I-65 / Oxmoor 1994 4 100.00 528,428 16,514,229 1,701,685
----- ------ ---------- -------------- ------------
6 100.00 1,135,278 33,566,288 3,480,514
----- ------ ---------- -------------- ------------
Charlotte, North
Carolina
I-77 / Southwest (3) 1994 13 93.76 1,334,182 33,413,717 3,405,303
I-85 / North
Charlotte 1997 2 100.00 148,394 3,713,083 54,225
I-85 / Northeast 1994, 1995, 1996, 1997 8 79.27 784,720 22,748,354 983,971
I-85 / Northwest 1994 2 100.00 404,351 6,897,348 731,775
----- ------ ---------- -------------- ------------
25 90.80 2,671,647 66,772,502 5,175,274
----- ------ ---------- -------------- ------------
Chattanooga, Tennessee
Amnicola Highway 1994 4 99.61 1,075,872 13,914,843 1,286,255
I-24 / Tiftonia 1995 1 100.00 72,000 1,157,660 86,181
----- ------ ---------- -------------- ------------
5 99.63 1,147,872 15,072,503 1,372,436
----- ------ ---------- -------------- ------------
Chicago, Illinois
Army Trail Corridor / Chicago 1997 3 79.16 425,997 13,865,901 180,641
I-90 / O'Hare (9) 1995, 1996, 1997 24 86.09 2,558,428 86,452,962 2,990,646
South Cook County 1996 5 100.00 541,090 12,490,047 485,249
----- ------ ---------- -------------- ------------
32 87.39 3,525,515 112,808,910 3,656,536
----- ------ ---------- -------------- ------------
Cincinnati, Ohio
I-71 / I-275 1995 1 100.00 60,000 1,436,802 88,180
I-74 / West (4) 1994 1 100.00 232,880 3,297,449 294,888
I-75 / South / N.
Kentucky 1996 2 100.00 492,507 12,169,802 448,759
I-75 North /
Cincinnati 1994, 1995, 1996, 1997 32 92.67 2,501,705 58,244,877 3,472,306
----- ------ ---------- -------------- ------------
36 94.42 3,287,092 75,148,930 4,304,133
----- ------ ---------- -------------- ------------
<CAPTION>
LONG-TERM
MORTGAGE
DEBT
---------------
<S> <C>
OPERATING PROPERTIES
OWNED
AT DECEMBER 31, 1997
Atlanta, Georgia
Central / Atlanta None
Chattahoochee None
I-20 / West / Fulton None
I-85 / Airport $ 1,837,905
I-85 / Northeast None
---------------
1,837,905
---------------
Austin, Texas
I-35 / Central None
I-35 / North / Mopac None
I-35 / South None
---------------
None
---------------
Birmingham, Alabama
I-459 / South /
Perimeter None
I-65 / Oxmoor 6,994,831
---------------
6,994,831
---------------
Charlotte, North
Carolina
I-77 / Southwest (3) None
I-85 / North
Charlotte None
I-85 / Northeast None
I-85 / Northwest None
---------------
None
---------------
Chattanooga, Tennessee
Amnicola Highway None
I-24 / Tiftonia None
---------------
None
---------------
Chicago, Illinois
Army Trail Corridor / Chicago None
I-90 / O'Hare (9) None
South Cook County None
---------------
None
---------------
Cincinnati, Ohio
I-71 / I-275 None
I-74 / West (4) 1,703,992(5)
I-75 / South / N.
Kentucky None
I-75 North /
Cincinnati None
---------------
1,703,992
---------------
</TABLE>
27
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE OF PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE RENTABLE ACCUMULATED LONG-TERM
YEAR ACQUIRED NO. OF OCCUPANCY SQUARE SCI INVESTMENT DEPRECIATION MORTGAGE
OR COMPLETED BLDGS. (1) FOOTAGE (2) (1) (1) DEBT
------------- ------ ---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Columbus, Ohio
I-270 / East 1994 5 88.38% 566,345 $ 12,077,726 $ 1,025,218 None
I-270 /
Southeast 1994 1 100.00 121,200 1,795,929 176,838 None
I-270 / West 1995, 1996, 1997 7 91.10 923,241 20,793,246 1,264,043 None
I-270 /
Southwest 1996 3 99.36 880,116 21,756,573 681,765 None
--- ------ --------- -------------- ------------ ------------
16 93.84 2,490,902 56,423,474 3,147,864 None
--- ------ --------- -------------- ------------ ------------
Dallas/Fort
Worth, Texas
I-30 / Great
Southwest (3) 1994, 1995, 1996, 1997 17 89.34 1,482,908 37,235,794 1,400,010 None
I-35 / Stemmons
Corridor (3) 1994, 1995, 1996 12 85.10 704,150 13,337,229 1,034,392 None
I-35 South /
Fort Worth 1996 1 100.00 74,500 2,560,869 62,863 None
I-635 /
Northgate (3) 1994, 1996 5 100.00 531,149 10,868,846 1,014,277 None
I-635 / Valwood 1995, 1996, 1997 16 90.65 1,879,004 53,697,393 1,316,560 None
I-635 / DFW /
Airport (3) 1996, 1997 3 51.73 193,314 6,642,036 167,984 None
I-820 / North
Fort Worth 1994, 1995, 1996 4 84.87 372,883 7,294,848 605,287 None
Redbird / Loop
12 1994, 1996 4 100.00 604,776 11,634,432 449,041 None
--- ------ --------- -------------- ------------ ------------
62 89.93 5,842,684 143,271,447 6,050,414 None
--- ------ --------- -------------- ------------ ------------
Denver, Colorado
I-70 / Northeast
(3) 1992, 1993, 1994, 1995, 1996 21 97.46 2,504,255 57,346,601 6,696,835 None
--- ------ --------- -------------- ------------ ------------
21 97.46 2,504,255 57,346,601 6,696,835 None
--- ------ --------- -------------- ------------ ------------
East Bay (San
Francisco),
California
Hayward / San
Leandro (3)(6) 1993, 1994 38 92.44 2,877,727 103,333,869 11,613,390 $ 15,975,205(7)
Tracy 1993, 1997 4 74.68 339,687 11,473,580 695,731 None
--- ------ --------- -------------- ------------ ------------
42 90.56 3,217,414 114,807,449 12,309,121 15,975,205
--- ------ --------- -------------- ------------ ------------
El Paso, Texas
I-10 / East /
Vista Del Sol
(3) 1991, 1993, 1994, 1995, 1996, 1997 19 94.15 2,311,784 59,569,876 4,741,746 6,646,362(8)
I-10 / Lower
Valley 1994 1 100.00 108,125 2,345,341 216,072 None
I-10 / Northwest 1992, 1993, 1994, 1997 5 94.40 571,091 14,080,068 1,092,298 None
--- ------ --------- -------------- ------------ ------------
25 94.41 2,991,000 75,995,285 6,050,116 6,646,362
--- ------ --------- -------------- ------------ ------------
Fort
Lauderdale/Miami,
Florida
Airport West 1995 1 100.00 124,000 5,144,810 257,704 None
I-95 / Hollywood
(9) 1995, 1997 3 56.28 406,427 14,846,001 602,343 None
I-95 / North (4) 1994, 1997 2 100.00 162,281 7,167,828 496,595 2,441,334(5)
--- ------ --------- -------------- ------------ ------------
6 74.35 692,708 27,158,639 1,356,642 2,441,334
--- ------ --------- -------------- ------------ ------------
</TABLE>
28
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE OF PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE RENTABLE ACCUMULATED
YEAR ACQUIRED NO. OF OCCUPANCY SQUARE SCI INVESTMENT DEPRECIATION
OR COMPLETED BLDGS. (1) FOOTAGE (2) (1) (1)
------------- ------ ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Houston, Texas
I-10 / Central
Business District 1995 1 100.00% 168,869 $ 3,319,742 $ 266,369
I-10 / West / Post
Oak 1993, 1994, 1996 24 92.55 1,500,873 41,238,860 4,324,821
I-610 / East / Hobby 1994 8 82.85 515,328 9,969,074 948,911
I-610 / North 1993, 1994, 1995 19 95.89 1,441,356 37,234,521 3,006,674
Northwest / U.S. 290 1993, 1994, 1995, 1996, 1997 18 92.57 1,876,935 46,609,491 2,978,332
----- ------ ---------- -------------- ------------
70 92.75 5,503,361 138,371,688 11,525,107
----- ------ ---------- -------------- ------------
Indianapolis, Indiana
I-465 / Northwest 1994, 1995 24 93.29 2,312,175 68,190,488 4,486,317
I-69 / Northeast 1995 1 83.66 276,000 6,900,234 529,389
I-70 / East 1995 5 100.00 382,400 6,683,455 437,834
I-70 / West 1994, 1995, 1996 10 83.58 684,189 20,809,756 1,243,433
I-70 Southwest /
Indianapolis 1997 1 100.00 156,400 3,829,752 --
----- ------ ---------- -------------- ------------
41 91.80 3,811,164 106,413,685 6,696,973
----- ------ ---------- -------------- ------------
Kansas City, Kansas /
Missouri
I-35 / Overland Park 1994 3 100.00 90,163 3,684,367 361,919
I-35 / South
Corridor 1994 1 100.00 99,197 2,288,153 219,983
I-35 / Wyandotte 1994, 1996 2 93.36 154,992 3,897,102 326,566
I-70 / Riverside 1994, 1996, 1997 22 92.11 1,192,877 42,708,394 3,326,942
----- ------ ---------- -------------- ------------
28 93.21 1,537,229 52,578,016 4,235,410
----- ------ ---------- -------------- ------------
Las Vegas, Nevada
Airport / Southwest 1994, 1996 5 100.00 399,157 20,311,810 1,008,213
I-15 / North 1994, 1995, 1996, 1997 7 82.05 844,261 24,374,547 1,092,125
I-515 / Henderson 1997 2 19.04 205,378 6,986,235 41,370
----- ------ ---------- -------------- ------------
14 78.06 1,448,796 51,672,592 2,141,708
----- ------ ---------- -------------- ------------
Los Angeles / Orange County, California
Central Los Angeles 1997 3 100.00 568,371 22,101,838 105,247
I-5 / Mid-Counties 1995, 1997 6 100.00 623,390 22,848,782 1,392,849
I-
5 / North-Central Orange County 1996 2 100.00 1,182,051 38,652,232 869,720
I-5 / South Orange
County 1996, 1997 6 81.68 666,899 28,103,992 363,987
Irvine / Orange
County Airport 1994 1 100.00 100,000 4,349,855 369,770
----- ------ ---------- -------------- ------------
18 96.11 3,140,711 116,056,699 3,101,573
----- ------ ---------- -------------- ------------
Louisville, Kentucky
I-264 / Riverport 1995, 1996 2 100.00 623,900 10,818,144 294,098
----- ------ ---------- -------------- ------------
2 100.00 623,900 10,818,144 294,098
----- ------ ---------- -------------- ------------
Lyons, France
L'Isle d'Abeau 1997 1 100.00 296,720 8,307,938 --
----- ------ ---------- -------------- ------------
1 100.00 296,720 8,307,938 --
----- ------ ---------- -------------- ------------
<CAPTION>
LONG-TERM
MORTGAGE
DEBT
------------
<S> <C>
Houston, Texas
I-10 / Central
Business District None
I-10 / West / Post
Oak None
I-610 / East / Hobby None
I-610 / North None
Northwest / U.S. 290 None
------------
None
------------
Indianapolis, Indiana
I-465 / Northwest None
I-69 / Northeast None
I-70 / East None
I-70 / West None
I-70 Southwest /
Indianapolis None
------------
None
------------
Kansas City, Kansas /
Missouri
I-35 / Overland Park None
I-35 / South
Corridor None
I-35 / Wyandotte None
I-70 / Riverside $ 14,671,773
------------
14,671,773
------------
Las Vegas, Nevada
Airport / Southwest 8,968,101
I-15 / North 336,397
I-515 / Henderson None
------------
9,304,498
------------
Los Angeles / Orange County, California
Central Los Angeles None
I-5 / Mid-Counties None
I-
5 / North-Central Orange County None
I-5 / South Orange
County None
Irvine / Orange
County Airport None
------------
None
------------
Louisville, Kentucky
I-264 / Riverport None
------------
None
------------
Lyons, France
L'Isle d'Abeau None
------------
None
------------
</TABLE>
29
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE OF PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE RENTABLE SCI ACCUMULATED LONG-TERM
YEAR ACQUIRED NO. OF OCCUPANCY SQUARE INVESTMENT DEPRECIATION MORTGAGE
OR COMPLETED BLDGS. (1) FOOTAGE (2) (1) (1) DEBT
------------- ------ ---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Memphis, Tennessee
I-240 / Southeast 1994, 1995, 1996, 1997 28 92.83% 2,994,776 $ 55,928,321 $ 3,784,666 $ 423,953
----- ------ ---------- -------------- ------------ ------------
28 92.83 2,994,776 55,928,321 3,784,666 423,953
----- ------ ---------- -------------- ------------ ------------
Monterrey, Mexico
Apodaca 1997 3 100.00 210,743 7,461,379 103,101 None
----- ------ ---------- -------------- ------------ ------------
3 100.00 210,743 7,461,379 103,101 None
----- ------ ---------- -------------- ------------ ------------
Nashville, Tennessee
I-24 / Southeast 1994, 1995, 1996, 1997 21 97.09 2,099,467 44,520,927 3,187,954 None
I-40 / Southeast 1995, 1996 3 100.00 154,500 4,606,309 336,890 None
----- ------ ---------- -------------- ------------ ------------
24 97.29 2,253,967 49,127,236 3,524,844 None
----- ------ ---------- -------------- ------------ ------------
New Jersey / I-95
Corridor
Meadowlands 1996 1 100.00 530,000 17,025,078 720,549 None
Route 287 / Exit 10
I-95(4) 1996, 1997 7 100.00 1,428,644 39,290,529 1,113,298 None
----- ------ ---------- -------------- ------------ ------------
8 100.00 1,958,644 56,315,607 1,833,847 None
----- ------ ---------- -------------- ------------ ------------
Oklahoma City,
Oklahoma
I-40 / Southwest 1993, 1994 6 98.75 639,942 10,074,377 1,131,026 None
----- ------ ---------- -------------- ------------ ------------
6 98.75 639,942 10,074,377 1,131,026 None
----- ------ ---------- -------------- ------------ ------------
Orlando, Florida
East Orlando /
Titusville (9) 1994 1 24.64 51,383 1 ,969,402 174,081 4,807,647(10)
I-4 / 33rd Street
(4)(9) 1994, 1995, 1996 9 100.00 489,891 13,989,070 938,976 888,459(5)(10)
Orlando Central
Park 1994, 1997 3 100.00 463,414 10,732,673 556,513 None
----- ------ ---------- -------------- ------------ ------------
13 96.15 1,004,688 26,691,145 1,669,570 5,696,106
----- ------ ---------- -------------- ------------ ------------
Paris, France
CDG/North 1997 1 100.00 290,090 7,267,298 85,352 None
----- ------ ---------- -------------- ------------ ------------
1 100.00 290,090 7,267,298 85,352 None
----- ------ ---------- -------------- ------------ ------------
Phoenix, Arizona
I-10 / Central 1993, 1994, 1995 4 97.07 341,407 7,685,656 831,145 None
I-10 / West 1993, 1994 11 92.47 602,329 12,261,242 1,369,975 None
Tempe 1992, 1996 7 95.98 646,872 19,864,671 1,283,631 None
----- ------ ---------- -------------- ------------ ------------
22 94.88 1,590,608 39,811,569 3,484,751 None
----- ------ ---------- -------------- ------------ ------------
Portland, Oregon
I-5 / Columbia
Corridor 1993, 1994, 1995, 1996, 1997 14 91.02 950,823 30,935,340 1,918,331 349,281
I-5 / Wilsonville 1995, 1996 6 100.00 379,000 14,440,133 765,534 146,675
Sunset Corridor 1997 4 38.62 172,200 7,726,737 -- None
----- ------ ---------- -------------- ------------ ------------
24 87.28 1,502,023 53,102,210 2,683,865 495,956
----- ------ ---------- -------------- ------------ ------------
</TABLE>
30
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE OF PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE RENTABLE SCI ACCUMULATED LONG-TERM
YEAR ACQUIRED NO. OF OCCUPANCY SQUARE INVESTMENT DEPRECIATION MORTGAGE
OR COMPLETED BLDGS. (1) FOOTAGE (2) (1) (1) DEBT
------------- ------ ---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reno, Nevada
I-80 / Sparks 1993, 1994, 1995, 1996 15 97.74% 1,225,586 $ 35,538,277 $ 3,200,011 None
I-80 / East 1997 1 0.00 256,000 5,734,496 -- None
U.S. 395 / Reno
North 1996 2 94.91 473,816 14,152,926 84,030 None
----- ------ ---------- -------------- ------------ ------------
18 84.26 1,955,402 55,425,699 3,284,041 None
----- ------ ---------- -------------- ------------ ------------
Reynosa, Mexico
Reynosa Industrial
Park 1997 2 40.00 150,000 4,310,915 18,658 None
----- ------ ---------- -------------- ------------ ------------
2 40.00 150,000 4,310,915 18,658 None
----- ------ ---------- -------------- ------------ ------------
Rio Grande Valley
(Brownsville), Texas
I-77 / Lower Valley 1995, 1997 14 84.29 916,746 23,528,902 1,463,456 $ 3,218,530
----- ------ ---------- -------------- ------------ ------------
14 84.29 916,746 23,528,902 1,463,456 3,218,530
----- ------ ---------- -------------- ------------ ------------
Rotterdam,
Netherlands
South 1997 1 100.00 138,285 7,782,739 147,153 None
----- ------ ---------- -------------- ------------ ------------
1 100.00 138,285 7,782,739 147,153 None
----- ------ ---------- -------------- ------------ ------------
Salt Lake City, Utah
I-15 / Clearfield 1995, 1996 3 100.00 932,708 20,808,354 973,791 None
I-215 / Central 1995 2 74.85 299,000 9,030,124 664,489 None
I-80 / North 1994, 1996 2 90.72 361,960 11,767,351 466,747 None
----- ------ ---------- -------------- ------------ ------------
7 93.17 1,593,668 41,605,829 2,105,027 None
----- ------ ---------- -------------- ------------ ------------
San Antonio, Texas
I-10 / Central
Business District 1992, 1994 2 89.71 147,751 3,520,579 467,224 None
I-35 / Central (9) 1992, 1993, 1994, 1995, 1996 28 98.30 2,592,027 56,415,019 5,825,658 None
I-35 / North 1993, 1994, 1995, 1996, 1997 20 89.17 1,366,237 37,472,550 2,634,874 None
----- ------ ---------- -------------- ------------ ------------
50 94.96 4,106,015 97,408,148 8,927,756 None
----- ------ ---------- -------------- ------------ ------------
San Diego, California
Rancho Bernardo / I-
15 1996, 1997 3 100.00 329,427 13,292,242 -- None
----- ------ ---------- -------------- ------------ ------------
3 100.00 329,427 13,292,242 -- None
----- ------ ---------- -------------- ------------ ------------
Seattle, Washington
I-405 / Kent Valley 1994, 1995, 1997 6 86.95 695,923 27,558,791 1,479,921 187,330
I-5 / Tacoma 1996 3 51.83 339,623 13,487,594 178,550 None
----- ------ ---------- -------------- ------------ ------------
9 75.43 1,035,546 41,046,385 1,658,471 187,330
----- ------ ---------- -------------- ------------ ------------
South Bay (San
Francisco),
California
Fremont / Newark (6) 1993, 1994, 1995, 1996, 1997 63 99.76 2,886,818 185,964,534 16,693,495 21,770,809(7)
I-880 / North San
Jose 1994 5 100.00 507,310 19,631,468 2,202,619 None
----- ------ ---------- -------------- ------------ ------------
68 99.80 3,394,128 205,596,002 18,896,114 21,770,809
----- ------ ---------- -------------- ------------ ------------
</TABLE>
31
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE OF PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE RENTABLE SCI ACCUMULATED LONG-TERM
YEAR ACQUIRED NO. OF OCCUPANCY SQUARE INVESTMENT DEPRECIATION MORTGAGE
OR COMPLETED BLDGS. (1) FOOTAGE (2) (1) (1) DEBT
------------- ------ ---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
St. Louis, Missouri
Earth City (3) 1997 5 95.86% 649,689 $ 17,330,331 $ 207,424 $ 2,421,179
Hazelwood 1997 1 100.00 61,200 1,591,160 11,212 947,244
I-270 Westport 1997 5 99.42 274,844 8,378,557 36,532 5,225,170
----- ------ ---------- -------------- ------------ ------------
11 97.11 985,733 27,300,048 255,168 8,593,593
----- ------ ---------- -------------- ------------ ------------
Tampa, Florida
Airport / Tampa West
(4)(9) 1994, 1995, 1996 23 94.26 883,505 36,723,759 2,903,412 11,328,985(5)(10)
I-4 / Lakeland 1994 1 100.00 247,018 6,795,731 690,744 None
I-75 / Tampa East
(4)(9) 1994, 1995, 1996, 1997 28 95.14 1,853,407 62,073,054 4,920,367 15,062,506(5)
Pinellas / St.
Petersburg (4)(9) 1994 5 93.61 83,632 2,112,297 191,703 738,717(5)
----- ------ ---------- -------------- ------------ ------------
57 95.23 3,067,562 107,704,841 8,706,226 27,130,208
----- ------ ---------- -------------- ------------ ------------
Tulsa, Oklahoma
I-44 / Broken Arrow
Expressway (4) 1993, 1994 10 90.22 573,333 12,897,836 1,301,761 654,800(5)
----- ------ ---------- -------------- ------------ ------------
10 90.22 573,333 12,897,836 1,301,761 654,800
----- ------ ---------- -------------- ------------ ------------
Washington, D.C. /
Baltimore
I-395 / Alexandria 1994, 1996 11 100.00 691,077 31,384,250 2,002,725 None
I-695 / Southwest 1995, 1996 6 83.98 620,075 17,357,369 776,851 None
I-95 / Capitol Heights 1996, 1997 2 44.30 273,135 10,647,208 198,824 None
I-95 / Corridor 1997 2 23.44 307,194 10,514,466 103,651 None
I-95 / Landover 1994 5 94.07 384,349 16,663,780 1,419,472 None
I-95 / Northeast /
Beltsville 1994 3 81.66 248,981 11,478,781 967,774 None
I-66 / Dulles 1995, 1996, 1997 6 95.83 775,215 27,689,241 830,799 None
----- ------ ---------- -------------- ------------ ------------
35 82.20 3,300,026 125,735,095 6,300,096 None
----- ------ ---------- -------------- ------------ ------------
Other Locations
(4)(9)(11)
Other 1991, 1994, 1996 7 95.89 389,192 10,205,154 787,123 535,152(5)
----- ------ ---------- -------------- ------------ ------------
7 95.89 389,192 10,205,154 787,123 535,152
----- ------ ---------- -------------- ------------ ------------
TOTAL OPERATING
PROPERTIES OWNED AT
DECEMBER 31, 1997 1,005 92.02% 90,842,484 $2,628,052,181 $171,524,993 $128,282,337
===== ====== ========== ============== ============ ============
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
LONG-
YEAR OF RENTABLE BUDGETED ACCUMULATED TERM
EXPECTED NO. OF SQUARE DEVELOPMENT DEPRECIATION MORTGAGE
COMPLETION BLDGS. FOOTAGE (2) COST (12) (1) DEBT
---------- ------ ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
PROPERTIES UNDER DEVELOPMENT
AT DECEMBER 31, 1997 (13)(14)
Amsterdam, Netherlands
Airport 1998 1 122,042 $ 9,849,729 N/A None
Atlanta, Georgia
I-85 / Airport 1998 2 210,800 9,308,457 N/A None
I-85 / Northeast 1998 3 367,600 12,306,977 N/A None
Charlotte, North Carolina
I-85 / Northeast 1998 2 192,923 6,442,290 N/A None
Chicago, Illinois
Army Trail Corridor / Chicago 1998 1 112,950 4,687,578 N/A None
I-55 Corridor 1998 1 183,100 6,912,004 N/A None
I-90 / O'Hare 1998 1 250,799 8,948,835 N/A None
South Cook County 1998 1 464,818 12,319,103 N/A None
Cincinnati, Ohio
I-75 South / N. Kentucky 1998 1 136,000 4,084,902 N/A None
I-75 North / Cincinnati 1998 1 123,760 5,180,508 N/A $377,615
Columbus, Ohio
I-270 / Southwest 1998 1 188,800 4,995,777 N/A None
Dallas/Fort Worth, Texas
I-30 / Great Southwest 1998 2 198,600 6,362,175 N/A None
I-635 / Valwood 1998 2 168,184 5,426,352 N/A None
I-635 / DFW Airport 1998 1 127,394 3,830,749 N/A None
Denver, Colorado
I-70 / Northeast 1998 2 199,311 7,685,621 N/A None
East Bay (San Francisco), California
Tracy 1998 2 176,400 6,192,648 N/A None
El Paso, Texas
I-10 / Northwest 1998 1 58,081 1,945,514 N/A None
Fort Lauderdale / Miami, Florida
Airport West 1998 1 64,960 2,996,790 N/A None
Indianapolis, Indiana
I-70 Southwest / Indianapolis 1998 1 190,400 5,456,273 N/A None
Juarez, Mexico
Southeast 1998 3 222,500 8,598,201 N/A None
Los Angeles / Orange County, California
I-5 / Mid-Counties 1998 2 718,628 31,954,665 N/A None
I-5 / South Orange County 1998 2 294,230 12,977,455 N/A None
Louisville, Kentucky
I-264 / Riverport 1998 1 216,000 5,612,226 N/A None
Monterrey, Mexico
Apodaca 1998 2 247,500 8,875,327 N/A None
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
RENTABLE LONG-
YEAR OF SQUARE BUDGETED ACCUMULATED TERM
EXPECTED NO. OF FOOTAGE DEVELOPMENT DEPRECIATION MORTGAGE
COMPLETION BLDGS. (2) COST (12) (1) DEBT
---------- ------ -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
New Jersey / I-95 Corridor
Meadowlands 1998 1 460,557 $ 19,871,572 N/A None
Route 535 / Exit 8A I-95 1998 2 617,600 24,843,886 N/A None
Orlando, Florida
Orlando Central Park 1998 2 178,388 6,177,508 N/A None
Phoenix, Arizona
Tempe 1998 3 167,772 7,087,783 N/A None
Portland, Oregon
I-205 / Clackamas 1998 1 125,840 5,070,400 N/A None
I-5 / Columbia Corridor 1998 2 191,500 7,700,686 N/A None
Reno, Nevada
U.S. 395 / Reno North 1998 1 155,200 5,187,726 N/A None
Reynosa, Mexico
Reynosa Industrial Park 1998 2 175,000 6,383,402 N/A None
Rio Grande Valley (Brownsville),
Texas
I-77 / Lower Valley 1998 1 210,000 5,977,733 N/A None
Rotterdam, Netherlands
South 1998 1 181,911 8,413,499 N/A None
South Bay (San Francisco), California
Fremont / Newark 1998 2 139,645 8,916,068 N/A None
Tampa, Florida
I-75 / Tampa East 1998 2 149,861 6,211,172 N/A None
Washington, D.C. / Baltimore
I-66 / Dulles 1998 3 156,800 7,901,865 N/A None
I-95 / Corridor 1998 1 185,500 7,530,550 N/A None
I-95 / Landover 1998 1 110,842 6,457,772 N/A None
--- --------- ------------ --------
TOTAL PROPERTIES UNDER
DEVELOPMENT AT DECEMBER 31, 1997
(13)(14) 62 8,442,196 $326,681,778 $377,615
=== ========= ============ ========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
BUDGETED SCI ACCUMULATED LONG-TERM
YEAR ACREAGE DEVELOPMENT INVESTMENT DEPRECIATION MORTGAGE
ACQUIRED (2) COST (1) (1) DEBT
-------- ------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
LAND HELD FOR DEVELOPMENT
AT DECEMBER 31, 1997
Atlanta, Georgia
I-20 / West / Fulton 1994, 1996 43.4 N/A $ 1,952,059 N/A None
I-85 / Northeast 1997 56.7 N/A 4,231,022 N/A None
Austin, Texas
I-35 / Central 1994, 1996 21.5 N/A 1,084,456 N/A None
I-35 / North / Mopac 1994 20.4 N/A 1,368,315 N/A None
I-35 / South 1996 4.2 N/A 588,259 N/A None
Charlotte, North Carolina
I-85 / North Charlotte 1997 7.9 N/A 351,433 N/A None
I-85 / Northeast 1994, 1995, 1996, 1997 37.3 N/A 2,231,757 N/A None
Chicago, Illinois
Army Trail Corridor / Chicago 1996, 1997 68.1 N/A 8,098,263 N/A None
I-55 Corridor 1997 29.6 N/A 3,436,609 N/A None
I-90 / O'Hare 1996, 1997 41.1 N/A 10,533,869 N/A None
Cincinnati, Ohio
I-75 / South / N. Kentucky 1997 13.6 N/A 1,287,698 N/A None
I-75 North / Cincinnati 1996, 1997 71.8 N/A 3,811,877 N/A None
Columbus, Ohio
I-270 / West 1996 8.0 N/A 339,699 N/A None
I-270 / Southwest 1994, 1995, 1996, 1997 56.8 N/A 2,178,350 N/A None
Dallas/Fort Worth, Texas
I-30 / Great Southwest 1996, 1997 26.1 N/A 2,885,587 N/A None
I-635 / Valwood 1995 11.7 N/A 978,806 N/A None
I-820 / North Fort Worth 1997 25.3 N/A 3,252,918 N/A None
Denver, Colorado
I-70 / Northeast 1994, 1997 36.7 N/A 3,197,209 N/A None
East Bay (San Francisco), California
Tracy 1996 4.6 N/A 555,261 N/A None
El Paso, Texas
I-10 / East /Vista Del Sol 1993, 1994, 1995, 1996 47.9 N/A 2,793,799 N/A None
I-10 / Northwest 1991, 1992 164.1 N/A 6,847,299 N/A None
Fort Lauderdale/Miami, Florida
I-95 / Hollywood 1996 31.8 N/A 5,573,149 N/A None
Houston, Texas
North Houston / Airport 1997 5.9 N/A 455,523 N/A None
Northwest / U. S. 290 1993, 1997 105.3 N/A 7,553,613 N/A None
Indianapolis, Indiana
I-69 / Northeast 1994 6.1 N/A 491,036 N/A None
I-70 Southwest / Indianapolis 1996 25.3 N/A 1,519,471 N/A None
Juarez, Mexico
Southeast 1997 18.4 N/A 3,247,678 N/A None
Las Vegas, Nevada
I-15 / North 1993, 1995, 1997 63.1 N/A 6,100,400 N/A $ 466,100
I-515 / Henderson 1995, 1996 26.2 N/A 2,988,404 N/A None
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
BUDGETED ACCUMULATED LONG-TERM
YEAR ACREAGE DEVELOPMENT SCI INVESTMENT DEPRECIATION MORTGAGE
ACQUIRED (2) COST (1) (1) DEBT
-------- ------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles/Orange County, California
I-5 / Mid-Counties 1997 21.3 N/A $ 7,940,859 N/A None
I-5 / South Orange County 1995, 1996 36.6 N/A 7,725,744 N/A None
Louisville, Kentucky
I-264 / Riverport 1996, 1997 3.9 N/A 151,955 N/A None
Memphis, Tennessee
I-240 / Southeast 1997 68.3 N/A 3,493,840 N/A None
Nashville, Tennessee
I-24 / Southeast 1996 33.7 N/A 2,362,659 N/A None
New Jersey / I-95 Corridor
Meadowlands 1997 8.5 N/A 1,602,318 N/A None
Route 535 / Exit 8A I-95 1997 48.9 N/A 4,317,109 N/A None
Suburban New York East (18) 1997 6.7 N/A 3,999,930 N/A $ 3,900,000
Orlando, Florida
Orlando Central Park 1996 42.2 N/A 3,330,262 N/A None
Phoenix, Arizona
Tempe 1992, 1996 9.6 N/A 1,299,916 N/A None
Portland, Oregon
I-205 / Clackamas 1997 24.7 N/A 3,769,206 N/A None
I-5 / Columbia Corridor 1997 10.2 N/A 808,322 N/A None
Sunset Corridor 1996, 1997 28.3 N/A 3,972,160 N/A None
Reno, Nevada
U.S. 395 / Reno North 1995 10.1 N/A 1,026,913 N/A None
Reynosa, Mexico
Reynosa Industrial Park 1997 12.9 N/A 951,962 N/A None
Rio Grande Valley (Brownsville),
Texas
I-77 / Lower Valley 1995 14.8 N/A 439,288 N/A None
Salt Lake City, Utah
I-15 / Clearfield 1997 4.5 N/A 127,000 N/A None
I-215 / Central 1996 30.9 N/A 2,797,469 N/A None
I-80 / North 1994, 1995 27.3 N/A 1,827,520 N/A None
San Antonio, Texas
I-35 / Central 1994, 1996 25.9 N/A 2,249,064 N/A None
I-35 / North 1996, 1997 32.3 N/A 2,939,098 N/A None
Seattle, Washington
I-405 / Kent Valley 1994 6.2 N/A 1,248,137 N/A 1,959
Tampa, Florida
I-75 / Tampa East 1994, 1995, 1997 73.6 N/A 5,485,476 N/A None
Washington, D.C. / Baltimore
I-95 / Capitol Heights 1994 12.6 N/A 1,369,770 N/A None
I-95 / Corridor 1996 29.5 N/A 4,475,500 N/A None
------- -------------- ------------
TOTAL LAND HELD FOR DEVELOPMENT
AT DECEMBER 31, 1997 (16) 1,702.4 $ 159,645,296 $ 4,368,059
======= ============== ============
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
BUDGETED SCI ACCUMULATED LONG-TERM
ACREAGE DEVELOPMENT INVESTMENT DEPRECIATION MORTGAGE
(2) COST (1) (1) DEBT
------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
LAND SUBJECT TO FIXED
PRICE OPTIONS OR
RIGHTS OF FIRST
REFUSAL AT
DECEMBER 31, 1997
OPTIONS
- -------
Amsterdam, Netherlands
Airport 4.9 N/A N/A N/A None
Chicago, Illinois
I-55 Corridor 25.9 N/A N/A N/A None
South Cook County 4.0 N/A N/A N/A None
Cincinnati, Ohio
I-75 North /
Cincinnati 42.8 N/A N/A N/A None
Columbus, Ohio
I-270 / Southwest 38.8 N/A N/A N/A None
East Bay (San
Francisco), California
Tracy 309.0 N/A N/A N/A None
Louisville, Kentucky
I-264 / Riverport 20.6 N/A N/A N/A None
New Jersey / I-95
Corridor
Route 535 / Exit 8A I-
95 57.7 N/A N/A N/A None
South Bay (San
Francisco), California
Fremont/Newark 23.1 N/A N/A N/A None
Tampa, Florida
I-75 / Tampa East 0.9 N/A N/A N/A None
-----
TOTAL OPTIONS AT
DECEMBER 31, 1997
(17) 527.7
=====
RIGHTS OF FIRST REFUSAL
- -----------------------
Indianapolis, Indiana
I-70 Southwest /
Indianapolis 14.4 N/A N/A N/A None
South Bay (San
Francisco), California
Fremont/Newark 21.8 N/A N/A N/A None
----- ------------ -------------- ------------ ------------
TOTAL RIGHTS OF FIRST
REFUSAL AT DECEMBER
31, 1997 36.2
=====
TOTAL OPTIONS AND
RIGHTS OF FIRST
REFUSAL AT
DECEMBER 31, 1997 563.9
=====
GRAND TOTAL AT
DECEMBER 31, 1997 $326,681,778 $2,787,697,477 $171,524,993 $133,028,011
============ ============== ============ ============
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE RENTABLE SCI LONG-TERM
YEAR NO. OF OCCUPANCY SQUARE FOOTAGE INVESTMENT MORTGAGE
ACQUIRED BLDGS (1) (2) (1) DEBT
-------- ------ ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
ACQUIRED
IN JANUARY 1998
Columbus, Ohio
I-270 / West 1998 2 87.29% 136,206 $3,100,500 None
--- ------ ------- ---------- ----
TOTAL FOR OPERATING
PROPERTIES
ACQUIRED IN
JANUARY 1998 2 87.29% 136,206 $3,100,500 None
=== ====== ======= ========== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR OF RENTABLE BUDGETED LONG-TERM
EXPECTED NO. OF SQUARE FOOTAGE DEVELOPMENT MORTGAGE
COMPLETION BLDGS. (2) COST (12) DEBT
---------- ------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
JANUARY 1998 DEVELOPMENT STARTS (15)
Amsterdam, Netherlands
Airport 1998 1 140,427 $ 9,470,277 None
Charlotte, North Carolina
I-77 / Southwest 1998 1 154,400 4,540,641 None
Chicago, Illinois
Army Trail Corridor / Chicago 1998 1 247,200 9,568,523 None
Fort Lauderdale / Miami, Florida
I-95 / Hollywood 1998 1 126,600 5,950,917 None
Houston, Texas
Northwest / U.S. 290 1998 2 280,000 8,731,018 None
Louisville, Kentucky
I-264 / Riverport 1998 1 192,000 4,409,060 None
Memphis, Tennessee
I-240 / Southeast 1998 1 504,000 12,804,583 None
Reynosa, Mexico
Del Norte Industrial Park 1998 2 197,544 7,907,120 None
San Antonio, TX
I-35 / Central 1998 2 213,800 6,682,108 None
Other Locations 1998 1 243,000 6,612,629 None
--- --------- ----------- ----
TOTAL JANUARY 1998 DEVELOPMENT
STARTS 13 2,298,971 $76,676,876 None
=== ========= =========== ====
</TABLE>
38
<PAGE>
N/ANot Applicable
(1) Percentage Occupancy is as of December 31, 1997 for operating properties
owned at December 31, 1997. Operating properties at December 31, 1997
includes recently completed development properties in initial lease-up
(2.9 million square feet completed in the fourth quarter of 1997) which
impacts the overall occupancy percentage at December 31, 1997. SCI's
investment is as of December 31, 1997 for operating properties owned and
land held for development at December 31, 1997. Depreciation is
determined using the straight-line method over 30 years for buildings
acquired, over 40 years for building developed and over 10 years for
tenant improvements.
(2) Square footage is shown for operating properties and properties under
development; acreage is shown for land held for future development and
land subject to fixed price options and rights of first refusal.
(3) In the Charlotte, Dallas, Denver, East-Bay (San Francisco), El Paso and
St. Louis markets, an aggregate of 1,928,194 square feet is owned through
SCI Limited Partnership-II, of which SCI is general partner and owns
97.6%. The square footage and investment included in the table represent
100.0% of the property owned by the partnership.
(4) In the Cincinnati, Fort Lauderdale/Miami, New Jersey, Orlando, Tampa,
Tulsa markets and one other location, 2,059,851 square feet are owned
through SCI Limited Partnership-IV, of which SCI IV, Inc., a wholly owned
subsidiary of SCI, is the general partner and owns 96.7%. The square
footage and investment included in the table represent 100% of the
property owned by the partnership.
(5) Includes 1,925,138 square feet owned by SCI Limited Partnership-IV
pledged to secure four long-term mortgage notes totalling $33,196,968 as
of December 31, 1997.
(6) In the East Bay (San Francisco) and South Bay (San Francisco) markets,
3,890,745 square feet are owned through SCI Limited Partnership-I, of
which SCI is the general partner and owns 68.7%. The square footage and
investment included in the table represent 100.0% of the property owned
by the partnership.
(7) Includes 1,205,420 square feet owned by SCI Limited Partnership-I pledged
to secure four long-term mortgage notes totalling $27,340,179 as of
December 31, 1997.
(8) Includes 144,000 square feet owned by SCI Limited Partnership-II pledged
to secure long-term mortgage notes totalling $2,647,053 as of December
31, 1997.
(9) In Chicago, Fort Lauderdale/Miami, Orlando, San Antonio, Tampa and one
other location, 1,231,455 square feet are owned through SCI Limited
Partnership-III, including 80,000 square feet owned in co-tenancy with an
unrelated third party. SCI is the general partner of SCI Limited
Partnership-III and owns 80.6%. The square footage and investment
included in the table represent 100.0% of the property owned by the
partnership.
(10) Includes 272,864 square feet (of which 80,000 square feet are owned in
co-tenancy) owned by SCI Limited Partnership-III pledged to secure four
long-term mortgage notes totalling $4,964,625 as of December 31, 1997.
(11) Includes 136,000 square feet in which SCI has a 70.0% joint venture
interest. The square footage and investment included in the table
represent 100.0% of the property owned by the joint venture.
(12) Represents the total budgeted development costs for properties under
development, which includes the cost of land, fees, permits, payments to
contractors, architectural and engineering fees and interest and property
taxes to be capitalized during construction, rather than costs incurred
to date.
(13) Includes 2,250,734 square feet in the design and permitting stage.
(14) Includes 1,176,174 square feet currently undergoing rehabilitation.
(15) During January 1998, SCI completed shell construction and transferred to
its operating property portfolio 12 buildings in 10 target markets
totalling 1,542,887 square feet.
(16) During January 1998, SCI acquired land totalling 16.3 net acres,
commenced development of 77.7 net acres and disposed of 6.7 acres
resulting in an inventory of land held for development at January 31,
1998 of 1,634.3 net acres.
(17) Fixed price options to acquire 22.5 acres expired January 31, 1998,
bringing total land subject to fixed price options at January 31, 1998 to
541.4 acres.
(18) On January 12, 1998, SCI sold a 6.7 acre parcel of land with a historical
cost of $4.0 million and a long-term mortgage debt of $3.9 million.
39
<PAGE>
Geographic Distribution
Substantially all of SCI's distribution properties are located in 44 target
market cities. The table below demonstrates the geographic distribution of
SCI's equity real estate investments as of December 31, 1997 and 1996. This
chart does not include land held for future development, which was less than
6% of assets, based on cost at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF ASSETS BASED ON COST (1)(2)
-------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------- ---------------------
PERCENTAGE PERCENTAGE
OF ASSETS OF ASSETS
NUMBER OF BASED ON NUMBER OF BASED ON
PROPERTIES COST(1) PROPERTIES COST(1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Markets
Atlanta, Georgia................. 107 8.16% 100 8.08%
Austin, Texas.................... 32 2.25 35 3.05
Birmingham, Alabama.............. 6 1.14 6 1.34
Charlotte, North Carolina........ 27 2.48 23 2.53
Chattanooga, Tennessee........... 5 0.51 5 0.61
Chicago, Illinois................ 36 4.93 28 4.29
Cincinnati, Ohio................. 38 2.86 30 2.44
Columbus, Ohio................... 17 2.08 15 2.10
Dallas/Fort Worth, Texas......... 67 5.38 63 4.98
Denver, Colorado................. 23 2.20 22 2.31
East Bay (San Francisco), Cali-
fornia.......................... 44 4.09 42 4.60
El Paso, Texas................... 26 2.64 22 2.51
Fort Lauderdale/Miami, Florida... 7 1.02 3 0.72
Houston, Texas................... 70 4.68 70 5.54
Indianapolis, Indiana............ 42 3.79 48 4.74
Kansas City, Kansas/Missouri..... 28 1.78 28 2.11
Las Vegas, Nevada................ 14 1.75 14 2.12
Los Angeles/Orange County, Cali-
fornia.......................... 22 5.45 15 3.88
Louisville, Kentucky............. 3 0.55 2 0.43
Memphis, Tennessee............... 28 1.89 26 2.05
Nashville, Tennessee............. 24 1.66 24 1.93
New Jersey/I-95 Corridor......... 11 3.42 6 1.94
Oklahoma City, Oklahoma.......... 6 0.34 10 0.57
Orlando, Florida................. 15 1.11 13 1.05
Phoenix, Arizona................. 25 1.59 22 1.58
Portland, Oregon................. 27 2.23 25 2.44
Reno, Nevada..................... 19 2.05 17 1.93
Rio Grande Valley (Brownsville),
Texas........................... 15 1.00 14 0.97
Salt Lake City, Utah............. 7 1.41 8 2.26
San Antonio, Texas............... 50 3.30 61 4.46
San Diego, California............ 3 0.45 3 0.54
Seattle, Washington.............. 9 1.39 9 1.59
South Bay (San Francisco), Cali-
fornia.......................... 70 7.26 66 7.64
St. Louis, Missouri.............. 11 0.92 -- --
Tampa, Florida................... 59 3.85 60 4.39
Tulsa, Oklahoma.................. 10 0.44 10 0.50
Washington, D.C./Baltimore....... 40 5.00 35 4.98
Other............................ 7 0.34 9 0.80
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF ASSETS BASED ON COST (1)(2)
--------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ---------------------
PERCENTAGE PERCENTAGE
OF ASSETS OF ASSETS
NUMBER OF BASED ON NUMBER OF BASED ON
PROPERTIES COST(1) PROPERTIES COST(1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
International Markets
Amsterdam, Netherlands............ 1 0.33 -- --
Juarez, Mexico.................... 3 0.29 -- --
Lyons, France..................... 1 0.28 -- --
Monterrey, Mexico................. 5 0.55 -- --
Paris, France..................... 1 0.25 -- --
Reynosa, Mexico................... 4 0.36 -- --
Rotterdam, Netherlands............ 2 0.55 -- --
----- ------ --- ------
Total............................. 1,067(3) 100.00% 989(4) 100.00%
===== ====== === ======
</TABLE>
- --------
(1) Includes properties under development at their budgeted total development
costs, rather than costs incurred to date.
(2) Does not include refrigerated warehousing facilities.
(3) Includes 62 buildings under development.
(4) Includes 47 buildings under development.
Consistent with SCI's strategy to build a critical mass in the three key
target markets of Chicago, Los Angeles and the New Jersey/I-95 corridor, the
combined percentage of real estate investments for these markets to SCI's
total real estate investments, increased from 10.11% at December 31, 1996 to
13.80% at December 31, 1997.
There are numerous other distribution properties located in close proximity
to each of SCI's properties. The amount of rentable space available in any
target market city could have a material effect on SCI's ability to rent space
and on the rents charged. In addition, in many of SCI's submarkets,
institutional investors and owners and developers of distribution facilities
compete for the acquisition, development and leasing of distribution space.
Many of these persons have substantial resources and experience.
THE PARTNERSHIPS
SCI's intention is to own substantially all properties directly; however, to
facilitate certain strategic acquisitions, SCI has completed four transactions
which involved the formation of four partnerships. At December 31, 1997, SCI
owned directly or indirectly 68.7%, 97.6%, 80.6% and 96.7% of SCI Limited
Partnership-I, SCI Limited Partnership-II, SCI Limited Partnership-III and SCI
Limited Partnership-IV, respectively (collectively, the "Partnerships"). The
properties owned through SCI Limited Partnership-I cannot be sold, prior to
the occurrence of certain events, without the consent of the limited partners
thereto, other than in tax-deferred exchanges, which restriction could
adversely affect SCI's ability to strategically reconfigure the portion of its
investment assets represented by this Partnership. There are no restrictions
on the sale of properties held by SCI Limited Partnership-II, SCI Limited
Partnership-III or SCI Limited Partnership-IV. SCI views all assets acquired
as long-term investments but will only agree to partnership resale
restrictions where the assets acquired are of such strategic quality that SCI
anticipates that there will be no change in investment strategy with respect
to such assets through the duration of the restriction. SCI may acquire
additional properties through partnerships in the future.
The Partnerships have been organized as Delaware limited partnerships.
Generally, pursuant to the Partnership agreements, SCI, as the sole general
partner in each of the Partnerships other than SCI Limited Partnership-IV, in
which a wholly owned subsidiary of SCI is the sole general partner, has full
responsibility for
41
<PAGE>
the management and control of the Partnerships, and the limited partners have
no authority to transact business for, or, except as described below,
participate in the management decisions of, the Partnerships. However, any
decision to amend certain provisions of the applicable Partnership agreement,
to dissolve a Partnership prior to the term set forth in the applicable
Partnership agreement or to enter into certain extraordinary transactions
where the limited partners would not receive the same consideration as
shareholders of SCI, would require the consent of all limited partners.
Pursuant to the Partnership agreements, SCI or its wholly owned subsidiary, as
the case may be, may not voluntarily withdraw from the applicable Partnership
or transfer or assign its interests in the Partnership without the consent of
all of the limited partners thereto. The limited partners may freely transfer
their Partnership units to affiliates, provided that such transfer does not
cause a termination of the Partnership for federal income tax purposes and
does not cause SCI to cease to comply with requirements under the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a REIT.
Each of the Partnership agreements grants to limited partners the right to
exchange their Partnership units for Common Shares, subject to the conditions
described below.
Distinction from Other REIT Partnerships
The Partnerships differ from partnerships formed by certain other REITs
(which are commonly referred to as UPREITs) in that:
. A substantial majority of the limited partners were previously
unaffiliated with SCI, thus the Partnership transactions were negotiated
on an arms' length basis;
. None of the limited partners have a controlling influence over SCI, which
is the sole general and managing partner of each of the Partnerships
other than SCI Limited Partnership-IV, in which a wholly owned subsidiary
of SCI is the sole general partner;
. SCI or its wholly-owned subsidiary, as the case may be, has sole
discretion as to the disposition of assets held in the Partnerships,
subject to one Partnership's requirement that for the foreseeable future
all dispositions be through tax-deferred exchanges, as to which SCI has
sole discretion; and
. SCI is not restricted from acquiring properties outside the Partnerships
and intends to own a majority of its assets directly, so that no conflict
of interests exists with respect to future acquisitions.
12.6% of SCI's real estate (based on cost) is owned by the following
partnerships:
SCI Limited Partnership-I
In connection with the formation of SCI Limited Partnership-I, certain
previously unaffiliated parties agreed to contribute certain properties to
this Partnership in exchange for the issuance by such Partnership of
approximately 4,520,533 Partnership units. In exchange for the Partnership
units, the limited partners contributed the following properties: (i)
1,704,333 square feet of industrial property in SCI's San Francisco (South Bay
Area), California target market; and (ii) 2,186,572 square feet in SCI's San
Francisco (East Bay Area), California target market. The foregoing properties
had an aggregate purchase price to SCI of $190 million.
The Partnership agreement governing SCI Limited Partnership-I grants limited
partners the right to consent to (i) the sale or other disposition of any
property of the Partnership (other than through a tax-deferred exchange or a
pledge to secure a financing) or (ii) the incurrence of any indebtedness
(other than loans which SCI may make to the Partnership for capital
requirements). The requirement for the consent of the limited partners in
connection with a sale or other disposition of a property expires upon the
earlier to occur of the 30th anniversary of the date of the Partnership
agreement or the date on which 75% of the Partnership units outstanding have
been exchanged for Common Shares. Limited partners are entitled to exchange
each Partnership unit for up to one Common Share. A maximum of 4,520,531
Common Shares were so issuable effective as of January 1, 1995. On May 31,
1996, SCI filed a registration statement to register the resale of 4,520,531
Common Shares issuable
42
<PAGE>
upon exchange of SCI Limited Partnership-I units. The registration statement
was declared effective on June 29, 1996. Additionally, the limited partners
are entitled to receive fully cumulative quarterly distributions per
Partnership unit equal to the quarterly distributions payable in respect of
Common Shares. In the event that the Partnership sells any of its properties,
limited partners are entitled to a pro rata distribution of the net proceeds
of such sale, with a corresponding downward adjustment in the number of Common
Shares for which a unit may be exchanged. Each limited partner has agreed
that, from and after the time that such limited partner has exercised its
right to exchange a Partnership unit for a Common Share and for a period of
four years after the date of the Partnership agreement, the limited partner
will not, during any calendar year, sell Common Shares owned by the limited
partner if such sale would exceed 33% of the aggregate number of Partnership
units and Common Shares outstanding on the date of the Partnership agreement.
All cash flow available after payment of distributions to limited partners
will be distributed to SCI, as general partner.
SCI Limited Partnership-II
In exchange for approximately 645,867 Partnership units, the limited
partners of SCI Limited Partnership-II contributed the following properties:
(i) 437,542 square feet of industrial property in SCI's Dallas/Fort Worth,
Texas target market; (ii) 217,504 square feet in SCI's Austin, Texas target
market; (iii) 132,605 square feet in SCI's San Francisco (East Bay Area),
California target market; (iv) 51,750 square feet in SCI's Denver, Colorado
target market; (v) 493,894 square feet in SCI's Charlotte, North Carolina
target market; and (vi) 270,000 square feet in SCI's El Paso, Texas target
market. The foregoing properties had an aggregate purchase price to SCI of
$45.5 million. None of the limited partners of SCI Limited Partnership-II is
affiliated with SCI.
The Partnership agreement governing SCI Limited Partnership-II granted to
limited partners the right to exchange each Partnership unit for a Common
Share beginning on February 15, 1995. On May 19, 1995, SCI filed a
registration statement to register the resale of 955,864 Common Shares
relating to Common Shares issuable upon exchange of SCI Limited Partnership-II
Partnership units and up to 310,000 Common Shares issued in one of SCI's prior
private placement offerings; such registration statement was declared
effective on June 26, 1995. Through December 31, 1997, limited partners had
exchanged 555,654 of their Partnership units in SCI Limited Partnership-II for
555,651 Common Shares (and cash payments for partial units). As a result of
these conversions and additional capital contributions by SCI, SCI's general
partnership interest increased from 81.2% to 97.6% and 90,213 limited
partnership units remain outstanding in SCI Limited Partnership-II. Limited
partners are also entitled to fully cumulative quarterly distributions equal
to the quarterly distributions paid in respect of a Common Share and any
unpaid distributions will bear interest at prime plus 1%. Until the 10th
anniversary of the date of the Partnership agreement, upon any exchange of
Partnership units for Common Shares, limited partners are entitled to receive
all cumulated and unpaid distributions (together with interest thereon). After
the 10th anniversary of the date of the Partnership agreement, limited
partners are not entitled to receive cumulated and unpaid distributions (or
interest thereon) upon any exchange of Partnership units for Common Shares
unless the fair market value of a Common Share for which a unit is
exchangeable is less than 110% of the amount paid by a partner for a unit. All
cash flow available after payment of distributions to limited partners will be
distributed to SCI, as general partner. In the event that the Partnership
sells any of its properties, SCI as general partner is entitled to a
distribution of all net proceeds from such sale.
SCI Limited Partnership-III and SCI Limited Partnership-IV
On October 28, 1994, SCI acquired $91.7 million of additional properties and
related assets through two Partnerships, SCI Limited Partnership-III and SCI
Limited Partnership-IV. SCI Limited Partnership-IV contained approximately $81
million of properties and related assets at December 31, 1997, and is
structured as a distinct entity to maintain the credit rating of the secured
notes assumed by such Partnership. A total of 583,512 limited partnership
units were issued by these two Partnerships to certain previously unaffiliated
parties. SCI contributed $35.4 million of cash to these Partnerships in 1994
to retire debt, pay part of the aggregate property purchase price, make
capital improvements and pay closing costs. $47.1 million of mortgage debt was
assumed by these
43
<PAGE>
Partnerships. During 1995, SCI contributed an additional $11.9 million to SCI
Limited Partnership-III for property acquisitions which increased SCI's
general partnership interest from 50.4% to 71.8%. In 1996, SCI contributed
$4.2 million to SCI Limited Partnership III in connection with property
acquisition. In the aggregate, these contributions increased SCI's general
partnership interest from 71.8% to 75.6%. On October 23, 1997, SCI filed a
registration statement to register the resale of 583,508 Common Shares
issuable upon exchange of SCI Limited Partnership-III and SCI Limited
Partnership-IV units. The registration statement was declared effective on
November 6, 1997. In the fourth quarter of 1997, 105,000 partnership units
were converted to 105,000 SCI Common Shares, bringing SCI's general
partnership interest to 80.6% at December 31, 1997. During 1996 and 1997, SCI
contributed $2.5 million to SCI Limited Partnership IV in connection with tax
deferred exchanges of real estate which increased SCI's general partnership
interest from 96.36% to 96.65% at December 31, 1997. There were 409,900 and
68,612 partnership units outstanding in SCI Limited Partnership-III and SCI
Limited Partnership-IV, respectively, at December 31, 1997.
The Partnership agreements for these Partnerships are substantially similar
to the Partnership agreement governing SCI Limited Partnership-II and permit
holders of limited partnership units to exchange each unit for a Common Share
beginning on October 29, 1995. SCI or its wholly owned subsidiary, as the case
may be, as general partner, has complete discretion and control with respect
to all management matters, including disposition of assets, except for certain
restrictions on the retirement of assumed debt.
Limited partners are entitled to fully cumulative quarterly distributions
equal to the quarterly distributions paid in respect of a Common Share and any
unpaid distributions will bear interest at prime plus 1%. Until the 10th
anniversary of the date of the Partnership agreements, upon any exchange of
Partnership units for Common Shares, limited partners are entitled to receive
all cumulated and unpaid distributions (together with interest thereon). After
the 10th anniversary of the date of the Partnership agreements, limited
partners are not entitled to receive cumulated and unpaid distributions (or
interest thereon) upon any exchange of Partnership units for Common Shares
unless the fair market value of a Common Share for which a unit is
exchangeable is less than 110% of the amount paid by a limited partner for a
unit. All cash flow available after payment of distributions to limited
partners will be distributed to SCI or its wholly owned subsidiary, as the
case may be, as general partner. In the event that the Partnerships sell any
of their respective properties, SCI or its wholly owned subsidiary, as the
case may be, as general partner, is entitled to a distribution of all net
proceeds from such sale, except (during the first 10 years of the Partnerships
only) to the extent of unpaid distributions and interest thereon.
SCI DEVELOPMENT SERVICES
SCI Development Services Incorporated ("SCI Development Services") was
incorporated in Delaware in August 1994 for the purpose of acquiring,
developing, operating, and selling distribution space facilities either for
its own account or for third parties. SCI owns 100% of the nonvoting preferred
stock of SCI Development Services and an unaffiliated third party owns 100% of
the voting common stock and, as a result, SCI has no control over the
operations of SCI Development Services. SCI, through its preferred stock
ownership, is entitled to 66 2/3% of the first $300,000 of net operating cash
flow and is entitled to 95% of the remaining net operating cash flow of SCI
Development Services. The activities of SCI Development Services are
consolidated with SCI. As of December 31, 1997, SCI Development Services' real
estate portfolio had a book value of $188.7 million. SCI Development Services
is a taxable corporation and pays federal and state income taxes at the
applicable corporate rates.
UNCONSOLIDATED SUBSIDIARIES
SCI Logistics
SCI Logistics was incorporated in Delaware in April 1997 for the purpose of
investing in CSI, a limited liability company that owns and operates
refrigerated warehousing. SCI Logistics owns a majority interest (77.1%) in
CSI and SCI owns 100% of the nonvoting preferred stock of SCI Logistics. An
unaffiliated third
44
<PAGE>
party owns 100% of the voting common stock of SCI Logistics and, as a result,
SCI has no control over the operations of SCI Logistics. As of December 31,
1997, SCI's investment in and advances to SCI Logistics totalled $85.6
million. CSI had total assets of $195 million at December 31, 1997. SCI,
through its preferred stock ownership, is entitled to 95% of the net operating
cash flow of SCI Logistics. SCI accounts for its investment in SCI Logistics
on the equity method of accounting. SCI Logistics is a taxable corporation and
will pay federal and state income taxes at the applicable corporate rates.
Frigoscandia SA
Frigoscandia SA was incorporated in Luxembourg in January 1998 for the
purpose of investing in Frigoscandia, which owns and operates refrigerated
warehousing in Europe. SCI owns 100% of the nonvoting preferred stock of
Frigoscandia SA. Security Capital owns 100% of the voting common stock of
Frigoscandia SA and, as a result, SCI has no control over the operations of
Frigoscandia SA. In January 1998, Frigoscandia SA purchased Frigoscandia for
$395.0 million. SCI, through its preferred stock ownership, is entitled to 95%
of the net operating cash flow of Frigoscandia SA. SCI accounts for its
investment in Frigoscandia SA on the equity method of accounting. Frigoscandia
SA is a taxable corporation and will pay taxes at the applicable corporate
rates.
ITEM 3. LEGAL PROCEEDINGS
SCI from time to time may be a party to a variety of legal proceedings
arising in the ordinary course of its business. Such matters generally are not
expected to have a material adverse effect on SCI's business, financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
45
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
SCI's Common Shares are listed on the NYSE under the symbol "SCN." The
following table sets forth the high and low sale prices of the Common Shares
as reported in the NYSE Composite Tape, and distributions per Common Share,
for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
---- ---- -------------
<S> <C> <C> <C>
1996:
First Quarter.............................. $18 7/8 $16 1/2 $0.2525(1)
Second Quarter............................. 18 16 7/8 0.2525
Third Quarter.............................. 18 1/4 16 7/8 0.2525
Fourth Quarter............................. 22 1/2 17 7/8 0.2525
1997:
First Quarter.............................. $22 1/2 $19 7/8 $0.2675(2)
Second Quarter............................. 21 3/4 18 7/8 0.2675
Third Quarter.............................. 23 5/8 20 3/4 0.2675
Fourth Quarter............................. 25 1/2 22 1/2 0.2675
1998:
First Quarter (through March 12, 1998)..... $26 1/2 $24 3/16 $0.2850(3)(4)
</TABLE>
- --------
(1) Declared in the fourth quarter of 1995 and paid in the first quarter of
1996.
(2) Declared in the fourth quarter of 1996 and paid in the first quarter of
1997.
(3) Declared in the fourth quarter of 1997 and paid in the first quarter of
1998.
(4) On March 5, 1998, the Board announced a projected increase in the 1998
distribution level to $1.24 per Common Share which would increase the
quarterly distribution for the remaining quarters of 1998 to $0.3183 per
Common Share.
On March 12, 1998, SCI had approximately 117,388,358 Common Shares
outstanding, which were held of record by approximately 1,200 shareholders.
SCI, in order to qualify as a REIT, is required to make distributions (other
than capital gain distributions) to its shareholders in amounts at least equal
to (i) the sum of (A) 95% of its "REIT taxable income" (computed without
regard to the dividends paid deduction and its net capital gain) and (B) 95%
of the net income (after tax), if any, from foreclosure property, minus (ii)
the sum of certain items of noncash income. SCI's distribution strategy is to
distribute what it believes is a conservative percentage of its cash flow,
permitting SCI to retain funds for capital improvements and other investments
while funding its distributions.
SCI announces the following year's projected annual distribution level after
the Board's annual budget review and approval in December of each year. At its
December 1997 Board meeting, the Board announced a projected increase in the
annual distribution level from $1.07 to $1.14 per Common Share. On March 5,
1998, the Board announced a projected increase in the 1998 distribution level
to $1.24 per Common Share. The payment of distributions is subject to the
discretion of the Board and is dependent upon the financial condition and
operating results of SCI and may be adjusted at the discretion of the Board
during the budget year.
After the closing of the Merger, holders of SCI's Common Shares (other than
Security Capital), Series B Preferred Shares and limited partnership units as
of September 16, 1997, received warrants from Security Capital to purchase
3,608,202 shares of Security Capital's Class B common stock, in the ratio of
0.046549 warrants for each Common Share held, 0.059676 warrants for each
Series B Preferred Share held and 0.046549 warrants for each limited
partnership unit held. Each warrant can be exercised for one share of Security
Capital's Class B common stock at an exercise price of $28.00 per share
through September 18, 1998. Security Capital issued these warrants to SCI's
shareholders as an incentive to vote in favor of the Merger and to raise
additional equity capital at a relatively low cost, in addition to other
benefits. The warrants are traded on the NYSE and at the close of business on
March 12, 1998 were trading at $3.00 per warrant.
46
<PAGE>
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed SCI's current and accumulated earnings and profits
(calculated for tax purposes) constitute a return of capital rather than a
dividend and reduce the shareholder's basis in the Common Shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in the Common Shares, it will generally be
treated as gain from the sale or exchange of that shareholder's Common Shares.
SCI annually notifies shareholders of the taxability of distributions paid
during the preceding year. The following summarizes the taxability of
distributions paid in 1996 and 1995 on the Common Shares and the estimated
taxability for 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Per Common Share:
Ordinary Income......................................... $1.07 $0.879 $0.692
Capital Gains........................................... -- -- --
Return of Capital....................................... 0.00 0.131 0.243
----- ------ ------
Total.................................................. $1.07 $ 1.01 $0.935
===== ====== ======
</TABLE>
Under federal income tax rules, SCI's earnings and profits are first
allocated to its preferred shares, which increases the portion of the Common
Shares distribution classified as return of capital. The portion of
distributions characterized as return of capital results primarily from the
excess of distributions over earnings primarily because non-cash charges such
as depreciation are added to earnings in determining distribution levels. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
For federal income tax purposes, the following summary reflects the
estimated taxability of dividends paid on the Series A Preferred Shares,
Series B Preferred Shares and Series C Preferred Shares for the periods prior
to 1997 and the estimated taxability for 1997:
<TABLE>
<CAPTION>
DATE OF ISSUANCE TO
1997 1996 DECEMBER 31, 1995
----- ----- -------------------
<S> <C> <C> <C>
Per Series A Preferred Share:
Ordinary Income............................. $2.35 $2.35 $1.24
Capital Gains............................... -- -- --
----- ----- -----
Total...................................... $2.35 $2.35 $1.24
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TO
1997 DECEMBER 31, 1996
----- -------------------
<S> <C> <C>
Per Series B Preferred Share:
Ordinary Income................................... $1.75 $1.50
Capital Gains..................................... -- --
----- -----
Total............................................ $1.75 $1.50
===== =====
Per Series C Preferred Share:
Ordinary Income................................... $4.27 $0.57
Capital Gains..................................... -- --
----- -----
Total............................................ $4.27 $0.57
===== =====
</TABLE>
47
<PAGE>
SCI's tax return for the year ended December 31, 1997 has not been filed,
and the taxability information for 1997 is based upon the best available data.
SCI's tax returns for prior years have not been examined by the Internal
Revenue Service and, therefore, the taxability of distributions is subject to
change.
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
In March 1995, SCI adopted a Dividend Reinvestment and Share Purchase Plan
(the "Plan"). The Plan allows holders of Common Shares the opportunity to
acquire additional Common Shares by automatically reinvesting distributions.
Common Shares are acquired pursuant to the Plan at a price equal to 98% of the
market price of such Common Shares, without payment of any brokerage
commission or service charge. The Plan also allows participating shareholders
to purchase a limited number of additional Common Shares at 98% of the market
price of such Common Shares, by making optional cash payments, without payment
of any brokerage commission or service charge. Shareholders who do not
participate in the Plan continue to receive distributions as declared.
48
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data for SCI. Such summary
financial data is qualified in its entirety by, and should be read in
conjunction with, "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included or incorporated by reference in this report (amounts in
thousands, except per share data).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental Income.......... $ 284,533 $ 227,000 $ 153,879 $ 70,609 $ 9,963
Series A Preferred
Share Dividends....... 12,690 12,690 6,698 -- --
Series B Preferred
Share Dividends....... 14,088 12,066 -- -- --
Series C Preferred
Share Dividends....... 8,540 1,139 -- -- --
Net Earnings Attribut-
able to Common Shares. 4,431(1) 53,460 42,015 25,101 4,412
Common Share Distribu-
tions................. $ 106,556 $ 85,340 $ 64,445 $ 37,698 $ 7,001
PER SHARE DATA:
Net Earnings Attribut-
able to Common Shares
(Basic and Diluted)... $ 0.04(1) $ 0.63 $ 0.61 $ 0.57 $ 0.47
Series A Preferred
Share Dividends....... 2.35 2.35 1.24 -- --
Series B Preferred
Share Dividends....... 1.75 1.50 -- -- --
Series C Preferred
Share Dividends....... 4.27 0.57 -- -- --
Common Share Distribu-
tions................. $ 1.07 $ 1.01 $ 0.935 $ 0.85 $ 0.75
Weighted Average Common
Shares Outstanding
(Basic)............... 100,729 84,504 68,924 44,265 9,334
Weighted Average Common
Shares Outstanding
(Diluted)............. 100,869 84,511 74,422 44,277 9,336
OTHER DATA:
Net Cash Provided by
Operating Activities.. $ 192,273 $ 136,201 $ 100,154 $ 47,222 $ 12,084
Net Cash Used in In-
vesting Activities.... (570,861) (665,878) (628,795) (631,871) (260,780)
Net Cash Provided by
Financing Activities.. 398,827 512,212 529,606 599,382 254,770
Funds from Operations
Attributable to Common
Shares (2)............ $ 161,059 $ 116,890 $ 84,060 $ 46,307 $ 7,189
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Income Producing Real
Estate Owned, at Cost. $2,653,604 $2,274,684 $1,622,404 $1,073,026 $ 354,436
Land Held for Develop-
ment.................. 159,645 109,316 60,363 42,147 21,667
Total Assets........... 3,033,953 2,462,306 1,833,972 1,194,937 401,855
Mortgage Notes Payable. 133,028 139,952 145,276 144,262 40,109
Long-Term Debt......... 724,052 524,191 324,527 -- --
Total Liabilities...... 1,003,912 805,933 639,040 350,607 141,618
Minority Interest...... 53,304 56,984 58,741 66,555 50,786
Total Shareholders' Eq-
uity.................. $1,976,737 $1,599,389 $1,136,191 $ 777,775 $ 209,451
Number of Common Shares
Outstanding........... 117,364 93,677 81,416 64,587 19,762
</TABLE>
- --------
(1) 1997 net earnings attributable to Common Shares includes a one-time
adjustment of $75.4 million relating to the costs incurred in acquiring
the REIT Manager and the Property Manager from Security Capital in
September 1997. This expense is not deducted for the purposes of
calculating funds from operations due to its non-recurring and non-cash
nature.
(2) Funds from operations represents net earnings computed in accordance with
generally accepted accounting principles ("GAAP") before minority interest
and before gains/losses on disposition of depreciated
49
<PAGE>
property, plus real estate depreciation and amortization, significant non-
recurring items and significant non-cash items. Funds from operations
should not be considered as an alternative to net earnings or any other
GAAP measurement of performance as an indicator of SCI's operating
performance or as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity. SCI believes that funds
from operations is helpful to a reader as a measure of the performance of
an equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides a reader with an
indication of the ability of SCI to incur and service debt, to make capital
expenditures and to fund other cash needs. On January 1, 1995, SCI adopted
the National Association of Real Estate Investment Trusts' ("NAREIT")
revised definition of funds from operations. Under this more conservative
definition, loan cost amortization is not added back to net earnings in
determining funds from operations. For comparability, funds from operations
for the periods prior to January 1, 1995 give effect to the revised
definition. The funds from operations measure presented by SCI, while
consistent with the NAREIT definition, will not be comparable to similarly
titled measures of other REITs which do not compute funds from operations
in a manner consistent with SCI. Funds from operations are not intended to
represent cash made available to shareholders. Cash distributions paid to
shareholders are presented above in the "Operating Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with SCI's financial
statements and the notes thereto included in Item 14 of this report.
The statements contained in this discussion 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. These forward-looking statements are based on current
expectations, estimates and projections about the industry and markets in
which SCI operates, management's beliefs, and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions ("Future Factors") which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements. Future Factors include: (i)
changes in general economic conditions in its target markets that could
adversely affect demand for SCI's properties and the creditworthiness of SCI's
customers, (ii) changes in financial markets and interest rates that could
adversely affect SCI's cost of capital and its ability to meet its financial
needs and obligations, (iii) increased or unanticipated competition for
distribution properties in SCI's target markets, and (iv) those factors
discussed below. These are representative of the Future Factors that could
affect the outcome of the forward-looking statements.
OVERVIEW
General
SCI's operating results depend primarily upon net operating income from
distribution properties, which is substantially influenced by (i) the demand
for and supply of distribution properties in SCI's target market cities, (ii)
the pace and economic returns at which SCI can acquire and develop additional
distribution properties, (iii) the extent to which SCI can sustain improved
market performance as measured by lease rates and occupancy and (iv) the
operating performance of SCI's unconsolidated subsidiaries (see "--Results of
Operations--Income from Unconsolidated Subsidiaries").
No assurance can be given that expected trends for the remainder of 1998 in
leasing rates and economic returns on acquired and developed properties will
be realized. There are risks associated with SCI's development and acquisition
activities which include Future Factors such as: development and acquisition
opportunities explored by SCI may be abandoned, construction costs of a
project may exceed original estimates due to increased materials, labor or
other expenses; and construction and lease-up may not be completed on
schedule, resulting in increased debt service expense and construction costs.
Acquisition activities entail risks that
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investments will fail to perform in accordance with expectations and that
analysis with respect to the cost of improvements to bring an acquired project
up to standards will prove inaccurate, as well as general investment risks
associated with any new real estate investment. Although SCI undertakes a
thorough evaluation of the physical condition of each proposed investment
before it is acquired, certain defects or necessary repairs may not be
detected until after it is acquired, which could increase SCI's total
acquisition cost. Risks include the occurrence of any of the events described
above that could adversely affect SCI's ability to achieve its projected
returns on acquisitions and projects under development and could hinder SCI's
ability to make expected distributions.
SCI's target market cities and submarkets have benefited substantially in
recent periods from demographic trends (including population and job growth)
which influence the demand for distribution properties. SCI believes its
ability to compete is significantly enhanced relative to other companies
because of its depth of management and ability to serve customers through the
SCI International Operating System(TM), which includes acquisition,
development, and property management personnel, and presence in local markets.
SCI expanded its operations into Mexico and Europe in the first half of 1997
to meet the needs of its targeted national and international customers as they
expand and reconfigure their distribution facility requirements globally. With
six target market cities identified in Mexico and 20 identified in Europe, SCI
believes that there are significant growth opportunities internationally. As a
result of acquisitions and developments of distribution properties for the
twelve months of 1997, SCI's rentable square footage of operating properties
increased by 10.2 million square feet or 12.7% to 90.8 million square feet as
of December 31, 1997 from 80.6 million square feet as of December 31, 1996.
SCI frequently acquires distribution properties that are underleased, and
develops such properties, which are not fully leased at the start of
construction, which reduces SCI's overall occupancy rate below its stabilized
level but provides opportunities to increase revenues. The term "stabilized"
means that capital improvements, repositioning, new management and new
marketing programs (or development and marketing, in the case of newly
developed properties) have been completed and in effect for a sufficient
period of time (but in no case longer than 12 months for properties acquired
by SCI and 12 months after shell completion for properties developed by SCI)
to achieve stabilized occupancy (typically 93%, but ranging from 90% to 95%,
depending on the submarket and product type) at market rents. SCI has been
successful in increasing occupancies on acquired and developed properties
during their initial months of operations resulting in an occupancy rate of
95.5% and a leased rate of 96.4% for stabilized properties owned as of
December 31, 1997. The average increase in rental rates for new and renewed
leases on previously leased space (17.8 million square feet) during 1997 was
19.2%. As leases are renewed or new leases are acquired, SCI expects most
lease rates on renewals or new leases to increase in 1998. These factors
should improve SCI's results of operations. Capital and credit market
conditions which affect SCI's cost of equity and debt capital may influence
future growth in operating results.
Consummation of Merger Transaction
On September 9, 1997, SCI terminated its REIT management agreement with the
REIT Manager and its property management agreement with the Property Manager
(collectively the "Management Companies"), pursuant to the Merger whereby SCI
acquired the operations and businesses of the Management Companies valued at
approximately $81.9 million from Security Capital in exchange for 3,692,023
Common Shares. The number of Common Shares issued to Security Capital was
determined using a per Common Share price of $22.175 (the average market price
of Common Shares over the five-day period prior to the August 6, 1997 record
date for determining SCI's shareholders entitled to vote on the Merger). The
Board of Trustees approved the Merger transaction based on the recommendation
of a special committee comprised of independent Trustees. The Merger, which
required the approval of a majority of SCI's outstanding Common Shares, was
approved by approximately 99% of the shareholders voting on the transaction on
September 8, 1997. As a result of the transaction, SCI became an internally
managed REIT and Security Capital remains SCI's largest shareholder (42.5%
ownership based on outstanding Common Shares as of December 31, 1997 and 36.8%
on a diluted basis assuming conversion of Series B Preferred Shares and
limited partnership units and the exercise of options and warrants).
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The financial impact of the Merger is discussed in more detail below under
"--Results of Operations" and "--Liquidity and Capital Resources."
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar business activities.
SCI has undertaken a review of all of its computer systems and applications
to determine if these programs are Year 2000 compliant and if not, the efforts
that will be necessary to bring the programs into compliance. SCI has not
identified any computer system or application that, upon failure to be Year
2000 compliant, would have a material adverse impact on its business
activities or results of operations. However, the preliminary results of this
review indicate that some of SCI's accounting and financial reporting
applications are not Year 2000 compliant. For purposes of enhancing operating
efficiencies, SCI has already undertaken a project that will replace its core
financial systems with computer software that will better serve SCI in the
future. This new software, that is expected to be fully operational by the end
of 1999, is Year 2000 compliant.
SCI is currently evaluating any necessary modifications to other existing
software programs such that the programs will function properly with respect
to dates in the year 2000. The cost of these modifications is not expected to
be material and all conversions and modifications are expected to be completed
in a timely manner.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net earnings attributable to Common Shares for the year ended December 31,
1997 and 1996 were $4.4 million and $53.5 million, respectively, a decrease of
$49.1 million (91.8%). This decrease resulted primarily from a one-time, non-
cash charge of approximately $75.4 million related to the costs incurred in
acquiring the businesses and operations of the Management Companies from
Security Capital. See "--Costs Incurred in Acquiring Management Companies from
a Related Party." The impact of this one-time charge, a $6.4 million foreign
exchange loss see "--Foreign Exchange Loss," increased depreciation expense,
increased preferred share dividends and higher interest expense (due to larger
debt balances) was partially offset by a $7.0 million increase in Other Real
Estate Income, $3.3 million of income from 1997 investments in unconsolidated
subsidiaries, a $7.4 million increase in gains on dispositions of real estate
and an increase in earnings from SCI's distribution properties.
Historically, the primary components of revenue and earnings growth have
been from rental and occupancy rate growth in existing properties and
acquisition and development activity. As of December 31, 1997, SCI owned 1,005
operating properties totaling 90.8 million square feet with a historical cost
of $2.7 billion. A discussion of the major components of SCI's results of
operations follows. Net earnings are expected to increase in subsequent
periods due to the acquisition and development of additional operating
properties, continued increases in the prestabilized portfolio rental and
occupancy rates and in the stabilized portfolio rental rates, and additional
investments in unconsolidated subsidiaries.
Rental Revenues
Rental revenues for 1997 increased by $57.5 million or 25.3% to $284.5
million, as compared to $227.0 million for 1996. Of this increase, $16.8
million was generated by the 110 properties acquired in 1996, $24.2
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million was generated by the 86 development properties completed in 1996, $6.3
million was generated by the 52 properties acquired in 1997, and $8.9 million
was generated by the 65 development properties completed in 1997. The
remaining $1.3 million increase was attributable to a $5.4 million increase in
revenues from the 703 properties owned at January 1, 1996 less a $4.1 million
decrease in revenues from the 52 properties owned at January 1, 1996 that were
disposed of between January 1, 1996 and December 31, 1997. Of the properties
acquired and developed in 1997 and 1996, 11 have been disposed of as of
December 31, 1997.
Other Real Estate Income
Other real estate income increased by $7.0 million or 132% to $12.3 million
for 1997 from $5.3 million for 1996. Other real estate income consists
primarily of gains on disposition of undepreciated property and fees and other
income from the corporate distribution facilities services business, the
majority of which is generated by SCI Development Services Incorporated ("SCI
Development Services"). SCI Development Services develops corporate
distribution facilities that do not meet SCI's investment criteria for long-
term ownership and works on a fee basis for customers who want to own their
own facilities. SCI Development Services is expected to generate recurring
income in subsequent periods. Through its preferred stock ownership, SCI will
realize substantially all economic benefits of SCI Development Services'
activities. The activities of SCI Development Services are consolidated with
SCI. SCI Development Services pays federal and state taxes at the applicable
corporate rate.
Income from Unconsolidated Subsidiaries
Income from unconsolidated subsidiaries relates to SCI's 1997 investments in
SCI Logistics Services Incorporated ("SCI Logistics"), and notes receivable
from SCI Logistics and CS Integrated LLC ("CSI") (see "--Financial Statements,
Footnote 4: Investments in and Advances to Unconsolidated Subsidiaries"). SCI
Logistics' primary source of income is its ownership interest in CSI. At the
time of SCI's initial investment in SCI Logistics on April 24, 1997, SCI
Logistics owned 60% of CSI. On September 1, 1997, SCI Logistics increased its
ownership interest to 71.1% of CSI through additional capital contributions in
conjunction with the acquisition of Texas Cold Storage, adding 9.7 million
cubic feet to CSI's refrigerated warehousing network. On November 4, 1997, SCI
made additional capital contributions for the purchase of Continental
Freezers, adding another 11 million cubic feet to CSI's refrigerated
warehousing network and bringing SCI Logistics' ownership interest to 77.1%.
As of December 31, 1997, CSI operated or had under development 78.6 million
cubic feet of refrigerated warehousing.
Interest Income
Interest income for 1997 increased by $1.3 million to $2.4 million, from
$1.1 million in 1996. The increase in interest income was a result of higher
interest rates and higher cash balances in interest bearing accounts.
Rental Expenses and Acquisition of Property Manager
Rental expenses, including property management fees paid to a related party,
net of recoveries from customers, increased by $300,000 or 1.1% to $27.0
million for 1997 from $26.7 million for 1996. Gross expenses, before the
deduction of amounts recovered from tenants, were approximately 26% of rental
income for both 1997 and 1996. Net rental expenses (including property
management fees paid to a related party) decreased to 9.5% of total rental
revenues compared to 11.8% for 1996.
As a result of the Merger on September 9, 1997, SCI acquired the operations
of the Property Manager, which managed approximately 96% of SCI's operating
portfolio prior to the Merger. Beginning September 9, 1997, SCI no longer pays
a property management fee on the properties managed by its Property Manager;
however, SCI has included actual personnel and other operating costs of this
property management function in rental expenses on its Statement of
Operations.
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Interest Expense
Interest expense increased by $13.9 million or 35.8% to $52.7 million for
1997 from $38.8 million for 1996. Total interest capitalized increased by $2.3
million or 14.3% to $18.4 million for 1997 from $16.1 million for 1996. The
increase in interest expense was principally due to the issuance of $200
million in Senior Notes on May 17, 1996, the issuance of $100 million of
Medium-Term Notes Series A on February 4, 1997 and the issuance of $100
million of Senior Notes on July 11, 1997. See "--Liquidity and Capital
Resources." The capitalized interest increase is attributable to increased
development activity in 1997.
REIT Management Fee and Acquisition of REIT Manager
The REIT management fee paid by SCI decreased by approximately $3.7 million
to $17.8 million or 17.2% during 1997 as compared to $21.5 million in 1996 due
to the termination of the REIT management agreement upon consummation of the
Merger on September 9, 1997. Pursuant to the consummation of the Merger, SCI
acquired the REIT Manager and Property Manager and became an internally
managed REIT. Subsequent to September 8, 1997, the REIT management fee was
replaced with the actual personnel and other operating costs associated with
the REIT management function. These costs are recorded as general and
administrative expenses. Direct and incremental costs related to successful
development, acquisition and leasing activities have been capitalized in
accordance with GAAP.
Upon consummation of the Merger, SCI entered into an administrative services
agreement (the "Administrative Services Agreement") with Security Capital for
services which include, but are not limited to, payroll and human resources,
cash management, accounts payable, MIS support and other computer services,
research, investor relations and insurance, legal and tax administration.
These services are provided in exchange for a fee equal to Security Capital's
direct cost of providing the service plus an overhead factor of 20%, subject
to a maximum of approximately $2.0 million during 1997 and $5.1 million for
1998. Administrative Services Agreement fees from the Merger date through
December 31, 1997, under this agreement aggregated $1.1 million. The
Administrative Services Agreement, which expires on December 31, 1998,
provides for automatic renewals of consecutive one-year terms, subject to
approval by a majority of the independent Trustees.
Cost Incurred in Acquiring Management Companies from a Related Party
The market value of the 3,692,023 Common Shares issued to Security Capital
on the Merger date was approximately $79.8 million, based on the $21.625 per
share closing price of the Common Shares on September 9, 1997, the date the
Merger became effective, of which approximately $4.4 million was allocated to
the estimated fair value of the tangible net assets acquired. The $75.4
million difference was accounted for as costs incurred in acquiring the
Management Companies from a related party, rather than "goodwill," since for
accounting purposes the Management Companies were not considered "businesses"
for purposes of applying APB Opinion No. 16 "Business Combinations." This one-
time adjustment was recorded as an expense on SCI's Statement of Operations
but was not deducted for purposes of calculating funds from operations, due to
the non-recurring and non-cash nature of this expense.
Foreign Exchange Loss
On December 22, 1997, SCI entered into two separate contracts to (1)
exchange $373.8 million for 2.9 billion Swedish krona and (2) exchange 310.0
million German marks for $175.0 million in anticipation of the January 1998
acquisition and planned European currency denominated financing of
Frigoscandia AB; see "--Liquidity and Capital Resources" and see "--Financial
Statements, Footnote 15: Subsequent Events." The contracts were marked to
market at December 31, 1997, resulting in a net foreign exchange loss of $6.0
million due to the U.S. dollar's strength against these currencies. These
foreign exchange hedges were one-time, non recurring contracts that fixed the
exchange rate between the U.S. dollar and the Swedish krona and German mark
after SCI had entered into the purchase agreement to acquire Frigoscandia AB,
which required payment in Swedish krona. The contracts were executed
exclusively for the acquisition and financing of Frigoscandia AB
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and were not entered into to hedge on-going income in foreign currencies. The
remeasurement of intercompany debt on the financial statements of SCI's
consolidated foreign subsidiaries into their functional currency resulted in a
foreign exchange loss of $348,000 for the year ended December 31, 1997. The
loss was associated with the remeasurement of intercompany loans between a
wholly owned foreign subsidiary of SCI and its associated foreign
subsidiaries.
Other Expense
Other expense increased by $1.0 million or 34.5% to $3.9 million for 1997
from $2.9 million for 1996. Other expenses consist of land holding costs and
acquisition and corporate distribution facilities services pursuit cost write-
offs. Land holding costs were $2.3 million for 1997 compared to $1.5 million
for 1996, and acquisition and corporate distribution facilities services
pursuit cost write-offs were $1.6 million for 1997 compared to $1.4 million in
1996. The increase is primarily the result of increased acreage and value in
land holdings.
Preferred Share Dividends
In June 1995, SCI issued $135 million of Series A Cumulative Redeemable
Preferred Shares ("Series A Preferred Shares") that have an annual dividend of
$2.35 per share (equivalent to an annual dividend rate of 9.4% of the
liquidation preference), which totaled $12.7 million annually for 1997 and
1996. In February 1996, SCI issued $201.3 million of Series B Cumulative
Convertible Redeemable Preferred Shares ("Series B Preferred Shares") that
have an annual dividend of $1.75 per share (equivalent to an annual dividend
rate of 7% of the liquidation preference) which totaled $14.1 million for 1997
compared to $12.1 million for the period from the February issue date through
December 31, 1996. In November 1996, SCI issued $100 million of Series C
Cumulative Redeemable Preferred Shares ("Series C Preferred Shares") that have
an annual dividend of $4.27 per share (equivalent to an annual dividend rate
of 8.54% of the liquidation preference) which totaled $8.5 million for 1997
and $1.1 million from the November issue date to December 31, 1996.
1996 COMPARED TO 1995
Net earnings attributable to Common Shares increased by $11.5 million or
27.4% to $53.5 million in 1996 from $42.0 million in 1995. The increase in net
earnings was principally due to the increase in the number of distribution
properties in operation, resulting from 1996 and 1995 acquisition and
development activity. Historically, the primary components of revenue and
earnings growth have been SCI's acquisition and development activity. SCI
acquired and developed 942 operating properties totalling 80.6 million square
feet from its inception through December 31, 1996 at a historical cost of $2.3
billion. As a result of 1996 acquisition and development activity, SCI's
rentable square footage increased by 22.1 million square feet or 37.8% to 80.6
million square feet as of December 31, 1996 from 58.5 million square feet as
of December 31, 1995.
Rental Revenues
Rental revenues for 1996 increased by $73.1 million or 47.5% to $227.0
million, as compared to $153.9 million for 1995. Of this increase, $27.8
million was generated by the 181 properties acquired in 1995, $11.5 million
was generated by the 49 developments completed in 1995, $18.6 million was
generated by the 111 properties acquired in 1996, and $12.9 million was
generated by the 86 developments completed in 1996. The remaining $2.3 million
increase was attributable to revenue increases in the 526 properties owned at
January 1, 1995. The revenue increase in properties owned at January 1, 1995
was due to an increase in their average occupancy level from 94.33% for 1995
to 95.69% for 1996 and increased rental rates on leases signed on previously
occupied space.
Other Real Estate Income
Other real estate income consists primarily of gains on disposition of
undepreciated property and fees and other income from corporate distribution
facilities customers generated to a large extent by SCI Development Services.
SCI Development Services develops corporate distribution facilities or works
on a fee basis for
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customers whose space needs do not meet SCI's strict investment criteria for
long-term ownership. Through its preferred stock ownership, SCI will realize
substantially all economic benefits of SCI Development Services' activities.
The activities of SCI Development Services are consolidated with SCI. SCI
Development Services pays federal and state taxes at the applicable corporate
rate.
Interest Income
Interest income for 1996 decreased $604,000 from 1995, primarily resulting
from the investment of lower average balances of cash and cash equivalents in
interest bearing accounts in 1996 as compared to 1995.
Rental Expenses
Rental expenses, net of recoveries, increased by $8.2 million or 44.3% to
$26.7 million in 1996 from $18.5 million in 1995. The increase in rental
expenses was primarily attributable to 1995 and 1996 acquisitions and
developments, which increased SCI's rentable square footage by 19.4 million
square feet in 1995 and 22.1 million square feet in 1996, to 80.6 million
square feet as of December 31, 1996 from 39.1 million square feet as of
December 31, 1994.
Interest Expenses
Interest expense increased by $6.8 million or 21.3% to $38.8 million in 1996
from $32.0 million in 1995. Total interest capitalized increased by $7.5
million or 87.2% to $16.1 million in 1996 from $8.6 million in 1995. The
increase in interest expense was principally caused by the issuance of $325
million in Senior Notes during 1995 and the issuance of $200 million in
additional Senior Notes in May 1996 (see "--Liquidity and Capital Resources").
The capitalized interest increase was attributable to increased development
activity in 1996.
REIT Management Fee
The REIT management fee paid by SCI was based on SCI's cash flow before the
REIT management fee and therefore increased in 1996 to $21.5 million from
$14.2 million in 1995 because cash flow increased substantially. See "--
Overview--Consummation of Merger Transaction."
Other Expense
Other expense increased by $0.7 million or 31.8% to $2.9 million in 1996
from $2.2 million in 1995. Other expenses consist of land holding costs and
acquisition and corporate distribution facilities services pursuit cost write-
offs. Land holding costs were $1.5 million in 1996 compared to $1.1 million in
1995, and acquisition and corporate distribution facilities services pursuit
cost write-offs were $1.4 million in 1996 compared to $1.1 million in 1995.
The increase is principally the result of the increased acreage and value in
land holdings and an increase in the amount of build-to-suit activity.
Preferred Share Dividends
In June 1995, SCI issued $135.0 million of Series A Preferred Shares that
are entitled to receive an annual dividend of $2.35 per share (equivalent to
an annual dividend rate of 9.4% of the liquidation preference), which amounted
to $12.7 million in 1996 compared to $6.7 million for the period from the June
1995 issue date through December 31, 1995. In February 1996, SCI issued $201.3
million of Series B Preferred Shares that are entitled to receive an annual
dividend of $1.75 per share (equivalent to an annual dividend rate of 7% of
the liquidation preference), which amounted to $12.1 million for the period
from the February 1996 issue date through December 31, 1996. On November 13,
1996, SCI issued $100.0 million of Series C Preferred Shares that are entitled
to receive an annual dividend of $4.27 per share (equivalent to an annual
dividend rate of 8.54% of the liquidation preference) which amounted to $1.1
million for the period from the November 1996 issue date to December 31, 1996.
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ENVIRONMENTAL MATTERS
SCI did not experience any environmental condition on its properties which
materially adversely affected its results of operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased by $56.1 million or 41.2%
from $136.2 million in 1996 to $192.3 million in 1997, primarily as a result
of increased properties in operation. Cash used in investing activities
decreased from $665.9 million in 1996 to $570.9 million in 1997. Cash provided
by financing activities decreased to $398.8 million in 1997 compared to $512.2
million in 1996. Cash provided by financing activities for 1997 consisted
primarily of $199.8 million of proceeds from the long-term debt offerings in
February and July 1997 and $405.0 million of net proceeds from SCI's offerings
of Common Shares in February, September and December of 1997, less $38.6
million net repayment of the line of credit. Cash provided by financing
activities for 1996 consisted primarily of $199.6 million of proceeds from the
May 1996 long-term debt offering, $289.4 million of net proceeds from the sale
of the Series B Preferred Shares and Series C Preferred Shares and $210.8
million of net proceeds from SCI's rights offering of Common Shares, less
$42.4 million net repayment of the line of credit. Additionally, distributions
paid to common and preferred shareholders and to minority interests were
$147.5 million in 1997 compared to $116.5 million in 1996, and mortgage
payments were $19.7 million in 1997 compared to $23.4 million in 1996.
On March 12, 1998, SCI commenced an underwritten public offering of
3,750,000 Common Shares with net proceeds to SCI of $24.045 per share. The
offering provides for a 30-day over-allotment option of up to 562,500 Common
Shares. Net proceeds to SCI would be $90.2 million or up to $103.7 million if
the over-allotment option is exercised in full. The offering is expected to
close on March 18, 1998.
SCI is contemplating making an offering (the "Contemplated Preferred Share
Offering") of approximately $125 million of preferred shares having terms
substantially similar to SCI's Series C Preferred Shares. There can be no
assurances, however, that the Contemplated Preferred Share Offering will be
consummated on these terms.
On December 22, 1997, SCI raised net proceeds of $200.0 million from a
private placement of 8,416,667 Common Shares at a price of $24 per share. SCI
paid Security Capital Markets Group Incorporated, a registered broker-dealer
subsidiary of Security Capital, a $2.0 million fee for their services in
connection with the offering.
On September 8, 1997, SCI's shareholders approved a long-term incentive
plan. Approximately 9.4 million Common Shares have been reserved for issuance
under this plan. On September 8, 1997, SCI granted options (that have five- or
nine-year vesting schedules) to purchase 3,068,152 Common Shares at $21.21875
per share (the average of the high and low market price on September 8, 1997)
to officers and certain employees of SCI. See "--Financial Statements,
Footnote 7: Shareholders Equity." Also under the long-term incentive plan,
certain officers and employees of SCI purchased 1,356,834 Common Shares at a
price of $21.21875 per share and SCI financed 95% of the total purchase price
through ten-year, recourse loans to the participants aggregating $27.3
million.
On August 6, 1997, in connection with the consummation of the Merger, SCI
issued 3,692,023 Common Shares to Security Capital and commenced a rights
offering to sell 4,970,352 Common Shares at $21 per share. On September 9,
1997, SCI offered 994,070 additional Common Shares at $21 per share to third
party subscribers in the rights offering that were not accepted in whole or in
part due to demand in excess of the Common Shares offered. All of these Common
Shares were issued in September 1997, and net proceeds from these offerings
totaled $124.9 million.
On July 11, 1997, SCI issued $100 million of Senior Notes due 2017 (the
"July 1997 Notes"). The July 1997 Notes bear interest at 7.625% per annum
payable semi-annually on January 1 and July 1 of each year. The principal will
mature on July 1, 2017. The average effective interest cost is 7.73%,
including all costs associated with the offering plus $235,759 of combined
proceeds from the termination of a forward treasury lock agreement and a swap
agreement entered into in November 1996 in anticipation of the July debt
offering. The forward treasury lock agreement was on a notional amount of $26
million of U.S. Treasury bonds maturing August 15,
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2026 with a base price of 103.453% and effectively fixed the 30-year Treasury
bond used to price the July 1997 Notes at a rate of 6.56%. The termination of
the forward treasury lock resulted in a gain of $174,319. The swap agreement
had a notional amount of $33.0 million and required SCI to pay a fixed rate of
6.61% on the notional amount in exchange for a floating rate equal to the
three-month LIBOR rate. The termination of the swap on July 8, 1997 resulted
in a gain of $61,440.
On February 7, 1997, SCI completed a public offering of 4,025,000 Common
Shares. Net proceeds to SCI after underwriting discounts and offering costs
were $80.4 million.
On February 4, 1997, SCI issued $100.0 million of Series A 2015 Notes under
its $200 million Medium-Term Note program (the "Medium-Term Note program").
The Series A 2015 Notes will bear interest at 7.81%, payable semi-annually on
February 1 and August 1. Installments of principal will be paid annually on
each February 1, commencing February 1, 2010, in the following amounts: $20
million in 2010, $15 million 2011, $15 million in 2012, $20 million in 2013,
$20 million in 2014 and $10 million in 2015. The Series A 2015 Notes have a
weighted average life to maturity of 15.35 years. The average effective
interest cost is 7.73%, including all costs associated with the offering plus
$1.7 million in proceeds received on January 31, 1997 in connection with two
interest rate protection agreements entered into in August 1996 and November
1996 in anticipation of the debt offering. Both the August 1996 and the
November 1996 interest rate protection agreements were in the form of a
forward treasury lock agreement with an investment bank. The August agreement
included a notional principal amount of $30.0 million and a reference price of
99.653 on the thirty year Treasury Bond. The November agreement included a
notional principal amount of $50.0 million and a reference price of 101 29/32
on the ten-year Treasury Note. The settlement date on both contracts was
January 31, 1997.
In November 1996, SCI established the Medium-Term Note program. Under such
program, SCI may offer up to $200.0 million in Medium-Term Notes, Series A,
due nine months or more from the date of issue. Each note will bear interest
at a fixed rate or at a variable rate determined by reference to an interest
rate formula and will be issued either as an amortizing note or as an original
issue discount note. As of March 12, 1998, $100.0 million remains available to
be issued under this program.
On November 13, 1996, SCI issued 2,000,000 Series C Preferred Shares. The
Series C Preferred Shares have a liquidation preference of $50.00 per share
for an aggregate liquidation preference of $100 million plus accrued and
unpaid dividends. The net proceeds (after underwriting commission and other
offering costs) of the Series C Preferred Shares issued were $97.1 million.
Holders of the Series C Preferred Shares are entitled to only limited voting
rights under certain conditions. Holders of the Series C Preferred Shares are
entitled to receive, when, as and if declared by the Board of Trustees, out of
funds legally available for payment of distributions, cumulative preferential
cash distributions at a rate of 8.54% of the liquidation preference per annum
(equivalent to $4.27 per share), payable quarterly in arrears on the last day
of March, June, September and December of each year. On or after November 13,
2026, the Series C Preferred Shares may be redeemed for cash at the option of
SCI. The redemption price (other than the portion thereof consisting of
accrued and unpaid distributions) is payable solely out of the sale proceeds
of other capital shares of SCI, which may include shares of other series of
preferred shares. The Series C Preferred Shares rank on a parity with the
Series A Preferred Shares and the Series B Preferred Shares with respect to
payment of distributions and amounts upon liquidation. In anticipation of the
Series C Preferred Share offering, an interest rate swap agreement was entered
into on October 31, 1996 with a termination date of November 11, 1996. The
notional principal amount was $90.0 million with a fixed rate of 6.707%
payable by SCI in exchange for a floating rate equal to the bid yield-to-
maturity on the 6% U.S. Treasury Bond due February 15, 2026. SCI paid $224,721
to terminate the swap agreement on November 11, 1996.
On August 21, 1996, SCI commenced a rights offering to sell 6,787,806 Common
Shares at $17.25 per Common Share and also authorized an additional 3,393,903
Common Shares for oversubscriptions or third party subscribers. In September
1996, SCI issued 7,865,645 Common Shares of the 10,181,709 Common Shares
subscribed for and recorded subscriptions receivable of $40.0 million. In
October 1996, 2,316,064 Common Shares were issued and all subscriptions
receivable were collected. Gross proceeds from the offering totaled $175.6
million. On September 24, 1996, SCI offered 2,036,342 Common Shares to third
party subscribers to SCI's rights offering of August 21, 1996 that were not
accepted in whole or in part due to demand in excess of
58
<PAGE>
the Common Shares offered. All of the Common Shares were subscribed for as of
September 30, 1996 and subscriptions receivable for gross proceeds of $35.1
million recorded. In October 1996, all of such Common Shares were issued and
all subscriptions receivable were collected.
On May 17, 1996, SCI issued $50 million of Senior Notes due 2002 (the "2002
Notes"), $100 million of Senior Notes due 2008 (the "2008 Notes"), and $50
million of Senior Notes due 2016 (the "2016 Notes"), and together with the
2002 Notes and the 2008 Notes, (the "May 1996 Notes"). The 2002 Notes bear
interest at 7.25% per annum and require annual principal payments of $12.5
million, commencing May 15, 1999. The 2008 Notes bear interest at 7.95% per
annum and require annual principal payments of $25 million, commencing May 15,
2005. The 2016 Notes bear interest at 8.65% per annum and require aggregate
annual principal payments of $5 million, commencing 2010 through 2013, $7.5
million in 2014, $10 million in 2015, and $12.5 million in 2016. In order to
lock in interest rates for the 2016 Notes prior to pricing of such Notes, SCI
entered into an interest rate protection agreement in the form of a forward
treasury lock agreement with an investment bank on May 9, 1996. The agreement
included a determination date of May 15, 1996 and a settlement date of May 16,
1996. The notional amount was $50 million with a reference price of 97.203. On
the pricing date of May 14, 1996, the forward treasury lock agreement was
unwound at a price of 99.375 and SCI paid $1.086 million in settlement. The
lower interest rate obtained on the pricing date of May 14, 1996 plus the
$1.086 million settlement payment resulted in SCI achieving the equivalent of
the rate that was locked in on May 9, 1996 for the 2016 Notes. In order to
hedge a portion of the 2008 Notes prior to pricing such Notes, SCI entered
into an interest rate swap agreement with an investment bank on May 9, 1996.
The agreement included an effective date of May 15, 1996 and termination date
of May 15, 2006. The notional amount of the interest rate swap agreement was
$50 million. On May 14, 1996, the interest rate swap agreement was terminated
and SCI paid $837,000 in settlement. The lower interest rate obtained on the
pricing date of May 14, 1996 plus the $837,000 settlement resulted in SCI
achieving an interest rate which approximated market interest rates on May 9,
1996 for a portion of the 2008 Notes. Collectively, the May 1996 Notes
originally had an average life to maturity of 10.8 years and an average
effective interest cost, inclusive of offering discounts, issuance costs and
the interest rate protection agreements of 8.41% per annum.
On February 21, 1996 and February 26, 1996, SCI issued a total of 8,050,000
Series B Preferred Shares. The Series B Preferred Shares have a liquidation
preference of $25.00 per share for an aggregate liquidation preference of
$201.3 million plus any accrued and unpaid dividends. Holders of the Series B
Preferred Shares are entitled only to limited voting rights under certain
conditions. The Series B Preferred Shares are convertible at any time, unless
previously redeemed, at the option of the holders thereof into Common Shares
at a conversion price of $19.50 per Common Share (equivalent to a conversion
rate of 1.282 Common Shares for each Series B Preferred Share), subject to
adjustment in certain circumstances. As of March 12, 1998, 7,981,700 Series B
Preferred Shares remain outstanding. Holders of the Series B Preferred Shares
are entitled to receive, when, as and if declared by the Board, out of funds
legally available for the payment of distributions, cumulative preferential
cash distributions in an amount per share equal to the greater of 7% of the
liquidation preference per annum (equivalent to $1.75 per share) or the
distributions on the Common Shares, or portion thereof, into which a Series B
Preferred Share is convertible. Such distributions will equal the number of
Common Shares, or portion thereof, into which a Series B Preferred Share is
convertible. Such distributions are cumulative from the date of original issue
and are payable quarterly in arrears on the last day of March, June, September
and December of each year. The Series B Preferred Shares are redeemable at the
option of SCI on or after February 21, 2001. The Series B Preferred Shares
rank on parity with the Series A Preferred Shares and the Series C Preferred
Shares with respect to payment of distributions and amounts upon liquidation.
As of December 31, 1997, SCI had outstanding Notes with a face value of
$725.0 million, which include the July 1997 Notes, the Series A 2015 Notes and
the May 1996 Notes (the "Notes") and which are redeemable at any time at the
option of SCI, in whole or in part, at a redemption price equal to the sum of
the principal amount of the Notes being redeemed plus accrued interest thereon
to the redemption date plus an adjustment, if any, based on the yield to
maturity relative to market yields available at redemption. Such Notes are
governed by the terms and provisions of an indenture agreement (the
"Indenture") between SCI and State Street Bank and Trust Company, as Trustee.
Under the terms of the Indenture, SCI can incur additional debt only if, after
59
<PAGE>
giving effect to the debt being incurred and application of proceeds
therefrom, (i) the ratio of debt to total assets, as defined in the Indenture,
does not exceed 60%, (ii) the ratio of secured debt to total assets, as
defined in the Indenture, does not exceed 40% and (iii) SCI's pro forma
interest coverage ratio, as defined in the Indenture, for the four preceding
fiscal quarters is not less than 1.5 to 1. In addition, SCI may not at any
time own Total Unencumbered Assets, as defined in the Indenture, equal to less
than 150% of the aggregate outstanding principal amount of SCI's unsecured
debt. As of December 31, 1997, SCI was in compliance with all such debt
covenants.
SCI has a $350.0 million unsecured revolving line of credit agreement with
NationsBank of Texas, N.A. (as agent for a bank group). Borrowings bear
interest at SCI's option, at either an annual rate equal to the lesser of (a)
the greater of the federal funds rate plus 0.5% and the prime rate, or (b)
LIBOR plus .95%, based upon SCI's current senior debt ratings. Additionally,
there is a commitment fee ranging from .125% to .20% per annum of the unused
line of credit balance. The line is scheduled to mature in May 1999 and may be
extended for an additional year with the approval of NationsBank and the other
participating lenders; if not extended, at SCI's election, will either (a)
convert to a three year term note, or (b) continue on a revolving basis with
the remaining one year maturity. All debt incurrences are subject to a
covenant that SCI maintain a debt to tangible net worth ratio of not greater
than 1 to 1. Additionally, SCI is required to maintain an adjusted net worth
(as defined) of at least $1.25 billion, to maintain interest payment coverage
of not less than 2 to 1, and to maintain a fixed charge coverage ratio (as
defined) of not less than 1.75 to 1. As of December 31, 1997, SCI was in
compliance with all covenants contained in the line of credit. Additionally,
SCI has a $25.0 million short-term unsecured borrowing agreement with
NationsBank through October 1998. The interest rate and the maturity date of
each advance on such agreement are determined by agreement between SCI and
NationsBank of the time of each advance. As of March 12, 1998, $275.0 million
of short-term borrowings were outstanding on these credit facilities.
SCI utilizes derivative instruments in anticipation of future financing
transactions in order to manage well defined interest rate risk. Through
hedging, SCI can effectively manage the risk of increases in interest rates on
future debt issuances. In anticipation of debt offerings in 1998, on October
28, 1997, SCI entered into two interest rate protection agreements. A forward
treasury lock agreement was executed with a notional amount of $75.0 million
on the 6 3/8% Treasury bond due August 2027 and a swap agreement was entered
into with a notional amount of $75.0 million on the 6 5/8% Treasury bond due
February 2027. The forward treasury lock has a termination date of March 31,
1998 and effectively locks in the 30-year treasury rate used to price SCI's
debt, at 6.316%. The swap agreement has a termination date of May 31, 1998,
and carries a fixed rate of 6.721% which is a combination of the treasury rate
plus the swap spread and the forward premium.
SCI intends to also utilize derivative instruments in order to manage
currency risk exposure associated with foreign currency denominated purchase
contracts and income in excess of interest expense. As described below, SCI
had two open foreign currency contracts as of December 31, 1997, related to
the January 1998 acquisition of Frigoscandia AB. In future periods SCI will
consider using selective currency hedges through foreign exchange forwards or
options in order to minimize on-going currency gains and losses.
On January 16, 1998, an unconsolidated subsidiary of SCI acquired
Frigoscandia AB, which SCI believes is Europe's largest refrigerated
warehousing company, for a net cost of $395.0 million. The acquisition of
Frigoscandia AB was financed primarily with a short-term $200.0 million bridge
loan from NationsBank, due on March 31, 1998, and $190.0 million of borrowings
on SCI's $350.0 million line of credit. The bridge loan bears interest at an
annual rate equal to the lesser of (a) the greater of the sum of the Federal
Funds Rate plus one-half percent, and (b) the prime rate or the Eurodollar
Rate plus 0.95%. Accrued interest is due and payable as it accrues on the last
day of each month, commencing on January 31, 1998. SCI anticipates repaying
the $200.0 million bridge loan when Frigoscandia AB arranges financing (which
is currently being documented) and repays SCI a $200.0 million short-term loan
made by SCI on January 16, 1998.
On December 22, 1997, SCI entered into foreign exchange forward contracts to
fix the purchase price of the Frigoscandia AB acquisition (U.S. dollar versus
Swedish krona) and to hedge the cost of the planned European currency
denominated financing of the acquisition (German mark versus U.S. dollar). To
fix the purchase price of Frigoscandia AB which was denominated in Swedish
krona, SCI agreed to purchase 2.9 billion
60
<PAGE>
krona against the U.S. dollar at 7.7583 on January 15, 1998. The price of the
krona was at 8.015 on the January 15, 1998 settlement date, resulting in a
total loss of $12.0 million, of which $7.9 million was recognized in the
financial statements as of December 31, 1997. The net effect of the hedge is
that SCI fixed its purchase price in dollars as of December 22, 1997. If the
hedge had not been entered into, SCI would have paid $12.0 million less due to
the dollar appreciating against the Swedish krona. To hedge the cost of the
Frigoscandia AB financing to be denominated in German marks, SCI agreed to
sell 310.0 million German marks against the U.S. dollar at 1.7715 on March 16,
1998. This contract, which will be settled in March 1998, was marked to market
as of December 31, 1997 for a foreign exchange gain of $1.9 million (see "--
Financial Statements, Footnote 13: Fair Value of Financial Instruments").
From inception through December 31, 1997, SCI invested $2.7 billion for the
acquisition and development of 1,005 operating distribution properties and had
invested $85.6 million in refrigerated warehousing through its subsidiary, SCI
Logistics. These acquisitions and developments were financed with cash on
hand, the issuance of limited partnership units, the assumption of existing
mortgage debt and borrowings under SCI's line of credit which were repaid with
the proceeds of SCI's equity and debt offerings.
At December 31, 1997, SCI had $326.7 million of budgeted development cost
for developments in process, of which $146.4 million was unfunded. SCI expects
to finance construction, development and acquisitions primarily with cash on
hand, borrowings under its line of credit, and cash from future securities
offerings. When issuing debt, SCI intends primarily to arrange, fixed rate,
10-year to 30-year debt to finance additional acquisitions and developments.
To a lesser extent, under certain circumstances, SCI may arrange for debt with
different maturities in order to optimize its debt maturity schedule.
SCI considers its liquidity and ability to generate cash from operations and
financings to be adequate and expects it to continue to be adequate to meet
SCI's acquisition, development, operating, debt service and shareholder
distribution requirements.
SCI's current distribution policy is to pay quarterly distributions to
shareholders based upon what the Board and management consider to be a
reasonable percentage of cash flow. Because depreciation is a non-cash
expense, cash flow typically will be greater than earnings from operations and
net earnings. Therefore, quarterly distributions will consistently be higher
than quarterly earnings.
Pursuant to the terms of the Series A Preferred Shares, the Series B
Preferred Shares and the Series C Preferred Shares (the "Preferred Shares"),
SCI is restricted from declaring or paying any distribution with respect to
the Common Shares unless all cumulative distributions with respect to the
Preferred Shares have been paid and sufficient funds have been set aside for
distributions that have been declared for the then current distribution period
with respect to the Preferred Shares. The Preferred Share dividends do not
reduce the amount SCI has budgeted for Common Share distributions, but could
increase the percentage of the Common Share distribution that constitutes a
non-taxable return of capital.
Net cash flow provided by operating activities was $192.3 million for 1997,
compared to $136.2 million for 1996, and $100.2 million for 1995. The primary
differences between the periods relate to new property acquisitions and
development completions as described under "--Results of Operations." SCI's
investment activities used approximately $570.9 million, $665.9 million and
$628.8 million of cash in 1997, 1996 and 1995, respectively. After deducting
distributions to shareholders, SCI's financing activities provided net cash
flow of $398.8 million, $512.2 million and $529.6 million for 1997, 1996 and
1995, respectively.
FUNDS FROM OPERATIONS
Funds from operations attributable to Common Shares increased $44.2 million
or 37.8% to $161.1 million in 1997 from $116.9 million in 1996. Funds from
operations represents SCI's net earnings (computed in accordance with GAAP)
before minority interest and before gains/losses on disposition of depreciated
property, plus real estate depreciation and amortization, significant non-
recurring items and significant non-cash items. SCI believes that funds from
operations is helpful to a reader as a measure of the performance of an equity
REIT
61
<PAGE>
because, along with cash flow from operating activities, financing activities
and investing activities, it provides a reader with an indication of the
ability of SCI to incur and service debt, to make capital expenditures and to
fund other cash needs. On January 1, 1995, SCI adopted the NAREIT revised
definition of funds from operations. Under this more conservative definition,
loan cost amortization is not added back to net earnings in determining funds
from operations. The funds from operations measure presented by SCI, while
consistent with the NAREIT definition, will not be comparable to similarly
titled measures of other REITs which do not compute funds from operations in a
manner consistent with SCI. Funds from operations are not intended to
represent cash made available to shareholders. Cash distributions paid to
shareholders is presented above in "Item 6. Selected Financial Data--Operating
Data." Funds from operations should not be considered as an alternative to net
earnings or any other GAAP measurement of performance as an indicator of SCI's
operating performance, or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity.
STATEMENT OF FUNDS FROM OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Net earnings attributable to Common Shares......... $ 4,431 $ 53,460 $42,015
Add (Deduct):
Depreciation and amortization, including share of
unconsolidated subsidiaries..................... 78,694 59,850 39,767
Minority interest................................ 3,560 3,326 3,331
Costs incurred in acquiring management companies
from a related party............................ 75,376 -- --
(Gain)/loss on disposition of depreciated real
estate.......................................... (7,378) 29 (1,053)
Non-recurring foreign exchange loss.............. 6,376 -- --
Other............................................ -- 225 --
-------- -------- -------
Funds from operations attributable to Common
Shares............................................ $161,059 $116,890 $84,060
======== ======== =======
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SCI's Consolidated Balance Sheets as of December 31, 1997 and 1996, its
Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for
each of the three years in the period ended December 31, 1997, Notes to
Consolidated Financial Statements and Schedule III--Real Estate and
Accumulated Depreciation, together with the reports of Arthur Andersen LLP,
independent public accountants, are included under Item 14 of this report and
are incorporated herein by reference. Selected quarterly financial data is
presented in Note 10 of Notes to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
Not applicable.
62
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding SCI's executive officers, see "Item 1. Business--
Officers and Trustees of SCI." The other information required by this Item 10
is incorporated herein by reference to the description under the captions
"Election of Trustees" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in SCI's definitive proxy statement for its 1998 annual meeting of
shareholders ("1998 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the description under the captions
"Executive Compensation," "Compensation Committee Report on Executive
Compensation," "Trustee Compensation" and "Outside Trustee Plan" in the 1998
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the description under the caption
"Principal Shareholders" in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the description under the caption
"Certain Relationships and Transactions" in the 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a)Financial Statements and Schedules:
1.Financial Statements:
See Index to Consolidated Financial Statements and Schedule on page
F-1 of this report, which is incorporated herein by reference.
2.Financial Statement Schedules:
Schedule III.
All other schedules have been omitted since the required information is
presented in the financial statements and the related notes or is not
applicable.
3.Exhibits:
See Index to Exhibits on pages E-1 to E-4 of this report, which is
incorporated herein by reference.
(b)Reports on Form 8-K: The following report on Form 8-K was filed during
the last quarter of the period covered by this report:
<TABLE>
<CAPTION>
ITEM FINANCIAL
DATE REPORTED STATEMENTS
----------------- -------- ----------
<S> <C> <C>
November 13, 1997 5, 7 Yes
</TABLE>
(c)Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed
in the Index to Exhibits on pages E-1 to E-4 of this report, which is
incorporated herein by reference.
63
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Security Capital Industrial Trust:
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Report of Independent Public Accountants................................. F-30
Schedule III--Real Estate and Accumulated Depreciation................... F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Security Capital Industrial Trust:
We have audited the accompanying consolidated balance sheets of Security
Capital Industrial Trust and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Security Capital
Industrial Trust and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chicago, Illinois
March 13, 1998
F-2
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
------
<S> <C> <C>
Real Estate............................................ $3,006,236 $2,508,747
Less accumulated depreciation........................ 171,525 109,147
---------- ----------
2,834,711 2,399,600
Investments in and Advances to Unconsolidated
Subsidiaries.......................................... 86,139 --
Cash and Cash Equivalents.............................. 25,009 4,770
Accounts Receivable.................................... 12,554 5,397
Other Assets........................................... 75,540 52,539
---------- ----------
Total assets....................................... $3,033,953 $2,462,306
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Line of credit....................................... $ -- $ 38,600
Long-term debt....................................... 724,052 524,191
Mortgage notes payable............................... 87,937 91,757
Securitized debt..................................... 33,197 36,025
Assessment bonds payable............................. 11,894 12,170
Accounts payable and accrued expenses................ 62,850 35,357
Construction payable................................. 27,221 24,645
Net amount due to a related party.................... 1,138 --
Distributions payable................................ 33,449 25,058
Other liabilities.................................... 22,174 18,130
---------- ----------
Total liabilities.................................. 1,003,912 805,933
---------- ----------
Commitments and Contingencies
Minority Interest...................................... 53,304 56,984
Shareholders' Equity:
Series A Preferred Shares; $0.01 par value; 5,400,000
shares issued and outstanding at December 31, 1997
and 1996; stated liquidation preference of $25 per
share............................................... 135,000 135,000
Series B Convertible Preferred Shares; $0.01 par
value; 8,000,300 shares issued and outstanding at
December 31, 1997 and 8,050,000 shares issued and
outstanding at December 31, 1996; stated liquidation
preference of $25 per share......................... 200,008 201,250
Series C Preferred Shares; $0.01 par value; 2,000,000
shares issued and outstanding at December 31, 1997
and 1996; stated liquidation preference of $50 per
share............................................... 100,000 100,000
Common shares of beneficial interest, $0.01 par
value; 117,364,148 shares issued and outstanding at
December 31, 1997 and 93,676,546 shares issued and
outstanding at December 31, 1996.................... 1,174 937
Additional paid-in capital............................. 1,773,465 1,257,347
Employee share purchase notes.......................... (27,186) --
Cumulative translation adjustments..................... (63) --
Distributions in excess of net earnings................ (205,661) (95,145)
---------- ----------
Total shareholders' equity......................... 1,976,737 1,599,389
---------- ----------
Total liabilities and shareholders' equity......... $3,033,953 $2,462,306
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Income:
Rental income.................................... $284,533 $227,000 $153,879
Other real estate income......................... 12,291 5,342 2,899
Income from unconsolidated subsidiaries.......... 3,278 -- --
Interest income.................................. 2,392 1,121 1,725
-------- -------- --------
Total income................................... 302,494 233,463 158,503
-------- -------- --------
Expenses:
Rental expenses, net of recoveries of $42,288 in
1997, $30,469 in 1996 and $17,788 in 1995....... 23,187 21,734 17,028
Property management fees paid to a related party,
net of recoveries of $3,870 in 1997, $3,208 in
1996 and $2,351 in 1995......................... 3,821 4,940 1,432
Depreciation and amortization.................... 76,562 59,850 39,767
Interest expense................................. 52,704 38,819 32,005
REIT management fee paid to a related party...... 17,791 21,472 14,207
Administrative services fee paid to a related
party........................................... 1,113 -- --
General and administrative....................... 5,742 1,025 839
Costs incurred in acquiring management companies
from a related party............................ 75,376 -- --
Foreign exchange loss............................ 6,376 -- --
Other expense.................................... 3,891 2,913 2,234
-------- -------- --------
Total expenses................................. 266,563 150,753 107,512
-------- -------- --------
Net earnings before minority interest and
gain/(loss) on disposition of real estate......... 35,931 82,710 50,991
Minority interest share in net earnings............ 3,560 3,326 3,331
-------- -------- --------
Net earnings before gain/(loss) on disposition of
real estate....................................... 32,371 79,384 47,660
Gain/(loss) on disposition of real estate.......... 7,378 (29) 1,053
-------- -------- --------
Net earnings....................................... 39,749 79,355 48,713
Less preferred share dividends..................... 35,318 25,895 6,698
-------- -------- --------
Net Earnings Attributable to Common Shares......... $ 4,431 $ 53,460 $ 42,015
======== ======== ========
Weighted Average Common Shares Outstanding (Basic). 100,729 84,504 68,924
======== ======== ========
Weighted Average Common Shares Outstanding
(Diluted)......................................... 100,869 84,511 74,422
======== ======== ========
Per Share Net Earnings Attributable to Common
Shares:
Basic............................................ $ 0.04 $ 0.63 $ 0.61
======== ======== ========
Diluted.......................................... $ 0.04 $ 0.63 $ 0.61
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED
SHARES AT SHARES AT SHARES AT CUMU-
COMMON AGGREGATE AGGREGATE AGGREGATE LATIVE DISTRI-
SHARES LIQUI- LIQUI- LIQUI- ADDI- TRANS- BUTIONS EMPLOYEE TOTAL
------------------ DATION DATION DATION TIONAL LATION IN EXCESS SHARE SHARE-
NUMBER PAR PREFER- PREFER- PREFER- PAID-IN ADJUST- OF NET PURCHASE HOLDERS
OF SHARES VALUE ENCE ENCE ENCE CAPITAL MENTS EARNINGS NOTES EQUITY
--------- -------- --------- --------- --------- ---------- ------- --------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994. 64,587 $ 645.8 $ -- $ -- $ -- $ 808,003 $-- $ (30,874) $ -- $ 777,775
Sale of common
shares........... 16,260 162.6 -- -- -- 249,837 -- -- -- 250,000
Sale of preferred
shares........... -- -- 135,000 -- -- -- -- -- 135,000
Dividend
reinvestment and
share purchase
plan............. 13 0.1 -- -- -- 217 -- -- -- 217
Less cost of
raising capital.. -- -- -- (5,022) -- -- -- (5,022)
Limited
partnership units
converted to
common shares.... 556 5.6 -- -- -- 6,107 -- -- -- 6,112
Net earnings
before gain on
disposition of
real estate...... -- -- -- -- -- -- -- 47,660 -- 47,660
Gain on
disposition of
real estate...... -- -- -- -- -- -- -- 1,053 -- 1,053
Common share
distributions.... -- -- -- -- -- -- -- (49,348) -- (49,348)
Series A
Preferred Share
dividends........ -- -- -- -- -- -- -- (6,698) -- (6,698)
Distributions
accrued.......... -- -- -- -- -- -- -- (20,558) -- (20,558)
------- -------- -------- -------- -------- ---------- ---- --------- -------- ----------
Balances at
December 31, 1995. 81,416 814.1 135,000 -- -- 1,059,142 -- (58,765) -- 1,136,191
Sale of common
shares........... 12,218 122.5 -- 210,639 -- -- -- 210,762
Sales of
preferred shares. -- -- -- 201,250 100,000 -- -- -- 301,250
Dividend
reinvestment and
share purchase
plan............. 21 .2 -- -- -- 356 -- -- -- 356
Common shares
issued upon
exercise of
warrants......... 22 .2 -- -- -- 218 -- -- -- 218
Less cost of
raising capital.. -- -- -- -- -- (13,008) -- -- -- (13,008)
Net earnings
before loss on
disposition of
real estate...... -- -- -- -- -- -- -- 79,384 -- 79,384
Loss on
disposition of
real estate...... -- -- -- -- -- -- -- (29) -- (29)
Common share
distributions.... -- -- -- -- -- -- -- (64,782) -- (64,782)
Preferred share
dividends........ -- -- -- -- -- -- -- (25,895) -- (25,895)
Distributions
accrued.......... -- -- -- -- -- -- -- (25,058) -- (25,058)
------- -------- -------- -------- -------- ---------- ---- --------- -------- ----------
Balances at
December 31, 1996. 93,677 937.0 135,000 201,250 100,000 1,257,347 -- (95,145) -- 1,599,389
Sale of common
shares........... 22,147 221.5 -- -- -- 488,432 -- -- -- 488,653
Dividend
reinvestment and
share purchase
plan............. 20 0.2 -- -- -- 429 -- -- -- 429
Limited
partnership units
converted to
common shares.... 105 1.0 -- -- -- 1,587 -- -- -- 1,588
Series B
Preferred Shares
converted to
common shares.... 63 0.6 -- (1,242) -- 1,241 -- -- -- 0
Common shares
issued under
employee share
purchase plan,
net.............. 1,352 13.5 -- -- -- 28,677 -- -- (27,186) 1,505
Less cost of
raising capital.. -- -- -- -- -- (4,248) -- -- -- (4,248)
Cumulative
translation
adjustments for
fluctuations in
foreign currency
rates............ -- -- -- -- -- -- (63) -- -- (63)
Net earnings
before gain on
disposition of
real estate...... -- -- -- -- -- -- -- 32,371 -- 32,371
Gain on
disposition of
real estate...... -- -- -- -- -- -- -- 7,378 -- 7,378
Common share
distributions.... -- -- -- -- -- -- -- (81,498) -- (81,498)
Preferred share
dividends........ -- -- -- -- -- -- -- (35,318) -- (35,318)
Distributions
accrued.......... -- -- -- -- -- -- -- (33,449) -- (33,449)
------- -------- -------- -------- -------- ---------- ---- --------- -------- ----------
Balances at
December 31, 1997. 117,364 $1,173.8 $135,000 $200,008 $100,000 $1,773,465 $(63) $(205,661) $(27,186) $1,976,737
======= ======== ======== ======== ======== ========== ==== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Net earnings................................. $ 39,749 $ 79,355 $ 48,713
Minority interest............................ 3,560 3,326 3,331
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization.............. 76,275 59,850 39,767
(Gain)/loss on disposition of real estate.. (7,378) 29 (1,053)
Rent leveling.............................. (5,435) (4,777) (4,364)
Costs incurred in acquiring management
companies from a related party............ 75,376 -- --
Change in investment in and advances to
unconsolidated subsidiaries............... (770) -- --
Foreign exchange loss on remeasurement..... 348 -- --
Amortization of deferred financing costs... 1,977 2,339 2,092
Increase in accounts receivable and other
assets...................................... (24,103) (10,166) (14,392)
Increase in accounts payable and accrued
expenses.................................... 27,492 2,531 19,028
Increase in other liabilities................ 4,044 3,714 7,032
Increase in net amount due to a related
party....................................... 1,138 -- --
--------- --------- ---------
Net cash provided by operating
activities.............................. 192,273 136,201 100,154
--------- --------- ---------
Investing Activities:
Real estate investments...................... (601,577) (657,873) (633,251)
Investments in and advances to
unconsolidated subsidiaries................. (85,369) -- --
Tenant improvements and lease commissions.... (15,539) (14,806) (6,163)
Recurring capital expenditures............... (5,523) (2,851) (330)
Proceeds from disposition of real estate..... 137,147 9,652 10,949
--------- --------- ---------
Net cash used in investing activities.... (570,861) (665,878) (628,795)
--------- --------- ---------
Financing Activities:
Proceeds from sale of shares, net of
expenses.................................... 330,005 434,587 279,977
Net proceeds from sale of shares to a
related party............................... 75,000 64,416 100,001
Proceeds from exercised warrants and
dividend reinvestment and share purchase
plan........................................ 429 574 217
Proceeds from long-term debt offerings....... 199,772 199,632 324,455
Debt issuance costs.......................... (2,469) (4,698) (6,194)
Distributions paid to common shareholders.... (106,556) (85,340) (64,445)
Distributions paid to minority interest
holders..................................... (5,665) (5,237) (5,033)
Preferred share dividends.................... (35,318) (25,895) (6,698)
Reduction of employee share purchase notes... 64 -- --
Termination of interest rate contracts....... 1,894 -- --
Proceeds from line of credit................. 530,991 411,200 361,100
Payments on line of credit................... (569,591) (453,600) (440,100)
Regularly scheduled principal payments on
mortgage notes payable...................... (4,925) (3,738) (3,491)
Balloon principal payments made upon
maturity.................................... (14,804) (19,689) (10,183)
--------- --------- ---------
Net cash provided by financing
activities.............................. 398,827 512,212 529,606
--------- --------- ---------
Net Increase/(Decrease) in Cash and Cash
Equivalents.................................. 20,239 (17,465) 965
Cash and Cash Equivalents, beginning of year.. 4,770 22,235 21,270
--------- --------- ---------
Cash and Cash Equivalents, end of year........ $ 25,009 $ 4,770 $ 22,235
========= ========= =========
Supplemental Schedule of Noncash Investing and
Financing Activities:
In conjunction with real estate acquired:
Assumption of existing mortgage notes...... $ 12,805 $ 18,103 $ 14,688
Issuance of common shares.................. $ 1,000 $ -- $ --
In conjunction with the acquisition of
management companies
Issuance of common shares to a related
party..................................... $ 79,840 $ -- $ --
Purchase of computer and telephone
equipment................................. $ (4,464) $ -- $ --
Notes received from employees for common
shares issued............................... $ 27,250 $ -- $ --
Cumulative adjustment for translation of
foreign currency, net....................... $ 63 $ -- $ --
Conversion of partnership units into common
shares...................................... $ 1,588 $ -- $ 6,112
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Security Capital Industrial Trust ("SCI"), a Maryland real estate investment
trust ("REIT"), is a publicly held global owner and operator of distribution
properties focused exclusively on meeting the distribution space needs of
international, national, regional and local industrial real estate users
through the SCI International Operating System(TM). SCI engages in the
acquisition, development, marketing, operation and long-term ownership of
distribution facilities, and the development of master-planned distribution
parks and corporate distribution facilities for its customers. SCI deploys
capital in markets with excellent long-term growth prospects where SCI can
achieve a strong market position through the acquisition and development of
generic, flexible facilities designed for both warehousing and light
manufacturing uses. As of December 31, 1997, SCI's portfolio contained
90,843,000 square feet in 1,005 operating buildings and SCI had an additional
8,442,000 square feet under development in 62 buildings for a total of
99,285,000 square feet in 44 target market cities in the United States, Mexico
and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REIT Organization Status
In January 1993, SCI was formed as a Maryland real estate investment trust.
In February 1993, Security Capital Industrial Investors Incorporated, a
Delaware corporation, was merged with and into SCI. SCI has made an election
to be taxed as a REIT under the Internal Revenue Code of 1986, as amended.
REITs are not required to pay federal income taxes if minimum distribution
and income, asset and shareholder tests are met. During 1997, 1996 and 1995,
SCI was in compliance with the REIT requirements. Thus, no federal income tax
provision has been reflected in the accompanying consolidated financial
statements.
Basis of Presentation
The accompanying consolidated financial statements include the results of
SCI, its subsidiaries and its majority-owned and controlled partnerships. The
effects of intercompany transactions have been eliminated. Certain amounts
included in the consolidated financial statements for prior years have been
reclassified to conform with the 1997 financial statement presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Real Estate and Depreciation
Real estate is carried at cost. Costs directly related to the acquisition,
renovation or development of real estate are capitalized and are depreciated
over the following useful lives:
<TABLE>
<S> <C>
Tenant improvements................. 10 years
Acquired buildings.................. 30 years
Developed buildings................. 40 years
</TABLE>
Depreciation is computed using a straight-line method. Certain real estate
was acquired through the formation of partnerships (Note 6) wherein SCI
contributed cash and the limited partners contributed real estate
F-7
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
in exchange for partnership units which are ultimately exchangeable for SCI's
Common Shares of Beneficial Interest, par value $0.01 per share (the "Common
Shares"). In consolidating the partnerships' assets, real estate cost includes
the estimated fair value attributable to the limited partners' interests at
the acquisition dates because (1) SCI's cash contributions constituted over
50% of the acquisition prices, (2) the acquisitions were from unrelated third-
parties and (3) the limited partners were not considered "promoters" under SEC
Staff Accounting Bulletin 48. The limited partners' interests will be
reflected as minority interest in the consolidated financial statements until
the units are exchanged for SCI Common Shares.
Long-Lived Assets
Long-lived assets to be disposed of are reported at the lower of their
carrying amount or fair value less cost to sell. SCI's management also
periodically reviews long-lived assets to be held and used for impairment
whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. In management's opinion, long-lived
assets, including real estate assets, are not carried at amounts in excess of
their estimated net realizable values.
Capitalized Compensation and Overhead Costs
Compensation and overhead costs incurred for development, renovation,
acquisition, and leasing activities that are incremental and identifiable to
specific and successful projects or leases are capitalized and depreciated
over their useful lives as discussed in Real Estate and Depreciation or, in
the case of leasing costs, amortized over SCI's average lease term of four
years.
Recent Accounting Pronouncements
Effective December 15, 1997, SCI adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128
supersedes APB Opinion No. 15 and requires restatement of prior years'
earnings per share. SFAS No. 128 replaces the presentation of primary and
fully diluted earnings per share with a presentation of basic and diluted
earnings per share. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue Common Shares were
exercised or converted into Common Shares or resulted in the issuance of
Common Shares that then shared in earnings. The adoption of SFAS No. 128 had
no effect on SCI's reported earnings per share for the years ended December
31, 1997, 1996, and 1995.
The FASB has also released Statement of Financial Accounting Standards No.
129, "Disclosure of Information about Capital Structure" ("SFAS No. 129"). SCI
already complied with the requirements of the statement which is effective for
periods ending after December 15, 1997.
Capitalized Interest
SCI capitalizes interest costs incurred during the land development or
construction period of qualifying projects.
Deferred Loan Fees
Included in other assets as of December 31, 1997 and 1996 are costs of $7.9
million and $9.2 million, respectively, associated with obtaining financing
(Note 5) which have been capitalized and are being amortized (to interest
expense or capitalized interest, as appropriate) over the life of the loan
using the effective interest rate method.
F-8
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank accounts and funds
invested in money market funds.
Minority Interest
Minority interest is carried at cost and represents limited partners'
interests in various real estate partnerships controlled by SCI. As discussed
in Real Estate and Depreciation, certain minority interests are carried at the
pro rata share of the estimated fair value of property at the acquisition
dates. Common Shares of SCI issued upon exchange of limited partnership units
will be accounted for at the cost of the minority interest surrendered. As of
December 31, 1997, a total of 5,089,258 limited partnership units were held by
minority interest limited partners in the various real estate partnerships
(Note 6). Limited partners are entitled to exchange each partnership unit for
one Common Share of SCI.
Interest Rate Contracts
SCI utilizes various interest rate contracts to hedge interest rate risk on
anticipated debt offerings. These anticipatory hedges are designated, and
effective, as hedges of identified debt issuances which have a high
probability of occurring. Gains and losses resulting from changes in the
market value of these contracts are deferred and amortized into interest
expense over the life of the related debt issuance.
Foreign Currency Exchange Contracts
Foreign currency forward contracts used in conjunction with the purchase and
financing of a business are marked to market at the financial statement date
and the gain or loss, if any, is reflected in the consolidated results of
operations.
Foreign Currency Translation/Remeasurement
For foreign subsidiaries whose functional currency is not the U.S. dollar,
assets and liabilities are translated at the exchange rates in effect at the
end of the year and income statement accounts are translated at the average
exchange rates for the year. Translation gains and losses are included as a
separate component of stockholders' equity in a Cumulative Translation
Adjustments account. For foreign subsidiaries who have transactions
denominated in currencies other than their functional currency, nonmonetary
assets and liabilities are remeasured at historical rates, monetary assets and
liabilities are remeasured at the exchange rates in effect at the end of the
year, and income statement accounts are remeasured at average exchange rates
for the year. The remeasurement gains and losses of such foreign subsidiaries
are included in the consolidated results of operations as foreign exchange
gains or losses.
Employee Stock Based Compensation
SCI has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS No. 123") and continues to
apply the accounting provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25") as allowed under SFAS No. 123 and makes
proforma fair value disclosures required by SFAS No. 123. In accordance with
APB No. 25, total compensation cost is measured by the difference between the
quoted market price of stock at the date of grant or award and the price, if
any, to be paid by an employee and is recognized as expense over the period
the employee performs related services.
F-9
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Unconsolidated Subsidiaries
SCI's investment in 100% of the preferred stock of SCI Logistics Services
Incorporated ("SCI Logistics") is accounted for under the equity method
because SCI exercises significant influence over the operating and financial
activities of SCI Logistics (Note 4). Accordingly, the investment in SCI
Logistics is carried at cost as adjusted for SCI's proportionate share of SCI
Logistics' earnings or losses.
3. REAL ESTATE
Real estate investments are comprised of income producing distribution
facilities, construction in progress and land held for distribution facility
development in the following markets:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL COST
--------------
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
U.S. MARKETS
Atlanta, Georgia.............................................. 7.90% 7.99%
Austin, Texas................................................. 2.40 3.32
Birmingham, Alabama........................................... 1.16 1.33
Charlotte, North Carolina..................................... 2.45 2.39
Chattanooga, Tennessee........................................ 0.52 0.60
Chicago, Illinois............................................. 5.43 3.80
Cincinnati, Ohio.............................................. 2.86 2.57
Columbus, Ohio................................................ 2.16 2.16
Dallas/Fort Worth, Texas...................................... 5.40 4.79
Denver, Colorado.............................................. 2.11 2.37
East Bay (San Francisco), California.......................... 3.99 4.49
El Paso, Texas................................................ 2.96 2.99
Fort Lauderdale/Miami, Florida................................ 1.13 1.05
Houston, Texas................................................ 5.05 5.16
Indianapolis, Indiana......................................... 3.85 4.69
Kansas City, Kansas/Missouri.................................. 1.82 1.95
Las Vegas, Nevada............................................. 2.10 1.99
Los Angeles/Orange County, California......................... 4.75 3.65
Louisville, Kentucky.......................................... 0.45 0.46
Memphis, Tennessee............................................ 2.05 2.03
Nashville, Tennessee.......................................... 1.78 1.87
New Jersey/I-95 Corridor...................................... 2.90 1.92
Oklahoma City, Oklahoma....................................... 0.35 0.56
Orlando, Florida.............................................. 1.08 1.15
Phoenix, Arizona.............................................. 1.51 1.69
Portland, Oregon.............................................. 2.37 2.29
Reno, Nevada.................................................. 1.99 2.01
Rio Grande Valley (Brownsville), Texas........................ 0.93 0.89
Salt Lake City, Utah.......................................... 1.60 2.35
San Antonio, Texas............................................ 3.54 4.56
San Diego, California......................................... 0.46 0.61
</TABLE>
F-10
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL COST
--------------
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
U.S. MARKETS (CONTINUED)
Seattle, Washington........................................ 1.46 1.57
South Bay (San Francisco), California...................... 7.22 7.84
St. Louis, Missouri........................................ 0.94 --
Tampa, Florida............................................. 4.02 4.53
Tulsa, Oklahoma............................................ 0.45 0.49
Washington, D.C./Baltimore................................. 4.69 5.08
Other...................................................... 0.35 0.81
INTERNATIONAL MARKETS
Amsterdam, Netherlands..................................... 0.01 --
Juarez, Mexico............................................. 0.27 --
Lyons, France.............................................. 0.29 --
Monterrey, Mexico.......................................... 0.38 --
Paris, France.............................................. 0.25 --
Reynosa, Mexico............................................ 0.18 --
Rotterdam, Netherlands..................................... 0.44 --
------ ------
100.00% 100.00%
====== ======
</TABLE>
The following summarizes real estate investments as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land held for development................................ $ 159,645 $ 109,316
Land under development................................... 65,773 40,465
Improved land............................................ 420,019 356,428
Buildings and improvements............................... 2,233,585 1,918,256
Construction in progress................................. 114,495 77,506
Capitalized preacquisition costs......................... 12,719 6,776
---------- ----------
Total real estate...................................... 3,006,236 2,508,747
Less accumulated depreciation............................ 171,525 109,147
---------- ----------
Net real estate........................................ $2,834,711 $2,399,600
========== ==========
</TABLE>
Capitalized preacquisition costs include $3,644,000 and $1,634,000 of funds
on deposit with title companies as of December 31, 1997 and 1996,
respectively, for property acquisitions. In addition to the December 31, 1997
construction payable accrual of $27.2 million, SCI had unfunded commitments on
its contracts for developments under construction totaling $146.4 million.
Other real estate income consists primarily of gains on disposition of
undepreciated property and fees and other income from corporate distribution
facilities services generated to a large extent by SCI Development Services
Incorporated ("SCI Development Services"). SCI Development Services develops
corporate distribution facilities to meet customer requirements or works on a
fee basis for customers whose space needs do not meet SCI's strict investment
criteria for long-term ownership. Through its 100% preferred stock ownership,
SCI will realize substantially all economic benefits of SCI Development
Services' activities. Further, SCI advances mortgage loans to SCI Development
Services to fund acquisition, development and construction
F-11
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
("AD&C") activity. In accordance with accounting guidance for AD&C lending,
SCI accounts for these loans as real estate investments, effectively
consolidating the activities of SCI Development Services. As of December 31,
1997, the outstanding balances of development and mortgage loans made by SCI
to SCI Development Services for the purchase of distribution facilities and
land for distribution facility development aggregated $184.8 million. SCI
Development Services pays federal and state taxes at the applicable corporate
rate.
SCI leases its properties to customers under agreements which are classified
as operating leases. The leases generally provide for payment of all or a
portion of utilities, property taxes and insurance by the customer. SCI's
largest customer accounted for less than 1.0% of SCI's 1997 rental income (on
an annualized basis), and the annualized base rent for SCI's 20 largest
customers accounted for less than 12.4% of SCI's 1997 rental income (on an
annualized basis). Minimum lease payments receivable on non-cancelable leases
with lease periods greater than one year are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 286,305
1999........................................................ 242,379
2000........................................................ 189,299
2001........................................................ 140,487
2002........................................................ 93,776
Thereafter.................................................. 200,875
-----------
$ 1,153,121
===========
</TABLE>
4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES:
On September 1, 1997, SCI Development Services acquired 9.6% of the
outstanding common shares of Insight, Inc., a privately owned logistics
optimization consulting company, for $500,000, and committed to invest an
additional $2.0 million over the next two years to increase its ownership to
33%. SCI Development Services has accounted for this investment on the cost
method.
On April 24, 1997, SCI Logistics acquired a 60% interest in a refrigerated
warehousing company, renamed CS Integrated LLC ("CSI"). During the third and
fourth quarters of 1997 SCI Logistics contributed additional capital to CSI
which increased its ownership to 77.1%. As of December 31, 1997, CSI owned
refrigerated warehousing totaling 69.0 million cubic feet and also had 9.6
million cubic feet under construction. SCI owns 100% of the non-voting
preferred stock of SCI Logistics. An unrelated third party owns 100% of the
common stock of SCI Logistics. Through its 100% preferred stock ownership, SCI
will realize substantially all economic benefits of SCI Logistics' activities.
As of December 31, 1997, Investments in and Advances to Unconsolidated
Subsidiaries consists of the following items (in thousands):
<TABLE>
<S> <C>
Investment in Insight, Inc..................................... $ 500
Investment in preferred stock of SCI Logistics................. 7,404
Note receivable from SCI Logistics............................. 75,207
Accrued interest and other receivables......................... 3,028
-------
Total........................................................ $86,139
=======
</TABLE>
The note receivable from SCI Logistics is an unsecured loan, which bears
interest at 13% per annum payable on the 24th of April of each year,
commencing April 24, 1998, and matures on April 24, 2002.
F-12
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. BORROWINGS:
Mortgage notes payable, assessment bonds payable and securitized debt
consisted of the following at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
BALLOON
PERIODIC PAYMENT
INTEREST MATURITY PAYMENT PRINCIPAL DUE AT
DESCRIPTION MARKET RATE DATE DATE BALANCE MATURITY
----------- ----------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Notes Payable:
Eigenbrodt Way
Distribution Center
#1.................... East Bay 8.590% 04/01/03 (1) $ 1,692 $ 1,479
Gateway Corporate
Center #10............ South Bay 8.590 04/01/03 (1) 2,002 1,361
Hayward Industrial
Center I & II......... East Bay 8.590 04/01/03 (1) 14,280 12,480
Kennedy International
Cargo Center Land #1.. New Jersey 6.000 01/12/98 (1) 3,900 3,900
MGI Portfolio.......... St. Louis 7.750 10/01/10 (2) 8,594 --
Oxmoor Distribution
Center #1............. Birmingham 8.390 04/01/99 (1) 4,032 3,895
Oxmoor Distribution
Center #2............. Birmingham 8.100 05/01/99 (1) 1,487 1,439
Oxmoor Distribution
Center #3............. Birmingham 8.100 05/01/99 (1) 1,476 1,426
Peter Cooper
Distribution Center
#1.................... El Paso 10.625 06/01/99 (1) 2,647 2,619
Platte Valley
Industrial Center #1.. Kansas City 9.750 03/01/00 (1) 448 256
Platte Valley
Industrial Center #3.. Kansas City 9.750 06/01/98 (1) 1,114 1,091
Platte Valley
Industrial Center #4.. Kansas City 10.100 11/01/21 (2) 2,080 --
Platte Valley
Industrial Center #8.. Kansas City 8.750 08/01/04 (1) 1,950 1,488
Platte Valley
Industrial Center #9.. Kansas City 8.100 04/01/17 (2) 3,407 --
Princeton Distribution
Center................ Cincinnati 9.250 02/19/99 (1) 378 378
Rio Grande Industrial
Center #1............. Brownsville 8.875 09/01/01 (1) 3,218 2,544
Riverside Industrial
Center #3............. Kansas City 8.750 08/01/04 (1) 1,532 1,170
Riverside Industrial
Center #4............. Kansas City 8.750 08/01/04 (1) 4,140 3,161
Southwide Lamar
Industrial Center #1.. Memphis 7.670 05/01/24 (1) 424 674
Sullivan 75
Distribution Center
#1.................... Atlanta 9.960 04/01/04 (1) 1,838 1,663
Tampa West Distribution
Center #20............ Tampa 9.125 11/30/00 (2) 157 --
Thornton Business
Center #1--#4......... South Bay 8.590 04/01/03 (1) 9,366 8,185
Titusville Industrial
Center #1............. Orlando 10.000 09/01/01 (1) 4,808 4,181
Vista Del Sol
Industrial Center #1.. El Paso 9.680 08/01/07 (2) 2,810 --
Vista Del Sol
Industrial Center #3.. El Paso 9.680 08/01/07 (2) 1,189 --
West One Business
Center #1............. Las Vegas 8.250 09/01/00 (1) 4,505 4,252
West One Business 4,463
Center #3............. Las Vegas 9.000 09/01/04 (1) ------- 3,847
8.65% Weighted average $87,937
rate =======
Assessment Bonds
Payable:
City of Las Vegas...... Las Vegas 8.75% 10/01/13 (2) $ 303 --
City of Las Vegas...... Las Vegas 8.75 10/01/13 (2) 299 --
City of Las Vegas...... Las Vegas 8.75 10/01/13 (2) 200 --
City of Hayward........ South Bay 7.00 03/01/98 (2) 2 --
City of Fremont........ South Bay 7.00 03/01/11 (2) 10,404 --
City of Wilsonville.... Portland 6.82 08/19/04 (2) 147 --
City of Kent........... Seattle 7.85 06/20/05 (2) 119 --
City of Kent........... Seattle 7.98 05/20/09 (2) 70 --
City of Portland....... Portland 7.25 11/07/15 (2) 108 --
City of Portland....... Portland 7.25 11/17/07 (2) 5 --
City of Portland....... Portland 7.25 09/15/16 (2) 237 --
-------
7.14% Weighted average $11,894
rate =======
Securitized Debt:
Tranche A.............. (3) 7.74% 02/01/04 (1) $24,973 $20,821
Tranche B.............. (3) 9.94 02/01/04 (1) 8,224 7,215
-------
8.29% Weighted average $33,197
rate =======
</TABLE>
- --------
(1) Amortizing monthly with a balloon payment due at maturity.
(2) Fully amortizing.
(3) Secured by real estate located primarily in Fort Lauderdale/Miami, Orlando
and Tampa.
F-13
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Mortgage notes payable are secured by real estate with an aggregate
undepreciated cost of $164.1 million at December 31, 1997. Assessment bonds
payable are secured by real estate with an aggregate undepreciated cost of
$224.3 million at December 31, 1997. Securitized debt is collateralized by
real estate with an aggregate undepreciated cost of $66.7 million at December
31, 1997.
Line of Credit
SCI has a $350.0 million unsecured revolving line of credit agreement with
NationsBank of Texas, N.A. ("NationsBank") (as agent for a bank group).
Borrowings bear interest at SCI's option, at either (a) the greater of the
federal funds rate plus 0.5% and the prime rate, or (b) LIBOR plus 0.95% based
upon SCI's current senior debt ratings. The prime rate was 8.5% and the 30-day
LIBOR rate was 5.71875% at December 31, 1997. Additionally, there is a
commitment fee ranging from .125% to .20% per annum of the unused line of
credit balance. The line is scheduled to mature in May 1998 and may be
extended annually for an additional year with the approval of NationsBank and
the other participating lenders; if not extended, at SCI's election, the
facility will either (a) convert to a three year term note, or (b) continue on
a revolving basis with the remaining one year maturity. All debt incurrences
are subject to a covenant that SCI maintain a debt to tangible net worth ratio
of not greater than 1 to 1. Additionally, SCI is required to maintain an
adjusted net worth (as defined) of at least $1.25 billion, to maintain
interest payment coverage of not less than 2 to 1 and to maintain a fixed
charge coverage ratio of not less than 1.75 to 1. SCI is in compliance with
all covenants contained in the line of credit, and as of December 31, 1997, no
borrowings were outstanding on the line of credit.
On October 1, 1997, SCI extended its $25.0 million short-term unsecured
discretionary line of credit with NationsBank through October 1, 1998. The
rate of interest and the maturity date of each advance will be determined by
agreement between SCI and NationsBank at the time of each advance. There were
no borrowings outstanding on the line of credit at December 31, 1997.
A summary of SCI's line of credit borrowings is as follows for the years
ended December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Weighted average daily interest rate..................... 6.75% 7.02%
Borrowings outstanding at December 31.................... $ -- $ 38,600
Weighted average daily borrowings........................ $ 56,938 $ 44,268
Maximum borrowings outstanding at any month end.......... $143,800 $124,200
Total line of credit at December 31...................... $375,000 $350,000
</TABLE>
Long-Term Debt
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
8.72% Senior Unsecured Notes, issued on March 2, 1995 in an
original principal amount of $150,000,000. Interest is
payable March 1 and September 1 of each year. The Notes are
payable in eight consecutive annual installments of
$18,750,000 commencing March 1, 2002 and maturing on March
1, 2009.................................................... $150,000 $150,000
9.34% Senior Unsecured Notes, issued on March 2, 1995 in an
original principal amount of $50,000,000. Interest is
payable March 1 and September 1 of each year. The Notes are
payable in six consecutive annual installments ranging from
$5,000,000 to $12,500,000 commencing on March 1, 2010 and
maturing on March 1, 2015.................................. 50,000 50,000
</TABLE>
F-14
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
7.125% Senior Unsecured Notes due 1998, issued on May 16,
1995 in an original principal amount of $15,000,000, net of
original issue discount. Interest is payable May 15 and
November 15 of each year.................................... $ 14,998 $ 14,993
7.25% Senior Unsecured Notes due 2000, issued on May 16, 1995
in an original principal amount of $17,500,000, net of
original issue discount. Interest is payable May 15 and
November 15 of each year.................................... 17,463 17,448
7.30% Senior Unsecured Notes due 2001, issued on May 16, 1995
in an original principal amount of $17,500,000, net of
original issue discount. Interest is payable May 15 and
November 15 of each year.................................... 17,449 17,435
7.875% Senior Unsecured Notes, issued on May 16, 1995 in an
original principal amount of $75,000,000, net of original
issue discount. Interest is payable May 15 and November 15
of each year. The Notes are payable in eight annual
installments of $9,375,000 beginning May 15, 2002 and
maturing on May 15, 2009.................................... 74,694 74,668
7.25% Senior Unsecured Notes, issued on May 17, 1996 in an
original principal amount of $50,000,000, net of original
issue discount. Interest is payable May 15 and November 15
of each year. The Notes are payable in four annual
installments of $12,500,000 beginning May 15, 1999 and
maturing on May 15, 2002.................................... 49,962 49,951
7.95% Senior Unsecured Notes, issued on May 17, 1996 in an
original principal amount of $100,000,000, net of original
issue discount. Interest is payable May 15 and November 15
of each year. The Notes are payable in four annual
installments of $25,000,000 beginning May 15, 2005 and
maturing on May 15, 2008.................................... 99,851 99,840
8.65% Senior Unsecured Notes, issued on May 17, 1996 in an
original principal amount of $50,000,000, net of original
issue discount. Interest is payable May 15 and November 15
of each year. The Notes are payable in seven annual
installments ranging from $5,000,000 to $12,500,000
beginning May 15, 2010 and maturing on May 15, 2016......... 49,861 49,856
7.81% Medium-Term Notes, issued on February 4, 1997 in an
original principal amount of $100,000,000. Interest is
payable February 1 and August 1 of each year. The Notes are
payable in six annual installments ranging from $10,000,000
to $20,000,000 beginning February 1, 2010 and maturing on
February 1, 2015............................................ 100,000 --
7.625% Senior Unsecured Notes, due July 1, 2017, issued July
11, 1997 in an original principal amount of $100,000,000,
net of original issue discount. Interest is payable January
1 and July 1 of each year................................... 99,774 --
-------- --------
Total long-term debt, net of original issue discount........ $724,052 $524,191
======== ========
</TABLE>
All of the foregoing Notes are redeemable at any time at the option of SCI,
in whole or in part, at a redemption price equal to the sum of the principal
amount of the Notes being redeemed plus accrued interest thereon to the
redemption date plus an adjustment, if any, based on the yield to maturity
relative to market yields available at redemption. The Notes are governed by
the terms and provisions of an indenture agreement (the "Indenture") between
SCI and State Street Bank and Trust Company, as trustee.
F-15
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the Indenture, SCI can incur additional debt only if,
after giving effect to the debt being incurred and application of proceeds
therefrom, (i) the ratio of debt to total assets, as defined in the Indenture,
does not exceed 60%, (ii) the ratio of secured debt to total assets, as
defined in the Indenture, does not exceed 40% and (iii) SCI's pro forma
interest coverage ratio, as defined in the Indenture, for the four preceding
fiscal quarters is not less than 1.5 to 1. In addition, SCI may not at any
time own total unencumbered assets, as defined in the Indenture, equal to less
than 150% of the aggregate outstanding principal amount of SCI's unsecured
debt. At December 31, 1997, SCI was in compliance with all debt covenants
contained in the Indenture.
Approximate principal payments due on long-term debt, mortgage notes
payable, assessment bonds payable and securitized debt during each of the
years in the five-year period ending December 31, 2002 and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1998.......................................................... $ 24,062
1999.......................................................... 26,480
2000.......................................................... 38,887
2001.......................................................... 41,175
2002.......................................................... 45,148
2003 and thereafter........................................... 682,276
--------
Total principal due........................................... 858,028
Less: Original issue discount................................. (948)
--------
Total carrying value........................................ $857,080
========
</TABLE>
During 1997, 1996 and 1995, interest expense was $52,704,000, $38,819,000,
and $32,005,000, respectively, which was net of capitalized interest of
$18,365,000, $16,138,000 and $8,599,000, respectively. Total amortization of
deferred loan fees included in interest expense was $1,977,000, $2,339,000 and
$2,092,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The total interest paid in cash on all outstanding debt was $61,251,000,
$50,704,000 and $33,634,000 during 1997, 1996 and 1995, respectively.
6. MINORITY INTEREST:
Minority interest represents limited partners' interests in five real estate
partnerships controlled by SCI.
SCI owns a 70.0% general partnership interest in Red Mountain Joint Venture,
which owns approximately $3.0 million of property in Albuquerque, New Mexico.
On December 22, 1993, SCI acquired a 68.7% controlling general partnership
interest in SCI Limited Partnership-I, which owns distribution facilities
primarily in the San Francisco Bay area. Limited partners are entitled to
exchange each partnership unit for one Common Share and are entitled to
receive preferential cumulative quarterly distributions per unit equal to the
quarterly distribution in respect of Common Shares. At December 31, 1997,
4,520,533 limited partnership units were outstanding and no units had been
exchanged.
During the first two quarters of 1994, SCI acquired an 81.2% controlling
general partnership interest in
SCI Limited Partnership-II, which owns distribution facilities primarily in
Austin, Charlotte, Dallas, Denver,
El Paso and the San Francisco Bay area. Limited partners are entitled to
exchange each partnership unit for one Common Share and are entitled to
receive preferential cumulative quarterly distributions per unit equal to the
quarterly distribution in respect of Common Shares. During the third quarter
of 1995 certain limited partners in SCI Limited Partnership-II exercised their
conversion rights to exchange partnership units for Common Shares on a one for
one basis. As a result of these conversions, SCI's general partnership
interest in SCI Limited
F-16
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Partnership-II increased to 97.6%, and SCI's outstanding Common Shares
increased by 555,651 shares. As of December 31, 1997, there were 90,213
limited partnership units outstanding in SCI Limited Partnership-II.
In October 1994, SCI acquired a 50.4% controlling general partnership
interest in SCI Limited Partnership-III, which owns distribution facilities
primarily in Tampa, Florida. During 1995, SCI contributed an additional $11.9
million to this partnership for asset acquisitions which increased SCI's
general partnership interest to 71.8%. During 1996, SCI contributed $4.2
million for a property acquisition in San Antonio, Texas which increased SCI's
general partnership interest from 71.8% to 75.6%. Limited partners are
entitled to exchange each partnership unit for one Common Share and are
entitled to receive preferential cumulative quarterly distributions per unit
equal to the quarterly distribution in respect of Common Shares. During the
fourth quarter of 1997 certain limited partners in SCI Limited Partnership-III
exercised their conversion rights to exchange partnership units for Common
Shares on a one for one basis. As a result of these conversions, SCI's general
partnership interest in SCI Limited Partnership-III increased to 80.6%, and
SCI's outstanding Common Shares increased by 105,000 shares. As of December
31, 1997, there were 409,900 limited partnership units outstanding in SCI
Limited Partnership-III.
In October 1994, SCI IV, Inc., a wholly-owned subsidiary of SCI, made a
$27.5 million cash contribution to SCI Limited Partnership-IV, a Delaware
limited partnership ("Partnership-IV"), in exchange for a 96.4% general
partner interest in Partnership-IV, and third party investors that were not
affiliated with SCI contributed an aggregate of $1.0 million in assets to
Partnership-IV in exchange for limited partner interests totaling 3.6% in
Partnership-IV. SCI contributed an additional $2.5 million to the partnership
between January 1, 1996 and December 31, 1997, in conjunction with tax
deferred exchanges of real estate, which increased SCI's interest from 96.4%
to 96.7%. SCI IV, Inc., as general partner, manages the activities of
Partnership-IV and has fiduciary responsibilities to Partnership-IV and its
other partners. At December 31, 1997, there were 68,612 limited partnership
units outstanding in Partnership-IV and no units had been exchanged.
Both Partnership-IV and SCI IV, Inc. are legal entities that are separate
and distinct from SCI, its affiliates and each other, and each has separate
assets, liabilities, business functions and operations. The assets owned by
Partnership-IV consist of income producing, improved real property located in
Florida, Ohio and Oklahoma. The sole assets owned by SCI IV, Inc. are its
general partner advances to and interest in Partnership-IV. SCI and its
affiliates had no borrowings from Partnership-IV at December 31, 1997 and
1996. Partnership-IV had $8.9 million and $1.4 million of borrowings from SCI
IV, Inc. at December 31, 1997 and 1996, respectively. SCI IV, Inc. had $8.9
million and $1.4 million of borrowings from SCI and its affiliates at December
31, 1997 and 1996, respectively. For financial reporting purposes, the assets,
liabilities, results of operations and cash flows of each of Partnership-IV
and SCI IV, Inc. are included in SCI's consolidated financial statements, and
the third party investors' interests in Partnership-IV are reflected as
minority interest. Limited partners are entitled to exchange each partnership
unit for one Common Share and are entitled to receive preferential cumulative
quarterly distributions per unit equal to the quarterly distribution in
respect of Common Shares.
7. SHAREHOLDERS' EQUITY:
On December 22, 1997, SCI raised net proceeds of $200.0 million from a
private placement of 8,416,667 Common Shares at a price of $24 per share. SCI
paid Security Capital Markets Group Incorporated, a registered broker-dealer
subsidiary of Security Capital Group Incorporated ("Security Capital"), a $2.0
million fee for their services in connection with the offering. Security
Capital, SCI's largest shareholder, purchased 3,125,067 Common Shares in the
December offering at $24 per share. At December 31, 1997, Security Capital
owned 42.5% of SCI's Common Shares.
On August 6, 1997, in connection with the consummation of the Merger (see
Note 11), SCI commenced a rights offering to sell 4,970,352 Common Shares at
$21 per share. The rights offering was designed to allow
F-17
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SCI's shareholders, other than Security Capital, the opportunity to maintain
their relative ownership in SCI by purchasing additional Common Shares at a
price which was below the price at which Security Capital received Common
Shares in the Merger. On September 9, 1997, SCI offered an additional 994,070
Common Shares at $21 per share to third party subscribers in the rights
offering that were not accepted in whole or in part due to demand in excess of
the Common Shares offered. All of these Common Shares were issued in September
1997, and net proceeds from these offerings totaled $124.9 million.
On June 24, 1997, SCI's shareholder's voted to increase SCI's authorized
capitalization from 150 million to 180 million shares of beneficial interest.
On March 24, 1997, SCI issued 48,809 Common Shares in conjunction with an
acquisition of property. On February 7, 1997, SCI completed a public offering
of 4,025,000 Common Shares; net proceeds to SCI after underwriting discounts
and offering costs were $80.4 million.
On November 13, 1996, SCI issued 2,000,000 Series C Cumulative Redeemable
Preferred Shares (the "Series C Preferred Shares"). The Series C Preferred
Shares have a liquidation preference of $50.00 per share for an aggregate
liquidation preference of $100.0 million plus accrued and unpaid dividends.
The net proceeds (after underwriting commission and other offering costs) of
the Series C Preferred Shares issued were $97.1 million. Holders of the Series
C Preferred Shares are entitled to receive, when, as and if declared by SCI's
Board of Trustees (the "Board"), out of funds legally available for payment of
distributions, cumulative preferential cash distributions at a rate of 8.54%
of the liquidation preference per annum (equivalent to $4.27 per share). On or
after November 13, 2026, the Series C Preferred Shares may be redeemed for
cash at the option of SCI. The redemption price (other than the portion
thereof consisting of accrued and unpaid distributions) is payable solely out
of the sale proceeds of other capital shares of SCI, which may include shares
of other series of preferred shares.
On August 21, 1996, SCI commenced a rights offering to sell 6,787,806 Common
Shares at $17.25 per Common Share and also authorized an additional 3,393,903
Common Shares for oversubscriptions or third party subscribers. In September
1996, SCI issued 7,865,645 Common Shares of the 10,181,709 Common Shares
subscribed for and recorded subscriptions receivable of $40.0 million. In
October 1996, 2,316,064 Common Shares were issued and all subscriptions
receivable were collected. Gross proceeds from the offering totaled $175.6
million. On September 24, 1996, SCI offered 2,036,342 Common Shares to third
party subscribers in the rights offering that were not accepted in whole or in
part due to demand in excess of the Common Shares offered. Security Capital
purchased 3,734,240 Common Shares in connection with the September rights
offering at the same price paid by the public.
In February 1996, SCI issued a total of 8,050,000 Series B Cumulative
Convertible Redeemable Preferred Shares (the "Series B Preferred Shares"). The
Series B Preferred Shares have a liquidation preference of $25.00 per share
for an aggregate liquidation preference at the time of issuance of $201.3
million plus any accrued and unpaid dividends. Holders of the Series B
Preferred Shares are only entitled to limited voting rights under certain
conditions. The Series B Preferred Shares are convertible at any time, unless
previously redeemed, at the option of the holders thereof into Common Shares
at a conversion price of $19.50 per share (equivalent to a conversion rate of
1.282 Common Shares for each Series B Preferred Share), subject to adjustment
in certain circumstances. Holders of the Series B Preferred Shares are
entitled to receive, when, as and if declared by the Board, out of funds
legally available for the payment of distributions, cumulative preferential
cash distributions in an amount per share equal to the greater of 7% of the
liquidation preference per annum (equivalent to $1.75 per share) or the
distribution on the Common Shares, or portion thereof, into which a Series B
Preferred Share is convertible. Distributions on the Series B Preferred Shares
are cumulative from the date of original issue and payable quarterly in
arrears on the last day of March, June, September and December of each year.
The Series B Preferred Shares are redeemable at the option of SCI on or after
February 21, 2001. There were 49,700 Series B Preferred
F-18
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Shares converted into 63,720 Common Shares in the fourth quarter of 1997.
There were 8,000,300 Series B Preferred Shares outstanding as of December 31,
1997.
On September 29, 1995, SCI issued 9,421,505 Common Shares at $15.375 per
share and received subscriptions for 6,838,658 additional Common Shares at the
same price in conjunction with a rights offering (gross proceeds of $250.0
million). The additional Common Shares were issued on October 3, 1995.
Security Capital purchased 6,504,148 Common Shares in this offering (40% of
the shares sold).
On June 21, 1995, SCI issued 5,400,000 Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest (the "Series A Preferred Shares"). The
Series A Preferred Shares have a liquidation preference of $25.00 per share
for an aggregate liquidation preference of $135.0 million plus any accrued and
unpaid dividends. The net proceeds (after underwriting commission and other
offering costs) of the Series A Preferred Shares issued were $130.4 million.
Holders of the Series A Preferred Shares are entitled only to limited voting
rights under certain conditions. Holders of the Series A Preferred Shares will
be entitled to receive, when, as and if declared by the Board, out of funds
legally available for the payment of distributions, cumulative preferential
cash distributions at the rate of 9.4% of the liquidation preference per annum
(equivalent to $2.35 per share). Such distributions are cumulative from the
date of original issue and are payable quarterly in arrears on the last day of
March, June, September, and December of each year. The Series A Preferred
Shares are redeemable at the option of SCI on or after June 21, 2000. The
redemption price (other than the portion thereof consisting of accrued and
unpaid distributions) is payable solely out of the sale proceeds of other
capital shares of SCI, which may include shares of other series of preferred
shares.
Long-Term Incentive Plan and Share Option Plan for Outside Trustees
On September 8, 1997, SCI's common shareholders approved a long-term
incentive plan (the "Incentive Plan"), which provides for awards consisting of
the following: 1) options to purchase Common Shares, 2) dividend equivalent
units ("DEUs") on options, 3) a share purchase program, and 4) share awards.
No more than 9,600,000 Common Shares in the aggregate may be awarded under the
Incentive Plan and no individual may be granted awards with respect to more
than 500,000 Common Shares in any one-year period. On July 16, 1997, SCI filed
a registration statement with the SEC to register the issuance of Common
Shares in connection with the Incentive Plan.
Under the Incentive Plan, certain employees of SCI purchased 1,356,834
Common Shares on September 8, 1997, at a price of $21.21875 per share (the
average of the high and low price per share on September 8, 1997). SCI
financed 95% of the total purchase price through ten-year, recourse loans to
the participants aggregating $27.3 million (including $22.5 million due from
officers of SCI). The loans, which have been recognized as a deduction from
Shareholders' Equity, bear interest at the lower of SCI's annual dividend
yield or 6% per annum. The loans are secured by the Common Shares purchased.
For each Common Share purchased, participants were granted options to purchase
two additional Common Shares at a price of $21.21875. As of December 31, 1997,
the outstanding balance on employee share purchase notes due to SCI totaled
$27.2 million.
Also, on September 8, 1997, SCI awarded options to purchase 354,484 Common
Shares for $21.21875 per share to officers and certain employees of SCI. On
December 10, 1997, additional options were awarded to officers for 20,860
Common Shares at a price of $23.97. These option awards are entitled to DEUs
each December 31, depending on the relationship between SCI's Common Share
dividend yield and the S&P 500 average dividend yield for the year. On
December 31, 1997, 2,636 DEUs were awarded to option holders under this plan.
DEU's will vest as the applicable options vest and entitle the holder to one
Common Share for each DEU. The 3,077,291 options outstanding under the
Incentive Plan on December 31, 1997 have five or nine year vesting schedules.
F-19
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In accordance with the accounting provisions of APB No. 25, no compensation
cost has been recognized in the accompanying financial statements for
outstanding stock options. Had compensation cost for the Incentive Plan been
determined consistent with SFAS No. 123, SCI's net income and earnings per
share for the year ended December 31, 1997 would have been reduced to the
following pro forma amounts:
<TABLE>
<S> <C> <C>
Net earnings attributable to
Common Shares (in thousands): As reported $4,431
======
Pro forma $4,016
======
Basic net earnings per share
attributable to Common Shares: As reported $ 0.04
======
Pro forma $ 0.04
======
Diluted net earnings per share
attributable to Common Shares: As reported $ 0.04
======
Pro forma $ 0.04
======
</TABLE>
Since employee stock options vest over several years and additional grants
are likely to be made in future years, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted average fair value of options granted pursuant to SCI's
Incentive Plan during 1997 was $6.7 million. Under SFAS No. 123, compensation
cost is recognized for the fair value of the employees' purchase rights, which
was estimated using the Black-Scholes model with the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 6.35%
Forecasted dividend yield................................... 7.36%
Volatility.................................................. 19.20%
Weighted average option life................................ 6.75 years
</TABLE>
In April 1994, SCI adopted its Share Option Plan for Outside Trustees (the
"Outside Trustees Plan"). Under the Outside Trustees Plan, there are 100,000
Common Shares approved which can be granted to non-employee Trustees. All
options granted are for a term of five years and are immediately exercisable
in whole or in part. The exercise price of the options granted may not be less
than the fair market value of Common Shares on the date of the grant. At
December 31, 1997 there were 26,000 options outstanding under the Outside
Trustees Plan.
F-20
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of SCI's stock option plans as of December 31, 1997,
1996 and 1995, and changes during the years then ended is presented below. All
grants prior to 1997 relate to the Outside Trustees Plan.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER WEIGHTED AVERAGE OPTIONS
OF OPTIONS EXERCISE PRICE EXERCISABLE
---------- ---------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994........... 6,000 $15.50 6,000
Granted.............................. 6,000 16.00 6,000
Forfeited............................ (2,000) 15.50 (2,000)
--------- ------ ------
Balance at December 31, 1995........... 10,000 15.80 10,000
Granted.............................. 8,000 17.50 8,000
Exercised............................ -- -- --
--------- ------ ------
Balance at December 31, 1996........... 18,000 16.56 18,000
--------- ------ ------
Granted.............................. 3,097,012 21.24 8,000
Exercised............................ -- -- --
Forfeited............................ (11,721) 21.22 --
--------- ------ ------
Balance at December 31, 1997........... 3,103,291 $21.21 26,000
========= ====== ======
</TABLE>
Following is a summary of stock options outstanding, exercise prices,
expiration dates, and weighted average remaining lives as of December 31,
1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE EXPIRATION REMAINING
OF OPTIONS PRICE(1) DATE LIFE
---------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Outside Trustees Plan
(2).................... 26,000 $15.50-$20.50 1999--2002 3.33 years
Matching options on
share purchase program. 2,704,244 $21.21875 Sept. 8, 2007 9.7 years
Incentive Plan--1997
option awards (4)...... 373,047 $21.21875 Sept. 8, 2007 9.7 years
---------
Total................. 3,103,291
=========
</TABLE>
- --------
(1) Exercise price was equal to market price on the date of grant.
(2) Options are fully exercisable.
(3) Vesting at various rates over periods from five to nine years.
(4) The holders under this plan are awarded dividend equivalent units each
year of the plan. The DEUs awarded will vest beginning on September 8,
1999 at a rate of 25% per year through September 8, 2002.
Additionally, as of December 31, 1997, there were 11,764 warrants
outstanding with an exercise price of $10.00. The warrants were issued on
February 3, 1993 and expire June 21, 2003.
Establishment of 401(k) Plan and Nonqualified Savings Plan
In 1997, the Board established and approved the adoption of a 401(k) Plan
for the benefit of its employees, effective January 1, 1998. The 401(k) Plan
provides for matching employer contributions in Common Shares of 50 cents for
every dollar contributed by an employee, up to 6% of the employees' annual
compensation up to the statutory compensation limit. The vesting of
contributed Common Shares is based on years of service, with 20% vesting each
year of service, over a five-year period. On July 16, 1997, SCI filed a
registration statement with the SEC to register the issuance of 190,000 Common
Shares in connection with the 401(k) Plan.
In 1997, the Trustees also established and approved the adoption of the
Nonqualified Savings Plan (the "NSP") to provide benefits for a select group
of management or highly compensated employees, effective January 1, 1998. The
purpose of the NSP is to allow highly compensated employees the opportunity to
defer the receipt and income taxation of a portion of compensation in excess
of the amount permitted under the 401(k)
F-21
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Plan. Under the NSP, these employees may defer up to 35% of their annual
salary and 100% of their annual target bonus and in coordination with the
401(k) Plan, SCI will match the lesser of (a) 50% of the sum of deferrals
under the 401(k) Plan plus deferrals under the NSP, and (b) 3% of total
compensation up to $160,000 minus the amount of match contributed by SCI under
the 401(k) Plan. The matching account will vest in the same manner as the
401(k) Plan.
Dividend Reinvestment and Share Purchase Plan
In March 1995, SCI adopted a Dividend Reinvestment and Share Purchase Plan
(the "1995 Plan"), which commenced in April 1995. The 1995 Plan allows holders
of Common Shares the opportunity to acquire additional Common Shares by
automatically reinvesting distributions. Common Shares are acquired pursuant
to the 1995 Plan at a price equal to 98% of the market price of such Common
Shares, without payment of any brokerage commission or service charge. The
1995 Plan also allows participating common shareholders to purchase a limited
number of additional Common Shares at 98% of the market price of such Common
Shares, by making optional cash payments, without payment of any brokerage
commission or service charge. Holders of Common Shares who do not participate
in the 1995 Plan continue to receive distributions as declared.
Shareholder Purchase Rights
On December 7, 1993, the Board declared a dividend of one preferred share
purchase right ("Right") for each outstanding Common Share to be distributed
to all holders of record of the Common Shares on December 31, 1993. Each Right
entitles the registered holder to purchase one-hundredth of a Participating
Preferred Share for an exercise price of $40.00 per one-hundredth of a
Participating Preferred Share, subject to adjustment as provided in the Rights
Agreement. The Rights will generally be exercisable only if a person or group
(other than certain affiliates of SCI) acquires 20% or more of the Common
Shares or announces a tender offer for 25% or more of the Common Shares. Under
certain circumstances, upon a shareholder acquisition of 20% or more of the
Common Shares (other than certain affiliates of SCI), each Right will entitle
the holder to purchase, at the Right's then-current exercise price, a number
of Common Shares having a market value of twice the Right's exercise price.
The acquisition of SCI pursuant to certain mergers or other business
transactions will entitle each holder of a Right to purchase, at the Right's
then-current exercise price, a number of the acquiring company's common shares
having a market value at that time equal to twice the Right's exercise price.
The Rights held by certain 20% shareholders will not be exercisable. The
Rights will expire on December 7, 2003, unless the expiration date of the
Rights is extended, and the Rights are subject to redemption at a price of
$0.01 per Right under certain circumstances.
F-22
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8.EARNINGS PER SHARE:
Following is a reconciliation of the denominator used to calculate basic
earnings per share to the denominator used to calculate diluted earnings per
share under SFAS No. 128 for the periods indicated (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net earnings attributable to Common Shares........ $ 4,431 $53,460 $42,015
Minority interest................................. -- -- 3,331
------- ------- -------
Adjusted net earnings attributable to Common
Shares........................................... $ 4,431 $53,460 $45,346
======= ======= =======
Weighted average Common Shares outstanding (Ba-
sic)............................................. 100,729 84,504 68,924
Incremental options and warrants.................. 140 7 13
Weighted average effect of conversion of partner-
ship units into common shares.................... -- -- 5,485
------- ------- -------
Adjusted weighted average Common Shares
Outstanding (Diluted)............................ 100,869 84,511 74,422
======= ======= =======
Per share net earnings attributable to Common
Shares:
Basic........................................... $ 0.04 $ 0.63 $ 0.61
======= ======= =======
Diluted (a)..................................... $ 0.04 $ 0.63 $ 0.61
======= ======= =======
</TABLE>
(a) For the years ended December 31, 1997 and 1996 there were 5,190 and
5,194 weighted average partnership units outstanding and 10,319 and
8,831 weighted average Series B Preferred Shares outstanding on an as-
converted basis, respectively, that were not assumed converted into
Common Shares since they were antidilutive to earnings per share. These
securities may become dilutive to earnings per share in subsequent
years.
9. DISTRIBUTIONS:
The annual distribution per Common Share was $1.07 in 1997, $1.01 in 1996
and $0.935 in 1995. Distributions attributable to realized gains on the
disposition of real estate may be considered for payment to shareholders on a
special, as-incurred basis. At December 31, 1997 and 1996, SCI had no
accumulated undistributed net realized gain on disposition of real estate.
For Federal income tax purposes, the following summarizes the taxability of
distributions paid on Common Shares in 1996 and 1995 and the estimated
taxability for 1997:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Per Common Share:
Ordinary income...................................... $1.07 $0.879 $0.692
Capital gains........................................ -- -- --
Return of capital.................................... -- 0.131 0.243
----- ------ ------
Total.............................................. $1.07 $1.010 $0.935
===== ====== ======
</TABLE>
On December 11, 1997, SCI declared a distribution of $0.285 per Common Share
payable on February 24, 1998 to shareholders of record as of February 10,
1998. At the same time, SCI announced that it set an annualized distribution
level of $1.14 per Common Share for 1998.
F-23
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the terms of the preferred shares, SCI is restricted from
declaring or paying any distribution with respect to the Common Shares unless
all cumulative distributions with respect to the preferred shares have been
paid and sufficient funds have been set aside for distributions that have been
declared for the then-current distribution period with respect to the
preferred shares.
For Federal income tax purposes, the following summary reflects the
taxability of dividends paid on the Series A Preferred Shares, Series B
Preferred Shares, and Series C Preferred Shares for 1996, periods prior to
1996 and the estimated taxability for 1997:
<TABLE>
<CAPTION>
DATE OF ISSUANCE TO
1997 1996 DECEMBER 31, 1995
----- ----- -------------------
<S> <C> <C> <C>
Per Series A Preferred Share:
Ordinary Income......................... $2.35 $2.35 $1.24
Capital Gains........................... -- -- --
----- ----- -----
Total................................. $2.35 $2.35 $1.24
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TO
1997 DECEMBER 31, 1996
----- -------------------
<S> <C> <C>
Per Series B Preferred Share:
Ordinary Income................................ $1.75 $1.50
Capital Gains.................................. -- --
----- -----
Total........................................ $1.75 $1.50
===== =====
Per Series C Preferred Share:
Ordinary Income................................ $4.27 $0.57
Capital Gains.................................. -- --
----- -----
Total........................................ $4.27 $0.57
===== =====
</TABLE>
SCI's tax return for the year ended December 31, 1997 has not been filed,
and the taxability information for 1997 is based upon the best available data.
SCI's tax returns have not been examined by the Internal Revenue Service and,
therefore, the taxability of the distributions is subject to change.
F-24
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data (in thousands, except for per share
amounts) for 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, YEAR
---------------------------------- ENDED
3-31 6-30 9-30 12-31 12-31
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1997:
Rental income..................... $67,386 $69,157 $ 72,376 $75,614 $284,533
======= ======= ======== ======= ========
Earnings from operations.......... $26,456 $29,051 $(48,363) $28,787 $ 35,931
Minority interest share in net
earnings......................... 895 940 928 797 3,560
Gain on disposition of real es-
tate............................. -- 3,773 2,756 849 7,378
------- ------- -------- ------- --------
Net earnings...................... 25,561 31,884 (46,535) 28,839 39,749
Less preferred share dividends.... 8,829 8,830 8,829 8,830 35,318
------- ------- -------- ------- --------
Net earnings attributable to Com-
mon Shares....................... $16,732 $23,054 $(55,364) $20,009 $ 4,431
======= ======= ======== ======= ========
Basic and Diluted net earnings per
Common Share..................... $ 0.17 $ 0.24 $ (0.55) $ 0.18 $ 0.04
======= ======= ======== ======= ========
1996:
Rental income..................... $50,062 $54,361 $ 59,391 $63,186 $227,000
======= ======= ======== ======= ========
Earnings from operations.......... $17,262 $19,456 $ 20,427 $25,565 $ 82,710
Minority interest share in net
earnings......................... 756 884 859 827 3,326
Loss on disposition of real es-
tate............................. (29) -- -- -- (29)
------- ------- -------- ------- --------
Net earnings...................... 16,477 18,572 19,568 24,738 79,355
Less preferred share dividends.... 4,673 6,695 6,694 7,833 25,895
------- ------- -------- ------- --------
Net earnings attributable to Com-
mon Shares....................... $11,804 $11,877 $ 12,874 $16,905 $ 53,460
======= ======= ======== ======= ========
Basic and Diluted net earnings per
Common Share..................... $ 0.14 $ 0.15 $ 0.16 $ 0.18 $ 0.63
======= ======= ======== ======= ========
</TABLE>
11.CONSUMMATION OF MERGER:
On September 8, 1997, SCI's shareholders voted to approve an agreement with
Security Capital to exchange Security Capital's REIT management and property
management companies for 3,692,023 Common Shares (the "Merger"). As a result,
SCI became an internally managed REIT on September 9, 1997 with Security
Capital remaining as SCI's largest shareholder. The $81.9 million value of the
management companies was approved by the independent Trustees and a fairness
opinion was obtained from a third party investment bank. Pursuant to the terms
of the Merger Agreement, the number of shares issued to Security Capital was
based on the average market price of the Common Shares ($22.175) over the
five-day period prior to the August 6, 1997 record date for determining the
SCI shareholders entitled to vote on the Merger. The market value of the
Common Shares issued to Security Capital on September 9, 1997 was $79.8
million of which $4.4 million was allocated to the net tangible assets
acquired and the $75.4 million difference was accounted for as costs incurred
in acquiring the management companies from a related party. For accounting
purposes the management companies were not considered "businesses" for
purposes of applying APB Opinion No. 16, "Business Combinations", and
therefore the market value of the Common Shares issued in excess of the fair
value of the net tangible assets acquired was charged to operating income
rather than capitalized as goodwill.
F-25
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As a result of the Merger, SCI no longer pays REIT management and property
management fees to Security Capital through Security Capital's former
subsidiaries, Security Capital Industrial Incorporated (the "REIT Manager")
and SCI Client Services Incorporated (the "Property Manager"), respectively.
All employees of the REIT Manager and Property Manager became employees of SCI
and SCI directly incurs the personnel and other costs related to these
functions. The costs relating to property management are recorded as rental
expenses whereas the costs associated with managing the REIT are recorded as
general and administrative expenses. Direct and incremental costs related to
successful development, acquisition, and leasing activities are capitalized in
accordance with generally accepted accounting principles.
Upon consummation of the Merger, SCI and Security Capital entered into an
administrative services agreement (the "Administrative Services Agreement"),
pursuant to which Security Capital will provide SCI with certain
administrative and other services with respect to certain aspects of SCI's
business, as selected from time to time by SCI at its option. These services
are expected to include, but are not limited to, payroll and human resources,
cash management, accounts payable, MIS support and other computer services,
research, investor relations and insurance, legal and tax administration. Fees
payable to Security Capital will be equal to Security Capital's cost of
providing such services, plus an overhead factor of 20%, subject to a maximum
amount of approximately $7.1 million during the initial term of the agreement,
which expires on December 31, 1998. Cost savings under the Administrative
Services Agreement will accrue to SCI. The agreement will be automatically
renewed for consecutive one-year terms subject to approval by a majority of
the independent Trustees. Fees paid to Security Capital for services rendered
from the period September 9, 1997 to December 31, 1997 totaled $1.1 million.
In addition, after the closing of the Merger, Security Capital issued $101.0
million of warrants pro rata to holders of SCI's Common Shares (other than
Security Capital), Series B Preferred Shares and limited partnership units
("Unitholders"), to acquire 3,608,202 shares of Class B common stock of
Security Capital. SCI common shareholders and Unitholders received 0.046549
warrants for each Common Share or unit held and Series B preferred
shareholders received 0.059676 warrants for each preferred share held. Each
warrant can be exercised for one share of Security Capital Class B common
stock at an exercise price of $28 per share and has a term of one year from
the date of issuance. Security Capital issued these warrants as an incentive
to SCI shareholders to vote in favor of the Merger and to raise additional
equity capital at a relatively low cost in addition to other benefits.
12.RELATED PARTY TRANSACTIONS:
SCI leases space to related parties on market terms that management believes
are no less favorable to SCI than those that could be obtained with
unaffiliated third parties. These transactions are summarized as follows:
<TABLE>
<CAPTION>
SECURITY
CAPITAL & REIT PROPERTY
AFFILIATES MANAGER (A) MANAGER (A) TOTAL
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Rental revenue during the year
ended December 31, 1995......... $415,264 $210,856 $194,335 $ 820,455
Rental revenue during the year
ended December 31, 1996......... $593,657 $210,856 $571,970 $1,376,483
Rental revenue during the year
ended December 31, 1997......... $833,150 $145,244 $550,092 $1,528,486
Square feet leased as of December
31, 1997........................ 122,856 25,007 97,077 244,940
Annualized revenue for leases in
effect at December 31, 1997..... $870,324 n/a n/a $ 870,324
</TABLE>
F-26
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(a) For the REIT Manager and the Property Manager, amounts included for
the year ended December 31, 1997 are for the period January 1, 1997
through September 8, 1997 (Note 11).
13. FINANCIAL INSTRUMENTS:
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by SCI using available market information
and valuation methodologies.
As of December 31, 1997 and 1996, the carrying amounts of certain financial
instruments employed by SCI, including cash and cash equivalents, accounts and
notes receivable, accounts payable and accrued expenses were representative of
their fair values because of the short-term maturity of these instruments. As
of December 31, 1997 and 1996, the fair values of the long-term debt and
mortgages have been estimated based on quoted market prices for the same or
similar issues or by discounting the future cash flows using rates currently
available for debt with similar terms and maturities. The increase in the fair
value of long-term debt and mortgages over the carrying value in the table
below is a result of a net reduction in the interest rates available to SCI at
December 31, 1997 and 1996, from the interest rates in effect at the dates of
issuance. The long-term debt and many of the mortgages contain pre-payment
penalties or yield maintenance provisions which would make the cost of
refinancing exceed the benefit of refinancing at the lower rates.
As of December 31, 1997 and 1996, the fair value of all derivative financial
instruments are amounts at which they could be settled, based on quoted market
prices or estimates obtained from brokers. The following table reflects the
carrying amount and estimated fair value of SCI's financial instruments at
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------- -------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance sheet financial
instruments
Long-term debt............... $724,052 $755,799 $524,191 $549,613
Mortgages.................... $133,028 $137,628 $139,952 $142,643
Derivative financial instru-
ments
Interest rate contracts...... $ -- $ (8,621) $ -- $ 1,218
Foreign currency contracts... $ (6,028) $ (6,028) $ -- $ --
</TABLE>
Derivative Financial Instruments
SCI has only limited involvement with derivative financial instruments and
does not use them for trading purposes. SCI uses derivatives to manage well-
defined risk associated with interest and foreign currency rate fluctuations
on existing obligations or anticipated transactions.
The primary risks associated with derivative instruments are market risk
(price risk) and credit risk. Price risk is defined as the potential for loss
in the value of the derivative due to adverse changes in market prices
(interest rates or foreign currency rates). SCI utilizes derivative
instruments in anticipation of future transactions to manage well-defined
risk. Through hedging, SCI can effectively manage the risk of increases in
interest rates and fluctuations in foreign currency exchange rates.
F-27
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Credit risk is the risk that one of the parties to a derivative contract
fails to perform or meet their financial obligation under the contract. SCI
does not obtain collateral to support financial instruments subject to credit
risk but monitors the credit standing of counterparties. As of December 31,
1997, the counterparties to all outstanding contracts were financial
institutions with AA+ or A+ credit ratings. SCI does not anticipate non-
performance by any of the counterparties to its derivative contracts. Should a
counterparty fail to perform, however, SCI would incur a financial loss to the
extent of the positive fair market value of the derivative instruments.
The following table summarizes the activity in interest rate and foreign
currency contracts for the years ended December 31, 1997 and 1996 (in
millions):
<TABLE>
<CAPTION>
INTEREST
INTEREST RATE RATE
INTEREST RATE CONTRACTS ----------------- ----------
FUTURES CONTRACTS SWAPS
----------------- ----------
<S> <C> <C> <C>
Notional amount at December 31, 1995.......... $ -- $ --
New contracts................................. 156.0 173.0
Matured or expired contracts (1).............. (50.0) --
Terminated contracts (1)...................... -- (140.0)
----------- ----------
Notional amount at December 31, 1996.......... $ 106.0 $ 33.0
----------- ----------
New contracts................................. 75.0 75.0
Matured or expired contracts (2).............. (106.0) (33.0)
Terminated contracts.......................... -- --
----------- ----------
Notional amount at December 31, 1997 (3)...... $ 75.0 $ 75.0
=========== ==========
<CAPTION>
SWEDISH GERMAN
FOREIGN CURRENCY CONTRACTS ----------------- ----------
KRONA MARKS
----------------- ----------
<S> <C> <C> <C>
Contracts outstanding at December 31, 1996.... -- --
New contracts................................. SEK 2,900.0 DEM (310.0)
Terminated contracts.......................... -- --
----------- ----------
Contracts outstanding at December 31, 1997.... SEK 2,900.0 DEM (310.0)
=========== ==========
Exchange rates................................ 7.7583 1.7715
=========== ==========
$ Equivalent of contracts..................... $ (373.8) $ 175.0
=========== ==========
$ Equivalent at December 31, 1997 (4)......... $ (365.9) $ 173.1
=========== ========== ===
</TABLE>
- --------
(1) Deferred losses totalling $1.9 million on matured, expired or terminated
contracts were recorded on the balance sheet as of December 31, 1996.
These losses relate to the unwind of hedges placed for the May 1996 debt
offering (Note 5) and are being amortized into interest expense over a
weighted average amortization period of 10.8 years.
(2) Deferred gains totaling $1.9 million on matured, expired or terminated
contracts were recorded on the balance sheet as of December 31, 1997.
These gains relate to the unwind of hedges placed for the February and
July 1997 debt offerings (Note 5) and are being amortized into income
over 18 years and 20 years, respectively.
(3) In anticipation of debt offerings in 1998, on October 28, 1997, SCI
entered into two interest rate protection agreements. A forward treasury
lock agreement was executed with a notional amount of $75.0 million on the
6 3/8% Treasury bond due August 2027 and a swap agreement was entered into
with a notional amount of $75.0 million on the 6 5/8% Treasury bond due
February 2027. The forward treasury lock has a termination date of March
31, 1998 and effectively locks in the 30-year treasury rate used to price
SCI's debt, at 6.316%. The swap agreement has a termination date of May
31, 1998, and carries a fixed rate of 6.721% which is a combination of the
treasury rate plus the swap spread and the forward premium.
F-28
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) On December 22, 1997, SCI entered into a foreign exchange forward contract
to fix the purchase price of the Frigoscandia AB acquisition, denominated
in Swedish krona, and the cost of financing a portion of the transaction
denominated in German marks (Note 15). Statement of Financial Accounting
Standards No. 52 requires these foreign currency contracts to be marked to
market at the financial statement date and the gain or loss, if any,
reflected in the consolidated results of operations. A net foreign
exchange loss of $6.0 million was recognized for the year ended December
31, 1997 relating to foreign exchange contracts outstanding at December
31, 1997.
14. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
All of the properties acquired by SCI have been subjected to Phase I
environmental reviews. While some of these assessments have led to further
investigation and sampling, none of the environmental assessments has
revealed, nor is SCI aware of any environmental liability (including asbestos
related liability) that SCI believes would have a material adverse effect on
SCI's business, financial condition or results of operations.
15. SUBSEQUENT EVENTS:
On January 16, 1998, Frigoscandia SA, a new preferred stock subsidiary of
SCI based in Luxembourg, acquired Frigoscandia AB, Europe's largest
refrigerated warehousing company for $395.0 million. The acquisition of
Frigoscandia AB was financed primarily with a $200.0 million bridge loan due
March 31, 1998 from NationsBank and $190.0 million of borrowings on SCI's
$350.0 million line of credit. The bridge loan bears interest at an annual
rate equal to the lesser of (a) the greater of the sum of the Federal Funds
Rate plus one-half percent, and (b) the prime rate or the Eurodollar Rate plus
0.95%.
On January 15, 1998, SCI settled its foreign currency forward contract to
purchase 2.9 billion Swedish krona at 7.7583 per U.S. dollar (Note 13). The
krona traded at 8.015 on January 15, 1998, resulting in a total loss of $12.0
million. Of this amount, $7.9 million was reflected in the consolidated
results of operations for the year ended December 31, 1997.
On March 5, 1998, SCI announced it increased its annual dividend per Common
Share to $1.24 per share from $1.14 per share, resulting in distributions of
$0.3183 per Common Share to be paid in the last three quarters of 1998.
On March 12, 1998, Merrill Lynch & Co. agreed to buy 3,750,000 SCI Common
Shares at $24.045 per share pursuant to an underwriting agreement. In
connection with the offering, SCI granted Merrill Lynch & Co. a 30-day option
to acquire an additional 562,500 Common Shares at $24.045 per share. The
offering is expected to close on March 18, 1998.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Security Capital Industrial Trust:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of Security Capital Industrial Trust included in this
Form 10-K, and have issued our report thereon dated March 13, 1998. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The supplemental Schedule III--Real Estate and Accumulated Depreciation
("Schedule III") is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. The Schedule III has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
March 13, 1998
F-30
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta, Georgia
Atlanta Airport
Distribution
Center.......... 4 $2,037 -- $ 6,523 $2,325 $ 6,235 $ 8,560 $ (220)
Atlanta NE
Distribution
Center.......... 8 5,582 $ 3,047 22,995 6,273 25,351 31,624 (629)
Atlanta West
Distribution
Center.......... 20 6,771 34,785 8,591 6,774 43,373 50,147 (3,752)
Carter-Pacific
Business Center. 3 556 3,151 168 556 3,319 3,875 (226)
Chattahoochee
Business Center. 1 216 1,222 182 239 1,381 1,620 --
Fulton Park
Distribution
Center.......... 4 447 2,533 136 426 2,690 3,116 --
International
Airport
Industrial
Center.......... 9 2,939 14,146 4,659 2,971 18,773 21,744 (1,861)
LaGrange
Distribution
Center.......... 1 174 986 103 174 1,089 1,263 (128)
Northeast
Industrial
Center.......... 4 1,109 6,283 (7) 1,050 6,335 7,385 (380)
Northmont
Industrial
Center.......... 1 566 3,209 146 566 3,355 3,921 (362)
Oakcliff
Industrial
Center.......... 3 608 3,446 324 608 3,770 4,378 (327)
Olympic
Industrial
Center.......... 2 698 3,956 1,605 757 5,502 6,259 (306)
Peachtree
Commerce
Business Center. 4 707 4,004 532 707 4,536 5,243 (537)
Peachtree
Distribution
Center.......... 1 302 1,709 33 302 1,742 2,044 (173)
Piedmont Court
Distribution
Center.......... 2 885 5,013 78 885 5,091 5,976 (57)
Plaza Industrial
Center.......... 1 66 372 85 66 457 523 (33)
Pleasantdale
Industrial
Center.......... 2 541 3,184 138 541 3,322 3,863 (322)
Regency
Industrial
Center.......... 9 1,853 10,480 721 1,856 11,198 13,054 (1,188)
Riverside
Distribution
Center.......... 1 271 -- 2,144 297 2,118 2,415 --
Sullivan 75
Distribution
Center 3 (d) 728 4,123 431 728 4,554 5,282 (445)
Tradeport
Distribution
Center.......... 3 1,464 4,563 5,215 1,479 9,763 11,242 (684)
Weaver
Distribution
Center.......... 2 935 5,182 493 935 5,675 6,610 (543)
Westfork
Industrial
Center.......... 10 2,483 14,115 516 2,483 14,631 17,114 (1,216)
Zip Industrial
Center.......... 4 533 3,023 (252) 485 2,819 3,304 --
Austin, Texas
Corridor Park
Corporate
Center.......... 6 2,109 1,681 12,734 2,113 14,411 16,524 (726)
Montopolis
Distribution
Center.......... 1 580 3,384 607 580 3,991 4,571 (505)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
Atlanta, Georgia
Atlanta Airport
Distribution
Center.......... 1996,1997
Atlanta NE
Distribution
Center.......... 1996,1997
Atlanta West
Distribution
Center.......... 1994,1996
Carter-Pacific
Business Center. 1995
Chattahoochee
Business Center. 1996
Fulton Park
Distribution
Center.......... 1996
International
Airport
Industrial
Center.......... 1994,1995
LaGrange
Distribution
Center.......... 1994
Northeast
Industrial
Center.......... 1996
Northmont
Industrial
Center.......... 1994
Oakcliff
Industrial
Center.......... 1995
Olympic
Industrial
Center.......... 1996
Peachtree
Commerce
Business Center. 1994
Peachtree
Distribution
Center.......... 1994
Piedmont Court
Distribution
Center.......... 1997
Plaza Industrial
Center.......... 1995
Pleasantdale
Industrial
Center.......... 1995
Regency
Industrial
Center.......... 1994
Riverside
Distribution
Center.......... 1997
Sullivan 75
Distribution
Center 1994,1995
Tradeport
Distribution
Center.......... 1994,1996
Weaver
Distribution
Center.......... 1995
Westfork
Industrial
Center.......... 1995
Zip Industrial
Center.......... 1996
Austin, Texas
Corridor Park
Corporate
Center.......... 1995,1996
Montopolis
Distribution
Center.......... 1994
</TABLE>
F-31
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pecan Business
Center.......... 4 630 3,572 322 631 3,893 4,524 (310)
Rutland
Distribution
Center.......... 2 460 2,617 209 462 2,824 3,286 (374)
Southpark
Corporate
Center.......... 7 1,946 -- 15,195 1,946 15,195 17,141 (1,257)
Walnut Creek
Corporate
Center.......... 12 2,707 5,649 16,225 2,707 21,874 24,581 (1,217)
Birmingham,
Alabama
Oxmoor
Distribution
Center.......... 4 (d) 2,398 13,591 645 2,398 14,236 16,634 (1,702)
Perimeter
Distribution
Center.......... 2 2,489 14,109 470 2,490 14,578 17,068 (1,779)
Charlotte, North
Carolina
Barringer
Industrial
Center.......... 3 308 1,746 389 308 2,135 2,443 (256)
Bond
Distribution
Center.......... 2 905 5,126 867 905 5,993 6,898 (732)
Charlotte
Commerce Center. 10 4,341 24,954 1,670 4,342 26,623 30,965 (3,151)
Charlotte
Distribution
Center.......... 7 3,852 -- 17,111 4,609 16,354 20,963 (776)
Interstate North
Business Park... 2 535 3,030 148 535 3,178 3,713 (54)
Northpark
Distribution
Center.......... 1 307 1,742 48 307 1,790 2,097 (208)
Chattanooga,
Tennessee
Stone Fort
Distribution
Center.......... 4 2,063 11,688 164 2,063 11,852 13,915 (1,286)
Tiftonia
Distribution
Center.......... 1 146 829 182 146 1,011 1,157 (86)
Chicago, Illinois
Addison
Distribution
Center.......... 1 646 3,662 283 646 3,945 4,591 (102)
Bedford Park
Distribution
Center.......... 1 473 2,678 40 473 2,718 3,191 (111)
Bensenville
Distribution
Center.......... 1 728 4,123 -- 728 4,123 4,851 --
Bridgeview
Distribution
Center.......... 4 1,302 7,378 619 1,303 7,996 9,299 (374)
Des Plaines
Distribution
Center.......... 3 2,158 12,232 456 2,159 12,687 14,846 (742)
Elk Grove
Distribution
Center.......... 9 3,815 21,616 2,162 3,815 23,778 27,593 (1,338)
Elmhurst
Distribution
Center.......... 1 713 4,043 44 713 4,087 4,800 (68)
Glenview
Distribution
Center.......... 1 214 1,213 49 214 1,262 1,476 (49)
Itasca
Distribution
Center.......... 2 604 3,425 30 604 3,455 4,059 (102)
Mitchell
Distribution
Center.......... 1 1,236 7,004 386 1,236 7,390 8,626 (385)
North Avenue
Distribution
Center.......... 1 974 -- 4,069 1,183 3,860 5,043 (10)
Northlake
Distribution
Center.......... 1 372 2,106 51 372 2,157 2,529 (120)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
Pecan Business
Center.......... 1995
Rutland
Distribution
Center.......... 1993
Southpark
Corporate
Center.......... 1994,1995,1996
Walnut Creek
Corporate
Center.......... 1994,1995,1996
Birmingham,
Alabama
Oxmoor
Distribution
Center.......... 1994
Perimeter
Distribution
Center.......... 1994
Charlotte, North
Carolina
Barringer
Industrial
Center.......... 1994
Bond
Distribution
Center.......... 1994
Charlotte
Commerce Center. 1994
Charlotte
Distribution
Center.......... 1995,1996,1997
Interstate North
Business Park... 1997
Northpark
Distribution
Center.......... 1994
Chattanooga,
Tennessee
Stone Fort
Distribution
Center.......... 1994
Tiftonia
Distribution
Center.......... 1995
Chicago, Illinois
Addison
Distribution
Center.......... 1997
Bedford Park
Distribution
Center.......... 1996
Bensenville
Distribution
Center.......... 1997
Bridgeview
Distribution
Center.......... 1996
Des Plaines
Distribution
Center.......... 1995,1996
Elk Grove
Distribution
Center.......... 1995,1996,1997
Elmhurst
Distribution
Center.......... 1997
Glenview
Distribution
Center.......... 1996
Itasca
Distribution
Center.......... 1996,1997
Mitchell
Distribution
Center.......... 1996
North Avenue
Distribution
Center.......... 1997
Northlake
Distribution
Center.......... 1996
</TABLE>
F-32
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<CAPTION><S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
O'Hare Cargo
Distribution
Center.......... 2 3,566 -- 10,991 5,924 8,633 14,557 (13)
Tri-Center
Distribution
Center.......... 3 889 5,038 187 889 5,225 6,114 (217)
Woodale
Distribution
Center.......... 1 263 1,490 48 263 1,538 1,801 (25)
Cincinnati, Ohio
Airpark
Distribution
Center.......... 2 1,692 -- 10,684 1,716 10,660 12,376 (449)
Blue
Ash/Interstate
Distribution
Center.......... 1 144 817 476 144 1,293 1,437 (88)
Capital
Distribution
Center I........ 4 1,750 9,922 689 1,751 10,610 12,361 (1,044)
Capital
Distribution
Center II....... 5 1,953 11,067 1,021 1,953 12,088 14,041 (1,269)
Capital
Industrial
Center I........ 10 1,039 5,885 1,227 1,039 7,112 8,151 (638)
Empire
Distribution
Center.......... 3 529 2,995 351 529 3,346 3,875 (256)
Kentucky Drive
Business Center. 4 553 3,134 291 553 3,425 3,978 (64)
Princeton
Distribution
Center.......... 1 (d) 816 -- 4,230 1,070 3,976 5,046 --
Production
Distribution
Center.......... 1 (f) 598 2,717 (18) 479 2,818 3,297 (295)
Sharonville
Distribution
Center.......... 2 1,206 -- 7,873 1,633 7,446 9,079 (14)
Springdale
Commerce Center. 3 421 2,384 678 421 3,062 3,483 (186)
Columbus, Ohio
Capital Park
South
Distribution
Center.......... 3 1,981 -- 19,859 1,981 19,859 21,840 (682)
Columbus West
Industrial
Center.......... 3 645 3,655 582 645 4,237 4,882 (340)
Corporate Park
West............ 2 679 3,849 178 679 4,027 4,706 (193)
Fisher
Distribution
Center.......... 1 1,197 6,785 645 1,197 7,430 8,627 (726)
International
Street Commerce
Center.......... 1 235 -- 2,343 249 2,329 2,578 (6)
McCormick
Distribution
Center.......... 5 1,664 9,429 985 1,664 10,414 12,078 (1,025)
New World
Distribution
Center.......... 1 207 1,173 416 207 1,589 1,796 (177)
Dallas/Fort
Worth, Texas
Carter
Industrial
Center.......... 1 334 -- 2,299 334 2,299 2,633 (63)
Dallas Corporate
Center.......... 7 4,102 -- 22,630 4,210 22,522 26,732 (523)
Franklin
Distribution
Center.......... 2 528 2,991 464 528 3,455 3,983 (431)
Freeport
Distribution
Center.......... 3 979 5,549 114 979 5,663 6,642 (168)
O'Hare Cargo
Distribution
Center.......... 1997
Tri-Center
Distribution
Center.......... 1996
Woodale
Distribution
Center.......... 1997
Cincinnati, Ohio
Airpark
Distribution
Center.......... 1996
Blue
Ash/Interstate
Distribution
Center.......... 1995
Capital
Distribution
Center I........ 1994
Capital
Distribution
Center II....... 1994
Capital
Industrial
Center I........ 1994,1995
Empire
Distribution
Center.......... 1995
Kentucky Drive
Business Center. 1997
Princeton
Distribution
Center.......... 1997
Production
Distribution
Center.......... 1994
Sharonville
Distribution
Center.......... 1997
Springdale
Commerce Center. 1996
Columbus, Ohio
Capital Park
South
Distribution
Center.......... 1996
Columbus West
Industrial
Center.......... 1995
Corporate Park
West............ 1996
Fisher
Distribution
Center.......... 1995
International
Street Commerce
Center.......... 1997
McCormick
Distribution
Center.......... 1994
New World
Distribution
Center.......... 1994
Dallas/Fort
Worth, Texas
Carter
Industrial
Center.......... 1996
Dallas Corporate
Center.......... 1996,1997
Franklin
Distribution
Center.......... 1994
Freeport
Distribution
Center.......... 1996,1997
</TABLE>
F-33
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Great Southwest
Distribution
Center.......... 14 3,801 19,430 5,198 3,831 24,598 28,429 (1,268)
Great Southwest
Industrial
Center I........ 2 308 1,744 172 308 1,916 2,224 (132)
Great Southwest
Industrial
Center II....... 1 836 -- 6,125 1,010 5,951 6,961 --
Lone Star
Distribution
Center.......... 2 967 5,477 155 967 5,632 6,599 (296)
Metropolitan
Distribution
Center.......... 1 201 1,097 722 297 1,723 2,020 (134)
Northgate
Distribution
Center.......... 5 1,570 8,897 424 1,570 9,321 10,891 (1,014)
Northpark
Business Center. 2 467 2,648 197 467 2,845 3,312 (174)
Redbird
Distribution
Center.......... 2 738 4,186 112 739 4,297 5,036 (153)
Royal Commerce
Center.......... 4 1,975 11,190 163 1,975 11,353 13,328 (94)
Stemmons
Distribution
Center.......... 1 272 1,544 485 272 2,029 2,301 (170)
Stemmons
Industrial
Center.......... 11 1,497 8,484 1,132 1,497 9,616 11,113 (864)
Trinity Mills
Distribution
Center.......... 4 1,709 9,684 1,043 1,709 10,727 12,436 (566)
Denver, Colorado
Denver Business
Center.......... 5 1,156 7,486 6,434 1,156 13,920 15,076 (1,458)
Havana
Distribution
Center.......... 1 401 2,281 82 401 2,363 2,764 (354)
Moline
Distribution
Center.......... 1 327 1,850 157 327 2,007 2,334 (249)
Moncrieff
Distribution
Center.......... 1 314 2,493 376 314 2,869 3,183 (446)
Pagosa
Distribution
Center.......... 1 406 2,322 358 406 2,680 3,086 (392)
Upland
Distribution
Center I........ 6 820 5,710 8,064 821 13,773 14,594 (1,727)
Upland
Distribution
Center II....... 6 2,456 13,946 705 2,489 14,618 17,107 (2,072)
East Bay (San
Francisco),
California
East Bay
Industrial
Center.......... 1 531 3,009 183 531 3,192 3,723 (356)
Eigenbrodt Way
Distribution
Center.......... 1 (d) 393 2,228 81 393 2,309 2,702 (304)
Hayward Commerce
Center.......... 4 1,933 10,955 495 1,933 11,450 13,383 (1,505)
Hayward Commerce
Park............ 9 2,764 15,661 1,430 2,764 17,091 19,855 (2,202)
Hayward
Distribution
Center.......... 7 (e) 3,417 19,255 578 3,417 19,833 23,250 (2,619)
Hayward
Industrial
Center.......... 13 (d) 4,481 25,393 2,453 4,481 27,846 32,327 (3,530)
Patterson Pass
Business Center. 4 1,829 4,885 4,870 1,856 9,728 11,584 (696)
San Leandro
Distribution
Center.......... 3 1,387 7,862 244 1,387 8,106 9,493 (1,098)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
Great Southwest
Distribution
Center.......... 1994,1995,1996,1997
Great Southwest
Industrial
Center I........ 1995
Great Southwest
Industrial
Center II....... 1997
Lone Star
Distribution
Center.......... 1996
Metropolitan
Distribution
Center.......... 1995
Northgate
Distribution
Center.......... 1994,1996
Northpark
Business Center. 1995,1996
Redbird
Distribution
Center.......... 1994,1996
Royal Commerce
Center.......... 1997
Stemmons
Distribution
Center.......... 1995
Stemmons
Industrial
Center.......... 1994,1995,1996
Trinity Mills
Distribution
Center.......... 1996
Denver, Colorado
Denver Business
Center.......... 1992,1994,1996
Havana
Distribution
Center.......... 1993
Moline
Distribution
Center.......... 1994
Moncrieff
Distribution
Center.......... 1992
Pagosa
Distribution
Center.......... 1993
Upland
Distribution
Center I........ 1992,1994,1995
Upland
Distribution
Center II....... 1993,1994
East Bay (San
Francisco),
California
East Bay
Industrial
Center.......... 1994
Eigenbrodt Way
Distribution
Center.......... 1993
Hayward Commerce
Center.......... 1993
Hayward Commerce
Park............ 1994
Hayward
Distribution
Center.......... 1993
Hayward
Industrial
Center.......... 1993
Patterson Pass
Business Center. 1993,1997
San Leandro
Distribution
Center.......... 1993
</TABLE>
F-34
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
El Paso, Texas
Billy the Kid
Distribution
Center.......... 1 273 1,547 525 273 2,072 2,345 (216)
Broadbent
Industrial
Center.......... 3 676 5,183 444 676 5,627 6,303 (862)
Goodyear
Distribution
Center.......... 1 511 2,899 60 511 2,959 3,470 (350)
Northwestern
Corporate
Center.......... 5 1,472 -- 14,982 1,986 14,468 16,454 (1,092)
Pan Am
Distribution
Center.......... 1 318 -- 2,327 318 2,327 2,645 (207)
Peter Cooper
Distribution
Center.......... 1 (d) 495 2,816 58 495 2,874 3,369 (340)
Vista Corporate
Center.......... 4 1,945 -- 10,678 1,946 10,677 12,623 (755)
Vista Del Sol
Industrial
Center.......... 9 (d) 3,088 12,782 15,803 4,497 27,176 31,673 (2,228)
Fort
Lauderdale/Miami,
Florida
Airport West
Distribution
Center.......... 1 675 3,825 645 1,276 3,869 5,145 (258)
Copans
Distribution
Center.......... 1 333 1,888 461 333 2,349 2,682 (70)
North Andrews
Distribution
Center.......... 1 (f) 698 3,956 92 698 4,048 4,746 (427)
Port 95
Distribution
Center I........ 3 2,065 6,654 6,427 3,364 11,782 15,146 (602)
Houston, Texas
Crosstimbers
Distribution
Center.......... 1 359 2,035 434 359 2,469 2,828 (298)
Hempstead
Distribution
Center.......... 3 1,013 5,740 569 1,013 6,309 7,322 (777)
I-10 Central
Distribution
Center.......... 2 181 1,023 255 181 1,278 1,459 (142)
I-10 Central
Service Center.. 1 58 330 90 58 420 478 (46)
Pine Forest
Business Center. 18 4,859 27,557 2,107 4,859 29,664 34,523 (2,709)
Post Oak
Business Center. 16 3,462 17,966 3,716 3,462 21,682 25,144 (2,358)
Post Oak
Distribution
Center.......... 7 2,115 12,017 1,394 2,115 13,411 15,526 (1,906)
South Loop
Distribution
Center.......... 5 1,051 5,964 1,071 1,052 7,034 8,086 (761)
Southwest
Freeway
Industrial
Center.......... 1 84 476 35 84 511 595 (61)
West by
Northwest
Industrial
Center.......... 15 3,855 8,382 27,484 4,050 35,671 39,721 (2,202)
White Street
Distribution
Center.......... 1 469 2,656 195 469 2,851 3,320 (266)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
El Paso, Texas
Billy the Kid
Distribution
Center.......... 1994
Broadbent
Industrial
Center.......... 1993
Goodyear
Distribution
Center.......... 1994
Northwestern
Corporate
Center.......... 1992,1993,1994,1997
Pan Am
Distribution
Center.......... 1995
Peter Cooper
Distribution
Center.......... 1994
Vista Corporate
Center.......... 1994,1995,1996
Vista Del Sol
Industrial
Center.......... 1994,1995,1997
Fort
Lauderdale/Miami,
Florida
Airport West
Distribution
Center.......... 1995
Copans
Distribution
Center.......... 1997
North Andrews
Distribution
Center.......... 1994
Port 95
Distribution
Center I........ 1995,1997
Houston, Texas
Crosstimbers
Distribution
Center.......... 1994
Hempstead
Distribution
Center.......... 1994
I-10 Central
Distribution
Center.......... 1994
I-10 Central
Service Center.. 1994
Pine Forest
Business Center. 1993,1994,1995
Post Oak
Business Center. 1993,1994,1996
Post Oak
Distribution
Center.......... 1993,1994
South Loop
Distribution
Center.......... 1994
Southwest
Freeway
Industrial
Center.......... 1994
West by
Northwest
Industrial
Center.......... 1993,1994,1995,1996,1997
White Street
Distribution
Center.......... 1995
</TABLE>
F-35
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Indianapolis,
Indiana
Eastside
Distribution
Center.......... 2 471 2,668 246 472 2,913 3,385 (204)
North by
Northeast
Distribution
Center.......... 1 1,058 -- 5,927 1,059 5,926 6,985 (529)
Park 100
Industrial
Center.......... 24 9,770 55,369 3,185 9,665 58,659 68,324 (4,486)
Park Fletcher
Distribution
Center.......... 10 2,860 16,204 1,743 2,911 17,896 20,807 (1,243)
Plainfield Park
Distribution
Center.......... 1 399 -- 3,430 625 3,204 3,829 --
Shadeland
Industrial
Center.......... 3 428 2,431 443 429 2,873 3,302 (234)
Kansas City,
Kansas/Missouri
44th Street
Business Center. 1 143 813 297 143 1,110 1,253 (66)
Congleton
Distribution
Center.......... 3 518 2,937 243 518 3,180 3,698 (362)
Lamar
Distribution
Center.......... 1 323 1,829 492 323 2,321 2,644 (260)
Macon Bedford
Distribution
Center.......... 1 304 1,725 357 304 2,082 2,386 (111)
Platte Valley
Industrial
Center.......... 11 (d) 3,867 20,017 5,507 4,002 25,389 29,391 (2,226)
Riverside
Distribution
Center.......... 5 (d) 533 3,024 470 534 3,493 4,027 (356)
Riverside
Industrial
Center.......... 5 (d) 1,012 5,736 316 1,012 6,052 7,064 (633)
Terrace &
Lackman
Distribution
Center.......... 1 285 1,615 431 285 2,046 2,331 (220)
Las Vegas, Nevada
Black Mountain
Distribution
Center.......... 2 1,108 -- 5,878 1,206 5,780 6,986 (41)
Hughes Airport
Center.......... 1 876 -- 3,328 910 3,294 4,204 (378)
Las Vegas
Corporate
Center.......... 7 (e) 4,157 -- 20,534 4,522 20,169 24,691 (1,092)
West One
Business Center. 4 (d) 2,468 13,985 231 2,468 14,216 16,684 (631)
Los
Angeles/Orange
County,
California
Foothills
Business Center. 1 1,877 -- 3,994 1,976 3,895 5,871 (10)
Freeway
Distribution
Center.......... 3 3,305 18,729 68 3,305 18,797 22,102 (105)
Mid-Counties
Distribution
Center.......... 6 3,355 15,895 3,753 3,356 19,647 23,003 (1,393)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
Indianapolis,
Indiana
Eastside
Distribution
Center.......... 1995
North by
Northeast
Distribution
Center.......... 1995
Park 100
Industrial
Center.......... 1994,1995
Park Fletcher
Distribution
Center.......... 1994,1995,1996
Plainfield Park
Distribution
Center.......... 1997
Shadeland
Industrial
Center.......... 1995
Kansas City,
Kansas/Missouri
44th Street
Business Center. 1996
Congleton
Distribution
Center.......... 1994
Lamar
Distribution
Center.......... 1994
Macon Bedford
Distribution
Center.......... 1996
Platte Valley
Industrial
Center.......... 1994,1997
Riverside
Distribution
Center.......... 1994
Riverside
Industrial
Center.......... 1994
Terrace &
Lackman
Distribution
Center.......... 1994
Las Vegas, Nevada
Black Mountain
Distribution
Center.......... 1997
Hughes Airport
Center.......... 1994
Las Vegas
Corporate
Center.......... 1994,1995,1996,1997
West One
Business Center. 1996
Los
Angeles/Orange
County,
California
Foothills
Business Center. 1997
Freeway
Distribution
Center.......... 1997
Mid-Counties
Distribution
Center.......... 1995,1997
</TABLE>
F-36
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North County
Distribution
Center.......... 2 16,543 -- 22,342 16,374 22,511 38,885 (870)
Pacific Business
Center.......... 5 4,196 -- 20,537 4,379 20,354 24,733 (354)
Santa Ana
Distribution
Center.......... 1 647 3,668 35 647 3,703 4,350 (370)
Louisville,
Kentucky
Louisville
Distribution
Center.......... 2 1,219 3,402 6,281 1,240 9,662 10,902 (294)
Lyons, France
L'Isle d'Abeau
Distribution
Center.......... 1 1,246 7,062 -- 1,246 7,062 8,308 --
Memphis,
Tennessee
Airport
Distribution
Center.......... 15 4,543 25,748 3,400 4,544 29,147 33,691 (2,218)
Delp
Distribution
Center.......... 8 2,308 13,079 1,805 2,308 14,884 17,192 (1,120)
Fred Jones
Distribution
Center.......... 1 125 707 86 125 793 918 (76)
Southwide Lamar
Industrial
Center.......... 4 (d) 423 3,365 382 425 3,745 4,170 (370)
Monterrey, Mexico
Monterrey
Industrial Park. 3 1,382 3,785 2,279 1,418 6,028 7,446 (103)
Nashville,
Tennessee
Bakertown
Distribution
Center.......... 2 463 2,626 67 463 2,693 3,156 (193)
I-40 Industrial
Center.......... 3 665 3,774 167 666 3,940 4,606 (337)
Interchange City
Distribution
Center.......... 4 2,321 5,767 8,430 3,076 13,442 16,518 (748)
Space Park South
Distribution
Center.......... 15 3,499 19,830 1,582 3,499 21,412 24,911 (2,247)
New Jersey/I-95
Corridor
Brunswick
Distribution
Center.......... 2 870 4,928 1,117 870 6,045 6,915 (125)
Clearview
Distribution
Center.......... 1 2,232 12,648 238 2,232 12,886 15,118 (440)
Kilmer
Distribution
Center.......... 4 2,526 14,313 411 2,526 14,724 17,250 (548)
Meadowland
Industrial
Center.......... 1 2,409 13,653 963 2,409 14,616 17,025 (721)
Oklahoma City,
Oklahoma
Melcat
Distribution
Center.......... 1 240 1,363 273 240 1,636 1,876 (184)
Meridian
Business Center. 2 195 1,109 489 196 1,597 1,793 (149)
Oklahoma
Distribution
Center.......... 3 893 5,082 435 893 5,517 6,410 (797)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
North County
Distribution
Center.......... 1996
Pacific Business
Center.......... 1996,1997
Santa Ana
Distribution
Center.......... 1994
Louisville,
Kentucky
Louisville
Distribution
Center.......... 1995,1996
Lyons, France
L'Isle d'Abeau
Distribution
Center.......... 1997
Memphis,
Tennessee
Airport
Distribution
Center.......... 1995,1996
Delp
Distribution
Center.......... 1995,1997
Fred Jones
Distribution
Center.......... 1994
Southwide Lamar
Industrial
Center.......... 1994
Monterrey, Mexico
Monterrey
Industrial Park. 1997
Nashville,
Tennessee
Bakertown
Distribution
Center.......... 1995
I-40 Industrial
Center.......... 1995,1996
Interchange City
Distribution
Center.......... 1994,1995,1996,1997
Space Park South
Distribution
Center.......... 1994
New Jersey/I-95
Corridor
Brunswick
Distribution
Center.......... 1997
Clearview
Distribution
Center.......... 1996
Kilmer
Distribution
Center.......... 1996
Meadowland
Industrial
Center.......... 1996
Oklahoma City,
Oklahoma
Melcat
Distribution
Center.......... 1994
Meridian
Business Center. 1994
Oklahoma
Distribution
Center.......... 1993
</TABLE>
F-37
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orlando, Florida
33rd Street
Industrial
Center.......... 9 (d)(f) 1,980 11,237 784 1,980 12,021 14,001 (939)
Chancellor
Distribution
Center.......... 1 380 2,156 1,055 380 3,211 3,591 (271)
La Quinta
Distribution
Center.......... 1 354 2,006 583 354 2,589 2,943 (255)
Orlando Central
Park............ 1 606 -- 3,738 775 3,569 4,344 (30)
Titusville
Industrial
Center.......... 1 (d) 283 1,603 84 283 1,687 1,970 (174)
Paris, France
Mitry Mory
Distribution
Center.......... 1 1,083 6,137 47 1,083 6,184 7,267 (85)
Phoenix, Arizona
24th Street
Industrial
Center.......... 2 503 2,852 297 503 3,149 3,652 (412)
Alameda
Distribution
Center.......... 1 369 2,423 190 369 2,613 2,982 (487)
Hohokam 10
Industrial
Center.......... 5 2,940 -- 11,376 2,941 11,375 14,316 (265)
I-10 West
Business Center. 3 263 1,525 139 263 1,664 1,927 (244)
Kyrene Commons
Distribution
Center.......... 1 430 2,656 143 430 2,799 3,229 (530)
Martin Van Buren
Distribution
Center.......... 6 572 3,285 396 572 3,681 4,253 (449)
Papago
Distribution
Center.......... 1 420 2,383 72 420 2,455 2,875 (308)
Pima
Distribution
Center.......... 1 306 1,742 218 306 1,960 2,266 (264)
Tiger
Distribution
Center.......... 1 402 2,279 595 402 2,874 3,276 (370)
Watkins
Distribution
Center.......... 1 242 1,375 192 243 1,566 1,809 (156)
Portland, Oregon
Argyle
Distribution
Center.......... 3 946 5,388 229 946 5,617 6,563 (784)
Columbia
Distribution
Center.......... 2 550 3,121 152 551 3,272 3,823 (341)
PDX Corporate
Center East..... 2 (e) 1,464 -- 6,777 2,258 5,983 8,241 (69)
PDX Corporate
Center North.... 7 (e) 2,405 -- 10,662 2,542 10,525 13,067 (724)
The Evergreen
Park............ 4 1,092 -- 6,947 1,462 6,577 8,039 --
Wilsonville
Corporate
Center.......... 6 (e) 2,963 -- 11,516 2,964 11,515 14,479 (766)
Reno, Nevada
Fernley
Distribution
Center.......... 1 974 -- 4,834 1,110 4,698 5,808 --
Golden Valley
Distribution
Center.......... 2 2,850 -- 11,306 2,812 11,344 14,156 (84)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
Orlando, Florida
33rd Street
Industrial
Center.......... 1994,1995,1996
Chancellor
Distribution
Center.......... 1994
La Quinta
Distribution
Center.......... 1994
Orlando Central
Park............ 1997
Titusville
Industrial
Center.......... 1994
Paris, France
Mitry Mory
Distribution
Center.......... 1997
Phoenix, Arizona
24th Street
Industrial
Center.......... 1994
Alameda
Distribution
Center.......... 1992
Hohokam 10
Industrial
Center.......... 1996
I-10 West
Business Center. 1993
Kyrene Commons
Distribution
Center.......... 1992
Martin Van Buren
Distribution
Center.......... 1993,1994
Papago
Distribution
Center.......... 1994
Pima
Distribution
Center.......... 1993
Tiger
Distribution
Center.......... 1994
Watkins
Distribution
Center.......... 1995
Portland, Oregon
Argyle
Distribution
Center.......... 1993
Columbia
Distribution
Center.......... 1994
PDX Corporate
Center East..... 1997
PDX Corporate
Center North.... 1995,1996
The Evergreen
Park............ 1997
Wilsonville
Corporate
Center.......... 1995,1996
Reno, Nevada
Fernley
Distribution
Center.......... 1997
Golden Valley
Distribution
Center.......... 1996
</TABLE>
F-38
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Meredith Kleppe
Business Center. 5 1,573 8,949 858 1,573 9,807 11,380 (1,326)
Pacific
Industrial
Center.......... 4 2,501 -- 10,529 2,501 10,529 13,030 (864)
Packer Way
Business Center. 3 458 2,604 466 458 3,070 3,528 (420)
Packer Way
Distribution
Center.......... 2 506 2,879 351 506 3,230 3,736 (437)
Spice Island
Distribution
Center.......... 1 435 2,466 1,024 435 3,490 3,925 (153)
Reynosa, Mexico
Reynosa
Industrial
Center.......... 2 668 -- 3,524 691 3,501 4,192 (19)
Rio Grande Valley
(Brownsville),
Texas
Rio Grande
Distribution
Center.......... 5 (d) 527 2,987 599 527 3,586 4,113 (282)
Rio Grande
Industrial
Center.......... 8 (d) 2,188 12,399 1,360 2,188 13,759 15,947 (1,149)
Valley
Industrial
Center.......... 1 230 -- 3,242 363 3,109 3,472 (33)
Rotterdam,
Netherlands
Eemhaven
Industrial Park. 1 -- 7,562 221 -- 7,783 7,783 (147)
Salt Lake City,
Utah
Centennial
Distribution
Center.......... 2 1,149 -- 7,925 1,149 7,925 9,074 (664)
Clearfield
Distribution
Center.......... 2 2,500 14,165 506 2,481 14,690 17,171 (974)
Ogden
Distribution
Center.......... 1 463 2,625 549 463 3,174 3,637 --
Salt Lake
International
Distribution
Center.......... 2 1,364 2,792 7,611 1,364 10,403 11,767 (467)
San Antonio,
Texas
10711
Distribution
Center.......... 2 582 3,301 483 582 3,784 4,366 (485)
Coliseum
Distribution
Center.......... 2 1,102 2,380 10,347 1,613 12,216 13,829 (1,196)
Distribution
Drive Center.... 1 473 2,680 482 473 3,162 3,635 (503)
Downtown
Distribution
Center.......... 1 241 1,364 245 241 1,609 1,850 (208)
I-10 Central
Distribution
Center.......... 1 223 1,275 195 240 1,453 1,693 (259)
I-35 Business
Center.......... 4 663 3,773 398 663 4,171 4,834 (637)
Landmark One
Distribution
Center.......... 1 341 1,933 291 341 2,224 2,565 (247)
Macro
Distribution
Center.......... 1 225 1,282 154 225 1,436 1,661 (241)
Perrin Creek
Corporate
Center.......... 6 1,547 -- 9,149 1,626 9,070 10,696 (417)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
Meredith Kleppe
Business Center. 1993
Pacific
Industrial
Center.......... 1994,1995
Packer Way
Business Center. 1993
Packer Way
Distribution
Center.......... 1993
Spice Island
Distribution
Center.......... 1996
Reynosa, Mexico
Reynosa
Industrial
Center.......... 1997
Rio Grande Valley
(Brownsville),
Texas
Rio Grande
Distribution
Center.......... 1995
Rio Grande
Industrial
Center.......... 1995
Valley
Industrial
Center.......... 1997
Rotterdam,
Netherlands
Eemhaven
Industrial Park. 1997
Salt Lake City,
Utah
Centennial
Distribution
Center.......... 1995
Clearfield
Distribution
Center.......... 1995
Ogden
Distribution
Center.......... 1996
Salt Lake
International
Distribution
Center.......... 1994,1996
San Antonio,
Texas
10711
Distribution
Center.......... 1994
Coliseum
Distribution
Center.......... 1994,1995
Distribution
Drive Center.... 1992
Downtown
Distribution
Center.......... 1994
I-10 Central
Distribution
Center.......... 1992
I-35 Business
Center.......... 1993
Landmark One
Distribution
Center.......... 1994
Macro
Distribution
Center.......... 1993
Perrin Creek
Corporate
Center.......... 1995,1996
</TABLE>
F-39
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
San Antonio
Distribution
Center I........ 13 2,154 12,247 2,663 2,154 14,910 17,064 (2,473)
San Antonio
Distribution
Center II....... 3 969 -- 5,680 885 5,764 6,649 (645)
San Antonio
Distribution
Center III...... 6 1,709 9,684 1,086 1,709 10,770 12,479 (584)
Sentinel
Business Center. 6 1,276 7,230 823 1,276 8,053 9,329 (849)
Tri-County
Distribution
Center.......... 1 496 -- 5,677 679 5,494 6,173 --
Woodlake
Distribution
Center.......... 2 248 1,405 76 248 1,481 1,729 (184)
San Diego,
California
Carmel Mountain
Ranch Industrial
Center.......... 3 3,732 -- 9,575 3,773 9,534 13,307 --
Seattle,
Washington
Andover East
Business Center. 2 535 3,033 203 535 3,236 3,771 (352)
Fife Corporate
Center.......... 3 4,059 -- 9,559 4,206 9,412 13,618 (179)
Kent Corporate
Center.......... 2 2,882 1,987 8,322 3,190 10,001 13,191 (882)
Van Doren's
Distribution
Center.......... 2 (e) 2,473 -- 8,145 2,860 7,758 10,618 (245)
South Bay (San
Francisco),
California
Bayside Business
Center.......... 2 (e) 2,088 -- 4,428 2,088 4,428 6,516 (87)
Bayside
Corporate
Center.......... 7 (e) 4,365 -- 15,864 4,365 15,864 20,229 (1,376)
Bayside Plaza I. 12 (e) 5,212 18,008 462 5,216 18,466 23,682 (2,480)
Bayside Plaza
II.............. 2 (e) 634 -- 2,812 634 2,812 3,446 (505)
Gateway
Corporate
Center.......... 11 (d)(e) 7,575 24,746 4,009 7,575 28,755 36,330 (3,968)
Mowry Business
Center.......... 2 3,957 -- 11,409 5,162 10,204 15,366 (51)
Shoreline
Business Center. 8 (e) 4,328 16,101 405 4,328 16,506 20,834 (2,202)
Shoreline
Business Center
II.............. 2 (e) 922 -- 4,570 922 4,570 5,492 (602)
Spinnaker
Business Center. 12 (e) 7,043 25,220 842 7,043 26,062 33,105 (3,520)
Thornton
Business Center. 5 (d) 3,988 11,706 6,092 3,989 17,797 21,786 (1,904)
Trimble
Distribution
Center.......... 5 2,836 16,067 729 2,836 16,796 19,632 (2,201)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
San Antonio
Distribution
Center I........ 1992,1993,1994
San Antonio
Distribution
Center II....... 1994
San Antonio
Distribution
Center III...... 1996
Sentinel
Business Center. 1994
Tri-County
Distribution
Center.......... 1997
Woodlake
Distribution
Center.......... 1994
San Diego,
California
Carmel Mountain
Ranch Industrial
Center.......... 1996,1997
Seattle,
Washington
Andover East
Business Center. 1994
Fife Corporate
Center.......... 1996
Kent Corporate
Center.......... 1995
Van Doren's
Distribution
Center.......... 1995,1997
South Bay (San
Francisco),
California
Bayside Business
Center.......... 1996
Bayside
Corporate
Center.......... 1995,1996
Bayside Plaza I. 1993
Bayside Plaza
II.............. 1994
Gateway
Corporate
Center.......... 1993,1996
Mowry Business
Center.......... 1997
Shoreline
Business Center. 1993
Shoreline
Business Center
II.............. 1995
Spinnaker
Business Center. 1993
Thornton
Business Center. 1993,1996
Trimble
Distribution
Center.......... 1994
</TABLE>
F-40
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- ------- ------------ ----------- ------- ------------ --------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
St. Louis,
Missouri
Earth City
Industrial
Center.......... 5 (d) 2,555 14,478 303 2,552 14,784 17,336 (207)
Hazelwood
Distribution
Center.......... 1 (d) 233 1,322 36 233 1,358 1,591 (11)
Westport
Distribution
Center.......... 3 (d) 761 4,310 62 761 4,372 5,133 (37)
Westport Service
Center.......... 2 (d) 486 2,754 6 486 2,760 3,246 --
Tampa, Florida
Adamo
Distribution
Center.......... 1 105 595 304 105 899 1,004 (50)
Clearwater
Distribution
Center.......... 2 (f) 92 524 49 92 573 665 (58)
Commerce Park
Distribution
Center.......... 4 811 4,597 246 811 4,843 5,654 (506)
Eastwood
Distribution
Center.......... 1 (f) 122 690 86 122 776 898 (75)
Joe's Creek
Distribution
Center.......... 2 (f) 161 909 124 160 1,034 1,194 (112)
Lakeland
Distribution
Center.......... 1 938 5,313 545 938 5,858 6,796 (691)
Orchid Lake
Industrial
Center.......... 1 41 235 12 41 247 288 (26)
Plant City
Distribution
Center.......... 1 (f) 206 1,169 50 206 1,219 1,425 (127)
Sabal Park
Distribution
Center.......... 2 1,080 -- 6,022 875 6,227 7,102 (160)
Silo Bend
Distribution
Center.......... 4 (f) 2,887 16,358 688 2,887 17,046 19,933 (1,698)
Silo Bend
Industrial
Center.......... 1 (f) 525 2,975 222 525 3,197 3,722 (335)
St. Petersburg
Service Center.. 1 35 197 21 35 218 253 (22)
Tampa East
Distribution
Center.......... 11 (f) 2,700 15,302 1,759 2,700 17,061 19,761 (1,730)
Tampa East
Industrial
Center.......... 2 (f) 332 1,880 242 332 2,122 2,454 (213)
Tampa West
Distribution
Center.......... 15 (d)(f) 3,273 18,659 1,897 3,383 20,446 23,829 (2,081)
Tampa West
Industrial
Center.......... 4 (f) 700 1,161 3,970 700 5,131 5,831 (210)
Tampa West
Service Center.. 4 (f) 970 5,501 412 971 5,912 6,883 (612)
Tulsa, Oklahoma
52nd Street
Distribution
Center.......... 1 340 1,924 182 340 2,106 2,446 (217)
70th East
Distribution
Center.......... 1 129 733 156 129 889 1,018 (86)
East 55th Street
Distribution
Center.......... 1 (f) 210 1,191 83 210 1,274 1,484 (130)
Expressway
Distribution
Center.......... 4 573 3,280 642 573 3,922 4,495 (552)
Henshaw
Distribution
Center.......... 3 500 2,829 131 499 2,961 3,460 (316)
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
St. Louis,
Missouri
Earth City
Industrial
Center.......... 1997
Hazelwood
Distribution
Center.......... 1997
Westport
Distribution
Center.......... 1997
Westport Service
Center.......... 1997
Tampa, Florida
Adamo
Distribution
Center.......... 1995
Clearwater
Distribution
Center.......... 1994
Commerce Park
Distribution
Center.......... 1994
Eastwood
Distribution
Center.......... 1994
Joe's Creek
Distribution
Center.......... 1994
Lakeland
Distribution
Center.......... 1994
Orchid Lake
Industrial
Center.......... 1994
Plant City
Distribution
Center.......... 1994
Sabal Park
Distribution
Center.......... 1996,1997
Silo Bend
Distribution
Center.......... 1994
Silo Bend
Industrial
Center.......... 1994
St. Petersburg
Service Center.. 1994
Tampa East
Distribution
Center.......... 1994
Tampa East
Industrial
Center.......... 1994
Tampa West
Distribution
Center.......... 1994,1995
Tampa West
Industrial
Center.......... 1994,1996
Tampa West
Service Center.. 1994
Tulsa, Oklahoma
52nd Street
Distribution
Center.......... 1994
70th East
Distribution
Center.......... 1994
East 55th Street
Distribution
Center.......... 1994
Expressway
Distribution
Center.......... 1993
Henshaw
Distribution
Center.......... 1994
</TABLE>
F-41
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
--------------------- SUBSEQUENT -------------------------------- ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
- ----------- ------ ------- -------- ------------ ----------- -------- ------------ ---------- ------------
OPERATING
PROPERTIES
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington,
D.C./Baltimore
Airport Commons
Distribution
Center.......... 2 2,320 -- 8,194 2,360 8,154 10,514 (104)
Ardmore
Distribution
Center.......... 3 1,431 8,110 360 1,431 8,470 9,901 (839)
Ardmore
Industrial
Center.......... 2 984 5,581 253 985 5,833 6,818 (581)
Chantilly
Distribution
Center.......... 2 2,242 -- 15,155 3,377 14,020 17,397 (54)
Concorde
Industrial
Center.......... 4 1,538 8,717 443 1,538 9,160 10,698 (777)
De Soto Business
Park............ 5 1,774 10,055 2,909 1,774 12,964 14,738 (640)
Eisenhower
Industrial
Center.......... 3 1,240 7,025 1,026 1,240 8,051 9,291 (795)
Fleet
Distribution
Center.......... 8 3,198 18,121 948 3,198 19,069 22,267 (1,208)
Hampton Central
Distribution
Center.......... 2 1,769 -- 8,879 2,248 8,400 10,648 (199)
Patapsco
Distribution
Center.......... 1 270 1,528 847 270 2,375 2,645 (137)
Sunnyside
Industrial
Center.......... 3 1,541 8,733 1,205 1,541 9,938 11,479 (967)
Other Markets.... 7 (f) 1,300 8,635 372 1,364 8,943 10,307 (787)
----- -------- ---------- -------- -------- ---------- ---------- ---------
Total Operating
Properties...... 1,005 $402,714 $1,471,318 $779,572 $420,019 $2,233,585 $2,653,604 $(171,525)
----- -------- ---------- -------- -------- ---------- ---------- ---------
<CAPTION>
LAND UNDER
DEVELOPMENT
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amsterdam,
Netherlands
Schiphol
Distribution
Center.......... $ 3,153 -- $ 635 $ 3,788 -- $ 3,788 --
Atlanta, Georgia
Atlanta Airport
Distribution
Center.......... 1,400 -- 1,443 2,843 -- 2,843 --
Atlanta NE at
Sugarloaf....... 1,182 -- 406 1,588 -- 1,588 --
Breckenridge
Distribution
Center.......... 651 -- 181 832 -- 832 --
Charlotte, North
Carolina
Charlotte
Distribution
Center.......... 856 -- 621 1,477 -- 1,477 --
Chicago, Illinois
Alsip
Distribution
Center.......... 1,273 -- -- 1,273 -- 1,273 --
Bensenville
Distribution
Center.......... 940 -- -- 940 -- 940 --
North Avenue
Distribution
Center 695 -- 274 969 -- 969 --
Remington Lakes
Business Park... 1,026 -- 171 1,197 -- 1,197 --
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
- ----------- ------------------------
OPERATING
PROPERTIES
- ----------
<S> <C>
Washington,
D.C./Baltimore
Airport Commons
Distribution
Center.......... 1997
Ardmore
Distribution
Center.......... 1994
Ardmore
Industrial
Center.......... 1994
Chantilly
Distribution
Center.......... 1996,1997
Concorde
Industrial
Center.......... 1995
De Soto Business
Park............ 1996
Eisenhower
Industrial
Center.......... 1994
Fleet
Distribution
Center.......... 1996
Hampton Central
Distribution
Center.......... 1996,1997
Patapsco
Distribution
Center.......... 1995
Sunnyside
Industrial
Center.......... 1994
Other Markets.... 1991,1994,1996
Total Operating
Properties......
<CAPTION>
LAND UNDER
DEVELOPMENT
- -----------
<S> <C>
Amsterdam,
Netherlands
Schiphol
Distribution
Center.......... 1997
Atlanta, Georgia
Atlanta Airport
Distribution
Center.......... 1996
Atlanta NE at
Sugarloaf....... 1997
Breckenridge
Distribution
Center.......... 1997
Charlotte, North
Carolina
Charlotte
Distribution
Center.......... 1994,1995
Chicago, Illinois
Alsip
Distribution
Center.......... 1997
Bensenville
Distribution
Center.......... 1997
North Avenue
Distribution
Center 1996
Remington Lakes
Business Park... 1997
</TABLE>
F-42
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION DATE OF
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C) CONSTRUCTION/ACQUISITION
- ----------- ------- ------- ------------ ----------- ------- ------------ --------- ------------ ------------------------
LAND UNDER
DEVELOPMENT
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cincinnati, Ohio
Airpark
International
Distribution
Center.......... 434 -- 220 654 -- 654 -- 1997
Union Center
Commerce Park... 566 -- 16 582 -- 582 -- 1997
Columbus, Ohio
Capital Park
South
Distribution
Center.......... 285 -- 18 303 -- 303 -- 1997
Dallas/Fort
Worth, Texas
Dallas Corporate
Center.......... 608 -- 102 710 -- 710 -- 1995
Freeport
Distribution
Center.......... 414 -- 9 423 -- 423 -- 1996
Great Southwest
Distribution
Center.......... 1,046 -- 83 1,129 -- 1,129 -- 1996
Denver, Colorado
Denver Business
Center.......... 988 -- 34 1,022 -- 1,022 -- 1997
East Bay (San
Francisco),
California
Patterson Pass
Business Center. 959 -- 4 963 -- 963 -- 1996
El Paso, Texas
Northwestern
Corporate
Center.......... 129 -- 144 273 -- 273 -- 1991
Fort
Lauderdale/Miami,
Florida
Airport West
Distribution
Center.......... 578 -- 80 658 -- 658 -- 1997
Indianapolis,
Indiana
Plainfield Park
Distribution
Center.......... 486 -- 275 761 -- 761 -- 1996
Juarez, Mexico
Salvacar
Industrial
Center.......... 1,554 -- 406 1,960 -- 1,960 -- 1997
Los
Angeles/Orange
County,
California
Foothills
Distribution
Center.......... 3,650 -- 131 3,781 -- 3,781 -- 1995
Mid-Counties
Distribution
Center.......... 13,127 -- 1,344 14,471 -- 14,471 -- 1997
Louisville,
Kentucky
Riverport
Distribution
Center.......... 462 -- 44 506 -- 506 -- 1996
</TABLE>
F-43
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION DATE OF
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C) CONSTRUCTION/ACQUISITION
- ----------- ------- ------- ------------ ----------- ------- ------------ --------- ------------ ------------------------
LAND UNDER
DEVELOPMENT
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Monterrey, Mexico
Monterrey
Industrial
Center.......... 1,325 -- 512 1,837 -- 1,837 -- 1997
New Jersey/I-95
Corridor
Cranbury
Business Park... 2,017 -- 2,918 4,935 -- 4,935 -- 1997
Meadowland
Industrial
Center.......... 1,486 -- -- 1,486 -- 1,486 -- 1997
Orlando, Florida
Orlando Central
Park............ 772 -- 157 929 -- 929 -- 1996
Phoenix, Arizona
Kyrene Commons
Distribution
Center.......... 158 -- -- 158 -- 158 -- 1992
Kyrene Commons
Distribution
Center South.... 1,096 -- 58 1,154 -- 1,154 -- 1996
Portland, Oregon
PDX Corporate
Center East..... 734 -- 636 1,370 -- 1,370 -- 1997
Jennifer
Distribution
Center.......... 915 -- 184 1,099 -- 1,099 -- 1997
Reno, Nevada
Golden Valley
Distribution
Center.......... 284 -- 685 969 -- 969 -- 1995
Reynosa, Mexico
Reynosa
Industrial
Center.......... 959 -- 2 961 -- 961 -- 1997
Rio Grande Valley
(Brownsville),
Texas
McAllen
Distribution
Center.......... 452 -- 74 526 -- 526 -- 1997
South Bay (San
Francisco),
California
Mowry Business
Center.......... 1,974 -- 288 2,262 -- 2,262 -- 1996
Tampa, Florida
Sabal Park
Distribution
Center.......... 599 -- 50 649 -- 649 -- 1995
</TABLE>
F-44
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION DATE OF
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C) CONSTRUCTION/ACQUISITION
- ----------- ------- ------- ------------ ----------- ------- ------------ --------- ------------ ------------------------
LAND UNDER
DEVELOPMENT
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington
D.C./Baltimore
Gateway
Distribution
Center.......... 773 -- 170 943 -- 943 -- 1997
Meadowridge
Distribution
Center.......... 1,812 -- 81 1,893 -- 1,893 -- 1996
Priest Bridge
Distribution
Center.......... 1,440 -- 59 1,499 -- 1,499 -- 1997
------- --------- ------- ------- --------- --------- --------
Total Land Under
Development..... $53,258 -- $12,515 $65,773 -- $65,773 --
------- --------- ------- ------- --------- --------- --------
<CAPTION>
LAND HELD FOR
DEVELOPMENT
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta, Georgia
Atlanta NE at
Sugarloaf....... $ 1,448 -- $ 33 $ 1,481 -- $ 1,481 -- 1997
Atlanta West
Distribution
Center.......... 714 -- 38 752 -- 752 -- 1994
Breckenridge
Distribution
Center.......... 2,595 -- 155 2,750 -- 2,750 -- 1997
Riverside
Distribution
Center.......... 1,107 -- 93 1,200 -- 1,200 -- 1996
Austin, Texas
Corridor Park
Corporate
Center.......... 1,305 -- 63 1,368 -- 1,368 -- 1994
Southpark
Corporate
Center.......... 525 -- 63 588 -- 588 -- 1996
Walnut Creek
Corporate
Center.......... 951 -- 133 1,084 -- 1,084 -- 1994,1996
Charlotte, North
Carolina
Charlotte
Distribution
Center.......... 898 -- 323 1,221 -- 1,221 -- 1994,1995,1996
Charlotte
Distribution
Center South.... 975 -- 36 1,011 -- 1,011 -- 1997
Interstate North
Business Park... 343 -- 8 351 -- 351 -- 1997
Chicago, Illinois
Bloomingdale 100
Business Center. 5,797 -- 440 6,237 -- 6,237 -- 1997
North Avenue
Distribution
Center.......... 1,532 -- 329 1,861 -- 1,861 -- 1996
O'Hare Cargo
Distribution
Center.......... 3,661 -- 6,873 10,534 -- 10,534 -- 1996,1997
Remington Lakes
Business Park... 3,233 -- 204 3,437 -- 3,437 -- 1997
</TABLE>
F-45
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION DATE OF
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C) CONSTRUCTION/ACQUISITION
- ----------- ------- ------- ------------ ----------- ------- ------------ --------- ------------ ------------------------
LAND HELD FOR
DEVELOPMENT
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cincinatti, Ohio
Airpark
International
Distribution
Center......... 860 -- 428 1,288 -- 1,288 -- 1997
Princeton
Distribution
Center (d) 436 -- 3 439 -- 439 -- 1996
Sharonville
Distribution
Center......... 574 -- 226 800 -- 800 -- 1996
Union Center
Commerce Park.. 592 -- 1,981 2,573 -- 2,573 -- 1997
Columbus, Ohio
Capital Park
South
Distribution
Center......... 1,447 -- 731 2,178 -- 2,178 -- 1994,1995,1996,1997
International
Street Commerce
Center......... 327 -- 13 340 -- 340 -- 1996
Dallas/Fort
Worth, Texas
Dallas
Corporate
Center......... 921 -- 58 979 -- 979 -- 1995
Great Southwest
Industrial
Center I....... 492 -- 26 518 -- 518 -- 1996
Great Southwest
Distribution
Center......... 2,330 -- 38 2,368 -- 2,368 -- 1997
Royal Lane
Distribution
Center......... 3,220 -- 33 3,253 -- 3,253 -- 1997
Denver, Colorado
Peoria
Distribution
Center......... 1,363 -- 170 1,533 -- 1,533 -- 1997
Upland
Distribution
Center I....... 1,647 -- 18 1,665 -- 1,665 -- 1994,1997
East Bay (San
Francisco),
California
Patterson Pass
Business
Center......... 552 -- 3 555 -- 555 -- 1996
El Paso, Texas
Northwestern
Corporate
Center......... 3,201 -- 3,646 6,847 -- 6,847 -- 1991,1992
Vista Corporate
Center......... 331 -- 151 482 -- 482 -- 1993
Vista Del Sol
Industrial
Center......... 2,008 -- 304 2,312 -- 2,312 -- 1994,1996
Fort
Lauderdale/Miami,
Florida
Port 95
Distribution
Center I....... 5,556 -- 17 5,573 -- 5,573 -- 1996
</TABLE>
F-46
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION DATE OF
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C) CONSTRUCTION/ACQUISITION
- ----------- ------- ------- ------------ ----------- ------- ------------ --------- ------------ ------------------------
LAND HELD FOR
DEVELOPMENT
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Houston, Texas
Jersey Village
Corporate
Center......... 4,753 -- 869 5,622 -- 5,622 -- 1997
West by
Northwest
Industrial
Center......... 1,859 -- 73 1,932 -- 1,932 -- 1993
World Houston
Distribution
Center......... 425 -- 31 456 -- 456 -- 1997
Indianapolis,
Indiana
North by
Northeast
Distribution
Center......... 435 -- 56 491 -- 491 -- 1994
Plainfield Park
Distribution
Center......... 1,082 -- 437 1,519 -- 1,519 -- 1996
Juarez, Mexico
Salvacar
Industrial
Center......... 2,731 -- 517 3,248 -- 3,248 -- 1997
Las Vegas,
Nevada
Black Mountain
Distribution
Center......... 2,845 -- 143 2,988 -- 2,988 -- 1995,1996
Hughes Airport
Center......... 263 -- 10 273 -- 273 -- 1997
Las Vegas
Corporate
Center......... (e) 4,916 -- 911 5,827 -- 5,827 -- 1993,1995,1997
Los Angeles /
Orange County,
California
Foothills
Business
Center......... 7,647 -- 79 7,726 -- 7,726 -- 1995,1996
Mid-Counties
Distribution
Center......... 8,443 -- (502) 7,941 -- 7,941 -- 1997
Louisville,
Kentucky
Riverport
Distribution
Center......... 138 -- 14 152 -- 152 -- 1996,1997
Memphis,
Tennessee
Memphis
Industrial
Park........... 2,563 -- 931 3,494 -- 3,494 -- 1997
Nashville,
Tennessee
Nashville/l-24
Distribution
Center......... 776 -- 1,587 2,363 -- 2,363 -- 1996
</TABLE>
F-47
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT ------------------------------ ACCUMULATED
ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION DATE OF
DESCRIPTION BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C) CONSTRUCTION/ACQUISITION
- ----------- ------- ------- ------------ ----------- ------- ------------ --------- ------------ ------------------------
LAND HELD FOR
DEVELOPMENT
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey / I-
95 Corridor
Cranbury
Business Park.. 3,162 -- 1,155 4,317 -- 4,317 -- 1997
Kennedy
International
Cargo Center... (d) 3,915 -- 85 4,000 -- 4,000 -- 1997
Meadowland
Industrial
Center......... 1,600 -- 2 1,602 -- 1,602 -- 1997
Orlando, Florida
Orlando
Corporate
Center......... 3,234 -- 96 3,330 -- 3,330 -- 1996
Phoenix, Arizona
Kyrene Commons
Distribution
Center......... 1,278 -- 22 1,300 -- 1,300 -- 1992,1996
Portland, Oregon
Jennifer
Distribution
Center......... 2,935 -- 834 3,769 -- 3,769 -- 1997
PDX Corporate
Center East.... (e) 769 -- 39 808 -- 808 -- 1997
The Evergreen
Park........... 3,241 -- 731 3,972 -- 3,972 -- 1996,1997
Reno, Nevada
Golden Valley
Distribution
Center......... 347 -- 680 1,027 -- 1,027 -- 1995
Reynosa, Mexico
Reynosa
Industrial
Center......... 840 -- 112 952 -- 952 -- 1997
Rio Grande
Valley
(Brownsville),
Texas
Rio Grande
Distribution
Center......... 429 -- 10 439 -- 439 -- 1995
Salt Lake City,
Utah
Centennial
Distribution
Center......... 2,726 -- 71 2,797 -- 2,797 -- 1996
Clearfield
Distribution
Center......... 104 -- 23 127 -- 127 -- 1995
Salt Lake
Industrial
Center......... 1,734 -- 94 1,828 -- 1,828 -- 1994,1995
San Antonio,
Texas
Coliseum
Distribution
Center......... 608 -- 326 934 -- 934 -- 1994
Landmark One
Distribution
Center......... 127 -- 5 132 -- 132 -- 1997
Perrin Creek
Corporate
Center......... 2,637 -- 170 2,807 -- 2,807 -- 1996
San Antonio
Distribution
Center III..... 1,290 -- 25 1,315 -- 1,315 -- 1996
</TABLE>
F-48
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNTS AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
--------------------- SUBSEQUENT -------------------------------- ACCUMULATED
NO. OF ENCUM- BUILDING & TO BUILDING & TOTAL DEPRECIATION
DESCRIPTION BLDGS. BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A,B) (C)
----------- ------ ------- -------- ------------ ----------- -------- ------------ ---------- ------------
LAND HELD FOR
DEVELOPMENT
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Seattle,
Washington
Van Doren's
Distribution
Center......... (e) 1,075 -- 173 1,248 -- 1,248 --
Tampa, Florida
Sabal Park
Distribution
Center......... 1,906 -- 221 2,127 -- 2,127 --
Tampa East
Distribution
Center......... 2,769 -- 589 3,358 -- 3,358 --
Washington,
D.C./Baltimore
Hampton Central
Distribution
Center......... 1,156 -- 214 1,370 -- 1,370 --
Meadowridge
Distribution
Center......... 3,810 -- 666 4,476 -- 4,476 --
-------- ---------- -------- -------- ---------- ---------- ---------
Total Land Held
for
Development.... $131,509 -- $ 28,136 $159,645 -- $ 159,645 --
-------- ---------- -------- -------- ---------- ---------- ---------
GRAND TOTAL..... $587,481 $1,471,318 $820,223 $645,437 $2,233,585 $2,879,022 $(171,525)
======== ========== ======== ======== ========== ========== =========
<CAPTION>
DATE OF
DESCRIPTION CONSTRUCTION/ACQUISITION
----------- ------------------------
LAND HELD FOR
DEVELOPMENT
- -------------
<S> <C>
Seattle,
Washington
Van Doren's
Distribution
Center......... 1994
Tampa, Florida
Sabal Park
Distribution
Center......... 1995,1997
Tampa East
Distribution
Center......... 1994
Washington,
D.C./Baltimore
Hampton Central
Distribution
Center......... 1994
Meadowridge
Distribution
Center......... 1996
Total Land Held
for
Development....
GRAND TOTAL.....
</TABLE>
F-49
<PAGE>
SECURITY CAPITAL INDUSTRIAL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1997
- --------
(a) Reconciliation of total cost to balance sheet caption at December 31, 1997
(in thousands):
<TABLE>
<S> <C>
Total per Schedule III..................................... $2,879,022
Construction in process.................................... 114,495
Capitalized preacquisition costs........................... 12,719
----------
Total real estate........................................ $3,006,236(g)
==========
</TABLE>
(b) The aggregate cost for federal income tax purposes was approximately
$2,923,619,000.
(c) Buildings are depreciated over their estimated useful lives (30 years for
acquisitions, 40 years for developments).
(d) $164,119,000 of these properties are pledged as collateral for $87,937,000
in mortgage notes payable.
(e) $224,279,000 of these properties are subject to lien under $11,894,000 of
net assessment bonds payable.
(f) $66,741,000 of these properties are pledged as collateral for $24,973,000
and $8,224,000 in first and second priority mortgage notes, respectively.
(g) A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
(IN THOUSANDS)
-----------------
<S> <C>
Real Estate
Balance at beginning of year............................ $2,508,747
Additions:
Acquisitions/Completions.............................. 413,078
Improvements.......................................... 95,341
Cost of real estate disposed of......................... (53,862)
Change in construction in process....................... 36,989
Change in capitalized preacquisition costs.............. 5,943
----------
Balance at end of year.................................. $3,006,236
==========
Accumulated Depreciation
Balance at beginning of year............................ $ 109,147
Depreciation expense.................................... 65,620
Accumulation depreciation associated with real estate
disposed of............................................ (3,242)
----------
Balance at end of year.................................. $ 171,525
==========
</TABLE>
F-50
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Security Capital Industrial
Trust, a Maryland real estate investment trust, and the undersigned Trustees
and officers of Security Capital Industrial Trust, hereby constitutes and
appoints K. Dane Brooksher, M. Gordon Keiser, Jr., Edward F. Long and Jeffrey
A. Klopf, its or his true and lawful attorneys-in-fact and agents, for it or
him and in its or his name, place and stead, in any and all capacities, with
full power to act alone, to sign any and all amendments to this report, and to
file each such amendment to this report, with all exhibits thereto, and any
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as it or he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them may lawfully do or cause to be done by virtue hereof.
II-1
<PAGE>
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.
Security Capital Industrial Trust
/s/ Irving F. Lyons III
By: _________________________________
Irving F. Lyons III
Co-Chairman, Chief Investment
Officer
Date: March 17, 1998
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Irving F. Lyons III Co-Chairman, Chief March 17, 1998
____________________________________ Investment Officer and
Irving F. Lyons III Trustee
/s/ K. Dane Brooksher Co-Chairman, Chief Operating March 17, 1998
____________________________________ Officer and Trustee
K. Dane Brooksher
/s/ M. Gordon Keiser Jr. Senior Vice President March 17, 1998
____________________________________ (Principal Financial
M. Gordon Keiser Jr. Officer)
/s/ Edward F. Long Vice President and March 17, 1998
____________________________________ Controller (Principal
Edward F. Long Accounting Officer)
/s/ Thomas G. Wattles Trustee March 17, 1998
____________________________________
Thomas G. Wattles
/s/ Stephen L. Feinberg Trustee March 17, 1998
____________________________________
Stephen L. Feinberg
/s/ Donald P. Jacobs Trustee March 17, 1998
____________________________________
Donald P. Jacobs
/s/ William G. Myers Trustee March 17, 1998
____________________________________
William G. Myers
/s/ John E. Robson Trustee March 17, 1998
____________________________________
John E. Robson
</TABLE>
II-2
<PAGE>
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and
Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by
reference.
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----------
<C> <S> <C>
3.1 Amended and Restated Declaration of Trust of SCI
(Incorporated by reference to exhibit 4.1 to SCI's
Registration Statement No. 33-73382)
3.2 First Certificate of Amendment of Amended and Restated
Declaration of Trust of SCI (Incorporated by reference
to exhibit 3.1 to SCI's Form 8-K dated June 14, 1994)
3.3 Second Articles of Amendment of Restated Declaration of
Trust of SCI (Incorporated by reference to exhibit 4.3
to SCI's Registration Statement No. 33-87306)
3.4 Articles Supplementary relating to SCI's Series A
Cumulative Redeemable Preferred Shares of Beneficial
Interest (Incorporated by reference to exhibit 4.8 to
SCI's Form 8-A registration statement relating to such
shares)
3.5 First Articles of Amendment to Articles Supplementary
relating to SCI's Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest (Incorporated
by reference to exhibit 10.3 to SCI's Form 10-Q for the
quarter ended September 30, 1995)
3.6 Articles Supplementary relating to SCI's Series B
Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest (Incorporated by reference to
exhibit 4.1 to SCI's Form 8-K dated February 14, 1996)
3.7 Articles Supplementary with respect to SCI's Series C
Cumulative Redeemable Preferred Shares of Beneficial
Interest (Incorporated by reference to exhibit 4.8 to
SCI's Form 8-A dated November 13, 1996).
3.8 Bylaws of SCI (Incorporated by reference to exhibit 4.3
to SCI's Registration Statement No. 33-83208)
4.1 Rights Agreement, dated as of December 31, 1993,
between SCI and State Street Bank and Trust Company, as
Rights Agent, including form of Rights Certificate
(Incorporated by reference to exhibit 4.4 to SCI's
Registration Statement No. 33-78080)
4.2 First Amendment to Rights Amendment, dated as of
February 15, 1995, between SCI, State Street Bank and
Trust Company and The First National Bank of Boston, as
successor Rights Agent (Incorporated by reference to
exhibit 3.1 to SCI's Form 10-Q for the quarter ended
September 30, 1995)
4.3 Second Amendment to Rights Agreement, dated as of June
22, 1995, between SCI, State Street Bank and Trust
Company and The First National Bank of Boston
(Incorporated by reference to Exhibit 3.1 to SCI's Form
10-Q for the quarter ended September 30, 1995)
4.4 Form of share certificate for Common Shares of
Beneficial Interest of SCI (Incorporated by reference
to exhibit 4.4 to SCI's Registration Statement No. 33-
73382)
4.5 Form of share certificate for Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest of
SCI (Incorporated by reference to exhibit 4.7 to SCI's
Form 8-A registration statement relating to such
shares)
4.6 8.72% Note due March 1, 2009 (Incorporated by reference
to exhibit 4.7 to SCI's Form 10-K for the year ended
December 31, 1994)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----------
<C> <S> <C>
4.7 Form of share certificate for Series B Cumulative
Convertible Redeemable Preferred Shares of Beneficial
Interest of SCI (Incorporated by reference to exhibit
4.8 to SCI's Form 8-A registration statement relating
to such shares)
4.8 Form of share certificate for Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest of
SCI (Incorporated by reference to exhibit 4.8 to SCI's
Form 10-K for the year ended December 31, 1996)
4.9 9.34% Note due March 1, 2015 (Incorporated by reference
to exhibit 4.8 to SCI's Form 10-K for the year ended
December 31, 1994)
4.10 7.875% Note due May 15, 2009 (Incorporated by reference
to exhibit 4.4 to SCI's Form 8-K dated May 9, 1995)
4.11 7.30% Note due May 15, 2001 (Incorporated by reference
to exhibit 4.3 to SCI's Form 8-K dated May 9, 1995)
4.12 7.25% Note due May 15, 2000 (Incorporated by reference
to exhibit 4.2 to SCI's Form 8-K dated May 9, 1995)
4.13 7.125% Note due May 15, 1998 (Incorporated by reference
to exhibit 4.1 to SCI's Form 8-K dated May 9, 1995)
4.14 7.25% Note due May 15, 2002 (Incorporated by reference
to exhibit 4.1 to SCI's Form 10-Q for the quarter ended
June 30, 1996)
4.15 7.95% Note due May 15, 2008 (Incorporated by reference
to exhibit 4.2 to SCI's Form 10-Q for the quarter ended
June 30, 1996)
4.16 8.65% Note due May 15, 2016 (Incorporated by reference
to exhibit 4.3 to SCI's Form 10-Q for the quarter ended
June 30, 1996)
4.17 7.81% Medium-Term Notes, Series A, due February 1, 2015
(Incorporated by reference to exhibit 4.17 to SCI's
Form 10K for the year ended December 31, 1996)
4.18 Indenture, dated as of March 1, 1995, between SCI and
State Street Bank and Trust Company, as Trustee
(Incorporated by reference to exhibit 4.9 to SCI's Form
10-K for the year ended December 31, 1994)
4.19 Collateral Trust Indenture, dated as of July 22, 1993,
between Krauss/Schwartz Properties, Ltd. and
NationsBank of Virginia, N.A., as Trustee (Incorporated
by reference to exhibit 4.10 to SCI's Form 10-K for the
year ended December 31, 1994)
4.20 First Supplemental Collateral Trust Indenture, dated as
of October 28, 1994, among SCI Limited Partnership-IV,
Krauss/Schwartz Properties, Ltd., and NationsBank of
Virginia, N.A., as Trustee (Incorporated by reference
to exhibit 10.6 to SCI's Form 10-Q for the quarter
ended September 30, 1994)
10.1 Contribution Agreement for the Formation of SCI Limited
Partnership-I, dated as of December 17, 1993, among SCI
and the parties set forth therein (Incorporated by
reference to exhibit 10.3 to SCI's Registration
Statement No. 33-73382)
10.2 Agreement of Limited Partnership of SCI Limited
Partnership-I, dated as of December 22, 1993, by and
among SCI, as general partner, and the limited partners
set forth therein (Incorporated by reference to exhibit
10.4 to SCI's Registration Statement No. 33-73382)
10.3 Agreement of Purchase and Sale, dated as of December
22, 1993, by and between King & Lyons, King & Lyons-
Tracy Industrial, Charles W. King Jr. and Irving F.
Lyons, III and SCI (Incorporated by reference to
exhibit 10.8 to SCI's Registration Statement No. 33-
73382)
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----------
<C> <S> <C>
10.4 Pledge Agreement, dated as of December 22, 1993, by
King & Lyons in favor of SCI (Incorporated by reference
to exhibit 10.9 to SCI's Registration Statement No. 33-
73382)
10.5 Transfer and Registration Rights Agreement, dated as of
December 22, 1993, among SCI and the investors listed
on the signature pages thereto (Incorporated by
reference to exhibit 10.10 to SCI's Registration
Statement No. 33-73382)
10.6 Contribution Agreement of SCI Limited Partnership-II,
dated as of January 28, 1994, among SCI and the parties
set forth therein (Incorporated by reference to exhibit
10.11 to SCI's Registration Statement No. 33-73382)
10.7 Amended and Restated Agreement of Limited Partnership
of SCI Limited Partnership-II, dated as of February 15,
1994, among SCI, as general partner, and the limited
partners set forth therein (Incorporated by reference
to exhibit 10.12 to SCI's Registration Statement No.
33-78080)
10.8 Administrative Services Agreement, dated as of
September 9, 1997, between SCI and Security Capital
Group Incorporated (Incorporated by reference to
exhibit 10.6 to Security Capital Group Incorporated's
Form 10-Q for the quarter ended September 30, 1997)
10.9 Third Amended and Restated Investor Agreement, dated as
of September 9, 1997, between SCI and Security Capital
Group Incorporated (Incorporated by reference to
exhibit 10.3 to Security Capital Group Incorporated's
Form 10-Q for the quarter ended September 30, 1997)
10.10 Amended and Restated Credit Agreement, entered into as
of May 2, 1996, between SCI and NationsBank Texas N.A.,
as agent bank, and the lenders party thereto
(Incorporated by reference to exhibit 10 to SCI's Form
10-Q for the quarter ended March 31, 1996)
10.11 Form of Indemnification Agreement entered into between
SCI and its Trustees and executive officers
(Incorporated by reference to exhibit 10.16 to SCI's
Registration Statement No. 33-73382)
10.12 Indemnification Agreements between SCI and each of its
independent Trustees (Incorporated by reference to
exhibit 10.16 to SCI's Form 10-K for the year ended
December 31, 1995)
10.13 Declaration of Trust for the benefit of SCI's
independent Trustees (Incorporated by reference to
exhibit 10.17 to SCI's Form 10-K for the year ended
December 31, 1995)
10.14 Transfer and Registration Rights Agreement dated as of
February 15, 1994, among SCI and the investors listed
on the signature pages thereto (Incorporated by
reference to exhibit 10.18 to SCI's Registration
Statement No. 33-78080)
10.15 Share Option Plan for Outside Trustees (Incorporated by
reference to exhibit 10.18 to SCI's Form 10-Q for the
quarter ended June 30, 1994)
10.16 Dividend Reinvestment and Share Purchase Plan
(Incorporated by reference to the prospectus contained
in Registration Statement No. 33-91366)
10.17 Contribution and Sale Agreement for SCI Limited
Partnership-III and SCI Limited Partnership-IV, dated
as of August 22, 1994, among SCI and the parties set
forth therein (Incorporated by reference to exhibit
10.19 to SCI's Registration Statement No. 33-83208)
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ----------
<C> <S> <C>
10.18 First Amendment to Contribution and Sale Agreement,
dated as of October 14, 1994, among SCI and the parties
set forth therein (Incorporated by reference to exhibit
10.1 to SCI's Form 10-Q for the quarter ended September
30, 1994)
10.19 Second Amendment to Contribution and Sale Agreement,
dated as of October 21, 1994, among SCI and the parties
set forth therein (Incorporated by reference to exhibit
10.2 to SCI's Form 10-Q for the quarter ended September
30, 1994)
10.20 Amended and Restated Agreement of Limited Partnership
of SCI Limited Partnership-III, dated as of October 28,
1994, by and among SCI, as general partner, and the
limited partners set forth therein (Incorporated by
reference to exhibit 10.3 to SCI's Form 10-Q for the
quarter ended September 30, 1994)
10.21 Amended and Restated Agreement of Limited Partnership
of SCI Limited Partnership-IV, dated as of October 28,
1994, by and among SCI IV, Inc., as general partner,
and the limited partners set forth therein
(Incorporated by reference to exhibit 10.4 to SCI's
Form 10-Q for the quarter ended September 30, 1994)
10.22 Registration Rights Agreement, dated as of October 28,
1994, among SCI and the investors listed on the
signature pages thereto (Incorporated by reference to
exhibit 10.5 to SCI's Form 10-Q for the quarter ended
September 30, 1994)
10.23 Option Agreement and Consent, dated October 24, 1994,
by and between SCI and Farm Bureau Life Insurance
Company (Incorporated by reference to exhibit 10.7 to
SCI's Form 10-Q for the quarter ended September 30,
1994)
10.24 Security Capital Industrial Trust 1997 Long-Term
Incentive Plan (Incorporated by reference to Annex II
to Security Capital Group Incorporated's Registration
Statement No. 333-26259 on Form S-1)
10.25 Form of Secured Promissory Note and Pledge Agreement
relating to Share Purchase Program
11.1 Statement re: Computation of Per Share Earnings
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges
12.2 Statement re: Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Share Dividends
21.1 Subsidiaries of SCI
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included at page II-1)
27 Financial Data Schedule
</TABLE>
E-4
<PAGE>
Exhibit 10.25
FORM OF SECURED PROMISSORY NOTE
-------------------------------
$___________ _______________, ____
_______________ ("Obligor"), for value received, hereby promises to pay to
the order of Security Capital Industrial Trust, a Maryland real estate
investment trust ("Obligee"), the principal sum of _______________ ($__________)
together with any accrued but unpaid interest from the date hereof payable on
the earliest of (i) __________ __, ____ or (ii) 90 days after the date Obligor
terminates employment with Obligee for any reason other than death, Disability,
Retirement or Cause (each as defined in the Security Capital Industrial Trust
1997 Long-Term Incentive Plan (the "Plan")), provided such termination is not
following a Change in Control (as defined in the Plan), or (iii) 180 days after
the date Obligor's employment with Obligee is terminated by the Obligee
following a Change in Control for reasons other than Cause, or (iv) 365 days
after the date Obligor terminates employment with the Obligee by reason of
death, Disability or Retirement, or (v) the date that the Purchased Shares are
sold or the date that the Obligor's employment with Obligee is terminated for
Cause.
Obligor shall use the proceeds of the loan to purchase ____________ common
shares of beneficial interest of the Obligee (the "Shares") under the Plan (the
"Purchased Shares"). This Note is secured by the Collateral (as defined in the
Pledge Agreement dated as of the date hereof between Obligor and Obligee) and
the holder thereof is entitled to the benefits of such Collateral and Pledge
Agreement. The Purchased Shares shall be subject to a vesting period expiring on
the first anniversary of the date hereof (the "Vesting Date"). If Obligor's
employment with Obligee is terminated, for any reason other than death or
Disability (as defined in the Plan), prior to the Vesting Date, Obligee shall
purchase the Purchased Shares from Obligor at the then Fair Market Value (as
defined in the Plan) of such shares. If such amount is equal to or greater than
the outstanding principal and unpaid interest then due under this Note, the
Obligee shall pay the purchase price by tendering the outstanding principal and
interest amount of this Note to Obligor and a certified check for any remaining
amount due in payment of the purchase price of the Shares. If such amount is
less than the outstanding principal and unpaid interest, Obligor shall promptly
tender a certified check for any remaining amount due in payment of this Note.
Interest on the unpaid principal amount outstanding hereunder shall accrue
at the lower of (i) 6% per annum or (ii) the current annual dividend of a Share
divided by the Fair Market Value of a Share on the date the Purchased Shares
were purchased by the Obligor. The interest rate hereunder shall be adjusted as
of each January 1 to reflect the then applicable rate pursuant to the preceding
sentence and such rate shall be effective until next adjusted in accordance with
the provisions hereof. Accrued interest shall be due and payable on each
quarterly dividend payment date with respect to Shares until payment of the Note
in full. Interest shall be computed for the actual number of days elapsed on the
basis of a 365-day year.
If as of any dividend payment date, the amount of the dividend payment
received with respect to the Purchased Shares is greater than the interest
payment due as of such dividend payment date, a principal payment shall be due
and payable as of such dividend payment date in an amount
<PAGE>
equal to the excess of the dividend payment received with respect to the
Purchased Shares over the interest payment due as of such date.
Payments of principal and interest shall be made on or before the
respective due dates thereof in lawful money of the United States of America at
the address specified herein or at such other place or places as Obligee may
from time to time designate in writing. Payments delivered by registered or
certified mail, postage prepaid, properly addressed and return receipt
requested, shall be deemed made the date postmarked.
If Obligor defaults in making any payment of interest or principal
hereunder when due and such default continues for a period of 10 days after
delivery of notice thereof to Obligor, Obligee may declare the entire unpaid
balance of this Note to be immediately due and payable and such entire unpaid
balance shall thereupon become immediately due and payable; provided, however,
such balance shall not become due and payable if Obligor's failure to make such
payment is a result of Obligee's failure to make the dividend payment due on any
quarterly dividend payment date.
This Note may be prepaid in whole or in part at any time and from time to
time, without premium, penalty or notice to Obligee.
All notices, certificates and other communications ("Notices") hereunder
shall be in writing and may be either delivered personally, by nationally
recognized express courier for overnight delivery, or by facsimile (with request
for assurance of receipt in a manner appropriate with respect to communications
of that type, provided that a confirmation copy is concurrently sent by a
nationally recognized express courier for overnight delivery) or mailed, postage
prepaid, by certified or registered mail, return receipt requested, addressed as
follows:
If to Obligee: Security Capital Industrial Trust
14100 East 35th Place
Aurora, Colorado 80011
Attn: K. Dane Brooksher
With Copy To: Security Capital Industrial Trust
125 Lincoln Avenue
Santa Fe, NM 87501
Attn: Jeffrey A. Klopf
If to Obligor: [name of Obligor]
2
<PAGE>
Notices delivered personally or by facsimile shall be effective on the date
of such delivery or transmission, Notices delivered by a nationally recognized
express courier for overnight delivery shall be deemed to have been made one day
following the date so mailed and all other Notices delivered hereunder shall be
effective five days following the date so mailed. Obligee and Obligor may, by
Notice given hereunder, designate any further or different addresses to which
subsequent Notices shall be sent.
This Note shall be governed exclusively by and construed in accordance with
the internal laws of the State of Maryland.
IN WITNESS WHEREOF, Obligor has caused this Note to be executed as of the
date first above written.
/s/
--------------------
Name
SECURITY CAPITAL INDUSTRIAL TRUST
By: /s/
--------------------
K. Dane Brooksher
Its: Co-Chairman & Chief Operating Officer
3
<PAGE>
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (as amended or otherwise modified from time to time,
this "Agreement") is made and entered into as of this __th day of _____________,
____, by and between ______________________, an individual residing in _________
("Pledgor"), and SECURITY CAPITAL INDUSTRIAL TRUST, a Maryland real estate
investment trust ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgee made a loan to Pledgor in the amount of $____________,
as evidenced by a promissory note dated ____________, ____, in the original
principal amount of $___________ by Pledgor in favor of Pledgee (as amended or
otherwise modified, renewed or extended from time to time, the "Note") in order
to enable Pledgor to purchase _________ common shares of beneficial interest of
Pledgee (the "Purchased Shares"), currently evidenced by certificate number
_________________; and
WHEREAS, Pledgor and Pledgee desire to enter into this Agreement in order
to enable Pledgor to provide security for the payment and performance of all
obligations of Pledgor to Pledgee under the Note (the "Liabilities");
NOW, THEREFORE, for and in consideration of the loan made by Pledgee to
Pledgor, as evidenced by the Note (including any renewal or extension thereof),
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by Pledgor and Pledgee, the parties hereto agree
as follows:
GRANT AND PLEDGE
----------------
To secure the due and punctual payment and performance of all the
Liabilities of Pledgor to Pledgee, its successors and assigns, howsoever
created, arising or evidenced, whether direct or indirect, absolute or
contingent, or now or hereafter existing, or due or to become due, Pledgor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
Pledgee, and hereby grants to Pledgee, a security interest in and to, the
following (collectively, the "Collateral"): (a) the Purchased Shares, all of the
certificates and/or instruments representing or evidencing the Purchased Shares,
and all cash, securities, rights and other property at any time and from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such Purchased Shares, other than warrants received with
respect to the Purchased Shares to purchase shares of Class B Common Stock,
$0.01 par value, of Security Capital Group Incorporated (SCG) as described in
the Merger and Issuance Agreement dated as of March 24, 1997, as amended, by and
between the Pledgee and SCG; (b) all other property hereafter delivered in
substitution for or in additional to any of the foregoing, all certificates and
instruments representing or evidencing such property, and all cash, securities,
interest, rights and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
thereof; and (c) all proceeds of the foregoing.
<PAGE>
PLEDGOR AND PLEDGEE ADDITIONALLY AGREE AS FOLLOWS:
1. Agreements:
(a) Pledgor agrees to execute such documents and such stock powers and
other instruments of transfer and assignment relating to the Collateral and do
such other acts and things, all as Pledgee may from time to time request to
establish and maintain a valid lien upon and security interest in the Collateral
(free of all other liens, claims and rights of third parties whatsoever) to
secure payment of the Liabilities. Without limiting the generality of the
foregoing, all certificates or instruments representing or evidencing the
Collateral shall, promptly after receipt by Pledgor be delivered to Pledgee, or,
if Pledgee so directs, any agent or nominee of Pledgee.
(b) Pledgor covenants and agrees not to sell, transfer or otherwise
dispose of all or any part of the Collateral without the prior written consent
of Pledgee.
(c) Pledgor agrees after any Event of Default (as hereinafter defined)
shall have occurred and be continuing and Pledgee has notified Pledgor of
Pledgee's intention to exercise its voting power under this clause (c): (i)
Pledgee may exercise (to the exclusion of Pledgor) the voting power and all
other incidental rights of ownership with respect to any shares of capital stock
or other equity securities or beneficial interests constituting Collateral and
Pledgor hereby grants Pledgee an irrevocable proxy, exercisable under such
circumstances, to vote such Collateral; and (ii) promptly to deliver to Pledgee
such additional proxies and other documents as may be necessary to allow Pledgee
to exercise such voting power. Pledgee agrees that unless an Event of Default
shall have occurred and be continuing and Pledgee shall have given the notice
referred to in this clause (c), Pledgor shall have the exclusive voting power
with respect to any shares of capital stock or other equity securities or
beneficial interests constituting Collateral and Pledgee shall, upon the written
request of Pledgor, promptly deliver such proxies and other documents, if any,
as shall be reasonably requested by Pledgor which are necessary to allow Pledgor
to exercise voting power with respect to any such shares of capital stock or
other equity securities constituting Collateral; provided, however, that no vote
shall be cast, or consent, waiver, or ratification given, or action taken by
Pledgor that would impair any Collateral or be inconsistent with or violate any
provision of this Agreement or the Note.
(d) Pledgee shall be entitled to receive on behalf of Pledgor any and
all cash dividends, interest and other similar distributions of any and every
kind declared, paid or distributed with respect to the Collateral in the
ordinary course of business (other than liquidating distributions) which shall
be applied to the payment of the Liabilities as provided in the Note; provided,
however, any dividends received with respect to the Collateral in the form of
Common Stock shall be held as additional Collateral. To the extent that the
Pledgee determines it necessary or desirable to effect the foregoing provisions
of this paragraph (d), the Pledgor shall execute a Power of Attorney in favor of
the Pledgee.
2
<PAGE>
2. Events of Default.
(a) The occurrence of any of the following shall constitute an Event
of Default hereunder: (1) failure of Pledgor to perform any of its agreements
contained herein or (ii) failure of Pledgor to perform any of its agreements
contained in the Note (subject to any grace period contained therein, if any).
(b) Upon the occurrence of an Event of Default: (i) Pledgee may
exercise from time to time any rights and remedies available to it under the
Uniform Commercial Code as in effect from time to time in __________ or
otherwise available to it; and (ii) Pledgee may, after giving Pledgor at least
10 days' notice of its intention to do so, appropriate and apply the Collateral
toward the payment of the Liabilities, in such order and application as is set
forth hereinbelow. Any notification of intended disposition of any of the
Collateral, if mailed, shall be deemed reasonable and properly given if mailed
at least 10 days before such disposition, postage prepaid, addressed to Pledgor
at the address of Pledgor appearing in the Note. Any proceeds of any disposition
of Collateral may be applied by Pledgee to the payment of expenses in connection
with the Collateral, including reasonable attorneys' fees and legal expenses,
and any balance of such proceeds may be applied by Pledgee to the payment of
expenses in connection with the Collateral, including reasonable attorneys' fees
and legal expenses, and any balance of such proceeds may be applied by Pledgee
toward the payment of the Liabilities in such order and application as is set
forth in Section 3 hereinbelow. No delay on the part of Pledgee in the exercise
of any right or remedy shall operate as a waiver thereof, and no single or
partial exercise by Pledgee of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy.
3. Application of Proceeds of Sale or Cash Held as Collateral. Any and all
proceeds received by Pledgee at any time or from time to time pursuant to this
Agreement or as proceeds of any of the Collateral shall be applied by Pledgee as
follows:
First: to payment of the reasonable costs and expenses in enforcing
this Agreement and collecting on the Collateral, including, without limitations,
the expenses of collecting such proceeds through legal proceedings to enforce
this Agreement, the reasonable out-of-pocket expenses of Pledgee and the
reasonable fees and out-of-pocket expenses of counsel employed in connection
therewith.
Second: to the payment of amounts owing on Liabilites in such order as
Pledgee may determine; and
Third: the balance, if any, of such proceeds shall be paid to Pledgor,
and Pledgor's successors and assigns.
Upon payment in full of all Liabilities and satisfaction of all
amounts owing to Pledgee by Pledgor, Pledgee shall release its lien in its
Collateral and cooperate with Pledgor in the
3
<PAGE>
transfer back to Pledgor of the Collateral that Pledgor had transferred into the
name of Pledgee, to the extent not sold or otherwise disposed of.
4. Authority of Pledgee. Pledgee shall have, and be entitled to exercise,
all such powers hereunder as are specifically delegated to it by the terms
hereof, together with such powers as are appropriately incidental thereto, and
may execute any of its duties hereunder by or through agents or employees.
Pledgor hereby agrees to reimburse Pledgee for all expenses reasonably incurred
by it in connection with the enforcement of this Agreement.
5. Continuing Agreements. This Agreement shall in all respects be a
continuing agreement and shall remain in full force and effect until all
Liabilities have been paid in full in cash and all amounts owing to Pledgee by
Pledgor have been satisfied.
6. Notices. Any notice authorized or required by this Agreement shall be
sufficiently given if addressed to the receiving party and hand delivered or
sent by mail or facsimile to the individuals at the addresses specified in the
Note or to such other person or persons as the receiving party may from time to
time designate in writing. Such notice shall be effective upon receipt.
7. Successors. This Agreement, and the terms, covenants and conditions
hereof, shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
8. Miscellaneous.
(a) Neither this Agreement nor any provision hereof may be amended,
modified, waived, discharged or terminated, except by an instrument in writing
duly signed by or on behalf of Pledgor and Pledgee.
(b) The Section headings used herein are for convenience of reference
only and shall not define or limit the provisions of this Agreement.
(c) In addition to any other warranties heretofore and hereafter made
by Pledgor, Pledgor hereby warrants to Pledgee that Pledgor is, and at all times
while the Collateral secures the Liabilities will be, the lawful owner of the
Collateral, free of all claims and liens other than the rights of Pledgee with
respect thereto, with full right and power to grant a lien upon and security
interest in, and to deliver, pledge, assign and transfer, the Collateral to
Pledgee, subject to the security interest of Pledgee hereunder.
(d) Pledgee shall exercise reasonable care in the custody and
protection of the Collateral. Pledgee shall be deemed to have exercised
reasonable care if it takes action for that purpose as Pledgor shall request in
writing; provided, however, a failure of Pledgee (i) to comply with any such
written request, or (ii) to preserve or protect any rights with respect to the
Collateral
4
<PAGE>
against prior parties, shall not of itself be deemed a failure to exercise
reasonable care in the custody or preservation of the Collateral.
(e) All obligations of Pledgor, and all rights, powers and remedies
of Pledgee, expressed herein shall be in addition to, and not in limitation of,
those provided by law or in any written agreement or instrument (other than this
Agreement) relating to any of the Liabilities or any security therefor. In
addition to all other rights possessed by it, Pledgee may upon the occurrence of
an Event of Default and lapse of any applicable cure period take any or all of
the following actions: (i) transfer all or any part of the Collateral into the
name of Pledgee or its nominee, with or without disclosing that the Collateral
is subject to the lien and security interest hereunder; provided that aggregate
fair market value of such transferred Collateral will not exceed the amount of
the Liabilities plus a reasonable cushion to defray and pay for costs associated
with disposition of the Collateral and other charges that Pledgor has agreed to
Pay; (ii) notify any obligors on any of the Collateral to make payment to
Pledgee of any amounts due or to become due with respect thereto; (iii) enforce
collection of any of the Collateral by suit or otherwise, or surrender or
release all or any part thereof; and (iv) take control of any proceeds of any of
the Collateral.
(f) Pledgee may, furthermore, from time to time, after an Event of
Default, at its sole discretion and without notice to Pledgor, take any or all
of the following actions: (i) retain or obtain a security interest in any
property of any other persons, in addition to the Collateral to secure any of
the Liabilities (ii) retain or obtain the primary or secondary obligations of
any obligor or obligors, in addition to Pledgor, with respect to any of the
Liabilities, or release or compromise any obligation of any nature of any
obligor with respect to any of the Liabilities; (iii) extend or renew for one or
more periods (whether or not longer than the original period), alter or exchange
any of the Liabilities, or release or compromise any obligation of any nature of
any obligor with respect to any of the Liabilities; (iv) release its security
interest in, or surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Liabilities, or extend or
renew for one or more periods (whether or not longer than the original period)
or release, compromise, alter or exchange any obligations of any nature of any
obligor with respect to any such property; and (v) resort to the Collateral (or
any part or portion thereof) for payment of any of the Liabilities, whether or
not Pledgee shall have resorted to any other property securing any of the
Liabilities or shall have proceeded against Pledgor or against any other obligor
primarily or secondarily obligated with respect to any of the Liabilities.
(g) Pledgor agrees that in any sale of the Collateral whenever an
Event of Default shall have occurred and be continuing, Pledgee is authorized to
comply with any restriction in connection with the sale as its counsel advises
it is necessary in order to avoid any violation of applicable law, or in order
to obtain any required approval of the sale by any governmental regulatory
authority or official. In this regard, Pledgor agrees that such compliance will
not cause the sale to be considered not to have been made in a commercially
reasonable manner.
5
<PAGE>
(h) In the event that the proceeds of any sale or other disposition
are not sufficient to pay the Liabilities in full, Pledgor shall remain liable
to Pledgee for any deficiencies.
(i) Pledgor agrees that any amount advanced by Pledgee to protect the
Collateral and any reasonable costs or expense (including reasonable attorneys'
fees) incurred in enforcing Pledgee's rights hereunder shall be added to the
Liabilities secured by the Collateral.
9. Counterparts. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
10. Governing Law; Interpretation. This Agreement shall be governed by the
internal laws of the State of Maryland. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the date first above written.
SECURITY CAPITAL INDUSTRIAL TRUST
/s/
----------------------------------------
K. Dane Brooksher
Co-Chairman & Chief Operating Officer
/s/
----------------------------------------
(Name)
Attachment
----------
The following persons have executed secured promissory notes with SCI in a
form which, except as set below, is the same as that set forth above in Exhibit
10.25 in all material respects.
<TABLE>
<CAPTION>
Name Principal Amount Due Date Interest Rate
- ---------------- ---------------- ----------------- -------------
<S> <C> <C> <C>
K. Dane Brooksher $1,904,946 September 8, 2007 (1)
Irving F. Lyons III $1,904,946 September 8, 2007 (1)
Walter C. Rakowich $952,473 September 8, 2007 (1)
John W. Seiple Jr. $952,473 September 8, 2007 (1)
Robert J. Watson $1,142,955 September 8, 2007 (1)
</TABLE>
(1) Interest on the unpaid principal amount outstanding hereunder shall accrue
at the lower of (i) 6% per annum or (ii) the current annual dividend of a
Share divided by the Fair Market Value of a Share on the date the Purchased
Shares were purchased by the Obligor.
6
<PAGE>
Exhibit 11.1
SECURITY CAPITAL INDUSTRIAL TRUST
FULLY DILUTED EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Reconciliation of net earnings per basic
earnings per share computation to amount
used for diluted computation:
Net earnings per Statement of
Operations $ 4,431 $ 53,460 $ 42,015
Add: minority interest -- -- 3,331
--------- --------- ---------
Net earnings, as adjusted $ 4,431 $ 53,460 $ 45,346
========= ========= =========
Reconciliation of weighted average number
of shares outstanding per basic earnings
per share computation to amount used
for diluted computation:
Weighted average number of shares
outstanding per basic earnings
per share computation 100,729 84,504 68,924
Add: Incremental options and
warrants as if exercised at the
beginning of the period indicated
or date of issuance, whichever is later 140 7 13
Add: Weighted average effect of
conversion of partnership
units into SCI common shares as if
converted at the beginning of the
period indicated or date of issuance,
whichever is later -- -- 5,485
--------- --------- ---------
Weighted average number of
shares, as adjusted 100,869 84,511 74,422
========= ========= =========
Basic earnings per share $ 0.04 $ 0.63 $ 0.61
========= ========= =========
Diluted earnings per share $ 0.04 $ 0.63 $ 0.61
========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 12.1
SECURITY CAPITAL INDUSTRIAL TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995 1994 1993
------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Earnings from Operations............ $32,371 $ 79,384 $47,660 $25,066 $4,412
Add:
Interest Expense...................... 52,704 38,819 32,005 7,568 321
------- -------- ------- ------- ------
Earnings as Adjusted.................... $85,075 $118,203 $79,665 $32,634 $4,733
======= ======== ======= ======= ======
Fixed Charges:
Interest Expense...................... $52,704 $ 38,819 $32,005 $ 7,568 $ 321
Capitalized Interest.................. 18,365 16,138 8,599 2,208 98
------- -------- ------- ------- ------
Total Fixed Charges................. $71,069 $ 54,957 $40,604 $ 9,776 $ 419
======= ======== ======= ======= ======
Ratio of Earnings to Fixed Charges...... 1.2 2.2 2.0 3.3 11.3
======= ======== ======= ======= ======
</TABLE>
<PAGE>
EXHIBIT 12.2
SECURITY CAPITAL INDUSTRIAL TRUST
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Earnings from Operations.......... $ 32,371 $ 79,384 $47,660 $25,066 $4,412
Add:
Interest Expense.................... 52,704 38,819 32,005 7,568 321
-------- -------- ------- ------- ------
Earnings as Adjusted.................. $ 85,075 $118,203 $79,665 $32,634 $4,733
======== ======== ======= ======= ======
Combined Fixed Charges and Preferred
Share Dividends:
Interest Expense.................... $ 52,704 $ 38,819 $32,005 $ 7,568 $ 321
Capitalized Interest................ 18,365 16,138 8,599 2,208 98
-------- -------- ------- ------- ------
Total Fixed Charges............... 71,069 54,957 40,604 9,776 419
Preferred Share Dividends (a)....... 35,318 25,895 6,698 -- --
-------- -------- ------- ------- ------
Combined Fixed Charges and Preferred
Share Dividends...................... $106,387 $ 80,852 $47,302 $ 9,776 $ 419
======== ======== ======= ======= ======
Ratio of Earnings to Combined Fixed
Charges and
Preferred Share Dividends............ (b) 1.5 1.7 3.3 11.3
======== ======== ======= ======= ======
</TABLE>
- --------
(a) SCI had no preferred shares in any of the historical periods presented
prior to 1995.
(b) Earnings were insufficient to cover combined fixed charges and preferred
share dividends for the period ended December 31, 1997 by $21.3 million due
to a one-time, non-recurring charge of $75.4 million relating to the costs
incurred in acquiring the REIT management and property management companies
from Security Capital Group Incorporated.
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES
OF
SECURITY CAPITAL INDUSTRIAL TRUST, ET. AL.
<TABLE>
<CAPTION>
Jurisdiction
Name of Entity of Organization
-------------- ---------------
<S> <C>
1440 Goodyear Partners................................................ Texas
International Industrial Investments Incorporated..................... Maryland
Red Mountain Joint Venture............................................ Texas
SCI-Alabama (1) Incorporated.......................................... Maryland
SCI-Alabama (2) Incorporated.......................................... Maryland
SCI Development Services Incorporated................................. Delaware
SCI-DS Mexico Incorporated............................................ Maryland
SCI Houston Holdings, Inc............................................. Delaware
SCI IV, Inc........................................................... Delaware
(Corporate General Partner)
SCI Limited Partnership-I............................................. Delaware
SCI Limited Partnership-II............................................ Delaware
SCI Limited Partnership-III........................................... Delaware
(d/b/a SC Industrial Partners Limited Partnership)
SCI Limited Partnership-IV............................................ Delaware
SCI Mexico Industrial Trust........................................... Maryland
SCI-North Carolina (1) Incorporated................................... Maryland
SCI-North Carolina (2) Incorporated................................... Maryland
SCI-North Carolina Limited Partnership................................. Delaware
Security Capital Alabama Industrial Trust.............................. Alabama
SCI Client Services Incorporated (f/k/a Security Capital Industrial
Management Incorporated)............................................... Delaware
Security Capital Logistar International Incorporated (industrial
warehousing; seventeen subsidiaries in foreign countries).............. Delaware
Frigoscandia SA........................................................ Luxembourg
Frigo Sarl (refrigerated warehousing;
thirty-seven subsidiaries in foreign countries)........................ Luxembourg
SCI Logistics Services Incorporated.................................... Delaware
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Trust's previously filed
Registration Statement File Nos. 33-91366, 33-92490, 333-4961, 333-31421,
333-39797 and 333-38515.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Form 10-K for the twelve months ended December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,009
<SECURITIES> 0
<RECEIVABLES> 98,693
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,006,236
<DEPRECIATION> 171,525
<TOTAL-ASSETS> 3,033,953
<CURRENT-LIABILITIES> 0
<BONDS> 857,080
<COMMON> 1,174
0
435,008
<OTHER-SE> 1,540,555
<TOTAL-LIABILITY-AND-EQUITY> 3,033,953
<SALES> 284,533
<TOTAL-REVENUES> 302,494
<CGS> 0
<TOTAL-COSTS> 27,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,704
<INCOME-PRETAX> 4,431
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,431
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
