<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Filed Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 12, 1997
AMERICAN REAL ESTATE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Maryland 1-12514 84-1246585
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
</TABLE>
620 W. Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code:
(610) 834-7950
1
<PAGE>
The purpose of this filing is to file the updated Item 7 information for the
various acquisitions which were originally reported in Current Reports on Form
8-K filed on January 23, 1998, January 9, 1998 and December 22, 1997.
ITEM 5. OTHER EVENTS
On February 4, 1998, the Registrant announced in a press release
attached hereto as Exhibit 99.1 and incorporated herein by reference the
signing of definitive agreements to acquire a ten building portfolio
totaling approximately 790,000 square feet located in suburban Albany, New
York from the Galesi Group for a total purchase price of $58,000,000.
On February 18, 1998, the Registrant announced in a press release
attached hereto as Exhibit 99.2, and incorporated herein by reference, a
dividend of $.22 per common share for the fourth quarter of 1997 payable on
March 16, 1998 to shareholders of record on March 2, 1998.
On February 24, 1998, the Registrant announced in a press release
attached hereto as Exhibit 99.3, and incorporated herein by reference,
the signing of definitive agreements to purchase two industrial
distribution complexes totaling 1.1 million square feet for approximately
$27 million.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The audited statement of revenue and certain operating expenses of 101
Commerce Drive for the year ended December 31, 1996 and the unaudited
statement of revenue and certain operating expenses for the nine months
ended September 30, 1997 are included on pages F-23 to F-26. The required
audited financial statements for the McBride Portfolio, Penn Square
Properties, Inc. and seven industrial properties (100 Oak Hill Road, One
Philips Drive, One and Two Tabas Lane, 1057 and 1091 Arnold Road and 1305
Goshen Parkway), were previously reported in the Registrant's Proxy
Statement dated November 12, 1997 and are incorporated by reference.
(b) Pro Forma Financial Information.
Pro forma financial information which reflects the Registrant's acquisition
of the McBride Portfolio, Penn Square Properties, Inc., and the seven
industrial properties and 101 Commerce Drive as of and for the nine
months ended September 30, 1997 and for the year ended December 31, 1996
are included on pages F-1 to F-22.
(c) Exhibits
99.1 Press release dated February 4, 1998
99.2 Press release dated February 18, 1998
99.3 Press release dated February 24, 1998
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
<TABLE>
<S> <C>
Date: February 24, 1998 By /s/ JEFFREY E. KELTER
--------------------
Jeffrey E. Kelter
President
Date: February 24, 1998 By: /s/ TIMOTHY E. MCKENNA
------------------------
Timothy E. McKenna
Treasurer
(Principal Financial and Accounting
Officer)
</TABLE>
3
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
- Pro Forma Condensed Consolidating Balance Sheet as of September 30, 1997........ F-4
- Pro Forma Condensed Consolidating Income Statement for the Nine Months Ended
September 30, 1997 and for the Year Ended December 31, 1996..................... F-6
- Notes to Management's Assumptions to Unaudited Pro Forma Condensed Consolidating
Financial Information........................................................... F-10
II. 101 COMMERCE DRIVE
- Report of Independent Public Accountants........................................ F-23
- Statement of Revenue and Certain Expenses for the Nine Months Ended September
30, 1997 (unaudited) and for the Year Ended December 31, 1996 (audited)......... F-24
- Notes to Statement of Revenue and Certain Expenses.............................. F-25
</TABLE>
4
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following sets forth the unaudited pro forma condensed consolidating
balance sheet of the Company as of September 30, 1997 and the unaudited pro
forma condensed consolidating income statements for the nine-month period ended
September 30, 1997 and for the year ended December 31, 1996 to give effect to
the following transactions as summarized below:
- - The McBride Transactions. McBride-Hudson Bay, L.P. ("McBride") contributed to
the Operating Partnership interests in certain entities owning real
property, certain agreements to acquire properties, and $6,400,000 in cash
in exchange for 2,817,048 LP Units and warrants to purchase up to 125,000 LP
Units at $11.00 per share, having an aggregate value of approximately
$31,000,000. McBride merged Fair Lawn Industrial Park, Inc. ("FLIP") with
and into the Company in exchange for 2,001,132 shares of Stock having an
aggregate value of approximately $22,000,000.
- - The Penn Square Properties, Inc. Transaction. All of the shares of Penn
Square Properties, Inc. ("Penn Square") Preferred Stock were contributed to
the Operating Partnership in exchange for 363,636 LP Units and warrants to
purchase an additional 250,000 LP Units at a price of $11.00 per LP Unit. As
a result of the closing of the transactions, the common stock of Penn Square
is 40% owned by Jeffrey Kelter, 30% owned by McBride and 30% owned by Hudson
Bay. The Operating Partnership owns all of the preferred stock and none of
the voting common stock of Penn Square and receives 95% of the economic
benefits through its ownership of the Penn Square Preferred Stock. The
Operating Partnership accounts for its investment in Penn Square in
accordance with the equity method of accounting.
- - The Hudson Bay Partners II, L.P., CRA Real Estate Securities and Other
Investor Transactions. Hudson Bay Partners II, L.P. ("Hudson Bay") purchased
1,454,545 shares of Stock for $16,000,000 and contributed an additional
$2,000,000 to McBride which, in turn, contributed these funds to the
Operating Partnership in exchange for 181,819 LP Units. Hudson Bay received
a warrant to purchase 300,000 shares of Stock at an exercise price of $11
per share. CRA Real Estate Securities ("CRA") invested $5,000,000 in the
Company for 454,546 shares of Stock and Robert Branson, a director of the
Company, invested $600,000 for 54,545 shares of Stock.
- - The Acquisition Properties Transactions. The Company acquired McBride's
rights under various agreements to acquire seven properties which total
1,250,000 square feet for an aggregate consideration, including transaction
costs, of approximately $39,000,000. These acquisitions were consummated
subsequent to the December 12, 1997 closing of the transactions noted above
and consisted of the following:
- One Philips Drive and 100 Oak Hill Road, located in Mountain Top,
Pennsylvania, a 400,000 square foot warehouse/distribution center which
is 100% net leased to Phillips through 2007 and a 106,000 square foot
warehouse which is 100% leased to Dana Perfumes through 2001.
F-1
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
- One and Two Tabas Lane, located in Exton, Pennsylvania, two 150,000
square foot warehouse/ distribution facilities which are 100% net leased
by International Envelope and Alstrip through 2007 and 2011,
respectively.
- 1305 Goshen Parkway, located in West Chester, Pennsylvania, a 90,000
square foot warehouse and distribution facility which is 100% leased to
Yves Rocher, Inc. through 2000
- 1057 and 1091 Arnold Road, located in Reading, Pennsylvania, a 219,000
square foot warehouse/ distribution center which is 100% net leased to
Premium Beverage Packers, Inc. through 2000 and a 135,000 square foot
warehouse/distribution center 100% net leased to the Glidden Company
through 2001
- - 101 Commerce Drive Transaction. On January 9, 1998, the Company acquired this
597,000 square foot warehouse/distribution center located in Mechanicsburg,
Pennsylvania and 100% net leased to Hershey Foods Corporation through 2012
for $26,335,000 including transaction costs.
- - Sale of Americana Lakewood Apartments. On January 9, 1998, the Company
consummated the sale of a 300 unit multi-family residential property known
as Americana Lakewood Apartments located in the metropolitan Denver area for
a gross sales price of $15,066,000. In addition, since December 1996, the
Company has sold three other directly owned and one indirectly owned
multi-family residential properties (Timberleaf, Sedona, International and
Emerald Point). The pro forma effects of these property sales are shown and
discussed in further detail in the accompanying unaudited pro forma
condensed consolidating financial information and notes thereto.
All of the above acquisition transactions were accounted for using the
purchase method of accounting.
As a result of the above transactions, the Company owns 56% of the Operating
Partnership and consolidates the Operating Partnership. As general partner of
the Operating Partnership, the Company controls all operating decisions
including but not limited to the ability to acquire and dispose of assets,
refinance existing debt, incur additional indebtedness and admit additional
limited partners to the Operating Partnership.
F-2
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
The following table presents the ownership of the Company's Stock,
immediately after the consummation of the transactions discussed above.
<TABLE>
<CAPTION>
COMMON
OWNERSHIP SHARES (2)
----------- ----------
<S> <C> <C> <C>
Existing Shares/Units at September 30, 1997........... 21.4% 1,131,010
Additional Shares to executive officers(1)............ 3.3% 171,266
McBride Shares/Units.................................. 38.0% 2,001,132
Hudson Bay Shares/Units............................... 27.6% 1,454,545
CRA and Other Investor Shares/Units................... 9.7% 509,091
----- ---------- -------------
100.0% 5,267,044 9,416,552(3)
----- ---------- -------------
----- ---------- -------------
</TABLE>
- ------------------------
(1) Represents shares issued to certain executives as consideration for the
termination of their employment and consulting agreements and the buyout of
their options in connection with the transactions.
(2) Common shares before any conversion of LP Units
(3) Common shares upon conversion of all outstanding LP Units
The accompanying pro forma condensed consolidating financial information is
presented as if the transactions described above had been consummated on
September 30, 1997 for balance sheet purposes and on January 1, 1996 for
purposes of the income statements. This unaudited pro forma condensed
consolidating financial information should be read in conjunction with the
historical financial statements of the Company, for the year ended December 31,
1996 and the quarter ended September 30, 1997, as previously reported in the
Company's 1996 Annual Report on Form 10-KSB and Quarterly Report on Form 10-QSB
for the quarter ended September 30 1997, which are incorporated by reference,
and Penn Square Properties, Inc. and the combined statements of revenue and
certain expenses of McBride Portfolio, Moran Acquisition Properties (which
includes 100 Oak Hill Road and One Philips Drive ), Loew Acquisition Properties
(which includes One and Two Tabas Lane and 1305 Goshen Parkway ) and Northfield
Acquisition Properties (which includes 1057 and 1091 Arnold Road ) and the
related notes thereto which are incorporated by reference from the Company's
Proxy Statement dated November 12, 1997. The statement of revenue and certain
expenses and related notes thereto of 101 Commerce Drive are included herein.
The pro forma condensed consolidating financial information is unaudited and
is not necessarily indicative of what the actual financial position or results
of operations of the Company would have been had the transactions discussed
above been consummated as of the dates indicated, nor does it purport to
represent the future financial position and the results of operations of the
Company. In management's opinion, the unaudited interim financial statements
include all normal recurring adjustments necessary for a fair presentation of
the financial statements. All adjustments necessary to reflect the effects of
the transactions have been made.
F-3
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET--AS OF SEPTEMBER 30, 1997
(UNAUDITED--IN THOUSANDS)
<TABLE>
<CAPTION>
THE SALE OF THE
COMPANY AMERICANA COMPANY, MCBRIDE
HISTORICAL LAKEWOOD (A) AS ADJUSTED PORTFOLIO (B)
---------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
INVESTMENTS IN REAL ESTATE, NET............................. $ 28,842 $(7,730) $21,112 $89,600
INVESTMENT IN DIRECT FINANCING LEASE........................ 2,000
INVESTMENT IN MANAGEMENT COMPANY............................
---------- ------- ----------- -------
28,842 (7,730) 21,112 91,600
CASH AND CASH EQUIVALENTS................................... 8,246 4,433 12,679 360
RESTRICTED CASH............................................. 545 (159) 386
OTHER ASSETS, net........................................... 2,104 (154) 1,950
---------- ------- ----------- -------
Total assets.............................................. $ 39,737 $(3,610) $36,127 $91,960
---------- ------- ----------- -------
---------- ------- ----------- -------
<CAPTION>
PENN THE OTHER THE
SQUARE ACQUISITION PRO FORMA COMPANY
PROPERTIES (C) PROPERTIES (D) ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
INVESTMENTS IN REAL ESTATE, NET............................. $ $65,556 $3,400 (E) $179,668
INVESTMENT IN DIRECT FINANCING LEASE........................ 2,000
INVESTMENT IN MANAGEMENT COMPANY............................ 4,000 4,000
----------- ----------- ----------- -----------
4,000 65,556 3,400 185,668
CASH AND CASH EQUIVALENTS................................... (25,783) 21,600 (G) 11,890
(4,200)(E)
(500)(F)
8,400 (H)
(666)(I)
RESTRICTED CASH............................................. 386
OTHER ASSETS, net........................................... 500(F) 2,450
----------- ----------- ----------- -----------
Total assets.............................................. $4,000 $39,773 $28,534 $200,394
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(continued)
F-4
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET--AS OF SEPTEMBER 30, 1997
(UNAUDITED--IN THOUSANDS)
<TABLE>
<CAPTION>
THE SALE OF THE
COMPANY AMERICANA COMPANY, MCBRIDE
HISTORICAL LAKEWOOD (A) AS ADJUSTED PORTFOLIO (B)
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
MORTGAGE NOTES PAYABLE...................................... $ 26,430 $(10,128) $16,302 $45,000
ACCRUED EXPENSES ANDOTHER LIABILITIES....................... 1,920 (212) 1,708 360
---------- ------- ----------- ------
28,350 (10,340) 18,010 45,360
MINORITY INTEREST........................................... 4,573 2,961 7,534 24,600
STOCKHOLDERS' EQUITY:
Common stock.............................................. 1 1
Additional paid-in capital................................ 5,438 5,438 22,000
Stock warrants..............................................
Cumulative net income..................................... 4,731 3,769 8,500
Cumulative dividends...................................... (3,356) (3,356)
---------- ------- ----------- ------
Total stockholders' equity................................ 6,814 3,769 10,583 22,000
---------- ------- ----------- ------
Total liabilities, minority interest, and stockholders'
equity.................................................. $ 39,737 $(3,610) $36,127 $91,960
---------- --------- ----------- --------
---------- --------- ----------- --------
<CAPTION>
PENN THE OTHER THE
SQUARE ACQUISITION PRO FORMA COMPANY
PROPERTIES (C) PROPERTIES (D) ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
MORTGAGE NOTES PAYABLE...................................... $ $39,773 $ $101,075
ACCRUED EXPENSES ANDOTHER LIABILITIES....................... 2,534 (I) 4,602
---------- --------- ----------- --------
39,773 2,534 105,677
MINORITY INTEREST........................................... 4,000 8,400 (H) 41,674
(2,860)(J)
STOCKHOLDERS' EQUITY:
Common stock.............................................. 4 (G) 5
(800)(E)
Additional paid-in capital................................ 50,794
21,296 (G)
2,860 (J)
Stock warrants.............................................. 300 (G) 300
Cumulative net income..................................... (3,200)(I) 5,300
Cumulative dividends...................................... (3,356)
---------- --------- ----------- --------
Total stockholders' equity................................ 20,460 53,043
---------- --------- ----------- --------
Total liabilities, minority interest, and stockholders'
equity.................................................. $4,000 $39,773 $28,534 $200,394
---------- --------- ----------- --------
---------- --------- ----------- --------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-5
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED--IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE LESS: THE
COMPANY PROPERTIES COMPANY, MCBRIDE
HISTORICAL SOLD (A) AS ADJUSTED PORTFOLIO (B)
---------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent.............................................. $ 5,560 $(3,045) $2,515 $7,350
Tenant reimbursements..................................... -- 547
Other income.............................................. 270 270 320
---------- ------- ----------- ------
Total revenue........................................... 5,830 (3,045) 2,785 8,217
OPERATING EXPENSES:
Repairs and maintenance................................... 364 (157) 207 511
Property taxes............................................ 259 (132) 127 407
Property management fees.................................. 198 (111) 87 107
Utilities................................................. 535 (350) 185 400
Payroll................................................... 455 (309) 146 --
Other property operations................................. 538 (476) 62 52
General and administrative................................ 510 -- 510 839
Interest.................................................. 2,403 (1,519) 884 2,602(f)
Depreciation and amortization............................. 769 (328) 441 1,536(g)
---------- ------- ----------- ------
Total operating expenses................................ 6,031 (3,382) 2,649 6,454
<CAPTION>
PENN THE OTHER THE
SQUARE ACQUISITION PRO FORMA COMPANY
PROPERTIES (C) PROPERTIES (D) ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent.............................................. $ $5,367 $ $15,232
Tenant reimbursements..................................... 403 950
Other income.............................................. 7 597
----- ------ ----------- -------
Total revenue........................................... 5,777 16,779
OPERATING EXPENSES:
Repairs and maintenance................................... 186 904
Property taxes............................................ 343 877
Property management fees.................................. (107)(h) 87
Utilities................................................. 585
Payroll................................................... 146
Other property operations................................. 61 175
General and administrative................................ (839)(h) 510
Interest.................................................. 2,213 37 (e) 5,736
Depreciation and amortization............................. 1,125 3,102
----- ------ ----------- -------
Total operating expenses................................ -- 3,928 (909) 12,122
</TABLE>
(continued)
F-6
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED--IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE LESS: THE
COMPANY PROPERTIES COMPANY, MCBRIDE
HISTORICAL SOLD (A) AS ADJUSTED PORTFOLIO (B)
---------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
EQUITY IN EARNINGS FROM INVESTMENT IN PARTNERSHIP AND
MANAGEMENT COMPANY........................................ 436 (436) -- --
MINORITY INTEREST........................................... (1,987) 1,987
GAINS ON SALES OF PROPERTY.................................. 4,608 (4,608)
---------- ------- ----------- ------
NET INCOME (LOSS)........................................... $ 2,856 $(2,720) $ 136 $1,763
---------- ------- ----------- ------
---------- ------- ----------- ------
PRIMARY EARNINGS PER SHARE.................................. $ 2.54
----------
----------
FULLY DILUTED EARNINGS PER SHARE............................ $ 2.54
----------
----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 1,125,828
----------
----------
<CAPTION>
PENN THE OTHER THE
SQUARE ACQUISITION PRO FORMA COMPANY
PROPERTIES (C) PROPERTIES (D) ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
EQUITY IN EARNINGS FROM INVESTMENT IN PARTNERSHIP AND
MANAGEMENT COMPANY........................................ (378) -- -- (378)
MINORITY INTEREST........................................... (1,883)(i) (1,883)
GAINS ON SALES OF PROPERTY.................................. --
----- ------ ----------- ---------
NET INCOME (LOSS)........................................... $(378) $1,849 $(974) $ 2,396
----- ------ ----------- ---------
----- ------ ----------- ---------
PRIMARY EARNINGS PER SHARE.................................. $ .46
---------
---------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 5,267,044
---------
---------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-7
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED--IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE LESS: THE
COMPANY PROPERTIES COMPANY, MCBRIDE
HISTORICAL SOLD(A) AS ADJUSTED PORTFOLIO(B)
---------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent............................................... $ 9,943 $(6,654) $3,289 $10,001
Tenant reimbursements...................................... 724
Other income............................................... 297 297 514
---------- ------- ----------- ------
Total revenue........................................... 10,240 (6,654) 3,586 11,239
OPERATING EXPENSES:
Repairs and maintenance.................................... 708 (411) 297 961
Property taxes............................................. 417 (238) 179 1,121
Property management fees................................... 353 (236) 117 161
Utilities.................................................. 1,034 (814) 220 595
Payroll.................................................... 893 (684) 209
Other property operations.................................. 1,005 (808) 197 282
General and administrative................................. 515 -- 515 1,348
Interest................................................... 3,897 (2,764) 1,133 3,470(f)
Depreciation and amortization.............................. 1,306 (739) 567 2,048(g)
---------- ------- ----------- ------
Total operating expenses................................ 10,128 (6,694) 3,434 9,986
<CAPTION>
PENN THE OTHER THE
SQUARE ACQUISITION PRO FORMA COMPANY
PROPERTIES(C) PROPERTIES(D) ADJUSTMENTS PRO FORMA
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent............................................... $ $6,637 $ $19,927
Tenant reimbursements...................................... 393 1,117
Other income............................................... 6 817
----- ------ ---------
Total revenue........................................... -- 7,036 21,861
OPERATING EXPENSES:
Repairs and maintenance.................................... 351 1,609
Property taxes............................................. 318 1,618
Property management fees................................... (161)(h) 117
Utilities.................................................. 815
Payroll.................................................... 209
Other property operations.................................. 84 563
General and administrative................................. (1,348)(h) 515
Interest................................................... 2,951 50 (e) 7,604
Depreciation and amortization.............................. 1,500 4,115
----- ------ ---------- ---------
Total operating expenses.................................. -- 5,204 (1,459) 17,165
</TABLE>
(continued)
F-8
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED--IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE LESS: THE
COMPANY PROPERTIES COMPANY, MCBRIDE
HISTORICAL SOLD(A) AS ADJUSTED PORTFOLIO (B)
------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
EQUITY IN EARNINGS FROM INVESTMENT IN PARTNERSHIP AND
MANAGEMENT COMPANY........................................ 570 (570)
MINORITY INTEREST........................................... (1,364) 1,364
GAINS ON SALES OF PROPERTY.................................. 1,786 (1,786)
----- ------ ---------- ---------
NET INCOME (LOSS)........................................... $ 1,104 (952) 152 $1,253
---------- ------- ----------- ---------
---------- ------- ----------- ---------
PRIMARY EARNINGS (LOSS) PER SHARE........................... $ 1.00
----------
FULLY DILUTED EARNINGS (LOSS) PER SHARE..................... $ 1.00
----------
----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 1,106,379
----------
----------
<CAPTION>
PENN THE OTHER THE
SQUARE ACQUISITION PRO FORMA COMPANY
PROPERTIES(C) PROPERTIES(D) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
EQUITY IN EARNINGS FROM INVESTMENT IN PARTNERSHIP AND
MANAGEMENT COMPANY........................................ (363) (363)
MINORITY INTEREST........................................... (1,907)(i) (1,907)
GAINS ON SALES OF PROPERTY..................................
---------- ------- ----------- ---------
NET INCOME (LOSS)........................................... $(363) $1,832 $ (448) $ 2,426
---------- ------- ----------- ---------
---------- ------- ----------- ---------
PRIMARY EARNINGS (LOSS) PER SHARE........................... $ .46
---------
---------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 5,267,044
---------
---------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-9
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING BALANCE SHEET
(A) Sale of Americana Lakewood
Americana Lakewood was sold on January 9, 1998 for the net cash proceeds
shown below:
<TABLE>
<S> <C>
Gross selling price........................................................... $ 15,066
Less: Mortgage note paid-off at closing....................................... (10,006)
Transaction costs and other closing
Prorations................................................................ (545)
---------
---------
Net cash proceeds to the Company.............................................. $ 4,515
---------
</TABLE>
(B) Adjustment to the acquisition of the McBride Portfolio:
<TABLE>
<S> <C>
Total purchase price, including mortgage
notes payable assumed of $45,000,000......................................... $91,600
Less: Other net assets acquired at fair value
Investment in direct financing lease......................................... 2,000
Cash......................................................................... 360
Accrued expenses and other liabilities....................................... (360)
---------
Purchase price allocated to real estate........................................ $89,600
---------
---------
</TABLE>
The $91,600,000 purchase price, which included the assumption of $45,000,000
of mortgage notes payable, consists of 2,001,132 shares of Stock ($.001 par
value per share) as consideration for the FLIP merger (approximately
$22,000,000) and 2,235,231 LP Units (approximately $24,600,000) valued at $11
per share/LP Unit as consideration for the contribution by McBride of ownership
interests in various partnerships and corporations which own properties.
F-10
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING BALANCE SHEET (CONTINUED)
(C) Acquisition of Penn Square Properties, Inc. ("Penn Square"):
<TABLE>
<CAPTION>
PENN SQUARE ASSETS AND
HISTORICAL LIABILITIES NOT PENN SQUARE
(1) ACQUIRED (2) OTHER(3) PRO FORMA
------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
PROPERTY AND EQUIPMENT..................................... $ 119 $ $ $ 119
------ --- --- -------------
119 119
LESS- ACCUMULATED DEPRECIATION............................. (97) (97)
------ --- --- -------------
22 22
CASH AND CASH EQUIVALENTS.................................. 65 11 76
ACCOUNTS RECEIVABLE........................................ 195 195
OTHER ASSETS, NET.......................................... 3 3
------ --- --- -------------
TOTAL ASSETS......................................... $ 285 $ $ 11 $ 296
------ --- --- -------------
------ --- --- -------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES:
MORTGAGE NOTES PAYABLE................................... $ 6 $ $ $ 6
OTHER NOTES PAYABLE...................................... 93 (93) --
ACCRUED EXPENSES AND OTHER LIABILITIES................... 290 290
------ --- --- -------------
TOTAL LIABILITIES.................................... 389 (93) 296
SHAREHOLDERS' DEFICIT:
COMMON STOCK............................................. 1 1
TREASURY STOCK........................................... (132) (132)
ADDITIONAL PAID-IN CAPITAL............................... 1 93 11 105
CUMULATIVE NET INCOME.................................... 26 26
------ --- --- -------------
TOTAL SHAREHOLDERS' EQUITY........................... (104) 93 11 --
------ --- --- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $ 285 $ -- $ 11 $ 296
------ --- --- -------------
------ --- --- -------------
OPERATING PARTNERSHIP'S INVESTMENT IN PENN SQUARE(4)....... $ 4,000
-------------
</TABLE>
(Footnotes explanations appear on the following page)
F-11
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING BALANCE SHEET (CONTINUED)
Footnotes to Penn Square:
(1) To reflect the historical cost basis of the assets and liabilities of Penn
Square.
(2) To eliminate assets not contributed and liabilities not assumed.
(3) Represents additional cash contribution required by the Penn Square
shareholder to satisfy minimum working capital requirements at the closing
date.
(4) The Operating Partnership accounts for its investment in the Penn Square
Preferred Stock using the equity method of accounting. The excess of
purchase price paid for Penn Square over the fair value of the net assets
acquired will be amortized against the Operating Partnership's share of Penn
Square's income over 25 years.
F-12
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING BALANCE SHEET (CONTINUED)
(D) Acquisition of the Moran, Loew, Northfield Acquisition Properties and 101
Commerce Drive(the "Acquisition Properties"):
<TABLE>
<CAPTION>
NORTHFIELD 101 COMMERCE
MORAN (1) LOEW (2) (3) DRIVE(4) TOTAL
----------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
INVESTMENTS IN REAL ESTATE:
LAND:.......................................... $ 2,798 $ 3,068 $ 1,978 $ 5,267 $ 13,111
BUILDINGS AND IMPROVEMENTS:.................... 11,191 12,270 7,916 21,068 52,445
----------- --------- ------------- ------------- ---------
13,989 15,338 9,894 26,335 65,556
----------- --------- ------------- ------------- ---------
TOTAL ASSETS............................... $ 13,989 $ 15,338 $ 9,894 $ 26,335 $ 65,556
----------- --------- ------------- ------------- ---------
----------- --------- ------------- ------------- ---------
LIABILITIES
MORTGAGE NOTES PAYABLE........................... $ 8,655 $ 10,618 $ 3,500 $ 17,000 $ 39,773
----------- --------- ------------- ------------- ---------
TOTAL LIABILITIES.......................... 8,655 10,618 3,500 17,000 39,773
----------- --------- ------------- ------------- ---------
NET CASH PURCHASE PRICE.......................... $ 5,334 $ 4,720 $ 6,394 $ 9,335 $ 25,783
----------- --------- ------------- ------------- ---------
----------- --------- ------------- ------------- ---------
</TABLE>
- ------------------------
Footnotes to Acquisition Properties:
(1) To record the acquisition of the Moran Acquisition Properties (100 Oak Hill
Road and One Philips Drive) for a total consideration of $13,989,000
consisting of $8,655,000 of mortgage notes payable and $5,334,000 in cash
payments.
(2) To record the acquisition of the Loew Acquisition Properties (One and Two
Tabas Lane and 1305 Goshen Parkway) for a total consideration of $15,338,000
consisting of $10,618,000 of mortgage notes payable assumed and $4,720,000
in cash payments.
(3) To record the acquisition of the Northfield Acquisition Properties (1057 and
1091 Arnold Drive) for a total consideration of $9,894,000 consisting of
$3,500,000 of mortgage debt and $6,394,000 in cash payments.
(4) To record the acquisition of the 101 Commerce Drive for a total
consideration of $26,335,000 consisting of $17,000,000 of mortgage notes
payable and $9,335,000 in cash payments.
F-13
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING BALANCE SHEET (CONTINUED)
(E) To allocate $4,200,000 of transaction costs as follows:
- $3,400,000 to the McBride Portfolio and the Acquisition Properties, and
- $800,000 to equity as the cost of issuing the Stock purchased by Hudson
Bay and the other investors.
(F) To record the $500,000 of financing costs incurred relating to the
$45,000,000 Nomura refinancing of the McBride Portfolio debt.
(G) To record the following investments aggregating $21,600,000 in the Company's
Stock:
- $16,000,000 investment by Hudson Bay in consideration for the issuance of
1,454,545 shares of Stock ($.001 par value) at $11 per common share and a
warrant for 300,000 shares of Stock at a fair value of $1.00 per share. The
warrant is exercisable at $11.00 per share and was valued at $300,000 based
upon a modified Black Scholes calculation.
- Investment by CRA ($5,000,000) and Robert Branson ($600,000) in the Stock
of the Company in consideration for the issuance of 454,546 and 54,545
shares, respectively.
(H) To record the $8,400,000 in cash contributed by McBride to the Operating
Partnership in exchange for the issuance of 763,636 LP Units.
(I) To record an accrual of $3,200,000 of compensation expense for: (i) the
termination of the employment and consulting agreements with certain
executive officers of the Company (Messrs. Zucker, Burger and Mulvihill) for
41,817 shares of Stock at $14.81, the share price on December 12, 1997, the
date transactions closed, ($620,000) and (ii) the purchase of the
outstanding options held by certain executive officers and others for
$666,000 in cash payments and 129,449 shares of Stock valued at $14.81
($1,914,000). These amounts will be expensed in the fourth quarter operating
results of the Company.
(J) To reflect the Company's 56% interest in the net equity of the Operating
Partnership as a result of the transactions.
F-14
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(a) To reflect the elimination of the income statement impact for the nine
months ended September 30, 1997 and the year ended December 31, 1996 for the
multi-family residential properties which were sold subsequent to January 1,
1996. The combined results for these properties are shown as follows:
For the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
EMERALD AMERICANA
TIMBERLEAF SEDONA POINTE LAKEWOOD TOTAL
------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue..................................................... $ 363 $ 1,048 $ -- $ 1,634 $ 3,045
Operating expenses:
Repairs and maintenance................................... 29 86 -- 42 157
Property taxes............................................ 9 48 -- 75 132
Property management fees.................................. 12 35 -- 64 111
Utilities................................................. 90 181 -- 79 350
Payroll................................................... 33 140 -- 136 309
Other property operations................................. 63 131 -- 282 476
Interest.................................................. 91 312 446 670 1,519
Depreciation.............................................. 45 162 (49) 170 328
----- --------- ----- ----------- ---------
Total operating expenses.............................. 372 1,095 397 1,518 3,382
Equity in earnings from investment in partnership........... -- -- 436 -- 436
Minority interest........................................... -- (1,987) -- -- (1,987)
Gains on sales of property.................................. 403 3,453 752 -- 4,608
----- --------- ----- ----------- ---------
Net income.................................................. $ 394 $ 1,419 $ 791 116 $ 2,720
----- --------- ----- ----------- ---------
----- --------- ----- ----------- ---------
</TABLE>
For the year ended December 31, 1996:
<TABLE>
<CAPTION>
EMERALD AMERICANA
TIMBERLEAF SEDONA POINTE INTERNATIONAL LAKEWOOD TOTAL
------------- --------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE...................................... $ 2,212 $ 1,654 $ -- $ 746 $ 2,042 $ 6,654
OPERATING EXPENSES-
REPAIRS AND MAINTENANCE.................... 164 127 -- 67 53 411
PROPERTY TAXES............................. 57 57 -- 27 97 238
PROPERTY MANAGEMENT FEES................... 74 56 -- 25 81 236
UTILITIES.................................. 372 212 -- 116 114 814
PAYROLL.................................... 235 168 -- 99 182 684
OTHER PROPERTY OPERATIONS.................. 307 214 -- 121 166 808
INTEREST................................... 593 415 591 158 1,007 2,764
DEPRECIATION AND AMORTIZATION.............. 252 219 (61) 112 217 739
------ --------- ----------- ------------- ----------- ---------
TOTAL OPERATING EXPENSES............... 2,054 1,468 530 725 1,917 6,694
EQUITY IN EARNINGS FROM INVESTMENT IN
PARTNERSHIP............................. -- -- 570 -- -- 570
MINORITY INTEREST............................ (1,364) -- (1,364)
GAINS ON SALES OF PROPERTY................... -- -- -- 1,786 -- 1,786
------ --------- ----------- ------------- ----------- ---------
NET INCOME................................. $ 158 $ 186 $ 40 $ 443 $ 125 $ 952
------ --------- ----------- ------------- ----------- ---------
------ --------- ----------- ------------- ----------- ---------
</TABLE>
F-15
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT (CONTINUED)
On February 28, 1997, the Company sold the 450-unit apartment complex known
as the Timberleaf Apartments, which was constructed in 1972 and is located in
Aurora, Colorado. The gross selling price for this property was approximately
$9.1 million. On August 29, 1997, the Company sold the Sedona Apartments, a
276-unit apartment complex constructed in 1971 and located in Denver, Colorado.
The property had been acquired by the Company upon its organization as a REIT in
1993. The selling price for the property was $9.2 million.
On September 26, 1997, the Company sold its 50% general partner interest in
Emerald Vista Associates, L.P., which owns the 456-unit apartment complex known
as the Emerald Pointe Apartments located in San Diego County, California. The
selling price for the general partnership interest was $2 million.
On January 9, 1998, the Company consummated the sale of a 300 unit
multi-family residential property known as Americana Lakewood Apartments located
in the metropolitan Denver area for a gross sales price of $15,066,000.
The pro forma effects of these property sales are shown above for the
nine-month period ended September 30, 1997, and the year ended December 31,
1996.
F-16
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT (CONTINUED)
(b) Reflects the historical results of the McBride Portfolio.
(c) Penn Square
For the nine months ended September 30, 1997
<TABLE>
<CAPTION>
PENN SQUARE PRO FORMA PENN SQUARE
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- -----------
<S> <C> <C> <C>
Revenue................................................................. $ 1,856 $ $ 1,856
------ ----------- ------
Operating expenses:
Compensation and benefits............................................. 1,715 240(2) 1,955
Other................................................................. 179 179
------ ----------- ------
Total operating expenses............................................ 1,894 240 2,134
------ ----------- ------
Pre-tax loss............................................................ (38) (240) (278)
Provision for income taxes.............................................. --
------ ----------- ------
Net loss............................................................ $ (38) $ (240) (278)
------ -----------
------ -----------
Amortization of excess purchase price over net assets acquired recorded
in consolidation (1).................................................. 120
------
------
Net loss, as adjusted................................................... $ (398)
------
------
Operating Partnership's share of net loss of Penn Square (95%).......... $ (378)
------
------
</TABLE>
- ------------------------
Footnotes to Acquisition of Penn Square:
(Footnote explanations appear on the following page)
F-17
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT (CONTINUED)
For the year ended December 31, 1996
<TABLE>
<CAPTION>
PENN SQUARE PRO FORMA PENN SQUARE
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- -------------
<S> <C> <C> <C>
Revenues................................................................ $ 3,089 $ $ 3,089
------ ----------- ------
Operating expenses:
Compensation and benefits............................................. 2,769 300(2) 3,069
Other................................................................. 243 243
------ ----------- ------
Total operating expenses............................................ 3,012 300 3,312
------ ----------- ------
Pre-tax income.......................................................... 77 (300) (223)
Provision for income taxes.............................................. --
------ ----------- ------
Net income.............................................................. $ 77 $ (300) (223)
------ -----------
------ -----------
Amortization of excess purchase price over net assets acquired recorded
in consolidation (1).................................................. 160
------
Net loss, as adjusted................................................... $ (383)
------
------
Operating Partnership's share of net loss of Penn Square (95%).......... $ (363)
------
------
</TABLE>
- ------------------------
Footnotes to Acquisition of Penn Square:
(1) To record the amortization of excess purchase price over net assets acquired
over 25 years.
(2) To reflect the additional payroll costs associated with the management of
the McBride Portfolio and the Acquisition Properties
F-18
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT (CONTINUED)
(d) Acquisition Properties
For the nine months ended September 30, 1997
<TABLE>
<CAPTION>
101
COMMERCE PRO FORMA
MORAN LOEW NORTHFIELD DRIVE ADJUSTMENTS
----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Minimum rent......................................... $ 1,158 $ 1,278 $ 840 $ 2,091 $
Operating reimbursements............................. 112 180 111 --
Other income......................................... 4 3
----------- --------- ----- ----------- ------
Total revenue...................................... 1,270 1,462 951 2,094 --
OPERATING EXPENSES:
Maintenance and other operating expenses............. 56 130
Real estate taxes.................................... 109 140 94
Insurance............................................ 4 12 45
Depreciation and amortization........................ 1,125(1)
Mortgage and bankloan interest....................... 2,213(2)
----------- --------- ----- ----------- ------
Total operating expenses........................... 113 208 269 3,338
----------- --------- ----- ----------- ------
Net income......................................... $ 1,157 $ 1,254 $ 682 $ 2,094 $ (3,338)
----------- --------- ----- ----------- ------
----------- --------- ----- ----------- ------
<CAPTION>
ACQUISITION
PRO FORMA
PROPERTIES
-------------
<S> <C>
REVENUE:
Minimum rent......................................... $ 5,367
Operating reimbursements............................. 403
Other income......................................... 7
------
Total revenue...................................... 5,777
OPERATING EXPENSES:
Maintenance and other operating expenses............. 186
Real estate taxes.................................... 343
Insurance............................................ 61
Depreciation and amortization........................ 1,125
Mortgage and bankloan interest....................... 2,213
------
Total operating expenses........................... 3,928
------
Net income......................................... $ 1,849
------
------
</TABLE>
- ------------------------
Footnotes to Acquisition Properties: (Footnotes explanations appear on the
following page)
F-19
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT (CONTINUED)
For the year ended December 31, 1996
<TABLE>
<CAPTION>
101
COMMERCE PRO FORMA
MORAN LOEW NORTHFIELD DRIVE ADJUSTMENTS
----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Minimum rent......................................... $ 1,219 $ 1,774 $ 710 $ 2,934 $
Operating reimbursements............................. 136 236 21
Other income......................................... 6
----------- --------- ----- ----------- ------
Total revenue.................................... 1,355 2,010 731 2,940
OPERATING EXPENSES:
Maintenance and other operating expenses............. 124 227
Real estate taxes.................................... 145 173
Insurance............................................ 6 17 61
Depreciation and amortization........................ 1,500(1)
Interest............................................. 2,951(2)
----------- --------- ----- ----------- ------
Total operating expenses........................... 151 314 288 -- 4,451
----------- --------- ----- ----------- ------
Net income......................................... $ 1,204 $ 1,696 $ 443 $ 2,940 $ (4,451)
----------- --------- ----- ----------- ------
----------- --------- ----- ----------- ------
<CAPTION>
ACQUISITION
PROPERTIES
PRO FORMA
-------------
<S> <C>
REVENUE:
Minimum rent......................................... $ 6,637
Operating reimbursements............................. 393
Other income......................................... 6
------
Total revenue.................................... 7,036
OPERATING EXPENSES:
Maintenance and other operating expenses............. 351
Real estate taxes.................................... 318
Insurance............................................ 84
Depreciation and amortization........................ 1,500
Interest............................................. 2,951
------
Total operating expenses........................... 5,204
------
Net income......................................... $ 1,832
------
------
</TABLE>
- ------------------------
Footnotes to Acquisition Properties:
(1) To record depreciation on assets acquired and transaction costs capitalized
over a useful life of 35 years.
(2) To record interest expense on mortgage indebtedness as follows:
<TABLE>
<CAPTION>
MORTGAGE INTEREST
AMOUNT RATE (%)
----------- -----------
<S> <C> <C>
Moran..................................... $ 1,155 7.38
7,500 7.03
Loew...................................... 2,875 8.25
4,385 8.50
3,358 8.50
Northfield................................ 3,500 7.25
101 Commerce Drive........................ 17,000 7.03
---------
$ 39,773
---------
---------
</TABLE>
F-20
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
(e) To record amortization of $500,000 of deferred financing costs related to the
refinancing of the McBride Portfolio debt with Nomura over a ten-year term $ 50,000 $ 37,000
(f) To record interest expense on the $45,000,000 of assumed McBride Portfolio debt
with Nomura at 7.71% 3,470,000 2,602,000
(g) To record depreciation expense related to the McBride Portfolio real estate
assets over a useful life of 35 years, assuming an allocation of $17,920,000 (20%)
to land cost 2,048,000 1,536,000
(h) To eliminate non-recurring McBride general and administrative costs which will
not be incurred as a result of the future operations of the McBride Portfolio by
the Company
--property management fees 161,000 107,000
--general and administrative expenses 1,348,000 839,000
</TABLE>
F-21
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT (CONTINUED)
(i) To adjust the minority interest's share of income in the Operating
Partnership. As a result of the consummation of the transactions described
herein, the Company owns 56% of the Operating Partnership. The adjustments to
record the income effect of the minority interest share for the periods ended
December 31, 1996 and September 30, 1997 in the proforma income statements were
computed as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
1996 1997
------------------- -----------------------
<S> <C> <C>
Company Income before Minority Interest.............................. $ 152 $ 136
McBride Portfolio.................................................... 1,253 1,763
Penn Square.......................................................... (363) (378)
Acquisition Properties............................................... 1,832 1,849
------ ------
2,874 3,370
Impact of Pro Forma Adjustments...................................... 1,459 909
------ ------
Total Income......................................................... 4,333 4,279
Minority Share....................................................... 44% 44%
------ ------
Adjustment........................................................... $ 1,907 $ 1,883
------ ------
------ ------
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
American Real Estate Investment Corporation:
We have audited the statement of revenue and certain expenses of 101 Commerce
Drive for the year ended December 31, 1996. This financial statement is the
responsibility of the Property's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
The statement of revenue and certain expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in a current report on Form 8-K/A of American Real
Estate Investment Corporation, as described in Note 1, and is not intended to be
a complete presentation of the Property's revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of 101 Commerce Drive
for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
February 13, 1998
F-23
<PAGE>
101 COMMERCE DRIVE
STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
REVENUE
Minimum rent (Note 2).............................................................. $2,091,000 $2,934,000
Other income....................................................................... 3,000 6,000
------------ ------------
EXCESS OF REVENUE OVER CERTAIN EXPENSES.............................................. $2,094,000 $2,940,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
101 COMMERCE DRIVE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1996
1. BASIS OF PRESENTATION:
The statement of revenue and certain expenses reflects the operations of 101
Commerce Drive (the "Property"), located in Mechanicsburg, Pennsylvania. The
Property was acquired by American Real Estate Investment Corporation (the
"Company") from Cumberland Valley Associates in January, 1998. The Property has
an aggregate net rentable area of approximately 597,000 square feet (100% leased
as of December 31, 1996). This statement of revenue and certain expenses is to
be included in the Company's Current Report on Form 8-K/A, as the above
described transaction has been deemed significant pursuant to the rules and
regulations of the Securities and Exchange Commission.
The accounting records of the Property are maintained on an accrual basis.
Adjusting entries have been made to present the accompanying financial
statements in accordance with generally accepted accounting principles. The
accompanying financial statements exclude certain expenses such as interest,
depreciation and amortization, and other costs not directly related to the
future operations of the Property.
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 revenue and expenses during the reporting period.
The ultimate results could differ from those estimates.
The statement of revenue for the nine months ended September 30, 1997 is
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for the fair presentation of
the statement of revenue and certain expenses for the interim period have been
included. The results of the interim period are not necessarily indicative of
the results for the full year.
2. OPERATING LEASE:
Hershey Chocolate, U.S.A. occupies 100% of the Property and pays all operating
expenses directly under the terms of it's lease. As a result, no operating
expenses are reflected in the accompanying financial statement.
F-25
<PAGE>
2. OPERATING LEASE: (CONTINUED)
The Property is leased to the tenant under an operating lease, which was amended
and revised in December 1997. The new lease expires December 31, 2012. Future
minimum rentals under the amended noncancelable operating lease are as follows:
<TABLE>
<S> <C>
1998 ................................................... $2,376,458
1999 ................................................... 2,376,458
2000 ................................................... 2,376,458
2001 ................................................... 2,376,458
2002 ................................................... 2,376,458
Thereafter .............................................. 25,806,662
</TABLE>
3. SUBSEQUENT EVENT
On January 9, 1998, the Company consummated the acquisition of this property
from Cumberland Valley Associates for a gross sales price of $15,066,000.
F-26
<PAGE>
Exhibit 99.1
FOR IMMEDIATE RELEASE
American Real Estate Investment Corporation Signs Definitive Agreements to
Acquire Seven Office Buildings and Three Industrial Buildings for Approximately
$58 Million
PLYMOUTH MEETING, PA, February 4, 1998. American Real Estate Investment
Corporation (AMEX: REA) announced today that it has signed definitive agreements
to acquire a ten building portfolio totaling approximately 790,000 square feet
located in suburban Albany, New York for a total purchase price of $58 million.
The portfolio is to be contributed to the REITs umbrella partnership by The
Galesi Group, a prominent real estate owner and investment firm and partners, in
exchange for the issuance of approximately 1,362,940 Operating Partnership Units
and the assumption of related indebtedness. As part of this transaction the
Company will enter into an operating agreement with The Galesi Group and
Columbia Development that will grant the Company additional rights and options
related to other properties and land controlled by the seller. Francesco Galesi
will join the Board of Directors as part of the transaction.
The portfolio consists of seven Class A office buildings, totaling 390,503
square feet, located in suburban Albany, New York, and three state of the art
partially refrigerated industrial buildings totaling 396,645 square feet.
- - Columbia Circle, a strategically located office park consisting of six
two- and three-story brick buildings totaling 329,376 square feet,
situated on 37 acres. The buildings, approximately 5 years old, are 99%
leased to tenants such as GE, Prudential Insurance, Delmar Publishers,
Kemper Insurance, Novalis and others.
- - 8 Airline Drive, a two-story office building completed in 1997
containing 61,127 square feet situated on 6 acres, 100% leased by
Allstate Insurance and others.
- - Buildings 8, 21, 22 Northeastern Industrial Park in Guilderland, New
York, 100% leased to AmeriServe, Save-A-Lot and Distribution Unlimited,
Inc. under long term leases.
"We are extremely gratified to be acquiring a premier suburban office
portfolio in Albany, as well as gaining an initial foothold in the distribution
business in upstate New York. New York's fundamentals have been steadily
improving and we look forward to increasing our market presence dramatically.
Albany is a target market of ours -- good demographic and employment trends with
strong corporate presence, but no dominant player to effect our ability to buy
the highest quality real estate at initial cash yields in excess of 10%," said
Jeff Kelter, American's President.
"We are excited about the prospects of adding Francesco Galesi to our board.
His operating experience gained in 30 years of real estate development, combined
with his serving on the Boards of WorldCom, Inc (WCOM), Waldon Residential
Properties, Inc. (WDN) and Amnex (AMX) will bring added strength to our Board,"
added David McBride, Chairman.
<PAGE>
Exhibit 99.1
American Real Estate Investment Corporation, with headquarters in Plymouth
Meeting, Pennsylvania and regional offices in Franklin Lakes, New Jersey and
Allentown, Pennsylvania, is a fully-integrated self-administered and self-
managed real estate investment trust (REIT) focusing on office and industrial
properties in the Mid-Atlantic and Northeast States. The Company currently has
23 properties containing approximately 3.0 million square feet. For more
information, contact Jeff Kelter at 610-834-3447 or Email: JKELTER @ AREIC.com.
This press release may contain statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding the intent, belief of current expectations
of the Company, its directors, or its officers with respect to the future
operating performance of the Company and the result and the effect of legal
proceedings. Investors are cautioned that any such forward looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those in the forward looking
statements as a result of various factors. Important factors that could cause
such differences are described in the Company's periodic filings with the
Securities and Exchange Commission, including the Company's Form 10-KSB and
quarterly reports on Form 10-QSB.
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Exhibit 99.2
FOR IMMEDIATE RELEASE
AMERICAN REAL ESTATE INVESTMENT CORPORATION ANNOUNCES FOURTH QUARTER DIVIDEND
Plymouth Meeting, Pennsylvania, February 18, 1998. American Real Estate
Investment Corporation (AMEX: REA) (the "Company") announced today that its
Board of Directors declared a dividend for the fourth quarter of 1997 of $.22
per common share payable on March 16, 1998 to shareholders of record on March 2,
1998. In a departure from prior policy of adjusting dividends quarterly, the
Company announced its intention to adjust the amount of its quarterly dividend
annually. Management currently anticipates that its policy will be to review its
dividend payout at the end of the second quarter, at which time the Company will
adjust the dividend amount to better reflect (i) the increase in earnings and
cash flow expected from recent acquisitions and (ii) capital needs associated
with future growth opportunities.
Since its reorganization in December 1997, American Real Estate Investment
Corporation has acquired 23 institutional quality office and industrial
distribution properties totaling approximately 3.0 million square feet
American Real Estate Investment Corporation, with headquarters in Plymouth
Meeting, Pennsylvania and regional offices in Franklin Lakes, New Jersey and
Allentown, Pennsylvania, is a fully-integrated self-administered and
self-managed real estate investment trust (REIT) focusing on office and
industrial properties in the Mid-Atlantic and Northeast states. Upon the
completion of recently announced acquisitions, the Company will own 43
properties totaling approximately 4.9 million square feet.
This press release may contain statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding the intent, belief of current expectations
of the Company, its directors, or its officers with respect to the future
operating performance of the Company and the result and the effect of legal
proceedings. Investors are cautioned that any such forward looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those in the forward looking
statements as a result of various factors. Important factors that could cause
such differences are described in the Company's periodic filings with the
Securities and Exchange Commission, including the Company's Form 10-KSB and
quarterly reports on Form 10-QSB.
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Exhibit 99.3
FOR IMMEDIATE RELEASE
American Real Estate Investment Corporation Signs Definitive Agreement to
Purchase Two Properties for $27 Million
Plymouth Meeting, Pennsylvania, February 24, 1998. American Real Estate
Investment Corporation (AMEX: REA) announced today that it has signed
definitive agreements to purchase two industrial distribution complexes
totaling 1.1 million square feet for approximately $27 million.
- - Steelway Boulevard North and South. Liverpool, New York. This
property is comprised of five single-story warehouse/distribution
facilities containing 655,500 square feet with 24' to 30' clear ceiling
heights. These buildings are 100% leased to GATX Logistics and are
located at the confluence of the New York State Thruway and Route 81 in
suburban Syracuse, a major distribution hub for the Northeastern United
States. At a cost of approximately $20 per square foot, the initial
yield on acquisition cost is anticipated to be in excess of 12.5% in
the first year.
- - Lower Allen Distribution Center and Airport Industrial Park, Harrisburg,
Pennsylvania. This property is comprised of five single-story
warehouse/distribution facilities containing 467,000 square feet on
34 acres with 24' to 30' clear ceiling heights. These buildings are
multi-tenanted state-of-the-art facilities located in the lowest vacancy
distribution market in eastern Pennsylvania. At a cost of approximately
$31 per square foot, the initial yield on acquisition cost is anticipated
to be in excess of 10% in the first year.
Since completion of its reorganization with McBride, Penn Square Properties
and Hudson Bay Partners in December 1997, the Company has implemented its
focused growth strategy as follows:
- - Acquired or signed definitive agreements to acquire approximately
$71 million of state-of-the-art warehouse/distribution properties
thereby increasing in its industrial portfolio by 126% to over
3.8 million square feet. At an average cost of approximately $33
including several refrigerated and freezer facilities, the average
discount to replacement cost is in excess of 30% per square foot,
the average initial yield on acquisition cost is anticipated to be in
excess of 10.5% in the first year.
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- - Acquired or signed definitive agreements to acquire approximately
$40 million of strategic, high quality suburban office properties
representing an increase in its office portfolio of 55% to over
1.1 million square feet. At an average cost of approximately $104 with
a discount to replacement cost in excess of 25% per square foot, the
average initial yield on acquisition cost is anticipated to be in
excess of 10% in the first year.
- - Assuming completion of previously announced transactions, increased pro
forma annualized net operating income for the Company's portfolio will
increase over 70% to in excess of $27 million.
"We believe that the growth demonstrated over the past ninety days is
indicative of the opportunities in our targeted markets and an example of our
ability to execute our plan to generate attractive, sustainable yields from
cash acquisitions of individual properties and portfolios as well as our
ability to attract new partners in strategic markets through the completion
of OP Unit transactions. We are confident that this proactive approach will
create cash flow growth and long-term value for our shareholders," said Jeff
Kelter, American's President. "We are simply executing our strategy of
building a large industrial base throughout the Northeast, complimented by
strategic office portfolio acquisitions in stable markets not yet dominated
by any individual or multiple players," added David McBride.
American Real Estate Investment Corporation, with headquarters in Plymouth
Meeting, Pennsylvania and regional offices in Franklin Lakes, New Jersey and
Allentown, Pennsylvania, is a fully-integrated self-administered and
self-managed real estate investment trust (REIT) focusing on office and
industrial properties in the Mid-Atlantic and Northeast states. Upon
completion of previously announced transactions, the Company will own 24
industrial buildings and 18 office buildings totaling approximately 4.9
million square feet. Hudson Bay Partners is a strategic real estate
investment firm capitalized substantially by Crescent Real Estate Equities,
Inc. (NYSE:CEI). For further information, contact Jeff Kelter at (610)
834-3447 or send your inquiry via Email to [email protected].
This press release may contain statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding the intent, belief of current
expectations of the Company, its directors, or its officers with respect to
the future operating performance of the Company and the result and the effect
of legal proceedings. Investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in
the forward looking statements as a result of various factors. Important
factors that could cause such differences are described in the Company's
periodic filings with the Securities and Exchange Commission, including the
Company's Form 10-KSB and quarterly reports on Form 10-QSB.
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