<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 30, 1998
AMERICAN REAL ESTATE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
Maryland 1-12514 84-1246585
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
<PAGE>
The purpose of this filing is to file the Item 7 information for the
following acquisitions: (i) the Chambersburg Properties, this acquisition was
consummated on October 30, 1998, and was originally reported in a Current
Report on Form 8-K filed on November 13, 1998, (ii) the acquisition of the
Browning Investments Portfolio, which was consummated on December 4, 1998,
and was originally reported in a Current Report on Form 8-K filed on December
18, 1998, (iii) and the acquisition of the Brashier Portfolio, which was
consummated on December 24, 1998, and was originally reported in a Current
Report on Form 8-K filed January 8, 1999.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The audited statements of revenue and certain operating expenses of
the Chambersburg Properties, the Browning Investments Portfolio, and
the Brashier Portfolio for the year ended December 31, 1997 and for
the nine month period ended September 30, 1998 (unaudited) are
included on pages F-20 to F-33.
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma condensed consolidating financial information
which reflects the Company's acquisitions of the Chambersburg
Properties, the Browning Investments Portfolio, and the Brashier
Portfolio as of and for the year ended December 31, 1997 and for the
nine month period ended September 30, 1998 are included on pages
F-2 to F-19.
(c) EXHIBITS
None.
<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
Date: January 13, 1999 By /S/ JEFFREY E. KELTER
---------------------
Jeffrey E. Kelter
President
Date: January 13, 1999 By /S/ TIMOTHY A. PETERSON
-----------------------
Timothy A. Peterson
Chief Financial Officer
Date: January 13, 1999 By /S/ TIMOTHY E. MCKENNA
----------------------
Timothy E. McKenna
Treasurer
(Principal Accounting Officer)
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
INDEX
<TABLE>
<S> <C>
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
- Pro Forma Condensed Consolidating Balance Sheet as of September 30, 1998..... F-2
- Pro Forma Condensed Consolidating Statement of Operations for the
nine month period ended September 30, 1998................................... F-3
- Pro Forma Condensed Consolidating Statement of Operations for the
year ended December 31, 1997................................................. F-5
- Notes to Management's Assumptions to Unaudited Pro Forma Condensed
Consolidating Financial Information.......................................... F-7
II. CHAMBERSBURG PROPERTIES
- Report of Independent Public Accountants..................................... F-20
- Combined Statement of Revenue and Certain Expenses for the nine month period
ended September 30, 1998 (unaudited) and year ended December 31, 1997....... F-21
- Notes to Combined Statement of Revenue and Certain Expenses.................. F-22
III. BROWNING INVESTMENTS PORTFOLIO
- Report of Independent Public Accountants..................................... F-25
- Combined Statement of Revenue and Certain Expenses for the nine month period
ended September 30, 1998 (unaudited) and year ended December 31, 1997....... F-26
- Notes to Combined Statement of Revenue and Certain Expenses.................. F-27
IV. BRASHIER PORTFOLIO
- Report of Independent Public Accountants..................................... F-30
- Combined Statement of Revenue and Certain Expenses for the nine month period
ended September 30, 1998 (unaudited) and year ended December 31, 1997....... F-31
- Notes to Combined Statement of Revenue and Certain Expenses.................. F-32
</TABLE>
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
The following sets forth the unaudited pro forma condensed consolidating balance
sheet at September 30, 1998 and the unaudited pro forma condensed consolidating
statements of operations for American Real Estate Investment Corporation (the
"Company") for the nine months ended September 30, 1998 and the year ended
December 31, 1997.
The pro forma condensed consolidating financial information should be read in
conjunction with the historical financial statements of the Company and those
acquisitions deemed significant pursuant to the rules and regulations of the
Securities and Exchange Commission.
The unaudited pro forma consolidating financial information is presented as if
the following events occurred on September 30, 1998 for balance sheet purposes
and on January 1, 1997 for purposes of the statements of operations:
- - The Company acquired the properties described in Note 1 to these pro forma
financial statements.
- - THE QUADRANGLES VILLAGE APARTMENTS, AMERICANA LAKEWOOD APARTMENTS AND OTHER
PROPERTY DISPOSITIONS. On June 24, 1998, the Company sold Quadrangles
Village Apartments, a 510-unit apartment building located in Tempe, Arizona
for approximately $26,500,000. 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. During 1997, the Company also sold three other
directly owned and one indirectly owned multi-family residential properties
(Timberleaf, Sedona, International and Emerald Point).
- - The Company's private placement on July 9, 1998 of 1,092,051 shares of
Common Stock with certain institutional investors for approximately
$18,000,000 and the use of net proceeds of $17,440,000 to repay
indebtedness under the Company's credit facility.
- - The Company's private placement on August 19, 1998 of 720,743 shares of its
Common Stock for an aggregate purchase price of $11,400,000 were issued to
the New York State Common Retirement Fund as partial repayment of certain
indebtedness encumbering certain properties in the Pioneer Portfolio.
- - The Company's private placement on December 24, 1998 of 800,000 shares of
its Series A Convertible Preferred Stock to AEW Targeted Securities Fund,
L.P. ("AEW") for net proceeds of approximately $19,500,000 was used to
repay outstanding indebtedness. The Convertible Preferred Shares have a
conversion price of $16.50, a distribution rate of 9% per annum and are
convertible at any time, at AEW's option. The liquidation preference of
each Convertible Preferred Share is $25.00. The Company may redeem the
Convertible Preferred Shares at any time on or after December 15, 2003.
The acquisition transactions described in Note 1 to these pro forma financial
statements were accounted for in the pro forma financial statements using the
purchase method of accounting.
F-1
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET--AS OF SEPTEMBER 30, 1998
(Unaudited--in thousands, except share and per share data)
<TABLE>
<CAPTION>
Preferred
Stock
The Property DLJ Debt Private
Company Acquisitions Refinancing Placement Pro Forma The Company
Historical (A) (B) (C) Adjustments Pro Forma
---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in real estate, net .................. $ 397,089 $ 134,420 $ $ $ $ 531,509
Investment in direct financing lease ............. 1,760 1,760
Investment in management company ................. 5,212 5,212
Cash and cash equivalents ........................ 1,003 (20,301) 470 19,500 672
Restricted cash .................................. 593 593
Accounts and other receivables ................... 2,274 2,274
Other assets, net ................................ 8,474 2,800 11,274
--------- --------- --------- --------- -------- ---------
Total assets ..................................... $ 416,405 $ 114,119 $ 3,270 $ 19,500 $ -- $ 553,294
--------- --------- --------- --------- -------- ---------
--------- --------- --------- --------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable and other debt ......... $ 239,325 $ 97,432 $ 3,270 $ $ $ 340,027
Accrued expenses and other liabilities ........ 5,425 5,425
Minority interest ................................ 79,300 9,187 3,670 (D) 92,157
Convertible Preferred Units ................... 7,500 7,500
Shareholders' equity:
Preferred Stock ............................... 19,500 19,500
Common stock .................................. 7 7
Warrants ...................................... 685 685
Additional paid-in capital .................... 86,725 (3,670)(D) 83,055
Cumulative net income ............................ 12,903 12,903
Cumulative dividends ............................. (7,965) (7,965)
--------- --------- --------- --------- -------- ---------
Total shareholders' equity .................... 92,355 -- -- 19,500 (3,670) 108,185
--------- --------- --------- --------- -------- ---------
Total liabilities and shareholders' equity .... $ 416,405 $ 114,119 $ 3,270 $ 19,500 $ -- $ 553,294
--------- --------- --------- --------- -------- ---------
--------- --------- --------- --------- -------- ---------
</TABLE>
F-2
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
Common Preferred
The Stock Stock
The 1998 Company, 1998 Private Private The
Company Dispositions As Acquisitions Placements Placement Pro Forma Company
Historical (a) Adjusted (b) (c) (d) Adjustments Pro Forma
---------- ------------ -------- ------------ ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Minimum rent ................. $ 22,436 $ (1,680) $ 20,756 $ 25,872 $ $ $ $ 46,628
Tenant reimbursements
and other income ............ 3,168 (152) 3,016 2,434 5,450
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue .............. 25,604 (1,832) 23,772 28,306 52,078
OPERATING EXPENSES:
Property operating expenses .. 5,048 (656) 4,392 6,464 10,856
General and administrative ... 440 (33) 407 407
Interest ..................... 8,997 (554) 8,443 12,309 (1,293) 437(e) 19,896
Depreciation ................. 4,157 4,157 5,154 9,311
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ... 18,642 (1,243) 17,399 23,927 (1,293) 437 40,470
INCOME (LOSS) BEFORE EQUITY IN
EARNINGS (LOSSES) FROM INVEST-
MENT IN MANAGEMENT COMPANY,
GAINS ON SALES OF ASSETS,
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS AND MINORITY
INTEREST ..................... 6,962 (589) 6,373 4,379 1,293 (437) 11,608
EQUITY IN (LOSSES) FROM
INVESTMENT IN MANAGEMENT
COMPANY ...................... (1,023) -- (1,023) -- -- -- -- (1,023)
GAINS ON SALE OF ASSETS ........ 11,952 (11,952) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
F-3
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
Common Preferred
Stock Stock
The 1998 1998 Private Private
Company Dispositions The Company, Acquisitions Placement Placement Pro Forma The Company
Historical (a) As Adjusted (b) (c) (d) Adjustments Pro Forma
----------- ------------ -------- ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS AND MINORITY
INTEREST ................... 17,891 (12,541) 5,350 4,379 1,293 -- (437) 10,585
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS ............... -- -- -- -- -- -- (506)(f) (506)
----------- --------- -------- ------- ------- -------- ------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST .................. 17,891 (12,541) 5,350 4,379 1,293 (943) 10,079
MINORITY INTEREST ............ (8,106) -- (8,106) -- -- -- 4,091(g) (4,015)
----------- --------- -------- ------- ------- -------- ------- -----------
NET INCOME (LOSS) ............ 9,785 (12,541) (2,756) 4,379 1,293 3,148 6,064
(INCOME) LOSS ALLOCATED TO
PREFERRED SHARES ........... -- -- -- -- -- (1,350) (1,350)
----------- --------- -------- ------- ------- -------- ------- -----------
INCOME ALLOCATED TO COMMON
SHARES ..................... $ 9,785 $ (12,541) $ (2,756) $ 4,379 $ 1,293 $ (1,350) $ 3,148 $ 4,714
----------- --------- -------- ------- ------- -------- ------- -----------
----------- --------- -------- ------- ------- -------- ------- -----------
BASIC EARNINGS PER COMMON
SHARE ...................... $ 1.61 $ .64
----------- -----------
----------- -----------
DILUTED EARNINGS PER COMMON
SHARES ..................... $ 1.65 $ .60
----------- -----------
----------- -----------
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC ............ 5,936,238 7,354,523
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED ..... 11,095,378 14,595,830
----------- -----------
----------- -----------
</TABLE>
The accompanying notes and management's assumptions are
an integral part of this statement.
F-4
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1997
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
The 1997 1997 1998 1998
Company Dispositions Acquisitions Dispositions Acquisitions
Historical (a) (b) Subtotal (c) (d)
---------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Minimum rent ................... $ 7,732 $ (1,457) $ 12,499 $ 18,774 $ (5,738) $ 45,451
Tenant reimbursements and
other income .................. 465 1,498 1,963 (96) 4,654
-------- -------- -------- -------- -------- --------
Total revenue ................ 8,197 (1,457) 13,997 20,737 (5,834) 50,105
OPERATING EXPENSES:
Property operating expenses .... 3,112 (895) 2,380 4,597 (2,072) 10,560
General and administrative ..... 732 732
Buyout of employment agreements,
warrants and options expense .. 3,203 3,203
Interest ....................... 3,134 (845) 4,582 6,871 (2,011) 22,455
Depreciation and amortization .. 909 (158) 2,619 3,370 (819) 9,584
-------- -------- -------- -------- -------- --------
Total Operating expenses ..... 11,090 (1,898) 9,581 18,773 (4,902) 42,599
INCOME (LOSS) BEFORE EQUITY IN
EARNINGS (LOSSES) FROM
INVESTMENT IN MANAGEMENT
COMPANY; GAINS ON SALES OF
ASSETS, DISTRIBUTIONS TO
PREFERRED UNITHOLDERS AND
MINORITY INTEREST ................ (2,893) 441 4,416 1,964 (932) 7,506
EQUITY IN INCOME (LOSSES) FROM
INVESTMENT IN MANAGEMENT
COMPANY .......................... 404 (436) (392) (424) -- --
GAINS ON SALES OF ASSETS ......... 4,608 (4,608) -- -- -- --
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS AND MINORITY
INTEREST ......................... 2,119 (4,603) 4,024 1,540 (932) 7,506
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS ...................... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Common Preferred
Stock Stock
Private Private Other The
Placements Placement Pro Forma Company
(e) (f) Adjustments Pro Forma
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent ................... $ $ $ $ 58,487
Tenant reimbursements and
other income .................. 6,521
------ ------ ------- -------
Total revenue ................ 65,008
OPERATING EXPENSES:
Property operating expenses .... 13,085
General and administrative ..... 844 (g) 1,576
Buyout of employment agreements,
warrants and options expense .. (3,203)(h) --
Interest ....................... (2,255) 25,060
Depreciation and amortization .. 12,135
------ ------ ------- -------
Total Operating expenses ..... (2,255) (2,359) 51,856
INCOME (LOSS) BEFORE EQUITY IN
EARNINGS (LOSSES) FROM
INVESTMENT IN MANAGEMENT
COMPANY; GAINS ON SALES OF
ASSETS, DISTRIBUTIONS TO
PREFERRED UNITHOLDERS AND
MINORITY INTEREST ................ 2,255 2,359 13,152
EQUITY IN INCOME (LOSSES) FROM
INVESTMENT IN MANAGEMENT
COMPANY .......................... -- -- -- (424)
GAINS ON SALES OF ASSETS ......... -- -- -- --
------ ------ ------- -------
INCOME (LOSS) BEFORE
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS AND MINORITY
INTEREST ......................... 2,255 2,359 12,728
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS ...................... -- -- (675)(i) (675)
------ ------ ------- -------
</TABLE>
F-5
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1997
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
The 1997 1997 1998 1998
Company Dispositions Acquisitions Dispositions Acquisitions
Historical (a) (b) Subtotal (c) (d)
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE MINORITY
INTEREST ......................... 2,119 (4,603) 4,024 1,540 (932) 7,506
MINORITY INTEREST ................ (876) -- -- (876) -- --
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) ................ 1,243 (4,603) 4,024 664 (932) 7,506
INCOME (LOSS) ALLOCATED TO -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) ALLOCATED TO COMMON
SHARES ........................... 1,243 (4,603) 4,024 664 (932) 7,506
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
BASIC EARNINGS PER COMMON SHARE $ .92
-----------
-----------
DILUTED EARNINGS PER COMMON SHARES $ .88
-----------
-----------
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC ................ 1,347,297
-----------
-----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED ......... 2,404,004
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
Common Preferred
Stock Stock Other
Private Private Pro The
Placements Placement Forma Company
(e) (f) Adjustments Pro Forma
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INCOME (LOSS) BEFORE MINORITY
INTEREST .................................. 2,255 1,684 12,053
MINORITY INTEREST ......................... -- -- (3,840)(j) (4,716)
---------- ---------- ---------- ----------
NET INCOME (LOSS) ......................... 2,255 (1,954) 7,337
(INCOME) LOSS ALLOCATED TO
PREFERRED SHARES .......................... -- (1,800)(g) -- (1,800)
---------- ---------- ---------- ----------
INCOME (LOSS) ALLOCATED TO COMMON
SHARES .................................... 2,255 (1,800) (1,954) 5,537
---------- ---------- ---------- ----------
BASIC EARNINGS PER COMMON SHARE ...........
$ .77
----------
----------
DILUTED EARNINGS PER COMMON SHARES ........ $ .72
----------
----------
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC ......................... 7,167,075
----------
----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED .................. 14,164,617
----------
----------
</TABLE>
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
American Real Estate Investment Corporation (the "Company") is a
self-administered and self-managed equity real estate investment trust
which was organized in the state of Maryland. As of January 11, 1999, the
Company owned 99 properties. All but five of the properties are owned
directly or indirectly by American Real Estate Investment, L.P. (the
"Operating Partnership"). The Company is the sole general partner of the
Operating Partnership and as of September 30, 1998 and January 11, 1999,
owned approximately 53% and 54% of the Operating Partnership, respectively.
These pro forma financial statements should be read in conjunction with the
historical financial statements and notes thereto of the Company, the
McBride Portfolio, Penn Square Properties, Inc., the Moran Acquisition
Properties, the Northfield Acquisition Properties, the Loew Acquisition
Properties, 101 Commerce Drive, the GATX Properties, the Double M
Development Properties, the Galesi Properties, the Fed One Industrial
Portfolio, the ASW Property, the Szeles Portfolio, the Pioneer Portfolio,
the Chambersburg Properties, the Browning Investments Portfolio, and the
Brashier Portfolio. In management's opinion, all adjustments necessary to
reflect the acquisitions of the McBride Portfolio, Penn Square Properties,
Inc., the Moran Acquisition Properties, the Northfield Acquisition
Properties, the Loew Acquisition Properties, 101 Commerce Drive, the GATX
Properties, the Double M Development Properties, the Galesi Properties, the
Fed One Industrial Portfolio, the ASW Property, the Szeles Portfolio, the
Pioneer Portfolio, the Chambersburg Properties, the Browning Investments
Portfolio, and the Brashier Portfolio, the debt refinancing, and the
private placements consummated in 1998 by the Company have been made. The
operating results reflected herein include the historical results and
related pro forma adjustments to reflect the period January 1, 1997,
through the earlier of the respective acquisition date or September 30,
1998 or December 31, 1997. Operating results from those dates forward are
included in the historical results of the Company.
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATING BALANCE SHEET
(A) Reflects the Company's recent property acquisitions as follows:
<TABLE>
<CAPTION>
Cost Consideration
---------- -----------------------------------------------
Credit
Facility
Borrowings
Total and Operating Convertible
Purchase Mortgage Partnership Preferred
Acquisition Price Debt Units Units Cash
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C>
Chambersburg Properties ...... $ 48,951 $ 49,700 $ --- $ $ (749)
Browning Investments Portfolio 34,670 21,732 9,187 3,751
Brashier Portfolio ........... 50,799 26,000 7,500 17,299
-------- -------- -------- -------- --------
$134,420 $ 97,432 $ 9,187 7,500 $ 20,301
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
F-7
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(B) The Company refinanced $66,000,000 of amounts outstanding under its $150
million credit facility and $8,430,000 of other mortgage debt with Column
Financial, Inc. in October 1998. The re-financed debt totaled $77,700,000
and is at a fixed rate of 7.50%, requires principal and interest payments
under a 30 year amortization schedule and matures in October 2009. This
debt is non-recourse to the Company and is secured by 19 properties.
(C) The Company issued in a private placement 800,000 shares of its Series A
Convertible Preferred Stock. A portion of the net proceeds of $19,500,000
was used to repay indebtedness.
(D) Adjustment to reflect the Company's 54% ownership of the Operating
Partnership after the consummation of the acquisitions and various private
placements.
3. ADJUSTMENTS TO PROFORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(a) 1998 DISPOSITIONS
Since January 1, 1998, the Company has sold two multi-family properties.
This adjustment affects the elimination of the impact on the September 30,
1998 statement of operations for these property dispositions.
SALE OF AMERICANA LAKEWOOD
On January 9, 1998, the Company sold 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 which
resulted in a gain of $6,880,000.
F-8
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
SALE OF THE QUADRANGLES VILLAGE APARTMENTS
On June 24, 1998, the Company sold the Quadrangles Village Apartments for
approximately $26,500,000, which resulted in a gain of approximately
$5,072,000.
<TABLE>
<CAPTION>
Americana Quadrangles
Lakewood Village
Apartments Apartments Total
---------- ---------- -------
<S> <C> <C> <C>
REVENUE:
Minimum rent .............................. $ 44 $ 1,636 $ 1,680
Tenant reimbursements and other income .... 45 107 152
------- ------- -------
Total revenue .................... 89 1,743 1,832
OPERATING EXPENSES:
Property operating expenses ............... 50 606 656
General and administrative ................ 3 30 33
Interest .................................. 23 531 554
------- ------- -------
Total operating expenses ......... 76 1,167 1,243
Gains on sales of assets .................. 6,880 5,072 11,952
------- ------- -------
NET INCOME .................................. $ 6,893 $ 5,648 $12,541
------- ------- -------
------- ------- -------
</TABLE>
F-9
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(b) 1998 ACQUISITIONS
This adjustment reflects the pro forma effects of the following
acquisitions consummated since January 1, 1998:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
REVENUE OPERATING EXPENSES
---------------------------------------------- -----------------------------------------------
Tenant Property
Reimbursements Operating Depreciation
and And Interest and Total
Minimum Other Other Expense Amortization Operating
ACQUISITION Rent Income Total Expenses (1) (2) Expenses Subtotal
-------- ------- -------- -------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
101 Commerce Drive $ 61 $ $ 61 $ $ $ $ $ 61
One Phillips Drive 26 3 29 3 3 26
GATX Properties 423 423 423
Double M Development Properties 350 78 428 109 109 319
The Galesi Properties 1,880 565 2,445 651 651 1,794
Fed One Properties 852 8 860 42 42 818
6 British American Boulevard 209 91 300 90 90 210
Marway Circle 268 268 20 20 248
Szeles Portfolio 3,674 44 3,718 1,157 1,157 2,561
ASW Facility 477 5 482 43 43 439
Pioneer Properties 7,630 932 8,562 2,647 2,647 5,915
Chambersburg Properties 3,094 136 3,230 792 792 2,438
Browning Portfolio 2,556 441 2,997 430 430 2,567
Brashier Portfolio 4,372 131 4,503 480 480 4,023
Proforma adjustments 12,309 5,154 17,463 (17,463)
-------- ------- -------- ------- -------- ------- -------- -----------
TOTAL $ 25,872 $ 2,434 $ 28,306 $ 6,464 $ 12,309 $ 5,154 $ 23,927 $ 4,379
-------- ------- -------- ------- -------- ------- -------- -----------
-------- ------- -------- ------- -------- ------- -------- -----------
</TABLE>
Footnote explanations appear on the following page.
F-10
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Footnotes to 1998 Acquisitions:
(1) To record interest expense on mortgage indebtedness as follows:
<TABLE>
<CAPTION>
Mortgage Amount Interest Rate (%)
<S> <C> <C>
101 Commerce Drive $ 17,000 7.03%
One Philips Drive 7,500 7.03%
GATX Properties 8,433 7.71%
Double M Development Properties 9,357 7.10%
Galesi Properties 18,036 8.33% to 8.68%
Galesi Properties 18,511 7.10%
Fed One Industrial Properties 12,000 7.10%
6 British American Boulevard 3,966 7.10%
Marway Circle 4,034 7.10%
Szeles Portfolio 31,000 7.10%
ASW Property 7,500 7.10%
Pioneer Portfolio 11,019 9.00%
Pioneer Portfolio 51,000 7.10%
Pioneer Portfolio 3,405 9.68%
Pioneer Portfolio 2,120 10.12%
Chambersburg Properties 32,500 7.10%
Chambersburg Properties 17,200 7.58%
Browning Portfolio 21,723 8.15%
Brashier Portfolio 26,000 7.10%
</TABLE>
(2) To record depreciation on assets acquired and transaction costs
capitalized over a useful life of 35 years.
F-11
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(c) Represents interest expense savings from repayment of the Credit
Facility and certain indebtedness upon the application of the net
proceeds from the private placements on July 9, 1998 and August 19,
1998, respectively.
(d) Reflects income allocated to the 800,000 Series A Convertible
Preferred Shares issued as partial consideration in the acquisition of
the Brashier Portfolio. The Series A Preferred Shares have an
aggregate stated value of $20,000,000. Shareholders of this stock are
entitled to a 9% preferential return.
(e) To reflect additional interest expense related to the DLJ term debt
refinancing, and the amortization of deferred finance costs related to
the refinancing.
(f) Reflects distributions related to the 454,545 Series A Convertible
Preferred Units issued as partial consideration in the acquisition of
the Brashier Portfolio. These Series A Convertible Preferred Units
have an aggregate stated value of $7,500,000, and are entitled to a 9%
preferential return.
(g) To adjust the minority interest's share of income in the Operating
Partnership. The Company owns approximately 54% of the Operating
Partnership after the consummation of the Brashier Portfolio
transaction. The adjustment to record the income effect of the
minority interest share for the nine months ended September 30, 1998
in the pro forma statement of operations was computed as follows:
<TABLE>
<S> <C>
Pro forma Revenue $ 52,078
Pro forma Operating Expenses 40,470
Pro forma preferred dividends (1,856)
Pro forma Equity in Loss from equity investment (1,023)
---------
Pro forma Income before Minority Interest $ 8,729
---------
---------
Minority Interest (46%) 4,015
Minority Interest at September 30, 1998 8,106
--------
Adjustment Required $ 4,091
---------
---------
</TABLE>
F-12
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
4. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
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.
The pro forma effects of these property sales are shown below for the year
ended December 31, 1997.
(a) To reflect the elimination of the statement of operations impact for
the year ended December 31, 1997 for the multi-family residential
properties which were sold during 1997. The combined results for these
properties are shown as follows:
FOR THE YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
Emerald
Timberleaf Sedona Pointe Total
---------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue ...................... $ 364 $ 1,093 $ $ 1,457
Operating Expenses:
Property operating expenses 274 621 895
General and administrative
Interest ................... 91 307 447 845
Depreciation ............... 45 162 (49) 158
------ ------- ------ -------
Total operating expenses 410 1,090 398 1,898
Equity in earnings from
investment in partnership .. 436 436
Gains on sales of assets ..... 403 3,453 752 4,608
------ ------- ------ -------
Net income ................... $ 357 $ 3,456 $ 790 $ 4,603
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
F-13
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(b) 1997 ACQUISITIONS
To reflect the acquisitions of the following properties which occurred
during 1997:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
McBride Penn Square Pro Forma Acquisitions
Portfolio Properties Dana Loew Northfield Adjustments Pro Forma
--------- ---------- ---- ---- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Minimum rents $ 9,310 $ $ 365 $ 1,704 $ 1,120 $ $12,499
Tenant reimbursements and other
Income 1,098 7 245 148 1,498
-------- ----------- ----- ------- ---------- ---------- -------
Total Revenue 10,408 372 1,949 1,268 13,997
Operating Expenses:
Property operating and administrative
expenses 2,935 7 278 359 (1,199)(1) 2,380
Depreciation and amortization 2,619 (2) 2,619
Mortgage and bank loan interest 4,582 (3) 4,582
-------- ----------- ----- ------- ---------- ---------- -------
Total operating expenses 2,935 7 278 359 6,002 9,581
Equity in earnings from investment in
management company (392) (392)
-------- ----------- ----- ------- ---------- ---------- -------
Net income (loss) $ 7,473 $ (392) $ 365 $ 1,671 $ 909 $ (6,002) $ 4,024
-------- ----------- ----- ------- ---------- ---------- -------
-------- ----------- ----- ------- ---------- ---------- -------
</TABLE>
Footnote explanations appear on the following page.
F-14
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Footnotes to 1997 Events:
(1) 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
<TABLE>
<S> <C>
- Property management fees $ 136
- General and administrative expenses 1,063
-----
$ 1,199
-----
</TABLE>
(2) To record depreciation on assets acquired and transaction costs capitalized
over a useful life of 35 years.
(3) To record the following adjustments to interest expense:
- To record interest expense on the $45,000,000 of
assumed McBride Portfolio debt at 7.71% $ 3,300
- To record amortization of $500,000 of deferred
financing costs $ 48
- To record interest expense on other indebtedness:
<TABLE>
<CAPTION>
Principal Interest Rate
--------- -------------
<S> <C> <C>
Dana Building ............ $1,155 7.38%
Loew Properties .......... 2,875 8.25%
Loew Properties .......... 4,385 8.50%
Loew Properties .......... 3,358 8.50%
Northfield Properties .... 3,500 7.10%
</TABLE>
F-15
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(c) 1998 DISPOSITIONS
To reflect the sale in 1998 of the following multi-family assets:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Americana Quadrangles
Lakewood Village
Apartments Apartments Total
---------- ---------- -----
<S> <C> <C> <C>
Revenues .................................. $2,200 $3,538 $5,738
Tenant reimbursements and other income .... 96 96
------ ------ ------
2,200 3,634 5,834
Operating expenses:
Property operating expenses ............ 889 1,183 2,072
Interest ............................... 891 1,120 2,011
Depreciation and amortization .......... 233 586 819
------ ------ ------
Total operating expenses ............... 2,013 2,889 4,902
------ ------ ------
Net Income ................................ $ 187 $ 745 $ 932
------ ------ ------
------ ------ ------
</TABLE>
F-16
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(d) 1998 ACQUISITIONS
To reflect the following acquisitions which have occurred since January 1,
1998:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
REVENUE OPERATING EXPENSES
------------------------------------- ---------------------------------------------------------
Property
Tenant Operating Depreciation
Reimbursements And Interest and
and Other Expense Amortization
Acquisition/Offering Minimum Rent Other Income Total Expenses (1) (2) Total Subtotal
------------ ------------ ----- --------- -------- ------------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
101 Commerce Drive $ 2,788 $ 4 $ 2,792 $ $ $ $ $ 2,792
One Phillips Drive 1,188 145 1,333 145 145 1,188
GATX Properties 1,770 1,770 1,770
Double M Development Properties 1,605 330 1,935 359 359 1,576
The Galesi Properties 5,193 1,558 6,751 1,707 1,707 5,044
Fed One Properties 1,633 22 1,655 82 82 1,573
6 British American Boulevard 444 192 636 192 192 444
Marway Circle 560 560 40 40 520
Szeles Portfolio 6,298 76 6,374 1,983 1,983 4,391
ASW Facility 698 13 711 76 76 635
Pioneer Properties 12,018 1,628 13,646 3,960 3,960 9,686
Chambersburg Properties 3,830 179 4009 1,101 1,101 2,908
Browning Portfolio 2,501 399 2,900 385 385 2,515
Brashier Portfolio 4,925 108 5,033 530 530 4,503
Proforma Adjustments 22,455 9,584 32,039 (32,039)
---------- ----------- ------- --------- -------- ---------- ------- ---------
$ 45,451 $ 4,654 $50,105 $ 10,560 $ 22,455 $ 9,584 $42,599 $ 7,506
---------- ----------- ------- --------- -------- ---------- ------- ---------
---------- ----------- ------- --------- -------- ---------- ------- ---------
</TABLE>
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
Footnotes to 1998 Acquisitions:
(1) To record interest expense on mortgage indebtedness as follows:
<TABLE>
<CAPTION>
Mortgage
Amount Interest Rate
-------- -------------
<S> <C> <C>
101 Commerce Drive $17,000 7.03%
One Philips Drive 7,500 7.03%
GATX Properties 8,433 7.10%
Double M Development Properties 9,357 7.71%
Galesi Properties 18,036 8.33% to 8.68%
Galesi Properties 18,511 7.10%
Fed One Industrial Portfolio 12,000 7.10%
6 British American Boulevard 3,966 7.10%
Marway Circle 4,034 7.10%
Szeles Portfolio 31,000 7.10%
ASW Facility 7,500 7.10%
Pioneer Portfolio 11,019 9.00%
Pioneer Portfolio 51,000 7.10%
Pioneer Portfolio 3,405 9.68%
Pioneer Portfolio 2,120 10.12%
Chambersburg Properties 32,500 7.10%
Chambersburg Properties 17,200 7.58%
Browning Portfolio 21,723 8.15%
Brashier Portfolio 26,000 7.10%
</TABLE>
(2) To record depreciation on assets acquired and transaction costs capitalized
over a useful life of 35 years.
- -------------------------------------------------------------------------------
(e) Represents interest expense savings from repayment of the Credit
Facility and certain indebtedness upon the application of net proceeds
from the private placements on July 9, 1998 and August 19, 1998
(f) Reflects income allocated to the 800,000 Series A Convertible
Preferred Shares issued as partial consideration in the acquisition of
the Brashier Portfolio. The Series A Preferred Shares have an
aggregate stated value of $20,000,000. Shareholders of this stock are
entitled to a 9% preferential return.
F-18
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(g) To reflect additional general and administrative expense associated
with the company's on-going management of the acquired properties.
(h) To eliminate the pro forma effect of the non-recurring costs
associated with the buyout of certain executives employment agreements
and outstanding options and warrants in conjunction with the
transactions which occurred on December 12, 1997, related to the
Company's reorganization into an office and industrial real estate
investment trust.
(i) Reflects distribution related to the 454,545 Series A Convertible
Preferred units issued as partial consideration in the acquisition of
the Brashier Portfolio. These Series A Convertible Preferred Units
have an aggregate stated value of $7,500,000, and are entitled to a 9%
preferential return.
(j) To adjust the minority interest's share of income in the Operating
Partnership. The Company owns approximately 54% of the Operating
Partnership after the consummation of the Pioneer Portfolio
transaction. The adjustment to record the income effect of the
minority interest share for the year ended December 31, 1997 in the
pro forma statement of operations was computed as follows:
<TABLE>
<S> <C>
Proforma Revenue $ 65,008
Proforma Operating Expenses 51,856
Proforma Preferred Dividends (2,475)
Proforma Equity in Loss from Equity Investment (424)
--------
Proforma Income before Minority Interest $ 10,253
--------
--------
Minority Interest (46%) $ 4,716
Minority Interest at December 31, 1997 876
--------
Adjustment Required $ 3,840
--------
--------
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Real Estate Investment Corporation:
We have audited the accompanying combined statement of revenue and certain
expenses of Chambersburg Properties for the year ended December 31, 1997. This
financial statement is the responsibility of the Properties' 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 of American Real Estate
Investment Corporation as described in Note 1, and is not intended to be a
complete presentation of the Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the combined revenue and certain expenses of Chambersburg
Properties for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
December 5, 1998
F-20
<PAGE>
CHAMBERSBURG PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
REVENUE:
Minimum rent (Note 2) $3,094,000 $3,830,000
Tenant reimbursements 136,000 179,000
---------- ----------
Total revenue 3,230,000 4,009,000
CERTAIN EXPENSES:
Maintenance and other operating expenses 530,000 757,000
Real estate taxes 262,000 344,000
---------- ----------
Total certain expenses 792,000 1,101,000
---------- ----------
REVENUE IN EXCESS OF CERTAIN EXPENSES $2,438,000 $2,908,000
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-21
<PAGE>
CHAMBERSBURG PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses reflects the operations
of the Chambersburg Properties (the "Properties"), which include the following
three buildings, all located in Chambersburg, Pennsylvania:
<TABLE>
<CAPTION>
% Leased as of
December 31,
Property Square Feet 1997
-------- ----------- -------------
<S> <C> <C>
1465 Nitterhouse Drive ("Nitterhouse") 420,000 100%
1440 Sheffler Drive ("Sheffler") 355,200 100%
2294 Molly Pitcher Highway ("Molly Pitcher") 621,400 100%
---------
1,396,600
</TABLE>
Nitterhouse and Sheffler are expected to be acquired from WCN Limited
Partnership and Molly Pitcher from Franklin Storage, Inc. ("Franklin") by
American Real Estate Investment Corporation (the "Company"). WCN Limited
Partnership and Franklin are referred to herein as the "Sellers". The statement
of revenue and certain expenses is to be included in the Company's current
report on Form 8-K, 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 Chambersburg Properties are maintained on a cash
basis. Adjusting entries have been made to present the accompanying financial
statement in accordance with generally accepted accounting principles. The
accounting records of Franklin are maintained on an accrual basis. The
accompanying financial statement excludes certain expenses such as interest,
depreciation and amortization, professional fees and other costs not directly
related to the future operations of the Properties.
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.
F-22
<PAGE>
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses for the nine months ended
September 30, 1998 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 periods are not
necessarily indicative of the results for the full year.
2. OPERATING LEASES:
Minimum rent presented includes straight-line adjustments for rental revenue in
accordance with generally accepted accounting principles. The minimum rent
straight-line adjustments resulted in a $7,000 decrease for the year ended
December 31, 1997 and an increase of $16,000 (unaudited) for the nine months
ending September 30, 1998.
The following tenants account for greater than 10% of annual minimum rent for
the year ended December 31, 1997:
<TABLE>
<CAPTION>
Property Tenant Minimum Rent
- -------- ------ ------------
<S> <C> <C>
Molly Pitcher Staples Contract and Commercial Inc. $ 956,000
Sheffler & Nitterhouse Franklin Storage Inc. $1,774,000
Sheffler & Nitterhouse Ingram Book Group $ 527,000
Sheffler Titan Distribution Inc. $ 470,000
</TABLE>
The Properties are leased to tenants under operating leases with expiration
dates extending to the year 2011. Future minimum rentals under noncancelable
operating leases, excluding tenant reimbursements of operating expenses as of
December 31, 1997, are as follows:
1998 $ 3,844,000
1999 $ 3,813,000
2000 $ 2,891,000
2001 $ 2,479,000
2002 $ 2,122,000
Thereafter $14,553,000
Certain leases also include provisions requiring tenants to reimburse the
Property for management costs and other operating expenses up to stipulated
amounts.
F-23
<PAGE>
3. RELATED PARTY TRANSACTIONS:
Franklin, one of the Sellers, leases 100% of the space at Nitterhouse and
366,400 square feet of space at Molly Pitcher. Franklin paid $1,774,000 and
$1,511,000 (unaudited) of minimum rent for the year ended December 31, 1997 and
for the nine months ended September 30, 1998, respectively for both leases. The
expenses related to Franklin are paid by the Properties, yet are not reimbursed
by Franklin because of the related party relationship. These expenses totaled
$207,000 for the year ended December 31, 1997 and $157,000 (unaudited) for the
nine months ended September 30, 1998 and are not included in tenant
reimbursements in the accompanying financial statements. Upon consummation of
the sale to the Company, Franklin will reimburse the Company for its share of
all future expenses applicable to its leased space.
4. SUBSEQUENT EVENT
The Company entered into a letter of intent in August 1998 to purchase the
Properties for a purchase price of $48,951,000. This acquisition was consummated
on October 30, 1998 and was funded by the Company's credit facility and term
debt.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Real Estate Investment Corporation:
We have audited the accompanying combined statement of revenue and certain
expenses of Browning Investments Portfolio for the year ended December 31,
1997. This financial statement is the responsibility of the Properties'
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 combined 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 of American
Real Estate Investment Corporation as described in Note 1, and is not intended
to be a complete presentation of the Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the combined revenue and certain expenses of Browning
Investments Portfolio for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
December 16, 1998
F-25
<PAGE>
BROWNING INVESTMENTS PORTFOLIO
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
September 30, December 31,
1998 1997
---------- ----------
(unaudited)
<S> <C> <C>
REVENUE:
Minimum rent (Note 2) $2,556,000 $2,501,000
Tenant reimbursements 441,000 399,000
---------- ----------
Total revenue 2,997,000 2,900,000
---------- ----------
CERTAIN EXPENSES:
Maintenance and other operating expenses 136,000 147,000
Real estate taxes 294,000 238,000
---------- ----------
Total certain expenses 430,000 385,000
---------- ----------
REVENUE IN EXCESS OF CERTAIN EXPENSES $2,567,000 $2,515,000
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
BROWNING INVESTMENTS PORTFOLIO
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses reflects the operations
of the Browning Investments Portfolio (the "Portfolio"), located in
Indianapolis, Indiana. The Portfolio consists of the following properties:
<TABLE>
<CAPTION>
Aggregate Net
Property Rentable Square Feet
-------- --------------------
<S> <C>
8677 Logo Court 599,000
351 West 10th Street 39,000
4400 West 96th Street 100,000
6402 Corporate Drive 163,000
-------
901,000
-------
-------
</TABLE>
Each of the properties, with the exception of 351 West 10th Street was acquired
by American Real Estate Investment Corporation (the "Company") from various
entities owned by Browning Investments, Inc. (the "Seller") in December 1998.
The total purchase price of $34,670,000 consisted of $21,732,000 in assumed
debt, $3,751,000 in cash and $9,187,000 in Limited Partnership Units. The
property located at 351 West 10th Street is under a contract to be purchased in
1999 for a purchase price of approximately $3.8 million..
The properties located at 8677 Logo Court and 6402 Corporate Drive were 100%
leased at December 31, 1997. The properties located at 351 West 10th Street and
4400 West 96th Street were not leased until 1998 as they were under development
at December 31, 1997. The combined statement of revenue and certain expenses is
to be included in the Company's current report on Form 8-K, as the above
described transaction has been deemed significant pursuant to the rules and
regulations of the Securities and Exchange Commission.
The accompanying financial statement excludes certain expenses such as interest,
depreciation and amortization, professional fees, and other costs not directly
related to the future operations of the Portfolio.
F-27
<PAGE>
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 combined statement of revenue and certain expenses for the nine months ended
September 30, 1998 is unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for
the fair presentation of the combined statement of revenue and certain expenses
for the interim period have been included. The results of the interim periods
are not necessarily indicative of the results for the full year.
2. OPERATING LEASES:
Minimum rent includes straight-line adjustments for rental revenue increases in
accordance with generally accepted accounting principles. The minimum rent
straight-line adjustment was an increase of $129,000 for the year ended December
31, 1997 and an increase of $100,000 (unaudited) for the nine months ended
September 30, 1998.
The following tenants account for greater than 10% of annual minimum rent for
the year ended December 31, 1997:
<TABLE>
<CAPTION>
Property Tenant Minimum Rent
-------- ------ ------------
<S> <C> <C>
8677 Logo Court TKS Acquisition, Inc. $1,478,000
6402 Corporate Drive Brightpoint, Inc. $ 895,000
</TABLE>
The Portfolio is leased to tenants under operating leases with expiration dates
extending to the year 2009. Future minimum rentals under noncancelable operating
leases, excluding tenant reimbursements of operating expenses as of December 31,
1997, are as follows:
<TABLE>
<S> <C>
1998 $ 3,398,000
1999 $ 3,721,000
2000 $ 3,721,000
2001 $ 3,721,000
2002 $ 3,934,000
Thereafter $ 19,464,000
</TABLE>
Certain leases also include provisions requiring tenants to reimburse the
Portfolio for management costs and other operating expenses up to stipulated
amounts.
F-28
<PAGE>
3. RELATED PARTY TRANSACTIONS:
The Seller has affiliated companies that provide certain landscaping, repairs,
maintenance and janitorial services to the tenants. These costs were $128,000
for the year ended December 31, 1997 and $113,000 (unaudited) for the
nine-months ended September 30, 1998. These costs are included in maintenance
and other operating expenses in the accompanying financial statements.
4. SUBSEQUENT EVENT:
The Portfolio was acquired by American Real Estate Investment Corporation in
December 1998. The total purchase price of $34,670,000 consisted of
$21,732,000 in assumed debt, $3,751,000 in cash and $9,187,000 in Limited
Partnership Units. The property located at 351 West 10th Street is under a
contract to be purchased in 1999 for a purchase price of approximately $3.8
million.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Real Estate Investment Corporation:
We have audited the accompanying combined statement of revenue and certain
expenses of Brashier Portfolio for the year ended December 31, 1997. This
financial statement is the responsibility of the Properties' 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 of American Real Estate
Investment Corporation as described in Note 1, and is not intended to be a
complete presentation of the Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the combined revenue and certain expenses of Brashier
Portfolio for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
December 23, 1998
F-30
<PAGE>
BRASHIER PORTFOLIO
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
<TABLE>
<CAPTION>
For the Nine
Months For the Year
Ended Ended
September 30, December 31,
1998 1997
---------- ----------
(unaudited)
<S> <C> <C>
REVENUE:
Minimum rent (Note 2) ....................... $4,372,000 $4,925,000
Tenant reimbursements ....................... 131,000 108,000
---------- ----------
Total revenue ......................... 4,503,000 5,033,000
---------- ----------
CERTAIN EXPENSES:
Maintenance and other operating expenses .... 75,000 135,000
Real estate taxes ........................... 405,000 395,000
---------- ----------
Total certain expenses ................ 480,000 530,000
---------- ----------
REVENUE IN EXCESS OF CERTAIN EXPENSES .......... $4,023,000 $4,503,000
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
BRASHIER PORTFOLIO
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BASIS OF PRESENTATION:
The combined statement of revenue and certain expenses reflects the operations
of the Brashier Portfolio (the "Portfolio"), located in South Carolina. The
Portfolio was acquired by American Real Estate Investment Corporation (the
"Company") from various entities under the common control of T. Walter Brashier
and Associates (the "Seller") on December 24, 1998. The Portfolio has an
aggregate net rentable area of approximately 2,286,000 square feet. At December
31, 1997, two buildings with a net rentable area of 110,000 were under
construction. These buildings were occupied in January 1998. The remaining
portion of the portfolio was 100% leased at December 31, 1997. This combined
statement of revenue and certain expenses is to be included in the Company's
current report on Form 8-K, as the above described transaction has been deemed
significant pursuant to the rules and regulations of the Securities and Exchange
Commission.
The accompanying financial statement excludes certain expenses such as interest,
depreciation and amortization, professional fees, and other costs not directly
related to the future operations of the Portfolio.
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 combined statement of revenue and certain expenses for the nine months ended
September 30, 1998 is unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for
the fair presentation of the combined statement of revenue and certain expenses
for the interim period have been included. The results of the interim periods
are not necessarily indicative of the results for the full year.
F-32
<PAGE>
2. OPERATING LEASES:
Minimum rent presented is recorded in accordance with generally accepted
accounting principles. There are no leases which require a straight-line
adjustment of minimum rent.
The following tenants account for greater than 10% of annual minimum rent for
the year ended December 31, 1997:
<TABLE>
<CAPTION>
TENANT PROPERTIES MINIMUM RENT
------ ---------- ------------
<S> <C> <C>
Fabri-kal, Corp. Piedmont Highway Industrial Park $750,000
Benore Logistic Systems, Inc. Augusta Road Industrial Park $954,000
Piedmont Highway Industrial Park $275,000
Whitehorse Road Industrial Park $220,000
BMW Manufacturing Corp. Wunda Weve Building $651,000
</TABLE>
The Portfolio is leased to tenants under operating leases with expiration dates
extending to the year 2006. Future minimum rentals under noncancelable operating
leases, excluding tenant reimbursements of operating expenses as of December 31,
1997, are as follows:
1998 $5,459,000
1999 $4,285,000
2000 $1,633,000
2001 $ 838,000
2002 $ 792,000
Thereafter $3,000,000
Certain leases also include provisions requiring tenants to reimburse the
Portfolio for management costs and other operating expenses up to stipulated
amounts.
3. SUBSEQUENT EVENT
The Company purchased the Portfolio for a total purchase price of $50,799,000 on
December 24, 1998. The purchase price was funded through cash proceeds from the
Company's revolving credit facility and the issuance of $7.5 million of the
Company's Series B Convertible Preferred Limited Partnership Units.
F-33
