As filed with the Securities and Exchange Commission on May 13, 1997
File No.___________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
AMERICAN ASSET ADVISERS TRUST, INC.
(Name of Registrant as specified in its charter)
MARYLAND 76-0410050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Eight Greenway Plaza H. Kerr Taylor,
Suite 824 Chairman of the Board
Houston, Texas 77046 and Chief Executive Officer
(713) 850-1400 Eight Greenway Plaza, #824
Houston, Texas 77046
(713) 850-1400
(Address, including zip code, and (Name, address, including zip code
telephone number, including area and telephone number, including area
code, of Registrant's principal code, of agent for service)
executive offices)
It is requested that copies of all correspondence be sent to John D.
Ellsworth, Esq., Lieben, Dahlk, Whitted, Houghton, Slowiaczek, & Jahn, P.C.
2027 Dodge Street, Suite 100, Omaha, Nebraska 68102, telephone number
402-344-4000, facsimile number 402-344-4006.
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to or interest reinvestment plans, check the following box.[ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933, as amended, or until the
registration statement becomes effective on such date as the Securities and
Exchange Commission acting pursuant to said Section 8(a) may determine.
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CALCULATION OF REGISTRATION FEE
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Title of each Amount to be Proposed Proposed Amount of
class of registered Maximum maximum registration
securities to offering price aggregate fee (1)
be registered per unit (1) offering price
(1)
_____________________________________________________________________________
Common Stock, 504,126 Shares $ 9.00 $4,537,134 $1,375
$.01 par 100,826 Shares $15.50 $1,562,803 $ 474
value,
issuable upon
exercise of
publicly held
Warrants
_____________________________________________________________________________
Total 604,952 Shares $6,099,937 $1,849
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(1) Proposed maximum offering price and registration fee is based on the
price at which the publicly held Warrants may be exercised by agreement.
AMERICAN ASSET ADVISERS TRUST, INC.
CROSS REFERENCE SHEET
FORM S-3 SECTIONS IN PROSPECTUS
ITEM NO. CAPTION OR REGISTRATION STATEMENT
PART I INFORMATION REQUIRED IN
PROSPECTUS
1 Forepart of the Registration
Statement and Outside Front
Coverage Page of
Prospectus.................. Outside Front Cover Page
2 Inside Front and Outside
Back Cover Pages of
Prospectus.................. Inside Front Cover Pages;
Table of Contents
3 Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges... Risk Factors; Prospectus
Summary
4 Use of Proceeds............. Prospectus Summary; Use of
Proceeds
5 Determination of Offering
Price....................... Plan of Distribution
6 Dilution.................... Dilution
7 Selling Security Holders.... Not Applicable
8 Plan of Distribution........ Plan of Distribution
9 Description of Shares to be
Registered.................. Description of Shares
Description of Warrants..... Terms and Conditions of
Warrants
10 Interests of Named Experts
and Counsel................. Not Applicable
11 Material Changes............ Prospectus Summary - The
Company and Recent
Developments
12 Incorporation of Certain
Information by Reference.... Documents Incorporated by
Reference
13 Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................. Indemnification
PART II INFORMATION NOT REQUIRED IN
PROSPECTUS
14 Other Expenses of Issuance
and Distribution............ Other Expenses of Issuance
and Distribution
15 Indemnification of Directors
and Officers................ Indemnification of
Directors and Officers
16 Exhibits.................... Exhibits
17 Undertakings................ Undertakings
SUBJECT TO COMPLETION - PRELIMINARY PROSPECTUS DATED MAY 13, 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
AMERICAN ASSET ADVISERS TRUST, INC.
604,952 SHARES OF COMMON STOCK OFFERED BY THE COMPANY
American Asset Advisers Trust, Inc., (the "Company") is offering 604,952
shares of $.01 par value Common Stock (the "Common Stock" or "Shares")
issuable upon exercise of outstanding redeemable Common Stock Purchase
Warrants (the "Public Warrants") and Sales Warrants issued in its initial
public offering which commenced on March 17, 1994 and terminated on March
15, 1996.
SEE "RISK FACTORS" FOR DISCUSSION OF CERTAIN MATERIAL RISKS IN CONNECTION
WITH THE COMPANY WHICH PROSPECTIVE INVESTORS SHOULD CONSIDER PRIOR TO
PURCHASING THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REFERENCE TO THE CONTRARY IS A CRIMINAL
OFFENSE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
MARYLAND SECURITIES COMMISSION NOR HAS THE MARYLAND SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
- -------------------------------------------------------------------
Price Per Total Number Aggregate Proceeds to
Share of shares Offering Price Company
Shares Offered $ 9.00(1) 504,126(1) $4,537,134(1) $4,537,134(1)(3)
$15.50(2) 100,826(2) $1,562,803(2) $1,562,803(2)(3)
- -------------------------------------------------------------------
(1) The Shares are offered by the Company upon exercise of 504,126 Public
Warrants outstanding on the date of this Prospectus. See "Description of
Shares."
(2) Represents Shares issuable upon exercise of outstanding Sales
Warrants. See "Description of Shares."
(3) Proceeds to the Company do not reflect deduction of offering expenses
estimated to total $29,000. No underwriting discounts or commissions will
be paid by the Company. If all of the outstanding warrants are exercised
and converted, of which there can be no assurance, the maximum proceeds to
the Company would total $6,099,937 in cash. See "Use of Proceeds."
The date of this Prospectus is May________, 1997.
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("the 1934 Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C., 20549, and at the following Regional Offices of the Commission: in
Chicago, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
in New York, 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials can be obtained at prescribed rates by written
request and addressed to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other
information regarding the Company and the address of such Web site is
(http://www.sec.gov).
The Company provides annual reports, including audited financial
statements, to its shareholders on request and as required under the 1934
Act.
The Company has filed with he Commission in Washington, D.C. a
Registration Statement on Form S-3 under the Securities Act of 1933, as
amended, with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus does not
contain all of the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits filed or incorporated as a part thereof,
copies of which can be inspected at, or obtained at prescribed rates from,
the Public Reference Section of the Commission at the address set forth
above.
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference: (1) Annual Report on Form
10-K for the fiscal year ended December 31, 1996; (2) Registration Statement
0-28378 including the Prospectus dated June 18, 1996 which was filed
therewith registering for sale 2,853,658.5365 shares of the Company's Common
Stock and Supplement No. 1 dated February 6, 1997 and Supplement No. 2 dated
February 28, 1997 to the Prospectus dated June 18, 1996; and (3) all other
documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d)of the 1934 Act after the date hereof and prior to the termination of
the offering of the Shares, which documents shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing such documents. Any statement contained herein or in any documents
incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that statements contained herein, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain without
charge, upon written or oral request, a copy of any and all documents
incorporated by reference herein (not including exhibits to those documents,
unless such exhibits are specifically incorporated by reference into the
information that the Prospectus incorporates). Requests for such documents
should be directed to American Asset Advisers Trust, Inc., Eight Greenway
Plaza, Suite 824, Houston, Texas 77046, telephone (713) 850-1400.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and the documents
incorporated by reference herein. See "DEFINITIONS" for a glossary of
certain terms used in this Summary and throughout the Prospectus.
The Company
American Asset Advisers Trust, Inc., is a Maryland Corporation
incorporated on August 17, 1993, which qualifies for federal income tax
purposes as a real estate investment trust (i.e., a "REIT"). The Company
provides high quality corporate commercial and retail locations for
America's premier companies through net leases, producing a steadily rising
income stream for investors. The Company's principal executive offices are
located at Eight Greenway Plaza, Suite 824, Houston, Texas 77046, Telephone
(713) 850-1400.
Any changes in the Company's affairs which have occurred since the end
of the latest fiscal year for which audited financial statements were
included in the Company's latest Annual Report incorporated herein by
reference are described in subsequent reports on Form 10-Q or Form 8-K which
are also incorporated herein by reference.
The Offering
Pursuant to this Prospectus, the Company is offering 604,952 Shares
of Common Stock underlying outstanding Public Warrants and Sales Warrants.
Risk Factors
There are risks associated with the Company and with being a
Shareholder in it. The "RISK FACTORS" section of this Prospectus contains
a detailed discussion of the most important risks. The risk factors are
organized into Risks Associated with the Offering, Other Real Estate
Investment Risks, Other Risks Corporately, and Tax Risks, that is, risks
arising from the REIT tax laws as they apply to the Company. Please refer
to the "RISK FACTORS" section of this Prospectus for a discussion of these
factors, including the following:
Risks Associated with this Offering.
Investors will not have an opportunity to evaluate the additional
Properties to be purchased with the proceeds of this offering.
The Company has only relatively recently acquired its interests in
its eight existing Properties. Without knowledge of the
additional Properties to be acquired and because of the limited
period of time in which the Company has held interests in its
existing Properties, a prospective investor may have little or no
economic and/or other financial information available to the
investor to assist in evaluating the Company.
The Shares being offered are illiquid. They are not presently listed
on any exchange and the Company is not required to list the
Shares. Therefore, no organized trading market is presently
expected to develop in the foreseeable future. Thus, investors
may not be able to sell the Shares in the future, or may only be
able to do so at a substantial discount from the Offering Price.
There is a risk that the value of the investments will be diluted by
the issuance of additional Shares or other factors. The offering
price ($9.00 per Share, for the Public Warrants and $15.50 for the
Sales Warrants, hereinafter "Offering Price") was determined by
the Company in 1994 using, in part, subjective considerations.
Thus, there is no assurance that the Offering Price reflects the
actual current value of the Company's Properties or the current
per Share value.
There will be less diversification of Properties if the Company does
not raise the maximum proceeds pursuant to this offering resulting
in fewer additional Properties being acquired. The Company's
Initial Public Offering, Current Public Offering and the past
public offerings by AAA-sponsored Affiliates have not raised their
maximum offering proceeds.
Management or Affiliates of management will receive significant
amounts of compensation, regardless of the Company's
profitability, such compensation being payable before any
dividends are paid to the Shareholders of the Company.
The Company may use debt for up to 50% of the acquisition/development
cost of its properties thereby increasing the Company's risk of
loss; the increased risk of loss arises from increased debt
service requirements, increased risk of foreclosure, balloon
mortgage financing, due-on-sale financing and other factors.
Distributions to investors from operations may partially constitute
"Return of Capital" as defined under Generally Accepted Accounting
Principles.
Investing in the same type of property or in multiple Properties
within relatively small geographical areas making the Company more
sensitive to the economic trends and conditions that can affect
such geographical areas.
The Company was formed approximately 3 1/2 years ago and has a
limited operating history.
There are conflicts of interest between the Company, the Directors,
and their Affiliates (persons or entities with a significant
ownership or control relationship with the party with whom they
are said to be affiliated) in connection with the purchase and
ownership of Properties.
Other Real Estate Investment Risks.
If the Company enters into additional joint ventures with Affiliates
of AAA (the Company has already entered into four such joint
ventures) or others, it is subject to the risks of being a
partner, which include issues concerning control, liability,
conflicts of interest and sharing of benefits.
To the extent that the Company is permitted, after receiving approval
from a majority of the current Shareholders, and desires to
construct or complete improvements on Properties that it acquires,
the Company will be subject to risks relating to the builder's
ability to control construction costs or to build in conformity
with plans, specifications and timetables.
Because the Company will continue to lease to single tenants who will
be responsible for maintaining the Properties acquired, the
Company may be exposed to more financial risk due to a tenant's
failure to perform under its lease than if a Property were leased
to multiple tenants.
Because the Company will continue to acquire Properties subject to
long-term net leases, it is subject to the risk of early
termination of such leases and the inability to re-lease or sell
on terms as favorable as those of the terminated leases.
The future value of real estate and, consequently, Company profits,
cannot be predicted and, thus, investors cannot be sure that their
capital will be returned to them.
Because the Company may continue to acquire Properties built for a
special purpose and intended for a particular tenant, such
Properties may be hard to dispose of when their leases terminate
or in the event of tenant defaults.
The Company may incur extraordinary expenses necessary to comply with
the Americans with Disabilities Act.
Other Risks to Shareholders.
The Company will be relying upon the advice of AAA, which is an
Affiliate of the principal officer of the Company, and on the
advice of such principal officer concerning Property investments;
and the Board of Directors has empowered the principal officer of
the Company to authorize and approve Company investment proposals
between meetings of the Board of Directors. The Shareholders will
not have the ability to participate in management other than
through the election of directors.
The Company may have insufficient working capital in the future,
which could result in the Company having to borrow or receive
additional capital through the sale of its equity or debt
securities.
The Shareholders (record owners of the Company's Shares) holding a
majority of the Shares may exercise certain voting rights,
including the election of Directors, the amendment of the
Company's governing documents and a change in the Company's
material investment objectives, even if holders of 49% of the
Shares object.
The Directors are indemnified with respect to certain liabilities.
Tax Risks.
The Company may not continue to qualify as a Real Estate Investment
Trust in which case the Company would be taxed as a regular
corporation and distributions to its Shareholders would not be
deductible by the Company in computing its taxable income.
The Company may incur tax liability and penalties for non-compliance
with certain REIT provisions, including those relating to dividend
payments and Prohibited Transactions.
There may be in the future adverse changes in the tax laws affecting
the Company and, consequently, its Shareholders.
See the section later in the Prospectus entitled "RISK FACTORS" for details.
Use of Proceeds
Any net proceeds to the Company from the exercise of outstanding
warrants will be used for working capital. See "Use of Proceeds."
RISK FACTORS
An investment in the Securities involves certain risks, some of which are
peculiar to the Company and others of which are inherent in all similar real
estate investments. In analyzing the offering, prospective investors should
consider carefully, among other factors, the effect, if any, of the
following:
Risks Associated With This Offering
Unspecified Properties. The Company presently owns interests in eight
Properties and a ninth property is under contract. (See the Company's Form
8-K incorporated herein by reference which is on file with the SEC
concerning this property). Although the Company has established certain
criteria for evaluating particular Properties to be acquired by the Company,
as well as the operators of such Properties, the specific Properties in
which the proceeds of this offering are to be invested have not been
identified as of the date of this Prospectus. Moreover, the company has
owned its interests in certain of the existing Properties for little more
than one year and in other Properties for less than one year. Therefore,
a prospective investor may have no information as to the identification or
location of specific properties, financing terms or other relevant economic
and financial data affecting the Properties to be purchased by the Company
with the proceeds of this offering, and little information with respect to
the financial performance of the existing Properties, which information, if
possessed by the investor, would assist the investor in evaluating the
Company. However, this Prospectus will be amended or supplemented at any
time a reasonable probability exists that a specific property will be
acquired by the Company and may be amended periodically to reflect updated
financial information with respect to the performance of the existing
Properties.
Illiquidity of Shares. The Shares being offered are illiquid. They
are not presently listed on any exchange and the Company is not required to
list the Shares. Therefore, no organized trading market is presently
expected to develop in the foreseeable future. Thus, investors may not be
able to sell the Shares in the future, or may only be able to do so at a
substantial discount from the Offering Price.
Dilution. The value of an Investor's Securities can be diluted by
reason of poor future acquisitions by the Company, devaluation of existing
Properties of the Company, the subsequent issuance of more Shares in this
and other or subsequent offerings, including the Company's offering of
2,853,658.5365 Shares of Common Stock at $10.25 per Share as described in
the Prospectus dated June 18, 1996, the use of all or part of the proceeds
from this offering for operating expenses of existing Properties, and the
Offering Price being greater than the actual per Share value.
Because investors pay the same price per Share during the offering
whether they acquire Shares before or after the Company has made additional
investments, the value of Shares acquired by Shareholders could be diluted
upon the sale of additional Shares if investments previously acquired by the
Company have appreciated in value. Conversely, if investments previously
acquired by the Company have depreciated in value, the value of Shares
purchased by the Shareholder later in the offering will be diluted
immediately upon the purchase of the Shares. The Directors may authorize
the issuance of Shares in addition to Shares issued pursuant to this
offering or may issue other types of securities, thereby resulting in
possible dilution of the equity of the Shareholders.
To the extent that the actual value of the Shares is, in fact, less
than the per Share Offering Price, an investor's investment in the Shares
sold pursuant to this offering will be immediately diluted.
Offering Price. The offering price for the Shares was established in
1994. The offering price does not bear a direct relationship to any single
objective factor or group of objective factors, such as the financial
condition of the Company, or the cost, current value or potential
appreciation in value of the Properties of the Company or the per Share
value. Accordingly, there is no assurance that the Offering Price reflects
the current value of the Company's Properties or the per Share value.
Proceeds Raised by the Company and Affiliates in Prior Offerings.
During its two-year public offering which expired March 15, 1996, the
Company raised approximately $10,282,530 of the $20,000,000 being offered.
As of February 25, 1997 the Company had raised approximately $2,800,000 of
the $29,250,000 being offered in its Current Public Offering. Three recent
offerings by AAA Affiliates raised (or have to date raised) less than the
maximum amount of funds for the securities offered. Similar results may
occur in this offering, increasing the likelihood of a lack of
diversification of Properties acquired with offering proceeds.
Compensation of Management and Affiliates. Various types of
compensation are payable by the Company to the Company's management and to
persons affiliated with management. In general, this compensation is not
dependent on the success or profitability of the Company's investments, is
not subordinated to a specified return to the Shareholders, and is payable
before the payment of distributions to the Shareholders. Moreover, the
amount of compensation to be paid to management and the Affiliates is not
the result of arms-length negotiations. In the future, any additional
compensation will be determined in the sole discretion of the Board of
Directors.
Risks Associated with Leverage. On an aggregate basis, the Company
may borrow up to 50% of the purchase price of its properties. Following an
acquisition, the Company may also encumber a Property through financing the
construction of improvements thereon or otherwise, by borrowing up to 50%
of the value of the Property at that time. However, no more than 10% of the
Company's assets may be invested in Unimproved Real Property. Further,
under state securities laws, the Company may not at any given time incur
additional indebtedness, if after doing so, the Company's total indebtedness
would exceed three hundred percent (300%) of the Company's Net Assets. The
use of borrowed funds in the purchase of properties is referred to as
"Leverage." Although the Company has not yet borrowed funds, it may do so
in the future.
Use of Leverage, Generally. The effects of utilizing leverage
are to increase the number of Properties that may be purchased with the
Company's funds available for investment (thereby also increasing
Acquisition Fees payable to an Affiliate), to increase the potential for
gain, to increase the aggregate amount of depreciation available to the
Company and to increase the risk of loss. Also, while higher leverage
should enable the Company to acquire a greater number of investments, the
Company would need to utilize greater funds to make debt service payments
resulting from such higher leverage, which could result in less funds
available for distributions to the Shareholders. To the extent that the
Company uses leverage or increased amounts of leverage in the purchase of
its properties, the potential for gain and risk of loss will be increased
accordingly. If the Company defaults on secured indebtedness, the lender
may foreclose, and the Company could lose its investment in the property.
Mortgage market conditions and the policies of the Federal Reserve Board may
make it difficult to obtain mortgages on acceptable terms.
Risk of Acceleration of Mortgage Financing. In purchasing
properties subject to financing, the Company may obtain financing with
"due-on-sale" and/or "due-on-encumbrance" clauses which, upon future
refinancing or sale of the properties, may cause the maturity date of such
mortgage loans to be accelerated and such financing to become due. In such
event, the Company may be required to sell its properties on an all-cash
basis, to acquire new financing in connection with the sale, or to provide
seller financing. It is not the intent of the Company to provide seller
financing, although it may be necessary or advisable in certain instances.
It is unknown whether the holders of mortgages encumbering the Company's
investment properties will require such acceleration or whether other
mortgage financing will be available. Such factors will depend on the
mortgage market and on financial and economic conditions existing at the
time of such sale or refinancing.
Risks of Balloon Payment Obligations. The Company will seek to
acquire properties which are subject to mortgage loans which have a term of
not less than five (5) years, which provide for the amortization of the
entire loan principal, or a substantial portion thereof, prior to maturity,
or which do not require a balloon payment (i.e., a substantial lump sum
principal payment) to be paid within the anticipated holding period for the
property. Nevertheless, the Company may incur borrowing not meeting the
foregoing standards if a majority of the Independent and Disinterested
Directors deem it to be in the best interests of the Company. Such
mortgages involve greater risks than mortgages whose principal amount is
amortized over the term of the loan, since the ability of the Company to
repay the outstanding principal amount at maturity may be dependent upon the
Company's ability to obtain adequate refinancing or to sell the property,
which will in turn be dependent upon economic conditions in general and the
value of the underlying properties in particular. There is no assurance
that the Company will be able to refinance any such balloon payment
mortgages at maturity. Further, a significant shrinkage in the value of the
underlying property could result in a loss of the property by the Company
through foreclosure.
The Company may finance acquisitions of Properties with
mortgages that do not provide for the repayment of the entire principal
amount of the mortgage loan or a substantial portion thereof during its term
and therefore require "balloon" payments at maturity. It is also possible
that the Company will finance Property acquisitions with balloon loans.
Balloon payments are payments of a significant portion of the amount
originally borrowed when the loan is due. The ability of the Company to
repay at maturity the outstanding principal amount of the balloon loan may
be dependent on the Company's ability to sell the Property or obtain
adequate refinancing, which in turn will be dependent upon economic
conditions in general and the value of the Property in particular at the
time the loan is due. There is no assurance that the Company will be able
to refinance a balloon loan at maturity or that the terms of any new loan
will be as favorable as the prior loan.
If the Company is unable to refinance a balloon loan at
maturity, it may be forced to sell the Property securing repayment of the
balloon loan (or another Property), which sale would be affected by economic
conditions in general and possibly by the availability of financing to the
purchaser. There is no assurance that the proceeds of such sale would be
sufficient to repay fully the balloon loan. Any such refinancing or sale may
affect the rate of return to Shareholders and such sale may affect the
projected time of disposition of the Company's assets. To the extent that
Properties are subject to balloon mortgages, the Company's objective of
increasing equity through the reduction of mortgage debt on such Properties
may be more difficult to achieve.
Distributions as Return of Capital. If the Company generates cash
from its operations and thereafter distributes the cash to its shareholders
in the form of distributions, a portion of those distributions will be
deemed to be a return of capital to the extent the distribution exceeds net
income as defined by generally accepted accounting principles. The return
of capital on a GAAP basis is calculated based on distributions to
shareholders in excess of net income of the Company allocated to the
shareholders. Non-cash deductions such as depreciation and amortization
generally reduce net income of a REIT below distributions creating a return
of capital. A return of capital will also have the effect of reducing an
investor's tax basis in the investor's Shares.
Lack of Geographical Diversification. Although it is not limited to
investing in any particular area or region, the Company may invest in
properties primarily located in the same state or general geographical area.
If the Company's concentration of investments are in a limited number of
states or general geographical areas, it will substantially increase the
risks to the Company in the event of any adverse change in the economic
conditions and real estate markets within such states or general
geographical areas. Adverse trends in these economic factors could
adversely affect rental income and appreciation in value of these
Properties, which in turn would materially affect the continued viability
and profit potential of the Company.
As of the date of this Prospectus, the Company owns interests in eight
properties located in four states in diverse geographic regions. In
addition, the Company has entered into an agreement to purchase a property
to be constructed in a fifth state. (See the Company's Form 8-K
incorporated herein by reference which is on file with the SEC concerning
this property). There is, however, no assurance that the Company's
investments will continue to be located in geographically diverse areas.
Lack of Operating History. The Company was formed on August 17, 1993
and did not commence business until it broke escrow from its initial
offering on May 9, 1994. Its operating history is, therefore, limited.
Executive officers and the majority of the Directors of the Company and AAA
have had experience in acquiring, developing, leasing and managing
properties, but have only approximately 3 years experience in managing and
operating a real estate investment trust.
Acquisition of Properties from Affiliates. Except for the requirement
that any transaction involving the acquisition by the Company of a Property
from a Director, officer or Affiliate must be (1) approved by a majority of
the Company's disinterested Directors, including its Independent Directors,
as being fair and reasonable and no less favorable to the Company than
transactions available from unaffiliated third parties, and (2) at a price
to the Company no greater than the cost to the Director, officer or
affiliate of the Property, unless a substantial justification exists for the
price to be in excess of such cost and such excess is reasonable, no other
restrictions apply. Accordingly, there is a risk that a majority of the
Independent Directors could approve the acquisition by the Company of an
under-performing or marginally performing property owned by a Director,
officer of Affiliate of the Company which could adversely affect the
Company's investment results, while at the same time, personally benefit the
selling Director, officer of Affiliate. The Company has not acquired any
of its existing Properties from Affiliates; however, there is no assurance
that it will no do so in the future.
Conflicts of Interest. The Company is subject to potential conflicts
of interest resulting from current relationships among its President, who
is also a Director, AAA and AAA Affiliates. These conflicts of interest may
arise in each aspect of operations, including property acquisition,
disposition and management of its investments. The President of the
Company, H. Kerr Taylor ("Taylor"), and certain other officers of the
Company are also officers and directors of AAA which also invests in and
operates real estate. Taylor, himself, is actively engaged in other real
estate investment activities, some of which involve real estate acquisition
and management. Accordingly, the Company may have to compete with AAA and
other real estate investment business of Taylor for the time and services
of such Directors and officers. Moreover, the Company may be in competition
with AAA and affiliates of Taylor for the acquisition and ownership of
suitable investments.
Independent Directors (Directors having no separate relationship with
AAA or any of its Affiliates other than the Company) may disagree with AAA
or Taylor or both concerning AAA's recommendations for Properties to
acquire, the acquisition fees it intends to charge, the quality of the
performance of its management services, leasing services or brokerage
services or other aspects of AAA's Advisory activities. The Independent
Directors may disagree with Taylor as to the size or duration of his
proposed compensation arrangements as an officer of the Company.
Other Real Estate Investment Risks
Risks of Joint Ventures. The Company may participate in joint
ventures. It presently participates in four such joint ventures in which
it holds a 51%, 54.84%, 51.9% and 51% interest, respectively. Investments
in joint ventures may involve risks which may not otherwise be present where
investments are made directly by the Company in real property. These risks
include those associated with the ability of the Company's joint venture
partner to perform, risks that the joint venture partner may from time to
time have economic or business interests or goals which are inconsistent
with or adverse to those of the Company and risks where the joint venture
partner may take actions contrary to the requests for instructions of the
Company or contrary to the Company's objectives or policies. For instance,
actions by one joint venturer may result in the Property being subjected to
liabilities in excess of those contemplated by the terms of the joint
venture agreement, thereby exposing the Company to liabilities of the joint
venture in excess of its proportionate share of such liabilities or may have
other adverse consequences to the Company. Moreover, there is the
additional risk that the joint venturers may not be able to agree on matters
relating to the Property they jointly own. Although each joint owner will
have a right of first refusal to purchase the other owner's interest, in the
event a sale is desired, the joint owner may not have sufficient resources
to exercise such right of first refusal.
The Company also may from time to time participate jointly with
publicly registered investment programs or other entities sponsored by the
Adviser or one of its Affiliates in investments as tenants-in-common or in
some other joint venture arrangement. The risks of such joint ownership may
be similar to those mentioned above for joint ventures and, in the case of
a tenancy-in-common, each co-tenant normally has the right, if an
unresolvable dispute arises, to seek partition of the Property, which
partition might decrease the value of each portion of the divided Property.
The Company or the Adviser may also experience difficulty in enforcing the
rights of the Company in a joint venture with an Affiliate due to the
fiduciary obligation the Adviser or the Directors may owe to the other
partner in such joint venture.
Risks Associated with Construction on Properties. The Company may on
occasion acquire Properties and construct improvements thereon or acquire
Property under contract for development. Investment in such Properties to
be developed or constructed is subject to more risks than are investments
in fully developed and constructed Properties with operating histories.
The Company may, in connection with the acquisition of such
Properties, advance on an unsecured basis, a portion of the purchase price,
either in the form of cash, a conditional letter of credit or promissory
note, or some combination thereof. In the case of any Property which is not
yet completed at the time of purchase, the Company will be dependent upon
the seller or lessee to fulfill its obligations, including the return of
advances and the completion of construction. Such party's ability to carry
out its obligations may be affected by financial and other conditions which
are beyond the control of the Company.
If the Company acquires Properties on which improvements are to be
constructed or completed, the Company will be subject to risks in connection
with the ability of the general contractors and the subcontractors to
control the construction costs or to build in conformity with plans,
specifications and timetables. The failure of a contractor to perform may
necessitate legal action by the Company to rescind its construction contract
or to compel performance or, under certain circumstances, to rescind its
purchase contract. There can be no assurance that a rescission of the
Company's purchase contract will be granted. In the event it is granted,
the Company may be compelled to sue for damages. Such legal actions may
result in increased costs to the Company. The failure of a contractor to
perform may result in increased costs to the Company as a result of
foreclosure by the construction lender, or due to the need for the Company
to complete the project. Performance may also be affected or delayed by
conditions beyond the contractor's control, such as building restrictions,
clearances and environmental impact studies imposed or caused by
governmental bodies, labor strikes, adverse weather, unavailability of
materials or skilled labor and by financial insolvency of the general
contractor or any subcontractors prior to completion of construction. Such
factors can result in increased costs of a project and corresponding
depletion of the Company's working capital and reserves, and in loss of
permanent mortgage loan commitments relied upon as a primary source for
repayment of construction costs.
The Company may make periodic progress payments to the general
contractors of Properties prior to the completion of construction. By
making such payments, the Company may incur substantial additional risks,
including the possibility that he developer or contractor receiving such
payments may not fully perform the construction obligations in accordance
with the terms of his agreement with the Company and that the Company may
be unable to enforce the contract or to recover the progress payments. The
Company may require a labor and material bond, a completion bond or
performance bond or more than one of the foregoing in order to insure
performance and reduce risk of loss associated with construction. While the
Company intends to use such controls and its disbursements to the builder
as it deems necessary, there can be no assurance as to whether the Company
will be able to implement a particular control in any given transaction and
whether any control adopted will, in fact, limit risk.
Risks of Property Leased to a Single Tenant. In leases with single
tenants, the continued viability of the lease will depend directly on the
continued financial viability of one tenant. If the tenant fails and the
lease is terminated, the Company would incur a reduction in cash flow from
the property and the value of the property would be decreased. Also, where
two or more properties have the same tenant, or related tenants, the
continued viability of each property would depend directly on the financial
viability of a single tenant. To help mitigate these risks, the Company
will continue to consider the creditworthiness and financial strength of the
tenants of its properties at the time they are acquired.
Risks of Net Leases. Net leases frequently provide the tenant greater
discretion in using the leased property than ordinary property leases, such
as the right to freely sublease the property, to make alterations in the
leased premises, and to early termination of the lease under specified
circumstances. Further, net leases are typically for longer lease terms and
thus, there is an increased risk that any rental increase clauses in future
years will fail to result in fair market rental rates during those years.
The leases on the Company's existing Properties are for terms ranging from
10 to 20 years.
In the event a lease is terminated, there can be no assurance that the
Company will be able to lease the property for the rent previously received
or would be able to sell the property without incurring a loss. The Company
could also experience delays in enforcing its rights against defaulting
tenants. For example, in the event a defaulting tenant declared bankruptcy,
the Company would likely be unable to promptly recover the property from the
tenant under the bankruptcy proceedings and there is no assurance that the
Company would receive rent in such proceedings sufficient to cover its
expenses with respect to the property. Moreover, the provisions applicable
to real estate investment trusts in the Internal Revenue Code may restrict
the Company's ability to deal with a new tenant after termination of the
lease. In the event a tenant does not pay rent, it is likely the Company
would not only lose the net cash flow from the property but also might need
to use cash flow generated by other properties to meet mortgage payments on
the defaulted property in order to prevent foreclosure. Certain prior
Programs of Affiliates of the Company have experienced adverse business
developments including the filing by tenants for protection from creditors
under Chapter 11 of the Bankruptcy Code and involvement in litigation, as
a result of which the Company has released the Properties formerly occupied
by such tenants.
In evaluating a possible investment by the Company, the
creditworthiness, or financial strength, of a tenant generally will continue
to be a more significant factor than the value of the Property without a
lease with the tenant and the Appraised Value of a Property will probably
reflect the value of the tenant's ongoing lease of such Property.
Risks of Real Estate Investments. Equity real estate investments are
expected to limit the ability of the Company to vary its portfolio promptly
in response to changing economic, financial and investment conditions. Such
investments will be subject to risks such as adverse changes in general
economic conditions or local conditions (for example, excessive building
resulting in an oversupply of existing space or a decrease in employment,
reducing the demand for real estate in the area), as well as other factors
affecting real estate values (i.e., rent controls, increasing labor,
materials and energy costs, the attractiveness of the neighborhood, etc.).
Equity investments will also be subject to such risks as adverse changes in
interest rates, the availability of long-term mortgage funds and additional
debt financing, and the ability of the Company to provide for adequate
maintenance of its Properties. To the extent that the Company utilizes less
amounts of debt ("leverage") to acquire its Properties, the risks relating
to interest rates and long-term financing will be reduced. The Company's
investments will be in single tenant net lease commercial and/or industrial
properties and, like all real estate equity investments, will be subject to
the risk of inability to attract or retain tenants and to the risk of a
decline in rental income as a result of adverse changes in the economic
conditions, local real estate markets and other factors. To the extent that
the Company's rental income is based on a percentage of gross receipts of
retail tenants, its cash flow is dependent on the retail success achieved
by such tenants. Also, certain expenditures associated with equity
investments (principally mortgage payments, real estate taxes, maintenance
and utility costs) are not necessarily decreased by events adversely
affecting the Company's income from such investments. Should such events
occur, the Company's equity investments could become a burden, and
distributions to Shareholders may be impaired. In the event that mortgage
payments are not met with respect to a Property, the Company could sustain
a loss on its equity investment as a result of a foreclosure of mortgages
secured by such Property.
No Assurance of Property Appreciation, Company Profit or Dividends.
While the Company will attempt to buy leased, income-producing Properties
at a price at or below the appraised value of such Properties, there is no
assurance that any Properties acquired by the Company will operate at a
profit, will appreciate in value or will ever be sold at a profit, or that
dividends will be paid by the Company. The marketability and value of any
such Properties will be dependent upon many factors beyond the control of
the Company. There is no assurance that there will be a ready market for
the Company's Properties.
Risks of Investing in Special Purpose Properties. The Company may
acquire Properties which are specifically suited to the needs of particular
tenants, including office, retail or industrial facilities. For example,
the Company already owns interest in a medical clinic building, two branch
bank buildings, a Property on which a fast-food restaurant is situated, two
Properties on each of which a music retail store is situated, and a Property
on which a large retail shoe store is being operated. The value of these
Properties would be adversely affected by the failure of the specific tenant
for which they are suited to renew or honor its lease. Such Properties
would typically require extensive renovations to adapt them for new uses by
new tenants. Also, it may be difficult for the Company to sell special
purpose Properties to persons other than the tenant.
Risks of Cost in Complying with the Americans With Disabilities Act.
Title III of the Americans with Disabilities Act of 1990 ("ADA"), 42 U.S.C.
Sect. 12101, et seq., prohibits discrimination in the private ownership and
operation of real estate. Title III addresses the design, construction, and
use of places of public accommodation and commercial facilities by private
entities. In general, Title III provides that private entities who own,
operate, lease, or lease to a place of public accommodation cannot
discriminate against persons with disabilities in the facility itself or the
activities and operations conducted within the facility. Title III mandates
that persons with disabilities be provided accommodations and access equal
to, or similar to, that available to the general public. In order to ensure
that the Company's Properties comply with ADA, the Company may incur costs
necessary to remove "architectural barriers," that is, everything that
prevents a person with a disability from enjoying full and equal use of a
facility. These costs may be prohibitive in certain situations and thereby
prevent the Company from acquiring a Property that would otherwise qualify
for acquisition. In addition, the costs of compliance with the ADA may have
a significant adverse impact on the Company's profits.
Risks of Environmental Liabilities. Under federal law, the landowner
has certain liabilities with respect to the presence of improperly disposed
hazardous substances on its real property. This liability is without regard
to fault or knowledge of such substances and may be imposed jointly or
severally upon all succeeding landowners from the date of the improper
disposal. Moreover, the requirements of state and local laws governing the
Properties which the Company acquires can be expected to differ from
location to location. There can be no assurance that hazardous substances
or wastes, contaminants, pollutants or sources thereof (as defined by
present or future state or federal laws and regulations) will not be
discovered on Properties during the time they are owned by the Company or
after its sale of them to third parties. In the event hazardous materials
are discovered on a Company Property, the Company may be required to remove
these substances or sources and clean up the affected Property. In doing
so, the Company may incur liability to the full extent of its assets for the
entire cost or of any such removal and cleanup. The Company could also be
liable to tenants or other users of the affected Property, and it may find
it difficult or impossible to sell the affected property prior to or
following any such removal or cleanup.
Risks of Providing Financing to Purchasers of Company Properties. The
Company may provide financing to purchasers of its Properties in order to
effect their sale. This financing would result in a delay of the Company's
receipt of the proceeds from the sale of the Property and in essence would
result in the Company's investing in a loan to such person. The Company may
provide such financing in circumstances where lenders are not willing to
make loans secured by commercial real estate or may find it desirable where
a purchaser is willing to pay a higher price for the property than it would
without such financing.
Risks of Leaseback Transactions. The Company, on occasion, may lease
an investment Property back to the seller for a certain period of time or
until stated rental income objectives are obtained. When the seller/lessee
leases space to tenants, the seller/lessee's ability to meet its mortgage
payments and its rental obligations to the Company would be subject to the
risk that the tenants may be unable to meet their lease payments to the
seller/lessee. A default by the seller/lessee or other premature
termination of the leaseback agreement could, depending on the size of the
Property and the Company's ability to manage and release it successfully,
have an adverse effect on the financial position of the Company, since the
Company may suffer a loss from operation of such Property. In the event of
such a default or termination, there is no assurance that the Company would
be able to find new tenants for the Property without incurring a loss.
Also, a seller, in negotiating the terms of an acquisition which will
require the seller to lease the Property back for some period of time, may
attempt to include in the acquisition price all or some portion of the lease
payments required to be made under the lease. If the seller is successful
in such attempt, the Company may pay an increased price upon acquisition
where a leaseback is involved. Further, leaseback revenues from Properties
leased back to sellers may be deemed to be a return of capital rather than
investment income.
Accounting for Net Lease Transactions. Certain accounting standards
require leases to be classified for financial reporting purposes as either
capital leases or operating leases. Capital leases are required to appear
as assets and liabilities on the lessee's balance sheet. Transactions in
which the Company acquires a deed to a Property may or may not be recognized
as a sale for financial reporting purposes due to the inclusion of certain
provisions in the lease of the property. These accounting standards might
make sale-leaseback transactions less desirable for the seller-tenant that
wants to treat the sale-leaseback with the Company as an operating lease
and, therefore, might reduce the prospective number of Properties available
for net lease investment.
Risks of Energy Shortages and Allocations. There may be shortages or
increased costs of fuel, natural gas, water, or electric power or
allocations thereof by suppliers or governmental regulatory bodies in the
areas where the Company purchases Properties, in which event the operation
of Properties to be acquired by the Company may be adversely affected. The
Company will endeavor, where feasible, to provide for the pass-through of
any such increases to tenants of the properties through lease provisions to
that effect.
Competition for Investments. The results of Company operations will
depend upon the availability of suitable opportunities for investment, which
in turn depends to a large extent on the type of investment involved, the
condition of the money market, the nature and geographical location of the
property, competition and other factors, none of which can be predicted with
certainty. The Company will continue to compete for acceptable investments
with other financial institutions, including insurance companies, pension
funds and other institutions, real estate investment trusts and limited
partnerships which have investment objectives similar to those of the
Company. Many of these competitors have greater resources than the Company
and have greater experience than the Directors and AAA.
Risks of Uninsured Losses. The Company will continue to arrange for
comprehensive insurance, including fire, liability and extended coverage on
all investment Properties. However, there are certain types of losses
(generally of a catastrophic nature) which may be either uninsurable or not
economically insurable. These losses generally include those resulting from
war, earthquakes and floods, in addition to punitive damages. If any such
disaster occurs and is not covered by insurance, the Company might suffer
a loss of capital invested and any profits which might be anticipated from
the Property. The Company intends to obtain earthquake and flood insurance
for its properties to the extent that it is economically available.
Investments in Non-Real Estate Assets. The Company will continue to
invest offering proceeds and working capital in Permitted Temporary
Investments pending investment of such proceeds in real estate assets. In
general, the return on Permitted Temporary Investments are sensitive to
interest rates and the value of such investments will generally decrease as
market interest rates increase. Accordingly, if the Company sells such an
investment when interest rates are higher than at the time when the
investments was initially made, the Company could receive less in such a
sale than the amount it initially paid. Conversely, if market interest
rates declined, these investments may be prepaid and the Company might not
be able to reinvest the proceeds in investments bearing comparable rates of
return due to lower prevailing interest rates.
Adjacent Properties. Although it is not expected to occur, if AAA or
its Affiliates acquire Properties that are adjacent to Company's Properties,
the value of such Properties acquired by AAA or its Affiliates may be
enhanced by the interests of the Company. It is also possible that such
Properties would be in competition with Company's Properties for prospective
tenants.
Other Risks to Shareholders
Reliance on Management. The Shareholders do not have any active
participation in the management of the Company or in the investment of the
proceeds of this offering, and, therefore, must rely on the management,
acquisition expertise, and decisions regarding property investments provided
by the Directors and more particularly, AAA, the Company's property manager.
None of the Company's officers or Directors will be a full-time employee of
the Company. The principals of AAA and the Directors of the Company have
substantial collective experience in commercial real estate investment. The
Board of Directors has empowered H. Kerr Taylor to authorize and approve
Company investment proposals on its behalf between meetings of the Board.
Risk of Insufficient Working Capital. Although the Company is not
presently experiencing any working capital deficiencies as of the date of
this Prospectus, there is no assurance that the Company will have sufficient
working capital in the future. A deficiency in working capital may be
caused by a decrease in revenues, by an increase in expenses, or by an
uninsured casualty to a property or by other unanticipated events. During
times of insufficient working capital, there is no assurance that the
Company could borrow funds or receive additional capital through the sale
of its equity or debt securities. Further, loan covenants and other
restrictions included in any Company financing agreements relating to its
acquisition of properties or otherwise, could restrict the Company's ability
to borrow for such purposes or its ability to draw funds from working
capital reserves.
Shareholder Voting Rights. Under the organizational documents,
Shareholders voting specified percentages of the Shares may take certain
actions, including amending the Company's Charter and Bylaws and causing the
dissolution and liquidation of the Company. Certain provisions designed to
preserve the Company's status as a REIT cannot be amended without a "super
majority" vote of 66 2/3% of the Shares entitled to vote. Certain of these
provisions may discourage or make it more difficult for a person to acquire
control of the Company or to effect a change in the operation of the
Company. All actions approved by the requisite number of votes would be
binding on all of the Shareholders, whether or not they voted their Shares
for such action, including votes to sell all or substantially all of the
Company's assets, to dissolve and liquidate the Company, or to merge or
reorganize the Company. In certain mergers and reorganizations, dissenting
Shareholders may not have appraisal rights with respect to their Shares
under applicable Maryland state law. Subject to certain conditions required
under Maryland law, the Directors have the power to cause the issuance of
additional Shares without obtaining Shareholder approval."
Control Share Acquisitions. The MGCL provides that "control shares"
of a Maryland corporation acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares of stock owned by
the acquiror, by officers or by directors who are employees of the
corporation. "Control Shares" are voting shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiror or in respect of which the acquiror is able to exercise or direct
voting power (except solely be virtue of a revocable proxy), would entitle
the acquiror to exercise voting power in electing directors within one of
the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a
majority or more of all voting power. Control shares do not include shares
the acquiring person is then entitled to vote as a result of having
previously obtained shareholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the board of directors of the
corporation to call a special meeting of shareholders to be held within 50
days of demand to consider the voting rights of the shares. If no request
for a meeting is made, the corporation may itself present the question to
any shareholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement as required
by the statute, then, subject to certain conditions and limitations, the
corporation may redeem any or all of the control shares (except those for
which voting rights have previously been approved) for fair value
determined, without regard to the absence of voting rights for control
shares, as of the date of the last control share acquisition by the acquiror
or of any meeting of shareholders at which the voting rights of such shares
are considered and not approved. If voting rights for control shares are
approved at a shareholders meeting and the acquiror becomes entitled to vote
a majority of the shares entitled to vote, all other shareholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to
shares acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction or (b) to acquisitions approved
or exempted by the charter or bylaws of the corporation.
Limited Liability of Directors and Possible Inadequacy of Remedies.
The Directors are directors of a Maryland corporation and as such are
required to perform their duties in a manner believed by the Directors to
be in the best interests of the Company and with such care, including
reasonable inquiry, as an ordinary prudent person in a like position would
use under similar circumstances. A Director who performs his duties in
accordance with the foregoing standards shall not be liable to the Company
or any other person for failure to discharge his obligations as a director.
Notwithstanding the additional responsibilities of Independent Directors,
an Independent Director will not have any greater liability than that of a
Director who is not independent.
The Company may in the future obtain insurance on behalf of any
director or officer in reasonable amounts against losses arising from tort
claims which may be made against a Director.
Under its Bylaws, the Company is required to, under specified
conditions, indemnify its Directors, officers and employees against all
liabilities to the full extent permitted under Maryland law.
Share Ownership of Directors and Affiliates. AAA, the Directors, and
Affiliates of Taylor presently own Shares and may purchase additional
Shares. Accordingly, following completion of the offering, management and
its Affiliates may own a substantial percentage of the total Shares
outstanding. As Shareholders, these persons can be expected to vote their
Shares in a manner intended to benefit themselves. Circumstances may arise
where the interests of these persons as Shareholders may be different from
those of the other Shareholders.
The Company's Bylaws provide that with respect to Shares owned by the
Adviser (as defined therein), which includes AAA, the Directors, or any
Affiliates, neither the Adviser nor the Directors nor any Affiliate may vote
or consent on matters submitted to the Shareholders regarding the removal
of the Adviser, Directors, or any Affiliate on any transaction between the
Company and any of them. In determining the requisite percentage in
interest of Shares necessary to approve a matter in which the Adviser,
Director and any Affiliate may not vote or consent, any Shares voted or as
to which a consent is given by any of them shall not be included.
Delay in Investment in Real Estate. Although AAA will be constantly
reviewing available Properties, there will be a delay between the time
investors purchase their Shares and the time the net proceeds of the
offering are invested in real estate interests. A delay in the Company's
investment of offering proceeds in real estate would delay the Company's
receipt of rents from such investment properties and would delay the time
that distributions would otherwise be made to Shareholders.
Additional Financing and Potential Dilution. The Company is intended
to be an "open-end" REIT in that the Directors are authorized, from time to
time, without Shareholder approval, to borrow or raise capital through the
issuance of additional Shares, notes, debentures, or other obligations of
the Company which may be convertible into Shares or accompanied by warrants
or rights to purchase Shares. The issuance of debt securities or additional
equity interests by the Company will be made at such times and under such
terms as the Directors determine to be in the best interests of the Company.
It is possible, however, that any such issuance may result in dilution of
the equity of the Shareholders. The Company will not, however, issue any
debt securities or additional mortgage debt which would increase the
Leverage of the Company above specified limits on Company indebtedness, and
in any event will not issue such securities unless the historical or
substantiated future cash flow of the Company, excluding extraordinary
items, is sufficient to cover the interest on the debt securities.
Derivative Securities. While the Public Warrants and Sales Warrants
are outstanding, the Company may find it more difficult to raise equity
capital. At any time when the holders of Public Warrants and Sales Warrants
might be expected to exercise their Warrants, the Company may be able to
obtain additional equity capital on terms more favorable than those provided
in such Public Warrants and Sales Warrants.
Fixed Expenses. Interest and required amortization payments on any
outstanding debt of the Company as well as certain of the Company's
operating expenses must be paid without regard to the Company's
profitability. In the event the Company does not operate profitably and
exhausts its reserves, it may be required to liquidate certain of its
investments to pay its fixed expenses, which could have an adverse effect
on the Company's operation.
Investment Company Act of 1940. The Directors intend to conduct the
operation of the Company so that it will not be subject to regulation under
the Investment Company Act of 1940. The Company may therefore have to
forego certain investments which could produce a more favorable return.
Should the Company fail to qualify for an exemption from registration under
the Investment Company Act of 1940, it would be subject to numerous
restrictions under this Act. A failure to qualify for an exemption under
this Act could have a material adverse affect on the Shareholders.
Tax Risks
Risks of Failure to Qualify as a REIT. The Company intends to operate
so as to qualify for taxation as a REIT. As a REIT, it will be allowed a
deduction for distributions paid to its Shareholders in computing its
taxable income. Should the Company fail to qualify as a REIT for any tax
year, its previous election to be taxed as a REIT would terminate and it
would generally not be able to elect to be taxed as a REIT until the fifth
year after the beginning of the first year of such disqualification.
Without REIT qualification, the Company would be taxed as a regular
corporation, and distributions to its Shareholders would not be deductible
by the Company in computing its taxable income. The payment of any tax by
the Company resulting from its failure to qualify as a REIT would reduce the
funds available for distribution to Shareholders or for investment and, if
Shareholder distributions had been made in anticipation of the Company's
qualifying for taxation as a REIT, could force the Company to borrow
additional funds or to liquidate certain of its investments in order to pay
the applicable tax.
Risks of Excise Tax and/or Penalties. A violation of the REIT
Provisions, even where it does not cause failure to qualify as a REIT, may
result in the imposition on the Company of substantial excise taxes, such
as where the Company engages in a prohibited transaction or where the
Company is determined to be a dealer in real property. Because the question
of whether such a violation occurs may be a factual one and may depend on
the facts and circumstances underlying a given transaction, it is possible
that such violations could inadvertently occur. To reduce the possibility
of an inadvertent violation, the Directors intend to rely on the advice of
legal counsel in situations where they perceive the REIT Provisions to be
inconclusive or ambiguous.
Changes in Tax Laws. The discussions of the federal income tax
considerations of this offering are based on current law, including the
Code, the Regulations, certain administrative interpretations thereof and
court decisions. Future events, such as court decisions, administrative
rulings and interpretations and changes in the tax laws or Regulations, that
change or modify these provisions could result in treatment under the
federal income tax laws for the Company and/or the Shareholders that differs
materially and adversely from that described in this Prospectus, both for
taxable years arising after and before such event. There is no assurance
that future legislation, administrative interpretations or court decisions
will not be retroactive in effect.
Risks for IRAs and Investors Subject to ERISA. Fiduciaries of a
pension, profit sharing or other employee benefit plan subject to ERISA
should consider whether the investment in Securities of the Company
satisfies the diversification requirements of ERISA, whether the investment
is prudent in light of possible limitations on the marketability of the
Securities, whether the investment would be an improper delegation of
control over or responsibility for plan assets and whether such fiduciaries
have authority to acquire such Securities under the appropriate governing
instrument and Title I of ERISA. Also, fiduciaries of an Individual
Retirement Account ("IRA") should consider that an IRA may only make
investments that are authorized by the appropriate governing instrument.
USE OF PROCEEDS
Any net cash proceeds received by the Company will be used for working
capital.
DILUTION
The value of an Investor's Shares can be diluted by reason of future
acquisitions by the Company, devaluation of existing Properties of the
Company, the subsequent issuance of more Shares in this, other, or
subsequent offerings, the use of all or part of the proceeds from this
offering for operating expense of existing Properties, and the offering
Price being greater than the actual per Share value. The per Share Offering
Price established for the Company's Current Public offering is $10.25. To
the extent that the actual value of the Shares is, in fact, less than the
per Share Offering Price, an Investor's investment in the Shares sold
pursuant to this offering will be immediately diluted. See "RISK FACTORS-Risks
Associated with this Offering - Dilution."
TERMS AND CONDITIONS OF THE WARRANTS
The Public Warrants were issued in accordance with the terms of the
Warrant Agreement entered into as of March 17, 1994, by the Company with
itself acting as the Warrant Agent. The Warrant Agreement provides that
each Public Warrant may be exercised only if a registration statement filed
with the Securities and Exchange Commission covering the Shares issuable
under the Securities Act of 1933 upon exercise of the Public Warrant
(the "Registration Statement") is current at the time of exercise and such
Shares have been qualified under the securities laws of the state of
residence of the holder of the Public Warrants.
Subject to the foregoing limitation, each holder of a Public Warrant
is entitled to one Share at an exercise price of $9.00 per Share until
March 15, 1998. The exercise price for a holder of a Sales Warrant is
$15.50 per Share until March 15, 1998. After March 15, 1998, the value
of both Warrants becomes zero. The respective exercise prices of the
Warrants are subject to adjustment to protect against dilution in the
event of stock dividends, stock splits, subdivisions, reclassifications,
reorganizations, consolidations and mergers. To date the Company has not
been involved in any transactions which would require adjustment to the
Warrant exercise price and the number of Shares issuable upon exercise
of the Warrants.
A holder of the Warrants has no rights, privileges or liabilities as
a shareholder of the Company prior to exercise of the Warrants, including
the right to vote and to receive distributions.
PLAN OF DISTRIBUTION
The Company is offering Shares underlying the Public Warrants and
Sales Warrants issued in its Initial Public Offering. The offering price
of $9.00 per share for the Public Warrants and $15.50 per Share for the
Sales Warrants, respectively, was established by a warrant agreement which
accompanied the issue of the Public Warrants and Sales Warrants. No
underwriter or placement agent has been engaged to assist the Company in
this regard and no commissions or similar compensation will be paid to any
party.
DESCRIPTION OF SHARES
The Company is authorized to issue up to 604,952 Shares pursuant to
this offering and 2,853,658.5365 Shares pursuant to the Current Public
Offering. The Shares have a $.01 par value. As of the completion of the
Initial Public Offering on March 15, 1996, 1,028,253 Shares were issued and
outstanding. An additional 73,170.7317 shares have been authorized and
registered for issuance pursuant to the Dividend Reinvestment Plan following
the termination of the Current Public Offering.
Each Share is entitled to participate equally in dividends when and
if declared by the Directors and in the distribution of assets of the
Company upon liquidation. Each Share is entitled to one vote and will be
fully paid and nonassessible by the Company when the Share is issued and
paid for. The Shares are not subject to redemption of the Company, except
in limited circumstances in order to preserve the Company's REIT status
under the REIT Provisions. The Shares have no preemptive rights (which are
intended to ensure that a Shareholder maintains the same ownership interest
(on a percentage basis) before and after the issue of additional Shares by
the Company). The Shares do not have cumulative voting under Maryland law
for the election of Directors. Other than shares of the Company's common
stock the Company currently does not intend to issue any securities other
than the Shares, although it may do so from time to time in either public
or private distributions.
The Directors may authorize the listing, issuance and sale of Shares
on a national security exchange or on NASDAQ. The Directors may determine
at a later date to list the Shares on a national securities exchange or on
NASDAQ, but no such decisions as to such listing has yet been made to do so.
Maryland law permits a Maryland corporation, if such power is provided for
in its charter, to classify or to reclassify any unissued stock by setting
or changing the preferences conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of the redemption of such stock, all as determined by the
Directors. The Company is not authorized and may do so only upon amendment
of its Charter.
Actual issuance of a certificate evidencing the Shares is optional,
except in those states where state laws or regulations require the Company
to issue certificates evidencing ownership of Shares. The Company may not
issue Share certificates unless it receives a request in writing to do so
together with a payment of $5.00 administrative charge to the extent such
fee may legally be charged. Shareholders who do not elect to receive Share
certificates will own such Shares in "uncertified" or "book entry" form and
will be treated in a like manner as those who do receive a certificate.
Owning Shares in uncertified or book entry form will (a) eliminate the
physical handling and safekeeping responsibilities inherent to owning
transferable certificates, and (b) eliminate the need to return a duly
executed Share certificate to the Transfer Agent to effect the transfer.
Transfers can be effected simply by mailing a duly executed stock power to
the Transfer Agent subject to transfer restrictions necessary to maintain
the Company's qualification as a REIT.
TRANSFER AND WARRANT AGENT
Service Data Corporation of Omaha, Nebraska, serves as transfer agent
for the Common Stock and as Warrant Agent for the Public Warrants and Sales
Warrants.
LEGAL MATTERS
The validity of the issuance of the 604,952 Shares of Common Stock
being offered hereby upon exercise of the Public Warrants and Sales Warrants
has been passed upon for the Company by Lieben, Dahlk, Whitted, Houghton
Slowiaczek & Jahn, P.C., 2027 Dodge Street, Suite 100, Omaha, Nebraska,
68102.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 have been audited
by Deloitte & Touche, LLP independent auditors, as stated in their report,
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
INDEMNIFICATION
The business and affairs of the Company are managed under the
direction of the Board of Directors, which has retained AAA to manage the
day-to-day affairs of the Company and its acquisition and disposition of
investments. Under Maryland law, each Director must perform his or her
duties in good faith, in a manner he or she reasonably believes to be in the
best interests of the Company and with the care of an ordinary prudent
person in a like position under similar circumstances. According to the
Bylaws of the Company, the Directors have a fiduciary duty to the Company
and the Shareholders and have a fiduciary duty to the Shareholders to
supervise the relationship of the Company with the Adviser. The Directors
have agreed to limit the indemnification they will seek from the Company in
accordance with the restrictions contained in the Bylaws. The Bylaws of the
Company generally provide that a Director may be indemnified for any
liability or loss suffered by him or her if (i) the Directors determine, in
good faith, that the course of conduct which caused such loss or liability
was in the best interests of the Company, (ii) the Director requesting
indemnification was acting on behalf of or performing services for the
Company, (iii) such liability or loss was not the result of negligence or
misconduct by the Director (or, in the case of an Independent Director,
gross negligence or willful misconduct) and (iv) such indemnification is
recoverable only out of the net assets of the Company.
In addition, the Directors have agreed to limit the indemnification
they will seek in connection with securities law violations in accordance
with the restrictions contained in the Bylaws. In the opinion of the SEC,
indemnification for liabilities arising under the Securities Act of 1933 is
against public policy and therefore unenforceable. In the event that a
claim for indemnification for liabilities arising under the Act (other than
the payment by the Company of expenses incurred or paid by the Directors in
the successful defense of any such action, suit or proceeding), is asserted
by the Directors in connection with the securities being registered, the
Company will submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
DEFINITIONS
"AAA" means American Asset Advisers Realty Corporation, a Texas
corporation whose sole shareholder is H. Kerr Taylor, the President and
Chairman of the Board of the Company.
"Act" means the Securities Act of 1933, as amended from time to time.
"Acquisition Expenses" means those expenses, including but not limited
to legal fees and expenses, travel and communications expenses, costs of
appraisals, non-refundable option payments on property not acquired,
accounting fees and expenses, title insurance, and miscellaneous expenses
related to selection and acquisition of properties, whether or not acquired.
Acquisition Expenses shall not include Acquisition Fees.
"Acquisition Fees" means the total of all fees and commissions paid
by any party to any party in connection with making or investing in mortgage
loans or the purchase, development or construction of property by the
Company. Included in the computation of such fees or commissions shall be
any real estate commission, selection fee, Development Fee, Construction
Fee, nonrecurring management fee, loan fees or points or any fee of similar
nature, however designated. Excluded shall be Development Fees and
Construction Fees paid to Persons not affiliated with the Sponsor in
connection with the actual development and construction of the project.
"Adviser" shall mean the Person responsible for directing or
performing the day-to-day business affairs of the Company, including a
Person to which an Adviser subcontracts substantially all such functions.
"Affiliate" means as to any person, any other person who (i) owns
beneficially, directly or indirectly, 10% or more of the outstanding capital
stock, shares or equity interests of such person; or (ii) is an officer,
retired officer, director, trustee, or general partner of such person; or
(iii) controls, is controlled by or is under common control with, such
person; or (iv) if such other person is an officer, director, trustee or
general partner of another entity, then the entity for which that person
acts in any capacity.
"American Asset Advisers Programs" means the AAA Net Realty Fund IX,
Ltd., AAA Net Realty Fund X, Ltd., AAA Net Realty Fund XI, Ltd., and any
other real estate limited partnerships or REITs sponsored by American Asset
Advisers Realty Corporation or its Affiliates with investment objectives
substantially similar.
"Appraisal" means the valuation of real property (which value may take
into consideration the existing state of the property or a state to be
created) by an independent, qualified appraiser who is a member in good
standing of the American Institute of Real Estate Appraisers (MAI) or is a
disinterested person who, in the judgment of the Directors, is qualified to
make such a determination. Each Appraisal shall be maintained in the
Company's records for at least five years and shall be available for
inspection and duplication by any Shareholder. The independent qualified
appraiser shall be selected by a majority of the Directors (including a
majority of the Independent Directors).
"Benefit Plan" means an IRA, Keogh or employee benefit plan subject
to Title I of ERISA or Section 4975 of the Code.
"Board of Directors, or Directors" means the persons holding such
office, as of any particular time, under the Charter, whether they be the
Directors named therein or additional or successor Directors.
"Bylaws" means the Bylaws of the Company.
"Charter" means the Charter of the Company filed with the State
Department of Assessments and Taxation of Maryland, as may be amended from
time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means American Asset Advisers Trust, Inc., a Maryland
corporation.
"Construction Fee" means a fee or other remuneration for acting as
general contractor and/or construction manager to construct improvements,
supervise and coordinate projects or to provide Major Repairs or
Rehabilitation on a Company project.
"Current Public Offering" means the Company's second public offering
of up to 2,853,658.5365 shares of the common stock of the Company, which
public offering commenced on June 18, 1996 and will terminate on the earlier
of the acceptance of subscriptions for Shares with aggregate offering price
of $29,250,000 or June 17, 1998 (subject to possible extension).
"Development Fee" means a fee for the packaging of the Company's
property, including negotiating and approving plans, and undertaking to
assist in obtaining zoning and necessary variances and necessary financing
for the specific property, either initially or at a later date.
"Director(s)" means, as of any particular time, the members of the
Board of Directors of the Company.
"Dividend Reinvestment Plan" or "Plan" shall mean the Company's
Dividend Reinvestment Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Exchange Act" means The Securities Exchange Act of 1934, as amended.
"Independent Directors" means the Director(s) of the Company who are
not associated and have not been associated within the last two years,
directly or indirectly, with the Sponsor or Adviser of the Company.
(a) A Director shall be deemed to be associated with the Sponsor or
Adviser if he or she:
i. owns an interest in the Sponsor, Adviser, or any of their
Affiliates; or
ii. is employed by the Sponsor, Adviser, or any of their
Affiliates; or
iii. is an officer or director of Sponsor, Adviser, or any of
their Affiliates; or
iv. performs services, other than as a Director, for the
Company; or
v. is a Director for more than three Companies organized by
the Sponsor or advised the Adviser; or
vi. has any material business or professional relationship
with the Sponsor, Adviser, or any of their Affiliates.
(b) For purposes of determining whether or not the business or
professional relationship is material, the gross revenue
derived by the prospective Independent Director from the
Sponsor and Adviser and Affiliates shall be deemed material per
se if it exceeds 5% of the prospective Independent Director:
i. annual gross revenue, derived from all sources, during
either of the last two years; or
ii. net worth, on a fair market value basis.
(c) An indirect relationship shall include circumstances in which
a Director's spouse, parents, children, siblings, mothers- or
fathers-in-law, sons- or daughters-in-law, or brothers- or
sisters-in-law is or has been associated with the Sponsor,
Adviser, any of their Affiliates, or the Company.
"Initial Public Offering" means the Company's first public offering
of up to 2,000,000 shares of the common stock of the Company and Warrants
to purchase 1,000,000 shares, which public offering terminated on March 15,
1996.
"IRA" means an Individual Retirement Account described in Section
408(a) of the Code or an individual retirement annuity described in Section
408(b) of the Code.
"KEOGH" means a retirement benefit plan covering a person with net
earnings from self-employment, also known as an H.R.10 plan.
"Leverage" means the aggregate amount of indebtedness of the Company
for money borrowed (including purchase money mortgage loans) outstanding at
any time, both secured and unsecured.
"Majority Vote" means the affirmative vote of at least a majority of
the Shares then outstanding represented and voting at a duly held meeting
at which a quorum is present or by written consent of the Shareholders.
"Net Assets" means the total assets (other than intangible) at cost
before deducting depreciation or other non-cash reserves less total
liabilities, calculated at least quarterly on a basis consistently applied.
"Participants" means those Limited Partners who elect to participate
in the Dividend Reinvestment Plan.
"Permitted Temporary Investments" means United States government
securities, certificates of deposit or other time or demand deposits of
commercial banks, savings banks, savings and loan associations or similar
institutions which have a net worth of at least $100,000,000 or in which
such certificates or deposits are fully insured by any Federal or state
government agency, United States dollar deposits in foreign branches of
banks which have a net worth of at least $100,000,000, bank repurchase
agreements covering securities of the United States government or
governmental agencies, commercial paper, bankers acceptances, public money
market funds or other similar short-term highly liquid investments.
"Person(s)" means individuals, corporations, limited partnerships,
general partnerships, joint stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts,
business trusts and any other entities, government agencies and political
subdivisions thereof.
"Prohibited Transaction" under the REIT Provisions means sale of
assets held by the Company primarily for sale to customers in the ordinary
course of business other than (i) foreclosure property and (ii) certain
dispositions of real estate assets which satisfy Section 857(b)(6)(C) of the
Code.
"Prospectus" means this prospectus pursuant to which the Company is
offering up to 604,952 Shares, as the same may at any time and from time to
time be amended or supplemented.
"Regulations" means the federal income tax regulations which are the
official United States Treasury Department interpretations of the Code.
"Reinvestment Agent" means the independent agent for Participants in
the Dividend Reinvestment Plan.
"REIT" or "Real Estate Investment Trust" means a real estate
investment trust as defined under Sections 856-860 of the Code.
"REIT Taxable Income" means the taxable income of a REIT, adjusted as
follows: (i) the deduction for distributions received allowable to trusts
under Sections 241 through 247, 249 and 250 of the Code is not allowed; (ii)
the deduction for distributions paid under Section 561 of the Code is
allowed, but is computed without regard to that portion of such deduction
attributable to net income from Foreclosure Property; (iii) taxable income
is computed without regard to Section 443(b) of the Code relating to the
computation of tax upon the change of an annual accounting period; (iv) net
income from Foreclosure Property that is not qualified REIT income without
regard to the foreclosure property provisions of the Code is excluded; (v)
the tax imposed for failing the 75% Income Test and/or the 95% Income Test
is deducted; and (vi) income derived from Prohibited Transactions is
excluded.
"Roll-Up Entity" means a partnership, real estate investment trust,
corporation, trust, or other entity that would be created or would survive
after the successful completion of a proposed Roll-Up transaction.
"SEC" means the Securities and Exchange Commission.
"Selected Dealers" means broker-dealers who are members of the NASD
and who have executed a Selected Dealer Agreement with the Company.
"Service" or "IRS" means The Internal Revenue Service.
"Shareholders" means those Persons who at any particular time are
shown as holders of record of Shares on the Books and records of the
Company.
"Share" means the Shares of the Company's $.01 par value common stock
offering pursuant to this Prospectus.
"Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any Person who will control,
manage or participate in the management of the Company, and any Affiliate
of such Person. Not included is any Person whose only relationship with the
Company is as that of an independent property manager of Company assets, and
whose only compensation is as such. Sponsor does not include wholly
independent third parties such as attorneys, accountants and underwriters
whose only compensation is for professional services. A Person may also be
deemed a Sponsor of the Company by:
(a) taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other persons;
(b) receiving a material participation in the Company in connection
with the founding or organizing of the business of the Company,
in consideration of services or property, or both services and
property;
(c) having a substantial number of relationships and contacts with
the Company;
(d) possessing significant rights to control Company properties;
(e) receiving fees for providing services to Company which are paid
on a basis that is not customary in the industry; or
(f) providing goods or services to the Company on a basis which was
not negotiated at arms length with the Company.
"Unimproved Real Property" means the real property of the Company
which has the following three characteristics:
(a) an equity interest in real property which as not acquired for
the purpose of producing rental or other operating income;
(b) has no development or construction in process on such land; and
no development or construction on such land is planned in good
faith to commence on such land within one year.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITOR OF AN OFFER TO BUY ANY OF THE SECURITIES TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995
AND 1994
AMERICAN ASSET ADVISERS TRUST, INC.
F-1
AMERICAN ASSET ADVISERS TRUST, INC.
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report F-3
Consolidated Balance Sheets, December 31, 1996 F-4
and 1995
Consolidated Statements of Operations for the Years F-5
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity F-6
for the Years Ended December 31, 1996, 1995
and 1994
Consolidated Statements of Cash Flows for the Years F-7 to F-8
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for the F-9 to F-14
Years Ended December 31, 1996, 1995 and 1994
F-2
INDEPENDENT AUDITORS' REPORT
American Asset Advisers Trust, Inc.
We have audited the accompanying consolidated balance sheets of
American Asset Advisers Trust, Inc. (the "Company") as of
December 31, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/Deloitte & Touche, LLP
DELOITTE & TOUCHE LLP
Houston, Texas
February 14, 1997
F-3
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
CASH AND CASH EQUIVALENTS $ 1,616,311 $ 1,564,961
ACCOUNTS RECEIVABLE 5,119 -
PROPERTY:
Escrow deposits 75,000 -
Land 4,634,941 2,152,103
Buildings 4,435,713 4,436,074
9,145,654 6,588,177
Accumulated depreciation (195,256) ( 81,512)
TOTAL PROPERTY 8,950,398 6,506,665
NET INVESTMENT IN DIRECT
FINANCING LEASES 3,151,797 582,753
OTHER ASSETS:
Prepaid acquisition costs 74,336 77,761
Prepaid issuance costs 101,399 -
Accrued rental income 74,625 23,845
Organization costs, net of
accumulated amortization
of $160,919 and $99,130,
respectively 152,849 214,638
TOTAL OTHER ASSETS 403,209 316,244
TOTAL ASSETS $ 14,126,834 $ 8,970,623
LIABILITIES AND
SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 36,235 $ 67,481
Compensation payable 150,000 150,000
Security deposit 15,050 15,050
TOTAL LIABILITIES 201,285 232,531
MINORITY INTEREST 3,631,847 1,596,169
SHAREHOLDERS' EQUITY
Common stock, $.01 par
value, 25,000,000 shares
authorized, 1,204,925 and
827,876 shares issued and
outstanding, respectively 12,049 8,279
Additional paid-in capital 10,780,847 7,438,368
Accumulated distributions
in excess of earnings (499,194) (304,724)
TOTAL SHAREHOLDERS' EQUITY 10,293,702 7,141,923
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 14,126,834 $ 8,970,623
See Notes to Consolidated Financial Statements
F-4
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
REVENUES
RENTAL INCOME FROM
OPERATING LEASES $ 780,768 $ 434,563 $ 93,552
EARNED INCOME FROM
DIRECT FINANCING LEASES 144,020 60,574 28,090
INTEREST INCOME 137,528 127,947 37,564
TOTAL REVENUES 1,062,316 623,084 159,206
EXPENSES
ADMINISTRATIVE 37,910 - 2,954
AMORTIZATION 61,789 61,470 35,265
COMPENSATION - 150,000 -
DEPRECIATION 113,744 66,966 14,546
DIRECTORS' FEES 15,000 16,500 10,500
INTEREST 5,000 - -
LEGAL AND PROFESSIONAL
FEES 41,060 49,863 5,531
PRINTING 4,089 7,835 -
OTHER 24,265 14,626 2,498
TOTAL EXPENSES 302,857 367,260 71,294
INCOME BEFORE MINORITY
INTEREST IN NET INCOME OF
CONSOLIDATED JOINT VENTURES 759,459 255,824 87,912
MINORITY INTEREST IN NET
INCOME OF CONSOLIDATED
JOINT VENTURES (216,652) (92,378) (8,367)
NET INCOME $ 542,807 $ 163,446 $ 79,545
NET INCOME PER SHARE:
PRIMARY $ .51 $ .24 $ .32
FULLY DILUTED $ .50
WEIGHTED AVERAGE COMMON
& COMMON EQUIVALENT
SHARES:
PRIMARY 1,066,353 672,794 251,768
FULLY DILUTED 1,329,494
See Notes to Consolidated Financial Statements
F-5
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Accumulated
Additional Distributions
Common Paid-In In Excess of
Stock -Capital Earnings Total
Balance at
December 31,1993 $ 200 $ 199,810 $ (2,395) $ 197,615
Issuance of
common stock 4,709 4,704,495 - 4,709,204
Issuance costs - (485,300) - (485,300)
Distributions
($.35 per share) - - (126,235) (126,235)
Net income - - 79,545 79,545
Balance at
December 31, 1994 4,909 4,419,005 (49,085) 4,374,829
Issuance of
common stock 3,370 3,366,175 - 3,369,545
Issuance costs - (346,812) - (346,812)
Distributions
($.64 per share) - - (419,085) (419,085)
Net income - - 163,446 163,446
Balance at
December 31, 1995 8,279 7,438,368 (304,724) 7,141,923
Issuance of
common stock 3,770 3,810,883 - 3,814,653
Issuance costs - (468,404) - (468,404)
Distributions
($.71 per share) - - (737,277) (737,277)
Net income - - 542,807 542,807
Balance at
December 31,1996 $12,049 $10,780,847 $(499,194) $10,293,702
See Notes to Consolidated Financial Statements
F-6
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 542,807 $ 163,446 $ 79,545
Adjustments to reconcile
net income to net cash
flows from operating
activities:
Amortization 61,789 61,470 35,265
Depreciation 113,744 66,966 14,546
Increase in minority
interest 216,652 92,378 8,367
Decrease (increase)
in accounts receivable (5,119) 69 (69)
Increase (decrease)
in accounts payable (31,246) 66,058 1,423
Increase in compensation
payable - 150,000 -
Increase in security
deposits - 15,050 -
Cash receipts from direct
financing lease in excess
of income recognized 1,017 2,980 100
Increase in escrow
deposits (38,250) - -
Increase in accrued
rental income (50,780) (23,845) -
Increase in
organization costs - (20,355) (234,595)
NET CASH FLOWS PROVIDED
BY (USED IN) OPERATING
ACTIVITIES 810,614 574,217 (95,418)
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisitions of real
estate:
Accounted for under the
operating lease method (1,695,146) (2,715,431) (2,262,667)
Accounted for under the
direct financing lease
method (1,342,805) (1,337) (584,496)
Change in prepaid
acquisition costs 3,425 (77,084) (677)
NET CASH FLOWS USED
IN INVESTING
ACTIVITIES (3,034,526) (2,793,852) (2,847,840)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock, net 3,346,249 3,022,733 4,223,904
Prepaid issuance costs (101,399) - -
Distributions paid to
shareholders (737,277) (419,085) (126,235)
Distributions to
minority interest
partners (232,311) (104,639) (10,016)
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES 2,275,262 2,499,009 4,087,653
NET INCREASE IN CASH
& CASH EQUIVALENTS 51,350 279,374 1,144,395
CASH & CASH EQUIVALENTS,
beginning of period 1,564,961 1,285,587 141,192
CASH & CASH EQUIVALENTS,
end of period $1,616,311 $1,564,961 $1,285,587
See Notes to Consolidated Financial Statements
F-7
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
SUPPLEMENTAL SCHEDULE
OF NON-CASH FINANCING
ACTIVITIES:
Escrow deposit
contributed by partner
of the consolidated
joint ventures $ 36,750 $ - $ -
Minority owners share
of real estate
acquired:
Accounted for under
the operating lease
method $ 787,331 $ 874,943 $ 735,136
Accounted for under
the direct financing
lease method 1,227,256 - -
Total minority owners
share of real estate
acquired $2,014,587 $ 874,943 $ 735,136
See notes to Consolidated Financial Statements.
F-8
AMERICAN ASSET ADVISERS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
American Asset Advisers Trust, Inc. ("the Company") was
incorporated on August 17, 1993 as a Maryland corporation. The
initial issuance of 20,001 shares of stock for $200,010 was to
American Asset Advisers Realty Corporation ("AAA"). Commencing
March 17, 1994, the Company offered up to 2,000,000 additional
shares of common stock together with 1,000,000 warrants. The
Company is in the process of registering shares of common stock
for issuance upon the exercise of the outstanding warrants. The
warrants are exercisable at $9 per share between March 17, 1997
and March 16, 1998. As of December 31, 1996, 504,126 warrants
were outstanding. The offering period of the initial public
offering terminated on March 15, 1996 with 1,008,252 shares being
issued. On June 18, 1996, the Company offered up to 2,853,659
additional shares of its common stock. The offering will
terminate June 17, 1998, unless terminated earlier. As of
December 31, 1996, 176,672 shares in this second offering were
issued, bringing the total shares issued and outstanding to
1,204,925 shares.
The Company was formed to acquire commercial and industrial real
estate properties using invested and borrowed funds. The
selection, acquisition and supervision of the operation of the
properties is managed by AAA, a related party.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of
American Asset Advisers Trust, Inc. and its four controlled joint
ventures with related parties.
BASIS OF ACCOUNTING
The financial records of the Company are maintained on the
accrual basis of accounting whereby revenues are recognized when
earned and expenses are recorded when incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Cash and cash equivalents consist of demand deposits at
commercial banks and money market funds.
REAL ESTATE
Real estate is leased to others on a net lease basis whereby all
operating expenses related to the properties, including property
taxes, insurance and common area maintenance are the
responsibility of the tenant. The leases are accounted for under
the operating lease method or the direct financing lease method.
Under the operating lease method, the properties are recorded at
cost. Rental income is recognized ratably over the life of the
lease and depreciation is charged based upon the estimated useful
life of the property. Under the direct financing lease method,
properties are recorded at their net investment (see Note 3).
Unearned income is deferred and amortized to income over the life
of the lease so as to produce a constant periodic rate of return.
F-9
The Company's lease agreements do not provide for contingent
rentals.
The Company obtains an appraisal on each property prior to a
property's acquisition and also performs an annual valuation
update to evaluate potential impairment for each property for
which an appraisal is older than twelve months. This valuation
is based on capitalization of income for each property, a review
of current market conditions and any significant events or
factors which would indicate a potential impairment to the value
of a property.
DEPRECIATION
Buildings are depreciated using the straight-line method over an
estimated useful life of 39 years.
ORGANIZATION COSTS
Organization costs incurred in the formation of the Company are
amortized on a straight-line basis over five years.
STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
No cash was paid for interest during 1996, 1995 or 1994.
FEDERAL INCOME TAXES
The Company is qualified as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, and is,
therefore, not subject to Federal income taxes provided it meets
all conditions specified by the Internal Revenue Code for
retaining its REIT status, including the requirement that at
least 95% of its real estate investment trust taxable income is
distributed by March 15 of the following year.
NET INCOME PER SHARE
The number of shares used in primary net income per share
calculations are based on the weighted average number of shares
of common stock outstanding. The number of shares used in the
fully diluted net income per share calculations are based on the
weighted average number of shares of common stock outstanding and
the assumption that the warrants were exercised using the
treasury stock method.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the carrying value of financial instruments
consisting of cash, cash equivalents, accounts receivable and
liabilities approximates their fair value.
F-10
2. OPERATING LEASES
A summary of minimum future rentals, exclusive of any renewals,
under noncancellable operating leases in existence at December
31, 1996 is as follows:
1997 $ 932,543
1998 $ 936,961
1999 $ 963,178
2000 $ 988,006
2001 $ 997,043
2002-2016 $ 6,469,568
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in its direct financing leases at
December 31, 1996 and 1995 included:
1996 1995
Minimum lease payments
receivable $ 7,441,043 $ 1,383,086
Unguaranteed residual value 1,557,904 289,209
Less: Unearned income 5,847,150 1,089,542
$ 3,151,797 $ 582,753
A summary of minimum future rentals, exclusive of any renewals,
under the noncancellable direct financing leases are summarized
as follows:
1997 $ 330,229
1998 $ 330,229
1999 $ 333,165
2000 $ 336,590
2001 $ 343,251
2002-2016 $ 5,767,559
4. MINORITY INTEREST
On September 23, 1996, the Company formed a joint venture, AAA
Joint Venture 96-2, with AAA Net Realty Fund XI, Ltd., an
affiliated partnership. The joint venture was formed for the
purpose of acquiring a parcel of land in The Woodlands, Texas
upon which the tenant, Bank United, will construct a branch bank
building at its cost. At the termination of the lease the
improvements will be owned by the joint venture. The Company's
interest in the joint venture is 51%. The minority interest is
49%.
On April 5, 1996, the Company formed a joint venture, AAA Joint
Venture 96-1, with AAA Net Realty Fund XI, Ltd. and AAA Net
Realty Fund X, Ltd., affiliated partnerships, for the purpose of
acquiring a property which is being operated as a Just For Feet
retail store in Tucson, Arizona. The property was purchased on
September 11, 1996 after construction was completed. The
Company's interest in the joint venture is 51.9%. The minority
interest is 48.1%.
On September 12, 1995, the Company formed a joint venture, AAA
Joint Venture 95-2, with AAA Net Realty Fund XI, Ltd., an
affiliated partnership, for the purpose of acquiring a property
in Wichita, Kansas on lease to Blockbuster Music Retail, Inc.
The Company's interest in the joint venture is 51%. The minority
interest is 49%.
F-11
On October 27, 1994, the Company formed a joint venture, AAA
Joint Venture 94-1, with AAA Net Realty Fund X, Ltd., an
affiliated partnership, for the purpose of acquiring a property
in Independence, Missouri on lease to Blockbuster Music Retail,
Inc. The Company's interest in the joint venture is 54.84%. The
minority interest is 45.16%.
5. MAJOR TENANTS
The Company's operations are all related to the acquisition and
leasing of commercial real estate properties. The following
schedule summarizes rental income by lessee for 1996, 1995 and
1994 under both operating lease and direct financing lease
methods of accounting:
1996 1995 1994
Tandy Corporation
(Mesquite, Texas) $ 108,900 $ 108,903 $ 59,290
America's Favorite
Chicken Company
(Smyrna, Georgia) $ 91,875* $ 94,118 $ 40,173
Blockbuster Music
Retail, Inc.
(Independence, Missouri
and Wichita, Kansas) $ 377,901 $ 238,906 $ 22,179
OneCare Health
Industries, Inc.
(Houston, Texas) $ 201,638 $ 53,210 $ -
Just For Feet, Inc.
(Tucson, Arizona) $ 123,244 $ - $ -
Bank United
(The Woodlands, Texas
and Houston, Texas) $ 21,230 $ - $ -
Total $ 924,788 $ 495,137 $ 121,642
*Decrease resulted from recognition of earned income under the
direct financing lease method of accounting. Rental payments
received remained unchanged from 1995.
6. FEDERAL INCOME TAXES
The differences between net income for financial reporting
purposes and taxable income before distribution deductions relate
primarily to temporary differences and to certain organization
costs which are amortized for financial reporting purposes only.
For income tax purposes, distributions paid to shareholders
consist of ordinary income, capital gains and return of capital
as follows:
1996 1995 1994
Ordinary Income $ 545,967 $ 342,210 $ 105,456
Capital gains - - -
Return of capital 191,310 76,875 20,779
$ 737,277 $ 419,085 $ 126,235
7. RELATED PARTY TRANSACTIONS
20,001 Shares of the Company's stock are owned by AAA. The
common stock of AAA is wholly owned by the president and director
of the Company. In addition, the Company has entered into an
Omnibus Services Agreement with AAA whereby AAA provides property
acquisition, leasing, administrative and management services for
the Company. $37,910 and $2,954 were incurred and paid to AAA
during 1996 and 1994, respectively, for such services.
F-12
Certain costs have been incurred by AAA in connection with the
organization and syndication of the Company. Reimbursement of
these costs become obligations of the Company in accordance with
the terms of the offering. The costs to organize the Company
have been capitalized as Organization Costs. For the year ended
December 31, 1994, $58,110 in reimbursements had been incurred
and paid to AAA. In addition, $98,494 and $64,848 of costs were
incurred by AAA in 1996 and 1995, respectively, in connection
with the issuance and marketing of the Company's stock. These
costs are reflected as issuance costs. $9,256 of these costs were
owed to AAA at December 31, 1995.
Acquisition fees, including real estate commissions, finders
fees, consulting fees and any other non-recurring fees incurred
in connection with locating, evaluating and selecting properties
and structuring and negotiating the acquisition of properties are
included in the basis of the properties. Acquisition fees of
$222,785, $232,378 and $131,077 were incurred and paid to AAA
during 1996, 1995 and 1994, respectively.
On August 22, 1995, the Board of Directors approved a special
compensation payment for the president in the amount of $150,000
for services provided from August 1993 through August 1995. In
connection therewith, the Company executed a demand note payable
at the earlier of July 15, 1996 or the receipt of $10,000,000
from the Company's stock offering. The note shall be payable in
cash or stock depending on the availability of cash for such
payment. No compensation arrangements were considered by the
Board prior to this time because the Company had not raised
sufficient funds through its stock offering, as determined by the
judgment of the Board, considered necessary for any compensation
to be granted. The compensation had not been accrued prior to
August 22, 1995 because its payment was uncertain and the level
of compensation had not been determined until the August 1995
Board meeting. As of the termination of the initial public
offering in March 1996, the Company had sold in excess of
$10,000,000. Although the president can demand payment on the
note, such demand has not been made. The decision regarding the
nature of the payment, whether in stock or cash, will be made by
the Board of Directors at the time the president demands payment.
In consideration that no payment has been demanded by the
president for the special compensation payment, the Board of
Directors approved at its August 1, 1996 meeting the payment of
interest to the president at an annual rate of 8%. This interest
payment will be paid in cash or in stock. As of December 31,
1996, $5,000 of interest has been accrued related to this note.
No decisions as yet have been made with respect to any additional
compensation for any period after August 1995. The Board of
Directors commissioned an external study with respect to the
amount and type of compensation which could be paid in the future
to officers and/or directors, as well as the contingencies and
performance standards on which compensation will be determined.
The compensation portion of the study has been completed and will
be considered at such time as the Board determines in the future
to consider a new compensation arrangement. Accordingly, the
financial statements do not include any accruals for compensation
subsequent to August 1995.
In accordance with the terms of the Company's public offering, up
to 15% of the gross offering proceeds will be used to pay
aggregate selling commissions and other issuance costs incurred
by the Company. Any excess costs incurred by the Company are the
obligation of AAA. At December 31, 1996, $101,399 of such costs
had been incurred by the Company in excess of the amount allowed
from the offering proceeds. AAA's obligation to fund such costs
is dependent upon future proceeds from the public offering.
See Note 4 for joint venture agreements with related parties.
F-13
8. PROPERTY ACQUISITIONS IN 1996
On December 11, 1996, the Company purchased real estate located
in Houston, Texas for $849,462. The property is a tract of
undeveloped land on which the tenant, Bank United, intends to
construct a branch bank. The lease agreement is for fifteen
years, however the tenant has the option to renew the lease for
one additional term of five years. The lease has provisions for
an escalation in the rent after the fifth and tenth years of the
lease. The Company recorded $5,119 of rental income from Bank
United for 1996.
On December 11, 1996, the Company entered into an agreement with
SCC Baton Rouge JFF, Ltd. for the purchase of a property to be
constructed in Baton Rouge, Louisiana. The property will be
acquired subject to a lease with Just For Feet, Inc. The
purchase price for the property will total approximately
$2,670,000 and will be paid with funds raised from the Company's
stock offering (See Note 1) and through a joint venture with a
related party.
On September 23, 1996, the Company purchased a 51% interest in
real estate located in The Woodlands, Texas through a joint
venture with a related party for the purchase price of $270,300.
The property is a tract of undeveloped land on which the tenant,
Bank United, will construct a branch bank. The lease agreement
extends for fifteen years, however the tenant has the option to
renew the lease for one additional term of five years. The lease
has provisions for an escalation in the rent after the fifth and
tenth years of the lease. The Company recorded $16,111 of rental
income from Bank United for 1996.
On September 11, 1996, the Company acquired a 51.9% interest in
a newly constructed property on lease to Just For Feet, Inc.
through a joint venture with two related parties for the purchase
price of $1,918,189. The lease agreement extends for twenty
years, however the tenant has the option to renew the lease for
two additional terms of five years each. The lease has
provisions for an escalation in the rent after the fifth, tenth,
and fifteenth years of the lease. The Company recorded $123,244
of income from Just For Feet for 1996.
As no buildings had previously been constructed on any of the
properties acquired by the Company during 1996, the rental income
received by the Company from these properties represents the
initial results of operations. Consequently, no pro-forma
information is presented.
F-14
EXHIBIT A
PRIOR PERFORMANCE TABLES
The information in this section shows certain relevant summary
information concerning prior partnerships sponsored by Affiliates
(the "Prior Programs") which had investment objectives similar to
the Company.
The investment objectives of these prior programs, which are
substantially the same as those of the Company, generally include
preservation of capital, the potential for increased income and
protection against inflation, potential for capital appreciation
and partially tax-sheltered cash distributions.
INVESTORS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES
AS IMPLYING, IN ANY MANNER, THAT THE COMPANY WILL HAVE RESULTS
COMPARABLE TO THOSE REFLECTED IN SUCH TABLES. DISTRIBUTABLE CASH
FLOW, FEDERAL INCOME TAX DEDUCTIONS OR OTHER FACTORS COULD BE
SUBSTANTIALLY DIFFERENT. INVESTORS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY
INTEREST IN ANY PRIOR PROGRAMS.
DESCRIPTION OF TABLES
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table VI - Acquisitions of Properties by Programs
All information contained in Tables I, II, III and VI is as of
December 31, 1996. The following is a brief description of the
Tables:
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I presents information on a percentage basis showing the
experience of the General Partners and Affiliates in raising and
investing funds for the Prior Programs, the offerings of which
closed in the three year period ended December 31, 1996.
The Table sets forth information on the offering expenses
incurred and amounts available for investment expressed as a
percentage of dollars raised. The Table also shows the date the
offering commenced and the time required to raise funds for
investment.
P-1
TABLE II - COMPENSATION TO SPONSOR
Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to the General Partners or
Affiliates of the Prior Programs.
The Table indicates the total offering proceeds and the portion
of such offering proceeds paid to the General Partners and
Affiliates in connection with the Prior Programs, the offerings
of which closed in the three year period ended December 31, 1996.
The Table also shows the amounts paid to the General Partners and
Affiliates from cash generated from operations on a cumulative
basis commencing with inception and ending December 31, 1996.
TABLE III - OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents a summary of operating results of the Prior
Programs, the offerings of which closed in the five year period
ended December 31, 1996.
TABLE IV - RESULTS OF COMPLETED PROGRAMS
Table IV is omitted from this section because none of the General
Partners or Affiliates have been involved in completed programs
which had investment objectives similar to those of the Company.
TABLE V - SALES OR DISPOSAL OF PROPERTIES
Table V is omitted from this section because there have been no
property sales or disposal from any of the Prior Programs.
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS
Table VI provides certain information pertaining to properties acquired
during the past three years by the Prior Programs.
PRIOR PROGRAMS
Information in this section pertains to the following programs:
AAA Net Realty Fund Goodyear, Ltd. - "AAA Goodyear"
AAA Net Realty Fund IX, Ltd. - "AAA Net Realty IX"
AAA Net Realty Fund X, Ltd. - "AAA Net Realty X"
AAA Net Realty Fund XI, Ltd. - "AAA Net Realty XI"
P-2
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(Unaudited)
AAA NET AAA NET
REALTY REALTY
FUND X FUND XI
Dollar Amount Offered $20,000,000 $20,000,000
Dollar Amount Raised $11,453,610 $7,061,200
Less Offering Expenses:
Selling Commissions
and Discounts 8.0% 8.0%
Organizational Expenses (1) 2.6% 4.2%
Marketing Support & Due Diligence 2.5% 2.5%
Reserve for Operations 1.0% 1.0%
Percent Available for
Investment 88.4% 84.3%
Acquisition Costs
Cash Down Payment 77.4% 40.9%
Acquisition Fees (2) 3.8% 2.0%
Other 0.0% 0.0%
Total Acquisition Costs 81.2% 42.9%
Percent Leveraged 0.0% 0.0%
Date Offering Began 9-17-92 10-27-94
Length of Offering (in months) 24 24
Months to Invest 90% of
Amount Available for
Investment (Measured from
Beginning of Offering) 28 N/A
(1) Organizational expenses include legal, accounting, printing, escrow,
filing, recording and other related expenses associated with the
formation and original organization of the Partnership and also
included fees paid to affiliates.
(2) Acquisition fees include fees paid to the general partner.
P-3
TABLE II
COMPENSATION TO SPONSOR
(Unaudited)
FEES PAID
WITHIN LAST
AAA NET AAA NET 3 YEARS FOR
REALTY REALTY ALL OTHER
FUND X FUND XI PROGRAMS (1)
Date Offering Commenced 9-17-92 10-27-94 1985-1990
Dollar Amount Raised $11,453,610 $7,061,200 $12,150,500
Amount paid to sponsor from
proceeds of offering:
Underwriting fees $0 $0 $0
Acquisition fees $436,046 $141,321 $0
Real estate commissions $0 $0 $0
Advisory Fees $0 $0 $0
Reimbursement for
organizational expense $54,602 $190,545 $0
Other $0 $0 $0
Dollar amount of cash
generated from operations
before deducting payments
to sponsor $2,574,522 $417,858 $3,298,276
Amount paid to sponsor from
operations:
Property management fee $0 $0 $0
Reimbursements $150,179 $17,832 $144,900
Leasing Commissions $0 $0 $0
Other (General Partner
Distributions) $10,350 $2,040 $29,456
Dollar amount of property sales
and refinancing before
deducting payments to sponsor
-cash N/A N/A N/A
-notes N/A N/A N/A
Amount paid to sponsor from
property sales and
refinancing:
Real Estate Commissions N/A N/A N/A
Incentive fees N/A N/A N/A
Other (identify & quantify) N/A N/A N/A
(1) Represents information for eight private programs sponsored between 1985
and 1990.
P-4
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
AAA NET REALTY GOODYEAR (1) (2)
(Unaudited)
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Revenues $2,586 $85,490 $107,333 $107,376 $107,443 $107,438 $107,347
Profit on sale of
properties $0 $0 $0 $0 $0 $0 $0
Less: Operating expenses (4) $59 $12,933 $5,945 $6,016 $4,942 $3,994 $4,840
Interest expense $0 $0 $0 $0 $0 $0 $0
Depreciation and
amortization $1,572 $27,918 $36,372 $36,372 $36,372 $34,801 $22,872
Net Income - GAAP Basis $955 $44,639 $65,016 $64,988 $66,129 $68,643 $79,635
Taxable Income
-from operations $955 $44,639 $65,016 $64,988 $66,129 $68,643 $79,635
-from gain on sale $0 $0 $0 $0 $0 $0 $0
Cash generated
-from operations (5) $1,767 $65,762 $86,959 (8) $101,278 $102,480 $118,026 $91,054 (8)
Cash generated from sales $0 $0 $0 $0 $0 $0 $0
Cash generated from
refinancing $0 $0 $0 $0 $0 $0 $0
Cash generated from
operations, sales and
refinancing $1,767 $65,762 $86,959 $101,278 $102,480 $118,026 $91,054
Less: Cash distributions
to investors (3)
-from operating cash flow $0 $59,180 $101,388 $100,392 $100,392 $100,392 $100,392
-from cash flow from prior
period $0 $0 $589 $0 $0 $0 $0
-from sales and refinancing $0 $0 $0 $0 $0 $0 $0
-from return of capital $0 $105,910 (7) $0 $0 $0 $0 $0
Cash generated (deficiency)
after cash distributions
to investors $1,767 ($99,328) ($15,018) (8) $886 $2,088 $17,634 ($9,338) (8)
Less: Cash distributions to
general partner $0 $452 $960 $880 $960 $960 $960
Cash generated (deficiency)
after cash distributions $1,767 ($99,780) ($15,978) $6 $1,128 $16,674 ($10,298)
Special items (not including
sales and refinancing):
Limited partners'
capital contributions $385,000 $950,000 $0 $0 $0 $0 $0
General partner's
capital contributions $0 $0 $0 $0 $0 $0 $0
Organization and syndication
costs ($57,750) ($116,550) $0 $0 $0 $0 $0
Property acquisitions ($9,000) ($1,020,260) $0 $0 $0 $0 $0
Cash generated (deficiency)
after cash distributions
and special items $320,017 ($286,590) ($15,978) $6 $1,128 $16,674 ($10,298)
TAX AND DISTRIBUTION DATA PER $1,000 INVESTED (7)
Federal Income Tax Results (6)
Ordinary income (loss)
-from operations $2.48 $33.43 $52.90 $52.87 $53.80 $55.85 $64.80
-from recapture $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Capital gain (loss) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Cash distributions to
Investors (6)
Source (on GAAP Basis)
-Investment income from
current period $0.00 $33.43 $52.90 (8) $52.87 $53.80 $55.85 $64.80 (8)
-Investment income from
prior period $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
-Return of capital (10) $0.00 $90.23 (7) $30.07 $28.81 $27.88 $25.83 $16.88
Source (on Cash Basis)
-Sales $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
-Refinancing $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
-Operations $0.00 $44.33 $82.50 (8) $81.68 $81.68 $81.68 $81.68 (8)
-Cash flow from prior period $0.00 $0.00 $0.47 $0.00 $0.00 $0.00 $0.00
-Return of capital $0.00 $79.33 (7) $0.00 $0.00 $0.00 $0.00 $0.00
Amount (in percentage terms)
remaining invested in program
properties at the end of the
last year reported in the
Table (original total
acquisition cost of properties
retained divided by original
total acquisition cost of all
properties in program) N/A 100% 100% 100% 100% 100% 100%
SEE NOTES TO TABLES
P-5
</TABLE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
AAA NET REALTY FUND IX (1) (2)
(Unaudited)
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues $141,719 $373,681 $491,922 $496,362 $500,716 $499,602
Profit on sale of
properties $0 $0 $0 $0 $0 $0
Less: Operating expenses (4) $50,197 $53,020 $37,189 $37,597 $39,746 $31,822
Interest expense $0 $0 $0 $0 $0 $0
Depreciation and
amortization $85,112 $213,492 $254,899 $255,250 $255,250 $197,605
Net Income - GAAP Basis $6,410 $107,169 $199,834 $203,515 $205,720 $270,175
Taxable Income
-from operations $54,461 $212,675 $313,034 $316,715 $318,920 $343,020
-from gain on sale $0 $0 $0 $0 $0 $0
Cash generated from
operations (5) $91,760 $325,702 $436,033 $487,354 $465,241 $460,245
Cash generated from sales $0 $0 $0 $0 $0 $0
Cash generated from refinancing $0 $0 $0 $0 $0 $0
Cash generated from operations,
sales and refinancing $91,760 $325,702 $436,033 $487,354 $465,241 $460,245
Less: Cash distributions to
investors (3)
-from operating cash flow $80,614 $318,949 $436,033 $452,802 $458,193 $458,462
-from cash flow from prior
period $0 $0 $11,378 $0 $0 $0
-from sales and refinancing $0 $0 $0 $0 $0 $0
-from return of capital $0 $0 $0 $0 $0 $0
Cash generated (deficiency)
after cash distributions to
investors $11,146 $6,753 ($11,378) $34,552 $7,048 $1,783
Less: Cash distributions to
general partner $814 $3,000 $3,000 $3,000 $3,000 $3,000
Cash generated (deficiency)
after cash distributions $10,332 $3,753 ($14,378) $31,552 $4,048 ($1,217)
Special items (not including
sales and refinancing):
Limited partners' capital
contribution $3,661,500 $1,729,000 $0 $0 $0 $0
General partner's capital
contribution $1,000 $0 $0 $0 $0 $0
Organization and syndication
costs ($549,225) ($259,354) $0 $0 $0 $0
Property acquisitions ($2,710,544) ($1,601,769) ($124,556) $0 $0 $0
Cash generated (deficiency)
after cash distributions
and special items $413,063 ($128,370) ($138,934) $31,552 $4,048 ($1,217)
TAX AND DISTRIBUTION DATA PER $1,000 INVESTED
Federal Income Tax Results: (6)
Ordinary income (loss)
-from operations $14.87 $39.45 $58.07 $58.75 $59.16 $63.63
-from recapture $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Capital gain (loss) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Cash distributions to
Investors (6)
Source (on GAAP Basis)
-Investment income from
current period $14.87 $39.45 $58.07 $58.75 $59.16 $63.63
-Investment income from
prior period $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
-Return of capital (10) $7.15 $19.72 $24.93 $25.25 $25.84 $21.42
Source (on Cash Basis)
-Sales $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
-Refinancing $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
-Operations $22.02 $59.17 $83.00 $84.00 $85.00 $85.05
-Cash flow from prior period $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
-Return of capital $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Amount (in percentage terms)
remaining invested in program
properties at the end of the
last year reported in the Table
(original total acquisition cost 100% 100% 100% 100% 100% 100%
of properties retained divided
by original total acquisition
cost of all properties in
program)
SEE NOTES TO TABLES
P-6
</TABLE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
AAA NET REALTY FUND X (1) (2) (11)
(Unaudited)
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Gross Revenues $182,358 $666,798 $1,043,148 $1,050,106
Profit on sale of properties $0 $0 $0 $0
Less: Operating expenses (4) $13,430 $48,868 $94,818 $95,233
Interest expense $0 $0 $0 $0
Depreciation and
amortization $59,563 $145,271 $216,557 $217,661
Net Income - GAAP Basis $109,365 $472,659 $731,773 $737,212
Taxable Income
-from operations $109,365 $460,870 $681,850 $683,504
-from gain on sale $0 $0 $0 $0
Cash generated from
operations (5) $199,482 $537,731 $972,758 $913,854
Cash generated from sales $0 $0 $0 $0
Cash generated from refinancing $0 $0 $0 $0
Cash generated from operations,
sales and refinancing $199,482 $537,731 $972,758 $913,854
Less: Cash distributions to
investors (3)
-from operating cash flow $116,054 $515,254 $879,065 $913,854
-from cash flow from prior
period $0 $0 $0 $3,007
-from sales and refinancing $0 $0 $0 $0
-from return of capital $0 $0 $0 $0
Cash generated (deficiency) after
cash distributions to investors $83,428 $22,477 $93,693 $3,007
Less: Cash distributions to
general partner $0 $2,650 $4,100 $3,600
Cash generated (deficiency) after
cash distributions $83,428 $19,827 $89,593 $6,607
Special items (not including
sales and refinancing):
Limited partners' capital
contributions $6,468,550 $4,985,060 $0 $0
General partner's capital
contributions $944 (9) $0 $0 $0
Organization and syndication
costs ($970,283) ($532,346) $0 $0
Property acquisitions ($3,113,096) ($4,781,519) ($1,425,353) ($624,732)
Cash generated (deficiency)
after cash distributions and
special items $2,469,543 ($308,978) ($1,335,760) ($631,339)
TAX AND DISTRIBUTION DATA PER $1,000 INVESTED
Federal Income Tax Results (6)
Ordinary income (loss)
-from operations $16.91 $40.24 $59.53 $59.68
-from recapture $0.00 $0.00 $0.00 $0.00
Capital gain (loss) $0.00 $0.00 $0.00 $0.00
Cash distributions to
Investors (6)
Source (on GAAP Basis)
-Investment income from current
period $16.91 $40.24 $59.53 $59.68
-Investment income from prior
period $0.00 $0.00 $0.00 $0.00
-Return of capital (10) $1.03 $4.75 $17.22 $20.37
Source (on Cash Basis)
-Sales $0.00 $0.00 $0.00 $0.00
-Refinancing $0.00 $0.00 $0.00 $0.00
-Operations $17.94 $44.99 $76.75 $80.05
-Cash flow from prior period $0.00 $0.00 $0.00 $0.00
-Return of capital $0.00 $0.00 $0.00 $0.00
Amount (in percentage terms)
remaining invested in program
properties at the end of the
last year reported in the Table N/A N/A N/A 100%
(original total acquisition cost
of properties retained divided
by original total acquisition
cost of all properties in
program)
SEE NOTES TO TABLES
P-7
</TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
AAA NET REALTY FUND XI, LTD. (1) (2)
(Unaudited)
1995 1996
Gross Revenues $124,158 $341,383
Profit on sale of properties $0 $0
Less: Operating expenses (4) $20,790 $46,964
Interest expense $0 $0
Depreciation and amortization $26,058 $62,400
Net Income - GAAP Basis $77,310 $232,019
Taxable Income
-from operations $76,054 $212,043
-from gain on sale $0 $0
Cash generated from operations (5) $124,038 $275,988
Cash generated from sales $0 $0
Cash generated from refinancing $0 $0
Cash generated from operations,
sales and refinancing $124,038 $275,988
Less: Cash dividends to investors
-from operating cash flow $61,863 $275,433
-from cash flow from prior period $0 $0
-from sales and refinancing $0 $0
-from return of capital $0 $0
Cash generated (deficiency) after
cash dividends to investors $62,175 $555
Less: Cash distributions to
general partner $0 $2,040
Cash generated (deficiency) after
cash distributions $62,175 ($1,485)
Special items (not including
sales and refinancing):
Limited partners' capital contributions $3,828,490 $3,232,719
General partner's capital contributions $1,000 $0
Organization and syndication costs ($574,629) ($466,425)
Property acquisitions ($1,674,307) ($1,391,663)
Cash generated (deficiency) after cash
distributions and special items $1,642,729 $1,373,146
TAX AND DISTRIBUTION DATA PER $1,000 INVESTED
Federal Income Tax Results (6)
Ordinary income (loss)
-from operations $19.86 $30.02
-from recapture $0.00 $0.00
Capital gain (loss) $0.00 $0.00
Cash distributions to Investors (6)
Source (on GAAP Basis)
-Investment income from current period $16.16 $30.02
-Investment income from prior period $0.00 $0.00
-Return of capital (10) $0.00 $8.98
Source (on Cash Basis)
-Sales $0.00 $0.00
-Refinancing $0.00 $0.00
-Operations $16.16 $39.00
-Cash flow from prior period $0.00 $0.00
-Return of capital $0.00 $0.00
Amount (in percentage terms)
remaining invested in program
properties at the end of the last
year reported in the Table
(original total acquisition cost
of properties retained divided N/A N/A
by original total acquisition
cost of all properties in
program)
SEE NOTES TO TABLES
P-8
<TABLE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
Summarized as follows is certain information pertaining to the properties
acquired within the three years ended December 31, 1996 by prior programs
with investment objectives similar to those of the Company.
<CAPTION>
GROSS MORTGAGE PRICE
TYPE LEASABLE DATE FINANCING CASH &
PROPERTY/ OF SPACE OF AT DOWN ACQ. OTHER TOTAL
PROGRAM LOCATION* PROPERTY (Approx.)** PURCHASE PURCHASE PAYMENT FEE EXPENSES PRICE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Net TGI Friday's/
Realty Fund Texas Restaurant 9,200 Sq Ft 12/93 $0 $1,548,657 $1,548,657 $0 $1,548,657
X, Ltd.
Goodyear Tire
& Rubber Co/ Automotive
Texas Store 5,200 Sq Ft 03/94 $0 $538,945 $538,945 $0 $538,945
America's
Favorite
Chicken Co/
Georgia Restaurant 2,588 Sq Ft 07/94 $0 $881,334 $881,334 $0 $881,334
Computer City
Super Center/ Retail
Minnesota Outlet 15,000 Sq Ft 08/94 $0 $2,528,214 $2,528,214 $0 $2,528,214
Blockbuster
Music Store/ Retail
Missouri Store 15,158 Sq Ft 11/94 $0 $735,136 $735,136 $0 $735,136
OneCare Health
Industries/ Medical
Texas Facility 14,760 Sq Ft 01/95 $0 $1,477,838 $1,477,838 $0 $1,477,838
Just For Feet/ Retail
Arizona Store 19,400 Sq Ft 09/96 $0 $662,216 $662,216 $0 $662,216
AAA Net Blockbuster
Realty Fund Music Store/ Retail
XI, Ltd. Kansas Outlet 14,047 Sq Ft 09/95 $0 $874,943 $874,943 $0 $874,943
Blockbuster
Video Store/ Retail
Oklahoma Outlet 6,500 Sq Ft 12/95 $0 $789,871 $789,871 $0 $789,871
Just For Feet/ Retail
Arizona Store 19,400 Sq Ft 09/96 $0 $1,090,912 $1,090,912 $0 $1,090,912
Bank United/ Financial
Texas Institution 3,685 Sq Ft 09/96 $0 $261,393 $261,393 $0 $261,393
<FN>
* All properties are under lease to parent companies.
** Certain of these properties have been acquired by a joint venture
of two or three programs. Gross leasable space includes the full
approximate square footage of each property while the total price
reflects only each program's share of acquisition costs.
</FN>
P-9
</TABLE>
NOTES TO TABLE III
( 1) Taxable income is reflected on the cash basis for AAA
Goodyear and on the accrual basis for AAA Net Realty
Funds IX, X and XI. There are no significant
differences between income as reflected on the cash
basis for AAA Goodyear and income as would be
reflected on a GAAP basis.
( 2) Amortization of organizational costs is computed over a
period of 60 months. Depreciation of commercial real
property is determined on the straight-line method over
estimated useful lives ranging from 31.5 to 39 years.
( 3) Cash distributions to investors represents the amount
actually disbursed in each year to the limited
partners.
( 4) Operating expenses include management fees paid to
affiliates for such services as accounting, property
supervision, etc.
( 5) Cash generated from operations includes net income plus
depreciation and amortization plus any decreases in
accounts receivable and accrued rental income or
increases in accounts payable and minus any increases
in accounts receivable and accrued rental income or
decreases in accounts payable.
( 6) Tax and distribution data per $1,000 invested was
computed based on the number of units subscribed at
each year-end except for AAA Goodyear which is
discussed in Note (7) below. Contributions to
Programs IX, X and XI were $1,000 per unit. AAA Net
Realty IX had 3,661 units outstanding at December 31,
1991 and 5,390.5 units outstanding thereafter. AAA Net
Realty X had 6,468.55 units outstanding at December 31,
1993 and 11,453.61 units thereafter. AAA Net Realty XI
had 3,828.49 units outstanding at December 31, 1995 and
7,061.21 units thereafter.
( 7) After the final property was acquired by AAA Net Realty
Goodyear, funds remained in excess of the required
working capital reserve. $105,910, 7.9% of the
original funds raised, was returned to the
investors in the fall of 1991. Tax and Distribution
Data per $1,000 invested has been computed based upon a
net investment of $1,229,090 after this return of
capital.
( 8) In December 1992, a property tax payment was made from
the working capital reserve for which reimbursement was
received in January 1993. The source of distributions
for both years is reflected as operations. In December
1996, a similar property tax payment was made which was
reimbursed in January 1997. The source of
distributions for 1996 is also reflected as being
completely from operations.
( 9) The general partners' contribution consists of $1,000
from 1992 reduced by bank charges incurred before the
Partnership was formed.
(10) The amount of cash distributions paid to investors is
primarily determined by the operating profit before
depreciation and amortization deductions. The sources
of distributions from investment income in the Table is
net income after all deductions. Investment income
from the current period represents net income for the
year after all deductions. Investment income
from a prior period represents previously undistributed
net income from earlier years. The distributions shown
as a return of capital are generally the portion
attributable to depreciation and amortization.
(11) AAA Net Realty Fund X, Ltd. has been advised that it
has a contingent liability to investors who acquired
units after December 31, 1993 as a result of not
maintaining current information in the prospectus and
supplement. The maximum possible amount of this
contingent liability is approximately $5.5 million.
P-10
TABLE OF CONTENTS
Available Information; Documents Incorporated
by Reference.............................................8
Prospectus Summary............................................9
Risk Factors.................................................13
Use of Proceeds..............................................31
Dilution.....................................................31
Plan of Distribution.........................................32
Description of Shares........................................32
Legal Matters................................................33
Experts......................................................33
Indemnification..............................................33
Definitions..................................................34
Financial Statements.........................................F-1
Exhibits:
Prior Performance Tables................................Exhibit A
AMERICAN ASSET ADVISERS TRUST, INC.
604,952
Shares
------------
of Common Stock
PROSPECTUS
April_________, 1997
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table shows all expenses of the offering.
SEC Filing fee $ 1,849
Blue sky legal and filing fees $ 7,500
Printing costs $ 1,000
Legal fees and expenses $12,500
Accounting fees and expenses $ 3,000
Postage and Delivery $ 1,200
Miscellaneous $ 1,951
_______
Total $29,000
All amounts listed above, except for the registration fee, are
estimates. All expenses itemized above will be paid by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-418 of the Annotated Code of Maryland permits a corporation
to indemnify its directors, officers, employees and agents unless it is
established that: (I) the act or omission of the person was material to the
matter giving rise to the proceeding and was committed in bad faith or was
a result of active and deliberate dishonesty; or (ii) the person actually
received an improper personal benefit in money, property or services; or
(iii) in the case of any criminal proceeding, the person had reasonable
cause to believe that the act or omission was unlawful. Indemnification may
be made against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by the person in connection with the proceeding.
However, if the proceeding is won by or in the right of the corporation,
indemnification may not be made in respect of any proceeding in which the
person shall have been adjudged to be liable to the corporation.
A person may not be indemnified in respect to any proceeding charging
improper personal benefit, whether or not involving action in the person's
official capacity in which the person was adjudged to be liable on the basis
that personal benefit was improperly received.
The Directors of the Company have agreed to limit the indemnification
they will seek from the Company in accordance with the restrictions
contained in the Company's Bylaws. The Bylaws of the Company generally
provide that a Director may be indemnified for any liability or loss
suffered by him or her if (I) the Director is determined, in good faith,
that the course of conduct which caused such loss or liability was in the
best interest of the Company, (ii) the Directors requesting indemnification
was acting on behalf or performing services for the Company, (iii) such
liability or loss was not the result of negligence or misconduct by the
Director (or, in the case of an Independent Director, gross negligence or
willful misconduct) and (iv) such indemnification is recoverable only out
of the net assets of the Company.
Insofar as indemnification for liabilities arising under the Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
other than the payment by the Company of the expenses incurred or paid by
a director, officer of controlling person of the Company in the successful
defense of any action, (suit or proceeding) is asserted by the director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by its
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
ITEM 16. EXHIBITS. The following is a complete list of exhibits
filed as part of this Registration Statement, which exhibits are filed
herewith or incorporated by reference herein:
Exhibit
Number Title Method of filing
4 Specimen of Stock Certificate Incorporated by reference (1).
4.1 Articles of Incorporation of Incorporated by reference (1).
American Asset Advisers Trust, Inc.
4.2 Amended and Restated Bylaws of Incorporated by reference (2).
American Asset Advisers Trust, Inc.
4.3 Amendment to Amended and Restated Incorporated by reference (3).
Bylaws approved March, 1995.
4.4 Amendment to Amended and Restated Incorporated by reference (3).
Bylaws approved May, 1996.
4.5 Amendment to Amended and Restated Incorporated by reference (3).
Bylaws approved June, 1996.
5 Form of Opinion of Lieben, Dahlk, To be filed by Amendment.
Whitted, Houghton, Slowiaczek &
Jahn, P.C. as to legality of the
securities being registered,
including consent.
5.1 Form of Opinion of Maryland counsel To be filed by Amendment.
as to legality of the securities
being registered, including consent.
8 Opinion of Lieben, Dahlk, Whitted, Filed herewith.
Houghton, Slowiaczek & Jahn, P.C.,
as to tax matters, including consent.
23 Consent of Deloitte & Touche, LLP. Filed herewith.
23.1 Consent of Maryland Counsel. To be included in Exhibit 5.1.
23.2 Consent of Lieben, Dahlk, Whitted, Included in Exhibits 5 and 8.
Houghton, Slowiaczek & Jahn, P.C.
24 Power of Attorney with respect to Filed herewith as part of
signing future amendments thereto. signature page.
27 Financial Data Schedules pursuant to Filed herewith.
Item 601 of Regulation S-B.
99 Warrant Agreement. Incorporated by reference (1).
99.1 Sales Warrant Agreement. Incorporated by reference (1).
(1) This exhibit is on file with the Securities and Exchange Commission
as an Exhibit to the Company's Registration Statement on Form S-11, File No.
33-70654, as filed with the Securities and Exchange Commission on March 16,
1994 and subsequently amended by Post-Effective Amendments 1 and 2 thereof.
(2) This Exhibit is on file with the Securities and Exchange Commission
as an Exhibit to the Company's Annual Report on Form 10-K for the Company's
fiscal year ended December 31, 1994.
(3) This Exhibit is on file with the Securities and Exchange Commission
as an Exhibit to the Company's Registration Statement on Form S-11, File No.
0-28378, as filed with the Securities and Exchange Commission on June 17,
1996, and subsequently amended by Post-Effective Amendments 1 and 2 thereof.
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this Registration
Statement to include any additional or changed material information
on the plan of distribution.
(2) For the purpose of determining liability under the
Securities Act of 1933, to treat each post-effective amendment as a
new registration statement of the securities offered and the offering
of the securities at that time to be the initial bona fide offering
thereof.
(3) To file a post-effective amendment to remove from
registration any of the securities remaining unsold at the
termination of the offering.
B. Insofar as indemnification for liabilities arising under
the Act of 1933 may be permitted to directors, officers and controlling
persons of the issuer pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities other than the payment by the registrant of the expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, (suit or proceeding) is
asserted by the director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf, thereunto duly authorized
in the City of Houston, State of Texas, on April 9, 1997.
AMERICAN ASSET ADVISERS TRUST, INC.
By: /s/ H. Kerr Taylor
H. Kerr Taylor
Chairman of the Board of Directors,
Chief Executive Officer, Treasurer and
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints H. Kerr Taylor, his true and lawful
attorney-in-fact and agent, acting alone, with full powers of substitution
and resubstitution, for such person and in his name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, will all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, acting alone, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his or her substitute or substitutes, may lawfully,
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Capacity Date
/s/ H. Kerr Taylor President, Treasurer and April 9, 1997
H. Kerr Taylor Director (Principal
Financial Officer and
Principal Executive Officer)
/s/ Robert S. Cartwright, Jr. Independent Director April 9, 1997
Robert S. Cartwright, Jr.
/s/ George A. McCanse, Jr. Independent Director April 9, 1997
George A. McCanse, Jr.
/s/ L. Larry Mangum Principal Accounting Officer April 9, 1997
L. Larry Mangum
As filed with the Securities and Exchange Commission
on May 13, 1997
Registration No.______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________________________
AMERICAN ASSET ADVISERS TRUST, INC.
Suite 824
8 Greenway Plaza
Houston, Texas 77046
AMERICAN ASSET ADVISERS TRUST, INC.
EXHIBITS
TO
Registration Statement
ON FORM S-3
Exhibit No. Description Method of Filing
4 Copy of Specimen of Stock Certificate (1)
4.1 Articles of Incorporation of American
Asset Advisers Trust, Inc. (1)
4.2 Amended and Restated Bylaws of American
Asset Advisers Trust, Inc. (2)
4.3 Amendment to Amended and Restated Bylaw
approved March, 1995 (3)
4.4 Amendment to Amended and Restated Bylaw
approved May, 1996 (3)
4.5 Amendment to Amended and Restated Bylaw
approved June, 1996 (3)
5 Form of Opinion of Lieben, Dahlk, Whitted,
Houghton, Slowiaczek & Jahn, P.C. as to
legality of securities being registered,
including consent (4)
5.1 Form of Opinion of Maryland counsel as to
legality of securities being registered,
including consent (4)
8 Opinion of Lieben, Dahlk, Whitted,
Houghton, Slowiaczek & Jahn, P.C. as
to tax matters, including consent Filed herewith
23 Consent of Deloitte & Touche LLP Filed herewith
23.1 Consent of Maryland counsel (5)
23.2 Consent of Lieben, Dahlk, Whitted,
Houghton, Slowiaczek & Jahn, P.C. (6)
24 Power of Attorney with respect to Filed herewith (7)
signing future amendments hereto
27 Financial Data Schedules pursuant to
Item 601 of Regulation S-B Filed herewith
99 Form of Warrant Agreement (1)
99.1 Form of Sales Warrant Agreement (1)
_____________________________
(1) This Exhibit is on file with the Securities and Exchange Commission
as an Exhibit to the Company's Registration Statement on Form S-11,
File No. 33-70654, as filed with the Securities and Exchange Commission
on March 16, 1994 and subsequently amended by Post-Effective Amendments
1 and 2 thereof.
(2) This Exhibit is on file with the Securities and Exchange Commission as
an Exhibit to the Company's Annual Report on Form 10-K for the Company's
fiscal year ended December 31, 1994.
(3) This Exhibit is on file with the Securities and Exchange Commission as an
Exhibit to the Company's Registration statement on Form S-11, File No.
0-28378, as filed with the Securities and Exchange Commission on June
17, 1996.
(4) The final executed opinion will be filed by amendment.
(5) This Exhibit will be filed herewith as part of Exhibit 5.1 to this
Registration Statement.
(6) This Exhibit will be filed herewith as part of Exhibit 5 to this
Registration Statement and will be filed herewith as part of Exhibit 8
to this Registration Statement.
(7) This Exhibit is filed herewith as part of the signature page of this
Registration Statement.
EXHIBIT 8
April 9, 1997
American Asset Advisers Trust, Inc.
8 Greenway Plaza, Suite 824
Houston, TX 77046
In re: American Asset Advisers
Trust, Inc.
Gentlemen:
We have acted as your counsel in connection with the proposed public
offering of up to 604,952 shares of the common stock of American Asset
Advisers Trust, Inc. (the "Company") issuable upon exercise of publicly held
common stock purchase warrants and sales warrants. In such capacity we have
examined the Registration Statement on Form S-3 and the accompanying
Exhibits being filed with the Securities and Exchange Commission on or about
the date hereof (the "Registration Statement"), the prospectus included in
the Registration Statement (the "Prospectus"), the Articles of Incorporation
and Amended and Restated Bylaws of the Company included in the Exhibits as
Exhibits 4.1, 4.2, 4.3, 4.4, and 4.5, respectively, and such other
additional instruments and documents as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we have
assumed, with your consent, that the documents listed above that we reviewed
in proposed form will be executed in substantially the same form, all of the
representations and statements set forth in such documents are true and
correct, and all of the obligations imposed by any such documents on the
parties thereto, including obligations imposed under the Articles of
Incorporation of the Company, have been or will be performed or satisfied
in accordance with their terms. We also have assumed the genuineness of all
signatures, proper execution of all documents, the capacity of each party
executing a document to so execute such document, the authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as copies, and the authenticity of the originals
from which any copies were made.
Our opinion is based upon the facts described in the Registration Statement
and upon facts as they have been represented to us by you or have been
determined by us as of this date. Any alteration of such facts may
adversely affect our opinion.
Our opinion is based upon existing law and currently applicable Treasury
Department regulations, current published administrative positions of the
Internal Revenue Service contained in revenue rulings and revenue
procedures, and judicial decisions, all of which are subject to change
prospectively and retroactively. An opinion of counsel is predicated upon
all of the facts and conditions set forth in the opinion and is based upon
counsel's analysis of the statutes, regulatory interpretations and case law
in effect as of the date of the opinion. It is not a guaranty of the
current status of the law and should not be accepted as a guaranty that a
court of law or an administrative agency will concur in the opinion. In
issuing our opinion, we have followed the relevant professional standards,
including American Bar Association Formal Opinion 346 (Revised), January 29,
1992, which directs a lawyer in issuing a tax shelter opinion to consider
all material tax issues and to address fully and fairly in any offering
materials all such issues that involve the reasonable possibility of a
challenge by the Internal Revenue Service. We have also been guided by
Treasury Department Circular 230, which governs lawyers practicing before
the Treasury Department.
Based upon the foregoing, it is our opinion that commencing with the
beginning of the Company's taxable year ending December 31, 1997, the
Company is organized in conformity with the requirements for qualification
as a REIT, and the Company's method of operation enables it to meet the
requirements for qualification as a REIT under the Code.
This opinion of counsel is based solely upon the facts set forth herein and
in the Prospectus. To the extent that any facts contained in the Prospectus
or in other documents referenced in this opinion prove not to be true it is
possible that the conclusion in this opinion might be changed.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
/s/John D. Ellsworth
John D. Ellsworth
For the Firm
JDE/eg
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of American Asset
Advisers Trust, Inc., on Form S-3 of our report dated February 14,1997,
appearing in the Prospectus, which is part of this Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus..
/s/Deloitte & Touche, LLP
Deloitte & Touche, LLP
Houston, Texas
April 9, 1997
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