American Asset Advisers Trust, Inc.
INVESTOR INFORMATION
CONCERNING THE ACQUISITION OF THE ADVISER AND OTHER RELATED
TRANSACTIONS
Letter from the Chairman
Dear Shareholder:
You are being asked to consider and vote on the merger of American
Asset Advisers Realty Corporation (the "Adviser") with American
Asset Advisers Trust, Inc. (the "Company") and the related
transactions to that merger (the "Acquisition"). This Acquisition
will allow the Company to take advantage of the many rapidly
developing trends in our industry by becoming self-administered and
self-managed.
The Acquisition is described in great detail in the accompanying
Proxy Statement, which I urge you to read thoroughly.
The Company has undergone significant growth since its formation in
August 1993. With your help and support, we have assembled what we
believe is an attractive portfolio of high-quality, commercial
properties, leased to substantial tenants. In the past year, we
have contracted or completed the purchase of five additional
properties with a value of over $15 million. We have added a
prudent amount of leverage to the portfolio, thereby increasing
shareholder returns. The Adviser has also expanded the depth and
quality of its staff to effectively manage the existing portfolio
and enhance returns by developing new properties.
When the Company was initially formed, we decided to use external
management until the asset base grew to a size that would support
an internal management structure. By using the new and efficient
internal management structure that many of our competitors have
adopted, we are now at that point.
This next step in the growth of the Company complements the recent
amendments to the Company's Bylaws and Articles of Incorporation
which were approved at the shareholders' meeting held on November
12, 1997. We continue to seek to increase shareholder value. By
becoming a self-managed REIT with internal acquisition and turnkey
development capabilities, the Company will position itself for
accelerated, high quality growth. We believe self-management and
our expected growth will result in favorable circumstances from
which we can raise additional equity capital, increase our market
capitalization, and establish a market for the Company's shares on
a national exchange.
While we believe the Acquisition will provide substantial benefits
to the Company, the transaction also involves risks. For further
discussion of these risks, I urge you to review the summary of
risks contained in this brochure and the more detailed description
of risks as contained in the section "Risk Factors" in the Proxy
Statement.
Your Independent Directors have carefully considered both the risks
and benefits of the Acquisition and have unanimously recommended
that you vote "YES" to the proposal.
The real estate investment trust industry has performed well over
the past five years, as less expensive capital has become
available. The companies that have created value for their
shareholders have taken advantage of this by growing their asset
base and growing their earnings base. I believe that by voting
"YES" to this proposal you will position the Company to follow the
same path and successfully compete with the larger and more
established REITs.
Should you have any questions or need assistance with the proper
completion and return of the accompanying Proxy Card, please
contact me personally or my office toll free at 1-800-888-4400.
In your Company, we have assembled a strong portfolio of properties.
This Acquisition will combine this portfolio with the Adviser's
strong management and acquisition team. The next phase of growth
and the success of our long-term growth plan require this step. I
look forward to our exciting progress in the coming years.
Sincerely,
H. Kerr Taylor
Chairman of the Board of Directors
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Benefits
In evaluating the Acquisition, Strong Proprietary Management - The
Shareholders should carefully Company will be better able to attract
consider the discussion in the and retain experienced and capable
Proxy Statement relating to employees and personnel who have specific
their investment in the experience with the properties, with
Company. The discussion of management of the properties and with
potential benefits is included the tenants of the Company.
in "Recommendation of the
Independent Directors." The Alignment of Interests - The anti-
following is a brief competitive covenants and requirements
discussion of the primary of the Acquisition Agreement, which
benefits the Acquisition is requires the owner of the Adviser to
expected to generate for devote substantially all of his time to
Shareholders. the Company and to cause his other real
estate affiliates to enter into continuing
Crucial Step Towards Listing contractual relationships with the Company,
on an Exchange - The internal essentially mitigate all conflicts of
management structure is viewed interest between Mr. Taylor as owner of
more favorably by underwriters the Adviser and Chairman, Chief Executive
and investment professionals Officer and the largest shareholder of the
as well as by the public Company, regarding his other real estate
markets. Accomplishing this interests.
step allows the Company to
seek liquidity sooner for its Closely matches costs with benefits - The
shareholders by listing on a structure of the Acquisition allows the
public exchange. Company to incur the costs of the deferred
Share Consideration if and only to the extent
Independent Fairness Opinion - the Company achieves the prescribed growth
The Independent Directors of in equity capital during the 72 month
the Company received the deferred payment period. The Acquisition
fairness opinion, from Bishop- has been designed with a "pay as you go"
Crown Investment Research, Inc., structure to allow the Company to bear the
that the Acquisition is fair full cost of the Acquisition only if and
from a financial point of view when its capital grows during this 72
to the Company and its public month period.
shareholders (other than Mr.
Taylor).
Favorable Marketplace
Acceptance - Management believes
that the marketplace places a
higher price on shares of self-
managed REITs vs. shares of
comparable externally managed
REITs. The effect of this is to
provide the Company less
expensive capital than otherwise
available.
Potential Higher Growth Rate -
The Company will be able to
better attract capital
investment for growth and will
forego the payment of third
party acquisition and management
fees. Management believes it can
grow its asset base faster and
grow earnings faster with a
self-managed structure.
Makes the Company more
Competitive - The Company will
be able to successfully compete
with larger and more established
REITs by becoming self-managed
and capable of developing and
acquiring its own investments.
Make Better Investments - By
developing its own properties,
the Company will be able to
acquire property investments at
higher yields than otherwise
possible and will be better able
to attract key regional and
national tenants.
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RISKS existing services contracts with third
parties. There is no assurance how long
The Proxy Statement also the contracts will remain in effect or if
discusses the risks to the Company may continue to benefit from
Shareholders of approving the such contracts following the Acquisition.
Acquisition. These are
discussed in detail in "Risk Impact on the Company's Financial Position -
Factors." Shareholders are The Company will no longer pay external
urged to read the section in Adviser fees for the acquisition or
its entirety. These risk development of properties or for its
factors include the following: administration or management of its
properties. Instead it will directly incur
Conflicts of Interest - Mr. all costs for the personnel and facilities
Taylor initiated and required to perform these functions. The
structured the Acquisition. Independent Directors believe that the
The Independent Directors Company will realize economies of scale by
retained legal counsel, a internalizing its administrative,
financial adviser and a management and property development
valuation expert to assist functions under the terms of the Acquisition.
them in analyzing the There is no assurance that can be given
Acquisition. Mr. Taylor that the Company will realize any of
serves as the Chairman of the these particular benefits. Also, the
Company. Mr. Taylor is also Company will directly incur all future
the Chairman and sole owner of increases in the costs of these functions.
the Adviser. Mr. Taylor's
interests in this Acquisition
may differ from the interests
of shareholders of the Company
as a result of his ownership
of the Adviser.
Significant Influence of Mr.
Taylor - Mr. Taylor currently
owns approximately 1% of the
issued and outstanding Common
Shares of the Company. Upon
consummation of the
Acquisition, Mr. Taylor will
own approximately 11% of the
issued and outstanding Common
Shares of the Company. Even
after the Acquisition, certain
potential conflicts of
interest will exist between
the Company and Mr. Taylor
regarding Mr. Taylor's
continuing affiliated business
interests separate from the
Company. In order to limit or
eliminate such conflicts of
interest, Mr. Taylor will be
subject to certain anti-
competitive covenants and will
be required to cause his
affiliates to enter into certain
contractual relationships with
the Company.
Risks in Valuation - The
valuation of the Adviser greatly
exceeds the Adviser's
identifiable net assets. The
valuation considers the
Adviser's capitalized net income
as of December 31, 1997 and the
capitalized financial benefits
forecasted to result following
the completion of the
Acquisition. There is no
assurance that the value of the
Common Shares being issued to
Mr. Taylor will not be greater
than the value of the operations
being merged. In addition, there
are other methods of determining
valuation that would result in
higher or lower values for the
Adviser.
Realization of Certain Benefits -
A significant benefit to the
Company resulting from the
Acquisition is expected to be
from the Adviser's
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Questions and Answers Crown considered the fact that the
payments will be made in common shares;
Will the Acquisition affect my that the payments will be made over a
dividends? finite period of time and depend on the
Company's ability to grow its equity
NO. The Company expects to base; that the Adviser is currently
maintain its current dividend receiving fees for acquisitions and
policy for the immediate management of the Company's properties;
future. However, as the that as its portfolio grows, the Company
favorable impact of the should expect to pay higher fees to the
Acquisition helps grow the Adviser in the future; and that the
Company's portfolio of Adviser has demonstrated the capability
properties, as the Company to develop properties for the Company at
gains access to less expensive a lower cost than otherwise available.
sources of capital and as the After considering these and other factors,
Company achieves higher Bishop-Crown determined that the
financial returns, Acquisition was fair to shareholders of
shareholders can anticipate the Company (other than Mr. Taylor) from
increases in their dividends. a financial point of view.
Why have the Independent Will the same management team that
Directors recommended the managed the Company continue in the future?
Acquisition?
YES. The same individuals and management
As discussed in the Proxy team currently managing the Company will
Statement, the Independent continue. The professional staff and
Directors evaluated the employees of the Adviser will become
Acquisition from many aspects. employees of the Company as a result of
They believe the the Acquisition. The Company will no
internalization of the longer have to pay acquisition and
Adviser's management and management fees to a third party, but
development capabilities will will have the direct expenses of its
improve the financial internal management team. The Company
performance of the Company. will continue to receive its overall
They have accepted the direction from its current Board of
opinions of their various Directors.
experts that the terms of the
total amount paid and the Do shareholders have a voice in the
manner in which payment is Company's management?
made, are fair to the Company.
Finally, they believe this is YES. Each share of stock in the Company
an important and necessary represents one vote that can be cast at
step toward gaining liquidity the annual shareholder's meeting to elect
for shareholders and members of the Board of Directors. The
eventually listing the Board of Directors then represents
Company's shares on a national shareholders as it oversees and directs
exchange. management in the Company's day to day
activities.
Who determined the price paid
for the Adviser? What are the potential benefits and risks
of the Acquisition?
The price paid for the Adviser
was decided through a series As discussed in the Proxy Statement, the
of negotiations between Mr. Acquisition affords the Company a number
Taylor and the Independent of potential benefits, while also posing
Directors. The Independent some investment risks. Some of these
Directors engaged the benefits and risks are identified on
internationally known firm of pages 4 and 5 of this brochure. In
Houlihan Lokey Howard & Zukin addition, they are described in detail in
Financial Advisors to value the the Proxy Statement, which you should
Adviser. They also engaged read carefully.
Bishop-Crown Investment Research,
Inc., to advise them as to the
fairness of the terms and
conditions of consideration paid
for the Adviser. Both the
Independent Directors and Bishop-
Crown believe the price to be
paid is within the range of
present values of the Adviser
determined by Houlihan.
Has an independent, third party
given an opinion on the fairness
of the merger?
YES. The firm Bishop-Crown
Investment Research, Inc., was
engaged by the Independent
Directors to render a fairness
opinion. Bishop-
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Among the risks is the conflict will no longer require a specified
of interest exists between Mr. minimum net worth standard for
Taylor as the owner of the its tenants or require its
Adviser and as the largest properties to be subject to
shareholder and Chairman of the long term leases at the time
Company in the negotiations of of acquisition. Instead,
the terms of the Acquisition. determinations as to tenant
and lease term requirements
In the view of the Independent will be made by management on
Directors, one benefit is the a property by property basis.
ability of the Company, by The Company will continue to
becoming self-managed, to focus on acquiring and leasing
position itself to compete high quality, commercial
successfully with larger and properties to national and
more established REITs. regional tenants. The Company
intends to broaden its focus
Shareholders should review to include the term "frontage
"Risk Factors" in the Proxy retail." This means that the
Statement for a discussion of Company will consider adding
the risks related to the properties with multiple
Acquisition and "Recommendation tenants and properties that
of the Independent Directors" for may have multiple buildings. The
a discussion of the potential Company believes by broadening its
benefits to be derived from the investment criteria, it gains the
Acquisition. flexibility to take advantage of
various market opportunities.
Is there any adverse tax impact
to Shareholders by approving the Will I still receive quarterly dividends?
Acquisition?
YES. The Company intends to keep its
NO. The Company has retained historic dividend policy for the immediate
the internationally known future.
accounting firm of Deloitte &
Touche LLP to advise it as to How many Shareholder votes are necessary
the tax impact of the to approve the Acquisition?
Acquisition. Deloitte has
issued its opinion that the The Acquisition and the related
Company will continue to qualify transactions require the approval of a
as a REIT after the Acquisition majority of the shares eligible to vote.
and will continue to receive the
same tax treatment as it now has Will my interest in the Company change
after the Acquisition. as a result of this merger being
completed?
Will there be any change in the
way the Adviser is compensated YES. The Company will issue 213,260 shares
if the Acquisition is approved? as a first payment for the Acquisition.
As the Company continues to increase its
YES. The Adviser will cease to number of shares outstanding by raising
exist after the Acquisition, and capital and by acquiring property, it will
its activities will be pay out as many as 686,740 additional
internalized by the Company. shares during the 72 months following the
The Company will stop paying out first payment to complete the payment for
acquisition fees and management the Acquisition. An individual shareholder's
fees to the Adviser but will percentage interest will be reduced by the
absorb the costs of the personnel amount of shares actually issued for the
and facilities formerly Acquisition. Just like the purchase of
controlled by the Adviser. The any other asset, management believes that
Company believes it will benefit the effect of the Acquisition will be to
in two major ways as a result of add to shareholder returns by increasing
Acquisition. First, it will no funds from operations (FFO) and increasing
longer have to pay the profit earnings over time.
component included in the fees
it formerly paid the Adviser. What are the investment opportunities
Second, it will be able to add available to the Company?
properties to its portfolio at
a lower cost and higher yield Management sees a wide variety of commercial
because of its internal real estate investment opportunities in
development and acquisition front of it. It is important in order for
capabilities. the Company to achieve its goals and
increase shareholder value
What will the Company's
investment objectives be after
it becomes self-managed?
If the acquisition is approved,
the Company will change its
investment policy restrictions
in that it
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that the Company has the
flexibility to take advantage of
the developing trends in the real
estate market. Among these is
the opportunity to develop
properties for its own
account. The Adviser will
bring its proven capabilities
to bear in this area after the
Acquisition is completed. The
Company will also consider
adding other types of frontage
retail properties to its
portfolio. These include
multi-tenant buildings, multi-
site projects, prestige
centers and grocery anchored
sites.
What happens if the
Acquisition is not approved?
The Company will remain
externally managed by the
Adviser. Management believes
that the Company will be in a
poorer position to compete,
will have less ability to grow
and that liquidity for
shareholders will be delayed.
How does the Board of
Directors recommend I vote?
The Independent Directors and
management of the Company
unanimously recommend that you
vote "FOR" each of the
proposals being considered in
this proxy.
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MISSION: To maximize long-term shareholder
value through utmost integrity and quality in
every aspect of business, establishing
lifelong friendships with our colleagues,
constituents and service providers.
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How to Vote
The vote of each Shareholder is important. You are urged to
mark, date and sign the Ballot and return it in the enclosed
postage-paid envelope as soon as possible. By returning the
Ballot promptly, you will save the Company additional
solicitation expenses.
* You may vote "YES," "NO," or "ABSTAIN" to the resolutions
concerning the Acquisition.
* If you vote "YES", you will be voting in favor of the
Acquisition.
* If you vote "NO", you will be voting against the
Acquisition.
* If you vote "ABSTAIN", you will be deemed to have voted "NO"
against the Acquisition when the total number of shares are
counted.
* If you sign and return the Ballot without clearly indicating
a "NO" vote or without clearly indicating that you "ABSTAIN" from
voting, you will be deemed to have voted "YES" in favor of the
Acquisition.
* The failure to return a Ballot will be the same as voting
"NO" with respect to the Acquisition.
Additional detailed information about the Acquisition is set
forth in the accompanying Proxy Statement, which you are urged to
read carefully.
If you have any questions or need assistance in completing your
Proxy Card, please call Timothy W. Kelley, VP - Operations, at
the Company's office at 1-800-888-4400 ext. 26.
YOUR VOTE IS IMPORTANT
PLEASE ACT PROMPTLY
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