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 -2- 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. -3- 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 -4- 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- -5- 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 -6- 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. -7- 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. -8- 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 -9-