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EXHIBIT (C)(3)
PROJECT FLEX
SPECIAL COMMITTEE DISCUSSION MATERIALS
PRELIMINARY AND CONFIDENTIAL
CHASE SECURITIES INC.
JULY 24, 2000
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TABLE OF CONTENTS
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EXECUTIVE SUMMARY............................................................................................ I
MARKETING PROCESS OVERVIEW................................................................................... II
REAL ESTATE MARKET HIGHLIGHTS................................................................................ III
MANHATTAN TOWERS UPDATE ..................................................................................... IV
PRELIMINARY LEND LEASE VALUATION OVERVIEW.................................................................... V
PRELIMINARY COMPANY VALUATION................................................................................ VI
CONCLUSION................................................................................................... VII
Appendices
A. Public Market Comparables
B. Precedent Transactions
C. Complete Liquidation Analysis
D. Partial Liquidation Analysis
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EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY
INTRODUCTION
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[ ] On June 27, 2000, the Board of Trust Managers for American Industrial
Properties ("AIP" or the "Company") unanimously approved the execution of
non-binding acquisition term sheets (the "Term Sheets") with Lend Lease
Real Estate Investments Inc.(1) ("LL") and Developers Diversified Realty
Corporation ("DDR")
[ ] The Term Sheets are the basis for the following transaction:
- $13.50 per share (or greater) cash proceeds to non-DDR shareholders
- Merger of AIP with and into DDR, with DDR assuming all contingent
liabilities
[ ] Since the execution of the Term Sheets, the following events have occurred
specific to AIP:
- AIP's stock price has declined 3.3%, while the MS REIT Index has
increased 2.9% and the Company's respective comparable company
index(2) ("Peer Group") has increased 4.1%
- AIP has received preliminary offers for Manhattan Towers ranging from
$39.8 million to $52.4 million (after broker's fees) which compares
favorably to Chase's preliminary valuation range of $47.5 million to
$52.5 million
- Although the Transaction Cost Committee has not completed its work, it
feels reasonably assured that transaction costs will be less than
$18.0 million which is used to arrive at the minimum cash proceeds
figure of $13.50
- ----------
(1) Includes Exclusive Negotiation Agreement with Lend Lease
(2) Comparable company ("Peer Group") index includes BED, BDN, EGP, PSB and KTR
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EXECUTIVE SUMMARY
INTRODUCTION
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[ ] On the July 19, 2000 meeting with the Special Committee of American
Industrial Properties REIT ("AIP" or the "Company"), concerns were
expressed over the following:
- The price of $288.7 million which LL proposes to pay for certain AIP
assets;
- The overall process which AIP has employed in marketing the Company to
potential investors; and
- Maximizing shareholder value
[ ] In response to these concerns, Chase Securities Inc. ("CSI") is pleased to
discuss the following topics with the Special Committee:
- Capital markets overview
- AIP's current strategic alternatives
- An overview of AIP's marketing process
- Current real estate market highlights
- Manhattan Towers update
- Review of Lend Lease valuation
- Chase's preliminary valuation of AIP
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EXECUTIVE SUMMARY
STOCK PRICE & TRADED VOLUME ANALYSIS
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[CHART]
Note: Stock price performance as of July 20, 2000
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EXECUTIVE SUMMARY
STOCK PRICE PERFORMANCE VS. SELECTED INDICES
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[CHART]
Note: Stock price performance as of July 20, 2000
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EXECUTIVE SUMMARY
PRELIMINARY REAL ESTATE VALUATION SUMMARY
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(in millions except per share amounts) CURRENT SITUATION PRELIMINARY CSI REAL ESTATE VALUATIONS(1,2)
DDR CSI CSI CSI
LEND LEASE (LOW) (MIDPOINT) (HIGH)
---------- ---------- ---------- ----------
Lend Lease Portfolio $ 288.7 $ 287.3 $ 302.5 $ 317.6
DDR Portfolio 275.0 251.3 264.6 277.8
Manhattan Towers 52.4(3) 47.5 50.0 52.5
---------- ---------- ---------- ----------
GROSS REAL ESTATE ASSET VALUE $ 616.1 $ 586.2 $ 617.0 $ 647.9
Plus: Land(4,5) n/a $ 3.8 $ 3.8 $ 3.8
Net Debt & Working Capital
Cash(4) $ 3.4 $ 3.4 $ 3.4 $ 3.4
Other Assets n/a n/a n/a n/a
Debt (314.2) (314.2) (314.2) (314.2)
Other Liabilities n/a n/a n/a n/a
---------- ---------- ---------- ----------
Balance Sheet Adjustments $ (310.8) $ (310.8) $ (310.8) $ (310.8)
NET ASSET VALUE $ 305.3 $ 279.2 $ 310.1 $ 340.9
Basic Shares Outstanding 21.045 21.045 21.045 21.045
NAV PER SHARE $ 14.50 $ 13.27 $ 14.73 $ 16.20
Estimated Transaction Expenses $ 18.0 $ 18.0 $ 18.0 $ 18.0
PROCEEDS TO SHAREHOLDERS $ 13.65 $ 12.41 $ 13.88 $ 15.34
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(1) CSI's low and high valuations are based on a 5% discount and 5% premium to
CSI's midpoint value
(2) Based on CSI presentation to AIP Board of Directors on 5/2/00
(3) Includes $750,000 of expenses
(4) Source: AIP management (June 27, 2000)
(5) DDR's $275 million proposal includes land and net working capital
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EXECUTIVE SUMMARY
VALUATION SENSITIVITY
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ESTIMATED PROCEEDS TO SHAREHOLDERS
ESTIMATED TRANSACTION EXPENSES
In millions except per share values
NET PROCEEDS FROM
MANHATTAN TOWERS $14.0 $15.0 $16.0 $17.0 $18.0 $19.0 $20.0
- ----------------- ------ ------ ------ ------ ------ ------ ------
$52.0 $13.82 $13.78 $13.73 $13.68 $13.63 $13.59 $13.54
$53.0 13.87 13.82 13.78 13.73 13.68 13.63 13.59
$54.0 13.92 13.87 13.82 13.78 13.73 13.68 13.63
$55.0 13.97 13.92 13.87 13.82 13.78 13.73 13.68
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EXECUTIVE SUMMARY
VALUATION BENCHMARKS
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HISTORICAL TRADING ANALYSIS
ASSUMED CASH PROCEEDS TO NON-DDR SHAREHOLDERS(1) $ 13.65
IMPLIED PREMIUM TO OFFER PRICE
AIP Closing Share Price on 7/21/00 4.8%
Last 10 Days 1.9%
Last 20 Days 1.3%
Last 30 Days 3.4%
Last 60 Days 6.5%
Last Six Months 12.1%
Last Year 12.6%
IMPLIED VALUATION MULTIPLES(2)
IMPLIED EQUITY VALUATION MULTIPLES(3) FFO AFFO
2000E 8.9x 13.0x
2001E 8.0x 10.3x
AGGREGATE VALUE / EBITDA MULTIPLES(3)
2000E 10.2x
2001E 9.4x
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(1) Assumes Manhattan Towers sold for $52.4 million (net of expenses) and
transaction expenses of $18.0 million
(2) Source: AIP Management
(3) Assumes Current Situation share price of $13.65 per share
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EXECUTIVE SUMMARY
MULTIPLE COMPARISONS - FFO(1)
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[BAR GRAPH]
FFO MULTIPLE
AIP(2) PEER GROUP(3,4)
-------------- ---------------
2000E 2001E 2000E 2001E
----- ----- ----- -----
8.9x 8.0x 8.4x 7.7x
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(1) Share prices current as of July 20, 2000
(2) AIP estimates from Management; assumes current situation offer price of
$13.65 per share
(3) Peer Group includes BED, BDN, EGP, PSB and KTR; multiple is the mean of the
Group
(4) Peer Group estimates from First Call
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EXECUTIVE SUMMARY
MULTIPLE COMPARISONS - AFFO(1)
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[BAR GRAPH]
AFFO MULTIPLE
AIP(2) PEER GROUP(3,4)
-------------- ---------------
2000E 2001E 2000E 2001E
----- ----- ----- -----
13.0x 10.3x 9.8x 9.0x
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(1) Share prices current as of July 20, 2000
(2) AIP estimates from Management; assumes current situation offer price of
$13.65 per share
(3) Peer Group includes BED, BDN, EGP, PSB and KTR; multiple is the mean of the
Group
(4) Peer Group estimates from First Call
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EXECUTIVE SUMMARY
MULTIPLE COMPARISONS - EBITDA(1)
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[BAR GRAPH]
EBITDA MULTIPLE
AIP(2) PEER GROUP(3,4)
-------------- ---------------
2000E 2001E 2000E 2001E
----- ----- ----- -----
10.2x 9.4x 10.2x 9.7x
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(1) Share prices current as of July 20, 2000
(2) AIP estimates from Management; assumes current situation offer price of
$13.65 per share
(3) Peer Group includes BED, BDN, EGP, PSB and KTR; multiple is the mean of the
Group
(4) Peer Group estimates from First Call
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EXECUTIVE SUMMARY
MULTIPLE COMPARISONS - AFFO(1)
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RECENT REIT CAPITAL INFLOWS HAVE TARGETED REITS WITH LONG-TERM GROWTH
CHARACTERISTICS
[ ] Sector leaders
[ ] High barrier to entry markets
[ ] High asset quality
[ ] Major metropolitan areas
[ ] Infill locations
[ ] Strong balance sheet
[ ] Well-regarded management
HIGH QUALITY HIGH QUALITY
OFFICE INDUSTRIAL
AIP(2) PEER GROUP(3,4) REITs(5,6) REITs(7,8)
------ --------------- ------------ ------------
1/1/00 9.2x 7.9x 10.2x 9.4x
Current 9.8x 9.0x 12.6x 11.7x
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(1) Share prices as of December 29, 1999 and July 20, 2000
(2) AIP estimates from Management
(3) Peer Group includes BED, BDN, EGP, PSB and KTR
(4) Peer Group estimates from First Call
(5) High Quality Office REITs includes BXP, EOP, SPK and VNO
(6) High Quality Office REITs estimates from First Call
(7) High Quality Industrial REITs includes AMB, PLD and SPK
(8) High Quality Industrial REITs estimates from First Call
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EXECUTIVE SUMMARY
AIP CURRENT STATUS
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[ ] High / moderate leverage (53% of Total Market Capitalization)
- Portfolio is primarily encumbered
[ ] No Wall Street research sponsorship
[ ] Low liquidity (average 90 day daily trading volume of 7,000 shares)
[ ] Ongoing internal conflict
[ ] Broadly marketed company with limited interest on a corporate basis
[ ] Marginal institutional appeal for product type
[ ] Access to approximately $66.5 million (Tranche 1) of equity capital
- Assuming Status Quo alternative
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EXECUTIVE SUMMARY
STRATEGIC ALTERNATIVES
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STRATEGIC ALTERNATIVES Strategic Rationale Issues
- ------------------------------------------ ------------------------------------ --------------------------------------------
o Ability to achieve cash o Ongoing due diligence process and
proceeds for all non-DDR risks
CONTINUE EXISTING PROCESS shareholders o Negotiation of definitive
o Strong financial position of agreements with Lend Lease and DDR
acquirors o SEC 13(e)3 scrutiny
o Efficient liquidation of Company o Individual asset valuation vs.
o Assumption of contingent Company valuation
liabilities by DDR
o Transaction does not preclude
interlopers
o No transaction risk o Low liquidity
REVERT TO STATUS QUO o Limits transaction costs o Moderate / high leverage
o Access to $66.5 million o No Wall Street sponsorship
(Tranche 1) of equity capital o Ongoing internal issues
o Access to efficient external
equity capital
o Maintains valuation for DDR o High transaction / execution risk
COMPLETE ASSET / EQUITY EXCHANGE WITH DDR portfolio o Ability to retain DDR bid
LIQUIDATE LEND LEASE PORTFOLIO o Broadly market Lend Lease o SEC 13(e)3 scrutiny
portfolio o Loss of Lend Lease portfolio bid
o Smaller portfolio size and o Liquidation costs associated with
location may attract new bidders Lend Lease portfolio
o Limited universe of institutional
buyers
o Volume of existing real estate
asset sales
o No assumption of contingent
liabilities
o Requirement to establish
liquidation reserve
o Break-up fees to Lend Lease
o Ability to broadly market o High transaction / execution risk
LIQUIDATE COMPANY assets individually o Liquidation costs
o Volume of existing real estate
asset sales
o Limited universe of institutional
buyers
o No assumption of contingent
liabilities
o Requirement to establish
liquidation reserve
Preliminary Valuation
STRATEGIC ALTERNATIVES Considerations(1)
- ------------------------------------------ --------------------------------
$13.50 - $13.97
CONTINUE EXISTING PROCESS (Based on Term Sheets and
existing valuation information
for Manhattan Towers. See p. 8)
$11.30 - $12.93
REVERT TO STATUS QUO
(Based on stripped high / low
range of Peer Group 2000E FFO
/ AFFO multiples. See
Appendix A or p. 33)
$13.43 - $14.21(2)
COMPLETE ASSET / EQUITY EXCHANGE WITH DDR
LIQUIDATE LEND LEASE PORTFOLIO (Based on Lend Lease
Liquidation Analysis.
See Appendix D)
$11.92 - $12.69(2)
LIQUIDATE COMPANY
(See Liquidation Analysis in
Appendix C)
(1) Implied Value ranges provided for relative comparison purposes. Such ranges
were calculated based on various assumptions and data points
(2) Assumes no additional negative tax implications
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MARKETING PROCESS OVERVIEW
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PROJECT FLEX
MARKETING PROCESS OVERVIEW
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[ ] In May 1999, Salomon Smith Barney ("SSB") was retained by AIP to conduct a
broad review of strategic alternatives
[ ] SSB marketed AIP to 60 potential bidders (including REITs, pension funds,
private companies, opportunity funds and individuals) and asked them to bid
for either:
(i) all of the Company's assets,
(ii) a significant portion of the Company's assets, or
(iii) the Company itself, in a corporate merger transaction
[ ] Some interested parties expressed interest in only certain assets; SSB
encouraged these parties to submit proposals while emphasizing that AIP
preferred a transaction including a complete sale of the Company to a
single buyer
[ ] AIP received eight indications of interest including seven for selected
assets and two for the Company (one investor bid both ways)
[ ] Lend Lease and Olympus (the two complete bidders) were asked to raise their
bids
[ ] Olympus declined to raise its offer, but Lend Lease indicated it could bid
more aggressively on a smaller portfolio of the Company's assets
[ ] On 12/23/99, SSB presented Lend Lease's revised smaller bid to AIP, which
included a scenario that merged the remaining Company (following the
partial sale to Lend Lease) with DDR
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PROJECT FLEX
MARKETING PROCESS OVERVIEW (CONTINUED)
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[ ] Subsequent negotiations between SSB and DDR / Lend Lease (including several
alterations to the mix of assets being purchased by Lend Lease) have
resulted in revised proposals by DDR and Lend Lease
[ ] On 4/18/00, CSI was asked by the Special Committee of AIP to consider its
available alternatives
[ ] On 5/2/00, CSI met with the Special Committee to review strategic
alternatives and discuss CSI's preliminary valuation:
(i) Lend Lease at lower end of CSI value range
(ii) DDR at higher end of CSI value range
(iii) Possible value enhancements from Manhattan Towers and lower
transaction expenses
[ ] Following this meeting, the Special Committee decided to: (i) remove one
asset from the latest Lend Lease proposal (Manhattan Towers), and (ii) to
proceed towards executing letters of intent with both DDR and Lend Lease
[ ] On 6/27/00, AIP entered into letters of intent with both DDR and Lend Lease
and commenced with final due diligence which, under the terms of the
agreements, must be completed by 8/11/00
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REAL ESTATE MARKET HIGHLIGHTS
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PROJECT FLEX
REAL ESTATE MARKET HIGHLIGHTS
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[ ] National economy is entering a period of slower economic growth
- Rising interest rates, lower stock prices, and reduced availability of
venture capital are beginning to impact corporate and consumer
spending
- Job creation is slowing. Employment levels are at or near all time
highs in most major metro areas. Firms seeking to grow are
experiencing difficulty attracting qualified workers
[ ] Investor consensus expectations for market rent growth and occupancy levels
within most property sectors are becoming less optimistic
- Investors and investment advisers are increasing discount rates and
overall cap rates to reflect the potential risk for flat to declining
income streams
- Transactions, which tend to be lagging indicators, do not as yet
reflect future market trends
[ ] This is not to say that potential for future short-term appreciation does
not exist for certain geographic areas and property sectors
- San Francisco (where CBD Office sales are approaching $400 per square
foot)
- New York City
- Boston
- Washington DC
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PROJECT FLEX
REAL ESTATE MARKET HIGHLIGHTS
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[ ] However, asset sale activity appears to be reaching peak levels with
opportunity funds liquidating close to $10 billion of domestic commercial
real estate and REITs more actively recycling capital
FUND ASSET SALE ACTIVITY
---- -------------------
Whitehall $ 4.0 Bn
MSREF 1.5
Westbrook 1.2
Colony 0.5
Apollo 0.5
Blackstone 0.5
ING 0.5
DLJ ?
[ ] Most aggressive purchasers of commercial real estate continue to be
investors with low cost of capital, including:
- Selected high quality REITs
- Pension funds (e.g., CalPers)
- Foreign investors (e.g., German syndicators and Middle East investors)
[ ] These investors are primarily targeting real estate with the following
characteristics
- Urban, in-fill locations (within CBD office, neighborhood retail,
multifamily sectors)
- Industrial product (high demand for large portfolios)
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PROJECT FLEX
REAL ESTATE MARKET HIGHLIGHTS
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[ ] An example of recent pension fund activity is the CalPers-RREEF acquisition
of the Pacific Gulf industrial portfolio
- $929 million transaction value or $63 per square foot
- 8.75% NOI cap rate
- 15 million square feet of industrial product (primarily West Coast)
[ ] National market for flex-type/R&D space is maturing with concerns of
- Tenant quality
- High roll-over risk
- Appeal to core investors
- Interest rate environment
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PROJECT FLEX
REAL ESTATE MARKET HIGHLIGHTS
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[HOT]
PROPERTY SECTOR SECTOR HIGHLIGHTS
--------------- -----------------
CBD Office Preferred markets include "24 hr. cities" such as NY, Boston,
San Francisco, Washington, D.C.
Vacancy at historic lows
Shortages of large contiguous space blocks
Strong embedded NOI growth
Class A Regional E-commerce threat has not materialized
Mall Strong YTD same store sales
Shortage of investment grade product available for purchase
Limited market for Class B properties
Warehouse - Preferred markets include northern New Jersey, Los Angeles,
Distribution and Chicago
E-commerce fulfillment need creating strong demand for
locations near major metro areas.
Neighborhood Strip Strong demand for properties featuring densely populated,
Centers infill locations
Recent consolidation in supermarket industry has resulted in
dark/vacant anchors in less well-located centers with
undersized stores.
Expansion by Wal-Mart and other discounters into grocery
business poses long term threat to traditional supermarket
format.
Multi-family Strongest metro areas include both downtown and suburban
areas of NYC, Boston, and Chicago, plus San Francisco, LA,
Orange County,and San Diego.
Rising home prices contributing to strong demand
Suburban Office Preferred markets include San Francisco, Boston, & northern
Virginia metro areas. New construction eroding rents and
increasing vacancy in markets such as Dallas, Atlanta and
Chicago. Denver at risk.
Office Flex/R&D Rapid rent/value run up in high-tech markets has resulted in
rent/occupancy levels that might not be sustainable.
Hospitality CBD's continue to represent best investment opportunity.
Limited service and extended stay segments overbuilt.
Factory Outlets Extremely thin investor market
Prime Retail under pressure
[COLD]
Representative
Yield Parameters
PROPERTY SECTOR CRITICAL FACTORS IRR(1) CAP RATE
--------------- ---------------- ------ --------
[HOT]
CBD Office High barriers to entry due to limited land availability, lengthy 10.5% 7.5%
entitlement process, high construction costs to 12.0% to 9.0%
Strong office job creation driving demand
Class A Regional High barriers to entry 10.5% 7.5%
Mall Dominance in trade area (size, number of department store to 11.5% to 8.5%
anchors, demographics)
Few major players (Simon, General Growth, Rouse, Taubman
etc.)
Warehouse - Must have good transportation linkage (ground/air), functional 11.0% 9.0%
Distribution clear ceiling heights and efficient loading/distribution capacity. to 12.0% to 10.0%
Low barrier to entry combined with quick
entitlement/construction period creates short market cycle,
decreasing magnitude of market swings.
Neighborhood Strip Infill locations have high barriers to entry 11.5% 9.0%
Centers Grocery and drug anchored centers provide convenient to 12.0% to 10.0%
fullfilment of daily needs
Commodity type locations more vulnerable to superstore
competition and anchor consolidation.
Multi-family One of the most stable sectors 11.0% 8.75%
Low risk/low returns to 12.0% to 10.0%
Favorable demographics - growing population of first time
renters and aging baby boomers.
Suburban Office Low barriers often lead to overbuilding 11.0% 9.0%
to 12.5% to 10.0%
Office Flex/R&D Competes with suburban office as low cost alternative. 12.0% 10.0%
Weak credit associated with many technology tenants. to 14.0% to 10.75%
High recurring TI costs
Short term leases combined with potential for
overbuilding within suburban office render this
sector particularly vulnerable.
Hospitality Class B product vulnerable to significant pipeline of new 12.0% 10.0%
development. to 14.0% to 11.0%
Slowing demand combined with new supply will
moderate RevPAR growth over next several years
Factory Outlets Only dominant centers work well 12.0% 10.0%
Limited alternative use value to 14.0% to 11.0%
[COLD]
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(1) Unlevered property-level total returns
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PROJECT FLEX
REAL ESTATE MARKET HIGHLIGHTS
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OVERVIEW OF THE PACIFIC GULF PROPERTIES/CALPERS-RREEF TRANSACTION
TRANSACTION VALUE: $929 million NOI CAP RATE: 8.75% PRICE/SF: $63
PORTFOLIO
NUMBER LEASABLE PERCENTAGE OF
OF SQUARE FEET INDUSTRIAL GROSS
PROPERTIES (000S) RENTAL REVENUE OCCUPANCY
---------- ------------ ----------------- ---------
CALIFORNIA
Orange Cty 23 3,882 30 95
Northern 17 3,709 29 96
San Diego 7 1,585 11 99
LA Inland 7 1,827 8 95
Los Angeles 5 1,507 8 100
PACIFIC NORTHWEST 6 1,313 9 100
SOUTHWEST 4 858 5 95
---- ------ ---- ----
69 14,683 100% 96%
ANALYSTS COMMENTARY
Robertson Stephens We applaud the Pacific Gulf Management Team and in
June 21, 2000 particular its CEO, Glen Carpenter, for "doing the
right thing". We believe that a partial or total
liquidation of PAG will capture for its
shareholders the historical discount at which its
shares have traded relative to the private market
valuation of its asset base
Prudential Securities For a long time, we have believed that a sale of
June 21, 2000 PAG's industrial portfolio could realize
substantial shareholder value
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MANHATTAN TOWERS UPDATE
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PROJECT FLEX
MANHATTAN TOWERS UPDATE
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BIDS BEFORE TRANSACTION EXPENSES
(dollars millions)
[LINE GRAPH]
The Shidler $ 40.0 - $ 41.0
Group
JER $ 45.0
Partners
Comstock, $ 45.0
Crosser
CB Richard Ellis $ 45.0
Strategic Partners
Lincoln $ 46.0
Property Company
Archon $ 47.0 - $ 48.0
Group
Layton-Belling $ 50.0 - $ 51.0
& Associates
Lowe $ 50.0 - $ 51.0
Enterprises
Continential $ 52.0
Development Corp.
Wolff DiNappoli $ 52.0
LLC
Overton, Moore $ 53.0
& Assoc.
Carlyle $ 53.0 - $54.0
Realty
CHASE'S 5/2/00 PRELIMINARY VALUE RANGE $47.5 - $52.5
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PRELIMINARY LEND LEASE VALUATION
OVERVIEW
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PROJECT FLEX--PRELIMINARY VALUATION OF LEND LEASE PORTFOLIO
CHASE METHODOLOGY
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[ ] Based on traditional real estate analysis
[ ] Review of each asset with AIP management, focusing on key drivers of value:
market strength, leasing effort, cap rates, etc.
[ ] Discussions supplemented by a review of company-provided data:
- Q1 Company financial performance - Year 2000 budgets
- ARGUS cash flow projections - AIP Trust Managers meeting report
- Rent rolls - Historical and recent leasing reports
- Capital expenditure budget - Property manager provided data
[ ] Reviewed real estate valuations completed by SSB and the Company
[ ] Assessed key AIP markets for economic drivers, supply and demand dynamics,
and market fundamentals which drive property appreciation and directly
impact Chase's cap rate selections
[ ] Evaluated Company acquisition data and identified property sales in key
markets, which provided significant insight on investors' required returns,
potential for appreciation and market depth
[ ] Analyzed the portfolio on a regional basis to assure consistency within
markets
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PROJECT FLEX--PRELIMINARY VALUATION OF LEND LEASE PORTFOLIO
CHASE METHODOLOGY
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[ ] We inspected 25 properties comprising 81% of net rentable area, 84% of our
estimated NOI, and 85% of value. These figures exclude Manhattan Tower,
which we also inspected.
INSPECTED INSPECTED NOT INSPECTED
--------- --------- -------------
o 107 Woodmere o Humboldt Tech Center o Columbia Corporate Center
o 3100 Alfred o Interlocken Office o Huntington Drive
o 485 Clyde o Inverness Business Park o Corporex Plaza I
o Academy Point o Junction Business Park o President's Plaza
o AeroTech R&D o Northpointe B o Black Canyon Tech
o Avion Business Center o Northpointe C o Metro Business Park III
o Battlefield Business Park o Northview Bus. Ctr
o Baytech Park o Skyway Business Center
o Bridgeway Tech Center/Gateway o Southeast Comm. Ctr
o Cameron Creek o Spring Valley Business Center
o Central Park Office Center o Stewart Plaza
o Centre Pointe Office Park o Summit Park
o Gibraltar Tech Center
[ ] Certain markets within the Lend Lease portfolio are continuing to show
strength including:
- Silicon Valley, California
- Austin, Texas
- Washington, DC Metro
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PROJECT FLEX--PRELIMINARY VALUATION OF LEND LEASE PORTFOLIO
CHASE METHODOLOGY (CONTINUED)
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[ ] Relied primarily on overall rate capitalization ("OAR")
[ ] Utilized Company budgets to derive valuation
- high correlation between the budget and actual results
- extensive and detailed budgeting process
[ ] Selected cap rates by focusing mainly on: asset quality, age, market
strength (supply/demand dynamics), tenant quality, location, investor
demand (primary vs. second tier cities) and re-leasing and re-tenanting
risk
[ ] Applied cap rates to AIP's budgeted year 2000 NOIs, adjusted upward by 2.0%
to calculate an approximate 12M forward NOI
[ ] Used actual management expenses (with a minimum charge 3.0%), and applied a
$0.10 psf replacement reserve to each asset
[ ] Considered properties with occupancy greater than 90% to be stabilized;
leased properties with occupancy below 90% up to 94% if market-supported
(with costs for re-tenanting deducted)
[ ] Applied a 2% vacancy to all 100% occupied properties
[ ] Used AIP's capital plan to evaluate each property's capital needs (buyer
approach), with near term expense deducted from value
[ ] Reviewed the Company's 10-year discounted cash flow ("DCF") projections and
assumptions as a check against our direct capitalization valuation
[ ] While CSI believes the projections are aggressive with respect to lease-up
of vacant space and vacancy over the projection period, the projections
show the potential for property appreciation and yield enhancement which
CSI has factored into its OAR selection
[ ] Utilized valuations provided by AIP management for several AIP-owned
parcels of land
[ ] Used our base case valuation but conducted a 5% sensitivity analysis to
provide optimistic and conservative benchmarks. Major assets sensitivities
are driven by key tenant renewal issues
[CHASE LOGO] 30
32
PROJECT FLEX--PRELIMINARY VALUATION OF LEND LEASE PORTFOLIO
LEND LEASE PORTFOLIO
- --------------------------------------------------------------------------------
ASSET MIDPOINT CSI VALUE(1) PSF LEND LEASE VALUE PSF
----- --------------------- --- ---------------- ---
1 107 Woodmere 5,736,451 $100
2 3100 Alfred 6,154,402 $182
3 485 Clyde 7,851,181 $127
4 Baytech Park 36,581,375 $194
5 Bridgeway Tech Center/Gateway 21,588,653 $127
6 Centre Pointe Office Park 24,417,220 $124
7 Columbia Corp Ctr. 13,319,234 $104
8 Gibraltar Tech Center 6,739,297 $186
9 Humboldt Tech Center 11,104,133 $185
10 Huntington Drive 7,161,235 $114
11 Junction Business Park 15,510,132 $200
12 Stewart Plaza 6,956,195 $148
----------- ----
CALIFORNIA TOTAL 163,119,508 $146
----------- ----
13 Battlefield Business Park 9,694,243 $ 63
14 Corporex Plaza I 5,582,944 $ 58
15 Northpointe B 2,943,976 $ 80
16 Northpointe C 3,993,969 $ 81
17 President's Plaza 3,021,220 $ 71
----------- ----
EAST TOTAL 25,236,351 $ 66
----------- ----
18 Avion Business Center 5,449,882 $ 77
19 Cameron Creek 4,072,918 $ 81
20 Central Park Office Center 5,038,008 $ 69
21 Northview Bus. Ctr / Whitney Jordan 21,674,360 $ 85
22 Skyway Business Center 2,281,203 $ 34
23 Southeast Comm. Ctr / Ben White 1,761,182 $ 51
24 Spring Valley Business Center 10,111,796 $107
25 Summit Park 9,101,820 $ 94
----------- ----
TEXAS TOTAL 59,491,169 $ 80
----------- ----
26 Academy Point 9,544,124 $105
27 AeroTech R&D 6,756,063 $ 89
28 Black Canyon Tech 7,226,740 $ 72
29 Interlocken Office 14,295,121 $117
30 Inverness Business Park 7,324,699 $ 76
31 Metro Business Park III 9,463,762 $ 89
----------- ----
WEST TOTAL 54,610,509 $ 92
----------- ----
TOTAL LEND LEASE PORTFOLIO 302,457,537 $107 $288,700,000 $102
----------- ---- ------------ ----
TOTAL W/MANHATTAN TOWERS 302,457,537 $107 $341,800,000 $109
----------- ---- ------------ ----
- ----------
(1) May 2, 2000 Board presentation
[CHASE LOGO] 31
33
PRELIMINARY COMPANY VALUATION
[CHASE LOGO] 32
34
PROJECT FLEX--PRELIMINARY COMPANY VALUATION
SUMMARY CHART
- --------------------------------------------------------------------------------
DDR/LEND LEASE/MT
$13.65 PER SHARE(1)
-------------------
PEER GROUP
2000E FFO Multiple 7.8x - 8.4x $12.94 $12.01
2001 AFFO Multiple 8.5x - 9.6x $12.77 $11.31
PRECEDENT TRANSACTION
12-Month Forward FFO(2) Multiple 7.8x - 9.6x $15.63 $12.65
12-Month Forward AFFO(2) Multiple 8.6x - 10.5x $12.50 $10.23
5-Prior Day (3.9%) - 15.2% $15.55 $12.98
CSI COMPLETE LIQUIDATION ANALYSIS
NPV of 24 Month Liquidation Discounted 12-18%(3) $12.69 $11.92
CSI NAV ANALYSIS
$13.27 - $16.20(4) $16.20 $13.27
CSI NAV INCLUDING TRANSACTION EXPENSES
$12.41 - $15.34(4) $15.34 $12.41
(1) Assumes Current Situation (see page 9)
(2) 12-Month Forward FFO of $1.62 and AFFO of $1.19 is includes second half 2000
and first half 2001
(3) See Appendix C or page 41
(4) See page 7
[CHASE LOGO] 33
35
CONCLUSIONS
[CHASE LOGO] 34
36
PROJECT FLEX
CONCLUSIONS
- --------------------------------------------------------------------------------
[ ] Lend Lease's $288.7 million purchase price is within our preliminary value
range ($287.3 million to $317.6 million), albeit at the low end of the
range
[ ] DDR's $275 million purchase price is at the high end of our preliminary
value range ($251.3 million - $277.8 million)
[ ] Transaction cost reductions and the sale of Manhattan Towers could enhance
transaction value by $3 million to $8 million, or $0.14 to $0.38 per share
[CHASE LOGO] 35
37
PROJECT FLEX
CONCLUSION (CONT'D)
- --------------------------------------------------------------------------------
[ ] Attempting to realize additional incremental proceeds for the Lend Lease
assets in the context of the contemplated transaction poses certain risks
and challenges:
- Maintaining the DDR bid at its current price is a critical component
of the transaction
- Payment of $450,000 of break-up costs to Lend Lease would be paid at
the front end of the process
[ ] Office Flex assets are not a preferred product type among institutional
investors seeking core returns (i.e., 12.0% - 15.0% leveraged IRRs) in
today's marketplace
- Opportunity fund capital will likely comprise the majority of the
bidders (e.g., Olympus)
- A portfolio buyer or buyers is needed because selling small assets on
a "one-by-one" basis in a liquidation scenario would be very costly to
AIP shareholders because of the time required, associated carrying
costs and higher transaction costs
- Non-institutional investor bids will likely be contingent on obtaining
new financing with full leverage, and will therefore be subject to
interest rate risk
- Non-institutional investors would be seeking +20% leveraged IRRs
[ ] Manhattan Towers is not an accurate comparable for the remainder of the
Lend Lease portfolio
[CHASE LOGO] 36
38
PROJECT FLEX
CONCLUSIONS (CONT'D)
- --------------------------------------------------------------------------------
[ ] If DDR would hold constant its $275 million purchase price and agreement to
assume the liabilities of the company, the company could go to market again
on the Lend Lease portfolio in an attempt to increase the value of the
transaction
- The Exclusive Negotiation Agreement with Lend Lease provides for a
$450,000 expense reimbursement and a $1 million break up fee if a
gross purchase price in excess of $290.15 million is agreed to within
90 days of expiration or termination of the Lend Lease agreement
[CHASE LOGO] 37
39
PROJECT FLEX
CONCLUSION (CONT'D)
- --------------------------------------------------------------------------------
[ ] A transaction with a non-institutional, financial buyer imposes a higher
degree of closing risk
[ ] If the Special Committee were to proceed with an immediate sale to DDR
followed by a re-marketing and plan of liquidation of the Lend Lease
portfolio, the following factors should be considered:
- The costs and risks associated with a liquidation process (e.g., G&A
carrying costs relative to a much smaller asset base)
- The risk of not achieving an acceptable price
- Issues associated with operating a much smaller company such as
strategy, staffing and other related issues
- The Board of Trust Managers will potentially have more exposure to
contingent liability risks given the lack of a corporate merger
[CHASE LOGO] 38
40
APPENDIX A
PUBLIC MARKET COMPARABLES
[CHASE LOGO] 39
41
APPENDIX B
PRECEDENT TRANSACTIONS
[CHASE LOGO] 40
42
PROJECT FLEX--PRELIMINARY COMPANY VALUATION
PRECEDENT TRANSACTIONS
- --------------------------------------------------------------------------------
($ in millions except per share data)
PRICE/
ANNOUNCED DATE/ ACQUIRER / REIT OFFER EQUITY TRANSACTION
COMPLETED DATE TARGET SECTOR PRICE/SHARE CONSIDERATION VALUE VALUE
--------------------- ------ ----------- ------------- ----- -----------
06/16/1999 STARWOOD FINANCIAL TRUST OFFICE/INDUST $27.60 STOCK/ASSUMED DEBT $893 $1,649
11/04/1999 TRINET CORPORATE REALTY
03/01/1999 DUKE REALTY OFFICE/INDUST 30.10 STOCK/ASSUMED DEBT 817 1,725
06/18/1999 WEEKS CORP.
11/17/1998 PROLOGIS TRUST INDUSTRIAL 23.59 CASH/STOCK/ASSUMED DEBT 823 1,426
03/30/1999 MERIDIAN INDUSTRIAL TRUST
07/09/1998 RECKSON ASSOCIATES/METROP. MIXED 21.51 CASH/STOCK/ASSUMED DEBT 399 724
05/24/1999 TOWER REALTY
12/23/1997 HIGHWOODS PROPERTIES INC. MIXED 65.00 CASH/STOCK/ASSUMED DEBT 314 533
07/14/1998 J.C. NICHOLS COMPANY
04/29/1996 HIGHWOODS PROPERTIES INC. OFFICE/INDUST 11.02 CASH/ASSUMED DEBT 297 540
09/06/1996 CROCKER REALTY TRUST
06/21/2000 CALPERS/RREEF/OTHERS OFFICE/INDUST 26.00 CASH/ASSUMED DEBT 692 1,114
PENDING PACIFIC GULF PROPERTIES(3)
TBD DDR/LEND LEASE INDUSTRIAL 13.65 CASH/ASSUMED DEBT 287 598
TBD AMERICAN INDUSTRIAL PROPERTIES(5)
PREMIUM/(DISCOUNT) PAID TO:
PRICE/ PRICE/ ------------------------------------
ANNOUNCED DATE/ ACQUIRER / FORWARD FORWARD PRIOR PRIOR 52-WEEK
COMPLETED DATE TARGET FFO(1) AFFO(1) 5-DAYS 60-DAYS HIGH NAV(2)
--------------------- ------- -------- ------ ------- ---- ------
06/16/1999 STARWOOD FINANCIAL TRUST 7.2x 7.3x (5.0)% 6.4% (6.0)% (11.0)%
11/04/1999 TRINET CORPORATE REALTY
03/01/1999 DUKE REALTY 9.6x 10.9x 15.2% 7.0% (0.1)% 2.9%
06/18/1999 WEEKS CORP.
11/17/1998 PROLOGIS TRUST 7.8x 8.6x 8.4% 25.0% (11.4)% 12.3%
03/30/1999 MERIDIAN INDUSTRIAL TRUST
07/09/1998 RECKSON ASSOCIATES/METROP. 9.1x 10.5x (3.9)% (10.6)% (15.0)% NA
05/24/1999 TOWER REALTY
12/23/1997 HIGHWOODS PROPERTIES INC. NA NA 16.1% 8.9% (7.1)% NA
07/14/1998 J.C. NICHOLS COMPANY
04/29/1996 HIGHWOODS PROPERTIES INC. 12.7x NA 11.6% 11.6% (6.2)% NA
09/06/1996 CROCKER REALTY TRUST
06/21/2000 CALPERS/RREEF/OTHERS 9.2x NA 13.0% 27.3% 12.7% 4.0%
PENDING PACIFIC GULF PROPERTIES(3)
STRIPPED HIGH(4) 9.6x 10.5x 15.2% 25.0% (0.1)% 12.3%
MEAN 9.3x 9.3x 7.9% 10.8% (4.7)% 2.1%
MEDIAN 9.2x 9.6x 11.6% 8.9% (6.2)% 3.5%
STRIPPED LOW(4) 7.8x 8.6x (3.9)% 6.4% (11.4)% (11.0)%
$15.63 $12.55 $15.55 $15.62 $13.99 $16.54
AIP VALUATION RANGE TO TO TO TO TO TO
$12.65 $10.24 $12.98 $13.30 $12.40 $13.11
TBD DDR/LEND LEASE 8.4x 11.5x 1.1% 9.2% (2.5)% (7.3)%
TBD AMERICAN INDUSTRIAL PROPERTIES(5)
- ----------
(1) Based on Realty Stock Review estimates 12 months forward from date of
announcement
(2) Trinet based on DLJ Jun-99, Weeks and Meridian based on RSR, Pacific Gulf
based on Robertson Stevens Jun-00
(3) Estimated liquidation proceeds subject to increase based on liquidation
plan/process. Source: company press release
(4) Excludes extreme low and high values
(5) AIP premiums paid based on an
announcement date of 7/24/00. NAV based on CSI midpoint of $14.73
[CHASE LOGO] 41
43
APPENDIX C
COMPLETE LIQUIDATION ANALYSIS
[CHASE LOGO] 42
44
PROJECT FLEX
COMPLETE LIQUIDATION ANALYSIS ASSUMPTIONS
- --------------------------------------------------------------------------------
[ ] NOI growth of approximately 2.5% per annum over the 24-month liquidation
period
[ ] Assumes that Manhattan Tower is sold in the first quarter of the
liquidation process (net proceeds of $33.95 million)
[ ] G&A expenses are assumed to be $1.014 million in the first two quarters,
then to decline by 10% in the next two quarters and decline by 50%
thereafter
[ ] CapEx, TI's and Leasing costs are assumed to be 15% of NOI
[ ] Principal amount of amortization is assumed to be .50% of assets sales and
reduces the amount of principal to decrease the balance proportionally for
asset sales
[ ] Closing costs are assumed to be .60% of assets sold and sales costs are
assumed to be 3.5% of assets sold
[ ] Prepayment penalties are assumed to be $4.9 million and severance costs are
assumed to be $5.0 million
[ ] Legal and other costs are assumed to be $5.6 million or 9.5% of asset sales
[ ] Approximately 60% of the assets are sold within one year, NOI cap rate
range is 10.20% to 11.00%
[CHASE LOGO] 43
45
PROJECT FLEX--COMPANY VALUATION DETAIL
COMPLETE LIQUIDATION ANALYSIS
- --------------------------------------------------------------------------------
PROJECTED FINANCIAL INFORMATION FOR THREE MONTHS ENDED
--------------------------------------------------------------------
09/30/00 12/31/00 03/31/01 06/30/01 09/30/01
-------- -------- -------- -------- --------
(in thousands except per share data)
Net Operating Income(1) 0.60% $ 14,598 $ 14,598 $ 13,217 $ 11,080 $ 8,174
General & Administrative(2) $1,014 1,014 1,014 913 821 739
-------- -------- -------- -------- --------
EBITDA 1.80% $ 13,584 $ 13,584 $ 12,304 $ 10,259 $ 7,435
Interest Expense(3) 15.00% 5,222 5,195 4,652 3,857 2,814
CapEx, TI's and Leasing(4) 0.50% 2,190 2,190 1,983 1,662 1,226
Principal Amortization(5) 1,454 1,454 1,308 1,090 800
-------- -------- -------- -------- --------
FREE CASH FLOW $ 4,719 $ 4,745 $ 4,361 $ 3,649 $ 2,595
Shares & OPUs Outstanding 21,045 21,045 21,045 21,045 21,045
Free Cash Flow per Share $ 0.22 $ 0.23 $ 0.21 $ 0.17 $ 0.12
% OF ASSETS SOLD BY QUARTER 0% 10.00% 15.00% 20.00% 10.00%
ASSET SALES @ VARIOUS CAP RATES $ 0 $ 59,889 $ 88,113 $115,306 $ 56,618
ASSUMED CAP RATE 9.75% 9.75% 10.00% 10.25% 10.50%
LESS: 0.60%
Debt of Assets Sold(4) 3.50% 0 28,783 42,956 56,984 28,347
Closing Costs(6) 0 359 529 692 340
Sales Costs(7) $5,000 0 2,096 3,084 4,036 1,982
Prepayment Penalties(8) 9.50% 0 0 1,100 0 1,500
Severance Costs(8) 0 0 1,250 1,250 0
Legal and Other(9) 0 555 837 1,123 565
-------- -------- -------- -------- --------
Plus MT Proceeds(10) $ 32,050
Total Liquidation Proceeds $ 32,050 $ 28,096 $ 38,357 $ 51,221 $ 23,885
Liquidation Proceeds/Share $ 1.52 $ 1.34 $ 1.82 $ 2.43 $ 1.13
Total Distributions $ 36,769 $ 32,841 $ 42,718 $ 54,871 $ 26,480
Total Distributions/Share $ 1.75 $ 1.56 $ 2.03 $ 2.61 $ 1.26
PROJECTED FINANCIAL
INFORMATION FOR THREE MONTHS ENDED NPV @
------------------------------------ --------------------------------------------------
12/31/01 03/31/02 06/30/02 Total 12.0% 15.0% 18.0%
-------- -------- -------- -------- -------- -------- --------
(in thousands except per share data)
Net Operating Income(1) $ 6,728 $ 5,264 $ 3,026 $ 76,686 $ 69,228 $ 67,547 $ 65,933
General & Administrative(2) 665 333 166 5,665 5,102 4,975 4,853
-------- -------- -------- -------- -------- -------- --------
EBITDA $ 6,063 $ 4,932 $ 2,860 $ 71,020 64,126 62,572 61,080
Interest Expense(3) 2,291 1,772 1,008 26,811 24,233 23,652 23,093
CapEx, TI's and Leasing(4) 1,009 790 454 11,503 10,384 10,132 9,890
Principal Amortization(5) 654 509 291 7,559 6,828 6,663 6,505
-------- -------- -------- -------- -------- -------- --------
FREE CASH FLOW $ 2,109 $ 1,861 $ 1,108 $ 25,148 $ 22,680 $ 22,125 $ 21,592
Shares & OPUs Outstanding 21,045 21,045 21,045 21,045 21,045 21,045 21,045
Free Cash Flow per Share $ 0.10 $ 0.09 $ 0.05 $ 1.19 $ 1.08 $ 1.05 $ 1.03
% OF ASSETS SOLD BY QUARTER 10.00% 15.00% 20.00%
ASSET SALES @ VARIOUS CAP RATES $ 55,633 $ 83,950 $110,046 $569,555 $490,096 $472,613 $455,972
ASSUMED CAP RATE 10.75% 10.75% 11.00%
LESS:
Debt of Assets Sold(4) 28,201 42,084 55,821 283,176 243,425 234,684 226,364
Closing Costs(6) 334 504 660 3,417 2,941 2,836 2,736
Sales Costs(7) 1,947 2,938 3,852 19,934 17,153 16,541 15,959
Prepayment Penalties(8) 0 2,300 0 4,900 4,171 4,010 3,858
Severance Costs(8) 1,250 0 1,250 5,000 4,288 4,132 3,982
Legal and Other(9) 568 857 1,150 5,655 4,854 4,679 4,511
-------- -------- -------- -------- -------- -------- --------
Plus MT Proceeds(10)
Total Liquidation Proceeds $ 23,333 $ 35,267 $ 47,313 $279,522 $244,380 $236,624 $229,231
Liquidation Proceeds/Share $ 1.11 $ 1.68 $ 2.25 $ 13.28 $ 11.61 $ 11.24 $ 10.89
Total Distributions $ 25,441 $ 37,128 $ 48,421 $304,670 $267,061 $258,749 $250,823
Total Distributions/Share $ 1.21 $ 1.76 $ 2.30 $ 14.48 $ 12.69 $ 12.30 $ 11.92
Notes
(1) Based on Management Estimates to 12/31/00 and 3.0% growth per annum
thereafter
(2) Assumed to be $1.014mm in Q1 and Q2; decreasing by 10% for 4 quarters,
then 50% for 2 quarters
(3) Assumed average interest rate of 7.2%
(4) Estimated at 15% of NOI
(5) Applies Asset Sales % to principal amount of debt to decrease the balance
proportionally for asset sales
(6) Assumed to be 0.70% of assets sold
(7) Assumed to be 3.5% of assets sold
(8) Chase estimates
(9) Assumed to be 1% of assets sold
(10) Assumes that Manhattan Tower is sold for $53.1 million less transaction
expenses of $750,000 and debt of $20.3 million
[CHASE LOGO] 44
46
APPENDIX D
PARTIAL LIQUIDATION ANALYSIS
[CHASE LOGO] 45
47
PROJECT FLEX
PARTIAL LIQUIDATION ANALYSIS ASSUMPTIONS
- --------------------------------------------------------------------------------
[ ] Assumes DDR transaction is completed 9/00 and a cash payment is made to
shareholders of $6.0 million for difference between the DDR investment and
the assets received
[ ] NOI growth of approximately 2.5% per annum over the 24-month liquidation
period
[ ] Assumes that Manhattan Tower is sold in the first quarter of the
liquidation process (net proceeds of $33.95 million)
[ ] G&A expenses are assumed to be $1.014 million in the first two quarters,
then to decline by 10% in the next two quarters and decline by 50%
thereafter
[ ] CapEx, TI's and Leasing costs are assumed to be 15% of NOI
[ ] Principal amount of amortization is assumed to be .50% of assets sales and
reduces the amount of principal to decrease the balance proportionally for
asset sales
[ ] Closing costs are assumed to be .60% of assets sold and sales costs are
assumed to be 3.5% of assets sold
[ ] Prepayment penalties are assumed to be $3.0 million and severance costs are
assumed to be $5.0 million
[ ] Legal and other costs are assumed to be $3.0 million or 9.5% of asset
sales
[ ] Approximately 45% of the assets are sold within one year, NOI cap rate
range is 9.75% to 11.00%
[CHASE LOGO] 46
48
PROJECT FLEX--COMPANY VALUATION DETAIL
PARTIAL LIQUIDATION ANALYSIS
- --------------------------------------------------------------------------------
Projected Financial Information for Three Months Ended
-----------------------------------------------------------
09/30/00 12/31/00 03/31/01 06/30/01 09/30/01
-------- -------- -------- -------- --------
(in thousands except per share data)
Net Operating Income(1) 0.60% $ 7,787 $ 7,833 $ 7,092 $ 5,946 $ 4,386
General & Administrative(2) $1,014 1,014 1,014 913 821 739
-------- -------- -------- -------- --------
EBITDA $ 6,773 $ 6,819 $ 6,180 $ 5,124 $ 3,647
Interest Expense(3) 1.54% 2,418 2,406 2,154 1,786 1,303
CapEx, TI's and Leasing (4) 15.00% 1,168 1,175 1,064 892 658
Principal Amortization (5) 0.50% 788 788 709 591 433
-------- -------- -------- -------- --------
FREE CASH FLOW $ 2,399 $ 2,451 $ 2,253 $ 1,856 $ 1,253
Shares & OPUs Outstanding 11,385 11,385 11,385 11,385 11,385
Free Cash Flow per Share $ 0.21 $ 0.22 $ 0.20 $ 0.16 $ 0.11
% OF ASSETS SOLD BY QUARTER 0.00% 10.00% 15.00% 20.00% 10.00%
ASSET SALES @ VARIOUS CAP RATES $ 0 $ 32,137 $ 47,283 $ 61,875 $ 30,382
ASSUMED CAP RATE 9.75% 9.75% 10.00% 10.25% 10.50%
Less:
Debt of Assets Sold(4) 0.60% 0 15,593 23,271 30,870 15,356
Closing Costs(6) 3.50% 0 193 284 371 182
Sales and Transaction Costs(7) 3,000 0 1,125 1,655 2,166 1,063
Prepayment Penalties(8) $5,000 0 0 900 0 900
Severance Costs(8) 9.50% 0 0 1,250 1,250 0
Legal and Other(9) 0 298 449 603 303
-------- -------- -------- -------- --------
Plus Cash Payment(10) $ 39,950
Total Liquidation Proceeds $ 39,950 $ 14,930 $ 19,475 $ 26,616 $ 12,577
Liquidation Proceeds/Share $ 3.51 $ 1.31 $ 1.71 $ 2.34 $ 1.10
Total Distributions $ 42,349 $ 17,381 $ 21,727 $ 28,472 $ 13,830
Total Distributions/Share $ 3.72 $ 1.53 $ 1.91 $ 2.50 $ 1.21
Projected Financial
Information for Three Months Ended NPV @
---------------------------------- --------------------------------------------
12/31/01 03/31/02 06/30/02 Total 12.0% 15.0% 18.0%
-------- -------- -------- -------- -------- -------- --------
(in thousands except per share data)
Net Operating Income(1) $ 3,610 $ 2,825 $ 1,624 $ 41,104 $ 37,104 $ 36,202 $ 35,336
General & Administrative(2) 665 333 166 5,665 5,102 4,975 4,853
-------- -------- -------- -------- -------- -------- --------
EBITDA $ 2,945 $ 2,492 $ 1,458 $ 35,439 32,002 31,227 30,483
Interest Expense(3) 1,061 821 467 12,416 11,223 10,954 10,695
CapEx, TI's and Leasing (4) 542 424 244 6,166 5,566 5,430 5,300
Principal Amortization (5) 354 276 158 4,095 3,699 3,610 3,524
-------- -------- -------- -------- -------- -------- --------
FREE CASH FLOW $ 988 $ 972 $ 590 $ 12,762 $ 11,515 $ 11,234 $ 10,964
Shares & OPUs Outstanding 11,385 11,385 11,385 11,385 11,385 11,385 11,385
Free Cash Flow per Share $ 0.09 $ 0.09 $ 0.05 $ 1.12 $ 1.01 $ 0.99 $ 0.96
% OF ASSETS SOLD BY QUARTER 10.00% 15.00% 20.00%
ASSET SALES @ VARIOUS CAP RATES $ 30,565 $ 45,049 $ 59,053 $306,345 $263,590 $254,183 $245,229
ASSUMED CAP RATE 10.50% 10.75% 11.00%
Less:
Debt of Assets Sold(4) 15,278 22,798 30,240 153,405 131,871 127,135 122,628
Closing Costs(6) 183 270 354 1,838 1,582 1,525 1,471
Sales and Transaction Costs(7) 1,070 1,577 2,067 10,722 9,226 8,896 8,583
Prepayment Penalties(8) 0 1,200 0 3,000 2,576 2,482 2,393
Severance Costs(8) 1,250 0 1,250 5,000 4,288 4,132 3,982
Legal and Other(9) 305 460 617 3,034 2,605 2,511 2,421
-------- -------- -------- -------- -------- -------- --------
Plus Cash Payment(10) $ 39,950 $ 35,670 $ 34,739 $ 38,230
Total Liquidation Proceeds $ 12,479 $ 18,744 $ 24,525 $169,295 $150,230 $146,009 $141,980
Liquidation Proceeds/Share $ 1.10 $ 1.65 $ 2.15 $ 14.87 $ 13.20 $ 12.82 $ 12.47
Total Distributions $ 13,467 $ 19,716 $ 25,115 $182,057 $161,744 $157,242 $152,944
Total Distributions/Share $ 1.18 $ 1.73 $ 2.21 $ 15.99 $ 14.21 $ 13.81 $ 13.43
Notes
(1) Based on Management Estimates to 12/31/00 and 3.0% growth per annum
thereafter
(2) Assumed to be $1.014mm in Q1 and Q2; decreasing by 10% for 4 quarters, then
50% for 2 quarters
(3) Assumed average interest rate of 7.2%
(4) Estimated at 13% of NOI
(5) Applies Asset Sales % to principal amount of debt to decrease the balance
proportionally for asset sales
(6) Assumed to be 0.35% of assets sold
(7) Assumed to be 3.5% of assets sold
(8) Chase estimates
(9) Assumed to be 1% of assets sold
(10) Assumed Cash Payment to Shareholders of AIP for the difference in between
DDR's stock investment and assets received, also assumes sale of Manhattan
Towers
[CHASE LOGO] 47