1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 14, 1998
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact Name of Registrant as Specified in its Charter)
TEXAS 1-9016 75-6335572
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification Number)
6210 NORTH BELTLINE ROAD, SUITE 170, IRVING, TEXAS 75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (972) 756-6000
2
The undersigned Registrant hereby amends its Current Report on Form 8-K dated
October 14,1998, which was filed with the Securities and Exchange Commission on
October 29, 1998, to include the financial statements for the A&A Portfolio
Properties and the A&A Virginia Properties (together the "A&A Portfolio" or the
"Properties") required by Item 7 (a) and the pro forma financial information
required by Item 7 (b).
The Trust evaluated the historical sources of revenue and nature of expenses
related to the Properties as part of its due diligence procedures. The Trust is
not aware of any material factors related to the Properties that would cause the
financial information included herein not to be necessarily indicative of future
operating results.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements: See Index to Financial Statements and Pro Forma
Financial Information appearing on page F-1 of this Form 8-K/A.
(b) Pro Forma Financial Information: See Index to Financial Statements and
Pro Forma Financial Information appearing on page F-1 of this Form
8-K/A.
(c) Exhibits
The following exhibits are filed with this report:
Exhibit
Number Description
10.1 Purchase and Sale Agreement, dated as of May 10, 1998, by and between
A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc.
and A&A Greenbrier Tech, Inc. and DDR Office Flex Corporation.
10.2 Purchase and Sale Agreement, dated as of May 10, 1998, by and between
Battlefield/Virginia, Inc. and DDR Office Flex Corporation.
10.3 Amendment to Purchase and Sale Agreement dated July 8, 1998, by and
between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe
C, Inc. and A&A Greenbrier Tech, Inc. and DDR Office Flex Corporation.
10.4 Amendment to Purchase and Sale Agreement dated July 8, 1998, by and
between Battlefield/Virginia, Inc. and DDR Office Flex Corporation.
10.5 Second Amendment to Purchase and Sale Agreement dated September 30,
1998, by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A
Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Office Flex
Corporation.
10.6 Second Amendment to Purchase and Sale Agreement dated September 30,
1998, by and between Battlefield/Virginia, Inc. and DDR Office Flex
Corporation.
10.7 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Greenbrier, Inc. and American Industrial Properties REIT.
10.8 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Northpointe B, Inc. and American Industrial Properties REIT.
10.9 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Northpointe C, Inc. and American Industrial Properties REIT.
10.10 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Greenbrier Tech, Inc. and American Industrial Properties REIT.
23.1 Consent of PricewaterhouseCoopers LLP
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN INDUSTRIAL PROPERTIES REIT
By: /s/ CHARLES W. WOLCOTT
-----------------------------------------------
Charles W. Wolcott
President and Chief Executive
Officer
December 28, 1998
4
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The A&A PORTFOLIO PROPERTIES
Report of Independent Accountants................................................................. F-2
Combined Statement of Revenue and Certain Expenses for the year ended
October 31, 1998.................................................................................. F-3
Notes to Combined Statement of Revenue and Certain Expenses....................................... F-4
The A&A VIRGINIA PROPERTIES
Report of Independent Accountants................................................................. F-6
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 and the nine month period ended September 30, 1998
(Unaudited)....................................................................................... F-7
Notes to Combined Statement of Revenue and Certain Expenses....................................... F-8
PRO FORMA FINANCIAL INFORMATION............................................................................ F-10
Pro forma condensed consolidated balance sheet as of September 30, 1998........................... F-13
Pro forma condensed consolidated statement of operations for the nine months
ended September 30, 1998.......................................................................... F-15
Pro forma condensed consolidated statement of operations for the year
ended December 31, 1997........................................................................... F-17
5
REPORT OF INDEPENDENT ACCOUNTANTS
December 10, 1998
To the Board of Directors and Shareholders of
American Industrial Properties REIT
We have audited the accompanying combined statement of revenue and certain
expenses of The A&A Portfolio Properties, described in Note 1, for the year
ended October 31, 1998. This historical statement is the responsibility of
management. Our responsibility is to express an opinion on this historical
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying combined historical statement is prepared on the basis
described in Note 2, for the purpose of complying with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission (for inclusion in Form 8-K/A of
American Industrial Properties REIT) and is not intended to be a complete
presentation of the combined revenues and expenses of The A&A Portfolio
Properties.
In our opinion, the combined historical statement referred to above presents
fairly, in all material respects, the combined revenue and certain expenses of
The A&A Portfolio Properties, on the basis described in Note 2, for the year
ended October 31, 1998, in conformity with generally accepted accounting
principles.
PricewaterhouseCoopers LLP
Cleveland, Ohio
F-2
6
AMERICAN INDUSTRIAL PROPERTIES REIT
THE A&A PORTFOLIO PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
Year Ended
October 31, 1998
----------------
Revenue:
Minimum rents $1,819,674
Recoveries from tenants 326,418
----------
2,146,092
----------
Certain expenses:
Operating and maintenance 148,264
Real estate taxes 188,039
----------
336,303
----------
Revenue in excess of certain expenses $1,809,789
==========
The accompanying notes are an integral part of this combined statement of
revenue and certain expenses.
F-3
7
AMERICAN INDUSTRIAL PROPERTIES REIT
THE A&A PORTFOLIO PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
1. OPERATIONS
For purposes of the accompanying combined statement of revenue and
certain expenses, The A&A Portfolio Properties represent two light
industrial properties (the "Properties") comprised of three buildings,
which American Industrial Properties REIT (the "Trust") acquired in
October 1998. A summary of the Properties is as follows:
Name of Property Location Year Built
---------------- -------- ----------
Battlefield / Virginia, Inc. Manassas, VA 1988 / 1989
Greenbrier Tech Chesapeake, VA 1986
A combined statement of revenue and certain expenses has been presented
because the Properties have commonality of ownership, are under common
control and management and have been purchased through a single
transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined statement of revenue and certain expenses has
been prepared on the accrual basis of accounting.
The accompanying combined financial statement is not representative of
the actual operations for the periods presented as certain revenues and
expenses, which may not be comparable to the revenues and expenses
expected to be earned or incurred by the Trust in the future operations
of the Properties, have been excluded. Revenues excluded consist of
interest, gains on sales of property, and other revenues unrelated to
the continuing operations of the Properties. Expenses excluded consist
of depreciation on the building, financing costs, and other general and
administrative expenses not directly related to the future operations of
the Properties.
Income Recognition
Rental income is recorded on the straight line basis.
Concentration of Risk
The Properties are concentrated in the Manassas, VA and Chesapeake, VA
area. The principal competitive factors in this market are price,
location, quality of space, and amenities. The Properties represent a
small portion of the total similar space in the market and compete with
other properties for tenants. For the year ended October 31, 1998, 59.3%
of the combined base rents were derived from the Properties' largest
tenant, AT&T. AT&T is the sole tenant of the two Battlefield buildings.
F-4
8
AMERICAN INDUSTRIAL PROPERTIES REIT
THE A&A PORTFOLIO PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. ACQUISITION OF PROPERTIES BY THE TRUST
On October 14, 1998, the Trust purchased Battlefield and on October 16,
1998 purchased Greenbrier Tech along with three other light industrial
properties, located in Virginia and managed by Cambridge, from a group
of related sellers for an aggregate purchase price of $40,170,000. The
acquisition of the five properties was funded with $22,421,000 in
assumed debt and the remainder in borrowings from Developers Diversified
Realty Corporation, a strategic investor in the Trust. The aggregate
purchase price related to the Properties was $20,224,000 including
assumed debt of $12,388,000.
F-5
9
REPORT OF INDEPENDENT ACCOUNTANTS
December 10, 1998
To the Board of Directors and Shareholders of
American Industrial Properties REIT
We have audited the accompanying combined statement of revenue and certain
expenses of The A&A Virginia Properties, described in Note 1, for the year ended
December 31, 1997. This historical statement is the responsibility of
management. Our responsibility is to express an opinion on this historical
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying combined historical statement is prepared on the basis
described in Note 2, for the purpose of complying with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission (for inclusion in Form 8-K/A of
American Industrial Properties REIT) and is not intended to be a complete
presentation of the combined revenues and expenses of The A&A Virginia
Properties.
In our opinion, the combined historical statement referred to above presents
fairly, in all material respects, the combined revenue and certain expenses of
The A&A Virginia Properties, on the basis described in Note 2, for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
PricewaterhouseCoopers LLP
Cleveland, Ohio
F-6
10
AMERICAN INDUSTRIAL PROPERTIES REIT
THE A&A VIRGINIA PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
NINE MONTH
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------------ ------------
Revenue:
Minimum rents $1,847,597 $2,563,274
Recoveries from tenants 181,919 289,373
Other income 900 38,883
---------- ----------
2,030,416 2,891,530
---------- ----------
Certain expenses:
Operating and maintenance 519,933 647,420
Real estate taxes 141,816 189,179
---------- ----------
661,749 836,599
---------- ----------
Revenue in excess of certain expenses $1,368,667 $2,054,931
========== ==========
The accompanying notes are an integral part of this combined statement of
revenue and certain expenses.
F-7
11
AMERICAN INDUSTRIAL PROPERTIES REIT
THE A&A VIRGINIA PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
1. OPERATIONS
For purposes of the accompanying combined statement of revenue and
certain expenses, The A&A Virginia Properties represents three light
industrial properties (the "Virginia Properties") comprised of four
buildings, which American Industrial Properties REIT (the "Trust")
acquired in October 1998. A summary of the Virginia Properties is as
follows:
Name of Property Location Year Built
---------------- -------- ----------
Northpointe B Sterling, VA 1986
Northpointe C Sterling, VA 1987
Greenbrier Circle Chesapeake, VA 1981 / 1983
A combined statement of revenue and certain expenses has been presented
because the Virginia Properties have commonality of ownership, are under
common control and management and have been purchased through a single
transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined statement of revenue and certain expenses has
been prepared on the accrual basis of accounting.
The accompanying combined financial statement is not representative of
the actual operations for the periods presented as certain revenues and
expenses, which may not be comparable to the revenues and expenses
expected to be earned or incurred by the Trust in the future operations
of the Virginia Properties, have been excluded. Revenues excluded
consist of interest and other revenues unrelated to the continuing
operations of the Virginia Properties. Expenses excluded consist of
depreciation on the building, financing costs, legal fees, and other
general and administrative expenses not directly related to the future
operations of the Virginia Properties.
Income Recognition
Rental income is recorded on the straight line basis.
Concentration of Risk
The Virginia Properties are concentrated in the Sterling, VA and
Chesapeake, VA area. The principal competitive factors in this market
are price, location, quality of space, and amenities. The Virginia
Properties represent a small portion of the total similar space in the
market and compete with other properties for tenants. For the year ended
December 31, 1997, 11.9% of the combined base rents were derived from
the Virginia Properties' largest tenant, Northrup Grumann Corporation.
F-8
12
AMERICAN INDUSTRIAL PROPERTIES REIT
THE A&A VIRGINIA PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
Interim Statements
The interim financial data for the nine months ended September 30, 1998
is unaudited; however, in the opinion of the Trust, the interim data
includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the
interim periods. The results for the period presented are not
necessarily indicative of the results for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. ACQUISITION OF PROPERTIES BY THE TRUST
On October 16, 1998, the Trust purchased the Virginia Properties along
with one light industrial property and purchased another light
industrial property on October 14, 1998, located in Virginia and managed
by Cambridge, from a group of related sellers for an aggregate purchase
price of $40,170,000. The acquisition of the five properties was funded
with $22,421,000 in assumed debt and the remainder in borrowings from
Developers Diversified Realty Corporation, a strategic investor in the
Trust. The aggregate purchase price related to the Virginia Properties
was $19,946,000 including assumed debt of $10,033,000.
F-9
13
AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
The following Pro Forma Condensed Consolidated Balance Sheet of the Trust
as of September 30, 1998 has been prepared as if each of the following
transactions had occurred as of September 30, 1998: (i) the acquisition of a
portfolio consisting of five affiliated industrial properties (the "A&A
Portfolio"); (ii) the acquisition of three unrelated properties (the "Other
Recent Acquisitions"); (iii) the probable acquisition, through DDR/Tech 29 L.
P., a limited partnership in which the Trust will have a controlling ownership
interest, of Tech 29 ("Tech 29"), a 290,991 square foot light industrial project
consisting of three buildings in Silver Spring, Maryland; (iv) probable
acquisition of two unrelated properties (the "Other Probable Acquisitions"); and
(v) the sale of an additional 1,958,003 Common Shares for $15.50 per share to
DDR (the "DDR Stock Transaction").
The properties in the A&A Portfolio are as follows:
PROPERTY LOCATION TOTAL SQUARE FEET
- -------- -------- -----------------
AT&T - Battlefield Manassas, Virginia 154,226
Greenbrier Circle Chesapeake, Virginia 228,690
Greenbrier Tech Chesapeake, Virginia 95,162
Northpointe B Sterling, Virginia 36,654
Northpointe C Sterling, Virginia 46,080
The Other Recent Acquisitions are as follows:
PROPERTY LOCATION TOTAL SQUARE FEET
- -------- -------- -----------------
Technipark Ten Houston, Texas 71,635
Columbia Corporate Center Aliso Viejo, California 128,122
Winter Park Castleberry, Florida 119,684
The following Pro Forma Condensed Consolidated Statement of Operations of
the Trust for the year ended December 31, 1997 has been prepared as if each of
the following transactions had occurred as of January 1, 1997: (i) the
acquisition of 15 industrial real estate properties; (ii) the sale of two
industrial real estate properties; (iii) the merger with four publicly traded
real estate limited partnerships; (iv) the acquisition of the Spieker Portfolio;
(v) the acquisition of North Austin; and (vi) the acquisition, through AIP
Operating, L.P., a limited partnership in which the Trust has a 99% controlling
ownership interest, of Spring Valley #6 (together with North Austin, the "1998
Acquisitions"), all of the transactions listed in clauses (i) through (vi) are
defined and described in Amendment No. 1 to the Current Report on Form 8-K/A of
the Trust dated April 30, 1998 and filed
F-10
14
with the SEC on July 13, 1998 (the "April 30, 1998 Form 8-K/A"), which is
incorporated herein by reference; (vii) the acquisition of Norfolk Commerce
Park ("Norfolk"), a 323,731 square foot light industrial project consisting of
three buildings in Norfolk, Virginia; (viii) the acquisition of the A&A
Portfolio, described above; (ix) the acquisition of the Other Recent
Acquisitions, described above; (x) the probable acquisition of Tech 29,
described above; (xi) the sale to DDR of 949,147 Common Shares at $15.50 per
share; (xii) the acquisition of five Acquired Properties through the Merger
with a subsidiary of DDR and issuance of 1,258,471 Common Shares to DDR; (xiii)
the acquisition of the Other Probable Acquisitions; and (xiv) the DDR Stock
Transaction.
The following Pro Forma Condensed Consolidated Statement of Operations of
the Trust for the nine months ended September 30, 1998 has been prepared as if
each of the following transactions had occurred as of January 1, 1998: (i) the
1998 Acquisitions, described above; (ii) the acquisition of the Spieker
Portfolio, described in the April 30, 1998 Form 8-K/A; (iii) the acquisition of
Norfolk, described above; (iv) the acquisition of the A&A Portfolio, described
above; (v) the acquisition of the Other Recent Acquisitions, described above;
(vi) the probable acquisition of Tech 29, described above; (vii) the sale to DDR
of 949,147 Common Shares at $15.50 per share, described above; (viii) the
acquisition of the Acquired Properties through the Merger with a subsidiary of
DDR and issuance of 1,258,471 Common Shares to DDR, described above (ix) the
acquisition of the Other Probable Acquisitions, described above; and (x) the
DDR Stock Transaction.
The Pro Forma Condensed Balance Sheet as of September 30, 1998 and the Pro
Forma Condensed Consolidated Statements of Operations of the Trust for the year
ended December 31, 1997 and the nine months ended September 30, 1998 exclude any
effect from the option of the Trust to require DDR to purchase additional shares
with a total purchase price not to exceed $200 million to fund property
acquisitions (less $31 million identified to purchase the Other Probable
Acquisitions), as no further probable acquisitions have been identified by the
Trust.
The Pro Forma Financial Information of the Trust has been prepared using
the purchase method of accounting for the acquisition of the Acquired Properties
and other property acquisitions, whereby the assets and liabilities of the
properties were adjusted to estimated fair value, based upon preliminary
estimates, which are subject to change as additional information is obtained.
The allocations of purchase costs are subject to final determination based upon
estimates and other evaluations of fair value. Therefore, the allocations
reflected in the following Pro Forma Financial Information may differ from the
amounts ultimately determined.
Such Pro Forma Financial Information is based in part upon (i) the
Consolidated Financial Statements of the Trust for the year ended December 31,
1997 included in the Trust's Annual Report on Form 10-K for the year ended
December 31, 1997; (ii) the Consolidated Financial Statements of the Trust for
the nine months ended September 30,
F-11
15
1998 included in the Trust's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998; (iii) the Combined Statement of Revenue and Certain Expenses
of Developers Diversified Realty Corporation Properties for the year ended
December 31, 1997 and the six months ended June 30, 1998 filed with the SEC with
Amendment No. 1 to the Trust's Current Report on Form 8-K, dated July 30, 1998;
(iv) the Combined Statement of Revenue and Certain Expenses of the Norfolk
Commerce Park Properties for the year ended December 31, 1997 and the six months
ended June 30, 1998 filed with the SEC with the Trust's Current Report on Form
8-K, dated July 30, 1998; (v) the combined statement of revenue and certain
expenses of The A&A Virginia Properties for the year ended December 31, 1997 and
the nine months ended September 30, 1998, included elsewhere herein; and (vi)
the Pro Forma Financial Information presented in the April 30, 1998 Form 8-K/A.
The Pro Forma Financial Information is presented for information purposes
only and is not necessarily indicative of the financial position or results of
operations of the Trust that would have occurred if such transactions had been
completed on the dates indicated, nor does it purport to be indicative of future
financial position or results of operations. In the opinion of the Trust's
management, all material adjustments necessary to reflect the effect of these
transactions have been made.
F-12
16
AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)
ASSETS
Trust Recent Probable DDR Stock Pro
Historical (A) Transactions(B) Acqusitions(C) Transaction(D) Forma
------------ ------------ ------------ ------------ ------------
Real estate, net $ 372,796 $ 66,555 $ 173,338 $ -- $ 612,689
Cash - unrestricted 7,639 -- -- 24,588
(21,859)
(2,729) 7,639
Cash - restricted 4,391 -- -- -- 4,391
Other assets, net 8,304 -- -- -- 8,304
------------ ------------ ------------ ------------ ------------
$ 393,130 $ 66,555 $ 173,338 $ -- $ 633,023
============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 207,106 $ 27,521 $ 100,701 $ -- $ 335,328
Notes payable to affiliates -- 29,659 -- (21,859) 7,800
Accrued interest payable 1,146 -- -- -- 1,146
Accounts payable, accrued
expenses and other 5,509 -- -- -- 5,509
Distributions payable 2,945 -- -- -- 2,945
Tenant security deposits 1,644 -- -- -- 1,644
------------ ------------ ------------ ------------ ------------
218,350 57,180 100,701 (21,859) 354,372
Minority interests 7,239 -- -- -- 7,239
Shareholders' equity:
Shares of beneficial interest
($0.10 par value) 1,348 60 469 196 2,073
Additional paid-in capital 275,430 9,315 72,168 24,392 381,305
Less Shares in treasury, at cost (2,226) -- -- -- (2,226)
Accumulated distributions (65,358) -- -- -- (65,358)
Accumulated loss from operations
and extraordinary gains (losses) (44,964) -- -- (2,729) (47,693)
Accumulated net realized gain
on sales of real estate 3,311 -- -- -- 3,311
------------ ------------ ------------ ------------ ------------
167,541 9,375 72,637 21,859 271,412
------------ ------------ ------------ ------------ ------------
$ 393,130 $ 66,555 $ 173,338 $ -- $ 633,023
============ ============ ============ ============ ============
(A) Represents the historical financial position of the Trust as of September
30, 1998.
(B) Represents adjustments for (i) the acquisition of the A&A Portfolio,
$22,421 of which was financed with the assumption of existing mortgages on
the properties, which bear interest at rates ranging from 7.375% to 8.13%
and mature from October 2004 to March 2016, and $17,749 of which was
financed with borrowings on the Trust's demand note with DDR (the "DDR
Note"), which bears interest at 10.25% and (ii) the Other Recent
Acquisitions, $5,100 of which were financed with borrowings on the Trust's
acquisition line of credit (the "Credit Facility"), which bears interest at
the 30 day LIBOR rate plus 1.75% and which matures in one year, $11,910 of
which was financed with borrowings on the DDR Note, which bears interest at
10.25%, and
F-13
17
$9,375 which was financed with the proceeds of the sale of 604,838 Common
Shares to DDR at $15.50 per share.
(C) Represents adjustments for (i) the probable acquisition, through DDR/Tech
29 L.P., a limited partnership in which the Trust has a controlling
ownership interest, of Tech 29, expected to be financed with the assumption
of existing mortgages of $10,201 on Tech 29, which bear interest at a
weighted average rate of 8.74% and mature in 2003 and 2006 and the proceeds
from the sale of 1,034,645 Common Shares to DDR at $15.50 per share and
(ii) the Other Probable Acquisitions in the amount of $147,100, which are
expected to be financed with borrowings of $90,500 on the Credit Facility
and the proceeds from the sale of 3,651,613 Common Shares to DDR at $15.50
per share. There can be no assurance that the acquisition of Tech 29 or the
other Probable Acquisitions will occur. In addition, there can be no
assurance that the Board of Trust Managers will approve the sale of Common
Shares to DDR related to DDR's $200 million commitment, of which $31,349
(or 2,022,516 Common Shares), is assumed to be issued. Further, there can
be no assurance that the Common Shares will be sold for $15.50 per share.
(D) Represents adjustments for the investment by DDR in the Trust, as approved
by the Trust's shareholders at the Special Meeting held on November 20,
1998, and the repayment of borrowings under the DDR Note with proceeds from
the investment. These adjustments exclude any effect from the option of the
Trust to require DDR to purchase additional shares to fund property
acquisitions, as no further probable acquisitions have been identified by
the Trust, other than as previously disclosed.
(E) Represents adjustments to reflect the sale of 1,958,003 Common Shares for
$15.50 per share (or $30,349) to DDR, less estimated costs of issuance of
$5,761, for the DDR Stock Transaction, the previous issuance of 1,258,471
Common Shares related to the Merger with a subsidiary of DDR, and the sale
of 949, 147 Common Shares to DDR, as follows:
Placement fees..................................... $4,600
Advisory fees (fairness opinion)................... 600
Other (legal, proxy, etc.)......................... 561
------
Issuance costs..................................... $5,761
======
(F) Represents adjustments for the application of the cash proceeds from DDR as
follows: (i) $17,749 to the DDR Note for the A&A Portfolio and(ii) $4,110
to the DDR Note for the Other Recent Acquisitions.
(G) Represents adjustments for payments to management under the Change in
Control Agreements, including payments equal to 2.5 times each individual
officer's base salary and targeted bonus.
No adjustment is required for the vesting of dividend equivalent rights, as
the amounts have been accrued at September 30, 1998. No compensation
expense would
F-14
18
be recorded related to the immediate vesting of the options to purchase
75,000 Shares at $15.00 per share and the options to purchase 326,000
Shares at $13.625 per share, as the exercise price exceeds the current
price per Common Share.
AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Trust Recent Probable DDR Stock Pro Forma
Historical(A) Transactions(B) Acquisitions(C) Transaction(D) Total
----------- ------------ ------------ ----------- ----------
INCOME
Rents and tenant reimbursements $ 31,822 $ 13,696 $ 14,555 -- $ 60,073
Interest and other income 500 34 70 -- 604
---------- ---------- ---------- ---------- ----------
32,322 13,730 14,625 -- 60,677
---------- ---------- ---------- ---------- ----------
EXPENSES
Property operating expenses 10,128 3,572 3,416 -- 17,116
Depreciation and amortization 5,821 2,162(E) 2,601(E) -- 10,584
Interest expense 10,112 5,638(F) 5,689(G) (1,676)(H) 19,763
General and administrative 2,596 76 137 -- 2,809
---------- ---------- ---------- ---------- ----------
Total expenses 28,657 11,448 11,843 (1,676) 50,272
---------- ---------- ---------- ---------- ----------
Income (loss) from operations before
minority interest 3,665 2,282 2,782 1,676 10,405
Minority interest (177) -- -- -- (177)
---------- ---------- ---------- ---------- ----------
Income (loss) from operations $ 3,488 $ 2,282 $ 2,782 1,676 $ 10,228
========== ========== ========== ========== ==========
Income from operations
per share:
Basic and diluted $ 0.30 $ 0.50
========== ==========
Weighted average number of
Common Shares outstanding-basic 11,390 2,311 4,686 1,976 20,363(I)
========== ========== ========== ========== ==========
Weighted average number of
Common Shares outstanding-diluted 11,408 2,311 4,686 1,958 20,363(I)
========== ========== ========== ========== ==========
(A) Represents the historical results of operations of the Trust for the nine
months ended September 30, 1998. Certain reclassifications have been made
to the historical statements of operations of the Trust for purposes of
this pro forma financial information presentation.
(B) Represents adjustments for: (i) the 1998 Acquisitions; (ii) the acquisition
of the Spieker Portfolio; (iii) the acquisition of Norfolk; (iv) the
acquisition of the A&A Portfolio; (v) the acquisition of the Acquired
Properties through the Merger with a subsidiary of DDR and issuance of
1,258,471 Common Shares to DDR; (vi) the sale to DDR of 949,147 Common
Shares to DDR at $15.50 per share; and (vii) the acquisition of the Other
Recent Acquisitions, which are derived from the historical operating
results of the respective properties, except for depreciation and interest,
F-15
19
which are based on the Trust's investment in the acquisitions and method of
financing the acquisitions.
(C) Represents adjustments for the probable acquisition of Tech 29 and the
Other Probable Acquisitions based on historical operating results, except
for depreciation and interest, which are based on the Trust's investment in
the acquisitions and method of financing the acquisitions. There can be no
assurance that the acquisition of Tech 29 or the Other Probable
Acquisitions will occur.
(D) Represents adjustments for the DDR Stock Transaction. Since the intent of
the pro forma condensed statement of operations is to reflect the expected
continuing impact of the sale of 949,147 Common Shares to DDR at $15.50
per share, the acquisition of the Acquired Properties, and the DDR Stock
Transaction, the one-time adjustment for payments to management under the
Change in Control Agreements has been excluded. Upon consummation of the
DDR Stock Transaction, this expense will be recognized on the Trust's
statements of operations.
(E) Represents adjustment for depreciation which is calculated based on the
allocation of the purchase price, with buildings depreciated using the
straight-line method over a 40-year period.
(F) Represents adjustments for interest expense related to mortgages assumed
and borrowings under the Trust's Credit Facility and the DDR Note in
connection with the purchase of the 1998 Acquisitions, the Spieker
Portfolio, Norfolk, the A&A Portfolio, the Acquired Properties and the
Other Recent Acquisitions, offset by the reduction in interest expense
incurred under the DDR Note which was repaid with proceeds received from
the sale of 949,147 Shares to DDR at $15.50 per share. The assumed
mortgages bear interest at fixed rates ranging from 7.28% to 8.13%, the
Credit Facility bears interest at a floating rate of the average 30-day
LIBOR rate plus 1.75%, and the DDR Note bears interest at a fixed rate of
10.25%.
(G) Represents adjustments for interest expense related to mortgages assumed
and borrowings under the Trust's Credit Facility in connection with the
purchase of Tech 29 and the Other Probable Acquisitions. The assumed
mortgages have a weighted average interest rate of 8.74%, and the Credit
Facility bears interest at a floating rate of the average 30-day LIBOR rate
plus 1.75%.
(H) Represents adjustments for the reduction in interest expense from the
repayment of notes with proceeds received from the sale of 1,958,003 Common
Shares to DDR for net proceeds of $21,859, as follows: (i) $17,749 to the
DDR Note for the A&A Portfolio and (ii) $4,110 to the DDR Note for the
Other Recent Acquisitions.
(I) The pro forma weighted average shares outstanding include 18,000 weighted
average Common Shares related to the 27,000 restricted shares issued to
members of management on April 1, 1998, which become fully vested under the
terms of the
F-16
20
Change in Control Agreements. The pro forma weighted average shares
outstanding -- diluted is the same as the pro forma weighted average shares
outstanding -- basic upon full vesting of the restricted Shares. Excluded
from the weighted average shares outstanding -- diluted are outstanding
options to acquire Common Shares which have an exercise price greater than
the average market price per Common Share during the period and, therefore,
their effect would be antidilutive; nor are partnership units in the
operating partnerships included in the weighted average shares outstanding
-- diluted as their effective would be antidilutive. In addition, these
adjustments exclude any effect from the option of the Trust to require DDR
to purchase additional shares to fund property acquisitions, as no further
probable acquisitions have been identified by the Trust.
AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8-K/A No.1 DDR
Pro Forma Recent Probable Stock Pro
Total (A) Transactions(B) Acquisitions(C) Transaction(D) Forma
----------- ------------ ------------ ----------- ----------
INCOME
Rents and tenant reimbursements $ 41,239 13,002 13,555 -- $ 67,796
Interest and other income 500 16 49 -- 565
---------- ---------- ---------- ---------- ----------
41,739 13,018 13,604 -- $ 68,361
---------- ---------- ---------- ---------- ----------
EXPENSES
Property operating expenses 15,262 3,367 4,427 -- 23,056
Depreciation and amortization 7,605 2,515 (E) 3,467 (E) -- 13,587
Interest expense 14,990 6,078 (F) 7,634 (G) (2,240)(H) 26,462
General and administrative 3,964 194 58 -- 4,216
---------- ---------- ---------- ---------- ----------
Total expenses 41,821 12,154 15,586 (2,240) 67,321
---------- ---------- ---------- ---------- ----------
Income (loss) from operations before
minority interest (82) 864 (1,982) 2,240 1,040
Minority interest 208 -- -- -- 208
---------- ---------- ---------- ---------- ----------
Income (loss) from operations $ 126 $ 864 $ (1,982) $ 2,240 $ 1,248
========== ========== ========== ========== ==========
Income (loss) from operations per share:
Basic and diluted $ 0.01 $ 0.06
========== ==========
Weighted average number of
Common Shares outstanding 11,193 2,813 4,686 1,985 20,677(I)
========== ========== ========== ========== ==========
(A) Reference is made to the April 30 Form 8-K/A, which is incorporated herein
by reference, for the source of the Trust's pro forma statement of
operations for the year ended December 31, 1997, which gives pro forma
effect to the following transactions as if the transactions had occurred on
January 1, 1997:
F-17
21
(i) the acquisition of 15 industrial real estate properties;
(ii) the sale of two industrial real estate properties;
(iii) the merger with four publicly traded real estate limited
partnerships;
(iv) the acquisition of the Spieker Portfolio;
(v) the acquisition of North Austin; and
(vi) the acquisition, through AIP Operating, L.P., a limited partnership
in which the Trust has a 99% controlling ownership interest, of
Spring Valley #6.
(B) Represents adjustments for: (i) the 1998 Acquisitions; (ii) the acquisition
of the Spieker Portfolio; (iii) the acquisition of Norfolk; (iv) the
acquisition of the A&A Portfolio; (v) the acquisition of the Acquired
Properties through the Merger with a subsidiary of DDR and issuance of
1,258,471 Common Shares to DDR; (vi) the sale to DDR of 949,147 Common
Shares to DDR at $15.50 per share; and (vii) the acquisition of the Other
Recent Acquisitions, which are derived from the historical operating
results of the respective properties, except for depreciation and interest,
which are based on the Trust's investment in the acquisitions and method of
financing the acquisitions.
(C) Represents adjustments for the probable acquisition of Tech 29 and the
Other Probable Acquisitions based on historical operating results, except
for depreciation and interest, which are based on the Trust's investment in
the acquisitions and method of financing the acquisitions. There can be no
assurance that the acquisition of Tech 29 or the Other Probable
Acquisitions will occur.
(D) Represents adjustments for the DDR Stock Transaction. Since the intent of
the pro forma condensed statement of operations is to reflect the expected
continuing impact of the sale of 949,147 Common Shares to DDR at $15.50
per share, the acquisition of the Acquired Properties, and the DDR Stock
Transaction, the one-time adjustment for payments to management under the
Change in Control Agreements has been excluded. Upon consummation of the
DDR Stock Transaction, this expense will be recognized on the Trust's
statements of operations.
(E) Represents adjustment for depreciation which is calculated based on the
allocation of the purchase price, with buildings depreciated using the
straight-line method over a 40-year period.
(F) Represents adjustments for interest expense related to mortgages assumed
and borrowings under the Trust's Credit Facility and the DDR Note in
connection with the purchase of the 1998 Acquisitions, the Spieker
Portfolio, Norfolk, the A&A Portfolio, the Acquired Properties and the
Other Recent Acquisitions, offset by the reduction in interest expense
incurred under the DDR Note, which was repaid with proceeds received from
the sale of 949,147 Shares to DDR at $15.50 per share. The assumed
mortgages bear interest at fixed rates ranging from 7.28% to 8.13%, the
Credit
22
Facility bears interest at a floating rate of the average 30-day LIBOR rate
plus 1.75%, and the DDR Note bears interest at a fixed rate of 10.25%.
(G) Represents adjustments for interest expense related to mortgages assumed
and borrowings under the Trust's Credit Facility in connection with the
purchase of Tech 29 and the Other Probable Acquisitions. The assumed
mortgages have a weighted average interest rate of 8.74%, and the Credit
Facility bears interest at a floating rate of the average 30-day LIBOR rate
plus 1.75%.
(H) Represents adjustments for the reduction in interest expense from the
repayment of notes with proceeds received from the sale of 1,958,003 Common
Shares to DDR for net proceeds of $21,859, as follows: (i) $17,749 to the
DDR Note for the A&A Portfolio and (ii) $4,110 to the DDR Note for the
Other Recent Acquisitions.
(I) The pro forma weighted average shares outstanding include 27,000 restricted
Common Shares issued to members of management on April 1, 1998, which
become fully vested under the terms of the Change in Control Agreements.
The pro forma weighted average shares outstanding -- diluted equal the pro
forma weighted average shares outstanding -- basic upon full vesting of the
restricted shares. Excluded from the weighted average shares outstanding
are outstanding options to acquire Common Shares which have an exercise
price greater than the average market price per Common Share during the
period and, therefore, their effect would be antidilutive; nor are
partnership units in the operating partnerships included in the weighted
average shares outstanding as their effect would be antidilutive. In
addition, these adjustments exclude any effect from the option of the Trust
to require DDR to purchase additional shares to fund property acquisitions,
as no further probable acquisitions have been identified by the Trust.
23
EXHIBIT LIST
Exhibit
Number Description
- ------- -----------
10.1 Purchase and Sale Agreement, dated as of May 10, 1998, by and between
A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc.
and A&A Greenbrier Tech, Inc. and DDR Office Flex Corporation.
10.2 Purchase and Sale Agreement, dated as of May 10, 1998, by and between
Battlefield/Virginia, Inc. and DDR Office Flex Corporation.
10.3 Amendment to Purchase and Sale Agreement dated July 8, 1998, by and
between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe
C, Inc. and A&A Greenbrier Tech, Inc. and DDR Office Flex Corporation.
10.4 Amendment to Purchase and Sale Agreement dated July 8, 1998, by and
between Battlefield/Virginia, Inc. and DDR Office Flex Corporation.
10.5 Second Amendment to Purchase and Sale Agreement dated September 30,
1998, by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A
Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Office Flex
Corporation.
10.6 Second Amendment to Purchase and Sale Agreement dated September 30,
1998, by and between Battlefield/Virginia, Inc. and DDR Office Flex
Corporation.
10.7 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Greenbrier, Inc. and American Industrial Properties REIT.
10.8 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Northpointe B, Inc. and American Industrial Properties REIT.
10.9 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Northpointe C, Inc. and American Industrial Properties REIT.
10.10 Special Warranty Deed, dated as of October 14, 1998, by and between A&A
Greenbrier Tech, Inc. and American Industrial Properties REIT.
23.1 Consent of PricewaterhouseCoopers LLP