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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9016
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 75-6335572
(State of Organization) (I.R.S. Employer Identification Number)
6210 NORTH BELTLINE, SUITE 170 75063
IRVING, TEXAS (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (972) 756-6000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Shares of Beneficial Interest, New York Stock Exchange
par value $0.10 per share
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $225,350,449 as of March 29, 1999. The aggregate market value
has been computed by reference to the closing price at which the stock was sold
on the New York Stock Exchange on March 24, 1999.
20,486,409 Common Shares of Beneficial Interest were outstanding as of
March 29, 1999.
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AMERICAN INDUSTRIAL PROPERTIES REIT
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
FORM 10-K
PAGE
SECURITIES AND EXCHANGE COMMISSION ITEM NUMBER AND DESCRIPTION ----
PART I
Item 1. Business.................................................... 1
The Company................................................. 1
Business Objectives and Strategy............................ 1
Recent Developments......................................... 2
Revenue and Loss from Operations............................ 6
Geographic Analysis of Revenue.............................. 6
Competition................................................. 6
Employees................................................... 7
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Shareholders............. 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Results of Operations....................................... 16
Year 2000 Issues............................................ 19
Liquidity and Capital Resources............................. 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 22
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 22
PART III
Item 10. Trust Managers and Executive Officers of the Registrant..... 23
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 29
Item 13. Certain Relationships and Related Party Transactions........ 30
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K....................................................... 31
Index to Consolidated Financial Statements and Financial Statement F-1
Schedule............................................................
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PART I.
ITEM 1. BUSINESS
THE COMPANY
American Industrial Properties REIT (together with its subsidiaries, the
"Trust" or the "Company") is a Texas real estate investment trust that was
organized on September 26, 1985. On November 27, 1985, the Trust completed an
initial public offering of its common shares of beneficial interest (the
"Shares") and commenced operations. In addition to wholly owned subsidiaries,
the Trust owns a general partner interest and substantially all of the economic
interests, directly or indirectly, in three operating partnerships, a 55.84%
interest in a joint venture owning an office building and a 50% interest in a
partnership developing a build-to-suit property.
As of December 31, 1998, the Trust directly or indirectly owned a portfolio
of 65 real estate properties, excluding the build-to-suit property, aggregating
7.4 million net rentable square feet ("nrsf"). The Trust's emphasis is in the
light industrial sector, which is characterized as office showroom, service
center and flex properties, low rise offices, and small bay distribution
properties (see "Business Objectives and Strategy" below). Based on net rentable
square feet, as of December 31, 1998, approximately 76% of the Trust's portfolio
is represented by light industrial properties, 20% of the portfolio is
represented by office properties and 4% of the portfolio is represented by
retail properties. The light industrial properties are leased for office, office
showroom, warehouse, distribution, research and development, and light assembly
purposes. The retail properties are leased to retail merchandise establishments,
restaurants and a cinema. No single tenant accounts for more than 10% of the
Trust's consolidated gross revenue. No individual property accounted for more
than 10% of total revenues of the Trust for the year ended December 31, 1998.
The Trust has qualified as a real estate investment trust ("REIT") for
federal income tax purposes since 1985 and intends to maintain its REIT
qualification in the future. In order to preserve its REIT status, the Trust
must meet certain criteria with respect to assets, income, and shareholder
ownership. In addition, the Trust is required to distribute at least 95% of
taxable income (as defined in the Internal Revenue Code of 1986, as amended (the
"Code") to its shareholders.
The Trust's executive offices are located at 6210 North Beltline Road,
Suite 170, Irving, Texas 75063. The Trust's main telephone number is
(972)756-6000. The Trust's web site address is www.aipreit.com.
BUSINESS OBJECTIVES AND STRATEGY
The Trust's business objective is to increase shareholder value through
opportunistic investments and efficient operations in the light industrial
property sector, including office showroom, service center and flex properties,
low rise offices, and small bay distribution properties.
Focus on Light Industrial Properties. The Trust intends to focus on the
light industrial sector of the real estate market, believing that this sector
offers a number of compelling benefits. The light industrial property sector
serves the smaller tenant population and, in many instances, serves as a low
cost office space alternative. In general, rents in light industrial office
space offer the opportunity for increased returns as suburban office rents rise.
The Trust believes that this sector a) is characterized by highly fragmented
ownership, b) offers current opportunities to purchase properties at attractive
yields and at a discount to replacement cost, and c) has, to date, avoided much
of the institutional activity leading to higher prices and lower yields common
to many other sectors of the real estate market. The Trust also believes that
there are inherent benefits to its strategy of consolidating ownership in this
sector, including greater returns through economies of scale and the ability to
offer space alternatives to tenants which may not be currently available.
Geographic Focus. The Trust will concentrate its efforts in the Southern
and Western regions of the United States with primary target markets in Texas
(Dallas, Houston, Austin), California (San Francisco, Los Angeles, San Diego),
Florida (Orlando, Tampa), Phoenix, Denver and Washington, D.C. The target
markets are characterized by above average economic growth, strong levels of new
business formation and favorable supply and demand characteristics.
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Experienced Management. The Trust has seasoned management with extensive
experience in all phases of the real estate cycle. Management utilizes
research-driven analysis of markets and sub-markets to identify targeted
opportunities and intensive due diligence efforts to evaluate potential
acquisitions. Management believes it has strong acquisition and networking
capabilities to identify acquisition opportunities on both a single property and
portfolio basis.
Growth from Existing Portfolio. The Trust will pursue increases in cash
flow from its existing portfolio through intensive management of the portfolio
and its tenant base. Portfolio management is focused on tenant service, leasing
the portfolio to stabilized occupancy (generally 94-96%), retaining existing
tenants and increasing rental rates. In addition, the Trust will seek to control
operating expenses and should benefit from economies of scale as the size of its
portfolio increases. The Trust is currently transitioning from third party
property management to internal property management and has taken over the
management of approximately 24% of the portfolio on a total revenue basis.
Although the Trust does not expect to convert to internal property
management in markets where it does not own a sufficient critical mass to
justify internalization of management, it has begun the process of reducing fees
paid to third party providers in those markets by taking responsibility for the
property accounting from the third party property managers. When combined with
expected savings resulting from changes in its property insurance program, the
Trust expects to realize net contribution from these efforts during 1999 in
excess of $1.0 million. In addition to these savings, the Trust expects to
realize future benefits from a more direct relationship with its tenants.
Growth from Acquisitions. The Trust believes that it will be able to
acquire properties in the light industrial sector at prices which justify
investment. The Trust evaluates potential acquisitions from both a current yield
and an internal rate of return perspective. The Trust periodically estimates its
cost of capital in an effort to ensure that the internal rate of return on
proposed acquisitions exceeds such cost of capital, thereby ensuring that an
acquisition will be accretive on an equity basis. The Trust will, on occasion,
utilize an operating partnership structure to acquire properties, which offers
certain tax advantages to the seller of such properties.
Financial Strategy. On a long term basis, the Trust seeks to lower its cost
of capital through the appropriate use of debt and equity capital. The Trust is
currently operating at higher levels of leverage than it would foresee on a
longer term basis. The Trust believes that the use of leverage, which is 56.3%
on a debt to total market capitalization ratio at December 31, 1998, is
justified given existing acquisition prospects and the benefits of the Trust's
transition to a larger entity. Although there is no assurance of ultimate
availability, the Trust anticipates that future equity offerings will serve to
deleverage the Trust.
RECENT DEVELOPMENTS
For the twelve months ended December 31, 1998, the Trust acquired
approximately $237 million in real estate properties (see "ITEM 2. Properties"
for additional information on these properties). From January 1, 1999 through
March 29, 1999 the Trust acquired approximately $127 million of additional real
estate properties. The Trust's acquisitions on a chronological basis are as
follows:
- On February 11, 1998, the Trust, through an indirect subsidiary,
purchased Spring Valley Business Park #6, a 92,631 nrsf office and
service center development in a suburb of Dallas, Texas for total
consideration of $9.3 million. Of the total consideration, $6.5 million
was borrowed under the Trust's acquisition line of credit with Prudential
Securities Credit Corporation ("PSCC") and $0.9 million of limited
partnership units in AIP Operating, L.P. were issued to the seller. After
satisfaction of certain requirements, each limited partnership unit may
be redeemed in exchange for cash equal to the value, as determined in
accordance with the partnership agreement, of a Share (or, at the Trust's
election, the Trust may purchase each limited partnership unit offered
for redemption for one Share).
- On March 26, 1998, the Trust purchased Southeast Commercial Center, a
light industrial property in Austin, Texas with 35,673 nrsf for $1.8
million.
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- On March 31, 1998, the Trust purchased Cameron Creek Business Park, a
light industrial property in Austin, Texas with 50,000 nrsf. The Trust
borrowed $1.4 million of the $4.8 million purchase price under its
acquisition line of credit.
- On April 30, 1998, the Trust purchased Northview Business Center, an
office property in Austin, Texas with 252,280 nrsf for total
consideration of $22.3 million. The Trust borrowed $15.5 million of the
purchase price under a secured bridge loan from PSCC.
- On May 6, 1998, the Trust purchased a portfolio consisting of five light
industrial properties and one low-rise office property totaling 537,907
nrsf and two developed land parcels capable of accommodating 200,000
square feet of expansion space located in four markets throughout the
Southwest for total consideration of $43.5 million. The purchase price
was funded with $27.2 million in borrowings under a secured bridge loan
from PSCC and the remainder from cash proceeds from private placements of
equity.
- On July 30, 1998, the Trust purchased Norfolk Commerce Center, a 323,731
nrsf light industrial property consisting of three buildings in Norfolk,
Virginia. The $20.5 million purchase price was initially financed through
an unsecured borrowing from Developers Diversified Realty Corporation
("DDR"). On August 3, 1998, the Trust repaid $14.7 million of this
borrowing with funds received from DDR's initial purchase of Shares.
- On August 3, 1998, the Trust acquired five industrial properties, valued
at approximately $19.5 million, under the merger agreement between the
Trust and DDR Office Flex Corporation, a wholly owned subsidiary of DDR.
The five properties total 463,980 nrsf and are located in the Cleveland,
Ohio market. The Trust issued 1,258,477 shares to DDR in connection with
this merger.
- On August 28, 1998, the Trust acquired 2121 Glenville, a light industrial
property with a total of 20,645 nrsf for $1.8 million. The property is
located in Dallas, Texas.
- On September 23, 1998, the Trust purchased Metro Business Park, a 109,933
nrsf light industrial property located in Phoenix, Arizona for $9.9
million. The Trust borrowed $6.2 million of the purchase price under its
acquisition line of credit with PSCC.
- On October 5, 1998, the Trust purchased TechniPark 10 Service Center, a
light industrial property located in Houston, Texas. The 71,635 nrsf
property was acquired for $4.1 million.
- Effective October 8, 1998, DDR acquired an 89% limited partnership
interest and a 1% general partnership interest in DDR/Tech 29 Limited
Partnership, a limited partnership whose assets consist of two light
industrial properties and one office property totaling 290,991 nrsf
located in Silver Springs, Maryland. Several selling entities and
affiliates thereof acquired the remaining partnership interests. These
partnership interests are convertible into DDR common shares. As of
November 20, 1998, the Trust acquired 88.5% of DDR's limited partnership
interest and, in consideration therefor, issued approximately $16.1
million in Shares to DDR. The acquisition was deemed to be effective as
of October 8, 1998 and the purchase price included interest accrued from
such date. To date, an Equalization Agreement, which provides, among
other things, that DDR shall reimburse the Trust for certain
dividend-based distributions to the holders of partnership interests has
not been executed. It is anticipated that the Equalization Agreement will
have an effective date in January 1999.
- On October 16, 1998, the Trust completed the purchase of a portfolio
consisting of four light industrial properties totaling 560,812 nrsf
located in Virginia. The properties were acquired from five entities for
total consideration of $40.2 million. The purchase price was funded with
$22.4 million in assumed debt and the remainder in borrowings from an
unsecured loan from DDR.
- On December 8, 1998, the Trust purchased Columbia Corporate Center, a
128,122 nrsf light industrial property located in Aliso Viejo, California
for $13.1 million. To fund the transaction, the Trust issued $5.3 million
in Shares to DDR and received an unsecured loan of $7.8 million from DDR.
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- On December 11, 1998, the Trust purchased Winter Park Business Center, a
119,685 nrsf light industrial property located in Orlando, Florida for
$9.2 million. To fund the transaction, the Trust issued $4.1 million in
Shares to DDR and borrowed $5.1 million under its acquisition line of
credit.
- On December 30, 1998, the Trust purchased Washington Business Park, a
137,018 nrsf light industrial property located in Phoenix, Arizona for
$9.3 million. To fund the transaction, the Trust issued $4.1 million in
Shares to DDR and borrowed $5.2 million under its acquisition line of
credit.
- On January 15, 1999, the Trust purchased a portfolio of nine properties
totaling 955,564 nrsf of one-and two-story office/industrial flex
buildings located in northern California and Colorado. The properties
were acquired from an institutional seller for a purchase price of $127.3
million. The purchase price was funded with $75.2 million in borrowings
secured under a secured bridge loan with PSCC. The remainder of the
purchase price was funded with $51.8 million in Shares issued to DDR.
The Trust completed the following equity and/or financing transactions
during the period January 1, 1998 through March 29, 1999:
- On January 30, 1998, the Trust completed a $10 million private placement
of Shares at $13.625 per Share.
- In February 1998, two shareholders exercised their preemptive rights and
acquired $8.7 million of Shares at $13.625 per Share. The shareholders
preemptive rights have since expired.
- On March 24, 1998, the Trust announced a dividend reinvestment and share
purchase plan. Through December 31, 1998, 84,287 Shares were issued under
the plan for proceeds of $945,072.
- On April 15, 1998, the Trust completed a $24.7 million permanent
refinancing of six properties under its secured acquisition line. Terms
of the permanent financing include an interest rate of 7.28%, 25 year
principal amortization and a maturity of June 2008.
- On April 27, 1998, the Trust negotiated an increase in its secured
acquisition line with PSCC from $35 million to $75 million. The variable
interest rate was reduced from the 30 day LIBOR rate plus 2% to LIBOR
plus 1.75% and the maturity was extended to April 1999. On March 26,
1999, the loan was extended to April 2000 and the interest rate was
reduced to LIBOR plus 1.55%. The Trust currently has $68.5 million
outstanding under this acquisition line.
- In April 1998, the Trust obtained a $42.6 million secured bridge loan
from PSCC. The bridge loan provides for a variable interest rate based on
the 30 day LIBOR rate plus 1.75% and a maturity date of January 8, 1999
as extended. The loan was paid off on January 8, 1999 with the proceeds
from a $41 million permanent financing (see below).
- On August 3, 1998, the Trust entered into a definitive agreement
providing for a strategic investment by DDR in the Trust. Under the terms
of the Share Purchase Agreement (the "Agreement"), the transaction has
three stages. The first stage, effective as of July 30, 1998, resulted in
DDR acquiring 2,207,618 Shares at a price of $15.50 per Share.
In the second stage, DDR is obligated to purchase 5,226,583 Shares for
$15.50 per Share (for total consideration of approximately $81 million)
to fund property acquisitions approved by the Trust's board.
In the third stage, the Trust has the option to require DDR, under
certain circumstances, to purchase additional Shares with a total
purchase price not to exceed $200 million to fund property acquisitions.
DDR's obligation to purchase Shares, the price of the Shares and the
amount to be invested in the third stage are contingent upon several
factors, including the trading prices of DDR and Trust Shares, the market
capitalization of DDR and whether common or preferred shares are issued
to DDR. As of March 29, 1999, DDR had purchased a total of 9,301,817
shares, representing 45.4% of the outstanding Shares of the Trust.
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- In November 1998, shareholders of the Trust approved the issuance of up
to 11,064,193 shares and 10,266,795 Series A Convertible Preferred Shares
of Beneficial Interest of the Trust pursuant to (i) the Share Purchase
Agreement, effective July 30, 1998, between the Trust and DDR, as amended
on September 14, 1998, and (ii) the Agreement and Plan of Merger, dated
as of July 30, 1998, among the Trust, DDR and DDR Office Flex
Corporation.
- On January 8, 1999, the Trust paid off the $42.7 million bridge loan with
proceeds from a permanent financing of seven properties. Terms of the
permanent financing include a principal amount of $41 million, a fixed
rate of interest of 7.375%, a ten year term and 25 year principal
amortization.
- On January 19, 1999, the Trust refinanced existing indebtedness of
approximately $1.8 million on a property acquired in October 1998 with
proceeds from a new permanent financing of $7.6 million. Terms of the
permanent financing include a fixed rate of interest of 7.33%, seven year
term with a three year renewal option, and 30 year principal
amortization.
- On January 29, 1999, the Trust entered into a secured revolving credit
agreement with Bank One, Texas, N.A ("Bank One"). The agreement
contemplates a $150,000,000 credit line with an initial Bank One
commitment of $25,000,000. The remainder of the credit line will be
syndicated on a "best efforts" basis by Bank One. The credit line will be
secured by mortgage liens on properties, provides for a graduated
variable interest rate (depending on the Trust's overall leverage) of
LIBOR plus 1.4% to LIBOR plus 2.0%, a maximum loan to value of 60%, and a
maturity in January 2001. As of March 24, 1999, the Trust has $13.0
million outstanding under this credit line.
- On March 26, 1999, the Trust negotiated an extension of the maturity of
its acquisition credit line to April 2000 and a decrease in the interest
rate to LIBOR plus 1.55%.
On January 29, 1998, the Board of Trust Managers announced a reinstatement
of quarterly distributions. A distribution of $0.18 per Share was paid on April
14, 1998 and a distribution of $0.20 was paid on July 14, 1998, October 14, 1998
and January 20, 1999. In addition, the Trust has declared a distribution of
$0.20 per Share payable on April 15, 1999, to shareholders of record on April 5,
1999.
On February 18, 1998, the Trust filed a Form S-3 shelf registration with
the Securities and Exchange Commission which would provide for the issuance of
up to $500 million in Shares, Preferred Shares of Beneficial Interest, and
unsecured senior debt securities and/or warrants to purchase such securities in
amounts, at prices and on terms to be determined by market conditions at the
time of future offerings. The Trust anticipates utilization of this shelf
registration in the future to fund acquisitions and growth of the Company.
On March 5, 1998, the Trust announced a Share repurchase program, wherein
the Trust was authorized to purchase up to 1,000,000 Shares over the following
six months. Purchases were to be made in open market transactions, as price and
market conditions allowed. During the program, the Trust purchased 123,783
Shares in the open market, for an aggregate cost of $1,598,000. These Shares are
held in treasury. Under the terms of its agreement with DDR, the Trust is
prohibited from purchasing its own Shares if such purchases would result in DDR
owning in excess of 49.9% of the Trust's outstanding Shares.
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REVENUE AND LOSS FROM OPERATIONS
The breakdown of revenue and loss from operations for each of the years
ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996
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Property revenues:
Industrial........................................... $ 27,013 $ 8,312 $ 7,374
Office............................................... 17,044 633 638
Retail............................................... 4,300 3,256 3,308
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Total........................................ 48,357 12,201 11,320
Property operating expenses............................ (16,046) (4,315) (4,022)
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Income from property operations........................ 32,311 7,886 7,298
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Administrative expenses................................ (3,729) (2,504) (3,378)
Depreciation and amortization.......................... (8,383) (3,157) (2,909)
Interest income........................................ 705 546 158
Interest expense....................................... (15,139) (5,778) (5,901)
Provisions for possible losses on real estate.......... (10,060) -- --
-------- ------- -------
Loss from operations................................... $ (4,295) $(3,007) $(4,732)
======== ======= =======
GEOGRAPHIC ANALYSIS OF REVENUE
The breakdown of the Trust's property revenues, geographically and by
reporting segment, for each of the years ended December 31, 1998, 1997, and 1996
is as follows (in thousands):
REGION 1998(A) 1997(B) 1996(C)
------ ------- ------- -------
WESTERN REGION
Industrial............................................ $15,709 $ 5,147 $ 2,949
Office................................................ 13,341 633 638
Retail................................................ 3,186 3,256 3,308
EASTERN REGION
Industrial............................................ 11,304 3,165 4,425
Office................................................ 3,703 -- --
Retail................................................ 1,114 -- --
------- ------- -------
Total property revenues................................. $48,357 $12,201 $11,320
======= ======= =======
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(a) For the year ended December 31, 1998, the Trust acquired 29 properties.
There were no properties sold in 1998.
(b) For the year ended December 31, 1997, the Trust acquired 15 properties. The
Trust sold two properties in 1997.
(c) For the year ended December 31, 1996, the Trust did not acquire any
properties. The Trust sold two properties in 1996.
COMPETITION
The Trust owns properties in various markets and sub-markets in 13 states
(See "ITEM 2. Properties"). The principal competitive factors in these markets
are price, location, quality of space, and amenities. In each case, the Trust
owns a small portion of the total similar space in the market and competes with
owners of other space for tenants. Each of these markets is highly competitive,
and other owners of property may have competitive advantages not available to
the Trust.
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EMPLOYEES
The Trust currently employs 36 people on a full-time basis. Information
regarding executive officers of the Trust is set forth in "ITEM 10. Trust
Managers and Executive Officers of the Registrant" of Part III of this Form 10-K
and is incorporated herein by reference.
The Trust has begun the process to internalize the property management and
leasing duties which are currently contracted out to third parties. The number
of employees is expected to increase as more properties are acquired and as the
Trust transitions to internal property management. No employees are presently
covered by collective bargaining agreements.
ITEM 2. PROPERTIES
As of December 31, 1998, the Trust owned 65 real estate properties,
excluding the one build-to-suit property, consisting of 52 light industrial
developments, 11 office buildings, and 2 retail properties. The Trust's light
industrial classification includes office showroom, service center and flex
properties, low rise offices, and small bay distribution properties. In 1998,
the Trust acquired 29 properties. There were no properties sold in 1998.
The following tables set forth certain information about the light
industrial, office, and retail properties owned as of December 31, 1998, without
giving effect to the build-to-suit property or 1999 acquisitions. Based on
annualized rental revenues in place as of December 31, 1998, no single tenant
would have accounted for more than 10% of the Company's total annualized light
industrial, office, and retail revenues for 1998. No individual property
accounted for more than 10% of total revenues for the Trust for the twelve
months ended December 31, 1998.
PROPERTY INFORMATION
NET
RENTABLE
ACQUISITION YEAR NUMBER OF AREA
PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.)
-------- -------- ----------- ----------- --------- ---------
LIGHT INDUSTRIAL PROPERTIES
2121 Glenville Dallas, TX 1998 1984 1 20,645
Aerotech Colorado Springs, CO 1998 1985 2 75,892
Alumax Cleveland, OH 1998 1982 1 66,200
Avion Business Center Dallas, TX 1997 1985 3 70,784
Battlefield Business Park Manassas, VA 1998 1989 1 154,226
Black Canyon Tech Center Phoenix, AZ 1998 1983 2 100,000
Bowater Lakeland, FL 1997 1989 1 111,720
Broadbent Business Park IV Albuquerque, NM 1998 1989 2 59,269
Cameron Creek Bus Park Austin, TX 1998 1996 1 50,000
Carpenter Center Dallas, TX 1997 1983 1 44,114
Carrier Place Grand Prairie, TX 1997 1984 1 84,431
Central Park Office Tech Richardson, TX 1997 1984 2 74,459
Columbia Corporate Center Aliso Viejo, CA 1998 1988 4 128,122
Commerce Center Houston, TX 1997 1974 9 299,748
Commerce Park North Houston, TX 1985 1984 2 87,163
Continental Plastic Elk Grove Village, IL 1997 1963/68 2 208,290
Corporex Plaza I Tampa, FL 1997 1982 3 93,508
DFW North Grapevine, TX 1997 1985 2 76,217
Gateway 5 & 6 Irving, TX 1985 1985 2 79,669
Greenbrier Circle Corp Center Chesapeake, VA 1998 1981/83 2 228,690
Greenbrier Tech Center Chesapeake, VA 1998 1981 1 95,162
Hardline Services Bldg Cleveland, OH 1998 1974 1 236,225
Heritage Business I Cleveland, OH 1998 1990 1 35,555
Huntington Drive Monrovia, CA 1985 1985 2 62,218
Inverness Business Park Denver, CO 1997 1980 2 96,386
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NET
RENTABLE
ACQUISITION YEAR NUMBER OF AREA
PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.)
-------- -------- ----------- ----------- --------- ---------
Kodak San Diego, CA 1997 1976 1 59,600
Meridian Street Warehouse Arlington, TX 1995 1981 1 72,000
Metro Business Park Phoenix, AZ 1998 1987 4 109,933
Norfolk Commerce Center Norfolk, VA 1998 1981/87 3 323,731
Northgate II Dallas, TX 1985 1983 4 237,039
Northgate III Dallas, TX 1997 1979/80/86 6 262,287
Northpointe B & C Sterling, VA 1998 1987/88 2 82,734
Northwest Business Pk Milwaukee, WI 1985 1983/85/86 3 143,120
Parkway Tech Center Plano, TX 1997 1984 1 69,561
Patapsco Industrial Center Linthicum Heights, MD 1985 1981/85 2 95,151
Plaza Southwest 1-5 Houston, TX 1985 1975 5 149,780
President's Plaza Tampa, FL 1997 1987 2 41,690
Shady Trail Business Center Dallas, TX 1997 1984 4 67,846
Skyway Business Center Irving, TX 1997 1981 1 67,150
Southeast Commercial Center Austin, TX 1998 1984 1 35,673
Steris Building Cleveland, OH 1998 1980 1 40,200
Summit Park Austin, TX 1998 1985 2 96,950
Tech Center 29 -- Phase I Silver Springs, MD 1998 1970 1 176,914
Tech Center 29 -- Phase II Silver Springs, MD 1998 1991 1 58,280
TechniPark 10 Service Center Houston, TX 1998 1983/84 2 71,635
Tucson Tech Tucson, AZ 1998 1986 1 115,030
Valley View Commerce Park Dallas, TX 1997 1986 4 144,896
Valwood II Business Center Carrollton, TX 1997 1984 1 52,452
VSA Bldg Cleveland, OH 1998 1989 1 85,800
Washington Bus. Park Phoenix, AZ 1998 1985 4 137,018
Westchase Park 1-2 Houston, TX 1985 1984 2 47,733
Winter Park Business Center Orlando, FL 1998 1981/83/85 6 119,685
--- ---------
Total Light Industrial
Properties 117 5,602,581
--- ---------
OFFICE PROPERTIES
10505 Sorrento Valley San Diego, CA 1997 1982 1 54,094
1881 Pine Street St Louis, MO 1997 1987 1 111,047
Academy Point Atrium II Colorado Springs, CO 1998 1984 1 90,766
Apollo Drive Office Building(a) Chelmsford, MA 1997 1987 1 291,424
Beltline Business Center Dallas, TX 1985 1984 3 60,145
Gateway West Phoenix, AZ 1997 1964/69/74 3 155,487
Linear Technology Milpitas, CA 1997 1987 1 42,130
Manhattan Towers Manhattan Beach, CA 1997 1987 2 309,484
Northview Business Center Austin, TX 1998 1970 1 252,280
Spring Valley Business Park #6 Dallas, TX 1998 1980/98 3 92,631
Tech Center 29 -- Phase III Silver Springs, MD 1998 1988 1 55,797
--- ---------
Total Office Properties 18 1,515,285
--- ---------
RETAIL PROPERTIES
Tamarac Square Mall Denver, CO 1985 1976/78 2 196,455
Volusia Daytona Beach, FL 1997 1984 1 76,579
--- ---------
Total Retail Properties 3 273,034
--- ---------
Total Light Industrial, Office, and Retail Properties 138 7,390,900
=== =========
- ---------------
(a) The Trust owns a 55.84% joint venture interest in the property.
8
11
TENANT INFORMATION
AVERAGE BASE
PERCENT NUMBER RENTAL RATE ANNUALIZED
PROPERTY LOCATION LEASED(A) TENANTS(A) PER SQ. FT.(A) BASE RENT(A)
-------- -------- --------- ---------- -------------- ------------
(000)
LIGHT INDUSTRIAL PROPERTIES
2121 Glenville Dallas, TX 100.0% 1 $10.00 $ 206
Aerotech Colorado Springs, CO 87.6% 4 14.26 948
Alumax Cleveland, OH 100.0% 1 4.49 297
Avion Business Center Dallas, TX 97.1% 9 10.08 693
Battlefield Business Park Manassas, VA 100.0% 1 7.00 1,080
Black Canyon Tech Center Phoenix, AZ 60.0% 1 8.40 504
Bowater Lakeland, FL 100.0% 1 4.10 458
Broadbent Business Park IV Albuquerque, NM 59.3% 2 10.08 354
Cameron Creek Bus Park Austin, TX 64.9% 3 7.60 247
Carpenter Center Dallas, TX 81.6% 7 4.69 169
Carrier Place Grand Prairie, TX 100.0% 17 4.70 397
Central Park Office Tech Richardson, TX 85.3% 8 8.25 524
Columbia Corporate Center Aliso Viejo, CA 100.0% 8 10.62 1,361
Commerce Center Houston, TX 81.5% 29 4.72 1,153
Commerce Park North Houston, TX 100.0% 11 5.71 498
Continental Plastic Elk Grove Village, IL 100.0% 2 3.60 750
Corporex Plaza I Tampa, FL 100.0% 23 6.12 572
DFW North Grapevine, TX 46.0% 6 5.98 210
Gateway 5 & 6 Irving, TX 100.0% 7 6.36 507
Greenbrier Circle Corp Center Chesapeake, VA 72.7% 20 15.08 2,507
Greenbrier Tech Center Chesapeake, VA 90.7% 10 8.68 749
Hardline Services Bldg Cleveland, OH 100.0% 1 3.15 744
Heritage Business I Cleveland, OH 100.0% 4 7.55 268
Huntington Drive Monrovia, CA 94.6% 5 15.33 902
Inverness Business Park Denver, CO 100.0% 9 8.09 780
Kodak San Diego, CA 100.0% 2 10.31 614
Meridian Street Warehouse Arlington, TX 100.0% 1 2.31 166
Metro Business Park Phoenix, AZ 100.0% 26 8.67 953
Norfolk Commerce Center Norfolk, VA 94.0% 34 9.53 2,900
Northgate II Dallas, TX 100.0% 13 3.27 775
Northgate III Dallas, TX 89.3% 19 4.64 1,087
Northpointe B & C Sterling, VA 100.0% 5 6.54 541
Northwest Business Pk Milwaukee, WI 63.0% 10 6.15 555
Parkway Tech Center Plano, TX 82.7% 6 4.64 267
Patapsco Industrial Center Linthicum Heights, MD 88.1% 21 6.72 563
Plaza Southwest 1-5 Houston, TX 93.3% 30 3.97 555
President's Plaza Tampa, FL 93.2% 12 7.85 305
Shady Trail Business Center Dallas, TX 83.5% 20 4.08 231
Skyway Business Center Irving, TX 100.0% 6 4.81 323
Southeast Commercial Center Austin, TX 49.4% 2 6.45 114
Steris Building Cleveland, OH 100.0% 1 5.90 237
Summit Park Austin, TX 100.0% 3 9.20 892
Tech Center 29 -- Phase I Silver Springs, MD 86.2% 14 9.58 1,461
Tech Center 29 -- Phase II Silver Springs, MD 100.0% 4 12.31 717
TechniPark 10 Service Center Houston, TX 100.0% 7 6.96 499
Tucson Tech Tucson, AZ 100.0% 1 3.96 456
Valley View Commerce Park Dallas, TX 90.6% 6 6.13 805
Valwood II Business Center Carrollton, TX 79.2% 1 6.50 270
VSA Bldg Cleveland, OH 100.0% 1 4.65 399
9
12
AVERAGE BASE
PERCENT NUMBER RENTAL RATE ANNUALIZED
PROPERTY LOCATION LEASED(A) TENANTS(A) PER SQ. FT.(A) BASE RENT(A)
-------- -------- --------- ---------- -------------- ------------
(000)
Washington Bus. Park Phoenix, AZ 99.6% 6 7.63 1,041
Westchase Park 1-2 Houston, TX 100.0% 10 5.54 264
Winter Park Business Center Orlando, FL 90.8% 34 11.33 1,231
----- --- ------ -------
Total Light Industrial
Properties 90.9% 485 6.89 35,099
----- --- ------ -------
OFFICE PROPERTIES
10505 Sorrento Valley San Diego, CA 69.1% 5 13.80 516
1881 Pine Street St. Louis, MO 86.0% 3 12.69 1,212
Academy Point Atrium II Colorado Springs, CO 100.0% 15 14.03 1,273
Apollo Drive Office
Building(b) Chelmsford, MA 100.0% 1 6.86 1,999
Beltline Business Center Dallas, TX 93.8% 26 7.00 395
Gateway West Phoenix, AZ 82.6% 2 16.09 2,066
Linear Technology Milpitas, CA 100.0% 1 9.00 379
Manhattan Towers Manhattan Beach, CA 100.0% 8 11.48 3,554
Northview Business Center Austin, TX 100.0% 7 10.87 2,742
Spring Valley Business Park
#6 Dallas, TX 100.0% 3 11.96 1,108
Tech Center 29 -- Phase III Silver Springs, MD 100.0% 7 19.61 1,094
----- --- ------ -------
Total Office Properties 95.8% 78 11.25 16,338
----- --- ------ -------
RETAIL PROPERTIES
Tamarac Square Mall(c) Denver, CO 83.8% 51 12.95 2,132
Volusia Daytona Beach, FL 98.5% 21 10.87 820
----- --- ------ -------
Total Retail Properties 87.9% 72 12.29 2,952
----- --- ------ -------
Total Light Industrial, Office, and Retail
Properties 91.9% 635 $ 7.86 $54,389
===== === ====== =======
- ---------------
(a) Based on leases executed on or before December 31, 1998.
(b) The Trust owns a 55.84% joint venture interest in the property.
(c) The denominator of average base rental rate per square foot calculation for
this property includes ground lease income.
INFORMATION BY PROPERTY TYPE
NET RENTABLE
SQUARE FEET ANNUALIZED BASE RENT(A)
------------------- --------------------------------
AMOUNT PERCENT AMOUNT PERCENT PSF
--------- ------- ----------- ------- ------
Light Industrial................ 5,602,581 75.8% $35,099,000 64.5% $ 6.89
Office.......................... 1,515,285 20.5% 16,338,000 30.0% 11.25
Retail.......................... 273,034 3.7% 2,952,000 5.4% 12.29
--------- ----- ----------- ----- ------
Total................. 7,390,900 100.0% $54,389,000 100.0% $ 7.86
========= ===== =========== ===== ======
- ---------------
(a) Based on leased net rentable square footage as of December 31, 1998.
Includes revenues from ground leases.
10
13
LEASE EXPIRATION DETAIL
PERCENTAGE
OF TOTAL ANNUALIZED ANNUALIZED
NO. OF SQUARE BASE RENT OF BASE RENT
LEASES SQUARE FEET EXPIRING OF EXPIRING
YEAR EXPIRING FEET AVAILABLE LEASES PERCENTAGE LEASES-PSF
---- -------- --------- ---------- ------------ ---------- -----------
1999.................... 187 1,527,387 20.7% $10,734,431 19.3% $ 7.03
2000.................... 142 1,299,323 17.6% 9,686,321 17.4% 7.45
2001.................... 128 1,073,335 14.5% 8,680,622 15.6% 8.09
2002.................... 88 1,277,353 17.3% 12,496,778 22.5% 9.78
2003.................... 64 751,419 10.2% 6,232,764 11.2% 8.29
2004.................... 16 209,455 2.8% 1,456,597 2.6% 6.95
2005.................... 6 56,502 0.8% 432,301 0.8% 7.65
2006.................... 7 122,863 1.7% 1,237,473 2.2% 10.07
2007.................... 8 354,843 4.8% 4,506,042 8.1% 12.70
2008.................... 1 5,030 0.1% 92,602 0.2% 18.41
--- --------- ---- ----------- ----- ------
Total......... 647 6,677,510 90.5% $55,555,931 100.0% $ 8.32
=== ========= ==== =========== ===== ======
SUMMARY TENANT INFORMATION
LEASED SPACE NO. OF SQUARE
(SQUARE FEET) TENANTS FOOTAGE PERCENTAGE
------------- ------- --------- ----------
0 - 5,000........................................ 347 935,303 12.7%
5,001 - 10,000........................................ 135 926,624 12.5%
10,001 - 20,000........................................ 76 1,066,027 14.4%
20,001 - 50,000........................................ 59 1,773,209 24.0%
50,001 - +............................................. 17 2,050,051 27.7%
Vacant Space........................................... -- 639,686 8.7%
--- --------- -----
Total........................................ 634 7,390,900 100.0%
=== ========= =====
MORTGAGE INDEBTEDNESS
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE
PROPERTY BALANCE DECEMBER 31, 1998 DATE AT MATURITY
-------- ------------ ----------------- -------- -------------
LIGHT INDUSTRIAL PROPERTIES
Battlefield Business Park................ $ 8,071,487 7.70%(d) Oct-04 $ 7,525,563
Commerce Park North...................... 2,029,836 8.61%(d) Dec-03 1,796,333
Gateway 5 & 6............................ 2,754,777 8.61%(d) Dec-03 2,437,880
Greenbrier Circle Corp Center............ 7,202,186 8.13%(d) Jan-02 6,838,342
Greenbrier Tech.......................... 4,290,618 8.05%(d) Jul-07 3,960,554
Huntington Drive......................... 4,422,143 8.61%(d) Dec-03 3,913,439
Meridian Street Warehouse................ 1,123,659 8.61%(d) Dec-03 994,398
Northgate II............................. 5,002,096 8.61%(d) Dec-03 4,426,677
Northpointe B & C........................ 2,799,409 7.38%(d) Mar-16 2,602,284
Patapsco Industrial Center............... 3,008,507 8.61%(d) Dec-03 2,662,422
Plaza Southwest 1-5...................... 3,262,236 8.61%(d) Dec-03 2,886,963
Tech Center 29 Phase I................... 1,834,181 8.50%(d) Jul-03 1,451,414
Tech Center 29 Phase II.................. 3,879,866 9.05%(d) Sep-06 3,309,462
Westchase Park 1-2....................... 1,283,146 8.61%(d) Dec-03 1,135,539
11
14
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE
PROPERTY BALANCE DECEMBER 31, 1998 DATE AT MATURITY
-------- ------------ ----------------- -------- -------------
Mortgage Loan Secured by:................ 30,279,780 7.25%(d) Jan-08 26,416,613
Carpenter Center.......................
Carrier Place..........................
Commerce Center........................
DFW North..............................
Northgate III..........................
Parkway Tech Center....................
Valley View Commerce Park..............
Valwood II Business Center.............
Shady Trail Business Center............
Mortgage Loan Secured by:................ 24,484,164 7.28%(d) Jun-08 19,567,225
Corporex Plaza I.......................
President's Plaza......................
Central Park Office Tech...............
Skyway Business Center.................
Avion Business Center..................
Inverness Business Park................
Acquisition Line Secured by:
Bowater................................ 2,100,000 7.38%(e) Apr-99 2,100,000
Cameron Creek Business Park............ 1,416,000 7.38%(e) Apr-99 1,416,000
Kodak.................................. 3,360,000 7.38%(e) Apr-99 3,360,000
Metro Business Park.................... 6,200,000 7.38%(e) Apr-99 6,200,000
Norfolk Commerce Center................ 13,000,000 7.38%(e) Apr-99 13,000,000
Washington Business Park............... 5,190,000 7.38%(e) Apr-99 5,190,000
Winter Park Business Center............ 5,100,000 7.38%(e) Apr-99 5,100,000
Bridge Loan Secured by:.................. 27,152,769 7.38%(e) Apr-99 27,152,769
AeroTech...............................
Black Canyon Technical Center..........
Broadbent Business Park IV.............
Summit Park............................
Tucson Tech Center.....................
Academy Point Atrium II(a).............
------------ ------------
Total Light Industrial
Properties................... 169,246,860 155,443,877
------------ ------------
OFFICE PROPERTIES
Apollo Drive Office Building(b).......... 14,922,279 9.13%(d) Aug-01 14,340,606
Beltline Business Ctr.................... 2,682,283 8.61%(d) Dec-03 2,373,725
Tech Center 29 -- Phase III.............. 4,442,964 8.58%(d) May-02 4,227,429
Acquisition Line Secured by:
1881 Pine Street.................... 3,641,235 7.38%(e) Apr-99 3,641,235
Linear Tech......................... 2,237,633 7.38%(e) Apr-99 2,237,633
Manhattan Towers.................... 20,300,000 7.38%(e) Apr-99 20,300,000
Gateway West........................ 5,978,007 7.38%(e) Apr-99 5,978,007
Bridge Loan Secured by:
Northview Business Center.............. 15,497,512 7.38%(e) Apr-99 15,497,512
------------ ------------
Total Office Properties........ 69,701,913 68,596,147
------------ ------------
12
15
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE
PROPERTY BALANCE DECEMBER 31, 1998 DATE AT MATURITY
-------- ------------ ----------------- -------- -------------
RETAIL PROPERTIES
Tamarac Square Mall...................... 11,573,973 8.40%(d) Dec-01 10,907,186
------------ ------------
Total Retail Properties........ 11,573,973 10,907,186
------------ ------------
Total Light Industrial, Office
and Retail Properties........ 250,522,746 234,947,210
Debt Premiums(c)......................... 1,958,000 --
------------ ------------
Total mortgage notes payable... $252,480,746 $234,947,210
============ ============
- ---------------
(a) Office property.
(b) The Trust owns 55.84% joint venture interest in this property.
(c) Represents the unamortized difference between mortgage debt assumed and
fair value of such debt. (See Note 2 to Consolidated Financial Statements.)
(d) Interest rate is fixed.
(e) Interest rate is variable based on 30 day LIBOR rate plus 1.75%.
ITEM 3. LEGAL PROCEEDINGS
The Trust is currently named as a defendant in a lawsuit related to the
Trust's merger with four real estate limited partnerships. The lawsuit purports
to be both a class action and a derivative lawsuit against the defendants. The
plaintiffs have asserted various claims, including breach of fiduciary duty and
various securities law violations, against the parties to the merger and certain
individuals and are seeking monetary damages. On April 13, 1998, the Trust was
named as a defendant in an additional purported class action lawsuit related to
the Trust's merger with the four real estate limited partnerships. The
plaintiffs have asserted various claims, including breach of fiduciary and
contractual duties and various securities law violations, against the parties to
the merger and are seeking monetary damages.
The Trust is also a defendant in a lawsuit over claims of breach of
contract and civil conspiracy allegedly injuring a commercial tenant in a
building sold by the Trust to Dallas Area Rapid Transit ("DART") under threat of
eminent domain. DART has agreed to indemnify, defend and hold harmless the Trust
from any and all losses and liabilities arising from obligations under this
lease.
The Trust intends to vigorously defend against these claims. The lawsuits
described above are on-going, therefore, management cannot predict the outcome
of such litigation, however, management believes the liabilities, if any, that
may ultimately result from such legal actions are not expected to have a
material adverse effect on the consolidated financial position or results of
operations of the Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On May 27, 1998, an Annual Meeting of Shareholders was held for purposes of
electing seven Trust Managers and to ratify the selection of independent
auditors. Results of the items voted on are as follows:
1. Election of Trust Managers
FOR WITHHELD
--------- --------
William H. Bricker.......................................... 8,643,578 59,151
T. Patrick Duncan........................................... 8,643,999 58,730
Robert E. Giles............................................. 8,645,829 56,900
Edward B. Kelley............................................ 8,641,043 61,686
Stanley J. Kraska, Jr. ..................................... 8,645,091 57,638
Russell C. Platt............................................ 8,644,990 57,739
Charles W. Wolcott.......................................... 8,644,361 58,368
13
16
2. Ratification of Ernst & Young LLP as Independent Auditors
FOR AGAINST ABSTAIN
--- ------- -------
8,649,770.. 28,499 24,460
On November 20, 1998, a Special Meeting of Shareholders was held for the
approval of the issuance of up to 11,064,193 shares and 10,266,795 Series A
Convertible Preferred Shares of Beneficial Interest pursuant to (i) the Share
Purchase Agreement, effective July 30, 1998, between the Trust and DDR, as
amended on September 14, 1998, and (ii) the Agreement and Plan of Merger, dated
as of July 30, 1998, among the Trust, DDR and DDR Office Flex Corporation. This
proposal was approved by the shareholders by the following vote: 10,378,429 for,
258,986 against and 108,222 abstained.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Trust's Shares are listed and traded on the New York Stock Exchange
(the "NYSE") under the symbol "IND." The following table sets forth for the
periods indicated the high and low closing sales price of the Trust's Shares,
and the cash distributions declared per Share:
QUARTER ENDED HIGH LOW DISTRIBUTIONS
------------- ---- --- -------------
December 31, 1998......................................... $11 3/4 $11 3/16 $.20
September 30, 1998........................................ 10 1/16 9 7/8 .20
June 30, 1998............................................. 13 12 7/16 .20
March 31, 1998............................................ 13 7/8 13 1/4 .18
December 31, 1997......................................... 15 5/16 13 1/4 --
September 30, 1997(a)..................................... 15 15/16 14 3/8 --
June 30, 1997(a).......................................... 15 5/8 11 7/8 --
March 31, 1997(a)......................................... 13 3/4 11 1/4 .20
As of March 29, 1999, the closing sale price per Share on the NYSE was
$11.00. On such date, there were 20,486,409 outstanding Shares held by 8,856
shareholders of record.
On January 29, 1998, the Trust reinstated quarterly distributions to
shareholders. A distribution of $0.18 per Share was paid on April 14, 1998 and a
distribution of $0.20 was paid on July 14, 1998, October 14, 1998 and January
20, 1999. In addition, the Trust declared a distribution of $0.20 per Share
payable on April 15, 1999 to shareholders of record on April 5, 1999. The Trust
anticipates paying distributions for the foreseeable future.
14
17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Trust and
its subsidiaries for each of the five years in the period ended December 31,
1998. This information should be read in conjunction with the discussion set
forth in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Trust and accompanying Notes included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING DATA:
Property revenues..................... $ 48,357 $ 12,201 $11,320 $11,410 $11,080
Income from property operations....... 32,311 7,886 7,298 7,559 7,128
Net income (loss)(a).................. (10,070) 1,799 1,255 (4,584) (4,655)
======== ======== ======= ======= =======
Per share (Basic and Diluted):(b)
Net income (loss)(a)............... $ (0.82) $ 0.54 $ 0.70 $ (2.55) $ (2.55)
======== ======== ======= ======= =======
Distributions declared............. 0.78 -- 0.20 0.20 --
======== ======== ======= ======= =======
BALANCE SHEET DATA:(C)
Total assets.......................... $500,330 $258,395 $78,936 $89,382 $92,550
======== ======== ======= ======= =======
Total debt............................ 266,539 121,426 53,216 62,815 65,613
======== ======== ======= ======= =======
Shareholders' equity.................. 205,579 121,771 22,683 19,248 24,196
======== ======== ======= ======= =======
- ---------------
(a) Net loss for 1998, 1995 and 1994 include provisions for possible losses on
real estate of $10,060, $600 and $650, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
the Trust" for a discussion of extraordinary gains (losses) of $(5,803),
$2,643 and $5,810 in 1998, 1997 and 1996, respectively.
(b) Diluted earnings per share is the same as basic earnings per share as all
outstanding options were anti-dilutive for each period presented.
(c) The Trust acquired $237 million in assets in 1998 and incurred or assumed
$150 million in net new debt during the year. Net proceeds from private
placements of Shares totaled approximately $105 million in 1998.
15
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and the Consolidated Financial Statements of the Trust
and accompanying Notes included elsewhere in this Form 10-K. The statements
contained in this report that are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, changes in general economic conditions in the
markets that could impact demand for the Trust's properties and changes in
financial markets and interest rates impacting the Trust's ability to meet its
financing needs and obligations.
RESULTS OF OPERATIONS
Comparison of 1998 to 1997
During 1998, the Trust completed acquisitions with an aggregate purchase
price of $237 million. As a result of these acquisitions, the weighted average
property square footage owned by the Trust increased to 5,453,000 in 1998 from
1,687,000 in 1997, an increase of 221%. Property revenues increased 296% to
$48,357,000 in 1998 from $12,201,000 in 1997, and income from property
operations (which is defined as property revenues less property operating
expenses, excluding depreciation and amortization, interest expense, Trust
administration and overhead expenses, or provision for possible losses on real
estate) increased 310% to $32,311,000 in 1998 from $7,886,000 in 1997. On a same
property basis, for properties owned as of January 1, 1997, property revenues
increased to $9,916,000 in 1998 from $9,527,000, an increase of 4.1%, comprised
of a 3.2% increase in revenue related to industrial properties, a 16.7% increase
in revenue related to one office property and a 3.3% increase in revenue at the
Trust's retail property in Denver, Colorado. These increases in revenue stemmed
principally from an increase in rental rates and/or an increase in overall
occupancy at a number of the properties. Overall leased occupancy of the Trust's
portfolio was 91.9% at December 31, 1998 compared to 92.4% at December 31, 1997.
On a same property basis, income from property operations increased to
$6,073,000 in 1998 from $5,920,000 in 1997, an increase of 2.6%. This overall
increase is a result of the increase in revenue explained above and is comprised
of a 1.0% increase related to industrial properties, a 38.3% increase related to
one office property and a 1.7% increase related to the Trust's retail
properties. Same property operating expenses increased by 6.5%, primarily as a
result of higher property taxes. Due to the small number of properties in the
same property comparison, results can be unduly influenced by results from, or
non-renewal of, a single large lease.
Loss from operations increased to $4,295,000 in 1998 from $3,007,000 in
1997 as a result of the increase in income from property operations explained
above, an increase in total interest expense of $9,361,000 due to an additional
$145,100,000 in property financing in 1998 and a full year of interest expense
on properties acquired in 1997 and a provision for losses on real estate of
$10,060,000 (see below). In addition, Trust administration and overhead expenses
increased $1,225,000 due to a 170% increase in full time employees, expensing
internal acquisition department costs in accordance with Emerging Issues Task
Force Consensus No. 97-11 ("EITF 97-11") and higher general costs due to the
increased activity of the Trust in 1998. Depreciation and amortization increased
$5,226,000 due to the acquisition of properties in 1998 and a full year of
depreciation on properties acquired in 1997.
In December 1998, the Trust recorded a provision for possible loss of
$10,060,000 as a result of its decision to sell its retail property in Colorado
in 1999. The Trust estimated the net sale proceeds to be received on such sale
and recorded the provision. The estimate of net sale proceeds is based on
subjective judgments. The actual proceeds to be received in the event of a sale
will most likely differ from the estimated net sale proceeds and may differ
substantially. The difference, if any, will be reflected as a gain or loss on
sale of real estate at such time.
16
19
During 1998, the Trust recognized extraordinary losses totaling $5,803,000
($0.47 per Share) comprised of loss on extinguishment of debt of $23,000 and
costs related to a change in control of $5,780,000. The costs related to change
in control include approximately $2,484,000 for payments made to the Trust's
senior officers under severance and change in control agreements which were
triggered when DDR's ownership position exceeded 33%, an accrual of $2,960,000
related to the fair market value of future payments through 2008 to the senior
officers under previously granted dividend equivalent rights, approximately
$300,000 related to vesting of restricted shares previously granted to the
senior officers and $36,000 in payroll taxes associated with the payments to the
senior officers. In 1997, the Trust recognized extraordinary gains on the
extinguishment of debt of $2,643,000 ($0.80 per Share). During 1997, the Trust
sold two properties for a total gain of $2,163,000 ($0.65 per Share). The Trust
did not sell any properties in 1998.
The Trust's emphasis in the light industrial sector is ideally suited for
the entrepreneurial segment of the economy, which consistently leads the United
States in job growth. This property type is attractive to technology companies,
which typically prefer flexible property space. The majority of the Trust's
properties are situated in markets that have a concentration of technology
firms, such as San Francisco, San Diego, and Northern Virginia.
Comparison of 1997 to 1996
During 1997, the Trust completed acquisitions with an aggregate purchase
price of $166.7 million. The majority of these acquisitions occurred during the
latter part of the fourth quarter of 1997 and, as a result, did not materially
impact the results of operations for 1997. The Trust's weighted average property
square footage increased to 1,687,000 in 1997 from 1,577,000 in 1996, an
increase of 7.0%. Property revenues increased 7.8% to $12,201,000 in 1997 from
$11,320,000 in 1996, and income from property operations increased 8.1% to
$7,886,000 in 1997 from $7,298,000 in 1996 as a result of these acquisitions. On
a same property basis, property revenues increased to $9,814,000 in 1997 from
$9,422,000 in 1996, an increase of 4.2%, comprised of a 7.3% increase in revenue
related to industrial properties and a 1.6% decrease in revenue at the Trust's
retail property in Denver, Colorado. The decrease in revenue at the Trust's
retail property stemmed principally from slower than anticipated leasing of
vacancies and higher tenant rollover. The sale of two properties in 1997, one in
the first quarter and one in the fourth quarter, resulted in a net decrease in
1997 combined property revenue of $229,000 and a net increase in income from
property operations of $141,000 when compared to 1996. Overall leased occupancy
of the Trust's portfolio was 92.4% at December 31, 1997 compared to 94.2% at
December 31, 1996, reflecting lower occupancy rates of certain properties
acquired during the fourth quarter of 1997.
On a same property basis, income from property operations increased to
$6,209,000 in 1997 from $5,987,000 in 1996, an increase of 3.7%. This overall
increase is comprised of an 8.0% increase related to industrial properties and a
5.2% decrease related to the Trust's retail properties. The decrease in the
Trust's retail properties is a result of the decrease in revenue explained
above, as well as increase in expenses due to higher repairs and maintenance
costs. Same property operating expenses increased by 4.9%, primarily as a result
of higher property taxes.
Loss from operations decreased to $3,007,000 in 1997 from $4,732,000 in
1996 as a result of the increase in income from property operations explained
above, an increase in interest income of $388,000 (due to the private equity
placements in 1997 of approximately $35 million), a decrease in total interest
expense of $123,000 (due to the paydown of debt during late 1996 and 1997 as
offset by an accrual of $1,022,000 of interest expense related to the conversion
of certain debt to equity in December 1997), a decrease in Trust administration
and overhead expenses of $874,000 (due to the conclusion of shareholder
litigation in 1996 as offset by higher general costs due to the increased
activity of the Trust in 1997), and an increase in depreciation and amortization
of $248,000 (due to the acquisition of properties during the fourth quarter of
1997).
During 1997 and 1996, the Trust recognized extraordinary gains on
extinguishment of debt of $2,643,000 ($0.80 per Share) and $5,810,000 ($3.20 per
Share), respectively, resulting from the settlement of litigation.
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During 1997, the Trust sold two properties for a total gain of $2,163,000 ($0.65
per Share) compared to the sale of two properties for a total gain $177,000
($0.10 per Share) in 1996.
Analysis of Cash Flows
COMPARISON OF 1998 TO 1997
Cash flow provided by operating activities in 1998 was $2,961,000. This
results from the Trust's net loss of $10,070,000 offset by net non-cash charges
totaling $21,984,000 related to change in control costs, provision for possible
real estate losses, minority interests, depreciation and amortization and
issuance of shares to Trust Managers. This is offset by an increase in
restricted cash of $3,301,000 and other assets of $10,073,000. In addition, an
increase in accounts payable, other liabilities and tenant security deposits of
$3,213,000 and an increase in accrued interest of $1,208,000 further increased
cash flow provided by operating activities.
Cash flow used in investing activities in 1998 was $179,673,000,
representing amounts expended on the acquisition of real estate and related
working capital totaling $172,133,000 and capitalized expenditures of
$7,540,000.
Cash flow provided by financing activities in 1998 was $171,174,000. This
amount reflects net proceeds from mortgage financings and notes payable of
$153,273,000 and proceeds from the private placements of Shares for net proceeds
of $28,578,000 offset by the payment of loan costs of $1,852,000, the repurchase
of Shares totaling $1,600,000 and distributions to shareholders and limited
partnership unit holders of $7,225,000.
Cash flow used in operating activities in 1997 was $776,000. This is
primarily the net result of property operations, interest expense,
administrative expenses, and an increase in restricted cash as a result of the
Trust's property acquisitions and financings in 1997. Other assets increased
$1,318,000 and restricted cash increased $1,019,000 in 1997. In addition,
administrative expenses includes $439,000 in litigation and proxy costs which
management believes is of a non-recurring nature.
Cash flow used in investing activities in 1997 was $61,898,000,
representing proceeds from the sale of two properties of $7,129,000, amounts
expended on the acquisition of real estate and related working capital totaling
$67,116,000, and capitalized expenditures of $1,911,000.
Cash flow provided by financing activities in 1997 was $70,347,000. This
amount reflects proceeds from the mortgage financing on fifteen properties of
$44,001,000, proceeds from the private placements of Shares in July 1997 and
December 1997 for net proceeds of $33,481,000, the payment of loan costs of
$169,000 and principal repayments on mortgage and notes payable totaling
approximately $6,340,000.
FUNDS FROM OPERATIONS
The Board of Governors of the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") defines Funds from Operations ("FFO") as net
income (loss) computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructuring and sales of
property, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. The Trust
calculates FFO in a manner consistent with the NAREIT definition. In addition,
NAREIT recommends that extraordinary items or significant non-recurring items
that distort comparability should not be considered in arriving at FFO.
Accordingly, the Trust does not include extraordinary items, provision for
possible losses on real estate or the non-recurring interest accrual related to
the conversion of the modified notes held by an affiliate into Shares.
The Trust believes FFO is an appropriate measure of performance relative to
other REITs. FFO provides investors with an understanding of the ability of the
Trust to incur and service debt and make capital expenditures. There can be no
assurance that FFO presented by the Trust is comparable to similarly titled
measures of other REITs. While other REITs may not always use a similar
definition, this information does add comparability to those which have adopted
the NAREIT definition. FFO should not be considered as an alternative to net
income or other measurements under generally accepted accounting principles as
an indicator of the Trust's operating performance or to cash flows from
operating, investing, or financing activities
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as a measure of liquidity. FFO does not reflect working capital changes, cash
expenditures for capital improvements, or principal payments on indebtedness.
The following table shows the Trust's cash flows from its operating,
investing and financing activities prepared in accordance with generally
accepted accounting principles:
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
--------- -------- -------
(IN THOUSANDS)
Net cash provided by (used in) operating
activities......................................... $ 2,961 $ (776) $(4,764)
========= ======== =======
Net cash provided by (used in) investing
activities......................................... (179,673) (61,898) 5,173
========= ======== =======
Net cash provided by (used in) financing
activities......................................... 171,174 70,347 (4,093)
========= ======== =======
The following table shows the Trust's calculation of FFO:
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ----------- -----------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
Net Income (Loss)............................... $ (10,070) $ 1,799 $ 1,255
Exclude effects of:
Extraordinary items:
(Gain) loss on extinguishment of debt.... 23 (2,643) (5,810)
Provision for change in control costs.... 5,780 -- --
Gain on sales of real estate............... -- (2,163) (177)
Provision for possible losses on real
estate................................... 10,060 -- --
Real estate depreciation and
amortization............................. 8,108 3,144 2,890
Default rate interest...................... -- -- 369
Minority interest in operating
partnerships............................. (188) -- --
Non-recurring interest accrual assuming
future conversion of debt to equity...... -- 1,022 --
----------- ---------- ----------
Funds from Operations........................... $ 13,713 $ 1,159 $ (1,473)
=========== ========== ==========
Weighted average Shares and operating
partnership units outstanding(a).............. 12,484,472 3,317,004 $1,821,648
=========== ========== ==========
YEAR 2000 ISSUES
Some older computer software was written using two digits rather than four
to define the applicable year. As a result, those computer programs have
time-sensitive programming software that recognize a date using "00" as the year
1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, create tenant statements,
or engage in similar normal business activities.
The Trust's plan to resolve Year 2000 issues involves the following four
phases: assessment, remediation, testing and implementation. To date, the Trust
has assessed all existing internally used hardware and systems (both information
technology and non-information technology) that could be significantly affected
by the Year 2000 issue. Based on these assessments, management believes that
existing hardware and systems used by the Trust are Year 2000 compliant.
Additionally, as of December 31, 1998, the Trust has successfully upgraded the
existing network and property operations/accounting systems. These upgrades were
instituted to meet current and future needs of the Trust, not as a result of our
initial Year 2000 assessment. The Trust has taken precautions, including testing
these systems prior to implementation, to insure that all upgrades and
modifications are Year 2000 compliant.
The Trust has queried and/or received disclosure statements from
significant external service providers. To date, the Trust is not aware of any
Year 2000 problems with these third parties that would materially impact the
Trust's results of operations, liquidity or capital resources. However, the
Trust has no means of ensuring that external service providers will be Year 2000
compliant. The inability of these service providers to complete their Year 2000
resolution processes in a timely manner could impact the Trust. The effect of
non-
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compliance by service providers is not determinable. The Trust is also reviewing
all properties which may use date sensitive software in elevators, heating and
cooling equipment and security systems to confirm no problem exists.
Although a potential area of significant exposure to the Trust is the
contracting to third parties of property management, accounting, and leasing
services, the Trust generally utilizes thirty-day cancelable contracts and,
should a material risk arise with respect to the Year 2000 problem, anticipates
terminating the contract and hiring a new vendor. In addition, the Trust has
initiated the transition to internal property management, accounting and leasing
of its own properties, thereby significantly reducing the use of third parties
in these areas.
As noted above, the Trust has completed the initial assessment and believes
the existing internal systems and upgrades are Year 2000 compliant. The Trust
does not expect historical and future costs related to the Year 2000 issue to
have a material effect on the consolidated financial position or results of
operations of the Trust. Although management does not currently believe that the
effect of the Year 2000 problem will have a material impact on the Trust, there
is no guarantee that unforeseen circumstances will not arise which could cause a
material adverse effect upon the Trust's operations.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds for the Trust's liquidity requirements are
funds generated from operation of the Trust's real estate assets, equity
offerings, debt financings and/or refinancings, and unrestricted cash reserves.
In addition, the Trust may from time to time sell properties that do not
compliment the Trust's property emphasis or geographic target markets. Proceeds
from such sales could be used for working capital purposes, debt reduction or
reinvested into other properties. As of December 31, 1998, the Trust had $6.1
million in unrestricted cash.
During 1998, the Trust purchased $237 million in properties and, on January
15, 1999, the Trust purchased a $127 million portfolio. In order to fund this
growth, the Trust entered into several equity transactions during 1998. In
January 1998, the Trust completed a $10 million private placement of Shares at
$13.625 per Share. In February 1998, two shareholders exercised their preemptive
rights and acquired $8.7 million of Shares at $13.625 per Share. In August 1998,
the Trust entered into a definitive agreement providing for a strategic
investment by DDR in the Trust. Under the terms of the agreement, DDR was
obligated to purchase $115 million of equity (Shares up to 49.9% ownership and
preferred shares thereafter) and up to $200 million in additional equity,
subject to certain conditions, to fund property acquisitions approved by the
Trust's Board. From August 1998 through March 29, 1999, DDR purchased 9.3
million Shares for $143 million. Proceeds of these equity placements were used
for property acquisitions.
In addition to the equity raised, the Trust utilized both long term and
short term secured financing to fund property acquisitions. The Trust has a $75
million secured acquisition line with PSCC which bears interest at a variable
rate based on LIBOR plus 1.75%. The Trust currently has approximately $68.5
million outstanding under this line. In January 1999, the Trust initiated a
secured acquisition credit facility with Bank One. The agreement contemplates a
$150,000,000 credit line of which Bank One has committed to $25,000,000. The
remainder of the credit line will be syndicated on a "best efforts" basis by
Bank One. The credit line, which will be secured by mortgage liens on
properties, provides for a graduated variable interest rate (depending on the
Trust's overall leverage) of LIBOR plus 1.4% to LIBOR plus 2.0%, a maximum loan
to value of 60%, and a maturity in January 2001. As of March 29, 1999, the Trust
has $13.0 million outstanding under this credit line, which bears interest at
LIBOR plus 1.75%, currently 6.7125%.
At December 31, 1998, the Trust had $252.5 million in mortgage debt
outstanding, of which approximately $141.3 million was represented by fixed rate
debt with an effective weighted average interest rate of 7.44%, and $111.2
million was represented by variable rate debt with a weighted average interest
rate of 6.95%. These weighted average interest rates represent an average of the
applicable stated interest rate and do not include the amortization of deferred
loan costs (or debt premiums) which will produce a higher (or lower) weighted
average interest rate. The variable rate debt is comprised of $68.5 million
borrowed under the Trust's secured acquisition line and $42.7 million borrowed
under a bridge loan. The bridge loan was repaid with
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proceeds from a permanent financing on January 8, 1999. The Trust also had $14.1
million of unsecured borrowings from DDR with an interest rate at December 31,
1998 of 10.25%. The unsecured borrowings from DDR were repaid in full in January
1999.
At December 31, 1998, the Trust's total market capitalization (based upon a
December 31, 1998 closing Share price of $11.69 per Share) was approximately
$461.5 million. Based upon this amount, the Trust's debt to total market
capitalization at December 31, 1998 was 56.3%. The Trust is currently operating
at higher levels of leverage than it would foresee on a longer term basis. The
Trust believes that the use of leverage is justified given existing acquisition
prospects and the benefits of the Trust's transition to a larger entity.
Although there is no assurance of ultimate availability, the Trust anticipates
that equity will be raised in the future will serve to deleverage the Trust.
On a long term basis, the Trust expects to meet liquidity requirements
generated by property operating expenses, debt service, and future distributions
with funds generated by the operations of its real properties. Should such funds
not cover these needs, the possibility of future distributions may be reduced or
eliminated. Although the Trust believes that its current leverage is justified,
the risk of financial default could rise substantially if the Trust is unable to
complete future equity offerings or if property operating results decline.
The nature of the Trust's operating properties, which generally provide for
leases with a term of between three and five years, results in an approximate
annual turnover rate of 20% to 25% of the Trust's tenants and related revenue.
Such turnover requires capital expenditures related to tenant improvements and
leasing commissions, capital repairs and replacements, initial capital
expenditures, (which are costs necessary to bring acquired properties to
intended leasable condition at the time of acquisition), and expansions and
renovations related to properties acquired in order to maintain or improve the
Trust's occupancy levels. These costs were $7,540,000 in the year ended December
31, 1998, compared to $1,911,000 in the year ended December 31, 1997. These
costs have historically been funded out of the Trust's operating cash flow and
cash reserves. The Trust has made no commitments for additional capital
expenditures beyond those related to normal leasing and releasing activities,
related escrows and initial capital expenditures.
The Trust initiated distributions during 1998 at $0.18 per Share for the
first quarter and increased the distribution to $0.20 per Share for the second,
third and fourth quarters. The Trust's distribution policy is to conserve
capital by, over time, lowering its FFO payout ratio. During 1998, the Trust
declared a total of $0.78 per share in dividends, which represents an FFO payout
ratio of 71%. The Trust believes that the minimum FFO payout ratio in order to
comply with the requirement to distribute 95% of taxable income, is
approximately 50-55% based on the Trust's current capital structure. Future
distributions will be at the discretion of the Board of Trust Managers. The
Trust has approximately $34,301,000 in net operating loss carryforwards, a
portion of which could be utilized to reduce the payout of 95% taxable income
required by the Internal Revenue Code.
On February 18, 1998, the Trust filed a Form S-3 shelf registration with
the Securities and Exchange Commission which would provide for the issuance of
up to $500 million in Shares, Preferred Shares of Beneficial Interest, unsecured
senior debt securities and/or warrants to purchase such securities in amounts,
at prices and on terms to be determined by market conditions at the time of
future offerings. The Trust anticipates utilization of this shelf registration
in the future to fund acquisitions and growth of the Company.
On March 9, 1998, the Board of Trust Managers authorized a Share repurchase
program allowing the Trust to purchase up to 1,000,000 shares from time to time
in open market transactions, as price and market conditions allowed, over the
following six months. Through August 31, 1998, the Trust had purchased 123,783
shares in the open market, for an aggregate cost of $1,598,000. These Shares are
held in Treasury. Under the terms of its agreement with DDR, the Trust is
prohibited from purchasing its own Shares if such purchases would result in DDR
owning in excess of 49.9% of the Trust's outstanding Shares.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Trust's risk management includes
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from the results discussed in the forward-looking
statements.
The Trust's primary market risk exposure is to changes in interest rates.
The Trust is exposed to market risk related to its secured acquisition line and
secured bridge loan, with PSCC and the Bank One credit line as discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources." The interest on the acquisition
line, bridge loan and credit line are subject to fluctuations in the market.
The Trust also uses long-term and medium-term secured debt as a source of
capital. These debt instruments are typically issued at fixed interest rates.
When these debt instruments mature, the Trust typically refinances such debt at
then-existing market interest rates which may be more or less than the interest
rates on the maturing debt.
If the interest rate for variable rate debt was 100 basis points higher or
lower during 1998, the Trust's interest expense would have been increased or
decreased by approximately $700,000. There is no fixed rate debt maturing in
1999.
The Trust historically has not hedged its exposure to fluctuations in
interest rates and currently has no plans to do so in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed in the Index to
Financial Statements and Financial Statement Schedule appearing on Page F-1 of
this Form 10-K.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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PART III.
ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
On July 30, 1998, in connection with the execution of a definitive
agreement for an investment in the Trust by DDR, the Trust increased the number
of Trust Managers on the Board of Trust Managers from seven to eleven and
appointed DDR nominees Scott A. Wolstein, James A. Schoff, Robert H. Gidel and
Albert T. Adams as Trust Managers. Mr. Wolstein was also elected to the position
of Chairman of the Board of Trust Managers on July 30, 1998. The persons who
serve as Trust Managers and executive officers of the Trust, their ages and
their respective positions are as follows:
NAME AGE POSITION(S) AND OFFICE(S) HELD
---- --- ------------------------------
Scott A. Wolstein.................... 46 Chairman of the Board of Trust Managers
Albert T. Adams...................... 48 Trust Manager
William H. Bricker................... 67 Trust Manager
T. Patrick Duncan.................... 50 Trust Manager
Robert H. Gidel...................... 47 Trust Manager
Robert E. Giles...................... 51 Trust Manager
Edward B. Kelley..................... 58 Trust Manager
Stanley J. Kraska, Jr. .............. 39 Trust Manager
J. Timothy Morris.................... 32 Trust Manager
James A. Schoff...................... 53 Trust Manager
Charles W. Wolcott................... 46 Trust Manager, President and Chief Executive
Officer
Lewis D. Friedland................... 39 Executive Vice President and Chief Operating
Officer
Marc A. Simpson...................... 44 Senior Vice President and Chief Financial
Officer, Secretary and Treasurer
David B. Warner...................... 40 Senior Vice President -- Real Estate Operations
Scott A. Wolstein was appointed as a Trust Manager and as Chairman of the
Board of Trust Managers on July 30, 1998. Mr. Wolstein became Chairman of DDR in
February 1997, and has served as President and Chief Executive Officer of DDR
since its organization in 1992 and February 1993 initial public offering. Mr.
Wolstein was a principal and executive officer of DDR's predecessors prior to
1993. Mr. Wolstein is a graduate of the Wharton School at the University of
Pennsylvania and of the University of Michigan Law School. Following his
graduation from the University of Michigan Law School, Mr. Wolstein was
associated with the Cleveland law firm of Thompson, Hine & Flory. He is
currently a member of the Board of Trustees of the National Association of Real
Estate Investment Trusts and the International Council of Shopping Centers and
serves as the General Co-Chairman of the Cleveland Campaign for the State of
Israel Bonds. He is also a member of the Young Presidents Organization, The
Urban Land Institute, the National Realty Committee and the Wharton Real Estate
Center.
Albert T. Adams was appointed as a Trust Manager on July 30, 1998. Mr.
Adams has been a partner with the law firm of Baker & Hostetler LLP in
Cleveland, Ohio, since 1984, and has been affiliated with the firm since 1977.
Mr. Adams is a graduate of Harvard College, Harvard Business School and Harvard
Law School. He serves as a member of the Board of Trustees of the Greater
Cleveland Roundtable and of the Western Reserve Historical Society and is a Vice
President of the Harvard Business School Club of Northeastern Ohio. Mr. Adams
also serves as a director of DDR, Associated Estates Realty Corporation, Boykin
Lodging Company, Captec Net Lease Realty, Inc. and Dairy Mart Convenience
Stores, Inc.
William H. Bricker has served as a Trust Manager of the Trust since
September 1985. Mr. Bricker has served as President of DS Energy Services
Incorporated and has consulted in the energy field and on international trade
since 1987. In May 1987, Mr. Bricker retired as the Chairman and Chief Executive
Officer of Diamond Shamrock Corporation where he held various management
positions from 1969 through May 1987. Mr. Bricker is a director of the LTV
Corporation, the Eltech Systems Corporation and the National
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Paralysis Foundation. He received his Bachelor of Science and Master of Science
degrees from Michigan State University.
T. Patrick Duncan has served as a Trust Manager since December 1996 Mr.
Duncan joined USAA Real Estate Company ("Realco") in November 1986 as Chief
Financial Officer. With over 24 years of experience, Mr. Duncan serves as Senior
Vice President of Real Estate Operations with responsibilities which include the
direction of all acquisitions, sales, management and leasing of real estate for
USAA-affiliated companies. Mr. Duncan received degrees from the University of
Arizona in Accounting and Finance. He is a Certified Public Accountant,
Certified Commercial Investment Manager, and holds a Texas Real Estate Broker's
License. Mr. Duncan is also a member of the Board of Directors of Meridian
Industrial Trust and a member of the Board of Directors of USAA Equity Advisors,
Inc.
Robert H. Gidel was appointed as a Trust Manager on July 30, 1998. Mr.
Gidel has been the managing partner of Liberty Partners, LP, an investment
partnership formed to purchase securities interests in private and public real
estate companies, since 1993. Prior to this, Mr. Gidel was a Managing Director
and Member of the Board of Directors of Alex. Brown Kleinwort Benson Realty
Advisors, a real estate investment management firm formed in 1990 as a merger of
Alex. Brown Realty Advisors ("ABRA") and Financial Investment Advisors. Mr.
Gidel had been President of ABRA since 1986. From 1981-1985, Mr. Gidel served in
a wide range of positions at Heller Financial and its subsidiary, Abacus Real
Estate Finance. He is a graduate of University of Florida's Warrington College
of Business with a major in real estate. Mr. Gidel is currently the Chairman of
the Real Estate Advisory Board at the College of Business and a Hoyt Fellow at
the Homer Hoyt Institute.
Robert E. Giles has served as a Trust Manager since March 1996. Mr. Giles
is currently the owner and President of Robert E. Giles Interests, Inc., a real
estate consulting and development firm based in Houston, Texas. Mr. Giles also
serves as President of Title Network, Ltd., a national title insurance agency.
Mr. Giles was a Vice President with the J.E. Robert Companies, Inc. from 1994 to
1995. From 1990 to 1994, Mr. Giles was President and a Director of National Loan
Bank, a publicly-held company created through the merger of Chemical Bank and
Texas Commerce Bank. Mr. Giles received his Bachelor of Arts degree from
University of Texas -- Austin in 1970 and received a Master of Arts degree from
University of Texas -- Arlington in 1973.
Edward B. Kelley has served as a Trust Manager since December 1996. Mr.
Kelley is President of Realco. He joined Realco in April 1989 as Executive Vice
President and Chief Operating Officer before assuming his new title in August
1989. Mr. Kelley received his Bachelor of Business Administration degree from
St. Mary's University in 1964 and a Masters in Business Administration from
Southern Methodist University in 1967, and is a Member of the Appraisal
Institute ("MAI"). Mr. Kelley is a member of the Board of Directors of USAA
Equity Advisors, Inc.
Stanley J. Kraska, Jr. has served as a Trust Manager since July 1997,when
he was appointed as an independent Trust Manager at the request of ABKB/LaSalle
Securities Limited Partnership ("ABKB") and LaSalle Advisors Capital Management,
Inc. ("LaSalle Advisors") pursuant to the terms of the Common Share Purchase
Agreements between the Trust and ABKB (as agent for the benefit of a particular
client) dated as of July 3, 1997. Mr. Kraska has been employed by ABKB or its
affiliates since February 1988. He currently serves as Managing Director, with
responsibility for private placement investment. Mr. Kraska graduated from
Dartmouth College in 1982 with a Bachelor of Arts degree and received a Master
of Business Administration degree from Harvard University in 1986.
J. Timothy Morris has served as a Trust Manager since January 15, 1999. Mr.
Morris is a Principal at Morgan Stanley Dean Witter and head of Morgan Stanley's
Real Estate Special Situations Program. Mr. Morris has over 11 years of
experience at Morgan Stanley in the investment banking direct investment areas.
Prior to heading up the Special Situations initiative, Mr. Morris spent five
years in Hong Kong running Morgan Stanley's real estate business for Asia. Mr.
Morris currently serves on the boards of Grove Property Trust and Tower Realty
Trust, as well as on the boards of two private REITs. He is a graduate of
Indiana University and holds a Bachelors degree in Finance.
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James A. Schoff was appointed as a Trust Manager on July 30, 1998. Mr.
Schoff is Vice Chairman of the Board and Chief Investment Officer of DDR. Prior
to this promotion, Mr. Schoff served as DDR's Executive Vice President and Chief
Operating Officer from the time of the DDR's initial public offering, and he was
a principal and executive officer of DDR's predecessors. Mr. Schoff is a
graduate of Hamilton College and Cornell University Law School. Mr. Schoff
practiced law with the firm of Thompson, Hine and Flory where he specialized in
the acquisition and syndication of real estate properties. Mr. Schoff currently
serves as a member of the Executive Committee and Board of Trustees of the
Western Reserve Historical Society and the National Committee for Community and
Justice.
Charles W. Wolcott currently serves as Trust Manager, President and Chief
Executive Officer. Mr. Wolcott was hired as the President and Chief Executive
Officer of the Trust in May 1993 and has served as a Trust Manager since August
1993. Mr. Wolcott was President and Chief Executive Officer for Trammell Crow
Asset Services, a real estate asset and portfolio management affiliate of
Trammell Crow Company, from 1990 to 1992. He served as Vice President and Chief
Financial and Operating Officer of the Trust from 1988 to 1991. From 1988 to
1990, Mr. Wolcott was a partner in Trammell Crow Ventures Operating Partnership.
Prior to joining the Trammell Crow Company in 1984, Mr. Wolcott was President of
Wolcott Corporation, a firm engaged in the development and management of
commercial real estate properties. Mr. Wolcott graduated from the University of
Texas at Austin in 1975 with a Bachelor of Science degree and received a Master
of Business Administration degree from Harvard University in 1977.
Lewis D. Friedland currently serves as Executive Vice President and Chief
Operating Officer. He was hired as the Vice President and Chief Investment
Officer of the Trust in 1997. Prior to joining the Trust, Mr. Friedland was a
founding partner of Crimson Partners, an investment firm formed in 1992 that
engaged in the acquisition and development of real estate assets. Prior to
founding this firm, he was a Division Partner and Managing Director of Trammell
Crow Company where he was responsible for that firm's development, leasing, and
property management activities in Richmond, Va. Mr. Friedland graduated from the
Wharton School of the University of Pennsylvania in 1981 with a Bachelor of
Science Degree in Economics and received a Master of Business Administration
degree from Harvard University in 1985.
Marc A. Simpson currently serves as Senior Vice President and Chief
Financial Officer, Secretary and Treasurer. Mr. Simpson was hired as the Vice
President and Chief Financial Officer, Secretary and Treasurer of the Trust in
March 1994. From November 1989 through March 1994, Mr. Simpson was a Manager in
the Financial Advisory Services Group of Coopers & Lybrand L.L.P. Prior to that
time, he served as Controller of Pacific Realty Corporation, a real estate
development company. Mr. Simpson graduated with a Bachelor of Business
Administration from Midwestern State University in 1978, and received a Master
of Business Administration from Southern Methodist University in 1990.
David B. Warner currently serves as Senior Vice President-Real Estate
Operations. Mr. Warner was hired as Vice President and Chief Operating Officer
of the Trust in May 1993. From 1989 through the date he accepted a position with
the Trust, Mr. Warner was a Director of the Equity Investment Group for the
Prudential Realty Group. From 1985 to 1989, he served in the Real Estate Banking
Group of NCNB Texas National Bank. Mr. Warner graduated from the University of
Texas at Austin in 1981 with a degree in finance and received a Master of
Business Administration from the same institution in 1984.
COMMITTEES OF THE TRUST MANAGERS
AUDIT COMMITTEE. The Audit Committee of the Trust Managers met twice during
the 1998 fiscal year. The Audit Committee reviews and approves the scope and
results of any outside audit of the Trust, and the fees therefore, and makes
recommendations to the Trust Managers or management concerning auditing and
accounting matters and the efficacy of the Trust's internal control systems. The
Audit Committee selects the Trust's independent auditors subject to shareholder
ratification. During the 1998 fiscal year, Messrs. Bricker, Kelley and Giles
served on the Audit Committee. Current members of the Audit Committee are
Messrs. Bricker, Kelley and Giles.
COMPENSATION COMMITTEE. The Compensation Committee met three times during
the 1998 fiscal year. The Compensation Committee recommends to the Board of
Trust Managers guidelines for compensation and
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benefits of the executive officers of the Trust based upon achievement of
objectives and other factors. The Compensation Committee is also responsible for
acting upon all matters concerning, and exercising such authority as is
delegated to it under the provisions of, any benefit, retirement or pension
plan. During the 1998 fiscal year, Messrs. Bricker, Duncan and Giles served on
the Compensation Committee. Current members of the Compensation Committee are
Messrs. Bricker, Duncan and Giles.
INVESTMENT COMMITTEE. The Investment Committee met three times during 1998
prior to being dissolved on July 29, 1998. The Investment Committee reviewed
potential real property acquisitions and made recommendations to the Board of
Trust Managers. During the 1998 fiscal year, Messrs. Duncan, Giles, Kraska and
Wolcott served on the Investment Committee.
EXECUTIVE COMMITTEE. The Executive Committee was formed on July 29, 1998
and granted the power to authorize acquisitions and dispositions not to exceed
$50 million and to bind the Trust to capital raising transactions not to exceed
$100 million. The Executive Committee met seven times during 1998. During the
1998 fiscal year, Messrs. Wolstein, Gidel, Duncan and Wolcott served on the
Executive Committee. Current members of the Executive Committee are Messrs.
Wolstein, Gidel, Duncan, Morris and Wolcott.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Bricker, Duncan and
Giles. No executive officer of the Trust served as a member of the Compensation
Committee or as a director of any other entity, one of whose executive officers
served on the Compensation Committee or as a Trust Manager of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5 (and any amendments thereto)
furnished to the Trust with respect to the 1998 Fiscal Year or written
representations from certain reporting persons that no forms were required, no
person failed to disclose on a timely basis, as disclosed in such forms, reports
required by Section 16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Trust to the
executive officers of the Trust for the three years ended December 31, 1998:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
NAME AND -------------------------- ALL OTHER UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS
------------------ ---- -------- -------- ------------ ------------
Charles W. Wolcott..................... 1998 $223,750 $152,375 $1,120,630(2) 250,000
President and CEO 1997 202,500 153,750 8,071(6) 50,000
1996 195,000 100,000 8,039(6) --
Lewis D. Friedland..................... 1998 178,750 122,563 816,680(3) 135,000
Executive Vice President and COO(7) 1997 102,462 72,000 5,168(6) 35,000
Marc A. Simpson........................ 1998 135,000 66,150 542,305(4) 70,000
Senior Vice President and CFO, 1997 117,500 72,000 8,071(6) 20,000
Secretary and Treasurer 1996 110,000 55,000 8,039(6) --
David B. Warner........................ 1998 131,250 63,788 525,430(5) 70,000
Senior Vice President 1997 117,500 72,000 8,071(6) 20,000
Real Estate Operations 1996 110,000 55,000 8,039(6) --
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- ---------------
(1) Represents bonus payments for current year paid in January of the following
year.
(2) Includes change of control payment ($862,500), payments made under fully
vested dividend equivalent rights granted in April 1998 ($116,000), vesting
of restricted shares ($135,100) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(3) Includes change of control payment ($693,750), payments made under fully
vested dividend equivalent rights granted in April 1998 ($58,000), vesting
of restricted shares ($57,900) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(4) Includes change of control payment ($472,500), payments made under fully
vested dividend equivalent rights granted in April 1998 ($29,000), vesting
of restricted shares ($33,775) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(5) Includes change of control payment ($455,625), payments made under fully
vested dividend equivalent rights granted in April 1998 ($29,000), vesting
of restricted shares ($33,775) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(6) Trust's contribution to the Retirement and Profit Sharing Plan for current
year made in January of following year.
(7) Hired in May 1997.
SEVERANCE AND CHANGE IN CONTROL AGREEMENTS
On April 29, 1998, the Trust entered into Severance and Change in Control
Agreements with each of Messrs. Wolcott, Friedland, Simpson and Warner, which
agreements replaced and superseded existing Bonus and Severance Agreements with
such officers. Among other things, the agreements provide that, upon a Change in
Control (as defined), the respective officer will receive an amount equal to
2.50 times such officer's annualized base salary rate plus targeted bonus amount
for the fiscal year in which the first event constituting a Change in Control
occurs. In addition, each such officer will receive certain employee benefits
for, in general, a one-year period commencing on the date of a Change in
Control. Each agreement also provides that (1) if any payment made by the Trust
to the respective officer would be subject to the "golden parachute" excise tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, the
Trust will pay to such officer an additional amount to offset the effects of
such excise tax, (2) the Trust agrees to pay certain attorneys' and related fees
and expenses incurred by the respective officer to enforce his rights under the
agreement, and (3) all deferred or unvested awards under the Trust's Employee
and Trust Manager Incentive Share Plan shall immediately vest upon a Change in
Control and the officer shall have the right to exercise any vested awards
during the balance of the award's term. Each agreement commenced on April 29,
1998 and continues for a five-year term and shall automatically renew for
one-year terms unless earlier terminated in accordance with the agreement.
CHANGE IN CONTROL
Per the Severance and Change in Control Agreements, the term "Change in
Control" is defined, among other things, as an acquisition of over 33% of the
Trust's securities. On December 10, 1998, a Change in Control occurred upon the
filing by DDR of Amendment No. 3 to Schedule 13D. Accordingly, payments totaling
$2,484,375 to Messrs. Wolcott, Friedland, Simpson and Warner were made. In
addition, outstanding options to purchase shares held by these employees became
immediately exercisable and the restrictions on any restricted shares held by
these employees were lifted.
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OPTION GRANTS
The following table sets forth the share option grants made in the 1998
Fiscal Year to each of the Trust's executive officers. The table also sets forth
the potential realizable value that would exist for the options at the end of
their ten-year terms, assuming compound rates of stock appreciation of 5% and
10%. The actual future value of the options will depend on the market value of
the Company's Common Shares. All option exercise prices are based on a price
higher than the market price on the grant date.
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF SHARE PRICE APPRECIATION
SHARES OPTIONS AT END OF TEN YEAR
UNDERLYING GRANTED TO OPTION TERMS(1)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED(2) FISCAL 1998 PER SHARE DATE 5% 10%
---- ---------- ------------ -------------- ---------- ------------ ------------
Charles W. Wolcott......... 200,000 43% $13.625 4/1/08 $1,673,015 $4,278,105
Lewis D. Friedland......... 100,000 22% 13.625 4/1/08 836,508 2,139,052
Marc A. Simpson............ 50,000 11% 13.625 4/1/08 418,254 1,069,526
David B. Warner............ 50,000 11% 13.625 4/1/08 418,254 1,069,526
- ---------------
(1) "Potential Realizable Value" is disclosed in response to Securities and
Exchange Commission rules, which require such disclosure for illustrative
purposes only, and is based on the difference between the potential market
value of shares issuable (based upon assumed appreciation rates) upon
exercise of such options and the exercise price of such options. The values
disclosed are not intended to be, and should not be interpreted as,
representations or projections of future value of the Trust's shares or of
the share price.
(2) Share option grants vest in equal increments on their date of grant and on
each of the first four anniversaries of their date of grant. All share
options were vested on December 10, 1998 pursuant to the Change in Control.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the value of
the unexercised options as of December 31, 1998 held by the Trust's executive
officers. No options were exercised in the 1998 Fiscal Year by any of the
executive officers.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND FISCAL 1998
YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/98 AT 12/31/98
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Charles. W. Wolcott............................ 250,000 0 (a) (a)
Lewis D. Friedland............................. 135,000 0 (a) (a)
Marc A. Simpson................................ 70,000 0 (a) (a)
David B. Warner................................ 70,000 0 (a) (a)
- ---------------
(a) The Trust's share price at December 31, 1998 was $11.6875, which is less
than the option exercise prices of either $13.625 or $15.00 per share.
Therefore, the value of unexercised in-the-money options at December 31,
1998 is zero.
TRUST MANAGER COMPENSATION
In fiscal year 1998, the Trust paid an annual retainer of $25,000 to
non-employee Trust Managers plus $1,000 for each Trust Manager meeting attended
in person, $500 for each Trust Manager meeting attended via teleconference, $500
for each committee meeting attended in person and $250 for each committee
meeting attended via teleconference. Additionally, the Trust Managers are
reimbursed for their expenses incurred in connection with their duties as Trust
Managers. Each non-employee Trust Manager has the right to receive
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his annual retainer in cash and/or Shares. In addition to the annual retainer,
Mr. Bricker earned $14,750, Mr. Giles earned $13,750, Mr. Kelley earned $7,500,
Mr. Duncan earned $12,750, Mr. Kraska earned $11,250, Mr. Wolstein earned
$2,250, Mr. Schoff earned $1,500, Mr. Gidel earned $2,250 and Mr. Adams earned
$1,500 in 1998 for attendance at Board of Trust Managers and committee meetings.
In December 1998, the Trust adopted a deferred compensation plan for
non-employee Trust Managers which will give Trust Managers the option to defer
receipt of fees otherwise payable. Such deferred fees are credited to a deferral
account in units representing Shares. The value of the units is increased or
decreased as measured by the market value of Shares.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Shares by (i) each Trust Manager, (ii) the Trust's Chief
Executive Officer and each executive officer of the Trust, (iii) all Trust
Managers and executive officers of the Trust as a group, and (iv) to the Trust's
knowledge, by any person owning beneficially more than 5% of the outstanding
shares of such class, in each case at March 29, 1999. Except as otherwise noted,
each person named in the table has sole voting and investment power with respect
to all Common Shares shown as beneficially owned by such person.
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP OF CLASS
- ---------------- ----------------- ----------
Albert T. Adams........................................ 1,000(1) *
William H. Bricker..................................... 4,400(2) *
T. Patrick Duncan...................................... 600 *
Robert H. Gidel........................................ 9,000(1) *
Robert E. Giles........................................ 7,012(2) *
Edward B. Kelley....................................... 1,000 *
Stanley J. Kraska, Jr. ................................ 4,000(2) *
J. Timothy Morris...................................... 0 *
James A. Schoff........................................ 1,000(1) *
Charles W. Wolcott..................................... 336,000(3) 1.60%
Scott A. Wolstein...................................... 1,006(1)(9) *
Lewis D. Friedland..................................... 158,383(4) *
Marc A. Simpson........................................ 90,434(5) *
David B. Warner........................................ 78,700(5) *
USAA Real Estate Company............................... 1,680,086(6) 7.99%
9830 Colonnade Boulevard, Suite 600
San Antonio, Texas 782302239
Morgan Stanley, Dean Witter, Discover & Co.
The Morgan Stanley Real Estate Special Situations
Fund II, L.P.
Morgan Stanley Asset Management Inc.................. 1,999,653(7) 9.51%
1585 Broadway
New York, New York 10036
ABKB/LaSalle Securities Limited Partnership and LaSalle
Advisors Limited Partnership......................... 1,502,578(8) 7.15%
100 East Pratt Street
Baltimore, MD 21202
Scott A. Wolstein and Developers Diversified Realty
Corporation.......................................... 9,401,817(9) 44.71%
34555 Chagrin Boulevard
Moreland Hills, OH 44022
All Trust Managers and executive officers as a group
(11 persons)......................................... 692,535(1)(2)(3)(4)(5) 3.29%
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- ---------------
* Ownership is less than 1% of outstanding Common Shares.
(1) Includes vested options to purchase 1,000 Common Shares.
(2) Includes vested options to purchase 4,000 Common Shares.
(3) Includes vested options to purchase 250,000 Common Shares.
(4) Includes vested options to purchase 135,000 Common Shares.
(5) Includes vested options to purchase 70,000 Common Shares.
(6) Based upon Amendment No. 4 to Schedule 13D filed jointly by United Services
Automobile Association ("USAA"), USAA Capital Corporation ("USAA CC"), and
USAA Real Estate Company ("Realco") on August 6, 1998. USAA is the sole
stockholder of USAA CC and USAA CC is the sole stockholder of Realco. Based
upon these relationships, USAA, USAA CC, and Realco have shared voting and
dispositive power over 1,680,086 Common Shares.
(7) Based upon Amendment No. 1 to Schedule 13D filed jointly by Morgan Stanley,
MSAM and Morgan Stanley Real Estate Special Situations Fund II, L.P. on
March 17, 1998 (the "MSAM Schedule 13D"), Morgan Stanley has sole voting and
dispositive power over 120,231 Common Shares and shared voting and
dispositive power over 1,879,422 Common Shares held by the investors for
whom MSAM acts as an investment advisor (the "MSAM Purchasers"). Pursuant to
separate investment management agreements between MSAM and MSRE, MSAM has
been granted voting and dispositive power with respect to the Common Shares
held by MSRE. MSAM has shared voting and dispositive power over 1,879,422
Common Shares held by the MSAM Purchasers and the Morgan Stanley Real Estate
Special Situations Fund II, L.P. has shared voting and dispositive power
over 652,415 of such Common Shares. Pursuant to separate investment
management agreements between MSAM and the MSAM Purchasers, MSAM has been
granted voting and dispositive power with respect to the Common Shares held
by each of the MSAM Purchasers.
(8) Based upon Amendment No. 2 to Schedule 13D filed jointly by ABKB and LaSalle
Advisors on February 10, 1998, (i) ABKB has sole voting and dispositive
power over 480,213 Common Shares and shared voting and dispositive power
with respect to 480,212 Common Shares; and (ii) LaSalle Advisors has shared
dispositive power with respect to 542,153 Common Shares.
(9) Based upon Amendment No. 5 to Schedule 13D filed jointly by Developers
Diversified Realty Corporation and Scott A. Wolstein on January 19, 1999,
DDR has sole voting and dispositive power over 9,401,817 Common Shares and
Mr. Wolstein has sole voting and dispositive power over 6 Common Shares. Mr.
Wolstein, as Chairman of the Board, President and Chief Executive Officer of
DDR, may be deemed to beneficially own all shares held by DDR.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During the fiscal year 1998, the Trust on occasion entered into unsecured
borrowings with DDR. Such borrowings bear a fixed rate of interest of 10.25%,
provide for quarterly payments of interest and are due thirty days after demand.
The highest amount outstanding under such borrowings from DDR during 1998 was
$23,510,000. The total amount of interest on such borrowings during 1998 was
$661,000 and the balance outstanding at December 31, 1998 was $14,058,000.
Effective October 8, 1998, DDR acquired an 89% limited partnership interest
and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a
limited partnership whose assets consist of two light industrial properties and
one office property totaling 290,991 nrsf located in Silver Springs, Maryland.
Several selling entities and affiliates thereof acquired the remaining
partnership interests. These partnership interests are convertible into DDR
common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's
limited partnership interest and, in consideration therefor, issued
approximately $16.1 million in Shares to DDR. The acquisition was deemed to be
effective as of October 8, 1998 and the purchase price included interest accrued
from such date. To date, an Equalization Agreement, which provides, among other
things, that DDR shall reimburse the Trust for certain dividend-based
distributions to the holders of
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33
partnership interests has not been executed. It is anticipated that the
Equalization Agreement will have an effective date in January 1999.
On November 20, 1998, the Trust purchased undeveloped land from DDR in the
amount of $2.3 million plus interest. The purchase was accomplished through the
issuance of shares to DDR in accordance with the Share Purchase Agreement dated
July 30, 1998. This land was then contributed by the Trust to a development
joint venture with a third party.
DDR also provided real estate management services. DDR is paid a
competitive rate for the management services, including, but not limited to,
tenant finish, leasing and reporting. For the year ended December 31, 1998 the
Trust paid $19,000 for such management services.
Certain real estate investments are managed by Quorum Real Estate Services
Corporation ("Quorum") an affiliate of a major shareholder of the Trust. Quorum
is paid competitive rates, for services, including, but not limited to,
construction, tenant finish, leasing and management. For the year ended December
31, 1998, management fees and leasing commissions paid by the Trust to Quorum
were $548,000 and $24,000, respectively. No such fees were paid by the Trust in
1997.
The Trust currently leases space to an individual serving as a Trust
Manager at competitive market rates. For the year ended December 31, 1998, this
Trust Manager paid $9,800 in lease payments to the Trust.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedule:
See Index to Consolidated Financial Statements and Financial Statement
Schedule appearing on page F-1 of this Form 10-K
(3) Exhibits:
EXHIBIT
NO. DOCUMENT
------- --------
2.1 -- Form of Amended and Restated Agreement and Plan of
Merger, dated as of June 30, 1997, by and between the
Trust and each of USAA Real Estate Income Investments I,
a California Limited Partnership, USAA Real Estate Income
Investments II Limited Partnership, USAA Income
Properties III Limited Partnership and USAA Income
Properties IV Limited Partnership (included as Annex I to
the Joint Proxy Statement/Prospectus of the Trust
included in Form S-4, Registration No. 333-31823)
2.2 -- Purchase Agreement dated as of July 2, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit Industrial Properties Limited Partnership, as
Seller, as amended by (i) First Amendment to Purchase
Agreement dated as of July 30, 1997, (ii) Second
Amendment to Purchase Agreement dated as of July 31,
1997, (iii) Third Amendment to Purchase Agreement dated
as of August 8, 1997, (iv) Fourth Amendment to Purchase
Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2,
1997 (incorporated herein by reference from Exhibit 2.1
to Form 8-K of the Trust dated October 3, 1997)
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34
EXHIBIT
NO. DOCUMENT
------- --------
2.3 -- Purchase Agreement dated as of July 2, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit 1995 Industrial Portfolio Limited Partnership, as
Seller, as amended by (i) First Amendment to Purchase
Agreement dated as of July 30, 1997, (ii) Second
Amendment to Purchase Agreement dated as of July 31,
1997, (iii) Third Amendment to Purchase Agreement dated
as of August 8, 1997, and (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997
(incorporated herein by reference from Exhibit 2.2 to
Form 8-K of the Trust dated October 3, 1997)
2.4 -- Purchase Agreement dated as of July 2, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit VV 1995 Industrial Portfolio Limited Partnership,
as Seller, as amended by (i) First Amendment to Purchase
Agreement dated as of July 30, 1997, (ii) Second
Amendment to Purchase Agreement dated as of July 31,
1997, (iii) Third Amendment to Purchase Agreement dated
as of July 31, 1997, (iv) Fourth Amendment to Purchase
Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2,
1997 (incorporated herein by reference from Exhibit 2.3
to Form 8-K of the Trust dated October 3, 1997)
2.5 -- Purchase Agreement dated as of June 30, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit VV Land 1995 Industrial Portfolio Limited
Partnership, as Seller, as amended by (i) First Amendment
to Purchase Agreement dated as of July 30, 1997, (ii)
Second Amendment to Purchase Agreement dated as of July
31, 1997, (iii) Third Amendment to Purchase Agreement
dated as of July 31, 1997, and (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997
(incorporated herein by reference from Exhibit 2.4 to
Form 8-K of the Trust dated October 3, 1997)
2.6 -- Purchase and Sale Agreement dated as of September 24,
1997 by and between Midway/Commerce Center Limited
Partnership, as Seller, and the Trust, as Buyer
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated October 3, 1997)
2.7 -- First Amendment to Purchase and Sale Agreement dated as
of October 22, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.2 to Form 8-K of the Trust dated
November 13, 1997)
2.8 -- Second Amendment to Purchase and Sale Agreement dated as
of October 31, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.3 to Form 8-K of the Trust dated
November 13, 1997)
2.9 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments I, a California Limited
Partnership (incorporated herein by reference from
Exhibit 2.1 to Form 8-K of the Trust dated January 20,
1998)
2.10 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments II Limited Partnership
(incorporated herein by reference from Exhibit 2.2 to
Form 8-K of the Trust dated January 20, 1998)
2.11 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments III Limited Partnership
(incorporated herein by reference from Exhibit 2.3 to
Form 8-K of the Trust dated January 20, 1998)
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EXHIBIT
NO. DOCUMENT
------- --------
2.12 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments IV Limited Partnership
(incorporated herein by reference from Exhibit 2.4 to
Form 8-K of the Trust dated January 20, 1998)
2.13 -- Agreement and Plan of Merger by and among the Trust,
Developers Diversified Realty Corporation ("DDR") and DDR
Office Flex Corporation ("DDR Flex") dated July 30, 1998
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated July 30, 1998)
*3.1 -- Third Amended and Restated Declaration of Trust
*3.2 -- First Amendment to the Third Amended and Restated
Declaration of Trust
*3.3 -- Second Amendment to the Third Amended and Restated
Declaration of Trust
*3.4 -- Third Amendment to the Third Amended and Restated
Declaration of Trust
*3.5 -- Fifth Amended and Restated Bylaws
*3.6 -- Amendment to the Fifth Amended and Restated Bylaws
3.7 -- Statement of Designation of Series A Preferred Shares of
Beneficial Interest of the Trust dated July 30, 1998
(incorporated herein by reference from Exhibit 3.1 to
Form 8-K of the Trust dated July 30, 1998)
4.1 -- Indenture dated November 15, 1985, by and between the
Trust and IBJ Schroder Bank & Trust Company (incorporated
herein by reference from Exhibit 10.4 to Form S-4 of
American Industrial Properties REIT, Inc. ("AIP Inc.")
dated March 16, 1994; Registration No. 33-74292)
4.2 -- Form of Common Share Certificate (incorporated herein by
reference from Exhibit 4.2 to Amendment No. 3 to Form S-4
of the Trust filed October 28, 1997; Registration No.
333-31823)
10.1 -- Form of Indemnification Agreement (incorporated by
reference from Exhibit 10.1 to Form S-4 of the Trust
dated July 22, 1997; Registration No. 333-31823)
10.2 -- Employee and Trust Manager Incentive Share Plan
(incorporated by reference from Exhibit 10.2 to Form S-4
of the Trust dated July 22, 1997; Registration No.
333-31823)
10.3 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB/LaSalle Securities
Limited Partnership ("ABKB") as Agent for and for the
benefit of a particular client (incorporated herein by
reference from Exhibit 10.7 to Form 8-K of the Trust
dated July 22, 1997)
10.4 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB as Agent for and for
the benefit of a particular client (incorporated herein
by reference from Exhibit 10.8 to Form 8-K of the Trust
dated July 22, 1997)
10.5 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB/LaSalle Advisors
Limited Partnership ("LaSalle") as Agent for and for the
benefit of a particular client (incorporated herein by
reference from Exhibit 10.9 to Form 8-K of the Trust
dated July 22, 1997)
10.6 -- Registration Rights Agreement dated as of July 10, 1997,
by and between the Trust, ABKB as Agent for and for the
benefit of particular clients and LaSalle Advisors
Limited Partnership as Agent for and for the benefit of a
particular client (incorporated herein by reference from
Exhibit 10.6 to Form 8-K of the Trust dated July 22,
1997)
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36
EXHIBIT
NO. DOCUMENT
------- --------
10.7 -- Common Share Purchase Agreement dated as of June 20,
1997, by and among the Trust, MS Real Estate Special
Situations, Inc. ("MSRE") and Morgan Stanley Asset
Management, Inc. ("MSAM") as agent and attorney-in-fact
for specified clients (the "MSAM") (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 22, 1997)
10.8 -- Registration Rights Agreement dated as of June 20, 1997,
by and among the Trust, MSRE and MSAM on behalf of the
MSAM Purchaser (incorporated herein by reference from
Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997)
10.9 -- Renewal, Extension, Modification and Amendment Agreement
dated February 26, 1997, executed by the Trust in favor
of USAA Real Estate Company ("Realco") (incorporated
herein by reference from Exhibit 10.1 to Form 8-K of the
Trust dated March 4, 1997)
10.10 -- Share Purchase Agreement dated as of December 20, 1996,
by and among the Trust, Realco and AIP Inc. (incorporated
herein by reference from Exhibit 99.7 to Form 8-K of the
Trust dated December 23, 1996)
10.11 -- Share Purchase Agreement dated as of December 13, 1996,
by and between the Trust and Realco (incorporated herein
be reference from Exhibit 99.4 to Form 8-K of the Trust
dated December 23, 1996)
10.12 -- Registration Rights Agreement dated as of December 20,
1996, by and between the Trust and Realco, as amended
(incorporated herein by reference from Exhibit 99.9 to
Form 8-K of the Trust dated December 23, 1996)
10.13 -- Registration Rights Agreement dated as of December 19,
1996, by and between the Trust and Realco (incorporated
herein by reference from Exhibit 99.8 to Form 8-K of the
Trust dated December 23, 1996)
10.14 -- 401(k) Retirement and Profit Sharing Plan (incorporated
herein by reference from Exhibit 10.5 to Amendment No. 1
to Form S-4 of AIP Inc. dated March 4, 1994; Registration
No. 33-74292)
10.15 -- Amendments to 401(k) Retirement and Profit Sharing Plan
(incorporated herein by reference from Exhibit 10.4 to
Form 10-K of the Trust dated March 27, 1995)
10.16 -- Settlement Agreement by and between the Trust, Patapsco
#1 Limited Partnership, Patapsco #2 Limited Partnership,
The Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company (U.S.A.) dated as of
May 22, 1996 (incorporated herein by reference from
Exhibit 99.1 to Form 8-K of the Trust dated May 22, 1996)
10.17 -- Agreement and Assignment of Partnership Interest, Amended
and Restated Agreement and Certificate of Limited
Partnership and Security Agreement for Patapsco
Center -- Linthicum Heights, Maryland (incorporated
herein by reference from Exhibit 10.8 to Amendment No. 2
to Form S-4 of AIP Inc. dated March 4, 1994; Registration
No. 33-74292)
10.18 -- Note dated November 15, 1994 in the original principal
amount of $12,250,000 with AIP Properties #1 L.P. as
Maker and AMRESCO Capital Corporation as Payee
(incorporated herein by reference from Exhibit 99.1 to
Form 8-K of the Trust dated November 22, 1994)
10.19 -- Mortgage, Deed of Trust and Security Agreement dated
November 15, 1994 between AIP Properties #1 L.P. and
AMRESCO Capital Corporation (incorporated herein by
reference from Exhibit 99.20 Form 8-K of the Trust dated
November 22, 1994)
34
37
EXHIBIT
NO. DOCUMENT
------- --------
10.20 -- Loan Modification Agreement modifying the Note dated
November 15, 1994 in the original principal amount of
$12,250,000 (incorporated herein by reference from
Exhibit 99.2 to Form 8-K of the Trust dated June 23,
1995)
10.21 -- Note dated November 15, 1994 in the original principal
amount of $2,150,000 with AIP Properties #2 L.P. as Maker
and AMRESCO Capital Corporation as Payee (incorporated
herein by reference from Exhibit 99.3 to Form 8-K of the
Trust dated November 22, 1994)
10.22 -- Mortgage, Deed of Trust and Security Agreement dated
November 15, 1994 between AIP Properties #2 L.P. and
AMRESCO Capital Corporation (incorporated herein by
reference from Exhibit 99.4 to Form 8-K of the Trust
dated November 22, 1994)
10.23 -- Loan Modification Agreement modifying the Note dated
November 15, 1994 in the original principal amount of
$2,250,000 (incorporated herein by reference from Exhibit
99.1 to Form 8-K of the Trust dated June 23, 1995)
10.24 -- Promissory Note dated November 25, 1996, by and between
AIP Inc. and Realco (incorporated herein by reference
from Exhibit No. 99.5 to Form 8-K of the Trust dated
December 23, 1996)
10.25 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (Huntington Drive Center)
(incorporated herein by reference from Exhibit 99.1 to
Form 8-K of the Trust dated November 20, 1996)
10.26 -- Note dated November 15, 1996 in the original principal
amount of $4,575,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Huntington Drive Center ) (incorporated herein by
reference from Exhibit 99.2 to Form 8-K of the Trust
dated November 20, 1996)
10.27 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (Patapsco Industrial Center)
(incorporated herein by reference from Exhibit 99.3 to
Form 8-K of the Trust dated November 20, 1996)
10.28 -- Note dated November 15, 1996 in the original principal
amount of $3,112,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Patapsco Industrial Center) (incorporated herein by
reference from Exhibit 99.4 to Form 8-K of the Trust
dated November 20, 1996)
10.29 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (Woodlake Distribution
Center) (incorporated herein by reference from Exhibit
99.5 to Form 8-K of the Trust dated November 20, 1996)
10.30 -- Note dated November 15, 1996 in the original principal
amount of $1,537,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Woodlake Distribution Center) (incorporated herein by
reference from Exhibit 99.6 to Form 8-K of the Trust
dated November 20, 1996)
10.31 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (all Texas properties except
Woodlake) (incorporated herein by reference from Exhibit
99.7 to Form 8-K of the Trust dated November 20, 1996)
35
38
EXHIBIT
NO. DOCUMENT
------- --------
10.32 -- Note dated November 15, 1996 in the original principal
amount of $1,162,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Meridian Street Warehouse) (incorporated herein by
reference from Exhibit 99.8 to Form 8-K of the Trust
dated November 20, 1996)
10.33 -- Note dated November 15, 1996 in the original principal
amount of $2,775,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Beltline Business Center) (incorporated herein by
reference from Exhibit 99.9 to Form 8-K of the Trust
dated November 20, 1996)
10.34 -- Note dated November 15, 1996 in the original principal
amount of $3,375,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Plaza South) (incorporated herein by reference from
Exhibit 99.10 to Form 8-K of the Trust dated November 20,
1996)
10.35 -- Note dated November 15, 1996 in the original principal
amount of $2,100,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Commerce North Park) (incorporated herein by reference
from Exhibit 99.11 to Form 8-K of the Trust dated
November 20, 1996)
10.36 -- Note dated November 15, 1996 in the original principal
amount of $2,850,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Gateway 5 & 6) (incorporated herein by reference from
Exhibit 99.12 to Form 8-K of the Trust dated November 20,
1996)
10.37 -- Note dated November 15, 1996 in the original principal
amount of $5,175,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Northgate II) (incorporated herein by reference from
Exhibit 99.13 to Form 8-K of the Trust dated November 20,
1996)
10.38 -- Note dated November 15, 1996 in the original principal
amount of $1,327,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Westchase Park) (incorporated herein by reference from
Exhibit 99.4 to Form 8-K of the Trust dated November 20,
1996)
10.39 -- Bonus and Severance Agreement dated March 13, 1996, by
and between the Trust and Charles W. Wolcott
(incorporated herein by reference from Exhibit 10.12 to
Form 10-K of the Trust for the year ended December 31,
1996)
10.40 -- Bonus and Severance Agreement dated March 13, 1996, by
and between the Trust and Marc A. Simpson (incorporated
herein by reference from Exhibit 10.13 to Form 10-K of
the Trust for the year ended December 31, 1996)
10.41 -- Bonus and Severance Agreement dated March 13, 1996, by
and between the Trust and David B. Warner (incorporated
herein by reference from Exhibit 10.14 to Form 10-K of
the Trust for the year ended December 31, 1996)
10.42 -- Amendment No. 1 to Share Purchase Agreement dated as of
December 13, 1996 by and between the Trust and Realco
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K of the Trust dated March 4, 1997)
10.44 -- Common Share Purchase Agreement dated as of January 29,
1998, by and between the Trust and Praedium II Industrial
Associates LLC ("Praedium") (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.45 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
36
39
EXHIBIT
NO. DOCUMENT
------- --------
10.46 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K of the Trust
dated January 29, 1998)
10.47 -- Contribution and Exchange Agreement dated as of September
25, 1997 among Shidler West Investment Corporation,
AIP-SWAG Operating Partnership, L.P. and the Trust
(incorporated herein by reference from Exhibit 99.1 to
Form 8-K of the Trust dated October 3, 1997)
10.48 -- Assignment and Assumption of Purchase Agreements dated as
of October 3, 1997 between Shidler West Investment
Corporation and AIP-SWAG Operating Partnership, L.P.
(incorporated herein by reference from Exhibit 99.2 to
Form 8-K of the Trust dated October 3, 1997)
10.49 -- Amended and Restated Agreement of Limited Partnership of
AIP-SWAG Operating Partnership, L.P. dated as of October
3, 1997 (incorporated herein by reference from Exhibit
99.3 to Form 8-K of the Trust dated October 3, 1997)
10.50 -- Warrant Agreement dated as of October 3, 1997 between the
Trust and Shidler West Acquisition Company, LLC
(incorporated herein by reference from Exhibit 99.4 to
Form 8-K of the Trust dated October 3, 1997)
10.51 -- Warrant Agreement dated as of October 3, 1997 between the
Trust and AG Industrial Investors, L.P. (incorporated
herein by reference from Exhibit 99.5 to Form 8-K of the
Trust dated October 3, 1997)
10.52 -- Registration Rights Agreement dated as of October 3, 1997
between the Trust and Shidler West Acquisition Company,
LLC (incorporated herein by reference from Exhibit 99.6
to Form 8-K of the Trust dated October 3, 1997)
10.53 -- Registration Rights Agreement dated as of October 3, 1997
between the Trust and AG Industrial Investors, L.P.
(incorporated herein by reference from Exhibit 99.7 to
Form 8-K of the Trust dated October 3, 1997)
10.54 -- Credit Agreement dated as of October 3, 1997 between the
Trust and AIP-SWAG Operating Partnership, L.P., as
Borrower, and Prudential Securities Credit Corporation,
as Lender (incorporated herein by reference from Exhibit
99.9 to Form 8-K of the Trust dated October 3, 1997)
10.55 -- Credit Agreement dated as of October 3, 1997 between the
Trust and AIP-SWAG Operating Partnership, L.P., as
Borrower, and Prudential Securities Credit Corporation,
as Lender (incorporated herein by reference from Exhibit
99.8 to Form 8-K of the Trust dated October 3, 1997)
10.56 -- Common Share Purchase dated as of January 29, 1998, by
and between the Trust and Praedium (incorporated herein
by reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.57 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
10.58 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K dated January
29, 1998)
37
40
EXHIBIT
NO. DOCUMENT
------- --------
10.59 -- Contract of Sale by and between Nationwide Life Insurance
Company and ALCU Investments, Inc. (incorporated herein
by reference from Exhibit 10.1 to Form 8-K/A of the Trust
dated February 11, 1998)
10.60 -- Assignment of Contract of Sale dated as of February 11,
1998, by and among ALCU Investments, Ltd., AIP Operating,
L.P. and the Trust (incorporated herein by reference from
Exhibit 10.2 to Form 8-K/A of the Trust dated February
11, 1998)
10.61 -- Contribution and Exchange Agreement dated as of January
29, 1998, by and among ALCU Investments, Ltd., AIP
Operating, L.P., and the Trust (incorporated herein by
reference from Exhibit 10.3 to Form 8-K/A of the Trust
dated February 11, 1998)
10.62 -- Amended and Restated Agreement of Limited Partnership of
AIP Operating, L.P. dated as of February 11, 1998, by and
among the Trust, General Electric Capital Corporation,
and ALCU Investments, Ltd. (incorporated herein by
reference from Exhibit 10.4 to Form 8-K/A of the Trust
dated February 11, 1998)
10.63 -- Promissory Note by and among the Trust, AIP Operating,
L.P., and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.5 to
Form 8-K/A of the Trust dated February 11, 1998)
10.64 -- First Amendment to Credit Agreement dated as of February
11, 1998, by and among the Trust, AIP Operating, L.P.,
and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K/A of the Trust dated February 11, 1998)
*10.65 -- Industrial Property Portfolio Agreement of Purchase and
Sale by and between Spieker Northwest, Inc. and the Trust
*10.66 -- Purchase and Sale Agreement by and between North Austin
Office, Ltd. and the Trust
10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions
by and between CM Property Management, Inc. and the Trust
dated July 15, 1997 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K/A of the Trust dated March
23, 1998)
10.68 -- Purchase and Sale Agreement and Escrow Instructions by
and between Corporex Properties of Tampa, Inc.,
CFX-Westshore Corporation, and the Trust (incorporated
herein by reference from Exhibit 10.2 to From 8-K/A of
the Trust dated March 23, 1998)
10.69 -- Amendment to Purchase and Sale Agreement and Escrow
Instructions by and between Corporex Properties of Tampa,
Inc., CPX-Westshore Corporation, and the Trust
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K/A of the Trust dated March 23, 1998)
10.70 -- Purchase and Sale Agreement between the Equitable Life
Assurance Society of the United States and the Trust
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K/A of the Trust dated March 23, 1998)
10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P.
and the Trust (incorporated herein by reference from
Exhibit 10.5 to Form 8-K/A of the Trust dated March 23,
1998)
10.72 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Charles W. Wolcott and the
Trust (incorporated herein by reference from Exhibit 10.1
to Form 8-K of the Trust dated April 29, 1998)
38
41
EXHIBIT
NO. DOCUMENT
------- --------
10.73 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Marc A. Simpson and the
Trust (incorporated herein by reference from Exhibit 10.2
to Form 8-K of the Trust dated April 29, 1998)
10.74 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between David B. Warner and the
Trust (incorporated herein by reference from Exhibit 10.3
to Form 8-K of the Trust dated April 29, 1998)
10.75 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Lewis D. Friedland and the
Trust (incorporated herein be reference from Exhibit 10.4
to Form 8-K of the Trust dated April 29, 1998)
10.76 -- Amendments to the Trust's Employee and Trust Manager
Incentive Share Plan (incorporated herein by reference
from Exhibit 10.5 to Form 8-K of the Trust dated April
29, 1998)
10.77 -- Share Purchase Agreement by and between the Trust and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998)
10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated July 30, 1998)
10.79 -- Second Amended and Restated Registration Rights Agreement
by and among the Trust, MSRE and MSAM dated July 30, 1998
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K of the Trust dated July 30, 1998)
10.80 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust and Realco July 30, 1998
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K of the Trust dated July 30, 1998)
10.81 -- Registration Rights Agreement by and between the Trust
and DDR dated July 30, 1998 (incorporated herein by
reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 30, 1998)
10.82 -- First Amended and Restated Registration Rights Agreement
by and between the Trust and Praedium dated July 30, 1998
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K of the Trust dated July 30, 1998)
10.83 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust, ABKB and LaSalle dated July 30,
1998 (incorporated herein by reference from Exhibit 10.7
to Form 8-K of the Trust dated July 30, 1998)
10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.8 to Form 8-K of the Trust dated July 30,
1998)
10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.9 to Form 8-K of the Trust dated July 30,
1998)
10.86 -- Letter Agreement by and between Praedium and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.10 to Form 8-K of the Trust dated July 30,
1998)
10.87 -- Letter Agreement by and between Realco and DDR dated July
30, 1998 (incorporated herein by reference from Exhibit
10.11 to Form 8-K of the Trust dated July 30, 1998)
39
42
EXHIBIT
NO. DOCUMENT
------- --------
10.88 -- Amendment No. One, dated as of September 14, 1998, to the
Share Purchase Agreement, dated as of July 30, 1998,
between the Trust and DDR (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated September 16, 1998)
10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998,
by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.90 -- Amendment to Purchase and Sale Agreement dated June 19,
1998, by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.2 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.91 -- 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 Flex (incorporated herein by reference from
Exhibit 10.1 to Form 8-K of the Trust dated October 14,
1998)
10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by
and between Battlefield/Virginia, Inc. and DDR Flex
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K of the Trust dated October 14, 1998)
10.93 -- 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 Flex (incorporated herein by reference from
Exhibit 10.3 to Form 8-K of the Trust dated October 14,
1998)
10.94 -- Amendment to Purchase and Sale Agreement dated July 8,
1998, by and between Battlefield/Virginia, Inc., and DDR
Flex (incorporated herein by reference from Exhibit 10.4
to Form 8-K of the Trust dated October 14, 1998)
10.95 -- 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 Flex (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated October 14, 1998)
10.96 -- Second Amendment to Purchase and Sale Agreement dated
September 30, 1998, by and between Battlefield/Virginia,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.6 to Form 8-K of the Trust dated October 14,
1998)
10.97 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.7 to
Form 8-K of the Trust dated October 14, 1998)
10.98 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe B, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.8 to
Form 8-K of the Trust dated October 14, 1998)
10.99 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe C, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.9 to
Form 8-K of the Trust dated October 14, 1998)
10.100 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier Tech, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.10 to
Form 8-K of the Trust dated October 14, 1998)
*21.1 -- Listing of Subsidiaries
40
43
EXHIBIT
NO. DOCUMENT
------- --------
*23.1 -- Consent of Ernst & Young LLP
*24.1 -- Power of Attorney (Included on signature page hereto)
*27.1 -- Financial Data Schedule
- ---------------
* Filed herewith
(b) Reports on Form 8-K:
The following information summarizes the events reported on Form 8-K during
the quarter ended December 31, 1998:
(1) Current Report on Form 8-K/A filed with the Commission on October
2, 1998 amending Form 8-K filed with the Commission on August 5,
1998;
(2) Current Report on Form 8-K filed with the Commission on October
23, 1998;
(3) Current Report on Form 8-K filed with the Commission on October
29, 1998;
(4) Current Report on Form 8-K filed with the Commission on November
24, 1998;
(5) Current Report on Form 8-K/A filed with the Commission on December
28, 1998 amending Form 8-K filed with the Commission on October
29, 1998.
41
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 1999.
AMERICAN INDUSTRIAL PROPERTIES REIT
/s/ CHARLES W. WOLCOTT
--------------------------------------
Charles W. Wolcott,
Trust Manager, President and Chief
Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Each of the
undersigned officers and Trust Managers of the registrant hereby appoints
Charles W. Wolcott or Marc A. Simpson, either of whom may act, his true and
lawful attorneys-in-fact with full power to sign for him and in his name in the
capacities indicated below and to file any and all amendments to the
registration statement filed herewith, making such changes in the registration
statement as the registrant deems appropriate, and generally to do all such
things in his name and behalf in his capacity as an officer and director to
enable the registrant to comply with the provisions of the Securities Act of
1934 and all requirements of the Securities and Exchange Commission.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ ALBERT T. ADAMS Trust Manager March 30, 1999
- -----------------------------------------------------
Albert T. Adams
/s/ WILLIAM H. BRICKER Trust Manager March 30, 1999
- -----------------------------------------------------
William H. Bricker
/s/ T. PATRICK DUNCAN Trust Manager March 30, 1999
- -----------------------------------------------------
T. Patrick Duncan
/s/ ROBERT E. GILES Trust Manager March 30, 1999
- -----------------------------------------------------
Robert E. Giles
/s/ EDWARD B. KELLEY Trust Manager March 30, 1999
- -----------------------------------------------------
Edward B. Kelley
/s/ J. TIMOTHY MORRIS Trust Manager March 30, 1999
- -----------------------------------------------------
J. Timothy Morris
42
45
SIGNATURES TITLE DATE
---------- ----- ----
/s/ CHARLES W. WOLCOTT Trust Manager, President and March 30, 1999
- ----------------------------------------------------- Chief Executive Officer
Charles W. Wolcott (Principal Executive
Officer)
/s/ MARC A. SIMPSON Senior Vice President and March 30, 1999
- ----------------------------------------------------- Chief Financial Officer,
Marc A. Simpson Secretary and Treasurer
(Principal Accounting and
Financial Officer)
43
46
AMERICAN INDUSTRIAL PROPERTIES REIT
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
PAGE
----
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996...................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... F-6
Notes to Consolidated Financial Statements................ F-8
Financial Statement Schedule:
Schedule III -- Consolidated Real Estate and Accumulated
Depreciation........................................... F-25
Notes to Schedule III..................................... F-28
All other financial statements and schedules not listed have been omitted
because the required information is either included in the Consolidated
Financial Statements and the Notes thereto as included herein or is not
applicable or required.
F-1
47
REPORT OF INDEPENDENT AUDITORS
Trust Managers and Shareholders
American Industrial Properties REIT:
We have audited the accompanying consolidated balance sheets of American
Industrial Properties REIT (the "Trust") as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements and schedule are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Industrial Properties REIT at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Dallas, Texas
February 10, 1999,
except for Note 19, as to which the date is
March 26, 1999
F-2
48
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
Property Revenues
Rents............................................... $ 39,559 $ 9,367 $ 8,592
Tenant Reimbursements............................... 8,798 2,834 2,728
----------- ---------- ----------
Total Property Revenues..................... 48,357 12,201 11,320
----------- ---------- ----------
Property Expenses
Property taxes...................................... 4,980 1,607 1,421
Property management fees............................ 1,474 418 430
Utilities........................................... 2,673 480 476
General operating................................... 2,489 891 849
Repairs and maintenance............................. 2,218 524 529
Other property operating expenses................... 2,212 395 317
----------- ---------- ----------
Total Property Expenses..................... 16,046 4,315 4,022
----------- ---------- ----------
Income from Property Operations.................. 32,311 7,886 7,298
Administrative expenses:
Trust administration and overhead................ (3,729) (2,065) (1,830)
Litigation, refinancing and proxy costs.......... -- (439) (1,548)
Depreciation........................................ (7,928) (2,774) (2,577)
Amortization........................................ (455) (383) (332)
Interest Income..................................... 705 546 158
Interest on notes payable........................... (869) (1,462) (4,003)
Interest on mortgages payable....................... (14,270) (4,316) (1,898)
Provision for possible losses on real estate........ (10,060) -- --
----------- ---------- ----------
Loss from operations................................ (4,295) (3,007) (4,732)
Minority interests in consolidated subsidiaries..... 28 -- --
Gain on sales of real estate........................ -- 2,163 177
----------- ---------- ----------
Loss before extraordinary items..................... (4,267) (844) (4,555)
Extraordinary items:
Gain (loss) on extinguishment of debt............ (23) 2,643 5,810
Provision for change in control costs............ (5,780) -- --
----------- ---------- ----------
NET INCOME (LOSS)..................................... $ (10,070) $ 1,799 $ 1,255
=========== ========== ==========
PER SHARE DATA (BASIC AND DILUTED)
Loss before extraordinary items..................... $ (0.35) $ (0.26) $ (2.50)
Extraordinary gain (loss)........................... (0.47) 0.80 3.20
----------- ---------- ----------
Net income (loss)................................... $ (0.82) $ 0.54 $ 0.70
=========== ========== ==========
Distributions paid.................................. $ 0.78 $ -- $ 0.20
=========== ========== ==========
Weighted average Shares outstanding................. 12,251,591 3,316,788 1,821,648
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
49
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
DECEMBER 31,
-------------------
1998 1997
-------- --------
Real estate:
Held for investment....................................... $476,641 $265,312
Held for sale............................................. 28,491 --
-------- --------
Total real estate......................................... 505,132 265,312
Accumulated depreciation.................................. (33,449) (25,521)
-------- --------
Net real estate........................................... 471,683 239,791
Cash and cash equivalents:
Unrestricted.............................................. 6,145 11,683
Restricted................................................ 5,422 2,121
-------- --------
Total cash and cash equivalents........................... 11,567 13,804
Other assets, net........................................... 17,080 4,800
-------- --------
Total Assets.............................................. $500,330 $258,395
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................... $252,481 $114,226
Unsecured notes payable to related parties................ 14,058 7,200
Accrued interest.......................................... 1,477 269
Accounts payable, accrued expenses and other
liabilities............................................ 17,651 7,231
Tenant security deposits.................................. 2,138 1,254
-------- --------
Total Liabilities................................. 287,805 130,180
-------- --------
Minority interests.......................................... 6,946 6,444
Shareholders' Equity:
Shares of beneficial interest, $0.10 par value; authorized
500,000,000
Shares; issued and outstanding 17,201,591 shares at 1998
and 9,817,171
Shares at 1997............................................ 1,721 982
Additional paid-in capital................................ 330,031 224,989
Less 165,886 shares in treasury at 1998 and 42,103 shares
at 1997, at cost....................................... (2,226) (626)
Accumulated distributions................................. (68,756) (58,456)
Accumulated deficit....................................... (55,191) (45,118)
-------- --------
Total Shareholders' Equity........................ 205,579 121,771
-------- --------
Total Liabilities and Shareholders' Equity........ $500,330 $258,395
======== ========
The accompanying notes are an integral part of these financial statements.
F-4
50
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
SHARES OF BENEFICIAL
INTEREST ADDITIONAL RETAINED TREASURY STOCK
--------------------- PAID-IN EARNINGS -------------------
NUMBER(A) AMOUNT CAPITAL (DEFICIT) NUMBER(A) AMOUNT TOTAL
----------- ------- ---------- --------- --------- ------- --------
Balance at January 1,
1996................... 1,815,080 $ 182 $125,331 $(106,265) -- $ -- $ 19,248
Issuance of additional
Shares.............. 184,920 18 2,525 -- -- -- 2,543
Net income............. -- -- -- 1,255 -- -- 1,255
Distributions to
shareholders........ -- -- -- (363) -- -- (363)
---------- ------ -------- --------- ------- ------- --------
Balance at December 31,
1996................... 2,000,000 200 127,856 (105,373) -- -- 22,683
Issuance of additional
Shares.............. 7,817,171 782 97,133 -- -- -- 97,915
Repurchase of Shares... -- -- -- -- 42,103 (626) (626)
Net income............. -- -- -- 1,799 -- -- 1,799
---------- ------ -------- --------- ------- ------- --------
Balance at December 31,
1997................... 9,817,171 982 224,989 (103,574) 42,103 (626) 121,771
Issuance of additional
Shares.............. 7,384,420 739 105,042 -- -- -- 105,781
Repurchase of Shares... -- -- -- -- 123,783 (1,600) (1,600)
Net income............. -- -- -- (10,070) -- -- (10,070)
Distributions to
shareholders........ -- -- -- (10,303) -- -- (10,303)
---------- ------ -------- --------- ------- ------- --------
Balance at December 31,
1998................... 17,201,591 $1,721 $330,031 $(123,947) 165,886 $(2,226) $205,579
========== ====== ======== ========= ======= ======= ========
The accompanying notes are an integral part of these financial statements.
F-5
51
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(10,070) $ 1,799 $ 1,255
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gains on extinguishment of debt........................ -- (2,643) (5,810)
Change in control costs................................ 2,960 -- --
Losses on sales of real estate......................... -- (2,163) (177)
Provisions for possible losses on real estate.......... 10,060 -- --
Minority interest in consolidated subsidiaries......... (28) -- --
Depreciation........................................... 7,928 2,774 2,577
Amortization of deferred financing costs............... 584 195 70
Other amortization..................................... 168 383 332
Issuance of shares to Trust Managers................... 312 115 --
Interest accrued assuming future conversion of debt to
equity............................................... -- 1,022 --
Changes in operating assets and liabilities:
Other assets and restricted cash..................... (13,374) (2,337) (376)
Accounts payable, other liabilities and tenant
security deposits................................. 3,213 147 351
Accrued interest..................................... 1,208 (68) (2,986)
-------- -------- --------
Net Cash Provided By (Used In) Operating
Activities...................................... 2,961 (776) (4,764)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate.................... -- 7,129 6,545
Capitalized expenditures.................................. (7,540) (1,911) (1,372)
Acquisition of real estate and related working capital.... (172,133) (67,116) --
-------- -------- --------
Net Cash Provided By (Used In) Investing
Activities...................................... (179,673) (61,898) 5,173
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage notes payable............ (49,163) (6,340) (31,832)
Proceeds from mortgage financing.......................... 202,436 44,001 26,453
Payment of deferred loan costs............................ (1,852) (169) (894)
Proceeds from sale of shares.............................. 28,578 33,481 2,543
Purchase of treasury shares............................... (1,600) (626) --
Distributions to shareholders............................. (6,880) -- (363)
Distributions to limited partnership unit holders......... (345) -- --
-------- -------- --------
Net Cash (Used In) Provided By Financing Activities......... 171,174 70,347 (4,093)
-------- -------- --------
Net (Decrease) Increase in Cash and Cash Equivalents........ (5,538) 7,673 (3,684)
Cash and Cash Equivalents at Beginning of Year.............. 11,683 4,010 7,694
-------- -------- --------
Cash and Cash Equivalents at End of Year.................... $ 6,145 $ 11,683 $ 4,010
======== ======== ========
Cash Paid for Interest...................................... $ 13,634 $ 4,629 $ 8,817
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-6
52
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property Operations. During 1998, the Trust acquired six properties from
DDR in exchange for 2,207,618 shares valued at $34.2 million. In addition, with
the acquisition of other properties, the Trust issued $0.9 million in limited
partnership units and assumed $34.9 million in mortgage notes payable.
During 1997, in connection with the merger with four real estate limited
partnerships, the Trust issued Shares valued at $57.9 million and $3.7 million
in limited partnership units. The Trust also assumed $31.2 million in mortgage
notes payable and $7.2 million in unsecured notes payable. In addition, with the
acquisition of other properties, the Trust issued $2.7 million in limited
partnership units.
Debt Conversion. During 1998, the Trust issued $42.7 million of Shares to
DDR in exchange for unsecured notes payable to DDR. During 1997, the Trust
issued $5.5 million of Shares to Realco in exchange for unsecured notes payable
to Realco.
F-7
53
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
General. American Industrial Properties REIT (the "Trust") is a
self-administered Texas real estate investment trust which, as of December 31,
1998, directly or indirectly owns and operates 65 commercial real estate
properties consisting of 52 industrial properties, 11 office buildings and 2
retail properties. The Trust currently has one industrial property under
development. The Trust was formed September 26, 1985 and commenced operations on
November 27, 1985.
Principles of Consolidation. The consolidated financial statements of the
Trust include the accounts of American Industrial Properties REIT and its
wholly-owned subsidiaries and controlled subsidiaries. Significant intercompany
balances and transactions have been eliminated in consolidation.
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 amounts reported in the financial
statements and accompanying notes. Actual results may differ significantly from
such estimates and assumptions.
Real Estate. The Trust carries its real estate held for investment at
depreciated cost unless the asset is determined to be impaired. Real estate
classified as held for sale is carried at lower of depreciated cost or fair
value less costs to sell. The Trust records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the expected undiscounted cash flows estimated to be
generated by those assets are less than the related carrying amounts. If an
asset held for investment is determined to be impaired, the impairment would be
measured based upon the excess of the asset's carrying value over the fair
value. In addition, the Trust records impairment losses on assets held for sale
when the estimated sales proceeds, after estimated selling costs, are less than
the carrying value of the related asset (see Note 2).
Property improvements which extend the useful life are capitalized while
maintenance and repairs are expensed as incurred. Depreciation of buildings and
capital improvements is computed using the straight-line method over forty
years. Depreciation of tenant improvements is computed using the straight-line
method over the lease term, but not to exceed ten years.
Interest is capitalized during the period in which real estate assets are
undergoing construction or major renovation. For the year ended December 31,
1998 the Trust capitalized $78,000 in interest.
Cash and Cash Equivalents. Cash equivalents include demand deposits and all
highly liquid instruments purchased with an original maturity of three months or
less. Restricted cash amounts reflect escrow deposits held by third parties for
the payment of taxes and insurance and reserves held by third parties for
property repairs or tenant improvements.
Other Assets. Other assets primarily consist of direct costs related to
potential property acquisitions, deferred rents receivable, deferred commissions
and loan fees. Potential property acquisition costs are capitalized and
depreciated on a straight-line basis over the life of the asset when the asset
is acquired. Leasing commissions are capitalized and amortized on a
straight-line basis over the life of the lease. Loan fees are capitalized and
amortized to interest expense on a level yield basis over the term of the
related loan.
Rents and Tenant Reimbursements. Rental income, including contractual rent
increases or delayed rent starts, is recognized on a straight-line basis over
the lease term. The Trust has recorded deferred rent receivable (representing
the excess of rental revenue recognized on a straight-line basis over actual
rents received under the applicable lease provisions) of $1,398,000 and $525,000
at December 31, 1998 and 1997, respectively.
F-8
54
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Several tenants in the Trust's retail properties are also required to pay
as rent a percentage of their gross sales volume, to the extent such percentage
rent exceeds their base rents. Such percentage rents amounted to $172,000,
$94,000 and $154,000 for the years ended December 31, 1998, 1997, and 1996,
respectively. In addition to paying base and percentage rents, most tenants are
required to reimburse the Trust for operating expenses in excess of a negotiated
base amount.
Income Tax Matters. The Trust operates as a real estate investment trust
("REIT") for federal income tax purposes. Under the REIT provisions, the Trust
is required to distribute 95% of REIT taxable income and is allowed a deduction
for distributions paid during the year. The Trust had taxable income for the
year ended December 31, 1997, a taxable loss for the year ended December 31,
1996 and expects to report taxable income for the year ending December 31, 1998.
The Trust has a net operating loss carryforward from 1997 and prior years
of approximately $34,301,000. The net operating losses are subject to
restrictions on their use due to an ownership change occurring in 1997, and as
such, can only be used against approximately $1,200,000 of taxable income per
year. The losses may be carried forward for up to 15 years. The present losses
will expire beginning in the year 2004. Management intends to operate the Trust
in such a manner as to continue to qualify as a REIT and to continue to
distribute cash flow in excess of taxable income.
Earnings and profits, which will determine the taxability of distributions
to shareholders, will differ from that reported for financial reporting purposes
due primarily to differences in the basis of the assets and the estimated useful
lives used to compute depreciation.
Earnings Per Share. Basic earnings per share excludes any dilutive effects
of options, warrants and convertible securities. The computation of diluted
earnings per share does not include common share equivalents where the inclusion
of such does not result in dilution (based upon application of the "treasury
stock" method) or, in periods where there is a net loss from operations, is
anti-dilutive.
Share Compensation. The Trust accounts for its share compensation
arrangements using the intrinsic value method.
Concentrations. The Trust owns 65 real estate properties, excluding the one
build-to-suit property, in 13 states. The Trust's industrial properties are
concentrated in the Texas market with 23 of the 52 properties located in the
Dallas, Houston and Austin areas. The office buildings are primarily located in
the west with three of the eleven located in California. The two retail
properties are located in Colorado and Florida. The principal competitive
factors in these markets are price, location, quality of space, and amenities.
In each case, the Trust owns a small portion of the total similar space in the
market and competes with owners of other space for tenants. Each of these
markets is highly competitive, and other owners of property may have competitive
advantages not available to the Trust.
Segment Reporting. The Trust has adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" for fiscal
year 1998. This statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. Where
applicable, it also establishes standards for related disclosures about products
and services, geographic areas, and major tenants. See Note 16 for the Trust's
segment disclosures.
Reclassification. Certain amounts in prior years financial statements have
been reclassified to conform with the current year presentation.
F-9
55
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- REAL ESTATE AND PROVISIONS FOR POSSIBLE LOSSES ON REAL ESTATE:
At December 31, 1998 and 1997, real estate was comprised of the following:
1998 1997
------------ ------------
Held for investment:
Land................................................... $102,891,000 $ 56,315,000
Buildings and improvements............................. 373,750,000 208,997,000
------------ ------------
476,641,000 265,312,000
------------ ------------
Held for sale:
Land................................................... 6,000,000 --
Buildings and improvements............................. 22,491,000 --
------------ ------------
28,491,000 --
------------ ------------
Total.......................................... $505,132,000 $265,312,000
============ ============
During 1998, the Trust acquired 29 real estate properties for approximately
$237 million. To fund these acquisitions, the Trust paid approximately $37.8
million in cash, obtained $28.3 million and $42.7 million of financing under its
acquisition line of credit and secured bridge loan, respectively, assumed
approximately $32.7 million in mortgage debt with a fair value of $34.9 million,
obtained $47.2 million of financing through unsecured borrowings with DDR,
issued $0.9 million of limited partnership units and issued $47.7 million in
Shares to DDR (see Note 8). The difference between the assumed amount and the
fair value of the mortgage debt assumed was recorded as debt premium.
At December 31, 1998, the Trust recorded a $10.1 million writedown of its
retail property in Denver, Colorado and reclassified the property from held for
investment to held for sale. The Trust's current intent is to sell this property
in 1999, thereby allowing the Trust to continue its focus on the light
industrial sector of the real estate market. This property is included in the
"Retail" operating segment and reported a net operating loss of $0.3 million for
the year ended December 31, 1998.
The Trust did not sell any properties in 1998.
Effective December 31, 1997, the Trust acquired, via a merger, four real
estate limited partnerships. The partnerships were affiliated with Realco, a
significant shareholder of the Trust. As a result of the merger, the Trust
acquired ownership of seven office properties, including a 55.84% interest in a
joint venture owning an office property. The Trust also acquired two industrial
properties and one retail property. The total purchase price was approximately
$93.1 million, inclusive of costs of the merger. Of this amount, approximately
$38.4 million was assumed in debt, $57.9 million was issued in Shares to the
former partners and $3.8 million was received in cash, relating to the net
working capital received. The $38.4 million in debt includes $15 million due to
Las Colinas Management Company, an affiliate of Realco, $7.2 million of
unsecured debt owed to Realco, and $16.2 million due to third party lenders. The
acquisition was accounted for on the purchase method of accounting.
F-10
56
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the purchase price of the four real estate limited
partnerships is as follows:
Real estate................................................. $100,206,000
Other assets................................................ 3,916,000
Less: Mortgage notes payable......................... (31,178,000)
Unsecured notes payable.............................. (7,200,000)
Other liabilities.................................... (4,194,000)
Minority interests................................... (3,704,000)
------------
Value of Shares issued...................................... $ 57,846,000
============
From August 29, 1997 through December 31, 1997, exclusive of the merger,
the Trust acquired an additional 15 real estate properties for approximately
$73.5 million. To fund these acquisitions, the Trust paid approximately $30.5
million in cash, incurred approximately $23.5 million of permanent financing,
obtained $16.7 million of financing under the acquisition line of credit and
issued $2.8 million of limited partnership units. In addition, the limited
partners received warrants to purchase 40,000 shares at $17.50 per Share.
During 1997, the Trust sold two industrial properties, including one of the
two properties classified as held for sale at December 31, 1996. Net proceeds
from this sale totaled $2.0 million resulting in a gain on sale of $0.3 million.
Net proceeds received from the sale of the second property sold in 1997 totaled
$5.1 million resulting in a gain on sale of $1.9 million. The Trust reclassified
the second held for sale property to held for investment in 1997. There were no
properties classified as held for sale at December 31, 1997.
In accordance with EITF 97-11, the Trust has changed its capitalization
policy with respect to internal acquisition costs. On March 19, 1998, the Trust
ceased the capitalization of costs related to its internal acquisition
department. The Trust capitalized $160,000 through March 19, 1998 and $401,000
for the year ended December 31, 1997.
NOTE 3 -- MORTGAGE NOTES PAYABLE:
At December 31, 1998, 51 of the Trust's 65 properties were subject to liens
securing mortgage notes payable with principal balances totaling $252,481,000,
including $1,958,000 of debt premiums (see Note 2). Of this amount,
approximately $141,308,000 was represented by mortgage notes with stated fixed
interest rates ranging from 7.25% to 9.13%, a stated weighted average interest
rate of 8.01% and maturity dates in 2001 to 2016. Mortgage notes payable with
variable interest rates consisted of $68,523,000 and $42,650,000 under the
Trust's secured acquisition credit line and secured bridge loan, respectively.
The acquisition credit line and bridge loan bear interest at the 30 day LIBOR
rate plus 1.75% and mature in April 1999 and January 1999 as extended,
respectively. The interest rate on these loans at December 31, 1998 was 7.38%.
Debt premiums are amortized into interest expense over the terms of the
related mortgages using the effective interest method. As of December 31, 1998,
the unamortized debt premiums were $1,958,000.
Certain of the mortgage notes payable contain cross default and cross
collateralization provisions whereby a default under one note can trigger a
default under other notes. Certain of the mortgage notes payable, including the
acquisition credit line and bridge loan, also contain various borrowing
restrictions and operating performance covenants. The Trust is in compliance
with all such restrictions and covenants as of December 31, 1998. The unused
commitment under the acquisition credit line at December 31, 1998 is $4,195,000,
subject to certain restrictions and provisions.
Principal payments during each of the next five years are as follows:
$113,331,000 in 1999, $2,338,000 in 2000, $30,183,000 in 2001, $16,877,000 in
2002, $25,893,000 in 2003, and $61,900,000 thereafter. Of the amount due in
1999, $68,523,000 and $42,650,000 are due under the Trust's acquisition credit
line and secured bridge loan, respectively. The bridge loan was paid off on
January 8, 1999 with proceeds from a
F-11
57
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
permanent financing of seven properties. Terms of the permanent financing
include a principal amount of $41.0 million, a fixed rate of interest of 7.375%,
a ten year term and 25 year principal amortization (See Note 19). The Trust is
currently negotiating an extension of the maturity date of the acquisition
credit line (see Note 19).
During 1998 the Trust recognized extraordinary loss on extinguishment of
debt of $23,000 resulting from prepayment penalties on the early retirement of
$1.2 million of mortgage debt.
At December 31, 1997, 29 of the Trust's 36 properties were subject to liens
securing mortgage notes payable totaling $114,226,000. Of this amount,
approximately $97,501,000 was represented by mortgage notes ($15,000,000 with a
related party) with fixed interest rates ranging from 7.25% to 11.0% and a
weighted average interest rate of 8.47%. Approximately $16,725,000 represented
borrowings under the Trust's acquisition credit line. The acquisition credit
line bears interest at the 30 day LIBOR rate plus 2% and matures in December
1998. The interest rate on this acquisition credit line at December 31, 1997 was
7.72%.
NOTE 4 -- UNSECURED NOTES PAYABLE -- RELATED PARTY:
During 1998, the Trust obtained unsecured loans from DDR to finance
acquisitions. The notes are payable on demand and bear interest at 10.25%. At
December 31, 1998, the Trust had three unsecured notes outstanding totaling
$14,058,000. The notes were repaid in full in January 1999 (see Note 19). The
Trust paid interest of $660,850 to DDR for the period ended December 31, 1998.
As a result of the merger with four real estate limited partnerships,
effective December 31, 1997, (see Note 2), the Trust assumed an unsecured
indebtedness of $7,200,000 payable to Realco. The note was paid off in April
1998.
NOTE 5 -- ZERO COUPON NOTES:
As part of its original capitalization in 1985, the Trust issued
$179,698,000 (face amount at maturity) of Zero Coupon Notes due 1997 (the
"Notes"). These Notes, which were collateralized by first and second mortgage
liens on each of the Trust's real estate properties, accreted at 12%, compounded
semiannually. In 1991, the Trust began a program to retire the outstanding
Notes, resulting in a reduction of the outstanding Notes to $19,491,000 (face
amount at maturity) at December 31, 1993. On December 31, 1993, the Trust
effected a partial in-substance defeasance on $12,696,000 (face amount at
maturity) of the Notes and recorded an extraordinary loss of $2,530,000. In
November 1994, the Trust completed a partial in-substance defeasance on
$3,669,000 (face amount at maturity) of Notes and recorded an extraordinary loss
of $344,000. In December 1994, the Trust purchased the remaining non-defeased
Notes outstanding in the open market and submitted the Notes to the Trustee for
cancellation. The legal defeasance of the Notes resulted in the release of the
Zero Coupon Note mortgage liens which encumbered each of the Trust's properties.
In November 1997, the Notes were retired.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Trust has been notified of the existence of limited underground
petroleum based contamination at a portion of Tamarac Square, the Trust's Denver
retail property. The source of the contamination is apparently related to
underground storage tanks ("USTs") located on adjacent property. The owner of
the adjacent property has agreed to remediate the property to comply with state
standards and has indemnified the Trust against costs related to its sampling
activity. The responsible party for the adjacent USTs has submitted a corrective
Action Plan to the Colorado Department of Public Health and Environment.
Implementation of the plan is ongoing. The responsible party is negotiating to
obtain access agreements from impacted landowners, including the Trust.
F-12
58
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Trust has been notified of the existence limited cleaning solvents
("mineral spirits") contamination at Tech Center 29 Phase I. The contamination
is the apparent result of a service center operated on the property until 1996.
The tenant's primary operations consisted of the distribution of parts, cleaning
equipment and cleaning solvents to industrial customers. Two USTs used in the
operation were removed in 1996. The former tenant has been working with the
Maryland Department of the Environment since the onset and has issued a letter
of credit and standby trust agreement as financial assurance for remediation of
the site.
With the exception of Tamarac Square and Tech 29 Phase I, the Trust has not
been notified, and is not otherwise aware, of any material non-compliance,
liability or claim relating to hazardous or toxic substances in connection with
any of its properties.
Litigation
The Trust is currently named as a defendant in a lawsuit related to the
Trust's merger with four real estate limited partnerships. The lawsuit purports
to be both a class action and a derivative lawsuit against the defendants. The
plaintiffs have asserted various claims, including breach of fiduciary duty and
various securities law violations, against the parties to the merger and certain
individuals and are seeking monetary damages. On April 13, 1998, the Trust was
named as a defendant in an additional purported class action lawsuit related to
the Trust's merger with the four real estate limited partnerships. The
plaintiffs have asserted various claims, including breach of fiduciary and
contractual duties and various securities law violations, against the parties to
the merger and are seeking monetary damages.
The Trust is also a defendant in a lawsuit over claims of breach of
contract and civil conspiracy allegedly injuring a commercial tenant in a
building sold by the Trust to DART under threat of eminent domain. DART has
agreed to indemnify, defend and hold harmless the Trust from any and all losses
and liabilities arising from obligations under this lease.
The Trust intends to vigorously defend against these claims. The lawsuits
described above are on-going, therefore, management cannot predict the outcome
of such litigation, however, management believes the liabilities, if any, that
may ultimately result from such legal actions are not expected to have a
material adverse effect on the consolidated financial position or results of
operations of the Trust.
NOTE 7 -- MINORITY INTEREST:
Operating Partnerships. AIP-SWAG Operating L.P. and AIP Operating, L.P.
have 179,085 and 58,333 limited partnership units outstanding, respectively, as
of December 31, 1998 (excluding limited partnership units held by the Trust).
Pursuant to the limited partnership agreement for each partnership, the limited
partners received rights (the "Redemption Rights") that enable them to cause the
partnership to redeem each limited partnership unit for cash equal to the value,
as determined in accordance with the partnership agreement, of a Share (or, at
the Trust's election, the Trust may purchase each limited partnership unit
offered for redemption for one Share). The Redemption Rights generally may be
exercised at any time after one year following the issuance of the limited
partnership units. The number of Shares issuable upon exercise of the Redemption
Rights will be adjusted for share splits, mergers, consolidations or similar pro
rata transactions, which would have the effect of diluting the ownership
interests of the limited partners or the shareholders of the Trust. The limited
partners' interest in each partnership is reflected as minority interest in the
accompanying consolidated financial statements.
Other Partnerships. In connection with the merger of four real estate
limited partnerships, effective December 31, 1997, the Trust acquired a 55.84%
interest in Chelmsford Associates LLC, formerly Chelmsford Associates Joint
Venture, a joint venture owning one office property. The remaining 44.16%
interest is owned by a significant shareholder of the Trust. The financial
position and results of operations of
F-13
59
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the joint venture is included in the consolidated financial statements of the
Trust. The other venturer's interest in the partnership is reflected as minority
interest in the accompanying consolidated financial statements.
NOTE 8 -- SHAREHOLDERS' EQUITY:
Capital Stock. The Trust is authorized to issue up to 500,000,000 Shares.
The Shares have dividend, distribution, liquidation and other rights as
disclosed in the Declaration of the Trust. As of December 31, 1998, 17,035,705
shares are issued and outstanding.
The Trust is authorized to issue up to 50,000,000 Preferred Shares of
Beneficial Interest in one or more series. The number of shares in each series
and the designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof have not been established.
As of December 31, 1998, no Preferred Shares of Beneficial Interest were issued.
On March 9, 1998, the Board of Trust Managers authorized a Share repurchase
program allowing the Trust to purchase up to 1,000,000 Shares from time to time
in open market transactions, as price and market conditions allow, over the
following six months. This program resulted in the Trust purchasing 123,783
Shares in the open market, for an aggregate cost of $1,598,000. These Shares are
held in Treasury. As a result of the one-for-five reverse Share split and the
odd lot redemption program, effective on October 15, 1997, the Trust repurchased
42,103 Shares which are held in treasury.
Private Placement. On January 30, 1998, the Trust completed a $10 million
private equity placement at $13.625 per Share. In February 1998, two investment
groups exercised their preemptive rights (which subsequently expired) and
acquired $5 million and $3.75 million, respectively, of Shares at $13.625 per
Share. The Shares are of the same class as the Trust's existing Shares and are
entitled to the same voting and distribution rights as all Shares, subject to
certain restrictions on the resale of the Shares.
On August 3, 1998, the Trust entered into a definitive agreement providing
for a strategic investment by DDR in the Trust. Under the terms of the Share
Purchase Agreement, the transaction has three stages. The first stage of equity
investment, effective as of July 30, 1998, resulted in DDR acquiring 2,207,618
Shares at a price of $15.50 per share in exchange for consideration valued at
approximately $34.2 million. As of December 31, 1998, the Trust has issued an
additional 3,683,578 Shares related to the second stage of the Agreement at a
price of $15.50 per Share to fund property acquisitions. The Shares issued in
the first and second stages are of the same class as the Trust's existing Shares
and are entitled to the same voting and distribution rights as all Shares,
subject to certain restrictions on the resale of the Shares. The remainder of
the second stage, 1,543,005 Shares at $15.50 per Share, and the entire third
stage, $200 million of equity investment, have not occurred as of December 31,
1998. (See Note 11).
In July 1997, the Trust completed a $35 million private equity placement of
2,857,143 Shares at $12.25 per Share (of which approximately $32.6 million was
funded in July 1997 and $2.4 million in December 1997). The shares are of the
same class as the Trust's existing shares and are entitled to the same voting
and distribution rights as all Shares, subject to certain restrictions on the
resale of the shares.
Share Incentive Plans. The Trust adopted the Employee and Trust Managers
Incentive Share Plan (the "Plan") for the purpose of (i) attracting and
retaining employees, directors and others, (ii) providing incentives to those
deemed important to the success of the Trust, and (iii) associating the
interests of these individuals with the interests of the Trust and its
shareholders through opportunities for increased share ownership.
All awards under the Plan are determined by the Compensation Committee of
the Board of Directors and a maximum limit of 10% of the total number of Shares
outstanding at any time on a fully-diluted basis may be issued under the Plan.
F-14
60
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the Plan, any person who is a full-time employee or a
Trust Manager of the Trust or of an affiliate (as defined in the Plan) of the
Trust or a person designated by the Compensation Committee as eligible because
such person performs bona fide consulting or advisory services for the Trust or
an affiliate of the Trust (other than services in connection with the offer or
sale of securities in a capital-raising transaction) and has a direct and
significant effect on the financial development of the Trust or an affiliate of
the Trust, shall be eligible to receive awards under the Plan.
Share Option Awards. In connection with the Agreement with DDR, on July 29,
1998, the Trust granted share options to purchase 100,000 shares to the Chairman
of the Board of Trust Managers, who, in accordance with DDR's request,
transferred the options to his employer, DDR. The exercise price of the options
was $12.625 (the market price of the Trust's Shares on the date of the grant)
and the fair value of the options was $221,000. The options vested on November
20, 1998.
The Trust granted to each non-employee Trust Manager an option to purchase
2,000 shares on June 30, 1997. On an annual basis beginning in 1997, each
non-employee Trust Manager shall receive a non-qualified share option to
purchase 1,000 Shares. Each of these non-employee Trust Manager options is fully
exercisable upon the date of grant and generally terminates (unless sooner
terminated under the terms of the Plan) ten years after the date of grant. The
exercise price is determined by the Compensation Committee and must have an
exercise price equal to not less than 100% of the fair market value of a Share
on the date of grant. On December 31, 1998 and 1997, 10,000 Shares and 7,000
Shares, respectively, were granted.
During 1998, pursuant to the plan, the Trust Managers granted share options
to purchase 460,000 Shares to 12 members of management. The exercise price of
the options granted is $13.625. The option to purchase shares vest annually over
a period of five years, beginning April 1, 1998. In addition, the Board approved
the award of 27,000 restricted shares to the Trust's senior officers. The
restricted shares vest annually beginning on the first anniversary date of the
date of grant.
During 1997, pursuant to the Plan, the Trust Managers granted share options
to purchase 125,000 Shares to the Trust's officers. The exercise price of the
options granted to the officers is $15.00 (the market price of the Trust's
Shares on the date of the grant, June 30, 1997). The options to purchase Shares
vest annually over a period of five years, beginning on June 30, 1997.
As of December 31, 1998, no options had been exercised.
Pursuant to agreements between the Trust and four senior officers, a Change
in Control (as defined) occurred on December 10, 1998 when DDR's ownership
position exceeded 33% of the Trust's voting shares. As a result, all options
held by these officers became fully vested and the restrictions on 27,000
restricted shares held by these officers were lifted. A total of 395,000
previously unvested options became vested on this date.
The Trust has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related Interpretations
in accounting for its employee share options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("Statement 123") requires use of option valuation models that were not
developed for use in valuing employee share options. Under APB 25, because the
exercise price of the Trust's employee share options equals the market price of
the underlying shares on the date of grant, no compensation expense is
recognized.
At December 31, 1998, 716,000 options are outstanding of which 668,000 are
fully vested. The remaining 48,000 options vest annually through April 2002. The
term of these options range from June 2007 through December 2008.
Pro forma information regarding net income and earnings per share is
required by Statement 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with
F-15
61
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the following weighted-average assumptions for 1998: risk-free interest rates of
4.80% to 6.50%; a dividend yield of 4.96% to 5.50%; volatility factors of the
expected market price of the Trust's Shares of .275 to .283; and a
weighted-average expected life of the options of 7 years.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: risk-free interest rates of 5.98% to 6.50%; a dividend
yield of 5.5%; volatility factors of the expected market price of the Trust's
Shares of .283; and a weighted-average expected life of the options of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Trust's employee share options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee share options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Trust's
pro forma information follows (in thousands except for earnings per Share
information):
1998 1997
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
Pro forma net income..................... $(10,070) $(10,350) $1,799 $1,749
======== ======== ====== ======
Pro forma earnings/(loss) per Share
Basic and diluted...................... $ (0.82) $ (0.84) $ 0.54 $ 0.53
======== ======== ====== ======
A summary of the Trust's share option activity, and related information for
the year ended December 31 follows:
1998 1997
-------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- ---------------- ------- ----------------
(000) (000)
Outstanding-beginning of year........ 139 $14.99 -- $ --
Granted.............................. 577 13.42 139 14.99
Exercised............................ -- -- -- --
Forfeited............................ -- -- -- --
----- ------ ----- ------
Outstanding-end of year.............. 716 $13.71 139 $14.99
===== ====== ===== ======
Exercisable at end of year........... 668 $14.85 39 $14.97
===== ====== ===== ======
Weighted-average fair value of
options granted during the year.... $2.74 $3.10
===== =====
The options outstanding at December 31, 1998 have exercise prices ranging
from $11.6875 to $15.00 per share and have a weighted average contractual
remaining life of 9.16 years. At December 31, 1998, there were 1,004,200 options
that have not been granted under the Plan.
The limited partners of AIP-SWAG Operating Partnership L.P. received
warrants to purchase 40,000 Shares at $17.50 per Share. The warrants expire on
October 3, 2000 (See Note 2).
F-16
62
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- DISTRIBUTIONS:
On January 29, 1998, the Board of Trust Managers announced a reinstatement
of quarterly distributions. A distribution of $0.18 per Share was paid on April
14, 1998 and a distribution of $0.20 was paid on July 14, 1998 and October 14,
1998. On October 29, 1998 the Trust declared a distribution of $0.20 per Share,
payable on January 20, 1999 to shareholders of record on January 7, 1999. There
were no distributions paid during 1997.
The Trust has declared a distribution of $0.20 per Share payable on April
15, 1999, to shareholders of record on April 5, 1999 (see Note 19).
NOTE 10 -- OPERATING LEASES:
The Trust's properties are leased to others under operating leases with
expiration dates ranging from 1999 to 2011. Future minimum rentals on
noncancellable tenant leases at December 31, 1998 are as follows:
YEAR AMOUNT
---- ------------
1999........................................................ $ 51,662,000
2000........................................................ 43,299,000
2001........................................................ 33,938,000
2002........................................................ 23,472,000
2003........................................................ 13,912,000
Thereafter.................................................. 29,950,000
------------
$196,233,000
============
NOTE 11 -- TRANSACTIONS WITH RELATED PARTIES:
During the fiscal year 1998, the Trust on occasion entered into unsecured
borrowings with DDR. Such borrowings bear a fixed rate of interest of 10.25%,
provide for quarterly payments of interest and are due thirty days after demand.
The highest amount outstanding under such borrowings from DDR during 1998 was
$23,510,000. The total amount of interest on such borrowings during 1998 was
$661,000 and the balance outstanding at December 31, 1998 was $14,058,000.
Effective October 8, 1998, DDR acquired an 89% limited partnership interest
and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a
limited partnership whose assets consist of two light industrial properties and
one office property totaling 290,991 nrsf located in Silver Springs, Maryland.
Several selling entities and affiliates thereof acquired the remaining
partnership interests. These partnership interests are convertible into DDR
common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's
limited partnership interest and, in consideration therefor, issued
approximately $16.1 million in Shares to DDR. The acquisition was deemed to be
effective as of October 8, 1998 and the purchase price included interest accrued
from such date. To date, an Equalization Agreement, which provides, among other
things, that DDR shall reimburse the Trust for certain dividend-based
distributions to the holders of partnership interests has not been executed. It
is anticipated that the Equalization Agreement will have an effective date in
January 1999.
On November 20, 1998, the Trust purchased undeveloped land from DDR in the
amount of $2.3 million plus interest. The purchase was accomplished through the
issuance of shares to DDR in accordance with the Share Purchase Agreement dated
July 30, 1998. This land was then contributed by the Trust to a development
joint venture with a third party.
In addition to DDR's equity investment (see Note 8) and the items noted
above, DDR also provided real estate management services and interim financing
for real estate acquisitions. DDR is paid a competitive rate
F-17
63
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for the management services, including, but not limited to, tenant finish,
leasing and reporting. For the year ended December 31, 1998 the Trust paid
$19,000 for management services.
Certain real estate investments are managed by Quorum Real Estate Services
Corporation ("Quorum") an affiliate of a major shareholder of the Trust. Quorum
is paid competitive rates, for services, including, but not limited to,
construction, tenant finish, leasing and management. For the year ended December
31, 1998, management fees and leasing commissions paid by the Trust to Quorum
were $548,000 and $24,000, respectively. No such fees were paid by the Trust in
1997.
The Trust currently leases space to an individual serving as a Trust
Manager at competitive market rates. For the year ended December 31, 1998, this
Trust Manager paid $9,800 in lease payments to the Trust.
At December 31, 1998, DDR and Realco owned approximately 34.6% and 9.8% of
the Shares outstanding, respectively.
NOTE 12 -- RETIREMENT AND PROFIT SHARING PLAN:
During 1993, the Trust adopted a retirement and profit sharing plan which
qualifies under section 401(k) of the Internal Revenue Code. All existing Trust
employees at adoption and subsequent employees who have completed one month of
service are eligible to participate in the plan. Subject to certain limitations,
employees may contribute up to 15% of their salary. The Trust may make annual
discretionary contributions to the plan. Contributions by the Trust related to
the years ended December 31, 1998, 1997 and 1996 were $70,000, $40,000 and
$30,000, respectively.
NOTE 13 -- CHANGE IN CONTROL COSTS:
During 1998, the Trust recognized costs related to a change in control of
$5,780,000. The costs related to change in control include approximately
$2,484,000 for payments made to the Trust's senior officers under severance and
change in control agreements which were triggered when DDR's ownership position
exceeded 33%, an accrual of $2,960,000 related to the future payments through
2008 to the senior officers under previously granted dividend equivalent rights,
approximately $300,000 related to vesting of restricted shares previously
granted to the senior officers and $36,000 in payroll taxes associated with the
payments to the senior officers.
NOTE 14 -- PER SHARE DATA:
The following table sets forth the computation of basic and diluted
earnings per share:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------------ ---------- -----------
Basic and diluted earnings per share:
Numerator:
Loss before extraordinary items............. $ (4,267,000) $ (844,000) $(4,555,000)
Extraordinary items......................... (5,803,000) 2,643,000 5,810,000
------------ ---------- -----------
Net income/(loss)................... $(10,070,000) $1,799,000 $ 1,255,000
============ ========== ===========
Denominator:
Weighted average shares..................... 12,251,591 3,316,788 1,821,648
------------ ---------- -----------
Basic and diluted earnings per share:
Loss before extraordinary items............. $ (0.35) $ (0.26) $ (2.50)
Extraordinary items......................... (0.47) 0.80 3.20
------------ ---------- -----------
Net income/(loss)................... $ (0.82) $ 0.54 $ 0.70
============ ========== ===========
F-18
64
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options to purchase 716,000 shares at prices ranging from $11.6875 to
$15.00 per Share were outstanding at December 31, 1998 and options to purchase
139,000 shares at prices ranging from $13.625 to $15.00 were outstanding at
December 31, 1997. These options were not included in a computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the Shares and, therefore, the effect would be
antidilutive. The Trust had no options outstanding during 1996.
At December 31, 1998, 40,000 warrants were outstanding. The warrants have
an exercise price of $17.50 per Share and expire in October 2000. Because the
warrants exercise price was greater than the average market price of the Shares
the effect would be antidilutive.
In January and February 1999, the Trust issued 3,445,709 Shares (see Note
19).
NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS:
Accounts receivable, accounts payable and accrued expenses and other
liabilities are carried at amounts that reasonably approximate their fair
values. The fair values of the Trust's mortgage notes payable are estimated
using discounted cash flow analyses, based on the Trust's incremental borrowing
rates for similar types of borrowing arrangements. The carrying values of such
mortgage notes payable reasonably approximate their fair values.
NOTE 16 -- SEGMENT REPORTING
The Trust classifies its reportable segments by property type: light
industrial, office, and retail. Light industrial represents 56% of property
revenue. Office and retail represent 35% and 9%, respectively.
The Trust's emphasis is in the light industrial sector, which is
characterized as office showroom, service center and flex properties, low rise
offices, and small bay distribution properties. Based on net rentable square
feet, as of December 31, 1998, approximately 76% of the Trust's portfolio is
represented by light industrial properties, 20% of the portfolio is represented
by office properties and 4% of the portfolio is represented by retail
properties.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Senior management evaluates
performance based on net operating income from the combined properties in each
segment.
The Trust's reportable segments are a consolidation of related properties
which offer different products. They are managed separately because each segment
requires different operating, pricing and leasing strategies. All of the
properties have been acquired separately and are incorporated into the
applicable segment.
F-19
65
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998
------------------------------------------------------------
LIGHT OFFICE CORPORATE
INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED
---------- --------- -------- --------- ------------
Property revenues...................... $ 27,013 $ 17,044 $ 4,300 $ -- $ 48,357
Property expenses...................... 7,908 6,362 1,776 -- 16,046
-------- -------- -------- -------- --------
Income from property operations........ 19,105 10,682 2,524 -- 32,311
Administrative expenses................ -- -- -- (3,729) (3,729)
Depreciation and amortization.......... -- -- -- (8,383) (8,383)
Other income........................... -- -- -- 705 705
Interest expense....................... -- -- -- (15,139) (15,139)
Provision for possible losses on real
estate............................... -- -- (10,060) -- (10,060)
-------- -------- -------- -------- --------
Loss from operations................... 19,105 10,682 (7,536) (26,546) (4,295)
Minority interests in consolidated
subsidiaries......................... -- -- -- 28 28
Extraordinary items.................... -- -- -- (5,803) (5,803)
-------- -------- -------- -------- --------
Net income (loss)...................... $ 19,105 $ 10,682 $ (7,536) $(32,321) $(10,070)
======== ======== ======== ======== ========
Total real estate............ $334,503 $133,643 $ 35,769 $ 1,217 $505,132
======== ======== ======== ======== ========
1997
-----------------------------------------------------------
LIGHT OFFICE CORPORATE
INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED
---------- --------- ------- --------- ------------
Property revenues........................ $ 8,312 $ 633 $ 3,256 $ -- $ 12,201
Property expenses........................ 2,496 399 1,420 -- 4,315
-------- ------- ------- -------- --------
Income from property operations.......... 5,816 234 1,836 -- 7,886
Administrative expenses.................. -- -- -- (2,504) (2,504)
Depreciation and amortization............ -- -- -- (3,157) (3,157)
Other income............................. -- -- -- 546 546
Interest expense......................... -- -- -- (5,778) (5,778)
-------- ------- ------- -------- --------
Loss from operations..................... 5,830 234 1,836 (10,893) (3,007)
Gain on sales of real estate............. -- -- -- 2,163 2,163
Extraordinary items...................... -- -- -- 2,643 2,643
-------- ------- ------- -------- --------
Net income (loss)........................ $ 5,830 $ 234 $ 1,836 $ (6,087) $ 1,799
======== ======= ======= ======== ========
Total real estate.............. $136,103 $83,352 $45,592 $ 265 $265,312
======== ======= ======= ======== ========
F-20
66
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The breakdown of the Trust's property revenues, geographically and by
reporting segment, for each of the years ended December 31, 1998, 1997, and 1996
is as follows (in thousands):
REGION 1998 1997 1996
------ ------- ------- -------
WESTERN REGION
Industrial............................................ $15,709 $ 5,147 $ 2,949
Office................................................ 13,341 633 638
Retail................................................ 3,186 3,256 3,308
EASTERN REGION
Industrial............................................ 11,304 3,165 4,425
Office................................................ 3,703 -- --
Retail................................................ 1,114 -- --
------- ------- -------
Total property revenues....................... $48,357 $12,201 $11,320
======= ======= =======
F-21
67
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the quarterly results of operations for the
years ended December 31, 1998 and 1997 (in thousands, except per Share amounts):
THREE MONTHS ENDED
------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ----------- -----------
1998
Revenues......................... $ 16,740 $ 12,521 $ 11,075 $ 8,726
Income (loss) before
extraordinary items(a)......... (7,755) 1,289 1,101 1,098
Extraordinary gain/(loss)........ (5,780) (23) -- --
----------- ----------- ----------- -----------
Net income....................... $ (13,535) $ 1,266 $ 1,101 $ 1,098
=========== =========== =========== ===========
Per Share Data (Basic and
Diluted)
Income/(loss) before
extraordinary items......... $ (0.52) $ 0.10 $ 0.10 $ 0.10
Extraordinary gain/(loss)...... (0.39) -- -- --
----------- ----------- ----------- -----------
Net income..................... $ (0.91) $ 0.10 $ 0.10 $ 0.10
=========== =========== =========== ===========
Weighted average number of shares
outstanding:
Basic.......................... 14,783,824 12,470,471 11,080,452 10,617,617
=========== =========== =========== ===========
Diluted........................ 14,783,824 12,497,471 11,107,452 10,617,617
=========== =========== =========== ===========
1997
Revenues......................... $ 4,524 $ 2,971 $ 2,586 $ 2,666
Gain of sale of real estate...... 1,851 -- -- 312
Income/(loss) before
extraordinary items............ 1,258 (341) (1,054) (707)
Extraordinary gain/(loss)........ -- -- -- 2,643
----------- ----------- ----------- -----------
Net income....................... 1,258 (341) (1,054) 1,936
=========== =========== =========== ===========
Per Share Data (Basic and
Diluted)
Income/(loss) before
extraordinary items......... $ 0.26 $ (0.08) $ (0.55) $ (0.35)
Extraordinary gain/(loss)...... -- -- -- 1.32
----------- ----------- ----------- -----------
Net income..................... $ 0.26 $ (0.08) $ (0.55) $ 0.97
=========== =========== =========== ===========
Weighted average number of shares
outstanding:
Basic and diluted.............. 4,912,775 4,354,378 2,000,000 2,000,000
=========== =========== =========== ===========
- ---------------
(a) In the fourth quarter of 1998 the Trust recognized a $10,060,000 provision
for real estate losses for a property held for sale.
NOTE 18 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma condensed consolidated statements of operations of
the Trust are presented as if (i) the merger with four real estate limited
partnerships in 1997; (ii) the acquisition of 15 industrial properties in 1997;
(iii) the disposition of two properties during 1997; (iv) the acquisition of 28
properties in 1998, and (v) the conversion of $42.7 million in notes payable to
DDR into Shares had occurred at the beginning of each period presented. These
unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of what actual results of operations of the Trust would
have been assuming such
F-22
68
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions had been completed as of the beginning of each period presented,
nor do they purport to represent the results of operations for future periods.
Further the pro forma statements of operations do not include the effects of
extraordinary items or provision for possible losses on real estate.
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
INCOME
Rents and tenant reimbursements............................. $66,896 $58,594
Interest and other income................................... 739 516
------- -------
67,635 59,110
EXPENSES
Property operating expenses................................. 20,659 20,054
Depreciation and amortization............................... 11,297 10,831
Interest expense............................................ 19,539 20,130
General and administrative.................................. 3,942 4,216
------- -------
Total expenses.................................... 55,437 55,231
------- -------
Income (loss) before minority interests..................... 12,198 3,879
Minority interests.......................................... 28 208
------- -------
Income (loss) from operations............................... $12,226 $ 4,087
======= =======
Income (loss) from operations per share..................... $ 0.71 $ 0.24
======= =======
Weighted average number of common shares outstanding........ 17,292 17,271
======= =======
NOTE 19 -- SUBSEQUENT EVENTS:
On January 8, 1999, the Trust retired a $42.6 million bridge loan with
proceeds from a permanent financing of seven properties. Terms of the permanent
financing include a principal amount of $41 million, a fixed rate of interest of
7.375%, a ten year term and 25 year principal amortization.
On January 15, 1999, the Trust acquired a nine-property portfolio for
approximately $127 million, consisting of almost 1 million square feet of one
and two story office/flex properties located in northern California and
Colorado. The acquisition cost was funded with a $75.2 million secured bridge
loan from PSCC and with $51.8 million of common equity issued to DDR. Terms of
the bridge loan include a maturity of July 15, 1999 and a variable rate of
interest equal to the 30 day LIBOR rate plus 1.75%. The equity was issued to DDR
pursuant to the Agreement dated July 30, 1998, as amended and resulted in
3,410,615 Shares delivered to DDR.
On January 19, 1999, the Trust refinanced existing indebtedness of
approximately $1.8 million on a property acquired in October 1998 with proceeds
from a new permanent financing of $7.6 million. Terms of the permanent financing
include a fixed rate of interest of 7.33%, seven year term with a three year
renewal option, and 30 year principal amortization.
On January 29, 1999, the Trust entered into a secured revolving credit
agreement with Bank One. The agreement contemplates a $150,000,000 credit line
of which Bank One has committed to $25,000,000. The remainder of the credit line
will be syndicated on a "best efforts" basis by Bank One. The credit line will
be secured by mortgage liens on properties, provides for a graduated variable
interest rate (depending on the Trust's overall leverage) of LIBOR plus 1.4% to
LIBOR plus 2.0%, a maximum loan to value of 60%, and a maturity in January 2001.
As of March 24, 1999, the Trust has $13.0 million outstanding under this credit
line, which bears interest at LIBOR plus 1.75%.
F-23
69
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 23, 1999, the Trust declared a distribution of $0.20 per Share
payable on April 15, 1999, to shareholders of record on April 5, 1999.
On March 26, 1999, the Trust negotiated an extension of the maturity of its
acquisition credit line to April 2000 and a decrease in the interest rate to
LIBOR plus 1.55%.
F-24
70
SCHEDULE III
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
GROSS AMOUNT
COSTS CAPITALIZED CARRIED AT
SUBSEQUENT TO DECEMBER 31, 1998
INITIAL COSTS ACQUISITION OF -----------------------
----------------------- LAND, BUILDINGS, RETIREMENTS BUILDINGS,
BUILDINGS FURNITURE, WRITEDOWNS FURNITURE,
AND FIXTURES AND AND FIXTURES AND
LAND IMPROVEMENTS EQUIPMENT ALLOWANCES LAND EQUIPMENT TOTAL
-------- ------------ ----------------- ----------- -------- ------------ --------
LIGHT INDUSTRIAL PROPERTIES
2121 Glenville.................. $ 426 $ 1,392 $ -- $ 426 $ 1,392 $ 1,818
Aerotech........................ 914 5,735 12 914 5,747 6,661
Alumax.......................... 260 2,820 -- 260 2,820 3,080
Avion........................... 770 4,006 30 -- 770 4,036 4,806
Battlefield..................... 2,020 11,635 -- 2,020 11,635 13,655
Ben White....................... 303 1,515 110 303 1,625 1,928
Black Canyon Tech............... 1,052 6,846 5 1,052 6,851 7,903
Bowater......................... 581 2,535 -- -- 581 2,535 3,116
Broadbent Business Park......... 700 4,595 42 700 4,637 5,337
Broadbent Land.................. 2,075 -- -- 2,075 -- 2,075
Cameron Creek................... 524 3,379 3 524 3,382 3,906
Cameron Creek Land.............. 840 -- -- -- 840 -- 840
Carpenter Center................ 650 1,354 61 -- 650 1,415 2,065
Carrier Place................... 560 2,682 182 -- 560 2,864 3,424
Central Park.................... 839 3,361 43 -- 839 3,404 4,243
Columbia Corporate Ctr.......... 6,500 6,623 -- 6,500 6,623 13,123
Commerce Center................. 4,420 6,328 1,064 -- 4,420 7,392 11,812
Commerce Park North............. 1,108 4,431 558 (2,014) 705 3,378 4,083
Continental Plastic............. 2,350 5,128 5 -- 2,350 5,133 7,483
Corporex Plaza I................ 998 4,130 254 -- 998 4,384 5,382
Corporex Presidents Plaza....... 491 1,932 189 -- 491 2,121 2,612
DFW IV.......................... 470 3,364 74 -- 470 3,438 3,908
Gateway 5 & 6................... 935 3,741 907 (1,861) 563 3,159 3,722
Greenbrier Circle............... 1,930 12,787 -- 1,930 12,787 14,717
Greenbrier Tech................. 1,060 6,293 -- 1,060 6,293 7,353
Hardline........................ 1,040 6,935 45 1,040 6,980 8,020
Heritage Business Ctr........... 360 2,141 -- 360 2,141 2,501
Heritage VSA.................... 205 3,928 -- 205 3,928 4,133
ACCUMULATED YEAR ACQ. ENCUM-
DEPRECIATION CONSTRUCTED DATE BRANCES
------------ ----------- ---- -------
LIGHT INDUSTRIAL PROPERTIES
2121 Glenville.................. $ (12) 1984 1998 $ --
Aerotech........................ (96) 1985 1998 4,210
Alumax.......................... (29) 1982 1998
Avion........................... (102) 1984 1997 (b)
Battlefield..................... (71) 1989 1998 8,334
Ben White....................... (30) 1984 1998
Black Canyon Tech............... (114) 1983 1998 5,887
Bowater......................... (63) 1989 1997 2,100
Broadbent Business Park......... (79) 1989 1998 1,782
Broadbent Land.................. -- -- 1998
Cameron Creek................... (63) 1996 1998 1,416
Cameron Creek Land.............. -- -- 1998
Carpenter Center................ (48) 1983 1997 (a)
Carrier Place................... (101) 1984 1997 (a)
Central Park.................... (113) 1984 1997 (b)
Columbia Corporate Ctr.......... (14) 1988 1998
Commerce Center................. (115) 1971/74 1997 (a)
Commerce Park North............. (1,407) 1984 1985 2,030
Continental Plastic............. (128) 1963/96 1997
Corporex Plaza I................ (131) 1982 1997 (b)
Corporex Presidents Plaza....... (68) 1987 1997 (b)
DFW IV.......................... (112) 1985 1997 (a)
Gateway 5 & 6................... (1,469) 1984/85 1985 2,755
Greenbrier Circle............... (78) 1981/83 1998 7,422
Greenbrier Tech................. (38) 1981 1998 4,428
Hardline........................ (73) 1974 1998
Heritage Business Ctr........... (22) 1990 1998
Heritage VSA.................... (41) 1989 1998
F-25
71
SCHEDULE III -- (CONTINUED)
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS ACQUISITION OF
----------------------- LAND, BUILDINGS, RETIREMENTS
BUILDINGS FURNITURE, WRITEDOWNS
AND FIXTURES AND
LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES
-------- ------------ ----------------- -----------
Huntington Drive................ 1,559 6,237 821 --
Inverness....................... 1,532 6,054 304 --
Kodak........................... 1,749 2,998 332 --
Meridian........................ 262 1,047 1 --
Metro Business Park............. 2,050 7,957 -- --
Norfolk Commerce................ 2,400 19,093 -- --
Northgate II.................... 2,153 8,612 784 (4,122)
Northgate III................... 1,280 10,013 208 --
Northpointe B & C............... 640 5,252 -- --
Northwest Business Park......... 1,296 5,184 773 (131)
Parkway Tech.................... 440 2,795 49 --
Patapsco........................ 1,147 4,588 475 (1,250)
Plaza SW........................ 1,312 5,248 1,302 --
Skyway.......................... 444 1,778 68 --
Steris.......................... 300 2,251 -- --
Summit Park..................... 2,232 5,734 80 --
Summit Park Land................ 732 -- -- --
Tech 29 Bldg I.................. 3,900 6,968 -- --
Tech 29 Bldg II................. 2,000 5,998 -- --
Technipark 10................... 920 3,211 -- --
Tucson Tech..................... 663 3,518 -- --
Valley View..................... 1,460 6,648 24 --
Valley View Land................ 1,024 -- -- --
Valwood II...................... 420 2,021 117 --
Shady Trail..................... 530 1,738 56 --
Washington Business Park........ 1,850 7,453 -- --
Westchase....................... 697 2,787 327 (1,232)
Winter Park..................... 2,000 7,198 -- --
-------- -------- ------- --------
Total Light
Industrial............ $ 71,373 $261,997 $ 9,305 $(10,610)
SCHEDULE III -- (CONTINUED)
AMER AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE IN CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
GROSS AMOUNT
CARRIED AT
DECEMBER 31, 1998
-----------------------
BUILDINGS,
FURNITURE,
FIXTURES AND ACCUMULATED YEAR ACQ. ENCUM-
LAND EQUIPMENT TOTAL DEPRECIATION CONSTRUCTED DATE BRANCES
-------- ------------ -------- ------------ ----------- ---- -------
Huntington Drive................ 1,559 7,058 8,617 (2,459) 1984/85 1985 4,422
Inverness....................... 1,532 6,358 7,890 (159) 1980 1997 (b)
Kodak........................... 1,749 3,330 5,079 (104) 1987 1997 3,360
Meridian........................ 262 1,048 1,310 (87) 1981 1995 1,124
Metro Business Park............. 2,050 7,957 10,007 (50) 1987 1998 6,200
Norfolk Commerce................ 2,400 19,093 21,493 (199) 1981/87 1998 13,000
Northgate II.................... 1,329 6,098 7,427 (2,692) 1982/83 1985 5,002
Northgate III................... 1,280 10,221 11,501 (248) 1979/86 1997 (a)
Northpointe B & C............... 640 5,252 5,892 (22) 1987/88 1998 2,820
Northwest Business Park......... 1,296 5,826 7,122 (2,043) 1983/86 1986
Parkway Tech.................... 440 2,844 3,284 (91) 1984 1997 (a)
Patapsco........................ 897 4,063 4,960 (1,400) 1980/84 1985 3,008
Plaza SW........................ 1,312 6,550 7,862 (2,206) 1970/74 1985 3,262
Skyway.......................... 444 1,846 2,290 (61) 1981 1997 (b)
Steris.......................... 300 2,251 2,551 (23) 1980 1998
Summit Park..................... 2,232 5,814 8,046 (101) 1985 1998 6,150
Summit Park Land................ 732 -- 732 -- -- 1998
Tech 29 Bldg I.................. 3,900 6,968 10,868 (44) 1970 1998 1,834
Tech 29 Bldg II................. 2,000 5,998 7,998 (35) 1991 1998 4,327
Technipark 10................... 920 3,211 4,131 (20) 1983/84 1998
Tucson Tech..................... 663 3,518 4,181 (59) 1986 1998 2,772
Valley View..................... 1,460 6,672 8,132 (128) 1986 1997 (a)
Valley View Land................ 1,024 -- 1,024 -- 1986 1997 (a)
Valwood II...................... 420 2,138 2,558 (66) 1983 1997 (a)
Shady Trail..................... 530 1,794 2,324 (58) 1984 1997 (a)
Washington Business Park........ 1,850 7,453 9,303 -- 1985 1998 5,190
Westchase....................... 465 2,114 2,579 (903) 1983 1985 1,283
Winter Park..................... 2,000 7,198 9,198 (15) 1981/83/85 1998 5,100
-------- -------- -------- --------
Total Light
Industrial............ $ 69,292 $262,773 $332,065 $(17,890)
F-26
72
SCHEDULE III -- (CONTINUED)
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS ACQUISITION OF
----------------------- LAND, BUILDINGS, RETIREMENTS
BUILDINGS FURNITURE, WRITEDOWNS
AND FIXTURES AND
LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES
-------- ------------ ----------------- -----------
OFFICE PROPERTIES
1881 PineStreet................. $ 776 $ 5,924 $ 121 $ --
Academy Point................... 881 7,832 62 --
Apollo Computer................. 6,106 17,901 972 --
BeltlineBusiness Ctr............ 1,303 5,213 699 (3,521)
Linear Tech..................... 1,235 3,231 -- --
Manhattan....................... 5,156 23,053 1,350 --
Skygate......................... 1,923 8,451 328 --
Spring Valley................... 959 8,362 27 --
Systech (10505 Sorrento)........ 879 3,691 13 --
Tech 29 Bldg III................ 1,600 6,840 -- --
Northview Business Center....... 7,600 14,676 -- --
-------- -------- ------- --------
Total Office
Properties............ $ 28,418 $105,174 $ 3,572 $ (3,521)
RETAIL PROPERTIES
Tamarac......................... $ 6,799 $ 27,194 $ 4,558 $(10,060)
Volusia......................... 3,445 3,826 7 --
-------- -------- ------- --------
Total Retail
Properties............ $ 10,244 $ 31,020 $ 4,565 $(10,060)
DEVELOPMENT PROPERTY
Post Office Land................ 2,438 -- -- --
-------- -------- ------- --------
Total Development
Property.............. 2,438 -- -- --
Trust........................... -- -- 265 --
-------- -------- ------- --------
TOTAL ALL PROPERTIES.... $112,473 $398,191 $17,707 $(24,191)
SCHEDULE III -- (CONTINUED)
AMER AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE IN CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
GROSS AMOUNT
CARRIED AT
DECEMBER 31, 1998
-----------------------
BUILDINGS,
FURNITURE,
FIXTURES AND ACCUMULATED YEAR ACQ. ENCUM-
LAND EQUIPMENT TOTAL DEPRECIATION CONSTRUCTED DATE BRANCES
-------- ------------ -------- ------------ ----------- ---- -------
OFFICE PROPERTIES
1881 PineStreet................. $ 776 $ 6,045 $ 6,821 $ (160) 1987 1997 $ 3,641
Academy Point................... 881 7,894 8,775 (135) 1984 1998 6,352
Apollo Computer................. 6,106 18,873 24,979 (456) 1987 1997 15,587
BeltlineBusiness Ctr............ 600 3,094 3,694 (1,530) 1984 1985 2,682
Linear Tech..................... 1,235 3,231 4,466 (81) 1986 1997 2,238
Manhattan....................... 5,156 24,403 29,559 (711) 1985 1997 20,300
Skygate......................... 1,923 8,779 10,702 (219) 1964/73 1997 5,978
Spring Valley................... 959 8,389 9,348 (184) 1980/98 1998 (b)
Systech (10505 Sorrento)........ 879 3,704 4,583 (93) 1982 1997
Tech 29 Bldg III................ 1,600 6,840 8,440 (41) 1988 1998 4,650
Northview Business Center....... 7,600 14,676 22,276 (245) 1970 1998 15,497
-------- -------- -------- --------
Total Office
Properties............ $ 27,715 $105,928 $133,643 $ (3,855)
RETAIL PROPERTIES
Tamarac......................... $ 6,000 $ 22,491 $ 28,491 $(11,491) 1976/79 1985 11,574
Volusia......................... 3,445 3,833 7,278 (96) 1984 1997
-------- -------- -------- --------
Total Retail
Properties............ $ 9,445 $ 26,324 $ 35,769 $(11,587)
DEVELOPMENT PROPERTY
Post Office Land................ 2,438 -- 2,438 -- -- 1998
-------- -------- -------- -------- ----------
Total Development
Property.............. 2,438 -- 2,438 -- --
Trust........................... -- 1,217 1,217 (117)
-------- -------- -------- --------
TOTAL ALL PROPERTIES.... $108,890 $396,242 $505,132 $(33,449)
- ---------------
(a) Property encumbered by a first mortgage loan of $30,280 at December 31,
1998.
(b) Property encumbered by a first mortgage loan of $24,484 at December 31,
1998.
F-27
73
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO SCHEDULE III
DECEMBER 31, 1997
(IN THOUSANDS)
RECONCILIATION OF REAL ESTATE:
1998 1997 1996
-------- -------- --------
Balance at beginning of year................................ $265,312 $ 94,472 $101,897
Additions during period:
Improvements.............................................. 6,659 1,366 982
Acquisitions.............................................. 243,231 175,469 --
-------- -------- --------
515,202 271,307 102,879
Deductions during period:
Dispositions.............................................. -- 5,995 8,407
Writedowns................................................ 10,060 -- --
Asset retirements...................................... 10 -- --
-------- -------- --------
Balance at end of year...................................... $505,132 $265,312 $ 94,472
======== ======== ========
RECONCILIATION OF ACCUMULATED DEPRECIATION:
1998 1997 1996
-------- -------- --------
Balance at beginning of year................................ $ 25,521 $ 23,973 $ 23,441
Additions during period:
Depreciation expense for period........................... 7,928 2,774 2,577
-------- -------- --------
33,449 26,747 26,018
Deductions during period:
Accumulated depreciation of real estate sold.............. -- 1,226 2,045
Asset retirements...................................... -- -- --
-------- -------- --------
Balance at end of year...................................... $ 33,449 $ 25,521 $ 23,973
======== ======== ========
TAX BASIS:
The income tax basis of real estate, net of accumulated tax depreciation,
is approximately $495,232 at December 31, 1998.
DEPRECIABLE LIFE:
Depreciation is provided by the straight-line method over the estimated
useful lives which are as follows:
Buildings and capital improvements: 40 years
Tenant improvements:
Term of the lease not to
exceed 10 years
F-28
74
INDEX TO EXHIBITS
EXHIBIT
NO. DOCUMENT
------- --------
2.1 -- Form of Amended and Restated Agreement and Plan of
Merger, dated as of June 30, 1997, by and between the
Trust and each of USAA Real Estate Income Investments I,
a California Limited Partnership, USAA Real Estate Income
Investments II Limited Partnership, USAA Income
Properties III Limited Partnership and USAA Income
Properties IV Limited Partnership (included as Annex I to
the Joint Proxy Statement/Prospectus of the Trust
included in Form S-4, Registration No. 333-31823)
2.2 -- Purchase Agreement dated as of July 2, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit Industrial Properties Limited Partnership, as
Seller, as amended by (i) First Amendment to Purchase
Agreement dated as of July 30, 1997, (ii) Second
Amendment to Purchase Agreement dated as of July 31,
1997, (iii) Third Amendment to Purchase Agreement dated
as of August 8, 1997, (iv) Fourth Amendment to Purchase
Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2,
1997 (incorporated herein by reference from Exhibit 2.1
to Form 8-K of the Trust dated October 3, 1997)
2.3 -- Purchase Agreement dated as of July 2, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit 1995 Industrial Portfolio Limited Partnership, as
Seller, as amended by (i) First Amendment to Purchase
Agreement dated as of July 30, 1997, (ii) Second
Amendment to Purchase Agreement dated as of July 31,
1997, (iii) Third Amendment to Purchase Agreement dated
as of August 8, 1997, and (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997
(incorporated herein by reference from Exhibit 2.2 to
Form 8-K of the Trust dated October 3, 1997)
2.4 -- Purchase Agreement dated as of July 2, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit VV 1995 Industrial Portfolio Limited Partnership,
as Seller, as amended by (i) First Amendment to Purchase
Agreement dated as of July 30, 1997, (ii) Second
Amendment to Purchase Agreement dated as of July 31,
1997, (iii) Third Amendment to Purchase Agreement dated
as of July 31, 1997, (iv) Fourth Amendment to Purchase
Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2,
1997 (incorporated herein by reference from Exhibit 2.3
to Form 8-K of the Trust dated October 3, 1997)
2.5 -- Purchase Agreement dated as of June 30, 1997 between
Shidler West Investment Corporation, as Purchaser, and
Merit VV Land 1995 Industrial Portfolio Limited
Partnership, as Seller, as amended by (i) First Amendment
to Purchase Agreement dated as of July 30, 1997, (ii)
Second Amendment to Purchase Agreement dated as of July
31, 1997, (iii) Third Amendment to Purchase Agreement
dated as of July 31, 1997, and (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997
(incorporated herein by reference from Exhibit 2.4 to
Form 8-K of the Trust dated October 3, 1997)
2.6 -- Purchase and Sale Agreement dated as of September 24,
1997 by and between Midway/Commerce Center Limited
Partnership, as Seller, and the Trust, as Buyer
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated October 3, 1997)
75
EXHIBIT
NO. DOCUMENT
------- --------
2.7 -- First Amendment to Purchase and Sale Agreement dated as
of October 22, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.2 to Form 8-K of the Trust dated
November 13, 1997)
2.8 -- Second Amendment to Purchase and Sale Agreement dated as
of October 31, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.3 to Form 8-K of the Trust dated
November 13, 1997)
2.9 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments I, a California Limited
Partnership (incorporated herein by reference from
Exhibit 2.1 to Form 8-K of the Trust dated January 20,
1998)
2.10 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments II Limited Partnership
(incorporated herein by reference from Exhibit 2.2 to
Form 8-K of the Trust dated January 20, 1998)
2.11 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments III Limited Partnership
(incorporated herein by reference from Exhibit 2.3 to
Form 8-K of the Trust dated January 20, 1998)
2.12 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments IV Limited Partnership
(incorporated herein by reference from Exhibit 2.4 to
Form 8-K of the Trust dated January 20, 1998)
2.13 -- Agreement and Plan of Merger by and among the Trust,
Developers Diversified Realty Corporation ("DDR") and DDR
Office Flex Corporation ("DDR Flex") dated July 30, 1998
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated July 30, 1998)
*3.1 -- Third Amended and Restated Declaration of Trust
*3.2 -- First Amendment to the Third Amended and Restated
Declaration of Trust
*3.3 -- Second Amendment to the Third Amended and Restated
Declaration of Trust
*3.4 -- Third Amendment to the Third Amended and Restated
Declaration of Trust
*3.5 -- Fifth Amended and Restated Bylaws
*3.6 -- Amendment to the Fifth Amended and Restated Bylaws
3.7 -- Statement of Designation of Series A Preferred Shares of
Beneficial Interest of the Trust dated July 30, 1998
(incorporated herein by reference from Exhibit 3.1 to
Form 8-K of the Trust dated July 30, 1998)
4.1 -- Indenture dated November 15, 1985, by and between the
Trust and IBJ Schroder Bank & Trust Company (incorporated
herein by reference from Exhibit 10.4 to Form S-4 of
American Industrial Properties REIT, Inc. ("AIP Inc.")
dated March 16, 1994; Registration No. 33-74292)
4.2 -- Form of Common Share Certificate (incorporated herein by
reference from Exhibit 4.2 to Amendment No. 3 to Form S-4
of the Trust filed October 28, 1997; Registration No.
333-31823)
10.1 -- Form of Indemnification Agreement (incorporated by
reference from Exhibit 10.1 to Form S-4 of the Trust
dated July 22, 1997; Registration No. 333-31823)
76
EXHIBIT
NO. DOCUMENT
------- --------
10.2 -- Employee and Trust Manager Incentive Share Plan
(incorporated by reference from Exhibit 10.2 to Form S-4
of the Trust dated July 22, 1997; Registration No.
333-31823)
10.3 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB/LaSalle Securities
Limited Partnership ("ABKB") as Agent for and for the
benefit of a particular client (incorporated herein by
reference from Exhibit 10.7 to Form 8-K of the Trust
dated July 22, 1997)
10.4 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB as Agent for and for
the benefit of a particular client (incorporated herein
by reference from Exhibit 10.8 to Form 8-K of the Trust
dated July 22, 1997)
10.5 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB/LaSalle Advisors
Limited Partnership ("LaSalle") as Agent for and for the
benefit of a particular client (incorporated herein by
reference from Exhibit 10.9 to Form 8-K of the Trust
dated July 22, 1997)
10.6 -- Registration Rights Agreement dated as of July 10, 1997,
by and between the Trust, ABKB as Agent for and for the
benefit of particular clients and LaSalle Advisors
Limited Partnership as Agent for and for the benefit of a
particular client (incorporated herein by reference from
Exhibit 10.6 to Form 8-K of the Trust dated July 22,
1997)
10.7 -- Common Share Purchase Agreement dated as of June 20,
1997, by and among the Trust, MS Real Estate Special
Situations, Inc. ("MSRE") and Morgan Stanley Asset
Management, Inc. ("MSAM") as agent and attorney-in-fact
for specified clients (the "MSAM") (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 22, 1997)
10.8 -- Registration Rights Agreement dated as of June 20, 1997,
by and among the Trust, MSRE and MSAM on behalf of the
MSAM Purchaser (incorporated herein by reference from
Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997)
10.9 -- Renewal, Extension, Modification and Amendment Agreement
dated February 26, 1997, executed by the Trust in favor
of USAA Real Estate Company ("Realco") (incorporated
herein by reference from Exhibit 10.1 to Form 8-K of the
Trust dated March 4, 1997)
10.10 -- Share Purchase Agreement dated as of December 20, 1996,
by and among the Trust, Realco and AIP Inc. (incorporated
herein by reference from Exhibit 99.7 to Form 8-K of the
Trust dated December 23, 1996)
10.11 -- Share Purchase Agreement dated as of December 13, 1996,
by and between the Trust and Realco (incorporated herein
be reference from Exhibit 99.4 to Form 8-K of the Trust
dated December 23, 1996)
10.12 -- Registration Rights Agreement dated as of December 20,
1996, by and between the Trust and Realco, as amended
(incorporated herein by reference from Exhibit 99.9 to
Form 8-K of the Trust dated December 23, 1996)
10.13 -- Registration Rights Agreement dated as of December 19,
1996, by and between the Trust and Realco (incorporated
herein by reference from Exhibit 99.8 to Form 8-K of the
Trust dated December 23, 1996)
10.14 -- 401(k) Retirement and Profit Sharing Plan (incorporated
herein by reference from Exhibit 10.5 to Amendment No. 1
to Form S-4 of AIP Inc. dated March 4, 1994; Registration
No. 33-74292)
77
EXHIBIT
NO. DOCUMENT
------- --------
10.15 -- Amendments to 401(k) Retirement and Profit Sharing Plan
(incorporated herein by reference from Exhibit 10.4 to
Form 10-K of the Trust dated March 27, 1995)
10.16 -- Settlement Agreement by and between the Trust, Patapsco
#1 Limited Partnership, Patapsco #2 Limited Partnership,
The Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company (U.S.A.) dated as of
May 22, 1996 (incorporated herein by reference from
Exhibit 99.1 to Form 8-K of the Trust dated May 22, 1996)
10.17 -- Agreement and Assignment of Partnership Interest, Amended
and Restated Agreement and Certificate of Limited
Partnership and Security Agreement for Patapsco
Center -- Linthicum Heights, Maryland (incorporated
herein by reference from Exhibit 10.8 to Amendment No. 2
to Form S-4 of AIP Inc. dated March 4, 1994; Registration
No. 33-74292)
10.18 -- Note dated November 15, 1994 in the original principal
amount of $12,250,000 with AIP Properties #1 L.P. as
Maker and AMRESCO Capital Corporation as Payee
(incorporated herein by reference from Exhibit 99.1 to
Form 8-K of the Trust dated November 22, 1994)
10.19 -- Mortgage, Deed of Trust and Security Agreement dated
November 15, 1994 between AIP Properties #1 L.P. and
AMRESCO Capital Corporation (incorporated herein by
reference from Exhibit 99.20 Form 8-K of the Trust dated
November 22, 1994)
10.20 -- Loan Modification Agreement modifying the Note dated
November 15, 1994 in the original principal amount of
$12,250,000 (incorporated herein by reference from
Exhibit 99.2 to Form 8-K of the Trust dated June 23,
1995)
10.21 -- Note dated November 15, 1994 in the original principal
amount of $2,150,000 with AIP Properties #2 L.P. as Maker
and AMRESCO Capital Corporation as Payee (incorporated
herein by reference from Exhibit 99.3 to Form 8-K of the
Trust dated November 22, 1994)
10.22 -- Mortgage, Deed of Trust and Security Agreement dated
November 15, 1994 between AIP Properties #2 L.P. and
AMRESCO Capital Corporation (incorporated herein by
reference from Exhibit 99.4 to Form 8-K of the Trust
dated November 22, 1994)
10.23 -- Loan Modification Agreement modifying the Note dated
November 15, 1994 in the original principal amount of
$2,250,000 (incorporated herein by reference from Exhibit
99.1 to Form 8-K of the Trust dated June 23, 1995)
10.24 -- Promissory Note dated November 25, 1996, by and between
AIP Inc. and Realco (incorporated herein by reference
from Exhibit No. 99.5 to Form 8-K of the Trust dated
December 23, 1996)
10.25 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (Huntington Drive Center)
(incorporated herein by reference from Exhibit 99.1 to
Form 8-K of the Trust dated November 20, 1996)
10.26 -- Note dated November 15, 1996 in the original principal
amount of $4,575,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Huntington Drive Center ) (incorporated herein by
reference from Exhibit 99.2 to Form 8-K of the Trust
dated November 20, 1996)
78
EXHIBIT
NO. DOCUMENT
------- --------
10.27 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (Patapsco Industrial Center)
(incorporated herein by reference from Exhibit 99.3 to
Form 8-K of the Trust dated November 20, 1996)
10.28 -- Note dated November 15, 1996 in the original principal
amount of $3,112,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Patapsco Industrial Center) (incorporated herein by
reference from Exhibit 99.4 to Form 8-K of the Trust
dated November 20, 1996)
10.29 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (Woodlake Distribution
Center) (incorporated herein by reference from Exhibit
99.5 to Form 8-K of the Trust dated November 20, 1996)
10.30 -- Note dated November 15, 1996 in the original principal
amount of $1,537,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Woodlake Distribution Center) (incorporated herein by
reference from Exhibit 99.6 to Form 8-K of the Trust
dated November 20, 1996)
10.31 -- Deed of Trust and Security Agreement dated November 15,
1996 between AIP Properties #3, L.P. and Life Investors
Insurance Company of America (all Texas properties except
Woodlake) (incorporated herein by reference from Exhibit
99.7 to Form 8-K of the Trust dated November 20, 1996)
10.32 -- Note dated November 15, 1996 in the original principal
amount of $1,162,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Meridian Street Warehouse) (incorporated herein by
reference from Exhibit 99.8 to Form 8-K of the Trust
dated November 20, 1996)
10.33 -- Note dated November 15, 1996 in the original principal
amount of $2,775,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Beltline Business Center) (incorporated herein by
reference from Exhibit 99.9 to Form 8-K of the Trust
dated November 20, 1996)
10.34 -- Note dated November 15, 1996 in the original principal
amount of $3,375,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Plaza South) (incorporated herein by reference from
Exhibit 99.10 to Form 8-K of the Trust dated November 20,
1996)
10.35 -- Note dated November 15, 1996 in the original principal
amount of $2,100,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Commerce North Park) (incorporated herein by reference
from Exhibit 99.11 to Form 8-K of the Trust dated
November 20, 1996)
10.36 -- Note dated November 15, 1996 in the original principal
amount of $2,850,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Gateway 5 & 6) (incorporated herein by reference from
Exhibit 99.12 to Form 8-K of the Trust dated November 20,
1996)
10.37 -- Note dated November 15, 1996 in the original principal
amount of $5,175,000 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Northgate II) (incorporated herein by reference from
Exhibit 99.13 to Form 8-K of the Trust dated November 20,
1996)
10.38 -- Note dated November 15, 1996 in the original principal
amount of $1,327,500 with AIP Properties #3, L.P. as
Maker and Life Investors Insurance Company as Payee
(Westchase Park) (incorporated herein by reference from
Exhibit 99.4 to Form 8-K of the Trust dated November 20,
1996)
79
EXHIBIT
NO. DOCUMENT
------- --------
10.39 -- Bonus and Severance Agreement dated March 13, 1996, by
and between the Trust and Charles W. Wolcott
(incorporated herein by reference from Exhibit 10.12 to
Form 10-K of the Trust for the year ended December 31,
1996)
10.40 -- Bonus and Severance Agreement dated March 13, 1996, by
and between the Trust and Marc A. Simpson (incorporated
herein by reference from Exhibit 10.13 to Form 10-K of
the Trust for the year ended December 31, 1996)
10.41 -- Bonus and Severance Agreement dated March 13, 1996, by
and between the Trust and David B. Warner (incorporated
herein by reference from Exhibit 10.14 to Form 10-K of
the Trust for the year ended December 31, 1996)
10.42 -- Amendment No. 1 to Share Purchase Agreement dated as of
December 13, 1996 by and between the Trust and Realco
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K of the Trust dated March 4, 1997)
10.44 -- Common Share Purchase Agreement dated as of January 29,
1998, by and between the Trust and Praedium II Industrial
Associates LLC ("Praedium") (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.45 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
10.46 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K of the Trust
dated January 29, 1998)
10.47 -- Contribution and Exchange Agreement dated as of September
25, 1997 among Shidler West Investment Corporation,
AIP-SWAG Operating Partnership, L.P. and the Trust
(incorporated herein by reference from Exhibit 99.1 to
Form 8-K of the Trust dated October 3, 1997)
10.48 -- Assignment and Assumption of Purchase Agreements dated as
of October 3, 1997 between Shidler West Investment
Corporation and AIP-SWAG Operating Partnership, L.P.
(incorporated herein by reference from Exhibit 99.2 to
Form 8-K of the Trust dated October 3, 1997)
10.49 -- Amended and Restated Agreement of Limited Partnership of
AIP-SWAG Operating Partnership, L.P. dated as of October
3, 1997 (incorporated herein by reference from Exhibit
99.3 to Form 8-K of the Trust dated October 3, 1997)
10.50 -- Warrant Agreement dated as of October 3, 1997 between the
Trust and Shidler West Acquisition Company, LLC
(incorporated herein by reference from Exhibit 99.4 to
Form 8-K of the Trust dated October 3, 1997)
10.51 -- Warrant Agreement dated as of October 3, 1997 between the
Trust and AG Industrial Investors, L.P. (incorporated
herein by reference from Exhibit 99.5 to Form 8-K of the
Trust dated October 3, 1997)
10.52 -- Registration Rights Agreement dated as of October 3, 1997
between the Trust and Shidler West Acquisition Company,
LLC (incorporated herein by reference from Exhibit 99.6
to Form 8-K of the Trust dated October 3, 1997)
10.53 -- Registration Rights Agreement dated as of October 3, 1997
between the Trust and AG Industrial Investors, L.P.
(incorporated herein by reference from Exhibit 99.7 to
Form 8-K of the Trust dated October 3, 1997)
80
EXHIBIT
NO. DOCUMENT
------- --------
10.54 -- Credit Agreement dated as of October 3, 1997 between the
Trust and AIP-SWAG Operating Partnership, L.P., as
Borrower, and Prudential Securities Credit Corporation,
as Lender (incorporated herein by reference from Exhibit
99.9 to Form 8-K of the Trust dated October 3, 1997)
10.55 -- Credit Agreement dated as of October 3, 1997 between the
Trust and AIP-SWAG Operating Partnership, L.P., as
Borrower, and Prudential Securities Credit Corporation,
as Lender (incorporated herein by reference from Exhibit
99.8 to Form 8-K of the Trust dated October 3, 1997)
10.56 -- Common Share Purchase dated as of January 29, 1998, by
and between the Trust and Praedium (incorporated herein
by reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.57 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
10.58 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K dated January
29, 1998)
10.59 -- Contract of Sale by and between Nationwide Life Insurance
Company and ALCU Investments, Inc. (incorporated herein
by reference from Exhibit 10.1 to Form 8-K/A of the Trust
dated February 11, 1998)
10.60 -- Assignment of Contract of Sale dated as of February 11,
1998, by and among ALCU Investments, Ltd., AIP Operating,
L.P. and the Trust (incorporated herein by reference from
Exhibit 10.2 to Form 8-K/A of the Trust dated February
11, 1998)
10.61 -- Contribution and Exchange Agreement dated as of January
29, 1998, by and among ALCU Investments, Ltd., AIP
Operating, L.P., and the Trust (incorporated herein by
reference from Exhibit 10.3 to Form 8-K/A of the Trust
dated February 11, 1998)
10.62 -- Amended and Restated Agreement of Limited Partnership of
AIP Operating, L.P. dated as of February 11, 1998, by and
among the Trust, General Electric Capital Corporation,
and ALCU Investments, Ltd. (incorporated herein by
reference from Exhibit 10.4 to Form 8-K/A of the Trust
dated February 11, 1998)
10.63 -- Promissory Note by and among the Trust, AIP Operating,
L.P., and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.5 to
Form 8-K/A of the Trust dated February 11, 1998)
10.64 -- First Amendment to Credit Agreement dated as of February
11, 1998, by and among the Trust, AIP Operating, L.P.,
and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K/A of the Trust dated February 11, 1998)
*10.65 -- Industrial Property Portfolio Agreement of Purchase and
Sale by and between Spieker Northwest, Inc. and the Trust
*10.66 -- Purchase and Sale Agreement by and between North Austin
Office, Ltd. and the Trust
10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions
by and between CM Property Management, Inc. and the Trust
dated July 15, 1997 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K/A of the Trust dated March
23, 1998)
81
EXHIBIT
NO. DOCUMENT
------- --------
10.68 -- Purchase and Sale Agreement and Escrow Instructions by
and between Corporex Properties of Tampa, Inc.,
CFX-Westshore Corporation, and the Trust (incorporated
herein by reference from Exhibit 10.2 to From 8-K/A of
the Trust dated March 23, 1998)
10.69 -- Amendment to Purchase and Sale Agreement and Escrow
Instructions by and between Corporex Properties of Tampa,
Inc., CPX-Westshore Corporation, and the Trust
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K/A of the Trust dated March 23, 1998)
10.70 -- Purchase and Sale Agreement between the Equitable Life
Assurance Society of the United States and the Trust
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K/A of the Trust dated March 23, 1998)
10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P.
and the Trust (incorporated herein by reference from
Exhibit 10.5 to Form 8-K/A of the Trust dated March 23,
1998)
10.72 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Charles W. Wolcott and the
Trust (incorporated herein by reference from Exhibit 10.1
to Form 8-K of the Trust dated April 29, 1998)
10.73 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Marc A. Simpson and the
Trust (incorporated herein by reference from Exhibit 10.2
to Form 8-K of the Trust dated April 29, 1998)
10.74 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between David B. Warner and the
Trust (incorporated herein by reference from Exhibit 10.3
to Form 8-K of the Trust dated April 29, 1998)
10.75 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Lewis D. Friedland and the
Trust (incorporated herein be reference from Exhibit 10.4
to Form 8-K of the Trust dated April 29, 1998)
10.76 -- Amendments to the Trust's Employee and Trust Manager
Incentive Share Plan (incorporated herein by reference
from Exhibit 10.5 to Form 8-K of the Trust dated April
29, 1998)
10.77 -- Share Purchase Agreement by and between the Trust and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998)
10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated July 30, 1998)
10.79 -- Second Amended and Restated Registration Rights Agreement
by and among the Trust, MSRE and MSAM dated July 30, 1998
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K of the Trust dated July 30, 1998)
10.80 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust and Realco July 30, 1998
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K of the Trust dated July 30, 1998)
10.81 -- Registration Rights Agreement by and between the Trust
and DDR dated July 30, 1998 (incorporated herein by
reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 30, 1998)
10.82 -- First Amended and Restated Registration Rights Agreement
by and between the Trust and Praedium dated July 30, 1998
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K of the Trust dated July 30, 1998)
82
EXHIBIT
NO. DOCUMENT
------- --------
10.83 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust, ABKB and LaSalle dated July 30,
1998 (incorporated herein by reference from Exhibit 10.7
to Form 8-K of the Trust dated July 30, 1998)
10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.8 to Form 8-K of the Trust dated July 30,
1998)
10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.9 to Form 8-K of the Trust dated July 30,
1998)
10.86 -- Letter Agreement by and between Praedium and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.10 to Form 8-K of the Trust dated July 30,
1998)
10.87 -- Letter Agreement by and between Realco and DDR dated July
30, 1998 (incorporated herein by reference from Exhibit
10.11 to Form 8-K of the Trust dated July 30, 1998)
10.88 -- Amendment No. One, dated as of September 14, 1998, to the
Share Purchase Agreement, dated as of July 30, 1998,
between the Trust and DDR (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated September 16, 1998)
10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998,
by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.90 -- Amendment to Purchase and Sale Agreement dated June 19,
1998, by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.2 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.91 -- 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 Flex (incorporated herein by reference from
Exhibit 10.1 to Form 8-K of the Trust dated October 14,
1998)
10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by
and between Battlefield/Virginia, Inc. and DDR Flex
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K of the Trust dated October 14, 1998)
10.93 -- 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 Flex (incorporated herein by reference from
Exhibit 10.3 to Form 8-K of the Trust dated October 14,
1998)
10.94 -- Amendment to Purchase and Sale Agreement dated July 8,
1998, by and between Battlefield/Virginia, Inc., and DDR
Flex (incorporated herein by reference from Exhibit 10.4
to Form 8-K of the Trust dated October 14, 1998)
10.95 -- 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 Flex (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated October 14, 1998)
83
EXHIBIT
NO. DOCUMENT
------- --------
10.96 -- Second Amendment to Purchase and Sale Agreement dated
September 30, 1998, by and between Battlefield/Virginia,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.6 to Form 8-K of the Trust dated October 14,
1998)
10.97 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.7 to
Form 8-K of the Trust dated October 14, 1998)
10.98 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe B, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.8 to
Form 8-K of the Trust dated October 14, 1998)
10.99 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe C, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.9 to
Form 8-K of the Trust dated October 14, 1998)
10.100 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier Tech, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.10 to
Form 8-K of the Trust dated October 14, 1998)
*21.1 -- Listing of Subsidiaries
*23.1 -- Consent of Ernst & Young LLP
*24.1 -- Power of Attorney (Included on signature page hereto)
*27.1 -- Financial Data Schedule
- ---------------
* Filed herewith