10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the Fiscal Year Ended December 31, 1994 OR [ ]TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] 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) 6220 North Beltline, Suite 205 Irving, Texas 75063 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 550- 6053 Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange Title of Each Class on Which Registered 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 $12,479,000 as of March 21, 1995. 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 21, 1995. 9,075,400 Shares of Beneficial Interest were outstanding as of March 21, 1995. DOCUMENTS INCORPORATED BY REFERENCE No annual report to security holders, proxy information statement, or prospectus filed under the Securities Act of 1933 is incorporated herein by reference. AMERICAN INDUSTRIAL PROPERTIES REIT For The Year Ended December 31, 1994 TABLE OF CONTENTS FORM 10-K Securities and Exchange Commission Item Number and Description Page PART I. Item 1.Business 1 General 1 Revenue and Loss from Real Estate Operations 2 Geographic Analysis of Revenue 2 Competition and Conflicts of Interest 3 Employees 3 Item 2. Properties 3 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Shareholders 6 PART II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 6 Item 6. Selected Financial Data 7 Item 7. Managements' Discussion and Analysis of Financial Condition and Results of Operations 8 Results of Operations 8 Liquidity and Capital Resources 9 Other Matters 10 Recent Developments 10 Item 8. Financial Statements and Supplementary Data 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11 PART III. Item 10.Trust Managers and Executive Officers of the Trust 11 Item 11.Executive Compensation 12 Item 12.Security Ownership of Certain Beneficial Owners and Management 13 Item 13.Certain Relationships and Related Transactions 13 PART IV. Item 14.Exhibits, Financial Statement Schedule and Reports on Form 8-K 13 SIGNATURES 15 Index to Consolidated Financial Statements and Financial Statement Schedule F-1 PART I. ITEM 1. Business General American Industrial Properties REIT (the "Trust"), a Texas equity real estate investment trust, was organized as Trammell Crow Real Estate Investors on September 26, 1985 by the issuance of 13,400 Shares of Beneficial Interest (the "Shares"). On November 27, 1985, the Trust issued 9,062,000 in additional Shares and commenced operations. The Trust's investment objective is to maximize the total return to its Shareholders through the acquisition, leasing, management and disposition of industrial real estate properties. The Trust was initially advised by Trammell Crow Ventures, Ltd. (the "Advisor"), an affiliate of the Trammell Crow Company and related entities (the "TCC Entities"), under an advisory agreement that provided for the payment of an annual advisory fee and reimbursements for certain expenses as well as transaction fees for asset acquisitions and dispositions. In June 1993, the Trust terminated its agreement with the Advisor and converted to self-administration. The name of the Trust was changed to American Industrial Properties REIT and its ticker symbol on the New York Stock Exchange was changed to "IND" to reflect the Trust's industrial property focus. In October 1993, Shareholders voted to remove the finite life term of the Trust as contained in the original Declaration of Trust, thereby making the Trust a perpetual life entity. The Trust is engaged in the operation of developed industrial real estate properties and one retail real estate property. The Trust leases space in its properties to a variety of tenants. The industrial properties are leased for office, office-showroom, warehouse, distribution, research and development, and light assembly purposes. The retail property is leased to retail merchandise establishments, restaurants, and a cinema. No single tenant accounts for more than 10% of the Trust's consolidated gross revenue. However, rents and tenant reimbursements related to Tamarac Square, the Trust's retail property, were approximately 30% of the total revenues of the Trust in 1994. The Trust's portfolio consists of 14 industrial properties located in California, Florida, Maryland, Minnesota, Texas, Washington and Wisconsin, and one retail property located in Colorado. As part of its initial capitalization in 1985, the Trust issued $179,698,000 (face amount at maturity) of Zero Coupon Notes due 1997 (the "Notes"). In 1991, the Trust began an effort to retire the outstanding Notes, which were accreting at 12%. The Trust utilized net proceeds from property sales and issuance of certain unsecured notes payable to substantially reduce the amount of Notes outstanding during 1991, 1992 and 1993, thereby reducing the amount of outstanding Notes to $19,491,000 (face amount at maturity) at December 31, 1993. On December 31, 1993, the Trust partially in-substance defeased $12,696,000 (face amount at maturity) of the outstanding Notes with proceeds from disposal of short term investments. During the first half of 1994, the Trust purchased $239,000 (face amount at maturity) of Notes and submitted the Notes to the Trustee for cancellation. In November 1994, $3,669,000 (face amount at maturity) of the outstanding Notes were partially in-substance defeased with the proceeds from a refinancing of certain of the Trust's properties. In December 1994, the Trust purchased the remaining non-defeased Notes outstanding of approximately $2,887,000 (face amount at maturity) in the open market and submitted the Notes to the Trustee for cancellation. As a result of the 1994 defeasance, the liens on the Trust's properties required by the Indenture were released. In February 1992, the Trust issued $53,234,000 in unsecured promissory notes in connection with the retirement of certain Notes. The terms of these unsecured notes include an 8.8% fixed rate of interest, semi-annual interest-only payments commencing May 1993, the deferral of interest due prior to May 1993, and a mandatory principal payment due on or before November 27, 1993. On December 31, 1992, the Trust used $11,648,000 of the net sales proceeds from its 1992 sales of real estate to make a principal and interest payment on the 8.8% unsecured notes which included the mandatory principal payment due November 27, 1993. The unsecured notes mature November 27, 1997 and can be prepaid at any time prior to maturity without penalty. In late 1993, the Trustee for the Zero Coupon Noteholders released approximately $3.4 million from the Property Acquisition Account established in accordance with the Indenture. The Trust utilized these funds to purchase the Northview Distribution Center in Dallas, Texas in December 1993. The Trust has historically qualified as a Real Estate Investment Trust ("REIT") for federal income tax purposes 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) to its Shareholders. Revenue and Loss from Real Estate Operations The breakdown of revenue and loss from real estate operations for each of the years ended December 31, 1994, 1993, and 1992 is as follows (in thousands): 1994 1993 1992 Rents and reimbursements from unaffiliated tenants: Retail $3,441 $3,182 $3,126 Industrial 7,639 6,944 11,783 Rents and tenant reimbursements 11,080 10,126 14,909 Interest income 146 515 230 Total revenue 11,226 10,641 15,139 Real estate expenses (12,355) (13,329) (18,443) Administrative expenses (2,532) (2,433) (1,321) Provisions for possible losses on real estate (650) - (14,094) Loss from real estate operations $(4,311) $(5,121) $(18,719)
Geographic Analysis of Revenue The geographic breakdown of the Trust's rents and tenant reimbursements for each of the years ended December 31, 1994, 1993, and 1992 is as follows (in thousands): Market 1994 1993 1992 Baltimore industrial $ 583 $ 597 $ 578 Charlotte industrial (a) - (10) 2,866 Dallas industrial (b) 2,259 1,628 2,626 Denver retail 3,441 3,182 3,126 Ft. Lauderdale industrial 384 451 511 Houston industrial (c) 1,197 1,391 2,272 Los Angeles industrial 936 916 893 Milwaukee industrial 982 700 787 Minneapolis industrial 721 684 680 Seattle industrial 577 587 570 Total rents and tenant reimbursements $11,080 $10,126 $14,909
_____________________ (a)The Charlotte property was sold during the fourth quarter of 1992. (b)One property was sold in January 1993 and one property was purchased in December 1993. (c)One property was sold in December 1992. Competition and Conflicts of Interest The Trust owns industrial properties in Baltimore, Dallas, Ft. Lauderdale, Houston, Los Angeles, Milwaukee, Minneapolis, and Seattle, and one retail property in Denver. 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. TCC Entities are employed as property managers on twelve of the Trust's fifteen properties. TCC Entities, which also own or manage additional properties in each market in which the Trust owns properties, may have relationships and interests that conflict with those of the Trust. Although the Trust actively monitors this situation, there can be no assurance that a potential conflict would be resolved in favor of the Trust. Each of the property management agreements with the TCC Entities is cancelable with thirty days notice. Employees The Trust currently employs six people on a full-time basis. Information regarding executive officers of the Trust is set forth in Item 10 of Part III of this Form 10-K and is incorporated in this Item 1 by reference. ITEM 2. Properties As of December 31, 1994, the Trust owned fifteen real estate properties consisting of fourteen industrial developments and one enclosed specialty retail mall. The Trust sold a total of three properties during December 1992 and January 1993 and purchased one property in December 1993. A description of the properties owned by the Trust as of December 31, 1994, as well as related leased occupancy and mortgage indebtedness, is presented below. Property Descriptions Baltimore Industrial Patapsco Industrial Center Patapsco Industrial Center is a five-building, two phase industrial park located in Linthicum Heights, Maryland, a suburb of Baltimore. The project comprises approximately 95,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 94%. Patapsco Industrial Center is subject to a first mortgage with a principal amount outstanding of $1,396,000 as of December 31, 1994. The Trust is a 99.99% general partner of the limited partnership that currently owns Patapsco Industrial Center. The limited partner's interest is held by a wholly-owned subsidiary of the Trust. Dallas Industrial Beltline Business Center Beltline Business Center consists of three industrial buildings located in Irving, Texas, a suburb of Dallas, that are 100% finished for office space and, together, comprise approximately 61,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 93%. Gateway 5 and 6 Gateway 5 and 6 consists of two industrial buildings located in Irving, Texas comprising approximately 79,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 89%. Northgate II Northgate II consists of four industrial buildings located within a 21-building industrial park in Dallas, Texas. The project consists of approximately 236,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 100%. Northview Distribution Center Northview Distribution Center consists of two industrial buildings located in Dallas, Texas. The project consists of approximately 175,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 100%. Northview Distribution Center is subject to a mortgage with a principal amount outstanding of $2,250,000 as of December 31, 1994. The Trust is a 99% limited partner in the limited partnership which owns Northview Distribution Center. A wholly-owned subsidiary of the Trust is the 1% general partner. Denver Retail Tamarac Square Tamarac Square, located in Denver Colorado, consists of an enclosed specialty retail mall of approximately 139,000 net rentable square feet with an adjacent convenience center of approximately 33,000 net rentable square feet, two free- standing buildings of approximately 8,000 net rentable square feet each, a separate free-standing building of approximately 9,000 net rentable square feet and two ground leases comprising approximately 4.91 acres. During 1993, the Trust completed a $2 million renovation of Tamarac Square. As of December 31, 1994, leased occupancy was 92%. Tamarac Square is subject to a mortgage with a principal amount outstanding of $12,250,000 as of December 31, 1994. The Trust is a 99% limited partner in the limited partnership which owns Tamarac Square. A wholly-owned subsidiary of the Trust is the 1% general partner. The Trust has been notified of the possible existence of underground contamination at Tamarac Square. The source of the possible contamination is apparently related to underground storage tanks located on adjacent property. The owner of the adjacent property has provided indemnification to the Trust for costs related to the remediation of such contamination. Based upon preliminary testing, it does not appear that the Trust property has been impacted. Ft. Lauderdale Industrial Quadrant Center Quadrant Center consists of two industrial buildings situated on approximately 5.4 acres of land located in Deerfield Beach, a suburb of Ft. Lauderdale, Florida. The project comprises approximately 73,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 100%. Quadrant Center is subject to a mortgage with a principal amount outstanding of $1,200,000 as of December 31, 1994. Houston Industrial Plaza Southwest Plaza Southwest consists of five industrial buildings in Houston, Texas comprising approximately 149,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 86%. Commerce Park Commerce Park consists of two industrial buildings in Houston, Texas comprising approximately 87,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 67%. Westchase Park Westchase Park consists of two industrial buildings in Houston, Texas comprising approximately 47,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 84%. Los Angeles Industrial Huntington Drive Center Huntington Drive Center consists of a two-story office building and an industrial building comprising approximately 62,000 square feet of net rentable space located in Monrovia, California, a suburb of Los Angeles. As of December 31, 1994, leased occupancy was 95%. Milwaukee Industrial Northwest Business Park Northwest Business Park consists of three industrial buildings comprising approximately 143,000 square feet of net rentable space located in Menomonee Falls, Wisconsin, a suburb of Milwaukee. As of December 31, 1994, leased occupancy was 92%. Phase I of Northwest Business Park is subject to a mortgage with a principal amount outstanding of $1,323,000 at December 31, 1994. Minneapolis Industrial Burnsville Burnsville consists of one industrial building comprising approximately 46,000 square feet of net rentable space located in Burnsville, Minnesota, a suburb of Minneapolis. As of December 31, 1994, leased occupancy was 94%. Burnsville is subject to a first mortgage with a principal amount outstanding of $1,955,000 as of December 31, 1994. The mortgage matures in May 1995 and may be renewed, at the Trust's election, for an additional three-year period. Cahill Cahill consists of one industrial building comprising approximately 60,000 square feet of net rentable space located in Edina, Minnesota, a suburb of Minneapolis. As of December 31, 1994, leased occupancy was 100%. Seattle Industrial Springbrook Business Park Springbrook Business Park consists of one industrial building located in Kent, Washington, a suburb of Seattle, comprising approximately 81,000 square feet of net rentable space. As of December 31, 1994, leased occupancy was 100%. ITEM 3. Legal Proceedings The Trust is not a party to, nor is any of its property the subject of, any material pending legal proceedings. ITEM 4. Submission of Matters to a Vote of Shareholders Pursuant to a proxy statement dated October 7, 1994, the Annual Meeting of Shareholders was held on November 21, 1994 for purposes of election of Trust Managers and ratification of the selection of independent auditors. Representatives of the Trust's major Shareholder, American Holdings, Inc., proposed their own nominees for election as Trust Managers. No nominee achieved the two-thirds vote of all outstanding Shares required for election as a Trust Manager or the majority vote of all outstanding Shares required for re-election. Accordingly, the existing Trust Managers have continued in their capacity as Trust Managers. Item 5 of Form 8-K dated December 5, 1994 (File No. 1- 9016) reporting the Shareholder voting results of the Annual Meeting is hereby incorporated by reference herein. 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 per Share closing sale price of the Trust's Shares, and the cash distributions declared per Share: Quarter ended High Low Distributions December 31, 1994 1 7/8 1 1/4 .00 September 30, 1994 1 3/4 1 1/4 .00 June 30, 1994 2 1/8 1 5/8 .00 March 31, 1994 2 1/2 1 3/4 .00 December 31, 1993 3 1/4 2 .04 September 30, 1993 2 3/8 1 7/8 .04 June 30, 1993 2 1/2 2 .04 March 31, 1993 3 1 3/4 .04
In December 1993, the Trust announced a suspension of quarterly distributions to Shareholders until such time as the Zero Coupon Notes were fully defeased and distributions could be supported by the positive cash flow of the Trust. As of March 21, 1995, the closing sale price per Share on the New York Stock Exchange was $1.375. On such date, there were 9,075,400 outstanding Shares held by 2,149 Shareholders of record. 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, 1994. This information should be read in conjunction with the Consolidated Financial Statements of the Trust and accompanying Notes. (in thousands except per share data) Year Ended December 31, 1994 1993 (a) 1992 (b) 1991 (c) 1990 Operating data: Revenues 11,226 10,641 15,139 16,488 17,744 Loss from real estate operations (d) (4,311) (5,121) (18,719) (13,786) (4,484) Net loss (d) (4,655) (7,867) (17,593) (9,162) (2,626) Per share data: Loss from real estate operations (d) (0.47) (0.57) (2.06) (1.52) (0.49) Net loss (d) (0.51) (0.87) (1.94) (1.01) (0.29) Distributions paid 0 0.16 0.20 0.42 0.70 Balance Sheet Data: Total assets 92,550 88,297 110,446 147,877 169,465 Total long-term debt, net of unamortized discount 65,613 57,078 68,578 87,141 94,666 Shareholders' equity 24,196 28,851 38,171 57,579 70,507 Selected other data Calculation of funds from operations (e): Loss from real estate operations (4,311) (5,121) (18,719) (13,786) (4,484) Amortization of original issue discount on Zero Coupon Notes 419 1,391 3,356 8,456 8,842 Depreciation and amortization 3,133 3,140 4,190 4,267 4,674 Provision for possible losses on real estate 650 0 14,094 9,371 0 Funds from Operations (109) (590) 2,921 8,308 9,032 Capitalized improvements and leasing commissions (1,476) (1,814) (3,995) (1,383) (2,003) Funds available for distribution (1,585) (2,404) (1,074) 6,925 7,029 Per share: Funds from operations ($0.01) ($0.07) $0.32 $0.92 $1.00 Funds available for distribution ($0.17) ($0.26) ($0.12) $0.76 $0.77 Number of shares outstanding 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400
-------------------------- (a) The Trust sold one property in the first quarter of 1993, thus operating with only 14 properties until the acquisition of the Northview Distribution Center in December 1993. (b) The Trust sold two properties in the fourth quarter of 1992, thus operating with only 15 properties for the remainder of 1992. (c) On December 30, 1990, the Trust sold two properties, thus operating with only 17 properties during 1991. (d) Loss from real estate operations and net loss for 1994, 1992 and 1991 include provisions for possible losses on real estate of $650,000, $14,094,000 and $9,371,000, respectively. (e) See definition of Funds from Operations ("FFO") below. Changes in the Trust's debt structure from zero coupon debt to current-pay debt negatively impacts FFO as the amortization of the zero coupon debt is not reflected in FFO, whereas the interest on current-pay debt does impact FFO. The two properties sold during the fourth quarter of 1992 contributed a total of $2,111,000 to the Trust's 1992 FFO and the property sold in January 1993 contributed a total of $815,000 to the Trust's 1992 FFO. The property purchased in December 1993 contributed approximately $420,000 to FFO for 1994. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Below is a summary of net loss, funds from operations ("FFO"), and funds available for distribution ("FAD") for the Trust for the years ended December 31, 1994, 1993, and 1992. FFO is based on the definition adopted by the National Association of Real Estate Investment Trusts which is net income excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization (the Trust adds back the amortization of the original issue discount on its Zero Coupon Notes due 1997), and after adjustments for unconsolidated partnerships and joint ventures. FAD more accurately portrays the ability of the Trust to make distributions as it includes the Trust's capital expenditures. Neither FFO or FAD should be considered an alternative to net income as an indicator of the Trust's operating performance or to cash flows from operations as a measure of liquidity. (in thousands, except per share amounts Year Ending December 31, 1994 1993 1992 Net Loss $(4,655) $(7,867) $(17,593) Net Loss Per Share $ (0.51) $(0.87) $ (1.94) Funds From Operations $ (109) $ (590) $ 2,921 Funds Available for Distribution $(1,585) $(2,404) $ (1,074)
Comparison of 1994 to 1993 The net loss of the Trust in 1994 was $4,655,000, a decrease of $3.2 million from the net loss of $7,867,000 in 1993. The primary reasons for the improved performance in 1994 relate to an increase in the net operating income of the Trust's properties and a decrease in the extraordinary loss recognized by the Trust in 1993 on the partial in-substance defeasance of the Trust's Zero Coupon Notes due 1997 (the "Notes") as compared to 1994. In 1994, net operating income from the Trust's properties increased to $7.1 million from $6.0 million in 1993. This increase is primarily attributable to increases in occupancy in the portfolio. Overall leased occupancy at December 31, 1994 was 93.2%, compared to 89.2% a year earlier. On a same property basis, net operating income increased from $5.9 million in 1993 to $6.7 million in 1994, an increase of 14%. The extraordinary loss on the partial in-substance defeasance of the Notes was $2,530,000 in 1993 and $344,000 in 1994. During 1994, a significant increase in interest rates had a favorable effect on the costs of defeasing the remaining Notes. The defeasance of the Notes will have a positive effect on the net loss of the Trust, but will have a detrimental effect upon both FFO and FAD. This results from the inclusion of interest expense on refinancing and the exclusion of the amortization of the original issue discount on the Notes when computing FFO and FAD. Trust administration and overhead expenses were $2.5 million in 1994 as compared to $2.4 million in 1993. Included in the 1994 amount was approximately $880,000 related to two contested proxy elections during 1994. The 1993 amount includes $435,000 as a termination fee to the Advisor as well as approximately $250,000 related to a nonroutine proxy election. The Trust recorded a provision for possible losses on real estate of $650,000 in 1994. No such provision was recorded in 1993. Due to the Trust's desire to geographically refocus its property portfolio, the Trust reclassified two of its properties from held for investment to held for sale. The subsequent comparison of net book value to estimated net realizable value on sale for these properties resulted in the need for the provision of $650,000. One of these properties was sold in February 1995 (see Recent Developments below.) Comparison of 1993 to 1992 The net loss in 1993 declined to $7,867,000 from $17,593,000 in 1992 due in part to provisions for possible losses on real estate recognized in 1992 in the amount of $14,094,000. The benefit from the absence of these provisions in 1993 was partially offset by the extraordinary loss recognized by the Trust in 1993 in the amount of $2,530,000 as a result of a partial in-substance defeasance of the Trust's Zero Coupon Notes. In addition, the Trust recognized extraordinary gains in 1992 in the amount of $1,910,000 related to the repurchase of Zero Coupon Notes, which caused a favorable impact in 1992 net loss when compared to 1993. The remaining variance in net loss between 1993 and 1992 of approximately $2.5 million (greater loss in 1993 than 1992 after considering the previous items) can be attributed to the sales of the Woodland Industrial Park in Charlotte, North Carolina and the Southland industrial property in Houston, Texas, which occurred at the end of 1992; the sale of the Royal Lane Business Park in Dallas, Texas in January 1993; the incremental administrative costs attributable to the termination fee paid to the Advisor in the amount of $435,000 as further discussed below; and the proxy solicitation effort to remove the finite life restriction of the Trust in the amount of approximately $250,000. On a same property basis, rental revenues remained flat during the year, although in the third and fourth quarter, the Trust began to see some strengthening in the leasing markets in most of the areas in which the Trust operates in terms of both traffic and rental rates (other than in Southern California). Same property occupancy improved to 89% at December 31, 1993 from 88% at December 31, 1992. The Trust terminated its Advisory Agreement with the Advisor effective June 13, 1993. In accordance with the terms of the Advisory Agreements, a one-time termination fee of $435,000 was paid to the Advisor on such date. The Trust became self- administered, employing six full-time employees to conduct and administer the business affairs of the Trust. Liquidity and Capital Resources The principal sources of funds for the Trust's liquidity requirements are funds generated from operations of the Trust's real estate assets and unrestricted cash reserves. As of December 31, 1994, the Trust had $6,919,000 in unrestricted cash on hand. The Trust presently anticipates that these cash reserves will provide sufficient funds for all known liabilities and commitments relating to the Trust's operations during 1995. However, certain discretionary uses of the Trust's liquidity (such as the purchase of additional income-producing properties or the refinancing of existing debt obligations) could decrease the Trust's liquidity significantly. In November 1994, the Trust completed a $14,500,000 refinancing of two of its properties, Tamarac Square in Denver, Colorado, and Northview Distribution Center in Dallas, Texas. The proceeds of this financing were used to partially in-substance defease a portion of the outstanding Zero Coupon Notes. This partial defeasance resulted in the release to the Trust of approximately $7.1 million in restricted funds previously held by the Trustee. The $14,500,000 financing consists of two separate mortgage loans. The terms of each loan include a variable interest rate (30-day LIBOR rate plus 3.15%) with a ceiling of 11.375%, 25-year principal amortization, certain prepayment penalties, and a maturity in December 2001. In December 1994, the Trust retained NatWest Markets, an investment banking firm, to assist it in its efforts to recapitalize its debt structure. Although this agreement was terminated on March 16, 1995, the Trust intends to continue such efforts. The Trust may seek to retire existing debt obligations with proceeds from secured debt financing, property sales, cash on hand or a combination of these sources in the future. Such a transaction may require the Trust to utilize the majority of its cash on hand. Distributions made and declared during 1993 in the amount of $1,453,000 ($0.04 per share per quarter), were paid out of cash reserves of the Trust. In December, 1993, the Trust Managers announced the suspension of the Trust's quarterly distribution (see Other Matters below). The Trust currently has borrowings secured by mortgages on the properties totaling $20,374,000. Of this amount, approximately $16,455,000 represents borrowings with variable interest rates and $3,919,000 represents borrowings with fixed rates of interest. Based on current interest rates and assuming the renewal of a note maturing in May 1995, annual debt service on these borrowings amounts to $2,157,000 (see the Notes to Consolidated Financial Statements for additional detail concerning the terms of the mortgage notes payable). In accordance with the terms of the Trust's 8.8% unsecured notes payable due 1997, the Trust paid its first installment of semi-annual interest on May 27, 1993 in the amount of $1,974,000 (see the Notes to Consolidated Financial Statements for additional discussion regarding the terms of the 8.8% Notes). Accrued interest in the amount of approximately $1,990,000 will be payable each May and November until these 8.8% Notes become due in November 1997. During 1994, the Trust requested, and obtained, a 90-day extension of approximately one-half of the semi-annual interest payment due May 27, 1994. The amount due, plus interest, was paid in August 1994. The semi-annual payment due November 27, 1994 was made as scheduled. 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 turnover rate of 25% of the Trust's tenants and related revenue annually. Such turnover requires capital outlays related to tenant improvements and leasing commissions in order to maintain or improve the Trust's occupancy levels. These costs amounted to $1,476,000 in the year ended December 31, 1994 and $1,814,000 in the year ended December 31, 1993. 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 activity and related escrows. No capital improvements or renovations of significance are anticipated in the near future for any of the Trust's properties, with the possible exception of a large retail lease at the Trust's retail property. Such a lease, if agreed to, could result in expenditures for tenant improvements in excess of $500,000. Management intends to pursue a strategy designed to lower the Trust's cost of capital and enable the Trust to make additional investments in industrial properties through the use of additional equity and/or debt financings. In order for the Trust to issue additional equity for this purpose (in excess of the 924,600 Shares currently authorized but unissued), the Trust will need to increase its authorized Share limit and/or have the ability to issue additional classes of stock such as preferred stock, either of which would require an amendment of the Declaration of Trust by the affirmative vote of holders of two- thirds of the outstanding Shares. There can be no assurance that such vote will be attained or that such equity or debt financing will otherwise be available to the Trust in the future. Other Matters The Trust suspended quarterly distributions to Shareholders in December 1993 until such time as the Zero Coupon Notes were fully defeased and distributions could be supported from current cash flow. Accordingly, no distributions were paid during 1994. The Trust is currently exploring alternatives which would allow for the resumption of distributions at the earliest opportunity. Recent Developments On February 24, 1995, the Trust sold its Quadrant Center industrial property in Deerfield Beach, Florida. An immaterial loss on the sale will be recognized by the Trust in the first quarter of 1995. After payment of the mortgage loan secured by this property, the sale generated net proceeds of approximately $1,250,000. 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. PART III. ITEM 10. Trust Managers and Executive Officers of the Trust The persons who serve as Trust Managers and executive officers of the Trust, their ages and their respective positions at December 31, 1994 are as follows: Name Age Position(s) and Office(s) Held William H. Bricker 63 Trust Manager Charles W. Wolcott 42 Trust Manager, President and Chief Executive Officer David B. Warner 36 Vice President and Chief Operating Officer Marc A. Simpson 40 Vice President and Chief Financial Officer, Secretary and Treasurer William H. Bricker, Trust Manager. Mr. Bricker has served as President of D.S. Energy Services Incorporated and has consulted in the energy field and international trade sine 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 Paralysis Foundation. He received his Bachelor of Science and Masters of Science degrees from Michigan State University. Charles W. Wolcott, Trust Manager, President and Chief Executive Officer. Mr. Wolcott was hired as the President and Chief Executive Officer of the Trust on May 4, 1993. For the six months immediately prior to his election as President of the Trust, Mr. Wolcott was engaged in developing various personal business enterprises. 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 Masters of Business Administration degree from Harvard University in 1977. David B. Warner, Vice President and Chief Operating Officer. Mr. Warner was hired as Vice President and Chief Operating Officer of the Trust on May 24, 1993. From 1989 through the date of his accepting a position with the Trust, Mr. Warner was 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. Marc A. Simpson, 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 on March 7, 1994. From November 1989 to March 1994, Mr. Simpson was a Manager in the Financial Advisory Services group of Coopers & Lybrand. 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 Masters of Business Administration from Southern Methodist University in 1990. The Trust Managers have appointed two committees, the Audit Committee and the Compensation Committee. Both the Audit and Compensation Committees include only Trust Managers which are independent of management and who are free from any relationship that would interfere with the exercise of their independent judgment. Prior to the resignation of George P. Jenkins as an independent Trust Manager in November 1994, Mr. Jenkins served with Mr. Bricker on these committees. The Audit Committee appoints the independent public accountants for the Trust subject to the approval of the Shareholders at the Annual Meeting and consults with the accountants on the Trust's audited financial statements and on the efficacy of the Trust's internal control systems. The Compensation Committee establishes guidelines for compensation and benefits of the executive officers of the Trust based upon achievement of objectives and other factors, including review of compensation to executive officers of comparable entities and recommendations of independent compensation consultants. On February 2, 1995, the Trust Managers adopted the Third Amended and Restated Bylaws of the Trust (the "Bylaws"). The Bylaws provide that the number of Trust Managers shall not be less than two nor more than seven. ITEM 11. Executive Compensation In fiscal 1994, the Trust paid its independent Trust Managers a fee of $20,000 per year for services as a Trust Manager plus $1,000 for each meeting of the Trust Managers or a committee of the Trust Managers attended in person. In addition, the Trust Managers were reimbursed for their expenses incurred in connection with their duties as Trust Managers. Mr. Wolcott did not receive any compensation for his services as a Trust Manager. The following table sets forth certain information regarding the compensation paid to the Trust's executive officers for the year ended December 31, 1994: Summary Compensation Table Annual Compensation Name and Fiscal Principal Position Year Salary Bonus(1) Other(2) Charles W. Wolcott President and CEO 1994 $180,000 $62,100 $7,222 David B. Warner Vice-President and COO 1994 $ 92,000 $34,500 $4,429 Marc A. Simpson Vice-President and CFO 1994 $ 81,859 $34,500 $4,095
_______________ (1) Represents bonus payments for 1994 paid in February 1995. (2) Represents company contribution to the Retirement and Profit Sharing Plan paid in February 1995. The Trust has adopted a Retirement and Profit Sharing Plan (the "Plan") for the benefit of employees of the Trust. Employees who were employed by the Trust on November 1, 1993, and who have attained the age of 21 are immediately eligible to participate in the Plan. All other employees of the Trust are eligible to participate in the Plan after they have completed six months of service with the Trust and attained the age of 21. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information as to the number of Trust Shares beneficially owned by (a) each person (including any "group" as that term is used in Section 13 (d) of the Exchange Act) who is known by the Trust to own beneficially 5% or more of the Shares, (b) each Trust Manager, (c) each executive officer of the Trust, and (d) all executive officers of the Trust and Trust Managers as a group. Amount of Shares Names of Beneficially Owned Percentage of Beneficial Owners as of March 21, 1995 Shares Outstanding William H. Bricker 2,000 (1) Charles W. Wolcott 50,500 (1) David B. Warner 2,000 (1) Marc A. Simpson 9,000 (1) American Holdings, Inc. 376 Main Street Bedminster, NJ 07921 870,000 9.586% (2) All Trust Managers and executive officers as a group 63,500 (1) ______________ (1) Ownership is less than 1% of the outstanding Shares. (2) Information obtained from Amendment No. 7 to Schedule 13D of American Holdings, Inc. dated October 10, 1994.
ITEM 13. Certain Relationships and Related Transactions None. 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. Description 3.1 Second Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 4.1 to the Trust's Form 10-Q for the quarter ended September 30, 1993; File No. 1-9016) 3.2 * Third Amended and Restated Bylaws of the Trust 4.1 Indenture dated November 15, 1985 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. dated March 16, 1994; File No. 33-74292) 10.3 401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.5 to Amendment No. 1 to Form S-4 of American Industrial Properties REIT, Inc. dated March 4, 1994; File No. 33-74292) 10.4 *Amendments to 401(k) Retirement and Profit Sharing Plan 10.5 Note Purchase Agreement dated February 27, 1992 between the Trust and Manufacturers Life Insurance Company (incorporated herein by reference from Exhibit 10.6 to Form S-4 of American Industrial Properties REIT, Inc. dated January 31, 1994; File No. 33-74292) 10.6 *Addendum to $19,143,646.92 Unsecured Promissory Note due November 27, 1997 10.7 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. 1 to Form S-4 of American Industrial Properties REIT, Inc. dated March 4, 1994; File No. 33- 74292) 10.8 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; File No. 1-9016) 10.9 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 99.2 to Form 8-K of the Trust dated November 22, 1994; File No. 1-9016) 10.10 Note dated November 15, 1994 in the original principal amount of $2,250,000 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; File No. 1-9016) 10.11 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; File No. 1-9016) 21.1 *Listing of Subsidiaries 22.1 Form 8-K dated December 5, 1994 reporting Shareholder voting results at annual meeting (incorporated herein by reference from Form 8-K of the Trust dated December 5, 1994; File No. 1- 9016) 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, 1994: Date Filed Date of Earliest Event with SEC Reported on Form 8-K Description October 17, 1994 October 17, 1994 Item 5. Financing commitment October 20, 1994 October 7, 1994 Item 5. Clarification of by-laws November 22, 1994 November 16, 1994 Item 5. Closing of financing December 5, 1994 November 21, 1994 Item 5. Certified voting results of Annual Meeting Item 6. Resignation of Trust Manager
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 27, 1995. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ CHARLES W. WOLCOTT Charles W. Wolcott, Trust Manager, President and Chief Executive Officer 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: Signatures Title Date /s/ CHARLES W. WOLCOTT Trust Manager, President Charles W. Wolcott and Chief Executive Officer (Principal Executive Officer) March 27, 1995 /s/ WILLIAM H. BRICKER Trust Manager March 27, 1995 William H. Bricker /s/ MARC A. SIMPSON Vice President and Chief Marc A. Simpson Financial Officer, Secretary and Treasurer (Principal Accounting and Financial Officer) March 27, 1995 American Industrial Properties REIT Index to Consolidated Financial Statements and Financial Statement Schedule Page Reports of Independent Auditors F-2 Consolidated Financial Statements: Consolidated Statements of Operations for the years ended December 31, 1994, 1993, and 1992 F-4 Consolidated Balance Sheets as of December 31, 1994 and 1993 F-5 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1994, 1993, and 1992 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 F-7 Notes to Consolidated Financial Statements F-8 Financial Statement Schedule: Schedule III - Consolidated Real Estate and Accumulated Depreciation F-14 Notes to Schedule III F-15 All other financial statements and schedules not listed have been omitted since the required information is either included in the Financial Statements and the Notes thereto as included herein or is not applicable or required. REPORT OF INDEPENDENT AUDITORS Trust Managers and Shareholders American Industrial Properties REIT: We have audited the accompanying consolidated balance sheet of American Industrial Properties REIT (the "Trust") as of December 31, 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. Our audit also included the consolidated financial statement schedule of the Trust listed in the Index on page F-1. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion. In our opinion, the 1994 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Trust as of December 31, 1994, and the consolidated results of its operations and its cash flows for the year then ended, 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, presents fairly, in all material respects the information set forth therein. Dallas, Texas ERNST & YOUNG LLP February 23, 1995 INDEPENDENT AUDITORS' REPORT To the Trust Managers and Shareholders of American Industrial Properties REIT: We have audited the accompanying consolidated balance sheet of American Industrial Properties REIT (formerly Trammell Crow Real Estate Investors) (the "Trust") as of December 31, 1993 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1993 and 1992. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements 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 financial position of American Industrial Properties REIT as of December 31, 1993, and the results of its operations and its cash flows for the years ended December 31, 1993 and 1992 in conformity with generally accepted accounting principles. In connection with our audits of the consolidated financial statements referred to above, we audited the information set forth in the financial statement schedule listed in the accompanying index on page F-1, as it relates to the year ended December 31, 1993. In our opinion, the schedule presents fairly, in all material respects, the aforementioned information, when considered in relation to the financial statements taken as a whole. Dallas, Texas KENNETH LEVENTHAL & COMPANY February 15, 1994 American Industrial Properties REIT Consolidated Statements of Operations (in thousands, except share and per share data) Years Ended December 31, 1994 1993 1992 REVENUES Rents 8,397 7,811 11,908 Tenant reimbursements 2,683 2,315 3,001 Interest income 146 515 230 11,226 10,641 15,139 REAL ESTATE EXPENSES Amortization of original issue discount on Zero Coupon Notes due 1997 419 1,391 3,356 Depreciation and amortization 3,133 3,140 4,190 Interest on 8.8% notes payable due 1997 4,001 3,981 4,024 Interest on mortgages payable 850 683 1,370 Property operating expenses: Property taxes 1,421 1,408 2,139 Property management fees 442 422 621 Utilities 501 458 549 Repairs and maintenance 1,150 1,248 1,183 Other property operating expenses 438 598 1,011 Administrative expenses: Fees paid to Advisor 0 716 565 Trust administration and overhead 2,532 1,717 756 Provisions for possible losses on real estate 650 0 14,094 15,537 15,762 33,858 Loss from real estate operations (4,311) (5,121) (18,719) Loss on sales of real estate 0 (216) (784) Extraordinary gain from partial repurchase of Zero Coupon Notes due 1997 0 0 1,910 Extraordinary loss on partial in-substance defeasance of Zero Coupon Notes due 1997 (344) (2,530) - NET LOSS (4,655) (7,867) (17,593) PER SHARE DATA: Loss from real estate operations (0.47) (0.57) (2.06) Loss on sales of real estate 0 (0.02) (0.09) Extraordinary gain from partial repurchase of Zero Coupon Notes due 1997 0 0 0.21 Extraordinary loss on partial in-substance defeasance of Zero Coupon Notes due 1997 (0.04) (0.28) 0 Net Loss (0.51) (0.87) (1.94) Distributions paid 0.00 0.16 0.20 Number of shares outstanding 9,075,400 9,075,400 9,075,400 The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT Consolidated Balance Sheets (in thousands, except share and per share data) Dec. 31, Dec 31, 1994 1993 ASSETS Real estate: Held for investment 95,033 103,710 Held for sale 8,810 0 103,843 103,710 Accumulated depreciation -21,859 -19,315 Net real estate 81,984 84,395 Cash and cash equivalents: Unrestricted 6,919 1,119 Restricted 602 0 Total cash and cash equivalents 7,521 1,119 Other assets, net 3,045 2,783 TOTAL ASSETS 92,550 88,297 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: 8.8 % Notes payable due 1997 45,239 45,239 Zero Coupon Notes due 1997, net of unamortized discount and in-substance defeasance 0 4,682 Mortgage notes payable 20,374 7,157 Accrued interest 504 371 Accounts payable, accrued expenses and other liabilities 1,682 1,503 Tenant security deposits 555 494 TOTAL LIABILITIES 68,354 59,446 Shareholders' Equity: Shares of beneficial interest, $0.10 par value; authorized 10,000,000 Shares; issued and outstanding 9,075,400 Shares 908 908 Additional paid-in capital 124,605 124,605 Retained earnings (deficit) -101,317 -96,662 Total Shareholders' Equity 24,196 28,851 Total Liabilities and Shareholders' Equity 92,550 88,297 The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT Consolidated Statements of Changes in Shareholders' Equity (in thousands, except number of shares) Shares of Beneficial Additional Retained Interest Paid-In Earnings Number Amount Capital (Deficit) Total Balance at January 1, 1992 9,075,400 908 124,605 (67,934) 57,579 Net loss (17,593) (17,593) Distributions to Shareholders (1,815) (1,815) Balance at December 31, 1992 9,075,400 908 124,605 (87,342) 38,171 Net loss (7,867) (7,867) Distributions to Shareholders (1,453) (1,453) Balance at December 31, 1993 9,075,400 908 124,605 (96,662) 28,851 Net loss (4,655) (4,655) Balance at December 31, 1994 9,075,400 908 124,605 (101,317) 24,196 The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ($4,655) ($7,867) ($17,593) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization of original issue discount on Zero Coupon Notes due 1997 419 1,391 3,356 Depreciation and amortization 3,133 3,140 4,190 Provisions for possible losses on real estate 650 0 14,094 Extraordinary loss from partial defeasance of Zero Coupon Notes payable 344 2,530 0 Loss on sales of real estate 0 216 784 Extraordinary gain from partial repurchases of Zero Coupon Notes payable 0 0 (1,910) Changes in operating assets and liabilities: Decrease (increase) in other assets (256) (68) 424 Increase (decrease) in accounts payable, accrued expenses and other liabilities and tenant security deposits 373 (784) 539 Net Cash Provided By (Used In) Operating Activities 8 (1,442) 3,884 CASH FLOWS FROM INVESTING ACTIVITIES: Capitalized improvements and leasing commissions (1,476) (1,814) (3,995) Acquisition of Northview Distribution Center 0 (3,289) 0 Net proceeds from sales of real estate 0 6,758 34,125 Net Cash (Used In) Provided By Investing Activities (1,476) 1,655 30,130 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from mortgage financing 14,500 0 0 Partial in-substance defeasance of Zero Coupon Notes (3,106) (10,189) 0 Partial repurchase and retirement of Zero Coupon Notes (2,241) (316) (8,745) Principal repayments on mortgage notes payable (1,283) (4,915) (2,054) Distributions to Shareholders 0 (1,453) (1,815) Partial repayment of 8.8% notes payable 0 0 (7,995) Net Cash Provided By (Used In) Financing Activities 7,870 (16,873) (20,609) Net Increase (Decrease) in Cash and Cash Equivalents 6,402 (16,660) 13,405 Cash and Cash Equivalents at Beginning of Year 1,119 17,779 4,374 Cash and Cash Equivalents at End of Year $7,521 $1,119 $17,779 Cash Paid for Interest $4,718 $4,664 $5,023 The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT Notes to Consolidated Financial Statements December 31, 1994 Note 1 -- Significant Accounting Policies: General. American Industrial Properties REIT (formerly Trammell Crow Real Estate Investors) (the "Trust") is an equity real estate investment trust which, as of December 31, 1994, owned and operated 15 commercial real estate properties consisting of 14 industrial properties and one retail property. The Trust was formed September 26, 1985, by issuing 13,400 shares to Trammell Crow Company, Inc. for $201,000. On November 27, 1985, the Trust issued 9,062,000 Shares of Beneficial Interest (the "Shares") and commenced operations. On April 13, 1993, the Independent Trust Managers gave formal notice of the Trust's intent to terminate the Advisory Agreement with Trammell Crow Ventures, Ltd. (the "Advisor", see Note 2). The Trust converted to self-administration effective June 13, 1993 and began operating under the name American Industrial Properties REIT. Pursuant to the Trust's 1993 Annual Meeting of Shareholders, the Trust's Shareholders approved amendments to the Trust's Declaration of Trust and By-Laws which, among other things, officially changed the name of the Trust from Trammell Crow Real Estate Investors to American Industrial Properties REIT and removed the Trust's limited term restriction, converting the Trust from a finite life entity scheduled to liquidate in 1997 to a perpetual life entity. Principles of Consolidation. The consolidated financial statements of the Trust include the accounts of American Industrial Properties REIT and its wholly- owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Real Estate. The Trust carries its real estate at lower of depreciated cost or net realizable value. Management considers net realizable value for assets held for sale as estimated market value. In determining estimated market value, management considers numerous factors, including market evaluations, the cost of capital, operating cash flows from the property during the projected holding period, and an expected capitalization rate applied to the estimated stabilized net operating income of the specific property. The carrying amount of real estate held for investment is reduced when management believes the carrying amount is less than net realizable value. Management considers net realizable value for assets held for investment as the total of the estimated undiscounted future cash flows from the property. The book values of the Trust's real estate properties are reviewed periodically and any additional writedown determined to be necessary is recorded in the period in which it becomes reasonably estimable. Real estate held for investment is reclassified to real estate held for sale when management determines that there is a reasonable probability that the asset will no longer be held for long-term investment and actively begins to offer the property for sale. During 1994, two properties classified as being held for investment at December 31, 1993 were reclassified to held for sale. Property improvements 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 ten years. American Industrial Properties REIT Notes to Consolidated Financial Statements (continued) Cash and Cash Equivalents. Cash equivalents include demand deposits and all highly liquid debt instruments purchased with an original maturity of three months or less. Restricted 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 consists of deferred rent receivable (see Rents and Tenant Reimbursements.), prepaid commissions and loan fees. Leasing commissions are capitalized and amortized on a straight line basis over the life of the lease. Loan fees are capitalized and amortized on a level yield basis over the term of the related loan. Prior to the defeasance of the outstanding Zero Coupon Notes in 1994 (see Note 5), the issuance costs of the Zero Coupon Notes were being amortized over 12 years. Unamortized issuance costs at the date of defeasance were written off and reflected in the loss on defeasance. 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 $1,157,000 and $1,313,000 at December 31, 1994 and 1993, respectively. Several tenants in the retail property are also required to pay as rent a percentage of their gross sales volume, to the extent such percentage exceeds their base rents. Such percentage rents amounted to $245,000, $230,000 and $157,000 for the years ended December 31, 1994, 1993, and 1992, 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. Tamarac Square, the Trust's only retail property, has rental revenues in excess of 10% of the total revenues of the Trust. Rental revenues and tenant reimbursements from Tamarac totaled $3,441,000, $3,182,000, and $3,126,000 in 1994, 1993, and 1992, respectively. 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 dividends paid during the year. The Trust had a taxable loss in each of the years ending December 31, 1994, 1993, and 1992. Accordingly, no provision for income taxes has been reflected in the financial statements. The Trust has a net operating loss carryforward from 1994 and prior years of approximately $26,600,000. 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. Therefore, no tax benefit related to the potential utilization of accumulated net operating losses has been reflected in the financial statements. Earnings and profits, which will determine the taxability of dividends 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. American Industrial Properties REIT Notes to Consolidated Financial Statements (continued) Reclassification. Certain amounts in prior years financial statements have been reclassified to conform with the current year presentation. Note 2 -- Transactions with Parties in Interest: Trammell Crow Ventures, Ltd., an affiliate of the Trammell Crow Company, served as advisor (the "Advisor") to the Trust through June 13, 1993. Effective June 13, 1993, the Trust terminated the Advisory Agreement with the Advisor and paid to the Advisor a one- time termination fee of $435,000. Certain other affiliates of the Trammell Crow Company (the "TCC Entities") continue to manage twelve of the Trust's fifteen properties. The TCC Entities are not considered party in interest relationships by the Trust. During 1993 and 1992, the Trust paid fees to the Advisor of $716,000 and $565,000, respectively, representing fees and reimbursements pursuant to the Advisory Agreement, disposition fees from the sale or disposition of Trust real estate assets, and certain other fees for services provided to the Trust. In addition, affiliates of the Advisor were paid $202,000 and $598,000 during 1993 and 1992 pursuant to property management agreements. Note 3 -- Real Estate and Provisions for Possible Losses on Real Estate: The Trust recorded provisions for possible losses on real estate of $650,000 and $14,094,000 in 1994 and 1992, respectively. In accordance with the accounting policies of the Trust, such provisions reduced the depreciated cost of real estate. At December 31, 1994, thirteen of the Trust's properties were classified as held for investment and two properties were classified as held for sale. If unforeseen factors should cause a reclassification of the Trust's real estate held for investment to held for sale, significant adjustments to reduce the depreciated cost of the real estate to net realizable value could be required. Note 4 -- 8.8% Notes Payable: To finance the February 27, 1992 repurchase of $106,322,000 (face amount at maturity) of Zero Coupon Notes due 1997 (see Note 5), the Trust issued $53,234,000 of unsecured notes payable due November 1997 (the "8.8% Notes Payable"). These notes bear interest at 8.8% per annum, payable semiannually commencing May 27, 1993. The terms of the 8.8% Notes Payable allow for prepayment, in full or in part, at any time prior to maturity without penalty. On December 31, 1992, the Trust used proceeds from the 1992 sales of real estate to effect a principal payment of $7,995,000 (which was due on or before November 27, 1993) and an interest payment of $3,648,000 on the 8.8% Notes Payable. 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. American Industrial Properties REIT Notes to Consolidated Financial Statements (continued) During the first half of 1994, the Trust purchased $239,000 (face amount at maturity) of Notes and submitted the Notes to the Trustee for cancellation. In November 1994, the Trust refinanced two of its properties and 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 of approximately $2,887,000 (face amount at maturity) 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. The accreted value of the Notes defeased at December 31, 1994 and 1993 was $11,665,000 and $8,054,000, respectively. Note 6 -- Mortgages Payable: At December 31, 1994, six of the Trust's properties were subject to liens securing mortgage notes payable totaling $20,374,000. Of this amount $16,455,000 represented notes with variable interest rates of prime plus 2% or 30-day LIBOR plus 3.15% and $3,919,000 represented notes with fixed interest rates ranging from 9.63% to 11.0%. Of the variable rate debt, $14,500,000 is subject to a maximum interest rate of 11.375%. Principal payments due during each of the next five years are as follows: $2,171,000 in 1995, $1,437,000 in 1996, $261,000 in 1997, $287,000 in 1998, $1,504,000 in 1999, and $14,714,000 thereafter. These amounts reflect the maturity of individual mortgages in May 1995 (which mortgage can be extended at the Trust's election for an additional three-year period), in October 1996 and in March 1999. The By-Laws of the Trust, the note purchase agreement relating to the 8.8% Notes Payable, and certain mortgages payable contain various borrowing restrictions and operating performance covenants. As of December 31, 1994, the Trust is in compliance with all such restrictions and covenants. Note 7 -- Real Estate Acquisitions and Dispositions: On December 10, 1993, the Trust purchased Northview Distribution Center, a 175,000 square foot multi-tenant industrial distribution property in Dallas, Texas for total consideration of approximately $3.4 million. In January 1993, the Trust sold its Royal Lane industrial property in Dallas, Texas for $7,500,000. The sale resulted in a loss for financial statement purposes of $216,000. In 1992, the Trust sold its Woodland Industrial Park property in Charlotte, North Carolina and its Southland Industrial property in Houston, Texas. The total gross sales price for these properties was $35,823,000. The sales resulted in a loss for financial statement purposes of $784,000. Note 8 -- Commitments and Contingencies: Environmental Matters. The Trust has been notified of the possible existence of underground contamination at Tamarac Square, the Trust's Denver retail property. The source of the possible contamination is apparently related to underground storage tanks located on adjacent property. The owner of the adjacent property has indemnified the Trust against costs related to the remediation of such contamination. Based upon preliminary testing, it does not appear that the Tamarac Square property has been impacted. With the exception of Tamarac Square, 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. American Industrial Properties REIT Notes to Consolidated Financial Statements (continued) Litigation. On occasion, and in the normal course of business, the Trust is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the consolidated financial position of the Trust. Note 9 -- 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 six months 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, 1994 and 1993 were $20,000 and $12,000, respectively. Note 10 -- Operating Leases: The Trust's properties are leased to others under operating leases with expiration dates ranging from 1995 to 2005. Excluding the property sold by the Trust in February 1995 (see Note 14), future minimum rentals on noncancellable tenant leases at December 31, 1994 are as follows: Year Amount 1995 $ 8,555,000 1996 6,809,000 1997 5,051,000 1998 3,806,000 1999 2,187,000 Thereafter 5,249,000 $31,657,000
Note 11 -- Distributions: The Trust's distributions of $1,453,000 ($0.16 per share) in 1993 and $1,815,000 ($0.20 per share) in 1992 represent a return of capital to Shareholders (to the extent of the Shareholder's basis in the Shares.) The Trust did not pay any distributions in 1994. Note 12 -- Per Share Data: All per share data is based on 9,075,400 Shares outstanding for each of the years presented. Note 13 -- Fair Value of Financial Instruments: Cash equivalents, 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 unsecured 8.8% notes payable and 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 the Trust's mortgage notes payable reasonably approximate their fair values. The carrying amount and fair value of the Trust's unsecured 8.8% notes payable at December 31, 1994 were $45,239,000 and $41,738,000, respectively. American Industrial Properties REIT Notes to Consolidated Financial Statements (continued) Note 14 -- Subsequent Event: In February 1995, the Trust sold its Quadrant Center industrial property, located in Deerfield Beach, Florida for $2,650,000. At December 31, 1994, the net book value of the property was approximately $2,504,000. After selling costs and adjustment for deferred rent receivable, the sale is expected to result in an immaterial loss for accounting purposes. SCHEDULE III AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994 ($000's) Encum- Initial Cost Writedowns brances @ Bldgs & Capitalized and Description 12/31/94 Land Imprvmnts Imprvmnts Retirements Allowances Industrial Properties : Texas -- Beltline Business Ctr $1,303 $5,213 $359 ($3,516) Commerce Park 1,108 4,431 493 (2,014) Gateway 5 & 6 935 3,741 612 (1,861) Northgate II 2,153 8,612 623 (4,122) Northview $2,250 658 2,631 38 Plaza Southwest 1,312 5,248 486 Westchase 697 2,787 220 ($74) (1,158) California-- Huntington Drive 1,559 6,237 650 Maryland-- Patatpsco 1,396 1,147 4,588 321 (650) Minnesota-- Burnsville 1,955 761 3,045 364 (17) (1,563) Cahill 625 2,498 357 Washington-- Springbrook 1,008 4,032 233 (436) Wisconsin-- Northwest Bus. Park 1,323 1,296 5,184 669 (131) Florida-- Quadrant 1,200 1,137 4,549 116 (63) (2,337) Retail Property: Colorado-- Tamarac Square 12,250 6,799 27,194 3,982 (241) Trust Home Office 15 Total $20,374 $22,498 $89,990 $9,538 ($526) ($17,657) The accompanying notes are an integral part of this schedule.
SCHEDULE III AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994 ($000's) Gross Amt Carried at December 31, 1994 Bldgs & Accum. Date of Date Description Land Imprvmnts Total Deprec. Construction Acquired Industrial Properties : Texas -- Beltline Business Ctr 600 2759 3359 1157 1984 1985 Commerce Park 705 3,313 4,018 1,024 1984 1985 Gateway 5 & 6 563 2,864 3,427 989 1984-85 1985 Northgate 1,329 5,937 7,266 2,047 1982-83 1985 Northv 658 2,669 3,327 75 1980 1993 Plaza Southwest 1,312 5,734 7,046 1,352 1970-74 1985 Westchase 465 2,007 2,472 650 1983 1985 California-- Huntington Driv 1,559 6,887 8,446 1,561 1984-85 1985 Maryland-- Patatpsco 1,017 4,389 5,406 1,127 1980-84 1985 Minnesota-- Burnsville 432 2,158 2,590 788 1984 1986 Cahill 625 2,855 3,480 705 1981 1986 Washington-- Springbrook 921 3,916 4,837 977 1984 1986 Wisconsin-- Northwest Bus. Park 1,296 5,722 7,018 1,296 1983-86 1986 Florida-- Quadrant 670 2,732 3,402 898 1984-86 1986 Retail Property: Colorado-- Tamarac Square 6,799 30,935 37,734 7,206 1976-79 1985 Trust Home Offic 15 15 7 N/A various Total $18,951 $84,892 $103,843 $21,859 The accompanying notes are an integral part of this schedule.
AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO SCHEDULE III December 31 1994 ($000) Reconciliation of Real Estate: 1994 1993 Balance at beginning of year.... $103,710 $108,036 Additions during period: Improvements..................... 1,024 887 Acquisitions..................... - 3,289 104,734 112,212 Deductions during period: Dispositions.................... - 8,187 Writedowns....................... 650 - Asset retirements.............. 241 315 Balance at end of year......... $103,843 $103,710
Reconciliation of Accumulated Depreciation: 1994 1993 Balance at beginning of year..... $19,315 $18,036 Additions during period: Depreciation expense.......... 2,622 2,830 21,937 20,866 Deductions during period: Accum. deprec. of realestate sold - 1,551 Asset retirements............ 78 - Balance at end of year.......... $21,859 $19,315
Tax Basis: The income tax basis of real estate, net of accumulated tax depreciation, is approximately $103,805 at December 31, 1994. 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.................. 10 years EX-3.2 2 Exhibit 3.2 THIRD AMENDED AND RESTATED BYLAWS OF AMERICAN INDUSTRIAL PROPERTIES REIT February 2, 1995 INDEX ARTICLE I Offices 1 Section 1.1 Principal Office 1 Section 1.2 Other Offices 1 ARTICLE II Meetings of Shareholders 1 Section 2.1 Place of Meetings 1 Section 2.2 Annual Meeting 1 Section 2.3 Special Meetings 1 Section 2.4 Notice of Meetings 1 Section 2.5 Voting Lists 2 Section 2.6 Quorum 2 Section 2.7 Organization 2 Section 2.8 Proxies 3 Section 2.9 Voting of Shares 3 Section 2.10 Voting of Shares by Certain Holders 4 Section 2.11 Election of Trust Managers 4 Section 2.12 Telephone Meetings 4 Section 2.13 Action Without Meeting 4 Section 2.14 Inspectors and Voting Procedures 5 ARTICLE III Trust Managers 5 Section 3.1 Powers and Responsibilities 5 Section 3.2 Number and Qualification 6 Section 3.3 Election and Term of Office 6 Section 3.4 Resignation 6 Section 3.5 Vacancies; Increases 7 Section 3.6 Bond Not Required; Time Commitment 7 Section 3.7 Compensation 7 Section 3.8 Execution of Documents 7 ARTICLE IV Meetings of the Trust Managers 8 Section 4.1 Place of Meetings 8 Section 4.2 Annual Meeting 8 Section 4.3 Regular Meetings 8 Section 4.4 Special Meetings 8 Section 4.5 Quorum and Action 8 Section 4.6 Presumption of Assent to Action 8 Section 4.7 Telephone Meetings 9 Section 4.8 Action Without Meeting 9 Section 4.9 Minutes 9 Section 4.10 Interest of Trust Managers 9 Section 4.11 Right of Trust Managers and Officers to Own Shares or Other Property and to Engage in Other Businesses 9 Section 4.12 Transactions Between Trust Managers and the Trust 10 Section 4.13 Persons Dealing with Trust Managers or Officers 10 Section 4.14 Reliance 10 Section 4.15 Liability of Trust Managers 10 ARTICLE V Committees of the Trust Managers 11 Section 5.1 Membership and Authorities 11 Section 5.2 Minutes and Rules of Procedure 11 Section 5.3 Vacancies 11 Section 5.4 Telephone Meetings 11 Section 5.5 Action Without Meeting 11 ARTICLE VI Officers 12 Section 6.1 Number 12 Section 6.2Election, Term of Office and Qualification 12 Section 6.3 Subordinate Officers 12 Section 6.4 Resignation 12 Section 6.5 Removal 12 Section 6.6 Vacancies 12 Section 6.7 The Chief Executive Officer 12 Section 6.8 The President 13 Section 6.9 The Vice Presidents 13 Section 6.10 The Secretary 13 Section 6.11 Assistant Secretaries 14 Section 6.12 The Treasurer 14 Section 6.13 Assistant Treasurers 14 Section 6.14 Treasurer's Bond 14 Section 6.15 Salaries 14 Section 6.16 Execution of Documents 14 ARTICLE VII Trust Shares 15 Section 7.1 Share Certificates 15 Section 7.2 Lost Certificates, etc. 15 Section 7.3 Transfer of Shares 16 Section 7.4 Ownership of Shares 16 Section 7.5 Closing of Transfer Books 16 Section 7.6 Dividends 16 Section 7.7 Reserves 16 Section 7.8 Repurchase of Shares 16 ARTICLE VIII Indemnification 17 Section 8.1 Definitions 17 Section 8.2 Indemnification 17 Section 8.3 Successful Defense 18 Section 8.4 Determinations 18 Section 8.5 Advancement of Expenses 19 Section 8.6 Employee Benefit Plans 19 Section 8.7 Other Indemnification and Insurance 19 Section 8.8 Notice 19 Section 8.9 Construction 20 Section 8.10 Continuing Offer, Reliance, etc. 20 Section 8.11 Effect of Amendment 20 ARTICLE IX Limitations on Transfer and Ownership 20 Section 9.1 Limitations on Transfer. 20 Section 9.2 Limitations on Ownership. 21 Section 9.3 Shareholder Information. 21 Section 9.4 Transferee Information. 21 Section 9.5 Excess Shares. 22 9.5.1 Creation of Excess Shares. 22 9.5.2 Ownership in Trust. 22 9.5.3 Dividend Rights. 22 9.5.4 Rights Upon Liquidation. 22 9.5.5 Voting Rights. 23 9.5.6 Restrictions on Transfer. 23 9.5.7 Trust's Redemption Right. 23 Section 9.6 Exceptions to Certain Ownership and Transfer Limitations. 24 9.6.1 Exemption by Trust Managers. 24 9.6.2 Shares Held by Underwriters. 24 Section 9.7 Authority to Revoke Exceptions to Limitations 24 Section 9.8 Severability 25 Section 9.9 Authority of the Trust Managers 25 Section 9.10 New York Stock Exchange 25 ARTICLE X General Provisions 25 Section 10.1 General Policies 25 Section 10.2 Limited Liability of Shareholders 25 Section 10.3 Waiver of Notice 26 Section 10.4 Seal 26 Section 10.5 Fiscal Year 26 Section 10.6 Checks, Notes, etc 26 Section 10.7 Examination of Books and Records 26 Section 10.8 Voting Of Shares Held by the Trust 26 Section 10.9 Number, Gender, etc 27 Section 10.10 Annual and Quarterly Reports 27 ARTICLE XI Amendments 27 ARTICLE XII Subject to All Laws 27 AMERICAN INDUSTRIAL PROPERTIES REIT THIRD AMENDED AND RESTATED BYLAWS ARTICLE I Offices Section 1.1 Principal Office. The principal office of the Trust shall be in the City of Irving, Dallas County, Texas or at such other location as the Trust Managers may from time to time determine. Section 1.2 Other Offices. The Trust may also have offices at such other places, both within and without the State of Texas, as the Trust Managers may from time to time determine or the business of the Trust may require. ARTICLE II Meetings of Shareholders Section 2.1 Place of Meetings. The Trust Managers may designate any place, either within or without the State of Texas, as the place of meeting for any annual meeting or for any special meeting called by the Trust Managers. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the State of Texas, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Trust. Section 2.2 Annual Meeting. The annual meeting of shareholders commencing with the year 1995 shall be held at such time, on such day and at such place as may be designated by the Trust Managers. At the annual meeting, the shareholders shall, subject to Section 3.3 of these Bylaws, elect Trust Managers and transact such other business as may properly be brought before the meeting. Section 2.3 Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by law or by the Declaration of Trust, may be called by the Trust Managers, any officer of the Trust or the holders of at least ten percent (10%) of all of the shares entitled to vote at such meeting. Business transacted at all special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 2.4 Notice of Meetings. Written or printed notice of all meetings of shareholders stating the place, day and hour thereof, and in the case of a special meeting the purpose or purposes for which the meeting is called, shall be personally delivered or mailed, not less than ten (10) days nor more than sixty (60) days prior to the date of the meeting, to the shareholders of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail addressed to the shareholder at his address as it appears on the share transfer books of the Trust and the postage shall be prepaid. Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership, shall constitute delivery of such notice to such corporation, association or partnership. Section 2.5 Voting Lists. The officer or agent having charge of the share transfer books for shares of the Trust shall make, at least ten (10) days before each meeting of the shareholders, a complete list of shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of each shareholder and the number of shares held by each shareholder, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Trust and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder for the duration of the meeting. The original share transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Failure to comply with this Section 2.5 with respect to any meeting of shareholders shall not affect the validity of any action taken at such meeting. Section 2.6 Quorum. The holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by law or by the Declaration of Trust. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote at such meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally convened. The shareholders present at a duly organized meeting at which a quorum was present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum present, provided that there remain at such meeting the holder or holders of at least one-third (1/3) of the shares issued and outstanding and entitled to vote thereof, present in person or represented in the manner specified above. A holder of a share shall be treated as being present at a meeting if the holder of such share is (i) present in person at the meeting or (ii) represented at the meeting by a valid proxy, whether the instrument granting such proxy is marked as casting a vote or abstaining, is left blank or does not empower such proxy to vote with respect to some or all matters to be voted upon at the meeting. Section 2.7 Organization. (a) The Chief Executive Officer, if one shall be elected, shall preside at all meetings of the shareholders. In the absence of the Chief Executive Officer or should one not be elected, the President or, in his absence, a Vice President shall preside. In the absence of all of these officers, any shareholder or the duly appointed proxy of any shareholder may call the meeting to order and a chairman shall be elected from among the shareholders present. Notwithstanding the foregoing, the Trust Managers may appoint any Trust Manager to preside over any meeting of shareholders. The presiding officer shall fix the agenda for the meeting, shall conduct all aspects of the meeting and shall establish and interpret the rules of order for the conduct of the meeting. (a) The Trust Managers may appoint any person to act as secretary of any meeting of the shareholders. Section 2.8 Proxies. (a) At any meeting of the shareholders, every shareholder entitled to vote at such meeting shall be entitled to vote in person or by proxy executed in writing by such shareholder or by his duly authorized attorney-in-fact. Proxies shall be filed with the Secretary or Trust Managers immediately prior to or after the meeting has been called to order. (b) No proxy shall be valid after eleven (11) months from the date of its execution unless such proxy otherwise provides. (c) A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest but in no event shall it remain irrevocable for a period of more than eleven (11) months. A proxy which is revocable as aforesaid may be revoked at any time by filing with the Secretary an instrument revoking it or a duly executed proxy bearing a later date. Any revocable proxy which is not so revoked shall, subject to paragraph (b) above, continue in full force and effect. (d) In the event that any instrument in writing shall designate two (2) or more persons to act as proxies, a majority of such persons present at the meeting or, if only one shall be present, then that one, shall have and may exercise all of the powers conferred by such written instrument upon all the persons so designated unless the instrument shall otherwise provide. Section 2.9 Voting of Shares. Except as otherwise provided by law, the Declaration of Trust or these Bylaws, each shareholder shall be entitled at each meeting of shareholders to one (1) vote on each matter submitted to a vote at such meeting for each share having voting rights registered in his name on the books of the Trust at the time of the closing of the share transfer books (or at the record date) for such meeting. When a quorum is present at any meeting (and notwithstanding the subsequent withdrawal of enough shareholders to leave less than a quorum present) in accordance with Section 2.6 of these Bylaws, the votes of holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall decide any matter submitted to such meeting, unless the matter is one upon which by law or by express provision of the Declaration of Trust or of these Bylaws the vote of a greater number is required, in which case the vote of such greater number shall govern and control the decision of such matter. The provisions of this Section 2.9 will govern with respect to all votes of shareholders except as otherwise provided for in these Bylaws or in the Declaration of Trust or by some specific statutory provision superseding the provisions contained in these Bylaws or the Declaration of Trust. Section 2.10 Voting of Shares by Certain Holders. (a) Shares standing in the name of another business organization may be voted by such officer, agent or proxy as the organizational documents of such organization may authorize or, in the absence of such authorization, as may be determined by the governing body of such organization. (b) Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name so long as such shares forming a part of an estate are in the possession and form a part of the estate being served by him. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name as trustee. (c) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. (d) A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.11 Election of Trust Managers. At each election of Trust Managers, each shareholder entitled to vote at such election shall, unless otherwise provided by the Declaration of Trust or by applicable law, have the right to vote the number of shares owned by him for as many persons as there are to be elected and for whose election he has a right to vote. Unless otherwise provided by the Declaration of Trust, no shareholder shall have the right or be permitted to cumulate his votes on any basis. Section 2.12 Telephone Meetings. Shareholders may participate in and hold a meeting of the shareholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 2.13 Action Without Meeting. Any action required by any provision of law or of the Declaration of Trust or these Bylaws to be taken at a meeting of the shareholders or any action which may be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof, and such consent shall have the same force and effect as a unanimous vote of the shareholders. Section 2.14 Inspectors and Voting Procedures. (a) The Trust shall, in advance of any meeting of shareholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Trust may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of shareholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before beginning to discharge his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. (b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) The date and time of the opening and closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced at the meeting. No ballots, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless a court of appropriate jurisdiction, upon application by a shareholder, shall determine otherwise. (d) In determining the validity and counting of proxies and ballots, the inspectors may examine and consider such records or factors as allowed by the Texas Real Estate Investment Trust Act (the "Texas REIT Act"). ARTICLE III Trust Managers Section 3.1 Powers and Responsibilities. The business and affairs of the Trust shall be managed under the direction of its Trust Managers who may exercise all such powers of the Trust and do all such lawful acts and things as are not by statute, the Declaration of Trust or these Bylaws directed or required to be exercised or done by the shareholders. The enumeration of any specific power or authority herein shall not be construed as limiting the aforesaid powers or the general powers or authority or any other specified power or authority conferred herein upon the Trust Managers. Among other things, the Trust Managers shall be responsible for (a) supervising the Trust's relations with the managers of the Trust's properties, (b) evaluating the capability and performance of the managers of the Trust's properties, (c) reviewing the Trust's investment policies, (d) determining that the fees and expenses of the Trust are reasonable, (e) reviewing the aggregate borrowings of the Trust, (f) authorizing the issuance of the capital stock of the Trust, (g) approving the acquisition and disposition of real property and interests therein, (h) ratifying the appointments of independent accountants for the Trust and of independent appraisers of the Trust's properties, and (i) establishing and reviewing guidelines for leasing and management of the Trust's properties. Section 3.2 Number and Qualification. There shall at all times be no less than two (2) nor more than seven (7) Trust Managers who (subject to Section 3.3) shall be elected annually by the shareholders. Subject to any limitations specified by law or in the Declaration of Trust, the number of Trust Managers may be fixed from time to time by resolution adopted by a majority of the Trust Managers. No decrease in the number of Trust Managers shall have the effect of shortening the term of any incumbent Trust Manager. A majority of the Trust Managers shall be natural persons and residents of the State of Texas. Trust Managers need not be shareholders, must be at least eighteen (18) years of age, must not be subject to any legal disability and, except as provided in the immediately preceding sentence, need not be residents of the State of Texas. A majority of the Trust Managers and a majority of any committee of Trust Managers shall at all times be Independent Trust Managers; provided, however if the number of Trust Managers shall be two (2), only one (1) of such Trust Managers shall be required to be an Independent Trust Manager. For purposes of these Bylaws, the term "Independent Trust Manager" shall mean a Trust Manager who (i) does not perform any services for the Trust (except in the capacity of a Trust Manager) whether as an agent, advisor, consultant, employee, property manager or in any other capacity whatsoever (other than as a Trust Manager), and (ii) is not an "affiliate" of any person or entity that performs any services for the Trust (other than as a Trust Manager). The term "affiliate" as used in these Bylaws means any individual, corporation, partnership, trust, unincorporated organization, association or other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with any person or entity that performs any services for the Trust (other than as a Trust Manager). Section 3.3 Election and Term of Office. The Trust Manager nominees who have not been previously elected as Trust Managers by the shareholders of the Trust shall be elected at the annual meeting of the shareholders (except as provided in Section 3.6) by the affirmative vote of the holders of two-thirds (2/3) of the outstanding shares of the Trust. Trust Managers who have been previously elected as Trust Managers by the shareholders of the Trust shall be re-elected at the annual meeting of the shareholders by the affirmative vote of the holders of a majority of the outstanding shares of the Trust. Each Trust Manager shall hold office until his successor is elected and qualified, or until his death, resignation or removal in the manner provided in these Bylaws. Notwithstanding anything in these Bylaws to the contrary, any Trust Manager that has been previously elected as a Trust Manager by the shareholders who is not re-elected by a majority vote at a subsequent annual meeting shall nevertheless remain in office until his successor is elected and qualified. Section 3.4 Resignation. Any Trust Manager may resign at any time by giving written notice to the remaining Trust Managers. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. A Trust Manager who has reached the age of seventy- five (75), or who has been judged incompetent or for whom a guardian or conservator has been appointed, shall be deemed to have resigned as of the date of reaching such age, the date of such adjudication or the date of such appointment. Section 3.5 Vacancies; Increases. If any or all of the Trust Managers cease to be Trust Managers hereunder, whether by reason of resignation, removal, incapacity, death or otherwise, such event shall not terminate the Trust or affect its continuity. Until such vacancies are filled, the remaining Trust Manager or Trust Managers (regardless of number) may exercise the powers of the Trust Managers hereunder. Vacancies may be filled either by a majority of the remaining Trust Managers or by vote of the holders of at least two-thirds (2/3) of the outstanding shares at an annual or special meeting of the shareholders. A Trust Manager elected by the Trust Managers to fill a vacancy shall hold office only until the next annual election of Trust Managers by the shareholders. A Trust Manager elected by the shareholders to fill a vacancy shall hold office until the next annual meeting of shareholders, and until his successor is elected and qualified. Any Trust Manager elected to fill a vacancy created by the resignation, removal or death of any former Trust Manager shall hold office for the unexpired term of such Trust Manager. Notwithstanding any provision in these Bylaws to the contrary, any vacancy created by reason of an increase in number of Trust Managers shall be filled by the affirmative vote of the majority of the remaining Trust Managers, though less than a quorum of the full Board of Trust Managers. A Trust Manager elected to fill a vacancy created by reason of an increase in the number of Trust Managers shall hold office only until the next annual election of the Trust Managers by the shareholders. Section 3.6 Bond Not Required; Time Commitment. Unless otherwise required by law, no Trust Manager shall be required to give bond, surety or security in any jurisdiction for the performance of his duties or obligations to the Trust. No Trust Manager shall be required to devote his entire time to the business and affairs of the Trust. Section 3.7 Compensation. Trust Managers shall receive compensation for their services to the Trust as may be determined from time to time by the Trust Managers. The Trust Managers may delegate to any committee the power to fix from time to time the compensation of Trust Managers. Officers of the Trust who also serve as Trust Managers shall not receive compensation for their service as Trust Managers. Section 3.8 Execution of Documents. Each Trust Manager and any one of them is authorized to execute on behalf of the Trust any document or instrument of any nature whatsoever, provided that the execution by the Trust of any such document or instrument shall have been previously authorized by such action of the Trust Managers as may be required by statute, the Declaration of Trust or these Bylaws. ARTICLE IV Meetings of the Trust Managers Section 4.1 Place of Meetings. The Trust Managers of the Trust may hold their meetings, both regular and special, either within or without the State of Texas. Section 4.2 Annual Meeting. The annual meeting of the Trust Managers shall be held immediately following the adjournment of the annual meeting of the shareholders and no notice of such meeting shall be necessary to the Trust Managers in order legally to constitute the meeting, provided a quorum shall be present, or they may meet at such time and place as shall be fixed by the consent in writing of all of the Trust Managers. Section 4.3 Regular Meetings. Regular meetings of the Trust Managers, in addition to the annual meetings referred to in Section 4.2, may be held without notice at such time and place as shall from time to time be determined by the Trust Managers. Section 4.4 Special Meetings. Special meetings of the Trust Managers may be called by the Chief Executive Officer, if one shall be elected, or by the President, if a Chief Executive Officer is not elected, on one (1) business day's notice (oral or written) to each Trust Manager. Special meetings shall be called by the Chief Executive Officer (if one shall be elected), the President or the Secretary on like notice on the oral or written request of any Trust Manager. Neither the purpose of, nor the business to be transacted at, any special meeting of the Trust Managers need be specified in the notice or waiver of notice of such meeting. Attendance of a Trust Manager at a meeting shall constitute a waiver of notice of such meeting except where a Trust Manager attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Section 4.5 Quorum and Action. At all meetings of the Trust Managers, the presence of a majority of the Trust Managers shall be necessary and sufficient to constitute a quorum for the transaction of business and the act of a majority of the Trust Managers at any meeting at which a quorum is present shall be the act of the Trust Managers unless the act of a greater number is required by law, the Declaration of Trust or these Bylaws. If a quorum shall not be present at any meeting of Trust Managers, the Trust Managers present may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall be present. If there are only two Trust Managers, the presence of both Trust Managers shall be necessary to constitute a quorum. Section 4.6 Presumption of Assent to Action. A Trust Manager who is present at a meeting of the Trust Managers at which action on any Trust matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Trust immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Trust Manager who voted in favor of such action. Section 4.7 Telephone Meetings. Trust Managers may participate in and hold a meeting of the Trust Managers by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 4.8 Action Without Meeting. Any action required or permitted to be taken at a meeting of the Trust Managers may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the Trust Managers, and such consent shall have the same force and effect as a unanimous vote at a meeting. Section 4.9 Minutes. The Trust Managers shall keep regular minutes of their proceedings. The minutes shall be placed in the minute book of the Trust. Section 4.10 Interest of Trust Managers. With respect to the actions of the Trust Managers, Trust Managers who have any direct or indirect interest in connection with any matter being acted upon may be counted for all quorum purposes under this Article IV. Section 4.11 Right of Trust Managers and Officers to Own Shares or Other Property and to Engage in Other Businesses. Any Trust Manager or officer of the Trust may acquire, own, hold and dispose of shares of the Trust for his individual account, and may exercise all rights of a shareholder to the same extent and in the same manner as if he were not a Trust Manager or officer of the Trust. Except as provided specifically to the contrary in a written agreement with the Trust, any Trust Manager may, in a capacity other than that of Trust Manager, have business interests and engage in business activities similar to or in addition to those relating to the Trust, which interests or activities may be similar to and competitive with those of the Trust and may include the acquisition, syndication, holding, management, development, operation or disposition, for his own account or for the account of others, of interests in mortgages, interests in real property, or interests in entities engaged in the real estate business. Except as provided specifically to the contrary in a written agreement with the Trust, each Trust Manager shall be free of any obligation to present to the Trust any investment opportunity which comes to him in any capacity other than solely as Trust Manager of the Trust, even if such opportunity is of a character which, if presented to the Trust, could be exploited by the Trust. Subject to the provisions of Article III hereof, any Trust Manager or officer of the Trust may be a trustee, officer, director, shareholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in any person who may be engaged to render advice or services to the Trust, and may receive compensation from such person as well as compensation as Trust Manager or officer or otherwise hereunder. Section 4.12 Transactions Between Trust Managers and the Trust. Except as otherwise provided by the Declaration of Trust or these Bylaws, and in the absence of fraud, a contract, act or other transaction, between the Trust and any other person, or in which the Trust is interested, shall be valid and no Trust Manager or officer of the Trust shall have any liability as a result of entering into any such contract, act or transaction, even though (a) one or more of the Trust Managers, directly or indirectly is interested in or connected with, or is a trustee, partner, director, shareholder, member, employee, officer or agent of such other person, or (b) one or more of the Trust Managers, individually or jointly with others, is a party to, or directly or indirectly is interested in, or connected with, such contract, act or transaction, provided that (i) such interest or connection is disclosed in reasonable detail or known to the Trust Managers and thereafter the Trust Managers authorize or ratify such contract, act or other transaction by the affirmative vote of a majority of the Trust Managers who are not interested in the transaction or (ii) such interest or connection is disclosed in reasonable detail or known to the shareholders, and thereafter such contract, act or transaction is approved by the shareholders holding a majority of the shares then outstanding and entitled to vote thereon. Section 4.13 Persons Dealing with Trust Managers or Officers. Any act of the Trust Managers or officers of the Trust purporting to be done in their capacity as such shall, as to any person dealing with such Trust Managers or officers, conclusively be deemed to be within the purposes of the Trust and within the powers of the Trust Managers or officers. No person dealing with the Trust Managers or any of them or with the officers of the Trust or any of them, shall be bound to see to the application of any funds or property passing into their hands or control. The receipt of the Trust Managers or any of the officers of the Trust of moneys or other consideration shall be binding upon the Trust. Section 4.14 Reliance. Trust Managers and officers of the Trust shall not be liable for any claims or damages that may result from their acts in the discharge of any duty imposed or power conferred upon them by the Trust, if, in the exercise of ordinary care, they acted in good faith and in reliance upon the written opinion of an attorney for the Trust. In discharging their duties, Trust Managers and officers of the Trust, when acting in good faith and exercising ordinary care, may rely upon financial statements of the Trust, stated in a written report by an independent certified public accountant, to fairly present the financial position of the Trust. The Trust Managers and officers of the Trust may rely upon any instrument or other document believed by them to be genuine. Section 4.15 Liability of Trust Managers. No Trust Manager of the Trust shall be liable to the Trust for any act, omission, loss, damage or expense arising from the performance of his duty to the Trust, except to the extent specifically required by statute, the Declaration of Trust or these Bylaws. ARTICLE V Committees of the Trust Managers Section 5.1 Membership and Authorities. The Trust Managers, by resolution adopted by a majority of the Trust Managers, may designate one (1) or more Trust Managers to constitute such committees as the Trust Managers may determine, including, but not limited to, a Compensation Committee and an Audit Committee, each of which committees to the extent provided in such resolution shall have and may exercise all of the authority of the Trust Managers in the business and affairs of the Trust, except in those cases where the authority of the Trust Managers is specifically denied to the committee or committees by the Trust Managers, applicable law, the Declaration of Trust or these Bylaws. No committee shall have the power to alter or to repeal any resolution adopted by the Trust Managers. The designation of a committee and the delegation thereto of authority shall not operate to relieve the Trust Managers, or any member thereof, of any responsibility imposed upon them by law. The members of each such committee shall serve at the pleasure of the Trust Managers. A majority of the members of each committee shall be Independent Trust Managers; provided, however, that if a committee shall consist of two (2) members, only one (1) of such members shall be required to be an Independent Trust Manager. Section 5.2 Minutes and Rules of Procedure. Each committee designated by the Trust Managers shall keep regular minutes of its proceedings and report the same to the Trust Managers when requested by the Trust Managers. Subject to the provisions of these Bylaws, the members of any committee may fix such committee's own rules of procedure. Section 5.3 Vacancies. The Trust Managers shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve, any committee. Section 5.4 Telephone Meetings. Members of any committee designated by the Trust Managers may participate in or hold a meeting by use of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Section 5.5 Action Without Meeting. Any action required or permitted to be taken at a meeting of any committee designated by the Trust Managers may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the committee, and such consent shall have the same force and effect as a unanimous vote at a meeting. ARTICLE VI Officers Section 6.1 Number. The officers of the Trust shall include a President and a Secretary. The Trust Managers may also elect a Chief Executive Officer, one (1) or more Vice Presidents, a Treasurer, one (1) or more Assistant Secretaries and one (1) or more Assistant Treasurers. One (1) person may hold any two (2) or more of these offices. Section 6.2 Election, Term of Office and Qualification. The Trust Managers shall elect officers, none of whom need be a Trust Manager, at their annual meeting after each annual meeting of shareholders. Each officer so elected shall hold office until his successor shall have been duly elected and qualified or until his death, resignation or removal in the manner hereinafter provided. Section 6.3 Subordinate Officers. The Trust Managers may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms, have such authority and perform such duties as the Trust Managers may from time to time determine. The Trust Managers may delegate to any committee or officer the power to appoint any such subordinate officer or agent. No subordinate officer appointed by any committee or superior officer as aforesaid shall be considered an officer of the Trust, the officers of the Trust being limited to the officers elected or appointed by the Trust Managers. Section 6.4 Resignation. Any officer may resign at any time by giving written notice thereof to the Trust Managers or to the President or Secretary of the Trust. Any such resignation shall take effect at the time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6.5 Removal. Any officer elected or appointed by the Trust Managers may be removed by the Trust Managers at any time with or without cause by majority vote of the Trust Managers. Any other officer may be removed at any time with or without cause by the Trust Managers or by any committee or superior officer upon whom such power of removal may be conferred by the Trust Managers. The removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create any contract rights. Section 6.6 Vacancies; New Offices. A vacancy in any existing office or any vacancy resulting from the creation of a new office shall be filled for the unexpired portion of the term by the Trust Managers, but in case of a vacancy occurring in an office filled by a committee or superior officer in accordance with the provisions of Section 6.3, such vacancy may be filled by such committee or superior officer. Section 6.7 The Chief Executive Officer. The Chief Executive Officer, if one shall be elected, may preside at all meetings of the shareholders and Trust Managers, shall be an ex officio member of all standing committees, shall have general and active management of the business of the Trust, shall have the general supervision and direction of all other officers of the Trust with full power to see that their duties are properly performed and shall see that all orders and resolutions of the Trust Managers are carried into effect. He may sign, with any other proper officer, certificates for shares of the Trust and any deeds, bonds, mortgages, contracts and other documents which the Trust Managers have authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Trust Managers or these Bylaws, to some other officer or agent of the Trust. In addition, the Chief Executive Officer shall perform whatever duties and shall exercise all powers that are given to him by the Trust Managers. Section 6.8 The President. If no Chief Executive Officer shall be elected, the President shall be the chief executive officer of the Trust and shall have the powers and duties of the Chief Executive Officer as set forth in Section 6.7. In the absence of a Chief Executive Officer, the President may preside at all meetings of the shareholders and Trust Managers. He may sign, with any other proper officer, certificates for shares of the Trust and any deeds, bonds, mortgages, contracts and other documents which the Trust Managers have authorized to be executed, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Trust Managers or these Bylaws to some other officer or agent of the Trust. In addition, the President shall perform whatever duties and shall exercise whatever powers given to him by the Trust Managers or by the Chief Executive Officer, if one shall be elected. Section 6.9 The Vice Presidents. The Vice Presidents shall perform such duties as are given to them by these Bylaws and as may from time to time be assigned to them by the Trust Managers, by the Chief Executive Officer, (if one shall be elected), or by the President, (if a Chief Executive Officer is not elected), and may sign, with any other proper officer, certificates for shares of the Trust. At the request of the President, or in his absence or disability, the Vice President designated by the President (or in the absence of such designation, the Vice President who has served the longest term of office with the Trust), shall perform the duties and exercise the powers of the President. Section 6.10 The Secretary. The Secretary, when available, shall attend all meetings of the Trust Managers and all meetings of the shareholders and shall perform like duties for the standing committees when requested by such committee. The Secretary shall record all votes and the minutes of all proceedings in the minute book of the Trust unless the Trust Managers designate another person (who need not be an officer, employee or Trust Manager of the Trust) to perform such tasks. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Trust Managers as required by law or these Bylaws, be custodian of the Trust records and have general charge of the share books of the Trust and shall perform such other duties as may be prescribed by the Trust Managers, by the Chief Executive Officer, if one shall be elected, or by the President, if a Chief Executive Officer is not elected, under whose supervision he shall be. The Secretary may sign, with any other proper officer, certificates for shares of the Trust and shall keep in safe custody the seal of the Trust, and, when authorized by the Trust Managers, affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. Section 6.11 Assistant Secretaries. The Assistant Secretaries shall perform such duties as are given to them by these Bylaws or as may from time to time be assigned to them by the Trust Managers or by the Secretary. At the request of the Secretary, or in his absence or disability, the Assistant Secretary designated by the Secretary (or in the absence of such designation the Assistant Secretary who has served the largest term of office with the Trust), shall perform the duties and exercise the powers of the Secretary. Section 6.12 The Treasurer. The Treasurer shall have the custody and be responsible for all Trust funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all monies and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Trust Managers. The Treasurer shall disburse the funds of the Trust as may be ordered by the Trust Managers, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, if one shall be elected, the President and the Trust Managers, whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Trust. The Treasurer may sign, with any other proper officer, certificates for shares of the Trust. Section 6.13 Assistant Treasurers. The Assistant Treasurers shall perform such duties as are given to them by these Bylaws or as may from time to time be assigned to them by the Trust Managers or by the Treasurer. At the request of the Treasurer, or in his absence or disability, the Assistant Treasurer designated by the Treasurer (or in the absence of such designation, the Assistant Treasurer who has served the longest term of office with the Trust), shall perform the duties and exercise the powers of the Treasurer. Section 6.14 Treasurer's Bond. If required by the Trust Managers, the Treasurer and any Assistant Treasurer shall give the Trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Trust Managers for the faithful performance of the duties of his office and for the restoration to the Trust, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Trust. Section 6.15 Salaries. The salary or other compensation of officers shall be fixed from time to time by the Trust Managers. The Trust Managers may delegate to any committee the power to fix from time to time the salary or other compensation of officers, subordinate officers and agents appointed in accordance with the provisions of these Bylaws. Section 6.16 Execution of Documents. Each officer of the Trust and any one of them is authorized to execute on behalf of the Trust any document or instrument of any nature whatsoever, provided that the execution by the Trust of any such document or instrument shall have been previously authorized by such action of the Trust Managers as may be required by statute, the Declaration of Trust or these Bylaws. ARTICLE VII Trust Shares Section 7.1 Share Certificates. (a) The certificates representing shares of beneficial interest of the Trust shall be in such form, not inconsistent with statutory provisions and the Declaration of Trust, as shall be approved by the Trust Managers. The certificates shall be signed by the Chief Executive Officer, if one shall be elected, the President or a Vice President and a Secretary or Assistant Secretary, or such other or additional officers as may be prescribed from time to time by the Trust Managers. The signatures of such officer or officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Trust itself or an employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued with the same effect as if he were such officer at the date of its issuance. (b) In the event the Trust has, by its Declaration of Trust, limited or denied the preemptive right of shareholders, there shall be set forth on the face or back of the certificates, which the Trust shall issue to represent shares of beneficial interest, such legends or statements, if any, as shall be required by applicable law or the Declaration of Trust or as may be approved by the Trust Managers. (c) All certificates shall be consecutively numbered and the name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the Trust's books. (d) All certificates surrendered to the Trust shall be canceled, and, except as provided in Section 7.2 with respect to lost, destroyed or mutilated certificates, no new certificate shall be issued until the former certificate for the same number of shares has been surrendered and canceled. Section 7.2 Lost Certificates, etc. The Trust Managers may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Trust alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. In authorizing such issue of a new certificate or certificates, the Trust Managers may, in their discretion and as a condition precedent to the issue thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the Trust Managers shall require and/or indemnify the Trust as the Trust Managers may prescribe. Section 7.3 Transfer of Shares. Subject to Article IX hereof and any other restrictions upon transfer, upon surrender to the Trust or the transfer agent of the Trust of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer and satisfaction of the Trust that the requested transfer complies with the provisions of applicable state and federal laws and regulations, the Declaration of Trust and any agreements to which the Trust is a party, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 7.4 Ownership of Shares. The Trust shall be entitled to treat and recognize the holder of record of any share or shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Texas. Section 7.5 Closing of Transfer Books. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive a distribution by the Trust (other than a distribution involving a purchase or redemption by the Trust of its own shares) or a share dividend, or in order to make a determination of shareholders for any other proper purpose, the Trust Managers may provide that the share transfer books shall be closed for a stated period but not to exceed, in any case, sixty (60) days. If the share transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the share transfer books, the Trust Managers may fix in advance a date as the record date for any such determination of shareholders, and the determination of shareholders on such record date shall apply with respect to the particular action requiring the same notwithstanding any transfer of shares on the books of the Trust after such record date. Section 7.6 Dividends. Except as otherwise set forth in the Declaration of Trust, the Trust Managers may, from time to time, declare, and the Trust may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by the Declaration of Trust and by law, such dividends to be paid in cash or in property or in shares of beneficial interest of the Trust, except no dividends shall be paid when the Trust is insolvent or when the payment thereof would render the Trust insolvent. Section 7.7 Reserves. By resolution, the Trust Managers may create such reserve or reserves of the Trust as the Trust Managers from time to time, in their absolute discretion, determine to be proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Trust or for such other purpose as the Trust Managers shall determine to be beneficial to the interest of the Trust. The Trust Managers may modify or abolish any such reserve in the manner in which it was created. Section 7.8 Repurchase of Shares. Upon resolution adopted by the Trust Managers, the Trust shall be entitled to purchase, directly or indirectly, its own shares of beneficial interest, provided that following such repurchase the Trust would continue to be able to pay its debts as they become due in the ordinary course of its business. ARTICLE VIII Indemnification Section 8.1 Definitions. In this Article: (a) "Indemnitee" means (i) any present or former Trust Manager or officer of the Trust, (ii) any person who while serving in any of the capacities referred to in clause (i) hereof served at the Trust's request as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another real estate investment trust or foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, and (iii) any person nominated or designated by (or pursuant to authority granted by) the Trust Managers or any committee thereof to serve in any of the capacities referred to in clauses (i) or (ii) hereof. (b) "Official Capacity" means (i) when used with respect to a Trust Manager, the office of Trust Manager of the Trust and (ii) when used with respect to a person other than a Trust Manager, the elective or appointive office of the Trust held by such person or the employment or agency relationship undertaken by such person on behalf of the Trust, but in each case does not include service for any other real estate investment trust or foreign or domestic corporation or any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise. (c) "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding. Section 8.2 Indemnification. The Trust shall indemnify every Indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable expenses actually incurred by the Indemnitee in connection with any Proceeding in which he was, is or is threatened to be named defendant or respondent, or in which he was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of his serving or having served, or having been nominated or designated to serve, in any of the capacities referred to in Section 8.l(a), if it is determined in accordance with Section 8.4 that the Indemnitee (a) conducted himself in good faith, (b) reasonably believed, in the case of conduct in his Official Capacity, that his conduct was in the Trust's best interests and, in all other cases, that his conduct was at least not opposed to the Trust's best interests, and (c) in the case of any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful; provided, however, that in the event that an Indemnitee is found liable to the Trust or is found liable on the basis that personal benefit was improperly received by the Indemnitee the indemnification (i) is limited to reasonable expenses actually incurred by the Indemnitee in correction with the Proceeding and (ii) shall not be made in respect of any Proceeding in which the Indemnitee shall have been found liable for willful or intentional misconduct in the performance of his duty to the Trust. Except as provided in the immediately preceding proviso to the first sentence of this Section 8.2, no indemnification shall be made under this Section 8.2 in respect of any Proceeding in which such Indemnitee shall have been (x) found liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the Indemnitee's Official Capacity, or (y) found liable to the Trust. The termination of any Proceeding by judgment, order, settlement or conviction, or on a plea of nolo contendere or its equivalent, is not of itself determinative that the Indemnitee did not meet the requirements set forth in clauses (a), (b) or (c) in the first sentence of this Section 8.2. An Indemnitee shall be deemed to have been found liable in respect of any claim, issue or matter only after the Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses shall include, without limitation, all court costs and all fees and disbursements of attorneys for the Indemnitee. Section 8.3 Successful Defense. Without limitation of Section 8.2 and in addition to the indemnification provided for in Section 8.2, the Trust shall indemnify every Indemnitee against reasonable expenses incurred by such person in connection with any Proceeding in which he is a witness or a named defendant or respondent because he served in any of the capacities referred to in Section 8.l(a), if such person has been wholly successful, on the merits or otherwise, in defense of the Proceeding. Section 8.4 Determinations. Any indemnification under Section 8.2 (unless ordered by a court of competent jurisdiction) shall be made by the Trust only upon a determination that indemnification of the Indemnitee is proper in the circumstances because he has met the applicable standard of conduct. Such determination shall be made (a) by the Trust Managers by a majority vote of a quorum consisting of Trust Managers who, at the time of such vote, are not named defendants or respondents in the Proceeding; (b) if such a quorum cannot be obtained, then by a majority vote of a committee of the Trust Managers, duly designated to act in the matter by a majority vote of all Trust Managers (in which Trust Managers who are named defendants or respondents in the Proceeding may vote), such committee to consist solely of two (2) or more Trust Managers who, at the time of the committee vote, are not named defendants or respondents in the Proceeding; (c) by special legal counsel selected by the Trust Managers or a committee thereof by vote as set forth in clauses (a) or (b) of this Section 8.4 or, if the requisite quorum of all of the Trust Managers cannot be obtained and such committee cannot be established, by a majority vote of all of the Trust Managers (in which Trust Managers who are named defendants or respondents in the Proceeding may participate); or (d) by the shareholders in a vote that excludes the shares held by Trust Managers that are named defendants or respondents in the Proceeding. Determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination that indemnification is permissible is made by special legal counsel, determination as to reasonableness of expenses must be made in the manner specified in clause (c) of the preceding sentence for the selection of special legal counsel. In the event a determination is made under this Section 8.4 that the Indemnitee has met the applicable standard of conduct as to some matters but not as to others, amounts to be indemnified may be reasonably prorated. Section 8.5 Advancement of Expenses. Reasonable expenses (including court costs and attorneys' fees) incurred by an Indemnitee who was or is a witness or was, is or is threatened to be made a named defendant or respondent in a Proceeding shall be paid or reimbursed by the Trust at reasonable intervals in advance of the final disposition of such Proceeding, and without making any of the determinations specified in Section 8.4, after receipt by the Trust of (a) a written affirmation by such Indemnitee of his good faith belief that he has met the standard of conduct necessary for indemnification by the Trust under this Article VIII and (b) a written undertaking by or on behalf of such Indemnitee to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that he is not entitled to be indemnified by the Trust as authorized in this Article VIII. Such written undertaking shall be an unlimited obligation of the Indemnitee but need not be secured and it may be accepted without reference to financial ability to make repayment. Notwithstanding any other provision of this Article VIII, the Trust may pay or reimburse expenses incurred by an Indemnitee in connection with his appearance as a witness or other participation in a Proceeding at a time when he is not named a defendant or respondent in the Proceeding. Section 8.6 Employee Benefit Plans. For purposes of this Article VIII, the Trust shall be deemed to have requested an Indemnitee to serve an employee benefit plan whenever the performance by him of his duties to the Trust also imposed or imposes duties on or otherwise involved or involves services by him to the plan or participants or beneficiaries of the plan. Excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall be deemed fines. Action taken or omitted by an Indemnitee with respect to an employee benefit plan in the performance of his duties for a purpose reasonably believed by him to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Trust. Section 8.7 Other Indemnification and Insurance. The indemnification provided by this Article VIII shall (a) not be deemed exclusive of, or to preclude, any other rights to which those seeking indemnification may at any time be entitled under the Trust's Declaration of Trust, any law, agreement or vote of shareholders or disinterested Trust Managers, or otherwise, or under any policy or policies of insurance purchased and maintained by the Trust on behalf of any Indemnitee, both as to action in his Official Capacity and as to action in any other capacity, (b) continue as to a person who has ceased to be in the capacity by reason of which he was an Indemnitee with respect to matters arising during the period he was in such capacity, and (c) inure to the benefit of the heirs, executors and administrators of such a person. Section 8.8 Notice. Any indemnification of or advance of expenses to an Indemnitee in accordance with this Article VIII shall be reported in writing to the shareholders of the Trust with or before the notice or waiver of notice of the next shareholders' meeting or with or before the next submission to shareholders of a consent to action without a meeting and, in any case, within the twelve-month period immediately following the date of the indemnification or advance. Section 8.9 Construction. The indemnification provided by this Article VIII shall be subject to all valid and applicable laws, including, without limitation, the Texas REIT Act, and, in the event this Article VIII or any of the provisions hereof or the indemnification contemplated hereby are found to be inconsistent with or contrary to any such valid laws, the latter shall be deemed to control and this Article VIII shall be regarded as modified accordingly, and, as so modified, shall continue in full force and effect. Section 8.10 Continuing Offer, Reliance, etc. The provisions of this Article VIII (a) are for the benefit of, and may be enforced by, each Indemnitee of the Trust, the same as if set forth in their entirety in a written instrument duly executed and delivered by the Trust and such Indemnitee and (b) constitute a continuing offer to all present and future Indemnities. The Trust, by its adoption of these Bylaws, (x) acknowledges and agrees that each Indemnitee of the Trust has relied upon and will continue to rely upon the provisions of this Article VIII in becoming, and serving in any of the capacities referred to in Section 8.1 hereof, (y) waives reliance upon, and all notices of acceptance of, such provisions by such Indemnities and (z) acknowledges and agrees that no present or future Indemnitee shall be prejudiced in his right to enforce the provisions of this Article VIII in accordance with their terms by any act or failure to act on the part of the Trust. Section 8.11 Effect of Amendment. No amendment, modification or repeal of this Article VIII or any provision of this Article VIII shall in any manner terminate, reduce or impair the right of any past, present or future Indemnities to be indemnified by the Trust, nor the obligation of the Trust to indemnify any such Indemnities, under and in accordance with the provisions of this Article VIII as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may be asserted. ARTICLE IX Limitations on Transfer and Ownership Section 9.1 Limitations on Transfer. The shares (other than Excess Shares) shall be freely transferable by the record owner thereof, subject to the provisions of Section 9.2 hereof and provided that any purported acquisition or transfer of shares that would result in (a) the common shares of beneficial interest being owned directly or indirectly by fewer than 100 persons (determined without reference to the rules of attribution under Section 544 of the Internal Revenue Code of 1986, as amended (the "Code")) or (b) the Trust being "closely held" within the meaning of Section 856(h) of the Code shall be void an initio. Subject to the provisions of Section 9.5 hereof, any purported transfer of shares that, if effective, would result in a violation of Section 9.2 hereof (unless excepted from the application of such Section 9.2 pursuant to Section 9.6 hereof) shall be void an initio as to the transfer of that number of shares that would otherwise be beneficially owned by a shareholder in violation of Section 9.2 hereof, the intended transferee of such shares shall acquire no rights therein and the transfer of such shares will not be reflected on the Trust's stock record books. For purposes of this Article IX, a "transfer" of shares shall mean any sale, transfer, gift, hypothecation, pledge, assignment or other disposition, whether voluntary or involuntary, by operation of law or otherwise. Section 9.2 Limitations on Ownership. Commencing on February 1, 1994, except as provided by Section 9.6 hereof, no person shall at any time directly or indirectly acquire or hold beneficial ownership of shares with an aggregate value in excess of 9.8% of the aggregate value of all outstanding shares (the "Ownership Limit"). For purposes of this Article IX, (a) the value of any shares shall be reasonably determined in the manner established by the Trust Managers and (b) a person (which includes natural persons, corporations, trusts, partnerships and other entities) shall be deemed to be the beneficial owner of the shares that such person (i) actually owns, (ii) constructively owns after applying the rules of Section 544 of the Code, as modified in the case of a REIT by Section 856(h) of the Code, and (iii) has the right to acquire upon exercise of outstanding rights, options and warrants, and upon conversion of any securities convertible into shares, if any. Section 9.3 Shareholder Information. Each shareholder shall, upon demand of the Trust, disclose to the Trust in writing such information with respect to his or its direct and indirect beneficial ownership of shares as the Trust Managers in their discretion deem necessary or appropriate in order that the Trust may fully comply with all provisions of the Code relating to REITs and all regulations, rulings and cases promulgated or decided thereunder (the "REIT Provisions") and to comply with the requirements of any taxing authority or governmental agency. All persons who have acquired or who hold, directly or indirectly, beneficial ownership of shares with an aggregate value in excess of 9.8% of the aggregate value of all outstanding shares must disclose in writing such ownership information to the Trust no later than January 31 of each year. Section 9.4 Transferee Information. No later than the fiftieth day prior to any transfer which, if effected, would result in the intended transferee owning shares in excess of the Ownership Limit, the intended transferee shall provide to the Trust Managers an affidavit setting forth the number of shares already beneficially owned by such intended transferee. In addition, whenever the Trust Managers deem it reasonably necessary to protect the tax status of the Trust as a REIT under the REIT Provisions, the Trust Managers may require a statement or affidavit from each shareholder setting forth the number of shares beneficially owned by such shareholder. Subject to the terms of Section 9.10 hereof, if, in the opinion of the Trust Managers, any proposed transfer may jeopardize the qualification of the Trust as a REIT, the Trust Managers shall have the right, but not the duty, to refuse to permit the transfer of such shares to the proposed transferee. All contracts for the sale or other transfer of shares shall be subject to this Section 9.4. Section 9.5 Excess Shares. 9.5.1 Creation of Excess Shares. If, notwithstand ing the other provisions contained in this Article IX, at any time there is a purported transfer of shares or a change in the capital structure of the Trust (including any redemption of Excess Shares pursuant to Subsection 9.5.7 hereof) such that any person would beneficially own shares in excess of the Ownership Limit ("Excess Shares") then, except as otherwise provided in Section 9.6 hereof, such shares in excess of the Ownership Limit (rounded up to the nearest whole share), shall be automatically deemed an equal number of Excess Shares. 9.5.2 Ownership in Trust. Upon any purported transfer of shares that results in Excess Shares pursuant to Subsection 9.5.1 hereof, such Excess Shares shall be deemed to have been transferred to the Trust, as trustee of a separate trust for the exclusive benefit of the person or persons to whom such Excess Shares can ultimately be transferred without violating the Ownership Limit. Shares of Excess Shares so held in trust shall be issued and outstanding shares of the Trust under the Texas REIT Act. The purported transferee of Excess Shares shall have no rights in such Excess Shares, except the right to designate a transferee of its interest in the trust created under this Subsection 9.5.2 upon the terms specified in Subsection 9.5.6 hereof. If any of the restrictions on transfer set forth in this Article IX are determined to be void, invalid or unenforceable by virtue of any legal deci sion, statute, rule or regulation, then the intended transferee of any Excess Shares may be deemed, at the option of the Trust, to have acted as an agent on behalf of the Trust in acquiring the Excess Shares and to hold the Excess Shares on behalf of the Trust. 9.5.3 Dividend Rights. Excess Shares shall not be entitled to any dividends. Any dividend or distribution paid prior to the discovery by the Trust that shares have been deemed Excess Shares shall be repaid to the Trust upon demand, and any dividend or distribution declared but unpaid shall be rescinded as void an initio with respect to such Excess Shares. 9.5.4 Rights Upon Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust, each holder of Excess Shares shall be entitled to receive, ratably with each other holder of common shares of beneficial interest or Excess Shares, that portion of the assets of the Trust available for distribution to the holders of Excess Shares as the number of Excess Shares held by such holder bears to the total number of shares and Excess Shares then outstanding. The Trust, as the holder of all Excess Shares in one or more trusts, or, if the Trust shall have been dissolved, any trustee appointed by the Trust prior to its dissolution, shall distribute to each transferee of an interest in such a trust pursuant to Subsection 9.5.6 hereof, when determined, any assets received in any liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust in respect of the Excess Shares held in such trust and represented by the trust interest transferred to such transferee. 9.5.5 Voting Rights. No shareholder may vote any Excess Shares. The Excess Shares will not be considered for purposes of any shareholder vote or for purposes of determining a quorum for such a vote. 9.5.6 Restrictions on Transfer. Excess Shares shall not be transferable. The purported transferee of any shares that are deemed Excess Shares pursuant to Subsection 9.5.1 hereof (the "Initial Transferee") may freely designate a transferee (the "Subsequent Transferee") of the interest in the trust that represents such Excess Shares, if (a) the Excess Shares held in the trust and represented by the trust interest to be transferred would not be Excess Shares in the hands of the Subsequent Transferee, and (b) the Initial Transferee does not receive a price for the trust interest in excess of (i) the price the Initial Transferee paid for the shares in the purported transfer of shares that resulted in the Excess Shares represented by the trust interest or (ii) if the Initial Transferee did not give value for such shares (e.g., the shares were received through a gift, devise or other transaction), a price equal to the aggregate Market Price (as defined in Subsection 9.5.7 hereof) for all shares that were deemed Excess Shares on the date of the purported transfer that resulted in the Excess Shares. No interest in a trust may be transferred unless the Initial Transferee of such interest has given advance written notice to the Trust of the designation of the Subsequent Transferee. Upon the transfer of an interest in a trust in compliance with this Subsection 9.5.6, the corresponding Excess Shares that are represented by the transferred interest in the trust shall be automatically deemed an equal number of shares of the same class and series from which the corresponding Excess Shares were originally created, such shares shall be transferred of record to the Subsequent Transferee, and the interest in the trust representing such Excess Shares shall automatically terminate. 9.5.7 Trust's Redemption Right. All Excess Shares shall be deemed to have been offered by the Initial Transferee for sale to the Trust, or its designee, at a price per share equal to the lesser of (a) the price per share in the transaction that created such Excess Shares (or, in the case of devise or gift, the Market Price per share at the time of such devise or gift) or (b) the Market Price per share of the class of shares for which such Excess Shares were created on the date the Trust or its designee, accepts such offer. The Trust shall have the right to accept such offer for a period ending on the earlier of (i) ninety (90) days after (a) the date of the purported transfer that resulted in such Excess Shares if the Initial Transferee notified the Trust of such purported transfer within ten (10) days thereof or (b) the date on which the Trust Managers determine in good faith that the purported transfer resulting in Excess Shares occurred if the Trust was not notified of the purported transfer by the Initial Transferee and (ii) the date on which the Initial Transferee gives notice of its intent to transfer its trust interest to a Subsequent Transferee. For purposes of this Article IX, "Market Price" means for any share, the average daily per share closing sales price of a share if such shares are listed on a national securities exchange or quoted on the National Association of Securities Dealers Automated Quotation National Market ("Nasdaq"), and if such shares are not so listed or quoted, the Market Price shall be the mean between the average per share closing bid prices and the average per share closing asked prices, in each case during the 30 calendar day period ending on the business day prior to the redemption date, or if there have been no sales on a national securities exchange or on the Nasdaq and no published bid and asked quotations with respect to such shares during such 30 calendar day period, the Market Price shall be the price determined by the Trust Managers in good faith. Payment of all of the amount determined as the redemption payment for shares redeemed in accordance with this Subsection 9.5.7 shall be made within 30 days of the date on which the Trust shall have notified the Initial Transferee in writing of the Trust's intent to exercise its redemption rights. No interest shall accrue on any redemption payment with respect to the period subsequent to the redemption date to the date of the redemption payment. Notwithstanding anything in this Subsection 9.5.7 to the contrary, the Trust's redemption rights with respect to any Excess Shares shall terminate upon any transfer of the trust interest relating thereto to a Subsequent Transferee. Section 9.6 Exceptions to Certain Ownership and Transfer Limitations. The Ownership Limit set forth in Section 9.2 hereof shall not apply to the following shares and such shares shall not be deemed to be Excess Shares at the times and subject to the terms and conditions set forth in this Section 9.6: 9.6.1 Exemption by Trust Managers. Subject to the provisions of Section 9.7 hereof, shares which the Trust Managers in their sole discretion may exempt from the Ownership Limit while owned by a person who has provided the Trust with evidence and assurances acceptable to the Trust Managers that the qualification of the Trust as a REIT would not be jeopardized thereby. 9.6.2 Shares Held by Underwriters. Subject to the provisions of Section 9.7 hereof, shares acquired and held by an underwriter in a public offering of shares, or in any transaction involving the issuance of shares by the Trust in which the Trust Managers determine that the underwriter or other person or party initially acquiring such shares will make a timely distribution of such shares to or among other holders such that, at all times prior to and following such distribution, the Trust will continue to be in compliance with the REIT Provisions. Section 9.7 Authority to Revoke Exceptions to Limitations. The Trust Managers, in their sole discretion, may at any time revoke any exception pursuant to Subsection 9.6.1 or 9.6.2 hereof in the case of any shareholder, and upon such revocation, the provisions of Sections 9.2 and 9.5 hereof shall immediately become applicable to such shareholder and all shares of which such shareholder may be the beneficial owner. A decision to exempt or refuse to exempt from the Ownership Limit the ownership of certain designated shares, or to revoke an exemption previously granted, shall be made by the Trust Managers in their sole discretion, based on any reason whatsoever, including, but not limited to, the preservation of the Trust's qualification as a REIT. Section 9.8 Severability. If any provision of this Article IX or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction, the validity of the remaining provisions of this Article IX shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. To the extent this Article IX may be inconsistent with any other provision of these Bylaws, this Article IX shall be controlling. Section 9.9 Authority of the Trust Managers. Subject to Section 9.10 hereof, nothing contained in this Article IX or in any other provisions of these Bylaws shall limit the authority of the Trust Managers to take such action as they deem necessary or advisable to protect the Trust and the interests of the shareholders by preservation of the Trust's qualification as a REIT under the REIT Provisions, provided that no such action may be taken to amend or delete Section 9.10 hereof. In applying the provisions of this Article IX, the Trust Managers may take into account the lack of certainty in the REIT Provisions relating to the ownership of shares that may prevent a corporation from qualifying as a REIT and may make interpretations concerning the Ownership Limit, Excess Shares, beneficial ownership and related matters as conservatively as the Trust Managers deem advisable to minimize or eliminate uncertainty as to the Trust's continued qualification as a REIT. Notwithstanding any other provisions of these Bylaws, if the Trust Managers determine that it is no longer in the best interests of the Trust and the shareholders to continue to have the Trust qualify as a REIT, the Trust Managers may revoke or otherwise terminate the Trust's REIT election pursuant to Section 856(g) of the Code. Section 9.10 New York Stock Exchange. Nothing in this Article IX shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. ARTICLE X General Provisions Section 10.1 General Policies. The Trust intends to make investments that are consistent with the applicable requirements of the Internal Revenue Code of 1986, as amended, and the Texas REIT Act, as amended, and related regulations with respect to the composition of the Trust's investments and the derivation of its income. Section 10.2 Limited Liability of Shareholders. A shareholder shall not be personally or individually liable in any manner whatsoever for any debt, act, omission or obligation incurred by the Trust or the Trust Managers. A shareholder shall be under no obligation to the Trust or to its creditors with respect to such shares other than the obligation to pay to the Trust the full amount of the consideration for which such shares were issued or are to be issued. Upon the payment of such consideration, such shares shall be fully paid and non-assessable by the Trust. Section 10.3 Waiver of Notice. (a) Whenever, under the provisions of applicable law or of the Declaration of Trust or of these Bylaws, any notice is required to be given to any shareholder or Trust Manager, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. (b) Attendance of a Trust Manager at a meeting shall constitute a waiver of notice of such meeting except where a Trust Manager attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Section 10.4 Seal. If one be adopted, the Trust seal shall have inscribed thereon the name of the Trust and shall be in such form as may be approved by the Trust Managers. Said seal shall be kept in the custody of the Secretary and may be used by causing it or a facsimile of it to be impressed or affixed or in any manner reproduced. Section 10.5 Fiscal Year. The fiscal year of the Trust shall be a calendar year unless changed by resolution of the Trust Managers. Section 10.6 Checks, Notes, etc. All checks or demands for money and notes of the Trust shall be signed by such officer or officers or such other person or persons as the Trust Managers may from time to time designate. The Trust Managers may authorize any officer or officers or such other person or persons to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Trust, and such authority may be general or confined to specific instances. Section 10.7 Examination of Books and Records. The Trust Managers shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Trust (except such as may by statute be specifically opened to inspection) or any of them shall be open to inspection by the shareholders, and the shareholders' rights in this respect are and shall be restricted and limited accordingly. Section 10.8 Voting Of Shares Held by the Trust. Unless otherwise ordered by the Trust Managers, the Chief Executive Officer, or if no Chief Executive Officer shall be elected, the President, acting on behalf of the Trust, shall have full power and authority to attend and to act and to vote at any meeting of shareholders of any corporation or other entity in which the Trust may hold shares and at any such meeting, shall possess and may exercise any and all of the rights and powers incident to the ownership of such shares which, as the owner thereof, the Trust might have possessed and exercised, if present. The Trust Managers by resolution from time to time may confer like powers upon any other person or persons (who need not be an officer, employee or Trust Manager of the Trust). Section 10.9 Number, Gender, etc. Wherever the singular number is used in these Bylaws and when required by the context, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders. The term "person", as used herein and as the context requires shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. Section 10.10 Annual and Quarterly Reports. The Trust shall furnish to its shareholders annual reports containing audited financial statements with a report thereon by its independent accountants. The Trust shall also furnish to its shareholders quarterly reports for each of the first three quarters of each fiscal year containing unaudited financial information. ARTICLE XI Amendments Except as otherwise provided by applicable law or the Declaration of Trust, the power to alter, amend or repeal these Bylaws or to adopt new Bylaws shall be vested in the Trust Managers and (to the extent not inconsistent with the Texas REIT Act and the Declaration of Trust and specified in the notice of the meeting) the shareholders, and such action shall be taken by the affirmative vote of a majority of the Trust Managers or by the affirmative vote of the holders of a majority of the Trust's outstanding shares. ARTICLE XII Subject to all Laws The provisions of these Bylaws shall be subject to all valid and applicable laws, including, without limitation, the Texas REIT Act as now or hereafter amended, and in the event that any of the provisions of these Bylaws are found to be inconsistent with or contrary to any such valid laws, the later shall be deemed to control and these Bylaws shall be deemed modified accordingly, and, as so modified, shall continue in full force and effect. EX-10.4 3 EXHIBIT 10.4 Amendment No. 1 to AMERICAN INDUSTRIAL PROPERTIES REIT EMPLOYEES RETIREMENT AND PROFIT SHARING PLAN In accordance with Section 8.1 of the American Industrial Properties REIT Employees Retirement and Profit Sharing Plan (the "Plan"), the Plan is hereby amended as follows: Effective March 7, 1994, the Trustee is Marc A. Simpson. The Trustee shall have the powers and perform the duties as set forth in Article VII of the Plan. /s/ Charles W. Wolcott Charles W. Wolcott, President American Industrial Properties REIT /s/ Marc A. Simpson Marc A. Simpson Trustee Amendment No. 2 to AMERICAN INDUSTRIAL PROPERTIES REIT EMPLOYEES RETIREMENT AND PROFIT SHARING PLAN (the "Plan") In accordance with the amendment provisions of Section 8.1 of the Plan, Section 3.1 is hereby amended in its entirety as follows: Any Eligible Employee who was employed on November 1, 1993 shall be eligible to participate and shall enter the Plan as of the first day of such Plan year. Any other Eligible Employee who has completed six (6) consecutive months of service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements. The Employer shall give each prospective Eligible Employee written notice of his eligibility to participate in the Plan prior to the close of the Plan Year in which he first becomes an Eligible Employee. Dated as of November 29, 1994. /s/ Charles W. Wolcott Charles W. Wolcott American Industrial Properties REIT /s/ Marc A. Simpson Marc A. Simpson Trustee /s/ Vickie Dell Vickie Dell Plan Administrator EX-10.6 4 EXHIBIT 10.6 ADDENDUM TO Unsecured Promissory Note Due November 27, 1997 $19,143,646.92 February 27, 1992 Effective February 24, 1995, the first paragraph of this note is hereby modified as follows: TRAMMELL CROW REAL ESTATE INVESTORS, a real estate investment trust duly organized and existing under the laws of the State of Texas (the "REIT"), for value received, hereby promises to pay to the order of PATIO & CO. or its permitted assigns ("MLI") at C/O STATE STREET BANK, P.O. BOX 5756, BOSTON, MA 02206 (or such other party or place as MLI may from time to time designate in writing to the REIT) the principal sum of NINETEEN MILLION, ONE HUNDRED FORTY-THREE THOUSAND, SIX HUNDRED FORTY-SIX AND 92/100THS DOLLARS ($19,143,646.92), together with interest on the principal hereof from time to time remaining unpaid at the interest rates hereinafter stated, at such times and on such terms and conditions as are hereinafter set forth. All capitalized terms used in this Note which are used but not defined herein shall have the respective meanings ascribed to them in the Note Purchase Agreement, dated as of February 27, 1992, between the REIT and MLI (as amended, modified, supplemented, renewed or extended from time to time, the "Note Purchase Agreement"). All other terms and conditions of the Note remain the same. By signing below, The Manufacturers Life Insurance Company ("MLI") represents that Patio and Co. is the nominee name by which State Street Bank and Trust Company, N.A. holds this note as custodian on behalf of MLI , and that such re- registration is not a grant of participation or transfer of interest in such Note as contemplated by Section 8.3 of the Note Purchase Agreement dated February 27, 1992. THE MANUFACTURERS LIFE INSURANCE COMPANY BY: /s/ D. Stewart Sprague DATE: March 1, 1995 AMERICAN INDUSTRIAL PROPERTIES REIT (formerly Trammell Crow Real Estate Investors) BY: /s/ Charles W. Wolcott DATE: February 24, 1995 EX-21.1 5 EXHIBIT 21.1 SUBSIDIARIES OF AMERICAN INDUSTRIAL PROPERTIES REIT State of % Subsidiary Incorporation Owned American Industrial Properties REIT, Inc. Maryland 100 AIP-Patapsco, Inc. Maryland 100 AIP Tamarac, Inc. Texas 100 AIP Properties #1 L.P. Delaware 100 AIP Northview, Inc. Texas 100 AIP Properties #2 L.P. Delaware 100
EX-27 6
5 1000 YEAR DEC-31-1994 DEC-31-1994 7521 0 0 0 0 0 103843 21859 92550 0 65613 908 0 0 23288 92550 0 11226 0 10267 0 0 5270 (4311) 0 (4311) 0 (344) 0 (4655) (.51) (.51)