-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, afTu7UV+eqsqZ1nWpuQKfjweVj3M15xjbB6YopK9ixjS3q7oXa7lLgTQrUXC1sKj 8TEqSCaYgqjLd2oeWNs6NQ== 0000950109-94-001948.txt : 19941101 0000950109-94-001948.hdr.sgml : 19941101 ACCESSION NUMBER: 0000950109-94-001948 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941028 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT INC CENTRAL INDEX KEY: 0000778437 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 756335572 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09016 FILM NUMBER: 94555932 BUSINESS ADDRESS: STREET 1: 6220 N BELTLINE STE 205 STREET 2: 2001 ROSS AVE CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2145506053 MAIL ADDRESS: STREET 1: 6220 N BELTLINE ROAD STREET 2: SUITE 205 CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: TRAMMELL CROW REAL ESTATE INVESTORS DATE OF NAME CHANGE: 19931203 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994................ OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _______________ COMMISSION FILE NUMBER 1-9016 _____________________________ AMERICAN INDUSTRIAL PROPERTIES REIT (Exact name of registrant as specified in its charter) TEXAS 75-6335572 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6220 NORTH BELTLINE ROAD, SUITE 205 IRVING, TEXAS 75063-2656 (Address of principal executive offices) (Zip code) (214) 550-6053 (Registrant's telephone number, including area code) 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 _____ ------- 9,075,400 Shares of Beneficial Interest were outstanding as of October 25, 1994. AMERICAN INDUSTRIAL PROPERTIES REIT FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994 INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Operations for the three months and nine months ended September 30, 1994 and 1993...............................3 Balance Sheets as of September 30, 1994 and December 31, 1993...4 Statements of Cash Flows for the nine months ended September 30, 1994 and 1993.....................................5 Notes to Financial Statements...................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................8 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securityholders..............10 Item 6. Exhibits and Reports on Form 8-K................................10 SIGNATURES..................................................................11
2 AMERICAN INDUSTRIAL PROPERTIES REIT STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands except per share data)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1994 1993 1994 1993 ------------ ------------ ------------ ------------ REVENUES Rents $2,103 $1,987 $6,177 $5,649 Tenant Reimbursements 683 612 2,036 1,739 Interest Income 108 138 280 414 ------------ ------------ ------------ ------------ 2,894 2,737 8,493 7,802 ------------ ------------ ------------ ------------ REAL ESTATE EXPENSES Amortization of original issue discount on Zero Coupon Notes due 1997 404 351 1,155 1,031 Depreciation and amortization 846 746 2,511 2,340 Interest on 8.8% notes payable due 1997 1,024 1,003 2,998 2,977 Interest on mortgages payable 171 231 520 522 Property taxes 370 356 1,099 1,145 Property management fees 105 100 330 313 Utilities 134 129 361 336 Repairs and maintenance 259 304 757 748 Other property operating expenses 80 206 328 470 ------------ ------------ ------------ ------------ 3,393 3,426 10,059 9,882 Trust administrative expenses: Trust administration and overhead 407 392 1,805 1,125 Fees paid to Advisor - - - 716 ------------ ------------ ------------ ------------ 3,800 3,818 11,864 11,723 Loss from real estate operations (906) (1,081) (3,371) (3,921) Gain (loss) on sales of real estate - 29 - (205) ------------ ------------ ------------ ------------ NET LOSS ($906) ($1,052) ($3,371) ($4,126) ============ ============ ============ ============ PER SHARE DATA Loss from real estate operations ($0.10) ($0.12) ($0.37) ($0.43) Gain (loss) on sales of real estate - 0.00 - (0.02) ------------ ------------ ------------ ------------ Net Loss ($0.10) ($0.12) ($0.37) ($0.45) ============ ============ ============ ============ Distributions Paid - $0.04 - $0.12 ============ ============ ============ ============ Number of shares outstanding 9,075,400 9,075,400 9,075,400 9,075,400 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 3 AMERICAN INDUSTRIAL PROPERTIES REIT BALANCE SHEETS (Unaudited, dollars in thousands)
September 30, December 31, ASSETS 1994 1993 ------------ ------------ Real Estate, at cost net of writedowns for permanent impairments in value $104,661 $103,710 Accumulated depreciation (21,602) (19,315) ------------ ------------ Net real estate 83,059 84,395 Cash and Cash Equivalents, unrestricted 1,192 1,119 Other Assets: Issuance costs of Zero Coupon Notes due 1997, net 108 131 Other assets, net 2,534 2,652 ------------ ------------ $86,893 $88,297 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: 8.8% Notes payable due 1997 $45,239 $45,239 Zero Coupon Notes payable due 1997 net of unamortized discount and in-substance partial defeasance in 1993 5,679 4,682 Mortgage notes payable 7,060 7,157 Accrued interest on 8.8% Notes payable 1,382 371 Accounts payable, accrued expenses and other liabilities 1,509 1,503 Tenant security deposits 544 494 ------------ ------------ Total Liabilities 61,413 59,446 ------------ ------------ Commitments and Contingencies Shareholders' Equity: Shares of Beneficial Interest; authorized 10,000,000 Shares; issued and outstanding 9,075,400 Shares 125,513 125,513 Accumulated distributions (57,729) (57,729) Accumulated loss from operations and extraordinary gains (losses) (43,466) (40,095) Accumulated net gain on sales of real estate 1,162 1,162 ------------ ------------ Total Shareholders' Equity 25,480 28,851 ------------ ------------ $86,893 $88,297 ============ ============
The accompanying notes are an integral part of these financial statements. 4 AMERICAN INDUSTRIAL PROPERTIES REIT STATEMENTS OF CASH FLOWS (Unaudited, dollars in thousands)
For the Nine Months Ended September 30, ------------------------------------- 1994 1993 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ($3,371) ($4,126) 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 1,155 1,031 Depreciation and amortization 2,511 2,340 Decrease (increase) in other assets (83) (117) Increase in accrued interest on 8.8% Notes Payable 1,011 - Increase (decrease) in accounts payable, accrued expenses and other liabilities and tenant security dep 56 (312) Loss (gain) on sales of real estate - 205 -------------- -------------- Net Cash Provided By (Used In) Operating Activities 1,279 (979) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sales of real estate - 6,749 Capitalized improvements (951) (1,107) ------------- -------------- Net Cash (Used In) Provided By Investing Activities (951) 5,642 -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Partial retirement of mortgages payable - (4,830) Partial repurchase of Zero Coupon Notes (158) - Principal repayments on mortgage notes payable (97) - Distributions to Shareholders - (1,090) -------------- ------------- Net Cash Used In Financing Activities (255) (5,920) -------------- -------------- Net Increase (Decrease) in Cash and Cash Equivalents 73 (1,257) Cash and Cash Equivalents at Beginning of Period 1,119 17,779 -------------- -------------- Cash and Cash Equivalents at End of Period $1,192 $16,522 ============== ============== Cash Paid for Interest $2,507 $2,497 ============== ==============
The accompanying notes are an integral part of these financial statements. 5 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures required by generally accepted accounting principles or those contained in the Trust's Annual Report on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited financial statements of the Trust for the year ended December 31, 1993, included in the Trust's Annual Report on Form 10-K. The financial information included herein has been prepared in accordance with the Trust's customary accounting practices and has not been audited. In the opinion of management, the information presented reflects all adjustments necessary for a fair presentation of interim results. All such adjustments are of a normal and recurring nature. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Real Estate and Provisions for Possible Losses on Real Estate. The Trust carries its real estate at the lower of depreciated cost or net realizable value, as defined. Management defines net realizable value of assets held for investment as the total of the estimated undiscounted future cash flows from the property. For assets held for sale, management defines net realizable value as estimated market value. Provisions for possible losses are recorded when management determines that the recorded value of real estate is less than net realizable value, as defined. Consistent with management's intention, all real estate at September 30, 1994 is classified as held for investment. Should unforeseen factors cause all or part of the real estate to be classified as held for sale, significant adjustments to reduce the carrying value of such properties could be required. 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. Lease commissions paid are capitalized and amortized over the term of the related lease. Income Taxes. The Trust qualifies as a real estate investment trust (a "REIT") under Federal income tax law as long as it meets certain asset, income, and ownership tests and it distributes 95% of its taxable income annually. No provisions for Federal income taxes have been required or recorded to date. 6 NOTE 3 - ACQUISITION OF NORTHVIEW DISTRIBUTION CENTER In December 1993, the Trust purchased the Northview Distribution Center, a 175,000 square foot multi tenant industrial distribution property in Dallas, Texas. The results of operations for this property are reflected in the three and nine month periods ended September 30, 1994. NOTE 4 - TERMINATION OF ADVISORY AGREEMENT AND REMOVAL OF FINITE-LIFE PROVISION In April 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"). The Trust converted to self- administration in June 1993. Pursuant to the terms of the Advisory Agreement, the Trust paid to the Advisor a one-time termination fee of $435,000 in the second quarter of 1993. Most of the Trust's properties are currently managed by affiliates of the former Advisor. This relationship is not considered to be a related party or party-in- interest relationship. In October 1993, 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 to American Industrial Properties REIT and removed the limited term restriction of the Trust, thereby making the life of the Trust perpetual. NOTE 5 - PARTIAL DEFEASANCE OF ZERO COUPON NOTES In December 1993, the Trust recognized an in-substance partial defeasance of the Zero Coupon Notes by offsetting approximately $10.2 million in restricted funds held by the Trustee for the Noteholders against the balance of the Zero Coupon Notes and by recognizing a loss on the partial defeasance of $2.5 million. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Below is a summary of Funds From Operations ("FFO") for the Trust for the three months and nine months ended September 30, 1994 and 1993, respectively. Management believes that the presentation of FFO will enhance the reader's understanding of the Trust's financial condition because it provides the reader with an additional measure of the Trust's operating performance which excludes non-recurring activities (i.e., gains or losses from debt restructuring and sales of property) as well as certain non-cash items (i.e., depreciation and amortization) which generally do not immediately impact a real estate concern's operations. Many real estate investment trusts disclose FFO in order to provide readers with additional information with which to compare performance. FFO, however, should not 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. The determination of FFO is based on the definition adopted by the National Association of Real Estate Investment Trusts which is net income (computed in accordance with generally accepted accounting principles), 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.
For the Three Months Ended For the Nine Months Ended September 30, September 30, 1994 1993 1994 1993 ---- ---- ----- ---- FUNDS FROM OPERATIONS $344,000 $16,000 (a) $295,000 $(550,000) (a) PER SHARE $0.04 $0.00 $0.03 $(0.06)
(a) Funds from operations for the three months and nine months ended September 30, 1993 does not reflect the operations of the Northview Distribution Center which was acquired in December 1993. Funds from operations related to the Northview Distribution Center for the three months and nine months ended September 30, 1994 were approximately $104,000 and $341,000, respectively. Funds from operations for the nine months ended September 30, 1994 increased from the same period in 1993 primarily due to (a) the payment of a $435,000 termination fee to the former Advisor to the Trust in the second quarter of 1993, (b) the acquisition of the Northview Distribution Center in December 1993, and (c) increased occupancy and rental rates in the Trust's other properties, notwithstanding an offsetting increase in administrative expenses of the Trust in 1994 related to the proxy contest incurred in connection with the May 1994 Special Meeting of Shareholders. Funds from operations will be negatively impacted by the $14,500,000 financing (described below under Liquidity and Capital Resources) as it will require current monthly payments of principal and interest while replacing the Trust's outstanding zero coupon notes which accrete at 12.7% and do not require current monthly payments. The overall occupancy of the Trust's portfolio on September 30, 1994 was 93%. On a same property basis, overall occupancy increased from 87% at September 30, 1993 to 92% at September 30, 1994. Net operating income increased by approximately 9% on a same property basis when comparing the nine months ended September 30, 1994 to the same period in 1993. This increase resulted from increased revenues due to higher occupancy and rental rates as well as decreased operating expenses. The Trust was managed by an outside Advisor until June 12, 1993, at which time the Trust became self-administered. The Trust currently employs six full- time employees to conduct and manage the business affairs of the Trust. The overall costs to the Trust over time under self-administration related to managerial, administrative and other services are expected to be lower than fees previously paid to the Advisor. 8 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. The Trust may utilize proceeds from short term borrowing arrangements, other refinancing transactions (including the financing transaction with AMRESCO Capital Corporation described below), or sales of properties (assuming such alternatives are available and can be consummated) to provide sufficient funds to meet liabilities and commitments relating to the Trust's operations. The Trust continues to pursue a strategy which is intended to lower the Trust's cost of capital and enable the Trust to make additional investments in industrial real estate. On October 17, 1994, the Trust announced that it had entered into a financing commitment with AMRESCO Capital Corporation in the amount of $14,500,000. The financing, which is contingent upon credit underwriting, due diligence and other customary closing conditions and criteria, has a maturity of seven years with a 25-year amortization and provides the Trust with the option of either a fixed or variable rate of interest. The financing will be secured by a first lien on two of the Trust's properties. The proceeds from this financing will be used to defease the Trust's outstanding zero coupon notes and refinance an existing first lien mortgage. The defeasance of the outstanding zero coupon notes will provide approximately $7,000,000 in net funds to the Trust upon release of cash reserves currently securing the zero coupon notes. The net funds received by the Trust will be available for working capital requirements and general corporate purposes, including acquisition of additional industrial properties. In accordance with the terms of the 8.8% Notes payable due 1997, interest in the amount of approximately $1,990,000 is payable in May and November of each year. Due to the Trust's liquidity needs arising from tenant finish costs, leasing commissions and non-recurring administrative expenses, an agreement was reached with the noteholder to defer payment of one-half of the interest payment due in May 1994 for three months. The amount deferred was paid on August 30, 1994. Should the financing transaction with AMRESCO Capital Corporation fail to close, a similar agreement with the noteholder will be required with respect to the regular interest payment due in November 1994. At this time, there is no assurance that such an agreement will be granted by the noteholder. Should the Trust default on the November 1994 payment, the noteholder could declare an event of default and seek appropriate remedies available to it in its capacity as an unsecured creditor and under the note agreement. Such an action may force the Trust to pursue alternative strategies to protect the interests of the Shareholders, including seeking protection or other remedies afforded a debtor under applicable law. In November 1993, the Trust provided a quarterly distribution to Shareholders of $363,000 ($0.04 per share). In December 1993, the Trust announced the suspension of quarterly distributions to Shareholders in order to utilize cash resources for the defeasance of the remaining Zero Coupon Notes (see below). Even if the remaining Zero Coupon Notes are fully defeased, there can be no assurance as to when such distributions will be reinstated nor, if reinstated, at what amount. The initial capitalization of the Trust included $179,698,000 face amount of Zero Coupon Notes due November 27, 1997 secured by first or second liens on all of the Trust's properties. Amortization of the original issue discount on the Zero Coupon Notes is a non-cash charge against net income of the Trust, compounding semiannually at 12%. Through September 30, 1994, the Trust has repurchased a substantial amount of the Zero Coupon Notes. Management believes that the defeasance of the remaining Zero Coupon Notes, which will occur under the financing discussed above, is necessary in order to provide growth and financing alternatives to the Trust. In acquiring its existing properties, the Trust assumed a total of $8,075,000 in mortgage debt, of which $7,060,000 remained outstanding as of September 30, 1994. The debt service on these mortgages amounted to $199,000 for the quarter ended September 30, 1994. Capitalized improvements and leasing commissions were $1,263,000 for the nine months ended September 30, 1994 as compared to $1,639,000 for the same period in 1993. This decrease is primarily related to higher tenant finish costs and leasing commissions at the Trust's retail property during 1993. 9 OTHER MATTERS The Trust has scheduled its Annual Meeting of Shareholders for November 21, 1994. The items to be voted on by the Shareholders are the election of Trust Managers and the ratification of Ernst & Young as the independent auditors of the Trust for 1994. The largest shareholder of the Trust, American Holdings, Inc., is seeking removal of the existing Trust Managers and has proposed its own candidates for election as Trust Managers. American Holdings, Inc. is currently soliciting proxies in connection therewith. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. The Trust has scheduled its Annual Meeting of Shareholders for November 21, 1994. The items to be voted on by the Shareholders are election of Trust Managers and ratification of Ernst & Young as the independent auditors of the Trust for 1994. The largest shareholder of the Trust, American Holdings, Inc., is seeking removal of the existing Trust Managers and has proposed its own candidates for election as Trust Managers. American Holdings, Inc. is currently soliciting proxies in connection therewith. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits None (b) Reports on Form 8-K Item 5. On July 5, 1994, a Form 8-K was filed stating that the Trust would not proceed with a proposed financing transaction with Kidder Peabody Mortgage Capital Corporation which had been previously announced. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: October 28, 1994 AMERICAN INDUSTRIAL PROPERTIES REIT (Registrant) /s/ MARC A. SIMPSON ----------------------------------- Marc A. Simpson, Vice President and Chief Financial Officer (principal accounting and financial officer) 11 -----END PRIVACY-ENHANCED MESSAGE-----