-----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, eFbOsXj33DNgP77nkpzqlhqIDcbJv830mfSJ/bx2Fx+5Ju1zG+uwXcW9dl6m5Amx L0PneWD0Y0P/0paCrtWzbQ== 0000950131-94-001302.txt : 19940817 0000950131-94-001302.hdr.sgml : 19940817 ACCESSION NUMBER: 0000950131-94-001302 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 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: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09016 FILM NUMBER: 94543384 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 June 30, 1994................. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________ COMMISSION FILE NUMBER 1-9016 ___________________________ AMERICAN INDUSTRIAL PROPERTIES REIT (Exact name of registrant as specified in its charter) TEXAS 75-6335572 (State 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 August 8, 1994. AMERICAN INDUSTRIAL PROPERTIES REIT FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1994 INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Operations for the three months and six months ended June 30, 1994 and 1993.................................. 3 Balance Sheets as of June 30, 1994 and December 31, 1993...... 4 Statements of Cash Flows for the six months ended June 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 1. Legal Proceedings............................................ 10 Item 4. Submission of Matters to a Vote of Security Holders.......... 10 Item 6. Exhibits and Reports on Form 8-K............................. 10 SIGNATURES.............................................................. 11
2 AMERICAN INDUSTRIAL PROPERTIES REIT STATEMENT OF OPERATIONS (Unaudited, dollars in thousands except per share data)
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 1994 1993 1994 1993 --------- --------- --------- --------- REVENUES Rents $2,117 $1,858 $4,074 $3,663 Tenant Reimbursements 670 604 1,353 1,127 Interest Income 89 132 172 276 --------- --------- --------- --------- 2,876 2,594 5,599 5,066 --------- --------- --------- --------- REAL ESTATE EXPENSES Amortization of original issue discount on Zero Coupon Notes due 1997 376 347 751 680 Depreciation and amortization 846 930 1,665 1,593 Interest on 8.8% notes payable due 1997 992 993 1,974 1,974 Interest on mortgages payable 171 116 349 291 Property taxes 431 397 729 789 Property management fees 105 102 225 214 Utilities 108 104 227 207 Repairs and maintenance 242 256 498 540 Other property operating expenses 111 59 248 121 --------- --------- --------- --------- 3,382 3,304 6,666 6,409 Trust administrative expenses: Trust administration and overhead 784 554 1,398 838 Fees paid to Advisor _ 534 _ 659 --------- --------- --------- --------- 4,166 4,392 8,064 7,906 Loss from real estate operations (1,290) (1,798) (2,465) (2,840) Gain (loss) on sales of real estate _ 4 _ (234) --------- --------- --------- --------- NET LOSS ($1,290) ($1,794) ($2,465) ($3,074) ========= ========= ========= ========= PER SHARE DATA Loss from real estate operations ($0.14) ($0.20) ($0.27) ($0.31) Gain (loss) on sales of real estate _ 0.00 _ (0.03) --------- --------- --------- --------- Net Loss ($0.14) ($0.20) ($0.27) ($0.34) ========= ========= ========= ========= Distributions Paid _ $0.04 _ $0.08 ========= ========= ========= ========= 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)
JUNE 30, DECEMBER 31, ASSETS 1994 1993 -------- ------------ Real Estate, at cost net of writedowns for permanent impairments in value $104,579 $103,710 Accumulated depreciation (20,836) (19,315) -------- -------- Net real estate 83,743 84,395 Cash and Cash Equivalents, unrestricted 1,083 1,119 Other Assets: Issuance costs of Zero Coupon Notes due 1997, net 116 131 Other assets, net 2,632 2,652 -------- -------- $ 87,574 $ 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 5,274 4,682 Mortgage notes payable 7,088 7,157 Accrued interest on 8.8% Notes payable 1,345 371 Accounts payable, accrued expenses and other liabilities 1,725 1,503 Tenant security deposits 517 494 -------- -------- Total Liabilities 61,188 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) (42,560) (40,095) Accumulated net gain on sales of real estate 1,162 1,162 -------- -------- Total Shareholders' Equity 26,386 28,851 -------- -------- $ 87,574 $ 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 Six Months Ended June 30, ------------------------ 1994 1993 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ($2,465) ($3,074) 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 751 680 Depreciation and amortization 1,664 1,593 Decrease (increase) in other assets (108) (221) Increase in accrued interest on 8.8% Notes Payable 974 _ Increase (decrease) in accounts payable, accrued expenses and other liabilities and tenant security deposits 245 (1,569) Loss (gain) on sales of real estate _ 234 ----------- ----------- Net Cash Provided By (Used In) Operating Activities 1,061 (2,357) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sales of real estate _ 6,723 Capitalized improvements and leasing commissions (869) (624) ----------- ----------- Net Cash (Used In) Provided By Investing Activities (869) 6,099 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Partial retirement of mortgages payable _ (4,802) Partial repurchase of Zero Coupon Notes (159) _ Principal repayments on mortgage notes payable (69) _ Distributions to Shareholders _ (726) ----------- ----------- Net Cash Used in Financing Activities (228) (5,528) ----------- ----------- Net Decrease in Cash and Cash Equivalents (36) (1,786) Cash and Cash Equivalents at Beginning of Period 1,119 17,779 ----------- ----------- Cash and Cash Equivalents at End of Period $1,083 $15,993 =========== =========== Cash Paid for Interest $1,349 $2,265 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO FINANCIAL STATEMENTS JUNE 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 June 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 six month periods ended June 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-management 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. Pursuant to an Annual Meeting of Shareholders 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 six months ended June 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 Six Months Ended June 30, June 30, 1994 1993 1994 1993 ----------- -------------- ---------- ------------- FUNDS FROM OPERATIONS $(68,000) $(521,000)(a) $(49,000) $(567,000)(a) PER SHARE $ (0.01) $ (0.06) $ (0.01) $ (0.06)
(a) Funds from operations for the three months and six months ended June 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 six months ended June 30, 1994 were approximately $114,000 and $233,000, respectively. Funds from operations for the three months and six months ended June 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. Revenues increased by approximately 8% on a same property basis when comparing the six months ended June 30, 1994 to the same period in 1993 due to higher occupancy and rental rates. The overall occupancy of the Trust's portfolio on June 30, 1994 was 92%. On a same property basis, overall occupancy increased from 87% at June 30, 1993 to 91% at June 30, 1994. Operating expenses decreased by approximately 3% on a same property basis when comparing the six months ended June 30, 1994 to the same period in 1993. 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, 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. 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. Based upon current forecasts, the Trust anticipates that it will have sufficient funds to meet the deferred payment due in August 1994. The Trust also anticipates that a similar arrangement with the noteholder will be required with respect to the regular interest payment due in November 1994. There is no assurance that the Trust will be able to obtain such agreement from 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 that 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 June 30, 1994, the Trust has repurchased a substantial amount of the Zero Coupon Notes, decreasing the face amount of the remaining outstanding Zero Coupon Notes to approximately $19,253,000. Management believes that the defeasance of the remaining Zero Coupon Notes is necessary in order to provide growth and financing alternatives to the Trust. It is anticipated that funds for such a defeasance will be provided by a refinancing of the Trust's properties. In acquiring its existing properties, the Trust assumed a total of $8,075,000 in mortgage debt, of which $7,088,000 remained outstanding as of June 30, 1994. The debt service on these mortgages amounted to $202,000 for the quarter ended June 30, 1994. Capitalized improvements and leasing commissions were $869,000 for the six months ended June 30, 1994 as compared to $624,000 for the same period in 1993. The higher amount in 1994 is primarily related to continued leasing activity which has led to higher occupancy rates in the Trust's properties. OTHER MATTERS Consistent with its strategy, the Trust solicited shareholder approval at a Special Meeting of Shareholders on May 10, 1994 to merge the Trust with and into a Maryland corporation which is a wholly owned subsidiary of the Trust. Among other things, this merger proposal would have resulted in five outstanding shares of the Trust being converted into one share of common stock in the corporation, significant increases in the authorized shares of common stock, the authorization of preferred stock, and implementation of a staggered board of directors. The largest shareholder of the Trust solicited proxies in opposition to this plan. On May 24, 1994, it was announced that insufficient votes had been cast for approval of the proposal. 9 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Trust is not a party to any pending material legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. Pursuant to a Special Meeting of Shareholders held May 10, 1994, a proposal to merge the Trust with and into a Maryland corporation which is a wholly owned subsidiary of the Trust was voted on. The certified vote total, presented at a continuance of the Shareholder Meeting on May 24, 1994, was as follows: 3,555,423 For, 3,043,781 Against, and 124,711 Abstain. The proposal, which required approval by two-thirds of all outstanding shareholders, did not pass. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits None (b) Reports on Form 8-K Item 5. On April 7, 1994, a Form 8-K was filed related to an amendment to the Trust's By-Laws eliminating the requirement for annual appraisals of the market value of the Trust's real estate investments. No financial statements were filed in connection therewith. Item 4. On May 26, 1994, a Form 8-K was filed indicating that the Trust had hired Ernst & Young as its new independent auditors. There were no disagreements with the predecessor auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Item 5. On May 26, 1994, a Form 8-K was filed regarding an agreement with the major unsecured lender to the Trust. The agreement stipulated that approximately one-half of the $1,974,164 semi-annual interest payment due May 24, 1994 could be deferred until August 26, 1994 and that certain additional interest would accrue if the payment of the deferred amount was made after June 27, 1994. Item 5. On June 7, 1994, a Form 8-K was filed relating to an increase in the number of Trust Managers to four, an amendment to the Trust's By-Laws clarifying that existing Trust Managers may fill a Trust Manager vacancy created by an increase in the number of Trust Managers, and the appointment of Raymond A. Hay as a Trust Manager. These actions were contingent upon the acceptance by Mr. Hay of his appointment as a Trust Manager. Mr. Hay accepted his appointment on June 6, 1994. 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: August 12, 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-----