-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VnnieXpbtxraCIxUPpvlxC+tqyDys2WtAgRHlhU/EvIr11hvxWDyiRrH3+p542ad 8eacI0jcNGZ947WvVcYwMQ== 0000950134-01-002967.txt : 20010402 0000950134-01-002967.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950134-01-002967 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT INC CENTRAL INDEX KEY: 0000778437 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 756335572 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09016 FILM NUMBER: 1588206 BUSINESS ADDRESS: STREET 1: 6210 N BELTLINE RD STREET 2: STE 170 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 972-756-6000 MAIL ADDRESS: STREET 1: 6210 N BELTLINE ROAD STREET 2: SUITE 170 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-K405 1 d85602e10-k405.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9016 --------------------- AMERICAN INDUSTRIAL PROPERTIES REIT (Exact Name of Registrant as Specified in Its Charter) TEXAS 75-6335572 (State of Organization) (I.R.S. Employer Identification Number) 6210 NORTH BELTLINE, SUITE 170 75063 IRVING, TEXAS (Zip Code) (Address of Principal Executive Offices)
(972) 756-6000 Registrant's telephone number, including area code: Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Shares of Beneficial Interest, New York Stock Exchange par value $0.10 per share
NONE Securities registered Pursuant to Section 12(g) of the Act: 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. Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was $266,635,313 as of March 22, 2001. 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 22, 2001. 21,011,451 Common Shares of Beneficial Interest were outstanding as of March 22, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AMERICAN INDUSTRIAL PROPERTIES REIT FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS
SECURITIES AND EXCHANGE COMMISSION ITEM NUMBER AND DESCRIPTION PAGE - -------------------------------------------------------------- ---- PART I Item 1. Business.................................................... 3 The Company................................................. 3 The Merger.................................................. 3 Business Objectives and Strategy............................ 4 Recent Property, Financing and Equity Developments.......... 5 Revenue and Loss from Operations............................ 6 Competition................................................. 6 Employees................................................... 7 Item 2. Properties.................................................. 7 Item 3. Legal Proceedings........................................... 13 Item 4. Submission of Matters to a Vote of Shareholders............. 13 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters......................................... 14 Item 6. Selected Financial Data..................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 16 Results of Operations....................................... 16 Liquidity and Capital Resources............................. 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 21 Item 8. Financial Statements and Supplementary Data................. 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................. 22 PART III Item 10. Trust Managers and Executive Officers of the Registrant..... 22 Item 11. Executive Compensation...................................... 26 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 31 Item 13. Certain Relationships and Related Party Transactions........ 33 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................................... 33 Index to Consolidated Financial Statements and Financial Statement Schedule.......................................... 48
2 3 PART I. ITEM 1. BUSINESS THE COMPANY American Industrial Properties REIT (together with its subsidiaries, the "Trust" or the "Company") is a Texas real estate investment trust that was organized on September 26, 1985. In addition to wholly owned subsidiaries, the Trust owns a general partner interest and substantially all of the economic interests, directly or indirectly, in three operating partnerships and a 55.84% interest in a joint venture owning an office building. As of December 31, 2000, the Trust directly or indirectly owned a portfolio of 70 real estate properties, aggregating 7.5 million net rentable square feet ("nrsf"). The Trust's emphasis is in the light industrial sector, which is characterized as office showroom, service center and flex properties, low rise offices, and small bay distribution properties (see "Business Objectives and Strategy" below). Based on nrsf, as of December 31, 2000, approximately 74% of the Trust's portfolio is represented by light industrial properties, 22% of the portfolio is represented by office properties and 4% of the portfolio is represented by retail properties. The light industrial properties are leased for office, office showroom, warehouse, distribution, research and development, and light assembly purposes. The retail properties are leased to retail merchandise establishments, restaurants and a cinema. No single tenant accounted for more than 10% of the Trust's consolidated gross revenue for the year ended December 31, 2000. No individual property accounted for more than 10% of total revenues of the Trust for the year ended December 31, 2000. The Trust has qualified as a real estate investment trust ("REIT") for federal income tax purposes since 1985 and intends to maintain its REIT qualification in the future. In order to preserve its REIT status, the Trust must meet certain criteria with respect to assets, income, and shareholder ownership. In addition, the Trust is required to distribute at least 95% of taxable income (as defined in the Internal Revenue Code of 1986, as amended) (the "Code") to its shareholders. Effective January 1, 2001, the distribution requirement was reduced from 95% to 90% of taxable income. The Trust's executive offices are located at 6210 North Beltline Road, Suite 170, Irving, Texas 75063. The Trust's main telephone number is (972) 756-6000 and it's web site address is www.aipreit.com. THE MERGER On November 2, 2000, the Trust announced that it had entered into agreements to 1) sell 31 properties to an affiliate of Lend Lease Real Estate Investments, Inc. for gross proceeds of $292.2 million, 2) sell its Manhattan Towers property to a third party for gross proceeds of $55.0 million and 3) merge (the "Merger") DDR Transitory Sub, Inc. ("DDR Sub") (a subsidiary of Developers Diversified Realty Corporation ("DDR")) with and into the Trust. In connection with the Merger, all of the Trust's shareholders, other than DDR, DDR Sub and their respective direct and indirect subsidiaries, will receive in cash an estimated $13.74 per share (subject to adjustment for dividends paid, including the $1.27 per share special dividend paid in January 2001) in exchange for their common shares of beneficial interest in the Trust. Immediately prior to the closing of the Merger, DDR Sub will have 10,000 shares of common stock outstanding, 9,900 of which will be owned by DDR and one of which will be owned by Scott A. Wolstein, the Chairman of the Board of the Trust and the Chairman of the Board and Chief Executive Officer of DDR. As a result of the Merger, the shareholders of DDR Sub will become the sole shareholders of the Trust. Certain of the institutional investors, including DDR, have entered into voting agreements pursuant to which they agreed to vote their shares in favor of the Merger and in favor of the sale of our 31 properties to an affiliate of Lend Lease. The investors that signed voting agreements have the right to vote 70.68% of our outstanding shares. Two of our shareholders that signed voting agreements have the right to vote, on behalf of their clients, against the proposals if, in the exercise of their fiduciary duties to their advisory clients, they believe they should vote against the proposals. Those two investors vote 7.17% of the Trust's outstanding shares. It is currently anticipated that the special meeting of shareholders to vote on the Merger and the sale of properties will be held on May 9, 2001. 3 4 At this time, we have no reason to believe that the Merger and the sale of properties will not be approved by the shareholders; however, the information set forth in this Form 10-K under "Business Objectives and Strategy" is presented as if the Trust will continue operations as a public REIT. BUSINESS OBJECTIVES AND STRATEGY The Trust's business objective is to increase shareholder value through opportunistic investments and efficient operations in the light industrial property sector, including office showroom, service center and flex properties, low rise offices, and small bay distribution properties. Focus on Light Industrial Properties. The Trust intends to focus on the light industrial sector of the real estate market, believing that this sector offers a number of compelling benefits. The light industrial property sector serves the smaller tenant population and, in many instances, serves as a low cost office space alternative. In general, rents in light industrial office space offer the opportunity for increased returns as suburban office rents rise. The Trust believes that this sector a) is characterized by highly fragmented ownership, b) offers current opportunities to purchase properties at attractive yields and at a discount to replacement cost, and c) has, to date, avoided much of the institutional activity leading to higher prices and lower yields common to many other sectors of the real estate market. The Trust also believes that there are inherent benefits to its strategy of consolidating ownership in this sector, including greater returns through economies of scale and the ability to offer space alternatives to tenants which may not be currently available. The Trust's emphasis in the light industrial sector is ideally suited for the entrepreneurial segment of the economy, which consistently leads the United States in job growth. This property type is attractive to technology companies, which typically prefer flexible-use property space. The majority of the Trust's properties are situated in markets that have a concentration of technology firms, such as Dallas, San Francisco, San Diego and Northern Virginia. Geographic Focus. The Trust will concentrate its efforts in the Southern and Western regions of the United States with primary target markets in Texas (Dallas, Houston, Austin), California (San Francisco, Los Angeles, San Diego), Florida (Orlando, Tampa), Phoenix, Denver and Northern Virginia/ Washington, D.C. The target markets are characterized by above average population and economic growth, strong levels of new business formation and favorable supply and demand characteristics. Experienced Management. The Trust has seasoned management with extensive experience in all phases of the real estate cycle. Management utilizes research-driven analysis of markets and sub-markets to identify targeted opportunities and intensive due diligence efforts to evaluate potential acquisitions. Management believes it has strong acquisition and networking capabilities to identify acquisition opportunities on both a single property and portfolio basis. Growth from Existing Portfolio. The Trust will pursue increases in cash flow from its existing portfolio through intensive management of the portfolio and its tenant base. Portfolio management is focused on tenant service, leasing the portfolio to stabilized occupancy (generally 94-96%), retaining existing tenants and increasing rental rates. In addition, the Trust will seek to control operating expenses and should benefit from economies of scale as the size of its portfolio increases. In 1999, the Trust initiated a transition to internalized property management, accounting and leasing of its properties, thereby significantly reducing the use of third parties in these areas. To date the Trust has internalized 45% of the property management and 100% of the property accounting of its portfolio on a total revenue basis. The Trust does not expect to convert to internal property management in markets where it does not own a sufficient critical mass to justify internalization of management. When combined with expected savings resulting from changes in its property insurance program, the Trust expects to realize net contribution from these efforts during 2001 in excess of $1.0 million. As the Trust develops direct relationships with our tenant base, management will be better able to anticipate and understand the real estate as well as general business needs of our tenants. Being aware of tenant's increasing or decreasing needs for space greatly improves the Trust's ability to maintain or expand a tenant relationship, resulting in the potential for higher retention rates and build-to-suit opportunities. Having a direct relationship with our tenants is significantly more advantageous to the Trust than having these relationships managed by third-party service providers. 4 5 Growth from Acquisitions. The Trust evaluates potential acquisitions from both a current yield and an internal rate of return perspective. The Trust periodically estimates its cost of capital in an effort to ensure that the internal rate of return on proposed acquisitions exceeds such cost of capital, thereby ensuring that an acquisition will be accretive on an equity basis. The Trust will, on occasion, utilize an operating partnership structure to acquire properties, which offers certain tax advantages to the seller of such properties. Financial Strategy. On a long term basis, the Trust seeks to lower its cost of capital through the appropriate use of debt and equity capital. The Trust continues to operate at higher levels of leverage than it would foresee on a longer term basis. The Trust believes that its use of leverage, which is 52.0% on a debt to total market capitalization ratio at December 31, 2000, is appropriate given existing market conditions. RECENT PROPERTY, FINANCING AND EQUITY DEVELOPMENTS For the twelve months ended December 31, 2000, the Trust sold four real estate properties and three tracts of vacant land for approximately $143 million. The Trust did not acquire any properties in 2000. The Trust's sales on a chronological basis are as follows: - On January 31, 2000, the Trust sold one light industrial property for total consideration of $4.8 million resulting in a gain on sale of approximately $0.7 million. - On February 11, 2000, the Trust sold one office property for total consideration of $6.7 million resulting in a gain on sale of approximately $2.0 million. - On March 8, 2000, the Trust sold one light industrial property for total consideration of $3.6 million resulting in a loss on sale of approximately $0.004 million. - On March 30, 2000, the Trust sold one tract of unimproved land. Total proceeds from the sale were approximately $1.1 million and resulted in a gain of $0.07 million. - On April 27, 2000, the Trust sold one tract of unimproved land. Total proceeds from the sale were approximately $0.3 million and resulted in a gain on sale of approximately $0.03 million. - On July 2, 2000, the Trust sold one tract of unimproved land. Total proceeds from the sale were approximately $0.3 million and resulted in a gain on sale of approximately $0.07 million. - On November 9, 2000, the Trust sold its Manhattan Towers office property. Total proceeds from the sale were approximately $55.3 million and resulted in a gain on sale of approximately $23.9 million. The Trust completed the following equity and/or financing transactions during the period January 1, 2000 through March 22, 2001: - In January 2000, the Trust redeemed 89,542 AIP SWAG Operating L.P. limited partnership units for approximately $1.1 million. - In March 2000, the Trust redeemed 29,166 AIP Operating L.P. limited partnership units for approximately $0.3 million. - In April 2000, the Trust entered into an agreement with Prudential Securities Credit Corporation ("PSCC") to extend the maturity of its acquisition line from April 27, 2000 to October 27, 2000. Terms of the line, which had $48.0 million outstanding, were retained, including an interest rate of 1.55% in excess of LIBOR. - In July 2000, the Trust redeemed 89,543 AIP SWAG Operating L.P. limited partnership units for approximately $1.1 million. - In October 2000, the Trust entered into an agreement with PSCC to extend the maturity of its acquisition line from October 27, 2000 to April 27, 2001. Terms of the line, which currently has $27.7 million outstanding, were retained, including an interest rate of 1.55% in excess of LIBOR. This acquisition line is secured by four properties. The Trust anticipates refinancing three of the properties 5 6 under the Bank One line of credit and paying the acquisition credit line in full on or prior to its maturity in April 2001. - In 2000, 77,473 common shares were issued under the dividend reinvestment plan for proceeds of approximately $0.9 million. - In January 2001, the Trust entered in to an agreement with Bank One, Texas, N.A. ("Bank One") to extend the maturity of its secured revolving credit agreement to January 2002. The contemplated size of the line was reduced from $150 million to $50 million and the Merger with DDR was contemplated in the extension. All other terms remained the same. - In January 2001, the Trust paid a special distribution of $1.27 per share. This distribution primarily related to the taxable gain incurred by the Trust from the sale of properties in fiscal year 2000. A distribution of $0.22 per Share was paid on January 14, 2000, April 14, 2000, July 14, 2000 and October 13, 2000. In addition, the Trust declared a special distribution of $1.27 per share payable on January 17, 2001 to shareholders of record on December 29, 2000. REVENUE AND LOSS FROM OPERATIONS The breakdown of revenue and loss from operations for each of the years ended December 31, 2000, 1999, and 1998 is as follows (in thousands):
2000(A) 1999(B) 1998(C) ------- ------- ------- Property revenues: Industrial............................................ $53,760 $52,837 $27,013 Office................................................ 32,125 30,006 17,044 Retail................................................ 3,845 4,039 4,300 ------- ------- ------- Total......................................... 89,730 86,882 48,357 Property operating expenses............................. (27,000) (26,884) (16,046) ------- ------- ------- Income from property operations......................... 62,730 59,998 32,311 ------- ------- ------- Administrative expenses................................. (4,358) (4,628) (3,729) Depreciation and amortization........................... (13,551) (14,535) (8,383) Interest and other income............................... 684 735 705 Interest expense........................................ (25,506) (26,562) (15,139) Provisions for possible losses on real estate........... -- -- (10,060) ------- ------- ------- Income (loss) from operations........................... $19,999 $15,008 $(4,295) ======= ======= =======
- --------------- (a) For the year ended December 31, 2000, the Trust sold four properties and three tracts of vacant land. There were no properties acquired in 2000. (b) For the year ended December 31, 1999, the Trust acquired 11 properties. The Trust sold three properties and one parcel of vacant land in 1999. (c) For the year ended December 31, 1998, the Trust acquired 29 properties. There were no properties sold in 1998. COMPETITION The Trust owns properties in various markets and sub-markets in 11 states (See "ITEM 2. Properties"). The principal competitive factors in these markets are price, location, quality of space, and amenities. In each case, the Trust owns a small portion of the total similar space in the market and competes with owners of other space for tenants. Each of these markets is highly competitive, and other owners of property may have competitive advantages not available to the Trust. 6 7 EMPLOYEES The Trust currently employs 52 people on a full or part-time basis. No employees are presently covered by collective bargaining agreements. Information regarding executive officers of the Trust is set forth in "ITEM 10. Trust Managers and Executive Officers of the Registrant" of Part III of this Form 10-K and is incorporated herein by reference. ITEM 2. PROPERTIES As of December 31, 2000, the Trust owned 70 real estate properties, consisting of 55 light industrial developments, 13 office buildings, and two retail properties. The Trust's light industrial classification includes office showroom, service center and flex properties, low rise offices, and small bay distribution properties. In 2000, the Trust sold two light industrial properties and two office properties. The following tables set forth certain information about the light industrial, office, and retail properties owned as of December 31, 2000. Based on annualized rental revenues in place as of December 31, 2000, no single tenant accounted for more than 10% of the Company's total annualized light industrial, office, and retail revenues for 2000. No individual property accounted for more than 10% of total revenues of the Trust for the 12 months ended December 31, 2000. PROPERTY INFORMATION
RENTABLE ACQUISITION YEAR NUMBER OF AREA PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.) - -------- -------------------- ----------- ----------- --------- --------- LIGHT INDUSTRIAL PROPERTIES 107 Woodmere............................... Folsom, CA 1999 1984 1 57,496 2121 Glenville............................. Richardson, TX 1998 1984 1 20,645 3100 Alfred................................ Santa Clara, CA 1999 1971 1 33,824 Aerotech................................... Colorado Springs, CO 1998 1985 2 75,892 Alumax..................................... Cleveland, OH 1998 1982 1 66,200 Avion Business Center...................... Carrollton, TX 1997 1985 3 70,844 Battlefield Business Park.................. Manassas, VA 1998 1989 1 154,226 Black Canyon Tech Center................... Phoenix, AZ 1998 1983 2 100,000 Bridgeway Tech Center...................... Newark, CA 1999 1996 2 171,721 Cameron Creek Bus Park..................... Austin, TX 1998 1996 1 50,021 Carpenter Center........................... Dallas, TX 1997 1983 1 46,473 Carrier Place.............................. Grand Prairie, TX 1997 1984 1 83,415 Central Park Office Tech................... Richardson, TX 1997 1984 2 73,099 Columbia Corporate Center.................. Aliso Viejo, CA 1998 1988 4 128,110 Commerce Center............................ Houston, TX 1997 1974 9 295,561 Commerce Park North........................ Houston, TX 1985 1984 2 90,684 Corporex Plaza I........................... Tampa, FL 1997 1982 3 94,197 DFW North.................................. Grapevine, TX 1997 1985 2 74,580 Gateway 5 & 6.............................. Irving, TX 1985 1985 2 79,429 Greenbrier Circle Corp Center.............. Chesapeake, VA 1998 1981/83 2 226,513 Greenbrier Tech Center..................... Chesapeake, VA 1998 1981 1 95,258 Hardline Services Bldg..................... Aurora, OH 1998 1974 1 236,225 Heritage Business I........................ Twinsburg, OH 1998 1990 1 36,160 Humboldt Tech Center....................... Sunnyvale, CA 1999 1980 1 60,030 Huntington Drive........................... Monrovia, CA 1985 1985 2 62,218 Interlochen Office Park.................... Broomfield, CO 1999 1985/88 1 121,970 Inverness Business Park.................... Englewood, CO 1997 1980 2 96,386 Junction II Business Park.................. San Jose, CA 1999 1984 2 77,374 Kodak...................................... San Diego, CA 1997 1976 1 58,800 Meridian Street Warehouse.................. Arlington, TX 1995 1981 1 72,072 Metro Business Park........................ Phoenix, AZ 1998 1987 4 109,933 Norfolk Commerce Center.................... Norfolk, VA 1998 1981/87 3 325,923 Northgate II............................... Dallas, TX 1985 1983 4 237,092 Northgate III.............................. Dallas, TX 1997 1979/80/86 6 262,188 Northpointe B.............................. Sterling, VA 1998 1987/88 1 36,655
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RENTABLE ACQUISITION YEAR NUMBER OF AREA PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.) - -------- -------------------- ----------- ----------- --------- --------- Northpointe C.............................. Sterling, VA 1998 1987/88 1 46,100 Northwest Business Pk...................... Menomonee Falls, WI 1985 1983/85/86 3 143,120 Parkway Tech Center........................ Plano, TX 1997 1984 1 70,146 Plaza Southwest 1-5........................ Houston, TX 1985 1975 5 151,630 President's Plaza.......................... Tampa, FL 1997 1987 2 42,458 Shady Trail Business Center................ Dallas, TX 1997 1984 4 68,241 Skyway Business Center..................... Irving, TX 1997 1981 1 66,504 Southeast Commercial Center................ Austin, TX 1998 1984 1 34,514 Steris Building............................ Mentor, OH 1998 1980 1 40,200 Stewart Plaza.............................. Sunnyvale, CA 1999 1970 1 47,054 Summit Park................................ Austin, TX 1998 1985 2 96,950 Tech Center 29 -- Phase I.................. Silver Springs, MD 1998 1970 1 176,824 Tech Center 29 -- Phase II................. Silver Springs, MD 1998 1991 1 58,280 TechniPark 10 Service Center............... Houston, TX 1998 1983/84 2 71,647 Valley View Commerce Park.................. Farmers Branch, TX 1997 1986 4 138,374 Valwood II Business Center................. Carrollton, TX 1997 1984 1 52,813 VSA Bldg................................... Twinsburg, OH 1998 1989 1 85,800 Washington Bus. Park....................... Phoenix, AZ 1998 1985 4 137,418 Westchase Park 1-2......................... Houston, TX 1985 1984 2 47,690 Winter Park Business Center................ Winter Park, FL 1998 1981/83/85 6 120,363 --- --------- Total Light Industrial Properties.......... 118 5,577,340 --- --------- OFFICE PROPERTIES 10505 Sorrento Valley...................... San Diego, CA 1997 1982 1 54,095 1881 Pine Street........................... St Louis, MO 1997 1987 1 108,960 485 Clyde.................................. Mountain View, CA 1999 1970 1 61,600 Academy Point Atrium II.................... Colorado Springs, CO 1998 1984 1 90,766 Apollo Drive Office Building(a)............ Chelmsford, MA 1997 1987 1 291,424 Baytech Park............................... San Jose, CA 1999 1997 4 188,825 Beltline Business Center................... Irving, TX 1985 1984 3 59,888 Centre Pointe.............................. Walnut Creek, CA 1999 1982 6 197,459 Gateway West............................... Phoenix, AZ 1997 1964/69/74 3 150,354 Gibraltar Tech Center...................... Sunnyvale, CA 1999 1980 2 36,228 Northview Business Center.................. Austin, TX 1998 1970 1 254,805 Spring Valley Business Park #6............. Richardson, TX 1998 1980/98 3 94,304 Tech Center 29 -- Phase III................ Silver Springs, MD 1998 1988 1 55,901 --- --------- Total Office Properties.................... 28 1,644,609 --- --------- RETAIL PROPERTIES Tamarac Square Mall........................ Denver, CO 1985 1976/78 2 196,560 Volusia.................................... Daytona Beach, FL 1997 1984 1 75,386 --- --------- Total Retail Properties.................... 3 271,946 --- --------- Total Light Industrial, Office, and Retail Properties............................... 149 7,493,895 === =========
- --------------- (a) The Trust owns a 55.84% joint venture interest in the property. TENANT INFORMATION
AVERAGE BASE PERCENT NUMBER RENTAL RATE ANNUALIZED PROPERTY LOCATION LEASED(a) TENANTS(a) PER SQ. FT.(a) BASE RENT(a) - -------- -------------------- --------- ---------- -------------- ------------ (000) LIGHT INDUSTRIAL PROPERTIES 107 Woodmere.......................... Folsom, CA 100.0% 1 $ 9.72 $ 559 2121 Glenville........................ Richardson, TX 100.0% 1 10.00 206 3100 Alfred........................... Santa Clara, CA 100.0% 1 18.24 617 Aerotech.............................. Colorado Springs, CO 100.0% 4 16.29 1,236 Alumax................................ Cleveland, OH 100.0% 1 4.50 298
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AVERAGE BASE PERCENT NUMBER RENTAL RATE ANNUALIZED PROPERTY LOCATION LEASED(a) TENANTS(a) PER SQ. FT.(a) BASE RENT(a) - -------- -------------------- --------- ---------- -------------- ------------ (000) Avion Business Center................. Carrollton, TX 94.8% 8 10.26 689 Battlefield Business Park............. Manassas, VA 100.0% 1 7.00 1,080 Black Canyon Tech Center.............. Phoenix, AZ 100.0% 3 9.00 900 Bridgeway Technology Center........... Newark, CA 99.3% 4 18.92 3,226 Cameron Creek Bus Park................ Austin, TX 100.0% 3 8.57 429 Carpenter Center...................... Dallas, TX 100.0% 7 5.08 236 Carrier Place......................... Grand Prairie, TX 91.0% 12 6.66 506 Central Park Office Tech.............. Richardson, TX 90.0% 9 9.30 612 Columbia Corporate Center............. Aliso Viejo, CA 89.2% 8 11.98 1,369 Commerce Center....................... Houston, TX 89.7% 40 5.18 1,373 Commerce Park North................... Houston, TX 88.4% 8 6.23 499 Corporex Plaza I...................... Tampa, FL 100.0% 24 7.24 682 DFW North............................. Grapevine, TX 95.8% 7 5.40 386 Gateway 5 & 6......................... Irving, TX 100.0% 7 6.68 531 Greenbrier Circle Corp Center......... Chesapeake, VA 85.2% 16 10.35 1,997 Greenbrier Tech Center................ Chesapeake, VA 72.0% 8 9.12 626 Hardline Services Bldg................ Aurora, OH 100.0% 1 3.15 744 Heritage Business I................... Twinsburg, OH 82.2% 3 8.74 260 Humboldt Tech Center.................. Sunnyvale, CA 100.0% 1 19.45 1,168 Huntington Drive...................... Monrovia, CA 98.2% 6 16.80 1,026 Interlocken Office Park............... Broomfield, CO 100.0% 1 12.20 1,488 Inverness Business Park............... Englewood, CO 100.0% 8 9.42 908 Junction II Business Park............. San Jose, CA 100.0% 3 21.54 1,667 Kodak................................. San Diego, CA 100.0% 2 11.24 661 Meridian Street Warehouse............. Arlington, TX 100.0% 1 2.81 203 Metro Business Park................... Phoenix, AZ 91.5% 22 9.17 922 Norfolk Commerce Center............... Norfolk, VA 85.6% 25 9.62 2,684 Northgate II.......................... Dallas, TX 78.3% 11 4.01 744 Northgate III......................... Dallas, TX 69.7% 18 4.84 884 Northpointe B......................... Sterling, VA 100.0% 2 8.11 297 Northpointe C......................... Sterling, VA 81.5% 4 8.89 334 Northwest Business Pk................. Menomonee Falls, WI 77.0% 15 5.83 642 Parkway Tech Center................... Plano, TX 100.0% 9 6.25 438 Plaza Southwest 1-5................... Houston, TX 91.5% 28 4.55 631 President's Plaza..................... Tampa, FL 97.1% 12 8.66 357 Shady Trail Business Center........... Dallas, TX 84.3% 17 4.52 260 Skyway Business Center................ Irving, TX 100.0% 6 5.06 337 Southeast Commercial Center........... Austin, TX 100.0% 3 8.21 283 Steris Building....................... Mentor, OH 0.0% 0 0.00 0 Stewart Plaza......................... Sunnyvale, CA 100.0% 3 15.41 725 Summit Park........................... Austin, TX 100.0% 3 10.13 982 Tech Center 29 -- Phase I............. Silver Springs, MD 100.0% 15 8.85 1,565 Tech Center 29 -- Phase II............ Silver Springs, MD 100.0% 3 13.36 779 TechniPark 10 Service Center.......... Houston, TX 92.5% 6 6.72 445 Valley View Commerce Park............. Farmers Branch, TX 96.6% 8 6.82 912 Valwood II Business Center............ Carrollton, TX 100.0% 5 4.38 231 VSA Bldg.............................. Twinsburg, OH 100.0% 1 4.85 416 Washington Bus. Park.................. Phoenix, AZ 55.8% 5 9.47 726 Westchase Park 1-2.................... Houston, TX 66.9% 8 7.76 248 Winter Park Business Center........... Winter Park, FL 95.3% 31 9.51 1,091 ----- --- ------ ------- Total Light Industrial Properties..... 90.5% 459 8.54 43,115 ----- --- ------ ------- OFFICE PROPERTIES 10505 Sorrento Valley................. San Diego, CA 100.0% 2 15.25 825 1881 Pine Street...................... St. Louis, MO 100.0% 3 13.52 1,473 485 Clyde............................. Mountain View, CA 100.0% 1 11.37 700 Academy Point Atrium II............... Colorado Springs, CO 97.5% 13 16.98 1,502 Apollo Drive Office Building(b)....... Chelmsford, MA 100.0% 1 12.50 3,643 Baytech Park.......................... San Jose, CA 100.0% 1 19.20 3,625
9 10
AVERAGE BASE PERCENT NUMBER RENTAL RATE ANNUALIZED PROPERTY LOCATION LEASED(a) TENANTS(a) PER SQ. FT.(a) BASE RENT(a) - -------- -------------------- --------- ---------- -------------- ------------ (000) Beltline Business Center.............. Irving, TX 89.1% 19 11.71 625 Centre Pointe......................... Walnut Creek, CA 98.2% 15 20.10 3,897 Gateway West.......................... Phoenix, AZ 82.0% 3 17.53 2,161 Gibraltar Tech Center................. Sunnyvale, CA 100.0% 1 18.27 662 Northview Business Center............. Austin, TX 100.0% 7 11.95 3,045 Spring Valley Business Park #6........ Dallas, TX 100.0% 1 11.75 1,108 Tech Center 29 -- Phase III........... Silver Springs, MD 100.0% 8 21.12 1,181 ----- --- ------ ------- Total Office Properties............... 97.6% 75 15.23 24,447 ----- --- ------ ------- RETAIL PROPERTIES Tamarac Square Mall(c)................ Denver, CO 76.0% 45 13.16 1,966 Volusia............................... Daytona Beach, FL 96.8% 19 11.80 861 ----- --- ------ ------- Total Retail Properties............... 81.8% 64 12.71 2,827 ----- --- ------ ------- Total Light Industrial, Office, and 91.7% 598 $10.24 $70,389 Retail.............................. ===== === ====== =======
- --------------- (a) Based on leases executed on or before December 31, 2000. (b) The Trust owns a 55.84% joint venture interest in the property. (c) The denominator of average base rental rate per square foot calculation for this property includes ground lease income. INFORMATION BY PROPERTY TYPE
NET RENTABLE SQUARE FEET ANNUALIZED BASE RENT(a) ------------------- ------------------------------ AMOUNT PERCENT AMOUNT PERCENT PSF --------- ------- ----------- ------- ------ Light Industrial.................... 5,577,340 74.4% $43,115,000 59.2% $ 8.54 Office.............................. 1,644,609 22.0% 24,447,000 36.9% 15.23 Retail.............................. 271,946 3.6% 2,827,000 3.9% 12.71 --------- ----- ----------- ----- ------ Total..................... 7,493,895 100.0% $70,389,000 100.0% $10.24 ========= ===== =========== ===== ======
- --------------- (a) Based on leased net rentable square footage as of December 31, 2000. Includes revenues from ground leases. LEASE EXPIRATION DETAIL(A)
PERCENTAGE ANNUALIZED OF TOTAL ANNUALIZED BASE RENT NO. OF SQUARE BASE RENT OF OF LEASES SQUARE FEET EXPIRING EXPIRING YEAR EXPIRING FEET AVAILABLE LEASES PERCENTAGE LEASES-PSF - ---- -------- --------- ---------- ------------ ---------- ------------ 2001........................ 127 1,134,292 15.1% $13,286,332 17.3% $11.71 2002........................ 153 1,419,763 18.9% 13,930,973 18.1% 9.81 2003........................ 137 1,415,220 18.9% 14,884,015 19.3% 10.52 2004........................ 100 968,713 12.9% 10,340,776 13.4% 10.67 2005........................ 70 1,068,778 14.3% 11,971,614 15.5% 11.20 2006........................ 14 253,662 3.4% 2,550,362 3.3% 10.05 2007........................ 11 482,934 6.4% 6,538,941 8.5% 13.54 2008........................ 1 5,030 0.1% 111,113 0.1% 22.09 2009........................ 4 4,763 0.1% 30,295 0.1% 6.36 2010........................ 13 120,114 1.6% 3,365,553 4.4% 28.02 --- --------- ---- ----------- ----- ------ Total 630 6,873,269 91.7% $77,009,974 100.0% $11.20 === ========= ==== =========== ===== ======
- --------------- (a) Includes executed leases not yet occupied as of December 31, 2000. 10 11 SUMMARY TENANT INFORMATION
LEASED SPACE NO. OF SQUARE (SQUARE FEET) LEASES(a) FOOTAGE PERCENTAGE - ------------- --------- --------- ---------- 0- 5,000........................................ 333 928,870 12.4% 5,001-10,000........................................ 129 907,342 12.1% 10,001-20,000........................................ 87 1,228,252 16.4% 20,001-50,000........................................ 62 1,905,538 25.5% 50,001-+............................................. 19 1,903,267 25.3% Vacant Space......................................... -- 620,626 8.3% --- --------- ------ Total...................................... 630 7,493,895 100.0% === ========= ======
- --------------- (a) Amounts correspond to the number of executed leases. Certain tenants may have more than one executed lease. MORTGAGE INDEBTEDNESS
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE PROPERTY BALANCE DECEMBER 31, 2000 DATE AT MATURITY - -------- ------------ ----------------- -------- ------------- LIGHT INDUSTRIAL PROPERTIES Battlefield Business Park................. $ 7,908,219 7.70%(d) Oct-04 $ 7,525,563 Commerce Park North....................... 1,946,538 8.61%(d) Dec-03 1,796,333 Gateway 5 & 6............................. 2,641,730 8.61%(d) Dec-03 2,437,880 Greenbrier Circle Corp Center............. 6,969,572 8.13%(d) Jan-02 6,838,342 Greenbrier Tech Center.................... 4,113,417 8.05%(d) Jul-07 3,960,554 Huntington Drive.......................... 4,240,672 8.61%(d) Dec-03 3,913,439 Meridian Street Warehouse................. 1,077,548 8.61%(d) Dec-03 994,398 Northgate II.............................. 4,796,826 8.61%(d) Dec-03 4,426,677 Plaza Southwest 1-5....................... 3,128,365 8.61%(d) Dec-03 2,886,963 Tech Center 29 -- Phase I................. 7,405,492 7.33%(d) Feb-09 6,019,990 Tech Center 29 -- Phase II................ 3,766,720 9.05%(d) Sep-06 3,309,462 Westchase Park 1-2........................ 1,230,490 8.61%(d) Dec-03 1,135,539 Mortgage Loan Secured by:................. 2,625,831 7.38%(d) Mar-16 2,610,181 Northpointe B........................... Northpointe C........................... Mortgage Loan Secured by:................. 84,400,647 7.18%(d) Jul-09 63,387,284 107 Woodmere............................ 485 Clyde(a)............................ Baytech Park(a)......................... Bridgeway Tech Center................... Centre Pointe(a)........................ Interlochen Office Park................. Junction II Business Park............... Stewart Plaza........................... Mortgage Loan Secured by:................. 34,176,614 7.38%(d) Feb-06 30,728,820 Academy Point Atrium II(a).............. Aerotech................................ Black Canyon Tech Center................ Northview Business Center(a)............ Summit Park.............................
11 12
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE PROPERTY BALANCE DECEMBER 31, 2000 DATE AT MATURITY - -------- ------------ ----------------- -------- ------------- Mortgage Loan Secured by:................. 29,622,411 7.25%(d) Jan-08 26,405,903 Carpenter Center........................ Carrier Place........................... Commerce Center......................... DFW North............................... Northgate III........................... Parkway Tech Center..................... Valley View Commerce Park............... Valwood II Business Center.............. Shady Trail Business Center............. Mortgage Loan Secured by:................. 23,700,919 7.28%(d) Jun-08 19,567,225 Corporex Plaza I........................ President's Plaza....................... Central Park Office Tech................ Skyway Business Center.................. Spring Valley Business Park #6(a)....... Avion Business Center................... Inverness Business Park................. Line of Credit Secured by:(f)............. -- -- Jan-02 -- 10505 Sorrento Valley(a)................ 2121 Glenville.......................... Alumax.................................. Cameron Creek Bus Park.................. Columbia Corporate Center............... Gibraltar Tech Center(a)................ Hardline Services Bldg.................. Heritage Business I..................... VSA Bldg................................ Humboldt Tech Center.................... Kodak................................... Metro Business Park..................... Northwest Business Pk................... Southeast Commercial Center............. Steris Building......................... Technipark 10 Service Center............ Volusia(b).............................. Washington Bus. Park.................... Acquisition Line Secured by: 1881 Pine Street(a)..................... 3,641,235 8.33%(e) Apr-01 3,641,235 Gateway West(a)......................... 5,978,007 8.33%(e) Apr-01 5,978,007 Norfolk Commerce Center................. 13,000,000 8.33%(e) Apr-01 13,000,000 Winter Park Business Center............. 5,100,000 8.33%(e) Apr-01 5,100,000 ------------ ------------ Total Light Industrial Properties.................... 251,471,253 215,663,795 ------------ ------------ OFFICE PROPERTIES Apollo Drive Office Building(b)........... 14,484,138 9.13%(d) Aug-01 14,340,606 Beltline Business Center.................. 2,572,211 8.61%(d) Dec-03 2,373,725 Tech Center 29 -- Phase III............... 4,321,956 8.58%(d) May-02 4,227,429 ------------ ------------ Total Office Properties......... 21,378,305 20,941,760 ------------ ------------
12 13
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE PROPERTY BALANCE DECEMBER 31, 2000 DATE AT MATURITY - -------- ------------ ----------------- -------- ------------- RETAIL PROPERTIES Tamarac Square Mall....................... 11,134,535 8.40%(d) Dec-01 10,907,186 ------------ ------------ Total Retail Properties......... 11,134,535 10,907,186 ------------ ------------ Total Light Industrial, Office and Retail Properties......... 283,984,093 247,512,741 Debt Premiums(c).......................... 940,025 -- ------------ ------------ Total mortgage notes payable.... $284,924,118 $247,512,741 ============ ============
- --------------- (a) Office property. (b) The Trust owns a 55.84% joint venture interest in this property. (c) Represents the unamortized difference between mortgage debt assumed and fair value of such debt. (See Note 2 to Consolidated Financial Statements.) (d) Interest rate is fixed. (e) Interest rate is variable based on 30 day LIBOR rate plus 1.55%. (f) At December 31, 2000 the Trust had no borrowings under this line of credit. ITEM 3. LEGAL PROCEEDINGS On November 3, 2000, a purported shareholder class action and derivative action lawsuit was filed in Dallas County Court at Law No. 1. On November 21, 2000, two additional purported shareholder class action and derivative action lawsuits were filed in the 68th and 134th Judicial District Courts in Dallas County, Texas. Subsequently, the plaintiffs dismissed, without prejudice, the lawsuits filed in the 68th and 134th Judicial District Courts in Dallas County. These same plaintiffs re-filed their lawsuits in Dallas County Court at Law Nos. 3 and 5. All three lawsuits have been consolidated in Dallas County Court at Law No. 1. Each lawsuit was filed by a shareholder of the Trust seeking, among other things, to enjoin the consummation of the merger. DDR and our trust managers have been named as defendants in the lawsuits. The Trust was named as a nominal defendant in the County Court at Law No. 1 lawsuit and as a defendant in the latter two lawsuits. Each of the three actions is similar. The complaints allege that the defendants have breached fiduciary duties, abused their control of the Trust, and committed waste by agreeing to the terms of the announced merger and that the defendants will be unjustly enriched in connection with the proposed merger. Each plaintiff has also sued for unspecified damages, punitive damages and attorneys' fees. The defendants deny the plaintiffs' allegations of wrongdoing and intend to vigorously defend themselves. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS In anticipation of the second quarter 2001 special meeting of shareholders to vote on the Merger and the sale of 31 properties to an affiliate of Lend Lease, the Trust elected to not hold an annual meeting in 2000. 13 14 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Trust's shares are listed and traded on the New York Stock Exchange (the "NYSE") under the symbol "IND." The following table sets forth for the periods indicated the high and low closing sales price of the Trust's shares, and the cash distributions declared per share:
QUARTER ENDED HIGH LOW DISTRIBUTIONS - ------------- ------ ------ ------------- December 31, 2000...................................... $12 3/8 $11 15/16 1.27(a)(b) September 30, 2000..................................... 14 1/4 13 15/16 .22(b) June 30, 2000.......................................... 13 37/64 13 5/16 .22(b) March 31, 2000......................................... 11 13/16 11 11/16 .22(b) December 31, 1999...................................... 12 3/8 11 7/8 .22(b) September 30, 1999..................................... 10 5/16 11 13/16 .22(b) June 30, 1999.......................................... 14 3/4 12 7/16 .22(b) March 31, 1999......................................... 11 5/8 10 15/16 .20(b)
- --------------- (a) Special distribution related to the capital gain on sale of properties in 2000. (b) Paid in the month following the end of the quarter. As of March 22, 2001, the closing sale price per share on the NYSE was $12.69. On such date, there were 21,011,451 outstanding common shares held by 7,323 shareholders of record. A distribution of $0.22 per share was paid on October 13, 2000, July 14, 2000, April 14, 2000 and January 14, 2000. In addition, a special distribution of $1.27 related to the capital gain on sale of properties in 2000 was paid on January 17, 2001 to shareholders of record on December 29, 2000. Distributions totaling $0.88 and $0.84 were paid in 2000 and 1999, respectively. 14 15 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, 2000. This information should be read in conjunction with the discussion set forth in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Trust and accompanying Notes included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31, --------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- ------- (IN THOUSANDS EXCEPT PER SHARE DATA) OPERATING DATA: Property revenues.............. $ 89,730 $ 86,882 $ 48,357 $ 12,201 $11,320 ======== ======== ======== ======== ======= Income from property operations.................. 62,730 59,998 32,311 7,886 7,298 ======== ======== ======== ======== ======= Net income (loss)(a)........... 46,013 14,606 (10,070) 1,799 1,255 ======== ======== ======== ======== ======= Per share (Basic and Diluted):(b) Net income (loss)(a)........... $ 2.19 $ 0.71 $ (0.82) $ 0.54 $ 0.70 ======== ======== ======== ======== ======= Distributions declared......... 1.93 0.86 0.78 -- 0.20 ======== ======== ======== ======== ======= BALANCE SHEET DATA:(c) Total assets................... $592,038 $620,682 $500,330 $258,395 $78,936 ======== ======== ======== ======== ======= Total debt..................... 284,924 334,873 266,539 121,426 53,216 ======== ======== ======== ======== ======= Shareholders' equity........... 265,202 258,488 205,579 121,771 22,683 ======== ======== ======== ======== =======
- --------------- (a) Net loss for 1998 includes provision for possible losses on real estate of $10,060. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Trust" for a discussion of extraordinary gains (losses) of $(329), $(513), $(5,803) and $2,643 in 2000, 1999, 1998 and 1997, respectively. (b) Diluted earnings per share is the same as basic earnings per share as all outstanding options were anti-dilutive for each period presented and thus not included in the calculation of diluted earnings per share. (c) The Trust sold $46,701 in assets in 2000 and reduced mortgage notes payable by $49,949 during the year. 15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with "Item 6. Selected Financial Data" and the Consolidated Financial Statements of the Trust and accompanying Notes included elsewhere in this Form 10-K. The statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those included in the forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, changes in general economic conditions in the markets that could impact demand for the Trust's properties and changes in financial markets and interest rates impacting the Trust's ability to meet its financing needs and obligations. RESULTS OF OPERATIONS Comparison of 2000 to 1999 During 2000, property revenues increased 3% to $89,730,000 from $86,882,000 in 1999, and income from property operations (which is defined as property revenues, excluding interest income, less property operating expenses, excluding depreciation and amortization, interest expense, Trust administration and overhead expenses, or provision for possible losses on real estate) increased 5% to $62,730,000 in 2000 from $59,998,000 in 1999. On a same property basis, for properties owned as of January 1, 1999, and December 31, 2000, excluding the two retail properties, property revenues increased to $59,807,000 in 2000 from $56,354,000 in 1999, an increase of 6.1%, comprised of a 4.3% increase in revenue related to industrial properties and a 10.8% increase in revenue related to office properties. These increases in revenue stemmed principally from an increase in rental rates and/or an increase in overall occupancy at a number of the properties. Overall leased occupancy of the Trust's portfolio was 91.7% at December 31, 2000 compared to 93.6% at December 31, 1999. Same property operating expenses, for properties owned as of January 1, 1999, and December 31, 2000, excluding the two retail properties, increased by 2.2%, primarily as a result of higher property taxes. Property operating expenses decreased 0.9% for the industrial properties and increased 8.8% for the office properties. On a same property basis, excluding the two retail properties, net operating income (which is defined as property revenue, excluding straight line rents, less property operating expenses and which does not include depreciation and amortization, interest expense, or Trust administration and overhead expenses) increased to $41,828,000 in 2000 from $38,759,000 in 1999, an increase of 7.9%. This overall increase is a result of the increase in revenue and expenses explained above and is comprised of a 6.5% increase related to industrial properties and an 11.9% increase related to office properties. Due to the small number of properties in the same property comparison, results can be unduly influenced by results from, or non-renewal of, a single large lease. Income from operations (which is defined as property revenues, including interest income, less property operating expenses, including depreciation and amortization, interest expense, Trust administration and overhead expenses, and provision for possible losses on real estate) increased to $19,999,000 in 2000 from $15,008,000 in 1999 as a result of the increase in income from property operations explained above, and the decrease in total interest expense of $1,056,000 due to a reduction in mortgage notes payable of $49,949,000 in 2000. In addition, Trust administration and overhead expenses decreased to $4,358,000 in 2000 from $4,628,000 in 1999. This 2000 reduction in Trust administration and overhead costs reflects a $316,000 decrease in costs incurred in evaluating potential acquisitions offset by $46,000 of higher general costs of the Trust in 2000. Depreciation and amortization decreased $984,000 due to the sale of properties in 1999 and 2000 and the Trust not recording depreciation for two months in 2000 related to the 31 assets categorized as held for sale at December 31, 2000. The Trust recognized $120,000 and $624,000 as income in equity of a joint venture in 2000 and 1999, respectively, resulting from the venture's sale of a light industrial property. During 2000, the Trust recognized extraordinary losses totaling $329,000 ($0.02 per Share) from the early extinguishment of debt. In 1999, the Trust recognized extraordinary losses totaling $513,000 ($0.03 per Share) from the early extinguishment of debt. During 2000, the Trust sold four properties and three tracts of vacant land resulting in a total gain of 16 17 $26,803,000. In 1999, the Trust sold three properties and one tract of vacant land resulting in a total loss of $200,000. The Trust's emphasis in the light industrial sector is ideally suited for the entrepreneurial segment of the economy, which consistently leads the United States in job growth. This property type is attractive to technology companies, which typically prefer flexible-use property space. The majority of the Trust's properties are situated in markets that have a concentration of technology firms, such as Dallas, San Francisco, San Diego, and Northern Virginia. Comparison of 1999 to 1998 During 1999, the Trust completed acquisitions with an aggregate purchase price of $143 million. As a result of these acquisitions, the weighted average net rentable square footage owned by the Trust increased to 8,286,000 in 1999 from 5,453,000 in 1998, an increase of 52%. Property revenues increased 80% to $86,882,000 in 1999 from $48,357,000 in 1998, and income from property operations (which is defined as property revenues, excluding interest income, less property operating expenses, excluding depreciation and amortization, interest expense, Trust administration and overhead expenses, or provision for possible losses on real estate) increased 86% to $59,998,000 in 1999 from $32,311,000 in 1998. On a same property basis, for properties owned as of January 1, 1998 and December 31, 1999, excluding the two retail properties, property revenues increased to $30,184,000 in 1999 from $29,029,000 in 1998, an increase of 4.0%, comprised of a 4.4% increase in revenue related to industrial properties and a 3.4% increase in revenue related to office properties. These increases in revenue stemmed principally from an increase in rental rates and/or an increase in overall occupancy at a number of the properties. Overall leased occupancy of the Trust's portfolio was 93.6% at December 31, 1999 compared to 91.9% at December 31, 1998. Same property operating expenses, for properties owned as of January 1, 1998 and December 31, 1999, excluding the two retail properties, increased by 5.5%, primarily as a result of higher property taxes. Property operating expenses increased 5.0% for the industrial properties and 6.2% for the office properties. On a same property basis, excluding the two retail properties, net operating income (which is defined as property revenue, excluding straight line rents, less property operating expenses and which does not include depreciation and amortization, interest expense, or Trust administration and overhead expenses) increased to $20,397,000 in 1999 from $19,747,000 in 1998, an increase of 3.3%. This overall increase is a result of the increase in revenue and expenses explained above and is comprised of a 4.1% increase related to industrial properties and a 1.9% increase related to office properties. Due to the small number of properties in the same property comparison, results can be unduly influenced by results from, or non-renewal of, a single large lease. Income from operations (which is defined as property revenues, including interest income, less property operating expenses, including depreciation and amortization, interest expense, Trust administration and overhead expenses, and provision for possible losses on real estate) increased to $15,008,000 in 1999 from a loss on operations of $4,295,000 in 1998 as a result of the increase in income from property operations explained above, offset by an increase in total interest expense of $11,423,000 due to an additional $94,600,000 in property financing in 1999, a full year of interest expense on properties acquired in 1998 and the provision for losses on real estate of $10,060,000 recorded in 1998 (see below). In addition, Trust administration and overhead expenses increased to $4,628,000 in 1999 from $3,729,000 in 1998. This 1999 increase reflects a $115,000 increase in full time employees, including the addition of in-house general counsel, $160,000 of additional internal acquisition department costs, an increase of $132,000 in audit and tax fees, $52,000 of additional compensation costs associated with an increase in the number of trust managers in July 1998, $80,000 of additional costs associated with the producing the annual report and public relations costs and $360,000 of higher general costs due to the increased activity of the Trust in 1999. Depreciation and amortization increased $6,152,000 due to the acquisition of properties in 1999 and a full year of depreciation on properties acquired in 1998. In 1999, the Trust did not record a provision for possible losses on real estate. In December 1998, the Trust recorded a provision for possible losses of $10,060,000 as a result of its decision to sell its retail property in Colorado in 1999. During 1999, the Trust did not receive an acceptable offer for this property, therefore, on 17 18 December 31, 1999 the Trust reclassified this property to held for investment and recorded depreciation expense for the full year. In 1999, the Trust recognized $624,000 as income in equity of a joint venture resulting from the sale of a light industrial property that the Trust was a 50% joint venture partner. The Trust did not sell any properties in 1998. During 1999, the Trust recognized extraordinary losses totaling $513,000 ($0.03 per Share) from the early extinguishment of debt. In 1998, the Trust recognized extraordinary losses totaling $5,803,000 ($0.47 per Share) comprised of loss on extinguishment of debt of $23,000 and costs related to a change in control of $5,780,000. The costs related to the change in control included approximately $2,484,000 for payments made to the Trust's senior officers in December 1998 pursuant to severance and change in control agreements which were triggered when DDR's ownership position exceeded 33%, an accrual of $2,960,000 related to the estimated fair market value of future payments through 2008 to the senior officers under previously granted dividend equivalent rights, approximately $300,000 related to vesting of restricted shares previously granted to the senior officers and $36,000 in payroll taxes associated with the payments to the senior officers. During 1999, the Trust sold three properties and one tract of vacant land resulting in a total loss of $200,000. The Trust's emphasis in the light industrial sector is ideally suited for the entrepreneurial segment of the economy, which consistently leads the United States in job growth. This property type is attractive to technology companies, which typically prefer flexible-use property space. The majority of the Trust's properties are situated in markets that have a concentration of technology firms, such as Dallas, San Francisco, San Diego, and Northern Virginia. ANALYSIS OF CASH FLOWS Comparison of 2000 to 1999 Cash flow provided by operating activities in 2000 was $30,707,000. This results from the Trust's net income of $46,013,000 offset by net non-cash charges totaling $11,806,000 related to the loss on the extinguishment of debt, net gain on the sale of real estate properties (including $23.9 million related to the sale of Manhattan Towers), minority interests, and depreciation and amortization. Issuance of common stock to trust managers of $99,000, a decrease in restricted cash of $171,000 and a decrease in other assets of $1,099,000 increased cash flow provided by operating activities. In addition, accounts payable, other liabilities and tenant security deposits decreased $4,438,000 and accrued interest decreased $431,000 reducing cash flow provided by operating activities. Cash flow provided by investing activities in 2000 was $59,536,000, representing net proceeds from the sale of real estate properties totaling $69,804,000 and contributions to joint venture of $614,000 offset by capitalized expenditures of $10,882,000. Cash flow used in financing activities in 2000 was $70,350,000. This amount reflects net principal repayments of mortgage financings and notes payable of $49,426,000, payment of loan costs of $281,000, the redemption of limited partnership units totaling $2,518,000 and distributions to shareholders and limited partnership unit holders of $18,127,000 offset by proceeds from the issuance of common shares for net proceeds of $2,000. Cash flow provided by operating activities in 1999 was $33,059,000. This resulted from the Trust's net income of $14,606,000 offset by net non-cash charges totaling $16,103,000 related to the loss on the extinguishment of debt, losses on the sale of real estate properties, minority interests, and depreciation and amortization. Issuance of common shares to trust managers of $129,000, an increase in restricted cash of $294,000 and a decrease in other assets of $5,908,000 further increased cash flow provided by operating activities. In addition, accounts payable, other liabilities and tenant security deposits decreased $4,145,000 and accrued interest increased $752,000 reducing cash flow provided by operating activities. Cash flow used in investing activities in 1999 was $141,150,000, representing amounts expended on the acquisition of real estate and related working capital totaling $142,737,000 and capitalized expenditures of $15,769,000 offset by net proceeds from the sale of real estate properties totaling $17,356,000. 18 19 Cash flow provided by financing activities in 1999 was $104,450,000. This amount reflected net proceeds from mortgage financings and notes payable of $68,829,000 and proceeds from the private placements of common shares for net proceeds of $55,458,000 offset by the payment of loan costs of $3,029,000, the redemption of limited partnership units totaling $329,000 and distributions to shareholders and limited partnership unit holders of $16,479,000. FUNDS FROM OPERATIONS The Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines Funds from Operations ("FFO") as net income (loss) computed in accordance with GAAP, excluding gains or losses from debt restructuring and sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The Trust calculates FFO in a manner consistent with the NAREIT definition. In addition, NAREIT recommends that extraordinary items should not be considered in arriving at FFO. Accordingly, the Trust does not include extraordinary items in the calculation of FFO. Effective January 1, 2000, NAREIT clarified the calculation of FFO to include all operating results, both recurring and non-recurring, except those results defined as extraordinary items under GAAP and gains and losses from the sales of depreciable operating properties. Although the Trust does not anticipate a significant impact on current FFO calculations as a result of this change, the Trust has deferred costs totaling approximately $4.9 million at December 31, 2000 related to an on-going strategic review of alternatives for the Trust. Under the new FFO guidelines, expenses related to these costs cannot be excluded from the calculation of FFO. Should a strategic transaction not result from this review, the Trust will expense all such deferred costs. The Trust believes FFO is an appropriate measure of its performance relative to other REITs. FFO provides investors with an understanding of the ability of the Trust to incur and service debt and make capital expenditures. There can be no assurance that FFO presented by the Trust is comparable to similarly titled measures of other REITs. While other REITs may not always use a similar definition, this information does add comparability to those which have adopted the NAREIT definition. FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of the Trust's operating performance or to cash flows from operating, investing, or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements, or principal payments on indebtedness. The following table shows the Trust's cash flows from its operating, investing and financing activities prepared in accordance with generally accepted accounting principles:
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- --------- --------- (IN THOUSANDS) Net cash provided by operating activities.......... $ 30,707 $ 33,059 $ 2,961 ======== ========= ========= Net cash provided by (used in) investing activities....................................... $ 59,536 $(141,150) $(179,673) ======== ========= ========= Net cash provided by (used in) financing activities....................................... $(70,350) $ 104,450 $ 171,174 ======== ========= =========
19 20 The following table shows the Trust's calculation of FFO:
YEAR ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT NUMBER OF SHARES) Net Income (loss)............................. $ 46,013 $ 14,606 $ (10,070) Exclude effects of: Extraordinary items: Loss on extinguishment of debt......... 329 513 23 Provision for change in control costs............................... -- -- 5,780 Loss (gain) on sales of real estate...... (26,803) 200 -- Provision for possible losses on real estate................................. -- -- 10,060 Real estate depreciation and amortization........................... 12,868 14,083 8,108 Income in equity of joint venture........ (120) (624) -- Minority interest in operating partnership............................ 64 169 (188) ----------- ----------- ----------- Funds from Operations......................... $ 32,351 $ 28,947 $ 13,713 =========== =========== =========== Weighted average Shares and operating partnership units outstanding............... 21,029,888 20,749,030 12,484,472 =========== =========== ===========
LIQUIDITY AND CAPITAL RESOURCES The principal sources of funds for the Trust's liquidity requirements are funds generated from operation of the Trust's real estate assets, equity offerings, debt financings and/or refinancings, and unrestricted cash reserves. Depending on the market conditions, the Trust may not be able to execute equity offerings or debt refinancings at any given time. In addition, the Trust may from time to time sell properties that do not complement the Trust's property emphasis or geographic target markets. Proceeds from such sales could be used for working capital purposes, debt reduction or reinvested into other properties. As of December 31, 2000, the Trust had $22.4 million in unrestricted cash. A special distribution totaling $26.6 million was paid by the Trust on January 17, 2001. In January 1999, the Trust initiated a secured acquisition credit facility with Bank One. The agreement contemplated a $150 million credit line of which Bank One and Wells Fargo Bank have each committed $25 million. The credit line, which is secured by mortgage liens on properties, provides for a graduated variable interest rate (depending on the Trust's overall leverage) of LIBOR plus 1.4% to LIBOR plus 2.0%, has a maximum loan to value ratio of 60%, and matures in January 2002, as extended. As of December 31, 2000, the Trust had no borrowings outstanding under this credit line. The Trust has approximately $27.7 million outstanding under a $75 million Prudential Securities Credit Corporation secured acquisition line bearing interest at a variable rate based on the 30 day LIBOR plus 1.55%, currently 8.3288%, and a maturity date of April 27, 2001. The Trust anticipates refinancing three of the properties under the Bank One line of credit and paying the acquisition credit line in full on or prior to its maturity in April 2001. Including the secured acquisition credit line, the Trust had $284.9 million in mortgage debt, including $0.9 million in unamortized debt premium, outstanding at December 31, 2000. Approximately $256.3 million was represented by fixed rate debt, with a weighted average interest rate of 7.62%. Variable rate debt of approximately $27.7 million was represented by a weighted average interest rate of 8.11%. These weighted average interest rates represent an average of the applicable stated interest rates and do not include the amortization of deferred loan costs (or debt premiums) which will produce a higher (or lower) weighted average interest rate. At December 31, 2000, the Trust's total market capitalization (based upon a December 31, 2000 closing share price of $12.25 per share) was approximately $535.8 million. Based upon this amount, the Trust's debt to total market capitalization at December 31, 2000 was 52.0%. 20 21 The nature of the Trust's operating properties, which generally provide for leases with a term of between three and five years, results in an approximate annual turnover rate of 20% to 25% of the Trust's tenants and related revenue. Such turnover requires capital expenditures related to tenant improvements and leasing commissions, capital repairs and replacements, initial capital expenditures and expansions and renovations related to properties acquired in order to maintain or improve the Trust's occupancy levels. These costs were $10,882,000 for the year ended December 31, 2000, compared to $15,769,000 for the year ended December 31, 1999. These costs have historically been funded out of the Trust's operating cash flow and cash reserves. The Trust has made no commitments for additional capital expenditures beyond those related to normal leasing and releasing activities, related escrows and initial capital expenditures, which are costs necessary to bring acquired properties to intended leasable condition at the time of acquisition. A $0.22 per share distribution was paid October 13, 2000, July 14, 2000, April 14, 2000 and January 14, 2000. On December 19, 2000, the Trust declared a special distribution of $1.27 per share, which was paid January 17, 2001 to shareholders of record on December 29, 2000. This distribution was related to the net gain recognized by the Trust on the sale of properties during the fiscal year 2000. At December 31, 2000, the Trust has approximately $34.3 million in net operating loss carryforwards from 1999 and prior years, a portion of which could be utilized to reduce the payout of 90% taxable income, as required by the Internal Revenue Code. On February 18, 1998, the Trust filed a Form S-3 shelf registration with the Securities and Exchange Commission which would provide for the issuance of up to $500 million in common shares of beneficial interest, preferred shares of beneficial interest, unsecured senior debt securities and/or warrants to purchase such securities in amounts, at prices and on terms to be determined by market conditions at the time of future offerings. To date, this shelf registration has not been utilized. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Trust's risk management includes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from the results discussed in the forward-looking statements. The Trust's primary market risk exposure is to changes in short term LIBOR interest rates. The Trust is exposed to market risk related to its secured acquisition line with PSCC and the Bank One credit line as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources." The acquisition line and credit line bear interest at variable rates and are subject to fluctuations in the market. The Trust also uses long-term and medium-term secured debt as a source of capital. These debt instruments are typically issued at fixed interest rates. When these debt instruments mature, the Trust typically refinances such debt at then-existing market interest rates which may be more or less than the interest rates on the maturing debt. If the interest rate for variable rate debt was 100 basis points higher or lower during 2000, the Trust's interest expense would have been increased or decreased by approximately $589,000. There are two fixed rate mortgages maturing in 2001 that the Trust anticipates retiring with proceeds from refinancing. There is one fixed rate mortgage with a call date in 2001 that the Trust intends to payoff. There is no other fixed rate debt maturing in 2001. During 1999, if interest rates for variable rate debt were 100 basis points higher or lower, interest expense would have increased or decreased by approximately $1,069,000. The Trust historically has not hedged its exposure to fluctuations in interest rates and currently has no plans to do so in the future. 21 22 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 following persons are the trust managers and executive officers of the Trust.
NAME AGE POSITION(S) AND OFFICE(S) HELD - ---- --- ------------------------------ Scott A. Wolstein..................... 48 Chairman of the Board of Trust Managers Albert T. Adams....................... 50 Trust Manager William H. Bricker.................... 69 Trust Manager T. Patrick Duncan..................... 52 Trust Manager Robert H. Gidel....................... 49 Trust Manager Robert E. Giles....................... 53 Trust Manager Edward B. Kelley...................... 60 Trust Manager Stanley J. Kraska, Jr. ............... 41 Trust Manager J. Timothy Morris..................... 34 Trust Manager James A. Schoff....................... 55 Trust Manager Charles W. Wolcott.................... 48 Trust Manager, President and Chief Executive Officer Lewis D. Friedland.................... 41 Executive Vice President and Chief Operating Officer Marc A. Simpson....................... 46 Senior Vice President and Chief Financial Officer, Secretary and Treasurer David B. Warner....................... 42 Senior Vice President -- Real Estate Operations
Scott A. Wolstein was appointed as a trust manager and as Chairman of the Board of Trust Managers on July 30, 1998. Mr. Wolstein became Chairman of DDR in May 1997, and was President of DDR from its organization in May 1992 until May 1999 when David Jacobstein joined DDR. Mr. Wolstein has served as Chief Executive Officer of DDR since its organization in 1992 and February 1993 initial public offering. Mr. Wolstein was a principal and executive officer of DDR's predecessor prior to 1993. Mr. Wolstein is a graduate of the Wharton School at the University of Pennsylvania and of the University of Michigan Law School. He is currently a member of the Board of Trustees of NAREIT and the International Council of Shopping Centers, the Zell-Lurie Wharton Real Estate Center and Cleveland Tomorrow and serves as the Chairman of the Cleveland Campaign for the State of Israel Bonds. Mr. Wolstein is also a member of the Urban Land Institute and the Pension Real Estate Association (PREA). He has served as President of the Board of Trustees of the United Cerebral Palsy Association of Greater Cleveland and as a member of the Board of the Great Lakes Theater Festival, the Park Synagogue and the Convention and Visitors Bureau of Greater Cleveland. Albert T. Adams was appointed as a trust manager on July 30, 1998. Mr. Adams has been a partner with the law firm of Baker & Hostetler LLP in Cleveland, Ohio, since 1984, and has been affiliated with the firm since 1977. Mr. Adams has been Chairman of the Cleveland office of Baker & Hostetler LLP since 1997. Mr. Adams is a graduate of Harvard College, Harvard Business School and Harvard Law School. He serves as a member of the Board of Trustees of the Greater Cleveland Roundtable and of the Western Reserve 22 23 Historical Society. Mr. Adams also serves as a director of DDR, Associated Estates Realty Corporation, Boykin Lodging Company, Captec Net Lease Realty, Inc. and Dairy Mart Convenience Stores, Inc. William H. Bricker has served as a trust manager since September 1985. Mr. Bricker was appointed Chairman, President and Chief Executive Officer of The LTV Corporation in November 2000. He is also a director of The LTV Corporation. Since 1987, he has served as President of DS Energy Services Incorporated, a company consulting in the international oil and gas industry. 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. He received his Bachelor of Science and Master of Science degrees from Michigan State University. T. Patrick Duncan has served as a trust manager since December 1996. Mr. Duncan joined USAA Realco in November 1986 as Chief Financial Officer. With over 24 years of experience, Mr. Duncan serves as Senior Vice President of Real Estate Operations with responsibilities which include the direction of all acquisitions, sales, management and leasing of real estate for USAA-affiliated companies. Mr. Duncan received degrees from the University of Arizona in Accounting and Finance. He is a Certified Public Accountant, Certified Commercial Investment Manager, and holds a Texas Real Estate Broker's License. Mr. Duncan is also a member of the Board of Directors for the Daughters of Charity and a member of the Board of Directors of the North San Antonio Chamber of Commerce. Robert H. Gidel has served as a trust manager since July 1998. Robert H. Gidel is the managing partner of Liberty Partners, LP, an investment partnership formed to purchase securities interests in private and public real estate companies. From 1997 through 1998, he was President and Chief Executive Officer of Meridian Point VIII, an industrial REIT based in San Francisco. Prior to Meridian, he was President and Chief Operating Officer of Paragon Group, a multi-family REIT based in Dallas, Texas from 1995 through 1997. During 1993 through 1995, he was President and Chief Executive Officer of Brazos Partners based in Dallas, Texas. Prior to this, Mr. Gidel was a Managing Director and member of the Board of Directors of Alex. Brown Kleinwort Benson Realty Advisors, a real estate investment management firm formed in 1990 as a result of the merger of Alex. Brown Realty Advisors (commonly known as ABRA) and Financial Investment Advisors. Mr. Gidel had been President of ABRA since 1986. From 1981 through 1985, Mr. Gidel served in a wide range of positions at Heller Financial and its subsidiary, Abacus Real Estate Finance. He is a graduate of the University of Florida's Warrington College of Business with a major in real estate. Mr. Gidel is currently the chairman of the Real Estate Advisory Board at the Warrington College of Business and a Hoyt Fellow at the Homer Hoyt Institute. Robert E. Giles has served as a trust manager since March 1996. Mr. Giles is currently President and Chief Operating Officer of Crown Castle UK Ltd., a communication sites and wireless network services company. He has held that position since November 7, 1999. From 1995 to November 1999, Mr. Giles was the owner and President of Robert E. Giles Interests, Inc., a real estate consulting and development firm and President of Title Network, Ltd., a national title insurance agency. Mr. Giles was a Vice President with the J.E. Robert Companies, Inc. from 1994 to 1995. From 1990 to 1994, Mr. Giles was President and a Director of National Loan Bank, a publicly-held company created through the merger of Chemical Bank and Texas Commerce Bank. Mr. Giles received his Bachelor of Arts degree from University of Texas -- Austin in 1970 and received a Master of Arts degree from University of Texas -- Arlington in 1973. Edward B. Kelley has served as a trust manager since December 1996. Mr. Kelley is President of USAA Realco and of La Cantera Development Company. He joined Realco in April 1989 as Executive Vice President and Chief Operating Officer before assuming his new title in August 1989. Mr. Kelley received his Bachelor of Business Administration degree from St. Mary's University in 1964 and a Masters in Business Administration from Southern Methodist University in 1967, and is a Member of the Appraisal Institute. Mr. Kelley is a member of the Board of Directors of USAA Equity Advisors, Inc. Stanley J. Kraska, Jr. has served as a trust manager since July 1997. Mr. Kraska has been employed by LaSalle Investment Management (Securities) LP or its affiliates since February 1988. He currently serves as Managing Director, with responsibility for private placement investment. Mr. Kraska graduated from 23 24 Dartmouth College in 1982 with a Bachelor of Arts degree and received a Master of Business Administration degree from Harvard University in 1986. J. Timothy Morris has served as a trust manager since January 15, 1999. Mr. Morris is a Managing Director at Morgan Stanley Dean Witter and head of Morgan Stanley's Real Estate Special Situations Program. Mr. Morris has worked at Morgan Stanley Dean Witter in the investment banking and direct investment areas since 1988. Prior to heading up the Special Situations initiative, Mr. Morris spent five years in Hong Kong running Morgan Stanley Dean Witter's real estate business for Asia. Mr. Morris has served as a board member for several REITs, and is currently serving on the board of one private REIT. He is a graduate of Indiana University and holds a Bachelor of Science degree in Finance. James A. Schoff has served as a trust manager since July 1998. Mr. Schoff has been the Vice Chairman of the Board of Directors and Chief Investments Officer of DDR since March 1998. From the organization of DDR until March 1998, Mr. Schoff served as Executive Vice President, Chief Operating Officer and a director of DDR. Prior to the organization of DDR, Mr. Schoff was a principal and executive officer of Developers Diversified Group, DDR's predecessor. After graduating from Hamilton College and Cornell University Law School, Mr. Schoff practiced law with the firm of Thompson, Hine and Flory LLP in Cleveland, Ohio, where he specialized in the acquisition and syndication of real estate properties. Mr. Schoff serves as a member of the Executive Committee and the Board of Trustees for the Western Reserve Historical Society and the National Conference for Community and Justice. Charles W. Wolcott currently serves as trust manager, President and Chief Executive Officer. Mr. Wolcott was hired as the President and Chief Executive Officer of the Trust in May 1993 and has served as a trust manager since August 1993. Mr. Wolcott was President and Chief Executive Officer for Trammell Crow Asset Services, a real estate asset and portfolio management affiliate of Trammell Crow Company, from 1990 to 1992. He served as Vice President and Chief Financial and Operating Officer of the Trust from 1988 to 1991. From 1988 to 1990, Mr. Wolcott was a partner in Trammell Crow Ventures Operating Partnership. Prior to joining the Trammell Crow Company in 1984, Mr. Wolcott was President of Wolcott Corporation, a firm engaged in the development and management of commercial real estate properties. Mr. Wolcott graduated from the University of Texas at Austin in 1975 with a Bachelor of Science degree and received a Master of Business Administration degree from Harvard University in 1977. Lewis D. Friedland currently serves as Executive Vice President and Chief Operating Officer. He was hired as the Vice President and Chief Investment Officer of the Trust in 1997. Prior to joining the Trust, Mr. Friedland was a founding partner of Crimson Partners, an investment firm formed in 1992 that engaged in the acquisition and development of real estate assets. Prior to founding this firm, from 1988 to 1992, he was a Division Partner and Managing Director of Trammell Crow Company where he was responsible for that firm's development, leasing, and property management activities in Richmond, Va. Mr. Friedland graduated from the Wharton School of the University of Pennsylvania in 1981 with a Bachelor of Science Degree in Economics and received a Master of Business Administration degree from Harvard University in 1985. Marc A. Simpson currently serves as Senior Vice President and Chief Financial Officer, Secretary and Treasurer. Mr. Simpson was hired as the Vice President and Chief Financial Officer, Secretary and Treasurer of the Trust in March 1994. From November 1989 through March 1994, Mr. Simpson was a Manager in the Financial Advisory Services Group of Coopers & Lybrand L.L.P. Prior to that time, he served as Controller of Pacific Realty Corporation, a real estate development company. Mr. Simpson graduated with a Bachelor of Business Administration degree from Midwestern State University in 1978, and received a Master of Business Administration degree from Southern Methodist University in 1990. David B. Warner currently serves as Senior Vice President -- Real Estate Operations. Mr. Warner was hired as Vice President and Chief Operating Officer of the Trust in May 1993. From 1989 through the date he accepted a position with the Trust, Mr. Warner was a Director of the Equity Investment Group for the Prudential Realty Group. From 1985 to 1989, he served in the Real Estate Banking Group of NCNB Texas National Bank. Mr. Warner graduated from the University of Texas at Austin in 1981 with a degree in finance and received a Master of Business Administration from the same institution in 1984. 24 25 COMMITTEES OF THE TRUST MANAGERS Audit Committee. The Audit Committee met seven times during the 2000 fiscal year. The Audit Committee reviews and approves the scope and results of any outside audit of the Trust, and related fees, and makes recommendations to the trust managers or management concerning auditing and accounting matters and the efficacy of the Trust's internal control systems. The Audit Committee selects the Trust's independent auditors subject to shareholder ratification. During the 2000 fiscal year, Messrs. Bricker, Kelley, Giles and Schoff served on the Audit Committee. In August 2000, Mr. Giles resigned from the Audit Committee. Current members of the Audit Committee are Messrs. Bricker, Kelley and Schoff. Compensation Committee. The Compensation Committee met once during the 2000 fiscal year. The Compensation Committee recommends to the Board of Trust Managers guidelines for compensation and benefits of the executive officers of the Trust based upon achievement of objectives and other factors. The Compensation Committee is also responsible for acting upon all matters concerning, and exercising such authority as is delegated to it under the provisions of, any benefit, retirement or pension plan. During the 2000 fiscal year, Messrs. Bricker, Duncan, Giles and Gidel served on the Compensation Committee. In August 2000, Mr. Giles resigned from the Compensation Committee. Current members of the Compensation Committee are Messrs. Bricker, Duncan, and Gidel. Executive Committee. The Executive Committee was formed in 1998 and granted the power to authorize acquisitions and dispositions not to exceed $50 million and to bind the Trust to capital raising transactions not to exceed $100 million. The Executive Committee did not meet during fiscal year 2000. Current members of the Executive Committee are Messrs. Wolstein, Gidel, Duncan, Morris and Wolcott. Special Committee. The Special Committee was formed in 1999 to review strategic alternatives. The Special Committee met 33 times during 2000. During the 2000 fiscal year, Messrs. Bricker, Giles and Morris served on the Special Committee. In August 2000, Mr. Bricker and Mr. Giles resigned from the Special Committee. Mr. Morris is currently the sole remaining member of the Special Committee. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely upon a review of Forms 3, 4 and 5 (and any amendments thereto) furnished to the Trust with respect to the 2000 fiscal year or written representations from certain reporting persons that no forms were required, no person failed to disclose on a timely basis, as disclosed in such forms, reports required by Section 16(a) of the Exchange Act. 25 26 ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the compensation paid by the Trust to the executive officers of the Trust for the three years ended December 31, 2000: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ------------ ANNUAL COMPENSATION SECURITIES NAME AND ------------------- ALL OTHER UNDERLYING PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(2) - ------------------ ---- -------- -------- ------------ ------------ Charles W. Wolcott..................... 2000 $260,000 $156,000 $ 183,393(3) 250,000 President and CEO 1999 252,500 156,000 177,378(4) 250,000 1998 223,750 152,375 1,120,630(5) 250,000 Lewis D. Friedland..................... 2000 215,000 107,500 95,393(3) 135,000 Executive Vice President and COO 1999 207,500 107,500 93,378(4) 135,000 1998 178,750 122,563 816,680(6) 135,000 Marc A. Simpson........................ 2000 160,000 64,000 51,393(3) 70,000 Senior Vice President and CFO, 1999 155,000 64,000 51,378(4) 70,000 Secretary and Treasurer 1998 135,000 66,150 542,305(7) 70,000 David B. Warner........................ 2000 150,000 60,000 51,393(3) 70,000 Senior Vice President 1999 146,250 60,000 51,378(4) 70,000 Real Estate Operations 1998 131,250 63,788 525,430(8) 70,000
- --------------- (1) Represents bonus payments for current year paid in January of the following year, with the exception of Charles W. Wolcott's 2000 bonus that was paid in December 2000. (2) Represents aggregate amount from grant of share options. (3) Includes the Trust's contribution to the Retirement and Profit Sharing Plan for current year made in January of following year, the Employer Match for the Trust's 401(k) plan funded in 2000 and payments made under fully vested dividend equivalent rights granted in April 1998. (4) Includes the Trust's contribution to the Retirement and Profit Sharing Plan for current year made in January of following year, the Employer Match for the Trust's 401(k) plan funded in 1999 and payments made under fully vested dividend equivalent rights granted in April 1998. (5) Includes change of control payment ($862,500), payments made under fully vested dividend equivalent rights granted in April 1998 ($116,000), vesting of restricted shares ($135,100) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). (6) Includes change of control payment ($693,750), payments made under fully vested dividend equivalent rights granted in April 1998 ($58,000), vesting of restricted shares ($57,900) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). (7) Includes change of control payment ($472,500), payments made under fully vested dividend equivalent rights granted in April 1998 ($29,000), vesting of restricted shares ($33,775) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). (8) Includes change of control payment ($455,625), payments made under fully vested dividend equivalent rights granted in April 1998 ($29,000), vesting of restricted shares ($33,775) pursuant to change in control and contribution to Retirement and Profit Sharing Plan ($7,030). SEVERANCE AND CHANGE IN CONTROL AGREEMENTS On April 29, 1998, the Trust entered into Severance and Change in Control Agreements with each of Messrs. Wolcott, Friedland, Simpson and Warner, which agreements replaced and superseded then existing Bonus and Severance Agreements with such officers. Among other things, the agreements provide that, upon a Change in Control (as defined), the respective officer will receive an amount equal to 2.50 times such officer's 26 27 annualized base salary rate plus targeted bonus amount for the fiscal year in which the first event constituting a Change in Control occurs. In addition, each such officer will receive certain employee benefits for, in general, a one-year period commencing on the date of a Change in Control. Each agreement also provides that (1) if any payment made by the Trust to the respective officer would be subject to the "golden parachute" excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, the Trust will pay to such officer an additional amount to offset the effects of such excise tax, (2) the Trust agrees to pay certain attorneys' and related fees and expenses incurred by the respective officer to enforce his rights under the agreement, and (3) all unvested awards under the Trust's Employee and Trust Manager Incentive Share Plan shall immediately vest upon a Change in Control and the officer shall have the right to exercise any vested awards during the balance of the award's term. Each agreement commenced on April 29, 1998 and continues for a five-year term and shall automatically renew for one-year terms unless earlier terminated in accordance with the agreement. Per the Severance and Change in Control Agreements, the term "Change in Control" is defined, among other things, as an acquisition of over 33% of the Trust's voting securities. On December 10, 1998, a Change in Control occurred upon the filing by DDR of Amendment No. 3 to Schedule 13D. Accordingly, payments totaling $2,484,375 to Messrs. Wolcott, Friedland, Simpson and Warner were made in December 1999. In addition, outstanding options to purchase common shares held by these employees became immediately exercisable and the restrictions on any restricted shares held by these employees were lifted. Upon consummation of the pending merger, Messrs. Wolcott, Friedland, Simpson and Warner will receive severance payments equal to 2.5 times their annualized base salary and bonus amounts for fiscal year 2000. OPTION GRANTS There were no share option grants made in the 2000 fiscal year to the Trust's executive officers. OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following table sets forth certain information concerning the value of the unexercised options as of December 31, 2000 held by the Trust's executive officers. No options were exercised in the 2000 fiscal year by any of the executive officers. AGGREGATE OPTION EXERCISES IN FISCAL 2000 AND FISCAL 2000 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT 12/31/00 OPTIONS AT 12/31/00 --------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Charles. W. Wolcott................... 250,000 0 (a) (a) Lewis D. Friedland.................... 135,000 0 (a) (a) Marc A. Simpson....................... 70,000 0 (a) (a) David B. Warner....................... 70,000 0 (a) (a)
- --------------- (a) The Trust's share price at December 31, 2000 was $12.25 which is less than the option exercise prices of either $13.625 or $15.00 per share. Therefore, the value of unexercised in-the-money options at December 31, 2000 is zero. In connection with the pending merger of the Trust, and in accordance with the Employee and Trust Manager Incentive Share Plan, the executive officers will receive compensation equal to the amount of dividends paid by the Trust since the date of grant for each option exercised or cancelled under the merger. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The current members of the Compensation Committee are Messrs. Bricker, Duncan, and Gidel. No executive officer of the Trust served as a member of the Compensation Committee or as a director of any other entity, one of whose executive officers served on the Compensation Committee or as a Trust Manager of the Company. 27 28 REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION In accordance with the rules of the SEC the following report of the compensation committee of the board of trust managers and the information under the caption "Performance Graph" shall not be deemed to be "soliciting material" or to be "filed" with the SEC, and such information shall not be deemed to be incorporated by reference into any statements or reports filed by the Company with the SEC that do not specifically incorporate such information by reference. Compensation for our executive officers is administered under the direction of the compensation committee with all recommendations of the compensation committee being subject to approval by the board of trust managers. The following is the compensation committee's report on 2000 compensation practices for the executive officers of the Trust. The report and the performance graph that appears immediately after such report shall not be deemed to be soliciting material or to be filed with the SEC, under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or incorporated by reference in any document so filed. Base Salary. The compensation committee recommends base salaries for executive officers by evaluating the responsibilities of the position held and the experience of the individual, and by reference to the competitive marketplace for executive talent, including a comparison to base salaries for comparable positions at other real estate investment trusts, to historical levels of salary paid by the trust, and to recommendations of independent compensation consultants. Salary adjustments are based on a periodic evaluation of the performance of the trust and of each executive officer, and also take into account new responsibilities as well as changes in the competitive marketplace. A compensation consultant advised the compensation committee in 1999 that our base compensation levels for that fiscal year were below the REIT industry as a whole, which was consistent with our desire to focus on the incentive portion of compensation. Due to the review of strategic alternatives during 2000, no adjustments to the executive officers' base salaries were made in fiscal year 2000. Mr. Wolcott, who has served as president and chief executive officer since the commencement of his employment in May 1993, received a base salary of $260,000 for the 2000 fiscal year. Mr. Friedland, who currently serves as executive vice president and chief operating officer, received a base salary of $215,000 for the 2000 fiscal year. Mr. Simpson, who currently serves as senior vice president, chief financial officer, secretary and treasurer, received a base salary of $160,000 for the 2000 fiscal year. Mr. Warner, who currently serves as senior vice president-real estate operations, received a base salary of $150,000 for the 2000 fiscal year. Performance-Based Bonus Plan. Each year, in order to encourage the accomplishment of our short-term goals, the compensation committee reviews and recommends a performance-based bonus plan for executive officers. With the Trust evaluating strategic alternatives, the compensation committee elected to base their decision regarding performance-based compensation for the 2000 fiscal year on management's input to, and compliance with, the review of strategic alternatives. During the 2000 fiscal year, executive officers were eligible to receive the following target bonus amounts (on base salary): Mr. Wolcott................................................. 60% Mr. Friedland............................................... 50% Mr. Simpson................................................. 40% Mr. Warner.................................................. 40%
With respect to the 2000 fiscal year, the compensation committee recommended, and the board of trust managers approved, a $156,000 bonus for Mr. Wolcott, a $107,500 bonus for Mr. Friedland, a $64,000 bonus for Mr. Simpson and a $60,000 bonus for Mr. Warner. The Compensation Committee determined that Mr. Wolcott was deserving of a targeted bonus amount due to the following factors: 1) the input from, and the assistance provided by, Mr. Wolcott and the management team in a protracted review of strategic alternatives and 2) the performance of the Trust during a 28 29 period of transition. The Compensation Committee noted that during 2000, the Trust achieved funds from operations of $1.54 per share, a 10% increase over 1999. Other Compensation. Other compensation payable to the executive officers includes contributions to the employee retirement and profit sharing plan and insurance premiums paid under our medical, dental, life and long-term disability plans. 2000 Compensation Committee, William H. Bricker T. Patrick Duncan Robert H. Gidel 29 30 PERFORMANCE GRAPH The rules and regulations of the SEC require the presentation of a line graph comparing, over a period of five years, the cumulative total shareholder return to a performance indicator of a broad equity market index and either a nationally recognized industry index or a peer group index constructed by us. The chart below compares the performance of our common shares with the performance of the Russell 2000 Index and the NAREIT Equity REIT Index. The comparison assumes $100 was invested on December 31, 1995 in our common shares and in each of the foregoing indices and assumes reinvestment of dividends. [PERFORMANCE GRAPH]
12-31-95 12-31-96 12-31-97 12-31-98 12-31-99 12-31-00 -------- -------- -------- -------- -------- -------- AIP................. 100.00 114.90 139.16 127.37 144.84 151.15 Russell 200 Index... 100.00 116.49 142.55 138.92 168.46 164.13 Equity Reit Index(a).......... 100.00 135.27 162.67 134.20 128.00 161.75
- --------------- (a) Total Return Index for Equity Real Estate Investment Trusts (per National Association of Real Estate Investment Trusts, Inc.) 30 31 TRUST MANAGER COMPENSATION In fiscal year 2000, the Trust paid an annual retainer of $25,000 to non-employee trust managers plus $1,000 for each trust manager meeting attended in person, $500 for each trust manager meeting attended via teleconference, $500 for each committee meeting attended in person and $250 for each committee meeting attended via teleconference. Additionally, the trust managers are reimbursed for their expenses incurred in connection with their duties as trust managers. Each non-employee trust manager has the right to receive his annual retainer in cash and/or shares. In addition to the annual retainer, Mr. Bricker earned $22,500, Mr. Giles earned $6,500, Mr. Kelley earned $7,750, Mr. Duncan earned $7,000, Mr. Kraska earned $7,500, Mr. Morris earned $10,250, Mr. Wolstein earned $6,500, Mr. Schoff earned $8,750, Mr. Gidel earned $6,500 and Mr. Adams earned $7,000 in 2000 for attendance at Board of Trust Managers and committee meetings. In December 1998, the Trust adopted a deferred compensation plan for non-employee trust managers which gives trust managers the right to defer receipt of fees otherwise payable. Such deferred fees are credited to a deferral account in units representing shares. The value of the units is increased or decreased as measured by the market value of shares. Deferred compensation at December 31, 2000 totaled $83,451. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information on the beneficial ownership of our common shares as of March 22, 2001, by persons known to us to own more than 5% of our outstanding common shares, each of our trust managers and executive officers, and all of our trust managers and executive officers as a group. The following information with respect to beneficial ownership of more than 5% of our outstanding common shares is based on reports on Schedule 13D or Schedule 13G filed with the SEC. A person is deemed to be the beneficial owner of the number of common shares of which that person has the right to acquire beneficial ownership, for example, by exercise of share options, within 60 days after the record date. Except as otherwise noted, all persons named below have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable.
NUMBER OF SHARES BENEFICIALLY PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS - ------------------------------------ ---------------- -------- Albert T. Adams............................................ 2,000(1) * William H. Bricker......................................... 5,400(2) * T. Patrick Duncan.......................................... 1,200 * Robert H. Gidel............................................ 5,497(1) * Robert E. Giles............................................ 8,012(2) * Edward B. Kelley........................................... 2,000 * Stanley J. Kraska, Jr. .................................... -- * J. Timothy Morris.......................................... 1,000(3) * James A. Schoff............................................ 2,000(1) * Charles W. Wolcott......................................... 336,000(4) 1.55% Scott A. Wolstein.......................................... 2,006(1)(10) * Lewis D. Friedland......................................... 160,006(5) * Marc A. Simpson............................................ 90,898(6) * David B. Warner............................................ 79,900(6) * USAA Real Estate Company................................... 1,680,086(7) 7.80% 9830 Colonnade Boulevard, Suite 600 San Antonio, Texas 78230 Morgan Stanley Dean Witter & Co............................ 2,007,653(8) 9.26% The Morgan Stanley Real Estate Special Situations Fund II, L.P. Morgan Stanley Dean Witter Investment Management Inc. 1585 Broadway New York, New York 10036
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NUMBER OF SHARES BENEFICIALLY PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS - ------------------------------------ ---------------- -------- LaSalle Investment Management (Securities) LP and LaSalle Investment Management, Inc. ............................. 1,507,578(9) 6.95% 100 East Pratt Street Baltimore, MD 21202 Scott A. Wolstein and Developers Diversified Realty Corporation.............................................. 9,758,656(1)(10) 45.02% 3300 Enterprise Parkway Beachwood, OH 44122 All trust managers and executive officers as a group (14 persons)................................................. 695,928(1)(2)(3) 3.20% (4)(5)(6)
- --------------- * Ownership is less than 1% of outstanding common shares. (1) Includes vested options to purchase 2,000 common shares. (2) Includes vested options to purchase 5,000 common shares. (3) Includes vested options to purchase 1,000 common shares. (4) Includes vested options to purchase 250,000 common shares. (5) Includes vested options to purchase 135,000 common shares. (6) Includes vested options to purchase 70,000 common shares. (7) Based upon Amendment No. 4 to Schedule 13D filed jointly by United Services Automobile Association, USAA Capital Corporation, and USAA Realco on August 6, 1998. USAA is the sole stockholder of USAA Capital Corporation and USAA Capital Corporation is the sole stockholder of Realco. Based upon these relationships, USAA, USAA Capital Corporation, and USAA Realco have shared voting and dispositive power over 1,680,086 common shares. (8) Based upon Amendment No. 1 to Schedule 13D filed jointly by Morgan Stanley Dean Witter & Co. (f/k/a Morgan Stanley, Dean Witter, Discover & Co.), Morgan Stanley Dean Witter Investment Management Inc. (f/k/a Morgan Stanley Asset Management Inc.) and Morgan Stanley Real Estate Special Situations Fund II, L.P. on March 18, 1998, Morgan Stanley Dean Witter has sole voting and dispositive power over 120,231 common shares and shared voting and dispositive power over 1,879,422 common shares held by the investors for whom Morgan Stanley Dean Witter Investment Management acts as an investment advisor. Pursuant to separate investment management agreements between Morgan Stanley Dean Witter Investment Management and Morgan Stanley Real Estate Special Situations Fund II, Morgan Stanley Dean Witter Investment Management has been granted voting and dispositive power with respect to the common shares held by Morgan Stanley Real Estate Special Situations Fund II. Morgan Stanley Dean Witter Investment Management has shared voting and dispositive power over 1,879,422 common shares held by Morgan Stanley Dean Witter Investment Management purchasers and the Morgan Stanley Real Estate Special Situation Fund II has shared voting and dispositive power over 652,415 of such common shares. Pursuant to separate investment management agreements between Morgan Stanley Dean Witter Investment Management and the Morgan Stanley Dean Witter Investment Management purchasers, Morgan Stanley Dean Witter Investment Management has been granted voting and dispositive power with respect to the common shares held by each of the Morgan Stanley Dean Witter Investment Management purchasers. Includes vested options to purchase 8,000 shares. (9) Based upon Amendment No. 2 to Schedule 13D filed jointly by LaSalle Investment Management (Securities) LP and LaSalle Investment Management, Inc. on February 18, 1998, (i) LaSalle Investment Management (Securities) LP has sole voting and dispositive power over 480,213 common shares and shared voting and dispositive power with respect to 480,212 common shares; and (ii) LaSalle Investment Management, Inc. has shared dispositive power with respect to 542,153 common shares. Includes vested options to purchase 5,000 common shares. 32 33 (10) Based upon Amendment No. 7 to Schedule 13D filed jointly by DDR and Scott A. Wolstein on November 14, 2000, DDR has sole voting and dispositive power over 9,756,650 common shares (which amount includes beneficial ownership of 100,000 common shares as a result of options that are exercisable) and Mr. Wolstein has sole voting and dispositive power over 2,006 common shares (which amount includes beneficial ownership of 2,000 common shares as a result of options that are exercisable). Mr. Wolstein, as chairman of the board, president and chief executive officer of DDR, may be deemed to beneficially own all shares held by DDR. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS During 1998, the Trust on occasion entered into unsecured borrowings with DDR. Such borrowings bore a fixed rate of interest of 10.25%, provided for quarterly payments of interest and were due thirty days after demand. The Trust repaid all such borrowings, including payment of $111,000 of interest, in the first quarter of 1999. The Trust did not enter into any such borrowings in 1999 or 2000. Quorum Real Estate Services Corporation, an affiliate of USAA Real Estate Company, and DDR, both of which are major shareholders of the Trust, manage certain of the Trust's real estate investments. Quorum and DDR are paid competitive rates for services, including, but not limited to, construction, tenant finish, leasing and management. The Trust paid Quorum management fees of $595,400, leasing commissions of $280,700, and construction management fees of $89,800, for the year ended December 31, 2000. For the year ended December 31, 1999, management fees and leasing commissions paid by the Trust to Quorum were $548,000 and $24,000, respectively. The Trust paid DDR management fees of $20,300 and $17,900 for the years ended December 31, 2000 and 1999, respectively. The Trust currently leases space to an individual serving as a trust manager at competitive market rates. For the years ended December 31, 2000 and December 31, 1999, this trust manager paid $25,500 and $24,400 in lease payments to the Trust, respectively. 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 NUMBER DESCRIPTION ------- ----------- 2.1 -- Form of Amended and Restated Agreement and Plan of Merger, dated as of June 30, 1997, by and between the Trust and each of USAA Real Estate Income Investments I, a California Limited Partnership, USAA Real Estate Income Investments II Limited Partnership, USAA Income Properties III Limited Partnership and USAA Income Properties IV Limited Partnership (included as Annex I to the Joint Proxy Statement/Prospectus of the Trust included in Form S-4, Registration No. 333-31823 and incorporated herein by reference)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.2 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit Industrial Properties Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997) 2.3 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated October 3, 1997) 2.4 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated October 3, 1997) 2.5 -- Purchase Agreement dated as of June 30, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV Land 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated October 3, 1997) 2.6 -- Purchase and Sale Agreement dated as of September 24, 1997 by and between Midway/Commerce Center Limited Partnership, as Seller, and the Trust, as Buyer (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997) 2.7 -- First Amendment to Purchase and Sale Agreement dated as of October 22, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 13, 1997) 2.8 -- Second Amendment to Purchase and Sale Agreement dated as of October 31, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated November 13, 1997)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.9 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments I, a California Limited Partnership (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated January 20, 1998) 2.10 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments II Limited Partnership (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated January 20, 1998) 2.11 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments III Limited Partnership (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated January 20, 1998) 2.12 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments IV Limited Partnership (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated January 20, 1998) 2.13 -- Agreement and Plan of Merger by and among the Trust, Developers Diversified Realty Corporation ("DDR") and DDR Office Flex Corporation ("DDR Flex") dated July 30, 1998 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated July 30, 1998) 2.14 -- Agreement and Plan of Merger, dated November 1, 2000, by and among the Trust, DDR and DDR Transitory Sub Inc. (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 3.1 -- Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.1 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.2 -- First Amendment to the Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.2 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.3 -- Second Amendment to the Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.3 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.4 -- Third Amendment to the Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.4 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.5 -- Fifth Amended and Restated Bylaws (incorporated herein by reference from Exhibit 3.5 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.6 -- Amendment to the Fifth Amended and Restated Bylaws (incorporated herein by reference from Exhibit 3.6 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.7 -- Statement of Designation of Series A Preferred Shares of Beneficial Interest of the Trust dated July 30, 1998 (incorporated herein by reference from Exhibit 3.1 to Form 8-K of the Trust dated July 30, 1998)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 -- Indenture dated November 15, 1985, by and between the Trust and IBJ Schroder Bank & Trust Company (incorporated herein by reference from Exhibit 10.4 to Form S-4 of American Industrial Properties REIT, Inc. ("AIP Inc.") dated March 16, 1994; Registration No. 33-74292) 4.2 -- Form of Common Share Certificate (incorporated herein by reference from Exhibit 4.2 to Amendment No. 3 to Form S-4 of the Trust filed October 28, 1997; Registration No. 333-31823) 10.1 -- Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823) 10.2 -- Employee and Trust Manager Incentive Share Plan (incorporated by reference from Exhibit 10.2 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823) 10.3 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership ("ABKB") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 22, 1997) 10.4 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 22, 1997) 10.5 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Advisors Limited Partnership ("LaSalle") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 22, 1997) 10.6 -- Registration Rights Agreement dated as of July 10, 1997, by and between the Trust, ABKB as Agent for and for the benefit of particular clients and LaSalle Advisors Limited Partnership as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 22, 1997) 10.7 -- Common Share Purchase Agreement dated as of June 20, 1997, by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management, Inc. ("MSAM") as agent and attorney-in-fact for specified clients (the "MSAM") (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 22, 1997) 10.8 -- Registration Rights Agreement dated as of June 20, 1997, by and among the Trust, MSRE and MSAM on behalf of the MSAM Purchaser (incorporated herein by reference from Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997) 10.9 -- Renewal, Extension, Modification and Amendment Agreement dated February 26, 1997, executed by the Trust in favor of USAA Real Estate Company ("Realco") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated March 4, 1997) 10.10 -- Share Purchase Agreement dated as of December 20, 1996, by and among the Trust, Realco and AIP Inc. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated December 23, 1996) 10.11 -- Share Purchase Agreement dated as of December 13, 1996, by and between the Trust and Realco (incorporated herein be reference from Exhibit 99.4 to Form 8-K of the Trust dated December 23, 1996)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.12 -- Registration Rights Agreement dated as of December 20, 1996, by and between the Trust and Realco, as amended (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated December 23, 1996) 10.13 -- Registration Rights Agreement dated as of December 19, 1996, by and between the Trust and Realco (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated December 23, 1996) 10.14 --401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.5 to Amendment No. 1 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292) 10.15 -- Amendments to 401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.4 to Form 10-K of the Trust dated March 27, 1995) 10.16 -- Settlement Agreement by and between the Trust, Patapsco #1 Limited Partnership, Patapsco #2 Limited Partnership, The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company (U.S.A.) dated as of May 22, 1996 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated May 22, 1996) 10.17 -- Agreement and Assignment of Partnership Interest, Amended and Restated Agreement and Certificate of Limited Partnership and Security Agreement for Patapsco Center -- Linthicum Heights, Maryland (incorporated herein by reference from Exhibit 10.8 to Amendment No. 2 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292) 10.18 -- Note dated November 15, 1994 in the original principal amount of $12,250,000 with AIP Properties #1 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 22, 1994) 10.19 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #1 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 22, 1994) 10.20 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $12,250,000 (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated June 23, 1995) 10.21 -- Note dated November 15, 1994 in the original principal amount of $2,150,000 with AIP Properties #2 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 22, 1994) 10.22 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #2 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 22, 1994) 10.23 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $2,250,000 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated June 23, 1995) 10.24 -- Promissory Note dated November 25, 1996, by and between AIP Inc. and Realco (incorporated herein by reference from Exhibit No. 99.5 to Form 8-K of the Trust dated December 23, 1996)
37 38
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.25 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Huntington Drive Center) (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 20, 1996) 10.26 -- Note dated November 15, 1996 in the original principal amount of $4,575,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Huntington Drive Center ) (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 20, 1996) 10.27 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 20, 1996) 10.28 -- Note dated November 15, 1996 in the original principal amount of $3,112,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996) 10.29 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated November 20, 1996) 10.30 -- Note dated November 15, 1996 in the original principal amount of $1,537,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated November 20, 1996) 10.31 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (all Texas properties except Woodlake) (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated November 20, 1996) 10.32 -- Note dated November 15, 1996 in the original principal amount of $1,162,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Meridian Street Warehouse) (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated November 20, 1996) 10.33 -- Note dated November 15, 1996 in the original principal amount of $2,775,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Beltline Business Center) (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated November 20, 1996) 10.34 -- Note dated November 15, 1996 in the original principal amount of $3,375,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Plaza South) (incorporated herein by reference from Exhibit 99.10 to Form 8-K of the Trust dated November 20, 1996) 10.35 -- Note dated November 15, 1996 in the original principal amount of $2,100,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Commerce North Park) (incorporated herein by reference from Exhibit 99.11 to Form 8-K of the Trust dated November 20, 1996) 10.36 -- Note dated November 15, 1996 in the original principal amount of $2,850,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Gateway 5 & 6) (incorporated herein by reference from Exhibit 99.12 to Form 8-K of the Trust dated November 20, 1996)
38 39
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.37 -- Note dated November 15, 1996 in the original principal amount of $5,175,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Northgate II) (incorporated herein by reference from Exhibit 99.13 to Form 8-K of the Trust dated November 20, 1996) 10.38 -- Note dated November 15, 1996 in the original principal amount of $1,327,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Westchase Park) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996) 10.39 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Charles W. Wolcott (incorporated herein by reference from Exhibit 10.12 to Form 10-K of the Trust for the year ended December 31, 1996) 10.40 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Marc A. Simpson (incorporated herein by reference from Exhibit 10.13 to Form 10-K of the Trust for the year ended December 31, 1996) 10.41 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and David B. Warner (incorporated herein by reference from Exhibit 10.14 to Form 10-K of the Trust for the year ended December 31, 1996) 10.42 -- Amendment No. 1 to Share Purchase Agreement dated as of December 13, 1996 by and between the Trust and Realco (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated March 4, 1997) 10.44 -- Common Share Purchase Agreement dated as of January 29, 1998, by and between the Trust and Praedium II Industrial Associates LLC ("Praedium") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.45 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998) 10.46 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated January 29, 1998) 10.47 -- Contribution and Exchange Agreement dated as of September 25, 1997 among Shidler West Investment Corporation, AIP-SWAG Operating Partnership, L.P. and the Trust (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated October 3, 1997) 10.48 -- Assignment and Assumption of Purchase Agreements dated as of October 3, 1997 between Shidler West Investment Corporation and AIP-SWAG Operating Partnership, L.P. (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated October 3, 1997) 10.49 -- Amended and Restated Agreement of Limited Partnership of AIP-SWAG Operating Partnership, L.P. dated as of October 3, 1997 (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated October 3, 1997) 10.50 -- Warrant Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated October 3, 1997)
39 40
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.51 -- Warrant Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated October 3, 1997) 10.52 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated October 3, 1997) 10.53 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated October 3, 1997) 10.54 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated October 3, 1997) 10.55 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated October 3, 1997) 10.56 -- Common Share Purchase Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.57 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998) 10.58 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K dated January 29, 1998) 10.59 -- Contract of Sale by and between Nationwide Life Insurance Company and ALCU Investments, Inc. (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated February 11, 1998) 10.60 -- Assignment of Contract of Sale dated as of February 11, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P. and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K/A of the Trust dated February 11, 1998) 10.61 -- Contribution and Exchange Agreement dated as of January 29, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P., and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated February 11, 1998) 10.62 -- Amended and Restated Agreement of Limited Partnership of AIP Operating, L.P. dated as of February 11, 1998, by and among the Trust, General Electric Capital Corporation, and ALCU Investments, Ltd. (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated February 11, 1998) 10.63 -- Promissory Note by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated February 11, 1998)
40 41
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.64 -- First Amendment to Credit Agreement dated as of February 11, 1998, by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.6 to Form 8-K/A of the Trust dated February 11, 1998) 10.65 -- Industrial Property Portfolio Agreement of Purchase and Sale by and between Spieker Northwest, Inc. and the Trust (incorporated herein by reference from Exhibit 10.65 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 10.66 -- Purchase and Sale Agreement by and between North Austin Office, Ltd. and the Trust (incorporated herein by reference from Exhibit 10.66 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions by and between CM Property Management, Inc. and the Trust dated July 15, 1997 (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated March 23, 1998) 10.68 -- Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CFX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.2 to From 8-K/A of the Trust dated March 23, 1998) 10.69 -- Amendment to Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CPX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated March 23, 1998) 10.70 -- Purchase and Sale Agreement between the Equitable Life Assurance Society of the United States and the Trust (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated March 23, 1998) 10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P. and the Trust (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated March 23, 1998) 10.72 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Charles W. Wolcott and the Trust (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated April 29, 1998) 10.73 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Marc A. Simpson and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated April 29, 1998) 10.74 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between David B. Warner and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated April 29, 1998) 10.75 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Lewis D. Friedland and the Trust (incorporated herein be reference from Exhibit 10.4 to Form 8-K of the Trust dated April 29, 1998) 10.76 -- Amendments to the Trust's Employee and Trust Manager Incentive Share Plan (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated April 29, 1998) 10.77 -- Share Purchase Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998)
41 42
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998) 10.79 -- Second Amended and Restated Registration Rights Agreement by and among the Trust, MSRE and MSAM dated July 30, 1998 (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated July 30, 1998) 10.80 -- Second Amended and Restated Registration Rights Agreement by and between the Trust and Realco July 30, 1998 (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated July 30, 1998) 10.81 -- Registration Rights Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 30, 1998) 10.82 -- First Amended and Restated Registration Rights Agreement by and between the Trust and Praedium dated July 30, 1998 (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 30, 1998) 10.83 -- Second Amended and Restated Registration Rights Agreement by and between the Trust, ABKB and LaSalle dated July 30, 1998 (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 30, 1998) 10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 30, 1998) 10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 30, 1998) 10.86 -- Letter Agreement by and between Praedium and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated July 30, 1998) 10.87 -- Letter Agreement by and between Realco and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.11 to Form 8-K of the Trust dated July 30, 1998) 10.88 -- Amendment No. One, dated as of September 14, 1998, to the Share Purchase Agreement, dated as of July 30, 1998, between the Trust and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated September 16, 1998) 10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998) 10.90 -- Amendment to Purchase and Sale Agreement dated June 19, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998) 10.91 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated October 14, 1998)
42 43
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated October 14, 1998) 10.93 -- Amendment to Purchase and Sale Agreement dated July 8, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated October 14, 1998) 10.94 -- Amendment to Purchase and Sale Agreement dated July 8, 1998, by and between Battlefield/Virginia, Inc., and DDR Flex (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated October 14, 1998) 10.95 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated October 14, 1998) 10.96 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated October 14, 1998) 10.97 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier, Inc. and the Trust (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated October 14, 1998) 10.98 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe B, Inc. and the Trust (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated October 14, 1998) 10.99 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe C, Inc. and the Trust (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated October 14, 1998) 10.100 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier Tech, Inc. and the Trust (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated October 14, 1998) 10.101 -- Agreement of Purchase and Sale, dated as of November 12, 1998, by and between Lincoln-Whitehall Realty, L.L.C., Lincoln-Whitehall Pacific, L.L.C., WHLNF Real Estate Limited Partnership, WHSUM Real Estate Limited Partnership (collectively, "Whitehall") (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.102 -- Amendment to Agreement of Purchase and Sale, dated November 23, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.103 -- Second Amendment to Agreement of Purchase and Sale, dated December 11, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.104 -- Amended and Restated Second Amendment to Agreement of Purchase and Sale dated December 11, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999)
43 44
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.105 -- Third Amendment to Agreement of Purchase and Sale, dated as of December 22, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.106 -- Fourth Amendment to Agreement of Purchase and Sale, dated as of January 7, 1999, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.6 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.107 -- Fifth Amendment to Agreement of Purchase and Sale, dated as of January 11, 1999, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.7 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.108 -- Sixth Amendment to Agreement of Purchase and Sale, dated as of January 13, 1999, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.8 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.109 -- Agreement of Purchase and Sale, dated November 1, 2000, by and between the Trust, AIP/Battlefield GP, Inc., AIP-SWAG Operating L.P., AIP Properties #3, L.P., and AIP Operating, L.P., collectively, and Value Enhancement Fund IV, L.P. (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) *10.110 -- First Amendment to Agreement of Purchase and Sale, dated January 31, 2001, by and among the Trust, AIP/Battlefield GP Inc., AIP-SWAG Operating L.P., AIP Properties #3, L.P., and AIP Operating, L.P., collectively, and Value Enhancement Fund IV, L.P. 10.111 -- Agreement of Purchase and Sale, dated effective August 22, 2000, by and between the Trust and Divco West Properties, LLC ("Divco") (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2001) 10.112 -- Amendment to Purchase and Sale Agreement, dated August 29, 2000, by and between the Trust and Divco (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2001) 10.113 -- Second Amendment to Purchase and Sale Agreement, dated September 21, 2000, by and between the Trust and Divco (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2000) 10.114 -- Third Amendment to Purchase and Sale Agreement, dated September 25, 2000, by and between the Trust and Divco (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2001) 10.115 -- Credit Agreement, dated as of January 28, 1999, by and among the Trust, Bank One Texas, N.A., and the Lenders named therein (incorporated herein by reference from Exhibit b(1) to Schedule 13E-3 filed on the Trust on December 1, 2000) 10.116 -- First Amendment to Credit Agreement, dated as of April 12, 1999, by and among the Trust, Bank One Texas, N.A., and the Lenders named therein (incorporated herein by reference from Exhibit(b)(2) to Schedule 13E-3 filed on the Trust on December 1, 2000)
44 45
EXHIBIT NUMBER DESCRIPTION ------- ----------- *21.1 -- Listing of Subsidiaries *23.1 -- Consent of Ernst & Young LLP *24.1 -- Power of Attorney (Included on signature page hereto) 99.1 -- Voting Agreement dated November 1, 2000, among the Trust, DDR, LaSalle Investment Management Group, Inc. and LaSalle Investment Management (Securities), L.P. (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.2 -- Voting Agreement dated November 1, 2000, among the Trust, DDR, Morgan Stanley Dean Witter Investment Management Inc., on behalf of its clients with respect to shares of AIP over which it (or its designee) exercises investment discretion, and MS Real Estate Special Situations Inc. (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.3 -- Voting Agreement dated November 1, 2000, among the Trust, DDR and USAA Real Estate Company (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.4 -- Voting Agreement dated November 1, 2000, among the Trust, Value Enhancement Fund IV, L.P. and LaSalle Investment Management (Securities), L.P. (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.5 -- Voting Agreement dated November 1, 2000, among the Trust, Value Enhancement Fund IV, L.P., Morgan Stanley Dean Witter Investment Management, Inc., on behalf of its clients with respect to shares of AIP over which it (or its designee) exercises investment discretion, and MS Real Estate Special Situations Inc. (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.6 -- Voting Agreement dated November 1, 2000, the Trust, Value Enhancement Fund IV, L.P. and USAA Real Estate Company (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000)
- --------------- * Filed herewith (b) Reports on Form 8-K: (1) Current Report on Form 8-K filed with the Commission on November 8, 2000; (2) Current Report on Form 8-K filed with the Commission on November 9, 2000. 45 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 2001. AMERICAN INDUSTRIAL PROPERTIES REIT /s/ CHARLES W. WOLCOTT -------------------------------------- Charles W. Wolcott, Trust Manager, President and Chief Executive Officer POWER OF ATTORNEY Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each of the undersigned officers and trust managers of the registrant hereby appoints Charles W. Wolcott or Marc A. Simpson, either of whom may act, his true and lawful attorneys-in-fact with full power to sign for him and in his name in the capacities indicated below and to file any and all amendments to the registration statement filed herewith, making such changes in the registration statement as the registrant deems appropriate, and generally to do all such things in his name and behalf in his capacity as an officer and director to enable the registrant to comply with the provisions of the Securities Act of 1934 and all requirements of the Securities and Exchange Commission.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ ALBERT T. ADAMS Trust Manager March 30, 2001 - ----------------------------------------------------- Albert T. Adams /s/ WILLIAM H. BRICKER Trust Manager March 30, 2001 - ----------------------------------------------------- William H. Bricker /s/ T. PATRICK DUNCAN Trust Manager March 30, 2001 - ----------------------------------------------------- T. Patrick Duncan Trust Manager March 30, 2001 - ----------------------------------------------------- Robert H. Gidel /s/ ROBERT E. GILES Trust Manager March 30, 2001 - ----------------------------------------------------- Robert E. Giles /s/ EDWARD B. KELLEY Trust Manager March 30, 2001 - ----------------------------------------------------- Edward B. Kelley /s/ STANLEY J. KRASKA, JR. Trust Manager March 30, 2001 - ----------------------------------------------------- Stanley J. Kraska, Jr. Trust Manager March 30, 2001 - ----------------------------------------------------- J. Timothy Morris
46 47
SIGNATURES TITLE DATE ---------- ----- ---- /s/ JAMES A. SCHOFF Trust Manager March 30, 2001 - ----------------------------------------------------- James A. Schoff /s/ CHARLES W. WOLCOTT Trust Manager, President and March 30, 2001 - ----------------------------------------------------- Chief Executive Officer Charles W. Wolcott (Principal Executive Officer) Trust Manager and Chairman of March 30, 2001 - ----------------------------------------------------- the Board of Trust Managers Scott A. Wolstein /s/ MARC A. SIMPSON Senior Vice President and March 30, 2001 - ----------------------------------------------------- Chief Financial Officer, Marc A. Simpson Secretary and Treasurer (Principal Accounting and Financial Officer)
47 48 AMERICAN INDUSTRIAL PROPERTIES REIT INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Consolidated Financial Statements: Report of Independent Auditors............................ F-1 Consolidated Statements of Operations for the years ended December 31, 2000, 1999, and 1998...................... F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999................................................... F-3 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998....................... F-5 Notes to Consolidated Financial Statements................ F-7 Financial Statement Schedule: Schedule III -- Consolidated Real Estate and Accumulated Depreciation........................................... F-23 Notes to Schedule III..................................... F-26
All other financial statements and schedules not listed have been omitted because the required information is either included in the Consolidated Financial Statements and the Notes thereto as included herein or is not applicable or required. 48 49 REPORT OF INDEPENDENT AUDITORS Trust Managers and Shareholders American Industrial Properties REIT: We have audited the accompanying consolidated balance sheets of American Industrial Properties REIT (the "Trust") as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Industrial Properties REIT at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Dallas, Texas February 2, 2001 F-1 50 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Property Revenues Rents............................................... $ 72,952 $ 71,028 $ 39,559 Tenant reimbursements............................... 16,778 15,854 8,798 ----------- ----------- ----------- Total Property Revenues..................... 89,730 86,882 48,357 ----------- ----------- ----------- Property Expenses Property taxes...................................... 9,779 9,453 4,980 Property management fees............................ 2,233 1,678 1,474 Utilities........................................... 4,392 4,051 2,673 General operating................................... 4,144 3,864 2,489 Repairs and maintenance............................. 3,115 3,330 2,218 Other property operating expenses................... 3,337 4,508 2,212 ----------- ----------- ----------- Total Property Expenses..................... 27,000 26,884 16,046 ----------- ----------- ----------- Income from Property Operations....................... 62,730 59,998 32,311 Trust administration and overhead..................... (4,358) (4,628) (3,729) Depreciation.......................................... (12,191) (13,819) (7,928) Amortization.......................................... (1,360) (716) (455) Interest and other income............................. 684 735 705 Interest on notes payable............................. -- (111) (869) Interest on mortgages payable......................... (25,506) (26,451) (14,270) Provision for possible losses on real estate.......... -- -- (10,060) ----------- ----------- ----------- Income (Loss) from operations......................... 19,999 15,008 (4,295) Minority interests in consolidated subsidiaries....... (580) (313) 28 Gain (Loss) on sales of real estate................... 26,803 (200) -- Income in equity of joint venture..................... 120 624 -- ----------- ----------- ----------- Gain (Loss) before extraordinary items................ 46,342 15,119 (4,267) Extraordinary items: Loss on extinguishment of debt........................ (329) (513) (23) Provision for change in control costs................. -- -- (5,780) ----------- ----------- ----------- Net income (loss)........................... $ 46,013 $ 14,606 $ (10,070) =========== =========== =========== PER SHARE DATA (BASIC AND DILUTED) Gain (Loss) before extraordinary items................ $ 2.21 $ 0.74 $ (0.35) Extraordinary items................................... (0.02) (0.03) (0.47) ----------- ----------- ----------- Net income (loss)..................................... $ 2.19 $ 0.71 $ (0.82) =========== =========== =========== Distributions declared................................ $ 1.93 $ 0.86 $ 0.78 =========== =========== =========== Weighted average Shares outstanding................... 20,973,137 20,513,356 12,251,591 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-2 51 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, -------------------- 2000 1999 --------- -------- ASSETS Real estate: Held for investment....................................... $ 305,582 $627,831 Held for sale............................................. 297,694 14,355 --------- -------- Total real estate......................................... 603,276 642,186 Accumulated depreciation.................................. (55,341) (46,931) --------- -------- Net real estate........................................... 547,935 595,255 Cash and cash equivalents: Unrestricted.............................................. 22,397 2,504 Restricted................................................ 5,545 5,716 --------- -------- Total cash and cash equivalents........................... 27,942 8,220 Other assets, net......................................... 16,161 17,207 --------- -------- Total Assets...................................... $ 592,038 $620,682 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable.................................... $ 284,924 $334,873 Accrued interest.......................................... 1,739 2,229 Accounts payable, accrued expenses and other liabilities............................................ 32,969 15,587 Tenant security deposits.................................. 2,867 2,954 --------- -------- Total Liabilities................................. 322,499 355,643 --------- -------- Minority interests.......................................... 4,337 6,551 Commitments and contingencies............................... -- -- Shareholders' Equity: Shares of beneficial interest, $0.10 par value; authorized 500,000,000 shares; issued and outstanding 21,177,204 shares at 2000 and 21,091,853 shares at 1999........... 2,117 2,109 Additional paid-in capital................................ 385,752 385,293 Less 165,755 shares in treasury at 2000 and 1999, at cost................................................... (2,226) (2,226) Accumulated distributions................................. (125,868) (86,102) Retained earnings (accumulated deficit)................... 5,427 (40,586) --------- -------- Total Shareholders' Equity........................ 265,202 258,488 --------- -------- Total Liabilities and Shareholders' Equity........ $ 592,038 $620,682 ========= ========
The accompanying notes are an integral part of these financial statements. F-3 52 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
SHARES OF BENEFICIAL INTEREST ADDITIONAL RETAINED TREASURY STOCK ------------------- PAID-IN EARNINGS ----------------- NUMBER AMOUNT CAPITAL (DEFICIT) NUMBER AMOUNT TOTAL ---------- ------ ---------- --------- ------- ------- -------- Balance at January 1, 1998.... 9,817,171 $ 982 $224,989 $(103,574) 42,103 $ (626) $121,771 Issuance of additional Shares.................... 7,384,420 739 105,042 -- -- -- 105,781 Repurchase of Shares........ -- -- -- -- 123,783 (1,600) (1,600) Net income.................. -- -- -- (10,070) -- -- (10,070) Distributions to Shareholders.............. -- -- -- (10,303) -- -- (10,303) ---------- ------ -------- --------- ------- ------- -------- Balance at December 31, 1998........................ 17,201,591 1,721 330,031 (123,947) 165,886 (2,226) 205,579 Issuance of additional Shares.................... 3,890,262 388 55,262 -- (131) -- 55,650 Net income.................. -- -- -- 14,606 -- -- 14,606 Distributions to Shareholders.............. -- -- -- (17,347) -- -- (17,347) ---------- ------ -------- --------- ------- ------- -------- Balance at December 31, 1999........................ 21,091,853 2,109 385,293 (126,688) 165,755 (2,226) 258,488 Issuance of additional Shares.................... 85,351 8 459 -- -- -- 467 Net income.................. -- -- -- 46,013 -- -- 46,013 Distributions to Shareholders.............. -- -- -- (39,766) -- -- (39,766) ---------- ------ -------- --------- ------- ------- -------- Balance at December 31, 2000........................ 21,177,204 $2,117 $385,752 $(120,441) 165,755 $(2,226) $265,202 ========== ====== ======== ========= ======= ======= ========
The accompanying notes are an integral part of these financial statements. F-4 53 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- --------- --------- Cash Flows from Operating Activities: Net income (loss)........................................ $ 46,013 $ 14,606 $ (10,070) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on extinguishment of debt........................ 109 90 -- Change in control costs............................... -- -- 2,960 (Gain) Loss on sales of real estate................... (26,803) 200 -- Provisions for possible loss on real estate........... -- -- 10,060 Minority interest in consolidated subsidiaries........ 580 313 (28) Depreciation.......................................... 12,191 13,819 7,928 Amortization of deferred financing costs.............. 1,279 1,461 584 Other amortization.................................... 838 220 168 Issuance of Shares to trust managers.................. 99 129 312 Changes in operating assets and liabilities: Other assets and restricted cash...................... 1,270 5,614 (13,374) Accounts payable, other liabilities and tenant security deposits................................... (4,438) (4,145) 3,213 Accrued interest...................................... (431) 752 1,208 -------- --------- --------- Net Cash Provided By Operating Activities........ 30,707 33,059 2,961 -------- --------- --------- Cash Flows from Investing Activities: Net proceeds from sales of real estate................... 69,804 17,356 -- Capitalized expenditures................................. (10,882) (15,769) (7,540) Acquisition of real estate and related working capital... -- (142,737) (172,133) Contribution to joint venture............................ 614 -- -- -------- --------- --------- Net Cash Provided By (Used In) Investing Activities..................................... 59,536 (141,150) (179,673) -------- --------- --------- Cash Flows from Financing Activities: Principal repayments on mortgage notes payable........... (62,926) (197,968) (49,163) Proceeds from mortgage financing......................... 13,500 266,797 202,436 Payment of deferred loan costs........................... (281) (3,029) (1,852) Proceeds from sale of common shares...................... 2 55,458 28,578 Purchase of treasury shares.............................. -- -- (1,600) Distributions to Shareholders............................ (17,603) (16,164) (6,880) Redemption of limited partnership units.................. (2,518) (329) -- Distributions to limited partnership unit holders........ (524) (315) (345) -------- --------- --------- Net Cash Provided By (Used In) Financing Activities..................................... (70,350) 104,450 171,174 -------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents....... 19,893 (3,641) (5,538) Cash and Cash Equivalents at Beginning of Year............. 2,504 6,145 11,683 -------- --------- --------- Cash and Cash Equivalents at End of Year................... $ 22,397 $ 2,504 $ 6,145 ======== ========= ========= Cash Paid for Interest..................................... $ 24,717 $ 24,349 $ 13,634 ======== ========= =========
The accompanying notes are an integral part of these financial statements. F-5 54 NON-CASH INVESTING AND FINANCING ACTIVITIES: Property Operations. As a result of the acquisition of 11 properties and an undeveloped tract of land in 1999, the Trust assumed approximately $1.9 million of accounts payable and tenant security deposits. As a result of the acquisition of 29 properties in 1998, the Trust issued $34.2 million in common shares, $0.9 million in limited partnership units, received approximately $0.6 million in other assets and assumed approximately $1.2 million of accounts payable and tenant security deposits. Real Estate Held for Sale. As of December 31, 2000, the Trust has 31 industrial properties with a cost basis of $297.7 million classified as held for sale. These properties are under contract to be sold in 2001 to client accounts managed by Lend Lease Real Estate Investments, Inc. in conjunction with the planned merger with Developers Diversified Realty Corporation ("DDR"). During 1999, the Trust reclassified six properties and four tracts of land with a cost basis of $33.5 million to real estate held for sale. As of December 31, 1999, three of the industrial properties and one tract of land have been sold. During 1999, the Trust did not receive an acceptable offer for the retail property classified as held for sale at December 31, 1998. This property, with a cost basis of $29.4 million, was reclassified to held for investment at December 31, 1999 and depreciation expense was recorded for the full year. Operating Partnership Conversion. In 2000, the Trust redeemed 208,251 limited partnership units resulting in an increase to Shareholder's equity of $0.37 million. In 1999, the Trust redeemed 29,167 limited partnership units resulting in an increase to Shareholder's equity of $0.06 million. Debt Conversion. During 1998, the Trust issued $42.7 million of common shares to DDR in exchange for unsecured notes payable to DDR. F-6 55 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES: General. American Industrial Properties REIT is a self-administered Texas real estate investment trust which, as of December 31, 2000, directly or indirectly owns and operates commercial real estate properties consisting of industrial properties, office buildings and two retail properties. The Trust was formed September 26, 1985 and commenced operations on November 27, 1985. Principles of Consolidation. The consolidated financial statements of the Trust include the accounts of American Industrial Properties REIT and its wholly owned subsidiaries and controlled subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Joint ventures and other non-controlled subsidiaries are accounted for under the equity method of accounting. The Trust recognizes its proportionate share of earnings as income in equity of joint ventures in the accompanying statements of operations. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ significantly from such estimates and assumptions. Real Estate. The Trust carries its real estate held for investment at depreciated cost unless the asset is determined to be impaired. Real estate classified as held for sale is carried at lower of depreciated cost or fair value less costs to sell. The Trust records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the expected undiscounted cash flows estimated to be generated by those assets are less than the related carrying amounts. If an asset held for investment is determined to be impaired, the impairment would be measured based upon the excess of the asset's carrying value over the fair value. In addition, the Trust records impairment losses on assets held for sale when the estimated sales proceeds, after estimated selling costs, are less than the carrying value of the related asset (see Note 2). Property improvements that extend the useful life are capitalized while maintenance and repairs are expensed as incurred. Depreciation of buildings and capital improvements is computed using the straight-line method over forty years. Depreciation of tenant improvements is computed using the straight-line method over the lease term, but not to exceed ten years. Cash and Cash Equivalents. Cash equivalents include demand deposits and all highly liquid instruments purchased with an original maturity of three months or less. Restricted cash amounts reflect escrow deposits held by third parties for the payment of taxes and insurance and reserves held by third parties for property repairs or tenant improvements. Certain escrow deposits held by third parties are non-interest bearing. Other Assets. Other assets primarily consist of deferred rents receivable, deferred commissions, loan fees and costs related to the ongoing strategic review of alternatives for the Trust. Leasing commissions are capitalized and amortized on a straight-line basis over the life of the lease. Loan fees are capitalized and amortized to interest expense on a level yield basis over the term of the related loan. Rents and Tenant Reimbursements. Rental income, including contractual rent increases or delayed rent starts, is recognized on a straight-line basis over the lease term. The Trust has recorded deferred rent receivable (representing the excess of rental revenue recognized on a straight-line basis over actual rents received under the applicable lease provisions) of $3,888,000 and $2,916,000 at December 31, 2000 and 1999, respectively. Several tenants in the Trust's retail properties are also required to pay as rent a percentage of their gross sales volume, to the extent such percentage rent exceeds their base rents. Such percentage rents amounted to F-7 56 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $208,000, $234,000 and $172,000 for the years ended December 31, 2000, 1999 and 1998, respectively. In addition to paying base and percentage rents, most tenants are required to reimburse the Trust for operating expenses in excess of a negotiated base amount. Income Tax Matters. The Trust operates as a real estate investment trust ("REIT") for federal income tax purposes. Under the REIT provisions, the Trust is required to distribute 95% of REIT taxable income and is allowed a deduction for distributions paid during the year. Effective January 1, 2001, the distribution requirement was reduced from 95% to 90% of taxable income. The Trust has a net operating loss carry forward from 1999 and prior years of approximately $34,333,000. The net operating losses are subject to restrictions on their use due to an ownership change, and as such, can only be used to offset approximately $1,200,000 of taxable income per year. The losses may be carried forward for up to 15 years. The present losses will expire beginning in the year 2004. Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from that reported for financial reporting purposes due primarily to differences in the basis of the assets and the estimated useful lives used to compute depreciation. Earnings Per Share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. The computation of diluted earnings per share does not include common share equivalents where the inclusion of such does not result in dilution (based upon application of the "treasury stock" method). Share Compensation. The Trust accounts for its share compensation arrangements using the intrinsic value method. Concentrations. As of December 31, 2000, the Trust owns 70 real estate properties in 11 states. The Trust's industrial properties are concentrated in the Texas market with 23 of the 55 properties located in the Dallas, Houston and Austin areas. The office buildings are primarily located in the west with five of the 13 located in California. The two retail properties are located in Colorado and Florida. The principal competitive factors in these markets are price, location, quality of space, and amenities. In each case, the Trust owns a small portion of the total similar space in the market and competes with owners of other space for tenants. Each of these markets is highly competitive, and other owners of property may have competitive advantages not available to the Trust. Segment Reporting. The Trust classifies its reportable segments by property type. See Note 15 for the Trust's segment disclosures. Effect of New Accounting Standard. In June 1998, the Financial Accounting and Standards Board issued Statement of Financial Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which the Trust will adopt on January 1, 2001. Because of the Trust's minimal use of derivatives, the adoption of the new Standard will not have a significant effect on earnings or the financial position of the Trust. F-8 57 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- REAL ESTATE AND PROVISIONS FOR POSSIBLE LOSSES ON REAL ESTATE: At December 31, 2000 and 1999, real estate was comprised of the following:
2000 1999 ------------ ------------ Held for investment: Land................................................... $ 59,145,000 $155,264,000 Buildings and improvements............................. 246,437,000 472,567,000 ------------ ------------ 305,582,000 627,831,000 ------------ ------------ Held for sale: Land................................................... 90,963,000 4,302,000 Buildings and improvements............................. 206,731,000 10,053,000 ------------ ------------ 297,694,000 14,355,000 ------------ ------------ Total.......................................... $603,276,000 $642,186,000 ============ ============
In the fourth quarter of 2000, the Trust sold its Manhattan Towers office property. Total proceeds from the sale were approximately $55.3 million, and resulted in a net gain of $23.9 million. In the third quarter of 2000, the Trust sold one tract of unimproved land. Total proceeds from the sale were approximately $0.3 million, and resulted in a net gain of $0.07 million. In the second quarter of 2000, the Trust sold one tract of unimproved land. Total proceeds from the sale were approximately $0.3 million, and resulted in a net gain of $0.03 million. In the first quarter of 2000, the Trust sold two light industrial properties, one office property and one tract of unimproved land. Total proceeds from the sale of these assets were approximately $16.2 million and resulted in a net gain on sales of real estate of approximately $2.8 million. The four assets sold in the first quarter of 2000 were previously classified as held for sale at December 31, 1999. The Trust did not acquire any real estate assets in 2000. Effective November 1, 2000 the Trust reclassified 24 industrial properties and seven office properties from held for investment to held for sale. These properties are under contract to be sold for a gross purchase price, including assumed debt, of $292.2 million. It is anticipated that the transaction will occur in the second quarter of 2001. (See Note 17 -- Pending Merger.) The "Industrial" operating segment includes 24 of the 31 properties and reported net operating income of $19.9 million for the year ended December 31, 2000. The remaining seven properties are included in the "Office" operating segment and reported net operating income of $12.1 million for the year ended December 31, 2000. During 1999, the Trust purchased a portfolio of nine properties for $127.3 million. The purchase price was primarily funded with $75.2 million in borrowings secured under a secured bridge loan with Prudential Securities Credit Corporation ("PSCC") and $51.8 million in common shares issued to DDR. During 1999, the Trust also acquired a portfolio of two properties for $15.8 million. The purchase price was primarily funded under a secured line of credit with Bank One and $5.5 million in common shares issued to DDR. During 1999, the Trust reclassified six industrial properties and four tracts of land from held for investment to held for sale. One tract of land was sold in the second quarter of 1999 for $0.4 million resulting in a $0.04 million gain. The Trust sold two industrial properties in the third quarter of 1999 resulting in a net loss of approximately $0.06 million. The Trust sold an industrial property in the fourth quarter of 1999 resulting in a net loss of approximately $0.2 million. The remaining three industrial properties and three tracts of vacant land are not located in target markets currently identified by the Trust for future investment These F-9 58 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) properties are included in the "Industrial" operating segment and reported net operating income of $1.3 million for the year ended December 31, 1999. During 1999, a joint venture, 50% owned by the Trust, sold a light industrial property. The Trust's investment in the joint venture was approximately $2.5 million. The Trust earned approximately $0.6 million from this joint venture in 1999. The Trust earned approximately $0.1 million from this joint venture in 2000. At December 31, 1998, the Trust recorded a $10.1 million write down of its retail property in Denver, Colorado and reclassified the property from held for investment to held for sale. The Trust's intent was to sell this property in 1999, thereby allowing the Trust to continue its focus on the light industrial sector of the real estate market. Although offers were received, none of the offers were deemed acceptable and the property has been reclassified as held for investment as of December 31, 1999 to reflect the Trust's intent to hold this property. The Trust recaptured depreciation expense for the full year of 1999 for this property. NOTE 3 -- MORTGAGE NOTES PAYABLE: At December 31, 2000, 69 of the Trust's 70 properties were subject to liens securing mortgage notes payable with principal balances totaling $284,924,000, including $940,000 of debt premiums. Of this amount, approximately $256,265,000 was represented by mortgage notes with stated fixed interest rates ranging from 7.18% to 9.13%, a stated weighted average interest rate of 7.62%, and maturity dates from 2001 to 2016. Mortgage notes payable with variable interest rates total approximately $27,719,000 under the Trust's secured acquisition credit line with PSCC. The acquisition credit line bears interest at the 30 day LIBOR plus 1.55% and matures in April 2001, as extended. The interest rate on the acquisition credit line was 8.3288% at December 31, 2000. The Trust has a $50 million secured line of credit available with Bank One which matures in January 2002, as extended. The maximum syndicated amount of the secured credit line was reduced from $150 million to the current $50 million in conjunction with the extension. At December 31, 2000, there were no outstanding borrowings under this line. Debt premiums are amortized to interest expense over the terms of the related mortgages using the effective interest method. As of December 31, 2000 and December 31, 1999, the unamortized debt premiums were $940,000 and $1,463,000, respectively. Certain of the mortgage notes payable contain cross default and cross collateralization provisions whereby a default under one note can trigger a default under other notes. Certain of the mortgage notes payable, including the acquisition credit line and line of credit, also contain various borrowing restrictions and operating performance covenants. The Trust is in compliance with all such restrictions and covenants as of December 31, 2000. During 2000, the Trust recognized extraordinary loss on extinguishment of debt of $329,000 resulting from prepayment penalties and the write off of deferred financing costs on the early retirement of mortgage debt resulting from the sale of two industrial properties and one office property (see Note 2). Principal payments during each of the next five years are as follows: $60,320,000 in 2001, $19,473,000 in 2002, $24,617,000 in 2003, $11,885,000 in 2004, $4,595,000 in 2005, and $163,094,000 thereafter. Of the amount due in 2001, $27,719,000 is due under the Trust's acquisition credit line. This acquisition credit line is secured by four properties. The Trust anticipates refinancing three of the properties under the Bank One line of credit and paying the acquisition credit line in full on or prior to its maturity in April 2001. At December 31, 1999, 73 of the Trust's 74 properties were subject to liens securing mortgage notes payable with principal balances totaling $334,873,000 including $1,463,000 of debt premiums. Of this amount, approximately $263,791,000 was represented by mortgage notes with stated fixed interest rates ranging from 7.18% to 9.13%, a stated weighted average interest rate of 7.40%, and maturity dates in 2001 to 2016. F-10 59 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Mortgage notes payable with variable interest rates total approximately $69,619,000. The variable rate debt consists of $50,119,000 under the Trust's PSCC secured acquisition credit line as well as $19,500,000 under its Bank One secured line of credit. The acquisition credit line bears interest at the 30 day LIBOR plus 1.55% and matures in April 2001, as extended. The Bank One line of credit, which provides for a variable rate spread based upon the company's overall debt leverage, currently bears interest at the 30 day LIBOR plus 2.00% and matures in January 2001. The interest rates on the acquisition credit line and the line of credit at December 31, 1999 were 8.03% and 8.47%, respectively. During 1999 the Trust recognized an extraordinary loss on extinguishment of debt of $513,000 resulting from prepayment penalties and the write off of deferred financing costs on the early retirement of $88 million of mortgage debt. NOTE 4 -- UNSECURED NOTES PAYABLE -- RELATED PARTY: In January 1999, the Trust repaid in full three unsecured loans from DDR used to finance acquisitions. The Trust paid interest of $111,000 to DDR at the time of repayment. The interest rate on these demand notes was 10.25%. NOTE 5 -- COMMITMENTS AND CONTINGENCIES: Environmental Matters. The Trust has been notified of the existence of limited underground petroleum based contamination at a portion of Tamarac Square, the Trust's Colorado retail property. The source of the contamination is apparently related to underground storage tanks ("USTs") located on an adjacent property. The owner of the adjacent property has agreed to remediate the property to comply with state standards and has indemnified the Trust against costs related to its sampling activity. The responsible party for the adjacent USTs has submitted an amended corrective Action Plan to the Colorado Department of Public Health and Environment and awaits permission to upgrade its remediation system to address the contamination. The Trust has been notified of the existence of limited cleaning solvents ("mineral spirits") contamination at Tech Center 29 Phase I. The contamination is the apparent result of a service center operated on the property until 1996. The tenant's primary operations consisted of the distribution of parts, cleaning equipment and cleaning solvents to industrial customers. Two USTs used in the operation were removed in 1996. The former tenant has been working with the Maryland Department of the Environment since the onset and has issued a standby letter of credit as financial assurance for remediation of the site. The Maryland Department of the Environment is beneficiary under the standby letter of credit. With the exception of Tamarac Square and Tech 29 Phase I, the Trust has not been notified, and is not otherwise aware, of any material non-compliance, liability or claim relating to hazardous or toxic substances in connection with any of its properties. Litigation. On November 3, 2000, a purported shareholder class action and derivative action lawsuit was filed in Dallas County Court at Law No. 1. On November 21, 2000, two additional purported shareholder class action and derivative action lawsuits were filed in the 68th and 134th Judicial District Courts in Dallas County, Texas. Subsequently, the plaintiffs dismissed, without prejudice, the lawsuits filed in the 68th and 134th Judicial District Courts in Dallas County. These same plaintiffs re-filed their lawsuits in Dallas County Court at Law Nos. 3 and 5. All three lawsuits have been consolidated in Dallas County Court at Law No. 1. Each lawsuit was filed by a shareholder of the Trust seeking, among other things, to enjoin the consummation of the merger. DDR and our trust managers have been named as defendants in the lawsuits. The Trust was named as a nominal defendant in the County Court at Law No. 1 lawsuit and as a defendant in the latter two lawsuits. Each of the three actions is similar. The complaints allege that the defendants have breached fiduciary duties, abused their control of the Trust, and committed waste by agreeing to the terms of the announced F-11 60 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) merger and that the defendants will be unjustly enriched in connection with the proposed merger. Each plaintiff has also sued for unspecified damages, punitive damages and attorneys' fees. The defendants deny the plaintiffs' allegations of wrongdoing and intend to vigorously defend themselves. NOTE 6 -- MINORITY INTEREST: Operating Partnerships. As of December 31, 2000 all limited partnership units outstanding at December 31, 1999 (excluding limited partnership units held by the Trust) have been redeemed. In January 2000, 89,542 AIP-SWAG Operating L.P. limited partnership units were redeemed for approximately $1,094,000, resulting in an increase in shareholders' equity of approximately $127,000. In March 2000, 29,166 AIP Operating L.P. limited partnership units were redeemed for approximately $316,000, resulting in an increase in shareholders' equity of approximately $85,000. In July 2000, the remaining 89,543 AIP-SWAG limited partnership units were redeemed for approximately $1,109,000, resulting in an increase of shareholders' equity of approximately $154,000. AIP-SWAG Operating L.P. and AIP Operating, L.P. had 179,085 and 29,166 limited partnership units outstanding, respectively, as of December 31, 1999. The limited partners' interest in each partnership is reflected as minority interest in the accompanying consolidated financial statements. In December 1999, 29,167 AIP Operating L.P. limited partnership units were redeemed for approximately $330,000 resulting in an increase in Shareholders' equity of $63,000. Joint Ventures. In connection with the merger of four real estate limited partnerships, effective December 31, 1997, the Trust acquired a 55.84% interest in Chelmsford Associates LLC, formerly Chelmsford Associates Joint Venture, a joint venture owning one office property. The remaining 44.16% interest is owned by a significant shareholder of the Trust. The financial position and results of operations of the joint venture is included in the consolidated financial statements of the Trust. The other venture's interest in the partnership is reflected as minority interest in the accompanying consolidated financial statements. NOTE 7 -- SHAREHOLDERS' EQUITY: Capital Stock. The Trust is authorized to issue up to 500,000,000 common shares of beneficial interest. The common shares have dividend, distribution, liquidation and other rights as disclosed in the Declaration of the Trust. As of December 31, 2000, 21,177,204 common shares are issued and outstanding. The Trust is authorized to issue up to 50,000,000 preferred shares of beneficial interest in one or more series. The number of preferred shares in each series and the designation, powers, preferences and rights of each such series and the qualifications, limitations or restrictions thereof have not been established. As of December 31, 2000 no preferred shares have been issued. The 1998 share repurchase program resulted in the Trust purchasing 123,783 common shares in the open market, for an aggregate cost of $1,600,000. These common shares are held in treasury. As of December 31, 2000, the Trust had a total of 165,755 common shares held in treasury. Private Placement. On August 3, 1998, the Trust entered into a definitive agreement providing for a strategic investment by DDR in the Trust. Under the terms of the Share Purchase Agreement the transaction has three stages. The first stage, effective as of July 30, 1998, resulted in DDR acquiring 2,207,618 common shares at a price of $15.50 per share in exchange for consideration valued at approximately $34.2 million. As of December 31, 1998, the Trust had issued an additional 3,683,584 common shares to DDR related to the Share Purchase Agreement at a price of $15.50 per share to fund property acquisitions. By August 1999, DDR had completed the first stage and began the second stage of the Share Purchase Agreement with the purchase of 3,765,454 common shares at an average price of $15.22 per share to fund property acquisitions in 1999 (see Note 2). F-12 61 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In total, DDR has purchased 9,656,656 common shares, representing 46.0% of the current outstanding common shares of the Trust. The common shares issued to DDR are of the same class as the Trust's existing common shares and are entitled to the same voting and distribution rights as all common shares, subject to certain restrictions on the resale of the common shares. No shares were issued to DDR during the year ended December 31, 2000. In the remainder of the second stage and the third stage of the Share Purchase Agreement, the Trust had the option to require DDR, under certain circumstances, to purchase additional shares with a total purchase price not to exceed approximately $166 million to fund property acquisitions. This option expired in November 2000. During the year ended December 31, 2000, the Trust issued 77,473 common shares under the Dividend Reinvestment Plan and 7,880 common shares to trust managers that elected to receive base fee compensation in common shares. In total, the Trust issued 85,353 common shares in the year ended December 31, 2000. As provided in the pending merger agreement, the Dividend Reinvestment Plan was terminated in November 2000. During the twelve months ended December 31, 1999, the Trust issued 113,836 common shares in connection with the Dividend Reinvestment Plan and 11,103 common shares to trust managers that elected to receive base fee compensation in shares. In total the Trust issued 3,890,393 common shares in 1999. Share Incentive Plans. In 1997 the shareholders approved the Employee and Trust Managers Incentive Share Plan (the "Plan"). The Compensation Committee of the Board of Trust Managers determines all awards under the Plan. A maximum limit of 10% of the total number of Shares outstanding at any time on a fully diluted basis may be issued under the Plan. On an annual basis, each non-employee trust manager receives a non-qualified share option to purchase 1,000 common shares. Each of these options is fully exercisable upon the date of grant and generally terminates (unless sooner terminated under the terms of the Plan) ten years after the date of grant. The exercise price is determined by the Compensation Committee and must have an exercise price equal to not less than 100% of the fair market value of a Share on the date of grant. Pursuant to the pending merger agreement, no further share options will be granted, therefore, no share options were issued in 2000. During each of 1999 and 1998, 10,000 share options were granted. Pursuant to the Plan, each employee and trust manager will receive cash payments for each option share exercised equal to dividends per share paid subsequent to the grant. The related compensation expense has been immaterial. During 1998, pursuant to the Plan, the Compensation Committee granted share options to purchase 460,000 common shares to 12 members of management. The options vest annually over five years, beginning on the date of grant. In addition the Board approved the award of 27,000 restricted shares to the Trust's senior officers. The restricted shares vest annually beginning on the first anniversary date of the date of grant. In 1999, 10,000 share options were granted to a new member of management and 10,000 share options, originally issued in 1998, were canceled due to employment terminations. Pursuant to agreements between the Trust and four senior officers, a "change in control" occurred on December 10, 1998 when DDR's ownership position exceeded 33% of the Trust's voting shares. As a result, all options held by these officers became fully vested and the restrictions on 27,000 restricted shares held by these officers were lifted. A total of 395,000 previously unvested options became vested on this date. At December 31, 2000, 726,000 options are outstanding of which 700,000 are fully vested. The remaining 26,000 options vest annually through February 2003. The term of these options range from June 2007 through December 2009. F-13 62 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Trust has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for its employee share options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation requires use of option valuation models that were not developed for use in valuing employee share options. The pro forma information regarding net income and earnings per share, as is required by Statement 123 is presented below. No options were issued during 2000. The fair value of options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999: risk-free interest rates of 4.80% to 6.52%; a dividend yield of 4.96% to 7.50%; volatility factors of the expected market price of the Trust's shares of .288; and a weighted-average expected life of the options of 7 years. The fair value of options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1998: risk-free interest rates of 4.80% to 6.50%; a dividend yield of 4.96% to 5.50%; volatility factors of the expected market price of the Trust's shares of .275 to .283; and a weighted-average expected life of the options of 7 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Trust's employee share options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee share options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Trust's pro forma information follows (in thousands except for earnings per Share information):
2000 1999 1998 ----------------------- ----------------------- ----------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- ----------- --------- Pro forma net income (loss)... $46,013 $45,977 $14,606 $14,579 $(10,070) $(10,350) ======= ======= ======= ======= ======== ======== Pro forma earnings (loss) per Share -- basic and diluted..................... $ 2.19 $ 2.19 $ 0.71 $ 0.71 $ (0.82) $ (0.84) ======= ======= ======= ======= ======== ========
F-14 63 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the Trust's share option activity, and related information for the three years ended December 31, 2000, 1999 and 1998 follows:
2000 1999 1998 -------------------------- -------------------------- -------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ------- ---------------- ------- ---------------- ------- ---------------- (000) (000) (000) Outstanding-beginning of year................... 726 $13.67 716 $13.71 139 $14.99 Granted.................. -- -- 20 11.75 577 13.42 Exercised................ -- -- -- -- -- -- Forfeited................ -- -- (10) 13.63 -- -- ----- ------ ----- ------ ----- ------ Outstanding-end of year................... 726 $13.67 726 $13.67 716 $13.71 ===== ====== ===== ====== ===== ====== Exercisable at end of year................... 700 $13.69 688 $13.70 668 $14.85 ===== ====== ===== ====== ===== ====== Weighted-average fair value of options granted during the year................... $ -- $1.70 $2.74 ===== ===== =====
The options outstanding at December 31, 2000 have exercise prices ranging from $11.125 to $15.00 per share and have a weighted average contractual remaining life of 7.58 years. At December 31, 2000, there were 1,391,720 options that have not been granted under the Plan. The limited partners of AIP-SWAG Operating Partnership L.P. received warrants to purchase 40,000 common shares at $17.50 per share. The warrants expired unexercised on October 3, 2000. NOTE 8 -- DISTRIBUTIONS: A $0.22 per share distribution was paid October 13, 2000, July 14, 2000, April 14, 2000 and January 14, 2000. On December 19, 2000, the Trust declared a special distribution of $1.27 per share, payable on January 17, 2001 to shareholders of record on December 29, 2000. This distribution was related to the net gain recognized by the Trust on the sale of properties during 2000. Distributions totaling $0.88 per share were paid in 2000. NOTE 9 -- OPERATING LEASES: The Trust's properties are leased to others under operating leases with expiration dates ranging from 2001 to 2011. Future minimum rentals on noncancellable tenant leases at December 31, 2000 are as follows:
YEAR AMOUNT - ---- ------------ 2001.................................................. $ 68,587,000 2002.................................................. 56,494,000 2003.................................................. 44,062,000 2004.................................................. 31,190,000 2005.................................................. 19,265,000 Thereafter............................................ 27,565,000 ------------ $247,163,000 ============
F-15 64 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- TRANSACTIONS WITH RELATED PARTIES: On November 2, 2000, the Trust announced that it had entered into agreements to 1) sell 31 properties to an affiliate of Lend Lease Real Estate Investments, Inc. for gross proceeds of $292.2 million, 2) sell its Manhattan Towers property to a third party for gross proceeds of $55.0 million and 3) merge (the "Merger") DDR Transitory Sub, Inc. ("DDR Sub") (a subsidiary of Developers Diversified Realty Corporation ("DDR")) with and into the Trust. In connection with the Merger, all of the Trust's shareholders, other than DDR, DDR Sub and their respective direct and indirect subsidiaries, will receive in cash an estimated $13.74 per share (subject to adjustment for dividends paid, including the $1.27 per share special dividend paid in January 2001) in exchange for their common shares of beneficial interest in the Trust. Immediately prior to the closing of the Merger, DDR Sub will have 10,000 shares of common stock outstanding, 9,900 of which will be owned by DDR and one of which will be owned by Scott A. Wolstein, the Chairman of the Board of the Trust and the Chairman of the Board and Chief Executive Officer of DDR. As a result of the Merger, the shareholders of DDR Sub will become the sole shareholders of the Trust. Certain of the institutional investors, including DDR, have entered into voting agreements pursuant to which they agreed to vote their shares in favor of the Merger and in favor of the sale of our 31 properties to an affiliate of Lend Lease. The investors that signed voting agreements have the right to vote 70.68% of our outstanding shares. Two of our shareholders that signed voting agreements have the right to vote, on behalf of their clients, against the proposals if, in the exercise of their fiduciary duties to their advisory clients, they believe they should vote against the proposals. Those two investors vote 7.17% of the Trust's outstanding shares. It is currently anticipated that the special meeting of shareholders to vote on the Merger and the sale of properties will be held on May 9, 2001. During 1998, the Trust on occasion entered into unsecured borrowings with DDR. Such borrowings bore a fixed rate of interest of 10.25%, provided for quarterly payments of interest and were due thirty days after demand. The Trust repaid all such borrowings, including payment of $111,000 of interest in the first quarter of 1999. The total interest on such borrowing was $661,000 for 1998. The Trust did not enter into any such borrowings in 1999 or 2000. Quorum Real Estate Services Corporation, an affiliate of USAA Real Estate Company, and DDR, both of which are major shareholders of the Trust, manage certain of the Trust's real estate investments. Quorum and DDR are paid competitive rates for services, including, but not limited to, construction, tenant finish, leasing and management. The Trust paid Quorum management fees of $595,400, leasing commissions of $280,700, and construction management fees of $89,800, for the year ended December 31, 2000. For the year ended December 31, 1999, management fees and leasing commissions paid by the Trust to Quorum were $548,000 and $24,000, respectively. The Trust paid Quorum management fees of $709,000, leasing commissions of $712,000, brokerage fees of $92,000, and construction management fees of $66,000, for the year ended December 31, 1998. The Trust paid DDR management fees of $20,300, $17,900, and $19,000 for the years ended December 31, 2000, 1999, and 1998, respectively. Effective October 8, 1998, DDR acquired an 89% limited partnership interest and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a limited partnership whose assets consist of two light industrial properties and one office property located in Silver Springs, Maryland. Several selling entities and affiliates thereof acquired the remaining partnership interests. These partnership interests are convertible into DDR common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's limited partnership interest and, in consideration therefore, issued approximately $16.1 million in common shares to DDR. The acquisition was deemed to be effective as of October 8, 1998 and the purchase price included interest accrued from such date. On November 20, 1998, the Trust purchased undeveloped land from DDR in the amount of $2.3 million plus interest. The purchase was accomplished through the issuance of common shares to DDR in accordance F-16 65 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) with the Share Purchase Agreement dated July 30, 1998. This land was then contributed by the Trust to two joint ventures with a third party. The Trust currently leases space to an individual serving as a trust manager at competitive market rates. For the years ended December 31, 2000, 1999, and 1998, this trust manager paid $25,500, $24,400 and $9,800 in lease payments to the Trust, respectively. At December 31, 2000, DDR and USAA Real Estate Company owned approximately 46.0% and 8.0% of the common shares outstanding, respectively. NOTE 11 -- RETIREMENT AND PROFIT SHARING PLAN: During 1993, the Trust adopted a retirement and profit sharing plan, which qualifies under section 401(k) of the Internal Revenue Code. All existing Trust employees at adoption and subsequent employees who have completed one month of service are eligible to participate in the plan. Subject to certain limitations, employees may contribute up to 15% of their salary. The Trust may make annual discretionary contributions to the plan. In 1999, the Trust amended the plan to provide for non-discretionary employer matching contributions. Subject to certain limitations, the Trust will match up to 50% of the first 6% contributed by an employee. Discretionary contributions by the Trust related to the years ended December 31, 2000, 1999 and 1998 were $49,000, $43,000 and $70,000, respectively. Non-discretionary employer matching contributions in 2000 and 1999 were approximately $96,200 and $71,000, respectively. NOTE 12 -- CHANGE IN CONTROL COSTS: During 1998, the Trust recognized costs related to a change in control of $5,780,000. The costs associated with the change in control include approximately $2,484,000 for payments made to the Trust's senior officers pursuant to severance and change in control agreements which were triggered when DDR's ownership position exceeded 33%, an accrual of $2,960,000 related to the estimated fair market value of future payments through 2008 to the senior officers under previously granted dividend equivalent rights, approximately $300,000 related to vesting of restricted shares previously granted to the senior officers, and $36,000 in payroll taxes associated with the payments to the senior officers. The Trust amortizes the accrual for dividend equivalent rights as dividends are paid by the Trust. As of December 31, 2000 and 1999 the unamortized accrual was $2,320,000 and $2,612,800, respectively. F-17 66 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13 -- PER SHARE DATA: The following table sets forth the computation of basic and diluted earnings per share:
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ------------ Basic and diluted earnings per share: Numerator: Income (loss) before extraordinary items........... $46,342,000 $15,119,000 $ (4,267,000) Extraordinary items................................ (329,000) (513,000) (5,803,000) ----------- ----------- ------------ Net income (loss).......................... $46,013,000 $14,606,000 $(10,070,000) =========== =========== ============ Denominator: Weighted average shares............................ 20,973,137 20,513,356 12,251,591 ----------- ----------- ------------ Basic and diluted earnings per share: Income (loss) before extraordinary items........... $ 2.21 $ 0.74 $ (0.35) Extraordinary items................................ (0.02) (0.03) (0.47) ----------- ----------- ------------ Net income (loss).......................... $ 2.19 $ 0.71 $ (0.82) =========== =========== ============
Options to purchase 726,000 common shares at prices ranging from $11.125 to $15.00 per share were outstanding at December 31, 2000 and 1999. No share options were issued in 2000. During 1999, 20,000 share options were granted (10,000 to a new member of management, and 10,000 to trust managers) and 10,000 share options, originally issued in 1998, were canceled due to employment terminations. Options to purchase 716,000 common shares at prices ranging from $11.6875 to $15.00 per share were outstanding at December 31, 1998. Options were not included in a computation of diluted earnings per share for 2000, 1999 and 1998 because the options' exercise price was greater than the average market price of the shares for the respective years and, therefore, the effect would be antidilutive. At December 31, 1999, 40,000 warrants were outstanding. The warrants have an exercise price of $17.50 per common share and expired unexercised in October 2000. Because the warrants' exercise price was greater than the average market price of the common shares, the effect would be antidilutive and are not included in the computation of diluted earnings per share. NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS: Accounts receivable, accounts payable and accrued expenses and other liabilities are carried at amounts that reasonably approximate their fair values. The fair values of the Trust's mortgage notes payable are estimated using discounted cash flow analyses, based on the Trust's incremental borrowing rates for similar types of borrowing arrangements. The carrying values of such mortgage notes payable reasonably approximate their fair values. NOTE 15 -- SEGMENT REPORTING: The Trust classifies its reportable segments by property type: light industrial, office, and retail. Light industrial represents 60% of property revenue. Office and retail represent 36% and 4%, respectively. The Trust's emphasis is in the light industrial sector, which is characterized as office showroom, service center and flex properties, low rise offices, and small bay distribution properties. Based on net rentable square feet, as of December 31, 2000, approximately 74% of the Trust's portfolio is represented by light industrial F-18 67 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) properties, 22% of the portfolio is represented by office properties and 4% of the portfolio is represented by retail properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Management evaluates performance based on net operating income from the combined properties in each segment. The Trust's reportable segments are a consolidation of related property types. They are managed separately because each segment requires different operating, pricing and leasing strategies. All of the Trust's properties are incorporated into the applicable segment.
2000 ------------------------------------------------------------ LIGHT OFFICE CORPORATE INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED ---------- --------- -------- --------- ------------ Property revenues...................... $ 53,760 $ 32,125 $ 3,845 $ -- $ 89,730 Property expenses...................... 14,639 10,729 1,632 -- 27,000 -------- -------- -------- -------- -------- Income from property operations........ 39,121 21,396 2,213 -- 62,730 Administrative expenses................ -- -- -- (4,358) (4,358) Depreciation and amortization.......... -- -- -- (13,551) (13,551) Interest and other income.............. -- -- -- 684 684 Interest expense....................... -- -- -- (25,506) (25,506) -------- -------- -------- -------- -------- Income (loss) from operations.......... 39,121 21,396 2,213 (42,731) 19,999 Minority interests in consolidated subsidiaries......................... -- -- -- (580) (580) Gain on sales of real estate........... 790 26,013 -- -- 26,803 Income in equity of joint venture...... -- -- -- 120 120 Extraordinary items.................... -- -- -- (329) (329) -------- -------- -------- -------- -------- Net income (loss)...................... $ 39,911 $ 47,409 $ 2,213 $(43,520) $ 46,013 ======== ======== ======== ======== ======== Total real estate............ $389,388 $174,332 $ 36,892 $ 2,664 $603,276 ======== ======== ======== ======== ======== Total assets................. $355,045 $166,850 $ 25,932 $ 44,211 $592,038 ======== ======== ======== ======== ========
F-19 68 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 ------------------------------------------------------------ LIGHT OFFICE CORPORATE INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED ---------- --------- -------- --------- ------------ Property revenues...................... $ 52,837 $ 30,006 $ 4,039 $ -- $ 86,882 Property expenses...................... 15,238 9,947 1,699 -- 26,884 -------- -------- -------- -------- -------- Income from property operations........ 37,599 20,059 2,340 -- 59,998 Administrative expenses................ -- -- -- (4,628) (4,628) Depreciation and amortization.......... -- -- -- (14,535) (14,535) Other income........................... -- -- -- 735 735 Interest expense....................... -- -- -- (26,562) (26,562) -------- -------- -------- -------- -------- Income (loss) from operations.......... 37,599 20,059 2,340 (44,990) 15,008 Minority interests in consolidated subsidiaries......................... -- -- -- (313) (313) Loss on sales of real estate........... (200) -- -- -- (200) Income in equity of joint venture...... -- -- -- 624 624 Extraordinary items.................... -- -- -- (513) (513) -------- -------- -------- -------- -------- Net income (loss)...................... $ 37,399 $ 20,059 $ 2,340 $(45,192) $ 14,606 ======== ======== ======== ======== ======== Total real estate............ $385,282 $207,942 $ 46,874 $ 2,088 $642,186 ======== ======== ======== ======== ======== Total assets................. $407,856 $168,263 $ 27,389 $ 17,174 $620,682 ======== ======== ======== ======== ========
1998 ------------------------------------------------------------ LIGHT OFFICE CORPORATE INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED ---------- --------- -------- --------- ------------ Property revenues...................... $ 27,013 $ 17,044 $ 4,300 $ -- $ 48,357 Property expenses...................... 7,908 6,362 1,776 -- 16,046 -------- -------- -------- -------- -------- Income from property operations........ 19,105 10,682 2,524 -- 32,311 Administrative expenses................ -- -- -- (3,729) (3,729) Depreciation and amortization.......... -- -- -- (8,383) (8,383) Other income........................... -- -- -- 705 705 Interest expense....................... -- -- -- (15,139) (15,139) Provision for possible losses on real estate............................... -- -- (10,060) -- (10,060) -------- -------- -------- -------- -------- Income (loss) from operations.......... 19,105 10,682 (7,536) (26,546) (4,295) Minority interests in consolidated subsidiaries......................... -- -- -- 28 28 Extraordinary items.................... -- -- -- (5,803) (5,803) -------- -------- -------- -------- -------- Net income (loss)...................... $ 19,105 $ 10,682 $ (7,536) $(32,321) $(10,070) ======== ======== ======== ======== ======== Total real estate............ $334,503 $133,643 $ 35,769 $ 1,217 $505,132 ======== ======== ======== ======== ======== Total assets................. $353,281 $ 96,264 $ 27,418 $ 23,367 $500,330 ======== ======== ======== ======== ========
F-20 69 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): The following table sets forth the quarterly results of operations for the years ended December 31, 2000 and 1999 (in thousands, except per share amounts):
THREE MONTHS ENDED ------------------------------------------------------ DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ ----------- ----------- 2000 Revenues.......................... $ 22,647 $ 22,774 $ 22,198 $ 22,111 Gain (loss) of sale of real estate.......................... 23,897 (104) (106) 3,116 Income before extraordinary items........................... 29,463 5,189 4,338 7,352 Extraordinary loss................ -- -- -- (329) ----------- ----------- ----------- ----------- Net income........................ 29,463 5,189 4,338 7,023 =========== =========== =========== =========== Per Share Data (Basic and Diluted) Income before extraordinary items........................ $ 1.40 $ 0.25 $ 0.21 $ 0.35 Extraordinary loss.............. -- -- -- (0.02) ----------- ----------- ----------- ----------- Net income...................... $ 1.40 $ 0.25 $ 0.21 $ 0.33 =========== =========== =========== =========== Weighted average number of shares outstanding: Basic and diluted............... 21,004,383 20,982,665 20,963,593 20,941,906 =========== =========== =========== ===========
In the fourth quarter of 2000, the Trust sold its Manhattan Towers office property. Total proceeds from the sale were approximately $55.3 million and resulted in a gain on sale of approximately $23.9 million. 1999 Revenues.......................... $ 23,128 $ 22,141 $ 21,378 $ 20,235 Gain (loss) of sale of real estate.......................... (124) (114) 38 -- Income before extraordinary items........................... 3,657 4,049 4,164 3,249 Extraordinary gain (loss)......... 72 (585) -- -- ----------- ----------- ----------- ----------- Net income........................ 3,729 3,464 4,164 3,249 =========== =========== =========== =========== Per Share Data (Basic and Diluted) Income before extraordinary items........................... $ 0.18 $ 0.20 $ 0.20 $ 0.16 Extraordinary loss................ -- (0.03) -- -- ----------- ----------- ----------- ----------- Net income........................ $ 0.18 $ 0.17 $ 0.20 $ 0.16 =========== =========== =========== =========== Weighted average number of shares outstanding: Basic and diluted............... 20,917,885 20,686,717 20,509,613 19,939,209 =========== =========== =========== ===========
F-21 70 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 17 -- PENDING MERGER: On November 2, 2000, the Trust announced that it had entered into agreements to 1) sell 31 properties to an affiliate of Lend Lease Real Estate Investments, Inc. for gross proceeds of $292.2 million, 2) sell its Manhattan Towers property to a third party for gross proceeds of $55.0 million and 3) merge (the "Merger") DDR Transitory Sub, Inc. ("DDR Sub") (a subsidiary of Developers Diversified Realty Corporation ("DDR")) with and into the Trust. In connection with the Merger, all of the Trust's shareholders, other than DDR, DDR Sub and their respective direct and indirect subsidiaries, will receive in cash an estimated $13.74 per share (subject to adjustment for dividends paid, including the $1.27 per share special dividend paid in January 2001) in exchange for their common shares of beneficial interest in the Trust. Immediately prior to the closing of the Merger, DDR Sub will have 10,000 shares of common stock outstanding, 9,900 of which will be owned by DDR and one of which will be owned by Scott A. Wolstein, the Chairman of the Board of the Trust and the Chairman of the Board and Chief Executive Officer of DDR. As a result of the Merger, the shareholders of DDR Sub will become the sole shareholders of the Trust. Certain of the institutional investors, including DDR, have entered into voting agreements pursuant to which they agreed to vote their shares in favor of the Merger and in favor of the sale of our 31 properties to an affiliate of Lend Lease. The investors that signed voting agreements have the right to vote 70.68% of our outstanding shares. Two of our shareholders that signed voting agreements have the right to vote, on behalf of their clients, against the proposals if, in the exercise of their fiduciary duties to their advisory clients, they believe they should vote against the proposals. Those two investors vote 7.17% of the Trust's outstanding shares. It is currently anticipated that the special meeting of shareholders to vote on the Merger and the sale of properties will be held on May 9, 2001. F-22 71 SCHEDULE III AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 2000 (DOLLARS IN THOUSANDS)
GROSS AMOUNT CARRIED COSTS CAPITALIZED AT DECEMBER 31, 2000 SUBSEQUENT TO ----------------------- INITIAL COSTS ACQUISITION RETIREMENTS BUILDINGS, ------------------------ LAND, BUILDINGS, WRITEDOWNS FURNITURE, BUILDINGS AND FURNITURE, FIXTURES AND FIXTURES AND LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES LAND EQUIPMENT TOTAL -------- ------------- ------------------- ----------- -------- ------------ -------- Light Industrial Properties 107 Woodmere................ $ 952 $ 4,454 $ 9 $ 952 $ 4,463 $ 5,415 2121 Glenville.............. 426 1,392 8 426 1,400 1,826 3100 Alfred................. 2,500 3,326 8 2,500 3,334 5,834 Aerotech.................... 914 5,735 229 914 5,964 6,878 Alumax...................... 260 2,820 21 260 2,841 3,101 Avion Business Center....... 770 4,006 79 770 4,085 4,855 Battlefield Business Park... 2,020 11,635 189 2,020 11,824 13,844 Black Canyon Tech Center.... 1,052 6,846 232 1,052 7,078 8,130 Bridgeway Technology Center.................... 7,500 13,533 194 7,500 13,727 21,227 Cameron Creek Bus Park...... 524 3,379 330 524 3,709 4,233 Cameron Creek Land.......... 840 -- -- 840 -- 840 Carpenter Center............ 650 1,354 129 650 1,483 2,133 Carrier Place............... 560 2,682 246 560 2,928 3,488 Central Park Office Tech.... 840 3,361 149 840 3,510 4,350 Columbia Corporate Center... 5,000 8,144 205 5,000 8,349 13,349 Commerce Center............. 4,420 6,328 1,403 4,420 7,731 12,151 Commerce Park North......... 1,108 4,431 1,015 (2,014) 705 3,835 4,540 Corporex Plaza I............ 998 4,130 334 998 4,464 5,462 DFW IV...................... 470 3,364 242 470 3,606 4,076 Gateway 5 & 6............... 935 3,741 1,028 (1,861) 563 3,280 3,843 Greenbrier Circle Corp Center.................... 1,930 12,787 1,346 1,930 14,133 16,063 Greenbrier Tech Center...... 1,060 6,293 131 1,060 6,424 7,484 Hardline Services Bldg...... 1,040 6,935 95 1,040 7,030 8,070 Heritage Business I......... 360 2,141 89 360 2,230 2,590 Humboldt Tech Center........ 7,000 2,413 -- 7,000 2,413 9,413 Huntington Drive............ 1,559 6,237 868 1,559 7,105 8,664 Interlocken Office Park..... 3,430 11,291 67 3,430 11,358 14,788 Inverness................... 1,532 6,054 399 1,532 6,453 7,985 ACCUMULATED YEAR ACQUISITION DEPRECIATION CONSTRUCTED DATE ENCUMBRANCES ------------ ----------- ----------- ------------ Light Industrial Properties 107 Woodmere................ $ (205) 1984 1999 (d) 2121 Glenville.............. (86) 1984 1998 (c) 3100 Alfred................. (153) 1971 1999 (f) Aerotech.................... (388) 1985 1998 (e) Alumax...................... (171) 1982 1998 (c) Avion Business Center....... (297) 1985 1997 (b) Battlefield Business Park... (616) 1989 1998 7,908 Black Canyon Tech Center.... (449) 1983 1998 (e) Bridgeway Technology Center.................... (636) 1996 1999 (d) Cameron Creek Bus Park...... (273) 1996 1998 (c) Cameron Creek Land.......... -- -- 1998 (c) Carpenter Center............ (138) 1983 1997 (a) Carrier Place............... (277) 1984 1997 (a) Central Park Office Tech.... (290) 1984 1997 (b) Columbia Corporate Center... (409) 1988 1998 (c) Commerce Center............. (786) 1974 1997 (a) Commerce Park North......... (1,659) 1984 1985 1,947 Corporex Plaza I............ (374) 1982 1997 (b) DFW IV...................... (324) 1985 1997 (a) Gateway 5 & 6............... (1,731) 1985 1985 2,642 Greenbrier Circle Corp Center.................... (918) 1981/83 1998 6,970 Greenbrier Tech Center...... (363) 1981 1998 4,113 Hardline Services Bldg...... (428) 1974 1998 (c) Heritage Business I......... (138) 1990 1998 (c) Humboldt Tech Center........ (73) 1980 1999 (c) Huntington Drive............ (2,889) 1985 1985 4,241 Interlocken Office Park..... (530) 1985/88 1999 (d) Inverness................... (464) 1980 1997 (b)
F-23 72 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED)
GROSS AMOUNT CARRIED COSTS CAPITALIZED AT DECEMBER 31, 2000 SUBSEQUENT TO ----------------------- INITIAL COSTS ACQUISITION RETIREMENTS BUILDINGS, ------------------------ LAND, BUILDINGS, WRITEDOWNS FURNITURE, BUILDINGS AND FURNITURE, FIXTURES AND FIXTURES AND LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES LAND EQUIPMENT TOTAL -------- ------------- ------------------- ----------- -------- ------------ -------- Junction II Business Park... 4,000 7,449 79 4,000 7,528 11,528 Kodak....................... 1,749 2,998 583 1,749 3,581 5,330 Meridian Street Warehouse... 262 1,047 -- 262 1,047 1,309 Metro Business Park......... 2,050 7,957 137 2,050 8,094 10,144 Norfolk Commerce Center..... 2,400 19,093 541 2,400 19,634 22,034 Northgate II................ 2,153 8,612 1,014 (4,122) 1,329 6,328 7,657 Northgate III............... 1,280 10,013 575 -- 1,280 10,588 11,868 Northpointe B............... 260 2,428 -- 260 2,428 2,688 Northpointe C............... 380 3,059 11 380 3,070 3,450 Northwest Business Park..... 1,296 5,184 1,270 (131) 1,296 6,323 7,619 Parkway Tech Center......... 440 2,795 257 440 3,052 3,492 Plaza Southwest 1-5......... 1,312 5,248 1,437 1,312 6,685 7,997 President's Plaza........... 491 1,932 307 491 2,239 2,730 Shady Trail Business Center.................... 530 1,738 124 530 1,862 2,392 Skyway Business Center...... 444 1,778 154 444 1,932 2,376 Southeast Commercial Center.................... 303 1,515 129 303 1,644 1,947 Steris Building............. 300 2,251 7 300 2,258 2,558 Stewart Plaza............... 3,000 3,122 34 3,000 3,156 6,156 Summit Park................. 2,232 5,734 140 2,232 5,874 8,106 Summit Park Land............ 732 -- -- 732 -- 732 Tech Center 29 -- Phase I... 3,900 6,968 959 3,900 7,927 11,827 Tech Center 29 -- Phase II........................ 2,000 5,998 257 2,000 6,255 8,255 TechniPark 10 Service Center.................... 920 3,211 42 920 3,253 4,173 Valley View Commerce Park... 1,460 6,648 180 1,460 6,828 8,288 Valley View Land............ 1,024 -- -- 1,024 -- 1,024 Valwood II Business Center.................... 420 2,021 258 420 2,279 2,699 VSA Building................ 205 3,928 30 205 3,958 4,163 Washington Business Park.... 1,850 7,453 425 2,080 7,648 9,728 Westchase Park 1-2.......... 697 2,787 483 (1,232) 465 2,270 2,735 Winter Park Business Center.................... 2,000 7,198 553 2,000 7,751 9,751 -------- -------- ------- -------- -------- -------- -------- Total Light Industrial........ $ 90,740 $288,977 $19,031 $ (9,360) $ 89,139 $300,249 $389,388 ACCUMULATED YEAR ACQUISITION DEPRECIATION CONSTRUCTED DATE ENCUMBRANCES ------------ ----------- ----------- ------------ Junction II Business Park... (351) 1984 1999 (d) Kodak....................... (350) 1976 1997 (c) Meridian Street Warehouse... (140) 1981 1995 1,078 Metro Business Park......... (432) 1987 1998 (c) Norfolk Commerce Center..... (1,194) 1981/87 1998 13,000 Northgate II................ (3,030) 1983 1985 4,797 Northgate III............... (931) 1979/80/86 1997 (a) Northpointe B............... (121) 1987/88 1998 (g) Northpointe C............... (179) 1987/89 1998 (g) Northwest Business Park..... (2,454) 1983/85/86 1985 (c) Parkway Tech Center......... (271) 1984 1997 (a) Plaza Southwest 1-5......... (2,690) 1975 1985 3,128 President's Plaza........... (206) 1987 1997 (b) Shady Trail Business Center.................... (166) 1984 1997 (a) Skyway Business Center...... (157) 1981 1997 (b) Southeast Commercial Center.................... (109) 1984 1998 (c) Steris Building............. (136) 1980 1998 (c) Stewart Plaza............... (147) 1970 1999 (d) Summit Park................. (382) 1985 1998 (e) Summit Park Land............ -- -- 1998 (e) Tech Center 29 -- Phase I... (477) 1970 1998 7,405 Tech Center 29 -- Phase II........................ (355) 1991 1998 3,767 TechniPark 10 Service Center.................... (185) 1983/84 1998 (c) Valley View Commerce Park... (570) 1986 1997 (a) Valley View Land............ -- 1986 1997 (a) Valwood II Business Center.................... (196) 1984 1997 (a) VSA Building................ (242) 1989 1998 (c) Washington Business Park.... (398) 1985 1998 (c) Westchase Park 1-2.......... (1,054) 1984 1985 1,230 Winter Park Business Center.................... (447) 1981/83/85 1998 5,100 -------- Total Light Industrial........ $(32,435)
F-24 73 AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION -- (CONTINUED)
GROSS AMOUNT CARRIED COSTS CAPITALIZED AT DECEMBER 31, 2000 SUBSEQUENT TO ----------------------- INITIAL COSTS ACQUISITION RETIREMENTS BUILDINGS, ------------------------ LAND, BUILDINGS, WRITEDOWNS FURNITURE, BUILDINGS AND FURNITURE, FIXTURES AND FIXTURES AND LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES LAND EQUIPMENT TOTAL -------- ------------- ------------------- ----------- -------- ------------ -------- Office Properties 10505 Sorrento Valley....... $ 879 $ 3,691 $ 144 $ -- $ 879 $ 3,835 $ 4,714 1881 Pine Street............ 776 5,924 808 776 6,732 7,508 485 Clyde................... 3,100 4,809 13 3,100 4,822 7,922 Academy Point Atrium II..... 881 7,832 320 881 8,152 9,033 Apollo Drive Office Building.................. 6,106 17,901 2,174 6,106 20,075 26,181 Baytech Park................ 10,500 25,060 20 10,500 25,080 35,580 Beltline Business Center.... 1,303 5,213 770 (3,521) 600 3,165 3,765 Centre Pointe............... 11,800 9,539 222 11,800 9,761 21,561 Gateway West................ 1,923 8,451 580 -- 1,923 9,031 10,954 Gibraltar Tech Center....... 4,800 1,610 36 4,800 1,646 6,446 Northview Business Center... 7,600 14,676 172 7,600 14,848 22,448 Spring Valley Business Park 6......................... 959 8,362 259 959 8,621 9,580 Tech Center 29 -- Phase III....................... 1,600 6,840 200 1,600 7,040 8,640 -------- -------- ------- -------- -------- -------- -------- Total Office Properties........ $ 52,227 $119,908 $ 5,718 $ (3,521) $ 51,524 $122,808 $174,332 Retail Properties Tamarac Square Mall......... $ 6,799 $ 27,194 $ 5,517 $(10,060) $ 6,000 $ 23,450 $ 29,450 Volusia..................... 3,445 3,826 171 -- 3,445 3,997 7,442 -------- -------- ------- -------- -------- -------- -------- Total Retail Properties........ $ 10,244 $ 31,020 $ 5,688 $(10,060) $ 9,445 $ 27,447 $ 36,892 Trust....................... -- -- 2,664 -- -- 2,664 2,664 -------- -------- ------- -------- -------- -------- -------- Total All Properties........ $153,211 $439,905 $33,101 $(22,941) $150,108 $453,168 $603,276 ACCUMULATED YEAR ACQUISITION DEPRECIATION CONSTRUCTED DATE ENCUMBRANCES ------------ ----------- ----------- ------------ Office Properties 10505 Sorrento Valley....... $ (286) 1982 1997 (c) 1881 Pine Street............ (544) 1987 1997 $ 3,641 485 Clyde................... (221) 1970 1999 (d) Academy Point Atrium II..... (544) 1984 1998 (e) Apollo Drive Office Building.................. (1,128) 1987 1997 14,484 Baytech Park................ (1,150) 1997 1999 (d) Beltline Business Center.... (1,745) 1984 1985 2,572 Centre Pointe............... (470) 1982 1999 (d) Gateway West................ (675) 1964/69/74 1997 5,978 Gibraltar Tech Center....... (52) 1980 1999 (c) Northview Business Center... (931) 1970 1998 (e) Spring Valley Business Park 6......................... (604) 1980/98 1998 (b) Tech Center 29 -- Phase III....................... (399) 1988 1998 4,322 -------- Total Office Properties........ $ (8,749) Retail Properties Tamarac Square Mall......... $(13,159) 1976/78 1985 11,134 Volusia..................... (300) 1984 1997 (c) -------- Total Retail Properties........ $(13,459) Trust....................... (698) -------- Total All Properties........ $(55,341)
- --------------- (a) Property encumbered by a first mortgage loan of $29,622 at December 31, 2000. (b) Property encumbered by a first mortgage loan of $23,701 at December 31, 2000. (c) Property encumbered by a secured line of credit of $0 at December 31, 2000. (d) Property encumbered by a first mortgage loan of $84,401 at December 31, 2000. (e) Property encumbered by a first mortgage loan of $34,177 at December 31, 2000. (f) Property unencumbered at December 31, 2000. (g) Property encumbered by a first mortgage loan of $2,626 at December 31, 2000. F-25 74 AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO SCHEDULE III DECEMBER 31, 2000 (IN THOUSANDS) RECONCILIATION OF REAL ESTATE:
2000 1999 1998 -------- -------- -------- Balance at beginning of year......................... $642,186 $505,132 $265,312 Additions during period: Improvements....................................... 7,791 11,953 6,659 Acquisitions....................................... -- 145,418 243,231 -------- -------- -------- 649,977 662,503 515,202 Deductions during period: Dispositions....................................... 46,701 20,317 -- Writedowns......................................... -- -- 10,060 Asset retirements.................................. -- -- 10 -------- -------- -------- Balance at end of year............................... $603,276 $642,186 $505,132 ======== ======== ========
RECONCILIATION OF ACCUMULATED DEPRECIATION:
2000 1999 1998 ------- ------- ------- Balance at beginning of year......................... $46,931 $33,449 $25,521 Additions during period: Depreciation expense for period.................... 12,191 13,819 7,928 ------- ------- ------- 59,122 47,268 33,449 Deductions during period: Accumulated depreciation of real estate sold....... 3,781 337 -- ------- ------- ------- Balance at end of year............................... $55,341 $46,931 $33,449 ======= ======= =======
TAX BASIS: The income tax basis of real estate, net of accumulated tax depreciation, is approximately $573,715 at December 31, 2000. DEPRECIABLE LIFE: Depreciation is provided by the straight-line method over the estimated useful lives, which are as follows: Buildings and capital improvements:........................ 40 years Tenant improvements: Term of the lease not to exceed.......................... 10 years
F-26 75 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 -- Form of Amended and Restated Agreement and Plan of Merger, dated as of June 30, 1997, by and between the Trust and each of USAA Real Estate Income Investments I, a California Limited Partnership, USAA Real Estate Income Investments II Limited Partnership, USAA Income Properties III Limited Partnership and USAA Income Properties IV Limited Partnership (included as Annex I to the Joint Proxy Statement/Prospectus of the Trust included in Form S-4, Registration No. 333-31823 and incorporated herein by reference) 2.2 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit Industrial Properties Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997) 2.3 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of August 8, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated October 3, 1997) 2.4 -- Purchase Agreement dated as of July 2, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997, and (v) Fifth Amendment to Purchase Agreement dated as of October 2, 1997 (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated October 3, 1997) 2.5 -- Purchase Agreement dated as of June 30, 1997 between Shidler West Investment Corporation, as Purchaser, and Merit VV Land 1995 Industrial Portfolio Limited Partnership, as Seller, as amended by (i) First Amendment to Purchase Agreement dated as of July 30, 1997, (ii) Second Amendment to Purchase Agreement dated as of July 31, 1997, (iii) Third Amendment to Purchase Agreement dated as of July 31, 1997, and (iv) Fourth Amendment to Purchase Agreement dated as of August 12, 1997 (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated October 3, 1997) 2.6 -- Purchase and Sale Agreement dated as of September 24, 1997 by and between Midway/Commerce Center Limited Partnership, as Seller, and the Trust, as Buyer (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated October 3, 1997)
76
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.7 -- First Amendment to Purchase and Sale Agreement dated as of October 22, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 13, 1997) 2.8 -- Second Amendment to Purchase and Sale Agreement dated as of October 31, 1997 by and between Midway/Commerce Center Limited Partnership and the Trust (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated November 13, 1997) 2.9 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments I, a California Limited Partnership (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated January 20, 1998) 2.10 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments II Limited Partnership (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated January 20, 1998) 2.11 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments III Limited Partnership (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated January 20, 1998) 2.12 -- Amended and Restated Agreement and Plan of Merger dated as of June 30, 1998 between the Trust and USAA Real Estate Income Investments IV Limited Partnership (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated January 20, 1998) 2.13 -- Agreement and Plan of Merger by and among the Trust, Developers Diversified Realty Corporation ("DDR") and DDR Office Flex Corporation ("DDR Flex") dated July 30, 1998 (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated July 30, 1998) 2.14 -- Agreement and Plan of Merger, dated November 1, 2000, by and among the Trust, DDR and DDR Transitory Sub Inc. (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 3.1 -- Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.1 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.2 -- First Amendment to the Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.2 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.3 -- Second Amendment to the Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.3 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.4 -- Third Amendment to the Third Amended and Restated Declaration of Trust (incorporated herein by reference from Exhibit 3.4 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.5 -- Fifth Amended and Restated Bylaws (incorporated herein by reference from Exhibit 3.5 to Form 10-K of the Trust filed with the Commission on March 30, 1999)
77
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.6 -- Amendment to the Fifth Amended and Restated Bylaws (incorporated herein by reference from Exhibit 3.6 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 3.7 -- Statement of Designation of Series A Preferred Shares of Beneficial Interest of the Trust dated July 30, 1998 (incorporated herein by reference from Exhibit 3.1 to Form 8-K of the Trust dated July 30, 1998) 4.1 -- Indenture dated November 15, 1985, by and between the Trust and IBJ Schroder Bank & Trust Company (incorporated herein by reference from Exhibit 10.4 to Form S-4 of American Industrial Properties REIT, Inc. ("AIP Inc.") dated March 16, 1994; Registration No. 33-74292) 4.2 -- Form of Common Share Certificate (incorporated herein by reference from Exhibit 4.2 to Amendment No. 3 to Form S-4 of the Trust filed October 28, 1997; Registration No. 333-31823) 10.1 -- Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823) 10.2 -- Employee and Trust Manager Incentive Share Plan (incorporated by reference from Exhibit 10.2 to Form S-4 of the Trust dated July 22, 1997; Registration No. 333-31823) 10.3 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Securities Limited Partnership ("ABKB") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 22, 1997) 10.4 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 22, 1997) 10.5 -- Common Share Purchase Agreement dated as of July 3, 1997, by and between the Trust and ABKB/LaSalle Advisors Limited Partnership ("LaSalle") as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 22, 1997) 10.6 -- Registration Rights Agreement dated as of July 10, 1997, by and between the Trust, ABKB as Agent for and for the benefit of particular clients and LaSalle Advisors Limited Partnership as Agent for and for the benefit of a particular client (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 22, 1997) 10.7 -- Common Share Purchase Agreement dated as of June 20, 1997, by and among the Trust, MS Real Estate Special Situations, Inc. ("MSRE") and Morgan Stanley Asset Management, Inc. ("MSAM") as agent and attorney-in-fact for specified clients (the "MSAM") (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 22, 1997) 10.8 -- Registration Rights Agreement dated as of June 20, 1997, by and among the Trust, MSRE and MSAM on behalf of the MSAM Purchaser (incorporated herein by reference from Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997) 10.9 -- Renewal, Extension, Modification and Amendment Agreement dated February 26, 1997, executed by the Trust in favor of USAA Real Estate Company ("Realco") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated March 4, 1997)
78
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.10 -- Share Purchase Agreement dated as of December 20, 1996, by and among the Trust, Realco and AIP Inc. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated December 23, 1996) 10.11 -- Share Purchase Agreement dated as of December 13, 1996, by and between the Trust and Realco (incorporated herein be reference from Exhibit 99.4 to Form 8-K of the Trust dated December 23, 1996) 10.12 -- Registration Rights Agreement dated as of December 20, 1996, by and between the Trust and Realco, as amended (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated December 23, 1996) 10.13 -- Registration Rights Agreement dated as of December 19, 1996, by and between the Trust and Realco (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated December 23, 1996) 10.14 --401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.5 to Amendment No. 1 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292) 10.15 -- Amendments to 401(k) Retirement and Profit Sharing Plan (incorporated herein by reference from Exhibit 10.4 to Form 10-K of the Trust dated March 27, 1995) 10.16 -- Settlement Agreement by and between the Trust, Patapsco #1 Limited Partnership, Patapsco #2 Limited Partnership, The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company (U.S.A.) dated as of May 22, 1996 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated May 22, 1996) 10.17 -- Agreement and Assignment of Partnership Interest, Amended and Restated Agreement and Certificate of Limited Partnership and Security Agreement for Patapsco Center -- Linthicum Heights, Maryland (incorporated herein by reference from Exhibit 10.8 to Amendment No. 2 to Form S-4 of AIP Inc. dated March 4, 1994; Registration No. 33-74292) 10.18 -- Note dated November 15, 1994 in the original principal amount of $12,250,000 with AIP Properties #1 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 22, 1994) 10.19 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #1 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 22, 1994) 10.20 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $12,250,000 (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated June 23, 1995) 10.21 -- Note dated November 15, 1994 in the original principal amount of $2,150,000 with AIP Properties #2 L.P. as Maker and AMRESCO Capital Corporation as Payee (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 22, 1994) 10.22 -- Mortgage, Deed of Trust and Security Agreement dated November 15, 1994 between AIP Properties #2 L.P. and AMRESCO Capital Corporation (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 22, 1994)
79
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.23 -- Loan Modification Agreement modifying the Note dated November 15, 1994 in the original principal amount of $2,250,000 (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated June 23, 1995) 10.24 -- Promissory Note dated November 25, 1996, by and between AIP Inc. and Realco (incorporated herein by reference from Exhibit No. 99.5 to Form 8-K of the Trust dated December 23, 1996) 10.25 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Huntington Drive Center) (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 20, 1996) 10.26 -- Note dated November 15, 1996 in the original principal amount of $4,575,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Huntington Drive Center ) (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 20, 1996) 10.27 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 20, 1996) 10.28 -- Note dated November 15, 1996 in the original principal amount of $3,112,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Patapsco Industrial Center) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996) 10.29 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated November 20, 1996) 10.30 -- Note dated November 15, 1996 in the original principal amount of $1,537,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Woodlake Distribution Center) (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated November 20, 1996) 10.31 -- Deed of Trust and Security Agreement dated November 15, 1996 between AIP Properties #3, L.P. and Life Investors Insurance Company of America (all Texas properties except Woodlake) (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated November 20, 1996) 10.32 -- Note dated November 15, 1996 in the original principal amount of $1,162,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Meridian Street Warehouse) (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated November 20, 1996) 10.33 -- Note dated November 15, 1996 in the original principal amount of $2,775,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Beltline Business Center) (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated November 20, 1996) 10.34 -- Note dated November 15, 1996 in the original principal amount of $3,375,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Plaza South) (incorporated herein by reference from Exhibit 99.10 to Form 8-K of the Trust dated November 20, 1996)
80
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.35 -- Note dated November 15, 1996 in the original principal amount of $2,100,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Commerce North Park) (incorporated herein by reference from Exhibit 99.11 to Form 8-K of the Trust dated November 20, 1996) 10.36 -- Note dated November 15, 1996 in the original principal amount of $2,850,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Gateway 5 & 6) (incorporated herein by reference from Exhibit 99.12 to Form 8-K of the Trust dated November 20, 1996) 10.37 -- Note dated November 15, 1996 in the original principal amount of $5,175,000 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Northgate II) (incorporated herein by reference from Exhibit 99.13 to Form 8-K of the Trust dated November 20, 1996) 10.38 -- Note dated November 15, 1996 in the original principal amount of $1,327,500 with AIP Properties #3, L.P. as Maker and Life Investors Insurance Company as Payee (Westchase Park) (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 20, 1996) 10.39 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Charles W. Wolcott (incorporated herein by reference from Exhibit 10.12 to Form 10-K of the Trust for the year ended December 31, 1996) 10.40 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and Marc A. Simpson (incorporated herein by reference from Exhibit 10.13 to Form 10-K of the Trust for the year ended December 31, 1996) 10.41 -- Bonus and Severance Agreement dated March 13, 1996, by and between the Trust and David B. Warner (incorporated herein by reference from Exhibit 10.14 to Form 10-K of the Trust for the year ended December 31, 1996) 10.42 -- Amendment No. 1 to Share Purchase Agreement dated as of December 13, 1996 by and between the Trust and Realco (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated March 4, 1997) 10.44 -- Common Share Purchase Agreement dated as of January 29, 1998, by and between the Trust and Praedium II Industrial Associates LLC ("Praedium") (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.45 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998) 10.46 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated January 29, 1998) 10.47 -- Contribution and Exchange Agreement dated as of September 25, 1997 among Shidler West Investment Corporation, AIP-SWAG Operating Partnership, L.P. and the Trust (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated October 3, 1997) 10.48 -- Assignment and Assumption of Purchase Agreements dated as of October 3, 1997 between Shidler West Investment Corporation and AIP-SWAG Operating Partnership, L.P. (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated October 3, 1997)
81
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.49 -- Amended and Restated Agreement of Limited Partnership of AIP-SWAG Operating Partnership, L.P. dated as of October 3, 1997 (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated October 3, 1997) 10.50 -- Warrant Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated October 3, 1997) 10.51 -- Warrant Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated October 3, 1997) 10.52 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and Shidler West Acquisition Company, LLC (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated October 3, 1997) 10.53 -- Registration Rights Agreement dated as of October 3, 1997 between the Trust and AG Industrial Investors, L.P. (incorporated herein by reference from Exhibit 99.7 to Form 8-K of the Trust dated October 3, 1997) 10.54 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.9 to Form 8-K of the Trust dated October 3, 1997) 10.55 -- Credit Agreement dated as of October 3, 1997 between the Trust and AIP-SWAG Operating Partnership, L.P., as Borrower, and Prudential Securities Credit Corporation, as Lender (incorporated herein by reference from Exhibit 99.8 to Form 8-K of the Trust dated October 3, 1997) 10.56 -- Common Share Purchase Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated January 29, 1998) 10.57 -- Registration Rights Agreement dated as of January 29, 1998, by and between the Trust and Praedium (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated January 29, 1998) 10.58 -- Agreement dated as of January 29, 1998, by and among the Trust, Realco, ABKB (as Agent for and for the benefit of particular clients), MSRE and MSAM (incorporated herein by reference from Exhibit 10.3 to Form 8-K dated January 29, 1998) 10.59 -- Contract of Sale by and between Nationwide Life Insurance Company and ALCU Investments, Inc. (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated February 11, 1998) 10.60 -- Assignment of Contract of Sale dated as of February 11, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P. and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K/A of the Trust dated February 11, 1998) 10.61 -- Contribution and Exchange Agreement dated as of January 29, 1998, by and among ALCU Investments, Ltd., AIP Operating, L.P., and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated February 11, 1998)
82
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.62 -- Amended and Restated Agreement of Limited Partnership of AIP Operating, L.P. dated as of February 11, 1998, by and among the Trust, General Electric Capital Corporation, and ALCU Investments, Ltd. (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated February 11, 1998) 10.63 -- Promissory Note by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated February 11, 1998) 10.64 -- First Amendment to Credit Agreement dated as of February 11, 1998, by and among the Trust, AIP Operating, L.P., and Prudential Securities Credit Corporation (incorporated herein by reference from Exhibit 10.6 to Form 8-K/A of the Trust dated February 11, 1998) 10.65 -- Industrial Property Portfolio Agreement of Purchase and Sale by and between Spieker Northwest, Inc. and the Trust (incorporated herein by reference from Exhibit 10.65 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 10.66 -- Purchase and Sale Agreement by and between North Austin Office, Ltd. and the Trust (incorporated herein by reference from Exhibit 10.66 to Form 10-K of the Trust filed with the Commission on March 30, 1999) 10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions by and between CM Property Management, Inc. and the Trust dated July 15, 1997 (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust dated March 23, 1998) 10.68 -- Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CFX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.2 to From 8-K/A of the Trust dated March 23, 1998) 10.69 -- Amendment to Purchase and Sale Agreement and Escrow Instructions by and between Corporex Properties of Tampa, Inc., CPX-Westshore Corporation, and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust dated March 23, 1998) 10.70 -- Purchase and Sale Agreement between the Equitable Life Assurance Society of the United States and the Trust (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust dated March 23, 1998) 10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P. and the Trust (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust dated March 23, 1998) 10.72 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Charles W. Wolcott and the Trust (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated April 29, 1998) 10.73 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Marc A. Simpson and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated April 29, 1998) 10.74 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between David B. Warner and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated April 29, 1998) 10.75 -- Severance and Change in Control Agreement dated as of April 29, 1998, by and between Lewis D. Friedland and the Trust (incorporated herein be reference from Exhibit 10.4 to Form 8-K of the Trust dated April 29, 1998)
83
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.76 -- Amendments to the Trust's Employee and Trust Manager Incentive Share Plan (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated April 29, 1998) 10.77 -- Share Purchase Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998) 10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998) 10.79 -- Second Amended and Restated Registration Rights Agreement by and among the Trust, MSRE and MSAM dated July 30, 1998 (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated July 30, 1998) 10.80 -- Second Amended and Restated Registration Rights Agreement by and between the Trust and Realco July 30, 1998 (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated July 30, 1998) 10.81 -- Registration Rights Agreement by and between the Trust and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated July 30, 1998) 10.82 -- First Amended and Restated Registration Rights Agreement by and between the Trust and Praedium dated July 30, 1998 (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated July 30, 1998) 10.83 -- Second Amended and Restated Registration Rights Agreement by and between the Trust, ABKB and LaSalle dated July 30, 1998 (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated July 30, 1998) 10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated July 30, 1998) 10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated July 30, 1998) 10.86 -- Letter Agreement by and between Praedium and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated July 30, 1998) 10.87 -- Letter Agreement by and between Realco and DDR dated July 30, 1998 (incorporated herein by reference from Exhibit 10.11 to Form 8-K of the Trust dated July 30, 1998) 10.88 -- Amendment No. One, dated as of September 14, 1998, to the Share Purchase Agreement, dated as of July 30, 1998, between the Trust and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated September 16, 1998) 10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998) 10.90 -- Amendment to Purchase and Sale Agreement dated June 19, 1998, by and between the Norfolk Commerce Center Limited Partnership and DDR (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated July 30, 1998 and filed October 23, 1998)
84
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.91 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.1 to Form 8-K of the Trust dated October 14, 1998) 10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.2 to Form 8-K of the Trust dated October 14, 1998) 10.93 -- Amendment to Purchase and Sale Agreement dated July 8, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.3 to Form 8-K of the Trust dated October 14, 1998) 10.94 -- Amendment to Purchase and Sale Agreement dated July 8, 1998, by and between Battlefield/Virginia, Inc., and DDR Flex (incorporated herein by reference from Exhibit 10.4 to Form 8-K of the Trust dated October 14, 1998) 10.95 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998 by and between A&A Greenbrier, Inc., A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.5 to Form 8-K of the Trust dated October 14, 1998) 10.96 -- Second Amendment to Purchase and Sale Agreement dated September 30, 1998, by and between Battlefield/Virginia, Inc. and DDR Flex (incorporated herein by reference from Exhibit 10.6 to Form 8-K of the Trust dated October 14, 1998) 10.97 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier, Inc. and the Trust (incorporated herein by reference from Exhibit 10.7 to Form 8-K of the Trust dated October 14, 1998) 10.98 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe B, Inc. and the Trust (incorporated herein by reference from Exhibit 10.8 to Form 8-K of the Trust dated October 14, 1998) 10.99 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Northpointe C, Inc. and the Trust (incorporated herein by reference from Exhibit 10.9 to Form 8-K of the Trust dated October 14, 1998) 10.100 -- Special Warranty Deed, dated as of October 14, 1998, by and between A&A Greenbrier Tech, Inc. and the Trust (incorporated herein by reference from Exhibit 10.10 to Form 8-K of the Trust dated October 14, 1998) 10.101 -- Agreement of Purchase and Sale, dated as of November 12, 1998, by and between Lincoln-Whitehall Realty, L.L.C., Lincoln-Whitehall Pacific, L.L.C., WHLNF Real Estate Limited Partnership, WHSUM Real Estate Limited Partnership (collectively, "Whitehall") (incorporated herein by reference from Exhibit 10.1 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.102 -- Amendment to Agreement of Purchase and Sale, dated November 23, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.2 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.103 -- Second Amendment to Agreement of Purchase and Sale, dated December 11, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.3 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999)
85
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.104 -- Amended and Restated Second Amendment to Agreement of Purchase and Sale dated December 11, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.4 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.105 -- Third Amendment to Agreement of Purchase and Sale, dated as of December 22, 1998, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.5 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.106 -- Fourth Amendment to Agreement of Purchase and Sale, dated as of January 7, 1999, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.6 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.107 -- Fifth Amendment to Agreement of Purchase and Sale, dated as of January 11, 1999, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.7 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.108 -- Sixth Amendment to Agreement of Purchase and Sale, dated as of January 13, 1999, by and among Whitehall and the Trust (incorporated herein by reference from Exhibit 10.8 to Form 8-K/A of the Trust filed with the Commission on March 31, 1999) 10.109 -- Agreement of Purchase and Sale, dated November 1, 2000, by and between the Trust, AIP/Battlefield GP, Inc., AIP-SWAG Operating L.P., AIP Properties #3, L.P., and AIP Operating, L.P., collectively, and Value Enhancement Fund IV, L.P. (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) *10.110 -- First Amendment to Agreement of Purchase and Sale, dated January 31, 2001, by and among the Trust, AIP/Battlefield GP Inc., AIP-SWAG Operating L.P., AIP Properties #3, L.P., and AIP Operating, L.P., collectively, and Value Enhancement Fund IV, L.P. 10.111 -- Agreement of Purchase and Sale, dated effective August 22, 2000, by and between the Trust and Divco West Properties, LLC ("Divco") (incorporated herein by reference from Exhibit 2.1 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2001) 10.112 -- Amendment to Purchase and Sale Agreement, dated August 29, 2000, by and between the Trust and Divco (incorporated herein by reference from Exhibit 2.2 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2001) 10.113 -- Second Amendment to Purchase and Sale Agreement, dated September 21, 2000, by and between the Trust and Divco (incorporated herein by reference from Exhibit 2.3 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2000) 10.114 -- Third Amendment to Purchase and Sale Agreement, dated September 25, 2000, by and between the Trust and Divco (incorporated herein by reference from Exhibit 2.4 to Form 8-K of the Trust dated November 15, 2000 as filed with the SEC on January 16, 2001) 10.115 -- Credit Agreement, dated as of January 28, 1999, by and among the Trust, Bank One Texas, N.A., and the Lenders named therein (incorporated herein by reference from Exhibit b(1) to Schedule 13E-3 filed on the Trust on December 1, 2000)
86
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.116 -- First Amendment to Credit Agreement, dated as of April 12, 1999, by and among the Trust, Bank One Texas, N.A., and the Lenders named therein (incorporated herein by reference from Exhibit(b)(2) to Schedule 13E-3 filed on the Trust on December 1, 2000) *21.1 -- Listing of Subsidiaries *23.1 -- Consent of Ernst & Young LLP *24.1 -- Power of Attorney (Included on signature page hereto) 99.1 -- Voting Agreement dated November 1, 2000, among the Trust, DDR, LaSalle Investment Management Group, Inc. and LaSalle Investment Management (Securities), L.P. (incorporated herein by reference from Exhibit 99.1 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.2 -- Voting Agreement dated November 1, 2000, among the Trust, DDR, Morgan Stanley Dean Witter Investment Management Inc., on behalf of its clients with respect to shares of AIP over which it (or its designee) exercises investment discretion, and MS Real Estate Special Situations Inc. (incorporated herein by reference from Exhibit 99.2 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.3 -- Voting Agreement dated November 1, 2000, among the Trust, DDR and USAA Real Estate Company (incorporated herein by reference from Exhibit 99.3 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.4 -- Voting Agreement dated November 1, 2000, among the Trust, Value Enhancement Fund IV, L.P. and LaSalle Investment Management (Securities), L.P. (incorporated herein by reference from Exhibit 99.4 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.5 -- Voting Agreement dated November 1, 2000, among the Trust, Value Enhancement Fund IV, L.P., Morgan Stanley Dean Witter Investment Management, Inc., on behalf of its clients with respect to shares of AIP over which it (or its designee) exercises investment discretion, and MS Real Estate Special Situations Inc. (incorporated herein by reference from Exhibit 99.5 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000) 99.6 -- Voting Agreement dated November 1, 2000, the Trust, Value Enhancement Fund IV, L.P. and USAA Real Estate Company (incorporated herein by reference from Exhibit 99.6 to Form 8-K of the Trust dated November 1, 2000 as filed with the SEC on November 8, 2000)
- --------------- * Filed herewith EX-10.110 2 d85602ex10-110.txt 1ST AMEND. TO AGREEMETN OF PURCHASE AND SALE 1 EXHIBIT 10.110 FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE THIS FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (this "Amendment"), is made and entered into as of January 31, 2001, by and among VALUE ENHANCEMENT FUND IV, L.P., a Georgia limited partnership ("Purchaser"), and AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust, AIP/BATTLEFIELD GP, INC., a Texas corporation, AIP-SWAG OPERATING, L.P., a Texas limited partnership, AIP PROPERTIES #3, L.P., a Delaware limited partnership, and AIP OPERATING, L.P., a Delaware limited partnership (collectively, "Seller"), with respect to the following facts and circumstances: BACKGROUND STATEMENT A. Purchaser and Seller have entered into that certain Agreement of Purchase and Sale dated as of November 1, 2000 (as amended, the "Agreement"), with respect to the proposed acquisition of certain Property (as defined in the Agreement). B. The parties desire to amend the Agreement in certain respects as hereinafter set forth. AGREEMENTS NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) in hand paid, the mutual covenants and agreements set forth herein, and other good and valuable consideration, all of which each party agrees constitutes sufficient consideration received at and before the execution hereof, the parties agree as follows: 1. DEFINITIONS. Except as otherwise provided in this Amendment, capitalized terms used in this Amendment shall have the same meanings ascribed thereto as are contained in the Agreement, which meanings are hereby incorporated herein by this reference. Notwithstanding the foregoing, the parties hereto agree and acknowledge that AIP-SWAG Operating, L.P. is hereby removed from the definition of "Seller" in the Agreement and is no longer a party to the Agreement. 2. CLOSING DATE. Section 1.1.7 of the Agreement is hereby amended by deleting the three (3) references to "January 31, 2001" therein and by inserting in lieu thereof in each case the words "March 30, 2001". 3. TENANT ESTOPPEL CERTIFICATES. Section 9.2.6 of the Agreement is hereby amended by deleting the words "no more than fifteen (15) days prior to Closing" from the first sentence of said Section 9.2.6 and by inserting in lieu thereof immediately following the words "Acceptable Estoppel Certificates" in the third line of said Section 9.2.6, the following, "dated no earlier than thirty (30) days prior to the meeting scheduled by Seller for obtaining Shareholder Approval,". 4. RATIFICATION. Except as herein expressly modified or amended, all terms and conditions of the Agreement are hereby ratified and confirmed by Seller and Purchaser and remain in full force and effect. 2 5. MULTIPLE COUNTERPARTS. This Amendment may be executed in multiple counterparts, each of which shall constitute an original, but which together shall constitute this Amendment. -2- 3 IN WITNESS WHEREOF, the parties hereto have duly signed, sealed and delivered this Amendment effective as of the date hereinabove set forth. PURCHASER: VALUE ENHANCEMENT FUND IV, L.P., a Georgia limited partnership By: VEF IV GP, Inc., General Partner By: /s/ Howard Huang ------------------------------------------ Name: Howard Huang ---------------------------------------- Title: Vice President --------------------------------------- SELLER: AMERICAN INDUSTRIAL PROPERTIES REIT, a Texas real estate investment trust By: /s/ Charles W. Wolcott ------------------------------------------------- Name: Charles W. Wolcott Title: President and CEO AIP/BATTLEFIELD GP, INC., a Texas corporation By: /s/ Charles W. Wolcott ------------------------------------------------- Name: Charles W. Wolcott Title: President and CEO AIP-SWAG OPERATING, L.P., a Texas limited partnership By: AIP-Swag GP, Inc., General Partner By: /s/ Charles W. Wolcott ------------------------------------------------- Name: Charles W. Wolcott Title: President and CEO -3- 4 AIP PROPERTIES #3, L.P., a Delaware limited partnership By: AIP Properties #3 GP, Inc., General Partner By: /s/ Charles W. Wolcott ------------------------------------------------- Name: Charles W. Wolcott Title: President and CEO AIP OPERATING, L.P., a Delaware limited partnership By: American Industrial Properties REIT, General Partner By: /s/ Charles W. Wolcott ------------------------------------------------- Name: Charles W. Wolcott Title: President and CEO -4- EX-21.1 3 d85602ex21-1.txt SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 Entity: American Industrial Properties REIT, a Texas real estate investment trust
OWNERSHIP PERCENTAGE SUBSIDIARY/PARTNERSHIP ---------- ---------------------- 100% American Industrial Properties REIT, Inc., a Maryland corporation 100% AIP Tamarac, Inc., a Texas corporation 99% Limited Partner AIP Properties #1, L.P., a Delaware limited partnership 100% AIP Properties #3, GP, Inc., a Texas corporation 99% Limited Partner AIP Properties #3, L.P., a Delaware limited partnership 100% AIP-SWAG GP, Inc., a Texas corporation 2% Limited Partner AIP-SWAG Operating Partnership, L.P., a Delaware limited partnership 99% General Partner AIP Operating, L.P., a Delaware limited partnership 1% Limited Partner AIP Operating, L.P., a Delaware limited partnership 100% AIP Office Flex I, LLC, an Ohio Limited Liability Company 100% AIP Office Flex II, LLC, an Ohio Limited Liability Company 100% AIP/Battlefield GP, Inc., a Texas Corporation 100% AIP/Greenbrier GP, Inc., a Texas Corporation 49% Limited Partner Parcel J-1B Limited Partnership, a Virginia limited partnership 88.5% Limited Partner DDR/Tech 29 Limited Partnership 55.84% Joint Venture USAA Chelmsford Associates Joint Venture
ENTITY: AIP TAMARAC, INC., A TEXAS CORPORATION
OWNERSHIP PERCENTAGE PARTNERSHIP ---------- ----------- 1% General Partner AIP Properties #1, L.P., a Delaware limited partnership
ENTITY: AIP PROPERTIES #3 GP, INC., A TEXAS CORPORATION
OWNERSHIP PERCENTAGE PARTNERSHIP ---------- ----------- 1% General Partner AIP Properties #3, L.P., a Delaware limited partnership
ENTITY: AIP-SWAG GP, INC., A TEXAS CORPORATION
OWNERSHIP PERCENTAGE PARTNERSHIP ---------- ----------- 98% General Partner AIP-SWAG Operating Partnership, L.P., a Delaware limited partnership
ENTITY: AIP/POST OFFICE GP, INC., A DELAWARE CORPORATION
OWNERSHIP PERCENTAGE PARTNERSHIP ---------- ----------- 1% General Partner Parcel J-1B Limited Partnership, a Virginia limited partnership
EX-23.1 4 d85602ex23-1.txt CONSENT ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 333-46699), the Registration Statement on Form S-3 (File No. 333-48555), the Registration Statement on Form S-3 (File No. 333-52879) and the Registration Statement on Form S-8 (File No. 333-69625) of American Industrial Properties REIT of our report dated February 2, 2001 with respect to the consolidated financial statements of American Industrial Properties REIT as of December 31, 2000 and for the year then ended included in this Annual Report on Form 10-K for the year ended December 31, 2000. /s/ Ernst & Young LLP Dallas, Texas March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----