-----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, PXs34fheQhdc6CwSvSyBmCh+ieBETdnPm/D0D9VLenMzfea75w8tgnMgLNaUQk3z InXF8//B/Jq5/E1HquMXvw== 0000950134-98-002291.txt : 19980324 0000950134-98-002291.hdr.sgml : 19980324 ACCESSION NUMBER: 0000950134-98-002291 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980323 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980323 SROS: NONE 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: 8-K SEC ACT: SEC FILE NUMBER: 001-09016 FILM NUMBER: 98571163 BUSINESS ADDRESS: STREET 1: 6210 N BELTLINE RD STREET 2: STE 170 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 9727566000 MAIL ADDRESS: STREET 1: 6220 N BELTLINE ROAD STREET 2: SUITE 205 CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: TRAMMELL CROW REAL ESTATE INVESTORS DATE OF NAME CHANGE: 19931203 8-K 1 FORM 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): March 23, 1998 AMERICAN INDUSTRIAL PROPERTIES REIT (Exact Name of Registrant as Specified in its Charter) TEXAS 1-9016 75-6335572 (State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Incorporation or Organization) Identification Number)
6210 NORTH BELTLINE ROAD, SUITE 170, IRVING, TEXAS 75063 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (972) 756-6000 2 ITEM 5. OTHER EVENTS. CENTRAL PARK OFFICE TECH AND SKYWAY CIRCLE SOUTH On August 29, 1997, the Trust acquired Central Park Office Tech ("Central Park") and Skyway Circle South ("Skyway") from CM Property Management, Inc., a Connecticut corporation. Central Park is a 70,250 square foot light industrial building located in Richardson, Texas, a headquarters location for several technology and telecommunications companies. Central Park is situated on 4.80 acres and is 100% leased to 10 tenants, including Lam Research, Corp. and KLA-Tencor, Corp. both of which are involved in the semiconductor industry. The Trust purchased Central Park for $4,200,000 in cash. The purchase price was funded from the cash proceeds received from the private placements of common shares of beneficial interest, par value $0.10 per share ("Common Shares"), in July 1997 (the "Private Placements"). Skyway is a 67,015 square foot light industrial building located within the master planned development of Las Colinas in Irving, Texas. Skyway is situated on 4.0 acres and is currently 84% leased to five tenants, including Standard Motor Products, a New York Stock Exchange listed producer of automotive components. The Trust purchased Skyway for $2,200,000 in cash. The purchase price was funded from the cash proceeds received from the Private Placements. CORPOREX PLAZA I AND PRESIDENTS' PLAZA BUSINESS CENTER On December 23, 1997, the Trust acquired Corporex Plaza I ("Plaza I") and Presidents' Plaza Business Center ("Presidents' Plaza") from CPX-Westshore Corporation, a Florida corporation and Corporex Properties of Tampa, a Florida corporation. Plaza I is a 93,508 square foot light industrial building located in Tampa, Florida. Plaza I is situated on 6.546 acres and is 87.9% leased to 22 tenants, including Medig/PRN Life Support Services, Inc. and BBJ Chemical Compounds, Inc. Presidents' Plaza is a 41,690 square foot light industrial building located in Tampa, Florida. Presidents' Plaza is situated on 3.96 acres and is 72.7% leased to 10 tenants, including Ericsson GE Mobile Communications, Inc. and Blue Cross/Blue Shield of Florida. The Trust purchased the two properties for a combined $7,323,112. The purchase price was funded through (i) $4,700,000 in borrowings under the Trust's $35 million secured acquisition line with Prudential Securities Credit Corporation and (ii) the remainder from the cash proceeds received from the Private Placements. INVERNESS On December 30, 1997, the Trust acquired Inverness from Equitable Life Assurance Society of the United States, a New York corporation. Inverness is a 96,386 square foot light industrial building located in Denver, Colorado. Inverness is situated on 8.607 acres and is 100% leased to nine tenants, including Centura Health Corporation and Transtracheal Systems, Inc. The Trust purchased Inverness for $7,550,000. The purchase price was funded through (i) $4,900,000 in borrowings under the Trust's $35 million secured acquisition line with Prudential Securities Credit Corporation and (ii) the remainder from the cash proceeds received from the Private Placements. AVION On December 31, 1997, the Trust acquired Avion from Nanook Partners, a Delaware limited partnership. Avion is a 69,694 square foot light industrial building located in Dallas, Texas. Avion is situated on 5.447 acres and is 94.8% leased to seven tenants, including Intellicall, Inc. and EICON Technology, Inc. 3 The Trust purchased Avion for $4,750,000. The purchase price was funded through (i) $3,300,000 in borrowings under the Trust's $35 million secured acquisition line with Prudential Securities Credit Corporation and (ii) the remainder from the cash proceeds received from the Private Placements. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements: See Index to Financial Statements and Pro Forma Financial Information appearing on page F-1 of this Form 8-K. (b) Pro Forma Financial Information: See Index to Financial Statements and Pro Forma Financial Information appearing on page F-1 of this Form 8-K. 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMERICAN INDUSTRIAL PROPERTIES REIT By: /s/ CHARLES W. WOLCOTT --------------------------------- Charles W. Wolcott President and Chief Executive Officer March 23, 1998 5 INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION FINANCIAL STATEMENTS SKYWAY AND CENTRAL PARK INDUSTRIAL PROPERTIES Report of Independent Auditors F-2 Combined Historical Summary of Gross Income and Direct Operating Expenses F-3 Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses F-4 CORPOREX PLAZA I AND PRESIDENTS' PLAZA BUSINESS CENTER Independent Auditor's Report F-6 Combined Statements of Revenues and Certain Expenses F-7 Notes to Combined Statements of Revenues and Certain Expenses F-8 INVERNESS INDUSTRIAL PROPERTIES Report of Independent Auditors F-10 Historical Summary of Gross Income and Direct Operating Expenses F-11 Notes to Historical Summary of Gross Income and Direct Operating Expenses F-12 AVION INDUSTRIAL PROPERTIES Report of Independent Auditors F-14 Historical Summary of Gross Income and Direct Operating Expenses F-15 Notes to Historical Summary of Gross Income and Direct Operating Expenses F-16 PRO FORMA FINANCIAL INFORMATION F-18 Pro forma condensed consolidated balance sheet as of December 31, 1997 F-20 Pro forma condensed consolidated statement of operations for the year ended December 31, 1997 F-22
F-1 6 Report of Independent Auditors Board of Trust Managers American Industrial Properties REIT We have audited the accompanying Combined Historical Summary of Gross Income and Direct Operating Expenses (the "Combined Historical Summary") of the Skyway and Central Park Industrial Properties (the "Properties"), as described in Note 1 for the year ended December 31, 1996. This Combined Historical Summary is the responsibility of the Properties' management. Our responsibility is to express an opinion on this Combined Historical Summary based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Combined Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Combined Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The Combined Historical Summary has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of American Industrial Properties REIT, as described in Note 1 and is not intended to be a complete presentation of the income and expenses of the Properties. In our opinion, the Combined Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses of Skyway and Central Park Industrial Properties, as described in Note 1, for the year ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Dallas, Texas March 4, 1998 F-2 7 Skyway and Central Park Industrial Properties Combined Historical Summary of Gross Income and Direct Operating Expenses
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1997 1996 --------------------------------- (unaudited) GROSS INCOME Rental $ 351,960 $ 705,843 Reimbursements 11,504 37,702 Other - 1,727 --------------------------------- Total gross income 363,464 745,272 DIRECT OPERATING EXPENSES Repairs and maintenance 19,530 51,676 Utilities and other property operating 36,525 63,363 Real estate taxes 53,828 98,027 Management fees 12,656 25,231 --------------------------------- Total direct operating expenses 122,539 238,297 --------------------------------- Excess of gross income over direct operating expenses $ 240,925 $ 506,975 =================================
See accompanying notes. F-3 8 Skyway and Central Park Industrial Properties Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses Year Ended December 31, 1996 and Six Months Ended June 30, 1997 (unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION The Skyway and Central Park Industrial Properties (the "Properties") are commercial office buildings containing approximately 67,000 and 70,000 square feet, respectively, located in Irving, Texas and Richardson, Texas, respectively. As of December 31, 1996 the Properties were 84% and 87% leased, respectively. The accompanying Combined Historical Summary has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of American Industrial Properties REIT. The Combined Historical Summary is not intended to be a complete presentation of income and expenses of the Properties for the year ended December 31, 1996, and the six months ended June 30, 1997, as certain costs such as depreciation, amortization, interest, and other debt service costs have been excluded. These costs are not considered to be direct operating expenses. INTERIM UNAUDITED FINANCIAL INFORMATION The accompanying interim unaudited Combined Historical Summary has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the Combined Historical Summary for the year ended December 31, 1996. In the opinion of management of the Properties, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for this interim period have been made. The excess of gross income over direct operating expenses for such interim period is not necessarily indicative of the excess of gross income over direct operating expenses for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of the Combined Historical Summary in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts included in the Combined Historical Summary and accompanying notes thereto. Actual results could differ from those estimates. F-4 9 Skyway and Central Park Industrial Properties Notes to Combined Historical Summary of Gross Income and Direct Operating Expenses (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Minimum rents are recognized on a straight-line basis; as such, the rental revenues for leases which contain rent abatements and contractual increases are recognized on a straight-line basis over the initial term of the related lease. Property operating cost recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs, are recognized in the period when the recoveries are earned. CAPITALIZATION POLICY Ordinary repairs and maintenance are expensed as incurred; major replacements and improvements are capitalized. 3. MANAGEMENT FEES The Properties are managed by a third party. The management fee is $9,000 per year for Skyway and 3.5% of cash receipts per year for Central Park. 4. OPERATING LEASES The Properties operating leases expire over the next 4 years. The minimum future rentals under operating leases as of December 31, 1996 are as follows: 1997 $ 617,811 1998 459,090 1999 266,163 2000 35,347 -------------- 1,378,411 ==============
5. SUBSEQUENT EVENT On August 29, 1997, the Properties were sold for a purchase price of $6.4 million to American Industrial Properties REIT. F-5 10 INDEPENDENT AUDITOR'S REPORT To the Board of Trust Managers of American Industrial Properties REIT: We have audited the accompanying combined statement of revenues and certain expenses (defined as being operating revenues less direct operating expenses) of Corporex Plaza I and Presidents' Plaza Business Center (the "Properties") for the year ended December 31, 1996. This financial statement is the responsibility of the Properties' management. Our responsibility is to express an opinion on this statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenues and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K filing of American Industrial Properties REIT. Material amounts, described in Note 1 to the combined statement of revenues and certain expenses, that would not be comparable to those resulting from the proposed future operations of the Properties are excluded and the statement is not intended to be a complete presentation of the revenues and expenses of these properties. In our opinion, such combined statement of revenues and certain expenses presents fairly, in all material respects, the revenues and certain expenses, as defined above, of the Properties for the year ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Cincinnati, Ohio January 26, 1998 F-6 11 CORPOREX PLAZA I AND PRESIDENTS' PLAZA BUSINESS CENTER COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES - -------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED 1997 DECEMBER 31, (UNAUDITED) 1996 ------------ ------------ REVENUES: Rental $ 604,325 $ 830,523 Reimbursements and other 99,601 171,208 ------------ ------------ Total gross income 703,926 1,001,731 ------------ ------------ CERTAIN EXPENSES: Real estate taxes 56,430 87,479 Repairs and maintenance 30,174 56,104 Management fees 23,186 34,200 Contract services 24,431 33,999 Utilities 24,292 27,741 General and administrative 39,412 26,596 Bad debt expense 389 27,389 ------------ ------------ Total direct operating expenses 198,314 293,508 ------------ ------------ EXCESS OF REVENUES OVER CERTAIN EXPENSES $ 505,612 $ 708,223 ============ ============
See notes to combined statement of revenues and certain expenses. F-7 12 CORPOREX PLAZA I AND PRESIDENTS' PLAZA BUSINESS CENTER NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES - ------------------------------------------------------------------------------- 1. DESCRIPTION, ORGANIZATION AND BASIS OF PRESENTATION Corporex Plaza I and Presidents' Plaza Business Center (the "Properties") are each industrial properties consisting of approximately 94,000 and 42,000, square feet, respectively. These properties are located in Tampa, Florida. The accompanying combined statement of revenues and certain expenses has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K filing of American Industrial Properties REIT. The combined statement of revenues and certain expenses are not intended to be a complete presentation of income and expenses of Corporex Plaza I and Presidents' Plaza Business Center for the nine months ended September 30, 1997 and the year ended December 31, 1996, as depreciation, amortization, interest, and other debt service costs have been excluded. These costs are not considered to be directly related to the future operations of the Properties. INTERIM UNAUDITED FINANCIAL INFORMATION - The accompanying unaudited statement of revenues and certain expenses for the nine months ended September 30, 1997 has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the combined statement of revenues and certain expenses for the year ended December 31, 1996. In the opinion of management of the Properties, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for this interim period have been made. The excess of revenues over certain expenses for such interim period is not necessarily indicative of the excess of revenues over certain expenses for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES - The preparation of the Properties' combined statements of revenues and certain expenses in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the combined statements of revenues and certain expenses and accompanying notes. Actual amounts could differ from those estimates. REVENUE RECOGNITION - Minimum rents are recognized on a straight-line basis; as such, the rental revenues for leases that contain rent abatements and contractual increases are recognized on a straight-line basis over the initial term of the related lease. Property operating cost recoveries from tenants of common area maintenance real estate taxes and other recoverable costs are recognized in the period when the recoveries are earned. CAPITALIZATION POLICY - Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments are capitalized. 3. TRANSACTIONS WITH AFFILIATES Corporex Development Service of Florida, a related party through common ownership, provides management and leasing services to the Properties. Amounts charged for such services were $24,075 (unaudited) and $38,124 for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively. F-8 13 Management fees are based upon 4% of net rental income collected and charges for leasing services are based upon 1.40% of gross rents under the lease. These amounts are included within expenses in the accompanying combined statement of revenue and certain expenses. 4. OPERATING LEASES The Properties have operating leases with terms ranging from one to ten years. The minimum future rentals under operating leases as of December 31, 1996, including new leases and lease renewals which have occurred up through December 23, 1997, are as follows:
Year ending December 31: 1997 $ 781,394 1998 736,157 1999 603,617 2000 487,671 2001 334,583 Thereafter 347,053 ---------- Total $3,290,475 ==========
5. SUBSEQUENT EVENT On December 23, 1997, the Properties were sold for a combined purchase price of $7,323,112 to a partnership owned by American Industrial Properties REIT. ***** F-9 14 Report of Independent Auditors Board of Trust Managers American Industrial Properties REIT We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of the Inverness Industrial Property (the "Property"), as described in Note 1 for the year ended December 31, 1996. This Historical Summary is the responsibility of the Property's management. Our responsibility is to express an opinion on this Historical Summary based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The Historical Summary has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of American Industrial Properties REIT, as described in Note 1 and is not intended to be a complete presentation of the income and expenses of the Property. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the combined gross income and direct operating expenses of Inverness Industrial Property, as described in Note 1, for the year ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Dallas, Texas January 15, 1998 F-10 15 Inverness Industrial Property Historical Summary of Gross Income and Direct Operating Expenses
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------------------------- (unaudited) GROSS INCOME Rental $ 585,003 $ 774,338 Reimbursements 152,585 155,863 Other 2,382 1,566 ------------------------------- Total gross income 739,970 931,767 DIRECT OPERATING EXPENSES Repairs and maintenance 22,896 63,993 Utilities and other property operating 17,663 16,695 General and administrative 9,201 6,132 Real estate taxes 108,708 85,393 Management fees 26,855 33,154 ------------------------------- Total direct operating expenses 185,323 205,367 ------------------------------- Excess of gross income over direct operating expenses $ 554,647 $ 726,400 ===============================
See accompanying notes. F-11 16 Inverness Industrial Property Notes to Historical Summary of Gross Income and Direct Operating Expenses Year Ended December 31, 1996 and Nine Months Ended September 30, 1997 (unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION The Inverness Industrial Property (the "Property") is a commercial office building containing approximately 96,000 square feet and located in Englewood, Colorado. As of December 31, 1996 the property was 100% leased to a total of nine tenants. The accompanying Historical Summary has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of American Industrial Properties REIT. The Historical Summary is not intended to be a complete presentation of income and expenses of the Property for the year ended December 31, 1996, and the nine months ended September 30, 1997, as certain costs such as depreciation, amortization, interest, and other debt service costs have been excluded. These costs are not considered to be direct operating expenses. INTERIM UNAUDITED FINANCIAL INFORMATION The accompanying interim unaudited Historical Summary has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the Historical Summary for the year ended December 31, 1996. In the opinion of management of the Property, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for this interim period have been made. The excess of gross income over direct operating expenses for such interim period is not necessarily indicative of the excess of gross income over direct operating expenses for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of the Historical Summary in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts included in the Historical Summary and accompanying notes thereto. Actual results could differ from those estimates. F-12 17 Inverness Industrial Property Notes to Historical Summary of Gross Income and Direct Operating Expenses (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Minimum rents are recognized on a straight-line basis; as such, the rental revenues for leases which contain rent abatements and contractual increases are recognized on a straight-line basis over the initial term of the related lease. Property operating cost recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs, are recognized in the period when the recoveries are earned. CAPITALIZATION POLICY Ordinary reports and maintenance are expensed as incurred; major replacements and improvements are capitalized. 3. MANAGEMENT FEES The Property is managed by a third party. The management fee is 3.7% of cash receipts per year. 4. OPERATING LEASES The Properties have operating leases with terms ranging from one to 10 years. The minimum future rentals under operating leases as of December 31, 1996 are as follows: 1997 $ 607,234 1998 779,651 1999 782,240 2000 645,520 2001 324,675 Thereafter 1,952,213 ------------- $ 5,091,533 =============
5. SUBSEQUENT EVENT On December 30, 1997, the Property was sold for a purchase price of $7.55 million to American Industrial Properties REIT. F-13 18 Report of Independent Auditors Board of Trust Managers American Industrial Properties REIT We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses (the "Historical Summary") of Avion Industrial Property (the "Property"), as described in Note 1 for the year ended December 31, 1996. This Historical Summary is the responsibility of the Property's management. Our responsibility is to express an opinion on this Historical Summary based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion. The Historical Summary has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of American Industrial Properties REIT, as described in Note 1 and is not intended to be a complete presentation of the income and expenses of the Property. In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses of Avion Industrial Property, as described in Note 1, for the year ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP ERNST & YOUNG LLP Dallas, Texas February 28, 1998 F-14 19 Avion Industrial Property Historical Summary of Gross Income and Direct Operating Expenses
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------------------------- (unaudited) GROSS INCOME Rental $ 192,068 $ 396,094 Reimbursements 8,701 42,907 Other 1,355 23 -------------------------------- Total gross income 202,124 439,024 DIRECT OPERATING EXPENSES Repairs and maintenance 18,002 12,999 Utilities and other property operating 51,011 60,283 Real estate taxes 58,651 78,201 Management fees 15,298 27,317 --------------------------------- Total direct operating expenses 142,962 178,800 --------------------------------- Excess of gross income over direct operating expenses $ 59,162 $ 260,224 =================================
See accompanying notes. F-15 20 Avion Industrial Property Notes to Historical Summary of Gross Income and Direct Operating Expenses Year Ended December 31, 1996 and Nine Months Ended September 30, 1997 (unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION Avion Industrial Property (the "Property") is a commercial office building containing approximately 70,000 square feet located in Dallas, Texas. Its current rent roll is comprised of six tenants, with one tenant occupying 46% of the net rentable square feet at September 30, 1997. The accompanying Historical Summary has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of American Industrial Properties REIT. The Historical Summary is not intended to be a complete presentation of income and expenses of the Property for the year ended December 31, 1996, and the nine months ended September 30, 1997, as certain costs such as depreciation, amortization, interest, and other debt service costs have been excluded. These costs are not considered to be direct operating expenses. INTERIM UNAUDITED FINANCIAL INFORMATION The accompanying interim unaudited Historical Summary has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and was prepared on the same basis as the Historical Summary for the year ended December 31, 1996. In the opinion of management of the Property, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for this interim period have been made. The excess of gross income over direct operating expenses for such interim period is not necessarily indicative of the excess of gross income over direct operating expenses for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of the Historical Summary in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts included in the Historical Summary and accompanying notes thereto. Actual results could differ from those estimates. F-16 21 Avion Industrial Property Notes to Historical Summary of Gross Income and Direct Operating Expenses (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Minimum rents are recognized on a straight-line basis; as such, the rental revenues for leases which contain rent abatements and contractual increases are recognized on a straight-line basis over the initial term of the related lease. Property operating cost recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs, are recognized in the period when the recoveries are earned. CAPITALIZATION POLICY Ordinary repairs and maintenance are expensed as incurred; major replacements and improvements are capitalized. 3. MANAGEMENT FEES The Property is managed by a third party. The management fee is 5.0% of Gross Monthly Collections, as defined in the management agreement. 4. OPERATING LEASES The Property's minimum future rentals under operating leases as of December 31, 1996 are as follows: 1997 $ 375,492 1998 441,997 1999 401,863 2000 349,015 2001 342,748 Thereafter 151,501 ------------- $ 2,062,616 =============
5. SUBSEQUENT EVENT On December 31, 1997, the Property was sold for approximately $4.75 million to American Industrial Properties REIT. F-17 22 AMERICAN INDUSTRIAL PROPERTIES REIT PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT SHARE DATA) The following Pro Forma Condensed Consolidated Balance Sheet of the Trust as of December 31, 1997 has been prepared as if each of the following transactions had occurred as of December 31, 1997: (i) the acquisition, through AIP Operating, L.P., a limited partnership in which the Trust has a 99% controlling ownership interest, of Spring Valley #6 on February 11, 1998 (the "1998 Acquisition"); (ii) the private placements with three investors of 1,376,245 shares of Common Shares of Beneficial Interest of the Trust (the "Common Shares") with net proceeds of $18,750 in February 1998 (the "1998 Private Placements"); and (iii) the Trust's repurchase of 6,700 Common Shares, for an aggregate cost of $89 (the "Common Share Repurchase"). The following Pro Forma Condensed Consolidated Statement of Operations of the Trust for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the acquisition of 15 industrial real estate properties (the "1997 Acquisitions"); (ii) the sale of 2 industrial real estate properties (the "1997 Dispositions"); (iii) the merger (the "Merger") with four publicly traded real estate limited partnerships (the "RELPs"); and (iv) the 1998 Acquisition. The Pro Forma Financial Information of the Trust has been prepared using the purchase method of accounting for the Merger, whereby the assets and liabilities of the RELPs were adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following Pro Forma Financial Information may differ from the amounts ultimately determined. Such Pro Forma Financial Information is based in part upon (i) the Consolidated Financial Statements of the Trust for the year ended December 31, 1997, incorporated by reference herein; (ii) the Financial Statements of USAA Real Estate Income Investments I Limited Partnership for the year ended December 31, 1997 filed with Amendment No. 1 to the Trust's Current Report on Form 8-K, dated January 20, 1998, incorporated by reference herein; (iii) the Financial Statements of USAA Real Estate Income Investments II Limited Partnership for the year ended June 30, 1997 and the six months ended December 31, 1997 (unaudited) filed with Amendment No. 1 to the Trust's Current Report on Form 8-K, dated January 20, 1998, incorporated by reference herein; (iv) the Financial Statements of USAA Income Properties III Limited Partnership for the year ended December 31, 1997 filed with Amendment No. 1 to the Trust's Current Report on Form 8-K, dated January 20, 1998, incorporated by reference herein; (v) the Financial Statements of USAA Income Properties IV Limited Partnership for the year ended December 31, 1997 filed with Amendment No. 1 to the Trust's Current Report on Form 8-K, dated January 20, 1998, incorporated by reference herein; (vi) the unaudited Combined Historical F-18 23 Summary of Merit Texas Properties Portfolio for the nine months ended September 30, 1997 filed with Amendment No. 1 to the Trust's Current Report on Form 8-K, dated October 17, 1997, incorporated by reference herein; (vii) the Historical Summary of Commerce Center for the year ended May 31, 1997 and the three months ended August 31, 1997 filed with Amendment No. 2 to the Trust's Current Report on Form 8-K, dated November 25, 1997, incorporated by reference herein; (viii) the Historical Summary of Spring Valley #6 Industrial Property for the year ended December 31, 1997 filed with Amendment No. 2 to the Trust's Current Report on Form 8-K, dated February 11, 1998, incorporated by reference herein; (ix) the unaudited Combined Historical Summary of Skyway and Central Park Industrial Properties for the six months ended June 30, 1997 filed with the Trust's Current Report on Form 8-K, dated March 23, 1998, incorporated herein; (x) the unaudited Historical Summary of Inverness Industrial Property for the nine months ended September 30, 1997 filed with the Trust's Current Report on Form 8-K, dated March 23, 1998, incorporated herein; (xi) the unaudited Combined Statement of Revenues and Certain Expenses of Corporex Plaza I and Presidents' Plaza Business Center for the nine months ended September 30, 1997 filed with the Trust's Current Report on Form 8-K, dated March 23, 1998, incorporated herein; and (xii) the unaudited Historical Summary of Avion Industrial Property for the nine months ended September 30, 1997 filed with the Trust's Current Report on Form 8-K, dated March 23, 1998, incorporated herein. The Pro Forma Financial Information is presented for information purposes only and is not necessarily indicative of the financial position or results of operations of the Trust that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial position or results of operations. In the opinion of the Trust's management, all material adjustments necessary to reflect the effect of these transactions have been made. F-19 24 AMERICAN INDUSTRIAL PROPERTIES REIT PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 (IN THOUSANDS) (UNAUDITED)
Trust Recent Pro Historical (A) Transactions (B) Forma ------------ -------------- --------- ASSETS Real estate, net $ 239,791 $ 9,259 (C) $ 249,050 Cash - unrestricted 11,683 (1,974) (C) 18,002 (D) (89) (E) 27,622 Cash - restricted 2,121 0 2,121 Other assets, net 4,800 65 (C) 4,865 --------- --------- --------- $ 258,395 $ 25,263 $ 283,658 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage notes payable $ 114,226 $ 6,475 (C) $ 120,701 Notes payable to affiliates 7,200 0 7,200 Accrued interest payable 269 0 269 Accounts payable, accrued expenses and other 7,231 0 7,231 Tenant security deposits 1,254 0 1,254 --------- --------- --------- 130,180 6,475 136,655 Minority interests 6,444 875 (C) 7,319 Shareholders' equity: Common Shares of beneficial interest ($0.10 par value) 982 138 (D) 1,120 Additional paid-in capital 224,989 17,864 (D) 242,853 Less Common Shares in treasury, at cost (626) (89) (E) (715) Accumulated distributions (58,456) 0 (58,456) Accumulated loss from operations and extraordinary gains (losses) (48,429) 0 (48,429) Accumulated net realized gain on sales of real estate 3,311 0 3,311 --------- --------- --------- 121,771 17,913 139,684 --------- --------- --------- $ 258,395 $ 25,263 $ 283,658 ========= ========= =========
F-20 25 AMERICAN INDUSTRIAL PROPERTIES REIT PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 (IN THOUSANDS) (UNAUDITED) (A) Represents the historical financial position of the Trust as of December 31, 1997. (B) Represents adjustments for the 1998 Acquisition, the 1998 Private Placements and the Common Share Repurchase. (C) Represents adjustments for the 1998 Acquisition, including closing and transaction costs, of $9,259, comprised of cash of $1,974, borrowings on the Trust's acquisition line of credit (the "Credit Facility") of $6,475, deferred loan costs of $65, and the issuance of 58 limited partnership units in AIP Operating, L.P. with a value of $875. The Credit Facility bears interest at the 30-day LIBOR rate plus 2%, with a maturity of one year. (D) Represents adjustments for the 1998 Private Placements. (E) Represents adjustments for the Common Share Repurchase. F-21 26 AMERICAN INDUSTRIAL PROPERTIES REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Trust Recent RELPS Historical (A) Transactions (B) Historical (C) -------------------- -------------------- -------------------- INCOME Rents and tenant reimbursements $ 12,201 $ 8,574 (D) $ 11,888 (730)(E) Equity in earnings of joint venture - - (108) Interest and other income 546 25 (D) 527 (164)(E) -------------------- -------------------- -------------------- 12,747 7,705 12,307 -------------------- -------------------- -------------------- EXPENSES Property operating expenses 4,315 2,649 (D) 5,560 (201)(E) Depreciation and amortization 3,157 1,370 (D) 4,003 (87)(E) Interest expense 5,778 3,713 (D) 3,089 (256)(E) General and administrative 2,504 - 1,518 -------------------- -------------------- -------------------- Total expenses 15,754 7,188 14,170 Income (loss) before minority interest (3,007) 517 (1,863) Minority interest - - - -------------------- -------------------- -------------------- Income (loss) from operations $ (3,007) $ 517 $ (1,863) ==================== ==================== ==================== Income (loss) from operations per share: Basic and diluted $ (0.91) ==================== Weighted average number of Common Shares outstanding 3,317 ==================== RELPS Pro Forma Adjustments Adjustments Total --------------------- -------------------- ------------------- INCOME Rents and tenant reimbursements $ 2,036 (F) $ - (1,894) (G) $ 32,075 Equity in earnings of joint venture 264 (F) - (156) (H) - Interest and other income (527) (I) - 407 --------------------- -------------------- -------------------- (277) - 32,482 --------------------- -------------------- -------------------- EXPENSES Property operating expenses 43 (F) - (391) (G) 11,975 Depreciation and amortization 1,014 (F) (2,790) (J) (309) (G) 6,358 Interest expense 1,388 (F) (1,022) (K) (907) (G) 11,783 General and administrative 63 (F) 335 (L) (121) (G) 4,299 --------------------- -------------------- -------------------- Total expenses 780 (3,477) 34,415 Income (loss) before minority interest (1,057) 3,477 (1,933) Minority interest 208 (F) - 208 --------------------- -------------------- -------------------- Income (loss) from operations $ (849) $ 3,477 $ (1,725) ===================== ==================== ==================== Income (loss) from operations per share: Basic and diluted $ (0.15) ==================== Weighted average number of Common Shares outstanding 11,193 (M) ====================
F-22 27 AMERICAN INDUSTRIAL PROPERTIES REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (A) Represents the historical results of operations of the Trust for the year ended December 31, 1997. Certain reclassifications have been made to the historical statements of operations of the Trust to conform to the pro forma financial information presentation. In addition, excludes gain on sale of real estate of $2,163 and extraordinary gain on extinguishment of debt of $2,643. (B) Represents adjustments for the 1997 Acquisitions, the 1997 Dispositions, the Merger, and the 1998 Acquisition. (C) Represents the combined historical results of operations of the RELPs acquired in connection with the Merger. (D) Represents adjustments for the 1997 Acquisitions and the 1998 Acquisition, based on historical operating results. Depreciation is based on the preliminary allocation of the purchase price, with buildings depreciated using the straight-line method over a 40 year period. Interest expense is based on the borrowings incurred at the related interest rates, which range from 7.25% (fixed rate under a mortgage note payable) to 7.70% (the average 30-day LIBOR rate plus 2% during the year ended December 31, 1997). (E) Represents adjustments to remove the historical results of operations of the 1997 Dispositions. (F) Represents adjustments, based on historical operating results, for the investment in USAA Chelmsford Associates Joint Venture (the "Joint Venture"), accounted by the RELP on the equity method, which is consolidated by the Trust due to an amendment to the joint venture agreement subsequent to the Merger providing the Trust with control over the major decisions of the Joint Venture. (G) Represents adjustments to eliminate the historical results of operations of a real estate property which, in conjunction with the Merger, was sold by the RELP to an affiliate. (H) Represents adjustment to eliminate the equity in earnings of a joint venture. In connection with the Merger, the interest in the joint venture was sold by the RELP to an affiliate. (I) Represents adjustments to eliminate interest income as a result of cash distributions to the RELP limited partners prior to the Merger. F-23 28 (J) Represents adjustment to reduce the depreciation of real estate. This adjustment represents increased depreciation resulting from the allocation of purchase price, reduced by the use of a 40 year period by the Trust, rather than a 30 year period, as had been the practice by the RELPs. (K) Represents adjustment to eliminate interest expense accrued by the Trust related to the notes payable convertible into Common Shares. The amount of non-recurring interest expense represents the difference between the market trading price of $11.88 per Common Share on February 26, 1997, the date of issuance of the modified notes, which contained the convertibility option, and the $10.00 conversion price. (L) Represents adjustments for incremental general and administrative costs estimated to be incurred by the Trust as a result of the recent growth, including personnel costs. (M) The pro forma weighted average shares outstanding includes 9,817 Common Shares outstanding at December 31, 1997 and 1,376 Common Shares issued in the 1998 Private Placements. Diluted earnings per share are the same as basic earnings per share as the Trust has a loss from operations. F-24 -----END PRIVACY-ENHANCED MESSAGE-----