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| AAT > SEC Filings for AAT > Form 8-K/A on 16-Nov-2012 | All Recent SEC Filings |
16-Nov-2012
Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
(b) Pro Forma Financial Information.
(c) Exhibits:
The following exhibits are filed herewith:
Exhibit Number Exhibit Description
10.1* Purchase and Sale Agreement between City Center Bellevue Property LLC,
as Seller, and American Assets Trust, L.P., as Purchaser, dated July
30, 2012.
23.1 Consent of Ernst & Young LLP.
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To the Board of Directors and Shareholders of
American Assets Trust, Inc.
We have audited the accompanying statement of revenues over certain operating
expenses (as defined in Note 1) of City Center Bellevue for the year ended
December 31, 2011. The statement of revenues over certain operating expenses is
the responsibility of the Property's management. Our responsibility is to
express an opinion on the statement based on our audit.
We conducted our audit 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 statement of revenues over
certain operating expenses is free of material misstatement. We were not engaged
to perform an audit of the Property's internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Property's internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues over certain operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues over certain operating expenses of
the Property.
In our opinion, the statement of revenues over certain operating expenses
referred to above presents fairly, in all material respects, the revenues over
certain operating expenses, as defined above, of City Center Bellevue for the
year ended December 31, 2011, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
San Diego, California
October 26, 2012
City Center Bellevue
Statement of Revenues over Certain Operating Expenses
(In Thousands)
Six Months Ended Year Ended
June 30, 2012 December 31, 2011
(unaudited)
Revenue:
Rental income $ 5,001 $ 10,313
Other income 906 1,646
Total revenue 5,907 11,959
Certain operating expenses:
Rental operating 387 764
Payroll 293 544
Management fees 173 318
Utilities 446 885
Real estate taxes 466 880
Insurance 83 165
Repairs and maintenance 280 825
General and administrative 230 533
Total expenses 2,358 4,914
Revenues over certain operating expenses $ 3,549 $ 7,045
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NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
On August 21, 2012, American Assets Trust, Inc. (the "Company"), through a wholly-owned subsidiary of American Assets Trust, L.P. the Company's operating partnership, completed the acquisition of City Center Bellevue (the "Property"), an approximately 497,000 square foot, 27-story, LEED-EB Gold certified office tower located at 500 108th Avenue NE, Bellevue, Washington from an unrelated third party. The gross purchase price of City Center Bellevue was $228.8 million, excluding closing costs of approximately $0.1 million. Additionally, we received credits to our purchase price of approximately $6.9 that primarily relate to outstanding tenant improvement obligations.
The accompanying statement of revenues over certain operating expenses has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. Accordingly, the statements are not representative of the actual results of operations for the year ended December 31, 2011 and the period from January 1, 2012 through June 30, 2012 due to the exclusion of the following expenses, which may not be comparable to the proposed future operations of the property:
• Depreciation and amortization
• Interest expense
• Interest income
The accompanying unaudited statement of revenues over certain operating expenses for the six months ended June 30, 2012 have been prepared in accordance with the U.S. generally accepted accounting principles ("GAAP") for interim financial information as contained within the Financial Accounting Standards Board Accounting Standards Codification and the rules and regulations of the SEC, including the instructions to Form 8-K and Article 3-14 of Regulation S-X. Accordingly, the unaudited statement of revenue over certain operating expenses does not includes all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the statement of revenues over certain operating expenses for the unaudited interim period presented includes all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such period. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.
An audited statement of revenues over certain operating expenses is being presented for the most recent fiscal year instead of the three most recent years based on the following factors: (i) the Property was acquired from an unaffiliated party and (ii) based on due diligence of the Property by the Company, management is not aware of any material factors relating to the Property that would cause this financial information to not be indicative of future operating results.
Square footage, acreage, occupancy and other measures used to describe real estate included in these notes to the statement of revenues over certain operating expenses are presented on an unaudited basis.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Base rents are recognized on a straight-line basis from when the tenant controls
the space through the term of the related lease, net of valuation adjustments,
based on management's assessment of credit, collection and other business risk.
For the year ended December 31, 2011 and the period from January 1, 2012 through
June 30, 2012, we recorded straight-line rent adjustments of approximately $1.4
million and $0.3 million (unaudited), respectfully, to account for minimum fixed
rent increases or free rent periods. Real estate taxes and other cost
reimbursements are recognized on an accrual basis over the periods in which the
related expenditures are incurred.
Accounting estimates
The preparation of the financial statements requires management to use estimates
and assumptions that affect the reported amounts of revenues over certain
operating expenses during the reporting period. Actual results could materially
differ from these estimates in the near term.
Subsequent events were evaluated through the date the financial statement was issued.
NOTE 3. MINIMUM FUTURE LEASE RENTALS
Office and retail space is leased to tenants under various lease agreements, and all leases are accounted for as operating leases. The leases include provisions under which the Property is reimbursed for common area, real estate, and insurance costs above a base year threshold. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease agreements. Certain leases contain termination clauses under which the tenant may terminate the lease after a specified date, and certain leases contain renewal options at various periods at various rental rates. As of December 30, 2011 and June 30, 2012, the Property was 68.3% and 67.2% leased, respectfully.
At December 31, 2011, the following future minimum rentals on the non-cancelable tenant leases, assuming early termination clauses are exercised but before any reserve for uncollectible amounts, are as follows (in thousands):
2012 $ 8,621 2013 13,084 2014 12,657 2015 12,894 2016 12,734 Thereafter 23,904 Total $ 83,894 |
NOTE 4. CERTAIN OPERATING EXPENSES
Certain operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Repairs and maintenance expense are charged to operations as incurred. Costs such as depreciation, amortization and interest expense are excluded from the statement of revenues over certain operating expenses.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Property is not subject to any material litigation nor to management's knowledge is any material litigation currently threatened against the Property.
The Property is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on the Property's financial condition and results of operations for the periods presented.
The following unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2012
and Consolidated Statements of Operations for the six months ended June 30, 2012
and for the year ended December 31, 2011 are presented as if City Center
Bellevue had been acquired as of January 1, 2011 and the initial public offering
for American Assets Trust, Inc. had occurred on January 1, 2011. The initial
public offering and formation transactions are further described below.
American Assets Trust, Inc. (together with its combined entities, the "Company,"
"we," "our" or "us"), which is a Maryland corporation formed on July 16, 2010 to
acquire the entities owning various controlling and noncontrolling interests in
real estate assets owned and/or managed by Ernest Rady and/or his affiliates,
including the Ernest Rady Trust U/D/T March 10, 1983 (the "Rady Trust"), did not
have any operating activity until the consummation of our initial public
offering and the related acquisition of our Predecessor (defined below) on
January 19, 2011. American Assets Trust, L.P. (our "Operating Partnership") was
formed as a Maryland limited partnership on July 16, 2010. Since the completion
of our initial public offering (the "Offering") and the Formation Transactions
(defined below), our operations have been carried on through our Operating
Partnership. We, as the sole general partner of our Operating Partnership, own
67% of, and have control of, our Operating Partnership. Accordingly, we
consolidate the assets, liabilities and results of operations of our Operating
Partnership.
Our "Predecessor" included (1) entities owned and/or controlled by Mr. Rady
and/or his affiliates, including the Rady Trust, which in turn owned controlling
interests in 17 properties, and the property management business of American
Assets, Inc. ("AAI") (the "Controlled Entities"), and (2) noncontrolling
interests in entities owning four properties ("Noncontrolled Entities"). The
Predecessor accounted for its investment in the Noncontrolled Entities under the
equity method of accounting.
Prior to June 30, 2010, the Noncontrolled Entities owned an office property
located in San Francisco, California referred to as The Landmark at One Market
("Landmark"). We refer to the entities owning Landmark as the "Landmark
Entities." The outside ownership interest in the Landmark Entities was acquired
by our Predecessor on June 30, 2010 for a cash payment of $23.0 million. As of
June 30, 2010, Landmark was controlled by our Predecessor. All but one of the
properties owned by the Controlled Entities and Noncontrolled Entities were
managed by AAI. The Noncontrolled Entities managed by AAI included the entities
which owned Solana Beach Towne Centre and Solana Beach Corporate Centre
properties (collectively "Solana Beach Centre") and the entities that owned the
Fireman's Fund Headquarters office property ("Fireman's Fund"). The remaining
property is managed by an unrelated third party. We refer to ABW Lewers LLC and
the Waikiki Beach Walk-Hotel, the entities that owned this non-AAI managed
property, as the "Waikiki Beach Walk Entities."
Substantially concurrently with the Offering, we completed a series of formation
transactions (the "Formation Transactions") pursuant to which we acquired,
through a series of merger and contribution transactions, 100% of the ownership
interests in the Controlled Entities, the Waikiki Beach Walk entities, and the
Solana Beach Centre entities (which includes our Predecessor's ownership
interest in these entities). We did not acquire our Predecessor's noncontrolling
25% ownership interest in the entities owning Fireman's Fund. In the aggregate,
these interests comprise our ownership of our property portfolio.
We have determined that the Predecessor is the acquirer for accounting purposes,
and therefore the contribution of, or acquisition by merger of interests in, the
Controlled Entities is considered a transaction between entities under common
control since our Executive Chairman, Ernest Rady, and/or his affiliates,
including the Rady Trust, owned the controlling interest in each of the entities
comprising the Predecessor. As a result, the acquisition of interests in each of
the Controlled Entities was recorded at our historical cost. The contribution
of, or acquisition by merger of interests in, certain Noncontrolled Entities,
including the Waikiki Beach Walk Entities and the Solana Beach Centre entities
(including our Predecessor's ownership interest in these entities), was
accounted for as an acquisition under the acquisition method of accounting and
recognized at the estimated fair value of acquired assets and assumed
liabilities on the date of such contribution or acquisition. The acquisition of
the ownership interests of the Landmark Entities by the Predecessor was
accounted for under the acquisition method of accounting on June 30, 2010 and
was recorded at the Predecessor's historical cost when acquired by us upon the
consummation of the Formation Transactions.
The unaudited pro forma consolidated balance sheet has been adjusted to give
effect to:
• the acquisition of City Center Bellevue as of June 30, 2012;
• the sale of the GNMA secruities as of June 30, 2012; and
• the proceeds from the credit facility that were used to finance the acquisition.
The unaudited pro forma consolidated statements of operations have been adjusted
to give effect to:
• the historical financial results of the Company for the year ended
December 31, 2011, which includes the Predecessor's historical results
for the period prior to the Offering and Formation Transactions;
• the acquisition of the ownership interests (including our Predecessor's
noncontrolling interest) in the Solana Beach Centre in exchange for
units of limited partner interest ("OP units") in our Operating
Partnership, and the assumption of related debt as of January 1, 2011
and the acquisition of ownership interests (including our Predecessor's
noncontrolling interest) in the Waikiki Beach Walk Entities in exchange
for shares of our common stock and OP units and the assumption of
related debt, as of January 1, 2011, collectively "Formation
Acquisitions";
• the acquisition of First & Main, Lloyd District Portfolio, and Solana
Beach - Highway 101, collectively "2011 Acquisitions", properties as of
January 1, 2011;
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• the acquisition of One Beach Street as of January 1, 2011;
• the acquisition of the City Center Bellevue property as of January 1, 2011;
• certain adjustments to rental income and depreciation and amortization
expense due to purchase price allocation adjustments;
• certain incremental general and administrative expenses expected to be
incurred to operate as a public company; and
• the completion of the Formation Transactions and the Offering,
repayment of indebtedness and other use of proceeds from the Offering.
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In addition, properties in our portfolio may be reassessed for property tax
purposes. Therefore, the amount of property taxes we pay in the future may
increase from what we have paid in the past.
Our pro forma consolidated statements of operations are presented for
informational purposes only and do not purport to represent the results of our
operations that would have actually occurred had the Offering, the Formation
Transactions, the 2011 Acquisitions, the acquisition of One Beach Street, and
the acquisition of City Center Bellevue and the debt repayments occurred on
January 1, 2011 or project our results of operations for any future period. This
unaudited pro forma consolidated information should be read in conjunction with
the historical financial information and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2011 and
the Company's Quarterly Report on Form 10-Q for the six months ended June 30,
2012.
American Assets Trust, Inc.
Pro Forma Balance Sheet
As of June 30, 2012
(Unaudited and In Thousands Except Share Data)
June 30, 2012 City Center Bellevue Pro Forma
(A) Acquisition Total
Assets
Real estate, at cost
Operating real estate $ 1,691,809 $ 215,575 (B) $ 1,907,384
Construction in progress 27,612 - 27,612
Held for development 14,795 - 14,795
1,734,216 215,575 1,949,791
Accumulated depreciation (255,485 ) - (255,485 )
Net real estate 1,478,731 215,575 1,694,306
Cash and cash equivalents 98,584 (55,116 ) (C) 43,468
Restricted cash 10,973 - 10,973
Marketable securities 24,287 (24,287 ) (D) -
Accounts receivable, net 4,997 - 4,997
Deferred rent receivables, net 27,227 - 27,227
Other assets, net 68,649 14,428 (B) 83,077
Total assets $ 1,713,448 $ 150,600 $ 1,864,048
Liabilities and equity
Liabilities:
Secured notes payable $ 964,538 $ - $ 964,538
Line of credit - 141,000 (E) 141,000
Accounts payable and accrued
expenses 27,317 456 (B) 27,773
Security deposits payable 4,874 740 (B) 5,614
Other liabilities and deferred
credits 54,316 8,635 (B) 62,951
Total liabilities 1,051,045 150,831 1,201,876
Commitments and contingencies
Equity:
American Assets Trust, Inc.
stockholders' equity
Common stock $0.01 par value,
490,000,000 shares authorized,
39,285,156 shares outstanding at
June 30, 2012 393 - 393
Additional paid-in capital 655,087 - 655,087
Accumulated dividends in excess of
net income (40,699 ) (231 ) (D) (40,930 )
Total American Assets Trust, Inc.
stockholders' equity 614,781 (231 ) 614,550
Noncontrolling interests 47,622 - 47,622
Total equity 662,403 (231 ) 662,172
Total liabilities and equity $ 1,713,448 $ 150,600 $ 1,864,048
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Adjustments to the Pro Forma Consolidated Balance Sheet
The adjustments to the pro forma consolidated balance sheet as of June 30, 2012 are as follows:
(A) Historical financial information derived from American Assets Trust, Inc. quarterly report on Form 10-Q as of June 30, 2012.
(B) The Company determined the cost of tangible assets, identified intangibles and assumed liabilities (consisting of above and below-market leases and tenant origination and absorption costs) acquired in the business combination based on their estimated fair values. The purchase accounting for these acquisitions is preliminary and subject to change.
(C) Represents cash payment for acquisition of City Center Bellevue, net of proceeds from line of credit and sale of marketable securities.
(D) Represents sale of marketable securities and related loss on sale, with net cash proceeds used towards the acquisition of City Center Bellevue.
(E) Represents the portion of the Company's credit facility that was drawn to finance the acquisition of City Center Bellevue.
American Assets Trust, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2011
(Unaudited and In Thousands Except Per Share Data)
Acquisitions
American Assets Trust, Formation One Beach City Center Pro Forma
Inc. and Subsidiaries Acquisitions 2011 Acquisitions Street Bellevue Adjustments Pro Forma Total
(A) (B) (C) (D) (E)
Revenue
Rental income $ 199,741 $ 2,273 $ 7,932 $ 4,103 $ 12,691 $ - $ 226,740
Other property
income 10,082 135 897 8 1,646 - 12,768
Total Revenues 209,823 2,408 8,829 4,111 14,337 - 239,508
Expenses
Rental expenses 59,937 1,293 2,679 1,169 3,183 (6 ) (F) 68,255
Real estate taxes 19,555 122 699 108 958 - 21,442
General and
administrative 13,916 34 177 70 851 (25 ) (F) 15,023
Depreciation and
amortization 57,639 827 4,688 1,426 9,657 - 74,237
Total operating
expenses 151,047 2,276 8,243 2,773 14,649 (31 ) 178,957
Operating income 58,776 132 586 1,338 (312 ) 31 60,551
Interest expense (56,487 ) (892 ) - - - (1,666 ) (G) (59,045 )
Loss on early
extinguishment of
debt (25,867 ) - - - - - (25,867 )
Loan transfer and
consent fees (9,019 ) - - - - - (9,019 )
Gain on
acquisition 46,371 - - - - (46,371 ) (F) -
Other income
(expense), net 470 (13 ) - - - (901 ) (H) (259 )
185 (F)
Income (loss)
. . .
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