================================================================================
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):
January 3, 1998
<TABLE>
<S> <C>
Commission file number 0-9109 Commission file number 0-9110
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
--------------------- ---------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware Delaware
-------- --------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
95-3520818 95-3419438
---------- ----------
(I.R.S. Employer Identification No.) (I.R.S Employer Identification No.)
197 First Avenue, Suite 300 197 First Avenue, Suite 100
Needham Heights, Massachusetts 02194-9127 Needham Heights, Massachusetts 02194-9127
- ----------------------------------------- -----------------------------------------
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(781) 433-6000 (781) 453-8062
-------------- --------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
<PAGE>
ITEM 5. OTHER EVENTS
THE MEDITRUST COMPANIES
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
On January 3, 1998, La Quinta Inns, Inc. ("La Quinta"), Meditrust Corporation
and Meditrust Operating Company (collectively known as, "The Meditrust
Companies") entered into an agreement and plan of merger (the "La Quinta Merger
Agreement") pursuant to which La Quinta will merge with and into Meditrust
Corporation being the surviving corporation (the "Merger"). As a result of the
merger, Meditrust Corporation will acquire all of the assets and liabilities of
La Quinta and Meditrust Corporation will assume approximately $900 million of La
Quinta's existing indebtedness.
La Quinta is currently one of the largest owners/operators of mid-priced
hotels, without food and beverage, facilities in the United States, having over
270 inns and hotels primarily located in the western and southern United
States. La Quinta was formed and incorporated in Texas in 1968 originally as La
Quinta Motor Inns, Inc. La Quinta became a publicly traded entity in 1972 and
adopted its present name in 1992.
Pursuant to the terms of the La Quinta Merger Agreement, shareholders of La
Quinta have the option to elect to receive, either (i) a combination of common
stock of The Meditrust Companies (the "Paired Shares") and the earnings and
profit distribution referred to below, or (ii) cash, subject to the amount of
aggregate cash payable to La Quinta shareholders being limited to approximately
$521 million (representing approximately 24% to 28% of the total merger
consideration depending on the Meeting Date Price described below). The stock
consideration will be payable in Paired Shares under an exchange ratio
determined based on the average closing price of the Paired Shares for 20
randomly determined trading days in a 30-day period ending the seventh day
prior to La Quinta's shareholder meeting called to consider the Merger (the
"Meeting Date Price"). As of the date of the pro forma financial statements
presented herein, the meeting date price is anticipated to be $32.00.
The La Quinta Merger Agreement provides that the La Quinta shareholders
electing to receive stock considerations will receive Paired Shares in an
amount, based on the Meeting Date Price, equal to the difference between $26.00
and the earnings and profit distribution to be received per La Quinta share, so
long as the Meeting Date Price is between $34.20 and $41.80. La Quinta
shareholders electing to receive stock consideration will also receive the
earnings and profit distribution so long as they hold the Paired Shares on the
applicable record date. The earnings and profit distribution is expected to be
declared immediately prior to the La Quinta Merger, payable to all shareholders
of record of The Meditrust Companies on a date to be determined by Meditrust
between the fifteenth and the forty-fifth day following the Merger and payable
within fifteen days of such record date. If the Meeting Date Price is greater
than or equal to $41.80 but less than or equal to $45.60, the exchange ratio
for each share of La Quinta common stock exchanged into Paired Shares will be
0.6220, reduced by the consideration to be received in the earnings and profit
distribution per La Quinta share (resulting in total consideration based on the
Meeting Date Price ranging from $26.00 to $28.36 per share of La Quinta common
stock, including the earnings and profit distribution, as the Meeting Date
Price increases through this range). If the Meeting Date Price is greater than
$45.60, then each La Quinta share will be entitled to receive $28.36 in total
consideration based on the Meeting Date Price, comprised of Paired Shares and
the earnings and profit distribution referred to above.
If the Meeting Date Price is less than $34.20 but greater than or equal to
$30.40, the exchange ratio for each share of La Quinta common stock exchanged
into Paired Shares will be 0.7602, reduced by the amount to be received in the
earnings and profit distribution per La Quinta share (resulting in total
consideration based on the Meeting Date Price ranging from $26.00 to $23.11 per
share of La Quinta common stock, including the earnings and profit
distribution, as the Meeting Date Price decreases through this range). If the
Meeting Date Price is below $30.40, La Quinta will have the right to terminate
the Merger Agreement under certain circumstances, subject to a "top-up" right
exercisable by The Meditrust Companies, which is designed to return total
consideration per La Quinta share based on the Meeting Date Price to at least
$23.11 inclusive of the earning and profit distribution. If the Meeting Date
Price is below $28.50, La Quinta will have the unilateral right to terminate
the Merger Agreement.
The La Quinta Merger is subject to various conditions including, without
limitation, approval of the Merger by two-thirds of the outstanding shares of
La Quinta common stock, by a majority of the outstanding shares of The
Meditrust Companies, and regulatory agencies.
1
<PAGE>
In addition, on January 11, 1998, The Meditrust Companies and Cobblestone
Holdings, Inc. ("Cobblestone") entered into an Agreement and Plan of Merger
(the "Cobblestone Merger Agreement" and together with the Merger with
La Quinta, the "La Quinta/Cobblestone Mergers"), pursuant to which
Cobblestone will merge with and into The Meditrust Companies. Cobblestone is a
privately held company and one of the leading owners/operators of golf courses
in the United States. Cobblestone has a portfolio of 25 facilities with 29
courses in major golf markets in Arizona, California, Florida, Georgia, Texas
and Virginia.
Under the terms of the Cobblestone Merger Agreement, The Meditrust Companies
will acquire all of the outstanding common stock of Cobblestone for Paired
Shares of The Meditrust Companies, and all of the outstanding preferred stock of
Cobblestone for either Paired Shares of The Meditrust Companies and/or, at The
Meditrust Companies' option, cash, with an aggregate value of approximately $241
million. The number of Paired Shares of The Meditrust Companies to be issued in
exchange for each outstanding share of common and preferred stock of
Cobblestone, is expected to be 7,531 shares using $32.00 as the stock price as
of the calculation date, are subject to adjustment in the manner described in
the Cobblestone Merger Agreement. In addition, approximately $154,000,000 of
Cobblestone debt and associated costs will be refinanced or assumed as a
condition of the closing. The Cobblestone Merger is subject to customary closing
conditions.
The Pro Forma Financial Statements have been adjusted for the purchase method of
accounting whereby the hotels, golf resorts and related improvements and other
assets and liabilities owned by La Quinta and Cobblestone are adjusted to
estimated fair market value. The fair market value of the assets and liabilities
of La Quinta and Cobblestone have been determined based upon preliminary
estimates and are subject to change as additional information is obtained.
Management does not anticipate that the preliminary allocation of purchase costs
based upon the estimated fair market value of the assets and liabilities of La
Quinta and Cobblestone will materially change; however, the allocation of
purchase costs is subject to final determination based upon estimates and other
evaluations of fair market value as of the close of the transactions. Therefore,
the allocations reflected in the following unaudited Pro Forma Financial
Statements may differ from the amounts ultimately determined.
The Pro Forma Financial Statements have also been adjusted for the issuance of
8,500,000 shares of Series A Non-Voting Convertible Common Stock by The
Meditrust Companies on February 27, 1998. The estimated aggregate proceeds is
$272 million, net of transaction costs. The net proceeds of this transaction
will be used to finance certain costs associated with the La Quinta/Cobblestone
Mergers and to finance ongoing investments for health care financing
transactions.
The following unaudited Pro Forma Condensed Statements of Operations presented
assume the La Quinta/Cobblestone Mergers had been consummated on terms set forth
in the La Quinta/Cobblestone Merger Agreements as of or at the beginning of the
period presented. In addition, the unaudited Pro Forma Condensed Combined
Balance Sheet presented assumes the La Quinta/Cobblestone Mergers had occurred
on December 31, 1997.
The following unaudited Pro Forma Condensed Statements of Operations for the
year ended December 31, 1997 of The Meditrust Companies, Meditrust Corporation
and Meditrust Operating Company are derived from historical financial
information and pro forma information based in part upon the Combined and
separate Statements of Income of The Meditrust Companies, filed with The
Meditrust Companies' Form 8-K for the year ended December 31, 1997, and in part
upon the Consolidated Statements of Operations of La Quinta Inns, Inc. filed
with Form 8-K for the year ended December 31, 1997 and the Consolidated
Statements of Operations of Cobblestone Holdings, Inc. filed on Form 10-K for
the year ended September 30, 1997. The following unaudited Pro Forma Condensed
Combined Balance Sheet is based in part upon The Meditrust Companies Combined
and separate Balance Sheets as of December 31, 1997 and should be read in
conjunction with the La Quinta Inns, Inc. and Cobblestone Holdings, Inc's
financial statements as of December 31, 1997 and September 30, 1997,
respectively. In management's opinion, all material adjustments necessary to
reflect the effects of the La Quinta/Cobblestone Mergers have been made.
2
<PAGE>
The following unaudited Pro Forma Condensed Statements of Operations are not
necessarily indicative of what the actual results of The Meditrust Companies
would have been assuming such transactions had been completed as of the
beginning of the period presented, nor do they purport to represent the results
for future periods.
The following unaudited Pro Forma Condensed Combined Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming the La Quinta/Cobblestone Mergers had been completed as of December 31,
1997, nor does it purport to represent the future financial position of The
Meditrust Companies.
3
<PAGE>
THE MEDITRUST COMPANIES PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
The Meditrust La Quinta
Companies La Quinta Cobblestone Pro Forma
(Historical) (A) (Historical) (B) (Historical) (C) Adjustments
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
(In thousands)
ASSETS
Real estate investments .................. $2,935,772 $1,449,215 $ 156,229 $ 1,083,632(D)
Cash and cash equivalents ................ 43,732 2,110 3,519 --
Trade, notes and other receivables ....... 29,439 15,909 9,141 42,000 (E)
Deferred charges, prepaid expenses,
inventory and other assets .............. 120,055 24,977 9,770 (5,047)(F)
Deferred income taxes .................... -- 9,813 -- (9,813)(G)
Intangible assets ........................ -- -- 3,611 112,543 (H)
Goodwill ................................. 194,893 -- -- 425,269 (I)
---------- ---------- --------- ------------
Total assets ........................... $3,323,891 $1,502,024 $ 182,270 $ 1,648,584
========== ========== ========= ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Debt ..................................... $1,377,438 $ 901,685 $ 129,565 $ 955,440(J)
Accounts payable, accrued expenses
and other liabilities ................... 120,213 126,893 15,549 --
Deferred income taxes .................... 501 38,253 4,184 (38,253)(G)
Minority interest ........................ -- 2,667 337 --
---------- ---------- --------- ------------
Total liabilities ...................... 1,498,152 1,069,498 149,635 917,187
---------- ---------- --------- ------------
Redeemable preferred stock ............... -- -- 42,241 --
Shareholders' equity:
Series A Non-Voting Convertible
Common Stock ............................ -- -- -- --
Common stock ............................. 17,626 8,501 17 140 (K)
Additional paid-in-capital ............... 2,001,086 249,612 5,389 1,230,670 (L)
Unearned officer's compensation .......... -- (1,016) -- 1,016 (M)
Retained earnings (loss) ................. -- 270,462 (15,012) (270,462)(N)
Distributions in excess of net income..... (192,973) -- -- (325,000)(O)
Treasury stock, at cost .................. -- (95,033) -- 95,033 (M)
---------- ---------- --------- ------------
Total shareholders' equity ............. 1,825,739 432,526 (9,606) 731,397
---------- ---------- --------- ------------
Total liabilities and shareholders'
equity ................................ $3,323,891 $1,502,024 $ 182,270 $ 1,648,584
========== ========== ========= ============
<CAPTION>
Cobblestone Total
Pro Forma Other Pro Forma Pro Forma Total
Adjustments Adjustments Adjustments Pro Forma
-------------------- ------------------------ -------------- -------------
<S> <C> <C> <C> <C>
(In thousands)
ASSETS
Real estate investments .................. $ 73,628(AA) $ -- $1,157,260 $5,698,476
Cash and cash equivalents ................ -- -- -- 49,361
Trade, notes and other receivables ....... -- -- 42,000 96,489
Deferred charges, prepaid expenses,
inventory and other assets .............. -- -- (5,047) 149,755
Deferred income taxes .................... -- -- (9,813) --
Intangible assets ........................ 7,389 (BB) -- 119,932 123,543
Goodwill ................................. 168,164 (CC) -- 593,433 788,326
------------ ------------ ---------- ----------
Total assets ........................... $ 249,181 $ -- $1,897,765 $6,905,950
============ ============ ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Debt ..................................... $ 45,000(DD) $ (272,000)(AAA) $ 728,440 $3,137,128
Accounts payable, accrued expenses
and other liabilities ................... -- -- -- 262,655
Deferred income taxes .................... (4,184)(EE) -- (42,437) 501
Minority interest ........................ -- -- -- 3,004
------------ ------------ ---------- ----------
Total liabilities ...................... 40,816 (272,000) 686,003 3,403,288
------------ ------------ ---------- ----------
Redeemable preferred stock ............... (42,241)(FF) -- (42,241) --
Shareholders' equity:
Series A Non-Voting Convertible
Common Stock ............................ -- 1,700 (AAA) 1,700 1,700
Common stock ............................. 1,489 (GG) -- 1,629 27,773
Additional paid-in-capital ............... 234,105 (HH) 270,300 (AAA) 1,735,075 3,991,162
Unearned officer's compensation .......... -- -- 1,016 --
Retained earnings (loss) ................. 15,012 (II) -- (255,450) --
Distributions in excess of net income..... -- -- (325,000) (517,973)
Treasury stock, at cost .................. -- -- 95,033 --
------------ ------------ ---------- ----------
Total shareholders' equity ............. 250,606 272,000 1,254,003 3,502,662
------------ ------------ ---------- ----------
Total liabilities and shareholders'
equity ................................ $ 249,181 $ -- $1,897,765 $6,905,950
============ ============ ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined balance
sheet.
4
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Balance Sheet as of December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical combined balance sheet of Meditrust Corporation
and Operating Company as of December 31, 1997.
(B) Represents the historical balance sheet of La Quinta as of December 31,
1997.
(C) Represents the historical balance sheet of Cobblestone as of September 30,
1997.
Adjustments for the La Quinta Transaction:
(D) Represents adjustments for the purchase method of accounting whereby the
investment in La Quinta hotel properties is adjusted to its estimated fair
market value.
(E) Represents adjustment for the purchase method of accounting to record a
receivable associated with the tax benefit provided from the realization of a
preacquisition net operating loss carry back resulting from the buyout of La
Quinta stock options and restricted stock.
(F) Represents adjustments for the purchase method of accounting to write off
deferred costs of $10,047 and record $5,000 of deferred loan costs expected to
be incurred in connection with increasing the availability under The Meditrust
Companies' Revolving Credit Facility.
(G) Represents adjustments for the purchase method of accounting to write off
the deferred tax assets and liabilities of La Quinta.
(H) Represents adjustments for the purchase method of accounting whereby the
tradename, assembled work force and customer reservation system of La Quinta
are adjusted to their estimated fair market values.
(I) Represents purchase consideration in excess of the fair market value of the
net assets of La Quinta.
(J) Represents additional borrowings assumed to be incurred in connection with
the Merger as follows:
<TABLE>
<S> <C>
Cash consideration for La Quinta shares .................................................. $414,440
Assumed current and accumulated earnings and profits distribution ........................ 325,000
Buyout of La Quinta stock options and restricted stock ................................... 132,000
Estimated transaction costs .............................................................. 37,000
Estimated employment-related costs ....................................................... 32,000
Estimated call premium for retirement of $120,000 La Quinta 9.25% Senior Subordinated
Notes plus interest on defeasance of debt .............................................. 10,000
Estimated loan costs in connection with increasing the availability under The Meditrust
Companies' Revolving Credit Facility .................................................... 5,000
--------
Total additional borrowings .............................................................. $955,440
========
</TABLE>
(K) Represents adjustments to record the exchange of La Quinta common stock for
Paired Shares of The Meditrust Companies. Pursuant to the La Quinta Merger
Agreement, La Quinta shareholders may elect to receive either (i) $26.00 cash
per share of La Quinta common stock; or (ii) Paired Shares, for which the
Exchange Ratio, as defined in the La Quinta Merger Agreement, is based upon the
Meeting Date Price of a Paired Share of The Meditrust Companies. For purposes of
these statements, the Meeting Date Price is assumed to be $32.00 and the
earnings and profits distribution is assumed to be $325,000. At December 31,
1997, there were 77,137 shares of La Quinta common stock outstanding. Assuming
approximately 15,940 outstanding shares of La Quinta are exchanged for cash, the
remaining 61,197 shares will be exchanged for 43,205 Paired Shares of The
Meditrust Companies. The change in common stock is summarized as follows:
5
<PAGE>
<TABLE>
<S> <C>
Paired Shares issued in connection with the Merger ......... 43,205
Par value of each Paired Share ............................. $ 0.20
--------
Increase in common stock ................................... 8,641
Less: La Quinta historical common stock .................... (8,501)
--------
Adjustment to common stock ................................. $ 140
========
</TABLE>
(L) Represents adjustments to eliminate La Quinta's historical additional
paid-in-capital and record equity based upon the number of Paired Shares issued
in connection with the Merger as follows:
<TABLE>
<S> <C>
Consideration for La Quinta outstanding shares (61,197 shares of La Quinta common stock
for $24.33 per share in Paired Shares and earnings and profits distribution; 15,940 shares
for $26.00 cash per share) .............................................................. $1,903,363
Less: 15,940 shares of La Quinta common stock to be exchanged for cash ................... (414,440)
----------
Remaining consideration .................................................................. 1,488,923
Book value of La Quinta's additional paid-in-capital ..................................... (249,612)
Increase in common stock ................................................................. (8,641)
----------
Adjustment to additional paid-in-capital ................................................. $1,230,670
==========
</TABLE>
(M) Represents adjustments to eliminate unearned officer's compensation and
treasury stock of La Quinta of $1,016 and $95,033, respectively.
(N) Represents adjustment to eliminate La Quinta's historical retained earnings
of $270,462.
(O) Represents adjustment to record the distribution of current and accumulated
earnings and profits, which is assumed to be $325,000, to the shareholders of
The Meditrust Companies after consummation of the Merger. The estimated
earnings and profits distribution has been presented as if the transaction had
been consummated based on the terms and assumptions set forth in the La Quinta
Merger Agreement. For a discussion of the assumed amount of the earnings and
profits distribution.
Adjustments for the Cobblestone Transaction
(AA) Represents adjustments for the purchase method of accounting whereby the
investment in Cobblestone golf properties is adjusted to its estimated fair
market value.
(BB) Represents adjustments for the purchase method of accounting to write off
certain intangible assets of Cobblestone of $3,611 and record the tradename,
assembled work force and other intangible assets of $11,000 acquired in the
Cobblestone Merger at their estimated fair market values.
(CC) Represents purchase consideration in excess of the fair market value of
the net assets of Cobblestone.
(DD) Represents additional borrowings assumed to be incurred in connection with
the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Estimated cash required for tender premium to retire outstanding Cobblestone debt $15,000
Buyout of Cobblestone stock options .............................................. 13,000
Estimated transaction costs ...................................................... 12,000
Estimated employment-related costs ............................................... 5,000
-------
Total additional borrowings ...................................................... $45,000
=======
</TABLE>
(EE) Represents adjustment for the purchase method of accounting to write off
the deferred tax liability of Cobblestone.
(FF) Represents the exchange of 5,220 shares of redeemable preferred stock of
Cobblestone with a historical value of $42,241 for 1,346 Paired Shares of The
Meditrust Companies based on a redemption price of $8.25 per redeemable
preferred share and an assumed exchange price of $32.00 per Paired Share of The
Meditrust Companies.
(GG) Represents adjustments to record the exchange of redeemable preferred
stock and common stock of Cobblestone for Paired Shares. Pursuant to the
Cobblestone Merger Agreement, each share of outstanding Cobblestone common
stock will be converted into the right to receive Paired Shares based on the
Exchange Ratio, as defined in the Cobble-
6
<PAGE>
stone Merger Agreement, and each share of outstanding Cobblestone redeemable
preferred stock will be converted into $8.25 per share payable in cash, or
Paired Shares. At the balance sheet date, The Meditrust Companies will exchange
7,530 Paired Shares for 5,220 and 1,722 shares of redeemable preferred stock
and common stock of Cobblestone, respectively, based upon an assumed exchange
price of $32.00.
The increase in common stock is summarized as follows:
<TABLE>
<S> <C>
Paired Shares issued in connection with the Cobblestone Merger ......... 7,531
Par value of each Paired Share ......................................... $ 0.20
------
Increase in common stock ............................................... 1,506
Less: Cobblestone's historical common stock ............................ (17)
------
Adjustment to common stock ............................................. $1,489
======
</TABLE>
(HH) Represents adjustments to eliminate Cobblestone's historical additional
paid-in capital and record equity based upon the number of Paired Shares issued
in the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Purchase consideration for outstanding shares of Cobblestone redeemable preferred stock
and common stock (5,220 redeemable preferred shares at $8.25 per share and 1,722 common
shares at $114.94 per share) ............................................................ $241,000
Book value of Cobblestone's additional paid-in-capital ................................... (5,389)
Increase in common stock ................................................................. (1,506)
--------
Adjustment to additional paid-in-capital ................................................. $234,105
========
</TABLE>
(II) Represents the adjustment to eliminate Cobblestone's historical retained
loss of $15,012.
Other Pro Forma Adjustments:
(AAA) Represents the issuance of 8,500 shares of Series A Non-Voting Convertible
Common Stock of The Meditrust Companies in a Forward Equity Transaction, net of
transaction costs, the proceeds of which will be used to finance certain costs
associated with the La Quinta/Cobblestone Mergers and to finance ongoing
investments for healthcare financing transactions. For purposes of these
statements, the issuance price is assumed to be $32.625 per share and each share
has an effective dividend rate of LIBOR plus 75 basis points.
7
<PAGE>
THE MEDITRUST COMPANIES
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
The
Meditrust Operating Meditrust
Corporation Company Eliminating Companies
Pro Forma (A) Pro Forma (B) Entries Pro Forma
--------------- --------------- ------------------- ------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ............................................. $ 137,868 $ -- $ -- $137,868
Rent from Operating Company ........................ 280,270 -- (280,270)(C) --
Interest ........................................... 151,315 -- (193)(D) 151,122
Horse racing revenue ............................... -- 5,228 -- 5,228
Hotel revenue ...................................... -- 494,494 -- 494,494
Restaurant rent, food & beverage revenue ........... -- 21,158 -- 21,158
Golf club revenue .................................. -- 65,515 -- 65,515
Other .............................................. -- 3,480 -- 3,480
--------- -------- ----------- --------
Total revenue ..................................... 569,453 589,875 (280,463) 878,865
Expenses:
Interest expense ................................... 200,052 209 (193)(D) 200,068
Amortization of goodwill ........................... 31,536 135 -- 31,671
Depreciation, amortization & asset
retirements ...................................... 142,642 6,438 -- 149,080
General and administrative ......................... 10,111 22,413 -- 32,524
Rental expense due to Meditrust .................... -- 280,270 (280,270)(C) --
Horse racing operations ............................ -- 4,263 -- 4,263
Hotel and restaurant operations .................... -- 220,769 -- 220,769
Golf club operations ............................... -- 55,952 -- 55,952
Property operations ................................ 26,786 -- -- 26,786
Net gain on property transactions .................. -- (8,808) -- (8,808)
Partners' equity in earnings ....................... -- 860 -- 860
--------- -------- ----------- --------
Total expenses .................................... 411,127 582,501 (280,463) 713,165
--------- -------- ----------- --------
Income before income taxes .......................... 158,326 7,374 -- 165,700
Income tax provision ................................ -- 2,802 -- 2,802
--------- -------- ----------- --------
Income before extraordinary items ................... 158,326 4,572 -- 162,898
--------- -------- ----------- --------
Income allocated to Series A Non-Voting
Convertible Common Stock ......................... 17,590 -- -- 17,590
--------- -------- ----------- --------
Income available for Paired Common Shares ........... $ 140,736 $ 4,572 $ -- $145,308
========= ======== =========== ========
Basic earnings per share ............................ $ 1.11 $ 0.04 $ 1.15
Basic weighted average shares outstanding ........... 127,002 126,805 126,805
Diluted earnings per share .......................... $ 1.10 $ 0.04 $ 1.14
Diluted weighted average shares outstanding ......... 127,456 126,805 127,259
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined statement
of operations.
8
<PAGE>
The Meditrust Companies
Notes to Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the pro forma results of operations of Meditrust Corporation for
the year ended December 31, 1997 as adjusted for the Merger and the Cobblestone
Merger.
(B) Represents the pro forma results of operations of Operating Company for the
year ended December 31, 1997 as adjusted for the Merger and the Cobblestone
Merger.
(C) Represents the elimination of rental income and expense related to the race
track, hotels and golf course properties leased by Operating Company from
Meditrust.
(D) Represents the elimination of interest income and expense related to the
operating note between Meditrust Corporation and Operating Company.
9
<PAGE>
MEDITRUST CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Meditrust La Quinta Cobblestone Other Meditrust
Corporation Merger Merger Pro Forma Corporation
Historical (A) Adjustments (B) Adjustments (C) Adjustments Pro Forma
---------------- ----------------- ----------------- -------------------- -------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ................................... $ 137,868 $ -- $ -- $ -- $ 137,868
Rent from Operating Company .............. 740 258,010 (D) 21,520 (D) -- 280,270
Interest ................................. 151,315 -- -- -- 151,315
--------- ----------- ---------- ------------ ---------
Total revenue ........................... 289,923 258,010 21,520 -- 569,453
Expenses:
Interest expense ......................... 87,412 119,540 (E) 13,500 (F) (20,400) (J) 200,052
Amortization of goodwill ................. 2,214 20,914 (G) 8,408 (G) -- 31,536
Depreciation and amortization ............ 26,954 107,383 (H) 8,305 (H) -- 142,642
General and administrative ............... 10,111 -- -- -- 10,111
Property operations ...................... 220 23,732 (I) 2,834 (I) -- 26,786
--------- ----------- ---------- ------------ ---------
Total expenses .......................... 126,911 271,569 33,047 (20,400) 411,127
--------- ----------- ---------- ------------ ---------
Income before extraordinary items ......... 163,012 (13,559) (11,527) 20,400 158,326
--------- ----------- ---------- ------------ ---------
Income allocated to Series A
Non-Voting Convertible
Common Stock ........................... -- -- -- 17,590 (K) 17,590
--------- ----------- ---------- ------------ ---------
Income available for Paired
Common Shares .......................... $ 163,012 $ (13,559) $ (11,527) $ 2,810 $ 140,736
========= =========== ========== ============ =========
Basic earnings per share .................. $ 2.14 $ 1.11
Basic weighted average shares
outstanding ............................ 76,267 127,002
Diluted earnings per share ................ $ 2.12 $ 1.10
Diluted weighted average shares
outstanding .............................. 76,721 127,456
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
10
<PAGE>
Meditrust Corporation
Notes to Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Meditrust Corporation
for the year ended December 31, 1997.
(B) Represents adjustments to Meditrust Corporation's results of operations
assuming the Merger had occurred as of January 1, 1997.
(C) Represents adjustments to Meditrust Corporation's results of operations
assuming the Cobblestone Merger had occurred as of January 1, 1997.
(D) Represents the pro forma lease revenue from Operating Company to Meditrust
Corporation for the use of assets that Meditrust Corporation will have ownership
of subsequent to the La Quinta/Cobblestone Mergers. The respective lease revenue
is calculated based upon the historical revenue and expenses of the assets for
the period presented.
(E) Represents adjustments to historical interest expense of Meditrust
Corporation based on the Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $49,186
Adjustment to reflect the increase in interest expense as a result of additional
borrowings of $487,674 at an assumed rate of 7.5% partially offset by the
effect of refinancing the existing La Quinta $120,000 9.25% Senior
Subordinated Notes from an effective rate of 9.58% to 7.5% ........................... 34,080
Amortization of additional deferred loan costs ........................................ 1,000
-------
Adjustment to interest expense ........................................................ $84,266
=======
</TABLE>
(F) Represents adjustments to historical interest expense of Meditrust
Corporation based on the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $ 15,273
Adjustment to reflect the net decrease in interest expense as a result of additional
borrowings of $45,000 and refinancing the existing debt at 7.5%....................... (1,773)
--------
Adjustment to interest expense ........................................................ $ 13,500
========
</TABLE>
Interest expense on The Meditrust Companies' Revolving Credit Facility assumes
an average interest rate of 7.5%. An increase of 25 basis points in the
interest rate on this variable rate debt would increase pro forma interest
expense by $2,466, decrease net income to $135,460 and decrease basic earnings
per share by $0.02 based upon 127,002 basic weighted average common shares
outstanding.
(G) Represents adjustments to reflect amortization of goodwill of $20,914 and
$8,408 pertaining to the mergers with La Quinta and Cobblestone, respectively.
Goodwill represents purchase consideration in excess of the fair market value
of the net assets of La Quinta and Cobblestone. Amortization of goodwill is
computed using the straight line method over a 20 year estimated useful life.
(H) Represents adjustment to increase depreciation of real estate and
personalty and amortization of intangible assets acquired. Depreciation is
computed using the straight line method and is based upon the estimated useful
lives of 30 years for buildings and improvements, 20 years for land
improvements and 5 to 7 years for personal property. Amortization of the
tradename asset is computed using the straight line method over a 20 year
estimated life. Intangible assets for the assembled work force and customer
reservation system are amortized on a straight line basis over a 3 year
estimated life. These estimates are based upon management's knowledge of the
properties and the hotel and golf course industries in general.
(I) Represents adjustment to reclassify property tax and insurance expenses
related to the ownership of real estate assets from Operating Company to
Meditrust Corporation.
(J) Represents adjustments to interest expense based upon the reduction in
additional borrowings assumed to be incurred in connection with the La
Quinta/Cobblestone Mergers, effected through the receipt of approximately
$272,000 from the issuance of 8,500 shares of Series A Non-Voting Convertible
Common Stock in a Forward Equity Transaction.
(K) Represents the adjustments to record dividends allocable to the holders of
Series A Non-Voting Convertible Common Stock, assuming a dividend rate of LIBOR
plus 75 basis points.
11
<PAGE>
MEDITRUST OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Operating
Company La Quinta Cobblestone
(Historical)(A) (Historical)(B) (Historical)(C)
----------------- ----------------- -----------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ...................... $ 5,228 $ -- $ --
Hotel revenue ............................. -- 494,494 --
Restaurant rent, food & beverage
revenue .................................. -- 8,075 13,083
Golf club revenue ......................... -- -- 65,515
Other ..................................... 137 -- 3,343
------- -------- --------
Total revenue ............................ 5,365 502,569 81,941
Expenses:
Interest expense .......................... 209 49,186 15,273
Amortization of goodwill .................. 135 -- --
Depreciation, amortization & asset
retirements .............................. 171 60,817 8,909
General and administrative ................ 447 18,524 4,030
Rent expense due to Meditrust ............. 740 -- --
Horse racing operations ................... 4,263 -- --
Hotel operations .......................... -- 244,501 --
Golf club operations ...................... -- -- 58,786
Net gain on property transactions ......... -- (8,808) --
Partners' equity in earnings .............. -- 860 --
------- -------- --------
Total expenses ........................... 5,965 365,080 86,998
------- -------- --------
(Loss) income before income taxes .......... (600) 137,489 (5,057)
Income tax provision ....................... -- 50,185 49
------- -------- --------
(Loss) income before extraordinary
items .................................... $ (600) $ 87,304 $ (5,106)
======= ======== ========
Basic earnings per share ................... $ (0.01)
Basic weighted average shares
outstanding ............................... 76,070
Diluted earnings per share ................. $ (0.01)
Diluted weighted average shares
outstanding ............................... 76,070
<CAPTION>
La Quinta Cobblestone Total Operating
Pro Forma Pro Forma Pro Forma Company
Adjustments(D) Adjustments(E) Adjustments Pro Forma
------------------ ------------------ ------------- -----------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ...................... $ -- $ -- $ -- $ 5,228
Hotel revenue ............................. -- -- -- 494,494
Restaurant rent, food & beverage
revenue .................................. -- -- -- 21,158
Golf club revenue ......................... -- -- -- 65,515
Other ..................................... -- -- -- 3,480
----------- ----------- ---------- ---------
Total revenue ............................ -- -- -- 589,875
Expenses:
Interest expense .......................... (49,186)(F) (15,273)(F) (64,459) 209
Amortization of goodwill .................. -- -- -- 135
Depreciation, amortization & asset
retirements .............................. (58,592)(F) (4,867)(F) (63,459) 6,438
General and administrative ................ -- (588)(I) (588) 22,413
Rent expense due to Meditrust ............. 258,010 (G) 21,520 (G) 279,530 280,270
Horse racing operations ................... -- -- -- 4,263
Hotel operations .......................... (23,732)(F) -- (23,732) 220,769
Golf club operations ...................... -- (2,834)(F) (2,834) 55,952
Net gain on property transactions ......... -- -- -- (8,808)
Partners' equity in earnings .............. -- -- -- 860
----------- ----------- ---------- ---------
Total expenses ........................... 126,500 (2,042) 124,458 582,501
----------- ----------- ---------- ---------
(Loss) income before income taxes .......... (126,500) 2,042 (124,458) 7,374
Income tax provision ....................... (47,432)(H) -- (47,432) 2,802
----------- ----------- ---------- ---------
(Loss) income before extraordinary
items .................................... $ (79,068) $ 2,042 $ (77,026) $ 4,572
=========== =========== ========== =========
Basic earnings per share ................... $ 0.04
Basic weighted average shares
outstanding ............................... 126,805
Diluted earnings per share ................. $ 0.04
Diluted weighted average shares
outstanding ............................... 126,805
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
12
<PAGE>
Meditrust Operating Company
Notes to Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Operating Company for
the period ended December 31, 1997.
(B) Represents the historical statement of operations of La Quinta for the year
ended December 31, 1997.
(C) Represents the historical statement of operations of Cobblestone for the
year ended September 30, 1997.
(D) Represents adjustments to Operating Company's results of operations
assuming the Merger had occurred as of January 1, 1997.
(E) Represents adjustments to Operating Company's results of operations
assuming the Cobblestone Merger had occurred as of January 1, 1997.
(F) Represents the adjustment to reclassify interest, depreciation and
amortization, property taxes and insurance expenses related to the ownership of
real estate assets from Operating Company to Meditrust Corporation.
(G) Represents the pro forma lease expense of Operating Company for the use of
assets that Meditrust Corporation will have ownership of subsequent to the La
Quinta/Cobblestone mergers. The respective lease expense is calculated based
upon the historical revenue and expenses of the assets for the periods
presented.
(H) Represents the adjustment to La Quinta's income tax provisions necessitated
by the impact to taxable income from the effects of the Merger.
(I) Represents the adjustment to eliminate semi-annual investment banking and
service fees to an affiliate of the majority shareholder of Cobblestone.
13
<PAGE>
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.
Meditrust Corporation
Meditrust Operating Company
By: /s/ David F. Benson
-----------------------------------
David F. Benson
President
Date: March 10, 1998
14
