- ------------------------------------------------------------------------------
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):
December 10, 1998
PROLOGIS TRUST
(Exact name of registrant as specified in its charter)
Maryland 01-12846 74-2604728
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
14100 East 35th Place 80011
Aurora, Colorado (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 375-9292
Not Applicable
(Former name or former address, if changed since last report)
- ------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K is being filed by ProLogis Trust
("ProLogis") to provide pro forma condensed consolidated financial statements
that reflect the proposed merger (the "Merger") of Meridian Industrial Trust,
Inc. ("Meridian") with and into ProLogis. ProLogis and Meridian have entered
into an Agreement and Plan of Merger (the "Merger Agreement") which was included
in ProLogis' Current Report on Form 8-K filed on November 18, 1998.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS AND EXHIBITS
(a) Financial Statements:
None
(b) Pro Forma Financial Information:
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1998 (unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statement of Earnings from
Operations for the nine months ended September 30, 1998
(unaudited)
Pro Forma Condensed Consolidated Statement of Earnings from
Operations for the year ended December 31, 1997 (unaudited)
Notes to Pro Forma Condensed Consolidated Statements of
Earnings from Operations
(c) Exhibits:
None
3
<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 thereunto duly authorized.
PROLOGIS TRUST
By: /s/ Edward F. Long
-------------------------------
Edward F. Long
Vice President and Controller
Date: December 10, 1998 By: /s/ Shari J. Jones
--------------------------------
Shari J. Jones
Vice President
(Principal Accounting Officer)
4
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
The accompanying pro forma condensed consolidated financial statements
for ProLogis Trust ("ProLogis") reflect the proposed merger (the "Merger") of
Meridian Industrial Trust, Inc. ("Meridian") with and into ProLogis. Under the
Agreement and Plan of Merger (the "Merger Agreement"), for each share of
Meridian common stock held, the holder will receive 1.10 ProLogis common shares
("ProLogis Common Shares") plus up to $2.00 in cash under certain circumstances,
and Meridian's Series D preferred stockholders will receive one comparable
ProLogis cumulative redeemable preferred share. In addition, ProLogis will
assume Meridian's outstanding liabilities. The Merger will be accounted for
using the purchase method of accounting in accordance with Accounting Principles
Board Opinion No. 16.
The accompanying pro forma condensed consolidated financial statements
have been prepared based on pro forma adjustments to the pro forma financial
statements filed individually by ProLogis and Meridian, which are incorporated
by reference. Those pro forma financial statements were previously filed via
Current Reports on Form 8-K by each company, which are referenced in the
accompanying notes to the condensed consolidated financial statements.
The accompanying pro forma condensed consolidated balance sheet has
been prepared as if the Merger had occurred on September 30, 1998. The
accompanying pro forma condensed consolidated statements of earnings from
operations for the nine months ended September 30, 1998 and the year ended
December 31, 1997 have been prepared as if the Merger had occurred on January 1,
1997.
The pro forma condensed consolidated financial statements do not
purport to be indicative of the financial position or results of operations
which would actually have been obtained had the Merger and other transactions
been completed on the dates indicated or which may be obtained in the future.
The pro forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements of ProLogis and Meridian,
as set forth in their respective 1997 Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q for the nine months ended September 30, 1998 and the pro
forma financial statements included in the Current Reports on Form 8-K referred
to above.
The accompanying pro forma condensed consolidated statements of
earnings from operations for the nine months ended September 30, 1998 and the
year ended December 31, 1997 do not give effect to the fully stabilized results
of operations related to: (i) facilities under development of both ProLogis and
Meridian at September 30, 1998 with a combined total budgeted completion cost of
$544.2 million; or, (ii) completed developments of ProLogis and Meridian during
1997 and the first nine months of 1998 with a combined total budgeted completion
cost of $678.3 million. Management believes that there will be sufficient
depth of management and personnel such that additional facilities can be
developed and managed without a significant increase in personnel or other
costs. As a result, management believes that the accretion in net earnings from
operations and funds from operations from the Merger reflected in the pro forma
condensed consolidated statements of earnings from operations is not indicative
of the full accretion that is expected to occur on a post-Merger basis.
In management's opinion, all material adjustments necessary to reflect
the effects of the Merger have been made to the pro forma condensed consolidated
financial statements.
5
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Meridian
-----------------------------------------
Pro Forma
-----------------------------
ProLogis Pro Forma ProLogis
Pre-Merger Pre-Merger Purchase Price Purchase Merger Post-Merger
ASSETS Pro Forma(a) Pro Forma(b) Adjustments(c) Value(c) Adjustments Pro Forma
------ ---------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate $ 3,491,480 $ 1,179,783 $ 276,048 $ 1,455,831 $ 5,550(n) $ 4,952,861
Less accumulated depreciation 231,526 29,005 (29,005) -- -- 231,526
----------- ----------- ----------- ----------- ---------- -----------
Net real estate investment 3,259,954 1,150,778 305,053 (d) 1,455,831 5,550 4,721,335
Investments in and advances to uncon-
solidated subsidiaries 525,138 45,907 -- (e) 45,907 -- 571,045
Cash and cash equivalents 27,512 3,535 -- 3,535 -- 31,047
Restricted cash and cash held in escrow -- 10,912 -- 10,912 -- 10,912
Note receivable -- 8,000 -- (f) 8,000 -- 8,000
Accounts receivable and other assets 115,049 31,479 (14,304)(g) 17,175 -- 132,224
----------- ----------- ----------- ----------- ---------- ----------
Total assets $ 3,927,653 $ 1,250,611 $ 290,749 $ 1,541,360 $ 5,550 $5,474,563
=========== =========== =========== =========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Liabilities:
Lines of credit $ 159,500 $ 292,148 $ (48,301)(h) $ 243,847 $ 16,613(o) $ 419,960
Short-term borrowings 150,000 -- -- -- -- 150,000
Mortgage notes and assessment bonds
payable 138,059 103,312 5,794 (i) 109,106 -- 247,165
Long-term debt 958,586 160,102 (4,015)(i) 156,087 -- 1,114,673
Accounts payable and other
liabilities 155,898 50,007 10,304(j) 60,311 (10,304)(p) 205,905
---------- ---------- ----------- ----------- ---------- ------------
Total liabilities 1,562,043 605,569 (36,218) 569,351 6,309 2,137,703
Minority interest 51,358 17,605 -- 17,605 -- 68,963
Shareholders' equity:
Series A Preferred Shares 135,000 -- -- -- -- 135,000
Series B Convertible Preferred
Shares 194,925 25,000 (25,000)(k) -- -- 194,925
Series C Preferred Shares 100,000 -- -- -- -- 100,000
Series D Preferred Shares 250,000 50,000 -- 50,000 (50,000)(q) 250,000
Series E Preferred Shares -- -- -- -- 50,000 (q) 50,000
Common Shares (123,091,696 historical,
162,933,442 pro forma) 1,231 32 3 (l) 36 362 (q)(r) 1,629
1 (k)
Additional paid-in capital 1,899,342 567,044 73,297 (k)(l) 919,007 (759)(n) 2,802,589
278,666 (m) (15,001)(r)
Employee share purchase notes (25,660) -- -- -- -- (25,660)
Accumulated other comprehensive income 307 -- -- -- -- 307
Distributions in excess of net earnings (240,893) (14,639) -- (14,639) 14,639(r) (240,893)
----------- ----------- ----------- ----------- -------- -----------
Total shareholders' equity 2,314,252 627,437 326,967 954,404 (759) 3,267,897
----------- ----------- ----------- ----------- -------- -----------
Total liabilities and
shareholders' equity $ 3,927,653 $ 1,250,611 $ 290,749 $ 1,541,360 $ 5,550 $ 5,474,563
=========== =========== =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma
condensed consolidated financial statements.
6
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
September 30, 1998
(Unaudited)
(a) Reference is made to ProLogis' Current Report on Form 8-K filed on
December 4, 1998 with the Securities and Exchange Commission for the
source of ProLogis' pre-Merger pro forma balance sheet as of September
30, 1998. The pre-Merger pro forma balance sheet gives effect to the
post September 30, 1998 acquisition of an industrial distribution
facility as if the acquisition had occurred as of September 30, 1998.
(b) Reference is made to Meridian's Current Report on Form 8-K filed on
December 7, 1998 with the Securities and Exchange Commission for the
source of Meridian's pre-Merger pro forma balance sheet as of
September 30, 1998. The pre-Merger pro forma balance sheet gives
effect to the post September 30, 1998 acquisitions of real estate
assets as if these acquisitions had occurred as of September 30, 1998.
Certain amounts have been reclassified to conform to ProLogis'
presentation.
(c) Represents adjustments to record Meridian's pro forma assets and
liabilities at their respective purchase values based on the purchase
method of accounting. The assumed purchase price was computed as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Issuance of ProLogis Common Shares (see
notes (m) and (q)) $ 905,404
Issuance of ProLogis Series E preferred
shares (see notes (m) and (q)) 49,000
Assumption of Meridian's liabilities at
estimated fair value (see notes (h),
(i) and (j)) 569,351
Assumption of Meridian's minority interest
at book value (which approximates fair
value) 17,605
-----------
Assumed purchase price $ 1,541,360
===========
</TABLE>
(d) Represents the step-up in basis of Meridian's real estate assets in
accordance with the purchase method of accounting based on the assumed
purchase price (see note (c)). The stepped-up basis indicated is less
than the estimated fair value of Meridian's real estate assets.
Management's fair value estimates were based on:
(i) Operating facilities: the application of estimated capitalization
rates to each operating facility's estimated current net
operating income;
(ii) Developments expected to be completed in 1998: the application of
estimated capitalization rates to the facility's estimated net
operating income upon completion and adjusting this value to
reflect the estimated percentage of completion as of September
30, 1998;
7
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (CONTINUED)
(Unaudited)
(iii) Developments expected to be completed subsequent to 1998: the
actual cost of the development at September 30, 1998 adjusted
upward by a factor to reflect the step-up to estimated fair value;
(iv) Land held for development: the book value at September 30, 1998
was deemed to be the fair value as all land acquisitions occurred
within the last 12 months;
(v) Participating mortgage note receivable included in real estate:
represents a participating mortgage note at the actual
outstanding principal balance at September 30, 1998. The interest
rate of the note was deemed to be comparable to the interest rate
that would have been negotiated by the combined company; and,
(vi) The total value of the assets set forth in items (i) through (v)
above exceed the purchase price. Accordingly, the estimated fair
value of the long-lived assets (Meridian's real estate assets)
were reduced by the amount of this negative goodwill according to
generally accepted accounting principles.
(e) The fair value of Meridian's investment in the preferred stock of
Meridian Refrigerated, Inc., which owns refrigerated distribution
companies, is assumed to be the book value at September 30, 1998. The
underlying assets of Meridian Refrigerated, Inc. were acquired in 1998.
(f) Represents a note receivable to Meridian. The fair value of the note is
its outstanding principal balance at September 30, 1998 because the
interest rate of the note was deemed to be comparable to the interest
rate that would have been negotiated by the combined company.
(g) Represents the elimination of the following assets of Meridian that
have no future value to the combined company (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred loan costs, net $ 2,432
Costs capitalized associated with a new
financial reporting software package
that will not be implemented by the
combined company 925
Rent leveling receivable 5,740
Capitalized leasing commissions and expenses,
net 3,866
Miscellaneous fixed assets 716
Costs incurred related to potential Meridian
property acquisitions that are not
planned by the combined company 625
----------
Total adjustment $ 14,304
==========
</TABLE>
(h) Represents the pay down on Meridian's line of credit as a result of
the cash payments received by Meridian upon the assumed exercise of
Meridian's outstanding options and warrants as follows (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
<S> <C>
2,024,371 options at a weighted average
exercise price of $19.07 per share $ 38,605
615,995 warrants at a weighted average
exercise price of $15.74 per share 9,696
------------
Cash proceeds from assumed exercise $ 48,301
============
</TABLE>
See note (l).
8
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (CONTINUED)
(Unaudited)
(i) The adjustments to Meridian's mortgage notes payable and long-term debt
reflects the premium or discount to adjust these financial instruments
to their estimated fair value. The adjustment is based on the present
value of amounts to be paid using interest rates currently available to
ProLogis for debt obligations with similar terms and features. The
borrowing rates available to ProLogis are assumed to be comparable to
the borrowing rates available to the combined company. The adjustments
are based on current rates ranging from 7.20% to 8.05%.
(j) Represents the liability to be assumed by the combined company related
to the costs of the severance packages of Meridian employees who will
be involuntarily terminated as a result of the Merger. These estimated
costs are considered part of the purchase price.
(k) Represents the assumed pre-Merger conversion of 1,623,376 shares of
Meridian's Series B convertible preferred stock into shares of
Meridian common stock on a one for one basis ($1,000 par value and
$24,999,000 additional paid-in capital). The cash proceeds are assumed
to be used to repay borrowings on Meridian's line of credit. See notes
(h) and (l).
(l) Represents the issuance of shares of Meridian common stock upon the
assumed exercise of outstanding options and warrants ($3,000 par value
and $48,298,000 additional paid-in capital ). See note (k).
(m) Represents adjustment of Meridian's stockholders' equity based on the
assumed fair value of the shares to be received from ProLogis as
calculated below (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
<S> <C>
39,841,746 shares of common stock at $22.725
per share (the assumed per share value of
the ProLogis Common Shares to be issued
to Meridian holders on a 1.10 for one basis
as described in notes (c) and (q)) $ 905,404
2,000,000 shares of preferred stock at $24.50
per share (the assumed per share value of
the ProLogis preferred shares to be issued
to Meridian holders on a one for one basis
as described in notes (c) and (q)) 49,000
Meridian's pre-Merger pro forma stockholders'
equity (assumes conversion of Meridian
Series B preferred stock and exercise of
options and warrants described in notes
(k) and (l)) (675,738)
-----------
Total adjustment $ 278,666
===========
</TABLE>
9
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (CONTINUED)
(Unaudited)
(n) Represents the adjustment to real estate associated with the $5.6
million of costs assumed to be incurred by ProLogis in connection with
the Merger. See note (o).
(o) Represents the assumed incremental borrowings necessary to fund the
following cash payments associated with the Merger (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Merger transaction costs:
Banking and professional fees $ 5,350
Other costs including printing,
filing, title and transfer costs 200
------------
5,550
Severance payments (see note (j)) 10,304
Merger registration costs 759
------------
Total incremental borrowings
on line of credit $ 16,613
============
</TABLE>
(p) Represents the adjustment to accounts payable and other liabilities for
the assumed payment of accrued severance costs. See notes (j) and (o).
(q) Represents: (i) the 1.10 for one exchange of 36,219,769 shares of
Meridian common stock ($0.001 par value) for 39,841,746 ProLogis Common
Shares ($0.01 par value) and (ii) the one for one exchange of 2,000,000
shares of Meridian Series D preferred stock for 2,000,000 comparable
ProLogis Series E preferred shares($25.00 per share stated liquidation
preference). The shares of Meridian common stock are determined as
follows:
<TABLE>
<CAPTION>
<S> <C>
Pre-merger pro forma shares outstanding 31,674,027
Conversion of Meridian Series B preferred
stock (see note (k)) 1,623,376
Assumed exercise of options and warrants
(see note (l)) 2,640,366
Conditional stock grants 282,000
-----------
Adjusted pre-Merger pro forma Meridian
common stock outstanding 36,219,769
===========
</TABLE>
(r) Represents the following adjustments to additional paid-in capital
resulting from the application of purchase accounting: (i) a $362,000
adjustment for the difference between the $0.001 par value of
Meridian's common stock as compared to the $0.01 par value of ProLogis'
Common Shares related to the exchange of shares referenced in note (q),
and (ii) the reclassification of $14,639,000 of Meridian's
distributions in excess of net earnings to additional paid-in capital.
10
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS
Nine Months Ended September 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ProLogis Meridian Pro Forma ProLogis
Pre-Merger Pre-Merger Merger Post-Merger
Pro Forma (s) Pro Forma (t) Adjustments (u) Pro Forma
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income:
Rental income $ 256,016 $ 77,599 $ -- $ 333,615
Other real estate income 10,542 -- -- 10,542
Income from unconsolidated
subsidiaries and JV 1,930 3,883 -- 5,813
Foreign exchange gains, net 5,336 -- -- 5,336
Interest and other income 2,012 1,339 -- 3,351
------------ ------------ ------------ -----------
Total income 275,836 82,821 -- 358,657
------------ ------------ ------------ -----------
Expenses:
Rental expenses, net of recoveries 20,879 5,742 (422) (v) 26,199
General and administrative 14,060 5,502 (4,762) (w) 14,800
Administrative services fee paid to affiliate 1,566 -- -- 1,566
Depreciation and amortization 74,795 18,021 6,071 (x) 98,887
Interest 55,374 17,807 (3,032) (y) 70,149
Interest rate hedge expense 27,652 -- 12,633 (z) 40,285
Other 4,096 713 -- 4,809
------------ ------------ ------------ -----------
Total expenses 198,422 47,785 10,488 256,695
------------ ------------ ------------ -----------
Earnings from operations before minority
interest, excluding gains on dispositions 77,414 35,036 (10,488) 101,962
Minority interest share in net earnings 3,101 896 -- 3,997
------------ ------------ ------------ -----------
Earnings from operations, excluding gains on
dispositions 74,313 34,140 (10,488) 97,965
Less preferred share dividends 35,543 4,888 (1,607) (aa) 38,824
------------ ------------ ------------ -----------
Net earnings from operations attributable to
common shares $ 38,770 $ 29,252 $ (8,881) $ 59,141
============ ============ ============ ===========
Weighted average common shares
outstanding - basic (bb) 121,183 31,674 161,023
============ ============ ===========
Weighted average common shares
outstanding - diluted (bb) 121,421 32,131 161,261
============ ============ ===========
Per share net earnings from operations
attributable to common shares:
Basic (bb) $ 0.32 $ 0.92 $ 0.37
============ ============ ===========
Diluted (bb) $ 0.32 $ 0.91 $ 0.37
============ ============ ===========
</TABLE>
(Continued)
The accompanying notes are an integral part of the pro forma
condensed consolidated financial statements.
11
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS (CONTINUED)
Nine Months Ended September 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ProLogis Meridian Pro Forma ProLogis
Pre-Merger Pre-Merger Merger Post-Merger
Pro Forma (s) Pro Forma (t) Adjustments (u) Pro Forma
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Reconciliation of net earnings from operations
attributable to common shares to funds
from operations attributable to common
shares:
Net earnings from operations attributable to
common shares $ 38,770 $ 29,252 $ (8,881) $ 59,141
Add (Deduct):
Real estate depreciation and amortization 74,013 17,908 6,071 97,992
Minority interest 3,101 851 -- 3,952
Foreign currency exchange gain related to
acquisition of affiliate (2,054) -- -- (2,054)
Interest rate hedge expense 27,652 -- 12,633 40,285
Net foreign exchange gain on remeasurement
of intercompany debt (3,417) -- -- (3,417)
Non-recurring costs 1,452 -- -- 1,452
Parent companies' share of reconciling items
of unconsolidated subsidiaries and JV 32,702 1,134 -- 33,836
------------- ------------- ------------- -----------
Funds from operations attributable to common
shares (cc) $ 172,219 $ 49,145 $ 9,823 $ 231,187
============= ============= ============= ===========
Weighted average common shares
outstanding - basic (cc) 126,253 32,157 166,624
============= ============= ===========
Weighted average common shares
outstanding - diluted (cc) 136,647 34,237 177,018
============= ============= ===========
Cash Flow Summary:
Net cash provided by operating activities $ 175,391 $ 45,077 $ 6,951 $ 227,419
Net cash used in investing activities (840,565) (356,343) -- (1,196,908)
Net cash provided by financing activities 672,886 311,102 (11,026) 972,962
</TABLE>
The accompanying notes are an integral part of the pro forma
condensed consolidated financial statements.
12
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS
Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ProLogis Meridian Pro Forma ProLogis
Pre-Merger Pre-Merger Merger Post-Merger
Pro Forma (s) Pro Forma (t) Adjustments (u) Pro Forma
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Income:
Rental income $ 305,994 $ 101,840 $ -- $ 407,834
Other real estate income 12,291 -- -- 12,291
Income from unconsolidated subsidiaries 3,278 3,223 -- 6,501
Interest and other income 2,392 3,191 -- 5,583
------------- ------------- ------------- -----------
Total income 323,955 108,254 -- 432,209
------------- ------------- ------------- -----------
Expenses:
Rental expenses, net of recoveries 31,052 14,111 593 (v) 45,756
General and administrative 5,742 6,037 (5,051) (w) 6,728
REIT management fee paid to affiliate 19,938 -- -- 19,938
Administrative services fee paid to affiliate 1,113 -- -- 1,113
Depreciation and amortization 82,077 21,784 8,095 (x) 111,956
Interest 67,203 20,050 (3,821) (y) 83,432
Costs incurred in acquiring management
companies from affiliate 75,376 -- -- 75,376
Foreign exchange loss 6,376 -- -- 6,376
Other 3,891 175 -- 4,066
------------- ------------- ------------- -----------
Total expenses 292,768 62,157 (184) 354,741
------------- ------------- ------------- -----------
Earnings from operations before minority
interest, excluding gains on dispositions 31,187 46,097 184 77,468
Minority interest share in net earnings 3,560 660 -- 4,220
------------- ------------- ------------- -----------
Earnings from operations, excluding gains
on dispositions 27,627 45,437 184 73,248
Less preferred share dividends 35,318 6,518 (2,143) (aa) 39,693
------------- ------------- ------------- -----------
Net earnings (loss) from operations attributable
to common shares $ (7,691) $ 38,919 $ 2,327 $ 33,555
============= ============= ============= ===========
Weighted average common shares
outstanding - basic (bb) 100,729 $ 31,674 140,569
============= ============= ===========
Weighted average common shares
outstanding - diluted (bb) 100,729 $ 32,131 140,709
============= ============= ===========
Per share net earnings (loss) from operations
attributable to common shares:
Basic (bb) $ (0.08) $ 1.23 $ 0.24
============= ============= ===========
Diluted (bb) $ (0.08) $ 1.21 $ 0.24
============= ============= ===========
</TABLE>
(Continued)
The accompanying notes are an integral part of the pro forma
condensed consolidated financial statements.
13
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS (CONTINUED)
Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ProLogis Meridian Pro Forma ProLogis
Pre-Merger Pre-Merger Merger Post-Merger
Pro Forma (s) Pro Forma (t) Adjustments (u) Pro Forma
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Reconciliation of net earnings (loss) from
operations attributable to common shares
to funds from operations attributable to
common shares:
Net earnings (loss) attributable to common shares $ (7,691) $ 38,919 $ 2,327 $ 33,555
Add (Deduct):
Real estate depreciation and amortization 81,790 21,699 8,095 111,584
Minority interest 3,560 630 -- 4,190
Foreign currency exchange loss related
to acquisition of affiliate 6,028 -- -- 6,028
Net foreign exchange loss on remeasurement
of intercompany debt 348 -- -- 348
Non-recurring costs 75,376 -- -- 75,376
Parent companies' share of reconciling items
of unconsolidated subsidiaries 2,419 1,514 -- 3,933
------------- ------------- ------------- -----------
Funds from operations attributable to common
shares (cc) $ 161,830 $ 62,762 $ 10,422 $ 235,014
============= ============= ============= ===========
Weighted average common shares
outstanding - basic (cc) 105,919 32,157 146,290
============= ============= ===========
Weighted average common shares
outstanding - diluted (cc) 116,371 34,237 156,742
============= ============= ===========
Cash Flow Summary:
Net cash provided by operating activities $ 193,044 $ 82,363 $ 6,696 $ 282,103
Net cash used in investing activities (650,246) (533,745) (15,854) (1,199,845)
Net cash provided by financing activities 478,212 456,131 17,997 952,340
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
14
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS FROM OPERATIONS
Nine Months Ended September 30, 1998 and
Year Ended December 31, 1997
(Unaudited)
(In thousands)
(s) Reference is made to ProLogis' Current Report on Form 8-K filed on
December 4, 1998 with the Securities and Exchange Commission for the
source of ProLogis' pre-Merger pro forma statements of earnings from
operations for the nine months ended September 30, 1998 and the year
ended December 31, 1997. The pre-Merger pro forma statements of
earnings from operations give effect to the acquisitions of industrial
distribution facilities subsequent to December 31, 1996 as if the
acquisitions had occurred as of January 1, 1997.
(t) Reference is made to Meridian's Current Report on Form 8-K filed on
December 7, 1998 with the Securities and Exchange Commission for the
source of Meridian's pre-Merger pro forma statements of earnings from
operations for the nine months ended September 30, 1998 and the year
ended December 31, 1997. The pre-Merger pro forma statements of
earnings from operations give effect to the acquisitions of real
estate assets subsequent to December 31, 1996 as if the acquisitions
had occurred as of January 1, 1997. Certain amounts have been
reclassified to conform to ProLogis' presentation.
(u) The accompanying pro forma condensed consolidated statements of
earnings from operations for the nine months ended September 30, 1998
and the year ended December 31, 1997 do not give effect to the fully
stabilized results of operations related to: (i) facilities under
development of both ProLogis and Meridian at September 30, 1998 with a
combined total budgeted completion cost of $544.2 million; or, (ii)
completed developments of ProLogis and Meridian during 1997 and the
first nine months of 1998 with a total combined budgeted completion
cost of $678.3 million. Management believes that there will be
sufficient depth of management and personnel such that additional
facilities can be developed and managed without a significant increase
in personnel or other costs. As a result, management believes that the
accretion in net earnings from operations and funds from operations
from the Merger reflected in the pro forma condensed consolidated
statements of earnings from operations is not indicative of the full
accretion that is expected to occur on a post-Merger basis.
(v) Represents estimated changes in property expenses expected to occur
after the Merger is consummated. The adjustment includes: (i) the
elimination of substantially all of the third party property
management fees incurred by Meridian as the combined company will
manage substantially all of the acquired facilities internally and
(ii) the additional personnel and other overhead costs to be incurred
by the combined company to internally manage the acquired facilities
as follows (in thousands):
15
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS FROM OPERATIONS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Elimination of Meridian third-party
property management expenses $ (1,809) $ (1,256)
Additional costs to be incurred by
combined company:
Salaries and benefits 1,112 1,483
Other 275 366
---------- ----------
Total adjustment $ (422) $ 593
========== ==========
</TABLE>
On September 8, 1997, ProLogis became an internally managed REIT
through the acquisition of its REIT management and property management
companies. The pro forma condensed consolidated statement of earnings
from operations for the year ended December 31, 1997 reflects the
externally managed structure for the period from January 1, 1997 to
September 8, 1997. The cost savings expected to result from the Merger,
as computed above, are based on ProLogis' current cost structure as an
internally managed REIT.
Management believes that the cost savings in future periods will be
greater than the amount summarized above as a result of incremental
operating efficiencies and economies of scale which are expected to be
realized in the future. Futhermore, management believes that there will
be sufficient depth of management and personnel such that additional
operating assets can be acquired, developed and managed without a
direct proportional increase in personnel and other costs.
(w) Represents estimated cost savings expected to occur after the Merger is
consummated. The adjustment includes (i) the elimination of all of the
Meridian corporate general and administrative expenses, as all such
functions are considered duplicative and will be assumed by ProLogis
current personnel and (ii) the additional cost to be incurred by the
combined company upon assumption of the Meridian functions eliminated
as a result of the Merger as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Elimination of Meridian general and
administrative expenses $ (5,502) $ (6,037)
Additional costs to be incurred by
combined company:
Salaries and benefits 218 291
Other 522 695
----------- ------------
Total adjustments $ (4,762) $ (5,051)
=========== ============
</TABLE>
16
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS FROM OPERATIONS (CONTINUED)
(Unaudited)
On September 8, 1997, ProLogis became an internally managed REIT
through the acquisition of its REIT management and property management
companies. The pro forma condensed consolidated statement of earnings
from operations for the year ended December 31, 1997 reflects the
externally managed structure for the period from January 1, 1997 to
September 8, 1997. The cost savings expected to result from the Merger
as computed above, are based on ProLogis' current cost structure as an
internally managed REIT.
Management believes that the cost savings in future periods will be
greater than the amount summarized above as a result of incremental
operating efficiencies and economies of scale which are expected to be
realized in the future. Futhermore, management believes that there will
be sufficient depth of management and personnel such that additional
operating assets can be acquired, developed and managed without a
direct proportional increase in personnel and other costs.
(x) Represents the net increase in depreciation of real estate as a result
of the step-up in basis to record Meridian's real estate at estimated
fair value for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
----------- ----------
<S> <C> <C>
Step-up in real estate basis
(see notes (d), (j) and (n)) $ 310,603 $ 310,603
Less amount of step-up allocated to:
Land held for development (309) (309)
Developments in progress (22,527) (22,527)
Land portion of operating facilities (42,857) (42,857)
Participating mortgage (2,052) (2,052)
---------- ----------
Depreciable portion of step-up in basis 242,858 242,858
---------- ----------
Estimated annual incremental depreciation
expense based on an assumed weighted
average life of 30 years 8,095 8,095
Proration factor 0.75 1.0
---------- ----------
Estimated incremental depreciation $ 6,071 $ 8,095
========== ==========
</TABLE>
17
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS FROM OPERATIONS (CONTINUED)
(Unaudited)
(y) Represents the net decrease in interest expense as a result of the
following items for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------ ----------
<S> <C> <C>
Decrease related to the pay down on
Meridian's line of credit as a
result of the assumed exercise of
options and warrants described in
note (l) (1) $ (2,584) $ (3,360)
Decrease based on the pro forma interest
rates resulting from the adjustments
of Meridian's debt to its estimated
fair market value as described in
note (i) (2) (303) (404)
Decrease in Meridian loan cost amortiza-
tion related to the elimination of
Meridian deferred loan costs as
described in note (g) (962) (1,178)
Increase related to additional borrowings
on the line of credit to fund the
Merger-related costs identified in
note (o) (3) 817 1,121
---------- ----------
Total adjustment $ (3,032) $ (3,821)
========== ==========
<FN>
- ---------------
(1) Computed using Meridian's actual weighted average interest
rate of 7.13% for the nine months ended September 30, 1998 and
6.96% for the year ended December 31, 1997.
(2) Based on effective interest rates determined to be available
to the combined company (7.20% for secured long-term debt and
7.95% - 8.05% for unsecured long-term debt).
(3) Computed using ProLogis' actual weighted average interest rate
of 6.56% for the nine months ended September 30, 1998 and 6.75%
for the year ended December 31, 1997.
</FN>
</TABLE>
(z) Represents the expense associated with the termination of an interest
rate contract of Meridian during the nine months ended September 30,
1998. This expense is not included in Meridian's pre-Merger pro forma
condensed consolidated statement of earnings from operations because
the contract was terminated and the expense is not considered to be
reflective of continuing operations. Because ProLogis recognized a mark
to market expense on similar interest rate contracts (that have not yet
been terminated) in its pre-Merger pro forma condensed consolidated
statement of earnings from operations for the nine months ended
September 30, 1998, this adjustment is necessary for a consistent
presentation on a combined company basis.
(aa) Represents the elimination of dividends on the Meridian Series B
preferred stock for the periods indicated that is assumed to be
converted to shares of Meridian common stock as of January 1, 1997. See
note (k).
18
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS FROM OPERATIONS (CONTINUED)
(Unaudited)
(bb) A reconciliation of the denominator used to calculate basic net earnings
per common share to the denominator used to calculate diluted net
earnings per common share for the periods indicated for ProLogis and
Meridian on a pre-Merger pro forma basis and for ProLogis on a pro forma
post-Merger basis is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------
Pre-Merger
-----------------------
ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings from operations
attributable to common shares $ 38,770 $ 29,252 $ 59,141
========== ========== ==========
Weighted average common shares
outstanding - basic 121,183 31,674 161,023(1)
Incremental options and warrants 238 457 238
---------- ---------- ----------
Adjusted weighted-average common
shares outstanding - diluted 121,421 32,131 161,261(1)
(2)
========== ========== ==========
Per share net earnings from
opertions attributable to
common shares:
Basic $ 0.32 $ 0.92 $ 0.37
========== ========== ==========
Diluted $ 0.32 $ 0.91 $ 0.37(2)
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------
Pre-Merger
----------------------
ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
---------- --------- ----------
<S> <C> <C> <C>
Net earnings (loss) from
operations attributable
to common shares $ (7,691) $ 38,919 $ 33,555
========== ========= ==========
Weighted average common shares
outstanding - basic 100,729 31,674 140,569(1)
Incremental options and warrants -- 457 140
---------- --------- ----------
Adjusted weighted-average common
shares outstanding - diluted 100,729 32,131 140,709(1)
(3)
========== ========= ==========
Per share net earnings from
operations attributable to
common shares:
Basic $ (0.08) $ 1.23 $ 0.24
========== ========= ==========
Diluted $ (0.08) $ 1.21 $ 0.24(3)
========== ========= ==========
<FN>
- ---------------
(1) The ProLogis post-Merger pro forma weighted average common shares
outstanding reflects the following adjustments based on the assumption
that the Merger occurred as of January 1, 1997: (i) the assumed
pre-Merger conversion of Meridian's Series B preferred stock to
Meridian common stock; (ii) the assumed pre-Merger exercise of all of
Meridian's outstanding options and warrants; and, (iii) the increase
resulting from the issuance of 1.10 ProLogis Common Shares for one
share of Meridian common stock.
19
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS FROM OPERATIONS (CONTINUED)
(Unaudited)
(2) For the nine months ended September 30, 1998, there were 10,156
weighted average ProLogis Series B Preferred Shares and 5,601 weighted
average limited partnership units outstanding on an as-converted basis
that were not assumed to be converted into ProLogis Common Shares for
purposes of calculating diluted earnings per ProLogis Common Share as
the effect was antidilutive.
(3) For the year ended December 31, 1997, there were 10,319 weighted
average ProLogis Series B Preferred Shares and 5,721 weighted average
limited partnership units outstanding on an as-converted basis that
were not assumed to be converted into ProLogis Common Shares for
purposes of calculating diluted earnings per ProLogis Common Share as
the effect was antidilutive.
</FN>
</TABLE>
(cc) Funds from operations represent net earnings (computed in accordance
with generally accepted accounting principles ("GAAP")) before
minority interest, before gains or losses from debt restructuring,
before gains or losses on disposition of depreciated real estate,
before gains or losses from mark to market adjustments resulting from
the remeasurement (based on current foreign currency exchange rates)
of intercompany and other debt of foreign subsidiaries, before
deferred tax benefits and deferred tax expenses of taxable
subsidiaries, before significant non-recurring items that materially
distort the comparative measurement of company performance over time,
plus real estate depreciation and amortization (exclusive of
amortization of loan costs), and after adjustments for unconsolidated
subsidiaries calculated to compute their funds from operations on the
same basis as the parent company. Management believes that funds from
operations is helpful to a reader as a measure of the performance of
an equity real estate investment trust ("REIT") because, along with
cash flow from operating activities, investing activities and
financing activities, it provides a reader with an indication of the
ability of the REIT to incur and service debt, to make capital
expenditures and to fund other cash needs. The funds from operations
measures presented by ProLogis and Meridian are comparable. However,
while consistent with the National Association of Real Estate
Investment Trusts' definition, ProLogis' and Meridian's funds from
operations measures will not be comparable to similarly titled measure
of other REITs which do not compute funds from operations in a manner
consistent with ProLogis and Meridian. Funds from operations are not
intended to represent cash made available to shareholders. Funds from
operations should not be considered as an alternative to net earnings
or any other GAAP measurement of performance as an indicator of
ProLogis' or Meridian's operating performance, or as an alternative to
cash flows from operating, investing or financing activities as a
measure of liquidity.
A reconciliation of the information used to calculate basic and
diluted funds from operations and weighted average common shares for
the basic and diluted (as defined by GAAP) presentations for the
periods indicated for ProLogis and Meridian on a pre-Merger pro forma
basis and for ProLogis on a pro forma post-Merger basis is as follows
(in thousands):
20
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS FROM OPERATIONS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------
Pre-Merger
---------------------
ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
---------- --------- -----------
<S> <C> <C> <C>
Funds from operations attributable
to common shares - basic (1) $ 172,219 $ 49,145 $ 231,187
Convertible Series B preferred
share dividends 10,370 1,607 10,370
---------- --------- ----------
Adjusted funds from operations
attributable to common shares $ 182,589 $ 50,752 $ 241,557
========== ========= ==========
Weighted average common shares
outstanding - basic (1) 126,253 32,157 166,624 (2)
Weighted average conversion of
Series B preferred shares 10,156 1,623 10,156
Incremental options and warrants 238 457 238
---------- --------- ----------
Adjusted weighted average common
shares outstanding - diluted 136,647 34,237 177,018 (2)
========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------
Pre-Merger
---------------------
ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
---------- --------- -----------
<S> <C> <C> <C>
Funds from operations attributable
to common shares - basic (1) $ 161,830 $ 62,762 $ 235,014
Convertible Series B preferred
share dividends 14,088 2,143 14,088
---------- --------- -----------
Adjusted funds from operations
attributable to common shares $ 175,918 $ 64,905 $ 249,102
========== ========= ===========
Weighted average common shares
outstanding - basic (1) 105,919 32,157 146,290 (2)
Weighted average conversion of
Series B preferred shares 10,319 1,623 10,319
Incremental options and warrants 133 457 133
---------- --------- -----------
Adjusted weighted average common
shares outstanding - diluted 116,371 34,237 156,742 (2)
========== ========= ===========
<FN>
- ---------------
(1) For purposes of calculating "basic" funds from operations per common
share, ProLogis and Meridian use the methodology prescribed by GAAP as
adjusted to assume conversion of all limited partnership units to
common shares (5,070 and 5,190 on a weighted average basis for
ProLogis on a pre-Merger pro forma basis for the nine months ended
September 30, 1998 and the year ended December 31, 1997) respectively;
531 on a weighted average basis for Meridian on a pre-Merger pro forma
basis for both periods indicated; and 5,553 and 5,673 on a weighted
average basis for ProLogis on a pro forma post-Merger basis for the
nine months ended September 30, 1998 and the year ended December 31,
1997, respectively).
(2) The ProLogis post-Merger pro forma weighted average common shares
outstanding reflects the following adjustments based on the assumption
that the Merger occurred as of January 1, 1997: (i) the assumed
pre-Merger conversion of Meridian's Series B preferred stock to
Meridian common stock; (ii) the assumed pre-Merger exercise of all of
Meridian's outstanding options and warrants; and, (iii) the increase
resulting from the issuance of 1.10 ProLogis Common Shares for one
share of Meridian common stock.
</FN>
</TABLE>
21
