<PAGE>
================================================================================
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):
August 25, 1999
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 35/th/ 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 2. ACQUISITION OR DISPOSITION OF ASSETS
This Current Report on Form 8-K is being filed by ProLogis Trust
("ProLogis") to report the disposition of certain real estate assets in the Los
Angeles, California market, primarily industrial distribution facilities in
addition to four undeveloped land parcels, on August 25, 1999 as detailed below.
The assets were sold for approximately $556.0 million to ProLogis California I
LLC (the "Joint Venture"), a limited liability company, in which ProLogis and
New York State Common Retirement Fund ("NYSCRF") each have a 50% equity
interest. The disposition generated cash proceeds of $209.2 million to ProLogis
(which represents the cash contribution of NYSCRF of $147.5 million and proceeds
from mortgage debt arranged directly by the Joint Venture of $62.0 million)
after its equity contribution of $147.5 million. In addition, the Joint Venture,
which has a ten-year minimum term, assumed $199.3 million of ProLogis' mortgage
debt. The real estate assets are as follows:
Square Feet
-----------
Operating Properties:
Freeway Distribution Center #1-3 568,371
Commerce Distribution Center #1 101,902
Ontario Distribution Center #1-5 1,474,587
Mid Counties Industrial Center #1-6 and #11 694,146
Mid Counties Distribution Center #7-8 718,628
Foothill Business Center #1-3 and #11-13 578,929
North County Distribution Center #1-2 1,182,051
Pacific Business Center #1-5 519,818
Santa Ana Distribution Center #1 100,000
Industry Distribution Center #1-3 574,646
Commerce Industrial Center #1 373,361
California Commerce Center #1-4 655,193
Inland Empire Distribution Center #1-2 and #4-6 1,364,833
Chino Industrial Center #1 170,619
Cedarpointe Industrial Park #1-6 393,393
Corona Distribution Center #1 201,380
Riverside Distribution Center #1-2 113,721
Rancho Santa Margarita Business Center #1-2 38,067
Brea Industrial Center #1-3 196,184
Cypress Business Center #1-3 137,232
Santa Ana Business Center #1-2 56,800
Huntington Beach Distribution Center #1 165,000
Dominguez North Industrial Center #1-11 1,069,616
Valencia Distribution Center #1 107,520
----------
11,555,997
==========
Land Parcels:
Mid Counties Distribution Center #3 12.2 acres
Mid Counties Distribution Center #10 10.1 acres
Mira Loma Distribution Center #1 11.6 acres
Cedarpoint #1 15.6 acres
ProLogis has included proforma financial statements to reflect the
disposition of real estate assets and the acquisition of a 50% interest in the
Joint Venture as discussed above. The proforma financial statements also
reflect the acquisition of certain industrial distribution facilities during
1998 that were reported previously in ProLogis' Current Report on Form 8-K/A
filed on April 22, 1999 and dated as of April 14, 1999 and the merger of
Meridian Industrial Trust, Inc. with and into ProLogis, that was completed on
March 30, 1999 and reported previously in ProLogis' Current Report on Form 8-K
filed on March 30, 1999.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
None
(b) Pro Forma Financial Information:
Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1999 (unaudited)
Pro Forma Condensed Consolidated Statement of Earnings from
Operations for the six months ended June 30, 1999 (unaudited)
Pro Forma Condensed Consolidated Statement of Earnings from
Operations for the year ended December 31, 1998 (unaudited)
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited)
(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/ Walter C. Rakowich
-------------------------------
Walter C. Rakowich
Managing Director and
Chief Financial Officer
(Principal Financial Officer)
Date: September 9, 1999 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: (i) the disposition of certain real
estate assets, primarily industrial distribution facilities in addition to four
undeveloped land parcels, on August 25, 1999 to ProLogis California I LLC (the
"Joint Venture"), as detailed in Item 2 of this Current Report on Form 8-K;
(ii) the acquisition by ProLogis of a 50% equity interest in the Joint Venture
in which New York State Common Retirement Fund ("NYSCRF") also has a 50% equity
interest; (iii) the assumption of mortgage debt of ProLogis by the Joint Venture
in connection with the acquisition of the real estate assets; (iv) the
acquisition by ProLogis of certain industrial distribution facilities during the
period from January 1, 1998 to December 31, 1998, as detailed in the Current
Report on Form 8-K/A of ProLogis filed on April 22, 1999 and dated as of April
14, 1999; and (v) the merger of Meridian Industrial Trust, Inc. ("Meridian")
with and into ProLogis that was completed on March 30, 1999 (the "Merger").
ProLogis entered into a joint venture agreement, which has a ten-year
minimum term, with NYSCRF to form the Joint Venture on August 25, 1999. The
agreement provides for the Joint Venture to acquire certain real estate assets
in the Los Angeles, California market from ProLogis and assume $199.3 million of
ProLogis' mortgage debt. After receiving cash proceeds, ProLogis has a 50%
equity interest in the Joint Venture. For its cash contribution, NYSCRF also
has a 50% interest in the Joint Venture. Under the terms of other agreements,
ProLogis will receive a fee for managing the real estate assets and for
overseeing the administration of the Joint Venture.
The accompanying pro forma condensed consolidated financial statements have
been prepared based upon certain pro forma adjustments to the historical
financial statements of ProLogis. The accompanying pro forma condensed
consolidated balance sheet has been prepared as if: (i) the disposition of the
real estate assets to the Joint Venture; (ii) the related assumption of mortgage
debt by the Joint Venture; and (iii) ProLogis' acquisition of a 50% interest in
the Joint Venture had all occurred as of June 30, 1999.
The accompanying pro forma condensed consolidated statements of earnings
from operations for the six months ended June 30, 1999 and for the year ended
December 31, 1998 have been prepared as if: (i) the acquisition of certain
facilities acquired by ProLogis during the period from January 1, 1998 to
December 31, 1998 as detailed in the Current Report on Form 8-K/A of ProLogis
filed on April 22, 1999 and dated as of April 14, 1999 had all occurred as of
January 1, 1998; (ii) the assumption of certain mortgage debt associated with
the facilities noted in (i) above had occurred as of January 1, 1998; (iii) the
issuance of senior unsecured notes subsequent to December 31, 1997, necessary to
fund the pro forma acquisitions noted in (i) above, had occurred as of January
1, 1998; (iv) the Merger had occurred as of January 1, 1998; (v) the completion
of a secured financing transaction which was funded at various dates during the
period from January 1, 1999 to June 30, 1999 as if it had occurred as of January
1, 1998 (such debt was assumed by the Joint Venture); and (vi) the disposition
of real estate assets to the Joint Venture, the related assumption of mortgage
debt by the Joint Venture and ProLogis' acquisition of a 50% interest in the
Joint Venture had all occurred as of January 1, 1998.
5
<PAGE>
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 formation of the Joint Venture and related
disposition of real estate assets, the Merger and the other transactions noted
above 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 as set
forth in its 1998 Annual Report on Form 10-K, the historical financial
statements of Meridian as set forth in the Current Report on Form 8-K filed by
ProLogis on April 13, 1999, the proforma financial statements of Meridian
included in the Current Report on Form 8-K also filed by ProLogis on April 13,
1999, the proforma financial statements of ProLogis included in the Current
Report on Form 8-K/A filed on April 22, 1999 and dated as of April 14, 1999 and
ProLogis' Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
In management's opinion, all material adjustments necessary to reflect the
effects of the formation of the Joint Venture and related disposition of real
estate assets, the Merger and other transactions noted above have been made to
the pro forma condensed consolidated financial statements.
6
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
ProLogis Pro Forma ProLogis
ASSETS Historical Adjustments (a) Pro Forma
------ ---------- --------------- ----------
<S> <C> <C> <C>
Real estate $5,476,988 $(507,862)(a)(1) $4,969,126
Less accumulated depreciation 315,598 11,386 (a)(1) 304,212
---------- --------- ----------
Net real estate investment 5,161,390 (496,476) 4,664,914
Investments in and advances to unconsolidated
subsidiaries 780,165 -- 780,165
Investment in Joint Venture -- 121,280 (a)(2) 121,280
Cash and cash equivalents 60,432 -- 60,432
Accounts and notes receivable and other assets 219,755 (6,902)(a)(1) 211,863
(990)(a)(3)
---------- --------- ----------
Total assets $6,221,742 $(383,088) $5,838,654
========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Lines of credit $ 266,600 $(206,311)(a)(4) $ 60,289
Mortgage notes, assessment bonds and securitized debt 928,817 (199,250)(a)(3) 727,725
(1,842)(a)(2)
Senior unsecured notes 1,729,449 -- 1,729,449
Other unsecured debt 31,800 -- 31,800
Accounts payable, accrued expenses and other liabilities 193,868 (2,738)(a)(1) 191,130
---------- --------- ----------
Total liabilities 3,150,534 (410,141) 2,740,393
Minority interest 64,429 -- 64,429
Shareholders' equity:
Series A Preferred Shares 135,000 -- 135,000
Series B Convertible Preferred Shares 178,892 -- 178,892
Series C Preferred Shares 100,000 -- 100,000
Series D Preferred Shares 250,000 -- 250,000
Series E Preferred Shares 50,000 -- 50,000
Common Shares of beneficial interest (161,404,501
shares historical and proforma) 1,614 -- 1,614
Additional paid-in capital 2,652,354 -- 2,652,354
Employee share purchase notes (23,279) -- (23,279)
Accumulated other comprehensive income 1,556 -- 1,556
Distributions in excess of net earnings (339,358) 27,053 (a)(1) (312,305)
---------- --------- ----------
Total shareholders' equity 3,006,779 27,053 3,033,832
---------- --------- ----------
Total liabilities and shareholders' equity $6,221,742 $(383,088) $5,838,654
========== ========= ==========
</TABLE>
See accompanying notes to the proforma condensed consolidated financial
statements.
7
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1999
(Unaudited)
(a) Represents the disposition of real estate assets and formation of the Joint
Venture, as discussed in Item 2 of this Current Report on Form 8-K, as
follows (in thousands):
<TABLE>
<S> <C> <C>
(1) Sales proceeds from disposition of real estate assets
(based on asset values at June 30, 1999) $ 554,964
ProLogis' basis in real estate assets as of June 30, 1999:
Real estate (507,862)
Accumulated depreciation 11,386
Other assets (6,902)
Other liabilities 2,738 (500,640)
--------
Closing costs (218)
---------
Total gain on disposition 54,106
Less: gain not recognized (50%) (27,053)
---------
Gain recognized $ 27,053
=========
(2) ProLogis' investment in the Joint Venture is calculated as:
Fair value of real estate assets $ 554,964
Principal amount of debt assumed, net of loan costs (198,260)
Cash proceeds received (209,289)
---------
Capital balance in the Joint Venture 147,415
b
Additional basis adjustments:
Fees incurred 2,760
Premium associated with debt assumed (1,842)
Step-up in basis not recognized by ProLogis (27,053)
---------
$ 121,280
=========
(3) Debt assumed by the Joint Venture:
Principal amount $ 199,250
Less: Loan costs capitalized by ProLogis (990)
---------
$ 198,260
=========
(4) Repayment of borrowings on ProLogis' line of credit:
Cash proceeds from Joint Venture $ 209,289
Closing costs paid in cash (218)
Other transaction fees paid in cash (2,760)
---------
$ 206,311
=========
</TABLE>
ProLogis has recognized a gain on the disposition of the real estate
assets to the extent of third party investment (NYSCRF) in the Joint Venture
(50%).
8
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLDIATED STATEMENT OF EARNINGS FROM OPERATIONS
Six Months Ended June 30, 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ProLogis
ProLogis Pro Forma Merger Adjustments Post-Merger Joint Venture ProLogis
--------------------------------
Historical Meridian (c) ProLogis (d) Pro Forma Transaction Pro Forma
---------- -------------- -------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Income:
Rental income $228,412 $ 29,481 $ -- $257,893 $(27,064) (k) $ 230,829
Other real estate income 20,221 -- -- 20,221 -- 20,221
Income (loss) from unconsolidated
subsidiaries (11,137) 475 -- (10,662) -- (10,662)
Income from Joint Venture -- -- -- -- 2,752 (l) 2,752
Interest and other income 1,879 581 -- 2,460 -- 2,460
-------- -------- ---------- -------- -------- ---------
Total income 239,375 30,537 -- 269,912 (24,312) 245,600
-------- -------- ---------- -------- -------- ---------
Expenses:
Rental expenses, net of recoveries 16,165 3,042 -- (e) 19,207 (4,977) (k) 14,230
General and administrative 17,811 3,283 -- (f) 21,094 (38) (m) 21,056
Depreciation and amortization 66,992 7,432 1,934 (g) 76,358 (7,310) (k) 69,048
Interest 76,269 9,280 898 (h) 86,447 (12,929) (n) 73,518
Interest rate hedge expense 945 -- -- 945 -- 945
Other 3,709 27,882 (27,882) (i) 3,709 -- 3,709
-------- -------- ---------- -------- -------- ---------
Total expenses 181,891 50,919 (25,050) 207,760 (25,254) 182,506
-------- -------- ---------- -------- -------- ---------
Earnings (loss) from operations befor
minority interest, excluding
gains on dispositions 57,484 (20,382) 25,050 62,152 942 63,094
Minority interest share
in earnings from operations 2,603 176 -- 2,779 -- 2,779
-------- -------- ---------- -------- -------- ---------
Earnings (loss) from operations,
excluding gains on dispositions 54,881 (20,558) 25,050 59,373 942 60,315
Less preferred share dividends 27,938 1,094 -- (j) 29,032 -- 29,032
-------- -------- ---------- -------- -------- ---------
Net earnings from operations
attributable to Common Shares: $ 26,943 $(21,652) $ 25,050 $ 30,341 $ 942 $ 31,283
======== ======== ========== ======== ======== ========
Weighted average Common
Shares outstanding - basic 142,974 (b) 33,146 (b) 161,528 (b) 161,528 (b)
======== ========= ======== ========
Weighted average Common
Shares outstanding - diluted 143,110 (b) 33,146 (b) 161,723 (b) 161,723 (b)
======== ========= ======== ========
Per share net earnings from operation
attributable to Common Shares
Basic $ 0.19 (b) $ (0.65) (b) $ 0.19 (b) $ 0.19 (b)
======== ========= ======== ========
Diluted $ 0.19 (b) $ (0.65) (b) $ 0.19 (b) $ 0.19 (b)
======== ========= ======== ========
</TABLE>
See accompanying notes to the proforma condensed consolidated financial
statements.
9
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FROM OPERATIONS
Year ended December 31, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Acquisitions ProLogis
--------------------------
ProLogis Pro Forma Pre-Merger Pro Forma Merger Adjustments
----------------------------
Historical Historical Adjustments Pro Forma Meridian (u) ProLogis (d)
---------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Rental income $345,046 $ 9,458 (p) $ -- $354,504 $123,274 $ --
Other real estate income 17,250 -- -- 17,250 2,236 --
Income from unconsolidated
subsidiaries 2,755 -- -- 2,755 3,336 --
Income from Joint Venture -- -- -- -- -- --
Interest and other income 2,752 -- -- 2,752 2,935 --
-------- ---------- -------- -------- -------- --------
Total income 367,803 9,458 -- 377,261 131,781 --
-------- ---------- -------- -------- -------- --------
Expenses:
Rental expenses, net of recoveries 27,120 446 (p) 188 (q) 27,754 25,366 -- (e)
General and administrative 22,957 -- -- 22,957 8,333 -- (f)
Depreciation and amortization 100,590 -- 2,803 (r) 103,393 25,293 7,734 (g)
Interest 77,650 -- 7,058 (s)(t) 84,708 25,028 4,315 (h)
Interest rate hedge expense 26,050 -- -- 26,050 12,633 --
Other 7,983 -- -- 7,983 825 (825) (i)
-------- ---------- -------- -------- -------- --------
Total expenses 262,350 446 10,049 272,845 97,478 11,224
-------- ---------- -------- -------- -------- --------
Earnings (loss) from operations
before minority interest,
excluding gains on dispositions 105,453 9,012 (10,049) 104,416 34,303 (11,224)
Minority interest share in earnings
from operations 4,681 -- -- 4,681 1,047 --
-------- ---------- -------- -------- -------- --------
Earnings (loss) from operations,
excluding gains on dispositions 100,772 9,012 (10,049) 99,735 33,256 (11,224)
Less preferred share dividends 49,098 -- -- 49,098 6,517 (2,142) (j)
-------- ---------- -------- -------- -------- --------
Net earnings from operations
attributable to Common Shares $ 51,674 $ 9,012 $(10,049) $ 50,637 $ 26,739 $ (9,082)
======== ========== ======== ======== ======== ========
Weighted average Common Shares
outstanding
- basic 121,721 (o) 121,721 (o) 31,697 (o)
======== ======== ========
Weighted average Common Shares
outstanding
- diluted 122,028 (o) 122,028 (o) 32,148 (o)
======== ======== ========
Per share net earnings from
operations attributable to
Common Shares
Basic $ 0.42 (o) $ 0.42 (o) $ 0.84 (o)
======== ======== ========
Diluted $ 0.42 (o) $ 0.41 (o) $ 0.83 (o)
======== ======== ========
<CAPTION>
ProLogis
Post-Merger Joint Venture ProLogis
Pro Forma Transaction Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
Income:
Rental income $477,778 $ (47,629) (k) $430,149
Other real estate income 19,486 -- 19,486
Income from unconsolidated
subsidiaries and JV 6,091 -- 6,091
Income from Joint Venture -- 3,258 (l) 3,258
Interest and other income 5,687 -- 5,687
-------- --------- --------
Total income 509,042 (44,371) 464,671
-------- --------- --------
Expenses:
Rental expenses, net of recoveries 53,120 (7,948) (k) 45,172
General and administrative 31,290 (75) (m) 31,215
Depreciation and amortization 136,420 (10,935) (k) 125,485
Interest 114,051 (26,581) (n) 87,470
Interest rate hedge expense 38,683 -- 38,683
Other 7,983 -- 7,983
-------- --------- --------
Total expenses 381,547 (45,539) 336,008
-------- --------- --------
Earnings (loss) from operations
before minority interest,
excluding gains on dispositions 127,495 1,168 128,663
Minority interest share in earnings
from operations 5,728 -- 5,728
-------- --------- --------
Earnings (loss) from operations,
excluding gains on dispositions 121,767 1,168 122,935
Less preferred share dividends 53,473 -- 53,473
-------- --------- --------
Net earnings from operations
attributable to Common Shares $ 68,294 $ 1,168 $ 69,462
======== ========= ========
Weighted average Common Shares
outstanding
- basic 159,890 (o) 158,890(o)
======== ========
Weighted average Common Shares
outstanding
- diluted 159,363 (o) 159,363(o)
======== ========
Per share net earnings from
operations attributable to
Common Shares
Basic $ 0.43 (o) $ 0.44(o)
======== ========
Diluted $ 0.43 (o) $ 0.44(o)
======== ========
</TABLE>
See accompanying notes to the proforma condensed consolidated financial
statements.
10
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
Six Months Ended June 30, 1999 and
Year Ended December 31, 1998
(Unaudited)
(b) 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 six months ended June 30, 1999 is as follows (in
thousands, except per Common Share amounts):
<TABLE>
<CAPTION>
Pre Merger ProLogis
-----------------------
ProLogis Meridian Post Merger ProLogis
Historical Pro Forma Pro Forma Pro Forma
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss) from operations attributable
to Common Shares................................ $ 26,943 $(21,652) $ 30,341 $ 31,283
Weighted average Common Shares
outstanding - basic............................. 142,974 33,146 161,528 161,528
Incremental options and warrants.................. 136 -- 195 195
-------- -------- -------- --------
Weighted average Common Shares outstanding -
diluted (1)..................................... 143,110 33,146 161,723 $161,723
======== ======== ======== ========
Per share net earnings from operations
attributable to Common Shares:
Basic........................................ $ 0.19 $ (0.65) $ 0.19 $ 0.19
======== ======== ======== ========
Diluted (1).................................. $ 0.19 $ (0.65) $ 0.19 $ 0.19
======== ======== ======== ========
</TABLE>
____________________
(1) There were 9,336,000 weighted average Series B Preferred Shares and
5,245,000 limited partnership units outstanding on an as-converted basis
that were not assumed to be converted into Common Shares for purposes of
calculating diluted earnings per Common Share as the effect was
antidilutive.
(c) Represents the results of operations of Meridian for the period January 1,
1999 through March 30, 1999. This financial information is based upon
Meridian's unaudited financial statements.
(d) On March 30, 1999, Meridian was merged with and into ProLogis. The Merger
was accounted for using the purchase method of accounting. The accompanying
pro forma condensed consolidated statements of earnings from operations for
the six months ended June 30, 1999 and for the year ended December 31, 1998
do not give effect to the fully stabilized results of operations related to
facilities under development of both ProLogis and Meridian during those
periods. 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 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.
(e) During the year ended December 31, 1998 and the period January 1, 1999
through March 30, 1999, Meridian utilized the services of third-party
management companies to perform property management functions for
substantially all of its operating facilities. Meridian paid these
management companies a fee based upon the revenues generated by the
facility. ProLogis utilizes third-party management companies on a very
limited basis. Substantially all of the property management functions
related to ProLogis' operating facilities are performed by employees of
ProLogis. ProLogis expects that after consummation of the Merger, the
property
11
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
management functions related to the Meridian operating facilities acquired
will be performed by ProLogis employees and that the existing Meridian
third-party management contracts will be terminated. Management of ProLogis
expects that additional employees (including property accounting personnel)
will be needed as these property management functions are transferred from
the third-party management companies. However, it is expected that, because
approximately 98% of the Meridian facilities are located in markets where
ProLogis currently owns and manages assets, certain expense savings will be
achieved. While ProLogis expects to realize lower property management costs
related to the Meridian operating facilities than had been incurred by
Meridian, no estimate of these expected future cost savings has been
included in the pro forma financial statements. Such adjustment is not
included because these costs savings are not factually supportable within
the SEC regulations governing the preparation of the pro forma financial
statements until such time as the third-party agreements are terminated and
the property management function is completely transferred to ProLogis.
(f) As a separate corporate entity, Meridian incurred general and
administrative costs as follows:
. Personnel costs and related employee benefits and expenses for the
Meridian administrative employees: These employees are not related to
the property management function, but rather perform corporate
functions specific to the Meridian corporate entity. These functions
are considered duplicative with the functions performed currently by
ProLogis employees.
. Directors' fees and costs: The Meridian corporate entity ceases to
exist after the Merger, therefore the Board of Directors will no
longer be in existence.
. Professional fees (including auditing, accounting, legal, stock
registration and consulting): These costs will not be incurred as the
Meridian corporate entity ceases to exist after the Merger.
Accordingly, there will be no entity to incur these costs and Meridian
will have no publicly traded securities.
. Office expenses (including rent and utilities): Meridian maintained a
corporate office in San Francisco, California. ProLogis has an
existing corporate office and does not intend to maintain any
additional corporate offices after the Merger.
Meridian's general and administrative costs are summarized below (in
thousands) for the period from January 1, 1999 to March 30, 1999 and for
the year ended December 31, 1998. These costs are related to the corporate
organization as opposed to costs associated with the operations of
Meridian's real estate facilities (which are included in rental expenses
and are discussed in note (e)). ProLogis expects that, after the Merger, a
significant portion of these expenses will be eliminated.
<TABLE>
<CAPTION>
Period from
January 1, 1999 to Year Ended
March 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Personnel and related......... $2,064 $4,575
Professional fees............. 385 1,099
Directors' fees and expenses.. 71 289
Office expenses............... 383 1,256
Other......................... 18 205
------ ------
Total.................... $2,921 $7,424
====== ======
</TABLE>
While the general and administrative costs noted above will not be incurred
by Meridian after the Merger, ProLogis does expect that there will be
incremental increases in certain of its corporate general and
administrative costs. ProLogis has determined these increases to be related
to the following changes in its corporate operations directly as a result
of the Merger:
12
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
. Legal, auditing and accounting fees will increase because ProLogis has
acquired approximately $1.4 billion of additional real estate assets
aggregating approximately 33.5 million square feet of industrial
distribution facilities.
. Stock transfer fees, proxy solicitation and shareholder relations costs
will increase because ProLogis has issued approximately 37.2 million
additional ProLogis Common Shares and 2.0 million Series E preferred
shares.
. ProLogis has added two members to its Board of Trustees resulting in
additional fees and expenses.
The incremental ProLogis costs are computed on a pro rata basis based upon
the additional pro forma revenues generated by the Merger (for accounting,
auditing and legal fees), additional shares outstanding after the Merger
(for stock transfer, proxy and shareholder relations) and the increase in
the number of trustees as follows (in thousands):
<TABLE>
<CAPTION>
Period from
January 1, 1999 Year Ended
to March 30, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Accounting, auditing and legal........................ $ 60 $ 250
Stock transfer, proxy and shareholder relations....... 30 120
Trustees' fees and expenses........................... 25 100
-------- --------
Total......................................... $ 115 $ 470
======== ========
</TABLE>
While ProLogis expects that general and administrative cost savings will
result from the Merger, such savings are not yet factually supportable and
quantifiable within the SEC regulations governing the preparation of the
pro forma financial statements. Consequently, no adjustment has been made.
(g) 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 its estimated fair
value (in thousands):
<TABLE>
<CAPTION>
Period from
January 1, 1999 Year Ended
to March 30, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Step-up in real estate basis.......................... $296,127 $296,127
Less amount of step-up allocated to:
Developments in progress and land held for
development................................... (21,588) (21,588)
Land portion of operating facilities............. (40,947) (40,947)
Participating mortgage........................... (1,560) (1,560)
-------- --------
Depreciable portion of step-up in basis............... $232,032 $232,032
======== ========
Estimated incremental depreciation expense for the
respective periods based on an assumed weighted
average life of 30 years......................... $ 1,934 $ 7,734
======== ========
</TABLE>
13
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
(h) Represents the net change in interest expense as a result of the following
items (in thousands):
<TABLE>
<CAPTION>
Period from
January 1, 1999 Year Ended
to March 30, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Decrease related to the pay down on Meridian's line
of credit as a result of the exercise of options
and warrants (1)............................................ $ (104) $ (418)
Decrease based on the pro forma interest rates resulting
from the adjustments of Meridian's debt to its
estimated fair value (2).................................... (231) (821)
Decrease in Meridian loan cost amortization related
to the elimination of Meridian deferred loan costs.......... (397) (1,572)
Increase related to additional borrowings on the line
of credit of $42,722 to fund the transaction and
registration costs and the assumed cash payments
to Meridian stockholders of $67,581 (3)..................... 1,630 7,126
-------- --------
Total adjustment......................................... $ 898 $ 4,315
======== ========
</TABLE>
_____________________
(1) Computed using Meridian's actual weighted average interest rate of
6.54%.
(2) Based on effective interest rates determined to be available to the
combined company (7.31% for secured mortgage notes and 7.18% for senior
unsecured notes).
(3) Computed using ProLogis' actual weighted average interest rate of 5.91%
for the period from January 1, 1999 to March 30, 1999 and 6.46% for the
year ended December 31, 1998.
(i) Represents the elimination of merger-related costs expensed by Meridian
which are not reflective of future operations.
(j) For the year ended December 31, 1998, represents the elimination of
dividends on the Meridian Series B preferred stock that is assumed to be
converted into shares of Meridian common stock as of January 1, 1998. The
historical balance for the six months ended June 30, 1999 does not include
any dividends for the Series B preferred stock as the preferred stock was
converted to shares of Meridian common stock in January 1999.
(k) Represents the rental income rental expenses and depreciation expense
recognized by ProLogis on a pro forma basis for the respective periods for
the operating properties that are assumed to be disposed of as of January
1, 1998.
(l) Represents ProLogis' share of the net earnings of the Joint Venture on a
pro forma basis for the respective periods calculated as follows (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Rental income........................ $ 27,064 $ 47,629
Rental expenses, net of recoveries... 4,977 7,948
Depreciation (1)..................... 7,629 15,257
Interest (2)......................... 9,677 19,355
Joint Venture management fee (3)..... 38 75
--------- ---------
22,321 42,635
--------- ---------
Net earnings of Joint Venture........ $ 4,743 $ 4,994
========= =========
ProLogis' share @ 50%................ $ 2,371 $ 2,497
Adjustment for basis difference (4).. 381 761
--------- ---------
Amount recognized by ProLogis........ $ 2,752 $ 3,258
========= =========
</TABLE>
14
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
_______________
(1) Depreciation is calculated as (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Basis in assets......................................... $ 554,964 $ 554,964
Less amounts attributable to land and
development costs.................................... (16,469) (16,469)
--------- ---------
Basis in operating properties........................... 538,495 538,495
Portion attributable to land (15%)...................... (80,774) (80,774)
--------- ---------
Depreciable basis....................................... $ 457,721 $ 457,721
========= =========
Depreciation for the respective periods
based on an assumed weighted
average life of 30 years............................. $ 7,629 $ 15,257
========= =========
</TABLE>
(2) Interest is computed on $182.0 million of debt at 7.20%; $17.3 million
of debt at 8.67% and $62.0 million of debt at 7.49% plus amortization
of associated loan costs. The $62.0 million of debt was arranged
directly by the Joint Venture and the proceeds were used to acquire the
real estate assets from ProLogis.
(3) See note (m).
(4) Represents an add back for depreciation expense recognized by Joint
Venture related to the amount of the step-up in basis that was not
recognized as a gain by ProLogis. See note (a)(2).
(m) Represents the pro forma administrative management fee earned by ProLogis
for the respective periods under the Limited Liability Company Agreement
for the Joint Venture ($75,000 annual fee). See note (l).
(n) Represents the following pro forma adjustments to interest expense:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Increase in interest expense related to $182.0 million
secured debt financing which occurred in 1999
as if it had occurred on January 1, 1998.............. $ 2,755 $ 13,209
Decrease in line of credit interest expense related
to repayment of $182.0 million of borrowings
from proceeds of secured debt financing in 1999
as if it had occurred on January 1, 1998.............. (2,210) (11,757)
Decrease in interest expense related to the $182.0
million of secured debt that, on a pro forma
basis, was assumed by the Joint Venture as of
January 1, 1998....................................... (6,620) (13,209)
Decrease in interest expense related to the $17.3
million of secured debt that, on a pro forma
basis, was assumed by the Joint Venture as of
January 1, 1998....................................... (748) (1,496)
Decrease in interest expense related to the use of
the proceeds from the disposition of assets, net
of costs, of $206.3 million to repay borrowings
on ProLogis' line of credit as of January 1, 1998..... (6,106) (13,328)
--------- ---------
$ (12,929) $ (26,581)
========= =========
</TABLE>
_______________
(1) Computed using ProLogis' actual weighted average interest rate of 5.92%
for the six months ended June 30, 1999 and 6.46% for the year ended
December 31, 1998.
15
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
(o) 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 is as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
ProLogis
Pre-Merger Post- ProLogis
---------------------
ProLogis ProLogis Meridian Merger as Adjusted
Historical Pro Forma Pro Forma Pro Forma Pro Forma
---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net earnings from operations attributable
to Common Shares....................... $ 51,674 $ 50,637 $26,739 $ 68,294 $ 69,462
======== ======== ======= ======== ========
Weighted average Common Shares out-
standing - basic....................... 121,721 121,721 31,697 158,890 158,890
Incremental options and warrants........... 307 307 451 473 473
-------- -------- ------- -------- --------
Weighted average Common Shares
outstanding - diluted.................. 122,028 122,028 32,148 159,363 159,363 (1)
======== ======== ======= ======== ========
Per share net earnings from operations
attributable to Common Shares:
Basic................................ $ 0.42 $ 0.42 $ 0.84 $ 0.43 $ 0.44
======== ======== ======= ======== ========
Diluted.............................. $ 0.42 $ 0.41 $ 0.83 $ 0.43 $ 0.44 (1)
======== ======== ======= ======== ========
</TABLE>
_______________
(1) For the year ended December 31, 1998, there were 10,055,000 weighted
average ProLogis Series B Preferred Shares and 5,070,000 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.
(p) Represents historical revenues and certain expenses of the facilities
acquired by ProLogis during the period from January 1, 1998 to December 31,
1998 as detailed in the Current Report on Form 8-K/A of ProLogis filed on
April 22, 1999 and dated as of April 14, 1999. The total historical
acquisition adjustment reflects the period from January 1, 1998 to the
respective dates of acquisition, (results of operations after the dates of
acquisition are included in ProLogis' historical operating results).
Historical acquisition revenues and certain expenses exclude amounts which
would not be comparable to the proposed future operations of the facilities
such as certain interest expense, interest income, income taxes and
depreciation.
(q) Represents the adjustment to historical property management expenses to
reflect these expenses at the level they would have been had ProLogis owned
the facilities as of January 1, 1998.
(r) Reflects the recognition of depreciation expense associated with the pro
forma acquisitions, discussed in note (p), for the periods indicated. This
depreciation adjustment is based on ProLogis' purchase cost assuming asset
lives of 30 years. Depreciation is computed using a straight-line method.
(s) Reflects the recognition of $775,000 of interest expense on mortgage debt
as if the debt had been assumed by ProLogis as of January 1, 1998. The
mortgage debt assumed in conjunction with the acquisition of certain of the
facilities acquired subsequent to December 31, 1997 discussed in note (p)
bears interest at fixed rates ranging from 8.00% to 9.50%.
(t) Represents $6,283,000 of additional interest expense on senior unsecured
notes. The adjustment assumes that the issuance of senior unsecured notes
necessary to fund the pro forma acquisitions discussed in note (p) occurred
as of January 1, 1998. The adjustment is based on a weighted average
effective interest rate of 7.03%.
16
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
(u) Reference is made to Meridian's Current Report on Form 8-K filed by
ProLogis on April 13, 1999 for the source of Meridian's pre-Merger pro
forma statements of earnings from operations for the year ended December
31, 1998. Meridian's pre-Merger pro forma statement of earnings from
operations gives effect to the acquisitions of real estate assets
subsequent to December 31, 1997 as if the acquisitions had occurred as of
January 1, 1998. Certain amounts have been reclassified to conform to
ProLogis' financial statement presentation.
17
