- ------------------------------------------------------------------------------
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):
April 14, 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 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>
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ITEM 5. OTHER EVENTS
This Current Report on Form 8-K is being filed by ProLogis Trust
("ProLogis") to report significant changes in ProLogis' portfolio of industrial
distribution facilities during 1998 and to provide pro forma condensed
consolidated financial statements that reflect these acquisitions. In addition,
the pro forma condensed consolidated financial statements reflect 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. The pro forma condensed consolidated financial
statements also reflect the proposed issuance of $400.0 million of senior
unsecured notes. ProLogis is planning to complete an offering of these notes in
April 1999.
Acquisitions:
On January 16, 1998, ProLogis acquired the Westbelt Business
Center #1 and #2 located in the West sub-market of the Columbus, Ohio market.
The facility is classified as light industrial and consists of 136,206 square
feet. The purchase price was approximately $3.1 million. The facility was 87%
leased on the date of purchase and 82% leased at December 31, 1998.
On March 11, 1998, ProLogis acquired the National Distribution
Center #1 and #2 located in the Route 287/I-95 sub-market of the Northern New
Jersey market. The facility is classified as bulk distribution and consists of
120,000 square feet. The purchase price was approximately $3.4 million. The
facility was 33% leased on the date of purchase and 100% leased at December 31,
1998.
On April 9, 1998, ProLogis acquired the Raines Distribution Center
#1 located in the Southeast sub-market of the Memphis, Tennessee market. The
facility is classified as bulk distribution and consists of 658,820 square feet.
The purchase price was approximately $10.9 million. The facility was 44% leased
on the date of purchase and was 85% leased at December 31, 1998.
On April 23, 1998, ProLogis acquired the Meadowlands Distribution
Center #4 - 7 located in the Meadowland sub-market of the Northern New Jersey
market. The facility is classified as bulk distribution and consists of 93,297
square feet. The purchase price was approximately $5.4 million. The facility was
43% leased on the date of purchase and at December 31, 1998.
On April 24, 1998, ProLogis acquired the North Park Distribution
Center #2 located in the Northeast sub-market of the Charlotte, North Carolina
market. The facility is classified as bulk distribution and consists of 243,200
square feet. The purchase price was approximately $5.8 million and the facility
was vacant on the date of purchase. The facility was 68% leased at December 31,
1998.
On May 7, 1998, ProLogis acquired the Interchange Distribution
Center #5 through #7 located in the Southeast sub-market of the Nashville,
Tennessee market. The facility is classified as bulk distribution and consists
of 437,552 square feet. The purchase price was approximately $8.0 million. The
facility was 100% leased on the date of purchase and was 29% leased at December
31, 1998.
On May 8, 1998, ProLogis acquired the Alameda Distribution Center
#2 located in the Tempe sub-market of the Phoenix, Arizona market. The facility
is classified as bulk distribution and consists of 96,437 square feet. The
purchase price was approximately $3.0 million. The facility was 55% leased on
the date of purchase and was 100% leased at December 31, 1998.
2
<PAGE>
On May 9, 1998, ProLogis acquired the Longjumeau Distribution
Center #1 located in the Orly Airport sub-market of the Paris, France market.
The facility is classified as bulk distribution and consists of 213,870 square
feet. The purchase price was approximately $8.2 million. The facility was 100%
leased on the date of purchase and at December 31, 1998.
On June 1, 1998, ProLogis acquired the Airpark Distribution Center
#1 through #4 located in the Southside sub-market of the Louisville, Kentucky
market. The facility is classified as bulk distribution and service center and
consists of 640,900 square feet. The purchase price was approximately $10.6
million. The facility was 54% leased on the date of purchase and 68% leased at
December 31, 1998.
On June 2, 1998, ProLogis acquired the Reynosa Industrial Center
#9 located in the Reynosa Industrial Park sub-market of the Reynosa, Mexico
market. The facility is classified as light industrial and consists of 54,364
square feet. The purchase price was approximately $1.2 million. The facility was
100% leased on the date of purchase and at December 31, 1998.
On June 15, 1998, ProLogis acquired the Meadowlands Distribution
Center #8 and #9 located in the Meadowland sub-market of the Northern New Jersey
market. The facility is classified as bulk distribution and consists of 136,890
square feet. The purchase price was approximately $6.4 million. The facility was
26% leased on the date of purchase and was 100% leased at December 31, 1998.
On July 15, 1998, ProLogis acquired the Copans Distribution Center
#2 located in the I-95 North sub-market of the Boward County, Florida market.
The facility is classified as light industrial and consists of 25,300 square
feet. The purchase price was approximately $1.1 million. The facility was 100%
leased on the date of purchase and at December 31, 1998.
On July 29, 1998, ProLogis acquired the Itasca Distribution Center
#3 located in the O'Hare sub-market of the Chicago, Illinois market. The
facility is classified as bulk distribution and consists of 165,762 square feet.
The purchase price was approximately $6.7 million. The facility was 100% leased
at the date of purchase and at December 31, 1998.
On August 5, 1998, ProLogis acquired the Earth City Industrial
Center #8, #9 and #10 located in the Earth City sub-market of the St. Louis,
Missouri market. The facility is classified as bulk distribution and light
industrial and consists of 216,451 square feet. The purchase price was
approximately $5.5 million. The facility was 96% leased at the date of purchase
and at December 31, 1998.
On August 6, 1998, ProLogis acquired the Sabal Park Distribution
Center #11 and #12 located in the Tampa East sub-market of the Tampa, Florida
market. The facility is classified as bulk distribution and light industrial and
consists of 119,554 square feet. The purchase price was approximately $4.6
million. The facility was 80% leased on the date of purchase and at December 31,
1998.
On August 31, 1998, ProLogis acquired the Executive Park
Distribution Center #3 located in the Executive Park sub-market of the Kansas
City, Missouri market. The facility is classified as bulk distribution and
consists of 41,258 square feet. The purchase price was approximately $1.7
million. The facility was 100% leased on the date of purchase and at December
31, 1998.
On October 30, 1998, ProLogis acquired the Oceanie Distribution
Center #1 located in the Orly Airport sub-market of the Paris, France market.
The facility is classified as bulk distribution and consists of 170,771 square
feet. The purchase price was approximately $7.7 million. The facility was 100%
leased on the date of purchase and at December 31, 1998.
3
<PAGE>
On November 27, 1998, ProLogis acquired Epone Distribution Center #1
located in the West submarket of Paris, France. The facility is classified as
bulk distribution and consists of 121,256 square feet. The purchase price was
approximately $4.1 million. The facility was 100% leased on the date of purchase
and on December 31, 1998.
On December 8, 1998, ProLogis acquired Elk Grove Distribution Center
#10, located in the O'Hare submarket of Chicago, Illinois. This facility is
classified as light industrial and consists of 36,840 square feet. The purchase
price was approximately $1.4 million. The facility was 100% leased at the date
of purchase and at December 31, 1998.
On December 8, 1998, ProLogis acquired Ontario Distribution Center #1 -
5 located in the LAX - Inland Empire submarket of Los Angeles, California. These
five facilities are classified as light industrial and consist of 1,474,587
square feet. The purchase price was approximately $53.8 million. Four of the
buildings were 100% leased and one building was 76% leased at the time of
purchase and at December 31, 1998.
On December 22, 1998, ProLogis acquired Commerce Distribution Center #1
located in the LAX - Commerce submarket of Los Angeles, California. This
facility is classified as bulk distribution and consists of 99,166 square feet.
The purchase price was approximately $3.7 million. The facility was vacant at
the time of purchase and at December 31, 1998.
4
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
None
(b) Pro Forma Financial Information:
Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1998 (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
5
<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: April 14, 1999 By: /s/ Shari J. Jones
-------------------------------
Shari J. Jones
Vice President
(Principal Accounting Officer)
6
<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 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 February 25, 1999 and dated as of December 3, 1998 and in Item
5 of this Current Report on Form 8-K and (ii) the merger of Meridian Industrial
Trust, Inc. ("Meridian") with and into ProLogis that was completed on March 30,
1999 (the "Merger").
Under the Agreement and Plan of Merger dated as of November 16, 1998,
as amended (the "Merger Agreement"), for each share of Meridian common stock
held, the holder received 1.10 ProLogis common shares ("ProLogis Common Shares")
plus $2.00 and Meridian's Series D preferred stockholders received one
comparable ProLogis cumulative redeemable preferred share (Series E). In
addition, ProLogis assumed 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 upon certain pro forma adjustments to the historical
financial statements of ProLogis. The pro forma adjustment to reflect the Merger
is based upon the pro forma financial statements of Meridian that were included
in the Current Report on Form 8-K filed by ProLogis on April 13, 1999 which is
referenced in the accompanying notes to the pro forma condensed consolidated
financial statements.
The accompanying pro forma condensed consolidated balance sheet has
been prepared as if: (i) fundings under secured debt agreements that occurred
subsequent to December 31, 1998 had occurred as of that date, with the proceeds
being used to repay borrowings on ProLogis' unsecured lines of credit, (ii) the
Merger had occurred as of December 31, 1998 and (iii) the proposed issuance of
$400.0 million of senior unsecured notes had occurred as of December 31, 1998.
The accompanying pro forma condensed consolidated statement of earnings
from operations for the year ended December 31, 1998 has 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 February 25, 1999 and dated as of December 3,
1998 and in Item 5 of this Current Report on Form 8-K had 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 and (v) the proposed
issuance of $400 million of senior unsecured notes had occurred as of January 1,
1998.
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 proposed issuance of the senior
unsecured notes, 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
and the pro forma financial statements of Meridian included in the Current
Report on Form 8-K also filed by ProLogis on April 13, 1999.
In management's opinion, all material adjustments necessary to reflect
the effects of the proposed issuance of the senior unsecured notes, the Merger
and other transactions noted above have been made to the pro forma condensed
consolidated financial statements.
7
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Merger
Adjustments
Acquisitions ---------------------
---------------------- ProLogis Purchase ProLogis Proposed ProLogis
ProLogis Pro Forma Pre-Merger Price Post-Merger Notes As Adjusted
ASSETS Historical Historical Adjustments Pro Forma Meridian(b)Adjustments ProForma Issuance Pro Forma
------ ---------- ---------- ----------- ---------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $3,657,500 $ -- $3,657,500 $1,182,783 $260,768 $ -- $5,101,051 $ -- $5,101,051
Less accumulated depreciation 254,288 -- 254,288 35,359 (35,359) -- 254,288 -- 254,288
---------- --------- ---------- ---------- -------- ------ ---------- --------- ----------
Net real estate investment 3,403,212 -- 3,403,212 1,147,424 296,127(c) -- 4,846,763 -- 4,846,763
(d)
Investments in and advances to
unconsolidated subsidiaries
and JV 733,863 -- 733,863 45,773 (15,028)(c) -- 764,608 -- 764,608
(e)
Cash and cash equivalents 63,140 -- 63,140 17,494 -- -- 80,634 -- 80,634
Note receivable -- -- -- 8,000 -- -- 8,000 -- 8,000
Accounts receivable and other
assets 130,514 -- 130,514 36,726 (19,839)(c) -- 147,401 3,000(r) 150,401
(g)
---------- -------- ---------- ---------- -------- ------ ---------- --------- ----------
Total assets $4,330,729 $ -- $4,330,729 $1,255,417 $261,260 $ -- $5,847,406 $ 3,000 $5,850,406
========== ========= ========== ========== ======== ====== ========== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
----------------------------
Liabilities:
Lines of credit $ 344,300 $(289,000)(a)$ 55,300 $ 316,700 $ (6,385)(h) $ -- $ 475,918 $(397,000)(r)$ 78,918
67,581(c)
(i)
41,885(c)
(i)
837(j)
Short-term borrowings 150,000 (150,000)(a) -- -- -- -- -- -- --
Mortgage notes, assessment
bonds and securitized debt 227,804 439,000 (a) 666,804 103,190 5,200(c) -- 775,194 -- 775,194
(k)
Senior unsecured notes 1,083,641 -- 1,083,641 160,100 834(c) -- 1,244,575 400,000(r) 1,644,575
(k)
Accounts payable and other
liabilities 217,321 -- 217,321 33,194 -- -- 250,515 -- 250,515
---------- ------- ---------- --------- -------- ----- --------- ------- ----------
Total liabilities 2,023,066 -- 2,023,066 613,184 109,952 -- 2,746,202 3,000 2,749,202
Minority interest 51,295 -- 51,295 16,190 (1,304)(l) -- 66,181 -- 66,181
Shareholders equity:
Series A Preferred Shares 135,000 -- 135,000 -- -- -- 135,000 -- 135,000
Series B Convertible
Preferred Shares 188,440 -- 188,440 25,000 (25,000)(h) -- 188,440 -- 188,440
Series C Preferred
Shares 100,000 -- 100,000 -- -- -- 100,000 -- 100,000
Series D Preferred Shares 250,000 -- 250,000 50,000 -- (50,000)(p) 250,000 -- 250,000
Series E Preferred Shares 50,000 (p) 50,000 -- 50,000
Common Shares of beneficial
interest(123,415,711 shares
historical and 160,585,257
shares as adjusted proforma) 1,234 -- 1,234 32 2(h) 338 (p) 1,606 -- 1,606
(l)
Additional paid-in capital 1,907,232 -- 1,907,232 567,398 32,705(h) (338)(p)2,635,515 -- 2,635,515
(l)
142,221(c)(16,405)(q)
(m)
3,539(c)
(n)
(837)(j) --
Employee share purchase notes (25,247) -- (25,247) -- -- -- (25,247) -- (25,247)
Accumulated other comprehen-
sive income 23 -- 23 -- -- -- 23 -- 23
Distributions in excess of
net earnings (300,314) -- (300,314) (16,387) (18)(o) 16,405(q) (300,314) -- (300,314)
---------- ------- ---------- ---------- -------- ------- ---------- ------- ----------
Total shareholders'
equity 2,256,368 -- 2,256,368 626,043 152,612 -- 3,035,023 -- 3,035,023
---------- ------- ---------- ---------- -------- ------- ---------- ------- ----------
Total liabilities and
shareholders' equity $4,330,729 $ -- $4,330,729 $1,255,417 $261,260 $ -- $5,847,406 $ 3,000 $5,850,406
========== ======== ========== ========== ======== ======= ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of the proforma condensed
consolidated financial statements.
8
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1998
(Unaudited)
(a) Represents the funding of three secured credit agreements subsequent to
December 31, 1998 and the use of the proceeds to repay borrowings on
ProLogis' unsecured lines of credit and short-term borrowings.
(b) Reference is made to ProLogis' Current Report on Form 8-K filed on April
13, 1999 for the source of Meridian's pre-Merger historical balance sheet
as of December 31, 1998. Certain amounts have been reclassified to conform
to ProLogis' financial statement 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 (1).................... $ 729,453
Issuance of ProLogis Series E preferred shares (2)........ 46,500
Issuance of ProLogis stock options (3).................... 3,539
Cash payments to Meridian common stockholders (4)......... 67,581
Assumption of Meridian's pro forma liabilities at
estimated fair value (5)............................... 612,833
Assumption of Meridian's pro forma minority interest
(which approximates estimated fair value) (6).......... 14,886
Transaction costs (7)..................................... 41,885
----------
Assumed purchase price $1,516,677
==========
</TABLE>
(1) Represents the value of the 37,169,546 ProLogis Common Shares
that were exchanged for 33,790,496 outstanding shares of
Meridian common stock (based on the exchange ratio of 1.10 to
one). The value of the ProLogis Common Shares is based upon
the closing price of the shares on March 30, 1999 of $19.625
per share. The outstanding shares of Meridian common stock are
calculated as follows based upon transactions that occurred
subsequent to December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Pre-Merger pro forma shares of Meridian
common stock outstanding...................... 31,697,491
Conversion of Meridian Series B preferred
stock to common stock......................... 1,623,376
Exercise of options and warrants................. 413,279
Conversion of limited partnership units.......... 55,560
Issuance of shares for directors' fees........... 790
----------
Adjusted pro forma shares of Meridian
common stock outstanding 33,790,496
==========
</TABLE>
(2) The assumed value of the ProLogis Series E preferred shares is
based upon the closing price of the Meridian Series D
preferred stock on March 30, 1999 of $23.25 per share.
(3) Represents the issuance of 1,179,768 ProLogis stock options to
the holders of 1,072,516 Meridian stock options (based on the
exchange ratio of 1.10 to one). The fair value of the new
ProLogis stock options is assumed to be $3.00 per option.
(4) Represents the cash payment to Meridian common stockholders of
$2.00 per share for the 33,790,496 Meridian shares
outstanding. The total cash payment of $67,581,000 will result
in additional interest expense of approximately $4,366,000 for
the year ended December 31, 1998. This interest expense is
included in the pro forma condensed consolidated statements of
earnings from operations as discussed in note (ee).
9
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(5) The Meridian pro forma liabilities assumed are calculated as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Meridian historical liabilities......................... $ 613,184
Fair value adjustment to mortgage notes (see note (k)).. 5,200
Fair value adjustment to senior unsecured notes (see 834
note (k))............................................
Pro forma pay down on line of credit (see note (h))..... (6,385)
---------
$ 612,833
=========
</TABLE>
(6) Meridian's historical minority interest is reduced by $1,304,000
which represents the conversion of 55,560 limited partnership units
into Meridian common stock subsequent to December 31, 1998.
(7) Represents estimated costs to be incurred by ProLogis in connection
with the Merger including severance payments and payments for stock
options and restricted stock grants of $25,393,000, banking and
professional fees of $16,292,000 and $200,000 for other costs
including printing, regulatory filing, title and transfer costs.
(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 by approximately
$1.8 million of pro forma negative goodwill. Management's basis for
determining fair value estimates and the components of fair value are as
follows:
(i) Operating facilities: the application of an estimated capitalization
rate to each operating facilities estimated 1999 net operating income.
The capitalization rates were based upon market analysis and
individual property assessments;
(ii) Developments expected to be completed in the first quarter of 1999:
the application of an estimated capitalization rate to the facility's
estimated 1999 net operating income. The capitalization rates were
based upon market analysis and individual property assessments. This
value was then adjusted to reflect the estimated percentage of
completion of the facilities as of December 31, 1998;
(iii)Developments expected to be completed subsequent to the first quarter
of 1999: the actual cost of the development as of December 31, 1998
adjusted upward by a factor to reflect the step-up to estimated fair
value. Based on ProLogis' experience, the historical cost of an
internally developed facility upon completion is less than the fair
value of the facility at the time of completion;
(iv) Land held for development: the book value as of December 31, 1998 was
deemed to be the fair value because all land acquisitions occurred
within the last 12 months and the historical acquisition cost is
representative of current market conditions; and
(v) Participating mortgage note receivable included in real estate:
represents a participating mortgage note at the actual value for which
it was sold subsequent to December 31, 1998.
A summary of the fair values of Meridian's real estate assets, the
calculation of negative goodwill and the calculation of the adjustment for the
step-up in basis of Meridian's real estate assets are as follows (in thousands):
10
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C>
Operating facilities................................... $1,288,941
Developments completed in the first quarter of
1999................................................. 93,243
Developments expected to be completed subsequent
to the first quarter of 1999......................... 8,693
Land held for development.............................. 31,389
Participating mortgage note receivable................. 23,059
----------
Fair value of real estate assets....................... 1,445,325
Pro forma book value of Meridian real estate assets.... 1,147,424
----------
Preliminary adjustment for step-up in basis of real
estate assets...................................... 297,901
Pro forma book value of Meridian's total assets........ 1,255,417
Adjustment to fair value of investment in
unconsolidated subsidiary (see note (e))........... (15,028)
Adjustment to fair value of other assets (see
note (g)).......................................... (19,839)
----------
Fair value of total assets............................. 1,518,451
Pro forma purchase price (see note (c))................ 1,516,677
----------
Pro forma negative goodwill............................ $ (1,774)
==========
</TABLE>
In accordance with generally accepted accounting principles, the negative
goodwill is applied to Meridian's real estate assets. Consequently, the real
estate assets step-up adjustment is recalculated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Preliminary adjustment for step-up in basis of
real estate assets.................................. $ 297,901
Negative goodwill..................................... (1,774)
----------
Final adjustment for step-up in basis of real
estate assets....................................... $ 296,127
==========
</TABLE>
(e) The fair value of Meridian's investment in the preferred stock of Meridian
Refrigerated, Inc., which owns refrigerated distribution companies, has
been determined based upon analysis of the fair value of the underlying
refrigeration distribution assets by applying a capitalization rate to the
assets' estimated 1999 net operating income. This analysis resulted in
reduction to Meridian's book basis of $15,028,000.
(f) Represents a note receivable to Meridian. The fair value of the note is its
outstanding principal balance at December 31, 1998 because the interest
rate of the note of 8.5% 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.................................. $ 5,269
Costs capitalized associated with a new financial
reporting software package that will not be
implemented by the combined company and
miscellaneous fixed assets............................. 1,874
Rent leveling receivable.................................. 7,238
Capitalized leasing commissions and expenses, net......... 4,556
Costs incurred related to potential Meridian facility
acquisitions that are not planned by the combined
company................................................ 679
Other..................................................... 223
---------
Total adjustment $ 19,839
=========
</TABLE>
11
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(h) Represents the: (i) conversion of 1,623,376 shares of Meridian Series B
convertible preferred stock into shares of Meridian common stock on a one
for one basis ($1,000 aggregate par value and $24,999,000 aggregate
additional paid-in capital) that occurred subsequent to December 31, 1998
and (ii) the issuance of 413,279 shares of Meridian common stock upon the
exercise of outstanding options and warrants that occurred subsequent to
December 31, 1998 ($1,000 aggregate par value and $6,384,000 aggregate
additional paid-in capital).
The proceeds from the exercise of the Meridian options and warrants are
assumed to be used to pay down Meridian's line of credit as follows
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
<S> <C>
7,583 options at an exercise price of $21.125 per share...... $ 160
405,696 warrants at a weighted average exercise price of
$15.34 per share........................................... 6,225
-------
Cash proceeds from assumed exercise.......................... $ 6,385
=======
</TABLE>
(i) Represents additional borrowings on ProLogis' lines of credit necessary to
fund the cash payments to Meridian stockholders described in note (c)(4)
and transaction costs described in note (c)(7).
(j) Represents costs associated with registering the ProLogis common and
preferred shares to be given to the Meridian stockholders.
(k) The adjustments to Meridian's mortgage notes payable and senior unsecured
notes reflect the premium 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 7.18% to 7.31%. See note (e)(5).
(l) Represents the conversion subsequent to December 31, 1998 of 55,560 limited
partnership units into Meridian common stock (see note (c)(6)).
(m) Represents adjustment of Meridian's stockholders' equity based on the
assumed fair value of the shares and stock options to be received from
ProLogis as calculated below (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
<S> <C>
37,169,546 shares of common stock at $19.625 per
share (the per share value of the ProLogis Common
Shares issued to Meridian holders on 1.10 for one
basis as described in note (c)(1)).................... $ 729,452
2,000,000 shares of preferred stock at $23.25 per share
(the per share value of the ProLogis preferred shares
issued to Meridian holders on a one for one basis as
described in note (c)(2)).............................. 46,500
1,179,768 ProLogis stock options issued to Meridian
holders on a 1.10 for one basis as described in
note (c)(3)............................................ 3,539
Meridian's pre-Merger pro forma stockholders' equity
(assumes conversion of Meridian Series B preferred
stock, exercise of options and warrants and conversion
of limited partnership units as described in notes
(h),(l) and (o))....................................... (637,270)
----------
Total adjustment $ 142,221
==========
</TABLE>
12
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET`
(n) Represents the issuance of 1,179,768 ProLogis stock options to holders of
Meridian stock options on a 1.10 for one basis at an estimated fair value
of $3.00 per option (see note (c)(3)).
(o) Represents the recognition of expense related to the issuance of 790 shares
of Meridian common stock as fees to its directors subsequent to December
31, 1998 at an estimated per share price of $23.00 (see note (c)(1)).
(p) Represents: (i) the 1.10 for one exchange of 33,790,496 shares of Meridian
common stock ($0.001 par value) for 37,169,546 ProLogis Common Shares
($0.01 par value) (see note (c)(1)); (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) (see note (c)(2)); and (iii) a $338,000 adjustment
for the difference between the $0.001 par value of Meridian's common stock
on an aggregate basis as compared to the $0.01 par value of ProLogis'
Common Shares on an aggregate basis related to the exchange of shares
referenced above.
(q) Represents the reclassification of $16,405,000 of Meridian's pro forma
distributions in excess of net earnings to additional paid-in capital in
accordance with purchase accounting.
(r) Represents the assumed issuance of $400.0 million of senior unsecured notes
subsequent to December 31, 1998. The proceeds of the offering, net of
estimated costs of $3.0 million are assumed to be used to repay borrowings
on ProLogis' unsecured lines of credit.
13
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLDIATED STATEMENT OF EARNINGS FROM OPERATIONS
Year ended December 31, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Acquisitions
----------------------
ProLogis Pro Forma ProLogis Proposed ProLogis
ProLogis Pro Forma Pre-Merger Merger Adjustments Post-Merger Notes As Adjusted
Historical Historical Adjustments Pro Forma Meridian(z)ProLogis(aa) Pro Forma Issuance Pro Forma
---------- ---------- ----------- ---------- ---------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Rental income $345,046 $ 9,458(t) $ -- $354,504 $123,274 $ -- $ 477,778 $ -- $ 477,778
Other real estate income 17,250 -- -- 17,250 2,236 -- 19,486 -- 19,486
Income from unconsolidated
subsidiaries and JV 2,755 -- -- 2,755 3,336 -- 6,091 -- 6,091
Foreign currency exchange
gains, net 4,992 -- -- 4,992 -- -- 4,992 -- 4,992
Interest and other income 2,752 -- -- 2,752 2,935 -- 5,687 -- 5,687
-------- -------- -------- -------- -------- ------- --------- ------ ---------
Total income 372,795 9,458 -- 382,253 131,781 -- 514,034 -- 514,034
-------- -------- -------- -------- -------- ------- --------- ------ ----------
Expenses:
Rental expenses, net of
recoveries 27,120 446(t) 188 (u) 27,754 25,366 -- (bb) 53,120 -- 53,120
General and administrative 22,957 -- -- 22,957 8,333 -- (cc) 31,290 -- 31,290
Depreciation and amortiza-
tion 100,590 -- 2,803(v) 103,393 25,293 7,734 (dd) 136,420 -- 136,420
Interest 77,650 -- 7,058(w) 84,708 25,028 4,315 (ee) 114,051 2,450(hh) 116,501
(x)
Interest rate hedge expense 26,050 -- -- 26,050 12,633 -- 38,683 -- 38,683
Other 7,983 -- -- 7,983 825 (825)(ff) 7,983 -- 7,983
-------- -------- -------- -------- -------- -------- --------- ------ ---------
Total expenses 262,350 446 10,049 272,845 97,478 11,224 381,547 2,450 383,997
-------- -------- -------- -------- -------- -------- --------- ------ ---------
Earnings from operations
before minority interest,
excluding gains on dispo-
sitions 110,445 9,012 (10,049) 109,408 34,303 (11,224) 132,487 (2,450) 130,037
Minority interest share in
earnings from operations 4,681 -- -- 4,681 1,047 -- 5,728 -- 5,728
-------- -------- -------- -------- -------- -------- --------- ------- --------
Earnings from operations,
excluding gains on
dispositions 105,764 9,012 (10,049) 104,727 33,256 (11,224) 126,759 (2,450) 124,309
Less preferred share
dividends 49,098 -- -- 49,098 6,517 (2,142)(gg) 53,473 -- 53,473
-------- -------- -------- -------- -------- ------- --------- ------- --------
Net earnings from operations
attributable to Common
Shares $ 56,666 $ 9,012 $ (10,049) $ 55,629 $ 26,739 $(9,082) $ 73,286 $(2,450) $ 70,836
======== ======== ========= ======== ======== ======= ========= ======= ========
Weighted average Common
Shares outstanding -
basic 121,721(s) -- -- 121,721(y) 31,697(y) 158,890(y) 158,890
======== ======== ======== ======== ======== ========= ========
Weighted average Common
Shares outstanding -
diluted 122,028(s) -- -- 122,028(y) 32,148(y) 158,363(y) 159,363
======== ======== ======== ======== ======== ========= ========
Per share net earnings from
operations attributable to
Common Shares:
Basic $ 0.47(s)$ -- $ -- $ 0.46(y) $ 0.84(y) $ 0.46(y) $ 0.45
========= ======== ======== ======== ======== ======== ========
Diluted $ 0.46(s)$ -- $ -- $ 0.46(y) $ 0.83(y) $ 0.46(y) $ 0.44
========= ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the proforma condensed
consolidated financial statements.
14
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
Year Ended December 31, 1998
(Unaudited)
(s) A reconciliation of the denominator used to calculate basic net earnings
per ProLogis Common Share to the denominator used to calculate diluted net
earnings per ProLogis Common Share for the year ended December 31, 1998 is
as follows (in thousands, except per Common Share amounts):
<TABLE>
<CAPTION>
Acquisitions
Net Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net earnings from operations attributable to
ProLogis Common Shares........................ $ 56,666 $ (1,037) $ 55,629
========= ======== =========
Weighted average ProLogis Common Shares
Outstanding--basic............................ 121,721 -- 121,721
Incremental options and warrants................ 307 -- 307
--------- -------- ---------
Adjusted weighted-average ProLogis Common
Shares outstanding--diluted (1)............... $ 122,028 $ -- $ 122,028
========= ======== =========
Pershare net earnings from operations
attributable to ProLogis Common Shares:
Basic....................................... $ 0.47 $ -- $ 0.46
========= ======== =========
Diluted (1)................................. $ 0.46 $ -- $ 0.46
========= ======== =========
---------------
<FN>
(1) There were 10,055,000 weighted average Series B Preferred
Shares and 5,070,000 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>
(t) Represents historical revenues and certain expenses of the facilities
acquired by ProLogis subsequent to December 31, 1997 as detailed in the
Current Report on Form 8-K/A of ProLogis filed on February 25, 1999 and
dated as of December 3, 1998 and in Item 5 of this Current Report on Form
8-K. 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.
(u) 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.
(v) Reflects the recognition of depreciation expense associated with the
pro forma acquisitions, discussed in note (t), 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.
15
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
(w) 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 (t)
bears interest at fixed rates ranging from 8.00% to 9.50%.
(x) 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 (t) occurred
as of January 1, 1998. The adjustment is based on a weighted average
effective interest rate of 7.03%.
(y) 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>
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............................. $ 55,629 $ 26,739 $ 73,286
========== ========== ==========
Weighted average common shares outstanding -
basic........................................ 121,721 31,697 158,890
Incremental options and warrants............... 307 451 473
---------- ---------- ----------
Adjusted weighted-average common shares
outstanding - diluted........................ 122,028 32,148 159,363 (1)(2)
========== ========== ==========
Per share net earnings from operations
attributable to common shares:
Basic.................................... $ 0.46 $ 0.84 $ 0.46
=========== ========== ==========
Diluted.................................. $ 0.46 $ 0.83 $ 0.46 (2)
========== ========== ==========
-------------
<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, 1998: (i) the pre-Merger
conversion of Meridian's Series B preferred stock to Meridian common
stock; (ii) the pre-Merger issuance of an additional 469,629 shares of
Meridian stock (see note (c)(1)); and (iii) the increase resulting from
the issuance of 1.10 ProLogis Common Shares for one share of Meridian
common stock.
(2) 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.
</FN>
</TABLE>
(z) 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.
16
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
(aa) The accompanying pro forma condensed consolidated statement of earnings
from operations for the year ended December 31, 1998 does not give effect
to the fully stabilized results of operations related to facilities under
development of both ProLogis and Meridian as of December 31, 1998.
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.
(bb) During the year ended December 31, 1998, Meridian utilized the services of
third-party management companies to perform property management functions
for substantially al 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 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 yet 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.
(cc) As a separate corporate entity, Meridian incurred general and
administrative costs as follows:
o 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.
o 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.
o 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.
17
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
o 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 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 (bb)). ProLogis expects that, after the Merger, a significant
portion of these expenses will be eliminated.
<TABLE>
<CAPTION>
<S> <C>
Personnel and related................ $ 4,575
Professional fees.................... 1,099
Directors' fees and expenses......... 289
Office expenses...................... 1,256
Other................................ 205
-----------
Total....................... $ 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:
o 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.
o 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.
o 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:
<TABLE>
<CAPTION>
<S> <C>
Accounting, auditing and legal....... $ 250
Stock transfer, proxy and
shareholder relations........... 120
Trustees' fees and expenses.......... 100
-------
Total....................... $ 470
=======
</TABLE>
18
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
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.
(dd) 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>
<S> <C>
Step-up in real estate basis (see note (d))............... $ 296,127
Less amount of step-up allocated to:
Developments in progress and land held for
development...................................... (21,588)
Land portion of operating facilities................. (40,947)
Participating mortgage............................... (1,560)
---------
Depreciable portion of step-up in basis................... $ 232,032
=========
Estimated annual incremental depreciation expense
based on an assumed weighted average life of
30 years............................................. $ 7,734
=========
</TABLE>
(ee) Represents the net change in interest expense as a result of the
following items (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Decrease related to the pay down on Meridian's line
of credit as a result of the exercise of options
and warrants described in note (h)(1)................. $ (418)
Decrease based on the pro forma interest rates resulting
from the adjustments of Meridian's debt to its
estimated fair value as described in note (k)(2)...... (821)
Decrease in Meridian loan cost amortization related
to the elimination of Meridian deferred loan costs
as described in note (g).............................. (1,572)
Increase related to additional borrowings on the line
of credit of $42,722 to fund the transaction and
registration costs identified in note (c) and the
assumed cash payments to Meridian stockholders
of $67,581 described in note (c)(3)................... 7,126
---------
Total adjustment.................................. $ 4,315
=========
-------------
<FN>
(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
6.46%.
</FN>
</TABLE>
19
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
(ff) Represents the elimination of merger-related costs expensed by Meridian
in 1998.
(gg) 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. See note (h).
(hh) Represents the additional interest expense resulting from the assumed
issuance of $400.0 million of senior unsecured notes, the net proceeds of
which are assumed to be used to repay borrowings on ProLogis' unsecured
lines of credit, as if the issuance of the notes and related repayment
occurred as of January 1, 1998. The adjustment represents the incremental
increase in interest expense based on an assumed interest rate of 7.0% on
the senior unsecured notes and the average interest rate of 6.5% actually
incurred by ProLogis and Meridian on their respective unsecured lines of
credit borrowings in 1998. In addition, amortization of debt issuance
costs of approximately $450,000 has been assumed.
20