MERIDIAN INDUSTRIAL TRUST INC, 424B1, 1996-11-20

MERIDIAN INDUSTRIAL TRUST INC
424B1, 1996-11-20
REAL ESTATE INVESTMENT TRUSTS

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<PAGE> 1

PROSPECTUS
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3,400,000 Shares
LOGO

Common Stock
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Meridian Industrial Trust, Inc. (the "Company") is a self-administered and
self-managed real estate operating company engaged primarily in the business of
owning, acquiring, developing, managing and leasing income-producing
warehouse/distribution and light industrial properties. At September 30, 1996,
the Company owned and operated 59 warehouse/distribution properties and 25 light
industrial properties encompassing approximately 10.6 million square feet of
leasable space that was 95.1% leased to 231 tenants on a pro forma basis
including the recently completed acquisition of one warehouse/distribution
property and assuming the acquisition of five warehouse/distribution properties
and the completion of two build-to-suit development projects as described in
this Prospectus (the "Property Transactions"). The Company also owned seven
retail properties encompassing 902,684 square feet as of such date. The
industrial properties are located in nine significant industrial centers and
distribution hubs throughout the United States. The Company intends to increase
its presence in these markets through acquisitions and development and to expand
into other important distribution markets and continue its strategy of being a
demand-driven, competitively priced, nationwide provider of industrial space.

All of the shares of common stock of the Company, par value $.001 per share
("Common Stock"), offered hereby are being sold by the Company (the "Offering").
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the
symbol "MDN." On November 19, 1996, the last reported sales price of the Common
Stock on the NYSE was $18.625 per share. See "Price Range of Common Stock."

The Company operates as a real estate investment trust (a "REIT") for federal
income tax purposes and expects to pay regular quarterly distributions to its
stockholders. See "Distribution Policy." The shares of Common Stock are subject
to certain restrictions on ownership and transfer designed to preserve the
Company's status as a REIT for federal income tax purposes. See "Description of
Stock -- Restrictions on Ownership and Transfer."

SEE "RISK FACTORS" ON PAGES 17 TO 24 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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Per Share................................... $18.25 $1.00 $17.25
- -----------------------------------------------------------------------------------------------------------
Total(3).................................... $62,050,000 $3,400,000 $58,650,000
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</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated to be $932,000.

(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 510,000 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such shares are
purchased by the Underwriters, the total Price to Public will be
$71,357,500, the total Underwriting Discounts and Commissions will be
$3,910,000 and the total Proceeds to Company will be $67,447,500. See
"Underwriting."
- --------------------------------------------------------------------------------

The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares to the Underwriters is expected to be made at the office of
Prudential Securities Incorporated, One New York Plaza, New York, New York, on
or about November 25, 1996.

PRUDENTIAL SECURITIES INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ROBERTSON, STEPHENS & COMPANY

November 19, 1996
<PAGE> 2

------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSAC-
TIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
PROSPECTUS SUMMARY............................... 4
The Company.................................... 4
Risk Factors................................... 6
Recent Investments and Dispositions............ 7
Business Objective............................. 9
The Target Markets............................. 12
Properties..................................... 12
The Offering................................... 13
Distributions.................................. 13
Tax Status of the Company...................... 13
Summary Selected Financial and Other Data...... 14
RISK FACTORS..................................... 17
Risk of Inability to Sustain Distribution
Level........................................ 17
Influence of Significant Stockholders.......... 17
Real Estate Investment Risks................... 17
Potential Environmental Liability Related to
the Properties............................... 19
Risks of Acquisition, Development and
Construction Activities...................... 19
Risks of Adverse Effect on the Company From
Debt Servicing, Increases in Interest Rates,
Financial Covenants and Absence of
Limitations on Debt.......................... 20
Possible Stock Price Volatility................ 21
Effect of Market Interest Rates on Price on
Common Stock................................. 21
Dilution....................................... 21
Conflicts of Interest.......................... 21
Changes in Policies without Stockholder
Approval..................................... 21
Costs of Compliance with Americans with
Disabilities Act and Similar Laws............ 21
Risks of Failure to Qualify as a REIT and Other
Tax Liabilities.............................. 22
Limits on Ownership and Changes in Control May
Deter Changes in Management and Third Party
Acquisition Proposals........................ 22
Exemptions for Certain Persons from the
Maryland Business Combination Law............ 23
Dependence on Key Personnel.................... 23
Shares Available for Future Sale............... 23
RECENT INVESTMENTS AND DISPOSITIONS.............. 25
Completed Acquisitions......................... 25
Pending Acquisitions........................... 25
Development Projects Under Contract and In
Progress..................................... 26
Pending Developments........................... 27
Capitalization Rate............................ 28
Completed and Pending Dispositions............. 28
THE COMPANY...................................... 29
General........................................ 29
Business Objective............................. 30
Growth Strategy................................ 30
Portfolio Management Strategy.................. 31
Marketing and Leasing Strategy................. 31
Financing Strategy............................. 32
Organizational Strategy........................ 32
The Industrial Real Estate Sector.............. 32
The Target Markets............................. 33
Current Target Markets......................... 34
USE OF PROCEEDS.................................. 36
PRICE RANGE OF COMMON STOCK...................... 36
DISTRIBUTION POLICY.............................. 36
DILUTION......................................... 37
CAPITALIZATION................................... 38
SELECTED FINANCIAL AND OTHER DATA................ 39
General........................................ 39
Pro Forma Financial Information................ 39
Historical As Adjusted Financial Information... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 41
BUSINESS AND PROPERTIES.......................... 48
General........................................ 48
Industrial Properties.......................... 53
Retail Properties.............................. 70
Environmental Matters.......................... 71
Regulation..................................... 72
The Unsecured Credit Facility.................. 72
The Mortgage Loan.............................. 73
Legal Proceedings.............................. 73
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES...... 73
Investment Policies............................ 73
Financing Policies............................. 74
Conflict of Interest Policy.................... 74
Policies with Respect to Other Activities...... 75
MANAGEMENT....................................... 76
Directors and Executive Officers............... 76
Board of Directors and Committees.............. 79
Compensation of Directors and Officers......... 80
The Stock Plan................................. 81
Limitation of Liability and Indemnification.... 84
THE CONSOLIDATION TRANSACTIONS................... 84
The Preferred Stock Private Placement.......... 85
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS................................... 85
The USAA Option and Warrant.................... 85
The Hunt Consulting Agreement.................. 86
PRINCIPAL AND MANAGEMENT STOCKHOLDERS............ 87
Principal Stockholders and Stockholdings of
Directors and Management..................... 87
DESCRIPTION OF STOCK............................. 88
General........................................ 88
Common Stock................................... 88
The Merger Warrants............................ 89
The USAA Warrant and USAA Option............... 89
Preferred Stock................................ 89
Restrictions on Ownership and Transfer......... 92
Dividend Reinvestment and Stock Purchase
Plan......................................... 95
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS............................. 95
Board of Directors............................. 95
Mergers, Consolidations and Sales of Assets.... 96
Business Combinations.......................... 96
Control Share Acquisitions..................... 96
Related Party Transactions..................... 97
Special Meetings of Stockholders............... 97
Advance Notice of Director Nominations and New
Business..................................... 98
Amendments to Organizational Documents......... 98
Liability and Indemnification of Certain
Persons...................................... 98
Common Stock................................... 99
Preferred Stock................................ 99
FEDERAL INCOME TAX CONSIDERATIONS................ 100
Federal Income Taxation of the Company......... 100
Requirements for Qualification................. 101
Failure to Qualify as a REIT................... 105
Taxation of Taxable Domestic Stockholders...... 106
Backup Withholding............................. 106
Taxation of Domestic Tax-Exempt Stockholders... 107
Taxation of Foreign Stockholders............... 107
Possible Tax Law Changes....................... 108
State and Local Taxes.......................... 109
SHARES AVAILABLE FOR FUTURE SALE................. 110
UNDERWRITING..................................... 112
LEGAL MATTERS.................................... 113
EXPERTS.......................................... 113
ADDITIONAL INFORMATION........................... 113
GLOSSARY......................................... 114
INDEX TO FINANCIAL STATEMENTS.................... F-1
</TABLE>

3
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated herein by reference. Unless
otherwise indicated, the information contained in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised. As used herein,
the term "Company" includes Meridian Industrial Trust, Inc., a Maryland
corporation, and/or one or more of its subsidiaries, as appropriate, "Common
Stock" refers to the common stock, par value $.001 per share, of the Company,
and "Properties" refers to properties owned by the Company, including the
Property Transactions. Certain additional terms relating to the Offering are
defined in the Glossary of this Prospectus.

THE COMPANY

Meridian Industrial Trust, Inc. is a self-administered and self-managed
real estate operating company engaged primarily in the business of owning,
acquiring, developing, managing and leasing income-producing
warehouse/distribution and light industrial properties. At September 30, 1996,
the Company owned and operated 59 warehouse/distribution properties and 25 light
industrial properties encompassing approximately 10.6 million square feet of
leasable space that was 95.1% leased to 231 tenants on a pro forma basis
including the recently completed acquisition of one warehouse/distribution
property and assuming completion of the acquisition of five
warehouse/distribution properties and the completion of two build-to-suit
development projects as described herein (the "Property Transactions"). See
"Recent Investments and Dispositions." Based on the total square feet of
leasable space and management's knowledge of the industrial real estate market,
the Company believes it is one of the largest owners and managers of industrial
space for lease in the United States. The Company also owned seven retail
properties encompassing 902,684 square feet at September 30, 1996. The following
table provides an overview of the Properties which are located in significant
industrial centers and distribution hubs throughout the United States on a pro
forma basis assuming completion of the Property Transactions.

<TABLE>
<CAPTION>
NUMBER APPROXIMATE ANNUALIZED
MARKET AREA OF PROPERTIES SQUARE FEET BASE RENT
------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
Dallas.................................... 21 2,345,916 $ 7,254,389
Los Angeles Basin......................... 12 1,512,309 6,863,455
Memphis................................... 11 2,071,535 5,705,354
Chicago................................... 16 1,336,604 4,280,684
Seattle................................... 3 535,898 3,220,071
Atlanta................................... 2 385,111 3,040,354
Columbus.................................. 1 1,014,592 3,020,424
San Francisco Bay Area.................... 3 647,352 2,888,257
Phoenix................................... 11 460,343 2,275,341
Other..................................... 11 1,217,181 4,948,600
--
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Total................................ 91 11,526,841 $43,496,929
== ========== ===========
</TABLE>

The Company intends to increase its presence in these markets through
acquisitions and development and to expand into other important distribution
markets, including Indianapolis, Orlando and the New Jersey/Pennsylvania I-95
Corridor. These twelve regional markets are referred to collectively in this
Prospectus as the "Target Markets." See "The Company -- Target Markets." The
Company's strategy is to be a demand-driven, competitively priced, nationwide
provider of warehouse/distribution space.

On February 23, 1996 (the date operations commenced), the Company succeeded
to substantially all of the operations of four related publicly traded,
finite-life real estate investment trusts. See "The Consolidation Transactions."
Since February 23, 1996, the Company has purchased or substantially completed
development of six modern warehouse/distribution Properties at an aggregate
estimated cost of $79.0 million representing a total of approximately 2.3
million square feet located in four Target Markets. Additionally, the Company
has committed to acquire or develop on a build-to-suit basis eight industrial
properties representing 1.6 million

4
<PAGE> 5

square feet in five Target Markets at an anticipated aggregate cost of $59.8
million. The Company's investments in real estate have increased by 47.8% since
February 23, 1996, on a pro forma basis including the effects of the Property
Transactions. It is anticipated that net proceeds of this Offering, together
with cash on hand, will be used to fund certain of the Property Transactions or
to repay temporary borrowings made in connection therewith. See "Recent
Investments and Dispositions"; "Use of Proceeds."

The Company's fundamental business objective is to maximize total return to
its stockholders by increasing cash flow per share and by increasing the
long-term value of the Company's Properties. In order to achieve this objective,
the Company will seek to build market share, to achieve name recognition and to
continue to improve its operating efficiency. The Company places a high priority
on disciplined portfolio management and anticipating customers' needs.

The Company intends to achieve its primary business objective by applying
its corporate strategies to achieve growth in its portfolio of Properties. The
Company will seek to grow through (i) acquiring warehouse/distribution
properties, (ii) developing warehouse/distribution properties primarily on a
build-to-suit basis, (iii) repositioning the Company's existing portfolio by
selling Properties which no longer meet its investment objectives and
reinvesting the proceeds and (iv) maximizing cash flow from its operating
Properties by increasing occupancy levels and releasing space at higher levels.
For example, the Company has invested or committed to invest $138.8 million in
the acquisition and development of properties since it commenced operations. The
Company also has sold $7.8 million of Properties which no longer meet its
objectives.

The Company's business strategy is responsive to the accelerated pace of
change in the way distribution space is used and where it is located. Management
believes this change is the result of global competition and technological
advances which drive companies to increase efficiencies and reduce costs.
Logistics, the science of procuring, storing and distributing goods, has
redefined many of the criteria for designing distribution space and has led to
the development of the modern warehouse. The Company defines the modern
warehouse building as one that typically has greater clear heights to stack
goods (24 feet or greater), deeper truck turning radii (in excess of 150 feet),
high capacity sprinkler systems and cross docking capabilities as well as other
important features that are designed to increase the velocity of goods
distribution. In addition, rapid decline in the cost of computer driven
technology has made high technology methods for tracking, storing and retrieving
goods available to many companies. As a result of the foregoing, there is a
growing trend among distribution space users to consolidate inventory into
large, modern warehouses located in major markets along the "path of goods
movement" (i.e., major cities at the intersection of highways, airports, rail
lines and shipping ports). Major cities along the path of goods movement are the
Target Markets for the Company's growth strategy. See "The Company -- Target
Markets."

The Company believes that demand for modern warehouses will increase as a
result of such factors as population growth, increased industrial production,
increased capital spending and increased consumer demand. The resulting increase
in demand for this type of distribution space has not been met by a
corresponding increase in supply. Therefore, distribution space users often seek
build-to-suit transactions in which building design can be matched with specific
logistical requirements and modern distribution technologies.

In addition, there was an overall decline in the construction of industrial
space during the early 1990's due in part to the decrease in the availability of
financing for such construction. Although construction of industrial space has
recently increased from the depressed levels of the early 1990's, management
believes that the overall decrease in supply of industrial space over the last
five years, coupled with increased demand for space arising from economic
growth, will result in increases in rental rates and appreciation in the value
of properties in the industrial real estate sector.

5
<PAGE> 6

Anderson, Chairman and Chief Executive Officer; Milton K. Reeder, President and
Chief Financial Officer; and Dennis Higgs, Senior Vice President.

The Company also has attracted institutional investors that, as of
September 30, 1996, owned (directly or indirectly) a substantial portion of the
Company's outstanding stock, including Hunt Realty Corporation ("Hunt Realty"),
investment entities managed by J.P. Morgan Investment Management, Inc. ("J.P.
Morgan"), USAA Real Estate Company ("USAA"), Ameritech Pension Trust
("Ameritech"), The State Teachers Retirement Board of Ohio ("OTR") and
investment entities managed by Morgan Stanley Asset Management, Inc. ("Morgan
Stanley"). Hunt Realty and J.P. Morgan own their respective shares of Common
Stock through Hunt Realty Acquisitions, L.P. ("Hunt"). See "Principal and
Management Stockholders."

RISK FACTORS

An investment in the Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to any investment in the Company. These risks are summarized below.

- The Company's current level of distributions was determined based on a
number of assumptions, any one or more of which could prove incorrect or change
over time. No assurance can be given that the Company will be able to sustain
its current level of distributions.

- Five stockholders of the Company (Hunt, USAA and Morgan Stanley which own
Common Stock, and Ameritech and OTR which own Series B Preferred Stock that is
convertible into Common Stock) owned, as of September 30, 1996, a total of 43.0%
of the outstanding Common Stock (assuming conversion of the Series B Preferred
Stock and after giving effect to the issuance of Common Stock in this Offering).
As long as these stockholders own a significant percentage of the Company's
stock, they will retain substantial influence over the affairs of the Company
that may result in decisions that do not fully represent the interests of all
stockholders of the Company.

- The Company is subject to risks incident to the ownership and operation
of commercial real estate generally, such as the effect of economic and other
conditions on real estate values (including those associated with cyclical
weaknesses in real estate markets, the inability to renew or release space upon
expiration of leases (3.6% and 22.5% of the Company's total leased space is
scheduled to expire during the fourth quarter of 1996 and in 1997,
respectively), the impact on the retail Properties of the financial difficulties
relating to the retail industry generally, competition, environmental issues,
uninsured losses, build-to-suit construction and compliance with laws such as
the Americans with Disabilities Act) and the ability of the Company's properties
to generate sufficient cash flow to meet operating expenses (including debt
service).

- The Company is subject to risks associated with its current debt,
including (i) interest rate exposure (because the interest rate under the
Unsecured Credit Facility is variable), (ii) the prospect that the Company will
be unable to refinance its Unsecured Credit Facility when it matures in February
1998, (iii) the failure to meet required loan covenants (such as maintaining
certain debt coverage and loan-to-value ratios) under its Unsecured Credit
Facility and the mortgage loan secured by 37 of the Company's Properties (the
"Mortgage Loan") and the consequences of such failure and (iv) the inability to
refinance "balloon" mortgage indebtedness under the Mortgage Loan.

- The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including quarterly
variations in operating results, the liquidity of the market for the Common
Stock, shares registered for resale under the Securities Act or which may
otherwise become available for sale over time, regulatory changes affecting the
real estate industry generally, announcements of business developments by the
Company or its competitors, interest rate fluctuations and other changes in
general real estate market conditions. In addition, purchasers of Common Stock
from this Offering will experience immediate dilution in the net book value of
their shares.

6
<PAGE> 7

- The Board of Directors has the ability to change the Company's
investment, financing, conflicts of interest, distribution and other policies
without a vote of stockholders.

- Subject to the Company's conflicts of interest policy (which prohibits,
among other things, transactions with officers, directors and substantial
stockholders and their affiliates without the approval of a majority of the
independent Board members), the Company may enter into future transactions with
its officers, directors and substantial stockholders and their affiliates.

- The Company will be taxed as a regular corporation if it fails to qualify
as a REIT.

- The Company's Organizational Documents contain limitations on the
stockholders' ability to effect a change in control of the Company, including
restrictions generally precluding the ownership of Common Stock by any single
stockholder in excess of 8.5% of the lesser of the number of shares or value of
the Common Stock.

- The Company is dependent on the efforts of its executive officers, and
the loss of their services could have an adverse effect on the operations of the
Company.

This Prospectus contains certain forward-looking statements which involve
risks and uncertainties. See "Risk Factors." The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that cause such differences include, but are not limited to,
the risks described under the "Risk Factors" section of this Prospectus.

RECENT INVESTMENTS AND DISPOSITIONS

The Company began operations on February 23, 1996. Since that time it has
actively sought to acquire and develop properties which meet its real estate
underwriting criteria and dispose of those Properties which no longer fit the
strategic focus of the Company.

INVESTMENTS

The Company actively seeks to acquire operating properties and to develop
new properties which meet its real estate underwriting criteria. All of the
Company's development activity has been build-to-suit development projects that
are subject to long term net leases which provide for periodic rental
escalations. The Company believes that its strategy of selectively acquiring and
developing warehouse/distribution properties to meet the needs of a growing list
of tenants will allow it to achieve its business objectives.

Acquisition Activity. Consistent with the Company's strategy of acquiring
modern warehouse/distribution properties, the Company has significantly expanded
its portfolio of industrial properties since it commenced operations, acquiring
four Properties for aggregate consideration of $53.2 million. In addition, the
Company has entered into binding contracts (subject to customary closing
conditions) to acquire an additional five operating properties for aggregate
estimated consideration of approximately $38.6 million. The Company expects to
close these transactions by year end, although there can be no assurance that
any of the pending acquisitions will be consummated.

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<PAGE> 8

The following table summarizes the operating properties acquired by the
Company since inception or that the Company currently has under contract to
acquire:

<TABLE>
<CAPTION>
APPROXIMATE ESTIMATED
PROPERTIES(1) MARKET SQUARE FEET CONSIDERATION(2)
- ----------------------- ---------------------------------- ----------- -------------
<S> <C> <C> <C>
Arenth Avenue Los Angeles Basin 332,790 $ 9,700,000
Rustin Avenue Los Angeles Basin 113,721 4,115,000
Wanamaker Avenue Los Angeles Basin 136,249 4,500,000
Mission Oaks Boulevard Los Angeles Basin 310,736 9,885,000
Meyer Circle Los Angeles Basin 201,380 8,050,000
Crowfarn Drive Memphis 128,248 2,500,000
Crosswind Drive Columbus 1,014,592 30,919,000
Overlake Place San Francisco Bay Area 160,000 8,508,000
Gold River Lane San Francisco Bay Area 353,000 13,616,000
--------- ------------
Total 2,750,716 $ 91,793,000
========= ============
</TABLE>

- ---------------
(1) The Arenth Avenue, Overlake Place, Crosswind Drive and Rustin Avenue
acquisitions closed in March, June, September and November of 1996,
respectively. The other acquisitions listed above are currently under
contract and are included in the Property Transactions for pro forma
purposes (as is the Rustin Avenue acquisition).

(2) Including transaction costs.

Development Activity. In addition to acquisitions of operating properties,
the Company seeks to develop new distribution facilities leased to creditworthy
tenants. The following table summarizes the Company's development projects that
are either under construction, under contract or are subject to a letter of
intent. All of the properties listed below are 100% pre-leased. There can be no
assurance that the Company will complete the following development projects. See
"Recent Investments and Dispositions -- Development Projects."

<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
DATE OF APPROXIMATE CONSTRUCTION
PROPERTIES MARKET COMPLETION SQUARE FEET COST(1)
- ----------------------- ------------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Water's Ridge Drive(2) Dallas December 1996 367,744 $ 10,090,000
Sarah Jane Parkway(2) Dallas December 1996 361,690 15,650,000
Boulder Avenue Minneapolis March 1997 100,000 4,454,000
Skylab Road Los Angeles Basin June 1997 165,000 9,000,000
Highlands Parkway Atlanta July 1997 150,000 7,770,000
----------- ------------
Total 1,144,434 $ 46,964,000
=========== ============
</TABLE>

- ---------------
(1) Including transaction costs.

(2) These development projects are included in the Property Transactions for pro
forma purposes.

Capitalization Rate. The average capitalization rate for the nine
acquisition properties and five development properties listed above is estimated
to be 10.5% (calculated by dividing the aggregate estimated annual net operating
income by the aggregate estimated consideration (including transaction costs) or
the aggregate estimated construction costs for these properties). Actual net
operating income and actual construction costs may differ from the estimates
used in calculating this average capitalization rate and as a result this
capitalization rate is not necessarily indicative of the actual return the
Company will realize from these properties. In addition, there can be no
assurance that the capitalization rate with respect to these properties will be
attained with respect to future acquisitions or developments.

DISPOSITIONS

As part of its corporate strategy the Company will seek to reposition the
Company's existing portfolio by selling properties which no longer meet its
investment criteria. Since it commenced operations, the Company has sold four
Properties for aggregate net proceeds of approximately $7.8 million.
Additionally, the Company has entered into binding contracts to sell three of
its retail Properties and is actively marketing two warehouse/distribution
Properties located in Alabama and a fourth retail Property. The Company plans to

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<PAGE> 9

reinvest the net sale proceeds into warehouse/distribution properties. See
"Recent Investments and Dispositions."

BUSINESS OBJECTIVE

The Company's fundamental business objective is to maximize total return to
its stockholders by increasing cash flow per share and increasing the long-term
value of the Company's properties. The Company intends to achieve this objective
by continuing to implement the operating strategies summarized below.

GROWTH STRATEGY

The Growth Strategy is to acquire and develop industrial properties in
Target Markets while maximizing cash flow from operating Properties. The Company
seeks to make acquisitions in its Target Markets and develop new properties
primarily on a build-to-suit basis to meet the needs of customers. The Company
maximizes cash flow from operating Properties by retaining existing tenants,
releasing space at higher rates and increasing occupancy levels. As part of this
strategy, the Company will seek to build market share, to achieve name
recognition in its Target Markets and to continue to improve its operating
efficiency. Specifically, it will evaluate and engage in the following
activities:

Acquisitions. The Company continually investigates potential individual
property acquisitions. For example, since inception, the Company has acquired
four Properties that comprise 1.6 million square feet of space for aggregate
consideration of $53.2 million, has entered into contracts for the acquisition
of an additional five Properties that comprise 1.1 million square feet for
aggregate consideration of $38.6 million, and is evaluating a number of other
potential individual acquisition candidates. See "Recent Investments and
Dispositions." In addition, the Company intends to pursue acquisitions of
multi-building portfolios currently owned by regional developers seeking
increased liquidity, including acquisitions through tax-advantaged structures
sometimes referred to as "downREITs." Further, many U.S. companies own
distribution facilities which, for various financial and logistical reasons,
they no longer wish to own. Also, many institutional investors own industrial
portfolios which they may seek to liquidate. These property owners represent a
potential opportunity for the Company to grow through acquisitions.

When evaluating acquisition and development opportunities, the Company will
consider such factors as: (i) geographic area and type of property; (ii)
location, construction quality, condition and design of the property; (iii)
potential for capital appreciation of the property; (iv) ability of the Company
to improve the property's performance through renovations; (v) terms of tenant
leases, including the potential for rent increases; (vi) potential for economic
growth and the tax and regulatory environment of the area in which the property
is located; (vii) potential for expansion of the properties; (viii) occupancy
and demand by tenants for properties of a similar type in the vicinity; (ix)
competition from existing properties and the potential for the construction of
new properties in the area; and (x) the creditworthiness of tenants.

Development. The Company will also seek to develop new
warehouse/distribution properties on a selective basis. For example, since
inception the Company has started construction on three build-to-suit
transactions, including two Properties that the Company expects to complete
before year end, that collectively comprise 829,434 square feet for an aggregate
anticipated cost of $30.2 million and has agreed to develop two additional
build-to-suit projects for an aggregate anticipated cost of $16.8 million. The
Company expects that future development projects will be undertaken to (i) meet
expansion needs of existing tenants, (ii) meet requirements of new tenants on a
build-to-suit basis and (iii) selectively provide inventory for lease in certain
Target Markets. See "Recent Investments and Dispositions" for a description of
each of the Company's current development projects.

Redeployment of Assets. The Company will continuously seek opportunities
to upgrade its portfolio in response to changes in the marketplace. Since
inception, the Company has sold four Properties for approximately $7.8 million,
entered into binding contracts to sell three of its retail Properties and is
actively marketing two warehouse/distribution Properties located in Alabama and
a fourth retail Property.

9
<PAGE> 10

Internal Growth. The Company will seek to capitalize on opportunities to
maximize growth in cash flow from its operating Properties by (i) retaining
existing tenants, (ii) increasing occupancy and (iii) releasing space at higher
rates. With regard to retaining existing tenants, the Company's tenant retention
rates on a square footage basis for the Company's industrial Properties during
1995 and for the nine months ended September 30, 1996, excluding the effect of
the Property Transactions, were 81.5% and 65.8%, respectively. The occupancy
rate of the portfolio at September 30, 1996 on a pro forma basis assuming
completion of the Property Transactions, was 95.0%. The Company's ability to
retain existing tenants and its commitment to increasing occupancy levels may
improve property revenues by minimizing vacancy periods attributable to leasing
downtime and reducing leasing costs such as tenant improvements and leasing
commissions. In connection with renewals and released space, during 1995 and for
the nine months ended September 30, 1996 excluding the effect of the Property
Transactions, average base rents increased by 3.7% and 8.0%, respectively. The
Company also expects to obtain rental increases from existing leases which
expire after December 31, 1996, but have scheduled rental adjustments (both
fixed and inflation indexed). These leases comprise approximately 34.7% of the
Company's industrial leases, assuming completion of the Property Transactions.
Further, the Company will seek to achieve internal growth through controlling
operating expenses and renovating properties to a higher and better use where
appropriate.

PORTFOLIO MANAGEMENT STRATEGY

The Portfolio Management Strategy is to actively manage the portfolio by
utilizing market research to help determine which markets and submarkets are
most favorable for new acquisitions. This research is designed to facilitate the
understanding of market cycles for demand and supply. Market cycles vary from
region to region, making individual markets more or less attractive for new
acquisitions at any given time on a comparative basis. The Company intends to
emphasize new acquisitions in those markets which are, at the time, believed to
offer better risk adjusted investment returns. Based on the same research and
understanding of comparative market cycles, the Company will sell assets that no
longer meet its business objectives or when a market is believed to be
overvalued.

In a similar fashion, the Company makes leasing decisions based upon market
research and its Portfolio Management Strategy. When a particular market is
believed to be in danger of oversupply, longer term lease maturities will be
sought on renewals and new leases. Alternatively, when a market is believed to
be under-supplied relative to expected new demand, shorter term lease maturities
will be accepted.

MARKETING AND LEASING STRATEGY

The Marketing and Leasing Strategy is to anticipate customer needs in a
manner that promotes tenant retention and maximizes the opportunity to increase
net rental revenues. The Company plans to increase its market share in the
Target Markets in which it currently owns Properties. Management believes that
by obtaining and expanding critical mass in its Target Markets the Company can
achieve above-average rents and occupancy levels. This opportunity arises out of
an ability to anticipate the changing needs of existing tenants who seek either
to expand or relocate their operations to other buildings owned by the Company.
The Company believes that this flexibility generally leads to greater tenant
satisfaction, higher average rents and lower cost of operations. In addition,
significant local market presence may create stronger access to potential new
tenants.

The Company pursues an active leasing strategy by aggressively marketing
available space, renewing existing leases at higher rents per square foot and
seeking leases that provide for the pass through of property-related expenses to
the tenant. In that regard, at September 30, 1996 on a pro forma basis assuming
completion of the Property Transactions, approximately 28.2% of the Company's
industrial Properties was leased on a triple-net basis permitting the Company to
pass through to tenants property-related costs. Substantially all of the other
leases provide for the pass through of property-related expenses over a base
year amount. Further, 34.7% of the Company's industrial Properties (on a pro
forma basis assuming the completion of the Property Transactions) are subject to
leases which contain automatic rental adjustment provisions and extend beyond
December 31, 1996. One component of the Company's leasing strategy is to
increase its percentage of leases (based on leased area) that are on a
triple-net basis.

10
<PAGE> 11

The Company will continue and expand existing local marketing programs that
focus on the business and brokerage communities. Also, the Company will market
its industrial space directly to "Fortune 1000" users in multiple markets to
meet their warehouse and distribution space needs.

FINANCING STRATEGY

The Financing Strategy is to minimize the Company's cost of capital by
maintaining conservative debt levels, achieving an investment grade credit
rating and maintaining ready access to public and private debt and equity
capital. The Company believes that the size of its portfolio and the diversity
of its buildings and tenants will allow it access to the debt and equity markets
that are not generally available to smaller, less diversified property owners
and may enhance the Company's ability to achieve an investment grade credit
rating. Where intermediate or long-term debt financing is employed, the Company
will generally seek to obtain fixed interest rates or enter into agreements
intended to cap the effective interest rate on floating rate debt. The Company
intends to operate with a ratio of debt-to-total market capitalization that
generally will not exceed 50%. At September 30, 1996, the Company's
debt-to-total market capitalization ratio was approximately 34.0%, and would be
approximately 26.8%, on a pro forma basis after giving effect to the Offering
(and the application of the net proceeds therefrom) and the Property
Transactions.

The Company is currently negotiating an increase in its borrowing limit
under the Unsecured Credit Facility from $75 million to $125 million in
connection with the completion of the Offering. However, there can be no
assurance that this increase will be obtained.

ORGANIZATIONAL STRATEGY

The Organizational Strategy is to maintain a centralized professional staff
which focuses on important value-added decisions. The Company implements its
growth, marketing and leasing, financing, portfolio management and
organizational strategies, together with other critical operating functions,
from its headquarters in San Francisco. The Company is staffed by experienced
real estate professionals and executives who also have substantial private and
public capital markets expertise. The Company's management and real estate
professionals perform the following functions: asset management; investment
analysis; acquisition due diligence; asset acquisition and disposition;
marketing; capital markets; legal; and accounting. The Company maintains
operational, financial and reporting control in all aspects of its business.
However, the Company relies on outsourcing of certain functions where it is most
cost-effective to do so and when management believes that it can effectively
oversee and monitor the quality of services performed by outside vendors. In
pursuing build-to-suit opportunities that meet its investment objectives, the
Company expects to rely on qualified third parties to provide design and
construction services.

The Company's officers and asset management staff are directly responsible
for all leasing activities, including (i) initiating renewal/expansion
negotiations with existing tenants, (ii) soliciting the brokerage community for
new lease proposals and (iii) negotiating and signing all leases. In addition,
the Company's asset managers maintain regular contact with tenants to assure
customer service and monitor the effectiveness of individual regional operators
on day-to-day property specific duties. Further, over the last two years, the
Company believes this system has helped to maintain high tenant retention in the
Properties while increasing rental rates on lease renewals.

The Company currently employs a system of independent agents or "regional
operators" to provide tenants with certain routine services on a day-to-day
basis. These services include maintenance, rent collections, oversight of
physical improvements and certain other services that may be performed by third
party providers in a reliable and cost-effective manner. Because regional
operators are in daily contact with tenants of other industrial property owners,
the Company expects that its relationships with its regional operators may be a
source of additional leasing, acquisition and build-to-suit development
opportunities.

11
<PAGE> 12

THE TARGET MARKETS

The Company believes that as retailing and manufacturing businesses
continue to focus on higher inventory turns and just-in-time delivery of goods,
transportation of products will continue to be the most important link in the
distribution chain. Higher inventory turns are increasing the importance of
storing finished goods near the final consumer for quick response to meet
consumer demand. Further, greater reliance on just-in-time inventory control by
manufacturers requires that goods used in the manufacturing process be stored
relatively close to manufacturing centers to ensure continuous replenishment of
those goods when needed.

As the distribution chain continues to become shorter and regional
economies expand or contract, the demand for storage space will fluctuate (the
demand in specific source and destination markets will increase or decrease).
However, space located along the path of goods movement will remain in demand
even as source and destination points change over time. The Company has Target
Markets across the United States that are located strategically along the path
of goods movement. Upon completion of the Property Transactions, the Company
will own Properties in the following Target Markets: Dallas; Los Angeles Basin;
Memphis; Chicago; Seattle; Atlanta; Columbus; San Francisco Bay Area; and
Phoenix. The Company currently does not own Properties in the Indianapolis,
Orlando and New Jersey/Pennsylvania I-95 Corridor Target Markets. For a
description of certain information relating to the Target Markets, see "The
Company -- The Target Markets; -- Current Markets."

The Company expects that it will make further investments in Target Markets
in which it currently owns Properties and will expand into the remaining Target
Markets as attractive investment opportunities become available. The Company
believes that opportunities exist in its Target Markets to acquire or develop
additional industrial properties at attractive yields.

PROPERTIES

The Company owned and operated 59 warehouses/distribution Properties, 25
light industrial Properties and seven retail Properties at September 30, 1996,
on a pro forma basis assuming completion of the Property Transactions. Those
Properties contained approximately 11.5 million square feet of rentable space
that was 95.0% leased to 345 tenants at September 30, 1996, on a pro forma basis
assuming completion of the Property Transactions.

The warehouse/distribution Properties can be used for bulk distribution or
light assembly and manufacturing uses. They generally have clear heights equal
to or greater than 24 feet, building depths in excess of 150 feet, office finish
of less than 15%, high capacity sprinklers, cross docking capabilities, and
numerous dock high truck doors. These Properties contained approximately 9.2
million rentable square feet at September 30, 1996, on a pro forma basis
assuming completion of the Property Transactions.

The light industrial Properties are suitable for tenants with smaller space
requirements and have lower ceiling heights and more office finish. The light
industrial Properties generally have clear heights of 14 to 22 feet, building
depth of 60 to 150 feet and office finish of 10% to 50%. These Properties
contained approximately 1.4 million rentable square feet at September 30, 1996.

The seven retail Properties in the portfolio consist of four neighborhood
and community shopping centers and three free standing retail buildings. These
Properties contained 902,684 rentable square feet at September 30, 1996 (or
approximately 7.8% of the total rentable square feet of the total portfolio on a
pro forma basis, assuming completion of the Property Transactions). The Company
expects that it will sell the retail Properties in its portfolio as market
conditions warrant and purchase with the net proceeds from such sales industrial
Properties that meet the Company's investment objectives. Currently, the Company
has entered into binding contracts to sell three retail Properties and is
actively marketing a fourth retail Property.

12
<PAGE> 13

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered Hereby.................. 3,400,000 shares
Common Stock to be Outstanding after the
Offering................................... 13,085,563 shares(1)
Use of Proceeds.............................. To fund certain of the Property Transactions
and to repay temporary borrowings incurred
under the Unsecured Credit Facility in
connection therewith.
NYSE Symbol.................................. MDN
</TABLE>

- ---------------
(1) Excludes (i) approximately 553,000 shares of Common Stock issuable upon the
exercise of the Merger Warrants, (ii) 184,900 shares of Common Stock
issuable upon the exercise of the USAA Warrant, (iii) 693,838 shares of
Common Stock issuable upon the exercise of outstanding options granted
pursuant to the Stock Plan and (iv) 2,272,727 shares of Common Stock
issuable upon the conversion of outstanding shares of Series B Preferred
Stock (based on the current conversion price of such stock).

DISTRIBUTIONS

From February 23, 1996 (the date operations commenced) through September
30, 1996, the Company paid quarterly per share distributions equivalent to $0.29
to holders of record of the Common Stock. The Company currently expects to
continue to declare and pay regular quarterly distributions of $0.29 per share
to holders of its Common Stock, which on an annualized basis is equivalent to an
annual distribution of $1.16 per share of Common Stock. In addition, the terms
of the outstanding shares of Series B Preferred Stock provide for cumulative
dividends at an initial per share rate of at least $0.31 per quarter or $1.24
per year. From February 23, 1996 (the date of completion of the Preferred Stock
Private Placement) through September 30, 1996, the Company paid quarterly per
share distributions to the holders of record of the Series B Preferred Stock
equivalent to $0.31. Future distributions by the Company will be at the
discretion of the Board of Directors and there can be no assurance that any such
distributions will be made by the Company. Distributions by the Company to the
extent of its current and accumulated earnings and profits for federal income
tax purposes generally will be taxable to stockholders as ordinary dividend
income. Distributions in excess of current and accumulated earnings and profits
will be treated as a non-taxable reduction of the stockholder's basis in its
shares of Common Stock to the extent thereof, and thereafter as taxable gain.
Distributions that are treated as a reduction of the stockholder's basis in its
shares of Common Stock will have the effect of deferring taxation until the sale
of the stockholder's shares. The Company currently estimates that approximately
48% of its distributions for calendar 1996 will represent a return of capital
for Federal income tax purposes. See "Distribution Policy" and "Federal Income
Tax Considerations -- Taxation of Taxable Domestic Stockholders."

TAX STATUS OF THE COMPANY

The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its initial taxable year ended December 31, 1995. If the Company qualifies
for taxation as a REIT, the Company generally will not be subject to federal
income tax on that portion of its ordinary income or net capital gain that is
currently distributed to stockholders. Based on various assumptions and factual
representations made by the Company regarding the various requirements for
qualification as a REIT, in the opinion of Vinson & Elkins L.L.P., counsel for
the Company, the Company has qualified as a REIT for its taxable year ended
December 31, 1995, and the Company is organized in conformity with the
requirements for qualification as a REIT and its method of operation has and
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code, provided the Company continues to meet the
asset composition, source of income, shareholder diversification, distribution,
recordkeeping, and other requirements of the Code necessary for the Company to
qualify as a REIT. The opinion of Vinson & Elkins L.L.P. is not, however,
binding on the Internal Revenue Service (the "IRS") or any court. Vinson &
Elkins L.L.P. will not be engaged to monitor or review the Company's compliance
with

13
<PAGE> 14

these requirements. While the Company expects to satisfy these tests and plans
to use its best efforts to qualify as a REIT, no assurance can be given that the
Company will be able to do so for any particular year, or that the applicable
law will not change and adversely affect the Company and its stockholders. If
the Company fails to qualify as a REIT in any taxable year, the Company will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates. See "Federal Income Tax
Considerations -- Failure to Qualify as a REIT" for a more detailed discussion
of the consequences of a failure of the Company to qualify as a REIT. Even if
the Company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property and to federal income
and excise taxes on its undistributed income and certain other categories of
income.

SUMMARY SELECTED FINANCIAL AND OTHER DATA

GENERAL

The following selected financial and other data includes data regarding
substantially all of the operations and Properties of four publicly-traded
finite-life real estate investment trusts that were involved in the
Consolidation Transactions. See "The Consolidation Transactions" and "Glossary"
for the definitions of certain terms used herein. The following table sets forth
selected financial and other data on a pro forma, historical as adjusted and
historical basis for the Company, and on a historical combined basis for the
Merged Trusts. The Properties that the Company purchased from Trust 83 in the
Asset Purchase (the "Trust 83 Properties") are not included in the historical
combined financial information of the Merged Trusts. The table should be read in
conjunction with the pro forma and historical as adjusted financial statements
and notes thereto and the respective historical financial statements and notes
thereto included elsewhere in this Prospectus.

PRO FORMA FINANCIAL INFORMATION

The accompanying unaudited pro forma selected balance sheet data as of
September 30, 1996 has been prepared to reflect (i) the Property Transactions,
(ii) the completion of the Offering, and (iii) the paydown of the Unsecured
Credit Facility using the net proceeds from the Offering and cash on hand, as
described in "Use of Proceeds," as if such transactions and adjustments had
occurred on September 30, 1996. The accompanying unaudited pro forma selected
operating and other data has been prepared to reflect (i) the incremental effect
of the Property Transactions and completed acquisitions, (ii) the incremental
effect of four property dispositions occurring prior to September 30, 1996,
(iii) the incremental effects of the paydown of the Unsecured Credit Facility
using the net proceeds from the Company's March 1996 offering of 1,500,000
shares of Common Stock and (iv) the paydown of the Unsecured Credit Facility
using the net proceeds from this Offering and cash on hand, as if such
transactions and adjustments had occurred on January 1, 1995.

The pro forma selected financial and other data should be read in
connection with the respective historical as adjusted financial information and
notes thereto and historical financial statements and notes thereto included
elsewhere in this Prospectus. In the opinion of management, the pro forma
selected financial and other data provides for all adjustments necessary to
reflect the effects of the Property Transactions and completed acquisitions,
property dispositions, March 1996 offering, the Offering, and the paydown of the
Unsecured Credit Facility.

The pro forma information is unaudited and is not necessarily indicative of
the consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period or on the date
presented, or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.

HISTORICAL AS ADJUSTED FINANCIAL INFORMATION

14
<PAGE> 15

reflect (i) the respective historical results of the Merged Trusts and the Trust
83 Properties for the respective periods, (ii) the incremental effects of the
Merger, the Refinancing and the Recapitalization on the historical results of
the Merged Trusts and the Trust 83 Properties and (iii) the historical results
of the Company, to reflect the post-Merger operations of the Company as if such
transactions and adjustments had occurred on January 1, 1995. The Merger, Asset
Purchase and Refinancing each closed concurrently on February 23, 1996.

The unaudited historical as adjusted selected financial and other data
should be read in connection with the historical financial statements and notes
thereto included elsewhere in this Prospectus. In the opinion of management, the
historical as adjusted condensed consolidated financial information provides for
all adjustments necessary to reflect the effects of the disposition and
acquisition of certain properties during 1995, the Recapitalization, the Merger,
the Asset Purchase and the Refinancing.

The historical as adjusted condensed consolidated financial information is
unaudited and is not necessarily indicative of the consolidated results that
would have occurred if the transactions reflected therein had been consummated
in the period presented, or on any particular date in the future, nor does it
purport to represent the financial position, results of operations or changes in
cash flows for future periods.

15
<PAGE> 16

SUMMARY SELECTED FINANCIAL AND OTHER DATA
AS OF AND FOR THE PERIODS INDICATED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED AS ADJUSTED --------------------------------------
SEPTEMBER 30, 1996 FOR NINE MERGED
---------------------------------- MERGED TRUSTS MONTHS TRUSTS
PRO HISTORICAL JANUARY 1, 1996 ENDED PRO HISTORICAL (3)
FORMA AS TO FEBRUARY 23, SEPTEMBER 30, FORMA AS ADJUSTED --------
(1) ADJUSTED (2) HISTORICAL 1996 (3) 1995 (2) 1995(1) 1995 (2) 1995
-------- ------------ ---------- --------------- ------------- ---------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues......... $ 38,535 $ 29,877 $ 23,933 $ 5,158 $29,392 $ 51,367 $ 38,816 $ 34,597
Income (Loss) Before
Extraordinary
Items................ 13,681 9,486 7,955 (542) 8,678 18,004 11,035 852
Extraordinary Items.... -- -- (411) -- -- -- -- (1,865)
Net Income (Loss)...... 13,681 9,486 7,544 (542) 8,678 18,004 11,035 (1,013)
Net Income Allocable to
Common............... 11,558 7,363 5,838 (542) 6,564 15,186 8,217 --
Net Income Per Common
Share:
Before Extraordinary
Items............... $ 0.87 $ -- $ 0.82 $ -- $ -- $ 1.14 $ -- $ --
Net Income........... 0.87 -- 0.77 -- -- 1.14 -- --
Distributions Per
Share:
Common Stock......... 0.87 -- 0.70 -- -- 1.16 -- --
Series B Preferred
Dividends........... 0.93 -- 0.75 -- -- 1.24 -- --
BALANCE SHEET DATA:
Investment in Real
Estate, Net.......... $339,583 $ -- $283,655 $ -- $ -- $ -- $ -- $217,216
Total Assets........... 348,506 -- 292,700 -- -- -- -- 247,159
Mortgage Loans......... 71,852 -- 66,094 -- -- -- -- 109,728
Unsecured Credit
Facility............. 34,230 -- 41,900 -- -- -- -- --
Stockholders' Equity... 232,444 -- 174,726 -- -- -- -- 106,375
OTHER DATA:
Funds From
Operations (4)....... $ 19,131 $ 13,380 $ 10,988 $ -- $12,374 $ 25,174 $ 16,085 $ --
Cash Flows Provided By
(Used In):
Operating Activities... 17,427 11,676 14,791 (549) 11,137 22,144 13,055 7,229
Investing
Activities.......... (2,436) (54,376) (45,741) (185) (2,741) (122,062) (3,143) (5,039)
Financing Activities... (11,963) 32,097 32,097 (442) (7,835) 113,421 (12,335) (6,069)
Weighted Average:
Common Shares
Outstanding......... 13,297 -- 9,716 -- -- 13,297 -- --
Preferred Shares
Outstanding......... 2,273 -- 2,273 -- -- 2,273 -- --

1994 1993 1992 1991
-------- -------- -------- --------
<S> <<C> <C> <C> <C>
OPERATING DATA:
Total Revenues......... $ 34,822 $ 35,024 $ 38,096 $ 39,587
Income (Loss) Before
Extraordinary
Items................ (11,135) (9,993) (18,884) (17,878)
Extraordinary Items.... -- 796 -- --
Net Income (Loss)...... (11,135) (9,197) (18,884) (17,878)
Net Income Allocable to
Common............... -- -- -- --
Net Income Per Common
Share:
Before Extraordinary
Items............... $ -- $ -- $ -- $ --
Net Income........... -- -- -- --
Distributions Per
Share:
Common Stock......... -- -- -- --
Series B Preferred
Dividends........... -- -- -- --
BALANCE SHEET DATA:
Investment in Real
Estate, Net.......... $226,219 $249,492 $277,561 $300,854
Total Assets........... 250,986 275,951 304,426 323,735
Mortgage Loans......... 137,143 151,130 168,059 166,534
Unsecured Credit
Facility............. -- -- -- --
Stockholders' Equity... 107,388 118,523 128,182 148,914
OTHER DATA:
Funds From
Operations (4)....... $ -- $ -- $ -- $ --
Cash Flows Provided By
(Used In):

Operating Activities... 6,755 8,226 6,946 5,140
Investing
Activities.......... 5,949 (466) (1,723) (3,110)

Financing Activities... (14,200) (4,696) (1,007) 1,414
Weighted Average:
Common Shares
Outstanding......... -- -- -- --
Preferred Shares
Outstanding......... -- -- -- --
</TABLE>

- ---------------
(1) The pro forma financial operating and other data reflects the Offering,
Property Transactions and certain other adjustments as if such transactions
and adjustments had occurred on January 1, 1995. The pro forma balance sheet
data reflects such transactions and adjustments as if such transactions and
adjustments had occurred on September 30, 1996.

(2) The historical as adjusted reflects the incremental effects of the
Consolidation Transactions and related transactions on the Company and the
Merged Trusts as discussed in "The Consolidation Transactions."

(3) Reflects the historical operations of the Merged Trusts for the period from
January 1, 1996 to the Merger date of February 23, 1996, and for each of the
five years ended December 31, 1995.

(4) In addition to cash flows and net income, management and industry analysts
generally consider Funds From Operations ("Funds From Operations") to be one
additional measure of the performance of an equity REIT because, together
with net income and cash flows, Funds From Operations provides investors
with an additional basis to evaluate the ability of an entity to incur and
service debt and to fund acquisitions and other capital expenditures.
However, Funds From Operations does not measure whether cash flow is
sufficient to fund all of an entity's cash needs including principal
amortization, capital improvements, and distributions to stockholders. Funds
From Operations also does not represent cash generated from operating,
investing or financing activities as determined in accordance with generally
accepted accounting principles. Funds From Operations should not be
considered as an alternative to net income as an indicator of an entity's
operating performance or as an alternative to cash flow as a measure of
liquidity. Funds From Operations is defined by the National Association of
Real Estate Investment Trusts, Inc. ("NAREIT") as net income or loss,
excluding gains or losses from debt restructurings and sales of properties,
plus depreciation and amortization of real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. In March
1995, NAREIT issued a White Paper analysis to address certain interpretive
issues under its definition of Funds From Operations. The White Paper
provides that amortization of deferred financing costs and depreciation of
non-rental real estate assets are no longer to be added back to net income
to arrive at Funds From Operations. The Company calculates Funds From
Operations as defined by NAREIT and as interpreted in the White Paper (i.e.,
the Company does not add back amortization of deferred financing costs and
depreciation of non-rental real estate assets to net income). A
reconciliation of Funds From Operations to net income for the periods ended
September 30, 1996 and 1995, and the year ended December 31, 1995 is set
forth below:

<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR
SEPTEMBER ENDED
NINE MONTHS ENDED 30, DECEMBER 31,
SEPTEMBER 30, 1996 1995 1995
---------------------------------- ----------- ----------------------
PRO HISTORICAL HISTORICAL PRO HISTORICAL
FORMA AS ADJUSTED HISTORICAL AS ADJUSTED FORMA AS ADJUSTED
------- ----------- ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income, Before Gains and Losses and
Extraordinary Items.............................. $13,681 $ 9,486 $ 7,778 $ 8,678 $18,004 $ 11,035
Depreciation and Amortization of Real Estate
Assets........................................... 5,450 3,894 3,210 3,696 7,170 5,050
------- ------- ------- ------- ------- -------
Funds From Operations............................. $19,131 $13,380 $ 10,988 $12,374 $25,174 $ 16,085
======= ======= ======= ======= ======= =======
</TABLE>

16
<PAGE> 17

RISK FACTORS

An investment in shares of Common Stock involves various risks. Prospective
investors should carefully consider the following risk factors, in addition to
the other information set forth in this Prospectus, in connection with an
investment in the shares of Common Stock offered hereby.

This Prospectus contains statements which constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Those statements appear in a number of
places in this Prospectus and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) potential acquisitions or property developments by
the Company; (ii) the use of the proceeds of the Offering; (iii) the Company's
financing plans; (iv) trends affecting the Company's financial condition or
results of operations; (v) the Company's growth strategy, operating strategy and
financing strategy; (vi) the declaration and payment of dividends; and (vii)
regulatory matters affecting the Company. Prospective investors are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward looking statements as a
result of various factors. The accompanying information contained in this
Prospectus, including without limitation the information set forth under the
headings "Risk Factors," "The Company," Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties,"
identifies important factors that could cause such differences.

RISK OF INABILITY TO SUSTAIN DISTRIBUTION LEVEL. The Company's current
intended distribution level is based on a number of assumptions, including
assumptions relating to the future operations of the Company. These assumptions
concern, among other matters, continued property occupancy and profitability of
tenants, capital expenditures and other costs relating to the Company's
properties, the level of leasing activity, the strength of real estate markets,
competition, the cost of environmental compliance and compliance with other
laws, the amount of uninsured losses, and decisions by the Company to reinvest
rather than distribute cash available for distribution. The Company currently
expects to maintain its current distribution level. However, some of the
assumptions described above are beyond the control of the Company, and a
significant change in any such assumptions could cause a reduction in cash
available for distributions, which could affect the Company's ability to sustain
its distribution level.

INFLUENCE OF SIGNIFICANT STOCKHOLDERS. Five stockholders of the Company
(Hunt, USAA and Morgan Stanley which own shares of Common Stock, and Ameritech
and OTR, which own shares of Series B Preferred Stock that are convertible into
shares of Common Stock) owned as of September 30, 1996 a total of 43.0% of the
outstanding Common Stock on a pro forma basis (assuming conversion of the shares
of Series B Preferred Stock and after giving effect to the issuance of shares of
Common Stock in this Offering). So long as the holders of shares of Series B
Preferred Stock collectively hold shares of Series B Preferred Stock
representing on an as-converted basis more than the Minimum Ownership Level (as
defined in the Company's Charter and described together with additional rights
under "Description of Stock -- Preferred Stock"), the holders of shares of
Series B Preferred Stock (Ameritech and OTR) are entitled to require the Company
to increase the size of its Board of Directors by one person and to elect a
designee to fill such vacancy. At the next annual meeting of stockholders
following any such appointment, the number of directors would be set at nine
directors, including the director elected by the holders of the Series B
Preferred Stock. Accordingly, for so long as these stockholders own a
significant percentage of the Company's stock, they will retain substantial
influence over the affairs of the Company, which may result in decisions that do
not fully represent the interests of all stockholders of the Company. See
"Principal and Management Stockholders."

REAL ESTATE INVESTMENT RISKS.

Expiring Leases. The Company's inability to renew or release space upon
expiration of its expiring leases could adversely affect the Company's cash
available for distributions. In addition, the Company usually will incur
additional costs in the form of leasing commissions and tenant improvements if
it is unable to renew an expiring lease with an existing tenant. In that regard,
during the fourth quarter of 1996 and in 1997, leases

17
<PAGE> 18

covering approximately 3.6% and 22.5%, respectively, of the Company's total
leased space are scheduled to expire. See "Business and Properties."

General Risks. The Company's investments are subject to the risks incident
to ownership and operation of commercial real estate generally. The yields
available from equity investments in real estate depend upon the amount of
income generated and expenses incurred. If the Company's properties do not
generate revenue sufficient to cover operating expenses, including debt service
and capital expenditures, the Company's cash available for distribution and
ability to make distributions to its stockholders will be adversely affected.

A commercial property's revenues and value may be adversely affected by a
number of factors, including: the national, state and local economic climate and
real estate conditions (such as oversupply of or reduced demand for space and
changes in market rental rates); the perceptions of prospective tenants of the
safety, convenience and attractiveness of the properties; the ability of the
owner to provide adequate management, maintenance and insurance; the ability to
collect on a timely basis all rents from tenants; the expense of periodically
renovating, repairing and reletting space; and increasing operating costs
(including real estate taxes and utilities) which may not be passed through the
tenants. Certain significant expenditures associated with investments in real
estate (such as mortgage payments, real estate taxes, insurance and maintenance
costs) are generally not reduced when circumstances cause a reduction in rental
revenues from a property. If a property is mortgaged to secure the payment of
indebtedness and if the Company is unable to meet its mortgage payments, a loss
could be sustained as a result of foreclosure on the property or the exercise of
other remedies by the mortgagee. In addition, real estate values and income from
properties are affected by such factors as compliance with laws, including tax
laws, interest rate levels and the availability of financing. Also, rentable
square feet of commercial property is often affected by market conditions and
may therefore fluctuate over time.

Reliance on Major Tenants. At September 30, 1996 on a pro forma basis
assuming completion of the Property Transactions, the Company's largest tenant,
Sears Logistics Services, Inc. (an affiliate of Sears Roebuck and Co.) accounted
for approximately 11.9% of the Company's pro forma total annual Base Rent. In
addition, five other tenants in the aggregate accounted for approximately 16.0%
of the Company's pro forma total annual Base Rent at such date. The Company
would be adversely affected in the event of bankruptcy or insolvency of, or a
downturn in the business of, any such tenants.

Tenant Defaults. Substantially all the Company's income is derived from
rental income from real property and, consequently, the Company's cash flow and
ability to make expected distributions to stockholders would be adversely
affected if a significant number of tenants of the Properties failed to meet
their lease obligations. In the event of a default by a lessee, the Company may
experience delays in enforcing its rights as lessor and may incur substantial
costs in protecting its investment. At any time, a tenant of the Properties may
also seek protection under the bankruptcy laws, which could result in rejection
and termination of such tenant's lease and thereby cause a reduction in the cash
available for distribution by the Company. If a tenant rejects its lease, the
Company's claim for breach of the lease would be treated (absent collateral
securing the claim) as a general unsecured claim. No assurance can be given that
the Company will not experience significant tenant defaults in the future.

Market Illiquidity. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, provisions of the Code limit a REIT's ability to sell properties
held for fewer than four years, which may affect the Company's ability to sell
properties at a time when it is otherwise economically advantageous to do so,
thereby adversely affecting returns to holders of Common Stock.

Operating Risks. The Properties are subject to operating risks common to
commercial real estate in general, any and all of which may adversely affect
occupancy or rental rates. The Properties are subject to increases in operating
expenses such as: cleaning, electricity, heating, ventilation and air
conditioning; insurance and administrative costs; and other general costs
associated with security, landscaping, repairs and maintenance. While the
Company's tenants are currently obligated to pay all or a portion of these
escalating costs, there can be no assurance that tenants will agree to pay such
costs upon renewal or that new tenants will agree to pay such costs. If
operating expenses increase, the local rental market may limit the extent to
which

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<PAGE> 19

rents may be increased to meet increased expenses without decreasing occupancy
rates. While the Company generally implements cost saving incentive measures at
its Properties, if any of the above occurs, the Company's ability to make
distributions to stockholders could be adversely affected.

Competition. There are numerous commercial properties that compete with
the Company in attracting tenants and numerous companies that compete in the
selection of land for development and properties for acquisition.

Uninsured Losses. The Company carries or requires its tenants to carry
comprehensive liability, fire, extended coverage and rental loss insurance with
respect to all of the Properties, with policy specifications, insured limits and
deductibles customarily carried for similar properties. There are, however,
certain types of losses (such as losses arising from acts of war or relating to
pollution) that are not generally insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a Property,
as well as the anticipated future revenue from such Property and could continue
to be obligated on any mortgage indebtedness or other obligations related to the
Property. Any such loss would adversely affect the business of the Company and
its financial condition and results of operations.

Retail Property Risks. At September 30, 1996, on a pro forma basis
assuming completion of the Property Transactions, seven of the Company's
Properties were retail Properties. The Company's investments in retail
Properties are subject to risks incident to: (i) the oversupply of retail space
in certain areas of the United States; (ii) severe competition from new
retailers and the nationwide expansion of existing retailers; and (iii) various
negative general economic factors.

POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO THE PROPERTIES. Under various
federal, state and local laws, ordinances and regulations, an owner of real
estate is liable for the costs of removal or remediation of certain hazardous or
toxic substances on or in such property. These laws often impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The cost of any required
remediation and the owner's liability therefore as to any property is generally
not limited under such enactments and could exceed the value of the property
and/or the aggregate assets of the owner. The presence of such substances, or
the failure to properly remediate such substances, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition, or in the event of
renovation or demolition. Such laws impose liability for release of ACMs into
the air and third parties may seek recovery from owners or operators of real
properties for personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, potentially liable for removal or remediation
of costs, as well as certain other related costs, including governmental fines
and injuries to persons and property.

All the Properties have been subject to a Phase I or similar environmental
audit undertaken by independent environmental consultants after December 1992
(which involved general inspections without soil sampling, ground water analysis
or radon testing and, for the Properties constructed in 1978 or earlier, survey
inspections to ascertain the existence of ACMs). In addition, Phase II studies
were conducted on ten of the Properties in 1995. These environmental audits have
not revealed, and the Company is not aware of, any environmental liability that
would have a material adverse effect on the Company's business. See "Business
and Properties -- Environmental Matters."

RISKS OF ACQUISITION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES. The Company
intends to acquire operating warehouse/distribution and light industrial
properties to the extent they can be acquired on advantageous terms and meet the
Company's investment criteria. Acquisitions of such properties entail general
investment risk associated with any real estate investment, including the risk
that investments will fail

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<PAGE> 20

to perform as expected or that estimates of cost of improvements to bring an
acquired property up to standards established for the intended market condition
may prove inaccurate.

The Company also intends to grow through the selective development and
construction of build-to-suit warehouse/distribution and light industrial
properties, in accordance with the Company's policies as opportunities arise in
the future. See "The Company -- Growth Strategy." Risks associated with the
Company's development and construction activities include the risk that: the
Company may abandon development activities after expending resources to
determine feasibility; construction cost of a project may exceed original
estimates; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; financing may not be available on
favorable terms for development of a property; and the construction and lease-up
may not be completed on schedule, resulting in increased debt service, expense
and construction costs. Development activities are also subject to risk relating
to inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
If any of the above occur, the Company's ability to make expected distributions
to stockholders could be adversely affected. In addition, new development
activities, regardless of whether they are ultimately successful, typically
require a substantial portion of management's time and attention.

RISKS OF ADVERSE EFFECT ON THE COMPANY FROM DEBT SERVICING, INCREASES IN
INTEREST RATES, FINANCIAL COVENANTS AND ABSENCE OF LIMITATIONS ON DEBT.

Debt Financing. The Company is subject to risks normally associated with
debt financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk that
existing indebtedness on the Properties will not be able to be refinanced or
that the terms of such refinancings will be as favorable as the terms of the
existing indebtedness. See "Business and Properties -- The Unsecured Credit
Facility;" " -- The Mortgage Loan." There can be no assurance that the Company
will be able to refinance any indebtedness or otherwise obtain funds by selling
assets or raising equity to make required payments on maturing indebtedness.

Requirements of Credit Facilities; Foreclosures. The Company established
the Unsecured Credit Facility under which it has a maximum borrowing amount of
$75 million. The Unsecured Credit Facility requires the Company to comply with a
number of customary financial and other covenants (such as maintaining certain
debt coverage and loan-to-value ratios). The Unsecured Credit Facility matures
on February 23, 1998 and may be extended for an additional year upon
satisfaction of certain conditions. The Company may not have funds on hand
sufficient to repay such indebtedness at maturity. It may therefore be necessary
for the Company to refinance debt through additional debt financing or equity
offerings. If the Company is unable to refinance its indebtedness on acceptable
terms, the Company may be forced to dispose of properties upon disadvantageous
terms, which could result in losses to the Company and adversely affect the
amount of cash available for distribution to stockholders.

The Company has $66.1 million outstanding under its Mortgage Loan which
matures June 1, 2005. Currently 37 Properties secure payment of indebtedness
under the Mortgage Loan. See "Business and Properties -- The Mortgage Loan." If
the Company is unable to meet payments, certain Properties could be foreclosed
upon by or otherwise transferred to the lender with a consequent loss of income
and asset value to the Company.

Risk of Rising Interest Rates. Outstanding advances under the Unsecured
Credit Facility bear interest rates at a variable rate. In addition, the Company
may incur indebtedness in the future that also bears interest at a variable rate
or may be required to refinance its debt at higher rates. Increases in interest
rates could increase the Company's interest expense, which could adversely
affect the Company's ability to pay expected distributions to stockholders.

No Limitation on Debt. At September 30, 1996, on a pro forma basis, after
giving effect to the Property Transactions and the completion of the Offering
(and application of the net proceeds therefrom), the debt-to-total market
capitalization of the Company would be approximately 26.8%. The Company
currently has a policy of incurring debt only if, upon such incurrence, the
Company's debt-to-total market capitalization would be 50% or less. However, the
Organizational Documents of the Company do not contain any limitation

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<PAGE> 21

on the amount of indebtedness the Company may incur. Accordingly, the Board
could alter or eliminate this policy and would do so if, for example, it were
necessary in order for the Company to continue to qualify as an REIT. If this
policy were changed, the Company could become more highly leveraged, resulting
in an increase in debt service that could adversely affect the cash available
for distribution to stockholders and could increase the risk of default on the
Company's indebtedness.

POSSIBLE STOCK PRICE VOLATILITY. The Common Stock has been listed for
trading under the symbol "MDN" on the NYSE since February 26, 1996. Prior to
that date there was no public market for the Common Stock. The market price of
Common Stock could be subject to significant fluctuations in response to various
factors and events, including quarterly variations, operating results, liquidity
of the market for Common Stock, regulatory changes affecting the real estate
industry generally, announcements of business developments by the Company or its
competitors, interest rate fluctuations and other changes in real estate market
conditions.

EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK. One of the
factors that influences the market price of the shares of Common Stock in public
markets is the annual yield on the price paid for shares of Common Stock from
distributions by the Company. An increase in market interest rates may lead
prospective purchasers of the Common Stock to demand a higher annual yield from
future distributions. Such an increase in the required distribution yield may
adversely affect the market price of Common Stock.

DILUTION. Purchasers of Common Stock in the Offering will experience
immediate dilution in the net book value of the shares they purchase. See
"Dilution."

CONFLICTS OF INTEREST. The Company has adopted certain policies designed
to eliminate or minimize conflicts of interest. These policies include a
requirement that all transactions in which officers, directors and substantial
shareholders and their affiliates have a conflicting interest must be approved
by a majority of the disinterested directors of the Company who are not officers
or full time employees of the Company or members of the immediate family of any
such officer or employee (the "Independent Directors"). However, there can be no
assurance that these policies will be successful in minimizing or eliminating
such conflicts and, if they are not successful, decisions could be made that
might fail fully to reflect the interests of all stockholders.

CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL. The investment,
financing, conflicts of interest, borrowing and distribution policies of the
Company and its policies with respect to all other activities, including
qualifications as a REIT, growth, debt, capitalization and operations, will be
determined by the Board. Although it has no present intention to do so, the
Board may amend or revise these policies at any time and from time to time at
its discretion without a vote of the stockholders of the Company. A change in
these polices could adversely affect the Company's financial condition, results
of operations or the market price of the Common Stock. See "Policies with
Respect to Certain Activities."

COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS.

Americans with Disabilities Act. Under the Americans with Disabilities Act
of 1990 (the "ADA"), places of public accommodation and commercial facilities
are required to meet certain federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. Although
management of the Company believes that the Properties are substantially in
compliance with present requirements of the ADA, the Company may incur
additional costs of compliance in the future. A number of additional federal,
state and local laws exist which impose further burdens or restrictions on
owners with respect to access by disabled persons and may require modifications
to the Properties, or restrict certain further renovations thereof, with respect
to access by disabled persons. The ultimate amount of the cost of compliance
with the ADA or other such laws is not currently ascertainable. While such costs
are not expected to have a material effect on the Company, they could be
substantial. If required changes involve greater expense than the Company
currently anticipates, the Company's ability to make expected distributions
could be adversely affected.

Other Laws. The Properties are also subject to various federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result

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<PAGE> 22

in the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's expected
distributions.

RISKS OF FAILURE TO QUALIFY AS A REIT AND OTHER TAX LIABILITIES.

Consequences of Failure to Qualify as a REIT. The Company has elected to
be taxed as a REIT under the Code, commencing with its initial taxable year
ended December 31, 1995. To maintain REIT status, the Company must meet a number
of highly technical requirements on a continuing basis. Those requirements seek
to ensure, among other things, that the gross income and investments of a REIT
are largely real estate related, that a REIT distributes substantially all its
ordinary taxable income to stockholders on a current basis and that the REIT's
ownership is not overly concentrated. Due to the complex nature of these rules,
the limited available guidance concerning interpretation of the rules, the
importance of ongoing factual determinations and the possibility of adverse
changes in the law, administrative interpretations of the law and developments
at the Company, no assurance can be given that the Company will qualify as a
REIT for any particular year.

If the Company fails to qualify as a REIT, it will be taxed as a regular
corporation, and distributions to stockholders will not be deductible in
computing the Company's taxable income. The resulting corporate tax liabilities
could materially reduce the funds available for distribution to the Company's
stockholders or for reinvestment. In the absence of REIT status, distributions
to stockholders would no longer be required. Moreover, the Company might not be
able to elect to be treated as a REIT for the four taxable years after the year
during which the Company ceased to qualify as a RElT. In addition, if the
Company later requalified as a REIT, it might be required to pay a full
corporate-level tax on any unrealized gain in its assets as of the date of
requalification and to make distributions equal to any earnings accumulated
during the period of non-REIT status.

Effect of REIT Distribution Requirements. To maintain its qualification as
a REIT, the Company must annually distribute to the Company's stockholders at
least 95% of its net ordinary taxable income (not capital gains). This
requirement limits the Company's ability to accumulate capital. Under certain
circumstances, the Company may not have sufficient cash or other liquid assets
to meet the distribution requirement. Difficulties in meeting the distribution
requirements might arise due to competing demands for the Company's funds or to
timing differences between tax reporting and cash receipts and disbursements
(because income may have to be reported before cash is received, or expenses may
have to be paid before a deduction is allowed or deductions may be disallowed or
limited). In those situations, the Company might be required to borrow funds or
sell properties on adverse terms in order to meet the distribution requirements.
Although the Company does not anticipate difficulties in meeting the
distribution requirements, no assurance can be given that the necessary funds
will be available. If the Company fails to make a required distribution, it
would cease to be a REIT. See "Federal Income Tax Considerations -- REIT
Qualification."

LIMITS ON OWNERSHIP AND CHANGES IN CONTROL MAY DETER CHANGES IN MANAGEMENT
AND THIRD PARTY ACQUISITION PROPOSALS.

In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding shares of stock of the Company may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than 1995) (the
"Five or Fewer Requirement"). To help the Company meet these requirements and
otherwise maintain its REIT status, the Charter, subject to certain exceptions,
prohibits (i) actual or constructive ownership by any person (other than persons
designated by the Board as "Excepted Holders") of more than 8.5% of the lesser
of the number or value of the outstanding shares of any class or series of the
Company's stock, (ii) ownership of stock that would cause the Company to be
"closely held" or otherwise fail to qualify as a REIT and (iii) transfers that,
if effective, would result in outstanding shares being owned by less than 100
persons. See "Federal Income Tax Consequences -- REIT Qualification." The
Charter provides that, upon any attempted transfer of shares (including warrants
or options to acquire shares) that, if effective, would result in any person
owning stock in

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<PAGE> 23

violation of the ownership restrictions (other than the prohibition against
transfers that would result in less than 100 owners), the number of shares that
would otherwise cause the violation (rounded to the nearest whole share) shall
be automatically transferred to a Trustee as trustee of a Trust for the benefit
of a charitable beneficiary as "Shares-In-Trust." The person who otherwise would
have been considered the owner (the "Prohibited Owner") will have no rights or
economic interest in those shares. For these purposes, potentially violative
"ownership" is evaluated by taking into account the broad constructive ownership
rules of Sections 544 and 318 of the Code, with certain modifications. In
addition, a "transfer" that is subject to these restrictions includes any
issuance, sale, transfer, gift, assignment, devise or other disposition, as well
as any other event that causes any person to have or acquire ownership (applying
the constructive ownership rules) of Equity Stock. See "Description of
Stock -- Restrictions on Ownership and Transfer."

In addition, certain provisions of the Company's organizational documents
and the MGCL may have the effect of delaying, deferring or preventing a third
party from making an acquisition proposal for the Company and may thereby
inhibit a change in control of the Company. For example, such provisions may (i)
deter tender offers for Common Stock that may be attractive to stockholders or
(ii) deter purchases of large blocks of Common Stock, thereby limiting the
opportunity for stockholders to receive a premium for their Common Stock over
then-prevailing market prices. See "Certain Provisions of Maryland Law and of
the Charter and Bylaws."

Future Issuances of Common Stock. The Charter authorizes the Board to
cause the Company to issue additional authorized but unissued shares of Common
Stock without stockholder approval. Any such issuance could have the effect of
diluting existing stockholders' interest in the Company.

Preferred Stock. The Charter authorizes the Board to (i) issue up to 25
million shares of preferred stock, par value $0.001 per share (the "Preferred
Stock"), (ii) classify any unissued shares of Preferred Stock and reclassify any
previously classified but unissued shares of Preferred Stock, (iii) establish
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, limitations and restrictions
on ownership, and (iv) establish terms and conditions of redemption for each
class or series of any Preferred Stock issued. See "Description of
Stock -- Preferred Stock."

EXEMPTIONS FOR CERTAIN PERSONS FROM THE MARYLAND BUSINESS COMBINATION
LAW. Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and any person
who beneficially owns 10% or more of the voting power of the corporation's
shares (an "Interested Stockholder") or an affiliate thereof are prohibited for
five years after the most recent date on which the Interested Stockholder
becomes an Interested Stockholder. Thereafter, any such business combination
must be approved by two super-majority stockholder votes unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
common shares.

Pursuant to the statute, the Company has exempted any business combination
involving Hunt, USAA, Ameritech and certain affiliates thereof and,
consequently, the five-year prohibition and the super-majority vote requirements
described above will not apply to a business combination between any of them and
the Company. As a result, these stockholders and affiliates may be able to enter
into business combinations with the Company, which may not be in the best
interest of the stockholders, without compliance by the Company with the
super-majority vote requirements and other provisions of the statute. See
"Certain Provisions of Maryland Law and of the Charter and Bylaws -- Business
Combinations."

DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts of
its executive officers. The loss of their services could have an adverse effect
on the operations of the Company.

SHARES AVAILABLE FOR FUTURE SALE. Sales of a substantial number of shares
of Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Stock. The Company, its executive
officers and directors, Hunt, USAA, Ameritech and OTR have agreed, subject to

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<PAGE> 24

certain exceptions, that they will not, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise dispose or transfer (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other disposition
or transfer) of any shares of Common Stock or other stock of the Company, or any
securities convertible into or exercisable or exchangeable for any shares of
Common Stock or any other stock of the Company without the prior written consent
of Prudential Securities Incorporated, on behalf of the Underwriters, for a
period of 90 days from the date of this Prospectus. At the conclusion of such
period, any shares of Common Stock may be sold, subject to certain additional
restrictions, in the public markets pursuant to registration rights granted by
the Company or available exemptions from registration. See "Shares Available for
Future Sale." In addition, 1,000,000 shares of Common Stock have been issued or
reserved for issuance pursuant to the Stock Plan and, when issued, these shares
will be available for sale in the public market from time to time pursuant to
exemptions from registration requirements or upon registration. See
"Management -- The Stock Plan."

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<PAGE> 25

RECENT INVESTMENTS AND DISPOSITIONS

The Company actively seeks to acquire and develop properties which meet its
real estate underwriting criteria and dispose of those Properties which no
longer fit the strategic focus of the Company.

COMPLETED ACQUISITIONS

Since February 23, 1996, the Company has acquired four
warehouse/distribution Properties that comprise 1.6 million square feet for
aggregate consideration of approximately $53.2 million. These Properties, with
the exception of the Rustin Avenue Property, are not included in the Property
Transactions. The following table summarizes these completed acquisitions.

<TABLE>
<CAPTION>
APPROXIMATE ESTIMATED
PROPERTIES MARKET SQUARE FEET CONSIDERATION(1)
- ----------------------- ---------------------------------- ----------- -------------
<S> <C> <C> <C>
Arenth Avenue Los Angeles Basin 332,790 $ 9,700,000
Rustin Avenue Los Angeles Basin 113,721 4,115,000
Crosswind Drive Columbus 1,014,592 30,919,000
Overlake Place San Francisco Bay Area 160,000 8,508,000
--------- -----------
Total 1,621,103 $ 53,242,000
========= ===========
</TABLE>

- ---------------
(1) Including transaction costs.

Arenth Avenue Property. On March 29, 1996, the Company purchased a 332,790
square foot warehouse/distribution facility located in City of Industry,
California (Los Angeles Basin) for a purchase price of approximately $9.7
million. The Property is leased on a triple-net basis to General Tire Corp.
through March 2001. The building, constructed in 1973, has a 24-foot clear
ceiling height, 21 dock-high doors and an internal rail spur and is situated on
a 16-acre site.

Rustin Avenue Property. On November 15, 1996, the Company purchased two
warehouse/distribution buildings in Riverside, California (Los Angeles Basin)
that contain a total of 113,721 square feet for a purchase price of
approximately $4.1 million. The Property is leased to several tenants, including
APS, Inc., Processors Unlimited and STO Corporation. The buildings, constructed
in 1989, have clear ceiling heights of 22 and 24 feet, feature a total of 21
dock-high doors and are situated on a six-acre site.

Crosswind Drive Property. On September 30, 1996, the Company purchased a
1,014,592 square foot warehouse/distribution facility located in Columbus, Ohio
for a purchase price of approximately $30.9 million. The Property is leased to
Sears Logistics Services, Inc. (and guaranteed by Sears Roebuck & Co.) on a
triple-net basis for ten years with rental escalation during the term. The
building, constructed in 1989 and expanded in 1996, has a 32-foot clear ceiling
height, 150 dock-high doors and parking for 503 trailers and is situated on a
57-acre site.

Overlake Place Property. On June 10, 1996, the Company purchased a 160,000
square foot warehouse/ distribution facility located in Newark, California (San
Francisco Bay Area) for a purchase price of approximately $8.5 million. The
Property is leased on a triple-net basis to BT Office Products International,
Inc. for ten years with rental escalation during the term. The building,
constructed in 1996, has a 24-foot clear ceiling height, eight dock-high doors
and an Early Suppression-Fast Response ("ESFR") sprinkler system and is situated
on a 12-acre site.

PENDING ACQUISITIONS

The Company has entered into definitive agreements to acquire five
additional warehouse/distribution Properties that comprise 1.1 million square
feet for aggregate consideration of approximately $38.6 million.

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<PAGE> 26

These Properties are included in the Property Transactions for pro forma
purposes. The following table summarizes these pending acquisitions.

<TABLE>
<CAPTION>
APPROXIMATE ESTIMATED
PROPERTIES MARKET SQUARE FEET CONSIDERATION(1)
- ----------------------- ---------------------------------- ----------- -------------
<S> <C> <C> <C>
Wanamaker Avenue Los Angeles Basin 136,249 $ 4,500,000
Mission Oaks Boulevard Los Angeles Basin 310,736 9,885,000
Meyer Circle Los Angeles Basin 201,380 8,050,000
Crowfarn Drive Memphis 128,248 2,500,000
Gold River Lane San Francisco Bay Area 353,000 13,616,000
--------- -----------
Total 1,129,613 $ 38,551,000
========= ===========
</TABLE>

- ---------------
(1) Including transaction costs.

Wanamaker Avenue Property. On September 24, 1996, the Company entered into
a contract to purchase a 136,249 square foot warehouse/distribution facility
located in Ontario, California (Los Angeles Basin) for a purchase price of $4.5
million. The Property is leased to several tenants, including the Cutter
Biological Division of Miles Laboratory, Inc. and Professional Expediting
Methods, Inc. The acquisition is expected to close in November 1996. The
building, constructed in 1985, has a 24-foot clear ceiling height and 17
dock-high doors and is situated on a six-acre site.

Mission Oaks Boulevard Property. On October 29, 1996, the Company entered
into a contract to purchase a 310,736 square foot warehouse/distribution
facility located in Camarillo, California (Los Angeles Basin) for a purchase
price of approximately $9.9 million. The acquisition is expected to close in
December 1996. The Property is leased to Technicolor Videocassette, Inc. on a
triple-net basis through November 1, 1999 with rental escalation during the
term. The building, constructed in 1969 and completely renovated in 1987, has a
28-foot clear ceiling height and 25 dock-high doors and is situated on an
18-acre site.

Meyer Circle Property. On October 1, 1996, the Company signed a letter of
intent to purchase a 201,380 square foot warehouse/distribution facility located
in Corona, California (Los Angeles Basin) for a purchase price of $8.1 million.
In addition, the Company will assume approximately $5.8 million in indebtedness
that bears interest at 10% per annum and is currently expected to be repaid in
1997. The acquisition is expected to close in December 1996. The Property is
leased to Core Mark International through March 2003 with rental escalation
during the term. The building, constructed in 1983, has a 24-foot clear ceiling
height and 12 dock-high doors and is situated on a nine-acre site.

Crowfarn Drive Property. On October 7, 1996, the Company entered into a
contract to purchase a 128,248 square foot warehouse/distribution facility
located in Memphis, Tennessee for a purchase price of approximately $2.5
million. The acquisition is expected to close in November 1996. The Property is
leased to Jefferson Smurfit Corporation on a modified-gross basis (i.e., the
Company is responsible for base year real estate taxes and insurance and the
tenant is responsible for any increases over these base year amounts and
utilities, maintenance of common areas and non-structural repairs) through
December 1998. The building, constructed in 1978, has a 22-foot clear ceiling
height, 16 dock-high doors and an external rail spur and is situated on an
eight-acre site.

Gold River Lane Property. The Company entered into a contract to purchase
a 353,000 square foot warehouse/distribution facility that is under construction
in Stockton, California (San Francisco Bay Area). The $13.6 million acquisition
is expected to close upon completion of construction of the facility in December
1996. The Property is leased on a triple-net basis to Kraft Foods, Inc., for an
initial term of ten years with rental escalation during the term. The building
has a 30-foot clear ceiling height and 55 dock-high doors. The site contains 29
acres and includes additional land for a 90,000 square foot expansion to the
existing structure.

DEVELOPMENT PROJECTS UNDER CONTRACT AND IN PROGRESS

The following table summarizes the Company's development projects that are
either under construction, under contract or are subject to a letter of intent.
The Company has started construction on the Water's Ridge Drive, Sarah Jane
Parkway and Boulder Avenue projects that collectively comprise approximately
829,400 square feet at an aggregate anticipated cost of $30.2 million. All of
the properties listed below are 100% pre-leased.

26
<PAGE> 27

- ---------------
(1) Including transaction costs.

(2) These development projects are included in the Property Transactions for pro
forma purposes.

Water's Ridge Drive Project. On April 19, 1996, the Company entered into a
contract to develop and lease a 367,744 square foot warehouse/distribution
facility located in Lewisville, Texas (Dallas). The Company anticipates that its
total investment will be approximately $10.1 million and that the construction
will be completed in December 1996. The Property is leased on a triple-net basis
to LD Brinkman & Co. for a 15-year term with rental escalation during the term.
The building has a 30-foot clear ceiling height, 80 cross-docked dock-high doors
and an ESFR sprinkler system and is situated on a 20-acre site.

Sarah Jane Parkway Project. On May 16, 1996, the Company entered into a
contract to develop and lease to Allegiance Corporation a 361,690 square foot
warehouse/distribution facility located in Grand Prairie, Texas (Dallas). The
Company anticipates that its total investment will be approximately $15.7
million and that construction will be completed in December 1996. The Property
is leased on a triple-net basis to Allegiance Corporation for a 15-year term
with rental escalation during the term. The building has a 33-foot clear ceiling
height, 36 dock-high doors and an ESFR sprinkler system. The site contains 20
acres and includes additional land for a 90,000 square foot expansion to the
existing structure.

Boulder Avenue Project. On August 20, 1996, the Company entered into a
contract to develop a 100,000 square foot warehouse/distribution facility
located in Rosemount, Minnesota. The Company anticipates that its total
investment will be approximately $4.5 million and that the construction will be
completed in March 1997. The property is leased on a triple-net basis to Cannon
Equipment for a 15-year term with rental increases in the sixth and 11th years.
The building will feature a 24-foot clear ceiling height, four dock-high doors
and an ESFR sprinkler system. The ten-acre site includes additional land for a
115,200 square foot expansion to the existing structure.

PENDING DEVELOPMENTS

The Company is currently negotiating definitive agreements with respect to
each of the following build-to-suit development projects. All of the properties
listed below are 100% pre-leased. These development projects are not currently
under construction and are not included in the Property Transactions.

Skylab Road Project. On September 18, 1996, the Company entered into a
letter of intent to develop and lease to Dynamic Cooking Systems, Inc. a 165,000
square foot warehouse/distribution facility located in Huntington Beach,
California (Los Angeles Basin). The Company anticipates that its total
investment will be approximately $9 million and that construction will be
completed in June 1997. The lease is triple-net, has a ten-year term and
provides for rent increases in the third, sixth and ninth years of the lease
term. The building will feature a 24-foot clear ceiling height and 20 dock-high
doors and is situated on an eight-acre site.

Highlands Parkway Project. The Company has substantially negotiated the
terms of the development and lease to International Business Machines of a
150,000 square foot warehouse/distribution facility to be located in Atlanta,
Georgia. The Company anticipates that its total investment will be approximately
$7.8 million and that the construction will be completed in July 1997. The
modified-gross lease has a ten-year term and provides for yearly rent increases.
The building will feature a 28-foot clear ceiling height, 28 dock-high doors and
an ESFR sprinkler system. The 24-acre site includes additional land for a
140,000 square foot expansion to the existing structure.

27
<PAGE> 28

CAPITALIZATION RATE

The average capitalization rate for the nine acquisition properties and
five development properties listed above is estimated to be 10.5% (calculated by
dividing the aggregate estimated annual net operating income by the aggregate
estimated consideration (including transaction costs) or the aggregate estimated
construction costs for these properties). Actual net operating income and actual
construction costs may differ from the estimates used in calculating this
average capitalization rate and as a result this capitalization rate is not
necessarily indicative of the actual return the Company will realize from these
properties. In addition, there can be no assurance that the capitalization rate
with respect to these properties will be attained with respect to future
acquisitions or developments.

COMPLETED AND PENDING DISPOSITIONS

On April 15, 1996, the Company sold the Moorpark R&D Building, a 109,256
square foot warehouse/ distribution property located in Moorpark, California,
for $3.9 million. On August 23, 1996, the Company sold three properties located
in Alabama, Progress Center I & II (light industrial properties aggregating
92,427 square feet) and the 8215 Highway Building (a 15,986 square foot light
industrial property), for an aggregate of $3.9 million. The Company also is
actively marketing two warehouse/distribution Properties, Birmingham I and II,
located in Birmingham, Alabama.

The Company has entered into binding contracts to sell three of its retail
Properties: Golden Cove Center, Meridian Village and Seatac Village. These
Properties comprise 374,973 square feet in the aggregate and represent
approximately 41.5% of the Company's retail portfolio. The Company also is
actively marketing its Park Ten Center retail Property.

28
<PAGE> 29

THE COMPANY

GENERAL

Meridian Industrial Trust, Inc. is a self-administered and self-managed
real estate operating company engaged primarily in the business of owning,
acquiring, developing, managing and leasing income-producing
warehouse/distribution and light industrial properties. At September 30, 1996 on
a pro forma basis assuming completion of the Property Transactions, the Company
owned and operated 59 warehouse/distribution properties and 25 light industrial
properties encompassing approximately 9.2 and 1.4 million square feet,
respectively, of leasable space that was 94.9% and 96.5% respectively, leased to
a total of 231 tenants. See "Recent Investments and Dispositions." Based on the
total square feet of leasable space and management's knowledge of the industrial
real estate market, the Company believes it is one of the largest owners and
managers of industrial space for lease in the United States. The Company also
owned seven retail properties encompassing 902,684 square feet at September 30,
1996.

Upon completion of the Property Transactions, the Company will have
industrial Properties located in significant industrial centers and distribution
hubs throughout the United States (Dallas, Los Angeles Basin, Memphis, Chicago,
Seattle, Atlanta, Columbus, San Francisco Bay Area and Phoenix). The Company
intends to increase its presence in these markets and in other regional markets
(Indianapolis, Orlando and the New Jersey/Pennsylvania I-95 Corridor) and to
continue its strategy of being a demand-driven, competitively priced, nationwide
provider of industrial space.

The Company's senior executives have an average of approximately 17 years
experience in the commercial real estate business and an average tenure of eight
and a half years with the Company and its predecessor. The Company's
comprehensive in-house expertise includes management of public and private
companies, operating public real estate investment trusts, acquisitions,
dispositions, development, property management, leasing, marketing, finance,
accounting and law. The executive officers include Allen J. Anderson, Chairman
and Chief Executive Officer, Milton K. Reeder, President and Chief Financial
Officer and Dennis Higgs, Senior Vice President. The Company also has attracted
institutional investors that, as of September 30, 1996, owned a substantial
portion of the Company's outstanding stock, including Hunt Realty, J.P. Morgan,
USAA, Ameritech, OTR and Morgan Stanley.

The Company was incorporated in the State of Maryland in May 1995. The
Company's executive offices are located at 455 Market Street, 17th Floor, San
Francisco, California 94105, and its telephone number is (415) 281-3900. At
September 30, 1996, the Company had 26 employees.

29
<PAGE> 30

BUSINESS OBJECTIVE

The Company's fundamental business objective is to maximize total return to
its stockholders by increasing cash flow per share and increasing the long-term
value of the Company's Properties. The Company intends to achieve this objective
by continuing to implement the operating strategies summarized below.

GROWTH STRATEGY

The Growth Strategy is to acquire and develop industrial properties in
Target Markets while maximizing cash flow from operating Properties. The Company
seeks to make acquisitions in its Target Markets and develop new properties on a
build-to-suit basis to meet the needs of customers. The Company maximizes cash
flow from operating Properties by retaining existing tenants, releasing space at
higher rates and increasing occupancy levels. As part of this strategy, the
Company will seek to build market share, to achieve name recognition in its
Target Markets and to continue to improve its operating efficiency.
Specifically, it will evaluate and engage in the following activities:

Acquisitions. The Company continually investigates potential individual
property acquisitions. For example, since it commenced operations, the Company
has acquired four Properties which comprise 1.6 million square feet of space for
aggregate consideration of $53.2 million, has entered into contracts for the
acquisition of an additional five operating properties which comprise 1.1
million square feet for aggregate consideration of $38.6 million, and is
evaluating a number of other potential individual acquisition candidates. See
"Recent Investments and Dispositions." In addition, the Company intends to
pursue acquisitions of multi-building portfolios currently owned by regional
developers seeking increased liquidity, including acquisitions through
tax-advantaged structures sometimes referred to as "downREITs." Further, many
U.S. companies own distribution facilities which, for various financial and
logistical reasons, they no longer wish to own. Also, many institutional
investors own industrial portfolios which they may seek to liquidate. These
property owners represent a potential opportunity for the Company to grow
through acquisitions.

When evaluating acquisition and development opportunities, the Company will
consider such factors as: (i) geographic area and type of property; (ii)
location, construction quality, condition and design of the property; (iii)
potential for capital appreciation of the property; (iv) ability of the Company
to improve the property's performance through renovations; (v) terms of tenant
leases, including the potential for rent increases; (vi) potential for economic
growth and the tax and regulatory environment of the area in which the property
is located; (vii) potential for expansion of the property; (viii) occupancy and
demand by tenants for properties of a similar type in the vicinity; (ix)
competition from existing properties and the potential for the construction of
new properties in the area; and (x) the creditworthiness of tenants.

Development. The Company will also seek to develop new
warehouse/distribution properties on a selective basis, primarily in
build-to-suit arrangements. For example, since inception the Company has started
construction on three build-to-suit transactions, including two Properties that
the Company expects to complete before year end, that collectively comprise
829,434 square feet for an aggregate anticipated cost of $30.2 million and has
agreed to two additional build-to-suit transactions for an anticipated cost of
$16.8 million. The Company expects that future development projects will be
undertaken to (i) meet expansion needs of existing tenants, (ii) meet
requirements of new tenants on a build-to-suit basis, and (iii) selectively
provide inventory for lease in certain Target Markets. See "Recent Investments
and Dispositions" for a description of each of the Company's current development
projects.

Redeployment of Assets. The Company will continuously seek opportunities
to upgrade its portfolio in response to changes in the marketplace. Since it
commenced operations, the Company has sold four Properties for approximately
$7.8 million, entered into binding contracts to sell three of its retail
Properties and is actively marketing two warehouse distribution Properties
located in Alabama and a fourth retail Property.

30
<PAGE> 31

respectively. The occupancy rate of the portfolio at September 30, 1996 on a pro
forma basis assuming completion of the Property Transactions, was 95.0% in the
aggregate. The Company's ability to retain existing tenants and its commitment
to increasing occupancy levels may improve property revenues by minimizing
vacancy periods attributable to leasing downtime and reducing leasing costs such
as tenant improvements and leasing commissions. In connection with renewals and
released space, during 1995 and for the nine months ended September 30, 1996,
the average base rents increased by 3.7% and 8.0%, respectively. The Company
also expects to obtain rental increases from existing leases which expire after
December 31, 1996 but have scheduled rental adjustments (both fixed and
inflation indexed). These leases comprise approximately 34.7% of the Company's
industrial leases assuming completion of Property Transactions. Further, the
Company will seek to achieve internal growth through controlling operating
expenses and renovating properties to a higher and better use where appropriate.

PORTFOLIO MANAGEMENT STRATEGY

MARKETING AND LEASING STRATEGY

The Company pursues an active leasing strategy by aggressively marketing
available space, renewing existing leases at higher rents per square foot and
seeking leases that provide for the pass-through of property-related expenses to
the tenant. In that regard, at September 30, 1996 on a pro forma basis assuming
completion of the Property Transactions, approximately 28.2% of the Company's
industrial Properties was leased on a triple-net basis permitting the Company to
pass through to tenants property-related costs. Substantially all of the other
leases provide for the pass-through of property-related expenses over a base
year amount. Further, 34.7% of the Company's portfolio (on a pro forma basis
assuming completion of the Property Transactions) are subject to leases which
contain automatic rental adjustment provisions and extend beyond December 31,
1996. One component of the Company's leasing strategy is to increase its
percentage of leases (based on leased area) that are on a triple-net basis.

31
<PAGE> 32

FINANCING STRATEGY

The Financing Strategy is to minimize the Company's cost of capital by
maintaining conservative debt levels, achieving an investment grade credit
rating and maintaining ready access to public and private debt and equity
capital. The Company believes that the size of its portfolio and the diversity
of its buildings and tenants will allow it access to the debt and equity markets
that are not generally available to smaller, less diversified property owners
because of the portfolio size and diversity requirements of the capital markets.
In addition, management believes that growing and further diversifying its
portfolio may enhance its ability to achieve an investment grade credit rating.
Where intermediate or long-term debt financing is employed, the Company will
generally seek to obtain fixed interest rates or enter into agreements intended
to cap the effective interest rate on floating rate debt. The Company intends to
operate with a ratio of debt-to-total market capitalization that generally will
not exceed 50%. At September 30, 1996, the Company's debt-to-total market
capitalization rate was approximately 34.0% and would be approximately 26.8% on
a pro forma basis after giving effect to the Offering (and application of the
net proceeds therefrom) and the Property Transactions. The Company's
Organizational Documents do not impose any limit on the incurrence of debt.
However, the Company is subject to limitations on indebtedness imposed by the
Unsecured Credit Facility and the terms of the Series B Preferred Stock.

The Company is currently negotiating an increase in its borrowing limit
under the Unsecured Credit Facility from $75 million to $125 million in
connection with the completion of this Offering. However, there can be no
assurance that this increase will be obtained.

ORGANIZATIONAL STRATEGY

The Organizational Strategy is to maintain a centralized professional staff
which focuses on important value-added decisions. The Company implements its
growth, marketing and leasing, financing, portfolio management and
organizational strategies together with other critical operating functions, from
its headquarters in San Francisco. The Company is staffed by experienced real
estate professionals and executives who also have substantial private and public
capital markets expertise. The Company's management and real estate
professionals perform the following functions: asset management; investment
analysis; acquisition due diligence; asset acquisition and disposition;
marketing; capital markets; legal; and accounting. The Company maintains
operational, financial and reporting control in all aspects of its business.
However, the Company relies on outsourcing of certain functions where it is most
cost-effective to do so and when management believes that it can effectively
oversee and monitor the quality of services performed by outside vendors. In
pursuing build-to-suit opportunities that meet its investment objectives, the
Company expects to rely on qualified third parties to provide design and
construction services.

THE INDUSTRIAL REAL ESTATE SECTOR

The Company believes that the industrial real estate sector provides an
opportunity for attractive returns on investment. Since 1984, warehouse
properties in the United States have generated higher average annual

32
<PAGE> 33

income returns than both office and retail properties, according to the National
Council of Real Estate Investment Fiduciaries (NCREIF). The Company believes
that demand for industrial space will increase as a result of such factors as
population growth, increased industrial production, increased capital spending
and increased consumer demand. These economic factors, in the Company's opinion,
should lead to continued strong demand for industrial space. Although the amount
of construction of industrial space in 1995 increased significantly from the
depressed levels of the early 1990s, management believes that the overall
decrease in supply of industrial space during the last six years, coupled with
increased demand for space and the downward trend of vacancy rates, will result
in increases in rental rates and appreciation in the value of properties in the
industrial real estate sector.

THE TARGET MARKETS

General. The Company believes that, as retailing and manufacturing
businesses continue to focus on higher inventory turns and just-in-time delivery
of goods, transportation of products will continue to be the most important link
in the distribution chain. Higher inventory turns are increasing the importance
of storing finished goods near the final consumer for quick response to meet
consumer demand. Further, greater reliance on just-in-time inventory control by
manufacturers requires that goods used in the manufacturing process be stored
relatively close to manufacturing centers to ensure continuous replenishment of
those goods when needed.

Upon completion of the Property Transactions, the Company will own
industrial Properties located in the following Target Markets:

<TABLE>
<S> <C>
Dallas Atlanta
Los Angeles Basin Columbus
Memphis San Francisco Bay Area
Chicago Phoenix
Seattle
</TABLE>

The Company currently does not own industrial Properties in the
Indianapolis, Orlando and New Jersey/Pennsylvania I-95 Corridor Target Markets.

The Company's Target Markets have been selected on the basis of their
ability to play a continuing and expanding role in the country's nationwide
distribution process. The Properties are generally located near major
transportation facilities, including highway and freeway interchanges, airports,
shipping ports and railyards. Management believes that the portfolio of
Properties is geographically well-located within competitive submarkets and is
well received by prospective tenants and the brokerage communities in the Target
Markets. The current portfolio is characterized by a tenant base that is a mix
of local, regional and national companies. These companies are involved in a
variety of industries, including retailing and wholesaling, telecommunications,
aerospace, publishing, entertainment, advertising, pharmaceuticals and financial
services. Within these industries, the Company's tenants are involved in all
stages of the manufacturing, assembly and distribution processes of a diverse
set of commercial and retail products and services. The Company's objective will
be to continue to improve this tenant base in each Target Market by increasing
the general credit quality of tenants and emphasizing tenants that have
increasing distribution and storage space requirements.

33
<PAGE> 34

As part of its business plan, the Company intends to evaluate additional
markets in which it may acquire properties and may eliminate certain existing
Target Markets as conditions warrant.

National Focus. The Company believes that its national focus on ownership
and management of industrial properties in selected markets has many strategic
advantages over owning and managing properties exclusively in one region of the
country, including the following:

- Enabling the Company to maintain and improve geographic diversification.

- Permitting the Company to lease space to a company in more than one
market.

- Providing the Company with the ability to respond to acquisition
opportunities in multiple markets throughout the country.

- Providing the Company with the opportunity to enhance or create critical
mass in the largest and most diverse industrial markets.

- Affording the Company growth opportunities in markets of institutional
investment quality, thus protecting property values and providing for
easier access to capital.

- Allowing the Company to establish a Meridian tradename recognized by
industrial space users throughout the country.

- Exposing the Company to direct build-to-suit transactions with major
national tenants in multiple markets.

CURRENT TARGET MARKETS

Set forth below is a brief description of the Target Markets in which the
Company currently owns industrial properties. The information was derived from
data provided by, among other sources, Torto Wheaton, Wilkinson & Snowden, and
the Source Book of County Demographics.

Dallas. As of 1995, the population of Dallas was 2.9 million, making it
the 11th largest in the country. The median per capita personal income in 1995
was $23,605, which is 13.4% above the national average. Industries concentrated
in Dallas include oil & gas extraction and transmission and technology and
electronic products.

At year end 1995, Dallas was the seventh largest industrial market
nationally (286.4 million square feet) and has grown 3.6 million square feet
since 1990. Warehouses comprise the largest portion (58.1%) of the market, with
manufacturing facilities next at 18.9%. Vacancy rates ranged from 3.8% in
manufacturing space to 10.6% in warehouse properties.

Los Angeles Basin. As of 1995, the population of the Los Angeles
metropolitan area was 9.2 million, making it the largest in the country. The
median per capita personal income in 1995 for Los Angeles was $21,660, which is
4.0% above the national average. Industries concentrated in Los Angeles include
motion pictures, apparel and other textile products and transportation services.

With industrial space slightly above 794.0 million square feet, Los Angeles
ranked second nationally at year end 1995 and has grown 10.3 million square feet
since 1990. Manufacturing facilities comprise the largest component (40.7%) of
the market, with warehouses next at 40.4%. Vacancy rates for the total
industrial market and warehouse properties were 9.0% and 10.0%, respectively.

Memphis. As of 1995, the population of the Memphis metropolitan
statistical area was approximately 1.1 million and its per capita personal
income was $15,577, which is 33.5% below the national average. Industries
concentrated in Memphis include air carriers (including Federal Express
Corporation), communications, manufacturing, health care, education and
distribution.

At year end 1995, the Memphis industrial market totaled approximately 105.7
million square feet with a vacancy rate of 12.2%. Between December 1993 and
December 1994, the Memphis industrial market grew 2.7 million square feet. From
December 1994 to December 1995, the market grew 5.5 million square feet.

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<PAGE> 35

Chicago. As of 1995, the population of the Chicago metropolitan area was
7.7 million, making it the third largest in the country. The median per capita
personal income in 1995 was $24,856, which is 19.4% above the national average.
Industries concentrated in Chicago include security and commodity brokerage, air
transportation, electronic equipment, insurance carriers, and printing and
publishing.

At year end 1995, Chicago's aggregate industrial space of 844.9 million
square feet was the largest industrial market in the country, and has grown 20.0
million square feet since 1990. Manufacturing facilities comprise the largest
component (44.6%) of the market, with warehouses next at 33.0%. Vacancy rates
range from 6.1% in manufacturing space to 8.9% in warehouse properties.

Seattle. As of 1995, the population of Seattle metropolitan area was 2.2
million, making it the 22nd largest in the country. The median per capita
personal income in 1995 for Seattle was $26,122, which is 25.5% above the
national average. Industries concentrated in Seattle include aerospace,
transportation equipment and water transportation.

The Seattle industrial market totaled 204.1 million square feet at year end
1995 which ranks 13th in terms of size and has grown 9.7 million square feet
since 1990. Warehouses comprise the largest portion (49.9%) of the market and
had an average vacancy rate of 6.3%, while the total industrial market
experienced a 5.0% vacancy rate.

Atlanta. As of 1995, the population of the Atlanta metropolitan
statistical area was 3.3 million, making it the ninth largest in the country.
The median per capita personal income in 1995 for Atlanta was $22,676, which is
8.9% above the national average. Industries concentrated in Atlanta include
communications, trucking/warehousing and durable goods.

Atlanta's aggregate industrial space of 278.2 million square feet made it
the eighth largest in the nation and had an average vacancy rate of 8.3% as of
December 1995. Since 1990, Atlanta's industrial market has grown 34.8 million
square feet.

Columbus. As of 1995, the population of Columbus metropolitan area was
1.42 million, making it the 38th largest in the country. The median per capita
personal income in 1995 for Columbus was $20,716, which is .5% below the
national average. Industries concentrated in Columbus include nonmetallic
minerals except fuels, special trade contractors, insurance carriers, retail,
and real estate.

The Columbus industrial market is comprised of 152.7 million square feet of
industrial space, ranking it the 23rd largest industrial market in the U.S. The
industrial market in Columbus has grown 6.9 million square feet since 1990.
Warehouses comprise the largest portion (54.5%) of the market, with
manufacturing facilities next at 36.9%. Vacancy rates range from 4.1% in
manufacturing space to 9.2% in warehouse properties.

San Francisco Bay Area. As of 1995, the San Francisco Bay Area
(metropolitan statistical areas of San Francisco, San Jose and Oakland) had a
population of 5.4 million people. The median per capita personal income was
$28,636, which is 37.5% above the national average. Industries concentrated in
the San Francisco Bay Area include electric & electronic equipment, industrial
machinery & equipment, petroleum & coal products, real estate and air
transportation.

The industrial market in the San Francisco Bay Area totaled 522.6 million
square feet and has grown 7.6 million square feet since 1990. The total
industrial market had an average vacancy rate of approximately 7.3%, while
warehouses had a 7.9% vacancy rate.

Phoenix. As of 1995, the population of the Phoenix metropolitan area was
2.5 million, making it the 17th largest in the country. The median per capita
personal income in 1995 for Phoenix was $19,852, which is 4.6% below the
national average. Industries concentrated in Phoenix include air transportation,
tourism and construction.

The industrial market in Phoenix totaled 152.5 million square feet in size,
ranking it 24th in the nation as of year end 1995. The industrial market had an
average vacancy rate of approximately 6.7% at year end 1995. Warehouses comprise
the largest portion (50.6%) of the market, with manufacturing facilities next at
29.0%. Vacancy rates ranged from 5.6% in manufacturing to 13.2% in R&D
properties.

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<PAGE> 36

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after deducting the
underwriting discounts and commissions and estimated Offering expenses, are
estimated to be approximately $57.7 million ($66.5 million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the net
proceeds from the Offering, together with cash on hand, to fund certain of the
Property Transactions and to repay temporary borrowings under the Unsecured
Credit Facility incurred in connection therewith. Borrowings under the Company's
Unsecured Credit Facility bear interest at an annual rate of LIBOR plus 1.70%
(7.1% at September 30, 1996) and mature in February 1998.

Pending application of the net proceeds, the Company may invest such
portion of the net proceeds in interest-bearing accounts and short-term,
interest-bearing securities, which are consistent with the Company's intention
to qualify for taxation as a REIT. Such investments may include, for example,
obligations of the Government National Mortgage Association, other government
and governmental agency securities, certificates of deposit and interest-bearing
bank deposits.

If the Underwriters' over-allotment option for the Offering is exercised in
full, the Company expects to use the additional net proceeds (which would be
approximately $8.8 million) to make additional repayments on outstanding
borrowings under the Company's Unsecured Credit Facility.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has been listed on the NYSE since February 26,
1996, under the symbol "MDN." On November 19, 1996, the last reported sales
price per share of Common Stock on the NYSE was $18.625. There were
approximately 19,552 holders of record of the Company's Common Stock at October
25, 1996. The following table sets forth the high and low last reported closing
sales prices per share of the Common Stock on the NYSE since it has been listed.

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1996: HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
February 26, 1996 through March 30, 1996................................... $17.000 $15.125
Second Quarter............................................................. $18.375 $15.625
Third Quarter.............................................................. $18.125 $17.125
Fourth Quarter (through November 19, 1996)................................. $19.000 $17.250
</TABLE>

DISTRIBUTION POLICY

Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits will be treated as a non-taxable reduction
of the stockholder's basis in its shares of Common Stock to the extent thereof,
and thereafter as taxable gain. Distributions that are treated as a reduction in
the stockholder's basis in its shares of Common Stock will have the effect of
deferring taxation until the sale of the stockholder's shares. The Company
currently estimates that approximately 48% of its distributions for calendar
1996 will represent a return of capital for Federal income tax purposes. See
"Federal Income Tax Considerations -- Taxation of Taxable Domestic
Stockholders."

36
<PAGE> 37

DILUTION

Purchasers of the Common Stock offered hereby will experience immediate
dilution in the net book value of their shares of Common Stock from the Offering
price of $18.250 per share. The Offering price of $18.250 per share of Common
Stock exceeds the current net book value per share of Common Stock. Therefore,
the pre-Offering holders of the Company's Common Stock will realize an immediate
increase in the net book value of their shares, while the purchasers of the
Common Stock offered hereby will realize an immediate dilution of the net book
value of their shares. The Company's pro forma net book value per share is
calculated by subtracting the sum of the Company's pro forma total liabilities
and the liquidation preference value of the Series B Preferred Stock from its
pro forma total assets (the Company has recorded no intangible assets) and
dividing the remainder by the number of shares of the Company's Common Stock
outstanding immediately after the Offering. The following table illustrates this
per share dilution.

<TABLE>
<S> <C> <C>
Offering price (1)............................................... $18.250
Net book value per share at September 30, 1996 (2)............... $14.428
Increase in net book value per share attributable to new
investors...................................................... 0.661
-------
Pro Forma net book value per share after the Offering (2)........ 15.089
-------
Dilution per share to new investors.............................. $ 3.161
=======
</TABLE>

- ---------------
(1) Before deducting underwriting discounts and commissions and estimated
expenses of the Offering and assuming the Underwriters' over-allotment
option is not exercised.

(2) Based on the historical and pro forma financial information included
elsewhere in this Prospectus.

37
<PAGE> 38

CAPITALIZATION

The following table sets forth the capitalization of the Company on a
historical basis as of September 30, 1996 and on a pro forma basis, after giving
effect to the Offering and the application of the net proceeds therefrom as
described in "Use of Proceeds," the Property Transactions and certain other
adjustments. The capitalization table should be read in conjunction with the
historical financial statements and notes thereto and pro forma financial
information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
DEBT:
Mortgage loans (1)....................................... $ 66,094 $ 71,852
Unsecured Credit Facility (2)............................ 41,900 34,230
--------- ---------
Total debt....................................... 107,994 106,082
--------- ---------
STOCKHOLDERS' EQUITY:
Common Stock and Series B Preferred Stock, at par (3).... 12 15
Additional paid-in capital............................... 176,771 234,486
Distributions in excess of income........................ (2,057) (2,057)
--------- ---------
Total stockholders' equity....................... 174,726 232,444
--------- ---------
Total capitalization............................. $ 282,720 $ 338,526
========= =========
</TABLE>

- ---------------
(1) Reflects the assumption of a mortgage loan in connection with one of the
Property Transactions.

(2) Reflects a net increase in borrowings under the Unsecured Credit Facility
comprising pro forma borrowings to fund the Property Transactions, offset by
repayment of a portion thereof using the net proceeds from the Offering and
cash on hand as described in "Use of Proceeds."

(3) The Company has authorized 25 million shares of Preferred Stock, par value
of $0.001 per share, of which 2,272,727 shares of Series B Preferred Stock
are outstanding. The Company has authorized 175 million shares of Common
Stock, $0.001 par value per share, of which 9,684,570 shares were
outstanding at September 30, 1996, excluding (i) 553,000 shares of Common
Stock issuable upon the exercise of the Merger Warrants, (ii) 184,900 shares
of Common Stock issuable upon the exercise of the USAA Warrant and (iii)
693,838 shares of Common Stock issuable upon the exercise of outstanding
options granted pursuant to the Stock Plan.

38
<PAGE> 39

SELECTED FINANCIAL AND OTHER DATA

GENERAL

The following selected financial and other data includes data regarding
substantially all of the operations and Properties of four publicly-traded
finite-life real estate investment trusts that were involved in the
Consolidation Transactions. See "The Consolidation Transactions" and "Glossary"
for the definitions of certain terms used herein. The following table sets forth
selected financial and other data on a pro forma, historical as adjusted and
historical basis for the Company, and on a historical combined basis for the
Merged Trusts. The Trust 83 Properties are not included in the historical
combined financial information of the Merged Trusts. The table should be read in
conjunction with the pro forma and historical as adjusted financial statements
and notes thereto and the respective historical financial statements and notes
thereto included elsewhere in this Prospectus.

PRO FORMA FINANCIAL INFORMATION

The accompanying unaudited pro forma selected balance sheet data as of
September 30, 1996 has been prepared to reflect (i) the Property Transactions,
(ii) the completion of the Offering, and (iii) the paydown of the Unsecured
Credit Facility using the net proceeds from the Offering and cash on hand, as
described in "Use of Proceeds," as if such transactions and adjustments had
occurred on September 30, 1996. The accompanying unaudited pro forma selected
operating and other data has been prepared to reflect (i) the incremental effect
of the Property Transactions and completed acquisitions, (ii) the incremental
effect of four property dispositions occurring prior to September 30, 1996,
(iii) the incremental effect of the paydown of the Unsecured Credit Facility
using the net proceeds from the Company's March 1996 offering of 1,500,000
shares of Common Stock and (iv) the paydown of the Unsecured Credit Facility
using the net proceeds from this Offering and cash on hand, as if such
transactions and adjustments had occurred on January 1, 1995.

HISTORICAL AS ADJUSTED FINANCIAL INFORMATION

The accompanying unaudited historical as adjusted condensed consolidated
statements of operations for the nine months ended September 30, 1996 and for
the year ended December 31, 1995 has been prepared to reflect (i) the respective
historical results of the Merged Trusts and the Trust 83 Properties for the
respective periods, (ii) the incremental effects of the Merger and the
Refinancing and Recapitalization on the historical results of the Merged Trusts
and the Trust 83 Properties, and (iii) the historical results of the Company, to
reflect the post-Merger operations of the Company as if such transactions and
adjustments had occurred on January 1, 1995. The Merger, Asset Purchase and
Refinancing each closed concurrently on February 23, 1996.

The unaudited historical as adjusted selected financial and other da ta
should be read in connection with the historical financial statements and notes
thereto included elsewhere in this Prospectus. In the opinion of management, the
historical as adjusted condensed consolidated financial information provides for
all adjustments necessary to reflect the effects of the disposition and
acquisition of certain properties during 1995, the Recapitalization, the Merger,
the Asset Purchase and the Refinancing.

39
<PAGE> 40

SELECTED FINANCIAL AND OTHER DATA
AS OF AND FOR THE PERIODS INDICATED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED AS ADJUSTED --------------------------------------
SEPTEMBER 30, 1996 FOR NINE MERGED
---------------------------------- MERGED TRUSTS MONTHS TRUSTS
PRO HISTORICAL JANUARY 1, 1996 ENDED PRO HISTORICAL (3)
FORMA AS TO FEBRUARY 23, SEPTEMBER 30, FORMA AS ADJUSTED --------
(1) ADJUSTED (2) HISTORICAL 1996 (3) 1995 (2) 1995(1) 1995 (2) 1995
-------- ------------ ---------- --------------- ------------- ---------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues......... $ 38,535 $ 29,877 $ 23,933 $ 5,158 $29,392 $ 51,367 $ 38,816 $ 34,597
Income (Loss) Before
Extraordinary
Items................ 13,681 9,486 7,955 (542) 8,678 18,004 11,035 852
Extraordinary Items.... -- -- (411) -- -- -- -- (1,865)
Net Income (Loss)...... 13,681 9,486 7,544 (542) 8,678 18,004 11,035 (1,013)
Net Income Allocable to
Common............... 11,558 7,363 5,838 (542) 6,564 15,186 8,217 --
Net Income Per Common
Share:
Before Extraordinary
Items............... $ 0.87 $ -- $ 0.82 $ -- $ -- $ 1.14 $ -- $ --
Net Income........... 0.87 -- 0.77 -- -- 1.14 -- --
Distributions Per
Share:
Common Stock......... 0.87 -- 0.70 -- -- 1.16 -- --
Series B Preferred
Dividends........... 0.93 -- 0.75 -- -- 1.24 -- --
BALANCE SHEET DATA:
Investment in Real
Estate, Net.......... $339,583 $ -- $283,655 $ -- $ -- $ -- $ -- $217,216
Total Assets........... 348,506 -- 292,700 -- -- -- -- 247,159
Mortgage Loans......... 71,852 -- 66,094 -- -- -- -- 109,728
Unsecured Credit
Facility............. 34,230 -- 41,900 -- -- -- -- --
Stockholders' Equity... 232,444 -- 174,726 -- -- -- -- 106,375
OTHER DATA:
Funds From
Operations (4)....... $ 19,131 $ 13,380 $ 10,988 $ -- $12,374 $ 25,174 $ 16,085 $ --
Cash Flows Provided By
(Used In):
Operating Activities... 17,427 11,676 14,791 (549) 11,137 22,144 13,055 7,229
Investing
Activities.......... (2,436) (54,376) (45,741) (185) (2,741) (122,062) (3,143) (5,039)
Financing Activities... (11,963) 32,097 32,097 (442) (7,835) 113,421 (12,335) (6,069)
Weighted Average:
Common Shares
Outstanding......... 13,297 -- 9,716 -- -- 13,297 -- --
Preferred Shares
Outstanding......... 2,273 -- 2,273 -- -- 2,273 -- --

Operating Activities... 6,755 8,226 6,946 5,140
Investing
Activities.......... 5,949 (466) (1,723) (3,110)

Financing Activities... (14,200) (4,696) (1,007) 1,414
Weighted Average:
Common Shares
Outstanding......... -- -- -- --
Preferred Shares
Outstanding......... -- -- -- --
</TABLE>

(3) Reflects the historical operations of the Merged Trusts for the period from
January 1, 1996 to the Merger date of February 23, 1996, and for each of the
five years ended December 31, 1995.

(4) In addition to cash flows and net income, management and industry analysts
generally consider Funds From Operations to be one additional measure of the
performance of an equity REIT because, together with net income and cash
flows, Funds From Operations provides investors with an additional basis to
evaluate the ability of an entity to incur and service debt and to fund
acquisitions and other capital expenditures. However, Funds From Operations
does not measure whether cash flow is sufficient to fund all of an entity's
cash needs including principal amortization, capital improvements, and
distributions to stockholders. Funds From Operations also does not represent
cash generated from operating, investing or financing activities as
determined in accordance with generally accepted accounting principles.
Funds From Operations should not be considered as an alternative to net
income as an indicator of an entity's operating performance or as an
alternative to cash flow as a measure of liquidity. Funds From Operations is
defined by NAREIT as net income or loss, excluding gains or losses from debt
restructurings and sales of properties, plus depreciation and amortization
of real estate assets, and after adjustments for unconsolidated partnerships
and joint ventures. In March 1995, NAREIT issued a White Paper analysis to
address certain interpretive issues under its definition of Funds From
Operations. The White Paper provides that amortization of deferred financing
costs and depreciation of non-rental real estate assets are no longer to be
added back to net income to arrive at Funds From Operations. The Company
calculates Funds From Operations as defined by NAREIT and as interpreted in
the White Paper (i.e., the Company does not add back amortization of
deferred financing costs and depreciation of non-rental real estate assets
to net income). A reconciliation of Funds From Operations to net income for
the periods ended September 30, 1996 and 1995, and the year ended December
31, 1995 is set forth below:

<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR
SEPTEMBER ENDED
NINE MONTHS ENDED 30, DECEMBER 31,
SEPTEMBER 30, 1996 1995 1995
---------------------------------- ----------- ----------------------
PRO HISTORICAL HISTORICAL PRO HISTORICAL
FORMA AS ADJUSTED HISTORICAL AS ADJUSTED FORMA AS ADJUSTED
------- ----------- ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income, before Gains and Losses and
Extraordinary Items.............................. $13,681 $ 9,486 $ 7,778 $ 8,678 $18,004 $ 11,035
Depreciation and Amortization of Real Estate
Assets........................................... 5,450 3,894 3,210 3,696 7,170 5,050
------- ------- ------- ------- ------- -------
Funds From Operations............................. $19,131 $13,380 $ 10,988 $12,374 $25,174 $ 16,085
======= ======= ======= ======= ======= =======
</TABLE>

40
<PAGE> 41

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE)

The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Risk Factors."

BACKGROUND

The historical consolidated balance sheets as of September 30, 1996 and the
historical consolidated statements of operations for the nine months ended
September 30, 1996 reflect the historical operations of the Company.

The historical combined balance sheets as of December 31, 1995 and 1994,
and the historical combined statements of operations for the years ended
December 31, 1995, 1994 and 1993 reflect the combined historical operations of
the Merged Trusts. Such amounts do not include the historical operations of the
Properties acquired by the Company in connection with the Asset Purchase.

The following discussion should be read in conjunction with the pro forma,
historical as adjusted, and respective historical financial statements and notes
thereto included elsewhere in this Prospectus. In the opinion of management, the
respective pro forma and historical as adjusted financial information provides
for all adjustments necessary to reflect (i) the pro forma effects of the
Offering and application of the net proceeds therefrom as described in "Use of
Proceeds," the Property Transactions and completed acquisitions and certain
other transactions and (ii) the historical as adjusted effects of the
disposition and acquisition of certain properties during 1995, the Consolidation
Transactions, the Refinancing and the Recapitalization.

RESULTS OF OPERATIONS

Comparison of Pro Forma Results of Operations for the Nine Months Ended
September 30, 1996 to the Historical As Adjusted Results of Operations for the
Nine Months Ended September 30, 1996

The Company's pro forma statements of operations for the period ended
September 30, 1996 reflect adjustments to the historical as adjusted results for
the following: (i) the incremental impact of the Property Transactions and
completed acquisitions on rental revenues and certain expenses, (ii) the
incremental impact of four property dispositions on rental revenues and certain
expenses, (iii) the incremental effects of Unsecured Credit Facility repayment
with the proceeds from the Company's offering of Common Stock that closed on
April 3, 1996, and (iv) the effect of the Offering and the resulting repayment
of borrowings under the Company's Unsecured Credit Facility. Such adjustments
result in an increase in pro forma total revenues and net income before
extraordinary items over historical as adjusted amounts of $8,658 and $4,195,
respectively.

Comparison of Historical As Adjusted Results of Operations for the Nine Months
Ended September 30, 1996 to Historical As Adjusted Results of Operations for
the Nine Months Ended September 30, 1995

The Company's historical as adjusted net income of $9,486 is $808 greater
for the period ended September 30, 1996 than the comparative period in 1995. The
increase is mainly attributable to a slight increase in total revenues and
reduced interest expense, offset by a slight increase in operating expenses and
property taxes. Overall, the asset portfolio of the Company has remained
relatively stable. During 1996, the Company acquired the Arenth Avenue, Overlake
Place and Crosswind Drive properties and sold the Moorpark, Progress Centers I
and II and 8215 Highway properties. Due to the timing of these acquisitions and
dispositions, there was only a slight impact on the operations of the Company.

Comparison of Historical Results of Operations for the Nine Months Ended
September 30, 1996 to Historical Results of Operations for the Period from May
18, 1995 (Inception) to September 30, 1995

The Company's historical net income of $7,544 is $7,738 greater for the
period ended September 30, 1996 than the historical net income for the period
from May 18, 1995 (inception) to September 30, 1995. The

41
<PAGE> 42

increase in the historical profitability is primarily attributable to (i) the
Merger and Asset Purchase which were effected on February 23, 1996, (ii) the
Refinancing which was effected concurrent with the Merger, and (iii) the
incremental effect of certain property acquisitions and property dispositions.

Comparison of Merged Trusts' Historical Combined Results of Operations for the
Year Ended December 31, 1995 to the Year Ended December 31, 1994

Rentals from real estate investments totaled $33,583 and $34,018 during the
years ended December 31, 1995 and 1994, respectively. The decrease of $435, or
1.3%, in 1995 compared to 1994, was primarily due to the sale of the Paradise
Marketplace and Greentree Buildings in 1995 and 1994, respectively, that
resulted in a total decrease of $1,098. This decrease was partially offset by
increased leasing activity and scheduled rent increases at certain properties.

Interest and other income increased by $210 or 26.1% to $1,014 during 1995
compared to 1994. The increase was primarily due to higher interest rates and
larger 1995 cash balances.

Interest and amortization of debt premium expense during 1995 totaled
$10,005, a decrease of $2,112, or 17.4%, compared to 1994. The decrease was
primarily due to regular principal paydowns made during 1995 and late in 1994,
debt paydowns during 1995 as a result of the Recapitalization, and property
dispositions that occurred in 1995 and 1994.

Compared to 1994, property taxes decreased by $260, or 5.0% in 1995 to
$4,971. The decrease was primarily due to: (i) a reduction in the assessed value
of certain properties resulting in a decrease of $77; (ii) the sale of Greentree
properties accounting for a $45 decrease; and (iii) adjustments to the accrued
property taxes for the Marietta Trade Center and Troy Tech properties resulting
in a $232 decrease. These decreases were partially offset by an increase of $99
for the Cypress A, Cypress Center and Valencia properties as a result of
property tax refunds received in 1994.

Property operating costs totaled $5,761 and $5,895 for the years ended
December 31, 1995 and 1994, respectively. The decrease of $134 or 2.3% during
1995 was primarily due to: (i) nonrecurring structural repairs made to the
Valencia and Chatsworth properties totaling $250 as a result of the January 1994
earthquake in Southern California; (ii) lower cost reimbursements made to MPP
for property and asset management costs; and (iii) the 1994 bad debt provision
recognized at the Cooper Center and Cooper Center West properties accounting for
$192. These decreases were partially offset by a $285 increase in the provision
for bad debt expense in 1995 related to a tenant at the Lombard property that
vacated the property before its lease expired.

Legal costs decreased by $392 or 84.9% to $70 in 1995 when compared to
1994. The decrease was primarily due to professional fees charged to operations
in 1994 in connection with the review and evaluation of various strategic
alternatives.

General and administrative expenses for the years ended December 31, 1995
and 1994 remained relatively constant totaling $2,942 and $2,958, respectively.

During the years ended December 31, 1995 and 1994, the historical combined
provision for decrease in net realizable value amounted to $1,140 and $9,001,
respectively, to provide for the unrealized decrease in the net realizable value
of rental properties. This provision represents a non-cash charge to operations.
Investments in real estate are stated at lower of depreciated cost or net
realizable value. Net realizable value for financial reporting purposes: (i) is
evaluated and identified quarterly by the Company on a property by property
basis using undiscounted cash flows; (ii) is measured by comparing the Company's
estimate of fair market value based upon either sales comparables or the net
cash expected to be generated by the property (comprised of the forecasted
operations for the property based upon historical results, together with
management's estimates of the property's future occupancy, lease rates and
capital improvement requirements), less estimated carrying costs (including
interest) throughout the anticipated holding period, plus the estimated cash
proceeds from the ultimate disposition of the property; and (iii) is not
necessarily an indication of a property's current value or the amount that will
be realized upon the ultimate disposition of the property.

42
<PAGE> 43

To the extent net realizable value is less than the carrying value of the
property, a provision for decrease in net realizable value is recorded in the
amount by which the carrying value exceeds estimated fair value.

The 1995 provision for decrease in net realizable value reduced the net
book value of the Paradise Shopping Center property to the estimated amount that
at the time was expected to be realized in connection with the sale of the
property in July 1995. The 1994 provision reduced the carrying value of certain
properties to their estimated fair value.

Depreciation and amortization totaled $8,721 and $9,895 for the years ended
December 31, 1995 and 1994, respectively. The decrease of $1,174 or 11.9% in
1995 was primarily due to: (i) property dispositions in 1995 and late in 1994
resulting in a decrease of $739; (ii) decreases in the net realizable value of
certain properties resulting in total decrease of $93; and (iii) the full
depreciation in 1994 of tenant improvement costs associated with tenants who
moved out at the Cypress A and Progress Center I properties.

The Paradise Marketplace property was sold on July 20, 1995 and a loss on
sale amounting to $135 was incurred in connection with the transaction. The
property had previously been written down to its estimated net realizable value.

During 1994, the Cooper Center, Cooper Center West and Cherry Hill
properties were sold and a loss on sale totaling $274 was incurred in connection
with this transaction. In addition, a loss on sale of properties totaling $124
was incurred in connection with the disposition of the Greentree Buildings. All
of the properties had previously been written down to their estimated net
realizable value.

Comparison of Merged Trusts' Historical Combined Results of Operations for the
Year Ended December 31, 1994 to the Year Ended December 31, 1993

Rentals from real estate investments decreased during 1994 by $424 or 1.2%
to $34,018 compared to 1993. The decrease was primarily attributable to: (i) a
$101 decrease due to the sale of the Mount Prospect and Ridglea Village Shopping
Center properties in June and February 1993, respectively, and a $511 decrease
due to the sale of Greentree Place in June 1994; (ii) increased vacancies at
certain properties; (iii) decreases in percentage rents due to lower tenant
revenues; and (iv) a decrease of $130 due to the renewal of the tenant lease at
the Wildwood/Pioneer property at prevailing market rates which were lower than
the rates of the expired lease. These decreases were partially offset by leasing
previously vacant space and renewing certain leases at more favorable terms.

Interest and other income increased during 1994 by $222 or 38.1% to $804 as
compared to 1993. The increase is primarily attributable to: (i) higher cash
balances from property sales, resulting in higher yields; and (ii) $30 in
interest accrued on the note receivable from the January 1994 sale of Lot 4 of
the Park at Woodinville.

Interest and amortization of debt premium expense decreased during 1994 by
$832 or 6.4% to $12,117 as compared to 1993. The decrease is attributable to
lower outstanding debt principal resulting from paydowns using proceeds from
property sales and cash provided by operating activities.

Property taxes amounted to $5,231 in 1994, reflecting a 1.0% decline from
1993. The $54 decrease reflects lower taxes due to property sales, partially
offset by higher assessed values levied on the Chicago 14 and Lombard 1
properties.

Property operating costs decreased during 1994 by $484 or 7.6% to $5,895
compared to 1993. The decrease relates primarily to: (i) the sale of properties;
(ii) charges amounting to $278 recorded in 1993 relating to vacating tenants at
the Moorpark and Nancy Ridge properties; and (iii) $310 in environmental
clean-up costs and maintenance at one of the Chicago 14 properties. The
decreases were partially offset by approximately $250 in repairs on the
Chatsworth and Valencia properties as a result of the January 1994 earthquake in
Southern California.

General and administrative costs increased during 1994 by $481 or 19.4% to
$2,958 as compared to 1993. The increase is primarily a result of: (i) a $268
increase in the cost of liability insurance coverage; and (ii) approximately
$100 in costs related to the review and evaluation of various strategic business
plans.

43
<PAGE> 44

During 1993, the sole tenant at the Moorpark property declared bankruptcy
and rejected its existing lease agreement. As a result, a charge was recorded in
1993 as an "adjustment due to tenant bankruptcy" totaling $680. This represented
the writeoff of free rent and unamortized leasing commissions.

Depreciation and amortization decreased during 1994 by $214 or 2.1% to
$9,895 compared to 1993. The decrease is attributable to the sale of properties
in 1994 and 1993.

During 1994 and 1993, the historical combined provisions for decrease in
net realizable value amounted to $9,001 and $6,496, respectively, to provide for
the unrealized decrease in the net realizable value of rental properties. This
provision represents a non-cash charge to operations. Investments in real estate
are stated at the lower of depreciated cost or net realizable value. Net
realizable value for financial reporting purposes: (i) is evaluated and
identified quarterly by the Company on a property by property basis using
undiscounted cash flows; (ii) is measured by comparing the Company's estimate of
fair value based upon either sales comparables or the net cash expected to be
generated by the property (comprised of the forecasted operations for the
property based upon historical results, together with management's estimates of
the property's future occupancy, lease rates and capital improvement
requirements), less estimated carrying costs (including interest) throughout the
anticipated holding period, plus the estimated cash proceeds from the ultimate
disposition of the property and (iii) is not necessarily an indication of a
property's current value or the amount that will be realized upon the ultimate
disposition of the property. To the extent net realizable value is less than the
carrying value of the property, a provision for decrease in net realizable value
is recorded in the amount by which the carrying value exceeds estimated fair
value.

In general, the overall decrease in net realizable value for the periods
presented can be attributed to declines in certain regional real estate markets,
which resulted in higher capitalization rates and decreases in net effective
rents for properties located in those markets. The table below presents property
by property detail of the provisions for the decrease in net realizable value
recorded during 1994 and 1993.

<TABLE>
<CAPTION>
PROPERTY 1994 1993
----------------------------------------------------------- ------ ------
<S> <C> <C>
Valencia................................................... $1,900 $ --
Marietta Trade Center...................................... 1,900 --
Paradise Marketplace....................................... 1,812 --
Birmingham I and II........................................ 774 --
Greentree Properties....................................... -- 1,378
Mt. Prospect............................................... -- 1,030
Cypress Center............................................. -- 854
Park at Woodinville........................................ -- 711
All others, individually less than $700.................... 2,615 2,523
------ ------
Total............................................ $9,001 $6,496
====== ======
</TABLE>

During 1994, the decrease for Valencia was related primarily to the decline
in the local real estate market and the near-term lease expiration for this
single tenant property. The Marietta Trade Center provision was caused by the
potential vacancy of the anchor tenant. The provision for Paradise Marketplace
was related to a writedown to fair market value in anticipation of the sale of
the property. Birmingham I and II suffered a writedown in 1994 as a result of a
long-term 34,700 square-foot vacancy and the declining economy in the Birmingham
region.

In 1993, the decrease in value for the Greentree Properties was related to
a writedown to fair market value in anticipation of the sale of the properties.
The Mt. Prospect provision was the result of a writedown to fair value in
connection with the lender's judicial sale of the property in satisfaction of
the debt. Cypress Center suffered a writedown caused by the single tenant lease
expiration and the Park at Woodinville suffered a writedown related primarily to
vacancy exposure due to near-term lease expirations and the sale of an adjacent
lot.

44
<PAGE> 45

LIQUIDITY AND CAPITAL RESOURCES

General. Prior to the Merger, the Merged Trusts historically used equity
capital and long-term debt financing as their principal sources for funding
property acquisitions. The Company intends to finance property acquisitions,
development, expansions and renovations using a combination of cash flow from
operations and bank and institutional debt financing, supplemented with private
or public debt or equity placements. Where intermediate or long-term debt
financing is employed, the Company generally seeks to obtain fixed interest
rates or enter into agreements intended to cap the effective interest rate on
floating rate debt. The Company intends to operate with a ratio of debt-to-total
market capitalization (such ratio representing total indebtedness divided by
total market capitalization comprising the sum of total indebtedness, plus the
market value of the Company's Common Stock and the liquidation preference value
of the Series B Preferred Stock) which generally will not exceed 50%. At
September 30, 1996 the Company's debt-to-total market capitalization was
approximately 34.0% and would be approximately 26.8% on a pro forma basis,
assuming completion of the Property Transactions and the Offering and the
application of the net proceeds therefrom.

At September 30, 1996, the Company had approximately $108.0 million of
total debt outstanding, comprising approximately $66.1 million on the Mortgage
Loan and approximately $41.9 million on the Unsecured Credit Facility, with
approximately $33.1 million available on the Unsecured Credit Facility. Since
September 30, 1996, the Company either has acquired or is in the process of
acquiring six properties for a total purchase price of approximately $42.7
million and is completing construction of three build-to-suit properties
currently in process with an aggregate estimated completion cost of
approximately $16.0 million, as set forth in "Recent Investments and
Dispositions." After considering the assumption of a mortgage loan in the
principal amount of approximately $5.8 million in connection with one of the
property acquisitions, the Company anticipates funding the remainder of the
approximately $50.2 million associated with the Property Transactions using the
estimated net proceeds from the Offering totaling approximately $57.7 million.
The Company expects to use the remaining net proceeds from the Offering of
approximately $7.5 million and cash on hand to repay borrowings of approximately
$7.7 million on the Unsecured Credit Facility. Therefore, on a pro forma basis
at September 30, 1996 assuming completion of the Property Transactions and the
Offering and the application of the net proceeds therefrom, the Company expects
to have approximately $106.1 million of total debt outstanding comprised of the
following (in thousands):

<TABLE>
<S> <C>
Mortgage Loan; interest at the fixed annual rate of 8.63%;
interest only payments until maturity in 2005................... $ 66,094
Property Mortgage; interest at the annual rate of 10.0%; monthly
principal and interest payments of approximately $55 until
maturity in 1998................................................ 5,758
Unsecured Credit Facility; interest at LIBOR plus 1.7%; interest
only payments until maturity in February 1998................... 34,230
--------
Total................................................... $106,082
========
</TABLE>

The Unsecured Credit Facility provides for fees on the unused facility of
25 basis points to the extent that less than 65% of the facility is used and 15
basis points to the extent that more than 65% of the facility is used. The
Unsecured Credit Facility currently provides for a maximum borrowing amount of
$75 million. On a pro forma basis assuming completion of the Property
Transactions and the Offering, at September 30, 1996, the Company has
approximately $40.8 available on the Unsecured Credit Facility. The Company is
currently negotiating an increase in its borrowing limit under the Unsecured
Credit Facility from $75 million to $125 million after the completion of the
Offering. However, there can be no assurance that such an increase will be
obtained.

45
<PAGE> 46

The pro forma debt maturities at September 30, 1996, assuming completion of
the Property Transactions and the Offering and the application of the net
proceeds therefrom, for 1996 and thereafter are as follows (in thousands):

<TABLE>
<S> <C>
1996...................................................... $ 21
1997...................................................... 90
1998...................................................... 39,877
1999...................................................... --
2000...................................................... --
Thereafter................................................ 66,094
--------
Total........................................... $106,082
========
</TABLE>

After completion of the Offering and the Property Transactions, the
Company's pro forma unrestricted cash funds amount to $1.5 million as of
September 30, 1996.

Developments and Acquisitions.

In addition to the three development properties referred to above, the
Company has approximately $16.8 committed to fund two additional build-to-suit
properties. Other than these development commitments and the Property
Transactions referred to above, the Company had no material commitments for
capital improvements at September 30, 1996. Planned capital improvements consist
only of tenant improvements and other expenditures necessary to lease and
maintain the properties. Approximately 26.0% of the Company's leased square
footage is subject to leases that expire by December 31, 1997 (including the pro
forma effects of the Property Transactions), all of which are in competitive
markets. However, the Company's Properties have historically operated in an
environment where approximately 50% of the leases turn over within a three-to
four-year period. Furthermore, due to the Company's proactive leasing program
(which includes aggressively marketing available space and renewing existing
leases), the Properties maintained average occupancy levels of 94.0% for the
nine months ended September 30, 1996 and 93.5%, 96.5% and 91.6% for the three
years ended 1995, 1994 and 1993, respectively. Although potentially significant,
the Company anticipates sufficient sources of liquidity (either from operations
or through its Unsecured Credit Facility) to fund the costs associated with
leasing vacant space or renewing existing leases. The Company believes that its
cash generated by operations will be adequate to meet operating requirements and
make stockholder distributions in accordance with REIT requirements on both a
short-term and long-term basis.

Certain Historical and Pro Forma Performance Measures.

In the future, the Company intends to finance property acquisitions,
development, expansions and renovations using a combination of cash flow from
operations and bank and institutional debt financing, supplemented with private
or public debt or equity placements.

A summary of the Company's historical cash flow for the nine months ended
September 30, 1996 is as follows (in thousands):

<TABLE>
<S> <C>
Cash Flows provided by (used in):
Operating Activities............................................. $14,791
Investing Activities............................................. (45,741)
Financing Activities............................................. 32,097
</TABLE>

In addition to cash flows and net income, management and industry analysts
generally consider Funds From Operations to be a useful financial performance
measure of an equity REIT because, together with net income and cash flows,
Funds From Operations provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. Moreover, Funds From Operations does not measure
whether cash flow is sufficient to fund all of a REIT's cash needs including
principal amortization, capital improvements and distributions to shareholders.
Funds From Operations also does not represent cash generated from operating,
investing or financing activities as

46
<PAGE> 47

determined in accordance with generally accepted accounting principles. Funds
From Operations should not be considered an alternative to net income as an
indicator of the Company's operating performance or an alternative to cash flow
as a measure of liquidity. The Company calculates Funds From Operations in
accordance with the White Paper published by NAREIT. As defined by NAREIT, Funds
From Operations means net income (loss) (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustment from unconsolidated partnerships and joint ventures.

A reconciliation of the Company's pro forma and historical as adjusted net
income to pro forma and historical as adjusted Funds From Operations is as
follows for nine months ended September 30, 1996 (in thousands, except shares):

<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
Net Income................................................. $ 13,681 $ 9,486
Reconciling Items -- Depreciation and Amortization related
to real estate........................................... 5,450 3,894
----------- -------
Funds From Operations...................................... $ 19,131 $13,380
=========== =======
Pro Forma Weighted Average Equivalents Outstanding (1)..... 15,569,533
===========
</TABLE>

- ---------------
(1) Assumes the conversion of Series B Preferred into 2,272,727 shares of Common
Stock on a one-for-one basis and the dilutive effects of the USAA Warrant,
Merger Warrants and stock options outstanding under the Stock Plan,
aggregating 211,243 additional shares of Common Stock.

DISTRIBUTIONS

From February 23, 1996 (the date operations commenced) through September
30, 1996, the Company paid distributions equivalent to a quarterly distribution
of $0.29 per share and approximately $0.31 per share, respectively, to the
holders of its Common Stock and Series B Preferred Stock. In the future, the
Company currently expects to declare and pay regular distributions of $0.29 per
share of Common Stock, which on an annualized basis is equivalent to an annual
distribution of $1.16 per share of Common Stock. With this level of
distributions, the Company anticipates annual distributions to holders of Common
Stock of approximately $15.2 million, based on the 13,085,563 shares outstanding
after the Offering. The terms of the outstanding shares of Series B Preferred
Stock provide for cumulative dividends at an initial per share rate of at least
$1.24 per year or $0.31 per quarter, representing preferred distributions of
approximately $2.8 million and $0.7 million, respectively.

INFLATION

For the last several years, inflation has not had a significant impact on
the Company's properties. The Company's leases generally require tenants to pay
their share of operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's exposure to
inflation. Further, many of the leases are for terms of less than five years,
which may enable the Company to replace existing leases with new leases at
higher base rentals if rents of existing leases are below the then-existing
market rate.

INSURANCE

The Company maintains property, casualty, general liability and earthquake
insurance coverage. Management believes that the Company's insurance coverage
provides adequate coverage against material risks and exposures. Management will
periodically review the Company's insurance coverage.

47
<PAGE> 48

BUSINESS AND PROPERTIES

GENERAL

The Company owned and operated 59 warehouse/distribution properties and 25
light industrial Properties encompassing approximately 9.2 and 1.4 million
square feet, respectively, of leasable space that was 94.9% and 96.5% leased,
respectively, as of September 30, 1996 on a pro forma basis assuming the
completion of the Property Transactions. The Company also owned and operated
seven retail Properties encompassing 902,684 square feet of leasable space that
was 93.2% leased as of September 30, 1996.

The warehouse/distribution Properties are adaptable to bulk distribution or
light assembly and manufacturing uses. They generally have clear heights in
excess of 24 feet, building depths in excess of 150 feet, office finish of less
than 15% and numerous dock high truck doors. Fifty-nine of the Properties are
warehouse/distribution Properties. On a pro forma basis assuming completion of
the Property Transactions, these Properties comprise approximately 9.2 million
rentable square feet (or approximately 79.8% of the total rentable square feet
of the Properties).

The light industrial Properties are adaptable to uses similar to those of
the warehouse/distribution Properties. However, they are better suited for
smaller tenants and have lower ceiling heights and higher office finish. The
light industrial Properties generally have clear heights of 14 to 22 feet,
building depths of 60 to 150 feet and office finish of 10% to 50%. Twenty-five
of the Properties are in the light industrial category. On a pro forma basis
assuming completion of the Property Transactions, these Properties comprise
approximately 1.4 million rentable square feet (or approximately 12.4% of the
total rentable square footage of the Properties).

The seven retail Properties include four neighborhood and community
shopping centers and three free-standing retail buildings. These Properties
contain 902,684 rentable square feet that was 93.2% leased to 114 tenants at
September 30, 1996, (or approximately 7.8% of the total rentable square feet of
the Properties, on a pro forma basis assuming completion of the Property
Transactions). The Company expects that it will sell the retail Properties in
its portfolio as market conditions warrant and purchase, with the net proceeds
from such sales, industrial properties that meet the Company's investment
objectives. Currently the Company has entered into binding contracts for the
sale of three of its retail Properties and is actively marketing a fourth retail
Property for sale.

48
<PAGE> 49

The following table sets forth certain information relating to the
Company's Properties, categorized by warehouse/distribution Properties, light
industrial Properties and retail Properties as of September 30, 1996, on a pro
forma basis assuming completion of the Property Transactions.
<TABLE>
<CAPTION>
LOS ANGELES
PROPERTY TYPE DALLAS BASIN MEMPHIS(1) CHICAGO SEATTLE ATLANTA COLUMBUS
- ---------------------------- --------- ----------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION
No. of Properties........... 15 6 10 16 -- -- 1
Occupancy Rate.............. 99.20% 100.00% 90.97% 82.34% -- -- 100.00%
Rentable Square Feet........ 2,098,461 1,202,396 2,006,135 1,336,604 -- -- 1,014,592
Percentage of Total
Portfolio................. 18.20% 10.43% 17.40% 11.60% -- -- 8.80%
Annualized Base Rent(3)..... $6,368,333 $4,607,509 $5,182,154 $4,280,684 -- -- $3,020,424
Percentage of Total Base
Rent...................... 14.64% 10.59% 11.91% 9.84% -- -- 6.94%
LIGHT INDUSTRIAL
No. of Properties........... 6 5 1 -- 1 -- --
Occupancy Rate.............. 93.77% 98.36% 100.00% -- 96.22% -- --
Rentable Square Feet........ 247,455 234,032 65,400 -- 237,221 -- --
Percentage of Total
Portfolio................. 2.15% 2.03% 0.57% -- 2.06% -- --
Annualized Base Rent(3)..... $ 886,056 $1,737,332 $ 523,200 -- $1,205,511 -- --
Percentage of Total Base
Rent...................... 2.04% 3.99% 1.20% -- 2.77% -- --
RETAIL
No. of Properties........... -- 1 -- -- 2 2 --
Occupancy Rate.............. -- 46.21% -- -- 97.29% 96.67% --
Rentable Square Feet........ -- 75,881 -- -- 298,677 385,111 --
Percentage of Total
Portfolio................. -- 0.66% -- -- 2.59% 3.34% --
Annualized Base Rent(3)..... -- $ 518,614 -- -- $2,014,560 $3,040,354 --
Percentage of Total Base
Rent...................... -- 1.19% -- -- 4.63% 6.99% --
TOTAL
No. of Properties........... 21 12 11 16 3 2 1
Occupancy Rate.............. 98.63% 97.05% 91.26% 82.34% 96.82% 96.67% 100.00%
Rentable Square Feet........ 2,345,916 1,512,309 2,071,535 1,336,604 535,898 385,111 1,014,592
Percentage of Total
Portfolio................. 20.35% 13.12% 17.97% 11.60% 4.65% 3.34% 8.80%
Annualized Base Rent(3)..... $7,254,389 $6,863,455 $5,705,354 $4,280,684 $3,220,071 $3,040,354 $3,020,424
Percentage of Annualized
Base Rent................. 16.68% 15.78% 13.12% 9.84% 7.40% 6.99% 6.94%

<CAPTION>
SAN FRANCISCO
PROPERTY TYPE BAY AREA PHOENIX OTHER(2) TOTAL
- ---------------------------- ------------- --------- --------- ----------
<S> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION
No. of Properties........... 2 1 8 59
Occupancy Rate.............. 100.00% 100.00% 96.16% 94.90%
Rentable Square Feet........ 513,000 118,800 904,297 9,194,285
Percentage of Total
Portfolio................. 4.45% 1.03% 7.85% 79.76%
Annualized Base Rent(3)..... $2,057,172 $ 462,432 $2,655,891 $28,634,599
Percentage of Total Base
Rent...................... 4.73% 1.06% 6.11% 65.83%
LIGHT INDUSTRIAL
No. of Properties........... -- 9 3 25
Occupancy Rate.............. -- 93.30% 100.00% 96.47%
Rentable Square Feet........ -- 332,880 312,884 1,429,872
Percentage of Total
Portfolio................. -- 2.89% 2.71% 12.40%
Annualized Base Rent(3)..... -- $1,595,511 $2,292,709 $8,240,319
Percentage of Total Base
Rent...................... -- 3.67% 5.27% 18.94%
RETAIL
No. of Properties........... 1 1 -- 7
Occupancy Rate.............. 100.00% 100.00% -- 93.16%
Rentable Square Feet........ 134,352 8,663 -- 902,684
Percentage of Total
Portfolio................. 1.17% 0.08% -- 7.83%
Annualized Base Rent(3)..... $ 831,085 $ 217,398 -- $6,622,011
Percentage of Total Base
Rent...................... 1.91% 0.50% -- 15.22%
TOTAL
No. of Properties........... 3 11 11 91
Occupancy Rate.............. 100.00% 95.16% 97.15% 94.96%
Rentable Square Feet........ 647,352 460,343 1,217,181 11,526,841
Percentage of Total
Portfolio................. 5.62% 3.99% 10.56% 100.00%
Annualized Base Rent(3)..... $2,888,257 $2,275,341 $4,948,600 $43,496,929
Percentage of Annualized
Base Rent................. 6.64% 5.23% 11.38% 100.00%
</TABLE>

- ---------------
(1) Included in the Memphis market is one Property located in Olive Branch,
Mississippi (which is in close proximity to the Memphis Airport).

(2) Included in the "Other" market are Properties located in the following
areas: Birmingham, Alabama (two industrial Properties); Little Rock,
Arkansas (two industrial Properties); Troy, Michigan (two industrial
Properties); San Diego, California (two industrial Properties); and
Nashville, Tennessee (three industrial Properties).

(3) Represents annualized monthly Base Rent from leases in effect as of
September 30, 1996, reflecting the pro forma effects assuming completion of
the Property Transactions. Base Rent means contractual gross rent and,
therefore, excludes payments by tenants on account of real estate tax and
operating expense reimbursements.

49
<PAGE> 50

The following table sets forth certain information as of September 30, 1996
for each of the Properties, on a pro forma basis assuming completion of the
Property Transactions.

WAREHOUSE/DISTRIBUTION

<TABLE>
<CAPTION>
CLEAR RENTABLE ANNUAL NUMBER
HEIGHT SQUARE PERCENT BASE RENT OF
PROPERTY NAME LOCATION FEET FEET LEASED (1) LEASES
- ------------------------- ---------------------------- -------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
DALLAS
Great Southwest 110...... Arlington, TX 24 163,043 100.00% $ 407,604 1
Greatsouthwest #4........ Arlington, TX 24 90,880 100.00 203,210 2
Beltline................. Carrollton, TX 20 96,000 100.00 290,520 7
201 Regal Row............ Dallas, TX 20 59,970 100.00 165,516 1
Northgate #4............. Dallas, TX 20 56,633 100.00 159,174 3
Valley Branch #2......... Farmers Branch, TX 22 74,160 100.00 178,308 2
Valwood 20............... Farmers Branch, TX 24 99,600 100.00 348,600 1
Centreport 17............ Fort Worth, TX 24 51,923 100.00 251,567 1
Northgate
International.......... Garland, TX 24 260,000 100.00 948,698 1
Sarah Jane Parkway (2)... Grand Prairie, TX 33 361,690 100.00 1,302,084 1
Las Colinas #1........... Irving, TX 20 35,050 100.00 110,412 1
Wildwood (3)............. Irving, TX 22 269,768 100.00 593,484 1
Water's Ridge Drive
(2).................... Lewisville, TX 30 367,744 100.00 1,055,676 1
Palisades I.............. Plano, TX 20 56,000 80.00 167,616 5
Palisades II............. Plano, TX 20 56,000 90.00 185,864 6

LOS ANGELES BASIN
Arenth Avenue............ City of Industry, CA 24 332,790 100.00 1,085,916 1
Mission Oaks Boulevard
(2).................... Camarillo, CA 28 310,736 100.00 1,081,361 1
Meyer Circle (2)......... Corona, CA 24 201,380 100.00 851,999 1
Wanamaker Avenue (2)..... Ontario, CA 24 136,249 100.00 529,540 2
Rustin Avenue (2)........ Riverside, CA 22/24 113,721 100.00 413,573 3
Valencia Industrial Bldg
(4).................... Valencia, CA 24 107,520 100.00 645,120 1

MEMPHIS
Olive Branch............. Olive Branch, MS 32 800,000 100.00 2,176,320 2
Crowfarn Drive (2)....... Memphis, TN 22 128,248 100.00 320,620 1
4000 Air Park Cove....... Memphis, TN 24 120,640 100.00 319,696 1
4013 Premier (5)......... Memphis, TN 20 181,064 -- -- --
Airport Bldg #14......... Memphis, TN 22 175,275 100.00 433,356 2
Airport Bldg #16A........ Memphis, TN 16 62,290 100.00 288,330 11
Airport Bldg #16B........ Memphis, TN 16 21,000 100.00 86,520 1
Airport Bldg #17......... Memphis, TN 22 142,618 100.00 354,876 3
Airport Bldg #3.......... Memphis, TN 20 75,000 100.00 167,436 2
Delp Distribution........ Memphis, TN 22 300,000 100.00 1,035,000 1
</TABLE>

50
<PAGE> 51

<TABLE>
<CAPTION>
CLEAR
HEIGHT RENTABLE ANNUAL NUMBER
FEET SQUARE PERCENT BASE RENT OF
PROPERTY NAME LOCATION -- FEET LEASED (1) LEASES
------- -------- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
CHICAGO
5101 W. 122nd Street..... Alsip, IL 24 123,986 89.43% $ 480,788 2
Bedford Park............. Bedford Park, IL 21 200,808 100.00 652,626 1
1000 Lunt................ Elk Grove Village, IL 24 121,465 100.00 504,861 6
1090 Pratt............... Elk Grove Village, IL 16 24,975 100.00 87,413 1
1100 Pratt............... Elk Grove Village, IL 18 39,500 100.00 163,135 1
1180 Pratt............... Elk Grove Village, IL 16 24,350 100.00 113,228 1
1201 Busse............... Elk Grove Village, IL 16 24,000 100.00 126,000 1
1815 Landmeier........... Elk Grove Village, IL 21 77,150 100.00 284,580 1
2375 Touhy Ave........... Elk Grove Village, IL 16 53,550 100.00 211,865 1
700 Pratt................ Elk Grove Village, IL 26 81,480 100.00 282,795 3
801 Lunt................. Elk Grove Village, IL 18 41,600 100.00 131,572 1
900 Pratt (5)............ Elk Grove Village, IL 16 30,000 -- -- --
3400 West Lake........... Glenview, IL 26 121,225 100.00 566,596 2
Lombard (6).............. Lombard, IL 25 193,000 -- -- --
17025 Wallace............ South Holland, IL 21 95,515 100.00 364,907 4
17129 Wallace............ South Holland, IL 21 84,000 100.00 310,318 1

COLUMBUS
Crosswind Drive.......... Columbus, OH 32 1,014,592 100.00 3,020,424 1
SAN FRANCISCO BAY AREA
Overlake Place........... Newark, CA 24 160,000 100.00 777,262 1
Gold River Lane(2)....... Stockton, CA 30 353,000 100.00 1,279,910 1

PHOENIX
El Dorado Industrial
Plaza.................. Phoenix, AZ 18 118,800 100.00 462,432 12

OTHER
Birmingham 1 (7)......... Birmingham, AL 22 78,000 100.00 243,420 5
Birmingham 2 (7)......... Birmingham, AL 22 79,095 56.08 154,872 2
1550 Heil Quaker......... La Vergne, TN 22 238,900 100.00 716,700 1
1600 Corporate Place..... La Vergne, TN 22 102,652 100.00 307,956 1
Hennessey Warehouse...... La Vergne, TN 22 96,000 100.00 264,000 4
Port Distribution........ Little Rock, AR 26 185,250 100.00 468,675 3
Pontiac.................. Pontiac, MI 21 74,400 100.00 337,776 1
Baxter................... Little Rock, AR 25 50,000 100.00 162,492 1
--------- ------- ----------- ---
Total/Average....... 9,194,285 94.90% $28,634,599 126
========= ======= =========== ===
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in effect as of September 30,
1996, on a pro forma basis assuming completion of the Property Transactions.

(2) Represents a facility included in the Property Transactions.

(3) The Company is currently developing a new building for the tenant (L.D.
Brinkman) that currently leases this building. The tenant is obligated to
continue to pay rent on the vacated space for the lesser of six months from
the move out date or until the building is leased.

(4) The Company has granted the tenant a right of first refusal to purchase this
Property on a sale by the Company which expires on December 1, 1996.

(5) This facility was vacant at September 30, 1996 and the Company currently is
marketing the space for lease.

(6) The Company is currently negotiating a lease with a new tenant to occupy
100% of the facility commencing March 1, 1997.

(7) This facility currently is being marketed by the Company for sale.

51
<PAGE> 52

LIGHT INDUSTRIAL

<TABLE>
<CAPTION>
RENTABLE ANNUAL NUMBER
SQUARE PERCENT BASE OF
PROPERTY NAME LOCATION FEET LEASED RENT (1) LEASES
- ------------------------- -------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
DALLAS
Northgate #28............ Dallas, TX 36,736 100.00% $ 119,392 1
Northgate #5............. Dallas, TX 31,747 82.64 79,067 3
Regal Empress............ Dallas, TX 46,509 100.00 273,719 8
Valley Branch #1......... Farmers Branch, TX 33,000 100.00 138,902 7
Las Colinas #4........... Irving, TX 22,159 55.31 45,197 4
Las Colinas #5........... Irving, TX 77,304 100.00 229,779 3

LOS ANGELES BASIN
Chatsworth Building...... Chatsworth, CA 40,000 100.00 297,600 1
Cypress A Building....... Cypress, CA 32,256 100.00 243,855 1
Cypress B Building....... Cypress, CA 68,760 100.00 467,067 3
Cypress C Building....... Cypress, CA 36,216 100.00 308,560 1
North Irvine............. Santa Ana, CA 56,800 93.24 420,250 10

MEMPHIS
Willow Lake.............. Memphis, TN 65,400 100.00 523,200 1
SEATTLE
Park At Woodinville...... Woodinville, WA 237,221 96.22 1,205,511 15

PHOENIX
4030 Phoenix Plaza....... Phoenix, AZ 21,600 91.67 80,760 9
Phoenix Deer Valley...... Phoenix, AZ 40,528 100.00 172,649 1
Phoenix N. 23rd.......... Phoenix, AZ 40,980 50.00 62,699 1
Phoenix N. 27th.......... Phoenix, AZ 32,480 100.00 222,163 1
Phoenix Plaza One........ Phoenix, AZ 60,400 100.00 332,372 24
Phoenix Plaza Three...... Phoenix, AZ 62,780 100.00 429,415 2
Phoenix Plaza Two........ Phoenix, AZ 60,400 100.00 270,525 22
Phoenix W. Fairmount..... Phoenix, AZ 11,660 100.00 12,000 1
Phoenix W. Weldon........ Phoenix, AZ 2,052 100.00 12,928 1

OTHER
6355 Nancy Ridge Dr...... San Diego, CA 5,294 100.00 39,384 1
Scripps Venturers........ San Diego, CA 184,761 100.00 1,387,996 10
Troy Tech II............. Troy, MI 122,829 100.00 865,329 5
--------- ------ ---------- ---
Total/Average....... 1,429,872 96.47% $8,240,319 136
========= ====== ========== ===
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in effect as of September 30,
1996.

52
<PAGE> 53

RETAIL

<TABLE>
<CAPTION>
RENTABLE ANNUAL NUMBER
SQUARE PERCENT BASE OF
PROPERTY NAME LOCATION FEET LEASED RENT (1) LEASES
- ------------------------- ---------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Park Ten Center (2)...... Chandler, AZ 8,663 100.00% $ 217,398 1
Golden Cove Shopping Rancho Palos Verdes,
Center (3)............. CA 75,881 46.21 518,614 24
San Carlos Center........ San Carlos, CA 134,352 100.00 831,085 8
Marietta Trade Center.... Marietta, GA 305,791 95.80 2,540,354 44
Live Oak Parkway......... Norcross, GA 79,320 100.00 500,000 1
Meridian Village (3)..... Bellingham, WA 145,617 95.65 837,911 19
Seatac Village (3)....... Federal Way, WA 153,060 98.86 1,176,649 23
------- ------- ---------- ---
Total/Average....... 902,684 93.16% $6,622,011 120
======= ======= ========== ===
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in effect as of September 30,
1996.

(2) This retail Property currently is being marketed by the Company for sale.

(3) These retail Properties are currently under contract for sale.

All the Properties except the San Carlos Center (San Carlos, California)
are owned 100% by the Company in fee. The San Carlos Center consists of two land
parcels. One parcel contains approximately 6.3 acres and is owned in fee by the
Company. The second parcel contains approximately 0.6 acres and is leased from
the City of San Carlos until February 1997. The Company has the right to extend
the lease for an additional ten years. The Company is negotiating with the City
of San Carlos to restructure the lease to include a longer term and include more
land area (approximately 19,000 square feet) to be used for parking or to add an
additional structure.

INDUSTRIAL PROPERTIES

On a pro forma basis assuming completion of the Property Transactions, the
Company owned 10.6 million square feet of industrial space at September 30,
1996, which was approximately 95.1% leased to 231 tenants. The 59
warehouse/distribution Properties accounted for 79.8% of the rentable space of
the Company's portfolio at September 30, 1996, on a pro forma basis assuming
completion of the Property Transactions. Forty-one of the warehouse/distribution
Properties (69.5% of these Properties) are located in the Chicago, Dallas or
Memphis metropolitan areas.

On a pro forma basis assuming completion of the Property Transactions, the
twenty-five light industrial Properties accounted for 12.4% of the rentable
space of the Company's portfolio at September 30, 1996, on a pro forma basis
assuming completion of the Property Transactions. Twenty of these properties
(80.0% of these Properties) are located in Dallas, Phoenix or the Los Angeles
Basin. The remaining light industrial buildings are located in the Memphis,
Detroit, San Diego and Seattle areas.

The information set forth below relates to the occupancy, rental rate,
leasing and tenants of the Company's industrial Properties.

Historical Occupancy and Rental Information. The following table sets
forth the total rentable square feet, the total average percent leased, the
total annual historical base rental income and the average annual base rental
income per leased square foot for the industrial Properties as of September 30,
1996, excluding the pro forma effect of the Property Transactions.

53
<PAGE> 54

HISTORICAL OCCUPANCY AND RENTAL INFORMATION
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES (1)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------- SEPTEMBER 30,
1994 1995 1996 (2)
----------- ----------- -----------------
<S> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Total Rentable Square Feet...................... 5,394,135 5,714,135 6,206,925
Average Percent Leased (3)...................... 96.02% 95.40% 92.82%
Total Annual Base Rent (4)...................... $15,033,992 $16,926,742 $17,926,597
Average Annual Base Rent per Leased Square
Foot.......................................... $2.90 $3.11 $3.11

LIGHT INDUSTRIAL:
Total Rentable Square Feet...................... 1,468,656 1,433,114 1,429,424
Average Percent Leased (3)...................... 87.82% 92.78% 95.01%
Total Annual Base Rent (4)...................... $ 7,568,282 $ 7,950,643 $ 8,115,378
Average Annual Base Rent per Leased Square
Foot.......................................... $5.87 $5.98 $5.98
</TABLE>

- ---------------
(1) Excludes facilities in Property Transactions.

(2) Excludes Crosswind Drive facility acquired on September 30, 1996.

(3) Based on average occupancy rate for the period.

(4) Actual base rental income recorded for the period.

Leases. Lease terms generally range from three to ten years, with some
tenants having options to extend leases beyond their initial lease terms. At
September 30, 1996, on a pro forma basis assuming completion of the Property
Transactions, 74 leases representing 36.0% of the annual Base Rent from the
leased space at the industrial Properties are leased on a triple net basis with
tenants responsible for most day-to-day operating expenses such as real estate
taxes, insurance, utilities, maintenance of common areas and non-structural
repairs. The balance of the industrial Properties are generally leased to
tenants on a modified gross basis, with tenants responsible for utilities,
maintenance of common areas and non-structural repairs. Under these leases, the
owner is generally responsible for base year real estate taxes and insurance,
and the tenants are responsible for any increases in these items over the base
year amounts. These triple net and modified gross leases generally reduce the
owner's exposure to increases in operating expenses. Some of the leases provide
for escalating rents during their terms. Currently, there are 235 leases with
expiration dates after December 31, 1996, 91 of which (representing 38.7% of the
annual base rent from the Company's industrial leases) have stated fixed amount
or periodic Consumer Price Index (CPI) increases.

Tenant Lease Expirations. The following table shows scheduled lease
expirations for the industrial Properties for all leases in effect as of
September 30, 1996, on a pro forma basis assuming completion of the Property
Transactions. The table assumes that none of the tenants exercises any renewal
option or termination right. The average rentable square footage of the
warehouse/distribution Properties and light industrial Properties subject to
leases expiring between 1996 and 2011 is approximately 545,000 and 138,000
square feet per year, respectively, on a pro forma basis assuming completion of
the Property Transactions.

54
<PAGE> 55

LEASE EXPIRATIONS
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE % ANNUAL
SQUARE FEET TOTAL LEASED OF TOTAL LEASED BASE RENT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER
LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES (1)
- --------------------------- --------- ----------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION AND
LIGHT INDUSTRIAL:
1996....................... 27 366,553 3.63% 3.63% $ 1,538,033
1997....................... 80 2,408,087 23.83% 27.46% 8,649,896
1998....................... 47 906,553 8.97% 36.43% 2,801,223
1999....................... 41 968,229 9.58% 46.01% 4,608,961
2000....................... 25 786,785 7.79% 53.80% 2,849,583
2001....................... 22 956,761 9.47% 63.27% 3,737,450
2002....................... 2 9,546 0.09% 63.36% 63,433
2003....................... 3 253,860 2.51% 65.87% 1,234,967
2004....................... 5 253,438 2.51% 68.38% 964,651
2005....................... 4 830,587 8.22% 76.60% 2,346,244
2006....................... 4 1,635,112 16.18% 92.78% 5,722,716
2011....................... 2 729,434 7.22% 100.00% 2,357,760
--- ---------- -----------
Total................. 262 10,104,945 $36,874,917
=== ========== ===========
WAREHOUSE/DISTRIBUTION:
1996 (2)................... 9 211,925 2.43% 2.43% $ 721,957
1997....................... 32 1,962,334 22.49% 24.92% 6,149,422
1998....................... 25 835,762 9.58% 34.50% 2,457,832
1999....................... 20 671,015 7.69% 42.19% 2,552,852
2000....................... 12 690,044 7.90% 50.09% 2,360,468
2001....................... 15 775,667 8.89% 58.98% 2,491,270
2003....................... 1 201,380 2.31% 61.29% 851,999
2004....................... 4 212,910 2.44% 63.73% 792,002
2005....................... 2 800,000 9.17% 72.90% 2,176,320
2006....................... 4 1,635,112 18.74% 91.64% 5,722,716
2011....................... 2 729,434 8.36% 100.00% 2,357,761
--- ---------- -----------
Total................. 126 8,725,583 $28,634,599
=== ========== ===========
LIGHT INDUSTRIAL:
1996 (3)................... 18 154,628 11.21% 11.21% $ 816,076
1997....................... 48 445,753 32.32% 43.53% 2,500,474
1998....................... 22 70,791 5.13% 48.66% 343,390
1999....................... 21 297,214 21.55% 70.21% 2,056,109
2000....................... 13 96,741 7.01% 77.22% 489,115
2001....................... 7 181,094 13.13% 90.35% 1,246,179
2002....................... 2 9,546 0.69% 91.04% 63,433
2003....................... 2 52,480 3.80% 94.84% 382,968
2004....................... 1 40,528 2.94% 97.78% 172,649
2005....................... 2 30,587 2.22% 100.00% 169,926
--- ---------- -----------
Total................. 136 1,379,362 $ 8,240,319
=== ========== ===========
</TABLE>

55
<PAGE> 56

- ---------------
(1) Represents annualized monthly Base Rent of the leases in effect at September
30, 1996, excluding the pro forma effect of the Property Transactions.

(2) Includes two leases that are on a "month-to-month" basis as of September 30,
1996 (33,495 square feet on a pro forma basis and $119,280 of annualized
Base Rent).

(3) Includes four leases that are on a "month-to-month" basis as of September
30, 1996 (74,778 square feet and $298,674 of annualized Base Rent).

The weighted average remaining term for leases for the Company's
warehouse/distribution and light industrial Properties is 5.1 years, on a pro
forma basis assuming completion of the Property Transactions. Management
believes that the portfolio's near term weighting of lease term expirations and
decreased expiration thereafter creates a balanced opportunity for the Company
to increase rents upon lease renewal or signing a new lease for vacant space.

Renewals. The Company's tenant retention rates on a square footage basis
for the warehouse/distribution and light industrial Properties during 1995 and
the nine months ended September 30, 1996, were 81.5% and 65.8%, respectively,
excluding the pro forma effects of the Property Transactions. The Company's
ability to retain existing tenants and its commitment to increasing occupancy
levels may improve property revenues by minimizing vacancy periods attributable
to leasing downtime and reducing leasing costs such as tenant improvements and
leasing commissions. In connection with releasing space in 1995 and the nine
months ended September 30, 1996, annualized Base Rent on renewed and expanded
leases with existing tenants in the industrial Properties increased by 3.7% and
8.0%, respectively, excluding the pro forma effects of the Property
Transactions.

Leasing Activity. During 1995 and the nine months ended September 30,
1996, in connection with the warehouse/distribution and light industrial
Properties, the Company leased, released or renewed a total of 85 and 70 leases
for approximately 2,320,684 rentable square feet (representing 24.3% of total
rentable square feet) and 1,371,813 rentable square feet, (representing 14.4%
square foot of the total rentable square feet), excluding the pro forma effects
of the Property Transactions. The following table sets forth a schedule of new
leases signed and the annualized Base Rent per leased square foot for the
warehouse/distribution and light industrial Properties, excluding the pro forma
effects of the Property Transactions.

LEASING ACTIVITY
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -----------------
<S> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Number of Lease Transactions...................... 47 36 24
Rentable Square Feet Leased....................... 1,815,495 1,993,602 888,941
Base Rent (1)..................................... $6,214,452 $5,751,360 $2,809,308
LIGHT INDUSTRIAL:
Number of Lease Transactions...................... 62 49 46
Rentable Square Feet Leased....................... 546,307 327,082 482,872
Base Rent (1)..................................... $3,108,509 $1,733,329 $3,146,484
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in effect at the beginning of
the new lease term, excluding the pro forma effects of the Property
Transactions.

Tenant Base. At September 30, 1996, excluding the Property Transactions,
the warehouse/distribution and light industrial Properties had 220 tenants under
251 separate leases, with no tenant leasing more than 1,814,592 rentable square
feet or representing more than 17.3% of the annual total Base Rent of the
Properties. The average tenant space is 32,399 square feet. Forty
warehouse/distribution and light industrial Properties representing
approximately 60.1% of the total warehouse/distribution and light industrial
rentable square feet were occupied by single tenants at September 30, 1996
excluding the pro forma effects of the Property Transactions.

56
<PAGE> 57

The following table shows on a pro forma basis, assuming completion of the
Property Transactions, the 15 largest tenants at the warehouse/distribution and
light industrial Properties, as measured by annualized Base Rent as of September
30, 1996.

LARGEST TENANTS
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SQUARE FEET ANNUAL BASE OF TOTAL
LEASES LEASED RENT (1) PORTFOLIO
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Sears Roebuck and Co. (2)................... 3 1,814,592 $ 5,196,744 11.95%
Continental General Tire, Inc............... 2 632,790 2,120,916 4.88
Allegiance Healthcare Corporation (3)....... 2 411,690 1,464,576 3.37
Kraft Foods, Inc. (4)....................... 1 353,000 1,279,910 2.94
Technicolor Videocassette, Inc. (4)......... 1 310,736 1,081,361 2.49
Cumberland Swan, Inc........................ 2 341,552 1,024,656 2.36
Carnation Co. (5)........................... 1 260,000 948,698 2.18
Core Mark International (4)................. 1 201,380 851,999 1.96
Mitchell International...................... 3 84,706 782,138 1.80
BT Office Products International, Inc....... 1 160,000 777,262 1.79
Bank One Arizona, NA........................ 4 106,920 663,578 1.53
Lake River Corporation...................... 1 200,808 652,626 1.50
Delta Lithograph Corporation................ 1 107,520 645,120 1.48
L.D. Brinkman and Company................... 1 269,768 593,484 1.36
The Woodbridge Group........................ 3 70,464 583,985 1.34
---- ---------- ----------- -----
Total....................................... 27 5,325,926 $18,667,053 42.92%
==== ========== =========== =====
As a percentage of Total Industrial Space
Leased.................................... 10.31% 50.13% 50.62%
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in place as of September 30,
1996, on a pro forma basis assuming completion of the Property Transactions.

(2) These leases are signed by Sears Logistics Services, Inc. and guaranteed by
Sears Roebuck and Co. These leases cover two Properties: Olive Branch
(Memphis) and Crosswind Drive (Columbus). The two leases covering the Olive
Branch Property expire March 31, 2005, feature two five-year renewal options
and include rent escalation provisions during the final five years of the
leases. The lease covering the Crosswind Drive Property expires in September
2006, features two five-year renewal options and includes rent escalation
provisions in years six through ten.

(3) This lease is guaranteed by Baxter Healthcare Corporation.

(4) Represents a tenant in a facility included under the Property Transactions.

(5) This tenant has sub-leased this space to Blockbuster Videos, Inc.

The 15 largest tenants at the warehouse/distribution and light industrial
Properties accounted for approximately 42.9% (approximately $18.7 million) of
the Company's total annual Base Rent at September 30, 1996. The weighted average
remaining lease term for the 15 largest tenants in warehouse/distribution and
light industrial Properties was 6.7 years at September 30, 1996. Although the
loss of several significant tenants could have a materially adverse effect on
the financial condition of the Company, the Company believes that the total
number and geographical distribution of tenants at the warehouse/distribution
and light industrial Properties contributes to the stability of the portfolio,
eases releasing of space subject to expiring leases and mitigates the potential
impact on cash flows due to periodic vacancies.

57
<PAGE> 58

The following table sets forth information relating to the diversity of the
size of square feet under lease at the warehouse/distribution and light
industrial Properties at September 30, 1996, on a pro forma basis assuming
completion of the Property Transactions.

DISTRIBUTION OF LEASES BY LEASED SPACE
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
NUMBER PERCENT TOTAL PERCENT ANNUAL PERCENT
SQUARE FEET UNDER LEASE OF LEASES OF TOTAL SQ. FT. OF TOTAL BASE RENT (1) OF TOTAL
- ---------------------------------- --------- -------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Less than 50,001.................. 88 69.84% 1,563,132 17.91% $ 5,481,347 19.14%
50,001-100,000.................... 16 12.70 1,104,228 12.66 3,960,712 13.83
100,001-150,000................... 6 4.76 723,772 8.29 2,207,474 7.71
150,001-300,000................... 8 6.35 1,793,899 20.56 5,983,373 20.90
300,001+.......................... 8 6.35 3,540,552 40.58 11,001,693 38.42
--- ------- --------- ------- ----------- -------
Total........................ 126 100.00% 8,725,583 100.00% $28,634,599 100.00%
=== ======= ========= ======= =========== =======
LIGHT INDUSTRIAL:
Less than 2,501................... 42 30.88% 66,100 4.79% $ 325,414 3.95%
2,501-5,000....................... 35 25.74 126,818 9.19 661,880 8.03
5,001-10,000...................... 19 13.97 129,462 9.39 683,136 8.29
10,001-20,000..................... 14 10.29 181,167 13.13 1,043,668 12.67
20,001-40,000..................... 20 14.71 578,913 41.98 3,784,892 45.93
40,001+........................... 6 4.41 296,902 21.52 1,741,329 21.13
--- ------- --------- ------- ----------- -------
Total........................ 136 100.00% 1,379,362 100.00% $ 8,240,319 100.00%
=== ======= ========= ======= =========== =======
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in effect as of September 30,
1996 on a pro forma basis assuming completion of the Property Transactions.

Historical Non-Incremental Revenue-Producing Capital
Expenditures. Non-incremental revenue producing capital expenditures are
classified into three categories by the Company: building improvements; tenant
improvements; and leasing commissions. The following tables set forth annual and
per square foot property improvement costs and non-incremental
revenue-generating tenant improvement costs and leasing commissions, excluding
the pro forma effects of the Property Transactions. These historical amounts are
not necessarily indicative of future costs.

58
<PAGE> 59

The following table sets forth certain annual and per square foot
information relating to property improvements, tenant improvements and leasing
commissions relating to the warehouse/distribution and light industrial
Properties that were incurred in 1993, 1994, 1995 and the nine months ended
September 30, 1996, excluding the pro forma effects of the Property
Transactions. The table also reflects the 45-month average capital expenditures
covering the period from January 1, 1993 to September 30, 1996, excluding the
pro forma effects of the Property Transactions.

HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1993-1996
PROPERTY IMPROVEMENTS 1993 1994 1995 1996 AVERAGE
- ---------------------------- -------- -------- ---------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Annual...................... $356,473 $376,712 $1,651,806 $ 418,135 $ 747,500
Per Square Foot............. $0.07 $0.07 $0.29 $0.06 $0.12
LIGHT INDUSTRIAL:
Annual...................... $124,256 $245,283 $ 369,034 $ 287,372 $ 273,585
Per Square Foot............. $0.09 $0.17 $0.26 $0.20 $0.19

TENANT IMPROVEMENT COSTS
AND LEASING COMMISSIONS
- ----------------------------
WAREHOUSE/DISTRIBUTION:
Annual Tenant Improvement
Costs..................... $321,524 $906,296 $ 319,771 $ 82,108 $ 434,586
Per Square Foot Leased...... $0.31 $0.50 $0.16 $0.09 $0.28
Annual Leasing
Commissions............... $226,500 $802,328 $ 368,356 $ 372,000 $ 471,782
Per Square Foot Leased...... $0.22 $0.44 $0.18 $0.42 $0.31
LIGHT INDUSTRIAL:
Annual Tenant Improvement
Costs..................... $ 39,394 $856,874 $ 657,651 $ 676,942 $ 594,896
Per Square Foot Leased...... $0.14 $1.57 $2.01 $1.40 $1.35
Annual Leasing
Commissions............... $169,229 $461,296 $ 303,504 $ 520,568 $ 387,893
Per Square Foot Leased...... $0.62 $0.84 $0.93 $1.08 $0.79
</TABLE>

59
<PAGE> 60

Regional Leasing Profiles of Warehouse/Distribution and Light Industrial
Properties. The tables set forth below provide certain leasing information
relating to the warehouse/distribution Properties and the light industrial
Properties in markets in which the Company owns such Properties (Dallas, Los
Angeles Basin, Memphis, Chicago, Seattle, Atlanta, Columbus, San Francisco Bay
Area, Phoenix and certain other markets), excluding the pro forma effects of the
Property Transactions.

LEASE EXPIRATIONS
DALLAS MARKET
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE % ANNUAL RENT PER
SQUARE FEET TOTAL LEASED OF TOTAL LEASED BASE RENT SQUARE FOOT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER UNDER
LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES (1) LEASES (2)
- -------------------------- --------- ----------- ------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
1996...................... 4 52,000 3.85% 3.85% $ 161,992 $3.12
1997...................... 9 833,771 61.66% 65.51% 2,511,987 $3.01
1998...................... 6 113,147 8.36% 73.87% 328,589 $2.90
1999...................... 5 40,000 2.96% 76.83% 142,824 $3.57
2000...................... 1 38,160 2.82% 79.65% 97,308 $2.55
2001...................... 7 275,149 20.35% 100.00% 767,873 $2.79
--
--------- ----------
Total................ 32 1,352,227 $4,010,573
== ========= ==========
LIGHT INDUSTRIAL:
1996...................... 6 41,128 17.73% 17.73% $ 150,198 $3.65
1997...................... 2 88,276 38.04% 55.77% 263,704 $2.99
1998...................... 7 29,841 12.86% 68.63% 154,552 $5.18
1999...................... 2 8,406 3.62% 72.25% 39,519 $4.70
2000...................... 6 44,135 19.02% 91.27% 156,208 $3.54
2001...................... 1 10,708 4.62% 95.89% 58,440 $5.46
2002...................... 2 9,546 4.11% 100.00% 63,433 $6.64
--
--------- ----------
Total................ 26 232,040 $ 886,054
== ========= ==========
</TABLE>

- ---------------
(1) Represents annualized Base Rent of the leases in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(2) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring leases, excluding the pro forma effects of the
Property Transactions.

60
<PAGE> 61

LEASING ACTIVITY
DALLAS MARKET
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -----------------
<S> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Number of Lease Transactions......................... 9 5 7
Rentable Square Feet Leased.......................... 280,851 218,003 225,219
Base Rent (1)........................................ $759,788 $595,284 $ 607,032
Base Rent per Square Foot (2)........................ $2.71 $2.73 $2.70
Effective Rent (3)................................... $762,152 $594,253 $ 622,094
Effective Rent per Square Foot (4)................... $2.71 $2.73 $2.76
LIGHT INDUSTRIAL:
Number of Lease Transactions......................... 8 11 4
Rentable Square Feet Leased.......................... 69,738 57,334 22,495
Base Rent (1)........................................ $237,062 $241,723 $ 90,000
Base Rent per Square Foot (2)........................ $3.40 $4.22 $4.00
Effective Rent (3)................................... $272,545 $251,497 $ 93,732
Effective Rent per Square Foot (4)................... $3.91 $4.39 $4.17
</TABLE>

- ---------------
(1) Represents annualized monthly Base Rent from leases in effect at the
beginning of the new lease term, excluding the pro forma effects of the
Property Transactions.

(2) Represents Base Rent divided by rentable square feet leased, excluding the
pro forma effects of the Property Transactions.

(3) Effective Rent represents Base Rent adjusted on a straight line basis for
free rent periods and for contractual rent increases, excluding the pro
forma effects of the Property Transactions.

(4) Represents Effective Rent divided by rentable square feet leased, excluding
the pro forma effects of the Property Transactions.

61
<PAGE> 62

LEASE EXPIRATIONS
LOS ANGELES BASIN MARKET
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE % ANNUAL RENT PER
SQUARE FEET TOTAL LEASED OF TOTAL LEASED BASE RENT SQUARE FOOT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER UNDER
LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES (1) LEASES (2)
- -------------------------- --------- ----------- ------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
2001...................... 1 332,790 75.58% 75.58% $1,085,916 $3.26
2006...................... 1 107,520 24.42% 100.00% 645,120 $6.00
--
------- ----------
Total................ 2 440,310 $1,731,036
== ======= ==========
LIGHT INDUSTRIAL:
1997...................... 4 66,136 28.73% 28.73% $ 583,682 $8.83
1999...................... 6 34,950 15.18% 43.91% 221,418 $6.34
2000...................... 2 13,919 6.05% 49.96% 108,081 $7.76
2001...................... 2 62,707 27.24% 77.20% 441,183 $7.04
2003...................... 2 52,480 22.80% 100.00% 382,968 $7.30
--
------- ----------
Total................ 16 230,192 $1,737,332
== ======= ==========
</TABLE>

- ---------------
(1) Represents annualized Base Rent of the leases in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(2) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring leases, excluding the pro forma effects of the
Property Transactions.

LEASING ACTIVITY
LOS ANGELES BASIN MARKET (1)
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED
---------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -----------------
<S> <C> <C> <C>
LIGHT INDUSTRIAL:
Number of Lease Transactions......................... 6 2 10
Rentable Square Feet Leased.......................... 130,490 48,535 93,432
Base Rent (2)........................................ $838,212 $373,182 $ 755,616
Base Rent per Square Foot (3)........................ $6.42 $7.69 $8.09
Effective Rent (4)................................... $896,442 $368,088 $ 763,566
Effective Rent per Square Foot (5)................... $6.87 $7.58 $8.17
</TABLE>

- ---------------
(1) There was no leasing activity for the warehouse/distribution Properties
located in the Los Angeles Basin Market.

(2) Represents annualized Base Rent from leases in effect at the beginning of
the new lease term, excluding the pro forma effects of the Property
Transactions.

(3) Represents annualized Base Rent divided by rentable square feet leased,
excluding the pro forma effects of the Property Transactions.

(4) Effective Rent represents annualized Base Rent adjusted on a straight line
basis for free rent periods and for contractual rent increases, excluding
the pro forma effects of the Property Transactions.

(5) Represents Effective Rent divided by rentable square feet leased, excluding
the pro forma effects of the Property Transactions.

62
<PAGE> 63

LEASE EXPIRATIONS
MEMPHIS MARKET
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

- ---------------
(1) Represents annualized Base Rent of the leases in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(2) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring leases, excluding the pro forma effects of the
Property Transactions.

LEASING ACTIVITY
MEMPHIS MARKET
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED
---------------------- SEPTEMBER 30,
1994 1995 1996
-------- --------- -----------------
<S> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Number of Lease Transactions....................... 9 15 3
Rentable Square Feet Leased........................ 222,712 1,191,007 104,280
Base Rent (1)...................................... $609,062 $3,364,605 $ 305,124
Base Rent per Square Foot (2)...................... $2.73 $2.83 $2.93
Effective Rent (3)................................. $605,961 $3,295,355 $ 305,880
Effective Rent per Square Foot (4)................. $2.72 $2.77 $2.93
LIGHT INDUSTRIAL:
Number of Lease Transactions....................... 1 -- 1
Rentable Square Feet Leased........................ 65,400 -- 65,400
Base Rent (1)...................................... $601,680 -- $ 523,200
Base Rent per Square Foot (2)...................... $9.20 -- $8.00
Effective Rent (3)................................. $587,946 -- $ 523,200
Effective Rent per Square Foot (4)................. $8.99 -- $8.00
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in effect at the beginning of
the new lease term, excluding the pro forma effects of the Property
Transactions.

(2) Represents annualized Base Rent divided by rentable square feet leased,
excluding the pro forma effects of the Property Transactions.

(3) Effective Rent represents annualized Base Rent adjusted on a straight line
basis for free rent periods and for contractual rent increases, excluding
the pro forma effects of the Property Transactions.

(4) Represents Effective Rent divided by rentable square feet leased, excluding
the pro forma effects of the Property Transactions.

63
<PAGE> 64

LEASE EXPIRATIONS
CHICAGO MARKET (1)
WAREHOUSE/DISTRIBUTION PROPERTIES

- ---------------
(1) There are no light industrial Properties located in the Chicago Target
Market.

(2) Represents annualized Base Rent of the leases in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(3) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring leases, excluding the pro forma effects of the
Property Transactions.

LEASING ACTIVITY
CHICAGO MARKET (1)
WAREHOUSE/DISTRIBUTION PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- -------- -----------------
<S> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Number of Lease Transactions........................... 16 4 6
Rentable Square Feet Leased............................ 847,446 74,640 133,790
Base Rent (2).......................................... $3,230,847 $352,422 $ 597,660
Base Rent per Square Foot (3).......................... $3.81 $4.72 $4.47
Effective Rent (4)..................................... $3,251,858 $353,645 $ 604,728
Effective Rent per Square Foot (5)..................... $3.84 $4.74 $4.52
</TABLE>

- ---------------
(1) There are no light industrial Properties located in the Chicago Target
Market.

(2) Represents annualized Base Rent from leases in effect at the beginning of
the new lease term, excluding the pro forma effects of the Property
Transactions.

(3) Represents annualized Base Rent divided by rentable square feet leased,
excluding the pro forma effects of the Property Transactions.

(5) Represents Effective Rent divided by rentable square feet leased, excluding
the pro forma effects of the Property Transactions.

64
<PAGE> 65

LEASE EXPIRATIONS
SEATTLE MARKET (1)
LIGHT INDUSTRIAL PROPERTIES

- ---------------
(1) There are no warehouse/distribution Properties located in the Seattle Target
Market.

(2) Represents annualized Base Rent of the leases in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(3) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring leases, excluding the pro forma effects of the
Property Transactions.

LEASING ACTIVITY
SEATTLE MARKET (1)
LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -----------------
<S> <C> <C> <C>
LIGHT INDUSTRIAL:
Number of Lease Transactions......................... 10 8 9
Rentable Square Feet Leased.......................... 137,464 67,418 105,251
Base Rent (2)........................................ $742,068 $352,980 $ 582,024
Base Rent per Square Foot (3)........................ $5.40 $5.24 $5.53
Effective Rent (4)................................... $755,036 $355,131 $ 613,318
Effective Rent per Square Foot (5)................... $5.49 $5.27 $5.83
</TABLE>

- ---------------
(1) There are no warehouse/distribution Properties located in the Seattle Target
Market.

(2) Represents annualized Base Rent from leases in effect at the beginning of
the new lease term, excluding the pro forma effects of the Property
Transactions.

(3) Represents annualized Base Rent divided by rentable square feet leased,
excluding the pro forma effects of the Property Transactions.

(5) Represents Effective Rent divided by rentable square feet leased, excluding
the pro forma effects of the Property Transactions.

65
<PAGE> 66

LEASE EXPIRATIONS
COLUMBUS MARKET (1)
WAREHOUSE/DISTRIBUTION PROPERTY

- ---------------
(1) There are no light industrial Properties located in the Columbus Target
Market.

(2) Represents annualized Base Rent of the lease in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(3) Represents annualized Base Rent of expiring lease divided by the total
square feet of the expiring lease, excluding the pro forma effects of the
Property Transactions.

LEASE EXPIRATIONS
SAN FRANCISCO BAY AREA MARKET (1)
WAREHOUSE/DISTRIBUTION PROPERTY

- ---------------
(1) There are no light industrial Properties located in the San Francisco Bay
Area Target Market.

(2) Represents annualized Base Rent of the lease in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(3) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring lease, excluding the pro forma effects of the
Property Transactions.

66
<PAGE> 67

LEASE EXPIRATIONS
PHOENIX MARKET
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE % ANNUAL RENT PER
SQUARE FEET TOTAL LEASED OF TOTAL LEASED BASE RENT SQUARE FOOT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER UNDER
LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES (1) LEASES (2)
- -------------------------- --------- ----------- ------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
1997...................... 4 39,400 33.16% 33.16% $ 159,888 $4.06
1998...................... 4 43,200 36.37% 69.53% 167,856 $3.89
1999...................... 2 21,600 18.18% 87.71% 78,624 $3.64
2001...................... 2 14,600 12.29% 100.00% 56,064 $3.84
--
------- ----------
Total................ 12 118,800 $ 462,432
== ======= ==========
LIGHT INDUSTRIAL:
1996...................... 7 22,223 7.16% 7.16% $ 77,220 $3.47
1997...................... 29 67,387 21.70% 28.86% 331,730 $4.92
1998...................... 15 40,950 13.18% 42.04% 188,838 $4.61
1999...................... 7 125,052 40.26% 82.30% 762,005 $6.09
2000...................... 2 9,050 2.91% 85.21% 39,093 $4.32
2001...................... 1 5,400 1.74% 86.95% 23,976 $4.44
2004...................... 1 40,528 13.05% 100.00% 172,649 $4.26
--
------- ----------
Total................ 62 310,590 $1,595,511
== ======= ==========
</TABLE>

- ---------------
(1) Represents annualized Base Rent of the leases in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(2) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring leases, excluding the pro forma effects of the
Property Transactions.

67
<PAGE> 68

LEASING ACTIVITY
PHOENIX MARKET
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

LIGHT INDUSTRIAL:
Number of Lease Transactions....................... 34 24 20
Rentable Square Feet Leased........................ 106,377 77,760 167,727
Base Rent (1)...................................... $461,890 $339,070 $ 990,876
Base Rent per Square Foot (2)...................... $4.34 $4.36 $5.91
Effective Rent (3)................................. $472,008 $335,570 $ 987,003
Effective Rent per Square Foot (4)................. $4.44 $4.32 $5.88
</TABLE>

- ---------------
(1) Represents annualized Base Rent from leases in effect at the beginning of
the new lease term, excluding the pro forma effects of the Property
Transactions.

(2) Represents annualized Base Rent divided by rentable square feet leased,
excluding the pro forma effects of the Property Transactions.

(3) Effective Rent represents annualized Base Rent adjusted on a straight-line
basis for free rent periods and for contractual rent increases, excluding
the pro forma effects of the Property Transactions.

(4) Represents Effective Rent divided by rentable square feet leased, excluding
the pro forma effects of the Property Transactions.

68
<PAGE> 69

LEASE EXPIRATIONS
OTHER MARKETS
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE % ANNUAL RENT PER
SQUARE FEET TOTAL LEASED OF TOTAL LEASED BASE RENT SQUARE FOOT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER UNDER
LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES (1) LEASES (2)
- --------------------- --------- ----------- ------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
1996................. 3 64,775 7.45% 7.45% $ 216,528 $ 3.34
1997................. 8 655,632 75.40% 82.85% 1,996,338 $ 3.04
1998................. 3 74,460 8.56% 91.41% 217,644 $ 2.92
1999................. 2 36,000 4.14% 95.55% 115,317 $ 3.20
2000................. 1 14,625 1.68% 97.23% 43,872 $ 3.00
2001................. 1 24,070 2.77% 100.00% 66,192 $ 2.75
--
------- ----------
Total........... 18 869,562 $2,655,891
== ======= ==========
LIGHT INDUSTRIAL:
1996................. 2 25,219 8.06% 8.06% $ 285,256 $ 11.31
1997................. 9 160,372 51.26% 59.32% 992,202 $ 6.19
1999................. 3 84,706 27.07% 86.39% 782,138 $ 9.23
2000................. 1 14,553 4.65% 91.04% 81,730 $ 5.62
2005................. 1 28,034 8.96% 100.00% 151,383 $ 5.40
--
------- ----------
Total........... 16 312,884 $2,292,709
== ======= ==========
</TABLE>

- ---------------
(1) Represents annualized Base Rent of the leases in effect at September 30,
1996, excluding the pro forma effects of the Property Transactions.

(2) Represents annualized Base Rent of expiring leases divided by the total
square feet of the expiring leases, excluding the pro forma effects of the
Property Transactions.

69
<PAGE> 70

LEASING ACTIVITY
OTHER MARKETS
WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED
---------------------- SEPTEMBER 30,
1994 1995 1996
-------- --------- -----------------
<S> <C> <C> <C>
WAREHOUSE/DISTRIBUTION:
Number of Lease Transactions....................... 8 7 5
Rentable Square Feet Leased........................ 311,830 462,952 407,452
Base Rent (1)...................................... $817,779 $1,262,866 $1,225,284
Base Rent per Square Foot (2)...................... $2.62 $2.73 $3.01
Effective Rent (3)................................. $842,616 $1,238,526 $1,101,265
Effective Rent per Square Foot (4)................. $2.70 $2.68 $2.70
LIGHT INDUSTRIAL:
Number of Lease Transactions....................... 3 4 2
Rentable Square Feet Leased........................ 36,838 76,035 28,567
Base Rent (1)...................................... $227,597 $ 426,373 $ 204,780
Base Rent per Square Foot (2)...................... $6.18 $5.61 $7.17
Effective Rent (3)................................. $227,346 $ 456,110 $ 210,431
Effective Rent per Square Foot (4)................. $6.17 $6.00 $7.37
</TABLE>

- ---------------

(1) Represents annualized monthly Base Rent from leases in effect at the
beginning of the new lease term, excluding the pro forma effects of the
Property Transactions.

(2) Represents Base Rent divided by rentable square feet leased, excluding the
pro forma effects of the Property Transactions.

(3) Effective Rent represents Base Rent adjusted on a straight line basis for
free rent periods and for contractual rent increases, excluding the pro
forma effects of the Property Transactions.

(4) Represents Effective Rent divided by rentable square feet leased, excluding
the pro forma effects of the Property Transactions.

RETAIL PROPERTIES

As of September 30, 1996, the Company owned 902,684 square feet of retail
space, on a pro forma basis assuming the completion of the Property
Transactions. That space was 93.2% leased to 114 tenants. The seven retail
Properties consist of four neighborhood and community shopping centers and three
free standing retail buildings. These properties account for 7.8% of the total
rentable square feet of the entire portfolio, on a pro forma basis assuming
completion of the Property Transactions (4.5% assuming the three pending sales
of retail Properties are completed). The Company has entered into binding
contracts to sell three of the retail Properties and is actively marketing one
additional retail Property for sale, collectively representing 383,221 square
feet or 42.5% of the total rentable square feet of retail Properties. The
Company's investments in retail properties are subject to risks incident to: (i)
the oversupply of retail space in certain areas of the United States; (ii)
severe competition from new retailers and the nationwide expansion of existing
retailers; and (iii) various negative general economic factors. See "Risk
Factors -- Real Estate Investment Risks -- Retail Property Risks." The Company
plans to focus on the development and management of warehouse/distribution and
light industrial Properties and, accordingly, the Company intends to market and
sell the balance of its retail Properties as market conditions warrant.

Leases. Lease terms generally range from three to ten years, with some
tenants having options to extend leases beyond their initial lease terms.
Generally, tenants at the retail Properties are subject to triple net leases.
Under these leases, the tenants are responsible for most day-to-day operating
expenses such as real estate taxes, insurance, utilities, maintenance of common
areas and non-structural repairs. These triple net leases

70
<PAGE> 71

generally reduce the owner's exposure to increases in operating expenses. Some
of the leases provide for escalating rents during their terms.

In addition, some of the retail leases include guaranteed minimum rents
plus potential percentage rents equal to a specified percentage of the tenant's
sales over specified amounts. During 1994 and 1995 and the nine months ended
September 30, 1996, few retail tenants' sales reached the amounts specified in
the percentage rent clauses of their leases.

Tenant Lease Expirations and Renewals. The average rentable square feet
subject to expiring leases for the retail Properties between 1996 and 2017 is
approximately 38,000 square feet per year. During 1995 and for the nine months
ended September 30, 1996, the Company leased, released or renewed leases for
approximately 84,663 and 20,336 rentable square feet of space at the retail
Properties, respectively.

Tenant Base. At September 30, 1996, the retail Properties had 114 tenants
under 120 separate leases, with no tenant leasing more than 81,922 rentable
square feet or representing more than 1.3% of the total annual Base Rent of the
Properties. There were three tenants at the retail Properties that each
accounted for 1% or more of the total annual Base Rent as of September 30, 1996.
These three tenants accounted for a total of approximately 3.5% (approximately
$1.5 million) of the Company's total annual Base Rent as of September 30, 1996.
The weighted average remaining lease term at September 30, 1996, for the three
tenants was 11.7 years.

Historical Non-Incremental Revenue-Generating Capital Expenditures. The
Company classifies non-incremental revenue-generating capital expenditures into
three categories: property improvements; tenant improvements; and leasing
commissions. Average annual and per square foot property improvement costs for
the period 1993 through September 1996 were $102,024 and $0.11 per square foot.
Average annual and per square foot non-incremental revenue-generating tenant
improvement costs and leasing commissions for the period 1993 through September
1996 were $248,507 and $0.83 per square foot and $175,048 and $0.55 per square
foot, respectively. These historical amounts are not necessarily indicative of
future property improvement costs or tenant improvement costs and leasing
commissions.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws and regulations, a current or
previous owner, operator, manager or developer of real estate may be liable for
the cost of removing and remediating certain hazardous or toxic substances on
the property. These laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of hazardous or
toxic substances. The cost of removing or remediating these hazardous or toxic
substances may be substantial and the presence of these substances, or the
failure to remediate conditions effected by the substances promptly, may
adversely affect the owner's or operator's ability to sell the real estate or
borrow against the real estate.

Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the cost of removing or remediating these
substances at the disposal or treatment facility. Certain laws impose liability
for the release of asbestos into the air. Third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to asbestos. In connection with its ownership and operation of the
properties, the Company may be potentially liable for these costs. In addition,
the presence of hazardous or toxic substances at a site adjacent to or in the
vicinity of a property could require the owner to participate in remediation
activities in certain cases or could have an adverse effect on the value of the
property.

Although certain tenants at several of the Properties use hazardous or
toxic substances in the ordinary course of their operations, the Company
believes that their respective Properties are in material compliance with all
federal, state and local regulations regarding hazardous or toxic substances and
are not aware of any material liability or claim relating to hazardous or toxic
substances at any of the Properties.

As described further below, all the Properties have been subject to at
least a Phase I environmental assessment. These assessments were intended to
evaluate the environmental condition of, and potential environmental liabilities
associated with, the Properties, and included: (i) a visual observation of the

71
<PAGE> 72

Properties during a site visit; (ii) a review of certain records concerning the
Properties including publicly-available information concerning known conditions
at other properties in the vicinity of the Properties; (iii) consideration of
the likely presence of asbestos containing materials in the buildings on the
Properties; (iv) consideration of the likely presence of elevated levels of lead
in the drinking water; (v) an inquiry into the likely presence of
polychlorinated biphenyls in electrical transformers; (vi) consideration of the
presence of underground or above-ground storage tanks and (vii) the preparation
of a written report. A Phase I assessment does not include sampling or analysis
of soil, ground water or other environmental media or subsurface investigations.

Phase I assessments were conducted at 81 of the 84 Properties beginning in
November 1994. Phase I assessments were conducted on the other three Properties
between December 1993 and June 1994. In addition, Phase II studies were
conducted on ten of the Properties during 1995. Based on the results of these
assessments and other data, the Company expects to implement varying levels of
environmental remediation on four Properties. An environmental consultant has
estimated that the total cost of these programs will be $225,000. Approximately
40% of the work has been completed. The balance is expected to be completed by
the end of 1996. The Company has reserves for the anticipated future costs of
the remaining environmental remediation work.

In addition, two other Properties have experienced groundwater
contamination. An environmental consultant has reported that the sources of the
contamination appear to be adjoining parcels. Two responsible parties have
acknowledged, one in writing and one orally, that they must fund remediation
costs. Management has reviewed the financial condition of the responsible
parties (one a Fortune 500 company and the other a municipality located in the
San Francisco Bay Area) and believes that both parties have the ability to fund
the costs of remediation. Accordingly, the Company has not accrued any liability
related to these two Properties.

Neither Phase I nor Phase II assessments necessarily identify all
environmental compliance issues or the extent of required remediation for those
issues they do identify.

REGULATION

A number of federal, state and local laws (such as the Americans with
Disabilities Act) may require modification to existing buildings to improve
access to such buildings by disabled persons. Additional legislation may impose
further requirements on owners with respect to access by disabled persons. The
cost of compliance with such laws may be substantial and may reduce overall
returns on properties.

THE UNSECURED CREDIT FACILITY

On February 23, 1996, the Company established the Unsecured Credit Facility
under which it has a maximum borrowing amount of $75 million. The Company is
currently negotiating an increase in the maximum borrowing amount under the
Unsecured Credit Facility to approximately $125 million in connection with the
completion of the Offering. There can be no assurance that this increase will be
obtained. The Company will apply a portion of the net proceeds of this Offering,
together with cash on hand, to repay in part temporary borrowings under the
Unsecured Credit Facility incurred in connection with the Property Transactions.
See "Use of Proceeds." The Company expects to use the Unsecured Credit Facility
principally to finance acquisitions and for working capital purposes. The
Unsecured Credit Facility matures on February 23, 1998 and may be extended for
an additional year upon satisfaction of certain conditions and with the approval
of each of the lenders. The Company anticipates that the Unsecured Credit
Facility will either be extended or refinanced either through the issuance of
debt or equity securities at its maturity.

Borrowings under the Unsecured Credit Facility bear interest at a floating
annual rate equal to LIBOR plus 1.7% (7.1% at September 30, 1996). The Company
is obligated to pay certain fees in connection with the Unsecured Credit
Facility, including fees on the unused facility of 25 basis points to the extent
less than 65% of the Facility is used, and 15 basis point to the extent more
than 65% of the Facility is used. The Company's ability to borrow under the
Unsecured Credit Facility is subject to certain covenants and financial ratios,
customary for loans of this type, including (i) required maintenance of the
ratio of total liabilities to tangible net worth, (ii) required maintenance of
certain levels of Funds from Operations and Cash Available for

72
<PAGE> 73

Distribution (as defined under the Unsecured Credit Facility) and (iii)
prohibitions against development or renovation of commercial real estate, except
for the development of 100% pre-leased build-to-suit bulk distribution
facilities, with the total cost of facilities under development at any time not
exceeding 10% of the Company's assets (as defined and subject to certain
adjustments under the facility). As of the date of this Prospectus, the Company
is in compliance with all the above-described covenants and financial ratios.

THE MORTGAGE LOAN

At September 30, 1996, the Company had outstanding debt of approximately
$66.1 million under the Mortgage Loan established with The Prudential Insurance
Company of America. Prudential Securities Incorporated, one of the
representatives of the Underwriters, is an affiliate of The Prudential Insurance
Company of America. See "Underwriting." The Mortgage Loan is secured by a first
mortgage on a security pool consisting of 37 of the Company's 91 Properties. The
debt under the Mortgage Loan is non-recourse and, under the loan documents, the
lender does not have recourse against the other assets of the Company which are
not included in the security pool. Monthly debt service consists of
interest-only payments at a fixed annual rate of 8.63%.

The Mortgage Loan has a maturity date of June 1, 2005. The debt outstanding
under the Mortgage Loan may be prepaid in whole or in part prior the maturity
date upon 30 days' notice and payment of a prepayment premium equal to the
greater of (i) 1% of the prepayment amount multiplied by a fraction which is the
unexpired portion of the term of the Mortgage Loan or (ii) the discounted
present value of the prepayment amount, based on the then-current yield on U.S.
Treasury notes with a maturity equal to the unexpired term of the loan.

Under the Mortgage Loan, the Company is required to comply with various
covenants and meet certain financial ratios customary for this type of loan
including, for example, the ratio of loan balance to the appraised value of the
security pool properties, the ratio of annual net operating income from pool
properties to annual debt service and the ratio of projected net operating
income to projected annual debt service. Until May 31, 1997, the Company has the
right to obtain the release of a Property from the security pool by prepaying a
portion of principal and to substitute newly acquired properties that meet the
lender's underwriting criteria, including property type, condition, location and
estimated value.

LEGAL PROCEEDINGS

The Company currently is not involved in any litigation nor, to its
knowledge, is any litigation currently threatened, except for routine litigation
arising in the ordinary course of business.

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

INVESTMENT POLICIES

Acquisitions of Real Estate and Investments in Interests in Real
Estate. The Company's investment objectives are to increase cash flow per share
and the long-term value of its Properties, to acquire established
income-producing industrial properties with cash flow growth potential and, in
limited circumstances, to develop build-to-suit properties or undertake other
development projects. Additionally, where prudent and possible, the Company will
seek to expand and upgrade both the operating Properties and any newly acquired
properties. The Company's business will be focused solely on industrial
properties except for the retail Properties in the existing portfolio. The
Company's policy is to acquire assets primarily for generation of current income
and long-term value appreciation. However, where appropriate, the Company may
sell certain properties.

The Company expects to pursue its investment objectives through the direct
and indirect ownership of properties and the ownership of interests in other
entities. The Company expects that it will make further acquisitions in Target
Markets in which it currently owns properties and will expand into the remaining
Target Markets as investment opportunities it considers attractive become
available. The Company believes that

73
<PAGE> 74

opportunities exist to acquire, on attractive terms, established properties that
do not pose the risks of development. At this time, the Company intends that its
development activities will generally be restricted to situations in which it
has received a commitment to lease substantial portions of the property on
attractive terms before it begins construction.

The Company also may participate with other entities in property ownership
through joint ventures or other types of co-ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness, or such financing
or indebtedness may be incurred in connection with acquiring properties or other
assets. Any such financing or indebtedness will have priority over the Company's
equity interest in such properties.

Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the ownership limitations and gross
income tests necessary for REIT qualification, the Company also may invest in
securities of other entities engaged in real estate activities or securities of
other issuers, including for the purpose of exercising control over such
entities. The Company may acquire all or substantially all of the securities or
assets of other REITs or similar entities where such investments would be
consistent with the Company's investment policies. In any event, the Company
does not intend that its investments in securities will require it to register
as an "investment company" under the Investment Company Act of 1940, and the
Company would intend to divest securities before any such registration would be
required.

FINANCING POLICIES

The Company intends to maintain a ratio of debt-to-total market
capitalization that generally will not exceed 50%. The total capitalization may
not necessarily reflect the fair market value of the underlying assets of the
Company. From time to time the Company may reevaluate this policy and decrease
or increase that ratio in light of then-current economic conditions, relative
costs to the Company of debt and equity capital, market values of properties,
growth and acquisition opportunities and other factors. There is no limit in the
Company's Organizational Documents on the ratio of debt to total financial
statement capitalization. However, the Company is subject to limitations on the
incurrence of indebtedness imposed by the Unsecured Credit Facility and the
terms of the Series B Preferred Stock. To the extent the Board determines to
obtain additional capital, the Company may issue debt or equity, retain earnings
(subject to provisions in the Code requiring distributions of income to maintain
REIT status) or use a combination of these methods.

To the extent the Board determines to obtain additional debt financing in
the future, the Company intends to do so generally through mortgages on its
properties and lines of credit but also may do so through the issuance of debt
securities. These mortgages may be recourse, non-recourse or
cross-collateralized and may contain cross-default provisions. The Company does
not have a policy limiting the number or amount of mortgages that may be placed
on any particular property, but mortgage financing instruments usually limit
additional indebtedness on such properties. See "Business and Properties -- The
Mortgage Loan." Future credit facilities and lines of credit may be used for the
purpose of making acquisitions or capital improvements or providing working
capital to the Company. See "Business and Properties -- The Unsecured Credit
Facility." In addition, future borrowings may be used to permit the Company to
meet the taxable income distribution requirements for REITs under the Code if
the Company has taxable income but insufficient cash to meet those distribution
requirements.

CONFLICT OF INTEREST POLICY

All transactions between the Company and one or more of its affiliates
(including its officers, directors and substantial stockholders) must be
approved by a majority of the Independent Directors. The Company's current
intention is not to borrow from or make loans to affiliates other than in
certain limited circumstances, including seller-financed property acquisitions.

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POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company may, but does not presently intend to, make investments other
than as previously described. The Company has authority to offer its stock and
other equity or debt securities in exchange for property and to repurchase or
otherwise reacquire its stock or any other securities. The Company may engage in
such activities in the future. The Company also may make loans to joint ventures
in which it participates. The Company will not engage in the business of trading
or underwriting securities of other issuers. At all times, the Company intends
to make investments in such a manner as to be consistent with the requirements
of the Code to qualify as a REIT unless, because of circumstances or changes in
the Code or related regulations, its Board determines that it is no longer in
the Company's best interests to continue to qualify as a REIT. The Company's
policies with respect to such activities may be reviewed and modified from time
to time by its Board without a vote of the Company's stockholders.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their respective
positions are as follows:

<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------ ------------------------------------------------------------
<S> <C>
Allen J. Anderson............. Chairman of the Board, Chief Executive Officer and Director
Milton K. Reeder.............. President and Chief Financial Officer
Dennis D. Higgs............... Senior Vice President
Peter B. Harmon............... Vice President, Asset Manager
Celeste K. Woo................ Vice President, Asset Manager
Timothy B. Keith.............. Vice President, Portfolio Manager
Jaime Suarez.................. Treasurer and Controller
Robert A. Dobbin.............. General Counsel and Secretary
C. E. "Doc" Cornutt........... Independent Director
T. Patrick Duncan............. Independent Director
Peter O. Hanson............... Independent Director
John S. Moody................. Independent Director
James M. Pollak............... Independent Director
Kenneth N. Stensby............ Independent Director
Lee W. Wilson................. Independent Director
</TABLE>

The following is a summary of the experience of the above-mentioned
persons.

Allen J. Anderson, age 44, has served as the Chairman of the Board and
Chief Executive Officer of the Company since its formation in May 1995. From
February 1994 until July 1995, Mr. Anderson served as Executive Vice President
of Hunt Realty Corporation, a private real estate investment corporation. Before
joining Hunt Realty Corporation, Mr. Anderson was a partner and National
Director of Institutional Investment Services for Arthur Andersen Real Estate
Services Group from August 1992 until February 1994. In 1987 Mr. Anderson
founded and from 1987 until he joined the Arthur Andersen Real Estate Services
Group, served as President of Anderson Capital Advisors, a firm which
represented investors in real estate transactions of all types. Prior to
founding Anderson Capital Advisers, Mr. Anderson was President and Chief
Executive Officer of Mercantile Realty Services, a subsidiary of a Texas bank
holding company that was responsible for real estate held by the bank in a
fiduciary capacity. Mr. Anderson graduated from the University of Wisconsin in
1973 with a B.A. degree in Real Estate Finance.

Milton K. Reeder, age 39, has served as the President of the Company since
its formation in May 1995 and was appointed Chief Financial Officer in March
1996. From early 1991 to February 23, 1996, Mr. Reeder served as President and
Chief Executive Officer of each of the Trusts. Since early 1991, Mr. Reeder has
served as President and Chief Executive Officer of Sierra Capital Realty Trust
'84 Co. ("Trust 84"). From early 1991 through December 7, 1995, Mr. Reeder
served as President and Chief Executive Officer of Meridian Point Realty Trust
VIII Co. ("Trust VIII") (together with Trust '84 and the Trusts, the "Six
REITs"). He has also served as the Chief Financial Officer and Treasurer of the
Six REITs from 1984 to 1991, Acting Chief Financial Officer of the Six REITs
from July 1994 to January 1995, and Executive Vice President of the Six REITs
from 1989 until 1991. From 1991 to 1993, Mr. Reeder was a director of Meridian
Point Properties, Inc. ("MPP"), an employee leasing company that allowed the Six
REITs to effectively share employee costs. From 1981 to 1991, he held various
offices with Sierra Capital Companies and its affiliates, the former managers of
the Six REITs. Mr. Reeder was with the accounting firm of Deloitte Haskins &
Sells (now Deloitte & Touche) as a tax specialist from 1979 to 1981. He is a
certified public accountant. Mr. Reeder is a member of the Financial Executives
Institute, the Urban Land Institute and the National Association of Real Estate
Investment Trusts. He graduated from the School of Business Administration at
the University of Michigan in 1979 with a Bachelor of Business Administration
degree.

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<PAGE> 77

Dennis D. Higgs, age 40, has served as Senior Vice President of the Company
since its formation in May 1995. Since 1991, Mr. Higgs has served as Senior Vice
President of MPP. Mr. Higgs' responsibilities include the management of all real
estate activities of the Company including acquisitions, dispositions, leasing,
asset and property management. From 1986 to 1991, Mr. Higgs held various offices
with Sierra Capital Companies and its affiliates, the former managers of the Six
REITs. From 1983 to 1986 Mr. Higgs served as a developer with Ratkovich, Bowers
& Perez in Los Angeles, California, a firm specializing in commercial, mixed use
development projects. He has been active in real estate asset management,
acquisition, development, and disposition for the past 18 years. Mr. Higgs is a
member of the Urban Land Institute and NAIOP (the National Association of
Industrial and Office Parks), and is a licensed real estate broker. He graduated
from the University of Oregon in 1978 with a B.A. degree in Business
Administration.

Peter B. Harmon, age 37, has served as Vice President, Asset Manager of the
Company since March 1996. Mr. Harmon's responsibilities include, for
approximately one-half of the portfolio, the daily oversight of property
management duties performed by the Company's regional operators, leasing,
supervision of national management programs, risk management and tenant
relations. Mr. Harmon has been active in commercial real estate for 13 years,
three years as Vice President of Asset Management at Kemper Real Estate
Management Company and ten years with Jaymont Properties. At Jaymont Properties,
Mr. Harmon served in various capacities, including Vice President. Mr. Harmon
attended the University of North Dakota, is a CPM candidate, and is a member of
NAIOP and IREM.

Celeste K. Woo, age 40, has served as Vice President, Asset Manager of the
Company since March 1996. Ms. Woo's responsibilities include, for approximately
one-half of the portfolio, the daily oversight of property management duties
performed by the Company's regional operators, leasing, supervision of national
management programs, risk management and tenant relations. Since 1991, Ms. Woo
has served as Assistant Vice President of MPP. From 1984 to 1991, Ms. Woo was
Assistant Vice President with Sierra Capital Companies, the former manager of
the Six REITs. Ms. Woo has been involved with commercial real estate for 12
years, is a CPM candidate, and is a member of IREM. Ms. Woo graduated from the
California College of Arts with a Bachelor of Fine Arts degree in Environmental
Design in 1976.

Timothy B. Keith, age 31, has been employed by the Company since February
23, 1996, and has served as Vice President, Portfolio Manager since April 2,
1996. From July 1994 until February 1996, Mr. Keith served as Investment Manager
of Hunt Realty Corporation, a private real estate investment corporation. Before
joining Hunt Realty Corporation, Mr. Keith was a Real Estate Consultant with the
Arthur Andersen Real Estate Services Group and the Real Estate Valuation
Services Group from 1989 to 1994 in both the Dallas and New York City offices.
From 1988 to 1989, Mr. Keith served a Director of Marketing Research for Cliff,
Thorn, & Co., a regional real estate brokerage company headquartered in Phoenix,
Arizona. Mr. Keith was an associate with Estes Development Co., Commercial
Division, a community shopping center developer active in several of the
mountain states from 1987 to 1988. Mr. Keith graduated from Westmont College in
1987 with a B.A. degree in Economics and Business.

Jaime Suarez, age 39, has served as the Controller and Treasurer of the
Company since its formation in May 1995. Beginning in August 1994, he served as
Finance Manager of MPP, performing strategic analyses for the Consolidated
Transactions. Mr. Suarez was a consultant to MPP, Pacific Gas and Electric and
Pacific Telesis Group from 1991 through July 1994. Before consulting, Mr. Suarez
was Controller of PacTel Properties, a subsidiary of Pacific Telesis Group, from
January 1984 to August 1991. He served as a Financial Analyst with Crocker
National Bank from 1982 to 1983 and was with the public accounting firm of Ernst
& Whinney (now Ernst & Young) as an advanced staff accountant from 1980 to 1981.
He is a certified public accountant. Mr. Suarez graduated from the University of
San Francisco in 1979 with a B.S. degree and 1991 with a Masters in Business
Administration.

Robert A. Dobbin, age 50, has served as General Counsel and Secretary of
the Company since May 1995. From 1984 until February 23, 1996, he served as
Secretary of the Six REITs. From 1991 until February 23, 1996 he served as Vice
President of the Six REITs and as Vice President and Secretary of MPP. From 1984
to 1991, he held various positions with Sierra Capital Companies and its
affiliates, the former managers of the Six REITs. Mr. Dobbin is an attorney and
prior to 1984 was engaged in the practice of law in both the private

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and public sectors. He served as an officer in the U.S. Marine Corps from 1968
to 1972 and graduated from Dartmouth College in 1967 with a B.A. degree, from
Willamette University in 1975 with a J.D. degree and from Georgetown University
in 1978 with a L.L.M. degree in taxation.

C.E. "Doc" Cornutt, age 47, has served as the President of Hunt Realty
Corporation and its parent company, Hunt Capital Corporation since 1993. Mr.
Cornutt also serves as Chairman of a subsidiary of that corporation, Hunt
Refining Company, an independent refining company. From 1983 to 1993, Mr.
Cornutt served as the Chief Financial Officer of Hunt Oil Company, an
independent oil company based in Dallas, Texas with worldwide operations. From
1973 to 1983, Mr. Cornutt served as Executive Vice President of Woodbine
Development Corporation, a private real estate company active in all phases of
land development, construction and management of hotels, office buildings and
industrial properties. Mr. Cornutt graduated from Abilene Christian University
in 1971 with a B.S. degree in Business Administration.

T. Patrick Duncan, age 48, joined USAA in November 1986 as Controller and,
since July 1992, has served as Senior Vice President of its real estate
operations. Mr. Duncan's responsibilities include the direction of all
acquisitions, sales, management and leasing of real estate for USAA and certain
affiliated companies. In addition, he is responsible for investment fund raising
and advisory services in real estate. Before joining USAA, Mr. Duncan was an
audit manager for the CPA firm of Deloitte & Touche and Controller of the
Trammell Crow Company in Dallas, Texas. Mr. Duncan is a certified public
accountant and holds a Texas real estate brokers license. He is a member of the
Texas and Arizona State Boards of Accounting, the Texas and Arizona State
Societies of Certified Public Accountants, the International Council of Shopping
Centers, the Urban Land Institute, The National Association of Real Estate
Investment Trusts and the Pension Real Estate Association. Mr. Duncan serves as
director of USAA Investment Income I and II, USAA Real Estate Partnership III
and IV, and USAA Equities Advisor Inc. Mr. Duncan is also Vice Chairman of the
Board of the Daughters of Charity, a community organization that provides health
care to the poor. He is also a board member of the San Antonio Northside Chamber
of Commerce. Mr. Duncan graduated from the University of Arizona in 1972 with a
B.S. degree in Accounting and Finance.

Peter O. Hanson, age 63, has been the President of James E. Hanson, Inc.,
an industrial real estate development, property management and realty brokerage
firm, since 1966. He has served as President of Property Investors Associates,
Inc. (a subsidiary of James E. Hanson, Inc.), since 1984 which is the general
partner of five public real estate partnerships. He has been a director of seven
privately-held corporations and general partner of 11 privately-held real estate
partnerships. He currently serves as a director of New American Network. Mr.
Hanson is a member of the Society of Industrial and Office Realtors and served
as its National President in 1985. He is also a member of the New York
Metropolitan Real Estate Brokers Association and in 1970 was its President. Mr.
Hanson holds a B.A. from Colgate University. Until the Consolidation
Transactions closed, he served as a director of Trusts VI and VII and of MPP,
and was Chairman of Trust VI. He currently serves as a trustee of Trust 83 and a
director of Trust VIII.

John S. Moody, age 47, is a director and the President and Chief Executive
Officer of Cornerstone Properties, Inc., a REIT that became self-advised in June
1995. From April 1991 to June 1995, Mr. Moody was President and Chief Executive
Officer of Deutsche Bank Realty Advisors, where he was responsible for a $2
billion real estate portfolio. Deutsche Bank Realty Advisors was a wholly-owned
subsidiary of Deutsche Bank AG and acted as the real estate advisor to all
Deutsche Bank-sponsored real estate in North America. Before joining Deutsche
Bank, Mr. Moody was President and Chief Executive Officer of Paine Webber
Properties, a real estate syndication, advisory and asset management company for
a $3 billion portfolio of apartments, office buildings and shopping centers. Mr.
Moody is an experienced real estate developer and previously practiced law,
specializing in real estate matters. He is a graduate of Stanford University and
received his J.D. from the University of Texas School of Law. His professional
affiliations include the Association of Foreign Investors in U.S. Real Estate
and the Urban Land Institute.

James M. Pollak, age 64, has been owner of James Pollak Company, an
independent real estate investment, development and advisory firm, since 1985.
From 1979 to 1985, he was Chief Executive Officer of Christiana Investment
Realty, Inc., a real estate investment banking firm and developer of commercial
and industrial properties. Mr. Pollak has spent much of his real estate and
finance career living and working in

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Europe and Latin America. He founded the real estate investment bank of Banco
Nacional de Mexico. As a long-time member of the Urban Land Institute, he has
served as International Vice Chairman of its Industrial and Office Park Council.
He holds a B.A. from Yale University and an M.B.A. from the University of
California at Los Angeles. Before the Merger, Mr. Pollak was Chairman of the
Board of Trust IV and was a director of Trust VII and of MPP. He currently
serves as a trustee of Trust 83 and a director of Trust 84.

Kenneth N. Stensby, age 57, was President and Chief Executive Officer of
United Properties from 1974 until January 1995. United Properties is one of the
largest Minneapolis-based diversified real estate companies. Under Mr. Stensby's
leadership, United Properties developed several million square feet of office
and industrial buildings and several thousand acres of industrial parks. At the
time of his retirement, United Properties managed and leased over 13 million
square feet of properties. Before joining United Properties, Mr. Stensby was a
Vice President at Northland Mortgage Company, where he represented institutional
investors as a mortgage banker from 1967 to 1971. He also served as a mortgage
analyst for Connecticut General Life Insurance Company from 1961 to 1967. Mr.
Stensby is past President of the National Association of Industrial and Office
Parks (NAIOP) and was a director of First Asset Realty Advisors, a pension
advisory subsidiary of First Bank of Minneapolis. Mr. Stensby graduated from
Carleton College with a B.A. in economics in 1961.

Lee W. Wilson, age 57, has been the President and owner of L.W. Wilson &
Co., Inc., a registered specialist firm on the Pacific Stock Exchange, since
1975 and a specialist on the Pacific Stock Exchange since 1967. In 1977, he
served as the Chairman of the Board of Governors of the Pacific Stock Exchange
and in 1976 was Chairman of the Board of Directors of Pacific Securities
Depository Trust Company. Before the Merger, Mr. Wilson served as a director of
Trusts IV, VI and VII and MPP and was Chairman of Trust VII. He currently serves
as a director and the Chairman of Trust 84.

BOARD OF DIRECTORS AND COMMITTEES

The Company is currently managed under the direction of an eight-member
board of directors, seven of whom are Independent Directors (i.e., they are not
officers or employees of the Company or members of the immediate family of such
officers).

Investment Committee. The Investment Committee is responsible for
reviewing, evaluating and making recommendations to the full the Board with
respect to: (i) growth strategies; (ii) proposed transactions involving an
acquisition or disposition by the Company of any material asset or material
groups of assets, a financing or refinancing of such assets, an unsecured
financing or the issuance of equity or debt securities; (iii) the financial
implications of matters involving financial policies, plans and procedures; and
(iv) the financial implications of other proposed Company actions. In addition,
this committee has authority to approve any capital transaction involving up to
$25 million that is consistent with the Company's business plan and any other
criteria established by the Board. The members of the Investment Committee are
Messrs. Anderson, Duncan, Hanson and Stensby.

Audit Committee. The Audit Committee makes recommendations concerning the
annual appointment of independent public accountants for the Company and reviews
the arrangements for and the scope of the audit by those accountants. The Audit
Committee reviews the independence of the independent accountants and the
Company's accounting functions and operations, considers the adequacy and
effectiveness of the system of accounting controls, including a review of any
proposed corrective actions, reviews and monitors the Company's policies
regarding business ethics and conflicts of interest, discusses with management
and the independent accountants the Company's draft annual financial statements
and key accounting and reporting matters, reviews the insurance program of the
Company, including recommendations to the Board of insurance policies, and
reviews the activities and recommendation of the Company's audit staff. The
Audit Committee is composed entirely of Independent Directors. The independent
accountants and internal auditors have unrestricted access to the Audit
Committee. The members of the Audit Committee are Messrs. Hanson, Moody and
Wilson.

Compensation Committee. The Compensation Committee reviews and makes
recommendations to the Board regarding the Company's employee and management
compensation and any benefit policies, including

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salaries and incentive, stock and retirement plans. This committee also reviews
and approves the amount and form of compensation and benefits of the Chief
Executive Officer and other executive officers of the Company. In addition, the
Compensation Committee administers the Stock Plan. The members of the
Compensation Committee are Messrs. Moody, Pollak and Stensby.

Board Affairs Committee. The Board Affairs Committee serves as a
nominating committee for the full Board and also reviews and makes
recommendations to the Board regarding the composition of board committees. This
committee also makes recommendations to the full board on organization and
succession and is responsible for evaluating the effectiveness of the Board, its
committees and individual board members. This committee proposes to the full
Board slates of nominees for election as directors at the Company's annual
stockholders meetings and identifies and proposes to the full Board candidates
to fill any Board vacancies. The members of the Board Affairs Committee are
Messrs. Cornutt, Pollak and Duncan.

COMPENSATION OF DIRECTORS AND OFFICERS

Directors' Compensation. Each Independent Director receives an annual
retainer of $18,000, a $1,000 fee for each board meeting attended, a $500 fee
for each committee meeting attended ($1,000 if the committee meeting is not held
in conjunction with a board meeting) and reimbursement of expenses incurred in
attending meetings. As explained under "The Stock Plan" below, Independent
Directors are entitled to elect to receive all or any portion of their annual
retainer in shares of Common Stock. In the alternative, they may choose to
receive their annual retainer exclusively in cash. Mr. Anderson, who is both a
director and an officer of the Company, will not receive any director fees. Each
Independent Director also received an initial one-time grant of a non-statutory
option to purchase shares of Common Stock and has received and will continue to
receive periodic grants of additional non-statutory options thereafter. See
"-- The Stock Plan."

Initial Stock Option Grants. The Company has adopted an Employee and
Director Incentive Stock Plan (the "Stock Plan") and in February 1996 made
initial grants of an aggregate of 635,500 incentive and non-statutory stock
options to its executive officers and employees under the Stock Plan. See
"-- The Stock Plan." The exercise price per share for the initial grants was
$15.125 (i.e., the closing price on the first trading day on which Common Stock
was quoted). All the options have a ten-year term unless they terminate earlier.
Some of the options vest in increments over a five-year period beginning with
the grant date. These options become fully-vested in the event of a termination
of employment without "cause" by the Company or for "good reason" by the
executive (in each case as defined in the stock option agreement), or in the
event of the death or disability of the executive. The balance of the options
will vest only if the Company meets a long-term performance goal based on the
level of return to its stockholders. That goal could first be met after three
years. However, if the officer is still with the Company after five years, these
options will vest even if the Company has not met the performance goal.

Executive Officers' Compensation. In addition to their base salaries, the
Company's executive officers are eligible to receive an annual cash bonus. Up to
30% of the potential bonus may be paid at the discretion of the Board, and up to
70% may be paid depending upon whether certain performance standards established
for that individual are met. For three executive officers (Messrs. Anderson,
Reeder and Harmon), the performance standards consist of two equally-weighted
bases: (i) total return to stockholders as measured against an industry index
and (ii) actual results as compared to budgeted Funds From Operations. For two
executive officers (Messrs. Higgs and Dobbin), the performance standard is based
in part on those two equally-weighted bases (a total of 45% for Mr. Higgs and
60% for Mr. Dobbin) with the balance based on acquisition production goals (25%
for Mr. Higgs and 10% for Mr. Dobbin). Each year, the Board reviews the
performance standards and the allocation between discretionary and objective
awards. The maximum bonuses payable to the Company's executive officers as a
percentage of their base salaries for 1996 are 81% for Mr. Anderson, 100% for
Mr. Higgs, 50% for Mr. Reeder, 40% for Mr. Dobbin and 25% for Mr. Harmon.

Effective June 1, 1995, the Company and Hunt Realty Corporation entered
into a consulting agreement under which the Company agreed to reimburse Hunt
Realty for the services of Allen J. Anderson, the Chairman and Chief Executive
Officer of the Company and two other employees through the effective time of the
Merger. During the period June 1, 1995 through December 31, 1995, the Company
reimbursed Hunt

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Realty a total of $175,000 under the Consulting Agreement for Mr. Anderson's
services. See "Certain Relationships and Related Party Transactions -- The Hunt
Consulting Agreement."

The following table summarizes information regarding compensation expected
to be paid to the Chief Executive Officer and the four other most highly
compensated executive officers of the Company during fiscal year 1996.

1996 COMPENSATION

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
BONUS INITIAL STOCK
NAME AND POSITION SALARY RANGE(1) OPTION GRANTS(2)
- ------------------------------------------------------- -------- ---------- ----------------
<S> <C> <C> <C>
Allen J. Anderson, Chairman and Chief Executive
Officer(3)........................................... $310,000 $0-250,000 280,000
Milton K. Reeder, President and Chief Financial
Officer.............................................. 190,000 0-95,000 148,000
Dennis D. Higgs, Senior Vice President................. 135,000 0-135,000 99,000
Robert A. Dobbin, General Counsel and Secretary........ 125,000 0-50,000 51,000
Peter B. Harmon, Vice President, Asset Manager......... 92,000 0-22,500 7,500
</TABLE>

- ---------------

(1) See "-- Compensation of Directors and Officers -- Executive Officers'
Compensation" for a description of the methods used to determine the
officers' bonuses.

(2) Options to purchase a total of 635,500 shares of Common Stock were granted
on February 26, 1996 to all directors, officers and employees of the
Company as a group. The stock options vest as described above see "Initial
Stock Option Grants."

(3) Of which $60,000 will be payable for so long as the Company's principal
executive office is located in San Francisco.

Officer Stock Purchases. The Company's executive officers were given an
opportunity to purchase shares of Common Stock for $12 per share at any time
before February 28, 1996. In February, 1996, a total of 190,000 shares were
purchased by Company officers. The officers paid $2 of the per share purchase
price with promissory notes (which have been paid in full) and obtained bank
financing to finance the $10 per share balance. The bank financing arrangements
provide in the event of a default under an officer's promissory note to the
lender, including a payment default, the death of an officer, a merger of the
Company in which the Company is not the surviving entity, and certain other
events, including the termination of the officer's employment by the Company or
the failure of the Common Stock to be listed on the NYSE, the lender may require
the Company to repurchase the officer's note, together with any interest accrued
thereon, pursuant to a note purchase agreement between the Company and the
lender. In connection with this repurchase obligation the Company has deposited
$1.9 million in an account with the lender and granted the lender a security
interest in such account. If an officer's note is purchased by the Company
pursuant to a stock purchase agreement entered into between the Company and the
officer, such officer employee has agreed to sell to the Company, and the
Company has agreed to purchase, such shares at a price of $10 per share to
satisfy his obligations under the note. In March 1996, Mr. Dobbin purchased
1,400 shares of Common Stock at $12.00 per share. Mr. Dobbin paid cash for his
shares. The shares referred to in this paragraph were not purchased under the
Stock Plan and thus were not charged against the shares reserved for issuance
under that plan. See "-- The Stock Plan."

THE STOCK PLAN

The following is a summary of certain features of the Stock Plan. This
summary is qualified in its entirety by reference to the Stock Plan, a copy of
which is an exhibit to the Registration Statement of which this Prospectus is a
part. See "Additional Information."

The Board adopted the Stock Plan in May 1995 and amended it in November
1995 and January 1996. The Company's stockholders approved the Stock Plan in May
1995 and approved amendments in November 1995 and January 1996. The purpose of
the Stock Plan is to enable the Company to attract, retain and motivate key
employees, directors and, on occasion, consultants and advisors, by providing
them with equity

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participation in the Company. Accordingly, the Stock Plan provides for the grant
of incentive stock options, non-statutory stock options, restricted stock,
unrestricted stock for non-employee directors and stock appreciation rights
(collectively "Awards") to employees, directors and certain consultants and
advisors of the Company and present and future subsidiaries of the Company. The
Stock Plan will terminate in May 2005, unless sooner terminated by the Board.

Administration of the Plan. The Stock Plan is administered by the Board or
a committee appointed by the Board (the "Committee"). The Committee may
administer the Stock Plan with respect to eligible persons who are subject to
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") (the
so-called "short swing profit" rule). The Committee must consist of not less
than two members of the Board (all of whom must be "non-employee directors" as
defined in Rule 16b-3 under the Exchange Act and "outside directors" within the
meaning of Section 162(m) of the Code). The Board may administer the Stock Plan
with respect to all eligible persons or may delegate those duties to the
Committee. References below to the "Administrator" are to the body that
administers the plan (that is, the Board, the Committee or a combination of the
two). The Board has delegated the administration of the Stock Plan to its
Compensation Committee, which is composed of non-employee directors.

Securities Subject to the Plan. A maximum of 1,000,000 shares of Common
Stock (subject to adjustment under certain circumstances) may be issued under
the Stock Plan. The Company made initial grants of 635,500 stock options to its
executive officers and employees in February 1996. See "-- Compensation of
Directors and Officers -- Initial Stock Option Grants."

Employee Options. The Company may grant incentive stock options (under
Section 422 of the Code) and non-statutory stock options under the Stock Plan.
The option exercise price of both incentive stock options and nonstatutory stock
options may not be less than the fair market value of the shares of Common Stock
covered by the option on the date the option is granted. Options will not be
transferable other than by will or the laws of descent and distribution, or
under qualified domestic relations orders, and may be exercisable during the
optionee's lifetime only by the optionee or his or her guardian, legal
representative or similar party.

The Administrator selects the employees (and any consultants or advisors)
to whom options will be granted, the number of shares subject to each option and
the other terms and conditions of options, but in all cases consistent with the
Stock Plan. Each option is evidenced by an Option Agreement. The Option
Agreement specifies whether the option is intended to be an incentive stock
option or non-statutory stock option. The Administrator may provide that options
will be exercisable from time to time, in installments or otherwise, of and for
such periods (up to ten years from the date of the grant) as the Administrator
may determine in its discretion. The exercise price of options will be payable
in cash or, if the Administrator permits, by issuance of a full recourse
promissory note by the optionee or the surrender of shares of Common Stock owned
by the optionee.

Options granted as incentive stock options under the Stock Plan are
intended to qualify for special tax status under Section 422 of the Code. An
optionee will not have taxable income upon the grant or exercise of an incentive
stock option (although exercise will result in income for purposes of the
alternative minimum tax), and the Company will receive no income tax deduction
upon grant or exercise. The optionee generally will be entitled to long-term
capital gain treatment upon the sale of the option shares if the shares have
been held for more than two years after the grant date and for more than one
year after the exercise date. If the shares are sold within one year after the
exercise date, the difference between the exercise price and the market value at
the exercise date (but not more than the actual gain on the sale) will be
taxable as ordinary income. Any additional gain would be short-term capital
gain. If the option shares are sold more than one year after the exercise date
but less than two years after the grant date, the difference between the
exercise price and the market value at the date of exercise (but not more than
the actual gain on the sale) is taxable as ordinary income and any additional
gain is long-term capital gain. The Company will receive no deduction in
connection with incentive stock options, except to the extent that an employee
has taxable ordinary income upon disposition of option shares.

Upon the grant of a non-statutory option, an optionee will not recognize
taxable income for federal income tax purposes and the Company will not be
entitled to any federal income tax deduction. Upon the

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exercise of a non-statutory option, the optionee generally will recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares acquired, determined at the time of exercise, over the exercise price.
The Company will be entitled to a corresponding deduction. Special rules may
govern the timing of the recognition of income by optionees subject to Section
16(b) of the Exchange Act.

Director Options and Stock. On March 24, 1996, the Company granted each of
its directors who is not an employee of the Company (at present, all directors
except Allen Anderson) a non-statutory stock option to purchase 5,000 shares of
Common Stock. In addition, beginning June 30, 1996, the Company began
automatically granting to each Independent Director on a quarterly basis a
non-statutory option to purchase 1,667 shares of Common Stock. The exercise
price of these options is the fair market value of the shares of Common Stock
covered by the options on the date of grant. Each of these director options is
fully exercisable beginning six months after the date of grant and generally
terminates (unless sooner terminated under the terms of the Stock Plan) ten
years after the date of grant. If a director ceases to be a member of the Board
for any reason other than death or disability, these options will terminate on
the first anniversary of the date the director ceases to be a member of the
Board. If a director dies or becomes disabled while a member of the Board, these
options will terminate on the second anniversary of the date the director dies
or becomes disabled.

The Company also pays each Independent Director an annual retainer, which
is set by the Board from time to time. The director's annual retainer for 1996
is $18,000. See "-- Compensation of Directors and Officers -- Directors'
Compensation." Under the Stock Plan, each Independent Director is entitled to
elect to receive all or a portion of the annual retainer in the form of
unrestricted shares of Common Stock. Independent Directors may instead elect to
receive their entire annual retainer in cash.

Restricted Stock. The Administrator may also grant Awards of restricted
shares of Common Stock to employees (and consultants and advisors). Each
restricted stock Award will specify the number of shares of Common Stock to be
issued to the recipient, the date of issuance, any consideration for such shares
and the restrictions imposed on the shares (including the conditions of release
or lapse of such restrictions). Shares of Common Stock subject to a restricted
stock Award generally may not be sold, assigned, transferred or pledged until
the restrictions have lapsed and the rights to the shares have vested.

Stock Appreciation Rights. The Administrator may also grant Awards of
stock appreciation rights to employees (and consultants and advisors). A stock
appreciation right entitles the holder to receive from the Company, in cash or
(if the Administrator so permits) Common Stock, at the time of exercise, the
excess of the fair market value at the date of exercise of a share of stock over
a specified price fixed by the Administrator in the Award, multiplied by the
number of shares as to which holder of the right is exercising the right. The
specified price fixed by the Administrator will not be less than the fair market
value of shares of Common Stock at the date of grant of the stock appreciation
right.

Terms and Conditions to Which All Awards Are Subject. If there is a stock
dividend, stock split, reverse stock split or reclassification of Common Stock
or outstanding shares of Common Stock are converted into or exchanged for other
securities as a result of a merger, consolidation or sale of substantially all
of the Company's assets, appropriate adjustments will be made in: (i) the number
and class of shares of stock subject to the Stock Plan, each outstanding Award
and the entitlements of non-employee directors; and (ii) the exercise price of
each outstanding Award. Each such adjustment will be determined by the
Administrator in its sole discretion.

In addition, new Awards may be substituted for Awards previously granted,
or the Company's obligations respecting outstanding Awards may be assumed by an
employer corporation other than the Company, in connection with any merger,
consolidation or sale of substantial assets in which the Company is involved
(other than a merger, consolidation or sale in which the Company is the
continuing corporation and which does not result in any reclassification of the
Company's shares). Further, in the event of such a merger, consolidation or
sale, the Administrator may decide to pay cash to plan participants other than
non-employee directors and other persons then subject to Section 16(b) who hold
Awards that have not been outstanding for at least six months.

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<PAGE> 84

If a participant's employment with the Company is terminated, generally the
participant will forfeit any Award that has not vested on or before the date of
termination. The Administrator will establish the effect of employment
termination on vested Awards when Awards are granted.

Amendment and Termination. The Board may at any time amend or terminate
the Stock Plan, but termination will not affect options or other Awards
previously granted. Certain amendments will be subject to stockholder approval.

LIMITATION OF LIABILITY AND INDEMNIFICATION

As permitted by the MGCL, the Charter limits the liability of the Company's
directors and officers to the Company and to its stockholders for money damages.
In addition, the Charter provides that the directors and officers of the Company
shall be indemnified to the fullest extent permitted by Maryland law. Consistent
with that Charter provision, the Company has entered into indemnification
agreements with the directors and officers. See "Certain Provisions of Maryland
Law and of the Charter and Bylaws -- Liability and Indemnification of Certain
Persons."

THE CONSOLIDATION TRANSACTIONS

On February 23, 1996, Trusts IV, VI and VII merged into the Company and the
Company purchased nine of the ten properties owned by Trust 83. In the Merger,
the Company issued a total of (i) 7,601,478 shares of Common Stock to the
shareholders of Trust IV, VI and VII and (ii) approximately 553,000 Warrants to
purchase Common Stock to the common holders of Trusts VI and VII in exchange for
all of the outstanding capital stock of Trust IV, Trust VI and Trust VII. The
Company also issued 390,360 shares of Common Stock and paid $3,613,500 in cash
to Trust 83 and assumed certain liabilities of Trust 83 as payment for the
properties and other assets the Company purchased in the Asset Purchase.

Background of the Consolidation Transactions. The Trusts were formed
during the period of 1983 through 1987 and were originally structured as
externally managed, self-liquidating entities, each with an expected plan of
liquidation over a seven-to-ten year period. The Trusts, like many REITs formed
during this period, acquired real estate on a leveraged basis in anticipation of
significant appreciation.

In the late 1980s through the early 1990s, the difficulties facing the
Trusts were: (i) deteriorating real estate market conditions; (ii) increasing
loan-to-value ratios and (iii) outdated investment policies (finite-
life/self-liquidating structure). In March 1991, the Trusts terminated their
contracts with their external manager and became self-managed by a single
management team led by Mr. Reeder, the Company's President and Chief Financial
Officer. At that time, the boards of directors of the Trusts and the Trusts'
management began a process of identifying and assessing a variety of strategies
to maximize shareholder value.

The Trusts' boards and management considered a number of alternative
strategies and ultimately concluded that disposing of the Trusts' properties and
liquidating the Trusts according to their original self-liquidating plan would
not be the best way to maximize liquidity and value of the Trusts' stock.
Instead, they concluded that liquidity and value could best be maximized by
adopting and implementing a plan to recapitalize and then consolidate the
Trusts.

The initial step of this plan was the infusion of additional equity capital
and a restructuring of the Trusts' debt. Trust IV, Trust VI and Trust VII
completed that initial step on May 31, 1995, when they each sold stock to Hunt
and USAA and restructured or retired substantial portions of their debt (the
"Recapitalization"). Trust 83 had also planned to sell stock to Hunt. However,
Hunt terminated its agreement with Trust 83 due to Hunt's concerns regarding a
groundwater contamination issue at one of Trust 83's properties. At the time of
the Recapitalization, Trusts IV, VI and VII and the Company entered into an
Agreement and Plan of Merger subject to approval by those Trusts' shareholders.
At the same time, Trust 83 and the Company entered into an Asset Purchase
Agreement whereby the Company agreed to purchase nine of Trust 83's ten
properties subject to shareholder approval and the completion of the Merger.

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<PAGE> 85

In February 1996, the Trusts and Trust 83 conducted special meetings of
their respective shareholders seeking approval of the Merger and the Asset
Purchase and on February 23, 1996 both the Merger and the Asset Purchase were
completed. On the same date, Ameritech and OTR purchased $35 million of the
Company's Series B Preferred Stock in a private placement (see " -- The
Preferred Stock Private Placement"), the Company established the Unsecured
Credit Facility (see "Business and Properties -- The Unsecured Credit
Facility"), and the Company completed a refinancing (the "Refinancing") of its
outstanding debt that included the paydown and retirement of certain debt with
the net proceeds ($34.3 million) from the Preferred Stock Private Placement and
borrowings of $24.1 million under the Unsecured Credit Facility.

THE PREFERRED STOCK PRIVATE PLACEMENT

Pursuant to a Stock Purchase Agreement entered into in December 1995, the
Company issued a total of 2,272,727 shares of Series B Preferred Stock to
Ameritech (1,623,376 shares) and OTR (649,351 shares) for a total purchase price
of $35 million ($15.40 per share) in cash (the "Preferred Stock Private
Placement"). After paying fees and certain other expenses, the net proceeds to
the Company from the Preferred Stock Private Placement were approximately $34.3
million, all of which were used in connection with the Refinancing related to
the Consolidation Transactions. Holders of Series B Preferred Stock are entitled
to certain cumulative dividends, liquidation preferences and conversion rights
(the shares are initially convertible into Common Stock on a one-for-one basis,
subject to certain anti-dilution and other adjustments). From January 1, 1999
through December 31, 2004, the Company has the right to effect a mandatory
exchange of all the then outstanding Series B Preferred Stock for Common Stock,
if the trading price of the Common Stock at the time of the exchange equals or
exceeds a specified premium over the then applicable conversion price for the
Common Stock. In addition, during the same period the Company may redeem the
Series B Preferred Stock, in whole or in part, for an escalating cash redemption
price of from $16.95 to $18.70 per share. See "Description of Stock -- Preferred
Stock."

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

THE USAA OPTION AND WARRANT

On November 21, 1995, the Company entered into an Option Agreement under
which USAA granted the Company an option (the "USAA Option") to purchase a
291,564 square-foot industrial property located in Lakeland, Florida (the "USAA
Option Property"). This property is located 26 miles east of the City of Tampa,
Florida, and contains two large warehouse buildings (with 105,200 square feet
and 112,680 square feet) and one smaller warehouse facility (73,714 square feet)
within a 160-acre mixed use business and industrial park. The facility is leased
to Continental Plastics Container, Glendale Protective Technologies and
LDI/Prompt Computer Support. In exchange for the USAA Option, the Company agreed
to issue a warrant to USAA to purchase shares of Common Stock (the "USAA
Warrant"). The USAA Option provides that the purchase price for the USAA Option
Property will be determined by dividing the projected net operating income
excluding depreciation and interest expense (less a reserve of $.05 per square
foot) of the USAA Option Property for the 12 months after the Company's
acquisition of that property by .095. Based on projected 1996 net operating
income, that purchase price would be $10,499,084. The USAA Option is exercisable
through February 23, 1997.

The USAA Option also includes a right of first refusal in favor of the
Company with respect to five bulk warehouse facilities comprising approximately
1.1 million square feet located in West Chicago, Illinois (the "USAA Chicago
Property"). The right of first refusal expires February 24, 1997.

The purchase price for the USAA Option Property will be payable at USAA's
option either in cash or in shares of Common Stock. The number of shares of
Common Stock to be issued in payment of the purchase price, if any, will be
equal to the purchase price for the USAA Option Property divided by the average
of the closing prices for shares of Common Stock during a 20-trading-day period
before the closing of the purchase of the USAA Option Property.

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<PAGE> 86

The Company has agreed that, if the Company acquires either the USAA Option
Property or Chicago Property under the USAA Option, the Company will enter into
a property management and leasing agreement with an affiliate of USAA. The
agreement would be on terms that are customary for the Company's management and
leasing agreements with third parties and would be terminable without penalty on
30 days' notice.

On February 23, 1996, the Company issued a warrant to purchase shares of
Common Stock to USAA (the "USAA Warrant"). The USAA Warrant was issued as
consideration for the grant by USAA to the Company of the USAA Option. The
exercise price for the shares of Common Stock purchasable under the USAA Warrant
is an amount per share equal to 10% less than the exercise price for the Merger
Warrants issued to the holders of shares of Trust VI Common Stock and Trust VII
Common Stock in the Merger. The number of shares of Common Stock for which the
USAA Warrant is exercisable is based on a formula under which the total discount
from the exercise price of USAA Warrant equals $300,000. Since the exercise
price of the Merger Warrants is $16.23 per share, the USAA Warrant has an
exercise price of $14.60 per share and covers 184,900 shares of Common Stock. On
April 3, 1996, USAA sold the USAA Warrant to an affiliate of Morgan Stanley for
an aggregate purchase price of $300,000.

The USAA Warrant was issued and subsequently sold pursuant to exemptions
from the registration requirements of the Securities Act and, as a result, is
subject to significant restrictions on transfer. Other than these restrictions
and the discounted exercise price, the USAA Warrant contains substantially the
same provisions as the Merger Warrants. The USAA Warrant is exercisable at any
time and from time to time, in whole or in part, from May 23, 1997 to February
23, 1999.

THE HUNT CONSULTING AGREEMENT

Effective June 1, 1995, the Company and Hunt Realty Corporation entered
into a Consulting Agreement under which Hunt Realty agreed to provide the
services of Allen J. Anderson, the Chairman and Chief Executive Officer of the
Company, Timothy B. Keith, Vice President -- Portfolio Manager, and an
administrative assistant to the Company during the period June 1, 1995 through
the closing of the Merger. The Trusts were also parties to that Agreement. Under
that Consulting Agreement, the Company agreed to pay Hunt Realty its
compensation costs with respect to the services of the three individuals engaged
under the Consulting Agreement, based on the amount of the individuals' time
dedicated to the operations of the Company on a monthly basis. The total amount
recorded by the Company under this Agreement during 1995 was $245,000. The
Company and the Trusts also agreed to indemnify Hunt Realty, any affiliates of
Hunt Realty and the individuals against any losses, claims, damages or expenses
that arose out of or related to the services that were provided under that
Agreement.

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PRINCIPAL AND MANAGEMENT STOCKHOLDERS

PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF DIRECTORS AND MANAGEMENT

The following table sets forth information as of November 15, 1996, based
on the assumptions stated in the footnotes below, regarding the beneficial
ownership of shares of Common Stock by: (i) each person that owns more than 5%
of such shares; (ii) each member of the Board of Directors; (iii) the Chief
Executive Officer and each of the four highest paid executive officers of the
Company whose salary and bonus for fiscal year 1996 is expected to exceed
$100,000; and (iv) all Board members and executive officers as a group.

<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES OF
NAME(1) BENEFICIALLY OWNED CLASS(2)
----------------------------------------------------------- ------------------ -------
<S> <C> <C>
Hunt(3).................................................... 2,014,866 20.80%
Ameritech(4)............................................... 1,623,376 14.36%
Morgan Stanley(5).......................................... 1,451,891 14.99%
USAA(6).................................................... 1,148,432 11.86%
OTR(7)..................................................... 649,351 6.28%
Allen J. Anderson(8)....................................... 100,200 (10)
Robert A. Dobbin(8)........................................ 1,405 (10)
C.E. "Doc" Cornutt(8)...................................... 7,545 (10)
T. Patrick Duncan(8)....................................... 7,445 (10)
Peter O. Hanson(8)......................................... 11,403 1.18%
Peter B. Harmon(8)......................................... -- (10)
Dennis D. Higgs(8)......................................... 45,005 (10)
John S. Moody(8)........................................... 11,045 1.14%
James M. Pollak(8)(9)...................................... 7,477 (10)
Milton K. Reeder(8)........................................ 20,861 (10)
Kenneth N. Stensby(8)...................................... 6,922 (10)
Lee W. Wilson(8)........................................... 10,147 1.05%
All the directors and executive officers as a group
(15 persons)(8).......................................... 254,465 2.62%
</TABLE>

- ---------------
(1) Unless otherwise indicated in these footnotes, the persons and entities
listed in this table have sole voting and investment power over shares
attributable to them, subject to community property laws where applicable.

(2) Assumes that the person, entity or group in question has purchased or
otherwise acquired all the shares that he or it is entitled to purchase by
November 15, 1996 and that no other person or entity purchases or otherwise
acquires any shares. For example, the entries for Ameritech assume that
Ameritech converts all its shares of Series B Preferred Stock into shares
of Common Stock on a one-share-for-one-share basis (the initial conversion
rate).

(3) The address of Hunt is 1445 Ross at Field, Dallas, Texas 75202. Also
reporting beneficial ownership of the same shares are Ray L. Hunt, RLH
Investments, Inc. and Hunt Acquisitions Partners, Ltd. Their address is the
same as that of Hunt.

(4) The address of Ameritech is 225 West Randolf HQ13A, Chicago, Illinois
60606.

(5) The address of Morgan Stanley is 1221 Avenue of the Americas, New York, New
York 10020. Also reporting beneficial ownership of the same shares is
Morgan Stanley Group Inc. The address of Morgan Stanley Group Inc. is 1585
Broadway, New York, New York 10036.

(6) The address of USAA is 8000 Robert F. McDermott Freeway, Suite 600, San
Antonio, Texas 98230.

(7) The address of OTR is 275 East Broad Street, Columbus, Ohio 43215.

(8) Excludes shares that these directors and officers will ultimately receive
or which they may ultimately purchase under options granted under the Stock
Plan other than those options that will vest on or before January 15, 1997.
See "Management -- The Stock Plan."

(9) Includes 305 shares of Common Stock held of record by Mr. Pollak's wife.

(10) Less than 1%.

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DESCRIPTION OF STOCK

The following is a summary of certain features of the Company's stock. This
summary does not purport to be complete and is subject to and qualified in its
entirety by reference to the Charter and Bylaws, copies of which are exhibits to
the Registration Statement of which this Prospectus is a part. See "Additional
Information."

GENERAL

Under the Charter, the Company is authorized to issue a total of 200
million shares of stock, consisting of 175 million shares of Common Stock, par
value $.001 per share, and 25 million shares of Preferred Stock, par value $.001
per share. The Company is a Maryland corporation. Under Maryland law,
stockholders generally are not responsible for the corporation's debts or
obligations.

COMMON STOCK

All the shares of Common Stock offered by this Prospectus will be duly
authorized, fully paid and nonassessable. They will also be subject to the
ownership and transfer restrictions contained in the Charter (described under
"-- Restrictions on Ownership and Transfer").

Subject to the preferential rights of any other shares or series of stock,
holders of shares of Common Stock are entitled to receive dividends on shares
if, as and when authorized and declared by the Board out of assets legally
available for distribution. Under the MGCL, a dividend or other distribution may
not be made if after giving effect to it (i) the corporation would not be able
to pay its debts as they become due in the usual course of business or (ii) the
corporation's total assets would be less than the corporation's total
liabilities plus (unless the corporation's charter provides otherwise, which the
Charter does not) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights upon dissolution are
superior to those receiving the distribution. Holders of shares of Common Stock
also are entitled to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of the Company's
liquidation, dissolution or winding-up after payment of, or adequate provision
for, all known debts and liabilities of the Company. See "Distributions Policy"
and "Price Range of Common Stock."

Subject to the REIT ownership provisions set forth in the Charter, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors. Except
as otherwise required by law and except as provided with respect to the Series B
Preferred Stock or any other class or series of stock, the holders of shares of
Common Stock possess the exclusive voting power of the Company. There is no
cumulative voting for the election of directors of the Company, which means that
the holders of a majority of the outstanding shares of Common Stock will be able
to elect all the directors for whom such holders vote, and the holders of the
remaining shares of Common Stock will not be able to elect any directors. As
explained under "-- Preferred Stock," the holders of shares of Series B
Preferred Stock will have certain rights to elect directors.

Holders of shares of Common Stock have no conversion, sinking fund or
redemption rights or any preemptive rights to subscribe for any additional
securities of the Company. All shares of Common Stock have equal distribution,
liquidation and other rights, and have no preference or exchange rights.

Under the Maryland General Corporation Law (the "MGCL"), a corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of holders of at least two-thirds of the shares entitled to vote on the matter
or such lesser percentage (but not less than a majority of all of the votes to
be cast on the matter) as is set forth in the corporation's charter. The Charter
provides that, subject to the rights of any series of Preferred Stock then
outstanding, such extraordinary transactions may be approved by the affirmative
vote of a majority of all of the votes entitled to be cast on such matters.

The transfer agent and registrar for the shares of Common Stock is First
Chicago Trust Company of New York.

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THE MERGER WARRANTS

As a result of the Merger, holders of Trust VI common stock and Trust VII
common stock received a total of approximately 553,000 Merger Warrants. The
Merger Warrants were issued in certificated form under a Warrant Agreement
between the Company and First Chicago Trust Company of New York, as warrant
agent.

The Merger Warrants were issued on April 8, 1996. Each Merger Warrant
entitles the holder to receive one share of Common Stock upon its exercise. The
Merger Warrants are listed for trading on the American Stock Exchange. The
Merger Warrants will be exercisable during the period May 23, 1997 through
February 24, 1999. The exercise price of the Merger Warrants is $16.23 (the
average of the closing prices of the Common Stock for the first 20 trading days
after the Merger).

The exercise price of the Merger Warrants and the number of shares of
Common Stock issuable upon exercise of the Merger Warrants are subject to
adjustment in the event of stock dividends, stock splits, subdivisions,
reclassifications, reorganizations, consolidations and mergers. During the
period that the Merger Warrants are exercisable, the Merger Warrants may be
exercised by delivering the certificates representing the Merger Warrants, and
paying the exercise price by cash or certified or bank check, to the warrant
agent. The Merger Warrants may not be exercised unless a registration statement
under the Securities Act, covering the underlying shares of Common Stock, is
current and effective and those shares of Common Stock have been qualified, or
there is an exemption from applicable qualification requirements, under the
securities laws of the state of residence of the holder of the Merger Warrants.
The shares of Common Stock underlying the Merger Warrants have been registered
under the Company's registration statement declared effective January 6, 1996.
However, the Company may suspend the exercisability of the Merger Warrants
during the exercise period if, for any reason, no registration statement is
effective with respect to the shares of Common Stock underlying the Merger
Warrants (for example, because a stop order relating to the Registration
Statement issued by the SEC is then in effect) or the Company determines that
the Prospectus does not provide current information as required by the
Securities Act or otherwise needs to be amended in order to comply with the
Securities Act. The Company would extend the exercise period of the Merger
Warrants in the case of certain such suspensions.

If a holder of Merger Warrants fails to exercise his or her Merger Warrants
before their expiration, those warrants will expire and the holder will have no
further rights with respect to Merger Warrants. A holder of Merger Warrants will
not have any rights, privileges or liabilities of a stockholder of the Company
prior to exercise of the Merger Warrants, including the rights to vote and to
receive distributions.

THE USAA WARRANT AND USAA OPTION

In addition to the Merger Warrants, the Company granted USAA a warrant to
purchase shares of Common Stock in exchange for the USAA Option. If the Company
exercises the USAA Option, USAA can elect to receive the option exercise price
in the form of shares of Common Stock. For a description of the USAA Warrant and
the USAA Option, see "Certain Relationships And Related Party
Transactions -- The USAA Option and Warrant."

PREFERRED STOCK

Shares of Preferred Stock may be issued from time to time, in one or more
series, as authorized by the Board, subject to the rights of holders of any
series of Preferred Stock then outstanding. Prior to the issuance of shares of
each series, the Board is required by the MGCL and the Charter to fix (subject
to the express terms of any class or series of the Company stock outstanding at
the time and the ownership and transfer restrictions contained in the Charter,
described under "-- Restrictions on Transfer and Ownership,") the terms,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption for each series. Such rights, powers, restrictions and
limitations could include the right to receive specified dividend payments and
payments on liquidation prior to any such payments being made to the holders of
shares of Common Stock. The Board could also authorize the issuance of shares of
Preferred Stock with terms and conditions that could have the

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<PAGE> 90

effect of discouraging a takeover or other transaction in which holders of
shares of Common Stock might receive a premium for their shares over the then
market price of such shares.

In connection with the formation and initial capitalization of the Company,
the Company issued a total of one million shares of Series A Preferred to the
Merged Trusts and Trust 83 in the following amounts: Trust VII -- 415,400
shares; Trust VI -- 326,500 shares; Trust IV -- 178,600; and Trust 83 -- 79,500.
The shares of the Series A Preferred owned by Trust IV, Trust VI and Trust VII
were canceled on February 23, 1996 by virtue of those Trusts merging into the
Company and the shares issued to Trust 83 were redeemed at the effective time of
the Merger. Thus, following the Merger, no shares of the Series A Preferred
Stock were outstanding.

The Company issued a total of 2,272,727 shares of Series B Preferred Stock
for a total purchase price of $35 million or $15.40 per share on February 23,
1996. The Board has established the rights, powers, restrictions and limitations
of the Series B Preferred Stock. The holders of shares of Series B Preferred
Stock are entitled to receive cumulative dividends: (i) for the first eight
quarterly dividend periods after issuance, in an amount per share equal to the
greater of (a) $0.31 per quarter or (b) 103% (as adjusted from time to time by
the Board as the conversion price of the Series B Preferred Stock is adjusted
from time to time) of the quarterly dividend payable per share of Common Stock
during that period (determined as of the date on which the applicable Common
Stock dividend is authorized) and (ii) beginning with the ninth quarterly
dividend period after issuance, in an amount per share equal to the greater of
(a) the quarterly dividend payable on the Series B Preferred Stock for the
eighth quarterly dividend period after issuance or (b) the dividend paid per
share of Common Stock (determined as of the date on which the Common Stock
dividend for the corresponding Common Stock dividend period is authorized and as
adjusted from time to time by the Board as the conversion price of the Series B
Preferred Stock is adjusted from time to time). If the annual dividend rate is
$1.24 per share on the Series B Preferred Stock, the total dividend would equal
approximately $2.8 million per year.

The holders of shares of Series B Preferred Stock also are entitled to a
liquidation preference of $15.40 per share (equivalent to the initial purchase
price) plus accumulated unpaid dividends if the Company is liquidated or sold
prior to the redemption or conversion of those shares. The rights of holders of
Series B Preferred Stock to cumulative dividends and the liquidation preference
are senior to the rights of holders of Common Stock to dividends or any
distributions upon liquidation or sale of the Company.

Each share of Series B Preferred Stock is convertible at the option of its
holder at any time into shares of Common Stock at a conversion price of $15.40
per share of Common Stock (the "Conversion Price") (equivalent to an initial
conversion rate of one share of Common Stock per share of Series B Preferred),
subject to adjustment to reflect stock dividends, splits, combinations and
issuances of stock by reclassification of Common Stock. In addition, if the
Company issues for cash or other consideration shares of Common Stock or any
security convertible into or exchangeable or exercisable for Common Stock (other
than securities issued to directors, officers or employees of the Company and
securities issued in connection with property acquisitions that are approved by
the Investment Committee of the Board and the designee, if any, of the Series B
Preferred then sitting on the Board) at a price, including any additional
consideration payable upon any such conversion, exchange or exercise (before
deduction of any reasonable and customary discounts, commissions, fees and other
expenses of issuance and marketing) that is less than $16.00 as adjusted from
time to time by the Board upon certain other adjustments to the conversion
price, there will be a reduction in the conversion price of the Series B
Preferred equal to the amount by which $16.00 (as adjusted) exceeds the
purchase, exchange or conversion price. If the Company engages in more than one
such issuance, the amount of the adjustment to the Conversion Price will be
equal to the greatest individual reduction. However, such adjustments will not
be cumulative. The number of shares of Common Stock actually issuable upon the
conversion of the Series B Preferred Stock will be determined by dividing the
total liquidation preference of such shares (plus all unpaid accumulated
dividends, except any dividends accumulated on shares of Series B Preferred
Stock presented for conversion after the end of the last-completed quarterly
dividend period) by the conversion price in effect at that time.

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At any time on or after January 1, 1999 and on or before December 31, 2004,
the Company, at its option, may convert the outstanding shares of Series B
Preferred Stock, in whole but not in part, into shares of Common Stock at the
then conversion price per share (currently equivalent to an initial conversion
rate of one share of Common Stock per share of Series B Preferred Stock),
subject to certain adjustments, so long as: (i) the average closing price of
Common Stock on the NYSE during any 20 trading days in a period of 30
consecutive trading days ending on the trading day immediately preceding the
date the Company provides notice of exercise of its right to convert the Series
B Preferred Stock meets or exceeds the following percentages of the
then-applicable Conversion Price (the "Conversion Price Premium"):

<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------- ----------
<S> <C>
1999.................................................... 115.0%
2000.................................................... 119.0%
2001.................................................... 123.0%
2002.................................................... 127.5%
2003 and 2004........................................... 132.0%
</TABLE>

and (ii) the closing price of the Common Stock on the trading day immediately
preceding the date the Company provides notice of exercise of this option equals
or exceeds the applicable Conversion Price Premium.

At any time on or after January 1, 1999 and on or before December 31, 2004,
the Company, at its option, may redeem the Series B Preferred Stock, in whole or
in part (but in no event for a total consideration that is less than $1
million), for a per share cash price as follows:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------- ----------
<S> <C>
1999.................................................... $16.95
2000.................................................... 17.35
2001.................................................... 17.80
2002.................................................... 18.25
2003 and 2004........................................... 18.70
</TABLE>

plus, in each case, accumulated unpaid dividends to and including the date fixed
for redemption. If the Company exercises its right to redeem the Series B
Preferred Stock, the holder's conversion right will terminate five days before
the redemption date.

The holders of Series B Preferred Stock vote together with the holders of
the Common Stock and any holders ("Subsequent Investors") of Preferred Stock
issued in one or more private placements permitted under the Stock Purchase
Agreement with Ameritech and OTR (the "Follow-On Preferred Shares") on an
as-converted basis on all matters submitted to a vote of the Company's common
stockholders. In addition, for so long as Ameritech and OTR collectively hold
shares of Series B Preferred Stock representing on an as-converted basis more
than 15% of the publicly-traded shares of Common Stock (excluding shares owned
by Hunt, USAA, officers and directors of the Company or Ameritech and OTR and as
otherwise defined in the agreement with Ameritech and OTR), the holders of
Series B Preferred Stock will be entitled to require the Company to increase the
size of the Board by one person (there currently are eight Company directors)
and to elect that additional director. That percentage will be increased to 18%
if the Company completes one or more private placements of equity securities
ranking junior or pari passu to the Series B Preferred Stock in the aggregate
amount of $30 million by February 23, 1997. That percentage will be reduced to
one-half of the then-effective percentage in the event of a partial redemption
or conversion of the Series B Preferred Stock. (The applicable percentage is
referred to in this Prospectus as the "Minimum Ownership Level".) At the
Company's next annual meeting following any such election, the size of the Board
will be set at nine persons and, at that meeting and each succeeding annual
meeting for so long as Ameritech and OTR and the Subsequent Investors (if any)
collectively hold shares of Series B Preferred Stock and any Follow-On Preferred
Shares representing on an as-converted basis more than the Minimum Ownership
Level and the holders of the Series B Preferred Stock elect to exercise such
right, the holders of the Series B Preferred Stock, voting as a separate class,
will be entitled to elect one director to serve on the Board by majority vote.
If

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dividends on the Series B Preferred Stock are in arrears for six consecutive
quarterly dividend periods, holders of a majority of the outstanding shares of
Series B Preferred Stock voting separately as a class will also have the right
to elect one director (in addition to the director referred to previously) to
serve on the Board until all dividend arrearages are eliminated. However, if no
Preferred Stock has been issued in a private placement permitted under the terms
of the Stock Purchase Agreement with Ameritech and OTR, and Ameritech and OTR
collectively hold all the Series B Preferred Stock, then the Board will be
increased by two (in addition to the director referred to previously), and
Ameritech will have the right to designate one such director and OTR will have
the right to designate the other such director. According to Ameritech's Form
13D dated February 29, 1996, Ameritech stated that it intended to exercise its
right to appoint one director as a member of the Board as soon as practicable.
To date no action has been taken with respect to such appointment. At the next
annual meeting of stockholders of the Company after the election of such
director or directors, the size of the Board will be reduced to: (i) nine
persons if one director is so elected; and (ii) ten directors if two directors
are so elected. In either case, that shall be the maximum membership of the
Board until such time as all arrearages in dividends shall have been paid. The
Company may not amend the provisions of the Series B Preferred Stock without the
affirmative vote of holders of at least 75% of the outstanding shares of Series
B Preferred Stock. The holders of the Series B Preferred Stock also have the
right to approve certain extraordinary corporate transactions by a majority
vote, including a merger in which the Company is not the surviving entity and
any sale of all or substantially all of the Company's assets.

The Company has agreed in connection with the Stock Purchase Agreement with
Ameritech and OTR that until such time as Ameritech and OTR cease to hold shares
of Series B Preferred Stock (or Common Stock in the event of a conversion of
Series B Preferred) representing on an as-converted basis in the aggregate at
least the Minimum Ownership Level, the Company is subject to a number of
operating covenants, including: (i) the Company may not repurchase more than $5
million of Common Stock in the aggregate; (ii) the Company may not incur debt
that, at the time the debt is incurred, would result in the Company having a
debt-to-total-debt-and-equity-capitalization ratio above 60%; (iii) the Company
may engage in transactions with affiliates only with the approval of a majority
of its disinterested directors and upon terms no less favorable than those that
could be obtained in an arm's-length transaction and, if the value of any such
transaction exceeds 10% of the fair market value of the Company's assets as
determined by the Board, the Company must obtain a third-party appraisal or
other confirmation that such transaction is on terms no less favorable to the
Company than those that could be obtained in an arm's-length transaction; (iv)
the Company must continue to qualify as a real estate operating company and (v)
until such time as the market value of the Company's publicly traded shares
exceeds $250 million for at least 60 consecutive days, the Company may not
engage in any issuances of equity securities in private placements unless, after
the private placement, the market value of the Company's publicly-traded shares
(as defined) would equal or exceed 50% of the Company's total equity
capitalization and unless the purchasers in any such private placement agree to
certain restrictions on the transfer of the stock purchased in the private
placement for a period of one year. However, for a period of 12 months after the
issuance of the Series B Preferred Stock, the Company will be entitled to engage
in one or more such issuances of equity securities ranking junior or pari passu
to the Series B Preferred Stock having an aggregate purchase price of up to $30
million. The offer and sale of the Series B Preferred Stock to Ameritech and OTR
have not been registered under the Securities Act. Accordingly, the sale of
shares of Series B Preferred will be subject to significant restrictions under
the Securities Act. See "Shares Available for Future Sale."

RESTRICTIONS ON OWNERSHIP AND TRANSFER

For the Company to qualify as a REIT under the Code, beginning with
calendar year 1996, generally not more than 50% of the value of its outstanding
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities), and its outstanding stock must
be beneficially owned by at least 100 persons. See "Federal Income Tax
Considerations -- REIT Qualification." To help the Company meet these
requirements and otherwise maintain its REIT status, the Charter includes three
basic protective provisions affecting the ownership and transfer of the
Company's issued and outstanding shares of any class or series of Common Stock
or Preferred Stock ("Equity Stock"): (i) a general prohibition against actual or
constructive ownership by any person (other than persons designated by the Board
as "Excepted

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Holders", described further below) of more than 8.5% of the lesser of the number
or value of the outstanding shares of any class or series of Equity Stock; (ii)
a prohibition against ownership of Equity Stock that would cause the Company to
be "closely held" or to otherwise fail to qualify as a REIT (such as ownership
that would result in the Company being treated as owning an interest in a tenant
if income derived by the Company from that tenant would cause the Company to
fail to satisfy any of the REIT gross income requirements) and (iii) a
prohibition against transfers that would result in the Equity Stock being owned
by less than 100 persons. In addition, in January, 1996, the Company issued
shares of Common Stock that, prior to the end of that month, were held by 100
individuals in order to meet the 100-person requirement.

These ownership restrictions took effect on February 23, 1996 and may be
terminated if the Board determines that it is no longer in the best interests of
the Company to attempt to, or continue to, qualify as a REIT or that compliance
with the ownership limits and restrictions on transfer is no longer required in
order for the Company to qualify as a REIT.

These restrictions on ownership and transfer may have the effect of
precluding acquisition of control of the Company or otherwise limit the
opportunity for stockholders to receive a premium for their shares of Common
Stock that might otherwise exist if an investor attempted to assemble a block of
shares of Common Stock in excess of the 8.5% ownership limit or the higher
ownership limits set for certain stockholders. See "Risk Factors -- Limits on
Ownership and Changes in Control May Deter Changes in Management and Third Party
Acquisition Proposals."

Transfers in Trust. The Charter provides that, upon any attempted transfer
of Equity Stock (including warrants or options to acquire Equity Stock) that
would cause any person to be treated as owning Equity Stock in violation of the
ownership restrictions (other than the prohibition against transfers that would
result in less than 100 owners), the number of shares that would cause the
violation are automatically transferred to a trustee for the benefit of a
charitable beneficiary as "Shares-in-Trust." The person who otherwise would have
been considered the owner (the "Prohibited Owner") will have no rights or
economic interest in those shares. For these purposes, potentially violative
"ownership" is evaluated by taking into account the broad constructive ownership
rules of Sections 544 and 318 of the Code, with certain modifications. In
addition, a "transfer" that is subject to these restrictions includes any
issuance, sale, transfer, gift, assignment, devise or other disposition as well
as any other event that causes any person to have or acquire ownership (applying
the constructive ownership rules) of Equity Stock.

The trustee is entitled to vote all Shares-in-Trust and to receive all
distributions on Shares-in-Trust, and will hold such distributions for the
benefit of the charitable beneficiary. If any distributions with respect to
Shares-in-Trust are paid to the Prohibited Owner before the Company discovers
the violation of the ownership limit, the Prohibited Owner must pay that amount
to the trustee. Distributions on Shares-in-Trust will be used by the trustee
first to pay any expenses of the trust, second to pay any expenses of the
Company incurred in connection with the trust and third to pay any excess to the
charitable beneficiary. The Prohibited Owner is not to receive any benefit from
distributions.

The trustee is obligated to sell the Shares-in-Trust promptly to a person
who would not cause a violation of the ownership restrictions (at which time the
shares will cease to be Shares-in-Trust) and to distribute the net sale proceeds
first to pay any expenses of the trust, second to pay any expenses of the
Company incurred in connection with the trust, third to pay the Prohibited Owner
an amount intended to ensure that the Prohibited Owner will not realize any
appreciation in value of the shares and fourth to pay any excess to the
charitable beneficiary. If a Prohibited Owner sells Shares-in-Trust before the
Company discovers the transfer, such shares are deemed to have been sold on
behalf of the trust. To the extent that the Prohibited Owner received more in
that sale than the Prohibited Owner would otherwise be entitled to receive under
these provisions, the excess must immediately be delivered to the trustee.

The Company Purchase Right. The Company also will have the right to
purchase all or any portion of the Shares-in-Trust, and the Shares-in-Trust are
deemed to have been offered to the Company, at the lesser of: (i) the price per
share paid for such shares in the transaction that created the Shares-in-Trust
(or if no price was paid, the market price at the time of that event); and (ii)
the market price on the date the Company or its designee accepts the offer. This
purchase right exists for a period of 90 days after the later of: (i) the date

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of the purported transfer that created the Shares-in-Trust, if the Company
receives notice of the event; and (ii) the date the Company determines in good
faith that a purported transfer creating Shares-in-Trust has occurred, if the
Company does not receive notice of the event. The Company may not, however,
exercise this right after the trustee has sold the Shares-in-Trust to a person
whose ownership will not cause a violation of the ownership restrictions.

Reporting of Transfers and Ownership. To assist in the enforcement of the
ownership restrictions, the Charter requires any person who acquires or attempts
to acquire Equity Stock in violation of the ownership restrictions (or who would
own shares of Equity Stock but for the automatic transfer to the trust) to give
the Company immediate written notice of that event. In the case of a proposed or
attempted violative transfer, the purported transferee must give at least 15
days' prior written notice of the event and provide any other information the
Company requests in order to determine whether such transfer affects the
Company's REIT status.

In addition, the Charter generally requires every person who owns more than
5% (or such lower percentage as is required under the applicable Treasury
Regulations) of the number or value of the outstanding shares of any class or
series of the Equity Stock to give the Company written notice, within 30 days
after the close of each taxable year, stating the owner's name and address, the
number of shares of each class or series of Equity Stock owned and a description
of how the shares are held. These owners must generally provide any additional
information the Company requests in order to determine whether such ownership
affects the Company's REIT status and to ensure compliance with the ownership
restrictions. All remaining owners must generally provide ownership information
upon request. The Charter allows the Board to determine the information that
must delivered by each owner of Equity Stock.

Transfers Void. The Charter also provides that if, for any reason, a
transfer to the trust described above would not effectively prevent the
Prohibited Owner from violating the ownership restrictions, then the purported
transfer is void ab initio and the Prohibited Owner does not acquire any rights
in the excess Equity Stock.

Excepted Holders. In order to permit ownership in excess of the specified
8.5% ownership limit for persons who will not jeopardize the Company's REIT
status, the Charter permits the Board to designate certain "Excepted Holders."
Excepted Holders must supply appropriate representations and undertakings
designed to protect the Company's REIT status (such as information establishing
that the Excepted Holder is treated as a "look-through" entity in applying the
REIT stock ownership tests and that the deemed ownership of the Company shares
through the entity will be appropriately dispersed so as not to jeopardize the
Company's REIT status). Each Excepted Holder will be subject to a separate
ownership limit as specified by the Board.

The only current Excepted Holders (and their respective Excepted Holder
Limits for Common Stock) are Hunt (30%), USAA (20%), Ameritech (19.5%), OTR
(8.5%) and Morgan Stanley (the greater of 1,600,000 shares or 8.5%), the five
principal shareholders of the Company. Hunt, USAA, Ameritech, OTR and Morgan
Stanley have entered into separate "Excepted Holder Agreements" with the Company
under which they have given representations and undertakings designed to protect
the Company's REIT status. USAA has represented and covenanted to the Company
that shares that it owns will be treated as held proportionately by the
shareholders of its ultimate parent corporation and that no individual will be
treated as owning more than the "basic" 8.5% ownership limit. Hunt's shares are
held by a partnership that also has represented and covenanted to the Company
that the shares it owns will be held so that no individual will be treated as
owning more than the basic 8.5% ownership limit, except that up to 15.3% of the
lesser of the number or value of any outstanding class of Equity Stock may be
treated as owned by one individual and such individual's family as defined in
Code Section 544(a)(2). Accordingly, under the basic 8.5% ownership limit and
the existing Excepted Holder Limits, no five or fewer individuals would be
permitted to own more than 49.3% of the outstanding Equity Stock. One
individual, owning through Hunt, may own up to 15.3%, and four others may
together own up to 34% -- that is 8.5% each.

The Excepted Holder Agreements with Ameritech and OTR permit Ameritech and
OTR to own up to 100% of the outstanding shares of Series B Preferred Stock and
permit Ameritech to own up to 19.5% of the

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outstanding shares of Common Stock and OTR to own up to 8.5% of the outstanding
shares of Common Stock. The Excepted Holder Agreement with Morgan Stanley
permits Morgan Stanley, acting on its own behalf and on behalf of its clients
accounts over which it has investment discretion, to own shares of Common Stock
equal to the greater of 1,600,000 shares or 8.5% of the outstanding shares of
Common Stock. These agreements and the Hunt and USAA Excepted Holder Agreement
also provide for certain adjustments to the ownership limits if the Company
engages in certain types of redemptions or repurchases of Common Stock.
Ameritech and OTR have represented and covenanted that they are "qualified
trusts" entitled to "look-through" treatment in applying the REIT ownership
restrictions and that none of their beneficiaries has been treated as owning a
significant portion of the shares it owns.

Under the Excepted Holder Agreements, the Excepted Holders have made
representations with respect to their actual or constructive ownership of
interests in tenants of the Company. These representations are designed to
assist the Company to qualify as a REIT. A breach of any of these
representations, except as determined by the Board with respect a particular
Excepted Holder, may result in certain shares of Equity Stock held by such
Excepted Holder becoming Shares-in-Trust. The Excepted Holder Agreement entered
into with Ameritech provides that a tenant ownership issue of this type will be
resolved other than through the creation of Shares-in-Trust.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

The Company has adopted a dividend reinvestment and stock purchase plan
designed to provide holders of Common Stock with a convenient and economical
means to reinvest all or a portion of their the Company cash dividends in shares
of Common Stock and to acquire additional shares of Common Stock through
voluntary purchases. First Chicago Trust Company of New York, which serves as
the Company's transfer agent, administers the dividend reinvestment and stock
purchase plan.

CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER AND BYLAWS

The following summary of certain provisions of Maryland law and of the
Charter and Bylaws does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and the Charter and
Bylaws, copies of which are exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."

BOARD OF DIRECTORS

The Company's Organizational Documents specify that the initial number of
directors is nine and allow a majority of the entire Board to increase or
decrease the number of directors within a range of three to 15. The tenure of
office of a sitting director will not be affected by any decrease in the number
of directors. These provisions are in accord with Section 2-402 of the MGCL,
which fixes the minimum number of directors at three and allows a range to be
specified in a corporation's bylaws. As described below (see "-- Amendment to
Organizational Documents"), the Bylaws may be amended only by the Board, not by
its stockholders. The Board could, therefore, amend the Bylaws to increase or
decrease the number of directors within the specified range, without stockholder
approval, but could not reduce the number of directors below three. The holders
of shares of Series B Preferred Stock are entitled to require, at least
temporarily, that the Board be expanded and be entitled to fill the additional
position or positions on the Board. See "Description of Stock -- Preferred
Stock."

As permitted by the MGCL, the Charter provides that, subject to the rights
of the holders of any series of Preferred Stock then outstanding, the Company's
stockholders may remove any director, with or without cause, by the affirmative
vote of a majority of all votes entitled to be cast for the election of
directors. If the stockholders of any class or series are entitled separately to
elect one or more directors, a majority vote of all votes of that class or
series is required in order to remove without cause a director elected by that
class or series.

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MERGERS, CONSOLIDATIONS AND SALES OF ASSETS

In general, under the MGCL, any proposed merger or consolidation of the
Company with another company or companies, or any sale of all or substantially
all the assets of the Company, must be approved by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter or such lesser
percentage (subject to a specified minimum) as is set forth in the corporation's
charter. The Charter provides that such transactions may be approved by the
affirmative vote of a majority of all votes entitled to be cast on such matters.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then-outstanding voting
stock of the corporation (an "Interested Stockholder") or an affiliate of such
an Interested Stockholder are prohibited for five years after the most recent
date on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(i) 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation and (ii) two-thirds of the votes entitled to be
cast by holders of voting stock of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
common stockholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder. Hunt, RLH Corporation
(and its affiliates), Ray L. Hunt (and his affiliates), USAA, United States
Automobile Association (and its direct and indirect subsidiaries) and Ameritech,
beneficially own more than 10% of the Company's voting shares and would,
therefore, be subject to the business combination provision of the MGCL.
However, pursuant to the statute, the Company has exempted any business
combinations involving these stockholders and affiliates and, consequently, the
five-year prohibition and the super-majority vote requirements will not apply to
business combinations between any of them and the Company. As a result, these
stockholders and affiliates may be able to enter into business combinations with
the Company that may not be in the best interest of its stockholders without
compliance by the Company with the super-majority vote requirements and the
other provisions of the statute.

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control Shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
Control Shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of

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the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the Control Shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the Control Shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply (i) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (ii) to acquisitions approved or exempted by the charter or
bylaws of the corporation.

As permitted by the MGCL, the Bylaws exempt any acquisitions of shares of
the Company's stock by Hunt, RLH Corporation (and its affiliates), Ray L. Hunt
(and his affiliates), USAA and United States Automobile Association (and its
direct and indirect subsidiaries). There can be no assurance that such provision
will not be amended or eliminated at any time in the future.

RELATED PARTY TRANSACTIONS

Although it is the Company's policy not to engage in transactions with its
directors or officers, the Charter does not place specific restrictions on
related party transactions. The Company is subject to the provisions of the MGCL
concerning "interested director transactions," that is, transactions between the
Company and a member of the Board or between the Company and another
corporation, firm or other entity in which any of its directors is a director or
has a material financial interest. Under the MGCL, a contract or transaction
between a corporation and any of its directors, or between a corporation and any
other corporation, firm or other entity in which any of its directors is a
director or has a material financial interest, is not void or voidable solely
for this reason, or solely because the director is present at or participates in
the meeting of the board or committee that authorizes the contract or
transaction, or solely because his or her votes are counted for such purpose,
if:

1. The fact of the common directorship or interest is disclosed or known to
the board of directors or the committee, and the board or committee authorizes,
approves or ratifies the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even if the disinterested directors
constitute less than a quorum;

2. The fact of the common directorship or interest is disclosed or known to
the stockholders entitled to vote thereon, and the contract or transaction is
authorized, approved or ratified by a majority of the votes cast by the
stockholders entitled to vote, excluding the votes of shares owned by the
interested director or other interested party; or

3. The contract or transaction is fair and reasonable to the corporation.

SPECIAL MEETINGS OF STOCKHOLDERS

The Bylaws provide that special meetings of the Company's stockholders may
be called: (i) by the Chairman of the Board, the President or the Board; or (ii)
upon the written request of stockholders holding not less than 10% of all the
votes entitled to be cast at the meeting. The request must state the purpose of
the meeting and the matters proposed to be acted on at the meeting. Upon payment
by the requesting stockholders of the cost of preparing and mailing notice of
the meeting, the Secretary of the Company must give notice to each stockholder
entitled to notice. Unless requested by stockholders entitled to cast a majority
of the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter that

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is substantially the same as one voted on at any special meeting during the
preceding 12 months. Under the Bylaws, if the Company calls a special meeting
for the purpose of electing one or more directors, any stockholder of record at
the time the notice is given who is entitled to vote at the meeting may nominate
a person or persons for election by giving notice containing specified
information to the Secretary not earlier than the 90th day before the meeting
and not later than the later of the 60th day before the meeting or the 10th day
after the day on which a public announcement is first made of the date of the
meeting and the nominees proposed by the Board. Only persons nominated in
accordance with procedures specified in the Bylaws are eligible to serve as
directors and only the business specified in the notice of the meeting may be
conducted at the meeting.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws establish procedures for nominations or other business brought
by stockholders at annual meetings. Under these procedures, a stockholder
entitled to vote in the election of directors generally may nominate one or more
persons for election to the Board or propose other business at an annual meeting
only if the stockholder gives notice to the Secretary of the Company not less
than 60 nor more than 90 days before the first anniversary of the preceding
year's annual meeting. If, however, the date of the annual meeting is advanced
by more than 30 days or delayed by more than 60 days from the anniversary date,
to be timely, notice by the stockholder must be delivered not earlier than the
90th day before such annual meeting and not later than the close of business on
the later of the 60th day before such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting was first made.
Such notice must contain specified information. For example, in the case of a
nomination by a stockholder, the notice must include the information about each
nominee that is required to be disclosed pursuant to the proxy rules under the
Exchange Act. The Company's next stockholders' meeting is expected to take place
in mid-1997.

AMENDMENTS TO ORGANIZATIONAL DOCUMENTS

Section 2-604 of the MGCL and Article 7 of the Charter govern amendments to
the Charter. After the Board proposes a charter amendment, the affirmative vote
of the holders of a majority of the outstanding voting stock, voting together as
a single class, is required to amend the Charter. The Bylaws provide that the
Board has the exclusive power to adopt, alter or repeal any provision of the
Bylaws, except for the provision relating to the application of the control
share acquisition provisions of the MGCL, which may not be amended or repealed,
in whole or in part, without the prior written consent of Ray L. Hunt (or any
affiliate of Ray L. Hunt) and USAA. See "Certain Provisions of Maryland Law and
of the Charter and Bylaws -- Control Share Acquisitions."

LIABILITY AND INDEMNIFICATION OF CERTAIN PERSONS

The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liabilities to the maximum extent
permitted by Maryland law.

The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not), to indemnify a director or officer who has been
successful on the merits or otherwise, in defense of any proceeding to which he
is made a party by reason of his service in that capacity. The MGCL permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (i) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (a) was committed in
bad faith or (b) was a result of an active and deliberate dishonesty, (ii) the
director or officer actually received an improper personal benefit in money,
property or services or (iii) in the case of a criminal proceeding, the director
or officer had reasonable cause to believe that the act or

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omission was unlawful. However, a Maryland corporation may not indemnify for any
adverse judgment in a suit by or in the right of a corporation. In addition, the
MGCL requires the Company, as a condition to advancing expenses, to obtain (i) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (ii) a written statement by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met.

The Charter obligates the Company to the maximum extent permitted by
Maryland law to indemnify and to pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to (i) any present or former director or
officer of the Company or (ii) any individual who, while a director of the
Company and at the request of the Company, serves or has served as a director,
officer, partner or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise. The Charter also permits the
Company to indemnify and advance expenses to any person who served a predecessor
of the Company in any other capacity as described above and to any employee or
agent of the Company or a predecessor of the Company.

The Company has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements require, among other
matters, the Company indemnify its executive officers and directors to the
fullest extent permitted by law and advance to the officers all related
expenses, subject to reimbursement, if it is subsequently determined that
indemnification is not permitted. Under these agreements, the Company must also
indemnify and advance all expenses incurred by executive officers and directors
seeking to enforce their rights under the indemnification agreements and may
cover executive officers and directors under the Company's directors' and
officers' liability insurance. Although the indemnification agreement offers
substantially the same scope of coverage afforded by law, it provides greater
assurance to directors and executive officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or stockholders to eliminate the rights it
provides. It is the position of the SEC that indemnification of directors and
officers for liability under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.

COMMON STOCK

Article 4 of the Charter authorizes the Company to issue up to 175 million
shares of Common Stock, of which 9,684,570 shares were outstanding at September
30, 1996. The holders of shares of Common Stock have the right to vote on all
matters for which a common stockholder is entitled to vote at all meetings of
the stockholders of the Company, and will be entitled to one vote for each share
of Common Stock entitled to vote at such a meeting. Common Stock is subject to
ownership limits and restrictions on transfer. See "Description of Stock."

PREFERRED STOCK

Article 4 of the Charter authorizes the Company to issue up to 25 million
shares of Preferred Stock, of which 2,272,727 shares of Series B Preferred Stock
are presently outstanding. Preferred Stock, like Common Stock, is subject to
ownership limits and restrictions on transfer. See "Description of
Stock -- Restrictions on Ownership and Transfer."

Subject to any limitations imposed by the NYSE and the rights of the
holders of shares of Series B Preferred Stock, the Company may, without
stockholder approval, issue shares of Preferred Stock in classes and series, and
may establish from time to time the number of shares to be included in each such
class or series, and fix the designation, powers, preferences and the rights of
the shares of each such class or series and the qualifications, limitations and
restrictions of each. Except as otherwise provided by law, the holders of the
Preferred Stock have and will have only such voting rights as are provided for
or expressed in the resolutions of the Board relating to such Preferred Stock.

The Board believes it is desirable for the Company to have Preferred Stock
available for possible future financing and acquisition transactions, stock
dividends or distributions and other general corporate purposes. The
availability of such shares for issuance in the future will give the Company
greater flexibility in obtaining

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financing or in acquiring properties by permitting such shares to be issued
without the expense and delay of a special stockholders' meeting.

The availability of Preferred Stock, however, entails risks. Under certain
circumstances, shares of Preferred Stock could be used to create voting
impediments or to frustrate persons seeking to effect a takeover, engage in
proxy contests, or otherwise gain control of the Company. The Board could
authorize holders of Preferred Stock to vote as a class, either separately or
with the holders of Common Stock, and with voting rights that are the same as or
different from the voting rights of Common Stock, on the election of directors,
or approval of a merger, sale or exchange of assets by the Company or any other
extraordinary corporate transaction. See "Description of Stock -- Preferred
Stock" for a description of the voting rights of the Series B Preferred Stock.
In addition, the shares of Preferred Stock could be privately placed with
purchasers who might side with the Board in opposing a hostile takeover bid.
Such uses could enhance the Board's ability to deal with attempts to gain
control of, or impose transactions upon, the Company that the Board believes are
coercive, unfair or otherwise not in the best interests of the Company and all
of its stockholders, but which certain stockholders may find attractive. It is
also possible that the dividend requirements and sinking fund, conversion or
redemption provisions, if any, which may be fixed by the Board for any class or
series of Preferred Stock at the time of issuance may have an adverse effect on
the availability of earnings for distribution to holders of Common Stock or for
other corporate purposes.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of the material federal income tax
considerations affecting the Company and holders of Common Stock. Vinson &
Elkins L.L.P. counsel to the Company, has reviewed the following discussion and
is of the opinion that it fairly summarizes the material federal income tax
considerations to a holder of the Common Stock based on current law. This
discussion is directed principally at stockholders who are individual United
States citizens or residents. No attempt has been made to comment on all federal
income tax consequences of the ownership of Common Stock. The summary does not
address considerations that may be relevant to particular stockholders,
including stockholders who are subject to special treatment under the federal
income tax laws (such as insurance companies, financial institutions or
broker-dealers), nor does it address any tax consequences under the laws of any
state, local or foreign jurisdiction. No rulings will be sought from the IRS or
any other tax authorities concerning the federal, state, local or other tax
considerations relevant to the Company's operations or REIT status, or to the
purchase, ownership or disposition of Common Stock. Because the following is
only a summary, it is qualified in its entirety by the applicable provisions of
the Code and the regulations adopted under the Code, court decisions, and the
rulings and other pronouncements of the IRS, all of which are subject to change,
possibly with retroactive effect.

EACH PROSPECTIVE STOCKHOLDER OF THE COMPANY IS ADVISED TO CONSULT HIS OR
HER OWN TAX ADVISOR ABOUT THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF SHARES OF COMMON STOCK,
PARTICULARLY IN LIGHT OF THAT STOCKHOLDER'S SPECIFIC CIRCUMSTANCES.

FEDERAL INCOME TAXATION OF THE COMPANY

The Company believes that since its formation, it has been organized and
operated in a manner that permits it to satisfy the various requirements for
taxation as a REIT under the applicable provisions of the Code. The rules
governing REIT's are highly technical and require ongoing compliance with a
variety of tests that depend, among other things, on operating results. While
the Company believes it has satisfied these tests since its formation and plans
to use its best efforts to do so on a continuing basis, no assurance can be
given that such requirements will be met or that the Company will qualify as a
REIT for any particular year.

In the opinion of Vinson & Elkins L.L.P., based on certain assumptions and
representations, the Company has qualified as a REIT for its taxable year ended
December 31, 1995, and the Company is organized in conformity with the
requirements for qualification as a REIT and its method of operation has and
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code, provided the Company continues to meet the
asset composition, source of income, shareholder diversification,

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distribution, recordkeeping and other requirements of the code necessary for the
Company to qualify as a REIT. commencing with the Company's initial taxable year
ended December 31, 1995, if the Company is organized and operated as described
in this Prospectus, the Company will be able to qualify as a REIT. It must be
emphasized that this opinion is based and conditioned on various assumptions and
representations of the Company and its officers that are described below. The
Company's qualification as a REIT depends upon its ability to meet, through
actual annual operating results, the various qualification tests imposed under
the Code that are discussed below, the results of which will NOT be monitored or
reviewed by Vinson & Elkins L.L.P. While the Company expects to satisfy these
tests and plans to use its best efforts to do so, no assurance can be given that
actual operations will meet these requirements and that the Company will qualify
as a REIT for any particular year. The opinion of Vinson & Elkins L.L.P. is not
binding on the IRS or any court. The opinion of Vinson & Elkins L.L.P. is based
upon existing law, IRS regulations and currently published administrative
positions of the IRS and judicial decisions, all of which are subject to change
either prospectively or retroactively.

If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on that portion of its ordinary income
or net capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the Federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.

Even if the Company qualifies for taxation as a REIT, however, the Company
may be subject to Federal income or excise tax, including the following: First,
the Company will be taxed at regular corporate rates on its undistributed REIT
taxable income, including undistributed net capital gain. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax."
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" (which is, in general, property acquired by the Company
by foreclosure or otherwise on default on a loan secured by such property) that
is held primarily for sale to customers in the ordinary course of business or
other non-qualifying income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income. Fourth, if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than foreclosure property), such income will
be subject to a 100% tax. Fifth, if the Company should fail to satisfy either
the 75% or 95% gross income test (discussed below) but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on the net income attributable to the
greater of the amount by which the Company fails either of the 75% or 95% test,
multiplied by a fraction intended to reflect the Company's profitability. Sixth,
if the Company fails to distribute during a year at least the sum of (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year and (iii) any undistributed taxable income from prior
years, the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if the
Company should acquire any asset from a C corporation (i.e., a corporation
generally subject to full corporate-level tax) in a carryover-basis transaction
and the Company subsequently recognizes gain on the disposition of such asset
during the ten-year period beginning on the date on which the asset was acquired
by the Company, then, to the extent of the excess of the fair market value of
the asset over its adjusted basis upon its acquisition by the Company, such gain
will be subject to tax at the highest regular corporate rate, pursuant to
guidelines issued by the IRS.

REQUIREMENTS FOR QUALIFICATION

The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more directors or trustees, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (iii) that would be taxable as a domestic corporation but
for the REIT provisions of the Code, (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code,
(v) the beneficial ownership of which is held by 100 or more persons, and (vi)
during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is

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owned, directly or indirectly through the application of certain attribution
rules, by five or fewer individuals (as defined in the Code to include certain
entities). The Company expects to meet each of these requirements. In addition,
certain other tests, described below, regarding the nature of its income and
assets also must be satisfied, which the Company anticipates. The Code provides
that conditions (i) through (iv), inclusive, must be met during the entire
taxable year and that conditions (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (v) and (vi) (the "100-Stockholder Requirement"
and "Five-or-Fewer Requirement") do not apply for the first taxable year for
which an election is made to be taxed as a REIT. For purposes of conditions (v)
and (vi), pension funds and certain other tax-exempt entities are treated as
individuals, subject to a "look-through" exception in the case of condition
(vi).

To protect against violations of the stock ownership requirements, the
Charter provides that no person (other than an "Excepted Holder") is permitted
to own, applying certain constructive ownership tests, more than 8.5% of the
lesser of the number or value of the outstanding shares of any class of the
Company's stock (the "Ownership Limit"). An Excepted Holder is a person whom the
Board has determined will be permitted to hold shares in excess of the Ownership
Limit, based upon appropriate representations and undertakings designed to
protect the Company's REIT status (such as information establishing that the
Excepted Holder is treated as a "look-through" entity in applying the REIT stock
ownership tests and that the deemed ownership of the Company shares through it
will be appropriately dispersed so as not to jeopardize the Company's REIT
status). Each Excepted Holder will be subject to a separate ownership limit as
specified by the Board. See "Description of Stock -- Restrictions on Ownership
and Transfer -- Excepted Holders." Attempted transfers of shares of the
Company's stock that would violate the ownership limits (or related restrictions
contained in the Charter or Excepted Holder Agreements) generally will cause the
number of shares in excess of the limit to be transferred automatically to a
trust for the benefit of a charitable beneficiary rather than to the purported
transferee.

To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records disclosing the actual ownership of
its stock. To do so, the Company must demand written statements each year from
the record holders of 5% or more of its shares. (If the Company were to have
less than 2,000 record stockholders, the demand would have to be made to record
holders of smaller percentages of the shares.) In those statements, the record
holders are to disclose who actually owns the shares (that is, the persons
required to include the Company's dividends in their gross incomes). The Company
must maintain a list of those persons who fail or refuse to comply with this
demand. Such stockholders must submit a statement with their tax returns
disclosing the actual ownership of the shares of stock and certain other
information.

Gross Income Tests. In order to qualify as a REIT for a particular year,
the Company also must meet three tests governing the sources of its gross income
that are designed to ensure that the Company earns its income principally from
passive real estate investments. In evaluating a REIT's income under the income
tests, the REIT will be treated as receiving its proportionate share of the
income produced by any partnership in which the REIT invests, and any such
income will retain the character that it has in the hands of the partnership.
The Company may, from time to time, own and operate a number of its properties
through "qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and such items of the REIT.

Seventy-Five Percent Gross Income Test. At least 75% of a REIT's gross
income for each taxable year must be derived from specified classes of income
that principally are real estate related. The key permitted categories are: (i)
rents from real property; (ii) interest on loans secured by real property; (iii)
gain from the sale of real property or real property loans (excluding gain from
the sale of property that is held primarily for sale to customers in the
ordinary course of a trade or business, which is referred to below as "dealer
property"); (iv) income from the operation and gain from the sale of certain
property acquired in connection with the foreclosure of a mortgage securing that
property or upon a default on a lease of the property ("foreclosure property");
(v) distributions on, or gain from the sale of, shares of other REITs and (vi)
"qualified temporary investment income" (described below).

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In evaluating the Company's compliance with the 75% income test (as well as
the 95% income test described below), gross income does not include gross income
from "prohibited transactions." A prohibited transaction is a sale of dealer
property, not including foreclosure property.

The Company expects that substantially all of its operating gross income
from its properties will be considered rent from real property. Rent from real
property is qualifying income for purposes of the 75% income test only if
certain conditions are satisfied. Rent from real property includes charges for
services customarily rendered to tenants, and rent attributable to personal
property leased together with the real property so long as the personal property
rent is less than 15% of the total rent. The Company does not expect to earn
material amounts of income from services customarily rendered to tenants or from
personal property. The Company does not expect to earn income from tenants for
services not customarily rendered to tenants.

Rent from real property generally does not include rent based on the income
or profits derived from the property, unless the computation is based only on a
fixed percentage of receipts or sales. Also excluded is rent received from a
person or corporation in which the Company (or any of its 10% or greater owners)
owns a 10% or greater interest. The Company does not expect to earn income in
these two excluded categories.

A third exclusion covers amounts received with respect to real property if
the Company furnishes services to the tenants or manages or operates the
property, other than through an "independent contractor" from whom the Company
does not derive any income. The obligation to operate through an independent
contractor generally does not apply, however, if any services provided by the
Company are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not considered rendered primarily for the
convenience of the tenant (applying standards that govern in evaluating whether
rent from real property would be unrelated business taxable income when received
by a tax-exempt owner of the property). The Company generally will directly
operate and manage its properties without using an "independent contractor,"
although independent contractors may be employed to perform certain day-to-day
property management duties, such as collection of rents and routine maintenance.
The Company believes that the only material services to be provided to tenants
will be those usually or customarily rendered in connection with the rental of
space for occupancy only. The Company does not provide services that might be
considered rendered primarily for the convenience of the tenants. The Company
believes that substantially all its income from the properties will be
qualifying income under the 75% income test.

A portion of the proceeds of the Offering may be invested in
interest-bearing accounts and an investment fund or funds that invest
substantially all their assets in diversified portfolios of U.S.
dollar-denominated "money market" instruments (such as bank certificates of
deposit and bankers acceptances, commercial paper and repurchase agreements) and
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The interest and dividend income earned on those funds should
be includable under the 75% income test as "qualified temporary investment
income" (which includes income earned on stock or debt instruments acquired with
the proceeds of a stock offering, not including amounts received under a
dividend reinvestment plan). Qualified temporary investment income treatment
only applies during the one-year period beginning when a REIT receives the new
capital.

Upon the Company's ultimate sale of its properties, any gains realized are
expected to constitute qualifying income, as gain from the sale of real property
(not involving a prohibited transaction).

Ninety-Five Percent Gross Income Test. In addition to earning 75% of its
gross income from the sources listed above, at least an additional 20% of the
Company's gross income for each taxable year must come either from those
sources, or from dividends, other interest or gains from the sale or other
disposition of stock or other securities that do not constitute dealer property.
This test permits a REIT to earn a significant portion of its income from
traditional "passive" investment sources that are not necessarily real estate
related. The term "interest" (under both the 75% and 95% tests) does not include
amounts that are based on the income or profits of any person, unless the
computation is based only on a fixed percentage of receipts or sales.

Thirty Percent Gross Income Test. The Company also must earn less than 30%
of its gross income in each taxable year from the sale or other disposition of:
(i) real property and loans secured by real property held for less than four
years (other than foreclosure property and involuntary conversions); (ii) stock
or

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securities held for less than one year; and (iii) property in a prohibited
transaction. The 30% income test does not have a reasonable cause exception as
do the 75% and 95% income tests. See "-- Failing the Basic Gross Income Tests."
Consequently, a failure to meet the 30% income test would terminate the
Company's status as a REIT automatically. Because the Company generally expects
to hold its properties for long-term investment and does not anticipate selling
them within four years after they were acquired, the Company expects to comply
with this requirement.

Failing the Basic Gross Income Tests. As a result of the 75% and 95%
tests, REITs generally are not permitted to earn more than 5% of their gross
income from active sources (such as brokerage commissions or other fees for
services rendered). While the Company does not anticipate that it will earn
substantial amounts of nonqualifying income, if nonqualifying income exceeds 5%
of the Company's gross income, the Company could lose its status as a REIT. If a
REIT fails to meet either the 75% or 95% income tests during any taxable year,
it may still qualify as a REIT for that year if the failure was due to
reasonable cause and certain relief provisions apply, although a special penalty
tax may be owed. See "-- Federal Income Taxation of the Company."

Asset Tests. In order to qualify as a REIT for a particular year, on the
last day of each calendar quarter the Company also must meet two tests
concerning the nature of its investments. First, at least 75% of the value of
the Company's total assets generally must consist of real estate assets, cash,
cash items (including receivables) and government securities. For this purpose,
"real estate assets" include interests in real property, interests in loans
secured by mortgages on real property or by interests in real property, shares
in other REITs, certain options, and for the one year-period following receipt
of new capital, stock and debt instruments acquired with that new capital. Real
estate assets do not include mineral, oil or gas royalty interests. Second,
although the balance of the Company's assets generally may be invested without
restriction, except for securities that are considered real estate assets, the
Company will not be permitted to own: (i) securities of any one nongovernmental
issuer that represent more than 5% of the value of the Company's total assets;
or (ii) more than 10% of the outstanding voting securities of any single issuer.
A REIT may, however, own 100% of the stock of a qualified REIT subsidiary, in
which case the assets, liabilities and items of income, deduction and credit of
the subsidiary are treated as those of the REIT. The Company may, from time to
time, hold certain properties through qualified REIT subsidiaries. In evaluating
a REIT's assets, if the REIT invests in a partnership, it is deemed to own its
proportionate share of the assets of the partnership.

The Company anticipates that it will comply with these asset tests. As was
described above, for a temporary period, some of the proceeds of the Offering
may be invested principally in interest-bearing accounts and an investment fund
or funds that invest substantially all their assets in diversified portfolios of
U.S. dollar-denominated "money market" instruments (such as bank certificates of
deposit and bankers acceptances, commercial paper and repurchase agreements) and
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, which should constitute qualifying assets, at least during
the initial one-year period following the Offering. Substantially all of the
Company's other investments will be in properties that should represent
qualifying real estate assets.

Annual Distribution Requirement. To maintain REIT status, the Company
generally must distribute to its stockholders in each taxable year at least 95%
of its net ordinary income (capital gain is not required to be distributed).
More precisely, the Company must distribute an amount equal to: (i) 95% of the
sum of (a) its "REIT Taxable Income" before the deduction for dividends paid and
excluding any net capital gain and (b) any net income from foreclosure property
less the tax on such income, minus (ii) certain limited categories of "excess
non-cash income." REIT Taxable Income is defined to be the taxable income of the
REIT, computed as if it were an ordinary corporation, with certain
modifications. For example, net income from foreclosure property and net income
from prohibited transactions are excluded. In addition, the REIT may carry over,
but not carry back, a net operating loss for 15 years after the year in which it
was incurred.

A REIT may satisfy the 95% distribution test with dividends paid during the
taxable year and with certain dividends paid after the end of the taxable year.
Dividends paid in January that were declared during the last calendar quarter of
the prior year and were payable to stockholders of record during the last
calendar quarter of that prior year are treated as paid on December 31 of the
prior year (both for the Company and its

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stockholders). Because dividends that are paid in a subsequent year and fail to
meet this test will be subject to a nondeductible 4% excise tax, the Company
anticipates distributing its fourth quarter dividends within the taxable year,
or by January 31 of the following year. Dividends declared before the due date
of the Company's tax return for the taxable year (including extensions) also
will be treated as paid in the prior year (although subject to the excise tax)
if they are paid: (i) within 12 months of the end of such taxable year; and (ii)
no later than the Company's next regular distribution payment. Dividends that
are paid after the close of a taxable year and do not qualify under the rule
governing payments made in January will be taxable to the stockholders in the
year paid, even though they may be taken into account by the Company for a prior
year for purposes of the 95% distribution test (but not the 4% excise tax).

The Company will be taxed at regular corporate rates to the extent that it
retains any portion of its taxable income. For example, if the Company only
distributes the required 95% of its taxable income, it would be taxed on the
retained 5%. The Company currently intends to distribute sufficient income to
satisfy the annual 95% distribution requirement. Under certain circumstances,
however, the Company may not have sufficient cash or other liquid assets to meet
the distribution requirement. This could arise because of competing demands for
the Company's funds, or due to timing differences between tax reporting and cash
receipts and disbursements (income may have to be reported before cash is
received, or expenses may have to be paid before a deduction is allowed).
Although the Company does not anticipate difficulties in meeting this
requirement, no assurance can be given that the necessary funds will be
available. If the Company fails to make a required distribution, it would lose
its REIT status.

If the Company fails to meet the 95% distribution requirement because of an
adjustment to the Company's taxable income by the IRS, the Company may be able
to cure the failure retroactively by paying to its stockholders a "deficiency
dividend" (as well as paying applicable interest and penalties to the IRS)
within a specified period.

Special Distribution Requirement; Built-in Gain Rules. The Code and
regulations provide that a corporation may be taxed as a REIT only if it has no
earnings and profits accumulated in any non-REIT year (including amounts
attributable to entities merged into the REIT). The Company expects to be
treated as a REIT from inception and does not believe that it inherited any
earnings and profits from any of the Merged Trusts that were accumulated during
any non-REIT years. Pursuant to IRS Notice 88-19, if a REIT acquires the assets
of a C corporation in a tax-free transaction, unless the REIT makes a special
election to recognize any built-in gain over a ten-year period, the C
corporation is treated as having disposed of the assets in a taxable transaction
immediately before the transfer to the REIT. Due to the REIT status of the
Merged Trusts, the Company does not believe that these requirements apply to the
Company or the Merged Trusts. If the IRS were to challenge successfully the REIT
status of one or more of the Merged Trusts during any period prior to the
Merger, depending upon the specific circumstances, the rules applicable to
transfers from C corporations to REITs might adversely affect the Company's
ability to qualify as a REIT.

FAILURE TO QUALIFY AS A REIT

For any taxable year in which the Company fails to qualify as a REIT, it
would be taxed at the usual corporate rates on all of its taxable income.
Distributions to its stockholders would not be deductible in computing that
taxable income and distributions would no longer be required under the Code. Any
corporate level taxes generally would reduce the amount of cash available to the
Company for distribution to its stockholders or for reinvestment. Because the
stockholders would continue to be taxable on the distributions they receive, the
net after-tax yield to the stockholders from their investment in the Company
likely would be reduced substantially. As a result, the Company's failure to
qualify as a REIT during any taxable year could have a material adverse effect
on the Company and its stockholders. If the Company loses its REIT status,
unless certain relief provisions apply, the Company would not be eligible to
elect REIT status again until the fifth taxable year that begins after the first
year for which the Company's election was terminated.

If, after forfeiting its REIT status, the Company later qualifies and
elects to be taxed as a REIT again, the Company may face additional adverse tax
consequences. Prior to the end of the year in which the Company sought to
qualify again as a REIT, the Company would be required to make distributions
sufficient

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to eliminate any earnings and profits accumulated during its period of non-REIT
status. Moreover, under IRS Notice 88-19, immediately prior to the effectiveness
of the election to return to REIT status, the Company would be treated as having
disposed of all of its assets in a taxable transaction, triggering taxable gain
with respect to the Company's appreciated assets. In that event, however, under
current law the Company would be permitted to elect an alternative treatment
under which those gains would be taken into account only as and when they
actually were recognized upon sales of the appreciated property occurring within
a ten-year period (certain proposed legislation might eliminate this alternative
treatment, in which case the Company might choose to remain a C corporation).
The Company would be required to distribute at least 95% of any such recognized
gains, but it would not receive the benefit of a dividends-paid deduction to
reduce those taxable gains. Thus, any such gains on appreciated assets would be
subject to double taxation (that is, at the corporate level as well as the
stockholder level).

TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS

Distributions generally will be taxable to stockholders as ordinary income
to the extent of the Company's earnings and profits. Dividends declared during
the last quarter of a calendar year and actually paid during January of the
immediately following calendar year will generally be treated as if received by
the stockholders on December 31 of the calendar year during which they were
declared. Distributions paid to stockholders will not constitute passive
activity income and, as a result, generally cannot be offset by losses from
passive activities of a stockholder who is subject to the passive activity
rules.

Distributions designated by the Company as capital gains dividends
generally will be taxed as long-term capital gains to stockholders to the extent
that the distributions do not exceed the Company's actual net capital gain for
the taxable year. Corporate stockholders may be required to treat up to 20% of
any such capital gains dividends as ordinary income. Distributions by the
Company, whether characterized as ordinary income or as capital gains, are not
eligible for the 70% dividends received deduction for corporations. Stockholders
are not permitted to deduct losses or loss carryforwards of the Company. Future
regulations may require that stockholders take into account, for purposes of
computing their individual alternative minimum tax liability, certain tax
preference items of the Company.

The Company may generate cash in excess of its net earnings. If the Company
distributes cash to stockholders in excess of the Company's current and
accumulated earnings and profits, the excess cash will be deemed to be a
nontaxable return of capital to each stockholder to the extent of the adjusted
tax basis of the stockholder's shares, and the distribution will reduce the
stockholder's basis (but not below zero). Distributions in excess of the
adjusted tax basis will be treated as gain from the sale or exchange of the
shares. A stockholder who has received a distribution in excess of the current
and accumulated earnings and profits of the Company may, upon the sale of the
shares, realize a higher taxable gain or a smaller loss because the basis of the
shares as reduced by that distribution will be used for purposes of computing
the amount of the gain or loss.

Generally, gain or loss realized by a stockholder upon the sale of shares
will be reportable as capital gain or loss. If a stockholder receives a capital
gain dividend from the Company and sells the shares before holding them for more
than six months, any loss incurred on the sale or exchange of the shares is
treated as a long-term capital loss to the extent of the corresponding capital
gain dividend received.

In any year in which the Company fails to qualify as a REIT, its
stockholders generally will continue to be treated in the same fashion described
above, except that the Company dividends will not be eligible for treatment as
capital gains dividends, corporate stockholders will qualify for the dividends
received deduction and the stockholders will not be required to report any share
of the Company's tax preference items.

BACKUP WITHHOLDING

The Company will report to its stockholders and the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if any.
If a stockholder is subject to backup withholding, the Company will be required
to deduct and withhold from any dividends payable to that stockholder a tax of
31%. These rules may apply: (i) when a stockholder fails to supply a correct
taxpayer identification number;

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(ii) when the IRS notifies the Company that the stockholder is subject to the
rules or has furnished an incorrect taxpayer identification number; or (iii) in
the case of corporations or others within certain exempt categories, when they
fail to demonstrate that fact when required. A stockholder who does not provide
a correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount withheld as backup withholding may be creditable
against the stockholder's federal income tax liability. The Company also may be
required to withhold a portion of capital gain distributions made to
stockholders who fail to certify their non-foreign status to the Company.

TAXATION OF DOMESTIC TAX-EXEMPT STOCKHOLDERS

In 1993, the federal income tax laws were changed to facilitate investments
by pension funds in REITs. As described above, a corporation cannot be a REIT if
more than 50% of the value of its stock is owned by five or fewer individuals at
any time during the last half of a taxable year. In applying this test, pension
trusts (and certain other tax-exempt stockholders) formerly were treated as
single individuals. Beginning in 1994, however, a qualified pension trust
generally has not been considered a single individual in evaluating a REIT's
ownership. Instead, beneficiaries of the pension trust are treated as holding
the pension trust's stock investment in the REIT in proportion to their
actuarial interests in the pension trust.

In general, a tax-exempt entity that is a stockholder of the Company will
not be subject to tax on distributions from the Company or gain realized on the
sale of shares. In Revenue Ruling 66-106, the IRS ruled that a REIT's
distributions to a tax-exempt employees' pension trust did not constitute
unrelated business taxable income. However, when the law was changed to relax
the stock ownership restrictions applicable to pension plan investors, a related
change was made for unrelated business income tax purposes. This provision
applies only if a REIT is a "Pension-Held REIT." In that case, those pension
trusts owning more than 10% of the value of the REIT's stock may be required to
report a portion of any dividends they receive from the REIT as unrelated
business taxable income. One aspect of the definition of a Pension-Held REIT
requires that either one pension trust must own more than 25% of the value of
the REIT's stock, or one or more pension trusts (each of which owns more than
10%) must own in the aggregate more than 50% of the value of the REIT's stock.
The Company does not believe that it will be a Pension-Held REIT and,
accordingly, these provisions are not expected to cause its stockholders that
are pension trusts to receive dividends that will be considered unrelated
business taxable income. A tax-exempt entity, however, may be subject to the
unrelated business income tax on dividends from or gain on the Company's shares
to the extent that the tax-exempt entity financed the acquisition of its shares
with "acquisition indebtedness" within the meaning of the Code.

For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (9), (17) and (20) of the
Code, respectively, income from an investment in the Company will constitute
unrelated business taxable income unless the organization is able to deduct
amounts properly set aside or placed in reserve for certain purposes so as to
offset the unrelated business taxable income generated by the investment in the
Company. These investors must consult their own tax advisors concerning the "set
aside" and reserve requirements.

TAXATION OF FOREIGN STOCKHOLDERS

The rules governing United States income, gift and estate taxation of
foreign entities and individuals who are neither citizens nor residents of the
U.S. are complex. They depend not only upon U.S. tax principles, but also upon
the treaties, if any, between the U.S. and the countries of the foreign
investors. The following discussion is only a summary of certain U.S. federal
income tax considerations potentially affecting foreign stockholders of the
Company, who must consult with their own advisors to evaluate all relevant tax
considerations.

The character of distributions on the Company's shares generally will be
determined in the same fashion for foreign stockholders as for domestic
stockholders (that is, a distribution may be categorized as a taxable ordinary
income dividend paid out of the Company's current or accumulated earnings and
profits, a nontaxable

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return of capital, a distribution in excess of the stockholder's basis that is
taxable as gain from sale of the shares or a capital gain dividend). See
"-- Taxation of Taxable Domestic Stockholders."

If income or gain from the shares is effectively connected with a U.S.
trade or business conducted by a foreign stockholder ("effectively connected
income"), it generally will be subject to regular U.S. income taxes at graduated
rates rather than to the withholding tax described below. Foreign stockholders
whose income from the shares is effectively connected income may file an IRS
Form 4224 with the Company certifying to that effect. Such income may be subject
to the alternative minimum tax, and a special alternative minimum tax may apply
to nonresident alien individuals. Foreign corporate stockholders receiving
effectively connected income from the shares also may be subject to an
additional 30% branch profits tax, unless certain exemptions apply.

Foreign stockholders whose income from the shares is not effectively
connected income generally will be subject to withholding at a 30% rate on
ordinary income dividends paid by the Company, unless an applicable tax treaty
reduces that rate. For this purpose, however, ordinary income distributions will
be presumed to represent dividends paid out of earnings and profits, rather than
nontaxable returns of capital or capital gains. If such a distribution is later
determined to have exceeded earnings and profits, an affected foreign
stockholder may claim a refund for excess withholdings.

Any distributions that are attributable to gain from the sale of United
States real property interests (whether or not specifically designated as
capital gain dividends) will be subject to the Foreign Investment in Real
Property Tax Act ("FIRPTA"). Under FIRPTA, those distributions will be treated
as gains that are effectively connected income and generally will be taxed at
regular U.S. capital gains tax rates. As a means of collecting this tax, the
Treasury Regulations require the Company to withhold 35% of any distributions to
foreign stockholders that the Company could designate as capital gains
dividends. If the amount of the FIRPTA withholding exceeds the applicable tax,
the foreign stockholder may obtain a refund.

Gain from the sale of shares generally will not be subject to U.S.
taxation. The sale of shares generally will not be subject to FIRPTA because the
Company should qualify as a "domestically-controlled REIT" (only a minority, if
any, of the Company's stockholders are expected to be foreign stockholders). If
any capital gain dividends or gains from the sale of shares constitute
effectively connected income, however, regular U.S. taxes may apply as described
above. If a nonresident alien stockholder is present in the U.S. for 183 days or
more during the year for which the gains are reportable and has a "tax home" in
the U.S., a 30% tax may apply to the capital gains.

Upon the death of a foreign individual stockholder, the stockholder's
shares will be treated as part of the stockholder's U.S. estate for purposes of
the U.S. estate tax, except as may be otherwise provided in an applicable estate
tax treaty.

POSSIBLE TAX LAW CHANGES

The anticipated income tax treatment described in this Prospectus may be
changed, perhaps retroactively, by legislative, administrative or judicial
action at any time. Congress at any time may consider changes to the tax laws,
and any such legislation may affect the treatment of real estate investments, in
general, or REITs in particular. For example, similar bills involving the tax
treatment of REITs were introduced in both the House of Representatives (H.R.
2121, introduced July 26, 1995) and the Senate (S. 1297, introduced September
29, 1995). The specific proposals generally are designed to make it easier for
taxpayers to comply with the highly-technical REIT rules. Similar provisions
were also included in the House version, but not the Senate or conference
agreement versions, of the Revenue Reconciliation Act of 1995 (H.R. 2491
approved by the House on October 26, 1995, and by the Senate on October 27,
1995, and vetoed by the President on December 6, 1995). The Clinton
administration has also proposed certain legislation (one of the revenue raising
proposals in the administration's budget proposal released on March 19, 1996)
that would require immediate recognition of built-in gains of certain large C
corporations (with a stock value in excess of $5 million) that elect to be taxed
as REITs (potentially applicable if a REIT loses its REIT status and then seeks
to requalify) or of large C corporations the assets of which are acquired by
REITs in tax-free transactions (effectively repealing the ability to elect under
IRS Notice 88-19 to report any such built-in gains

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only to the extent that they are recognized when and if the appreciated assets
are sold during a ten-year period). No prediction can be made as to whether
these or any other changes to the REIT tax rules will be implemented, or whether
any changes that might take effect would adversely affect the Company's ability
to qualify as a REIT or the treatment of the Company's stockholders.

STATE AND LOCAL TAXES

The Company will be subject to the taxing jurisdiction of each state in
which it owns properties or otherwise engages in business. Stockholders also may
be subject to state or local taxes in various jurisdictions, including those in
which they reside or transact business. The state or local tax treatment may
differ from the federal income tax treatment described above. As a general
matter, however, stockholders receiving dividends from the Company are likely to
be taxable on those amounts only in their states of residence. Because of the
potential diversity of the state and local rules, this Prospectus does not
include a discussion of state or local taxation of the Company or the
stockholders, nor is any representation made as to the tax status of the Company
or the stockholders in any state or local jurisdiction. All stockholders must
consult their own tax advisors concerning the possible application of any state
or local tax laws.

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SHARES AVAILABLE FOR FUTURE SALE

General. Upon completion of the Offering, there will be 13,085,563 shares
of Common Stock issued and outstanding (13,595,563 if the over-allotment option
for the Offering is exercised in full) and 2,272,727 shares of Series B
Preferred Stock issued and outstanding. In addition, approximately 553,000
shares of Common Stock are issuable upon exercise of the Merger Warrants,
184,900 shares of Common Stock are issuable upon exercise of the USAA Warrant,
563,758 shares of Common Stock are issuable upon exercise by the Company of the
USAA Option (assuming the election by USAA to receive Common Stock in lieu of
cash, a property purchase price of $10.5 million and an average trading price
for the applicable period of $18.625), 2,272,727 shares of Common Stock (subject
to adjustment) are issuable upon conversion of shares of Series B Preferred
Stock and 1,000,000 shares of Common Stock are reserved for issuance under the
Stock Plan. See "Certain Relationships and Related Party Transactions." All of
the 3,400,000 shares of Common Stock issued in the Offering (3,910,000 if the
over-allotment option for the Offering is exercised in full) and 9,685,563
currently outstanding shares of Common Stock will be fully tradable without
registration or other restrictions under the Securities Act, except for shares
purchased by an "affiliate" of the Company. As described under "Description of
Stock -- Restrictions on Ownership and Transfer," shares of Common Stock are
subject to certain restrictions on their ownership and transfer to help the
Company maintain REIT status under the Code.

The 1,400 shares of Common Stock issued in connection with the formation,
initial capitalization and REIT qualification of the Company, the 184,900 shares
of Common Stock issuable upon exercise of the USAA Warrant, the estimated
563,758 shares of Common Stock issuable in connection with the possible exercise
of the USAA Option, the 2,272,727 shares of Series B Preferred issued in the
Preferred Stock Private Placement, the 2,272,727 shares of Common Stock issuable
upon conversion of those shares of Series B Preferred Stock, the 191,400 shares
purchased by the Company's officers in February and March of 1996 and the
1,000,000 shares of Common Stock reserved for issuance under the Stock Plan
(collectively, the "Restricted Shares") will be "restricted shares" within the
meaning of that term under Rule 144 of the Securities Act, unless the Company
registers under the Securities Act the initial issuance of such shares that have
not yet been issued, or such shares that are outstanding are resold under an
effective registration statement under the Securities Act or an applicable
exemption from registration. Certain stockholders (Hunt, USAA, Ameritech and
OTR) have entered into agreements with the Company which provide, among other
things and subject to certain exceptions, that they will not sell, assign or
transfer certain shares of Common Stock without the consent of the Company until
February 23, 1997. The Company expects to file a registration statement with
respect to the Restricted Shares issuable under the Stock Plan, in which case
those shares may be resold without restriction under the Securities Act unless
they are held by affiliates of the Company.

The Company, its executive officers and directors, Hunt, USAA, Ameritech
and OTR, who own Restricted Shares, have agreed, subject to certain exceptions,
that they will not, directly or indirectly, offer, sell, offer to sell, contract
to sell, pledge, grant any option to purchase or otherwise dispose or transfer
(or announce any offer, sale, offer of sale, contract of sale, pledge, grant of
any option to purchase or other disposition or transfer) of any shares of Common
Stock or other capital stock of the Company, or any securities convertible into
or exercisable or exchangeable for any shares of Common Stock or any other
capital stock of the Company without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, for a period of 90 days
from the date of this Prospectus.

Restrictions on Resales by Affiliates of the Trusts. Persons and entities
that have been affiliates of the Trusts may not sell the shares of Common Stock
or Merger Warrants they received from the Company in the Merger, except: (i)
under an effective registration statement under the Securities Act covering the
shares or warrants offered for resale; (ii) pursuant to the exemption for such
resales provided by Rule 145 of the Securities Act or (iii) pursuant to any
other applicable exemption under the Securities Act.

Under Rule 145, those former affiliates will be entitled to resell, within
any three-month period, a number of shares of Common Stock that does not exceed
the greater of 1% of the then-outstanding number of shares of Common Stock or 1%
of the average weekly trading volume of those shares during the four calendar
weeks preceding each such sale. These same rules will also apply to any Merger
Warrants received by such affiliates.

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The Company obtained written agreements from their executive officers, directors
and other affiliates containing appropriate representations and commitments
intended to ensure compliance with the Securities Act respecting shares and
warrants received by them in the Merger or in a distribution by Trust 83.

Restrictions on Resales of Restricted Shares and Resales by the Company
Affiliates. The Restricted Shares may not be resold except: (i) under an
effective registration statement under the Securities Act covering the shares
offered for resale; (ii) under the exemption for such resales provided by Rule
144 of the Securities Act or (iii) pursuant to another applicable exemption
under the Securities Act.

On February 23, 1996, Hunt, USAA, Ameritech, OTR and the Company entered
into an Amended and Restated Investor Rights Agreement under which Hunt, USAA,
Ameritech and OTR have the right to require the Company to register the Common
Stock held by them (including the shares issuable upon conversion of the Series
B Preferred) pursuant to a "shelf" registration statement. In addition, until
February 23, 2000 (which date may be extended to February 23, 2002 for any of
Hunt, USAA, Trust 83, Ameritech or OTR that is then an affiliate of the
Company), each such investor and certain transferees have the right to require
the Company to file a single registration statement with respect to shares of
Common Stock held by it, if such shares have a fair market value in excess of $1
million. Further, since February 23, 1996, each such investor has certain
"piggyback" registration rights for the Common Stock held by it (including the
shares issuable upon conversion of the Series B Preferred) with respect to
registration statements filed by the Company. See "Recent Developments -- The
Preferred Stock Private Placement."

The holders of Restricted Shares may also be able to sell their shares
without registration in accordance with the exemption provided by Rule 144 under
the Securities Act. In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated with them in accordance with Rule 144)
who has beneficially owned "restricted shares" (defined generally as shares
acquired from the issuer or an affiliate in a non-public transaction) for at
least two years, as well as any person who purchased unrestricted shares on the
open market who may be deemed an affiliate of the Company, would be entitled to
sell, within any three-month period, a number of shares of Common Stock that
does not exceed the greater of 1% of the then-outstanding number of shares of
Common Stock or 1% of the average weekly trading volume of those shares during
the four calendar weeks preceding each such sale. After Restricted Shares are
held for three years, a person who is not then deemed an affiliate of the
Company is entitled to sell such shares under Rule 144 without regard to these
volume limitations. Sales of shares of Common Stock by affiliates of the Company
will continue to be subject to the volume limitations, unless resold under an
effective registration statement under the Securities Act.

As defined in Rule 144, an "affiliate" of an issuer is a person who
directly or indirectly, through the use of one or more intermediaries, controls,
is controlled by or is under common control with, such issuer. Hunt, USAA,
Ameritech and OTR may be deemed affiliates of the Company under the Securities
Act. By having shares of Common Stock registered for resale under the Securities
Act, Hunt, USAA, Ameritech and OTR may resell those shares without regard to the
volume limitations of Rule 144 even if they would be deemed affiliates of the
Company under the Securities Act.

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UNDERWRITING

The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions contained in an Underwriting Agreement among
the Company and the Underwriters, to purchase from the Company the number of
shares of Common Stock set forth below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Prudential Securities Incorporated...................................... 1,133,334
Donaldson, Lufkin & Jenrette Securities Corporation..................... 1,133,333
Robertson, Stephens & Company LLC....................................... 1,133,333
---------
Total......................................................... 3,400,000
=========
</TABLE>

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.

The Underwriters have advised the Company that they propose to offer the
shares of Common Stock initially at the public offering price set forth on the
cover page of this Prospectus, that the Underwriters may allow to selected
dealers a concession of $0.56 per share, and that such dealers may reallow a
concession of $0.10 per share to certain other dealers. After the initial public
offering, the offering price and the concessions may be changed by the
Underwriters.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 510,000 additional shares of
Common Stock at the initial public offering price, less the underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of shares of Common Stock offered hereby.
To the extent such option to purchase is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to 3,400,000.

The Company has agreed to indemnify the several Underwriters or to
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act.

The Company, its executive officers and directors, Hunt, USAA, Ameritech
and OTR have agreed, subject to certain exceptions, that they will not, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise dispose or transfer (or announce any offer,
sale, offer of sale, contract of sale, pledge, grant of any option to purchase
or other disposition or transfer) of any shares of Common Stock or other capital
stock of the Company, or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock or any other capital stock of the
Company without the prior written consent of Prudential Securities Incorporated,
on behalf of the Underwriters, for a period of 90 days from the date of this
Prospectus.

The Prudential Insurance Company of America (of which Prudential Securities
Incorporated is a wholly owned subsidiary) is the lender with respect to the
Mortgage Loan with an outstanding aggregate principal amount of $66.1 million at
September 30, 1996. See "Business and Properties -- The Mortgage Loan."

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LEGAL MATTERS

Certain legal matters described under "Federal Income Tax Considerations"
will be passed upon for the Company by Vinson & Elkins L.L.P., Dallas, Texas. In
addition, certain legal matters will be passed upon for the Underwriters by
Brown & Wood LLP, New York, New York. The legality of the Common Stock offered
hereby will be passed upon for the Company by Ballard Spahr Andrews & Ingersoll,
Baltimore, Maryland. In addition, Vinson & Elkins L.L.P. and Brown & Wood LLP
will rely on Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, as to
certain matters of Maryland law.

EXPERTS

The respective audited financial statements and schedules of the Company,
the Merged Trusts Historical Combined, the Trust 83 Properties and the Three
Acquired Properties included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the periods
indicated in their reports and are included in this Prospectus in reliance upon
the authority of that firm as experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"SEC" or the "Commission"), a Registration Statement on Form S-11 under the
Securities Act and the rules and regulations adopted thereunder, with respect to
the Common Stock offered by this Prospectus. This Prospectus, which is part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement and exhibits thereto. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and such exhibits, copies of which may be examined
without charge at, or obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and which are also available for inspection
and copying at the regional offices of the Commission located at 13th Floor, 7
World Trade Center, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. The Registration Statement and such
exhibits may also be obtained from the web site that the SEC maintains at
http://www.sec.gov. In addition, the Common Stock is listed on the NYSE, and
such materials can be inspected and copied at the NYSE, 20 Broad Street, New
York, New York 10005. Statements contained in this Prospectus as to the contents
of any contract or other document that is filed as an exhibit to the
Registration Statement are not necessarily complete, and each such statement is
qualified in its entirety by reference to the full text of such contract or
document.

The Company is required to file reports, proxy statements and other
information with the Commission pursuant to the Exchange Act. Such reports,
proxy statements, and other information can be inspected and copied at the
locations described above. Copies of such materials can be obtained by mail from
the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates.

113
<PAGE> 114

GLOSSARY

"ACM" means asbestos containing materials.

"ADA" means the Americans with Disabilities Act.

"Ameritech" means State Street Bank and Trust Company, as trustee for the
Ameritech Pension Trust (or any successor trustee).

"Asset Purchase" means the purchase by the Company of all of Trust 83's
properties (except the Charleston Business Park property) and certain other
assets, in accordance with the Amended and Restated Asset Purchase Agreement
between the Company and Trust 83 dated as of November 10, 1995.

"Base Rent" means contractual gross rent and, therefore, excludes payments
by tenants on account of real estate taxes and operating expense reimbursements.

"Board" means the board of directors of the Company.

"Bylaws" means the Second Amended and Restated Bylaws of the Company.

"Charter" means the Third Amended and Restated Articles of Incorporation of
the Company.

"Code" means the Internal Revenue Code of 1986, as amended, together with
its predecessor.

"Commission" means the Securities and Exchange Commission.

"Committee" means the committee appointed by the Board to administer the
Stock Plan.

"Common Stock" means the Company's common stock, par value $.001 per share.

"Company" means Meridian Industrial Trust, Inc., a Maryland corporation,
and one or more of its subsidiaries, as appropriate.

"Consolidation Transactions" means the Merger and the Asset Purchase.

"Control Share" means voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power. Control Shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.

"Control Share Law" means Sections 3-701 through 3-709 of the MGCL.

"Conversion Price" means the price at which the Series B Preferred Stock
may be converted into Common Stock at the option of the holder.

"Effective Rent" means Base Rent adjusted on a straight-line basis for free
rent periods and contractual rent increases.

"Equity Stock" means Common and Preferred Stock of the Company.

"Excepted Holders" means a person whom the Board has determined will be
permitted to hold shares in excess of the Ownership Limit, based upon
appropriate representations and undertakings designed to protect the Company's
REIT status.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"FIRPTA" means the Foreign Investment in Real Property Act.

"Five or Fewer Requirement" means the requirement under the Code that not
more than 50% in value of the Company's outstanding shares of capital stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) during the last half of a taxable year (other than the first year).

114
<PAGE> 115

"Funds From Operations" means, in accordance with the resolution adopted by
the Board of Governors of NAREIT, net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization of real
estate assets, and after adjustment from unconsolidated partnerships and joint
ventures.

"Hunt" means Hunt Realty Acquisitions, L.P., a Delaware limited
partnership.

"Hunt Realty" means Hunt Realty Corporation, a Delaware corporation.

"Independent Director" means a director of the Company who is not an
officer, full-time employee or member of the immediate family of an officer in
full-time employment of the Company.

"Interested Stockholder Law" means the provisions of the MGCL (Sections
3-601 through 3-604) that place restrictions on transactions between Maryland
corporations and stockholders who have acquired 10% or more of a corporation's
stock.

"Interested Stockholder" means, in accordance with the MGCL, any person who
owns 10% or more of the voting power of the then outstanding voting stock of the
corporation.

"IRS" means the Internal Revenue Service.

"LIBOR" means the London Interbank Offered Rate.

"Merged Trusts" means Trust IV, Trust VI and Trust VII all of which were
merged into the Company on February 23, 1996.

"Merger" means the merger of Trusts IV, VI and VII into the Company in
accordance with the Merger Agreement and applicable law.

"Merger Agreement" means the Amended and Restated Agreement and Plan of
Merger dated as of November 10, 1995 among the Merged Trusts and the Company.

"Merger Warrants" means the warrants to purchase shares of Common Stock to
be issued by the Company to the holders of Trust VI common stock and Trust VII
common stock in connection with the Merger.

"MGCL" means the Maryland General Corporation Law, as amended from time to
time.

"Mortgage Loan" means the Loan Administration Agreement between The
Prudential Insurance Company of America and the Company, as amended.

"MPP" means Meridian Point Properties, Inc., a California corporation.

"NYSE" means the New York Stock Exchange.

"Offering" means the public offering of 3,400,000 shares of the Company's
Common Stock made pursuant to this Prospectus.

"Organizational Documents" means the Charter and Bylaws.

"OTR" means OTR, an Ohio general partnership acting on behalf of and as
nominee for The State Teachers Retirement Board of Ohio.

"Ownership Limit" means the restriction contained in the Charter providing
that, subject to certain exceptions, no holder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 8.5% of the lesser
of the number or value of the outstanding shares of any class of the Company's
stock.

"Preferred Stock" means all series of preferred stock of the Company.

"Preferred Stock Private Placement" means the issuance by the Company of
shares of the Series B Preferred to Ameritech and OTR in a transaction not
involving a public offering.

"Prohibited Owner" means the person who would otherwise be considered the
owner of Shares-in-Trust had such shares not been transferred to a trustee
because such owner violated the Ownership Limit.

115
<PAGE> 116

"Properties" means all of the properties owned by the Company, including
the Property Transactions.

"Property Transactions" means the acquisition of each of the Crowfarn
Property, Rustin Avenue Property, Wanamaker Avenue Property, Gold River Lane
Property, Mission Oaks Boulevard Property and Meyer Circle Property and the
completion of the construction of each of the Water's Ridge Drive and Sarah Jane
Parkway build-to-suit development projects.

"Prospectus" means this prospectus.

"Prudential Insurance" means The Prudential Insurance Company of America.

"Recapitalization" means the May 31, 1995 closing of the transactions under
the stock purchase agreements between Hunt and each of the Merged Trusts and the
stock purchase agreements between USAA and each of the Merged Trusts, and the
concurrent restructuring or retirement of the Trusts' indebtedness.

"Refinancing" means (i) the retirement of certain Trust indebtedness that
took place when the Consolidation Transactions closed using the net proceeds of
the Preferred Stock Private Placement and (ii) the availability of funds under
the Unsecured Credit Facility.

"REIT" means a real estate investment trust meeting the requirements of
Sections 856 through 860 of the Code.

"REIT Taxable Income" means taxable income of a REIT, computed as if it
were an ordinary corporation, with certain modifications.

"Rule 144" means Rule 144 adopted by the SEC under the Securities Act.

"Rule 145" means Rule 145 adopted by the SEC under the Securities Act.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Series A Preferred Stock" means the Series A Preferred Stock, par value
$.001 per share, of the Company that was redeemed or canceled in the Merger.

"Series B Preferred Stock" means the Series B Preferred Stock, par value
$.001 per share, of the Company issued in the Preferred Stock Private Placement.

"Shares-in-Trust" means shares of Equity Stock (including warrants or
options to acquire Equity Stock) that would be automatically transferred to a
trustee for the benefit of a charitable beneficiary because they would cause a
person to be treated as owning Equity Stock in violation of the Company's
Ownership Limit.

"Stock Plan" means the Amended and Restated Employee and Director Incentive
Stock Plan of the Company.

"Trust 83" means Meridian Point Realty Trust '83, a California business
trust.

"Trust 84" means Sierra Capital Realty Trust '84 Co., a Missouri
corporation.

"Trust IV" means Meridian Point Realty Trust IV Co., a Missouri corporation
that merged into the Company on February 23, 1996.

"Trust VI" means Meridian Point Realty Trust VI Co., a Missouri corporation
that merged into the Company on February 23, 1996.

"Trust VII" means Meridian Point Realty Trust VII Co., a Missouri
corporation that merged into the Company on February 23, 1996.

"Trust VIII" means Meridian Point Realty Trust VIII Co., a Missouri
corporation.

"Trusts" means Trust IV, Trust VI, Trust VII and Trust 83, collectively.

116
<PAGE> 117

"Unsecured Credit Facility" means the Company's Revolving Credit Agreement
with The First National Bank of Boston, Texas Commerce Bank and NationsBank of
Texas dated as of February 26, 1996, as amended.

"USAA" means USAA Real Estate Company, a Delaware corporation which is an
indirect, wholly-owned subsidiary of United Services Automobile Association, a
reciprocal interinsurance exchange formed under the Texas Insurance Code.

"USAA Option" means the option USAA granted to the Company to purchase
certain industrial property located in Lakeland, Florida and the right of first
refusal to purchase certain land and improvements located in Chicago, Illinois.

"USAA Option Property" means the 291,564 square foot industrial property
located in Lakeland, Florida that is the subject of the USAA Option.

"USAA Warrant" means the warrant to purchase shares of Common Stock that
was originally issued by the Company to USAA as consideration for the USAA
Option.

117
<PAGE> 118

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION
MERIDIAN INDUSTRIAL TRUST, INC. (UNAUDITED)
- Pro Forma condensed consolidated balance sheet as of September 30, 1996 with
accompanying notes and adjustments................................................ F-4
- Pro Forma condensed consolidated statement of operations for the nine months ended
September 30, 1996 with accompanying notes and adjustments........................ F-6
- Pro Forma condensed consolidated statement of operations for the year ended
December 31, 1995 with accompanying notes and adjustments......................... F-7
- Historical As Adjusted condensed consolidated statement of operations for the nine
months ended September 30, 1996 with accompanying notes and adjustments........... F-11
- Historical As Adjusted condensed consolidated statement of operations for the year
ended December 31, 1995 with accompanying notes and adjustments................... F-13
HISTORICAL FINANCIAL INFORMATION
MERIDIAN INDUSTRIAL TRUST, INC. -- SEPTEMBER 30, 1996 (UNAUDITED)
- Consolidated condensed balance sheets as of September 30, 1996 and December 31,
1995.............................................................................. F-17
- Consolidated condensed statements of operations for the three months ended
September 30, 1996 and 1995 and the nine months ended September 30, 1996 and for
the period from May 18, 1995 (inception) to September 30, 1995.................... F-18
- Consolidated condensed statements of cash flows for the nine months ended
September 30, 1996 and for the period from May 18, 1995 (inception) to September
30, 1995.......................................................................... F-19
- Notes to financial statements..................................................... F-21
MERIDIAN INDUSTRIAL TRUST, INC. -- DECEMBER 31, 1995
- Report of independent public accountants.......................................... F-27
- Balance sheet as of December 31, 1995............................................. F-28
- Statement of operations for the period from inception to December 31, 1995........ F-29
- Statement of stockholders' deficit for the period from inception to December 31,
1995.............................................................................. F-30
- Statement of cash flows for the period from inception to December 31, 1995........ F-31
- Notes to financial statements..................................................... F-32
MERGED TRUSTS HISTORICAL COMBINED
- Report of independent public accountants.......................................... F-36
- Historical combined balance sheets as of December 31, 1995 and 1994............... F-37
- Historical combined statements of operations for the period from January 1, 1996
to February 23, 1996 and for each of the three years in the period ended December
31, 1995.......................................................................... F-38
- Historical combined statements of stockholders' equity for the period from January
1, 1996 to February 23, 1996 and for each of the three years in the period ended
December 31, 1995................................................................. F-39
- Historical combined statements of cash flows for the period from January 1, 1996
to February 23, 1996 and for each of the three years in the period ended December
31, 1995.......................................................................... F-40
- Notes to historical combined financial statements................................. F-42
- Schedule II -- Historical combined valuation and qualifying accounts.............. F-52
- Schedule III -- Historical combined real estate and accumulated depreciation...... F-53
</TABLE>

F-1
<PAGE> 119

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THREE ACQUIRED PROPERTIES
- Report of independent public accountants.......................................... F-55
- Combined statements of revenue and certain expenses for the period from January 1,
1996 to the earlier of date of acquisition or September 30, 1996 (unaudited) and
for the year ended December 31, 1995.............................................. F-56
- Notes to combined statements of revenue and certain expenses...................... F-57
TRUST 83 PROPERTIES
- Report of independent public accountants.......................................... F-59
- Combined statements of revenue and certain expenses for each of the three years in
the period ended December 31, 1995................................................ F-60
- Notes to combined statements of revenue and certain expenses...................... F-61
</TABLE>

F-2
<PAGE> 120

MERIDIAN INDUSTRIAL TRUST, INC.

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

BACKGROUND

The accompanying unaudited pro forma condensed consolidated balance sheet
as of September 30, 1996 has been prepared to reflect (i) the Property
Transactions, (ii) the completion of the Offering, and (iii) the paydown of the
Unsecured Credit Facility using the net proceeds from the Offering and cash on
hand, as if such transactions and adjustments had occurred on September 30,
1996. The accompanying unaudited pro forma condensed consolidated statements of
operations have been prepared to reflect (i) the incremental effect of the
Property Transactions and completed acquisitions, (ii) the incremental effect of
four property dispositions occurring prior to September 30, 1996, (iii) the
incremental effects of the paydown of the Unsecured Credit Facility using the
net proceeds from the Company's March 1996 offering of 1,500,000 shares of
Common Stock, and (iv) the paydown of the Unsecured Credit Facility Paydown
using the net proceeds from this Offering and cash on hand, as if such
transactions and adjustments had occurred on January 1, 1995.

These unaudited pro forma condensed consolidated statements should be read
in connection with the respective historical as adjusted financial information
and notes thereto and historical financial statements and notes thereto included
elsewhere in this Prospectus. In the opinion of management, the pro forma
condensed consolidated financial information provides for all adjustments
necessary to reflect the effects of the Property Transactions and completed
acquisitions, property dispositions, March 1996 offering, this Offering, and the
paydown of the Unsecured Credit Facility.

The pro forma condensed consolidated information is unaudited and is not
necessarily indicative of the consolidated results that would have occurred if
the transactions and adjustments reflected therein had been consummated in the
period or on the date presented, or on any particular date in the future, nor
does it purport to represent the financial position, results of operations or
changes in cash flows for future periods.

F-3
<PAGE> 121

MERIDIAN INDUSTRIAL TRUST, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
UNSECURED
CREDIT
PROPERTY FACILITY PRO
HISTORICAL (1) TRANSACTIONS (2) OFFERING (3) PAYDOWN (4) FORMA
-------------- ---------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in real estate,
net...................... $ 283,655 $ 55,928 $ -- $ -- $339,583
Cash and cash
equivalents.............. 1,622 -- 57,718 (57,840) 1,500
Restricted cash............ 1,944 -- -- -- 1,944
Other assets............... 5,479 -- -- -- 5,479
-------- ------- ------- -------- --------
Total Assets..... $ 292,700 $ 55,928 $ 57,718 $ (57,840) $348,506
======== ======= ======= ======== ========
LIABILITIES
Mortgage loans............. $ 66,094 $ 5,758 $ -- $ -- $ 71,852
Unsecured credit
facility................. 41,900 50,170 (57,840) 34,230
Other liabilities.......... 9,980 -- -- -- 9,980
-------- ------- ------- -------- --------
Total
Liabilities.... 117,974 55,928 -- (57,840) 116,062
-------- ------- ------- -------- --------
STOCKHOLDERS' EQUITY
Common stock and preferred
stock.................... 12 -- 3 -- 15
Additional paid-in
capital.................. 176,771 -- 57,715 -- 234,486
Distributions in excess of
income................... (2,057) -- -- -- (2,057)
-------- ------- ------- -------- --------
Total
Stockholders'
Equity......... 174,726 -- 57,718 -- 232,444
-------- ------- ------- -------- --------
$ 292,700 $ 55,928 $ 57,718 $ (57,840) $348,506
======== ======= ======= ======== ========
</TABLE>

F-4
<PAGE> 122

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES AND ADJUSTMENTS TO
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)

(1) Reflects the historical condensed consolidated balance sheet of the Company
as of September 30, 1996.

(2) Reflects the purchase of six properties in connection with the Property
Transactions which the Company either is currently in the process of
acquiring and that the Company's management deems probable of closing or
have recently closed. Such property acquisitions aggregate to a cost of
approximately $42,666. The Company expects that these acquisitions will
initially be funded with draws on its Unsecured Credit Facility, together
with assumption of a mortgage in the amount of $5,758.

Also, reflects the completion of two build-to-suit properties currently in
process (the Water's Ridge Drive and Sarah Jane Parkway properties), at an
aggregate estimated cost to complete of approximately $13,262. The Company
expects to fund the remaining development costs with borrowings under its
Unsecured Credit Facility and expects to complete the projects prior to year
end.

(3) Reflects completion of the Offering comprising the issuance of 3,400,000
shares of the Company's Common Stock at an Offering price of $18.25 per
share resulting in gross proceeds of $62,050. In connection with the
Offering, the Company will incur costs of approximately $4,332.

(4) Reflects the paydown of borrowings on the Unsecured Credit Facility with the
net proceeds from the Offering and cash on hand of approximately $122.

F-5
<PAGE> 123

MERIDIAN INDUSTRIAL TRUST, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PROPERTY
TRANSACTIONS
AND UNSECURED
HISTORICAL AS COMPLETED PROPERTY PRIOR CREDIT FACILITY
ADJUSTED(1) ACQUISITIONS(2) DISPOSITIONS(3) OFFERING(4) PAYDOWN(5) PRO FORMA
--------------- --------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenues............ $ 29,246 $ 9,367 $(578) $ -- $ -- $ 38,035
Interest and other
income................... 631 -- (131) -- -- 500
---------- ----- ---- ---- ------- -----------
Total Revenue.... 29,877 9,367 (709) -- -- 38,535
---------- ----- ---- ---- ------- -----------
EXPENSES
Property operating costs... 3,304 518 (146) -- -- 3,676
Real estate taxes.......... 4,160 636 (45) -- -- 4,751
Interest expense........... 5,299 5,819 (280) (495) (3,100) 7,243
General and
administrative........... 3,710 -- -- -- -- 3,710
Depreciation and
amortization............. 3,918 1,626 (70) -- -- 5,474
---------- ----- ---- ---- ------- -----------
Total operating
expenses....... 20,391 8,599 (541) (495) (3,100) 24,854
---------- ----- ---- ---- ------- -----------
Net income................. 9,486 768 (168) 495 3,100 13,681
Series B preferred
dividends................ (2,123) -- -- -- -- (2,123)
---------- ----- ---- ---- ------- -----------
Net income allocable to
common................... $ 7,363 $ 768 $(168) $ 495 $ 3,100 $ 11,558
========== ===== ==== ==== ======= ===========
Net income per common
share.................... $ 0.87
===========
Weighted average common
shares outstanding....... 13,296,806
===========
</TABLE>

F-6
<PAGE> 124

MERIDIAN INDUSTRIAL TRUST, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PROPERTY
TRANSACTIONS
HISTORICAL AND REPAYMENT OF
AS COMPLETED PROPERTY PRIOR FACILITY
ADJUSTED(1) ACQUISITIONS(2) DISPOSITIONS(3) OFFERING(4) BORROWINGS(5) PRO FORMA
------------ --------------- --------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenues................ $ 38,103 $13,992 $(1,328) $ -- $ -- $ 50,767
Interest and other income...... 713 -- (113) -- -- 600
---------- ------- ------- ------- ------- ----------
Total Revenue........ 38,816 13,992 (1,441) -- -- 51,367
---------- ------- ------- ------- ------- ----------
EXPENSES
Property operating costs....... 4,847 870 (274) -- -- 5,443
Real estate taxes.............. 5,439 908 (88) -- -- 6,259
Interest expense............... 7,645 8,512 (552) (1,882) (4,064) 9,659
General and administrative..... 4,800 -- -- -- -- 4,800
Depreciation and
amortization................. 5,050 2,686 (534) -- -- 7,202
---------- ------- ------- ------- ------- ----------
Total operating
expenses........... 27,781 12,976 (1,448) (1,882) (4,064) 33,363
---------- ------- ------- ------- ------- ----------
Net income..................... 11,035 1,016 7 1,882 4,064 18,004
Series B preferred dividends... (2,818) -- -- -- -- (2,818)
---------- ------- ------- ------- ------- ----------
Net income allocable to
common....................... $ 8,217 $ 1,016 $ 7 $ 1,882 $ 4,064 $ 15,186
========== ======= ======= ======= ======= ==========
Net income per common
share........................ $ 1.14
==========
Weighted average common shares
outstanding.................. 13,296,806
==========
</TABLE>

F-7
<PAGE> 125

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES AND ADJUSTMENT TO
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)

1. Reflects the historical as adjusted operations of the Company, excluding
gains and losses on sales of properties and extraordinary items. See the
historical as adjusted condensed consolidated statements of operations included
elsewhere in this prospectus.

2. Reflects the incremental effect (i.e., as if such activities had
occurred or been completed on January 1, 1995) of the completed acquisitions
comprising three properties acquired prior to September 30, 1996 and the
Property Transactions comprising, (i) six properties that the Company either is
currently in the process of acquiring and that the Company's management deems
probable of closing or have closed and (ii) completion of two build-to-suit
properties currently in process. Thus, the incremental effect reflects the
operations prior to acquisition by the Company of the six acquired properties
and the estimated revenues and expenses of the two build-to-suit properties. The
estimated revenues of the two build-to-suit properties are based upon signed
lease agreements. The incremental depreciation and amortization is based upon
estimated asset lives of 35 years. The estimated incremental interest expense is
based on pro forma borrowings on the Company's Unsecured Credit Facility
consisting of (i) approximately $49,127 used to acquire three properties prior
to September 30, 1996, (ii) approximately $36,908 that will be used to fund the
six properties that the Company currently is in the process of acquiring or has
acquired, and (iii) approximately $5,758 relating to the assumption of a
mortgage loan bearing a fixed interest rate of 10% in connection with an
acquisition, and (iv) approximately $25,740 relating to development of the two
build-to-suit properties (including approximately $13,262 of costs that will be
funded subsequent to September 30, 1996). Each of the Unsecured Credit Facility
interest adjustments reflects an assumed interest rate of 7.1%.

The following table sets forth the revenues and certain expenses of the
above mentioned properties for the period from January 1, 1996 to the earlier of
the date of acquisition or September 30, 1996 and for the year ended December
31, 1995.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------------------------------------
RENTAL REVENUES
IN EXCESS
REAL ESTATE OF CERTAIN
RENTAL REVENUES OPERATING COSTS TAXES EXPENSES
--------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Acquisitions:
Arenth Avenue................... $ 303 $ -- $ (41) $ 262
Overlake Place.................. 403 (1) (35) 367
Crosswind Drive................. 1,882 (13) (250) 1,619
Crosswind Drive Expansion....... 686 -- -- 686
Rustin Avenue................... 384 (35) (34) 315
Wanamaker Avenue................ 395 (20) (35) 340
Crowfarn Drive.................. 242 (13) (30) 199
Gold River Lane................. 1,031 (5) -- 1,026
Mission Oaks Blvd............... 1,116 (352) (81) 683
Meyer Circle.................... 857 (59) (130) 668
Developments:
Water's Ridge Drive............. 866 (5) -- 861
Sarah Jane Parkway.............. 1,202 (15) -- 1,187
------ ----- ----- ------
Totals..................... $ 9,367 $(518) $(636) $ 8,213
====== ===== ===== ======
</TABLE>

F-8
<PAGE> 126

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------------
RENTAL REVENUES
IN EXCESS
REAL ESTATE OF CERTAIN
RENTAL REVENUES OPERATING COSTS TAXES EXPENSES
--------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Acquisitions:
Arenth Avenue................... $ 1,320 $ -- $(162) $ 1,158
Overlake Place.................. 828 -- -- 828
Crosswind Drive................. 2,477 (11) (333) 2,133
Crosswind Drive Expansion....... 915 -- -- 915
Rustin Avenue................... 512 (47) (45) 420
Wanamaker Avenue................ 526 (27) (46) 453
Crowfarn Drive.................. 323 (17) (40) 266
Gold River Lane................. 1,375 (6) -- 1,369
Mission Oaks Blvd............... 1,817 (657) (108) 1,052
Meyer Circle.................... 1,142 (79) (174) 889
Developments:
Water's Ridge Drive............. 1,155 (6) -- 1,149
Sarah Jane Parkway.............. 1,602 (20) -- 1,582
------ ----- ----- ------
$13,992 $(870) $(908) $12,214
====== ===== ===== ======
</TABLE>

3. Reflects the disposition of four properties during 1996 (one in May and
three in August). The net proceeds from the sales aggregated to approximately
$7,769 and were used to repay borrowings under the Company's Unsecured Credit
Facility. The net gain on the sales amounted to approximately $177.

4. Reflects the incremental effect of the Company's March 1996 offering of
1,500,000 shares of Common Stock. The net proceeds of approximately $23,200 and
cash on hand were used to repay pro forma borrowings on the Company's Unsecured
Credit Facility of approximately $26,505. The estimated interest reduction is
based upon an assumed interest rate of 7.1%.

5. Reflects the repayment of approximately $57,840 of pro forma borrowings
under the Company's Unsecured Credit Facility with the net proceeds from the
Offering and cash on hand. The estimated interest reduction is based upon an
assumed interest rate of 7.1%. Also, reflects a reduction of the unused facility
fees on the Company's Unsecured Credit Facility based upon a pro forma unused
facility of approximately $40,770 at 0.25%. The Company's Unsecured Credit
Facility bears a variable rate of interest at LIBOR plus 1.70%. An increase or
decrease of 0.125% (1/8%) in LIBOR will result in an annual increase or decrease
in pro forma interest expense of $43.

6. Pro forma taxable income for the twelve months ended September 30, 1996
is approximately $15,001.

F-9
<PAGE> 127

MERIDIAN INDUSTRIAL TRUST, INC.

HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

BACKGROUND

The accompanying unaudited historical as adjusted condensed consolidated
statements of operations for the nine months ended September 30, 1996 and for
the year ended December 31, 1995 has been prepared to reflect (i) the respective
historical results of the Merged Trusts and the Trust 83 Properties for the
respective periods, (ii) the incremental effects of the Merger, the Refinancing
and the Recapitalization on the historical results of the Merged Trusts and the
Trust 83 Properties, and (iii) the historical results of the Company, to reflect
the post-Merger operations of the Company as if such transactions and
adjustments had occurred on January 1, 1995. The Merger, Asset Purchase and
Refinancing each closed concurrently on February 23, 1996. In the opinion of
management, the historical as adjusted condensed consolidated financial
information provides for all adjustments necessary to reflect the effects of the
Merger, the Asset Purchase and the Refinancing.

These unaudited historical as adjusted condensed consolidated statements
should be read in connection with the historical financial statements and notes
thereto included elsewhere in this Prospectus. In the opinion of management, the
historical as adjusted condensed consolidated financial information provides for
all adjustments necessary to reflect the effects of the disposition and
acquisition of certain properties during 1995, the Recapitalization, the Merger,
the Asset Purchase and the Refinancing.

F-10
<PAGE> 128

MERIDIAN INDUSTRIAL TRUST, INC.

HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JANUARY 1, 1996 TO FEBRUARY 23, 1996
------------------------------------------------------------------------
MERGED TRUSTS HISTORICAL AS
HISTORICAL ASSET ADJUSTED HISTORICAL AS
COMBINED(1) PURCHASE(2) MERGER(3) REFINANCING(4) MERGED TRUSTS HISTORICAL(5) ADJUSTED
------------- ----------- --------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental
revenues........... $ 4,997 $ 785 $ -- $ -- $ 5,782 $23,464 $29,246
Interest and other
income........... 161 1 -- -- 162 469 631
------- ----- ------- ------ ------- ------- -------
Total
Revenue........ 5,158 786 -- -- 5,944 23,933 29,877
------- ----- ------- ------ ------- ------- -------
EXPENSES
Property operating
costs............ 912 216 (308) -- 820 2,484 3,304
Real estate
taxes............ 812 79 -- -- 891 3,269 4,160
Interest
expense.......... 1,506 234 -- (609) 1,131 4,168 5,299
General and
administrative... 1,162 -- (452) -- 710 3,000 3,710
Depreciation and
amortization..... 1,308 208 (832) -- 684 3,234 3,918
------- ----- ------- ------ ------- ------- -------
Total operating
expenses....... 5,700 737 (1,592) (609) 4,236 16,155 20,391
------- ----- ------- ------ ------- ------- -------
Net income......... (542) 49 1,592 609 1,708 7,778 9,486
Series B preferred
dividends........ -- -- -- (417) (417) (1,706) (2,123)
------- ----- =------ ------ ------- ------- -------
Net income
allocable to
common........... $ (542) $ 49 $ 1,592 $ 192 $ 1,291 $ 6,072 $ 7,363
======= ===== ======= ====== ======= ======= =======
</TABLE>

F-11
<PAGE> 129

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES AND ADJUSTMENTS TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)

1. Reflects the historical operations of the Merged Trusts on a combined
basis for the period from January 1, 1996 to the Merger date of February 23,
1996, excluding gains and losses on sales of properties and extraordinary items.

2. Reflects the historical operations of the Trust 83 Properties in
connection with the Asset Purchase for the period from January 1, 1996 to the
Merger date of February 23, 1996, excluding gains and losses on sales of
properties and extraordinary items.

3. Reflects the incremental effects of purchase accounting as a result of
the Merger, together with certain cost adjustments, which result in a decrease
in historical as adjusted expenses for the nine months ended September 30, 1996
as follows: (i) a reduction of depreciation expense of $832 resulting from the
purchase accounting to record the Merger (historical as adjusted depreciation
expense has been calculated on a straight line basis using average useful lives
of 35 years) and (ii) a decrease in general and administrative expenses of $760
comprising a decrease in general and administrative expenses allocated to
property operating costs of $308 and a decrease in corporate office costs of
$452. The reduction reflects a decrease in personnel costs, including salaries
and benefits and a reduction in other administrative expenses, including
accounting, legal and occupancy costs.

4. Reflects the pay down and retirement of $59,983 of the Company's debt
using certain proceeds from (i) the $35,000 private placement of 2,272,277
shares of Series B Preferred Stock completed concurrent with the Asset Purchase
and (ii) $26,505 in borrowings on the Company's Unsecured Credit Facility. The
net reduction in interest expense resulting from the debt retirements is
comprised of the following:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996 TO
FEBRUARY 23, 1996
-------------------
<S> <C>
Decrease resulting from repayment of $59,983 in debt bearing
interest rates ranging from 8.19% to 10.65%....................... $(924)
Decrease in loan fee amortization resulting from debt repayment..... (13)
Increase in interest expense on the Unsecured Credit Facility
borrowings of $26,505 at 7%....................................... 274
Unsecured Credit Facility fees and amortization................... 54
-----
Net reduction............................................. $(609)
=====
</TABLE>

5. Reflects the historical operations of the Company for the period from
January 1, 1996 to September 30, 1996, excluding gains and losses on sales and
extraordinary items.

6. Historical as adjusted taxable income for the twelve months ended
September 30, 1996 is approximately $10,643.

F-12
<PAGE> 130

MERIDIAN INDUSTRIAL TRUST, INC.

HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

MERGED TRUSTS PROPERTY RECAPITAL- ASSET
HISTORICAL HISTORICAL TRANSACTIONS IZATION PURCHASE
(1) COMBINED(2) (3) (4) MERGER(5) SUB-TOTAL (6)
---------- ------------- ------------ ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rentals from real estate
investments.............. $ -- $33,583 $ (45) $ -- $ -- $33,538 $4,565
Interest and other......... 33 1,014 -- -- (350) 697 16
------- ------- ------ ------- ------ ------- ------
Total Revenues............ 33 34,597 (45) -- (350) 34,235 4,581
------- ------- ------ ------- ------ ------- ------
EXPENSES
Interest expense........... -- 10,005 236 (1,024) -- 9,217 1,642
Property taxes............. -- 4,971 (46) -- -- 4,925 514
Property operating costs... -- 5,761 (252) -- (1,530) 3,979 868
General and administrative. 1,326 3,012 -- -- 462 4,800 --
Provision for decrease
in net realizable value.. -- 1,275 (1,275) -- -- -- --
Depreciation and
amortization............. -- 8,721 (98) -- (4,141) 4,482 568
------- ------- ------ ------- ------ ------- ------
Total Expenses............ 1,326 33,745 (1,435) (1,024) (5,209) 27,403 3,592
------- ------- ------ ------- ------ ------- ------
Net Income (Loss).......... (1,293) 852 1,390 1,024 4,859 6,832 989
Preferred dividends(9)..... (29) -- -- -- 29 -- --
------- ------- ------ ------- ------ ------- ------
Net income allocable to
common................... $ (1,322) $ 852 $1,390 $ 1,024 $4,888 $ 6,832 $ 989
======== ======= ====== ======= ====== ======= ======

REFINANCING
----------------------
PRIVATE UNSECURED
PLACEMENT CREDIT HISTORICAL AS
(7) FACILITY(8) ADJUSTED
--------- ----------- -------------
<C> <C> <C>
REVENUES
Rentals from real estate
investments.............. $ -- $ -- $ 38,103
Interest and other......... -- -- 713
------- ----- ---------
Total Revenues............ -- -- 38,816
------- ----- ---------
EXPENSES
Interest expense........... (3,219) 5 7,645
Property taxes............. -- -- 5,439
Property operating costs... -- -- 4,847
General and administrative. -- -- 4,800
Provision for decrease
in net realizable value.. -- -- --
Depreciation and
amortization............. -- -- 5,050
------- ----- ---------
Total Expenses............ (3,219) 5 27,781
------- ----- ---------
Net Income (Loss).......... 3,219 (5) 11,035

Preferred dividends(9)..... (2,818) -- (2,818)
------- ----- ---------
Net income allocable to
common................... $ 401 $ (5) $ 8,217
======= ===== =========
</TABLE>

F-13
<PAGE> 131

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES AND ADJUSTMENTS TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)

1. Reflects the historical operations of the Company for the period from
inception (May 18, 1995) to December 31, 1995 included elsewhere in this
Prospectus.

2. Reflects the Merged Trusts historical combined statement of operations
included elsewhere in this Prospectus.

3. Reflects the incremental effect on operations from the July 1995
disposition of the Paradise Marketplace resulting in a net increase in income
from operations of $1,280 (such increase in net income is primarily attributable
to the historical as adjusted elimination of the provision for decrease in net
realizable value recorded in 1995 prior to the sale of the Paradise
Marketplace). Proceeds from the sale of the Paradise Marketplace were used to
pay down the long-term debt facilities, resulting in a decrease in interest
expense of $207. Also reflects the incremental effect of the November 8, 1995
acquisition of the Olive Branch Distribution Center which results in a net
increase in income from operations of $110 representing the estimated results of
operations prior to acquisition. The Company owns the adjacent property, Olive
Branch, which is occupied by the same tenant. The estimated revenues are based
upon the executed lease agreement that provides for monthly base rent of $70 and
reimbursement of operating expenses, estimated to be approximately $5 per month.
Estimated annual operating expenses of $58, including repairs and maintenance
and management fees, are based on the actual operating costs at the adjacent
Olive Branch Property. The adjustments relating to the Olive Branch Distribution
Center also reflect estimated interest expense of $414 relating to interest on
the $6,700 bridge loan used to purchase the property, at LIBOR plus 2.00% (7.72%
at December 31, 1995), and amortization of loan fees of $29 over the one year
term of the bridge loan. The estimated depreciation and amortization expense
relating to the Olive Branch Distribution Center has been calculated on a
straight line basis using an average useful life of 35 years.

4. Reflects the Recapitalization of the Merged Trusts on May 31, 1995,
involving respective equity investments by Hunt and USAA in the Merged Trusts.
The net proceeds from these equity investments of $24,684 and available cash of
$2,233 were used to pay down principal and restructure the Merged Trusts'
variable rate and fixed rate long-term debt facilities by $10,588 and $16,329,
respectively. Accordingly, the historical as adjusted consolidated statement of
operations reflects a net reduction of interest for the period prior to the May
31, 1995 Recapitalization date comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Reduction resulting from pay downs of variable rate facility of
$10,588 at 7.56% for 1995.......................................... $ (333)
Reduction resulting from pay downs of fixed rate facility of $16,329
at 8.33% for 1995.................................................. (567)
Reduction resulting from other pay downs of $1,405 at 13.00% for
1995............................................................... (76)
Reduction resulting from write-off of old loan fees.................. (336)
Increase resulting from interest rate increase on variable rate
facility based upon balance of $26,505 at an incremental increase
of 0.60% for 1995.................................................. 67
Increase resulting from interest rate increase on fixed rate facility
based upon $66,094 at an incremental increase of 0.41% for 1995.... 113
New loan fee amortization............................................ 108
-------
Net reduction.............................................. $(1,024)
=======
</TABLE>

F-14
<PAGE> 132

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES AND ADJUSTMENTS TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)

As a result of the above adjustments, the historical as adjusted condensed
consolidated statement of operations reflects interest expense on the variable
rate long-term debt facility and the fixed rate facility, based upon the
remaining balance after the paydowns, at the interest rates in effect at the
date of Recapitalization of 8.19% and 8.63%, respectively. Trust IV had an
interest rate cap agreement which caps the one month LIBOR at 4.50%. The rate
cap is based upon $18,620 for the period July 1, 1995 to December 31, 1995 and
upon $11,170 for the period from January 1, 1996 through its expiration on June
28, 1996. The agreement provides for payments to Trust IV to the extent that the
one month LIBOR exceeds 4.5%. The agreement was transferred to the Company upon
completion of the Merger. For the year ended December 31, 1995 Trust IV received
$377 under the interest rate cap agreement.

5. Reflects the effects of purchase accounting as a result of the Merger,
together with certain cost adjustments, which result in a decrease in historical
as adjusted interest income due to lower cash balances to be maintained by the
Company than historically maintained by the Merged Trusts, and a decrease in
historical as adjusted expenses for the year ended December 31, 1995 as follows:
(i) a reduction of depreciation expense of $4,141 resulting from the purchase
accounting to record the Merger (historical as adjusted depreciation expense has
been calculated on a straight line basis using average useful lives of 35 years)
and (ii) a net decrease in general and administrative expenses of $1,068,
comprising a decrease in general and administrative expenses allocated to
property operating costs of $1,530, partially offset by an increase in corporate
office costs of $462. The net change is primarily the result of decreases to
reflect the nonrecurring bonuses and nonqualified stock options compensation
recorded by the Merged Trusts and the Company during 1995, respectively,
partially offset by an increase in personnel costs, including salaries and
benefits, net of a reduction in other administrative expenses, including
accounting, legal and occupancy costs.

6. Represents the revenues and certain expenses of the Trust 83 Properties
purchased by the Company in the Asset Purchase. The historical as adjusted
adjustments for the year ended December 31, 1995 also reflect historical as
adjusted depreciation of such properties on a straight line basis using average
estimated useful lives of 35 years of $568 and historical as adjusted interest
expense of $1,642 on the mortgage debt of $16,349 assumed by the Company in
connection with the Asset Purchase. The debt assumed includes four mortgages
with fixed interest rates ranging from 8.50% to 10.63%, one mortgage with a
variable rate of Treasury Bills plus 3.00% (8.56% at December 31, 1995), and one
mortgage with a variable rate of Prime plus 1.00% (9.50% at December 31, 1995).
The six mortgages have maturity dates ranging from March 1996 to September 2009.
The historical as adjusted interest expense on the mortgages assumed has been
based upon actual amounts incurred by Trust 83 during 1995.

7. Reflects the pay down and retirement of $33,478 of the Company's debt
using proceeds from the $35,000 Private Placement completed concurrent with the
Asset Purchase. The net reduction in interest expense resulting from the debt
retirements is comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Decrease resulting from repayment of mortgage notes payable
of $26,778 bearing interest at various rates ranging from
8.22% to 10.65% during 1995................................ $(2,660)
Decrease resulting from repayment of bridge loan of $6,700
bearing interest at 7.81% for 1995......................... (523)
Decrease in loan fee amortization............................ (36)
-------
Net reduction................................................ $(3,219)
=======
</TABLE>

The debt retirements resulted in an extraordinary loss of $29.

F-15
<PAGE> 133

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES AND ADJUSTMENTS TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)

8. Reflects a net increase in interest expense associated with the
retirement of the Company's variable rate long-term debt facility using $26,505
in proceeds from borrowings on the Unsecured Credit Facility. Prior to the April
3, 1996 offering, the Unsecured Credit Facility provided for a maximum borrowing
amount of $50,000, bore interest at LIBOR plus 1.70% (7.00% at February 23,
1996), matured in February 1998, and provided for fees on the unused facility of
25 basis points to the extent that less than 65% of the facility is used and 15
basis points to the extent that more the 65% of the facility is used. The net
increase in interest expense is comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Decrease resulting from repayment of variable rate long-term
debt facility of $26,505 bearing interest at 8.19% for
1995....................................................... $(2,178)
Decrease in loan fee amortization due to retirements......... (54)
Interest expense on Unsecured Credit Facility borrowings of
$26,505 bearing interest at 7.00%.......................... 1,855
Amortization of loan fees on Unsecured Credit Facility....... 308
Agency fees.................................................. 15
Estimated unused facility fees based upon a historical as
adjusted unused facility balance of $23,495................ 59
-------
Increase in interest expense................................. $ 5
=======
</TABLE>

The historical as adjusted increase in loan fee amortization reflects (i)
amortization of $615 of loan fees and costs associated with the Unsecured Credit
Facility over the two year term of the Unsecured Credit Facility and (ii)
amortization of $130 of fees and costs associated with changes in the collateral
pool securing the fixed rate long-term debt facility over the 10 year term of
the fixed rate long-term debt facility. The historical as adjusted agency fees
represent fees paid to the lead lender on the Unsecured Credit Facility and have
been based upon the terms of the Unsecured Credit Facility. The debt retirements
result in an extraordinary loss of $89.

The Unsecured Credit Facility will be subject to changes in LIBOR. An
increase or decrease of 0.125% ( 1/8%) in LIBOR will result in an annual
increase or decrease in interest expense of $33.

9. Reflects the accrual of preferred stock dividends on the Series B
Preferred Stock issued in connection with the private placement of 2,272,277
shares of Series B Preferred Stock. The Series B Preferred Stock has an initial
dividend rate of $1.24 per share.

10. Pro forma taxable income for the year ended December 31, 1995 is
$15,169.

F-16
<PAGE> 134

MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE:
Rental Properties Held for Investment................................... $263,761 $ 300
Less: Accumulated Depreciation.......................................... (2,819) --
-------- ------
260,942 300
Rental Properties Held for Sale, Net of Accumulated Depreciation of $272
at September 30, 1996................................................. 22,713 --
-------- ------
Total Investment in Real Estate....................................... $283,655 $ 300
-------- ------
OTHER ASSETS:
Cash and Cash Equivalents............................................... 1,622 475
Restricted Cash......................................................... 1,944 --
Investment in Marketable Securities..................................... -- 2,607
Accounts Receivable, Net of Reserves of $459 at September 30, 1996...... 1,361 --
Capitalized Loan Fees, Lease Commissions and Other Assets, Net.......... 4,118 342
-------- ------
TOTAL ASSETS.................................................. $292,700 $ 3,724
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage Loan........................................................... $ 66,094 $ --
Unsecured Credit Facility............................................... 41,900 --
Notes Payable to Affiliates............................................. -- 750
Accrued Dividends Payable............................................... 3,514 29
Accounts Payable........................................................ 4,518 10
Due to Affiliate........................................................ -- 232
Short-Term Loan Payable................................................. -- 2,351
Prepaid Rent, Tenant Deposits and Other Liabilities..................... 1,948 66
-------- ------
Total Liabilities............................................. 117,974 3,438
-------- ------
Redeemable Series A Preferred Stock -- Par value $0.001; fully redeemed
at September 30, 1996; 1,000,000 shares issued and outstanding at
December 31, 1995..................................................... -- 1,000
-------- ------
STOCKHOLDERS' EQUITY:
Authorized Shares -- 175,000,000 shares of Common Stock and 25,000,000
shares of Preferred Stock authorized, each with par value of $0.001;
9,684,570 and 900 shares of Common Stock issued and outstanding at
September 30, 1996 and December 31, 1995, respectively; and 2,272,727
shares of Series B Preferred Stock issued and outstanding at September
30, 1996 with a liquidation preference of $35,000..................... 12 1
Paid-in Capital......................................................... 176,771 607
Distributions in Excess of Income....................................... (2,057) (1,322)
-------- ------
TOTAL STOCKHOLDERS' EQUITY.................................... 174,726 (714)
-------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $292,700 $ 3,724
======== ======
</TABLE>

The accompanying notes are an integral part of these statements

F-17
<PAGE> 135

MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
1996 1995 1996 1995
------- --------- ------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments............. $10,092 $ -- $23,464 $ --
Interest and Other Income........................ 85 14 469 19
------- -------- ------- --------
TOTAL REVENUES......................... 10,177 14 23,933 19
------- -------- ------- --------
EXPENSES:
Interest Expense................................. 1,631 -- 4,168 --
Property Taxes................................... 1,373 -- 3,269 --
Property Operating Costs......................... 1,170 -- 2,484 --
General and Administrative....................... 1,212 213 3,000 213
Depreciation and Amortization.................... 1,391 -- 3,234 --
------- -------- ------- --------
TOTAL EXPENSES......................... 6,777 213 16,155 213
------- -------- ------- --------
Income (Loss) Before Gain on Sale of Property and
Extraordinary Item............................. 3,400 (199) 7,778 (194)
Gain on Sale of Property......................... 170 -- 177 --
------- -------- ------- --------
Income (Loss) Before Extraordinary Item.......... 3,570 (199) 7,955 (194)
Extraordinary Item -- Expenses Incurred in
Connection with Debt Retirements............... -- -- (411) --
------- -------- ------- --------
NET INCOME (LOSS)...................... $ 3,570 $ (199) $ 7,544 $ (194)
======= ======== ======= ========
Net Income (Loss)................................ $ 3,570 $ (199) $ 7,544 $ (194)
Less: Preferred Dividends Declared............... (706) (17) (1,706) (17)
------- -------- ------- --------
NET INCOME (LOSS) ALLOCABLE TO
COMMON............................... $ 2,864 $ (216) $ 5,838 $ (211)
======= ======== ======= ========
NET INCOME (LOSS) PER WEIGHTED AVERAGE
COMMON SHARE:
Income (Loss) Per Common Share Before
Extraordinary Item............................. $ 0.29 $ (240.00) $ 0.82 $(234.44)
Extraordinary Item............................... -- -- (0.05) --
------- -------- ------- --------
NET INCOME (LOSS) ALLOCABLE TO COMMON PER
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING...... $ 0.29 $ (240.00) $ 0.77 $(234.44)
======= ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these statements

F-18
<PAGE> 136

MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995
-------- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).................................................................. $ 7,544 $(194)
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation.................................................................. 3,185 --
Amortization.................................................................. 350 --
Straight Line Rent............................................................ (748) --
Gain on Sale of Property...................................................... (177) --
Extraordinary Item -- Expenses Incurred in Connection with Debt Retirements... 411 --
Decrease in Restricted Cash................................................... 5,507 --
Decrease in Accounts Receivable............................................... 802 --
Increase in Accounts Payable.................................................. 1,585 --
(Decrease) Increase in Due to Affiliates...................................... (480) 121
Increase in Other Assets...................................................... (74) --
(Decrease) Increase in Prepaid Rent and Other Liabilities..................... (3,114) 19
-------- -----
Net Cash Provided by (Used in) Operating Activities................................ 14,791 (54)
-------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Contributed by Merged Trusts................................................ 11,892 --
Receipt of Note Receivable From Affiliate........................................ 720 --
Net Cash Received from Property Disposition...................................... 7,794 --
Net Cash Paid in Connection with Asset Purchase.................................. (3,257) --
Redemption of Series A Preferred Stock and Accrued Dividends Payable............. (83) --
Acquisition of Rental Properties................................................. (48,773) --
Land Acquisition and Property Development Costs.................................. (14,218) --
Recurring Building Improvements.................................................. (741) --
Recurring Tenant Improvements.................................................... (539) --
Recurring Leasing Commissions.................................................... (885) --
Maturity of Short-Term Investment................................................ 2,607 --
Purchase of Personal Property.................................................... (258) --
-------- -----
Net Cash Used in Investing Activities.............................................. (45,741) --
-------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Capitalized Loan Fees............................................................ (536) --
Retirement of Notes Payable to Affiliates........................................ (750) --
Debt Retirements................................................................. (59,408) --
Payoff of Short-Term Loan Payable................................................ (2,351) --
Borrowings under Unsecured Credit Facility....................................... 75,400 --
Repayment of Borrowings under Unsecured Credit Facility.......................... (33,500) --
Distributions Paid to Stockholders............................................... (4,793) --
Proceeds from the Issuance of Common and Preferred Stock, Net.................... 58,035 1,014
-------- -----
Net Cash Provided by Financing Activities.......................................... 32,097 1,014
-------- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................................... 1,147 960
Cash and Cash Equivalents -- Beginning of Period................................... 475 --
-------- -----
CASH AND CASH EQUIVALENTS -- END OF PERIOD......................................... $ 1,622 $ 960
======== =====
Cash Paid for Interest............................................................. $ 3,530 $ --
======== =====
</TABLE>

The accompanying notes are an integral part of these statements

F-19
<PAGE> 137

MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS:
Merger Transaction:
Acquisition Cost Allocated to Investment in Real Estate............. $ 203,489 $ --
Restricted Cash..................................................... 5,551 --
Receivables, Net.................................................... 2,889 --
Note Receivable from Affiliate...................................... 720 --
Capitalized Loan Fees............................................... 992 --
Cancellation of Redeemable Series A Preferred Stock................. 960 --
Mortgage Loan Assumed............................................... (66,094) --
Other Long-Term Debts Assumed....................................... (43,191) --
Accounts Payable Assumed............................................ (2,869) --
Shares of Common Stock Issued, at Par Value......................... (8) --
Paid-in Capital..................................................... (109,842) --
Other Net Liabilities Assumed....................................... (4,489) --
Asset Purchase Transaction:
Acquisition Cost Allocated to Investment in Real Estate............. 26,342 --
Restricted Cash Applied to Debt Payment............................. 117 --
Mortgage Notes Payable Assumed...................................... (16,334) --
Paid-in Capital of Common Shares Issued............................. (6,392) --
Accrued Closing Costs and Pro-rated Items........................... (476) --
Property Acquisitions:
Purchase Price...................................................... 49,073 --
Land for Build-to-Suit Facilities................................... 2,301 --
Deposit Applied to Purchase Price................................... (300) --
Property Dispositions:
Net Basis........................................................... (7,807) --
Other Assets, Net of Other Liabilities.............................. 190 --
</TABLE>

The accompanying notes are an integral part of these statements

F-20
<PAGE> 138

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION.

Meridian Industrial Trust, Inc. (the "Company") was incorporated in the
state of Maryland on May 18, 1995. The Company is a self-administered and
self-managed operating company engaged primarily in the business of owning,
developing, acquiring, leasing and managing income-producing
warehouse/distribution and light industrial properties. At September 30, 1996,
the Company's principal asset is its portfolio of 53 warehouse/distribution and
25 light industrial properties and seven retail properties.

On February 23, 1996, the Company merged with Meridian Point Realty Trust
IV Co., Meridian Point Realty Trust VI Co. and Meridian Point Realty Trust VII
Co. ("Trust IV," "Trust VI" and "Trust VII," respectively; collectively referred
to as the "Merged Trusts"), with the Company as the surviving entity (that
transaction is referred to below as the "Merger"). In addition, concurrent with
the Merger, the Company acquired certain properties, and assumed certain
mortgage notes and other liabilities, from Meridian Point Realty Trust '83
("Trust 83") (that transaction is referred to below as the "Asset Purchase").

Concurrent with the closing of the Merger and Asset Purchase, the Company
closed a private placement of preferred stock (the "Preferred Stock Private
Placement") and entered into an unsecured credit facility (the "Unsecured Credit
Facility"). The Preferred Stock Private Placement consisted of the issuance of
2,272,727 shares of Series B convertible preferred stock, par value $0.001 per
share ("Series B Preferred Stock"), at $15.40 per share for gross proceeds of
$35,000. The Unsecured Credit Facility provides for a maximum borrowing amount
of $75,000 and is intended to provide the Company with funds for property
development, acquisitions and working capital needs.

Prior to February 23, 1996, the Company had no operations other than
interest on its investments and general and administrative expenses.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

(A) USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(B) CASH AND CASH EQUIVALENTS. The Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.

(C) INCOME TAXES. The Company intends to make an election to be taxed as a
real estate investment trust ("REIT") for federal income tax purposes for the
tax year ended December 31, 1996. To qualify for REIT status, the Company must
meet a number of ongoing organizational and operational requirements. If the
Company satisfies those REIT requirements, it generally will not be subject to
federal income tax to the extent it currently distributes all of its net taxable
income (including net capital gains) to its stockholders. If the Company fails
to qualify as a REIT in any taxable year, it will be subject to certain state
and federal taxes imposed on its income and properties. The Company does not
intend to seek a ruling from the Internal Revenue Service regarding its status
as a REIT.

(D) NET INCOME (LOSS) PER SHARE. Net income (loss) per share is calculated
by dividing net income, after deduction of preferred stock dividends declared,
by the weighted average number of shares of common stock outstanding during the
period. The weighted average number of common shares outstanding was 9,715,982
and 7,626,801 for the three and nine months ended September 30, 1996,
respectively. Such shares include the dilutive effects of shares issuable by the
Company pursuant to an agreement with one of its

F-21
<PAGE> 139

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

stockholders. The weighted average number of common shares outstanding was 900
for the period from May 18, 1995 (Inception) to September 30, 1995 (see Note 5).

(E) CAPITALIZED COSTS. Capitalized costs consist of loan fees and leasing
commissions. Capitalized loan fees are amortized into interest expense on a
straight-line basis over the term of the respective debt. Lease commissions are
amortized into depreciation and amortization expense on a straight-line basis
over the term of the respective lease.

3. INVESTMENT IN REAL ESTATE.

In accordance with generally accepted accounting principles, the Company
has accounted for the Merger and Asset Purchase using the purchase method (see
Note 9). As a result, the assets and liabilities acquired in connection with the
Merger and Asset Purchase are recorded at their "acquisition cost," representing
the fair value of the consideration surrendered and liabilities assumed. The
acquisition cost was then allocated to all identifiable assets based upon their
individual estimated fair market values. The following is a summary of the
acquisition cost recorded in connection with the Merger and Asset Purchase:

<TABLE>
<S> <C>
Fair value of the Company's common stock valued at $16.375 per share,
based upon the average of the closing price of the Company's common
stock for the first five post-Merger trading days, issued to the Merged
Trusts' shareholders other than Hunt Realty Acquisitions, L.P., a
Delaware partnership ("Hunt") and USAA Real Estate Company, a Delaware
corporation ("USAA").................................................... $ 72,677
Fair value of the Company's common stock totaling 390,360 shares, valued
at $16.375 per share, issued to Trust 83................................ 6,392
Common stock issued to Hunt and USAA valued at the consideration they paid
for their interests in the Merged Trusts................................ 37,173
Cash consideration paid to Trust 83 in connection with the Asset Purchase
before pro-rated items.................................................. 3,600
Liabilities of the Merged Trusts and Trust 83 assumed by the Company upon
consummation of the Merger and Asset Purchase........................... 133,453
Closing and other accrued costs incurred in connection with the Merger and
Asset Purchase.......................................................... 204
--------
Acquisition cost basis.................................................... 253,499
Acquisition cost basis allocated to assets other than Investment in Real
Estate.................................................................. (23,668)
--------
Acquisition cost basis allocated to Investment in Real Estate as a result
of the Merger and Asset Purchase........................................ $229,831
========
</TABLE>

Investments in Real Estate are depreciated over 35 years using the
straight-line method. Expenditures for maintenance, repairs and improvements
which do not materially prolong the normal useful life of an asset are charged
to operations as incurred. Tenant improvements are capitalized and amortized on
a straight-line basis over the respective lease term.

At September 30, 1996, the Company has entered into contracts for sales of
three retail properties: Golden Cove Center, Meridian Village and Seatac
Village. In addition, the Company is actively marketing for sale the Birmingham
1 & 2, and Park Ten Center properties. The net proceeds from the sales of these
properties will be used to pay down the Unsecured Credit Facility. As of
September 30, 1996, the net book value of the real estate held for sale is
$22,713.

F-22
<PAGE> 140

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

4. DEBT.

The Company has a fixed rate facility which it acquired in connection with
the Merger (the "Mortgage Loan"). The Mortgage Loan bears interest at the annual
rate of 8.63%, requires interest only payments until its maturity in 2005 and is
secured by a pool of the Company's properties with a net book value of $139,554
as of September 30, 1996.

Concurrent with the Merger, the Company closed on the Unsecured Credit
Facility. The facility bears interest at LIBOR plus 1.7% per annum (7.1% at
September 30, 1996), requires interest only payments until maturity in February
1998, and provides for an annual fee on the unused facility of 25 basis points
to the extent that less than 65% of the facility is used and 15 basis points to
the extent that more than 65% of the facility is used. The Unsecured Credit
Facility provides for a maximum borrowing amount of $75,000.

During the nine months ended September 30, 1996, the Company borrowed
$75,400 the Unsecured Credit Facility and used the proceeds therefrom to payoff
debt acquired in connection with the Merger and Asset Purchase and fund property
acquisitions.

Also during the nine months ended September 30, 1996, the Company repaid
borrowings under the Unsecured Credit Facility totaling $33,500 using the net
proceeds received from: (i) the April 3, 1996 offering of 1,500,000 shares of
the Company's common stock (the "Common Stock"), par value $0.001 per share (see
Note 5); and (ii) proceeds received from the sales of Progress Centers I and II,
8215 Highway Building and Moorpark R & D Building; and existing cash reserves.

As of September 30, 1996, the Company had $41,900 outstanding on the
Unsecured Credit Facility.

5. COMMON AND PREFERRED STOCK.

The initial capitalization of the Company consisted of 900 shares of Common
Stock, issued for a total consideration of $14. In connection with the Merger
and Asset Purchase transactions, the Company issued 7,601,478 and 390,360 shares
of Common Stock, respectively.

Concurrent with the Merger and Asset Purchase, the Company closed the
Preferred Stock Private Placement which consisted of the sale in a private
placement of 2,272,277 shares of Series B Preferred Stock with a liquidation
preference of $35,000. The shares of Series B Preferred Stock are convertible
into shares of Common Stock on a one-for-one basis. The net proceeds were used
to retire debt acquired in with the Merger and Asset Purchase in the principal
amount of $33,500.

On April 3, 1996, the Company closed a public offering 1,500,000 shares of
the Common Stock at an offering price of $16.375 per share, resulting in gross
proceeds of $24,563 (the "April offering"). The Company used the net proceeds of
the April offering and existing cash reserves to make a $24,000 payment on its
Unsecured Credit Facility.

The Company has been declaring and paying dividends on a quarterly basis.
During the nine months ended September 30, 1996, dividends declared to Common
and Series B Preferred Stockholders aggregates to $6,602 and $1,706,
respectively, or $0.70 and $0.75 per share, respectively.

6. STOCK PLAN.

The Board of Directors of the Company has adopted an incentive stock plan
(the "Stock Plan") to enable the Company to attract, retain and motivate key
employees, directors and, on occasion, consultants and advisors, by providing
them with equity participation in the Company. The Stock Plan provides for the
grant of incentive stock options, non-qualified stock options, unrestricted
stock, restricted stock and stock appreciation rights.

F-23
<PAGE> 141

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

Certain officers of the Company exercised stock options granted in 1995 and
purchased 191,400 shares of the Company's Common Stock. In connection with the
grant of these options, the Company agreed to repurchase certain promissory
notes executed by the officers from a third party lender in the event that the
officers default under such notes. The Company has $1,900 in proceeds from the
exercise of these stock grants held as restricted cash in connection with the
repurchase rights of the third party lender.

7. PROPERTY ACQUISITIONS.

During the nine months ended September 30, 1996, the Company purchased
three properties located in California and Ohio with an aggregate square footage
of 1,507,382. The purchase prices totaled $49,127 and were financed by applying
a $300 deposit paid in 1995, with the balance funded by draws on the Unsecured
Credit Facility.

Also during the nine months ended September 30, 1996, the Company entered
into separate agreements with three identified tenants to develop three
build-to-suit facilities with an aggregate square footage of 829,434. The total
cost for the design and construction of the facilities is estimated to total
approximately $30,194, with a targeted completion date of December 1996 for the
two facilities located in Texas, and January 1997 for the facility located in
Minnesota. The Company funded a portion of these draws with cash on-hand and
anticipates funding a majority of the remaining costs with draws from the
Unsecured Credit Facility. As of September 30, 1996, the Company has incurred
total project costs of $14,218 relating to these three projects.

8. PROPERTY DISPOSITION.

On May 15, 1996, the Company sold the Moorpark R & D Building located in
Moorpark, California for $4,100. On August 23, 1996, the Company sold for a
total selling price of $3,900 three properties located in Alabama: Progress
Center I, Progress Center II and 8215 Highway Building. After closing costs and
pro-rated items which totaled $206, the Company received net proceeds from the
property sales totaling $7,769. The net proceeds were used to pay down
borrowings under the Unsecured Credit Facility.

9. SUPPLEMENTAL INFORMATION.

Historical As Adjusted Information

As discussed in Note 3, in accordance with generally accepted accounting
principles, the Company accounted for the Merger and Asset Purchase by the
purchase method of accounting. As such, the Company is providing the following
supplemental information.

The unaudited historical as adjusted operating data presented below for the
nine months ended September 30, 1996 and 1995 has been prepared to reflect (i)
the respective historical results of the Merged Trusts and the Trust 83
Properties, (ii) the incremental effects of the Merger, the Refinancing and the
Recapitalization on the historical results of the Merged Trusts and the Trust 83
Properties, and (iii) the historical results of the Company to reflect the
post-Merger operations of the Company as if such transactions and adjustments
had occurred on January 1, 1995. The Merger, Asset Purchase and Refinancing each
closed concurrently on February 23, 1996. In the opinion of management, the
historical as adjusted condensed consolidated financial information provides for
all adjustments necessary to reflect the effects of the Merger, the Asset
Purchase, the Refinancing and the Recapitalization.

F-24
<PAGE> 142

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

This financial information is unaudited and is not necessarily indicative
of the as adjusted consolidated results that would have occurred if the
transaction and adjustments reflected therein had been consummated in the period
presented or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996
---------------------
1996 1995
------- -------
<S> <C> <C>
TOTAL REVENUES................................................. $29,877 $29,392
-------- --------
EXPENSES:
Interest Expense(1).......................................... 3,304 5,838
Property Taxes............................................... 4,160 4,065
Property Operating Costs..................................... 5,299 4,452
General and Administrative Expenses.......................... 3,710 2,663
Depreciation and Amortization................................ 3,918 3,696
-------- --------
TOTAL EXPENSES....................................... 20,391 20,714
-------- --------
NET INCOME BEFORE EXTRAORDINARY ITEM........................... $ 9,486 $ 8,678
======== ========
</TABLE>

- ---------------
(1) The historical as adjusted information excludes the impact of the March
offering. If the incremental effect of the repayment of the Unsecured Credit
Facility using the net proceeds from the March offering were considered,
then the interest expense reflected above would be lower by approximately
$495 and $1,441 for September 30, 1996 and September 30, 1995, respectively.
The net proceeds of approximately $23,200 and cash on hand were used to
repay pro forma borrowings on the Company's Unsecured Credit Facility of
approximately $26,505. The estimated interest reduction is based upon an
assumed interest rate of 7.1%.

Historical Combined Operating Information

The statement of operations presented below represents the historical and
as adjusted historical combined consolidated operating data of the Merged Trusts
for the nine months ended September 30, 1995. The financial data is presented
for informational use and is not intended to be compared to, nor is it
comparable, to the Company's Consolidated Statement of Operations for the nine
months ended September 30, 1996.

This financial information is unaudited and is not necessarily indicative
of the combined consolidated results that would have occurred if the
transactions and adjustments reflected therein had been consummated in the
period presented or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.

F-25
<PAGE> 143

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
MERGED TRUSTS
NINE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------------
HISTORICAL AS ADJUSTED
COMBINED ADJUSTMENTS(1) HISTORICAL
-------- -------------- -----------
<S> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments............ $25,445 $ (1,865) $23,580
Interest and Other Income....................... 685 -- 685
------- ------- -------
TOTAL REVENUES........................ 26,130 (1,865) 24,265
------- ------- -------
EXPENSES:
Interest and Amortization of Debt Premium....... 7,695 (207) 7,488
Property Taxes.................................. 3,738 (128) 3,610
Property Operating Costs........................ 4,386 (478) 3,908
General and Administrative...................... 2,093 -- 2,093
Provision for Decrease in Net Realizable
Value......................................... 1,140 (1,140) --
Depreciation and Amortization................... 6,490 (554) 5,936
------- ------- -------
TOTAL EXPENSES........................ 25,542 (2,507) 23,035
------- ------- -------
Net Income Before Extraordinary Item............ $ 588 $ 642 $ 1,230
======= ======= =======
</TABLE>

- ---------------
(1) The historical combined consolidated results of operations of the Merged
Trusts for the nine months ended September 30, 1995 have been adjusted to
eliminate the operations of properties which have been sold in 1996 and
1995: Progress Centers I and II, 8215 Highway Building, Moorpark R & D
Building and Paradise Marketplace. In addition, interest expense was reduced
resulting from the payment on the related debt using the net proceeds
received from the sale of Paradise Marketplace.

10. SUBSEQUENT EVENTS

In November 1996, the Company filed a registration statement with the
Securities and Exchange Commission to register 3,400,000 shares of the Company's
Common Shares (the Offering). The Company expects that the net proceeds from the
Offering would be used to fund acquisitions and pay down the Unsecured Credit
Facility; however, there can be no assurance that the Offering will occur.

F-26
<PAGE> 144

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Meridian Industrial Trust, Inc.:

We have audited the accompanying balance sheet of Meridian Industrial
Trust, Inc. (a Maryland corporation) as of December 31, 1995, and the related
statements of operations, stockholders' deficit and cash flows for the period
from May 18, 1995 (Inception) to December 31, 1995. These financial statements
are the responsibility of the management of Meridian Industrial Trust, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Meridian Industrial Trust,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the period from May 18, 1995 (Inception) to December 31, 1995, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
February 23, 1996

F-27
<PAGE> 145

MERIDIAN INDUSTRIAL TRUST, INC.

BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<S> <C>
Purchase option.................................................................... $ 300
Cash and cash equivalents.......................................................... 475
Investment in marketable security.................................................. 2,607
Capitalized loan fees.............................................................. 254
Personal property.................................................................. 20
Other assets....................................................................... 68
-------
Total assets............................................................. $ 3,724
=======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Notes payable to affiliates........................................................ $ 750
Accrued preferred dividends........................................................ 29
Accounts payable................................................................... 10
Accrued expenses payable, including amounts due to related parties of $232......... 298
Short-term loan payable............................................................ 2,351
-------
Total liabilities........................................................ 3,438
-------
Redeemable Series A Preferred Stock -- par value $0.001;
1,000,000 shares issued and outstanding, cumulative dividends.................... 1,000
-------
Stockholders' deficit:
Authorized shares -- 175,000,000 shares of common stock and 25,000,000 shares of
preferred stock authorized, each with par value of $0.001; 900 shares of common
stock issued and outstanding..................................................... 1
Paid-in capital.................................................................... 607
Retained deficit................................................................... (1,322)
-------
Total stockholders' deficit.............................................. (714)
-------
Total liabilities and stockholders' deficit.............................. $ 3,724
=======
</TABLE>

The accompanying notes are an integral part of these statements

F-28
<PAGE> 146

MERIDIAN INDUSTRIAL TRUST, INC.

STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<S> <C>
Revenues:
Interest and other income........................................................ $ 33
-------
Expenses:
Interest expense................................................................. 5
Stock option compensation........................................................ 594
General and administrative....................................................... 727
-------
Total expenses........................................................... 1,326
-------
Net loss........................................................................... $(1,293)
=======
Net loss........................................................................... $(1,293)
Less: accrued preferred dividends.................................................. (29)
-------
Net loss allocable to common....................................................... $(1,322)
=======
Net loss per weighted average common share outstanding............................. $(32.05)
=======
</TABLE>

The accompanying notes are an integral part of these statements

F-29
<PAGE> 147

MERIDIAN INDUSTRIAL TRUST, INC.

STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------- --------
<S> <C> <C> <C> <C>
Balance at May 18, 1995 (inception)..................... -- $ -- $ -- $ --
Issuance of common stock................................ 900 1 13 --
Stock option compensation............................... -- -- 594 --
Accrued preferred dividends............................. -- -- -- (29)
Net loss................................................ -- -- -- (1,293)
--- --- ---- -------
Balance at December 31, 1995............................ 900 $ 1 $ 607 $ (1,322)
=== === ==== =======
</TABLE>

The accompanying notes are an integral part of these statements

F-30
<PAGE> 148

MERIDIAN INDUSTRIAL TRUST, INC.

STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss......................................................................... $(1,293)
Adjustments to reconcile net loss to cash used in operating activities:
Stock option compensation..................................................... 594
Increase in other assets...................................................... (68)
Increase in accounts payable and accrued expenses payable..................... 308
-------
Cash used in operating activities.................................................. (459)
-------
Cash flows from investing activities:
Purchase option.................................................................. (300)
Purchase of personal property.................................................... (20)
Investment in marketable security................................................ (2,607)
Proceeds from short-term loan payable............................................ 2,351
-------
Cash used in investing activities.................................................. (576)
-------
Cash flows from financing activities:
Increase in capitalized loan fees................................................ (254)
Proceeds from issuance of common stock........................................... 14
Proceeds from issuance of redeemable Series A Preferred Stock.................... 1,000
Proceeds from notes payable to affiliates........................................ 750
-------
Cash provided by financing activities.............................................. 1,510
-------
Net increase in cash and cash equivalents.......................................... 475
Cash and cash equivalents -- beginning of period................................... --
-------
Cash and cash equivalents -- end of period......................................... $ 475
=======
Supplemental schedule of non-cash transaction:
Issuance of stock options (see Note 9)........................................... $ 594
=======
</TABLE>

The accompanying notes are an integral part of these statements

F-31
<PAGE> 149

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995

1. ORGANIZATION.

Meridian Industrial Trust, Inc. (the "Company") was incorporated in the
state of Maryland on May 18, 1995 to be a self-administered, self-managed real
estate investment trust that will own, acquire, market and operate income
producing industrial real estate properties.

On January 3, 1996, the Company filed a Registration Statement on Form S-4
with the Securities and Exchange Commission which included a proxy/solicitation
of consent to: (i) merge Meridian Point Realty Trust IV Co., Meridian Point
Realty Trust VI Co. and Meridian Point Realty Trust VII Co. ("Trust IV," "Trust
VI" and "Trust VII," respectively; collectively referred to as the "Merged
Trusts") into the Company, with the Company as the surviving entity (the
"Merger"); and (ii) acquire certain properties, and assume certain mortgage
notes and other liabilities (the "Asset Purchase"), from Meridian Point Realty
Trust '83 ("Trust 83"). As discussed in Note 11, the Merger and Asset Purchase
were completed on February 23, 1996.

Except for interest earned on its investments and general and
administrative expenses which have been incurred and accrued, the Company has
had no other operating activities to date.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. CASH AND CASH EQUIVALENTS.

The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. The Investment in Marketable
Security discussed in Note 4 has been excluded from cash and cash equivalents.

3. PURCHASE OPTION.

In December 1995, the Company entered into an agreement to purchase a
distribution facility from an unrelated third party. In connection with this
agreement, the Company made a $300,000 non-refundable deposit reflected as
Purchase Option on the accompanying balance sheet.

4. INVESTMENT IN MARKETABLE SECURITY.

In December 1995, the Company purchased a U.S. Treasury Note which is
reflected as Investment in Marketable Security on the accompanying balance
sheet. The Company financed this purchase with a cash deposit equal to 10% of
the total purchase price of the government security and a short-term loan in the
amount of $2,346,000 bearing interest at a rate of 8.625% per annum, which,
together with accrued interest of approximately $5,000, is reflected as
Short-Term Loan Payable on the accompanying balance sheet. In January 1996, the
government security matured and the related proceeds were used to pay off the
Short-Term Loan Payable.

5. CAPITALIZED LOAN FEES.

The Company has paid $254,000 to a bank in order to obtain an unsecured
credit facility (the "Unsecured Credit Facility") (see Note 11). The amount paid
to the bank is classified as Capitalized Loan Fees on the accompanying balance
sheet.

F-32
<PAGE> 150

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995

6. INCOME TAXES.

The Company intends to make an election to be taxed as a real estate
investment trust ("REIT") for federal income tax purposes. To qualify for REIT
status, the Company must meet a number of ongoing organizational and operational
requirements. If the Company satisfies those REIT requirements, it generally
will not be subject to federal income tax to the extent it currently distributes
all of its net taxable income (including net capital gains) to its stockholders.
If the Company fails to qualify as a REIT in any taxable year, it will be
subject to certain state and local taxes imposed on its income and properties,
and to federal income and excise taxes on its undistributed income. The Company
does not intend to seek a ruling from the Internal Revenue Service regarding its
status as a REIT.

7. COMMON AND PREFERRED STOCK.

The initial capitalization of the Company consisted of 900 shares of common
stock issued for a total consideration of $14,000 (originally $18,000 of which
$4,000 was subsequently refunded). In addition, Trust 83 and the Merged Trusts
purchased 79,500 and 920,500 shares of Series A Preferred Stock, respectively,
for $1.00 per share (the "Preferred Stockholders"). The Series A Preferred Stock
is nonvoting and provides for cumulative dividends of $0.0125 per quarter or
$0.05 per annum and such dividends carry a preference to the dividends on any
other shares of the Company's capital stock. See Note 11 for discussion of the
subsequent redemption and cancellation of the Series A Preferred Stock.

8. RELATED PARTY TRANSACTIONS.

Since June 1, 1995 and terminating at Merger (see Note 11), Hunt Realty
Corporation ("Hunt") has provided the services of Allen J. Anderson (Chairman
and Chief Executive Officer of the Company) and two other persons to the Company
in exchange for reimbursement of Hunt's costs associated with making those
persons available to the Company. As of December 31, 1995, the Company has
incurred $245,000 for such services, of which $71,000 remains payable at
December 31, 1995. This payable is reflected in Accrued Expenses Payable on the
accompanying balance sheet.

On November 21, 1995, the Company entered into an option agreement (the
"Option Agreement") with an entity that held certain common and preferred stock
interests in the Merged Trusts (the "Seller"). The Option Agreement provides the
Company with the option to purchase a 292,000 square-foot industrial property
for a purchase price based upon the property's net operating income for the year
following the acquisition. At the Seller's option, the purchase price for the
property will be payable in either cash or the Company's common stock. In
exchange for the option, the Company will issue a warrant to the Seller within
five days after the Merger to purchase shares of the Company's common stock at
an exercise price that provides the Seller with a value of $300,000 based upon
the value of the Company's common stock during the first 20-trading-day period
after the Merger.

The Company received $750,000 in advances from the Merged Trusts to cover
certain operating expenditures. These advances are reflected as Notes Payable to
Affiliates on the accompanying balance sheet. These notes payable bear interest
at a rate of 7% per annum and are due and payable on April 15, 1996 (see Note 11
for discussion of the subsequent cancellation of these Notes Payable to
Affiliates).

From May 18, 1995 (Inception) to December 31, 1995, the Company has
incurred fees and expenses relating to services provided by its directors of
approximately $194,000 of which approximately $161,000 is reflected in Accrued
Expenses Payable on the accompanying balance sheet.

F-33
<PAGE> 151

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995

9. STOCK PLAN.

The Board of Directors of the Company has adopted a stock plan (the "Stock
Plan") to enable the Company to attract, retain and motivate key employees,
directors and, on occasion, consultants and advisors, by providing them with
equity participation in the Company. The Stock Plan provides for the grant of
incentive stock options, non-qualified stock options, unrestricted stock,
restricted stock and stock appreciation rights (collectively "Awards").

The Stock Plan will be administered by the Board of Directors, or a
committee appointed by the board (the "Committee"). The Committee, which must
consist of not less than two members of the Company's Board of Directors, will
select the employees (and any consultants or advisors) to whom Awards will be
granted, the number of shares subject to such Award, and the other terms and
conditions, consistent with the Stock Plan.

In November 1995, the Board of Directors authorized the award of two sets
of stock options to certain employees relating to services performed by the
employees in 1995 and periods prior thereto to effect the Merger. The first set
of awards provided for the issuance of 608,000 stock options to be issued under
the Stock Plan concurrent with the Merger, exercisable at the stock trading
price at Merger. These option awards provided that 435,000 of the stock options
vest over five years. The remaining stock options granted under the Stock Plan,
totaling 173,000, include certain performance criteria that would allow for
vesting after three years if the performance criteria are achieved, or vesting
at the end of five years if the performance criteria are not met. These options
will become fully-vested in the event of a termination of employment without
"cause" by the Company or for "good reason" by the executive (in each case as
defined in the stock option agreement), or in the event of the death or
disability of the executive.

The second set of stock options granted in 1995 consisted of nonqualified
stock options to purchase 191,400 shares of the Company's common stock at any
time between January 26, 1996 and February 28, 1996 for $12 per share. In
addition, in connection with the grant of these options, the Company agreed to
repurchase certain promissory notes executed by the employees from a third party
lender in the event that the employees default under such notes. The
accompanying statement of operations reflects a charge to earnings for the stock
option compensation attributable to the excess of the market price of the
Company's common stock over the exercise price of the nonqualified stock
options. The nonqualified stock options were not granted under the Stock Plan.

After the Merger, the Company will grant each director of the Company, who
is not an employee of the Company, an option to purchase 5,000 shares of the
Company's common stock. In addition, beginning June 30, 1996, on the last day of
each calendar quarter, the Company will automatically grant each non-employee
director a non-qualified option to purchase 1,167 shares of the Company's common
stock. The exercise price of these options will be the fair market value of the
shares of the Company's common stock covered by the options on the date of
grant. Each of these director options will be fully exercisable beginning six
months after the date of grant and generally will terminate (unless terminated
sooner under the terms of the Stock Plan) ten years after the date of grant.

Additionally, subsequent to the Merger, the Company intends to pay each
non-employee director an annual retainer in an amount set by the Company Board
from time to time. Under the Stock Plan, the non-employee directors may elect to
receive their retainer in either cash, shares of the Company's common stock, or
a combination of both cash and the Company's common stock.

A maximum of 1,000,000 shares of the Company's common stock, subject to
adjustment under certain conditions, may be issued under the Stock Plan.

F-34
<PAGE> 152

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock Based
Compensation" which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 becomes effective for MIT
in its 1996 fiscal year. This statement encourages a "fair value based method"
of accounting for an employee stock option or similar equity instrument which
calls for compensation cost to be measured at the grant date based on the value
of the award and is recognized over the service period, which is usually the
vesting period. In accordance with the provisions of SFAS No. 123, MIT will
record measurement of compensation for its stock plans using the "intrinsic
value based method" of accounting, with disclosure of the pro forma impact on
net income and earnings per share as if the "fair value based method" of
accounting had been applied. MIT plans to adopt SFAS No. 123 in 1996 and
believes that the adoption will not have a material impact upon its financial
position and results of operations.

10. NET LOSS PER SHARE.

Net loss per share was computed based on weighted average common shares
outstanding in the amount of 41,251 for the period from May 18, 1995 (Inception)
to December 31, 1995. The dilutive effect resulting from the grant of certain
stock options (see Note 9) has been considered in the calculation of weighted
average common shares outstanding.

11. SUBSEQUENT EVENTS.

On January 26, 1996, the Company issued 500 shares of common stock at $.001
per share.

On February 23, 1996, the Merger and Asset Purchase (as described in Note
1) were approved and effected. In connection with the Merger and Asset Purchase,
the Company canceled the Series A Preferred Stock owned by the Merged Trusts
(see Note 7) and the $750,000 notes payable to the Merged Trusts (see Note 8),
and redeemed the Series A Preferred Stock owned by Trust 83 (see Note 7).

Concurrent with the Merger and Asset Purchase, the Company closed on a
private placement of preferred stock and the Unsecured Credit Facility. The
private placement comprised the issuance of 2,272,727 shares of Series B
Preferred Stock at $15.40 per share for gross proceeds of $35 million. The
Unsecured Credit Facility provides for a maximum borrowing amount of $50
million, bears interest at LIBOR plus 1.7% (7% at February 23, 1996), matures in
February 1998, and provides for fees on the unused facility of 25 basis points
to the extent that 65% of the facility is used and 15 basis points to the extent
that more than 65% of the facility is used. The Company is currently negotiating
an increase on the Unsecured Credit Facility to increase the maximum borrowing
amount from $50 million to $75 million.

F-35
<PAGE> 153

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Stockholders and Board of Directors
of Meridian Industrial Trust, Inc.:

We have audited the accompanying historical combined balance sheets of the
Merged Trusts, as defined in Note 1, as of December 31, 1995 and 1994, and the
related historical combined statements of operations, stockholders' equity and
cash flows for the period from January 1, 1996 to February 23, 1996, and for
each of the three years in the period ended December 31, 1995. These financial
statements and the schedules referred to below are the responsibility of the
Merged Trusts' management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the historical combined financial position of the
Merged Trusts as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the period from January 1, 1996 to February
23, 1996, and for each of the three years ended December 31, 1995, in conformity
with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of historical combined
valuation and qualifying accounts and historical combined real estate and
accumulated depreciation are presented for the purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

San Francisco, California
May 27, 1996

F-36
<PAGE> 154

THE MERGED TRUSTS

HISTORICAL COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
INVESTMENTS IN REAL ESTATE:
Rental Properties.................................................... $ 270,121 $ 262,779
Less: Accumulated Depreciation....................................... (52,905) (47,799)
--------- ---------
217,216 214,980
Rental Property Held For Sale, Net of Accumulated Depreciation of
$2,327
at December 31, 1994............................................... -- 11,239
--------- ---------
217,216 226,219
--------- ---------
OTHER ASSETS:
Cash and Cash Equivalents............................................ 11,842 15,721
Cash Held in Escrow.................................................. 1,212 --
Restricted Cash...................................................... 5,551 --
Accounts Receivable, Net of Reserves of $903 and $782 at December 31,
1995 and 1994, respectively........................................ 1,944 1,882
Notes Receivable From Affiliates..................................... 1,470 720
Investment in Real Estate Investment Trust........................... 921 --
Personal Property, Net of Accumulated Depreciation of $1,542 and
$1,400 at December 31, 1995 and 1994, respectively................. 174 213
Capitalized Loan Fees, Lease Commissions and Other Assets, Net....... 6,829 6,231
--------- ---------
TOTAL ASSETS............................................... $ 247,159 $ 250,986
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Long-Term Debt Facilities............................................ $ 92,599 $ 124,971
Mortgage Notes Payable............................................... 10,429 12,172
Bridge Loan.......................................................... 6,700 --
Accounts Payable..................................................... 3,963 4,339
Due To Affiliates.................................................... 564 469
Prepaid Rent, Tenant Deposits and Other Liabilities.................. 1,845 1,647
--------- ---------
TOTAL LIABILITIES.......................................... 116,100 143,598
--------- ---------
Shares of Common and Preferred Stock with certain redemption rights;
par value of $0.001, 9,421,955 shares issued and outstanding at
December 31, 1995.................................................. 24,684 --
--------- ---------
STOCKHOLDERS' EQUITY:
Authorized Shares:
150,000,000 shares of Common Stock and Preferred Stock authorized,
each with par value of $0.001; 14,725,328 Common Shares and
10,210,077 Preferred shares issued and outstanding at December 31,
1995 and 1994...................................................... 25 25
Additional Paid-In Capital........................................... 225,100 225,100
Distributions in Excess of Income.................................... (118,750) (117,737)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY................................. 106,375 107,388
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $ 247,159 $ 250,986
========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-37
<PAGE> 155

THE MERGED TRUSTS

HISTORICAL COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 23, 1996 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1,
1996 TO
FEBRUARY 23,
1996 1995 1994 1993
------------ ------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments............. $4,997 $33,583 $ 34,018 $34,442
Interest and Other............................... 161 1,014 804 582
------ ------- -------- -------
TOTAL REVENUES......................... 5,158 34,597 34,822 35,024
------ ------- -------- -------
EXPENSES:
Interest Expense and Amortization of Debt
Premium........................................ 1,506 10,005 12,117 12,949
Property Taxes................................... 812 4,971 5,231 5,285
Property Operating Costs, Including Transactions
with Related Parties of $326, $1,367, $1,486
and $1,857, respectively....................... 912 5,761 5,895 6,379
Legal Costs...................................... 7 70 462 418
General and Administrative, Including
Transactions with Related Parties of $193,
$1,696, $1,426 and $1,161, respectively........ 1,155 2,942 2,958 2,477
Adjustment Due To Tenant Bankruptcy.............. -- -- -- 680
Provision for Decrease in Net Realizable Value... -- 1,140 9,001 6,496
Depreciation and Amortization.................... 1,308 8,721 9,895 10,109
------ ------- -------- -------
TOTAL EXPENSES......................... 5,700 33,610 45,559 44,793
------ ------- -------- -------
INCOME (LOSS) BEFORE LOSS ON SALE OF PROPERTIES
AND EXTRAORDINARY ITEMS........................ (542) 987 (10,737) (9,769)
Loss on Sale of Properties....................... -- (135) (398) (224)
------ ------- -------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS......... (542) 852 (11,135) (9,993)
Extraordinary Items:
Gain on Extinguishment of Debt................... -- -- -- 69
Gain on Foreclosure of Property.................. -- -- -- 727
Expenses Incurred in Connection with
Restructuring of Long-Term Debt Facilities..... -- (1,865) -- --
------ ------- -------- -------
NET LOSS......................................... $ (542) $(1,013) $(11,135) $(9,197)
====== ======= ======== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-38
<PAGE> 156

THE MERGED TRUSTS

HISTORICAL COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 23, 1996 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK DISTRIBUTIONS
------------------- ------------------- ADDITIONAL IN EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAID-IN-CAPITAL INCOME
---------- ------ ---------- ------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- January 1, 1993..... 14,725,328 $ 15 10,210,077 $ 10 $ 225,100 $ (96,943)
Net Loss....................... -- -- -- -- -- (9,197)
Preferred Distributions
Declared..................... -- -- -- -- -- (563)
Conversion From Temporary
Decline to Permanent Decline
in Marketable Securities..... -- -- -- -- -- 69
Partial Reversal of Reserve for
Temporary Decline in
Marketable Securities........ -- -- -- -- -- 32
---------- --- ---------- --- -------- ---------
Balance -- December 31, 1993... 14,725,328 15 10,210,077 10 225,100 (106,602)
Net Loss....................... -- -- -- -- -- (11,135)
---------- --- ---------- --- -------- ---------
Balance -- December 31, 1994... 14,725,328 15 10,210,077 10 225,100 (117,737)
Net Loss....................... -- -- -- -- -- (1,013)
---------- --- ---------- --- -------- ---------
Balance -- December 31, 1995... 14,725,328 15 10,210,077 10 225,100 (118,750)
Net Loss....................... -- -- -- -- -- (542)
---------- --- ---------- --- -------- ---------
Balance -- February 23, 1996... 14,725,328 $ 15 10,210,077 $ 10 $ 225,100 $(119,292)
========== === ========== === ======== =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-39
<PAGE> 157

THE MERGED TRUSTS

HISTORICAL COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 23, 1996
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1,
1996 TO DECEMBER 31,
FEBRUARY 23, ------------------------------
1996 1995 1994 1993
------------ -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss...................................................... $ (542) $ (1,013) $(11,135) $ (9,197)
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities:
Depreciation................................................ 1,166 7,718 8,839 9,278
Provision for Decrease in Net Realizable Value.............. -- 1,140 9,001 6,496
Adjustment Due to Tenant Bankruptcy......................... -- -- -- 680
Loss on Sale of Properties.................................. -- 135 398 224
Gain on Foreclosure of Property............................. -- -- -- (727)
Gain on Extinguishment of Debt.............................. -- -- -- (69)
Expenses Incurred in Connection with Restructuring of
Long-Term Debt Facilities................................ -- 1,865 -- --
Amortization................................................ 194 1,362 1,831 1,584
Rent Adjustment............................................. 2 46 46 433
Realized Loss on Marketable Securities...................... -- -- -- 80
Increase in Cash Held in Escrow............................. (13) (269) -- (309)
Increase in Capitalized Lease Commissions................... (99) (756) (1,557) (618)
(Increase) Decrease in Notes Receivable From Affiliates..... -- (750) -- 56
Increase (Decrease) in Due To Affiliates.................... 240 95 147 (51)
Net Change in receivables, payables, and other.............. (1,497) (2,344) (815) 366
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........... (549) 7,229 6,755 8,226
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to Existing Real Estate........................ (185) (3,112) (3,027) (1,780)
Increase in Cash Held in Escrow............................. -- (790) -- --
Investment in Real Estate Investment Trust.................. -- (921) -- --
Cash Disbursed on Sale of Property.......................... -- (113) -- --
Proceeds from Sale of Property.............................. -- -- 9,000 1,007
Reimbursements Received for Tenant Improvements............. -- -- -- 150
Sale of Short-Term Investments.............................. -- -- 25 225
Purchase of Personal Property............................... -- (103) (49) (68)
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........... (185) (5,039) 5,949 (466)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Disbursed Due to Debt Refinancing...................... -- -- (160) --
Distributions to Stockholders............................... -- -- -- (563)
Principal Payments on Long-Term Debt........................ (100) (27,795) (13,746) (3,470)
Principal Payments on Mortgage Notes Payable................ (42) (1,718) (284) (221)
Principal Payment on Bridge Loan............................ (300) -- -- --
Increase in Cash Held in Escrow............................. -- (153) -- --
Capitalized Loan Costs...................................... -- (1,087) (10) (442)
Proceeds From Sale of Stock................................. -- 28,007 -- --
Equity Investment Costs..................................... -- (3,323) -- --
------- ------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES......................... (442) (6,069) (14,200) (4,696)
------- ------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents.......... (1,176) (3,879) (1,496) 3,064
Cash and Cash Equivalents, Beginning of Period................ 11,842 15,721 17,217 14,153
------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................... $ 10,666 $ 11,842 $ 15,721 $ 17,217
======= ======= ======= =======
CASH PAID FOR INTEREST........................................ $ 1,468 $ 9,900 $ 11,410 $ 12,352
======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-40
<PAGE> 158

THE MERGED TRUSTS

HISTORICAL COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 23, 1996 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1, 1996 TO DECEMBER 31,
FEBRUARY 23, ------------------------------
1996 1995 1994 1993
------------------ ------- ------ -------
<S> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH
TRANSACTIONS:
Disposition of Properties:
Disposition of Properties, Net.............. $ -- $10,082 $9,180 $14,359
Other Assets Written-Off, Net of Other
Liabilities.............................. -- 161 217 11
Pay-off of Long-Term Debt Facility.......... -- 4,578 -- --
Letter Of Credit in Favor of Lender......... -- 5,551 -- --
Extinguishment of Mortgage Notes Payable and
Capitalized Lease Obligation, Net........ -- -- -- 13,033
Liabilities Extinguished, Net of Other
Assets................................... -- -- -- 778
Cash Deposited in Escrow Account............ -- -- -- 125
Interest Paid in Escrow..................... -- 22 -- --
Acquisition of Property:
Net Book Value of Property Acquired......... -- 6,709 -- --
Proceeds Received from Bridge Loan.......... -- 6,700 -- --
Other Liabilities, Net of Other Assets...... -- 9 -- --
Refinancing of Mortgage Note Payable:
Extinguishment of Mortgage Note Payable..... -- -- 1,900 --
Assumption of Mortgage Note Payable......... -- -- 2,000 --
Property Taxes Paid Through Escrow.......... -- -- 140 --
Other Liabilities Extinguished.............. -- -- 99 --
Loan Costs.................................. -- -- 20 --
Transfer of an Option to Purchase Property:
Net Book Value of Property.................. -- -- 46 --
Assets Written-Off, Net of Other
Liabilities.............................. -- -- 167 --
Cash Held in Escrow Applied to Long-Term
Debt Facility............................... -- -- -- 1,215
Principal Payments on Long-Term Debt
Facilities.................................. -- -- -- 405
</TABLE>

The accompanying notes are an integral part of these statements.

F-41
<PAGE> 159

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1 TO FEBRUARY 23, 1996 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

(a) ORGANIZATION. The Merged Trusts are not a legal entity but rather a
combination of the assets, liabilities and operations of three trusts,
consisting of: (i) Meridian Point Realty Trust IV Co. ("Trust IV"), Meridian
Point Realty Trust VI Co. ("Trust VI") and Meridian Point Realty Trust VII Co.
("Trust VII"), (collectively, the "Merged Trusts"). Each of these trusts were
separate public entities for the years presented. Each trust has approved a
business combination plan whereby the Merged Trusts were merged (the "Merger")
into Meridian Industrial Trust, Inc. ("MIT") on February 23, 1996, with MIT as
the surviving entity. The historical combined balance sheets as of December 31,
1995 and 1994 and the historical combined statements of operations for the
period from January 1, 1996 to February 23, 1996, and for each of the three
years in the period ended December 31, 1995 reflect the combined historical
operations of the Merged Trusts.

Each trust included in the Merged Trusts is a self-administered,
self-managed, real estate investment trust that owns, acquires, markets and
operates income producing industrial real estate properties.

Since April 1, 1991, the Merged Trusts have operated under a
self-administered management structure in conjunction with other
commonly-sponsored real estate investment trusts. The Merged Trusts and such
other real estate investment trusts are collectively referred to herein as the
"Companies." Under this management structure, Meridian Point Properties, Inc.
("MPP"), leases employees to the Companies at cost to perform the
administrative, accounting, asset management, and property management functions.
In addition, through December 31, 1994, MPP, at cost, acted as the transfer
agent for the Companies and provided stockholder account maintenance and
dividend disbursement and reinvestment services. The reimbursements made to MPP
are allocated among the Companies in accordance with agreements between MPP and
the Companies.

(b) USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(c) BASIS OF COMBINATION. These historical combined financial statements
include the assets, liabilities, revenues and expenses associated with the
operations of the Merged Trusts which are intended to be merged into MIT. All
significant intercompany balances and transactions have been eliminated in the
accompanying historical combined financial statements.

(d) INVESTMENTS IN REAL ESTATE AND DEPRECIATION METHODS. In accordance
with SFAS No. 121, investments in real estate are stated at the lower of
depreciated cost or net realizable value. Net realizable value for financial
reporting purposes: (i) is evaluated and identified quarterly by the Merged
Trusts on a property by property basis using undiscounted cash flows; (ii) is
measured by comparing the Merged Trusts' estimate of fair value based upon
either sales comparables or the net cash expected to be generated by the
property (comprised of estimated carrying costs (including interest) throughout
the anticipated holding period, plus the estimated cash proceeds from the
ultimate disposition of the property; and (iii) is not necessarily an indication
of a property's current value or the amount that will be realized upon the
ultimate disposition of the property. To the extent net realizable value is less
than the carrying value of the property, a Provision for Decrease in Net
Realizable Value is recorded in the amount by which the carrying value exceeds
estimated fair value. As of December 31, 1995 and 1994, the Merged Trusts'
Investment in Real Estate is stated net of a cumulative provision for decrease
in net realizable value of $42,772 and $44,584, respectively. Investors should
consider any net realizable value provisions in evaluating realization of their
investments.

F-42
<PAGE> 160

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation and amortization are calculated under the straight-line
method, based upon the estimated useful lives of the assets. Property and
property additions are depreciated over 35 years. Expenditures for maintenance,
repairs, and improvements which do not materially prolong the normal useful life
of an asset are charged to operations as incurred. Tenant improvements are
capitalized and amortized under the straight-line method over the term of the
related lease.

(e) CASH AND CASH EQUIVALENTS. The Merged Trusts consider all short-term
investments with an original maturity of three months or less to be cash
equivalents.

Cash paid for interest was $1,468, $9,900, $11,410 and $12,352 for the
period from January 1 to February 23, 1996, and for years ended December 31,
1995, 1994 and 1993, respectively.

(f) RENTALS FROM REAL ESTATE INVESTMENTS. Certain of the Merged Trusts'
leases relating to its properties require lessees to pay all or a portion of
real estate taxes, insurance, and operating costs ("Expense Recaptures").
Expense Recaptures of $737, $4,410, $4,900 and $4,546 for the period from
January 1 to February 23, 1996, and for the years ended December 31, 1995, 1994
and 1993, respectively, have been included in Rentals from Real Estate
Investments.

All leases are classified as operating leases. The Merged Trusts recognize
rental income on a straight-line basis over the terms of the leases. Deferred
rent receivable, included in accounts receivable, represents the excess of
rental revenue recognized on a straight-line basis over the cash received under
the applicable lease provisions.

(g) INCOME TAXES. The respective Merged Trusts elected to be treated as
real estate investment trusts ("REIT") for the tax years 1995, 1994, and 1993
under Sections 856 to 860 of the Internal Revenue Code. Under these provisions,
the respective Merged Trusts are allowed a deduction for distributions paid to
stockholders if the respective Merged Trusts satisfy certain income, asset, and
distribution requirements.

As a result of the respective Merged Trusts' deduction for distributions
paid in 1993 and losses incurred in 1996, 1995, 1994, and 1993, the respective
Merged Trusts have no federal taxable income. Accordingly, no provision for
federal income taxes has been made in the accompanying historical combined
statements of operations for the period from January 1, 1996 to February 23,
1996 and for the three years in the period ended December 31, 1995, 1994, and
1993.

(h) CAPITALIZED COSTS. Capitalized costs consist of loan fees and leasing
commissions. Capitalized loan fees are amortized into interest expense on a
straight-line basis over the term of the respective debt. Lease commissions are
amortized on a straight-line basis over the respective lease term and included
in depreciation and amortization expense.

2. RELATED PARTIES.

Fees and Reimbursement

For the period from January 1, 1996 to February 23, 1996, and for the years
ended December 31, 1995, 1994 and 1993, the Merged Trusts incurred fees and
expenses for services rendered by the directors of the Merged Trusts totaling
$136, $300, $290 and $354, respectively. Such amounts were paid directly to the
directors. Since April 1, 1991, the Merged Trusts have operated under a
self-administered management structure.

F-43
<PAGE> 161

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Cost reimbursements made to MPP are presented in the table below:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
1996 TO DECEMBER 31,
FEBRUARY 23, ----------------------------
1996 1995 1994 1993
------------ ------ ------ ------
<S> <C> <C> <C> <C>
Reimbursements for Property and Asset Management
Costs (included in Property Operating Costs)......... $326 $1,367 $1,486 $1,857
Leasing Costs (included in Capitalized Lease
Commissions, Net).................................. -- -- -- 37
Reimbursement of Costs Incurred for Conducting the
Company's Daily Operations (included in General
and Administrative Expenses)....................... 193 1,396 1,136 807
---- ------ ------ ------
Total...................................... $519 $2,763 $2,622 $2,701
==== ====== ====== ======
</TABLE>

In accordance with the agreement between the Companies and MPP, these
reimbursements are allocated among the Companies based on (i) gross rental
receipts of the Companies' properties and the Companies' relative real estate
assets for property and asset management costs and (ii) proportionate time
incurred, the number of stockholders and relative real estate assets for costs
incurred in conducting the Companies' daily operations. In the opinion of
management, the allocation methodology is reasonable. Due to affiliates of $564
and $469 as of December 31, 1995 and 1994, respectively, represent unpaid
reimbursements to MPP.

Notes Receivable From Affiliates

In connection with the internalization of management, the Merged Trusts
have made advances to MPP amounting to $720 as of both December 31, 1995 and
1994. These advances represent two months of the estimated expenditures that
would be incurred in conducting the daily operations of the Merged Trusts and
are payable on demand. As a result of the Merger, the advances were assumed by
MIT.

In 1995, the Merged Trusts advanced $750 to MIT under notes receivable to
cover certain operating expenditures. These notes receivable bear interest at a
rate of 7% per annum and are due and payable on April 15, 1996. As a result of
the Merger, the notes receivable was canceled.

3. RENTAL PROPERTIES, NET.

Rental properties are presented net of the cumulative provision for
decrease in net realizable value. Net rental properties at December 31, 1995 and
1994 consisted of the following:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Land........................................................... $ 61,364 $ 61,364
Buildings...................................................... 193,972 187,260
Capital Improvements........................................... 14,685 13,597
Construction-in-Progress....................................... 100 558
-------- --------
Subtotal....................................................... 270,121 262,779
Rental Property Held for Sale.................................. -- 13,566
-------- --------
Total................................................ $270,121 $276,345
======== ========
</TABLE>

F-44
<PAGE> 162

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The respective current and cumulative provision for decrease in net
realizable value, and the net book value as of and for the year ended December
31, 1995 are as follows:

<TABLE>
<CAPTION>
CUMULATIVE
CURRENT PROVISION PROVISION FOR
FOR DECREASE IN NET DECREASE IN NET
PROPERTY REALIZABLE VALUE REALIZABLE VALUE NET BOOK VALUE
- --------------------------------------------- --------------------- -------------------- --------------
<S> <C> <C> <C>
Palisades I and II........................... $ -- $ 1,314 $ 2,238
Phoenix Nine................................. -- 3,006 6,899
1550 Heil Quaker............................. -- 510 3,929
Hennesy Warehouse............................ -- 425 1,296
Cypress B.................................... -- 4,457 3,266
Chatsworth................................... -- 1,371 2,817
Park Ten Center.............................. -- 473 1,279
Live Oak Parkway............................. -- 444 4,240
Chicago 14................................... -- 1,350 8,021
Nancy Ridge.................................. -- 252 313
Birmingham I and II.......................... -- 950 2,982
Cypress A.................................... -- 2,498 1,630
Cypress C.................................... -- 2,571 1,595
Valencia..................................... -- 1,900 4,811
Progress Center I............................ -- 470 2,200
Marietta Trade Center........................ -- 8,194 21,272
Port Distribution............................ -- 796 3,362
Baxter....................................... -- 161 1,260
Delp Distribution............................ -- 1,166 5,999
Northgate 4 and 5............................ -- 1,645 1,773
Northgate 8.................................. -- 1,645 1,041
Las Colinas 4 and 5.......................... -- 1,677 1,883
Las Colinas 1................................ -- 773 649
Valley Branch 1 and 2........................ -- 1,063 1,948
Regal Empress................................ -- 1,513 2,016
Beltline..................................... -- 1,218 1,825
Great Southwest 4............................ -- 930 1,355
Paradise Market Place........................ 1,140 -- --
------ ------- --------
Subtotal................................ 1,140 42,772 91,899
Total for all Properties with no
Cumulative Provision for Decrease in
Net Realizable Value.................. -- -- 125,317
------ ------- --------
Total.............................. $ 1,140 $ 42,772 $217,216
====== ======= ========
</TABLE>

F-45
<PAGE> 163

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. FUTURE MINIMUM CONTRACTUAL RENTAL REVENUES.

Future minimum contractual rental revenues from leases in effect as of
February 23, 1996, are as follows:

<TABLE>
<S> <C>
1996 (pro-rated from February 23, 1996).................... $21,575
1997....................................................... 18,959
1998....................................................... 14,014
1999....................................................... 11,115
2000....................................................... 8,406
Thereafter................................................. 28,340
</TABLE>

There are currently four major tenants comprising 9%, 4%, 4%, and 3%,
respectively, of total annual revenue of the Merged Trusts based on the
projected 1996 base rent of existing leases. These tenants have leases which are
scheduled to expire between 1997 and 2005. As of December 31, 1995, the Merged
Trusts' properties were 93% occupied. During 1996, leases covering 24% of the
Merged Trusts' leased space are scheduled to expire.

5. LONG-TERM DEBT FACILITIES.

During 1996, 1995 and 1994, the Merged Trusts had long-term financing
arrangements with a bank and an insurance company. These arrangements have
provided the Merged Trusts with financing for property acquisitions, capital
improvements and general operating needs.

LONG-TERM BANK CREDIT FACILITIES.

As of December 31, 1994, the Merged Trusts collectively had $41,772
outstanding under three bank credit facilities (the "Bank Facilities"). On May
31, 1995 and July 20, 1995, the Merged Trusts made principal pay downs on the
Bank Facilities of $10,588 and $4,578 with proceeds received from equity
investments made pursuant to the Stock Purchase Agreements and with proceeds
received from the sale of the Paradise Marketplace property, respectively.
Concurrent with the stock purchase transactions discussed in Note 16, the Merged
Trusts successfully completed a restructuring of the remaining bank facility
related to Trust IV (the "Restructured Bank Facility"). In connection with the
pay down and restructuring of Bank and Insurance Company Facilities, the Merged
Trusts wrote off prepayment penalties and other costs related to restructuring
totaling $1,865 which has been recorded as an extraordinary item in the
accompanying consolidated statement of operations.

Monthly principal amortization payments of $102 are required under the
Restructured Bank Facility beginning December 31, 1995. Principal amortization
will continue until December 31, 1997, at which time the facility is scheduled
to mature. At that time, however, the facility may be extended to December 31,
1999, contingent upon Trust IV meeting certain conditions in connection with the
Merger as described below.

The $26,505 of principal outstanding at December 31, 1995 under the
Restructured Bank Facility accrues interest, which is payable monthly, at a
variable interest rate based on LIBOR plus 2.125% (7.85% at December 31, 1995).
Trust IV has the option to apportion the advance into different interest rate
contracts to mature for periods ranging from one to twelve months. Trust IV also
has the option to extend the maturity of each interest rate contract subject to
the final maturity of the facility.

As part of the refinancing, Trust IV was required to set up and contribute
to several restricted cash accounts in order to escrow (i) funds to purchase an
interest rate hedge, (ii) a capital expenditure reserve and (iii) a property tax
reserve. As of December 31, 1995, Trust IV had cash held in escrow related to
these accounts of (i) $153, (ii) $790 and (iii) $269, respectively. Subsequent
to December 31, 1995, this requirement to contribute to escrow has been
permanently waived and the funds remaining in escrow accounts have been refunded
to the Merged Trusts as a result of the Merger.

F-46
<PAGE> 164

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Trust IV has an interest rate cap agreement which caps the one month LIBOR
at 4.5%. The rate cap was based upon $18,620 for the period July 1, 1995 to
December 31, 1995, and from January 1, 1996 through expiration on June 28, 1996,
the rate cap is based upon $11,170. The agreement provides for payments to Trust
IV to the extent that the one month LIBOR exceeds 4.5%. The agreement will be
transferred to MIT upon completion of the Merger.

LONG-TERM DEBT FACILITIES WITH AN INSURANCE COMPANY.

As of December 31, 1994, the Merged Trusts collectively had $83,199
outstanding under two long-term debt facilities with an insurance company (the
"Insurance Company Facilities"). On May 31, 1995, the Merged Trusts made
principal pay downs of $16,329 on the Insurance Company Facilities with proceeds
received from equity investments made pursuant to the Stock Purchase Agreements.
Concurrent with the stock purchase transaction, the Merged Trusts successfully
completed a restructuring of the Insurance Company Facilities into a single
credit facility for the Merged Trusts (the "Restructured Insurance Company
Facility").

Under the new terms of the Restructured Insurance Company Facility, there
is a collective outstanding advance to the Merged Trusts at December 31, 1995 of
$66,094, which bears interest at a weighted average fixed annual rate of 8.63%.
Monthly interest only payments are due until maturity on June 1, 2005.

LOAN COVENANTS AND COLLATERAL.

Under the terms of the Restructured Insurance Company Facility, the
respective Merged Trusts must maintain a loan-to-value ratio equal to or below
certain levels ranging from 50% to 53%. This ratio is based on the lender's
valuation of the Merged Trusts' properties. In addition, the new agreement
requires compliance with several debt service coverage ratios at specified
measurement dates.

The Restructured Bank Facility and Restructured Insurance Company Facility
are collateralized by properties with net book values of $41,041 and $150,281
respectively.

Scheduled maturities of the Long-Term Restructured Bank and Restructured
Insurance Company Facilities as of December 31, 1995 are as follows:

<TABLE>
<CAPTION>
1995
-------
<S> <C>
1996....................................................... $ 1,212
1997....................................................... 25,293
1998....................................................... --
1999....................................................... --
2000....................................................... --
Thereafter................................................. 66,094
-------
Total............................................ $92,599
=======
</TABLE>

6. BRIDGE LOAN.

On November 7, 1995, Trust VI exercised its option to purchase a property
("Olive Branch II") located in Olive Branch, Mississippi, which is adjacent to
an existing property owned by Trust VI. Both properties are occupied by the same
tenant. The total acquisition cost was $6,709. Trust VI funded the acquisition
with a bridge loan in the amount of $6,700. The bridge loan bears interest at
LIBOR plus 2% (7.72% at December 31, 1995). Under the terms of the bridge loan
agreement, a principal payment of $300 was made on February 1, 1996. A principal
payment of $200 is due on April 1, 1996, respectively. The remaining outstanding
principal is due and payable on December 31, 1996.

F-47
<PAGE> 165

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. MORTGAGE NOTES PAYABLE.

The following table presents information regarding the mortgage notes
payable related to assets of the Merged Trusts at December 31, 1995 and 1994.

<TABLE>
<CAPTION>
STATED DECEMBER 31,
INTEREST ANNUAL MATURITY -----------------
NAME AND LOCATION OF PROPERTY RATE PAYMENT DATE 1995 1994
- ---------------------------------------------------------- -------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Palisades I & II, Plano, TX............................... 8.250% $ 191 02/01/99 $ 1,797 $ 1,835
Northgate 4 & 5, Dallas................................... 9.375% 140 11/01/09 1,076 1,114
Las Colinas 4 & 5, Dallas................................. 11.000% 215 04/01/11 1,584 1,622
Las Colinas 1, Dallas..................................... 8.906% 41 12/01/97 273 290
Valley Branch 1 & 2, Dallas............................... 10.250% 203 03/01/11 1,557 1,598
Beltline, Dallas.......................................... 10.125% 190 01/01/01 1,463 1,502
Great Southwest, Dallas................................... 9.750% 107 02/01/10 815 842
Birmingham II, Birmingham, AL............................. 13.000% -- 05/01/95 -- 1,406
Bedford Park, Bedford Park, IL............................ 9.000% 245 01/20/99 1,864 1,938
------- -------
SUBTOTAL.................................................. 10,429 12,147
Unamortized Debt Premium.................................. -- 25
------- -------
TOTAL............................................ $10,429 $12,172
======= =======
</TABLE>

Principal payments related to the mortgage notes payable at December 31,
1995 are due as follows:

<TABLE>
<S> <C>
1996....................................................... $ 345
1997....................................................... 615
1998....................................................... 396
1999....................................................... 3,523
2000....................................................... 302
Thereafter................................................. 5,248
-------
Total............................................ $10,429
=======
</TABLE>

8. DISTRIBUTIONS.

During the three-year period ended December 31, 1995, no distributions were
made, except for a one dollar per share preferred distribution made by Trust VII
in 1993 in the amount of $563. There were no distributions made by the Merged
Trusts during the period ended February 23, 1996. The Preferred Shares generally
have certain non-cumulative preferential rights to current distributions.

9. PER SHARE INFORMATION.

The Merged Trusts collectively have a total of 14,725,328 common shares
without redemptive rights outstanding at both February 23, 1996 and December 31,
1995. Also, Trust IV has 3,278,889 common shares outstanding with redemptive
rights. The accompanying statement of operations does not include per share
calculations as the Merger Agreement provides for differing exchange ratios
which render historical combined per share information not meaningful.

10. TRANSFER OF AN OPTION TO PURCHASE PROPERTY.

On January 6, 1994, Trust VII entered into an agreement to sell Lot 4 of
the Park at Woodinville in 1997. In connection with this agreement, Trust VII
received a note receivable with a principal amount of $375 from the buyer. The
note receivable bears an interest rate of 8% per annum, and both the principal
and accrued

F-48
<PAGE> 166

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

interest are due and payable on January 4, 1997. The agreement has been recorded
as a transfer of an option to purchase the lot in 1997 using the deposit method.
Under this method, the lot is recorded as part of Rental Properties, Net. In
connection with this transaction, Trust VII recognized a provision for decrease
in net realizable value totaling $120 and $528 in 1994 and 1993, respectively.

11. CAPITALIZED LEASE OBLIGATION.

One of Trust IV's property's, Mount Prospect Industrial Center, is subject
to a ground lease. This lease was recorded as a capitalized lease obligation. As
of June 30, 1993, Trust IV determined a foreclosure-in-substance had occurred on
Mount Prospect Industrial Center.

12. DISPOSITION OF PROPERTIES.

On July 20, 1995, Trust VII sold the Paradise Marketplace property located
in Las Vegas, Nevada for a selling price of $10,390. Trust VII received net cash
proceeds of $10,037 after adjustments for closing costs, interest earned and
pro-rations totaling $353. The net proceeds from the sale, together with $113 of
additional funds provided by Trust VII, were placed in an escrow account
totaling $10,150 and were used to (i) pay off its Bank Facility amounting to
$4,578, (ii) make an interest payment of $22 on its Bank Facility and (iii) make
a deposit into a bank to support a letter of credit issued in favor of the
lender for Trust VII's Insurance Company Facility of $5,551. In connection with
the sale, Trust VII wrote-off free rent and unamortized lease commissions, net
of other liabilities, in the amount of $161. Trust VII incurred a loss on sale
of this property totaling $135. The property had previously been written down to
its estimated net realizable value.

On October 21, 1994, Trust VI sold the Cherry Hill property located in New
Jersey for a selling price of $452. Trust VI received net cash proceeds of $421
after deductions for closing costs and pro-rated items totaling $31. Trust VI
paid $390 of these proceeds as additional paydown on its Insurance Company
Facility and $5 in prepayment penalties. In connection with this transaction,
Trust VI recognized a loss on sale of property in the amount of $239. The
property had previously been written down to its net realizable value.

On June 30, 1994, Trust VI sold the Cooper Center and Cooper Center West
properties located in Pennsauken, New Jersey, for a selling price of $3,450.
Trust VI received net cash proceeds of $3,223 after deductions for: (i) closing
costs of $184 and (ii) pro-rated items totaling $43. In connection with this
transaction, Trust VI recognized a loss on sale of properties totaling $35. The
properties had previously been written down to their net realizable value.

On June 23, 1994, Trust VII sold the Greentree Place property located in
Marlton, New Jersey at a price of $5,600. Trust VII received net cash proceeds
of $5,355 after deductions for closing costs of $196 and pro-rated items
totaling $49. These proceeds were used to pay down the Insurance Company
Facility. Trust VII incurred a loss on sale of property in the amount of $124.
The property had previously been written down to its net realizable value.

On October 15, 1993, Trust VI sold a property located at 6387 Nancy Ridge
Drive, San Diego, California at a selling price of $329. Trust VI received net
cash proceeds of $306 after deductions for closing costs and pro-rated items
totaling $23. In connection with this sale, Trust VI recognized a gain on sale
of property in the amount of $57.

On June 10, 1993, Trust VI sold a property located at 6393 Nancy Ridge
Drive, San Diego, California. The selling price was $294, and the net proceeds
to Trust VI after prorations, closing costs and commissions of $21, totaled
$272. Trust VI incurred a loss on sale of property in the amount of $29 in
connection with this sale.

F-49
<PAGE> 167

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

On March 19, 1993, Trust VII sold Lot 5 of the Park at Woodinville
property. The selling price of $600 was paid entirely in cash. Trust VII
received net cash proceeds of $429 after deductions for: (i) closing costs and
pro-rated items totaling $46; and (ii) an escrow holdback amounting to $125.
Trust VII received a full refund of the escrow holdback in December 1993. In
connection with the disposal of Lot 5, Trust VII recognized a loss on sale of
property in the amount of $252.

13. ADJUSTMENT DUE TO TENANT BANKRUPTCY.

In March 1993, the sole tenant at Moorpark declared bankruptcy. In
connection with the bankruptcy proceeding, the tenant rejected its existing
lease with Trust IV. As a result of such rejection, Trust IV incurred the
following non-cash write-offs: (i) $599 constituting deferred rent receivable
and (ii) $81 constituting unamortized lease commissions.

14. EXTINGUISHMENT OF DEBT.

The extraordinary gain on extinguishment of debt of $69 recognized in 1993
represents Trust IV's gain recognized on the foreclosure of a loan on one of its
properties. The property had previously been written down to its net realizable
value.

15. FORECLOSURE OF PROPERTY.

The extraordinary gain on foreclosure of property of $727 recognized in
1993 represents Trust IV's recognition of the foreclosure of a loan on Mount
Prospect Industrial Center. The gain is attributable to the excess write-offs of
the (i) underlying mortgage note, (ii) capitalized lease obligation, and (iii)
accrued liabilities associated with owning the property, over the net asset
value of the property. The property had previously been written down to its net
realizable value.

16. COMMITMENTS AND CONTINGENCIES.

Trust IV is the general partner of a limited partnership that owns the
Phoenix Nine properties (the "Phoenix Partnership"). It appears that activities
conducted at a property adjacent to two of the Phoenix Nine properties have
caused groundwater contamination that has extended below those two properties.
The party who appears to have conducted those activities (the "Responsible
Party") has been named the responsible party (in conjunction with another party
who previously had leased space at the adjacent property) and has administered
and borne the cost of groundwater testing to date. The Responsible Party has
agreed to indemnify the Phoenix Partnership against claims and liabilities
arising out of the groundwater contamination.

The Responsible Party is a large, publicly traded corporation, and Trust IV
believes that the Responsible Party has the financial resources that would be
required to clean up the contamination. In addition, Trust IV believes that the
owner of the adjacent property, where the contamination originated, has the
financial resources to clean up the contamination if the Responsible Party does
not adequately fulfill its remediation responsibility.

17. STOCK PURCHASE AGREEMENT.

On September 22, 1994, the Merged Trusts each entered into a separate Stock
Purchase Agreement (collectively referred to as the "Agreement") with Hunt
Realty Acquisitions, L.P. ("Hunt"). The Agreement called for the Merged Trusts
to collectively to issue 1,493,175 shares of common stock and 3,493,905 shares
of preferred stock to Hunt at $1.78 and $3.30 per share for total amounts of
$2,658 and $11,530 respectively, less reimbursement of certain expenses. In
addition, the Agreement required that the Merged Trusts enter into an agreement
satisfactory to Hunt under which, subject to further stockholder approval and
other contingencies,

F-50
<PAGE> 168

MERGED TRUSTS

NOTES TO HISTORICAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

the Merged Trusts would merge into a newly formed infinite-life REIT. The
funding of the Hunt investment occurred on May 31, 1995.

In contemplation of the Hunt investment, the Merged Trusts' respective
stockholders approved amendments to the Merged Trusts' respective organizational
documents in March 1995. These amendments include, but are not limited to, a
reduction in the limit on the amount of the respective Merged Trusts' shares
that can be owned by any one person to 3.6% of the lesser of the number of
shares or value of any class or series of the Merged Trusts' outstanding shares.

Under the terms of the Agreement, prior to the earlier of the merger or 120
days after the occurrence of certain specified events such as the termination of
the Merged Trusts' right or obligation to merge under the Merger Agreement, the
Merged Trusts are required to refrain from taking certain actions without the
consent of Hunt and USAA, including declaring dividends, incurring certain
obligations or liabilities, selling substantially all of the Merged Trusts'
assets, selling the Merged Trusts' properties and modifying the terms of the
Merged Trusts' material contracts.

Effective April 27, 1995, the Merged Trusts each entered into a separate
stock purchase agreement with USAA Real Estate Company ("USAA") to collectively
issue 1,785,714 shares of the Merged Trusts' common stock and 2,649,161 shares
of the Merged Trusts' preferred stock to USAA in differing amounts of $1.96,
$3.86 and $3.91 per share ($13,819 in total). The funding of the USAA investment
also occurred on May 31, 1995.

The funds received from the Hunt and USAA stock purchase agreements were
used to pay down and restructure the Company's debt. The costs related to the
stock purchase agreements totaling $3,323 were charged against the proceeds from
the issuance of new shares.

As of December 31, 1995 and December 31, 1994, the Merged Trusts have
incurred approximately $2,601 and $371 respectively, in costs related to the
Merger. These costs are classified in Other Assets on the accompanying
historical combined balance sheets as of December 31, 1995 and December 31,
1994.

18. INVESTMENT IN REAL ESTATE INVESTMENT TRUST.

The Merged Trusts purchased 920,500 shares of MIT's Series A Preferred
Stock for $1.00 per share reflected as investment in real estate investment
trust on the accompanying historical combined balance sheet as of December 31,
1995. In connection with the Merger, the shares of Series A Preferred Stock were
cancelled.

19. SUBSEQUENT EVENT -- MERGER.

After receiving respective stockholder approvals of the Merger Agreement on
February 22 and 23, 1996, the Merged Trusts merged into MIT. As part of the
Merger, MIT issued approximately 7.6 million shares of its common stock to the
former preferred and common stockholders of the Merged Trusts.

F-51
<PAGE> 169

THE MERGED TRUSTS

SCHEDULE II
HISTORICAL COMBINED VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM JANUARY 1 TO FEBRUARY 23, 1996 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO ADDITIONS END OF
DESCRIPTION YEAR EXPENSE (DEDUCTIONS) PERIOD
- --------------------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
1993
Reserve for Bad Debts...................... $1,101 $582 $ (598) $1,085
Reserve for Temporary Decline in Marketable
Securities.............................. 116 -- (101) 15
1994
Reserve for Bad Debts...................... 1,085 186 (489) 782
Reserve for Temporary Decline in Marketable
Securities.............................. 15 -- -- 15
1995
Reserve for Bad Debts...................... 782 579 (458) 903
Reserve for Temporary Decline in Marketable
Securities.............................. 15 -- -- 15
1996
Reserve for Bad Debts...................... 903 (70) -- 833
Reserve for Temporary Decline in Marketable
Securities.............................. 15 -- -- 15
</TABLE>

F-52
<PAGE> 170

THE MERGED TRUSTS
SCHEDULE III
HISTORICAL COMBINED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT TO
ACQUISITION NET
INITIAL COST TO -------------------- REALIZABLE
COMPANY RENTAL VALUE
ENCUM- ----------------- IMPROVE- RENTAL WRITE-
DESCRIPTION BRANCES(1) LAND BUILDING MENTS GUARANTEES DOWNS(2) LAND
- ------------------------------------------------------------ ------- -------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Business Service Centers:
Palisades I and II.............................. $ 1,797 $ 833 $ 3,327 $ 479 $ -- $ (1,314) $ 570
201 Regal Row................................... -- 333 1,066 199 -- -- 333
Park at Woodinville............................. -- 3,040 9,966 503 -- -- 3,041
Pontiac and Troy Tech II........................ -- 2,297 9,196 28 (32) -- 2,291
Warehouse/Distribution Buildings:
Bedford Park.................................... 1,864 435 3,289 224 -- -- 435
1550 Heil Quaker................................ -- 425 4,603 1,062 -- (510) 382
1600 Corporate Place............................ -- 200 1,365 535 -- -- 200
Air Park Cove and 4013 Premier.................. -- 538 3,580 474 -- -- 538
Hennessey Warehouse............................. -- 275 1,677 283 -- (425) 215
Chicago 14...................................... -- 4,805 18,220 2,523 -- (1,350) 4,440
Lombard I....................................... -- 1,103 5,890 669 -- -- 1,103
Birmingham I and II............................. -- 1,154 3,217 142 -- (950) 876
Olive Branch I and II........................... 6,700 689 17,512 33 -- -- 689
Northgate/International, Valwood 20 and
Centreport 17................................. -- 3,660 12,045 35 -- -- 3,660
Great Southwest 110............................. -- 791 3,574 14 -- -- 791
Wildwood/Pioneer................................ -- 1,142 5,127 538 -- -- 1,142
Baxter and Port Distribution.................... -- 497 6,110 25 (75) (957) 420
Delp Distribution............................... -- 1,285 6,745 98 -- (1,166) 1,098
Industrial/Flex Buildings:
Phoenix Nine.................................... -- 3,820 8,738 911 -- (3,006) 2,795
Cypress, B Chatsworth, and Moorpark, CA......... -- 6,200 14,211 777 -- (5,828) 4,133
Nancy Ridge..................................... -- 216 429 -- -- (252) 132
Willow Lake..................................... -- 1,004 4,297 3 (136) -- 978
Cypress A, Cypress C and Valencia............... -- 5,310 12,120 -- -- (6,969) 3,145
Progress I & II Centers and 8215 Building....... -- 1,372 6,807 223 -- (470) 1,294
Dallas Nine..................................... 6,768 6,712 19,654 1,524 (374) (10,464) 3,994
Building and Retail Shopping Centers:
San Carlos...................................... -- 2,800 4,444 565 -- -- 2,800
Live Oak Parkway................................ -- 2,835 2,486 6 (130) (444) 2,529
Marietta Trade Center........................... -- 12,554 20,233 1,160 (190) (8,194) 9,344
Seatac and Meridian Village..................... -- 7,500 13,276 1,663 -- -- 7,500
Retail Restaurant Building:
Park Ten Center................................. -- 648 1,367 -- -- (473) 496
Other............................................. -- -- -- 90 -- -- --
------- ------- -------- ------- ----- -------- -------
Total..................................... $ 17,129 $74,473 $224,571 $14,786 $ (937) $(42,772) $61,364
======= ======= ======== ======= ===== ======== =======

GROSS
AMOUNT
CARRIED AT
END OF
PERIOD
BUILDING &
IMPROVE- ACCUMULATED DATE OF DATE OF DEPRECIABLE
DESCRIPTION MENTS TOTAL(3) DEPRECIATION CONSTRUCTION ACQUISITION LIFE
- -------------------------------------------------- ---------- -------- ----------- ------------ ----------- -----------

<S> <<C> <C> <C> <C> <C> <C>
Business Service Centers:
Palisades I and II.............................. $ 2,755 $ 3,325 $ 1,087 1981-82 08/30/85 35 years
201 Regal Row................................... 1,265 1,598 247 1966 10/24/90 35 years
Park at Woodinville............................. 10,468 13,509 2,647 1987-89 01/05/88 35 years
Pontiac and Troy Tech II........................ 9,198 11,489 1,902 1986-88 11/02/88 35 years
Warehouse/Distribution Buildings:
Bedford Park.................................... 3,513 3,948 903 1980 06/22/86 35 years
1550 Heil Quaker................................ 5,198 5,580 1,651 1975 04/09/87 35 years
1600 Corporate Place............................ 1,900 2,100 517 1975 05/07/87 35 years
Air Park Cove and 4013 Premier.................. 4,054 4,592 930 1965-78 07/02/87 35 years
Hennessey Warehouse............................. 1,595 1,810 514 1975 06/28/87 35 years
Chicago 14...................................... 19,758 24,198 5,862 1963-81 12/30/86 35 years
Lombard I....................................... 6,559 7,662 1,818 1986 05/27/88 35 years
Birmingham I and II............................. 2,687 3,563 580 1980-85 12/21/89 35 years
Olive Branch I and II........................... 17,545 18,234 1,733 1990 06/29/90 35 years
Northgate/International, Valwood 20 and
Centreport 17................................. 12,080 15,740 2,596 1986-87 06/29/88 35 years
Great Southwest 110............................. 3,588 4,379 754 1972-73 09/29/88 35 years
Wildwood/Pioneer................................ 5,665 6,807 1,294 1970 04/03/89 35 years
Baxter and Port Distribution.................... 5,180 5,600 978 1986-90 12/21/89 35 years
Delp Distribution............................... 5,864 6,962 963 1981 06/29/90 35 years
Industrial/Flex Buildings:
Phoenix Nine.................................... 7,668 10,463 2,512 1964-84 10/15/86 35 years
Cypress, B Chatsworth, and Moorpark, CA......... 11,227 15,360 3,078 1985-86 10/20/87 35 years
Nancy Ridge..................................... 261 393 79 1983 12/29/87 35 years
Willow Lake..................................... 4,190 5,168 954 1987 03/31/88 35 years
Cypress A, Cypress C and Valencia............... 7,316 10,461 2,422 1985-86 10/07/87 35 years
Progress I & II Centers and 8215 Building....... 6,638 7,932 1,658 1985-86 12/09/87 35 years
Dallas Nine..................................... 13,058 17,052 4,562 1979-84 06/30/86 35 years
Building and Retail Shopping Centers:
San Carlos...................................... 5,009 7,809 1,550 1970 06/08/86 35 years
Live Oak Parkway................................ 2,224 4,753 513 1987-88 07/08/88 35 years
Marietta Trade Center........................... 16,219 25,563 4,291 1987-88 09/30/88 35 years
Seatac and Meridian Village..................... 14,939 22,439 3,959 1977-79 09/30/87 35 years
Retail Restaurant Building:
Park Ten Center................................. 1,046 1,542 263 1987-88 06/23/88 35 years
Other............................................. 90 90 88 1991 1991 17 mos
-------- -------- -------
Total..................................... $208,757 $270,121 $52,905
======== ======== =======
</TABLE>

F-53
<PAGE> 171

Reconciliations of cost and accumulated depreciation for the years ended
December 31, 1995, 1994, 1993 are as follows:

<TABLE>
<CAPTION>
1995 1994 1993
-------------------------- -------------------------- --------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION COST DEPRECIATION
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year....... $276,345 $50,126 $298,304 $48,812 $323,029 $45,468
Additions during period:
Capital improvements............. 3,112 -- 3,027 -- 1,780 --
Acquisition of property.......... 6,709(4) -- -- -- -- --
Transfer of an option to purchase
property...................... -- -- 166(6) -- -- --
Depreciation..................... -- 7,577 -- 8,285 -- 8,968
Net realizable value write-downs... (1,140) -- (9,001) -- (6,496) --
Deletions.......................... (2,444) (2,444) (2,252) (2,252) (1,961) (1,961)
Reimbursement for tenant
improvements..................... -- -- -- -- (25) --
Tenant improvement loan............ (35) (10) -- -- -- --
Property dispositions.............. (12,426)(5) (2,344) (13,899)(7) (4,719) (18,023)(8) (3,663)
-------- ------- -------- ------- -------- -------
Balance at end of year............. $270,121 $52,905 $276,345 $50,126 $298,304 $48,812
======== ======= ======== ======= ======== =======
</TABLE>

- ---------------
(1) Properties not specifically encumbered by a mortgage note are held subject
to a promissory note secured by a first deed of trust in connection with the
long term debt facilities with a bank and an insurance company. As of
December 31, 1995, properties with a total net book value of $191,322 serve
as collateral for the outstanding indebtedness under the facilities
aggregating to $92,599.
(2) Represents the cumulative Provision for Decrease in Net Realizable Value at
December 31, 1995, which is measured by the amount by which the carrying
values of the properties exceeded their respective current estimated fair
market value.
(3) The aggregate cost for federal income tax purposes was approximately
$317,104.
(4) Olive Branch II was purchased in November 1995. The acquisition was funded
by a $6,700 bridge loan.
(5) Represents the property basis of Paradise Marketplace which was sold on July
20, 1995.
(6) Primarily represents the closing costs incurred in connection with the
agreement to sell Lot 4 of the Park at Woodinville in 1997. The agreement
was entered into on January 6, 1994.
(7) Represents the property basis of the following properties which were all
sold in 1994: Cooper Center, Copper Center West, Cherry Hill and Greentree
Place.
(8) Represents the property basis of the following properties which were
disposed of in 1993: Mt. Prospect, 6393 and 6387 Nancy Ridge Drives, Lot 5
of the Park at Woodinville.

F-54
<PAGE> 172

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Meridian Industrial Trust, Inc.:

We have audited the accompanying combined statement of revenues and certain
expenses for the Three Acquired Properties, as defined in Note 1, for the year
ended December 31, 1995. This statement is the responsibility of the management
of Meridian Industrial Trust, Inc. (the "Company"). Our responsibility is to
express an opinion on this combined statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, and is not intended to be a
complete presentation of the revenues and expenses of the Three Acquired
Properties.

In our opinion, the combined statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Three
Acquired Properties for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
October 25, 1996

F-55
<PAGE> 173

MERIDIAN INDUSTRIAL TRUST, INC.

COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE THREE ACQUIRED PROPERTIES
FOR THE PERIOD FROM JANUARY 1, 1996 TO THE EARLIER OF
DATE OF ACQUISITION OR SEPTEMBER 30, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
EARLIER OF DATE
OF ACQUISITION OR
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Rental Revenues.......................................... $ 3,301 $5,614
Certain Expenses:
Real Estate Taxes...................................... 372 603
Property Operating and Maintenance..................... 365 668
------ ------
737 1,271
------ ------
Rental Revenue in Excess of Certain Expenses............. $ 2,564 $4,343
====== ======
</TABLE>

The accompanying notes are an integral part of these statements.

F-56
<PAGE> 174

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE THREE ACQUIRED PROPERTIES
FOR THE PERIOD FROM JANUARY 1, 1996 TO THE EARLIER OF
DATE OF ACQUISITION OR SEPTEMBER 30, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

1. PROPERTIES ACQUIRED.

The combined statements of revenues and certain expenses (see "Basis of
Presentation" below) include the combined operations of two operating properties
acquired by Meridian Industrial Trust (the "Company") on March 29, 1996 and
September 30, 1996, and a third property which the Company expects to acquire
prior to December 31, 1996 (collectively referred to as "the Three Acquired
Properties").

<TABLE>
<CAPTION>
RENTABLE
ACQUISITION SQUARE
PROPERTY NAME LOCATION DATE FEET BUILDING TYPE
- ----------------------- --------------------- ------------------- ---------- -----------------------
<S> <C> <C> <C> <C>
Arenth Facility City of Industry, CA March 29, 1996 332,750 Warehouse/Distribution
Crosswind Dr. Facility Columbus, OH September 30, 1996 1,014,592 Warehouse/Distribution
Mission Oaks Blvd. Camarillo, CA Pending 310,736 Warehouse/Distribution
Facility
</TABLE>

At the time of the Crosswind Drive Facility acquisition, expansion of the
existing facility by 301,950 square feet was substantially completed. The tenant
occupying the facility moved into the expansion space on or about September 30,
1996.

2. BASIS OF PRESENTATION.

The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Three Acquired Properties for the
periods presented. Certain expenses may not be comparable to the expenses
expected to be incurred by the Company in the proposed operations of the Three
Acquired Properties; however, the Company is not aware of any material factors
relating to these Three Acquired Properties that would cause the reported
financial information not to be indicative of future operating results. Excluded
expenses consist primarily of interests expense, depreciation and amortization
and other costs not directly related to the future operations of the Three
Acquired Properties.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

(a) Revenue Recognition. All leases are classified as operating leases,
and rental revenue is recognized on a straight-line basis over the terms of the
leases.

(b) Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.

F-57
<PAGE> 175

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE THREE ACQUIRED PROPERTIES -- (CONTINUED)

4. LEASING ACTIVITY.

The minimum future rental revenue due under non-cancelable operating leases
in effect as of October 1, 1996, for the remainder of 1996 and annually
thereafter are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
--------------------------------------------------------- -------
<S> <C>
1996 (three months)...................................... $1,299
1997..................................................... 5,197
1998..................................................... 5,197
1999..................................................... 5,017
2000..................................................... 4,116
Thereafter............................................... 18,961
</TABLE>

In addition to minimum rental payments, tenants pay their share of
specified operating expenses, which amounted to $737 for the period from January
1, 1996 to the earlier of the date of acquisition or September 30, 1996
(unaudited), and $1,271 for the year ended December 31, 1995. Certain leases
contain options to renew.

F-58
<PAGE> 176

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Meridian Industrial Trust, Inc.:

We have audited the accompanying combined statements of revenue and certain
expenses of the Trust 83 Properties, as defined in Note 1, for the years ended
December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the management of Meridian Industrial Trust, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.

The accompanying combined statements of revenue and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Prospectus of Meridian
Industrial Trust, Inc., and are not intended to be a complete presentation of
the Trust 83 Properties' revenue and expenses.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenue and certain expenses of the Trust 83
Properties for the years ended December 31, 1995, 1994 and 1993, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Francisco, California
February 23, 1996

F-59
<PAGE> 177

TRUST 83 PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Rental revenue............................................... $4,565 $4,548 $4,754
------ ------ ------
Certain expenses:
Property operating and maintenance......................... 868 726 643
Real estate taxes.......................................... 514 514 542
------ ------ ------
1,382 1,240 1,185
------ ------ ------
Rental revenue in excess of certain expenses................. $3,183 $3,308 $3,569
====== ====== ======
</TABLE>

The accompanying notes are an integral part of these statements.

F-60
<PAGE> 178

TRUST 83 PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SQUARE FEET DATA)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

Business. The accompanying financial statements include the combined
operations (see "Basis of Presentation" below) of nine properties (the "Trust 83
Properties") owned by Meridian Point Realty Trust '83 ("Trust 83").

Meridian Industrial Trust, Inc. (the "Company") intends to acquire 100% of
the land and buildings, and assume the underlying mortgage notes payable (see
Note 3) and certain other obligations, of each of the following properties:

<TABLE>
<CAPTION>
NET
NUMBER OF RENTABLE PROPERTY
NAME LOCATION PROPERTIES SQ. FT. DESCRIPTION
- ---------------------------- ----------------- --------- -------- ---------------------
<S> <C> <C> <C> <C>
Scripps Ranch Business Park San Diego, CA 1 182,745 Nine industrial/
flex buildings
Golden Cove Shopping Center Palos Verdes, CA 1 75,881 One retail
shopping center
North Irvine Business Park Santa Ana, CA 1 56,880 Two industrial/flex
buildings
El Dorado Industrial Plaza Phoenix, AZ 1 118,800 Two warehouse/
distribution
buildings
Airport Industrial Park Memphis, TN 5 476,183 Five warehouse/
distribution
buildings
</TABLE>

Basis of Presentation. The accompanying combined financial statements are
not representative of the actual operations of the Trust 83 Properties for the
periods presented. Certain expenses may not be comparable to the expenses
expected to be incurred by the Company in the proposed future operations of the
Trust 83 Properties. Excluded expenses consist of interest, depreciation and
amortization, and other costs not directly related to the future operations of
the Trust 83 Properties.

Revenue Recognition. All leases are classified as operating leases, and
rental revenue is recognized on a straight-line basis over the terms of the
leases.

2. LEASING ACTIVITY.

The minimum future rental revenues from leases in effect at December 31
1995 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996................................................. $3,739
1997................................................. 3,464
1998................................................. 2,232
1999................................................. 1,418
2000................................................. 752
Thereafter........................................... 1,896
</TABLE>

In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to
$528, $494, and $657 for the years ended December 31, 1995, 1994 and 1993,
respectively.

F-61
<PAGE> 179

TRUST 83 PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND
CERTAIN EXPENSES -- (CONTINUED)

3. MORTGAGE NOTES PAYABLE.

The following table presents unaudited information as of December 31, 1995
regarding the mortgage notes payable that will be assumed by the Company in
connection with the acquisition of the Trust 83 Properties. All such instruments
are first lien notes secured by the rental properties.

<TABLE>
<CAPTION>
STATED
INTEREST ANNUAL MATURITY
NAME AND LOCATION OF PROPERTY RATE PAYMENTS DATES BALANCE
---------------------------------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Golden Cove, Palos Verdes, CA................. 9.07% $ 313 11/01/97 $ 3,254
North Irvine Business Park, Santa Ana, CA..... 8.500% 277 03/01/96 2,097
Airport Bldg. 14, Memphis, TN................. 9.500% 153 08/01/03 820
Airport Bldg. 16A & 16B, Memphis, TN.......... 9.250% 126 09/01/09 971
El Dorado Industrial Plaza, Phoenix, AZ....... 10.625% 189 09/01/08 1,315
Scripps Business Ranch, San Diego, CA......... Variable 952 03/31/96 7,982
-------
Total............................... -- -- -- $16,439
=======
</TABLE>

Principal payments are due as follows:

<TABLE>
<S> <C>
1996................................................ $10,297
1997................................................ 3,390
1998................................................ 205
1999................................................ 226
2000................................................ 249
Thereafter.......................................... 2,072
-------
Total..................................... $16,439
=======
</TABLE>

The monthly rate on the underlying mortgage note securing the Golden Cove
property is based on the average yield of the six month Treasury Bills plus 3%
(8.56% at December 31, 1995). The note is both assumable and pre-payable without
penalty.

The mortgage note securing the Scripps Business Ranch requires monthly
principal payments of $8 and bears interest at prime plus 1% (9.50% at December
31, 1995). The Airport Building #3 serves as additional collateral for this
loan.

F-62
<PAGE> 180

================================================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED IN THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 17
Recent Investments and Dispositions... 25
The Company........................... 29
Use of Proceeds....................... 36
Price Range of Common Stock........... 36
Distribution Policy................... 36
Dilution.............................. 37
Capitalization........................ 38
Selected Financial and Other Data..... 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 41
Business and Properties............... 48
Policies with Respect to Certain
Activities.......................... 73
Management............................ 76
The Consolidation Transactions........ 84
Certain Relationships and Related
Party Transactions.................. 85
Principal and Management
Stockholders........................ 87
Description of Stock.................. 88
Certain Provisions of Maryland Law and
of the Charter and Bylaws........... 95
Federal Income Tax Considerations..... 100
Shares Available for Future Sale...... 110
Underwriting.......................... 112
Legal Matters......................... 113
Experts............................... 113
Additional Information................ 113
Glossary.............................. 114
Index to Financial Statements......... F-1
</TABLE>

================================================================================

3,400,000 Shares

[LOGO]

Common Stock

---------------------
PROSPECTUS
---------------------

PRUDENTIAL SECURITIES INCORPORATED

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

ROBERTSON, STEPHENS & COMPANY

November 19, 1996

================================================================================