FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 1-14166
MERIDIAN INDUSTRIAL TRUST, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 94-3224765
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
455 Market Street
17th Floor
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 281-3900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $0.001 per share New York Stock Exchange
Warrants to Purchase Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of the common and preferred stock, as
of the latest practicable date:
Shares of Series B Preferred Stock as of November 1, 1996 : 2,272,727
Shares of Common Stock as of November 1, 1996 : 9,685,563
<PAGE>
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PART I: FINANCIAL INFORMATION
- ------------------------------------------------------------------------
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements
should be read in conjunction with the 1995 Form 10-K and 1996 Form 10-Q for the
quarters ended June 30, 1996 and March 31, 1996 of the registrant (the
"Company"). These consolidated condensed statements have been prepared in
accordance with the instructions of the Securities and Exchange Commission Form
10-Q and do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of the Company's management, all material adjustments of a
normal, recurring nature considered necessary for a fair presentation of results
of operations for the interim period have been included. The results of
consolidated operations for the three and nine month periods ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
Aquisition 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
<PAGE>
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,
acquiring, developing, managing and leasing 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 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>
<CAPTION>
<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.
<PAGE>
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.
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 on 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.
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 830,000. 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.
<PAGE>
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.
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
======== ========
<FN>
- ------------------
(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%.
</FN>
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
Merged Trusts
Nine Months Ended September 30, 1995
-----------------------------------------
Historical Adjustments As Adjusted
Combined (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
=========== =========== ===========
<FN>
- -----------------
(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.
</FN>
</TABLE>
10. SUBSEQUENT EVENTS.
In October 1996, the Company filed a registration statement with the
Securities and Exchange Commission to register 3,000,000 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(dollars in thousands unless indicated otherwise)
Introduction
- ------------
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,
acquiring, developing, managing and leasing 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.
The following discussion should be read in conjunction with the Company's
Form 10-K for 1995 and in conjunction with the Consolidated Condensed Balance
Sheets, Consolidated Condensed Statement of Operations and Cash Flows and the
notes thereto included in pages F-2 through F-11 of this report. Unless
otherwise defined in this report, or unless the context otherwise requires, the
capitalized words or phrases used in this section either (i) describe accounting
terms that are used as line items in such financial statements, or (ii) have the
meanings ascribed to them in such financial statements and the notes thereto.
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 debt-to-total market capitalization ratio was approximately 34% based
upon the September 30, 1996 last reported sales price of the Company's Common
Stock of $17.50 per share.
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. The
Mortgage Loan bears interest at the annual rate of 8.63% and provides for
interest only payments until maturity in 2005. 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 and matures in February
1998.
<PAGE>
Sources of Liquidity
- --------------------
The Company's main sources of liquidity are: (i) cash flows from operating
activities, (ii) cash reserves, (iii) drawdowns on the Unsecured Credit
Facility, (iv) proceeds from private or public equity or debt placements, and
(v) proceeds from property dispositions.
During the nine months ended September 30, 1996, cash flows provided by
(used in) operating, investing and financing activities totaled $14,791,
$(45,741) and $32,097, respectively.
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 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 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 development, acquisitions, 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 the Company's operating performance or as 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 net income before extraordinary item to Funds
From Operations for the nine months ended September 30, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income Before Gain on Sale of
Properties and Extraordinary Item $ 7,778
Reconciling Item:
Depreciation and Amortization
relating to real estate operations 3,209
--------
Funds From Operations $ 10,987
========
</TABLE>
As of September 30, 1996, the Company had $1,622 in unrestricted cash and
cash equivalents.
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.
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.
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.
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 was
transferred to the Company upon completion of the Merger. Payments made to the
Company under this agreement ceased on June 28, 1996.
On April 3, 1996, the Company issued 1,500,000 shares of the Company's
Common Stock at an offering price of $16.375 per share, resulting in gross
proceeds of $24,563 (the "April Offering"). The net proceeds from the April
Offering and existing cash reserves, were used to make payments of $24,000 on
its Unsecured Credit Facility.
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).
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.
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.
At September 30, 1996, the Company has approximately $16,770 committed to
fund three build-to-suit properties. Other than these development commitments,
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 maintain the properties. 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 shareholder distributions in accordance with
REIT requirements on both short-term and long-term basis.
Uses of Liquidity
The Company's principal applications of its cash resources are (i)
operating costs including property expenses, property taxes, general and
administrative expenses, interest expense, and legal costs; (ii) tenant
improvement costs; leasing commissions and building improvements; (iii) payment
of distributions; (iv) principal payments on its debt; and (v) property
development and acquisitions.
The Company anticipates that it will have sufficient Funds From Operations
during 1996 to fund (i) its operating needs, (ii) capital expenditures on the
properties, and (iii) the proposed distributions to its common and preferred
stockholders.
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.
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 $48,989 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 830,000. 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 from cash reserves 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.
The Company has funded the project costs from cash reserves and draws from
the Unsecured Credit Facility. The Company anticipates funding a majority of the
future costs with draws from the Unsecured Credit Facility.
As previously reported, two of the Company's 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.
Pending Acquisitions
The Company has entered into definitive agreements to acquire six
additional warehouse/distribution properties that comprise 1.2 million square
feet for aggregate consideration of approximately $42.7 million. The following
table summarizes these pending acquisitions.
<PAGE>
<TABLE>
<CAPTION>
Approximate Estimated
Properties Market Square Feet Consideration (1)
- ----------------- ----------------- ------------ -----------------
<S> <C> <C> <C>
Rustin Avenue Los Angeles Basin 113,721 $ 4,115
Wanamaker Avenue Los Angeles Basin 136,249 4,500
Mission Oaks Blvd. Los Angeles Basin 310,736 9,885
Meyer Circle Los Angeles Basin 201,380 8,050
Crowfarn Drive Memphis 128,248 2,500
Gold River Lane San Francisco Bay Area 353,000 13,616
------------ -----------------
Total 1,243,334 $ 42,666
============ =================
<FN>
- ---------
(1) Including transaction costs.
</FN>
</TABLE>
Material Changes in Results of Operations
- -----------------------------------------
The Company was incorporated on May 18, 1995. The Merger and Asset
Purchase were consummated on February 23, 1996. The Company's historical results
of operations for the nine months ended September 30, 1996 reflect the operating
activities resulting from the Merger and Asset Purchase from February 23, 1996.
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 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 increase in 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.
Risks and Uncertainties Associated with Forward Looking Statements
This document contains forward looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that may cause such
difference include, but are not limited to, the risks described under the
captions (i) "Management's Discussions and Analysis of Financial Condition and
Results of Operations - Discussion of Known Trends, Events and Uncertainties" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
and (ii) "Risk Factors" in Amendment No. 1 to the Company's Registration
Statement on Form S-11 (Registration No.333-14987).
<PAGE>
- ------------------------------------------------------------------------
PART II: OTHER INFORMATION
- ------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings which the Company or any
partnership in which the Company has an interest is a party or to which
any of the assets of the Company or any such partnership is subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K. The following Form 8-K reports
were filed during the quarter ended September 30,
1996:
Current Report on Form 8-K dated September 30, 1996 reporting
the acquisition of a distribution/warehouse facility located
at 5330 Crosswind Drive, Columbus, Ohio.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MERIDIAN INDUSTRIAL TRUST, INC.
Dated: October 31, 1996 By: ALLEN J. ANDERSON
---------------------------------
Allen J. Anderson
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: October 31, 1996 By: MILTON K. REEDER
---------------------------------
Milton K. Reeder
President and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,566,000
<SECURITIES> 0
<RECEIVABLES> 1,820,000
<ALLOWANCES> (459,000)
<INVENTORY> 0
<CURRENT-ASSETS> 4,118,000
<PP&E> 286,746,000
<DEPRECIATION> (3,091,000)
<TOTAL-ASSETS> 292,700,000
<CURRENT-LIABILITIES> 9,980,000
<BONDS> 107,994,000
0
2,000
<COMMON> 10,000
<OTHER-SE> 174,714,000
<TOTAL-LIABILITY-AND-EQUITY> 292,700,000
<SALES> 0
<TOTAL-REVENUES> 23,933,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,987,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,168,000
<INCOME-PRETAX> 7,778,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,778,000
<DISCONTINUED> 0
<EXTRAORDINARY> 234,000
<CHANGES> 0
<NET-INCOME> 7,544,000
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.76
</TABLE>
