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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
MERIDIAN INDUSTRIAL TRUST, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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MERIDIAN INDUSTRIAL TRUST, INC.
NOTICE OF SPECIAL MEETING,
PROXY STATEMENT AND PROXY CARD
FOR
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 15, 1997
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
August , 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Meridian Industrial Trust, Inc. (the "Company") to be held on Monday, September
15, 1997, at 8:30 a.m., local time, at the Sheraton Palace Hotel, 2 Montgomery
Street, San Francisco, California. Enclosed are a notice to stockholders, a
proxy statement describing the business to be transacted at the special meeting,
and a proxy card for use in voting at the special meeting.
At the special meeting, you will be asked to approve the issuance of (a) up
to 7,314,026 shares of common stock, par value $.001 ("Common Stock"), of the
Company to Ameritech Pension Trust ("Ameritech") in connection with an
acquisition of certain warehouse/distribution properties and related assets from
Ameritech, and (b) 7,096,513 shares Common Stock to The Prudential Insurance
Company of America and three accounts managed by Prudential (the "Prudential
Purchasers") in connection with stock purchase agreements entered into between
the Company and each of the Prudential Purchasers, and to act on such other
business as may properly come before the special meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE ISSUANCES OF
COMMON STOCK TO AMERITECH AND THE PRUDENTIAL PURCHASERS AND THE RELATED
TRANSACTIONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT ARE FAIR TO AND IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF BOTH OF THE PROPOSALS.
We hope that you will be able to attend the special meeting, and we urge you
to read the enclosed Proxy Statement before you decide to vote. Even if you do
not plan to attend, please complete, date, sign and promptly return the enclosed
proxy card. It is important that your shares be represented at the meeting.
Very truly yours,
Allen J. Anderson
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF
YOU ATTEND THE SPECIAL MEETING AND WISH TO WITHDRAW YOUR PROXY, YOU MAY VOTE IN
PERSON, AND YOUR PROXY WILL BE WITHDRAWN.
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
----------------
NOTICE TO STOCKHOLDERS OF SPECIAL MEETING
TO BE HELD ON SEPTEMBER 15, 1997
------------------------
PLEASE TAKE NOTICE that a special meeting of stockholders (the "Special
Meeting") of Meridian Industrial Trust, Inc., a Maryland corporation (the
"Company"), will be held on Monday, September 15, 1997, at 8:30 a.m., local
time, at the Sheraton Palace Hotel, 2 Montgomery Street, San Francisco,
California, to consider and vote on the following matters:
1. The issuance of up to 7,314,026 shares of Common Stock, par value $.001
per share ("Common Stock"), of the Company to Ameritech Pension Trust
("Ameritech") in accordance with the terms of that certain Agreement of
Purchase and Sale and Joint Escrow Instructions between the Company and
Ameritech (the "Ameritech Agreement").
2. The issuance of 7,096,513 shares of Common Stock to The Prudential
Insurance Company of America and two accounts managed by Prudential
(collectively, the "Prudential Purchasers") for cash in accordance with
the terms of certain stock purchase agreements between the Company and
each of the Prudential Purchasers.
3. Such other business as may properly come before the Special Meeting or
any postponements or adjournments thereof.
These matters are more fully discussed in the attached Proxy Statement.
Only stockholders of record at the close of business on June 26, 1997, the
record date for the Special Meeting, will be entitled to notice of, and to vote
at, the Special Meeting or any postponements or adjournments thereof. The
presence in person or by proxy of stockholders entitled to cast a majority of
all the votes entitled to be cast at the Special Meeting shall constitute a
quorum. Whether or not you plan to attend, please complete, date, sign and
return the enclosed proxy card.
You may revoke your proxy at any time before the shares to which it relates
are voted by filing with the Company a written revocation or a
subsequently-dated proxy. If you are present at the Special Meeting and vote in
person, your proxy will not be exercised.
We look forward to seeing you at the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THE
ABOVE PROPOSALS.
By Order of the Directors,
Robert A. Dobbin
SECRETARY
San Francisco, California
August , 1997
TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
SIGN, AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INFORMATION CONCERNING SOLICITATION AND VOTING............................................................. 1
General.................................................................................................. 1
Summary of Proposals to be Considered at the Special Meeting............................................. 1
Voting Rights and Outstanding Shares..................................................................... 2
Revocability of Proxies.................................................................................. 3
PROPOSAL ONE--THE AMERITECH STOCK ISSUANCE................................................................. 3
General.................................................................................................. 3
Consideration for the Ameritech Stock Issuance........................................................... 4
Reasons for the Ameritech Transaction.................................................................... 5
The Ameritech Agreement.................................................................................. 8
Amended and Restated Excepted Holder Agreement........................................................... 10
Registration Rights Agreement............................................................................ 11
Ameritech Portfolio Property Description................................................................. 11
Required Vote............................................................................................ 17
PROPOSAL TWO--THE PRUDENTIAL STOCK ISSUANCE................................................................ 18
General.................................................................................................. 18
Consideration for the Prudential Stock Issuance.......................................................... 18
Reasons for the Prudential Stock Transaction............................................................. 18
The Prudential Stock Agreements.......................................................................... 22
Excepted Holder Agreement................................................................................ 23
Registration Rights Agreement............................................................................ 24
The Prudential Property Agreements....................................................................... 24
Prudential Portfolio Property Description................................................................ 25
Required Vote............................................................................................ 29
SELECTED FINANCIAL DATA.................................................................................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 32
STOCKHOLDER PROPOSALS...................................................................................... 47
MISCELLANEOUS.............................................................................................. 47
AVAILABLE INFORMATION...................................................................................... 48
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
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MERIDIAN INDUSTRIAL TRUST, INC.
----------------
PROXY STATEMENT
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement (the "Proxy Statement") and the enclosed form of proxy
are first being sent to stockholders of Meridian Industrial Trust, Inc., a
Maryland corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors (the "Board") for use in connection with a
special meeting of the Company's stockholders to be held at the Sheraton Palace
Hotel, 2 Montgomery Street, San Francisco, California, at 8:30 a.m., local time,
on Monday, September 15, 1997, and at any postponements or adjournments thereof
(the "Special Meeting"). The Company's principal executive offices are located
at 455 Market Street, 17th Floor, San Francisco, California 94105.
The Company has mailed this Proxy Statement and the accompanying form of
proxy (the "Proxy") to all stockholders entitled to notice of and to vote at the
Special Meeting on or about August , 1997.
SUMMARY OF PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will consider and
vote upon two separate proposals:
(a) PROPOSAL ONE--THE AMERITECH STOCK ISSUANCE. A proposal to consider
and approve the issuance of up to 7,314,026 shares of Common Stock, par
value $.001 per share ("Common Stock"), of the Company to Ameritech Pension
Trust ("Ameritech") in accordance with the terms of an Agreement of Purchase
and Sale and Joint Escrow Instructions (the "Ameritech Agreement"), pursuant
to which the Company will acquire up to 23 warehouse/industrial properties,
including a participating mortgage secured by a seven-building industrial
project (the "Ameritech Transaction"). The aggregate consideration to be
paid for the Ameritech portfolio is $145.5 million, which amount will be
paid in shares of Common Stock valued at a price based upon the closing
prices of the Company's Common Stock for the ten business days prior to the
date on which that the Company and Ameritech entered into a letter of intent
regarding the Ameritech Transaction. Certain of the Ameritech properties to
be acquired by the Company pursuant to the Ameritech Agreement serve as
security for certain indebtedness of Ameritech. Ameritech has the right to
delay the closing with respect to these encumbered properties for up to 60
days if such properties cannot be delivered free and clear of encumbrances
and to substitute certain other identified properties that are substantially
similar to the encumbered properties (the "Alternate Properties"). If the
Alternate Properties are included in the Ameritech Transaction such
properties may include up to two properties that will be delivered subject
to existing mortgage indebtedness. See "The Ameritech Stock
Issuance--Consideration for the Ameritech Stock Issuance" and "--Ameritech
Portfolio Property Description."
(b) PROPOSAL TWO--THE PRUDENTIAL STOCK ISSUANCE. A proposal to
consider and approve the issuance of 7,096,513 shares of Common Stock to The
Prudential Insurance Company of America ("Prudential") and two accounts
managed by Prudential (collectively with Prudential, the "Prudential
Purchasers") for aggregate consideration of $140 million in cash in
accordance with the terms of certain stock purchase agreements (the
"Prudential Stock Agreements") between the Company and each of the
Prudential Purchasers (the "Prudential Stock Transaction").
The Company intends to use the proceeds of the Prudential Stock
Transaction to pay a portion of the total consideration of $196.2 million to
be paid to Prudential and certain affiliated entities
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(collectively, the "Prudential Property Sellers") pursuant to those certain
Purchase and Sale Agreements under which the Company has agreed to acquire
29 properties comprising 57 warehouse/ industrial buildings and 179 acres of
land from the Prudential Property Sellers (the "Prudential Property
Transaction"). The balance of the consideration to be paid to the Prudential
Property Sellers will be paid through borrowings under the Company's
unsecured credit facility or alternative debt financing. If the Prudential
Stock Agreements are terminated by the Prudential Purchasers because (i) the
stockholders of the Company do not approve the Prudential Stock Issuance at
the Special Meeting, (ii) the Board withdraws or modifies its recommendation
to approve the Prudential Stock Issuance, or (iii) the Company does not
receive all required third party consents to the Prudential Stock
Transactions, then the Prudential Purchasers will be entitled to receive a
termination fee in the amount of $2.8 million in the aggregate, even if the
Prudential Property Transactions are completed.
Pursuant to the terms of the Prudential Stock Agreement with Prudential,
the Company has agreed to use its reasonable commercial efforts to cause the
Board to increase the size of the Board by one person, to elect a designee
of Prudential to fill such vacancy and to endorse such designee for
appointment to the Board Affairs Committee of the Board.
The Board is seeking stockholder approval of the issuance of Common Stock
under the Ameritech Agreement and under the Prudential Stock Agreements pursuant
to the rules of the New York Stock Exchange (the "NYSE"). Approval of the
Ameritech Stock Issuance by the stockholders of the Company is a condition to
the closing of the Ameritech Transaction. See "Proposal One--The Ameritech Stock
Issuance." Approval of the Prudential Stock Issuance is not a condition to the
closing of the Prudential Property Transaction, and the Company is obligated and
intends to complete the Prudential Property Transaction even if the Prudential
Stock Issuance is not approved and as a result the Prudential Stock Transaction
does not close. If the Prudential Stock Issuance is not approved, the Company
intends obtain the funds required to fulfill its obligations to complete the
Prudential Property Transaction through debt financing and/or the issuance of
additional equity in a public or private offering that would not require
stockholder approval. See "Proposal Two--The Prudential Stock Issuance."
Assuming completion of the Portfolio Acquisitions (as hereinafter defined),
the shares of Common Stock issuable upon the closing of the Ameritech
Transaction (an aggregate of up to 7,314,026 shares), will constitute
approximately 24.4% of the shares of Common Stock outstanding upon such closing
based upon the number of shares of Common Stock outstanding at the Record Date
and assuming 7,096,153 shares of Common Stock are issued to the Prudential
Purchasers upon the closing of the Prudential Stock Transaction (or 32.0% if no
shares of Common Stock are issued to the Prudential Purchasers). In addition,
Ameritech currently holds 1,623,376 shares of Series B Preferred Stock, par
value $.001 per share ("Series B Preferred Stock"), of the Company (which are
convertible into shares of Common Stock on a one for one basis), representing
10.2% of the currently outstanding capital stock of the Company. Assuming
completion of the Portfolio Acquisitions and the Prudential Stock Transaction,
the shares of Common Stock and Series B Preferred Stock held by Ameritech upon
the closing of the Ameritech Transaction will represent approximately 27.8% of
the shares of Common Stock outstanding after such closings, assuming conversion
of all of the shares of Series B Preferred Stock held by Ameritech into Common
Stock (or 35.6% if no shares of Common Stock are issued to the Prudential
Purchasers)
Assuming completion of the Portfolio Acquisitions, the shares of Common
Stock to be issued to the Prudential Purchasers in the Prudential Stock Issuance
will constitute approximately 23.7% of the shares of Common Stock outstanding
upon the closing of the Prudential Stock Transactions based upon the number of
shares of Common Stock outstanding at the Record Date and assuming 7,314,026
shares of Common Stock are issued to Ameritech pursuant to the Ameritech Stock
Issuance (or 31.4% if no shares of Common Stock are issued to Ameritech).
VOTING RIGHTS AND OUTSTANDING SHARES
Only stockholders of record at the close of business on June 26, 1997, (the
"Record Date") are entitled to notice of, and to vote at, the Special Meeting.
At the close of business on the Record Date,
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there were issued and outstanding and entitled to vote 13,603,676 shares of the
Company's Common Stock and 2,272,727 shares of the Company's Series B Preferred
Stock. These shares of Series B Preferred Stock and Common Stock are
collectively referred to below as the "Shares."
The presence at the Special Meeting in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at the Special
Meeting is necessary to constitute a quorum for the transaction of business.
Each outstanding Share is entitled to one vote on each matter to be voted upon
at the Special Meeting. If there are insufficient Shares present to constitute a
quorum, the Special Meeting may be postponed or adjourned one or more times to
permit further solicitation of proxies. The Special Meeting could be so
postponed or adjourned without further notice to stockholders to a date that is
up to 120 days from the Record Date.
Shares represented by properly executed and returned Proxies that have not
been revoked will be voted at the Special Meeting in accordance with the
instructions on those Proxies. If a properly executed and returned Proxy
contains no instructions, it will be voted: (a) for the approval of the
Ameritech Stock Issuance; (b) for the approval of the Prudential Stock Issuance;
and (c) in the discretion of the proxy holders as to any other matter that may
properly come before the Special Meeting. The Company's directors do not know of
any matter that will be presented for consideration at the Special Meeting other
than the two proposals described in this Proxy Statement.
Stockholders of the Company will not be entitled to any dissenters' rights,
rights of appraisal or similar rights in connection with the matters discussed
in this Proxy Statement.
REVOCABILITY OF PROXIES
Any stockholder giving a Proxy pursuant to this solicitation has the power
to revoke that Proxy at any time before the Shares to which it relates are voted
either (a) by filing with the Company, at its principal executive offices,
written notice of revocation or a duly executed Proxy bearing a later date, or
(b) by attending the Special Meeting, withdrawing the Proxy, and voting in
person.
PROPOSAL ONE
THE AMERITECH STOCK ISSUANCE
GENERAL
The Board is seeking stockholder approval for the issuance of up to
7,314,026 shares of Common Stock in connection with the Ameritech Transaction,
as required by the rules of the NYSE. It is not possible to determine the exact
number of shares issuable in connection with the Ameritech Transaction because
Ameritech is entitled to substitute certain properties for certain of the
properties currently proposed to be acquired resulting in an adjustment to the
consideration to be received by Ameritech as described below. In addition,
certain of these substitute properties may be delivered subject to certain
existing mortgage indebtedness or that mortgage indebtedness may be satisfied
prior to closing which will have the effect of decreasing the number of shares
to be issued by the Company. Finally, during the due diligence period the
Company has the right to elect not to acquire individual properties if it
discovers major environmental problems regarding a property in the course of its
due diligence. See "--The Ameritech Agreement."
Paragraph 312.03 of the NYSE Listed Company Manual provides that stockholder
approval is required prior to the issuance of Common Stock by the Company in
certain instances, including (a) when the number of shares of Common Stock to be
issued in a transaction or series of transactions, other than a public offering
for cash, would equal at least 20% of the number of shares of Common Stock
outstanding before such issuance and (b) if the Company proposes to issue shares
of Common Stock that exceed 1% of the number of shares of Common Stock
outstanding before such issuance to a substantial security holder of the Company
in connection with an acquisition of tangible or intangible assets or property.
Assuming completion of the Portfolio Acquisitions, the shares of Common Stock
issuable upon the closing of the Ameritech Transaction (an aggregate of up to
7,314,026 shares), will constitute approximately 24.4% of the
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shares of Common Stock outstanding upon such closing based upon the number of
shares of Common Stock outstanding at the Record Date and assuming 7,096,513
shares of Common Stock are issued to the Prudential Purchasers upon the closing
of the Prudential Stock Transaction (or 32.0% if no shares of Common Stock are
issued to the Prudential Purchasers). In addition, prior to entering into the
Ameritech Agreement, Ameritech held 1,623,376 shares of Series B Preferred Stock
which shares represent approximately 10.2% of the outstanding capital stock of
the Company. Approval of the Ameritech Stock Issuance by the stockholders of the
Company is a condition to the closing of the Ameritech Transaction. See "--The
Ameritech Agreement." Ameritech's principal business address is c/o Ameritech
Corporation, 225 West Randolf, HQ13A, Chicago, Illinois 60606.
CONSIDERATION FOR THE AMERITECH STOCK ISSUANCE
The consideration to be received by the Company for the Ameritech Stock
Issuance will consist of a portfolio of 23 warehouse industrial/properties,
including a participating mortgage in principal amount of $23.3 million that is
secured by a seven-building warehouse industrial project. Certain of the
Ameritech properties to be acquired by the Company pursuant to the Ameritech
Agreement are unencumbered; these properties are listed below in "--Ameritech
Portfolio Property Description" in the table labeled "Ameritech Portfolio--Group
1." Certain of the other Ameritech properties to be acquired by the Company
pursuant to the Ameritech Agreement serve as security for certain indebtedness;
these properties are listed below in "--Ameritech Portfolio Property
Description" in the table labeled "Ameritech Portfolio--Group 2." Ameritech must
provide its lender with acceptable substitute collateral to transfer such
properties to the Company free from such encumbrance. Ameritech has the right to
delay the closing with respect to the encumbered properties for up to 60 days
and, if such properties cannot then be delivered free and clear of encumbrances,
to (a) substitute the Alternate Properties which are substantially similar to
the encumbered properties and (b) to deliver those substituted properties to the
Company at a closing not later than 55 days after the date on which the Company
is notified that Ameritech has elected to deliver the Alternate Properties. The
Alternate Properties are listed below in "--Ameritech Portfolio Property
Description" in the table labeled "Ameritech Portfolio--Group 3."
If Ameritech delivers the above described properties and does not deliver
the Alternate Properties, the aggregate number of shares of Common Stock to be
issued by the Company will be 7,314,026. If Ameritech delivers the Alternate
Properties the aggregate number of shares of Common Stock to be issued by the
Company will be 7,126,382 shares if the Alternate Properties are delivered free
from all existing mortgage indebtedness, and 6,896,297 shares if two of the
Alternate Properties are delivered subject to existing mortgage indebtedness.
See "--Ameritech Portfolio Property Description."
In determining the aggregate consideration to be paid for the Ameritech
portfolio, the Company considered such factors as the historical and expected
cash flow of the properties, nature of the tenancies and terms of the leases in
place, occupancy rates, opportunities for alternative and new tenancies, current
operating costs, physical condition and location, building design, the
anticipated impact of the acquisition on the Company's financial results and
capitalization rates at which it believes other comparable properties have
recently sold. No independent appraisals were obtained for the assets comprising
the Ameritech portfolio. The Company believes that it has sufficient familiarity
with recent comparable transactions in the relevant markets to evaluate the
Ameritech portfolio. Further, management does not believe that the benefits
associated with obtaining independent appraisals in connection with the
Ameritech Transaction justify the costs associated with such appraisals.
Based on the above factors and negotiations with Ameritech, the Company (a)
arrived at an aggregate consideration of $145.5 million for the Ameritech
portfolio (excluding the Alternate Properties) and (b) divided that amount by
$19.896 (the "Market Price") in order to arrive at the number of shares of
Common Stock to be issued at the closing of the Ameritech Transaction. The
Market Price was negotiated by the Company and Ameritech and is equal to 96% of
the average of the closing prices of the Company's Common Stock for the ten
business days prior to May 13, 1997, the date that the Company and Ameritech
entered into a letter of intent regarding the Ameritech Transaction.
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The Ameritech Agreement provides that Ameritech will pay to the Company an
amount equal to the pro rata portion of the Company's third quarter dividend
payable in respect of the Common Stock issued to Ameritech that is attributable
to the period in the third quarter prior to the closing of the Ameritech
Transaction.
On May 29, 1997, the last trading day prior to public announcement of the
Ameritech Transaction, both the high and the low sales prices of the Common
Stock on the NYSE were $22.00.
REASONS FOR THE AMERITECH TRANSACTION
The Company believes that the Ameritech Transaction is in the best interests
of the Company's stockholders because, among other things, it will increase the
Company's portfolio by 4.1 million square feet (35%), and will significantly
increase the Company's critical mass in the Los Angeles Basin, Dallas, Phoenix,
Chicago and San Francisco Bay Area target markets. The Ameritech properties have
an average clear height of 26 feet and an average age of nine years. The
Ameritech properties are 99% leased to 82 tenants, the largest of which include
Kirk Paper Corporation, CSK Automotive and Mattel Corporation, Inc.
The Company also believes that the Ameritech Transaction will help
accelerate the Company's goal of attaining the equity capitalization necessary
to access capital markets consistently on favorable terms. As of June 30, 1997
and on a pro forma basis assuming completion of the Portfolio Acquisitions, the
Ameritech Transaction and the Prudential Transactions, the Company's total
assets will have grown from approximately $489.1 million on an historical as
adjusted basis to approximately $835.2 million and its total stockholders'
equity will have increased over the historical as adjusted basis approximately
102% to $566.1 million. As of June 30, 1997 and on a pro forma basis assuming
completion of the Portfolio Acquisitions and the Ameritech Transaction only, the
Company's total assets will have increased to approximately $636.9 million and
its total stockholders' equity will have increased over the historical as
adjusted basis approximately 52% to $426.1 million.
The Company believes that the issuance of Common Stock in lieu of cash
consideration in payment of the purchase price for the Ameritech Transaction
will enhance the Company's capital structure and allow it to reduce its existing
debt-to-equity ratio. In addition, the fact that the properties included in the
Ameritech portfolio are principally located in the Company's target markets
increases the Company's market penetration in those markets and provides greater
economies of scale.
RISKS ASSOCIATED WITH THE AMERITECH TRANSACTION
The Ameritech Transaction involves various risks. Stockholders should
carefully consider the following risk factors, in addition to the other
information set forth in this Proxy Statement, in determining how to vote their
shares in connection with this proposal.
REAL ESTATE RISKS
GENERAL RISKS. The Company's acquisition of the Ameritech portfolio is
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
Ameritech 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
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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. 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.
EXPIRING LEASES. The Company's inability to renew or release space upon
expiration of expiring leases in the Ameritech portfolio 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, in 1997 and 1998, leases covering approximately 3.75% and
11.09%, respectively, of the Ameritech portfolio are scheduled to expire. See
"--Ameritech Portfolio Property Description."
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 comprising the
Ameritech portfolio 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 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.
OPERATING RISKS. The Ameritech portfolio is subject to operating risks
common to commercial real estate in general, any and all of which may adversely
affect occupancy or rental rates. The Ameritech 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 properties' 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 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
properties comprising the Ameritech portfolio in attracting tenants.
UNINSURED LOSSES. The Company will carry or require its tenants to carry
comprehensive liability, fire, extended coverage and rental loss insurance with
respect to all of the properties comprising the Ameritech portfolio, 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 would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss could
adversely affect the business of the Company and its financial condition and
results of operations.
POTENTIAL ENVIRONMENTAL LIABILITY
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
6
<PAGE>
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 comprising the Ameritech portfolio have been subject to
Phase I environmental audits undertaken by independent environmental consultants
after May 29, 1997, (which involved general inspections without soil sampling,
ground water analysis or radon testing). 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.
INFLUENCE OF SIGNIFICANT STOCKHOLDER
Upon completion of the Ameritech Transaction and assuming completion of the
Portfolio Acquisitions and the Prudential Stock Transaction, Ameritech will hold
securities representing approximately 27.8% of the shares of Common Stock
outstanding after such closings, assuming conversion of all of the shares of
Series B Preferred Stock into Common Stock (or 35.6% if no shares of Common
Stock are issued to the Prudential Purchasers). As a result, Ameritech will have
significant influence on matters presented for approval to the Company's
stockholders. In addition, if Ameritech decided to sell a significant portion of
its investment in the Company on the market it could adversely affect the market
price for the Company's Common Stock.
CHRONOLOGY OF BOARD MEETINGS AND MANAGEMENT ACTIVITY REGARDING THE AMERITECH
TRANSACTION
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. Pursuant to these objectives, management has considered
acquisitions of several multi-building industrial portfolios, through property
for stock exchanges such as the Ameritech Transaction and through tax-advantaged
structures sometimes referred to as "down-REITS."
The Company's management was aware that Ameritech held a portfolio of
industrial properties and that Ameritech might be interested in liquidating a
portion of its real estate holdings. In the first quarter of 1997, the Company
approached Ameritech with a proposal for a property-for-stock exchange regarding
its industrial portfolio. On February 4, 1997, the parties had their first face
to face meeting. In the course of negotiations during the first and second
quarter of 1997, the Company identified certain properties in Ameritech's
industrial portfolio that it wished to acquire out of a larger group of
properties that Ameritech indicated it would consider selling. As a result of
the Company's intention to engage in a transaction of a certain general size and
a desire that substantially all of the properties be delivered free of
encumbrances, the parties identified the Alternate Properties and proposed that
such properties be substituted for certain of the properties comprising the base
Ameritech portfolio if Ameritech were unable to provide acceptable substitute
collateral to its lenders as described in "--Consideration for the Ameritech
Stock Issuance" above. Although the Company preferred to complete the
acquisition as a property-for-stock exchange, the
7
<PAGE>
Company did offer to pay cash consideration of $145.5 million for the Ameritech
portfolio (excluding the Alternate Properties) and was informed that Ameritech
wished to proceed with a property-for-stock transaction.
Prior to the execution of the Ameritech Agreement, Company management
visited certain of the properties included in the Ameritech portfolio. Since May
29, 1997, the date the Ameritech Agreement was executed, Phase I environmental
inspections and structural inspections have been conducted by independent
consultants for each property included in the Ameritech portfolio (other than
the Alternate Properties). In addition, the Company has reviewed each of the
leases covering the properties comprising the Ameritech portfolio (other than
the Alternate Properties) and has reviewed the individual property files for
each of such properties.
The Ameritech Transaction was reviewed and approved by the full Board of
Directors, rather than the Investment Committee of the Board, due to its size
and significance to the Company. The Ameritech Transaction was discussed in
detail at two Board meetings held on April 25 and May 16, 1997. At the April 15
meeting, Allen Anderson, Milton Reeder and Dennis Higgs, the Company's Chief
Executive Officer, President and Chief Financial Officer and Senior
Vice-President, respectively, described the proposed structure of the Ameritech
Transaction, the nature and location of the properties included in the Ameritech
portfolio, and the current status of the negotiations. At the May 16 Board
meeting, the Company's management updated the Board on the final terms of the
proposed transaction. At that meeting on the basis of the factors described
below, the Board considered the terms of the Ameritech Transaction and approved
the execution and delivery of the Ameritech Agreement and the completion of the
Ameritech Transaction.
The Board did not formally evaluate the relative importance of each element
considered in its analysis of the Ameritech Transaction. Instead they analyzed
the benefits that are anticipated to result from the Ameritech Transaction,
including
(a) the pro-forma increase in net book value per share of Common Stock
($1.31 increase at June 30, 1997) resulting from the Ameritech
Transaction,
(b) the Company's ability to acquire a substantial portfolio without
increasing its debt-to-total market capitalization ratio,
(c) the high occupancy levels of the properties comprising the Ameritech
portfolio,
(d) the overall quality of the properties included in the Ameritech
portfolio, and
(e) the concentration of properties in the Ameritech portfolio that are
located in the Company's target markets and the anticipated economies of
scale resulting from such concentration.
Additionally, the Board evaluated the potential risks and detriments associated
with the Ameritech Transaction, including
(a) the rapid increase in the Company's size and management's ability to
address such rapid change,
(b) the relative concentration of ownership in a single stockholder and the
potential influence of that stockholder on future matters submitted to
the Company's stockholders for approval,
(c) the potential negative impact on the market price for the Company's
Common Stock if a large holder such as Ameritech decided to sell a
significant portion of its investment in the Company on the market, and
(d) the potential tax consequences to certain of the Company's stockholders
if, as a result of the Ameritech Transaction, the Company is treated as a
"Pension-Held REIT" for Federal income tax purposes. See "Federal Income
Taxation of the Company--Taxation of Certain Domestic Tax-Exempt
Stockholders."
On the basis of such evaluation the Board determined that the Ameritech
Transaction was fair to and in the best interests of the Company's stockholders.
8
<PAGE>
THE AMERITECH AGREEMENT
The following discussion is a summary of the material terms of the Ameritech
Agreement.
REPRESENTATIONS AND WARRANTIES. The Ameritech Agreement contains various
representations and warranties relating to, among other things: (a) the due
organization, authority and standing of the Company and Ameritech and similar
corporate matters; (b) the authorization, execution, delivery and enforceability
of the Ameritech Agreement; (c) the capital structure of the Company; (d) the
absence of conflicts under the charters or bylaws of the Company and Ameritech,
the absence of violations of any agreements or law, and the identification and
receipt required consents or approvals; (e) the Company's status as a REIT, (f)
employee benefit matters; (g) the environmental condition of the Ameritech
properties; (h) taxes; and (i) required stockholder approval.
CONDITIONS. The respective obligations of the Company and Ameritech to
consummate the Ameritech Transaction are subject to the fulfillment of each of
the following conditions, among others: (a) the Ameritech Stock Issuance shall
have been approved by the holders of the issued and outstanding shares of
capital stock of the Company entitled to vote thereon; (b) neither the Company
nor Ameritech shall be subject to any order or injunction against the
consummation of the transactions contemplated by the Ameritech Agreement; and
(c) the Common Stock to be issued to Ameritech shall have been approved for
listing on the NYSE.
The obligations of Ameritech to consummate the Ameritech Transaction are
further subject to the satisfaction or waiver of the following additional
conditions: (a) each of the representations and warranties of the Company
contained in the Ameritech Agreement shall be true and correct in all material
respects as of the date made and at closing; (b) the Company shall have
performed or complied in all material respects with all agreements and covenants
required by the Ameritech Agreement to be performed or complied with by it at or
prior to the closing of the Ameritech Transaction; and (c) there shall not have
occurred a material adverse change in the assets, liabilities, financial
condition, earnings or operations of the Company.
The obligations of the Company to consummate the Ameritech Transaction are
further subject to the satisfaction or waiver of the following additional
conditions: (a) each of the representations and warranties of Ameritech
contained in the Ameritech Agreement shall be true and correct in all material
respects as of the date made and at closing; (b) Ameritech shall have performed
or complied in all material respects with all agreements and covenants required
by the Ameritech Agreement to be performed or complied with by it at or prior to
the closing of the Ameritech Acquisition; and (c) the Company shall have
received commitments for owner's title policies insuring the Company's title to
the Ameritech properties as provided in the Ameritech Agreement. In addition,
until August 14, 1997 (subject to extension with respect to the Alternate
Properties) and subject to the termination rights of the parties described
below, the Company has the right to terminate its obligation to purchase
properties on an individual basis if a property is subject to an environmental
condition that a third party has identified in a written report and that would
cause the value of the subject property to be reduced by 10% or more.
TERMINATION. The Ameritech Agreement may be terminated: (a) by the mutual
consent of the Company and Ameritech; (b) by the Company, if any representation
or warranty of Ameritech contained in the Ameritech Agreement shall not be true
and correct in all material respects or upon a material breach on the part of
Ameritech of any covenant or agreement set forth in the Ameritech Agreement; (c)
by Ameritech, if any representation or warranty of the Company contained in the
Ameritech Agreement shall not be true and correct in all material respects or
upon a material breach on the part of the Company of any covenant or agreement
set forth in the Ameritech Agreement; (d) by the Company, during the applicable
due diligence period, as to all but not less than all of the Ameritech
properties if the Company is not satisfied as to the physical or legal aspects
of one or more properties or if the Company has determined that the budgeted net
operating income for one or more properties does not reflect a commercially
reasonable calculation; (e) by the Company or Ameritech if the Company has
elected to terminate its obligation to purchase properties representing more
than 20% of the rentable square feet of the Ameritech portfolio and more than
20% of the budgeted net operating income of the Ameritech
9
<PAGE>
portfolio as a result of title or major environmental defects, casualty or
condemnation events, or Ameritech's failure to deliver tenant or lender estoppel
certificates in the accordance with the terms of the Ameritech Agreement; (f) by
Ameritech, if there shall have been a material adverse change in the financial
condition, results of operations or business of the Company and its subsidiaries
taken as a whole and (g) by Ameritech or the Company if the closing shall not
have occurred by October 8, 1997.
AMENDED AND RESTATED EXCEPTED HOLDER AGREEMENT
For the Company to qualify as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"), 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). To help the Company meet these requirements and otherwise
maintain its REIT status, the Company's Charter includes two 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"): (a) a general prohibition against actual or constructive
ownership by any person (other than persons designated by the Board as "Excepted
Holders" as 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; and (b) 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).
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, 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 will have no rights or economic interest in those shares.
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 is 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 Acquisitions Partners, Ltd. ("Hunt") (23.7%),
USAA Real Estate Company ("USAA") (20%), Ameritech (19.5%), OTR, an Ohio general
partnership acting on behalf of and as nominee for The State Teachers Retirement
Board of Ohio ("OTR") (8.5%), and Morgan Stanley Asset Management, Inc. ("Morgan
Stanley") (1,600,000 shares), five of the principal shareholders of the Company.
Hunt, USAA, Ameritech, OTR, and Morgan Stanley each 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.
The Excepted Holder Agreements with the holders of the Company's Series B
Preferred Stock, 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 outstanding shares of Common Stock and OTR to own up to
8.5% of the outstanding shares of Common Stock. Each of the current Excepted
Holder Agreements provides for certain adjustments to the ownership limits if
the Company engages in certain types of redemptions or repurchases of Common
Stock.
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,
10
<PAGE>
except as determined by the Board with respect to 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.
In connection with and as a condition to the closing of the Ameritech
Transaction, the Company and Ameritech will enter into an Amended and Restated
Excepted Holder Agreement that will increase the maximum number of shares of
Common Stock that Ameritech is permitted to own to provide for the acquisition
of the shares of Common Stock in the Ameritech Transaction.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Ameritech Agreement and the Prudential Stock Agreements, the
Company has agreed to enter into a registration rights agreement with Ameritech
and the Prudential Purchasers (the "Registration Rights Agreement"). If the
Ameritech Transaction and the Prudential Stock Transaction are completed, the
shares of Common Stock to be received by Ameritech and the Prudential Purchasers
will be issued in private placements that are exempt from the registration
requirements of the Securities Act of 1933 (the "Securities Act"), and as a
result there will be restrictions on the resale of the shares of Common Stock
they receive imposed under the Securities Act. Because of these Securities Act
restrictions, Ameritech and the Prudential Purchasers required, as a condition
to their obligations to close the proposed transactions, that the Company grant
each of them certain registration rights and enter into the Registration Rights
Agreement.
Pursuant to the Registration Rights Agreement, the Company has agreed to
file and cause to be declared effective within 90 days after the earlier of the
closing of the Ameritech Transaction and the Prudential Stock Transaction a
"shelf" registration statement registering the resale of the Common Stock to be
issued to Ameritech and the Prudential Purchasers. In addition under the
Registration Rights Agreement, Ameritech will have the right on three occasions
and each of the Prudential Purchasers will have the right on one occasion, to
require the Company to register a number of shares of Common Stock having a fair
market value of at least $1 million for sale under the Securities Act. If
Ameritech sells or otherwise transfers the shares of Common Stock to be received
by it under the Ameritech Agreement, Ameritech will be entitled to transfer the
right to request two "demand registrations". The Prudential Purchasers will each
be entitled to transfer their right to request a "demand registration" only to a
transferee that acquires all of their shares of Common Stock. The Company is
obligated under the Registration Rights Agreement to effect up to four such
"demand" registrations requested by the Prudential Purchasers and their
assignees. Ameritech and the Prudential Purchasers and their assignees have
additional "piggyback" registration rights under the Registration Rights
Agreement to require that their Registrable Securities be included in
registrations proposed by the Company (either for itself or for the benefit of
other shareholders).
The Company will bear all the expenses associated with the registration of
any Common Stock under the Registration Rights Agreement, other than
underwriting discounts or commissions and any legal fees and expenses of any
holders of Registrable Securities.
AMERITECH PORTFOLIO PROPERTY DESCRIPTION
The following tables set forth certain information relating to the Ameritech
property portfolio.
11
<PAGE>
AMERITECH PORTFOLIO--GROUP 1
AS OF JUNE 1, 1997
<TABLE>
<CAPTION>
PURCHASE OCCUPANCY RENTABLE
PROPERTY LOCATION PROPERTY TYPE PRICE RATE SQUARE FEET
- ------------------------------------------------ ------------------- --------------------- ---------- ------------ -----------
<C> <S> <C> <C> <C> <C> <C>
LOS ANGELES BASIN
Enterprise Drive Brea, CA Warehouse/Distribution $4,366,667 100.00% 132,001
San Jose Ave. City of Industry, Warehouse/Distribution 4,144,444 100.00% 126,720
CA
Pacific Avenue Fontana, CA Warehouse/Distribution 5,500,000 100.00% 136,260
Northam Street La Mirada, CA Warehouse/Distribution 3,155,556 100.00% 70,756
South Rockefeller Ontario, CA Warehouse/Distribution 4,277,778 100.00% 133,775
(1) Rancho Downey A Downey, CA Warehouse/Distribution 21,500,000 100.00% 29,763
(1) Rancho Downey B Downey, CA Warehouse/Distribution 100.00% 37,964
(1) Rancho Downey C Downey, CA Warehouse/Distribution 100.00% 33,159
(1) Rancho Downey D Downey, CA Warehouse/Distribution 100.00% 28,474
(1) Rancho Downey E Downey, CA Warehouse/Distribution 100.00% 315,705
(1) Rancho Downey F Downey, CA Warehouse/Distribution 100.00% 126,381
(1) Rancho Downey G Downey, CA Warehouse/Distribution 100.00% 52,232
---------- ------------ -----------
42,944,445 100.00% 1,223,190
---------- ------------ -----------
CHICAGO
3 Timber Court Bolingbrook, IL Warehouse/Distribution 12,488,889 100.00% 320,722
IDI Building Glendale Heights, Warehouse/Distribution 7,288,889 100.00% 135,526
IL
---------- ------------ -----------
19,777,778 100.00% 456,248
---------- ------------ -----------
SAN FRANCISCO BAY AREA
Barrington Business Park Hayward, CA Light Industrial 9,204,589 92.14% 203,515
2711 North First Street San Jose, CA Light Industrial 6,466,667 100.00% 74,621
---------- ------------ -----------
15,671,256 94.25% 278,136
---------- ------------ -----------
PHOENIX
70 West Vaughn Tempe, AZ Warehouse/Distribution 2,400,000 100.00% 60,633
---------- ------------ -----------
ST. LOUIS
Phantom Drive St. Louis, MO Warehouse/Distribution 2,959,700 100.00% 126,642
---------- ------------ -----------
TOTAL/AVERAGE GROUP 1 $83,753,179 99.25% 2,144,849
---------- ------------ -----------
---------- ------------ -----------
<CAPTION>
(3)
PERCENT OF PERCENT OF EFFECTIVE
TOTAL ANNUALIZED TOTAL RENT PER
PROPERTY SQUARE FEET BASE RENT (2) BASE RENT SQUARE FEET
- --------- ------------- ------------- ------------ -------------
<C> <C> <C> <C> <C>
LOS ANGEL
6.15% $ 497,172 5.09% 3.77
5.91% 380,160 3.89% 3.30
6.35% 550,070 5.64% 4.42
3.30% 296,700 3.04% 4.19
6.24% 481,590 4.93% 4.11
(1) 1.39% 415,720 4.26% 14.34
(1) 1.76% 216,369 2.22% 5.96
(1) 1.55% 224,748 2.30% 6.98
(1) 1.33% 322,316 3.30% 11.32
(1) 14.72% 1,412,712 14.47% 4.87
(1) 5.89% 621,792 6.37% 4.92
(1) 2.44% 236,172 2.42% 4.52
------ ------------- ------ -----
57.03% $5,655,521 57.94% 4.88
------ ------------- ------ -----
CHICAGO
14.95% 1,126,759 11.54% 3.64
6.32% 574,139 5.88% 4.24
------ ------------- ------ -----
21.27% 1,700,898 17.42% 3.82
------ ------------- ------ -----
SAN FRANC
9.49% 1,099,268 11.26% 5.98
3.48% 587,405 6.02% 8.63
------ ------------- ------ -----
12.97% 1,686,673 17.28% 6.73
------ ------------- ------ -----
PHOENIX
2.83% 218,279 2.24% 3.92
------ ------------- ------ -----
ST. LOUIS
5.90% 499,992 5.12% 3.95
------ ------------- ------ -----
100.00% $9,761,363 100.00% 4.80
------ ------------- ------ -----
------ ------------- ------ -----
</TABLE>
12
<PAGE>
AMERITECH PORTFOLIO--GROUP 2
AS OF JUNE 1, 1997
<TABLE>
<CAPTION>
PURCHASE OCCUPANCY
PROPERTY LOCATION PROPERTY TYPE PRICE RATE
- ---------------------------------------- -------------------------- ------------------------ ------------- -----------
<S> <C> <C> <C> <C>
DALLAS
2800 East Plano Parkway Plano, TX Warehouse/Distribution $ 4,922,222 100.00%
1701 Timberlake Drive Arlington, TX Warehouse/Distribution 3,677,778 100.00%
1505 Valwood Parkway Carrollton, TX Warehouse/Distribution 3,166,667 100.00%
2022 McKenzie Drive Valwood, TX Warehouse/Distribution 5,022,222 100.00%
10425 Plano Road Dallas,TX Warehouse/Distribution 4,877,778 100.00%
13700 Benchmark Drive Farmers Branch, TX Warehouse/Distribution 5,900,000 100.00%
------------- -----------
27,566,667 100.00%
------------- -----------
LOS ANGELES BASIN
8865 Utica Avenue Rancho Cucamonga, CA Warehouse/Distribution 5,733,333 100.00%
11195 Eucalyptus Avenue Rancho Cucamonga, CA Warehouse/Distribution 3,322,222 100.00%
500 South Dupont Street Ontario, CA Warehouse/Distribution 10,033,333 100.00%
------------- -----------
19,088,888 100.00%
------------- -----------
PHOENIX
4440 East Elwood Phoenix, AZ Warehouse/Distribution 6,944,444 100.00%
7000 West Latham Phoenix, AZ Warehouse/Distribution 8,166,667 100.00%
------------- -----------
15,111,111 100.00%
------------- -----------
TOTAL/AVERAGE GROUP 2 61,766,666 100.00%
------------- -----------
------------- -----------
TOTAL/AVERAGE GROUP 1 & 2 COMBINED $ 145,519,845 99.61%
------------- -----------
------------- -----------
<CAPTION>
PERCENT OF PERCENT OF (3) EFFECTIVE
RENTABLE TOTAL SQUARE ANNUALIZED TOTAL BASE RENT PER
PROPERTY SQUARE FEET FEET BASE RENT(2) RENT SQUARE FEET
- ---------------------------------------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
DALLAS
2800 East Plano Parkway 144,000 7.35% $ 459,431 8.05% 3.19
1701 Timberlake Drive 227,120 11.59% 342,951 6.01% 1.51
1505 Valwood Parkway 83,200 4.24% 294,527 5.16% 3.69
2022 McKenzie Drive 155,496 7.93% 466,488 8.18% 3.00
10425 Plano Road 159,600 8.14% 454,423 7.97% 2.85
13700 Benchmark Drive 180,841 9.23% 547,346 9.60% 3.03
----------- ------ ------------ ----------- -----
950,257 48.48% 2,565,166 44.97% 2.71
----------- ------ ------------ ----------- -----
LOS ANGELES BASIN
8865 Utica Avenue 177,744 9.07% 529,792 9.29% 2.98
11195 Eucalyptus Avenue 125,952 6.42% 302,285 5.30% 2.40
500 South Dupont Street 275,169 14.04% 924,576 16.21% 3.36
----------- ------ ------------ ----------- -----
578,865 29.53% 1,756,653 30.80% 3.03
----------- ------ ------------ ----------- -----
PHOENIX
4440 East Elwood 157,626 8.04% 627,733 11.00% 4.47
7000 West Latham 273,520 13.95% 754,908 13.23% 3.22
----------- ------ ------------ ----------- -----
431,146 21.99% 1,382,641 24.23% 3.68
----------- ------ ------------ ----------- -----
TOTAL/AVERAGE GROUP 2 1,960,268 100.00% 5,704,460 100.00% 3.02
----------- ------ ------------ ----------- -----
----------- ------ ------------ ----------- -----
TOTAL/AVERAGE GROUP 1 & 2 COMBINED 4,105,117 100.00% $ 15,465,823 100.00% 3.95
----------- ------ ------------ ----------- -----
----------- ------ ------------ ----------- -----
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AMERITECH PORTFOLIO--GROUP 3
AS OF JUNE 1, 1997
PERCENT OF
PURCHASE OCCUPANCY RENTABLE TOTAL
PROPERTY LOCATION PROPERTY TYPE PRICE RATE SQUARE FEET SQUARE FEET
- --------------------------------------- ---------------- --------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SAN FRANCISCO BAY AREA
Harvest Business Park Fremont, CA Warehouse/Distribution $16,022,222 100.00% 295,657 19.90%
Fairway Drive San Leandro, CA Warehouse/Distribution 8,366,667 68.67% 255,324 17.19%
----------- ----------- ----------- -----------
24,388,889 85.48% 550,981 37.10%
----------- ----------- ----------- -----------
MINNEAPOLIS
Penn James Minneapolis, MN Warehouse/Distribution 8,755,556 100.00% 215,606 14.52%
Corporate Square Egan, MN Warehouse/Distribution 16,144,444 96.73% 526,490 35.46%
----------- ----------- ----------- -----------
24,900,000 97.68% 742,096 49.98%
----------- ----------- ----------- -----------
SEATTLE
Harvest Business Park Kent, WA Warehouse/Distribution 4,166,667 100.00% 191,841 12.92%
----------- ----------- ----------- -----------
TOTAL/AVERAGE GROUP 3 53,455,556 93.45% 1,484,918 100.00%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL/AVERAGE GROUP 1 & 3 COMBINED $137,208,735 96.88% 3,629,767 100.00%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
(3)
PERCENT OF EFFECTIVE
ANNUALIZED TOTAL RENT PER
PROPERTY BASE RENT(2) BASE RENT SQUARE FEET
- --------------------------------------- ------------ ----------- -------------
<S> <C> <C> <C>
SAN FRANCISCO BAY AREA
Harvest Business Park $2,283,168 35.72% $ 8.45
Fairway Drive 747,737 11.70% 4.59
------------ -----------
3,030,905 47.42% 7.01
------------ ----------- -----
MINNEAPOLIS
Penn James 806,448 12.62% 3.91
Corporate Square 1,702,198 26.64% 3.40
------------ ----------- -----
2,508,646 39.26% 3.55
------------ ----------- -----
SEATTLE
Harvest Business Park 851,064 13.32% 4.49
------------ ----------- -----
TOTAL/AVERAGE GROUP 3 6,390,615 100.00% 4.85
------------ ----------- -----
------------ ----------- -----
TOTAL/AVERAGE GROUP 1 & 3 COMBINED $16,151,978 100.00% $ 4.82
------------ ----------- -----
------------ ----------- -----
</TABLE>
- ------------------------------
(1) Includes seven industrial properties aggregating 623,658 square feet
which serve as security for a participating mortgage to be acquired by the
Company pursuant to the Ameritech Agreement. Purchase price of $21,500,000
includes all seven properties.
(2) Represents annualized monthly base rent from leases in effect as of June
1, 1997. Base rent means contractural gross rent and therefore, excludes
payments by tenants on account of real estate taxes and operating expense
reimbursements.
(3) Effective Rent represents contractual rents in effect at June 1, 1997 as
annualized, adjusted to reflect the straight line impact of free rents and
rental increases in accordance with generally accepted accounting principles.
14
<PAGE>
AMERITECH PORTOLIO--GROUP 1
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
PERCENTAGE CUMULATIVE %
OF TOTAL OF TOTAL
SQUARE FEET LEASED LEASED SQUARE ANNUAL BASE
SUBJECT TO SQUARE FEET FEET OF RENT UNDER
NUMBER OF EXPIRING OF EXPIRING EXPIRING EXPIRING
YEAR LEASES EXPIRING LEASES (1) LEASES LEASES LEASES (2)
- ------------------------------------------- --------------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
1997....................................... 4 153,451 7.21% 7.21% $ 615,822
1998....................................... 11 106,143 4.99% 12.19% 549,943
1999....................................... 21 482,325 22.66% 34.85% 2,401,553
2000....................................... 10 439,543 20.65% 55.50% 1,796,421
2001....................................... 9 429,320 20.17% 75.66% 2,126,839
2002....................................... 2 132,646 6.23% 81.89% 657,480
2003....................................... 1 9,453 0.44% 82.34% 93,473
2004....................................... 1 66,452 3.12% 85.46% 206,666
2005....................................... 5 309,528 14.54% 100.00% 1,313,166
--
----------- ------------
Total Group 1.............................. 64 2,128,861 $ 9,761,363
--
--
----------- ------------
----------- ------------
</TABLE>
- ------------------------
(1) Includes seven industrial properties aggregating 623,658 square feet which
serve as security for a participating mortgage to be acquired by the Company
pursuant to the Ameritech Agreement.
(2) Represents annualized monthly base rent from leases in effect as of June 1,
1997. Base rent means contractural gross rent and therefore, excludes
payments by tenants on account of real estate taxes and operating expense
reimbursements.
AMERITECH PORTOLIO--GROUP 2
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
PERCENTAGE CUMULATIVE %
OF OF TOTAL ANNUAL
SQUARE FEET TOTAL LEASED 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>
1998....................... 3 329,536 16.81% 16.81% $ 905,720
1999....................... 3 347,169 17.71% 34.52% 1,153,607
2000....................... 5 558,476 28.49% 63.01% 1,372,201
2001....................... 2 71,500 3.65% 66.66% 209,825
2005....................... 3 357,547 18.24% 84.90% 1,202,804
2006....................... 1 22,520 1.15% 86.05% 105,394
2010....................... 1 273,520 13.95% 100.00% 754,909
--
----------- -------------
18 1,960,268 $ 5,704,460
--
--
----------- -------------
----------- -------------
GROUP 1 & 2 COMBINED....... 82 4,089,129 $ 15,465,823
--
--
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(1) Represents annualized monthly base rent from leases in effect as of June 1,
1997.
Base rent means contractural gross rent and therefore, excludes payments by
tenants on account of real estate taxes and operating expense
reimbursements.
15
<PAGE>
AMERITECH PORTFOLIO--GROUP 3
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
PERCENTAGE CUMULATIVE %
OF OF TOTAL ANNUAL
SQUARE FEET TOTAL LEASED LEASED BASE RENT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET OF UNDER
LEASES EXPIRING OF EXPIRING EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES(1)
- ------------------------------------------ ------------- ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
1997..................................... 8 176,699 12.73% 12.73% $ 584,742
1998.................................... 12 170,331 12.27% 25.01% 652,535
1999.................................... 11 174,822 12.60% 37.61% 604,313
2000.................................... 16 190,677 13.74% 51.35% 784,734
2001.................................... 6 187,208 13.49% 64.84% 1,065,240
2002.................................... 5 90,880 6.55% 71.38% 311,760
2003.................................... 6 126,138 9.09% 80.47% 821,617
2005.................................... 1 18,000 1.30% 81.77% 198,000
2006.................................... 2 95,632 6.89% 88.66% 817,937
2007.................................... 1 157,324 11.34% 100.00% 549,737
--- ----------- -------------
68 1,387,711 $ 6,390,615
--- ----------- -------------
--- ----------- -------------
GROUP 1 & 3 COMBINED...................... 132 3,516,572 $ 16,151,978
--- ----------- -------------
--- ----------- -------------
</TABLE>
- ------------------------
(1) Represents annualized monthly base rent from leases in effect as of June 1,
1997. Base rent means contractual gross rent and therefore, excludes
payments by tenants on account of real estate taxes and operating expense
reimbursements.
REQUIRED VOTE
The Board voted unanimously in favor of the Ameritech Stock Issuance and
recommends that the Company's stockholders vote in favor thereof. Proxies will
be voted in favor of the Ameritech Stock Issuance unless stockholders specify in
their Proxies a contrary choice. Approval of Proposal One is not a condition to
the approval of Proposal Two.
Assuming that a quorum is present, the affirmative vote of a majority of all
the votes cast at the Special Meeting is necessary for approval of the Ameritech
Stock Issuance. For purposes of the vote on this proposal, abstentions will not
be counted as votes cast and will have no effect on the result of the vote,
although they will be counted in determining the presence of a quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL, AND, IN THE
ABSENCE OF INSTRUCTIONS TO THE CONTRARY, PROXIES SOLICITED IN CONNECTION WITH
THIS PROXY STATEMENT WILL BE SO VOTED.
16
<PAGE>
PROPOSAL TWO
THE PRUDENTIAL STOCK ISSUANCE
GENERAL
The Board also is seeking stockholder approval for the issuance of an
aggregate of 7,096,513 shares of Common Stock to the Prudential Purchasers for
$140 million ($19.728 per share) in connection with the Prudential Stock
Transaction as required by the rules of the NYSE. Assuming completion of the
Portfolio Acquisitions, the shares of Common Stock to be issued to the
Prudential Purchasers in the Prudential Stock Issuance will constitute
approximately 23.7% of the shares of Common Stock outstanding upon the closing
of the Prudential Stock Transaction based upon the number of shares of Common
Stock outstanding at the Record Date and assuming 7,314,026 shares of Common
Stock are issued to Ameritech pursuant to the Ameritech Stock Issuance (or 31.4%
if no shares of Common Stock are issued to Ameritech).
CONSIDERATION FOR THE PRUDENTIAL STOCK ISSUANCE
The per share purchase price of the shares to be sold to the Prudential
Purchasers was calculated on the basis of 96% of the average closing price of
the Common Stock on the NYSE for the five business days prior to the date on
which the Company and Prudential entered into a letter of intent regarding the
Prudential Stock Transaction. The obligations of the Company and the Prudential
Purchasers to complete the Prudential Stock Transaction are not conditioned upon
the closing of the Prudential Property Acquisition. If the Prudential Stock
Issuance is not approved, the Company intends to fulfill its obligations to
complete the Prudential Property Acquisition and expects to fund the Prudential
Property Acquisition with debt financing and/or the issuance of additional
equity in a public or private offering that would not require stockholder
approval. The approval of the stockholders of the Company is not required to
complete the Prudential Property Acquisition.
On May 29, 1997, the last trading day prior to public announcement of the
Prudential Stock Transaction, both the high and low sales prices of the Common
Stock on the NYSE were $22.00.
REASONS FOR THE PRUDENTIAL STOCK TRANSACTION
The Company believes that the Prudential Stock Transaction is in the best
interest of the Company's stockholders because, among other things, it will
provide the Company with funds to complete the Prudential Property Transaction
which will increase the Company's portfolio by 5.23 million square feet. The
Company also believes that the Prudential Stock Transaction will help accelerate
the Company's goal of attaining the equity capitalization necessary to access
capital markets consistently on favorable terms. As of June 30, 1997 and on a
pro forma basis assuming completion of the Portfolio Acquisitions, the Ameritech
Transaction and the Prudential Transactions, the Company's total assets will
have grown from approximately $489.1 million on an historical as adjusted basis
to approximately $835.2 million and its total stockholders' equity will have
increased over the historical as adjusted basis approximately 102% to $566.1
million. As of June 30, 1997 and on a pro forma basis assuming completion of the
Portfolio Acquisitions and Prudential Transactions only, the Company's total
assets will have increased to approximately $687.4 million and its total
stockholders' equity will have increased over the historical as adjusted basis
approximately 50% to $420.6 million.
Finally, the Company believes that the issuance of Common Stock in the
Prudential Stock Transaction will enhance the Company's capital structure by
allowing it to reduce its existing debt-to-equity ratio.
RISKS ASSOCIATED WITH THE PRUDENTIAL PROPERTY TRANSACTION
The Prudential Property Transaction involves various risks. Stockholders
should carefully consider the following risk factors, in addition to the other
information set forth in this Proxy Statement, in determining how to vote their
shares in connection with this proposal .
17
<PAGE>
REAL ESTATE RISKS
GENERAL RISKS. The Company's acquisition of the Prudential portfolio is
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
Prudential 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. 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.
EXPIRING LEASES. The Company's inability to renew or release space upon
expiration of expiring leases in the Prudential portfolio 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, in 1997 and 1998, leases covering approximately 15.24% and
26.11%, respectively, of the Prudential portfolio are scheduled to expire. See
"--Prudential Portfolio Property Description."
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 comprising the
Prudential portfolio 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 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.
OPERATING RISKS. The Prudential portfolio is subject to operating risks
common to commercial real estate in general, any and all of which may adversely
affect occupancy or rental rates. The Prudential 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 properties' 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 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
properties comprising the Prudential portfolio in attracting tenants.
UNINSURED LOSSES. The Company will carry or require its tenants to carry
comprehensive liability, fire, extended coverage and rental loss insurance with
respect to all of the properties comprising the Prudential portfolio, with
policy specifications, insured limits and deductibles customarily carried for
18
<PAGE>
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 would continue to be obligated
on any mortgage indebtedness or other obligations related to the property. Any
such loss could adversely affect the business of the Company and its financial
condition and results of
operations.
POTENTIAL ENVIRONMENTAL LIABILITY
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 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 comprising the Prudential portfolio have been subject to
a Phase I environmental audit undertaken by independent environmental
consultants after May 29, 1997 (which involved general inspections without soil
sampling, ground water analysis or radon testing) 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.
INFLUENCE OF SIGNIFICANT STOCKHOLDERS
Upon completion of the Prudential Stock Transactions and assuming completion
of the Portfolio Acquisitions and the Ameritech Transaction, the Prudential
Purchasers will hold securities representing approximately 22% of the Company's
voting securities outstanding after such closings (or 28.5% if no shares of
Common Stock are issued to Ameritech). As a result the Prudential Purchasers
will have significant influence on matters presented for approval to the
Company's stockholders. In addition, if any of the Prudential Purchasers decided
to sell a significant portion of its investment in the Company on the market it
could adversely affect the market price for the Company's Common Stock.
CHRONOLOGY OF BOARD MEETINGS AND MANAGEMENT ACTIVITY REGARDING THE PRUDENTIAL
TRANSACTIONS
As discussed under "The Ameritech Stock Issuance--Chronology of Board
Meetings and Management Activity Regarding the Ameritech Transaction," the
Company's management believes that acquisitions of multi-property industrial
portfolios are consistent with the Company's investment objectives of increasing
cash flow per share and the long-term value of its properties and acquiring
established income-producing industrial properties with cash flow growth
potential.
In the fourth quarter of 1996, Prudential publicly announced its intentions
to liquidate the real estate holdings of Prudential's general account. In early
1997, Prudential engaged a real estate brokerage firm to qualify potential
purchasers for certain of its real estate holdings, including its industrial
portfolio, and to solicit bids from these potential purchasers. Bids were
submitted on an individual property basis and
19
<PAGE>
provided for cash payments. The Company's bid included both specific property
bids and a bid for all of the properties included in the Prudential Property
Transaction as a whole. The Company's bid for the entire portfolio was accepted.
Upon completion of the bidding process for the Prudential Property
Transaction, the Company approached Prudential regarding a private placement of
equity to fund a portion of the purchase price for the Prudential Property
Transaction. The Prudential Stock Transaction was negotiated separately from the
Prudential Property Transaction and involves different parties.
Prior to the execution of the Prudential Property Agreements, Company
management visited certain of the properties included in the Prudential
portfolio. Since May 29, 1997, the date the Prudential Agreements were executed,
Phase I environmental inspections and structural inspections have been conducted
by independent consultants for each property included in the Prudential
portfolio. In addition, the Company has reviewed each of the leases covering
properties comprising the Prudential portfolio and has reviewed the individual
property files for each of such properties.
The Prudential Transactions were reviewed and approved by the full Board of
Directors, rather than the Investment Committee of the Board, due to their size
and significance to the Company. The Prudential Transactions were discussed in
detail at two Board meetings held on April 25 and May 16, 1997. At the April 15
meeting, Allen Anderson, Milton Reeder and Dennis Higgs, the Company's Chief
Executive Officer, President and Chief Financial Officer and Senior
Vice-President, respectively, described the proposed structure of each of the
Prudential Transactions, the nature and location of the properties included in
the Prudential portfolio, and the current status of the negotiations. At the May
16 Board meeting, the Company's management updated the Board on the final terms
of the proposed transactions. At that meeting on the basis of the factors
described below, the Board considered the terms of the Prudential Stock
Transaction and approved the execution and delivery of the Prudential Property
Agreement and the completion of the Ameritech Transaction.
The Board did not formally evaluate the relative importance of each element
considered in its analysis. Instead they analyzed the benefits that are
anticipated to result from both of the Prudential Transactions, including
(a) the pro-forma increase in book value per share ($1.23 increase at June
30, 1997) resulting from the completion of both the Prudential
Transactions,
(b) the Company's ability to acquire a substantial portfolio without
materially increasing its debt-to-total market capitalization ratio
(assuming that the Prudential Stock Transaction is approved),
(c) the high occupancy levels of the properties comprising the Prudential
portfolio, and
(d) the overall quality of the properties included in the Prudential
portfolio.
Additionally, the Board evaluated the potential risks and detriments
associated with the Prudential Transactions, including
(a) the rapid increase in the Company's size and management's ability to
address such rapid change,
(b) the contemplated entry into new markets in which the Company does not
currently operate,
(c) the acquisition of non-income producing land as part of the Prudential
portfolio,
(d) the possibility that the Company would be required to pay a termination
fee of $2.8 million in the aggregate if (i) the stockholders of the
Company do not approve the Prudential Stock Issuance at the Special
Meeting, (ii) the Board withdraws or modifies its recommendation to
approve the Prudential Stock Issuance, or (iii) the Company does not
receive all required third party consents to the Prudential Stock
Transactions,
(e) the obligation to increase the size of the Board by one member and to
elect a designee of Prudential to fill the resulting vacancy,
(f) the relative concentration of ownership in a group of affiliated
stockholders and the potential influence of those stockholders on future
matters submitted to the Company's stockholders for approval, and
20
<PAGE>
(g) the potential negative impact on the market price for the Company's
Common Stock if a large holder such as one of the Prudential Purchasers
decided to sell a significant portion of its investment in the Company on
the market.
On the basis of such evaluation the Board determined that each of the
Prudential Transactions is fair to and in the best interests of the Company's
stockholders.
THE PRUDENTIAL STOCK AGREEMENTS
GENERAL. On May 29, 1997, the Company and Prudential entered into the first
Prudential Stock Agreement which provided for the issuance by the Company of
3,548,256 shares of Common Stock for aggregate consideration of $70 million
(subject to adjustment for dividends attributable to the period between July 1
and the closing date) and granted Prudential or certain separate accounts
managed by Prudential the right to purchase an additional 3,548,257 shares of
Common Stock at the same purchase price. On July 12, 1997, the Company entered
into Prudential Stock Agreements with Prudential on behalf of a single client
insurance company separate account, Strategic Performance Fund-II, Inc.
("SPF-II"), an affiliate of Prudential, and The Prudential Variable Contract
Real Property Partnership ("PVCRPP") which provide for the issuance by the
Company to the remaining Prudential Purchasers of 3,294,810 shares of Common
Stock for aggregate consideration of $65 million. In addition, the first
Prudential Stock Agreement was amended and restated to increase the number of
shares to be purchased by Prudential by 253,447 shares to 3,801,703 shares. Each
of the Prudential Stock Agreements is substantially identical other than with
respect to the number of shares of Common Stock to be purchased and certain
other items set forth below. The closing of the Prudential Stock Transaction
will occur on the fifth calendar day following the satisfaction or waiver of
each of the other conditions to closing described below (including the approval
of the Prudential Stock Issuance). Each of the Prudential Stock Agreements
provides that the applicable Prudential Purchasers will pay to the Company an
amount equal to the pro rata portion of the Company's third quarter dividend
payable in respect of the Common Stock issued to such Prudential Purchaser that
is attributable to the period in the third quarter prior to the closing of the
Prudential Stock Transactions. The following discussion is a summary of the
material terms of the Prudential Stock Agreements.
REPRESENTATIONS AND WARRANTIES. The Prudential Stock Agreements contain
various representations and warranties relating to, among other things: (a) the
due organization, authority and standing of the Company and the Prudential
Purchasers and similar corporate matters; (b) the authorization, execution,
delivery and enforceability of the Prudential Stock Agreements; (c) the capital
structure of the Company; (d) the absence of conflicts under the organizational
documents of the Company or the Prudential Purchasers, violations of any
agreements or law and required consents or approvals; (e) employee benefit
matters; (f) the Company's status as a real estate investment trust and a "real
estate operating company"; (f) taxes; and (g) required stockholder approval.
CONDITIONS. The respective obligations of the Company and the Prudential
Purchasers to consummate the transactions contemplated by each of the Prudential
Stock Agreements are subject to the fulfillment of each of the following
conditions, among others: (a) the Prudential Stock Issuance shall have been
approved by the Company's stockholders; (b) neither the Company nor the
Prudential Purchasers shall be subject to any order or injunction against the
consummation of the transactions contemplated by the Prudential Stock
Agreements; (c) the Common Stock to be issued to the Prudential Stock Purchasers
shall have been approved for listing on the NYSE; and (d) the closing of each of
the other Prudential Stock Agreements.
The obligations of the Prudential Purchasers to consummate the transactions
contemplated by each of the Prudential Stock Agreements are further subject to
the satisfaction or waiver of the following additional conditions: (a) each of
the representations and warranties of the Company contained in the Prudential
Stock Agreements shall be true and correct in all material respects as of the
date made and at closing; (b) the Company shall have performed or complied in
all material respects with all agreements and covenants required by the
Prudential Stock Agreements to be performed or complied with by it at or prior
21
<PAGE>
to the closing of the Prudential Stock Transaction; and (c) the Prudential
Purchasers shall be reasonably satisfied that the Company qualifies as a "real
estate operating company."
The obligations of the Company to consummate the Prudential Stock
Transaction are further subject to the satisfaction or waiver of the following
additional conditions: (a) each of the representations and warranties of the
Prudential Purchasers contained in the Prudential Stock Agreements shall be true
and correct in all material respects as of the date made and at closing; (b) the
Prudential Purchasers shall have performed or complied in all material respects
with all agreements and covenants required by the Prudential Stock Agreements to
be performed or complied with by it at or prior to the closing of the Prudential
Stock Transaction; and (c) the Company shall have received all required third
party consents to the Prudential Stock Transaction.
TERMINATION. The Prudential Stock Agreements may be terminated: (a) by the
mutual consent of the Company and the Prudential Purchasers; (b) by the Company
or the Prudential Purchasers, if there shall have been a misrepresentation or
material breach by the other party of any representation, warranty or covenant
on the part of the other party; (c) by the Prudential Purchasers, if the
stockholders of the Company shall not have approved the Prudential Stock
Issuance at the Special Meeting; (d) by the Prudential Purchasers, if the Board
withdraws or modifies its recommendation to approve the Prudential Stock
Issuance; (e) by either the Company or the Prudential Purchasers, if the
Prudential Stock Transaction shall not have been consummated on or before the
earlier of September 30, 1997, or the record date established by the Board for
the distribution of dividends for the fiscal quarter ended September 30, 1997.
TERMINATION FEE. If the Prudential Stock Agreements are terminated because
(a) the stockholders of the Company shall not have approved the Prudential Stock
Issuance at the Special Meeting, (b) the Board has withdrawn or modified its
recommendation to approve the Prudential Stock Issuance, or (c) the Company
shall not have received all required third party consents to the Prudential
Stock Transaction, then the Prudential Purchasers will be entitled to receive
the sum of $2.8 million in the aggregate as a termination fee.
This termination fee is payable upon a termination of the Prudential Stock
Purchase Agreements for any of the above listed reasons, even if the Company
completes the Prudential Property Transaction through an alternative source of
funding.
BOARD REPRESENTATION. Pursuant to the terms of the Prudential Stock
Agreement with Prudential, the Company has agreed to use its reasonable
commercial efforts to cause the Board to increase the size of the Board by one
person, to elect a designee of Prudential to fill such vacancy and to endorse
such designee for appointment to the Board Affairs Committee of the Board.
The principal business address for each of Prudential, SPF-II and PVCRPP is
8 Campus Drive, Parsippany, New Jersey 07054.
EXCEPTED HOLDER AGREEMENT
In connection with and as a condition to the closing of the Prudential Stock
Transaction, the Company and Prudential will enter into an Excepted Holder
Agreement with Prudential that will permit Prudential to own shares of Common
Stock in excess of the 8.5% ownership limit (including any shares held by the
other Prudential Purchasers that are attributed to Prudential). See "Proposal
One--The Ameritech Stock Issuance--Amended and Restated Excepted Holder
Agreement" for a more detailed discussion of the purpose and terms of an
Excepted Holder Agreement.
REGISTRATION RIGHTS AGREEMENT
In connection with and as a condition to the closing of the Prudential Stock
Transaction, the Company, Ameritech and the Prudential Purchasers will enter
into the Registration Rights Agreement. See "Proposal One--The Ameritech Stock
Issuance--Registration Rights Agreement" for a more detailed discussion of the
terms of the Registration Rights Agreement.
22
<PAGE>
THE PRUDENTIAL PROPERTY AGREEMENTS
On May 29, 1997, the Company entered into seven purchase and sale agreements
with Prudential (and/or with partnerships owned or controlled by Prudential)
respecting the Company's purchase of the Prudential properties (the "Prudential
Property Agreements"). The aggregate purchase price under the Prudential
Property Agreements is $196,200,000. On May 30, 1997, the Company posted an
aggregate $1,000,000 earnest money deposit with the escrow holder, First
American Title Insurance Company ("First American"). The following discussion is
a summary of the material terms of the Prudential Property Agreements.
Under the Prudential Property Agreements, the Company is required to pay all
closing costs associated with its purchase of the Prudential properties,
including escrow fees, title insurance fees, and transfer taxes. In addition,
the Company is required to reimburse Prudential at closing for all expenses
incurred by Prudential after April 25, 1997 to lease vacant space in the
Prudential properties, and for the cost of certain Phase I environmental reports
for the properties prepared after February 1, 1997. The Company estimates that
the aggregate cost of such reimbursements will total approximately $422,000. On
July 7, 1997, the Company elected to extend the closing of the Prudential
Property Transactions to a date no later than September 30, 1997 by posting an
additional aggregate $1,000,000 earnest money deposit with First American.
The Prudential Property Agreements contain limited representations and
warranties by Prudential with respect to the properties. Except for such limited
representations, the Company will purchase the properties on an as-is, where-is,
with all faults basis. For the period from May 29 to August 20, 1997, the
Company has the right to review all financial information respecting the
properties, the property leases, and other available information respecting the
properties, and to conduct physical inspections of the properties. On or before
August 20, 1997, the Company must approve or disapprove the Prudential
properties. If the Company reasonably disapproves any of the Prudential
properties, the Prudential Property Agreement relating to the acquisition of
that property will terminate and the pro-rata portion of the deposit will be
refunded to the Company. Each Prudential Property Agreement is independent of
the other Prudential Property Agreements and thus the Company may terminate one
Prudential Property Agreement without terminating other Prudential Property
Agreements. In addition, if any Prudential property sustains casualty damage or
becomes subject to a condemnation proceeding after August 20, 1997 which will
diminish the value of such property by more than $100,000, the Company may
terminate the applicable Prudential Property Agreement.
If the Prudential Stock Transaction is not approved and the Company proceeds
with the Prudential Property Transaction, the Company will incur certain
additional costs, including (a) the $2.8 million termination fee payable to the
Prudential Purchasers, (b) interest expense associated with the anticipated
borrowings under the Company's revolving credit facility and (c) possible
additional costs should the Company issue additional equity securities.
RECENT DEVELOPMENTS
On July 17, 1997, the Company entered into Contribution Agreements with two
separate insurance accounts that are managed by Prudential Real Estate
Investors, an affiliate of Prudential. Pursuant to the terms of these
Contribution Agreements, the Company will acquire a total of 12
warehouse/industrial properties comprising approximately 1.8 million square feet
(the "Portfolio Acquisitions"). The aggregate consideration payable by the
Company for the Portfolio Acquisitions consists of approximately $25.8 million
in cash and approximately 1.9 million shares of Common Stock, subject to
customary closing adjustments and prorations. The Portfolio Acquisitions are not
subject to stockholder approval and are currently expected to close on or before
September 1, 1997, subject to satisfaction of the Company's due diligence and
customary closing conditions. See the Historical As Adjusted Financial
Information of the Company included elsewhere herein for a more detailed
discussion of the Portfolio Acquisitions.
PRUDENTIAL PORTFOLIO PROPERTY DESCRIPTION
The following tables set forth certain information relating to the
Prudential property portfolio.
23
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL PORTFOLIO
AS OF JUNE, 1997
PERCENT OF
PURCHASE OCCUPANCY RENTABLE TOTAL
PROPERTY LOCATION PROPERTY TYPE PRICE RATE SQUARE FEET SQUARE FEET
- ---------------------------------- ------------------- --------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
DALLAS
Warehouse
Exchange Service Center 1 Arlington, TX Distribution $5,579,161(1) 100.00% 147,840 2.83%
Warehouse
Exchange Service Center 2 Arlington, TX Distribution (1) 60.90% 141,616 2.71%
Warehouse
Highland Place Dallas, TX Distribution 7,830,000(2) 100.00% 279,840 5.35%
---------- ----------- ----------- -----------
13,409,161 90.27% 569,296 10.88%
---------- ----------- ----------- -----------
LOS ANGELES BASIN
Warehouse
250 W. Manville Bldg. 5 Compton, CA Distribution 43,523,688(3) 100.00% 206,483 3.95%
Warehouse
255 W. Manville Bldg. 6 Compton, CA Distribution (3) 100.00% 108,387 2.07%
Warehouse
375 W. Apra Bldg. 1 Compton, CA Distribution (3) 100.00% 85,345 1.63%
Warehouse
375 W. Manville Bldg. 7 Compton, CA Distribution (3) 100.00% 100,000 1.91%
Warehouse
425 W. Apra Bldg. 2 Compton, CA Distribution (3) 100.00% 60,175 1.15%
Warehouse
475 W. Apra Bldg. 3 Compton, CA Distribution (3) 0.00% 50,003 0.96%
Warehouse
475 W. Manville Bldg. 8 Compton, CA Distribution (3) 100.00% 98,013 1.87%
Warehouse
515 W. Apra Bldg. 4 Compton, CA Distribution (3) 100.00% 54,359 1.04%
Warehouse
525 W. Manville Bldg. 9 Compton, CA Distribution (3) 100.00% 183,000 3.50%
Warehouse
605 W. Victoria Bldg. 10 Compton, CA Distribution (3) 100.00% 73,557 1.41%
Warehouse
685 W. Victoria Bldg. 11 Compton, CA Distribution (3) 100.00% 50,296 0.96%
Warehouse
Bldg #14 2837 Cedar St. Ontario, CA Distribution 15,677,178(4) 100.00% 40,159 0.77%
Warehouse
Bldg #15 2817 Cedar St. Ontario, CA Distribution (4) 100.00% 49,611 0.95%
Warehouse
Bldg #16 1921 Business Pkwy. Ontario, CA Distribution (4) 100.00% 66,894 1.28%
Warehouse
Bldg #17 1841 Business Pkwy. Ontario, CA Distribution (4) 100.00% 50,383 0.96%
Warehouse
Bldg #18 1819 Business Pkwy. Ontario, CA Distribution (4) 100.00% 62,126 1.19%
Warehouse
Bldg #2 1751-53 S. Pt. Ave. Ontario, CA Distribution (4) 100.00% 124,220 2.37%
Cedarpointe Ontario, CA Land - 27.41 acres 3,055,000 -- -- --
---------- ----------- ----------- -----------
62,255,866 96.58% 1,463,011 27.97%
---------- ----------- ----------- -----------
MIAMI
Warehouse
Centerport Building A Pompano Beach, FL Distribution 3,556,490 98.08% 80,040 1.53%
Warehouse
Centerport Building B Pompano Beach, FL Distribution 3,369,890 100.00% 95,940 1.83%
Centerport Building E Pompano Beach, FL Light Industrial 4,397,000 100.00% 43,399 0.83%
---------- ----------- ----------- -----------
11,323,380 99.30% 219,379 4.19%
---------- ----------- ----------- -----------
JACKSONVILLE
Warehouse
1720 Lewis Industrial Drive Jacksonville, FL Distribution 2,965,818 100.00% 102,000 1.95%
Warehouse
2000 Lewis Industrial Drive Jacksonville, FL Distribution 2,148,150 100.00% 84,000 1.61%
Warehouse
2001 North Ellis Road Jacksonville, FL Distribution 5,205,673 100.00% 202,000 3.86%
Warehouse
2155 North Ellis Road Jacksonville, FL Distribution 2,880,359 64.71% 114,240 2.18%
Warehouse
460-500 Ellis Road Jacksonville, FL Distribution 8,023,130 60.02% 336,880 6.44%
---------- ----------- ----------- -----------
21,223,130 79.14% 839,120 16.04%
---------- ----------- ----------- -----------
<CAPTION>
(3)
PERCENT OF EFFECTIVE
ANNUALIZED TOTAL BASE RENT PER
PROPERTY BASE RENT(1) RENT SQUARE FEET
- ---------------------------------- ------------ ----------- -------------
<S> <C> <C> <C>
DALLAS
Exchange Service Center 1 $ 443,520 2.40% 3.00
Exchange Service Center 2 202,664 1.10% 2.48
Highland Place 601,656 3.26% 2.53
------------ ----------- ------
1,247,840 6.77% 2.66
------------ ----------- ------
LOS ANGELES BASIN
250 W. Manville Bldg. 5 830,062 4.50% 4.02
255 W. Manville Bldg. 6 422,709 2.29% 3.90
375 W. Apra Bldg. 1 404,056 2.19% 4.95
375 W. Manville Bldg. 7 288,000 1.56% 2.88
425 W. Apra Bldg. 2 238,293 1.29% 4.38
475 W. Apra Bldg. 3 -- 0.00%
475 W. Manville Bldg. 8 329,324 1.79% 3.36
515 W. Apra Bldg. 4 195,692 1.06% 3.60
525 W. Manville Bldg. 9 680,760 3.69% 3.72
605 W. Victoria Bldg. 10 369,250 2.00% 5.10
685 W. Victoria Bldg. 11 192,000 1.04% 4.06
Bldg #14 2837 Cedar St. 180,976 0.98% 4.51
Bldg #15 2817 Cedar St. 154,800 0.84% 3.35
Bldg #16 1921 Business Pkwy. 244,668 1.33% 4.42
Bldg #17 1841 Business Pkwy. 187,428 1.02% 3.72
Bldg #18 1819 Business Pkwy. 246,984 1.34% 4.29
Bldg #2 1751-53 S. Pt. Ave. 468,984 2.54% 3.90
Cedarpointe -- -- --
------------ ----------- ------
5,433,986 29.46% 3.96
------------ ----------- ------
MIAMI
Centerport Building A 368,350 2.00% 4.93
Centerport Building B 388,647 2.11% 4.05
Centerport Building E 440,714 2.39% 10.23
------------ ----------- ------
1,197,711 6.49% 5.60
------------ ----------- ------
JACKSONVILLE
1720 Lewis Industrial Drive 300,900 1.63% 2.95
2000 Lewis Industrial Drive 239,400 1.30% 3.03
2001 North Ellis Road 666,396 3.61% 3.30
2155 North Ellis Road 172,392 .94% 2.33
460-500 Ellis Road 1,031,973 5.60% 3.18
------------ ----------- ------
2,411,061 13.12% 3.07
------------ ----------- ------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL PORTFOLIO
AS OF JUNE, 1997
PERCENT OF
PURCHASE OCCUPANCY RENTABLE TOTAL
PROPERTY LOCATION PROPERTY TYPE PRICE RATE SQUARE FEET SQUARE FEET
- -------------------------------- ------------------- --------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NEW ORLEANS
Cypress Pt Business Ctr. 1 New Orleans, LA Light Industrial $ 2,177,986(5) 80.85% 19,388 0.37%
Cypress Pt Business Ctr. 2 New Orleans, LA Light Industrial (5) 100.00% 41,812 0.80%
Parkway Center 1 New Orleans, LA Light Industrial 7,027,753(6) 76.35% 20,300 0.39%
Parkway Center 2 New Orleans, LA Light Industrial (6) 100.00% 44,390 0.85%
Parkway Center 3 New Orleans, LA Light Industrial (6) 69.73% 136,035 2.60%
Riverbend O/S Ctr. St. Rose, LA Light Industrial 100.00% 44,356 0.85%
Warehouse
Riverbend Warehouse I St. Rose, LA Distribution 11,684,329 100.00% 367,320 7.02%
Warehouse
Riverbend Warehouse II St. Rose, LA Distribution 5,388,573 100.00% 180,000 3.44%
----------- ----------- ----------- -----------
28,521,281 94.18% 853,601 16.32%
----------- ----------- ----------- -----------
RICHMOND
North Run III Richmond, VA Light Industrial 5,070,705 96.44% 53,941 1.03%
North Run IV Richmond, VA Light Industrial 7,916,451 97.85% 91,970 1.76%
----------- ----------- ----------- -----------
12,987,156 97.33% 145,911 2.79%
----------- ----------- ----------- -----------
HOUSTON
4515 Pinemont Distribution Houston, TX Light Industrial 2,988,440(7) 100.00% 31,186 0.60%
4525 Pinemont Distribution Houston, TX Light Industrial (7) 89.93% 68,120 1.30%
Warehouse
1810 Brittmore Distribution Houston, TX Distribution 8,099,212(8) 100.00% 168,758 3.23%
Warehouse
1812 Brittmore Distribution Houston, TX Distribution (8) 100.00% 145,520 2.78%
Warehouse
7111 Perimeter Distribution Houston, TX Distribution 3,291,437(9) 55.95% 97,246 1.86%
Warehouse
7121 Perimeter Distribution Houston, TX Distribution (9) 100.00% 43,680 0.83%
Warehouse
Pine North Distribution 1 Houston, TX Distribution 3,267,181 10) 66.42% 48,600 0.93%
Warehouse
Pine North Distribution 2 Houston, TX Distribution 10) 100.00% 81,000 1.55%
----------- ----------- ----------- -----------
17,646,270 90.35% 684,110 13.08%
----------- ----------- ----------- -----------
DETROIT
Farmington Hills,
H & J Industrial 1 MI Light Industrial 2,927,901 11) 63.01% 28,283 0.54%
Farmington Hills,
H & J Industrial 2 MI Light Industrial 11) 100.00% 14,521 0.28%
Farmington Hills,
H & J Industrial 3 MI Light Industrial 11) 100.00% 15,910 0.30%
Farmington Hills,
H & J Industrial 4 MI Light Industrial 11) 100.00% 6,200 0.12%
Southfield Commerce Ctr. 1 Southfield, MI Light Industrial 3,590,132 12) 89.91% 38,485 0.74%
Southfield Commerce Ctr. 2 Southfield, MI Light Industrial 12) 87.47% 58,545 1.12%
Farmington Hills,
Westhills Commerce Ctr. 1 MI Light Industrial 2,840,299 13) 100.00% 26,687 0.51%
Farmington Hills,
Westhills Commerce Ctr. 2 MI Light Industrial 13) 62.69% 32,549 0.62%
Warehouse
HCC - Lot 26 (11) New Boston, MI Distribution 2,612,093 100.00% 77,060 1.47%
Warehouse
HCC - Lot 27 (8) New Boston, MI Distribution 1,896,127 100.00% 47,556 0.91%
Warehouse
HCC - Lot 6 (16) New Boston, MI Distribution 3,599,204 100.00% 111,204 2.13%
HCC New Boston, MI Land - 102.1 Acres 6,690,000 -- -- --
----------- ----------- ----------- -----------
Chicago Corporate Crossing Bollingbrook, IL Land - 49.9 Acres 4,678,000 -- -- --
----------- ----------- ----------- -----------
24,155,756 92.60% 457,000 8.74%
----------- ----------- ----------- -----------
Total/Average $196,200,000 91.68% 5,231,428 100.00%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
(15)
PERCENT OF EFFECTIVE
ANNUALIZED TOTAL BASE RENT PER
PROPERTY BASE RENT(14) RENT SQUARE FEET
- -------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
NEW ORLEANS
Cypress Pt Business Ctr. 1 $ 102,267 0.55% $ 6.52
Cypress Pt Business Ctr. 2 126,693 0.69% 3.03
Parkway Center 1 94,437 0.51% 6.09
Parkway Center 2 216,483 1.17% 4.88
Parkway Center 3 322,502 1.75% 3.40
Riverbend O/S Ctr. 275,405 1.49% 6.21
Riverbend Warehouse I 1,244,637 6.75% 3.53
Riverbend Warehouse II 513,160 2.78% 2.94
------------- ----------- ------
2,895,584 15.70% 3.72
------------- ----------- ------
RICHMOND
North Run III 555,423 3.01% 10.89
North Run IV 849,195 4.60% 10.31
------------- ----------- ------
1,404,618 7.62% 10.52
------------- ----------- ------
HOUSTON
4515 Pinemont Distribution 106,200 0.58% 3.41
4525 Pinemont Distribution 227,352 1.23% 3.71
1810 Brittmore Distribution 479,004 2.60% 2.85
1812 Brittmore Distribution 491,028 2.66% 3.50
7111 Perimeter Distribution 177,036 0.96% 3.58
7121 Perimeter Distribution 159,720 0.87% 3.69
Pine North Distribution 1 106,200 0.58% 3.29
Pine North Distribution 2 230,100 1.25% 2.99
------------- ----------- ------
1,976,640 10.72% 3.28
------------- ----------- ------
DETROIT
H & J Industrial 1 92,852 0.50% 5.21
H & J Industrial 2 85,331 0.46% 5.85
H & J Industrial 3 85,579 0.46% 6.38
H & J Industrial 4 40,800 0.22% 6.58
Southfield Commerce Ctr. 1 138,663 0.75% 4.01
Southfield Commerce Ctr. 2 202,599 1.10% 4.01
Westhills Commerce Ctr. 1 165,637 0.90% 6.30
Westhills Commerce Ctr. 2 127,342 0.69% 6.33
HCC - Lot 26 (11) 277,416 1.50% 4.16
HCC - Lot 27 (8) 207,420 1.12% 4.36
HCC - Lot 6 (16) 383,654 2.08% 3.45
HCC -- -- --
------------- ----------- ------
Chicago Corporate Crossing -- -- --
------------- ----------- ------
1,807,293 9.80% 4.43
------------- ----------- ------
Total/Average $18,374,733 100.00% 3.88
------------- ----------- ------
------------- ----------- ------
</TABLE>
25
<PAGE>
- ------------------------------
(1) Represents purchase price negotiated for multiple properties.
(2) Represents purchase price negotiated for multiple properties.
(3) Represents purchase price negotiated for multiple properties.
(4) Represents purchase price negotiated for multiple properties.
(5) Represents purchase price negotiated for multiple properties.
(6) Represents purchase price negotiated for multiple properties.
(7) Represents purchase price negotiated for multiple properties.
(8) Represents purchase price negotiated for multiple properties.
(9) Represents purchase price negotiated for multiple properties.
(10) Represents purchase price negotiated for multiple properties.
(11) Represents purchase price negotiated for multiple properties.
(12) Represents purchase price negotiated for multiple properties.
(13) Represents purchase price negotiated for multiple properties.
(14) Represents annualized monthly base rent from leases in effect as of June 1,
1997. Base rent means contractural gross rent and therefore, excludes
payments by tenants on account of real estate taxes and operating expense
reimbursements.
(15) Effective Rent represents contractual rents in effect at June 1, 1997 as
annualized, adjusted to reflect the straight line impact of free rents and
rental increases in accordance with generally accepted accounting
principles.
PRUDENTIAL PORTFOLIO
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
PERCENTAGE CUMULATIVE %
OF OF TOTAL ANNUAL
SQUARE FEET TOTAL LEASED LEASED BASE RENT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET OF UNDER
LEASES EXPIRING OF EXPIRING EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES(1)
- ------------------------------------------ ------------- ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
1997...................................... 39 730,927 15.24% 15.24% $ 2,695,348
1998...................................... 47 1,252,074 26.11% 41.35% 4,697,060
1999...................................... 37 496,823 10.36% 51.71% 2,162,069
2000...................................... 24 645,735 13.46% 65.17% 3,196,067
2001...................................... 14 493,691 10.29% 75.46% 1,848,228
2002...................................... 11 422,826 8.82% 84.28% 1,413,326
2003...................................... 2 86,135 1.80% 86.08% 316,293
2004...................................... 1 25,320 0.53% 86.60% 130,428
2005...................................... 5 555,707 11.59% 98.19% 1,555,581
2006...................................... 1 9,755 0.20% 98.39% 82,917
2007...................................... 1 77,060 1.61% 100.00% 277,416
--- ----------- -------------
182 4,796,053 $ 18,374,733
--- ----------- -------------
--- ----------- -------------
</TABLE>
- ------------------------
(1) Represents annualized monthly base rent from leases in effect as of June 1,
1997. Base rent means contractual gross rent and therefore, excludes
payments by tenants on account of real estate tax and operating expense
reimbursements.
26
<PAGE>
REQUIRED VOTE
The Board voted unanimously in favor of the Prudential Stock Issuance and
recommends that the Company stockholders vote in favor thereof. Proxies will be
voted in favor of the Prudential Stock Issuance unless stockholders specify in
their Proxies a contrary choice. Approval of Proposal Two is not a condition to
Proposal One.
Assuming that a quorum is present, the affirmative vote of a majority of all
the votes cast at the Special Meeting is necessary for approval of the
Prudential Stock Issuance. For purposes of the vote on this proposal,
abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although they will be counted in determining the presence of
a quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL, AND, IN THE
ABSENCE OF INSTRUCTIONS TO THE CONTRARY, PROXIES SOLICITED IN CONNECTION WITH
THIS PROXY STATEMENT WILL BE SO VOTED.
27
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
SELECTED FINANCIAL AND OTHER DATA
AS OF AND FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
PRUDENTIAL STOCK AND
HISTORICAL HISTORICAL AS ADJUSTED PROPERTY TRANSACTIONS
----------------------------------------- -------------------------- --------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1995(1) 1996 1997 1996 1997 1996 1997
------------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues....... $ 33 $ 35,041 $ 24,868 $ 57,596 $ 31,215 $ 79,537 $ 41,947
Income Before Gain On
Sale of Properties
and Extraordinary
Items.............. (1,293) 11,161 8,932 16,375 10,349 25,625 14,859
Gain (Loss)On
Sale of
Properties..... -- 3,313 (448) 3,313 (448) 3,313 (448)
Extraordinary
Items.......... -- (411) (808) -- -- -- --
Net Income (Loss).... (1,293) 14,063 7,676 19,688 9,901 28,938 14,411
Net Income Allocable
to Common.......... (1,322) 11,651 6,267 16,870 8,492 26,120 13,002
Net Income Per Common
Share:
Before
Extraordinary
Items............ 32.05 $ 1.38 $ 0.50 $ 1.06 $ 0.53 $ 1.14 $ 0.56
Net Income......... 32.05 1.33 0.44 1.06 0.53 1.14 0.56
Distributions Per
Share:
Common Stock....... -- 0.99 0.58 1.16 0.58 1.16 0.58
Series B Preferred
Dividends........ 0.03 1.06 0.62 1.24 0.62 1.24 0.62
BALANCE SHEET:
Investment in Real
Estate, Net........ 300 $ 321,984 $ 382,170 -- $ 472,220 -- $ 670,528
Total Assets......... 3,724 333,063 399,036 -- 489,086 -- 687,394
Mortgage Loans....... -- 66,094 82,508 -- 82,508 -- 82,508
Unsecured Credit
Facility........... -- 11,500 60,500 -- 111,920 -- 168,120
Stockholders'
Equity............. (714) 243,513 241,979 -- 280,564 -- 420,564
OTHER DATA:
Cash Flows Provided
By (Used In):
Operating
Activities....... (459) 20,615 6,372
Investing
Activities....... (576) (86,302) (46,827)
Financing
Activities....... 1,510 68,154 39,608
Weighted Average:
Common Shares
Outstanding(2)... 900 8,779 14,105 15,882 16,021 22,979 23,117
Preferred Shares
Outstanding...... 1,000 2,273 2,273 2,273 2,273 2,273 2,273
<CAPTION>
PRUDENTIAL AND AMERITECH
AMERITECH TRANSACTION TRANSACTIONS
-------------------------- --------------------------
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues....... $ 73,660 $ 40,061 $ 95,601 $ 50,793
Income Before Gain On
Sale of Properties
and Extraordinary
Items.............. 24,927 15,131 34,177 19,641
Gain (Loss)On
Sale of
Properties..... 3,313 (448) 3,313 (448)
Extraordinary
Items.......... -- -- -- --
Net Income (Loss).... 28,240 14,683 37,490 19,193
Net Income Allocable
to Common.......... 25,422 13,274 34,672 17,784
Net Income Per Common
Share:
Before
Extraordinary
Items............ $ 1.10 $ 0.57 $ 1.14 $ 0.58
Net Income......... 1.10 0.57 1.14 0.58
Distributions Per
Share:
Common Stock....... 1.16 0.58 1.16 0.58
Series B Preferred
Dividends........ 1.24 0.62 1.24 0.62
BALANCE SHEET:
Investment in Real
Estate, Net........ -- $ 620,035 -- $ 818,343
Total Assets......... -- 636,901 -- 835,209
Mortgage Loans....... -- 82,508 -- 82,508
Unsecured Credit
Facility........... -- 111,920 -- 168,120
Stockholders'
Equity............. -- 426,084 -- 566,084
OTHER DATA:
Cash Flows Provided
By (Used In):
Operating
Activities.......
Investing
Activities.......
Financing
Activities.......
Weighted Average:
Common Shares
Outstanding(2)... 23,196 23,335 30,293 30,431
Preferred Shares
Outstanding...... 2,273 2,273 2,273 2,273
</TABLE>
- ------------------------
(1) Reflects the historical operations of the Company as of and for the period
from May 18, 1995 (inception) to December 31, 1995.
(2) Common shares outstanding reflect the dilutive effects of stock options
granted by the Company to its directors and officers pursuant to its stock
plan, warrants issued in connection with the Merger and shares to be issued
pursuant to a stock option agreement with one of its stockholders,
aggregating to 501,039 and 371,069 additional shares of Common Stock for the
six months ended June 30, 1997 and the year ended December 31, 1996,
respectively.
28
<PAGE>
PREDECESSOR ENTITIES
SELECTED FINANCIAL AND OTHER DATA
AS OF AND FOR THE PERIODS INDICATED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MERGED TRUSTS(1)
-----------------------------------
JANUARY 1,
1996 TO
YEAR ENDED DECEMBER 31,
-----------------------------------
FEBRUARY 23,
1996(2)
-------------
1995 1994
--------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Total Revenues............................................................................. $ 5,158 $ 34,597 $ 34,822
Income (Loss) Before Extraordinary Items................................................... (542) 852 (11,135)
Extraordinary Items.................................................................... -- (1,865) --
Net Income (Loss).......................................................................... (542) (1,013) (11,135)
Distributions Per Share:
Common Stock............................................................................. -- -- --
Preferred Dividends...................................................................... -- -- --
BALANCE SHEET DATA:
Investment in Real Estate, Net............................................................. $ -- $ 217,216 $ 226,219
Total Assets............................................................................... -- 247,159 250,986
Mortgage Loans............................................................................. -- 109,728 137,143
Unsecured Credit Facility.................................................................. -- -- --
Stockholders' Equity....................................................................... -- 106,375 107,388
OTHER DATA:
Cash Flows Provided By (Used In):
Operating Activities..................................................................... $ (549) $ 7,229 $ 6,755
Investing Activities..................................................................... (185) (5,039) 5,949
Financing Activities..................................................................... (442) (6,069) (14,200)
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Total Revenues............................................................................. $ 35,024 $ 38,096 $ 39,587
Income (Loss) Before Extraordinary Items................................................... (9,993) (18,884) (17,878)
Extraordinary Items.................................................................... 796 -- --
Net Income (Loss).......................................................................... (9,197) (18,884) (17,878)
Distributions Per Share:
Common Stock............................................................................. -- -- --
Preferred Dividends...................................................................... -- -- --
BALANCE SHEET DATA:
Investment in Real Estate, Net............................................................. $ 249,492 $ 277,561 $ 300,854
Total Assets............................................................................... 275,951 304,426 323,735
Mortgage Loans............................................................................. 151,130 168,059 166,534
Unsecured Credit Facility.................................................................. -- -- --
Stockholders' Equity....................................................................... 118,523 128,182 148,914
OTHER DATA:
Cash Flows Provided By (Used In):
Operating Activities..................................................................... $ 8,226 $ 6,946 $ 5,140
Investing Activities..................................................................... (466) (1,723) (3,110)
Financing Activities..................................................................... (4,696) (1,007) 1,414
</TABLE>
- ----------------------------------
(1) On February 23, 1996, the Company completed a merger (the "Merger") whereby
Meridian Point Realty Trust IV Co., Meridian Point Realty Trust VI Co., and
Meridian Point Realty Trust VII Co., (the "Merged Trusts") were merged into
the Company. Accordingly, the information above reflects the combined
historical operations of the Merged Trusts as of and for the period from
January 1, 1996 to the Merger date of February 23, 1996, and as of and for
each of the five years ended December 31, 1995.
29
<PAGE>
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. Those
statements appear in a number of places 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 Company's financing plans; (iii)
trends affecting the Company's financial condition or results of operations;
(iv) the Company's growth strategy, operating strategy and financing strategy;
(v) the declaration and payment of dividends; and (vi) regulatory matters
affecting the Company. These forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and actual results may
differ materially from those projected in the forward looking statements as a
result of various factors. Risks and uncertainties associated with the Company's
operations include risks that: acquisition opportunities explored by the Company
may be abandoned, investments will fail to perform in accordance with
expectations and that analysis with respect to the cost of improvements to bring
an acquired project up to standards will prove inaccurate, as well as general
investment risks associated with real estate investments. Additionally, the
following discussion should be read in conjunction with the pro forma,
historical as adjusted, and respective historical and historical condensed
consolidated financial statements and notes thereto included elsewhere in this
Proxy Statement. In the opinion of management, the respective pro forma and
historical as adjusted financial information provides for all adjustments
necessary to reflect the pro forma and as adjusted historical effects of the
transactions described below.
BACKGROUND
HISTORICAL--The historical condensed consolidated financial information as
of and for the six months ended June 30, 1997 and year ended December 31, 1996
reflects the historical operations of the Company. Refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and Quarterly Report on
Form 10-Q for the six months ended June 30, 1997, respectively, and to the
Company's historical financial statements as of and for the year ended December
31, 1996 and historical condensed financial statements as of and for the period
June 30, 1997 included elsewhere in this Proxy Statement for further information
regarding the historical operations of the Company.
HISTORICAL AS ADJUSTED--The unaudited historical as adjusted condensed
consolidated balance sheet information as of June 30, 1997 has been prepared to
reflect (i) the post-June 30, 1997 acquisition of three operating properties and
development of properties under construction, (ii) the pending acquisition in
1997 of two separate portfolios (the "Portfolio Acquisitions") comprising 12
warehouse/industrial properties that the Company's management deems probable of
closing, as if such transactions had occurred on June 30, 1997.
The historical as adjusted condensed consolidated statement of operations
information for the six months ended June 30, 1997 has been prepared to reflect
(i) the incremental effect of the nine individual properties acquired during
1997 (the "1997 Individual Acquired Properties"), (ii) the incremental effect of
the Portfolio Acquisitions, (iii) the incremental effect of properties sold
during 1997 (the "1997 Property Sales"), and (iv) the April 1997 restructuring
(the "April 1997 Restructing") of the Company's revolving bank credit agreement
(the "Unsecured Credit Facility"), as if such transactions had occurred on
January 1, 1996.
The historical as adjusted condensed consolidated statement of operations
information for the year ended December 31, 1996 has been prepared to reflect
(i) the incremental effect of the 1997 Individual Acquired Properties and
properties acquired by the Company during 1996 (collectively, the "1996 and 1997
Acquired Properties"); (ii) the incremental effect of the Portfolio
Acquisitions, (iii) the incremental effect of the 1997 Property Sales and those
properties sold by the Company during 1996 (collectively, the "1996 and 1997
Property Sales"); (iv) the incremental effect of debt paydowns during 1996 with
the proceeds from the Company's two 1996 Common Stock offerings (the "1996
Offerings"); (v) the April
30
<PAGE>
1997 Restructuring; (vi) the respective historical results of the three
companies (the "Merged Trusts") that were merged into the Company on February
23, 1996 (the "Merger") and the acquisition of certain net assets (the assets
acquired and the transaction are referred to herein as the "Trust '83
Properties" and the "Asset Purchase", respectively) that occurred concurrent
with the Merger for the period from January 1, 1996 to February 23, 1996 (i.e.,
prior to the Merger and Asset Purchase); and (vii) the respective effects of the
Merger and the retirement of certain indebtedness concurrent with the Merger
using the net proceeds from the issuance of the Company's preferred stock and
the availability of the Unsecured Credit Facility (referred to collectively as
the "Refinancing") on the historical results of the Merged Trusts and the Trust
'83 Properties for the period from January 1, 1996 to February 23, 1996; to
reflect the post-Merger activities of the Company as if such transactions had
occurred on January 1, 1996. The Merger, Asset Purchase and Refinancing each
closed concurrently on February 23, 1996.
PRO FORMA--The unaudited pro forma condensed consolidated balance sheet
information as of June 30, 1997 has been prepared to reflect (i) the Prudential
Property Transaction, (ii) the Prudential Stock Transaction and (iii) the
Ameritech Transaction as if such transactions had occurred on June 30, 1997. The
accompanying unaudited pro forma condensed consolidated statement of operations
information has been prepared to reflect the closing of (i) the Prudential
Property Transaction, (ii) the Prudential Stock Transaction and (iii) the
Ameritech Transaction as if such transactions had occurred on January 1, 1996.
Closure of the Prudential Stock Transaction and the issuance of shares of Common
Stock in connection with the Ameritech Transaction are each individually
dependent upon the approval of a majority of the votes cast at the Special
Meeting. As such, the pro forma financial information has been prepared to
reflect the following scenarios: (i) closure of only the Prudential Stock
Transaction and the Prudential Property Transaction (which does not require
stockholder approval, see "Information Concerning Solicitation and
Voting--Summary of Proposals to be Considered at the Special Meeting"), (ii)
closure of only the Ameritech Transaction, and (iii) closure of the Prudential
Stock Transaction, the Prudential Property Transaction and the Ameritech
Transaction.
RESULTS OF OPERATIONS
COMPARISON OF PRO FORMA RESULTS OF OPERATIONS TO THE HISTORICAL AS ADJUSTED
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED
DECEMBER 31, 1996
The Company's pro forma statements of operations for the six months ended
June 30, 1997 and the year ended December 31, 1996 reflect adjustments to the
historical as adjusted results for the following: (i) the Prudential Property
Transaction, (ii) the Prudential Stock Transaction and (iii) the Ameritech
Transaction as if such transactions had occurred on January 1, 1996.
Accordingly, (i) assuming closure of only the Prudential Stock Transaction
and the Prudential Property Transaction, such adjustments result in an increase
in pro forma total revenues and net income before gain on sale of properties and
extraordinary items over historical as adjusted amounts of $10,732 and $4,510
for the six months ended June 30, 1997 and $21,941 and $9,250 for the year ended
December 31, 1996, respectively; (ii) assuming closure of only the Ameritech
Transaction, such adjustments result in an increase in pro forma total revenues
and net income before gain on sale of properties and extraordinary items over
historical as adjusted amounts of $8,846 and $4,782 for the six months ended
June 30, 1997 and $16,064 and $8,552 for the year ended December 31, 1996,
respectively; and (iii) assuming closure of each of the Prudential Stock
Transaction, the Prudential Property Transaction, and the Ameritech Transaction,
such adjustments result in an increase in pro forma total revenues and net
income before gain on sale of properties and extraordinary items over historical
as adjusted amounts of $19,578 and $9,292 for the six months ended June 30, 1997
and $38,005 and $17,802 for the year ended December 31, 1996, respectively.
31
<PAGE>
COMPARISON OF THE HISTORICAL AS ADJUSTED RESULTS OF OPERATIONS TO THE HISTORICAL
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
The Company's historical as adjusted condensed consolidated statement of
operations for the six months ended June 30, 1997 reflects: (i) the incremental
effect of the 1997 Individual Acquired Properties, (ii) the incremental effect
of the Portfolio Acquisitions, (iii) the incremental effect of the 1997 Property
Sales, and (iv) the April 1997 Restructuring, as if such transactions had
occurred on January 1, 1996. Such adjustments result in an increase in
historical as adjusted total revenues and net income before gain on sale of
properties and extraordinary items over historical amounts of $6,347 and $1,417
for the six months ended June 30, 1997.
COMPARISON OF THE HISTORICAL AS ADJUSTED RESULTS OF OPERATIONS TO THE HISTORICAL
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
The Company's historical as adjusted condensed consolidated statement of
operations for the year ended December 31, 1996 reflects: (i) the incremental
effect of the 1996 and 1997 Individual Acquired Properties, (ii) the incremental
effect of the Portfolio Acquisitions, (iii) the incremental effect of the 1996
and 1997 Property Sales, (iv) the incremental effect of debt paydowns during
1996 with the proceeds from the 1996 Offerings, (v) the April 1997
Restructuring, (vi) the respective historical results of the Merged Trusts and
the Trust '83 Properties for the period from January 1, 1996 to February 23,
1996 (i.e., prior to the Merger and Asset Purchase), and (vii) the respective
effects of the Merger and the Refinancing on the historical results of the
Merged Trusts and the Trust '83 Properties for the period from January 1, 1996
to February 23, 1996, to reflect the post-Merger activities of the Company as if
such transactions had occurred on January 1, 1996. The Merger, Asset Purchase
and Refinancing each closed concurrently on February 23, 1996. Such adjustments
result in an increase in historical as adjusted total revenues and net income
before gain on sale of properties and extraordinary items over historical
amounts of $22,555 and $5,214 for the year ended December 31, 1996.
COMPARISON OF HISTORICAL RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1997 TO HISTORICAL RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1996
The Company was incorporated on May 18, 1995. The Merger and Asset Purchase
were consummated on February 23, 1996. Prior to the Merger and Asset Purchase,
the Company had no operating activities other than receiving interest on its
investments and paying general and administrative expenses. In comparison to the
operating activities of the Company for 1997 which reflect six full months of
operations from January 1, 1997 to June 30, 1997, the historical results of
operations for the six months ended June 30, 1996 reflect the operating
activities of the Company from February 23, 1996 to June 30, 1996 (the
difference between these two time periods are referred to as "Short Period
Differences").
Rentals from real estate investments for the six months ended June 30, 1997
and 1996 totaled $24,564 and $13,372, respectively. The increase of $11,192 was
primarily due to: (i) the Short Period Differences, (ii) properties acquired
during 1996 and 1997 ("Property Acquisitions") which increased rental revenues
by $5,385, and (ii) the rental revenues generated by the build-to-suit
properties placed in service during 1996 and 1997 ("Completed Build-to-Suits")
totaling $1,805. These increases were partially offset by properties disposed of
during 1996 and 1997 ("Property Dispositions") which reduced rental revenues by
$2,229.
Compared to the same period in 1996, interest expense increased by $1,247 to
$3,784 during the six months ended June 30, 1997. The increase was primarily due
to the Short Period Differences.
Property taxes increased by $1,497 to $3,393 during the six months ended
June 30, 1997 compared to the same period in 1996. The increase was primarily
due to: (i) the Short Period Differences, (ii) the property taxes attributable
to the Property Acquisitions totaling $577, and (iii) the property taxes for the
Completed Build-to-Suits amounting to $309. These increases were partially
offset by Property Dispositions which reduced property taxes by $254.
32
<PAGE>
Property operating costs increased by $728 to $2,042 during the six months
ended June 30, 1997 compared to the same period in 1996. The increase was
primarily due to: (i) the Short Period Differences and (ii) the operating costs
attributable to the Property Acquisitions totaling $248. These increases were
partially offset by Property Dispositions which reduced property operating costs
by $353.
General and administrative expenses totaled $2,501 and $1,788 for the six
months ended June 30, 1997 and 1996, respectively. The increase of $713 is
primarily due to the Short Period Differences.
Depreciation and amortization expense increased by $2,373 to $4,216 during
the six months ended June 30, 1997 compared to the same period in 1996. The
increase was primarily due to: (i) the Short Period Differences, (ii) the
depreciation costs attributable to the Property Acquisitions totaling $1,110 and
(iii) the depreciation for the Completed Build-to-Suits amounting to $424. These
increases were partially offset by Property Dispositions which reduced
depreciation and amortization expenses by $230.
The net loss on sale of properties totaling $448 for the six months ended
June 30, 1997 was attributable to the disposition of the Wildwood and Golden
Cove properties which resulted in a total loss of $1,158. The losses were
partially offset by gains on the disposition of the Birmingham I, Birmingham II
and Phoenix North 23rd properties totaling $710.
The extraordinary item totaling $808 for the six months ended June 30, 1997
was attributable to the restructuring of the Company's Unsecured Credit
Facility. The extraordinary item totaling $411 for the six months ended June 30,
1996 was incurred in connection with the retirement of debt assumed in
connection with the Merger and Asset Purchase.
COMPARISON OF HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1996 TO HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
The Company was incorporated on May 18, 1995. The Merger and Asset Purchase
were consummated on February 23, 1996. Except for interest earned on its
investments and general and administrative expenses which have been incurred and
accrued, the Company had no operating activities as of December 31, 1995. As a
result, the Company's historical results of operations for the year ended
December 31, 1996 are not comparable to prior year's historical results of
operations. The Company's historical results of operations for the year ended
December 31, 1996 include the operating activities subsequent to the Merger and
Asset Purchase.
COMPARISON OF MERGER RELATED HISTORICAL AS ADJUSTED RESULTS OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1996 TO MERGER RELATED HISTORICAL AS ADJUSTED
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
The unaudited Merger related historical as adjusted operating data of the
Company for the years ended December 31, 1996 and 1995 has been prepared to
reflect (i) the respective historical results of the Merged Trusts and the Trust
83 Properties; (ii) 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 Merged Trusts' indebtedness
("Recapitalization"); (iii) the incremental effects of the Merger, the certain
indebtedness using the net proceeds of the Preferred Stock Private Placement and
availability of Refinancing and the effect of purchase accounting on the
historical results of the Merged Trusts and the Trust 83 Properties; and (iv)
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 related historical as adjusted information excludes the impact
of the 1996 Offerings, the 1996 and 1997 Individual Acquired Properties, the
Post-Merger Portfolio Acquisitions, the Post-Merger Dispositions and the April
1997 Restructuring. The Merger, Asset Purchase and Refinancing closed
concurrently on February 23, 1996.
The Company's Merger related historical as adjusted net income of $10,619 is
$301 lower for the year ended December 31, 1996 than the comparative period in
1995. The decrease is mainly attributable to
33
<PAGE>
increases in interest, general and administrative, and depreciation and
amortization expenses totaling $162, $635 and $1,112, respectively. These
expenses increased primarily due to the property acquisitions made in 1996 which
necessitated borrowings on the Unsecured Credit Facility and increased
administrative costs. These were partially offset by an increase in the net
operating income generated by the asset portfolio. Compared to 1995, total
revenue increased by $1,338 of which $2,727 is attributable to properties
acquired in 1996, partially offset by decreases in total revenues attributable
to properties disposed in 1995 and 1996 totaling $1,431. Compared to 1995,
property operating costs decreased by $366 in 1996. The property operating costs
decreased primarily due to the fact that a portion of costs classified as
property operating costs in 1995 were classified as general and administrative
expenses in 1996.
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
year 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
34
<PAGE>
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.
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
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 I
properties.
35
<PAGE>
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.
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.
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<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company intends to finance property acquisitions, expansions and
renovations using a combination of cash flow from operations and bank financing,
supplemented with private or public debt or equity placements. 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.
SOURCES OF LIQUIDITY
The Company's primary anticipated sources of liquidity are: (i) cash flows
from operating activities, (ii) cash reserves, (iii) borrowings under its
Unsecured Credit Facility, (iv) proceeds from private or public equity or debt
placements, and (v) proceeds from property dispositions. A summary of the
Company's historical cash flows is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1997 DECEMBER 31, 1996
----------- -----------------
<S> <C> <C>
Cash flow from:
Operating activities.................................................. $ 6,372 $ 20,615
Investing activities.................................................. (46,827) (86,302)
Financing activities.................................................. 39,608 68,154
----------- --------
Total............................................................... $ (847) $ 2,467
----------- --------
----------- --------
</TABLE>
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 the Company 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 the Company'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 the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. The Company reports Funds From Operations comprising net income
before extraordinary items, adjusted for depreciation on real property and
amortization of tenant improvement costs and lease commissions, and gains from
the sale of properties (if any). However, it should be noted that other equity
REITs may report Funds From Operations differently than the Company. A
reconciliation of the Company's pro forma income before gain on sale of
properties and extraordinary item, assuming closure of the Portfolio
Acquisitions, the Prudential Stock Transaction, the Prudential Property
Transaction and the Ameritech
37
<PAGE>
Transaction to Funds From Operations for the six months ended June 30, 1997 and
the year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31,
30, 1997 1996
------------- ------------
<S> <C> <C>
Income Before Gain on Sale of Properties and Extraordinary
Item.......................................................... $ 19,641 $ 34,177
Depreciation and Amortization relating to real estate
operations.................................................... 9,208 17,165
------------- ------------
Funds From Operations........................................... $ 28,849 $ 51,342
------------- ------------
------------- ------------
</TABLE>
On a historical basis, at June 30, 1997, the Company had approximately
$143.0 million of total debt outstanding, comprising approximately $66.1 million
on the fixed rate debt mortgage facility, approximately $16.4 million of
mortgage notes payable and approximately $60.5 million on the Unsecured Credit
Facility, with approximately $89.5 million available on the Unsecured Credit
Facility.
Assuming closure of the Portfolio Acquisitions and (i) closure of only the
Prudential Stock Transaction and the Prudential Property Transaction, (ii)
closure of only the Ameritech Transaction, and (iii) closure of the Prudential
Stock Transaction, the Prudential Property Transaction and the Ameritech
Transaction, the Company's pro forma debt outstanding as of June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL AND
TRANSACTIONS AMERITECH AMERITECH
ONLY TRANSACTION ONLY TRANSACTIONS
---------------- ---------------- --------------
<S> <C> <C> <C>
Mortgage Loans..................................... $ 82,508 $ 82,508 $ 82,508
Unsecured Credit Facility.......................... 168,120 111,920 168,120
-------- -------- --------------
Total Debt....................................... $ 250,628 $ 194,428 $ 250,628
-------- -------- --------------
-------- -------- --------------
Pro forma debt maturities:
1996 (six months)................................ $ -- $ -- $ --
1997............................................. 145 145 145
1998............................................. 16,269 16,269 16,269
1999............................................. -- -- --
2000............................................. 168,120 111,920 168,120
Thereafter....................................... 66,094 66,094 66,094
</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. Upon
completion of the April 1997 Restructing, the Unsecured Credit Facility provided
for a borrowing limit of $150,000, interest at LIBOR plus 1.40% and maturity at
April 3, 2000.
On a pro forma basis, assuming closure of the Portfolio Acquisitions, the
Prudential Stock Transaction and the Prudential Property Transaction, the
Company will be fully drawn under the Unsecured Credit Facility and will require
additional capacity under the Unsecured Credit Facility or alternative debt
financing to complete such transactions and fund future acquisitions and
development activities. Accordingly, the Company has commenced negotiations to
either increase the borrowing limit under the Unsecured Credit Facility or
provide alternative debt financing the proceeds from which the Company would use
to finance future acquisitions and development. However, no assurance can be
given that the Company will be able to increase the borrowing limit under the
Unsecured Credit Facility or to obtain alternative debt financing.
The Company's historical and pro forma unrestricted cash funds were $2,095
at June 30, 1997.
Assuming completion of the Portfolio Acquisitions, at June 30, 1997 the
Company's net book value per share was $15.82 on an historical as adjusted
basis. On a pro forma basis as of June 30, 1997, the Company's net book value
per share is (a) $17.05 assuming closure of only the Prudential Stock
38
<PAGE>
Transaction and Prudential Property Transaction, (b) $17.13 assuming closure of
only the Ameritech Transaction and (c) $17.74 assuming closure of the Prudential
Stock Transaction, the Prudential Property Transaction and the Ameritech
Transaction. Net book value per share is calculated by subtracting total
liabilities and the liquidation preference of the Company's preferred stock from
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.
DEVELOPMENTS AND ACQUISITIONS
On an historical as adjusted and pro forma basis at June 30, 1997, the
Company has 8 build to suit development properties in process. Based on the
Company's current development budget, the Company has committed approximately
$36.9 million to complete the development properties. Such development activity
is expected to be funded with cash from operations and borrowings on the
Unsecured Credit Facility. Other than these development commitments and the 1997
Individual Acquired Properties described above, the Company had no material
commitments for capital improvements at June 30, 1997. Planned capital
improvements consist only of tenant improvements and other expenditures
necessary to lease and maintain the Company's properties. Approximately 10.38%
of the Company's leased square footage are subject to leases that expire by
December 31, 1997 (including the pro forma effects of the Prudential and
Ameritech 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 a proactive leasing program (which includes aggressively
marketing available space and renewing existing leases), the Company's
properties maintained average occupancy levels at 91.6%, 96.5%, 93.5% and 94.3%
for the four years ended 1993, 1994, 1995 and 1996, 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.
DISTRIBUTIONS
For the period beginning February 23, 1996 (the date the Merger, Asset
Purchase and Refinancing each closed) through June 30, 1997, the Company paid
distributions equivalent to quarterly distributions of $0.29 per share of Common
Stock and approximately $0.31 per share to the holders of 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, on a pro forma basis at June 30, 1997, the Company
anticipates annual distributions to holders of Common Stock of approximately
$34.7 million, based on the 29,930,035 shares to be outstanding after completion
of both the Prudential and Ameritech Transactions and assuming completion of the
Portfolio Acquisitions. 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 annual preferred
distributions of approximately $2.8 million.
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 will maintain property, casualty and general liability insurance
coverage to insure against material risks and exposures. Management will
periodically review the insurance coverage.
39
<PAGE>
STOCKHOLDINGS OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND MANAGEMENT
The following table sets forth information as of the Record Date, regarding
the beneficial ownership of shares of Common Stock by (a) each person that owns
more than 5% of such shares, (b) each director, (c) the Company's chief
executive officer and its other four most highly compensated executive officers,
and (d) all directors and executive officers as a group. This table is based on
assumptions that are set forth in its footnotes.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME(1) OWNED(2) CLASS(2)
- ----------------------------------------------------------------------------- -------------------- --------------
<S> <C> <C>
Ameritech Pension Trust(3)................................................... 1,623,376 10.67%
USAA Real Estate Company(4).................................................. 1,148,430 8.45%
Cohen & Steers Capital Management, Inc.(5)................................... 1,040,400 7.65%
Hunt Acquisitions Partners, Ltd.(6).......................................... 1,027,581 7.56%
Morgan Stanley Group Inc.(7)................................................. 988,736 7.27%
OTR--Nominee for The State Teachers Retirement Board of Ohio(8).............. 949,351 6.53%
Heitman/PRA Securities Advisors, Inc.(9)..................................... 728,900 5.36%
Allen J. Anderson(10)(11).................................................... 153,367 1.12%
C.E. Cornutt(10)............................................................. 19,629 (11)
Robert A. Dobbin(10)(11)..................................................... 10,155 (11)
T. Patrick Duncan(10)........................................................ 9,529 (11)
Peter O. Hanson(10).......................................................... 15,487 (11)
Dennis D. Higgs(10)(11)...................................................... 64,505 (11)
Timothy B. Keith(10)(11)..................................................... 21,172 (11)
John S. Moody(10)............................................................ 13,129 (11)
Milton K. Reeder(10)(11)..................................................... 46,911 (11)
Kenneth N. Stensby(10)....................................................... 8,672 (11)
Lee W. Wilson(10)............................................................ 11,814 (11)
All the directors and executive officers as a group (16 persons)............. 391,797 2.84%
</TABLE>
- ------------------------
(1) Unless otherwise indicated in these footnotes, the persons and entries
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 of Common Stock that he or it is entitled
to purchase by August 25, 1997 and that no other person or entity purchases
or otherwise acquires any shares. For example, the entries for Ameritech
Pension Trust and OTR--Nominee for The State Teachers Retirement Board of
Ohio assume that those stockholders convert all their 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 Ameritech Pension Trust is 225 West Randolf Street, HQ13A,
Chicago, Illinois 60605.
(4) The address of USAA Real Estate Company is 8000 Robert F. McDermott
Freeway, Suite 600, San Antonio, Texas 78230.
(5) The address of Cohen & Steers Capital Management, Inc. is 757 Third Avenue,
New York, New York 10017.
(6) The address of Hunt Acquisitions Partners, Ltd. is Fountain Place, 20th
Floor, 1445 Ross at Field, Dallas, Texas 75202. Ray L. Hunt and RLH
Investments, Inc. also reported beneficial ownership of the same shares.
Their address is the same as that of Hunt Acquisitions Partners, Ltd.
(7) The address of Morgan Stanley Group Inc. is 1585 Broadway, New York, New
York 10036. Morgan Stanley Asset Management Inc. has reported beneficial
ownership of 818,236 of the same shares.
40
<PAGE>
Morgan Stanley Asset Management Inc.'s address is 1221 Avenue of the
Americas, New York, New York 10020.
(8) The address of OTR--Nominee for The State Teachers Retirement Board of Ohio
is 275 East Broad Street, Columbus, Ohio 43215.
(9) The address of Heitman/PRA Securities Advisors, Inc. is 180 North LaSalle
Street, Suite 3600, Chicago, Illinois 60601.
(10) Excludes shares that these directors and officers may purchase in the
future under options granted under the Company's Stock Plan other than any
such shares included pursuant to note 2.
(11) Less than 1%.
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. The
Company has been advised by its counsel, Vinson & Elkins L.L.P., subject to the
Company's compliance with the various REIT qualification tests described below
(none of which should be adversely affected by the Ameritech Transaction or the
Prudential Transactions), that the completion of the Ameritech Transaction and
the Prudential Transactions should not adversely affect the Company's ability to
continue to qualify as a REIT. 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., commencing with the Company's
initial taxable year ended December 31, 1995, if the Company is organized and
operated as described in this Proxy Statement, 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.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association: (a) that is
managed by one or more directors or trustees, (b) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (c) that would be taxable as a domestic corporation but for
the REIT provisions of the Code, (d) that is neither a financial institution nor
an insurance company subject to certain provisions of the Code, (e) the
beneficial ownership of which is held by 100 or more persons, and (f) during the
last half of each taxable year not more than 50% in value of the outstanding
41
<PAGE>
stock of which is 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 (a) through (d), inclusive, must
be met during the entire taxable year and that conditions (e) and (f) 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 (e) and
(f) (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 (e) and (f), pension funds and certain other
tax-exempt entities are treated as individuals, subject to a "look-through"
exception in the case of condition (f). As a result, the shares of Common Stock
to be owned by Ameritech and the Prudential Purchasers will be not be treated as
owned by the entities that are the record owners of such shares (Ameritech and
the Prudential Purchasers) for the purposes of condition (f) and instead the
ownership of such shares will be attributed to the policy holders and
beneficiaries of such entities.
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.
NINETY-FIVE PERCENT GROSS INCOME TEST. In addition to earning 75% of its
gross income as described 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 ending on or before December 31, 1997
from the sale or other disposition of: (a) real property and loans secured by
real property held for less than four years (other than foreclosure property and
involuntary conversions); (b) stock or securities held for less than one year;
and (c) property in a prohibited transaction. The 30% income test does not have
a reasonable cause exception as do the 75% and 95% income tests. Consequently, a
failure to meet the 30% income test would terminate the Company's status as a
REIT automatically. Because the Company 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.
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
42
<PAGE>
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: (a)
securities of any one nongovernmental issuer that represent more than 5% of the
value of the Company's total assets; or (b) 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.
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: (a) 95% of the sum of (i) its "REIT Taxable
Income" before the deduction for dividends paid and excluding any net capital
gain and (ii) any net income from foreclosure property less the tax on such
income, minus (b) 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.
TAXATION OF CERTAIN 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
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. In the
event that the Company is classified as a Pension-Held REIT after the completion
of the Ameritech Transaction, the Company intends to operate such that these
provisions are not expected to cause its stockholders that are pension trusts to
receive dividends that will be considered unrelated business taxable income,
however there can be no assurance that the Company will be able to operate in
such a manner. 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.
43
<PAGE>
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 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).
STOCKHOLDER PROPOSALS
The Bylaws of the Company provide that only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Company's notice of meeting. The only business set forth
in the Company's notice of meeting is the approval of the Ameritech Stock
Issuance and the Prudential Stock Issuance.
MISCELLANEOUS
This Proxy Statement and the accompanying Proxy are being solicited by the
order of the Board, and all costs related to this solicitation will be borne by
the Company. Proxies may be solicited by mail, telephone, telegram or in person.
The Company will request banks, brokerage houses, and other institutions,
nominees, or fiduciaries that hold Shares in their names to forward the
solicitation materials to the beneficial owners thereof, and the Company will
reimburse those persons for their reasonable expenses in so forwarding these
materials. Directors, Company officers, and regular Company employees may,
without additional compensation, solicit Proxies by telephone, telegram or in
person.
The Company has not changed its independent certified public accountants and
has not had any disagreement with its independent certified public accountants
on an accounting or financial disclosures required to be made under the rules of
the Securities and Exchange Commission. A representative of Arthur Andersen LLP,
the Company's independent public accountants, is expected to be present at the
Special Meeting to respond to appropriate questions and to make a statement if
he or she so desires.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information
44
<PAGE>
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material can also be obtained from the Commission's
worldwide web site at http://www.sec.gov. The Company's outstanding shares of
Common Stock are listed on the NYSE under the symbol "MDN" and all such reports,
proxy statements and other information filed by the Company with the NYSE may be
inspected at the NYSE's offices at 20 Broad Street, New York, New York 10005. In
addition, warrants to purchase shares of the Company's Common Stock are listed
on the American Stock Exchange ("ASE"), and such reports, proxy statements and
other information filed by the Company with the ASE may be inspected at the
ASE's offices at 86 Trinity Place, New York, New York 10006-1881.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
MERIDIAN INDUSTRIAL TRUST, INC.
- Pro forma condensed consolidated balance sheet as of June 30, 1997 with accompanying notes and
adjustments............................................................................................ F-4
- Pro forma condensed consolidated statements of operations for the six months ended June 30, 1997 and
for the year ended December 31, 1996 with accompanying notes and adjustments........................... F-6
HISTORICAL AS ADJUSTED FINANCIAL INFORMATION (UNAUDITED)
MERIDIAN INDUSTRIAL TRUST, INC.
- Historical as adjusted condensed consolidated balance sheet as of June 30, 1997 with accompanying notes
and adjustments........................................................................................ F-11
- Historical as adjusted condensed consolidated statements of operations for the six months ended June
30, 1997 and for the year ended December 31, 1996 with accompanying notes and adjustments.............. F-13
HISTORICAL FINANCIAL INFORMATION
THE PRUDENTIAL PROPERTY TRANSACTION
- Report of independent public accountants............................................................... F-20
- Combined statements of revenues and certain expenses for the six months ended June 30, 1997 (unaudited)
and for the year ended December 31, 1996............................................................... F-21
- Notes to combined statements of revenues and certain expenses.......................................... F-22
THE AMERITECH PROPERTY TRANSACTION--GROUP A PROPERTIES
- Report of independent public accountants............................................................... F-24
- Combined statements of revenues and certain expenses for the six months ended June 30, 1997 (unaudited)
and for the years ended December 31, 1996, 1995 and 1994............................................... F-25
- Notes to combined statements of revenues and certain expenses.......................................... F-26
THE AMERITECH PROPERTY TRANSACTION--GROUP B PROPERTIES
- Report of independent public accountants............................................................... F-28
- Combined statements of revenues and certain expenses for the six months ended June 30, 1997 (unaudited)
and for the years ended December 31, 1996 and 1995..................................................... F-29
- Notes to combined statements of revenues and certain expenses.......................................... F-30
THE AMERITECH PROPERTY TRANSACTION--GROUP C PROPERTIES
- Report of independent public accountants............................................................... F-33
- Combined statements of revenues and certain expenses for the six months ended June 30, 1997 (unaudited)
and for the year ended December 31, 1996............................................................... F-34
- Notes to combined statements of revenues and certain expenses.......................................... F-35
THE ACQUIRED PROPERTIES
- Report of independent public accountants............................................................... F-38
- Combined statements of revenues and certain expenses for the six months ended June 30, 1997 (unaudited)
and for the year ended December 31, 1996............................................................... F-39
- Notes to combined statements of revenues and certain expenses.......................................... F-40
THE PORTFOLIO ACQUISITIONS
- Report of independent public accountants............................................................... F-42
- Combined statements of revenues and certain expenses for the six months ended June 30, 1997 (unaudited)
and for the year ended December 31, 1996............................................................... F-43
- Notes to combined statements of revenues and certain expenses.......................................... F-44
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
MERIDIAN INDUSTRIAL TRUST, INC.
- Condensed consolidated financial statements as of and for the period ended June 30, 1997 (unaudited)... F-47
- Notes to condensed consolidated financial statements as of June 30, 1997............................... F-50
MERIDIAN INDUSTRIAL TRUST, INC.
- Report of independent public accountants............................................................... F-57
- Consolidated financial statements as of and for the year ended December 31, 1996....................... F-58
- Notes to consolidated financial statements as of December 31, 1996..................................... F-62
MERGED TRUSTS HISTORICAL COMBINED
- Report of independent public accountants............................................................... F-75
- Combined financial statements as of and for the year ended December 31, 1995........................... F-76
- Notes to combined financial statements as of December 31, 1995......................................... F-81
</TABLE>
F-2
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
BACKGROUND
The accompanying unaudited pro forma condensed consolidated balance sheet as
of June 30, 1997 has been prepared to reflect (i) the Prudential Property
Transaction, (ii) the Prudential Stock Transaction, and (iii) the Ameritech
Transaction as if such transactions had occurred on June 30, 1997. The
accompanying unaudited pro forma condensed consolidated statements of operations
have been prepared to reflect (i) the Prudential Property Transaction, (ii) the
Prudential Stock Transaction, and (iii) the Ameritech Transaction, as if such
transactions had occurred on January 1, 1996.
Completion of the Prudential Stock Transaction and the issuance of shares of
Common Stock in connection with the Ameritech Transaction are each individually
dependent upon the approval of a majority of the votes cast at the Special
Meeting. As such, the pro forma financial information has been prepared to
reflect the following scenarios: (i) closure of only the Prudential Stock
Transaction and the Prudential Property Transaction, (ii) closure of only the
Ameritech Transaction, and (iii) closure of the Prudential Stock Transaction,
the Prudential Property Transaction and the Ameritech Transaction.
These unaudited pro forma condensed consolidated statements should be read
in connection with the respective historical as adjusted financial information
and historical financial statements and notes thereto included elsewhere in this
Proxy Statement or incorporated by reference herein. In the opinion of
management, the pro forma condensed consolidated financial information provides
for all adjustments necessary to reflect the effects of the (i) the Prudential
Property Transaction, (ii) the Prudential Stock Transaction, and (iii) the
Ameritech Transaction.
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.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the Company
will account for the Prudential Property Transaction and the Ameritech
Transaction acquisitions by the purchase method.
F-3
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
PRUDENTIAL STOCK AND PRUDENTIAL &
PROPERTY TRANSACTIONS AMERITECH TRANSACTION AMERITECH
HISTORICAL ------------------------ ------------------------ TRANSATIONS
AS PRUDENTIAL AMERITECH ------------
ADJUSTED(1) PORTFOLIO(2) PRO FORMA PORTFOLIO(3) PRO FORMA PRO FORMA
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in real estate, net........ $ 472,220 $ 198,308 $ 670,528 $ 147,815 $ 620,035 $ 818,343
Cash and cash equivalents.............. 2,095 -- 2,095 -- 2,095 2,095
Restricted cash........................ 1,998 -- 1,998 -- 1,998 1,998
Other Assets........................... 12,773 -- 12,773 -- 12,773 12,773
------------ ----------- ----------- ----------- ----------- ------------
$ 489,086 198,308 $ 687,394 147,815 $ 636,901 $ 835,209
------------ ----------- ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ----------- ------------
LIABILITIES
Mortgage loans......................... $ 82,508 $ -- $ 82,508 $ -- $ 82,508 $ 82,508
Unsecured credit facility.............. 111,920 56,200 168,120 -- 111,920 168,120
Other liabilities...................... 12,964 2,108 15,072 2,295 15,259 17,367
------------ ----------- ----------- ----------- ----------- ------------
Total Liabilities.................... 207,392 58,308 265,700 2,295 209,687 267,995
------------ ----------- ----------- ----------- ----------- ------------
MINORITY INTEREST...................... 1,130 -- 1,130 -- 1,130 1,130
------------ ----------- ----------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY
Common stock and preferred stock....... 18 7 25 7 25 32
Additional paid-in capital............. 282,353 139,993 422,346 145,513 427,866 567,859
Distributions in excess of income...... (1,807) -- (1,807) -- (1,807) (1,807)
------------ ----------- ----------- ----------- ----------- ------------
Total Stockholders' Equity........... 280,564 140,000 420,564 145,520 426,084 566,084
------------ ----------- ----------- ----------- ----------- ------------
$ 489,086 $ 198,308 $ 687,394 $ 147,815 $ 636,901 $ 835,209
------------ ----------- ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ----------- ------------
</TABLE>
F-4
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical as adjusted condensed consolidated balance sheet of
the Company as of June 30, 1997. See the historical as adjusted condensed
consolidated balance sheet included elsewhere in this Proxy Statement.
2. Reflects the Prudential Property Transaction comprising seven separate
agreements for the purchase of 29 properties comprising 57
warehouse/industrial buildings and 179 acres of land for a total purchase
price $196,200 that, together with estimated acquisition costs of $2,108,
results in total capitalized costs of $198,308. The estimated acquisition
costs include the Company's reimbursement to Prudential for certain costs
incurred by Prudential estimated at $422. The Prudential Property
Transaction purchase price will be financed by the issuance of 7,096,513
shares of the Company's Common Stock valued at $140,000, borrowings on its
Unsecured Credit Facility of approximately $56,200 and accrued costs of
$2,108. The number of shares of Common Stock to be issued by the Company was
calculated on the basis of 96% of the average closing price of the Company's
Common Stock for the five business days prior to the date on which the
Company and Prudential entered into a letter of intent regarding the
Prudential Stock Transaction, resulting in a value per share of $19.728. If
the Company's stockholders do not approve the Prudential Stock Transaction,
the Company intends to fulfill its obligations to complete the Prudential
Property Transaction with debt financing and/or the issuance of additional
equity. On a pro forma basis, assuming closure of the portfolio acquisitions
discussed in the historical as adjusted financial information and closure of
the Prudential Stock Transaction and Prudential Property Transaction, the
Company will be fully drawn on the Unsecured Credit Facility and require
additional capacity under the Unsecured Credit Facility or alternative debt
financing to complete such transactions and fund future acquisitions and
development activities. Accordingly, the Company has commenced negotiations
to either increase the borrowing limit under the Unsecured Credit Facility
or provide alternative debt financing the proceeds from which the Company
would use to finance future acquisitions and development. However, no
assurance can be given that the Company will be able to increase the
borrowing limit under the Unsecured Credit Facility or to obtain alternative
debt financing.
3. Reflects the Ameritech Transaction comprising the purchase of 23 warehouse/
industrial properties, including a participating mortgage secured by a
seven-building warehouse industrial project for a total purchase price of
$145,520 that, together with estimated acquisition costs of $2,295 results
in total capitalized costs of $147,815. The Ameritech Transaction purchase
price will be financed by the issuance of 7,314,026 shares of the Company's
Common Stock valued at $145,520 and accrued costs of $2,295. The number of
shares of Common Stock to be issued by the Company was determined by valuing
such shares at 96% of the average of the closing prices of the Company's
Common Stock for the 10 business days prior to May 13, 1997 (the date that
the Company and Ameritech entered into a letter of intent regarding the
Ameritech Transaction), resulting in a value per share of $19.896. The
Ameritech Transaction is subject to the approval of the Company's
stockholders. Additionally, certain of the properties in the Ameritech
Transaction are subject to encumbrances and, accordingly, Ameritech has the
right to delay the closing for such properties up to 60 days and, if such
encumbrances cannot be cleared, may substitute certain other identified
properties (the "Alternate Properties") in the transaction resulting in an
adjustment of the purchase price and shares issued relating thereto. If
Ameritech delivers the Alternate Properties free from all existing mortgage
indebtedness, the aggregate number of shares of Common Stock to be issued by
the Company will be 7,126,382 shares. If two of the Alternate Properties are
delivered subject to existing mortgages, the aggregate number of shares of
Common Stock to be issued by the Company will be 6,896,297.
F-5
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRUDENTIAL STOCK AND PRUDENTIAL &
PROPERTY TRANSACTIONS AMERITECH TRANSACTION AMERITECH
------------------------ ------------------------ TRANSACTIONS
HISTORICAL AS PRUDENTIAL AMERITECH ------------
ADJUSTED(1) PORTFOLIO(2) PRO FORMA PORTFOLIO(3) PRO FORMA PRO FORMA
-------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenues..................... $ 30,974 $ 10,732 $ 41,706 $ 8,846 $ 39,820 $ 50,552
Interest and other income........... 241 -- 241 -- 241 241
-------------- ----------- ----------- ----------- ----------- ------------
Total Revenue................... 31,215 10,732 41,947 8,846 40,061 50,793
-------------- ----------- ----------- ----------- ----------- ------------
OPERATING EXPENSES
Property operating costs............ 2,464 1,206 3,670 1,212 3,676 4,882
Real estate taxes................... 3,977 1,254 5,231 969 4,946 6,200
Interest expense.................... 6,491 1,401 7,892 -- 6,491 7,892
General and administrative.......... 2,501 257 2,758 194 2,695 2,952
Depreciation and amortization....... 5,433 2,104 7,537 1,689 7,122 9,226
-------------- ----------- ----------- ----------- ----------- ------------
Total operating expenses........ 20,866 6,222 27,088 4,064 24,930 31,152
-------------- ----------- ----------- ----------- ----------- ------------
Income before gain on sale of
properties and extraordinary
item.............................. 10,349 4,510 14,859 4,782 15,131 19,641
Loss on sale of properties.......... (448) -- (448) -- (448) (448)
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary item.... 9,901 4,510 14,411 4,782 14,683 19,193
Series B preferred dividends........ (1,409) -- (1,409) -- (1,409) (1,409)
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary item
allocable to common............... $ 8,492 $ 4,510 $ 13,002 $ 4,782 $ 13,274 $ 17,784
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary item per
common share...................... $ 0.53 $ 0.64 $ 0.56 $ 0.65 $ 0.57 $ 0.58
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Weighted average common shares
outstanding(4).................... 16,020,535 7,096,513 23,117,048 7,314,026 23,334,561 30,431,074
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
</TABLE>
F-6
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRUDENTIAL STOCK AND
PROPERTY TRANSACTIONS AMERITECH TRANSACTION PRUDENTIAL &
------------------------ ------------------------ AMERITECH
HISTORICAL PRUDENTIAL AMERITECH TRANSACTIONS
AS ADJUSTED PORTFOLIO PORTFOLIO ------------
(1) (2) PRO FORMA (3) PRO FORMA PRO FORMA
-------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenues................... $ 56,858 $ 21,941 $ 78,799 $ 16,064 $ 72,922 $ 94,863
Interest and other income......... 738 -- 738 -- 738 738
-------------- ----------- ----------- ----------- ----------- ------------
Total Revenue................... 57,596 21,941 79,537 16,064 73,660 95,601
-------------- ----------- ----------- ----------- ----------- ------------
OPERATING EXPENSES
Property operating costs.......... 5,415 2,740 8,155 2,029 7,444 10,184
Real estate taxes................. 7,164 2,493 9,657 1,716 8,880 11,373
Interest expense.................. 14,044 2,736 16,780 -- 14,044 16,780
General and administrative........ 4,983 514 5,497 388 5,371 5,885
Depreciation and amortization..... 9,615 4,208 13,823 3,379 12,994 17,202
-------------- ----------- ----------- ----------- ----------- ------------
Total operating expenses........ 41,221 12,691 53,912 7,512 48,733 61,424
-------------- ----------- ----------- ----------- ----------- ------------
Income before gain on sale of
properties and extraordinary
items........................... 16,375 9,250 25,625 8,552 24,927 34,177
Gain on sale of properties........ 3,313 -- 3,313 -- 3,313 3,313
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary
items........................... 19,688 9,250 28,938 8,552 28,240 37,490
Series B preferred dividends...... (2,818) -- (2,818) -- (2,818) (2,818)
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary items
allocable to common............. $ 16,870 $ 9,250 $ 26,120 $ 8,552 $ 25,422 $ 34,672
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary items
per common share................ $ 1.06 $ 1.30 $ 1.14 $ 1.17 $ 1.10 $ 1.14
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Weighted average common shares
outstanding(4).................. 15,882,452 7,096,513 22,978,965 7,314,026 23,196,478 30,292,991
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
</TABLE>
F-7
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical as adjusted operations of the Company. See the
historical as adjusted condensed consolidated statements of operations
included elsewhere in this Proxy Statement.
2. Reflects the incremental revenues and expenses resulting from the Prudential
Property Transaction comprising seven separate agreements for the purchase
of 29 properties comprising 57 warehouse/ industrial buildings and 179 acres
of land for a total purchase price $196,200 that, together with estimated
acquisition costs of $2,108, results in total capitalized costs of $198,308.
The Prudential Property Transaction purchase price will be financed by the
issuance of 7,096,513 shares of the Company's Common Stock valued at
$140,000, borrowings on its Unsecured Credit Facility of $56,200 and accrued
costs of $2,108. The incremental revenues and expenses reflect the
historical operations attributable to the properties acquired in connection
with the Prudential Property Transaction for the six months ended June 30,
1997 and year ended December 31, 1996. Such historical results have been
adjusted to reflect straight-line rents, interest expense and depreciation
and amortization as if such transactions had occurred on January 1, 1996. Of
the $198,308 purchase price related to the Prudential Property Transaction,
approximately $147,286 is the depreciable basis allocated to buildings.
Depreciation and amortization of the operating properties in the Prudential
Property Transaction has been calculated on a straight-line basis using
average useful lives of 35 years. The estimated general and administrative
expenses relate to additional payroll and related costs that the Company
expects to incur in the ongoing management of the properties in the
Prudential Property Transaction. The Company's Unsecured Credit Facility
bears variable interest at LIBOR plus 1.40% and unused facility fees of
.25%. 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 approximately
$210. Estimated interest expense on pro forma borrowings on the Company's
Unsecured Credit Facility resulting from the Prudential Property Transaction
is based upon average actual LIBOR rates of 5.61% and 5.45%, respectively,
for the six months ended June 30, 1997 and the year ended December 31, 1996,
as detailed in the following table.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
--------------- -------------------
<S> <C> <C>
Unsecured Credit Facility borrowings of $56,200 resulting
from the Prudential Property Transaction at a LIBOR plus
1.4% (7.01% during 1997 and 6.85% during 1996), net of
reduced unused facility fees of .25%.................... $ 1,898 $ 3,709
Less interest capitalized on the portion of the
capitalized costs allocated to land under development
amounting to $14,201.................................... (497) (973)
------ ------
Net interest attributable to the Prudential Property
Transaction............................................. $ 1,401 $ 2,736
------ ------
------ ------
</TABLE>
On a pro forma basis, assuming closure of the portfolio acquisitions
discussed in the historical as adjusted financial information and closure of
the Prudential Stock Transaction and Prudential Property Transaction, the
Company will be fully drawn on the Unsecured Credit Facility and require
additional capacity under the Unsecured Credit Facility or alternative debt
financing to complete such transactions and fund future acquisitions and
development activities. Accordingly, the Company has commenced negotiations
to either increase the borrowing limit under the Unsecured Credit Facility
or
F-8
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED)
provide alternative debt financing the proceeds from which the Company would
use to finance future acquisitions and development. However, no assurance
can be given that the Company will be able to increase the borrowing limit
under the Unsecured Credit Facility or obtain alternative debt financing.
Therefore, the pro forma adjustments to interest expense reflect interest on
pro forma borrowings in excess of the $150,000 borrowing limit at the
current terms of the Unsecured Credit Facility (LIBOR rate plus 1.4% or
7.01% and 6.85%, respectively, for the six months ended June 30, 1997 and
the year ended December 31, 1996).
3. Reflects the incremental revenues and expenses resulting from the Ameritech
Transaction comprising the purchase of 23 warehouse/industrial properties,
including a participating mortgage secured by a seven-building industrial
project for a total purchase price of $145,520 that, together with estimated
acquisition costs of $2,295 results in total capitalized costs of $147,815.
The Ameritech Transaction purchase price will be financed by the issuance of
7,314,026 shares of the Company's Common Stock valued at $145,520 and
accrued costs of $2,295. The incremental revenues and expenses reflect the
historical operations attributable to the properties acquired in connection
with the Ameritech Transaction for the six months ended June 30, 1997 and
year ended December 31, 1996. Such historical results have been adjusted to
reflect straight-line rents, interest expense and depreciation and
amortization as if such transactions had occurred on January 1, 1996. Of the
$147,815 purchase price related to the Ameritech Transaction, approximately
$118,252 is the depreciable basis allocated to buildings. Depreciation and
amortization of the properties in the Ameritech Transaction has been
calculated on a straight-line basis using average useful asset lives of 35
years. The estimated general and administrative expenses relate to
additional payroll and related costs that the Company expects to incur in
the ongoing management of the properties in the Ameritech Transaction.
Estimated interest expense on pro forma borrowings on the Company's
Unsecured Credit Facility resulting from the Ameritech Transaction is based
upon variable interest at LIBOR plus 1.40% and unused facility fees of .25%.
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 approximately $210.
Estimated interest expense on pro forma borrowings on the Company's
Unsecured Credit Facility resulting from the Ameritech Transaction is based
upon average actual LIBOR rates of 5.61% and 5.45%, respectively, for the
six months ended June 30, 1997 and the year ended December 31, 1996.
4. Per share amounts reflect approximately 1,915,820 shares to be issued for
the Portfolio Acquisitions, and the dilutive effects of stock options
granted by the Company to its directors and officers pursuant to its stock
plan, warrants issued in connection with the Merger and shares to be issued
pursuant to a stock option agreement with one of its stockholders,
aggregating to 501,039 and 371,069 additional shares of common stock for the
six months ended June 30, 1997 and year ended December 31, 1996,
respectively.
5. Pro Forma taxable income for the twelve months ended June 30, 1997 is (i)
approximately $22,910 assuming that only the Prudential Property Transaction
and the sale of Common Stock to the Prudential Purchasers are completed,
(ii) approximately $23,130 assuming that only the Ameritech Transaction is
completed, and (iii) approximately $32,391 assuming that the Prudential
Stock Transaction, the Prudential Property Transaction and the Ameritech
Transaction are all completed.
F-9
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
HISTORICAL AS ADJUSTED FINANCIAL INFORMATION
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
BACKGROUND
The accompanying unaudited historical as adjusted condensed consolidated
balance sheet as of June 30, 1997 has been prepared to reflect (i) the post-June
30, 1997 acquisition of three operating properties and development of properties
under construction, (ii) the pending acquisition in 1997 of two separate
portfolios (the "Portfolio Acquisitions") comprising 12 warehouse/industrial
properties that the Company's management deems probable of closing, as if such
transactions had occurred on June 30, 1997.
The historical as adjusted condensed consolidated statement of operations
information for the six months ended June 30, 1997 has been prepared to reflect
(i) the incremental effect of the nine individual properties acquired during
1997 (the "1997 Individual Acquired Properties"), (ii) the incremental effect of
the Portfolio Acquisitions, (iii) the incremental effect of properties sold
during 1997 (the "1997 Property Sales"), and (iv) the April 1997 restructuring
(the "April 1997 Restructing") of the Company's revolving bank credit agreement
(the "Unsecured Credit Facility"), as if such transactions had occurred on
January 1, 1996.
The historical as adjusted condensed consolidated statement of operations
for the year ended December 31, 1996 has been prepared to reflect (i) the
incremental effect of the 1997 Individual Acquired Properties and properties
acquired by the Company during 1996 (collectively, the "1996 and 1997 Acquired
Properties"); (ii) the incremental effect of the Portfolio Acquisitions, (iii)
the incremental effect of the 1997 Property Sales and those properties sold by
the Company during 1996 (collectively, the "1996 and 1997 Property Sales"); (iv)
the incremental effect of debt paydowns during 1996 with the proceeds from the
Company's two 1996 Common Stock offerings (the "1996 Offerings"); (v) the April
1997 Restructuring; (vi) the respective historical results of the three
companies (the "Merged Trusts") that were merged into the Company on February
23, 1996 (the "Merger") and the acquisition of certain net assets (the assets
acquired and the transaction are referred to herein as the "Trust '83
Properties" and the "Asset Purchase", respectively) that occurred concurrent
with the Merger for the period from January 1, 1996 to February 23, 1996 (i.e.,
prior to the Merger and Asset Purchase); and (vii) the respective effects of the
Merger and the retirement of certain indebtedness concurrent with the Merger
using the net proceeds from the issuance of the Company's preferred stock and
the availability of the Unsecured Credit Facility (referred to collectively as
the "Refinancing") on the historical results of the Merged Trusts and the Trust
'83 Properties for the period from January 1, 1996 to February 23, 1996; to
reflect the post-Merger activities of the Company as if such transactions had
occurred on January 1, 1996. The Merger, Asset Purchase and Refinancing each
closed concurrently on February 23, 1996.
These unaudited historical as adjusted condensed consolidated statements
should be read in connection with the respective historical financial statements
and notes thereto included elsewhere in this Proxy Statement. 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, Asset Purchase, Refinancing, the 1996 and 1997 Acquired Properties, the
1996 and 1997 Property Sales, the 1996 Offerings, and the April 1997
Restructuring.
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.
F-10
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INDIVIDUAL
PROPERTY
ACQUISITIONS
AND PORTFOLIO HISTORICAL
HISTORICAL(1) DEVELOPMENT(2) ACQUISITIONS(3) AS ADJUSTED
------------ --------------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in real estate, net............................... $ 382,170 $ 25,045 $ 65,005 $ 472,220
Cash and cash equivalents..................................... 2,095 -- -- 2,095
Restricted cash............................................... 1,998 -- -- 1,998
Other Assets.................................................. 12,773 -- -- 12,773
------------ ------- -------------- -----------
$ 399,036 $ 25,045 $ 65,005 $ 489,086
------------ ------- -------------- -----------
------------ ------- -------------- -----------
LIABILITIES
Mortgage loans................................................ $ 82,508 $ -- $ -- $ 82,508
Unsecured credit facility..................................... 60,500 25,000 26,420 111,920
Other liabilities............................................. 12,919 45 -- 12,964
------------ ------- -------------- -----------
Total Liabilities........................................... 155,927 25,045 26,420 207,392
------------ ------- -------------- -----------
MINORITY INTEREST............................................. 1,130 -- -- 1,130
------------ ------- -------------- -----------
STOCKHOLDERS' EQUITY
Common stock and preferred stock.............................. 16 -- 2 18
Additional paid-in capital.................................... 243,770 -- 38,583 282,353
Distributions in excess of income............................. (1,807) -- -- (1,807)
------------ ------- -------------- -----------
Total Stockholders' Equity.................................. 241,979 -- 38,585 280,564
------------ ------- -------------- -----------
$ 399,036 $ 25,045 $ 65,005 $ 489,086
------------ ------- -------------- -----------
------------ ------- -------------- -----------
</TABLE>
F-11
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical condensed consolidated balance sheet of the Company
as of June 30, 1997.
2. Reflects the post-June 30, 1997 purchase of three operating properties at an
aggregate cost of approximately $19,514. The purchase of these three
operating properties will initially be funded with draws on the Company's
Unsecured Credit Facility of approximately $19,469, together with accrued
costs of approximately $45.
Also, reflects the development and construction costs incurred by the
Company subsequent to June 30, 1997 of approximately $5,531 in connection
with development of properties under construction. Costs associated with
these development properties under construction were funded with borrowings
on the Company's Unsecured Credit Facility.
3. Reflects the Portfolio Acquisitions comprising the pending purchase of 12
warehouse/industrial properties that the Company's management deems probable
of closing for a total purchase price of $64,430 that, together with
estimated acquisition costs of $575 results in total capitalized costs of
$65,005. The Portfolio Acquisitions purchase price will be financed by the
issuance of approximately 1,915,820 shares of the Company's Common Stock
valued at $38,585, with the balance of the purchase price and acquisition
costs funded by borrowings on the Company's Unsecured Credit Facility in the
amount of $26,420. The number of shares of Common Stock to be issued by the
Company is based upon a negotiated value per share of $20.14. The Portfolio
Acquisitions are not subject to the approval of the Company's stockholders.
F-12
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INDIVIDUAL
PROPERTY PORTFOLIO
HISTORICAL ACQUISITIONS AND ACQUISITIONS PROPERTY APRIL 1997 HISTORICAL
MIT (1) DEVELOPMENT (2) (3) DISPOSITIONS (4) RESTRUCTURING (5) AS ADJUSTED
----------- ----------------- --------------- ----------------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenues............. $ 24,564 $ 3,250 $ 3,795 $ (635) $ -- $ 30,974
Interest and other income... 304 -- -- (63) -- 241
----------- ------ ------ ----- ----- ------------
Total Revenue........... 24,868 3,250 3,795 (698) -- 31,215
----------- ------ ------ ----- ----- ------------
OPERATING EXPENSES
Property operating costs.... 2,042 352 268 (198) -- 2,464
Real estate taxes........... 3,393 350 352 (118) -- 3,977
Interest expense............ 3,784 2,269 950 (290) (222) 6,491
General and administrative.. 2,501 -- -- -- -- 2,501
Depreciation and
amortization.............. 4,216 588 743 (114) -- 5,433
----------- ------ ------ ----- ----- ------------
Total operating
expenses.............. 15,936 3,559 2,313 (720) (222) 20,866
----------- ------ ------ ----- ----- ------------
Income before gain on sale
of properties and
extraordinary item........ 8,932 (309) 1,482 22 222 10,349
Loss on sale of properties.. (448) -- -- -- -- (448)
----------- ------ ------ ----- ----- ------------
Income before extraordinary
item...................... 8,484 (309) 1,482 22 222 9,901
Series B preferred
dividends................. (1,409) -- -- -- -- (1,409)
----------- ------ ------ ----- ----- ------------
Income allocable to common
before extraordinary
item...................... 7,075 $ (309) $ 1,482 $ 22 $ 222 $ 8,492
----------- ------ ------ ----- ----- ------------
----------- ------ ------ ----- ----- ------------
Income per common share
before extraordinary
item...................... $ 0.50 $ 0.53
----------- ------------
----------- ------------
Weighted average common
shares outstanding........ 14,104,715 16,020,535
----------- ------------
----------- ------------
</TABLE>
F-13
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical condensed consolidated statement of operations of
Company for the six months ended June 30, 1997.
2. Reflects the incremental effect on the Company's operations of the 1997
Individual Acquired Properties comprising nine properties that the Company
acquired during 1997 as if the properties had been acquired January 1, 1996.
Also, reflects the capitalization of interest on the Development Properties.
Depreciation expense on the 1997 Acquired Properties has been calculated on
a straight-line basis using average useful lives of 35 years. The
incremental effect on revenues from the 1997 Individual Acquired Properties
reflects the incremental revenues from property purchases consummated during
1997 comprising the historical operating results of four property
acquisitions (the "Acquired Properties" whose historical results are
included elsewhere in this proxy statement), as well as five additional
properties purchased during the period, each of which have been adjusted for
the straight-line rent effect as if such properties had been acquired by the
Company on January 1, 1996. The 1997 Acquired Properties and the development
of properties under construction were funded by the assumption of two
separate mortgage loans in combined principal amount of $16,414 and a
weighted average interest rate of 8.02%, with the balance funded by draws on
the Unsecured Credit Facility. A summary of the interest adjustment
components relating to the 1997 Acquired Properties and development of
properties under construction is as follows:
<TABLE>
<S> <C>
Mortgages assumed in combined principal amount of $16,414 and a
weighted average interest rate of 8.02%........................... $ 614
Unsecured Credit Facility borrowings at a pre-restructuring rate of
LIBOR plus 1.7% or 7.19%, net of reduced unused facility fees of
.25%.............................................................. 1.655
---------
Total adjustment.................................................... $ 2,269
---------
---------
</TABLE>
3. Reflects the incremental revenues and expenses resulting from the Portfolio
Acquisitions comprising the pending purchase of 12 warehouse/industrial
properties that the Company's management deems probable of closing for a
total purchase price of $64,430 that, together with estimated acquisition
costs of $575 results in total capitalized costs of $65,005. The Portfolio
Acquisitions purchase price will be financed by the issuance of
approximately 1,915,820 shares of the Company's Common Stock valued at
$38,585, with the balance of the purchase price and acquisition costs funded
by borrowings on the Company's Unsecured Credit Facility in the amount of
$26,420. Depreciation and amortization of the properties in the Portfolio
Acquisitions has been calculated on a straight line basis and is based upon
estimated asset lives of 35 years and a depreciable basis of approximately
$52,004. Estimated interest expense on as adjusted borrowings on the
Company's Unsecured Credit Facility resulting from the Portfolio
Acquisitions is based upon variable interest at LIBOR plus 1.70% or 7.15%
(average actual LIBOR rates of 5.49% for the six months ended June 30, 1997)
and amounts to approximately $950. An increase or decrease of 0.125% ( 1/8%)
in LIBOR will result in a six month increase or decrease in historical as
adjusted interest expense of approximately $70.
4. Reflects the elimination of the effects on the Company's operations from the
1997 Property Sales. The 1997 Property Sales result in a net loss on sale of
$448 and comprise five property sales. The 1997 Property Sales result in net
proceeds to the Company of $11,368 which are reflected as paydowns on the
Unsecured Credit Facility, resulting in a reduction in interest expense on
the Unsecured Credit Facility of $290.
F-14
<PAGE>
5. Reflects the net reduction in interest as a result of the April 1997
Restructuring. The April 1997 Restructuring provided for: (i) an increase of
the borrowing limit to $150,000 (previously $75,000), (ii) a decrease in the
interest rate spread over LIBOR to 1.40% (previously LIBOR plus 1.70%), and
(iii) an extension of the maturity date to April 3, 2000 (previously
February 26, 1998). In connection with the April 1997 Restructuring, the
Company recognized an extraordinary loss of approximately $808 comprising
(i) the write-off of previously deferred financing fees related to the old
facility of approximately $283 and (ii) fees paid to the lenders of
approximately $525. In addition, the Company incurred and recorded as
deferred financing fees other financing costs relating to the April 1997
Restructuring of approximately $200. The net reduction in interest expense
for the six months ended June 30, 1997 as a result of the April 1997
Restructuring comprises the following:
<TABLE>
<S> <C>
Reduction of interest rate from LIBOR plus 1.70% to LIBOR plus 1.40%
(based upon historical as adjusted outstanding principal of
$111,920).......................................................... $ (168)
Reduction in loan fee amortization due to write-off of previously
capitalized loan fees.............................................. (182)
Amortization of loan fees on restructured facility................... 34
Increase in unused facility fees due to increase borrowing limit to
$150,000........................................................... 94
---------
Net reduction........................................................ $ (222)
---------
---------
</TABLE>
F-15
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1, 1996 TO FEBRUARY 23, 1996
-------------------------------------------
HISTORICAL
MERGED TRUSTS AS ADJUSTED POST-MERGER POST-MERGER
HISTORICAL MERGER MERGED HISTORICAL INDIVIDUAL PORTFOLIO POST-MERGER
COMBINED(1) TRANSACTIONS(2) TRUSTS MIT(3) ACQUISITIONS(4) ACQUISITIONS(5) DISPOSITIONS(6)
------------- --------------- ----------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenues........ $ 4,997 $ 785 $ 5,782 $ 34,465 $ 14,748 7,464 $ (5,601)
Interest and other
income............... 161 1 162 576 -- -- --
------ ------ ----------- ----------- ------- ------ -------
Total Revenue...... 5,158 786 5,944 35,041 14,748 7,464 (5,601)
------ ------ ----------- ----------- ------- ------ -------
OPERATING EXPENSES
Property operating
costs................ 912 (92) 820 3,821 1,227 563 (1,016)
Real estate taxes...... 812 79 891 4,769 1,560 699 (755)
Interest expense....... 1,506 (375) 1,131 6,065 12,809 1,889 (2,773)
General and
administrative....... 1,162 (452) 710 4,273 -- -- --
Depreciation and
amortization......... 1,308 (624) 684 4,952 3,162 1,486 (669)
------ ------ ----------- ----------- ------- ------ -------
Total operating
expenses......... 5,700 (1,464) 4,236 23,880 18,758 4,637 (5,213)
------ ------ ----------- ----------- ------- ------ -------
Income (loss) before
gain on sale of
properties and
extraordinary
items................ (542) 2,250 1,708 11,161 (4,010) 2,827 (388)
Gain on sale of
properties........... -- -- -- 3,313 -- -- --
------ ------ ----------- ----------- ------- ------ -------
Income (loss) before
extraordinary items.. (542) 2,250 1,708 14,474 (4,010) 2,827 (388)
Series B preferred
dividends............ -- (406) (406) (2,412) -- -- --
------ ------ ----------- ----------- ------- ------ -------
Income (loss) before
extraordinary items
allocable to common.. $ (542) $ 1,844 $ 1,302 $ 12,062 $ (4,010) $ 2,827 $ (388)
------ ------ ----------- ----------- ------- ------ -------
------ ------ ----------- ----------- ------- ------ -------
Income before
extraordinary items
per common share.....
Weighted average common
shares outstanding...
<CAPTION>
HISTORICAL
1996 APRIL 1997 AS ADJUSTED
OFFERINGS(7) RESTRUCTURING(8) MIT
----------- ----------------- -----------
<S> <C> <C> <C>
REVENUES
Rental revenues........ $ -- $ -- $ 56,858
Interest and other
income............... -- -- 738
----------- ------ -----------
Total Revenue...... -- -- 57,596
----------- ------ -----------
OPERATING EXPENSES
Property operating
costs................ -- -- 5,415
Real estate taxes...... -- -- 7,164
Interest expense....... (4,713) (364) 14,044
General and
administrative....... -- -- 4,983
Depreciation and
amortization......... -- -- 9,615
----------- ------ -----------
Total operating
expenses......... (4,713) (364) 41,221
----------- ------ -----------
Income (loss) before
gain on sale of
properties and
extraordinary
items................ 4,713 364 16,375
Gain on sale of
properties........... -- -- 3,313
----------- ------ -----------
Income (loss) before
extraordinary items.. 4,713 364 19,688
Series B preferred
dividends............ -- -- (2,818)
----------- ------ -----------
Income (loss) before
extraordinary items
allocable to common.. $ 4,713 $ 364 $ 16,870
----------- ------ -----------
----------- ------ -----------
Income before
extraordinary items
per common share..... $ 1.06
-----------
-----------
Weighted average common
shares outstanding... 15,882,452
-----------
-----------
</TABLE>
F-16
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical operations of the Merged Trusts for the period from
January 1, 1996 to the Merger date of February 23, 1996.
2. Reflects adjustments relating to the Merger, Asset Purchase, and Refinancing
comprising (i) adjustments for the historical operations of the Trust '83
Properties for the period from January 1, 1996 to the Merger date of
February 23, 1996; (ii) the incremental effects of purchase accounting as a
result of the Merger, together with certain cost adjustments, which result
in a decrease in the historical expenses of the Merged Trusts comprising:
(a) a reduction of depreciation expense of $832 resulting from a reduction
in the historical basis of the investment in real estate relating to the
purchase accounting to record the Merger (Historical As Adjusted Merged
Trusts depreciation expense has been calculated on a straight line basis
using average useful lives of 35 years) and (b) 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); and (iii) the pay down and retirement of $59,983 of the Company's
debt using certain proceeds from (a) the $35,000 issuance of the Company's
preferred stock completed concurrent with the Asset Purchase and (b) $26,505
in borrowings on the Company's Unsecured Credit Facility as detailed below:
<TABLE>
<CAPTION>
MERGER ASSET PURCHASE REFINANCING
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS TOTAL
----------- ----------------- ------------- ---------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 0 $ 786 $ 0 $ 786
----------- ----- ----- ---------
Property operations............................... (308) 216 0 (92)
Real estate taxes................................. 0 79 0 79
Interest expense.................................. 0 234 (609) (375)
General and administrative........................ (452) 0 0 (452)
Depreciation and amortization..................... (832) 208 0 (624)
----------- ----- ----- ---------
Total operating expenses.......................... (1,592) 737 (609) (1,464)
----------- ----- ----- ---------
Net income, before dividends...................... 1,592 49 609 2,250
Series B preferred dividends...................... 0 0 (406) (406)
----------- ----- ----- ---------
Net Income........................................ $ 1,592 $ 49 $ 203 $ 1,844
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
3. Represents the historical condensed consolidated statement of operations of
the Company for the year ended December 31, 1996. Prior to February 23,
1996, the Company had no operations other than interest on its investments
and general and administrative expenses.
4. Reflects the incremental effect on the Company's operations of the 1996 and
1997 Individual Acquired Properties comprising eight separate property
purchases in 1996 and nine separate property purchases in 1997. Depreciation
expense on the 1996 and 1997 Individual Acquired Properties has been
calculated on a straight-line basis using average useful lives of 35 years.
The incremental effect on revenues from the 1996 and 1997 Individual
Acquired Properties (the "Post-Merger Individual Acquisitions") reflects
incremental revenues from property purchases consummated during 1996 and
1997 comprising the historical operating results of four property
acquisitions (the "Acquired Properties" whose historical results are
included elsewhere in this proxy statement), as well as thirteen
F-17
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED)
additional properties purchased during the period, each of which have been
adjusted for the straight-line rent effect as if such properties had been
acquired by the Company on January 1, 1996. The 1996 and 1997 Individual
Acquired Properties and the Company's development activities were funded by
the assumption of two separate mortgage loans in combined principal amount
of $16,414 and a weighted average interest rate of 8.02%, with the balance
funded by draws on the Unsecured Credit Facility. A summary of the interest
adjustment components relating to the 1996 and 1997 Acquired Properties and
development activities is as follows:
<TABLE>
<CAPTION>
Mortgages assumed in combined principal amount of $16,414 and a
weighted average interest rate of 8.02%.......................... $ 1,321
<S> <C>
Unsecured Credit Facility borrowings at a pre-restructuring rate of
LIBOR plus 1.7% or 7.19%, net of reduced unused facility fees of
.25%............................................................. 12,422
Less interest capitalized on development activities................ (934)
---------
Total adjustment................................................... $ 12,809
---------
---------
</TABLE>
5. Reflects the incremental revenues and expenses resulting from the Portfolio
Acquisitions comprising the pending purchase of 12 warehouse/industrial
properties that the Company's management deems probable of closing for a
total purchase price of $64,430 that, together with estimated acquisition
costs of $575 results in total capitalized costs of $65,005. The Portfolio
Acquisitions purchase price will be financed by the issuance of
approximately 1,195,820 shares of the Company's Common Stock valued at
$38,585, with the balance of the purchase price and acquisition costs funded
by borrowings on the Company's Unsecured Credit Facility in the amount of
$26,420. Depreciation and amortization of the properties in the Portfolio
Acquisitions has been calculated on a straight-line basis and is based upon
estimated assets lives of 35 years and a depreciable basis of approximately
$52,004. Estimated interest expense on as adjusted borrowings on the
Company's Unsecured Credit Facility resulting from the Portfolio
Acquisitions is based upon variable interest at LIBOR plus 1.70% or 7.15%
(average actual LIBOR rates of 5.45% for the year ended December 31, 1996)
and amounts to approximately $1,889. An increase or decrease of 0.125%
( 1/8%) in LIBOR will result in an annual increase or decrease in historical
as adjusted interest expense of approximately $140.
6. Reflects the elimination of the effects on the Company's operations from the
1996 and 1997 Property Sales. Property sales in 1996 comprised 14 properties
which, after closing costs, escrow holdback, early release of funds and
pro-rated items totaling $1,975, resulted in net proceeds to the Company
totaling $31,447 which were used to pay down borrowings on the Unsecured
Credit Facility. The Company recorded a gain on sale of $3,313 in connection
with the property sales occurring in 1996. The 1997 Property Sales result in
a net loss on sale of $448 and comprise five property sales during the six
months ended June 30, 1997. The 1997 Property Sales result in net proceeds
to the Company of $11,368 which are reflected as paydowns on the Unsecured
Credit Facility. The 1996 and 1997 Property Sales result in adjustment to
the 1996 historical interest expense of $2,773 as a result of reduced
principal outstanding on the Unsecured Credit Facility.
7. Reflects the total reduction to the historically reported interest expense
of the Merged Trusts and the Company as a result of the 1996 Offerings
comprising (i) the incremental effect of the Company's issuance of 1,500,000
shares of Common Stock that closed on April 3, 1996 (the "April Offering")
providing net proceeds of approximately $23,200 that, together with cash on
hand were used to repay as adjusted borrowings on the Company's Unsecured
Credit Facility of approximately $26,505, and
F-18
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED)
(ii) the incremental effect of the Company's issuance of 3,910,000 shares of
Common Stock (3,400,000 shares initially issued on November 25, 1996 and
510,000 shares issued on December 23, 1996, collectively referred to as the
"Second Offering"), resulting in net proceeds of $67,480 applied to repay as
adjusted borrowing on the Unsecured Credit Facility. The estimated interest
reduction total of $4,713 is based upon the pre-restructuring interest rate
of LIBOR plus 1.7% (7.15%), unused credit facility fees of .25%, and
reflects interest reduction attributable to the April Offering as $482 and
the Second Offering as $4,231, respectively.
8. Reflects the net reduction in interest as a result of the April 1997
Restructuring. The April 1997 Restructuring provided for: (i) an increase of
the borrowing limit to $150,000 (previously $75,000), (ii) a decrease in the
interest rate spread over LIBOR to 1.40% (previously LIBOR plus 1.70%), and
(iii) an extension of the maturity date to April 3, 2000 (previously
February 26, 1998). In connection with the April 1997 Restructuring, the
Company recognized an extraordinary loss of approximately $808 comprising
(i) the write-off of previously deferred financing fees related to the old
facility of approximately $283 and (ii) fees paid to the lenders of
approximately $525. In addition, the Company incurred and recorded as
deferred financing fees other financing costs relating to the April 1997
Restructuring of approximately $200. The net reduction in interest expense
for the year ended December 31, 1996 as a result of the April 1997
Restructuring comprises the following:
<TABLE>
<S> <C>
Reduction of interest rate from LIBOR plus 1.70% to LIBOR plus 1.40%
(based upon historical as adjusted outstanding principal of
$111,920).......................................................... $ (336)
Reduction in loan fee amortization due to write-off of previously
capitalized loan fees.............................................. (283)
Amortization of loan fees on restructured facility................... 67
Increase in unused facility fees due to increase borrowing limit to
$150,000........................................................... 188
---------
Net reduction........................................................ $ (364)
---------
---------
</TABLE>
F-19
<PAGE>
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 Prudential Property Transaction as defined in Note 1, for the
year ended December 31, 1996. 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 revenues 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 Prudential Property
Transaction.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Prudential
Property Transaction for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
June 30, 1997
F-20
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE PRUDENTIAL PROPERTY TRANSACTION
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
SIX MONTHS ------------
ENDED
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C> <C>
Rental Revenues...................................................................... $ 10,399 $ 21,300
Certain Expenses:
Real Estate Taxes.................................................................. 1,254 2,493
Property Operating and Maintenance................................................. 1,206 2,741
------------- ------------
2,460 5,234
------------- ------------
Rental Revenues in Excess of Certain Expenses........................................ $ 7,939 $ 16,066
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE PRUDENTIAL PROPERTY TRANSACTION
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. PROPERTIES ACQUIRED.
The combined statements of revenues and certain expenses (see "Basis of
Presentation" below) include the combined operations of 29 properties
(comprising 57 warehouse/industrial buildings) and 179 acres of land
(collectively the "Prudential Properties") which will be acquired by Meridian
Industrial Trust, Inc. (the "Company") from The Prudential Insurance Company of
America and certain affiliated entities (collectively, "Prudential"). The
Company and Prudential entered into seven separate purchase and sale agreements
on May 27, 1997 (the "Prudential Property Transaction") that provide for an
estimated closing date of August, 1997.
2. BASIS OF PRESENTATION.
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Prudential Properties for the
periods presented. Certain expenses may not be comparable to the expenses
expected to be incurred by the Company in the proposed operation of the
Prudential Properties; however, the Company is not aware of any material factors
relating to the Prudential Properties that would cause the reported financial
information not to be indicative of future operating results. Expenses reflected
in property operating and maintenance expenses include utilities, insurance,
landscaping and maintenance and repairs. Excluded expenses consist primarily of
interest expense, depreciation and amortization and other costs not directly
related to the future operations of the Prudential Properties. In addition, the
statements exclude capitalizable carrying and other costs related to the 179
acres of land being acquired.
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. No individual leases represent greater than 10% of revenues.
(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-22
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE PRUDENTIAL PROPERTY TRANSACTION
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS) (CONTINUED)
4. LEASING ACTIVITY.
The minimum future rental revenues due under non-cancelable operating leases
in effect as of June 30, 1997, for the remainder of 1997 and annually thereafter
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997 (six months).................................................................. $ 9,228
1998............................................................................... 14,286
1999............................................................................... 10,869
2000............................................................................... 8,771
2001............................................................................... 6,175
Thereafter......................................................................... 12,104
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to
$1,514 for the six months ended June 30, 1997 (unaudited), and $3,196 for the
year ended December 31, 1996. Certain leases contain options to renew.
5. RELATED PARTY TRANSACTIONS
During 1996, Prudential utilized PREMISYS, an affiliate of Prudential, as
its property management company. PREMISYS provided accounting and management
services for the Prudential Properties. Total management fees paid were $257 and
$532 for the six months ended June 30, 1997 (unaudited) and year ended December
31, 1996, respectively, which are reflected within property operating and
maintenance expenses on the accompanying statements of revenues and certain
expenses.
F-23
<PAGE>
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 revenues and certain
expenses for the Ameritech Transaction-Group A Properties as defined in Note 1,
for the years ended December 31, 1996, 1995, and 1994. These statements are the
responsibility of the management of Meridian Industrial Trust, Inc. ("the
Company"). Our responsibility is to express an opinion on these combined
statements 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. 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
audits provide a reasonable basis for our opinion.
The accompanying combined statements of revenue and certain expenses were
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, and are not intended to be a
complete presentation of the revenues and expenses of the Ameritech
Transaction-Group A Properties.
In our opinion, the combined statements referred to above present fairly, in
all material respects, the revenues and certain expenses of the Ameritech
Transaction-Group A Properties for the years ended December 31, 1996, 1995, and
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
June 30, 1997
F-24
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP A PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1997 1996 1995 1994
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Rental Revenues...................................... $ 2,571 $ 5,139 $ 4,837 $ 4,812
Certain Expenses:
Real Estate Taxes.................................. 223 436 421 444
Property Operating and Maintenance................. 665 1,290 1,188 1,091
------ ------ ------ ------
888 1,726 1,609 1,535
------ ------ ------ ------
Rental Revenues in Excess of Certain Expenses........ $ 1,683 $ 3,413 $ 3,228 $ 3,277
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP A PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
1. PROPERTIES ACQUIRED.
The accompanying combined statements of revenues and certain expenses (see
"Basis of Presentation" below) include the combined operations of one property
and a participating mortgage loan receivable (collectively the "Group A
Properties") which will be acquired by Meridian Industrial Trust, Inc. (the
"Company") from The Ameritech Pension Trust ("Ameritech"). These financial
statements reflect the combined operations of the Group A Properties for the six
months ended June 30, 1997 (unaudited) and for the years ended December 31,
1996, 1995 and 1994. The Company and Ameritech entered into a purchase and sale
agreement on May 29, 1997 that provides for an estimated closing date of August
1997.
<TABLE>
<CAPTION>
PROPERTY SQUARE
NAME LOCATION FOOTAGE LEASE DESCRIPTION
- ------------ --------------- --------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Barrington Hayward, CA 203,515 The Barrington Business Park property comprises one building currently
Business leased to 29 tenants under 9 triple net leases, 17 gross leases and 3
Park modified gross leases. The leases expire on various dates from 1997 to
2005. Based upon the current lease terms, annual base rent on the
leases amounts to approximately $1,136.
Rancho Downey, CA 623,658 The Rancho Downey property comprises 7 buildings currently leased to 18
Downey tenants under 8 triple net leases, 7 gross leases and 3 modified gross
leases. The leases expire on various dates from 1998 to 2003. Based
upon the current lease terms, annual base rent on the leases amounts to
approximately $3,386.
</TABLE>
2. BASIS OF PRESENTATION.
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Group A 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 Group A
Properties; however, the Company is not aware of any material factors relating
to these Group A Properties that would cause the reported financial information
not to be indicative of future operating results. Expenses included in property
operating expenses include utilities, insurance, landscaping and maintenance and
repairs. Excluded expenses consist primarily of interest expense, depreciation
and amortization and other costs not directly related to the future operations
of the Group A 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. No individual leases represent greater than 10% of revenue.
(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-26
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP A PROPERTIES (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
4. LEASING ACTIVITY.
The minimum future rental revenue from leases in effect at June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------- ---------
<S> <C>
1997 (six months).......................................................... $ 2,031
1998....................................................................... 3,578
1999....................................................................... 2,914
2000....................................................................... 2,503
2001....................................................................... 601
Thereafter................................................................. 374
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expense, which amounted to $252
for the six months ended June 30, 1997 (unaudited), and $485, $474 and $489 for
the years ended December 31, 1996, 1995 and 1994, respectively.
5. PARTICIPATING MORTGAGE LOAN RECEIVABLE.
In accordance with generally accepted accounting principles, the underlying
operations of the Rancho Downey property securing the participating mortgage
loan receivable are included in the accompanying statements of revenues and
certain expenses because the holder of the mortgage loan receives substantially
all of the economics of the underlying property and, as such, the mortgage loan
is treated as if it were an equity interest in the property for financial
reporting purposes.
The participating mortgage loan receivable bears a fixed interest rate of
10.5 percent, requires interest only payments at 8.5 percent and matures in
December, 2005. In addition, the holder of the mortgage loan is entitled to
receive preferences of 65.0 percent of adjusted gross receipts, adjusted net
refinancing proceeds and any realized property appreciation upon disposition of
the property securing the mortgage loan.
F-27
<PAGE>
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 revenues and certain
expenses for the Ameritech Transaction-Group B Properties as defined in Note 1,
for the years ended December 31, 1996 and 1995. These statements are the
responsibility of the management of Meridian Industrial Trust, Inc. ("the
Company"). Our responsibility is to express an opinion on these combined
statements 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. 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
audits provide a reasonable basis for our opinion.
The accompanying combined statements of revenue and certain expenses were
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, and are not intended to be a
complete presentation of the revenues and expenses of the Ameritech
Transaction-Group B Properties.
In our opinion, the combined statements referred to above present fairly, in
all material respects, the revenues and certain expenses of the Ameritech
Transaction-Group B Properties for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
June 30, 1997
F-28
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP B PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
SIX MONTHS ------------- -------------
ENDED
JUNE 30, 1997
---------------
(UNAUDITED)
<S> <C> <C> <C>
Rental Revenues..................................................... $ 3,435 $ 6,933 $ 5,680
Certain Expenses:
Real Estate Taxes................................................. 367 791 590
Property Operating and Maintenance................................ 258 493 345
------ ------ ------
625 1,284 935
------ ------ ------
Rental Revenues in Excess of Certain Expenses....................... $ 2,810 $ 5,649 $ 4,745
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP B PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1. PROPERTIES ACQUIRED.
The combined statements of revenues and certain expenses (see "Basis of
Presentation" below) include the combined operations of 12 properties
(collectively the "Group B Properties") which will be acquired by Meridian
Industrial Trust, Inc. (the "Company") from The Ameritech Pension Trust
("Ameritech"). These financial statements reflect the combined operations of the
Group B Properties for the six months ended June 30, 1997 (unaudited) and for
the years ended December 31, 1996 and 1995. Historical information relating to
the Group B properties prior to 1995 was not available to the Company or
Ameritech. The Company and Ameritech entered into a purchase and sale agreement
on May 29, 1997 that provides for an estimated closing date of August 1997.
<TABLE>
<CAPTION>
DATE ACQUIRED SQUARE
PROPERTY NAME LOCATION BY AMERITECH FOOTAGE LEASE DESCRIPTION
- ---------------- ---------------------- -------------- ----------- -------------------------------------------------
<S> <C> <C> <C> <C>
Abitibi Price Arlington, TX October 1994 227,120 The Abitibi Price property comprises one building
currently leased to one tenant under a triple net
lease. The lease commenced in 1975 and expires in
2000. Based upon the current lease terms, annual
base rent on the lease amounts to approximately
$343.
Phantom Drive St. Louis, MO January 1996 126,642 The Phantom Drive property comprises one building
currently leased to one tenant under a modified
gross lease. The lease commenced in 1994 and
expires in 2000. Based upon the current lease
terms, annual base rent on the lease amounts to
approximately $500.
Fisher Price Ontario, CA December 1994 275,169 The Fisher Price property comprises one building
currently leased to one tenant under a triple net
lease. The lease commenced in 1994 and expires in
1999. Based upon the current lease terms, annual
base rent on the lease amounts to approximately
$925.
Burnham Services Rancho Cucamonga, CA December 1994 177,744 The Burnham Services property comprises one
building currently leased to one tenant under a
triple net lease. The lease commenced in 1993 and
expires in 1998. Based upon the current lease
terms, annual base rent on the lease amounts to
approximately $530.
Airborne Plano, TX January 1995 144,000 The Airborne property comprises one building
currently leased to four tenants under four
triple net leases. The leases have various
commencement dates. The leases expire on various
dates from 1999 to 2001. Based upon the current
lease terms, annual base rent on the leases
amounts to approximately $459.
Prime Paper Rancho Cucamonga, CA January 1995 125,952 The Prime Paper property comprises one building
currently leased to one tenant under a triple net
lease. The lease commenced in 1993 and expires in
2016. Based upon the current lease terms, annual
base rent on the lease amounts to approximately
$302.
Skyway Freight Carrollton, TX January 1995 155,496 The Skyway Freight property comprises one
building currently leased to one tenant under a
triple net lease. The lease commenced in 1995 and
expires in 2000. Based upon the current lease
terms, annual base rent on the lease amounts to
approximately $466.
</TABLE>
F-30
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP B PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS) (CONTINUED)
1. PROPERTIES ACQUIRED. (CONTINUED)
<TABLE>
<CAPTION>
DATE ACQUIRED SQUARE
PROPERTY NAME LOCATION BY AMERITECH FOOTAGE LEASE DESCRIPTION
- ---------------- ---------------------- -------------- ----------- -------------------------------------------------
Sports Supply Farmers Branch, TX March 1995 180,841 The Sports Supply property comprises one building
currently leased to one tenant under a triple net
lease. The lease commenced in 1995 and expires in
2005. Based upon the current lease terms, annual
base rent on the lease amounts to approximately
$547.
<S> <C> <C> <C> <C>
Southwire Dallas, TX March 1995 159,600 The Southwire property comprises one building
currently leased to three tenants under three
triple net leases. The leases have various
commencement dates. The leases expire on various
dates from 1998 to 2001. Based upon the current
lease terms, annual base rent on the leases
amounts to approximately $454.
Northern Auto Phoenix, AZ June 1995 273,520 The Northern Auto property comprises one building
currently leased to one tenant under a triple net
lease. The lease commenced in 1995 and expires in
2010. Based upon the current lease terms, annual
base rent on the lease amounts to approximately
$755.
Climatic Carrollton, TX September 1995 83,200 The Climatic property comprises one building
currently leased to two tenants under two triple
net leases. The leases have various commencement
dates. The leases expire on various dates from
2000 to 2005. Based upon the current lease terms,
annual base rent on the leases amounts to
approximately $295.
General Motors Brea, CA December 1994 132,000 The General Motors property comprises one
building currently leased to one tenant under a
gross lease. The lease commenced in 1994 and
expires in 1997. Based upon the current lease
terms, annual base rent on the lease amounts to
approximately $497.
</TABLE>
2. BASIS OF PRESENTATION.
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Group B 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 Group B
Properties; however, the Company is not aware of any material factors relating
to these Group B Properties that would cause the reported financial information
not to be indicative of future operating results. Expenses included in property
operating expenses include utilities, insurance, landscaping and maintenance and
repairs. Excluded expenses consist primarily of interest expense, depreciation
and amortization and other costs not directly related to the future operations
of the Group B Properties.
The statements of revenues and certain expenses reflect the operations of
such properties for periods after their acquisition by Ameritech. For
build-to-suits, the accompanying combined statements of revenues and certain
expenses reflect the activity from date of operations through the year end.
During 1995, seven of the Group B build-to-suit properties commenced operations.
F-31
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP B PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS) (CONTINUED)
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. No individual leases represent greater than 10% of revenue.
(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.
4. LEASING ACTIVITY.
The minimum future rental revenue from leases in effect at June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997 (six months).................................................................. $ 4,052
1998............................................................................... 5,147
1999............................................................................... 4,204
2000............................................................................... 2,457
2001............................................................................... 1,599
Thereafter......................................................................... 10,183
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expense, which amounted to $419
for the six months ended June 30, 1997 (unaudited), and $765 and $513 for the
years ended December 31, 1996 and 1995, respectively.
F-32
<PAGE>
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 Ameritech Transaction-Group C Properties as defined in Note 1,
for the year ended December 31, 1996. 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 Ameritech Transaction-
Group C Properties.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Ameritech
Transaction-Group C Properties for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
June 30, 1997
F-33
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP C PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
--------------- -----------------
<S> <C> <C>
Rental Expenses............................................................... $ 2,675 $ 3,771
Certain Expenses:
Real Estate Taxes........................................................... 379 489
Property Operating and Maintenance.......................................... 288 246
------ ------
667 735
------ ------
Rental Revenues in Excess of Certain Expenses................................. $ 2,008 $ 3,036
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP C PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. PROPERTIES ACQUIRED.
The combined statements of revenues and certain expenses (see "Basis of
Presentation" below) include the combined operations of nine properties
(collectively the "Group C Properties") which will be acquired by Meridian
Industrial Trust, Inc. (the "Company") from The Ameritech Pension Trust
("Ameritech"). These financial statements reflect the combined operations of the
Group C Properties for the six months ended June 30, 1997 and for the year ended
December 31, 1996. Historical information relating to the Group C Properties
prior to 1996 was not available to the Company or Ameritech. The Company and
Ameritech entered into a purchase and sale agreement on May 29, 1997 that
provides for an estimated closing date of August 1997.
<TABLE>
<CAPTION>
DATE
ACQUIRED
PROPERTY BY SQUARE
NAME LOCATION AMERITECH FOOTAGE LEASE DESCRIPTION
- ---------------- -------------------- -------------- ----------- ----------------------------------------------------
<S> <C> <C> <C> <C>
Vans City of Industry, CA February 1996 126,720 The Vans Distribution property comprises one
Distribution building currently leased to one tenant under a
triple net lease. The lease commenced in 1995 and
expires in 2000. Based upon the current lease terms,
annual base rent on the lease amounts to
approximately $380.
Tech Plastics Tempe, AZ May 1996 60,633 The Tech Plastics property comprises one building
currently leased to a tenant under one triple net
lease. The lease commenced in 1996 and expires in
2001. Based upon the current lease terms, annual
base rent on the lease amounts to approximately
$218.
RK Distribution Ontario, CA April 1996 133,775 The RK Distribution property comprises one building
currently leased to one tenant under a gross lease.
The lease commenced in 1994 and expires in 2005.
Based upon the current lease terms, annual base rent
on the lease amounts to approximately $482.
Dircks Building Phoenix, AZ December 1995 157,626 The Dircks Building property comprises one building
currently leased to two tenants under two triple net
leases. The leases have various commencement dates.
The leases expire on various dates from 2005 to
2006. Based upon the current lease terms, annual
base rent on the leases amounts to approximately
$628.
IDI Building Glendale Heights, IL December 1995 135,526 The IDI Building property comprises one building
currently leased to two tenants under two triple net
leases. The leases have various commencement dates.
The leases expire in 1999. Based on the current
lease terms, annual base rent on the leases amounts
to approximately $574.
Timber Court Bolingbrook, IL December 1995 320,722 The Timber Court property comprises one building
currently leased to four tenants under four triple
net leases. The leases have various commencement
dates. The leases expire on various dates from 1999
to 2004. Based upon the current lease terms, annual
base rent on the leases amounts to approximately
$1,120.
</TABLE>
F-35
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP C PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS) (CONTINUED)
In addition, the accompanying combined statement of revenue and certain
expenses for the year ended December 31, 1996 excludes three properties to be
acquired as a part of the Ameritech Transaction-Group C Properties for which
such information was not available to the Company or Ameritech. Refer to the
property and leasing descriptions of the First Street, Tab/Brockway and TYC
Industries properties as follows:
<TABLE>
<CAPTION>
DATE
ACQUIRED
PROPERTY BY SQUARE
NAME LOCATION AMERITECH FOOTAGE LEASE DESCRIPTION
- -------------- --------------- -------------- ----------- -----------------------------------------------------------
<S> <C> <C> <C> <C>
First Street San Jose, CA December 1996 74,621 The First Street property comprises one building currently
leased to three tenants under three triple net leases. The
leases have various commencement dates. The leases expire
on various dates from 1999 to 2005. Based upon the current
lease terms, annual base rent on the leases amounts to
approximately $587.
Tab/Brockway Fontana, CA March 1997 136,260 The Tab/Brockway property comprises one building currently
leased to two tenants under one triple net lease and one
gross lease. The leases have various commencement dates.
The leases expire in 2005. Based on the current lease
terms, annual base rent on the leases amounts to
approximately $546.
TYC Industries La Mirada, CA February 1997 70,756 The TYC Industries property comprises one building
currently leased to one tenant under a triple net lease.
The lease commenced in 1994 and expires in 1999. Based upon
the current lease terms, annual base rent on the lease
amounts to approximately $297.
</TABLE>
2. BASIS OF PRESENTATION.
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Group C 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 Group C
Properties; however, the Company is not aware of any material factors relating
to these Group C Properties that would cause the reported financial information
not to be indicative of future operating results. Expenses included in property
operating expenses include utilities, insurance, landscaping and maintenance and
repairs. Excluded expenses consist primarily of interest expense, depreciation
and amortization and other costs not directly related to the future operations
of the Group C Properties.
Ameritech acquired four of the Group C Properties during 1996 and two of the
Group C Properties during 1997. The statements of revenues and certain expenses
reflect the operations of such properties for periods after their acquisition by
Ameritech.
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. No individual leases represent greater than 10% of revenue.
(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
F-36
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP C PROPERTIES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS) (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
4. LEASING ACTIVITY.
The minimum future rental revenue from leases in effect at June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------- ---------
<S> <C>
1997 (six months).......................................................... $ 2,285
1998....................................................................... 3,474
1999....................................................................... 2,952
2000....................................................................... 1,892
2001....................................................................... 1,628
Thereafter................................................................. 5,101
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expense, which amounted to $446
for the six months ended June 30, 1997 (unaudited), and $1,364 for the year
ended December 31, 1996.
F-37
<PAGE>
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 of the Acquired Properties, as defined in Note 1, for the year ended
December 31, 1996. This financial 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 revenues 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 Acquired Properties.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Acquired
Properties for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
June 30, 1997
F-38
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE ACQUIRED PROPERTIES
FROM JANUARY 1, 1997 TO THE EARLIER OF DATE OF ACQUISITION OR THE SIX MONTHS
ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EARLIER OF DATE
OF
ACQUISITION OR
THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
Rental Revenues............................................................. $ 1,470 $ 2,877
Certain Expenses:
Real Estate Taxes......................................................... 139 371
Property Operating and Maintenance........................................ 57 175
------ ------
196 546
------ ------
Rental Revenues in Excess of Certain Expenses............................... $ 1,274 $ 2,331
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE ACQUIRED PROPERTIES
FROM JANUARY 1, 1997 TO THE EARLIER OF DATE OF ACQUISITION OR THE SIX MONTHS
ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. PROPERTIES ACQUIRED.
The combined statements of revenues and certain expenses (see "Basis of
Presentation" below) include the combined operations of four operating
properties (the "Acquired Properties") acquired by Meridian Industrial Trust,
Inc. (the "Company") during the period from April 29, 1997 to May 13, 1997.
<TABLE>
<CAPTION>
RENTABLE
ACQUISITION SQUARE NUMBER OF
PROPERTY NAME LOCATION DATE FEET TENANTS BUILDING TYPE
- -------------------------- -------------------- -------------- ----------- --------------- ------------------------
<S> <C> <C> <C> <C> <C>
Meyer Circle Facility Corona, CA April 29, 1997 201,380 1 Warehouse/Distribution
80th Avenue Facility Pleasant Prairie, WI April 30, 1997 302,500 1 Warehouse/Distribution
Yates Avenue Facility Montebello, CA May 13, 1997 374,370 2 Warehouse/Distribution
South Arlington Facility Indianapolis, IN April 28, 1997 219,104 1 Warehouse/Distribution
</TABLE>
The 80th Avenue Facility is a build-to-suit property. The current tenant
took occupancy of the property at the time of its completion on July 15, 1996.
2. BASIS OF PRESENTATION.
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the 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
Acquired Properties; however, the Company is not aware of any material factors
relating to the Acquired Properties that would cause the reported financial
information not to be indicative of future operating results. Excluded expenses
consist primarily of interest, depreciation and amortization and other costs not
directly related to the future operations of the 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-40
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE ACQUIRED PROPERTIES
FROM JANUARY 1, 1997 TO THE EARLIER OF DATE OF ACQUISITION OR THE SIX MONTHS
ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS) (CONTINUED)
4. LEASING ACTIVITY.
The minimum future rental revenues due under non-cancelable operating leases
in effect as of June 30, 1997, for the remainder of 1997 and annually thereafter
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------- ---------
<S> <C>
1997 (six months)........................................................ $ 2,113
1998..................................................................... 4,253
1999..................................................................... 4,262
2000..................................................................... 4,316
2001..................................................................... 4,209
Thereafter............................................................... 16,011
</TABLE>
In addition to minimum rental payments, tenants pay their share of specified
operating expenses, which amounted to $90 for the six months ended June 30, 1997
(unaudited), and $284 for the year ended December 31, 1996. Certain leases
contain options to renew.
5. MORTGAGE NOTES PAYABLE.
The following table presents unaudited information regarding the mortgage
notes payable that were assumed by the Company in connection with the
acquisition of the respective properties as of the acquisition date. All such
instruments are first lien notes secured by the applicable Acquired Property.
<TABLE>
<CAPTION>
STATED
INTEREST ANNUAL MATURITY
NAME AND LOCATION OF PROPERTY RATE PAYMENTS DATES BALANCE
- --------------------------------------------------------------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Meyer Circle, Corona, CA............................................. 10.00% $ 656 2/01/98 $ 5,724
Yates Avenue, Montebello, CA......................................... 9.89% 1,148 7/15/98 10,429
---------
Total................................................................ $ 16,153
---------
---------
</TABLE>
Principal payments are due as follows:
<TABLE>
<S> <C>
1997....................................... $ 145
1998....................................... 16,008
---------
TOTAL...................................... $ 16,153
---------
---------
</TABLE>
The Company intends to pay off the mortgage notes payable from advances on
its unsecured credit facility.
F-41
<PAGE>
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 Portfolio Acquisitions as defined in Note 1, for the year ended
December 31, 1996. 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 revenues 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 Portfolio
Acquisitions.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Portfolio
Acquisitions for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
July 16, 1997
F-42
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE PORTFOLIO ACQUISITIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31,
30, 1997 1996
------------- -------------
<S> <C> <C>
(UNAUDITED)
Rental Revenues..................................................................... $ 3,795 $ 7,464
Certain Expenses:
Real Estate Taxes................................................................. 352 699
Property Operating and Maintenance................................................ 268 563
------ ------
620 1,262
------ ------
Rental Revenues in Excess of Certain Expenses....................................... $ 3,175 $ 6,202
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE PORTFOLIO ACQUISITIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. PROPERTIES ACQUIRED.
The combined statements of revenues and certain expenses (see "Basis of
Presentation" below) include the combined operations of 12 warehouse/industrial
buildings (collectively the "Portfolio Acquisitions") which will be acquired by
Meridian Industrial Trust, Inc. (the "Company") from two separate institutional
accounts (the "Separate Accounts") managed by Prudential Real Estate Investors
("PREI"). The Company and PREI, on behalf of the Separate Accounts, entered into
two letters of intent in June 1997, that provide for an estimated closing date
in August, 1997.
2. BASIS OF PRESENTATION.
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Portfolio Acquisitions for
the periods presented. Certain expenses may not be comparable to the expenses
expected to be incurred by the Company in the proposed operation of the
Portfolio Acquisitions; however, the Company is not aware of any material
factors relating to the Portfolio Acquisitions that would cause the reported
financial information not to be indicative of future operating results. Expenses
reflected in property operating and maintenance expenses include utilities,
insurance, landscaping and maintenance and repairs. Excluded expenses consist
primarily of interest expense, depreciation and amortization and other costs not
directly related to the future operations of the Portfolio Acquisitions.
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.
4. LEASING ACTIVITY.
The minimum future rental revenues due under non-cancelable operating leases
in effect as of June 30, 1997, for the remainder of 1997 and annually thereafter
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------- ---------
<S> <C>
1997 (six months).......................................................... $ 4,049
1998....................................................................... 5,823
1999....................................................................... 4,033
2000....................................................................... 3,002
2001....................................................................... 2,451
Thereafter................................................................. 2,141
</TABLE>
F-44
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE PORTFOLIO ACQUISITIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
4. LEASING ACTIVITY. (CONTINUED)
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to $556
for the six months ended June 30, 1997 (unaudited), and $899 for the year ended
December 31, 1996. Certain leases contain options to renew.
5. SIGNIFICANT TENANT.
One tenant occupies approximately 254,577 square feet, or 14%, of the total
leaseable square footage. The lease expires in October, 2001. No other
individual lease represents greater than 10% of revenues.
F-45
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIOD ENDED JUNE 30, 1997
The accompanying unaudited condensed consolidated financial statements as of
and for the period ended June 30, 1997 should be read in conjunction with the
1996 Form 10-K and the quarterly report on Form 10-Q for the six months ended
June 30, 1997 of the Company. These condensed consolidated statements have been
prepared in accordance with the instructions of the Securities and Exchange
Commission to 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 adjustments (consisting only
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 six month periods ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
F-46
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE:
Rental Properties Held for Investment..................................................... $ 390,200 $ 318,671
Less: Accumulated Depreciation............................................................ (8,030) (4,217)
---------- ----------
382,170 314,454
Rental Properties Held for Sale, Net of Accumulated Depreciation of $148 at December 31,
1996.................................................................................... -- 7,530
---------- ----------
Total Investment in Real Estate........................................................... 382,170 321,984
OTHER ASSETS:
Cash and Cash Equivalents................................................................. 2,095 2,942
Restricted Cash and Cash Held In Escrow................................................... 1,998 2,314
Accounts Receivable, Net of Reserves of $420 and $571 at June 30, 1997 and December 31,
1996, respectively...................................................................... 830 1,659
Capitalized Loan Fees, Lease Commissions and Other Assets, Net............................ 11,943 4,164
---------- ----------
TOTAL ASSETS.............................................................................. $ 399,036 $ 333,063
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage Loan............................................................................. $ 66,094 $ 66,094
Unsecured Credit Facility................................................................. 60,500 11,500
Mortgage Notes Payable, Net............................................................... 16,414 --
Accrued Dividends Payable................................................................. 4,650 4,648
Accounts Payable, Prepaid Rent and Other Liabilities...................................... 8,269 7,308
---------- ----------
TOTAL LIABILITIES......................................................................... 155,927 89,550
---------- ----------
Minority Interest in Consolidated Limited Partnerships.................................... 1,130 --
---------- ----------
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; 13,603,676 and 13,595,563 shares of
Common Stock issued and outstanding at June 30, 1997 and December 31, 1996,
respectively; and 2,272,727 shares of Series B Preferred Stock with a liquidation
preference of $35,000 issued and outstanding at June 30, 1997 and December 31, 1996..... 16 16
Paid-in Capital........................................................................... 243,770 243,683
Distributions in Excess of Income......................................................... (1,807) (186)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY................................................................ 241,979 243,513
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................ $ 399,036 $ 333,063
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements
F-47
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments.................................. $ 12,870 $ 9,904 $ 24,564 $ 13,372
Interest and Other Income............................................. 147 228 304 384
--------- --------- --------- ---------
TOTAL REVENUES........................................................ 13,017 10,132 24,868 13,756
--------- --------- --------- ---------
EXPENSES:
Interest Expense...................................................... 2,160 1,679 3,784 2,537
Property Taxes........................................................ 1,764 1,347 3,393 1,896
Property Operating Costs.............................................. 956 1,144 2,042 1,314
General and Administrative............................................ 1,350 1,183 2,501 1,788
Depreciation and Amortization......................................... 2,211 1,337 4,216 1,843
--------- --------- --------- ---------
TOTAL EXPENSES........................................................ 8,441 6,690 15,936 9,378
--------- --------- --------- ---------
Income Before Gain (Loss) on Sale of Properties and Extraordinary
Item................................................................ 4,576 3,442 8,932 4,378
Gain (Loss) on Sale of Properties, Net................................ (877) 7 (448) 7
--------- --------- --------- ---------
Income Before Extraordinary Item...................................... 3,699 3,449 8,484 4,385
Extraordinary Item--Expenses Incurred in Connection with Debt
Restructuring and Retirements....................................... (808) (36) (808) (411)
--------- --------- --------- ---------
NET INCOME............................................................ $ 2,891 $ 3,413 $ 7,676 $ 3,974
--------- --------- --------- ---------
--------- --------- --------- ---------
Net Income............................................................ $ 2,891 $ 3,413 $ 7,676 $ 3,974
Less: Preferred Dividends Declared.................................... (705) (705) (1,409) (1,000)
--------- --------- --------- ---------
NET INCOME ALLOCABLE TO COMMON SHARES................................. $ 2,186 $ 2,708 $ 6,267 $ 2,974
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME ALLOCABLE TO COMMON PER WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING......................................................... $ 0.16 $ 0.28 $ 0.44 $ 0.44
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statement
F-48
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................................. $ 7,676 $ 3,974
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities:
Depreciation and Amortization........................................................... 4,216 1,817
Amortization of Debt Premium............................................................ (22) --
Amortization of Financing Costs......................................................... 176 212
Straight Line Rent...................................................................... (851) (530)
Loss (Gain) on Sale of Properties, Net.................................................. 448 (7)
Extraordinary Item--Expenses Incurred in Connection with Debt Restructuring and Debt
Retirements............................................................................ 808 411
(Increase) Decrease in Accounts Receivable and Other Assets............................. (6,004) 888
Net Decrease in Accounts Payable, Due to Affiliates, Prepaid Rent, and Other
Liabilities............................................................................ (75) (1,952)
--------- ---------
Net Cash Provided by Operating Activities................................................... 6,372 4,813
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Contributed by Merged Trusts......................................................... -- 11,892
Net Proceeds from Property Sales.......................................................... 11,195 3,889
Decrease (Increase) in Restricted Cash/Cash Held In Escrow................................ 317 (29)
Net Cash Paid in Connection with Asset Purchase........................................... -- (3,257)
Redemption of Series A Preferred Stock and Accrued Dividends Payable...................... -- (83)
Investment In Real Estate................................................................. (57,148) (22,171)
Recurring Building Improvements........................................................... (228) (204)
Recurring Tenant Improvements............................................................. (637) (294)
Recurring Leasing Commissions............................................................. (735) (477)
Maturity of Marketable Security........................................................... -- 2,607
Receipt of Note Receivable................................................................ 503 --
Purchase of Other Assets.................................................................. (94) (203)
--------- ---------
Net Cash Used in Investing Activities....................................................... (46,827) (8,330)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of Capitalized Loan Fees......................................................... (121) (455)
Principal Payment on Mortgage Notes....................................................... (24) --
Retirement of Debt and Advances from Affiliates........................................... -- (60,158)
Payoff of Short-Term Loan Payable......................................................... -- (2,351)
Borrowings on Unsecured Credit Facility................................................... 53,500 40,900
Repayment of Borrowings on Unsecured Credit Facility...................................... (4,500) (29,000)
Distributions Paid to Stockholders........................................................ (9,295) (1,278)
Net Proceeds from issuance of Common and Preferred Stock, Warrant Conversion and Stock
Options................................................................................. 48 58,022
--------- ---------
Net Cash Provided by Financing Activities................................................. 39,608 5,680
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................................ (847) 2,163
Cash and Cash Equivalents--Beginning of Period.............................................. 2,942 475
--------- ---------
CASH AND CASH EQUIVALENTS--END OF PERIOD.................................................... $ 2,095 $ 2,638
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
F-49
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PROPERTY 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 real estate investment trust ("REIT") engaged primarily in the
business of owning, acquiring, developing, managing and leasing income-producing
warehouse/distribution and light industrial properties. At June 30, 1997, the
Company's principal asset was its portfolio of sixty four warehouse/distribution
properties, eighteen light industrial properties and two retail properties. In
addition, at June 30, 1997, the Company had seven build-to-suit properties under
construction.
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, and 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 that were subject to certain
mortgage notes and other liabilities, from Meridian Point Realty Trust '83
("Trust 83") (that transaction is referred to below as the "Asset Purchase").
Prior to February 23, 1996, the Company had no operations other than
receiving interest on its investments and paying general and administrative
expenses.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's 1996 Form 10-K and quarterly
report on Form 10-Q for the three months ended March 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(A) BASIS OF PRESENTATION. The accompanying condensed consolidated
financial statements include the results of the Company, its wholly-owned
subsidiaries and its majority-owned and controlled partnerships. All
intercompany transactions have been eliminated. In accordance with generally
accepted accounting principles, the Company's investments in real estate through
partnerships are consolidated as the Company exercises control over such
investments.
(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, 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.
(C) CASH AND CASH EQUIVALENTS. The Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
(D) NET INCOME PER SHARE. Net income per share is calculated by dividing
net income, after deduction of preferred stock dividends declared, by the
weighted average number of shares of the Company's common stock ("Common Stock")
outstanding during the period. The weighted average number of shares Common
Stock outstanding was 14,099,794 and 14,098,608 for the three and six months
ended June 30, 1997, respectively. The weighted average number of shares Common
Stock outstanding was 9,830,547 and 6,712,366 for the three and six months ended
June 30, 1996, respectively.
F-50
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PROPERTY DATA) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
The weighted average number of shares takes into account the dilutive
effects of stock options granted by the Company to its directors, officers and
employees pursuant to its stock plan, warrants issued in connection with the
Merger and shares to be issued pursuant to a stock option agreement with one of
its stockholders, aggregating to 501,039 additional shares of Common Stock for
the three and six months ended June 30, 1997. For the three and six months ended
June 30, 1996, the dilutive effect of the stock options granted aggregated to
174,057 additional shares of Common Stock.
During the first quarter of 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per
Share". SFAS 128 requires the disclosure of basic earnings per share and
modifies existing guidance for computing diluted earnings per share. Under the
new standard, basic earnings per share are computed as earnings divided by the
weighted average number of shares of Common Stock outstanding, excluding the
dilutive effects of stock options and other potentially dilutive securities. The
effective date of SFAS No. 128 is December 15, 1997 and early adoption is not
permitted. The Company intends to adopt SFAS No. 128 during the quarter and year
ended December 31, 1997. Had the provisions of SFAS No. 128 been applied to the
Company's results of operations for the three months ended June 30, 1997 and
1996, the Company's basic earnings per share would have been $0.16 and $0.28 per
share, respectively, and $0.46 and $0.45 per share for the six months ended June
30, 1997 and 1996, respectively. The Company's diluted earnings per share would
have been $0.16 and $0.28 per share for the three months ended June 30, 1997 and
1996, respectively, and $0.44 and $0.44 for the six months ended June 30, 1997
and 1996, respectively.
May 23, 1997, was the first day of the exercise period for the approximately
553,000 warrants ("Warrants") issued to former holders of Trust VI and Trust VII
common stock in connection with the merger of those entities with the Company.
Each Warrant entitles the holder to purchase one share of the Company's Common
Stock at the exercise price of $16.23. The exercise period ends February 23,
1999. As of June 30, 1997 the Company has issued 1,562 shares pursuant to
exercises of the Warrants.
(E) CONSTRUCTION IN PROGRESS. Costs clearly associated with the development
and construction of a real estate project are capitalized as construction in
progress. In addition, interest, real estate taxes, insurance and other holding
costs are capitalized until the property is placed in service. During the three
and six months ended June 30, 1997, interest expenses totaling $473 and $684,
respectively, were capitalized for properties under construction. For the three
and six months ended June 30, 1996, interest expense totaling $46 was
capitalized for properties under construction.
(F) INVESTMENT IN REAL ESTATE. 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 under the straight-line method over the term of the
related lease.
3. MORTGAGE NOTES PAYABLE.
The Company assumed a mortgage note with a principal balance of $5,724 in
connection with the acquisition of a property located in Corona, California on
April 29, 1997. The new loan has a maturity date of February 1, 1998 and calls
for monthly principal and interest payments of $55 based on an interest rate of
10% per annum and a ten-year amortization schedule. As of June 30, 1997 this
mortgage note had an outstanding balance of $5,702. Subsequent to June 30, 1997,
the Company paid off the balance on this mortgage note.
F-51
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PROPERTY DATA) (CONTINUED)
3. MORTGAGE NOTES PAYABLE. (CONTINUED)
On May 13, 1997, the Company purchased a property located in Montebello,
California, subject to a mortgage note bearing an interest rate different from
the prevailing market rate at the date of acquisition. This interest rate
differential was recorded as a premium. The new loan amounting to $10,429 has a
maturity date of July 15, 1998 and provides for monthly principal and interest
payments of $96 based on an interest rate of 9.89% per annum and a 30-year
amortization schedule. The premium totaling $324 is amortized over the term of
the note using the effective interest method. As of June 30, 1997, this mortgage
note and debt premium had outstanding balances of $10,410 and $302,
respectively.
4. DEBT FACILITIES.
The Company acquired a fixed rate facility (the "Mortgage Loan") in
connection with the Merger. The Mortgage Loan has a principal balance of
$66,094, 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 having a net book value of $122,252 as of June 30, 1997.
Concurrent with the Merger, the Company entered into an unsecured credit
facility (the "Unsecured Credit Facility"). The Unsecured Credit Facility bore
interest at LIBOR plus 1.7%, was scheduled to mature in February 1998, and
provided for a maximum borrowing amount of $75,000. On April 22, 1997, the
Unsecured Credit Facility was amended and restated. The amended and restated
Unsecured Credit Facility provides for: (i) an increase of the borrowing limit
from $75,000 to $150,000, (ii) a decrease in the interest rate spread over LIBOR
from 1.7% to 1.4% and (iii) an extension of the maturity date to April 3, 2000,
from February 26, 1998. In addition, the agreement provides that the interest
rate spread will be lowered to 1.2% over LIBOR upon the Company obtaining an
investment-grade credit rating. The Company wrote off $808 in loan costs in
connection with this restructuring.
5. PROPERTY ACQUISITIONS AND DEVELOPMENTS.
During the six months ended June 30, 1997, the Company purchased land in
California for the development of two facilities that are expected to have an
aggregate square footage of 771,753. The facilities have target completion dates
of December 1997 and March 1998. The aggregate cost for the design and
construction of the two facilities is estimated to be approximately $28,576. As
of June 30, 1997, the Company had incurred total project costs of $11,002
relating to these two projects. The Company funded a portion of these costs with
cash on-hand and anticipates funding a majority of the remaining costs with
borrowings under its Unsecured Credit Facility
During the six months ended June 30, 1997, the Company purchased six
properties located in California, Texas and Wisconsin, with an aggregate square
footage of 1,384,098. The total purchase price totaled $49,129. The Company
funded a portion of these costs with cash on-hand and funded a majority of the
remaining costs with borrowings under its Unsecured Credit Facility. In
addition, the Company assumed mortgage notes totaling $16,153 and a
corresponding premium totaling $324 on two properties located in California (see
Note 3).
On February 11, 1997, the Company, through limited partnerships in which it
has a 50% interest, entered into agreements to develop two
warehouse/distribution facilities containing 129,600 and 117,600 square feet,
respectively. Both properties are located in Allen, Texas and have a target
completion date of August 1997. The development and lease-up costs for these two
facilities are estimated to total $7,800. The Company has contributed $1,130 to
the partnerships; these contributions were used to fund the initial
F-52
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PROPERTY DATA) (CONTINUED)
5. PROPERTY ACQUISITIONS AND DEVELOPMENTS. (CONTINUED)
development costs. The other limited partners initially contributed the land to
the partnerships valued at $1,130. As of June 30, 1997, the Company had incurred
total project costs of $3,398 relating to these two projects. The Company funded
a portion of these costs with cash on-hand and anticipates funding a majority of
the remaining costs with borrowings under its Unsecured Credit Facility.
For the six months ended June 30, 1997, the Company incurred total project
costs of $5,177 relating to build-to-suit facilities that it owns in Minnesota
and Georgia. The facility located in Minnesota was placed in service in March
1997. The Company funded a portion of the construction costs for these projects
with cash on-hand and anticipates funding a majority of the remaining costs with
borrowings under its Unsecured Credit Facility.
On December 20, 1996, the Company, through a limited partnership in which it
has an 86% interest, purchased a 19.15 acre property located in Orlando,
Florida. The property is being improved with a 242,160 square foot build-to-suit
facility with a target completion date of September 1997. The cost for
acquisition of the property and design and construction of the facility is
estimated to total $8,917. As of June 30, 1997, this partnership had incurred
total project costs of $7,780, of which $5,292 was incurred in 1997. Subsequent
to June 30, 1997, the partnership purchased land in Tennessee for the
development of a facility that is expected to have an aggregate square footage
of 178,630. The aggregate cost for the design and construction of this facility
is estimated to be approximately $7,282, with a target completion date of
September 1998.
Also subsequent to June 30, 1997, the Company purchased two properties
located in California and New Jersey with an aggregate square footage of
291,370. The purchase prices totaled $13,456. The Company funded the costs with
borrowings under its Unsecured Credit Facility.
6. PROPERTY DISPOSITIONS.
On January 10, 1997, the Company sold two properties located in Birmingham,
Alabama for an aggregate sales price of $3,400. After closing costs and
pro-rated items which totaled $173, the Company received net proceeds totaling
$3,227.
On May 15, 1997, the Company sold the Wildwood property located in Irving,
Texas for an aggregate sales price of $4,555. After closing costs and pro-rated
items which totaled $198, the Company received net proceeds totaling $4,357.
On June 18, 1997, the Company sold the Golden Cove property located in
Rancho Palos Verdes, California for an aggregate sales price of $3,000. After
closing cost and pro-rated items which totaled $189, the Company received net
proceeds totaling $2,811.
On June 26, 1997, the Company sold the Phoenix North 23rd property located
in Phoenix, Arizona for an aggregate sales price of $878. After closing cost and
pro-rated items which totaled $78, the Company received net proceeds totaling
$800.
7. SHELF REGISTRATION.
The Company has filed a universal shelf registration statement with the
Securities and Exchange Commission covering Common Stock, the Company's
preferred stock ("Preferred Stock"), warrants and debt securities having an
aggregate offering price of up to $600 million which may be offered by the
Company from time to time in one or more transactions. The Company expects to
use the proceeds of any
F-53
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PROPERTY DATA) (CONTINUED)
7. SHELF REGISTRATION. (CONTINUED)
offering under its universal shelf registration statement for the acquisition
and development of modern industrial properties as well as the repayment of
debt. There can be no assurance that the Company will offer any of the
securities that are registered under this registration statement.
8. PORTFOLIO ACQUISITIONS.
On May 29, 1997, the Company agreed to acquire from Ameritech Pension Trust
("Ameritech") certain warehouse/distribution properties in a property-for-stock
swap of 23 properties for 7,314,026 shares of Common Stock. The Ameritech
portfolio consists of 29 buildings comprising 4.1 million square feet including
a participating loan secured by a seven building, 623,566 square foot project.
The properties are located in six markets with the largest concentrations in
Dallas, the Los Angeles Basin, Phoenix and Chicago.
The Company has also agreed to acquire from The Prudential Insurance Company
of America and related entities (collectively "Prudential") (i) a total of 57
industrial buildings comprising 5.23 million square feet for approximately
$182,000 and (ii) approximately 179 acres of land intended for development of an
additional 3.5 million square feet of industrial buildings for approximately
$14,200. The properties and land are located in seven markets with the largest
concentrations in the Los Angeles Basin and Florida. The Company will issue and
sell 7,096,153 shares of restricted Common Stock to Prudential and three
accounts managed by Prudential ("Prudential Purchasers") at a purchase price of
$19.73 per share providing net proceeds of $140,000. The Company intends to use
the net proceeds of the stock sale to the Prudential Purchasers to partially
fund the Prudential property acquisitions. If the Prudential Purchasers stock
transaction (which is conditioned on certain approvals) does not close, the
Company expects to fund the Prudential portfolio acquisition with debt financing
or the issuance of additional equity.
On June 19, 1997, the Company signed two letters of intent ("Agreements") to
acquire 12 industrial properties comprising 1.8 million square feet from two
separate accounts ("Portfolio A" and "Portfolio B") managed by Prudential Real
Estate Investors. The properties to be acquired are located in Atlanta, Chicago,
Columbus and Dallas. The Company has agreed to pay approximately $9,500 and
issue 1,106,932 shares of Common Stock for Portfolio A and pay approximately
$16,300 and issue 808,887 shares of Common Stock for Portfolio B. The total
$25,800 cash portion of the purchase prices will be funded from borrowings on
the Company's Unsecured Credit Facility.
F-54
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PROPERTY DATA) (CONTINUED)
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION.
The following table reflects supplemental disclosure of cash flow
transactions for the six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Cash Paid For Interest Expense............................................................. $ 4,023 $ 1,652
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)
</TABLE>
F-55
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1996
The accompanying consolidated financial statements as of and for the year
ended December 31, 1996 should be read in conjunction with the 1996 Form 10-K of
the Company.
F-56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Meridian Industrial Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Meridian
Industrial Trust, Inc. (a Maryland corporation) as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year ended December 31, 1996 and 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 consolidated
financial statements 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Meridian
Industrial Trust, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the year ended December 31, 1996 and for the
period from May 18, 1995 (inception) to 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 financial statement schedules listed
in Item 14(a)(2) are presented for 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 our
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
February 5, 1997
F-57
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
Investment in Real Estate:
Rental Properties Held for Investment.................................................... $ 318,671 $ 300
Less: Accumulated Depreciation........................................................... (4,217) --
---------- ---------
314,454 300
Rental Properties Held for Sale, Net of Accumulated Depreciation of $148 at December 31,
1996................................................................................... 7,530 --
Total Investment in Real Estate.......................................................... 321,984 300
Other Assets:
Cash and Cash Equivalents................................................................ 2,942 475
Cash Held in Escrow...................................................................... 347 --
Restricted Cash.......................................................................... 1,967 --
Investment in Marketable Securities...................................................... -- 2,607
Accounts Receivable, Net of Reserves of $571 at December 31, 1996........................ 1,659 --
Capitalized Loan Fees, Lease Commissions and Other Assets, Net........................... 4,164 342
---------- ---------
Total Assets........................................................................... $ 333,063 $ 3,724
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Mortgage Loan............................................................................ $ 66,094 $ --
Unsecured Credit Facility................................................................ 11,500 --
Notes Payable to Affiliates.............................................................. -- 750
Accrued Dividends Payable................................................................ 4,648 29
Accounts Payable......................................................................... 5,411 10
Due to Affiliate......................................................................... -- 232
Short-Term Loan Payable.................................................................. -- 2,351
Prepaid Rent, Tenant Deposits and Other Liabilities...................................... 1,897 66
---------- ---------
Total Liabilities...................................................................... 89,550 3,438
---------- ---------
Commitments and Contingencies.............................................................. -- --
Redeemable Series A Preferred Stock--Par value $0.001; fully redeemed during 1996;
1,000,000 shares issued and outstanding at December 31, 1995.............................. -- 1,000
Stockholders' Equity (Deficit):
Authorized Shares at Par--175,000,000 shares of Common Stock and 25,000,000 shares of
Preferred Stock authorized, each with par value of $0.001; 13,595,563 and 900 shares of
Common Stock issued and outstanding at December 31, 1996 and 1995, respectively; and
2,272,727 shares of Series B Preferred Stock issued and outstanding at December 31,
1996 with a liquidation preference of $35,000.......................................... 16 1
Paid-in Capital.......................................................................... 243,683 607
Distributions in Excess of Income........................................................ (186) (1,322)
---------- ---------
Total Stockholders' Equity (Deficit)....................................................... 243,513 (714)
---------- ---------
Total Liabilities and Stockholders' Equity (Deficit)....................................... $ 333,063 $ 3,724
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
F-58
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Rentals from Real Estate Investments....................................................... $ 34,465 $ --
Interest and Other Income.................................................................. 576 33
--------- ---------
Total Revenues........................................................................... 35,041 33
Expenses:
Interest Expense........................................................................... 6,065 5
Property Taxes............................................................................. 4,769 --
Property Operating Costs................................................................... 3,821 --
General and Administrative................................................................. 4,273 1,321
Depreciation and Amortization.............................................................. 4,952 --
--------- ---------
Total Expenses........................................................................... 23,880 1,326
--------- ---------
Income (Loss) Before Gain on Sale of Properties and Extraordinary Item....................... 11,161 (1,293)
Gain on Sale of Properties................................................................... 3,313 --
--------- ---------
Income (Loss) Before Extraordinary Item...................................................... 14,474 (1,293)
Extraordinary Item--Expenses Incurred in Connection with Debt Retirements.................... (411) --
--------- ---------
Net Income (Loss)............................................................................ $ 14,063 $ (1,293)
--------- ---------
--------- ---------
Net Income (Loss)............................................................................ $ 14,063 $ (1,293)
Less: Preferred Dividends Declared........................................................... (2,412) (29)
--------- ---------
Net Income (Loss) Allocable to Common........................................................ $ 11,651 $ (1,322)
--------- ---------
--------- ---------
Net Income (Loss) Per Weighted Average Common Share:
Income (Loss) Per Common Share Before Extraordinary Item................................... $ 1.38 $ (32.05)
Extraordinary Item......................................................................... (0.05) --
--------- ---------
Net Income (Loss) Allocable to Common Per Weighted Average Common Share Outstanding.......... $ 1.33 $ (32.05)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
F-59
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK DISTRIBUTIONS
------------------------- ----------------------- PAID-IN IN EXCESS
SHARES PAR VALUE SHARES PAR VALUE CAPITAL OF INCOME
------------ ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE-
MAY 18, 1995
(INCEPTION)........................ -- $ -- -- $ -- $ -- $ --
Issuance of Common Shares............ 900 1 -- -- 13 --
Stock Option Compensation............ -- -- -- -- 594 --
Accrued Dividends for Series A
Preferred Stock.................... -- -- -- -- -- (29)
Net Loss............................. -- -- -- -- -- (1,293)
------------ ----- ---------- ----- ---------- ------------
BALANCE-
DECEMBER 31, 1995.................. 900 1 -- -- 607 (1,322)
Issuance of Shares at Date of
Merger............................. 7,989,756 8 -- -- 116,209 --
Stock Options Exercised.............. 191,900 -- -- -- 2,300 --
Retainer Fee Paid as Shares to
Directors.......................... 3,007 -- -- -- 52 --
Issuance of Common Shares............ 5,410,000 5 -- -- 95,915 --
Issuance of Preferred Shares......... -- -- 2,272,727 2 34,998 --
Offering Costs....................... -- -- -- -- (6,398) --
Cancellation of Dividends for Series
A Preferred Stock.................. -- -- -- -- -- 29
Distributions Declared:
Common............................. -- -- -- -- -- (10,544)
Preferred.......................... -- -- -- -- -- (2,412)
Net Income........................... -- -- -- -- -- 14,063
------------ ----- ---------- ----- ---------- ------------
BALANCE-
DECEMBER 31, 1996.................. 13,595,563 $ 14 2,272,727 $ 2 $ 243,683 $ (186)
------------ ----- ---------- ----- ---------- ------------
------------ ----- ---------- ----- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)......................................................................... $ 14,063 $ (1,293)
Adjustments to Reconcile Net Income (Loss) to Cash Provided by Operating Activities:....
Depreciation and Amortization......................................................... 4,952 --
Amortization of Loan Fees............................................................. 419 --
Straight Line Rent.................................................................... (732) --
Gain on Sale of Properties............................................................ (3,313) --
Extraordinary Item--Expenses Incurred in Connection with Debt Retirements............. 411 --
Stock Option Compensation............................................................. -- 594
Decrease in Restricted Cash........................................................... 5,483 --
Decrease (Increase) in Accounts Receivable and Other Assets........................... 1,206 (68)
Net (Decrease) Increase in Accounts Payable, Due to Affiliates, Prepaid Rent and Other
Liabilities......................................................................... (1,874) 308
----------- ---------
Net Cash Provided by (Used in) Operating Activities....................................... 20,615 (459)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:.....................................................
Cash Contributed by Merged Trusts..................................................... 11,892 --
Net Cash Received from Property Dispositions.......................................... 31,447 --
Net Cash Paid in Connection with Asset Purchase....................................... (3,257) --
Redemption of Series A Preferred Stock and Accrued Dividends Payable.................. (83) --
Investments in Real Estate............................................................ (122,637) (300)
Recurring Building Improvements....................................................... (1,407) --
Recurring Tenant Improvements and Leasing Commissions................................. (2,255) --
Maturity of (Investment in) Marketable Security, Net of Related Debt.................. 256 (256)
Purchase of Other Assets.............................................................. (258) (20)
----------- ---------
Net Cash Used in Investing Activities..................................................... (86,302) (576)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for Capitalized Loan Fees.................................................... (551) (254)
(Retirement) Receipt of Net Advances from Affiliates.................................. (30) 750
Retirement of Debt.................................................................... (59,408) --
Borrowings on Unsecured Credit Facility............................................... 118,400 --
Repayment of Borrowings on Unsecured Credit Facility.................................. (106,900) --
Distributions Paid to Stockholders.................................................... (8,308) --
Proceeds from the Issuance of Common and Preferred Stock, Net......................... 124,951 1,014
----------- ---------
Net Cash Provided by Financing Activities................................................. 68,154 1,510
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................. 2,467 475
Cash and Cash Equivalents--Beginning of Period............................................ 475 --
----------- ---------
CASH AND CASH EQUIVALENTS--END OF PERIOD.................................................. $ 2,942 $ 475
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
F-61
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS 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 real estate investment trust ("REIT") engaged primarily in the
business of owning, acquiring, developing, managing and leasing income-producing
warehouse/distribution and light industrial properties. At December 31, 1996,
the Company's principal asset is its portfolio of sixty warehouse/distribution,
eighteen light industrial properties and three retail properties. In addition,
the Company has three pre-leased build-to-suit properties under construction.
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) BASIS OF PRESENTATION. The accompanying consolidated financial
statements include the results of the Company, its wholly-owned subsidiaries and
its majority-owned and controlled partnerships. All intercompany transactions
have been eliminated. In accordance with generally accepted accounting
principles, the Company's investments in real estate through partnerships are
consolidated as the Company exercises control over such investments.
(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, 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.
(C) CASH AND CASH EQUIVALENTS. The Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents. At December 31, 1995, the Investment in Marketable Securities has
been separately identified.
(D) INCOME TAXES. The Company has previously elected to be taxed as a REIT
for federal and, where the federal rules are allowed, state income tax purposes.
To continue to qualify for REIT status, the
F-62
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
Company must meet a number of ongoing organizational and operational
requirements. If the Company satisfies those REIT requirements and the Company
currently distributes all of its net taxable income (including net capital
gains) to its stockholders, the Company should generally owe no federal or state
income tax. The REIT provision of the Internal Revenue Service Code of 1986, as
amended, generally allows a REIT to deduct dividends paid to 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.
As a result of the deductions allowed for the dividends paid to shareholders
and the utilization of net operating loss carryovers of the Merged Trusts, the
Company has no federal or state taxable income. Accordingly, no provision for
federal or state income taxes has been made in the accompanying consolidated
statements of operations for the 1996 and 1995.
(E) 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 8,779,573
for the year ended December 31, 1996. Such shares include the dilutive effects
of stock options granted by the Company to its directors and officers pursuant
to its stock plan, and shares to be issued pursuant to a stock option agreement
with one of its stockholders, aggregating to 303,112 additional shares of Common
Stock.
The weighted average number of common shares outstanding was 900 for the
period from May 18, 1995 (inception) to December 31, 1995.
(F) CAPITALIZED LOAN FEES AND LEASE COMMISSIONS. 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 related debt.
Lease commissions are amortized into depreciation and amortization expense on a
straight-line basis over the term of the related lease.
(G) RENTALS FROM REAL ESTATE INVESTMENTS. All leases are classified as
operating leases. The Company recognizes rental income on a straight-line basis
over the term of the lease. Deferred rent receivable, included in other assets,
represents the excess of rental revenue on a straight-line basis over the cash
received under the applicable lease provision.
Certain of the Company's leases relating to its properties require lessees
to pay all or a portion of real estate taxes, insurance, and operating expenses
("Expense Recaptures"). Expense Recaptures are recognized as revenues in the
same period the related expenses are incurred by the Company. For the year ended
December 31, 1996, Expense Recaptures of $4,331 have been included in rentals
from real estate investments.
(H) OFFERING COSTS. Underwriting commissions, offering costs and other
expenses incurred in connection with stock offerings of the Company's Common and
Preferred Stock have been reflected as a reduction of Stockholders' Equity.
(I) FAIR VALUE OF FINANCIAL INVESTMENTS. Based on the borrowing rates
currently available to the Company, the carrying amount of its debt approximates
fair value. The carrying amount of cash and cash equivalents also approximates
fair value.
F-63
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
(J) CONSTRUCTION IN PROGRESS. Project costs clearly associated with the
development and construction of a real estate project are capitalized as
construction in progress. In addition, interest, real estate taxes, insurance
and other holding costs are capitalized during the period in which activities
necessary to get the property ready for its intended use are in progress. During
the year ended December 31, 1996, interest expense totaling $561 was capitalized
for properties under construction.
3. TRANSACTIONS WITH AFFILIATES.
For the year ended December 31, 1996 and for the period from May 18, 1995 to
December 31, 1995, the Company has incurred fees and expenses relating to
services provided by its directors of approximately $283 and $194, respectively.
The directors are entitled to elect to receive all or any portion of their
annual retainer in shares of Common Stock.
From June 1, 1995 through February 23, 1996, Hunt Realty Corporation
("Hunt") 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. During 1995, the Company had incurred $245 for such
services.
On November 21, 1995, the Company entered into an Option Agreement under
which USAA Real Estate Company, a Delaware corporation ("USAA") granted the
Company an option (the "USAA Option") to purchase a 292,000 square-foot
industrial property located in Lakeland, Florida (the "USAA Option Property").
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"). In exchange for the option, the Company issued a warrant to USAA to
purchase shares of the Company's Common Stock at an exercise price that provides
USAA with a value of $300 based upon the value of the Company's Common Stock
during the first 20-trading-day period after the Merger. The Company did not
acquire either the USAA Option Property or Chicago Property under the USAA
Option which expired in February 1997.
During 1995, the Company received $750 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 as of December 31, 1995.
These notes payable bore interest at a rate of 7% per annum. In connection with
the Merger and Asset Purchase, the Company canceled these Notes Payable to
Affiliates.
4. INVESTMENT IN MARKETABLE SECURITIES.
In December 1995, the Company purchased a U.S. Treasury Note which is
reflected as Investment in Marketable Securities 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 bearing interest at a rate of 8.625% per annum, which, together
with accrued interest of $5, is reflected as Short-Term Loan Payable on the
accompanying balance sheet as of December 31, 1995. In January 1996, the
government security matured and the related proceeds were used to pay off the
Short-Term Loan Payable.
F-64
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
5. 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. 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 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 and 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 related lease term.
Rental properties held for investment as of December 31, 1996 consisted of
the following:
<TABLE>
<CAPTION>
<S> <C>
Land........................................................................................ $ 72,594
Buildings................................................................................... 241,254
Capital Improvements........................................................................ 1,702
Construction-in-Progress.................................................................... 3,121
----------
Total....................................................................................... $ 318,671
----------
----------
</TABLE>
F-65
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
5. INVESTMENT IN REAL ESTATE. (CONTINUED)
The minimum future rental revenue from leases in effect as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997......................................................................................... $ 35,317
1998......................................................................................... 29,077
1999......................................................................................... 24,914
2000......................................................................................... 20,798
2001......................................................................................... 16,433
Thereafter................................................................................... 77,773
</TABLE>
Based on the projected 1997 base rent of existing leases, there are
currently two major tenants comprising approximately 13% and 6%, respectively,
of the total annual revenue of the Company based on the projected 1997 base rent
of existing leases. These tenants have five leases which are scheduled to expire
in 2000, 2001, 2005 and 2006. As of December 31, 1996, the Company's properties
were 94% occupied. During 1997, leases covering 21% of the leased space are
scheduled to expire.
6. 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 $130,732
as of December 31, 1996.
The Unsecured Credit Facility bears interest at LIBOR plus 1.7% per annum
(7.26% at December 31, 1996), requires interest only payments until maturity in
February 1998, and provides for an annual fee on the unused facility of 25 basis
points if 65% or less of the facility is used and 15 basis points if more than
65% of the facility is used. The Unsecured Credit Facility provides for a
maximum borrowing amount of $75,000. The Company is currently negotiating
various terms of the Unsecured Credit Facility including the increase in the
maximum borrowing amount, extension of the maturity date and reduction in the
interest rate spread. However, there can be no assurance that the Company will
be successful in its negotiations.
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. 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. In connection with the Merger and Asset
Purchase transactions, the Company issued 7,599,396 and 390,360 shares of Common
Stock, respectively. The Company also canceled the Series A Preferred Stock
owned by the Merged Trusts and redeemed the Series A Preferred Stock owned by
Trust '83.
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 connection with the Merger and Asset Purchase in the
principal amount of $33,500.
In connection with the Merger, the Company issued approximately 553,000
warrants to purchase an equal number of shares of the Company's Common Stock
(the "Merger Warrants"). The Merger Warrants
F-66
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
7. COMMON AND PREFERRED STOCK. (CONTINUED)
are exercisable during the period May 23, 1997 through February 24, 1999. The
exercise price of the Merger Warrants is $16.23 per share.
In addition, the Company issued a warrant to purchase 184,900 shares of the
Company's Common Stock at an exercise price of $14.60 per share. The warrant is
exercisable in whole or in part at any time from May 23, 1997 to February 23,
1999.
On April 3, 1996, the Company closed a public offering of 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.
On November 25, 1996, the Company closed a public offering of 3,400,000
shares of the Common Stock at an offering price of $18.25 per share, resulting
in gross proceeds of $62,050 (the "November Offering"). The Company used the net
proceeds of the November Offering and existing cash reserves to make a $58,650
payment on its Unsecured Credit Facility. In accordance with the underwriting
agreement entered into by the Company and its underwriters for the November
Offering, on December 23, 1996, the Company sold an additional 510,000 shares of
the Common Stock to the underwriters to satisfy over allotments at an offering
price of $18.25 per share, resulting in gross proceeds of $9,308. The Company
used the net proceeds therefrom to fund a property acquisition.
The Company has been declaring and paying dividends on a quarterly basis.
During the year ended December 31, 1996, dividends declared to Common and Series
B Preferred Stockholders aggregated to $10,544 and $2,412, respectively, or
$0.99 and $1.06 per share of Common Stock and Preferred Stock, respectively. The
analysis below presents the amount of distributions paid to stockholders and the
percentage of the distributions which the Company estimates is taxable and
nontaxable for the year ended December 31, 1996. Nontaxable distributions are
treated as return of capital to stockholders.
<TABLE>
<CAPTION>
PREFERRED COMMON
----------- -----------
<S> <C> <C>
Distributions Paid Per Share.................................. $ 0.75 $ 0.70
----------- -----------
----------- -----------
Nontaxable Dividends.......................................... -- 96.37%
Taxable Dividends............................................. 100.00% 3.63%
----------- -----------
100.00% 100.00%
----------- -----------
----------- -----------
</TABLE>
The holders of Series B Preferred Stock generally have a cumulative
preferential right to such quarterly dividends as are declared each year by the
Board of Directors. From the date of the Merger through the fourth quarter of
1997, the dividend amount per share will be equal to the greater of: (i) $0.31
per full calendar quarter (pro-rated for periods less than a full quarter), or
(ii) 103% of the quarterly dividend payable per share of Common Stock during the
corresponding dividend period. Thereafter, each share of Series B Preferred
Stock shall be entitled to receive an amount equal to the greater of: (i) the
last quarterly preferred dividend amount declared by the Board of Directors, or
(ii) the dividend paid per share of Common Stock.
F-67
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
8. 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.
The Stock Plan is 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, selects 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 of
the award, 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 to effect the Merger. The first set of awards provided for the
issuance of 653,000 stock options to be issued under the Stock Plan concurrent
with the Merger, exercisable at the stock trading price at Merger of $15.12 per
share. These option awards provided that 461,000 of the stock options vest over
five years. The remaining stock options granted under the first set of awards,
totaling 192,000, include certain performance criteria that would allow for
vesting after three years if certain 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 employee (in each
case as defined in the stock option agreement), or in the event of the death or
disability of the employee.
The second set of stock options granted in 1995 consisted of non-qualified
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
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 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. The
accompanying statement of operations for the period from May 18, 1995
(Inception) to December 31, 1996 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 non-qualified stock
options. The non-qualified stock options were not granted under the Stock Plan.
After the Merger, the Company granted each director of the Company, who was
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 automatically grants 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 is the fair value of the shares of
the Company's Common Stock covered by the options on the date of grant. Each of
these director options are fully exercisable beginning six months after the date
of grant and generally terminate (unless terminated sooner under the terms of
the Stock Plan) ten years after the date of grant.
Additionally, under the Stock Plan, each non-employee director may elect to
receive his or her retainer in either cash, shares of the Company's Common
Stock, or a combination of both cash and the Company's Common Stock.
F-68
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
8. STOCK PLAN. (CONTINUED)
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.
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 became effective for the
Company 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. As provided by the provisions of SFAS No. 123, the Company
records 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 as follows:
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1996
------------------------
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net Income................................................ $ 14,063 $ 13,856
Net Income Per Weighted Average Common Share.............. $ 1.33 $ 1.31
</TABLE>
The following table summarizes the stock option activity for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE
OUTSTANDING PRICE
----------- -----------
<S> <C> <C>
Balance, December 31, 1995.................................. -- --
Granted..................................................... 708,507 $ 15.37
Exercised................................................... -- --
Expired..................................................... -- --
Forfeited................................................... -- --
----------- -----------
Balance, December 31, 1996.................................. 708,507 $ 15.37
----------- -----------
----------- -----------
</TABLE>
As of December 31, 1996, there were a total of 46,669 exercisable options.
The weighted average fair value of the options granted in 1996 was $1.24. The
options outstanding have exercise prices between $15.12 and $21.00 with a
weighted average exercise price of $15.37 and a weighted average remaining
contractual life of 9.20 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996: risk-free interest rate of 6.01%, expected
dividend yield of 6.66%, expected life of 10 years, and expected volatility of
14.48%.
F-69
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
9. PROPERTY ACQUISITIONS AND DEVELOPMENTS.
ACQUISITIONS
During the year ended December 31, 1996, the Company purchased eight
properties located in California, Illinois and Ohio with an aggregate square
footage of 2,669,506 ("Operating Properties Acquired"). The purchase prices
totaled $89,703 and were financed by applying a $300 deposit paid in 1995, with
the balance funded by draws on its Unsecured Credit Facility and net proceeds
received from the Company's public offerings of shares of Common Stock.
DEVELOPMENTS
Also during the year ended December 31, 1996, the Company entered into
separate agreements with four identified tenants to develop four build-to-suit
facilities with an aggregate square footage of 979,434. Two facilities that are
located in Texas were completed in December 1996. The total cost for the design
and construction of the two remaining facilities located in Minnesota and
Georgia is estimated to total approximately $12,238, with a targeted completion
dates of March 1997 and July 1997, respectively. The Company funded a portion of
these draws with cash on-hand and anticipates funding a majority of the
remaining costs with draws on its Unsecured Credit Facility. As of December 31,
1996, the Company had incurred total project costs of $30,501 relating to these
four projects.
On December 20, 1996, the Company entered into an Agreement of Limited
Partnership with Jackson-Shaw/Florida Inc.("JSF"), a Florida corporation; and
Jackson-Shaw/FOCP ("JSC'), a Florida limited partnership, and thereby formed
MDN/JSC, a California limited partnership (the "Partnership"). The Partnership
purchased a 19.15 acre property located in Orlando, Florida. The property is
being improved with a 242,160 square foot built-to-suit facility with a target
completion date of September 1997. The cost for acquisition of the property and
design and construction of the facility is estimated to total approximately
$9,400. Upon completion of the facility, the Partnership will acquire the
120,000 square foot warehouse/distribution property currently occupied by the
tenant moving into the built-to-suit facility valued at $4,955. The Company's
contribution into the Partnership is estimated to total $13,125. As of December
31, 1996, the Partnership had incurred total project costs of $2,487 relating to
both properties. The Company and JSC are the limited partners with interests of
85% and 13%, respectively; and MJV IV, Inc., a wholly-owned subsidiary of the
Company and JSF are the general partners with each an interest of 1%.
Subsequent to December 31, 1996, two limited partnerships in which the
Company has a 50% beneficial interest entered into two separate agreements to
develop a 129,800 and 117,800 square foot warehouse/distribution facility,
respectively. Both facilities are located in Allen, Texas. Development and
lease-up costs for the two facilities is estimated to total $8,840.
10. 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, three properties located in
Alabama (Progress Center I, Progress Center II and 8215 Highway Building) were
sold for a total selling price of $3,900. Also, on December 31, 1996, the
Company sold the Seatac and Meridian Village Shopping Centers located in Federal
Way and Bellingham, Washington, respectively, for an aggregate sale price of
$17,740; and eight properties located in Phoenix, Arizona for a total selling
price of $7,658. (The properties sold are collectively referred to as
"Properties Disposed".) After closing costs, escrow holdback, early release of
funds and pro-rated items which totaled
F-70
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
10. PROPERTY DISPOSITION. (CONTINUED)
$1,975, the Company received net proceeds from the property sales totaling
$31,447. The net proceeds were used to pay down borrowings on its Unsecured
Credit Facility.
As of December 31, 1996, the Company has entered into a contract for sale of
the Wildwood Pioneer building. On January 10, 1997, the Company sold Birmingham
1 and 2 properties located in Birmingham, Alabama for $3,400. After closing
costs and pro-rated items which totaled $173, the Company received net proceeds
from the property sales totaling $3,127.
As of December 31, 1996, the net book value of these rental properties held
for sale was $7,530. The net proceeds from the sales of these properties will be
used to repay borrowings made under the Unsecured Credit Facility.
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION.
The following table reflects supplemental disclosure of non-cash
transactions for the year ended December 31, 1996.
<TABLE>
<S> <C>
Cash Paid For Interest............................................ $ 6,276
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)
</TABLE>
F-71
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
12. QUARTERLY FINANCIAL DATA (UNAUDITED).
The following table shows selected quarterly financial data for 1996:
<TABLE>
<CAPTION>
QUARTER YEAR ENDED
------------------------------------------ DECEMBER 31,
1 2 3 4 1996
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Total Revenues...................... $ 3,624 $ 10,132 $ 10,177 $ 11,108 $ 35,041
Total Expenses...................... 2,688 6,690 6,777 7,725 23,880
Income Before Gain on Sale of
Properties and Extraordinary
Item.............................. 936 3,442 3,400 3,383 11,161
Gain on Sale of Properties.......... -- 7 170 3,136 3,313
Extraordinary Item.................. (375) (36) -- -- (411)
Net Income.......................... 561 3,413 3,570 6,519 14,063
Net Income Allocable to Common...... 265 2,708 2,864 5,814 11,651
Net Income Per Weighted Average
Common Share:
Before Extraordinary Item......... $ 0.19 $ 0.28 $ 0.29 $ 0.51 $ 1.38
Net Income........................ 0.08 0.28 0.29 0.51 1.33
</TABLE>
13. SUPPLEMENTAL INFORMATION. (UNAUDITED)
HISTORICAL AS ADJUSTED INFORMATION
As discussed in Note 6, 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
years ended December 31, 1996 and 1995 has been prepared to reflect (i) the
respective historical results of the Merged Trusts and the properties acquired
from Trust 83 ("Trust 83 Properties); (ii) 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 Merged
Trusts' indebtedness ("Recapitalization"); (iii) the incremental effects of the
Merger, the retirement of certain indebtedness using the net proceeds of the
Preferred Stock Private Placement and availability of funds on the Unsecured
Credit Facility ("Refinancing"); and the effect of purchase accounting on the
historical results of the Merged Trusts and the Trust 83 Properties, and (iv)
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 historical as adjusted information excludes the impact of the April
and November Offerings. The Merger, Asset Purchase and Refinancing closed
concurrently on February 23, 1996.
In the opinion of management, the historical as adjusted consolidated
financial information provides for all adjustments necessary to reflect the
effects of the Merger, the Asset Purchase, the Refinancing and the
Recapitalization.
F-72
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
13. SUPPLEMENTAL INFORMATION. (UNAUDITED) (CONTINUED)
This financial information is unaudited and is not necessarily indicative of
the historical 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>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
TOTAL REVENUE........................................................... $ 40,199 $ 38,861
EXPENSES:
Interest Expense........................................................ 7,571 7,409
Property Taxes.......................................................... 5,581 5,485
Property Operating Costs................................................ 4,733 5,099
General and Administrative Expenses..................................... 5,435 4,800
Depreciation and Amortization........................................... 6,260 5,148
--------- ---------
TOTAL EXPENSES.......................................................... 29,580 27,941
--------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM.................................... $ 10,619 $ 10,920
--------- ---------
--------- ---------
</TABLE>
F-73
<PAGE>
MERGED TRUSTS
HISTORICAL COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994
AND 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.
The accompanying historical combined financial statements as of December 31,
1995 and 1994 and 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 should be read
in conjunction with the Form 10-K of the Company.
F-74
<PAGE>
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-75
<PAGE>
THE MERGED TRUSTS
HISTORICAL COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
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-76
<PAGE>
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-77
<PAGE>
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-78
<PAGE>
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-79
<PAGE>
THE MERGED TRUSTS
HISTORICAL COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
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-80
<PAGE>
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
F-81
<PAGE>
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) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
$44,584, respectively. Investors should consider any net realizable value
provisions in evaluating realization of their investments.
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-82
<PAGE>
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) (CONTINUED)
2. RELATED PARTIES. (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......................................... -- 13,556
---------- ----------
Total............................................................. $ 270,121 $ 276,345
---------- ----------
---------- ----------
</TABLE>
F-83
<PAGE>
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) (CONTINUED)
3. RENTAL PROPERTIES, NET. (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
PROVISION FOR
CURRENT PROVISION DECREASE IN NET
FOR DECREASE IN NET REALIZABLE
PROPERTY REALIZABLE VALUE 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-84
<PAGE>
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) (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
F-85
<PAGE>
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) (CONTINUED)
5. LONG-TERM DEBT FACILITIES. (CONTINUED)
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.
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>
F-86
<PAGE>
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) (CONTINUED)
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.
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>
<CAPTION>
1996............................................................... $ 345
<S> <C>
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.
F-87
<PAGE>
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) (CONTINUED)
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 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.
F-88
<PAGE>
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) (CONTINUED)
12. DISPOSITION OF PROPERTIES. (CONTINUED)
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.
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
F-89
<PAGE>
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) (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES. (CONTINUED)
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, 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.
F-90
<PAGE>
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) (CONTINUED)
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-91
<PAGE>
P MERIDIAN INDUSTRIAL TRUST, INC.
R PROXY
O SOLICITED ON BEHALF OF
X THE BOARD OF DIRECTORS OF
Y MERIDIAN INDUSTRIAL TRUST, INC.
FOR THE SEPTEMBER 15, 1997 SPECIAL MEETING OF
STOCKHOLDERS AND ANY ADJOURNMENT
OR POSTPONEMENT THEREOF.
The undersigned stockholder of Meridian Industrial Trust, Inc., a Maryland
corporation ("Meridian"), hereby (a) acknowledges receipt of the Notice to
Stockholders of the Special Meeting of Stockholders of Meridian to be held on
September 15, 1997, and of the accompanying Proxy Statement; (b) appoints
Allen J. Anderson and Milton K. Reeder, as Proxies for the undersigned, or any
of them, each with full power of substitution; (c) authorizes the Proxies to
represent the undersigned at the meeting and to cast on behalf of the
undersigned all votes that the undersigned is entitled to cast as the holder
of those shares of Meridian Common Stock or Meridian Series B Preferred Stock
held of record by the undersigned at the close of business on June 26, 1997,
at the meeting and at any adjournment or postponement thereof; and (d) revokes
any proxies previously given.
SEE REVERSE SIDE
FOLD AND DETACH HERE
/X/ Please mark your
votes as in this
example.
The votes entitled to be cast by the undersigned will be cast as
instructed below. If this proxy is executed but no instruction is
given, the votes entitled to be cast by the undersigned will be cast
"FOR" each of the proposals as described in the Proxy Statement and in
the discretion of the Proxies on any other matter that may properly
come before the meeting or any adjournment or postponement thereof.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1. A proposal to approve the issuance of up to
7,314,026 shares of Common Stock to Ameritech
Pension Trust. / / / / / /
2. A proposal to approve the issuance of 7,096,513
shares of Common Stock to The Prudential
Insurance Company of America and three of its
separate accounts. / / / / / /
<PAGE>
FOR AGAINST ABSTAIN
3. In their discretion, the Proxies are authorized
to vote on such other business as may properly
come before the meeting or any adjournment(s) or
postponement(s) thereof. / / / / / /
Please sign and date this proxy and return it as promptly as possible in the
envelope provided. Joint owners should each sign. Signature(s) should correspond
exactly with the name(s) printed on this proxy. Attorneys, executors,
administrators, guardians, and officers signing in a representative capacity
should give full title.
- ----------------------------------
- ----------------------------------
Signature(s) Date
FOLD AND DETACH HERE
