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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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:
-----------------------------------------------------------------------
/ / 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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[LOGO]
MERIDIAN INDUSTRIAL TRUST, INC.
NOTICE OF SPECIAL MEETING,
PROXY STATEMENT AND PROXY CARD
FOR
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 6, 1997
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
, 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 Wednesday, August
6, 1997, at 9:00 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 AUGUST 6, 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 Wednesday, August 6, 1997, at 9:00 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 three 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
, 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.................................................................................. 2
PROPOSAL ONE--THE AMERITECH STOCK ISSUANCE................................................................. 2
General.................................................................................................. 2
Consideration for the Ameritech Stock Issuance........................................................... 3
Reasons for the Ameritech Transaction.................................................................... 4
The Ameritech Agreement.................................................................................. 4
Amended and Restated Excepted Holder Agreement........................................................... 5
Registration Rights Agreement............................................................................ 6
Ameritech Portfolio Property Description................................................................. 7
Required Vote............................................................................................ 8
PROPOSAL TWO--THE PRUDENTIAL STOCK ISSUANCE................................................................ 8
General.................................................................................................. 8
Consideration for the Prudential Stock Issuance.......................................................... 8
Reasons for the Prudential Stock Transaction............................................................. 8
The Prudential Stock Agreements.......................................................................... 9
Excepted Holder Agreement................................................................................ 10
Registration Rights Agreement............................................................................ 10
The Prudential Property Agreements....................................................................... 11
Prudential Portfolio Property Description................................................................ 11
Required Vote............................................................................................ 12
SELECTED FINANCIAL DATA.................................................................................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 14
STOCKHOLDER PROPOSALS...................................................................................... 18
MISCELLANEOUS.............................................................................................. 19
AVAILABLE INFORMATION...................................................................................... 19
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 9:00 a.m., local time,
on Wednesday, August 6, 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 , 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"); and
(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 three 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 consideration to be paid to Prudential and
certain affiliated entities (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 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. See "Proposal Two--The Prudential Stock Issuance."
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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, 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 Convertible Preferred Stock, par
value $.001 per share ("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 or insufficient affirmative votes to approve any matter presented for
approval, 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.
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
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of the Company in connection with an acquisition of tangible or intangible
assets or property. 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 35.3% of the shares of Common Stock outstanding immediately before
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
53.7% 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."
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 serve as security for certain indebtedness and 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 only for up to 60 days and, if
such properties cannot then be delivered free and clear of encumbrances, to (a)
substitute certain other identified properties that are substantially similar to
the encumbered properties (the "Alternate 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.
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.
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, the date that the Company and Ameritech entered
into a letter of intent regarding the Ameritech Transaction.
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.
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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 85 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. REITs with total
assets of at least $500 million are often viewed as having better access to
capital and growth opportunities. As of March 31, 1997 and on a pro forma basis
assuming completion of the Ameritech Transaction and the Prudential
Transactions, the Company's total assets will have grown from approximately
$345.1 million to approximately $750.3 million and its total stockholders'
equity will have increased approximately 116% to $527.7 million. As of March 31,
1997 and on a pro forma basis assuming completion of the Ameritech Transaction
only, the Company's total assets will have increased to approximately $552.0
million and its total stockholders' equity will have increased approximately 59%
to $387.7 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.
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 Acquisition 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 Acquisition 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 Acquisition; 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 Acquisition are
further subject to the satisfaction or waiver of the following additional
conditions: (a) each of the representations and warranties
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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 July 25, 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 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
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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, 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 that number of those 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
6
<PAGE>
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.
AMERITECH PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
PERCENT OF PERCENTAGE
NO. OF OCCUPANCY RENTABLE TOTAL SQUARE ANNUALIZED OF TOTAL
PROPERTIES RATE SQUARE FEET FEET BASE RENT(1) BASE RENT
------------- ------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dallas....................... 6 100.00% 950,257 23.15% $ 2,565,166 16.63%
Los Angeles Basin............ 15 99.65% 1,802,035 43.90% 7,344,522 47.61%
Chicago...................... 2 100.00% 456,248 11.11% 1,693,999 10.97%
San Francisco Bay Area....... 2 95.28% 278,136 6.78% 1,723,144 11.17%
Phoenix...................... 3 100.00% 491,779 11.98% 1,600,920 10.38%
St. Louis.................... 1 100.00% 126,642 3.08% 499,992 3.24%
--- ------ ----------- ------ ------------- ------
Total/average................ 29 99.61% 4,105,097 100.00% $ 15,427,743 100.00%
--- ----------- ------ ------------- ------
--- ----------- ------ ------------- ------
</TABLE>
AMERITECH PORTFOLIO LEASE EXPIRATIONS
<TABLE>
<CAPTION>
PERCENTAGE OF
SQUARE FEET TOTAL LEASED CUMULATIVE % OF ANNUAL BASE
NUMBER OF SUBJECT TO SQUARE FEET OF TOTAL LEASED RENT UNDER
LEASES EXPIRING EXPIRING SQUARE FEET OF EXPIRING
YEAR EXPIRING LEASES(1) LEASES EXPIRING LEASES LEASES(2)
- ---------------------------------- ------------- ----------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
1997.............................. 5 163,696 4.00% 4.00% $ 673,604
1998.............................. 14 311,870 7.63% 11.63% 1,154,736
1999.............................. 24 828,474 20.26% 31.89% 3,543,906
2000.............................. 13 985,754 24.11% 56.00% 3,096,417
2001.............................. 11 501,820 12.27% 68.27% 2,336,663
2002.............................. 2 132,646 3.24% 71.51% 647,316
2003.............................. 1 9,453 0.23% 71.74% 93,473
2004.............................. 1 66,452 1.63% 73.37% 206,666
2005.............................. 8 667,075 16.31% 89.68% 2,512,371
2006.............................. 1 22,520 0.55% 90.23% 105,394
2010.............................. 1 273,520 6.69% 96.92% 754,908
2016.............................. 1 125,952 3.08% 100.00% 302,289
--- ----------- -------------
82 4,089,232 $ 15,427,743
--- ----------- -------------
--- ----------- -------------
</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.
7
<PAGE>
(2) Represents annualized monthly base rent from leases in effect as of March
31, 1997. Base rent means contractual gross rent and therefore, excludes
payments by tenants on account of real estate tax 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.
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. The shares of Common Stock to
be issued to the Prudential Purchasers in the Prudential Stock Issuance will
constitute approximately 33.9% of the shares of Common Stock outstanding
immediately prior to 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 52.2% 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 Company intends to use the proceeds of the
Prudential Stock Transaction to partially fund the Prudential Property
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. 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
8
<PAGE>
of attaining the equity capitalization necessary to access capital markets
consistently on favorable terms. As of March 31, 1997 and on a pro forma basis
assuming completion of the Ameritech Transaction and the Prudential
Transactions, the Company's total assets will have grown from approximately
$345.1 million to approximately $750.3 million and its total stockholders'
equity will have increased approximately 116% to $527.7 million. As of March 31,
1997 and on a pro forma basis assuming completion of the Prudential Transactions
only, the Company's total assets will have increased to approximately $591.0
million and its total stockholders' equity will have increased approximately 57%
to $382.1 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.
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 10, 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., an
affiliate of Prudential, and The Prudential Variable Contract Real Property
Partnership 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.
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
9
<PAGE>
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 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.
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 and 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.
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.
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
10
<PAGE>
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").
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. The
closing of the Company's purchase of the Prudential properties will occur on
July 17, 1997, unless the Company elects to extend the closing to a date no
later than September 30, 1997 by notifying Prudential on or before July 22, 1997
and 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 July 22, 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 July 7, 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 July 7, 1997 which will diminish the value of such property by
more than $100,000, the Company may terminate the applicable Prudential Property
Agreement.
PRUDENTIAL PORTFOLIO PROPERTY DESCRIPTION
The following tables set forth certain information relating to the
Prudential property portfolio.
PRUDENTIAL PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
PERCENT OF PERCENTAGE
NO. OF OCCUPANCY RENTABLE TOTAL ANNUALIZED OF TOTAL
PROPERTIES RATE SQUARE FEET SQUARE FEET BASE RENT(1) BASE RENT
------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dallas............................. 3 90.27% 569,296 10.88% $ 1,247,840 6.95%
Los Angeles Basin.................. 17 96.58% 1,463,011 27.97% 5,433,986 30.22%
Miami.............................. 3 99.30% 219,379 4.19% 1,056,043 5.87%
Jacksonville....................... 5 96.80% 839,120 16.04% 2,393,513 13.31%
New Orleans........................ 8 95.68% 853,412 16.31% 2,791,150 15.52%
Richmond........................... 2 97.33% 145,777 2.79% 1,375,917 7.65%
Houston............................ 8 93.43% 684,110 13.08% 2,026,872 11.27%
Detroit............................ 11 91.82% 457,000 8.74% 1,655,492 9.21%
--- ----- ----------- ----------- ------------- -----------
Total/Average...................... 57 95.12% 5,231,105 100.00% $ 17,980,813 100.00%
--- ----------- ----------- ------------- -----------
--- ----------- ----------- ------------- -----------
</TABLE>
11
<PAGE>
PRUDENTIAL PORTFOLIO LEASE EXPIRATIONS
<TABLE>
<CAPTION>
SQUARE FEET PERCENTAGE OF CUMULATIVE % ANNUAL BASE
NUMBER OF SUBJECT TO TOTAL LEASED OF TOTAL LEASED RENT UNDER
LEASES EXPIREING SQUARE FEET OF SQUARE FEET OF EXPIRING
YEAR EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES LEASES (1)
- ------------------------------------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
1997................................. 36 729,824 14.67% 14.67% $ 2,607,585
1998................................. 51 1,298,899 26.10% 40.77% 4,844,966
1999................................. 37 590,403 11.87% 52.64% 2,201,138
2000................................. 23 681,322 13.69% 66.33% 3,012,636
2001................................. 13 505,727 10.16% 76.49% 1,884,765
2002................................. 10 415,626 8.35% 84.85% 1,247,612
2003................................. 2 86,135 1.73% 86.58% 316,293
2004................................. 1 25,320 0.51% 87.09% 88,620
2005................................. 5 555,707 11.17% 98.26% 1,555,581
2006................................. 1 9,755 0.20% 98.45% 82,917
2007................................. 1 77,060 1.55% 100.00% 138,700
--- ----------- -------------
180 4,975,778 $ 17,980,813
--- ----------- -------------
--- ----------- -------------
</TABLE>
- ------------------------
(1) Represents annualized monthly base rent from leases in effect as of March
31, 1997. Base rent means contractural gross rent and therefore, excludes
payments by tenants on account of real estate tax and operating expense
reimbursements.
REQUIRED VOTE
The Board voted unanimously in four 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.
12
<PAGE>
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, MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1996 1997 1996 1997 1996 1997
------------ ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues.................... $ 35,041 $ 11,852 $ 49,490 $ 13,160 $ 71,431 $ 18,617
Income Before Gain On Sale of
Properties and Extraordinary
Items........................... 11,161 4,357 14,314 4,378 23,454 6,717
Gain On Sale of Properties.... 3,313 428 3,313 428 3,313 428
Extraordinary Items........... (411) -- -- -- -- --
Net Income........................ 14,063 4,785 17,627 4,806 26,767 7,145
Net Income Allocable to Common.... 11,651 4,080 14,809 4,101 23,949 6,440
Net Income Per Common Share:
Before Extraordinary Items...... $ 1.38 $ 0.29 $ 1.06 $ 0.29 $ 1.14 $ 0.30
Net Income...................... 1.33 0.29 1.06 0.29 1.14 0.30
Distributions Per Share:
Common Stock.................... 0.99 0.29 1.16 0.29 1.16 0.29
Series B Preferred Dividends.... 1.06 0.31 1.24 0.31 1.24 0.31
BALANCE SHEET:
Investment in Real Estate, Net.... $ 321,984 $ 323,905 -- $ 392,685 -- $ 590,993
Total Assets...................... 333,063 345,084 -- 404,139 -- 602,447
Mortgage Loans.................... 66,094 66,094 -- 82,562 -- 82,562
Unsecured Credit Facility......... 11,500 23,500 -- 67,022 -- 124,908
Stockholders' Equity.............. 243,513 243,627 -- 242,142 -- 382,142
OTHER DATA:
Cash Flows Provided By (Used In):
Operating Activities............ 20,615 3,832
Investing Activities............ (86,302) (10,856)
Financing Activities............ 68,154 7,308
Weighted Average:
Common Shares Outstanding(1).... 8,779 14,077 13,966 14,077 21,063 21,173
Preferred Shares Outstanding.... 2,273 2,273 2,273 2,273 2,273 2,273
<CAPTION>
PRUDENTIAL AND AMERITECH
AMERITECH TRANSACTION TRANSACTIONS
-------------------------- --------------------------
DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1996 1997 1996 1997
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues.................... $ 65,567 $ 17,542 $ 87,508 $ 22,999
Income Before Gain On Sale of
Properties and Extraordinary
Items........................... 22,724 6,672 31,864 9,011
Gain On Sale of Properties.... 3,313 428 3,313 428
Extraordinary Items........... -- -- -- --
Net Income........................ 26,037 7,100 35,177 9,439
Net Income Allocable to Common.... 23,219 6,395 32,359 8,734
Net Income Per Common Share:
Before Extraordinary Items...... $ 1.09 $ 0.30 $ 1.14 $ 0.31
Net Income...................... 1.09 0.30 1.14 0.31
Distributions Per Share:
Common Stock.................... 1.16 0.29 1.16 0.29
Series B Preferred Dividends.... 1.24 0.31 1.24 0.31
BALANCE SHEET:
Investment in Real Estate, Net.... -- $ 540,500 -- $ 738,808
Total Assets...................... -- 551,954 -- 750,262
Mortgage Loans.................... -- 82,562 -- 82,562
Unsecured Credit Facility......... -- 69,317 -- 127,203
Stockholders' Equity.............. -- 387,662 -- 527,662
OTHER DATA:
Cash Flows Provided By (Used In):
Operating Activities............
Investing Activities............
Financing Activities............
Weighted Average:
Common Shares Outstanding(1).... 21,281 21,391 28,377 28,487
Preferred Shares Outstanding.... 2,273 2,273 2,273 2,273
</TABLE>
- ------------------------
(1) 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 480,221 and 303,112 additional shares of Common Stock for the
three months ended March 31, 1997 and the year ended December 31, 1996,
respectively.
13
<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 condensed consolidated
financial statements and notes thereto included elsewhere in this Proxy
Statement or incorporated by reference herein. 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 March 31, 1997 and for the three months ended March 31, 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 three months ended March 31, 1997,
respectively, 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 March 31, 1997 has been prepared to
reflect (i) the post-March 31, 1997 acquisition of eight properties (the 1997
"Acquired Properties") and development of two build to suit properties, (ii) the
sale of three properties subsequent to March 31, 1997, and (iii) the April 1997
restructuring (the "April 1997 Restructuring") of the Company's revolving bank
credit agreement (the "Unsecured Credit Facility"), as if such transactions had
occurred on March 31, 1997.
The historical as adjusted condensed consolidated statement of operations
information for the three months ended March 31, 1997 has been prepared to
reflect (i) the incremental effect of the 1997 Acquired Properties, (ii) the
incremental effect of properties sold during 1997 (the "1997 Property Sales"),
and (iii) the April 1997 Restructuring, 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 Acquired Properties and properties
acquired by the Company during 1996 (collectively, the "1996 and 1997 Acquired
Properties"); (ii) the incremental effect of the 1997 Property Sales and those
properties sold by the Company during 1996 (collectively, the "1996 and 1997
Property Sales"); (iii) the incremental effect of debt paydowns during 1996 with
the proceeds from the Company's two 1996 Common Stock offerings (the "1996
Offerings"); (iv) the April 1997 Restructuring; (v) 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 (vi) the respective
effects of the Merger and the retirement of certain indebtedness
14
<PAGE>
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 March 31, 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 March 31, 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 THREE MONTHS ENDED MARCH 31, 1997 AND YEAR ENDED
DECEMBER 31, 1996
The Company's pro forma statements of operations for the three months ended
March 31, 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 $5,457 and $2,339 for
the three months ended March 31, 1997 and $21,941 and $9,140 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 $4,382 and $2,294 for the three months ended
March 31, 1997 and $16,077 and $8,410 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 $9,839 and $4,633 for the three months ended March 31,
1997 and $38,018 and $17,550 for the year ended December 31, 1996, respectively.
COMPARISON OF THE HISTORICAL AS ADJUSTED RESULTS OF OPERATIONS TO THE HISTORICAL
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
The Company's historical as adjusted condensed consolidated statement of
operations for the three months ended March 31, 1997 reflects: (i) the
incremental effect of the 1997 Acquired Properties, (ii) the incremental effect
the 1997 Property Sales, and (iii) 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 $1,308 and
$21 for the three months ended March 31, 1997.
15
<PAGE>
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 Acquired Properties, (ii) the incremental effect of
the 1996 and 1997 Property Sales, (iii) the incremental effect of debt paydowns
during 1996 with the proceeds from the 1996 Offerings, (iv) the April 1997
Restructuring, (v) 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 (vi) 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 $14,449 and $3,153 for the year ended December 31, 1996.
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>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED
1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Cash flow from:
Operating activities.............................................. $ 3,832 $ 20,615
Investing activities.............................................. (10,856) (86,302)
Financing activities.............................................. 7,308 68,154
-------------- --------
Total $ 284 $ 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. Funds From Operations represents 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). A reconciliation of the Company's pro forma income before gain on sale
of properties
16
<PAGE>
and extraordinary item, assuming closure of the Prudential Stock Transaction,
the Prudential Property Transaction and the Ameritech Transaction to Funds From
Operations for the three months ended March 31, 1997 and the year ended December
31, 1996 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH DECEMBER 31,
31, 1997 1996
------------- ------------
<S> <C> <C>
Cash flow from:
Income Before Gain on Sale of Properties and Extraordinary
Item........................................................ $ 9,011 $ 31,864
Depreciation and Amortization relating to real estate
operations.................................................. 4,163 15,520
------------- ------------
Funds From Operations......................................... $ 13,174 $ 47,384
------------- ------------
------------- ------------
</TABLE>
On a historical basis, at March 31, 1997, the Company had approximately
$89.6 million of total debt outstanding, comprising approximately $66.1 million
on the fixed rate debt facility and approximately $23.5 million on the Unsecured
Credit Facility, with approximately $51.5 million available on the Unsecured
Credit Facility.
Assuming (i) closure of only the Prudential Stock Transaction and the
Prudential Property Transaction, (ii) closure of 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 March 31, 1997 is as follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL AND
TRANSACTIONS AMERITECH AMERITECH
ONLY TRANSACTION ONLY TRANSACTIONS
---------------- ---------------- --------------
<S> <C> <C> <C>
Mortgage Loans..................................... $ 82,562 $ 82,562 $ 82,562
Unsecured Credit Facility.......................... 124,908 69,317 127,203
-------- -------- --------------
Total Debt....................................... $ 207,470 $ 151,879 $ 209,765
-------- -------- --------------
-------- -------- --------------
Available borrowing on the Unsecured Credit
Facility.......................................... $ 25,092 $ 80,683 $ 22,797
-------- -------- --------------
-------- -------- --------------
Pro forma debt maturities:
1996 (nine months)............................... $ -- $ -- $ --
1997............................................. 145 145 145
1998............................................. 16,323 16,323 16,323
1999............................................. -- -- --
2000............................................. 124,908 69,317 127,203
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. 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).
The Company's historical unrestricted cash funds were $3,226 at March 31,
1997. After considering the use of $700 to pay for fees and costs associated
with the April 1997 Restructuring, such cash funds amount to approximately
$2,526 at March 31, 1997 on a historical as adjusted and pro forma basis.
DEVELOPMENTS AND ACQUISITIONS
On a historical as adjusted and pro forma basis at March 31, 1997, the
Company has 13 build to suit development properties in process. Based on the
Company's current development budget, the Company has $30,605 committed to
complete the development properties. Such development activity is expected to
17
<PAGE>
be funded with cash from operations and borrowings on the Unsecured Credit
Facility. Other than these development commitments and the 1997 Acquired
Properties described above, the Company had no material commitments for capital
improvements at March 31, 1997. Planned capital improvements consist only of
tenant improvements and other expenditures necessary to lease and maintain the
Company's properties. Approximately 11% 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 March 31, 1997, the Company paid
distributions equivalent to a quarterly distribution 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, the Company
anticipates annual distributions to holders of Common Stock of approximately
$32.5 million, based on the 28,006,909 shares to be outstanding after completion
of both the Prudential and Ameritech Transactions. 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.
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.
18
<PAGE>
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.
A representative of Arthur Andersen LLP, the Company's independent auditors,
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 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.
19
<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 March 31, 1997 with accompanying notes and
adjustments............................................................................................ F-3
- Pro forma condensed consolidated statements of operations for the three months ended March 31, 1997 and
for the year ended December 31, 1996 with accompanying notes and adjustments........................... F-5
HISTORICAL AS ADJUSTED FINANCIAL INFORMATION (UNAUDITED)
MERIDIAN INDUSTRIAL TRUST, INC.
- Historical as adjusted condensed consolidated balance sheet as of March 31, 1997 with accompanying
notes and adjustments.................................................................................. F-10
- Historical as adjusted condensed consolidated statements of operations for the three months ended March
31, 1997 and for the year ended December 31, 1996 with accompanying notes and adjustments.............. F-12
HISTORICAL FINANCIAL INFORMATION
THE PRUDENTIAL PROPERTY TRANSACTION
- Report of independent public accountants............................................................... F-18
- Combined statements of revenues and certain expenses for the three months March 31, 1997 (unaudited)
and for the year ended December 31, 1996............................................................... F-19
- Notes to combined statements of revenues and certain expenses.......................................... F-20
THE AMERITECH PROPERTY TRANSACTION--GROUP A PROPERTIES
- Report of independent public accountants............................................................... F-22
- Combined statements of revenues and certain expenses for the three months March 31, 1997 (unaudited)
and for the years ended December 31, 1996, 1995 and 1994............................................... F-23
- Notes to combined statements of revenues and certain expenses.......................................... F-24
THE AMERITECH PROPERTY TRANSACTION--GROUP B PROPERTIES
- Report of independent public accountants............................................................... F-26
- Combined statements of revenues and certain expenses for the three months March 31, 1997 (unaudited)
and for the years ended December 31, 1996 and 1995..................................................... F-27
- Notes to combined statements of revenues and certain expenses.......................................... F-28
THE AMERITECH PROPERTY TRANSACTION--GROUP C PROPERTIES
- Report of independent public accountants............................................................... F-31
- Combined statements of revenues and certain expenses for the three months March 31, 1997 (unaudited)
and for the year ended December 31, 1996............................................................... F-32
- Notes to combined statements of revenues and certain expenses.......................................... F-33
THE ACQUIRED PROPERTIES
- Report of independent public accountants............................................................... F-36
- Combined statements of revenues and certain expenses for the three months March 31, 1997 (unaudited)
and for the year ended December 31, 1996............................................................... F-37
- Notes to combined statements of revenue and certain expenses........................................... F-38
</TABLE>
F-1
<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 March 31, 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 March 31, 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-2
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 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........ $ 392,685 $ 198,308 $ 590,993 $ 147,815 $ 540,500 $ 738,808
Cash and cash equivalents.............. 2,526 -- 2,526 -- 2,526 2,526
Restricted cash........................ 1,971 -- 1,971 -- 1,971 1,971
Other Assets........................... 6,957 -- 6,957 -- 6,957 6,957
------------ ----------- ----------- ----------- ----------- ------------
$ 404,139 $ 198,308 $ 602,447 $ 147,815 $ 551,954 $ 750,262
------------ ----------- ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ----------- ------------
LIABILITIES
Mortgage loans......................... $ 82,562 $ -- $ 82,562 $ -- $ 82,562 $ 82,562
Unsecured credit facility.............. 67,022 57,886 124,908 2,295 69,317 127,203
Other liabilities...................... 11,283 422 11,705 -- 11,283 11,705
------------ ----------- ----------- ----------- ----------- ------------
Total Liabilities.................... 160,867 58,308 219,175 2,295 163,162 221,470
------------ ----------- ----------- ----------- ----------- ------------
MINORITY INTEREST...................... 1,130 -- 1,130 -- 1,130 1,130
------------ ----------- ----------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY
Common stock and preferred stock....... 16 7 23 7 23 30
Additional paid-in capital............. 243,659 139,993 383,652 145,513 389,172 529,165
Distributions in excess of income...... (1,533) -- (1,533) -- (1,533) (1,533)
------------ ----------- ----------- ----------- ----------- ------------
Total Stockholders' Equity........... 242,142 140,000 382,142 145,520 387,662 527,662
------------ ----------- ----------- ----------- ----------- ------------
$ 404,139 $ 198,308 $ 602,447 $ 147,815 $ 551,954 $ 750,262
------------ ----------- ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ----------- ------------
</TABLE>
F-3
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical as adjusted condensed consolidated balance sheet of
the Company as of March 31, 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 $57,886 and accrued costs of
$422. 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.
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, with the acquisition costs funded by
borrowings on the Company's Unsecured Credit Facility. 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-4
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 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..................... $ 13,003 $ 5,457 $ 18,460 $ 4,382 $ 17,385 $ 22,842
Interest and other income........... 157 -- 157 -- 157 157
-------------- ----------- ----------- ----------- ----------- ------------
Total Revenue................... 13,160 5,457 18,617 4,382 17,542 22,999
-------------- ----------- ----------- ----------- ----------- ------------
OPERATING EXPENSES
Property operating costs............ 1,116 674 1,790 649 1,765 2,439
Real estate taxes................... 1,697 548 2,245 458 2,155 2,703
Interest expense.................... 2,533 716 3,249 39 2,572 3,288
General and administrative.......... 1,152 128 1,280 97 1,249 1,377
Depreciation and amortization....... 2,284 1,052 3,336 845 3,129 4,181
-------------- ----------- ----------- ----------- ----------- ------------
Total operating expenses........ 8,782 3,118 11,900 2,088 10,870 13,988
-------------- ----------- ----------- ----------- ----------- ------------
Income before gain on sale of
properties........................ 4,378 2,339 6,717 2,294 6,672 9,011
Gain on sale of properties.......... 428 -- 428 -- 428 428
-------------- ----------- ----------- ----------- ----------- ------------
Net income.......................... 4,806 2,339 7,145 2,294 7,100 9,439
Series B preferred dividends........ (705) -- (705) -- (705) (705)
-------------- ----------- ----------- ----------- ----------- ------------
Net income allocable to common...... $ 4,101 $ 2,339 $ 6,440 $ 2,294 $ 6,395 $ 8,734
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Net income per common share......... $ 0.29 $ 0.33 $ 0.30 $ 0.31 $ 0.30 $ 0.31
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Weighted average common shares
outstanding....................... 14,076,591 7,096,513 21,173,104 7,314,026 21,390,617 28,487,130
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
</TABLE>
F-5
<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................... $ 48,752 $ 21,941 $ 70,693 $ 16,077 $ 64,829 $ 86,770
Interest and other income......... 738 -- 738 -- 738 738
-------------- ----------- ----------- ----------- ----------- ------------
Total Revenue................... 49,490 21,941 71,431 16,077 65,567 87,508
-------------- ----------- ----------- ----------- ----------- ------------
OPERATING EXPENSES
Property operating costs.......... 4,804 2,740 7,544 2,011 6,815 9,555
Real estate taxes................. 6,287 2,493 8,780 1,732 8,019 10,512
Interest expense.................. 11,132 2,848 13,980 157 11,289 14,137
General and administrative........ 4,983 512 5,495 388 5,371 5,883
Depreciation and amortization..... 7,970 4,208 12,178 3,379 11,349 15,557
-------------- ----------- ----------- ----------- ----------- ------------
Total operating expenses........ 35,176 12,801 47,977 7,667 42,843 55,644
-------------- ----------- ----------- ----------- ----------- ------------
Income before gain on sale of
properties and extraordinary
items........................... 14,314 9,140 23,454 8,410 22,724 31,864
Gain on sale of properties........ 3,313 -- 3,313 -- 3,313 3,313
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary
items........................... 17,627 9,140 26,767 8,410 26,037 35,177
Series B preferred dividends...... (2,818) -- (2,818) -- (2,818) (2,818)
-------------- ----------- ----------- ----------- ----------- ------------
Income before extraordinary items
allocable to common............. $ 14,809 $ 9,140 $ 23,949 $ 8,410 $ 23,219 $ 32,359
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Net income per common share....... $ 1.06 $ 1.29 $ 1.14 $ 1.15 $ 1.09 $ 1.14
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
Weighted average common shares
outstanding..................... 13,966,632 7,096,513 21,063,145 7,314,026 21,280,658 28,377,171
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
</TABLE>
F-6
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 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 $57,886 and accrued
costs of $422. Depreciation and amortization of the operating properties in
the Prudential Property Transaction is based upon estimated 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 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 $159. 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 5.49% and 5.45%, respectively, for the three
months ended March 31, 1997 and the year ended December 31, 1996, as
detailed in the following table.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
----------------- -------------------
<S> <C> <C>
Unsecured Credit Facility borrowings of $57,886 resulting
from the Prudential Property Transaction at a LIBOR plus
1.4% (6.89% during 1997 and 6.85% during 1996), net of
reduced unused facility fees of .25%.................... $ 961 $ 3,821
Less interest capitalized on the portion of the
capitalized costs allocated to land under development
amounting to $14,201.................................... (245) (973)
----- ------
Net interest attributable to the Prudential Property
Transaction............................................. $ 716 $ 2,848
----- ------
----- ------
</TABLE>
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 with
acquisition costs funded by borrowings on the Company's Unsecured Credit
Facility. Depreciation and amortization of the properties in the Ameritech
Transaction is based upon estimated 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
F-7
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED)
0.125% ( 1/8%) in LIBOR will result in an annual increase or decrease in Pro
Forma interest expense of approximately $159. 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
5.49% and 5.45%, respectively, for the three months ended March 31, 1997 and
the year ended December 31, 1996.
4. Pro Forma taxable income for the twelve months ended March 31, 1997 is (i)
approximately $17,918 assuming that only the Prudential Property Transaction
and the sale of Common Stock to the Prudential Purchasers are completed,
(ii) approximately $17,506 assuming that only the Ameritech Transaction is
completed, and (iii) approximately $26,942 assuming that the Prudential
Stock Transaction, the Prudential Property Transaction and the Ameritech
Transaction are all completed.
F-8
<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 March 31, 1997 has been prepared to reflect (i) the
post-March 31, 1997 acquisition of eight properties (the "1997 Acquired
Properties") and development of two build to suit properties (the "Development
Properties"), (ii) the sale of three properties subsequent to March 31, 1997,
and (iii) the April 1997 restructuring (the "April 1997 Restructuring") of the
Company's revolving bank credit agreement (the "Unsecured Credit Facility"), as
if such transactions had occurred on March 31, 1997.
The historical as adjusted condensed consolidated statement of operations
for the three months ended March 31, 1997 has been prepared to reflect (i) the
incremental effect of the 1997 Acquired Properties, (ii) the incremental effect
of properties sold during 1997 (the "1997 Property Sales"), and (iii) the April
1997 Restructuring, 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 Acquired Properties and properties acquired by
the Company during 1996 (collectively, the "1996 and 1997 Acquired Properties");
(ii) the incremental effect of the 1997 Property Sales and those properties sold
by the Company during 1996 (collectively, the "1996 and 1997 Property Sales");
(iii) the incremental effect of debt paydowns during 1996 with the proceeds from
the Company's two 1996 Common Stock offerings (the "1996 Offerings"); (iv) the
April 1997 Restructuring; (v) 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 (vi) 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 or incorporated by
reference herein. 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-9
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROPERTY
ACQUISITIONS
AND PROPERTY APRIL 1997 HISTORICAL
HISTORICAL(1) DEVELOPMENT(2) DISPOSITIONS(3) RESTRUCTURING(4) AS ADJUSTED
------------ --------------- --------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in real estate, net........ $ 332,686 $ 68,780 $ (8,781) $ -- $ 392,685
Cash and cash equivalents.............. 3,226 -- -- (700) 2,526
Restricted cash........................ 1,971 -- -- -- 1,971
Other Assets........................... 7,201 (128) -- (116) 6,957
------------ ------- ------- ----- -----------
$ 345,084 $ 68,652 $ (8,781) $ (816) $ 404,139
------------ ------- ------- ----- -----------
------------ ------- ------- ----- -----------
LIABILITIES
Mortgage loans......................... $ 66,094 $ 16,468 $ -- $ -- $ 82,562
Unsecured credit facility.............. 23,500 51,550 (8,028) -- 67,022
Other liabilities...................... 10,733 634 (84) -- 11,283
------------ ------- ------- ----- -----------
Total Liabilities.................... 100,327 68,652 (8,112) -- 160,867
------------ ------- ------- ----- -----------
MINORITY INTEREST...................... 1,130 -- -- -- 1,130
------------ ------- ------- ----- -----------
STOCKHOLDERS' EQUITY
Common stock and preferred stock....... 16 -- -- -- 16
Additional paid-in capital............. 243,659 -- -- -- 243,659
Distributions in excess of income...... (48) -- (669) (816) (1,533)
------------ ------- ------- ----- -----------
Total Stockholders' Equity........... 243,627 -- (669) (816) 242,142
------------ ------- ------- ----- -----------
$ 345,084 $ 68,652 $ (8,781) $ (816) $ 404,139
------------ ------- ------- ----- -----------
------------ ------- ------- ----- -----------
</TABLE>
F-10
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical condensed consolidated balance sheet of the Company
as of March 31, 1997.
2. Reflects the post-March 31, 1997 purchase of the 1997 Acquired Properties at
an aggregate cost of approximately $63,599, including estimated acquisition
costs of $128. The 1997 Acquired Properties will initially be funded with
draws on the Company's Unsecured Credit Facility of approximately $46,369,
together with the assumption of two mortgage loans in the combined principal
amount of approximately $16,468 and accrued costs of approximately $634.
Also, reflects the development and construction costs incurred by the
Company subsequent to March 31, 1997 of approximately $5,181 in connection
with the two Development Properties. Costs associated with the Development
Properties were funded with borrowings on the Company's Unsecured Credit
Facility prior to the restructuring of the Unsecured Credit Facility.
3. Reflects the post-March 31, 1997 sale of three properties at a net sales
price of approximately $8,028 and the application of the related proceeds to
repay borrowings on the Company's Unsecured Credit Facility. In connection
with these post-March 31, 1997 property sales, the Company recognized
aggregated losses on sale of approximately $669.
4. Reflects the payment of lender and other fees and write-off of previously
deferred charges in connection with the April 1997 Restructuring of the
Company's Unsecured Credit Facility. 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 $816 comprising (i) the write-off of previously deferred
financing fees related to the old facility of approximately $316 and (ii)
fees paid to the lenders of approximately $500. In addition, the Company
incurred and recorded as deferred financing fees other financing costs
relating to the April 1997 Restructuring of approximately $200.
F-11
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
HISTORICAL AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PROPERTY
HISTORICAL ACQUISITIONS PROPERTY APRIL 1997 HISTORICAL
MIT (1) (2) DISPOSITIONS (3) RESTRUCTURING(4) AS ADJUSTED
----------- --------------- ----------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental revenues....................... $ 11,695 $ 1,753 $ (445) $ -- $ 13,003
Interest and other income............. 157 -- -- -- 157
----------- ------ ----- --- ------------
Total Revenue..................... 11,852 1,753 (445) -- 13,160
----------- ------ ----- --- ------------
OPERATING EXPENSES
Property operating costs.............. 1,086 158 (128) -- 1,116
Real estate taxes..................... 1,629 146 (78) -- 1,697
Interest expense...................... 1,624 1,132 (146) (77) 2,533
General and administrative............ 1,152 -- -- -- 1,152
Depreciation and amortization......... 2,004 342 (62) -- 2,284
----------- ------ ----- --- ------------
Total operating expenses.......... 7,495 1,778 (414) (77) 8,782
----------- ------ ----- --- ------------
Income before gain on sale of
properties.......................... 4,357 (25) (31) 77 4,378
Gain on sale of properties............ 428 -- -- -- 428
----------- ------ ----- --- ------------
Net income............................ 4,785 (25) (31) 77 4,806
Series B preferred dividends.......... (705) -- -- -- (705)
----------- ------ ----- --- ------------
Net income allocable to common........ 4,080 $ (25) $ (31) $ 77 $ 4,101
----------- ------ ----- --- ------------
----------- ------ ----- --- ------------
Net income per common share........... $ 0.29 $ 0.29
----------- ------------
----------- ------------
Weighted average common shares
outstanding......................... 14,076,591 14,076,591
----------- ------------
----------- ------------
</TABLE>
F-12
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO HISTORICAL AS ADJUSTED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical condensed consolidated statement of operations of
Company for the three months ended March 31, 1997.
2. Reflects the incremental effect on the Company's operations of the 1997
Acquired Properties comprising eight properties that the Company acquired
subsequent to March 31, 1997. 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 1997 Acquired Properties and the Development
Properties were funded by the assumption of two separate mortgage loans in
combined principal amount of $16,468 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 Properties is as follows:
<TABLE>
<S> <C>
Mortgages assumed in combined principal amount of $16,468 and a
weighted average interest rate of 8.02%........................... $ 330
Unsecured Credit Facility borrowings at a pre-restructuring rate of
LIBOR plus 1.7% or 7.2%, net of reduced unused facility fees of
.25%.............................................................. 895
Less interest capitalized on development activities................. (93)
---------
Total adjustment.................................................... $ 1,132
---------
---------
</TABLE>
3. 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
$241 and comprise two property sales on January 10, 1997 and three property
sales occurring subsequent to March 31, 1997. The 1997 Property Sales result
in net proceeds to the Company of $11,255 which are reflected as paydowns on
the Unsecured Credit Facility, resulting in a reduction in interest expense
on the Unsecured Credit Facility of $146.
4. 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 $816 comprising
(i) the write-off of previously deferred financing fees related to the old
facility of approximately $316 and (ii) fees paid to the lenders of
approximately $500. 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 three months ended March 31, 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 as adjusted outstanding principal of $67,022)........... $ (50)
Reduction in loan fee amortization due to write-off of previously
capitalized loan fees............................................... (91)
Amortization of loan fees on restructured facility.................... 17
Increase in unused facility fees due to increase borrowing limit to
$150,000............................................................ 47
---
Net reduction......................................................... $ (77)
---
---
</TABLE>
F-13
<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
HISTORICAL MERGER MERGED HISTORICAL POST-MERGER POST-MERGER
COMBINED(1) TRANSACTIONS(2) TRUSTS MIT(3) ACQUISITIONS(4) DISPOSITIONS(5)
------------- --------------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenues...................... $ 4,997 $ 785 $ 5,782 $ 34,465 $ 14,106 $ (5,601)
Interest and other income............ 161 1 162 576 -- --
------ ------ ----------- ----------- ------- -------
Total Revenue.................... 5,158 786 5,944 35,041 14,106 (5,601)
------ ------ ----------- ----------- ------- -------
OPERATING EXPENSES
Property operating costs............. 912 (92) 820 3,821 1,179 (1,016)
Real estate taxes.................... 812 79 891 4,769 1,382 (755)
Interest expense..................... 1,506 (375) 1,131 6,065 11,674 (2,784)
General and administrative........... 1,162 (452) 710 4,273 -- --
Depreciation and amortization........ 1,308 (624) 684 4,952 3,003 (669)
------ ------ ----------- ----------- ------- -------
Total operating expenses......... 5,700 (1,464) 4,236 23,880 17,238 (5,224)
------ ------ ----------- ----------- ------- -------
Income (loss) before gain on sale of
properties and extraordinary
items.............................. (542) 2,250 1,708 11,161 (3,132) (377)
Gain on sale of properties........... -- -- -- 3,313 -- --
------ ------ ----------- ----------- ------- -------
Income (loss) before extraordinary
items.............................. (542) 2,250 1,708 14,474 (3,132) (377)
Series B preferred dividends......... -- (406) (406) (2,412) -- --
------ ------ ----------- ----------- ------- -------
Income (loss) before extraordinary
items allocable to common.......... $ (542) $ 1,844 $ 1,302 $ 12,062 $ (3,132) $ (377)
------ ------ ----------- ----------- ------- -------
------ ------ ----------- ----------- ------- -------
Net income per common share..........
Weighted average common shares
outstanding........................
<CAPTION>
HISTORICAL
1996 APRIL 1997 AS ADJUSTED
OFFERINGS(6) RESTRUCTURING(7) MIT
----------- ----------------- -----------
<S> <C> <C> <C>
REVENUES
Rental revenues...................... $ -- $ -- $ 48,752
Interest and other income............ -- -- 738
----------- ------ -----------
Total Revenue.................... -- -- 49,490
----------- ------ -----------
OPERATING EXPENSES
Property operating costs............. -- -- 4,804
Real estate taxes.................... -- -- 6,287
Interest expense..................... (4,713) (241) 11,132
General and administrative........... -- -- 4,983
Depreciation and amortization........ -- -- 7,970
----------- ------ -----------
Total operating expenses......... (4,713) (241) 35,176
----------- ------ -----------
Income (loss) before gain on sale of
properties and extraordinary
items.............................. 4,713 241 14,314
Gain on sale of properties........... -- -- 3,313
----------- ------ -----------
Income (loss) before extraordinary
items.............................. 4,713 241 17,627
Series B preferred dividends......... -- -- (2,818)
----------- ------ -----------
Income (loss) before extraordinary
items allocable to common.......... $ 4,713 $ 241 $ 14,809
----------- ------ -----------
----------- ------ -----------
Net income per common share.......... $ 1.06
-----------
-----------
Weighted average common shares
outstanding........................ 13,966,632
-----------
-----------
</TABLE>
F-14
<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 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 Acquired Properties comprising eight separate property purchases in
1996 and the post-March 31, 1997 purchase of the 1997 Acquired Properties.
Depreciation expense on the 1996 and 1997 Acquired Properties has been
calculated on a straight line basis using average useful lives of 35 years.
The 1996 and 1997 Acquired Properties and the Company's development
activities were funded by the assumption of two separate mortgage loans in
combined principal amount of $16,468 and a weighted average interest rate of
8.02%, with the balance funded by draws on the Unsecured Credit Facility. A
summary
F-15
<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)
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 $16,468 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 7.2%, net of reduced unused facility fees of
.25%............................................................. 11,287
Less interest capitalized on development activities................ (934)
---------
Total adjustment................................................... $ 11,674
---------
---------
</TABLE>
5. 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 $241 and comprise two property sales during the three
months ended March 31, 1997 and three property sales occurring subsequent to
March 31, 1997. The 1997 Property Sales result in net proceeds to the
Company of $11,255 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 $2,784 as a result of reduced principal
outstanding on the Unsecured Credit Facility.
6. 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 (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% (7.2%),
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.
7. 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 $816 comprising
(i) the write-off of previously deferred financing fees related to the old
facility of approximately $316 and (ii) fees paid to the lenders of
approximately $500. In addition, the Company incurred and recorded as
deferred financing fees other financing costs relating to the April 1997
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) (CONTINUED)
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 as adjusted outstanding principal of $67,022).......... $ (201)
Reduction in loan fee amortization due to write-off of previously
capitalized loan fees.............................................. (295)
Amortization of loan fees on restructured facility................... 67
Increase in unused facility fees due to increase borrowing limit to
$150,000........................................................... 188
---------
Net reduction........................................................ $ (241)
---------
---------
</TABLE>
F-17
<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-18
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE PRUDENTIAL PROPERTY TRANSACTION
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
THREE MONTHS ------------
ENDED
MARCH 31, 1997
---------------
(UNAUDITED)
<S> <C> <C>
Rental Revenues.................................................................... $ 5,349 $ 21,300
Certain Expenses:
Real Estate Taxes................................................................ 548 2,493
Property Operating and Maintenance............................................... 674 2,741
------ ------------
1,222 5,234
------ ------------
Rental Revenues in Excess of Certain Expenses...................................... $ 4,127 $ 16,066
------ ------------
------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE PRUDENTIAL PROPERTY TRANSACTION
FOR THE THREE MONTHS ENDED MARCH 31, 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-20
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE PRUDENTIAL PROPERTY TRANSACTION
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 1997, for the remainder of 1997 and annually
thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997 (nine months)................................................................. $ 13,842
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 $707
for the three months ended March 31, 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 $127 and
$532 for the three months ended March 31, 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-21
<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-22
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP A PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
MARCH 31, 1997 1996 1995 1994
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Rental Revenues...................................... $ 1,316 $ 5,139 $ 4,837 $ 4,812
Certain Expenses:
Real Estate Taxes.................................. 111 436 421 444
Property Operating and Maintenance................. 322 1,290 1,188 1,091
------ ------ ------ ------
433 1,726 1,609 1,535
------ ------ ------ ------
Rental Revenues in Excess of Certain Expenses........ $ 883 $ 3,413 $ 3,228 $ 3,277
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP A PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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
three months ended March 31, 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-24
<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 THREE MONTHS ENDED MARCH 31, 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 March 31, 1997 is
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------- ---------
<S> <C>
1997 (nine months)......................................................... $ 3,047
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 $153
for the three months ended March 31, 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-25
<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-26
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP B PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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
THREE MONTHS ------------- -------------
ENDED
MARCH 31, 1997
---------------
(UNAUDITED)
<S> <C> <C> <C>
Rental Revenues..................................................... $ 1,738 $ 6,933 $ 5,680
Certain Expenses:
Real Estate Taxes................................................. 199 791 590
Property Operating and Maintenance................................ 162 493 345
------ ------ ------
361 1,284 935
------ ------ ------
Rental Revenues in Excess of Certain Expenses....................... $ 1,377 $ 5,649 $ 4,745
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP B PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 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-28
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP B PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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-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 THREE MONTHS ENDED MARCH 31, 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 March 31, 1997 is
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997 (nine months)................................................................. $ 6,078
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 $197
for the three months ended March 31, 1997 (unaudited), and $765 and $513 for the
years ended December 31, 1996 and 1995, respectively.
F-30
<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-31
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP C PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED
1997 DECEMBER 31, 1996
--------------- -----------------
<S> <C> <C>
Rental Expenses............................................................... $ 1,299 $ 3,771
Certain Expenses:
Real Estate Taxes........................................................... 148 489
Property Operating and Maintenance.......................................... 154 246
------ ------
302 735
------ ------
Rental Revenues in Excess of Certain Expenses................................. $ 997 $ 3,036
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP C PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 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, MI 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-33
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE AMERITECH TRANSACTION-GROUP C PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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-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 THREE MONTHS ENDED MARCH 31, 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 March 31, 1997 is
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------- ---------
<S> <C>
1997 (nine months)......................................................... $ 3,428
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 $400
for the three months ended March 31, 1997 (unaudited), and $1,364 for the year
ended December 31, 1996.
F-35
<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-36
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE ACQUIRED PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED
1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
Rental Revenues............................................................... $ 899 $ 2,234
Certain Expenses:
Real Estate Taxes........................................................... 66 229
Property Operating and Maintenance.......................................... 28 136
----- ------
94 365
----- ------
Rental Revenues in Excess of Certain Expenses................................. $ 805 $ 1,869
----- ------
----- ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE ACQUIRED PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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 three 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
</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-38
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO THE COMBINED STATEMENTS
OF REVENUES AND CERTAIN EXPENSES
FOR THE ACQUIRED PROPERTIES
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 1997, for the remainder of 1997 and annually
thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------- ---------
<S> <C>
1997 (nine months)....................................................... $ 2,626
1998..................................................................... 3,528
1999..................................................................... 3,537
2000..................................................................... 3,555
2001..................................................................... 3,484
Thereafter............................................................... 13,331
</TABLE>
In addition to minimum rental payments, tenants pay their share of specified
operating expenses, which amounted to $29 for the three months ended March 31,
1997 (unaudited), and $129 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-39
<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 AUGUST 6, 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
August 6, 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
