<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-14166
MERIDIAN INDUSTRIAL TRUST, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 94-3224765
- ------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
455 MARKET STREET
17TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
- ------------------------------ -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 281-3900
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of the common and preferred stock,
as of the latest practicable date:
SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK AS OF MAY 1, 1997: 2,272,727
SHARES OF COMMON STOCK AS OF MAY 1, 1997 : 13,597,214
<PAGE>
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PART I: FINANCIAL INFORMATION
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the 1996 Form 10-K and the quarterly
report on Form 10-Q for the three months ended March 31, 1996 of the
registrant (the "Company"). These condensed consolidated statements have
been prepared in accordance with the instructions of the Securities and
Exchange Commission Form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company's management, all material adjustments of a
normal, recurring nature considered necessary for a fair presentation of results
of operations for the interim period have been included. The results of
consolidated operations for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
1
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN INDUSTRIAL TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
1997 1996
---------- ----------
INVESTMENT IN REAL ESTATE:
<S> <C> <C>
Rental Properties Held for Investment $ 329,897 $ 318,671
Less Accumulated Depreciation (5,992) (4,217)
---------- ----------
323,905 314,454
Rental Properties Held for Sale, Net of
Accumulated Depreciation of $239 and $148
at March 31, 1997 and December 31, 1996,
respectively 8,781 7,530
---------- ----------
Total Investment in Real Estate 332,686 321,984
OTHER ASSETS:
Cash and Cash Equivalents 3,226 2,942
Restricted Cash and Cash Held In Escrow 1,971 2,314
Accounts Receivable, Net of Reserves of $425
and $571 at March 31, 1997 and December 31,
1996, respectively 1,272 1,659
Capitalized Loan Fees, Lease Commissions and
Other Assets, Net 5,929 4,164
---------- ----------
TOTAL ASSETS $ 345,084 $ 333,063
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage Loan $ 66,094 $ 66,094
Unsecured Credit Facility 23,500 11,500
Accrued Dividends Payable 4,648 4,648
Accounts Payable, Prepaid Rent and Other
Liabilities 6,085 7,308
---------- ----------
TOTAL LIABILITIES 100,327 89,550
---------- ----------
Minority Interest in Consolidated Limited
Partnerships 1,130 -
---------- ----------
STOCKHOLDERS' EQUITY:
Authorized Shares -- 175,000,000 shares of
Common Stock and 25,000,000 shares of Preferred
Stock authorized, each with par value of $0.001;
13,596,370 and 13,595,563 shares of Common Stock
issued and outstanding at March 31, 1997 and
December 31, 1996, respectively; and 2,272,727
shares of Series B Preferred Stock issued and
outstanding at March 31, 1997 and December 31,
1996 with a liquidation preference of $35,000 16 16
Paid-in Capital 243,659 243,683
Distributions in Excess of Income (48) (186)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 243,627 243,513
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 345,084 $ 333,063
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements
2
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN INDUSTRIAL TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
1997 1996
--------- --------
<S> <C> <C>
REVENUES:
Rentals from Real Estate Investments $ 11,695 $ 3,468
Interest and Other Income 157 156
--------- --------
TOTAL REVENUES 11,852 3,624
--------- --------
EXPENSES:
Interest Expense 1,624 858
Property Taxes 1,629 549
Property Operating Costs 1,086 170
General and Administrative 1,152 605
Depreciation and Amortization 2,004 506
--------- --------
TOTAL EXPENSES 7,495 2,688
--------- --------
Income Before Gain on Sale of Properties
and Extraordinary Item 4,357 936
Gain on Sale of Properties 428 --
--------- --------
Income Before Extraordinary Item 4,785 936
Extraordinary Item -- Expenses Incurred in
Connection with Debt Retirements -- (375)
--------- --------
NET INCOME $ 4,785 $ 561
--------- --------
--------- --------
Net income $ 4,785 $ 561
Less: Preferred Dividends Declared (705) (296)
--------- --------
NET INCOME ALLOCABLE TO COMMON $ 4,080 $ 265
--------- --------
--------- --------
NET INCOME PER WEIGHTED AVERAGE
COMMON SHARE:
Income Per Common Share Before
Extraordinary Item $ 0.29 $ 0.19
Extraordinary Item -- (0.11)
--------- --------
NET INCOME ALLOCABLE TO COMMON PER
WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING $ 0.29 $ 0.08
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN INDUSTRIAL TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)
1997 1996
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 4,785 $ 561
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization 2,004 506
Amortization of Financing Costs 117 48
Straight Line Rent (402) (78)
Gain on Sale of Properties (428) --
Extraordinary Item -- Expenses Incurred in Connection
with Debt Retirements -- 375
(Increase) Decrease in Accounts Receivable and
Other Assets (820) 101
Net Decrease in Accounts Payable, Due to Affiliates,
Prepaid Rent, and Other Liabilities (1,424) (1,624)
--------- --------
Net Cash Provided by (Used in) Operating Activities 3,832 (111)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Contributed by Merged Trusts -- 11,892
Net Proceeds from Property Sales 3,227 --
Decrease (Increase) in Restricted Cash/Cash Held
In Escrow 344 (5)
Net Cash Paid in Connection with Asset Purchase -- (3,257)
Redemption of Series A Preferred Stock and Accrued
Dividends Payable -- (83)
Investment In Real Estate (14,230) (9,227)
Recurring Building Improvements (54) (3)
Recurring Tenant Improvements (169) (36)
Recurring Leasing Commissions (447) (279)
Maturity of Marketable Security -- 2,607
Receipt of Note Receivable 503 --
Purchase of Other Assets (30) (185)
--------- ---------
Net Cash Provided by (Used in) Investing Activities (10,856) 1,424
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of Capitalized Loan Fees (4) (380)
Retirement of Debt and Advances from Affiliates -- (61,054)
Borrowings on Unsecured Credit Facility 15,500 31,900
Repayment of Borrowings on Unsecured Credit Facility (3,500) --
Distributions Paid to Stockholders (4,648) --
Offering Costs (40) 34,954
--------- ---------
Net Cash Provided by Financing Activities 7,308 5,420
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 284 6,733
Cash and Cash Equivalents -- Beginning of Period 2,942 475
--------- ---------
CASH AND CASH EQUIVALENTS -- END OF PERIOD $ 3,226 $ 7,208
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PROPERTY DATA)
1. ORGANIZATION.
Meridian Industrial Trust, Inc. (the "Company") was incorporated in the
state of Maryland on May 18, 1995. The Company is a self-administered and
self-managed real estate investment trust ("REIT") engaged primarily in the
business of owning, acquiring, developing, managing and leasing
income-producing warehouse/distribution and light industrial properties. At
March 31, 1997, the Company's principal asset was its portfolio of fifty nine
warehouse/distribution properties, eighteen light industrial properties and
three retail properties. In addition, at March 31, 1997, the Company has six
build-to-suit properties under construction.
On February 23, 1996, the Company merged with Meridian Point Realty
Trust IV Co., Meridian Point Realty Trust VI Co. and Meridian Point Realty
Trust VII Co. ("Trust IV," "Trust VI" and "Trust VII," respectively, and
collectively referred to as the "Merged Trusts"), with the Company as the
surviving entity (that transaction is referred to below as the "Merger"). In
addition, concurrent with the Merger, the Company acquired certain properties
that were subject to certain mortgage notes and other liabilities, from
Meridian Point Realty Trust '83 ("Trust 83") (that transaction is referred to
below as the "Asset Purchase").
Prior to February 23, 1996, the Company had no operations other than
receiving interest on its investments and paying general and administrative
expenses.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Company's 1996 Form 10-K and quarterly
report on Form 10-Q for the three months ended March 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) BASIS OF PRESENTATION. The accompanying condensed consolidated
financial statements include the results of the Company, its wholly-owned
subsidiaries and its majority-owned and controlled partnerships. All
intercompany transactions have been eliminated.
(b) USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(c) CASH AND CASH EQUIVALENTS. The Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
5
<PAGE>
(d) NET INCOME PER SHARE. Net income per share is calculated by
dividing net income, after deduction of preferred stock dividends declared,
by the weighted average number of shares of the Company's common stock
("Common Stock") outstanding during the period. The weighted average number
of shares Common Stock outstanding was 14,076,591 and 3,452,606 for the three
months ended March 31, 1997 and 1996, respectively. These share numbers take
into account 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 32,479
additional shares of Common Stock for the three months ended March 31, 1997
and 1996, respectively.
During the first quarter of 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard (SFAS) No. 128,
"Earnings Per Share". SFAS 128 requires the disclosure of basic earnings per
share and modifies existing guidance for computing fully diluted earnings per
share. Under the new standard, basic earnings per share is computed as
earnings divided by the weighted average number of shares of Common Stock
outstanding, excluding the dilutive effects of stock options and other
potentially dilutive securities. The effective date of SFAS No. 128 is
December 15, 1997 and early adoption is not permitted. The Company intends
to adopt SFAS No. 128 during the quarter and year ended December 31, 1997.
Had the provisions of SFAS No. 128 been applied to the Company's results of
operations for the three months ended March 31, 1997 and 1996, the Company's
basic earnings per share would have been $0.30 and $0.08 per share,
respectively, and its fully diluted earnings per share would have been $0.29
and $0.08 per share respectively.
(e) CONSTRUCTION IN PROGRESS. Costs clearly associated with the
development and construction of a real estate project are capitalized as
construction in progress. In addition, interest, real estate taxes,
insurance and other holding costs are capitalized until the property is
placed in service. During the three months ended March 31, 1997, interest
expense totaling $211 was capitalized for properties under construction.
(f) INVESTMENT IN REAL ESTATE. Investments in Real Estate are
depreciated over 35 years using the straight-line method. Expenditures for
maintenance, repairs and improvements which do not materially prolong the
normal useful life of an asset are charged to operations as incurred. Tenant
improvements are capitalized and amortized under the straight-line method
over the term of the related lease.
3. DEBT FACILITIES.
The Company acquired a fixed rate facility (the "Mortgage Loan") in
connection with the Merger. The Mortgage Loan bears interest at the annual
rate of 8.63%, requires interest only payments until its maturity in 2005 and
is secured by a pool of the Company's properties having a net book value of
$127,125 as of March 31, 1997.
Concurrent with the Merger, the Company entered into the Unsecured
Credit Facility. The Unsecured Credit Facility bore interest at LIBOR plus
1.7%, was scheduled to mature in February 1998, and provided for a maximum
borrowing amount of $75,000.
Subsequent to March 31, 1997, the Unsecured Credit Facility was amended
and restated. The amended and restated Unsecured Credit Facility provides
for: (i) an increase of the borrowing limit from $75,000 to $150,000, (ii) a
decrease in the interest rate spread over LIBOR from 1.7% to 1.4% and (iii)
an extension of the maturity date to April 3, 2000, from February 26, 1998.
In addition, the agreement provides that the interest rate spread will be
lowered to 1.2% over LIBOR upon the Company obtaining an investment-grade
credit rating.
6
<PAGE>
4. PROPERTY ACQUISITIONS AND DEVELOPMENTS.
During the three months ended March 31, 1997, the Company purchased land
in California for the development of two facilities that are expected to have
an aggregate square footage of 771,753. The facilities have target
completion dates of August 1997 and December 1997. The aggregate cost for
the design and construction of the two facilities is estimated to be
approximately $28,576. As of March 31, 1997, the Company had incurred total
project costs of $8,445 relating to these two projects. The Company funded a
portion of these costs with cash on-hand and anticipates funding a majority
of the remaining costs with borrowings under its Unsecured Credit Facility
On February 11, 1997, the Company, through limited partnerships in which
it has a 50% interest, entered into agreements to develop two
warehouse/distribution facilities containing 129,600 and 117,600 square feet,
respectively. Both properties are located in Allen, Texas and have a target
completion date of August 1997. The development and lease-up costs for the
two facilities are estimated to total $7,800. The Company has contributed
$1,130 to the partnerships; these contributions will be used to fund the
initial development costs. The other limited partners initially contributed
the land to the partnerships valued at $1,130.
For the three months ended March 31, 1997, the Company incurred total
project costs of $3,163 relating to build-to-suit facilities that it owns in
Minnesota and Georgia. The facility located in Minnesota was placed in
service in March 1997. The Company funded a portion of the construction costs
for these projects with cash on-hand and anticipates funding a majority of
the remaining costs with borrowings under its Unsecured Credit Facility.
On December 20, 1996, the Company, through a limited partnership in
which it has an 86% interest, purchased a 19.15 acre property located in
Orlando, Florida. The property is being improved with a 242,160 square foot
build-to-suit facility with a target completion date of September 1997. The
cost for acquisition of the property and design and construction of the
facility is estimated to total $8,917. As of March 31, 1997, this
partnership had incurred total project costs of $4,897, of which $2,407 was
incurred in 1997.
Subsequent to March 31, 1997, the Company purchased four properties
located in California, Indiana and Wisconsin with an aggregate square footage
of 892,703. The purchase prices totaled $29,745 and were financed by draws on
the Unsecured Credit Facility and assumption of a mortgage note totaling
$5,724. That note requires monthly principal and interest payments of $55.
5. PROPERTY DISPOSITIONS.
On January 10, 1997, the Company sold the Birmingham 1 and 2 properites
located in Birmingham, Alabama for an aggregate sales price of $3,400. After
closing costs and pro-rated items which totaled $173, the Company received
net proceeds totaling $3,227.
As of March 31, 1997, the Company has entered into contracts for sale of
the Wildwood, Phoenix N. 23rd and Golden Cove Shopping Center properties.
The net book value of these rental properties held for sale was $8,781 at
March 31, 1997.
7
<PAGE>
6. SHELF REGISTRATION.
The Company has filed a universal shelf registration statement with the
Securities and Exchange Commission covering Common Stock, the Company's
preferred stock ("Preferred Stock"), warrants and debt securities, that have
an aggregate maximum offering price of up to $600 million and may be offered
by the Company from time to time in one or more transactions. The Company
expects to use the proceeds of any offering under its universal shelf
registration statement for the acquisition and development of modern
industrial properties as well as the repayment of debt, although there can be
no assurance that the Company will offer any of the securities that are
registered under this registration statement.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION.
The following table reflects supplemental disclosure of cash flow
transactions for the three months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Cash Paid For Interest Expense $ 1,692 $ 196
Merger Transaction:
Acquisition Cost Allocated to Investment in
Real Estate -- 203,489
Restricted Cash -- 5,551
Receivables, Net -- 2,889
Note Receivable from Affiliate -- 720
Capitalized Loan Fees -- 992
Cancellation of Redeemable Series A Preferred Stock -- 960
Mortgage Loan Assumed -- (66,094)
Other Long-Term Debts Assumed -- (43,191)
Accounts Payable Assumed -- (2,869)
Shares of Common Stock Issued, at Par Value -- (8)
Paid-in Capital -- (109,842)
Other Net Liabilities Assumed -- (4,489)
Asset Purchase Transaction:
Acquisition Cost Allocated to Investment in Real Estate -- 26,342
Restricted Cash Applied to Debt Payment -- 117
Mortgage Notes Payable Assumed -- (16,334)
Paid-in Capital of Common Shares Issued -- (6,392)
Accrued Closing Costs and Pro-rated Items -- (476)
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE)
INTRODUCTION
The Company is a self-administered and self-managed real estate
investment trust engaged primarily in the business of owning, acquiring,
managing, leasing and developing income-producing warehouse/distribution and
light industrial properties. At March 31, 1997, the Company's principal
asset was its portfolio of fifty nine warehouse/distribution properties,
eighteen light industrial properties and three retail properties. In
addition, at March 31, 1997, the Company has six build-to-suit properties
under construction. As of March 31, 1997 and 1996, the Company's properties
were 97% and 92% occupied, respectively.
The following discussion should be read in conjunction with the
Company's Form 10-K for 1996, quarterly report on Form 10-Q for the three
months ended March 31, 1996, and the Condensed Consolidated Balance Sheets,
Condensed Statements of Operations and Condensed Statements of Cash Flows and
the notes thereto included in pages 2 through 8 of this report. Unless
otherwise defined in this report, or unless the context otherwise requires,
the capitalized words or phrases used in this section either (i) describe
accounting terms that are used as line items in such financial statements, or
(ii) have the meanings ascribed to them in such financial statements and the
notes thereto.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company intends to finance property acquisitions, expansions and
renovations using a combination of cash flow from operations and bank and
debt 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 main 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 THREE MONTHS
ENDED ENDED
MARCH 31,1997 MARCH 31, 1996
------------- --------------
Cash flows provided by (used in):
<S> <C> <C>
Operating activities $ 3,832 $ (111)
Investing activities (10,856) 1,424
Financing activities 7,308 5,420
</TABLE>
9
<PAGE>
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 income before gain on sale of properties and
extraordinary item to Funds From Operations for the three month periods ended
March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
------- ------
<S> <C> <C>
Income Before Gain on Sale
of Properties and Extraordinary Item $ 4,357 $ 936
Reconciling Item:
Depreciation and Amortization
relating to real estate operations 1,986 503
------- ------
Funds From Operations $ 6,343 $1,439
------- ------
------- ------
</TABLE>
As of March 31, 1997, the Company had $3,226 in unrestricted cash and
cash equivalents.
At March 31, 1997, the outstanding balance on the Mortgage Loan was
$66,094. The Mortgage Loan bears interest at the annual rate of 8.63% and
requires interest only payments until its maturity in 2005.
During the three months ended March 31, 1997, the Company borrowed
$15,500 under its Unsecured Credit Facility to fund property acquisitions and
developments. Also, the Company repaid borrowings under the facility
totaling $3,500. As of March 31, 1997, the Company had borrowings of $23,500
outstanding under the Unsecured Credit Facility.
Subsequent to March 31, 1997, the Unsecured Credit Facility was amended
and restated. The amended and restated Unsecured Credit Facility provides
for: (i) an increase of the borrowing limit from $75,000 to $150,000, (ii) a
decrease in the interest rate spread over LIBOR from 1.7% to 1.4% and (iii)
an extension of the maturity date to April 3, 2000, from February 26, 1998.
In addition, the agreement provides that the interest rate spread will be
lowered to 1.2% over LIBOR upon the Company obtaining an investment-grade
credit rating.
On April 28, 1997, the Company assumed a mortgage note totaling $5,724
in connection with the acquisition of a property located in California. The
loan has monthly principal and interest payments of $55. The Company assumed
the mortgage loan in order to avoid penalty charges on early payment of the
loan. The Company intends to repay the loan in the third quarter of 1997.
In addition, the Company may incur indebtedness in the future that bears
interest at a variable rate or may be required to refinance its debt at
higher rates. Increases in interest rates could increase the Company's
interest expense, which could adversely affect the Company's ability to pay
distributions to stockholders.
10
<PAGE>
The Company has filed a universal shelf registration statement with the
Securities and Exchange Commission covering Common Stock, Preferred Stock,
warrants and debt securities, that have an aggregate maximum offering price
of up to $600 million and may be offered by the Company from time to time in
one or more transactions. The Company expects to use the proceeds of any
offering under its universal shelf registration statement for the acquisition
and development of industrial properties as well as the repayment of debt,
although there can be assurance that the Company will offer any of the
securities that are registered under their registration statement.
On January 10, 1997, the Company sold the Birmingham 1 and 2 properties
located in Birmingham, Alabama for an aggregate sales price of $3,400. After
closing costs and pro-rated items which totaled $173, the Company received
net proceeds totaling $3,227.
As of March 31, 1997, the Company has entered into contracts for sale of
the Wildwood, Phoenix N. 23rd and Golden Cove Shopping Center properties.
The net book value of these rental properties held for sale was $8,781 at
March 31, 1997. The net proceeds from these sales will be used to reduce the
amount outstanding on the Unsecured Credit Facility.
USES OF LIQUIDITY
The Company's principal applications of its cash resources are: (i)
payment of operating costs including property expenses, property taxes,
general and administrative expenses, and interest expense, (ii) payments for
capital improvements and leasing costs, (iii) payment of distributions, (iv)
principal paydowns on its debt, and (v) funding of property acquisitions and
developments.
The Company anticipates during 1997 that it will have sufficient Funds
From Operations and cash flows to fund: (i) its operating needs, (ii)
capital improvements on the properties, and (iii) the proposed distributions
to its common and preferred stockholders. Planned capital improvements on
the Company's properties consists of tenant improvements and other
expenditures necessary to lease and maintain the properties.
During the three months ended March 31, 1997, the Company declared
dividends to holders of its Common Stock and Series B Preferred Stock in the
aggregate amounts of $3,943 and $705, respectively, or $0.29 and $0.31 per
share, respectively.
During the three months ended March 31, 1997, the Company purchased land
in California for the development of two facilities that are expected to have
an aggregate square footage of 771,753. The facilities have target completion
dates of August 1997 and December 1997. The aggregate cost for the design and
construction of the two facilities is estimated to be $28,576. As of March 31,
1997, the Company had incurred total project costs of $8,445 relating to these
two projects. The Company funded a portion of these costs with cash on-hand
and anticipates funding a majority of the remaining costs with borrowings under
its Unsecured Credit Facility
On February 11, 1997, the Company, through limited partnerships in which
it has a 50% interest, entered into agreements to develop two
warehouse/distribution facilities containing 129,600 and 117,600 square feet,
respectively. Both properties are located in Allen, Texas and have a target
completion date of August 1997. The development and lease-up costs for the
two facilities are estimated to total $7,800. The Company has contributed
$1,130 to the partnerships; these contributions will be used to fund the
initial development costs. The other limited partners initially contributed
the land to the partnerships valued at $1,130.
11
<PAGE>
For the three months ended March 31, 1997, the Company incurred total
project costs of $3,163 relating to build-to-suit facilities that it owns in
Minnesota and Georgia. The facility located in Minnesota was placed in
service in March 1997. The Company funded a portion of the construction costs
for these projects with cash on-hand and anticipates funding a majority of
the remaining costs with borrowings under its Unsecured Credit Facility.
On December 20, 1996, the Company, through a limited partnership in
which it has an 86% interest, purchased a 19.15 acre property located in
Orlando, Florida. The property is being improved with a 242,160 square foot
build-to-suit facility with a target completion date of September 1997. The
cost for acquisition of the property and design and construction of the
facility is estimated to total $8,917. As of March 31, 1997, this
partnership had incurred total project costs of $4,897, of which $2,407 was
incurred in 1997.
Subsequent to March 31, 1997, the Company purchased four properties
located in California, Indiana and Wisconsin with an aggregate square footage
of 892,703. The purchase prices totaled $29,745 and were financed by
borrowings on the Unsecured Credit Facility and assumption of a mortgage note
totaling $5,724.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The Company was incorporated on May 18, 1995. The Merger and Asset
Purchase were consummated on February 23, 1996. Prior to the Merger and
Asset Purchase, the Company had no operating activities other than receiving
interest on its investments, and paying general and administrative expenses.
In comparison to the operating activities of the Company for 1997 which
reflects three full months of operations from January 1, 1997 to March 31,
1997, the historical results of operations for the three months ended March
31, 1996 reflect the operating activities of the Company from February 23,
1996 to March 31, 1996 (the difference between these two time periods are
referred to as "Short Period Differences").
Rentals from Real Estate Investments for the three months ended March
31, 1997 and 1996 totaled $11,695 and $3,468, respectively. The increase of
$8,227 was primarily due to: (i) the Short Period Differences, (ii)
properties acquired during 1996 ("Property Acquisitions") which increased
rental revenues by $2,601, and (ii) the rental revenues generated by the
build-to-suit properties placed in service during 1996 and 1997 ("Completed
Build-to-Suits") totaling $861. These increases were partially offset by
properties disposed of during 1996 ("Property Dispositions") which reduced
rental revenues by $566.
Compared to the same period in 1996, Interest Expense increased by $766
to $1,624 during the three months ended March 31, 1997. The increase was
primarily due to the Short Period Differences.
Property Taxes increased by $1,080 to $1,629 during the three months
ended March 31, 1997 compared to the same period in 1996. The increase was
primarily due to: (i) the Short Period Differences, (ii) the property taxes
attributable to the Property Acquisitions totaling $285, and (iii) the
property taxes for the Completed Build-to-Suits amounting to $166.
Property Operating Costs increased by $916 to $1,086 during the three
months ended March 31, 1997 compared to the same period in 1996. The
increase was primarily due to: (i) the Short Period Differences and (ii) the
operating costs attributable to the Property Acquisitions totaling $131.
General and Administrative expenses totaled $1,152 and $605 for the
three months ended March 31, 1997 and 1996, respectively. The increase of
$547 is primarily due to the Short Period Differences.
12
<PAGE>
Depreciation and Amortization expense increased by $1,498 to $2,004
during the three months ended March 31, 1997 compared to the same period in
1996. The increase was primarily due to: (i) the Short Period Differences,
(ii) the depreciation costs attributable to the Property Acquisitions
totaling $518, and (iii) the depreciation for the Completed Build-to-Suits
amounting to $215.
The Gain on Sale of Properties totaling $428 for the three months ended
March 31, 1997 is attributable to the disposition of the Birmingham I and II
properties.
13
<PAGE>
- -------------------------------------------------------------------------------
PART II: OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings which the Company or any
partnership in which the Company has an interest is a party or to which any
of the assets of the Company or any such partnership is subject.
ITEM 2. CHANGES IN SECURITIES.
A provision in the Company's Amended and Restated Employee and Director
Incentive Stock Plan allows directors to elect to receive all or a
portion of their annual director fees in Company Common Stock rather
than in cash. Pursuant to this provision, the Company on January 2,
1997, issued 907 shares of its Common Stock to directors who so elected.
There shares were valued at $20.875 per share for purposes of this
issuance. The Company issued these shares in reliance on a
exemption from registration under section 4(2) of the Securities Act of
1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
NO. DESCRIPTION
---- -------------
10.1 Employment letter signed by Gregory D. Skirving dated January 9,
1997.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K: No Form 8-K reports were filed during the
quarter ended March 31, 1997
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MERIDIAN INDUSTRIAL TRUST, INC.
Dated: May 14, 1997 By: /s/ Allen J. Anderson
------------------------------------
Allen J. Anderson
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: May 14, 1997 By: /s/ Milton K. Reeder
------------------------------------
Milton K. Reeder
President and Chief Financial Officer
(Principal Financial Officer)
15
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN INDUSTRIAL TRUST, INC.
INDEX TO EXHIBITS
Exhibit Number
(corresponding to the Sequentially
Exhibit Table of Item Numbered
601 of Regulation S-K) Description Page
- ---------------------- ----------- ----
<S> <C> <C>
10.1 Employment letter signed by Gregory D. Skirving dated January 9, 1997.
27.1 Financial Data Schedule.
</TABLE>
16
<PAGE>
EXHIBIT 10.1
January 9, 1997
Mr. Gregory D. Skirving
740 MacLean Avenue
Kenilworth, IL 60043
Re: Employment Offer
Dear Greg:
On behalf of the Board of Directors of Meridian Industrial Trust, Inc.
("MIT"), I am pleased to hereby extend to you an offer of employment with
MIT. The terms of employment, including your position with MIT and your
initial salary, bonus, and other benefits, are set forth on Exhibit A
attached hereto. Additionally, the initial job description which we have
agreed upon for you is attached as Exhibit B.
Your employment with MIT will begin on January 15, 1997. You will be an
"employee at will" and have the right to leave the employment of MIT at any
time. Likewise, MIT will have the right to terminate your employment at any
time for any reason.
POSITION AND DUTIES. MIT agrees to employ you, initially in the position of
National Marketing Director and you agree to accept such employment. You
agree to perform such services and to perform them in such job positions and
during such hours as are designated for you by MIT. You agree to at all
times abide by the policies, procedures and directions of MIT.
COMPENSATION. MIT agrees to initially pay you a starting annual base salary
of $130,000.00. MIT may adjust that salary from time to time in its sole
discretion in view of changes in your job duties and responsibilities, your
job performance, the company's financial performance, and other similar
business factors. You will also be entitled to participate in such benefit
plans, including medical insurance, vacation and other benefits as are
generally offered to other similarly situated employees of MIT. In addition,
you will be entitled to participate in MIT's 1997 bonus plan; your potential
bonus under that plan would range from $0 to $130,000.00. The terms for that
plan are as follows:
1. INCENTIVE COMPENSATION: Your targeted annual cash bonus is
$130,000.00 or 100% of annual salary as a maximum. The bonus shall
be discretionary, based upon performance objectives as defined by the
Chief Executive Officer (30% of the maximum) and performance
standards (see attached Exhibit A - 70% of maximum). The
incentive compensation plan will be reviewed annually by the Board
of Directors to assure its effectiveness in meeting the Company's
objectives and properly compensating employees.
<PAGE>
Page-2
2. STOCK OPTIONS: 25,000 options to purchase MIT shares which will be
granted at the closing price of MIT stock on the first day of your
employment. The options will be granted, vested and otherwise
subject to the terms of the Option Agreement, a copy of which will be
separately delivered to you.
CONFIDENTIALITY. You acknowledge that as a result of the training and
knowledge you will receive from MIT and the relationship of trust and
confidence between the parties, you will come into possession of certain
confidential information pertaining to MIT's business and operations. For
purposes of this letter agreement, "confidential information" includes all
information pertaining to MIT or its clients, customers, suppliers, agents,
or vendors that has actual or potential economic value, is not generally
known to the public, and could not be discovered by the general public
through the exercise of ordinary diligence. Such information includes, but is
not limited to, documents and information regarding personnel, products,
customers, pricing, terms of sale, research and development, finances,
business plans, customer lists, business opportunities, marketing strategy,
and any similar items relating to the business of MIT. You agree that you
will not, either during your employment with MIT or thereafter, disclose any
confidential information to any third party, except with the express approval
of MIT's President or his designee.
RETURN OF COMPANY PROPERTY INCLUDING CONFIDENTIAL MATERIALS. Upon the
cessation of your employment, you agree to immediately surrender and deliver
to MIT all company property, including without limitation all documents,
records, materials, equipment, drawings, and other data, whether maintained
in computerized form or otherwise, pertaining to any trade secrets or other
confidential or proprietary information.
ENTIRE AGREEMENT. This letter agreement constitutes the sole and entire
agreement between the parties concerning your employment and supersedes any
and all other agreements between you and MIT, whether oral or written,
implied or expressed. You acknowledge that while your salary, benefits, job
title, and job duties may change from time to time without a written
modification of this letter agreement, any such changes will not affect the
validity of this letter agreement or the termination provisions contained in
this agreement. Any modification to this letter agreement will be effective
only if it is a written modification that expressly refers to this letter
agreement and is signed by you and an authorized representative of MIT.
SEVERABILITY. If any provision of this letter agreement is held void or
unenforceable for any reason, that provision shall be severed from the
agreement, and all remaining provisions shall be valid and fully enforceable.
<PAGE>
Page-3
LIFE INSURANCE: MIT's current plan as it may be amended from time to time.
(Information to be furnished upon acceptance).
HEALTH INSURANCE. MIT's current plan as it may be amended from time to time.
(Information to be furnished upon acceptance).
ANNUAL VACATION. You will be entitled to three weeks vacation, subject to
supervisor approval, in accordance with company policy.
GOVERNING LAW. This letter agreement shall be construed, applied, and
interpreted in accordance with he laws of the State of California.
We ask that you indicate your acceptance of this offer on or before January
14, 1997, by signing in the space provided below and returning the enclosed
copy of this letter to me before then.
MERIDIAN INDUSTRIAL TRUST, INC.
By:
-------------------------------------
Allen J. Anderson
Chairman and Chief Executive Officer
AGREED TO AND ACCEPTED:
- ---------------------------------
Gregory D. Skirving
Date:
----------------------------
<PAGE>
Page-4
EXHIBIT A
MERIDIAN INDUSTRIAL TRUST
EXECUTIVE COMPENSATION PROGRAM
PERFORMANCE BENCHMARK SUMMARY
MIT wishes to reward its management team with an annual cash bonus award for
superior performance. Our philosophy is that we pay competitive base
salaries to achieve above average performance and incentive compensation is
paid to reward superior performance. A range of incentive opportunities has
been developed including threshold, target and maximum earning levels. The
program is designed to deliver median total annual compensation at target
levels of performance and upper quartile compensation as maximum performance
levels are reached. It should be noted that performance measures and
standards and their allocation will be reviewed on an annual basis by the
Board of Directors.
INCENTIVE COMPENSATION
Currently, MIT has an Incentive Compensation program which shall be
determined on a basis which is 30% discretionary and 70% benchmarked to
performance standards. Performance standards, which will be agreed upon as
soon as possible, may include two equally weighted components, new business
generated and prospect calls made during the calendar year.
DISCRETIONARY AWARDS
<PAGE>
Page-5
Subjective cash bonuses will be awarded in the sole discretion of the board
of directors. Measures such as achieving individual goals, contribution to
the team effort and other non-quantifiable, positive contributions to the
Company will be considered in making these awards.
BENCHMARKED PERFORMANCE
The following parameters and weighting will apply in determining the annual
bonus award:
PERFORMANCE MEASURES
Bonus Level New Business Prospect Calls
Threshold (discretionary) To Be Determined To Be Determined
Target (50% of maximum) To Be Determined To Be Determined
Maximum (100% of maximum) To Be Determined To Be Determined
<PAGE>
Page-6
Job Description
National Marketing Director
DUTIES
Principal responsibility is to represent the Company as an integral team
member in presentations to meet the distribution space needs of current and
prospective tenants. It is contemplated that the Company will have two or
more National Marketing Directors (NMD's) who will also coordinate their
efforts on a regional basis. The incumbents will have primary responsibility
for the successful direction and execution of marketing duties as described
herein. This position requires significant travel and new prospect calls in
addition to management duties.
The NMD's will take primary responsibility to initiate contact with
prospective tenants, develop relationships with key real estate decision
makers in Fortune 1000 companies and work closely with asset managers with
regard to existing tenants. In this context, meeting the distribution space
needs of prospective and existing tenants includes making them aware of
existing space inventory owned by the Company, soliciting RFP's and direct
opportunities for build to suit transactions and acquiring excess property
from prospects and tenants as part of an expanded relationship.
Once an opportunity is identified, the NMD's will work closely with asset
managers, acquisition officers, investor relations manager and senior real
estate personnel to develop professional, competitive proposals and marketing
materials which are designed to position the Company as the "premier
industrial property company" in the United States. The NMD's will enlist
those team members as needed to assure that proposals and presentations are
accurate, thorough and up to date documents which meet the Company's high
standards. The NMD's will have primary responsibility for the presentation of
all marketing materials and responses to RFP's.
The NMD's will develop an annual marketing plan which is consistent with the
Company's objectives and includes specific objectives for (i) new business
development, (ii) a budget for marketing materials, (iii) a budget for travel
and entertainment, (iv) a plan for coordinating activity within the Company,
(v) a targeted list of new prospects, and (vi) a targeted list of other
industry participants ( consultants, industrial engineers, warehousing firms
etc.) which will be regularly contacted to prospect for opportunity.
<PAGE>
Page-7
NMD's are expected to represent the Company through active participation in
industry trade organizations such as CLM, IDRC, WREC, NACORE, etc. and
local/regional industrial property organizations.
REPORTING
The position reports directly to the CEO. However, close coordination is
required with real estate staff and regional office managers to assure
teamwork and continuity. On a monthly basis, the NMD's will report on
marketing efforts and competitive positioning to the Company's senior
management team.
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,226,000
<SECURITIES> 0
<RECEIVABLES> 1,697,000
<ALLOWANCES> (425,000)
<INVENTORY> 0
<CURRENT-ASSETS> 7,900,000
<PP&E> 338,917,000
<DEPRECIATION> (6,231,000)
<TOTAL-ASSETS> 345,084,000
<CURRENT-LIABILITIES> 11,863,000
<BONDS> 89,594,000
0
2,000
<COMMON> 14,000
<OTHER-SE> 243,611,000
<TOTAL-LIABILITY-AND-EQUITY> 345,084,000
<SALES> 0
<TOTAL-REVENUES> 11,852,000
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<INTEREST-EXPENSE> 1,624,000
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</TABLE>
