MERIDIAN INDUSTRIAL TRUST INC, 10-K405, 1998-03-31

MERIDIAN INDUSTRIAL TRUST INC
10-K405, 1998-03-31
REAL ESTATE INVESTMENT TRUSTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

Commission File No. 1-14166

MERIDIAN INDUSTRIAL TRUST, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

MARYLAND 94-3224765
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

455 MARKET STREET
17TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (415) 281-3900
------------------
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange
on which registered
------------------- ----------------------
COMMON STOCK, PAR VALUE $.001 PER SHARE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES C JUNIOR PARTICIPATING
PREFERRED STOCK, PAR VALUE $.001 PER SHARE NEW YORK STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK AMERICAN STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 3, 1998 was $270,832,109, computed by reference to the
closing sales price of the Common Stock reported on the New York Stock Exchange
and by excluding Common Stock and Series B Preferred Stock owned by directors,
executive officers and principal stockholders (i.e., holders of 10% or more of
the registrant's voting stock).

The registrant had 30,186,468 shares of Common Stock outstanding on March
3, 1998.
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MERIDIAN INDUSTRIAL TRUST, INC.

ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997

TABLE OF CONTENTS

FORM 10-K
ITEM NO. NAME OF ITEM PAGE

PART I
<S> <C>

Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .18
Item 4. Submission of Matters to a Vote of Security Holders . . . . .18

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . .19
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . .21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . .23
Item 8. Financial Statements and Supplementary Data . . . . . . . . .30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . .30

PART III

Item 10. Directors and Executive Officers of the Registrant. . . . . .31
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . .31
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . .31
Item 13. Certain Relationships and Related Transactions. . . . . . . .31

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . .32

Financial Statements and Financial Statement
Schedules . . . . . . . . . . . . . . . . . . . . .F-1 - F-24

</TABLE>
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PART I

ITEM 1. BUSINESS.

THE COMPANY

Meridian Industrial Trust, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust engaged primarily in the business of
owning, acquiring, developing, managing and leasing income-producing
warehouse/distribution and light industrial properties. At December 31, 1997,
the Company owned and operated 193 warehouse/distribution and light industrial
properties encompassing approximately 23.7 million square feet of leasable space
that were 97% leased to a total of 462 tenants. See Item 2. of this report.
Based on the total square feet of leasable space owned by the Company and
management's knowledge of the industrial real estate market, the Company
believes it is one of the largest owners and managers of industrial space for
lease in the United States. The Company had 3.2 million square feet of
warehouse/distribution properties under development at December 31, 1997. The
Company also owned two retail properties encompassing 384,875 square feet at
December 31, 1997. (The properties owned by the Company are collectively
referred to as the "Properties".)

On February 23, 1996, (i) Meridian Point Realty Trust IV CO. ("Trust IV"),
Meridian Point Realty Trust VI CO. ("Trust VI"), and Meridian Point Realty Trust
VII CO. ("Trust VII") (collectively the "Merged Trusts") merged with and into
the Company, with the Company as the surviving entity (the "Merger"); and (ii)
in a separate transaction (the "Asset Purchase"), the Company acquired certain
properties and assumed mortgage notes and certain other liabilities from
Meridian Point Realty Trust '83 ("Trust 83"). (Trusts 83, IV, VI, and VII are
collectively referred to herein as the "Trusts.")

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

The Company's senior executives have an average of approximately 18 years
experience in the commercial real estate business and an average tenure of nine
and a half years with the Company and its predecessors. These senior
executives' comprehensive in-house expertise includes management of public and
private companies, operating public real estate investment trusts, acquisitions,
dispositions, development, property management, leasing, marketing, finance,
accounting and law. the executive officers include Allen J. Anderson, Chairman
and Chief Executive Officer, Milton K. Reeder, President and Chief Financial
Officer, and Dennis Higgs, Executive Vice President. The Company also has
attracted institutional investors that, as of December 31, 1997, owned a
substantial portion of the company's outstanding stock, including Hunt Realty
Corporation ("Hunt"), USAA Real Estate Company ("USAA"), Ameritech Pension Trust
("Ameritech"), Cohen & Steers Capital Management, Inc., The State Teachers
Retirement Board of Ohio ("OTR"), and the Prudential Insurance Company of
America and certain related entities ("Prudential").

The Company was incorporated in the state of Maryland in May 1995. The
Company has elected to be taxed as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
initial taxable year ended December 31, 1995. The Company's executive offices
are located at 455 Market Street, 17th Floor, San Francisco, California 94105,
and its telephone number is (415) 281-3900. at December 31, 1997, the Company
had 36 employees.

BUSINESS OBJECTIVE

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

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The Company's business strategy is responsive to the accelerated pace of
change in the location and use of distribution space. Management believes this
change is the result of global competition and technological advances which
drive companies to increase efficiencies and reduce costs. Logistics, the
science of procuring, storing and distributing goods, has redefined many of the
criteria for designing distribution space and has led to the development of the
modern warehouse. The Company defines the modern warehouse building as one that
typically has greater clear heights to stack goods (24 feet or greater), deeper
truck turning radii (in excess of 130 feet), high capacity sprinkler systems and
cross docking capabilities as well as other important features that are designed
to increase the velocity of goods distribution. In addition, the rapid decline
in the cost of computer driven technology has provided many companies with
improved methods for tracking, storing and retrieving goods. As a result, there
is a growing trend among distribution space users to consolidate inventory into
large, modern warehouses located in major markets along the "path of goods
movement" (I.E., major cities at the intersection of highways, airports, rail
lines and shipping ports). Major cities along the path of goods movement are
the markets that the Company has targeted for acquisition and development
opportunities.

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

GROWTH

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

ACQUISITIONS. The Company continually investigates opportunities to
acquire individual and portfolios of properties. During the year ended December
31, 1997, the Company acquired 13 individual Properties which aggregate to 2.6
million square feet of space. As of December 31, 1997, costs incurred to date
for these individual Properties total approximately $92.5 million.

In addition, the Company intends to pursue acquisitions of multi-building
portfolios currently owned by regional developers seeking increased liquidity,
including acquisitions through tax-advantaged structures sometimes referred to
as "down REITs." Many U.S. companies are, for various financial and logistical
reasons, seeking to sell their distribution facilities. Also, many
institutional investors own industrial portfolios which they may seek to
liquidate. During the year ended December 31, 1997, the Company successfully
completed five portfolio acquisitions comprising 12.1 million square feet of
space. As of December 31, 1997, costs incurred to date for these five portfolio
acquisitions totaled approximately $418.5 million.

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The following table summarizes the Property and portfolio acquisitions
completed during the year ended December 31, 1997.

RENTABLE
SQUARE INVESTMENT
PROPERTY NAME LOCATION FEET COST (1)
------------------------------- ------------------ ------- -------------
<S> <C> <C> <C>
Meyer Circle Los Angeles Basin 201,380 $ 8,358,207
South Arlington Indianapolis 219,104 7,554,351
80th Avenue Chicago 302,500 9,304,514
Eucalyptus Avenue Los Angeles Basin 169,719 5,173,146
Yates Avenue Los Angeles Basin 373,361 16,497,870
2501 N. Great Southwest Pkwy. Dallas 117,025 3,433,556
425 South Rockefeller Los Angeles Basin 110,000 3,938,912
100 Friars Lane New Jersey/I-95 181,370 10,032,407
2200 Cedars Road Atlanta 201,600 6,054,227
3050-3080 Enterprise Street Los Angeles Basin 64,640 3,578,282
2190 Hanson Way San Francisco Bay Area 200,000 7,077,041
4647 Pine Timbers Houston 143,550 3,665,641
4660 Pine Timbers Houston 306,785 7,783,007
Prudential Portfolio (2) Various 5,231,406 180,807,031
Prudential Real Estate
Investors I Various 825,568 32,885,005
Prudential Real Estate
Investors II Columbus 953,691 32,037,746
Ameritech Portfolio Group A Various 2,144,848 83,038,967
Ameritech Portfolio Group B Various 1,960,334 62,921,444
Estate of James Campbell
Portfolio Dallas 607,275 15,844,135
UBS Portfolio New Jersey/I95 397,897 10,987,739
---------- ------------
14,712,053 $510,973,228
---------- ------------
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</TABLE>

- -----------------
(1) Investment Cost includes all costs incurred to date for the property
acquisitions.

(2) Includes the acquisition of thirteen industrial properties, which were
conveyed in a simultaneous purchase and sale by the Company to a single
buyer, for a total sale price of $49.7 million.

DEVELOPMENT. The Company also seeks to develop new warehouse/distribution
properties on a selective basis. During the year ended December 31, 1997, the
Company completed construction on five build-to-suit transactions totaling $35.6
million and aggregating 786,960 square feet.

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<PAGE>

The following table summarizes the development projects completed during
the year ended December 31, 1997:

<TABLE>
<CAPTION>
RENTABLE
DATE OF SQUARE INVESTMENT
PROPERTY NAME LOCATION COMPLETION FEET COST (1)
- -------------------- -------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Boulder Avenue Minneapolis March 1997 100,000 $ 4,157,332
Highlands Parkway Atlanta July 1997 150,000 7,818,932
Enterprise Park A Dallas September 1997 129,800 4,251,123
2200 Consulate Drive Orlando September 1997 242,160 9,853,326
Skylab Road Los Angeles Basin December 1997 165,000 9,538,194
------- ------------
786,960 $ 35,618,907
------- ------------
------- ------------
</TABLE>

- ------------------
(1) Investment Cost includes all costs incurred to date for completed
development projects.

As of December 31, 1997, the Company had development projects in progress
with an aggregate square footage of 3,181,614 and estimated aggregate
development cost of approximately $107.4 million. The development projects in
progress have anticipated stabilization dates through September 1998. The
Company expects that future development projects will be undertaken to (i) meet
expansion needs of existing tenants, (ii) meet requirements of new tenants on a
build-to-suit basis, and (iii) selectively provide inventory for lease in
certain markets.

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

INTERNAL GROWTH. The Company seeks to capitalize on opportunities to
maximize growth in cash flow from the properties by (i) retaining existing
tenants, (ii) increasing occupancy, and (iii) releasing space at higher rates.
the occupancy rate of the portfolio at December 31, 1997 was 97%. The Company's
ability to retain existing tenants and its commitment to increasing occupancy
levels may improve property revenues by minimizing vacancy periods attributable
to leasing downtime and reducing leasing costs such as tenant improvements and
leasing commissions. Further, the Company seeks to achieve internal growth
through controlling operating expenses and renovating properties to a higher and
better use where appropriate.

PORTFOLIO MANAGEMENT

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

REDEPLOYMENT OF ASSETS. As part of its portfolio management strategy, the
Company seeks to reposition its existing portfolio by selling Properties which
no longer meet its investment criteria. The Company plans to focus

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on the development and management of warehouse/distribution and light
industrial Properties and, accordingly, the Company intends to market and
sell the balance of its retail Properties as market conditions warrant.
During the year ended December 31, 1997, the Company sold five Properties and
a parcel of land for $12 million. In addition, thirteen industrial Properties
were directly conveyed in a simultaneous purchase and sale by the Company to
a single buyer for a total sale price of $49.7 million in conjunction with a
property for stock transaction. Subsequent to December 31, 1997, the Company
sold a warehouse/distribution property located in Memphis, Tennessee for $1.9
million.

MARKETING AND LEASING

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

The Company pursues an active leasing strategy by aggressively marketing
available space, renewing existing leases at higher rents per square foot and
seeking leases that provide for the pass-through of property-related expenses to
the tenant. One component of the Company's leasing strategy is to increase the
percentage of "triple-net" leases (based on leased area) which provide that the
tenant reimburses the Company for property taxes, insurance and maintenance
costs.

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

FINANCING

The Company's financing strategy is to minimize its cost of capital by
maintaining conservative debt levels, achieving an investment grade credit
rating and maintaining ready access to public and private debt and equity
capital. The Company believes that the size of its portfolio and the geographic
diversity of its buildings and tenants will allow it access to the debt and
equity markets that are not generally available to smaller, less diversified
property owners. In addition, management believes that growing and further
diversifying its portfolio may enhance the Company's ability to achieve an
investment grade credit rating. Where intermediate or long-term debt financing
is employed, the Company will generally seek to obtain fixed interest rates or
enter into agreements intended to cap the effective interest rate on floating
rate debt.

The Company intends to operate with a ratio of debt-to-total market
capitalization that generally will not exceed 50%. Total market capitalization
is defined as the total indebtedness divided by total market capitalization
which equals the sum of total indebtedness and the market value of the Company's
Common Stock, after giving effect to the conversion of the Company's 2,272,727
outstanding shares of Series B Preferred Stock. At December 31, 1997, the
Company's debt-to-total market capitalization rate was 23.7%.

During the year ended December 31, 1997, the Company was successful in
amending and restating the Unsecured Credit Facility ("Unsecured Credit
Facility") on two separate transactions which ultimately resulted in: (i) an
increase in the borrowing limit from $75 million to $250 million, (ii) a
decrease in the interest spread over LIBOR from 1.7% to 1.3%, and (iii) an
extension of the maturity date from February 26, 1998 to April 3, 2000.

In addition, on November 20, 1997, the Company completed a private offering
of $160 million in principal of unsecured senior notes to institutional
investors. The unsecured senior notes were issued in two

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tranches, $135 million maturing on November 20, 2007, bearing an interest
rate of 7.25% per annum and $25 million maturing on November 20, 2009,
bearing an interest rate of 7.30% per annum.

ORGANIZATION

The Company's organizational strategy is to maintain professional staff
which focuses on important value-added decisions. The Company implements its
growth, portfolio management, marketing and leasing, financing and
organizational strategies, together with other critical operating functions,
from its headquarters in San Francisco and its four regional offices located in
Boston, Chicago, Dallas and Los Angeles. The Boston office opened in February
1998. The Company is staffed by experienced real estate professionals and
executives who also have substantial private and public capital markets
expertise. The Company's management and real estate professionals perform the
following functions: asset management, investment analysis, acquisition due
diligence, asset acquisition and disposition, marketing, capital markets, legal
and accounting. The Company maintains operational, financial and reporting
control in all aspects of its business. However, the Company relies on
outsourcing of certain functions where it is most cost-effective to do so and
when management believes that it can effectively oversee and monitor the quality
of services performed by outside vendors. In pursuing build-to-suit
opportunities that meet its investment objectives, the Company relies on
qualified third parties to provide design and construction services.

The Company currently employs a system of independent agents or "regional
operators" to provide tenants with certain routine services on a day-to-day
basis. These services include maintenance, rent collections, oversight of
physical improvements and certain other services that may be performed by third
party providers in a reliable and cost-effective manner.

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

THE INDUSTRIAL REAL ESTATE SECTOR

The Company believes that the industrial real estate sector provides an
opportunity for attractive returns on investment and that demand for industrial
space will increase as a result of such factors as population growth, increased
industrial production, increased capital spending and increased consumer demand.
In the Company's opinion, these economic factors, should lead to continued
strong demand for industrial space. Although the amount of construction of
industrial space in 1996 and 1997 increased significantly from the depressed
levels of the early 1990s, management believes that the overall decrease in the
supply of industrial space during the previous six years, coupled with increased
demand for modern space and the downward trend of vacancy rates, will result in
increases in rental rates and appreciation in the value of properties in the
industrial real estate sector.

TARGET MARKETS

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

As the distribution chain continues to become shorter and regional
economies expand or contract, the demand for storage space will fluctuate (i.e.
the demand in specific source and destination markets will increase or

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decrease). However, space located along the path of goods movement will remain
in demand even as source and destination points change over time. The Company
owns warehouse/distribution and light industrial properties in target markets
that are located strategically along the path of goods movement across the
United States.

The Company's current target markets are Atlanta, Chicago, Columbus,
Dallas, Detroit, Houston, Indianapolis, Los Angeles Basin, Memphis, New
Jersey/Pennsylvania I-95 Corridor, Orlando, Phoenix, San Francisco Bay Area and
Seattle.

The Company expects that it will make further investments in target markets
in which it currently owns Properties and may identify other target markets as
attractive investment opportunities become available. The Company believes that
opportunities exist in target markets to acquire or develop additional
industrial properties at attractive returns.

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

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

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

- Enabling the Company to maintain and improve geographic diversification.

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

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

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

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

- Affording the Company growth opportunities in markets of institutional
investment quality, thus protecting property values and providing for a
reduced cost of capital.

- Allowing the Company to establish a Meridian Industrial Trust trade name
recognized by industrial space users throughout the country.

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COMPETITION

All Properties owned by the Company are located in developed areas. Within
the market areas of each Property, there are numerous other industrial
properties and real estate companies which compete with the Company for tenants
and development and acquisition opportunities. The number of competitive
industrial properties and real estate companies in such areas could have a
material effect on (i) the Company's ability to rent space at the Properties and
the amount of rents currently charged, and (ii) development and acquisition
opportunities. The Company competes for tenants and acquisitions with other
companies who have greater resources than the Company.

INSURANCE

In addition to other types of insurance maintained by the Company, the
Company carries commercial general liability and excess liability coverage on
its Property portfolio in the annual aggregate amount of $150 million to insure
against liability claims and provide for the costs of defense of lawsuits
arising out of the Company's operation. Similarly, the Company is insured
against the risk of direct physical damage in an amount necessary to reimburse
the Company on a replacement cost basis for costs incurred to repair or rebuild
each property; this coverage includes reimbursement for any loss of rental
income during the reconstruction period in the aggregate amount as to be
sufficient to repair, or replace properties damaged by insured perils. There
are, however, certain types of losses (such as losses arising from acts of war
or relating to pollution) that are not generally insured because they are either
uninsurable or not economically insurable.

REGULATION AND SUPERVISION

ENVIRONMENTAL MATTERS. Under various federal, state and local laws and
regulations, a current or previous owner, operator, manager or developer of real
estate may be liable for the cost of response to a hazardous substance release
to the environment that is detected on a property or in the ground or surface
water associated with a property. These laws often impose liability without
regard to whether the owner or operator was responsible for causing the
hazardous substance release. The cost of response may be substantial, and the
presence of the release, or the failure to respond to the release, may adversely
affect the owner's or operator's ability to sell the real estate or borrow
against the real estate.

Persons who arrange for the disposal or treatment of hazardous substances
at an off-site facility may also be liable for the cost of any necessary
response to a release at the treatment of disposal facility. Certain laws
govern the management of asbestos containing building materials. If asbestos
containing building materials are not properly handled during demolition or
remodeling of structures, the person responsible may be held liable in
government enforcement proceedings and for personal injuries that may have
resulted from exposures to asbestos fibers. In addition, the presence of
hazardous substances at a site adjacent to or in the vicinity of a property
could have an adverse effect on the value of the property and cause the owner to
incur costs to demonstrate that the owner's property has not contributed to the
hazardous substance release.

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

All of the Properties have been subject to at least a Phase I environmental
assessment. These assessments were intended to evaluate the environmental
condition of, and potential environmental liabilities associated with, the
Properties, and generally include (i) a visual observation of the Properties
during a site visit; (ii) a review of certain records concerning the Properties
including publicly-available information concerning known conditions at other
properties in the vicinity of the Properties; (iii) consideration of the likely
presence of asbestos-containing materials in the buildings on the Properties;
(iv) consideration of the likely presence of elevated levels of lead in

- 8 -
<PAGE>

the drinking water; (v) an inquiry into the likely presence of
polychlorinated biphenyl's in electrical transformers; (vi) consideration of
the presence of underground or above-ground storage tanks and (vii) the
preparation of a written report. A Phase I assessment does not include
sampling or analysis of soil, ground water or other environmental media or
subsurface investigations.

A property acquired in the Merger has experienced groundwater
contamination. An environmental consultant has reported that the sources of the
contamination appear to be adjoining parcels. A responsible party has
acknowledged orally that they must fund remediation costs. Management has
reviewed the financial condition of the responsible party (a municipality
located in the San Francisco Bay Area) and believes that party has the ability
to fund the costs of remediation. Accordingly, the Company has not accrued any
liability related to this property.

Environmental assessments do not necessarily identify all environmental
compliance issues or the extent of required remediation for those issues they do
identify.

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

RISKS ASSOCIATED WITH RELIANCE ON FORWARD LOOKING STATEMENTS

This report contains statements which constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Those statements appear in a
number of places in this report and include statements regarding the intent,
belief or current expectations of the Company and its management 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. Readers are cautioned that any such forward looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those projected in the
forward looking statements as a result of various factors. Risks and
uncertainties associated with the Company's acquisition activities include
risks that acquisition opportunities explored by the Company may be
abandoned, investments will fail to perform in accordance with expectations
and 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 any new real estate investment. Additional factors
that may cause such differences are described in the Risk Factors section of
the Company's Registration Statement on Form S-11, File No. 333-02322.

- 9 -
<PAGE>

ITEM 2. PROPERTIES.

The Company owned and operated 193 warehouse/distribution and light
industrial Properties (collectively, the "Industrial Properties") encompassing
23,701,264 million square feet of leasable space that was 97% leased as of
December 31, 1997. The Company also owned and operated two retail Properties
encompassing 384,875 square feet of leasable space that was 92% leased as of
December 31, 1997.

The following table summarizes the Industrial Properties as of December 31,
1997.

RENTABLE % OF TOTAL
NO. OF PERCENT SQUARE SQUARE INVESTMENT
MARKET PROPERTIES OCCUPIED FEET FEET COST (1)
- ------------------------ ------------- ----------- ------------ ----------- -------------------
<S> <C> <C> <C> <C> <C>
Atlanta 5 100% 679,716 2.87% $ 25,805,254
Chicago 22 95% 2,655,142 11.20% 82,434,650
Columbus 6 100% 1,968,283 8.31% 62,968,996
Dallas 41 94% 4,636,593 19.56% 129,122,951
Detroit 13 91% 654,321 2.76% 27,146,105
Houston 10 94% 1,134,445 4.79% 27,986,846
Indianapolis 1 100% 219,104 0.92% 7,554,351
Los Angeles Basin (2) 48 97% 5,584,211 23.56% 212,253,836
Little Rock 2 100% 235,250 0.99% 4,445,767
Memphis 10 100% 1,943,287 8.20% 38,955,462
Miami 3 99% 219,379 0.93% 11,621,845
Minneapolis 1 100% 100,000 0.42% 4,157,332
Nashville 3 100% 437,552 1.85% 6,524,166
New Jersey/I-95 10 100% 579,267 2.44% 21,020,147
Orlando 1 100% 242,160 1.02% 9,853,326
Phoenix 5 100% 587,105 2.48% 20,352,631
Richmond 2 92% 145,799 0.62% 13,233,910
San Diego 2 100% 191,451 0.81% 10,058,483
San Francisco Bay Area 6 98% 1,124,276 4.74% 53,012,471
Seattle 1 75% 237,281 1.00% 12,278,624
St. Louis 1 100% 126,642 0.53% 2,970,682

- ------------------------ ------------- ----------- ------------ ----------- -------------------
Total Portfolio Summary 193 97% 23,701,264 100.00% $ 783,757,835
- ------------------------ ------------- ----------- ------------ ----------- -------------------
- ------------------------ ------------- ----------- ------------ ----------- -------------------
</TABLE>

- ------------------------
(1) Investment Cost includes all costs incurred to date for the Property.
(2) Includes seven warehouse/distribution buildings comprising 623,678 square
feet which serve as collateral for a participating mortgage note receivable
in the principal amount of $21.5 million. The buildings are 100% occupied
as of December 31, 1997.

- 10 -
<PAGE>

The following tables lists each of the Company's Industrial Properties and
Properties Under Development as of December 31, 1997.

INDUSTRIAL PROPERTIES

RENTABLE NUMBER
SQUARE PERCENT INVESTMENT OF
PROPERTY NAME LOCATION FEET OCCUPIED COST(1) TENANTS
- --------------------- ----------------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
ATLANTA
2200 Cedars Road Lawrenceville, GA 201,600 100.00% $ 6,054,227 1
Highlands Parkway Smyrna, GA 150,000 100.00% 7,818,932 1
1901 Riverside Austell, GA 66,300 100.00% 4,034,698 1
1601 Riverside Austell, GA 119,031 100.00% 3,600,244 3
1701 Riverside Austell, GA 142,785 100.00% 4,297,153 1

CHICAGO
1000 Lunt Elk Grove Village, IL 121,465 100.00% 2,590,677 6
1090 Pratt Elk Grove Village, IL 24,975 100.00% 634,054 1
1100 Pratt Elk Grove Village, IL 39,500 100.00% 1,095,535 1
1180 Pratt Elk Grove Village, IL 24,350 100.00% 537,790 1
1201 Busse Elk Grove, IL 24,000 100.00% 401,182 1
17025 Wallace South Holland, IL 95,515 100.00% 1,966,191 3
17129 Wallace South Holland, IL 84,000 100.00% 1,677,852 1
1815 Landmeier Elk Grove, IL 77,150 100.00% 1,703,593 1
2375 Touhy Ave Elk Grove, IL 53,550 100.00% 1,198,768 1
3 Timber Court Bolingbrook, IL 320,722 100.00% 12,559,233 4
3400 West Lake Glenview, IL 121,225 100.00% 2,619,596 2
Crossroads Parkway Bolingbrook, IL 249,130 68.24% 9,371,251 2
5101 W. 122nd Street Alsip, IL 123,986 100.00% 3,138,285 3
700 Pratt Elk Grove Village, IL 81,480 100.00% 1,812,810 3
80 Internationale Boulevard Glendale Heights, IL 135,526 100.00% 6,344,201 2
801 Lunt Elk Grove Village, IL 41,600 0.00% 941,836 --
80th Avenue Pleasant Prairie, WI 302,500 100.00% 9,304,514 1
900 Pratt Elk Grove Village, IL 30,000 100.00% 781,525 1
Bedford Park Bedford Park, IL 200,808 100.00% 3,247,722 1
101 Regency Drive Glendale Heights, IL 150,000 100.00% 7,409,865 1
500 Regency Drive Glendale Heights, IL 160,660 100.00% 7,006,431 1
Lombard I Lombard, IL 193,000 100.00% 6,091,739 1

COLUMBUS
2303 John Glenn Columbus, OH 289,491 100.00% 10,236,105 2
Crosswind Drive Columbus, OH 1,014,592 100.00% 30,931,250 1
200 Constitution Drive Fairfield, OH 235,000 100.00% 8,050,588 1
2141 Southwest Grove City, OH 126,200 100.00% 4,330,994 2
6959-6967 Alum Creek Columbus, OH 145,000 100.00% 4,508,807 3
6969 Alum Creek Columbus, OH 158,000 100.00% 4,911,252 1

DALLAS
10425 Plano Road Dallas, TX 159,600 100.00% 4,969,456 3
1049 Avenue H East Arlington, TX 104,948 100.00% 2,615,768 1
13700 Benchmark Drive Farmers Branch, TX 180,841 100.00% 6,008,795 1
1441 Patton Place Carrollton, TX 106,048 100.00% 3,326,764 5
1505 Valwood Parkway Carrollton, TX 83,200 100.00% 3,229,692 2
</TABLE>

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<PAGE>

RENTABLE NUMBER
SQUARE PERCENT INVESTMENT OF
PROPERTY NAME LOCATION FEET OCCUPIED COST(1) TENANTS
- --------------------- ----------------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
1701 Timberlake Drive Arlington, TX 227,120 100.00% 3,749,361 1
2022 McKenzie Drive Carrollton, TX 155,496 100.00% 5,116,318 1
2501 N. Great S.W. Parkway Grand Prairie, TX 117,025 0.00% 3,433,556 --
2800 E. Plano Parkway Plano, TX 144,000 100.00% 5,014,644 4
399 Great S. W. Parkway Arlington, TX 42,350 100.00% 1,061,514 1
415-417 113th Street Grand Prairie, TX 68,962 100.00% 1,724,604 1
500-508 113th Street Grand Prairie, TX 68,962 100.00% 1,722,274 1
514-516 Great S.W. Parkway Arlington, TX 110,327 100.00% 2,749,325 1
714-720 107th Street Arlington, TX 76,035 100.00% 1,897,883 2
918-920 Avenue N Grand Prairie, TX 29,643 100.00% 746,004 2
Beltline Carrollton, TX 96,000 100.00% 1,736,011 6
Centreport 17 Fort Worth, TX 51,923 100.00% 1,849,552 1
Centreport VII Fort Worth, TX 122,259 100.00% 5,183,179 3
Enterprise Building Park A Allen, TX 129,800 100.00% 4,251,123 1
Exchange Service Center 1 Arlington, TX 147,840 100.00% 2,480,024 1
Exchange Service Center 2 Arlington, TX 141,616 60.90% 2,585,898 2
Great Southwest 110 Arlington, TX 163,043 100.00% 2,915,543 1
Great Southwest 4 Arlington, TX 90,880 36.44% 1,579,348 1
Highland Place Dallas, TX 279,840 100.00% 7,970,659 1
Las Colinas 1 Irving, TX 35,050 100.00% 805,204 1
Northgate 4 Dallas, TX 56,633 100.00% 1,096,542 2
Northgate International Garland, TX 260,000 100.00% 7,302,095 1
Palisades I Plano, TX 56,000 80.00% 1,261,413 5
Palisades II Plano, TX 56,000 80.00% 1,200,682 5
201 Regal Row Dallas, TX 59,970 100.00% 1,189,425 1
Sarah Jane Parkway Grand Prairie, TX 361,690 100.00% 15,843,667 1
Valley Branch II Farmers Branch, TX 74,160 100.00% 1,376,646 2
Valwood 20 Farmers Branch, TX 99,600 100.00% 3,090,013 1
Valwood IV Farmers Branch, TX 64,533 100.00% 1,393,333 2
Water's Ridge Lewisville, TX 367,744 100.00% 10,201,581 1
Las Colinas 4 Irving, TX 22,159 22.56% 525,496 2
Las Colinas 5 Irving, TX 77,304 83.33% 1,813,423 2
Northgate 28 Dallas, TX 36,736 100.00% 947,787 1
Northgate 5 Dallas, TX 31,747 100.00% 748,406 3
Regal Empress Dallas, TX 46,509 92.02% 1,787,483 5
Valley Branch I Farmers Branch, TX 33,000 81.52% 622,460 6

DETROIT
HCC - Lot 26-11 New Boston, MI 77,060 100.00% 2,877,056 1
HCC - Lot 27-8 New Boston, MI 47,556 100.00% 2,139,420 1
HCC - Lot 6-16 New Boston, MI 111,204 100.00% 3,430,184 1
Pontiac Pontiac, MI 74,400 100.00% 2,675,095 1
H & J Industrial 1 Farmington Hills, MI 28,241 66.78% 1,036,183 5
H & J Industrial 2 Farmington Hills, MI 14,565 83.19% 607,458 8
H & J Industrial 3 Farmington Hills, MI 15,910 100.00% 971,214 4
H & J Industrial 4 Farmington Hills, MI 6,200 100.00% 247,255 1
Southfield Commerce Ctr. 1 South Field, MI 38,485 90.26% 1,428,870 6
Southfield Commerce Ctr. 2 South Field, MI 58,545 100.00% 2,278,615 11
Troy Tech II Troy, MI 122,829 76.19% 6,688,675 2
</TABLE>

- 12 -
<PAGE>

Westhills Commerce Ctr. 1 Farmington Hills, MI 26,687 100.00% 1,446,211 9
Westhills Commerce Ctr. 2 Farmington Hills, MI 32,639 64.54% 1,319,869 7

HOUSTON
4647 Pine Timbers Houston, TX 143,550 100.00% 3,665,641 6
4660 Pine Timbers Houston, TX 306,785 95.02% 7,783,007 13
Brittmore Distribution - 1 Houston, TX 168,758 100.00% 3,951,845 3
Brittmore Distribution - 2 Houston, TX 145,520 100.00% 3,378,429 7
Perimeter Distribution - 1 Houston, TX 97,246 87.23% 2,189,406 3
Perimeter Distribution - 2 Houston, TX 43,680 100.00% 971,817 4
Pine North Distribution - 1 Houston, TX 48,600 43.95% 1,221,790 2
Pine North Distribution - 2 Houston, TX 81,000 100.00% 2,058,297 1
Pinemont Distribution - 1 Houston, TX 31,186 72.31% 866,926 1
Pinemont Distribution - 2 Houston, TX 68,120 100.00% 1,899,688 4

INDIANAPOLIS
South Arlington Indianapolis, IN 219,104 100.00% 7,554,351 1

LOS ANGELES BASIN
1051 South Rockefeller Ave. Ontario, CA 133,775 100.00% 4,291,550 1
11195 Eucalyptus Street Rancho Cucamonga, CA 125,952 100.00% 3,389,679 1
11440 Pacific Avenue Fontana, CA 136,260 100.00% 5,514,851 2
14821 East Northam Street La Mirada, CA 70,756 100.00% 3,168,338 1
19545 East San Jose Avenue City of Industry, CA 126,720 100.00% 4,158,098 1
3050-3080 Enterprise Avenue Brea, CA 64,640 100.00% 3,578,282 3
3200 Enterprise Street Brea, CA 132,000 100.00% 4,380,518 1
425 South Rockefeller Ontario, CA 110,000 100.00% 3,938,912 1
500 South Dupont Street Ontario, CA 275,169 100.00% 10,216,864 1
8865 Utica Avenue Rancho Cucamonga, CA 177,744 100.00% 5,842,487 1
Arenth Avenue City of Industry, CA 332,790 100.00% 9,819,830 1
Cedarpointe 14 Ontario, CA 40,159 100.00% 1,722,325 1
Cedarpointe 15 Ontario, CA 49,611 100.00% 2,125,345 1
Cedarpointe 16 Ontario, CA 66,894 100.00% 2,862,270 1
Cedarpointe 17 Ontario, CA 50,383 100.00% 2,158,262 1
Cedarpointe 18 Ontario, CA 62,126 100.00% 2,658,969 1
Cedarpointe Industrial Park-2 Ontario, CA 124,220 100.00% 4,445,890 2
Dominguez North - Bldg 1 Compton, CA 85,345 100.00% 4,753,342 1
Dominguez North - Bldg 10 Compton, CA 73,555 100.00% 2,822,842 5
Dominguez North - Bldg 11 Compton, CA 50,296 100.00% 1,857,572 1
Dominguez North - Bldg 2 Compton, CA 60,175 100.00% 2,737,581 1
Dominguez North - Bldg 3 Compton, CA 50,003 100.00% 1,681,419 1
Dominguez North - Bldg 4 Compton, CA 54,359 100.00% 2,239,209 1
Dominguez North - Bldg 5 Compton, CA 206,483 100.00% 9,524,211 1
Dominguez North - Bldg 6 Compton, CA 108,387 100.00% 4,800,227 1
Dominguez North - Bldg 7 Compton, CA 100,000 100.00% 2,143,258 1
Dominguez North - Bldg 8 Compton, CA 98,013 100.00% 2,603,884 1
Dominguez North - Bldg 9 Compton, CA 183,000 100.00% 7,279,874 1
4451 Eucalyptus Avenue Chino, CA 169,719 0.00% 5,173,146 --
Meyer Circle Corona, CA 201,380 100.00% 8,358,207 1
Mission Oaks Camarillo, CA 310,736 100.00% 9,088,544 1

</TABLE>

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<PAGE>

RENTABLE NUMBER
SQUARE PERCENT INVESTMENT OF
PROPERTY NAME LOCATION FEET OCCUPIED COST(1) TENANTS
- --------------------- ----------------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Rustin Avenue Riverside, CA 113,721 100.00% 4,166,080 2
Skylab Road Huntington, Beach CA 165,000 100.00% 9,538,194 1
Valencia Industrial Bldg. Valencia, CA 107,520 100.00% 5,023,385 1
Wanamaker Ontario, CA 136,249 100.00% 4,550,482 2
Yates Avenue Montebello, CA 373,361 100.00% 16,497,870 2
Chatsworth Chatsworth, CA 40,000 100.00% 2,548,768 1
Cypress A Cypress, CA 32,256 100.00% 1,571,466 1
Cypress B Cypress, CA 68,760 100.00% 2,974,563 3
Cypress C Cypress, CA 36,216 100.00% 1,612,295 1
North Irvine Santa Ana, CA 56,800 100.00% 2,934,947 12

LITTLE ROCK
Baxter Little Rock, AR 50,000 100.00% 1,324,384 1
Port Distribution Little Rock, AR 185,250 100.00% 3,121,383 2

MEMPHIS
4000 Air Park Cove Memphis, TN 120,640 100.00% 1,602,326 1
4013 Premier (2) Memphis, TN 181,064 100.00% 1,765,476 1
Airport Bldg #14 Memphis, TN 175,275 100.00% 2,772,277 2
Airport Bldg #16A Memphis, TN 62,290 100.00% 1,516,355 11
Airport Bldg #16B Memphis, TN 21,000 100.00% 470,152 1
Airport Bldg #17 Memphis, TN 142,618 100.00% 2,246,404 2
Airport Bldg #3 Memphis, TN 75,000 100.00% 1,068,094 2
Delp Distribution Memphis, TN 300,000 100.00% 6,885,674 1
Olive Branch Olive Branch, MS 800,000 100.00% 16,507,400 1
Willow Lake Business Park Memphis, TN 65,400 100.00% 4,121,304 1

MIAMI
Centerport Building A Pompano Beach, FL 80,040 98.08% 3,670,950 3
Centerport Building B Pompano Beach, FL 95,940 100.00% 3,426,086 4
Centerport Building E Pompano Beach, FL 43,399 100.00% 4,524,809 2

MINNEAPOLIS
Boulder Avenue Rosemount, MN 100,000 100.00% 4,157,332 1

NASHVILLE
1550 Heil Quaker La Vergne, TN 238,900 100.00% 3,612,449 1
1600 Corporate Place La Vergne, TN 102,652 100.00% 1,451,344 1
Hennessey Warehouse La Vergne, TN 96,000 100.00% 1,460,373 2

NEW JERSEY/I-95
100 Friars Lane Thorofare, NJ 181,370 100.00% 10,032,408 1
103-105 Gaither Drive Mt. Laurel, NJ 89,140 100.00% 2,448,152 2
110 Gaither Drive Mt. Laurel, NJ 51,646 100.00% 1,422,986 3
112 Gaither Drive Mt. Laurel, NJ 48,000 100.00% 1,323,235 1
130 Benigno Blvd. Bellmawr, NH\J 53,020 100.00% 1,460,579 2
361 Bellevue Road Newark, DE 39,200 100.00% 1,094,127 3
9020 Pennsauken Highway Pennsauken, NJ 25,316 100.00% 702,622 1
9040 Pennsauken Highway Pennsauken, NJ 28,000 100.00% 776,687 1
9160 Pennsauken Highway Pennsauken, NJ 22,175 100.00% 616,686 1

</TABLE>

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<PAGE>

ORLANDO
2200 Consulate Drive Orlando, FL 242,160 100.00% 9,853,326 1

PHOENIX
4440 East Elwood Street Phoenix, AZ 157,626 100.00% 7,070,730 2
470 West Vaughn Street Tempe, AZ 60,633 100.00% 2,410,797 1
7000 West Latham Street Phoenix, AZ 273,586 100.00% 8,313,418 1
Phoenix N. 27th Phoenix, AZ 32,480 100.00% 855,146 1
Phoenix Plaza Three Phoenix, AZ 62,780 100.00% 1,702,540 1

RICHMOND
North Run III Richmond, VA 53,941 96.44% 5,059,075 10
North Run IV Richmond, VA 91,858 89.77% 8,174,835 6

SAN DIEGO
6355 Nancy Ridge Drive San Diego, CA 5,294 100.00% 279,171 1
Scripps Ranch San Diego, CA 186,157 100.00% 9,779,312 5

SAN FRANCISCO BAY AREA
2190 Hanson Way Woodland, CA 200,000 100.00% 7,077,042 1
Gold River Lane Stockton, CA 351,788 100.00% 13,574,126 1
Overlake Place Newark, CA 160,000 100.00% 8,535,314 1
San Carlos Industrial (3) San Carlos, CA 134,352 99.97% 8,085,289 6
2711 North First Street San Jose, CA 74,621 100.00% 6,497,284 3
Barrington Business Park Hayward, CA 203,515 91.04% 9,243,416 27

SEATTLE
Park At Woodinville Woodinville, WA 237,281 75.38% 12,278,624 12

ST. LOUIS
5463 Phantom Drive St. Louis, MO 126,642 100.00% 2,970,682 1

----------- ------- ------------- ----
TOTAL INDUSTRIAL PROPERTIES 23,077,586 96.65% $ 762,257,835 443
----------- ------- ------------- ----
----------- ------- ------------- ----

INVESTMENT IN UNCONSOLIDATED
JOINT VENTURE(4)
Rancho Downey A-G Los Angeles, CA 623,678 100.00% $ 21,500,000 19
----------- ------- ------------- ----
----------- ------- ------------- ----
</TABLE>
- ------------------------
(1) Investment cost includes all costs incurred to date for the Property.
(2) On February 28, 1998, the Company sold the 4013 Premier Property. See Item
7 of this report.
(3) In 1998, Company has entered into a contract to sell the San Carlos
Property.
(4) In 1997, the Company acquired a $21.5 million participating mortgage loan
secured by seven warehouse/distribution buildings. The participating
mortgage loan is classified as Investment in Unconsolidated Joint Venture
in the financial statements.

- 15 -
<PAGE>
PROPERTIES UNDER DEVELOPMENT

ESTIMATED RENTABLE ESTIMATED
DATE OF SQUARE DEVELOPMENT
PROPERTY NAME LOCATION COMPLETION FEET COST(1)
- ----------------------- ----------------------- ------------ --------- -------------
<S> <C> <C> <C> <C>
2225 Cedars Road Atlanta March 1998 249,600 $ 6,871,508
Carrowinds Boulevard Charlotte July 1998 558,900 21,600,000
Enterprise Building B Dallas April 1998 124,798 4,134,000
Enterprise Building C Dallas May 1998 178,013 7,052,092
Frankford Trade Center Dallas June 1998 709,920 20,560,209
Meridian Distribution
Cntr. Los Angeles Basin April 1998 606,753 19,626,000
Lebanon Pike Circle Nashville April 1998 178,630 7,281,528
2100 Consulate Drive Orlando January 1998 75,000 3,915,580
Gateway One San Francisco Bay Area April 1998 500,000 16,400,294
--------- ------------
3,181,614 $107,441,211
--------- ------------
--------- ------------
</TABLE>

- ------------------
(1) Estimated development cost includes all estimated costs to complete
construction.

LEASES EXPIRATIONS OF INDUSTRIAL PROPERTIES. At December 31, 1997, 460
leases, representing 95% of the annual base rent ("Base Rent") from the
leased space at the Industrial Properties are leased on a triple-net basis
with tenants responsible for most day-to-day operating expenses such as real
estate taxes, insurance, utilities, maintenance of common areas and
non-structural repairs. The Company's tenant retention rate on a square
footage basis for the Industrial Properties during the year ended December
31, 1997 was 69%. Average base rents for lease renewals and released space
increased by 4.53% during the year ended December 31, 1997. The Company
expects to obtain additional rental increases from existing leases in 1998
which have scheduled rental adjustments (both fixed and inflation indexed).
These leases comprise approximately 25% of the annual base rent of the
Company's industrial leases.

The following table summarizes scheduled lease expirations for the
Industrial Properties for all leases in effect as of December 31, 1997. The
table assumes that none of the tenants exercises a renewal option or
termination right.

RENTABLE PERCENTAGE OF CUMULATIVE % ANNUAL
SQUARE FEET TOTAL LEASED OF TOTAL LEASED BASE RENT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER
LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES(1)
- ---- --------- ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
1998(2) 115 3,952,200 17.25% 17.25% $15,452,971
1999 107 3,134,235 13.68% 30.93% 13,160,047
2000 90 3,136,308 13.69% 44.62% 11,804,482
2001 64 2,800,194 12.22% 56.84% 11,293,304
2002 47 2,088,003 9.11% 65.95% 8,079,372
2003 15 705,670 3.08% 69.03% 3,003,324
2004 9 428,178 1.88% 70.91% 1,449,683
2005 18 1,982,393 8.65% 79.56% 6,223,757
2006 10 2,167,077 9.46% 89.02% 7,866,543
2007 6 1,005,764 4.39% 93.41% 3,644,840
Thereafter 6 1,508,859 6.59% 100.00% 5,352,491
------- ----------- ------ ---------------
487 22,908,881 100.00% $87,330,814
------- ----------- ------ ---------------
------- ----------- ------ ---------------
</TABLE>

- 16 -
<PAGE>

- ----------------
(1) Represents annualized monthly Base Rent of the leases in effect at
December 31, 1997. For purposes of this report, "Base Rent" means
contractual gross rent and, therefore, excludes payments by tenants
on account of real estate taxes and operating expense reimbursements.
(2) Month-to-month tenants are included as 1998 expirations.

LAND HELD FOR DEVELOPMENT

On December 10, 1997, the Company acquired a 27.4 acre site located in
the Los Angeles Basin for a purchase price of approximately $3 million. On
January 16, 1998, the Company acquired a 19.2 acre site located in the Los
Angeles Basin scheduled for development comprising approximately 372,000
square feet upon completion. The purchase price was $3.4 million. On March
23, 1998, the Company acquired 19 acres of land on three unimproved sites
located in California scheduled for development of five buildings which will
total approximately 377,000 square feet upon completion. The purchase price
was $6,314. In addition, the Company has two land options comprising 88.3
acres for which purchase and sale agreements have been executed.

RETAIL PROPERTIES

At December 31, 1997, the Company owned two retail Properties ("Retail
Properties") consisting of one neighborhood and one community shopping center
with a total of 384,875 square feet of retail space. That space was 92%
leased to 40 tenants with an annualized monthly Base Rent of $2,843,805 from
leases in effect as of December 31, 1997. The Retail Properties account for
1.60% of the total rentable square feet of the Company's entire portfolio.
The Company expects to sell the remaining Retail Properties in its portfolio
as market conditions warrant and purchase with the net proceeds from such
sales, Industrial Properties that meet the Company's investment objectives.
The Company's investments in Retail Properties are subject to risks incident
to (i) the oversupply of retail space in certain areas of the United States,
(ii) competition from new retailers and the nationwide expansion of existing
retailers, and (iii) general economic conditions.

In addition, some of the retail leases include guaranteed minimum rents
plus potential percentage rents equal to a specified percentage of the
tenant's sales over specified amounts. During the year ended December 31,
1997, few retail tenants' sales reached the amounts specified in the
percentage rent clauses of their leases.

LEASES EXPIRING OF RETAIL PROPERTIES. The following table summarizes
scheduled lease expirations for the Retail Properties for all leases in effect
as of December 31, 1997. The table assumes that none of the tenants exercises a
renewal option or termination right.

PERCENTAGE OF CUMULATIVE % ANNUAL
SQUARE FEET TOTAL LEASED OF TOTAL LEASED BASE RENT
NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER
LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING
YEAR EXPIRING LEASES LEASES LEASES LEASES(1)
- ------ ---------- ----------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
1998(2) 1 36,903 10.46% 10.46% $ 491,294
1999 1 30,541 8.66% 19.12% 298,555
2000 1 25,784 7.31% 26.43% 301,206
2001 1 3,000 0.85% 27.28% 40,500
2002 1 5,817 1.65% 28.93% 63,966
2003 -- -- 0.00% 28.93% --
2004 1 12,840 3.64% 32.57% 149,280
2005 -- -- 0.00% 32.57% --
2006 -- -- 0.00% 32.57% --
2007 -- -- 0.00% 32.57% --
Thereafter 2 237,806 67.43% 100.00% 1,499,004
------ -------------- ------------- -----------
8 352,691 100.00% $2,843,805
------ -------------- ------------- -----------
------ -------------- ------------- -----------
</TABLE>

- 17 -
<PAGE>

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

(1) Represents annualized monthly Base Rent of the leases in effect at
December 31, 1997. For purposes of this report, "Base Rent" means
contractual gross rent and, therefore, excludes payments by tenants on
account of real estate taxes and operating expense reimbursements.
(2) Month-to-month tenants are included as 1998 expirations.

PRINCIPAL TENANTS

The Company's 15 largest tenants accounted for approximately 25% (or
approximately $22.4 million) of the total annual Base Rent at December 31,
1997. The weighted average remaining lease term for the 15 largest tenants
was 6.4 years at December 31, 1997. Although the loss of several significant
tenants could have a materially adverse effect on the financial condition of
the Company, the Company believes that the total number and geographical
diversity of tenants at the Industrial Properties contributes to the
stability of the portfolio, eases releasing of space subject to expiring
leases and mitigates the potential impact on cash flows due to periodic
vacancies.

The following table summarizes the 15 largest tenants occupying the
Properties, as measured by annualized Base Rent as of December 31, 1997.

<TABLE>
<CAPTION>
NUMBER SQUARE ANNUAL PERCENTAGE
OF FEET BASE OF TOTAL
LEASES LEASED RENT(1) PORTFOLIO
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sears Roebuck and Co. 3 1,814,592 $ 4,966,448 5.5%
Continental General Tire, Inc. 2 632,790 2,120,916 2.4
Carnation Company(2) 1 260,000 1,771,448 2.0
S.C. Johnson & Son, Inc. 2 502,500 1,665,385 1.9
Kirk Paper Corporation 1 315,705 1,412,712 1.6
Allegiance Healthcare Corporation(3) 1 361,690 1,294,127 1.4
Kraft Foods, Inc. 1 351,788 1,278,262 1.4
Technicolor Videocassette, Inc. 1 310,736 1,132,585 1.3
Cumberland Swan, Inc. 2 341,552 1,127,122 1.3
L.D. Brinkman and Company 1 367,744 1,055,676 1.2
Moog Automotive, Inc. 1 209,682 966,215 1.1
International Business Machine 1 150,000 937,500 1.0
AmeriSource Health Corporation 1 181,370 936,747 1.0
Mattel Toys 1 275,169 924,576 1.0
Core-Mark Distributors, Inc. 1 201,380 852,000 0.9
------- --------- ----------- ---------
Total 20 6,276,698 $22,441,719 25.0%
------- --------- ----------- ---------
------- --------- ----------- ---------

</TABLE>

- ----------
(1) Represents annualized monthly Base Rent of the leases in effect at December
31, 1997. For purposes of this report, "Base Rent" means contractual
gross rent and, therefore, excludes payments by tenants on account of real
estate taxes and operating expense reimbursements.
(2) This tenant has sub-leased this space to Blockbuster Music Corp.
(3) This lease is guaranteed by Baxter Healthcare Corporation.

ITEM 3. LEGAL PROCEEDINGS.

The Company currently is not involved in any litigation and does not
know of any litigation currently threatened, except for routine litigation
arising in the ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 1997.

- 18 -
<PAGE>

- -------------------------------------------------------------------------------
PART II
- -------------------------------------------------------------------------------

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The Company's Common Stock has been listed on the New York Stock Exchange
("NYSE") since February 26, 1996, under the symbol "MDN." On March 3, 1998, the
last reported sales price per share of Common Stock on the NYSE was $24.813.
There were approximately 16,630 holders of record of the Company's Common Stock
at March 3, 1998. The following table summarizes the high and low last reported
closing sales prices per share of the Common Stock on the NYSE during each
calendar quarter the Common Stock has been listed.

PERIOD HIGH LOW
-------------------------------------------------------------------
<S> <C> <C>
1997
First Quarter $24.125 $20.875
Second Quarter $23.625 $20.500
Third Quarter $25.625 $22.188
Fourth Quarter $26.188 $21.875

1996
February 26, 1996 through March 31, 1996 $16.625 $15.125
Second Quarter $18.375 $15.875
Third Quarter $18.125 $17.125
Fourth Quarter $21.750 $17.125

</TABLE>

There are two holders of record of the Series B Preferred Stock owning
2,272,727 shares. The Series B Preferred Stock is convertible into Common Shares
at any time.

As a condition of maintaining its status as a REIT, the Company is
required to make distributions to stockholders that aggregate annually to at
least 95% of its taxable income. For the period beginning February 23, 1996
(the date the Merger and Asset Purchase were completed) through March 31,
1996, the Company declared and paid a distribution of approximately $0.12 per
share to holders of record of Common Stock (equivalent to a quarterly
distribution of $0.29 per share). Thereafter, the Company has declared and
paid regular quarterly distributions of $0.29 per share to holders of its
Common Stock, which on an annualized basis is equivalent to an annual
distribution of $1.16 per share. For the period beginning February 23, 1996
(the date of completion of the Preferred Stock Private Placement) through
March 31, 1996, the Company declared and paid a distribution per share to the
holders of record of the Series B Preferred Stock of $0.13 (equivalent to a
quarterly distribution of approximately $0.31 per share). Thereafter, the
Company has declared and paid regular quarterly distributions of $0.31 per
share to holders of Series B Preferred Stock. Beginning January 1, 1998,
each share of Series B Preferred Stock is entitled to receive quarterly
dividends, an amount equal to the greater of (i) the quarterly preferred
dividend amount declared by the Board of Directors ("the Board"), for the
quarter ended December 31, 1997, or (ii) the dividend paid per share of
Common Stock for the current quarter. Future distributions by the Company
will be at the discretion of the Company's Board and will depend on the
actual funds from operations of the Company, its financial condition, its
capital requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Board deems relevant.
In addition, the rights of holders of Common Stock to receive distributions
are junior to the rights of the holders of the Series B Preferred Stock; the
terms of the Series B Preferred Stock provide that no dividends may be paid
on shares of Common Stock if dividends to which the holders of Series B
Preferred Stock are entitled are in arrears. There can be no assurance that
any such distributions will be made by the Company.

In the Merger, holders of Trust VI common stock and Trust VII common
stock received a total of 553,000 warrants to purchase Common Stock ("Merger
Warrants"). The Merger Warrants were issued in certificated form under a
Warrant Agreement between the Company and First Chicago Trust Company of New

- 19 -
<PAGE>

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

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

If a holder of Merger Warrants fails to exercise his or her Merger
Warrants on or before February 23, 1999, those warrants will expire and the
holder will have no further rights with respect to Merger Warrants. A holder
of Merger Warrants will not have any rights, privileges or liabilities of a
stockholder of the Company prior to exercise of the Merger Warrants,
including the rights to vote and to receive distributions.

In addition, the Company issued a warrant to purchase 184,900 shares of
the Company's Common Stock at an exercise price of $14.60 per share. The
warrant is exercisable in whole or in part at any time from May 23, 1997 to
February 23, 1999. No shares of Common Stock have been issued pursuant to
this warrant as of December 31, 1997.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

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

STOCKHOLDER RIGHTS PLAN

The Company's Board recently authorized the adoption of a stockholder
rights plan designed to enhance the ability of all of the Company's
stockholders to realize the long-term value of their investment. The rights
plan is designed, among other things, to prevent a person or group from
gaining control of the Company without offering a fair price to all of the
Company's stockholders.

On February 27, 1998, the Board declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was paid to the stockholders of record on March 16, 1998. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series C Junior Participating Preferred Stock, par value $.001 per
share, of the Company, at a price of $100 per one one-thousandth of a share,
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of March 12, 1998, between the Company and First
Chicago Trust Company of New York, as Rights Agent.

- 20 -
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

The following table summarizes certain selected financial data for the
Company as of and for the years ended December 31, 1997 and December 31, 1996.
The Company was incorporated on May 18, 1995. Except for interest earned on its
investments and general and administrative expenses which were incurred and
accrued, the Company had no other activities prior to February 23, 1996, the
date of the Merger. This table should be read in conjunction with the more
detailed financial statements included elsewhere herein.

In addition, the table summarizes certain selected financial data of the
Merged Trusts as of and for the three years ended December 31, 1995 and for
the period January 1, 1996 to February 23, 1996.

- 21 -
<PAGE>

SELECTED FINANCIAL AND OTHER DATA
AS OF AND FOR THE PERIODS INDICATED
(IN THOUSANDS, EXCEPT PER SHARE DATA)

COMPANY MERGED TRUSTS
---------------------------------- -----------------------------------------------------
YEAR YEAR MAY 18, JANUARY 1,
ENDED ENDED 1995 TO 1996 TO FOR THE YEAR ENDED DECEMBER 31,
DECEMBER DECEMBER DECEMBER FEBRUARY 23, -------------------------------
31, 1997 31, 1996 31, 1995 1996 (2) 1995 1994 1993
--------- ---------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues................. $ 66,150 $ 35,041 $ 33 $ 5,158 $ 34,597 $ 34,822 $ 35,024
Income (Loss) Before
Gain (Loss) on Divestiture of
Properties and
Extraordinary Items......... 23,958 11,161 (1,293) (542) 852 (11,135) (9,993)
Gain (Loss) on Divestiture of
Properties, Net............ (462) 3,313 -- -- -- -- --
Extraordinary Items........... (808) (411) -- -- (1,865) -- 796
Net Income (Loss)............. 22,688 14,063 (1,293) (542) (1,013) (11,135) (9,197)
Net Income (Loss)
Allocable to Common 19,870 11,651 (1,322) -- -- -- --
Net Income (Loss) Per
Basic Common Share:
Before Extraordinary
Item........................ $ 1.17 $ 1.42 $(1,468.89) $ -- $ -- $ -- $ --
Net Income (Loss)........... 1.12 1.37 (1,468.89) -- -- -- --
Net Income (Loss) Per
Diluted Common Share:
Before Extraordinary
Item....................... $ 1.13 $ 1.37 $ (32.05) $ -- $ -- $ -- $ --
Net Income (Loss)........... 1.09 1.33 (32.05) -- -- -- --
Distributions Per
Share:
Common Stock................ 1.16 0.99 -- -- -- -- --
Preferred Dividends......... 1.24 1.06 0.03 -- -- -- --

BALANCE SHEET DATA:
Investment in Real
Estate Assets, Net.......... $ 830,007 $ 321,984 $ -- $ -- $ 217,216 $ 226,219 $ 249,492
Total Assets.................. 863,512 333,063 3,724 -- 247,159 250,986 275,951
Unsecured Notes, Net.......... 160,109 -- -- -- -- -- --
Mortgage Loans................ 66,094 66,094 -- -- 109,728 137,143 151,130
Unsecured Credit
Facility.................... 20,500 11,500 -- -- -- -- --
Stockholders' Equity
(Deficit)................... 570,139 243,513 (714) -- 106,375 107,388 118,523

OTHER DATA:
Funds From
Operations (1).............. $ 35,067 $ 16,076 $ -- $ -- $ -- $ -- $ --
Cash Flows Provided By
(Used In):
Operating Activities......... 37,286 20,615 (459) (549) 7,229 6,755 8,226
Investing Activities (177,402) (86,302) (576) (185) (5,039) 5,949 (466)
Financing Activities......... 145,029 68,154 1,510 (442) (6,069) (14,200) (4,696)
Weighted Average:
Basic Common Shares
Outstanding................ 17,791,304 8,476,461 900 -- -- -- --
Diluted Common Shares
Outstanding................ 18,264,459 10,545,878 41,251 -- -- -- --
Preferred Shares
Outstanding................ 2,272,727 2,272,727 1,000,000 -- -- -- --
</TABLE>

- 22 -
<PAGE>

- ------------
(1) In addition to cash flows and net income, management and industry analysts
generally consider Funds From Operations to be one additional measure of
the performance of an equity REIT because, together with net income and
cash flows, Funds From Operations provides investors with an additional
basis to evaluate the ability of an entity to incur and service debt and to
fund acquisitions and other capital expenditures. However, Funds From
Operations does not measure whether cash flow is sufficient to fund all of
an entity's cash needs including principal amortization, capital
improvements, and distributions to stockholders. Funds From Operations also
does not represent cash generated from operating, investing or financing
activities as determined in accordance with generally accepted accounting
principles. Funds From Operations should not be considered as an
alternative to net income as an indicator of an entity's operating
performance or as an alternative to cash flow as a measure of liquidity.
Funds From Operations is defined by NAREIT as net income or loss, excluding
gains or losses from debt restructurings and sales of properties, plus
depreciation and amortization of real estate assets, and after adjustments
for unconsolidated partnerships and joint ventures. The Company calculates
Funds From Operations as defined by NAREIT and as interpreted in the White
Paper (i.e., the Company does not add back amortization of deferred
financing costs and depreciation of non-rental real estate assets to net
income). In addition, other real estate companies may calculate Funds From
Operations differently than the Company. A reconciliation of Funds From
Operations to net income for the years ended December 31, 1997 and 1996 is
summarized below:

FOR THE YEARS
ENDED
DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
Net Income $22,688 $14,063
Reconciling Items:
Depreciation and Amortization of
Real Estate Assets 11,109 4,915
(Gain) Loss on Divestiture of
Properties, Net 462 (3,313)
Extraordinary Item 808 411
------- -------
Funds From Operations $35,067 $16,076
------- -------
------- -------
</TABLE>

- 23 -
<PAGE>

ITEM 7. 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 operating
company engaged primarily in the business of owning, acquiring, developing,
managing, and leasing income-producing warehouse/distribution and light
industrial properties. (See Item 1 of this report.) The Company's principal
asset is its portfolio of 193 Industrial Properties and two Retail Properties.
(See Item 2 of this report.)

This section should be read in conjunction with the financial statements
and supplementary data listed in Item 8 and Item 14 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 those 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, development,
expansions and renovations using a combination of cash flow from operations and
bank and institutional debt financing, supplemented with private or public debt
or equity placements. Where intermediate or long-term debt financing is
employed, the Company generally seeks to obtain fixed interest rates or enter
into agreements intended to cap the effective interest rate on floating rate
debt. The Company intends to operate with a ratio of debt-to-total market
capitalization that generally will not exceed 50%. Total market capitalization
is defined as the total indebtedness divided by total market capitalization
which equals the sum of total indebtedness, the market value of the Company's
Common Stock and the liquidation preference value of the Series B Preferred
Stock.

SOURCES OF LIQUIDITY

The Company's main sources of liquidity are: (i) cash flows from operating
activities, (ii) cash reserves, (iii) borrowings under the Unsecured Credit
Facility, (iv) proceeds from private or public equity or debt placements, and
(iv) proceeds from the sale of properties. A summary of the Company's
historical cash flows for the year ended December 31, 1997, are as follows:

<TABLE>
<CAPTION>
<S> <C>
Cash flows provided by (used in):
Operating activities $ 37,286
Investing activities (177,402)
Financing activities 145,029

</TABLE>

As of December 31, 1997, the Company had approximately $7,855 in
unrestricted cash and cash equivalents.

As of December 31, 1995, the Merged Trusts and Trust 83 had
approximately $126,100 in total debt, $33,500 of which was paid off
concurrent with the Merger using a portion of the net proceeds from the sale
in a private placement of 2,272,727 shares of Series B Preferred Stock,
resulting in an outstanding debt balance after the Merger of approximately
$92,600. Subsequent to the Merger, the Company drew on the Unsecured Credit
Facility and used the proceeds to retire all other debt assumed upon the
Merger and Asset Purchase, except for the $66,094 outstanding on the fixed
rate debt facility (the "Mortgage Loan"). The Mortgage Loan bears interest
at an annual rate of 8.63% and requires interest only payments until its
maturity in 2005.

The Unsecured Credit Facility originally bore interest at LIBOR plus
1.7%, was scheduled to mature in February 1998, and provided for a maximum
borrowing amount of $75,000. On April 21, 1997, the Unsecured

- 24 -
<PAGE>

Credit Facility was amended and restated. This amendment and restatement of
the Unsecured Credit Facility provided for (i) an increase in 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. On September 23, 1997, the Unsecured
Credit Facility was further amended and restated to provide for (i) an
increase of the borrowing limit from $150,000 to $250,000 and (ii) a decrease
in the interest rate spread over LIBOR from 1.4% to 1.3%. At December 31,
1997, the interest rate on Unsecured Credit Facility was 7.02%. During the
year ended December 31, 1997, the Company borrowed $182,500 under its
Unsecured Credit Facility to fund property acquisitions and developments.

On November 20, 1997, the Company completed a private offering of $160,000
in principal of unsecured senior notes to institutional investors. The
unsecured senior notes were issued in two tranches, $135,000 maturing on
November 20, 2007, bearing an interest rate of 7.25% per annum, and $25,000
maturing on November 20, 2009, bearing an interest rate of 7.30% per annum.
Interest on these notes is payable semiannually. The proceeds were used to repay
borrowings on the Unsecured Credit Facility. In connection with this
transaction, the Company entered into two forward exchange rate contracts which
resulted in a premium totaling $109.

Future minimum principal payments for the Company's mortgage loans and
long-term debt as of December 31, 1997, are as follows:

Years Ending
December 31, Amount
------------ ----------
<S> <C>
1998 $ 10,350
1999 --
2000 20,500
2001 --
2002 --
Thereafter 226,094
----------
$ 256,944
----------
----------
</TABLE>

The $20,500 of long-term debt maturing in the year 2000 represents the
borrowings outstanding on the Unsecured Credit Facility. This amount will
change to the extent borrowings and/or payments are made on the Unsecured Credit
Facility in 1998 and 1999.

The Company currently has a policy of incurring debt only if, upon such
incurrence, the Company's debt-to-total market capitalization would be 50% or
less. However, the Company's organizational documents do not contain any
limitation on the amount of indebtedness the Company may incur. Accordingly,
the Board could alter or eliminate this policy and would do so if, for example,
it were necessary in order for the Company to continue to qualify as an REIT.
If this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the cash
available for distribution to stockholders and could increase the risk of
default on the Company's indebtedness.

In addition to the variable interest rate contracts on the Unsecured Credit
Facility, the Company may incur indebtedness in the future that bears interest
at a variable rate, or it may be required to refinance its debt at higher rates.
As a result, increases in interest rates could increase the Company's interest
expense, which could adversely affect the Company's ability to pay distributions
to stockholders.

- 25 -
<PAGE>

On December 23, 1997, the Company completed a public offering of 414,508
shares of the Company's Common Stock at an offering price of $24.125 per share,
resulting in gross proceeds of $10,000. The Company used the net proceeds to
fund two property acquisitions.

In connection with the Merger, the Company issued approximately 553,000
warrants to purchase an equal number of shares of the Company's Common Stock
(the "Merger Warrants"). May 23, 1997, was the first day of the exercise
period for the Merger Warrants. Each Merger Warrant entitles the holder to
purchase one share of the Company's Common Stock at the exercise price of
$16.23. The exercise period ends February 23, 1999. As of December 31, 1997,
the Company had issued 23,315 shares pursuant to exercise of the Merger
Warrants.

In addition, the Company issued a warrant to purchase 184,900 shares of the
Company's Common Stock at an exercise price of $14.60 per share. The warrant is
exercisable in whole or in part at any time from May 23, 1997 to February 23,
1999. No shares of Common Stock have been issued pursuant to this warrant as of
December 31, 1997.

During the year ended December 31, 1997, the Company sold five
Properties and a parcel of land for an aggregate sales price of $11,983. The
Properties and land parcel were located in Alabama, Texas, California,
Arizona and Georgia. After closing costs and pro-rated items totaling $654
from these transactions, the Company received net proceeds aggregating to
$11,329.

On February 28, 1998, the Company sold a property located in Tennessee for
a sales price of $1,880. After closing costs and pro-rated items totaling $110,
the Company received net proceeds of $1,770. The Company has entered into an
agreement to sell the San Carlos property located in California. The net
proceeds from Property dispositions will be used to repay borrowings on the
Unsecured Credit Facility.

USES OF LIQUIDITY

The Company's principal applications of its cash resources are: (i)
funding of property acquisitions and developments; (ii) payments of capital
improvements and leasing costs; (iii) payment of distributions; (iv) payment of
property operating costs including property expenses, property taxes, general
and administrative expenses, and interest expense; and (v) principal payments on
debt.

The Company anticipates that it will have sufficient cash flows to fund:
(i) its operating needs, (ii) capital improvements on its properties, and (iii)
the proposed distributions to its common and preferred stockholders. Planned
capital improvements on the Company's properties consist of tenant improvements
and other expenditures necessary to lease and maintain the properties.

The Company has been declaring and paying dividends on a quarterly basis.
During the years ended December 31, 1997 and 1996, dividends declared to Common
Stockholders aggregated to $24,425 and $10,544, respectively, or $1.16 and $.99
per share of Common Stock, respectively. During the years ended December 31,
1997 and 1996, dividends declared to Series B Preferred Stockholders aggregated
to $2,818 and $2,412, respectively, or $1.24 and $1.06 per share of Preferred
Stock, respectively. Beginning January 1, 1998, each share of Series B
Preferred Stock is entitled to receive quarterly dividends in an amount equal to
the greater of (i) the quarterly preferred dividend amount declared by the Board
of Directors for the quarter ended December 31, 1997, or (ii) the dividend paid
per share of Common Stock for the current quarter. See Item 5 of this report.

On March 4, 1998, the Board declared a dividend of $0.33 per share of
Common Stock payable on April 17, 1998 to stockholders of record on April 3,
1998. This represents a 14% increase in the annualized dividend to $1.32 from
$1.16 per share. The Board also declared a dividend of $0.33 per share of
Series B Preferred Stock payable on April 15, 1998, to stockholders of record
on April 3, 1998. This represents a 6% increase in the annualized dividend to
$1.32 from $1.24 per share.

During the year ended December 31, 1997, the Company repaid borrowings on
its Unsecured Credit Facility totaling $173,500 using the net proceeds received
from (i) a private offering of $160,000 in principal of unsecured senior notes
to institutional investors, (ii) property dispositions during 1997, and (iii)
existing cash reserves.

DEVELOPMENT PROJECTS

- 26 -
<PAGE>

During the year ended December 31, 1997, the Company, either directly or
through consolidated partnerships, completed development of and placed in
service five warehouse/distribution Properties comprising 786,960 square feet
with an aggregate cost of $35,619.

At December 31, 1997, the Company had, either directly or through
consolidated partnerships, nine warehouse/distribution Properties under
development or scheduled for development comprising 3,181,614 square feet
upon completion. The aggregate cost for the design and construction of these
development projects is estimated to be approximately $107,441. As of
December 31, 1997, the Company incurred total project costs of approximately
$35,336 on these development projects. The Company anticipates funding the
balance of such development costs from cash reserves and borrowings under the
Unsecured Credit Facility.

In connection with the development activities relating to the
consolidated partnerships, the Company's minority partners contributed land
and other consideration valued at $5,102.

PROPERTY AND PORTFOLIO ACQUISITIONS

During the year ended December 31, 1997, the Company purchased thirteen
Properties located in California, Georgia, Indiana, New Jersey, Texas and
Wisconsin, with an aggregate square footage of 2,591,034. The aggregate
purchase price for these Properties totaled $90,401. The Company funded a
portion of these acquisitions from cash reserves and funded the majority of
the remaining costs with borrowings under the Unsecured Credit Facility. In
addition, the Company assumed mortgage notes totaling $16,153. The Company
recorded a corresponding premium totaling $324 in connection with these
mortgage notes.

On September 30, 1997, the Company acquired from Ameritech Pension Trust
("Ameritech") in a property-for-stock transaction (i) eleven
warehouse/distribution properties comprising 1,521,170 square feet, and (ii)
a participating mortgage loan secured by a seven building, 623,678 square
foot project. The purchase price totaled $81,589, including the
participating loan which was purchased for $21,500. The property-for-stock
transaction involved the issuance of 4,160,745 shares of the Company's Common
Stock to Ameritech.

On October 22, 1997, the Company acquired eleven additional
warehouse/distribution Properties comprising 1,960,334 square feet in
consideration of the issuance of 3,104,477 shares of the Company's Common
Stock to Ameritech. The purchase price for this transaction totaled $61,571.

On September 24, 1997, the Company acquired from The Prudential
Insurance Company of America and related entities (collectively "Prudential")
a portfolio of 44 industrial buildings containing an aggregate of
approximately 3,538,000 square feet of rentable space (the "Portfolio
Properties"). The aggregate contract price for the Portfolio Properties was
$127,079 (the "Prudential Property Transaction"). The Company also
contracted with Prudential to purchase five unimproved parcels of land
located in California, Illinois and Michigan. The contract price for these
parcels of $13,721 was deposited into an escrow account. In the event that
the contingencies regarding these properties are not cleared to the Company's
satisfaction, then the funds in the escrow account will be returned to the
Company. On December 10, 1997, the Company purchased the unimproved land
located in California for a purchase price of $3,055, funded from the escrow
account.

The Company funded the cost of the Prudential transactions from a
combination of (i) net proceeds from the sale of 7,096,513 shares of the
Company's Common Stock to Prudential and three separate accounts managed by
Prudential totaling $141,901, and (ii) proceeds from borrowings under its
Unsecured Credit Facility.

Concurrent with the closing of the Prudential Property Transaction,
eight industrial properties located in the metropolitan areas of New Orleans,
Louisiana and five industrial properties located in the metropolitan area of
Jacksonville, Florida (collectively the "EastGroup Properties") were directly
conveyed in a simultaneous sale by the Company to EastGroup Properties, L.P.
("EastGroup") for a total sales price of $49,710. In addition, EastGroup
paid $207 of cash for closing costs and pro-rated items. The total
consideration paid by EastGroup for the EastGroup Properties was cash of
$4,917 and $45,000 in fully secured promissory notes. EastGroup repaid

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<PAGE>

the notes on December 30, 1997. The notes required monthly payments of
interest only computed on the basis of an annual rate of 9.25%. The
EastGroup Properties were conveyed at the Company's cost of such properties
thus resulting in no gain or loss on the transaction.

The Company also entered into agreements to acquire 12 industrial
Properties from two separate accounts managed by Prudential Real Estate
Investors. On August 29, 1997, the Company acquired seven of these
properties comprising 825,568 square feet. The purchase price consisted of
the payment of $16,047 in cash and the issuance of 808,888 shares of Common
Stock. On September 24, 1997, the Company acquired the remaining five
industrial properties comprising 953,691 square feet. The purchase price
consisted of the payment of $9,361 in cash and the issuance of 1,106,931
shares of Common Stock. The total $25,408 cash portion of the purchases for
these portfolios was funded from borrowings on the Company's Unsecured Credit
Facility.

On December 31, 1997, the Company acquired an eight Property portfolio
located in Texas, comprising 607,275 square feet for a total purchase price
of $15,700. The Company funded the acquisition from a portion of the
proceeds received from the repayment of the promissory notes by the EastGroup.

On December 31, 1997, the Company also acquired a nine Property
portfolio located in New Jersey and Delaware comprising 397,897 square feet
for a total purchase price of $10,790. The Company funded the acquisition
from a portion of the proceeds received from the repayment of the promissory
notes by the EastGroup.

ACQUISITIONS SUBSEQUENT TO DECEMBER 31, 1997

During the period from January 1, 1998 to March 23, 1998, the Company,
either directly, or through its consolidated and unconsolidated subsidiaries,
acquired 12 properties and businesses with an aggregate purchase price of
approximately $90,585 located in California, Texas and Nevada. These
acquisitions were funded through the use of $6,739 in cash reserves, $60,154
in drawings on the Unsecured Credit Facility, and the assumption of $17,468
in mortgage indebtedness. The properties acquired have square footage
totaling approximately 773,000, including three properties acquired by an
unconsolidated subsidiary. In the same transactions, approximately 56 acres
of land scheduled for future development was also acquired. The costs to
develop these parcels is expected to aggregate to approximately $33,000, to
be funded from drawings on the Unsecured Credit Facility and from cash
reserves. These properties, when complete, will total approximately 749,000
square feet. In addition, the Company has entered into a commitment in the
amount of $19,369 to acquire additional property from the seller of certain
of the acquired properties.

OTHER RISKS

YEAR 2000 COMPLIANCE

The Company utilizes a number of computer software programs and
operating systems across its entire organization, including applications used
in financial business systems and various administrative functions. To the
extent that the Company's software applications contain source code that is
unable to appropriately interpret the upcoming calendar year "2000" and
beyond, some level of modification, or replacement of such application will
be necessary. The Company has completed its identification of applications
that are not yet "Year 2000" compliant and has commenced modification of
replacement of such applications, as necessary. Given information known at
this time about the Company's systems that are non-compliant, coupled with
the Company's ongoing, normal course-of-business efforts to upgrade or
replace critical systems, as necessary, management does not expect Year 2000
compliance costs to have any material adverse impact on the Company's
liquidity or ongoing results of operations. No assurance can be given,
however, that all of the Company's systems will be Year 2000 compliant or
that compliance costs or the impact of the Company's failure to achieve
substantial Year 2000 compliance will not have a material adverse impact on
the Company's future liquidity or results of operations.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

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<PAGE>

COMPARISON OF HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1997 TO HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1996

The Company's historical results of operations for the year ended
December 31, 1996 include the operating activities subsequent to the Merger
and Asset Purchase. In comparison to the operating activities of the Company
for 1997, which reflect one full year of operations from January 1, 1997 to
December 31, 1997, the historical results of operations for the year ended
December 31, 1996 reflect the operating activities of the Company from
February 23, 1996 to December 31, 1996 (the difference between these two time
periods are referred to as "Short Period Differences").

Rentals from Real Estate Investments for the years ended December 31,
1997 and 1996 totaled $63,491 and $34,465, respectively. The increase of
$29,026 was due to (i) the Short Period Differences of $6,784, (ii)
Properties acquired during 1996 and 1997 ("Property Acquisitions") which
increased rental revenues by $22,759, and (iii) the rental revenues generated
by the build-to-suit properties placed in service during 1996 and 1997
("Completed Build-to-Suits") totaling $4,669. These increases were offset by
Properties disposed of during 1996 and 1997 ("Property Dispositions") which
reduced rental revenues by $5,186.

Interest and Other Income totaled $2,014 and $576 for the years ended
December 31, 1997 and 1996, respectively. The increase of $1,438 was
primarily due to interest income from the $45,000 in fully secured promissory
notes which was part of the consideration for the EastGroup Properties.
These notes were repaid on December 30, 1997.

Income from Unconsolidated Joint Venture totaled $645 for the year ended
December 31, 1997 resulting from interest income on the $21,500 participating
mortgage loan purchased by the Company in connection with the
property-for-stock transaction with Ameritech.

Compared to 1996, Interest Expense increased by $4,957 to $11,022 during
the year ended December 31, 1997. The increase was primarily due to
increased levels of borrowings under the Unsecured Credit Facility during
1997 as compared to 1996.

Compared to 1996, Property Taxes increased by $3,425 to $8,194 during
the year ended December 31, 1997. The increase was due to (i) the Short
Period Differences of $923, (ii) the Property Taxes attributable to the
Property Acquisitions totaling $2,716, and (iii) the Property Taxes for the
Completed Build-to-Suits amounting to $468. These increases were offset by
Property Dispositions which reduced Property Taxes by $682.

Compared to 1996, Property Operating Expenses increased by $1,719 to
$5,540 during the year ended December 31, 1997. The increase was due to (i)
the Short Period Differences of $844, (ii) the Property Operating Expenses
attributable to the Property Acquisitions totaling $1,397, and (iii) the
Property Operating Expenses for the Completed Build-to-Suits amounting to
$417. These increases were offset by Property Dispositions, which reduced
Property Operating Expenses by $939.

General and Administrative Expenses totaled $6,212 and $4,273 for the
years ended December 31, 1997 and 1996, respectively. The increase of $1,939
was due to the Short Period Differences of $423 and an increase in personnel
costs of $1,516 arising from the growth of the Company.

Compared to 1996, Depreciation and Amortization Expense increased by
$6,242 to $11,194 during the year ended December 31, 1997. The increase was
due to (i) the Short Period Differences of $1,336, (ii) the Depreciation
Expense attributable to the Property Acquisitions totaling $4,466, and (iii)
the Depreciation Expense for the Completed Build-to-Suits amounting to
$1,045. These increases were offset by Property Dispositions, which reduced
Depreciation and Amortization Expenses by $605.

The Loss on Divestiture of Properties totaling $462 for the year ended
December 31, 1997 was attributable to the disposition of the Wildwood and
Golden Cove properties, which resulted in a total loss of $1,218. The losses

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<PAGE>

were partially offset by gains on the disposition of the Birmingham I,
Birmingham II and Phoenix North 23rd properties and the Marietta land parcel
totaling $756.

The Gain on Divestiture of Properties totaling $3,313 for the year ended
December 31, 1996 was attributable to (i) the disposition of the Moorpark R &
D Building located in California resulting in a gain of $165, (ii) the
disposition of Progress Center I, Progress Center II and 8215 Highway
Building located in Alabama, resulting in a gain of $230, (iii) the
disposition of the Seatac and Meridian Village Shopping Centers located in
Washington, resulting in a net gain of $1,420, and (iv) the disposition of
eight properties located in Arizona, resulting in a net gain of $1,498.

The Extraordinary Item totaling $808 for the year ended December 31 1997
was attributable to the restructuring of the Company's Unsecured Credit
Facility. The Company wrote off loan costs in connection with this
restructuring. The Extraordinary Item totaling $411 for the year ended
December 31, 1996 was incurred in connection with the retirement of debt
assumed in connection with the Merger and Asset Purchase.

COMPARISON OF HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1996 TO HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1995

The Company was incorporated on May 18, 1995. The Merger and Asset
Purchase were consummated on February 23, 1996. Except for Interest earned
on its investments and General and Administrative Expenses which were
incurred and accrued, the Company had no operating activities as of December
31, 1995. As a result, the Company's historical results of operations for
the year ended December 31, 1996 are not comparable to the prior year's
historical results of operations. The Company's historical results of
operations for the year ended December 31, 1996 include the operating
activities subsequent to the Merger and Asset Purchase.

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<PAGE>
COMPARISON OF HISTORICAL AS ADJUSTED RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996 TO HISTORICAL AS ADJUSTED RESULTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1995.

The unaudited historical as adjusted operating data of the Company for
the years ended December 31, 1996 and 1995 has been prepared to reflect (i)
the respective historical results of the Merged Trusts and the Properties
acquired from Trust 83 ("Trust 83 Properties"); (ii) the May 31, 1995 closing
of the transactions under the stock purchase agreements between Hunt and each
of the Merged Trusts and the stock purchase agreements between USAA, and each
of the Merged Trusts, and the concurrent restructuring or retirement of the
Merged Trusts' indebtedness ("Recapitalization"); (iii) the incremental
effects of the Merger, the retirement of certain indebtedness using the net
proceeds of the Series B Preferred Stock Private Placement and availability
of funds on the Unsecured Credit Facility ("Refinancing"); and the effect of
purchase accounting on the historical results of the Merged Trusts and the
Trust 83 Properties; and (iv) the historical results of the Company to
reflect the post-Merger operations of the Company as if such transactions and
adjustments had occurred on January 1, 1995. The historical as adjusted
information excludes the impact of the April and November offerings. The
Merger, Asset Purchase and Refinancing closed concurrently on February 23,
1996.

In the opinion of management, the unaudited historical as adjusted
consolidated financial information provides for all adjustments necessary to
reflect the effects of the Merger, the Asset Purchase, the Refinancing and
the Recapitalization.

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

FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
TOTAL REVENUE $ 40,199 $ 38,861

EXPENSES:
Interest 7,571 7,409
Property Taxes 5,581 5,485
Property Operating 4,733 5,099
General and Administrative 5,435 4,800
Depreciation and Amortization 6,260 5,148
-------- --------
TOTAL EXPENSES 29,580 27,941
-------- --------
NET INCOME BEFORE GAIN (LOSS) ON SALE OF
PROPERTIES AND EXTRAORDINARY ITEMS $ 10,619 $ 10,920
-------- --------
-------- --------
</TABLE>

The Company's historical as adjusted Net Income of $10,619 was $301
lower for the year ended December 31, 1996 than in 1995. The decrease is
mainly attributable to increases in Interest, General and Administrative, and
Depreciation and Amortization Expenses totaling $162, $635 and $1,112,
respectively. These expenses increased primarily due to the property
acquisitions made in 1996 which necessitated borrowings on the Unsecured
Credit Facility and resulted in increased General and Administrative
Expenses. These were partially offset by an increase in the Net Operating
Income generated by the asset portfolio. Compared to 1995, total Revenue
increased by $1,338 of which $2,727 is attributable to properties acquired in
1996, partially offset by decreases in total revenues attributable to
properties disposed in 1995 and 1996 totaling $1,431. Compared to 1995,
Property

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<PAGE>

Operating Expenses decreased by $366 in 1996. The Property
Operating Expenses decreased primarily due to the fact that a portion of the
costs classified as Property Operating Expenses in 1995 were classified as
General and Administrative Expenses in 1996.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and supplementary data listed in Item 14(a)(1)
and (a)(2) below are incorporated herein by reference and filed as part of
this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.

The Company has not changed its independent certified public accountants
and has not had any disagreement with its independent certified public
accountants on accounting or financial disclosures required to be made under
rules of the Securities and Exchange Commission.

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PART III
- --------------------------------------------------------------------------------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by Item 10 is incorporated by reference from
the Company's definitive proxy statement to be filed for its annual
stockholders' meeting to be held on May 15, 1998.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 11 is incorporated by reference from
the Company's definitive proxy statement to be filed for its annual
stockholders' meeting to be held on May 15, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

The information required by Item 12 is incorporated by reference from
the Company's definitive proxy statement to be filed for its annual
stockholders' meeting to be held on May 15, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 13 is incorporated by reference from
the Company's definitive proxy statement to be filed for its annual
stockholders' meeting to be held on May 15, 1998.

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- -------------------------------------------------------------------------------
PART IV
- -------------------------------------------------------------------------------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) (1) FINANCIAL STATEMENTS. The following Company financial statements are
filed as part of this report:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................... F-1
Consolidated Balance Sheets................................ F-2
Consolidated Statements of Operations...................... F-3
Consolidated Statements of Stockholders' Equity (Deficit).. F-4
Consolidated Statements of Cash Flows...................... F-5
Notes to Consolidated Financial Statements................. F-6
</TABLE>

(a) (2) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are filed as part of this report:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Valuation and Qualifying Accounts.......................... F-23
Real Estate and Accumulated Depreciation................... F-24
</TABLE>

(a) (3) EXHIBITS.

NO. DESCRIPTION
- -- -----------
<S> <C>
2.1 (1) Amended and Restated Agreement and Plan of Merger among the Trusts
and the Company dated as of November 10, 1995.

3.1 (2) The Company's Third Amended and Restated Articles of Incorporation.

3.2 (2) The Company's Second Amended and Restated Bylaws.

3.3 (3) Amendment to Second Amended and Restated Bylaws adopted January 26,
1996.

3.4 (3) Second Amendment to Second Amended and Restated Bylaws adopted
September 17, 1997.

3.5 (4) Amendment to Second Amended and Restated Bylaws adopted January 20,
1997.

4.1 (2) Specimen share certificate. (See also restrictions contained in
Exhibits 3.1 and 3.2)

4.2 (5) Rights Agreement, dated as of March 12, 1998, between the Company
and First Chicago Trust Company of New York, which includes the form
of Certificate of Designation of Series C Junior Participating
Preferred Stock as Exhibit A, the form of Rights Certificate as
Exhibit B and the form of the Summary of Rights as Exhibit C.

10.1 (2) Amended and Restated Employee and Director Incentive Stock Plan of
the Company.

10.2 (6) First Amendment to Amended and Restated Employee and Director
Incentive Stock Plan of the Company.

10.3 (4) Amendment to Amended and Restated Employee and Director Incentive
Stock Plan adopted by the Company's shareholders on May 16, 1997.

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<PAGE>

10.4 (4) Amendment to Amended and Restated Employee and Director Incentive
Stock Plan adopted by the Company's Board of Directors on
January 20, 1998.

10.5 (2) Amended and Restated Investor Rights Agreement among the Company,
Hunt, USAA, Trust 83, Ameritech and OTR dated as of February
23, 1996.

10.6 (7) Registration Rights Agreement dated September 24, 1997, among the
Company, The Prudential Insurance Company of America, The
Prudential Insurance Company of America on behalf of a single
client insurance company separate account contained in Group
Annuity Contract No. GA-9032, Strategic Performance Fund - II,
Inc., and The Prudential Variable Contract Real Property Partnership.

10.7 (7) Amended and Restated Registration Rights Agreement dated September
24, 1997, among the Company, The Prudential Insurance Company of
America acting for the benefit of the Chevron Separate Account, and
The Prudential Insurance Company of America acting for the benefit of
the Strategic Performance Fund I Separate Account.

10.8 (8) Registration Rights Agreement dated September 30, 1997 between the
Company and Ameritech Pension Trust.

10.9 (2) Amended and Restated Excepted Holder Agreement between the Company
and Hunt dated as of February 23, 1996.

10.10 (2) Amended and Restated Excepted Holder Agreement between the Company
and USAA dated as of February 23, 1996.

10.11 (2) Excepted Holder Agreement between the Company and Ameritech dated as
of February 23, 1996.

10.12 (2) Excepted Holder Agreement between the Company and OTR dated as of
February 23, 1996.

10.13 (3) MIT-Investor Excepted Holder Agreement dated September 24, 1997
between the Company and The Prudential Insurance Company of
America.

10.14 (4) First Amendment to Excepted Holder Agreement dated January 20, 1998
between the Company and The Prudential Insurance Company of America.

10.15 (8) MIT-Ameritech Amended and Restated Excepted Holder Agreement dated
September 30, 1997, between the Company and Ameritech Pension Trust.

10.16 (1) Amended and Restated Stockholders' Agreement among the Company, the
Trusts, USAA, Allen J. Anderson, C.E. Cornutt, Peter O. Hanson,
Robert E. Morgan, John S. Moody, James M. Pollak, Kenneth N.
Stensby and Lee W. Wilson dated as of November 10, 1995.

10.17 (2) Warrant Agreement between the Company and the First Chicago Trust
Company of New York dated as of February 23, 1996.

10.18 (1) Form of Indemnification Agreement signed by the Company and certain
directors, officers, employees and agents of the Company.

10.19 (1) Stock Purchase Agreement among the Company, Ameritech and OTR dated
as of December 20, 1995.

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<PAGE>

10.20 (3) Third Amended and Restated Revolving Credit Agreement dated
September 23, 1997, among (i) the Company, (ii) BankBoston, N.A.,
Texas Commerce Bank National Association, NationsBank of Texas, N.A.,
Wells Fargo Bank, N.A., Dresdner Bank AG, First American Bank Texas,
S.S.B., (collectively, the "Banks"), (iii) BankBoston, N.A. as Agent
for the Banks, (iv) Texas Commerce Bank National Association as
Documentation Agent for the Banks, and (v) NationsBank of Texas, N.A.
as Syndication Agent for the Banks.

10.21 (3) Second Amended and Restated Guaranty of Payment and Performance dated
September 23, 1997 executed by MIT Unsecured L.P.

10.22 (4) Form of First Amendment to Third Amended and Restated Revolving Credit
Agreement dated February 19, 1998 among (i) the Company, (ii) MIT
Unsecured L.P. and Meridian Refrigerated, Inc. (iv) BankBoston, N.A.,
Chase Bank of Texas, National Association, NationsBank of Texas, N.A.,
Wells Fargo Bank, N.A., Dresdner Bank AG, New York Branch and Grand
Cayman Branch, and First American Bank Texas, S.S.B., (collectively,
the "Banks"), (iii) BankBoston, N.A. as Agent for the Banks, (iv) Chase
Bank of Texas, National Association as Documentation Agent for the
Banks, and (v) NationsBank of Texas, N.A. as Syndication Agent for the
Banks.

10.23 (4) Form of Guaranty of Payment and Performance dated February 19, 1998 and
signed by Meridian Refrigerated, Inc.

10.24 (6) Amended and Restated Loan Administration Agreement between The
Prudential Insurance Company of America and the Company, IndTennco
Limited Partnership, Metro-Sierra Limited Partnership, and Progress
Center/Alabama Limited Partnership dated as of February 23, 1996.

10.25 (2) Agreement of Limited Partnership of DFW Nine dated April 15, 1987.

10.26 (2) Amendment No. 1 to Agreement of Limited Partnership of DFW Nine dated
June 1, 1987.

10.27 (2) Assignment of General Partnership Interests and Agreement regarding
DFW Nine dated February, 1996.

10.28 (6) Assignment of Limited Partnership Interest in MIT Unsecured L.P.
(formerly known as DFW Nine) dated December 31, 1996.

10.29 (2) Agreement of Limited Partnership of Progress Center/Alabama Limited
Partnership dated December 3, 1987.

10.30 (2) First Amendment to Agreement of Limited Partnership of Progress
Center/Alabama Limited Partnership dated June 29, 1990.

10.31 (6) Assignment of Limited Partnership Interest in MIT Secured L.P.
(formerly known as Progress Center/Alabama Limited Partnership)
dated December 31, 1996.

10.32 (9) Amended and Restated Stock Purchase Agreement dated June 12, 1997 by
and between the Company as Seller and The Prudential Insurance Company
of America, as Purchaser together with a summary of the economic terms
of three additional Stock Purchase Agreements into which the Company as
Seller has entered with Strategic Performance Fund-II, Inc. as
Purchaser, The Prudential Variable Contract Real Property Partnership
as Purchaser, and The Prudential Insurance Company of America on behalf
of a single client insurance company account contained in Group Annuity
Contract No. GA-9032 as Purchaser.

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<PAGE>

10.33 (9) Purchase and Sale Agreement (Texas properties) between The Prudential
Insurance Company of America and the Company dated May 29, 1997,
together with the First Amendment thereto dated July 7, 1997, the
Second Amendment thereto dated July 22, and the Third Amendment thereto
dated August 5, 1997.

10.34 (10) Fourth Amendment to Purchase and Sale Agreement (Texas properties)
between The Prudential Insurance Company of America and the Company
dated August 20, 1997, Fifth Amendment to Purchase and Sale Agreement
(Texas properties) between The Prudential Insurance Company of America
and the Company dated September 5, 1997, and Sixth Amendment to
Purchase and Sale Agreement (Texas properties) between The Prudential
Insurance Company of America and the Company dated September 8, 1997.

10.35 (9) Summary of the Purchase and Sale Agreement (Cedarpointe, CA)
between The Prudential Insurance Company of America and the Company
dated May 29, 1997, together with the First Amendment thereto dated
July 7, 1997, the Second Amendment thereto dated July 22, and the Third
Amendment thereto dated August 5, 1997.

10.36 (10) Fourth Amendment to Purchase and Sale Agreement (Cedarpointe, CA)
between The Prudential Insurance Company of America and the Company
dated August 20, 1997, Fifth Amendment to Purchase and Sale
Agreement (Cedarpointe, CA) between The Prudential Insurance Company
of America and the Company dated September 5, 1997, and Sixth
Amendment to Purchase and Sale Agreement (Cedarpointe, CA) between
The Prudential Insurance Company of America and the Company dated
September 8, 1997.

10.37 (9) Summary of the Purchase and Sale Agreement (460 Ellis
Road-Jacksonville & Centerport) between The Prudential Insurance
Company of America and the Company dated May 29, 1997, together with
the First Amendment thereto dated July 7, 1997, the Second Amendment
thereto dated July 22, and the Third Amendment thereto dated August
5, 1997.

10.38 (10) Fourth Amendment to Purchase and Sale Agreement (460 Ellis
Road-Jacksonville & Centerport) between The Prudential Insurance
Company of America and the Company dated August 20, 1997, Fifth
Amendment to Purchase and Sale Agreement (460 Ellis
Road-Jacksonville & Centerport) between The Prudential Insurance
Company of America and the Company dated September 5, 1997, and
Sixth Amendment to Purchase and Sale Agreement (460 Ellis
Road-Jacksonville & Centerport) between The Prudential Insurance
Company of America and the Company dated September 8, 1997.

10.39 (9) Summary of the Purchase and Sale Agreement (Michigan, Louisiana, and
Virginia) between The Prudential Insurance Company of America and
the Company dated May 29, 1997, together with the First Amendment
thereto dated July 7, 1997, the Second Amendment thereto dated July
22, and the Third Amendment thereto dated August 5, 1997.

10.40 (10) Fourth Amendment to Purchase and Sale Agreement (Michigan,
Louisiana, and Virginia) between The Prudential Insurance Company of
America and the Company dated August 20, 1997, Fifth Amendment to
Purchase and Sale Agreement (Michigan, Louisiana, and Virginia)
between The Prudential Insurance Company of America and the Company
dated September 5, 1997, and Sixth Amendment to Purchase and Sale
Agreement (Michigan, Louisiana, and Virginia) between The Prudential
Insurance Company of America and the Company dated September 8, 1997.

10.41 (9) Summary of the Purchase and Sale Agreement (Illinois, Michigan &
California land) between The Prudential Insurance Company of America
and the Company dated May 29, 1997, together with the First
Amendment thereto dated July 7, 1997, the Second Amendment thereto
dated July 22, and the Third Amendment thereto dated August 5, 1997.

- 37 -
<PAGE>

10.42 (10) Fourth Amendment to Purchase and Sale Agreement (Illinois, Michigan
& California land) between The Prudential Insurance Company of
America and the Company dated August 20, 1997, Fifth Amendment to
Purchase and Sale Agreement (Illinois, Michigan & California)
between The Prudential Insurance Company of America and the Company
dated September 5, 1997, and Sixth Amendment to Purchase and Sale
Agreement (Illinois, Michigan & California) between The Prudential
Insurance Company of America and the Company dated September 22,
1997.

10.43 (10) Summary of Purchase and Sale Agreement between Pru-Oma Joint Venture
and the Company dated May 29, 1997 together with the First Amendment
thereto dated July 7, 1997, the Second Amendment thereto dated July
22, the Third Amendment thereto dated August 5, 1997, the Fourth
Amendment thereto dated August 20, 1997, the Fifth Amendment thereto
dated September 5, 1997, and the Sixth Amendment thereto dated
September 8, 1997.

10.44 (10) Summary of Purchase and Sale Agreement between The Prudential
Insurance Company of America and One Federal Street Joint Venture
as sellers and the Company as buyer dated May 29, 1997 together with
the First Amendment thereto dated July 7, 1997, the Second Amendment
thereto dated July 22, the Third Amendment thereto dated August 5,
1997, the Fourth Amendment thereto dated August 20, 1997, the Fifth
Amendment thereto dated September 5, 1997, and the Sixth Amendment
thereto dated September 8, 1997.

10.45 (10) Agreement regarding Real Property between EastGroup Properties, L.P.
and the Company dated September 22, 1997.

10.46 (10) Promissory Note in the amount of $18,300,000 dated September 23,
1997 executed in favor of the Company by EastGroup Properties, L.P.

10.47 (10) Form of Mortgage and Security Agreement executed by EastGroup
Properties, L.P. with respect to the $18,300,000 loan from the
Company to EastGroup Properties, L.P.

10.48 (10) Promissory Note in the amount of $26,700,000 dated September 23,
1997 executed in favor of the Company by EastGroup Properties, L.P.

10.49 (10) Form of Mortgage and Security Agreement executed by EastGroup
Properties, L.P. with respect to the $26,700,000 loan from the
Company to EastGroup Properties, L.P.

10.50 (11) Agreement of Purchase and Sale and Joint Escrow Instructions dated
May 29, 1997 between the Company and State Street Bank and Trust
Company, as Trustee for Ameritech Pension Trust.

10.51 (1) Form of employment letters signed by the Company and, respectively,
Allen J. Anderson, Milton K. Reeder, Dennis D. Higgs, Jaime Suarez
and Robert A. Dobbin, each dated November 14, 1995, together with
summary of economic terms for each such employment letter.

10.52 (2) Employment letter signed by Celeste Woo dated November 14, 1996.

10.53 (2) Employment letter signed by Peter B. Harmon dated January 30, 1996.

10.54 (12) Employment letter signed by Gregory D. Skirving dated January 9, 1997.

10.55 (4) Form of Severance Agreement entered into between the Company and Allen
J. Anderson, Dennis D. Higgs, and Milton K. Reeder.

- 38 -
<PAGE>

10.56 (4) Form of Severance Agreement entered into between the Company and
Gregory D. Skirving, Peter B. Harmon, Timothy B. Keith, Brian R.
Barringer, Jaime Suarez, and Robert A. Dobbin.

10.57 (4) The Company's Severance Plan adopted February 5, 1998.

10.58 (2) Form of Incentive Stock Option Agreement to be signed by the
Company and certain officers and employees participating in the
Company's Stock Plan.

10.59 (2) Form of Nonstatutory Stock Option Agreements to be signed by the
Company and certain directors, officers, employees and agents
participating in the Company's Stock Plan.

10.60 (2) Form of Promissory Note used in connection with the purchase the
Company's Common Stock signed by Messrs. Anderson ($200,000),
Reeder ($40,000), Higgs ($90,000), Keith ($30,000) and Suarez
($20,000).

10.61 (2) Note Purchase Agreement between the Company and The First National
Bank of Boston dated as of February 13, 1996.

10.62 (2) Security Agreement and Assignment of Account to The First National
Bank of Boston from the Company dated February 13, 1996.

10.63 (1) Option Agreement between the Company and USAA dated as of November
21, 1995, including the form of USAA Warrant attached.

10.64 (2) Warrant issued to USAA to purchase Common Stock of the Company
dated February 23, 1996.

10.65 (2) The Company's Dividend Reinvestment Plan.

10.66 (4) Note Purchase Agreement among the Company and The Travelers
Insurance Company (I/N/O TRAL & CO.), United Services Automobile
Association (I/N/O SALKELD & CO.), The Variable Annuity Life
Insurance Company, The United States Life Insurance Company in
the City of New York, All American Life Insurance Company, The
Old Line Life Insurance Company of America, The Lincoln National
Life Insurance Company, Lincoln Life & Annuity Company of New
York, First Penn-Pacific Life Insurance Company (I/N/O CUDD &
CO), Lincoln National Health & Casualty Insurance Company, Allied
Life Insurance Company "B" (I/N/O GERLACH & CO), Sons of Norway
(I/N/O VAR & CO), Aid Association for Lutherans (I/N/O NIMER &
CO), Metropolitan Life Insurance Company, National Life Insurance
Company, Life Insurance Company of the Southwest, Keyport Life
Insurance Company (I/N/O BOST & CO), Union Central Life Insurance
Company (I/N/O HARE & CO), Pan-American Life Insurance Company
dated November 15, 1997.

12.1 (4) Statements re computation of ratios.

21.1 (4) Subsidiaries of the Company.

23.1 (4) Consent of Independent Public Accountants.

27.1 (4) Financial Data Schedule.

</TABLE>
- ----------------------------------------
(1) Filed with the Company's Registration Statement No. 333-00018 on January 3,
1996, and incorporated herein by reference.
(2) Filed with the Company's Amendment No. 1 to Registration Statement No.
333-02322 on March 25, 1996, and incorporated herein by reference.
(3) Filed on November 14, 1997 with the Company's Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by reference.
(4) Filed with this report.
(5) Filed on March 16, 1998 with the Company's Registration Statement on
Form 8A dated March 16, 1998 and incorporated herein by reference.
(6) Filed on March 20, 1997 with the Company's Form 10-K for 1996 and
incorporated herein by reference.
(7) Filed with the Schedule 13D filed on October 3, 1997 by The Prudential
Insurance Company of America, Strategic Performance Fund - II, Inc.,
and The Prudential Variable Contract Real Property Partnership and
incorporated herein by reference.
(8) Filed with the Amendment No. 1 to Schedule 13D filed on October 10, 1997
by Ameritech Pension Trust and incorporated herein by reference.
(9) Filed on August 13, 1997 with the Company's Form 10-Q for the quarter
ended June 30, 1997 and incorporated herein by reference.
(10) Filed November 12, 1997 with the Company's Form 8-KA dated September
24, 1997.
(11) Filed November 12, 1997 with the Company's Form 8-KA dated September
30, 1997 and incorporated herein by reference.
(12) Filed on May 14, 1997 with the Company's Form 10-Q for the quarter ended
March 31, 1997 and incorporated herein by reference.

(b) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated September 24, 1997 (this Form 8-K
was filed on October 9, 1997).

Current Report on Form 8-K dated September 30, 1997 (this Form 8-K
was filed on October 15, 1997).

Current Report on Form 8-K dated October 22, 1997 (this Form 8-K was
filed on November 6, 1997).

Form 8-KA Amendment No. 1 to the Company's Current Report on Form 8-K
dated September 24, 1997 (this Form 8-KA was filed on November 12, 1997)

Form 8-KA Amendment No. 1 to the Company's Current Report on Form 8-K
dated September 30, 1997 (this Form 8-KA was filed on November 12, 1997).

Form 8-KA Amendment No. 1 to the Company's Current Report on Form 8-K
dated October 22, 1997 (this Form 8-KA was filed on November 12, 1997.

(d) The financial statement schedules listed in Item 14(a)(2) above are
submitted as part of this report.

- 39 -
<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.

Dated: March 31, 1998 MERIDIAN INDUSTRIAL TRUST, INC.

By: /s/ Allen J. Anderson
------------------------------------
Allen J. Anderson
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

/s/ Allen J. Anderson Dated: March 31, 1998
- -------------------------------------------
Allen J. Anderson
Chairman, Chief Executive Officer, and Director
(Principal Executive Officer)

/s/ Milton K. Reeder Dated: March 31, 1998
- -------------------------------------------
Milton K. Reeder
President and Chief Financial Officer
(Principal Financial Officer)

/s/ Richard L. Valladao Dated: March 31, 1998
- -------------------------------------------
Richard L. Valladao
Controller
(Principal Accounting Officer)

Dated: March 31, 1998
- -------------------------------------------
C.E. "Doc" Cornutt
Director

/s/ T. Patrick Duncan Dated: March 31, 1998
- -------------------------------------------
T. Patrick Duncan
Director

- 40 -
<PAGE>

/s/ Peter O. Hanson Dated: March 31, 1998
- -------------------------------------------
Peter O. Hanson
Director

/s/ John S. Moody Dated: March 31, 1998
- -------------------------------------------
John S. Moody
Director

Dated: March 31, 1998
- -------------------------------------------
Kenneth N. Stensby
Director

/s/ Lee W. Wilson Dated: March 31, 1998
- -------------------------------------------
Lee W. Wilson
Director

- 41 -

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Meridian Industrial Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Meridian
Industrial Trust, Inc. (a Maryland corporation) as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31, 1997 and 1996
and for the period from May 18, 1995 (inception) to December 31, 1995. These
consolidated financial statements and the schedules referred to below are the
responsibility of the management of the Company. Our responsibility is to
express an opinion on these consolidated financial statements and schedules
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Meridian
Industrial Trust, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996 and
for the period from May 18, 1995 (inception) to December 31, 1995, in conformity
with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedules listed in Item 14(a)(2) are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic consolidated financial statements. These schedules have been subjected
to the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth in relation to the basic
consolidated financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

San Francisco, California
March 23, 1998

F-1

<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
INVESTMENT IN REAL ESTATE ASSETS:
Rental Properties Held for Investment $813,389 $318,671
Less: Accumulated Depreciation (14,374) (4,217)
-------- --------
799,015 314,454
Rental Properties Held for Divestiture 9,492 7,530
-------- --------
808,507 321,984
Investment in Unconsolidated Joint Venture 21,500 --
-------- --------
Total Investment in Real Estate Assets 830,007 321,984

OTHER ASSETS:
Cash and Cash Equivalents 7,855 2,942
Cash Held in Consolidated Limited Partnerships 992 --
Restricted Cash and Cash Held in Escrow 11,267 2,314
Accounts Receivable, Net of Reserves of $228 and $571 at
December 31, 1997 and 1996, respectively 3,460 1,659
Capitalized Loan Fees, Lease Commissions and Other Assets, Net 9,931 4,164
-------- --------

TOTAL ASSETS $863,512 $333,063
-------- --------
-------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Unsecured Notes, Including Unamortized Debt Premium of $109
at December 31, 1997 $160,109 $ --
Mortgage Loan 66,094 66,094
Unsecured Credit Facility 20,500 11,500
Mortgage Note Payable, Including Unamortized Debt Premium of $153
at December 31, 1997 10,503 --
Accrued Dividends Payable 9,473 4,648
Accounts Payable, Prepaid Rent, Tenant Deposits and Other Liabilities 21,562 7,308
-------- --------
TOTAL LIABILITIES 288,241 89,550
-------- --------

Minority Interest in Consolidated Limited Partnerships 5,132 --
-------- --------

Commitments and Contingencies -- --

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; 30,165,662 and 13,595,563 shares of Common Stock issued and
outstanding at December 31, 1997 and 1996, respectively; and 2,272,727 shares
of Series B Preferred Stock with a liquidation preference of $35,000 issued and
outstanding at December 31, 1997 and 1996 32 16
Additional Paid-in Capital 574,848 243,683
Distributions in Excess of Income (4,741) (186)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 570,139 243,513
-------- --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $863,512 $333,063
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these statements.

F-2

<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments $ 63,491 $ 34,465 $ --
Interest and Other Income 2,014 576 33
Income from Unconsolidated Joint Venture 645 -- --
----------- ----------- -----------
TOTAL REVENUES 66,150 35,041 33
----------- ----------- -----------

EXPENSES:
Interest 11,022 6,065 5
Property Taxes 8,194 4,769 --
Property Operating 5,540 3,821 --
General and Administrative 6,212 4,273 1,321
Depreciation and Amortization 11,194 4,952 --
----------- ----------- -----------
TOTAL EXPENSES 42,162 23,880 1,326
----------- ----------- -----------
Income (Loss) Before Minority Interest 23,988 11,161 (1,293)
Minority Interest in Net (Income) (30) -- --
----------- ----------- -----------
Income (Loss) Before Gain (Loss) on Divestiture of
Properties and Extraordinary Item 23,958 11,161 (1,293)
Gain (Loss) on Divestiture of Properties, Net (462) 3,313 --
----------- ----------- -----------
Income (Loss) Before Extraordinary Item 23,496 14,474 (1,293)
Extraordinary Item -- Expenses Incurred in
Connection with Debt Restructuring and Retirements (808) (411) --
----------- ----------- -----------
NET INCOME (LOSS) $ 22,688 $ 14,063 $ (1,293)
----------- ----------- -----------
----------- ----------- -----------

Net Income (Loss) $ 22,688 $ 14,063 $ (1,293)
Less: Preferred Dividends Declared (2,818) (2,412) (29)
----------- ----------- -----------
NET INCOME (LOSS) ALLOCABLE TO COMMON $ 19,870 $ 11,651 $ (1,322)
----------- ----------- -----------
----------- ----------- -----------

BASIC PER SHARE DATA:
Income (Loss) Before Extraordinary Item $ 1.17 $ 1.42 $ (1,468.89)
Extraordinary Item (0.05) (0.05) --
----------- ----------- -----------
NET INCOME (LOSS) ALLOCABLE TO COMMON PER BASIC
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING $ 1.12 $ 1.37 $ (1,468.89)
----------- ----------- -----------
----------- ----------- -----------

DILUTED PER SHARE DATA:
Income (Loss) Before Extraordinary Item $ 1.13 $ 1.37 $ (32.05)
Extraordinary Item (0.04) (0.04) --
----------- ----------- -----------
NET INCOME (LOSS) ALLOCABLE TO COMMON PER DILUTED
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING $ 1.09 $ 1.33 $ (32.05)
----------- ----------- -----------
----------- ----------- -----------

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 17,791,304 8,476,461 900
----------- ----------- -----------
----------- ----------- -----------
Diluted 18,264,459 10,545,878 41,251
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

COMMON STOCK SERIES B PREFERRED STOCK ADDITIONAL DISTRIBUTIONS
------------ ------------------------ PAID-IN IN EXCESS
SHARES PAR VALUE SHARES PAR VALUE CAPITAL OF INCOME
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
MAY 18, 1995 (INCEPTION) -- $ -- -- $ -- $ -- $ --
Issuance of Common Shares 900 1 -- -- 13 --
Stock Option Compensation -- -- -- -- 594 --
Accrued Dividends for
Series A Preferred Stock -- -- -- -- -- (29)
Net Loss -- -- -- -- -- (1,293)
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 900 1 -- -- 607 (1,322)
Issuance of Shares at Date
of Merger 7,989,756 8 -- -- 116,209 --
Stock Options Exercised 191,900 -- -- -- 2,300 --
Retainer Fee Paid as Shares
to Directors 3,007 -- -- -- 52 --
Issuance of Common Shares 5,410,000 5 -- -- 95,915 --
Issuance of Preferred Shares -- -- 2,272,727 2 34,998 --
Offering Costs -- -- -- -- (6,398) --
Cancellation of Dividends
for Series A Preferred Stock -- -- -- -- -- 29
Distributions Declared:
Common -- -- -- -- -- (10,544)
Preferred -- -- -- -- -- (2,412)
Net Income -- -- -- -- -- 14,063
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 13,595,563 14 2,272,727 2 243,683 (186)
Issuance of Common Shares 16,692,062 16 -- -- 335,019 --
Offering Costs -- -- -- -- (700) --
Warrants Exercised 23,315 -- -- -- 389 --
Stock Options Exercised 5,000 -- -- -- 81 --
Retainer Fee Paid as Shares
to Directors 3,322 -- -- -- 75 --
Cancellation of Common
Shares (153,600) -- -- -- (3,699) --
Distributions Declared:
Common -- -- -- -- -- (24,425)
Preferred -- -- -- -- -- (2,818)
Net Income -- -- -- -- -- 22,688
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 30,165,662 $ 30 2,272,727 $ 2 $ 574,848 $ (4,741)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-4

<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995
(IN THOUSANDS)

1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 22,688 $ 14,063 $ (1,293)
Adjustments to Reconcile Net Income (Loss) to Cash Provided by
Operating Activities:
Depreciation and Amortization 11,194 4,952 --
Amortization of Debt Premium (172) -- --
Amortization of Financing Costs 301 419 --
Straight Line Rent (2,067) (732) --
Income Allocated to Minority Partner 30 -- --
Loss (Gain) on Divestiture of Properties, Net 462 (3,313) --
Extraordinary Item -- Expenses Incurred in Connection with
Debt Restructuring and Retirements 808 411 --
Stock Option Compensation -- -- 594
(Increase) Decrease in Accounts Receivable and Other Assets (1,573) 1,206 (68)
Increase (Decrease) in Accounts Payable, Prepaid Rent,
Tenant Deposits and Other Liabilities 5,615 (1,874) 308
---------- ---------- --------
Net Cash Provided by (Used in) Operating Activities 37,286 15,132 (459)
---------- ---------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Contributed by Merged Trusts -- 11,892 --
Net Proceeds from Property Sales 16,245 31,447 --
Decrease in Restricted Cash and Cash Held In Escrow 4,937 5,483 --
Increase in Cash Held In Consolidated Partnerships (992) -- --
Net Cash Paid in Connection with Asset Purchase -- (3,257) --
Redemption of Series A Preferred Stock and Accrued Dividends Payable -- (83) --
Investments in Real Estate (238,432) (122,637) (300)
Recurring Building Improvements (2,123) (1,407) --
Recurring Tenant Improvements (941) (859) --
Recurring Leasing Commissions (1,304) (1,396) --
Maturity of Marketable Security, Net of Related Debt -- 256 (256)
Receipt of Mortgage Note Receivable 45,000 -- --
Receipt of Note Receivable 503 -- --
Purchase of Other Assets (295) (258) (20)
---------- ---------- --------
Net Cash Used in Investing Activities (177,402) (80,819) (576)
---------- ---------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for Capitalized Loan Fees (1,946) (551) (254)
Principal Payments on Mortgage Notes (5,786) -- --
Retirement of Debt and Advances from Affiliates -- (59,438) 750
Borrowings on Unsecured Credit Facility 182,500 118,400 --
Repayment of Borrowings on Unsecured Credit Facility (173,500) (106,900) --
Proceeds from Debt Placement 160,109 -- --
Distributions Paid to Stockholders (22,418) (8,308) --
Proceeds from the Issuance of Common and Preferred Stock, Net 6,070 124,951 1,014
---------- ---------- --------
Net Cash Provided by Financing Activities 145,029 68,154 1,510
---------- ---------- --------

NET INCREASE IN CASH AND CASH EQUIVALENTS 4,913 2,467 475
Cash and Cash Equivalents at Beginning of Period 2,942 475 --
---------- ---------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,855 $ 2,942 $ 475
---------- ---------- --------
---------- ---------- --------

CASH PAID FOR INTEREST $ 11,418 $ 6,276 $ --
---------- ---------- --------
---------- ---------- --------
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION

Meridian Industrial Trust, Inc. (the "Company") was incorporated in the
state of Maryland on May 18, 1995. The Company is a self-administered and
self-managed real estate investment trust ("REIT") engaged primarily in the
business of owning, acquiring, developing, managing and leasing
income-producing warehouse/distribution and light industrial properties. At
December 31, 1997, the Company's principal asset is its portfolio of 193
warehouse/distribution and light industrial properties and two retail
properties. In addition, at December 31, 1997, the Company had nine
build-to-suit properties under construction.

On February 23, 1996, the Company merged with Meridian Point Realty
Trust IV Co., Meridian Point Realty Trust VI Co. and Meridian Point Realty
Trust VII Co. ("Trust IV," "Trust VI" and "Trust VII," respectively;
collectively referred to as the "Merged Trusts"), with the Company as the
surviving entity (that transaction is referred to below as the "Merger"). In
addition, concurrent with the Merger, the Company acquired certain
properties, and assumed certain mortgage notes and other liabilities, from
Meridian Point Realty Trust '83 ("Trust 83") (that transaction is referred to
below as the "Asset Purchase").

Prior to February 23, 1996, the Company had no operations other than
interest on its investments and general and administrative expenses.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) BASIS OF PRESENTATION The accompanying consolidated financial
statements include the results of the Company, its wholly-owned subsidiaries
and its majority-owned and controlled partnerships. All intercompany
transactions have been eliminated.

(b) USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and 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) RENTAL PROPERTIES HELD FOR INVESTMENT Investments in rental
properties are stated at cost unless circumstances indicate that cost cannot be
recovered, in which case, the carrying value of the property is reduced to
estimated fair value. Estimated fair value: (i) is based upon the Company's
plans for the continued operation of each property; (ii) is computed using
estimated sales price, as determined by prevailing market values for comparable
properties and/or the use of capitalization rates multiplied by annualized
rental income based upon the age, construction, and use of the building, and
(iii) does not purport, for a specific property, to represent the current sales
price that the Company could obtain from third parties for such property. The
fulfillment of the Company's plans related to each of its properties is
dependent upon, among other things, the presence of economic conditions which
will enable the Company to continue to hold and operate the properties to yield
an acceptable return on the Company's investment. Due to uncertainties inherent
in the valuation process and in the economy, management can provide no
assurances that the actual results of operating and disposing of the Company's
properties will not be materially different than current expectations.

F-6
<PAGE>

Rental Properties Held for Investment 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.

Rental Properties Held for Divestiture are stated at the lower of cost
or estimated fair value. Estimated fair value is based upon prevailing
market values for comparable properties or the use of capitalization rates
multiplied by annualized rental income based upon the age, construction and
use of building, but does not purport to represent the current sales price
that the Company could obtain from third parties for such property. No
depreciation is recorded on Rental Properties Held for Divestiture.

(d) 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. For the years ended December 31, 1997 and 1996, interest
expense totaling $1,820 and $561, respectively, were capitalized for
properties under construction.

(e) CASH AND CASH EQUIVALENTS For the purposes of reporting cash
flows, cash and cash equivalents include cash on hand and short-term
investments with an original maturity of three months or less when purchased.

(f) CAPITALIZED LOAN FEES AND LEASE COMMISSIONS Capitalized loan fees
are amortized as interest expense over the term of the related debt. Lease
commissions are amortized into depreciation and amortization expense on a
straight-line basis over the term of the related lease.

(g) FAIR VALUE OF FINANCIAL INVESTMENTS Statement of Financial
Accounting Standards No. 107, "Accounting for Fair Value of Financial
Instruments," requires disclosure of fair value for all financial
instruments. Based on the borrowing rates currently available to the
Company, the carrying amount of its debt approximates fair value. The
carrying amount of cash and cash equivalents also approximates fair value.

(h) OFFERING COSTS Underwriting commissions, offering costs and other
expenses incurred in connection with stock offerings of the Company's Common and
Preferred Stock have been reflected as a reduction of Stockholders' Equity.

(i) RENTALS FROM REAL ESTATE INVESTMENTS All leases are classified as
operating leases. The Company recognizes rental income on a straight-line
basis over the term of the lease. Deferred rent receivable, included in
other assets, represents the excess of rental revenue on a straight-line
basis over the cash received under the applicable lease provision.

Certain of the Company's leases relating to its properties require
lessees to pay all or a portion of real estate taxes, insurance and operating
expenses ("Expense Recaptures"). Expense Recaptures are recognized as
revenues in the same period the related expenses are incurred by the Company.
For the years ended December 31, 1997 and 1996, Expense Recaptures of $8,535
and $4,331 have been included in rentals from real estate investments.

(j) INCOME TAXES The Company has previously elected to be taxed as a
REIT for federal and, where the federal rules are allowed, state income tax
purposes. To continue to qualify for REIT status, the Company must meet a
number of ongoing organizational and operational requirements. If the Company
satisfies those REIT requirements and the Company currently distributes all
of its net taxable income (including net capital gains) to its stockholders,
the Company should generally owe no federal or state income tax. The REIT
provisions of the Internal Revenue Service Code of 1986, as amended,
generally allow a REIT to deduct dividends paid to stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
certain state and federal taxes imposed on its income and properties.

F-7
<PAGE>

As a result of deductions allowed for the dividends paid to shareholders
and the utilization of net operating loss carryovers of the Merged Trusts,
the Company has no federal or state taxable income. Accordingly, no
provisions for federal or state income taxes have been made in the
accompanying consolidated statements of operations for the years ended
December 31, 1997, 1996 and 1995.

(k) EARNINGS PER SHARE During the first quarter of 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share." SFAS 128 requires the disclosure of
basic earnings per share and modifies existing guidance for computing diluted
earnings per share. Under the new standard, basic earnings per share is
computed as net income or loss divided by the weighted average number of
shares of Common Stock outstanding, excluding the dilutive effects of stock
options and other potentially dilutive securities. SFAS No. 128 is effective
for periods ending after December 15, 1997. Earnings per share for all
periods presented have been restated to conform to the new standards as
follows:

Years Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Net Income (Loss) - Basic $ 19,870 $ 11,651 $ (1,322)

Net Income (Loss) - Diluted $ 19,870 $ 14,063 $ (1,322)

Weighted Average Shares
Outstanding:
Basic 17,791,304 8,476,461 900
Stock options 314,019 98,921 40,351
Warrants 159,136 26,880 --
Series B Preferred Stock -- 1,943,616 --
Diluted
----------- ----------- -----------
18,264,459 10,545,878 41,251
----------- ----------- -----------
----------- ----------- -----------

Net Income (Loss) Per Share:
Basic $ 1.12 $ 1.37 $ (1,468.89)
Diluted 1.09 1.33 (32.05)
</TABLE>

(l) NEW ACCOUNTING PRONOUNCEMENT In June, 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 is effective for fiscal years beginning after December
15, 1997. Management has not yet determined the level of additional
disclosure, if any, that may be required by SFAS No. 131. Additional
disclosure that may be required will be provided beginning with the financial
statements of the Company for the year ending December 31, 1998.

(m) RECLASSIFICATIONS Certain 1996 and 1995 items have been
reclassified to conform to the 1997 presentation.

3. TRANSACTIONS WITH AFFILIATES

For the years ended December 31, 1997 and 1996 and for the period from
May 18, 1995 to December 31, 1995, the Company incurred fees and expenses
relating to services provided by its directors of approximately $242, $283
and $194, respectively. The directors are entitled to elect to receive all
or any portion of their annual retainer in shares of the Company's Common
Stock.

On September 17, 1997, the Company entered into a partnership agreement,
in which a director of the Company is a minority partner. The partnership
was formed to develop a property in Carrollton, Texas. In connection with
this development, the Company's minority joint venture partner contributed
land and other consideration valued at $2,738.

F-8
<PAGE>

From June 1, 1995 through February 23, 1996, Hunt Realty Corporation
("Hunt") provided the services of Allen J. Anderson (Chairman and Chief
Executive Officer of the Company) and two other persons to the Company in
exchange for reimbursement of Hunt's costs associated with making those
persons available to the Company. During 1995, the Company incurred $245 for
such services.

On November 21, 1995, the Company entered into an Option Agreement under
which USAA Real Estate Company, a Delaware corporation ("USAA"), granted the
Company an option (the "USAA Option") to purchase a 292,000 square-foot
industrial property located in Lakeland, Florida (the "USAA Option
Property"). The USAA Option also included a right of first refusal in favor
of the Company with respect to five bulk warehouse facilities comprising
approximately 1.1 million square feet located in West Chicago, Illinois (the
"USAA Chicago Property"). In exchange for the option, the Company issued a
warrant to USAA to purchase shares of the Company's Common Stock at an
exercise price that provided USAA with a value of $300 based upon the value
of the Company's Common Stock during the first 20-trading-day period after
the Merger. The Company did not acquire either the USAA Option Property or
Chicago Property under the USAA Option which expired in February 1997.

During 1995, the Company received $750 in advances from the Merged
Trusts to cover certain operating expenditures. These advances bore interest
at a rate of 7% per annum. In connection with the Merger and Asset Purchase,
the Company canceled these Notes Payable to Affiliates.

4. INVESTMENT IN MARKETABLE SECURITIES

In December 1995, the Company purchased a U.S. Treasury Note. The
Company financed this purchase with a cash deposit equal to 10% of the total
purchase price of the government security and a short-term loan in the amount
of $2,346 bearing interest at a rate of 8.625% per annum. In January 1996,
the government security matured and the related proceeds were used to repay
the short-term loan payable.

5. RENTAL PROPERTIES HELD FOR INVESTMENT

In accordance with generally accepted accounting principles, the Company
has accounted for the Merger and Asset Purchase using the purchase method.
As a result, the assets and liabilities acquired in connection with the
Merger and Asset Purchase are recorded at their "acquisition cost,"
representing the fair value of the consideration surrendered and liabilities
assumed. The acquisition cost was then allocated to all identifiable assets
based upon their individual estimated fair values. The following is a summary
of the acquisition cost recorded in connection with the Merger and Asset
Purchase on February 23, 1996:

F-9
<PAGE>

<TABLE>
<S> <C>
Fair value of the Company's Common Stock valued at $16.375 per share, based upon
the average of the closing price of the Company's Common Stock for the first five
post-Merger trading days, issued to the Merged Trusts' shareholders other than
Hunt and USAA $ 72,677
Fair value of the Company's Common Stock totaling 390,360 shares, valued
at $16.375 per share, issued to Trust 83 6,392
Common Stock issued to Hunt and USAA valued at the consideration they paid
for their interests in the Merged Trusts 37,173
Cash consideration paid to Trust 83 in connection with the Asset Purchase
before pro-rated items 3,600
Liabilities of the Merged Trusts and Trust 83 assumed by the Company upon
consummation of the Merger and Asset Purchase 133,453
Closing and other accrued costs incurred in connection with the Merger and
Asset Purchase 204
--------
Acquisition cost basis 253,499
Acquisition cost basis allocated to assets other than Investment in Real
Estate (23,668)
--------
Acquisition cost basis allocated to Investment in Real Estate as a result
of the Merger and Asset Purchase $229,831
--------
--------
</TABLE>

Rental Properties Held for Investment as of December 31, 1997 and 1996
consisted of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land $ 165,172 $ 72,594
Buildings 619,833 241,254
Capital Improvements 3,651 1,702
Construction-in-Progress 24,733 3,121
--------- ---------
Total $ 813,389 $ 318,671
--------- ---------
--------- ---------
</TABLE>

Future minimum rental revenues under non-cancelable operating lease
agreements in effect as of December 31, 1997, are as follows:

<TABLE>
<CAPTION>
Years Ending
December 31, Amount
------------- ---------
<S> <C>
1998 $ 80,845
1999 67,593
2000 56,099
2001 44,763
2002 35,864
Thereafter 120,672
------------ ---------
$ 405,836
---------
---------
</TABLE>

Based on the projected 1998 base rent of existing leases, there is
currently one major tenant comprising approximately 5% of the total annual
revenue of the Company. This tenant has three leases which are scheduled to
expire in 2005 and 2006. As of December 31, 1997, the Company's properties
were 97% occupied. During 1998, leases covering 18% of the leased space are
scheduled to expire.

At December 31, 1997, the Company had two properties with a carrying
value of $9,492, which it plans to dispose of in the first quarter of 1998.
Management has determined that these properties do not fit the Company's
investment strategy.

F-10
<PAGE>

6. LONG-TERM DEBT

The Company acquired a fixed rate facility (the "Mortgage Loan") in
connection with the Merger. The Mortgage Loan has a principal balance of
$66,094, bears interest at an annual rate of 8.63%, requires interest only
payments until its maturity in 2005 and is secured by a pool of the Company's
properties with a net book value of $138,863 as of December 31, 1997.

Concurrent with the Merger, the Company entered into an unsecured credit
facility (the "Unsecured Credit Facility"). The Unsecured Credit Facility
originally bore interest at LIBOR plus 1.7%, was scheduled to mature in
February 1998, and provided for a maximum borrowing amount of $75,000. On
April 21, 1997, the Unsecured Credit Facility was amended and restated. This
amendment and restatement of the Unsecured Credit Facility provided for (i)
an increase in 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. The
Company recorded an extraordinary expense of $808 in loan costs in connection
with this restructuring.

On September 23, 1997, the Unsecured Credit Facility was further amended
and restated to provide for (i) an increase of the borrowing limit from
$150,000 to $250,000 and (ii) a decrease in the interest rate spread over
LIBOR from 1.4% to 1.3%. At December 31, 1997, the interest rate on the
Unsecured Credit Facility was 7.02%. The Company paid a fee totaling $250 in
connection with this amendment.

On November 20, 1997, the Company completed a private offering of
$160,000 in principal of unsecured senior notes to institutional investors.
The unsecured senior notes were issued in two tranches, $135,000 maturing on
November 20, 2007, bearing an interest rate of 7.25% per annum, and $25,000
maturing on November 20, 2009, bearing an interest rate of 7.30% per annum.
Interest on these notes is payable semiannually. The proceeds were used to
repay borrowings on the Unsecured Credit Facility. In connection with this
transaction, the Company entered into two forward exchange rate contracts
which resulted in a premium totaling $109.

In the opinion of the Company's management, the Company was in
compliance with all loan covenants related to the debt instruments discussed
above at December 31, 1997.

Future minimum principal payments for the Company's long-term debt as of
December 31, 1997, are as follows:

Years Ending
December 31, Amount
------------- ---------
<S> <C>
1998 $ --
1999 --
2000 20,500
2001 --
2002 --
Thereafter 226,094
------------ ---------
$ 246,594
---------
---------
</TABLE>

F-11
<PAGE>

7. MORTGAGE NOTES PAYABLE

The Company assumed a mortgage note payable with a principal balance of
$5,724 in connection with the acquisition of a property located in Corona,
California on April 29, 1997. The loan had a maturity date of February 1,
1998 and called for monthly principal and interest payments of $55 based on
an interest rate of 10% per annum and a ten-year amortization schedule. On
September 15, 1997, the Company repaid the outstanding balance on this
mortgage note payable amounting to $5,688.

On May 13, 1997, the Company purchased a property located in Montebello,
California, subject to a mortgage note payable bearing an interest rate
different from the prevailing market rate at the date of acquisition. This
interest rate differential was recorded as a premium. The new loan amounting
to $10,429 has a maturity date of July 15, 1998 and provides for monthly
principal and interest payments of $96 based on an interest rate of 9.89% per
annum and a 30-year amortization schedule. The premium totaling $324 is
amortized over the term of the note payable using the effective interest
method. As of December 31, 1997, this mortgage note payable and debt premium
had outstanding balances of $10,350 and $153, respectively.

8. COMMON AND PREFERRED STOCK

The initial capitalization of the Company consisted of 900 shares of
Common Stock, issued for a total consideration of $14. In addition, Trust
83, and the Merged Trusts purchased 79,500 and 920,500 shares of Series A
Preferred Stock, respectively, for $1.00 per share. In connection with the
Merger and Asset Purchase transactions, the Company issued 7,599,396 and
390,360 shares of Common Stock, respectively. The Company also canceled the
Series A Preferred Stock owned by the Merged Trusts and redeemed the Series A
Preferred Stock owned by Trust 83.

Concurrent with the Merger and Asset Purchase, the Company completed a
private placement of 2,272,277 shares of Series B Preferred Stock with a
liquidation preference of $35,000. The shares of Series B Preferred Stock are
convertible into shares of Common Stock on a one-for-one basis. The net
proceeds were used to retire debt acquired in connection with the Merger and
Asset Purchase in the principal amount of $33,500.

In connection with the Merger, the Company issued approximately 553,000
warrants to purchase an equal number of shares of the Company's Common Stock
(the "Merger Warrants"). May 23, 1997, was the first day of the exercise
period for the Merger Warrants. Each Merger Warrant entitles the holder to
purchase one share of the Company's Common Stock at the exercise price of
$16.23. The exercise period ends February 23, 1999. As of December 31,
1997, the Company had issued 23,315 shares pursuant to exercise of the Merger
Warrants.

On April 3, 1996, the Company completed a public offering of 1,500,000
shares of the Company's Common Stock at an offering price of $16.375 per
share, resulting in gross proceeds of $24,563 (the "April Offering"). The
Company used the net proceeds of the April Offering and existing cash
reserves to make a $24,000 payment on its Unsecured Credit Facility.

F-12
<PAGE>

On November 25, 1996, the Company completed a public offering of
3,400,000 shares of the Company's Common Stock at an offering price of $18.25
per share, resulting in gross proceeds of $62,050 (the "November Offering").
The Company used the net proceeds of the November Offering and existing cash
reserves to make a $58,650 payment on its Unsecured Credit Facility. In
accordance with the underwriting agreement entered into by the Company and
its underwriters for the November Offering, on December 23, 1996, the Company
sold an additional 510,000 shares of the Company's Common Stock to the
underwriters to satisfy over allotments at an offering price of $18.25 per
share, resulting in gross proceeds of $9,308. The Company used the net
proceeds therefrom to fund a property acquisition.

On December 23, 1997, the Company completed a public offering of 414,508
shares of the Company's Common Stock at an offering price of $24.125 per
share, resulting in gross proceeds of $10,000. The Company used the net
proceeds to fund two property acquisitions.

The Company has been declaring and paying dividends on a quarterly
basis. During the years ended December 31, 1997 and 1996, dividends declared
to Common Stockholders aggregated to $24,425 and $10,544, respectively, or
$1.16 and $.99 per share of Common Stock, respectively. During the years
ended December 31, 1997 and 1996, dividends declared to Series B Preferred
Stockholders aggregated to $2,818 and $2,412, respectively, or $1.24 and
$1.06 per share of Preferred Stock, respectively. The analysis below
presents the amount of distributions paid to stockholders and the percentage
of the distributions which the Company estimates is taxable and nontaxable
for the year ended December 31, 1997 and 1996. Nontaxable distributions are
treated as return of capital to stockholders.

1997 1996
--------------------------------------
PREFERRED COMMON PREFERRED COMMON
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Distributions Paid Per Share $ 1.24 $ 1.16 $ 0.75 $ 0.70
--------- ------ --------- ------
--------- ------ --------- ------

Nontaxable Dividends -- 3.40% -- 96.37%
Taxable Dividends 100.00% 96.60% 100.00% 3.63%
--------- ------ --------- ------
Total 100.00% 100.00% 100.00% 100.00%
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>

The holders of Series B Preferred Stock generally have a cumulative
preferential right to such quarterly dividends as are declared each year by
the Board of Directors. From the date of the Merger through the fourth
quarter of 1997, the dividend amount per share of Series B Preferred Stock
was required to equal the greater of (i) $0.31 per full calendar quarter
(pro-rated for periods less than a full quarter), or (ii) 103% of the
quarterly dividend payable per share of Common Stock during the corresponding
dividend period. Thereafter, each share of series B preferred stock is
entitled to receive quarterly dividends in an amount equal to the greater of
(i) the quarterly preferred dividend amount declared by the Board of
Directors for the quarter ended December 31, 1997, or (ii) the dividend paid
per share of Common Stock for the current quarter.

9. STOCK PLAN

The Board of Directors of the Company adopted an incentive stock plan
(the "Stock Plan") to enable the Company to attract, retain and motivate key
employees, directors and, on occasion, consultants and advisors, by providing
them with equity participation in the Company. The Stock Plan provides for
the grant of incentive stock options, non-qualified stock options,
unrestricted stock, restricted stock and stock appreciation rights. The Stock
Plan is administered by the Board of Directors or a committee appointed by
the Board (the "Committee"). The Committee, which must consist of not less
than two members of the Company's Board of Directors, selects the employees
(and any consultants or advisors) to whom awards will be granted, the number
of shares subject to such award, and the other terms and conditions of the
award, consistent with the Stock Plan.

F-13

<PAGE>

In November 1995, the Board of Directors authorized the award of two sets
of stock options to certain employees relating to services performed by the
employees in 1995 to effect the Merger. The first set of awards provided for
the issuance of 653,000 stock options to be issued under the Stock Plan
concurrent with the Merger, exercisable at the stock trading price at the Merger
of $15.125 per share. These option awards provided that 461,000 of the stock
options vest over five years. The remaining stock options granted under the
first set of awards, totaling 192,000, include certain performance criteria that
would allow for vesting after three years if certain performance criteria are
achieved, or vesting at the end of five years if the performance criteria are
not met. These options will become fully-vested in the event of a termination
of employment without "cause" by the Company or for "good reason" by the
employee (in each case as defined in the stock option agreement), or in the
event of the death or disability of the employee.

The second set of stock options granted in 1995 consisted of non-qualified
stock options to purchase 191,400 shares of the Company's Common Stock at any
time between January 26, 1996 and February 28, 1996 for $12 per share. In
connection with the grant of these options, the Company agreed to repurchase
certain promissory notes executed by the employees from a third party lender in
the event that the employees default under such notes. The Company has $1,900
in proceeds from the exercise of these stock grants held as restricted cash in
connection with the repurchase rights of the third party lender. The
accompanying statement of operations for the period from May 18, 1995
(Inception) to December 31, 1996 reflects a charge to earnings for the stock
option compensation attributable to the excess of the market price of the
Company's Common Stock over the exercise price of the non-qualified stock
options. These non-qualified stock options were not granted under the Stock
Plan.

After the Merger, the Company granted each non-employee director of the
Company, an option to purchase 5,000 shares of the Company's Common Stock. In
addition, beginning June 30, 1996, on the last day of each calendar quarter, the
Company automatically grants each non-employee director a non-qualified option
to purchase 1,167 shares of the Company's Common Stock. The exercise price of
these options is the fair value of the shares of the Company's Common Stock
covered by the options on the date of grant. Each of these director options are
fully exercisable beginning six months after the date of grant and generally
terminate (unless terminated sooner under the terms of the Stock Plan) ten years
after the date of grant.

Additionally, under the Stock Plan, each non-employee director may elect to
receive his or her retainer in cash, shares of the Company's Common Stock, or a
combination of both cash and the Company's Common Stock.

The aggregate number of shares of Common Stock that the Company may have
subject to outstanding awards at one time under the Stock Plan is an amount
equal to (a) seven percent of the aggregate of (i) the total number of shares of
Common Stock outstanding from time to time, PLUS (ii) the total number of
securities convertible into or exchangeable or exercisable for shares of Common
Stock outstanding from time to time (in each case other than any such securities
issued under the Stock Plan and any other stock-based plan for employees or
directors of the Company) MINUS (b) the total number of shares of Common Stock
subject to outstanding awards on the date of calculation under the Stock Plan
and any other stock-based plan for employees or directors of the Company.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation," which establishes financial accounting and reporting standards
for stock-based employee compensation plans. SFAS No. 123 became effective for
the Company in the year ended December 31, 1996. This statement encourages a
"fair value based method" of accounting for an employee stock option or similar
equity instrument. Such a method measures compensation cost at the grant date
using an option pricing model to value the award. Compensation expense is
recognized over the service period, which is usually the vesting period. As
permitted by the provisions of SFAS No. 123, the Company records compensation
for its stock plans using

F-14

<PAGE>

the "intrinsic value based method" of accounting, which measures as expense the
difference between the exercise price and the fair value of the stock on the
date of grant. Disclosure is provided of the pro forma impact on net income and
earnings per share of the "fair value based method" of accounting. This impact
is as follows:

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1996
----------- ------------
<S> <C> <C>
NET INCOME:
As reported $ 19,870 $ 11,651
SFAS 123 adjustment (534) (217)
----------- -----------
Pro forma 19,336 11,434
----------- -----------
----------- -----------

BASIC INCOME PER SHARE:
As reported 1.12 1.37
SFAS 123 adjustment (0.03) (0.03)
----------- -----------
Pro forma 1.09 1.34
----------- -----------
----------- -----------

DILUTED INCOME PER SHARE:
As reported 1.09 1.33
SFAS 123 adjustment (0.03) (0.02)
Pro forma ----------- -----------
1.06 1.31
----------- -----------
----------- -----------
</TABLE>

The following table summarizes the stock option activity for the years
ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
Number Weighted
of Shares Average
Outstanding Exercise Price\
----------- --------------
<S> <C> <C>
Balance at December 31, 1995 -- $ --
Granted 728,507 15.37
Exercised -- --
Expired -- --
Forfeited -- --
--------- -----------
Balance at December 31, 1996 728,507 15.37
--------- -----------
Granted 319,459 22.41
Exercised (5,000) 16.38
Expired -- --
Forfeited -- --
--------- -----------
Balance at December 31, 1997 1,042,966 $ 17.52
--------- -----------
--------- -----------
</TABLE>

Of the options outstanding as of December 31, 1997 and 1996, there were a
total of 297,540 and 46,669 exercisable, respectively. Exercisable options
as of December 31, 1997, have exercise prices between $15.13 and $23.50 with
a weighted average exercise price of $17.44. The weighted average remaining
contractual life of outstanding options as of December 31, 1997 was 8.45
years.

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997 and 1996: a weighted average
risk-free interest rate of 6.51% and 6.01%, expected dividend yield of 5.02%
and 6.66%, expected life of 10 years, and expected volatility of 27.33% and
14.48%, respectively.

The weighted average fair value of the options granted in 1997 and 1996
were $5.22 and $1.24, respectively.

F-15
<PAGE>

10. PROPERTY ACQUISITIONS AND DEVELOPMENTS

In addition to the Portfolio Acquisitions described in Note 11, during
the year ended December 31, 1997, the Company purchased thirteen properties
located in California, Georgia, Indiana, New Jersey, Texas and Wisconsin, with
an aggregate square footage of 2,591,034. The aggregate purchase price for
these properties totaled $90,401. The Company funded a portion of these
acquisitions from cash reserves and funded the majority of the remaining costs
with borrowings under the Unsecured Credit Facility. In addition, the Company
assumed mortgage notes totaling $16,153. The Company recorded a corresponding
premium totaling $324 in connection with these mortgage notes.

In addition, during the year ended December 31, 1997, the Company, either
directly or through consolidated partnerships, completed development of and
placed in service five warehouse/distribution properties comprising 786,960
square feet with an aggregate cost of $35,619.

At December 31, 1997, the Company had, either directly or through
consolidated partnerships, nine warehouse/distribution properties under
development or scheduled for development comprising 3,181,614 square feet upon
completion. The aggregate cost for the design and construction of these
development projects is estimated to be approximately $107,441. As of December
31, 1997, the Company incurred total project costs of approximately $35,336 on
these development projects. The Company anticipates funding the balance of such
development costs from cash reserves and borrowings under the Unsecured Credit
Facility.

In connection with the development activities relating to the consolidated
partnerships, the Company's minority partners contributed land and other
consideration valued at $5,102.

During the year ended December 31, 1996, the Company purchased eight
properties located in California, Illinois and Ohio with an aggregate square
footage of 2,669,506. The purchase prices totaled $89,703 and were financed by
applying a $300 deposit paid in 1995, with the balance funded by draws on its
Unsecured Credit Facility and net proceeds received from the Company's public
offerings of shares of Common Stock.

Also during the year ended December 31, 1996, the Company completed
development of and placed in service two warehouse/distribution properties
located in Texas comprising 729,434 square feet with an aggregate cost of
$25,852.

11. PORTFOLIO ACQUISITIONS

On September 30, 1997, the Company acquired from Ameritech Pension Trust
("Ameritech") in a property-for-stock transaction (i) eleven
warehouse/distribution properties comprising 1,521,170 square feet, and (ii) a
participating mortgage loan secured by a seven building, 623,678 square foot
project. The purchase price totaled $81,589, including the participating loan
which was purchased for $21,500. The property-for-stock transaction involved
the issuance of 4,160,745 shares of the Company's Common Stock to Ameritech.

On October 22, 1997, the Company acquired eleven additional
warehouse/distribution properties comprising 1,960,334 square feet in
consideration of the issuance of 3,104,477 shares of the Company's Common Stock
to Ameritech. The purchase price for this transaction totaled $61,571.

F-16

<PAGE>

On September 24, 1997, the Company acquired from The Prudential Insurance
Company of America and related entities (collectively "Prudential") a portfolio
of 44 industrial buildings containing an aggregate of approximately 3,538,000
square feet of rentable space (the "Portfolio Properties"). The aggregate
contract price for the Portfolio Properties was $127,079 (the "Prudential
Property Transaction"). The Company also contracted with Prudential to purchase
five unimproved parcels of land located in California, Illinois and Michigan.
The contract price for these parcels of $13,721 was deposited into an escrow
account. In the event that the contingencies regarding these properties are not
cleared to the Company's satisfaction, then the funds in the escrow account will
be returned to the Company. On December 10, 1997, the Company purchased the
unimproved land located in California for a purchase price of $3,055, funded
from the escrow account.

The Company also entered into agreements to acquire 12 industrial
properties from two separate accounts managed by Prudential Real Estate
Investors. On August 29, 1997, the Company acquired seven of these properties
comprising 825,568 square feet. The purchase price consisted of the payment of
$16,047 in cash and the issuance of 808,888 shares of Common Stock. On
September 24, 1997, the Company acquired the remaining five industrial
properties comprising 953,691 square feet. The purchase price consisted of the
payment of $9,361 in cash and the issuance of 1,106,931 shares of Common Stock.
The total $25,408 cash portion of the purchases for these portfolios was funded
from borrowings on the Company's Unsecured Credit Facility.

On December 31, 1997, the Company acquired an eight property portfolio
located in Texas, comprising 607,275 square feet for a total purchase price of
$15,700. The Company funded the acquisition from a portion of the proceeds
received from the repayment of the promissory notes by the EastGroup.

On December 31, 1997, the Company also acquired a nine property portfolio
located in New Jersey and Delaware comprising 397,897 square feet for a total
purchase price of $10,790. The Company funded the acquisition from a portion of
the proceeds received from the repayment of the promissory notes by the
EastGroup.

12. PROPERTY DISPOSITIONS

During the year ended December 31, 1997, the Company sold five properties
for an aggregate sales price of $11,833. The properties were located in
Alabama, Texas, California and Arizona. After closing costs and pro-rated items
which totaled $638, the Company received net proceeds from the property sales
aggregating to $11,195. The net proceeds were used to repay borrowings on the
Unsecured Credit Facility.

F-17

<PAGE>

On December 15, 1997, the Company also sold a parcel of land located in
Georgia for a sales price of $150. After closing costs and pro-rated items
which totaled $16, the Company received net proceeds of $134. The net proceeds
were used to repay borrowings on the Unsecured Credit Facility.

During the year ended December 31, 1996, the Company sold 14
properties located in Alabama, California, Arizona and Washington for an
aggregate sales price of $33,398. After closing costs, escrow holdback, early
release of funds and pro-rated items which totaled $1,975, the Company received
net proceeds from the property sales aggregating $31,423. The net proceeds were
used to repay borrowings on the Unsecured Credit Facility.

13. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS

The following table summarizes non-cash investing and financing
transactions for the years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Merger Transaction:
Acquisition Cost Allocated to Investment in Real Estate $ -- $203,489
Restricted Cash -- 5,551
Receivables, Net -- 2,889
Note Receivable from Affiliate -- 720
Capitalized Loan Fees -- 992
Cancellation of Redeemable Series A Preferred Stock -- 960
Mortgage Loan Assumed -- (66,094)
Other Long-Term Debts Assumed -- (43,191)
Accounts Payable Assumed -- (2,869)
Shares of Common Stock Issued, at Par Value -- (8)
Paid-in Capital -- ( 109,842)
Other Net Liabilities Assumed -- (4,489)

Asset Purchase Transaction:
Acquisition Cost Allocated to Investment in Real Estate -- 26,342
Restricted Cash Applied to Debt Payment -- 117
Mortgage Notes Payable Assumed -- (16,334)
Paid-in Capital of Common Shares Issued -- (6,392)
Accrued Closing Costs and Pro-rated Items -- (476)

Property Acquisitions
Acquisition Price 91,468 89,856
Land for Built-to-Suit Facilities 14,994 6,670
Minority Limited Partners' Capital Contributions (4,733) --
Mortgage Notes Payable Assumed (16,136) --
Accrued Closing Costs and Pro-rated Items (914) (1,048)
Note Receivable 45,000 --

Portfolio Acquisitions:
Acquisition Price 396,971 --
Shares of Common Stock Issued (321,584) --
Restricted Cash 13,890 --
Investment in Unconsolidated Joint Venture 21,500 --
Accrued Closing Costs and Pro-rated Items (5,350) --

Property Dispositions:
Net Basis (61,793) (28,916)
Other Assets Net of Other Liabilities 288 782
</TABLE>

F-18
<PAGE>

14. COMMITMENT AND CONTINGENCIES

(a) LITIGATION The Company is involved from time to time in legal actions
relating to the ownership and operations of its properties. In management's
opinion, the liabilities, if any, that may ultimately result from such legal
actions are not expected to have a materially adverse effect on the consolidated
financial position, results of operations or cash flows of the Company.

(b) ENVIRONMENTAL MATTERS The Company follows a policy of monitoring its
properties for the presence of hazardous or toxic substances. The Company is
not aware of any environmental liability with respect to the properties that
would have a material adverse effect on the Company's business, assets or
results of operations. There can be no assurance that such a material
environmental liability does not exist. The existence of any such material
environmental liability could have an adverse effect on the Company's results of
operations and cash flow.

(c) GENERAL UNINSURED LOSSES The Company carries comprehensive liability,
fire, flood, extended coverage and rental loss insurance with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which may
be either uninsurable, or not economically insurable. Further, certain of the
properties are located in areas that are subject to earthquake activity. Should
a property sustain damage as a result of an earthquake, the Company may incur
loses due to insurance deductibles, co-payments or insured losses or uninsured
losses. Should an uninsured loss occur, the Company could lose is investment
in, and anticipated profits and cash flows from, a property.

(d) 401(k) RETIREMENT PLAN The Company has a 401(k) defined contribution
retirement plan for all full time employees with at least six months of
continuous service and who have reached the age of twenty one years. The plan
is qualified under section 401(a) of the Internal Revenue Code so that
contributions to the plan by the Company are not taxable until distributed to
employees. The Company is currently matching fifty percent of each
participating employee's contribution up to a total match of $2 per employee,
and such employer contributions are vested immediately. Employer contributions
to the plan for the years ended December 31, 1997 and 1996 totaled $42 and $2,
respectively.

(e) OPERATING LEASES As of December 31, 1997, the Company has entered
into operating leases for office spaces in Chicago, Dallas, Los Angeles and San
Francisco. The operating leases contain renewal options which if exercised
would extend the expiration dates from 2001 to 2006. The operating lease term
for the Los Angeles office is on a month-to-month basis.

Future minimum lease payments under non-cancelable lease agreements in
effect as of December 31, 1997, are as follows:

<TABLE>
<CAPTION>
Years Ending
December 31, Amount
------------ --------
<S> <C>
1998 $ 292
1999 305
2000 307
2001 286
2002 34
Thereafter --
-------
$1,224
-------
-------
</TABLE>

F-19

<PAGE>

Rent expense recognized during the years ended December 31, 1997 and 1996
was $261 and $167, respectively.

15. SUBSEQUENT EVENTS

ACQUISITIONS

During the period from January 1, 1998 to March 23, 1998, the Company,
either directly, or through its consolidated and unconsolidated subsidiaries,
acquired 12 properties and businesses with an aggregate purchase price of
approximately $90,585 located in California, Texas and Nevada. These
acquisitions were funded through the use of $6,739 in cash reserves, $60,154 in
drawings on the Unsecured Credit Facility, and the assumption of $17,468 in
mortgage indebtedness. The properties acquired have square footage totaling
approximately 773,000, including three properties acquired by an unconsolidated
subsidiary. In the same transactions, approximately 56 acres of land scheduled
for future development was also acquired. The costs to develop these parcels is
expected to aggregate to approximately $33,000, to be funded from drawings on
the Unsecured Credit Facility and from cash reserves. These properties, when
complete, will total approximately 749,000 square feet. In addition, the
Company has entered into a commitment in the amount of $19,369 to acquire
additional property from the seller of certain of the acquired properties.

DISPOSITIONS

On February 28, 1998, the Company sold a property located in Tennessee for
a sales price of $1,880. After closing costs and pro-rated items which totaled
$110, the Company received net proceeds of $1,770. The net proceeds were used
to repay borrowings on the Unsecured Credit Facility.

OTHER

The Company's Board recently authorized the adoption of a stockholder
rights plan designed to enhance the ability of all of the Company's stockholders
to realize the long-term value of their investment. The rights plan is
designed, among other things, to prevent a person or group from gaining control
of the Company without offering a fair price to all of the Company's
stockholders.

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables summarize selected quarterly financial data for the
years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
QUARTER YEAR ENDED
---------------------------------------------------- DECEMBER 31,
1 2 3 4 1997
------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Total Revenues $11,852 $13,017 $15,033 $26,248 $66,150
Total Expenses 7,495 8,441 10,133 16,093 42,162

F-20

<PAGE>

Income Before Minority Interest,
Gain (Loss) on Divestiture of Properties and
Extraordinary Item 4,357 4,576 4,900 10,155 23,988
Minority Interest in Net (Income) -- -- -- (30) (30)
Gain (Loss) on Divestiture of Properties, Net 428 (877) (17) 4 (462)
Extraordinary Item -- (808) -- -- (808)
Net Income 4,785 2,891 4,883 10,129 22,688
Net Income Allocable to Common 4,080 2,186 4,178 9,426 19,870
Net Income Per Basic Weighted Average
Common Share:
Net Income Before Extraordinary Item $ 0.30 $ 0.22 $ 0.29 $ 0.32 $ 1.17
Net Income 0.30 0.16 0.29 0.32 1.12
Net Income Per Diluted Weighted
Average Common Share:
Net Income Before Extraordinary Item $ 0.29 0.22 0.28 0.32 1.13
Net Income 0.29 0.16 0.28 0.32 1.09

<CAPTION>
QUARTER YEAR ENDED
---------------------------------------------------- DECEMBER 31,
1 2 3 4 1996
------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 3,624 $10,132 $10,177 $11,108 $35,041
Total Expenses 2,688 6,690 6,777 7,725 23,880
Income Before Minority Interest, Gain on
Divestiture of Properties and Extraordinary Item 936 3,442 3,400 3,383 11,161
Gain on Divestiture of Properties -- 7 170 3,136 3,313
Extraordinary Item (375) (36) -- -- (411)
Net Income 561 3,413 3,570 6,519 14,063
Net Income Allocable to Common 265 2,708 2,864 5,814 11,651
Net Income Per Basic Weighted Average
Common Share:
Net Income Before Extraordinary Item $ 0.19 $ 0.28 $ 0.30 $ 0.52 $ 1.42
Net Income 0.08 0.28 0.30 0.52 1.37
Net Income Per Diluted Weighted
Average Common Share:
Net Income Before Extraordinary Item $ 0.19 $ 0.28 $ 0.29 $ 0.48 $ 1.37
Net Income 0.08 0.28 0.29 0.48 1.33
</TABLE>

F-21

<PAGE>

17. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)

The unaudited pro forma results of operations presented below for the
years ended December 31, 1997 and 1996 have been prepared to reflect (i) the
incremental effects of the Merger, (ii) the financing transactions discussed
in Notes 6, 7 and 8, (iii) the acquisitions discussed in Notes 10 and 11, and
(iv) the dispositions discussed in Note 12 on the operations of the Company
as if such transactions and adjustments had occurred on January 1, 1996.

In the opinion of management, the unaudited pro forma results of operations
provide for all adjustments necessary to reflect the effects of the transactions
completed by the Company through December 31, 1997.

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1997 1996
---------- ----------
<S> <C> <C>
TOTAL REVENUE $ 102,686 $ 93,170

EXPENSES:
Interest 19,843 19,966
Property Taxes 11,898 11,319
Property Operating 9,032 8,927
General and Administrative 6,212 5,885
Depreciation and Amortization 18,492 15,133
---------- ----------
TOTAL EXPENSES 65,477 61,230
---------- ----------

NET INCOME BEFORE GAIN (LOSS) ON DIVESTITURE
OF PROPERTIES AND EXTRAORDINARY ITEMS $ 37,209 $ 31,940
---------- ----------
---------- ----------

</TABLE>

F-22

<PAGE>

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
AS OF DECEMBER 31, 1997, 1996 AND 1995

BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO ADDITIONS END OF
DESCRIPTION YEAR EXPENSE (DEDUCTIONS) YEAR
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
----
Reserve for Bad Debts $ -- -- -- $ --

1996
----
Reserve for Bad Debts $ -- 485,468 85,772 $ 571,240

1997
----
Reserve for Bad Debts $ 571,240 (131,452) (212,275) $ 227,513
</TABLE>

F-23

<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

CHICAGO:
1000 Lunt (1) $ 567 $ 1,910 $ 114 $ 567 $ 2,024 $ 2,591
1090 Pratt (1) 211 415 8 211 423 634
1100 Pratt (1) 231 641 223 231 864 1,095
1180 Pratt (1) 128 410 - 128 410 538
1201 Busse (1) 110 289 3 110 292 402
17025 Wallace (1) 164 1,621 181 164 1,802 1,966
17129 Wallace (1) 133 1,544 1 133 1,545 1,678
1815 Landmeier (1) 302 1,370 32 302 1,402 1,704
2375 Touhy Avenue (1) 363 836 - 363 836 1,199
3 Timber Court 1,220 11,339 - 1,220 11,339 12,559
3400 West Lake (1) 881 1,694 44 881 1,738 2,619
Crossroads Parkway 1,497 7,874 - 1,497 7,874 9,371
5101 W. 122nd Street (1) 191 2,443 505 191 2,948 3,139
700 Pratt (1) 386 1,414 13 386 1,427 1,813
80 Internationale
Boulevarde 529 5,815 - 529 5,815 6,344
801 Lunt (1) 203 645 94 203 739 942
80th Avenue 1,575 7,729 - 1,575 7,729 9,304
900 Pratt (1) 226 534 21 226 555 781
Bedford Park 359 2,712 176 359 2,888 3,247
101 Regency Drive 1,030 6,380 - 1,030 6,380 7,410
500 Regency Drive 1,027 5,979 - 1,027 5,979 7,006
Lombard I (1) 883 4,558 651 883 5,209 6,092
------------ ------------ ------------ ------------ ------------ ------------
Subtotal 12,216 68,152 2,066 12,216 70,218 82,434
------------ ------------ ------------ ------------ ------------ ------------

COLUMBUS:

2303 John Glenn 1,404 8,832 - 1,404 8,832 10,236
Crosswind Drive (1) 4,993 25,939 - 4,993 25,939 30,932
200 Constitution Drive 1,817 6,233 - 1,817 6,233 8,050
2141 Southwest 690 3,641 - 690 3,641 4,331
6959-6967 Alum Creek 730 3,779 - 730 3,779 4,509
6969 Alum Creek 727 4,184 - 727 4,184 4,911
------------ ------------ ------------ ------------ ------------ ------------
Subtotal 10,361 52,608 - 10,361 52,608 62,969
------------ ------------ ------------ ------------ ------------ ------------

ACCUMULATED DATE OF DATE OF
PROPERTY DEPRECIATION CONSTRUCTION ACQUISITION
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
ATLANTA:
2200 Cedars Road (52) 1997 08/14/97
Highlands Parkway (100) 1997 07/01/97
1901 Riverside (34) 1989 08/29/97
1601 Riverside (28) 1987 08/29/97
1701 Riverside (34) 1987 08/29/97
Live Oak Parkway (87) 1988 02/23/96
Marietta Trade Center (639) 1986 02/23/96
------------
Subtotal (974)
------------

CHICAGO:
1000 Lunt $ (126) 1964 02/23/96
1090 Pratt (24) 1964 02/23/96
1100 Pratt (35) 1964 02/23/96
1180 Pratt (22) 1963 02/23/96
1201 Busse (15) 1964 02/23/96
17025 Wallace (103) 1973 02/23/96
17129 Wallace (82) 1970 02/23/96
1815 Landmeier (72) 1964 02/23/96
2375 Touhy Avenue (44) 1963 02/23/96
3 Timber Court (81) 1994 09/30/97
3400 West Lake (95) 1974 02/23/96
Crossroads Parkway (226) 1995 12/31/96
5101 W. 122nd Street (149) 1973 02/23/96
700 Pratt (75) 1964 02/23/96
80 Internationale
Boulevarde (41) 1994 09/30/97
801 Lunt (35) 1970 02/23/96
80th Avenue (148) 1996 04/30/97
900 Pratt (31) 1964 02/23/96
Bedford Park (161) 1980 02/23/96
101 Regency Drive (62) 1991 08/29/97
500 Regency Drive (58) 1991 08/29/97
Lombard I (275) 1974 02/23/96
------------
Subtotal (1,960)
------------

COLUMBUS:

2303 John Glenn (63) 1994 09/24/97
Crosswind Drive (926) 1989 09/30/96
200 Constitution Drive (45) 1992 09/24/97
2141 Southwest (26) 1991 09/24/97
6959-6967 Alum Creek (27) 1993 09/24/97
6969 Alum Creek (30) 1993 09/24/97
------------
Subtotal (1,117)
------------
</TABLE>

F-24
<PAGE>

<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST TO COMPANY CARRIED AT END OF PERIOD
------------------------------------------- ------------------------------------------
BUILDING &
PROPERTY LAND BUILDING IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DALLAS:
10425 Plano Road 755 4,215 - 755 4,215 4,970
1049 Avenue H East 446 2,170 - 446 2,170 2,616
13700 Benchmark Drive 833 5,176 - 833 5,176 6,009
1441 Patton Place 434 2,893 - 434 2,893 3,327
1505 Valwood Parkway 383 2,846 - 383 2,846 3,229
1701 Timberlake Drive 785 2,964 - 785 2,964 3,749
2022 McKenzie Drive 754 4,363 - 754 4,363 5,117
2501 N. Great S.W. Parkway 693 2,648 92 693 2,740 3,433
2800 E. Plano Parkway 806 4,209 - 806 4,209 5,015
399 Great S.W. Parkway 144 917 - 144 917 1,061
415-417 113th Street 234 1,490 - 234 1,490 1,724
500-508 113th Street 232 1,490 - 232 1,490 1,722
514-516 Great S.W. Parkway 370 2,379 - 370 2,379 2,749
714 -720 107th Street 259 1,639 - 259 1,639 1,898
918-920 Avenue N 59 687 - 59 687 746
Beltline 494 1,153 89 494 1,242 1,736
Centreport 17 (1) 383 1,441 25 383 1,466 1,849
Centerport VII 649 4,494 40 649 4,534 5,183
Enterprise Building Park A (2) 807 3,444 - 807 3,444 4,251
Exchange Service Center 1 505 1,975 - 505 1,975 2,480
Exchange Service Center 2 528 2,058 - 528 2,058 2,586
Great Southwest 110 (1) 511 2,310 94 511 2,404 2,915
Great Southwest 4 340 1,233 7 340 1,240 1,580
Highland Place 1,572 6,399 - 1,572 6,399 7,971
Las Colinas 1 218 587 - 218 587 805
Northgate 4 244 834 18 244 852 1,096
Northgate International (1) 1,761 5,541 - 1,761 5,541 7,302
Palisades I 239 954 69 239 1,023 1,262
Palisades II 239 954 8 239 962 1,201
201 Regal Row (1) 283 906 - 283 906 1,189
Sarah Jane Parkway 3,064 12,762 18 3,064 12,780 15,844
Valley Branch II 388 983 5 388 988 1,376
Valwood 20 (1) 691 2,399 - 691 2,399 3,090
Valwood IV 326 1,067 - 326 1,067 1,393
Water's Ridge 2,358 7,843 - 2,358 7,843 10,201
Las Colinas 4 139 298 88 139 386 525
Las Colinas 5 492 1,058 263 492 1,321 1,813
Northgate 28 152 795 - 152 795 947
Northgate 5 137 469 142 137 611 748
Regal Empress 435 1,345 7 435 1,352 1,787
Valley Branch #1 175 442 6 175 448 623
------------ ------------ ------------ ------------ ------------ ------------
Subtotal 24,317 103,830 971 24,317 104,801 129,118
------------ ------------ ------------ ------------ ------------ ------------

ACCUMULATED DATE OF DATE OF
PROPERTY DEPRECIATION CONSTRUCTION ACQUISITION
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
DALLAS:
10425 Plano Road (24) 1995 10/21/97
1049 Avenue H East - 1964 12/31/97
13700 Benchmark Drive (29) 1995 10/21/97
1441 Patton Place - 1986 12/31/97
1505 Valwood Parkway (16) 1995 10/21/97
1701 Timberlake Drive (17) 1972 10/21/97
2022 McKenzie Drive (24) 1984 10/21/97
2501 N. Great S.W. Parkway (49) 1983 05/30/97
2800 E. Plano Parkway (24) 1994 10/21/97
399 Great S.W. Parkway - 1970 12/31/97
415-417 113th Street - 1974 12/31/97
500-508 113th Street - 1974 12/31/97
514-516 Great S.W. Parkway - 1971 12/31/97
714 -720 107th Street - 1972 12/31/97
918-920 Avenue N - 1974 12/31/97
Beltline (78) 1980 02/23/96
Centreport 17 (76) 1987 02/23/96
Centerport VII (45) 1984 08/29/97
Enterprise Building Park A (56) 1997 09/17/97
Exchange Service Center 1 (14) 1973 09/24/97
Exchange Service Center 2 (15) 1973 09/24/97
Great Southwest 110 (141) 1974 02/23/96
Great Southwest 4 (65) 1979 02/23/96
Highland Place (46) 1986 09/24/97
Las Colinas 1 (31) 1977 02/23/96
Northgate 4 (45) 1979 02/23/96
Northgate International (293) 1987 02/23/96
Palisades I (63) 1981 02/23/96
Palisades II (52) 1981 02/23/96
201 Regal Row (48) 1966 02/23/96
Sarah Jane Parkway (491) 1996 11/19/96
Valley Branch II (52) 1980 02/23/96
Valwood 20 (127) 1987 02/23/96
Valwood IV (10) 1985 08/29/97
Water's Ridge (328) 1996 11/29/96
Las Colinas 4 (20) 1980 02/23/96
Las Colinas 5 (91) 1980 02/23/96
Northgate 28 (42) 1983 02/23/96
Northgate 5 (46) 1979 02/23/96
Regal Empress (73) 1984 02/23/96
Valley Branch #1 (25) 1980 02/23/96
------------
Subtotal (2,556)
------------
</TABLE>

F-25
<PAGE>

<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST TO COMPANY CARRIED AT END OF PERIOD
------------------------------------------- ------------------------------------------
BUILDING &
PROPERTY LAND BUILDING IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DETROIT:
HCC - Lot 26-11 275 2,602 - 275 2,602 2,877
HCC - Lot 27-8 406 1,733 - 406 1,733 2,139
HCC - Lot 6-16 399 3,032 - 399 3,032 3,431
Pontiac 519 2,078 78 519 2,156 2,675
H & J Industrial 1 128 905 3 128 908 1,036
H & J Industrial 2 66 542 - 66 542 608
H & J Industrial 3 72 899 - 72 899 971
H & J Industrial 4 28 219 - 28 219 247
Southfield Commerce Ctr. 1 204 1,219 6 204 1,225 1,429
Southfield Commerce Ctr. 2 311 1,968 - 311 1,968 2,279
Troy Tech II 1,326 5,305 58 1,326 5,363 6,689
Westhills Commerce Ctr. 1 100 1,346 - 100 1,346 1,446
Westhills Commerce Ctr. 2 122 1,197 - 122 1,197 1,319
------------ ------------ ------------ ------------ ------------ ------------
Subtotal 3,956 23,045 145 3,956 23,190 27,146
------------ ------------ ------------ ------------ ------------ ------------
HOUSTON:
4647 Pine Timbers 465 3,201 - 465 3,201 3,666
4660 Pine Timbers 978 6,795 10 978 6,805 7,783
Brittmore Distribution - 1 530 3,422 - 530 3,422 3,952
Brittmore Distribution - 2 457 2,922 - 457 2,922 3,379
Perimeter Distribution - 1 372 1,818 - 372 1,818 2,190
Perimeter Distribution - 2 167 805 - 167 805 972
Pine North Distribution - 1 167 1,038 17 167 1,055 1,222
Pine North Distribution - 2 278 1,781 - 278 1,781 2,059
Pinemont Distribution - 1 136 731 - 136 731 867
Pinemont Distribution - 2 298 1,602 - 298 1,602 1,900
------------ ------------ ------------ ------------ ------------ ------------
Subtotal 3,848 24,115 27 3,848 24,142 27,990
------------ ------------ ------------ ------------ ------------ ------------

ACCUMULATED DATE OF DATE OF
PROPERTY DEPRECIATION CONSTRUCTION ACQUISITION
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
DETROIT:
HCC - Lot 26-11 (19) 1990 09/24/97
HCC - Lot 27-8 (12) 1990 09/24/97
HCC - Lot 6-16 (22) 1990 09/24/97
Pontiac (110) 1986 02/23/96
H & J Industrial 1 (6) 1981 09/24/97
H & J Industrial 2 (4) 1981 09/24/97
H & J Industrial 3 (6) 1981 09/24/97
H & J Industrial 4 (2) 1981 09/24/97
Southfield Commerce Ctr. 1 (9) 1975 09/24/97
Southfield Commerce Ctr. 2 (14) 1975 09/24/97
Troy Tech II (280) 1986 02/23/96
Westhills Commerce Ctr. 1 (10) 1983 09/24/97
Westhills Commerce Ctr. 2 (9) 1983 09/24/97
------------
Subtotal (503)
------------

HOUSTON:
4647 Pine Timbers - 1975 12/30/97
4660 Pine Timbers - 1975 12/30/97
Brittmore Distribution - 1 (24) 1980 09/24/97
Brittmore Distribution - 2 (21) 1980 09/24/97
Perimeter Distribution - 1 (13) 1980 09/24/97
Perimeter Distribution - 2 (6) 1980 09/24/97
Pine North Distribution - 1 (7) 1982 09/24/97
Pine North Distribution - 2 (13) 1982 09/24/97
Pinemont Distribution - 1 (5) 1981 09/24/97
Pinemont Distribution - 2 (11) 1981 09/24/97
------------
Subtotal (100)
------------
</TABLE>

F-26
<PAGE>

LOS ANGELES BASIN:
1051 South Rockefeller Ave. 691 3,600 - 691 3,600 4,291
11195 Eucalyptus Street 945 2,444 - 945 2,444 3,389
11440 Pacific Avenue 785 4,730 - 785 4,730 5,515
14821 East Northam Street 623 2,545 - 623 2,545 3,168
19545 East San Jose Avenue 815 3,343 - 815 3,343 4,158
3050-3080 Enterprise Street 1,609 1,970 - 1,609 1,970 3,579
3200 Enterprise Street 873 3,508 - 873 3,508 4,381
425 South Rockefeller 1,239 2,700 - 1,239 2,700 3,939
500 South Dupont Street 1,946 8,271 - 1,946 8,271 10,217
8865 Utica Avenue 1,247 4,595 - 1,247 4,595 5,842
Arenth Avenue (1) 3,430 6,105 285 3,430 6,390 9,820
Cedarpointe - Land 3,102 27 99 3,102 126 3,228
Cedarpointe 14 357 1,365 - 357 1,365 1,722
Cedarpointe 15 346 1,780 - 346 1,780 2,126
Cedarpointe 16 430 2,432 - 430 2,432 2,862
Cedarpointe 17 285 1,873 - 285 1,873 2,158
Cedarpointe 18 433 2,226 - 433 2,226 2,659
Cedarpointe Industrial
Park-2 744 3,702 - 744 3,702 4,446
Dominguez North - Bldg 1 697 4,057 - 697 4,057 4,754
Dominguez North - Bldg 10 585 2,238 - 585 2,238 2,823
Dominguez North - Bldg 11 503 1,355 - 503 1,355 1,858
Dominguez North - Bldg 2 481 2,256 - 481 2,256 2,737
Dominguez North - Bldg 3 417 1,265 - 417 1,265 1,682
Dominguez North - Bldg 4 446 1,793 - 446 1,793 2,239
Dominguez North - Bldg 5 1,803 7,721 - 1,803 7,721 9,524
Dominguez North - Bldg 6 839 3,962 - 839 3,962 4,801
Dominguez North - Bldg 7 810 1,334 - 810 1,334 2,144
Dominguez North - Bldg 8 784 1,820 - 784 1,820 2,604
Dominguez North - Bldg 9 1,464 5,816 - 1,464 5,816 7,280
4451 Eucalyptus Avenue 1,197 3,843 133 1,197 3,976 5,173
Meyer Circle 1,694 6,664 - 1,694 6,664 8,358
Mission Oaks 2,176 6,912 - 2,176 6,912 9,088
Rustin Avenue 623 3,543 - 623 3,543 4,166
Skylab Road (2) 3,389 6,044 105 3,389 6,149 9,538
Valencia Industrial Bldg. (1) 1,429 3,591 4 1,429 3,595 5,024
Wanamaker 499 4,049 3 499 4,052 4,551
Yates Avenue 6,085 10,413 - 6,085 10,413 16,498
Chatsworth 812 1,736 - 812 1,736 2,548
Cypress A(1) 516 1,036 20 516 1,056 1,572
Cypress B 1,088 1,886 1 1,088 1,887 2,975
Cypress C(1) 495 1,118 - 495 1,118 1,613
North Irvine 691 2,077 167 691 2,244 2,935
------------ ------------ ------------ ------------ ------------ ------------
Subtotal 49,423 143,745 817 49,423 144,562 193,985
------------ ------------ ------------ ------------ ------------ ------------

LOS ANGELES BASIN:
1051 South Rockefeller Ave. (26) 1986 09/30/97
11195 Eucalyptus Street (14) 1983 10/21/97
11440 Pacific Avenue (34) 1989 09/30/97
14821 East Northam Street (18) 1992 09/30/97
19545 East San Jose Avenue (24) 1988 09/30/97
3050-3080 Enterprise Street - 1980 12/23/97
3200 Enterprise Street (25) 1982 09/30/97
425 South Rockefeller (39) 1986 07/01/97
500 South Dupont Street (46) 1987 10/21/97
8865 Utica Avenue (26) 1987 10/21/97
Arenth Avenue (346) 1973 03/29/96
Cedarpointe - Land -
Cedarpointe 14 (10) 1990 09/24/97
Cedarpointe 15 (13) 1990 09/24/97
Cedarpointe 16 (17) 1990 09/24/97
Cedarpointe 17 (13) 1990 09/24/97
Cedarpointe 18 (16) 1990 09/24/97
Cedarpointe Industrial Park-2 (26) 1990 09/24/97
Dominguez North - Bldg 1 (29) 1981 09/24/97
Dominguez North - Bldg 10 (16) 1981 09/24/97
Dominguez North - Bldg 11 (10) 1981 09/24/97
Dominguez North - Bldg 2 (16) 1981 09/24/97
Dominguez North - Bldg 3 (9) 1981 09/24/97
Dominguez North - Bldg 4 (13) 1981 09/24/97
Dominguez North - Bldg 5 (55) 1981 09/24/97
Dominguez North - Bldg 6 (28) 1981 09/24/97
Dominguez North - Bldg 7 (10) 1981 09/24/97
Dominguez North - Bldg 8 (13) 1981 09/24/97
Dominguez North - Bldg 9 (42) 1981 09/24/97
4451 Eucalyptus Avenue (70) 1989 05/12/97
Meyer Circle (128) 1983 04/28/97
Mission Oaks (202) 1969 12/24/96
Rustin Avenue (114) 1990 11/15/96
Skylab Road (32) 1997 12/10/97
Valencia Industrial Bldg. (190) 1985 02/23/96
Wanamaker (130) 1985 11/22/96
Yates Avenue (189) 1987 05/13/97
Chatsworth (92) 1985 02/23/96
Cypress A (55) 1984 02/23/96
Cypress B (100) 1984 02/23/96
Cypress C (59) 1984 02/23/96
North Irvine (153) 1975 02/23/96
------------
Subtotal (2,448)
------------
</TABLE>

F-27
<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

MEMPHIS:
4000 Air Park Cove 241 1,361 - 241 1,361 1,602
4013 Premier 204 1,556 6 204 1,562 1,766
Airport Bldg #14 363 2,410 - 363 2,410 2,773
Airport Bldg #16 A 132 1,339 46 132 1,385 1,517
Airport Bldg #16 B 42 428 - 42 428 470
Airport Bldg #17 237 1,938 71 237 2,009 2,246
Airport Bldg #3 170 898 - 170 898 1,068
Delp Distribution (1) 1,101 5,785 - 1,101 5,785 6,886
Olive Branch (1), (4) 587 9,204 22 587 9,226 9,813
Olive Branch 2 (4) - 6,681 14 - 6,695 6,695
Willow Lake (1) 750 3,210 161 750 3,371 4,121
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 3,827 34,810 320 3,827 35,130 38,957
---------- ---------- ---------- ---------- ---------- ----------

MIAMI:
Centerport Building A 711 2,960 - 711 2,960 3,671
Centerport Building B 802 2,623 2 802 2,625 3,427
Centerport Building E 488 4,036 - 488 4,036 4,524
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 2,001 9,619 2 2,001 9,621 11,622
---------- ---------- ---------- ---------- ---------- ----------

MINNEAPOLIS:
Boulder Avenue 5 4,151 1 5 4,152 4,157
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 5 4,151 1 5 4,152 4,157
---------- ---------- ---------- ---------- ---------- ----------

NASHVILLE:
1550 Heil Quaker 298 3,228 87 298 3,315 3,613
1600 Corporate Place 185 1,260 7 185 1,267 1,452
Hennessy Warehouse 201 1,226 33 201 1,259 1,460
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 684 5,714 127 684 5,841 6,525
---------- ---------- ---------- ---------- ---------- ----------

MEMPHIS:
4000 Air Park Cove (72) 1988 02/23/96
4013 Premier (84) 1970 02/23/96
Airport Bldg #14 (127) 1977 02/23/96
Airport Bldg #16 A (86) 1977 02/23/96
Airport Bldg #16 B (23) 1977 02/23/96
Airport Bldg #17 (118) 1978 02/23/96
Airport Bldg #3 (47) 1971 02/23/96
Delp Distribution (306) 1982 02/23/96
Olive Branch (488) 1989 02/23/96
Olive Branch 2 (354) 1995 02/23/96
Willow Lake (203) 1988 02/23/96
----------
Subtotal (1,908)
----------

MIAMI:
Centerport Building A (21) 1991 09/24/97
Centerport Building B (19) 1991 09/24/97
Centerport Building E (29) 1991 09/24/97
----------
Subtotal (69)
----------

MINNEAPOLIS:
Boulder Avenue (119) 1997 03/01/97
----------
Subtotal (119)
----------

NASHVILLE:
1550 Heil Quaker (173) 1978 02/23/96
1600 Corporate Place (69) 1976 02/23/96
Hennessy Warehouse (78) 1975 02/23/96
----------
Subtotal (320)
----------
</TABLE>

F-28
<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST TO COMPANY CARRIED AT END OF PERIOD
---------------------------------------- ----------------------------------------
BUILDING &
PROPERTY LAND BUILDING IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NEW JERSEY/I95:
100 Friars Lane 1,348 8,685 - 1,348 8,685 10,033
103-105 Gaither Drive 513 1,935 - 513 1,935 2,448
110 Gaither Drive 285 1,138 - 285 1,138 1,423
112 Gaither Drive 264 1,060 - 264 1,060 1,324
130 Benigno Blvd. 255 1,205 - 255 1,205 1,460
361 Bellevue Road 200 894 - 200 894 1,094
9020 Pennsauken Highway 100 602 - 100 602 702
9040 Pennsauken Highway 120 656 - 120 656 776
9160 Pennsauken Highway 122 495 - 122 495 617
9255 Commerce Highway 174 968 - 174 968 1,142
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 3,381 17,638 - 3,381 17,638 21,019
---------- ---------- ---------- ---------- ---------- ----------

ORLANDO:
2200 Consulate Drive (2) 1,706 8,138 9 1,706 8,147 9,853
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 1,706 8,138 9 1,706 8,147 9,853
---------- ---------- ---------- ---------- ---------- ----------

PHOENIX:
4440 East Elwood Street 697 6,374 - 697 6,374 7,071
470 West Vaughn Street 277 2,134 - 277 2,134 2,411
7000 West Latham Street 1,601 6,712 - 1,601 6,712 8,313
Phoenix N. 27th 197 658 - 197 658 855
Phoenix Plaza Three 486 1,121 96 486 1,217 1,703
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 3,258 16,999 96 3,258 17,095 20,353
---------- ---------- ---------- ---------- ---------- ----------

RICHMOND:
North Run III 1,154 3,905 - 1,154 3,905 5,059
North Run IV 1,568 6,607 - 1,568 6,607 8,175
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 2,722 10,512 - 2,722 10,512 13,234
---------- ---------- ---------- ---------- ---------- ----------

SAN DIEGO:
6355 Nancy Ridge Drive 93 186 - 93 186 279
Scripps Ranch 3,862 5,844 74 3,862 5,918 9,780
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 3,955 6,030 74 3,955 6,104 10,059
---------- ---------- ---------- ---------- ---------- ----------

SEATTLE:
Park at Woodinville (1) 2,530 9,468 281 2,530 9,749 12,279
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 2,530 9,468 281 2,530 9,749 12,279
---------- ---------- ---------- ---------- ---------- ----------

<CAPTION>
ACCUMULATED DATE OF DATE OF
DEPRECIATION CONSTRUCTION ACQUISITION
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NEW JERSEY/I95:
100 Friars Lane (115) 1992 07/29/97
103-105 Gaither Drive - 1974 12/31/97
110 Gaither Drive - 1973 12/31/97
112 Gaither Drive - 1974 12/31/97
130 Benigno Blvd. - 1974 12/31/97
361 Bellevue Road - 1974 12/31/97
9020 Pennsauken Highway - 1974 12/31/97
9040 Pennsauken Highway - 1974 12/31/97
9160 Pennsauken Highway - 1976 12/31/97
9255 Commerce Highway - 1974 12/31/97
----------
Subtotal (115)
----------
ORLANDO:
2200 Consulate Drive (51) 1997 10/08/97
----------
Subtotal (51)
----------

PHOENIX:
4440 East Elwood Street (36) 1995 10/21/97
470 West Vaughn Street (15) 1991 09/30/97
7000 West Latham Street (38) 1995 10/21/97
Phoenix N. 27th (35) 1983-1984 02/23/96
Phoenix Plaza Three (106) 1969-1970 02/23/96
----------
Subtotal (230)
----------

RICHMOND:
North Run III (28) 1988 09/24/97
North Run IV (47) 1989 09/24/97
----------
Subtotal (75)
----------

SAN DIEGO:
6355 Nancy Ridge Drive (10) 1984 02/23/96
Scripps Ranch (336) 1978-1980 02/23/96
----------
Subtotal (346)
----------

SEATTLE:
Park at Woodinville (531) 1982 02/23/96
----------
Subtotal (531)
----------
</TABLE>

F-29
<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST TO COMPANY CARRIED AT END OF PERIOD
---------------------------------------- ----------------------------------------
BUILDING &
PROPERTY LAND BUILDING IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAN FRANCISCO BAY AREA
2190 Hanson Way 1,124 5,954 - 1,124 5,954 7,078
Gold River Lane 2,153 11,421 - 2,153 11,421 13,574
Overlake Place 2,900 5,635 - 2,900 5,635 8,535
San Carlos Industrial 3,042 4,829 214 3,042 5,043 8,085
2711 North First Street 1,304 5,193 - 1,304 5,193 6,497
Barrington Business Park 1,865 7,379 - 1,865 7,379 9,244
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 12,388 40,411 214 12,388 40,625 53,013
---------- ---------- ---------- ---------- ---------- ----------

ST. LOUIS:
5463 Phantom Drive 248 2,722 - 248 2,722 2,970
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 248 2,722 - 248 2,722 2,970
---------- ---------- ---------- ---------- ---------- ----------

DEVELOPMENT PROJECTS:
Atlanta, GA (3) 928 10 637 928 647 1,575
Charlotte, NC (3) - - - - - -
Dallas, TX (3) 755 4 2,281 755 2,285 3,040
Dallas, TX (3) 905 - 2,469 905 2,469 3,374
Dallas, TX (3) 2,738 3 2,162 2,738 2,165 4,903
Los Angeles, CA (3) 4,977 5 3,664 4,977 3,669 8,646
Nashville, TN (3) 1,013 - 2,371 1,013 2,371 3,384
Orlando, FL (3) 602 - 1,900 602 1,900 2,502
San Francisco Bay Area, CA (3) - - 7,912 - 7,912 7,912
---------- ---------- ---------- ---------- ---------- ----------
Subtotal 11,918 22 23,396 11,918 23,418 35,336
---------- ---------- ---------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $ 168,417 $ 626,218 $28,604 $ 168,417 $ 654,822 $ 823,239
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------

<CAPTION>
ACCUMULATED DATE OF DATE OF
DEPRECIATION CONSTRUCTION ACQUISITION
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
SAN FRANCISCO BAY AREA
2190 Hanson Way - 1997 12/23/97
Gold River Lane (328) 1996 12/30/96
Overlake Place (251) 1996 06/10/96
San Carlos Industrial (274) 1969 02/23/96
2711 North First Street (37) 1980 09/30/97
Barrington Business Park (53) 1990 09/30/97
----------
Subtotal (943)
----------

ST. LOUIS:
5463 Phantom Drive (19) 1975 09/30/97
----------
Subtotal (19)
----------

DEVELOPMENT PROJECTS:
Atlanta, GA -
Charlotte, NC -
Dallas, TX -
Dallas, TX -
Dallas, TX -
Los Angeles, CA -
Nashville, TN -
Orlando, FL -
San Francisco Bay Area, CA -
----------
Subtotal -
----------

- ---------------------------------------------------------------------------
TOTAL $ (14,732)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>

F-30
<PAGE>

MERIDIAN INDUSTRIAL TRUST, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

Reconciliation of cost and accumulated depreciation for the years ended
December 31, 1997 and 1996, are as follows:

<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------- --------------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 326,349 $ (4,365) $ 300 $ -

Additions during period:
Merged Trusts - - 229,831 -
Acquisition of rental properties 493,768 - 89,320 -
Land acquistion and property development costs 62,429 - 33,235 -
Recurring building and tenant improvements 3,064 - 2,265 -
Adjustments to property basis (235) 6 446 -
Depreciation - (10,716) - (4,792)

Property dispositions (62,136) 343 (29,048) 427
-------------------------------- --------------------------------
Balance at End of Year $ 823,239 $ (14,732) $ 326,349 $ (4,365)
-------------------------------- --------------------------------
-------------------------------- --------------------------------
</TABLE>

(1) These properties serve as collateral for the Mortgage Loan facility. As
of December 31, 1997, the outstanding indebtedness under this facility
totaled $66,094. As of December 31, 1997, these properties have a net
book value of $138,863.

(2) These properties were completed in 1997.

(3) As of December 31, 1997 these properties were still under construction.
The properties are located in various markets and will be completed in 1998.

(4) Olive Branch and Olive Branch 2 are considered one property.

(5) These two properties are retail shopping centers with an aggregate net
book value of $21,689 at December 31, 1997. All other operating properties
owned by the Company are industrial.

(6) Aggregate cost for federal income tax purposes is $889,610.

F-31

<PAGE>

MOST RECENT REVISION: 3/12/98