<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 11, 1998
MERIDIAN INDUSTRIAL TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 1-14166 94-3224765
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
455 Market Street, 17th Floor 94105
San Francisco, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 228-3900
Not Applicable
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS
This Current Report on Form 8-K/A is being filed by Meridian Industrial
Trust, Inc. ("Meridian") to restate information included in the Current Report
on Form 8-K previously filed with the Securities and Exchange Commission and
dated as of December 11, 1998. The original Form 8-K provided pro forma
condensed consolidated financial statements that reflect the proposed merger
(the "Merger") of Meridian with and into ProLogis Trust ("ProLogis"). ProLogis
and Meridian have entered into an Agreement and Plan of Merger, dated November
16, 1998, as amended (the "Merger Agreement") which is included in ProLogis'
Registration Statement on Form S-4. In addition, the pro forma condensed
consolidated financial statements also reflect the significant changes in
ProLogis' portfolio of industrial distribution facilities as reported on
ProLogis' Current Report on Form 8-K/A filed on February 25, 1999 and dated as
of December 3, 1998.
<PAGE>
2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
None
(b) Pro Forma Financial Information:
Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1998 (unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statement of Earnings from
Operations for the nine months ended September 30, 1998
(unaudited)
Pro Forma Condensed Consolidated Statement of Earnings from
Operations for the year ended December 31, 1997 (unaudited)
Notes to Pro Forma Condensed Consolidated Statements of Earnings
from Operations
(c) Exhibits:
23.1 Consent of Indpendent Public Accountants (previously
filed).
<PAGE>
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERIDIAN INDUSTRIAL TRUST, INC.
Date: February 25, 1999 By: /s/ Robert A. Dobbin
---------------------------------
Robert A. Dobbin
Secretary
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
The accompanying pro forma condensed consolidated financial statements for
ProLogis Trust ("ProLogis") reflect: (i) the acquisition by ProLogis of certain
industrial distribution facilities during the period from December 31, 1996 to
October 30, 1998, as detailed in the Current Report on Form 8-K/A of ProLogis
filed on February 25, 1999 and dated as of December 3, 1998 and (ii) the
proposed merger (the "Merger") of Meridian Industrial Trust, Inc. ("Meridian")
with and into ProLogis.
Under the Agreement and Plan of Merger dated as of November 16, 1998, as
amended (the "Merger Agreement"), for each share of Meridian common stock held,
the holder will receive 1.10 ProLogis common shares ("ProLogis Common Shares")
plus up to $2.00 in cash under certain circumstances, and Meridian's Series D
preferred stockholders will receive one comparable ProLogis cumulative
redeemable preferred share. In addition, ProLogis will assume Meridian's
outstanding liabilities. The Merger will be accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16.
The accompanying pro forma condensed consolidated financial statements have
been prepared based upon certain pro forma adjustments to the historical
financial statements of ProLogis. The pro forma adjustment to reflect the
Merger is based upon the pro forma financial statements of Meridian that were
previously filed via Current Report on Form 8-K by Meridian on December 7,
1998, which is referenced in the accompanying notes to the pro forma condensed
consolidated financial statements.
The accompanying pro forma condensed consolidated balance sheet has been
prepared as if: (i) the facility acquired by ProLogis subsequent to September
30, 1998 had been acquired as of that date; and, (ii) the Merger had occurred
as of September 30, 1998.
The accompanying pro forma condensed consolidated statements of earnings from
operations for the nine months ended September 30, 1998 and the year ended
December 31, 1997 have been prepared as if: (i) the acquisition of certain
facilities acquired by ProLogis during the period from January 1, 1997 to
October 30, 1998 as detailed in the Current Report on Form 8-K/A of ProLogis
filed on February 25, 1999 and dated as of December 3, 1998 had occurred on
January 1, 1997; (ii) the assumption of certain mortgage debt associated with
the facilities noted in (i) above had occurred as of January 1, 1997; (iii) the
issuance of senior unsecured notes subsequent to December 31, 1996, necessary
to fund the pro forma acquisitions noted in (i) above, had occurred as of
January 1, 1997; and, (iv) the Merger had occurred as of January 1, 1997.
The pro forma condensed consolidated financial statements do not purport to
be indicative of the financial position or results of operations which would
actually have been obtained had the Merger and other transactions been
completed on the dates indicated or which may be obtained in the future. The
pro forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements of ProLogis and Meridian,
as set forth in their respective 1997 Annual Reports on Form 10-K and Form 10-
K/A and Quarterly Reports on Form 10-Q and Form 10-Q/A for the nine months
ended September 30, 1998 and the pro forma financial statements of Meridian
included in the Current Report on Form 8-K filed on December 7, 1998.
The accompanying pro forma condensed consolidated statements of earnings from
operations for the nine months ended September 30, 1998 and the year ended
December 31, 1997 do not give effect to the fully stabilized results of
operations related to: (i) facilities under development of both ProLogis and
Meridian at September 30, 1998 with a combined total budgeted completion cost
of $544.2 million; or, (ii) completed developments of ProLogis and Meridian
during 1997 and the first nine months of 1998 with a combined total budgeted
completion cost of $678.3 million. Management believes that there will be
sufficient depth of management and personnel such that additional facilities
can be developed and managed without a significant increase in personnel or
other costs. As a result, management believes that the accretion in net
earnings from operations and funds from operations from the Merger reflected in
the pro forma condensed consolidated statements of earnings from operations is
not indicative of the full accretion that is expected to occur on a post-Merger
basis.
In management's opinion, all material adjustments necessary to reflect the
effects of the Merger and other transactions have been made to the pro forma
condensed consolidated financial statements.
F-1
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Merger Adjustments
----------------------------------------
Pro Forma
Adjust- ProLogis ProLogis
ProLogis ments-- Pre-Merger Purchase Price Post-Merger
ASSETS Historical Acquisitions Pro Forma Meridian(d) Adjustments ProLogis Pro Forma
------ ---------- ------------ ---------- ----------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate............. $3,483,817 $7,663 (a) $3,491,480 $1,179,783 $227,653 -- $4,898,916
Less accumulated
depreciation.......... 231,526 -- 231,526 29,005 (29,005) -- 231,526
---------- ------ ---------- ---------- -------- ------- ----------
Net real estate
investment.......... 3,252,291 7,663 3,259,954 1,150,778 256,658 (e)(f) -- 4,667,390
Investments in and
advances to
unconsolidated
subsidiaries........... 525,138 -- 525,138 45,907 -- (g) -- 571,045
Cash and cash
equivalents............ 31,650 (4,138)(b) 27,512 3,535 -- -- 31,047
Restricted cash and cash
held in escrow......... -- -- -- 10,912 -- -- 10,912
Note receivable......... -- -- -- 8,000 -- (h) -- 8,000
Accounts receivable and
other assets........... 115,049 -- 115,049 31,479 (14,304)(e)(i) -- 132,224
---------- ------ ---------- ---------- -------- ------- ----------
Total assets....... $3,924,128 $3,525 $3,927,653 $1,250,611 $242,354 $ -- $5,420,618
========== ====== ========== ========== ======== ======= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Lines of credit........ $ 159,500 $ -- $ 159,500 $ 292,148 $(48,301)(j) $10,304 (p) $ 492,400
72,440 (e)(k)
5,550 (e)(k)
759 (l)
Short-term
borrowings............ 150,000 -- 150,000 -- -- -- 150,000
Mortgage notes and
assessment bonds
payable............... 134,534 3,525 (c) 138,059 103,312 5,794 (e)(m) -- 247,165
Long-term debt......... 958,586 -- 958,586 160,102 (4,015)(e)(m) -- 1,114,673
Accounts payable and
other liabilities..... 155,898 -- 155,898 50,007 10,304 (e)(n) (10,304)(p) 205,905
---------- ------ ---------- ---------- -------- ------- ----------
Total liabilities.. 1,558,518 3,525 1,562,043 605,569 42,531 -- 2,210,143
Minority interest....... 51,358 -- 51,358 17,605 -- -- 68,963
Shareholders' equity:
Series A Preferred
Shares................ 135,000 -- 135,000 -- -- -- 135,000
Series B Convertible
Preferred Shares...... 194,925 -- 194,925 25,000 (25,000)(j) -- 194,925
Series C Preferred
Shares................ 100,000 -- 100,000 -- -- -- 100,000
Series D Preferred
Shares................ 250,000 -- 250,000 50,000 -- (50,000)(q) 250,000
Series E Preferred
Shares................ -- -- -- -- -- 50,000 (q) 50,000
Common Shares
(123,091,696 shares
historical and
162,933,442 shares
post-merger pro
forma)................ 1,231 -- 1,231 32 3 (j) 362 (q) 1,629
1 (j)
Additional paid-in
capital................ 1,899,342 -- 1,899,342 567,044 73,297 (j) (362)(q) 2,676,204
152,281 (e)(o) (14,639)(r)
(759)(l)
Employee share purchase
notes.................. (25,660) -- (25,660) -- -- (25,660)
Accumulated other
comprehensive income... 307 -- 307 -- -- -- 307
Distributions in excess
of net earnings........ (240,893) -- (240,893) (14,639) -- 14,639 (r) (240,893)
---------- ------ ---------- ---------- -------- ------- ----------
Total shareholders'
equity............ 2,314,252 -- 2,314,252 627,437 199,823 -- 3,141,512
---------- ------ ---------- ---------- -------- ------- ----------
Total liabilities
and shareholders'
equity............ $3,924,128 $3,525 $3,927,653 $1,250,611 $242,354 $ -- $5,420,618
========== ====== ========== ========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
F-2
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
(a) Represents the acquisition of the Oceanie Distribution Center #1 in Paris,
France on October 30, 1998. The purchase price of the facility was $7.7
million and $3.5 million of existing mortgage debt was assumed.
(b) Represents the use of cash on hand to fund the cash portion of the pro
forma acquisition discussed in note (a).
(c) Represents the assumption of mortgage debt associated with the pro forma
acquisition discussed in note (a).
(d) Reference is made to Meridian's Current Report on Form 8-K filed on
December 7, 1998 with the Securities and Exchange Commission for the source
of Meridian's pre-Merger pro forma balance sheet as of September 30, 1998.
Meridian's pro forma balance sheet gives effect to the post September 30,
1998 acquisitions of real estate assets as if these acquisitions had
occurred as of September 30, 1998. Certain amounts have been reclassified
to conform to ProLogis' financial statement presentation.
(e) Represents adjustments to record Meridian's pro forma assets and
liabilities at their respective purchase values based on the purchase
method of accounting. The assumed purchase price was computed as follows
(in thousands):
<TABLE>
<S> <C>
Issuance of ProLogis Common Shares (1)........................ $ 781,894
Issuance of ProLogis Series E preferred shares (3)............ 46,125
Cash payments to Meridian common shareholders (2)............. 72,440
Assumption of Meridian's liabilities at estimated fair value
(4).......................................................... 569,351
Assumption of Meridian's pro forma minority interest at book
value (which approximates estimated fair value).............. 17,605
Costs incurred by ProLogis (5)................................ 5,550
----------
Assumed purchase price........................................ $1,492,965
==========
</TABLE>
(1) Represents the value of the 39,841,746 ProLogis common shares that will
be exchanged for the assumed 36,219,769 outstanding shares of Meridian
common stock (based on the exchange ratio of 1.1 to one). The value of
the ProLogis Common Shares is based upon the closing price of the
shares on February 12, 1999 of $19.625 per share. The assumed
outstanding shares of Meridian common stock are calculated as follows:
<TABLE>
<S> <C>
Pre-Merger pro forma shares of Meridian common stock
outstanding................................................ 31,674,027
Conversion of Meridian Series B preferred stock............. 1,623,376
Assumed exercise of options and warrants.................... 2,640,366
Conditional stock grants ................................... 282,000
----------
Adjusted pro forma shares of Meridian common stock
outstanding................................................ 36,219,769
==========
</TABLE>
(2) Represents the cash payment to Meridian common stockholders of $2.00
based upon the assumed price of ProLogis Common Shares of $19.625 for
the 36,219,769 Meridian shares outstanding. The total cash payment of
$72,440,000 will result in additional interest expense of approximately
$3,564,000 for the nine months ended September 30, 1998 and $4,890,000
for the year ended December 31, 1997. This interest expense is included
in the pro forma condensed consolidated statements of earnings from
operations for the applicable periods as discussed in note (ee).
(3) The assumed value of the ProLogis Series E preferred shares is based
upon the closing price of the Meridian Series D preferred stock on
February 12, 1999 of $23.0625 per share.
(4) The Meridian liabilities assumed are calculated as follows:
<TABLE>
<S> <C>
Meridian pro forma liabilities.................................. $605,569
Fair value adjustment to mortgage notes (see note (m)).......... 5,794
Fair value adjustment to long-term debt (see note (m)).......... (4,015)
Accrued severance costs (see note (n)) ......................... 10,304
Pro forma pay down on line of credit (see note (j))............. (48,301)
--------
$569,351
========
</TABLE>
F-3
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(Continued)
(5) Represents costs to be incurred by ProLogis in connection with the
Merger, ($5,350,000 of banking and professional fees and $200,000 for
other costs including printing, regulatory filing, title and transfer
costs).
(f) Represents the step-up in basis of Meridian's real estate assets in
accordance with the purchase method of accounting based on the assumed
purchase price (see note (e)). The stepped-up basis indicated is less than
the estimated fair value of Meridian's real estate assets by approximately
$51.6 million of pro forma negative goodwill. Management's basis for
determining fair value estimates and the components of fair value are as
follows:
(i) Operating facilities: the application of an estimated capitalization
rate to each operating facility's estimated 1999 net operating income.
The capitalization rates were based upon market analysis and individual
property assessments;
(ii) Developments expected to be completed in 1998: the application of an
estimated capitalization rate to the facility's estimated 1999 net
operating income. The capitalization rates were based upon market
analysis and individual property assessments. This value was then
adjusted to reflect the estimated percentage of completion of the
facilities as of September 30, 1998;
(iii) Developments expected to be completed subsequent to 1998: the actual
cost of the development at September 30, 1998 adjusted upward by a
factor to reflect the step-up to estimated fair value. Based on
ProLogis' experience, the historical cost of an internally developed
facility upon completion is less than the fair value of the facility
at the time of completion;
(iv) Land held for development: the book value at September 30, 1998 was
deemed to be the fair value because all land acquisitions occurred
within the last 12 months and the acquisition cost is representative
of current market conditions;
(v) Participating mortgage note receivable included in real estate:
represents a participating mortgage note at the actual outstanding
principal balance at September 30, 1998. The interest rate of the note
of 10.5% was deemed to be comparable to the interest rate that would
have been negotiated by the combined company.
A summary of the fair values of Meridian's real estate assets, the
calculation of negative goodwill and the calculation of the adjustment for the
step-up in basis of Meridian's real estate assets are as follows (in
thousands):
<TABLE>
<S> <C>
Operating facilities........................................ $1,303,760
Developments expected to be completed in 1998............... 90,389
Developments expected to be completed subsequent to 1998.... 12,990
Land held for development................................... 28,601
Participating mortgage note receivable...................... 23,300
----------
Fair value of real estate assets............................ 1,459,040
Pro forma book value of Meridian real estate assets......... 1,150,778
----------
Preliminary adjustment for step-up in basis of real estate
assets..................................................... 308,262
Book value of Meridian's total assets....................... 1,250,611
Adjustment to fair value of other assets (see note(i))...... (14,304)
----------
Fair value of total assets.................................. 1,544,569
Purchase price (see note(e))................................ 1,492,965
----------
Negative goodwill........................................... $ (51,604)
==========
</TABLE>
F-4
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(Continued)
In accordance with GAAP, the negative goodwill is applied to Meridian's real
estate assets. Consequently, the real estate assets step-up adjustment is
recalculated as follows:
<TABLE>
<S> <C>
Preliminary adjustment for step-up in basis of real estate
assets...................................................... $308,262
Negative goodwill............................................ (51,604)
--------
Final adjustment for step-up in basis of real estate assets.. $256,658
========
</TABLE>
(g) The fair value of Meridian's investment in the preferred stock of Meridian
Refrigerated, Inc., which owns refrigerated distribution companies, is
assumed to be the book value at September 30, 1998. The underlying assets
of Meridian Refrigerated, Inc. were acquired in 1998.
(h) Represents a note receivable to Meridian. The fair value of the note is its
outstanding principal balance at September 30, 1998 because the interest
rate of the note of 8.5% was deemed to be comparable to the interest rate
that would have been negotiated by the combined company.
(i) Represents the elimination of the following assets of Meridian that have no
future value to the combined company (in thousands):
<TABLE>
<S> <C>
Deferred loan costs, net......................................... $ 2,432
Costs capitalized associated with a new financial reporting
software package that will not be implemented by the combined
company......................................................... 925
Rent leveling receivable......................................... 5,740
Capitalized leasing commissions and expenses, net................ 3,866
Miscellaneous fixed assets....................................... 716
Costs incurred related to potential Meridian facility
acquisitions that are not planned by the combined company....... 625
-------
Total adjustment............................................... $14,304
=======
</TABLE>
(j) Represents the: (i) assumed pre-Merger conversion of Meridian's 1,623,376
shares of Meridian Series B convertible preferred stock into shares of
Meridian common stock on a one for one basis ($1,000 aggregate par value
and $24,999,000 aggregate additional paid-in capital); and, (ii) the
issuance of shares of Meridian common stock upon the assumed exercise of
outstanding options and warrants ($3,000 aggregate par value and
$48,298,000 aggregate additional paid-in capital). In accordance with
Section 5.10 of the Merger Agreement, the Meridian options will vest and
become fully exercisable upon consummation of the Merger. As all of the
outstanding options and warrants have exercise prices below the current per
share price of Meridian common stock, the full exercise of the options is
assumed for pro forma purposes.
The proceeds from the exercise of the Meridian options and warrants are
assumed to be used to pay down Meridian's line of credit as follows
(dollars in thousands, except per share amounts):
<TABLE>
<S> <C>
2,024,371 options at a weighted average exercise price of
$19.07 per share.............................................. $38,605
615,995 warrants at a weighted average exercise price of $15.74
per share..................................................... 9,696
-------
Cash proceeds from assumed exercise.......................... $48,301
=======
</TABLE>
(k) Represents additional borrowings on ProLogis' lines of credit necessary to
fund the cash payments to Meridian stockholders described in note (e)(2)
and merger costs described in note(e)(5).
(l) Represents costs associated with registering the ProLogis common and
preferred shares to be given to the Meridian stockholders in the Merger.
(m) The adjustments to Meridian's mortgage notes payable and long-term debt
reflect the premium or discount to adjust these financial instruments to
their estimated fair value. The adjustment is based on the present value of
amounts to be paid using interest rates currently available to ProLogis for
debt obligations with
F-5
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(Continued)
similar terms and features. The borrowing rates available to ProLogis are
assumed to be comparable to the borrowing rates available to the combined
company. The adjustments are based on current rates ranging from 7.20% to
8.05%. See note (e)(4).
(n) Represents the liability to be assumed by the combined company related to
the costs under the severance agreements with Meridian's officers and the
severance plan applicable to all other Meridian employees. Under Section
5.9 of the Merger Agreement all Meridian employees will be terminated as a
result of the Merger. See note (e)(4).
(o) Represents adjustment of Meridian's stockholders' equity based on the
assumed fair value of the shares to be received from ProLogis as
calculated below (dollars in thousands, except per share amounts):
<TABLE>
<S> <C>
39,841,746 shares of common stock at $19.625 per share (the
assumed per share value of the ProLogis Common Shares to be
issued to Meridian holders on 1.10 for one basis as described
in note (e)).................................................. $ 781,894
2,000,000 shares of preferred stock at $23.0625 per share (the
assumed per share value of the ProLogis preferred shares to be
issued to Meridian holders on a one for one basis as described
in note (e)).................................................. 46,125
Meridian's pre-Merger pro forma stockholders' equity (assumes
conversion of Meridian Series B preferred stock and exercise
of options and warrants described in note (j))................ (675,738)
---------
Total adjustment............................................. $ 152,281
=========
</TABLE>
(p) Represents the payments to terminated Meridian employees to be made by
ProLogis under the terms of the Merger Agreement.
(q) Represents: (i) the 1.10 for one exchange of 36,219,769 shares of Meridian
common stock ($0.001 par value) for 39,841,746 ProLogis Common Shares
($0.01 par value); (ii) the one for one exchange of 2,000,000 shares of
Meridian Series D preferred stock for 2,000,000 comparable ProLogis Series
E preferred shares ($25.00 per share stated liquidation preference) (the
number of shares of Meridian common stock are determined in note (e));
and, (iii) a $362,000 adjustment for the difference between the $0.001 par
value of Meridian's common stock on an aggregate basis as compared to the
$0.01 par value of ProLogis' Common Shares on an aggregate basis related
to the exchange of shares referenced above.
(r) Represents the reclassification of $14,639,000 of Meridian's distributions
in excess of net earnings to additional paid-in capital in accordance with
purchase accounting.
F-6
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS
Nine Months Ended September 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Merger
Acquisitions Adjustments
----------------------- ProLogis --------------------------- ProLogis
ProLogis Pro Forma Pre-Merger Post-Merger
Historical Historical Adjustments Pro Forma Meridian (z) ProLogis (aa) Pro Forma
---------- ---------- ----------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income:
Rental income.......... $251,605 $4,411(t) $ -- $256,016 $77,599 $ -- $333,615
Other real estate
income................ 10,542 -- -- 10,542 -- -- 10,542
Income from
unconsolidated
subsidiaries and JV... 1,930 -- -- 1,930 3,883 -- 5,813
Foreign exchange
gains, net............ 5,336 -- -- 5,336 -- -- 5,336
Interest and other
income................ 2,012 -- -- 2,012 1,339 -- 3,351
-------- ------ ------- -------- ------- ------- --------
Total income......... 271,425 4,411 -- 275,836 82,821 -- 358,657
-------- ------ ------- -------- ------- ------- --------
Expenses:
Rental expenses, net
of recoveries......... 20,458 392(t) 29 (u) 20,879 5,742 -- (bb) 26,621
General and
administrative........ 14,060 -- -- 14,060 5,502 -- (cc) 19,562
Administrative
services fee paid to
affiliate............. 1,566 -- -- 1,566 -- -- 1,566
Depreciation and
amortization.......... 73,684 -- 1,111 (v) 74,795 18,021 5,087 (dd) 97,903
Interest............... 52,455 -- 2,919 (w)(x) 55,374 17,807 532 (ee) 73,713
Interest rate hedge
expense............... 27,652 -- -- 27,652 12,633 40,285
Other.................. 4,096 -- -- 4,096 713 -- 4,809
-------- ------ ------- -------- ------- ------- --------
Total expenses....... 193,971 392 4,059 198,422 60,418 5,619 264,459
-------- ------ ------- -------- ------- ------- --------
Earnings from operations
before minority
interest, excluding
gains on dispositions.. 77,454 4,019 (4,059) 77,414 22,403 (5,619) 94,198
Minority interest share
in net earnings........ 3,101 -- -- 3,101 896 -- 3,997
-------- ------ ------- -------- ------- ------- --------
Earnings from
operations, excluding
gains on dispositions.. 74,353 4,019 (4,059) 74,313 21,507 (5,619) 90,201
Less preferred share
dividends.............. 35,543 -- -- 35,543 4,888 (1,607)(ff) 38,824
-------- ------ ------- -------- ------- ------- --------
Net earnings from
operations attributable
to common shares....... $ 38,810 $4,019 $(4,059) $ 38,770 $16,619 $(4,012) $ 51,377
======== ====== ======= ======== ======= ======= ========
Weighted average common
shares outstanding--
basic.................. 121,183(s) -- (s) -- (s) 121,183(y) 31,674(y) 161,023(y)
======== ====== ======= ======== ======= ========
Weighted average common
shares outstanding--
diluted................ 121,421(s) -- (s) -- (s) 121,421(y) 32,131(y) 161,261(y)
======== ====== ======= ======== ======= ========
Per share net earnings
from operations
attributable to common
shares:
Basic.................. $ 0.32(s) -- (s) -- (s) $ 0.32(y) $ 0.52(y) $ 0.32(y)
======== ====== ======= ======== ======= ========
Diluted................ $ 0.32(s) -- (s) -- (s) $ 0.32(y) $ 0.52(y) $ 0.32(y)
======== ====== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
F-7
<PAGE>
PROLOGIS TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS FROM OPERATIONS
Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Merger
Acquisitions Adjustments
------------------------ --------------------------
ProLogis
ProLogis Pro Forma Pre-Merger
Historical Historical Adjustments Pro Forma Meridian (z) ProLogis(aa)
---------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Rental income............. $284,533 $21,461(t) $ -- $305,994 $101,840 $ --
Other real estate
income................... 12,291 -- -- 12,291 -- --
Income from
unconsolidated
subsidiaries............. 3,278 -- -- 3,278 3,223 --
Interest and other
income................... 2,392 -- -- 2,392 3,191 --
-------- ------- -------- -------- -------- -------
Total income............ 302,494 21,461 -- 323,955 108,254 --
-------- ------- -------- -------- -------- -------
Expenses:
Rental expenses, net of
recoveries............... 27,008 4,175(t) (131)(u) 31,052 14,111 -- (bb)
General and
administrative........... 5,742 -- -- 5,742 6,037 -- (cc)
REIT management fee paid
to affiliate............. 17,791 -- 2,147 (gg) 19,938 -- --
Administrative services
fee paid to affiliate.... 1,113 -- -- 1,113 -- --
Depreciation and
amortization............. 76,562 -- 5,515 (v) 82,077 21,784 6,782 (dd)
Interest.................. 52,704 -- 14,499 (w)(x) 67,203 20,050 1,068 (ee)
Costs incurred in
acquiring management
companies from
affiliate................ 75,376 -- -- 75,376 -- --
Foreign exchange loss..... 6,376 -- -- 6,376 -- --
Other..................... 3,891 -- -- 3,891 175 --
-------- ------- -------- -------- -------- -------
Total expenses.......... 266,563 4,175 22,030 292,768 62,157 7,850
-------- ------- -------- -------- -------- -------
Earnings from operations
before minority interest,
excluding gains on
dispositions.............. 35,931 17,286 (22,030) 31,187 46,097 (7,850)
Minority interest share in
net earnings.............. 3,560 -- -- 3,560 660 --
-------- ------- -------- -------- -------- -------
Earnings from operations,
excluding gains on
dispositions.............. 32,371 17,286 (22,030) 27,627 45,437 (7,850)
Less preferred share
dividends................. 35,318 -- -- 35,318 6,518 (2,143)(ff)
-------- ------- -------- -------- -------- -------
Net earnings (loss) from
operations attributable to
common shares............. $ (2,947) $17,286 $(22,030) $ (7,691) $ 38,919 $(5,707)
======== ======= ======== ======== ======== =======
Weighted average common
shares outstanding--
basic..................... 100,729 (s) -- (s) -- (s) 100,729 (y) 31,674(y)
======== ======= ======== ======== ========
Weighted average common
shares outstanding--
diluted................... 100,729 (s) -- (s) -- (s) 100,729 (y) 32,131(y)
======== ======= ======== ======== ========
Per share net earnings
(loss) from operations
attributable to common
shares:
Basic..................... $ (0.03)(s) -- (s) -- (s) $ (0.08)(y) $ 1.23(y)
======== ======= ======== ======== ========
Diluted................... $ (0.03)(s) -- (s) -- (s) $ (0.08)(y) $ 1.21(y)
======== ======= ======== ======== ========
<CAPTION>
ProLogis
Post-Merger
Pro Forma
-------------
<S> <C>
Income:
Rental income............. $407,834
Other real estate
income................... 12,291
Income from
unconsolidated
subsidiaries............. 6,501
Interest and other
income................... 5,583
-------------
Total income............ 432,209
-------------
Expenses:
Rental expenses, net of
recoveries............... 45,163
General and
administrative........... 11,779
REIT management fee paid
to affiliate............. 19,938
Administrative services
fee paid to affiliate.... 1,113
Depreciation and
amortization............. 110,643
Interest.................. 88,321
Costs incurred in
acquiring management
companies from
affiliate................ 75,376
Foreign exchange loss..... 6,376
Other..................... 4,066
-------------
Total expenses.......... 362,775
-------------
Earnings from operations
before minority interest,
excluding gains on
dispositions.............. 69,434
Minority interest share in
net earnings.............. 4,220
-------------
Earnings from operations,
excluding gains on
dispositions.............. 65,214
Less preferred share
dividends................. 39,693
-------------
Net earnings (loss) from
operations attributable to
common shares............. $ 25,521
=============
Weighted average common
shares outstanding--
basic..................... 140,569(y)
=============
Weighted average common
shares outstanding--
diluted................... 140,709(y)
=============
Per share net earnings
(loss) from operations
attributable to common
shares:
Basic..................... $ 0.18(y)
=============
Diluted................... $ 0.18(y)
=============
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
F-8
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS
Nine Months Ended September 30, 1998 and
Year Ended December 31, 1997
(Unaudited)
(In thousands)
(s) A reconciliation of the denominator used to calculate basic net earnings
per ProLogis Common Share to the denominator used to calculate diluted net
earnings per ProLogis Common Share for the nine months ended September 30,
1998 is as follows (in thousands, except per Common Share amounts):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998
---------------------------------
Net Pro Forma Pro
Historical Adjustments Forma
---------- ------------- --------
<S> <C> <C> <C>
Net earnings from operations
attributable to ProLogis Common
Shares............................... $ 38,810 $(40) $ 38,770
======== ==== ========
Weighted average ProLogis Common
Shares outstanding--basic............ 121,183 -- 121,183
Incremental options and warrants...... 238 -- 238
-------- ---- --------
Adjusted weighted-average ProLogis
Common Shares outstanding--diluted
(1).................................. 121,421 -- 121,421
======== ==== ========
Per share net earnings from operations
attributable to ProLogis Common
Shares:
Basic............................... $ 0.32 $-- $ 0.32
======== ==== ========
Diluted (1)......................... $ 0.32 $-- $ 0.32
======== ==== ========
</TABLE>
--------
(1) For the nine months ended September 30, 1998, there were
10,156 weighted average Series B Preferred Shares and
5,070 limited partnership units outstanding on an as-
converted basis that were not assumed to be converted into
ProLogis Common Shares for purposes of calculating diluted
earnings per ProLogis Common Share as the effect was
antidilutive.
Because ProLogis has a net loss for the year ended December 31, 1997
(historical and pro forma), the effect of all potentially dilutive ProLogis
Common Shares is anti-dilutive. Consequently, basic and diluted loss per
Common Share are the same.
(t) Represents historical revenues and certain expenses of the facilities
acquired by ProLogis subsequent to December 31, 1996 as detailed in the
Current Report on Form 8-K/A of ProLogis filed on February 25, 1999 and
dated as of December 3, 1998. The total historical acquisition adjustment
reflects the period from January 1, 1997 to the earlier of the respective
dates of acquisition, December 31, 1997 or September 30, 1998 as applicable
(results of operations after the dates of acquisition are included in
ProLogis' historical operating results). Historical acquisition revenues
and certain expenses exclude amounts which would not be comparable to the
proposed future operations of the facilities such as certain interest
expense, interest income, income taxes and depreciation.
(u) Represents the adjustment to historical property management expenses for
the periods indicated to reflect these expenses at the level they would
have been had ProLogis owned the facilities as of January 1, 1997.
(v) Reflects the recognition of depreciation expense associated with the pro
forma acquisitions, discussed in note (t), for the periods indicated. This
depreciation adjustment is based on ProLogis' purchase cost assuming asset
lives of 30 years. Depreciation is computed using a straight-line method.
(w) Reflects the recognition of $643,000 for the nine months ended September
30, 1988 and $1,823,000 for the year ended December 31, 1997 of interest
expense on mortgage debt for the periods indicated as if the debt had been
assumed by ProLogis on January 1, 1997. The mortgage debt assumed in
conjunction with
F-9
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
the acquisition of certain of the facilities acquired subsequent to
December 31, 1996 discussed in note (t) bears interest at fixed rates
ranging from 7.75% to 10.60%.
(x) Represents $2,276,000 for the nine months ended September 30, 1988 and
$12,676,000 for the year ended December 31, 1997 of additional interest
expense on senior unsecured debt securities. The adjustment assumes that
the issuance of senior unsecured debt securities necessary to fund the pro
forma acquisitions discussed in note (t) occurred on January 1, 1997. The
adjustment is based on a weighted average effective interest rate of 7.05%
for the nine months ended September 30, 1998 and 7.17% for the year ended
December 31, 1997.
(y) A reconciliation of the denominator used to calculate basic net earnings
per common share to the denominator used to calculate diluted net earnings
per common share for the periods indicated for ProLogis and Meridian on a
pre-Merger pro forma basis and for ProLogis on a pro forma post-Merger
basis is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
-----------------------------------------
Pre-Merger
-------------------------- ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
------------ ----------- -------------
<S> <C> <C> <C>
Net earnings from
operations attributable
to common shares......... $ 38,770 $ 16,619 $ 51,377
============ =========== ============
Weighted average common
shares outstanding--
basic.................... 121,183 31,674 161,023(1)
Incremental options and
warrants................. 238 457 238
------------ ----------- ------------
Adjusted weighted-average
common shares
outstanding--diluted..... 121,421 32,131 161,261(1)(2)
============ =========== ============
Per share net earnings
from operations
attributable to common
shares:
Basic................... $ 0.32 $ 0.52 $ 0.32
============ =========== ============
Diluted................. $ 0.32 $ 0.52 $ 0.32(2)
============ =========== ============
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------
Pre-Merger
-------------------------- ProLogis
ProLogis Meridian Post-Merger
Pro Forma Pro Forma Pro Forma
------------ ----------- -------------
<S> <C> <C> <C>
Net earnings (loss) from
operations attributable
to common shares......... $ (7,691) $ 38,919 $ 25,521
============ =========== ============
Weighted average common
shares outstanding--
basic.................... 100,729 31,674 140,569(1)
Incremental options and
warrants................. -- 457 140
------------ ----------- ------------
Adjusted weighted-average
common shares
outstanding--diluted..... 100,729 32,131 140,709(1)(3)
============ =========== ============
Per share net earnings
from operations
attributable to common
shares:
Basic................... $ (0.08) $ 1.23 $ 0.18
============ =========== ============
Diluted................. $ (0.08) $ 1.21 $ 0.18(3)
============ =========== ============
</TABLE>
--------
(1) The ProLogis post-Merger pro forma weighted average common
shares outstanding reflects the following adjustments based
on the assumption that the Merger occurred as
F-10
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
of January 1, 1997: (i) the assumed pre-Merger conversion of
Meridian's Series B preferred stock to Meridian common stock;
(ii) the assumed pre-Merger exercise of all of Meridian's
outstanding options and warrants; and, (iii) the increase
resulting from the issuance of 1.10 ProLogis Common Shares
for one share of Meridian common stock.
(2) For the nine months ended September 30, 1998, there were
10,156 weighted average ProLogis Series B Preferred Shares
and 5,601 weighted average limited partnership units
outstanding on an as-converted basis that were not assumed
to be converted into ProLogis Common Shares for purposes of
calculating diluted earnings per ProLogis Common Share as
the effect was antidilutive.
(3) For the year ended December 31, 1997, there were 10,319
weighted average ProLogis Series B Preferred Shares and
5,721 weighted average limited partnership units outstanding
on an as-converted basis that were not assumed to be
converted into ProLogis Common Shares for purposes of
calculating diluted earnings per ProLogis Common Share as
the effect was antidilutive.
(z) Reference is made to Meridian's Current Report on Form 8-K filed on
December 7, 1998 with the Securities and Exchange Commission for the source
of Meridian's pre-Merger pro forma statements of earnings from operations
for the nine months ended September 30, 1998 and the year ended December
31, 1997. The pre-Merger pro forma statements of earnings from operations
give effect to the acquisitions of real estate assets subsequent to
December 31, 1996 as if the acquisitions had occurred as of January 1,
1997. Certain amounts have been reclassified to conform to ProLogis'
financial statement presentation.
(aa) The accompanying pro forma condensed consolidated statements of earnings
from operations for the nine months ended September 30, 1998 and the year
ended December 31, 1997 do not give effect to the fully stabilized results
of operations related to: (i) facilities under development of both
ProLogis and Meridian at September 30, 1998 with a combined total budgeted
completion cost of $544.2 million; or (ii) completed developments of
ProLogis and Meridian during 1997 and the first nine months of 1998 with a
total combined budgeted completion cost of $678.3 million. Management
believes that there will be sufficient depth of management and personnel
such that additional facilities can be developed and managed without a
significant increase in personnel or other costs. As a result, management
believes that the accretion in net earnings from operations and funds from
operations from the Merger reflected in the pro forma condensed
consolidated statements of earnings from operations is not indicative of
the full accretion that is expected to occur on a post-Merger basis.
(bb) During the nine months ended September 30, 1998 and the year ended
December 31, 1997, Meridian utilized the services of third-party
management companies to perform property management functions for
substantially all of its operating facilities. Meridian paid these
management companies a fee based upon the revenues generated by the
facility. ProLogis utilizes third-party management companies on a very
limited basis. Substantially all of the property management functions
related to ProLogis' operating facilities are performed by employees of
ProLogis. ProLogis expects that after consummation of the Merger, the
property management functions related to the Meridian operating facilities
acquired will be performed by ProLogis employees and that the existing
Meridian third-party management contracts will be terminated. Management
of ProLogis expects that additional employees (including property
accounting personnel) will be needed as these property management
functions are transferred from the third-party management companies.
However, it is expected that, because approximately 98% of the Meridian
facilities are located in markets where ProLogis currently owns and
manages assets, certain expense savings will be achieved. While ProLogis
expects to realize lower property management costs related to the Meridian
operating facilities than had been incurred by Meridian, no estimate of
these expected future
F-11
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
cost savings has been included in the pro forma financial statements. Such
adjustment is not included because these costs savings cannot be factually
supported within the SEC regulations governing the preparation of the pro
forma financial statements until such time as the third-party agreements are
terminated and the property management function is transferred to ProLogis.
(cc) As a separate corporate entity, Meridian incurred general and
administrative costs as follows:
.Personnel costs and related employee benefits and expenses for the
Meridian administrative employees: These employees will be terminated
under Section 5.9 of the Merger Agreement. These employees are not related
to the property management function, but rather perform corporate
functions specific to the Meridian corporate entity. These functions are
considered duplicative with the functions performed currently by ProLogis
employees.
.Directors fees and costs: The Meridian corporate entity will cease to
exist after the Merger, therefore the Board of Directors will no longer be
in existence.
.Professional fees (including auditing, accounting, legal, stock
registration and consulting): These costs will not be incurred as the
Meridian corporate entity will cease to exist after the Merger.
Accordingly, there will be no entity to incur these costs and Meridian
will have no publicly-traded securities.
.Office expenses (including rent and utilities): Meridian maintains a
corporate office in San Francisco, California. ProLogis' has an existing
corporate office and does not intend to maintain any additional corporate
offices after the Merger.
Meridian's general and administrative costs are summarized below (in
thousands). The amounts are annualized based upon the historical costs incurred
by Meridian for the nine months ended September 30, 1998. These costs are
related to the corporate organization as opposed to costs associated with the
operations of Meridian's real estate facilities (which are included in rental
expenses and are discussed in note (bb)). ProLogis expects that, after the
Merger, a significant portion of these expenses will be eliminated.
<TABLE>
<S> <C>
Personnel and related.............................................. $3,970
Professional fees.................................................. 1,510
Directors fees and expenses........................................ 220
Office expenses.................................................... 1,370
Other.............................................................. 250
------
Total............................................................ $7,320
======
</TABLE>
While the general and administrative costs noted above will not be incurred
by Meridian after the Merger, ProLogis does expect that there will be
incremental increases in certain of its corporate general and administrative
costs. ProLogis has determined these increases to be related to the following
changes in its corporate operations directly as a result of the Merger:
.Legal, auditing and accounting fees will increase because ProLogis will be
acquiring approximately $1.5 billion of additional assets aggregating
approximately 33.5 million square feet of industrial distribution
facilities.
.Stock transfer fees, proxy solicitation and shareholder relations costs
will increase because ProLogis will be issuing approximately 39.8 million
additional ProLogis Common Shares and 2.0 million Series E preferred
shares.
.Under Section 5.19 of the Merger Agreement, ProLogis will add two members
to its Board of Trustees resulting in additional fees and expenses.
F-12
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
The incremental ProLogis costs are computed on a pro rata basis based upon
the additional pro forma revenues generated by the Merger (for accounting,
auditing and legal fees), additional shares outstanding after the Merger (for
stock transfer, proxy and shareholder relations) and the increase in the number
of trustees as follows:
<TABLE>
<S> <C>
Accounting, auditing and legal....................................... $190
Stock transfer, proxy and shareholder relations...................... 90
Directors fees and expenses.......................................... 75
----
Total.............................................................. $355
====
</TABLE>
While ProLogis expects that general and administrative cost savings could
result from the Merger, such savings could not be factually supported and
quantified within the SEC regulations governing the preparation of the pro
forma financial statements. Consequently, no adjustment has been made to the
pro forma financial statements.
(dd) Represents the net increase in depreciation of real estate as a result of
the step-up in basis to record Meridian's real estate at estimated fair
value for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Step-up in real estate basis (see note (e)).... $256,658 $256,658
Less amount of step-up allocated to:
Developments in progress..................... (16,305) (16,305)
Land portion of operating facilities......... (35,907) (35,907)
Participating mortgage....................... (976) (976)
-------- --------
Depreciable portion of step-up in basis........ 203,470 203,470
-------- --------
Estimated annual incremental depreciation
expense based on an assumed weighted average
life of 30 years.............................. 6,782 6,782
Proration factor............................... 0.75 1.0
-------- --------
Estimated incremental depreciation......... $ 5,087 $ 6,782
======== ========
</TABLE>
F-13
<PAGE>
PROLOGIS TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS FROM OPERATIONS--(Continued)
(ee) Represents the net change in interest expense as a result of the following
items for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Decrease related to the pay down on Meridian's
line of credit as a result of the assumed
exercise of options and warrants described in
note (j) (1).................................. $(2,584) $(3,360)
Decrease based on the pro forma interest rates
resulting from the adjustments of Meridian's
debt to its estimated fair market value as
described in note (m) (2)..................... (303) (404)
Decrease in Meridian loan cost amortization
related to the elimination of Meridian
deferred loan costs as described in note (i).. (962) (1,179)
Increase related to additional borrowings on
the line of credit of $16,613 to fund the
Merger-related costs identified in note (e)
and the assumed cash payments to Meridian
stockholders of $72,440 described in note (e)
(3)........................................... 4,381 6,011
------- -------
Total adjustment............................. $ 532 $ 1,068
======= =======
</TABLE>
--------
(1) Computed using Meridian's actual weighted average interest
rate of 7.13% for the nine months ended September 30, 1998
and 6.96% for the year ended December 31, 1997.
(2) Based on effective interest rates determined to be available
to the combined company (7.20% for secured long-term debt
and 7.95%-8.05% for unsecured long-term debt).
(3) Computed using ProLogis' actual weighted average interest
rate of 6.56% for the nine months ended September 30, 1998
and 6.75% for the year ended December 31, 1997.
(ff) Represents the elimination of dividends on the Meridian Series B preferred
stock for the periods indicated that is assumed to be converted to shares
of Meridian common stock as of January 1, 1997. See note (j).
(gg) Represents the additional REIT management fee that would have been paid
for the period from January 1, 1997 to September 8, 1997 (the period the
REIT management agreement was in effect resulting from the additional cash
flow, as defined, generated by the pro forma acquisitions discussed in
note (t).
F-14
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
<C> <S>
23.1 Consent of Independent Public Accountants (previously filed).
</TABLE>
