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, 1996, the Company owned and operated 60 warehouse/distribution and 18 light industrial properties encompassing approximately 9.4 and 1.0 million square feet, respectively, of leasable space that were 94% and 97% leased, respectively, to a total of 186 tenants. See "Item 2.
ITEM 2. PROPERTIES.
The Company owned and operated 60 warehouse/distribution Properties and 18 light industrial Properties (collectively, the "Industrial Properties") encompassing approximately 9.4 and 1.0 million square feet, respectively, of leasable space that was 94% and 97% leased, respectively, as of December 31, 1996. The Company also owned and operated three retail Properties encompassing 460,992 square feet of leasable space that was 87% leased as of December 31, 1996.
INDUSTRIAL PROPERTIES
The warehouse/distribution Properties are adaptable to bulk distribution or light assembly and manufacturing uses. They generally have clear heights in excess of 24 feet, building depths in excess of 150 feet, office finish of less than 15% and numerous dock high truck doors. These Properties comprise approximately 9.4 million rentable square feet (or approximately 87% of the total rentable square feet of the Properties) that was 94% leased to 130 tenants at December 31, 1996. Forty-five of the warehouse/distribution Properties (64% of total rentable square feet) are located in the Chicago, Dallas or Memphis metropolitan areas.
The light industrial Properties are adaptable to uses similar to those of the warehouse/distribution Properties. However, they are better suited for smaller tenants and have lower ceiling heights and higher office finish. The light industrial Properties generally have clear heights of 14 to 22 feet, building depths of 60 to 150 feet and office finish of 10% to 50%. These Properties comprise approximately 1.0 million rentable square feet (or approximately 9% of the total rentable square footage of the Properties) that was 97% leased to 56 tenants at December 31, 1996. Fourteen light industrial properties (62% of total rentable square feet) are located in Dallas, Phoenix or the Los Angeles Basin. The remaining light industrial properties are located in the Memphis, Detroit and San Diego areas.
The following table sets forth certain information relating to the Company's Industrial Properties as of December 31, 1996.
- --------------- (1) Represents annualized monthly Base Rent from leases in effect as of December 31, 1996. 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) The Company has entered into a contract to sell the Wildwood Property.
(3) On January 10, 1997, the Company sold the Birmingham I and II properties. See Item 7 below.
LEASES EXPIRATIONS OF INDUSTRIAL PROPERTY. At December 31, 1996, 84 leases, representing 60% of the annual Base Rent from the leased space at the Industrial Properties as of December 31, 1996 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. With regard to retaining existing tenants, the Company's tenant retention rate on a square footage basis for the Company's Industrial Properties during 1996 was 66%. In connection with renewals and released space, the average base rents increased by 2% during 1996. The Company also expects to obtain rental increases from existing leases which expire after December 31, 1996 but have scheduled rental adjustments (both fixed and inflation indexed). These leases comprise approximately 56% of the annual base rent of the Company's industrial leases.
The following table shows scheduled lease expirations for the Industrial Properties for all leases in effect as of December 31, 1996. The table assumes that none of the tenants exercises any renewal option or termination right. The annual average rentable square footage subject to leases expiring between 1997 and 2011 for warehouse/distribution Properties and light industrial Properties is approximately 586,182 and 107,291 square feet, respectively.
LEASE EXPIRATIONS
PERCENTAGE CUMULATIVE OF TOTAL % OF TOTAL ANNUAL SQUARE FEET LEASED LEASED BASE RENT NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING YEAR EXPIRING LEASES LEASES LEASES LEASES (1) ---- -------- ------ ------ ------ ---------- WAREHOUSE/DISTRIBUTION AND LIGHT INDUSTRIAL:
1997 57 2,190,800 22.45% 22.45% $ 7,956,734 1998 28 777,188 7.96% 30.41% 2,750,246 1999 39 1,160,669 11.89% 42.31% 5,264,517 2000 25 875,431 8.97% 51.28% 3,206,233 2001 30 1,138,947 11.67% 62.95% 4,780,224 2002 5 80,736 0.83% 63.78% 391,032 2003 2 52,480 0.54% 64.32% 382,968 2004 4 212,910 2.18% 66.50% 792,002 2005 5 838,361 8.59% 75.09% 2,376,507 2006 5 1,701,400 17.44% 92.53% 5,681,641 2011 2 729,434 7.47% 100.00% 2,349,803 ----------------------- --------------- 202 9,758,356 $ 35,931,907 ----------------------- --------------- ----------------------- ---------------
WAREHOUSE/DISTRIBUTION:
1997(2) 37 1,870,661 21.28% 21.28% $ 6,112,725 1998 21 747,347 8.50% 29.77% 2,595,693 1999 23 912,463 10.38% 40.15% 3,472,421 2000 15 800,904 9.11% 49.26% 2,819,255 2001 23 964,932 10.97% 60.24% 3,469,072 2002 2 42,360 0.48% 60.72% 150,048 2004 4 212,910 2.42% 63.14% 792,002 2005 4 810,327 9.22% 72.35% 2,220,510 2006 5 1,701,400 19.35% 91.70% 5,681,641 2011 2 729,434 8.30% 100.00% 2,349,803 ----------------------- --------------- 136 8,792,738 $ 29,663,169 ----------------------- --------------- ----------------------- ---------------
LEASE EXPIRATIONS
PERCENTAGE CUMULATIVE OF TOTAL % OF TOTAL ANNUAL SQUARE FEET LEASED LEASED BASE RENT NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING YEAR EXPIRING LEASES LEASES LEASES LEASES (1) ---- -------- ------ ------ ------ ----------
LIGHT INDUSTRIAL:
1997(3) 20 320,139 33.15% 33.15% $ 1,844,009 1998 7 29,841 3.09% 36.24% 154,552 1999 16 248,206 25.70% 61.95% 1,792,096 2000 10 74,527 7.72% 69.67% 386,979 2001 7 174,015 18.02% 87.69% 1,311,152 2002 3 38,376 3.97% 91.66% 240,984 2003 2 52,480 5.43% 97.10% 382,968 2005 1 28,034 2.90% 100.00% 155,997 ----------------------- --------------- 66 965,618 $ 6,268,738 ----------------------- --------------- ----------------------- ---------------
- --------------- (1) Represents annualized monthly Base Rent of the leases in effect at December 31, 1996.
(2) Includes two leases that are on a "month-to-month" basis as of December 31, 1996 (33,495 square feet and $119,280 of annualized Base Rent).
(3) Includes five leases that are on a "month-to-month" basis as of December 31, 1996 (25,766 square feet and $99,000 of annualized Base Rent).
RETAIL PROPERTIES
At December 31, 1996, the Company owned three retail Properties consisting of one neighborhood and two community shopping centers with a total of 460,992 square feet of retail space. That space was 87% leased to 62 tenants. These Properties account for 4% of the total rentable square feet of the entire portfolio. The Company is actively marketing for sale one retail Property, representing 75,881 square feet or 16% of the total rentable square feet of retail Properties. 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) severe competition from new retailers and the nationwide expansion of existing retailers; and (iii) various negative general economic factors.
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 1996, few retail tenants' sales reached the amounts specified in the percentage rent clauses of their leases.
The following table sets forth information relating to the Company's retail properties as of December 31, 1996.
- ------------- (1) Represents annualized monthly Base Rent from leases in effect as of December 31, 1996.
LEASES EXPIRING OF RETAIL PROPERTIES. The average rentable square feet subject to expiring leases for the retail Properties between 1997 and 2008 is approximately 33,263 square feet per year. The following table shows scheduled lease expirations for the retail Properties for all leases in effect as of December 31, 1996. The table assumes that none of the tenants exercises any renewal option or termination right.
PERCENTAGE CUMULATIVE OF TOTAL % OF TOTAL ANNUAL SQUARE FEET LEASED LEASED BASE RENT NUMBER OF SUBJECT TO SQUARE FEET SQUARE FEET UNDER LEASES EXPIRING OF EXPIRING OF EXPIRING EXPIRING YEAR EXPIRING LEASES LEASES LEASES LEASES (1) ---- -------- ------ ------ ------ ----------
1997(2) 18 28,741 7.20% 7.20% $ 283,586 1998 15 43,572 10.92% 18.12% 586,893 1999 15 36,479 9.14% 27.26% 384,560 2000 7 28,588 7.16% 34.42% 353,013 2001 1 6,179 1.55% 35.97% 47,269 2002 3 4,759 1.19% 37.16% 52,464 2004 1 9,600 2.41% 39.56% 110,400 2005 1 3,200 0.80% 40.36% 117,316 2008 3 238,042 59.64% 100.00% 1,500,702 ---------------------- ---------------- 64 399,160 $ 3,436,203 ---------------------- ---------------- ---------------------- ----------------
- --------------- (1) Represents annualized monthly Base Rent of the leases in effect at December 31, 1996. 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) Includes five leases that are on a "month-to-month" basis as of December 31, 1996 (15,260 square feet and $116,495 of annualized Base Rent).
PRINCIPAL TENANTS
The 15 largest tenants accounted for approximately 50% (or approximately $18.8 million) of the Company's total annual Base Rent at December 31, 1996. The weighted average remaining lease term for the 15 largest tenants was 7.4 years at December 31, 1996. 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 distribution of tenants at the warehouse/distribution and light 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 table below shows the 15 largest tenants occupying the Company's Properties, as measured by annualized Base Rent as of December 31, 1996.
NUMBER SQUARE ANNUAL PERCENTAGE OF FEET BASE OF TOTAL LEASES LEASED RENT (1) PORTFOLIO ------ --------- ------------ ---------- Sears Roebuck and Co. (2) 3 1,814,592 $ 4,966,448 12.6% Continental General Tire, Inc. 2 632,790 2,120,916 5.4 Allegiance Healthcare Corporation (3) 2 411,690 1,456,627 3.7 Technicolor Videocassette, Inc. 1 310,736 1,379,668 3.5 Kraft Foods, Inc. 1 351,788 1,279,920 3.3 L.D. Brinkman and Company 1 367,744 1,055,676 2.7 Cumberland Swan, Inc. 2 341,552 1,024,656 2.6 Carnation Co. (4) 1 260,000 948,698 2.4 Mitchell International 3 84,706 786,312 2.0 BT Office Products International, Inc. 1 160,000 777,262 2.0 Lake River Corporation 1 200,808 652,626 1.7 Bank One Arizona, NA 3 95,260 651,578 1.7 Delta Lithograph Corporation 1 107,520 567,706 1.4 Super Discount Markets 1 76,800 554,227 1.4 The Woodbridge Group 3 70,464 549,197 1.4 ---- --------- ------------ ------ Total 26 5,286,450 $ 18,771,517 47.8% ---- --------- ------------ ------ ---- --------- ------------ ------ - ---------- (1) Represents annualized Base Rent from leases in effect as of December 31, 1996.
(2) These leases are signed by Sears Logistics Services, Inc. and guaranteed by Sears Roebuck and Co. These leases cover two Properties: Olive Branch (Memphis) and Crosswind Drive (Columbus). The two leases covering the Olive Branch Property expire March 31, 2005, feature two five-year renewal options and include rent escalation provisions during the final five years of the leases. The lease covering the Crosswind Drive Property expires in September 2006, features two five-year renewal options and includes rent escalation provisions in years six through ten.
(3) This lease is guaranteed by Baxter Healthcare Corporation.
(4) This tenant has sub-leased this space to Blockbuster Videos, Inc.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company currently is not involved in any litigation nor, to its knowledge, is any litigation currently threatened, except for routine litigation arising in the ordinary course of business.
ITEM 4.
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, 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been listed on the NYSE since February 26, 1996, under the symbol "MDN." On February 20, 1997, the last reported sales price per share of Common Stock on the NYSE was $22.375. There were approximately 19,090 holders of record of the Company's Common Stock at February 20, 1997. The following table sets forth the high and low last reported closing sales prices per share of the Common Stock on the NYSE since it has been listed.
PERIOD HIGH LOW ----------------------------------------------------------------- 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
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 under certain conditions.
Under the REIT tax rules, the Company will be required to make distributions to shareholders 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 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 of Common Stock. In addition, the terms of the outstanding shares of Series B Preferred Stock provide for cumulative dividends at an initial share rate of at least $0.31 per quarter or $1.24 per year. 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. Future distributions by the Company will be at the discretion of the Company's Board of Directors (the "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.
As a result of the Merger, holders of Trust VI common stock and Trust VII common stock received a total of 553,000 Merger Warrants. The Merger Warrants were issued in certificated form under a Warrant Agreement between the Company and First Chicago Trust Company of New 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 24, 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 shares of Common Stock underlying the Merger Warrants have been registered under the Company's registration statement declared effective January 6, 1996. However, the Company may suspend the exercisability of the Merger Warrants 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 before their expiration, 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.
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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data for the Company as of and for the year ended December 31, 1996 and for the period from May 18, 1995 (inception) to December 31, 1995. The Company was incorporated on May 18, 1995. Except for interest earned on its investments and general and administrative expenses which have been incurred and accrued, the Company had no other activities prior to February 23, 1996, the Merger date. 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 five years ended December 31, 1995 and for the period January 1, 1996 to February 23, 1996. This table should be read in conjunction with the more detailed financial statements of the Merged Trusts incorporated as an exhibit to this report.
SELECTED FINANCIAL AND OTHER DATA As of and for the periods indicated (in thousands, except per share data)
- --------------- (1) Reflects the historical results of the Company as of and for the year ended December 31, 1996, and as of and for the period from May 18, 1995 (inception) to December 31, 1995.
(2) Reflects the historical operations of the Merged Trusts as of and for the period from January 1, 1996 to the Merger date of February 23, 1996, and as of and for each of the five years ended December 31, 1995.
(3) 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). A reconciliation of Funds From Operations to net income for the year ended December 31, 1996 is set forth below:
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------- Net Income $ 14,063,000 Reconciling Items: Depreciation and Amortization of Real Estate Assets 4,915,000 Gain on Sale of Properties (3,313,000) Extraordinary Item 411,000 ----------------------------------------------------- Funds From Operations $ 16,076,000 ----------------------------------------------------- -----------------------------------------------------
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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 above.) The Company's principal asset is its portfolio of 78 Industrial Properties and three retail properties. (See Item 2 above.)
This section should be read in conjunction with the financial statements and supplementary data listed in Item 8
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.
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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ITEM 10.
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 for its annual stockholders' meeting to be held on May 26, 1997.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on May 26, 1997.
ITEM 12.
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 for its annual stockholders' meeting to be held on May 26, 1997.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on May 26, 1997.
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ITEM 14.
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:
PAGE ---- 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
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules are filed as part of this report:
PAGE ---- Valuation and Qualifying Accounts. . . . . . . . . . . . . . . Real Estate and Accumulated Depreciation . . . . . . . . . . .
(a)(3) EXHIBITS.
NO. DESCRIPTION - ----- ----------- 2.1(1) Amended and Restated Agreement and Plan of Merger among the Trusts and the Company dated as of November 10, 1995.
2.2(1) Amended and Restated Asset Purchase Agreement between Trust 83 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.
4.1(2) Specimen share certificate. (See also restrictions contained in Exhibits 3.1 and 3.2)
10.1(2) Amended and Restated Employee and Director Incentive Stock Plan of the Company.
10.2(3) First Amendment to Amended and Restated Employee and Director Incentive Stock Plan of the Company.
10.3(1) MPP Agreement among MPP, the Company, Milton K. Reeder, Sierra Real Estate Equity Trust 84 Co. and the Trusts dated as of May 31, 1995.
10.4(2) Amendment No. 1 to MPP Agreement among MPP, the Company, Milton K. Reeder, Sierra Real Estate Equity Trust 84 Co. and the Trusts dated February 22, 1996.
10.5(2) MPP Termination Agreement among MPP, the Company and Meridian Point Realty Trust VIII Co. dated February 22, 1996.
10.6(2) Amended and Restated Investor Rights Agreement among the Company, Hunt, USAA, Trust 83, Ameritech and OTR dated as of February 23, 1996.
10.7(2) Amended and Restated Excepted Holder Agreement between the Company and Hunt dated as of February 23, 1996.
10.8(2) Amended and Restated Excepted Holder Agreement between the Company and USAA dated as of February 23, 1996.
10.9(2) Excepted Holder Agreement between the Company and Ameritech dated as of February 23, 1996.
10.10(2) Excepted Holder Agreement between the Company and OTR dated as of February 23, 1996.
10.11(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.
10.12(2) Warrant Agreement between the Company and the First Chicago Trust Company of New York dated as of February 23, 1996.
10.13(1) Form of Indemnification Agreement signed by the Company and certain directors, officers, employees and agents of the Company.
10.14(1) Stock Purchase Agreement among the Company, Ameritech and OTR dated as of December 20, 1995.
10.15(3) First Amended and Restated Revolving Credit Agreement dated March 19,1996 among the Company, The First National Bank of Boston, Texas Commerce Bank National Association, and Nationsbank of Texas, NA.
10.16(2) Guaranty of payment and performance by DFW Nine in connection with the Revolving Credit Agreement among the Company, The First National Bank of Boston, Texas Commercial Bank National Association and Nationsbank of Texas, N.A. dated February, 1996.
10.17(3) 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.
10.18(2) Agreement of Limited Partnership of DFW Nine dated April 15, 1987.
10.19(2) Amendment No. 1 to Agreement of Limited Partnership of DFW Nine dated June 1, 1987.
10.20(2) Assignment of General Partnership Interests and Agreement regarding DFW Nine dated February, 1996.
10.21(3) Assignment of Limited Partnership Interest in MIT Unsecured L.P. (formerly known as DFW Nine) dated December 31, 1996.
10.22(2) Agreement of Limited Partnership of Progress Center/Alabama Limited Partnership dated December 3, 1987.
10.23(2) First Amendment to Agreement of Limited Partnership of Progress Center/Alabama Limited Partnership dated June 29, 1990.
10.24(3) Assignment of Limited Partnership Interest in MIT Secured L.P. (formerly known as Progress Center/Alabama Limited Partnership) dated December 31, 1996.
10.25(1) Consulting Agreement among the Trusts, Hunt Realty Corporation and the Company effective as of January 1, 1995.
10.26(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.
10.27(2) Employment letter signed by Celeste Woo dated November 14, 1996.
10.28(2) Employment letter signed by Peter Harmon dated January 30, 1996.
10.29(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.
10.30(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.
10.31(2) Form of Nonstatutory Stock Option Agreement to purchase shares of the Company's Common Stock at $12.00 per share signed by Messrs. Anderson (100,000 shares), Reeder (20,000 shares), Higgs (45,000 shares), Keith (15,000 shares), Suarez (10,000 shares) and Dobbin (1,400 shares).
10.32(2) Stock Purchase Agreement among Meridian Industrial Trust, Inc. and Messrs. Anderson, Reeder, Higgs, Keith, Suarez and Dobbin.
10.33(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).
10.34(2) Note Purchase Agreement between the Company and The First National Bank of Boston dated as of February 13, 1996.
10.35(2) Security Agreement and Assignment of Account to The First National Bank of Boston from the Company dated February 13, 1996.
10.36(1) Option Agreement between the Company and USAA Real Estate Company dated as of November 21, 1995, including the form of USAA Warrant attached.
10.37(2) Warrant issued to USAA to purchase Common Stock of the Company dated February 23, 1996.
10.38(2) The Company's Dividend Reinvestment Plan.
21.1(2) Subsidiaries of the Company.
- -------------------------------------------------- (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 with this Report.
(b) REPORTS ON FORM 8-K.
The following Form 8-K reports were filed during the quarter ended December 31, 1996:
Forms 8-KA Amendment No. 1 to the Company's Current Report on Form 8-K dated September 30, 1996 (this Form 8-KA was filed on December 13, 1996).
(c) The exhibits listed in Item 14(a)(3) above are submitted as part of this report.
(d) The financial statement schedules listed in Item 14(a)(2) above are submitted as part of this report.
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 20, 1997 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 20, 1997 - ----------------------------------- Allen J. Anderson Chairman, Chief Executive Officer, and Director (Principal Executive Officer)
/s/ Milton K. Reeder Dated: March 20, 1997 - ----------------------------------- Milton K. Reeder President and Chief Financial Officer (Principal Financial Officer)
/s/ James Suarez Dated: March 20, 1997 - ----------------------------------- Treasurer and Controller (Principal Accounting Officer)
/s/ C.E. "Doc" Cornutt Dated: March 20, 1997 - ----------------------------------- C.E. "Doc" Cornutt Director
/s/ T. Patrick Duncan Dated: March 20, 1997 - ----------------------------------- T. Patrick Duncan Director
/s/ Peter O. Hanson Dated: March 20, 1997 - ----------------------------------- Peter O. Hanson Director
/s/ John S. Moody Dated: March 20, 1997 - ----------------------------------- John S. Moody Director
/s/ James M. Pollak Dated: March 20, 1997 - ----------------------------------- James M. Pollak Director
Dated: March 20, 1997 - ----------------------------------- Kenneth N. Stensby Director
/s/ Lee W. Wilson Dated: March 20, 1997 - ----------------------------------- Lee W. Wilson Director
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Meridian Industrial Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Meridian Industrial Trust, Inc. (a Maryland corporation) as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the year ended December 31, 1996 and for the period from May 18, 1995 (inception) to December 31, 1995. These financial statements are the responsibility of the management of Meridian Industrial Trust, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Meridian Industrial Trust, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the year ended December 31, 1996 and for the period from May 18, 1995 (inception) to December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14(a)(2) are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California February 5, 1997
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
The accompanying notes are an integral part of these statements
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these statements
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these statements.
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM MAY 18, 1995 (INCEPTION) TO DECEMBER 31, 1995 (IN THOUSANDS)
The accompanying notes are an integral part of these statements
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION.
Meridian Industrial Trust, Inc. (the "Company") was incorporated in the state of Maryland on May 18, 1995. The Company is a self-administered and self-managed real estate investment trust ("REIT") engaged primarily in the business of owning, acquiring, developing, managing and leasing income-producing warehouse/distribution and light industrial properties. At December 31, 1996, the Company's principal asset is its portfolio of sixty warehouse/distribution, eighteen light industrial properties and three retail properties. In addition, the Company has three pre-leased build-to-suit properties under construction.
On February 23, 1996, the Company merged with Meridian Point Realty Trust IV Co., Meridian Point Realty Trust VI Co. and Meridian Point Realty Trust VII Co. ("Trust IV," "Trust VI" and "Trust VII," respectively; collectively referred to as the "Merged Trusts"), with the Company as the surviving entity (that transaction is referred to below as the "Merger"). In addition, concurrent with the Merger, the Company acquired certain properties, and assumed certain mortgage notes and other liabilities, from Meridian Point Realty Trust '83 ("Trust 83") (that transaction is referred to below as the "Asset Purchase").
Concurrent with the closing of the Merger and Asset Purchase, the Company closed a private placement of preferred stock (the "Preferred Stock Private Placement") and entered into an unsecured credit facility (the "Unsecured Credit Facility"). The Preferred Stock Private Placement consisted of the issuance of 2,272,727 shares of Series B convertible preferred stock, par value $0.001 per share ("Series B Preferred Stock"), at $15.40 per share for gross proceeds of $35,000. The Unsecured Credit Facility provides for a maximum borrowing amount of $75,000 and is intended to provide the Company with funds for property development, acquisitions and working capital needs.
Prior to February 23, 1996, the Company had no operations other than interest on its investments and general and administrative expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) BASIS OF PRESENTATION. The accompanying consolidated financial statements include the results of the Company, its wholly-owned subsidiaries and its majority-owned and controlled partnerships. All intercompany transactions have been eliminated.
(b) USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(c) CASH AND CASH EQUIVALENTS. The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. At December 31, 1995, the Investment in Marketable Securities has been separately identified.
(d) INCOME TAXES. The Company has previously elected to be taxed as a REIT for federal and, where the federal rules are allowed, state income tax purposes. To continue to qualify for REIT status, the Company must meet a number of ongoing organizational and operational requirements. If the Company satisfies those REIT requirements and the Company currently distributes all of its net taxable income (including net capital gains) to its stockholders, the Company should generally owe no federal or state income tax. The REIT provision of the Internal Revenue Service Code of 1986, as amended, generally allows a REIT to deduct dividends paid to stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to certain state and federal taxes imposed on its income and properties.
As a result of the deductions allowed for the dividends paid to shareholders and the utilization of net operating loss carryovers of the Merged Trusts, the Company has no federal or state taxable income. Accordingly, no provision for federal or state income taxes has been made in the accompanying consolidated statements of operations for the 1996 and 1995.
(e) NET INCOME (LOSS) PER SHARE. Net income (loss) per share is calculated by dividing net income, after deduction of preferred stock dividends declared, by the weighted average number of shares of common stock outstanding during the period. The weighted average number of common shares outstanding was 8,779,573 for the year ended December 31, 1996. Such shares include the dilutive effects of stock options granted by the Company to its directors and officers pursuant to its stock plan, and shares to be issued pursuant to a stock option agreement with one of its stockholders, aggregating to 303,112 additional shares of Common Stock.
The weighted average number of common shares outstanding was 900 for the period from May 18, 1995 (inception) to December 31, 1995.
(f) CAPITALIZED LOAN FEES AND LEASE COMMISSIONS. Capitalized costs consist of loan fees and leasing commissions. Capitalized loan fees are amortized into interest expense on a straight-line basis over the term of the related debt. Lease commissions are amortized into depreciation and amortization expense on a straight-line basis over the term of the related lease.
(g) RENTALS FROM REAL ESTATE INVESTMENTS. All leases are classified as operating leases. The Company recognizes rental income on a straight-line basis over the term of the lease. Deferred rent receivable, included in other assets, represents the excess of rental revenue on a straight-line basis over the cash received under the applicable lease provision.
Certain of the Company's leases relating to its properties require lessees to pay all or a portion of real estate taxes, insurance, and operating expenses ("Expense Recaptures"). Expense Recaptures are recognized as revenues in the same period the related expenses are incurred by the Company. For the year ended December 31, 1996, Expense Recaptures of $4,331 have been included in rentals from real estate investments.
(h) OFFERING COSTS. Underwriting commissions, offering costs and other expenses incurred in connection with stock offerings of the Company's Common and Preferred Stock have been reflected as a reduction of Stockholders' Equity.
(i) FAIR VALUE OF FINANCIAL INVESTMENTS. Based on the borrowing rates currently available to the Company, the carrying amount of its debt approximates fair value. The carrying amount of cash and cash equivalents also approximates fair value.
(j) CONSTRUCTION IN PROGRESS. Project costs clearly associated with the development and construction of a real estate project are capitalized as construction in progress. In addition, interest, real estate taxes, insurance and other holding costs are capitalized during the period in which activities necessary to get the property ready for its intended use are in progress. During the year ended December 31, 1996, interest expense totaling $561 was capitalized for properties under construction.
3. TRANSACTIONS WITH AFFILIATES.
For the year ended December 31, 1996 and for the period from May 18, 1995 to December 31, 1995, the Company has incurred fees and expenses relating to services provided by its directors of approximately $283 and $194, respectively. The directors are entitled to elect to receive all or any portion of their annual retainer in shares of Common Stock.
From June 1, 1995 through February 23, 1996, Hunt Realty Corporation ("Hunt") provided the services of Allen J. Anderson (Chairman and Chief Executive Officer of the Company) and two other persons to the Company in exchange for reimbursement of Hunt's costs associated with making those persons available to the Company. During 1995, the Company had incurred $245 for such services.
On November 21, 1995, the Company entered into an Option Agreement under which USAA Real Estate Company, a Delaware corporation ("USAA") granted the Company an option (the "USAA Option") to purchase a 292,000 square-foot industrial property located in Lakeland, Florida (the "USAA Option Property"). The USAA Option also includes a right of first refusal in favor of the Company with respect to five bulk warehouse facilities comprising approximately 1.1 million square feet located in West Chicago, Illinois (the "USAA Chicago Property"). In exchange for the option, the Company issued a warrant to USAA to purchase shares of the Company's Common Stock at an exercise price that provides USAA with a value of $300 based upon the value of the Company's Common Stock during the first 20-trading-day period after the Merger. The Company did not acquire either the USAA Option Property or Chicago Property under the USAA Option which expired in February 1997.
During 1995, the Company received $750 in advances from the Merged Trusts to cover certain operating expenditures. These advances are reflected as Notes Payable to Affiliates on the accompanying balance sheet as of December 31, 1995. These notes payable bore interest at a rate of 7% per annum. In connection with the Merger and Asset Purchase, the Company canceled these Notes Payable to Affiliates.
4. INVESTMENT IN MARKETABLE SECURITIES.
In December 1995, the Company purchased a U.S. Treasury Note which is reflected as Investment in Marketable Securities on the accompanying balance sheet. The Company financed this purchase with a cash deposit equal to 10% of the total purchase price of the government security and a short-term loan in the amount of $2,346 bearing interest at a rate of 8.625% per annum, which, together with accrued interest of $5, is reflected as Short-Term Loan Payable on the accompanying balance sheet as of December 31, 1995. In January 1996, the government security matured and the related proceeds were used to pay off the Short-Term Loan Payable.
5. INVESTMENT IN REAL ESTATE.
In accordance with generally accepted accounting principles, the Company has accounted for the Merger and Asset Purchase using the purchase method. As a result, the assets and liabilities acquired in connection with the Merger and Asset Purchase are recorded at their "acquisition cost," representing the fair value of the consideration surrendered and liabilities assumed. The acquisition cost was then allocated to all identifiable assets based upon their individual estimated fair values. The following is a summary of the acquisition cost recorded in connection with the Merger and Asset Purchase:
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 --------- ---------
Investments in Real Estate are depreciated over 35 years using the straight-line method. Expenditures for maintenance, repairs and improvements which do not materially prolong the normal useful life of an asset are charged to operations as incurred. Tenant improvements are capitalized and amortized on a straight-line basis over the related lease term.
Rental properties held for investment as of December 31, 1996 consisted of the following:
Land $ 72,594 Buildings 241,254 Capital Improvements 1,702 Construction-in-Progress 3,121 ---------- Total $ 318,671 ---------- ----------
The minimum future rental revenue from leases in effect as of December 31, 1996 are as follows:
1997 $ 35,317 1998 29,077 1999 24,914 2000 20,798 2001 16,433 Thereafter 77,773
Based on the projected 1997 base rent of existing leases, there are currently two major tenants comprising approximately 13% and 6%, respectively, of the total annual revenue of the Company based on the projected 1997 base rent of existing leases. These tenants have five leases which are scheduled to expire in 2000, 2001, 2005 and 2006. As of December 31, 1996, the Company's properties were 94% occupied. During 1997, leases covering 21% of the leased space are scheduled to expire.
6. DEBT.
The Company has a fixed rate facility which it acquired in connection with the Merger (the "Mortgage Loan"). The Mortgage Loan bears interest at the annual rate of 8.63%, requires interest only payments until its maturity in 2005 and is secured by a pool of the Company's properties with a net book value of $130,732 as of December 31, 1996.
The Unsecured Credit Facility bears interest at LIBOR plus 1.7% per annum (7.26% at December 31, 1996), requires interest only payments until maturity in February 1998, and provides for an annual fee on the unused facility of 25 basis points if 65% or less of the facility is used and 15 basis points if more than 65% of the facility is used. The Unsecured Credit Facility provides for a maximum borrowing amount of $75,000. The Company is currently negotiating various terms of the Unsecured Credit Facility including the increase in the maximum borrowing amount, extension of the maturity date and reduction in the interest rate spread. However, there can be no assurance that the Company will be successful in its negotiations.
7. COMMON AND PREFERRED STOCK.
The initial capitalization of the Company consisted of 900 shares of Common Stock, issued for a total consideration of $14. In addition, Trust 83, and the Merged Trusts purchased 79,500 and 920,500 shares of Series A Preferred Stock, respectively, for $1.00 per share. In connection with the Merger and Asset Purchase transactions, the Company issued 7,599,396 and 390,360 shares of Common Stock, respectively. The Company also canceled the Series A Preferred Stock owned by the Merged Trusts and redeemed the Series A Preferred Stock owned by Trust '83.
Concurrent with the Merger and Asset Purchase, the Company closed the Preferred Stock Private Placement which consisted of the sale in a private placement of 2,272,277 shares of Series B Preferred Stock with a liquidation preference of $35,000. The shares of Series B Preferred Stock are convertible into shares of Common Stock on a one-for-one basis. The net proceeds were used to retire debt acquired in connection with the Merger and Asset Purchase in the principal amount of $33,500.
In connection with the Merger, the Company issued approximately 553,000 warrants to purchase an equal number of shares of the Company's Common Stock (the "Merger Warrants"). The Merger Warrants are exercisable during the period May 23, 1997 through February 24, 1999. The exercise price of the Merger Warrants is $16.23 per share.
In addition, the Company issued a warrant to purchase 184,900 shares of the Company's Common Stock at an exercise price of $14.60 per share. The warrant is exercisable in whole or in part at any time from May 23, 1997 to February 23, 1999.
On April 3, 1996, the Company closed a public offering of 1,500,000 shares of the Common Stock at an offering price of $16.375 per share, resulting in gross proceeds of $24,563 (the "April Offering"). The Company used the net proceeds of the April Offering and existing cash reserves to make a $24,000 payment on its Unsecured Credit Facility.
On November 25, 1996, the Company closed a public offering of 3,400,000 shares of the Common Stock at an offering price of $18.25 per share, resulting in gross proceeds of $62,050 (the "November Offering"). The Company used the net proceeds of the November Offering and existing cash reserves to make a $58,650 payment on its Unsecured Credit Facility. In accordance with the underwriting agreement entered into by the Company and its underwriters for the November Offering, on December 23, 1996, the Company sold an additional 510,000 shares of the Common Stock to the underwriters to satisfy over allotments at an offering price of $18.25 per share, resulting in gross proceeds of $9,308. The Company used the net proceeds therefrom to fund a property acquisition.
The Company has been declaring and paying dividends on a quarterly basis. During the year ended December 31, 1996, dividends declared to Common and Series B Preferred Stockholders aggregated to $10,544 and $2,412, respectively, or $0.99 and $1.06 per share of Common Stock and Preferred Stock, respectively. The analysis below presents the amount of distributions paid to stockholders and the percentage of the distributions which the Company estimates is taxable and nontaxable for the year ended December 31, 1996. Nontaxable distributions are treated as return of capital to stockholders.
PREFERRED COMMON --------- ------- Distributions Paid Per Share $ 0.75 $ 0.70 --------- ------- --------- -------
Nontaxable Dividends -- 96.37% Taxable Dividends 100.00% 3.63% --------- ------- 100.00% 100.00% --------- ------- --------- -------
The holders of Series B Preferred Stock generally have a cumulative preferential right to such quarterly dividends as are declared each year by the Board of Directors. From the date of the Merger through the fourth quarter of 1997, the dividend amount per share will be equal to the greater of: (i) $0.31 per full calendar quarter (pro-rated for periods less than a full quarter), or (ii) 103% of the quarterly dividend payable per share of Common Stock during the corresponding dividend period. Thereafter, each share of Series B Preferred Stock shall be entitled to receive an amount equal to the greater of: (i) the last quarterly preferred dividend amount declared by the Board of Directors, or (ii) the dividend paid per share of Common Stock.
8. STOCK PLAN.
The Board of Directors of the Company has adopted an incentive stock plan (the "Stock Plan") to enable the Company to attract, retain and motivate key employees, directors and, on occasion, consultants and advisors, by providing them with equity participation in the Company. The Stock Plan provides for the grant of incentive stock options, non-qualified stock options, unrestricted stock, restricted stock and stock appreciation rights.
The Stock Plan is administered by the Board of Directors or a committee appointed by the board (the "Committee"). The Committee, which must consist of not less than two members of the Company's Board of Directors, selects the employees (and any consultants or advisors) to whom awards will be granted, the number of shares subject to such award, and the other terms and conditions of the award, consistent with the Stock Plan.
In November 1995, the Board of Directors authorized the award of two sets of stock options to certain employees relating to services performed by the employees in 1995 to effect the Merger. The first set of awards provided for the issuance of 653,000 stock options to be issued under the Stock Plan concurrent with the Merger, exercisable at the stock trading price at Merger of $15.12 per share. These option awards provided that 461,000 of the stock options vest over five years. The remaining stock options granted under the first set of awards, totaling 192,000, include certain performance criteria that would allow for vesting after three years if certain performance criteria are achieved, or vesting at the end of five years if the performance criteria are not met. These options will become fully-vested in the event of a termination of employment without "cause" by the Company or for "good reason" by the employee (in each case as defined in the stock option agreement), or in the event of the death or disability of the employee.
The second set of stock options granted in 1995 consisted of non-qualified stock options to purchase 191,400 shares of the Company's Common Stock at any time between January 26, 1996 and February 28, 1996 for $12 per share. In connection with the grant of these options, the Company agreed to repurchase certain promissory notes executed by the employees from a third party lender in the event that the employees default under such notes. The Company has $1,900 in proceeds from the exercise of these stock grants held as restricted cash in connection with the repurchase rights of the third party lender. The accompanying statement of operations for the period from May 18, 1995 (Inception) to December 31, 1996 reflects a charge to earnings for the stock option compensation attributable to the excess of the market price of the Company's Common Stock over the exercise price of the non-qualified stock options. The non-qualified stock options were not granted under the Stock Plan.
After the Merger, the Company granted each director of the Company, who was not an employee of the Company, an option to purchase 5,000 shares of the Company's Common Stock. In addition, beginning June 30, 1996, on the last day of each calendar quarter, the Company automatically grants each non-employee director a non-qualified option to purchase 1,167 shares of the Company's Common Stock. The exercise price of these options is the fair value of the shares of the Company's Common Stock covered by the options on the date of grant. Each of these director options are fully exercisable beginning six months after the date of grant and generally terminate (unless terminated sooner under the terms of the Stock Plan) ten years after the date of grant.
Additionally, under the Stock Plan, each non-employee director may elect to receive his or her retainer in either cash, shares of the Company's Common Stock, or a combination of both cash and the Company's Common Stock.
A maximum of 1,000,000 shares of the Company's Common Stock, subject to adjustment under certain conditions, may be issued under the Stock Plan.
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock Based Compensation" which establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 became effective for the Company in its 1996 fiscal year. This statement encourages a "fair value based method" of accounting for an employee stock option or similar equity instrument which calls for compensation cost to be measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. As provided by the provisions of SFAS No. 123, the Company records measurement of compensation for its stock plans using the "intrinsic value based method" of accounting, with disclosure of the pro forma impact on net income and earnings per share as if the "fair value based method" of accounting had been applied as follows:
Year Ended Dec. 31, 1996 ---------------------------- As Reported Pro Forma --------------- ----------- Net Income $ 14,063 $ 13,856 Net Income Per Weighted Average Common Share $ 1.33 $ 1.31
The following table summarizes the stock option activity for the year ended December 31, 1996.
Number Weighted of Shares Average Outstanding Exercise Price --------------- ---------------- Balance, December 31, 1995 -- -- Granted 708,507 $ 15.37 Exercised -- -- Expired -- -- Forfeited -- -- Balance, December 31, 1996 708,507 $ 15.37
As of December 31, 1996, there were a total of 46,669 exercisable options. The weighted average fair value of the options granted in 1996 was $1.24. The options outstanding have exercise prices between $15.12 and $21.00 with a weighted average exercise price of $15.37 and a weighted average remaining contractual life of 9.20 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1996: risk-free interest rate of 6.01%, expected dividend yield of 6.66%, expected life of 10 years, and expected volatility of 14.48%.
9. PROPERTY ACQUISITIONS AND DEVELOPMENTS.
ACQUISITIONS
During the year ended December 31, 1996, the Company purchased eight properties located in California, Illinois and Ohio with an aggregate square footage of 2,669,506 ("Operating Properties Acquired"). The purchase prices totaled $89,703 and were financed by applying a $300 deposit paid in 1995, with the balance funded by draws on its Unsecured Credit Facility and net proceeds received from the Company's public offerings of shares of Common Stock.
DEVELOPMENTS
Also during the year ended December 31, 1996, the Company entered into separate agreements with four identified tenants to develop four build-to-suit facilities with an aggregate square footage of 979,434. Two facilities that are located in Texas were completed in December 1996. The total cost for the design and construction of the two remaining facilities located in Minnesota and Georgia is estimated to total approximately $12,238, with a targeted completion dates of March 1997 and July 1997, respectively. The Company funded a portion of these draws with cash on-hand and anticipates funding a majority of the remaining costs with draws on its Unsecured Credit Facility. As of December 31, 1996, the Company had incurred total project costs of $30,501 relating to these four projects.
On December 20, 1996, the Company entered into an Agreement of Limited Partnership with Jackson-Shaw/Florida Inc.("JSF"), a Florida corporation; and Jackson-Shaw/FOCP ("JSC'), a Florida limited partnership, and thereby formed MDN/JSC, a California limited partnership (the "Partnership"). The Partnership purchased a 19.15 acre property located in Orlando, Florida. The property is being improved with a 242,160 square foot built-to-suit facility with a target completion date of September 1997. The cost for acquisition of the property and design and construction of the facility is estimated to total approximately $9,400. Upon completion of the facility, the Partnership will acquire the 120,000 square foot warehouse/distribution property currently occupied by the tenant moving into the built-to-suit facility valued at $4,955. The Company's contribution into the Partnership is estimated to total $13,125. As of December 31, 1996, the Partnership had incurred total project costs of $2,487 relating to both properties. The Company and JSC are the limited partners with interests of 85% and 13%, respectively; and MJV IV, Inc., a wholly-owned subsidiary of the Company and JSF are the general partners with each an interest of 1%.
Subsequent to December 31, 1996, two limited partnerships in which the Company has a 50% beneficial interest entered into two separate agreements to develop a 129,800 and 117,800 square foot warehouse/distribution facility, respectively. Both facilities are located in Allen, Texas. Development and lease-up costs for the two facilities is estimated to total $8,840.
10. PROPERTY DISPOSITION.
On May 15, 1996, the Company sold the Moorpark R & D Building located in Moorpark, California for $4,100. On August 23, 1996, three properties located in Alabama (Progress Center I, Progress Center II and 8215 Highway Building) were sold for a total selling price of $3,900. Also, on December 31, 1996, the Company sold the Seatac and Meridian Village Shopping Centers located in Federal Way and Bellingham, Washington, respectively, for an aggregate sale price of $17,740; and eight properties located in Phoenix, Arizona for a total selling price of $7,658. (The properties sold are collectively referred to as "Properties Disposed".) After closing costs, escrow holdback, early release of funds and pro-rated items which totaled $1,975, the Company received net proceeds from the property sales totaling $31,447. The net proceeds were used to pay down borrowings on its Unsecured Credit Facility.
As of December 31, 1996, the Company has entered into a contract for sale of the Wildwood Pioneer building. On January 10, 1997, the Company sold Birmingham 1 and 2 properties located in Birmingham, Alabama for $3,400. After closing costs and pro-rated items which totaled $173, the Company received net proceeds from the property sales totaling $3,127.
As of December 31, 1996, the net book value of these rental properties held for sale was $7,530. The net proceeds from the sales of these properties will be used to repay borrowings made under the Unsecured Credit Facility.
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION.
The following table reflects supplemental disclosure of non-cash transactions for the year ended December 31, 1996.
Cash Paid For Interest $ 6,276
Merger Transaction: Acquisition Cost Allocated to Investment in Real Estate 203,489 Restricted Cash 5,551 Receivables, Net 2,889 Note Receivable from Affiliate 720 Capitalized Loan Fees 992 Cancellation of Redeemable Series A Preferred Stock 960 Mortgage Loan Assumed (66,094) Other Long-Term Debts Assumed (43,191) Accounts Payable Assumed (2,869) Shares of Common Stock Issued, at Par Value (8) Paid-in Capital (109,842) Other Net Liabilities Assumed (4,489)
Asset Purchase Transaction: Acquisition Cost Allocated to Investment in Real Estate 26,342 Restricted Cash Applied to Debt Payment 117 Mortgage Notes Payable Assumed (16,334) Paid-in Capital of Common Shares Issued (6,392) Accrued Closing Costs and Pro-rated Items (476)
12. QUARTERLY FINANCIAL DATA (UNAUDITED).
The following table shows selected quarterly financial data for 1996:
13. SUPPLEMENTAL INFORMATION. (UNAUDITED)
HISTORICAL AS ADJUSTED INFORMATION
As discussed in Note 6, in accordance with generally accepted accounting principles, the Company accounted for the Merger and Asset Purchase by the purchase method of accounting. As such, the Company is providing the following supplemental information.
The unaudited historical as adjusted operating data presented below for the years ended December 31, 1996 and 1995 has been prepared to reflect (i) the respective historical results of the Merged Trusts and the properties acquired from Trust 83 ("Trust 83 Properties); (ii) the May 31, 1995 closing of the transactions under the stock purchase agreements between Hunt and each of the Merged Trusts and the stock purchase agreements between USAA, and each of the Merged Trusts, and the concurrent restructuring or retirement of the Merged Trusts' indebtedness ("Recapitalization"); (iii) the incremental effects of the Merger, the retirement of certain indebtedness using the net proceeds of the Preferred Stock Private Placement and availability of funds on the Unsecured Credit Facility ("Refinancing"); and the effect of purchase accounting on the historical results of the Merged Trusts and the Trust 83 Properties, and (iv) the historical results of the Company to reflect the post-Merger operations of the Company as if such transactions and adjustments had occurred on January 1, 1995. The historical as adjusted information excludes the impact of the April and November Offerings. The Merger, Asset Purchase and Refinancing closed concurrently on February 23, 1996.
In the opinion of management, the historical as adjusted consolidated financial information provides for all adjustments necessary to reflect the effects of the Merger, the Asset Purchase, the Refinancing and the Recapitalization.
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 YEAR ENDED DECEMBER 31, ---------------------- 1996 1995 ---------- ---------- TOTAL REVENUE $ 40,199 $ 38,861
EXPENSES:
Interest Expense 7,571 7,409 Property Taxes 5,581 5,485 Property Operating Costs 4,733 5,099 General and Administrative Expenses 5,435 4,800 Depreciation and Amortization 6,260 5,148 ---------- ---------- TOTAL EXPENSES 29,580 27,941 ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM $ 10,619 $ 10,920 ---------- ---------- ---------- ----------
MERIDIAN INDUSTRIAL TRUST, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT BALANCE AT BEGINNING OF CHARGED TO ADDITIONS END OF DESCRIPTION YEAR EXPENSE (DEDUCTIONS) YEAR - --------------------------------------------------------------------------------
- ---- Reserve for Bad Debts $ -- $ -- $ -- $ --
- ---- Reserve for Bad Debts -- 485,468 85,772 571,240
MERIDIAN INDUSTRIAL TRUST, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
MERIDIAN INDUSTRIAL TRUST, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
MERIDIAN INDUSTRIAL TRUST, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
MERIDIAN INDUSTRIAL TRUST, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
MERIDIAN INDUSTRIAL TRUST, INC. SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
Reconciliation of cost and accumulated depreciation for the year ended December 31, 1996 is as follows:
Accumulated Cost Depreciation --------------------------- Balance at beginning of year $ 300 $ - Additions during period: Merged Trusts 229,831 - Acquisition of rental properties 89,320 - Land acquistion and property development costs 33,235 - Recurring building and tenant improvements 2,265 - Adjustments to property basis 446 - Depreciation - (4,792) Property dispositions (29,048) 427 --------------------------- Balance at End of Year $ 326,349 $ (4,365) --------------------------- ---------------------------
(1) These properties serve as collateral for the Mortgage Loan facility. As of December 31, 1996, the outstanding indebtedness under this facility totaled $66,094. As of December 31, 1996, these properties have a net book value of $130,732.
(2) These properties were completed in December 1996.
(3) As of December 31, 1996 these properties were still under construction. The property located in Minnesota is anticipated to be completed in March 1997, and the properties located in Florida and Georgia have a target completion date of September 1997.