-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VLd+EjQ0yoCjNueBFJMyJXuVI898WHMwMcrqxQNQSO3m6FhQkGq1m709grbKC41a u4mCqBOAnFAh1CnGPfGW0Q== 0000950131-99-005254.txt : 19990910 0000950131-99-005254.hdr.sgml : 19990910 ACCESSION NUMBER: 0000950131-99-005254 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990825 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990909 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROLOGIS TRUST CENTRAL INDEX KEY: 0000899881 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 742604728 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12846 FILM NUMBER: 99708697 BUSINESS ADDRESS: STREET 1: 14100 EAST 35TH PLACE CITY: AURORA STATE: CO ZIP: 80011 BUSINESS PHONE: 3033759292 MAIL ADDRESS: STREET 1: 14100 EAST 35TH PLACE CITY: AURORA STATE: CO ZIP: 80011 FORMER COMPANY: FORMER CONFORMED NAME: SECURITY CAPITAL INDUSTRIAL TRUST DATE OF NAME CHANGE: 19931228 8-K 1 FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 25, 1999 PROLOGIS TRUST (Exact name of registrant as specified in its charter) Maryland 01-12846 74-2604728 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 14100 East 35/th/ Place 80011 Aurora, Colorado (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (303) 375-9292 Not Applicable (Former name or former address, if changed since last report) ================================================================================ ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS This Current Report on Form 8-K is being filed by ProLogis Trust ("ProLogis") to report the disposition of certain real estate assets in the Los Angeles, California market, primarily industrial distribution facilities in addition to four undeveloped land parcels, on August 25, 1999 as detailed below. The assets were sold for approximately $556.0 million to ProLogis California I LLC (the "Joint Venture"), a limited liability company, in which ProLogis and New York State Common Retirement Fund ("NYSCRF") each have a 50% equity interest. The disposition generated cash proceeds of $209.2 million to ProLogis (which represents the cash contribution of NYSCRF of $147.5 million and proceeds from mortgage debt arranged directly by the Joint Venture of $62.0 million) after its equity contribution of $147.5 million. In addition, the Joint Venture, which has a ten-year minimum term, assumed $199.3 million of ProLogis' mortgage debt. The real estate assets are as follows: Square Feet ----------- Operating Properties: Freeway Distribution Center #1-3 568,371 Commerce Distribution Center #1 101,902 Ontario Distribution Center #1-5 1,474,587 Mid Counties Industrial Center #1-6 and #11 694,146 Mid Counties Distribution Center #7-8 718,628 Foothill Business Center #1-3 and #11-13 578,929 North County Distribution Center #1-2 1,182,051 Pacific Business Center #1-5 519,818 Santa Ana Distribution Center #1 100,000 Industry Distribution Center #1-3 574,646 Commerce Industrial Center #1 373,361 California Commerce Center #1-4 655,193 Inland Empire Distribution Center #1-2 and #4-6 1,364,833 Chino Industrial Center #1 170,619 Cedarpointe Industrial Park #1-6 393,393 Corona Distribution Center #1 201,380 Riverside Distribution Center #1-2 113,721 Rancho Santa Margarita Business Center #1-2 38,067 Brea Industrial Center #1-3 196,184 Cypress Business Center #1-3 137,232 Santa Ana Business Center #1-2 56,800 Huntington Beach Distribution Center #1 165,000 Dominguez North Industrial Center #1-11 1,069,616 Valencia Distribution Center #1 107,520 ---------- 11,555,997 ========== Land Parcels: Mid Counties Distribution Center #3 12.2 acres Mid Counties Distribution Center #10 10.1 acres Mira Loma Distribution Center #1 11.6 acres Cedarpoint #1 15.6 acres ProLogis has included proforma financial statements to reflect the disposition of real estate assets and the acquisition of a 50% interest in the Joint Venture as discussed above. The proforma financial statements also reflect the acquisition of certain industrial distribution facilities during 1998 that were reported previously in ProLogis' Current Report on Form 8-K/A filed on April 22, 1999 and dated as of April 14, 1999 and the merger of Meridian Industrial Trust, Inc. with and into ProLogis, that was completed on March 30, 1999 and reported previously in ProLogis' Current Report on Form 8-K filed on March 30, 1999. 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements: None (b) Pro Forma Financial Information: Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999 (unaudited) Pro Forma Condensed Consolidated Statement of Earnings from Operations for the six months ended June 30, 1999 (unaudited) Pro Forma Condensed Consolidated Statement of Earnings from Operations for the year ended December 31, 1998 (unaudited) Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited) (c) Exhibits: None 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. PROLOGIS TRUST By: /s/ Walter C. Rakowich ------------------------------- Walter C. Rakowich Managing Director and Chief Financial Officer (Principal Financial Officer) Date: September 9, 1999 By: /s/ Shari J. Jones ------------------------------- Shari J. Jones Vice President (Principal Accounting Officer) 4 PROLOGIS TRUST PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The accompanying pro forma condensed consolidated financial statements for ProLogis Trust ("ProLogis") reflect: (i) the disposition of certain real estate assets, primarily industrial distribution facilities in addition to four undeveloped land parcels, on August 25, 1999 to ProLogis California I LLC (the "Joint Venture"), as detailed in Item 2 of this Current Report on Form 8-K; (ii) the acquisition by ProLogis of a 50% equity interest in the Joint Venture in which New York State Common Retirement Fund ("NYSCRF") also has a 50% equity interest; (iii) the assumption of mortgage debt of ProLogis by the Joint Venture in connection with the acquisition of the real estate assets; (iv) the acquisition by ProLogis of certain industrial distribution facilities during the period from January 1, 1998 to December 31, 1998, as detailed in the Current Report on Form 8-K/A of ProLogis filed on April 22, 1999 and dated as of April 14, 1999; and (v) the merger of Meridian Industrial Trust, Inc. ("Meridian") with and into ProLogis that was completed on March 30, 1999 (the "Merger"). ProLogis entered into a joint venture agreement, which has a ten-year minimum term, with NYSCRF to form the Joint Venture on August 25, 1999. The agreement provides for the Joint Venture to acquire certain real estate assets in the Los Angeles, California market from ProLogis and assume $199.3 million of ProLogis' mortgage debt. After receiving cash proceeds, ProLogis has a 50% equity interest in the Joint Venture. For its cash contribution, NYSCRF also has a 50% interest in the Joint Venture. Under the terms of other agreements, ProLogis will receive a fee for managing the real estate assets and for overseeing the administration of the Joint Venture. 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 accompanying pro forma condensed consolidated balance sheet has been prepared as if: (i) the disposition of the real estate assets to the Joint Venture; (ii) the related assumption of mortgage debt by the Joint Venture; and (iii) ProLogis' acquisition of a 50% interest in the Joint Venture had all occurred as of June 30, 1999. The accompanying pro forma condensed consolidated statements of earnings from operations for the six months ended June 30, 1999 and for the year ended December 31, 1998 have been prepared as if: (i) the acquisition of certain facilities acquired by ProLogis during the period from January 1, 1998 to December 31, 1998 as detailed in the Current Report on Form 8-K/A of ProLogis filed on April 22, 1999 and dated as of April 14, 1999 had all occurred as of January 1, 1998; (ii) the assumption of certain mortgage debt associated with the facilities noted in (i) above had occurred as of January 1, 1998; (iii) the issuance of senior unsecured notes subsequent to December 31, 1997, necessary to fund the pro forma acquisitions noted in (i) above, had occurred as of January 1, 1998; (iv) the Merger had occurred as of January 1, 1998; (v) the completion of a secured financing transaction which was funded at various dates during the period from January 1, 1999 to June 30, 1999 as if it had occurred as of January 1, 1998 (such debt was assumed by the Joint Venture); and (vi) the disposition of real estate assets to the Joint Venture, the related assumption of mortgage debt by the Joint Venture and ProLogis' acquisition of a 50% interest in the Joint Venture had all occurred as of January 1, 1998. 5 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 formation of the Joint Venture and related disposition of real estate assets, the Merger and the other transactions noted above 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 as set forth in its 1998 Annual Report on Form 10-K, the historical financial statements of Meridian as set forth in the Current Report on Form 8-K filed by ProLogis on April 13, 1999, the proforma financial statements of Meridian included in the Current Report on Form 8-K also filed by ProLogis on April 13, 1999, the proforma financial statements of ProLogis included in the Current Report on Form 8-K/A filed on April 22, 1999 and dated as of April 14, 1999 and ProLogis' Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. In management's opinion, all material adjustments necessary to reflect the effects of the formation of the Joint Venture and related disposition of real estate assets, the Merger and other transactions noted above have been made to the pro forma condensed consolidated financial statements. 6 PROLOGIS TRUST PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET June 30, 1999 (In thousands) (Unaudited)
ProLogis Pro Forma ProLogis ASSETS Historical Adjustments (a) Pro Forma ------ ---------- --------------- ---------- Real estate $5,476,988 $(507,862)(a)(1) $4,969,126 Less accumulated depreciation 315,598 11,386 (a)(1) 304,212 ---------- --------- ---------- Net real estate investment 5,161,390 (496,476) 4,664,914 Investments in and advances to unconsolidated subsidiaries 780,165 -- 780,165 Investment in Joint Venture -- 121,280 (a)(2) 121,280 Cash and cash equivalents 60,432 -- 60,432 Accounts and notes receivable and other assets 219,755 (6,902)(a)(1) 211,863 (990)(a)(3) ---------- --------- ---------- Total assets $6,221,742 $(383,088) $5,838,654 ========== ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Lines of credit $ 266,600 $(206,311)(a)(4) $ 60,289 Mortgage notes, assessment bonds and securitized debt 928,817 (199,250)(a)(3) 727,725 (1,842)(a)(2) Senior unsecured notes 1,729,449 -- 1,729,449 Other unsecured debt 31,800 -- 31,800 Accounts payable, accrued expenses and other liabilities 193,868 (2,738)(a)(1) 191,130 ---------- --------- ---------- Total liabilities 3,150,534 (410,141) 2,740,393 Minority interest 64,429 -- 64,429 Shareholders' equity: Series A Preferred Shares 135,000 -- 135,000 Series B Convertible Preferred Shares 178,892 -- 178,892 Series C Preferred Shares 100,000 -- 100,000 Series D Preferred Shares 250,000 -- 250,000 Series E Preferred Shares 50,000 -- 50,000 Common Shares of beneficial interest (161,404,501 shares historical and proforma) 1,614 -- 1,614 Additional paid-in capital 2,652,354 -- 2,652,354 Employee share purchase notes (23,279) -- (23,279) Accumulated other comprehensive income 1,556 -- 1,556 Distributions in excess of net earnings (339,358) 27,053 (a)(1) (312,305) ---------- --------- ---------- Total shareholders' equity 3,006,779 27,053 3,033,832 ---------- --------- ---------- Total liabilities and shareholders' equity $6,221,742 $(383,088) $5,838,654 ========== ========= ==========
See accompanying notes to the proforma condensed consolidated financial statements. 7 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET June 30, 1999 (Unaudited) (a) Represents the disposition of real estate assets and formation of the Joint Venture, as discussed in Item 2 of this Current Report on Form 8-K, as follows (in thousands): (1) Sales proceeds from disposition of real estate assets (based on asset values at June 30, 1999) $ 554,964 ProLogis' basis in real estate assets as of June 30, 1999: Real estate (507,862) Accumulated depreciation 11,386 Other assets (6,902) Other liabilities 2,738 (500,640) -------- Closing costs (218) --------- Total gain on disposition 54,106 Less: gain not recognized (50%) (27,053) --------- Gain recognized $ 27,053 ========= (2) ProLogis' investment in the Joint Venture is calculated as: Fair value of real estate assets $ 554,964 Principal amount of debt assumed, net of loan costs (198,260) Cash proceeds received (209,289) --------- Capital balance in the Joint Venture 147,415 b Additional basis adjustments: Fees incurred 2,760 Premium associated with debt assumed (1,842) Step-up in basis not recognized by ProLogis (27,053) --------- $ 121,280 ========= (3) Debt assumed by the Joint Venture: Principal amount $ 199,250 Less: Loan costs capitalized by ProLogis (990) --------- $ 198,260 ========= (4) Repayment of borrowings on ProLogis' line of credit: Cash proceeds from Joint Venture $ 209,289 Closing costs paid in cash (218) Other transaction fees paid in cash (2,760) --------- $ 206,311 =========
ProLogis has recognized a gain on the disposition of the real estate assets to the extent of third party investment (NYSCRF) in the Joint Venture (50%). 8 PROLOGIS TRUST PRO FORMA CONDENSED CONSOLDIATED STATEMENT OF EARNINGS FROM OPERATIONS Six Months Ended June 30, 1999 (In thousands, except per share data) (Unaudited)
ProLogis ProLogis Pro Forma Merger Adjustments Post-Merger Joint Venture ProLogis -------------------------------- Historical Meridian (c) ProLogis (d) Pro Forma Transaction Pro Forma ---------- -------------- -------------- ------------ ------------- ---------- Income: Rental income $228,412 $ 29,481 $ -- $257,893 $(27,064) (k) $ 230,829 Other real estate income 20,221 -- -- 20,221 -- 20,221 Income (loss) from unconsolidated subsidiaries (11,137) 475 -- (10,662) -- (10,662) Income from Joint Venture -- -- -- -- 2,752 (l) 2,752 Interest and other income 1,879 581 -- 2,460 -- 2,460 -------- -------- ---------- -------- -------- --------- Total income 239,375 30,537 -- 269,912 (24,312) 245,600 -------- -------- ---------- -------- -------- --------- Expenses: Rental expenses, net of recoveries 16,165 3,042 -- (e) 19,207 (4,977) (k) 14,230 General and administrative 17,811 3,283 -- (f) 21,094 (38) (m) 21,056 Depreciation and amortization 66,992 7,432 1,934 (g) 76,358 (7,310) (k) 69,048 Interest 76,269 9,280 898 (h) 86,447 (12,929) (n) 73,518 Interest rate hedge expense 945 -- -- 945 -- 945 Other 3,709 27,882 (27,882) (i) 3,709 -- 3,709 -------- -------- ---------- -------- -------- --------- Total expenses 181,891 50,919 (25,050) 207,760 (25,254) 182,506 -------- -------- ---------- -------- -------- --------- Earnings (loss) from operations befor minority interest, excluding gains on dispositions 57,484 (20,382) 25,050 62,152 942 63,094 Minority interest share in earnings from operations 2,603 176 -- 2,779 -- 2,779 -------- -------- ---------- -------- -------- --------- Earnings (loss) from operations, excluding gains on dispositions 54,881 (20,558) 25,050 59,373 942 60,315 Less preferred share dividends 27,938 1,094 -- (j) 29,032 -- 29,032 -------- -------- ---------- -------- -------- --------- Net earnings from operations attributable to Common Shares: $ 26,943 $(21,652) $ 25,050 $ 30,341 $ 942 $ 31,283 ======== ======== ========== ======== ======== ======== Weighted average Common Shares outstanding - basic 142,974 (b) 33,146 (b) 161,528 (b) 161,528 (b) ======== ========= ======== ======== Weighted average Common Shares outstanding - diluted 143,110 (b) 33,146 (b) 161,723 (b) 161,723 (b) ======== ========= ======== ======== Per share net earnings from operation attributable to Common Shares Basic $ 0.19 (b) $ (0.65) (b) $ 0.19 (b) $ 0.19 (b) ======== ========= ======== ======== Diluted $ 0.19 (b) $ (0.65) (b) $ 0.19 (b) $ 0.19 (b) ======== ========= ======== ========
See accompanying notes to the proforma condensed consolidated financial statements. 9 PROLOGIS TRUST PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FROM OPERATIONS Year ended December 31, 1998 (In thousands, except per share data) (Unaudited)
Acquisitions ProLogis -------------------------- ProLogis Pro Forma Pre-Merger Pro Forma Merger Adjustments ---------------------------- Historical Historical Adjustments Pro Forma Meridian (u) ProLogis (d) ---------- ---------- ----------- ---------- ------------ ------------ Income: Rental income $345,046 $ 9,458 (p) $ -- $354,504 $123,274 $ -- Other real estate income 17,250 -- -- 17,250 2,236 -- Income from unconsolidated subsidiaries 2,755 -- -- 2,755 3,336 -- Income from Joint Venture -- -- -- -- -- -- Interest and other income 2,752 -- -- 2,752 2,935 -- -------- ---------- -------- -------- -------- -------- Total income 367,803 9,458 -- 377,261 131,781 -- -------- ---------- -------- -------- -------- -------- Expenses: Rental expenses, net of recoveries 27,120 446 (p) 188 (q) 27,754 25,366 -- (e) General and administrative 22,957 -- -- 22,957 8,333 -- (f) Depreciation and amortization 100,590 -- 2,803 (r) 103,393 25,293 7,734 (g) Interest 77,650 -- 7,058 (s)(t) 84,708 25,028 4,315 (h) Interest rate hedge expense 26,050 -- -- 26,050 12,633 -- Other 7,983 -- -- 7,983 825 (825) (i) -------- ---------- -------- -------- -------- -------- Total expenses 262,350 446 10,049 272,845 97,478 11,224 -------- ---------- -------- -------- -------- -------- Earnings (loss) from operations before minority interest, excluding gains on dispositions 105,453 9,012 (10,049) 104,416 34,303 (11,224) Minority interest share in earnings from operations 4,681 -- -- 4,681 1,047 -- -------- ---------- -------- -------- -------- -------- Earnings (loss) from operations, excluding gains on dispositions 100,772 9,012 (10,049) 99,735 33,256 (11,224) Less preferred share dividends 49,098 -- -- 49,098 6,517 (2,142) (j) -------- ---------- -------- -------- -------- -------- Net earnings from operations attributable to Common Shares $ 51,674 $ 9,012 $(10,049) $ 50,637 $ 26,739 $ (9,082) ======== ========== ======== ======== ======== ======== Weighted average Common Shares outstanding - basic 121,721 (o) 121,721 (o) 31,697 (o) ======== ======== ======== Weighted average Common Shares outstanding - diluted 122,028 (o) 122,028 (o) 32,148 (o) ======== ======== ======== Per share net earnings from operations attributable to Common Shares Basic $ 0.42 (o) $ 0.42 (o) $ 0.84 (o) ======== ======== ======== Diluted $ 0.42 (o) $ 0.41 (o) $ 0.83 (o) ======== ======== ======== ProLogis Post-Merger Joint Venture ProLogis Pro Forma Transaction Pro Forma ----------- ------------- --------- Income: Rental income $477,778 $ (47,629) (k) $430,149 Other real estate income 19,486 -- 19,486 Income from unconsolidated subsidiaries and JV 6,091 -- 6,091 Income from Joint Venture -- 3,258 (l) 3,258 Interest and other income 5,687 -- 5,687 -------- --------- -------- Total income 509,042 (44,371) 464,671 -------- --------- -------- Expenses: Rental expenses, net of recoveries 53,120 (7,948) (k) 45,172 General and administrative 31,290 (75) (m) 31,215 Depreciation and amortization 136,420 (10,935) (k) 125,485 Interest 114,051 (26,581) (n) 87,470 Interest rate hedge expense 38,683 -- 38,683 Other 7,983 -- 7,983 -------- --------- -------- Total expenses 381,547 (45,539) 336,008 -------- --------- -------- Earnings (loss) from operations before minority interest, excluding gains on dispositions 127,495 1,168 128,663 Minority interest share in earnings from operations 5,728 -- 5,728 -------- --------- -------- Earnings (loss) from operations, excluding gains on dispositions 121,767 1,168 122,935 Less preferred share dividends 53,473 -- 53,473 -------- --------- -------- Net earnings from operations attributable to Common Shares $ 68,294 $ 1,168 $ 69,462 ======== ========= ======== Weighted average Common Shares outstanding - basic 159,890 (o) 158,890(o) ======== ======== Weighted average Common Shares outstanding - diluted 159,363 (o) 159,363(o) ======== ======== Per share net earnings from operations attributable to Common Shares Basic $ 0.43 (o) $ 0.44(o) ======== ======== Diluted $ 0.43 (o) $ 0.44(o) ======== ========
See accompanying notes to the proforma condensed consolidated financial statements. 10 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FROM OPERATIONS Six Months Ended June 30, 1999 and Year Ended December 31, 1998 (Unaudited) (b) 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 six months ended June 30, 1999 is as follows (in thousands, except per Common Share amounts):
Pre Merger ProLogis ----------------------- ProLogis Meridian Post Merger ProLogis Historical Pro Forma Pro Forma Pro Forma ---------- ----------- ----------- --------- Net earnings (loss) from operations attributable to Common Shares................................ $ 26,943 $(21,652) $ 30,341 $ 31,283 Weighted average Common Shares outstanding - basic............................. 142,974 33,146 161,528 161,528 Incremental options and warrants.................. 136 -- 195 195 -------- -------- -------- -------- Weighted average Common Shares outstanding - diluted (1)..................................... 143,110 33,146 161,723 $161,723 ======== ======== ======== ======== Per share net earnings from operations attributable to Common Shares: Basic........................................ $ 0.19 $ (0.65) $ 0.19 $ 0.19 ======== ======== ======== ======== Diluted (1).................................. $ 0.19 $ (0.65) $ 0.19 $ 0.19 ======== ======== ======== ========
____________________ (1) There were 9,336,000 weighted average Series B Preferred Shares and 5,245,000 limited partnership units outstanding on an as-converted basis that were not assumed to be converted into Common Shares for purposes of calculating diluted earnings per Common Share as the effect was antidilutive. (c) Represents the results of operations of Meridian for the period January 1, 1999 through March 30, 1999. This financial information is based upon Meridian's unaudited financial statements. (d) On March 30, 1999, Meridian was merged with and into ProLogis. The Merger was accounted for using the purchase method of accounting. The accompanying pro forma condensed consolidated statements of earnings from operations for the six months ended June 30, 1999 and for the year ended December 31, 1998 do not give effect to the fully stabilized results of operations related to facilities under development of both ProLogis and Meridian during those periods. 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 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. (e) During the year ended December 31, 1998 and the period January 1, 1999 through March 30, 1999, 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 11 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FROM OPERATIONS 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 cost savings has been included in the pro forma financial statements. Such adjustment is not included because these costs savings are not factually supportable 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 completely transferred to ProLogis. (f) 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 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 ceases 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 ceases 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 maintained 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) for the period from January 1, 1999 to March 30, 1999 and for the year ended December 31, 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 (e)). ProLogis expects that, after the Merger, a significant portion of these expenses will be eliminated.
Period from January 1, 1999 to Year Ended March 30, 1999 December 31, 1998 ------------------ ----------------- Personnel and related......... $2,064 $4,575 Professional fees............. 385 1,099 Directors' fees and expenses.. 71 289 Office expenses............... 383 1,256 Other......................... 18 205 ------ ------ Total.................... $2,921 $7,424 ====== ======
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: 12 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FROM OPERATIONS . Legal, auditing and accounting fees will increase because ProLogis has acquired approximately $1.4 billion of additional real estate 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 has issued approximately 37.2 million additional ProLogis Common Shares and 2.0 million Series E preferred shares. . ProLogis has added two members to its Board of Trustees resulting in additional fees and expenses. 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 (in thousands):
Period from January 1, 1999 Year Ended to March 30, 1999 December 31, 1998 ----------------- ----------------- Accounting, auditing and legal........................ $ 60 $ 250 Stock transfer, proxy and shareholder relations....... 30 120 Trustees' fees and expenses........................... 25 100 -------- -------- Total......................................... $ 115 $ 470 ======== ========
While ProLogis expects that general and administrative cost savings will result from the Merger, such savings are not yet factually supportable and quantifiable within the SEC regulations governing the preparation of the pro forma financial statements. Consequently, no adjustment has been made. (g) 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 its estimated fair value (in thousands):
Period from January 1, 1999 Year Ended to March 30, 1999 December 31, 1998 ----------------- ----------------- Step-up in real estate basis.......................... $296,127 $296,127 Less amount of step-up allocated to: Developments in progress and land held for development................................... (21,588) (21,588) Land portion of operating facilities............. (40,947) (40,947) Participating mortgage........................... (1,560) (1,560) -------- -------- Depreciable portion of step-up in basis............... $232,032 $232,032 ======== ======== Estimated incremental depreciation expense for the respective periods based on an assumed weighted average life of 30 years......................... $ 1,934 $ 7,734 ======== ========
13 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FROM OPERATIONS (h) Represents the net change in interest expense as a result of the following items (in thousands):
Period from January 1, 1999 Year Ended to March 30, 1999 December 31, 1998 ----------------- ----------------- Decrease related to the pay down on Meridian's line of credit as a result of the exercise of options and warrants (1)............................................ $ (104) $ (418) Decrease based on the pro forma interest rates resulting from the adjustments of Meridian's debt to its estimated fair value (2).................................... (231) (821) Decrease in Meridian loan cost amortization related to the elimination of Meridian deferred loan costs.......... (397) (1,572) Increase related to additional borrowings on the line of credit of $42,722 to fund the transaction and registration costs and the assumed cash payments to Meridian stockholders of $67,581 (3)..................... 1,630 7,126 -------- -------- Total adjustment......................................... $ 898 $ 4,315 ======== ========
_____________________ (1) Computed using Meridian's actual weighted average interest rate of 6.54%. (2) Based on effective interest rates determined to be available to the combined company (7.31% for secured mortgage notes and 7.18% for senior unsecured notes). (3) Computed using ProLogis' actual weighted average interest rate of 5.91% for the period from January 1, 1999 to March 30, 1999 and 6.46% for the year ended December 31, 1998. (i) Represents the elimination of merger-related costs expensed by Meridian which are not reflective of future operations. (j) For the year ended December 31, 1998, represents the elimination of dividends on the Meridian Series B preferred stock that is assumed to be converted into shares of Meridian common stock as of January 1, 1998. The historical balance for the six months ended June 30, 1999 does not include any dividends for the Series B preferred stock as the preferred stock was converted to shares of Meridian common stock in January 1999. (k) Represents the rental income rental expenses and depreciation expense recognized by ProLogis on a pro forma basis for the respective periods for the operating properties that are assumed to be disposed of as of January 1, 1998. (l) Represents ProLogis' share of the net earnings of the Joint Venture on a pro forma basis for the respective periods calculated as follows (in thousands):
Six Months Ended Year Ended June 30, 1999 December 31, 1998 ------------- ----------------- Rental income........................ $ 27,064 $ 47,629 Rental expenses, net of recoveries... 4,977 7,948 Depreciation (1)..................... 7,629 15,257 Interest (2)......................... 9,677 19,355 Joint Venture management fee (3)..... 38 75 --------- --------- 22,321 42,635 --------- --------- Net earnings of Joint Venture........ $ 4,743 $ 4,994 ========= ========= ProLogis' share @ 50%................ $ 2,371 $ 2,497 Adjustment for basis difference (4).. 381 761 --------- --------- Amount recognized by ProLogis........ $ 2,752 $ 3,258 ========= =========
14 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FROM OPERATIONS _______________ (1) Depreciation is calculated as (in thousands):
Six Months Ended Year Ended June 30, 1999 December 31, 1998 ------------- ----------------- Basis in assets......................................... $ 554,964 $ 554,964 Less amounts attributable to land and development costs.................................... (16,469) (16,469) --------- --------- Basis in operating properties........................... 538,495 538,495 Portion attributable to land (15%)...................... (80,774) (80,774) --------- --------- Depreciable basis....................................... $ 457,721 $ 457,721 ========= ========= Depreciation for the respective periods based on an assumed weighted average life of 30 years............................. $ 7,629 $ 15,257 ========= =========
(2) Interest is computed on $182.0 million of debt at 7.20%; $17.3 million of debt at 8.67% and $62.0 million of debt at 7.49% plus amortization of associated loan costs. The $62.0 million of debt was arranged directly by the Joint Venture and the proceeds were used to acquire the real estate assets from ProLogis. (3) See note (m). (4) Represents an add back for depreciation expense recognized by Joint Venture related to the amount of the step-up in basis that was not recognized as a gain by ProLogis. See note (a)(2). (m) Represents the pro forma administrative management fee earned by ProLogis for the respective periods under the Limited Liability Company Agreement for the Joint Venture ($75,000 annual fee). See note (l). (n) Represents the following pro forma adjustments to interest expense:
Six Months Ended Year Ended June 30, 1999 December 31, 1998 ------------- ----------------- Increase in interest expense related to $182.0 million secured debt financing which occurred in 1999 as if it had occurred on January 1, 1998.............. $ 2,755 $ 13,209 Decrease in line of credit interest expense related to repayment of $182.0 million of borrowings from proceeds of secured debt financing in 1999 as if it had occurred on January 1, 1998.............. (2,210) (11,757) Decrease in interest expense related to the $182.0 million of secured debt that, on a pro forma basis, was assumed by the Joint Venture as of January 1, 1998....................................... (6,620) (13,209) Decrease in interest expense related to the $17.3 million of secured debt that, on a pro forma basis, was assumed by the Joint Venture as of January 1, 1998....................................... (748) (1,496) Decrease in interest expense related to the use of the proceeds from the disposition of assets, net of costs, of $206.3 million to repay borrowings on ProLogis' line of credit as of January 1, 1998..... (6,106) (13,328) --------- --------- $ (12,929) $ (26,581) ========= =========
_______________ (1) Computed using ProLogis' actual weighted average interest rate of 5.92% for the six months ended June 30, 1999 and 6.46% for the year ended December 31, 1998. 15 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FROM OPERATIONS (o) 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 is as follows (in thousands, except per share amounts):
ProLogis Pre-Merger Post- ProLogis --------------------- ProLogis ProLogis Meridian Merger as Adjusted Historical Pro Forma Pro Forma Pro Forma Pro Forma ---------- --------- ---------- --------- --------- Net earnings from operations attributable to Common Shares....................... $ 51,674 $ 50,637 $26,739 $ 68,294 $ 69,462 ======== ======== ======= ======== ======== Weighted average Common Shares out- standing - basic....................... 121,721 121,721 31,697 158,890 158,890 Incremental options and warrants........... 307 307 451 473 473 -------- -------- ------- -------- -------- Weighted average Common Shares outstanding - diluted.................. 122,028 122,028 32,148 159,363 159,363 (1) ======== ======== ======= ======== ======== Per share net earnings from operations attributable to Common Shares: Basic................................ $ 0.42 $ 0.42 $ 0.84 $ 0.43 $ 0.44 ======== ======== ======= ======== ======== Diluted.............................. $ 0.42 $ 0.41 $ 0.83 $ 0.43 $ 0.44 (1) ======== ======== ======= ======== ========
_______________ (1) For the year ended December 31, 1998, there were 10,055,000 weighted average ProLogis Series B Preferred Shares and 5,070,000 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. (p) Represents historical revenues and certain expenses of the facilities acquired by ProLogis during the period from January 1, 1998 to December 31, 1998 as detailed in the Current Report on Form 8-K/A of ProLogis filed on April 22, 1999 and dated as of April 14, 1999. The total historical acquisition adjustment reflects the period from January 1, 1998 to the respective dates of acquisition, (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. (q) Represents the adjustment to historical property management expenses to reflect these expenses at the level they would have been had ProLogis owned the facilities as of January 1, 1998. (r) Reflects the recognition of depreciation expense associated with the pro forma acquisitions, discussed in note (p), 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. (s) Reflects the recognition of $775,000 of interest expense on mortgage debt as if the debt had been assumed by ProLogis as of January 1, 1998. The mortgage debt assumed in conjunction with the acquisition of certain of the facilities acquired subsequent to December 31, 1997 discussed in note (p) bears interest at fixed rates ranging from 8.00% to 9.50%. (t) Represents $6,283,000 of additional interest expense on senior unsecured notes. The adjustment assumes that the issuance of senior unsecured notes necessary to fund the pro forma acquisitions discussed in note (p) occurred as of January 1, 1998. The adjustment is based on a weighted average effective interest rate of 7.03%. 16 PROLOGIS TRUST NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FROM OPERATIONS (u) Reference is made to Meridian's Current Report on Form 8-K filed by ProLogis on April 13, 1999 for the source of Meridian's pre-Merger pro forma statements of earnings from operations for the year ended December 31, 1998. Meridian's pre-Merger pro forma statement of earnings from operations gives effect to the acquisitions of real estate assets subsequent to December 31, 1997 as if the acquisitions had occurred as of January 1, 1998. Certain amounts have been reclassified to conform to ProLogis' financial statement presentation. 17 -----END PRIVACY-ENHANCED MESSAGE-----