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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A#1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-12846
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PROLOGIS TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 74-2604728
(State or other jurisdiction of (I.R.S. employer
of incorporation or organization) identification no.)
14100 EAST 35TH PLACE
AURORA, COLORADO 80011
(Address of principal executive offices and zip code)
(303) 375-9292
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Shares of Beneficial Interest, par value $0.01 per
share New York Stock Exchange
Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share New York Stock Exchange
Series B Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest, par value $0.01 per share New York Stock Exchange
Series D Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share New York Stock Exchange
Series E Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Based on the closing price of the registrant's shares on March 16, 2001, the
aggregate market value of the voting shares held by non-affiliates of the
registrant was $2,455,192,440.
At March 16, 2001, there were outstanding approximately 173,560,729 common
shares of beneficial interest of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 2001 annual
meeting of its shareholders are incorporated by reference in Part III of this
report.
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2
The purpose of this Form 10-K/A is to amend the disclosures set forth
in Items 2, 13 and 14 to the Annual Report on Form 10-K.
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
---- ----------- ----
PART I
1. Business................................................................................. 4
ProLogis Trust........................................................................... 4
Business Strategy and Operating Segments................................................. 5
Financing Strategy....................................................................... 14
ProLogis Operating System(TM)............................................................ 14
ProLogis Management...................................................................... 16
Environmental Matters.................................................................... 20
Insurance Coverage....................................................................... 20
2. Properties............................................................................... 20
Industrial Distribution Facilities....................................................... 20
Geographic Distribution.................................................................. 21
Facilities............................................................................... 22
Consolidated Entities.................................................................... 26
Unconsolidated Entities.................................................................. 27
PART III
13. Certain Relationships and Related Transactions........................................... 31
Amended and Restated Investor Agreement.................................................. 31
Administrative Services Agreement........................................................ 31
Financial Advisory Fees.................................................................. 31
Protection of Business Agreement......................................................... 31
Partnership Affiliations................................................................. 32
Preferred Stock Subsidiaries............................................................. 32
Leasing Transactions..................................................................... 34
Loans to Executive Officers.............................................................. 34
Special Equity Agreement................................................................. 34
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 36
3
PART I
ITEM 1. BUSINESS
PROLOGIS TRUST
ProLogis Trust ("ProLogis") is a real estate investment trust ("REIT") that
operates a global network of industrial distribution facilities. ProLogis owns
(directly, through consolidated entities or through investments in other real
estate entities accounted for under the equity method) 171.7 million square feet
of industrial distribution facilities operating or under development in North
America and Europe. Additionally, ProLogis owns, operates under lease agreements
or has under development 369.9 million cubic feet of temperature-controlled
distribution facilities (including 35.5 million cubic feet of dry distribution
space located in temperature-controlled distribution facilities) located in the
United States and Europe. This network of distribution facilities makes ProLogis
the largest publicly held U.S.-based global owner and lessor of industrial
distribution and temperature-controlled distribution facilities. The ProLogis
Operating System(TM), comprised of the Market Services Group, the Global
Services Group, the Global Development Group and the Integrated Solutions Group,
combined with ProLogis' international network of distribution facilities,
enables ProLogis to meet its customers' distribution space needs globally.
ProLogis believes it has distinguished itself from its competition by developing
an organizational structure and service delivery system built around its
customers. ProLogis believes that its service approach, which combines
international scope and expertise and a strong local presence in each of its
target markets, makes it attractive to its targeted customer base that includes
the largest global users of distribution facilities. ProLogis is organized under
Maryland law and has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code").
ProLogis' business strategy is designed to: (i) achieve long-term
sustainable growth in cash flow; (ii) minimize the need to issue direct public
debt or public equity capital; and (iii) increase the overall return on equity
for shareholders. ProLogis has organized its business into three operating
segments in order to achieve its objectives. For a discussion of certain
financial information regarding each segment see Note 10 to ProLogis'
Consolidated Financial Statements in Item 8. ProLogis' three operating segments
are:
o Property Operations -- The long-term ownership, management and leasing
of industrial distribution facilities in North America and Europe,
primarily distribution space that is adaptable for both distribution
and light manufacturing or assembly uses. This operating segment
generates income from rents and reimbursement of property operating
expenses from unaffiliated customers and earns management fees from
entities in which ProLogis has an ownership interest. As of December
31, 2000, in this operating segment ProLogis owned and operated
(directly or through its consolidated and unconsolidated entities)
161.5 million square feet of operating facilities at an investment of
$6.0 billion. Of the total, 126.3 million square feet at an investment
of $4.3 billion are owned directly by ProLogis and its consolidated
entities. Facilities in this operating segment located in North
America aggregate 145.4 million square feet of the total with the
remaining 16.1 million square feet located in Europe.
o Corporate Distribution Facilities Services Business ("CDFS
Business")-- The development of industrial distribution facilities to
be disposed of to unaffiliated customers or entities in which ProLogis
has an ownership interest in North America and Europe or for a
development fee for unaffiliated customers in North America and
Europe. Income from this operating segment is derived from the profit
resulting from the disposition of the facilities developed and from
fees paid by customers for the development of facilities on their
behalf. The development activities in this segment are performed
directly by ProLogis, directly by a consolidated entity in which
ProLogis recognizes substantially all of the economic benefits or
through an unconsolidated entity, accounted for under the equity
method, in which ProLogis recognizes substantially all of the economic
benefits. Once an entity in which ProLogis has an ownership interest
acquires the facilities from ProLogis or its consolidated and
unconsolidated entities, the operations of these facilities and the
management fees earned by ProLogis related to these facilities are
reflected in ProLogis' property operations segment. As of December 31,
2000, ProLogis had (directly or through its consolidated and
unconsolidated entities) 10.2 million square feet of distribution
facilities under development with a total budgeted cost of $491.4
million. Of the total, 8.7 million square feet at a total budgeted
development cost of $355.2 million were owned directly by ProLogis and
its consolidated entity. Also, as of December 31, 2000, ProLogis owned
or controlled (directly or through its consolidated and unconsolidated
entities) 5,126 acres of land with the capacity for developing
approximately 85.7 million square feet of distribution facilities. Of
the total, 3,279 acres of land with the capacity for developing
approximately 57.4 million square feet million square feet of
distribution facilities were owned directly by ProLogis and its
consolidated entity. Land positions in North America aggregated 2,385
acres with the remaining 2,741 acres located in Europe. Upon
completion, ProLogis expects to dispose of the facilities developed to
unaffiliated customers or to entities in which ProLogis has an
ownership interest.
4
o Temperature-Controlled Distribution Operations -- The operation of
temperature-controlled distribution facilities earning revenues from
unaffiliated customers for various services associated with a
temperature-controlled distribution environment. Such services
include: (i) total supply chain management; (ii) management of
customer inventory and related services, (i.e. case picking, sorting,
labeling, shrink-wrapping and blast freezing); (iii)
temperature-controlled product consolidation and transportation
services; and (iv) third-party logistics services and facility
management for leading grocery retailers. In this operating segment,
ProLogis recognizes substantially all of the economic benefits of two
companies that are accounted for under the equity method. As of
December 31, 2000, ProLogis' unconsolidated entities owned or operated
under lease agreements 363.6 million cubic feet of
temperature-controlled distribution space (including 35.5 million
cubic feet of dry distribution space located in temperature-controlled
distribution facilities) and had 6.3 million cubic feet of
temperature-controlled distribution facilities under development. Of
the total cubic feet in operation, 175.9 million cubic feet are
located in the United States and 187.7 million cubic feet are located
in Europe. The facilities under development are located in Anaheim
(4.0 million cubic feet) and Houston (2.3 million cubic feet).
2000 Operating Performance
Total funds from operations increased by $56.5 million from $320.2 million
in 1999 to $376.7 million in 2000. This increase was driven by ProLogis'
successful operating and investment strategies. The contribution to total funds
from operations by ProLogis' operating segments for 2000 and 1999 is as follows
(see Note 10 to ProLogis' Consolidated Financial Statements in Item 8):
o 69.6% and 70.6% of total funds from operations is attributable to the
property operations segment in 2000 and 1999, respectively;
o 27.5% and 20.3% of total funds from operations is attributable to the
CDFS business segment in 2000 and 1999, respectively; and
o 2.9% and 9.1% of total funds from operations is attributable to the
temperature-controlled distribution operations segment in 2000 and
1999, respectively.
Funds from operations is a performance measure used by REITs and it is
defined and discussed in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity of Capital Resources
-- Funds from Operations".
ProLogis' net earnings attributable to Common Shares increased to $157.7
million in 2000 from $124.0 million in 1999. ProLogis generated earnings from
operations of $241.8 million in 2000, an increase of $75.3 million over 1999.
ProLogis' cash flow provided by operating activities for 2000 was $336.8
million, an increase of $65.4 million over 1999. See ProLogis' Consolidated
Financial Statements in Item 8.
BUSINESS STRATEGY AND OPERATING SEGMENTS
Business Strategy
ProLogis was originally formed in 1991 with the objective of building a
distribution and light manufacturing asset base at costs significantly below
replacement cost and a land inventory for the future development of industrial
distribution facilities. Additionally, ProLogis intended to create a national
operating company that would differentiate itself from its competition through
its ability to meet a corporate customer's distribution facility requirements on
a national, regional and local basis. In 1997, ProLogis expanded its property
operations into Mexico and Europe to meet the needs of its targeted national and
international customers as they expanded and reconfigured their distribution
facility requirements globally. In December 1998, ProLogis added 54 operating
facilities aggregating 5.2 million square feet in France to its European
portfolio. To enhance its North American property operations and service
platform, ProLogis completed a merger with Meridian Industrial Trust Inc.
("Meridian"), a publicly held REIT, in 1999 adding 32.2 million square feet of
operating facilities and 228 acres of land for future development to ProLogis'
holdings. See Note 11 to ProLogis' Consolidated Financial Statements in Item 8.
Having established its core property operations business, in 1997 and 1998
ProLogis expanded its service platform by acquiring an international
temperature-controlled distribution network. Additionally, the merger with
Meridian added 15.2 million cubic feet of temperature-controlled distribution
facilities to ProLogis' holdings in 1999. Also, to enhance its corporate
distribution facilities
5
services business, ProLogis acquired an industrial distribution facility
development company with extensive holdings in the United Kingdom in August
1998.
To further its objective of increasing cash flows without raising
additional capital through direct public debt and public equity offerings,
ProLogis formed four ventures in 1999 and 2000. Each of the ventures owns
operating facilities acquired primarily from ProLogis with equity contributed by
third party investors. ProLogis maintains an ownership interest (from 20.0% to
50.0% as of December 31, 2000) in each of the ventures. ProLogis utilizes the
ProLogis Operating System(TM) to provide asset and property management services
to the ventures for a fee. In North America, ProLogis has an ownership interest
in three ventures. These ventures own, on a combined basis, 20.9 million square
feet of operating facilities at a combined investment of $927.0 million as of
December 31, 2000. ProLogis European Properties Fund, formed in 1999, has
enabled ProLogis to take advantage of the growth opportunities in the European
industrial distribution market by allowing ProLogis to access over 1.06 billion
euros (the currency equivalent of approximately $986.3 million as of December
31, 2000 based on currency exchange rates quoted by Reuters) of third party
equity capital that has been committed by a group of institutional investors to
ProLogis European Properties Fund through 2002. ProLogis European Properties
Fund owns 14.4 million square feet of operating facilities at an investment of
$792.3 million as of December 31, 2000. See "Item 2. Properties --
Unconsolidated Entities -- Property Operations" and Note 4 to ProLogis'
Consolidated Financial Statements in Item 8.
Also in 1999, ProLogis formed the Integrated Solutions Group (see " --
ProLogis Operating System(TM) -- Integrated Solutions Group") with the objective
of increasing ProLogis' service income thereby growing cash flows in a less
capital intensive manner. In 2000, ProLogis made investments in two logistics
technology companies and began earning license fees for the non-exclusive use of
the ProLogis Operating System(TM) by these companies.
ProLogis believes that its network of distribution facilities along with
the ProLogis Operating System(TM) have positioned it to become the global leader
in the industrial distribution facility industry. ProLogis' three operating
segments are discussed in further detail below.
Property Operations Segment
Investments
In the property operations segment, ProLogis owned and operated (directly
or through its consolidated and unconsolidated entities) 1,461 operating
facilities aggregating 161.5 million square feet as of December 31, 2000.
ProLogis' investment strategy with respect to the property operations segment is
to focus primarily on generic distribution facilities with an average office
finish level of less than 10%. ProLogis' distribution facilities are adaptable
for both distribution and light manufacturing or assembly uses. ProLogis has
invested in selected distribution markets in North America and Europe where it
believes the distribution dynamics are strong and supply and demand factors
allow for high occupancy levels and increasing rental rates. In making its
investment decisions, ProLogis evaluates market conditions that would indicate
favorable distribution growth prospects. Such conditions include: (i) growth in
imports and exports; (ii) long-term cost and quality of labor advantages for
domestic and international manufacturers (such as markets benefiting from the
U.S./Mexico twin plant program); (iii) proximity to large regional and local
population centers with good access to transportation networks; and (iv) a high
ratio of distribution space per capita.
Property operations segment investment activities in 2000 included:
o During 2000, ProLogis European Properties Fund acquired operating
facilities aggregating 11.2 million square feet and disposed of a
161,000 square foot operating facility. Of the operating facilities
acquired in 2000, 9.6 million square feet were acquired from ProLogis
or its consolidated and unconsolidated entities. These acquisitions
include 60 facilities aggregating 6.6 million square feet owned by
ProLogis European Properties S.a.r.l., a wholly owned entity of
ProLogis until January 7, 2000 when ProLogis contributed 50.1% of its
common stock to ProLogis European Properties Fund for an equity
interest. The remaining 49.9% of the common stock of ProLogis European
Properties S.a.r.l. was contributed to ProLogis European Properties
Fund by ProLogis for an additional equity interest on January 7, 2001.
As of December 31, 2000, ProLogis' ownership in ProLogis European
Properties Fund was 34.4% (increasing to 45.6% as of January 7, 2001).
See "Item 2. Properties-- Unconsolidated Entities-- Property
Operations Segment" and Note 4 to ProLogis' Consolidated Financial
Statements in Item 8.
o In North America, ProLogis North American Properties Fund I LLC and
ProLogis Iowa I LLC ("ProLogis Principal") were formed in 2000. These
ventures own 8.0 million and 0.4 million square feet of operating
facilities, respectively, that were all
6
previously owned by ProLogis or its consolidated entities. ProLogis
California I LLC ("ProLogis California"), which was formed in 1999,
grew from 11.5 million square feet of operating facilities as of
December 31, 1999 to 12.4 million square feet of operating facilities
as of December 31, 2000. The increase in 2000 is the net result of the
acquisition of an additional operating facility from ProLogis, the
completion of two developments and the disposition of three operating
facilities.
o ProLogis acquired five operating facilities in 2000, four facilities
aggregating 138,000 square feet located in Dallas and a 125,000 square
foot facility located in Juarez, Mexico for a total investment of $8.7
million. The four facilities in Dallas were acquired to complete a
tax-deferred exchange transaction.
Operations
The property operations segment generated approximately 81% of ProLogis'
total income in 2000 (including amounts recognized under the equity method with
respect to ProLogis' unconsolidated entities). This operating segment generated
approximately 85% and 94% of ProLogis' total income in 1999 and 1998,
respectively, (including amounts recognized under the equity method with respect
to ProLogis' unconsolidated entities). See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Property Operations" and Notes 4 and 10 to ProLogis' Consolidated
Financial Statements in Item 8.
Operational achievements in this operating segment in 2000 included:
o ProLogis' stabilized operating facilities aggregating 155.0 million
square feet (including facilities owned by ProLogis and its
consolidated and unconsolidated entities) was 96.2% leased (95.4%
occupied) as of December 31, 2000. Also, as of December 31, 2000,
ProLogis' total operating portfolio of 161.5 million square feet
(including facilities owned by ProLogis and its consolidated and
unconsolidated entities) was 94.1% leased (92.9% occupied). Stabilized
facilities are those in which capital improvements, repositioning, new
management and new marketing programs (or development and marketing,
in the case of newly developed facilities) have been in effect for a
sufficient period of time (generally 12 months) to achieve stabilized
occupancy (typically 93%, but ranging from 90% to 95%, depending on
the submarket and product type).
o During 2000, ProLogis and its consolidated and unconsolidated entities
leased 36.3 million square feet of distribution space in 1,137
transactions. Rental rates on both new and renewed leases of
previously leased space increased 15.5% in 2000 and ProLogis' weighted
average customer retention rate was 65.7% in 2000.
o ProLogis' "same store" portfolio of operating facilities (facilities
owned by ProLogis and its consolidated and unconsolidated entities
that were in operation throughout both 2000 and 1999) aggregated 105.6
million square feet. The net operating income (rental revenues less
net rental expenses) of the "same store" portfolio increased by 5.94%
in 2000 over 1999.
Market Presence
As of December 31, 2000, the operating facilities in the property
operations segment that are owned by ProLogis (directly or through its
consolidated entities) are located in 42 cities in 24 states and the District of
Columbia in the United States, 4 cities in Mexico and 6 cities in 4 countries in
Europe. No individual market represents more than 10% of ProLogis' total real
estate assets. ProLogis' largest markets (based on cost) are Dallas/Fort Worth
(9.2%), Chicago (7.3%), Atlanta (6.5%), San Francisco (South Bay) (5.4%), San
Francisco (East Bay) (5.2%) and Houston (5.1%).
The 77 operating facilities owned by ProLogis California as of December 31,
2000 are all located in the Los Angeles/Orange County market. The 33 operating
facilities owned by ProLogis North American Properties Fund I as of December 31,
2000 are located in 17 cities in 12 states. The three operating facilities owned
by ProLogis Principal as of December 31, 2000 are all located in the Dallas/Ft.
Worth market. The 104 operating facilities owned by ProLogis European Properties
Fund (including facilities owned by ProLogis European Properties S.a.r.l.) as of
December 31, 2000 are located in 15 cities in 6 countries in Europe (including
55 buildings in Paris, France). See "Item 2. Properties -- Facilities" and "Item
2. Properties -- Unconsolidated Entities -- Property Operations".
ProLogis has sought to achieve significant market presence through the
development and acquisition of distribution facilities and master-planned
distribution parks in its target market cities and selected submarkets of those
cities. The target market cities and submarkets are selected when ProLogis'
market research indicates that the long-term demand for distribution and light
manufacturing space is stable to strong. ProLogis defines market presence not
only in terms of square feet of facilities and acres of development land
7
owned, but also by the extent ProLogis has developed relationships with
customers in such markets. ProLogis' operating strategy is designed to meet the
needs of today's distribution space users, which means providing functional,
cost-effective facilities with a comprehensive level of service. ProLogis
believes that by being a significant local owner and developer in a given
market, it can generate high relative rental rates and occupancy levels,
primarily because it has the ability to reduce turnover by meeting its
customers' needs to either expand or contract. With its network of distribution
facilities and land positions, ProLogis is able to either relocate customers
within its existing inventory of distribution space or develop new facilities to
meet the customer's needs.
A strong market presence provides ProLogis with increased access to
potential leasing and CDFS business segment transactions. ProLogis' experience
has been that many members of the industrial brokerage community and many
corporate users are motivated to develop relationships with the significant
owners and developers in a particular market to facilitate their respective
distribution needs. Having the opportunity to compete for a large percentage of
the distribution space requirements in each target market is a crucial factor in
achieving ProLogis' operating objectives.
Competition
In general, there are numerous other industrial distribution facilities
located in close proximity to ProLogis' facilities. The amount of rentable
distribution space available in any market could have a material effect on
ProLogis' ability to rent space and on the rents that ProLogis can charge. In
addition, in many of ProLogis' submarkets, institutional investors and owners
and developers of industrial distribution facilities (including other REITs)
compete for the acquisition, development and leasing of distribution space. Many
of these entities have substantial resources and experience. Competition for
acquisition of existing distribution facilities and land, both from
institutional capital sources and from other REITs, has increased over the past
several years.
Property Management
ProLogis provides active and effective property management to directly
serve its customers at the local level; a strategy that ProLogis believes will
enhance the long-term economic performance of its operating facilities and
increase cash flow. ProLogis' property management group seeks to provide
exceptional customer service and attention to customer needs by developing and
implementing proprietary operating, recruiting and training systems to achieve
consistent levels of performance and professionalism throughout the ProLogis
network. Of the operating facilities owned by ProLogis (directly or by its
consolidated and unconsolidated entities) as of December 31, 2000, ProLogis'
property management group was managing 97.5% of the North American operating
facilities and 100.0% of the European operating facilities.
Customers
One of ProLogis' objectives is to develop a customer base in each market
that is diverse in terms of industry concentration and represents a broad
spectrum of international, national, regional and local distribution space
users. As of December 31, 2000, ProLogis (including its consolidated and
unconsolidated entities) had over 3,500 customers in 150.1 million square feet
of occupied distribution space. ProLogis believes that having a large number of
customers with generic space requirements in each submarket reduces its exposure
to overall occupancy declines. ProLogis' largest customer (based on rental
income) accounted for 1.5% of ProLogis' 2000 rental income (on an annualized
basis) for the year ended December 31, 2000. The annualized base rent for
ProLogis' 25 largest customers (based on rental income) accounted for 13.2% of
ProLogis' 2000 rental income (on an annualized basis) for the year ended
December 31, 2000.
Employees
ProLogis and its consolidated entities directly employ approximately 640
persons in North America and Europe. Of the total, approximately 350 employees
are assigned directly to the property operations segment. ProLogis' other
employees may provide assistance in this operating segment. ProLogis believes
its relationship with its employees to be good. ProLogis' employees are not
represented by a collective bargaining agreement.
Seasonal Nature of the Business
The demand for industrial distribution space is not seasonal.
8
Future Plans
ProLogis believes that its current level of investment in the property
operations segment in North America enables it to serve its customers at a high
level and increase returns to shareholders. ProLogis' business plan for the
property operations segment in North America calls for the expansion of its
network of operating facilities to: (i) address the specific expansion needs of
its customers; (ii) enhance its market presence in specific submarkets; or (iii)
take advantage of opportunities where ProLogis believes it has the ability to
achieve favorable returns, including the formation of ventures such as ProLogis
North American Properties Fund I that will acquire facilities developed within
the CDFS business segment.
ProLogis' market research and customer feedback continue to reflect strong
demand for distribution space in Europe as cross-border trade continues to
increase and many companies continue to move toward consolidation and
reconfiguration of their distribution networks. Consolidation and the emergence
of dominant regional distribution centers have provided, and ProLogis believes
will continue to provide, opportunities for ProLogis as a single-source
pan-European provider of distribution facilities. Consequently, ProLogis'
business plan for the property operations segment in Europe emphasizes growth in
key distribution markets, primarily from the development of facilities within
ProLogis' CDFS business segment that will be acquired by ProLogis European
Properties Fund and then managed by ProLogis.
ProLogis intends to self-fund its future investment activities in the
property operations segment in 2001 with operating cash flow and the proceeds
from dispositions of facilities to third parties and real estate entities in
which ProLogis maintains an ownership interest. See the discussion of factors
that could affect the future plans of ProLogis and its consolidated and
unconsolidated entities in the property operations segment at "Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Risk Factors".
CDFS Business Segment
Investments
ProLogis operates its CDFS business segment in North America directly and
through ProLogis Development Services Incorporated ("ProLogis Development
Services"), a consolidated entity in which ProLogis realizes substantially all
of the economic benefits. See "Item 2. Properties -- Consolidated Entities --
ProLogis Development Services". In Europe (excluding the United Kingdom),
ProLogis directly operates the CDFS business segment. In the United Kingdom, the
CDFS business segment is operated by Kingspark S.A. and its wholly owned
subsidiary, Kingspark Group Holdings Limited ("ProLogis Kingspark")
(collectively "the Kingspark entities"). Kingspark S.A. is an unconsolidated
entity in which ProLogis recognizes substantially all of the economic benefits
under the equity method through its ownership of 100% of Kingspark S.A.'s
non-voting preferred stock. See "Item 2. Properties -- Unconsolidated Entities
-- CDFS Business" and Note 4 to ProLogis' Consolidated Financial Statements in
Item 8.
Within this operating segment, ProLogis, ProLogis Development Services and
the Kingspark entities develop distribution facilities with the intent to
dispose of the facilities to customers, third parties or entities in which
ProLogis maintains an ownership interest. Also within this operating segment,
ProLogis, ProLogis Development Services and the Kingspark entities develop
facilities for customers or third parties for a development fee. Proceeds from
the disposition of these facilities are redeployed into land acquisitions and
other development opportunities. ProLogis addresses specific needs of customers
with respect to a specialized facility or the need to have a facility in a
market that ProLogis does not consider to have favorable dynamics by developing
the facility on a fee development basis or through a pre-sale agreement within
this operating segment.
As of December 31, 2000, all of ProLogis' development activities were part
of the CDFS business segment. As of December 31, 2000, ProLogis, ProLogis
Development Services and the Kingspark entities had 10.2 million square feet of
facilities under development with a total budgeted development cost of $491.4
million. Of the total, 8.7 million square feet with a total budgeted development
cost of $355.2 million are owned directly by ProLogis and ProLogis Development
Services. Facilities under development in North America aggregated 6.3 million
square feet at a total budgeted cost of $257.5 million and facilities under
development in Europe aggregated 3.9 million square feet at a total budgeted
cost of $233.9 million. These facilities are being developed with the objective
of disposing of the facility to a third party or to an entity in which ProLogis
has an ownership interest. To the extent the facilities are acquired by entities
in which ProLogis has an ownership interest, ProLogis' continuing interest in
the operations of these facilities will be included in its property operations
segment (see "-- Property Operations Segment"). ProLogis
9
Development Services and the Kingspark entities also earn fees under development
management agreements. During 2000, 2.7 million square feet were developed under
such agreements generating development fees of $11.5 million.
ProLogis, ProLogis Development Services and the Kingspark entities have
land positions (land owned or controlled through option, letter of intent,
development rights agreement or contingent contract) aggregating 5,126 acres
with the capacity for developing approximately 85.7 million square feet of
distribution facilities. Of the total land positions, 3,279 acres, with the
capacity for developing approximately 57.4 million square feet of distribution
facilities, are owned or controlled by ProLogis and ProLogis Development
Services. Land positions in North America total 2,385 acres with the capacity
for developing approximately 42.3 million square feet of distribution facilities
and land positions in Europe total 2,741 acres with the capacity for developing
approximately 43.4 million square feet of distribution facilities.
CDFS business segment investment activities in 2000 included:
o Development starts aggregated 13.7 million square feet at a total
budgeted cost of $651.6 million. Of the total, 12.6 million square
feet at a total budgeted cost of $509.8 million were started by
ProLogis and ProLogis Development Services. Development starts in
North America in 2000 aggregated 8.0 million square feet at a total
budgeted cost of $329.6 million and development starts in Europe
aggregated 5.7 million square feet at a total budgeted cost of $322.0
million.
o Development completions aggregated 15.2 million square feet at a total
budgeted cost of $736.9 million. Of the total, 13.1 million square
feet at a total budgeted cost of $512.0 million were completed by
ProLogis and ProLogis Development Services. Development completions in
North America in 2000 aggregated 9.8 million square feet at a total
budgeted cost of $360.2 million and development completions in Europe
aggregated 5.4 million square feet at a total budgeted cost of $376.7
million.
o Land acquisitions in 2000 aggregated 1,158 acres, 846 acres in North
America and 312 acres in Europe. This land can be used for the
development of approximately 24.3 million square feet of distribution
facilities.
Operations
The primary source of income in the CDFS business segment is the profits
from dispositions of facilities developed and development management fees earned
by ProLogis Development Services and the Kingspark entities. In 2000, the CDFS
business generated $121.9 million of ProLogis' total income as compared to 1999
and 1998 when the CDFS business generated $70.5 million and $20.5 million of
ProLogis' total income, respectively. As a percentage of total income, this
operating segment has increased in each of the last three years (to 18.9% in
2000 from 12.4% and 5.6% in 1999 and 1998, respectively). ProLogis' share of the
net earnings of the Kingspark entities recognized under the equity method is
included in this segment's total income ($43.8 million in 2000, $23.9 million in
1999 and $2.9 million for the period from acquisition on August 14, 1998 to
December 31, 1998).
The CDFS business segment generated funds from operations of $126.8 million
in 2000 ($60.4 million in North America and $66.4 million in Europe); $76.5
million in 1999 ($28.9 million in North America and $47.6 million in Europe);
and $22.2 million in 1998 ($17.3 million in North America and $4.9 million in
Europe). See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- CDFS Business",
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Funds from Operations" and Notes 4 and 10 to ProLogis'
Consolidated Financial Statements in Item 8.
Operational achievements in this operating segment in 2000 included:
o ProLogis, ProLogis Development Services and the Kingspark entities
disposed of 11.8 million square feet of distribution facilities
developed and land parcels generating net proceeds of $672.4 million.
o ProLogis Development Services and the Kingspark entities developed 2.7
million square feet of distribution facilities on behalf of customers
under development management agreements. Fees and other miscellaneous
income in the CDFS business segment aggregated $18.7 million in 2000.
Market Presence
ProLogis' CDFS business spans substantially all of ProLogis' property
operations markets. As of December 31, 2000, ProLogis had facilities under
development in 16 cities in 11 states and the District of Columbia in the United
States, 2 cities in Mexico and 8
10
cities in 4 countries in Europe. As of December 31, 2000, ProLogis' land
positions were located in 30 cities in 19 states and the District of Columbia in
the United States, 4 cities in Mexico and 8 cities in 7 countries in Europe.
Competition
There are a number of other national, regional and local developers engaged
in industrial distribution facility development in the same North American
markets that ProLogis conducts business. Competition for land acquisitions, from
both institutional capital sources and other REITs, has increased over the past
several years. The disposition market in North America is competitive and is
driven by the supply of new developments, access to capital and interest rate
levels.
ProLogis believes that there are no other REITs or pan-European real estate
operating companies in direct competition with its operations in Europe.
However, there are a number of local and regional developers in ProLogis' target
markets. As in North America, the disposition market in Europe is competitive
and driven by the supply of new developments, access to capital and interest
rate levels. However, the formation of ProLogis European Properties Fund
provides ProLogis and the Kingspark entities with a source of capital that will
allow them to dispose of the facilities they develop in the CDFS business
segment at independently appraised values.
ProLogis believes that it, ProLogis Development Services and the Kingspark
entities have a significant competitive advantage based upon the strategic
locations of the extensive land positions owned or under control. Also, as the
only distribution facilities and services provider operating on a national and
pan-European basis, ProLogis believes it has differentiated itself from many of
its competitors.
Customers
ProLogis leverages off its existing customer relationships, primarily
within the property operations segment and utilizes the ProLogis Operating
System(TM) in identifying and marketing its CDFS business. See "-- Property
Operations -- Customers" and "-- ProLogis Operating System(TM)".
Employees
ProLogis and its consolidated entities directly employ approximately 640
persons in North America and Europe. Of the total, approximately 90 employees
are assigned directly to the CDFS business segment. ProLogis' other employees
may provide assistance in this operating segment. ProLogis believes its
relationship with its employees to be good. ProLogis' employees are not
represented by a collective bargaining agreement.
The Kingspark entities employ approximately 60 persons and these employees
do not participate in a collective bargaining agreement. The Kingspark entities
believe their relationship with their employees to be good.
Seasonal Nature of the Business
The demand for the industrial distribution facilities that are developed by
ProLogis' CDFS business is not impacted on a seasonal basis. However, the
development process can be impeded by weather, particularly during the winter
months in certain markets, which can potentially delay construction completions.
Future Plans
ProLogis' objective is to utilize the capital generated in the CDFS
business to self-fund future CDFS business activities in North America and
Europe. In addition, proceeds from the disposition of operating facilities in
the property operations segment to third parties can also be re-invested in new
development facilities within the CDFS business segment. ProLogis believes that
the reconfiguration of supply chains, necessitated by the need for customers to
add efficiencies within their distribution networks, in both North America and
Europe could favorably impact demand for the distribution facilities and
distribution-related services provided by ProLogis within its CDFS business
segment. Additionally, a limited supply of new state-of-the-art distribution
space in Europe could also provide opportunities within this operating segment.
See the discussion of factors that could affect the future plans of ProLogis,
ProLogis Development Services and the Kingspark entities in the CDFS business
segment at "Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Risk Factors".
11
Temperature-Controlled Distribution Operations
Investments
ProLogis recognizes substantially all of the economic benefits of ProLogis
Logistics Services Incorporated ("ProLogis Logistics") through its ownership of
100% of ProLogis Logistics' preferred stock. ProLogis Logistics owns 100% of CS
Integrated LLC ("CSI"), a temperature-controlled distribution company operating
in the United States. As of December 31, 2000, CSI owned or operated under lease
agreements 59 temperature-controlled distribution facilities aggregating 175.9
million cubic feet (including 35.5 million cubic feet of dry distribution space
located in temperature-controlled distribution facilities) and had 6.3 million
cubic feet under development in Anaheim (4.0 million cubic feet) and Houston
(2.3 million cubic feet). Additionally, ProLogis recognizes substantially all of
the economic benefits of Frigoscandia S.A. through its ownership of 100% of
Frigoscandia S.A.'s preferred stock. Frigoscandia S.A. owns, through its wholly
owned subsidiaries, 100% of Frigoscandia AB ("Frigoscandia"), a
temperature-controlled distribution company operating in Europe. As of December
31, 2000, Frigoscandia owned or operated under lease agreements 89
temperature-controlled distribution facilities aggregating 187.7 million cubic
feet in 10 European countries. ProLogis accounts for its investments in ProLogis
Logistics/CSI and Frigoscandia S.A./Frigoscandia under the equity method. See
"Item 2. Properties -- Unconsolidated Entities -- Temperature-Controlled
Distribution Operations" and Note 4 to ProLogis' Consolidated Financial
Statements in Item 8.
In order to provide value-added supply chain management services to its
customers, CSI and Frigoscandia leverage their existing temperature-controlled
distribution facilities network with information technology investments that
increase the velocity and visibility of inventory and information throughout the
entire supply chain. CSI added 8.3 million cubic feet of operating capacity in
2000, including a 4.8 million cubic feet facility that was developed by CSI in
Atlanta. Frigoscandia's operating capacity has remained virtually constant over
the past three years (187.7 million as of December 31, 2000, 192.3 million as of
December 31, 1999 and 192.0 million as of December 31, 1998). This trend
reflects Frigoscandia's emphasis on serving its key customers through
improvements and upgrades to technology systems and its existing facilities
rather than increasing its operating capacity.
During 1999 and 2000, both CSI and Frigoscandia enhanced and improved their
logistics information technology systems. These systems are being coordinated on
a global basis which enables CSI and Frigoscandia to maximize synergies within
and between the North American operations and European operations, while still
maintaining operational independence. CSI's non-asset based retail dedicated
business segment, where CSI provides all warehouse logistics services to
supermarket retailers in distribution facilities not owned by CSI, has enabled
CSI to increase its revenues without significantly increasing its invested
capital. Retail-dedicated revenues are earned through fees charged to the
retailer based on volume with no fixed costs attributable to the
retail-dedicated operations.
Operations
ProLogis recognizes its share of the net earnings of ProLogis Logistics/CSI
and Frigoscandia S.A/ Frigoscandia under the equity method as a component of its
total income. ProLogis' share of the net earnings of ProLogis Logistics/CSI was
$12.0 million in 2000, $10.8 million in 1999 and $7.3 million in 1998. In each
year, 1998 to 2000, Frigoscandia S.A./Frigoscandia generated net losses with
ProLogis' share aggregating $20.3 million in 2000, $4.4 million in 1999 and $7.5
million in 1998.
ProLogis' share of the combined funds from operations of ProLogis
Logistics/CSI and Frigoscandia S.A./ Frigoscandia was $27.0 million in 2000 as
compared to $46.1 million in 1999 and $45.7 million in 1998. See "Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Results of Operations -- Temperature-Controlled Distribution
Operations", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Funds From Operations" and Notes 4 and 10
to ProLogis' Consolidated Financial Statements in Item 8.
Market Presence
Market presence in the temperature-controlled distribution industry is
generally defined by the volume available for storage of frozen and chilled
foods in addition to the transportation network in place to serve customers.
ProLogis believes that CSI and Frigoscandia are well positioned to provide
supply-chain management services to major food manufacturers and retailers
across multiple markets. With 59 facilities aggregating 175.9 million cubic feet
in operation (including 35.5 million cubic feet of dry distribution space
operated in temperature-controlled distribution facilities), CSI has the third
largest network in the United States (based on cubic feet in operation). CSI's
largest markets (based on cubic feet in operation) are Phoenix (16.9%), Southern
California (16.2%), Southeastern Pennsylvania (14.5%) and Atlanta (12.2%).
Frigoscandia is the largest temperature-controlled distribution company in
Europe with 89 facilities aggregating 187.7 million cubic feet in operation in
10 countries. Frigoscandia's largest markets (based on cubic feet in operation)
are France (34.1%), the United Kingdom (24.5%) and Germany (13.7%).
12
Competition
ProLogis believes that the temperature-controlled distribution industry has
significant barriers to entry due to its capital-intensive nature, which limits
competition. In the United States, CSI competes directly with several national
temperature-controlled distribution companies. However, CSI's primary
competition in many markets is from local, and considerably smaller, warehouse
operators. In Europe, Frigoscandia has a distinct advantage over its competitors
as few other European temperature-controlled distribution companies have
operations in more than one country (as compared to the 10 countries in which
Frigoscandia operates). Additionally, Frigoscandia is the largest operator of
temperature-controlled distribution facilities in Europe (based on cubic feet in
operation), with a temperature-controlled storage volume of approximately three
times that of its closest competitor. Like CSI, Frigoscandia's primary
competition in many markets is from local, and considerably smaller, warehouse
operators.
Customers
CSI has approximately 950 customers including some of the nation's leading
supermarket retailers in the United States. Of CSI's total revenues,
approximately 69% were derived from is 25 largest customers and CSI's largest
customer accounted for approximately 36% of its total revenues. Excluding the
fees generated by CSI's retail-dedicated operations where CSI provides warehouse
logistics services in the distribution facilities that are owned by the
customer, the 25 largest customers accounted for approximately 48% of total
revenues with the largest customer accounting for approximately 6% of total
revenues. See "-- Investments".
Frigoscandia has approximately 7,000 customers. Of Frigoscandia's total
revenues, approximately 49% were derived from its 25 largest customers and
Frigoscandia's largest customer accounted for approximately 8% of its total
revenues.
Employees
CSI and Frigoscandia directly employ all employees in the
temperature-controlled distribution operations segment. CSI employs
approximately 3,835 persons in the United States, of whom approximately 58%
participate in collective bargaining agreements. Frigoscandia employs
approximately 2,665 persons in 10 European countries, of whom approximately 80%
participate in collective bargaining agreements. Both CSI and Frigoscandia
believe their relationships with their employees to be good.
Seasonal Nature of the Business
Temperature-controlled distribution operations are seasonal, in that demand
for temperature-controlled distribution facilities is stronger during the third
quarter of the calendar year and is at its lowest level in the first quarter of
the calendar year. The seasonal nature of temperature-controlled distribution
operations coincides with the lower demand for frozen foods, such as ice cream,
during the winter months and the timing of the harvests of various food crops in
the third quarter of the year, which increases the demand for
temperature-controlled storage capacity during that time.
Future Plans
There will be a continued strong emphasis in 2001 on the global marketing
of the varied service offerings that CSI and Frigoscandia can provide to
customers who can benefit from a single-source global temperature-controlled
logistics provider. CSI and Frigoscandia will continue to leverage off their
investments in information technology in 1999 and 2000 to increase their service
offerings to customers, including integrated supply chain management and
transportation services. Additionally, both companies will focus on operational
issues to increase operating efficiencies in 2001. In particular, Frigoscandia
is addressing occupancy issues and other operational issues including
transportation services. See "Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Results of Operations --
Temperature-Controlled Distribution Operations" for a discussion of operating
performance of this business segment and see the discussion of factors that
could affect the future plans of ProLogis, CSI and Frigoscandia at "Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Risk Factors".
ProLogis views its investments in CSI and Frigoscandia as a
temperature-controlled distribution network delivering worldwide
temperature-controlled logistics solutions to its United States and European
customers. Expansion into new markets or within existing markets in the United
States will be considered only to the extent that such expansion is necessary to
enable CSI to expand its services to the major food manufacturers and retailers
that operate across multiple markets. Expansion within the European operations
will be
13
considered on a limited basis to address specific customer needs. The funds for
such expansions are expected to come principally from internally generated
capital from this operating segment's operations.
FINANCING STRATEGY
In order to build its network of distribution facilities, ProLogis accessed
the public debt and public equity markets through the second quarter of 1999.
Since that time, ProLogis has funded its capital requirements primarily with
internally generated funds from its operations and from the disposition of
facilities to third parties and to entities in which ProLogis maintains an
ownership interest. Additionally, ProLogis has utilized, and will continue to
utilize, the borrowing capacity available through its unsecured lines of credit
to finance investment opportunities pending completion of asset dispositions
and, as needed, longer-term debt or equity financing arrangements.
ProLogis' financing activities in 2000 included:
o ProLogis, ProLogis Development Services and the Kingspark entities
generated $806.0 million of proceeds from the disposition of
facilities and land parcels in 2000. These dispositions were primarily
within the CDFS business segment ($672.3 million of proceeds) but also
included dispositions within the property operations segment ($133.7
million of proceeds). Of the total proceeds of $806.0 million, $55.7
million was received in the form of equity interests in the entities
acquiring the facilities.
o ProLogis restructured its U.S. dollar denominated revolving credit
facilities during 2000. ProLogis' previous $550.0 million unsecured
line of credit was reduced to $475.0 million, with the ability to
increase the borrowing capacity to $500.0 million. Additionally,
provisions were included in the new agreement that allows for direct
borrowings by ProLogis Development Services and ProLogis Logistics.
Also, ProLogis increased its borrowing capacity under its U.S. dollar
denominated discretionary line of credit from $25.0 million to $55.0
million (with the additional $30.0 million of borrowings available
only in foreign currency equivalents).
o The formation of ProLogis North American Properties Fund I provided
ProLogis the opportunity to access over $300.0 million of third party
debt and equity capital, including 10-year secured, non-recourse debt
financing of $232.6 million within the venture.
o From September 1999 to December 31, 2000, ProLogis has accessed 325.6
million euros (the currency equivalent of approximately $302.9 million
as of December 31, 2000 based on currency exchange rates quoted by
Reuters) of third party equity capital provided by a group of
institutional investors to ProLogis European Properties Fund through
2002. As of December 31, 2000, an additional 734.7 million euros (the
currency equivalent of approximately $683.4 million as of December 31,
2000 based on currency exchange rates quoted by Reuters) has been
committed to ProLogis European Properties Fund by this investor group
through 2002. This capital is to be used to fund acquisitions of
operating facilities in Europe from ProLogis, the Kingspark entities
or third parties.
ProLogis' revolving credit facilities (the U.S. dollar denominated
unsecured borrowing arrangements aggregating $530.0 million of capacity and
ProLogis' multi-currency borrowing arrangement that allows for the currency
equivalent of 325.0 million euros of borrowings) provide ProLogis with
significant financial flexibility. As of December 31, 2000, ProLogis'
outstanding combined revolving credit facility borrowings of $439.8 million were
at an average interest rate of 6.79% and ProLogis' total debt as a percentage of
total undepreciated book capitalization (excluding accumulated comprehensive
income adjustments) was 43.5%.
PROLOGIS OPERATING SYSTEM(TM)
The cornerstone of ProLogis' business strategy is the ProLogis Operating
System(TM), comprised of the Market Services Group, the Global Services Group,
the Global Development Group and the Integrated Solutions Group. The ProLogis
Operating System(TM) is a customer service delivery system that has been
designed to provide substantial benefits to existing and prospective ProLogis
customers. The customer focus of the ProLogis Operating System(TM) provides for
a high-quality service level and a single point of contact for distribution
solutions on a global basis and positions ProLogis to build customer
relationships that will generate additional business opportunities.
14
Market Services Group
The Market Services Group is comprised of approximately 350 property
management and leasing employees including 20 market officers. ProLogis' market
officers have extensive experience in marketing industrial distribution space
and are responsible for understanding the needs of existing and prospective
customers in their respective markets. To meet such needs, market officers
utilize their extensive knowledge of local market conditions, including the cost
and availability of alternative space, and are supported by their team of
property management and leasing professionals. A key role of the market officers
is assisting the Global Services Group in identifying ProLogis' customers with
multiple market requirements. ProLogis believes that the market officers' access
to national and pan-European ProLogis resources improves their ability to serve
customers in the local market.
Market officers do not develop projects or borrow or commit capital. Their
focus is strictly on managing the facilities in their markets, creating and
maintaining relationships with distribution space users and industrial brokers,
marketing ProLogis products and identifying potential acquisition, development
and leasing opportunities in their target markets.
Global Services Group
The Global Services Group, comprised of 18 employees, is dedicated to
providing service to the largest users of distribution space that ProLogis has
identified as targeted customers, with the primary focus on making ProLogis the
preferred provider of distribution space to these companies. The Global Services
Group is headquartered in Denver and Amsterdam and has regional offices in
Atlanta, Chicago and the New York City metropolitan area. ProLogis' multi-market
presence permits it to accommodate the reconfiguration needs of its customers by
relocating an existing customer within a market or between markets in North
America or in Europe. ProLogis' development program, land inventory and existing
facilities allow the Global Services Group to assist existing and prospective
customers whose growing business needs require them to expand their distribution
facilities. The expansion can result in relocating the customer to larger
ProLogis spaces or in developing a facility specifically for the customer.
Global Services Group professionals build long-term relationships with
ProLogis' customers and provide a single point of contact for multi-location
global users of distribution facilities to simplify and streamline the execution
of such customers' distribution space plans. ProLogis' experience to date
suggests that many major corporate customers are limiting the number of services
providers that they work with to meet their distribution facility requirements.
An ancillary benefit of this extensive contact with customers is the ability to
be on the forefront of international and national distribution and logistics
trends.
Global Development Group
The Global Development Group, comprised of approximately 90 employees,
focuses substantial research and development efforts on creating
industry-leading distribution facilities and master-planned distribution parks.
Members of the Global Development Group have extensive experience in the
development and construction of generic facilities that will appeal to a wide
variety of customers and the development of facilities that will meet a specific
customers needs. ProLogis incorporates the latest technology with respect to
building design and building systems and has developed consistent standards and
procedures that it strictly adheres to in the development of all facilities.
The Global Development Group is comprised principally of architects,
engineers and construction professionals who oversee every aspect of the land
planning and building design processes. These professionals also monitor the
construction process and oversee the performance of third-party general
contractors. The Global Development Group's development specialists and project
managers operate regionally to better serve their markets. The project managers
supervise each project with oversight from ProLogis' management, pursuant to
uniform standards, procedures and specifications that have been carefully
designed to achieve consistent quality.
ProLogis believes the depth and breadth of experience within the Global
Development Group enhances the effectiveness of the Global Services Group and
provides the market officers in the Market Services Group with a distinct
competitive advantage for development opportunities in their respective markets.
Integrated Solutions Group
The Integrated Solutions Group, currently comprised of three employees,
coordinates a menu of value-added distribution-related services to customers,
including network optimization tools, strategic site selection, business
location services (including tax incentive analysis and tax negotiation
consulting) and design consulting services. The Integrated Solutions Group was
formed in August 1999 to
15
allow ProLogis to address all areas of its customers' distribution needs.
ProLogis believes that by offering these additional services, ProLogis will be
able to deepen its customer relationships and increase cash flows with
relatively small additional capital requirements.
PROLOGIS MANAGEMENT
ProLogis' success depends upon its management's ability to provide
strategic and day-to-day management, research, investment analysis, acquisition
and due diligence, development, marketing, asset management, capital markets,
asset disposition, management information systems support and legal and
accounting services. ProLogis believes that the quality of its management should
be assessed in light of the following factors:
o Management Depth -- ProLogis has several senior executives with the
leadership, operational, investment and financial skills and
experience to oversee the entire operation of the company. See " --
Executive Officers and Trustees" and " -- Senior Officers".
o Strategic Vision-- ProLogis' management has demonstrated a strategic
vision in determining an operating and investment focus that has
provided favorable initial yields and long-term growth prospects.
ProLogis' business strategy has focused on acquiring (at prices below
replacement cost) and developing an international distribution
facility network and a land inventory at attractive prices in selected
distribution markets. Through the ProLogis Operating System(TM),
ProLogis believes it is the first international operating company that
has been able to address and service a corporate customer's
distribution space requirements on an international, national,
regional and local basis. Additionally, since mid-1999, ProLogis has
focused on self-funding its investment activities utilizing cash
generated by operations and the proceeds from the disposition of
facilities, primarily to entities in which ProLogis maintains an
ownership interest.
o Research Capability -- ProLogis divides its target market cities into
numerous submarkets for analysis purposes. ProLogis' management has
emphasized a submarket by submarket research-based approach in
determining appropriate investment opportunities.
o Investment Committee Process -- An internal investment committee
provides ProLogis with discipline and guidance to allow ProLogis to
achieve its investment goals. The members of ProLogis' investment
committee have extensive experience in the real estate industry. The
internal investment committee evaluates all prospective investments
pursuant to uniform underwriting criteria prior to submission of
investment recommendations to the investment committee of ProLogis'
Board of Trustees (the "Board").
o Acquisitions Capability/Due Diligence Process/Asset Dispositions --
ProLogis has experienced senior personnel who perform disciplined and
thorough due diligence in determining whether potential investments
and divestitures meet ProLogis' long-term objectives. ProLogis has
developed extensive uniform systems and procedures for analysis and
due diligence to ensure that it maximizes its investment and
divestiture opportunities.
o Development Capability -- By internally developing projects, ProLogis
has captured additional value that normally escapes through sales
premiums paid to third party developers. ProLogis' development
employees have significant development experience. ProLogis has
engaged in substantial development of distribution facilities since
its inception in 1991 (64.0 million square feet at a total investment
of $2.4 billion developed).
o Operating Capability -- ProLogis believes that management can
substantially improve operating performance and achieve long-term
sustainable growth in cash flow by actively and effectively managing
assets. ProLogis conceived of and developed the ProLogis Operating
System(TM) to effectively operate ProLogis' business and provide
customers with an exceptional level of coordinated, comprehensive
services, including property management, leasing and development
management services. ProLogis also provides comprehensive asset
management services to entities in which ProLogis has an ownership
interest.
o Capital Markets Capability -- ProLogis has been able to effectively
raise public debt and public equity capital that has allowed it to
achieve strong growth in cash flows from its investments. ProLogis
enhances its ability to raise capital by its ability to effectively
communicate ProLogis' business strategy and performance to investors
and the financial media.
Previously, certain of ProLogis' administrative functions were supplemented
by or provided by Security Capital Group Incorporated ("Security Capital"),
ProLogis' largest shareholder, pursuant to an administrative services agreement.
These functions
16
included payroll and human resources, cash management, accounts payable,
specified information systems support, research and insurance services. ProLogis
began transferring these functions from Security Capital to ProLogis personnel
during 2000. As of December 31, 2000, all functions except the cash management
and certain information systems support functions had been assumed by ProLogis.
These remaining functions are expected to be assumed by ProLogis personnel
during the first quarter of 2001.
Executive Officers and Trustees
K. Dane Brooksher -- 62 -- Mr. Brooksher has served as a Trustee since
October 1993. Mr. Brooksher has been Chairman and Chief Executive Officer of
ProLogis since March 1999 and he was Co-Chairman and Chief Operating Officer of
ProLogis from November 1993 to March 1999 (through September 1997 he was
employed by ProLogis' former management company). Prior thereto, Mr. Brooksher
was Area Managing Partner and Chicago Office Managing Partner of KPMG Peat
Marwick (now KPMG LLP), independent public accountants, where he served on the
Board of Directors and Management Committee and as International Development
Partner for Belgium and the Netherlands. Mr. Brooksher is a Director of Vizional
Technologies, Inc. (an entity in which ProLogis has invested) and Butler
Manufacturing Company and he serves as an Advisory Board Member of the J.L.
Kellogg Graduate School of Management of Northwestern University. Mr.
Brooksher's term as Trustee expires in 2002.
Irving F. Lyons, III -- 51 -- Mr. Lyons has served as a Trustee since March
1996. Mr. Lyons has been President of ProLogis since March 1999 and Chief
Investment Officer of ProLogis since March 1997. Mr. Lyons was Co-Chairman of
ProLogis from March 1997 to March 1999 and from December 1993 to March 1997, he
was a Managing Director with ProLogis (through September 1997 he was employed by
ProLogis' former management company). Prior thereto, Mr. Lyons was the Managing
Partner of King & Lyons, a San Francisco Bay Area industrial real estate
development and management company, since its inception in 1979. Mr. Lyons' term
as Trustee expires in 2003.
C. Ronald Blankenship -- 51 -- Mr. Blankenship has served as a Trustee
since June 2000. Mr. Blankenship has been Director, Vice Chairman and Chief
Operating Officer of Security Capital since May 1998. Mr. Blankenship was
Managing Director of Security Capital from 1991 until 1998 and he was Chairman
of Archstone Communities Trust, (a REIT focused on apartment communities and a
former affiliate of Security Capital) until June 1997. Mr. Blankenship was a
Trustee of Archstone Communities Trust from March 2000 until February 2001.
Since May 1999, Mr. Blankenship has also been Interim Chairman, Chief Executive
Officer and Director of Homestead Village Incorporated (an affiliate of Security
Capital). He is a Trustee of City Center Retail Trust and Urban Growth Property
Trust (both affiliates of Security Capital). Mr. Blankenship is a Director of
BelmontCorp, Carr America Realty Corporation, InterPark Holdings Inc., Macquarie
Capital Partners LLC, Regency Centers Corporation and Storage USA, Inc. (all
affiliates of Security Capital). Mr. Blankenship's term as Trustee expires in
2001.
Stephen L. Feinberg -- 56 -- Mr. Feinberg has served as a Trustee since
January 1993. Mr. Feinberg has been Chairman of the Board and Chief Executive
Officer of Dorsar Investment Co., Inc., a diversified holding company with
interests in real estate and venture capital since 1970. Mr. Feinberg is also a
Director of Security Capital Preferred Growth Incorporated (an affiliate of
Security Capital), Continental Transmission Corporation, The Harvill Press
Limited, MetaMetrics, Inc., St. John's College, The Santa Fe Institute, and The
Feinberg Foundation, Inc. He was formerly Chairman of the Board of St. John's
College, and a former Director of Farrar, Strauss and Giroux, Inc. (a private
publishing company), Molecular Informatics, Inc., Border Steel Mills, Inc.,
Springer Building Materials Corporation, Circle K Corporation, EnerServ
Products, Inc. and Texas Commerce Bank-First State. Mr. Feinberg's term as
Trustee expires in 2001.
Donald P. Jacobs -- 73 -- Mr. Jacobs has served as a Trustee since February
1996. Mr. Jacobs has been a faculty member of the J.L. Kellogg Graduate School
of Management of Northwestern University since 1957, and Dean since 1975. Mr.
Jacobs is a Director of Hartmarx Corporation, Terex Corporation, CDW Computer
Centers and GP Strategies. Mr. Jacobs was formerly a Director of Commonwealth
Edison and its parent company, Unicom and he was formerly Chairman of the Public
Review Board of Andersen Worldwide. Mr. Jacobs was Chairman of the Advisory
Committee of the Oversight Board of the Resolution Trust Corporation for the
third region from 1990 to 1992, Chairman of the Board of AMTRAK from 1975 to
1979, Co-Staff Director of the Presidential Commission on Financial Structure
and Regulation from 1970 to 1971 and Senior Economist for the Banking and
Currency Committee of the U.S. House of Representatives from 1963 to 1964. Mr.
Jacobs' term as Trustee expires in 2001.
William G. Myers -- 73 -- Mr. Myers has served as a Trustee since January
1995. Mr. Myers is Chief Executive Officer of Ojai Ranch and Investment Company,
Inc., Santa Barbara, California, an agri-business and investment company that
Mr. Myers founded in 1963. Mr. Myers was formerly a Trustee of Archstone
Communities Trust (a former affiliate of Security Capital) and a former Director
of S.E.E. International, Itedek, Inc. and Bank of A. Levy. Mr. Myers serves as a
Director of the Library of Congress, James Madison Council, California
Historical Society Foundation and St. Joseph's Health & Retirement Foundation.
He is also a Director of
17
the Santa Barbara Botanic Gardens, Chalone Wine Group and The Nature Conservancy
and he is Trustee of H.C. and R.C. Merritt Trusts. Mr. Myers' term as Trustee
expires in 2003.
John E. Robson -- 70 -- Mr. Robson has served as a Trustee since April
1994. Mr. Robson has been Senior Advisor of Robertson Stephens and Company, a
San Francisco based investment banking firm, since 1994. Mr. Robson was Deputy
Secretary of the United States Treasury from 1989 to 1992, Dean and Professor of
Management, Emory University School of Business Administration from 1986 to
1989, President and Chief Executive Officer and Executive Vice President and
Chief Operating Officer of G.D. Searle & Co., a pharmaceutical and consumer
products firm over the period 1978-1983. Mr. Robson is currently a Director of
Pharmacia Corporation, Northrop Grumman Corporation, COR Solutions, Inc., SCRAM
Technologies, Inc. He is also on the Business Advisory Board of Gilead Sciences,
Inc. Mr. Robson's term as Trustee expires in 2003.
Kenneth N. Stensby -- 61-- Mr. Stensby has served as a Trustee since March
1999. Mr. Stensby was a Director of Meridian from 1996 to March 1999. Mr.
Stensby was President and Chief Executive Officer of United Properties, a
Minneapolis-based diversified real estate company, from 1974 until his
retirement in January 1995. Mr. Stensby is past President of the National
Association of Industrial and Office Parks and was a Director of First Asset
Realty Advisors, a pension advisory subsidiary of First Bank of Minneapolis and
Corner House. Mr. Stensby's term as Trustee expires in 2002.
J. Andre Teixeira -- 48 -- Mr. Teixeira has served as a Trustee since
February 1999. Mr. Teixeira is the President of Coca-Cola for the Russia/Ukraine
region and General Manager of Coca-Cola Russia, Ukraine and Belarus. Mr.
Teixeira also serves as Head of Representation for the Coca-Cola Export
Corporation, Moscow. From 1995 to 1998, Mr. Teixeira was Director of the
Development Center, Europe, Coca-Cola Greater Europe; Director, Brussels
Operations, Coca-Cola Greater Europe and Managing Director, Coca-Cola Services
S.A. Mr. Teixeira was the Africa Group Account Executive, Development, for
Coca-Cola from 1994 to 1995 and Director, Research & Development, Coca-Cola
Greater Europe from 1990 to 1995. Mr. Teixeira's term as Trustee expires in
2001.
Thomas G. Wattles -- 49 -- Mr. Wattles has served as a Trustee since
January 1993. Mr. Wattles was a Director of ProLogis' predecessor since its
formation in June 1991 until January 1993. Mr. Wattles was Non-Executive
Chairman of ProLogis from March 1997 to May 1998 and Co-Chairman and Chief
Investment Officer of ProLogis from November 1993 to March 1997 (through
September 1997 he was employed by ProLogis' former management company). Mr.
Wattles is a Managing Director of Security Capital and has been with Security
Capital in various capacities since March 1991. Mr. Wattles is a Trustee of City
Center Retail Trust, CWS Communities Trust and Urban Growth Property Trust (all
affiliates of Security Capital). He is a Director of Access Self-Storage
Holdings S.A., Akeler Holdings S.A., Bernheim-Comofi S.A., CWE Property Holdings
S.A., Interpark Holdings Inc., London & Henley Holdings S.A., Millers Storage
Holdings S.A., Regency Centers Corporation and Security Capital European Realty,
(all affiliates of Security Capital). Mr. Wattles' term as Trustee expires in
2002.
Senior Officers
Ned K. Anderson -- 54 -- Managing Director of ProLogis since December 1998,
where he is responsible for the Market Services Group in the Pacific Region of
the United States. Mr. Anderson has been with ProLogis in varying capacities
since December 1993 (through September 1997 he was employed by ProLogis' former
management company). Prior to joining ProLogis, Mr. Anderson was a partner at
King & Lyons, a San Francisco Bay Area industrial real estate development and
management company.
Paul C. Congleton -- 46 -- Managing Director of ProLogis since September
1999, where he is responsible for coordinating investment and financing
opportunities utilizing institutional capital. Mr. Congleton has been with
ProLogis in varying capacities since January 1995 (through September 1997 he was
employed by ProLogis' former management company). Prior to joining ProLogis, he
was Managing Principal with Overland Company, an Arizona based property
management, leasing and consulting concern.
Tim M. Harvie -- 40 -- Managing Director and Chief Technology Officer of
ProLogis since December 2000, where he is responsible for ProLogis' information
technology operations. Mr. Harvie was with USFreightways Corporation, a provider
of comprehensive supply chain management services from February 1989 to December
2000, most recently as Chief Information Officer.
Steven K. Meyer -- 52 -- Managing Director of ProLogis since December 1998,
where he is responsible for the Market Services Group in the Central Region of
the United States and in Mexico. Mr. Meyer has been with ProLogis in varying
capacities since September 1994 (through September 1997 he was employed by
ProLogis' former management company). Prior to joining ProLogis,
18
Mr. Meyer was an Executive Vice President with Trammell Crow Company, a
diversified commercial real estate services company in North America.
Walter C. Rakowich -- 43 -- Managing Director and Chief Financial Officer
of ProLogis since December 1998, where he is responsible for worldwide corporate
finance. Mr. Rakowich has been with ProLogis in varying capacities since July
1994 (through September 1997 he was employed by ProLogis' former management
company). Prior thereto, Mr. Rakowich was a consultant to ProLogis in the area
of due diligence and acquisitions and also a Principal with Trammell Crow
Company.
John R. Rizzo -- 51 -- Managing Director of ProLogis since December 2000,
where he is responsible for the North American operations of the Global
Development Group. Mr. Rizzo has been with ProLogis in varying capacities since
January 1999. Prior to joining ProLogis, Mr. Rizzo was Senior Vice President and
Chief Operating Officer of Perini Management Services Incorporated, an affiliate
of Perini Corporation, a construction management and general contracting firm.
John W. Seiple, Jr.-- 42-- Managing Director of ProLogis since December
1997 and Chief Operating Officer for North American operations of ProLogis since
December 1998. Mr. Seiple has been with ProLogis since October 1993 in varying
capacities (through September 1997 he was employed by ProLogis' former
management company). Prior to joining ProLogis, Mr. Seiple was a Senior Vice
President with Trammell Crow Company.
Robert J. Watson -- 51 -- Managing Director of ProLogis since January 1993
and Chief Operating Officer for European Operations since December 1998. Mr.
Watson has been with ProLogis in varying capacities since January 1993 (through
September 1997 he was employed by ProLogis' former management company). Prior to
joining ProLogis, Mr. Watson with Trammell Crow Company, most recently as the
Regional Partner for Southwest United States Real Estate.
Robin P. R. von Weiler -- 44-- Managing Director and Regional Head of
ProLogis since December 1999, where he is responsible for the Market Services
and Global Development Groups in Northern and Central Europe. Mr. von Weiler has
been with ProLogis in varying capacities since October 1997. Prior to joining
ProLogis, Mr. Von Weiler was with DTZ Zadelhoff V.O.F., part of DTZ Debenham Tie
Lung, in Rotterdam, the Netherlands, most recently as Vice Managing Director,
Real Estate Agent and Corporate Advisor. Mr. von Weiler is a registered Real
Estate Agent.
Frank H. Fallon -- 39 -- Senior Vice President of ProLogis since September
1999, where he is responsible for the Market Services Group in the Southeast
Region of the United States. Mr. Fallon has been with ProLogis in varying
capacities since January 1995 (through September 1997 he was employed by
ProLogis' former management company). Prior to joining ProLogis, Mr. Fallon was
with Trammell Crow Company.
Ranald Hahn -- 44 -- Senior Vice President and Regional Head of ProLogis
since December 2000, where he is responsible for the Market Services and Global
Development Groups in Southern Europe. Mr. Hahn has been with ProLogis in
varying capacities since March 1999. Prior to joining ProLogis, Mr. Hahn was the
International Business Development Director of GSE, a French logistics
construction company.
M. Gordon Keiser, Jr. -- 56 -- Senior Vice President since October 1995 and
Treasurer of ProLogis since December 1998, where he is responsible for
relationships with ProLogis' lenders. Mr. Keiser has been with ProLogis in
varying capacities since October 1995 (through September 1997 he was employed by
ProLogis' former management company). Prior to joining ProLogis, Mr. Keiser was
Senior Vice President of JMB Realty Corporation with responsibilities for
corporate finance and capital markets financing. Previously, Mr. Keiser was with
KPMG Peat Marwick (now KPMG LLP).
Luke A. Lands -- 44 -- Senior Vice President and Controller of ProLogis
since August 2000, where he supervises accounting, financial reporting and
forecasting. Mr. Lands has been with ProLogis in varying capacities since
January 1996 (through September 1997 he was employed by ProLogis' former
management company). Prior to joining ProLogis, Mr. Lands was Vice President of
SCG Realty Services (an affiliate of Security Capital) from February 1995 to
January 1996 and he was Vice President and Controller for Lincoln Property
Company, a diversified national real estate operating company. Mr. Lands is a
Certified Public Accountant.
Debra A. McRight -- 41 -- Senior Vice President of ProLogis since December
1999, where she is responsible for North American property management
operations. Ms. McRight has been with ProLogis in varying capacities since
September 1995 (through September 1997 she was employed by ProLogis' former
management company). Prior to joining ProLogis, Ms. McRight was with Paragon
Group, Inc., a full service real estate company, where she was responsible for
property management operations in St. Louis, Missouri.
19
David S. Morze -- 40 -- Senior Vice President of ProLogis since March 1999,
where he is responsible for the Market Services Group in the Mid-Atlantic Region
of the United States. Mr. Morze has been with ProLogis in varying capacities
since March 1995 (through September 1997 he was employed by ProLogis' former
management company). Prior to joining ProLogis, Mr. Morze was the Director of
Marketing for Northern California for The SARES REGIS Group.
Edward S. Nekritz -- 35 -- Senior Vice President and General Counsel of
ProLogis since December 1998 and Secretary of ProLogis since March 1999, where
he oversees the provision of all legal services for ProLogis and he is also
responsible for ProLogis' due diligence and risk management functions. Mr.
Nekritz has been with ProLogis in varying capacities since September 1995
(through September 1997 he was employed by ProLogis' former management company).
Prior to joining ProLogis, Mr. Nekritz was an attorney with Mayer, Brown &
Platt.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic substances
at, on, under or in its property. The costs of removal or remediation of such
substances could be substantial. Such laws often impose liability without regard
to whether the owner or operator knew of, or was responsible for, the release or
presence of such hazardous substances. The presence of such substances may
adversely affect the owner's ability to sell such real estate or to borrow using
such real estate as collateral. ProLogis has not been notified by any
governmental authority of any non-compliance, liability or other claim in
connection with any of the properties owned or being acquired at December 31,
2000, and ProLogis is not aware of any environmental condition with respect to
any of its properties that is likely to be material. ProLogis or the predecessor
owners have subjected each of its properties to an environmental assessment
(which does not involve invasive procedures such as soil sampling or ground
water analysis) by independent consultants. While some of these assessments have
led to further investigation and sampling, none of the environmental assessments
has revealed, nor is ProLogis aware of, any environmental liability (including
asbestos-related liability) that ProLogis believes would have a material adverse
effect on its business, financial condition or results of operations. No
assurance can be given, however, that these assessments and investigations
reveal all potential environmental liabilities, that no prior owner or operator
created any material environmental condition not known to ProLogis or the
independent consultants or that future uses or conditions (including, without
limitation, customer actions or changes in applicable environmental laws and
regulations) will not result in unreimbursed costs relating to environmental
liabilities.
INSURANCE COVERAGE
ProLogis and its consolidated and unconsolidated entities currently carry
comprehensive insurance coverage including property, liability, fire, flood,
earthquake, environmental, extended coverage and rental loss, as appropriate for
the markets where each entities facilities and business operations are located.
The insurance coverage contains policy specifications and insured limits
customarily carried for similar facilities. ProLogis believes its facilities and
the facilities of its consolidated and unconsolidated entities are adequately
insured; however, an uninsured loss could result in loss of capital investment
and anticipated profits.
ITEM 2. PROPERTIES
INDUSTRIAL DISTRIBUTION FACILITIES
ProLogis and its consolidated entities (see -- "Consolidated Entities")
have invested primarily in generic industrial distribution facilities with an
average office finish level of less than 10%. Due to the costs associated with
retrofitting customer spaces, service center product has been acquired only on a
very limited basis, generally as part of portfolio acquisitions in which the
majority of product being acquired was bulk distribution. ProLogis' industrial
distribution facilities is typically used for storage, packaging, assembly,
distribution and light manufacturing of consumer and industrial products.
o Distribution. -- ProLogis' distribution facilities are adaptable for
both bulk distribution and light manufacturing or assembly uses. Based
upon square footage, ProLogis' operating portfolio was comprised of
88.5% bulk distribution and 10.4% light manufacturing facilities as of
December 31, 2000.
o Service Center and Other -- Under ProLogis' definition, service
centers are multi-customer buildings that have a higher percentage of
office space than distribution facilities and only have grade-level
loading as opposed to truck dock loading. As of December 31, 2000,
service center product constituted approximately 0.9% of the square
feet in ProLogis' operating portfolio
20
and other miscellaneous facilities, primarily office facilities
acquired as part of portfolio acquisitions, constituted 0.2% of the
square feet in ProLogis' operating portfolio.
GEOGRAPHIC DISTRIBUTION
ProLogis and its consolidated entities (see -- "Consolidated Entities")
have direct ownership of 1,285 industrial distribution facilities (operating and
under development) in North America and Europe as of December 31, 2000. In the
United States, ProLogis' facilities are located in 42 cities in 24 states and
the District of Columbia. ProLogis' facilities in Mexico are located in four
cities. In Europe, ProLogis' facilities are located in 11 cities in 5 countries.
The table below demonstrates the geographic distribution of ProLogis' portfolio
(operating facilities and facilities under development). The table excludes land
held for future development, which is less than 5% of ProLogis' total
investment, based on cost as of December 31, 2000 and 1999. The table does not
include facilities that are owned by ProLogis' unconsolidated entities which are
discussed under "-- Unconsolidated Entities".
DECEMBER 31,
--------------------------------------------------------------
2000 1999
----------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF
NUMBER OF ASSETS BASED NUMBER OF ASSETS BASED
FACILITIES ON COST(1) FACILITIES ON COST(1)
---------- ------------- ---------- -------------
NORTH AMERICAN MARKETS(2)(3):
Atlanta, Georgia ......................... 97 6.46% 103 6.20%
Austin, Texas ............................ 37 2.00 33 1.53
Birmingham, Alabama ...................... 6 0.75 6 0.69
Charlotte, North Carolina ................ 32 2.57 32 2.28
Chattanooga, Tennessee ................... 5 0.33 5 0.30
Chicago, Illinois ........................ 64 7.45 64 6.25
Cincinnati, Ohio ......................... 47 3.00 46 3.04
Columbus, Ohio ........................... 32 4.13 32 4.43
Dallas/Fort Worth, Texas ................. 116 8.53 120 8.31
Denver, Colorado ......................... 26 1.80 28 1.82
El Paso, Texas ........................... 19 1.49 22 1.56
Fort Lauderdale/Miami, Florida ........... 17 1.73 16 1.58
Houston, Texas ........................... 82 4.67 84 4.29
I-95 Corridor, New Jersey ................ 31 4.89 35 4.27
Indianapolis, Indiana .................... 43 2.79 45 2.85
Juarez, Mexico ........................... 7 0.37 6 0.27
Kansas City, Kansas/Missouri ............. 29 1.28 29 1.14
Las Vegas, Nevada ........................ 18 2.20 18 2.18
Los Angeles/Orange County,
California ............................ 6 1.62 4 0.95
Louisville, Kentucky ..................... 8 1.01 10 1.19
Memphis, Tennessee ....................... 40 3.25 40 2.80
Monterrey, Mexico ........................ 10 0.97 10 0.90
Nashville, Tennessee ..................... 29 1.63 31 1.72
Oklahoma City, Oklahoma .................. 6 0.24 6 0.21
Orlando, Florida ......................... 23 1.85 23 1.73
Phoenix, Arizona ......................... 31 1.67 32 1.63
Portland, Oregon ......................... 26 1.59 26 1.42
Reno, Nevada ............................. 20 1.48 19 1.50
Reynosa, Mexico .......................... 15 1.01 12 0.77
Rio Grande Valley (Brownsville),
Texas ................................. 14 0.54 14 0.49
Salt Lake City, Utah ..................... 7 0.93 10 1.16
San Antonio, Texas ....................... 46 2.16 47 2.08
Seattle, Washington ...................... 15 1.33 15 1.21
San Francisco (East Bay),
California ............................ 54 4.79 54 4.59
San Francisco (South Bay),
California ............................ 71 4.98 72 4.68
St. Louis, Missouri ...................... 15 1.05 15 0.95
Tampa, Florida ........................... 58 2.67 62 2.52
Tijuana, Mexico .......................... 5 0.60 4 0.42
Tulsa, Oklahoma .......................... 9 0.26 9 0.23
Washington D.C./Baltimore, Maryland ...... 48 4.13 40 3.05
Other(4) ................................. 3 0.12 24 0.91
---------- ---------- ---------- ----------
Subtotal North America(2)(3) ..... 1,267 96.32 1,303 90.10
---------- ---------- ---------- ----------
EUROPEAN MARKETS(5)(6)(7)(8):
Amsterdam, Netherlands ................... -- -- 1 0.20
Brabandt, Netherlands .................... 1 0.27 -- --
Cologne, Germany ......................... 1 0.28 1 0.33
Lille, France ............................ 1 0.06 2 0.15
Lyon, France ............................. 1 0.14 3 0.50
Marseille, France ........................ 1 0.14 -- --
Milan, Italy ............................. 2 0.35 -- --
Neustadt, Germany ........................ 1 0.28 -- --
Paris, France ............................ 3 0.66 57 6.36
Rotterdam, Netherlands ................... 3 0.47 3 0.52
Soest, Germany ........................... 1 0.31 -- --
Warsaw, Poland ........................... 3 0.72 9 1.84
---------- ---------- ---------- ----------
Subtotal Europe(5)(6)(7)(8) ........ 18 3.68 76 9.90
---------- ---------- ---------- ----------
Total ............................ 1,285(9) 100.00% 1,379(9) 100.00%
========== ========== ========== ==========
21
----------
(1) Facilities under development are reflected at their total budgeted
development cost, rather than cost incurred to date.
(2) In January 2001, ProLogis acquired three operating facilities in Memphis,
Tennessee aggregating 0.7 million square feet for $16.6 million. These
facilities were acquired to complete a tax-deferred exchange transaction.
(3) In January 2001, ProLogis contributed three facilities to ProLogis North
American Properties Fund I in exchange for an additional equity interest of
$34.1 million. The three facilities, one located in Atlanta and two located
in Dallas/Ft. Worth, aggregated 0.9 million square feet.
(4) In 2000, includes one facility each in Akron, Ohio, Detroit, Michigan and
Norfolk, Virginia. In 1999, includes one facility each in Akron, Ohio,
Boston, Massachusetts and Norfolk, Virginia and 21 facilities in Detroit,
Michigan, 20 of which were disposed of during 2000.
(5) In January 2001, ProLogis contributed two additional facilities located in
France (Lyon and Paris) to ProLogis European Properties Fund. These
facilities aggregated 0.4 million square feet and generated net proceeds of
$16.1 million.
(6) Does not include facilities owned by the Kingspark entities (13 operating
facilities and 12 facilities under development as of December 31, 2000 and
15 operating facilities and 14 facilities under development as of December
31, 1999). See "-- Unconsolidated Entities -- CDFS Business" and Note 4 to
ProLogis' Consolidated Financial Statements in Item 8.
(7) On January 7, 2000, ProLogis contributed 50.1% of the common stock of
ProLogis European Properties S.a.r.l., one of its wholly owned European
entities, to ProLogis European Properties Fund in exchange for an equity
interest. ProLogis European Properties S.a.r.l. owned 60 facilities (54
facilities in Paris, four facilities in Warsaw, one facility in Lyon and
one facility in Rotterdam) as of December 31, 2000. The remaining 49.9% of
the common stock of ProLogis European Properties S.a.r.l. was contributed
to ProLogis European Properties Fund by ProLogis on January 7, 2001 in
exchange for an additional equity interest.
(8) ProLogis is committed to contribute substantially all of its stabilized
facilities in Europe to ProLogis European Properties Fund, subject to
meeting specified criteria.
(9) Includes 41 facilities under development as of December 31, 2000 and 51
facilities under development as of December 31, 1999.
FACILITIES
The information in the following table is as of December 31, 2000 for the
facilities owned by ProLogis and its consolidated entities in North America and
Europe. No individual facility or group of facilities operated as a single
business unit amounted to 10% or more of ProLogis' consolidated total assets as
of December 31, 2000 or generated gross revenue equal to 10% or more of
ProLogis' consolidated gross revenues for the year ended December 31, 2000. The
table does not include facilities that are owned by ProLogis' unconsolidated
entities which are discussed under "-- Unconsolidated Entities".
22
PERCENTAGE RENTABLE
NO. OF OCCUPANCY SQUARE INVESTMENT ENCUMBRANCES
BLDGS. (1) FOOTAGE (2) (3)
------------ ------------ ------------ -------------- ------------
OPERATING FACILITIES OWNED AS
OF DECEMBER 31, 2000(4):
NORTH AMERICAN
MARKETS(5)(6):
Atlanta, Georgia ............. 95 88.04% 9,131,533 $ 277,710,625 $ 38,607,740
Austin, Texas ................ 35 94.66 2,156,609 84,052,795 --
Birmingham, Alabama .......... 6 100.00 1,135,278 34,416,812 --
Charlotte, North
Carolina ................... 32 95.70 3,980,670 118,844,478 41,209,222
Chattanooga, Tennessee ....... 5 100.00 1,147,872 15,441,941 --
Chicago, Illinois ............ 61 93.51 7,689,671 309,206,016 45,610,450
Cincinnati, Ohio ............. 45 88.44 5,031,002 131,029,528 40,704,183
Columbus, Ohio ............... 31 94.96 5,747,391 182,533,445 40,274,070
Dallas/Fort Worth, Texas ..... 116 86.64 11,805,472 393,707,124 67,742,912
Denver, Colorado ............. 26 95.26 3,094,209 83,268,800 --
El Paso, Texas ............... 18 89.86 2,231,903 61,309,592 3,127,999
Fort Lauderdale/Miami,
Florida .................... 16 91.04 1,694,808 75,129,319 1,967,842
Houston, Texas ............... 82 95.20 7,210,747 215,316,366 47,468,959
I-95 Corridor, New
Jersey ..................... 30 95.31 4,836,537 212,130,095 28,339,021
Indianapolis, Indiana ........ 43 87.07 4,187,721 128,884,247 --
Juarez, Mexico ............... 7 84.98 487,152 16,921,649 --
Kansas City,
Kansas/Missouri ............ 29 95.83 1,578,487 59,009,721 13,086,357
Las Vegas, Nevada ............ 18 92.97 2,296,811 101,591,116 18,282,310
Los Angeles/Orange County,
California ................. 2 100.00 289,283 13,762,044 --
Louisville, Kentucky ......... 7 100.00 1,469,988 35,339,694 6,339,495
Memphis, Tennessee ........... 39 90.54 5,415,819 140,240,324 14,485,041
Monterrey, Mexico ............ 10 84.82 1,167,403 44,616,155 --
Nashville, Tennessee ......... 29 88.99 3,084,949 75,122,667 --
Oklahoma City, Oklahoma ...... 6 98.73 639,942 11,000,738 --
Orlando, Florida ............. 23 91.22 2,112,100 85,507,117 12,455,664
Phoenix, Arizona ............. 31 96.82 2,289,922 77,084,915 --
Portland, Oregon ............. 26 95.42 1,957,401 73,589,606 375,637
Reno, Nevada ................. 19 91.57 2,327,917 60,326,214 --
Reynosa, Mexico .............. 12 86.32 1,140,853 34,169,766 --
Rio Grande Valley
(Brownsville), Texas ....... 14 99.65 916,746 24,829,871 2,683,148
Salt Lake City, Utah ......... 7 98.19 1,643,468 43,068,889 --
San Antonio, Texas ........... 46 93.39 3,906,603 99,555,608 --
Seattle, Washington .......... 15 100.00 1,390,447 61,507,597 4,891,877
San Francisco (East Bay),
California ................. 54 89.21 5,768,799 220,953,837 14,933,566
San Francisco (South Bay),
California ................. 71 99.87 3,694,781 229,646,338 19,194,697
St. Louis, Missouri .......... 15 85.97 1,621,825 48,473,098 9,299,966
Tampa, Florida ............... 58 97.56 3,325,581 123,217,800 29,143,272
Tijuana, Mexico .............. 4 88.24 615,120 22,447,732 --
Tulsa, Oklahoma .............. 9 100.00 523,623 11,894,023 --
Washington D.C./Baltimore,
Maryland ................... 40 97.14 3,619,350 145,650,708 36,957,185
Other ........................ 3 100.00 160,998 5,529,529 431,360
------------ ------------ ------------ -------------- ------------
Subtotal North
America(5)(6) ........... 1,235 92.45 124,526,791 4,188,037,939 537,611,973
------------ ------------ ------------ -------------- ------------
EUROPEAN
MARKETS(7)(8)(9):
Lille, France(10) ............ 1 48.18 16,587 2,824,877 --
Lyon, France ................. 1 100.00 225,194 6,390,328 --
Milan, Italy ................. 2 -- 444,122 16,197,430 --
Paris, France ................ 1 100.00 126,477 8,724,797 --
Rotterdam, Netherlands ....... 2 -- 435,420 15,742,227 --
Warsaw, Poland ............... 2 57.26 500,655 22,358,816 --
------------ ------------ ------------ -------------- ------------
Subtotal
Europe(7)(8)(9) ......... 9 36.97 1,748,455 72,238,475 --
------------ ------------ ------------ -------------- ------------
TOTAL OPERATING
FACILITIES OWNED AS
OF DECEMBER 31,
2000(4) ............... 1,244 91.68% 126,275,246 $4,260,276,414 $537,611,973
============ ============ ============ ============== ============
23
BUDGETED
RENTABLE DEVELOPMENT
NO. OF SQUARE INVESTMENT COSTS
BLDGS. FOOTAGE (2) (11)
------------ ------------ ------------ ------------
FACILITIES UNDER DEVELOPMENT AS OF
DECEMBER 31, 2000(12)(13):
NORTH AMERICAN MARKETS:
Atlanta, Georgia ...................... 2 702,000 $ 10,331,338 $ 20,880,728
Austin, Texas ......................... 2 209,600 5,339,880 8,401,120
Chicago, Illinois ..................... 3 725,072 19,699,727 34,551,156
Cincinnati, Ohio ...................... 2 214,080 4,824,015 7,273,887
Columbus, Ohio ........................ 1 289,280 6,763,336 8,017,382
El Paso, Texas ........................ 1 239,131 5,368,005 7,414,958
Fort Lauderdale/Miami, Florida ........ 1 94,500 3,923,087 4,815,121
I-95 Corridor, New Jersey ............. 1 299,000 9,499,837 13,473,972
Los Angeles/Orange County,
California .......................... 4 1,084,192 43,248,515 60,824,068
Louisville, Kentucky .................. 1 350,000 7,811,525 11,232,967
Memphis, Tennessee .................... 1 360,000 8,486,140 9,790,347
Reno, Nevada .......................... 1 218,500 2,233,218 8,133,784
Reynosa, Mexico ....................... 3 360,294 9,154,508 12,631,053
Tijuana, Mexico ....................... 1 141,290 3,334,101 5,164,760
Washington D.C./Baltimore,
Maryland ............................ 8 1,037,261 16,963,318 44,862,321
------------ ------------ ------------ ------------
Subtotal North America .............. 32 6,324,200 156,980,550 257,467,624
------------ ------------ ------------ ------------
EUROPEAN MARKETS:
Brabant, Netherlands .................. 1 307,700 6,911,138 12,405,285
Cologne, Germany ...................... 1 206,938 4,798,071 12,831,443
Marseille, France ..................... 1 230,576 1,247,178 6,537,121
Neustadt, Germany ..................... 1 212,266 903,551 12,986,249
Paris, France ......................... 2 675,129 4,709,040 21,932,720
Rotterdam, Netherlands ................ 1 157,154 1,056,700 6,135,349
Soest, Germany ........................ 1 305,579 2,136,294 14,204,828
Warsaw, Poland ........................ 1 291,940 7,277,460 10,678,623
------------ ------------ ------------ ------------
Subtotal Europe ..................... 9 2,387,282 29,039,432 97,711,618
------------ ------------ ------------ ------------
TOTAL FACILITIES UNDER
DEVELOPMENT AS OF DECEMBER 31,
2000(12)(13) ................... 41 8,711,482 $186,019,982 $355,179,242
============ ============ ============ ============
INVESTMENT ENCUMBRANCES
ACREAGE (2) (3)
------------ ------------ ------------
LAND HELD FOR DEVELOPMENT AS OF DECEMBER 31,
2000(14)(15):
NORTH AMERICAN MARKETS:
Atlanta, Georgia ............................ 228.3 $ 14,624,463 $ --
Austin, Texas ............................... 7.2 763,323 --
Charlotte, North Carolina ................... 25.3 2,554,060 --
Chicago, Illinois ........................... 245.0 32,623,248 --
Cincinnati, Ohio ............................ 90.2 6,658,637 --
Columbus, Ohio .............................. 56.5 2,242,658 --
Dallas/Fort Worth, Texas .................... 182.6 11,390,734 --
Denver, Colorado ............................ 15.6 1,405,890 --
El Paso, Texas .............................. 108.3 6,448,009 --
Houston, Texas .............................. 64.9 5,299,734 --
I-95 Corridor, New Jersey ................... 10.1 739,801 --
Indianapolis, Indiana ....................... 72.7 5,873,642 --
Juarez, Mexico .............................. 21.4 3,812,547 --
Kansas City, Kansas/Missouri ................ 16.6 1,511,000 --
Las Vegas, Nevada ........................... 61.8 6,937,917 312,974
Los Angeles/Orange County, California ....... 27.8 5,892,455 --
Louisville, Kentucky ........................ 13.0 600,409 --
Memphis, Tennessee .......................... 47.9 3,631,205 --
Monterrey, Mexico ........................... 25.9 3,875,347 --
Orlando, Florida ............................ 28.1 2,788,623 --
Portland, Oregon ............................ 18.0 2,848,334 --
Reno, Nevada ................................ 30.1 4,196,675 --
Reynosa, Mexico ............................. 82.6 6,456,419 --
Rio Grande Valley (Brownsville), Texas ...... 14.8 439,288 --
Salt Lake City, Utah ........................ 30.3 2,015,954 --
San Antonio, Texas .......................... 58.1 5,289,233 --
San Francisco (East Bay), California ........ 77.6 5,953,538 --
Seattle, Washington ......................... 10.6 1,919,882 --
Tampa, Florida .............................. 53.2 3,758,156 --
Tijuana, Mexico ............................. 14.1 2,926,257 --
Washington D.C./Baltimore, Maryland ......... 22.3 1,960,650 --
------------ ------------ ------------
Subtotal North America .................... 1,760.9 157,438,088 312,974
------------ ------------ ------------
EUROPEAN MARKETS:
Barcelona, Spain ............................ 70.8 19,971,847 --
Brabant, Netherlands ........................ 8.9 1,710,486 --
Cologne, Germany ............................ 13.4 613,824 --
La Havre, France ............................ 123.6 1,105,112 --
Lyon, France ................................ 17.6 2,014,115 --
Milan, Italy ................................ 16.2 1,223,960 --
Tongeren, Belgium ........................... 3.3 182,189 --
Warsaw, Poland .............................. 32.3 3,145,201 --
------------ ------------ ------------
Subtotal Europe ........................... 286.1 29,966,734 --
------------ ------------ ------------
TOTAL LAND HELD FOR DEVELOPMENT AS OF
DECEMBER 31, 2000(14)(15) ............ 2,047.0 $187,404,822 $ 312,974
============ ============ ============
24
BUDGETED
RENTABLE DEVELOPMENT
NO. OF SQUARE INVESTMENT COST ENCUMBRANCES
BLDGS. ACREAGE FOOTAGE (2) (11) (3)
------------ ------------ ------------ -------------- ------------ ------------
GRAND TOTALS AS OF DECEMBER 31,
2000:
Operating Facilities ............ 1,244 n/a 126,275,246 $4,260,276,414 n/a $537,611,973
Facilities Under Development .... 41 n/a 8,711,482 186,019,982 $355,179,242 n/a
Land Held for Development ....... n/a 2,047.0 n/a 187,404,822 n/a 312,974
------------ ------------ ------------ -------------- ------------ ------------
Totals ................... 1,285 2,047.0 134,986,728 $4,633,701,218(16) $355,179,242 $537,924,947
============ ============ ============ ============== ============ ============
----------
(1) Percentage Occupancy is physical occupancy for the facility as of
December 31, 2000. Operating facilities as of December 31, 2000
include recently completed development facilities in initial lease-up
(3.4 million square feet completed in the fourth quarter of 2000)
which impacts the overall occupancy percentage as of December 31,
2000.
(2) Investment is as of December 31, 2000 and represents ProLogis'
historical cost.
(3) Certain facilities are pledged as collateral under ProLogis' mortgage
notes, securitized debt and assessment bonds as of December 31, 2000.
See Schedule III -- Real Estate and Accumulated Depreciation to
ProLogis' Consolidated Financial Statements in Item 8 for specific
facilities pledged.
(4) All assets are utilized in the property operations segment. See "Item
1 -- Business -- ProLogis Trust".
(5) In January 2001, ProLogis acquired three operating facilities in
Memphis, Tennessee aggregating 0.7 million square feet for $16.6
million. These facilities were acquired to complete a tax-deferred
exchange transaction.
(6) In January 2001, ProLogis contributed three facilities to ProLogis
North American Properties Fund I in exchange for an additional equity
interest of $34.1 million. The three facilities, one located in
Atlanta and two located in Dallas/Ft. Worth, aggregated 0.9 million
square feet.
(7) In January 2001, ProLogis contributed two additional facilities
located in France (Lyon and Paris) to ProLogis European Properties
Fund. These facilities aggregated 0.4 million square feet and
generated net proceeds of $16.1 million.
(8) ProLogis is committed to contribute substantially all of its
stabilized facilities in Europe to ProLogis European Properties Fund,
subject to meeting specified criteria.
(9) Does not include 13 operating facilities with an investment of $139.2
million and 12 facilities under development with a total budgeted cost
of $136.2 million owned by the Kingspark entities in the United
Kingdom as of December 31, 2000. Beginning January 2, 2001, the
accounts of the Kingspark entities will be consolidated in ProLogis'
financial statements along with ProLogis' other majority-owned and
controlled subsidiaries and partnerships. See "-- Unconsolidated
Entities -- CDFS Business" and Note 4 to ProLogis' Consolidated
Financial Statements in Item 8.
(10) Represents an office building acquired as part of a portfolio
acquisition.
(11) Represents the total budgeted development cost at completion for
facilities under development, which includes the cost of land, fees,
permits, payments to contractors, architectural and engineering fees
and interest and property taxes to be capitalized during construction,
rather than costs incurred to date.
25
(12) All of the facilities under development are expected to be utilized in
the CDFS business segment. See "Item 1 -- Business -- ProLogis Trust".
(13) Includes 0.8 million square feet in the design and permitting stage.
(14) All of the land held for future development is expected to be utilized
in the CDFS business segment for the development of approximately 36.2
million square feet of distribution facilities. See "Item 1 --
Business -- ProLogis Trust". Does not include 1,232 acres of land
controlled under option, letter of intent or contingent contract with
the capacity of developing approximately 21.2 million square feet of
distribution facilities.
(15) Does not include 332 acres of land owned and 1,515 acres of land under
control by the Kingspark entities in the United Kingdom as of December
31, 2000 which has the combined capacity for the development of
approximately 28.3 million square feet of distribution facilities.
(16) See Schedule III -- Real Estate and Accumulated Depreciation to
ProLogis' Consolidated Financial Statements in Item 8 for a
reconciliation of this amount to ProLogis' total investment in real
estate.
CONSOLIDATED ENTITIES
Partnerships
As of December 31, 2000, ProLogis held a majority interest in and
controlled five partnerships (collectively, the "Partnerships"), which are
consolidated with the accounts of ProLogis. Generally, pursuant to the
Partnership agreements, ProLogis or one of its wholly owned entities, is the
sole controlling general partner and has full responsibility for the management
and control of the Partnerships. The limited partners have no authority to
transact business for, or, except as noted below, participate in the management
decisions of, the Partnerships. However, any decision to amend certain
provisions of the applicable partnership agreement, to dissolve a Partnership
prior to the term set forth in the applicable partnership agreement or to enter
into certain extraordinary transactions would require the consent of all limited
partners. Pursuant to the partnership agreements, ProLogis, or its wholly owned
entity, as the case may be, may not voluntarily withdraw from the applicable
Partnership or transfer or assign its interests in the Partnership without the
consent of all of the limited partners thereto. The limited partners may freely
transfer their Partnership units to affiliates, provided that such transfer does
not cause a termination of the Partnership for federal income tax purposes and
does not cause ProLogis to cease to comply with requirements under the Code for
qualification as a REIT. Each of the Partnership agreements grants to the
limited partners the right to exchange their Partnership units for ProLogis
common shares of beneficial interest, par value $0.01 per share, ("Common
Shares"), subject to certain conditions. For financial reporting purposes, the
assets, liabilities, results of operations and cash flows of each of the
Partnerships are included in ProLogis' consolidated financial statements, and
the interests of the limited partners are reflected as minority interest. See
Note 6 to ProLogis' Consolidated Financial Statements in Item 8. The
Partnerships, which are part of the property operations segment, are as follows
as of December 31, 2000:
INVESTMENT LIMITED
FORMATION IN REAL ESTATE PROLOGIS' PARTNERSHIP UNITS
ENTITY DATE (IN MILLIONS) OWNERSHIP OUTSTANDING
------------ -------------- ------------ -----------------
ProLogis Limited
Partnership-I(1) ..................... 1993 $ 211.0(2) 68.70% 4,520,532(3)
ProLogis Limited
Partnership-II ....................... 1994 $ 58.3(4) 97.80% 90,213(3)
ProLogis Limited
Partnership-III ...................... 1994 $ 52.0(5) 86.39% 376,347(3)
ProLogis Limited
Partnership-IV(6) .................... 1994 $ 103.9(7) 98.50% 68,612(3)
Meridian Realty Partners Limited
Partnership .......................... (8) $ 10.4(9) 88.00% 29,712(10)
----------
(1) These facilities cannot be sold, prior to the occurrence of certain
events, without the consent of the limited partners thereto, other
than in tax-deferred exchange transactions.
(2) Facilities are located in the San Francisco (both South Bay and East
Bay) and Tampa markets.
26
(3) Convertible into Common Shares on a one for one basis.
(4) Facilities are located in the Charlotte, Dallas/Ft. Worth, Denver, El
Paso, San Francisco (East Bay), St. Louis and Washington,
D.C./Baltimore markets.
(5) Facilities are located in the Chicago, Ft. Lauderdale/Miami, Norfolk,
Orlando, San Antonio and Tampa markets.
(6) ProLogis Limited Partnership-IV was formed through a cash contribution
from a wholly owned subsidiary of ProLogis, ProLogis-IV, Inc., and the
contribution of distribution facilities from the limited partner.
ProLogis Limited Partnership-IV and ProLogis-IV, Inc. are legal
entities separate and distinct from ProLogis, its affiliates and each
other, and each has separate assets, liabilities, business functions
and operations. The sole assets of ProLogis-IV, Inc. are its general
partner advances to and its interest in ProLogis Limited
Partnership-IV. As of December 31, 2000, ProLogis Limited
Partnership-IV had outstanding borrowings from ProLogis-IV, Inc., of
$0.4 million and ProLogis-IV, Inc. had outstanding borrowings from
ProLogis and its affiliates of $0.4 million.
(7) Facilities are located in the Akron, Cincinnati, Dallas/Ft. Worth, Ft.
Lauderdale/Miami, I-95 New Jersey Corridor, Orlando and Tampa markets.
(8) Acquired in merger with Meridian in March 1999. See Note 11 to
ProLogis' Consolidated Financial Statements in Item 8.
(9) Facility is located in the Los Angeles/Orange County market.
(10) Convertible into Common Shares on a 1.1 for one basis, plus $2.00.
ProLogis Development Services
ProLogis Development Services, which is part of the CDFS business segment,
develops distribution facilities that are often disposed of to customers, third
parties or entities in which ProLogis maintains an ownership interest. ProLogis
Development Services also contracts on a fee basis to develop distribution
facilities for customers or third parties. ProLogis owns 100% of the non-voting
preferred stock of ProLogis Development Services representing a 95% interest in
ProLogis Development Services' earnings. ProLogis advances mortgage loans to
ProLogis Development Services to fund its acquisition, development and
construction activities. A charitable trust owns 100% of the voting common stock
of ProLogis Development Services but has no substantive role in the
decision-making process regarding the operations of ProLogis Development
Services. Accordingly, ProLogis has control of ProLogis Development Services and
it is consolidated with ProLogis. ProLogis Development Services' real estate
assets represented 9.7% of ProLogis' total real estate assets (at cost) as of
December 31, 2000. ProLogis Development Services is not a qualified REIT
subsidiary of ProLogis under the Code. Accordingly, provisions for federal and
state income taxes are recognized, as appropriate. In October 2001, ProLogis
acquired the voting common stock of ProLogis Development Services from the
charitable trust for $1.3 million. As a result, ProLogis owns all of the
outstanding stock of ProLogis Development Services.
UNCONSOLIDATED ENTITIES
As of December 31, 2000, ProLogis' investments in and advances to
unconsolidated entities totaled $1.45 billion. These investments were structured
to either allow ProLogis to comply with the requirements of the Code to qualify
as a REIT or to further ProLogis' objective of increasing cash flows without
raising additional capital through direct public debt and public equity
offerings.
ProLogis invested in the non-voting preferred stock of certain entities
that have ownership interests in companies that produce income that is not REIT
"qualifying" income (i.e., rental income and mortgage interest income) under the
Code. To maintain its qualification as a REIT, ProLogis can collectively invest
in these entities in amounts up to 25% of the fair market value of ProLogis'
total assets, with a maximum per company investment of 5% of the fair market
value of ProLogis' total assets. Of these investments, ProLogis Development
Services, ProLogis Logistics, Frigoscandia S.A. and the Kingspark entities all
own properties. ProLogis accounts for the investments in ProLogis Logistics,
Frigoscandia S.A. and the Kingspark entities under the equity method. These
entities' investments in properties are discussed under "-- CDFS Business" and
"-- Temperature-Controlled Distribution Operations". ProLogis Development
Services is consolidated with ProLogis. Properties owned by ProLogis Development
Services are included in the tables in "-- Geographic Distribution" and "--
Facilities" and ProLogis Development Services is discussed in "--
27
Consolidated Entities--ProLogis Development Services". See also "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- New Tax Legislation".
The entities discussed below under "-- Property Operations" were all formed
to allow ProLogis to generate capital for future development activities while
still maintaining an ownership position in the facilities. All of ProLogis'
unconsolidated entities are discussed in Note 4 to ProLogis' Consolidated
Financial Statements in Item 8.
Property Operations
As of December 31, 2000, ProLogis had a 50.0% ownership interest in
ProLogis California, a 34.4% ownership interest in ProLogis European Properties
Fund, a 20.0% ownership interest in ProLogis North America Properties Fund I and
a 20.0% ownership interest in ProLogis Principal. See "Item 1. Business --
Business Strategy and Operating Segments -- Property Operations Segment", "Item
7. Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Results of Operations -- Property Operations" and Note 4 to
ProLogis' Consolidated Financial Statements in Item 8.
RENTABLE PERCENTAGE
NO. OF SQUARE OCCUPANCY INVESTMENT
BLDGS. FOOTAGE (1) (2)
-------------- -------------- -------------- --------------
NORTH AMERICA:
ProLogis California(3):
Los Angeles/Orange County,
California ............................ 77 12,394,603 99.02% $ 581,845,469(4)
-------------- -------------- -------------- --------------
ProLogis North American Properties
Fund I(5):
Atlanta, Georgia ......................... 4 970,568 100.00% 35,074,211
Chicago, Illinois ........................ 1 249,576 100.00% 14,753,864
Cincinnati, Ohio ......................... 2 297,720 100.00% 15,028,916
Columbus, Ohio ........................... 2 888,691 94.62% 30,242,818
Dallas/Fort Worth, Texas ................. 1 492,500 100.00% 21,463,926
Denver, Colorado ......................... 2 198,892 100.00% 9,113,621
El Paso, Texas ........................... 1 354,159 100.00% 13,600,194
Houston, Texas ........................... 2 238,450 100.00% 10,854,536
Indianapolis, Indiana .................... 2 719,829 86.77% 21,409,477
Louisville, Kentucky ..................... 3 905,800 86.75% 33,686,361
Nashville, Tennessee ..................... 1 412,800 100.00% 14,799,607
Northern New Jersey ...................... 5 1,100,320 96.18% 58,916,082
Phoenix, Arizona ......................... 1 156,410 100.00% 6,764,834
Salt Lake City, Utah ..................... 3 396,600 100.00% 16,964,603
San Antonio, Texas ....................... 1 244,800 100.00% 9,025,547
San Francisco (East Bay),
California ............................ 2 404,400 100.00% 16,923,718
-------------- -------------- -------------- --------------
33 8,031,515 96.20% 328,622,315(6)
-------------- -------------- -------------- --------------
ProLogis Principal:
Dallas/Fort Worth, Texas ................. 3 440,016 100.00% 16,513,899(7)
-------------- -------------- -------------- --------------
Subtotal North America ........... 113 20,866,134 97.95% 926,981,683
-------------- -------------- -------------- --------------
EUROPE:
ProLogis European Properties
Fund(8)(9):
Amsterdam, Netherlands ................... 5 804,564 100.00% 55,965,952
Annecy, France ........................... 1 47,028 99.59% 2,336,941
Barcelona, Spain ......................... 1 125,648 100.00% 5,381,639
Birmingham, United Kingdom ............... 5 714,116 100.00% 66,465,450
Gelderland, Netherlands .................. 2 499,880 100.00% 16,943,161
Lille, France ............................ 12 376,492 100.00% 12,457,154
London, United Kingdom ................... 5 1,534,763 96.55% 157,133,640
Lyon, France ............................. 3 1,147,981 100.00% 36,286,109
Marseille, France ........................ 1 415,383 99.54% 20,641,441
Metz, France ............................. 1 193,042 100.00% 6,685,238
Paris, France ............................ 55 6,329,903 93.09% 295,634,811
Rotterdam, Netherlands ................... 6 1,161,906 100.00% 56,135,504
Tongeren, Belgium ........................ 1 226,797 100.00% 8,433,913
Venlo, Netherlands ....................... 1 232,383 100.00% 11,069,274
Warsaw, Poland ........................... 5 574,937 95.42% 40,712,816
-------------- -------------- -------------- --------------
Subtotal Europe .................. 104 14,384,823 96.39% 792,283,043(10)
-------------- -------------- -------------- --------------
TOTAL UNCONSOLIDATED
ENTITIES ....................... 217 35,250,957 97.32% $1,719,264,726
============== ============== ============== ==============
----------
(1) Percentage Occupancy is physical occupancy for the facility as of
December 31, 2000.
28
(2) Investment represents 100% of the entities' historical cost in the
assets as of December 31, 2000.
(3) ProLogis California also had a 332,000 square foot facility under
development and 10.7 acres of land for future development in Los
Angeles. In January 2001, ProLogis California acquired a 326,000
square foot facility from a third party for $11.3 million.
(4) ProLogis had a 50.0% ownership interest in ProLogis California as of
December 31, 2000.
(5) In January 2001, ProLogis North American Properties Fund I acquired
three facilities, one located in Atlanta and two located in Dallas/Ft.
Worth from ProLogis aggregating 0.9 million square feet for an
additional $34.1 million equity interest. After this contribution,
ProLogis' ownership interest in ProLogis North American Properties
Fund I was 41.3%.
(6) ProLogis had a 20.0% ownership interest in ProLogis North American
Properties Fund I as of December 31, 2000.
(7) ProLogis had a 20.0% ownership interest in ProLogis Principal as of
December 31, 2000.
(8) Includes all of the facilities owned by ProLogis European Properties
S.a.r.l., which is owned by ProLogis European Properties Fund (50.1%)
and ProLogis (49.9%). ProLogis European Properties S.a.r.l. owned 60
operating facilities aggregating 6.6 million square feet in three
countries (54 of the facilities are located in France) as of December
31, 2000. On January 7, 2001, ProLogis contributed its 49.9% of the
common stock of ProLogis European Properties S.a.r.l. to ProLogis
European Properties Fund in exchange for an additional equity interest
bringing its ownership interest in ProLogis European Properties Fund
to 45.6%.
(9) In January 2001, ProLogis European Properties Fund acquired four
facilities from ProLogis and the Kingspark entities. The two
facilities acquired from ProLogis aggregated 0.4 million square feet
and are located in Lyon and Paris, France. The two facilities acquired
from the Kingspark entities aggregated 0.7 million square feet and are
located in Birmingham, United Kingdom. The total acquisition price for
the four facilities was $87.0 million, of which $8.7 million was
received by ProLogis and the Kingspark entities in the form of an
additional equity interest.
(10) ProLogis had a 34.4% ownership interest in ProLogis European
Properties Fund as of December 31, 2000.
CDFS Business
ProLogis recognizes 95% of the earnings of the Kingspark entities through
its ownership of 100% of the non-voting preferred stock of Kingspark S.A. As of
December 31, 2000, the Kingspark entities owned 13 operating facilities
aggregating 1.6 million square feet at an investment of $139.2 million and 12
facilities under development aggregating 1.5 million square feet with a total
budgeted development cost of $136.2 million. In addition, the Kingspark entities
owned 332 acres and controlled 1,515 acres of land through purchase option,
letter of intent, development rights agreement or contingent contract as of
December 31, 2000. This land has the combined capacity for the future
development of approximately 28.3 million square feet of distribution
facilities. The Kingspark entities' facilities and land acreage are located in
12 cities or counties in the United Kingdom. See "Item 1. Business -- Business
Strategy and Operating Segments -- CDFS Business Segment", "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations -- CDFS Business" and Note 4 to ProLogis' Consolidated
Financial Statements in Item 8.
Temperature-Controlled Distribution Operations
o ProLogis recognizes 95% of the earnings of ProLogis Logistics, which
owns 100% of CSI. As of December 31, 2000, CSI owned or operated under
lease agreements 59 facilities aggregating 175.9 million cubic feet of
temperature-controlled distribution facilities (including 35.5 million
cubic feet of dry distribution space located in temperature-controlled
distribution facilities) in 28 cities in the United States and had 6.3
million cubic feet under development in Anaheim (4.0 million cubic
feet) and Houston (2.3 million cubic feet).
29
o ProLogis recognizes 95% of the earnings of Frigoscandia S.A., which
owns, through its subsidiaries, 100% of Frigoscandia. Frigoscandia
owned or operated under lease agreements 89 facilities aggregating
187.7 million of cubic feet of temperature-controlled distribution
facilities in 10 countries in Europe as of December 31, 2000.
See "Item 1. Business-- Business Strategy and Operating Segments --
Temperature-Controlled Distributions Operations Segment", "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations-- Temperature-Controlled Distribution Operations".
30
PART III
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AMENDED AND RESTATED INVESTOR AGREEMENT
ProLogis and Security Capital are parties to a Third Amended and
Restated Investor Agreement, dated as of September 9, 1997 (the "Investor
Agreement"). Pursuant to the Investor Agreement, Security Capital has the right,
so long as it owns between 10% and 25% of the Common Shares, to nominate one
person to the Board. So long as Security Capital owns 25% or more of the Common
Shares, Security Capital will be entitled to nominate a proportionate number of
persons to the Board subject to a maximum of three nominees if the size of the
Board does not increase above the current size of ten Trustees. In addition,
ProLogis is required to consult with Security Capital's nominees to the Board
prior to taking any action with respect to the following: (i) finalization of
the annual budget and substantial deviations therefrom; (ii) the acquisition or
sale of assets in a single transaction or group of related transactions where
the price exceeds $25 million; (iii) any contract for investment, property
management or leasing services: and (iv) any service contract providing for
payments in excess of $1.0 million. ProLogis has no obligation to follow the
advice of Security Capital with respect to the foregoing matters.
Under the Investor Agreement, so long as it owns at least 25% of the
Common Shares, Security Capital also has the right of prior approval with
respect to the following matters: (i) the issuance of equity securities or
securities convertible into equity securities (other than issuances in
connection with option, dividend reinvestment and similar plans) for less than
the fair market value of such securities; (ii) the issuance of any preferred
shares which would result in the Fixed Charge Coverage Ratio (as defined
therein) being less than 1.4 to 1.0; (iii) adopting any employee benefit plans
under which Common Shares may be issued; and (iv) the compensation of senior
officers of ProLogis; (v) the incurrence of additional indebtedness which would
result in the Interest Expense Coverage Ratio (as defined therein) being less
than 2.0 to 1.0.
ADMINISTRATIVE SERVICES AGREEMENT
ProLogis and a subsidiary of Security Capital entered into an
administrative services agreement (the "ASA"), pursuant to which Security
Capital provides ProLogis with certain administrative and other services with
respect to certain aspects of ProLogis' business, as selected from time to time
by ProLogis at its option. These services include, but are not limited to,
payroll and human resources, cash management, accounts payable, specified
information systems support, research and insurance services. These services are
provided in exchange for a fee based on negotiated rates for each service
provided. Total fees incurred under the ASA were $2.5 million in 2000. ProLogis
began transitioning these functions from Security Capital during 2000 and
ProLogis has assumed substantially all of the functions previously provided by
Security Capital. The ASA expired on December 31, 2000. Security Capital is
continuing to provide the services not yet assumed by ProLogis under a
month-to-month agreement until the transition is completed, for which ProLogis
paid $820,995 through December 31, 2001. ProLogis believes that the terms and
conditions of the administrative services agreement are as favorable as those
that could have been obtained from unaffiliated third parties.
FINANCIAL ADVISORY FEES
Macquarie Capital Partners LLC (prior to January 2001 Security Capital
Markets Group Incorporated), an affiliate of Security Capital, provided
financial advisory and investment banking services to ProLogis. During 2000,
ProLogis paid investment advisory fees of $104,000 to Security Capital Markets
Group Incorporated related to additional equity contributed by The New York
State Common Retirement Fund to ProLogis California I LLC, a limited liability
company whose members are ProLogis and The New York State Common Retirement
Fund.
PROTECTION OF BUSINESS AGREEMENT
Prior to September 9, 2000, Security Capital and ProLogis were parties
to a protection of business agreement which prohibited Security Capital and its
affiliates from providing, anywhere within the United States, directly or
indirectly, management services to any entity that owns or operates real
property that is or is planned to be used primarily for distribution and light
manufacturing properties. The protection of business agreement terminated on
September 9, 2000.
31
PARTNERSHIP AFFILIATIONS
As part of its acquisition program of industrial distribution
facilities, ProLogis has consummated certain transactions pursuant to which it
contributed cash, and third party partnerships contributed a portfolio of
facilities, to ProLogis Limited Partnership -- I. Irving F. Lyons, III,
President, Chief Investment Officer and Trustee of ProLogis, is a partner in
ProLogis Limited Partnership - I, holding an indirect 2.9% limited partnership
interest (which could increase to 3.3% if the partnership meets certain
distribution levels) valued at $8,906,323, based on the December 31, 2001
closing price of Common Shares. Mr. Lyons also owns minority interests in a
substantial amount of undeveloped industrial land near ProLogis' industrial
distribution parks in the San Francisco Bay Area. ProLogis has purchased options
and rights of first refusal with respect to all sales of land and build-to-suit
opportunities involving this property. The ProLogis Limited Partnership -- I
transaction and the prices for such options (which are fixed or determined
pursuant to formulas) were negotiated at arm's length prior to Mr. Lyons'
affiliation with ProLogis.
PREFERRED STOCK SUBSIDIARIES
ProLogis has invested in the non-voting preferred stock of certain
entities that have ownership interests in companies that produce income that is
not REIT qualifying income (i.e., rental income and mortgage interest income)
under the Code. The voting common stock of these companies was held by four
entities in which ProLogis did not have an ownership interest. ProLogis' largest
shareholder, Security Capital Group Incorporated, had a non-controlling
ownership interest in two of these entities. During 2000, certain amendments to
the Code were passed that were to be effective in January 2001. The Code, as
amended in 2001, would allow for ProLogis to have a voting ownership interest in
these entities; however, many of the states in which ProLogis operates had not
amended their income tax laws governing REITs to coincide with the amendments
made to the Code. For ProLogis to continue to qualify as a REIT under applicable
state income tax laws, the non-voting preferred stock ownership structure had to
continue after the Code amendments took effect in January 2001.
In anticipation of the changes in the Code, ProLogis began negotiating
purchase agreements with the owners of the voting common stock in three of the
entities. Rather than postpone the completion of these purchases pending changes
to the state income tax laws governing REITs, the purchase of the voting common
stock of each entity was completed with the voting interest in these entities
acquired by Mr. K. Dane Brooksher, ProLogis' chairman and chief executive
officer. The transactions through which Mr. Brooksher became an owner in these
entities are further discussed below. The purchase of the voting common stock of
one of the entities, ProLogis Development Services, was not completed until
October 2001. As the state income tax laws governing REITs had been amended at
that time, ProLogis directly acquired the voting common stock of this entity.
ProLogis is currently evaluating the most effective manner in which it holds its
investment in these entities as a result of the changes to applicable state
income tax laws.
On January 5, 2001, a newly formed limited liability company, Kingspark
LLC, of which Mr. Brooksher, ProLogis' chairman, is the voting member and
ProLogis is the non-voting member, acquired the ordinary shares of Kingspark
Holding S.A. (an entity in which ProLogis owns all of the non-voting preferred
stock) from Kingspark Holdings LLC (a limited liability company in which
unrelated third parties owned 100% of the voting interests and Security Capital
owned 100% of the non-voting interests) for approximately $8.1 million. The
entire purchase price of $8.1 million was funded by ProLogis either directly or
through loans to Kingspark LLC or Mr. Brooksher. The ProLogis loan to Kingspark
LLC was in the principal amount of $7.3 million, is due January 5, 2006 and
bears interest at an annual rate of 8%. ProLogis made a direct capital
contribution to Kingspark LLC in the amount of $770,973. Mr. Brooksher's $40,557
capital contribution to Kingspark LLC was loaned to Mr. Brooksher by ProLogis,
which recourse loan is payable on January 5, 2006 and bears interest at an
annual rate of 8%. ProLogis owns 95% of the membership interests (all
non-voting) and Mr. Brooksher owns 5% of the membership interests (all voting)
of Kingspark LLC and Mr. Brooksher is its managing member. Mr. Brooksher may
transfer his membership interest, subject to certain conditions, including the
approval of ProLogis. There are no provisions that give ProLogis the right to
acquire Mr. Brooksher's membership interest. Mr. Brooksher will not receive any
compensation in connection with being the managing member. His membership
interest entitles him to dividends equal to 5% of the net cash flow of Kingspark
LLC, as defined, if any. ProLogis structured the transaction in the manner
described above to enable ProLogis to continue to qualify as a REIT under
applicable state income tax laws. As the state income tax laws governing REITs
were eventually changed in 2001 such that ProLogis would be able to own 100% of
this entity, ProLogis is in the process of evaluating the most effective manner
to restructure its investment in this entity.
Also on January 5, 2001, a newly formed limited liability company of
which Mr. Brooksher is the voting member and ProLogis is the non-voting member,
acquired the common shares of Frigoscandia S.A. and ProLogis Logistics Services
Incorporated (both entities in which ProLogis owns all of the non-voting
preferred stock) for an aggregate of approximately $3.3 million. The common
shares of Frigoscandia S.A. were owned by a limited liability company in which
unrelated third parties owned 100% of the
32
voting interests and Security Capital owned 100% of the non-voting interests.
The common shares of ProLogis Logistics Services Incorporated were owned by a
limited liability company in which unrelated third parties owned all of the
membership interest. Mr. Brooksher contributed $50,000 to the capital of the
newly formed limited liability company. ProLogis loaned CSI/Frigo LLC $2.9
million, which loan is due January 5, 2011 and bears interest at an annual rate
of 8%. ProLogis also made a capital contribution to CSI/Frigo LLC in the amount
of $404,545. ProLogis owns 89% of the membership interests (all non-voting) and
Mr. Brooksher owns 11% of the membership interests (all voting) of CSI/Frigo
LLC. Mr. Brooksher is the managing member of CSI/Frigo LLC. Additionally,
ProLogis has a note agreement with CSI/Frigo LLC that allows ProLogis to
participate in its earnings such that ProLogis will recognize 95% of the
earnings of CSI/Frigo LLC. Mr. Brooksher may transfer his membership interest,
subject to certain conditions, including the approval of ProLogis. There are no
provisions that give ProLogis the right to acquire Mr. Brooksher's membership
interest. Mr. Brooksher will not receive any compensation in connection with
being the managing member. Mr. Brooksher's membership interest and the
provisions of the participating note entitle him to dividends equal to 5% of the
net cash flow of CSI/Frigo LLC, as defined, if any. ProLogis structured the
transaction in the manner described above to enable ProLogis to continue to
qualify as a REIT under applicable state income tax laws. As the state income
tax laws governing REITs were eventually changed in 2001 such that ProLogis
would be able to own 100% of this entity, ProLogis is in the process of
evaluating the most effective manner to hold its investments in these entities
given it's long-term objectives with respect to investments in this business
segment and given that it does not control these entities.
As a result of the foregoing transactions, Mr. Brooksher has an
effective 0.04% interest in the earnings of ProLogis Logistics Services
Incorporated, an effective 0.25% interest in the earnings of Frigoscandia S.A.
and an effective 0.25% interest in the earnings of Kingspark Holding S.A. Mr.
Brooksher receives no compensation in connection with his interest in these
companies.
In 2000, ProLogis invested in two technology companies whose income was
not REIT qualifying income under the Code (amendments to the Code and state
income tax laws governing REITs were not in effect at this time). These
investments were structured whereby ProLogis would have only a non-voting
preferred stock ownership interest. To complete the transactions, Mr. Brooksher
acquired the voting ownership interest in each entity. These investments are
discussed below.
In July 2000, ProLogis acquired an indirect interest in Vizional
Technologies, Inc. (formerly GoWarehouse.com, Inc.). In order to facilitate the
acquisition, ProLogis acquired all of the non-voting preferred stock of
GoProLogis Incorporated ("GoProLogis"), representing a 98% interest in the
earnings of GoProLogis. GoProLogis holds the direct investment in Vizional
Technologies, Inc. Mr. Brooksher acquired all of the voting common stock of
GoProLogis, representing a 2% interest in the earnings of GoProLogis and is
entitled to receive dividends equal to 2% of the net cash flow of GoProLogis, as
defined, if any. Mr. Brooksher contributed a $1.1 million recourse promissory
note to GoProLogis in exchange for his interest in the entity, which note is
payable on July 18, 2005 and bears interest at an annual rate of 8%. Mr.
Brooksher is not restricted from transferring his ownership interest in
GoProLogis and ProLogis does not have the right to acquire Mr. Brooksher's
ownership interest in 2000. However, beginning in 2001, an option agreement does
allow ProLogis to acquire Mr. Brooksher's ownership interest for a price equal
to the outstanding principal amount of the promissory note plus accrued and
unpaid interest. GoProLogis invested $25.0 million in the preferred stock of
Vizional Technologies. GoProLogis also received $30.4 million of preferred stock
of Vizional Technologies under a license agreement for the non-exclusive use of
the ProLogis Operating System(TM) over a five-year period. ProLogis structured
the transaction in the manner described above to enable ProLogis to continue to
qualify as a REIT under applicable state income tax laws. As the state income
tax laws governing REITs were eventually changed in 2001 such that ProLogis
would be able to own 100% of this entity, ProLogis is in the process of
evaluating the most effective manner to restructure its investment in this
entity.
In September 2000, ProLogis acquired an indirect interest in PhatPipe,
Inc. In order to facilitate the acquisition, ProLogis acquired all of the
non-voting preferred stock of ProLogis Broadband (1) Incorporated ("ProLogis
PhatPipe"), representing a 98% interest in the earnings of ProLogis PhatPipe.
ProLogis PhatPipe holds the direct investment in PhatPipe, Inc. Mr. Brooksher
acquired all of the voting common stock of ProLogis PhatPipe, representing a 2%
interest in the earnings of ProLogis PhatPipe and is entitled to receive
dividends equal to 2% of the net cash flow of ProLogis PhatPipe, as defined, if
any. Mr. Brooksher contributed an aggregate of $122,449 principal amount of
recourse promissory notes to ProLogis PhatPipe in exchange for his interest in
the entity. A promissory note with the principal amount of $71,429 is due
September 20, 2005 and a promissory note with the principal amount of $51,020 is
due January 4, 2006. Both notes bear interest at an annual rate of 8%. Mr.
Brooksher is not restricted from transferring his ownership interest in ProLogis
PhatPipe and ProLogis does not have the right to acquire Mr. Brooksher's
ownership interest in 2000. However, beginning in 2001, an option agreement does
allow ProLogis to acquire Mr. Brooksher's ownership interest for a price equal
to the outstanding principal amount of the promissory notes plus accrued and
unpaid interest. ProLogis PhatPipe invested $3.5 million in the preferred stock
of PhatPipe, Inc. and has committed to fund a total of $8.0 million in ProLogis
PhatPipe by March 31, 2001 pursuant to the terms of a stock purchase agreement.
ProLogis PhatPipe also received $3.5 million of preferred stock of
33
PhatPipe, Inc. under a license agreement for the non-exclusive use of the
ProLogis Operating System(TM) over a three-year period. ProLogis structured the
transaction in the manner described above to enable ProLogis to continue to
qualify as a REIT under applicable state income tax laws. As the state income
tax laws governing REITs were eventually changed in 2001 such that ProLogis
would be able to own 100% of this entity, ProLogis is in the process of
evaluating the most effective manner to restructure its investment in this
entity.
LEASING TRANSACTIONS
ProLogis leases space to Security Capital and certain of its affiliates
on market terms that management believes are no less favorable to ProLogis than
those that could be obtained with unaffiliated third parties. ProLogis' rental
income related to these leases were $534,000, $757,000, $756,000, and $717,000
for the years ended December 31, 2001, 2000, 1999, and 1998, respectively. As of
December 31, 2000, 109,804 square feet were leased to related parties. The
annualized rental revenue for these leases is $763,000. As of December 31, 2001,
60,103 square feet were leased to related parties. The annualized rental revenue
for these leases is $472,000.
LOANS TO EXECUTIVE OFFICERS
In 1997, ProLogis made the following loans to the Named Executive
Officers for the purchase price of Common Shares pursuant to the share purchase
program which loans remain outstanding (balances as of March 15, 2001): Mr.
Brooksher, $1,862,600; Mr. Lyons, $1,862,600; Mr. Rakowich, $931,300; Mr.
Seiple, $931,300, and Mr. Watson, $1,117,548. Each loan is full recourse to the
executive officer and is secured by the purchased Common Shares. The loans bear
interest at the lower of ProLogis' annual dividend yield on Common Shares or
6.0% per annum, and have a ten-year term. The loans will become due and payable
(i) immediately upon the sale of the purchased Common Shares or ProLogis'
termination of the executive officer's employment for cause, (ii) 180 days after
ProLogis' termination of the executive officer's employment following a change
in control, (iii) 365 days after termination of the executive officer's
employment by reason of death, disability or retirement or (iv) 90 days after
termination of the executive officer's employment for any other reason.
In 2001, ProLogis entered into a loan with K. Dane Brooksher. The
proceeds of the loan were used by Mr. Brooksher to repay a loan from Security
Capital which was made by Security Capital while Mr. Brooksher was an employee
of Security Capital. Under the terms of the promissory note, ProLogis lent Mr.
Brooksher $474,997.50, which amount was due on January 31, 2002. A payment of
$237,500 on the principal amount was paid to ProLogis in January 2001 from the
proceeds of Mr. Brooksher's target bonus for 2000. The balance was repaid by Mr.
Brooksher from the proceeds of Mr. Brooksher's target bonus for 2001 in January
2002. Interest on the unpaid principal amount outstanding accrued at a floating
rate per annum equal to ProLogis' line of credit rate charged by Bank of America
(LIBOR plus 75 basis points). Accrued interest is due and payable semi-annually
during the term of the loan beginning on January 4, 2001 and thereafter on each
July 4 and January 4 until payment in full.
In 2001, ProLogis entered into a loan with Robert J. Watson. The
proceeds of the loan were used by Mr. Watson to repay a loan from Security
Capital which was made by Security Capital while Mr. Watson was an employee of
Security Capital. Under the terms of the promissory note, ProLogis lent Mr.
Watson $90,000, which amount is due on September 1, 2003. Interest on the unpaid
principal amount outstanding accrues at a floating rate per annum equal to
ProLogis' line of credit rate charged by Bank of America (LIBOR plus 75 basis
points). Accrued interest is due and payable annually during the term of the
loan beginning on January 31, 2001 and thereafter on each January 31 until
payment in full.
SPECIAL EQUITY AGREEMENT
In December 2000, ProLogis and Mr. Brooksher entered into a Special
Equity Agreement. Pursuant to the agreement, the parties agreed that Mr.
Brooksher would continue his employment with ProLogis through December 31, 2003.
In connection with the agreement, ProLogis agreed that the expiration date of
each existing option held by Mr. Brooksher under the 1997 Long-Term Incentive
Plan shall be no later than the fifth anniversary of the first to occur of Mr.
Brooksher's retirement, disability or death but in no event later than the tenth
anniversary of the date on which the option was granted. ProLogis further agreed
that the expiration date of each option granted in the future to Mr. Brooksher
under the 1997 Long-Term Incentive Plan shall be no later than the fifth
anniversary of the first to occur of Mr. Brooksher's retirement, disability, or
death but in no event later than the tenth anniversary of the date on which the
option was granted. Notwithstanding the foregoing, any dividend equivalent units
granted with respect to options granted to or held by Mr. Brooksher will not be
credited after the first anniversary of the first to occur of Mr. Brooksher's
retirement, disability or death.
34
Pursuant to the Special Equity Agreement, ProLogis also agreed to grant Mr.
Brooksher on December 31, 2000, 167,500 restricted share units under the 1997
Long-Term Incentive Plan. The restricted share units granted to Mr. Brooksher
will vest in equal installments on December 31, 2004, 2005, 2006, and 2007,
subject to earlier vesting upon a change in control (as defined in the 1997
Long-Term Incentive Plan). Prior to settlement of the restricted share units,
dividends will be paid with respect to the restricted share units. The
restricted share units will be settled in Common Shares.
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements:
See Index to Consolidated Financial Statements, which is incorporated
herein by reference.
3. Exhibits:
See Index to Exhibits, which is incorporated herein by reference.
(c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are
listed in the Index to Exhibits, which is incorporated herein by reference.
36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III
PAGE
----
ProLogis Trust:
Report of Independent Public Accountants.......................................... 38
Consolidated Balance Sheets....................................................... 39
Consolidated Statements of Earnings............................................... 40
Consolidated Statements of Shareholders' Equity................................... 41
Consolidated Statements of Cash Flows............................................. 42
Notes to Consolidated Financial Statements........................................ 43
Report of Independent Public Accountants..........................................
Schedule III-- Real Estate and Accumulated Depreciation...........................
37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
ProLogis Trust
We have audited the accompanying consolidated balance sheets of ProLogis
Trust and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
did not audit the financial statements of Frigoscandia Holding AB accounted for
under the equity method of accounting, in which the Trust has investments in and
advances to amounting to $171.9 million and $196.9 million as of December 31,
2000 and 1999, respectively, and losses from unconsolidated entity of $20.0
million, $2.9 million and $7.6 million in 2000, 1999 and 1998, respectively. We
did not audit the financial statements of CS Integrated LLC accounted for under
the equity method of accounting, in which the Trust has an investment in and
advances to amounting to $225.8 million and $186.9 million as of December 31,
2000 and 1999 and earnings from unconsolidated entity of $8.0 million and $9.2
million in 2000 and 1999. These statements were audited by other auditors whose
reports were furnished to us, and our opinion, insofar as it relates to the
amounts included for these entities is based solely on the reports of the other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and the reports of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of ProLogis Trust and subsidiaries as of
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
March 15, 2001
38
PROLOGIS TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
------------------------------
2000 1999
------------ ------------
Real estate ...................................................... $ 4,689,492 $ 4,974,951
Less accumulated depreciation .................................. 476,982 366,703
------------ ------------
4,212,510 4,608,248
Investments in and advances to unconsolidated entities ........... 1,453,148 940,364
Cash and cash equivalents ........................................ 57,870 69,338
Accounts and notes receivable .................................... 50,856 46,998
Other assets ..................................................... 171,950 183,092
------------ ------------
Total assets ............................................ $ 5,946,334 $ 5,848,040
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit ................................................ $ 439,822 $ 98,700
Senior unsecured debt .......................................... 1,699,989 1,729,630
Other unsecured debt ........................................... -- 30,892
Secured debt ................................................... 537,925 695,586
Accounts payable and accrued expenses (including amount
due to affiliate of $221 in 1999) ............................ 107,494 117,872
Construction payable ........................................... 40,925 23,064
Distributions and dividends payable ............................ 57,739 54,939
Other liabilities .............................................. 88,439 81,549
------------ ------------
Total liabilities ....................................... 2,972,333 2,832,232
------------ ------------
Minority interest ................................................ 46,630 62,072
Shareholders' equity:
Series A Preferred Shares; $0.01 par value; 5,400,000
shares issued and outstanding at December 31, 2000 and
1999; stated liquidation preference of $25.00 per
share ........................................................ 135,000 135,000
Series B Convertible Preferred Shares; $0.01 par value;
6,256,100 shares issued and outstanding at December 31,
2000 and 7,020,703 shares issued and outstanding at
December 31, 1999; stated liquidation preference of
$25.00 per share ............................................. 156,403 175,518
Series C Preferred Shares; $0.01 par value; 2,000,000
shares issued and outstanding at December 31, 2000 and
1999; stated liquidation preference of $50.00 per
share ........................................................ 100,000 100,000
Series D Preferred Shares; $0.01 par value; 10,000,000
shares issued and outstanding at December 31, 2000 and
1999; stated liquidation preference of $25.00 per
share ........................................................ 250,000 250,000
Series E Preferred Shares; $0.01 par value; 2,000,000
shares issued and outstanding at December 31, 2000 and
1999; and stated liquidation preference of $25.00 per
share ........................................................ 50,000 50,000
Common shares of beneficial interest; $0.01 par value;
165,287,358 shares issued and outstanding at December
31, 2000 and 161,825,466 shares issued and outstanding
at December 31, 1999 ......................................... 1,653 1,618
Additional paid-in capital ....................................... 2,740,136 2,663,350
Employee share purchase notes .................................... (18,556) (22,906)
Accumulated other comprehensive income ........................... (33,768) (9,765)
Distributions in excess of net earnings .......................... (453,497) (389,079)
------------ ------------
Total shareholders' equity .............................. 2,927,371 2,953,736
------------ ------------
Total liabilities and shareholders' equity .............. $ 5,946,334 $ 5,848,040
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
39
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998
---------- ---------- ----------
Income:
Rental income .................................................. $ 480,088 $ 491,826 $ 345,046
Other real estate income ....................................... 78,103 46,678 17,554
Income from unconsolidated entities ............................ 78,063 22,519 2,755
Interest ....................................................... 7,267 6,369 2,752
---------- ---------- ----------
Total income ........................................... 643,521 567,392 368,107
---------- ---------- ----------
Expenses:
Rental expenses, net of recoveries $91,706 in 2000,
$87,907 in 1999 and $57,415 in 1998 and including
amounts paid to affiliate of $1,188 in 2000, $1,314 in
1999 and $984 in 1998 ....................................... 27,177 33,501 27,120
General and administrative, including amounts paid to
affiliate of $958 in 2000, $1,582 in 1999 and $1,992 in
1998 ........................................................ 44,954 38,284 22,893
Depreciation and amortization .................................. 151,483 152,447 100,590
Interest ....................................................... 172,191 170,746 77,650
Interest rate hedge expense .................................... -- 945 26,050
Other .......................................................... 5,909 4,920 6,187
---------- ---------- ----------
Total expenses ......................................... 401,714 400,843 260,490
---------- ---------- ----------
Earnings from operations ......................................... 241,807 166,549 107,617
Minority interest share in earnings .............................. 5,586 4,979 4,681
---------- ---------- ----------
Earnings before gain on disposition of real estate and
foreign currency exchange gains (losses) ....................... 236,221 161,570 102,936
Gain on disposition of real estate ............................... 1,314 38,994 5,565
Foreign currency hedge income .................................... -- -- 2,054
Foreign currency exchange gains (losses), net .................... (17,927) (16,818) 2,938
---------- ---------- ----------
Earnings before income taxes ..................................... 219,608 183,746 113,493
Income taxes:
Current income tax expense ..................................... 900 1,472 368
Deferred income tax expense .................................... 4,230 -- 1,796
---------- ---------- ----------
Total income taxes ..................................... 5,130 1,472 2,164
---------- ---------- ----------
Earnings before cumulative effect of accounting change ........... 214,478 182,274 111,329
Cumulative effect of accounting change ........................... -- 1,440 --
---------- ---------- ----------
Net earnings ..................................................... 214,478 180,834 111,329
Less preferred share dividends ................................... 56,763 56,835 49,098
---------- ---------- ----------
Net earnings attributable to Common Shares ....................... $ 157,715 $ 123,999 $ 62,231
========== ========== ==========
Weighted average Common Shares outstanding-- Basic ............... 163,651 152,412 121,721
========== ========== ==========
Weighted average Common Shares outstanding-- Diluted ............. 164,401 152,739 122,028
========== ========== ==========
Basic per share net earnings attributable to Common Shares:
Earnings before cumulative effect of accounting change ......... $ 0.96 $ 0.82 $ 0.51
Cumulative effect of accounting change ......................... -- (0.01) --
---------- ---------- ----------
Net earnings attributable to Common Shares ............. $ 0.96 $ 0.81 $ 0.51
========== ========== ==========
Diluted per share net earnings attributable to Common
Shares:
Earnings before cumulative effect of accounting change ......... $ 0.96 $ 0.82 $ 0.51
Cumulative effect of accounting change ......................... -- (0.01) --
---------- ---------- ----------
Net earnings attributable to Common Shares ............. $ 0.96 $ 0.81 $ 0.51
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
40
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
------------ ------------ ------------
Common Shares -- Number of shares at beginning of year ..... 161,825 123,416 117,364
Sale of Common Shares .................................... -- -- 5,494
Issuance of Common Shares under plans and through
warrants ............................................... 1,642 344 30
Limited partnership units converted to Common Shares ..... 238 14 20
Series B preferred shares converted to Common Shares ..... 980 663 593
Retirements of employee share purchase notes ............. -- -- (85)
Common Shares issued in merger with Meridian ............. -- 37,388 --
Common Shares issued in acquisition of unconsolidated
entity ................................................. 602 -- --
------------ ------------ ------------
Common Shares -- Number of shares at end of year ........... 165,287 161,825 123,416
============ ============ ============
Common Shares at beginning of year ......................... $ 1,618.2 $ 1,234.2 $ 1,173.8
Sale of Common Shares .................................... -- -- 54.9
Issuance of Common Shares under plans and through
warrants ............................................... 16.4 3.4 0.2
Limited partnership units converted to Common Shares ..... 2.4 0.1 0.2
Series B preferred shares converted to Common Shares ..... 9.8 6.6 5.9
Retirements of employee share purchase notes ............. -- -- (0.8)
Common Shares issued in merger with Meridian ............. -- 373.9 --
Common Shares issued in acquisition of unconsolidated
entity ................................................. 6.0 -- --
------------ ------------ ------------
Common Shares at end of year ............................... $ 1,652.8 $ 1,618.2 $ 1,234.2
============ ============ ============
Preferred Shares at beginning of year ...................... $ 710,518 $ 673,440 $ 435,008
Series B preferred shares converted to Common Shares ..... (19,115) (12,922) (11,568)
Sale of Series D preferred shares ........................ -- -- 250,000
Issuance of Series E preferred shares in merger with
Meridian ............................................... -- 50,000 --
------------ ------------ ------------
Preferred Shares at end of year ............................ $ 691,403 $ 710,518 $ 673,440
============ ============ ============
Additional Paid-in Capital at beginning of year ............ $ 2,663,350 $ 1,907,232 $ 1,773,465
Issuance of Common Shares under plans and through
warrants ............................................... 30,251 6,327 521
Limited partnership units converted to Common Shares ..... 8,167 205 302
Series B preferred shares converted to Common Shares ..... 19,105 12,916 11,562
Sale of Common Shares and Series D preferred shares ...... -- -- 121,810
Retirements of employee share purchase notes ............. -- -- (2,039)
Sale of options to unconsolidated entities ............... 2,153 1,226 1,333
Stock-based compensation ................................. 5,238 2,137 278
Preferred and Common Shares issued in merger with
Meridian ............................................... -- 733,307 --
Common Shares issued in acquisition of unconsolidated
entity ................................................. 11,872 -- --
------------ ------------ ------------
Additional Paid-in Capital at end of year .................. $ 2,740,136 $ 2,663,350 $ 1,907,232
============ ============ ============
Employee share purchase notes at beginning of year ......... $ (22,906) $ (25,247) $ (27,186)
Retirements of employee share purchase notes ............. -- -- 1,796
Principal payments on employee share purchase notes ...... 4,350 2,341 143
------------ ------------ ------------
Employee share purchase notes at end of year ............... $ (18,556) $ (22,906) $ (25,247)
============ ============ ============
Accumulated other comprehensive income at beginning of
year ..................................................... $ (9,765) $ 23 $ (63)
Foreign currency translation adjustments ................. (24,003) (9,788) 86
------------ ------------ ------------
Accumulated other comprehensive income at end of year ...... $ (33,768) $ (9,765) $ 23
============ ============ ============
Distributions in excess of net earnings at beginning of
year ..................................................... $ (389,079) $ (300,314) $ (205,661)
Net earnings ............................................. 214,478 180,834 111,329
Preferred share dividends ................................ (56,763) (56,835) (49,098)
Common Share distributions paid .......................... (165,123) (158,554) (117,601)
Common Share distributions accrued ....................... (57,010) (54,210) (39,283)
------------ ------------ ------------
Distributions in excess of net earnings at end of year ..... $ (453,497) $ (389,079) $ (300,314)
============ ============ ============
Total shareholders' equity at end of year .................. $ 2,927,371 $ 2,953,736 $ 2,256,368
============ ============ ============
Comprehensive income for the year:
Net earnings ............................................. $ 214,478 $ 180,834 $ 111,329
Preferred share dividends ................................ (56,763) (56,835) (49,098)
Foreign currency translation adjustments ................. (24,003) (9,788) 86
------------ ------------ ------------
Comprehensive income for the year .......................... $ 133,712 $ 114,211 $ 62,317
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
41
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
------------ ------------ ------------
Operating activities:
Net earnings ................................................... $ 214,478 $ 180,834 $ 111,329
Minority interest share in earnings ............................ 5,586 4,979 4,681
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization ................................ 151,483 152,447 100,590
Gain on disposition of real estate ........................... (1,314) (38,994) (5,565)
Straight-lined rents ......................................... (6,716) (9,889) (6,756)
Amortization of deferred loan costs .......................... 4,597 4,440 2,200
Stock-based compensation ..................................... 3,811 1,657 278
(Income) loss from unconsolidated entities ................... (64,239) (20,948) 11,108
Foreign currency exchange (gains) losses, net .................. 20,956 11,344 (3,227)
Foreign currency hedge income .................................. -- -- (2,054)
Interest rate hedge expense .................................... -- 945 26,050
Cumulative effect of accounting change ......................... -- 1,440 --
Increase in accounts receivable and other assets ............... (31,452) (37,344) (36,824)
Increase in accounts payable, accrued expenses and other
liabilities .................................................. 39,639 20,480 36,443
------------ ------------ ------------
Net cash provided by operating activities ................ 336,829 271,391 238,253
------------ ------------ ------------
Investing activities:
Real estate investments ........................................ (639,692) (464,406) (695,764)
Tenant improvements and lease commissions on previously
leased space ................................................. (19,623) (19,751) (12,757)
Recurring capital expenditures ................................. (23,895) (28,114) (8,038)
Proceeds from dispositions of real estate ...................... 496,744 569,981 109,336
Investments in and advances to unconsolidated entities ......... (188,750) (141,037) (657,499)
Cash balances contributed with ProLogis European
Properties S.a.r.l ........................................... (17,968) -- --
Cash acquired in merger with Meridian .......................... -- 48,962 --
------------ ------------ ------------
Net cash used in investing activities .................... (393,184) (34,365) (1,264,722)
------------ ------------ ------------
Financing activities:
Proceeds from sale of shares, net of expenses .................. -- -- 371,865
Proceeds from exercised warrants and stock options and
from dividend reinvestment and share purchase plans .......... 30,734 6,331 521
Repurchase of Common Shares .................................... -- -- (244)
Proceeds from secured financing transactions ................... -- 466,075 66,000
Proceeds from issuance of senior unsecured debt ................ -- 500,000 374,463
Debt issuance and other transaction costs incurred ............. (4,598) (58,248) (5,848)
Distributions paid on Common Shares (includes $11,132 paid
to shareholders of Meridian in 1999) ......................... (219,333) (208,969) (151,050)
Distributions paid to minority interest holders ................ (7,123) (7,251) (6,409)
Dividends paid on preferred shares (includes $729 paid to
shareholders of Meridian in 1999) ............................ (56,763) (56,835) (49,098)
Principal payments on senior unsecured debt .................... (30,000) (12,500) (15,000)
Principal payments received on and retirements of employee
share purchase notes ......................................... 4,350 2,341 143
Net proceeds from (payments on) derivative financial
instruments .................................................. 808 (27,715) (3,974)
Payments to Meridian shareholders .............................. -- (67,581) --
Proceeds from lines of credit and short-term borrowings ........ 1,075,473 1,939,845 1,569,225
Payments on lines of credit and short-term borrowings .......... (734,351) (2,335,445) (1,074,925)
Payment on line of credit assumed in merger with
Meridian ..................................................... -- (328,400) --
Regularly scheduled principal payments on secured debt ......... (7,100) (6,560) (5,658)
Principal payments on secured debt at maturity and
prepayments .................................................. (7,210) (35,916) (5,411)
------------ ------------ ------------
Net cash provided by (used in) financing
activities ............................................. 44,887 (230,828) 1,064,600
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ............. (11,468) 6,198 38,131
Cash and cash equivalents, beginning of year ..................... 69,338 63,140 25,009
------------ ------------ ------------
Cash and cash equivalents, end of year ........................... $ 57,870 $ 69,338 $ 63,140
============ ============ ============
See Note 12 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of these
consolidated financial statements.
42
PROLOGIS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. DESCRIPTION OF BUSINESS:
ProLogis Trust ("ProLogis") is a publicly held real estate investment trust
("REIT") that owns and operates a network of industrial distribution facilities
in North America and Europe. The ProLogis Operating System(TM), comprised of the
Market Services Group, the Global Services Group, the Global Development Group
and the Integrated Solutions Group, utilizes ProLogis' international network of
distribution facilities to meet its customers' distribution space needs
globally. ProLogis has organized its business into three operating segments:
property operations, corporate distribution facilities services business ("CDFS
business") and temperature-controlled distribution operations. See Note 10.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Financial Presentation
The accounts of ProLogis, its wholly owned subsidiaries and its majority
owned and controlled partnerships are consolidated in the accompanying financial
statements. All material intercompany transactions have been eliminated. Certain
amounts included in the consolidated financial statements for prior years have
been reclassified to conform to the 2000 financial statement presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of 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.
REIT Organization Status
In January 1993, ProLogis was formed as a Maryland REIT and has elected to
be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code").
REITs are not generally required to pay federal income taxes if minimum
distribution and income, asset and shareholder tests are met. During 2000, 1999
and 1998, ProLogis was in compliance with the REIT requirements. Thus, no
federal income tax provision has been reflected in the accompanying consolidated
financial statements for ProLogis and its wholly owned subsidiaries which are
qualified REIT subsidiaries. The foreign countries that ProLogis operates in do
not recognize REITs under their respective tax laws. Accordingly, ProLogis has
recognized foreign country income taxes in its results of operations, as
applicable.
Real Estate and Depreciation
Real estate is carried at cost, which is not in excess of estimated fair
market value. Costs directly associated with the successful acquisition,
renovation or development of real estate are capitalized. Direct costs
associated with unsuccessful acquisitions are expensed at the time the pursuit
is abandoned.
Depreciation is computed over the estimated useful lives of depreciable
property on a straight-line basis: 7 years for capital improvements, 10 years
for tenant improvements, 30 years for acquired facilities and 40 years for
facilities developed by ProLogis.
ProLogis' management periodically reviews long-lived assets (primarily real
estate and investments in unconsolidated entities) that it owns and operates for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. In accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management's review involves comparing current and future
operating performance of the assets, the most significant of which is
undiscounted operating cash flows, to the carrying value of the assets. Based on
this analysis, a provision for possible loss is recognized if necessary. In
management's opinion, long-lived assets, primarily real estate assets and
investments in unconsolidated entities, are not carried at amounts in excess
43
of their estimated realizable values. Long-lived assets (primarily real estate
and investments in unconsolidated entities) to be disposed of, if any, are
reported at the lower of their carrying amount or fair value less cost to sell.
ProLogis acquired certain real estate through the formation of partnerships
(as discussed in Note 6) wherein ProLogis contributed cash and the limited
partners contributed real estate in exchange for partnership units which are
ultimately exchangeable for ProLogis common shares of beneficial interest, $0.01
par value ("Common Shares"). In consolidating the partnerships' assets, real
estate cost includes the estimated fair value attributable to the limited
partners' interests as of the acquisition dates.
ProLogis Development Services Incorporated ("ProLogis Development
Services") is a subsidiary of ProLogis that operates in the CDFS business. See
Note 10. ProLogis owns 100% of the non-voting preferred stock of ProLogis
Development Services representing a 95% interest in its earnings. ProLogis
advances mortgage loans to ProLogis Development Services to fund its
acquisition, development and construction activities. A charitable trust owns
100% of the voting common stock of ProLogis Development Services but has no
substantive role in the decision-making process regarding operations of ProLogis
Development Services. Accordingly, ProLogis has control of ProLogis Development
Services and it is consolidated with ProLogis. ProLogis Development Services is
not a qualified REIT subsidiary of ProLogis under the Code. Accordingly,
provisions for federal and state income taxes are recognized, as appropriate.
Capitalization Policy
Renovations and improvements to real estate assets are capitalized and
depreciated over their estimated useful lives. Repairs and maintenance costs are
expensed as incurred to the extent they are not acquisition-related renovation
costs identified during ProLogis' pre-acquisition due diligence.
General and administrative costs incurred for development (including land
acquisitions), renovation and leasing activities that are incremental and
identifiable to a specific activity are capitalized. Prior to April 1, 1998,
ProLogis also capitalized direct and incremental management costs incurred in
connection with the acquisition of existing operating facilities. In accordance
with Emerging Issues Task Force Issue 97-11, "Accounting for Internal Costs
Relating to Real Estate Property Acquisitions," which was effective on April 1,
1998, such costs are no longer capitalized.
Costs capitalized to real estate are depreciated over the estimated useful
lives of the real estate. Costs capitalized related to leasing activities are
included with other assets and are amortized over the lease term. ProLogis'
average lease term is between four and five years.
ProLogis capitalizes interest costs incurred during the land development or
construction period of qualifying projects.
Unconsolidated Entities
ProLogis' investments in certain entities are accounted for under the
equity method. Accordingly, these investments are recognized at ProLogis' cost
as adjusted for ProLogis' proportionate share of the earnings or losses of the
companies, distributions received and other basis adjustments, as appropriate.
ProLogis' proportionate share of the earnings or losses of these companies is
recognized in income. See Note 4.
Cash and Cash Equivalents
ProLogis considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original maturities
of three months or less to be cash equivalents.
44
Costs of Raising Capital
Costs incurred in connection with the issuance of shares are deducted from
shareholders' equity. Costs incurred in connection with the incurrence or
renewal of debt are capitalized, included with other assets, and amortized over
the term of the related loan or the renewal term.
Minority Interest
ProLogis acquired a controlling interest in five partnerships that owned
real estate, which are now consolidated in ProLogis' financial statements. These
five partnerships are ProLogis Limited Partnership - I, ProLogis Limited
Partnership - II, ProLogis Limited Partnership - III, ProLogis Limited
Partnership - IV and Meridian Realty Partners Limited Partnership. The
acquisition of the controlling interest resulted in a step-up to fair value of
the real estate owned by the partnerships. Therefore, the minority interest in
the partnerships has been stated at each holders' respective share of the fair
value of the real estate at the date of acquisition, as adjusted for subsequent
earnings, contributions and distributions. Common Shares issued upon exchange of
limited partnership units are accounted for at the cost of the minority interest
surrendered.
Financial Instruments
In the normal course of business, ProLogis uses certain derivative
financial instruments for the purpose of foreign currency exchange rate and
interest rate risk management. To qualify for hedge accounting, the derivative
instruments used for risk management purposes must effectively reduce the risk
exposure that they are designed to hedge. For instruments associated with the
hedge of anticipated transactions, hedge effectiveness criteria also require
that the occurrence of the underlying transactions be probable. Instruments
meeting these hedging criteria are formally designated as hedges at the
inception of the contract. Those risk management instruments not meeting these
criteria are accounted for at fair value with changes in fair value recognized
immediately in net income. See Note 16.
In assessing the fair value of its financial instruments, both derivative
and non-derivative, ProLogis uses a variety of methods and assumptions that are
based on market conditions and risks existing at each balance sheet date.
Primarily, ProLogis uses quoted market prices or quotes from brokers or dealers
for the same or similar instruments. These values represent a general
approximation of possible value and may never actually be realized. See Note 16.
ProLogis adopted SFAS No. 133, "Accounting for Derivative Instruments and
for Hedging Activities," as amended, on January 1, 2001. SFAS No. 133 provides
comprehensive guidelines for the recognition and measurement of derivatives and
hedging activities and, specifically, requires all derivatives to be recorded on
the balance sheet at fair value as an asset or liability, with an offset to
accumulated other comprehensive income or income. As discussed in Note 16,
ProLogis' only derivative financial instruments, the foreign currency put option
contracts, were marked to market through income as of December 31, 2000. These
contracts also do not qualify for hedge accounting treatment under SFAS No. 133,
therefore, ProLogis will continue to mark these contracts to market through
income in 2001. ProLogis' unconsolidated entities also adopted SFAS No. 133 on
January 1, 2001. The effect to ProLogis of their adoption of SFAS No. 133 was
immaterial as these entities utilize derivative financial instruments on a
limited basis.
Foreign Currency Exchange Gains or Losses
ProLogis' consolidated subsidiaries whose functional currency is not the
U.S. dollar translate their financial statements into U.S. dollars. Assets and
liabilities are translated at the exchange rate in effect as of the financial
statement date. Income statement accounts are translated using the average
exchange rate for the period. Income statement accounts that represent
significant, nonrecurring transactions are translated at the rate in effect as
of the date of the transaction. Gains and losses resulting from the translation
are included in accumulated other comprehensive income as a separate component
of shareholders' equity. ProLogis and its foreign subsidiaries have certain
transactions denominated in currencies other than their functional currency. In
these instances, nonmonetary assets and liabilities are reflected at the
historical exchange rate, monetary assets and liabilities are remeasured at the
exchange rate in effect at the end of the period, and income statement accounts
are remeasured at the average exchange rate for the period. Gains and losses
from remeasurement are included in ProLogis' results of operations. In addition,
gains or losses are recorded in the income statement when a transaction with a
third party, denominated in a currency other than the functional currency, is
settled and the functional currency cash flows realized are more or less than
expected based upon the exchange rate in effect when the transaction was
initiated.
The net foreign currency exchange gains and losses recognized in ProLogis'
results of operations were as follows for the periods indicated (in thousands of
U.S. dollars):
45
YEAR ENDED DECEMBER 31,
2000 1999 1998
---------- ---------- ----------
Gains (losses) from the remeasurement of third party
debt and remeasurement and settlement of intercompany
debt, net ................................................ $ (18,762) $ (16,549) $ 3,227
Mark to market losses on foreign currency put option
contracts(1) ............................................. (854) (47) --
Gains (losses) from the settlement of foreign currency
put option contracts, net ................................ 1,481 (45) --
Other gains (losses), net .................................. 208 (177) (289)
---------- ---------- ----------
$ (17,927) $ (16,818) $ 2,938
========== ========== ==========
----------
(1) ProLogis entered into foreign currency put option contracts related to its
operations in Europe for 2000 and 1999. These put option contracts do not
qualify for hedge accounting treatment; therefore, ProLogis marks these
contracts to market as of the end of the applicable accounting period. Upon
settlement, the mark to market adjustments are reversed and the total
realized gain or loss is recognized. See Note 16.
Revenue Recognition
ProLogis leases its operating facilities under operating leases and
recognizes the total lease payments provided for under the leases on a
straight-line basis over the lease term. A provision for possible loss is made
when collection of receivables is considered doubtful.
Gains or losses on the disposition of real estate are recorded when the
recognition criteria set forth under GAAP have been met, generally at the time
title is transferred and ProLogis has no future obligations under the contract.
Rental Expenses
Rental expenses include costs of on-site and property management personnel,
utilities, repairs and maintenance, property insurance and real estate taxes,
net of amounts recovered from tenants under the terms of the respective leases.
Stock-Based Compensation
ProLogis adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which allows ProLogis to continue to account for its various stock-based
compensation plans using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
APB No. 25, if the exercise price of the stock options issued equals or exceeds
the market price of the underlying stock on the date of grant, no compensation
expense is recognized. Certain pro forma earnings per share disclosures required
by SFAS No. 123 are presented in Note 13.
Cost of Start-Up Activities
Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up
Activities," which requires that costs associated with organization,
pre-opening, and start-up activities be expensed as incurred was adopted by
ProLogis on January 1, 1999. Through December 31, 1998, ProLogis capitalized
costs associated with start-up activities and amortized such costs over an
appropriate period, generally five years. ProLogis expensed all unamortized
organization and start-up costs, approximating $1.4 million, as a cumulative
effect of a change in accounting principle as of January 1, 1999. Subsequent to
that date, such costs incurred have been expensed.
3. REAL ESTATE
Real Estate Investments
Real estate investments consisting of income producing industrial
distribution facilities, facilities under development and land held for future
development, at cost, are summarized as follows (in thousands):
46
DECEMBER 31,
2000 1999
---------- ----------
Operating facilities:
Improved land ............................................ $ 648,950(1) $ 736,605(1)
Buildings and improvements ............................... 3,619,543(1) 3,871,396(1)
---------- ----------
4,268,493 4,608,001
Facilities under development (including cost of land) ...... 186,020(2)(3) 186,169(2)
Land held for development .................................. 187,405(4) 163,696(4)
Capitalized preacquisition costs ........................... 47,574(5) 17,085(5)
---------- ----------
Total real estate ................................ 4,689,492 4,974,951
Less accumulated depreciation .............................. 476,982 366,703
---------- ----------
Net real estate .................................. $4,212,510 $4,608,248(6)
========== ==========
----------
(1) As of December 31, 2000 and December 31, 1999, ProLogis had 1,244 and 1,328
operating facilities, respectively, consisting of 126,275,000 and
133,689,000 square feet, respectively.
(2) Facilities under development consist of 41 buildings aggregating 8,711,000
square feet as of December 31, 2000 and 51 buildings aggregating 10,721,000
square feet as of December 31, 1999.
(3) In addition to the December 31, 2000 construction payable of $40.9 million,
ProLogis had unfunded commitments on its contracts for facilities under
construction totaling $169.2 million.
(4) Land held for future development consisted of 2,047 acres as of December
31, 2000 and 1,798 acres as of December 31, 1999.
(5) Capitalized preacquisition costs include $32.5 million and $6.3 million of
funds on deposit with title companies as of December 31, 2000 and December
31, 1999, respectively.
(6) On January 7, 2000, ProLogis contributed 50.1% of the common stock of one
of its wholly owned European entities, ProLogis European Properties
S.a.r.l. to ProLogis European Properties Fund for an equity interest.
ProLogis European Properties S.a.r.l. owned real estate with a net book
value of $334.9 million as of December 31, 1999. ProLogis contributed the
remaining 49.9% of the common stock to ProLogis European Properties Fund on
January 7, 2001 for an additional equity interest. See Note 4.
ProLogis' operating facilities, facilities under development and land held
for future development are located in North America (the United States and
Mexico) and seven countries in Europe. No individual market represents more than
10% of ProLogis' real estate assets.
Operating Lease Agreements
ProLogis leases its facilities to customers under agreements, which are
classified as operating leases. The leases generally provide for payment of all
or a portion of utilities, property taxes and insurance by the tenant. As of
December 31, 2000, minimum lease payments on leases with lease periods greater
than one year are as follows (in thousands):
2001 ........................... $ 435,093
2002 ........................... 360,759
2003 ........................... 276,559
2004 ........................... 200,510
2005 ........................... 137,800
2006 and thereafter ............ 323,467
----------
$1,734,188
==========
ProLogis' largest customer (based on rental income) accounted for 1.5% of
ProLogis' rental income (on an annualized basis) for the year ended December 31,
2000. The annualized base rent for ProLogis' 25 largest customers (based on
rental income) accounted for 13.2% of ProLogis' rental income (on an annualized
basis) for the year ended December 31, 2000.
47
4. UNCONSOLIDATED ENTITIES:
Investments In and Advances To Unconsolidated Entities
Investments in and advances to unconsolidated entities are as follows (in
thousands):
DECEMBER 31,
------------------------------
2000 1999
------------ ------------
Insight(1) ....................................... $ 2,470 $ 2,442
ProLogis Logistics:
Investment(2) .................................. 7,163 11,549
Notes receivable ............................... 162,856 135,090
Mortgage notes receivable ...................... 24,082 23,706
Accrued interest and other receivables ......... 36,952 22,262
------------ ------------
231,053 192,607
Frigoscandia S.A.:
Investment(2) .................................. (50,761) (17,396)
Notes receivable ............................... 208,945 209,314
Accrued interest and other receivables ......... 33,797 22,090
------------ ------------
191,981 214,008
Kingspark S.A.:
Investment(2) .................................. 28,829 23,584
Notes receivable ............................... 409,440 197,611
Mortgage notes receivable ...................... 103,106 140,668
Accrued interest and other receivables ......... 29,207 19,908
------------ ------------
570,582 381,771
ProLogis California:
Investment(3) .................................. 131,116 121,325
Other receivables .............................. 1,127 3,235
------------ ------------
132,243 124,560
ProLogis European Properties Fund:
Investment(4) .................................. 145,850 32,800
Other receivables (payables) ................... 2,088 (7,824)
------------ ------------
147,938 24,976
ProLogis European Properties S.a.r.l.(5) ......... 84,767 --
ProLogis North American Properties Fund I:
Investment(6) .................................. 9,778 --
Other receivables .............................. 591 --
------------ ------------
10,369 --
ProLogis Principal:
Investment(7) .................................. 71
Note receivable ................................ 13,250 --
Accrued interest and other receivables ......... 87 --
------------ ------------
13,408 --
ProLogis Equipment Services (2)(8) ............... 450 --
GoProLogis(9) .................................... 56,315 --
ProLogis PhatPipe (10):
Investment ..................................... 11,542 --
Other receivables .............................. 30 --
------------ ------------
11,572 --
------------ ------------
Total .................................. $ 1,453,148 $ 940,364
============ ============
----------
(1) Investment represents ProLogis Development Services' investment in the
common stock of Insight, Inc. ("Insight"), a privately owned logistics
optimization consulting company, as adjusted for ProLogis Development
Services' share of Insight's earnings or loss. ProLogis Development
Services had a 33.3% ownership interest in Insight as of December 31,
2000 and 1999.
(2) Investment represents ProLogis' investment in the non-voting preferred
stock of the respective companies including acquisition costs, as
adjusted for ProLogis' share of each company's earnings or loss and
cumulative translation adjustments, as appropriate.
(3) Investment represents ProLogis' investment in the membership interests
of ProLogis California I LLC ("ProLogis California"), a limited
liability company that began operations on August 26, 1999, including
acquisition costs, as adjusted for ProLogis' share of the earnings or
loss of ProLogis California and for the portion of the gain from the
disposition of ProLogis' properties
48
to ProLogis California that does not qualify for income recognition
due to ProLogis' continuing ownership in ProLogis California. ProLogis
had a 50% ownership interest in ProLogis California as of December 31,
2000 and 1999.
(4) Investment represents ProLogis' investment in the common units of
ProLogis European Properties Fund which began operations on September
23, 1999, including acquisition costs, as adjusted for ProLogis' share
of the earnings or loss of ProLogis European Properties Fund, the
portion of the gain from the disposition of ProLogis' facilities to
ProLogis European Properties Fund that does not qualify for income
recognition due to ProLogis' continuing ownership in ProLogis European
Properties Fund and cumulative translation account adjustments, as
appropriate. ProLogis' ownership interest in ProLogis European
Properties Fund was 34.4% and 19.7% as of December 31, 2000 and 1999,
respectively.
(5) Investment represents ProLogis' investment in 49.9% of the common
stock of ProLogis European Properties S.a.r.l., a Luxembourg company,
as adjusted for ProLogis' share of the earnings or loss of ProLogis
European Properties S.a.r.l. Prior to January 7, 2000, ProLogis owned
100% of the common stock of ProLogis European Properties S.a.r.l. and
the accounts of this entity were consolidated in ProLogis' financial
statements along with ProLogis' other majority owned and controlled
subsidiaries and partnerships. On January 7, 2000, ProLogis
contributed 50.1% of the common stock to ProLogis European Properties
Fund in exchange for an equity interest. ProLogis contributed the
remaining 49.9% of the common stock of ProLogis European Properties
S.a.r.l. to ProLogis European Properties Fund on January 7, 2001 in
exchange for an additional equity interest. ProLogis' ownership
interest in ProLogis European Properties Fund increased to 45.6% on
January 7, 2001 as a result of this transaction.
(6) Investment represents ProLogis' and ProLogis Development Services'
investment in the membership interests of ProLogis North American
Properties Fund I LLC, a limited liability company that began
operations on June 30, 2000, including acquisition costs, as adjusted
for ProLogis' and ProLogis Development Services' share of the earnings
or loss of ProLogis North American Properties Fund I and the portion
of the gain from the disposition of ProLogis' and ProLogis Development
Services' facilities to ProLogis North American Properties Fund I that
does not qualify for income recognition due to ProLogis' and ProLogis
Development Services' continuing ownership in ProLogis North American
Properties Fund I. On a combined basis, ProLogis and ProLogis
Development Services had a 20.0% ownership interest in ProLogis North
American Properties Fund I as of December 31, 2000.
(7) Investment represents ProLogis' investment in the membership interests
of ProLogis Iowa I LLC ("ProLogis Principal"), a limited liability
company that began operations on June 30, 2000, including acquisition
costs, as adjusted for ProLogis' share of the earnings or loss of
ProLogis Principal and the portion of the gain from the disposition of
ProLogis' facilities to ProLogis Principal that does not quality for
income recognition due to ProLogis' continuing ownership in ProLogis
Principal. ProLogis had a 20.0% ownership interest in ProLogis
Principal as of December 31, 2000.
(8) Investment represents ProLogis Development Services' investment in the
membership interests of ProLogis Equipment Services LLC, a limited
liability company whose other member is a subsidiary of Dana
Commercial Credit Corporation, as adjusted for ProLogis Development
Services' share of the earnings or loss of ProLogis Equipment
Services. ProLogis Equipment Services began operations on April 26,
2000 for the purpose of acquiring, leasing and selling material
handling equipment and providing asset management services for such
equipment. ProLogis Development Services had a 50.0% ownership
interest in ProLogis Equipment Services as of December 31, 2000.
(9) ProLogis owns 100% of the non-voting preferred stock of GoProLogis
Incorporated ("GoProLogis") which has invested $25.0 million in the
non-cumulative preferred stock of Vizional Technologies, Inc.
(formerly GoWarehouse.com, Inc.) ("Vizional Technologies"), a provider
of integrated global logistics network technology services. GoProLogis
also received $30.4 million of non-cumulative preferred stock of
Vizional Technologies under a license agreement for the non-exclusive
use of the ProLogis Operating System(TM) over a five-year period.
Investment amount also includes $0.9 million of other costs associated
with this investment. This investment was made on July 21, 2000.
ProLogis accounts for its investment in GoProLogis under the equity
method. GoProLogis did not receive any dividends from its preferred
stock investment in Vizional Technologies in 2000. As of December 31,
2000, ProLogis had deferred $27.7 million of income related to the
license fee agreement. ProLogis' net investment in GoProLogis was
$28.6 million as of December 31, 2000 ($55.4 million of non-cumulative
preferred stock and $0.9 million of additional costs offset by $27.7
million of deferred income). ProLogis' investment in the non-voting
preferred stock of GoProLogis represents a 98% interest in its
earnings. The voting interest of GoProLogis represents a 2% interest
in its earnings. K. Dane Brooksher, ProLogis' chairman and chief
executive officer, holds the voting interest and is entitled to
receive dividends equal to 2% of the net cash flow of GoProLogis, as
defined, if any. Mr. Brooksher
49
contributed a $1.1 million recourse promissory note to GoProLogis in
exchange for his interest in the entity, which note is payable on July
18, 2005 and bears interest at an annual rate of 8%. Mr. Brooksher is
not restricted from transferring his ownership interest in GoProLogis
and ProLogis does not have the right to acquire Mr. Brooksher's
interest as of December 31, 2000. However, beginning in 2001, an
option agreement does allow ProLogis to acquire Mr. Brooksher's
ownership interest at a price equal to the principal amount plus
accrued interest under the promissory note. See Note 15.
(10) ProLogis owns 100% of the non-voting preferred stock of ProLogis
Broadband (1) Incorporated ("ProLogis PhatPipe") which has invested
$3.5 million in the non-cumulative preferred stock of PhatPipe, Inc.
("PhatPipe"), a real estate technology company. ProLogis has committed
to fund a total of $8.0 million in ProLogis PhatPipe by March 31, 2001
pursuant to the terms of a stock purchase agreement. ProLogis PhatPipe
also received $3.5 million of non-cumulative preferred stock of
Phatpipe and a $4.5 million receivable both received under a license
agreement for the non-exclusive use of the ProLogis Operating
System(TM) over a three-year period. Investment also includes $42,000
of other costs associated with this investment. This investment was
made on September 20, 2000. ProLogis accounts for its investment in
ProLogis PhatPipe under the equity method. ProLogis PhatPipe did not
receive any dividends from its preferred stock investment in PhatPipe
in 2000. As of December 31, 2000, ProLogis had deferred $7.3 million
of income related to the license fee agreement. ProLogis' net
investment in ProLogis PhatPipe was $7.3 million as of December 31,
2000 ($7.0 million of non-cumulative preferred stock, a $4.5 million
receivable and $42,000 of additional costs offset by $7.3 million of
deferred income). ProLogis' investment in the non-voting preferred
stock of ProLogis PhatPipe represents a 98% interest in the earnings
of ProLogis PhatPipe. The voting interest in ProLogis PhatPipe
represents a 2% interest in the earnings of ProLogis PhatPipe. K. Dane
Brooksher, ProLogis' chairman and chief executive officer, holds the
voting interest and is entitled to receive dividends equal to 2% of
the net cash flow of ProLogis PhatPipe, as defined, if any. Mr.
Brooksher contributed recourse promissory notes with an aggregate of
$122,449 principal amount to ProLogis PhatPipe in exchange for his
interest in the entity. A promissory note with the principal amount of
$71,429 is due September 20, 2005 and a promissory note with the
principal amount of $51,020 is due January 4, 2006. Both notes bear
interest at an annual rate of 8%. Mr. Brooksher is not restricted from
transferring his ownership interest in ProLogis PhatPipe and ProLogis
does not have the right to acquire Mr. Brooksher's ownership interest
as of December 31, 2000. However, beginning in 2001, an option
agreement does allow ProLogis to acquire Mr. Brooksher's ownership
interest at a price equal to the principal amount plus accrued
interest under the promissory note. See Note 15.
Income (Loss) from Unconsolidated Entities
ProLogis recognized income (loss) from its investments in unconsolidated
entities as follows (in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Insight(1) ....................................... $ 27 $ (77) $ 20
ProLogis Logistics(2) ............................ 11,950 10,791 7,349
Frigoscandia S.A.(2) ............................. (20,298) (4,364) (7,535)
Kingspark S.A. (2)(3) ............................ 43,795 23,855 2,915
ProLogis California(4) ........................... 13,178 3,917 --
ProLogis North American Properties Fund I(5) ..... 1,806 -- --
ProLogis Principal(6) ............................ 612 -- --
ProLogis Equipment Services ...................... (130) -- --
GoProLogis(7) .................................... 2,693 -- --
ProLogis PhatPipe(7) ............................. 741 -- --
ProLogis European Properties Fund(8) ............. 15,648 820 --
ProLogis European Properties S.a.r.l ............. 8,041 -- --
ProLogis Garonor(9) .............................. -- (12,423) 6
---------- ---------- ----------
$ 78,063 $ 22,519 $ 2,755
========== ========== ==========
----------
(1) Prior to July 1, 1998, this investment was accounted for under the cost
method.
(2) Amounts represent 95% of the entity's earnings or loss. Includes interest
income on notes due to ProLogis.
(3) ProLogis acquired Kingspark Holding S.A. ("Kingspark S.A.") and its
consolidated entities on August 14, 1998. ProLogis' share of Kingspark
S.A.'s earnings or loss includes net gains from the disposition of
facilities developed by to ProLogis European Properties Fund of $4.3
million in 2000 and $4.5 million in 1999. The gains are net of $2.5 million
in 2000 and $1.1 million in
50
1999 that did not qualify for income recognition by ProLogis due to
ProLogis' continuing ownership in ProLogis European Properties Fund.
(4) ProLogis California began operations on August 26, 1999. Amounts recognized
include management, leasing and development fees of $2.7 million for 2000
and $0.9 million for 1999.
(5) ProLogis North American Properties Fund was formed on June 30, 2000.
Includes management fees of $0.7 million.
(6) ProLogis Principal was formed on June 30, 2000. Includes management fees of
$52,000.
(7) Represents license fees earned for the non-exclusive use of the ProLogis
Operating System(TM) under licensing agreements.
(8) ProLogis European Properties Fund began operations on September 23, 1999.
ProLogis recognizes its share of the earnings or loss of ProLogis European
Properties Fund based on its average ownership interest during the period.
Amounts recognized include management fees of $5.3 million in 2000 and $0.3
million in 1999. ProLogis began recognizing its share of the earnings or
loss of ProLogis European Properties S.a.r.l. under the equity method on
January 7, 2000.
(9) On December 29, 1998, ProLogis invested in Garonor Holdings S.A. ("Garonor
Holdings") by acquiring 100% of its non-voting preferred stock. Garonor
Holdings, a Luxembourg company, owned Garonor S.A. ("ProLogis Garonor"), a
real estate operating company in France. Security Capital Group
Incorporated ("Security Capital"), ProLogis' largest shareholder, owned
100% of the voting common stock of Garonor Holdings. On June 29, 1999,
ProLogis acquired the common stock of Garonor Holdings from Security
Capital, resulting in ProLogis owning all of the outstanding common and
preferred stock of Garonor Holdings. Accordingly, as of that date the
accounts of Garonor Holdings were consolidated in ProLogis' financial
statements along with ProLogis' other majority owned and controlled
subsidiaries and partnerships. The results of operations of Garonor
Holdings for the period from December 29, 1998 through June 29, 1999 are
reflected by ProLogis under the equity method. ProLogis Garonor was
transferred to ProLogis European Properties S.a.r.l. prior to ProLogis
contributing 50.1% of the common stock of ProLogis European Properties
S.a.r.l. to ProLogis European Properties Fund on January 7, 2000 for an
equity interest. On January 7, 2001, ProLogis contributed the remaining
49.9% of the common stock of ProLogis European Properties S.a.r.l. to
ProLogis European Properties Fund for an additional equity interest.
ProLogis Logistics
ProLogis owns 100% of the non-voting preferred stock of ProLogis Logistics
Services Incorporated ("ProLogis Logistics"), representing a 95% interest in the
earnings of ProLogis Logistics. In January 2001, this interest was increased
from 95% to 99.23% as the result of the conversion of loans from ProLogis to
ProLogis Logistics into equity. From April 24, 1997 through June 12, 1998,
ProLogis Logistics owned between 60.0% and 77.1% of CS Integrated LLC ("CSI"), a
temperature- controlled distribution company operating in the United States.
ProLogis Logistics increased its ownership interest in CSI to 100% on June 12,
1998. As of December 31, 2000, CSI owned or operated under lease agreements
temperature-controlled distribution facilities aggregating 182.2 million cubic
feet (including 35.5 million cubic feet of dry distribution space located in
temperature-controlled facilities). Of the total, 6.3 million cubic feet was
under development.
As of December 31, 2000, ProLogis had invested $19.9 million in the
non-voting preferred stock of ProLogis Logistics and had the following notes and
mortgage notes receivable outstanding:
o $157.8 million unsecured note from ProLogis Logistics; interest at
8.0% per annum; due on April 2002;
o $5.0 million net unsecured notes from CSI; interest at 10.4% per
annum; due March 2004; and
o $24.1 million net mortgage notes from CSI; secured by operating
properties of CSI; interest at 9.5% per annum; due March 2004.
The voting common stock of ProLogis Logistics, representing a 5% interest
in the earnings of ProLogis Logistics, was owned by an unrelated party until
January 5, 2001, when it was purchased for $2.1 million by CSI/Frigo LLC, a
limited liability company whose members are ProLogis and K. Dane Brooksher,
ProLogis' chairman. CSI/Frigo LLC also acquired the voting common stock of
Frigoscandia Holding S.A. ("Frigoscandia S.A."). ProLogis owns 89% of the
membership interests (all non-voting) and Mr. Brooksher owns 11% of the
membership interests (all voting) of CSI/Frigo LLC. Mr. Brooksher is the
managing member of CSI/Frigo LLC.
51
Additionally, ProLogis has a note agreement with CSI/Frigo LLC that allows
ProLogis to participate in its earnings such that ProLogis will recognize 95% of
the earnings of CSI/Frigo LLC. Mr. Brooksher may transfer his membership
interest, subject to certain conditions, including the approval of ProLogis.
There are no provisions that give ProLogis the right to acquire Mr. Brooksher's
membership interest. Mr. Brooksher does not receive any compensation in
connection with his ownership interest or in connection with being the managing
member. Mr. Brooksher's membership interest and the provisions of the
participating note entitle him to dividends equal to 5% of the net cash flow of
CSI/Frigo LLC, as defined, if any. Mr. Brooksher invested $50,000 in CSI/Frigo
LLC. This transaction did not result in ProLogis acquiring control of ProLogis
Logistics or Frigoscandia S.A., as it has no voting interests in CSI/Frigo LLC,
ProLogis Logistics or Frigoscandia S.A., therefore, ProLogis will continue to
account for its investments in these entities under the equity method. See Note
15.
On January 2, 2001, ProLogis Logistics borrowed $125.0 million under
ProLogis' U.S. dollar denominated unsecured line of credit agreement as a
designated subsidiary borrower under the agreement (see Note 5), the proceeds of
which were used to repay $125.0 million of the outstanding notes and accrued
interest due to ProLogis (including all of the amounts due from CSI). The
remaining amounts due to ProLogis were converted to preferred stock by ProLogis
as of January 2, 2001.
Frigoscandia S.A.
ProLogis owns 100% of the non-voting preferred stock of Frigoscandia S. A.,
representing a 95% interest in the earnings of Frigoscandia S.A. On January 16,
1998, Frigoscandia S.A., a Luxembourg company, acquired Frigoscandia AB, a
temperature-controlled distribution company headquartered in Sweden by acquiring
Frigoscandia Holding AB. Frigoscandia Holding AB owns 100% of Frigoscandia AB.
As of December 31, 2000, Frigoscandia AB, which operates in 10 European
countries, owned or operated under lease agreements 187.7 million cubic feet of
temperature-controlled distribution facilities.
As of December 31, 2000, ProLogis had invested $22.6 million in the
non-voting preferred stock of Frigoscandia S.A. and had the following notes
receivable outstanding:
o 776.6 million Swedish krona (the currency equivalent of approximately
$81.5 million as of December 31, 2000) unsecured note from
Frigoscandia Holding AB; interest at 5.0% per annum; due on demand;
o 12.8 million euro (the currency equivalent of approximately $11.9
million as of December 31, 2000) unsecured note from Frigoscandia
Holding AB; interest at 5.0% per annum; due on demand; and
o $115.5 million unsecured note from Frigoscandia S.A.; interest at 5.0%
per annum; $80.0 million due July 15, 2008 with the remainder due on
demand.
The voting common stock of Frigoscandia S.A. was owned by a limited
liability company in which unrelated parties owned 100% of the voting interests
and Security Capital owned 100% of the non-voting interests until January 5,
2001, when the voting common stock was purchased for $1.2 million by CSI/Frigo
LLC. See Note 15.
As of December 31, 2000, Frigoscandia had a multi-currency revolving credit
agreement in the currency equivalent of 360.0 million Deutsche marks through a
consortium of 11 European banks. The currency equivalent of approximately $168.1
million was outstanding as of December 31, 2000 and ProLogis had guaranteed 25%
of the amount outstanding (ProLogis' guarantee was increased to 100% on March 1,
2001). The loan will be due on March 31, 2001 and bears interest at the relevant
index (LIBOR or Euribor based on the currency borrowed) plus 1.15%. Frigoscandia
is negotiating a new credit agreement that will provide for the currency
equivalent of 185.0 million euros of borrowing capacity with interest charged at
the relevant index plus 0.90%, to mature on December 31, 2001. ProLogis will
guarantee 100% of the borrowings under the new agreement.
Kingspark S.A.
ProLogis owns 100% of the non-voting preferred stock of Kingspark S.A.,
representing a 95% interest in the earnings of Kingspark S.A. On August 14,
1998, Kingspark S.A., a Luxembourg company, acquired an industrial distribution
facility development company operating in the United Kingdom, Kingspark Group
Holdings Limited ("ProLogis Kingspark") (collectively "the Kingspark entities").
As of December 31, 2000, the Kingspark entities had 1.6 million square feet of
operating facilities at an investment of $139.2 million and 1.5 million square
feet of facilities under development with a total budgeted cost of $136.2
million. Additionally, as of December 31, 2000, the Kingspark entities owned 332
acres of land and controlled 1,515 acres of land through
52
purchase options, letters of intent or contingent contracts. The land owned and
controlled by the Kingspark entities has the capacity for the future development
of approximately 28.3 million square feet of facilities.
As of December 31, 2000, ProLogis had invested $24.0 million in the
non-voting preferred stock of Kingspark S.A. and had the following notes and
mortgage notes receivable outstanding:
o 187.3 million pounds sterling (the currency equivalent of
approximately $280.1 million as of December 31, 2000) outstanding on
an unsecured loan facility from ProLogis to the Kingspark entities
that provides for borrowings of up to 200 million pounds sterling (the
currency equivalent of approximately $299.0 million as of December 31,
2000); interest at 8.0% per annum; due on demand;
o $129.3 million unsecured note from Kingspark S.A.; interest at 5.0%
per annum; due on demand;
o 42.0 million pound sterling (the currency equivalent of approximately
$62.9 million, as of December 31, 2000) mortgage note from ProLogis
Kingspark; secured by land parcels; interest at 8.0% per annum; due on
demand; and
o 26.9 million pound sterling (the currency equivalent of approximately
$40.2 million as of December 31, 2000) mortgage note from the
Kingspark entities; secured by land parcels and facilities under
development; interest at 7.0% per annum; due on demand.
The voting common stock of Kingspark S.A. was owned by a limited liability
company, in which unrelated third parties owned 100% of the voting interests and
Security Capital owned 100% of the non-voting interests. On January 5, 2001,
this voting common stock was acquired by a limited liability company. ProLogis
owns 95% of the membership interests (all non-voting) and Mr. Brooksher owns 5%
of the membership interests (all voting) of the company acquiring the common
stock and Mr. Brooksher is its managing member. The entire purchase price of
$8.1 million was funded by ProLogis either directly or through loans to
Kingspark LLC or Mr. Brooksher. Mr. Brooksher may transfer his membership
interest, subject to certain conditions, including the approval of ProLogis.
There are no provisions that give ProLogis the right to acquire Mr. Brooksher's
membership interest. Mr. Brooksher does not receive any compensation in
connection with his ownership interest or in connection with being the managing
member. Mr. Brooksher's membership interest entitles him to dividends equal to
5% of the net cash flow of Kingspark LLC, as defined, if any. This transaction
did not result in ProLogis acquiring control of the Kingspark entities, as
ProLogis does not have a direct interest in the voting interests of Kingspark
LLC or the Kingspark entities, therefore, ProLogis will continue to account for
its investment in these entities under the equity method. See Note 15.
ProLogis Kingspark has a line of credit agreement with a bank in the United
Kingdom. The line of credit agreement provides for borrowings of up to 15.0
million pounds sterling (the currency equivalent of approximately $22.4 million
as of December 31, 2000) and has been guaranteed by ProLogis. As of December 31,
2000, no borrowings were outstanding on the line of credit. However, as of
December 31, 2000, ProLogis Kingspark had the currency equivalent of
approximately $13.8 million of letters of credit outstanding that reduce the
amount of available borrowings on the line of credit.
ProLogis California I LLC
ProLogis California began operations on August 26, 1999 as a limited
liability company whose members are ProLogis and New York State Common
Retirement Fund ("NYSCRF"). As of December 31, 2000, ProLogis California owned
77 operating facilities aggregating 12.4 million square feet and had one 332,000
square foot facility under development (all of which were acquired from
ProLogis). All of ProLogis California's facilities are in the Los Angeles/Orange
County market. ProLogis had a 50.0% ownership interest in ProLogis California as
of December 31, 2000.
ProLogis' total investment in ProLogis California as of December 31, 2000
consisted of (in millions):
53
Equity interest ....................................... $ 169.1
Distributions ($13.9 million received in 2000) ........ (23.6)
ProLogis' share of ProLogis California's earnings,
excluding fees earned ............................... 12.6
--------
Subtotal .................................... 158.1
Adjustments to carrying value(1) ...................... (28.5)
Other, including acquisition costs .................... 1.5
--------
131.1
Other receivables ..................................... 1.1
--------
Total ....................................... $ 132.2
========
----------
(1) Reflects the reduction in carrying value for the amount of net gain on the
disposition of properties to ProLogis California that does not qualify for
income recognition due to ProLogis' continuing ownership in ProLogis
California.
ProLogis European Properties Fund
ProLogis European Properties Fund was formed on September 16, 1999 and
began operations on September 23, 1999. As of December 31, 2000, ProLogis
European Properties Fund owned 104 operating facilities aggregating 14.4 million
square feet (including 60 facilities aggregating 6.6 million square feet owned
by ProLogis European Properties S.a.r.l.). All but 10 of the facilities,
aggregating 1.5 million square feet, owned by ProLogis European Properties Fund
were acquired from ProLogis or the Kingspark entities.
ProLogis' total investment in ProLogis European Properties Fund as of
December 31, 2000 consisted of (in millions of U.S. dollars):
Equity interest ............................................ $ 155.4
Distributions (all were received in 2000) .................. (4.0)
ProLogis' share of ProLogis European Properties Fund's
earnings, excluding fees earned .......................... 9.1
--------
Subtotal ......................................... 160.5
Adjustments to carrying value(1) ........................... (14.9)
Other, net ................................................. 0.3
--------
145.9
Other receivables .......................................... 2.0
--------
Total ............................................ $ 147.9
========
----------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis European Properties Fund that does
not qualify for income recognition due to ProLogis' continuing ownership in
ProLogis European Properties Fund.
On January 7, 2000, ProLogis contributed 50.1% of the common stock of one
of its wholly owned European entities, ProLogis European Properties S.a.r.l., to
ProLogis European Properties Fund in exchange for an equity interest. ProLogis
contributed the remaining 49.9% of the common stock to ProLogis European
Properties Fund on January 7, 2001 in exchange for an additional equity
interest. As of December 31, 2000, ProLogis had a 34.4% ownership interest in
ProLogis European Properties Fund (increased to 45.6% as of January 7, 2001).
Third parties (19 institutional investors) have invested 325.6 million
euros (the currency equivalent of approximately $302.9 million as of December
31, 2000) in ProLogis European Properties Fund and have committed to fund an
additional 734.7 million euros (the currency equivalent of approximately $683.4
million as of December 31, 2000) through 2002. ProLogis has also entered into a
subscription agreement to make additional capital contributions (excluding the
remaining 49.9% of the common stock of ProLogis European Properties S.a.r.l.) of
93.2 million euros (the currency equivalent of approximately $86.7 million as of
December 31, 2000).
ProLogis European Properties Fund intends to acquire additional stabilized
operating facilities from ProLogis, the Kingspark entities and unrelated
parties, including facilities to be developed by ProLogis and the Kingspark
entities in the future. Stabilized facilities have been defined for purposes of
ProLogis European Properties Fund as facilities that meet minimum leasing
criteria and minimum net operating income yields, as defined and established by
agreement for each country. ProLogis European Properties Fund has the right to
refuse to acquire facilities that ProLogis and the Kingspark entities have
developed if they do not meet the established criteria. ProLogis has an
agreement to manage ProLogis European Properties Fund for a fee pursuant to a
20-year management agreement.
ProLogis European Properties Fund has a credit agreement with two
international banks for a multi-currency, secured revolving credit facility in
the currency equivalent of 500.0 million euros. The credit agreement matures in
October 2002. Borrowings can be
54
denominated in sterling currencies or the euro, and will bear interest at rates
above the relevant index (LIBOR or Euribor). As of December 31, 2000, 118.2
million euros and 62.6 million pound sterling were outstanding on the line (the
currency equivalent of approximately $205.5 million as of December 31, 2000). Of
the total borrowings, ProLogis has guaranteed the currency equivalent of
approximately $93.0 million as of December 31, 2000.
ProLogis European Properties S.a.r.l.
As of December 31, 2000, ProLogis owned 49.9% of the common stock of
ProLogis European Properties S.a.r.l. and recognized 49.9% of the earnings of
this entity under the equity method for the period from January 7, 2000 to
December 31, 2000. ProLogis European Properties Fund owned the remaining 50.1%
of the common stock of ProLogis European Properties S.a.r.l. and recognized
50.1% of the earnings of this entity in its income. ProLogis contributed its
49.9% ownership of ProLogis European Properties S.a.r.l. to ProLogis European
Properties Fund on January 7, 2001 in exchange for an additional equity
interest. Of the 6.6 million square feet of operating facilities owned by
ProLogis European Properties S.a.r.l. as of December 31, 2000, 6.1 million
square feet are located in France, 0.4 million square feet are located in Poland
and 0.1 million square feet are located in the Netherlands. Additionally,
ProLogis European Properties S.a.r.l. had the currency equivalent of
approximately $141.3 million of debt outstanding as of December 31, 2000
(including the currency equivalent of approximately $19.9 million that is
guaranteed by ProLogis).
ProLogis North American Properties Fund I
ProLogis North American Properties Fund I LLC began operations on June 30,
2000, as a limited liability company whose members are ProLogis, ProLogis
Development Services and the State Teachers Retirement Board of Ohio. ProLogis
North American Properties Fund I owned 33 operating facilities aggregating 8.0
million square feet as of December 31, 2000. ProLogis and ProLogis Development
Services had a combined 20.0% ownership interest in ProLogis North American
Properties Fund I as of December 31, 2000.
ProLogis' and ProLogis Development Services' total investment in ProLogis
North American Properties Fund I as of December 31, 2000 consisted of (in
millions):
Equity interest .................................................. $ 18.6
Distributions .................................................... (0.4)
ProLogis' share of ProLogis North American Properties Fund's
earnings, excluding fees earned ................................ 0.3
Adjustments to carrying value(1) ................................. (9.1)
Other, net ....................................................... .4
--------
9.8
Other receivables ................................................ 0.6
--------
Total .................................................. $ 10.4
========
----------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis North American Properties Fund I that
does not qualify for income recognition due to ProLogis' and ProLogis
Development Services' continuing ownership in ProLogis North American
Properties Fund I.
ProLogis North American Properties Fund I acquired three stabilized
operating facilities from ProLogis in January 2001 in exchange for an additional
equity interest, bringing the combined ownership interest to 41.3%. ProLogis has
an agreement to manage ProLogis North American Properties Fund I for a fee for a
10-year period, unless terminated at an earlier date as provided under the terms
of the agreement.
ProLogis Principal
ProLogis Principal began operations on June 30, 2000, as a limited
liability company whose members are ProLogis and Principal Financial Group.
ProLogis Principal owned three operating facilities acquired from ProLogis
aggregating 440,000 square feet as of December 31, 2000. As of December 31,
2000, ProLogis has a $13.2 million note receivable from ProLogis Principal that
earns interest at 8.25% per annum and is due March 31, 2001. ProLogis has an
agreement to manage ProLogis Principal's operating facilities for a fee pursuant
to a four-year agreement. ProLogis had a 20.0% ownership interest in ProLogis
Principal as of December 31, 2000.
55
ProLogis' total investment in ProLogis Principal as of December 31, 2000
consisted of (in millions):
Equity interest ........................ $ 0.6
Adjustments to carrying value(1) ....... (0.4)
--------
0.2
Note receivable ........................ 13.2
--------
Total ........................ $ 13.4
========
----------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis Principal that does not qualify for
income recognition due to ProLogis' continuing ownership in ProLogis
Principal.
Summarized Financial Information
Summarized financial information for ProLogis' unconsolidated entities as
of and for the year ended December 31, 2000 is presented below (in millions of
U.S. dollars). The information presented is for the entire entity.
PROLOGIS PROLOGIS NORTH
PROLOGIS EUROPEAN AMERICAN
LOGISTICS FRIGOSCANDIA KINGSPARK PROLOGIS PROPERTIES PROPERTIES PROLOGIS
(1) S.A.(1) S.A.(1) CALIFORNIA(2) FUND(3) FUND I(4) PRINCIPAL(5)
--------- ------------ --------- ------------- ---------- -------------- ------------
Total assets ............. $ 376.6 $ 508.5 $ 636.3 $ 590.5 $ 906.9 $ 383.1 $ 16.3
Total liabilities(6)(7) .. $ 368.5 $ 566.1 $ 598.7 $ 274.3 $ 412.0 $ 290.9 $ 13.7
Minority interest ........ $ -- $ 0.4 $ -- $ -- $ 84.8 $ -- $ --
Equity(8) ................ $ 8.1 $ (58.0) $ 37.6 $ 316.2 $ 410.1 $ 92.2 $ 2.6
Revenues ................. $ 331.4 $ 382.9 $ 46.4(9) $ 63.6 $ 69.6 $ 13.8 $ 1.1
Net earnings (loss)(10) .. $ (3.6) $ (31.3)(11) $ 20.0(12) $ 19.8 $ 28.0(13) $ 1.5 $ --(14)
----------
(1) ProLogis had a 95.0% economic interest in each entity as of December
31, 2000.
(2) ProLogis had a 50.0% ownership interest as of December 31, 2000.
(3) ProLogis had a 34.4% ownership interest as of December 31, 2000.
ProLogis European Properties S.a.r.l. is consolidated with ProLogis
European Properties Fund. Minority interest represents ProLogis' 49.9%
investment in the common stock of ProLogis European Properties
S.a.r.l.
(4) ProLogis and ProLogis Development Services had a combined 20.0%
ownership interest as of December 31, 2000. ProLogis North American
Properties Fund I was formed on June 30, 2000.
(5) ProLogis had a 20.0% ownership interest as of December 31, 2000.
ProLogis Principal was formed on June 30, 2000.
(6) Includes amounts due to ProLogis of $223.9 million from ProLogis
Logistics, $242.7 million from Frigoscandia S.A., $541.8 million from
Kingspark S.A., $1.1 million from ProLogis California, $2.1 million
from ProLogis European Properties Fund, $0.6 million from ProLogis
North American Properties Fund I and $13.3 million from ProLogis
Principal.
(7) Includes loans from third parties (including accrued interest) of
$91.4 million for ProLogis Logistics, $185.4 million for Frigoscandia
S.A., ($42.0 million was guaranteed by ProLogis as of December 31,
2000; increased to $168.1 million guaranteed as of March 1, 2001),
$262.9 million for ProLogis California, $359.4 million for ProLogis
European Properties Fund ($112.9 million guaranteed by ProLogis) and
$233.8 million for ProLogis North American Properties Fund I.
(8) ProLogis has entered into a subscription agreement to make additional
capital contributions (excluding the remaining 49.9% of the common
stock of ProLogis European Properties S.a.r.l.) of 93.2 million euros
(the currency equivalent of approximately $86.7 million as of December
31, 2000).
(9) Includes $32.3 million of gains related to the disposition of
facilities, including a gain of $4.7 million from the disposition of
facilities to ProLogis European Properties Fund.
(10) ProLogis' share of the net earnings (loss) of the respective entities
and interest income on notes and mortgage notes due to ProLogis are
recognized in the Consolidated Statements of Earnings as "Income from
unconsolidated entities." The net earnings (loss) of each entity
includes interest expense on amounts due to ProLogis, as applicable.
56
(11) Includes net foreign currency exchange losses of $0.9 million.
(12) Includes net foreign currency exchange gains of $0.4 million.
(13) Includes net foreign currency exchange gains of $7.1 million.
(14) Net earnings for the year ended December 31, 2000 was $22,000.
5. BORROWINGS:
Unsecured Lines of Credit
ProLogis has an unsecured credit agreement with Bank of America, N.A.
("Bank of America"), Commerzbank AG and Chase Bank of Texas, National
Association, as agents for a bank group that provides for a $475.0 million
unsecured revolving line of credit. The credit agreement allows ProLogis to
increase the available commitment by $25.0 million to a total of $500.0 million.
ProLogis Logistics and ProLogis Development Services may also borrow under the
credit agreement with such borrowings guaranteed by ProLogis. ProLogis'
borrowings under the agreement generally bear interest at LIBOR plus an
applicable margin (based upon ProLogis' current senior unsecured debt ratings).
ProLogis' borrowings in 2000 were primarily at the 30-day LIBOR rate plus 0.75%
(7.31% as of December 31, 2000). Additionally, the credit agreement provides for
a facility fee of 0.15% per annum. The credit agreement matures on June 6, 2003
and may be extended for an additional year at ProLogis' option. As of December
31, 2000, ProLogis had $184.7 million of borrowings outstanding on the unsecured
line of credit and ProLogis was in compliance with all covenants contained in
the credit agreement. As of December 31, 2000, ProLogis Logistics and ProLogis
Development Services had not borrowed under the credit agreement.
In addition, ProLogis has a $55.0 million unsecured discretionary line of
credit with Bank of America that matures on June 6, 2001. Of the total, ProLogis
can borrow the currency equivalent of $30.0 million in certain foreign
currencies with U.S. dollar borrowings limited to $25.0 million. By agreement
between ProLogis and Bank of America, the rate of interest on and the maturity
date of each advance are determined at the time of each advance. There were
$25.0 million of borrowings outstanding on the discretionary line of credit as
of December 31, 2000.
ProLogis has a credit agreement that provides for a 325.0 million euro
multi-currency, unsecured revolving line of credit (the currency equivalent of
approximately $302.3 million as of December 31, 2000) through a group of 17
banks, on whose behalf ABN AMRO Bank, N.V. acts as agent. Borrowings under the
line of credit bear interest at Euribor plus 0.75% or Sterling LIBOR plus 0.75%
(borrowings outstanding as of December 31, 2000 were at a weighted average
interest rate of 6.23%). The credit agreement provides for an unused commitment
fee of 0.375% per annum. As of December 31, 2000, the currency equivalent of
approximately $230.1 million of borrowings were outstanding on the line of
credit and ProLogis was in compliance with all covenants contained in the credit
agreement.
A summary of ProLogis' unsecured lines of credit borrowings is as follows
(dollar amounts in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Weighted average daily interest rate .................. 6.33% 6.13% 6.46%
Borrowings outstanding as of December 31 .............. $ 439,822 $ 98,700 $ 344,300
Weighted average daily borrowings ..................... $ 251,528 $ 232,821 $ 174,901
Maximum borrowings outstanding at any month end ....... $ 439,822 $ 440,100 $ 344,300
Total borrowing capacity on all lines of credit as
of December 31 ...................................... $ 832,317 $ 902,340 $ 375,000
Senior Unsecured Notes
ProLogis has issued senior unsecured notes and medium-term unsecured notes
that bear interest at fixed rates, payable semi-annually (the "Notes"). The
Notes outstanding as of December 31, 2000 are summarized as follows (in
thousands of dollars):
57
PRINCIPAL
ORIGINAL COUPON MATURITY PRINCIPAL PAYMENT
DATE OF ISSUANCE PRINCIPAL RATE DATE BALANCE(1) REQUIREMENT
---------------- ------------ ------------ ------------ ------------ ------------
May 16, 1995 ............. $ 17,500 7.300% 05/15/01 $ 17,492 (2)
May 17, 1996 ............. 25,000 7.250% 05/15/02 24,994 (3)
October 9, 1998 .......... 125,000 7.000% 10/01/03 125,000 (2)
April 26, 1999 ........... 250,000 6.700% 04/15/04 249,694 (2)
July 20, 1998 ............ 250,000 7.050% 07/15/06 249,622 (2)
November 20, 1997 ....... 135,000 7.250% 11/20/07 134,116 (2)
April 26, 1999 ........... 250,000 7.100% 04/15/08 249,940 (2)
May 17, 1996 ............. 100,000 7.950% 05/15/08 99,889 (4)
March 2, 1995 ............ 150,000 8.720% 03/01/09 150,000 (5)
May 16, 1995 ............. 75,000 7.875% 05/15/09 74,789 (6)
November 20, 1997 ....... 25,000 7.300% 11/20/09 24,787 (2)
February 4, 1997 ......... 100,000 7.810% 02/01/15 100,000 (7)
March 2, 1995 ............ 50,000 9.340% 03/01/15 50,000 (8)
May 17, 1996 ............. 50,000 8.650% 05/15/16 49,875 (9)
July 11, 1997 ............ 100,000 7.625% 07/01/17 99,791 (2)
------------ ------------
$ 1,702,500 $ 1,699,989
============ ============
----------
(1) Amounts are net of applicable unamortized original issue discount.
(2) Principal due at maturity.
(3) Annual principal payments of $12.5 million from May 15, 2001 to May 15,
2002.
(4) Annual principal payments of $25.0 million from May 15, 2005 to May 15,
2008.
(5) Annual principal payments of $18.75 million from March 1, 2002 to March 1,
2009.
(6) Annual principal payments of $9.375 million from May 15, 2002 to May 15,
2009.
(7) Annual principal payments ranging from $10.0 million to $20.0 million from
February 1, 2010 to February 1, 2015.
(8) Annual principal payments ranging from $5.0 million to $12.5 million from
March 1, 2010 to March 1, 2015.
(9) Annual principal payments ranging from $5.0 million to $12.5 million from
May 15, 2010 to May 15, 2016.
The Notes rank equally with all other unsecured and unsubordinated
indebtedness of ProLogis from time to time outstanding. The Notes are redeemable
at any time at ProLogis' option. Such redemption and other terms are governed by
the provisions of an indenture agreement or, with respect to the $160.0 million
of Notes issued on November 20, 1997, note purchase agreements. Under the terms
of the indenture agreement and note purchase agreements, ProLogis must meet
certain financial covenants and ProLogis was in compliance with all such
covenants as of December 31, 2000.
Secured Debt
Secured debt as of December 31, 2000 consisted of the following (in
thousands):
BALLOON
PERIODIC PAYMENT
INTEREST MATURITY PAYMENT PRINCIPAL DUE AT
DESCRIPTION RATE(1) DATE DATE BALANCE MATURITY
----------- ------------ ------------ ------------ ------------ ------------
Mortgage notes:
Rio Grande Industrial Center #1 ...... 8.875% 09/01/01 (2) $ 2,683 $ 2,544
Titusville Industrial Center #1 ...... 10.000 09/01/01 (2) 4,313 4,181
Prudential Insurance(3) .............. 8.590 04/01/03 (2) 25,361 23,505
Sullivan 75 Distribution Center
#1 ................................ 9.960 04/01/04 (2) 1,767 1,663
Charter American Mortgage(3) ......... 8.750 08/01/04 (2) 6,927 5,818
West One Business Center #3 .......... 9.000 09/01/04 (2) 4,234 3,847
Raines Distribution Center ........... 9.500 01/01/05 (2) 4,155 2,173
Prudential Insurance(3)(4) ........... 6.850 04/01/05 (5) 52,532 48,850
Consulate Distribution Center
#300(4) ........................... 6.970 02/01/06 (2) 3,660 3,585
Plano Distribution Center #7(4) ...... 7.020 04/15/06 (2) 3,707 3,015
Connecticut General Life
Insurance(3) ...................... 7.080 03/01/07 (2) 147,166 134,431
58
Vista Del Sol Industrial Center #1
& 2 ............................... 9.680 08/01/07 (6) 3,128 --
State Farm Insurance(3)(4) ........... 7.100 11/01/08 (2) 15,317 13,065
Placid Street Distribution Center
#1(4) ............................. 7.180 12/01/09 (2) 7,633 6,529
Earth City Industrial Center #4 ...... 8.500 07/01/10 (6) 2,029 --
GMAC Commercial Mortgage(3) .......... 7.750 10/01/10 (6) 7,271 --
Executive Park Distribution Center
#3 ................................ 8.190 03/01/11 (6) 993 --
Cameron Business Center #1(4) ....... 7.230 07/01/11 (2) 6,037 4,526
Platte Valley Industrial Center
#9 ................................ 8.100 04/01/17 (6) 3,159 --
Platte Valley Industrial Center
#4 ................................ 10.100 11/01/21 (6) 2,008 --
Morgan Guaranty Trust(3) ............. 7.584 04/01/24 (7) 200,000 127,187
------------
$ 504,080
============
Assessment bonds:
City of Fremont ...................... 7.000% 03/01/11 (6) $ 8,767 --
Various(8) ........................... (8) (8) (6) 1,278 --
------------
$ 10,045
============
Securitized debt:
Tranche A ............................ 7.740% 02/01/04 (2) $ 15,998 $ 13,405
Tranche B ............................ 9.940 02/01/04 (2) 7,802 7,215
------------
$ 23,800
Total secured debt ........... $ 537,925
============
----------
(1) The weighted average interest rates for mortgage notes, assessment bonds
and securitized debt were 7.49%, 7.12% and 8.46%, respectively as of
December 31, 2000. The total weighted average interest rate for ProLogis'
secured borrowings is 7.53%.
(2) Monthly amortization with a balloon payment due at maturity.
(3) Secured by various distribution facilities.
(4) Mortgage note was assumed by ProLogis in connection with the merger with
Meridian. See Note 11. Under purchase accounting, the mortgage note was
recorded at its fair value. Accordingly, a premium or discount was
recognized, as applicable.
(5) Carrying value includes premium. Terms are interest only with stated
principal amount of $48.9 million due at maturity.
(6) Fully amortizing.
(7) Monthly interest only payments through May 2005, monthly principal and
interest payments from June 2005 to April 2024 with a balloon payment due
at maturity.
(8) Includes nine issues of assessment bonds with four municipalities. Interest
rates range from 5.50% per annum to 8.75% per annum. Maturity dates range
from August 2004 to September 2016.
Mortgage notes, assessment bonds and securitized debt are secured by real
estate with an aggregate undepreciated cost of $927.0 million, $236.3 million
and $61.3 million, respectively, as of December 31, 2000.
Other Unsecured Debt
As of December 31, 1999, ProLogis had an unsecured term loan in the amount
of 200.0 million French francs (the currency equivalent of approximately $30.9
million). This debt was held by ProLogis European Properties S.a.r.l. See Note
4.
Long-Term Debt Maturities
Approximate principal payments due on senior unsecured notes and secured
debt (mortgage notes, assessment bonds and securitized debt) during each of the
years in the five-year period ending December 31, 2005 and thereafter are as
follows (in thousands):
59
2001 ................................. $ 44,665
2002 ................................. 48,898
2003 ................................. 184,856
2004 ................................. 316,221
2005 ................................. 112,063
2006 and thereafter .................. 1,533,722
------------
Total principal due ........ 2,240,425
Less: Original issue discount ........ (2,511)
------------
Total carrying value ....... $ 2,237,914
============
Interest Expense
For 2000, 1999 and 1998, interest expense was $172.2 million, $170.7
million and $77.7 million, respectively, which is net of capitalized interest of
$18.5 million, $16.0 million and $19.2 million, respectively. Amortization of
deferred loan costs included in interest expense was $4.6 million, $4.4 million
and $2.2 million for 2000, 1999 and 1998, respectively. The total interest paid
in cash on all outstanding debt was $178.4 million, $169.8 million and $83.2
million during 2000, 1999 and 1998, respectively.
6. MINORITY INTEREST:
Minority interest represents the limited partners' interests in real estate
partnerships controlled by ProLogis. With respect to each of the partnerships
either ProLogis or a subsidiary of ProLogis is the sole general partner with all
management powers over the business and affairs of the partnership. The limited
partners of each partnership generally do not have the right to participate in
or exercise management control over the business and affairs of the partnership.
With respect to each partnership the general partner may not, without the
written consent of all of the limited partners, take any action that would
prevent such partnership from conducting its business, possess the property of
the partnership, admit an additional partner or subject a limited partner to the
liability of a general partner.
As of December 31, 2000, ProLogis or a subsidiary of ProLogis is the
controlling general partner in five partnerships. In each of these partnerships,
the limited partners are entitled to exchange partnership units for Common
Shares. Additionally, the limited partners are entitled to receive preferential
cumulative quarterly distributions per unit equal to the quarterly distributions
in respect of Common Shares. The five partnerships as of December 31, 2000 are
as follows:
INVESTMENT IN LIMITED
FORMATION REAL ESTATE PROLOGIS' PARTNERSHIP UNITS
ENTITY DATE (IN MILLIONS) OWNERSHIP OUTSTANDING
------ --------- ------------- --------- -----------------
ProLogis Limited Partnership-I(1) ...... 1993 $ 211.0 68.70% 4,520,532(2)
ProLogis Limited Partnership-II ........ 1994 $ 58.3 97.80% 90,213(2)
ProLogis Limited Partnership-III ....... 1994 $ 52.0 86.39% 376,347(2)
ProLogis Limited
Partnership-IV(3) .................... 1994 $ 103.9 98.50% 68,612(2)
Meridian Realty Partners Limited
Partnership .......................... (4) $ 10.4 88.00% 29,712(5)
----------
(1) These facilities cannot be sold, prior to the occurrence of certain events,
without the consent of the limited partners thereto, other than in
tax-deferred exchanges.
(2) Convertible into Common Shares on a one for one basis.
(3) ProLogis Limited Partnership-IV was formed through a cash contribution from
a wholly owned subsidiary of ProLogis, ProLogis-IV, Inc. and the
contribution of industrial distribution facilities from the limited
partner. ProLogis Limited Partnership-IV and ProLogis-IV, Inc. are legal
entities separate and distinct from ProLogis, its affiliates and each
other, and each has separate assets, liabilities, business functions and
operations. The sole assets of ProLogis-IV, Inc. are its general partner
advances to and its interest in ProLogis Limited Partnership-IV. As of
December 31, 2000, ProLogis Limited Partnership-IV had outstanding
borrowings from ProLogis-IV, Inc., of $0.4 million and ProLogis-IV, Inc.
had outstanding borrowings from ProLogis and its affiliates of $0.4
million.
(4) Acquired in merger with Meridian. See Note 11.
(5) Convertible into Common Shares on a 1.1 for one basis, plus $2.00.
60
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of each of the five partnerships are included in
ProLogis' consolidated financial statements, and the interests of the limited
partners are reflected as minority interest.
7. SHAREHOLDERS' EQUITY:
Shares Authorized
As of December 31, 2000, 275,000,000 shares were authorized. ProLogis'
Board of Trustees (the "Board") may increase the number of authorized shares and
may classify or reclassify any unissued shares of ProLogis stock from time to
time by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as of distributions, qualifications and terms
or conditions of redemption of such shares.
Preferred Shares
As of December 31, 2000, ProLogis had four series of cumulative redeemable
preferred shares of beneficial interest outstanding (Series A, C, D and E) and
one series of cumulative convertible redeemable preferred shares of beneficial
interest outstanding (Series B). The Series B preferred shares are convertible
at any time, unless previously redeemed, at the option of the holders thereof
into Common Shares at a conversion price of $19.50 per share (equivalent to a
conversion rate of 1.282 Common Shares for each Series B preferred share).
Holders of each series of preferred shares have, subject to certain
conditions, limited voting rights. The holders of the preferred shares are
entitled to receive cumulative preferential dividends based upon each series'
respective liquidation preference. Such dividends are payable quarterly in
arrears on the last day of March, June, September and December for all series of
preferred shares, with the exception of Series E, which are payable quarterly on
the last day of January, April, July and October, when, and if, declared by the
Board, out of funds legally available for payment of dividends. After the
respective redemption dates, each series can be redeemed for a cash redemption
price which (other than the portion consisting of accrued and unpaid dividends)
is payable solely out of the sales proceeds of other capital shares of ProLogis,
which may include shares of other series of preferred shares. With respect to
payment of dividends, each series of preferred shares ranks on parity with
ProLogis' other series of preferred shares.
ProLogis' preferred shares as of December 31, 2000 are summarized as
follows:
DIVIDEND
STATED EQUIVALENT BASED OPTIONAL
NUMBER OF SHARES LIQUIDATION DIVIDEND ON LIQUIDATION REDEMPTION
OUTSTANDING PREFERENCE RATE PREFERENCE DATE(1)
---------------- ----------- ----------- ---------------- -----------
Series A Cumulative
Redeemable
Preferred Shares ...... 5,400,000 $ 25.00 9.40% $2.35 per share 06/21/00
Series B Cumulative
Convertible
Redeemable
Preferred
Shares(2) ............. 6,256,100 $ 25.00 7.00% $1.75 per share 02/21/01(3)
Series C Cumulative
Redeemable
Preferred Shares ...... 2,000,000 $ 50.00 8.54% $4.27 per share 11/13/26
Series D Cumulative
Redeemable
Preferred Shares ...... 10,000,000 $ 25.00 7.92% $1.98 per share 04/13/03
Series E Cumulative
Redeemable
Preferred Shares ...... 2,000,000 $ 25.00 8.75% $2.19 per share 06/30/03
----------
(1) After this date, the preferred shares can be redeemed at ProLogis' option.
(2) During 2000 and 1999, Series B preferred shares of 764,599 and 516,897,
respectively, were converted into 980,216 and 662,661 Common Shares,
respectively.
(3) ProLogis will redeem these shares on March 20, 2001.
61
Recent Developments
On January 11, 2001, ProLogis announced a Common Share repurchase program
under which it may repurchase up to $100.0 million of its Common Shares. The
Common Shares will be repurchased from time to time in the open market and in
privately negotiated transactions, depending on market prices and other
conditions. On February 12, 2001 ProLogis announced its call for redemption of
all outstanding Series B cumulative convertible redeemable preferred shares at a
price of $25.00 per share, plus $0.442 in accrued and unpaid dividends, for an
aggregate redemption price of $25.442 per preferred share. The redemption date
is March 20, 2001. On or prior to March 13, 2001, the Series B preferred shares
could be converted into Common Shares at a conversion rate of 1.282 Common
Shares for each Series B preferred share.
Issuance of Common Shares
During 2000, ProLogis generated net proceeds of $30.3 million from the
issuance of 1,479,000 Common Shares under its 1999 Dividend Reinvestment and
Share Purchase Plan and issuance of 163,000 Common Shares under long-term
compensation plans. See Note 13. In addition, ProLogis issued: (i) 602,000
Common Shares in connection with the acquisition agreement for the Kingspark
entities (see Note 4); (ii) 980,000 Common Shares upon conversion of 765,000
cumulative convertible redeemable Series B preferred shares; and (iii) 238,000
Common Shares to the holders of 216,000 convertible limited partnership units.
Shelf Registration
ProLogis has a shelf registration statement on file with the Securities and
Exchange Commission that allows ProLogis to issue securities in the form of debt
securities, preferred shares, Common Shares, rights to purchase Common Shares
and preferred share purchase rights on an as-needed basis. These $608.0 million
of shelf-registered securities are available for issuance, subject to ProLogis'
ability to effect an offering on satisfactory terms.
Ownership Restrictions and Significant Shareholder
For ProLogis to qualify as a REIT under the Code, not more than 50% in
value of its outstanding shares of stock may be owned by five or fewer
individuals at any time during the last half of ProLogis' taxable year.
Therefore, ProLogis' Declaration of Trust restricts beneficial ownership (or
ownership generally attributed to a person under the REIT tax rules) of
ProLogis' outstanding shares by a single person, or persons acting as a group,
to 9.8% of ProLogis' outstanding shares. This provision assists ProLogis in
protecting and preserving its REIT status and protects the interest of
shareholders in takeover transactions by preventing the acquisition of a
substantial block of shares.
Shares owned by a person or group of persons in excess of these limits are
subject to redemption by ProLogis. The provision does not apply where a majority
of the Board, in its sole and absolute discretion, waives such limit after
determining that the status of ProLogis as a REIT for federal income tax
purposes will not be jeopardized or the disqualification of ProLogis as a REIT
is advantageous to the shareholders.
Security Capital is exempt from the ownership restrictions described above.
Security Capital owned 30.2% the outstanding Common Shares as of December 31,
2000. For tax purposes, Security Capital's ownership is attributed to its
shareholders.
Dividend Reinvestment and Share Purchase Plan
In March 1995, ProLogis adopted a Dividend Reinvestment and Share Purchase
Plan (the "1995 Plan"), which commenced in April 1995. The 1995 Plan allowed
holders of Common Shares the opportunity to acquire additional Common Shares by
automatically reinvesting distributions. Holders of Common Shares who do not
participate in the 1995 Plan continue to receive distributions as declared. The
1995 Plan also allowed participating holders of Common Shares to purchase a
limited number of additional Common Shares by making optional cash payments,
without payment of any brokerage commission or service charge. Common Shares are
acquired pursuant to the 1995 Plan at a price equal to 98% of the market price
of such Common Shares, without payment of any brokerage commission or service
charge.
The 1995 Plan was amended in June 1999 by the 1999 Dividend Reinvestment
and Share Purchase Plan (the "1999 Plan"). The primary change effective with the
1999 Plan allows persons who are not holders of Common Shares to participate in
the share purchase plan.
62
Shareholder Purchase Rights
On December 7, 1993, the Board declared a dividend of one preferred share
purchase right ("Right") for each outstanding Common Share to be distributed to
all holders of record of the Common Shares on December 31, 1993. Each Right
entitles the registered holder to purchase one-hundredth of a Participating
Preferred Share for an exercise price of $40.00 per one-hundredth of a
Participating Preferred Share, subject to adjustment as provided in the Rights
Agreement. The Rights will generally be exercisable only if a person or group
(other than certain affiliates of ProLogis) acquires 20% or more of the Common
Shares or announces a tender offer for 25% or more of the Common Shares. Under
certain circumstances, upon a shareholder acquisition of 20% or more of the
Common Shares (other than certain affiliates of ProLogis), each Right will
entitle the holder to purchase, at the Right's then-current exercise price, a
number of Common Shares having a market value of twice the Right's exercise
price. The acquisition of ProLogis pursuant to certain mergers or other business
transactions will entitle each holder of a Right to purchase, at the Right's
then-current exercise price, a number of the acquiring company's common shares
having a market value at that time equal to twice the Right's exercise price.
The Rights held by certain 20% shareholders will not be exercisable. The Rights
will expire on December 7, 2003, unless the expiration date of the Rights is
extended, and the Rights are subject to redemption at a price of $0.01 per Right
under certain circumstances.
8. DISTRIBUTIONS AND DIVIDENDS:
Common Distributions
ProLogis' annual distribution per Common Share was $1.34 in 2000, $1.30 in
1999 and $1.24 in 1998. For Federal income tax purposes, the following
summarizes the taxability of cash distributions paid on Common Shares in 1999
and 1998 and the estimated taxability for 2000:
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
-------- -------- --------
Per Common Share:
Ordinary income ....... $ 1.19 $ 0.84 $ 1.12
Capital gains ......... 0.15 0.35 --
Return of capital ..... -- 0.11 0.12
-------- -------- --------
Total ......... $ 1.34 $ 1.30 $ 1.24
======== ======== ========
The distribution level for 2001 was set at $1.38 per Common Share by the
Board in December 2000. Additionally, on December 15, 2000, ProLogis declared a
distribution of $0.345 per Common Share payable on February 23, 2001 to holders
of Common Shares on February 9, 2001.
Preferred Dividends
The annual dividends per preferred share were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------
2000(1) 1999(2) 1998(3)
-------- -------- --------
Series A Cumulative Redeemable Preferred Shares ............ $ 2.35 $ 2.35 $ 2.35
Series B Cumulative Convertible Redeemable Preferred
Shares ................................................... 1.75 1.75 1.75
Series C Cumulative Redeemable Preferred Shares ............ 4.27 4.27 4.27
Series D Cumulative Redeemable Preferred Shares ............ 1.98 1.98 1.42(4)
Series E Cumulative Redeemable Preferred Shares ............ 2.19 1.64(5) --
----------
(1) For federal income tax purposes $2.08 of the Series A dividend, $1.55 of
the Series B dividend, $3.78 of the Series C dividend, $1.75 of the Series
D dividend and $1.94 of the Series E dividend are treated as ordinary
income to the holders. The remaining portion of each dividend represents
capital gains.
(2) For federal income tax purposes $1.65 of the Series A dividend, $1.23 of
the Series B dividend, $3.00 of the Series C dividend, $1.39 of the Series
D dividend and $1.15 of the Series E dividend are treated as ordinary
income to the holders. The remaining portion of each dividend represents
capital gains.
(3) For federal income tax purposes these dividends are treated as ordinary
income to the holders.
63
(4) For the period from date of issuance to December 31, 1998.
(5) For the period from date of issuance to December 31, 1999.
Pursuant to the terms of its preferred shares, ProLogis is restricted from
declaring or paying any distribution with respect to the Common Shares unless
all cumulative dividends with respect to the preferred shares have been paid and
sufficient funds have been set aside for dividends that have been declared for
the then-current dividend period with respect to the preferred shares.
ProLogis' tax return for the year ended December 31, 2000 has not been
filed. The taxability information for 2000 is based upon the best available
data. ProLogis' tax returns for prior years have not been examined by the
Internal Revenue Service. Consequently, the taxability of distributions and
dividends is subject to change.
9. EARNINGS PER COMMON SHARE:
A reconciliation of the denominator used to calculate basic earnings per
Common Share to the denominator used to calculate diluted earnings per Common
Share for the years indicated (in thousands, except per share amounts) is as
follows:
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
-------- -------- --------
Net earnings attributable to Common Shares ................. $157,715 $123,999 $ 62,231
======== ======== ========
Weighted average Common Shares outstanding--
Basic .................................................... 163,651 152,412 121,721
Incremental weighted effect of common stock
equivalents and contingently issuable shares (see
Note 13) ................................................. 750 327 307
-------- -------- --------
Adjusted weighted average Common Shares
outstanding-- Diluted .................................... 164,401 152,739 122,028
======== ======== ========
Basic and diluted per share net earnings attributable
to Common Shares ......................................... $ 0.96 $ 0.81 $ 0.51
======== ======== ========
For the year ended December 31, 1999, basic and diluted per share net
earnings attributable to Common Shares before the cumulative effect of
accounting change were $0.82. The following convertible securities were not
included in the calculation of diluted net earnings per Common Share as the
effect, on an as-converted basis, was antidilutive (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
-------- -------- --------
Series B cumulative convertible redeemable preferred
shares ................................................... 8,417 9,221 10,055
-------- -------- --------
Limited partnership units .................................. 5,348 5,461 5,070
======== ======== ========
10. BUSINESS SEGMENTS:
ProLogis has three reportable business segments:
o Property operations represents the long-term ownership and leasing of
industrial distribution facilities in the United States, (portions of
which are owned through ProLogis California, ProLogis North American
Properties Fund I and ProLogis Principal-- See Note 4) Mexico and
Europe (portions of which were owned through Garonor Holding (see Note
4), a subsidiary that was recognized under the equity method until
June 29, 1999 and through ProLogis European Properties Fund in 2000
and 1999 and ProLogis European Properties S.a.r.l. in 2000-- See Note
4); each operating facility is considered to be an individual
operating segment having similar economic characteristics which are
combined within the reportable segment based upon geographic location;
o Corporate distribution facilities services business ("CDFS")
represents the development of industrial distribution facilities by
ProLogis, ProLogis Development Services or the Kingspark entities in
the United States, Mexico and Europe (see Note 4) which are often
disposed of to third parties or entities in which ProLogis has an
ownership interest and the development of industrial distribution
facilities by ProLogis, ProLogis Development Services or the Kingspark
entities on a fee basis for third parties in the United States, Mexico
and Europe; the development activities of ProLogis, ProLogis
Development Services and the Kingspark entities are considered to be
individual operating segments having similar economic characteristics
which are combined within the reportable segment based upon geographic
location; and
64
o Temperature-controlled distribution operations represents the
operation of a temperature-controlled distribution and logistics
network through investments in unconsolidated entities in the United
States (ProLogis Logistics) and Europe (Frigoscandia S.A.); each
company's operating facilities are considered to be individual
operating segments having similar economic characteristics which are
combined within the reportable segment based upon geographic location.
See Note 4.
Reconciliations of the three reportable segments': (i) income from external
customers to ProLogis' total income; (ii) net operating income from external
customers to ProLogis' earnings from operations (ProLogis' chief operating
decision makers rely primarily on net operating income to make decisions about
allocating resources and assessing segment performance); and (iii) assets to
ProLogis' total assets are as follows (in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Income:
Property operations:
United States(1) ...................................... $ 476,098 $ 457,592 $ 333,494
Mexico ................................................ 15,504 10,503 3,499
Europe(2) ............................................. 27,771 16,045 8,059
---------- ---------- ----------
Total property operations segment ................ 519,373 484,140 345,052
---------- ---------- ----------
CDFS business:
United States(3) ...................................... 58,812 28,861 17,421
Mexico ................................................ 1,517 -- 133
Europe(4)(5) .......................................... 61,569 41,673 2,915
---------- ---------- ----------
Total CDFS business segment ...................... 121,898 70,534 20,469
---------- ---------- ----------
Temperature-controlled distribution operations:
North America(6) ...................................... 11,950 10,791 7,349
Europe(7) ............................................. (20,298) (4,364) (7,535)
---------- ---------- ----------
Total temperature-controlled distribution
operations segment ............................. (8,348) 6,427 (186)
---------- ---------- ----------
Reconciling items:
Interest income ....................................... 7,267 6,369 2,752
Income from unconsolidated entities ................... 3,331 (78) 20
---------- ---------- ----------
Total reconciling items .......................... 10,598 6,291 2,772
---------- ---------- ----------
Total income ..................................... $ 643,521 $ 567,392 $ 368,107
========== ========== ==========
Net operating income:
Property operations:
United States(1) ...................................... $ 448,074 $ 424,633 $ 306,920
Mexico ................................................ 15,093 10,569 3,302
Europe(2) ............................................. 29,029 15,437 7,710
---------- ---------- ----------
Total property operations segment ................ 492,196 450,639 317,932
---------- ---------- ----------
CDFS business:
United States(3) ...................................... 58,812 28,861 17,421
Mexico ................................................ 1,517 -- 133
Europe(4)(5) .......................................... 61,569 41,673 2,915
---------- ---------- ----------
Total CDFS business segment ...................... 121,898 70,534 20,469
---------- ---------- ----------
Temperature-controlled distribution operations:
North America(6) ...................................... 11,950 10,791 7,349
Europe(7) ............................................. (20,298) (4,364) (7,535)
---------- ---------- ----------
Total temperature-controlled distribution
operations segment ............................. (8,348) 6,427 (186)
---------- ---------- ----------
Reconciling items:
Interest income ....................................... 7,267 6,369 2,752
Income from unconsolidated entities ................... 3,331 (78) 20
General and administrative expense .................... (44,954) (38,284) (22,893)
Depreciation and amortization ......................... (151,483) (152,447) (100,590)
Interest expense ...................................... (172,191) (170,746) (77,650)
Interest rate hedge expense ........................... -- (945) (26,050)
Other expenses ........................................ (5,909) (4,920) (6,187)
---------- ---------- ----------
Total reconciling items .......................... (363,939) (361,051) (230,598)
---------- ---------- ----------
Earnings from operations ......................... $ 241,807 $ 166,549 $ 107,617
========== ========== ==========
65
DECEMBER 31,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
Property operations:
United States(8) .................................... $3,887,601 $4,017,702 $3,073,248
Mexico .............................................. 113,538 178,253 74,494
Europe(8) ........................................... 308,457 387,362 309,639
---------- ---------- ----------
Total property operations segment ........... 4,309,596 4,583,317 3,457,381
---------- ---------- ----------
CDFS business:
United States ....................................... 304,697 210,088 148,001
Mexico .............................................. 26,288 13,249 16,465
Europe(8) ........................................... 637,207 432,455 224,769
---------- ---------- ----------
Total CDFS business segment ................. 968,192 655,792 389,235
---------- ---------- ----------
Temperature controlled distribution operations:
North America(8) .................................... 231,053 192,607 151,021
Europe(8) ........................................... 191,981 214,008 221,566
---------- ---------- ----------
Total temperature controlled
distribution operations segment ........... 423,034 406,615 372,587
---------- ---------- ----------
Reconciling items:
Investments in unconsolidated entities .............. 70,807 2,442 1,520
Cash ................................................ 57,870 69,338 63,140
Accounts and notes receivable ....................... 43,040 31,084 1,313
Other assets ........................................ 73,795 99,452 45,553
---------- ---------- ----------
Total reconciling items ..................... 245,512 202,316 111,526
---------- ---------- ----------
Total assets ................................ $5,946,334 $5,848,040 $4,330,729
========== ========== ==========
----------
(1) In addition to the operations of ProLogis that are reported on a
consolidated basis, includes amounts recognized under the equity method
related to ProLogis' investment in ProLogis California, ProLogis North
American Properties Fund I and ProLogis Principal in 2000 and ProLogis
California in 1999. See Note 4 for summarized financial information of
ProLogis California, ProLogis North American Properties Fund I and ProLogis
Principal.
(2) In addition to the operations of ProLogis that are reported on a
consolidated basis, includes amounts recognized under the equity method
related to ProLogis' investment in ProLogis European Properties Fund
(including net foreign currency exchange gains of $2.3 million) and
ProLogis European Properties S.a.r.l. (including net foreign currency
exchange gains of $2.4 million) in 2000 and ProLogis European Properties
Fund (including net foreign currency gains of $0.3 million) in 1999. In
1999, also includes ProLogis' investment in Garonor Holdings (including a
$13.0 million net foreign currency exchange loss). See Note 4 for
summarized financial information of ProLogis European Properties Fund and
for a discussion of Garonor Holdings.
(3) In 2000, includes $3.3 million, $24.5 million and $1.6 million of net gains
recognized by ProLogis related to the disposition of facilities to ProLogis
California, ProLogis North American Properties Fund I and ProLogis
Principal, respectively. See Note 4.
(4) Includes amounts recognized under the equity method related to ProLogis'
investment in the Kingspark entities in 2000, 1999 and 1998 (including $0.3
million of net foreign currency exchange gains in 2000 and $1.5 million and
$0.9 million of net foreign currency exchange losses in 1999 and 1998,
respectively). See Note 4 for summarized financial information of the
Kingspark entities.
(5) Includes $13.7 million and $17.3 million of net gains recognized by
ProLogis related to the disposition of facilities to ProLogis European
Properties Fund in 2000 and 1999, respectively. In addition, includes $4.3
million and $4.5 million of net gains recognized under the equity method
related to the Kingspark entities' disposition of facilities to ProLogis
European Properties Fund in 2000 and 1999, respectively. See Note 4.
(6) Represents amounts recognized under the equity method related to ProLogis'
investment in ProLogis Logistics. See Note 4 for summarized financial
information of ProLogis Logistics.
(7) Represents amounts recognized under the equity method related to ProLogis'
investment in Frigoscandia S.A. (including $0.8 million, $1.3 million and
$11.4 million of net foreign currency exchange losses in 2000, 1999 and
1998, respectively). See Note 4 for summarized financial information of
Frigoscandia S.A.
(8) Amounts include investments in unconsolidated entities accounted for under
the equity method. See also Note 4 for summarized financial information of
the unconsolidated entities as of and for the year ended December 31, 2000.
11. MERGER WITH MERIDIAN
On March 30, 1999, Meridian Industrial Trust, Inc. ("Meridian"), a publicly
traded REIT that owned industrial distribution facilities in the United States,
was merged with and into ProLogis. In accordance with the terms of the Agreement
and Plan of Merger dated as of November 16, 1998, as amended (the "Merger
Agreement"), the approximately 33.8 million outstanding shares of Meridian
common stock were exchanged (on a 1.1 for one basis) into approximately 37.2
million ProLogis Common Shares. In addition, the holders of Meridian common
stock received $2.00 in cash per outstanding share, approximately $67.6 million
in total.
66
The holders of Meridian's Series D cumulative redeemable preferred stock
received a new series of ProLogis cumulative redeemable preferred shares, Series
E preferred shares, on a one for one basis. The Series E preferred shares have
an 8.75% annual dividend rate ($2.1875 per share) and an aggregate liquidation
value of $50.0 million. The total purchase price of Meridian was approximately
$1.54 billion, which included the assumption of the outstanding debt and
liabilities of Meridian as of March 30, 1999 and the issuance of approximately
1.1 million stock options each to acquire 1.1 ProLogis Common Shares and $2.00
in cash. The assets acquired from Meridian included approximately $1.42 billion
of real estate assets, an interest in a temperature-controlled distribution
business of $28.7 million and cash and other assets aggregating $72.3 million.
The transaction was structured as a tax-free merger and was accounted for under
the purchase method.
The following summarized pro forma unaudited information represents the
combined historical operating results of ProLogis and Meridian with the
appropriate purchase accounting adjustments, assuming the merger with Meridian
had occurred on January 1, 1998. The pro forma financial information presented
is not necessarily indicative of what ProLogis' actual operating results would
have been had ProLogis and Meridian constituted a single entity during such
periods (in thousands, except per share amounts):
YEAR ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
Rental income .......................................... $ 525,340 $ 464,034
Earnings from operations ............................... $ 170,681 $ 124,928
Earnings attributable to Common Shares before
cumulative ............................................. $ 136,461 $ 78,847
effect of accounting change
Net earnings attributable to Common Shares ............. $ 135,021 $ 78,847
Weighted average Common Shares outstanding:
Basic ................................................ 160,705 155,923
Diluted .............................................. 161,044 156,680
Basic per share net earnings attributable to Common
Shares ................................................. $ 0.85 $ 0.51
before cumulative effect of accounting change
Cumulative effect of accounting change ................. (0.01) --
----------- -----------
Basic per share net earnings attributable to Common
Shares ............................................... $ 0.84 $ 0.51
=========== ===========
Diluted per share net earnings attributable to Common
Shares ................................................. $ 0.85 $ 0.50
before cumulative effect of accounting change
Cumulative effect of accounting change ................. (0.01) --
----------- -----------
Diluted per share net earnings attributable to Common
Shares ............................................... $ 0.84 $ 0.50
=========== ===========
12. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31,
2000, 1999 and 1998 are as follows:
o In connection with ProLogis' contribution of 50.1% of the common stock
of ProLogis European Properties S.a.r.l. to ProLogis European Properties
Fund discussed in Note 4, ProLogis received an equity interest in
ProLogis European Properties Fund of approximately $78.0 million.
ProLogis European Properties S.a.r.l. had total assets of $403.9 million
and total liabilities of $248.1 million. ProLogis has recognized its
investment in the remaining 49.9% of the common stock under the equity
method since January 7, 2000. On January 7, 2001, ProLogis contributed
the remaining 49.9% of the common stock to ProLogis European Properties
Fund for an additional equity interest. See Note 4.
o ProLogis received $11.4 million, $13.8 million, $18.6 million and $0.6
million of the proceeds from its disposition of facilities to ProLogis
European Properties Fund, ProLogis California, ProLogis North American
Properties Fund I and ProLogis Principal, respectively, in the form of
an equity interest in these entities during 2000. Additionally, ProLogis
received $13.2 million of the proceeds from its disposition of
facilities to ProLogis Principal in the form of a note receivable during
2000. ProLogis received $148.2 million and $23.4 million of the proceeds
from its disposition of facilities to ProLogis California and ProLogis
European Properties Fund, respectively, in the form of an equity
interest in these entities during 1999.
o ProLogis received $2.1 million of the proceeds from its disposition of
facilities to third parties in the form of notes receivable during 2000.
o In connection with the agreement for the acquisition of the Kingspark
entities discussed in Note 4, ProLogis issued 602,000 Common Shares in
2000 valued at $11.9 million.
67
o In connection with the merger with Meridian in 1999 discussed in Note
11, ProLogis issued approximately 37.2 million Common Shares and 2.0
million Series E preferred shares, assumed approximately 1.1 million
stock options and assumed outstanding debt and liabilities of Meridian
for an aggregate purchase price of approximately $1.54 billion in
exchange for the assets of Meridian (including cash balances acquired of
$49.0 million).
o Series B cumulative convertible redeemable preferred shares aggregating
$19,115,000, $12,922,000 and $11,568,000 were converted into Common
Shares in 2000, 1999 and 1998, respectively.
o Net foreign currency translation adjustments of $(24,003,000),
$(9,788,000) and $86,000 were recognized in 2000, 1999 and 1998,
respectively.
o Limited partnership units aggregating $8,169,000 (total minority
interest of $13,905,000 less $5,736,000 representing amounts due to
ProLogis by the holder of the units), $205,000 and $302,000 were
converted into Common Shares in 2000, 1999 and 1998, respectively.
o Mortgage notes in the amount $39.8 million were assumed in connection
with the acquisition of real estate in 1998.
o Employee share purchase notes in the amount of $1,796,000 were retired
in 1998. See Note 13.
13. LONG-TERM COMPENSATION
Long-Term Incentive Plan and Share Option Plan for Outside Trustees
ProLogis has a long-term incentive plan (the "Incentive Plan"), which
includes an employee share purchase plan, a stock option plan, a restricted
share unit plan and a performance share plan. No more than 14,600,000 Common
Shares in the aggregate may be awarded under the Incentive Plan and no
individual may be granted awards with respect to more than 500,000 Common Shares
in any one-year period. The Incentive Plan has a 10-year term. Additionally,
ProLogis has 500,000 Common Shares authorized for issuance under its Share
Option Plan for Outside Trustees (the "Outside Trustees Plan"). As of December
31, 2000, 4,382,000 Common Shares remain to be issued under the Incentive Plan
and 406,000 Common Shares remain to be issued under the Outside Trustees Plan.
Employee Share Purchase Plan
Under the employee share purchase plan certain employees of ProLogis
purchased 1,356,834 Common Shares on September 8, 1997 at a price of $21.21875
per share. ProLogis financed 95% of the total purchase price through ten-year,
recourse notes to the participants aggregating $27.3 million. The loans, which
have been recognized as a deduction from shareholders' equity, bear interest at
the lower of ProLogis' annual dividend yield on Common Shares or 6% per annum.
The loans are secured by the Common Shares purchased. For each Common Share
purchased, participants were granted two options to purchase Common Shares at a
price of $21.21875. As of December 31, 2000, there were 930,807 Common Shares
securing the employee share purchase notes. The outstanding notes receivable at
December 31, 2000 of $18,556,000 include $16,314,000 due from officers of
ProLogis.
Stock Options
ProLogis has granted stock options under the Incentive Plan and the Outside
Trustees Plan. Stock options outstanding as of December 31, 2000 are as follows:
WEIGHTED
AVERAGE
NUMBER OF EXPIRATION REMAINING
OPTIONS EXERCISE PRICE(1) DATE LIFE
--------- ------------------ ---------- ---------
Outside Trustees Plan(2)... 84,000 $17.50-$ 25.00 2001-2010 6.8 years
Employee stock purchase
plan(3).................. 1,923,874 $21.21875 2007 6.7 years
Stock option plan(2)(3):
1997 awards.............. 234,701 $21.21875-$23.96875 2007 6.7 years
1998 awards.............. 1,217,610 $20.9375-$ 24.625 2008 7.8 years
1999 awards.............. 1,265,689 $17.1875-$19.71875 2009 8.7 years
2000 awards.............. 1,251,045 $20.0625-$ 24.25 2010 9.7 years
Meridian options(4)........ 359,724 $16.375-$ 23.9375 2004 3.2 years
Options sold to
unconsolidated 1,383,963 $18.625-$ 24.5625 2008-2010 8.6 years
---------
entities(2)..............
Total............ 7,720,606
=========
68
----------
(1) Exercise price was equal to the average of the high and low market price on
the date of grant.
(2) The holders are awarded dividend equivalent units each year of the plan,
except for holders of 24,000 options issued under the Outside Trustees Plan
prior to 1999.
(3) Graded vesting at various rates over periods from one to 10 years, subject
to certain conditions.
(4) Options are fully exercisable. Options issued to holders of Meridian options
are exercisable into 1.1 Common Shares, plus $2.00. See Note 11.
The weighted average fair value of the stock options issued under the
Incentive Plan to ProLogis' employees, issued under the Outside Trustees Plan
and sold to unconsolidated entities during 2000 was $3.41 per option (excluding
the value of the DEUs to be earned). The activity with respect to ProLogis'
stock option plans for the years ended December 31, 2000, 1999 and 1998 is
presented below.
WEIGHTED
AVERAGE NUMBER OF
NUMBER OF EXERCISE OPTIONS
OPTIONS PRICE EXERCISABLE
-------------- -------------- --------------
Balance at December 31, 1997 ................ 3,103,291 $ 21.21 1,129,448
Granted/Sold .............................. 2,011,392 21.17 870,787
Exercised ................................. -- -- --
Forfeited ................................. (251,473) 21.22 --
-------------- -------------- --------------
Balance at December 31, 1998 ................ 4,863,210 21.19 2,000,235
Granted/Sold .............................. 2,066,133 20.41 458,204
Issued in merger with Meridian (Note 11) .. 1,025,850 20.13 1,025,850
Exercised ................................. (4,000) 15.50 (4,000)
Forfeited ................................. (487,985) 21.02 --
-------------- -------------- --------------
Balance at December 31, 1999 ................ 7,463,208 20.37 3,480,289
Granted/Sold .............................. 1,702,028 23.94 --
Exercised ................................. (744,171) 19.80 (744,171)
Forfeited ................................. (700,459) 20.55 --
-------------- -------------- --------------
Balance at December 31, 2000 ................ 7,720,606 $ 21.11 2,736,118
============== ============== ==============
ProLogis did not recognize compensation expense in 2000, 1999 or 1998
related to stock options granted as the exercise price of all options granted
was equal to the average of the high and low market price on the date of grant.
Had compensation expense for these plans been determined using an option
valuation model as provided in SFAS No. 123, ProLogis net earnings attributable
to Common Shares and net earnings per Common Share would change as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Net earnings attributable to Common Shares:
As reported .................................... $ 157,715 $ 123,999 $ 62,231
Pro forma ...................................... 154,857 121,767 60,805
Basic and diluted net earnings per Common Share:
As reported-- basic and diluted ................ $ 0.96 $ 0.81 $ 0.51
Pro forma-- basic .............................. 0.95 0.80 0.50
Pro forma-- diluted ............................ 0.94 0.80 0.50
Since stock options vest over several years and additional grants are likely
to be made in future years, the pro forma compensation cost may not be
representative of that to be expected in future years.
The pro forma amounts above were calculated using the Black-Scholes model
and the following assumptions:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Risk-free interest rate ....... 4.99% 6.58% 4.74%
Forecasted dividend yield ..... 5.65% 6.10% 7.36%
Volatility .................... 22.28% 23.01% 27.37%
Weighted average option life .. 6.25 years 6.25 years 6.75 years
69
Restricted Share Units ("RSUs")
RSUs in the form of Common Shares are awarded at a rate of one Common Share
per RSU from time to time to employees of ProLogis. The RSUs are valued on the
award date based upon the market price of the Common Shares on that date.
ProLogis recognizes the value of the RSUs awarded over the applicable vesting
period as compensation expense. As of December 31, 2000, there were 587,500 RSUs
outstanding at a total value of $12.6 million, of which $4.4 million has been
expensed. As of December 31, 2000, 166,250 of the outstanding RSUs are vested.
The remaining RSUs will vest as follows:
2001................. 76,875
2002................. 116,875
2003................. 46,300
2004................. 41,875
2005................. 55,575
2006 and thereafter.. 83,750
-------
Total...... 421,250
=======
Performance Share Plan
Under the performance share plan certain employees are awarded Common Shares
if performance criteria is met. On December 31, 2000, 174,675 Common Shares
valued at $3.9 million were awarded under the plan, based upon the criteria
established for 2000. The entire award will vest on December 31, 2002. ProLogis
will recognize the related compensation expense over the two-year vesting period
beginning January 1, 2001.
Dividend Equivalent Units ("DEUs")
DEUs in the form of Common Shares are awarded at a rate of one Common Share
per DEU on December 31st of each year that the underlying stock options, RSUs or
performance shares are outstanding. The DEUs vest to the same extent the
underlying award vests. The DEUs are valued on the award date based upon the
market price of the Common Shares on that date and ProLogis recognizes that
value as compensation expense over the underlying vesting period of the related
award. Of the total RSUs outstanding, 167,500 RSUs do not earn DEUs but rather
earn dividends at ProLogis' current Common Share distribution rate. As of
December 31, 2000, there were 492,319 DEUs outstanding, of which 53,501 were
vested. The DEUs outstanding have a total value of $10.5 million, of which $2.8
million has been expensed as of December 31, 2000.
401(k) Savings Plan and Trust
ProLogis has a 401(k) Savings Plan and Trust ("401(k) Plan"), that provides
for matching employer contributions in Common Shares of 50 cents for every
dollar contributed by an employee, up to 6% of the employees' annual
compensation (within the statutory compensation limit). The vesting of
contributed Common Shares is based on the employees' years of service, with 20%
vesting each year of service, over a five-year period. Through December 31,
2000, no Common Shares have been issued under the 401(k) Plan as all matching
contributions have been made with Common Shares purchased in the public market.
A total of 190,000 Common Shares have been authorized for issuance under the
401(k) Plan.
Nonqualified Savings Plan
Effective January 1, 1998, ProLogis established the Nonqualified Savings
Plan to provide benefits for a select group of management. The purpose of this
plan is to allow highly compensated employees the opportunity to defer the
receipt and income taxation of a certain portion of their compensation in excess
of the amount permitted under the 401(k) Plan. ProLogis will match the lesser of
(a) 50% of the sum of deferrals under both the 401(k) Plan and this plan, and
(b) 3% of total compensation up to certain levels. The matching account will
vest in the same manner as the 401(k) Plan.
Warrants
During 1998, warrants were exercised into 11,764 Common Shares at an
exercise price of $10.00. There were no outstanding warrants as of December 31,
2000.
70
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data (in thousands, except for per share
amounts) for 2000 and 1999 is as follows:
THREE MONTHS ENDED,
--------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
-------------- -------------- -------------- -------------- --------------
2000:
Rental income .................. $ 120,809 $ 119,696 $ 121,519 $ 118,064 $ 480,088
============== ============== ============== ============== ==============
Earnings from operations ....... $ 62,526 $ 52,612 $ 67,194 $ 59,475 $ 241,807
Minority interest share in
earnings .................... 1,654 1,435 1,228 1,269 5,586
Gain (loss) on disposition of
real estate ................. 5,108 (4,801) 702 305 1,314
Foreign currency exchange
gains (losses), net ......... (6,520) (11,929) (1,929) 2,451 (17,927)
Total income taxes ............. 117 708 2,000 2,305 5,130
-------------- -------------- -------------- -------------- --------------
Net earnings ................... 59,343 33,739 62,739 58,657 214,478
Less preferred share
dividends ................... 14,405 14,150 14,120 14,088 56,763
-------------- -------------- -------------- -------------- --------------
Net earnings attributable to
Common Shares ............... $ 44,938 $ 19,589 $ 48,619 $ 44,569 $ 157,715
============== ============== ============== ============== ==============
Basic net earnings
attributable to Common
Shares .................... $ 0.28 $ 0.12 $ 0.30 $ 0.27 $ 0.96
============== ============== ============== ============== ==============
Diluted net earnings
attributable to Common
Shares .................... $ 0.28 $ 0.12 $ 0.29 $ 0.27 $ 0.96
============== ============== ============== ============== ==============
1999:
Rental income .................. $ 97,161 $ 131,251 $ 135,503 $ 127,911 $ 491,826
============== ============== ============== ============== ==============
Earnings from operations ....... $ 25,046 $ 33,290 $ 58,674 $ 49,539 $ 166,549
Minority interest share in
earnings .................... 1,169 1,434 1,139 1,237 4,979
Gain on disposition of real
estate ...................... 715 -- 25,643 12,636 38,994
Foreign currency exchange
gains (losses), net ......... (8,283) (4,012) 5,830 (10,353) (16,818)
Total income taxes ............. 374 585 534 (21) 1,472
-------------- -------------- -------------- -------------- --------------
Earnings before cumulative
effect in accounting
change ...................... 15,935 27,259 88,474 50,606 182,274
Cumulative effect of
accounting change ........... 1,440 -- -- -- 1,440
-------------- -------------- -------------- -------------- --------------
Net earnings ................... 14,495 27,259 88,474 50,606 180,834
Less preferred share
dividends ................... 13,445 14,493 14,453 14,444 56,835
-------------- -------------- -------------- -------------- --------------
Net earnings attributable to
Common Shares ............... $ 1,050 $ 12,766 $ 74,021 $ 36,162 $ 123,999
============== ============== ============== ============== ==============
Per Common Share:
Basic net earnings
attributable to Common
Shares before cumulative
effect of accounting
change .................... $ 0.02 $ 0.08 $ 0.46 $ 0.22 $ 0.82
Cumulative effect of
accounting change ......... (0.01) -- -- -- (0.01)
-------------- -------------- -------------- -------------- --------------
Basic net earnings
attributable to Common
Shares .................... $ 0.01 $ 0.08 $ 0.46 $ 0.22 $ 0.81
============== ============== ============== ============== ==============
Diluted earnings
attributable to Common
Shares before cumulative
effect of accounting
change .................... $ 0.02 $ 0.08 $ 0.44 $ 0.22 $ 0.82
Cumulative effect of
accounting change ......... (0.01) -- -- -- (0.01)
-------------- -------------- -------------- -------------- --------------
Diluted net earnings
attributable to Common
Shares .................... $ 0.01 $ 0.08 $ 0.44 $ 0.22 $ 0.81
============== ============== ============== ============== ==============
15. RELATED PARTY TRANSACTIONS:
ProLogis leases space to Security Capital and certain of its affiliates on
market terms that management believes are no less favorable to ProLogis than
those that could be obtained with unaffiliated third parties.
71
ProLogis' rental income related to these leases were $757,000, $756,000 and
$717,000 for the years ended December 31, 2000, 1999 and 1998, respectively. As
of December 31, 2000, 109,804 square feet were leased to related parties. The
annualized rental revenues for these leases are $763,000.
On September 8, 1997, ProLogis and Security Capital entered into an
administrative services agreement (the "ASA"). Under the ASA, Security Capital
provided ProLogis with certain administrative and other services as determined
by ProLogis (certain services originally provided under the ASA were transferred
to ProLogis employees). ProLogis' fees under the ASA were $2.5 million, $3.5
million and $3.7 million for 2000, 1999 and 1998, respectively. Of these fees,
$0.4 million, $0.6 million and $0.7 million were capitalized in 2000, 1999 and
1998, respectively. ProLogis recognizes the ASA fees related to property
management activities as a component of rental expenses. ProLogis began
transitioning these functions from Security Capital during 2000 and, as of
December 31, 2000, ProLogis had assumed substantially all of the functions
previously provided by Security Capital. The ASA expired on December 31, 2000.
Security Capital is continuing to provide the services net yet assumed by
ProLogis under a month-to-month agreement until the transition is completed.
During 2000, ProLogis paid investment advisory fees of $104,000 to Security
Capital Markets Group Incorporated, a registered broker-dealer subsidiary of
Security Capital, related to additional equity contributed by NYSCRF to ProLogis
California during 2000 (see Note 4). During 1999, ProLogis paid investment
advisory fees to Security Capital Markets Group aggregating $15.6 million. The
fees were incurred in connection with the merger with Meridian ($1.54 billion
purchase price -- see Note 11), the formation of ProLogis California which
generated $148.2 million of outside equity capital to ProLogis (see Note 4) and
the formation of the ProLogis European Properties Fund (the currency equivalent
of over $1 billion as of December 31, 1999 of third party capital invested or
committed -- see Note 4).
ProLogis has invested in the non-voting preferred stock of certain
entities that have ownership interests in companies that produce income that is
not REIT qualifying income (i.e., rental income and mortgage interest income)
under the Code. The voting common stock of these companies was held by four
entities in which ProLogis did not have an ownership interest. ProLogis' largest
shareholder, Security Capital, had a non-controlling ownership interest in two
of these entities. During 2000, certain amendments to the Code were passed that
were to be effective in January 2001. The Code, as amended in 2001, would allow
for ProLogis to have a voting ownership interest in these entities; however,
many of the states in which ProLogis operates had not amended their income tax
laws governing REITs to coincide with the amendments made to the Code. For
ProLogis to continue to qualify as a REIT under applicable state income tax
laws, the non-voting preferred stock ownership structure had to continue after
the Code amendments took effect in January 2001.
In anticipation of the changes in the Code, ProLogis began negotiating
purchase agreements with the owners of the voting common stock in three of the
entities. Rather than postpone the completion of these purchases pending changes
to the state income tax laws governing REITs, the purchase of the voting common
stock of each entity was completed with the voting interest in these entities
acquired by Mr. K. Dane Brooksher, ProLogis' chairman and chief executive
officer. The transactions through which Mr. Brooksher became an owner in these
entities are further discussed below.
On January 5, 2001, a newly formed limited liability company, Kingspark
LLC, of which Mr. Brooksher, ProLogis' chairman, is the voting member and
ProLogis is the non-voting member, acquired the ordinary shares of Kingspark
S.A. (an entity in which ProLogis owns all of the non-voting preferred stock)
from Kingspark Holdings LLC (a limited liability company in which unrelated
third parties owned 100% of the voting interests and Security Capital owned 100%
of the non-voting interests) for approximately $8.1 million. Mr. Brooksher's
$40,557 capital contribution to the newly formed limited liability company was
loaned to Mr. Brooksher by ProLogis, which recourse loan is payable on January
5, 2006 and bears interest at an annual rate of 8%. ProLogis owns 95% of the
membership interests (all non-voting) and Mr. Brooksher owns 5% of the
membership interests (all voting) of Kingspark LLC and Mr. Brooksher is its
managing member. Mr. Brooksher may transfer his membership interest, subject to
certain conditions, including the approval of ProLogis. There are no provisions
that give ProLogis the right to acquire Mr. Brooksher's membership interest. Mr.
Brooksher will not receive any compensation in connection with being the
managing member. His membership interest entitles him to dividends equal to 5%
of the net cash flow of Kingspark LLC, as defined, if any. ProLogis structured
the transaction in the manner described above to enable ProLogis to continue to
qualify as a REIT under applicable state income tax laws.
Also on January 5, 2001, a newly formed limited liability company of
which Mr. Brooksher is the voting member and ProLogis is the non-voting member,
acquired the common shares of Frigoscandia S.A. and ProLogis Logistics (both
entities in which
72
ProLogis owns all of the non-voting preferred stock) for an aggregate of
approximately $3.3 million. The common shares of Frigoscandia S.A. were owned by
a limited liability company in which unrelated third parties owned 100% of the
voting interests and Security Capital owned 100% of the non-voting interests.
The common shares of ProLogis Logistics were owned by a limited liability
company in which unrelated third parties owned all of the membership interest.
Mr. Brooksher contributed $50,000 to the capital of the newly formed limited
liability company. ProLogis owns 89% of the membership interests (all
non-voting) and Mr. Brooksher owns 11% of the membership interests (all voting)
of CSI/Frigo LLC. Mr. Brooksher is the managing member of CSI/Frigo LLC.
Additionally, ProLogis has a note agreement with CSI/Frigo LLC that allows
ProLogis to participate in its earnings such that ProLogis will recognize 95% of
the earnings of CSI/Frigo LLC. Mr. Brooksher may transfer his membership
interest, subject to certain conditions, including the approval of ProLogis.
There are no provisions that give ProLogis the right to acquire Mr. Brooksher's
membership interest. Mr. Brooksher will not receive any compensation in
connection with being the managing member. Mr. Brooksher's membership interest
and the provisions of the participating note entitle him to dividends equal to
5% of the net cash flow of CSI/Frigo LLC, as defined, if any. ProLogis
structured the transaction in the manner described above to enable ProLogis to
continue to qualify as a REIT under applicable state income tax laws.
As a result of the foregoing transactions, Mr. Brooksher has an
effective 0.04% interest in the earnings of ProLogis Logistics, an effective
0.25% interest in the earnings of Frigoscandia S.A. and an effective 0.25%
interest in the earnings of Kingspark S.A. Mr. Brooksher receives no
compensation in connection with his interest in these companies.
In 2000, ProLogis invested in two technology companies whose income was
not REIT qualifying income under the Code (amendments to the Code and state
income tax laws governing REITs were not in effect at this time). These
investments were structured whereby ProLogis would have only a non-voting
preferred stock ownership interest. To complete the transactions, Mr. Brooksher
acquired the voting ownership interest in each entity. These investments are
discussed below.
In July 2000, ProLogis acquired an indirect interest in Vizional
Technologies. In order to facilitate the acquisition, ProLogis acquired all of
the non-voting preferred stock of GoProLogis, representing a 98% interest in the
earnings of GoProLogis. GoProLogis holds the direct investment in Vizional
Technologies. Mr. Brooksher acquired all of the voting common stock of
GoProLogis, representing a 2% interest in the earnings of GoProLogis and is
entitled to receive dividends equal to 2% of the net cash flow of GoProLogis, as
defined, if any. Mr. Brooksher contributed a $1.1 million recourse promissory
note to GoProLogis in exchange for his interest in the entity, which note is
payable on July 18, 2005 and bears interest at an annual rate of 8%. Mr.
Brooksher is not restricted from transferring his ownership interest in
GoProLogis and ProLogis does not have the right to acquire Mr. Brooksher's
ownership interest in 2000. However, beginning in 2001, an option agreement does
allow ProLogis to acquire Mr. Brooksher's ownership interest. GoProLogis
invested $25.0 million in the preferred stock of Vizional Technologies.
GoProLogis also received $30.4 million of preferred stock of Vizional
Technologies under a license agreement for the non-exclusive use of the ProLogis
Operating System(TM) over a five-year period. ProLogis structured the
transaction in the manner described above to enable ProLogis to continue to
qualify as a REIT under applicable state income tax laws.
In September 2000, ProLogis acquired an indirect interest in PhatPipe.
In order to facilitate the acquisition, ProLogis acquired all of the non-voting
preferred stock of ProLogis PhatPipe, representing a 98% interest in the
earnings of ProLogis PhatPipe. ProLogis PhatPipe holds the direct investment in
PhatPipe. Mr. Brooksher acquired all of the voting common stock of ProLogis
PhatPipe, representing a 2% interest in the earnings of ProLogis PhatPipe and is
entitled to receive dividends equal to 2% of the net cash flow of ProLogis
PhatPipe, as defined, if any. Mr. Brooksher contributed an aggregate of $122,449
principal amount of recourse promissory notes to ProLogis PhatPipe in exchange
for his interest in the entity. A promissory note with the principal amount of
$71,429 is due September 20, 2005 and a promissory note with the principal
amount of $51,020 is due January 4, 2006. Both notes bear interest at an annual
rate of 8%. Mr. Brooksher is not restricted from transferring his ownership
interest in ProLogis PhatPipe and ProLogis does not have the right to acquire
Mr. Brooksher's ownership interest in 2000. However, beginning in 2001, an
option agreement does allow ProLogis to acquire Mr. Brooksher's ownership
interest. ProLogis PhatPipe invested $3.5 million in the preferred stock of
PhatPipe, Inc. and has committed to fund a total of $8.0 million in ProLogis
PhatPipe by March 31, 2001 pursuant to the terms of a stock purchase agreement.
ProLogis PhatPipe also received $3.5 million of preferred stock of PhatPipe,
Inc. under a license agreement for the non-exclusive use of the ProLogis
Operating System(TM) over a three-year period. ProLogis structured the
transaction in the manner described above to enable ProLogis to continue to
qualify as a REIT under applicable state income tax laws.
73
16. FINANCIAL INSTRUMENTS:
Fair Value of Financial Instruments
The following estimates of the fair value of financial instruments have been
determined by ProLogis using available market information and valuation
methodologies believed to be appropriate for these purposes. Considerable
judgment and a high degree of subjectivity are involved in developing these
estimates and, accordingly, they are not necessarily indicative of amounts
ProLogis would realize upon disposition.
As of December 31, 2000 and 1999, the carrying amounts of certain financial
instruments employed by ProLogis, including cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses were representative of their
fair values because of the short-term maturity of these instruments. Similarly,
the carrying values of the lines of credit balances approximate fair value as of
those dates since the interest rate fluctuates based on published market rates.
As of December 31, 2000 and 1999, the fair values of the senior unsecured debt
and the secured debt (including mortgage notes, assessment bonds and securitized
debt) have been estimated based upon quoted market prices for the same or
similar issues or by discounting the future cash flows using rates currently
available for debt with similar terms and maturities. The differences in the
fair value of ProLogis' senior unsecured debt and secured debt from the carrying
value in the table below are the result of differences in the interest rates
available to ProLogis as of December 31, 2000 and 1999, from the interest rates
in effect at the dates of issuance. The senior unsecured debt and many of the
secured debt issues contain pre-payment penalties or yield maintenance
provisions which would make the cost of refinancing exceed the benefit of
refinancing at the lower rates.
As of December 31, 2000 and 1999, the fair value of ProLogis' derivative
financial instruments are the amounts at which they could be settled, based on
quoted market prices or estimates obtained from brokers or dealers.
The following table reflects the carrying amount and estimated fair value of
ProLogis' financial instruments (in thousands):
DECEMBER 31,
-----------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
Balance sheet financial instruments:
Senior unsecured debt .................. $ 1,699,989 $ 1,703,737 $ 1,729,630 $ 1,656,445
Secured debt ........................... $ 537,925 $ 543,967 $ 565,776 $ 547,428
Derivative financial instruments:
Foreign currency put option
contracts ........................... $ 446 $ 446 $ 628 $ 628
Interest rate swap agreements .......... $ -- $ -- $ -- $ 7,998
Derivative Financial Instruments
ProLogis uses derivative financial instruments as hedges to manage
well-defined risk associated with interest and foreign currency rate
fluctuations on existing or anticipated obligations and transactions. ProLogis
does not use derivative financial instruments for trading purposes.
The primary risks associated with derivative instruments are market risk and
credit risk. Market risk is defined as the potential for loss in the value of
the derivative due to adverse changes in market prices (interest rates or
foreign currency rates). The use of derivative financial instruments allows
ProLogis to manage the risks of increases in interest rates and fluctuations in
foreign currency exchange rates with respect to the effects these fluctuations
would have on ProLogis' income and cash flows.
Credit risk is the risk that one of the parties to a derivative contract
fails to perform or meet their financial obligation under the contract. ProLogis
does not obtain collateral to support financial instruments subject to credit
risk but monitors the credit standing of counterparties. ProLogis does not
anticipate non-performance by any of the counterparties to its derivative
contracts. Should a counterparty fail to perform, however, ProLogis would incur
a financial loss to the extent of the positive fair market value of the
derivative instruments, if any.
74
The following table summarizes the activity in derivative financial
instruments for the years ended December 31, 2000 and 1999 (in millions):
INTEREST FOREIGN
INTEREST RATE RATE SWAP CURRENCY PUT
CONTRACTS AGREEMENTS OPTIONS(1)
-------------- -------------- --------------
Notional amounts as of December 31, 1998 .. $ 75.0 $ 75.0 $ --
New contracts ............................. -- 169.9(2) 27.1
Matured or expired contracts .............. -- -- (3.9)
Terminated contracts ...................... (75.0) (75.0) --
-------------- -------------- --------------
Notional amounts as of December 31, 1999 .. $ -- $ 169.9 $ 23.2
New contracts ............................. -- -- 55.5
Matured or expired contracts .............. -- -- (34.9)
Contracts transferred ..................... -- (169.9)(2) --
-------------- -------------- --------------
Notional amounts as of December 31, 2000 .. $ -- $ -- $ 43.8
============== ============== ==============
----------
(1) ProLogis entered into foreign currency put option contracts during 2000 and
1999 related to its operations in Europe. The put option contracts provide
ProLogis with the option to exchange euros for U.S. dollars at a fixed
exchange rate such that if the euro were to depreciate against the U.S.
dollar to predetermined levels as set by the contracts, ProLogis could
exercise its options and mitigate its foreign currency exchange losses. The
notional amounts of the put option contracts represent the U.S. dollar
equivalent related to the put option contracts with notional amounts of 47.1
million euros and 23.0 million euros as of December 31, 2000 and 1999,
respectively. The outstanding contracts do not qualify for hedge accounting
treatment and were marked to market through income as of December 31, 2000
and 1999. ProLogis recognized aggregate income of $627,000 in 2000 and
aggregate expense of $92,000 in 1999 on the put option contracts including
mark to market expense of $854,000 in 2000 and $47,000 in 1999. See Note 1.
(2) Represents interest rate swap agreements related to debt of ProLogis
European Properties S.a.r.l. See Note 4.
17. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
All of the facilities acquired by ProLogis have been subjected to
environmental reviews by ProLogis or predecessor owners. While some of these
assessments have led to further investigation and sampling, none of the
environmental assessments has revealed, nor is ProLogis aware of any
environmental liability (including asbestos related liability) that ProLogis
believes would have a material adverse effect on ProLogis' business, financial
condition or results of operations.
75
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.
PROLOGIS TRUST
By: /s/ EDWARD S. NEKRITZ
-----------------------------------
Edward S. Nekritz
Senior Vice President and Secretary
Date: April 5, 2002
76
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and Exchange
Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
Exhibit
Number Description
------ -------------------------------------------------------------------------------------------------------
3.1 -- Articles of Amendment and Restatement of Declaration of Trust of ProLogis (incorporated by reference
to exhibit 4.1 to ProLogis' quarterly report on Form 10-Q for the quarter ended June 30, 1999).
3.2 -- Amended and Restated Bylaws of ProLogis (incorporated by reference to exhibit 3.2 to ProLogis'
quarterly report on Form 10-Q for the quarter ended June 30, 1999).
4.1 -- Rights Agreement, dated as of December 31, 1993, between ProLogis and State Street Bank and Trust
Company, as Rights Agent, including form of Rights Certificate (incorporated by reference to exhibit
4.4 to ProLogis' registration statement No. 33-78080).
4.2 -- First Amendment to Rights Amendment, dated as of February 15, 1995, between ProLogis, State Street
Bank and Trust Company and The First National Bank of Boston, as successor Rights Agent
(incorporated by reference to exhibit 3.1 to ProLogis' Form 10-Q for the quarter ended September 30,
1995).
4.3 -- Second Amendment to Rights agreement, dated as of June 22, 1995, between ProLogis, State Street Bank
and Trust Company and The First National Bank of Boston (incorporated by reference to Exhibit 3.1 to
ProLogis' Form 10-Q for the quarter ended September 30, 1995).
4.4 -- Third Amendment to Rights Agreement, dated as of October 11, 2001, among ProLogis, Fleet National
Bank and Equiserve Trust Company, N.A. (incorporated by reference to exhibit 4.1 to ProLogis' Form
10-Q for the quarter ended September 30, 2001).
4.5 -- Form of share certificate for Common Shares of Beneficial Interest of ProLogis (incorporated by
reference to exhibit 4.4 to ProLogis' registration statement No. 33-73382).
4.6 -- ProLogis Trust Employee Share Purchase plan, as amended and restated (incorporated by reference to
exhibit 4.7 to ProLogis' Form S-8, dated September 27, 2001).
4.7 -- Form of share certificate for Series A Cumulative Redeemable Preferred Shares of Beneficial
Interest of ProLogis (incorporated by reference to exhibit 4.7 to ProLogis' Form 8-A registration
statement relating to such shares).
4.8 -- 8.72% Note due March 1, 2009 (incorporated by reference to exhibit 4.7 to ProLogis' Form 10-K for
the year ended December 31, 1994).
4.9 -- Form of share certificate for Series B Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest of ProLogis (incorporated by reference to exhibit 4.8 to ProLogis' Form 8-A
registration statement relating to such shares).
4.10 -- Form of share certificate for Series C Cumulative Redeemable Preferred Shares of Beneficial Interest
of ProLogis (incorporated by reference to exhibit 4.8 to ProLogis' Form 10-K for the year ended
December 31, 1996).
4.11 -- 9.34% Note due March 1, 2015 (incorporated by reference to exhibit 4.8 to ProLogis' Form 10-K for
the year ended December 31, 1994).
4.12 -- 7.875% Note due May 15, 2009 (incorporated by reference to exhibit 4.4 to ProLogis' Form 8-K dated
May 9, 1995).
4.13 -- 7.30% Note due May 15, 2001 (incorporated by reference to exhibit 4.3 to ProLogis' Form 8-K dated
May 9, 1995).
4.14 -- 7.25% Note due May 15, 2000 (incorporated by reference to exhibit 4.2 to ProLogis' Form 8-K dated
May 9, 1995).
4.15 -- 7.125% Note due May 15, 1998 (incorporated by reference to exhibit 4.1 to ProLogis' Form 8-K dated
May 9, 1995).
4.16 -- 7.25% Note due May 15, 2002 (incorporated by reference to exhibit 4.1 to ProLogis' Form 10-Q for the
quarter ended June 30, 1996).
77
Exhibit
Number Description
------ -------------------------------------------------------------------------------------------------------
4.17 -- 7.95% Note due May 15, 2008 (incorporated by reference to exhibit 4.2 to ProLogis' Form 10-Q for the
quarter ended June 30, 1996).
4.18 -- 8.65% Note due May 15, 2016 (incorporated by reference to exhibit 4.3 to ProLogis' Form 10-Q for the
quarter ended June 30, 1996).
4.19 -- 7.81% Medium-Term Notes, Series A, due February 1, 2015 (incorporated by reference to exhibit 4.17
to ProLogis' Form 10-K for the year ended December 31, 1996).
4.20 -- Indenture, dated as of March 1, 1995, between ProLogis and State Street Bank and Trust Company, as
Trustee (incorporated by reference to exhibit 4.9 to ProLogis' Form 10-K for the year ended December
31, 1994).
4.21 -- Collateral Trust Indenture, dated as of July 22, 1993, between Krauss/Schwartz Properties, Ltd. and
NationsBank of Virginia, N.A., as Trustee (incorporated by reference to exhibit 4.10 to ProLogis'
Form 10-K for the year ended December 31, 1994).
4.22 -- First Supplement Collateral Trust Indenture, dated as of October 28, 1994, among ProLogis Limited
Partnership-IV, Krauss/Schwartz Properties, Ltd., and NationsBank of Virginia, N.A., as Trustee
(incorporated by reference to exhibit 10.6 to ProLogis' Form 10-Q for the quarter ended September
30, 1994).
4.23 -- Form of share certificate for Series D Cumulative Redeemable Preferred Shares of Beneficial Interest
of ProLogis (incorporated by reference to exhibit 4.21 of ProLogis' Registration Statement No.
69001).
4.24 -- Form of share certificate for Series E Cumulative Redeemable Preferred Shares of Beneficial Interest
of ProLogis (incorporated by reference to exhibit 4.22 of ProLogis' Registration Statement No.
69001).
4.25 -- 7.625% Note due July 1, 2017 (incorporated by reference to exhibit 4 to ProLogis' Form 8-K dated
July 11, 1997).
4.26 -- Form of 7.05% Promissory Note due July 15, 2006 (incorporated by reference to exhibit 4.24 to
ProLogis' Form 10-K for the year ended December 31, 1999).
4.27 -- 7.00% Promissory Note due October 1, 2003 (incorporated by reference to exhibit 4.25 to ProLogis'
Form 10-K for the year ended December 31, 1999).
4.28 -- Form of 6.70% Promissory Note due April 15, 2004 (incorporated by reference to exhibit 4.26 to
ProLogis' Form 10-K for the year ended December 31, 1999).
4.29 -- Form of 7.10% Promissory Note due April 15, 2008 (incorporated by reference to exhibit 4.27 to
ProLogis' Form 10-K for the year ended December 31, 1999).
10.1 -- Agreement of Limited Partnership of ProLogis Limited Partnership-I, dated as of December 22, 1993,
by and among ProLogis, as general partner, and the limited partners set forth therein (incorporated
by reference to exhibit 10.4 to ProLogis' Registration Statement No. 33-73382).
10.2 -- Amended and Restated Agreement of Limited Partnership of ProLogis Limited Partnership-II, dated as
of February 15, 1994, among ProLogis as general partner, and the limited partners set forth therein
(incorporated by reference to exhibit 10.12 to ProLogis' Registration Statement No. 33-78080).
10.3 -- Third Amended and Restated Investor Agreement, dated as of September 9, 1997, between ProLogis and
SC Group Incorporated (incorporated by reference to exhibit 10.3 to Security Capital Group
Incorporated's Form 10-Q for the quarter ended September 30, 1997).
10.4 -- Form of Indemnification Agreement entered into between ProLogis and its Trustees and executive
officers (incorporated by reference to exhibit 10.16 to ProLogis' Registration Statement No.
33-73382).
10.5 -- Indemnification Agreement between ProLogis and each of its independent Trustees (incorporated by
reference to exhibit 10.16 to ProLogis' Form 10-K for the year ended December 31, 1995).
10.6 -- Declaration of Trust for the benefit of ProLogis' independent Trustees (incorporated by reference to
exhibit 10.17 to ProLogis' Form 10-K for the year ended December 31, 1995).
78
Exhibit
Number Description
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10.7 -- Share Option Plan for Outside Trustees (incorporated by reference to exhibit 10.18 to ProLogis' Form
10-Q for the quarter ended June 30, 1994).
10.8 -- 1999 Dividend Reinvestment and Share Purchase Plan (incorporated by reference to the Prospectus
contained in Registration Statement No. 333-75893).
10.9 -- Amended and Restated Agreement of Limited Partnership of ProLogis Limited Partnership-III, dated as
of October 28, 1994, by and among ProLogis, as general partner, and the limited partners set forth
therein (incorporated by reference to exhibit 10.3 to ProLogis' Form 10-Q for the quarter ended
September 30, 1994).
10.10 -- Amended and Restated Agreement of Limited Partnership of ProLogis Limited Partnership-IV, dated as
of October 28, 1994, by and among ProLogis IV, Inc., as general partner, and the limited partners
set forth therein (incorporated by reference to exhibit 10.4 to ProLogis' Form 10-Q for the quarter
ended September 30, 1994).
10.11 -- Option Agreement and Consent, dated October 24, 1994, by and between ProLogis and Farm Bureau Life
Insurance Company (incorporated by reference to exhibit 10.7 to ProLogis' Form 10-Q for the quarter
ended September 30, 1994).
10.12 -- Form of Secured Promissory Note and Pledge Agreement relating to Share Purchase Program
(incorporated by reference to exhibit 10.17 to ProLogis' Form 10-K for the year ended December 31,
1998).
10.13 -- Loan Agreement, dated as of December 23, 1998, between ProLogis and Connecticut General Life
Insurance Company (incorporated by reference to exhibit 10.19 to ProLogis' Form 10-K for the year
ended December 31, 1998).
10.14 -- Tranche A Promissory Note, dated as of February 22, 1999, between ProLogis and Teachers Insurance
and Annuity Association of America (incorporated by reference to exhibit 10.20 to ProLogis' Form
10-K for the year ended December 31, 1998).
10.15 -- Tranche B Promissory Note, dated as of February 22, 1999, between ProLogis and Teachers Insurance
and Annuity Association of America (incorporated by reference to exhibit 10.21 to ProLogis' Form
10-K for the year ended December 31, 1998).
10.16 -- Stock Purchase Agreement among Meridian, Harris Trust & Savings Bank, as Trustee for Ameritech
Pension Trust, and OTR, on behalf of and as nominee for the State Teachers Retirement Board of Ohio,
dated as of December 29, 1995 (incorporated by reference to Meridian's Registration Statement No.
333-00018).
10.17 -- Amended and Restated Loan Administration Agreement between The Prudential Insurance Company of
America and Meridian, IndTennco Limited Partnership, Metro-Sierra Limited Partnership, and Progress
Center/Alabama Limited Partnership, dated as of February 23, 1996 (incorporated by reference to
exhibit 10.24 to Meridian's Form 10-K for the year ended December 31, 1996).
10.18 -- Note Purchase Agreement among Meridian and The Travelers Insurance Company (I/N/TRAL & CO.), United
Services Automobile Association (I/N/O SALKELD & CO.), The Variable Annuity Life Insurance Company,
The United States Life Insurance Company in the City of New York, All American Life Insurance
Company, The Old Line Life Insurance Company of America, The Lincoln National Life Insurance
Company, Lincoln Life & Annuity Company of New York, First Penn-Pacific Life Insurance Company
(I/N/O CUDD & CO), Lincoln National Health & Casualty Insurance Company, Allied Life Insurance
Company "B" (I/N/O GERLACH & CO), sons of Norway (I/N/O VAR & CO), Aid Association for Lutherans
(I/N/O NIMER & CO), Metropolitan Life Insurance Company, National Life Insurance Company, Life
Insurance Company of the Southwest, Keyport Life Insurance Company (I/N/O BOST & CO), Union Central
Life Insurance Company (I/N/O HARE & CO), and Pan-American Life Insurance Company, dated November
15, 1997 (incorporated by reference to exhibit 10.66 to Meridian's Form 10-K for the year ended
December 31, 1997).
79
Exhibit
Number Description
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10.19 -- Credit Agreement among ProLogis Trust, NationsBank, N.A., Commerzbank Aktien Gesellschaft, New York
Branch, Chase Bank of Texas, National Association and Lenders Named Herein, dated as of March 29,
1999 (incorporated by reference to exhibit 10.1 to ProLogis' Form 8-K dated April 16, 1999).
10.20 -- Credit Agreement among ProLogis Trust, as Borrower and Guarantor, ProLogis Logistics Services
Incorporated, as Borrower, ProLogis Development Services Incorporated, as Borrower, Bank of America
N.A., as Administrative Agent, Commerzbank Aktiengellschaft, New York Branch, as Syndication Agent,
Chase Bank of Texas, National Association, as Documentation Agent, First Union National Bank and
Societe Generale, Southwest Agency, as Managing Agents and the Lenders Named Herein as Lenders, as
of June 6, 2000 (incorporated by reference to exhibit 10.2 to ProLogis' Form 10-Q for the quarter
ended June 30, 2000).
10.21 -- Mortgage Noted dated as of March 29, 1999 between ProLogis Trust and Pro-Industrial Funding
Company, Inc. (incorporated by reference to exhibit 10.1 to ProLogis' Form 8-K dated May 17, 1999).
10.22 -- Agreement of Limited Partnership of Meridian Realty Partners, L.P. (incorporated by reference to
exhibit 99.1 to ProLogis' Registration Statement No. 333-86081).
10.23 -- ProLogis Trust 1997 Long-Term Incentive Plan (as Amended and Restated Effective as of May 18, 2000
(incorporated by reference to exhibit 10.1 to ProLogis' Form 10-Q for the quarter ended June 30,
2000).
10.24 -- Multi-Currency Revolving Credit Facility Agreement among PLD Europe Finance B.V. and PLD U.K.
Finance B.V. as Original Borrowers, ProLogis Trust as guarantor, ABN AMRO Bank N.V. as Arranger and
Societe Generale as Co-Arranger, ABN AMRO Bank N.S. as Agent and Issuing bank as Banks as defined
herein, dated December 17, 1999 (incorporated by reference to exhibit 10.24 to ProLogis' Form 10-K
for the year ended December 31, 1999).
10.25 -- Form of Executive Protection Agreements entered into between ProLogis and K. Dane Brooksher and
Irving F. Lyons III, dated as of June 24, 1999. (incorporated by reference to exhibit 10.25 to
ProLogis' Form 10-K for the year ended December 31, 1999).
10.26 -- Form of Executive Protection Agreements entered into between ProLogis and Walter C. Rakowich,
Jeffrey H. Schwartz, Robert J. Watson and John W. Seiple, dated as of June 24, 1999 (incorporated by
reference to exhibit 10.26 to ProLogis' Form 10-K for the year ended December 31, 1999).
10.27 -- Special Equity Agreement between ProLogis and K. Dane Brooksher, dated as of December 15, 2000.
12.1* -- Statement re: Computation of Ratio of Earnings to Fixed Charges.
12.2* -- Statement re: Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share
Dividends.
21.1* -- Subsidiaries of ProLogis.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of KPMG-- Stockholm, Sweden.
23.3* -- Report of KPMG-- Stockholm, Sweden.
23.4 -- Consent of KPMG-- New York, New York.
23.5* -- Report of KPMG-- New York, New York.
24.1* -- Power of Attorney.
99.1 -- Limited Liability Company Agreement of Kingspark LLC dated as of January 2, 2001.
99.2 -- Promissory Note from Kingspark LLC to ProLogis dated January 5, 2001.
99.3 -- Promissory Note from K. Dane Brooksher to ProLogis dated January 5, 2001.
99.4 -- Purchase and Sale Agreement, dated as of January 2, 2001, among Kingspark Holding S.A., Kingspark
Holdings LLC and Kingspark LLC.
99.5 -- Limited Liability Company Agreement of CSI/Frigo LLC dated as of January 2, 2001.
80
Exhibit
Number Description
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99.6 -- Promissory Note from CSI/Frigo LLC to ProLogis dated January 5, 2001.
99.7 -- Purchase and Sale Agreement, dated as of January 2, 2001 among ProLogis Logistics
Services Incorporated, SCI Logistics Holdings LLC and CSI/Frigo LLC.
99.8 -- Promissory Note from K. Dane Brooksher GoProLogis Incorporated. dated July 18, 2000.
99.9 -- Option Agreement dated as of July 18, 2000 among GoProLogis Incorporated, K. Dane
Brooksher and ProLogis.
99.10 -- Promissory Note from K. Dane Brooksher to ProLogis Broadband (1) Incorporated.
dated September 20, 2000.
99.11 -- Promissory Note from K. Dane Brooksher to ProLogis Broadband (1) Incorporated.
dated January 4, 2001.
99.12 -- Option Agreement dated as of September 20, 2000 among ProLogis Broadband (1)
Incorporated, K. Dane Brooksher and ProLogis.
99.13 -- Letter dated April 3, 2002 to the United States Securities and Exchange Commission
related to audit performed by Arthur Andersen LLP
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* Previously filed.
81