===============================================================================
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 01-12846
PROLOGIS TRUST
(Exact name of registrant as specified in its charter)
Maryland 74-2604728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 East 35th Place, Aurora, Colorado 80011
(Address or principal executive offices) (Zip Code)
(303) 375-9292
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 for the past 90 days. Yes X No
---- ----
The number of shares outstanding of the Registrant's common stock as of
November 10, 1999 was 161,628,339.
===============================================================================
<PAGE>
PROLOGIS TRUST
INDEX
Page
Number(s)
--------
PART I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets--September 30, 1999
and December 31, 1998................................. 3
Consolidated Statements of Earnings (Loss) and
Comprehensive Income (Loss)--Three and nine
months ended September 30, 1999 and 1998.............. 4
Consolidated Statements of Cash Flows--Nine months
ended September 30, 1999 and 1998..................... 5
Notes to Financial Statements............................. 6 - 24
Report of Independent Public Accountants.................. 25
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 26 - 38
Item 3. Quantitative and Qualitative Disclosure About Market
Risk.................................................. 39
Part II. Other Information
Item 4. Submission of Matters to a Vote of Securities Holders..... 40
Item 5. Other Information......................................... 40
Item 6. Exhibits.................................................. 40
<PAGE>
PROLOGIS TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Real estate............................................................................... $ 5,012,666 $ 3,657,500
Less accumulated depreciation.......................................................... 337,934 254,288
----------- -----------
4,674,732 3,403,212
Investments in and advances to unconsolidated entities.................................... 982,390 733,863
Cash and cash equivalents................................................................. 74,354 63,140
Accounts and notes receivable............................................................. 47,841 11,648
Other assets.............................................................................. 169,749 118,866
----------- -----------
Total assets................................................................ $ 5,949,066 $ 4,330,729
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit........................................................................ $ 127,900 $ 344,300
Short-term borrowings.................................................................. -- 150,000
Senior unsecured notes................................................................. 1,729,552 1,083,641
Other unsecured debt................................................................... 32,600 --
Mortgage notes......................................................................... 678,566 184,964
Assessment bonds....................................................................... 10,929 11,281
Securitized debt....................................................................... 30,788 31,559
Accounts payable and accrued expenses.................................................. 184,843 117,506
Construction payable................................................................... 26,785 34,025
Amount due to affiliate................................................................ -- 395
Distributions and dividends payable.................................................... 729 39,283
Other liabilities...................................................................... 33,068 26,112
----------- -----------
Total liabilities........................................................... 2,855,760 2,023,066
----------- -----------
Minority interest......................................................................... 63,667 51,295
Commitments and contingencies
Shareholders' equity:
Series A Preferred Shares; $0.01 par value; 5,400,000 shares issued and
outstanding at September 30, 1999 and December 31, 1998; stated liquidation
preference of $25.00 per share....................................................... 135,000 135,000
Series B Convertible Preferred Shares; $0.01 par value; 7,086,902 shares issued
and outstanding at September 30, 1999 and 7,537,300 shares issued and outstanding
at December 31, 1998; stated liquidation preference of $25.00 per share 177,173 188,440
Series C Preferred Shares; $0.01 par value; 2,000,000 shares issued and
outstanding at September 30, 1999 and December 31, 1998; 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 September 30, 1999 and December 31, 1998; 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 September 30, 1999; stated liquidation preference of $25.00 per share............. 50,000 --
Common shares of beneficial interest; $0.01 par value; 161,580,959 shares
issued and outstanding at September 30, 1999 and 123,415,711 shares issued
and outstanding at December 31, 1998................................................. 1,615 1,234
Additional paid-in capital................................................................ 2,655,775 1,907,232
Employee share purchase notes............................................................. (23,171) (25,247)
Accumulated other comprehensive income.................................................... 1,349 23
Distributions in excess of net earnings................................................... (318,102) (300,314)
----------- -----------
Total shareholders' equity.................................................. 3,029,639 2,256,368
----------- -----------
Total liabilities and shareholders' equity.................................. $ 5,949,066 $ 4,330,729
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Rental income.................................................. $ 135,503 $ 88,687 $ 363,915 $ 251,605
Other real estate income....................................... 13,907 3,538 34,128 10,542
Income (loss) from unconsolidated entities..................... 22,204 (1,278) 11,067 1,930
Interest....................................................... 2,234 687 4,006 2,012
----------- ----------- ----------- -----------
Total income.......................................... 173,848 91,634 413,116 266,089
----------- ----------- ----------- -----------
Expenses:
Rental expenses, net of recoveries of $20,944 and $58,820
for the three and nine months in 1999, respectively and
$14,459 and $42,686 for the three and nine months in 1998,
respectively and including amounts paid to affiliate
of $387 and $972 for the three and nine months in
1999, respectively and $237 and $682 for the three and
nine months in 1998, respectively.......................... 9,891 7,158 26,056 20,458
General and administrative, including amounts paid to
affiliate of $306 and $1,304 for the three and nine
months in 1999, respectively, and $545 and $1,566 for
the three and nine months in 1998, respectively............ 9,715 5,713 27,526 15,626
Depreciation and amortization.................................. 43,903 26,950 110,895 73,684
Interest....................................................... 50,209 18,448 126,478 52,455
Interest rate hedge expense.................................... -- 27,652 945 27,652
Other.......................................................... 2,018 2,579 5,727 4,096
----------- ----------- ----------- -----------
Total expenses........................................ 115,736 88,500 297,627 193,971
----------- ----------- ----------- -----------
Earnings from operations............................................ 58,112 3,134 115,489 72,118
Minority interest share in earnings................................. 1,139 1,047 3,742 3,101
----------- ----------- ----------- -----------
Earnings before gain on disposition of real estate and foreign
currency exchange gains (losses)............................... 56,973 2,087 111,747 69,017
Gain on disposition of real estate.................................. 25,643 -- 26,358 4,278
Foreign currency exchange gains (losses)............................ 5,858 3,273 (6,437) 5,336
----------- ----------- ----------- -----------
Earnings before cumulative effect of accounting change.............. 88,474 5,360 131,668 78,631
Cumulative effect of accounting change.............................. -- -- 1,440 --
----------- ----------- ----------- -----------
Net earnings........................................................ 88,474 5,360 130,228 78,631
Less preferred share dividends...................................... 14,453 13,669 42,391 35,543
----------- ----------- ----------- -----------
Net earnings (loss) attributable to Common Shares................... 74,021 (8,309) 87,837 43,088
Other comprehensive income (loss):
Foreign currency translation adjustments....................... (207) 308 1,326 370
----------- ----------- ----------- -----------
Comprehensive income (loss)......................................... $ 73,814 $ (8,001) $ 89,163 $ 43,458
=========== =========== =========== ===========
Weighted average Common Shares outstanding - Basic.................. 161,446 123,045 149,201 121,183
=========== =========== =========== ===========
Weighted average Common Shares outstanding - Diluted................ 176,329 123,045 149,363 121,421
=========== =========== =========== ===========
Basic per share net earnings (loss) attributable to Common Shares:
Earnings (loss) before cumulative effect of accounting change.. $ 0.46 $ (0.07) $ 0.60 $ 0.36
Cumulative effect of accounting change......................... -- -- (0.01) --
----------- ----------- ----------- -----------
Net earnings (loss) attributable to Common Shares..... $ 0.46 $ (0.07) $ 0.59 $ 0.36
=========== =========== =========== ===========
Diluted per share net earnings (loss) attributable to Common Shares:
Earnings (loss) before cumulative effect of accounting change.. $ 0.44 $ (0.07) $ 0.60 $ 0.35
Cumulative effect of accounting change......................... -- -- (0.01) --
----------- ----------- ----------- -----------
Net earnings (loss) attributable to Common Shares..... $ 0.44 $ (0.07) $ 0.59 $ 0.35
=========== =========== =========== ===========
Distributions per Common Shares..................................... $ 0.3272 $ 0.3183 $ 0.9727 $ 0.9216
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net earnings..................................................................... $ 130,228 $ 78,631
Minority interest share in earnings.............................................. 3,742 3,101
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization................................................ 110,895 73,684
Gain on disposition of real estate........................................... (26,358) (4,278)
Straight-lined rents......................................................... (7,434) (4,170)
Amortization of deferred loan costs.......................................... 3,799 1,303
Stock-based compensation..................................................... 1,632 --
(Income) loss from unconsolidated subsidiaries............................... (11,067) 14,446
Foreign currency exchange (gains) losses, net.................................... 6,561 (5,471)
Interest rate hedge expense.................................................. 945 27,652
Increase in accounts receivable and other assets................................. (20,010) (25,016)
Increase (decrease) in accounts payable, accrued expenses and other liabilities.. 39,364 20,728
Decrease in amount due to affiliate.............................................. (394) 408
----------- -----------
Net cash provided by operating activities........................................ 231,903 181,018
----------- -----------
Investing activities:
Real estate investments.......................................................... (345,147) (520,611)
Tenant improvements and lease commissions on previously leased space............. (16,196) (8,905)
Recurring capital expenditures................................................... (18,897) (4,226)
Proceeds from dispositions of real estate........................................ 397,330 64,222
Investments in and advances to unconsolidated subsidiaries....................... (167,984) (453,445)
Cash acquired in Meridian Merger................................................. 48,962 --
----------- -----------
Net cash used in investing activities................................... (101,932) (922,965)
----------- -----------
Financing activities:
Proceeds from sale of shares, net of expenses.................................... -- 372,165
Proceeds from exercised options, dividend reinvestment, optional
share purchase and employee share purchase plans............................. 2,142 399
Repurchase of Common Shares...................................................... -- (181)
Proceeds from secured financing transactions..................................... 466,000 --
Proceeds from issuance of senior unsecured notes................................. 500,000 250,000
Debt issuance and other transaction costs incurred............................... (58,169) (3,227)
Distributions paid on Common Shares.............................................. (156,040) (111,769)
Distributions paid to minority interest holders.................................. (5,408) (4,764)
Dividends paid on preferred shares............................................... (42,391) (35,543)
Principal payments on senior unsecured notes..................................... (12,500) (15,000)
Principal payments received on and retirements of employee share purchase notes.. 2,076 107
Payments on derivative financial instruments..................................... (26,995) (3,974)
Payments to Meridian shareholders................................................ (67,581) --
Proceeds from lines of credit and short-term borrowings.......................... 1,436,645 1,237,325
Payments on lines of credit and short-term borrowings............................ (1,803,045) (927,825)
Payment on line of credit assumed in Meridian Merger............................. (328,400) --
Regularly scheduled principal payments on mortgage notes......................... (4,774) (3,714)
Principal payments on mortgage notes at maturity and prepayments................. (20,317) (5,411)
----------- -----------
Net cash provided by (used in) financing activities..................... (118,757) 748,588
----------- -----------
Net increase in cash and cash equivalents............................................. 11,214 6,641
Cash and cash equivalents, beginning of period........................................ 63,140 25,009
----------- -----------
Cash and cash equivalents, end of period.............................................. $ 74,354 $ 31,650
=========== ===========
</TABLE>
See Note 10 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. General:
Business
ProLogis Trust ("ProLogis"), a Maryland real estate investment trust
("REIT"), is a publicly held global owner and lessor of distribution facilities
focused exclusively on meeting the distribution space needs of international,
national, regional and local industrial real estate users through the ProLogis
Operating System(TM). ProLogis engages in the acquisition, development,
marketing, leasing and long-term ownership of industrial distribution
facilities, and the development of master-planned distribution parks and
corporate distribution facilities for its customers. ProLogis deploys capital in
markets that ProLogis believes have excellent long-term growth prospects and
where ProLogis believes it can achieve a strong market position through the
acquisition and development of generic, flexible facilities designed for both
warehousing and light manufacturing uses. In addition, ProLogis has invested in
refrigerated distribution companies in North America and Europe.
Principles of Financial Presentation
The consolidated financial statements of ProLogis as of September 30,
1999 and for the three and nine months ended September 30, 1999 and 1998 are
unaudited, and pursuant to the rules of the Securities and Exchange Commission,
certain information and footnote disclosures normally included in financial
statements have been omitted. While management of ProLogis believes that the
disclosures presented are adequate, these interim consolidated financial
statements should be read in conjunction with ProLogis' December 31, 1998
audited consolidated financial statements contained in ProLogis' 1998 Annual
Report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of ProLogis' consolidated
financial position and results of operations for the interim periods. The
consolidated results of operations for the three and nine months ended September
30, 1999 and 1998 are not necessarily indicative of the results to be expected
for the entire year.
The preparation of consolidated 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 at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
On December 29, 1998, ProLogis invested in Garonor Holdings S.A.
("Garonor Holdings") by acquiring 100% of its preferred stock. Garonor Holdings,
a Luxembourg company, owns 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 common stock of
Garonor Holdings. ProLogis accounted for this investment in Garonor Holdings
under the equity method. 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 are 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 January 1, 1999 through June 29, 1999 are reflected by ProLogis
under the equity method of accounting. As of September 30, 1999, Garonor
Holdings' real estate assets, at cost, were $284.3 million and Garonor Holdings
had third party debt of $171.6 million ($32.6 million of unsecured debt and
$139.0 million of mortgage notes).
6
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Start-up and Organization Costs
Through 1998, ProLogis capitalized costs associated with start-up
activities and organization costs and amortized such costs over an appropriate
period, generally five years. 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. Accordingly, ProLogis expensed $1.4
million of unamortized organization and start-up costs as a cumulative effect of
accounting change in the first quarter of 1999.
Accounting for Derivatives
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and amended in June 1999. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000 and early adoption is
allowed. 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. Management does not believe this standard will have a significant
effect on ProLogis' consolidated financial position, results of operations or
financial statement disclosures.
Reclassifications
Certain 1998 amounts have been reclassified within the financial
statements and the notes to conform to the 1999 presentation.
2. Meridian Merger
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 (the "Meridian Merger"). 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 1.10 for one
basis) into approximately 37.2 million ProLogis common shares of beneficial
interest, $0.01 par value ("Common Shares"). In addition, the holders of
Meridian common stock received $2.00 in cash per outstanding share,
approximately $67.6 million in total. 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 a 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 1.10 million options each to acquire
1.10 ProLogis Common Shares and $2.00 in cash. The assets acquired from Meridian
included approximately $1.44 billion of real estate assets, an interest in a
refrigerated distribution business of $28.8 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 Meridian Merger 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):
7
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Rental income................................................................. $ 397,429 $ 337,331
Earnings from operations...................................................... $ 119,728 $ 82,062
Earnings attributable to Common Shares before
cumulative effect of accounting change................................... $ 100,299 $ 54,179
Net earnings attributable to Common Shares.................................... $ 98,859 $ 54,179
Weighted average Common Shares outstanding:
Basic.................................................................... 161,500 155,088
Diluted.................................................................. 166,645 155,829
Basic per share net earnings attributable to Common Shares
before cumulative effect of accounting change............................ $ 0.62 $ 0.35
Cumulative effect of accounting change........................................ (0.01) --
------------ ------------
Basic per share net earnings attributable to Common Shares.................... $ 0.61 $ 0.35
============ ============
Diluted per share net earnings attributable to Common Shares
before cumulative effect of accounting change............................ $ 0.60 $ 0.35
Cumulative effect of accounting change........................................ (0.01) --
------------ ------------
Diluted per share net earnings attributable to Common Shares.................. $ 0.59 $ 0.35
============ ============
</TABLE>
3. Real Estate
Investments in Real Estate
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):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Operating facilities:
Improved land........................................................... $ 775,486 (1) $ 517,803 (1)
Buildings and improvements.............................................. 3,939,983 (1) 2,731,203 (1)
------------ ------------
4,715,469 3,249,006
------------ ------------
Facilities under development (including cost of land)........................ 97,553 (2)(3) 209,670 (2)
Land held for development.................................................... 172,280 (4) 180,796 (4)
Capitalized preacquisition costs............................................. 27,364 (5) 18,028 (5)
------------ ------------
Total real estate................................................... 5,012,666 3,657,500
Less accumulated depreciation................................................ 337,934 254,288
------------ ------------
Net real estate..................................................... $ 4,674,732 $ 3,403,212
============ ============
<FN>
- ------------
(1) As of September 30, 1999 and December 31, 1998, ProLogis had 1,350 and
1,099 operating buildings, respectively, consisting of 135,102,000 and
104,540,000 square feet, respectively.
(2) Facilities under development consist of 47 buildings aggregating 8,663,000
square feet as of September 30, 1999 and 55 buildings aggregating 8,022,000
square feet as of December 31, 1998.
(3) In addition to the September 30, 1999 construction payable of $26.8
million, ProLogis had unfunded commitments on its contracts for facilities
under construction totaling $245.2 million.
(4) Land held for future development consisted of 1,841 acres as of September
30, 1999 and 1,673 acres as of December 31, 1998.
(5) Capitalized preacquisition costs include $4,126,000 and $2,199,000 of funds
on deposit with title companies for future acquisitions as of September 30,
1999 and December 31, 1998, respectively.
</FN>
</TABLE>
8
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
ProLogis Development Services
ProLogis Development Services Incorporated ("ProLogis Development
Services") develops corporate distribution facilities for future sale or on a
fee basis for customers or third parties. ProLogis owns 100% of the preferred
stock of ProLogis Development Services and realizes substantially all economic
benefits of its activities. Because ProLogis advances mortgage loans to ProLogis
Development Services to fund its acquisition, development and construction
activities, ProLogis Development Services is consolidated with the accounts of
ProLogis. Accordingly, these loans ($283.1 million as of September 30, 1999) are
reflected as real estate investments in ProLogis' consolidated balance sheet.
ProLogis Development Services is not a qualified REIT subsidiary of ProLogis.
Accordingly, provisions for federal income taxes are recognized, as appropriate.
The gains recognized on disposition of properties held by ProLogis Development
Services and the fees generated by ProLogis Development Services are reflected
as other real estate income by ProLogis.
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
September 30, 1999, minimum lease payments receivable on leases with lease
periods greater than one year are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Remainder of 1999................................. $ 125,818
2000.............................................. 457,489
2001.............................................. 381,233
2002.............................................. 305,975
2003.............................................. 236,120
Thereafter........................................ 727,151
-------------
$ 2,233,786
=============
</TABLE>
ProLogis' largest customer (based on rental income) accounted for 1.81%
of ProLogis' rental income (on an annualized basis) for the nine months ended
September 30, 1999, and the annualized base rent for ProLogis' 20 largest
customers (based on rental income) accounted for approximately 13.46% of
ProLogis' rental income (on an annualized basis) for the nine months ended
September 30, 1999.
4. Unconsolidated Entities:
Investments in and advances to unconsolidated entities are as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Insight (1)..................................................................... $ 2,573 $ 1,520
------------- ------------
ProLogis Logistics:
Investment (2)(3)........................................................... 41,982 13,241
Note receivable............................................................. 130,134 128,634
Accrued interest and other receivables...................................... 17,002 9,146
------------- ------------
189,118 151,021
------------- ------------
Frigoscandia S.A.:
Investment (2).............................................................. (5,737) 2,900
Notes receivable............................................................ 209,314 206,667
Accrued interest and other receivables...................................... 19,911 11,998
------------- ------------
223,488 221,565
------------- ------------
</TABLE>
9
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Kingspark S.A.:
Investment (2).............................................................. 25,576 22,413
Notes receivable............................................................ 268,474 146,135
Mortgage notes receivable................................................... 102,155 52,371
Accrued interest and other receivables...................................... 17,500 3,850
------------- ------------
413,705 224,769
------------- ------------
ProLogis California:
Investment (4).............................................................. 123,593 --
Other receivable............................................................ 148 --
------------- ------------
123,741 --
ProLogis European Properties Fund:
Investment (5).............................................................. 15,677 --
Other receivables........................................................... 14,088 --
------------- ------------
29,765 --
Garonor Holdings (6):
Investment (2).............................................................. -- 5,508
Note receivable............................................................. -- 129,395
Accrued interest receivable................................................. -- 85
------------- ------------
-- 134,988
------------- ------------
Total $ 982,390 $ 733,863
============= ============
<FN>
- ---------------
(1) Investment represents ProLogis' investment in the common stock of Insight,
Inc. ("Insight") as adjusted for ProLogis' share of Insight's earnings or
loss.
(2) Investment represents ProLogis' investment in the preferred stock of the
respective companies including acquisition costs, as adjusted for ProLogis'
share of each company's earnings or loss.
(3) Includes $28.8 million representing ProLogis' interest in Meridian
Refrigerated Incorporated ("MRI") which was acquired as part of the
Meridian Merger. CS Integrated LLC ("CSI"), which is owned by ProLogis
Logistics, also acquired an interest in MRI on March 30, 1999. ProLogis
intends to sell its interest in MRI to CSI.
(4) Investment represents ProLogis' equity investment in ProLogis California I
LLC (`ProLogis California"), a joint venture that began operations on
August 26, 1999, including acquisition costs, as adjusted for ProLogis'
share of the earnings of ProLogis California and for the portion of the
gain from the disposition of properties from ProLogis to ProLogis
California that does not qualify for income recognition due to ProLogis'
continuing ownership in ProLogis California.
(5) The ProLogis European Properties Fund (the "Fund") was formed on September
16, 1999 and began operations on September 23, 1999 with the purchase of
properties from ProLogis and ProLogis Kingspark. Investment represents
ProLogis' equity investment in the Fund including acquisition costs, as
adjusted for ProLogis' share of the earnings of the Fund and for the
portion of the gain from the disposition of properties to the Fund that
does not qualify for income recognition due to ProLogis' continuing
ownership in the Fund.
(6) Garonor Holdings was acquired on December 29, 1998 and was accounted for
under the equity method from that date to June 29, 1999. After June 29,
1999, Garonor Holdings is consolidated with the accounts of ProLogis. See
Note 1.
</FN>
</TABLE>
Insight
As of September 30, 1999, ProLogis Development Services had a 33.3%
ownership interest in Insight, a privately owned logistics optimization
consulting company. This investment is accounted for under the equity method.
ProLogis recognized income of $53,000 from its investment in Insight for the
nine months ended September 30, 1999. Prior to July 1, 1998, this investment was
accounted for under the cost method.
10
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
ProLogis Logistics
ProLogis owns 100% of the preferred stock of ProLogis Logistics
Services Incorporated ("ProLogis Logistics"). ProLogis Logistics owns CSI, a
refrigerated distribution company operating in the United States and Canada.
Prior to June 12, 1998, ProLogis Logistics owned, at various points in time,
between 60.0% and 77.1% of CSI. As of September 30, 1999, ProLogis had invested
$19.9 million in the preferred stock of ProLogis Logistics. As of September 30,
1999, CSI owned or operated refrigerated distribution facilities aggregating
139.4 million cubic feet. The common stock of ProLogis Logistics is owned by an
unrelated party. ProLogis recognizes 95% of the economic benefits of the
activities of ProLogis Logistics and its subsidiaries.
As of September 30, 1999, ProLogis had a $130.1 million note receivable
from ProLogis Logistics. The note is unsecured, bears interest at 8.0% per annum
and matures on April 24, 2002. Interest payments on the note are due annually.
ProLogis accounts for its investment in ProLogis Logistics under the
equity method. ProLogis recognized income (including interest income on the note
receivable and a management fee payable from CSI through June 1998) from its
investment in ProLogis Logistics of $3.1 million and $7.7 million for the three
and nine months in 1999 and $2.2 million and $4.7 million for the three and nine
months in 1998, respectively.
Frigoscandia S.A.
On January 16, 1998, ProLogis invested in Frigoscandia S.A. by
acquiring 100% of its preferred stock. Also on January 16, 1998, Frigoscandia
S.A., a Luxembourg company, acquired Frigoscandia AB, a refrigerated
distribution company headquartered in Sweden. Frigoscandia AB is 100% owned by
Frigoscandia Holding AB, which is 100% owned by a wholly owned subsidiary of
Frigoscandia S.A. As of September 30, 1999, Frigoscandia AB, which operates in
nine European countries, owned or operated 190.2 million cubic feet of
refrigerated distribution facilities. As of September 30, 1999, ProLogis had
invested $28.5 million in the preferred stock of Frigoscandia S.A. The common
stock of Frigoscandia S.A. is owned by a limited liability company, in which
unrelated parties own 100% of the voting interests and Security Capital owns
100% of the non-voting interests. ProLogis recognizes 95% of the economic
benefits of the activities of Frigoscandia S.A. and its subsidiaries.
As of September 30, 1999, ProLogis had the following notes receivable
outstanding:
o $91.5 million unsecured note from Frigoscandia Holding AB; interest
at 5.0% per annum; due on demand;
o $87.8 million unsecured note from Frigoscandia S.A.; interest at
5.0% per annum;
o $80.0 million due July 15, 2008 with the remainder due on demand;
and
o $30.0 million unsecured, non-interest bearing note from a
subsidiary of Frigoscandia Holding AB; due March 20, 2018.
ProLogis accounts for its investment in Frigoscandia S.A. under the
equity method. ProLogis recognized income of $5.6 million and a loss of $1.2
million for the three and nine months in 1999, respectively, and losses of $4.7
million and $4.0 million for the three and nine months in 1998, respectively,
(including interest income on the mortgage notes and notes receivable).
Frigoscandia AB has a multi-currency, three-year revolving credit
agreement through a consortium of 11 European banks in the currency equivalent
of approximately $194.4 million as of September 30, 1999. The loan bears
interest at each currency's respective LIBOR or Euribor rate plus 0.65%.
ProLogis has entered into a guaranty agreement for 25% of the loan balance.
11
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Kingspark S.A.
On August 14, 1998, ProLogis invested in Kingspark Holding S.A.
("Kingspark S.A.") by acquiring 100% of its preferred stock. Also on August 14,
1998, Kingspark S.A., a Luxembourg company, acquired an industrial real estate
development company operating in the United Kingdom, Kingspark Group Holdings
Limited ("ProLogis Kingspark"). As of September 30, 1999, ProLogis Kingspark had
321,000 square feet of operating facilities, 2,830,000 square feet of facilities
under development and 947,000 square feet of facilities being developed under
construction management agreements. Additionally, as of September 30, 1999,
ProLogis Kingspark owned 393 acres and controlled 1,412 acres of land through
purchase options, letters of intent or contingent contracts. The land owned and
controlled by ProLogis Kingspark has the capacity for the future development of
28.1 million square feet of facilities. As of September 30, 1999, ProLogis had
invested $24.0 million in the preferred stock of Kingspark S.A. The common stock
of Kingspark S.A. is owned by a limited liability company, in which unrelated
third parties own 100% of the voting interests and Security Capital owns 100% of
the non-voting interests. ProLogis recognizes 95% of the economic benefits of
the activities of Kingspark S.A. and its subsidiaries.
As of September 30, 1999, ProLogis had the following notes and mortgage
notes receivable outstanding:
o $112.4 million unsecured note receivable from Kingspark S.A.;
interest at 5.0% per annum; due January 2000;
o $156.1 million unsecured note receivable from ProLogis Kingspark;
interest at 8.0% per annum; due January 2000;
o $52.4 million mortgage note receivable from ProLogis Kingspark;
interest at 8.0% per annum; secured by land parcels; due January
2002; and
o $49.8 million of mortgage notes receivable from subsidiaries of
Kingspark S.A.; interest at 7.0% per annum; secured by land
parcels; due on demand.
ProLogis accounts for its investment in Kingspark S.A. under the equity
method. ProLogis recognized income of $12.9 million and $16.5 million for the
three and nine months in 1999, respectively, and income of $1.2 million for each
of the three and nine months in 1998 (including interest income on the mortgage
notes and notes receivable) from its investment in Kingspark S.A. ProLogis'
share of Kingspark S.A.'s income for the three and nine months ended September
30, 1999 includes a gain of $2.1 million from the disposition of properties
ProLogis Kingspark had developed to the Fund. The gain recognized is net of $0.5
million which did not qualify for income recognition due to ProLogis' continuing
ownership in the Fund. See the discussion below regarding the Fund.
ProLogis Kingspark has a line of credit agreement with a bank in the
United Kingdom. The credit agreement, which provides for borrowings of up to
approximately $16.0 million, has been guaranteed by ProLogis. As of September
30, 1999, no borrowings were outstanding on the line of credit. Additionally,
ProLogis has an agreement whereby it has guaranteed the performance and
obligations of ProLogis Kingspark with respect to an infrastructure agreement
entered into by ProLogis Kingspark related to the development of a land parcel.
As of September 30, 1999, ProLogis had an unfunded commitment on this guarantee
agreement of $10.0 million.
ProLogis California I LLC
ProLogis California began operations on August 26, 1999 as a joint
venture between ProLogis and New York State Common Retirement Fund ("NYSCRF").
ProLogis California acquired 78 operating properties aggregating 11.5 million
square feet, two properties under development and two land parcels from
ProLogis, all in the Los Angeles market for $558.2 million. In addition,
ProLogis California assumed $199.25 million of ProLogis' mortgage debt secured
by the properties acquired. As of September 30, 1999, ProLogis and NYSCRF each
had an equity interest in ProLogis California of $148.2 million. ProLogis
provides property management, leasing and development management services to
ProLogis California and earns fees for these services.
12
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
ProLogis' investment in ProLogis California as of September 30, 1999
consists of (in millions):
<TABLE>
<CAPTION>
<S> <C>
Equity interest............................................ $ 148.2
Reduction in ProLogis' carrying value for amount
of net gain on the disposition of properties to
ProLogis California that does not qualify for
income recognition....................................... (25.9)
ProLogis' share of ProLogis California's earnings.......... 0.3
Other, including costs..................................... 1.0
----------
$ 123.6
==========
</TABLE>
ProLogis accounts for its investment in ProLogis California under the
equity method and recognized $469,000 of income in the third quarter of 1999,
including management fees, from its investment in ProLogis California.
ProLogis European Properties Fund
The ProLogis European Properties Fund was formed on September 16, 1999
and began operations on September 23, 1999 when the Fund acquired 12 operating
properties aggregating 2.2 million square feet from ProLogis and ProLogis
Kingspark. As of September 30, 1999, third party investors have invested $108.6
million in the Fund and a total of $1.07 billion has been committed by a group
of 16 institutional investors through a private placement, which will be funded
through 2002. The Fund intends to acquire additional stabilized operating
properties from ProLogis, ProLogis Kingspark and unrelated parties, including
properties to be developed by ProLogis and ProLogis Kingspark in the future.
Stabilized properties have been defined for purposes of the Fund as properties
that are greater than 90% leased with minimum lease terms of three years and
that meet minimum net operating income yields, as defined and established by
agreement for each country. The Fund has the right to refuse to acquire
properties that ProLogis and ProLogis Kingspark have developed if they do not
meet the established criteria. ProLogis has an agreement to manage the Fund for
a fee pursuant to a 20-year management agreement.
ProLogis has committed an additional equity investment to the Fund
through the contribution of the common stock of one of ProLogis' wholly-owed
European entities that owns and leases 6.6 million square feet of distribution
properties in Europe with an agreed upon value of $355.2 million. This entity
has total property level debt of $182.7 million, which will be assumed by the
Fund. ProLogis will contribute 50.1% of common stock in January 2000 and the
remaining common stock in January 2001. ProLogis has also entered into a
subscription agreement with the Fund in the amount of $122.7 million.
In October 1999, the Fund entered into an agreement with two
international banks for a three-year 500.0 million euro revolving credit
facility. The facility is secured by assets of the Fund. Borrowings can be
denominated in either the euro or Sterling currencies, and will bear interest at
rates above the relevant index (LIBOR or Euribor).
ProLogis' investment in the Fund as of September 30, 1999 consists of
(in millions of U.S. dollars):
<TABLE>
<CAPTION>
<S> <C>
Equity interest............................................ $ 16.7
Reduction in ProLogis' carrying value for amount
of net gain on the disposition of properties
to the Fund that does not qualify for income
recognition............................................. (4.1)
Other, including costs and ProLogis' share of the
Fund's earnings.......................................... 3.1
----------
$ 15.7
==========
</TABLE>
ProLogis accounts for its investment in the Fund under the equity
method and recognized $25,000 of income in the third quarter of 1999 from its
investment in the Fund.
13
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Summarized Financial Information
Summarized financial information for ProLogis' unconsolidated entities
as of and for the nine months ended September 30, 1999 is presented below (in
millions of U.S. dollars). The information presented is for the entire entity.
<TABLE>
<CAPTION>
ProLogis
European
ProLogis Frigoscandia Kingspark ProLogis Properties
Logistics (1)(2) S.A.(1) S.A.(1) California I(3) Fund (4)
---------------- ------------ --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Total assets................. $ 322.4 $ 577.0 $ 503.3 $ 565.9 $ 213.3
Total liabilities (5)........ $ 280.0 $ 590.3 $ 475.3 $ 268.9 $ 87.7
Minority interest............ $ -- $ 1.6 $ -- $ -- $ --
Equity....................... $ 42.4 $ (14.9) $ 28.0 $ 297.0 $ 125.6
Revenues..................... $ 190.8 $ 314.5 $ 22.2 (6) $ 5.6 $ 0.2
Adjusted EBITDA (7).......... $ 25.2 $ 38.1 $ 17.9 $ 4.5 $ 0.2
Net earnings (loss)(8)(9).... $ (0.1) $ 9.1 (10) $ 3.8 (11) $ 0.6 $ 0.1
<FN>
- ---------------
(1) ProLogis has a 95% economic interest in each entity as of September 30,
1999.
(2) ProLogis Logistics' balances include MRI, which was acquired on March 30,
1999. See Note 2.
(3) ProLogis has a 50% equity interest as of September 30, 1999.
(4) ProLogis has a 18.2% equity interest as of September 30, 1999.
(5) Includes amounts due to ProLogis of $147.1 million from ProLogis Logistics,
$229.2 million from Frigoscandia S.A., $388.1 million from Kingspark S.A.
and $14.1 million from the Fund and loans from third parties (including
accrued interest) of $88.2 million for ProLogis Logistics, $220.2 million
for Frigoscandia S.A. and $262.9 million for ProLogis California.
(6) Includes $14.8 million of gains related to the disposition of properties,
including $2.8 million from the disposition of properties to the Fund.
(7) Adjusted EBITDA represents earnings from operations before interest
expense, interest income, current and deferred income taxes, depreciation,
amortization, cumulative effect of accounting changes, non-recurring items
and foreign currency exchange gains and losses.
(8) ProLogis' share of the net earnings (loss) and interest income on
intercompany notes and mortgage notes receivable are recognized in the
Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss)
as "Income (loss) from unconsolidated entities".
(9) The net earnings (loss) of each company includes interest expense on
intercompany notes and mortgage notes due to ProLogis, as applicable.
(10) Includes a net foreign currency exchange gain of $2.2 million.
(11) Includes a net foreign currency exchange loss of $4.8 million.
</FN>
</TABLE>
5. Borrowings:
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 $550.0 million
unsecured revolving line of credit (increased from $540.0 million on May 28,
1999). Borrowings bear interest at ProLogis' option, at either (a) the greater
of the federal funds rate plus 0.5% and the prime rate, or (b) LIBOR plus 1.00%
based upon ProLogis' current senior debt ratings. ProLogis' borrowings are
primarily at the 30-day LIBOR rate plus 1.00% (5.40% as of September 30, 1999).
Additionally, the credit agreement provides for a facility fee of 0.20% per
annum. The line of credit matures on March 29, 2001 and may be extended for an
additional year at ProLogis' option. ProLogis was in compliance with all
covenants contained in the credit agreement as of September 30, 1999. As of
September 30, 1999, $121.0 million of borrowings were outstanding on the line of
credit.
14
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
The $550.0 million unsecured line of credit replaced ProLogis' previous
$350.0 million unsecured line of credit that was put into place in August 1998.
ProLogis' entered into the new credit agreement to allow for increased borrowing
capacity after the Meridian Merger.
In addition, ProLogis has a $25.0 million short-term unsecured
discretionary line of credit with Bank of America that matures on October 1,
2000. 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 $6.9 million of borrowings outstanding on the line of credit
as of September 30, 1999. As of September 30, 1999, ProLogis had outstanding
letters of credit with Bank of America of $12.5 million which reduce the amount
of available borrowings on the discretionary line of credit.
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 are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Carrying Principal
Original Coupon Maturity Amount at Payment
Date of Issuance Principal Rate Date September 30, 1999(1) Requirement
---------------- ----------- ------ -------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
May 16, 1995 $ 17,500 7.250% 05/15/00 $ 17,489 (2)
May 16, 1995 17,500 7.300% 05/15/01 17,474 (2)
May 17, 1996 50,000 7.250% 05/15/02 37,483 (3)
October 9, 1998 125,000 7.000% 10/01/03 125,000 (2)
April 26, 1999 250,000 6.700% 04/15/04 249,589 (2)
July 20, 1998 250,000 7.050% 07/15/06 249,544 (2)
November 20, 1997 (4) 135,000 7.250% 11/20/07 134,001 (2)
April 26, 1999 250,000 7.100% 04/15/08 249,931 (2)
May 17, 1996 100,000 7.950% 05/15/08 99,873 (5)
March 2, 1995 150,000 8.720% 03/01/09 150,000 (6)
May 16, 1995 75,000 7.875% 05/15/09 74,748 (7)
November 20, 1997 (4) 25,000 7.300% 11/20/09 24,767 (2)
February 4, 1997 100,000 7.810% 02/01/15 100,000 (8)
March 2, 1995 50,000 9.340% 03/01/15 50,000 (9)
May 17, 1996 50,000 8.650% 05/15/16 49,869 (10)
July 11, 1997 100,000 7.625% 07/01/17 99,784 (2)
----------- -----------
$ 1,745,000 $ 1,729,552
=========== ===========
<FN>
- ---------------
(1) Amounts are net of unamortized original issue discount.
(2) Principal due at maturity.
(3) Annual principal payments of $12.5 million from 5/15/00 to 5/15/02.
(4) Senior unsecured notes assumed by ProLogis in connection with the Meridian
Merger. See Note 2.
(5) Annual principal payments of $25.0 million from 5/15/05 to 5/15/08.
(6) Annual principal payments of $18.75 million from 3/1/02 to 3/1/09.
(7) Annual principal payments of $9.375 million from 5/15/02 to 5/15/09.
(8) Annual principal payments ranging from $10.0 million to $20.0 million from
2/1/10 to 2/1/15.
(9) Annual principal payments ranging from $5.0 million to $12.5 million from
3/1/10 to 3/1/15.
(10)Annual principal payments ranging from $5.0 million to $12.5 million from
5/15/10 to 5/15/16.
</FN>
</TABLE>
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 the option of ProLogis. Such redemption and other terms are
governed by the provisions of an indenture agreement or, with respect to the
notes assumed in connection with the Meridian Merger, 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 September 30, 1999.
Other Unsecured Debt
ProLogis has an unsecured term loan in the amount of 200.0 million
French francs ($32.6 million as of September 30, 1999). The loan bears interest
at a variable rate of Euribor plus 1.20%. The Euribor rate has been fixed
through maturity at 3.62% through an interest rate swap agreement. See Note 11.
The loan is due in December 2003.
15
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mortgage Notes, Assessment Bonds and Securitized Debt
Mortgage notes, assessment bonds and securitized debt consisted of the
following as of September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
Balloon
Periodic Payment
Interest Maturity Payment Carrying Due at
Description Rate (1) Date Date Value Maturity
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Mortgage notes:
Platte Valley Industrial Center #1...... 9.750% 03/01/00 (2) $ 288 $ 256
West One Business Center #1............. 8.250 09/01/00 (2) 4,351 4,252
Tampa West Distribution Center #20...... 9.125 11/30/00 (3) 60 --
Rio Grande Industrial Center #1......... 8.875 09/01/01 (2) 2,924 2,544
Titusville Industrial Center #1......... 10.000 09/01/01 (2) 4,546 4,181
Eigenbrodt Way Distribution Center #1... 8.590 04/01/03 (2) 1,632 1,479
Gateway Corporate Center #10............ 8.590 04/01/03 (2) 1,819 1,361
Hayward Industrial Center I & II........ 8.590 04/01/03 (2) 13,768 12,480
Thornton Business Center #1--#4......... 8.590 04/01/03 (2) 9,029 8,185
Sullivan 75 Distribution Center #1...... 9.960 04/01/04 (2) 1,799 1,663
Oceanie Distribution Center #1 and
Epone Distribution Center #1......... 5.000 07/26/04 (3) 1,809 --
Platte Valley Industrial Center #8...... 8.750 08/01/04 (2) 1,852 1,488
Riverside Distribution Center #3........ 8.750 08/01/04 (2) 1,455 1,170
Riverside Distribution Center #4........ 8.750 08/01/04 (2) 3,932 3,161
West One Business Center #3............. 9.000 09/01/04 (2) 4,337 3,847
Raines Distribution Center.............. 9.500 01/01/05 (2) 5,334 4,402
Prudential Insurance (4) (5)............ 6.850 03/01/05 (6) 53,260 48,850
Consulate Distribution Center #300 (4).. 6.970 02/01/06 (2) 3,759 3,167
Plano Distribution Center #7 (4)........ 7.020 04/15/06 (2) 3,804 3,200
Mitry-Mory Distribution Center #1, Isle
d'Abeau Distribution Center #1 and 2
and Longjumeau Distribution Center.... (7) 12/29/06 (2) 21,190 8,150
Societe Generale (5).................... (8) 12/29/06 (2) 127,107 83,284
CIGNA (5)............................... 7.080 03/01/07 (2) 149,138 134,431
Vista Del Sol Industrial Center #1...... 9.680 08/01/07 (3) 2,474 --
Vista Del Sol Industrial Center #3...... 9.680 08/01/07 (3) 1,047 --
Senart Distribution Center #5 and
Aulany Distribution Center #24....... 8.600 07/21/08 (3) 11,881 --
State Farm Insurance (4) (5)............ 7.100 11/01/08 (2) 15,497 13,698
Placid Street Distribution Center #1(4). 7.180 12/01/09 (2) 7,876 5,142
Earth City Industrial Center #4......... 8.500 07/01/10 (3) 1,952 --
GMAC Commercial Mortgage (5)............ 7.750 10/01/10 (3) 8,076 --
Executive Park Distribution Center #3... 8.190 03/01/11 (3) 1,067 --
Cameron Business Center #1 (4).......... 7.230 07/01/11 (2) 6,193 4,028
Platte Valley Industrial Center #9...... 8.100 04/01/17 (3) 3,269 --
Platte Valley Industrial Center #4...... 10.100 11/01/21 (3) 2,041 --
MGT (5)................................. 7.584 04/01/24 (9) 200,000 127,187
----------
$ 678,566
==========
Assessment bonds:
City of Wilsonville..................... 6.82% 08/19/04 (3) $ 111
City of Kent............................ 5.50 05/01/05 (3) 16
City of Kent............................ 7.85 06/20/05 (3) 84
City of Portland........................ 8.33 11/17/07 (3) 6
City of Kent............................ 7.98 05/20/09 (3) 64
City of Fremont......................... 7.00 03/01/11 (3) 9,628
City of Las Vegas....................... 8.75 10/01/13 (3) 284
City of Las Vegas....................... 8.75 10/01/13 (3) 279
City of Las Vegas....................... 8.75 10/01/13 (3) 157
City of Portland........................ 7.25 11/07/15 (3) 89
City of Portland........................ 7.25 09/15/16 (3) 211
----------
$ 10,929
==========
Securitized debt:
Tranche A............................... 7.74% 02/01/04 (2) $ 22,795 $ 20,821
Tranche B............................... 9.94 02/01/04 (2) 7,993 7,215
-----------
$ 30,788
==========
16
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
- ---------------
<FN>
(1) The weighted average interest rates for mortgage notes, assessment bonds
and securitized debt were 6.92%, 7.13% and 8.31%, respectively as of
September 30, 1999.
(2) Monthly amortization with a balloon payment due at maturity.
(3) Fully amortizing.
(4) Mortgage note was assumed by ProLogis in connection with the Meridian
Merger. See Note 2. Under purchase accounting, the mortgage note was
recorded at its fair value. Accordingly, a premium or discount was
recognized, where applicable.
(5) Secured by a pool of distribution facilities.
(6) Carrying value includes premium, interest only with full principal amount
due at maturity.
(7) Variable rate provided by loan agreement is Euribor plus 1.20%. The Euribor
rate has been fixed through January 2004 at 3.59% through interest rate
swap agreement. See Note 11.
(8) Variable rate provided by loan agreement is Euribor plus 1.20%. The Euribor
rate has been fixed through January 2004 at 3.60% through interest rate
swap agreement related to $125,510,000 of principal. Remaining principal
bears interest at variable the rate, 3.89% as of September 30, 1999. See
Note 11.
(9) 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.
</FN>
</TABLE>
Mortgage notes are secured by real estate with an aggregate
undepreciated cost of $1.24 billion as of September 30, 1999. Assessment bonds
are secured by real estate with an aggregate undepreciated cost of $226.5
million as of September 30, 1999. Securitized debt is collateralized by real
estate with an aggregate undepreciated cost of $67.1 million as of September 30,
1999.
Long-term Debt Maturities
Approximate principal payments due on senior unsecured notes, other
unsecured debt, mortgage notes, assessment bonds and securitized debt during
each of the years in the five-year period ending December 31, 2003 and
thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Remainder of 1999......................................... $ 12,821
2000...................................................... 44,159
2001...................................................... 47,911
2002...................................................... 60,482
2003...................................................... 229,728
2004 and thereafter....................................... 2,090,282
-----------
Total principal due.............................. 2,485,383
Less: Original issue discount on senior unsecured notes.. (2,948)
-----------
Total carrying value............................. $ 2,482,435
===========
</TABLE>
Interest Expense
For the nine months ended September 30, 1999 and 1998, interest expense
was $126.5 million and $52.5 million, respectively, which excludes capitalized
interest of $11.0 million and $14.8 million, respectively. Amortization of
deferred loan costs included in interest expense was $3.0 and $1.3 million for
the nine months ended September 30, 1999 and 1998, respectively. The total
interest paid in cash on all outstanding debt was $112.7 million and $67.6
million for the nine months ended September 30, 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.
17
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
ProLogis sold its 70.0% general partnership interest in Red Mountain
Joint Venture in March 1999 and recognized a gain of $715,000. As of September
30, 1999, ProLogis is the controlling general partner in six partnerships:
ProLogis Limited Partnership-I, ProLogis Limited Partnership-II, ProLogis
Limited Partnership-III, ProLogis Limited Partnership-IV and two partnerships
(MDN/JSC II and Meridian Realty Partners, L.P.) acquired in the Meridian Merger.
A total of 5,538,791 limited partnership units were held by minority interest
limited partners in these partnerships as of September 30, 1999. In each of
these partnerships, the limited partners are entitled to exchange partnership
units for Common Shares (5,055,704 on a one for one basis and 483,087 at a rate
of 1.1 Common Share per partnership unit, plus $2.00). Additionally, the limited
partners are entitled to receive preferential cumulative quarterly distributions
per unit equal to the quarterly distributions in respect of Common Shares.
ProLogis acquired two other partnership interests in the Meridian Merger. During
the second quarter of 1999, ProLogis purchased the minority partners' interest
in one of these partnerships and disposed of its interest in the other of these
partnerships.
For the nine months ended September 30, 1999, distributions of $5.4
million were made to the minority interest limited partners. For financial
reporting purposes, the assets, liabilities, results of operations and cash
flows of each of the six partnerships are included in ProLogis' consolidated
financial statements, and the interests of the limited partners are reflected as
minority interest.
7. Distributions and Dividends:
Common Share Distributions
On February 24, 1999, ProLogis paid a quarterly distribution of $0.3183
per Common Share to shareholders of record on February 10, 1999. On March 18,
1999, ProLogis' Board of Trustees (the "Board") set a proposed annual
distribution level of $1.30 per Common Share. Quarterly distributions of $0.3272
per Common Share were paid on May 27, 1999 to shareholders of record on May 13,
1999 and on August 26, 1999 to shareholders of record as of August 12, 1999. On
October 20, 1999, the Board declared a distribution of $0.3272 per Common Share
for the fourth quarter of 1999 payable on November 24, 1999 to shareholders of
record on November 9, 1999.
On May 3, 1999, ProLogis paid a common distribution to holders of
Meridian common stock as of March 19, 1999. This distribution, which was
declared by the Meridian Board of Directors prior to the closing of the Meridian
Merger, related to the first quarter of 1999 and aggregated $11.1 million. This
liability was assumed by ProLogis in connection with the Meridian Merger.
Preferred Share Dividends
On March 31, June 30, and September 30, 1999, ProLogis paid quarterly
dividends of $0.5875 per cumulative redeemable Series A preferred share, $0.4375
per cumulative redeemable convertible Series B preferred share, $1.0675 per
cumulative redeemable preferred Series C share and $0.495 per cumulative
redeemable Series D preferred share.
On April 30, 1999, ProLogis paid an aggregate dividend of $1.1 million
on the Series E preferred shares ($0.5469 per share), of which $729,200 related
to Meridian's Series D preferred stock and was accrued by Meridian prior to the
closing of the Meridian Merger. Quarterly distributions of $0.5469 per share
were paid on July 30, 1999 to shareholders of record on July 15, 1999 and on
October 29, 1999 to shareholders of record on October 15, 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 distributions with respect to the Preferred Shares have
been paid and sufficient funds have been set aside for distributions that have
been declared for the then current distribution period with respect to the
Preferred Shares.
18
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Shareholders' Equity:
Authorized Shares
At the annual meeting on June 24, 1999, the shareholders of ProLogis
approved an Amended and Restated Declaration of Trust, which, among other
provisions, increased the number of authorized shares of beneficial interest
from 230,000,000 shares to 275,000,000 shares.
Shelf Registration
In June 1999, ProLogis' $500.0 million shelf registration statement was
declared effective by the Securities and Exchange Commission. This shelf
registration supplemented an existing shelf registration with a balance of
$108.0 million. As a result of this filing, ProLogis can issue $608.0 million of
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, subject to ProLogis' ability to effect offerings on
satisfactory terms.
9. Earnings Per Common Share:
A reconciliation of the numerator and denominator used to calculate
basic earnings per share to the numerator and denominator used to calculate
diluted earnings per share for the periods indicated (in thousands, except per
share amounts) is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) attributable to Common
Shares....................................... $ 74,021 $ (8,309) $ 87,837 $ 43,088
Add: Minority interest share in earnings......... 1,139 -- -- --
Preferred share dividends................... 3,102 -- -- --
----------- ----------- ----------- -----------
Adjusted net earnings (loss) attributable to
Common Shares................................ $ 78,262 $ (8,309) $ 87,837 $ 43,088
=========== =========== =========== ===========
Weighted average Common Shares outstanding -
basic........................................ 161,446 123,045 149,201 121,183
Weighted average effect of convertible
limited partnership units.................... 5,587 -- -- --
Weighted average effect of convertible
preferred shares............................. 9,143 -- -- --
Incremental effect of common stock equivalents.... 153 -- 162 238
----------- ----------- ----------- -----------
Adjusted weighted average Common Shares
outstanding - diluted........................ 176,329 123,045 149,363 121,421
=========== =========== =========== ===========
Per share net earnings (loss) attributable to
Common Shares:
Basic........................................ $ 0.46 $ (0.07) $ 0.59 $ 0.36
=========== =========== =========== ===========
Diluted...................................... $ 0.44 $ (0.07) $ 0.59 $ 0.35
=========== =========== =========== ===========
</TABLE>
19
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the nine months ended September 30, 1999, basic and diluted per
share net earnings (loss) attributable to Common Shares before cumulative effect
of accounting change was $0.60. The following convertible securities were not
included in the calculation of diluted net earnings (loss) per Common Share as
the effect, on an as-converted basis, was antidilutive (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series B preferred shares........ -- 10,052 9,271 10,156
=========== =========== =========== ===========
Limited partnership units........ -- 5,069 5,419 5,070
=========== =========== =========== ===========
Options and warrants............. -- 231 -- --
=========== =========== =========== ===========
</TABLE>
10. Supplemental Cash Flow Information
Non-cash investing and financing activities for the nine months ended
September 30, 1999 and 1998 are as follows:
o In connection with the Meridian Merger discussed in Note 2,
ProLogis issued approximately 37.2 million Common Shares and 2.0
million Series E preferred shares, assumed approximately 1.1
million 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 ProLogis disposed of properties to ProLogis California as
discussed in Note 4 and received $148.2 million of the proceeds in
the form of an equity interest in ProLogis California.
o In connection with the formation of the Fund as discussed in Note
4, ProLogis received $16.7 million of the proceeds from its
disposition of properties to the Fund in the form of an equity
interest in the Fund.
o Series B convertible redeemable preferred shares aggregating $11.3
million and $5.1 million were converted into Common Shares in 1999
and 1998, respectively.
o Limited partnership units aggregating $205,000 and $302,000 were
converted into Common Shares in 1999 and 1998, respectively.
o Net foreign currency translation adjustments of $1,326,000 and
$370,000 were recognized in 1999 and 1998, respectively.
o Mortgage notes in the amount of $10.6 million were assumed in
connection with the acquisition of real estate in 1998.
11. Financial Instruments:
Derivative Financial Instruments
ProLogis uses derivative financial instruments as hedges to manage
well-defined risks associated with interest and foreign currency rate
fluctuations on existing obligations and transactions or on anticipated
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). Through hedging, ProLogis can effectively manage the
risk of increases in interest rates and fluctuations in foreign currency
exchange rates.
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.
20
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes the activity in derivative instruments
for the nine months ended September 30, 1999 (in millions):
<TABLE>
<CAPTION>
Interest Rate Foreign
Futures Interest Rate Currency Put
Contracts Swaps Options (1)
------------- ------------- ------------
<S> <C> <C> <C>
Notional amount as of December 31, 1998......... $ 75.0 $ 75.0 $ --
New contracts................................... -- 179.3 (2) 30.0
Terminated contracts............................ (75.0) (75.0)(3) (11.4)
--------- --------- ---------
Notional amount as of September 30, 1999........ $ -- $ 179.3 $ 18.6
========= ========= =========
<FN>
- --------------
(1) ProLogis entered into foreign currency put options during the third
quarter of 1999 related to its operations in Europe. The notional
amount as of September 30, 1999 represents the U.S. dollar equivalent
related to put options with notional amounts of 9.7 million Swedish
krona, 6.4 million British pounds and 6.4 million euros. The
outstanding contracts were marked to market as of September 30, 1999.
ProLogis recognized an aggregate loss of $381,000 on the put options
including the mark to market adjustment. The put options provide
ProLogis with the option to exchange the applicable foreign currencies
for U. S. dollars at a fixed exchange rate such that if the foreign
currencies were to depreciate against the U. S. dollar to predetermined
levels, ProLogis could exercise its options and mitigate its foreign
currency exchange losses.
(2) ProLogis has interest rate swap agreements related to variable rate
mortgage notes and other unsecured debt in the currency equivalent of
$179.3 million as of September 30, 1999. The swap agreements have a
combined notional amount of 1.1 billion French francs and fix the
Euribor rate at 3.62% through December 2003 on $32.6 million of other
unsecured debt, at 3.60% through January 2004 on $125.5 million of
mortgage notes and at 3.59% through 2004 on $21.2 million of mortgage
notes.
(3) In October 1997, in anticipation of debt offerings in 1998, ProLogis
entered into two interest rate protection agreements which were renewed
past the original termination dates. These agreements were entered into
by ProLogis to fix the interest rate on anticipated financings.
</FN>
</TABLE>
During the third quarter of 1998, ProLogis determined that the interest
rate protection agreements no longer qualified for hedge accounting
treatment under GAAP based upon the following:
o Due to changing conditions in the public debt markets, it was no
longer considered probable that ProLogis would complete the
anticipated 1998 longer term debt offerings that prompted ProLogis
to enter into these interest rate protection agreements in 1997
(i.e., ProLogis would not be exposed to the interest rate risk
that these instruments were intended to hedge); and
o ProLogis determined, through internal analysis and through
communications with independent third parties, that a high degree
of correlation no longer existed between changes in the market
values of these interest rate protection agreements and the
"market values" of the anticipated debt offerings (i.e., the
interest rate at which the debt could be issued by ProLogis under
existing market conditions).
Accordingly, ProLogis began marking these agreements to market as of
September 30, 1998. For 1998, ProLogis recognized a non-cash expense of
$26.1 million. These agreements were terminated in February 1999 at a
total cost of $27.0 million.
On December 22, 1997, ProLogis entered into two separate contracts to
(i) exchange $373.8 million for 2.9 billion Swedish krona, and (ii) exchange
310.0 million German marks for $175.0 million in anticipation of the January
1998 acquisition and planned European currency denominated financing of
Frigoscandia AB by Frigoscandia S.A., ProLogis' unconsolidated subsidiary. The
contracts were marked to market as of December 31, 1997 and ProLogis recognized
a net loss of $6.0 million in 1997. Both contracts were settled during the first
quarter of 1998 at a net loss of $4.0 million. Accordingly, ProLogis recognized
a net gain of $2.0 million in the first quarter of 1998. These foreign currency
exchange hedges were one-time, non-recurring contracts that fixed the exchange
rate between the U.S. dollar and the Swedish krona and German mark. ProLogis
executed these hedges after the execution of the purchase agreement to acquire
Frigoscandia AB, which required payment in Swedish krona. The contracts were
executed exclusively for the acquisition and financing of Frigoscandia AB and
were not entered into to hedge on-going income in foreign currencies.
21
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
12. Business Segments:
ProLogis has three reportable business segments:
o long-term ownership and leasing of industrial distribution facilities
in North America (a portion of which is owned through ProLogis
California--See Note 4) and Europe (a portion of which is owned through
Garonor Holdings, a subsidiary that was recognized under the equity
method of accounting until June 29, 1999 and a portion of which is
owned through the Fund - See Notes 1 and 4); each operating property is
considered to be an individual operating segment having similar
economic characteristics which are combined within the reportable
segment based upon geographic location;
o operation of refrigerated distribution facilities through
unconsolidated entities in North America (ProLogis Logistics and MRI)
and Europe (Frigoscandia S.A.); each company's operating properties are
considered to be individual operating segments having similar economic
characteristics which are combined within the reportable segment based
upon geographic location; and
o corporate distribution facilities services business which is the
development of distribution facilities for future sale or on a fee
basis for customers in North America and in Europe (a portion of which
is owned through Kingspark S.A.); the development activities of
ProLogis and Kingspark S.A. are considered to be individual operating
segments having similar economic characteristics which are combined
within the reportable segment based upon geographic location.
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):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Income:
Property operations:
North America (1)................................................... $ 345,683 $ 246,783
Europe (2).......................................................... 6,305 4,824
------------- -------------
Total property operations segment.......................... 351,988 251,607
------------- -------------
Refrigerated distribution operations:
North America (3)................................................... 7,685 4,734
Europe (4) (5)...................................................... (1,239) (3,982)
------------- -------------
Total refrigerated distribution operations segment......... 6,446 752
------------- -------------
Corporate distribution facilities services business:
North America....................................................... 23,633 10,540
Europe (6) (7)...................................................... 27,043 1,178
------------- -------------
Total corporate distribution facilities services
business segment...................................... 50,676 11,718
------------- -------------
Reconciling items:
Interest income..................................................... 4,006 2,012
------------- -------------
Total income............................................... $ 413,116 $ 266,089
============= =============
</TABLE>
22
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net operating income:
Property operations:
North America (1)................................................... $ 320,623 $ 226,791
Europe (2).......................................................... 5,309 4,358
------------- -------------
Total property operations segment.......................... 325,932 231,149
------------- -------------
Refrigerated distribution operations:
North America (3)................................................... 7,685 4,734
Europe (4) (5)...................................................... (1,239) (3,982)
------------- -------------
Total refrigerated distribution operations segment......... 6,446 752
------------- -------------
Corporate distribution facilities services business:
North America....................................................... 23,633 10,540
Europe (6) (7)...................................................... 27,043 1,178
------------- -------------
Total corporate distribution facilities services
business segment...................................... 50,676 11,718
------------- -------------
Reconciling items:
Interest income..................................................... 4,006 2,012
General and administrative expense.................................. (27,526) (15,626)
Depreciation and amortization....................................... (110,895) (73,684)
Interest expense.................................................... (126,478) (52,455)
Interest rate hedge expense......................................... (945) (27,652)
Other expenses...................................................... (5,727) (4,096)
------------- -------------
Total reconciling items.................................... (267,565) (171,501)
------------- -------------
Earnings from operations............................................ $ 115,489 $ 72,118
============= =============
September 30, December 31,
1999 1998
------------- -------------
Assets:
Property operations:
North America (8)................................................... $ 4,277,876 $ 3,147,742
Europe (8).......................................................... 491,358 309,639
------------- -------------
Total property operations segment.......................... 4,769,234 3,457,381
------------- -------------
Refrigerated distribution operations:
North America (8)................................................... 189,118 151,021
Europe (8).......................................................... 223,488 221,566
------------- -------------
Total refrigerated distribution operations segment......... 412,606 372,587
------------- -------------
Corporate distribution facilities services business:
North America....................................................... 166,188 165,986
Europe (8).......................................................... 413,705 224,769
------------- -------------
Total corporate distribution facilities services
business segment...................................... 579,893 390,755
Reconciling items:
Cash ............................................................... 74,354 63,140
Accounts and notes receivable....................................... 15,281 1,313
Other assets........................................................ 97,698 45,553
------------- -------------
Total reconciling items.................................... 187,333 110,006
------------- -------------
Total assets........................................................ $ 5,949,066 $ 4,330,729
============= =============
23
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
- ---------------
<FN>
(1) Includes an amount recognized under the equity method related to ProLogis'
investment in ProLogis California in addition to the operations of ProLogis
that are reported on a consolidated basis. See Note 4 for summarized
financial information of ProLogis California.
(2) Includes amounts recognized under the equity method related to ProLogis'
investments in Garonor Holdings (including a $13.0 million net foreign
currency exchange loss) and the Fund, in addition to the operations of
ProLogis that are reported on a consolidated basis. See Note 4 for
summarized financial information of the Fund and Note 1 for a discussion of
Garonor Holdings.
(3) Represents amount recognized under the equity method related to ProLogis'
investment in ProLogis Logistics. See Note 4 for summarized financial
information of ProLogis Logistics.
(4) Represents amount recognized under the equity method related to ProLogis'
investment in Frigoscandia S.A. See Note 4 for summarized financial
information of Frigoscandia S.A.
(5) Amount for the nine months ended September 30, 1999 includes a $2.1 million
net foreign currency exchange gains.
(6) Amount for the nine months ended September 30, 1999 includes $16.5 million
recognized under the equity method related to ProLogis' investment in
Kingspark S.A. Also includes $10.4 million of gains recognized by ProLogis
related to the sale of properties by ProLogis to the Fund. See Note 4 for
summarized financial information of Kingspark S.A.
(7) Amount for the nine months ended September 30, 1999 includes a $4.6 million
net foreign currency exchange gains.
(8) Amounts include investments in unconsolidated entities accounted for under
the equity method. See Note 4 for summarized financial information as of
September 30, 1999.
</FN>
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of ProLogis Trust:
We have reviewed the accompanying consolidated balance sheet of
ProLogis Trust and subsidiaries as of September 30, 1999, and the related
consolidated statements of earnings and comprehensive income for the three and
nine months ended September 30, 1999 and 1998, and the consolidated statements
of cash flows for the nine months ended September 30, 1999 and 1998. These
financial statements are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of ProLogis Trust and
subsidiaries as of December 31, 1998, and in our report dated March 5, 1999, we
expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1998, is fairly stated in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 10, 1999
25
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with ProLogis'
consolidated financial statements and the notes thereto included in Item 1 of
this report. See ProLogis' 1998 Annual Report on Form 10-K for a discussion of
various risk factors associated with forward-looking statements made in this
document.
Overview
General
ProLogis' operating results depend primarily on (i) the operating
results of its industrial distribution facilities, which are substantially
influenced by the demand for and supply of industrial distribution facilities in
ProLogis' North American and European target market cities, the pace and
economic returns at which ProLogis can acquire and develop additional industrial
distribution facilities and the extent to which ProLogis can sustain improved
market performance as measured by lease rates and occupancy levels; (ii) the
demand for the corporate distribution facilities services that are provided by
ProLogis, ProLogis Development Services and ProLogis Kingspark; and (iii) the
operating performance of ProLogis' unconsolidated subsidiaries that are engaged
in the refrigerated distribution business.
ProLogis' target markets and submarkets have benefited substantially in
recent periods from demographic trends (including population and job growth)
which influence the demand for distribution facilities. ProLogis believes its
ability to compete is significantly enhanced relative to other companies due to
its depth of management and ability to serve customers through the ProLogis
Operating System(TM).
As of September 30, 1999, ProLogis' real estate investments included
135.1 million square feet of operating facilities with a total expected
investment of $4.84 billion. ProLogis had 8.7 million square feet of facilities
under development as of September 30, 1999 with a total expected investment at
completion of $352.5 million. Development starts during the nine months ended
September 30, 1999 aggregated 9.2 million square feet at a total expected
investment of $362.7 million. Development completions during the nine months
ended September 30, 1999 aggregated 8.9 million square feet at a total expected
investment of $371.4 million. As of September 30, 1999, ProLogis had 1,841 acres
of land in inventory with the capacity for the future development of
approximately 30.6 million square feet of distribution facilities. Additionally,
ProLogis had 1,242 acres of land under control for the future development of
22.1 million square feet of distribution facilities.
Through ProLogis' investment in ProLogis Kingspark, ProLogis had an
additional 321,000 square feet of operating facilities, 2,830,000 square feet of
facilities under development and 947,000 square feet of facilities being
developed under construction management agreements in the United Kingdom as of
September 30, 1999. Additionally, as of September 30, 1999, ProLogis Kingspark
owned 393 acres and controlled 1,412 acres of land with the capacity for the
future development of 28.1 million square feet of distribution facilities.
ProLogis has also invested in refrigerated distribution businesses through
investments in the preferred stock of two companies. As of September 30, 1999,
ProLogis' had approximately 329.6 million cubic feet of refrigerated
distribution facilities in operation. Of the total, 190.2 million cubic feet are
located in Europe.
On December 29, 1998, ProLogis invested in Garonor Holdings by
acquiring 100% of its preferred stock. Garonor Holdings, a Luxembourg company,
owns ProLogis Garonor, a real estate operating company in France. Security
Capital, ProLogis' largest shareholder, owned 100% of the common stock of
Garonor Holdings. ProLogis accounted for its investment in Garonor Holdings and
ProLogis Garonor under the equity method. On June 29, 1999, ProLogis acquired
the voting 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 and ProLogis
Garonor are 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 January 1, 1999 through
June 29, 1999 are reflected by ProLogis under the equity method. As of September
30, 1999, Garonor Holdings' real estate assets, at cost, were $284.3 million and
Garonor Holdings had third party debt of $171.6 million ($32.6 million of
unsecured debt and $139.0 million of mortgage notes).
26
<PAGE>
On March 30, 1999, Meridian Industrial Trust, Inc., a publicly traded
REIT that owned approximately 32.2 million square feet of industrial
distribution facilities in the United States, was merged with and into ProLogis.
In accordance with the terms of the Merger Agreement, the approximately 33.8
million outstanding shares of Meridian common stock were exchanged (on a 1.10
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. The holders of
Meridian's Series D cumulative redeemable preferred stock received cumulative
redeemable ProLogis Series E preferred shares on a one for one basis. The Series
E preferred shares have a 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 1.10 million options each to acquire 1.10 ProLogis
Common Shares and $2.00 in cash. The assets acquired from Meridian included
approximately $1.44 billion of real estate assets, an interest in a refrigerated
distribution business of $28.8 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.
In the third quarter of 1999, ProLogis disposed of properties to two
entities in exchange for cash and an ownership interest in the entities that
acquired the properties. In one transaction, ProLogis disposed of 11.5 million
square feet of properties, two properties under development and two land parcels
to ProLogis California. ProLogis has an equity interest in ProLogis California
of $148.2 million as of September 30, 1999. ProLogis recognized $26.0 million of
the total gain of $52.0 million related to the disposition of properties to
ProLogis California. The remaining gain did not qualify for income recognition
due to ProLogis' continuing ownership in ProLogis California. In the second
transaction, the Fund acquired 2.2 million square feet of distribution
properties from ProLogis and ProLogis Kingspark. ProLogis has a $16.7 million
equity interest in the Fund as of September 30, 1999. ProLogis recognized a gain
of $10.4 million as other real estate income on the disposition of the
properties it owned to the Fund, net of $4.1 million that did not qualify for
income recognition. ProLogis Kingspark recognized a gain of $2.8 million on the
disposition of properties it developed to the Fund. Under the equity method,
ProLogis recognized $2.6 million of this gain (95%), net of $0.5 million which
did not qualify for income recognition.
No assurance can be given that the current cost of funds available to
ProLogis will be available in the future or that ProLogis will continue to be
able to obtain unsecured debt or equity financing in the public markets on
favorable terms or to continue to generate capital for redeployment through
sales of existing assets. During 1998 and the first nine months of 1999, the
real estate industry experienced a general tightening of the equity and credit
markets. Additionally, no assurance can be given that the expected trends in
leasing rates and economic returns on acquired and developed facilities will be
realized. There are risks associated with ProLogis' development and acquisition
activities which include factors such as development and acquisition
opportunities explored by ProLogis may be abandoned; construction costs of a
project may exceed original estimates due to increased materials, labor or other
expenses; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. Acquisition
activities entail risks that investments will fail to perform in accordance with
expectations and that analysis with respect to the cost of improvements to bring
an acquired project up to standards will prove inaccurate, as well as general
investment risks associated with any new real estate investment. Although
ProLogis undertakes a thorough evaluation of the physical condition of each
proposed investment before it is acquired, certain defects or necessary repairs
may not be detected until after it is acquired, which could increase ProLogis'
total acquisition cost. There are also risks associated with the hedging
strategies used to manage interest rate and foreign currency exchange rate
fluctuations on transactions. If these transactions do not occur as planned,
ProLogis could incur costs. To the extent ProLogis' business activities outside
the United States are conducted in a currency other than the U.S. dollar,
ProLogis is exposed to foreign currency exchange rate fluctuations. However, all
of ProLogis' business activities in Mexico and Poland are U.S. dollar
denominated. The occurrence of any of the events described above could adversely
affect ProLogis' ability to achieve its projected returns on acquisitions and
projects under development and could hinder ProLogis' ability to make expected
distributions to equity holders.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
Net earnings attributable to Common Shares increased by $44.7 million
to $87.8 million for the nine months ended September 30, 1999 from $43.1 million
for the same period in 1998. The increase in net earnings attributable to Common
Shares in 1999 from 1998 was primarily the result of:
o a net increase in income generated by ProLogis' unconsolidated
subsidiaries in 1999 from 1998, primarily due to the recognition
of a full nine months of income from ProLogis Kingspark in 1999 as
compared to 1998 (ProLogis Kingspark was acquired on August 14,
1998), partially offset by the Garonor Holding loss in 1999;
27
<PAGE>
o An increase in the gains from disposition of real estate in 1999
over 1998;
o the recognition of an interest rate hedge expense of $27.7 million
in 1998 as compared to $1.0 million in 1999.
o an increase in net operating income from property operations
(after deductions for depreciation), primarily the result of the
increased number of distribution facilities in operation in 1999
as compared to 1998; and
o an increase in other real estate income, primarily gains on
disposition of facilities and fees generated by ProLogis'
corporate distribution facilities services business. See "--Other
Real Estate Income".
These increases in net earnings attributable to Common Shares were
partially offset by:
o net foreign currency exchange losses recognized by ProLogis in
1999;
o the write-off of previously capitalized start-up and organization
costs due to the adoption of a new accounting principle in 1999;
and
o increases in 1999 in general and administrative expenses and other
expenses, primarily pursuit costs written-off and franchise and
income taxes.
Interest expense, preferred share dividends and weighted average Common
Shares outstanding all increased in 1999 as compared to 1998. These increases
are the result of additional debt and equity used by ProLogis to finance its
acquisition and development activities in each period.
Property Operations
As of September 30, 1999 ProLogis had 1,350 operating facilities
totaling 135.1 million square feet. ProLogis had 1,074 operating facilities
totaling 100.0 million square feet as of September 30, 1998. This increase in
operating facilities (primarily due to the Meridian Merger partially offset by
the disposition of facilities to ProLogis California and the ProLogis European
Properties Fund) resulted in an increase in property-level net operating income
of $106.7 million from 1998 to 1999 as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Rental income................................ $ 363,915 $ 251,605
Rental expenses, net of recoveries........... 26,056 20,458
---------- ----------
Net operating income.................... $ 337,859 $ 231,147
========== ==========
</TABLE>
Rental income increased by $112.3 million in 1999 as compared to 1998.
This increase is comprised from the following components:
o facilities acquired or developed during 1999 contributed $59.1
million (primarily due to the Meridian Merger) and $10.3 million
of additional rental income, respectively;
o facilities acquired or developed during 1998 contributed $19.0
million and $21.4 million of additional rental income,
respectively;
o facilities owned and operated as of January 1, 1998 contributed
$8.6 million of additional rental income; and o facilities that
were in operation during 1998 but have subsequently been disposed
of reduced rental income in 1999 by $6.1 million.
Rental expenses, net of recoveries from tenants, increased by $5.6
million in 1999 over 1998. Rental expenses, before the deduction of amounts
recovered from tenants, were 23.3% of rental income for 1999 and 25.1% of rental
income for 1998.
ProLogis frequently acquires facilities that are underleased and
develops facilities that are not fully leased at the start of construction,
which reduces ProLogis' overall occupancy rate below its stabilized level but
provides opportunities to increase revenues. The term "stabilized" means that
capital improvements, repositioning, new management and new marketing programs
(or development and marketing, in the case of newly developed facilities) have
been completed and in effect for a sufficient period of time (but in no case
longer than 12 months for facilities acquired by ProLogis and 12 months after
shell completion for facilities developed by ProLogis) to achieve stabilized
occupancy (typically 93%). ProLogis has been successful in increasing
occupancies on acquired and developed facilities during their initial months of
operation resulting in an occupancy rate of 94.8% and a leased rate of 95.9% for
stabilized facilities owned as of September 30, 1999. ProLogis' marketing and
leasing efforts have resulted in an average increase in rental rates of 15.1% in
1999. The increase is based on 16.7 million square feet of new leases and lease
renewals on previously leased space (including leased space in properties owned
or managed by ProLogis). As leases are renewed or new leases are acquired,
ProLogis expects most rental rates on renewals or new leases to increase during
1999.
28
<PAGE>
Other Real Estate Income
Other real estate income consists primarily of gains on the disposition
of land and operating properties that have been acquired or developed with the
intent to hold the properties only in the short-term with future disposition to
another party as the primary objective. In addition, the fees and other income
received from customers for whom ProLogis develops corporate distribution
facilities are recognized as other real estate income. Of the total other real
estate income of $34.1 million recognized by ProLogis in 1999, $22.6 million was
generated by such dispositions, $1.1 million represents fees and other income
and $10.4 million represents the gain recognized on the disposition of developed
properties to the Fund. Due to the timing of the dispositions and the completion
of the development projects, other real estate income recognized by ProLogis
will vary on a quarterly and annual basis.
Income (Loss) from Unconsolidated Entities
Income (loss) from unconsolidated entities relates to ProLogis'
investments in:
o 100% of the preferred stock of two companies, whose primary source
of income is their respective investments in refrigerated
distribution businesses;
o Kingspark S.A., which owns an industrial real estate development
company;
o Garonor Holdings, which owns an industrial distribution facilities
company and has been consolidated with the accounts of ProLogis
subsequent to June 29, 1999;
o ProLogis California which owns distribution facilities in the Los
Angeles market; and
o the Fund which owns distribution facilities in Europe.
These investments, discussed in Notes 1 and 4 to the consolidated
financial statements in Item 1, generated income (losses) as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Insight (1)................................. $ 53 $ 13
---------- ----------
ProLogis Logistics:
Equity in loss......................... (100) (4,223)
Management fee from CSI (2)............ -- 1,011
Interest income on note receivable..... 7,785 7,933
---------- ----------
7,685 4,721
---------- ----------
Frigoscandia S.A. (3):
Equity in loss (4)..................... (8,793) (18,735)
Interest income on mortgage notes and
notes receivable................... 7,555 14,753
---------- ----------
(1,238) (3,982)
---------- ----------
Kingspark S.A. (5):
Equity in earnings (loss) (6).......... 2,984 (76)
Interest income on mortgage notes and
notes receivable................... 13,510 1,254
---------- ----------
16,494 1,178
---------- ----------
ProLogis California (7):
Equity in earnings..................... 321 --
Fees earned............................ 148 --
---------- ----------
469 --
Fund (8):
Equity in earnings..................... 25 --
Garonor Holdings (9):
Equity in loss (10).................... (15,409) --
Interest income on note receivable..... 2,988 --
---------- ----------
(12,421) --
---------- ----------
Total........................... $ 11,067 $ 1,930
========== ==========
29
<PAGE>
- -----------------
<FN>
(1) Represents ProLogis' investment in a privately owned logistics optimization
consulting company that, prior to July 1, 1998, was accounted for under the
cost method.
(2) ProLogis received a management fee from CSI during the first six months of
1998.
(3) Frigoscandia S.A. was acquired on January 16, 1998.
(4) Includes a net foreign currency exchange loss of $2.1 million.
(5) Kingspark S.A. was acquired on August 14, 1998.
(6) Includes a net foreign currency exchange loss of $4.6 million.
(7) ProLogis California began operations on August 26, 1999.
(8) The Fund began operations on September 23, 1999.
(9) Garonor Holdings was acquired on December 29, 1998 and was accounted for
under the equity method of accounting from that date to June 29, 1999.
After June 29, 1999, Garonor Holdings is consolidated with the accounts of
ProLogis. See Note 1 to the consolidated financial statements in Item 1.
(10) Includes a net foreign currency exchange loss of $13.0 million.
</FN>
</TABLE>
Depreciation and Amortization
The increase in depreciation and amortization expense of $37.2 million
for the nine months ended September 30, 1999 as compared to the same period in
1998 results primarily from the increase in operating facilities in 1999 over
1998. See "--Property Operations".
Interest Rate Hedge Expense
See "--Liquidity and Capital Resources--Derivative Financial
Instruments" for a discussion of this expense.
Interest Expense
Interest expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Lines of credit and short-term
borrowings................................ $ 15,954 $ 11,111
Senior unsecured notes....................... 81,567 48,110
Mortgage notes and other debt................ 39,986 8,048
Capitalized interest......................... (11,029) (14,814)
----------- ----------
$ 126,478 $ 52,455
=========== ==========
</TABLE>
Interest expense on lines of credit and short-term borrowings increased
$4.8 million in 1999 over 1998 due primarily to a higher average outstanding
balance ($303.4 million in 1999 and $208.6 million in 1998) partially offset by
a lower weighted average daily interest rate (5.99% in 1999 and 6.56% in 1998).
See " -- Liquidity and Capital Resources -- Investing and Financing Activities".
In addition, loan cost amortization related to the lines of credit and
short-term borrowings increased in 1999 over 1998.
Senior unsecured notes interest expense increased by $33.5 million in
1999 as compared to 1998 due to interest on new senior unsecured debt issuances:
$250.0 million issued in July 1998, $125.0 million issued in October 1998 and
$500.0 million issued in April 1999 and the assumption of $160.0 million of
Notes in the Meridian Merger.
Interest expense on mortgage notes and other debt increased by $31.9
million in 1999 over 1998 due to the higher weighted average balance of mortgage
notes and other debt outstanding in 1999 over 1998, primarily three secured
financing transactions aggregating $532.0 million that were completed between
December 1998 and April 1999. See "Liquidity and Capital Resources--Other
Financing Sources."
Interest expense recognized on borrowings is offset by interest
capitalized with respect to ProLogis' development activities. Capitalized
interest decreased by $3.8 million in 1999 over 1998. Capitalized interest
levels are reflective of ProLogis' cost of funds and the level of development
activity. The decrease in capitalized interest is due to decreased development
activity in 1999 and to ProLogis' lower weighted average cost of funds in 1999.
30
<PAGE>
Other Expenses
Other expenses, which increased by $1.6 million for the nine months
ended September 30, 1999 over the same period in 1998, consist of land holding
costs, the write-off of previously capitalized pursuit costs, franchise and
income tax expenses related to ProLogis' taxable subsidiaries in 1999 and
non-recurring costs associated with ProLogis' name change in 1998. Land holding
costs were $2.2 million in 1999 and $1.7 million in 1998. Pursuit cost
write-offs were $2.0 million in 1999 and $0.9 million in 1998. Tax expense was
$1.5 million in 1999 and the name change costs were $1.5 million in 1998.
Foreign Currency Exchange Gains (Losses)
ProLogis makes intercompany loans to its consolidated foreign
subsidiaries primarily in U.S. dollars. Because the consolidated foreign
subsidiaries' functional currencies are not the U.S. dollar, these intercompany
loans have been marked to market by the foreign subsidiaries based upon the
applicable exchange rate in effect at the end of the period. ProLogis incurred a
remeasurment loss of $6.6 million and a remeasurement gain of $5.5 million for
the nine months in 1999 and 1998, respectively. These gains or losses resulted
primarily from fluctuations of the U.S. dollar against the euro, French franc,
Dutch guilder and British pound, the primary currencies of the foreign
subsidiaries to which ProLogis makes intercompany loans. Also, ProLogis
recognized a foreign currency transaction gain of $125,000 for the nine months
ended September 30, 1999 and a foreign currency transaction loss of $135,000 for
the nine months ended September 30, 1998.
For the nine months ended September 30, 1998, ProLogis recognized
foreign currency hedge income of $2,054,000 related to two separate contracts
entered into on December 22, 1997 to (i) exchange $373.8 million for 2.9 billion
Swedish krona, and (ii) exchange 310.0 million German marks for $175.0 million
in anticipation of the January 1998 acquisition and planned European currency
denominated financing of Frigoscandia AB by Frigoscandia S.A., ProLogis'
unconsolidated subsidiary. The contracts were marked to market as of December
31, 1997. ProLogis recognized a net loss of $6.0 million in 1997. Both contracts
were settled during the first quarter of 1998 and ProLogis recognized a net gain
of $2,054,000 upon settlement. These foreign currency exchange hedges were
one-time, non-recurring contracts that fixed the exchange rate between the U.S.
dollar and the Swedish krona and German mark. ProLogis executed these hedges
after the execution of the purchase agreement to acquire Frigoscandia AB, which
required payment in Swedish krona. The contracts were executed exclusively for
the acquisition and financing of Frigoscandia AB and were not entered into to
hedge on-going income in foreign currencies.
Cumulative Effect of Accounting Change
Through 1998, ProLogis capitalized costs associated with start-up
activities and organization costs and amortized such costs over an appropriate
period, generally five years. 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. Accordingly, ProLogis expensed $1.4 million of
unamortized organization and start-up costs as a cumulative effect of accounting
change in the first quarter of 1999.
Preferred Share Dividends
The increase in preferred share dividends of $6.8 million for the nine
months ended September 30, 1999 over the same period in 1998 is primarily
attributable to the issuance of Series D preferred shares in April 1998 and the
issuance of Series E preferred shares in March 1999. See "--Liquidity and
Capital Resources--Investing and Financing Activities".
Three Months Ended September 30, 1999 and 1998
ProLogis had net earnings attributable to Common Shares for the three
months ended September 30, 1999 of $74.0 million as compared to a net loss of
$8.3 million for the same period in 1998. During the three months ended
September 30, 1999, ProLogis recognized gains on disposition of real estate of
$25.6 million and no such gains were recognized in the comparable period in
1998. Also, in the three months ended September 30, 1998, ProLogis recognized an
interest rate hedge expense of $27.7 million while no such expense was incurred
in 1999. All other components of the net earnings (loss) attributable to Common
Shares for the three months ended September 30, 1999 compared to three months
ended September 30, 1998 reflect changes similar to those discussed in the
preceding paragraphs for comparison of the nine months ended on the same dates.
31
<PAGE>
Environmental Matters
ProLogis did not experience any environmental condition on its
facilities which materially adversely affected its results of operations or
financial position.
Liquidity and Capital Resources
Overview
ProLogis considers its liquidity and ability to generate cash from
operations and financing alternatives to be adequate and expects it to continue
to be adequate to meet its anticipated development, acquisition, operating and
debt service needs as well as its shareholder distribution requirements.
ProLogis future investing activities are expected to consist primarily
of acquiring and developing distribution facilities. These activities are
expected to be funded with the proceeds from the disposition of selected
facilities currently in ProLogis' portfolio and the proceeds from the
disposition of facilities developed specifically for sale through ProLogis'
corporate distribution facilities services business. In the short-term,
borrowings and subsequent repayments on its unsecured lines of credit will
provide ProLogis with adequate liquidity and financial flexibility. As of
September 30, 1999, ProLogis had $434.6 million available for borrowing under
its unsecured lines of credit ($420.8 million available as of November, 10,
1999). See "--Credit Facilities". Another source of future liquidity and
financial flexibility is ProLogis' shelf-registered securities which can be
issued 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, subject to ProLogis' ability to effect an offering on satisfactory terms.
ProLogis currently has $608.0 million of shelf-registered securities available
for issuance.
Operating Activities
Cash provided by operating activities increased by $50.9 million for
the nine months ended September 30, 1999 as compared to the same period in 1998
($231.9 million in 1999 and $181.0 million in 1998). See "--Results of
Operations".
Investing and Financing Activities
ProLogis funds its current investment needs primarily with lines of
credit and short-term borrowings, which are subsequently repaid with proceeds
from the disposition of certain properties or other financing sources, as
necessary. ProLogis' investment activities used approximately $101.9 million and
$923.0 million of cash in the nine months ended September 30, 1999 and 1998,
respectively. ProLogis' financing activities resulted in a net decrease in cash
of $118.8 million and provided net cash flow of $748.6 million in 1999 and 1998,
respectively. Cash distributions paid on Common Shares were $156.0 (including
$11.1 million paid to Meridian's shareholders which was assumed by ProLogis as
part of the Meridian Merger) million and $111.8 million for 1999 and 1998,
respectively, which have been substantially funded by cash generated from
operating activities.
Investments in real estate, used cash of $345.1 million during the nine
months ended September 30, 1999 and $520.6 million during the same period in
1998. ProLogis' cash investment in its unconsolidated entities was $168.0
million and $453.4 million during the nine months ended September 30, 1999 and
1998, respectively. ProLogis generated cash proceeds from dispositions of $397.3
million in 1999 as compared to $64.2 million in 1998.
During the nine months ended September 30, 1999, ProLogis' primary
financing activities were entering into secured financing agreements which
generated $466.0 million of proceeds and the issuance of $500.0 million of
senior unsecured notes. The proceeds from these transactions were primarily used
to repay borrowings on the unsecured lines of credit. In connection with the
Meridian Merger, ProLogis assumed Meridian's $328.4 million line of credit which
was repaid on March 30, 1999 with proceeds from borrowings on ProLogis'
unsecured lines of credit. During the nine months ended September 30, 1999,
ProLogis had net repayments on its unsecured lines of credit of $366.4 million.
The Meridian Merger, which was completed in March 1999 was principally
a non-cash transaction. However, the Meridian Merger did result in an increase
in cash of $49.0 million, representing Meridian's cash balance on March 30,
1999. A $67.6 million cash payment to Meridian's stockholders was made in April
1999.
32
<PAGE>
ProLogis' primary financing activities in the first nine months of 1998
were the sale of Series D preferred shares generating net proceeds of $241.5
million and the sale of Common Shares (including sales under the employee share
purchase and dividend reinvestment plans) generating net proceeds of $131.1
million. ProLogis also had net borrowings on its unsecured lines of credit of
$309.5 million and generated proceeds from a short-term bridge loan from Bank of
America of $200.0 million (used primarily to finance the acquisition of
Frigoscandia AB), which was repaid on March 31, 1998 after Frigoscandia Holding
AB obtained third-party financing.
Credit Facilities
ProLogis has an unsecured credit agreement with Bank of America,
Commerzbank AG and Chase Bank of Texas, National Association, as agents for a
bank group that provides for a $500.0 million unsecured revolving line of credit
(increased from $540.0 million on May 28, 1999). Borrowings bear interest at
ProLogis' option, at either (a) the greater of the federal funds rate plus 0.5%
and the prime rate, or (b) LIBOR plus 1.00% based upon ProLogis' current senior
debt ratings. ProLogis' borrowings are primarily at the 30-day LIBOR rate plus
1.00% (5.40% as of September 30, 1999). Additionally, the credit agreement
provides for a facility fee of 0.20% per annum. The line of credit matures on
March 29, 2001 and may be extended for an additional year at ProLogis' option.
ProLogis was in compliance with all covenants contained in the credit agreement
as of September 30, 1999. As of September 30, 1999, $121.0 million of borrowings
were outstanding on the line of credit.
In addition, ProLogis has a $25.0 million short-term unsecured
discretionary line of credit with Bank of America that matures on October 1,
2000. 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 $6.9 million of borrowings outstanding on the line of credit
as of September 30, 1999. As of September 30, 1999, ProLogis had outstanding
letters of credit with Bank of America of $12.5 million which reduce the amount
of available borrowings on the discretionary line of credit.
Other Financing Sources
On December 23, 1998, ProLogis entered into a $150.0 million secured
financing agreement with Connecticut General Life Insurance Company. On that
date, $66.0 million was funded under the agreement and the remaining $84.0
million was funded on January 22, 1999. Under the terms of the agreement,
ProLogis pledged distribution facilities ($209.6 million undepreciated cost as
of September 30, 1999) as collateral for the term loan. The loan bears interest
at 7.08% per annum and provides for monthly principal and interest payments
through March 2007, at which time the remaining principal outstanding of $134.4
million will be due.
On February 22, 1999, ProLogis entered into a $182.0 million secured
financing agreement with Teachers Insurance and Annuity Association of America.
Of the total borrowings, $119.3 million was funded on February 22, 1999, $35.7
million was funded on March 5, 1999 and the remaining $27.0 million was funded
on April 30, 1999. This loan was assumed by ProLogis California in connection
with the acquisition of properties from ProLogis in August 1999.
On March 29, 1999, ProLogis entered into a $200.0 million secured
financing agreement with Morgan Guaranty Trust Company of New York. The loan is
secured by distribution facilities with an undepreciated cost of $335.6 million
as of September 30, 1999. The loan provides for interest only payments through
May 2005 and principal and interest payments thereafter with the remaining
balance of $127.2 million due on March 2024. The loan bears interest at 7.584%
per annum.
On April 26, 1999, ProLogis completed a $500.0 million offering of
senior unsecured notes. The notes were issued in two tranches of $250.0 million
due April 15, 2004 and April 15, 2008. The Notes have a coupon rate of 6.70% and
7.10%, respectively. Both the Notes were issued at a discount and are governed
by the terms and provisions of the same indenture agreement applicable to
ProLogis' other senior unsecured notes. Net proceeds from the offering were
approximately $495.9 million, net of underwriters' commissions and other costs.
The proceeds were used to repay borrowings on ProLogis' unsecured lines of
credit and unsecured term loan.
Derivative Financial Instruments
ProLogis uses derivative financial instruments as hedges to manage
well-defined risks associated with interest and foreign currency rate
fluctuations on existing obligations and transactions or on anticipated
transactions. ProLogis does not use derivative financial instruments for trading
purposes.
33
<PAGE>
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). Through hedging, ProLogis can effectively manage the
risk of increases in interest rates and fluctuations in foreign currency
exchange rates.
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.
The following table summarizes the activity in derivitive instruments
interest rate contracts for the nine months ended September 30, 1999 (in
millions):
<TABLE>
<CAPTION>
Interest Rate Foreign
Futures Interest Rate Currency Put
Contracts Swaps Options (1)
------------ ------------- ------------
<S> <C> <C> <C>
Notional amount as of December 31, 1998......... $ 75.0 $ 75.0 $ --
New contracts................................... -- 179.3 (2) 30.0
Terminated contracts............................ (75.0) (75.0)(3) (11.4)
---------- ---------- ---------
Notional amount as of September 30, 1999........ $ -- $ 179.3 $ 18.6
========== ========== =========
<FN>
- --------------
(1) ProLogis entered into foreign currency put options during the third
quarter of 1999 related to its operations in Europe. The notional
amount as of September 30, 1999 represents the U.S. dollar equivalent
related to put options with notional amounts of 9.7 million Swedish
krona, 6.4 million British pounds and 6.4 million euros. The
outstanding contracts were marked to market as of September 30, 1999.
ProLogis recognized an aggregate loss of $381,000 on the put options
including the mark to market adjustment. The put options provide
ProLogis with the option to exchange the applicable foreign currencies
for U. S. dollars at a fixed exchange rate such that if the foreign
currencies were to depreciate against the U. S. dollar to predetermined
levels, ProLogis could exercise its options and mitigate its foreign
currency exchange losses.
(2) ProLogis has interest rate swap agreements related to variable rate
mortgage notes and other unsecured debt in the currency equivalent of
$179.3 million as of September 30, 1999. The swap agreements have a
combined notional amount of 1.1 billion French francs and fix the
Euribor rate at 3.62% through December 2003 on $32.6 million of other
unsecured debt, at 3.60% through January 2004 on $125.5 million of
mortgage notes and at 3.59% through 2004 on $21.2 million of mortgage
notes.
(3) In October 1997, in anticipation of debt offerings in 1998, ProLogis
entered into two interest rate protection agreements which were renewed
past the original termination dates. These agreements were entered into
by ProLogis to fix the interest rate on anticipated financings.
During the third quarter of 1998, ProLogis determined that the interest
rate protection agreements no longer qualified for hedge accounting
treatment under GAAP based upon the following:
</FN>
</TABLE>
o Due to changing conditions in the public debt markets, it was no
longer considered probable that ProLogis would complete the
anticipated 1998 longer term debt offerings that prompted ProLogis
to enter into these interest rate protection agreements in 1997
(i.e., ProLogis would not be exposed to the interest rate risk
that these instruments were intended to hedge); and
o ProLogis determined, through internal analysis and through
communications with independent third parties, that a high degree
of correlation no longer existed between changes in the market
values of these interest rate protection agreements and the
"market values" of the anticipated debt offerings (i.e., the
interest rate at which the debt could be issued by ProLogis under
existing market conditions).
Accordingly, ProLogis began marking these agreements to market as of
September 30, 1998. For 1998, ProLogis recognized a non-cash expense of
$26.1 million. These agreements, which were terminated in February 1999
at a total cost of $27.0 million, were used to set the interest rate
associated with a secured financing transaction that was completed in
March 1999. ProLogis intends to amortize this expense as a component of
interest expense over the 25-year term of debt issued in the first
quarter of 1999 for purposes of calculating funds from operations. See
"--Funds From Operations".
34
<PAGE>
Commitments
ProLogis has letters of intent or contingent contracts, subject to
ProLogis' final due diligence, for the acquisition of 332,000 square feet of
operating distribution facilities with an aggregate acquisition cost of $8.4
million. The facilities are located in Europe and Mexico. The foregoing
transactions are subject to a number of conditions, and ProLogis cannot predict
with certainty that any of them will be consummated. In addition, as of
September 30, 1999, ProLogis had $342.8 million of budgeted development cost for
developments in process, of which $245.2 million was unfunded.
Frigoscandia AB has a multi-currency, three-year revolving credit
agreement through a consortium of 11 European banks in the currency equivalent
of approximately $194.4 million as of September 30, 1999. The loan bears
interest at each currency's respective LIBOR or Euribor rate plus 0.65%.
ProLogis has entered into a guaranty agreement for 25% of the loan balance.
ProLogis Kingspark has a line of credit agreement with a bank in the
United Kingdom. The credit agreement, which provides for borrowings of up to
approximately $16.0 million, has been guaranteed by ProLogis. As of September
30, 1999, there were no borrowings outstanding on the line of credit.
Additionally, ProLogis has an agreement whereby it has guaranteed the
performance and obligations of ProLogis Kingspark with respect to an
infrastructure agreement entered into by ProLogis Kingspark related to the
development of a land parcel. As of September 30, 1999, ProLogis had an unfunded
commitment on this guarantee agreement of $10.0 million.
Distribution and Dividend Requirements
ProLogis' current distribution policy is to pay quarterly distributions
to shareholders based upon what it considers to be a reasonable percentage of
cash flow and at the level that will allow ProLogis to continue to qualify as a
REIT for tax purposes. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, annual distributions are expected to be consistently higher than
annual earnings.
On February 24, 1999, ProLogis paid a quarterly distribution of $0.3183
per Common Share to shareholders of record on February 10, 1999. On March 18,
1999, the Board set a proposed annual distribution level of $1.30 per
Common Share. Quarterly distributions of $0.3272 per Common Share were paid on
May 27, 1999 to shareholders of record on May 13, 1999 and on August 26, 1999
to shareholders of record as of August 12, 1999. On October 20, 1999, the Board
declared a distribution of $0.3272 per Common Share for the fourth quarter of
1999 payable on November 24, 1999 to shareholders of record on November 9, 1999.
On May 3, 1999, ProLogis paid a common distribution to holders of
Meridian common stock as of March 19, 1999. This distribution, which was
declared by the Meridian Board of Directors prior to the closing of the
Meridian Merger, related to the first quarter of 1999 and aggregated $11.1
million. This liability was assumed by ProLogis in connection with the Meridian
Merger.
On March 31, June 30, and September 30, 1999, ProLogis paid quarterly
dividends of $0.5875 per cumulative redeemable Series A preferred share, $0.4375
per cumulative redeemable convertible Series B preferred share, $1.0675 per
cumulative redeemable preferred Series C share and $0.495 per cumulative
redeemable Series D preferred share.
On April 30, 1999, ProLogis paid an aggregate dividend of $1.1 million
on the Series E preferred shares ($0.5469 per share) of which $729,200 related
to Meridian's Series D preferred stock and was accrued by Meridian prior to the
closing of the Meridian Merger. Quarterly distributions of $0.5469 per share
were paid on July 30, 1999 to shareholders of record on July 15, 1999 and on
October 29, 1999 to shareholders of record on October 15, 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 distributions with respect to the Preferred Shares have
been paid and sufficient funds have been set aside for distributions that have
been declared for the then current distribution period with respect to the
Preferred Shares.
35
<PAGE>
Conversion to the Euro
Effective January 1, 1999, eleven of the fifteen member countries of
the European Monetary Union launched the new monetary unit, the euro, as the
single currency for the member countries of the European Monetary Union. During
the period from January 1, 1999 to January 1, 2002, a transition period will be
in effect during which time the euro will be available for non-cash
transactions. However, transactions can continue to be denominated in the old
national currencies. After January 1, 2002, all transactions must be denominated
in the euro. The targeted exchange rates of the old national currencies to the
euro were determined in May 1998. Conversion to the euro has not had, nor is
management aware of any future effects of the conversion to the euro that will
have, a material impact on its business operations or results of operations.
Funds from Operations
Funds from operations attributable to Common Shares increased $62.6
million to $230.6 million for the nine months ended September 30, 1999 from
$168.0 million for the same period in 1998.
Funds from operations represent ProLogis' net earnings (computed in
accordance with GAAP) before gains or losses from debt restructuring, before
gains or losses on disposition of depreciated real estate, before foreign
currency exchange gains or losses resulting from intercompany debt transactions
and from the remeasurement (based on current foreign currency exchange rates) of
intercompany and other debt of ProLogis' foreign subsidiaries, before deferred
tax benefits and deferred tax expenses of ProLogis' taxable subsidiaries, before
significant non-recurring items that materially distort the comparative
measurement of company performance over time, plus real estate related
depreciation and amortization (exclusive of amortization of loan costs), and
after adjustments for unconsolidated entities calculated to compute their funds
from operations on the same basis as ProLogis. ProLogis believes that funds from
operations is helpful to a reader as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, investing
activities and financing activities, it provides a reader with an indication of
the ability of ProLogis to incur and service debt, to make capital expenditures
and to fund other cash needs. The funds from operations measure presented by
ProLogis will not be comparable to similarly titled measures of other REITs that
do not compute funds from operations in a manner consistent with ProLogis. Funds
from operations is not intended to represent cash made available to
shareholders. Funds from operations should not be considered as an alternative
to net earnings or any other GAAP measurement of performance as an indicator of
ProLogis' operating performance, or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. Funds
from operations is as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net earnings attributable to Common Shares................................................ $ 87,837 $ 43,088
Add (Deduct):
Real estate related depreciation and amortization................................ 109,398 72,902
Gain on disposition of depreciated real estate................................... (26,358) (4,278)
Foreign currency exchange (gains) losses (1)..................................... 6,561 (5,471)
Interest rate hedge expense, net (2)............................................. 396 27,652
Cumulative effect of accounting change (3)....................................... 1,440 --
Other............................................................................ 605 1,452
ProLogis' share of reconciling items of unconsolidated entities:
Real estate related depreciation and amortization........................... 36,656 26,668
Net foreign currency exchange losses on intercompany
debt transactions and the remeasurement of
intercompany and other debt............................................. 5,737 8,046
Deferred tax expense (benefit).............................................. 5,444 (2,759)
Other, net.................................................................. 2,935 747
----------- -----------
Funds from operations attributable to Common Shares....................................... $ 230,651 $ 168,047
=========== ===========
36
<PAGE>
- ---------------
<FN>
(1) See "--Results of Operations - Foreign Currency Exchange Gains (Losses)".
(2) Net of $549,000 of additional interest expense in 1999 resulting from the
amortization of the interest rate hedge expense incurred in 1998. See
"--Liquidity and Capital Resources - Derivative Financial Instruments".
(3) See "--Results of Operations - Cumulative Effect of Accounting Change".
</FN>
</TABLE>
Year 2000
Overview
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Certain
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar business activities.
ProLogis has undertaken a review of all of its computer systems and
applications to determine if these programs are Year 2000 compliant and if not,
the efforts that will be necessary to bring the programs into compliance.
ProLogis has not identified any computer system or applications that, upon
failure to be Year 2000 compliant, would have a material adverse impact on its
business or results of operations.
Information Technology Systems
ProLogis' information technology ("IT") environment is primarily a
Microsoft Windows-based personal computer network (NT or Novell) utilizing
desktop applications, primarily data base and spreadsheet applications. ProLogis
recently installed a new, third-party developed property management and core
accounting system. Also, ProLogis Garonor a wholly-owned subsidiary of ProLogis
that operates in France, installed a new Year 2000 compliant version of its
financial accounting software in 1999. The critical computer hardware, operating
systems and key general accounting, property management and financial reporting
applications of ProLogis and its subsidiaries are Year 2000 compliant, as
verified by the appropriate vendors.
Non-IT Systems
Many of ProLogis' operating facilities have microchips embedded in the
building operating systems. ProLogis, as owner and lessor of these buildings,
has assessed its exposure with respect to Year 2000 related failures in these
operating systems. These building operating systems include programmable
thermostats, security systems, communications systems, utility monitoring
systems and timed locks.
Under the terms of substantially all of ProLogis' building leases, the
tenant has responsibility for the operating systems within their leased space,
including the responsibility for addressing the Year 2000 compliance of those
systems. However, ProLogis is responsible for the operating systems that control
the common exterior areas of the buildings, including parking lot lighting and
sprinkler systems. Generally, these systems are programmed on daily or weekly
cycles (as opposed to calendar-based programming). Consequently, the risk of a
Year 2000 related malfunction is extremely low and any such malfunction would
not have a material impact on ProLogis' operations. ProLogis is also responsible
for the fire and life safety monitoring systems in its buildings. ProLogis
contracts with a third party to monitor these systems. These systems are not
calendar-based, because reportable events are identified as they occur.
Consequently, the risk of a Year 2000 related failure is low.
ProLogis has conducted a review of all operating systems that fall
within its responsibility. Results have indicated that ProLogis' primary vendor
for monitoring of fire and life safety systems has verified that their system is
Year 2000 compliant. ProLogis has reviewed and performed testing and
verification as deemed appropriate. ProLogis has not identified any major
operating systems within its responsibility that are not Year 2000 compliant or
that would create a significant adverse effect on its customers or business
undertakings. Should the systems that ProLogis is responsible for fail,
ProLogis' tenants may experience inconveniences with respect to the maintenance
and operations of the facilities (i.e., parking lot lighting and sprinkler
systems). Should the fire and life safety systems fail, there could be a delay
in identifying a reportable event or a reportable event could occur without
being identified. In such a situation, ProLogis could be exposed to the extent
the failure resulted in a loss not covered by existing insurance policies.
37
<PAGE>
Third Parties
Management believes that its planning efforts are adequate to address
the Year 2000 issue and that its risk factors are primarily those that it cannot
directly control, including the readiness of financial institutions and utility
providers. Failure on the part of these entities to become Year 2000 compliant
could result in disruptions in the business operations of ProLogis.
Costs
ProLogis' activities with respect to its assessment of Year 2000
compliance and its remediation efforts are being performed primarily by existing
personnel. ProLogis' historical costs for addressing the Year 2000 issue are not
material and management does not anticipate that its future costs associated
with the Year 2000 issue will be material. Third-party costs and interim
software solutions for Year 2000 issues are not expected to exceed $250,000.
ProLogis does not separately track the internal costs incurred for Year 2000
compliance issues. Such costs are principally the related payroll costs of its
IT group. Although the cost of replacing ProLogis' key property management and
core accounting systems is substantial, the replacements were made to improve
operational efficiency and were not accelerated due to the Year 2000 issue.
ProLogis has not delayed any material projects as a result of the Year 2000
issue. Funds expended to address Year 2000 issues have been made from operating
cash flow.
Unconsolidated Subsidiaries
As part of its compliance program, management of ProLogis has received
ongoing reports from CSI, Frigoscandia AB and ProLogis Kingspark on the impact
of the Year 2000 problems on their operations and financial results.
CSI has completed testing on all IT and embedded operating systems. No
critical IT or embedded operating systems have been identified that have not
already been remediated or are not Year 2000 compliant. CSI is currently
verifying and testing customer and supplier electronic data interface
programming standards. CSI retained an outside consulting firm to review their
Year 2000 testing methodologies and no significant issues were found. CSI
estimates that the total cost incurred to date and estimated total cost to be
incurred for Year 2000 remediation is less than $250,000. CSI is currently
finalizing detailed contingency plans in the event of unexpected Year 2000
disruptions.
Frigoscandia AB has substantially completed testing of its IT and
embedded operating systems. No critical IT or embedded operating systems have
been identified that have not been remediated, with the exception of minor
components of its inventory management systems in a few remaining facilities.
Modifications to the components of its inventory management systems are
currently being finalized and all modifications are expected to be completed
prior to year-end.
Frigoscandia AB is currently conducting a coordinated program whereby
testing with key customers and critical suppliers is performed. Additionally,
Frigoscandia AB is finalizing detailed contingency plans in the event of
unexpected Year 2000 disruptions. Frigoscandia AB estimates that the total cost
incurred to date and the estimated total costs to be incurred for Year 2000
remediation is between $2 million and $4 million.
ProLogis Kingspark has recently installed a Year 2000 compliant version
of non-customized financial forecasting and accounting software. ProLogis
Kingspark has virtually no risk associated with embedded operating systems
because substantially all of ProLogis Kingspark activities are related to
development of facilities for third parties and not for its own long-term
ownership. ProLogis Kingspark estimates that the total cost incurred to date and
the estimated total cost to be incurred for the Year 2000 remediation is less
than $100,000.
There can be no assurances that Year 2000 remediation efforts by
ProLogis, its unconsolidated entities or third parties will be properly and
timely completed, and failure to do so could have a material adverse effect on
ProLogis, its business and its financial condition. ProLogis cannot predict the
actual effects to it of the Year 2000 problem, which depends on numerous
uncertainties such as: (i) whether significant third parties properly and timely
address the Year 2000 issue and (ii) whether broad-based or systemic economic
failures may occur. Due to the general uncertainty inherent in the Year 2000,
ProLogis is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on its operations. ProLogis' Year 2000
compliance program is expected to significantly reduce the level of uncertainty
about the Year 2000 impact in areas that are within its direct control and
management of ProLogis believes that the possibility of significant
interruptions of normal operations will be reduced.
38
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As of September 30, 1999, no significant change had occurred in
ProLogis' interest rate risk or foreign currency risk as discussed in ProLogis'
1998 Annual Report on Form 10-K.
39
<PAGE>
PART II
Item 4. Submission of Matters to Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 ProLogis Trust 1997 Long-Term Incentive Plan (as Amended and Restated
Effective as of October 20, 1999)
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Share Dividends
15.1 Letter from Arthur Andersen LLP regarding unaudited financial information
dated November 10, 1999
27 Financial Data Schedule
(b) Reports on Form 8-K:
Items Financial
Date Reported Statements
---- -------- ----------
September 9, 1999 7 Yes
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PROLOGIS TRUST
BY:/S/ WALTER C. RAKOWICH
---------------------------------
Walter C. Rakowich
Managing Director and
Chief Financial Officer
(Principal Financial Officer)
BY:/S/ EDWARD F. LONG
---------------------------------
Edward F. Long
Senior Vice President and Controller
BY:/S/ SHARI J. JONES
---------------------------------
Shari J. Jones
Vice President
(Principal Accounting Officer)
Date: November 12, 1999
41
EXHIBIT 10.1
PROLOGIS TRUST
1997 LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective
as of October 20, 1999)
<PAGE>
TABLE OF CONTENTS
SECTION 1....................................................................1
GENERAL.............................................................1
1.1. Purpose..................................................1
1.2. Participation............................................1
SECTION 2....................................................................1
OPTIONS.............................................................1
2.1. Definitions..............................................1
2.2. Eligibility..............................................1
2.3. Price....................................................2
2.4. Exercise.................................................2
2.5. Post-Exercise Limitations................................3
2.6. Expiration Date..........................................3
SECTION 3....................................................................3
DIVIDEND EQUIVALENT UNITS...........................................3
3.1. Award of Dividend Equivalent Units.......................3
3.2. Terms and Conditions of Dividend Equivalent Units........4
SECTION 4....................................................................4
SHARE PURCHASE PROGRAM..............................................4
4.1. Purchase of Shares.......................................4
4.2. Matching Shares and Options..............................4
4.3. Restrictions on Shares...................................4
4.4. Purchase Loans...........................................4
SECTION 5....................................................................5
SHARE AWARDS........................................................5
5.1. Definition...............................................5
5.2. Eligibility..............................................5
5.3. Terms and Conditions of Awards...........................5
SECTION 6....................................................................6
OPERATION AND ADMINISTRATION........................................6
6.1. Effective Date...........................................6
6.2. Shares Subject to Plan...................................6
6.3. Individual Limits on Awards..............................6
6.4. Adjustments to Shares....................................6
6.5. Change in Control........................................8
6.6. Limit on Distribution....................................9
6.7. Liability for Cash Payments..............................9
6.8. Performance-Based Compensation...........................9
6.9. Withholding..............................................10
6.10. Transferability..........................................10
6.11. Notices..................................................10
6.12. Form and Time of Elections...............................10
6.13. Agreement With Trust or Related Company..................10
6.14. Limitation of Implied Rights.............................10
6.15. Evidence.................................................10
6.16. Action by Trust or Related Company.......................10
6.17. Gender and Number........................................11
6.18. Applicable Law...........................................11
6.19. Foreign Employees........................................11
SECTION 7....................................................................11
COMMITTEES..........................................................11
7.1. Administration...........................................11
7.2. Selection of Trust Committee.............................11
7.3. Powers of Committees.....................................11
7.4. Delegation by Committee..................................12
7.5. Information to be Furnished to Committees................12
7.6. Liability and Indemnification of Committees..............12
SECTION 8....................................................................12
AMENDMENT AND TERMINATION...........................................12
<PAGE>
PROLOGIS TRUST
1997 LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective
as of October 20, 1999)
SECTION 1
GENERAL
1.1. Purpose. ProLogis Trust (formerly known as Security Capital
Industrial Trust), a Maryland real estate investment trust (the "Trust"),
established the Security Capital Industrial Trust 1997 Long-Term Incentive Plan
effective September 8, 1997 and renamed it the ProLogis Trust 1997 Long-Term
Incentive Plan effective July 1, 1998 (the "Plan"). The provisions that follow
constitute an amendment and restatement of the Plan as in effect immediately
prior to October 20, 1999, the "Effective Date" of the Plan as set forth herein.
The Plan was established by the Trust to:
(a) attract and retain employees and other persons providing
services to the Trust and the Related Companies (as defined
below);
(b) motivate Participants (as defined in subsection 1.2), by means
of appropriate incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities that are
competitive with those of other corporations and real estate
investment trusts; and
(d) further identify Participants' interests with those of the
Trust's other shareholders through compensation that is based
on the value of the Trust's common shares;
and thereby promote the long-term financial interest of the Trust and the
Related Companies, including the growth in value of the Trust's equity and
enhancement of long-term shareholder return. The term "Related Company" means
any company during any period in which it is a "subsidiary corporation" (as that
term is defined in section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code")), with respect to the Trust or any affiliate of the Trust
which is designated as a Related Company by the Committee, including, without
limitation, any subsidiary of the Trust.
1.2. Participation. Subject to the terms and conditions of the Plan,
the Committees (as described in Section 7) shall determine and designate, from
time to time, from among the Eligible Individuals (as defined below), those
persons who will be granted one or more awards under Sections 2, 3, 4 or 5 of
the Plan (an "Award"), and thereby become "Participants" in the Plan. In the
discretion of the granting Committee, and subject to the terms of the Plan, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be granted to a Participant. Except as otherwise
agreed by the Trust and the Participant, or except as otherwise provided in the
Plan, an Award under the Plan shall not affect any previous Award under the Plan
or an award under any other plan maintained by the Trust or the Related
Companies. For purposes of the Plan, the term "Eligible Individual" shall mean
any employee of the Trust or a Related Company; provided, however, that a member
of the Board of Trustees of the Trust (the "Board") who is not an employee of
the Trust or a Related Company shall not be an "Eligible Individual".
SECTION 2
OPTIONS
2.1. Definition The grant of an "Option" under this Section 2 entitles
the Participant to purchase common shares of beneficial interest of the Trust
("Shares") at a price fixed at the time the Option is granted, subject to the
terms of this Section. Options granted under this Section may be either
Incentive Share Options or Non-Qualified Share Options, as determined in the
discretion of the Trust Committee. An "Incentive Share Option" is an Option that
is intended to satisfy the requirements applicable to an "incentive stock
option" described in section 422 of the Code. A "Non-Qualified Share Option" is
an Option that is not intended to be an Incentive Share Option.
2.2. Eligibility. Each Committee shall designate the Participants to
whom Options are to be granted under this Section and shall determine the number
of Shares subject to each such Option. If the Trust Committee grants Incentive
Share Options, to the extent that the aggregate fair market value of Shares with
respect to which Incentive Share Options are exercisable for the first time by
any individual during any calendar year (under all plans of the Trust and all
related companies within the meaning of section 424(f) of the Code) exceeds
$100,000, such options shall be treated as Non-Qualified Share Options, to the
extent required by section 422 of the Code.
1
<PAGE>
2.3. Price. The determination and payment of the purchase
price of a Share under each Option granted under this Section shall be subject
to the following:
(a) The purchase price shall be established by the granting
Committee at the time the Option is granted; provided,
however, that in no event shall such price be less than the
par value of a Share on such date; further, provided, in no
event shall the purchase price of a Share under an Incentive
Share Option be less than the Fair Market Value (defined
below) of a Share at the time the Option is granted.
(b) Subject to the following provisions of this subsection, the
full purchase price of each Share purchased upon the exercise
of any Option shall be paid at the time of such exercise (or
such later date as may be permitted by the granting Committee
in the case of a cashless exercise) and, as soon as
practicable thereafter (subject to an election under
subsection 2.4), a certificate representing the Shares so
purchased shall be delivered to the person entitled thereto.
(c) The purchase price shall be payable in cash or by tendering
Shares by actual delivery or attestation (valued at Fair
Market Value as of the day of exercise) that have been held by
the Participant at least six months, or in any combination
thereof, as determined by the granting Committee.
(d) The "Fair Market Value" of a Share as of any date shall be
determined in accordance with the following rules:
(i) If the Shares are at the time listed or admitted to
trading on any stock exchange, then the Fair Market
Value shall be the average of the highest and lowest
sales price per Share on such date on the principal
exchange on which the Shares are then listed or
admitted to trading or, if no such sale is reported
on that date, on the last preceding date on which a
sale was so reported.
(ii) If the Shares are not at the time listed or admitted
to trading on a stock exchange, the Fair Market Value
shall be the average of the lowest reported bid price
and highest reported asked price of the Shares on the
date in question in the over-the-counter market, as
such prices are reported in a publication of general
circulation selected by the granting Committee and
regularly reporting the market price of Shares in
such market.
(iii) If the Shares are not listed or admitted to trading
on any stock exchange or traded in the
over-the-counter market, the Fair Market Value shall
be as determined by the granting Committee in good
faith.
(iv) For purposes of determining the Fair Market Value of
Shares that are sold pursuant to a cashless exercise
program, Fair Market Value shall be the price at
which such Shares are sold.
2.4. Exercise. Except as otherwise expressly provided in the Plan, an
Option granted under this Section shall be exercisable in accordance with the
following terms of this subsection:
(a) The terms and conditions relating to exercise of an Option
shall be established by the granting Committee, and may
include, without limitation, conditions relating to completion
of a specified period of service (subject to paragraph (b)
below), achievement of performance standards prior to exercise
of the Option or the achievement of Share ownership objectives
by the Participant. The granting Committee, in its sole
discretion, may accelerate the vesting of any Option under
circumstances designated by it at the time the Option is
granted or thereafter.
(b) No Option may be exercised by a Participant after the
Expiration Date (as defined in subsection 2.6) applicable to
that Option.
(c) Prior to the date the Shares would otherwise be transferred
pursuant to the exercise of an Option, to the extent
permitted by the granting Committee, a Participant may
irrevocably elect to defer receipt of such Shares until the
last date of a later calendar year, but in no event later
than the Participant's Date of Termination (as defined in
2
<PAGE>
subsection 2.6), provided, that if the Date of Termination
of a Participant who is a member of a select group of
management or a highly compensated employee within the
meaning of section 401(a)(1) of the Employee Retirement
Income Security Act of 1974, as amended, occurs by reason of
Retirement (as defined in subsection 2.6), the Participant
may elect to defer receipt for a period up to the last day
of the calendar year in which occurs the fifteenth
anniversary of the Participant's Retirement. Any such
deferral election shall be made in such form and at such
times as the Committee may determine and shall be subject to
such other terms, conditions and limitations as the
Committee may establish, provided, however, any election to
defer payment beyond a Participant's Retirement which has
not been on file at least 12 months prior to the
Participant's Retirement shall be disregarded.
2.5. Post-Exercise Limitations. The granting Committee, in its
discretion, may impose such restrictions on Shares acquired pursuant to the
exercise of an Option as it determines to be desirable, including, without
limitation, restrictions relating to disposition of the shares and forfeiture
restrictions based on service, performance, Share ownership by the Participant
and such other factors as the granting Committee determines to be appropriate.
2.6. Expiration Date. The "Expiration Date" with respect to an Option
means the date established as the Expiration Date by the granting Committee at
the time of the grant; provided, however, that unless determined otherwise by
the Committee, the Expiration Date with respect to any Option shall not be later
than the earliest to occur of:
(a) the ten-year anniversary of the date on which the Option is
granted;
(b) if the Participant's Date of Termination occurs by reason of
death, Disability or Retirement, the one-year anniversary of
such Date of Termination;
(c) if the Participant's Date of Termination occurs for reasons
other than Retirement, death, Disability or Cause, the
three-month anniversary of such Date of Termination; or
(d) if the Participant's Date of Termination occurs for reasons of
Cause, such Date of Termination.
For purposes of the Plan, a Participant's "Date of Termination" shall be the
date on which he both ceases to be an employee of the Trust and the Related
Companies and ceases to perform material services for the Trust and the Related
Companies, regardless of the reason for the cessation; provided that a "Date of
Termination" shall not be considered to have occurred during the period in which
the reason for the cessation of services is a leave of absence approved by the
Trust or the Related Company which was the recipient of the Participant's
services. Except as otherwise provided by the granting Committee, a Participant
shall be considered to have a "Disability" during the period in which he is
unable, by reason of a medically determinable physical or mental impairment, to
engage in the material and substantial duties of his regular occupation, which
condition is expected to be permanent. "Retirement" of a Participant shall mean
the occurrence of a Participant's Date of Termination after providing at least
five years of service to the Trust or the Related Companies and attaining age
60. For purposes of the Plan, "Cause" shall mean, in the reasonable judgment of
the granting Committee (i) the willful and continued failure by the Participant
to substantially perform his duties with the Company or any Related Company
after written notification by the Company or Related Company, (ii) the willful
engaging by the Participant in conduct which is demonstrably injurious to the
Company or any Related Company, monetarily or otherwise, or (iii) the engaging
by the Participant in egregious misconduct involving serious moral turpitude.
For purposes hereof, no act, or failure to act, on the Participant's part shall
be deemed "willful" unless done, or omitted to be done, by the Participant not
in good faith and without reasonable belief that such action was in the best
interest of the Company or Related Company.
SECTION 3
DIVIDEND EQUIVALENT UNITS
3.1. Award of Dividend Equivalent Units. Unless determined otherwise by
the granting Committee, a Participant who is awarded an Option under the Plan
(other than a matching Option awarded under subsection 4.2) shall also be
entitled to receive "Dividend Equivalent Units" with respect to such Option, as
follows:
(a) Annual crediting of Dividend Equivalent Units.
As of the last day of each calendar year, each Participant
shall be credited with a number of Dividend Equivalent Units
equal to (i) the amount the Trust Committee determines to be
the average dividend yield per Share for such calendar year,
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reduced by the amount that the Committee determines to be the
S&P 500 average dividend yield for such year, multiplied by
(ii) the number of Shares underlying the Participant's
outstanding Options that are entitled to Awards under this
Section 3 during such calendar year (reduced pro rata to
reflect Shares underlying such Options that were not
outstanding on the record date with respect to each dividend
payment date during such year).
(b) Additional credits to reflect dividend payments on Dividend
Equivalent Units. As of the last day of each calendar year,
each Participant shall be credited with additional Dividend
Equivalent Units equal to (i) the amount the Trust Committee
determines to be the average dividend yield per Share for such
calendar year, multiplied by (ii) the number of Dividend
Equivalent Units outstanding during such calendar year
(reduced pro rata to reflect Dividend Equivalent Units that
were not outstanding on each dividend payment date during such
year).
3.2. Terms and Conditions of Dividend Equivalent Units. Unless
determined otherwise by the granting Committee, Dividend Equivalent Units shall
be subject to the following terms and conditions:
(a) Dividend Equivalent Units shall vest in accordance with the
vesting schedule applicable to the Option with respect to
which the Dividend Equivalent Unit was awarded.
(b) Each vested Dividend Equivalent Unit shall entitle the
holder thereof to a Share on the last day of the calendar
year in which occurs the first of (i) the date the
Participant exercises the Option with respect to which the
Dividend Equivalent Unit was awarded, or (ii) the date such
Option expires by its terms (whether by reason of
termination of employment or otherwise); provided, however,
prior to the date the Shares would otherwise be payable, to
the extent permitted by the granting Committee, a
Participant may irrevocably elect to defer receipt of such
Shares until the last date of a later calendar year, but in
no event later than the last day of the calendar year in
which occurs the tenth anniversary of the grant of the
underlying Option. Any such deferral election shall be made
in such form and at such times as the Committee may
determine and shall be subject to such other terms,
conditions and limitations as the Committee may establish.
(c) All Dividend Equivalent Units which are not vested upon the
Participant's Date of Termination shall be forfeited.
(d) Settlement of all Dividend Equivalent Units shall be made in
the form of whole Shares. Any fractional Shares shall be
settled in cash.
SECTION 4
SHARE PURCHASE PROGRAM
4.1. Purchase of Shares. Each Committee may, from time to time,
establish one or more programs under which Participants will be permitted to
purchase Shares under the Plan and shall designate the Participants eligible to
participate under such Share purchase programs. The purchase price for Shares
available under such programs, and other terms and conditions of such programs,
shall be established by the Committee, provided that the purchase price may not
be less than par value.
4.2. Matching Shares and Options. Except as otherwise provided in
subsection 4.1, any Share purchase program established by a Committee under this
Section may provide for the award of matching Shares or Options in the amount,
if any, determined by the Committee.
4.3. Restrictions on Shares. The granting Committee may impose such
restrictions with respect to Shares purchased under subsection 4.1, or matching
Shares or Options awarded pursuant to subsection 4.2, as the Committee
determines to be appropriate. Such restrictions may include, without limitation,
restrictions of the type that may be imposed with respect to Share Awards under
Section 5.
4.4. Purchase Loans. In connection with the purchase of Shares under
this Section 4, the granting Committee, in its sole discretion, may determine
that the Trust or the Related Company, as applicable, shall, at the
Participant's election, make a loan (a "Loan") to the Participant for all or a
portion of the purchase price of the Shares purchased. The Loan may be used only
for the purpose of financing the purchase, subject to the following:
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(a) Each Loan shall be evidenced by a promissory note and pledge
agreement in such form as the granting Committee shall
approve; provided, that the note shall (i) provide full
recourse to the Participant, (ii) provide for interest at a
rate to be determined by the granting Committee, (iii) be
secured, pursuant to a pledge agreement, by the purchased
Shares, and (iv) comply with all applicable laws, regulations
and rules of the Board of Governors of the Federal Reserve
System and any other governmental agency having jurisdiction.
(b) Each Loan shall provide for a term of no more than 10 years.
(c) All principal and interest outstanding under a Loan with
respect to any Participant will automatically become due and
payable (i) 90 days after the date the Participant
terminates employment with the Trust and Related Companies
for any reason other than death, Disability, Retirement or
Cause, provided that such termination is not following a
Change in Control, (ii) 365 days after the date on which the
Participant's employment with the Trust and Related
Companies terminates by reason of death, Disability or
Retirement, (iii) 180 days after the Participant's
employment with the Trust and Related Companies terminates
following a Change in Control of the Trust for reasons other
than Cause, or (iv) immediately upon a sale of the Shares
which are pledged as collateral for the loan or if the
Participant's employment with the Trust and Related
Companies is terminated for Cause.
(d) Each Loan shall contain such other terms, conditions and
limitations as may be determined by the granting Committee in
its sole discretion.
SECTION 5
SHARE AWARDS
5.1. Definition. Subject to the terms of this Section, a Share Award
under the Plan is a grant of Shares to a Participant, the earning, vesting or
distribution of which is subject to one or more conditions established by the
Trust Committee. Such conditions may relate to events (such as performance or
continued employment) occurring before or after the date the Share Award is
granted, or the date the Shares are earned by, vested in or delivered to the
Participant. If the vesting of Share Awards is subject to conditions occurring
after the date of grant, the period beginning on the date of grant of a Share
Award and ending on the vesting or forfeiture of such Shares (as applicable) is
referred to as the "Restricted Period". To the extent that the vesting of a
Share Award is contingent on performance, the performance shall be measured over
a period of not less than one year. Share Awards may provide for delivery of the
shares of Shares at the time of grant or may provide for a deferred delivery
date. A Share Award may, but need not, be made in conjunction with a cash-based
incentive compensation program maintained by the Trust and may, but need not, be
in lieu of cash otherwise awardable under such program.
5.2. Eligibility. The Trust Committee shall designate the Participants
to whom Share Awards are to be granted and the number of Shares that are subject
to each such Award.
5.3. Terms and Conditions of Awards. Share Awards granted to
Participants under the Plan shall be subject to the following terms and
conditions:
(a) Beginning on the date of grant (or, if later, the date of
distribution) of Shares comprising a Share Award, and
including any applicable Restricted Period, the Participant as
owner of such Shares shall have the right to vote such Shares.
(b) Payment of dividends with respect to Share Awards shall be subject
to the following:
(i) On and after the date that a Participant has a fully
earned and vested right to the Shares comprising a
Share Award and the Shares have been distributed to
the Participant, the Participant shall have all
dividend rights (and other rights) of a shareholder
with respect to such Shares.
(ii) Prior to the date that a Participant has a fully
earned and vested right to the shares comprising a
Share Award, the Trust Committee, in its sole
discretion, may award Dividend Rights with respect to
such shares.
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(iii) On and after the date that a Participant has a fully
earned and vested right to the Shares comprising a
Share Award, but before the Shares have been
distributed to the Participant, the Participant shall
be entitled to Dividend Rights with respect to such
Shares, at the time and in the form determined by the
Trust Committee.
(iv) A "Dividend Right" with respect to shares comprising
a Share Award shall entitle the Participant, as of
each dividend payment date, to an amount equal to the
dividends payable with respect to a Share multiplied
by the number of such Shares. Dividend Rights shall
be settled in cash or in Shares valued at Fair Market
Value as of the date of settlement, as determined by
the Trust Committee, shall be payable at the time
determined by the Committee and shall be subject to
such other terms and conditions as the Committee may
determine.
SECTION 6
OPERATION AND ADMINISTRATION
6.1. Effective Date. The Plan was originally effective as of the date
it was adopted by the Board; provided, however, that Awards granted under the
Plan prior to its approval by shareholders were contingent on approval of the
Plan by the Trust's shareholders. The Plan shall be unlimited in duration and,
in the event of Plan termination, shall remain in effect as long as any Shares
awarded under it are outstanding and not fully vested; provided, however, that
no new Awards shall be made under the Plan on or after the tenth anniversary of
the date on which the Plan is adopted by the Board.
6.2. Shares Subject to Plan. The Shares with respect to which Awards
may be made under the Plan shall be shares currently authorized but unissued or
currently held or subsequently acquired by the Trust as treasury shares,
including shares purchased in the open market or in private transactions.
Subject to the provisions of subsection 6.4, the number of Shares which may be
issued with respect to Awards under the Plan shall not exceed 9,600,000 Shares
in the aggregate. Except as otherwise provided herein, any Shares subject to an
Award which for any reason expires or is terminated without issuance of Shares
(including Shares that are not issued because Shares are tendered pursuant to
subsection 2.3(c) or 6.9) shall again be available under the Plan.
6.3. Individual Limits on Awards. Notwithstanding any other provision
of the Plan to the contrary, no Participant shall receive any Award of an Option
under the Plan to the extent that the sum of:
(a) the number of Shares subject to such Award;
(b) the number of Shares subject to all other prior Awards of
Options under the Plan during the one-year period ending on
the date of the Award; and
(c) the number of Shares subject to all other prior share options
granted to the Participant under other plans or arrangements
of the Trust during the one-year period ending on the date of
the Award;
would exceed the Participant's Individual Limit under the Plan. The
determination made under the foregoing provisions of this subsection shall be
based on the Shares subject to the Awards at the time of grant, regardless of
when the Awards become exercisable. Subject to the provisions of subsection 6.4,
a Participant's "Individual Limit" shall be 500,000 Shares.
6.4. Adjustments to Shares.
(a) If the Trust shall effect any subdivision or consolidation
of Shares or other capital readjustment, payment of stock
dividend, stock split, combination of shares or
recapitalization or other increase or reduction of the
number of Shares outstanding without receiving compensation
therefor in money, services or property, then the Trust
Committee shall equitably adjust (i) the number of Shares
available under the Plan; (ii) the number of shares
available under any individual or other limits; (iii) the
number of Shares subject to outstanding Awards; and (iv) the
per-share price under any outstanding Award to the extent
that the Participant is required to pay a purchase price per
share with respect to the Award.
(b) If the Trust is reorganized, merged or consolidated or is
party to a plan of exchange with another corporation,
pursuant to which reorganization, merger, consolidation or
plan of exchange, the shareholders of the Trust receive any
shares of stock or other securities or property, or the
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Trust shall distribute securities of another corporation to
its shareholders, there shall be substituted for the shares
subject to outstanding Awards an appropriate number of
shares of each class of stock or amount of other securities
or property which were distributed to the shareholders of
the Trust in respect of such shares, subject to the
following:
(i) If the Trust Committee determines that the
substitution described in accordance with the
foregoing provisions of this paragraph would not be
fully consistent with the purposes of the Plan or the
purposes of the outstanding Awards under the Plan,
the Committee may make such other adjustments to the
Awards to the extent that the Committee determines
such adjustments are consistent with the purposes of
the Plan and of the affected Awards.
(ii) All or any of the Awards may be cancelled by the Trust
Committee on or immediately prior to the effective date
of the applicable transaction, but only if the
Committee gives reasonable advance notice of the
cancellation to each affected Participant, and only if
either: (A) the Participant is permitted to exercise
all Awards that will be cancelled (without regard to
whether such Awards would otherwise be exercisable) for
a reasonable period prior to the effective date of the
cancellation; or (B) the Participant receives payment
or other benefits that the Committee determines to be
reasonable compensation for the value of all cancelled
Awards (without regard to whether such Awards would
otherwise be vested).
(iii) Upon the occurrence of a reorganization of the Trust
or any other event described in this paragraph (b),
any successor to the Trust shall be substituted for
the Trust to the extent that the Trust and the
successor agree to such substitution.
(c) Upon (or, in the discretion of the Trust Committee,
immediately prior to) the sale to (or exchange with) a third
party unrelated to the Trust of all or substantially all of
the assets of the Trust, all Awards shall be cancelled. If
Awards are cancelled under this paragraph, then, with respect
to any affected Participant, either:
(i) the Participant shall be provided with reasonable
advance notice of the cancellation, and the
Participant shall be permitted to exercise all Awards
that will be cancelled (without regard to whether such
awards would otherwise be exercisable) for a
reasonable period prior to the effective date of the
cancellation; or
(ii) the Participant shall receive payment or other
benefits that the Committee determines to be
reasonable compensation for the value of all cancelled
Awards (without regard to whether such cancelled
Awards would otherwise be vested).
The foregoing provisions of this paragraph shall also apply to
the sale of all or substantially all of the assets of the
Trust to a related party, if the Committee determines such
application is appropriate. Notwithstanding the foregoing
provisions of this paragraph (c), in lieu of cancellation of
outstanding Awards, the Committee and the purchaser of all or
substantially all of the Trust's assets may provide that an
appropriate number of shares or securities of the purchaser or
its affiliates shall be substituted for Shares with respect to
outstanding Awards under the Plan, provided that such
substituted awards shall be comparable in value and contain
terms and conditions similar to the Awards.
(d) In determining what action, if any, is necessary or
appropriate under the foregoing provisions of this subsection,
the Trust Committee shall act in a manner that it determines
to be consistent with the purposes of the Plan and of the
affected Awards and, where applicable or otherwise
appropriate, in a manner that it determines to be necessary to
preserve the benefits and potential benefits of the affected
Awards for the Participants and the Trust.
(e) The existence of this Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Trust
or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other
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changes in the Trust's capital structure or its business,
any merger or consolidation of the Trust, any issue of
bonds, debentures, preferred or prior preference stocks
ahead of or affecting the Trust's Shares or the rights
thereof, the dissolution or liquidation of the Trust, any
sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether
of a similar character or otherwise.
(f) Except as expressly provided by the terms of this Plan, the
issue by the Trust of shares of stock of any class, or
securities convertible into shares of stock of any class, for
cash or property or for labor or services, either upon direct
sale, upon the exercise of rights or warrants to subscribe
therefor or upon conversion of shares or obligations of the
Trust convertible into such shares or other securities, shall
not affect, and no adjustment by reason thereof, shall be made
with respect to Awards then outstanding hereunder.
(g) Awards under the Plan are subject to adjustment under this
subsection only during the period in which they are considered
to be outstanding under the Plan. For purposes of this
subsection, an Award is considered "outstanding" on any date
if the Participant's ability to obtain all benefits with
respect to the Award is subject to limits imposed by the Plan
(including any limits imposed by the Agreement reflecting the
Award). The determination of whether an Award is outstanding
shall be made by the Trust Committee.
6.5. Change in Control. In the event that (i) a Participant's
employment is terminated by the Trust or the successor to the Trust or an
affiliated entity which is his or her employer for reasons other than Cause
following a Change in Control of the Trust (as defined below) or (ii) the Plan
is terminated by the Trust or its successor following a Change in Control
without provision for the continuation of outstanding Awards hereunder, all
Options and related Awards which have not otherwise expired shall become
immediately exercisable and all other Awards shall become fully vested. For
purposes of the Plan, a "Change in Control" means the happening of any of the
following:
(a) the shareholders of the Trust approve a definitive agreement
to merge the Trust into or consolidate the Trust with
another entity, sell or otherwise dispose of all or
substantially all of its assets or adopt a plan of
liquidation, provided, however, that a Change in Control
shall not be deemed to have occurred by reason of a
transaction, or a substantially concurrent or otherwise
related series of transactions, upon the completion of which
50% or more of the beneficial ownership of the voting power
of the Trust, the surviving corporation or corporation
directly or indirectly controlling the Trust or the
surviving corporation, as the case may be, is held by the
same persons (as defined below) (although not necessarily in
the same proportion) as held the beneficial ownership of the
voting power of the Trust immediately prior to the
transaction or the substantially concurrent or otherwise
related series of transactions, except that upon the
completion thereof, employees or employee benefit plans of
the Trust may be a new holder of such beneficial ownership;
provided, further, that any transaction described in this
paragraph (a) with an "Affiliate" of the Trust (as defined
in the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) shall not be treated as a Change in
Control; or
(b) the "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 50% or more of the
combined voting power of the Trust is acquired, other than
from the Trust, by any "person" as defined in Sections 13(d)
and 14(d) of the Exchange Act (other than any trustee or other
fiduciary holding securities under an employee benefit or
other similar stock plan of the Trust) provided, that any
purchase by Security Capital Group Incorporated or any of its
affiliates of securities representing 50% or more of the
combined voting power of the Trust shall not be treated as a
Change in Control; or
(c) at any time during any period of two consecutive years,
individuals who at the beginning of such period were members
of the Board of Trustees of the Trust cease for any reason to
constitute at least a majority thereof (unless the election,
or the nomination for election by the Trust's shareholders, of
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each new trustee was approved by a vote of at least two-thirds
of the trustees still in office at the time of such election
or nomination who were trustees at the beginning of such
period).
For purposes of this subsection, a Participant's employment shall be deemed to
be terminated by the Trust or the successor to the Trust or an affiliated entity
if the Participant terminates employment after (i) a substantial adverse
alteration in the nature of the Participant's status or responsibilities from
those in effect immediately prior to the Change in Control, or (ii) a material
reduction in the Participant's annual base salary and target bonus, if any, as
in effect immediately prior to the Change in Control. If, upon a Change in
Control, awards in other shares or securities are substituted for outstanding
Awards pursuant to Section 6.4, and immediately following the Change in Control
the Participant becomes employed by the entity into which the Trust merged, or
the purchaser of substantially all of the assets of the Trust, or a successor to
such entity or purchaser, the Participant shall not be treated as having
terminated employment for purposes of this Section 6.5 until such time as the
Participant terminates employment with the merged entity or purchaser (or
successor), as applicable.
6.6. Limit on Distribution. Distribution of Shares or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Trust
shall have no liability to deliver any Shares under the Plan
or make any other distribution of benefits under the Plan
unless such delivery or distribution would comply with all
applicable laws and the applicable requirements of any
securities exchange or similar entity.
(b) In the case of a Participant who is subject to Section 16(a)
and 16(b) of the Exchange Act, the Trust Committee may, at any
time, add such conditions and limitations to any Award to such
Participant, or any feature of any such Award, as the
Committee, in its sole discretion, deems necessary or
desirable to comply with Section 16(a) or 16(b) and the rules
and regulations thereunder or to obtain any exemption
therefrom.
(c) To the extent that the Plan provides for issuance of
certificates to reflect the transfer of Shares, the transfer
of such Shares may be effected on a non-certificated basis, to
the extent not prohibited by applicable law or the rules of
any stock exchange.
6.7. Liability for Cash Payments. Subject to the provisions of this
Section, each Related Company shall be liable for payment of cash due under the
Plan with respect to any Participant to the extent that such benefits are
attributable to the service rendered for that Related Company by the
Participant. Any disputes relating to liability of a Related Company for cash
payments shall be resolved by the Trust Committee.
6.8. Performance-Based Compensation. To the extent that the Trust
Committee determines that it is necessary or desirable to conform any Awards
under the Plan with the requirements applicable to "Performance-Based
Compensation", as that term is used in Code section 162(m)(4)(C), it may, at or
prior to the time an Award is granted, take such steps and impose such
restrictions with respect to such Award as it determines to be necessary to
satisfy such requirements including, without limitation:
(a) The establishment of performance goals that must be satisfied
prior to the payment or distribution of benefits under such
Awards.
(b) The submission of such Awards and performance goals to the
Trust's shareholders for approval and making the receipt of
benefits under such Awards contingent on receipt of such
approval.
(c) Providing that no payment or distribution be made under such
Awards unless the Committee certifies that the goals and the
applicable terms of the Plan and Agreement reflecting the
Awards have been satisfied.
To the extent that the Committee determines that the foregoing requirements
relating to Performance-Based Compensation do not apply to Awards under the Plan
because the Awards constitute Options, the Committee may, at the time the Award
is granted, conform the Awards to alternative methods of satisfying the
requirements applicable to Performance-Based Compensation.
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6.9. Withholding. All Awards and other payments under the Plan are
subject to withholding of all applicable taxes, which withholding obligations
may be satisfied, with the consent of the granting Committee, through the
surrender of Shares which the Participant already owns or to which a Participant
is otherwise entitled under the Plan; provided, however, previously-owned Shares
that have been held by the Participant less than six months or Shares to which
the Participant is entitled under the Plan may only be used to satisfy the
minimum tax withholding required by applicable law.
6.10. Transferability. Awards under the Plan are not transferable
except as designated by the Participant by will or by the laws of descent and
distribution or, to the extent provided by the granting Committee, pursuant to a
qualified domestic relations order (within the meaning of the Code and
applicable rules thereunder). To the extent that the Participant who receives an
Award under the Plan has the right to exercise such Award, the Award may be
exercised during the lifetime of the Participant only by the Participant.
Notwithstanding the foregoing provisions of this subsection, the Committee may
permit Awards under the Plan to be transferred to or for the benefit of the
Participant's family (including, without limitation, to a trust or partnership
for the benefit of a Participant's family), subject to such procedures as the
Committee may establish. In no event shall an Incentive Share Option be
transferable to the extent that such transferability would violate the
requirements applicable to such option under Code section 422.
6.11. Notices. Any notice or document required to be filed with a
Committee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Committee, in care of the Trust or the
Related Company, as applicable, at its principal executive offices. The
Committee may, by advance written notice to affected persons, revise such notice
procedure from time to time. Any notice required under the Plan (other than a
notice of election) may be waived by the person entitled to notice.
6.12. Form and Time of Elections. Unless otherwise specified herein,
each election required or permitted to be made by any Participant or other
person entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the applicable Committee at
such times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Committee shall require.
6.13. Agreement With Trust or Related Company. At the time of an Award
to a Participant under the Plan, the granting Committee may require a
Participant to enter into an agreement with the Trust or the Related Company, as
applicable (the "Agreement"), in a form specified by the granting Committee,
agreeing to the terms and conditions of the Plan and to such additional terms
and conditions, not inconsistent with the Plan, as the granting Committee may,
in its sole discretion, prescribe.
6.14. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property of the
Trust or any Related Company whatsoever, including, without limitation, any
specific funds, assets, or other property which the Trust or any Related
Company, in its sole discretion, may set aside in anticipation of a liability
under the Plan. A Participant shall have only a contractual right to the
amounts, if any, payable under the Plan, unsecured by any assets of the Trust
and any Related Company. Nothing contained in the Plan shall constitute a
guarantee by the Trust or any Related Company that the assets of such companies
shall be sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any employee the
right to be retained in the employ of the Trust or any Related
Company, nor any right or claim to any benefit under the Plan,
unless such right or claim has specifically accrued under the
terms of the Plan. Except as otherwise provided in the Plan,
no Award under the Plan shall confer upon the holder thereof
any right as a shareholder of the Trust prior to the date on
which he fulfills all service requirements and other
conditions for receipt of such rights and Shares are
registered in his name.
6.15. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
6.16. Action by Trust or Related Company. Any action required or
permitted to be taken by the Trust or any Related Company shall be by resolution
of its board of trustees or directors, as applicable, or by action of one or
more members of the board (including a committee of the board) who are duly
authorized to act for the board or (except to the extent prohibited by
applicable law or the rules of any stock exchange) by a duly authorized officer
of the Trust.
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6.17. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
6.18. Applicable Law. The provisions of the Plan shall be construed in
accordance with the laws of the State of Maryland, without giving effect to
choice of law principles.
6.19. Foreign Employees. Notwithstanding any other provision of the
Plan to the contrary, a Committee may grant Awards to eligible persons who are
foreign nationals on such terms and conditions different from those specified in
the Plan as may, in the judgment of the Committee, be necessary or desirable to
foster and promote achievement of the purposes of the Plan. In furtherance of
such purposes, the Committee may make such modifications, amendments, procedures
and subplans as may be necessary or advisable to comply with provisions of laws
in other countries or jurisdictions in which the Trust or a Related Company
operates or has employees.
SECTION 7
COMMITTEES
7.1. Administration. The authority to control and manage the operation
and administration of the Plan shall be vested in the Trust Committee and the
Related Companies' Committees (the "Committees") in accordance with this Section
7.
7.2. Selection of Trust Committee. So long as the Trust is subject to
Section 16 of the Exchange Act, the Trust Committee shall be selected by the
Board and shall consist of not fewer than two members of the Board or such
greater number as may be required for compliance with Rule 16b-3 issued under
the Exchange Act, none of whom shall be eligible to receive Awards under the
Plan.
7.3. Powers of Committees. The authority to manage and control the
operation and administration of the Plan shall be vested in the Committees,
subject to the following:
(a) Subject to the provisions of the Plan, the Trust Committee
will have the authority and discretion to select which
employees of the Trust are eligible to receive Awards and
each Related Company Committee will have the authority and
discretion to select which employees of the Related Company
are eligible to receive Awards. Each Committee shall have
the authority to determine the time or times of receipt, to
determine the types of Awards and the number of Shares
covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of
such Awards, and to cancel or suspend Awards. In making such
Award determinations, the Committee may take into account
the nature of services rendered by the respective employee,
the individual's present and potential contribution to the
Trust's or the Related Company's success and such other
factors as the Committee deems relevant.
(b) Subject to the provisions of the Plan, the Trust Committee
will have the authority and discretion to determine the extent
to which Awards under the Plan will be structured to conform
to the requirements applicable to Performance-Based
Compensation, and to take such action, establish such
procedures, and impose such restrictions at the time such
Awards are granted as the Committee determines to be necessary
or appropriate to conform to such requirements.
(c) Subject to the provisions of the Plan, the Trust Committee
will have the authority and discretion to interpret the Plan,
to establish, amend and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of
any agreements made pursuant to the Plan and to make all other
determinations that may be necessary or advisable for the
administration of the Plan.
(d) Any interpretation of the Plan by a Committee and any decision
made by it under the Plan is final and binding on all persons.
(e) Except as otherwise expressly provided in the Plan, where a
Committee is authorized to make a determination with respect
to any Award, such determination shall be made at the time the
Award is made, except that the Committee may reserve the
authority to have such determination made by the Committee in
the future (but only if such reservation is made at the time
the Award is granted and is expressly stated in the Agreement
reflecting the Award).
11
<PAGE>
7.4. Delegation by Committee. Except to the extent prohibited by
applicable law or the rules of any stock exchange or NASDAQ (if appropriate), a
Committee may allocate all or any portion of its responsibilities and powers to
any one or more of its members and may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any time.
7.5. Information to be Furnished to Committees. The Trust and Related
Companies shall furnish each Committee such data and information as may be
required for it to discharge its duties. The records of the Trust and Related
Companies as to an employee's or Participant's employment (or other provision of
services), termination of employment (or cessation of the provision of
services), leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect. Participants and other persons
entitled to benefits under the Plan must furnish the Committees such evidence,
data or information as the Committees consider desirable to carry out the terms
of the Plan.
7.6. Liability and Indemnification of Committees. No member or
authorized delegate of any Committee shall be liable to any person for any
action taken or omitted in connection with the administration of the Plan unless
attributable to his own fraud or willful misconduct; nor shall the Trust or any
Related Company be liable to any person for any such action unless attributable
to fraud or willful misconduct on the part of a trustee or employee of the Trust
or Related Company. Each Committee, the individual members thereof, and persons
acting as the authorized delegates of the Committee under the Plan, shall be
indemnified by the Trust against any and all liabilities, losses, costs and
expenses (including legal fees and expenses) of whatsoever kind and nature which
may be imposed on, incurred by or asserted against the Committee or its members
or authorized delegates by reason of the performance of a Committee function if
the Committee or its members or authorized delegates did not act dishonestly or
in willful violation of the law or regulation under which such liability, loss,
cost or expense arises. This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance.
SECTION 8
AMENDMENT AND TERMINATION
Subject to obtaining such approvals as may be required under the Code,
Federal securities law, Maryland corporate law or stock exchange requirements,
the Board may, at any time, amend or terminate the Plan, provided that, subject
to subsection 6.4 (relating to certain adjustments to shares), no amendment or
termination may materially adversely affect the rights of any Participant or
beneficiary under any Award made under the Plan prior to the date such amendment
is adopted by the Board.
12
EXHIBIT 12.1
PROLOGIS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- ------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings from Operations $ 111,747 $ 69,017 $ 100,772 $ 38,747 $ 79,384 $ 47,660 $ 25,066
Add:
Interest Expense 126,478 52,455 77,650 52,704 38,819 32,005 7,568
---------- ---------- ---------- ---------- --------- ---------- ----------
Earnings as Adjusted $ 238,225 $ 121,472 $ 178,422 $ 91,451 $ 118,203 $ 79,665 $ 32,634
========== ========== ========== ========== ========= ========== ==========
Fixed Charges:
Interest Expense $ 126,478 $ 52,455 $ 77,650 $ 52,704 $ 38,819 $ 32,005 $ 7,568
Capitalized Interest 11,029 14,814 19,173 18,365 16,138 8,599 2,208
---------- ---------- ---------- ---------- --------- ---------- ----------
Total Fixed Charges $ 137,507 $ 67,269 $ 96,823 $ 71,069 $ 54,957 $ 40,604 $ 9,776
========== ========== ========== ========== ========= ========== ==========
Ratio of Earnings, as Adjusted
to Fixed Charges 1.7 1.8 1.8 1.3 2.2 2.0 3.3
========== ========== ========== ========== ========= ========== ==========
</TABLE>
EXHIBIT 12.2
PROLOGIS
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- -------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings from Operations $ 111,747 $ 69,017 $ 100,772 $ 38,747 $ 79,384 $ 47,660 $ 25,066
Add:
Interest Expense 126,478 52,455 77,650 52,704 38,819 32,005 7,568
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings, as Adjusted $ 238,225 $ 121,472 $ 178,422 $ 91,451 $ 118,203 $ 79,665 $ 32,634
========== ========== ========== ========== ========== ========== ==========
Combined Fixed Charges and
Preferred Share Dividends:
Interest Expense $ 126,478 $ 52,455 $ 77,650 $ 52,704 $ 38,819 $ 32,005 $ 7,568
Capitalized Interest 11,029 14,814 19,173 18,365 16,138 8,599 2,208
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Fixed Charges 137,507 67,269 96,823 71,069 54,957 40,604 9,776
Preferred Share Dividends(a) 42,391 35,543 49,098 35,318 25,895 6,698 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined Fixed Charges and
Preferred Share Dividends $ 179,898 $ 102,812 $ 145,921 $ 106,387 $ 80,852 $ 47,302 $ 9,776
========== ========== ========== ========== ========== ========== ==========
Ratio of Earnings, as Adjusted
to Combined Fixed Charges and
Preferred Share Dividends 1.3 1.2 1.2 (b) 1.5 1.7 3.3
========== ========== ========== ========== ========== ========== ==========
</TABLE>
(a) ProLogis had no preferred shares prior to 1995.
(b) Due to a one-time, non-recurring, non-cash charge of $75.4 million relating
to the costs incurred in acquiring the management companies from a related
party earnings were insufficient to cover combined fixed charges and
preferred share dividends for the year ended December 31, 1997 by $21.3
million.
EXHIBIT 15.1
November 10, 1999
Board of Trustees and Shareholders of ProLogis Trust:
We are aware that ProLogis Trust has incorporated by reference in its
Registration Statement Nos. 33-91366, 33-92490, 333-4961, 333-31421, 333-39797,
333-38515, 333-52867, 333-26597, 333-74917, 333-75893, 333-79813 and 333-86081
its Form 10-Q for the quarter ended September 30, 1999, which includes our
report dated November 10, 1999 covering the unaudited interim financial
information contained therein. Pursuant to Regulation C of the Securities Act of
1933 (the "Act"), that report is not considered a part of the registration
statements prepared or certified by our firm or a report prepared or certified
by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Form 10-Q for the nine months ended September 30, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 74,354
<SECURITIES> 0
<RECEIVABLES> 1,030,231
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,012,666
<DEPRECIATION> 337,934
<TOTAL-ASSETS> 5,949,066
<CURRENT-LIABILITIES> 0
<BONDS> 2,482,435
0
712,173
<COMMON> 1,615
<OTHER-SE> 2,315,851
<TOTAL-LIABILITY-AND-EQUITY> 5,949,066
<SALES> 363,915
<TOTAL-REVENUES> 413,116
<CGS> 0
<TOTAL-COSTS> 26,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,478
<INCOME-PRETAX> 89,277
<INCOME-TAX> 0
<INCOME-CONTINUING> 89,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,440
<NET-INCOME> 87,837
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.59
</TABLE>
