<PAGE>
As filed with the Securities and Exchange Commission on March 30, 1999
Registration No. 333-74917
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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PROLOGIS TRUST
(Exact name of Registrant as specified in its charter)
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Maryland 74-2604728
(State of organization) (I.R.S. Employer Identification
Number)
14100 East 35th Place, Aurora, Colorado 80011
(303) 375-9292
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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Edward S. Nekritz, Secretary
ProLogis Trust
14100 East 35th Place, Aurora, Colorado 80011
(303) 375-9292
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Copy of service to:
Michael T. Blair
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
Approximate date of commencement of proposed sale to the public: From time
to time after the Registration Statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
PROSPECTUS
PROLOGIS TRUST
common shares
The shareholders of ProLogis Trust identified in this prospectus are
offering and selling common shares of beneficial interest of ProLogis. The
ProLogis common shares being offered by this prospectus were acquired by the
selling shareholders by virtue of the merger of Meridian Industrial Trust, Inc.
with and into ProLogis.
The selling shareholders may offer their ProLogis common shares through
public or private transactions, on or off the New York Stock Exchange, at
prevailing market prices, or at privately negotiated prices.
The ProLogis common shares are listed on the New York Stock Exchange under
the symbol "PLD." On March 29, 1999, the closing price of a ProLogis common
share on the New York Stock Exchange was $19.375.
See the risk factors beginning on page 4 for a discussion of risks relating
to the ownership of ProLogis common shares.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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March 30, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company................................................................ 3
Risk Factors............................................................... 4
Use of Proceeds............................................................ 8
Selling Shareholders....................................................... 8
Plan of Distribution....................................................... 10
Experts.................................................................... 19
Legal Matters.............................................................. 20
Where You Can Find More Information........................................ 20
</TABLE>
2
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THE COMPANY
ProLogis is a real estate investment trust organized under Maryland law and
has elected to be taxed as a real estate investment trust under the Internal
Revenue Code of 1986, as amended. Effective March 30, 1999, Meridian merged
with and into ProLogis. ProLogis deploys capital in markets that ProLogis
believes have excellent long-term growth prospects and where ProLogis believes
it can achieve a strong position through the acquisition and development of
flexible facilities designed for both for warehousing and light manufacturing
uses. ProLogis is focused exclusively on meeting the distribution space needs
of international, national, regional and local industrial real estate users
through the ProLogis Operating System(TM) and believes it has distinguished
itself from its competition by being the only entity that combines all of the
following:
(1) An international operating platform dedicated to providing
distribution facilities to a targeted customer base of the 1,000 largest
users of distribution facilities worldwide, 419 of which are currently
ProLogis customers;
(2) An organizational structure and service delivery system built around
the customer--ProLogis believes its service approach is unique to the real
estate industry as it combines international scope and expertise with
strong local presence in each of its target markets; and
(3) A disciplined investment strategy based on proprietary research that
identifies high growth markets with sustainable demand for ProLogis'
distribution facilities.
After completion of the merger, ProLogis' real estate assets, including
assets held by unconsolidated subsidiaries and joint ventures, consisted of
approximately 142.0 million square feet of operating distribution facilities
and approximately 16.4 million square feet of refrigerated distribution
facilities. In addition, ProLogis had 10.8 million square feet of distribution
facilities under development at a total expected investment of $473.1 million
in 94 North American and European Markets. Also, ProLogis owned or controlled
approximately 5,100 acres of land for future development of approximately 87.9
million square feet of distribution facilities.
ProLogis' objective is to increase shareholder value by achieving long-term
sustainable growth in cash flow. ProLogis has developed a business strategy
that combines an operational plan, an investment plan and a financing plan to
achieve its overall objective.
ProLogis was originally formed in June 1991 to take advantage of two
strategic opportunities identified as a result of extensive market research:
. the opportunity to build a distribution and light manufacturing asset
base at costs significantly below replacement cost and a land inventory
at attractive prices; and
. the opportunity to create, for the first time, a national operating
company which would differentiate itself from its competition through
its ability to meet a corporate customer's distribution facility
requirements on a national, regional and local basis.
In 1997, ProLogis began expanding its operations into Mexico and Europe to
meet the needs of its targeted national and international customers as they
expanded and reconfigured their distribution facility requirements globally.
Consistent with ProLogis' objective of expanding its services platform for its
targeted customer base, in 1997 and 1998 ProLogis further expanded to serve the
refrigerated logistics needs of its customers by acquiring an international
refrigerated distribution network. Today, ProLogis' business is organized into
the following segments:
. acquisition and development of industrial distribution facilities for
long-term ownership and leasing in the United States, Europe (a portion
of which is owned through an unconsolidated subsidiary) and Mexico;
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. operation of refrigerated distribution facilities through unconsolidated
subsidiaries (one operating in the United States and Canada and one
operating in nine countries in Europe); and
. development of distribution facilities for future sale or on a fee basis
in the United States and Mexico and in the United Kingdom through an
unconsolidated subsidiary.
This global network of distribution facilities has ProLogis well positioned
to become the global leader in this rapidly consolidating industry.
RISK FACTORS
Significant Influence of principal shareholder may impact ProLogis management
and operations
Security Capital Group Incorporated owns approximately 30.9% of the issued
and outstanding common shares of ProLogis. Through its ownership of common
shares, Security Capital controls approximately 30.9% of the vote on matters
submitted for shareholder action, including the election of trustees. Other
than shareholders who acquired shares prior to ProLogis' initial public
offering who may hold up to 30% of the shares of ProLogis, no other shareholder
may hold more than 9.8% of the shares of ProLogis. Security Capital
has a right to nominate up to three trustees, depending on its level of
ownership of shares. The trustees so elected are in a position to exercise
significant influence over the affairs of ProLogis if they were to act together
in the future. Additionally, for so long as Security Capital beneficially owns
at least 10% of ProLogis' outstanding common shares, Security Capital has the
right to approve:
(1) ProLogis' annual operating budget and substantial deviations
therefrom;
(2) Acquisitions or dispositions in a single transaction or group of
related transactions where the purchase price exceeds $5 million;
(3) property management arrangements; and
(4) the increase of the number of trustees to more than 10.
Accordingly, due to the foregoing, for so long as it continues to
beneficially own at least 10% of ProLogis' outstanding common shares, Security
Capital will retain significant influence over the affairs of ProLogis which
may result in decisions that do not fully represent the interests of all
shareholders of ProLogis.
The geographic concentration of ProLogis in several markets exposes ProLogis to
the general economic conditions of these markets
ProLogis' operating performance depends on the economic conditions of
markets in which its facilities are concentrated. The merger increased the
concentration of ProLogis facilities in five United States metropolitan areas,
Los Angeles 10.3%, Dallas 7.5% and Chicago 5.8% of ProLogis' total number of
distribution facilities. ProLogis' operating performance could be adversely
affected if conditions, such as an oversupply of space or a reduction in demand
for industrial distribution facilities, in ProLogis' larger markets become more
competitive relative to other geographic areas. Any material oversupply of
space or reduction of demand for space could adversely effect ProLogis'
operating income and the value of ProLogis shares.
ProLogis' real estate investments are subject to risks particular to real
estate investments
Value of real estate dependent on numerous factors
Real property investments are subject to varying degrees of risk. Real
estate values are affected by a number of factors, including:
(1) changes in the general economic climate;
(2) local conditions, such as an oversupply of space or a reduction in
demand for real estate in an area;
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(3) the quality and philosophy of management;
(4) competition from other available space;
(5) the ability of the owner to provide adequate maintenance and
insurance;
(6) the ability of the owner to control variable operating costs;
(7) government regulations;
(8) interest rate levels;
(9) the availability of financing; and
(10) potential liability under, and changes in, environmental, zoning,
tax and other laws.
Restrictions on, and risks of, unsuccessful development activities
ProLogis intends to continue to pursue development activities as
opportunities arise. Such development activities generally require various
government and other approvals. ProLogis may not receive such approvals.
ProLogis will be subject to risks associated with any such development
activities. These risks include:
(1) the risk that development opportunities explored by ProLogis may be
abandoned;
(2) the risk that construction costs of a project may exceed original
estimates, possibly making the project less profitable than originally
estimated;
(3) limited cash flow during the construction period; and
(4) the risk that occupancy rates and rents at a completed project will
not be sufficient to make the project profitable.
In case of an unsuccessful development project, ProLogis' loss could exceed
its investment in the project.
Tenant default
ProLogis' income and distributable cash flow would be adversely affected if
a significant number of ProLogis' tenants were unable to meet their
obligations to ProLogis, or if ProLogis were unable to lease, on economically
favorable terms, a significant amount of space in its industrial distribution
facilities. In the event of default by a significant number of tenants,
ProLogis may experience delays and incur substantial costs in enforcing its
rights as landlord.
Illiquidity of real estate investments
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of ProLogis to react promptly to changes in economic
or other conditions. In addition, significant expenditures associated with
equity real estate investments, such as mortgage payments, real estate taxes
and maintenance costs, are generally not reduced when circumstances cause a
reduction in income from the investments. Like other companies qualifying as
real estate investment trusts under the Internal Revenue Code of 1986,
ProLogis must comply with the safe harbor rules, relating to the number of
properties sold in a year, their tax bases and the cost of improvements made
thereto, or meet other tests which enable a real estate investment trust to
avoid punitive taxation on the sale of assets. Thus, ProLogis' ability to sell
assets at any time to change its asset base may be restricted.
Share prices may be effected by market interest rates
The annual distribution rate on the ProLogis common shares as a percentage
of its market price may influence the trading price of such common shares. An
increase in market interest rates may lead investors to demand a higher annual
distribution rate, which could adversely affect the market price of such
common shares. A decrease in the market price of the ProLogis common shares
could reduce ProLogis' ability to raise additional equity in the public
markets.
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Uninsured losses may adversely affect ProLogis
Some types of losses, such as from hurricanes or may be uninsurable, or the
cost of insuring against such losses may not be economically justifiable. If an
uninsured loss occurs, ProLogis could lose both the invested capital in and
anticipated revenues from the facility, but would still be obligated to repay
any recourse mortgage indebtedness on the facility.
Potential environmental liability
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of hazardous or toxic substances at,
on, under or in its property. The costs of removal or remediation of such
substances could be substantial. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release or presence of such hazardous substances. The presence of such
substances on ProLogis' properties may adversely affect its ability to sell
such properties or to borrow using such properties as collateral and may also
have an adverse affect on ProLogis' ability to pay distributions to its
shareholders.
Debt financing, increases in interest rates, financial covenants and absence of
limitations on debt may result in decreased distributions to shareholders
Debt financing
ProLogis is subject to risks normally associated with debt financing,
including the risk that ProLogis' cash flow will be insufficient to meet
required payments of principal and interest and the risk that ProLogis will not
be able to be refinance existing indebtedness or that the terms of such
refinancings will not be as favorable as the terms of the existing
indebtedness. There can be no assurance that ProLogis will be able to refinance
any indebtedness or otherwise obtain funds by selling assets or raising equity
to make required payments on maturing indebtedness.
Requirements of credit facilities; foreclosures
The terms of ProLogis' indebtedness require ProLogis to comply with a number
of customary financial and other covenants, such as maintaining debt service
coverage and leverage ratios, maintaining insurance coverage, etc. These
covenants may limit ProLogis' flexibility in its operations, and breaches of
these covenants could result in defaults under the instruments governing the
applicable indebtedness even if ProLogis has satisfied its payment obligations.
If ProLogis is unable to refinance its indebtedness at maturity or meet its
payment obligations, the amount of cash available for distribution may be
adversely affected.
Risk of rising interest rates
ProLogis may incur indebtedness in the future that bears interest at a
variable rate or may be required to refinance its debt at higher interest
rates. Increases in interest rates could increase ProLogis' interest expense,
which could adversely affect ProLogis' ability to pay expected distributions to
shareholders.
No Limitation on Debt
ProLogis currently has a policy of incurring debt only if, upon such
incurrence, ProLogis' debt-to-book capitalization ratio, as adjusted, would
equal 50% or less. However, the ProLogis declaration of trust does not contain
a provision limiting indebtedness to such ratio. Accordingly, the ProLogis
board could alter or eliminate this policy and would do so if, for example, it
were necessary in order for ProLogis to continue to qualify as a real estate
investment trust. If this policy were changed, ProLogis could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect the cash available for distribution to shareholders.
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Costs of Compliance with Laws may reduce cash flow available for distribution
ProLogis' facilities are subject to various federal, state and local
regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. There can be no assurance that these requirements will not be
changed or that new requirements will not be imposed, a result that could
require significant unanticipated expenditures by ProLogis and could have an
adverse effect on ProLogis' cash flow.
Failure to qualify as a real estate investment trust could adversely affect
shareholders
ProLogis has elected to be taxed as a real estate investment trust under the
Internal Revenue Code of 1986, commencing with its taxable year ended December
31, 1993. To maintain real estate investment trust status, ProLogis must meet a
number of highly technical requirements on a continuing basis. Those
requirements seek to ensure, among other things, that the gross income and
investments of a real estate investment trust are largely real estate related,
that a real estate investment trust distributes substantially all its ordinary
taxable income to shareholders on a current basis and that the real estate
investment trust's ownership is not overly concentrated. Due to the complex
nature of these rules, the limited available guidance concerning interpretation
of the rules, the importance of ongoing factual determinations and the
possibility of adverse changes in the law, administrative interpretations of
the law and developments at ProLogis, no assurance can be given that ProLogis
will qualify as a real estate investment trust for any particular year.
If ProLogis fails to qualify as a real estate investment trust, it will be
taxed as a regular corporation, and distributions to shareholders will not be
deductible in computing ProLogis' taxable income. The resulting corporate tax
liabilities could materially reduce the funds available for distribution to
ProLogis' shareholders or for reinvestment. In the absence of real estate
investment trust status, distributions to shareholders would no longer be
required. Moreover, ProLogis might not be able to elect to be treated as a real
estate investment trust for the four taxable years after the year during which
ProLogis ceased to qualify as a real estate investment trust. In addition, if
ProLogis later requalified as a real estate investment trust, it might be
required to pay a full corporate-level tax on any unrealized gain in its assets
as of the date of requalification and to make distributions equal to any
earnings accumulated during the period of non-real estate investment trust
status.
Potential adverse effect of real estate investment trust distribution
requirements
To maintain its qualification as a real estate investment trust under the
Internal Revenue Code of 1986, ProLogis must annually distribute to ProLogis'
shareholders at least 95% of its real estate investment trust taxable income,
computed without regard to the dividends paid deduction and real estate
investment trust net capital gain, plus 95% of its net income after tax, if
any, for foreclosure property, minus the sum of some items of non-cash income.
This requirement limits ProLogis' ability to accumulate capital. ProLogis may
not have sufficient cash or other liquid assets to meet the distribution
requirement. Difficulties in meeting the distribution requirements might arise
due to competing demands for ProLogis' funds or to timing differences between
tax reporting and cash receipts and disbursements because income may have to be
reported before cash is received, because expenses may have to be paid before a
deduction is allowed or deductions may be disallowed or limited. In those
situations, ProLogis might be required to borrow funds or sell facilities on
adverse terms in order to meet the distribution requirements. If ProLogis fails
to make a required distribution, it would cease to be a real estate investment
trust.
USE OF PROCEEDS
All net proceeds from the sale of the ProLogis common shares will go to the
shareholders who offer and sell their shares. Accordingly, ProLogis will not
receive any proceeds from the sale of the ProLogis common shares.
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SELLING SHAREHOLDERS
Pursuant to registration rights agreements between the selling shareholders
and Meridian Industrial Trust, Inc., copies of which are incorporated by
reference as exhibits to the registration statement of which this prospectus is
a part, Meridian was required to register the shares of stock of Meridian owned
by the selling shareholders. In connection with the merger of Meridian into
ProLogis, ProLogis assumed the obligations of Meridian under the registration
rights agreements and was required to register the ProLogis common shares
issued to the selling shareholders in connection with the merger. ProLogis is
required to keep the registration statement effective until the selling
shareholders have sold all of their respective ProLogis common shares.
Pursuant to the registration rights agreements, ProLogis and the selling
shareholders agreed to indemnify each other against various liabilities,
including liabilities under the Securities Act of 1933 in connection with the
sale of the shares pursuant to a registered public offering contemplated by the
registration rights agreements. The selling shareholders are required to pay
the underwriting discounts and commissions and expenses of their legal counsel
and accountants associated with the offering contemplated by this prospectus,
and ProLogis is generally required to pay all of the other expenses directly
associated with the offering, including, without limitation, the cost of
registering the ProLogis common shares being offered, including applicable
registration and filing fees, printing expenses and applicable expenses for
legal counsel and accountants incurred by ProLogis.
The table below sets forth the name of each selling shareholder and
relationship, if any, with ProLogis. The table also shows the number of
ProLogis common shares beneficially owned by each selling shareholders as of
March 24, 1999, assuming no shares have been sold under this prospectus as of
that date, the maximum number of ProLogis common shares which may be offered
for the account of each selling shareholder under the prospectus, and the
amount and percentage of ProLogis common shares to be owned by the selling
shareholder assuming the sale of all of the ProLogis common shares which may be
offered under this prospectus.
<TABLE>
<CAPTION>
Amount and
Shares Percentage of
Beneficially Owned Shares Shares Beneficially
Selling Shareholder Prior to Offering Being Offered(1) Owned After Offering(1)
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<S> <C> <C> <C>
Hunt Acquisitions
Partners, Ltd.(2)...... 767,981 767,981 0
1445 Ross at Field
Dallas, Texas 75202
The Prudential Insurance
Company of America(3).. 7,820,395 7,820,395 0
8 Campus Drive
Parsippany, New Jersey
07054
The Prudential Variable
Contract Real Property
Partnership............ 557,583 557,583 0
8 Campus Drive
Parsippany, New Jersey
07054
Strategic Performance
Fund--II, Inc.......... 1,035,966 1,035,966 0
8 Campus Drive
Parsippany, New Jersey
07054
USAA Real Estate
Company................ 1,263,289 1,263,289 0
8000 Robert F.
McDermott Freeway
Suite 600
San Antonio, Texas
98230
State Street Bank and
Trust Company, as
Trustee for Ameritech
Pension Trust.......... 9,777,457 9,777,457 0
One Enterprise Drive
Solomon Willard
Building (W6C)
North Quincy,
Massachusetts 02171
OTR..................... 1,132,286 1,132,286 0
275 East Broad Street
Columbus, Ohio 43215
</TABLE>
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(1) Assumes the sale of all ProLogis common shares offered by this prospectus,
although none of the selling shareholders are under any obligation known to
ProLogis to sell any ProLogis common shares.
(2) Also reporting beneficial ownership of the same shares are Ray L. Hunt and
RLH Investments, Inc. Their address is the same as that of Hunt.
(3) Includes 3,638,521 ProLogis common shares held by The Prudential Insurance
Company of America on behalf of three insurance company separate accounts.
PLAN OF DISTRIBUTION
Any of the selling shareholders may sell any of their ProLogis common shares
offered under this prospectus from time to time. Sales may be made through
underwriters, either separately or in connection with offerings of securities
by ProLogis or through brokers or dealers either separately in connection with
block trades by the selling shareholders or in connection with offerings of
securities by ProLogis. To the extent required by applicable law, a prospectus
supplement with respect to the ProLogis common shares being offered will set
forth the terms of the offering of the ProLogis common shares, including the
name or names of any underwriters, dealers, or agents, the purchase price of
the ProLogis common shares and the proceeds to the selling shareholders from
such sale, any delayed delivery arrangements, any underwriting discounts and
other items constituting underwriters' compensation, the initial public
offering price, and any discounts or concessions allowed or reallowed or paid
to dealers.
If underwriters are used in the sale, the ProLogis common shares will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The ProLogis common shares may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of ProLogis
common shares will be named in the prospectus supplement relating to such
offering, and if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such prospectus supplement.
Unless otherwise set forth in the prospectus supplement relating thereto, the
obligations of the underwriters or agents to purchase the ProLogis common
shares will be subject to conditions precedent and the underwriters will be
obligated to purchase all the ProLogis common shares if any are purchased. The
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If dealers are used in the sale of ProLogis common shares with respect to
which this prospectus is delivered or with respect to any block trades, the
selling shareholder will sell such ProLogis common shares to the dealers as
principals. The dealers may then resell such ProLogis common shares to the
public at varying prices to be determined by such dealers at the time of
resale. The name of the dealers and the terms of the transaction will be set
forth in the prospectus supplement relating thereto.
In connection with the sale of the ProLogis common shares, underwriters or
agents may receive compensation from the selling shareholders or from
purchasers of ProLogis common shares for whom they may act as agents in the
form of discounts, concessions, or commissions. Underwriters, agents, and
dealers participating in the distribution of the ProLogis common shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any discounts or commissions received by them from the selling shareholders
and any profit on the resale of the ProLogis common shares by them may be
deemed to be underwriting discounts or commissions under the Securities Act of
1933.
Upon ProLogis' being notified by a selling shareholder of any change in the
identity of the selling shareholder or that any material arrangement has been
entered into with an underwriter, broker or dealer for the sale of any ProLogis
common shares through a secondary distribution, or a purchase by a broker or
dealer, a prospectus supplement will be filed, if required, pursuant to Rule
424(b) under the Securities Act of 1933, disclosing:
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(1) the names of such brokers or dealers, the number of ProLogis common
shares to be sold;
(2) the price at which such ProLogis common shares are being sold;
(3) the commissions paid or the discounts or concessions allowed to
such brokers or dealers;
(4) where applicable, that such broker or dealer did not conduct any
investigation to verify the information set out or incorporated by
reference in this prospectus, as supplemented or amended;
(5) any change in the identity of the selling shareholder; and
(6) other facts material to the transaction.
Agents, dealers and underwriters may be entitled under agreements entered
into with ProLogis and/or the selling shareholders to indemnification by
ProLogis and/or the selling shareholders against civil liabilities, including
liabilities under the Securities Act of 1933, or to contribution with respect
to payments that such agents, dealers, or underwriters may be required to make
with respect thereto. Agents, dealers, and underwriters may be customers of,
engage in transactions with, or perform services for ProLogis and/or the
selling shareholders in the ordinary course of business.
FEDERAL INCOME TAX CONSIDERATIONS
ProLogis intends to operate in a manner that permits it to satisfy the
requirements for taxation as a real estate investment trust under the
applicable provisions of the Internal Revenue Code of 1986. No assurance can be
given, however, that such requirements will be met. The following is a
description of the federal income tax consequences to ProLogis and its
shareholders of the treatment of ProLogis as a real estate investment trust.
Since these provisions are highly technical and complex, each prospective
purchaser of the ProLogis common shares is urged to consult his or her own tax
advisor with respect to the federal, state, local, foreign and other tax
consequences of the purchase, ownership and disposition of the ProLogis common
shares.
Based upon representations of ProLogis with respect to the facts as set
forth and explained in the discussion below, in the opinion of Mayer, Brown &
Platt, counsel to ProLogis, ProLogis has been organized in conformity with the
requirements for qualification as a real estate investment trust beginning with
its taxable year ending December 31, 1993, and its actual and proposed method
of operation described in this prospectus and as represented by management will
enable it to satisfy the requirements for such qualification.
This opinion is based on representations made by ProLogis as to factual
matters relating to ProLogis' organization and intended or expected manner of
operation. In addition, this opinion is based on the law existing and in effect
on the date of this prospectus. ProLogis' qualification and taxation as a real
estate investment trust will depend upon ProLogis' ability to meet on a
continuing basis, through actual operating results, asset composition,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Internal Revenue Code discussed below. Mayer, Brown &
Platt will not review compliance with these tests on a continuing basis. No
assurance can be given that ProLogis will satisfy such tests on a continuing
basis.
In brief, if the conditions imposed by the real estate investment trust
provisions of the Internal Revenue Code are met, entities, such as ProLogis,
that invest primarily in real estate and that otherwise would be treated for
federal income tax purposes as corporations, are generally not taxed at the
corporate level on their "real estate investment trust taxable income" that is
currently distributed to shareholders. This treatment substantially eliminates
the "double taxation," at both the corporate and shareholder levels, that
generally results from the use of corporations.
If ProLogis fails to qualify as a real estate investment trust in any year,
however, it will be subject to federal income taxation as if it were a domestic
corporation, and its shareholders will be taxed in the same manner as
shareholders of ordinary corporations. In this event, ProLogis could be subject
to potentially significant tax liabilities, and therefore the amount of cash
available for distribution to its shareholders would be reduced or eliminated.
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ProLogis elected real estate investment trust status effective beginning
with its taxable year ended December 31, 1993 and the ProLogis board of
trustees believes that ProLogis has operated and currently intends that
ProLogis will operate in a manner that permits it to qualify as a real estate
investment trust in each taxable year thereafter. There can be no assurance,
however, that this expectation will be fulfilled, since qualification as a real
estate investment trust depends on ProLogis continuing to satisfy numerous
asset, income and distribution tests described below, which in turn will be
dependent in part on ProLogis' operating results.
The following summary is based on the Internal Revenue Code, its legislative
history, administrative pronouncements, judicial decisions and Treasury
regulations, subsequent changes to any of which may affect the tax consequences
described herein, possibly on a retroactive basis. The following summary is not
exhaustive of all possible tax considerations and does not give a detailed
discussion of any state, local, or foreign tax considerations, nor does it
discuss all of the aspects of federal income taxation that may be relevant to a
prospective shareholder in light of his or her particular circumstances or to
various types of shareholders, including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States, subject to
special treatment under the federal income tax laws.
Taxation of ProLogis
General
In any year in which ProLogis qualifies as a real estate investment trust,
in general it will not be subject to federal income tax on that portion of its
real estate investment trust taxable income or capital gain which is
distributed to shareholders. ProLogis may, however, be subject to tax at normal
corporate rates upon any taxable income or capital gain not distributed.
Notwithstanding its qualification as a real estate investment trust,
ProLogis may also be subject to taxation in other circumstances. If ProLogis
should fail to satisfy either the 75% or the 95% gross income test, as
discussed below, and nonetheless maintains its qualification as a real estate
investment trust because other requirements are met, it will be subject to a
100% tax on the greater of the amount by which ProLogis fails to satisfy either
the 75% test or the 95% test, multiplied by a fraction intended to reflect
ProLogis' profitability. ProLogis will also be subject to a tax of 100% on net
income from any "prohibited transaction," as described below, and if ProLogis
has net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of
business or other non-qualifying income from foreclosure property, it will be
subject to tax on such income from foreclosure property at the highest
corporate rate. In addition, if ProLogis should fail to distribute during each
calendar year at least the sum of:
(1) 85% of its real estate investment trust ordinary income for such
year;
(2) 95% of its real estate investment trust capital gain net income for
such year, other than capital gains ProLogis elects to retain and pay tax
on as described below; and
(3) any undistributed taxable income from prior years.
ProLogis would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
The Taxpayer Relief Act of 1997 permits a real estate investment trust to
designate in a notice mailed to shareholders within 60 days of the end of the
taxable year, or in a notice mailed with its annual report for the taxable
year, such amount of undistributed net long-term capital gains it received
during the taxable year, which its shareholders are to include in their taxable
income as long-term capital gains. Thus, if ProLogis made this designation, the
shareholders of ProLogis would include in their income as long-term capital
gains their proportionate share of the undistributed net capital gains as
designated by ProLogis and ProLogis would have to pay the tax on such gains
within 30 days of the close of its taxable year. Each shareholder of ProLogis
would be deemed to have paid such shareholder's share of the tax paid by
ProLogis on such gains, which tax would be credited or refunded to the
shareholder. A shareholder would increase his tax basis in his ProLogis
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stock by the difference between the amount of income to the holder resulting
from the designation less the holder's credit or refund for the tax paid by
ProLogis. ProLogis may also be subject to the corporate "alternative minimum
tax," as well as tax in various situations and on some types of transactions
not presently contemplated. ProLogis will use the calendar year both for
federal income tax purposes and for financial reporting purposes.
In order to qualify as a real estate investment trust, ProLogis must meet,
among others, the following requirements:
Share Ownership Test
ProLogis' shares must be held by a minimum of 100 persons for at least 335
days in each taxable year or a proportional number of days in any short taxable
year. In addition, at all times during the second half of each taxable year, no
more than 50% in value of the stock of ProLogis may be owned, directly or
indirectly and by applying constructive ownership rules, by five or fewer
individuals, which for this purpose includes some tax-exempt entities. Any
stock held by a qualified domestic pension or other retirement trust will be
treated as held directly by its beneficiaries in proportion to their actuarial
interest in such trust rather than by such trust. Pursuant to the constructive
ownership rules, Security Capital's ownership of shares is attributed to its
shareholders for purposes of the 50% test. Under the Taxpayer Relief Act, for
taxable years beginning after August 5, 1997, if ProLogis complies with the
Treasury regulations for ascertaining its actual ownership and did not know, or
exercising reasonable diligence would not have reason to know, that more than
50% in value of its outstanding shares of stock were held, actually or
constructively, by five or fewer individuals, then ProLogis will be treated as
meeting such requirement.
In order to ensure compliance with the 50% test ProLogis has placed
restrictions on the transfer of the shares of its stock to prevent additional
concentration of ownership. Moreover, to evidence compliance with these
requirements under Treasury regulations, ProLogis must maintain records which
disclose the actual ownership of its outstanding shares of stock and such
regulations impose penalties against ProLogis for failing to do so. In
fulfilling its obligations to maintain records, ProLogis must and will demand
written statements each year from the record holders of designated percentages
of shares of its stock disclosing the actual owners of such shares as
prescribed by Treasury regulations. A list of those persons failing or refusing
to comply with such demand must be maintained as a part of ProLogis' records. A
shareholder failing or refusing to comply with ProLogis' written demand must
submit with his or her tax returns a similar statement disclosing the actual
ownership of shares of ProLogis' stock and other information. In addition,
ProLogis' declaration of trust provides restrictions regarding the transfer of
shares that are intended to assist ProLogis in continuing to satisfy the share
ownership requirements. ProLogis intends to enforce the 9.8% limitation on
ownership of shares of its stock to assure that its qualification as a real
estate investment trust will not be compromised.
Asset Tests
At the close of each quarter of ProLogis' taxable year, ProLogis must
satisfy tests relating to the nature of its assets determined in accordance
with generally accepted accounting principles. First, at least 75% of the value
of ProLogis' total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other real estate investment
trusts, cash, cash items, and government securities, and qualified temporary
investments. Second, although the remaining 25% of ProLogis' assets generally
may be invested without restriction, securities in this class may not exceed
either, in the case of securities of any non-government issuer, 5% of the value
of ProLogis' total assets, or 10% of the outstanding voting securities of any
one issuer.
Gross Income Tests
There are currently two separate percentage tests relating to the sources of
ProLogis' gross income which must be satisfied for each taxable year. Prior to
taxable years beginning August 5, 1997, there were three separate percentage
tests relating to the sources of ProLogis' gross income which must have been
satisfied for each prior taxable year. For purposes of these tests, where
ProLogis invests in a partnership, ProLogis will be
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treated as receiving its share of the income and loss of the partnership, and
the gross income of the partnership will retain the same character in the hands
of ProLogis as it has in the hands of the partnership. The three tests are as
follows:
1. The 75% Test. At least 75% of ProLogis' gross income for the taxable year
must be "qualifying income." Qualifying income generally includes:
(1) rents from real property, except as modified below;
(2) interest on obligations collateralized by mortgages on, or interests
in, real property;
(3) gains from the sale or other disposition of "dealer property," which
means interests in real property and real estate mortgages, other than gain
from property held primarily for sale to customers in the ordinary course
of ProLogis' trade or business;
(4) dividends or other distributions on shares in other real estate
investment trust, as well as gain from the sale of such shares;
(5) abatements and refunds of real property taxes;
(6) income from the operation, and gain from the sale, of "foreclosure
property," which means property acquired at or in lieu of a foreclosure of
the mortgage collateralized by such property; and
(7) commitment fees received for agreeing to make loans collateralized
by mortgages on real property or to purchase or lease real property.
Rents received from a tenant will not however, qualify as rents from real
property in satisfying the 75% test, or the 95% gross income test described
below, if ProLogis, or an owner of 10% or more of ProLogis, directly or
constructively owns 10% or more of such resident. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property or as interest income for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property, ProLogis generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom ProLogis derives no income,
except that the "independent contractor" requirement does not apply to the
extent that the services provided by ProLogis are "usually or customarily
rendered" in connection with the rental of properties for occupancy only, or
are not otherwise considered "rendered to the occupant for his convenience."
For taxable years beginning after August 5, 1997, a real estate investment
trust is permitted to render a de minimis amount of impermissible services to
tenants, or in connection with the management of property, and still treat
amounts received with respect to that property as rent from real property. The
amount received or accrued by the real estate investment trust during the
taxable year for the impermissible services with respect to a property may not
exceed one percent of all amounts received or accrued by the real estate
investment trust directly or indirectly from the property. The amount received
for any service or management operation for this purpose shall be deemed to be
not less than 150% of the direct cost of the real estate investment trust in
furnishing or rendering the service or providing the management or operation.
2. The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of ProLogis' gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends, other than on real estate
investment trust shares, and interest on any obligations not collateralized by
an interest in real property are included for purposes of the 95% test, but not
for purposes of the 75% test. In addition, payments to ProLogis under an
interest rate swap, cap agreement, option, futures contract, forward rate
agreement or any similar financial instrument entered into by ProLogis to hedge
indebtedness incurred or to be incurred, and any gain from the sale or other
disposition of these instruments, are treated as qualifying income for purposes
of the 95% test, but not for purposes of the 75% test.
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For purposes of determining whether ProLogis complies with the 75% and 95%
income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property,
excluding foreclosure property, unless such property is held by ProLogis for at
least four years and other requirements relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made thereto are
satisfied. See "--Taxation of ProLogis--General."
Even if ProLogis fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may still qualify as a real estate investment
trust for such year if it is entitled to relief under provisions of the
Internal Revenue Code. These relief provisions will generally be available if:
(1) ProLogis' failure to comply was due to reasonable cause and not to
willful neglect;
(2) ProLogis reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and
(3) any incorrect information on this schedule is not due to fraud with
intent to evade tax.
If these relief provisions apply, however, ProLogis will nonetheless be subject
to a special tax upon the greater of the amount by which it fails either the
75% or 95% gross income test for that year.
3. The 30% Test. For taxable years beginning prior to August 5, 1997,
ProLogis must have derived less than 30% of its gross income for each taxable
year from the sale or other disposition of:
(1) real property held for less than four years, other than foreclosure
property and involuntary conversions;
(2) stock or securities held for less than one year; and
(3) property in a prohibited transaction.
The 30% gross income test has been repealed by the Taxpayer Relief Act for
taxable years beginning after August 5, 1997.
Annual Distribution Requirements
In order to qualify as a real estate investment trust, ProLogis is required
to make distributions, other than capital gain dividends, to its shareholders
each year in an amount at least equal to the sum of 95% of ProLogis' real
estate investment trust taxable income, computed without regard to the
dividends paid deduction and real estate investment trust net capital gain,
plus 95% of its net income after tax, if any, from foreclosure property, minus
the sum of some items of non-cash income. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before ProLogis timely files its tax return for such year and if paid
on or before the first regular dividend payment after such declaration. To the
extent that ProLogis does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its real estate investment
trust taxable income, as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains or ordinary corporate tax rates,
as the case may be. For taxable years beginning after August 5, 1997, the
Taxpayer Relief Act permits a real estate investment trust, with respect to
undistributed net long-term capital gains it received during the taxable year,
to designate in a notice mailed to shareholders within 60 days of the end of
the taxable year, or in a notice mailed with its annual report for the taxable
year, such amount of such gains which its shareholders are to include in their
taxable income as long-term capital gains. Thus, if ProLogis made this
designation, the shareholders of ProLogis would include in their income as
long-term capital gains their proportionate share of the undistributed net
capital gains as designated by ProLogis and ProLogis would have to pay the tax
on such gains within 30 days of the close of its taxable year. Each shareholder
of ProLogis would be deemed to have paid such shareholder's share of the tax
paid by ProLogis on such gains, which tax would be credited or refunded to the
shareholder. A shareholder would increase his tax basis in his ProLogis stock
by the difference between the amount of income to the holder resulting from the
designation less the holder's credit or refund for the tax paid by ProLogis.
ProLogis intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible that ProLogis may not have
sufficient cash or other liquid assets to meet the 95% distribution
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requirement, due to timing differences between the actual receipt of income and
actual payment of expenses on the one hand, and the inclusion of such income
and deduction of such expenses in computing ProLogis' real estate investment
trust taxable income on the other hand. To avoid any problem with the 95%
distribution requirement, ProLogis will closely monitor the relationship
between its real estate investment trust taxable income and cash flow and, if
necessary, intends to borrow funds in order to satisfy the distribution
requirement. However, there can be no assurance that such borrowing would be
available at such time.
If ProLogis fails to meet the 95% distribution requirement as a result of an
adjustment to ProLogis' tax return by the Internal Revenue Service, ProLogis
may retroactively cure the failure by paying a "deficiency dividend," plus
applicable penalties and interest, within a specified period.
Tax Aspects of ProLogis' Investments in Partnerships
A significant portion of ProLogis' investments are through ProLogis Limited
Partnership-I, ProLogis Limited Partnership-II, ProLogis Limited Partnership-
III and ProLogis Limited Partnership-IV. ProLogis will include its
proportionate share of each partnership's income, gains, losses, deductions and
credits for purposes of the various real estate investment trust gross income
tests and in its computation of its real estate investment trust taxable income
and the assets held by each partnership for purposes of the real estate
investment trust asset tests.
ProLogis' interest in the partnerships involves special tax considerations,
including the possibility of a challenge by the Internal Revenue Service of the
status of the partnerships as partnerships, as opposed to associations taxable
as corporations, for federal income tax purposes. If a partnership were to be
treated as an association, such partnership would be taxable as a corporation
and therefore subject to an entity-level tax on its income. In such a
situation, the character of ProLogis' assets and items of gross income would
change, which may preclude ProLogis from satisfying the real estate investment
trust asset tests and may preclude ProLogis from satisfying the real estate
investment trust gross income tests. See "--Failure to Qualify" below, for a
discussion of the effect of ProLogis' failure to meet such tests. Based on
factual representations of ProLogis, in the opinion of Mayer, Brown, & Platt,
under existing federal income tax law and regulations, the partnerships will be
treated for federal income tax purposes as partnerships, and not as
associations taxable as corporations. Such opinion, however, is not binding on
the Internal Revenue Service.
Failure to Qualify
If ProLogis fails to qualify for taxation as a real estate investment trust
in any taxable year and relief provisions do not apply, ProLogis will be
subject to tax, including applicable alternative minimum tax, on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which ProLogis fails to qualify as a real estate investment trust will not be
deductible by ProLogis, nor generally will they be required to be made under
the Internal Revenue Code. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and subject to limitations in the Internal Revenue
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions,
ProLogis also will be disqualified from re-electing taxation as a real estate
investment trust for the four taxable years following the year during which
qualification was lost.
Taxation of ProLogis' Shareholders
Taxation of Taxable Domestic Shareholders
As long as ProLogis qualifies as a real estate investment trust,
distributions made to ProLogis' taxable domestic shareholders out of current or
accumulated earnings and profits, and not designated as capital gain dividends,
will be taken into account by them as ordinary income and will not be eligible
for the dividends-received deduction for corporations. Distributions, and for
tax years beginning after August 5, 1997, undistributed amounts, that are
designated as capital gain dividends will be taxed as long-term capital gains,
to the extent they do not exceed ProLogis' actual net capital gain for the
taxable year, without regard to the period
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for which the shareholder has held its shares. However, corporate shareholders
may be required to treat up to 20% of some capital gain dividends as ordinary
income. To the extent that ProLogis makes distributions in excess of current
and accumulated earnings and profits, these distributions are treated first as
a tax-free return of capital to the shareholder, reducing the tax basis of a
shareholder's shares by the amount of such distribution, but not below zero,
with distributions in excess of the shareholder's tax basis taxable as capital
gains, if the shares are held as a capital asset. In addition, any dividend
declared by ProLogis in October, November or December of any year and payable
to a shareholder of record on a specific date in any such month shall be
treated as both paid by ProLogis and received by the shareholder on December 31
of such year, provided that the dividend is actually paid by ProLogis during
January of the following calendar year. Shareholders may not include in their
individual income tax returns any net operating losses or capital losses of
ProLogis. Federal income tax rules may also require that minimum tax
adjustments and preferences be apportioned to ProLogis shareholders.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less, after applying holding period
rules, will be treated as a long-term capital loss, to the extent of
distributions from ProLogis required to be treated by such shareholder as long-
term capital gains.
The Internal Revenue Service Restructuring and Reform Act of 1998 provides
that gain from the sale or exchange of shares held for more than one year is
taxed at a maximum capital gain rate of 20%. Pursuant to Internal Revenue
Service guidance, ProLogis may classify portions of its capital gain dividends
as gains eligible for the 20% capital gains rate or as unrecaptured Internal
Revenue Code Section 1250 gain taxable at a maximum rate of 25%.
Shareholders of ProLogis should consult their tax advisor with regard to the
application of the changes made by the Internal Revenue Service Restructuring
and Reform Act with respect to taxation of capital gains and capital gain
dividends and with regard to state, local and foreign taxes on capital gains.
Backup Withholding
ProLogis will report to its domestic shareholders and to the Internal
Revenue Service the amount of distributions paid during each calendar year, and
the amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at
applicable rates with respect to distributions paid unless such shareholder is
a corporation or comes within other exempt categories and, when required,
demonstrates this fact or provides a taxpayer identification number, certifies
as to no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that
does not provide ProLogis with its correct taxpayer identification number may
also be subject to penalties imposed by the Internal Revenue Service. Any
amount paid as backup withholding will be credited against the shareholder's
income tax liability. In addition, ProLogis may be required to withhold a
portion of capital gain distributions made to any shareholders who fail to
certify their non-foreign status to ProLogis.
Taxation of Tax-Exempt Shareholders
The Internal Revenue Service has issued a revenue ruling in which it held
that amounts distributed by a real estate investment trust to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income.
Subject to the discussion below regarding a "pension-held real estate
investment trust," based upon the ruling, the analysis therein and the
statutory framework of the Internal Revenue Code, distributions by ProLogis to
a shareholder that is a tax-exempt entity should also not constitute unrelated
business taxable income, provided that the tax-exempt entity has not financed
the acquisition of its shares with "acquisition indebtedness" within the
meaning of the Internal Revenue Code, and that the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity, and that
ProLogis, consistent with its present intent, does not hold a residual interest
in a real estate mortgage investment conduit.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Internal Revenue Code holds more than 10% by value of the
interests in a "pension-held real estate investment trust"
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at any time during a taxable year, a portion of the dividends paid to the
qualified pension trust by such real estate investment trust may constitute
unrelated business taxable income. For these purposes, a "pension-held real
estate investment trust" is defined as a real estate investment trust if such
real estate investment trust would not have qualified as a real estate
investment trust but for the provisions of the Internal Revenue Code which look
through such a qualified pension trust in determining ownership of stock of the
real estate investment trust and at least one qualified pension trust holds
more than 25% by value of the interests of such real estate investment trust or
one or more qualified pension trusts, each owning more than a 10% interest by
value in the real estate investment trust, hold in the aggregate more than 50%
by value of the interests in such real estate investment trust.
Taxation of Foreign Shareholders
ProLogis will qualify as a "domestically-controlled real estate investment
trust" so long as less than 50% in value of its Shares is held by foreign
persons, for example, nonresident aliens and foreign corporations,
partnerships, trust and estates. It is currently anticipated that ProLogis will
qualify as a domestically controlled real estate investment trust. Under these
circumstances, gain from the sale of the shares by a foreign person should not
be subject to U.S. taxation, unless such gain is effectively connected with
such person's U.S. business or, in the case of an individual foreign person,
such person is present within the U.S. for more than 182 days in such taxable
year.
Distributions of cash generated by ProLogis' real estate operations, but not
by its sale or exchange of such properties, that are paid to foreign persons
generally will be subject to U.S. withholding tax at a rate of 30%, unless an
applicable tax treaty reduces that tax and the foreign shareholder files with
ProLogis the required form evidencing such lower rate or unless the foreign
shareholder files an Internal Revenue Service Form 4224 with ProLogis claiming
that the distribution is "effectively connected" income. Recently promulgated
Treasury Regulations revise in some respects the rules applicable to foreign
shareholders with respect to payments made after December 31, 1999.
Distributions of proceeds attributable to the sale or exchange by ProLogis
of U.S. real property interests are subject to income and withholding taxes
pursuant to the Foreign Investment in Real Property Tax Act of 1980, and may be
subject to branch profits tax in the hands of a shareholder which is a foreign
corporation if it is not entitled to treaty relief or exemption. ProLogis is
required by applicable Treasury regulations to withhold 35% of any distribution
to a foreign person that could be designated by ProLogis as a capital gain
dividend; this amount is creditable against the foreign shareholder's Foreign
Investment in Real Property Tax Act tax liability.
The federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in ProLogis should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investment in
ProLogis.
Other Tax Considerations
ProLogis Development Services Incorporated and ProLogis Logistics Services
Incorporated
ProLogis Development Services Incorporated and ProLogis Logistics Services
Incorporated will pay federal and state income taxes at the full applicable
corporate rates on its income prior to payment of any dividends. ProLogis
Development Services Incorporated and ProLogis Logistics Services Incorporated
will attempt to minimize the amount of such taxes, but there can be no
assurance whether or the extent to which measures taken to minimize taxes will
be successful. To the extent that ProLogis Development Services Incorporated or
ProLogis Logistics Services Incorporated is required to pay federal, state or
local taxes, the cash available for distribution by either company to its
shareholders will be reduced accordingly.
Tax on Built-in Gain
Pursuant to Notice 88-19. 1988-1 C.B. 486, a C corporation that elects to be
taxed as a real estate investment trust has to recognize any gain that would
have been realized if the C corporation had sold all of its
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assets for their respective fair market values at the end of its last taxable
year before the taxable year in which it qualifies to be taxed as a real estate
investment trust and immediately liquidated unless the real estate investment
trust elects to be taxed under rules similar to the rules of Section 1374 of
the Internal Revenue Code.
Since ProLogis has made this election, if during the "recognition period,"
being the 10-year period beginning on the first day of the first taxable year
for which ProLogis qualifies as a real estate investment trust, ProLogis
recognizes gain on the disposition of any asset held by ProLogis as of the
beginning of the recognition period, then, to the extent of the excess of the
fair market value of such asset as of the beginning of the recognition period
over ProLogis' adjusted basis in such asset as of the beginning of the
recognition period, such gain will be subject to tax at the highest regular
corporate rate. Because ProLogis acquires many of its properties in fully
taxable transactions and presently expects to hold each property beyond the
recognition period, it is not anticipated that ProLogis will pay a substantial
corporate level tax on its built-in gain.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in ProLogis may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service and the Treasury,
resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in federal tax
laws and interpretations thereof could adversely affect the tax consequences of
an investment in ProLogis.
State and Local Taxes
ProLogis and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of ProLogis and its shareholders may
not conform to the federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
offered securities of ProLogis.
Foreign Taxes
Frigoscandia SA, a Luxembourg corporation, and its subsidiaries and
affiliates, may be subject to taxation in various foreign jurisdictions.
Frigoscandia SA will pay any such foreign taxes prior to payment of any
dividends. Frigoscandia SA will attempt to minimize the amount of such taxes,
but there can be no assurance whether or the extent to which measures taken to
minimize taxes will be successful. To the extent that Frigoscandia SA is
required to pay foreign taxes, the cash available for distribution to its
shareholders will be reduced accordingly.
Each prospective purchaser is advised to consult with his or her tax advisor
regarding the specific tax consequences to him or her of the purchase,
ownership, and sales of ProLogis common shares in an entity electing to be
taxed as a real estate investment trust, including the federal, state, local,
foreign, and other tax consequences of such purchase, ownership, sale and
election and of potential changes in applicable tax laws.
EXPERTS
The consolidated financial statements and schedules of ProLogis as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, have been incorporated by reference herein and in the
Registration Statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, which report is incorporated by reference herein, and on the authority
of that firm as experts in accounting and auditing. Future financial statements
of ProLogis and the reports thereon of Arthur Andersen LLP also will be
incorporated by reference in this prospectus in reliance upon the authority of
that firm as experts in giving those reports to the extent said firm has
audited those financial statements and consented to the use of their reports
thereon.
18
<PAGE>
LEGAL MATTERS
Mayer, Brown & Platt will pass on various legal matters relating to the
validity of the ProLogis common shares. Mayer, Brown & Platt has in the past
represented ProLogis, some of the selling shareholders and their respective
affiliates.
WHERE YOU CAN FIND MORE INFORMATION
ProLogis is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, and files reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any materials ProLogis files with the Securities and Exchange Commission at the
its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. In addition,
the Securities and Exchange Commission maintains an Internet site that contains
reports, proxies, information statements, and other information regarding
issuers that file electronically, and the address of that site is
http://www.sec.gov. ProLogis' outstanding common shares are listed on the New
York Stock Exchange under the symbol "PLD," and all reports, proxy statements
and other information filed by ProLogis with the New York Stock Exchange may be
inspected at the New York Stock Exchange's offices at 20 Broad Street, New
York, New York 10005.
ProLogis has filed with the Securities and Exchange Commission a
registration statement on Form S-3 under the Securities Act of 1933, as
amended, with respect to the common shares of ProLogis being offered. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement. Parts
of the registration statement are omitted from this prospectus in accordance
with the rules and regulations of the Securities and Exchange Commission. For
further information, your attention is directed to the registration statement.
Statements made in this prospectus concerning the contents of any documents
referred to herein are not necessarily complete, and in each case are qualified
in all respects by reference to the copy of such document filed with the
Securities and Exchange Commission.
The Securities and Exchange Commission allows ProLogis to "incorporate by
reference" the information ProLogis files with the Securities and Exchange
Commission, which means that ProLogis can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus, and information that ProLogis files
later with the Securities and Exchange Commission will automatically update and
supersede this information.
ProLogis incorporates by reference the documents listed below:
(a) ProLogis' annual report on Form 10-K for the year ended December 31,
1998;
(b) ProLogis' current reports on Form 8-K filed March 24, 1999; and
(c) The description of the ProLogis common shares and preferred share
purchase rights contained or incorporated by reference in ProLogis'
registration statement on Form 8-A filed February 23, 1994.
The Securities and Exchange Commission has assigned file number 1-12846 to
the reports and other information that ProLogis files with the Securities and
Exchange Commission.
19
<PAGE>
You may request a copy of each of the above-listed ProLogis documents at no
cost, by writing or telephoning ProLogis at the following address or telephone
number.
Investor Relations Department
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
(800) 820-0181
www.prologis.com
All documents subsequently filed by the registrant pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act, prior to the
termination of the offering, shall be deemed to be incorporated by reference
into this prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated herein shall be deemed modified or superseded for purposes of this
prospectus to the extent that a statement contained herein or in any other
subsequently filed document that is deemed to be incorporated herein modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
prospectus.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is inconsistent with information contained in this document or
any document incorporated herein. This prospectus is not an offer to sell these
securities in any state where the offer and sale of these securities is not
permitted. The information in this prospectus is current as of the date it is
mailed to security holders, and not necessarily as of any later date. If any
material change occurs during the period that this prospectus is required to be
delivered, this prospectus will be supplemented or amended.
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities registered hereby, all of which
will be paid by the Registrant:
<TABLE>
<S> <C>
Registration fee................................................ $121,963
Printing and duplicating expenses............................... 5,000
Legal fees and expenses......................................... 10,000
Accounting fees and expenses.................................... 5,000
Miscellaneous expenses.......................................... 8,037
--------
Total....................................................... $150,000
========
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 15. Indemnification of Directors and Officers
Article 4, Section 11, of the ProLogis declaration of trust provides as
follows with respect to indemnification of Trustees:
"The Trust shall indemnify and hold harmless each Trustee from and
against all claims and liabilities, whether they proceed to judgment or are
settled, to which such Trustee may become subject by reason of his being or
having been a Trustee, or by reason of any action alleged to have been
taken or omitted by him as Trustee, and shall reimburse him for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability, including any claim or liability arising under the
provisions of federal or state securities laws; provided, however, that no
Trustee shall be indemnified or reimbursed under the foregoing provisions
in relation to any mater unless it shall have been adjudicated that his
action or omission did not constitute willful misfeasance, bad faith or
gross negligence in the conduct of his duties, or, unless, in the absence
of such an adjudication, the Trust shall have received a written opinion
from independent counsel, approved by the Trustees, to the effect that if
the matter of willful misfeasance, bad faith or gross negligence in the
conduct of duties had been adjudicated, it would have been adjudicated in
favor of such Trustee. The Trust, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses incurred by any Trustee in connection with
any threatened, pending or completed action, suit or proceeding to which
such Trustee is, was or at any time becomes a party or is threatened to be
made a party, as a result directly or indirectly, of serving at any time as
a Trustee. The rights accruing to a Trustee under these provisions shall
not exclude any other right to which he may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse such Trustee in any proper cause even though not specifically
provided for herein."
Article 9, Section 1 of the ProLogis declaration of trust provides as
follows with respect to the limitation of liability of Trustees and officers
and indemnification:
"A Trustee or officer of the Trust shall not be liable for monetary
damages to the Trust or its shareholders for any act or omission in the
performance of his duties unless:
(1) The Trustee or officer actually received an improper benefit in
money, property or services in which case, such liability shall be for
the amount of the benefit in money, property or services actually
received;
II-1
<PAGE>
(2) The Trustee's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the
cause of action being adjudicated;
(3) The Trustee's or officer's action or failure to act constitutes
willful misconduct or deliberate recklessness; or
(4) Such liability to the Trust is specifically imposed upon
Trustees or officers by statute."
Article 9, Section 6 of the declaration of trust provides as follows with
respect to the indemnification of trustees and officers:
"Notwithstanding any other provisions of this Declaration of Trust, the
Trust, for the purpose of providing indemnification for its Trustees and
officers, shall have the authority, without specific shareholder approval,
to enter into insurance or other arrangements, with persons or entities
which are not regularly engaged in the business of providing insurance
coverage, to indemnify all Trustees and officers of the Trust against any
and all liabilities and expenses incurred by them by reason of their being
Trustees or officers of the Trust, whether or not the Trust would otherwise
have the power under this Declaration of Trust or under Maryland law to
indemnify such persons against such liability. Without limiting the power
of the Trust to procure or maintain any kind of insurance or other
arrangement, the Trust may, for the benefit of persons indemnified by it,
(i) create a trust fund, (ii) establish any form of self-insurance, (iii)
secure its indemnity obligation by grant of any security interest or other
lien on the assets of the corporation, or (iv) establish a letter of
credit, guaranty or surety arrangement. Any such insurance or other
arrangement may be procured, maintained or established within the Trust or
with any insurer or other person deemed appropriate by the board of
trustees regardless of whether all or part of the stock or other securities
thereof are owned in whole or in part by the Trust. In the absence of
fraud, the judgment of the board of trustees as to the terms and conditions
of insurance or other arrangement and the identity of the insurer or other
person participating in any arrangement shall be conclusive, and such
insurance or other arrangement shall not be subject to voidability, nor
subject the Trustees approving such insurance or other arrangement to
liability, on any ground, regardless of whether Trustees participating and
approving such insurance or other arrangement shall be beneficiaries
thereof."
ProLogis has entered into indemnity agreements with each of its officers and
trustees which provide for reimbursement of all expenses and liabilities of
such officer or trustee, arising out of any lawsuit or claim against such
officer or trustee due to the fact that he was or is serving as an officer or
trustee, except for such liabilities and expenses (a) the payment of which is
judicially determined to be unlawful, (b) relating to claims under Section
16(b) of the Securities Exchange Act of 1934, as amended, or (c) relating to
judicially determined criminal violations. In addition, ProLogis has entered
into indemnity agreements with each of its trustees who is not also an officer
of ProLogis which provide for indemnification and advancement of expenses to
the fullest lawful extent permitted by Maryland law in connection with any
pending or completed action, suit or proceeding by reason of serving as a
trustee and ProLogis has established a trust to fund payments under the
indemnification agreements.
Item 21. Exhibits
The exhibits to this registration statement are listed in the Exhibit Index,
which appears immediately after the signature page and is incorporated herein
by this reference.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
A. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
II-2
<PAGE>
B. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of a prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
C. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described under Item 20 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
ProLogis has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Aurora, State of
Colorado, on March 29, 1999.
Prologis Trust
/s/ K. Dane Brooksher
By: _________________________________
K. Dane Brooksher
Chairman, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: March 29, 1999 /s/ K. Dane Brooksher ____________________________
K. Dane Brooksher
Chairman, Chief Executive Officer
and Trustee
/s/ Irving F. Lyons III* _________________________
Irving F. Lyons III
President, Chief Investment Officer and Trustee
/s/ Walter C. Rakowich* __________________________
Walter C. Rakowich
Chief Financial Officer and
Managing Director
/s/ Shari J. Jones* ______________________________
Shari J. Jones
Vice President
(Principal Accounting Officer)
/s/ Thomas G. Wattles* ___________________________
Thomas G. Wattles
Trustee
/s/ Stephen L. Feinberg* _________________________
Stephen L. Feinberg
Trustee
/s/ Donald P. Jacobs* ____________________________
Donald P. Jacobs
Trustee
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
/s/ William G. Myers* ___________________
William G. Myers
Trustee
/s/ John E. Robson* _____________________
John E. Robson
Trustee
/s/ Andre J. Teixeira* __________________
Andre J. Teixeira
Trustee
</TABLE>
*BY: March 29, 1999
/s/ K.Dane Brooksher
----------------------
K.Dane Brooksher
Attorney-in-fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Index Description Number
------- ----------- ----------
<C> <S> <C>
3.1 Amended and Restated Declaration of Trust of ProLogis
(Incorporated by reference to exhibit 4.1 to
ProLogis' registration statement No. 33-73382)
3.2 First Certificate of Amendment of Amended and
Restated Declaration of Trust of ProLogis
(Incorporated by reference to exhibit 3.1 to
ProLogis' Form 8-K dated June 14, 1994)
3.3 Second Articles of Amendment of Restated Declaration
of Trust of ProLogis (Incorporated by reference to
exhibit 4.3 to ProLogis' Registration Statement No.
33-87306)
3.4 Articles Supplementary relating to ProLogis' Series A
Cumulative Redeemable Preferred Shares of Beneficial
Interest (Incorporated by reference to exhibit 4.8 to
ProLogis' Form 8-A registration statement relating to
such shares)
3.5 First Articles of Amendment to Articles Supplementary
relating to ProLogis' Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest (Incorporated
by reference to exhibit 10.3 to ProLogis' Form 10-Q
for the quarter ended September 30, 1995)
3.6 Articles Supplementary relating to ProLogis' Series B
Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest (Incorporated by reference to
exhibit 4.1 to ProLogis' Form 8-K dated February 14,
1996)
3.7 Articles Supplementary with respect to ProLogis'
Series C Cumulative Redeemable Preferred Shares of
Beneficial Interest (Incorporated by reference to
exhibit 4.8 to ProLogis' Form 8-A dated November 13,
1996)
3.8 Articles Supplementary with respect to ProLogis'
Series D Cumulative Redeemable Preferred Shares of
Beneficial Interest (Incorporated by reference to
exhibit 4.10 to ProLogis' Form 8-A filed on April 8,
1998)
3.9 Form of Articles Supplementary with respect to
ProLogis' Series E Cumulative Redeemable Preferred
Shares of Beneficial Interest (Incorporated by
reference to exhibit 3.9 to ProLogis' registration
statement No. 333-69001)
3.10 Form of Articles of Merger (Incorporated by reference
to exhibit 3.9 to ProLogis' registration statement
No. 333-69001)
3.11 Articles of Amendment of amended and Restated
Declaration of Trust of ProLogis Trust (Incorporated
by reference to exhibit 3.1 to ProLogis' Form 10-Q
for the quarter ended June 30, 1998)
3.12 Articles of Supplementary Rights of Series A Junior
Participating Preferred Shares of ProLogis Trust
(Incorporated by reference to exhibit 3.2 to
ProLogis' Form 10-Q for the quarter ended June 30,
1998)
3.13 Certificate of Amendment of Amended and Restated
Declaration of Trust of Security Capital Industrial
Trust (Incorporated by reference to exhibit 3.3 to
ProLogis' Form 10-Q for the quarter ended June 30,
1998)
3.14 Bylaws of SCI (Incorporated by reference to exhibit
4.3 to ProLogis' Registration Statement No. 33-83208)
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accounts, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 5, 1998
included in ProLogis (formerly Security Capital Industrial) Trust's (the
"Trust") Form 10-K for the year ended December 31, 1998, and to all references
to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 30, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Frigoscandia Holding AB, we hereby
consent to the incorporation of our report dated January 28, 1999 included in
the ProLogis Trust's Form 10-K for the year ended December 31, 1998 into the
ProLogis Trust registration statement of Form S-3 (File No. 333-74917). It
should be noted that we have not audited any financial statements of the company
subsequent to December 31, 1998 or performed any audit procedures subsequent to
the date of our report.
KPMG LLP
Stockholm, March 29, 1999
