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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to .
Commission File Number 1-12846
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PROLOGIS TRUST
(Exact name of registrant as specified in its charter)
Maryland 74-2604728
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
14100 East 35th Place
Aurora, Colorado 80011
(Address of principal executive offices and zip code)
(303) 375-9292
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of Each Class on which registered
------------------- ---------------------
<S> <C>
Common Shares of Beneficial Interest, par value $0.01
Per share New York Stock Exchange
Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share New York Stock Exchange
Series B Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest, par value $0.01 per
share New York Stock Exchange
Series D Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest, par value $0.01 per
share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant as required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Based on the closing price of the registrant's shares on March 22, 1999,
the aggregate market value of the voting shares held by non-affiliates of the
registrant was $1,417,219,848.
As of March 22, 1999, there were outstanding approximately 123,755,133
common shares of beneficial interest of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1999 annual
meeting of its shareholders are incorporated by reference in Part III of this
report.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Description Page
---- ----------- ----
PART 1
<C> <S> <C>
1. Business........................................................... 1
ProLogis Trust..................................................... 1
1998 Strategic Accomplishments..................................... 2
Business Strategy.................................................. 4
ProLogis Operating System(TM)...................................... 5
Operating Strategy................................................. 6
Investment Strategy................................................ 10
Financing Strategy................................................. 12
ProLogis Management................................................ 13
Officers and Trustees of ProLogis.................................. 14
Employees.......................................................... 17
Competition........................................................ 17
Environmental Matters.............................................. 18
Insurance Coverage................................................. 18
2. Properties......................................................... 18
Product Classification............................................. 18
Geographic Distribution............................................ 19
Facilities......................................................... 20
Partnerships....................................................... 30
ProLogis Development Services...................................... 32
Unconsolidated Subsidiaries........................................ 32
3. Legal Proceedings.................................................. 34
4. Submission of Matters to a Vote of Security Holders................ 34
PART II
5. Market for the Registrant's Common Equity and Related Stockholder 34
Matters............................................................
Dividend Reinvestment and Share Purchase Plan...................... 36
6. Selected Financial Data............................................ 36
7. Management's Discussion and Analysis of Financial Condition and 38
Results of Operations..............................................
Overview........................................................... 39
Results of Operations.............................................. 41
Environmental Matters.............................................. 46
Liquidity and Capital Resources.................................... 46
Funds from Operations.............................................. 51
Year 2000.......................................................... 52
7A. Quantitative and Qualitative Disclosure About Market Risk.......... 55
8. Financial Statements and Supplementary Data........................ 55
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Matters............................................................ 55
PART III
10. Directors and Executive Officers of the Registrant................. 56
11. Executive Compensation............................................. 56
12. Security Ownership of Certain Beneficial Owners and Management..... 56
13. Certain Relationships and Related Transactions..................... 56
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 56
</TABLE>
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PART I
Item 1. Business
ProLogis Trust
ProLogis Trust ("ProLogis"), formerly Security Capital Industrial Trust, is
a global owner and lessor of industrial distribution facilities with nearly
1,250 facilities leased to industrial space users throughout North America and
Europe, making it the largest publicly held, U.S.-based company to do so.
ProLogis engages in the acquisition, development, marketing, leasing and long-
term ownership of industrial distribution facilities and the development of
master-planned distribution parks and corporate distribution facilities for
its customers. ProLogis deploys capital in markets that ProLogis believes have
excellent long-term growth prospects and where it can achieve a strong market
position through the acquisition and development of flexible facilities
designed for both warehousing and light manufacturing uses. In addition,
ProLogis, through its investments in two companies, has a network of
refrigerated distribution facilities operating in North America and Europe.
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:
. An international operating platform dedicated to providing distribution
facilities to a targeted customer base of the 1,000 largest users of
distribution facilities, 404 of which are currently ProLogis customers;
. 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
. A disciplined investment strategy based on proprietary research that
identifies high growth markets with sustainable demand for ProLogis'
distribution facilities.
As of January 31, 1999, ProLogis, including its unconsolidated
subsidiaries, owned 134.4 million square feet of industrial distribution
facilities, including 111.8 million square feet of operating facilities and
15.8 million square feet of refrigerated distribution facilities.
Additionally, ProLogis had 6.8 million square feet of distribution facilities
under development at a total expected investment of $324.2 million in 25 North
American and European markets. As of January 31, 1999, ProLogis, including its
unconsolidated subsidiaries, owned or controlled approximately 4,900 acres of
land for the future development of approximately 86.0 million square feet of
distribution facilities. As of January 31, 1999, 93.4% of the operating
facilities and facilities under development (based on cost) directly owned by
ProLogis were located in the United States, 4.6% were located in Europe and
2.0% were located in Mexico. No individual market (based on cost) represents
more than 10% of ProLogis' facilities, although ProLogis' concentration in the
Los Angeles/Orange County market is expected to be 10.3% after the merger,
discussed in "--Proposed Merger Transaction", is completed. ProLogis expects
that a significant portion of its future growth, after completion of the
merger discussed below, will be in its European target markets.
ProLogis' objective is to increase shareholder value by achieving long-term
sustainable growth in cash flow. ProLogis has built a global network of
distribution facilities and, through the ProLogis Operating System(TM),
ProLogis has become a leading provider of distribution facilities in North
America and Europe. The ProLogis Operating System(TM), comprised of the Market
Services Group, the Global Services Group and the Global Development Group,
utilizes ProLogis' international network of distribution facilities to meet
customer expansion and reconfiguration needs globally.
ProLogis is a real estate investment trust ("REIT") organized under
Maryland law and has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code").
Proposed Merger Transaction
ProLogis has entered into an Agreement and Plan of Merger dated as of
November 16, 1998, as amended, (the "Merger Agreement") with Meridian
Industrial Trust, Inc. ("Meridian"), whereby Meridian would be merged with and
into ProLogis (the "Merger"). Meridian is a publicly traded REIT that owns and
leases industrial and refrigerated distribution facilities in the United
States. The Merger Agreement, which must be
<PAGE>
approved by at least two-thirds of the holders of ProLogis common shares of
beneficial interest, par value $0.01 per share ("Common Shares"), and a
majority of the holders of Meridian's common stock, provides that each share
of Meridian common stock will be exchanged for 1.10 Common Shares, plus $2.00
in cash. Meridian has approximately 34.2 million shares of common stock and
common stock equivalents outstanding as of March 22, 1999. Additionally,
ProLogis will assume Meridian's outstanding liabilities (approximately $613.2
million as of December 31, 1998) and will exchange a new share of ProLogis
cumulative redeemable preferred shares with an 8.75% annual dividend rate
($2.1875 per share) for each outstanding share of Meridian Series D preferred
stock (aggregate liquidation value of $50 million).
ProLogis and Meridian's Joint Proxy Statement and Prospectus was mailed to
ProLogis' shareholders and Meridian's stockholders on March 2, 1999. ProLogis'
shareholders and Meridian's stockholders will vote on the Merger at special
meetings to be held on March 30, 1999.
Upon completion of the Merger, ProLogis is expected to have a total market
capitalization of approximately $6.5 billion, based upon the closing price of
Common Shares on March 22, 1999 and the outstanding principal amount of
indebtedness of the two companies on such date. The combined real estate
assets, including assets held by unconsolidated subsidiaries and joint
ventures, will consist of approximately 142.0 million square feet of operating
distribution facilities and 16.4 million square feet of refrigerated
distribution facilities. Also, the combined company, including unconsolidated
subsidiaries and joint ventures, will have 10.8 million square feet of
distribution facilities under development at a total expected investment of
$473.1 million. The combined company, including unconsolidated subsidiaries
and joint ventures, will own distribution facilities in 94 North American and
European markets and will own or control approximately 5,100 acres of land for
the future development of approximately 87.9 million square feet of
distribution facilities. The combined company will continue to qualify as a
REIT under the Code.
ProLogis intends to replace its existing $350.0 million unsecured line of
credit and Meridian's existing $350.0 million unsecured line of credit with a
new $700.0 million credit facility upon consummation of the Merger. ProLogis
has a commitment from Nationsbank, N.A., Commerzbank and Chase Bank of Texas
for this new credit facility. ProLogis expects that $550.0 million of this
credit facility will be an unsecured line of credit with the remainder a
short-term borrowing arrangement. Borrowings on the credit facility will bear
interest generally at LIBOR plus an applicable percentage based upon ProLogis'
senior unsecured debt rating (LIBOR plus 1.00% based upon ProLogis' current
debt rating) plus a 0.20% annual facility fee. The new credit facility will
contain financial covenants consistent with ProLogis' existing credit
agreement.
1998 Strategic Accomplishments
Operating Accomplishments
. ProLogis' 19.2% growth in funds from operations in 1998 over 1997 was
driven by its successful operating and investment strategies:
. 24% of growth produced by the operating performance of ProLogis'
stabilized facilities;
. 45% of growth produced by ProLogis' refrigerated distribution
operations;
. 14% of growth produced by facilities acquired in 1998 and 1997; and
. 17% of growth produced by facilities developed by ProLogis and
completed in 1998 and 1997 and other development activities.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity of Capital Resources--Funds From
Operations" and "--Investment Strategy--Investment Analysis".
2
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. ProLogis' net operating income (rental revenues less rental expenses and
property management fees) in 1998 increased from $257.5 million to
$317.9 million and ProLogis generated earnings from operations of $110.4
million in 1998, an increase of $74.5 million over 1997. ProLogis' cash
flow provided by operating activities for 1998 was $238.3 million, an
increase of $45.8 million over 1997.
. ProLogis' stabilized portfolio of 97.6 million square feet was 96.32%
leased (95.81% occupied) as of December 31, 1998. Also, as of December
31, 1998, ProLogis' total operating portfolio of 104.5 million square
feet was 94.35% leased (93.04% occupied).
. During 1998, ProLogis leased approximately 32.3 million square feet of
distribution space in 1,046 transactions. Rental rates on both new
leases and renewals of leases on previously leased space increased 15.2%
in 1998.
. As of December 31, 1998, ProLogis had over 2,650 customers leasing its
industrial distribution facilities in North America and Europe, of which
232 were multiple market customers (as compared to 190 multiple market
customers as of December 31, 1997). ProLogis directs its marketing
efforts primarily at the 1,000 largest global users of distribution
facilities. As of December 31, 1998, 399 of these 1,000 targeted
customers were leasing 41.2% of ProLogis' operating portfolio, as
compared to 315 such customers leasing 38.2% of ProLogis' operating
portfolio as of December 31, 1997.
Investing Accomplishments
. ProLogis' investment activities with respect to industrial distribution
facilities were more heavily focused on markets outside the United States
in 1998. As a percentage of total cost, ProLogis' real estate investments
located outside the United States aggregated 6.9% (4.6% in Europe and
2.3% in Mexico) as of December 31, 1998 as compared to 2.1% (1.1% in
Europe and 1.0% in Mexico) as of December 31, 1997.
. The development of distribution facilities continues to be a major
component of ProLogis' investment strategy. During 1998, ProLogis started
development of 10.4 million square feet at a total expected investment of
$426.6 million. Of the 1998 development starts, facilities for future use
by ProLogis (referred to as inventory facilities) aggregated 5.7 million
square feet at a total expected investment of $233.6 million. The
remaining development starts of 4.7 million square feet at a total
expected investment of $193.0 million were facilities developed for
future sale or on a fee basis (referred to as corporate distribution
facilities).
. As of December 31, 1998, ProLogis had 8.0 million square feet under
development at a total expected investment of $328.1 million (5.5 million
square feet of inventory facilities and 2.5 million square feet of
corporate distribution facilities).
. As of December 31, 1998, ProLogis owned 1,673 acres of land for future
development of distribution facilities and had an additional 962 acres
under control. Of the total acres owned, 33 acres are in Europe and of
the total acres under control, 34 acres are in Europe.
. Acquisitions of distribution facilities aggregated 6.0 million square
feet at a total expected investment of $219.7 million in 1998.
. During 1998, ProLogis invested in the preferred stock of three companies.
The three companies, through subsidiaries, own and lease refrigerated
distribution facilities, develop industrial distribution facilities or
own and lease industrial distribution facilities (see "--Properties--
Unconsolidated Subsidiaries"). These investments are:
. January 1998 acquisition of Frigoscandia S.A. that, through its
acquisition of Frigoscandia AB, operates approximately 192.0 million
cubic feet (11.4 million square feet) of refrigerated distribution
facilities in nine European countries as of December 31, 1998;
. August 1998 acquisition of Kingspark S.A. that, through its
acquisition of Kingspark Group Holdings Limited, operates a corporate
distribution facilities business in the United Kingdom. This business
had approximately 0.6 million square feet under development and owned
or controlled in excess of 2,000 acres of land for future development
of distribution facilities as of December 31, 1998; and
3
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. December 1998 acquisition of Garonor Holdings S. A. that, through its
acquisition of Garonor S.A., owns and leases 5.3 million square feet
of industrial distribution facilities in France.
Financing Accomplishments
. ProLogis completed common equity offerings generating net proceeds of
$130.3 million from the public sale of 5.5 million Common Shares.
. ProLogis issued 10.0 million Series D cumulative redeemable preferred
shares in April 1998 generating net proceeds of $241.5 million.
. ProLogis completed two offerings of senior unsecured notes generating net
proceeds of $371.5 million ($250.0 million issued in July at a coupon
rate of 7.05% and $125.0 million issued in October at a coupon rate of
7.0%).
. ProLogis reduced the interest rate on its $350.0 million unsecured line
of credit from LIBOR plus 0.95% to LIBOR plus 0.75%.
. ProLogis has arranged approximately $532.0 million of secured financing
agreements at interest rates ranging from of 7.08% per annum to 7.58% per
annum. As of December 31, 1998, $66.0 million was funded under one
agreement. Through March 22, 1999, an additional $239.0 million has been
funded and the remaining fundings will occur by the end of the second
quarter of 1999.
. ProLogis' debt as a percentage of undepeciated book capitalization was
41.3% as of December 31, 1998.
Business Strategy
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;
. 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.
4
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This global network of distribution facilities has ProLogis well positioned
to become the global leader in this rapidly consolidating industry.
ProLogis Operating System(TM)
The cornerstone of ProLogis' business strategy is the ProLogis Operating
System(TM). The ProLogis Operating System(TM), which is comprised of the
Market Services Group, the Global Services Group and the Global Development
Group, has been designed to provide substantial benefits to existing and
prospective ProLogis customers, including:
. Relocation Capability. Because user requirements can change frequently,
ProLogis' presence in 90 North American and European markets permits
ProLogis to accommodate the reconfiguration needs of its customers by
moving an existing customer within a market or between markets both
nationally and globally.
. Expansion Capability. ProLogis, through its development program, land
inventory and existing facilities, can work effectively with existing and
prospective customers whose growing business needs require them to expand
their distribution facilities. This expansion may result in relocating
the customer to larger ProLogis spaces within a market or in developing a
facility specifically for the customer.
. Centrally Coordinated Program. ProLogis provides a single point of
contact for multi-location global users of distribution facilities
through the Global Services Group, whose members are responsible for
building long-term customer relationships and ensuring that all of
ProLogis' services and products are consistent in quality. ProLogis'
experience to date suggests that many major corporate customers prefer
working with one firm to meet their distribution facility requirements.
. Development Capability. ProLogis' team of development professionals build
facilities to meet ProLogis' customers' needs. ProLogis incorporates the
latest technology with respect to building design and building systems
and has developed consistent standards and procedures that it strictly
adheres to in the development of all of its facilities.
Market Services Group
The Market Services Group is comprised of six senior officers, 22 market
officers and 101 property management and leasing professionals. ProLogis'
market officers have extensive experience in marketing distribution space and
are responsible for understanding the needs of existing and prospective
customers in their respective markets. To meet such needs, market officers
utilize their extensive knowledge of local market conditions, including the
cost and availability of alternative space, and are supported by their team of
property management and leasing professionals. A key role of the market
officers is assisting the Global Services Group in identifying ProLogis'
customers with multiple market requirements. ProLogis believes that the market
officers' access to national and international ProLogis resources improves
their ability to serve customers in the local market.
Market officers do not develop projects or borrow or commit capital. Their
focus is strictly on managing the facilities in their markets, creating and
maintaining relationships with distribution space users and industrial
brokers, marketing ProLogis products and identifying potential acquisition,
development and leasing opportunities in their target market cities.
Global Services Group
The Global Services Group, comprised of 19 professionals, is dedicated to
providing service to the 1,000 largest users of distribution space that
ProLogis has identified as targeted customers, with the primary focus on
making ProLogis the preferred provider of distribution space to these
companies. The Global Services Group is headquartered in Denver and Amsterdam
and has regional offices in Atlanta, Chicago, the Los Angeles metropolitan
area and the New York City metropolitan area. A key function of this group is
identifying
5
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companies whose reconfiguration and expansion plans will create future
development or multiple market opportunities to meet these customers' needs.
Global Services Group professionals build long-term relationships with
ProLogis' customers and provide a single point of contact to simplify and
streamline the execution of such customers' distribution space plans. An
ancillary benefit of this extensive contact with customers is the ability to
be on the forefront of international and national distribution and logistics
trends.
Global Development Group
The Global Development Group, comprised of 61 professionals, focuses
substantial research and development efforts on creating industry-leading
master-planned distribution parks and buildings. Members of the Global
Development Group have extensive experience in the development and
construction of these facilities.
The Global Development Group is comprised principally of architects,
engineers and construction professionals who oversee every aspect of the land
planning and building design processes. These professionals also monitor the
construction process and oversee the performance of third-party general
contractors. The group's development specialists and project managers operate
regionally to better serve their markets. The project managers supervise each
project with oversight from ProLogis' management, pursuant to uniform
standards, procedures and specifications which have been carefully designed to
achieve consistent quality.
ProLogis believes the depth and breadth of experience within the Global
Development Group enhances the effectiveness of the Global Services Group and
provides the Market Officers with a distinct competitive advantage for
development opportunities in their respective markets.
The customer focus of the ProLogis Operating System(TM) provides for a
high-quality service level and a single point of contact for distribution
solutions on a global basis and positions ProLogis to build customer
relationships which will generate additional business opportunities.
Operating Strategy
ProLogis' operating strategy is to achieve significant market presence
through acquisitions and master-planned distribution park development in its
target market cities and selected submarkets of those cities. ProLogis' target
market cities and submarkets are determined based upon ProLogis' market
research. ProLogis defines market presence not only in terms of square feet of
facilities and acres of development land owned, but also by the extent
ProLogis has developed relationships with customers in such markets. ProLogis'
operating strategy is designed to meet the needs of today's distribution space
users, which means providing functional, cost-effective facilities and a
comprehensive level of service, and to shape the future trends of the industry
through innovation, service and product leadership.
Property Management
ProLogis provides active and effective local management in order to
increase cash flow and to enhance the long-term economic performance of its
facilities. In order to provide a higher level of service to its customers,
ProLogis initiated direct property management services in January 1994 through
a property management company that was an affiliate of Security Capital Group
Incorporated ("Security Capital"), ProLogis' largest shareholder. This company
provided property management services exclusively for ProLogis' facilities. On
September 8, 1997, ProLogis acquired the property management company from
Security Capital (see "--ProLogis Management"). ProLogis' property management
group seeks to provide exceptional customer service and attention to customer
needs. The group develops and implements proprietary operating, recruiting and
training systems to achieve consistent levels of performance and
professionalism in all target market cities it manages. Through feedback
received from customers who are periodically surveyed, ProLogis' property
management group can address customers' needs and concerns in a timely manner.
6
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As of December 31, 1998, ProLogis' property management group was actively
managing 102.2 million square feet (97.8%) of ProLogis' operating portfolio of
104.5 million square feet in the United States, Mexico and Europe.
Research-Based Growth-Oriented Markets
Based on its proprietary research, ProLogis focuses on selected
distribution markets in the United States, Mexico and Europe where supply and
demand factors allow for increased occupancy levels and rental rates. Target
market cities and submarkets are selected when ProLogis' research indicates
that demand for distribution and light manufacturing space is stable to strong
in the near to medium term. ProLogis believes that the primary factors
influencing future supply and demand for distribution facilities in ProLogis'
target market cities will be continued job and population growth, related
regional and local company growth, potential for reconfiguration of existing
distribution networks and quality and cost of labor.
ProLogis focuses its investments in three types of distribution markets:
export/import growth markets, low cost manufacturing markets and growth
distribution markets. In particular, ProLogis believes that the investment
opportunities in these types of markets in Mexico and Europe provide
significant future growth opportunities. Consequently, beginning in 1997,
ProLogis has increased its investments in Mexico and Europe. See
"--ProLogis Trust".
Export/Import Growth Markets
ProLogis believes that the growth in exports and imports represents
favorable growth prospects for related distribution space. The dollar volume
of U.S. exports increased over $400.0 billion from 1987 to 1998 and the dollar
volume of U.S. imports increased from $477.4 billion in 1989 to $919.0 billion
for 1998, as reported by the U.S. Census Bureau, Foreign Trade Division. To
capitalize on this trend, ProLogis has targeted key ports (air, sea and land)
which are well positioned to benefit from continued combined growth in trade
with the Pacific Rim, Mexico and Europe. The total dollar volume of exports
from the United States to these three international trade areas grew by
approximately $130.8 billion from 1992 to 1998, as reported by the U.S. Census
Bureau, Foreign Trade Division.
In line with ProLogis' strategy to target key ports, ProLogis entered both
the Rotterdam and Amsterdam markets during 1997. Rotterdam is one of the
largest ports in the world and, in addition to its ability to accommodate all
sizes of ocean-going vessels, its success is linked to its comprehensive
infrastructure that facilitates distribution throughout Europe by air, rail,
truck and waterways. Schiphol Airport in Amsterdam is one of the fifteen
largest airports in the world based on passenger and cargo volume.
Low Cost Manufacturing Markets
ProLogis has targeted markets that possess long-term cost and quality of
labor advantages for domestic and foreign manufacturers. One important
influence on ProLogis' target market cities in Mexico and on those with close
proximity to Mexico is the impact of the maquiladora (U.S./Mexico twin plant)
program, which encourages companies to manufacture and assemble products close
to the Mexican border. After paying a nominal value added tax, companies
participating in this program ship finished products into the United States or
to foreign countries for distribution or further processing. Mexico ranked as
the second largest trading partner with the United States for 1998 and export
and import trade between the United States and Mexico should continue to be
positively affected by the North American Free Trade Agreement. ProLogis
believes that the prospects for low cost manufacturing growth in these target
markets are excellent.
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Growth Distribution Markets
The distribution markets that ProLogis targets must have strong potential
for growth. One indicator of this potential is the access to transportation
networks, including interstate highways, rail service, air cargo, intermodal
facilities and/or port terminals. These markets must also offer cost
advantages in terms of transportation rates, rental costs and state income and
inventory taxes and there must be strong overnight truck delivery area
demographics within a 500-mile radius. Additionally, these markets must have a
high ratio of distribution space per capita.
Market Presence
ProLogis believes that by being a significant local owner and developer in
a given market, it can generate above-market rental rates and occupancy levels
because of its ability to reduce turnover by meeting its customers' needs to
either expand or contract, by relocating them within existing inventory of
distribution space or by developing new facilities. A significant market
presence provides ProLogis with increased access to potential leasing and
corporate distribution facilities services transactions because the industrial
brokerage community and corporate users are often motivated to develop a
relationship with the significant owners and developers in a particular market
in order to achieve their respective business objectives. The opportunity to
compete for the majority of customers' space requirements in each target
market is a crucial factor in achieving ProLogis' operating objectives.
Customers
ProLogis' objective is to develop a customer base in each target market
city which is diverse in terms of industry concentration and represents a
broad spectrum of international, national, regional and local distribution
space users who have potential for growth in demand for space directly owned
by ProLogis. ProLogis had over 2,650 customers in the 97.3 million square feet
of occupied industrial distribution space directly owned by ProLogis. As of
December 31, 1998, 399 of ProLogis' targeted 1,000 largest users of
distribution facilities leased 41.2% of ProLogis' operating distribution
space. Of these, 232 were multiple market customers. As of December 31, 1997,
315 of the targeted 1,000 largest users of distribution facilities leased
38.2% of ProLogis' operating distribution space, of which 190 were multiple
market customers.
Customer Base
ProLogis believes that having a large number of customers with generic
space requirements in each submarket will provide the opportunity to maximize
cash flow through intensively managing its customer base. At the same time,
exposure to overall occupancy declines is reduced by having a diversified
customer base in each submarket. ProLogis' largest customer accounted for less
than 1.2% of ProLogis' 1998 rental income (on an annualized basis), and the
annualized base rent for ProLogis' 20 largest customers accounted for only
approximately 12.56% of ProLogis' 1998 rental income (on an annualized basis).
Certain square footage characteristics of ProLogis' leases in effect as of
December 31, 1998, representing a mix of local, regional, national and
international customers, are summarized as follows:
<TABLE>
<CAPTION>
Number Percentage
of of Total
Square Footage Leased Leases Square Footage
--------------------- ------ --------------
<S> <C> <C>
0-10,000............................................ 1,112 6.07%
10,001-25,000....................................... 966 16.54
25,001-50,000....................................... 564 20.51
50,001-100,000...................................... 322 23.46
100,001 and above................................... 191 33.42
----- ------
Total........................................... 3,155 100.00%
===== ======
</TABLE>
8
<PAGE>
Diversified Customer Lease Expirations and Renewals
Between December 31, 1998 and December 31, 1999, leases representing
approximately 17.97% of the leased square feet in ProLogis' portfolio will
expire, creating opportunities for ProLogis to increase rents upon renewal or
replacement of those leases. As of December 31, 1998, ProLogis' lease
expirations for operating facilities directly owned by ProLogis is as follows:
<TABLE>
<CAPTION>
Percentage of Total
Rentable Square Annual Base Annual Base Rents
Footage Subject to Base Rents Under Represented by
Expiring Leases (1) (2) Expiring Leases (1) (2) Expiring Leases (1) (2)
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
1998(3)................. 4,033,107 $ 14,117,928 3.50%
1999.................... 16,407,535 58,357,800 14.47%
2000.................... 15,875,697 63,759,744 15.81%
2001.................... 16,045,361 67,740,780 16.80%
2002.................... 13,754,066 57,482,532 14.25%
2003.................... 14,220,441 61,259,304 15.19%
2004.................... 3,681,694 14,817,420 3.67%
2005.................... 2,637,979 13,230,432 3.28%
2006.................... 2,419,682 10,807,392 2.68%
2007.................... 3,183,399 15,614,691 3.87%
2008.................... 3,504,641 18,101,641 4.49%
Thereafter.............. 1,500,997 8,000,984 1.99%
---------- ------------ -------
Total............... 97,264,599 $403,290,648 100.00%
========== ============ =======
</TABLE>
- --------
(1) Assumes customers do not exercise renewal options.
(2) Represents base rent at lease expiration, annualized.
(3) Includes 2,587,496 square feet expiring on December 31, 1998 and 1,445,611
square feet of space leased on a month-to-month basis.
Occupancy Levels
The success of ProLogis' operating strategy is reflected in the strong
occupancy levels consistently achieved since its formation in 1991. The
following table shows the total square footage of total operating facilities
and stabilized operating facilities owned by ProLogis on each date and the
historical percentage physical occupancy of such facilities as of such date.
<TABLE>
<CAPTION>
Operating Portfolio Stabilized Portfolio
(1) (1) (2)
--------------------- --------------------
Square Square
Footage Occupancy Footage Occupancy
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1998.............. 104,539,940 93.04% 97,622,114 95.81%
December 31, 1997.............. 90,842,484 92.02% 85,111,069 95.45%
December 31, 1996.............. 80,556,110 91.21% 71,106,728 96.27%
December 31, 1995.............. 58,493,330 93.48% 49,296,615 96.74%
December 31, 1994.............. 39,053,995 92.40% 32,409,549 98.36%
December 31, 1993.............. 11,393,881 91.22% 8,385,646 99.90%
December 31, 1992.............. 1,911,204 91.18% 1,649,195 100.00%
December 31, 1991(3)........... 406,000 100.00% 406,000 100.00%
</TABLE>
- --------
(1) Includes facilities directly owned by ProLogis.
(2) See definition of Stabilized in "--Investment Strategy--Investment
Analysis."
(3) ProLogis was formed in June 1991.
9
<PAGE>
Leases
Net leases, modified gross leases and gross leases as of December 31, 1998
represented 59.9%, 37.4% and 2.7%, respectively, of the total square footage
under lease by ProLogis' customers. Under net leases, real estate taxes,
insurance costs and operating expenses are passed through to customers. Under
modified gross leases, real estate taxes and insurance costs in excess of
specified amounts and operating expenses are passed through to customers.
Under gross leases, ProLogis, as landlord, pays all real estate taxes,
insurance costs and operating expenses.
Investment Strategy
ProLogis' investment strategy is to build an international distribution
network in its target markets at prices below replacement cost and to build an
inventory of land at attractive prices to support its corporate distribution
facilities services and master-planned distribution park development programs.
ProLogis makes direct investments in distribution facilities and land for
future development as well as investments in unconsolidated subsidiaries which
own and lease industrial and refrigerated distribution facilities and develop
corporate distribution facilities.
Investment Analysis
Since inception, ProLogis' primary investment activity has focused on
developing and acquiring industrial distribution facilities with prospects for
long-term growth in cash flow. ProLogis has a strong preference toward
facilities which are generic, and appeal to a broad base of potential
customers. Such facilities are easily modified for use by different customers
at reasonable costs and provide opportunities to generate superior cash flow
with low on-going capital needs. In addition, ProLogis believes it has
developed an industry-leading product design. This product incorporates design
guidelines and construction standards that make usage more convenient for the
customers and also minimizes ongoing maintenance requirements and costs. Over
the long term, ProLogis expects these characteristics to enhance its cash
flow.
Prospective investments are analyzed pursuant to several underwriting
criteria, including purchase price, replacement cost, competition and other
market factors and prospects for long-term growth in cash flow. ProLogis'
development or acquisition decision is based upon the expected contribution of
the facility to long-term cash flow growth. The expected cash flow
contribution is based on an estimate of lease revenues assuming a stabilized
vacancy factor which is generally 7%, less expenses not reimbursable by
customers incurred in operating the property. Future estimates of residual
value and, generally, the effects of debt financing are not considered in the
calculation.
ProLogis' Asset Services Group, comprised of 23 professionals, is
responsible for facility and land acquisitions and related due diligence
globally, as well as for ProLogis' asset optimization program. ProLogis'
strategy for distribution facility acquisitions focuses on these principal
components.
.Market coverage. In addition to the professionals in the Asset Services
Group, the 22 local Market Officers also assist in identifying
opportunities in their respective markets. This staffing commitment permits
in-depth acquisitions coverage of ProLogis' target markets and thorough due
diligence conducted in accordance with uniform procedures.
.Attainment of critical mass within each target market through
acquisitions of distribution space and customers in targeted sub-markets
and then opportunistically adding additional assets as attractive
opportunities arise. ProLogis believes it has achieved critical mass in
over 25 target market cities in the United States as of December 31, 1998.
For distribution facilities which ProLogis has acquired, stabilized
operations generally have been achieved six to 12 months after acquisition.
The underwriting criteria for development projects allow 12 months from shell
completion for achievement of stabilization; however, on average stabilization
has been achieved in less than 12 months. In 1998, for inventory facilities
developed that reached stabilization, the average time from shell completion
to stabilization was 9.1 months. "Stabilized" means that capital improvements,
repositioning, new management and new marketing programs (or development and
marketing, in the case of newly developed
10
<PAGE>
facilities) have been completed and in effect for a sufficient period of time
(but in no case longer than 12 months) to achieve stabilized occupancy
(typically 93%, but ranging from 90% to 95%, depending on the submarket and
product type) at market rents. ProLogis has been successful in increasing
overall occupancies on acquired and developed facilities during their initial
months of operations resulting in an occupancy rate of 95.81% for stabilized
facilities owned as of December 31, 1998.
Development of Master-Planned Distribution Parks
ProLogis' development activities concentrate on the development of
industry-leading master-planned, distribution parks in target markets that
demonstrate both strong demographic growth and excellent industrial real
estate fundamentals, and in which ProLogis can achieve a significant market
presence. ProLogis also develops facilities for major corporations and strong
regional companies within the distribution parks, and occasionally on a stand-
alone basis. The 61 professionals comprising the Global Development Group have
extensive experience in development and construction of such facilities.
ProLogis is taking advantage of opportunities to purchase land at or below
market prices in order to provide a land inventory to meet the expansion and
relocation needs of ProLogis' existing customer base and to further penetrate
its target markets. As of December 31, 1998, ProLogis directly owned 1,673
acres of development land, which in the aggregate will permit the development
of approximately 29.8 million square feet of additional distribution space in
37 markets. Also, as of December 31, 1998, ProLogis had 962 acres under
options, letters of intent or contingent contracts, subject to the completion
of due diligence, which, if acquired, will permit the development of
approximately 16.0 million square feet of additional distribution space in 16
markets. Master-planned park development is a key component of ProLogis'
objective of achieving long-term sustainable growth in cash flow.
ProLogis' parks typically range in size from 25 to 150 acres in order to
create strong identity and to permit economies of scale with respect to
providing customer services. ProLogis' master-planned distribution parks
include controls, covenants and regulations intended to maintain and enhance
the long-term desirability of the parks and thereby attract and retain high
quality distribution and light manufacturing customers.
Inventory Development Program
In ProLogis' master-planned distribution parks, ProLogis commences
development of an inventory building when it perceives an emerging demand in a
specific submarket from both existing ProLogis customers who are expanding and
potential new customers whose leases for their current space are approaching
expiration. By having an appropriate supply of distribution space, ProLogis
can meet the expansion needs of existing customers and can accommodate new
customers. From inception through December 31, 1998, ProLogis completed or
commenced development of 27.4 million square feet of inventory buildings with
a total expected investment of $1.0 billion, including 0.2 million square feet
disposed of to date, in 41 target market cities in North America and Europe.
Corporate Distribution Facilities
Building facilities for customers enhances ProLogis' ability to meet
customers' needs. ProLogis' corporate distribution facilities program is
targeted to distribution customers whose facility requirements are generic,
not special purpose, so as to facilitate the facility's future marketability
and functionality. From inception through December 31, 1998, ProLogis
completed or commenced development of corporate distribution facilities
totaling 16.1 million square feet with a total expected investment of $598.0
million, including 2.7 million square feet that have been disposed of through
December 1998. In addition, as of December 31, 1998, ProLogis was in active
negotiations for 5.2 million square feet of additional corporate distribution
facility projects globally. In 1998, ProLogis invested in a corporate
distribution facilities company in the United Kingdom. This company had in
excess of 2,000 acres of land for future development of corporate distribution
facilities as of December 31, 1998. See "Properties--Unconsolidated
Subsidiaries."
11
<PAGE>
Refrigerated Logistics Business
As of December 31, 1998, ProLogis had investments in and advances to two
unconsolidated subsidiaries of $372.6 million. These two companies had 306.1
million cubic feet of refrigerated distribution facilities (114.1 million
cubic feet in the United States and Canada and 192.0 million cubic feet in
nine countries in Europe) as of December 31, 1998. The refrigerated logistics
business operations are seasonal, in that demand for refrigerated distribution
facilities is stronger during the third quarter of the calendar year and is at
its lowest during the first quarter of the calendar year. These businesses
have approximately 8,000 customers (800 customers in the United States and
Canada and 7,200 customers in Europe) with no customer representing in excess
of 10% of ProLogis' consolidated gross revenues. These businesses employ
approximately 4,800 persons (2,200 employees in the United States and Canada
and 2,600 employees in Europe) and each business considers its relationships
with employees to be good. Approximately 1,100 employees in the United States
are covered by a collective bargaining agreement. ProLogis believes that the
capital-intensive nature of the refrigerated logistics industry creates
significant barriers to entry, limiting new competitors. As a result of
ProLogis' ongoing research into key logistics trends, ProLogis believes that
its investments in refrigerated logistics businesses represent an important
opportunity which should create significant shareholder value in the future.
See "Properties--Unconsolidated Subsidiaries."
Portfolio and Asset Optimization
ProLogis develops and acquires facilities with a view to effective long-
term operation and ownership. However, ProLogis continually reviews its asset
base in light of prevailing market conditions. These reviews assist ProLogis
in identifying facilities in its portfolio that no longer meet its long-term
investment objectives. ProLogis' asset optimization program allows ProLogis to
dispose of such assets and redeploy the proceeds, often through tax-deferred
exchanges, into assets with better prospects for long-term cash flow growth.
ProLogis' asset optimization strategy is based on the premise that it has a
finite amount of investment capital and that this capital should be deployed
where it can produce maximum cash flow growth.
Financing Strategy
ProLogis believes that a successful REIT should have the ability to access
the equity and debt markets efficiently and expeditiously. ProLogis' capital
markets ability permits it to capitalize on the acquisition and development
opportunities which exist in its target market cities. The borrowing capacity
available through ProLogis' $375.0 million unsecured lines of credit enables
ProLogis to react quickly to investment opportunities between securities
offerings. ProLogis' debt as a percentage of total undepreciated book
capitalization was 41.3% as of December 31, 1998, a level that provides
flexibility for ProLogis to prudently utilize debt as a financing tool.
Accordingly, ProLogis has arranged 8 to 25-year secured credit facilities
subsequent to December 31, 1998 and expects to continue to arrange similar
secured and unsecured credit facilities in the future, the proceeds of which
will be used primarily for the reduction of lines of credit balances incurred
as a result of ProLogis' investment activities.
Since inception in 1991, the strategic vision of ProLogis' management has
taken ProLogis from a privately held to a publicly traded REIT and has
produced a conservative balance sheet that provides sufficient incremental
debt capacity to allow ProLogis to take advantage of future investment
opportunities. ProLogis raised approximately $362.9 million through private
placements of its Common Shares prior to its initial public offering in March
1994, which raised additional net proceeds of approximately $36.5 million.
Subsequent to its initial public offering, ProLogis has raised approximately
$3.2 billion in net proceeds from public sales of both debt and equity (common
and preferred) securities.
To meet its short-term borrowing needs, ProLogis has a $350.0 million
unsecured line of credit that provides for interest at LIBOR plus 0.75%.
ProLogis has an additional $25.0 million unsecured line of credit that allows
for same-day borrowings at an overnight interest rate. This facility provides
ProLogis with additional flexibility to manage its outstanding borrowings and
minimize idle cash balances, thus reducing interest expense. In
12
<PAGE>
connection with the Meridian merger, ProLogis has obtained a commitment from
the agent banks to refinance its $350.0 million unsecured line of credit and
increase its borrowing ability to $700.0 million. See "--ProLogis Trust--
Proposed Merger Transaction".
ProLogis Management
ProLogis' success depends upon management's ability to provide strategic
and day-to-day management, research, investment analysis, acquisition and due
diligence, development, marketing, asset management, capital markets, asset
disposition, management information systems support and legal and accounting
services. A significant portion of these services are provided internally by
ProLogis' management, while certain other administrative services are
supplemented by or provided by Security Capital pursuant to an administrative
services agreement ("ASA"). The ASA provides ProLogis with services or
supplements services performed by ProLogis personnel including, but not
limited to, payroll and human resources, cash management, accounts payable,
information systems support and other computer services, research, investor
relations and insurance, legal and tax administration. These services are
provided in exchange for a fee equal to Security Capital's cost of providing
such services, plus an overhead factor of 20%, subject to a maximum of
approximately $2.0 million for the period from September 8, 1997 to December
31, 1997 and $5.1 million for 1998. Costs incurred under the ASA were $1.1
million and $3.7 million in 1997 and 1998, respectively. The ASA has been
renewed for an additional year expiring on December 31, 1999 with fees charged
by Security Capital for this period to be based on negotiated rates for each
service provided.
ProLogis believes that the quality of its management should be assessed in
light of the following factors:
. Management Depth. ProLogis has several senior executives with the
leadership, operational, investment and financial skills and experience
to oversee the entire operations of the company.
. Strategic Vision. ProLogis' management has demonstrated a strategic
vision in determining an operating and investment focus that has provided
favorable initial yields and long-term growth prospects. ProLogis'
business strategy has focused on building an international distribution
network at prices below replacement cost and a land inventory at
attractive prices in selected distribution markets where demographic and
supply factors have permitted high occupancies at increasing rents.
Through the ProLogis Operating System(TM), ProLogis has become the first
international operating company that has been able to address and service
a corporate customer's distribution space requirements on an
international, national, regional and local basis.
. Research Capability. ProLogis' management has emphasized a research-based
approach in determining appropriate investment opportunities. ProLogis
divides its target market cities into numerous submarkets for analysis
purposes. As part of the ASA, Security Capital Real Estate Research Group
Incorporated, an affiliate of Security Capital, devotes substantial time
to research, on a submarket-by-submarket basis, under the supervision of
the senior officers of ProLogis.
. Investment Committee Process. The internal investment committee provides
ProLogis with discipline and guidance to allow ProLogis to achieve its
investment goals. The 11 members of ProLogis' investment committee have
extensive years of experience in the real estate industry. The internal
investment committee evaluates all prospective investments pursuant to
uniform underwriting criteria prior to submission of investment
recommendations to the investment committee of the Board of Trustees (the
"Board"). The quality of the investment committee process is evident from
the ability of ProLogis to achieve its investment goals.
. Acquisitions Capability/Due Diligence Process/Asset Optimization.
ProLogis has experienced senior personnel dedicated to acquisition
activities who perform intelligent and thorough due diligence in
determining whether potential investments meet ProLogis' long-term
objectives. ProLogis employs 23 full-time professionals performing these
functions and has developed extensive uniform systems and procedures for
analysis and due diligence to ensure that ProLogis maximizes its
investment opportunities.
. Development Capability. By internally developing projects, ProLogis has
captured additional value which normally escapes through sales premiums
paid to successful developers. ProLogis' 61 development
13
<PAGE>
professionals have substantial development experience. ProLogis has
engaged in substantial development of distribution space at attractive
yields and believes that development will provide growth when the market
for acquisitions becomes less favorable.
. Operating Capability. ProLogis believes that management can substantially
improve operating performance and achieve long-term sustainable growth in
cash flow by actively and effectively managing assets. ProLogis conceived
of and developed the ProLogis Operating System(TM) to effectively operate
ProLogis' business and provide customers with an exceptional level of
coordinated, comprehensive services, including property management.
. Capital Markets Capability. ProLogis has been able to effectively raise
equity and debt capital which has allowed ProLogis to achieve superior
growth through investment. ProLogis enhances its ability to raise capital
and acquire assets by its ability to effectively communicate ProLogis'
strategy and performance to investors, sellers of property and the
financial media. ProLogis' personnel prepare informational materials for
and conduct periodic meetings with the investment community and analysts.
ProLogis believes that successfully combining the foregoing attributes
significantly enhances its ability to increase cash flow and its market
valuation. ProLogis' cash flow from operating activities and market valuation
have increased under the current administration.
Officers and Trustees of ProLogis
*K. Dane Brooksher--60--Mr. Brooksher was elected as a Trustee in October
1993. He has been Chairman and Chief Executive Officer of ProLogis since March
1999 and Co-Chairman and Chief Operating Officer of ProLogis from November
1993 to March 1999. Mr. Brooksher had comparable responsibilities with
ProLogis' former management company from November 1993 to September 1997.
Prior thereto, Mr. Brooksher was Area Managing Partner and Chicago Office
Managing Partner of KPMG Peat Marwick, independent public accountants, where
he served on the Board of Directors and Management Committee and as
International Development Partner for Belgium and the Netherlands. Mr.
Brooksher's term as Trustee expires in 1999.
*Stephen L. Feinberg--54--Mr. Feinberg was elected as a Trustee in January
1993. Since 1970, he has been Chairman of the Board and Chief Executive
Officer of Dorsar Investment Co., a diversified holding company with interests
in real estate and venture capital. Mr. Feinberg is also a Director of
Security Capital Preferred Growth, Continental Transmission Corporation,
Harvill Press Limited, St. John's College, The Santa Fe Institute, and the
Feinberg Foundation, Inc. He was formerly Chairman of the Board of St. John's
College, and a former director of Farrar, Strauss and Gioroux, Inc. (a private
publishing company), Molecular Informatics, Inc., Border Steel Mills, Inc.,
Springer Building Materials Corporation, Circle K Corporation, EnerServe
Products, Inc., and Texas Commerce Bank-First State. Mr. Feinberg's term as
trustee expires in 2001.
Donald P. Jacobs--71--Mr. Jacobs was elected as a Trustee in February 1996.
Mr. Jacobs has been a member of the J.L. Kellogg Graduate School of Management
of Northwestern University since 1957, and Dean since 1975. Mr. Jacobs is a
member of the Board of Directors of Commonwealth Edison and its parent
company, Unicom, Hartmarx Corporation, Everen Securities, Inc. and Terex
Corporation. He was formerly Chairman of the Public Review Board of Andersen
Worldwide. From 1990 to 1992, Mr. Jacobs was Chairman of the Advisory
Committee of the Oversight Board of the Resolution Trust Corporation for the
third region; from 1975 to 1979, Chairman of the Board of AMTRAK; from 1970 to
1971, Co-Staff Director of the Presidential Commission on Financial Structure
and Regulation; from 1963 to 1964, Senior Economist for the Banking and
Currency Committee of the U. S. House of Representatives. Mr. Jacobs' term as
Trustee expires in 2001.
John T. Kelley III--58--Mr. Kelley has been an Advisory Trustee of ProLogis
since January 1993. He is also a Trustee of Archstone Communities Trust, a
REIT affiliated with Security Capital, and a director of Regency Realty
Corporation. From 1987 to 1991, Mr. Kelley was Chairman of the Board of
Kelley-Harris Company, Inc., El Paso, Texas (real estate investment company);
from 1968 to 1987, he was Managing Director,
14
<PAGE>
LaSalle Partners Limited, Chicago, Illinois (corporate real estate services).
Mr. Kelley is also a director of Security Capital and a former director of Tri
State Media.
*Irving F. Lyons, III--49--Mr. Lyons was elected as a Trustee in March
1996. He has been President of ProLogis since March 1999 and Chief Investment
Officer from March 1997. Mr. Lyons was Co-Chairman of ProLogis from March 1997
to March 1999 and from December 1993 to March 1997, he was Managing Director.
Mr. Lyons had comparable responsibilities with ProLogis' former management
company from January 1994 to September 1997. Prior thereto, Mr. Lyons was the
Managing Partner of King & Lyons, a San Francisco Bay Area industrial real
estate development and management company, since its inception in 1979. Mr.
Lyons' term as Trustee expires in 2000.
*William G. Myers--71--Mr. Myers was elected as a Trustee in January 1995.
Mr. Myers is Chief Executive Officer of Ojai Ranch and Investment Company,
Inc., Santa Barbara, California, which he founded in 1963 (agri-business and
other investments). He was formerly a Trustee of Archstone Communities Trust,
a REIT affiliated with Security Capital. Mr. Myers serves as a Director of
S.E.E. International; the Library of Congress, James Madison Council;
California Historical Society Foundation; and St. Joseph's Health & Retirement
Foundation. He is also a Director of the Santa Barbara Botanic Gardens,
Chalone Wine Group and the Nature Conservancy. Mr. Myers' term as Trustee
expires in 2000.
John E. Robson--68--Mr. Robson was elected as a Trustee in April 1994.
Since October 1993, Mr. Robson has served as Senior Advisor of BancBoston
Robertson Stephens, Inc., a San Francisco based investment banking firm. From
1989 to 1992, Mr. Robson served as Deputy Secretary of the United States
Treasury. From 1986 to 1989, Mr. Robson was Dean and Professor of Management,
Emory University School of Business Administration. From 1977 to 1985, he
served as President and Chief Executive Officer and as Executive Vice
President of G.D. Searle & Co. (pharmaceutical and consumer products). Mr.
Robson is currently a director of Monsanto Company and Northrop Grumman
Corporation. Mr. Robson's term as Trustee expires in 2000.
J. Andre Teixeira--46--Mr. Teixeira was appointed as a Trustee in February
1999. He has been Region Manager, Ukraine and Belarus, and President, Coca-
Cola Ukraine Limited since July 1998. From 1995 to 1998, Mr. Teixeira was
Director of the Development Center, Europe, for Coca-Cola Greater Europe,
Director, Brussels Operations, Coca-Cola Greater Europe, and Managing
Director, Coca-Cola Services S.A. Mr. Teixeira was the Africa Group Account
Executive, Development, for Coca-Cola from 1994 to 1995, and Director,
Research & Development, Coca-Cola Greater Europe from 1990 to 1995. Mr.
Teixeira's term as Trustee expires in 1999.
*Thomas G. Wattles--47--Mr. Wattles was elected as a Trustee in January
1993. He was a Director of ProLogis' predecessor since its formation in June
1991. Mr. Wattles was Non-Executive Chairman of ProLogis from March 1997 to
May 1998. Mr. Wattles was Co-Chairman and Chief Investment Officer of ProLogis
from November 1993 to March 1997, and had comparable responsibilities with
ProLogis' former management company from June 1991 to September 1997. Mr.
Wattles' term as Trustee expires in 1999.
Members of ProLogis' investment committee are designated by an asterisk
(*).
Under terms of the Merger Agreement, ProLogis intends to appoint two
members of Meridian's board of directors as trustees of ProLogis upon
completion of the Merger, which is expected to be March 30, 1999 (see "--
ProLogis Trust--Proposed Merger Transaction"). These two new ProLogis trustees
are:
John S. Moody--49--Mr. Moody has been a director of Meridian since 1996 and
is a director and the Chairman and Chief Executive Officer of Cornerstone
Properties, Inc., a publicly held REIT that became self-advised in June 1995.
From April 1991 to June 1995, Mr. Moody was President and Chief Executive
Officer of Deutsche Bank Realty Advisors, where he was responsible for a $2
billion real estate portfolio. Deutsche Bank Realty Advisors was a wholly-
owned subsidiary of Deutsche Bank AG and acted as the real estate advisor to
all Deutsche Bank-sponsored real estate in North America. Mr. Moody's
professional affiliations include the Association of Foreign Investors in U.S.
Real Estate and the Urban Land Institute.
15
<PAGE>
Kenneth N. Stensby--59--Mr. Stensby has been a director of Meridian since
1996 and was President and Chief Executive Officer of United Properties, a
large Minneapolis-based diversified real estate company, from 1974 until his
retirement in January 1995. Mr. Stensby is past President of the National
Association of Industrial and Office Parks and was a director of First Asset
Realty Advisors, a pension advisory subsidiary of First Bank of Minneapolis.
Senior Officers
*Jeffrey H. Schwartz--39--Senior Managing Director and Chief Investment
Officer for International Operations of ProLogis since December 1998, where he
has overall responsibility for all international investment activities and
operations. Mr. Schwartz was Managing Director of ProLogis from December 1994
to December 1998; he had comparable responsibilities with ProLogis' former
management company from October 1994 to September 1997. Prior thereto, Mr.
Schwartz was a founder and managing partner of The Krauss/Schwartz Company,
one of the largest industrial real estate developers in Florida. Mr. Schwartz
has been a Director of Security Capital European Realty since November 1997.
*Walter C. Rakowich--41--Managing Director and Chief Financial Officer of
ProLogis since December 1998, where he is responsible for worldwide corporate
finance. From December 1997 to December 1998, Mr. Rakowich was Managing
Director of ProLogis. Mr. Rakowich had comparable responsibilities with
ProLogis' former management company from July 1994 to September 1997. Prior
thereto, Mr. Rakowich was a consultant to ProLogis in the area of due
diligence and acquisitions from October 1993 to June 1994.
*John W. Seiple--40--Managing Director of ProLogis since December 1997,
where he has been Chief Operating Officer for North American operations since
December 1998. From November 1994 to December 1997, Mr. Seiple was Senior Vice
President of ProLogis and from October 1993 to September 1997, he had
comparable responsibilities with ProLogis' former management company.
*Robert J. Watson--49--Managing Director of ProLogis since January 1993,
where he has been the Chief Operating Officer for European operations since
December 1998; he was formerly the Chief Operating Officer for North American
operations. From January 1993 to September 1997, he had comparable
responsibilities with ProLogis' former management company.
*Ned K. Anderson--52--Managing Director of ProLogis since December 1998,
where he has responsibility for the Pacific Region; from December 1993 to
December 1998, Mr. Anderson was Senior Vice President of ProLogis. Mr.
Anderson had comparable responsibilities with ProLogis' former management
company from September 1994 to September 1997. Mr. Anderson was a partner at
King & Lyons.
*Steven K. Meyer--50--Managing Director of ProLogis since December 1998,
where he has responsibility for the Central Region of the United States. Mr.
Meyer was Senior Vice President of ProLogis from December 1995 to December
1998. Mr. Meyer had comparable responsibilities with ProLogis' former
management company from September 1994 to September 1997. Prior thereto, from
1990 to July 1994, Mr. Meyer was Executive Vice President with Trammell Crow
Company.
Paul C. Congleton--44--Senior Vice President of ProLogis since December
1998, where he has responsibility for the Southeast Region. Mr. Congleton was
Vice President of ProLogis from January 1995 to December 1998; from January
1995 to September 1997, he had comparable responsibilities with ProLogis'
former management company. Prior thereto, from October 1990 to December 1994,
he was Principal with Overland Company.
Kent W. Johnson--45--Senior Vice President of ProLogis since July 1995,
where he heads the Global Services Group; from July 1995 to September 1997, he
had comparable responsibilities with ProLogis' former management company.
Prior thereto, from March 1994 to June 1995, Mr. Johnson was National Director
for Sequent Computer Systems; from January 1977 to March 1994, he held various
positions with IBM, including National Account Director and Branch Manager.
16
<PAGE>
M. Gordon Keiser, Jr.--54--Senior Vice President of ProLogis since October
1995 and Treasurer since December 1998, where he is responsible for
relationships with ProLogis lenders; from October 1995 to September 1997, he
had comparable responsibilities with ProLogis' former management company.
Prior thereto, from August 1988 to October 1995, Mr. Keiser was Senior Vice
President of JMB Realty Corporation, where he was responsible for corporate
finance and capital markets financing. Previously, he was with KPMG Peat
Marwick. Mr. Keiser is a Certified Public Accountant.
Edward F. Long--42--Senior Vice President and Controller of ProLogis since
December 1998, where he supervises accounting, financial reporting and
forecasting. From January 1996 to December 1998, Mr. Long was Vice President
and Controller of ProLogis; from June 1995 to September 1997, he had
comparable responsibilities with ProLogis' former management company. Prior
thereto, from December 1990 to June 1995, he was Director of Financial
Services for Coopers & Lybrand in Central Florida and the Carolinas. Mr. Long
is a Certified Public Accountant.
David S. Morze--38--Senior Vice President of ProLogis since January 1999,
where he has responsibility for the Mid-Atlantic Region. Mr. Morze was Vice
President of ProLogis from March 1995 to December 1998; from March 1995 to
September 1997, he had comparable responsibilities with ProLogis' former
management company. Prior thereto, from May 1993 to March 1995, Mr. Morze was
employed by the SARES*REGIS GROUP of Northern California, where he was
responsible for marketing and leasing activities in the San Francisco Eastbay
Industrial Market.
Edward S. Nekritz--33--Senior Vice President of ProLogis since December
1998 and Secretary since March 1999, where he serves as General Counsel and
oversees the provision of all legal services for ProLogis. Mr. Nekritz also
focuses on strategic initiatives and is responsible for the coordination of
ProLogis' international leasing and environmental compliance programs. From
September 1995 to December 1998, Mr. Nekritz was Vice President of ProLogis;
from September 1995 to September 1997, he had comparable responsibilities with
ProLogis' former management company. Prior thereto, from October 1990 to
September 1995, Mr. Nekritz was an attorney with Mayer, Brown & Platt.
John R. Rizzo--49--Senior Vice President of ProLogis since January 1999,
where he supervises development services related to construction management
and corporate distribution facilities. Prior thereto, from 1983 to January
1999, Mr. Rizzo was with the Perini Corporation, where his most recent
position was Senior Vice President and Chief Operating Officer of Perini
Management Services Incorporated.
Robin P. R. von Weiler--42--Senior Vice President of ProLogis since October
1997, where he is regional director for Northern Europe. Prior thereto, from
April 1972 to September 1997, he was with DTZ Zadelhoff V.O.F., where his most
recent position was Vice Managing Director, Real Estate Agent and Corporate
Advisor. Mr. von Weiler is a registered Real Estate Agent and a Member of the
Dutch Real Estate Agents Association.
Employees
ProLogis directly employs approximately 480 persons in the United States,
Mexico and Europe and believes its relationship with its employees to be good.
ProLogis' employees are not represented by a collective bargaining agreement.
Competition
In general, there are numerous other industrial facilities located in close
proximity to each of ProLogis' facilities. The amount of rentable space
available in any target market city could have a material effect on ProLogis'
capacity to rent space and on the rents charged. In addition, in many of
ProLogis' submarkets, institutional investors and owners and developers of
industrial facilities (including other REITs) compete for the acquisition,
development and leasing of industrial space. Many of these entities have
substantial resources and experience. Competition for acquisition of existing
distribution facilities from industrial capital sources and from other REITs
has increased substantially in the past several years.
17
<PAGE>
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous substances. The
presence of such substances may adversely affect the owner's ability to sell
such real estate or to borrow using such real estate as collateral. ProLogis
has not been notified by any governmental authority of any non-compliance,
liability or other claim in connection with any of the properties owned or
being acquired at December 31, 1998, and ProLogis is not aware of any
environmental condition with respect to any of its properties that is likely
to be material. ProLogis has subjected each of its properties to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the environmental assessments has revealed, nor is ProLogis aware of, any
environmental liability (including asbestos-related liability) that ProLogis
believes would have a material adverse effect on its business, financial
condition or results of operations. No assurance can be given, however, that
these assessments and investigations reveal all potential environmental
liabilities, that no prior owner or operator created any material
environmental condition not known to ProLogis or the independent consultants
or that future uses or conditions (including, without limitation, customer
actions or changes in applicable environmental laws and regulations) will not
result in unreimbursed costs relating to environmental liabilities.
Insurance Coverage
ProLogis and its unconsolidated subsidiaries currently carry comprehensive
liability, fire, flood, earthquake, environmental, extended coverage and
rental loss insurance with respect to their facilities with policy
specifications and insured limits customarily carried for similar facilities.
ProLogis believes its facilities and the facilities of its unconsolidated
subsidiaries are adequately insured; however, an uninsured loss could result
in loss of capital investment and anticipated profits.
Item 2. Properties
Product Classification
ProLogis' objective is to focus its acquisition and development activities
primarily on generic distribution facilities with an average office finish
level of less than 10%. Due to typically increased costs of retrofitting
customer spaces, service center product will be acquired only on a very
limited basis as part of portfolio acquisitions in which the majority of
product being acquired is bulk distribution. The industrial real estate on
which ProLogis focuses is typically used for storage, packaging, assembly,
distribution and light manufacturing of consumer and industrial products.
.Distribution. ProLogis' distribution space is adaptable for both
distribution and light manufacturing or assembly uses. Based upon square
footage, ProLogis' operating portfolio was 99% distribution and light
manufacturing facilities as of December 31, 1998. The following
characteristics generally define the distribution facilities which
ProLogis owns and intends to acquire or develop in the future:
<TABLE>
<CAPTION>
Typical Range
------- -----
<S> <C> <C>
Clear Height............ 22 ft.-24 ft. 18 ft.-30 ft.
Building Depth.......... 180 ft.-240 ft. 140 ft.-300 ft.
Loading................. Dock Dock or Dock and Grade
Parking Ratio........... 0.9 spaces/1,000 sq. ft. 0.5 spaces/1,000 sq. ft.
2.0 spaces/1,000 sq. ft.
Average Square Footage
Per Customer........... 30,829 sq. ft. 4,500-200,000 sq. ft.
Site Coverage........... 45% 30-50%
</TABLE>
18
<PAGE>
.Service Center. Under ProLogis' definition, service centers are multi-
customer buildings that have a higher percentage of office space than
distribution facilities and only have grade-level loading as opposed to
truck dock loading. Service center product constituted approximately 1% of
the square feet in ProLogis operating portfolio as of December 31, 1998.
Geographic Distribution
ProLogis has direct ownership of industrial distribution facilities in the
United States, Mexico and Europe. In the United States and Mexico, ProLogis
has organized its operations into geographic regions to more effectively
manage its portfolio. These operating regions are: Mid-Atlantic, Southeast,
Central (including Mexico) and Pacific. Within these four regions, ProLogis'
facilities are located in 21 states and the District of Columbia and 40 cities
(including four cities in Mexico). In Europe, ProLogis' facilities are located
in four countries and six cities. The table below demonstrates the geographic
distribution of ProLogis' portfolio (operating facilities and facilities under
development). The table excludes land held for future development which
represents less than 5% of ProLogis' total investment, based on cost as of
December 31, 1998 and 1997. The table does not include facilities that are
owned by ProLogis' unconsolidated subsidiaries which are discussed under " --
Unconsolidated Subsidiaries". The concentration of ProLogis' facilities is
expected to increase in the Dallas (to 7.5%), Los Angeles (to 10.3%) and
Columbus (to 3.8%) markets after the merger with Meridian is completed.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------------- -----------------------
Percentage Percentage
Number of Assets Based Number of Assets Based
Facilities on Cost (1) Facilities on Cost (1)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
North American Markets:
Atlanta, Georgia....... 104 7.15% 107 8.16%
Austin, Texas.......... 37 2.22 32 2.25
Birmingham, Alabama.... 6 0.96 6 1.14
Charlotte, North
Carolina.............. 29 2.41 27 2.48
Chattanooga, Tennessee. 5 0.43 5 0.51
Chicago, Illinois...... 40 4.89 36 4.93
Cincinnati, Ohio....... 43 3.15 38 2.86
Columbus, Ohio......... 21 2.10 17 2.08
Dallas/Ft. Worth,
Texas................. 71 5.07 67 5.38
Denver, Colorado....... 26 2.46 23 2.20
East Bay (San
Francisco),
California............ 44 3.55 44 4.09
El Paso, Texas......... 27 2.33 26 2.64
Fort Lauderdale/Miami,
Florida............... 11 1.49 7 1.02
Houston, Texas......... 74 4.73 70 4.68
Indianapolis, Indiana.. 41 3.15 42 3.79
Juarez, Mexico......... 4 0.26 3 0.29
Kansas City,
Kansas/Missouri....... 29 1.57 28 1.78
Las Vegas, Nevada...... 14 1.50 14 1.75
Los Angeles/Orange
County, California.... 29 6.38 22 5.45
Louisville, Kentucky... 8 0.97 3 0.55
Memphis, Tennessee..... 25 2.13 28 1.89
Monterrey, Mexico...... 8 1.04 5 0.55
Nashville, Tennessee... 27 1.66 24 1.66
I-95 Corridor, New
Jersey................ 21 3.89 11 3.42
Oklahoma City,
Oklahoma.............. 6 0.29 6 0.34
Orlando, Florida....... 17 1.16 15 1.11
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------ ------------------------
Percentage Percentage
Number of Assets Based Number of Assets Based
Facilities on Cost (1) Facilities on Cost (1)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Phoenix, Arizona....... 25 1.32 25 1.59
Portland, Oregon....... 29 2.11 27 2.23
Reno, Nevada........... 17 1.29 19 2.05
Reynosa, Mexico........ 8 0.67 4 0.36
Rio Grande Valley,
Texas................. 15 0.85 15 1.00
Salt Lake City, Utah... 9 1.46 7 1.41
San Antonio, Texas..... 46 2.70 50 3.30
San Diego, California.. 3 0.38 3 0.45
Seattle, Washington.... 10 1.34 9 1.39
South Bay (San
Francisco),
California............ 70 6.06 70 7.26
St. Louis, Missouri.... 15 1.13 11 0.92
Tampa, Florida......... 62 3.41 59 3.85
Tijuana, Mexico........ 2 0.26 -- --
Tulsa, Oklahoma........ 10 0.37 10 0.44
Washington
D.C./Baltimore,
Maryland.............. 39 3.98 40 5.00
Other.................. 8 0.46 7 0.34
----- ------ ----- ------
1,135 94.73% 1,062 98.59%
----- ------ ----- ------
European Markets:
Amsterdam, Netherlands. 4 1.18% 1 0.33%
London, England........ 1 0.97 -- --
Lyon, France........... 3 0.62 1 0.28
Paris, France.......... 4 0.82 1 0.25
Rotterdam, Netherlands. 2 0.45 2 0.55
Warsaw, Poland......... 5 1.23 -- --
----- ------ ----- ------
19 5.27% 5 1.41%
----- ------ ----- ------
Total................ 1,154(2) 100.00% 1,067(3) 100.00%
===== ====== ===== ======
</TABLE>
- --------
(1) Includes facilities under development at their budgeted total development
costs, rather than costs incurred to date.
(2) Includes 55 buildings under development.
(3) Includes 62 buildings under development.
Facilities
The information in the following table is as of December 31, 1998. No
individual facility, or group of facilities operated as a single business
unit, amounted to 10% or more of ProLogis' consolidated total assets as of
December 31, 1998 nor did the gross revenue from any such facilities amount to
10% or more of ProLogis' consolidated gross revenues for the year ended
December 31, 1998.
20
<PAGE>
PROLOGIS TRUST
SCHEDULE OF PROPERTIES
<TABLE>
<CAPTION>
Rentable
Percentage Square ProLogis Accumulated
Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances
or Completed Bldgs. (1) (2) (1) (1) (3)
---------------------------- ------ ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Facilities
Owned as of December
31, 1998
Amsterdam, Netherlands
Airport............... 1998 2 97.62% 266,505 $ 21,929,313 $ 151,613 $ --
Zaandam............... 1998 1 100.00% 167,348 9,408,036 182,551 --
--- ------- --------- ------------ ---------- -----------
3 98.54% 433,853 31,337,349 334,164 --
--- ------- --------- ------------ ---------- -----------
Atlanta, Georgia
Central/Atlanta....... 1996 4 100.00% 347,560 3,319,074 -- --
I-20/West/Fulton...... 1994, 1995, 1996, 1997 32 95.48% 3,199,660 73,450,813 7,416,903 --
I-85/Airport.......... 1994, 1995, 1996, 1997, 1998 19 79.21% 1,134,942 45,214,151 3,814,006 6,632,083
I-85/Northeast........ 1994, 1995, 1996, 1997 44 92.66% 3,830,428 108,405,715 9,261,862 1,045,411
--- ------- --------- ------------ ---------- -----------
99 92.23% 8,512,590 230,389,753 20,492,771 7,677,494
--- ------- --------- ------------ ---------- -----------
Austin, Texas
I-35/Central.......... 1994, 1995, 1996 12 100.00% 648,939 24,490,160 2,171,339 --
I-35/North/Mopac...... 1993, 1995, 1996 8 100.00% 563,600 20,500,881 1,878,504 --
I-35/South............ 1994, 1995, 1996 12 99.49% 725,874 26,371,184 2,705,110 --
--- ------- --------- ------------ ---------- -----------
32 99.81% 1,938,413 71,362,225 6,754,953 --
--- ------- --------- ------------ ---------- -----------
Birmingham, Alabama
I-459/South/Perimeter. 1994 2 83.72% 606,850 17,242,184 2,282,576 --
I-65/Oxmoor........... 1994 4 100.00% 528,428 16,846,983 2,213,100 6,811,951
--- ------- --------- ------------ ---------- -----------
6 91.30% 1,135,278 34,089,167 4,495,676 6,811,951
--- ------- --------- ------------ ---------- -----------
Charlotte, North
Carolina
I-77/Southwest (4).... 1994 13 97.89% 1,334,182 34,014,328 4,466,957 --
I-85/North Charlotte.. 1997 2 92.83% 148,394 3,769,854 179,839 --
I-85/Northeast........ 1994, 1995, 1996, 1997, 1998 11 82.52% 1,220,843 36,409,844 1,818,494 --
I-85/Northwest........ 1994 2 100.00% 404,351 6,919,533 937,191 --
--- ------- --------- ------------ ---------- -----------
28 91.88% 3,107,770 81,113,559 7,402,481 --
--- ------- --------- ------------ ---------- -----------
Chattanooga, Tennessee
Amnicola Highway...... 1994 4 100.00% 1,075,872 13,939,478 1,684,682 --
I-24/Tiftonia......... 1995 1 100.00% 72,000 1,159,573 121,594 --
--- ------- --------- ------------ ---------- -----------
5 100.00% 1,147,872 15,099,051 1,806,276 --
--- ------- --------- ------------ ---------- -----------
Chicago, Illinois
Army Trail
Corridor/Chicago..... 1997, 1998 5 59.47% 788,523 29,903,921 624,637 --
I-55 Corridor......... 1998 1 56.38% 182,400 7,533,779 -- --
I-90/O'Hare (5)....... 1995, 1996, 1997, 1998 27 91.24% 3,074,164 106,567,911 5,598,379 11,159,767
South Cook County..... 1996 6 84.12% 1,005,908 24,678,024 1,271,866 --
--- ------- --------- ------------ ---------- -----------
39 83.60% 5,050,995 168,683,635 7,494,882 11,159,767
--- ------- --------- ------------ ---------- -----------
Cincinnati, Ohio
I-71/I-275............ 1995 1 100.00% 60,000 1,457,820 130,060 --
I-74/West (6)......... 1994, 1998 2 100.00% 308,880 5,938,831 388,888 1,653,704
I-75/South-N.
Kentucky............. 1996, 1998 3 100.00% 628,507 16,136,342 987,563 --
I-75 North/Cincinnati. 1994, 1995, 1996, 1997, 1998 34 95.20% 2,775,065 75,156,030 5,118,358 --
--- ------- --------- ------------ ---------- -----------
40 96.47% 3,772,452 98,689,023 6,624,869 1,653,704
--- ------- --------- ------------ ---------- -----------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Rentable
Percentage Square ProLogis Accumulated
Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances
or Completed Bldgs. (1) (2) (1) (1) (3)
---------------------------------- ------ ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Columbus, Ohio
I-270/East........ 1994 5 92.59% 566,398 $ 12,148,714 $ 1,410,233 $ --
I-270/Southeast... 1994 1 100.00% 121,200 1,928,231 241,883 --
I-270/West........ 1995, 1996, 1997, 1998 9 95.89% 1,059,447 24,768,567 1,933,524 --
I-270/Southwest... 1996, 1998 4 100.00% 1,068,916 27,342,268 1,706,221 --
--- ------- --------- ------------ ----------- -----------
19 96.96% 2,815,961 66,187,780 5,291,861 --
--- ------- --------- ------------ ----------- -----------
Dallas/Fort Worth,
Texas
I-30/Great
Southwest (4)(6). 1994, 1995, 1996, 1997, 1998 19 98.55% 1,681,508 44,010,548 2,510,970 10,962,760
I-35/Stemmons
Corridor (4)..... 1994, 1995, 1996 12 93.37% 704,150 13,796,298 1,466,931 --
I-35 South/Fort
Worth............ 1996 1 100.00% 74,500 2,656,843 190,180 --
I-635/Northgate
(4).............. 1994, 1996 5 92.48% 531,149 11,365,357 1,348,223 --
I-635/Valwood..... 1995, 1996, 1997, 1998 18 92.48% 2,047,188 59,738,615 3,161,847 15,553,387
I-635/DFW/Airport
(4).............. 1996, 1997, 1998 4 60.28% 320,708 10,221,866 387,741 --
I-820/North Fort
Worth............ 1994, 1995, 1996 4 88.81% 372,883 7,595,551 847,088 --
Redbird/Loop 12... 1994, 1996 3 100.00% 380,063 8,043,492 692,722 --
--- ------- --------- ------------ ----------- -----------
66 92.90% 6,112,149 157,428,570 10,605,702 26,516,147
--- ------- --------- ------------ ----------- -----------
Denver, Colorado
I-70/Northeast
(4).............. 1992, 1993, 1994, 1995, 1996, 1998 22 95.53% 2,611,255 63,165,730 8,598,463 --
--- ------- --------- ------------ ----------- -----------
22 95.53% 2,611,255 63,165,730 8,598,463 --
--- ------- --------- ------------ ----------- -----------
East Bay (San
Francisco),
California
Hayward/San
Leandro (4)(7)... 1993, 1994 37 98.40% 2,812,314 103,730,085 14,715,085 15,655,532
Tracy............. 1993, 1997, 1998 7 73.19% 605,713 22,145,904 1,044,333 --
--- ------- --------- ------------ ----------- -----------
44 93.93% 3,418,027 125,875,989 15,759,418 15,655,532
--- ------- --------- ------------ ----------- -----------
El Paso, Texas
I-10/East/Vista
Del Sol (4)...... 1993, 1994, 1995, 1996, 1997, 1998 20 87.24% 2,428,102 64,836,354 6,616,764 6,364,342
I-10/Lower Valley. 1994 1 100.00% 108,125 2,345,878 296,671 --
I-10/Northwest.... 1992, 1993, 1994, 1997, 1998 6 94.91% 629,172 18,058,802 1,548,275 --
--- ------- --------- ------------ ----------- -----------
27 89.20% 3,165,399 85,241,034 8,461,710 6,364,342
--- ------- --------- ------------ ----------- -----------
Fort
Lauderdale/Miami,
Florida
Airport West...... 1995, 1998 2 100.00% 188,960 8,476,746 407,572 --
I-95/Hollywood
(5).............. 1995, 1997, 1998 5 91.47% 746,978 32,753,010 1,030,139 --
I-95/North (4).... 1994, 1997, 1998 3 100.00% 187,581 8,496,464 736,891 2,369,287
--- ------- --------- ------------ ----------- -----------
10 94.33% 1,123,519 49,726,220 2,174,602 2,369,287
--- ------- --------- ------------ ----------- -----------
Houston, Texas
I-10/Central
Business
District......... 1995 1 100.00% 168,869 3,356,441 368,363 --
I-10/West/Post Oak 1993, 1994, 1996 24 96.85% 1,500,614 43,039,474 5,513,701 10,520,585
I-610/East/Hobby.. 1994 8 99.37% 515,328 10,608,086 1,299,359 --
I-610/North....... 1993, 1994, 1995 19 96.28% 1,441,356 37,412,202 4,172,740 11,942,673
Northwest/U. S.
290.............. 1993, 1994, 1995, 1996, 1997, 1998 19 99.14% 2,016,935 52,096,391 4,431,708 --
--- ------- --------- ------------ ----------- -----------
71 97.84% 5,643,102 146,512,594 15,785,871 22,463,258
--- ------- --------- ------------ ----------- -----------
Indianapolis,
Indiana
I-465/Northwest... 1994, 1995 24 92.04% 2,312,175 69,227,313 6,707,229 --
I-69/Northeast.... 1995 1 71.78% 276,000 7,022,028 787,610 --
I-70/East......... 1995 5 100.00% 382,400 6,871,809 651,724 --
I-70/West......... 1994, 1995, 1996 9 64.87% 644,754 19,773,373 1,770,533 --
I-70 Southwest/
Indianapolis..... 1997, 1998 2 94.61% 346,800 9,345,013 -- --
--- ------- --------- ------------ ----------- -----------
41 87.20% 3,962,129 112,239,536 9,917,096 --
--- ------- --------- ------------ ----------- -----------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Rentable
Percentage Square ProLogis Accumulated
Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances
or Completed Bldgs. (1) (2) (1) (1) (3)
---------------------------- ------ ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Juarez, Mexico
Southeast............... 1998 3 31.16% 224,640 $ 8,408,447 $ 120,630 $ --
--- ------- --------- ------------ ---------- -----------
3 31.16% 224,640 8,408,447 120,630 --
--- ------- --------- ------------ ---------- -----------
Kansas City,
Kansas/Missouri
Executive Park.......... 1998 1 100.00% 41,258 1,763,606 16,913 1,107,846
I-35/Overland Park...... 1994 3 100.00% 90,163 3,796,594 477,761 --
I-35/South Corridor..... 1994 1 100.00% 99,197 2,332,261 303,806 --
I-35/Wyandotte.......... 1994, 1996 2 100.00% 154,992 3,955,807 472,165 --
I-70/Riverside.......... 1994, 1996, 1997 22 91.81% 1,192,877 43,831,165 4,622,546 13,163,742
--- ------- --------- ------------ ---------- -----------
29 93.81% 1,578,487 55,679,433 5,893,191 14,271,588
--- ------- --------- ------------ ---------- -----------
Las Vegas, Nevada
Airport/Southwest....... 1994, 1996 5 91.95% 399,157 21,127,782 1,619,852 8,819,036
I-15/North.............. 1994, 1995, 1996, 1997 7 83.66% 844,261 25,354,343 1,795,311 317,417
I-515/Henderson......... 1997 2 67.53% 205,378 7,654,975 121,903 --
--- ------- --------- ------------ ---------- -----------
14 83.66% 1,448,796 54,137,100 3,537,066 9,136,453
--- ------- --------- ------------ ---------- -----------
Los Angeles/Orange
County, California
Central Los Angeles..... 1997 3 100.00% 568,371 22,164,261 743,880 --
I-5/Mid-Counties........ 1995, 1997, 1998 8 92.37% 1,342,018 54,778,029 2,125,308 --
I-5/North-Central Orange
County................. 1996 2 100.00% 1,182,051 38,958,104 1,664,536 --
I-5/South Orange County. 1996, 1997, 1998 8 87.16% 961,129 45,321,136 1,188,426 --
LAX--Commerce........... 1998 1 0.00% 99,166 3,730,607 -- --
LAX--Inland Empire...... 1998 5 95.80% 1,474,587 54,271,016 -- --
Irvine/Orange County
Airport................ 1994 1 100.00% 100,000 4,377,808 497,101 --
--- ------- --------- ------------ ---------- -----------
28 93.24% 5,727,322 223,600,961 6,219,251 --
--- ------- --------- ------------ ---------- -----------
Louisville, Kentucky
I-264/Riverport......... 1995, 1996, 1998 3 100.00% 815,900 15,261,935 456,009 --
Southside............... 1998 3 100.00% 437,380 9,427,059 130,802 --
--- ------- --------- ------------ ---------- -----------
6 100.00% 1,253,280 24,688,994 586,811 --
--- ------- --------- ------------ ---------- -----------
Lyon, France
L'Isle d'Abeau.......... 1997, 1998 2 100.00% 522,280 17,116,598 301,519 11,477,216
--- ------- --------- ------------ ---------- -----------
2 100.00% 522,280 17,116,598 301,519 11,477,216
--- ------- --------- ------------ ---------- -----------
Memphis, Tennessee
I-240/Southeast......... 1994, 1995, 1996, 1997, 1998 24 94.83% 3,186,466 62,160,974 5,097,454 6,263,917
--- ------- --------- ------------ ---------- -----------
24 94.83% 3,186,466 62,160,974 5,097,454 6,263,917
--- ------- --------- ------------ ---------- -----------
Monterrey, Mexico
Apodaca................. 1997, 1998 5 90.18% 458,243 15,513,918 407,133 --
Ojo de Agua............. 1998 1 100.00% 151,720 6,420,848 14,955 --
--- ------- --------- ------------ ---------- -----------
6 92.62% 609,963 21,934,766 422,088 --
--- ------- --------- ------------ ---------- -----------
Nashville, Tennessee
I-24/Southeast.......... 1994, 1995, 1996, 1997, 1998 24 85.67% 2,537,019 54,033,617 4,718,455 --
I-40/Southeast.......... 1995, 1996 3 84.47% 154,500 4,679,462 479,078 --
--- ------- --------- ------------ ---------- -----------
27 85.60% 2,691,519 58,713,079 5,197,533 --
--- ------- --------- ------------ ---------- -----------
New Jersey/I-95 Corridor
Meadowlands............. 1996, 1998 8 95.77% 1,248,756 48,724,390 2,094,252 --
Route 287/Exit 10 I-95 (6)... 1996, 1997, 1998 9 100.00% 1,548,644 44,131,785 2,513,596 --
Route 535/Exit 8A I-95.. 1998 2 59.59% 617,600 23,940,044 90,315 --
--- ------- --------- ------------ ---------- -----------
19 91.14% 3,415,000 116,796,219 4,698,163 --
--- ------- --------- ------------ ---------- -----------
Oklahoma City, Oklahoma
I-40/Southwest.......... 1993, 1994 6 98.52% 639,942 10,457,377 1,461,940 --
--- ------- --------- ------------ ---------- -----------
6 98.52% 639,942 10,457,377 1,461,940 --
--- ------- --------- ------------ ---------- -----------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Rentable
Percentage Square ProLogis Accumulated
Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances
or Completed Bldgs. (1) (2) (1) (1) (3)
---------------------------------- ------ ---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Orlando, Florida
East
Orlando/Titusville
(5)................ 1994 1 24.64% 51,383 $ 1,972,284 $ 230,839 $ 4,658,879
I-4/33rd Street
(5)(6)............. 1994, 1995, 1996 9 100.00% 489,891 14,439,399 1,360,013 862,240
Orlando Central
Park............... 1994, 1997, 1998 5 88.39% 641,802 16,670,519 913,901 --
--- ------ --------- ----------- ----------- -----------
15 90.43% 1,183,076 33,082,202 2,504,753 5,521,119
--- ------ --------- ----------- ----------- -----------
Paris, France
CDG/North........... 1997 1 100.00% 301,994 8,505,776 361,760 5,854,402
Orly Airport........ 1998 2 100.00% 384,641 16,341,506 204,717 11,882,628
West................ 1998 1 100.00% 121,256 4,206,537 10,873 --
--- ------ --------- ----------- ----------- -----------
4 100.00% 807,891 29,053,819 577,350 17,737,030
--- ------ --------- ----------- ----------- -----------
Phoenix, Arizona
I-10/Central........ 1993, 1994, 1995 4 100.00% 341,407 7,716,116 1,070,345 --
I-10/West........... 1993, 1994 10 100.00% 450,329 9,143,409 1,290,775 --
Tempe............... 1992, 1996, 1998 11 91.97% 911,081 30,416,009 2,307,437 --
--- ------ --------- ----------- ----------- -----------
25 95.70% 1,702,817 47,275,534 4,668,557 --
--- ------ --------- ----------- ----------- -----------
Portland, Oregon
I-205/Clackamas..... 1998 1 50.22% 125,840 4,892,528 49,002 --
I-5/Columbia
Corridor........... 1993, 1994, 1995,1996,1997,1998 16 97.13% 1,142,795 39,543,210 2,894,838 329,681
I-5/Wilsonville..... 1995, 1996 6 100.00% 379,000 14,511,544 1,211,642 128,509
Sunset Corridor..... 1997 4 71.21% 172,200 8,628,802 -- --
--- ------ --------- ----------- ----------- -----------
27 92.03% 1,819,835 67,576,084 4,155,482 458,190
--- ------ --------- ----------- ----------- -----------
Reno, Nevada
I-80/Sparks......... 1993, 1994, 1995, 1990 15 99.15% 1,225,586 36,022,412 4,273,374 --
U.S. 395/Reno North. 1996, 1998 2 53.14% 331,200 9,866,308 343,721 --
--- ------ --------- ----------- ----------- -----------
17 89.36% 1,556,786 45,888,720 4,617,095 --
--- ------ --------- ----------- ----------- -----------
Reynosa, Mexico
Del Norte........... 1998 2 100.00% 210,512 6,785,227 35,749 --
Reynosa Industrial
Park............... 1997, 1998 5 72.89% 418,852 13,419,345 154,892 --
--- ------ --------- ----------- ----------- -----------
7 81.96% 629,364 20,204,572 190,641 --
--- ------ --------- ----------- ----------- -----------
Rio Grande Valley
(Brownsville), Texas
I-77/Lower Valley... 1995, 1997, 1998 15 100.00% 1,126,746 31,250,745 2,174,884 3,055,597
--- ------ --------- ----------- ----------- -----------
15 100.00% 1,126,746 31,250,745 2,174,884 3,055,597
--- ------ --------- ----------- ----------- -----------
Rotterdam,
Netherlands
South............... 1997, 1998 2 100.00% 316,989 16,019,945 543,702 --
--- ------ --------- ----------- ----------- -----------
2 100.00% 316,989 16,019,945 543,702 --
--- ------ --------- ----------- ----------- -----------
Salt Lake City, Utah
2100 South/Salt
Lake............... 1998 1 58.45% 192,200 5,756,004 -- --
I-15/Clearfield..... 1995 2 100.00% 832,708 17,171,498 1,504,508 --
I-215/Central....... 1995 2 89.44% 299,000 9,438,034 944,044 --
I-80/North.......... 1994, 1996 2 100.00% 361,960 11,879,520 887,717 --
--- ------ --------- ----------- ----------- -----------
7 93.39% 1,685,868 44,245,056 3,336,269 --
--- ------ --------- ----------- ----------- -----------
San Antonio, Texas
I-10/Central
Business District.. 1992, 1994 2 85.23% 147,751 3,508,245 585,636 --
I-35/Central (5).... 1992, 1993, 1994, 1995, 1996, 1998 29 96.43% 2,677,827 60,076,371 7,786,780 --
I-35/North.......... 1993, 1994, 1995, 1996, 1997 14 93.40% 1,037,825 29,466,814 2,494,094 --
--- ------ --------- ----------- ----------- -----------
45 95.18% 3,863,403 93,051,430 10,866,510 --
--- ------ --------- ----------- ----------- -----------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Rentable
Percentage Square ProLogis Accumulated
Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances
or Completed Bldgs. (1) (2) (1) (1) (3)
---------------------------------- ------ ---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
San Diego,
California
Rancho
Bernardo/I-15... 1996, 1997 3 100.00% 329,427 $ 13,419,384 $ 517,883 $ --
----- ------ ----------- -------------- ------------ ------------
3 100.00% 329,427 13,419,384 517,883 --
----- ------ ----------- -------------- ------------ ------------
Seattle,
Washington
I-405/Kent
Valley.......... 1994, 1995, 1997 6 100.00% 695,923 28,183,732 2,209,999 185,351
I-5/Tacoma....... 1996 3 64.51% 339,623 13,917,765 622,434 --
----- ------ ----------- -------------- ------------ ------------
9 88.36% 1,035,546 42,101,497 2,832,433 185,351
----- ------ ----------- -------------- ------------ ------------
South Bay (San
Francisco),
California
Fremont/Newark
(7)............. 1993, 1994, 1995, 1996, 1997, 1998 65 98.51% 3,026,440 195,277,435 22,148,491 20,971,065
I-880/North San
Jose............ 1994 5 100.00% 507,310 19,733,160 2,791,960 --
----- ------ ----------- -------------- ------------ ------------
70 98.73% 3,533,750 215,010,595 24,940,451 20,971,065
----- ------ ----------- -------------- ------------ ------------
St. Louis,
Missouri
Earth City (4)... 1997, 1998 9 94.38% 1,036,140 29,829,951 846,641 4,588,401
Hazelwood........ 1997 1 100.00% 61,200 1,600,112 61,056 902,452
I-270 Westport... 1997 5 100.00% 274,844 8,483,505 193,282 4,976,779
----- ------ ----------- -------------- ------------ ------------
15 95.76% 1,372,184 39,913,568 1,100,979 10,467,632
----- ------ ----------- -------------- ------------ ------------
Tampa, Florida
Airport/Tampa
West (5)(6)..... 1994, 1995, 1996, 1998 23 96.56% 889,928 37,611,106 4,001,765 10,291,329
I-4/Lakeland..... 1994 1 100.00% 247,018 6,811,027 884,983 --
I-75/Tampa East
(5)(6)(7)....... 1994, 1995, 1996, 1997, 1998 33 88.41% 2,202,022 74,397,289 6,946,838 14,617,990
Pinellas/St.
Petersburg
(5)(6).......... 1994 5 100.00% 83,632 2,148,045 258,741 716,917
----- ------ ----------- -------------- ------------ ------------
62 91.65% 3,422,600 120,967,467 12,092,327 25,626,236
----- ------ ----------- -------------- ------------ ------------
Tulsa, Oklahoma
I-44/Broken
Arrow
Expressway (6).. 1993, 1994 10 98.01% 573,687 13,053,734 1,757,601 635,476
----- ------ ----------- -------------- ------------ ------------
10 98.01% 573,687 13,053,734 1,757,601 635,476
----- ------ ----------- -------------- ------------ ------------
Warsaw, Poland
Airport.......... 1998 4 98.46% 403,338 33,350,503 728,238 --
----- ------ ----------- -------------- ------------ ------------
4 98.46% 403,338 33,350,503 728,238 --
----- ------ ----------- -------------- ------------ ------------
Washington,
D.C./Baltimore
I-
395/Alexandria.. 1994, 1996 11 96.53% 691,077 31,872,340 3,014,392 --
I-695/Southwest.. 1995, 1996 6 92.26% 620,075 17,959,445 1,537,722 --
I-95/Capitol
Heights......... 1996, 1997 2 100.00% 273,276 11,600,786 449,262 --
I-95/Corridor.... 1997, 1998 3 100.00% 494,244 19,026,931 550,134 --
I-95/Landover.... 1994 5 92.48% 384,349 16,782,683 1,927,959 --
I-95/Northeast/
Beltsville...... 1994 3 97.39% 248,981 11,607,456 1,335,318 --
I-66/Dulles (4).. 1995, 1997, 1998 8 85.49% 583,980 24,813,342 1,370,301 --
----- ------ ----------- -------------- ------------ ------------
38 94.17% 3,295,982 133,662,983 10,185,088 --
----- ------ ----------- -------------- ------------ ------------
Other Locations
(5)(6)(8)
Other............ 1991, 1994, 1996, 1998 8 100.00% 632,192 19,043,278 961,304 519,359
----- ------ ----------- -------------- ------------ ------------
8 100.00% 632,192 19,043,278 961,304 519,359
----- ------ ----------- -------------- ------------ ------------
Total Operating
Facilities
Owned as of
December 31,
1998.......... 1,099 93.04% 104,539,940 $3,249,006,279 $254,287,988 $226,997,711
===== ====== =========== ============== ============ ============
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Rentable
Square Budgeted Accumulated
Expected No. of Footage Development Depreciation
Completion Bldgs (2) Cost (9) (1) Encumbrances
---------- ------ -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Facilities Under
Development as of
December 31, 1998
(10)(11)
Amsterdam, Netherlands
Airport................ 1999 1 209,198 $10,330,199 N/A $ --
Atlanta, Georgia
I-85/Northeast......... 1999 3 369,800 12,784,655 N/A --
Northwest/Atlanta...... 1999 2 303,200 10,775,009 N/A --
Austin, Texas
I-35/Central........... 1999 5 237,300 10,744,166 N/A --
Charlotte, North
Carolina
I-77/Southwest......... 1999 1 136,000 4,386,845 N/A --
Chicago, Illinois
South Cook County...... 1999 1 145,531 6,619,623 N/A --
Cincinnati, Ohio
I-75 South/N. Kentucky. 1999 1 148,000 4,297,069 N/A --
I-75 North/Cincinnati.. 1999 2 455,350 15,849,312 N/A --
Columbus, Ohio
I-270 Southwest........ 1999 1 188,800 5,589,904 N/A --
I-270/West............. 1999 1 84,187 2,940,244 N/A --
Dallas/Fort Worth, Texas
I-30/Great Southwest... 1999 3 440,016 14,919,610 N/A --
I-635/Valwood.......... 1999 2 248,235 8,514,864 N/A --
Denver, Colorado
I-70/Central........... 1999 2 357,400 13,298,594 N/A --
I-70/Northeast......... 1999 1 91,892 3,717,421 N/A --
West 1999 1 227,500 7,817,353 N/A --
Fort Lauderdale/Miami,
Florida
I-95/North............. 1999 1 94,500 4,569,824 N/A --
Houston, Texas
I-10/Central Business
District.............. 1999 1 101,250 4,034,416 N/A --
Northwest/U.S. 290..... 1999 2 543,200 17,658,985 N/A --
Juarez, Mexico
Southeast.............. 1999 1 26,170 808,743 N/A --
London, England
Heathrow Airport....... 1999 1 163,400 34,156,242 N/A --
Los Angeles/Orange
County, California
I-5/South Orange
County................ 1999 1 87,500 5,603,191 N/A --
Louisville, Kentucky
I-264/Riverport........ 1999 1 212,800 5,885,116 N/A --
Southside.............. 1999 1 203,520 4,389,141 N/A --
Lyon, France
L'Isle d'Abeau......... 1999 1 135,841 4,945,959 N/A --
Memphis, Tennessee
I-240/Southeast........ 1999 1 500,000 13,160,044 N/A --
Monterrey, Mexico
Apodaca................ 1999 2 363,340 14,767,279 N/A --
New Jersey/I-95 Corridor
Northern Bergen County. 1999 1 128,000 12,684,840 N/A --
Route 535/Exit 8A I-95. 1999 1 204,000 8,179,185 N/A --
Orlando, Florida
Orlando Central Park... 1999 2 227,004 8,158,236 N/A --
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Rentable Budgeted Accumulated
No. of Square Development Depreciation
Expected Completion Bldgs Footage (2) Cost (9) (1) Encumbrances
---------------------- ------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Portland, Oregon
I-5/Columbia Corridor... 1999 2 200,600 $ 8,310,689 N/A $ --
Reynosa, Mexico
Reynosa Industrial
Park................... 1999 1 101,311 3,534,587 N/A --
Salt Lake City, Utah
2100 South/Salt Lake
City................... 1999 1 103,600 3,643,669 N/A --
I-80/North.............. 1999 1 100,800 3,988,133 N/A --
San Antonio, Texas
I-35/Central............ 1999 1 128,000 3,827,253 N/A --
Seattle, Washington
I-405/Kent Valley....... 1999 1 117,620 5,435,086 N/A 1,714
Tijuana, Mexico
Otay Mesa............... 1999 2 262,220 9,363,145 N/A --
Warsaw, Poland
West.................... 1999 1 195,495 10,238,264 N/A --
Washington,
D.C./Baltimore
I-95/Capitol Heights.... 1999 1 179,820 8,151,824 N/A --
---- --------- ------------ -------
Total Facilities Under
Development as of
December 31, 1998
(10)(11)............... 55 8,022,400 $328,078,719 $ 1,714
==== ========= ============ =======
<CAPTION>
Budgeted ProLogis Accumulated
Acreage Development Investment Depreciation
Year Acquired (2) Cost (9) (1) (1) Encumbrances
---------------------- ------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Land Held for Development
as of December 31, 1998
Amsterdam, Netherlands
Airport................. 1998 5.2 N/A $ 3,795,950 N/A $ --
Trade Port West......... 1998 8.7 N/A 1,641,207 N/A --
Atlanta, Georgia
I-20/West/Fulton........ 1994, 1996 43.4 N/A 1,954,848 N/A --
I-85/Northeast.......... 1997, 1998 68.4 N/A 6,713,590 N/A --
Austin, Texas
I-35/Central............ 1994 3.0 N/A 174,734 N/A --
I-35/North/Mopac........ 1994 20.4 N/A 1,370,778 N/A --
I-35/South.............. 1996 4.2 N/A 588,589 N/A --
Charlotte, North Carolina
I-85/North Charlotte.... 1997 7.9 N/A 351,494 N/A --
I-85/Northeast.......... 1995, 1996, 1997 28.9 N/A 3,090,967 N/A --
Chicago, Illinois
Army Trail
Corridor/Chicago....... 1997 46.9 N/A 6,781,821 N/A --
I-55 Corridor........... 1997 29.6 N/A 3,532,371 N/A --
I-90/O'Hare............. 1996, 1997 41.1 N/A 12,558,772 N/A --
Cincinnati, Ohio
I-75/South/N. Kentucky.. 1997 6.0 N/A 563,915 N/A --
I-75 North/Cincinnati... 1996, 1997 49.7 N/A 3,012,061 N/A 377,615
Columbus, Ohio
I-270/West.............. 1996 2.4 N/A 98,205 N/A --
I-270/Southwest......... 1994, 1995, 1996, 1997 52.8 N/A 2,337,936 N/A --
Dallas/Fort Worth, Texas
I-30/Great Southwest.... 1996 5.6 N/A 518,367 N/A --
I-635/DFW/Airport....... 1997 30.1 N/A 3,258,135 N/A --
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Budgeted ProLogis Accumulated
Acreage Development Investment Depreciation
Year Acquired (2) Cost (9) (1) (1) Encumbrances
---------------------- ------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Denver, Colorado
Central.............................. 1998 20.1 N/A $3,539,294 N/A $ --
I-70/Northeast....................... 1994, 1997,1998 27.9 N/A 2,492,811 N/A --
El Paso, Texas
I-10/East/Vista Del Sol.............. 1993, 1994, 1995, 1996 41.0 N/A 2,473,622 N/A --
I-10/Northwest....................... 1991, 1992 141.9 N/A 7,819,749 N/A --
Fort Lauderdale/Miami, Florida
I-95/Hollywood....................... 1996, 1998 15.0 N/A 2,785,586 N/A --
I-95/North........................... 1998 5.5 N/A 1,176,844 N/A --
Houston, Texas
Northwest/U. S. 290.................. 1993, 1997 73.4 N/A 5,499,036 N/A --
Indianapolis, Indiana
I-69/Northeast....................... 1994 6.1 N/A 491,036 N/A --
I-70 Southwest/Indianapolis.......... 1996, 1998 46.2 N/A 2,574,356 N/A --
Lebanon.............................. 1998 30.0 N/A 1,090,260 N/A --
Juarez, Mexico
Southeast............................ 1997 17.2 N/A 3,280,178 N/A --
Kansas City, Kansas/Missouri
Executive Park....................... 1998 16.6 N/A 1,468,552 N/A --
Las Vegas, Nevada
I-15/North........................... 1993, 1995, 1997 63.1 N/A 5,860,261 N/A 427,901
I-515/Henderson...................... 1995, 1996 26.2 N/A 3,009,104 N/A --
Lille, France
Lille Business Park.................. 1998 9.1 N/A 1,274,761 N/A --
Los Angeles/Orange County, California
I-5/Mid-Counties..................... 1997 22.3 N/A 8,849,344 N/A --
I-5/South Orange County.............. 1995, 1996 31.5 N/A 6,492,188 N/A --
Louisville, Kentucky
I-264/Riverport...................... 1996, 1998 25.2 N/A 1,037,523 N/A --
Southside............................ 1998 14.0 N/A 701,710 N/A --
Memphis, Tennessee
I-240/Southeast...................... 1997 44.5 N/A 3,476,025 N/A --
Monterrey, Mexico
Apodaca.............................. 1998 14.1 N/A 1,795,555 N/A --
Ojo de Agua.......................... 1998 4.4 N/A 694,128 N/A --
Nashville, Tennessee
I-24/Southeast....................... 1996 33.7 N/A 3,272,905 N/A --
New Jersey/I-95 Corridor
Meadowlands.......................... 1997 8.5 N/A 1,602,318 N/A --
Route 535/Exit 8A I-95............... 1997 33.1 N/A 3,435,602 N/A --
Orlando, Florida
Orlando Central Park................. 1996 27.6 N/A 2,583,831 N/A --
Phoenix, Arizona
Tempe................................ 1992, 1996 9.6 N/A 1,299,916 N/A --
Portland, Oregon
I-205/Clackamas...................... 1997 24.7 N/A 3,920,025 N/A --
Reno, Nevada
South Meadows........................ 1998 85.7 N/A 11,724,383 N/A --
U.S. 395/Reno North.................. 1995 10.1 N/A 1,006,187 N/A --
Reynosa, Mexico
Reynosa Industrial Park.............. 1997, 1998 28.8 N/A 2,048,399 N/A --
Rio Grande Valley (Brownsville), Texas
I-77/Lower Valley.................... 1995 14.8 N/A 439,288 N/A --
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Budgeted ProLogis Accumulated
Acreage Development Investment Depreciation
Year Acquired (2) Cost (9) (1) (1) Encumbrances
---------------- ------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Salt Lake City, Utah
I-15/Clearfield......... 1997 5.4 N/A $ 137,701 N/A $ --
I-215/Central........... 1996 16.7 N/A 1,606,013 N/A --
I-80/North.............. 1994, 1995 27.3 N/A 1,829,993 N/A --
San Antonio, Texas
I-35/Central............ 1994, 1996 15.2 N/A 1,461,221 N/A --
I-35/North.............. 1996, 1997 32.3 N/A 2,961,796 N/A --
Seattle, Washington
I-5/Tacoma.............. 1998 10.6 N/A 2,024,999 N/A --
St. Louis, Missouri
Earth City.............. 1998 9.9 N/A 1,315,181 N/A --
Tampa, Florida
I-75/Tampa East......... 1994, 1995, 1997 62.8 N/A 4,792,737 N/A --
Tijuana, Mexico
Otay Mesa............... 1998 30.9 N/A 6,927,702 N/A --
Warsaw, Poland
West.................... 1998 9.4 N/A 2,055,079 N/A --
Washington,
D.C./Baltimore
I-95/Corridor........... 1996 25.9 N/A 4,124,989 N/A --
------- ------------ --------
Total Land Held for
Development as of
December 31, 1998
(12)................. 1,672.6 $180,795,928 $805,516
======= ============ ========
<CAPTION>
Budgeted ProLogis Accumulated
Acreage Development Investment Depreciation
(2) Cost (9) (1) (1) Encumbrances
------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Land Subject to Fixed
Price Options or Rights
of First Refusal as of
December 31, 1998 (13)
Options
Cincinnati, Ohio
I-75 North/Cincinnati... 42.6 N/A N/A N/A $ --
Columbus, Ohio
I-270/Southwest......... 38.8 N/A N/A N/A --
East Bay (San Francisco),
California
Tracy................... 309.0 N/A N/A N/A --
Indianapolis, Indiana
I-70
Southwest/Indianapolis. 56.9 N/A N/A N/A --
Lebanon................. 26.1 N/A N/A N/A --
Louisville, Kentucky
I-264/Riverport......... 7.0 N/A N/A N/A --
Lyon, France
L'Isle d'Abeau.......... 22.5 N/A N/A N/A --
New Jersey/I-95 Corridor
Mercer County........... 160.0 N/A N/A N/A --
Route 535/Exit 8A I-95.. 57.8 N/A N/A N/A --
South Bay (San
Francisco), California
Fremont/Newark.......... 23.0 N/A N/A N/A --
Tampa, Florida
I-75/Tampa East......... 0.9 N/A N/A N/A --
-------
Total Options as of
December 31, 1998.... 744.6
=======
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Budgeted Accumulated
Acreage Development ProLogis Depreciation
(2) Cost (9) Investment (1) (1) Encumbrances
------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Rights of First Refusal
South Bay (San
Francisco), California
Fremont/Newark......... 21.8 N/A N/A N/A --
-----
Total Rights of First
Refusal as of
December 31, 1998... 21.8
=====
Total Options and
Rights of First
Refusal as of
December 31, 1998... 766.4
=====
Grand Total as of
December 31, 1998...... $328,078,719 $3,429,802,207 $254,287,988 $227,804,941
============ ============== ============ ============
</TABLE>
- --------
(1) Percentage Occupancy is as of December 31, 1998 for operating facilities
owned as of December 31, 1998. Operating facilities as of December 31,
1998 include recently completed development facilities in initial lease-
up (3.6 million square feet completed in the fourth quarter of 1998)
which impacts the overall occupancy percentage as of December 31, 1998.
ProLogis Investment is as of December 31, 1998 for operating facilities
owned and land held for development as of December 31, 1998 and
represents ProLogis' historical cost excluding above-standard tenant
improvements. Depreciation is determined using the straight-line method
over 30 years for buildings acquired, over 40 years for building
developed and over 10 years for tenant improvements.
(2) Square footage is shown for operating facilities and facilities under
development; acreage is shown for land held for future development and
land subject to fixed price options and rights of first refusal.
(3) Facilities in certain markets are pledged as collateral under ProLogis'
mortgage notes, assessment bonds and securitized debt as of December 31,
1998. See Schedule III-Real Estate and Accumulated Depreciation in Item 8
for specific facilities pledged. Subsequent to December 31, 1998 and
prior to March 22, 1999 an additional $216.2 million of facilities have
been pledged on $182.0 million of mortgage debt.
(4) Includes facilities owned by ProLogis Limited Partnership-II at 100%. See
"--Partnerships".
(5) Includes facilities owned by ProLogis Limited Partnership-III at 100%.
See "--Partnerships".
(6) Includes facilities owned by ProLogis Limited Partnership-IV at 100%. See
"--Partnerships".
(7) Includes facilities owned by ProLogis Limited Partnership-I at 100%. See
"--Partnerships".
(8) Includes 136,000 square feet in which ProLogis has a 70.0% joint venture
interest. The square footage and investment included in the table
represent 100% of the facilities owned by the joint venture.
(9) Represents the total budgeted development costs for facilities under
development, which includes the cost of land, fees, permits, payments to
contractors, architectural and engineering fees and interest and property
taxes to be capitalized during construction, rather than costs incurred
to date.
(10) Includes 971,547 square feet in the design and permitting stage.
(11) Includes 203,520 square feet currently undergoing rehabilitation.
(12) During January 1999, ProLogis commenced development of 3.05 net acres
resulting in an inventory of land held for development as of January 31,
1999 of 1669.5 net acres.
(13) Does not include 195.4 acres of land controlled under letter of intent or
contingent contract.
Partnerships
To facilitate certain strategic acquisitions, ProLogis formed four
partnerships. As of December 31, 1998, ProLogis owned directly or indirectly
68.7%, 97.8%, 86.9% and 97.7% of ProLogis Limited Partnership-I, ProLogis
Limited Partnership-II, ProLogis Limited Partnership-III and ProLogis Limited
Partnership-IV, respectively (collectively, the "Partnerships"). The
facilities owned through ProLogis Limited Partnership-I cannot be sold, prior
to the occurrence of certain events, without the consent of the limited
partners thereto, other than in tax-deferred exchanges, which restriction
could adversely affect ProLogis' ability to strategically reconfigure the
portion of its investment assets represented by this Partnership. There are no
restrictions on the sale of facilities held by ProLogis Limited Partnership-
II, ProLogis Limited Partnership-III or ProLogis Limited
30
<PAGE>
Partnership-IV. ProLogis views all assets acquired as long-term investments
but will only agree to partnership resale restrictions where the assets
acquired are of such strategic quality that ProLogis anticipates that there
will be no change in investment strategy with respect to such assets through
the duration of the restriction. ProLogis may acquire additional facilities
through partnerships in the future.
The Partnerships have been organized as Delaware limited partnerships.
Generally, pursuant to the Partnership agreements, ProLogis, as the sole
controlling general partner in each of the Partnerships other than ProLogis
Limited Partnership-IV, in which a wholly owned subsidiary of ProLogis is the
sole controlling general partner, has full responsibility for the management
and control of the Partnerships, and the limited partners have no authority to
transact business for, or, except as described below, participate in the
management decisions of, the Partnerships. However, any decision to amend
certain provisions of the applicable partnership agreement, to dissolve a
Partnership prior to the term set forth in the applicable partnership
agreement or to enter into certain extraordinary transactions where the
limited partners would not receive the same consideration as shareholders of
ProLogis, would require the consent of all limited partners. Pursuant to the
partnership agreements, ProLogis or its wholly owned subsidiary, as the case
may be, may not voluntarily withdraw from the applicable Partnership or
transfer or assign its interests in the Partnership without the consent of all
of the limited partners thereto. The limited partners may freely transfer
their Partnership units to affiliates, provided that such transfer does not
cause a termination of the Partnership for federal income tax purposes and
does not cause ProLogis to cease to comply with requirements under the Code,
for qualification as a REIT. Each of the Partnership agreements grants to
limited partners the right to exchange their Partnership units for Common
Shares, subject to certain conditions. The Partnerships are as follows:
. ProLogis Limited Partnership-I, which owned approximately $208.2 million
of industrial distribution facilities located primarily in the San
Francisco Bay area as of December 31, 1998, was formed in December 1993.
ProLogis had a 68.7% controlling general partnership interest and there
were 4,520,532 limited partnership units outstanding as of December 31,
1998.
. ProLogis Limited Partnership-II, which owned approximately $58.7 million
of industrial distribution facilities located primarily in Austin,
Charlotte, Dallas, Denver, El Paso and the San Francisco Bay area as of
December 31, 1998, was formed in May 1994. ProLogis' initial 81.2%
controlling general partnership interest has subsequently been increased
to 97.8% (the ownership interest as of December 31, 1998) due to the
conversion of limited partnership units into Common Shares. There were
90,213 limited partnership units outstanding as of December 31, 1998.
. ProLogis Limited Partnership-III, which owned approximately $55.3 million
of industrial distribution facilities located primarily in Tampa, Florida
as of December 31, 1998, was formed in October 1994. ProLogis had a 50.4%
controlling general partnership interest at formation, which has
subsequently been increased to 86.9% (the ownership interest as of
December 31, 1998) as the result of additional contributions by ProLogis
and the conversion of limited partnership units into Common Shares. There
were 389,900 limited partnership units outstanding as of December 31,
1998.
. ProLogis Limited Partnership-IV, which owned approximately $86.0 million
of industrial distribution facilities located primarily in Florida, Ohio,
Oklahoma and Texas as of December 31, 1998, was formed in October 1994
through a cash contribution from a wholly owned subsidiary of ProLogis,
ProLogis IV, Inc., and the contribution of industrial distribution
facilities from the limited partner. ProLogis' initial 96.4% controlling
general partnership interest has been increased to 97.7% (the ownership
interest as of December 31, 1998) as the result of additional
contributions by ProLogis. There were 68,612 limited partnership units
outstanding as of December 31, 1998.
ProLogis Limited Partnership-IV and ProLogis IV, Inc. are legal entities
separate and distinct from ProLogis, its affiliates and each other, and
each has separate assets, liabilities, business functions and operations.
The sole assets of ProLogis IV, Inc. are its general partner advances to
and its interest in ProLogis Limited Partnership-IV. As of December 31,
1998, ProLogis Limited Partnership-IV had outstanding borrowings from
ProLogis IV, Inc. of $1.4 million and ProLogis IV, Inc. had outstanding
borrowings from ProLogis and its affiliates of $1.4 million.
31
<PAGE>
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of each of the Partnerships are included in
ProLogis' consolidated financial statements, and the interests of the limited
partners are reflected as minority interest.
ProLogis Development Services
ProLogis Development Services Incorporated ("ProLogis Development
Services") develops corporate distribution facilities to meet customer
requirements, which are subsequently sold to the customer or third parties, or
contracts on a fee basis to develop distribution facilities for third parties
or customers. ProLogis owns 100% of the preferred stock of ProLogis
Development Services and realizes substantially all economic benefits of its
activities. Because ProLogis advances mortgage loans to ProLogis Development
Services to fund its acquisition, development and construction activities,
ProLogis Development Services is consolidated with ProLogis. Accordingly,
these loans ($247.5 million as of December 31, 1998) are reflected as real
estate investments in ProLogis' consolidated financial statements. ProLogis
Development Services' real estate assets represented 6.1% of ProLogis' total
assets (at cost) as of December 31, 1998. ProLogis Development Services is not
a qualified REIT subsidiary of ProLogis. Accordingly, ProLogis Development
Services pays federal and state income taxes at the applicable corporate rate.
Unconsolidated Subsidiaries
In order to comply with the requirements of the Code to qualify as a REIT,
ProLogis has invested in the nonvoting preferred stock of certain companies
that have ownership interests in real estate companies that produce income
that is not REIT "qualifying" income (i.e., rental income and mortgage
interest income) under the Code. To maintain its qualification as a REIT,
ProLogis can collectively invest in these companies in amounts up to 25% of
the fair market value of ProLogis' total assets, with a maximum per company
investment of 5% of the fair market value of ProLogis' total assets. These
investments are accounted for under the equity method.
ProLogis Logistics
ProLogis owns 100% of the preferred stock of ProLogis Logistics Services
Incorporated ("ProLogis Logistics"). ProLogis Logistics owns 100% of the
membership interests of a refrigerated distribution company operating in the
United States and Canada, CS Integrated LLC ("CSI"). Prior to June 12, 1998,
ProLogis Logistics owned, at various points in time, between 60.0% and 77.1%
of CSI. As of December 31, 1998, ProLogis had invested $19.9 million in the
preferred stock of ProLogis Logistics. As of December 31, 1998, CSI owned or
operated refrigerated distribution facilities aggregating 114.1 million cubic
feet.
The common stock of ProLogis Logistics is owned by an unrelated party.
ProLogis recognizes substantially all economic benefits of ProLogis Logistics
and its subsidiaries.
As of December 31, 1998, ProLogis had a $128.6 million note receivable from
ProLogis Logistics. The note is unsecured, bears interest at 8% per annum
(reduced from 10% on November 1, 1998) and matures on April 24, 2002. Interest
payments on the note are due annually.
Frigoscandia S. A.
On January 16, 1998, ProLogis invested in 100% of the preferred stock of
Frigoscandia S.A., a Luxembourg company, which acquired on that date a
refrigerated distribution company headquartered in Sweden, Frigoscandia AB.
Frigoscandia AB is 100% owned by Frigoscandia Holding AB, which is 100% owned
by a wholly owned subsidiary of Frigoscandia S.A. As of December 31, 1998,
Frigoscandia AB, which operates in nine European countries, owned or leased
192.0 million cubic feet of refrigerated distribution facilities. As of
December 31, 1998, ProLogis had invested $28.5 million in the preferred stock
of Frigoscandia S.A. Prior to September 30, 1998, the common stock of
Frigoscandia S.A. was owned by Security Capital. On that date, the common
stock of Frigoscandia S.A. was contributed to a limited liability company, in
which unrelated parties
32
<PAGE>
own 100% of the voting interests and Security Capital owns 100% of the non-
voting interests. ProLogis recognizes substantially all economic benefits of
the activities of Frigoscandia S.A. and its subsidiaries.
As of December 31, 1998, ProLogis had a $91.5 million note receivable from
Frigoscandia Holding AB and an $85.1 million note receivable from Frigoscandia
S.A. These unsecured notes bear interest at 5% per annum (reduced from 8% on
November 1, 1998) and are due on demand ($80.0 million of the note receivable
from Frigoscandia S.A. is due on July 15, 2008). Additionally, as of December
31, 1998, ProLogis had a $30.0 million mortgage note receivable from
Frigoscandia Limited UK, a subsidiary of Frigoscandia AB. The mortgage note
receivable, which provides for interest at 7% per annum (reduced from 8% on
April 1, 1998) and matures on March 20, 2018, is secured by refrigerated
distribution facilities.
Frigoscandia AB has a multi-currency, three-year revolving credit agreement
through a consortium of 11 European banks in the currency equivalent of
approximately $200 million as of December 31, 1998. The loan bears interest at
each currency's LIBOR rate plus 0.55%. ProLogis has entered into a guaranty
agreement for 25% of the loan balance.
Kingspark S.A.
On August 14, 1998, ProLogis acquired 100% of the preferred stock of
Kingspark Holding S.A. ("Kingspark S.A."), a Luxembourg company, that acquired
on that date an industrial real estate development company, Kingspark Group
Holdings Limited ("ProLogis Kingspark"), operating in the United Kingdom. As
of December 31, 1998, ProLogis Kingspark had 0.4 million square feet of
operating facilities, 0.4 million square feet of facilities under development
and 0.2 million square feet of facilities being developed under construction
management agreements. Additionally, as of December 31, 1998, ProLogis
Kingspark owned 554 acres and controlled 1,489 acres of land through letter of
intent or contingent contracts for future development of 35.8 million square
feet of distribution facilities. As of December 31, 1998, ProLogis had
invested $24.0 million in the preferred stock of Kingspark S.A. The common
stock of Kingspark S.A. was owned by Security Capital. On March 10, 1999,
Security Capital contributed the common stock to a limited liability company,
in which unrelated parties own 100% of the voting interest and Security
Capital owns 100% of the non-voting interests. ProLogis recognizes
substantially all economic benefits of the activities of Kingspark S.A. and
its subsidiaries.
As of December 31, 1998, ProLogis had a $111.7 million note receivable from
Kingspark S.A. and a $34.4 million note receivable from ProLogis Kingspark.
These unsecured notes bear interest at 8% per annum and are due on demand. The
interest rate on the note receivable from Kingspark S.A. was reduced to 5% per
annum effective January 1, 1999. Also, as of December 31, 1998, ProLogis had a
$52.4 million mortgage note receivable from ProLogis Kingspark which bears
interest at 8% per annum and is secured by certain land parcels.
Subsequent to December 31, 1998, ProLogis Kingspark entered into a line of
credit agreement with a bank in the United Kingdom. The credit agreement,
which provides for borrowings of up to 10.0 million British pounds
(approximately $16.6 million as of December 31, 1998), has been guaranteed by
ProLogis.
Garonor Holdings
On December 29, 1998, ProLogis invested in 100% of the preferred stock of
Garonor Holdings S.A. ("Garonor Holdings"), a Luxembourg company, that
acquired on that date in excess of 99% of the voting stock of Garonor S.A. As
of December 31, 1998, ProLogis had invested $5.6 million in the preferred
stock of Garonor Holdings. Garonor S.A. owns and leases approximately 5.25
million square feet of industrial distribution facilities located in France.
Garonor Holdings is in the process of acquiring the remaining voting stock of
Garonor S.A.
The common stock of Garonor Holdings is owned by Security Capital. Security
Capital can require ProLogis to purchase the Garonor Holdings common stock
held by Security Capital beginning January 1, 2000. ProLogis recognizes
substantially all of the economic benefits of Garonor Holdings and its
subsidiaries.
33
<PAGE>
Should Garonor Holdings acquire 100% of the voting stock of Garonor S.A.,
it is anticipated that the ownership of Garonor Holdings will be restructured
such that ProLogis would become the sole owner and Garonor Holdings, as a
wholly owned subsidiary of ProLogis, would be consolidated with the accounts
of ProLogis.
As of December 31, 1998, ProLogis had a $129.4 million note receivable from
Garonor Holdings. The note is unsecured, bears interest at 8% per annum and is
due on demand. Interest payments on the note are due annually.
In connection with the acquisition of Garonor S.A., Garonor Holdings
obtained two credit facilities from a French bank. One facility is in the
amount of 200.0 million French francs ($35.6 million as of December 31, 1998)
and is guaranteed by ProLogis. ProLogis has guaranteed an additional 10.0
million French francs ($1.8 million as of December 31, 1998), which
approximates the annual interest to be charged on the facility. The second
facility, in the amount of 870.0 million French francs (of which 770.0 million
French francs was outstanding as of December 31, 1998), is secured by the real
estate owned by Garonor S.A. ProLogis has guaranteed 50.0 million French
francs of the amount outstanding as of December 31, 1998 ($8.9 million as of
December 31, 1998). Garonor has the ability to borrow an additional 100.0
million French francs under this facility of which ProLogis will guarantee
50.0 million French francs. The total guaranty of 100.0 million French francs
can be reduced as Garonor S.A. meets certain operating covenants.
Item 3. Legal Proceedings
ProLogis from time to time may be a party to a variety of legal proceedings
arising in the ordinary course of its business. Such matters generally are not
expected to have a material adverse effect on ProLogis' business, financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
ProLogis' Common Shares are listed on the NYSE under the symbol "PLD." The
following table sets forth the high and low sale prices of the Common Shares
as reported in the NYSE Composite Tape, and distributions per Common Share,
for the periods indicated.
<TABLE>
<CAPTION>
High Low Distribution
--------- -------- ------------
<S> <C> <C> <C>
1997:
First Quarter......................... $22 1/2 $19 7/8 $0.2675 (1)
Second Quarter........................ 21 3/4 18 7/8 0.2675
Third Quarter......................... 23 5/8 20 3/4 0.2675
Fourth Quarter........................ 25 1/2 22 1/2 0.2675
1998:
First Quarter......................... $26 3/8 $24 1/4 $0.2850 (2)
Second Quarter........................ 25 15/16 23 0.3183
Third Quarter......................... 26 20 0.3183
Fourth Quarter........................ 22 3/4 20 1/16 0.3183
1999:
First Quarter (through March 22)...... $22 $18 5/8 $0.3183 (3)
</TABLE>
- --------
(1) Declared in the fourth quarter of 1996 and paid in the first quarter of
1997.
(2) Declared in the fourth quarter of 1997 and paid in the first quarter of
1998.
(3) Declared in the fourth quarter of 1998 and paid in the first quarter of
1999.
34
<PAGE>
On March 22, 1999, ProLogis had approximately 123,755,133 Common Shares
outstanding, which were held of record by approximately 1,150 shareholders.
ProLogis, in order to qualify as a REIT under the Code, is required to make
distributions (other than capital gain distributions) to its shareholders in
amounts at least equal to (i) the sum of (a) 95% of its "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (b) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of noncash income. ProLogis'
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow, permitting ProLogis to retain funds for capital
improvements and other investments.
ProLogis generally announces the following year's projected annual
distribution level after the annual budget review and approval by the ProLogis
Board of Trustees (the "Board") in December of each year. However, due to the
merger with Meridian, the Board did not announce a projected 1999 distribution
level ($1.30 per Common Share) until March 1999. The payment of distributions
is subject to the discretion of the Board and is dependent upon the financial
condition and operating results of ProLogis and may be adjusted at the
discretion of the Board during the budget year.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed ProLogis' current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather
than a dividend and reduce the shareholder's basis in the Common Shares. To
the extent that a distribution exceeds both current and accumulated earnings
and profits and the shareholders basis in the Common Shares, it will generally
be treated as gain from the sale or exchange of that shareholder's Common
Shares. ProLogis annually notifies shareholders of the taxability of
distributions paid during the preceding year. The following summarizes the
taxability of distributions paid in 1997 and 1996 on Common Shares and the
estimated taxability for 1998:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Per Common Share:
Ordinary income....................................... $1.12 $1.07 $0.88
Return of capital..................................... 0.12 -- 0.13
----- ----- -----
Total............................................... $1.24 $1.07 $1.01
===== ===== =====
</TABLE>
The dividends paid on the Series A, Series B, Series C and Series D
preferred shares (all of which are ordinary income to the holders of the
preferred shares) are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Series A........................................... 2.35 2.35 2.35
Series B........................................... 1.75 1.75 1.50 (1)
Series C........................................... 4.27 4.27 0.57 (1)
Series D........................................... 1.42 (2) -- --
</TABLE>
- --------
(1) For the period from date of issuance to December 31, 1996.
(2) For the period from date of issuance to December 31, 1998.
Under federal income tax rules, ProLogis' earnings and profits are first
allocated to its preferred shares, which increases the portion of the Common
Shares distribution classified as return of capital. The portion of
distributions characterized as return of capital results primarily from the
excess of distributions over earnings primarily because non-cash charges such
as depreciation are added to earnings in determining distribution levels. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
ProLogis' tax return for the year ended December 31, 1998 has not been
filed, and the taxability information for 1998 is based upon the best
available data. ProLogis' tax returns for prior years have not been examined
by the Internal Revenue Service. Consequently, the taxability of distributions
and dividends is subject to change.
35
<PAGE>
Dividend Reinvestment and Share Purchase Plan
In March 1995, ProLogis adopted a Dividend Reinvestment and Share Purchase
plan (the "Plan"). The Plan allows holders of Common Shares the opportunity to
acquire additional Common Shares by automatically reinvesting distributions.
Common Shares are acquired pursuant to the Plan at a price equal to 98% of the
market price of such Common Shares, without payment of any brokerage
commission or service charge. The Plan also allows participating shareholders
to purchase a limited number of additional Common Shares at 98% of the market
price of such Common Shares, by making optional cash payments, without payment
of any brokerage commission or service charge. Shareholders who do not
participate in the Plan continue to receive distributions as declared.
Item 6. Selected Financial Data
The following tables set forth selected financial data relating to the
historical financial condition and results of operations of ProLogis for the
years indicated (amounts in thousands, except per share data). Such selected
financial data is qualified in its entirety by, and should be read in
conjunction with, "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto incorporated by reference.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Rental income............... $345,046 $284,533 $227,000 $153,879 $70,609
Other real estate income.... 17,250 12,291 5,342 2,899 --
Income from unconsolidated
subsidiaries............... 2,755 3,278 -- -- --
Total revenues.............. 372,795 296,118 233,463 158,503 71,702
Rental expenses, including
property management fees... 27,120 27,008 26,674 18,460 7,244
REIT management fees paid to
affiliate.................. -- 17,791 21,472 14,207 8,673
General and administrative.. 22,957 6,855 1,025 839 770
Interest rate hedge expense
(1)........................ 26,050 -- -- -- --
Costs incurred in acquiring
management companies from
affiliate (2).............. -- 75,376 -- -- --
Earnings from operations (1)
(2)........................ 110,445 35,931 82,710 50,991 28,058
Gain (loss) on disposition
of real estate............. 5,565 7,378 (29) 1,053 35
Preferred share cash
dividends paid............. 49,098 35,318 25,895 6,698 --
Net earnings attributable to
Common Shares (1) (2)...... 62,231 4,431 53,460 42,015 25,101
Common share cash
distributions paid......... $151,050 $106,556 $ 85,340 $ 64,445 $37,698
Per Share Data:
Basic and diluted net
earnings attributable to
Common Shares (1) (2)...... $ 0.51 $ 0.04 $ 0.63 $ 0.61 $ 0.57
Series A preferred share
dividends paid............. 2.35 2.35 2.35 1.24 --
Series B preferred share
dividends paid............. 1.75 1.75 1.50 -- --
Series C preferred share
dividends paid............. 4.27 4.27 0.57 -- --
Series D preferred share
dividends paid............. 1.42 -- -- -- --
Common Share distributions
declared and paid.......... $ 1.24 $ 1.07 $ 1.01 $ 0.935 $ 0.85
Weighted average Common
Shares outstanding:
Basic..................... 121,721 100,729 84,504 68,924 44,265
Diluted................... 122,028 100,869 84,511 74,422 44,277
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Reconciliation of net
earnings to funds
from operations (3):
Net earnings
attributable to
Common Shares........ $ 62,231 $ 4,431 $ 53,460 $ 42,015 $ 25,101
Add (Deduct):
Real estate
depreciation and
amortization....... 99,514 76,275 59,850 39,767 18,169
Minority interest... 4,681 3,560 3,326 3,331 2,992
(Gain) loss on
disposition of real
estate............. (5,565) (7,378) 29 (1,053) --
Foreign currency
exchange (gains)
losses, net,....... (5,281) 6,376 -- -- --
Interest rate hedge
expense (1)........ 26,050 -- -- -- --
Reconciling items
from unconsolidated
subsidiaries....... 47,946 2,419 -- -- --
Costs incurred in
acquiring
management
companies from
affiliate (2)...... -- 75,376 -- -- --
Other, net.......... 3,483 -- 225 -- 45
---------- ---------- ---------- ---------- ----------
Funds from operations
attributable to
Common Shares (1) (2)
(3) (5).............. $ 233,059 $ 161,059 $ 116,890 $ 84,060 $ 46,307
========== ========== ========== ========== ==========
Weighted average
Common Shares
outstanding:
Basic (includes
convertible
partnership units). 126,791 105,919 89,698 74,409 49,022
Diluted (5)......... 137,153 116,371 89,700 74,422 49,034
Net cash provided by
operating activities. $ 238,253 $ 192,473 $ 136,201 $ 100,154 $ 47,222
Net cash used in
investing activities. (1,264,722) (571,061) (665,878) (628,795) (631,871)
Net cash provided by
financing activities. $1,064,600 $ 398,827 $ 512,212 $ 529,606 $ 599,382
<CAPTION>
December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
Real estate owned, at
cost................. $3,476,704 $2,846,591 $2,399,431 $1,767,307 $1,133,484
Land held for
development.......... 180,796 159,645 109,316 60,363 42,147
Investments in and
advances to
unconsolidated
subsidiaries......... 733,863 86,139 -- -- --
Total assets.......... 4,330,729 3,033,953 2,462,306 1,833,972 1,194,937
Lines of credit and
short-term
borrowings (4)....... 494,300 -- 38,600 81,000 160,000
Senior unsecured debt. 1,083,641 724,052 524,191 324,527 --
Mortgage notes,
assessment bonds and
securitized debt..... 227,804 133,028 139,952 145,276 144,262
Total liabilities..... 2,023,066 1,003,912 805,933 639,040 350,607
Minority interest..... 51,295 53,304 56,984 58,741 66,555
Total shareholders'
equity............... $2,256,368 $1,976,737 $1,599,389 $1,136,191 $ 777,775
Number of Common
Shares outstanding... 123,416 117,364 93,677 81,416 64,587
</TABLE>
37
<PAGE>
- --------
(1) Earnings from operations for 1998 reflect the $26.1 million mark to market
adjustment associated with two interest rate hedges that, due to changing
market conditions, no longer qualified for hedge accounting treatment
under generally accepted accounting principles ("GAAP"). This expense was
not deducted for purposes of calculating funds from operations. For
purposes of calculating funds from operations, ProLogis has deferred this
expense and intends to amortize it as a component of interest expense over
the term of a future debt offering.
(2) Earnings from operations for 1997 reflect the one-time, non-cash charge of
$75.4 million associated with the costs incurred in acquiring ProLogis'
management companies from Security Capital in September 1997. This one-
time charge was not deducted for purposes of calculating funds from
operations due to its non-recurring and non-cash nature.
(3) Funds from operations represent net earnings computed in accordance with
GAAP before minority interest, before gains or losses from debt
restructuring, before gains or losses on disposition of depreciated
property, before gains or losses from mark to market adjustments resulting
from the remeasurement (based on current foreign currency exchange rates)
of intercompany and other debt of ProLogis' foreign subsidiaries, before
deferred tax benefits and deferred tax expenses of ProLogis' taxable
subsidiaries, before significant non-recurring items that materially
distort the comparative measurement of company performance over time, plus
real estate depreciation and amortization (exclusive of amortization of
loan costs), and after adjustments for unconsolidated subsidiaries
calculated to compute their funds from operations on the same basis as
ProLogis. ProLogis believes that funds from operations is helpful to a
reader as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, investing activities and
financing activities, it provides a reader with an indication of the
ability of ProLogis to incur and service debt, to make capital
expenditures and to fund other cash needs. The funds from operations
measure presented by ProLogis, while comparable to the National
Association of Real Estate Investment Trusts' definition, will not be
comparable to similarly titled measures of other REITs that do not compute
funds from operations in a manner consistent with ProLogis. Funds from
operations is not intended to represent cash made available to
shareholders. Funds from operations should not be considered as an
alternative to net earnings or any other GAAP measurement of performance
as an indicator of ProLogis' operating performance, or as an alternative
to cash flows from operating, investing or financing activities as a
measure of liquidity. Cash distributions paid to shareholders are
presented above in the "Operating Data" section.
(4) As of March 22, 1999, ProLogis had $214.0 million of borrowings
outstanding under its $375.0 million unsecured lines of credit and $150.0
million of short-term borrowings outstanding.
(5) In calculating the weighted average Common Shares for funds from
operations purposes, the weighed average Series B convertible preferred
shares are considered common stock equivalents. The weighted average
Series B convertible preferred shares included are 10,055,000 and
10,319,000 for 1998 and 1997, respectively. The amount of dividends
associated with these preferred shares are $13,668,000 and $14,088,000 for
1998 and 1997, respectively. There were no outstanding Series B
convertible preferred shares prior to 1996 and the effect of these
preferred shares in 1996 was anti-dilutive.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with ProLogis'
consolidated financial statements and the notes thereto included in Item 8 of
this report.
The statements contained in this discussion that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are based on current
expectations, estimates and projections about the industry and markets in
which ProLogis operates, management's beliefs, and assumptions made by
management. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions ("Future Factors") which are difficult to
predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements. Future
Factors include: (i) changes in general economic conditions in its target
markets that could adversely affect
38
<PAGE>
demand for ProLogis' facilities and the creditworthiness of ProLogis'
customers, (ii) changes in financial markets and interest rates that could
adversely affect ProLogis' cost of capital and its ability to meet its
financial needs and obligations, (iii) increased or unanticipated competition
for distribution facilities in ProLogis' target markets, and (iv) those
factors discussed below. These are representative of the Future Factors that
could affect the outcome of the forward-looking statements.
Overview
General
ProLogis' operating results depend primarily on the operating results of
its industrial distribution facilities, which are substantially influenced by
(i) the demand for and supply of industrial distribution facilities in
ProLogis' North American and European target market cities; (ii) the pace and
economic returns at which ProLogis can acquire and develop additional
industrial distribution facilities; (iii) the extent to which ProLogis can
sustain improved market performance as measured by lease rates and occupancy
levels; and (iv) the demand for the corporate distribution facilities services
that are provided by ProLogis Development Services and ProLogis Kingspark. In
addition, the operating performance of ProLogis' two unconsolidated
subsidiaries, Frigoscandia AB and CSI, that are engaged in the refrigerated
logistics business also effect ProLogis' operating results.
ProLogis' target market cities and submarkets have benefited substantially
in recent periods from demographic trends (including population and job
growth) which influence the demand for distribution facilities. ProLogis
believes its ability to compete is significantly enhanced relative to other
companies due to its depth of management and its ability to serve customers
through the ProLogis Operating System(TM), which includes acquisition,
development, property management personnel and presence in local markets. See
"Business--ProLogis Operating System(TM)".
As of December 31, 1998, ProLogis' real estate investments included 104.5
million square feet of operating facilities with a total expected investment
of $3.4 billion. During 1998, ProLogis acquired 6.0 million square feet of
operating facilities at a total expected investment of $219.7 million
(excluding its investment in Garonor Holdings and Kingspark S.A.; see "--
Income (Loss) from Unconsolidated Subsidiaries" and Note 4 to the Consolidated
Financial Statements in Item 8), while disposing of facilities from its
operating portfolio aggregating 3.1 million square feet. During 1998, ProLogis
recognized $17.3 million of other real estate income related to the activities
of ProLogis Development Services, primarily from the sale of undepreciated
facilities.
ProLogis had 8.0 million square feet of facilities under development as of
December 31, 1998 with a total expected investment at completion of $328.1
million. Development starts during 1998 aggregated 10.4 million square feet at
a total expected investment of $426.6 million. Development completions during
the year aggregated 9.8 million square feet at a total expected investment of
$394.2 million. As of December 31, 1998, ProLogis had 1,673 acres of land in
inventory for the future development of approximately 29.8 million square feet
of distribution facilities. Additionally, ProLogis had 962 acres of land under
control through option, letter of intent or contingent contract for the future
development of 16.0 million square feet of distribution facilities.
Through ProLogis' third quarter 1998 investment in Kingspark S.A., ProLogis
had an additional 0.4 million square feet of operating facilities, 0.4 million
square feet of facilities under development and 0.2 million square feet of
facilities being developed under construction management agreements in the
United Kingdom as of December 31, 1998. Additionally, as of December 31, 1998,
ProLogis Kingspark owned 554 acres of land and controlled 1,489 acres of land
through letter of intent or contingent contract for future development of 35.8
million square feet of distribution facilities.
In 1997, ProLogis began expanding its distribution facilities operations
into Europe and Mexico. This expansion was necessary to meet the needs of its
targeted national and international customers as they expanded and
reconfigured their distribution facility requirements globally. With over 18
target market cities identified in Europe and four target market cities
identified in Mexico, ProLogis believes significant growth opportunities
39
<PAGE>
exist internationally to enable ProLogis to meet its objective of achieving
long-term sustainable growth in cash flow. As of December 31 1998 (excluding
its investment in Kingspark S.A. and Garonor Holdings), ProLogis owned 2.5
million square feet of operating facilities with a total expected investment
of $130.1 million in Europe and 1.5 million square feet of operating
facilities with a total expected investment of $56.1 million in Mexico.
Additionally, as of December 31, 1998, ProLogis had 0.7 million square feet of
facilities under development in Europe with a total expected investment of
approximately $59.7 million and 0.8 million square feet of facilities under
development in Mexico with a total expected investment of $28.5 million.
In 1997 and 1998, ProLogis invested in refrigerated logistics businesses
through investments in the preferred stock of two companies. As of December
31, 1998, ProLogis' had approximately 306.1 million cubic feet of refrigerated
distribution facilities in operation (114.1 million cubic feet in the United
States and Canada and 192.0 million cubic feet in nine countries in Europe).
As of December 31, 1997, ProLogis had approximately 69.0 million cubic feet of
refrigerated distribution facilities in operation, all in the United States
and Canada.
Garonor Holdings, which was acquired by ProLogis on December 29, 1998, had
5.2 million square feet of operating facilities at a total expected investment
of $318.2 million as of December 31, 1998. All of these operating facilities
are located in France, principally near the Charles de Gaulle Airport outside
Paris.
No assurance can be given that the current cost of funds available to
ProLogis will be available in the future or that ProLogis will continue to be
able to obtain secured or unsecured debt or equity financing on favorable
terms. During 1998 the real estate industry experienced a general tightening
of the equity and credit markets. Additionally, no assurance can be given that
the expected trends in leasing rates and economic returns on acquired and
developed facilities will be realized. There are risks associated with
ProLogis' development and acquisition activities which include Future Factors
such as development and acquisition opportunities explored by ProLogis may
subsequently be abandoned at a cost to ProLogis; construction costs of a
project may exceed original estimates due to increased materials, labor or
other expenses; and construction and lease-up may not be completed on
schedule, resulting in increased debt service expense and construction costs.
Acquisition activities entail risks that investments will fail to perform in
accordance with expectations and that analysis with respect to the cost of
improvement to bring an acquired project up to standards will prove
inaccurate, as well as general investment risks associated with any new real
estate investment. Although ProLogis undertakes a thorough evaluation of the
physical condition of each proposed investment before it is acquired, certain
defects or necessary repairs may not be detected until after it is acquired,
which could increase ProLogis' total acquisition cost. There are also risks
associated with the hedging strategies used to manage interest rate
fluctuations on anticipated transactions. If these anticipated transactions do
not occur as planned, ProLogis could incur costs. To the extent ProLogis'
business activities outside the United States are conducted in a currency
other than the U.S. dollar, ProLogis is exposed to foreign currency exchange
rate fluctuations. However, all of ProLogis' business activities in Mexico and
Poland are U.S. dollar denominated. Risks include the occurrence of any of the
events described above that could adversely affect ProLogis' ability to
achieve its projected returns on acquisitions and projects under development
and could hinder ProLogis' ability to make expected distributions to equity
holders.
Proposed Merger Transaction
ProLogis has entered into an Agreement and Plan of Merger dated as of
November 16, 1998, as amended, with Meridian, whereby Meridian would be merged
with and into ProLogis. Meridian is a publicly traded REIT that owns and
leases industrial and refrigerated distribution facilities in the United
States. The Merger Agreement, which must be approved by at least two-thirds of
the holders of Common Shares and a majority of the holders of Meridian's
common stock, provides that each share of Meridian common stock will be
exchanged for 1.10 Common Shares, plus $2.00 in cash. Meridian has
approximately 34.2 million shares of common stock and common stock equivalents
outstanding as of March 22, 1999. Additionally, ProLogis will assume
Meridian's outstanding liabilities (approximately $613.2 million as of
December 31, 1998) and will exchange a new share of ProLogis cumulative
redeemable preferred shares with an 8.75% annual dividend rate ($2.1875 per
share) for each outstanding share of Meridian Series D preferred stock
(aggregate liquidation value of $50 million).
40
<PAGE>
The Joint Proxy Statement and Prospectus of ProLogis and Meridian was
mailed to ProLogis' shareholders and Meridian's stockholders on March 2, 1999.
ProLogis' shareholders and Meridian's stockholders will vote on the Merger at
special meetings to be held on March 30, 1999.
Upon completion of the Merger, ProLogis is expected to have a total market
capitalization of approximately $6.5 billion, based on the closing price of
Common Shares on March 22, 1999 and the outstanding principal amount of
indebtedness of the two companies on such date. The combined real estate
assets, including assets held by unconsolidated subsidiaries and joint
ventures, will consist of approximately 142.0 million square feet of operating
distribution facilities and 16.4 million square feet of refrigerated
distribution facilities. Also, the combined company, including unconsolidated
subsidiaries and joint ventures, will have 10.8 million square feet of
distribution facilities under development at a total expected investment of
$473.1 million. The combined company, including unconsolidated subsidiaries
and joint ventures, will own distribution facilities in 94 North American and
European markets and will own or control approximately 5,100 acres of land for
the future development of approximately 87.9 million square feet of
distribution facilities. The combined company will continue to be taxed as a
REIT under the Code.
ProLogis intends to replace its existing $350.0 million unsecured line of
credit and Meridian's existing $350.0 million unsecured line of credit with a
new $700.0 million credit facility upon consummation of the Merger. ProLogis
has a commitment from Nationsbank N.A., Commerzbank and Chase Bank of Texas
for this new credit facility. ProLogis expects that $550.0 million of this
credit facility will be an unsecured line of credit with the remainder a
short-term borrowing arrangement. Borrowings on the credit facility will bear
interest generally at LIBOR plus an applicable percentage based upon ProLogis'
senior unsecured debt rating (LIBOR plus 1.00% based upon ProLogis' current
debt rating) plus a 0.20% annual facility fee. The new credit facility will
contain financial covenants consistent with ProLogis' existing credit
agreement.
Results of Operations
General
Net earnings attributable to Common Shares increased by $57.8 million to
$62.2 million for 1998 from $4.4 million for 1997. Net earnings attributable
to Common Shares in 1997 was $49.0 million below the 1996 amount of $53.5
million. The increase in net earnings attributable to Common Shares in 1998
over 1997 was primarily the result of:
. a one-time charge of $75.4 million incurred in September 1997 as a result
of the acquisition of the management companies from Security Capital and
the resulting reduction of associated expenses (see "--1997 Merger");
. an increase in net operating income from property operations (after
deductions for depreciation), primarily the result of the increased
number of distribution facilities in operation in 1998 as compared to
1997;
. an increase in other real estate income, primarily gains on disposition
of undepreciated facilities and fees generated by ProLogis Development
Services; and
. net foreign currency exchange gain recognized in 1998.
These increases in net earnings attributable to Common Shares were
partially offset by:
. a net decrease in income generated by ProLogis' unconsolidated
subsidiaries in 1998 from 1997, primarily due to the recognition of a net
foreign currency exchange loss in 1998 and
. the recognition of a $26.1 million expense in 1998 as a result of mark to
market adjustments related to two interest rate protection agreements
(see "Liquidity and Capital Resources--Derivative Financial
Instruments").
The decrease in net earnings attributable to Common Shares in 1997 from
1996 was primarily the result of a one-time charge of $75.4 million related to
the acquisition of the management companies from Security Capital in 1997,
partially offset by the resulting reduction in associated expenses (see "--
1997 Merger") and:
. an increase in net operating income from property operations (after
deductions for depreciation), primarily the result of the increased
number of distribution facilities in operation in 1997 as compared to
1996;
41
<PAGE>
. an increase in other real estate income, primarily gains on disposition
of undepreciated facilities and fees generated by ProLogis Development
Services; and
. income from ProLogis' investment in an unconsolidated subsidiary in 1997.
Interest expense, preferred share dividends and weighted average Common
Shares outstanding all increased in 1998 as compared to 1997 and in 1997 as
compared to 1996. These increases are the result of additional debt and equity
used by ProLogis to finance the increases in its acquisition and development
activities in each year.
Property Operations
As of December 31, 1998 ProLogis had 1,099 operating facilities totaling
104.5 million square feet, as of December 31, 1997 ProLogis had 1,005
operating facilities totaling 90.8 million square feet and as of December 31,
1996, ProLogis had 942 operating facilities totaling 80.6 million square feet.
The increases in operating facilities resulted in increases in property-level
net operating income of $60.4 million from 1997 to 1998 and $57.2 million from
1996 to 1997 as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Rental income.................................. $345,046 $284,533 $227,000
Property operating expenses:
Rental expenses, net of recoveries........... 27,120 23,187 21,734
Property management fees paid to affiliate... -- 3,821 4,940
-------- -------- --------
27,120 27,008 26,674
-------- -------- --------
Net operating income....................... $317,926 $257,525 $200,326
======== ======== ========
</TABLE>
Rental income increased by $60.5 million in 1998 as compared to 1997. This
increase is comprised from the following components:
. facilities acquired or developed during 1998 contributed $8.2 million and
$13.9 million of additional rental revenues, respectively;
. facilities acquired or developed during 1997 contributed $17.4 million
and $18.8 million of additional rental revenues, respectively;
. facilities owned and operated as of January 1, 1997 contributed $11.2
million of additional rental revenues; and
. facilities that were in operation during 1997 but have subsequently been
disposed of reduced rental revenues in 1998 by $9.0 million.
Rental income increased by $57.5 million in 1997 as compared to 1996. This
increase is comprised of the following components:
. facilities acquired or developed during 1997 contributed $6.3 million and
$8.9 million of additional rental revenues, respectively;
. facilities acquired or developed during 1996 contributed $16.8 million
and $24.2 million of additional rental revenues, respectively;
. facilities owned and operated as of January 1, 1996 contributed $5.4
million of additional rental revenues; and
. facilities that were in operation during 1996 but have subsequently been
disposed of reduced rental revenues in 1997 by $4.1 million.
Rental expenses, including property management fees paid to an affiliate
and net of recoveries from tenants, increased by $112,000 in 1998 over 1997
and $334,000 in 1997 over 1996. Rental expenses, net of recoveries from
tenants, were 24.5% of rental income for 1998, 25.7% of rental income for 1997
and 26.6% of rental income for 1996.
42
<PAGE>
As a result of the 1997 Merger discussed below under "--1997 Merger" and in
Note 8 to the Consolidated Financial Statements in Item 8, ProLogis no longer
pays a property management fee. However, ProLogis did recognize the actual
personnel and other operating costs associated with the property management
function in rental expenses in 1998 and for the period from September 8, 1997
to December 31, 1997.
ProLogis frequently acquires facilities that are underleased and develops
facilities that are not fully leased at the start of construction, which
reduces ProLogis' overall occupancy rate below its stabilized level but
provides opportunities to increase revenues. The term "stabilized" means that
capital improvements, repositioning, new management and new marketing programs
(or development and marketing, in the case of newly developed facilities) have
been completed and in effect for a sufficient period of time (but in no case
longer than 12 months for facilities acquired by ProLogis and 12 months after
shell completion for facilities developed by ProLogis) to achieve stabilized
occupancy (typically 93%). ProLogis has been successful in increasing
occupancies on acquired and developed facilities during their initial months
of operation resulting in an occupancy rate of 95.8% and a leased rate of
96.3% for stabilized facilities owned as of December 31, 1998. The average
increase in rental rates for new and renewed leases on previously leased space
(17.4 million square feet) during 1998 was 15.2%. As leases are renewed or new
leases are acquired, ProLogis expects most rental rates to increase in 1999.
Other Real Estate Income
Other real estate income consists primarily of gains on the disposition of
undepreciated facilities and fees and other income received from customers or
third parties for whom ProLogis develops corporate distribution facilities.
Other real estate income is generated primarily by ProLogis Development
Services. ProLogis Development Services develops corporate distribution
facilities to meet specific customer requirements or contracts on a fee basis
to develop distribution facilities for customers or third parties. Through its
preferred stock ownership of ProLogis Development Services, ProLogis realizes
substantially all economic benefits of these activities. ProLogis advances
mortgage loans to ProLogis Development Services to fund its acquisition,
development and construction activities. The activities of ProLogis
Development Services are consolidated with ProLogis' activities and all
intercompany balances are eliminated. Due to the timing of the completion of
these development projects and the related dispositions, other real estate
income recognized by ProLogis will vary on an annual basis. See "Properties--
ProLogis Development Services".
Income (Loss) from Unconsolidated Subsidiaries
Income (loss) from unconsolidated subsidiaries relates primarily to
ProLogis' investments in 100% of the preferred stock of Frigoscandia S.A. and
ProLogis Logistics, whose primary source of income is their respective
investments in refrigerated logistics businesses, in Kingspark S.A., which
owns an industrial real estate development company and in Garonor Holdings,
which owns an industrial distribution facilities company. These investments,
discussed in Note 4 to the Consolidated Financial Statements in Item 8 and in
"Properties-- Unconsolidated Subsidiaries", generated income under the equity
method of accounting as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December
31,
-----------------------
1998 1997 1996
-------- ------- ----
<S> <C> <C> <C>
Insight (1)...................................... $ 20 $ -- $--
-------- ------- ----
ProLogis Logistics (2):
Equity in earnings (loss)...................... (4,396) (2,258) --
Management fee from CSI (3).................... 1,011 743 --
Interest income on note receivable............. 10,734 4,793 --
-------- ------- ----
7,349 3,278 --
-------- ------- ----
Frigoscandia S.A. (4):
Equity in earnings (loss) (5).................. (25,604) -- --
Interest income on mortgage notes and notes
receivable.................................... 18,069 -- --
-------- ------- ----
(7,535) -- --
-------- ------- ----
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1998 1997 1996
------- ------ ----
<S> <C> <C> <C>
Kingspark S.A. (6):
Equity in earnings (loss) (7)..................... (1,565) -- --
Interest income on mortgage note and note
receivable....................................... 4,480 -- --
------- ------ ----
2,915 -- --
------- ------ ----
Garonor Holdings (8):
Equity in earnings (loss)......................... (79) -- --
Interest income on notes receivable............... 85 -- --
------- ------ ----
6 -- --
------- ------ ----
Total........................................... $ 2,755 $3,278 $--
======= ====== ====
</TABLE>
- --------
(1) Represents ProLogis' investment in a privately owned logistics
optimization consulting company that, prior to July 1, 1998, was accounted
for under the cost method.
(2) ProLogis Logistics was acquired on April 24, 1997.
(3) ProLogis no longer receives the management fee from CSI.
(4) Frigoscandia S.A. was acquired on January 16, 1998.
(5) Includes a net loss of $13.3 million on the remeasurement from
intercompany and other debt based on the foreign currency exchange rates
in effect as of December 31, 1998.
(6) Kingspark S.A. was acquired on August 14, 1998.
(7) Includes a net loss of $0.9 million from the remeasurement of intercompany
debt based on the foreign currency exchange rates in effect as of December
31, 1998.
(8) Garonor Holdings was acquired on December 29, 1998.
Foreign Currency Exchange Gains (Losses), Net
The foreign exchange gain in 1998 consists of a foreign currency exchange
transaction loss of $0.3 million and a $3.2 million gain related to foreign
currency remeasurement adjustments. In 1997, ProLogis incurred a remeasurement
loss of $0.3 million. No foreign currency exchange transaction gain or loss
was recognized in 1997 due to ProLogis' limited foreign operations in that
year. ProLogis did not have foreign subsidiaries in 1996.
Foreign Currency Hedge Income (Expense)
On December 22, 1997, ProLogis entered into two separate contracts to (i)
exchange $373.8 million for 2.9 billion Swedish krona, and (ii) exchange 310.0
million German marks for $175.0 million in anticipation of the January 1998
acquisition and planned European currency denominated financing of
Frigoscandia AB by Frigoscandia S.A., ProLogis' unconsolidated subsidiary. The
contracts were marked to market as of December 31, 1997 and ProLogis
recognized a net loss of $6.0 million in 1997. Both contracts were settled
during the first quarter of 1998 at a net loss of $4.0 million. Accordingly,
ProLogis recognized a net gain of $2.0 million in 1998. These foreign currency
exchange hedges were one-time, non-recurring contracts that fixed the exchange
rate between the U.S. dollar and the Swedish krona and German mark. ProLogis
executed these hedges after the execution of the purchase agreement to acquire
Frigoscandia AB, which required payment in Swedish krona. The contracts were
executed exclusively for the acquisition and financing of Frigoscandia AB and
were not entered into to hedge on-going income in foreign currencies.
Interest Income
Interest income in 1998 increased $360,000 over 1997 and increased $1.3
million in 1997 over 1996. The increases in interest income are primarily the
result of higher average cash balances.
44
<PAGE>
Depreciation and Amortization
The increases in depreciation and amortization expense of $24.0 million in
1998 as compared to 1997 and $16.7 million in 1997 as compared to 1996 result
primarily from the increases in operating facilities each year. See "--
Property Operations".
Interest Rate Hedge Expense
See "--Liquidity and Capital Resources--Derivative Financial Instruments"
for a discussion of this expense.
Interest Expense
Interest expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Lines of credit and short-term borrowings...... $15,657 $ 4,332 $ 3,671
Senior unsecured debt.......................... 70,308 55,870 39,215
Mortgage notes................................. 5,666 5,441 6,503
Assessment bonds............................... 2,321 2,371 2,420
Securitized debt............................... 2,871 3,055 3,148
Capitalized interest........................... (19,173) (18,365) (16,138)
------- ------- -------
$77,650 $52,704 $38,819
======= ======= =======
</TABLE>
Interest expense on lines of credit borrowings increased $11.3 million in
1998 over 1997 and $0.7 million in 1997 over 1996 due primarily to a higher
average outstanding balance ($174.9 million in 1998, $56.9 million in 1997 and
$44.3 million in 1996) partially offset by a lower weighted average daily
interest rate (6.46% in 1998, 6.75% in 1997 and 7.02% in 1996). Interest
expense on lines of credit and short-term borrowings in 1998 includes $2.8
million related to short-term borrowings of $150.0 million for the period from
September 11, 1998 to December 31, 1998. See "--Liquidity and Capital
Resources--Investing and Financing Activities".
Senior unsecured debt interest expense increased by $14.4 million in 1998
as compared to 1997 and $16.7 million in 1997 as compared to 1996 due
primarily to interest on new senior unsecured debt issuances in each year.
Interest expense recognized on borrowings is offset by interest capitalized
with respect to ProLogis' development activities. Capitalized interest
increased by $0.8 million in 1998 over 1997 and $2.2 million in 1997 over
1996. Capitalized interest levels are reflective of ProLogis' cost of funds
and the level of development activity in each year.
Other Expense
Other expenses, which increased by $4.1 million in 1998 over 1997 and $1.0
million in 1997 over 1996, consist of land holding costs, the write-off of
previously capitalized pursuit costs, deferred tax expense related to
ProLogis' taxable subsidiaries and costs associated with the name change to
ProLogis. Land holding costs were $2.2 million in 1998, $2.3 million in 1997
and $1.5 million in 1996. Pursuit cost write-offs were $2.3 million in 1998,
$1.6 million in 1997 and $1.4 million in 1996. Deferred tax expense was $1.8
million in 1998 and non-recurring costs associated with the name change were
$1.7 million in 1998.
Preferred Share Dividends
The increase in preferred share dividends of $13.8 million in 1998 over
1997 is primarily attributable to the issuance of Series D preferred shares in
April 1998. The increase in preferred share dividends of $9.4 million in 1997
over 1996 is primarily attributable to the issuance of Series B and Series C
preferred shares in 1996. See
45
<PAGE>
"--Liquidity and Capital Resources--Investing and Financing Activities".
1997 Merger
As a result of the 1997 Merger discussed in Note 8 to the Consolidated
Financial Statements in Item 8, ProLogis terminated its REIT management and
property management agreements. All employees of the REIT management and
property management companies became employees of ProLogis and ProLogis
directly incurs the personnel and other costs related to these functions. The
costs relating to property management are recorded as rental expenses whereas
the costs associated with managing the corporate entity are recorded as
general and administrative expenses. In connection with this transaction,
ProLogis recognized a one-time expense of $75.4 million, representing the
excess of the purchase price over the net tangible assets acquired.
Upon consummation of the 1997 Merger, ProLogis and Security Capital entered
into the ASA, pursuant to which Security Capital provides ProLogis with
certain administrative and other services as determined by ProLogis. Fees paid
to Security Capital in 1998 and 1997 under the ASA were equal to Security
Capital's cost of providing such services, plus an overhead factor of 20%,
subject to a maximum amount of approximately $7.1 million during the initial
term of the agreement, which expired on December 31, 1998. From September 8,
1997 through December 31, 1997 and for the year ended December 31, 1998,
ProLogis' actual fees under the ASA were $1.1 million and $3.7 million,
respectively, of which $0.2 million and $0.7 million, respectively, were
capitalized. The ASA was renewed for an additional one-year term expiring on
December 31, 1999 with fees charged by Security Capital for this one-year
period to be based on negotiated rates for each service provided.
Environmental Matters
ProLogis did not experience any environmental condition on its facilities
which materially adversely affected its results of operations or financial
position.
Liquidity and Capital Resources
Overview
ProLogis considers its liquidity and ability to generate cash from
operations and financing activities to be adequate and expects it to continue
to be adequate to meet its anticipated development, acquisition, operating and
debt service needs as well as its shareholder distribution requirements.
ProLogis expects to finance future activities with cash on hand,
redeployment of proceeds from the disposition of selected facilities,
borrowings on its credit facilities, issuance of limited partnership units,
the assumption of existing mortgage debt, when applicable, secured and
unsecured debt issuances and sales of Common Shares and preferred shares.
ProLogis is also considering the feasibility of entering into certain joint
venture agreements where the joint venture would pursue secured debt financing
arrangements. The credit facilities provide ProLogis with the ability to
efficiently respond to market opportunities while minimizing the amount of
cash invested in short-term investments at lower yields. As of December 31,
1998 ProLogis had $30.7 million available for borrowing under its credit
facilities ($161.0 million available as of March 22, 1999). Another source of
future liquidity and financial flexibility is ProLogis' shelf-registered
securities ($608.0 million available as of March 22, 1999) which can be issued
in the form of debt securities, preferred shares, Common Shares, rights to
purchase Common Shares and preferred share purchase rights on an as-needed
basis, subject to ProLogis' ability to effect an offering on satisfactory
terms. See "--Credit Facilities".
Operating Activities
Cash provided by operating activities increased by $45.8 million in 1998 as
compared to 1997 ($238.3 million in 1998 and $192.5 million in 1997). Cash
provided by operating activities increased by $56.3 million in 1997 as
compared to 1996 ($192.5 million in 1997 as compared to $136.2 million in
1996). This increase is primarily the result of the increased number of
operating facilities in each year. See "--Results of Operations-- Property
Operations".
46
<PAGE>
Investing and Financing Activities
ProLogis funds its current investment needs primarily with lines of credit
borrowings and short-term borrowings, which are subsequently repaid with
proceeds from sales of debt and equity securities. ProLogis' investment
activities used approximately $1.26 billion, $571.1 million and $665.9 million
of cash in 1998, 1997 and 1996, respectively. ProLogis' financing activities
provided net cash flow of $1.06 billion, $398.8 million and $512.2 million in
1998, 1997 and 1996, respectively. Cash distributions paid on Common Shares
were $151.1 million, $106.6 million and $85.3 million in 1998, 1997 and 1996,
respectively, which have been substantially funded by cash generated from
operating activities.
Investments in real estate, net of proceeds from dispositions, used cash of
$695.8 million in 1998, $601.6 million in 1997 and $657.9 million in 1996.
ProLogis' cash investment in ProLogis Logistics and related subsidiaries was
$63.4 million in 1998 and $85.1 million in 1997. In 1998, ProLogis' net cash
investments in Frigoscandia S.A. and its related subsidiaries, Kingspark S.A.
and its related subsidiaries and Garonor Holdings and its related subsidiaries
aggregated $235.6 million, $222.5 million and $135.0 million, respectively.
Additionally, ProLogis Development Services invested $1.0 million and $0.5
million in cash in Insight during 1998 and 1997, respectively.
ProLogis' primary financing activities in 1998 were: (i) the sale of Series
D Preferred Shares generating net proceeds of $241.5 million; (ii) sales of
Common Shares (net of repurchases of Common Shares under the employee share
purchase plan) generating net proceeds of $130.6 million; (iii) net borrowings
on ProLogis' credit facilities of $494.3 million; (iv) proceeds from short-
term borrowings of $350.0 million ($200 million of which was used primarily to
finance the acquisition of Frigoscandia AB and was repaid on March 31, 1998
after Frigoscandia Holding AB obtained third-party financing); (v) the
issuance of senior unsecured debt generating net proceeds of $371.5 million;
and (vi) net proceeds from a secured financing of $65.5 million.
ProLogis' primary financing activities in 1997 were: (i) sales of Common
Shares (net of repurchases of Common Shares under the employee share purchase
plan) generating net proceeds of $406.1 million; (ii) the issuance of senior
unsecured debt generating net proceeds of $197.8 million; and (iii) net
repayments on ProLogis' credit facilities of $38.6 million.
ProLogis' primary financing activities in 1996 were: (i) the sale of Series
B and Series C preferred shares generating net proceeds of $289.1 million;
(ii) sale of Common Shares generating net proceeds of $210.5 million; (iii)
issuance of senior unsecured debt generating net proceeds of $197.8 million;
and (iv) net repayments on ProLogis' credit facilities of $42.4 million.
Credit Facilities
ProLogis has a credit agreement with NationsBank, N.A. ("NationsBank") as
agent for a bank group that provides for a $350.0 million unsecured revolving
line of credit. Borrowings bear interest at ProLogis' option, at either (a)
the greater of the federal funds rate plus 0.5% and the prime rate, or (b)
LIBOR plus 0.75% based upon ProLogis' current senior debt ratings. The prime
rate was 7.75% and the 30-day LIBOR rate was 5.0641% as of December 31, 1998.
Additionally, the credit agreement provides for a commitment fee of 0.15% per
annum of the unused line of credit balance. Under a competitive bid option
contained in the credit agreement, ProLogis may be able to borrow at a lower
interest rate spread over LIBOR, depending on market conditions. This option
is available on up to $100.0 million of borrowings. The line of credit matures
on May 1, 2000 and may be extended annually for an additional year with the
approval of NationsBank and the other participating lenders. ProLogis was in
compliance with all covenants contained in the credit agreement as of December
31, 1998. As of December 31, 1998, $329.0 million of borrowings were
outstanding on the line of credit.
In addition, ProLogis has a $25.0 million short-term unsecured
discretionary line of credit with NationsBank that matures on October 1, 1999.
By agreement between ProLogis and NationsBank, the rate of interest and the
maturity date of each advance are determined at the time of each advance.
There were $15.3 million of borrowings outstanding on the line of credit as of
December 31, 1998.
47
<PAGE>
ProLogis has a credit agreement with NationsBank that provides for a short-
term loan of $150.0 million. The credit agreement expires on May 1, 1999.
Borrowings bear interest at LIBOR plus 1.00% and are subject to the covenants
contained in the $350.0 million unsecured credit agreement with NationsBank.
As of December 31, 1998, ProLogis was in compliance with all such covenants.
ProLogis expects to repay these borrowings with proceeds from the new $700.0
million credit facility discussed below. ProLogis expects that approximately
$500.0 million will be borrowed on the new line of credit at closing to repay
all of the borrowings on ProLogis' existing unsecured lines of credit,
ProLogis' short-term loan and borrowings on Meridian's existing unsecured line
of credit. Prior to the end of the second quarter of 1999, ProLogis expects to
complete a public offering of senior unsecured debt, the proceeds of which
will be used to repay borrowings on the new unsecured line of credit.
In connection with the Meridian merger, ProLogis intends to replace its
existing $350.0 million unsecured line of credit and Meridian's existing
$350.0 million unsecured line of credit with a new $700.0 million credit
facility. ProLogis has a commitment from Nationsbank, Commerzbank and Chase
Bank of Texas for this new credit facility. ProLogis expects that $550.0
million of this credit facility will be a unsecured line of credit with the
remainder a short-term borrowing arrangement. Borrowings on the credit
facility will bear interest generally at LIBOR plus an applicable percentage
based upon ProLogis' senior unsecured debt rating (LIBOR plus 1.00% based upon
ProLogis' current debt rating) plus a 0.20% annual facility fee. The new
credit facility will contain financial covenants consistent with ProLogis'
existing credit agreement. See "--Proposed Merger Transaction".
Other Financing Sources
On December 23, 1998, ProLogis entered into a $150.0 million secured
financing agreement with Connecticut General Life Insurance Company. On that
date, $66.0 million was funded under the agreement and the remaining $84.0
million was funded on January 22, 1999. Under the terms of the agreement,
ProLogis pledged distribution facilities ($207.0 million undepreciated cost as
of December 31, 1998) as collateral under the agreement. The loan bears
interest at 7.08% per annum and provides for monthly principal and interest
payments of $1,006,000 through March 2007, at which time the remaining
principal outstanding of $134.4 million will be due.
On February 22, 1999, ProLogis entered into a $182.0 million secured
financing agreement with Teachers Insurance and Annuity Association of
America. Of the total borrowings, $119.4 million was funded on February 22,
1999, $35.7 million was funded on March 5, 1999 and the remaining amount is
expected to be funded before the end of May 1999. The loan bears interest at
7.20% and provides for monthly interest payments through March 2002 and
monthly principal and interest payments from April 2002 to March 2009, at
which time the remaining balance will be due. ProLogis pledged distribution
facilities with an undepreciated cost of $216.2 million as of December 31,
1998 as collateral under the agreement and will pledge additional distribution
facilities upon completion of the final funding.
On February 5, 1999, ProLogis received a commitment from Morgan Guaranty
Trust Company of New York ("MGT") whereby MGT will lend $200.0 million to
ProLogis. The loan, which will be secured by distribution facilities and will
have a 25-year term, provides for interest only payments for the first six
years and principal and interest payments thereafter with the remaining
balance due at maturity. The loan bears interest at 7.58% per annum and is
expected to be funded by the end of the first quarter of 1999.
Derivative Financial Instruments
ProLogis occasionally uses derivative financial instruments as hedges to
manage well-defined risk associated with interest and foreign currency rate
fluctuations on existing obligations or anticipated transactions. ProLogis
does not use derivative financial instruments for trading purposes.
The primary risks associated with derivative instruments are market risk
and credit risk. Market risk is defined as the potential for loss in the value
of the derivative due to adverse changes in market prices (interest rates or
foreign currency rates). Through hedging, ProLogis can effectively manage the
risk of increases in interest rates and fluctuations in foreign currency
exchange rates.
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<PAGE>
Credit risk is the risk that one of the parties to a derivative contract
fails to perform or meet their financial obligation under the contract.
ProLogis does not obtain collateral to support financial instruments subject
to credit risk but monitors the credit standing of counterparties. ProLogis
does not anticipate non-performance by any of the counterparties to its
derivative contracts. Should a counterparty fail to perform, however, ProLogis
would incur a financial loss to the extent of the positive fair market value
of the derivative instruments, if any.
The following table summarizes the activity in interest rate contracts for
the years ended December 31, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
Interest Rate Interest Rate
Futures Contracts Swaps
----------------- -------------
<S> <C> <C>
Notional amount as of December 31, 1996... $106.0 $33.0
New contracts (1)......................... 75.0 75.0
Matured or expired contracts (2).......... (106.0) (33.0)
Terminated contracts...................... -- --
------ -----
Notional amount as of December 31, 1997... 75.0 75.0
------ -----
New contracts............................. -- --
Matured or expired contracts.............. -- --
Terminated contracts...................... -- --
------ -----
Notional amount as of December 31, 1998(1).... $ 75.0 $75.0
====== =====
</TABLE>
- --------
(1) In October 1997, in anticipation of debt offerings in 1998, ProLogis
entered into two interest rate protection agreements which have been
renewed past the original termination dates. These agreements were entered
into by ProLogis to fix the interest rate on anticipated financings.
During the third quarter of 1998, ProLogis determined that the interest
rate protection agreements would no longer qualify for hedge accounting
treatment under GAAP based upon the following:
. Due to changing conditions in the public debt markets, it was no longer
considered probable that ProLogis would complete the anticipated 1998
longer term debt offerings that prompted ProLogis to enter into these
interest rate protection agreements in 1997 (i.e., ProLogis would not be
exposed to the interest rate risk that these instruments were intended to
hedge); and
. ProLogis determined, through internal analysis and through communications
with independent third parties, that a high degree of correlation no
longer existed between changes in the market values of these interest
rate protection agreements and the "market values" of the anticipated
debt offerings (i.e., the interest rate at which the debt could be issued
by ProLogis under existing market conditions).
Accordingly, ProLogis began marking these agreements to market as of
September 30, 1998. For 1998, ProLogis recognized a non-cash expense of
$26.1 million. These agreements were terminated in February 1999 at a cost
of $27.0 million and were used to set the interest rate associated with the
$200.0 million secured financing transaction with MGT that is scheduled to
be completed in the first quarter of 1999. ProLogis intends to amortize
this expense as a component of interest expense over the 25-year term of
the MGT debt for purposes of calculating funds from operations. See "--
Funds From Operations".
(2) Deferred gains totaling $1.9 million on matured, expired or terminated
contracts were recorded on the balance sheet as of December 31, 1997.
These gains relate to the unwind of hedges placed for the February and
July 1997 offerings of senior unsecured debt offerings and are being
amortized over the term of the debt.
See "--Results of Operations--Foreign Currency Hedge Income (Expense)" for
a discussion of foreign currency hedge contracts entered into in 1997 and
terminated in 1998.
49
<PAGE>
Commitments
As of December 31, 1998, ProLogis had letters of intent or contingent
contracts, subject to ProLogis' final due diligence, for the acquisition of
1.8 million square feet in various target markets with an acquisition cost of
$74.7 million. The foregoing transactions are subject to a number of
conditions, and ProLogis cannot predict with certainty that any of them will
be consummated. In addition, as of December 31, 1998, ProLogis had $328.1
million of budgeted development costs for developments in process, of which
$131.7 million was unfunded.
Frigoscandia AB has a multi-currency, three-year revolving credit agreement
through a consortium of 11 European banks in the currency equivalent of
approximately $200 million as of December 31, 1998. The loan bears interest at
each currency's LIBOR rate plus 0.55%. ProLogis has entered into a guaranty
agreement for 25% of the loan balance.
Subsequent to December 31, 1998, ProLogis Kingspark entered into a line of
credit agreement with a bank in the United Kingdom. The credit agreement,
which provides for borrowings of up to 10.0 million British pounds
(approximately $16.6 million as of December 31, 1998), has been guaranteed by
ProLogis.
In connection with the acquisition of Garonor S.A., Garonor Holdings
obtained two credit facilities from a French bank. One facility is in the
amount of 200.0 million French francs ($35.6 million as of December 31, 1998)
and is guaranteed by ProLogis. ProLogis has guaranteed an additional 10.0
million French francs ($1.8 million as of December 31, 1998), which
approximates the annual interest to be charged on the facility. The second
facility, in the amount of 870.0 million French francs (of which 770.0 million
French francs was outstanding as of December 31, 1998), is secured by the real
estate owned by Garonor S.A. ProLogis has guaranteed 50.0 million French
francs of the amount outstanding as of December 31, 1998 ($8.9 million as of
December 31, 1998). Garonor has the ability to borrow an additional 100.0
million French francs under this facility of which ProLogis will guarantee
50.0 million French francs. The total guaranty of 100.0 million French francs
can be reduced as Garonor S.A. meets certain operating covenants.
Distribution and Dividend Requirements
ProLogis' current distribution policy is to pay quarterly distributions to
shareholders based upon what it considers to be a reasonable percentage of
cash flow and at the level that will allow ProLogis to continue to qualify as
a REIT for tax purposes. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, annual distributions are expected to be consistently higher than
annual earnings.
Cash distributions paid in 1998, 1997 and 1996 were $1.24 per Common Share,
$1.07 per Common Share and $1.01 per Common Share, respectively. On December
15, 1998, ProLogis declared a distribution of $0.3183 per Common Share which
was paid on February 24, 1999. The Board has set a projected annual
distribution rate for 1999 of $1.30 per Common Share. In connection with the
Meridian Merger, ProLogis will issue $50 million of new preferred shares with
an annual dividend rate of 8.75% ($2.1875 per share).
Pursuant to the terms of its preferred shares, ProLogis is restricted from
declaring or paying any distribution with respect to the Common Shares unless
all cumulative dividends with respect to the Preferred Shares have been paid
and sufficient funds have been set aside for dividends that have been declared
for the then current dividend period with respect to the Preferred Shares.
Conversion to the Euro
On January 1, 1999, eleven of the fifteen member countries of the European
Monetary Union launched the new monetary unit, the euro, as the single
currency for the member countries of the European Monetary Union. During the
period from January 1, 1999 to January 1, 2002 a transition period will be in
effect during which time the euro will be available for non-cash transactions.
However, transactions can continue to be denominated in the old national
currencies. After January 1, 2002, all transactions must be denominated in the
euro. The targeted exchange rates of the old national currencies to the euro
were determined in May 1998. Management is not aware of any effects of the
conversion to the euro that will have a material impact on its business
operations or results of operations.
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<PAGE>
Funds from Operations
Funds from operations attributable to Common Shares increased $72.0 million
to $233.1 million for 1998 from $161.1 million for 1997. Funds from operation
attributable to Common Shares increased $44.2 million from 1996 to 1997.
Funds from operations represent ProLogis' net earnings (computed in
accordance with GAAP) before minority interest, before gains or losses from
debt restructuring, before gains or losses on disposition of depreciated real
estate, before gains or losses from mark to market adjustments resulting from
the remeasurement (based on current foreign currency exchange rates) of
intercompany and other debt of ProLogis' foreign subsidiaries, before deferred
tax benefits and deferred tax expenses of ProLogis' taxable subsidiaries,
before significant non-recurring items that materially distort the comparative
measurement of company performance over time, plus real estate depreciation
and amortization (exclusive of amortization of loan costs), and after
adjustments for unconsolidated subsidiaries calculated to compute their funds
from operations on the same basis as ProLogis. ProLogis believes that funds
from operations is helpful to a reader as a measure of the performance of an
equity REIT because, along with cash flow from operating activities, investing
activities and financing activities, it provides a reader with an indication
of the ability of ProLogis to incur and service debt, to make capital
expenditures and to fund other cash needs. The funds from operations measure
presented by ProLogis, while comparable to the National Association of Real
Estate Investment Trusts' definition, will not be comparable to similarly
titled measure of other REITs that do not compute funds from operations in a
manner consistent with ProLogis. Funds from operations is not intended to
represent cash made available to shareholders. Funds from operations should
not be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of ProLogis' operating performance,
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. Funds from operations is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net earnings attributable to Common Shares.. $ 62,231 $ 4,431 $ 53,460
Add (Deduct):
Real estate depreciation and
amortization........................... 99,514 76,275 59,850
Minority interest....................... 4,681 3,560 3,326
(Gain) loss on disposition of
depreciated real estate................ (5,565) (7,378) 29
Non-recurring foreign currency exchange
(gain) loss (1)........................ (2,054) 6,028 --
Interest rate hedge expense (2)......... 26,050 -- --
Foreign currency exchange (gains) losses
(1).................................... (3,227) 348 --
Non-recurring costs (3)................. 1,686 75,376 --
Deferred tax expense related to
ProLogis' taxable subsidiaries......... 1,797 -- --
ProLogis' share of reconciling items of
unconsolidated subsidiaries:
Real estate depreciation and
amortization......................... 36,489 2,419 --
Net foreign currency exchange loss on
remeasurement of intercompany and
other debt........................... 14,207 -- --
Other................................. (2,750) -- --
Other................................... -- -- 225
-------- -------- --------
Funds from operations attributable to Common
Shares..................................... $233,059 $161,059 $116,890
======== ======== ========
</TABLE>
51
<PAGE>
- --------
(1) See "--Results of Operations--Foreign Currency Exchange Gain (Losses),
Net".
(2) This expense will be amortized as a component of interest expense
beginning in 1999 for purposes of calculating funds from operations. See
"--Liquidity and Capital Resources--Derivative Financial Instruments".
(3) See "--Results of Operations--Other Expense" with respect to the 1998
amount and "--Results of Operations--1997 Merger Transaction" with respect
to the 1997 amount.
Year 2000
Overview
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar business activities.
ProLogis has undertaken a review of all of its computer systems and
applications to determine if these programs are Year 2000 compliant and if
not, the efforts that will be necessary to bring the programs into compliance.
ProLogis has not identified any computer system or application that, upon
failure to be Year 2000 compliant, would have a material adverse impact on its
business or results of operations.
Information Technology Systems
ProLogis' information technology ("IT") environment is primarily a
Microsoft Windows-based personal computer network (NT or Novell) utilizing
desktop applications, primarily data base and spreadsheet applications.
Additionally, ProLogis utilizes third-party developed software, including
accounting and property management systems. ProLogis' critical computer
hardware, operating systems and key general accounting, property management
and financial reporting applications are Year 2000 compliant, as verified by
the various vendors. ProLogis has identified one accounting application that
is not Year 2000 compliant.
Because ProLogis has undertaken to replace its core financial systems with
computer software that will better serve its future needs (such software is
Year 2000 compliant), it is not expected that the non-compliant accounting
application will continue to be used by ProLogis after mid-1999. Should the
enterprise-wide implementation of the new computer software not be
accomplished in a timely manner and the non-compliant accounting application
is still in use at the end of 1999, ProLogis has two contingency plans. The
first option is to install a Year 2000 compliant version of the current
software that the vendor has indicated will be available in 1999. Secondly,
ProLogis can, with minimal efforts, convert this application to the Year 2000
compliant software currently in use for all other accounting applications.
Should neither contingency plan be successfully implemented, ProLogis could
experience a delay in reporting its financial results and also delays in
processing payments to vendors beginning with the first quarter of 2000. Also,
additional costs would be incurred to perform this function manually until
such time as the computer application is made Year 2000 complaint.
Non-IT Systems
Many of ProLogis' operating facilities have microchips embedded in the
building operating systems. ProLogis, as owner and lessor of these buildings,
has assessed its exposure with respect to Year 2000 related failures in these
operating systems. These building operating systems include programmable
thermostats, security systems, communications systems, utility monitoring
systems and timed locks.
Under the terms of substantially all of ProLogis' building leases, the
tenant has responsibility for the operating systems within their leased space,
including the responsibility for addressing the Year 2000 compliance of those
systems. However, ProLogis is responsible for the operating systems that
control the common exterior
52
<PAGE>
areas of the buildings, including parking lot lighting and sprinkler systems.
Generally, these systems are programmed on daily or weekly cycles (as opposed
to calendar-based programming). Consequently, the risk of a Year 2000 related
malfunction is extremely low and any such malfunction would not have a
material impact on ProLogis' operations. ProLogis is also responsible for the
fire and life safety monitoring systems in its buildings. ProLogis contracts
with a third party to monitor these systems. These systems are not calendar-
based, because reportable events are identified as they occur. Consequently,
the risk of a Year 2000 related failure is low.
ProLogis is currently conducting a review of all operating systems that
fall within its responsibility. Preliminary results have indicated that
ProLogis' primary vendor for monitoring of fire and life safety systems has
verified that their system is Year 2000 compliant. ProLogis is continuing its
review of other systems and is performing testing and verification as deemed
appropriate. This process is expected to be completed during the second
quarter of 1999. Based upon the results of this review, ProLogis will
formulate a contingency plan to address risk areas identified, if any. Should
the systems that ProLogis is responsible for fail, ProLogis' tenants may
experience inconveniences with respect to the maintenance and operations of
the facilities (i.e., parking lot lighting and sprinkler systems). Should the
fire and life safety systems fail, there could be a delay in identifying a
reportable event or a reportable event could occur without being identified.
In such situations, ProLogis could be exposed to the extent the failure
resulted in a loss that is not covered by existing insurance policies.
Third Parties
Management believes that its planning efforts are adequate to address the
Year 2000 issue and that its risk factors are primarily those that it cannot
directly control, including the readiness of financial institutions and
utility providers. Failure on the part of these entities to become Year 2000
compliant could result in disruptions in the business operations of ProLogis.
Costs
ProLogis' activities with respect to its assessment of Year 2000 compliance
and its remediation efforts are being performed by existing personnel.
ProLogis has not obtained a cost estimate for upgrading the accounting
application referred to above, as the need for this contingency plan is not
considered probable at this time. ProLogis' historical costs for addressing
the Year 2000 issue are not material and management does not anticipate that
its future costs associated with the Year 2000 issue will be material. Third-
party costs and interim software solutions for Year 2000 issues have been less
than $100,000 and are not expected to exceed $250,000. ProLogis does not
separately track the internal costs incurred for Year 2000 compliance issues.
Such costs are principally the related payroll costs of its IT group. Although
the cost of replacing ProLogis' key IT systems is substantial, the
replacements have been and are being made to improve operational efficiency
and were not accelerated due to the Year 2000 issue. ProLogis has not delayed
any material projects as a result of the Year 2000 issue. Funds expended to
address Year 2000 issues have been made from operating cash flow.
Unconsolidated Subsidiaries
As part of its compliance program, management of ProLogis has received
ongoing reports from CSI, Frigoscandia AB, ProLogis Kingspark and Garonor S.A.
on the impact of the Year 2000 problem on their operations and financial
results.
CSI has completed testing on all IT and embedded operating systems. No
critical IT or embedded operating systems have been identified that have not
already been remediated or are not Year 2000 compliant. CSI is currently
verifying and testing customer and supplier electronic data interface
programming standards. CSI has retained an outside consulting firm to review
their internal testing results. The consultants review is expected to be
completed during the second quarter of 1999. CSI estimates that the total cost
incurred to date and the total cost to be incurred for Year 2000 remediation
is less than $250,000. Failure of CSI to procure payroll processing services
that are Year 2000 compliant could result in a delay in paying its employees.
Also, additional costs would be incurred to perform this function manually.
53
<PAGE>
Frigoscandia AB has substantially completed all testing of its IT and
embedded operating systems. No critical IT or embedded operating systems have
been identified that have not already been remediated, with the exception of
the financial reporting application for its French and Spanish operations and
certain components of an inventory management system. A new financial
reporting system for the French and Spanish operations is being implemented
and is expected to be fully operational by May 1999. Modifications to the
components of the inventory management system will be completed by the second
quarter of 1999.
Frigoscandia AB is currently planning a coordinated program whereby testing
with key customers and critical suppliers is performed. Additionally,
Frigoscandia AB is preparing detailed contingency plans in the event of
unexpected Year 2000 disruptions. Frigoscandia AB estimates that the total
cost incurred to date and the estimated total cost to be incurred for Year
2000 remediation is between $2 million and $4 million. Failure of Frigoscandia
AB to convert the financial reporting application for its French operations to
a Year 2000 compliant system could result in delays in reporting financial
results beginning with the first quarter of 2000 and also delays in billings
to customers and in payments to vendors. These delays could result in
additional costs to Frigoscandia AB. Also, additional costs would be incurred
by Frigoscandia AB to perform these functions manually.
The primary accounting applications of ProLogis Kingspark are not Year 2000
compliant. To remediate this problem, ProLogis Kingspark is currently
installing a Year 2000 compliant version of non-customized accounting
software. Installation and testing is expected to be completed by the end of
the second quarter of 1999.
ProLogis Kingspark has virtually no risk associated with embedded operating
systems because substantially all of ProLogis Kingspark's activities are
related to development of facilities for third parties and not for its own
long-term ownership. ProLogis Kingspark estimates that the total cost incurred
to date and the estimated total cost to be incurred for the Year 2000
remediation is less than $100,000. Failure of ProLogis Kingspark to convert
its primary accounting applications to a Year 2000 compliant system could
result in delays in reporting financial results beginning with the first
quarter of 2000 and also delays in billings to customers and in payments to
vendors. These delays could result in additional costs to ProLogis Kingspark.
Also, additional costs would be incurred by ProLogis Kingspark to perform
these functions manually.
Garonor S.A. has completed testing on all IT and embedded operating
systems. Garonor S.A. plans to install a Year 2000 compliant version of its
current financial accounting software by the end of the second quarter of
1999. Garonor S.A.'s customer billing and cash management software are also
not Year 2000 compliant. Garonor S.A. is in the process of replacing these
software applications and expects the new software will be in place prior to
the fourth quarter of 1999. Costs to bring these applications into compliance
are expected to be less than $100,000. Should the new software applications
not be successfully implemented, Garonor S.A. could experience a delay in
reporting its financial results and also delays in processing billings to
customers and in payments to vendors. These delays could result in additional
costs to Garonor S.A. Also, additional costs would be incurred by Garonor S.A.
to perform these functions manually.
Garonor S.A.'s responsibility for the operating systems that control the
interior equipment, common exterior areas and the fire and life safety systems
of its buildings is similar to that of ProLogis, as discussed above under "--
Non-IT Systems." Garonor S.A. has tested these systems and determined that
they are Year 2000 compliant. In addition, Garonor S.A. has received an
indemnification from the vendors who supplied these systems' with respect to
any Year 2000 failures.
There can be no assurances that Year 2000 remediation efforts by ProLogis,
its unconsolidated subsidiaries or third parties will be properly and timely
completed, and failure to do so could have a material adverse effect on
ProLogis, its business and its financial condition. ProLogis cannot predict
the actual effects to it of the Year 2000 problem, which depends on numerous
uncertainties such as: (i) whether significant third parties properly
54
<PAGE>
and timely address the Year 2000 issue; and, (ii) whether broad-based or
systemic economic failures may occur. Due to the general uncertainty inherent
in the Year 2000, ProLogis is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on its
operations. ProLogis' Year 2000 compliance program is expected to
significantly reduce the level of uncertainty about the Year 2000 impact in
areas that are within its direct control and management of ProLogis believes
that the possibility of significant interruptions of normal operations will be
reduced.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk
ProLogis' interest rate risk is related primarily to its variable rate
credit facilities. ProLogis' interest rate risk management objective is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objective, ProLogis borrows
on a long-term basis primarily at fixed rates and staggered maturities with
its primary interest rate risk being related to its variable rate unsecured
lines of credit and its variable rate short-term borrowing arrangement.
ProLogis has in the past and intends in the future, to occasionally utilize
derivative financial instruments as hedges in anticipation of future long-term
debt transactions to manage well-defined interest rate risk exposure. ProLogis
does not use derivative financial instruments for trading purposes. ProLogis
had a $75.0 million interest rate futures contract and a $75.0 million
interest rate swap agreement as of December 31, 1998. These interest rate
protection agreements were marked to market as of December 31, 1998 and
ProLogis recognized an expense related to these agreements of $26.1 million in
1998. These agreements were terminated in February 1999 at a cost of $27.0
million, with respect to the unsecured lines of credit and 6.42% with respect
to the short-term borrowings.
During the year ended December 31, 1998, ProLogis had weighted average
outstanding borrowings of $174.9 million on its variable rate unsecured lines
of credit and $43.2 million on its variable rate short-term borrowing
arrangement. If interest rates had been 10% higher during 1998, interest
expense on ProLogis' variable rate borrowings would have increased by
approximately $1.4 million.
Foreign Currency Risk
ProLogis is exposed to foreign currency risk primarily to the extent
ProLogis has made intercompany loans to its foreign subsidiaries that are not
denominated in U.S. dollars. ProLogis has made such loans in the functional
currency of certain of its subsidiaries, the proceeds of which have been used
primarily to acquire and develop distribution facilities in each country. For
financial reporting purposes, ProLogis recognized a remeasurement gain on its
intercompany loans that are not U.S. dollar denominated (based upon foreign
currency exchange rates in effect as of December 31, 1998) of $3.2 million for
the year ended December 31, 1998. Had the exchange rates of the foreign
currencies in which ProLogis has made such loans moved unfavorably against the
U.S. dollar by 10%, ProLogis would have recognized an additional remeasurement
loss of approximately $23.7 million.
Item 8. Financial Statements and Supplementary Data
ProLogis Consolidated Balance Sheets as of December 31, 1998 and 1997, its
Consolidated Statements of Earnings and Comprehensive Income, Shareholders'
Equity and Cash Flows for each of the three years in the period ended December
31, 1998, Notes to Consolidated Financial Statements and Schedule III--Real
Estate and Accumulated Depreciation, together with the report of Arthur
Andersen LLP, independent public accountants, are included under Item 14 of
this report and are incorporated herein by reference. Selected quarterly
financial data is presented in Note 12 of Notes to Consolidated Financial
Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure Matters
Not applicable.
55
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
For information regarding ProLogis' executive officers, see "Item 1.
Business--Officers and Trustees of ProLogis." The other information required
by this Item 10 is incorporated herein by reference to the description under
the captions "Election of Trustees" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in ProLogis' definitive proxy statement for its 1999
annual meeting of shareholders ("1998 Proxy Statement").
Item 11. Executive Compensation
Incorporated herein by reference to the description under the captions
"Executive Compensation," "Compensation Committee Report on Executive
Compensation," "Trustee Compensation" and "Outside Trustee Plan" in the 1999
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the description under the caption
"Principal Shareholders" in the 1999 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the description under the caption
"Certain Relationships and Transactions" in the 1998 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as a part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements:
See Index to Consolidated Financial Statements and Schedule on
page 58 of this report, which is incorporated herein by
reference.
2. Financial Statement Schedules:
Schedule III.
All other schedules have been omitted since the required
information is presented in the financial statements and the
related notes or is not applicable.
3. Exhibits:
See Index to Exhibits on pages E-118 to E-124 of this report,
which is incorporated herein by reference.
56
<PAGE>
(b) Reports on Form 8-K: The following reports on Form 8-K were filed
during the last quarter of the period covered by this report:
<TABLE>
<CAPTION>
Item Financial
Date Reported Statements
---- -------- ----------
<S> <C> <C>
November 18, 1998.................................... 5, 7 No
December 3, 1998 (10)................................ 5, 7 Yes
December 10, 1998 (1)................................ 5, 7 Yes
</TABLE>
- --------
(1) Amended on February 25, 1999.
(c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are
listed in the Index to Exhibits on pages E-118 to E-124 of this report,
which is incorporated herein by reference.
57
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III
<TABLE>
<CAPTION>
Page
----
<S> <C>
ProLogis Trust:
Report of Independent Public Accountants................................. 59
Consolidated Balance Sheets.............................................. 60
Consolidated Statements of Earnings and Comprehensive Income............. 61
Consolidated Statements of Shareholders' Equity.......................... 62
Consolidated Statements of Cash Flows.................................... 64
Notes to Consolidated Financial Statements............................... 65
Report of Independent Public Accountants................................. 95
Schedule III--Real Estate and Accumulated Depreciation................... 96
</TABLE>
58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
ProLogis Trust:
We have audited the accompanying consolidated balance sheets of ProLogis
Trust and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of earnings and comprehensive income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of a subsidiary accounted for under the equity method of
accounting, in which the Trust has an investment in and advances to amounting
to $229.9 million as of December 31, 1998 and a loss from unconsolidated
subsidiary of $7.6 million in 1998. These statements were audited by other
auditors whose report was furnished to us, and our opinion, insofar as it
relates to the amounts included for that entity is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of ProLogis Trust and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
March 5, 1999
59
<PAGE>
PROLOGIS TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
----------------------
ASSETS 1998 1997
------ ---------- ----------
<S> <C> <C>
Real estate............................................ $3,657,500 $3,006,236
Less accumulated depreciation........................ 254,288 171,525
---------- ----------
3,403,212 2,834,711
Investments in and advances to unconsolidated
subsidiaries.......................................... 733,863 86,139
Cash and cash equivalents.............................. 63,140 25,009
Accounts receivable.................................... 11,648 12,554
Other assets........................................... 118,866 75,540
---------- ----------
Total assets....................................... $4,330,729 $3,033,953
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Lines of credit...................................... $ 344,300 $ --
Short-term borrowings................................ 150,000 --
Senior unsecured debt................................ 1,083,641 724,052
Mortgage notes....................................... 184,964 87,937
Assessment bonds..................................... 11,281 11,894
Securitized debt..................................... 31,559 33,197
Accounts payable and accrued expenses................ 117,506 62,850
Construction payable................................. 34,025 27,221
Amount due to affiliate.............................. 395 1,138
Distributions payable................................ 39,283 33,449
Other liabilities.................................... 26,112 22,174
---------- ----------
Total liabilities.................................. 2,023,066 1,003,912
---------- ----------
Commitments and contingencies
Minority interest...................................... 51,295 53,304
Shareholders' equity:
Series A Preferred Shares; $0.01 par value; 5,400,000
shares issued and outstanding at December 31, 1998
and 1997; stated liquidation preference of $25.00
per share........................................... 135,000 135,000
Series B Convertible Preferred Shares; $0.01 par
value; 7,537,600 shares issued and outstanding at
December 31, 1998 and 8,000,300 shares issued and
outstanding at December 31, 1997; stated liquidation
preference of $25.00 per share...................... 188,440 200,008
Series C Preferred Shares; $0.01 par value; 2,000,000
shares issued and outstanding at December 31, 1998
and 1997; stated liquidation preference of $50.00
per share........................................... 100,000 100,000
Series D Preferred Shares; $0.01 par value;
10,000,000 shares issued and outstanding at December
31, 1998; stated liquidation preference of $25.00
per share........................................... 250,000 --
Common shares of beneficial interest; $0.01 par
value; 123,415,711 shares issued and outstanding at
December 31, 1998 and 117,364,148 shares issued and
outstanding at December 31, 1997.................... 1,234 1,174
Additional paid-in capital............................. 1,907,232 1,773,465
Employee share purchase notes.......................... (25,247) (27,186)
Accumulated other comprehensive income................. 23 (63)
Distributions in excess of net earnings................ (300,314) (205,661)
---------- ----------
Total shareholders' equity......................... 2,256,368 1,976,737
---------- ----------
Total liabilities and shareholders' equity......... $4,330,729 $3,033,953
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
60
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income:
Rental income................................... $345,046 $284,533 $227,000
Other real estate income........................ 17,250 12,291 5,342
Income from unconsolidated subsidiaries......... 2,755 3,278 --
Foreign currency exchange gains (losses), net... 2,938 (348) --
Foreign currency hedge income (expense)......... 2,054 (6,028) --
Interest........................................ 2,752 2,392 1,121
-------- -------- --------
Total income.................................. 372,795 296,118 233,463
-------- -------- --------
Expenses:
Rental expenses, net of recoveries of $57,415 in
1998, $42,288 in 1997 and $30,469 in 1996 and
including amounts paid to affiliate of $984 in
1998 and $280 in 1997.......................... 27,120 23,187 21,734
Property management fees paid to affiliate, net
of recoveries of $3,870 in 1997 and $3,208 in
1996........................................... -- 3,821 4,940
General and administrative, including amounts
paid to affiliate of $1,992 in 1998 and $657 in
1997........................................... 22,957 6,855 1,025
REIT management fee paid to affiliate........... -- 17,791 21,472
Depreciation and amortization................... 100,590 76,562 59,850
Interest........................................ 77,650 52,704 38,819
Interest rate hedge expense..................... 26,050 -- --
Costs incurred in acquiring management companies
from affiliate................................. -- 75,376 --
Other........................................... 7,983 3,891 2,913
-------- -------- --------
Total expenses................................ 262,350 260,187 150,753
-------- -------- --------
Earnings from operations.......................... 110,445 35,931 82,710
Minority interest share in earnings............... 4,681 3,560 3,326
-------- -------- --------
Earnings before gain (loss) on disposition of real
estate........................................... 105,764 32,371 79,384
Gain (loss) on disposition of real estate......... 5,565 7,378 (29)
-------- -------- --------
Net earnings...................................... 111,329 39,749 79,355
Less preferred share dividends.................... 49,098 35,318 25,895
-------- -------- --------
Net earnings attributable to Common Shares........ 62,231 4,431 53,460
Other comprehensive income:
Foreign currency translation adjustments........ 86 (63) --
-------- -------- --------
Comprehensive income.............................. $ 62,317 $ 4,368 $ 53,460
======== ======== ========
Weighted average Common Shares outstanding--Basic. 121,721 100,729 84,504
======== ======== ========
Weighted average Common Shares outstanding--
Diluted.......................................... 122,028 100,869 84,511
======== ======== ========
Per share net earnings attributable to Common
Shares:
Basic........................................... $ 0.51 $ 0.04 $ 0.63
======== ======== ========
Diluted......................................... $ 0.51 $ 0.04 $ 0.63
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
61
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Preferred Preferred Preferred Preferred
Common Shares Shares at Shares at Shares at Shares at Employee Accumulated
----------------- Aggregate Aggregate Aggregate Aggregate Additional Share Other
Number Par Liquidation Liquidation Liquidation Liquidation Paid-in Purchase Comprehensive
of Shares Value Preference Preference Preference Preference Capital Notes Income
--------- ------- ----------- ----------- ----------- ----------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1995............ 81,416 $ 814.1 $135,000 $ -- $ -- $ -- $1,059,142 $ -- $--
Sale of Common
Shares.......... 12,218 122.5 -- -- -- -- 209,824 -- --
Sale of
preferred
shares.......... -- -- -- 201,250 100,000 -- (12,193) -- --
Dividend
reinvestment and
share purchase
plan............ 21 0.2 -- -- -- -- 356 -- --
Common Shares
issued upon
exercise of
warrants........ 22 0.2 -- -- -- -- 218 -- --
Net earnings.... -- -- -- -- -- -- -- -- --
Preferred share
dividends paid.. -- -- -- -- -- -- -- -- --
Common Share
distributions
paid............ -- -- -- -- -- -- -- -- --
Common Share
distributions
accrued......... -- -- -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- ---------- ------- ----
Balances at
December 31,
1996............ 93,677 937.0 135,000 201,250 100,000 -- 1,257,347 -- --
Sale of Common
Shares.......... 18,455 184.6 -- -- -- -- 405,082 -- --
Common Shares
issued under
employee share
purchase plan 1,357 13.6 -- -- -- -- 28,777 (27,345) --
Common Shares
issued in
Merger, net of
costs........... 3,692 36.9 -- -- -- -- 79,102 -- --
Dividend
reinvestment and
share purchase
plan............ 20 0.2 -- -- -- -- 429 -- --
Limited
partnership
units converted
to Common
Shares.......... 105 1.0 -- -- -- -- 1,587 -- --
Series B
Preferred Shares
converted to
Common Shares... 63 0.6 -- (1,242) -- -- 1,241 -- --
Principal
payments on
employee share
purchase notes.. -- -- -- -- -- -- -- 64 --
Retirements of
employee share
purchase notes.. (5) (0.1) -- -- -- -- (100) 95 --
Net earnings.... -- -- -- -- -- -- -- -- --
Preferred share
dividends paid.. -- -- -- -- -- -- -- -- --
Common Share
distributions
paid............ -- -- -- -- -- -- -- -- --
Common Share
distributions
accrued......... -- -- -- -- -- -- -- -- --
Accumulated
other
comprehensive
income--foreign
currency
translation
adjustments..... -- -- -- -- -- -- -- -- (63)
------- ------- -------- -------- -------- -------- ---------- ------- ----
Balances at
December 31,
1997............ 117,364 1,173.8 135,000 200,008 100,000 -- 1,773,465 (27,186) (63)
<CAPTION>
Distributions Total
In Excess of Shareholders'
Net Earnings Equity
------------- -------------
<S> <C> <C>
Balances at
December 31,
1995............ $(58,765) $1,136,191
Sale of Common
Shares.......... -- 209,947
Sale of
preferred
shares.......... -- 289,057
Dividend
reinvestment and
share purchase
plan............ -- 356
Common Shares
issued upon
exercise of
warrants........ -- 218
Net earnings.... 79,355 79,355
Preferred share
dividends paid.. (25,895) (25,895)
Common Share
distributions
paid............ (64,782) (64,782)
Common Share
distributions
accrued......... (25,058) (25,058)
------------- -------------
Balances at
December 31,
1996............ (95,145) 1,599,389
Sale of Common
Shares.......... -- 405,267
Common Shares
issued under
employee share
purchase plan -- 1,445
Common Shares
issued in
Merger, net of
costs........... -- 79,139
Dividend
reinvestment and
share purchase
plan............ -- 429
Limited
partnership
units converted
to Common
Shares.......... -- 1,588
Series B
Preferred Shares
converted to
Common Shares... -- --
Principal
payments on
employee share
purchase notes.. -- 64
Retirements of
employee share
purchase notes.. -- (5)
Net earnings.... 39,749 39,749
Preferred share
dividends paid.. (35,318) (35,318)
Common Share
distributions
paid............ (81,498) (81,498)
Common Share
distributions
accrued......... (33,449) (33,449)
Accumulated
other
comprehensive
income--foreign
currency
translation
adjustments..... -- (63)
------------- -------------
Balances at
December 31,
1997............ (205,661) 1,976,737
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
62
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(Continued)
Years Ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Preferred Preferred Preferred Preferred
Common Shares Shares at Shares at Shares at Shares at Employee Accumulated
------------------ Aggregate Aggregate Aggregate Aggregate Additional Share Other
Number Par Liquidation Liquidation Liquidation Liquidation Paid-in Purchase Comprehensive
of Shares Value Preference Preference Preference Preference Capital Notes Income
--------- -------- ----------- ----------- ----------- ----------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of Common
Shares.......... 5,494 54.9 -- -- -- -- 130,279 -- --
Sale of
preferred
shares.......... -- -- -- -- -- 250,000 (8,469) -- --
Dividend
reinvestment and
share purchase
plan............ 18 0.1 -- -- -- -- 403 -- --
Common Shares
issued upon
exercise of
warrants........ 12 0.1 -- -- -- -- 118 -- --
Limited
partnership
units converted
to Common
Shares.......... 20 0.2 -- -- -- -- 302 -- --
Series B
Preferred Shares
converted to
Common Shares... 593 5.9 -- (11,568) -- -- 11,562 -- --
Principal
payments on
employee share
purchase notes.. -- -- -- -- -- -- -- 143 --
Retirements of
employee share
purchase notes.. (85) (0.8) -- -- -- -- (2,039) 1,796 --
Issuance of
options to
subsidiaries.... -- -- -- -- -- -- 1,333 -- --
Stock-based
compensation.... -- -- -- -- -- -- 278 -- --
Net earnings.... -- -- -- -- -- -- -- -- --
Preferred share
dividends paid.. -- -- -- -- -- -- -- -- --
Common Share
distributions
paid............ -- -- -- -- -- -- -- -- --
Common Share
distributions
accrued......... -- -- -- -- -- -- -- -- --
Accumulated
other
comprehensive
income--foreign
currency
translation
adjustments..... -- -- -- -- -- -- -- -- 86
------- -------- -------- -------- -------- -------- ---------- -------- ---
Balances at
December 31,
1998............ 123,416 $1,234.2 $135,000 $188,440 $100,000 $250,000 $1,907,232 $(25,247) $23
======= ======== ======== ======== ======== ======== ========== ======== ===
<CAPTION>
Distributions Total
In Excess of Shareholders'
Net Earnings Equity
------------- -------------
<S> <C> <C>
Sale of Common
Shares.......... -- 130,334
Sale of
preferred
shares.......... -- 241,531
Dividend
reinvestment and
share purchase
plan............ -- 403
Common Shares
issued upon
exercise of
warrants........ -- 118
Limited
partnership
units converted
to Common
Shares.......... -- 302
Series B
Preferred Shares
converted to
Common Shares... -- --
Principal
payments on
employee share
purchase notes.. -- 143
Retirements of
employee share
purchase notes.. -- (244)
Issuance of
options to
subsidiaries.... -- 1,333
Stock-based
compensation.... -- 278
Net earnings.... 111,329 111,329
Preferred share
dividends paid.. (49,098) (49,098)
Common Share
distributions
paid............ (117,601) (117,601)
Common Share
distributions
accrued......... (39,283) (39,283)
Accumulated
other
comprehensive
income--foreign
currency
translation
adjustments..... -- 86
------------- -------------
Balances at
December 31,
1998............ $(300,314) $2,256,368
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
63
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net earnings............................... $ 111,329 $ 39,749 $ 79,355
Minority interest.......................... 4,681 3,560 3,326
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization............ 100,590 76,562 59,850
(Gain) loss on disposition of real
estate.................................. (5,565) (7,378) 29
Straight-lined rents..................... (6,756) (5,435) (4,777)
Amortization of deferred loan costs...... 2,200 1,977 2,339
Stock-based compensation................. 278 -- --
(Income) loss from unconsolidated
subsidiaries............................ 11,108 (570) --
Foreign currency exchange (gains) losses,
net..................................... (3,227) 348 --
Foreign currency hedge (income) expense.. (2,054) 6,028 --
Interest rate hedge expense.............. 26,050 -- --
Costs incurred in acquiring management
companies from affiliate................ -- 75,376 --
Increase in accounts receivable and other
assets.................................... (36,156) (24,390) (10,166)
Increase in accounts payable and accrued
expenses.................................. 32,580 21,464 2,531
Increase in other liabilities.............. 3,938 4,044 3,714
Increase (decrease) in amount due to
affiliate................................. (743) 1,138 --
----------- --------- ---------
Net cash provided by operating
activities............................ 238,253 192,473 136,201
----------- --------- ---------
Investing activities:
Real estate investments.................... (695,764) (601,577) (657,873)
Tenant improvements and lease commissions.. (12,757) (15,539) (14,806)
Recurring capital expenditures............. (8,038) (5,523) (2,851)
Proceeds from dispositions of real estate.. 109,336 137,147 9,652
Investments in and advances to
unconsolidated subsidiaries............... (657,499) (85,569) --
----------- --------- ---------
Net cash used in investing activities.. (1,264,722) (571,061) (665,878)
----------- --------- ---------
Financing activities:
Proceeds from sale of Common Shares, net
of expenses............................... 130,334 330,712 145,531
Proceeds from sale of preferred shares,
net of expenses........................... 241,531 -- 289,057
Net proceeds from sale of shares to
affiliate................................. -- 75,000 64,416
Proceeds from exercised warrants, dividend
reinvestment and employee share purchase
plan...................................... 521 429 574
Repurchase of Common Shares................ (244) (5) --
Proceeds from issuance of senior unsecured
debt...................................... 374,463 199,772 199,632
Proceeds from issuance of mortgage notes... 66,000 -- --
Debt issuance and other transaction costs
incurred.................................. (5,848) (3,171) (4,699)
Payments on senior unsecured debt.......... (15,000) -- --
Distributions paid on Common Shares........ (151,050) (106,556) (85,340)
Distributions paid to minority interest
holders................................... (6,409) (5,665) (5,237)
Dividends paid on preferred shares......... (49,098) (35,318) (25,895)
Principal payments on employee share
purchase notes............................ 143 64 --
Payments on derivative financial
instruments............................... (3,974) 1,894 --
Proceeds from lines of credit and short-
term borrowings........................... 1,569,225 530,991 411,200
Payments on lines of credit and short-term
borrowings................................ (1,074,925) (569,591) (453,600)
Regularly scheduled principal payments on
secured debt.............................. (5,658) (4,925) (3,738)
Mortgage notes principal payments at
maturity.................................. (5,411) (14,804) (19,689)
----------- --------- ---------
Net cash provided by financing
activities............................ 1,064,600 398,827 512,212
----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 38,131 20,239 (17,465)
Cash and cash equivalents, beginning of
year....................................... 25,009 4,770 22,235
----------- --------- ---------
Cash and cash equivalents, end of year...... $ 63,140 $ 25,009 $ 4,770
=========== ========= =========
Noncash investing and financing activities:
In conjunction with real estate acquired:
Assumption of existing mortgage notes.... $ 39,845 $ 12,805 $ 18,103
Issuance of Common Shares................ $ -- $ 1,000 $ --
In conjunction with Merger (Note 8):
Market value of Common Shares issued to
affiliate............................... $ -- $ 79,840 $ --
Market value of tangible net assets
acquired from affiliate................. $ -- $ (4,464) $ --
Notes received for Common Shares issued
under employee share purchase plan........ $ -- $ 27,345 $ --
Retirements of employee share purchase
notes..................................... $ (1,796) $ (95) $ --
Foreign currency translation adjustments... $ (86) $ 63 $ --
Conversion of limited partnership units
into Common Shares........................ $ 302 $ 1,588 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
64
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Description of Business:
Business
ProLogis Trust ("ProLogis"), formerly Security Capital Industrial Trust, a
Maryland real estate investment trust ("REIT"), is a publicly held global
owner and lessor of distribution facilities focused exclusively on meeting the
distribution space needs of international, national, regional and local
industrial real estate users through the ProLogis Operating System(TM).
ProLogis engages in the acquisition, development, marketing, leasing and long-
term ownership of industrial distribution facilities, and the development of
master-planned distribution parks and corporate distribution facilities for
its customers. ProLogis deploys capital in markets that ProLogis believes have
excellent long-term growth prospects and where ProLogis believes it can
achieve a strong market position through the acquisition and development of
flexible facilities designed for both warehousing and light manufacturing
uses. In addition, ProLogis has invested in a North American company and a
European company, both of which operate refrigerated distribution facilities.
Name Change
The company changed its name to ProLogis Trust effective July 1, 1998. The
name change is intended to create stronger name recognition among its
customers as ProLogis expands globally. ProLogis recognized $1.7 million of
expenses associated with the name change in 1998, which has been included with
other expenses.
Proposed Merger Transaction
ProLogis has entered into an Agreement and Plan of Merger dated as of
November 16, 1998, as amended, (the "Merger Agreement") with Meridian
Industrial Trust, Inc. ("Meridian"), whereby Meridian would be merged with and
into ProLogis (the "Merger"). Meridian is a publicly traded REIT that owns and
leases industrial and refrigerated distribution facilities in the United
States. The Merger Agreement, which must be approved by at least two-thirds of
the holders of ProLogis common shares of beneficial interest, par value $0.01
per share ("Common Shares") and a majority of the holders of Meridian's common
stock, provides that each share of Meridian common stock will be exchanged for
1.10 Common Shares. Meridian has approximately 34.2 million shares of common
stock and common stock equivalents outstanding as of March 5, 1999. To the
extent ProLogis' average price of Common Shares is less than $22.725 per
share, as determined over a 15-day trading period selected at random from the
30 trading days ending five trading days prior to closing, ProLogis will
contribute cash, not to exceed $2.00 per share. Additionally, ProLogis will
assume Meridian's outstanding liabilities (approximately $613.2 million as of
December 31, 1998) and will exchange a new share of ProLogis cumulative
redeemable preferred shares with an 8.75% annual dividend rate ($2.1875 per
share) for each outstanding share of Meridian Series D preferred stock
(aggregate liquidation value of $50.0 million).
The Joint Proxy Statement and Prospectus of ProLogis and Meridian was
mailed to ProLogis' shareholders and Meridian's stockholders on March 2, 1999.
ProLogis' shareholders and Meridian's stockholders will vote on the Merger at
special meetings to be held on March 30, 1999.
2. Summary of Significant Accounting Policies:
Principles of Financial Presentation
The accounts of ProLogis, its subsidiaries and its majority-owned and
controlled partnerships are consolidated in the accompanying financial
statements. The effects of intercompany transactions have been eliminated.
Certain amounts included in the consolidated financial statements for prior
years have been reclassified to conform to the 1998 financial statement
presentation.
65
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REIT Organization Status
In January 1993, ProLogis, which has elected to be taxed as a REIT under
the Internal Revenue Code of 1986, as amended, was formed as a Maryland real
estate investment trust.
REITs are not required to pay federal income taxes if minimum distribution
and income, asset and shareholder tests are met. During 1998, 1997 and 1996,
ProLogis was in compliance with the REIT requirements. Thus, no federal income
tax provision has been reflected in the accompanying consolidated financial
statements for ProLogis and its wholly-owned subsidiaries. The foreign
countries that ProLogis operates in do not recognize REITs under their
respective tax laws. Accordingly, ProLogis has recognized the applicable
foreign country income taxes in its results of operations.
Real Estate and Depreciation
Real estate is carried at cost, which is not in excess of estimated fair
market value. Costs directly associated with the successful acquisition,
renovation or development of real estate are capitalized. Direct costs
associated with unsuccessful acquisitions are expensed at the time the pursuit
is abandoned.
Depreciation is computed over the estimated useful lives of depreciable
property on a straight-line basis: 10 years for tenant improvements, 30 years
for acquired buildings and 40 years for buildings developed by ProLogis.
Long-lived assets (primarily real estate) to be disposed of are reported at
the lower of their carrying amount or fair value less cost to sell. ProLogis'
management also periodically reviews long-lived assets (primarily real estate)
to be held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. In
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", management's review involves comparing
current and future operating performance of the assets, the most significant
of which is undiscounted operating cash flows, to the carrying value of the
assets. Based on this analysis, a provision for possible loss (based upon a
comparison of discounted cash flows to ProLogis' carrying value) is recognized
if necessary. In management's opinion, long-lived assets, including real
estate assets, are not carried at amounts in excess of their estimated net
realizable values.
ProLogis acquired certain real estate through the formation of partnerships
(as discussed in Note 6) wherein ProLogis contributed cash and the limited
partners contributed real estate in exchange for partnership units which are
ultimately exchangeable for Common Shares. In consolidating the partnerships'
assets, real estate cost includes the estimated fair value attributable to the
limited partners' interests as of the acquisition dates.
ProLogis Development Services Incorporated ("ProLogis Development
Services") develops corporate distribution facilities to meet customer
requirements, which are subsequently sold to the customer or third parties.
ProLogis Development Services also contracts on a fee basis to develop
distribution facilities for customers. ProLogis owns 100% of the preferred
stock of ProLogis Development Services and realizes substantially all economic
benefits of its activities. Because ProLogis advances mortgage loans to
ProLogis Development
66
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Services to fund its acquisition, development and construction activities,
ProLogis Development Services is consolidated with ProLogis. Accordingly,
these loans are reflected as real estate investments in ProLogis' consolidated
financial statements. ProLogis Development Services is not a qualified REIT
subsidiary of ProLogis. Accordingly, provisions for federal income taxes are
recognized, as appropriate.
Capitalization Policy
Renovations and improvements are capitalized and depreciated over their
estimated useful lives. Repairs and maintenance costs are expensed as incurred
to the extent they are not acquisition-related renovation costs identified
during ProLogis' pre-acquisition due diligence.
Management costs incurred for development (including land acquisitions),
renovation and leasing activities that are incremental and identifiable to a
specific activity are capitalized. Prior to April 1, 1998, ProLogis also
capitalized direct and incremental management costs incurred in connection
with the acquisition of operating facilities. In accordance with Emerging
Issues Task Force Issue 97-11, "Accounting for Internal Costs Relating to Real
Estate Property Acquisitions", which was effective on April 1, 1998, such
costs are no longer capitalized.
Costs capitalized to real estate are depreciated over the estimated useful
lives of the real estate. Costs capitalized related to leasing activities are
included with other assets and are amortized over the lease term. ProLogis'
average lease term is between four and five years.
ProLogis capitalizes interest costs incurred during the land development or
construction period of qualifying projects.
Unconsolidated Subsidiaries
ProLogis' investments in the preferred stock of certain companies
(excluding ProLogis Development Services) are accounted for under the equity
method. Accordingly, these investments are recognized at ProLogis' cost as
adjusted for ProLogis' proportionate share of the earnings or losses of the
companies. ProLogis' proportionate share of the earnings or losses of these
companies is recognized in total income.
Cash and Cash Equivalents
ProLogis considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original
maturities of three months or less to be cash equivalents.
Costs of Raising Capital
Costs incurred in connection with the issuance of shares are deducted from
shareholders' equity. Costs incurred in connection with the incurrence or
renewal of debt are capitalized, included with other assets, and amortized
over the term of the related loan or the renewal term.
Minority Interest
Minority interest is carried at cost and represents limited partners'
interests in various real estate partnerships controlled by ProLogis. Certain
minority interests are carried at the pro rata share of the estimated fair
value of the real estate contributed as of the acquisition dates, as adjusted
for subsequent earnings, contributions and distributions. Common Shares issued
upon exchange of limited partnership units will be accounted for at the cost
of the minority interest surrendered.
67
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Interest Rate Contracts
ProLogis utilizes various interest rate contracts to hedge interest rate
risk on anticipated debt offerings. To the extent the interest rate contracts
are designated and effective as hedges of identified debt issuances which have
a high probability of occurring, gains or losses resulting from changes in the
market value of these contracts are deferred and amortized as a component of
interest expense over the term of the related debt issuance. Management
periodically evaluates the interest rate contracts in light of current market
conditions. Should management determine that an interest rate contract can no
longer be considered an effective hedge or if the occurrence of the
anticipated debt issuance can no longer be considered a high probability, the
interest rate contract will be marked to market value as of the end of the
period and the associated income or expense will be recognized in net
earnings.
Foreign Currency Exchange Gains or Losses
ProLogis' consolidated subsidiaries whose functional currency is not the
U.S. dollar translate their financial statements into U.S. dollars. Assets and
liabilities are translated at the exchange rate in effect as of the financial
statement date. Income statement accounts are translated using the average
exchange rate for the period. Gains and losses resulting from the translation
are included in accumulated other comprehensive income as a separate component
of shareholders' equity.
Foreign subsidiaries of ProLogis have certain transactions denominated in
currencies other than their functional currency. In these instances,
nonmonetary assets and liabilities are remeasured at the historical exchange
rate, monetary assets and liabilities are remeasured at the exchange rate in
effect at the end of the period, and income statement accounts are remeasured
at the average exchange rate for the period. Remeasurement gains and losses of
such foreign subsidiaries are included in ProLogis' results of operations.
ProLogis recognized a gain from remeasurement of $3,227,000 and a loss from
remeasurement of $348,000 for the years ended December 31, 1998 and 1997,
respectively. ProLogis did not have foreign subsidiaries in 1996.
Transaction gains or losses occur when a transaction, denominated in a
currency other than the functional currency, is settled and the functional
currency cash flows realized are more or less than expected based upon the
exchange rate in effect when the transaction was initiated. Transaction gains
and losses are included in ProLogis' results of operations. ProLogis
recognized a net foreign currency exchange transaction loss of $289,000 for
the year ended December 31, 1998. ProLogis did not incur transaction gains or
losses in 1997 due to its limited foreign operations in that year. ProLogis
had no foreign subsidiaries in 1996.
Revenue Recognition
ProLogis leases its operating facilities under operating leases and
recognizes the total lease payments provided for under the leases on a
straight-line basis over the lease term. A provision for possible loss is made
when collection of receivables is considered doubtful.
Gains or losses on the disposition of real estate are recorded when the
recognition criteria set forth under GAAP have been met, generally at the time
title is transferred and ProLogis has no future obligations under the
contract.
Rental Expenses
Rental expenses include costs of on-site and property management personnel,
utilities, repairs and maintenance, property insurance and real estate taxes,
net of amounts recovered from tenants under the terms of the respective
leases.
68
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
ProLogis adopted SFAS No. 123, "Accounting for Stock-Based Compensation",
which allows ProLogis to continue to account for its various stock-based
compensation plans using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. Under
APB No. 25, if the exercise price of the stock options issued equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized, however, certain pro forma earnings per
share disclosures are required. See Note 11.
Comprehensive Income
ProLogis adopted SFAS No. 130, "Reporting Comprehensive Income", on January
1, 1998. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is the total of
net earnings attributable to Common Shares and other comprehensive income.
The adoption of this standard did not have a significant effect on the
consolidated financial position, results of operations or financial statement
disclosures of ProLogis. For the years ended December 31, 1998 and 1997,
ProLogis had one item of other comprehensive income, the cumulative
translation adjustments account. This account has been recognized as a
component of shareholders' equity. ProLogis had no items of other
comprehensive income in 1996. ProLogis' displays comprehensive income and its
components in its consolidated statements of earnings and comprehensive
income.
Earnings Per Share
SFAS No. 128, "Earnings Per Share" was adopted in 1997. SFAS No. 128
replaced the presentation of primary and fully diluted earnings per share with
a presentation of basic and diluted earnings per share. Diluted earnings per
share reflects the potential dilution that would result if securities or other
contracts to issue Common Shares were exercised or converted to Common Shares
or resulted in the issuance of Common Shares that then shared in earnings. The
adoption of SFAS No. 128 did not result in the restatement of previously
reported earnings per share. See Note 10.
Segment Reporting
ProLogis adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in 1998. SFAS No. 131 provides standards for the
reporting of financial information about a public enterprise's operating
segments, as well as related disclosures about products and services,
geographic locations and major customers. See Note 16.
Recent Accounting Pronouncements
In April 1998 Statement of Position ("SOP") 98-5 "Reporting on the Costs of
Start-Up Activities" was issued which requires that costs associated with
organizational, pre-opening, and start-up activities be expensed as incurred.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998.
Through December 31, 1998, ProLogis capitalized costs associated with start-up
activities and amortized such costs over an appropriate period, generally five
years. Beginning January 1, 1999, ProLogis will adopt SOP 98-5 and will
expense all unamortized organizational and start-up costs, approximating $1.6
million, as a cumulative effect of a change in accounting principle in the
first quarter of 1999.
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities" was issued in June 1998. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999 and early adoption is allowed. SFAS No.
133 provides comprehensive guidelines for the recognition and measurement of
derivatives and hedging activities and, specifically, requires all derivatives
to be recorded on the balance sheet at fair value as an asset or liability,
with an offset to accumulated other comprehensive income. Management does not
believe this standard will have a significant effect on ProLogis' consolidated
financial position, results of operations or financial statement disclosures.
69
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Real Estate
Real estate investments consisting of income producing industrial
distribution facilities, facilities under development and land held for future
development, at cost, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Operating facilities:
Improved land........................... $ 517,803(1) $ 420,019(1)
Buildings and improvements.............. 2,731,203(1) 2,233,585(1)
---------- ----------
3,249,006 2,653,604
---------- ----------
Facilities under development (including
cost of land)............................ 209,670(2)(3) 180,268(2)
Land held for development................. 180,796(4) 159,645(4)
Capitalized preacquisition costs.......... 18,028(5) 12,719(5)
---------- ----------
Total real estate..................... 3,657,500 3,006,236
Less accumulated depreciation............. 254,288 171,525
---------- ----------
Net real estate....................... $3,403,212 $2,834,711
========== ==========
</TABLE>
- --------
(1) As of December 31, 1998 and 1997, ProLogis had 1,099 and 1,005 operating
buildings, respectively, consisting of 104,540,000 and 90,843,000 square
feet, respectively.
(2) Facilities under development consist of 55 buildings aggregating 8,022,000
square feet as of December 31, 1998 and 62 buildings aggregating 8,442,000
square feet as of December 31, 1997.
(3) In addition to the December 31, 1998 construction payable of $34.0
million, ProLogis had unfunded commitments on its contracts for facilities
under construction totaling $131.7 million.
(4) Land held for future development consisted of 1,673 acres as of December
31, 1998 and 1,702 acres as of December 31, 1997.
(5) Capitalized preacquisition costs include $2,199,000 and $3,644,000 of
funds on deposit with title companies as of December 31, 1998 and 1997,
respectively, for future acquisitions.
ProLogis' operating facilities, facilities under development and land held
for future development are located in the United States, Mexico and Europe as
follows (percentage based upon total cost):
<TABLE>
<CAPTION>
December
31,
------------
1998 1997
----- -----
<S> <C> <C>
United States............................................... 93.06% 97.92%
Europe...................................................... 4.66 1.10
Mexico...................................................... 2.28 0.98
----- -----
100.0% 100.0%
===== =====
</TABLE>
No individual market represents more than 10% of ProLogis' real estate
assets.
ProLogis Development Services
The outstanding balances of development and mortgage loans made by ProLogis
to ProLogis Development Services for the purchase of distribution facilities
and land for distribution facility development aggregated $247.5 million and
$184.8 million as of December 31, 1998 and 1997, respectively. The gains
recognized on disposition of undepreciated property by ProLogis Development
Services and the fees generated by ProLogis Development Services are reflected
as other real estate income by ProLogis.
70
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Operating Lease Agreements
ProLogis leases its facilities to customers under agreements which are
classified as operating leases. The leases generally provide for payment of
all or a portion of utilities, property taxes and insurance by the tenant. As
of December 31, 1998, minimum lease payments receivable on leases with lease
periods greater than one year are as follows (in thousands):
<TABLE>
<S> <C>
1999.......................... $ 349,921
2000.......................... 297,911
2001.......................... 234,219
2002.......................... 176,005
2003.......................... 121,663
Thereafter.................... 279,075
----------
$1,458,794
==========
</TABLE>
4. Unconsolidated Subsidiaries:
Investments in and advances to unconsolidated subsidiaries are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
-------- -------
<S> <C> <C>
Insight................................................. $ 1,520 $ 500
-------- -------
ProLogis Logistics:
Investment (1)........................................ 13,241 7,404
Note receivable....................................... 128,634 75,207
Accrued interest and other receivables................ 9,146 3,028
-------- -------
151,021 85,639
-------- -------
Frigoscandia S.A.:
Investment (1)........................................ 2,900 --
Note receivable from Frigoscandia S.A................. 85,148 --
Note receivable from Frigoscandia Holding AB.......... 91,519 --
Mortgage note receivable from Frigoscandia Limited UK. 30,000 --
Accrued interest and other receivables................ 11,998 --
-------- -------
221,565 --
-------- -------
Kingspark S.A.:
Investment (1)........................................ 22,413 --
Note receivable from Kingspark S.A.................... 111,744 --
Note receivable from ProLogis Kingspark............... 34,391 --
Mortgage note receivable from ProLogis Kingspark...... 52,371 --
Accrued interest and other receivables................ 3,850 --
-------- -------
224,769 --
-------- -------
Garonor Holdings:
Investment (1)........................................ 5,508 --
Note receivable....................................... 129,395 --
Accrued interest receivable........................... 85 --
-------- -------
134,988 --
-------- -------
Total................................................... $733,863 $86,139
======== =======
</TABLE>
71
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
- --------
(1) Investment represents ProLogis' investment in the preferred stock of the
respective companies as adjusted for ProLogis' share of each company's net
earnings or loss.
Insight
ProLogis Development Services has a 23.1% ownership interest in Insight,
Inc. ("Insight"), a privately owned logistics optimization consulting company.
ProLogis Development Services invested an additional $500,000 in Insight on
January 2, 1999 and is committed to investing an additional $500,000 through
July 1, 1999, which would bring its ownership interest to 33.3%. This
investment is accounted for under the equity method. ProLogis recognized
$19,700 of income from its investment in Insight for the year ended December
31, 1998. Prior to July 1, 1998, this investment was accounted for under the
cost method.
ProLogis Logistics
ProLogis owns 100% of the preferred stock of ProLogis Logistics Services
Incorporated ("ProLogis Logistics"). ProLogis Logistics owns 100% of the
membership interests of a refrigerated distribution company operating in the
United States and Canada, CS Integrated LLC ("CSI"). Prior to June 12, 1998,
ProLogis Logistics owned, at various points in time, between 60.0% and 77.1%
of CSI. As of December 31, 1998, ProLogis had invested $19.9 million in the
preferred stock of ProLogis Logistics. As of December 31, 1998, CSI owned or
operated refrigerated distribution facilities aggregating 114.1 million cubic
feet.
The common stock of ProLogis Logistics is owned by an unrelated party.
ProLogis recognizes substantially all economic benefits of ProLogis Logistics
and its subsidiaries.
As of December 31, 1998, ProLogis had a $128.6 million note receivable from
ProLogis Logistics. The note is unsecured, bears interest at 8% per annum
(reduced from 10% on November 1, 1998) and matures on April 24, 2002. Interest
payments on the note are due annually.
ProLogis accounts for its investment in ProLogis Logistics under the equity
method. ProLogis recognized income (including interest income on the note
receivable and a management fee payable from CSI) from its investment in
ProLogis Logistics of $7.3 million and $3.3 million for the years ended
December 31, 1998 and 1997, respectively.
Frigoscandia S.A.
On January 16, 1998, ProLogis invested in 100% of the preferred stock of
Frigoscandia S.A., a Luxembourg company, which acquired on that date a
refrigerated distribution company headquartered in Sweden, Frigoscandia AB.
Frigoscandia AB is 100% owned by Frigoscandia Holding AB, which is 100% owned
by a wholly owned subsidiary of Frigoscandia S.A. As of December 31, 1998,
Frigoscandia AB, which operates in nine European countries, owned or leased
192.0 million cubic feet of refrigerated distribution facilities. As of
December 31, 1998, ProLogis had invested $28.5 million in the preferred stock
of Frigoscandia S.A. Prior to September 30, 1998, the common stock of
Frigoscandia S.A. was owned by Security Capital Group Incorporated ("Security
Capital"), ProLogis' largest shareholder. On that date, the common stock of
Frigoscandia S.A. was contributed to a limited liability company, in which
unrelated parties own 100% of the voting interests and Security Capital owns
100% of the non-voting interests. ProLogis recognizes substantially all
economic benefits of the activities of Frigoscandia S.A. and its subsidiaries.
As of December 31, 1998, ProLogis had a $91.5 million note receivable from
Frigoscandia Holding AB and an $85.1 million note receivable from Frigoscandia
S.A. These unsecured notes bear interest at 5% per
72
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
annum (reduced from 8% on November 1, 1998) and are due on demand ($80.0
million of the note receivable from Frigoscandia S.A. is due on July 15,
2008). Additionally, as of December 31, 1998, ProLogis had a $30.0 million
mortgage note receivable from Frigoscandia Limited UK, a subsidiary of
Frigoscandia AB. The mortgage note receivable, which provides for interest at
7% per annum (reduced from 8% on April 1, 1998) and matures on March 20, 2018,
is secured by refrigerated distribution facilities.
ProLogis accounts for its investment in Frigoscandia S.A. under the equity
method. ProLogis recognized a loss of $7.5 million for 1998 (including
interest income on the mortgage note and notes receivable) from its investment
in Frigoscandia S.A.
Frigoscandia AB has a multi-currency, three-year revolving credit agreement
through a consortium of 11 European banks in the currency equivalent of
approximately $200 million as of December 31, 1998. The loan bears interest at
each currency's LIBOR rate plus 0.55%. ProLogis has entered into a guaranty
agreement for 25% of the loan balance.
Kingspark S.A.
On August 14, 1998, ProLogis invested in 100% of the preferred stock of
Kingspark Holding S.A. ("Kingspark S.A."), a Luxembourg company, that acquired
on that date an industrial real estate development company, Kingspark Group
Holdings Limited ("ProLogis Kingspark"), operating in the United Kingdom. As
of December 31, 1998, ProLogis Kingspark had 0.4 million square feet of
operating facilities, 0.4 million square feet of facilities under development
and 0.2 million square feet of facilities being developed under construction
management agreements. Additionally, as of December 31, 1998, ProLogis
Kingspark owned 554 acres and controlled 1,489 acres of land through letters
of intent or contingent contracts for future development of 35.8 million
square feet of distribution facilities. As of December 31, 1998, ProLogis had
invested $24.0 million in the preferred stock of Kingspark S.A. The common
stock of Kingspark S.A. is currently owned by Security Capital. However,
Security Capital has indicated that it plans to sell or contribute the common
stock to a limited liability company. ProLogis recognizes substantially all
economic benefits of the activities of Kingspark S.A. and its subsidiaries.
As of December 31, 1998, ProLogis had a $111.7 million note receivable from
Kingspark S.A. and a $34.4 million note receivable from ProLogis Kingspark.
These unsecured notes bear interest at 8% per annum and are due on demand. The
interest rate on the note receivable from Kingspark S.A. was reduced to 5% per
annum effective January 1, 1999. Also, as of December 31, 1998, ProLogis had a
$52.4 million mortgage note receivable from ProLogis Kingspark which bears
interest at 8% per annum and is secured by certain land parcels.
ProLogis accounts for its investment in Kingspark S.A. under the equity
method. ProLogis recognized $2.9 million of income in 1998 (including interest
income on the mortgage note and notes receivable) from its investment in
Kingspark S.A.
Subsequent to December 31, 1998, ProLogis Kingspark entered into a line of
credit agreement with a bank in the United Kingdom. The credit agreement,
which provides for borrowings of up to 10.0 million British pounds
(approximately $16.6 million as of December 31, 1998), has been guaranteed by
ProLogis.
Garonor Holdings
On December 29, 1998, ProLogis invested in 100% of the preferred stock of
Garonor Holdings S.A. ("Garonor Holdings"), a Luxembourg company, that
acquired on that date in excess of 99% of the voting stock of Garonor S.A. As
of December 31, 1998, ProLogis had invested $5.6 million in the preferred
stock of Garonor
73
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Holdings. Garonor S.A. owns and leases approximately 5.25 million square feet
of industrial distribution facilities located in France. Garonor Holdings is
in the process of acquiring the remaining voting stock of Garonor S.A.
The common stock of Garonor Holdings is owned by Security Capital. Security
Capital can require ProLogis to purchase the Garonor Holdings' common stock
held by Security Capital beginning January 1, 2000. ProLogis recognizes
substantially all of the economic benefits of Garonor Holdings and its
subsidiaries.
ProLogis accounts for this investment under the equity method. Should
Garonor Holdings acquire 100% of the voting stock of Garonor S.A., it is
anticipated that the ownership of Garonor Holdings will be restructured such
that ProLogis would become the sole owner and Garonor Holdings, as a wholly-
owned subsidiary of ProLogis, would be consolidated with the accounts of
ProLogis. ProLogis recognized income of $6,000 from its investment in Garonor
Holdings in 1998.
As of December 31, 1998, ProLogis had a $129.4 million note receivable from
Garonor Holdings. The note is unsecured, bears interest at 8.0% per annum and
is due on demand. Interest payments on the note are due annually.
In connection with the acquisition of Garonor S.A., Garonor Holdings
obtained two credit facilities from a French bank. One facility is in the
amount of 200.0 million French francs ($35.6 million as of December 31, 1998)
and is guaranteed by ProLogis. ProLogis has guaranteed an additional 10.0
million French francs ($1.8 million as of December 31, 1998), which
approximates the annual interest to be charged on the facility. The second
facility, in the amount of 870.0 million French francs (of which 770.0 million
French francs was outstanding as of December 31, 1998), is secured by the real
estate owned by Garonor S.A. ProLogis has guaranteed 50.0 million French
francs of the amount outstanding as of December 31, 1998 ($8.9 million as of
December 31, 1998). Garonor has the ability to borrow an additional 100.0
million French francs under this facility of which ProLogis will guarantee
50.0 million French francs. The total guaranty of 100.0 million French francs
can be reduced as Garonor S.A. meets certain operating covenants.
Summarized Financial Information
Summarized financial information for ProLogis' unconsolidated subsidiaries
as of and for the year ended December 31, 1998 is presented below (in millions
of U.S. dollars).
<TABLE>
<CAPTION>
ProLogis Frigoscandia Kingspark Garonor
Logistics (1) S.A. (2) S.A. (3) Holdings (4)
------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Total assets............ $272.1 $613.6 $297.4 $380.0
Total liabilities (5)... $258.7 $606.7 $272.0 $374.3
Minority interest....... $ -- $ 2.0 $ -- $ --
Shareholders' equity.... $ 13.4 $ 4.9 $ 25.4 $ 5.7
Revenues................ $134.5 $399.1 $ 7.6 $ 0.2
Adjusted EBITDA (6)..... $ 22.9 $ 55.0 $ 5.8 $ 0.2
Net earnings (loss) (7)
(8).................... $ 4.6 $(27.0)(9) $ (1.6)(10) $ --
</TABLE>
- --------
(1) On June 15, 1998, additional refrigerated distribution facilities were
acquired at a cost of $61.3 million.
(2) Frigoscandia S.A. was acquired on January 16, 1998.
(3) Kingspark S.A. was acquired on August 14, 1998.
(4) Garonor Holdings was acquired on December 29, 1998.
(5) Includes amounts due to ProLogis of $137.8 million from ProLogis
Logistics, $218.7 million from Frigoscandia S.A., $202.4 million from
Kingspark S.A. and $129.5 million from Garonor Holdings.
74
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Adjusted EBITDA represents earnings from operations before interest
expense, interest income, current and deferred income taxes, depreciation,
amortization and adjustments from the remeasurement of intercompany and
other debt based on current foreign currency exchange rates.
(7) ProLogis' share of the net earnings (loss) and interest income recognized
by ProLogis on intercompany notes and mortgage notes receivable are
recognized in the Statements of Earnings and Comprehensive Income as
"Income (loss) from Unconsolidated Subsidiaries".
(8) Net earnings (loss) of each company includes interest expense on
intercompany notes and mortgage notes payable.
(9) Includes a net loss of $13.3 million from the remeasurement of
intercompany and other debt based on the foreign currency exchange rates
in effect as of December 31, 1998.
(10) Includes a net loss of $0.9 million from the remeasurement of
intercompany debt based on foreign currency exchange rates in effect as
of December 31, 1998.
5. Borrowings:
Lines of Credit
ProLogis has a credit agreement with NationsBank, N.A. ("NationsBank") as
agent for a bank group that provides for a $350.0 million unsecured revolving
line of credit. Borrowings bear interest at ProLogis' option, at either (a)
the greater of the federal funds rate plus 0.5% and the prime rate, or (b)
LIBOR plus 0.75% based upon ProLogis' current senior debt ratings. The prime
rate was 7.75% and the 30-day LIBOR rate was 5.0641% as of December 31, 1998.
Additionally, the credit agreement provides for a commitment fee of 0.15% per
annum of the unused line of credit balance. Under a competitive bid option
contained in the credit agreement, ProLogis may be able to borrow at a lower
interest rate spread over LIBOR, depending on market conditions. This option
is available on up to $100.0 million of borrowings. The line of credit matures
on May 1, 2000 and may be extended annually for an additional year with the
approval of NationsBank and the other participating lenders. ProLogis was in
compliance with all covenants contained in the credit agreement as of December
31, 1998. As of December 31, 1998, $329.0 million of borrowings were
outstanding on the line of credit.
In addition, ProLogis has a $25.0 million short-term unsecured
discretionary line of credit with NationsBank that matures on October 1, 1999.
By agreement between ProLogis and NationsBank, the rate of interest on and the
maturity date of each advance are determined at the time of each advance.
There were $15.3 million of borrowings outstanding on the line of credit as of
December 31, 1998.
A summary of ProLogis' lines of credit borrowings is as follows (dollar
amounts in thousands):
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Weighted average daily interest rate....... 6.46% 6.75% 7.02%
Borrowings outstanding at December 31...... $344,300 $ -- $ 38,600
Weighted average daily borrowings.......... $174,901 $ 56,938 $ 44,268
Maximum borrowings outstanding at any month
end....................................... $344,300 $143,800 $124,200
Total lines of credit at December 31....... $375,000 $375,000 $350,000
</TABLE>
Short-term Borrowings
ProLogis has a credit agreement with NationsBank that provides for a short-
term loan of $150.0 million. The credit agreement expires on May 1, 1999.
Borrowings bear interest at LIBOR plus 1.00% and are subject to the covenants
contained in the $350.0 million unsecured credit agreement with NationsBank.
As of December 31, 1998, ProLogis was in compliance with all such covenants.
75
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Senior Unsecured Debt
ProLogis has issued senior unsecured notes and medium-term unsecured notes
that bear interest at fixed rates, payable semi-annually (the "Notes"). The
Notes are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Principal Principal
Date of Original Coupon Maturity Outstanding at Payment
Issuance Principal Rate Date December 31, 1998 (1) Requirement
-------- --------- ------ -------- --------------------- -----------
<S> <C> <C> <C> <C> <C>
May 16,
1995 $ 17,500 7.250% 05/15/00 $ 17,478 (2)
May 16,
1995 17,500 7.300% 05/15/01 17,462 (2)
May 17,
1996 50,000 7.250% 05/15/02 49,975 (3)
October 9,
1998 125,000 7.000% 10/01/03 125,000 (2)
July 20,
1998 250,000 7.050% 07/15/06 249,493 (2)
May 17,
1996 100,000 7.950% 05/15/08 99,863 (4)
March 2,
1995 150,000 8.720% 03/01/09 150,000 (5)
May 16,
1995 75,000 7.875% 05/15/09 74,724 (6)
February
4, 1997 100,000 7.810% 02/01/15 100,000 (7)
March 2,
1995 50,000 9.340% 03/01/15 50,000 (8)
May 17,
1996 50,000 8.650% 05/15/16 49,866 (9)
July 11,
1997 100,000 7.625% 07/01/17 99,780 (2)
---------- ----------
$1,085,000 $1,083,641
========== ==========
</TABLE>
- --------
(1)Amounts are net of unamortized original issue discount.
(2)Principal due at maturity.
(3)Annual principal payments of $12.5 million from 5/15/99 to 5/15/02.
(4)Annual principal payments of $25.0 million from 5/15/05 to 5/15/08.
(5)Annual principal payments of $18.75 million from 3/1/02 to 3/1/09.
(6)Annual principal payments of $9.375 million from 5/15/02 to 5/15/09.
(7)Annual principal payments ranging from $10.0 million to $20.0 million from
2/1/10 to 2/1/15.
(8)Annual principal payments ranging from $5.0 million to $12.5 million from
3/1/10 to 3/1/15.
(9)Annual principal payments ranging from $5.0 million to $12.5 million from
5/15/10 to 5/15/16.
The Notes rank equally with all other unsecured and unsubordinated
indebtedness of ProLogis from time to time outstanding. The Notes are
redeemable at any time at the option of ProLogis. Such redemption and other
terms are governed by the provisions of an indenture agreement between
ProLogis and State Street Bank and Trust Company, as trustee.
Under the terms of the indenture agreement, ProLogis must meet certain
financial covenants and ProLogis was in compliance with all such covenants as
of December 31, 1998.
76
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mortgage Notes, Assessment Bonds and Securitized Debt
Mortgage notes, assessment bonds and securitized debt consisted of the
following as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Balloon
Periodic Payment
Interest Maturity Payment Principal Due at
Description Rate (1) Date Date Balance Maturity
----------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Mortgage notes:
Princeton Distribution
Center..................... 9.250% 02/19/99 (2) $ 378 $ 378
Oxmoor Distribution Center
#1......................... 8.390 04/01/99 (2) 3,924 3,895
Oxmoor Distribution Center
#2......................... 8.100 05/01/99 (2) 1,449 1,439
Oxmoor Distribution Center
#3......................... 8.100 05/01/99 (2) 1,439 1,426
Peter Cooper Distribution
Center #1.................. 10.625 06/01/99 (2) 2,628 2,619
Platte Valley Industrial
Center #1.................. 9.750 03/01/00 (2) 364 256
West One Business Center #1. 8.250 09/01/00 (2) 4,420 4,252
Tampa West Distribution
Center #20................. 9.125 11/30/00 (3) 107 --
Rio Grande Industrial Center
#1......................... 8.875 09/01/01 (2) 3,055 2,544
Titusville Industrial Center
#1......................... 10.000 09/01/01 (2) 4,659 4,181
Eigenbrodt Way Distribution
Center #1.................. 8.590 04/01/03 (2) 1,659 1,479
Gateway Corporate Center
#10........................ 8.590 04/01/03 (2) 1,901 1,361
Hayward Industrial Center I
& II....................... 8.590 04/01/03 (2) 13,997 12,480
Thornton Business Center
#1--#4..................... 8.590 04/01/03 (2) 9,180 8,185
Sullivan 75 Distribution
Center #1.................. 9.960 04/01/04 (2) 1,817 1,663
Oceanie Distribution Center
#1 and Epone Distribution
Center #1.................. 8.000 07/01/04 (3) 5,970 --
Platte Valley Industrial
Center #8.................. 8.750 08/01/04 (2) 1,896 1,488
Riverside Industrial Center
#3......................... 8.750 08/01/04 (2) 1,489 1,170
Riverside Industrial Center
#4......................... 8.750 08/01/04 (2) 4,025 3,161
West One Business Center #3. 9.000 09/01/04 (2) 4,399 3,847
Raines Distribution Center.. 9.500 01/01/05 (2) 6,264 5,902
Societe Generale (4)........ 5.700 12/01/06 (2) 23,244 8,940
CIGNA (5)................... 7.080 03/01/07 (2) 66,000 (5)
Vista Del Sol Industrial
Center #1.................. 9.680 08/01/07 (3) 2,625 --
Vista Del Sol Industrial
Center #3.................. 9.680 08/01/07 (3) 1,111 --
Earth City Industrial Center
#3......................... 8.500 07/01/10 (3) 2,281 --
GMAC Commercial Mortgage
(6)........................ 7.750 10/01/10 (3) 8,186 --
Executive Park Distribution
Center #3.................. 8.190 03/01/11 (3) 1,108 --
Platte Valley Industrial
Center #9.................. 8.100 04/01/17 (3) 3,330 --
Platte Valley Industrial
Center #4.................. 10.100 11/01/21 (3) 2,059 --
---------
$ 184,964
=========
</TABLE>
77
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Balloon
Periodic Payment
Interest Maturity Payment Principal Due at
Description Rate (1) Date Date Balance Maturity
----------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Assessment bonds:
City of Wilsonville.......... 6.82% 08/19/04 (3) $ 129 $ --
City of Kent................. 5.50 05/01/05 (3) 18 --
City of Kent................. 7.85 06/20/05 (3) 104 --
City of Portland............. 8.33 11/17/07 (3) 7 --
City of Kent................. 7.98 05/20/09 (3) 64 --
City of Fremont.............. 7.00 03/01/11 (3) 9,890 --
City of Las Vegas............ 8.75 10/01/13 (3) 294 --
City of Las Vegas............ 8.75 10/01/13 (3) 289 --
City of Las Vegas............ 8.75 10/01/13 (3) 163 --
City of Portland............. 7.25 11/07/15 (3) 99 --
City of Portland............. 7.25 09/15/16 (3) 224 --
--------
$ 11,281
========
Securitized debt:
Tranche A.................... 7.74% 02/01/04 (2) $ 23,462 $20,821
Tranche B.................... 9.94 02/01/04 (2) 8,097 7,215
--------
$ 31,559
========
</TABLE>
- --------
(1) The weighted average interest rates for mortgage notes payable, assessment
bonds payable and securitized debt in 1998 were 7.06%, 7.12% and 8.30%,
respectively.
(2) Monthly amortization with a balloon payment due at maturity.
(3) Fully amortizing.
(4) Mortgage debt is secured by Mitry-Mory #1, Isle d'Abeau Distribution
Center #1 and Longjumeau Distribution Center #1 located in France.
(5) On December 23, 1998, ProLogis entered into a $150.0 million secured
financing agreement with Connecticut General Life Insurance Company. On
that date, $66.0 million was funded under the agreement and the remaining
$84.0 million was funded on January 22, 1999. A payment of $134.4 million
is due at maturity. Under the terms of the agreement, ProLogis pledged
distribution facilities ($207.0 million undepreciated cost as of December
31, 1998) as collateral under the agreement.
(6) Mortgage debt is secured by Earth City Industrial Center #5, Westport
Service Center #1 and #2, Westport Distribution Center #1, #2 and #3 and
Hazelwood Distribution Center #1.
Mortgage notes are secured by real estate with an aggregate undepreciated
cost of $209.3 million as of December 31, 1998. Assessment bonds are secured
by real estate with an aggregate undepreciated cost of $242.4 million as of
December 31, 1998. Securitized debt is collateralized by real estate with an
aggregate undepreciated cost of $66.2 million as of December 31, 1998.
Subsequent Events
On February 22, 1999, ProLogis entered into a $182.0 million secured
financing agreement with Teachers Insurance and Annuity Association of
America. Of the total borrowings, $119.4 million was funded on February 22,
1999, $35.7 million was funded on March 5, 1999 and the remaining amount is
expected to be funded before the end of May 1999. The loan bears interest at
7.20% and provides for monthly interest payments through
78
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 2002 and monthly principal and interest payments from April 2002 to
March 2009, at which time the remaining balance will be due. ProLogis pledged
distribution facilities with an undepreciated cost of $216.2 million as of
December 31, 1998 as collateral under the agreement and will pledge additional
distribution facilities upon completion of the final funding.
On February 5, 1999, ProLogis received a commitment from Morgan Guaranty
Trust Company of New York ("MGT") whereby MGT will lend $200.0 million to
ProLogis. The loan, which will be secured by distribution facilities and will
have a 25-year term, provides for interest only payments for the first six
years and principal and interest payments thereafter with the remaining
balance due at maturity. The loan bears interest at 7.58% per annum and is
expected to be funded by the end of the first quarter of 1999.
Long-term Debt Maturities
Approximate principal payments due on senior unsecured debt, mortgage notes
payable, assessment bonds payable, securitized debt and other secured debt
during each of the years in the five-year period ending December 31, 2003 and
thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1999.......................................................... $ 27,581
2000.......................................................... 40,017
2001.......................................................... 43,771
2002.......................................................... 49,212
2003.......................................................... 184,930
2004 and thereafter........................................... 967,293
----------
Total principal due....................................... 1,312,804
Less: Original issue discount................................. (1,359)
----------
Total carrying value...................................... $1,311,445
==========
</TABLE>
Interest Expense
For 1998, 1997 and 1996, interest expense was $77.7 million, $52.7 million,
and $38.8 million, respectively, which was net of capitalized interest of
$19.2 million, $18.4 million and $16.1 million, respectively. Amortization of
deferred loan costs included in interest expense was $2.2 million, $2.0
million and $2.3 million for 1998, 1997 and 1996, respectively. The total
interest paid in cash on all outstanding debt was $83.2 million, $61.3 million
and $50.7 million during 1998, 1997 and 1996, respectively.
6. Minority Interest:
Minority interest represents the limited partners' interests in real estate
partnerships controlled by ProLogis. With respect to each of the partnerships
either ProLogis or a subsidiary of ProLogis is the sole general partner with
all management powers over the business and affairs of the partnership. The
limited partners of each partnership generally do not have the right to
participate in or exercise management control over the business and affairs of
the partnership. With respect to each partnership the general partner may not,
without the written consent of all of the limited partners, take any action
that would prevent such partnership from conducting its business, possess the
property of the partnership, admit an additional partner or subject a limited
partner to the liability of a general partner.
ProLogis owns a 70.0% general partnership interest in Red Mountain Joint
Venture, which owns a $3.8 million industrial distribution facility in
Albuquerque, New Mexico. In addition to this joint venture, ProLogis is the
controlling general partner in four partnerships. In each of these four
partnerships, the limited partners are entitled to exchange partnership units
for Common Shares on a one for one basis. Additionally, the limited
79
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
partners are entitled to receive preferential cumulative quarterly
distributions per unit equal to the quarterly distributions in respect of
Common Shares. These four partnerships are as follows:
. ProLogis Limited Partnership-I, which owned approximately $208.2 million
of industrial distribution facilities located primarily in the San
Francisco Bay area as of December 31, 1998, was formed in December 1993.
ProLogis had a 68.7% controlling general partnership interest and there
were 4,520,532 limited partnership units outstanding as of December 31,
1998.
. ProLogis Limited Partnership-II, which owned approximately $58.7 million
of industrial distribution facilities located primarily in Austin,
Charlotte, Dallas, Denver, El Paso and the San Francisco Bay area as of
December 31, 1998, was formed in May 1994. ProLogis' initial 81.2%
controlling general partnership interest has subsequently been increased
to 97.8% (the ownership interest as of December 31, 1998) due to the
conversion of limited partnership units into Common Shares. There were
90,213 limited partnership units outstanding as of December 31, 1998.
. ProLogis Limited Partnership-III, which owned approximately $55.3 million
of industrial distribution facilities located primarily in Tampa, Florida
as of December 31, 1998, was formed in October 1994. ProLogis had a 50.4%
controlling general partnership interest at formation, which has
subsequently been increased to 86.9% (the ownership interest as of
December 31, 1998) as the result of additional contributions by ProLogis
and the conversion of limited partnership units into Common Shares. There
were 389,900 limited partnership units outstanding as of December 31,
1998.
. ProLogis Limited Partnership-IV, which owned approximately $86.0 million
of industrial distribution facilities located primarily in Florida, Ohio,
Oklahoma and Texas as of December 31, 1998, was formed in October 1994
through a cash contribution from a wholly owned subsidiary of ProLogis,
ProLogis IV, Inc., and the contribution of industrial distribution
facilities from the limited partner. ProLogis' initial 96.4% controlling
general partnership interest has been increased to 97.7% (the ownership
interest as of December 31, 1998) as the result of additional
contributions by ProLogis. There were 68,612 limited partnership units
outstanding as of December 31, 1998.
ProLogis Limited Partnership-IV and ProLogis IV, Inc. are legal entities
separate and distinct from ProLogis, its affiliates and each other, and
each has separate assets, liabilities, business functions and operations.
The sole assets of ProLogis IV, Inc. are its general partner advances to
and its interest in ProLogis Limited Partnership-IV. As of December 31,
1998, ProLogis Limited Partnership-IV had outstanding borrowings from
ProLogis IV, Inc. of $1.4 million and ProLogis IV, Inc. had outstanding
borrowings from ProLogis and its affiliates of $1.4 million.
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of each of the five partnerships are included in
ProLogis' consolidated financial statements, and the interests of the limited
partners are reflected as minority interest.
7. Shareholders' Equity:
Shares Authorized
As of December 31, 1998, 230,000,000 shares were authorized (increased from
180,000,000 shares on June 30, 1998 through a shareholder-approved amendment
to ProLogis' Declaration of Trust). ProLogis' Board of Trustees (the "Board")
may classify or reclassify any unissued shares of ProLogis stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as of distributions, qualifications
and terms or conditions of redemption of such shares.
80
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred Shares
As of December 31, 1998, ProLogis had three series of cumulative redeemable
preferred shares of beneficial interest outstanding (Series A, C and D) and
one series of cumulative convertible redeemable preferred shares of beneficial
interest outstanding (Series B). Holders of each series of preferred shares
have, subject to certain conditions, limited voting rights. The holders of the
preferred shares are entitled to receive cumulative preferential distributions
based upon each series' respective liquidation preference. Such distributions
are payable quarterly in arrears on the last day of March, June, September and
December, when, and if, declared by the Board, out of funds legally available
for payment of distributions. After the respective redemption dates, each
series can be redeemed for a cash redemption price which (other than the
portion consisting of accrued and unpaid distributions) is payable solely out
of the sales proceeds of other capital shares of ProLogis, which may include
shares of other series of preferred shares. With respect to payment of
distributions, each series of preferred shares ranks on parity with ProLogis'
other series of preferred shares.
The Series B preferred shares are convertible at any time, unless
previously redeemed, at the option of the holders thereof into Common Shares
at a conversion price of $19.50 per share (equivalent to a conversion rate of
1.282 Common Shares for each Series B preferred share).
ProLogis' preferred shares are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Stated Equivalent Based Optional
Outstanding as of Liquidation Dividend on Liquidation Redemption
December 31, 1998 Preference Rate Preference Date (1)
----------------- ----------- -------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Series A................ 5,400,000 $25.00 9.40% $2.35 per share 06/21/00
Series B (2)............ 7,537,600 $25.00 7.00% $1.75 per share 02/21/01
Series C................ 2,000,000 $50.00 8.54% $4.27 per share 11/13/26
Series D................ 10,000,000 $25.00 7.92% $1.98 per share 04/13/03
</TABLE>
- --------
(1) After this date, the preferred shares can be redeemed at ProLogis' option.
(2) During 1998 and 1997, Series B preferred shares of 462,700 and 49,700,
respectively, were converted into 593,181 and 63,720, respectively, Common
Shares.
Completed Common Equity Offerings
From inception (June 14, 1991) through March 31, 1994, ProLogis raised
capital through various private offerings of its Common Shares. A total of
36,714,533 shares were sold during this period at prices ranging from $10.00
to $11.50 per Common Share.
On March 31, 1994, ProLogis completed an initial public offering of
3,260,870 Common Shares at a price of $11.50 per Common Share. After its
initial public offering and through December 31, 1998, ProLogis sold an
additional 76,989,752 Common Shares at prices ranging from $15.125 to $24.50
per Common Share, of which 4,000,000 Common Shares were sold on March 18, 1998
and 1,493,878 Common Shares were sold on April 29, 1998. The sales in 1998
were made through underwritten public offerings and generated proceeds, net of
underwriting discounts and offering costs of $95.6 million and $34.7 million,
respectively. In total, ProLogis has raised approximately $1.84 billion in net
proceeds from private and public offerings of its Common Shares since its
inception.
Shelf Registration
On May 15, 1998, ProLogis filed an $800.0 million shelf registration
statement with the Securities and Exchange Commission, which was declared
effective on May 29, 1998. This shelf registration supplemented an
81
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
existing shelf registration with a remaining balance of $183.0 million. As a
result of this filing, ProLogis can issue securities in the form of debt
securities, preferred shares, Common Shares, rights to purchase Common Shares
and preferred share purchase rights on an as-needed basis, subject to
ProLogis' ability to effect offerings on satisfactory terms. As of March 5,
1999, ProLogis had $608.0 million of shelf-registered securities available for
issuance.
Ownership Restrictions and Significant Shareholder
For ProLogis to qualify as a REIT under the Internal Revenue Code of 1986,
as amended, not more than 50% in value of its outstanding shares of stock may
be owned by five or fewer individuals at any time during the last half of
ProLogis' taxable year. Therefore, ProLogis' Declaration of Trust restricts
beneficial ownership (or ownership generally attributed to a person under the
REIT tax rules) of ProLogis' outstanding shares by a single person, or persons
acting as a group, to 9.8% of ProLogis' outstanding shares. This provision
assists ProLogis in protecting and preserving its REIT status and protects the
interest of shareholders in takeover transactions by preventing the
acquisition of a substantial block of shares.
Shares owned by a person or group of persons in excess of these limits are
subject to redemption by ProLogis. The provision does not apply where a
majority of the Board, in its sole and absolute discretion, waives such limit
after determining that the status of ProLogis as a REIT for federal income tax
purposes will not be jeopardized or the disqualification of ProLogis as a REIT
is advantageous to the shareholders.
The Board has exempted Security Capital from the ownership restrictions
described above. Security Capital owned 40.4% of the outstanding Common Shares
as of December 31, 1998. For tax purposes, Security Capital's ownership is
attributed to its shareholders.
Dividend Reinvestment and Share Purchase Plan
In March 1995, ProLogis adopted a Dividend Reinvestment and Share Purchase
Plan (the "1995 Plan"), which commenced in April 1995. The 1995 Plan allows
holders of Common Shares the opportunity to acquire additional Common Shares
by automatically reinvesting distributions. Common Shares are acquired
pursuant to the 1995 Plan at a price equal to 98% of the market price of such
Common Shares, without payment of any brokerage commission or service charge.
The 1995 Plan also allows participating common shareholders to purchase a
limited number of additional Common Shares at 98% of the market price of such
Common Shares, by making optional cash payments, without payment of any
brokerage commission or service charge. Holders of Common Shares who do not
participate in the 1995 Plan continue to receive distributions as declared.
Shareholder Purchase Rights
On December 7, 1993, the Board declared a dividend of one preferred share
purchase right ("Right") for each outstanding Common Share to be distributed
to all holders of record of the Common Shares on December 31, 1993. Each Right
entitles the registered holder to purchase one-hundredth of a Participating
Preferred Share for an exercise price of $40.00 per one-hundredth of a
Participating Preferred Share, subject to adjustment as provided in the Rights
Agreement. The Rights will generally be exercisable only if a person or group
(other than certain affiliates of ProLogis) acquires 20% or more of the Common
Shares or announces a tender offer for 25% or more of the Common Shares. Under
certain circumstances, upon a shareholder acquisition of 20% or more of the
Common Shares (other than certain affiliates of ProLogis), each Right will
entitle the holder to purchase, at the Right's then-current exercise price, a
number of Common Shares having a market value of twice the Right's exercise
price. The acquisition of ProLogis pursuant to certain mergers or other
business transactions will entitle each holder of a Right to purchase, at the
Right's then-current exercise price, a number of the acquiring
82
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
company's common shares having a market value at that time equal to twice the
Right's exercise price. The Rights held by certain 20% shareholders will not
be exercisable. The Rights will expire on December 7, 2003, unless the
expiration date of the Rights is extended, and the Rights are subject to
redemption at a price of $0.01 per Right under certain circumstances.
8. 1997 Merger Transaction:
On September 8, 1997, ProLogis' shareholders approved an agreement with
Security Capital to exchange Security Capital's REIT management and property
management companies for 3,692,023 Common Shares (the "1997 Merger"). As a
result, ProLogis became an internally managed REIT on September 9, 1997 with
Security Capital remaining as ProLogis' largest shareholder. The $81.9 million
value of the management companies was approved by the independent members of
the Board and a fairness opinion was obtained from a third party financial
advisor. The number of Common Shares issued to Security Capital was based on
the average market price of the Common Shares ($22.175) over the five-day
period prior to the August 6, 1997 record date for determining the ProLogis
shareholders entitled to vote on the 1997 Merger. The market value of the
Common Shares issued to Security Capital on September 9, 1997 was $79.8
million, of which $4.4 million was allocated to the net tangible assets
acquired and the $75.4 million difference was accounted for as the cost
incurred in acquiring the management companies. Because the management
companies did not have significant operations other than the management of
ProLogis and ProLogis' assets, the transaction did not qualify as the
acquisition of a business for purposes of applying APB Opinion No. 16,
"Business Combinations". Consequently, the market value of the Common Shares
issued in excess of the fair value of the net tangible assets acquired was
charged to operating income rather than capitalized as goodwill.
As a result of the 1997 Merger, ProLogis terminated its REIT management and
property management agreements. All employees of the management companies
became employees of ProLogis and ProLogis directly incurs the personnel and
other costs related to these functions. The costs relating to property
management are recorded as rental expenses whereas the costs associated with
managing the corporate entity are recorded as general and administrative
expenses.
Also on September 8, 1997, ProLogis and Security Capital entered into an
administrative services agreement (the "ASA"). Under the ASA, Security Capital
provides ProLogis with certain administrative and other services as determined
by ProLogis. Fees payable to Security Capital under the ASA are equal to
Security Capital's cost of providing such services, plus an overhead factor of
20%, subject to a maximum amount of approximately $7.1 million during the
initial term of the agreement, which expired on December 31, 1998. From
September 8, 1997 through December 31, 1997, and for the year ended December
31, 1998, ProLogis' actual fees under the ASA were $1.1 million and $3.7
million, respectively, of which $0.2 million and $0.7 million, respectively,
were capitalized. The ASA was renewed for an additional one-year term expiring
on December 31, 1999 with fees charged by Security Capital for this period to
be based on negotiated rates for each service provided.
9. Distributions and Dividends:
ProLogis' annual distribution per Common Share was $1.24 in 1998, $1.07 in
1997 and $1.01 in 1996. For Federal income tax purposes, the following
summarizes the taxability of cash distributions paid on Common Shares in 1997
and 1996 and the estimated taxability for 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Per Common Share:
Ordinary income................................. $ 1.12 $ 1.07 $ 0.88
Return of capital............................... 0.12 -- 0.13
------- ------- -------
Total......................................... $ 1.24 $ 1.07 $ 1.01
======= ======= =======
</TABLE>
83
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
On December 15, 1998, ProLogis declared a distribution of $0.3183 per
Common Share payable on February 24, 1999 to shareholders of record as of
February 10, 1999.
In connection with the 1997 Merger discussed in Note 8, Security Capital
issued $101.0 million of warrants pro rata to holders of Common Shares (other
than Security Capital), Series B preferred shares and limited partnership
units to acquire 3,608,202 shares of Class B common stock of Security Capital.
Holders of Common Shares and holders of limited partnership units received
0.046549 warrants for each Common Share or unit held and holders of Series B
preferred shares received 0.059676 warrants for each preferred share held.
Each warrant was exercisable into one share of Security Capital Class B common
stock at an exercise price of $28.00 per share. The warrants expired in
September 1998. Security Capital issued the warrants as an incentive to
ProLogis' shareholders to vote in favor of the 1997 Merger and to raise
additional equity capital at a relatively low cost, in addition to other
benefits.
The dividends paid on the Series A, Series B, Series C and Series D
preferred shares are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 (1) 1997 (1) 1996 (1)
-------- -------- --------
<S> <C> <C> <C>
Series A..................................... 2.35 2.35 2.35
Series B..................................... 1.75 1.75 1.50(2)
Series C..................................... 4.27 4.27 0.57(2)
Series D..................................... 1.42(3) -- --
</TABLE>
- --------
(1) For federal income tax purposes all of the preferred dividends are
ordinary income to the holders of the preferred shares.
(2) For the period from date of issuance to December 31, 1996.
(3) For the period from date of issuance to December 31, 1998.
ProLogis' tax return for the year ended December 31, 1998 has not been
filed, therefore the taxability information for 1998 is based upon the best
available data. ProLogis' tax returns have not been examined by the Internal
Revenue Service. Consequently, the taxability of the distributions and
dividends is subject to change.
Pursuant to the terms of its preferred shares, ProLogis is restricted from
declaring or paying any distribution with respect to the Common Shares unless
all cumulative distributions with respect to the preferred shares have been
paid and sufficient funds have been set aside for distributions that have been
declared for the then-current distribution period with respect to the
preferred shares.
10. Earnings Per Share:
A reconciliation of the denominator used to calculate basic earnings per
share to the denominator used to calculate diluted earnings per share for the
periods indicated (in thousands, except per share amounts) is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Net earnings attributable to Common Shares..... $ 62,231 $ 4,431 $53,460
======== ======== =======
Weighted average Common Shares outstanding--
basic......................................... 121,721 100,729 84,504
Incremental effect of common stock equivalents. 307 140 7
-------- -------- -------
Adjusted weighted average Common Shares
outstanding--diluted.......................... 122,028 100,869 84,511
======== ======== =======
Per share net earnings attributable to Common
Shares:
Basic........................................ $ 0.51 $ 0.04 $ 0.63
======== ======== =======
Diluted...................................... $ 0.51 $ 0.04 $ 0.63
======== ======== =======
</TABLE>
84
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1998, 1997 and 1996 there were 5,070,000,
5,190,000 and 5,194,000 weighted average limited partnership units outstanding
and 10,055,000, 10,319,000 and 8,831,000 weighted average Series B preferred
shares outstanding on an as-converted basis, respectively, that were not
assumed converted into Common Shares because they were antidilutive to
earnings per share. These securities may become dilutive to earnings per share
in subsequent years.
11. Long-Term Compensation
Long-Term Incentive Plan and Share Option Plan for Outside Trustees
ProLogis has a long-term incentive plan (the "Incentive Plan"), which
includes an employee stock purchase plan, a stock option plan and a restricted
share unit plan. No more than 9,410,000 Common Shares in the aggregate may be
awarded under the Incentive Plan and no individual may be granted awards with
respect to more than 500,000 Common Shares in any one-year period. The
Incentive Plan has a ten-year term.
Additionally, ProLogis has 100,000 Common Shares authorized for issuance
under its Share Option Plan for Outside Trustees (the "Outside Trustees Plan")
and 190,000 Common Shares authorized for issuance under the 401(k) Savings
Plan and Trust that became effective on January 1, 1998.
Employee Stock Purchase Plan
Under the employee stock purchase plan, certain employees of ProLogis
purchased 1,356,834 Common Shares on September 8, 1997 at a price of $21.21875
per share. ProLogis financed 95% of the total purchase price through ten-year,
recourse notes to the participants aggregating $27.3 million. The loans, which
have been recognized as a deduction from shareholders' equity, bear interest
at the lower of ProLogis' annual dividend yield on Common Shares or 6% per
annum. The loans are secured by the Common Shares purchased. For each Common
Share purchased, participants were granted two options to purchase Common
Shares at a price of $21.21875. As of December 31, 1998, there were 1,246,480
Common Shares securing the employee stock purchase notes. The changes in the
notes receivable from employees during 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Balances at January 1................................... $27,186 $ --
Notes issued............................................ -- 27,345
Principal payments received............................. (143) (64)
Retirements............................................. (1,796) (95)
------- -------
Balances at December 31................................. $25,247 $27,186
======= =======
</TABLE>
The outstanding notes receivable at December 31, 1998 of $25,247,000
include $22,273,000 due from officers of ProLogis.
85
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Options
ProLogis has granted stock options under the Incentive Plan and the Outside
Trustees Plan. Stock options outstanding as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Expiration Remaining
Options Exercise Price (1) Date Life
--------- ------------------- ---------- ---------
<S> <C> <C> <C> <C>
Outside Trustees Plan
(2).................... 34,000 $15.50-$25.00 1999-2003 2.8 years
Employee stock purchase
plan (3)............... 2,493,054 $21.21875 2007 8.7 years
Stock option plan (3)
(4):
1997 awards........... 338,689 $21.21875-$23.96875 2007 8.7 years
1998 awards........... 1,525,548 $20.9375-$24.625 2008 9.8 years
Options sold to
unconsolidated
subsidiaries (3) (4)... 471,919 $20.9375-$24.65625 2008 9.8 years
---------
Total............... 4,863,210
=========
</TABLE>
- --------
(1) Exercise price was equal to market price on the date of grant.
(2) Options are fully exercisable.
(3) Graded vesting at various rates over periods from two to ten years,
subject to certain conditions.
(4) The holders are awarded dividend equivalent units each year of the plan.
The weighted average fair value of the options issued under the Incentive
Plan (excluding options sold to unconsolidated subsidiaries) and the Outside
Trustees Plan during 1998 was approximately $2.39 per option. The weighted
average fair value of the options sold to unconsolidated subsidiaries in 1998
was approximately $2.82 per option. The activity with respect to ProLogis'
stock option plans for the years ended December 31, 1998, 1997 and 1996 is
presented below. All grants during 1996 relate to the Outside Trustees Plan.
<TABLE>
<CAPTION>
Weighted
Average Number of
Number of Exercise Options
Options Price Exercisable
--------- -------- -----------
<S> <C> <C> <C>
Balance at December 31, 1995.............. 10,000 $15.80 10,000
Granted................................. 8,000 17.50 8,000
Forfeited............................... -- -- --
--------- ------ ------
Balance at December 31, 1996.............. 18,000 16.56 18,000
Granted................................. 3,097,012 21.24 8,000
Exercised............................... -- -- --
Forfeited............................... (11,721) 21.22 --
--------- ------ ------
Balance at December 31, 1997.............. 3,103,291 21.21 26,000
Granted/Sold............................ 2,011,392 21.17 8,000
Exercised............................... -- -- --
Forfeited............................... (251,473) 21.22 --
--------- ------ ------
Balance at December 31, 1998.............. 4,863,210 $21.19 34,000
========= ====== ======
</TABLE>
ProLogis did not recognize compensation expense in 1998, 1997 or 1996
related to stock options granted as the exercise price of all options granted
was equal to the market price on the date of grant. Had compensation
86
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
expense for these plans been determined using an option valuation model as
provided in SFAS No. 123, ProLogis' net earnings attributable to Common Shares
and net earnings per Common Share would change as follows:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Net earnings attributable to Common Shares:
As reported............................................. $62,231 $4,431
Pro forma............................................... 60,805 4,016
Basic and diluted net earnings per Common Share:
As reported............................................. $ 0.51 $ 0.04
Pro forma............................................... 0.50 0.04
</TABLE>
Since employee stock options vest over several years and additional grants
are likely to be made in future years, the pro forma compensation cost may not
be representative of that to be expected in future years.
The pro forma amounts above were calculated using the Black-Scholes model
and the following assumptions:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Risk-free interest rate............................. 4.74% 6.35%
Forecasted dividend yield........................... 7.36% 7.36%
Volatility.......................................... 27.37% 19.20%
Weighted average option life........................ 6.75 years 6.75 years
</TABLE>
Restricted Share Units
On October 15, 1998, the Board granted 377,500 restricted share units
("RSU") to twelve officers of ProLogis. The RSUs vest 25% per year beginning
December 31, 1999 through December 31, 2002 and earn DEUs in accordance with
the DEU awards under the Incentive Plan. The RSUs are valued on the award date
based upon the market price of Common Shares on that date and ProLogis
recognizes that value as compensation expense over the underlying vesting
period. The RSUs granted in 1998 were valued at $8.0 million, of which
ProLogis recognized $272,700 of compensation expense in 1998, net of amounts
capitalized.
Dividend Equivalent Units ("DEUs")
DEUs in the form of Common Shares are awarded at a rate of one Common Share
per DEU on December 31st of each year of the ten-year stock option plan and
are vested to the same extent the underlying stock options are vested. The
DEUs are valued on the award date based upon the market price of the Common
Shares on that date and ProLogis recognizes that value as compensation expense
over the underlying vesting period. As of December 31, 1998, there were 32,510
DEUs outstanding (30,129 awarded on December 31, 1998 and 2,381 awarded on
December 31, 1997). ProLogis recognized compensation expense related to the
DEUs of $5,000 in 1998, net of amounts capitalized.
401(k) Savings Plan and Trust
ProLogis has a 401(k) Savings Plan and Trust, that provides for matching
employer contributions in Common Shares of 50 cents for every dollar
contributed by an employee, up to 6% of the employees' annual compensation
(within the statutory compensation limit). The vesting of contributed Common
Shares is based on the employee's years of service, with 20% vesting each year
of service, over a five-year period. Through December 31, 1998, no Common
Shares have been issued under the 401(k) Savings Plan and Trust as all
matching contributions have been made with Common Shares purchased in the
public market.
Nonqualified Savings Plan
Effective January 1, 1998, ProLogis established the Nonqualified Savings
Plan to provide benefits for a select group of management. The purpose of this
plan is to allow highly compensated employees the opportunity
87
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
to defer the receipt and income taxation of a certain portion of their
compensation in excess of the amount permitted under the 401(k) Savings Plan
and Trust. ProLogis will match the lesser of (a) 50% of the sum of deferrals
under both the 401(k) Savings Plan and Trust and this plan, and (b) 3% of
total compensation up to certain levels. The matching account will vest in the
same manner as the 401(k) Savings Plan and Trust.
Warrants
During 1998, 11,764 warrants were exercised at an exercise price of $10.00.
There were no outstanding warrants as of December 31, 1998.
12. Selected Quarterly Financial Data (Unaudited):
Selected quarterly financial data (in thousands, except for per share
amounts) for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended,
--------------------------------------------
June
March 31, 30, September 30, December 31, Total
--------- ------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
1998:
Rental income......... $78,565 $84,353 $ 88,687 $93,441 $345,046
======= ======= ======== ======= ========
Earnings from
operations........... $35,458 $35,589 $ 6,407 $32,991 $110,445
Minority interest
share in earnings.... 979 1,075 1,047 1,580 4,681
Gain on disposition of
real estate.......... 2,066 2,212 -- 1,287 5,565
------- ------- -------- ------- --------
Net earnings.......... 36,545 36,726 5,360 32,698 111,329
Less preferred share
dividends............ 8,799 13,075 13,669 13,555 49,098
------- ------- -------- ------- --------
Net earnings (loss)
attributable to
Common Shares........ $27,746 $23,651 $ (8,309) $19,143 $ 62,231
======= ======= ======== ======= ========
Basic net earnings
(loss) attributable
to Common Shares..... $ 0.24 $ 0.19 $ (0.07) $ 0.16 $ 0.51
======= ======= ======== ======= ========
Diluted net earnings
(loss) attributable
to Common Shares..... $ 0.23 $ 0.19 $ (0.07) $ 0.16 $ 0.51
======= ======= ======== ======= ========
1997:
Rental income......... $67,386 $69,157 $ 72,376 $75,614 $284,533
======= ======= ======== ======= ========
Earnings from
operations........... $26,456 $29,051 $(48,363) $28,787 $ 35,931
Minority interest
share in earnings.... 895 940 928 797 3,560
Gain on disposition of
real estate.......... -- 3,773 2,756 849 7,378
------- ------- -------- ------- --------
Net earnings (loss)... 25,561 31,884 (46,535) 28,839 39,749
Less preferred share
dividends............ 8,829 8,830 8,829 8,830 35,318
------- ------- -------- ------- --------
Net earnings (loss)
attributable to
Common Shares........ $16,732 $23,054 $(55,364) $20,009 $ 4,431
======= ======= ======== ======= ========
Basic net earnings
(loss) attributable
to Common Shares..... $ 0.17 $ 0.24 $ (0.55) $ 0.18 $ 0.04
======= ======= ======== ======= ========
Diluted net earnings
(loss) attributable
to Common Shares..... $ 0.17 $ 0.23 $ (0.55) $ 0.18 $ 0.04
======= ======= ======== ======= ========
</TABLE>
88
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
13. Related Party Transactions:
ProLogis leases space to related parties on market terms that management
believes are no less favorable to ProLogis than those that could be obtained
with unaffiliated third parties. These transactions are summarized as follows:
<TABLE>
<CAPTION>
Security REIT Property
Capital & Management Management
Affiliates Company Company Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental revenue during the
year ended December 31,
1996........................ $593,657 $210,856 $571,970 $1,376,483
Rental revenue during the
year ended December 31,
1997........................ $833,150 $145,244 $550,092 $1,528,486
Rental revenue during the
year ended December 31,
1998........................ $716,725 n/a n/a $ 716,725
Square feet leased as of
December 31, 1998........... 113,139 n/a n/a 113,139
Annualized revenue for leases
in effect as of December 31,
1998........................ $740,309 n/a n/a $ 740,309
</TABLE>
The management companies were merged with and into ProLogis on September 8,
1997 as discussed in Note 8. For the REIT management company and the property
management company, amounts included for the year ended December 31, 1997 are
for the period from January 1, 1997 to September 8, 1997.
14. Financial Instruments:
Fair Value of Financial Instruments
The following estimates of the fair value of financial instruments have
been determined by ProLogis using available market information and valuation
methodologies believed to be appropriate for these purposes. Considerable
judgement and a high degree of subjectivity are involved in developing these
estimates and, accordingly, they are not necessarily indicative of amounts
ProLogis would realize upon disposition.
As of December 31, 1998 and 1997, the carrying amounts of certain financial
instruments employed by ProLogis, including cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses were representative
of their fair values because of the short-term maturity of these instruments.
Similarly, the carrying values of the lines of credit and short-term
borrowings balances approximate fair value as of those dates since the
interest rate fluctuates based on published market rates. As of December 31,
1998 and 1997, the fair values of the senior unsecured debt and the secured
debt (including mortgage notes, assessment bonds and securitized debt) have
been estimated based upon quoted market prices for the same or similar issues
or by discounting the future cash flows using rates currently available for
debt with similar terms and maturities. The increase in the fair value of
ProLogis' senior unsecured debt and secured debt over the carrying value in
the table below is a result of a net reduction in the interest rates available
to ProLogis as of December 31, 1998 and 1997, from the interest rates in
effect at the dates of issuance. The senior unsecured debt and many of the
secured debt issues contain pre-payment penalties or yield maintenance
provisions which would make the cost of refinancing exceed the benefit of
refinancing at the lower rates.
As of December 31, 1998 and 1997, the fair value of ProLogis' derivative
financial instruments are the amounts at which they could be settled, based on
quoted market prices or estimates obtained from brokers. The
89
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
following table reflects the carrying amount and estimated fair value of
ProLogis' financial instruments (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997
---------------------- ------------------
Carrying Carrying Fair
Amount Fair Value Amount Value
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Balance sheet financial
instruments
Senior unsecured debt.... $1,083,641 $1,108,692 $724,052 $755,799
Secured debt............. $ 227,804 $ 232,809 $133,028 $137,628
Derivative financial
instruments
Interest rate contracts.. $ (26,050) $ (26,050) $ -- $ (8,621)
Foreign currency
contracts............... $ -- $ -- $ (6,028) $ (6,028)
</TABLE>
Derivative Financial Instruments
ProLogis occasionally uses derivative financial instruments as hedges to
manage well-defined risk associated with interest and foreign currency rate
fluctuations on existing obligations or anticipated transactions. ProLogis
does not use derivative financial instruments for trading purposes.
The primary risks associated with derivative instruments are market risk
and credit risk. Market risk is defined as the potential for loss in the value
of the derivative due to adverse changes in market prices (interest rates or
foreign currency rates). Through hedging, ProLogis can effectively manage the
risk of increases in interest rates and fluctuations in foreign currency
exchange rates.
Credit risk is the risk that one of the parties to a derivative contract
fails to perform or meet their financial obligation under the contract.
ProLogis does not obtain collateral to support financial instruments subject
to credit risk but monitors the credit standing of counterparties. ProLogis
does not anticipate non-performance by any of the counterparties to its
derivative contracts. Should a counterparty fail to perform, however, ProLogis
would incur a financial loss to the extent of the positive fair market value
of the derivative instruments, if any.
The following table summarizes the activity in interest rate contracts for
the years ended December 31, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
Interest Rate Interest Rate
Futures Contracts Swaps
----------------- -------------
<S> <C> <C>
Notional amount as of December 31, 1996.. $ 106.0 $ 33.0
New contracts (1)........................ 75.0 75.0
Matured or expired contracts (2)......... (106.0) (33.0)
Terminated contracts..................... -- --
------- ------
Notional amount as of December 31, 1997.. 75.0 75.0
------- ------
New contracts............................ -- --
Matured or expired contracts............. -- --
Terminated contracts..................... -- --
------- ------
Notional amount as of December 31, 1998
(1)..................................... $ 75.0 $ 75.0
======= ======
</TABLE>
- --------
(1) In October 1997, in anticipation of debt offerings in 1998, ProLogis
entered into two interest rate protection agreements which have been
renewed past the original termination dates. These agreements were entered
into by ProLogis to fix the interest rate on anticipated financings.
90
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
During the third quarter of 1998, ProLogis determined that the interest
rate protection agreements would no longer qualify for hedge accounting
treatment under GAAP based upon the following:
. Due to changing conditions in the public debt markets, it was no longer
considered probable that ProLogis would complete the anticipated 1998
longer term debt offerings that prompted ProLogis to enter into these
interest rate protection agreements in 1997 (i.e., ProLogis would not be
exposed to the interest rate risk that these instruments were intended to
hedge); and
. ProLogis determined, through internal analysis and through communications
with independent third parties, that a high degree of correlation no
longer existed between changes in the market values of these interest
rate protection agreements and the "market values" of the anticipated
debt offerings (i.e., the interest rate at which the debt could be issued
by ProLogis under existing market conditions).
Accordingly, ProLogis began marking these agreements to market as of
September 30, 1998. For 1998, ProLogis recognized a non-cash expense of
$26.1 million. These agreements were terminated in February 1999 at a cost
of $27.0 million and were used to set the interest rate associated with the
$200.0 million secured financing transaction with MGT that is scheduled to
be completed in the first quarter of 1999.
(2) Deferred gains totaling $1.9 million on matured, expired or terminated
contracts were recorded on the balance sheet as of December 31, 1997.
These gains relate to the unwind of hedges placed for the February and
July 1997 offerings of senior unsecured debt offerings and are being
amortized over the term of the related debt.
On December 22, 1997, ProLogis entered into two separate contracts to (i)
exchange $373.8 million for 2.9 billion Swedish krona, and (ii) exchange 310.0
million German marks for $175.0 million in anticipation of the January 1998
acquisition and planned European currency denominated financing of
Frigoscandia AB by Frigoscandia S.A., ProLogis' unconsolidated subsidiary. The
contracts were marked to market as of December 31, 1997 and ProLogis
recognized a net loss of $6.0 million in 1997. Both contracts were settled
during the first quarter of 1998 at a net loss of $4.0 million. Accordingly,
ProLogis recognized a net gain of $2.0 million in 1998. These foreign currency
exchange hedges were one-time, non-recurring contracts that fixed the exchange
rate between the U.S. dollar and the Swedish krona and German mark. ProLogis
executed these hedges after the execution of the purchase agreement to acquire
Frigoscandia AB, which required payment in Swedish krona. The contracts were
executed exclusively for the acquisition and financing of Frigoscandia AB and
were not entered into to hedge on-going income in foreign currencies.
15. Commitments and Contingencies:
Environmental Matters
All of the facilities acquired by ProLogis have been subjected to Phase I
environmental reviews. While some of these assessments have led to further
investigation and sampling, none of the environmental assessments has
revealed, nor is ProLogis aware of any environmental liability (including
asbestos related liability) that ProLogis believes would have a material
adverse effect on ProLogis' business, financial condition or results of
operations.
16. Business Segments:
ProLogis has three reportable business 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 Garonor Holdings, an unconsolidated subsidiary)
and Mexico--each operating facility is considered to be an individual
operating segment having similar economic characteristics which are
combined within the reportable segment based upon geographic location;
91
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
. operation of refrigerated distribution facilities through unconsolidated
subsidiaries in the United States (ProLogis Logistics) and Europe
(Frigoscandia S.A.)--each subsidiary's operating facilities are
considered to be individual operating segments having similar economic
characteristics which are combined within the reportable segment based
upon geographic location; 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 (Kingspark S.A.)--the development activities of
ProLogis and its unconsolidated subsidiary are considered to be
individual operating segments having similar economic characteristics
which are combined within the reportable segment based upon geographic
location.
Reconciliations of the three reportable segments': (i) income from external
customers to ProLogis' total income; (ii) net operating income from external
customers to ProLogis' earnings from operations (ProLogis' chief operating
decision makers rely primarily on net operating income to make decisions about
allocating resources and assessing segment performance); and, (iii) assets to
ProLogis' total assets are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income:
Leasing activities:
United States.............................. $333,494 $283,909 $227,000
Europe (1)................................. 8,059 -- --
Mexico..................................... 3,499 624 --
-------- -------- --------
Total leasing activities segment......... 345,052 284,533 227,000
======== ======== ========
Refrigerated operations:
United States (2) (3)...................... 7,349 3,278 --
Europe (4) (5)............................. (7,535) -- --
-------- -------- --------
Total refrigerated operations segment.... (186) 3,278 --
-------- -------- --------
Development activities:
United States.............................. 17,137 12,374 5,342
Europe (United Kingdom) (6) (7)............ 2,915 -- --
Mexico..................................... 133 (83) --
-------- -------- --------
Total development activities segment..... 20,185 12,291 5,342
-------- -------- --------
Reconciling items:
Foreign currency exchange gains (losses),
net....................................... 2,938 (348) --
Foreign currency hedge income (expense).... 2,054 (6,028) --
Interest income............................ 2,752 2,392 1,121
-------- -------- --------
Total reconciling items.................. 7,744 (3,984) 1,121
-------- -------- --------
Total income............................. $372,795 $296,118 $233,463
======== ======== ========
</TABLE>
92
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net operating income:
Leasing activities:
United States.......................... $ 306,920 $ 256,953 $ 200,326
Europe (1)............................. 7,710 -- --
Mexico................................. 3,302 572 --
--------- --------- ---------
Total leasing activities segment..... 317,932 257,525 200,326
--------- --------- ---------
Refrigerated operations:
United States (2) (3).................. 7,349 3,278 --
Europe (4) (5)......................... (7,535) -- --
--------- --------- ---------
Total refrigerated operations
segment............................. (186) 3,278 --
--------- --------- ---------
Development activities:
United States.......................... 17,137 12,374 5,342
Europe (United Kingdom) (6) (7)........ 2,915 -- --
Mexico................................. 133 (83) --
--------- --------- ---------
Total development activities segment. 20,185 12,291 5,342
--------- --------- ---------
Reconciling items:
Foreign currency exchange gains
(losses), net......................... 2,938 (348) --
Foreign currency hedge income
(expense)............................. 2,054 (6,028) --
Interest income........................ 2,752 2,392 1,121
General and administrative expense..... (22,957) (6,855) (1,025)
REIT management fee paid to affiliate.. -- (17,791) (21,472)
Depreciation and amortization.......... (100,590) (76,562) (59,850)
Interest expense....................... (77,650) (52,704) (38,819)
Interest rate hedge expense............ (26,050) -- --
Costs incurred in acquiring management
companies from affiliate.............. -- (75,376) --
Other expense.......................... (7,983) (3,891) (2,913)
--------- --------- ---------
Total reconciling items.............. (227,486) (237,163) (122,958)
--------- --------- ---------
Earnings from operations................. $ 110,445 $ 35,931 $ 82,710
========= ========= =========
</TABLE>
93
<PAGE>
PROLOGIS TRUST
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets:
Leasing activities:
United States..................................... $3,073,248 $2,787,118
Europe (1)........................................ 309,639 --
Mexico............................................ 74,494 27,828
---------- ----------
Total leasing activities segment................ 3,457,381 2,814,946
---------- ----------
Refrigerated operations:
United States (2) (3)............................. 151,021 85,639
Europe (4)........................................ 221,566 --
---------- ----------
Total refrigerated operations segment........... 372,587 85,639
---------- ----------
Development activities:
United States..................................... 149,521 86,415
Europe (United Kingdom) (6)....................... 224,769 --
Mexico............................................ 16,465 3,522
---------- ----------
Total development activities segment............ 390,755 89,937
---------- ----------
Reconciling items:
Cash.............................................. 63,140 25,009
Accounts receivable............................... 1,313 167
Other assets...................................... 45,553 18,255
---------- ----------
Total reconciling items......................... 110,006 43,431
---------- ----------
Total assets...................................... $4,330,729 $3,033,953
========== ==========
</TABLE>
- --------
(1) Includes $6,000 of income recognized under the equity method of accounting
related to ProLogis' investment in Garonor Holdings. See Note 4 for
summarized financial information of Garonor Holdings.
(2) Represents amount recognized under the equity method of accounting related
to ProLogis' investment in ProLogis Logistics. See Note 4 for summarized
financial information of ProLogis Logistics.
(3) Includes one facility in Canada.
(4) Represents amount recognized under the equity method of accounting related
to ProLogis' investment in Frigoscandia S.A. See Note 4 for summarized
financial information of Frigoscandia S.A.
(5) Includes a net loss of $13.3 million from the remeasurement of
intercompany and other debt based on the foreign currency exchange rates
in effect as of December 31, 1998.
(6) Represents amount recognized under the equity method of accounting related
to ProLogis' investment in Kingspark S.A. See Note 4 for summarized
financial information of Kingspark S.A.
(7) Includes a net loss of $0.9 million from the remeasurement of intercompany
debt based on the foreign currency exchange rates in effect as of December
31, 1998.
ProLogis' largest customer accounted for 1.16% of ProLogis' 1998 rental
income (on an annualized basis), and the annualized base rent for ProLogis' 20
largest customers accounted for approximately 12.56% of ProLogis' 1998 rental
income (on an annualized basis).
94
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of ProLogis Trust:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of ProLogis Trust included in this Form 10-K, and
have issued our report thereon dated March 5, 1999. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
supplemental Schedule III--Real Estate and Accumulated Depreciation ("Schedule
III") is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
Schedule III has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
March 5, 1999
95
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried
ProLogis as of December 31, 1998
------------------- Costs Capitalized -------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating
Properties
Amsterdam,
Netherlands
Schiphol
Distribution
Center.......... 2 $6,322 $ -- $15,608 $6,761 $15,169 $21,930 $ (152)
Zaandam
Distribution
Center.......... 1 1,265 7,171 972 2,022 7,386 9,408 (183)
<CAPTION>
Date of
Construction/
Description Acquisition
----------- ---------------
<S> <C>
Operating
Properties
Amsterdam,
Netherlands
Schiphol
Distribution
Center.......... 1998
Zaandam
Distribution
Center.......... 1998
Atlanta, Georgia
Atlanta Airport
Distribution
Center.......... 6 3,437 -- 13,834 5,188 12,083 17,271 (598)
Atlanta NE
Distribution
Center.......... 8 5,582 3,047 24,278 6,276 26,631 32,907 (1,817)
Atlanta West
Distribution
Center.......... 20 6,771 34,785 10,109 6,776 44,889 51,665 (5,299)
Carter-Pacific
Business Center. 3 556 3,151 552 556 3,703 4,259 (362)
International
Airport
Industrial
Center.......... 9 (d) 2,939 14,146 4,926 2,972 19,039 22,011 (2,525)
LaGrange
Distribution
Center.......... 1 174 986 122 174 1,108 1,282 (167)
Northeast
Industrial
Center.......... 4 1,109 6,283 149 1,050 6,491 7,541 (609)
Northmont
Industrial
Center.......... 1 566 3,209 187 566 3,396 3,962 (482)
Oakcliff
Industrial
Center.......... 3 608 3,446 387 608 3,833 4,441 (466)
Olympic
Industrial
Center.......... 2 698 3,956 1,573 757 5,470 6,227 (520)
Peachtree
Commerce
Business Center. 4 (d) 707 4,004 676 707 4,680 5,387 (704)
Peachtree
Distribution
Center.......... 1 302 1,709 37 302 1,746 2,048 (232)
Piedmont Court
Distribution
Center.......... 2 885 5,013 483 885 5,496 6,381 (257)
Plaza Industrial
Center.......... 1 66 372 85 66 457 523 (53)
Pleasantdale
Industrial
Center.......... 2 541 3,184 403 541 3,587 4,128 (460)
Regency
Industrial
Center.......... 9 1,853 10,480 802 1,856 11,279 13,135 (1,579)
Riverside
Distribution
Center.......... 1 271 -- 2,939 294 2,916 3,210 (222)
Sullivan 75
Distribution
Center.......... 3 (d) 728 4,123 558 728 4,681 5,409 (638)
Tradeport
Distribution
Center.......... 3 1,464 4,563 5,267 1,479 9,815 11,294 (1,028)
Weaver
Distribution
Center.......... 2 935 5,182 577 935 5,759 6,694 (747)
Westfork
Industrial
Center.......... 10 2,483 14,115 697 2,483 14,812 17,295 (1,729)
Zip Industrial
Center.......... 4 533 3,023 (237) 485 2,834 3,319 --
Atlanta, Georgia
Atlanta Airport
Distribution
Center.......... 1996,1997, 1998
Atlanta NE
Distribution
Center.......... 1996,1997
Atlanta West
Distribution
Center.......... 1994,1996
Carter-Pacific
Business Center. 1995
International
Airport
Industrial
Center.......... 1994,1995
LaGrange
Distribution
Center.......... 1994
Northeast
Industrial
Center.......... 1996
Northmont
Industrial
Center.......... 1994
Oakcliff
Industrial
Center.......... 1995
Olympic
Industrial
Center.......... 1996
Peachtree
Commerce
Business Center. 1994
Peachtree
Distribution
Center.......... 1994
Piedmont Court
Distribution
Center.......... 1997
Plaza Industrial
Center.......... 1995
Pleasantdale
Industrial
Center.......... 1995
Regency
Industrial
Center.......... 1994
Riverside
Distribution
Center.......... 1997
Sullivan 75
Distribution
Center.......... 1994,1995
Tradeport
Distribution
Center.......... 1994,1996
Weaver
Distribution
Center.......... 1995
Westfork
Industrial
Center.......... 1995
Zip Industrial
Center.......... 1996
Austin, Texas
Corridor Park
Corporate
Center.......... 6 2,109 1,681 13,413 2,113 15,090 17,203 (1,406)
Montopolis
Distribution
Center.......... 1 580 3,384 657 580 4,041 4,621 (677)
Pecan Business
Center.......... 4 630 3,572 404 631 3,975 4,606 (452)
Austin, Texas
Corridor Park
Corporate
Center.......... 1995,1996
Montopolis
Distribution
Center.......... 1994
Pecan Business
Center.......... 1995
</TABLE>
96
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried as
To ProLogis of December 31, 1998
------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------ ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rutland
Distribution
Center.......... 2 $ 460 $ 2,617 $ 220 $ 462 $ 2,835 $ 3,297 $ (473)
Southpark
Corporate
Center.......... 7 1,946 -- 15,199 1,946 15,199 17,145 (1,576)
Walnut Creek
Corporate
Center.......... 12 2,707 5,649 16,134 2,707 21,783 24,490 (2,171)
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Rutland
Distribution
Center.......... 1993
Southpark
Corporate
Center.......... 1994,1995,1996
Walnut Creek
Corporate
Center.......... 1994,1995,1996
Birmingham,
Alabama
Oxmoor
Distribution
Center.......... 4 (d) 2,398 13,591 858 2,398 14,449 16,847 (2,213)
Perimeter
Distribution
Center.......... 2 2,489 14,109 645 2,490 14,753 17,243 (2,283)
Birmingham,
Alabama
Oxmoor
Distribution
Center.......... 1994
Perimeter
Distribution
Center.......... 1994
Charlotte, North
Carolina
Barringer
Industrial
Center.......... 3 308 1,746 476 308 2,222 2,530 (337)
Bond
Distribution
Center.......... 2 905 5,126 889 905 6,015 6,920 (937)
Charlotte
Commerce Center. 10 4,341 24,954 2,189 4,342 27,142 31,484 (4,130)
Charlotte
Distribution
Center.......... 9 4,579 -- 23,698 6,096 22,181 28,277 (1,423)
Interstate North
Business Park... 2 535 3,030 205 535 3,235 3,770 (180)
Northpark
Distribution
Center.......... 2 1,183 6,707 243 1,184 6,949 8,133 (396)
Charlotte, North
Carolina
Barringer
Industrial
Center.......... 1994
Bond
Distribution
Center.......... 1994
Charlotte
Commerce Center. 1994
Charlotte
Distribution
Center.......... 1995, 1996, 1997, 1998
Interstate North
Business Park... 1997
Northpark
Distribution
Center.......... 1994,1998
Chattanooga,
Tennessee
Stone Fort
Distribution
Center.......... 4 2,063 11,688 189 2,063 11,877 13,940 (1,685)
Tiftonia
Distribution
Center.......... 1 146 829 184 146 1,013 1,159 (122)
Chattanooga,
Tennessee
Stone Fort
Distribution
Center.......... 1994
Tiftonia
Distribution
Center.......... 1995
Chicago, Illinois
Addison
Distribution
Center.......... 1 646 3,662 393 640 4,061 4,701 (276)
Alsip
Distribution
Center.......... 1 1,268 7,185 3,680 1,273 10,860 12,133 (392)
Bedford Park
Distribution
Center.......... 1 473 2,678 40 473 2,718 3,191 (211)
Bensenville
Distribution
Center.......... 2 1,668 9,448 2,506 1,667 11,955 13,622 (370)
Bridgeview
Distribution
Center.......... 4 1,302 7,378 675 1,303 8,052 9,355 (668)
Des Plaines
Distribution
Center.......... 3 2,158 12,232 590 2,159 12,821 14,980 (1,190)
Elk Grove
Distribution
Center.......... 10 (d) 4,024 22,798 2,685 4,023 25,484 29,507 (2,197)
Elmhurst
Distribution
Center.......... 1 713 4,043 60 713 4,103 4,816 (209)
Glenview
Distribution
Center.......... 1 (d) 214 1,213 49 214 1,262 1,476 (95)
Itasca
Distribution
Center.......... 3 1,613 9,143 162 1,613 9,305 10,918 (302)
Mitchell
Distribution
Center.......... 1 (d) 1,236 7,004 606 1,236 7,610 8,846 (641)
North Avenue
Distribution
Center.......... 3 3,201 -- 17,185 3,934 16,452 20,386 (140)
Northlake
Distribution
Center.......... 1 372 2,106 51 372 2,157 2,529 (192)
O'Hare Cargo
Distribution
Center.......... 2 3,566 -- 13,115 5,924 10,757 16,681 (126)
Remington Lakes
Business Park... 1 1,023 -- 6,510 1,193 6,340 7,533 --
Tri-Center
Distribution
Center.......... 3 889 5,038 263 889 5,301 6,190 (402)
Woodale
Distribution
Center.......... 1 263 1,490 64 263 1,554 1,817 (82)
Chicago, Illinois
Addison
Distribution
Center.......... 1997
Alsip
Distribution
Center.......... 1998
Bedford Park
Distribution
Center.......... 1996
Bensenville
Distribution
Center.......... 1997, 1998
Bridgeview
Distribution
Center.......... 1996
Des Plaines
Distribution
Center.......... 1995, 1996
Elk Grove
Distribution
Center.......... 1995,1996,1997,1998
Elmhurst
Distribution
Center.......... 1997
Glenview
Distribution
Center.......... 1996
Itasca
Distribution
Center.......... 1996, 1997, 1998
Mitchell
Distribution
Center.......... 1996
North Avenue
Distribution
Center.......... 1997, 1998
Northlake
Distribution
Center.......... 1996
O'Hare Cargo
Distribution
Center.......... 1997
Remington Lakes
Business Park... 1998
Tri-Center
Distribution
Center.......... 1996
Woodale
Distribution
Center.......... 1997
</TABLE>
97
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried
to ProLogis as of December 31, 1998
------------------- Costs Capitalized -------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cincinnati, Ohio
Airpark
Distribution
Center.......... 3 $2,126 $ -- $14,010 $2,380 $13,756 $16,136 $ (988)
Blue
Ash/Interstate
Distribution
Center.......... 1 144 817 497 144 1,314 1,458 (130)
Capital
Distribution
Center I........ 4 1,750 9,922 924 1,751 10,845 12,596 (1,400)
Capital
Distribution
Center II....... 5 1,953 11,067 1,334 1,953 12,401 14,354 (1,681)
Capital
Industrial
Center I........ 10 1,039 5,885 1,475 1,039 7,360 8,399 (913)
Empire
Distribution
Center.......... 3 529 2,995 442 529 3,437 3,966 (374)
Kentucky Drive
Business Center. 4 553 3,134 583 553 3,717 4,270 (219)
Princeton
Distribution
Center.......... 1 816 -- 4,182 1,070 3,928 4,998 --
Production
Distribution
Center.......... 2 (e) 717 2,717 2,505 700 5,239 5,939 (389)
Sharonville
Distribution
Center.......... 3 1,761 -- 11,167 2,426 10,502 12,928 (216)
Springdale
Commerce Center. 3 421 2,384 858 421 3,242 3,663 (315)
Union Center
Business Park... 1 409 -- 9,576 580 9,405 9,985 --
<CAPTION>
Date of
Construction/
Description Acquisition
----------- ---------------
<S> <C>
Cincinnati, Ohio
Airpark
Distribution
Center.......... 1996,1998
Blue
Ash/Interstate
Distribution
Center.......... 1995
Capital
Distribution
Center I........ 1994
Capital
Distribution
Center II....... 1994
Capital
Industrial
Center I........ 1994,1995
Empire
Distribution
Center.......... 1995
Kentucky Drive
Business Center. 1997
Princeton
Distribution
Center.......... 1997
Production
Distribution
Center.......... 1994,1998
Sharonville
Distribution
Center.......... 1997,1998
Springdale
Commerce Center. 1996
Union Center
Business Park... 1998
Columbus, Ohio
Capital Park
South
Distribution
Center.......... 4 2,266 -- 25,076 2,297 25,045 27,342 (1,706)
Columbus West
Industrial
Center.......... 3 645 3,655 691 645 4,346 4,991 (501)
Corporate Park
West............ 2 679 3,849 242 679 4,091 4,770 (342)
Fisher
Distribution
Center.......... 1 1,197 6,785 759 1,197 7,544 8,741 (988)
International
Street Commerce. 1 235 -- 2,815 249 2,801 3,050 (34)
McCormick
Distribution
Center.......... 5 1,664 9,429 1,056 1,664 10,485 12,149 (1,410)
New World
Distribution
Center.......... 1 207 1,173 548 207 1,721 1,928 (242)
Westbelt
Business Center. 2 465 2,635 115 465 2,750 3,215 (69)
Columbus, Ohio
Capital Park
South
Distribution
Center.......... 1996,1998
Columbus West
Industrial
Center.......... 1995
Corporate Park
West............ 1996
Fisher
Distribution
Center.......... 1995
International
Street Commerce. 1997
McCormick
Distribution
Center.......... 1994
New World
Distribution
Center.......... 1994
Westbelt
Business Center. 1998
Dallas/Fort
Worth, Texas
Carter
Industrial
Center.......... 1 334 -- 2,323 334 2,323 2,657 (190)
Dallas Corporate
Center.......... 9 (d) 4,753 -- 26,751 4,900 26,604 31,504 (1,494)
Franklin
Distribution
Center.......... 2 528 2,991 736 528 3,727 4,255 (575)
Freeport
Distribution
Center.......... 4 1,393 5,549 3,280 1,440 8,782 10,222 (388)
Great Southwest
Distribution
Center.......... 16 (d) 4,848 19,430 10,590 4,966 29,902 34,868 (2,308)
Great Southwest
Industrial
Center I........ 2 (d) 308 1,744 178 308 1,922 2,230 (203)
Great Southwest
Industrial
Center II....... 1 836 -- 6,077 1,010 5,903 6,913 --
Lone Star
Distribution
Center.......... 2 967 5,477 214 967 5,691 6,658 (498)
Metropolitan
Distribution
Center.......... 1 201 1,097 722 297 1,723 2,020 (192)
Dallas/Fort
Worth, Texas
Carter
Industrial
Center.......... 1996
Dallas Corporate
Center.......... 1996,1997, 1998
Franklin
Distribution
Center.......... 1994
Freeport
Distribution
Center.......... 1996,1997, 1998
Great Southwest
Distribution 1994,1995,1996,
Center.......... 1997,1998
Great Southwest
Industrial
Center I........ 1995
Great Southwest
Industrial
Center II....... 1997
Lone Star
Distribution
Center.......... 1996
Metropolitan
Distribution
Center.......... 1995
</TABLE>
98
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried
to ProLogis as of December 31, 1998
------------------- Costs Capitalized -------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northgate
Distribution
Center.......... 5 $1,570 $ 8,897 $ 898 $1,570 $ 9,795 $11,365 $(1,348)
Northpark
Business Center. 2 467 2,648 226 467 2,874 3,341 (272)
Redbird
Distribution
Center.......... 1 196 1,112 78 196 1,190 1,386 (195)
Royal Commerce
Center.......... 4 (d) 1,975 11,190 460 1,975 11,650 13,625 (504)
Stemmons
Distribution
Center.......... 1 272 1,544 473 272 2,017 2,289 (239)
Stemmons
Industrial
Center.......... 11 1,497 8,484 1,526 1,497 10,010 11,507 (1,228)
Trinity Mills
Distribution
Center.......... 4 (d) 1,709 9,684 1,197 1,709 10,881 12,590 (972)
<CAPTION>
Date of Construction/
Description Acquisition
----------- ------------------------
<S> <C>
Northgate
Distribution
Center.......... 1994,1996
Northpark
Business Center. 1995,1996
Redbird
Distribution
Center.......... 1994
Royal Commerce
Center.......... 1997
Stemmons
Distribution
Center.......... 1995
Stemmons
Industrial
Center.......... 1994,1995,1996
Trinity Mills
Distribution
Center.......... 1996
Denver, Colorado
Denver Business
Center.......... 6 1,687 7,486 10,470 1,742 17,901 19,643 (1,929)
Havana
Distribution
Center.......... 1 401 2,281 240 401 2,521 2,922 (440)
Moline
Distribution
Center.......... 1 327 1,850 159 327 2,009 2,336 (323)
Moncrieff
Distribution
Center.......... 1 314 2,493 401 314 2,894 3,208 (559)
Pagosa
Distribution
Center.......... 1 406 2,322 407 406 2,729 3,135 (514)
Upland
Distribution
Center I........ 6 820 5,710 8,015 821 13,724 14,545 (2,234)
Upland
Distribution
Center II....... 6 2,456 13,946 974 2,489 14,887 17,376 (2,600)
Denver, Colorado
Denver Business
Center.......... 1992,1994,1996,1998
Havana
Distribution
Center.......... 1993
Moline
Distribution
Center.......... 1994
Moncrieff
Distribution
Center.......... 1992
Pagosa
Distribution
Center.......... 1993
Upland
Distribution
Center I........ 1992,1994,1995
Upland
Distribution
Center II....... 1993,1994
East Bay (San
Francisco),
California
East Bay
Industrial
Center.......... 1 531 3,009 187 531 3,196 3,727 (472)
Eigenbrodt Way
Distribution
Center.......... 1 (d) 393 2,228 83 393 2,311 2,704 (387)
Hayward Commerce
Center.......... 4 1,933 10,955 518 1,933 11,473 13,406 (1,920)
Hayward Commerce
Park............ 9 2,764 15,661 1,740 2,764 17,401 20,165 (2,837)
Hayward
Distribution
Center.......... 6 (f) 2,906 19,165 729 3,327 19,473 22,800 (3,227)
Hayward
Industrial
Center.......... 13 (d) 4,481 25,393 1,545 4,481 26,938 31,419 (4,490)
Patterson Pass
Business Center. 7 3,340 4,885 13,921 3,530 18,616 22,146 (1,044)
San Leandro
Distribution
Center.......... 3 1,387 7,862 258 1,387 8,120 9,507 (1,382)
East Bay (San
Francisco),
California
East Bay
Industrial
Center.......... 1994
Eigenbrodt Way
Distribution
Center.......... 1993
Hayward Commerce
Center.......... 1993
Hayward Commerce
Park............ 1994
Hayward
Distribution
Center.......... 1993
Hayward
Industrial
Center.......... 1993
Patterson Pass
Business Center. 1993,1997,1998
San Leandro
Distribution
Center.......... 1993
El Paso, Texas
Billy the Kid
Distribution
Center.......... 1 273 1,547 526 273 2,073 2,346 (297)
Broadbent
Industrial
Center.......... 3 676 5,183 473 676 5,656 6,332 (1,069)
Goodyear
Distribution
Center.......... 1 511 2,899 61 511 2,960 3,471 (453)
Northwestern
Corporate
Center.......... 6 1,552 -- 16,507 2,205 15,854 18,059 (1,548)
Pan Am
Distribution
Center.......... 1 318 -- 2,370 318 2,370 2,688 (306)
Peter Cooper
Distribution
Center.......... 1 (d) 495 2,816 88 495 2,904 3,399 (441)
Vista Corporate
Center.......... 4 1,945 -- 10,922 1,946 10,921 12,867 (1,183)
Vista Del Sol
Industrial
Center.......... 10 (d) 3,501 12,782 19,796 4,893 31,186 36,079 (3,165)
El Paso, Texas
Billy the Kid
Distribution
Center.......... 1994
Broadbent
Industrial
Center.......... 1993
Goodyear
Distribution
Center.......... 1994
Northwestern
Corporate
Center.......... 1992,1993,1994,1997,1998
Pan Am
Distribution
Center.......... 1995
Peter Cooper
Distribution
Center.......... 1994
Vista Corporate
Center.......... 1994,1995,1996
Vista Del Sol
Industrial
Center.......... 1994,1995,1996
</TABLE>
99
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried
to ProLogis as of December 31, 1998
------------------- Costs Capitalized -------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fort
Lauderdale/Miami,
Florida
Airport West
Distribution
Center.......... 2 $1,253 $ 3,825 $ 3,399 $1,973 $ 6,504 $ 8,477 $ (408)
Copans
Distribution
Center.......... 2 504 2,857 389 504 3,246 3,750 (175)
North Andrews
Distribution
Center.......... 1 (e) 698 3,956 92 698 4,048 4,746 (562)
Port 95
Distribution
Center I........ 5 4,874 6,654 21,225 6,531 26,222 32,753 (1,030)
<CAPTION>
Date of Construction/
Description Acquisition
----------- -----------------------------
<S> <C>
Fort
Lauderdale/Miami,
Florida
Airport West
Distribution
Center.......... 1995,1998
Copans
Distribution
Center.......... 1997,1998
North Andrews
Distribution
Center.......... 1994
Port 95
Distribution
Center I........ 1995,1997,1998
Houston, Texas
Crosstimbers
Distribution
Center.......... 1 359 2,035 434 359 2,469 2,828 (383)
Hempstead
Distribution
Center.......... 3 1,013 5,740 679 1,013 6,419 7,432 (1,006)
I-10 Central
Distribution
Center.......... 2 181 1,023 190 181 1,213 1,394 (190)
I-10 Central
Service Center.. 1 58 330 105 58 435 493 (67)
Pine Forest
Business Center. 18 (d) 4,859 27,557 2,168 4,859 29,725 34,584 (3,790)
Post Oak
Business Center. 16 (d) 3,462 17,966 4,467 3,462 22,433 25,895 (3,036)
Post Oak
Distribution
Center.......... 7 (d) 2,115 12,017 2,308 2,115 14,325 16,440 (2,399)
South Loop
Distribution
Center.......... 5 1,051 5,964 1,706 1,052 7,669 8,721 (1,042)
Southwest
Freeway
Industrial
Center.......... 1 84 476 144 84 620 704 (79)
West by
Northwest
Industrial
Center.......... 16 4,132 8,382 32,150 4,368 40,296 44,664 (3,425)
White Street
Distribution
Center.......... 1 469 2,656 232 469 2,888 3,357 (368)
Houston, Texas
Crosstimbers
Distribution
Center.......... 1994
Hempstead
Distribution
Center.......... 1994
I-10 Central
Distribution
Center.......... 1994
I-10 Central
Service Center.. 1994
Pine Forest
Business Center. 1993,1994,1995
Post Oak
Business Center. 1993,1994,1996
Post Oak
Distribution
Center.......... 1993,1994
South Loop
Distribution
Center.......... 1994
Southwest
Freeway
Industrial
Center.......... 1994
West by
Northwest
Industrial
Center.......... 1993,1994,1995,1996,1997,1998
White Street
Distribution
Center.......... 1995
Indianapolis,
Indiana
Eastside
Distribution
Center.......... 2 471 2,668 289 472 2,956 3,428 (302)
North by
Northeast
Distribution
Center.......... 1 1,058 -- 5,964 1,059 5,963 7,022 (788)
Park 100
Industrial
Center.......... 24 9,770 55,369 4,088 9,665 59,562 69,227 (6,707)
Indianapolis,
Indiana
Eastside
Distribution
Center.......... 1995
North by
Northeast
Distribution
Center.......... 1995
Park 100
Industrial
Center.......... 1994,1995
</TABLE>
100
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried
to ProLogis as of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Park Fletcher
Distribution
Center.......... 9 $ 2,687 $15,224 $ 1,863 $ 2,736 $17,038 $19,774 $(1,771)
Plainfield Park
Distribution
Center.......... 2 885 -- 8,460 1,389 7,956 9,345 --
Shadeland
Industrial
Center.......... 3 428 2,431 585 429 3,015 3,444 (350)
<CAPTION>
Date of
Construction/
Description Acquisition
----------- -------------------
<S> <C>
Park Fletcher
Distribution
Center.......... 1994,1995,1996
Plainfield Park
Distribution
Center.......... 1997,1998
Shadeland
Industrial
Center.......... 1995
Juarez, Mexico
Salvarcar
Industrial
Center.......... 3 1,509 -- 6,899 2,066 6,342 8,408 (121)
Juarez, Mexico
Salvarcar
Industrial
Center.......... 1998
Kansas City,
Kansas/Missouri
44th Street
Business Center. 1 143 813 319 143 1,132 1,275 (106)
Congleton
Distribution
Center.......... 3 518 2,937 341 518 3,278 3,796 (478)
Executive Park
Distribution
Center.......... 1 (d) 258 1,463 42 258 1,505 1,763 (17)
Lamar
Distribution
Center.......... 1 323 1,829 529 323 2,358 2,681 (366)
Macon Bedford
Distribution
Center.......... 1 304 1,725 389 304 2,114 2,418 (199)
Platte Valley
Industrial
Center.......... 11 (d) 3,867 20,017 6,121 4,002 26,003 30,005 (3,050)
Riverside
Distribution
Center.......... 5 (d) 533 3,024 731 534 3,754 4,288 (524)
Riverside
Industrial
Center.......... 5 (d) 1,012 5,736 372 1,012 6,108 7,120 (850)
Terrace &
Lackman
Distribution
Center.......... 1 285 1,615 432 285 2,047 2,332 (304)
Kansas City,
Kansas/Missouri
44th Street
Business Center. 1996
Congleton
Distribution
Center.......... 1994
Executive Park
Distribution
Center.......... 1998
Lamar
Distribution
Center.......... 1994
Macon Bedford
Distribution
Center.......... 1996
Platte Valley
Industrial
Center.......... 1994,1997
Riverside
Distribution
Center.......... 1994
Riverside
Industrial
Center.......... 1994
Terrace &
Lackman
Distribution
Center.......... 1994
Las Vegas, Nevada
Black Mountain
Distribution
Center.......... 2 1,108 -- 6,547 1,206 6,449 7,655 (122)
Hughes Airport
Center.......... 1 876 -- 3,331 910 3,297 4,207 (495)
Las Vegas
Corporate
Center.......... 7 (f) 4,157 -- 21,198 4,763 20,592 25,355 (1,795)
West One
Business Center. 4 (d) 2,468 13,985 467 2,468 14,452 16,920 (1,125)
Las Vegas, Nevada
Black Mountain
Distribution
Center.......... 1997
Hughes Airport
Center.......... 1994
Las Vegas
Corporate
Center.......... 1994,1995,1996,1997
West One
Business Center. 1996
Los Angeles /
Orange County,
California
Foothill
Business Center. 3 (g) 5,530 -- 14,305 5,814 14,021 19,835 (338)
Freeway
Distribution
Center.......... 3 (g) 3,305 18,729 130 3,305 18,859 22,164 (744)
Mid-Counties
Distribution
Center.......... 8 (g) 16,082 15,895 22,801 19,177 35,601 54,778 (2,125)
North County
Distribution
Center.......... 2 (g) 16,543 -- 22,415 16,374 22,584 38,958 (1,665)
Ontario
Distribution
Center.......... 5 (g) 8,085 45,817 369 8,085 46,186 54,271 --
Pacific Business
Center.......... 5 (g) 4,196 -- 21,291 4,379 21,108 25,487 (850)
Santa Ana
Distribution
Center.......... 1 (g) 647 3,668 63 647 3,731 4,378 (497)
Union Pacific
Distribution
Center.......... 1 559 3,166 6 559 3,172 3,731 --
Los Angeles /
Orange County,
California
Foothill
Business Center. 1997,1998
Freeway
Distribution
Center.......... 1997
Mid-Counties
Distribution
Center.......... 1995,1997,1998
North County
Distribution
Center.......... 1996
Ontario
Distribution
Center.......... 1998
Pacific Business
Center.......... 1996,1997
Santa Ana
Distribution
Center.......... 1994
Union Pacific
Distribution
Center.......... 1998
</TABLE>
101
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Louisville,
Kentucky
Airpark Commerce
Center........... 3 $ 1,361 $ 7,715 $ 351 $ 1,361 $ 8,066 $ 9,427 $ (131)
Louisville
Distribution
Center........... 3 1,298 3,402 10,562 1,329 13,933 15,262 (456)
<CAPTION>
Date of Construction/
Description Acquisition
----------- ------------------------
<S> <C>
Louisville,
Kentucky
Airpark Commerce
Center........... 1998
Louisville
Distribution
Center........... 1995,1996,1998
Lyon, France......
L'Isle d'Abeau
Distribution
Center........... 2 (d) 2,495 7,062 7,559 2,652 14,464 17,116 (302)
Lyon, France......
L'Isle d'Abeau
Distribution
Center........... 1997,1998
Memphis, Tennessee
Airport
Distribution
Center........... 14 3,923 22,233 3,917 3,923 26,150 30,073 (2,906)
Delp
Distribution
Center........... 8 2,308 13,079 2,424 2,308 15,503 17,811 (1,756)
Fred Jones
Distribution
Center........... 1 125 707 88 125 795 920 (110)
Raines
Distribution
Center........... 1 (d) 1,635 9,264 2,458 1,635 11,722 13,357 (325)
Memphis, Tennessee
Airport
Distribution
Center........... 1995,1996
Delp
Distribution
Center........... 1995,1997
Fred Jones
Distribution
Center........... 1994
Raines
Distribution
Center........... 1998
Monterrey, Mexico
Monterrey
Industrial Park.. 5 2,714 3,785 9,015 3,773 11,741 15,514 (407)
Ojo de Agua
Industrial
Center........... 1 983 -- 5,438 1,138 5,283 6,421 (15)
Monterrey, Mexico
Monterrey
Industrial Park.. 1997,1998
Ojo de Agua
Industrial
Center........... 1998
Nashville,
Tennessee
Bakertown
Distribution
Center.......... 2 463 2,626 151 463 2,777 3,240 (289)
I-40 Industrial
Center.......... 3 665 3,774 240 666 4,013 4,679 (479)
Interchange City
Distribution
Center.......... 7 3,524 12,585 8,967 4,279 20,797 25,076 (1,359)
Space Park South
Distribution
Center.......... 15 3,499 19,830 2,388 3,499 22,218 25,717 (3,071)
Nashville,
Tennessee
Bakertown
Distribution
Center.......... 1995
I-40 Industrial
Center.......... 1995,1996
Interchange City
Distribution
Center.......... 1994,1995,1996,1997,1998
Space Park South
Distribution
Center.......... 1994
New Jersey / I-95
Corridor
Brunswick
Distribution
Center.......... 2 870 4,928 1,451 870 6,379 7,249 (453)
Clearview
Distribution
Center.......... 1 2,232 12,648 318 2,232 12,966 15,198 (903)
Cranbury
Business Park... 2 3,022 -- 20,918 5,361 18,579 23,940 (90)
Kilmer
Distribution
Center.......... 4 2,526 14,313 630 2,526 14,943 17,469 (1,100)
Meadowland
Industrial
Center.......... 8 5,676 32,167 10,882 5,677 43,048 48,725 (2,094)
National
Distribution
Center.......... 2 513 2,908 796 513 3,704 4,217 (58)
New Jersey / I-95
Corridor
Brunswick
Distribution
Center.......... 1997
Clearview
Distribution
Center.......... 1996
Cranbury
Business Park... 1998
Kilmer
Distribution
Center.......... 1996
Meadowland
Industrial
Center.......... 1996,1998
National
Distribution
Center.......... 1998
Oklahoma City,
Oklahoma
Melcat
Distribution
Center.......... 1 240 1,363 366 240 1,729 1,969 (237)
Meridian
Business Center. 2 195 1,109 563 196 1,671 1,867 (208)
Oklahoma
Distribution
Center.......... 3 893 5,082 646 893 5,728 6,621 (1,017)
Oklahoma City,
Oklahoma
Melcat
Distribution
Center.......... 1994
Meridian
Business Center. 1994
Oklahoma
Distribution
Center.......... 1993
</TABLE>
102
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orlando, Florida
33rd Street
Industrial
Center.......... 9 (d)(e) $ 1,980 $ 11,237 $ 886 $ 1,980 $ 12,123 $ 14,103 $ (1,360)
Chancellor
Distribution
Center.......... 1 380 2,156 1,077 380 3,233 3,613 (375)
La Quinta
Distribution
Center.......... 1 354 2,006 576 354 2,582 2,936 (329)
Orlando Central
Park............ 3 1,378 -- 9,080 1,871 8,587 10,458 (210)
Titusville
Industrial
Center.......... 1 (d) 283 1,603 86 283 1,689 1,972 (231)
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Orlando, Florida
33rd Street
Industrial
Center.......... 1994,1995,1996
Chancellor
Distribution
Center.......... 1994
La Quinta
Distribution
Center.......... 1994
Orlando Central
Park............ 1997,1998
Titusville
Industrial
Center.......... 1994
Paris, France
Epone
Distribution
Center.......... 1 255 3,952 -- 255 3,952 4,207 (11)
Longjumeau
Distribution
Center.......... 1 (d) 1,233 6,988 663 1,343 7,541 8,884 (166)
Mitry Mory
Distribution
Center.......... 1 (d) 1,083 6,137 1,286 1,313 7,193 8,506 (362)
Oceanie
Distribution
Center.......... 1 (d) 389 7,068 -- 389 7,068 7,457 (39)
Paris, France
Epone
Distribution
Center.......... 1998
Longjumeau
Distribution
Center.......... 1998
Mitry Mory
Distribution
Center.......... 1997
Oceanie
Distribution
Center.......... 1998
Phoenix, Arizona
24th Street
Industrial
Center.......... 2 503 2,852 288 503 3,140 3,643 (528)
Alameda
Distribution
Center.......... 2 820 4,977 318 820 5,295 6,115 (633)
Hohokam 10
Industrial
Center.......... 5 2,940 -- 11,434 2,941 11,433 14,374 (982)
I-10 West
Business Center. 3 263 1,525 147 263 1,672 1,935 (306)
Kyrene Commons
Distribution
Center.......... 2 586 2,656 1,251 587 3,906 4,493 (644)
Kyrene Commons
South
Distribution
Center.......... 2 1,096 -- 4,338 1,163 4,271 5,434 (49)
Martin Van Buren
Distribution
Center.......... 6 572 3,285 448 572 3,733 4,305 (592)
Papago
Distribution
Center.......... 1 420 2,383 99 420 2,482 2,902 (392)
Pima
Distribution
Center.......... 1 306 1,742 216 306 1,958 2,264 (333)
Watkins
Distribution
Center.......... 1 242 1,375 192 243 1,566 1,809 (210)
Phoenix, Arizona
24th Street
Industrial
Center.......... 1994
Alameda
Distribution
Center.......... 1992,1998
Hohokam 10
Industrial
Center.......... 1996
I-10 West
Business Center. 1993
Kyrene Commons
Distribution
Center.......... 1992,1998
Kyrene Commons
South
Distribution
Center.......... 1998
Martin Van Buren
Distribution
Center.......... 1993,1994
Papago
Distribution
Center.......... 1994
Pima
Distribution
Center.......... 1993
Watkins
Distribution
Center.......... 1995
Portland, Oregon
Argyle
Distribution
Center.......... 3 946 5,388 448 946 5,836 6,782 (983)
Columbia
Distribution
Center.......... 2 550 3,121 192 551 3,312 3,863 (456)
Jennifer
Distribution
Center.......... 1 915 -- 3,978 1,222 3,671 4,893 (49)
PDX Corporate
Center East..... 4 (f) 2,198 -- 13,647 3,573 12,272 15,845 (376)
PDX Corporate
Center North.... 7 (f) 2,405 -- 10,648 2,542 10,511 13,053 (1,080)
The Evergreen
Park............ 4 1,092 -- 7,537 1,533 7,096 8,629 --
Wilsonville
Corporate
Center.......... 6 (f) 2,963 -- 11,548 2,964 11,547 14,511 (1,212)
Portland, Oregon
Argyle
Distribution
Center.......... 1993
Columbia
Distribution
Center.......... 1994
Jennifer
Distribution
Center.......... 1998
PDX Corporate
Center East..... 1997,1998
PDX Corporate
Center North.... 1995,1996
The Evergreen
Park............ 1997
Wilsonville
Corporate
Center.......... 1995,1996
</TABLE>
103
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reno, Nevada
Golden Valley
Distribution
Center.......... 2 $ 560 $ -- $ 9,306 $ 2,028 $ 7,838 $ 9,866 $ (344)
Meredith Kleppe
Business Center. 5 1,573 8,949 1,068 1,573 10,017 11,590 (1,684)
Pacific
Industrial
Center.......... 4 2,501 -- 10,651 2,501 10,651 13,152 (1,226)
Packer Way
Business Center. 3 458 2,604 499 458 3,103 3,561 (534)
Packer Way
Distribution
Center.......... 2 506 2,879 359 506 3,238 3,744 (568)
Spice Island
Distribution
Center.......... 1 435 2,466 1,075 435 3,541 3,976 (262)
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Reno, Nevada
Golden Valley
Distribution
Center.......... 1996,1998
Meredith Kleppe
Business Center. 1993
Pacific
Industrial
Center.......... 1994,1995
Packer Way
Business Center. 1993
Packer Way
Distribution
Center.......... 1993
Spice Island
Distribution
Center.......... 1996
Reynosa, Mexico
Del Norte
Industrial
Center.......... 2 809 -- 5,976 1,011 5,774 6,785 (36)
Reynosa
Industrial
Center.......... 5 1,810 1,038 10,572 2,076 11,344 13,420 (155)
Reynosa, Mexico
Del Norte
Industrial
Center.......... 1998
Reynosa
Industrial
Center.......... 1997,1998
Rio Grande
Valley, Texas
McAllen
Distribution
Center.......... 1 452 -- 6,224 530 6,146 6,676 --
Rio Grande
Distribution
Center.......... 5 (d) 527 2,987 660 527 3,647 4,174 (412)
Rio Grande
Industrial
Center.......... 8 (d) 2,188 12,399 1,839 2,188 14,238 16,426 (1,659)
Valley
Industrial
Center.......... 1 230 -- 3,745 363 3,612 3,975 (103)
Rio Grande
Valley, Texas
McAllen
Distribution
Center.......... 1998
Rio Grande
Distribution
Center.......... 1995
Rio Grande
Industrial
Center.......... 1995
Valley
Industrial
Center.......... 1997
Rotterdam,
Netherlands
Eamhaven
Industrial Park. 2 -- 7,562 8,458 -- 16,020 16,020 (544)
Rotterdam,
Netherlands
Eamhaven
Industrial Park. 1997,1998
Salt Lake City,
Utah
Centennial
Distribution
Center.......... 2 1,149 -- 8,289 1,149 8,289 9,438 (944)
Clearfield
Distribution
Center.......... 2 2,500 14,165 506 2,481 14,690 17,171 (1,505)
Crossroads
Corporate
Center.......... 1 816 -- 4,940 898 4,858 5,756 --
Salt Lake
International
Distribution
Center.......... 2 1,364 2,792 7,724 1,364 10,516 11,880 (888)
Salt Lake City,
Utah
Centennial
Distribution
Center.......... 1995
Clearfield
Distribution
Center.......... 1995
Crossroads
Corporate
Center.......... 1998
Salt Lake
International
Distribution
Center.......... 1994,1996
San Antonio,
Texas
10711
Distribution
Center.......... 2 582 3,301 497 582 3,798 4,380 (633)
Coliseum
Distribution
Center.......... 2 1,102 2,380 10,387 1,613 12,256 13,869 (1,665)
Distribution
Drive Center.... 1 473 2,680 563 473 3,243 3,716 (640)
Downtown
Distribution
Center.......... 1 241 1,364 227 241 1,591 1,832 (269)
I-10 Central
Distribution
Center.......... 1 223 1,275 178 240 1,436 1,676 (317)
I-35 Business
Center.......... 4 663 3,773 485 663 4,258 4,921 (800)
Landmark One
Distribution
Center.......... 1 341 1,933 315 341 2,248 2,589 (326)
Macro
Distribution
Center.......... 1 225 1,282 219 225 1,501 1,726 (294)
San Antonio,
Texas
10711
Distribution
Center.......... 1994
Coliseum
Distribution
Center.......... 1994,1995
Distribution
Drive Center.... 1992
Downtown
Distribution
Center.......... 1994
I-10 Central
Distribution
Center.......... 1992
I-35 Business
Center.......... 1993
Landmark One
Distribution
Center.......... 1994
Macro
Distribution
Center.......... 1993
</TABLE>
104
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Perrin Creek
Corporate
Center.......... 6 $ 1,547 $ -- $ 9,646 $ 1,635 $ 9,558 $ 11,193 $ (735)
San Antonio
Distribution
Center I........ 13 2,154 12,247 2,842 2,154 15,089 17,243 (3,087)
San Antonio
Distribution
Center II....... 3 969 -- 5,693 885 5,777 6,662 (879)
San Antonio
Distribution
Center III...... 7 2,042 9,684 3,390 1,709 13,407 15,116 (986)
Tri-County
Distribution
Center.......... 1 496 -- 5,887 680 5,703 6,383 --
Woodlake
Distribution
Center.......... 2 248 1,405 91 248 1,496 1,744 (235)
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Perrin Creek
Corporate
Center.......... 1995,1996
San Antonio
Distribution
Center I........ 1992,1993,1994
San Antonio
Distribution
Center II....... 1994
San Antonio
Distribution
Center III...... 1996,1998
Tri-County
Distribution
Center.......... 1997
Woodlake
Distribution
Center.......... 1994
San Diego,
California
Carmel Mountain
Ranch Industrial
Center.......... 3 3,732 -- 9,688 3,773 9,647 13,420 (518)
San Diego,
California
Carmel Mountain
Ranch Industrial
Center.......... 1996,1997
Seattle,
Washington
Andover East
Business Center. 2 535 3,033 237 535 3,270 3,805 (471)
Fife Corporate
Center.......... 3 4,059 -- 9,859 4,209 9,709 13,918 (622)
Kent Corporate
Center.......... 2 (f) 2,882 1,987 8,398 3,216 10,051 13,267 (1,234)
Van Doren's
Distribution
Center.......... 2 (f) 2,473 -- 8,638 2,860 8,251 11,111 (505)
Seattle,
Washington
Andover East
Business Center. 1994
Fife Corporate
Center.......... 1996
Kent Corporate
Center.......... 1995
Van Doren's
Distribution
Center.......... 1995,1997
South Bay (San
Francisco),
California
Bayside Business
Center.......... 2 (f) 2,088 -- 4,454 2,088 4,454 6,542 (300)
Bayside
Corporate
Center.......... 7 (f) 4,365 -- 15,824 4,365 15,824 20,189 (2,106)
Bayside Plaza I. 12 (f) 5,212 18,008 625 5,216 18,629 23,845 (3,131)
Bayside Plaza
II.............. 2 (f) 634 -- 2,844 634 2,844 3,478 (666)
Gateway
Corporate
Center.......... 11 (d)(f) 7,575 24,746 3,945 7,575 28,691 36,266 (5,057)
Mowry Business
Center.......... 4 5,933 -- 17,579 7,815 15,697 23,512 (362)
Shoreline
Business Center. 8 (f) 4,328 16,101 427 4,328 16,528 20,856 (2,779)
Shoreline
Business Center
II.............. 2 (f) 922 -- 4,589 922 4,589 5,511 (822)
Spinnaker
Business Center. 12 (f) 7,043 25,220 947 7,043 26,167 33,210 (4,447)
Thornton
Business Center. 5 (d) 3,988 11,706 6,176 3,989 17,881 21,870 (2,478)
Trimble
Distribution
Center.......... 5 2,836 16,067 830 2,836 16,897 19,733 (2,792)
South Bay (San
Francisco),
California
Bayside Business
Center.......... 1996
Bayside
Corporate
Center.......... 1995,1996
Bayside Plaza I. 1993
Bayside Plaza
II.............. 1994
Gateway
Corporate
Center.......... 1993,1996
Mowry Business
Center.......... 1997,1998
Shoreline
Business Center. 1993
Shoreline
Business Center
II.............. 1995
Spinnaker
Business Center. 1993
Thornton
Business Center. 1993,1996
Trimble
Distribution
Center.......... 1994
St. Louis,
Missouri
Earth City
Industrial
Center.......... 9 (d) 4,468 19,144 6,218 4,493 25,337 29,830 (847)
Hazelwood
Distribution
Center.......... 1 (d) 233 1,322 45 233 1,367 1,600 (61)
Westport
Distribution
Center.......... 3 (d) 761 4,310 127 761 4,437 5,198 (193)
Westport Service
Center.......... 2 (d) 486 2,754 46 486 2,800 3,286 --
St. Louis,
Missouri
Earth City
Industrial
Center.......... 1997,1998
Hazelwood
Distribution
Center.......... 1997
Westport
Distribution
Center.......... 1997
Westport Service
Center.......... 1997
</TABLE>
105
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tampa, Florida
Adamo
Distribution
Center.......... 1 $ 105 $ 595 $ 308 $ 105 $ 903 $ 1,008 $ (76)
Clearwater
Distribution
Center.......... 2 (e) 92 524 85 92 609 701 (80)
Commerce Park
Distribution
Center.......... 4 811 4,597 369 811 4,966 5,777 (683)
Eastwood
Distribution
Center.......... 1 (e) 122 690 88 122 778 900 (106)
Joe's Creek
Distribution
Center.......... 2 (e) 161 909 124 160 1,034 1,194 (149)
Lakeland
Distribution
Center.......... 1 938 5,313 560 938 5,873 6,811 (885)
Orchid Lake
Industrial
Center.......... 1 41 235 12 41 247 288 (34)
Plant City
Distribution
Center.......... 1 (e) 206 1,169 64 206 1,233 1,439 (169)
Sabal Park
Distribution
Center.......... 7 2,776 6,224 10,401 2,678 16,723 19,401 (525)
Silo Bend
Distribution
Center.......... 4 (e) 2,887 16,358 742 2,887 17,100 19,987 (2,270)
Silo Bend
Industrial
Center.......... 1 (e) 525 2,975 246 525 3,221 3,746 (446)
St. Petersburg
Service Center.. 1 35 197 21 35 218 253 (29)
Tampa East
Distribution
Center.......... 11 (e) 2,700 15,302 1,850 2,700 17,152 19,852 (2,349)
Tampa East
Industrial
Center.......... 2 (e) 332 1,880 (212) 332 1,668 2,000 (289)
Tampa West
Distribution
Center.......... 15 (d)(e) 3,273 18,659 2,179 3,383 20,728 24,111 (2,794)
Tampa West
Industrial
Center.......... 4 (e) 437 471 5,622 717 5,813 6,530 (380)
Tampa West
Service Center.. 4 (e) 970 5,501 501 971 6,001 6,972 (828)
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Tampa, Florida
Adamo
Distribution
Center.......... 1995
Clearwater
Distribution
Center.......... 1994
Commerce Park
Distribution
Center.......... 1994
Eastwood
Distribution
Center.......... 1994
Joe's Creek
Distribution
Center.......... 1994
Lakeland
Distribution
Center.......... 1994
Orchid Lake
Industrial
Center.......... 1994
Plant City
Distribution
Center.......... 1994
Sabal Park
Distribution
Center.......... 1996,1997,1998
Silo Bend
Distribution
Center.......... 1994
Silo Bend
Industrial
Center.......... 1994
St. Petersburg
Service Center.. 1994
Tampa East
Distribution
Center.......... 1994
Tampa East
Industrial
Center.......... 1994
Tampa West
Distribution
Center.......... 1994,1995
Tampa West
Industrial
Center.......... 1994,1996,1998
Tampa West
Service Center.. 1994
Tulsa, Oklahoma
52nd Street
Distribution
Center.......... 1 340 1,924 192 340 2,116 2,456 (304)
70th East
Distribution
Center.......... 1 129 733 248 129 981 1,110 (123)
East 55th Street
Distribution
Center.......... 1 (e) 210 1,191 83 210 1,274 1,484 (179)
Expressway
Distribution
Center.......... 4 573 3,280 670 573 3,950 4,523 (727)
Henshaw
Distribution
Center.......... 3 500 2,829 152 499 2,982 3,481 (424)
Tulsa, Oklahoma
52nd Street
Distribution
Center.......... 1994
70th East
Distribution
Center.......... 1994
East 55th Street
Distribution
Center.......... 1994
Expressway
Distribution
Center.......... 1993
Henshaw
Distribution
Center.......... 1994
Warsaw, Poland
Warsaw
Industrial
Center.......... 4 2,668 30,682 -- 967 32,383 33,350 (728)
Warsaw, Poland
Warsaw
Industrial
Center.......... 1998
Washington,
D.C./Baltimore
Airport Commons
Distribution
Center.......... 2 2,320 -- 9,236 2,360 9,196 11,556 (376)
Ardmore
Distribution
Center.......... 3 1,431 8,110 392 1,431 8,502 9,933 (1,140)
Ardmore
Industrial
Center.......... 2 984 5,581 285 985 5,865 6,850 (788)
Chantilly
Distribution
Center.......... 1 592 -- 5,716 1,235 5,073 6,308 (165)
Concorde
Industrial
Center.......... 4 1,538 8,717 641 1,538 9,358 10,896 (1,098)
Washington,
D.C./Baltimore
Airport Commons
Distribution
Center.......... 1997
Ardmore
Distribution
Center.......... 1994
Ardmore
Industrial
Center.......... 1994
Chantilly
Distribution
Center.......... 1997
Concorde
Industrial
Center.......... 1995
</TABLE>
106
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
De Soto Business
Park.............. 5 $ 1,774 $ 10,055 $ 3,261 $ 1,774 $ 13,316 $ 15,090 $ (1,298)
Eisenhower
Industrial
Center............ 3 1,240 7,025 1,368 1,240 8,393 9,633 (1,121)
Fleet
Distribution
Center............ 8 3,198 18,121 921 3,198 19,042 22,240 (1,893)
Gateway
Distribution
Center............ 3 774 -- 6,835 1,402 6,207 7,609 (107)
Hampton Central
Distribution
Center............ 2 1,769 -- 9,832 2,248 9,353 11,601 (449)
Meadowridge
Distribution
Center............ 1 1,757 -- 5,714 1,896 5,575 7,471 (175)
Patapsco
Distribution
Center............ 1 270 1,528 1,072 270 2,600 2,870 (239)
Sunnyside
Industrial
Center............ 3 1,541 8,733 1,333 1,541 10,066 11,607 (1,335)
Other Markets...... 8 (e) 1,619 8,635 8,789 1,716 17,327 19,043 (957)
----- ------- --------- --------- ------- --------- --------- --------
Total Operating
Properties...... 1,099 483,056 1,637,702 1,128,248 517,803 2,731,203 3,249,006 (254,288)
----- ------- --------- --------- ------- --------- --------- --------
Land Under
Development
Amsterdam,
Netherlands
Schiphol
Distribution
Center............ -- -- 86 86 -- 86 --
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
De Soto Business
Park.............. 1996
Eisenhower
Industrial
Center............ 1994
Fleet
Distribution
Center............ 1996
Gateway
Distribution
Center............ 1998
Hampton Central
Distribution
Center............ 1996, 1997
Meadowridge
Distribution
Center............ 1998
Patapsco
Distribution
Center............ 1995
Sunnyside
Industrial
Center............ 1994
Other Markets...... 1991, 1994, 1996, 1998
Total Operating
Properties......
Land Under
Development
Amsterdam,
Netherlands
Schiphol
Distribution
Center............ 1998
Atlanta, Georgia
Atlanta NE at
Sugarloaf......... 1,616 -- 686 2,302 -- 2,302 --
Cobb Place
Distribution
Center............ 1,579 -- 413 1,992 -- 1,992 --
Atlanta, Georgia
Atlanta NE at
Sugarloaf......... 1997, 1998
Cobb Place
Distribution
Center............ 1998
Austin, Texas
Walnut Creek
Corporate Center.. 857 -- 54 911 -- 911 --
Austin, Texas
Walnut Creek
Corporate Center.. 1994, 1996
Charlotte, North
Carolina
Charlotte
Distribution
Center South...... 312 -- 648 960 -- 960 --
Charlotte, North
Carolina
Charlotte
Distribution
Center South...... 1997
Chicago, Illinois
Bloomingdale 100
Business Center... 940 -- 560 1,500 -- 1,500 --
Chicago, Illinois
Bloomingdale 100
Business Center... 1997
Cincinnati, Ohio
Airpark
International
Distribution
Center............ 479 -- 254 733 -- 733 --
Union Center
Commerce Park..... 2,442 -- 338 2,780 -- 2,780 --
Cincinnati, Ohio
Airpark
International
Distribution
Center............ 1997
Union Center
Commerce Park..... 1998
Columbus, Ohio
Capital Park
South
Distribution
Center............ 285 -- 32 317 -- 317 --
International
Street Commerce
Center............ 220 -- 13 233 -- 233 --
Columbus, Ohio
Capital Park
South
Distribution
Center............ 1998
International
Street Commerce
Center............ 1998
</TABLE>
107
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dallas/Fort
Worth, Texas
Dallas Corporate
Center.......... $ 961 $ -- $ 113 $ 1,074 $ -- $ 1,074 $ --
Great Southwest
Distribution
Center.......... 2,330 -- 58 2,388 -- 2,388 --
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Dallas/Fort
Worth, Texas
Dallas Corporate
Center.......... 1995
Great Southwest
Distribution
Center.......... 1997
Denver, Colorado
Coors Technology
Center.......... 1,222 -- 65 1,287 -- 1,287 --
Denver Business
Center.......... 457 -- 43 500 -- 500 --
Peoria
Distribution
Center.......... 1,363 -- 272 1,635 -- 1,635 --
Denver, Colorado
Coors Technology
Center.......... 1998
Denver Business
Center.......... 1997
Peoria
Distribution
Center.......... 1997
Fort
Lauderdale/Miami,
Florida
CenterPort
Distribution
Center.......... 1,008 -- 182 1,190 -- 1,190 --
Fort
Lauderdale/Miami,
Florida
CenterPort
Distribution
Center.......... 1998
Houston, Texas
Jersey Village
Corporate
Center.......... 1,536 -- 516 2,052 -- 2,052 --
West by
Northwest
Industrial
Center.......... 277 -- 41 318 -- 318 --
World Houston
Distribution
Center.......... 425 -- 40 465 -- 465 --
Houston, Texas
Jersey Village
Corporate
Center.......... 1998
West by
Northwest
Industrial
Center.......... 1998
World Houston
Distribution
Center.......... 1998
Juarez, Mexico
Salvacar
Industrial
Center.......... 176 -- 65 241 -- 241 --
Juarez, Mexico
Salvacar
Industrial
Center.......... 1997
London, England
Beavers Lane
Distribution
Center.......... 19,895 -- (77) 19,818 -- 19,818 --
London, England
Beavers Lane
Distribution
Center.......... 1998
Los
Angeles/Orange
County,
California
Foothills
Distribution
Center.......... 1,070 -- 118 1,188 -- 1,188 --
Los
Angeles/Orange
County,
California
Foothills
Distribution
Center.......... 1996
Louisville,
Kentucky
Airpark Commerce
Center.......... 175 -- 47 222 -- 222 --
Riverport
Distribution
Center.......... 396 -- 85 481 -- 481 --
Louisville,
Kentucky
Airpark Commerce
Center.......... 1998
Riverport
Distribution
Center.......... 1996
Lyon, France
Isle d'Abeau
Distribution
Center.......... 739 -- 147 886 -- 886 --
Lyon, France
Isle d'Abeau
Distribution
Center.......... 1998
Memphis,
Tennessee
Memphis
Industrial Park. 890 -- 1,055 1,945 -- 1,945 --
Memphis,
Tennessee
Memphis
Industrial Park. 1997
Monterrey, Mexico
Monterrey
Industrial
Center II....... 1,662 -- 1,929 3,591 -- 3,591 --
Monterrey, Mexico
Monterrey
Industrial
Center II....... 1998
New Jersey/I-95
Corridor
Cranbury
Business Park... 998 -- 877 1,875 -- 1,875 --
Mahwah
Distribution
Center.......... 1,247 -- 1,913 3,160 -- 3,160 --
New Jersey/I-95
Corridor
Cranbury
Business Park... 1997
Mahwah
Distribution
Center.......... 1998
</TABLE>
108
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orlando, Florida
Orlando Corporate
Center............ $ 1,118 $ -- $ 315 $ 1,433 $ -- $ 1,433 $ --
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Orlando, Florida
Orlando Corporate
Center............ 1996
Portland, Oregon
PDX Corporate
Center East....... 769 -- 248 1,017 -- 1,017 --
Portland, Oregon
PDX Corporate
Center East....... 1997
Reynosa, Mexico
Reynosa
Industrial Center
III............... 549 -- (26) 523 -- 523 --
Reynosa, Mexico
Reynosa
Industrial Center
III............... 1998
Salt Lake City,
Utah
Crossroads
Corporate Center.. 441 -- 44 485 -- 485 --
Salt Lake
International
Distribution
Center............ 528 -- 54 582 -- 582 --
San Antonio, Texas
San Antonio
Distribution
Center III........ 497 -- 496 993 -- 993 --
Salt Lake City,
Utah
Crossroads
Corporate Center.. 1996
Salt Lake
International
Distribution
Center............ 1998
San Antonio, Texas
San Antonio
Distribution
Center III........ 1998
Seattle, Washington
Van Doren's
Distribution
Center............ (f) 1,190 -- 58 1,248 -- 1,248 --
Seattle, Washington
Van Doren's
Distribution
Center............ 1998
Tijuana, Mexico
Tijuana
Industrial
Center............ 2,364 -- 629 2,993 -- 2,993 --
Tijuana, Mexico
Tijuana
Industrial
Center............ 1998
Warsaw, Poland
Blonie Industrial
Park.............. 2,237 -- (544) 1,693 -- 1,693 --
Warsaw, Poland
Blonie Industrial
Park.............. 1998
Washington
D.C./Baltimore
Hampton Central
Distribution
Center............ 865 -- 1,485 2,350 -- 2,350 --
------- --------- ------- ------- --------- --------- --------
Total Land Under
Development..... 56,115 -- 13,332 69,447 -- 69,447 --
------- --------- ------- ------- --------- --------- --------
Land Held for
Development
Amsterdam,
Netherlands
Schiphol
Distribution
Center............ 3,543 -- 253 3,796 -- 3,796 --
Venlo
Distribution
Center............ 1,373 -- 268 1,641 -- 1,641 --
Washington
D.C./Baltimore
Hampton Central
Distribution
Center............ 1994
Total Land Under
Development.....
Land Held for
Development
Amsterdam,
Netherlands
Schiphol
Distribution
Center............ 1998
Venlo
Distribution
Center............ 1998
</TABLE>
109
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta, Georgia
Atlanta NE at
Sugarloaf....... $ 954 $ -- $ 468 $ 1,422 $ -- $1,422 $ --
Atlanta West
Distribution
Center.......... 713 -- 39 752 -- 752 --
Breckenridge
Distribution
Center.......... 4,147 -- 1,145 5,292 -- 5,292 --
Riverside
Distribution
Center.......... 1,107 -- 96 1,203 -- 1,203 --
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------
<S> <C>
Atlanta, Georgia
Atlanta NE at
Sugarloaf....... 1997
Atlanta West
Distribution
Center.......... 1994
Breckenridge
Distribution
Center.......... 1997
Riverside
Distribution
Center.......... 1996
Austin, Texas
Corridor Park
Corporate
Center.......... 1,289 -- 82 1,371 -- 1,371 --
Southpark
Corporate
Center.......... 525 -- 64 589 -- 589 --
Walnut Creek
Corporate
Center.......... 227 -- (52) 175 -- 175 --
Austin, Texas
Corridor Park
Corporate
Center.......... 1994
Southpark
Corporate
Center.......... 1996
Walnut Creek
Corporate
Center.......... 1994, 1996
Charlotte, North
Carolina
Charlotte
Distribution
Center.......... 895 -- 503 1,398 -- 1,398 --
Charlotte
Distribution
Center South.... 663 -- 1,029 1,692 -- 1,692 --
Interstate North
Business Park... 343 -- 8 351 -- 351 --
Charlotte, North
Carolina
Charlotte
Distribution
Center.......... 1994, 1995, 1996
Charlotte
Distribution
Center South.... 1997
Interstate North
Business Park... 1997
Chicago, Illinois
Bloomingdale 100
Business Center. 4,857 -- 1,925 6,782 -- 6,782 --
O'Hare Cargo
Distribution
Center.......... 8,949 -- 3,610 12,559 -- 12,559 --
Remington Lakes
Business Park... 3,236 -- 296 3,532 -- 3,532 --
Chicago, Illinois
Bloomingdale 100
Business Center. 1997
O'Hare Cargo
Distribution
Center.......... 1996, 1997
Remington Lakes
Business Park... 1997
Cincinnati, Ohio
Airpark
International
Distribution
Center.......... 375 -- 189 564 -- 564 --
Princeton
Distribution
Center.......... (d) 436 -- (52) 384 -- 384 --
Union Center
Commerce Park... 2,276 -- 352 2,628 -- 2,628 --
Cincinnati, Ohio
Airpark
International
Distribution
Center.......... 1997
Princeton
Distribution
Center.......... 1996
Union Center
Commerce Park... 1997
</TABLE>
110
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost to Gross Amounts At Which Carried as
ProLogis of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Columbus, Ohio
Capital Park
South
Distribution
Center.......... $ 1,505 $ -- $ 833 $ 2,338 $ -- $2,338 $ --
International
Street Commerce
Center.......... 101 -- (3) 98 -- 98 --
<CAPTION>
Date of Construction/
Description Acquisition
----------- ----------------------------
<S> <C>
Columbus, Ohio
Capital Park
South
Distribution
Center.......... 1994, 1995, 1996, 1997, 1998
International
Street Commerce
Center.......... 1996
Dallas/Fort
Worth, Texas
Great Southwest
Industrial
Center I........ 492 -- 26 518 -- 518 --
Royal Lane
Distribution
Center.......... 3,220 -- 38 3,258 -- 3,258 --
Dallas/Fort
Worth, Texas
Great Southwest
Industrial
Center I........ 1996
Royal Lane
Distribution
Center.......... 1997
Denver, Colorado
Denver Business
Center Land..... 799 -- -- 799 -- 799 --
Downing
Distribution
Center.......... 3,487 -- 52 3,539 -- 3,539 --
Upland
Distribution
Center I........ 1,647 -- 47 1,694 -- 1,694 --
Denver, Colorado
Denver Business
Center Land..... 1998
Downing
Distribution
Center.......... 1998
Upland
Distribution
Center I........ 1994, 1997
El Paso, Texas
Northwestern
Corporate
Center.......... 2,629 -- 5,191 7,820 -- 7,820 --
Vista Corporate
Center.......... 351 -- 123 474 -- 474 --
Vista Del Sol
Industrial
Center.......... 1,727 -- 273 2,000 -- 2,000 --
El Paso, Texas
Northwestern
Corporate
Center.......... 1991, 1992
Vista Corporate
Center.......... 1993
Vista Del Sol
Industrial
Center.......... 1994, 1996
Fort
Lauderdale/Miami,
Florida
Center Port
Land............ 1,008 -- 169 1,177 -- 1,177 --
Port 95
Distribution
Center I........ 2,505 -- 280 2,785 -- 2,785 --
Fort
Lauderdale/Miami,
Florida
Center Port
Land............ 1998
Port 95
Distribution
Center I........ 1996
Houston, Texas
Jersey Village
Corporate
Center.......... 3,217 -- 918 4,135 -- 4,135 --
West by
Northwest
Industrial
Center.......... 1,263 -- 101 1,364 -- 1,364 --
Houston, Texas
Jersey Village
Corporate
Center.......... 1997
West by
Northwest
Industrial
Center.......... 1993
</TABLE>
111
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried
to ProLogis as of December 31, 1998
------------------ Costs Capitalized -------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ----- ------------ ----------------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Indianapolis,
Indiana
Lebanon Commerce
Park Land....... $ 827 $-- $ 263 $1,090 $-- $1,090 $--
North by
Northeast
Distribution
Center.......... 435 -- 56 491 -- 491 --
North Plainfield
Park............ 849 -- 87 936 -- 936 --
Plainfield Park
Distribution
Center.......... 1,082 -- 557 1,639 -- 1,639 --
<CAPTION>
Date of
Construction/
Description Acquisition
----------- ----------------
<S> <C>
Indianapolis,
Indiana
Lebanon Commerce
Park Land....... 1998
North by
Northeast
Distribution
Center.......... 1994
North Plainfield
Park............ 1998
Plainfield Park
Distribution
Center.......... 1996
Juarez, Mexico
Salvacar
Industrial Park. 2,484 -- 796 3,280 -- 3,280 --
Juarez, Mexico
Salvacar
Industrial Park. 1997
Kansas City,
Missouri
Executive Park.. 1,266 -- 203 1,469 -- 1,469 --
Kansas City,
Missouri
Executive Park.. 1998
Las Vegas, Nevada
Black Mountain
Distribution
Center.......... 2,845 -- 164 3,009 -- 3,009 --
Hughes Airport
Center.......... 263 -- 11 274 -- 274 --
Las Vegas
Corporate
Center.......... (f) 5,068 -- 519 5,586 -- 5,586 --
Las Vegas, Nevada
Black Mountain
Distribution
Center.......... 1995, 1996
Hughes Airport
Center.......... 1997
Las Vegas
Corporate
Center.......... 1993, 1995, 1997
Lille, France
Lesquin Gris
Land............ 1,268 -- 7 1,275 -- 1,275 --
Lille, France
Lesquin Gris
Land............ 1998
Los Angeles /
Orange County,
California
Foothills
Business Center. 6,577 -- (85) 6,492 -- 6,492 --
Mid-Counties
Distribution
Center.......... 8,828 -- 21 8,849 -- 8,849 --
Los Angeles /
Orange County,
California
Foothills
Business Center. 1995, 1996
Mid-Counties
Distribution
Center.......... 1997
Louisville,
Kentucky
Airpark Commerce
Center.......... 700 -- 2 702 -- 702 --
Riverport
Distribution
Center.......... 218 -- (9) 209 -- 209 --
Riverport
Distribution
Center II....... 796 -- 33 829 -- 829 --
Louisville,
Kentucky
Airpark Commerce
Center.......... 1998
Riverport
Distribution
Center.......... 1998
Riverport
Distribution
Center II....... 1998
Memphis,
Tennessee
Memphis
Industrial Park. 1,673 -- 1,803 3,476 -- 3,476 --
Memphis,
Tennessee
Memphis
Industrial Park. 1997
Monterrey, Mexico
Monterrey
Industrial Park
II.............. 1,151 -- 645 1,796 -- 1,796 --
Ojo de Aqua
Industrial
Center.......... 649 -- 45 694 -- 694 --
Monterrey, Mexico
Monterrey
Industrial Park
II.............. 1998
Ojo de Aqua
Industrial
Center.......... 1998
Nashville,
Tennessee
Nashville/l-24
Distribution
Center.......... 776 -- 2,497 3,273 -- 3,273 --
Nashville,
Tennessee
Nashville/l-24
Distribution
Center.......... 1996
</TABLE>
112
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried
to ProLogis as of December 31, 1998
-------------------- Costs Capitalized --------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey / I-95
Corridor
Cranbury
Business Park... $ 2,137 $-- $1,299 $ 3,436 $-- $ 3,436 $--
Meadowland
Industrial
Center.......... 1,600 -- 2 1,602 -- 1,602 --
<CAPTION>
Date of
Construction/
Description Acquisition
----------- -------------
<S> <C>
New Jersey / I-95
Corridor
Cranbury
Business Park... 1997
Meadowland
Industrial
Center.......... 1997
Orlando, Florida
Orlando
Corporate
Center.......... 2,116 -- 468 2,584 -- 2,584 --
Orlando, Florida
Orlando
Corporate
Center.......... 1996
Phoenix, Arizona
Kyrene Commons
Distribution
Center.......... 1,278 -- 22 1,300 -- 1,300 --
Phoenix, Arizona
Kyrene Commons
Distribution
Center.......... 1992, 1996
Portland, Oregon
Jennifer
Distribution
Center.......... 2,935 -- 985 3,920 -- 3,920 --
Portland, Oregon
Jennifer
Distribution
Center.......... 1997
Reno, Nevada
Damonte Ranch... 10,528 -- 1,196 11,724 -- 11,724 --
Golden Valley
Distribution
Center.......... 347 -- 659 1,006 -- 1,006 --
Reno, Nevada
Damonte Ranch... 1998
Golden Valley
Distribution
Center.......... 1995
Reynosa, Mexico
Reynosa
Industrial
Center.......... 587 -- 2 589 -- 589 --
Reynosa
Industrial
Center III...... 1,533 -- (74) 1,459 -- 1,459 --
Reynosa, Mexico
Reynosa
Industrial
Center.......... 1997
Reynosa
Industrial
Center III...... 1998
Rio Grande
Valley, Texas
Rio Grande
Distribution
Center.......... 429 -- 10 439 -- 439 --
Rio Grande
Valley, Texas
Rio Grande
Distribution
Center.......... 1995
Salt Lake City,
Utah
Clearfield
Industrial
Center.......... 125 -- 13 138 -- 138 --
Crossroads
Distribution
Center.......... 1,469 -- 137 1,606 -- 1,606 --
Salt Lake
Industrial
Center.......... 746 -- 433 1,179 -- 1,179 --
Salt Lake
Industrial
Center II....... 634 -- 17 651 -- 651 --
Salt Lake City,
Utah
Clearfield
Industrial
Center.......... 1997
Crossroads
Distribution
Center.......... 1996
Salt Lake
Industrial
Center.......... 1994, 1995
Salt Lake
Industrial
Center II....... 1995
San Antonio,
Texas
Coliseum
Distribution
Center.......... 611 -- 327 938 -- 938 --
Landmark One
Distribution
Center.......... 127 -- 5 132 -- 132 --
Perrin Creek
Corporate
Center.......... 2,637 -- 193 2,830 -- 2,830 --
San Antonio
Distribution
Center III...... 458 -- 66 524 -- 524 --
San Antonio,
Texas
Coliseum
Distribution
Center.......... 1994
Landmark One
Distribution
Center.......... 1997
Perrin Creek
Corporate
Center.......... 1996
San Antonio
Distribution
Center III...... 1996
Seattle,
Washington
Port of Tacoma
(Carr-
Gottstein)...... 1,540 -- 485 2,025 -- 2,025 --
Seattle,
Washington
Port of Tacoma
(Carr-
Gottstein)...... 1998
</TABLE>
113
<PAGE>
PROLOGIS TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Concluded)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Initial Cost Gross Amounts At Which Carried
to ProLogis as of December 31, 1998
--------------------- Costs Capitalized ---------------------------------- Accumulated
No. of Encum- Building & Subsequent Building & Depreciation
Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c)
----------- ------ ------- -------- ------------ ----------------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
St. Louis, Missouri
Earth City
Industrial
Center............ $ 1,282 $ -- $ 33 $ 1,315 $ -- $ 1,315 $ --
<CAPTION>
Date of
Construction/
Description Acquisition
----------- -------------
<S> <C>
St. Louis, Missouri
Earth City
Industrial
Center............ 1998
Tampa, Florida
Sabal Park
Distribution
Center............ 1,800 -- 366 2,166 -- 2,166 --
Tampa East
Distribution
Center............ 2,810 -- (184) 2,626 -- 2,626 --
Tampa, Florida
Sabal Park
Distribution
Center............ 1995, 1997
Tampa East
Distribution
Center............ 1994
Tijuana, Mexico
Tijuana
Industrial
Center............ 5,977 -- 951 6,928 -- 6,928 --
Tijuana, Mexico
Tijuana
Industrial
Center............ 1998
Warsaw, Poland
Blonie Industrial
Park.............. 1,118 -- 937 2,055 -- 2,055 --
Warsaw, Poland
Blonie Industrial
Park.............. 1998
Washington,
D.C./Baltimore
Meadowridge
Distribution
Center............ 3,390 -- 735 4,125 -- 4,125 --
-------- ---------- ---------- -------- ---------- ---------- ---------
Total Land Held
for Development. 145,828 -- 34,968 180,796 -- 180,796 --
-------- ---------- ---------- -------- ---------- ---------- ---------
Grand Total..... $684,999 $1,637,702 $1,176,548 $768,046 $2,731,203 $3,499,249 $(254,288)
======== ========== ========== ======== ========== ========== =========
Washington,
D.C./Baltimore
Meadowridge
Distribution
Center............ 1996
Total Land Held
for Development.
Grand Total.....
</TABLE>
114
<PAGE>
PROLOGIS TRUST
NOTE TO SCHEDULE III
As of December 31, 1998
(a) Reconciliation of total cost to balance sheet caption as of December 31,
1998 (in thousands):
<TABLE>
<S> <C>
Total per Schedule III...................................... $3,499,249
Facilities under development (excluding cost of land)....... 140,223
Capitalized preacquisition costs............................ 18,028
----------
Total real estate....................................... $3,657,500(h)
==========
</TABLE>
(b) The aggregate cost for federal income tax purposes was approximately
$3,428,712,000.
(c) Buildings are depreciated over their estimated useful lives (30 years for
acquisitions, 40 years for developments).
(d) $416,347,000 of these facilities secure $184,964,000 of mortgage notes.
Subsequent to December 31, 1998, the mortgage notes were increased by
$84,000,000.
(e) $66,163,000 of these facilities secure $31,559,000 of securitized debt.
(f) $242,414,000 of these facilities secure $11,281,000 of assessment bonds.
(g) Subsequent to December 31, 1998, $216,237,000 of these facilities will
secure $182,000,000 of mortgage notes.
(h) A summary of activity for real estate and accumulated depreciation as of
December 31, 1998 is as follows (in thousands):
<TABLE>
<S> <C>
Real estate:
Balance at beginning of year................................ $3,006,236
Additions:
Acquisitions and completions of operating facilities...... 407,866
Improvements to operating facilities...................... 277,730
Dispositions................................................ (65,370)
Change in facilities under development balance.............. 25,729
Change in capitalized preacquisition costs balance.......... 5,309
----------
Balance at end of year...................................... $3,657,500
==========
Accumulated depreciation:
Balance at beginning of year................................ $ 171,525
Depreciation expense........................................ 85,001
Accumulated depreciation associated with dispositions....... (2,238)
----------
Balance at end of year...................................... $ 254,288
==========
</TABLE>
115
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of ProLogis Trust, a Maryland
real estate investment trust, and the undersigned Trustees and officers of
Security Capital Industrial Trust, hereby constitutes and appoints K. Dane
Brooksher, Walter C. Rakowich, M. Gordon Keiser, Jr., Edward F. Long and
Edward S. Nekritz, or his true and lawful attorneys-in-fact and agents, for it
or him and in its or his name, place and stead, in any and all capacities,
with full power to act alone, to sign any and all amendments to this report,
and to file each such amendment to this report, with all exhibits thereto, and
any and all documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done in an about the premises, as
fully to all intents and purposes as it or he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them may lawfully do or cause to be done by virtue hereof.
116
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Prologis Trust
/s/ K. Dane Brooksher
By: _________________________________
K. Dane Brooksher
Chairman, Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ K. Dane Brooksher Chairman, Chief Executive March 26, 1999
____________________________________ Officer and Trustee
K. Dane Brooksher
/s/ Irving F. Lyons III President, Chief Investment March 26, 1999
____________________________________ Officer and Trustee
Irving F. Lyons III
/s/ Walter C. Rakowich Managing Director and March 26, 1999
____________________________________ Chief Financial Officer
Walter C. Rakowich (Principal Financial
Officer)
/s/ M. Gordon Keiser Senior Vice President and March 26, 1999
____________________________________ Treasurer
M. Gordon Keiser
/s/ Edward F. Long Senior Vice President and March 26, 1999
____________________________________ Controller
Edward F. Long
/s/ Shari J. Jones Vice President March 26, 1999
____________________________________ (Principal Accounting
Shari J. Jones Officer)
/s/ Stephen L. Feinberg Trustee March 26, 1999
____________________________________
Stephen L. Feinberg
/s/ Donald P. Jacobs Trustee March 26, 1999
____________________________________
Donald P. Jacobs
/s/ William G. Myers Trustee March 26, 1999
____________________________________
William G. Myers
/s/ John E. Robson Trustee March 26, 1999
____________________________________
John E. Robson
/s/ J. Andre Teixeira Trustee March 26, 1999
____________________________________
J. Andre Teixeira
/s/ Thomas G. Wattles Trustee March 26, 1999
____________________________________
Thomas G. Wattles
</TABLE>
117
<PAGE>
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and
Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by
reference (Incorporated by reference to exhibit 3.3 to ProLogis Form 10-Q for
the quarter ended June 30, 1998).
<TABLE>
<CAPTION>
Sequential
Numbered
Number Description Page
------ ----------- ----------
<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 ProLogis Trust (Incorporated by
reference to Exhibit 3.2 to ProLogis' Form 10-Q for the
quarter ended June 30, 1998)
3.14 Bylaws of ProLogis (Incorporated by reference to
exhibit 4.3 to ProLogis' registration statement No. 33-
83208)
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
Sequential
Numbered
Number Description Page
------ ----------- ----------
<C> <S> <C>
4.1 Rights Agreement, dated as of December 31, 1993,
between ProLogis and State Street Bank and Trust
Company, as Rights Agent, including form of Rights
Certificate (Incorporated by reference to exhibit 4.4
to ProLogis' registration statement No. 33-78080)
4.2 First Amendment to Rights Amendment, dated as of
February 15, 1995, between SCI, State Street Bank and
Trust Company and The First National Bank of Boston, as
successor Rights Agent (Incorporated by reference to
exhibit 3.1 to SCI's Form 10-Q for the quarter ended
September 30, 1995)
4.3 Second Amendment to Rights Agreement, dated as of June
22, 1995, between ProLogis State Street Bank and Trust
Company and The First National Bank of Boston
(Incorporated by reference to Exhibit 3.1 to ProLogis'
Form 10-Q for the quarter ended September 30, 1995)
4.4 Form of share certificate for Common Shares of
Beneficial Interest of ProLogis (Incorporated by
reference to exhibit 4.4 to ProLogis' registration
statement No. 33-73382)
4.5 Form of share certificate for Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest of
ProLogis (Incorporated by reference to exhibit 4.7 to
ProLogis' Form 8-A registration statement relating to
such shares)
4.6 8.72% Note due March 1, 2009 (Incorporated by reference
to exhibit 4.7 to ProLogis' Form 10-K for the year
ended December 31, 1994)
4.7 Form of share certificate for Series B Cumulative
Convertible Redeemable Preferred
Shares of Beneficial Interest of ProLogis (Incorporated
by reference to exhibit 4.8 to ProLogis' Form 8-A
registration statement relating to such shares)
4.8 Form of share certificate for Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest of
ProLogis (Incorporated by reference to exhibit 4.8 to
ProLogis' Form 10-K for the year ended December 31,
1996)
4.9 9.34% Note due March 1, 2015 (Incorporated by reference
to exhibit 4.8 to ProLogis' Form 10-K for the year
ended December 31, 1994)
4.10 7.875% Note due May 15, 2009 (Incorporated by reference
to exhibit 4.4 to ProLogis' Form 8-K dated May 9, 1995)
4.11 7.30% Note due May 15, 2001 (Incorporated by reference
to exhibit 4.3 to ProLogis' Form 8-K dated May 9, 1995)
4.12 7.25% Note due May 15, 2000 (Incorporated by reference
to exhibit 4.2 to ProLogis' Form 8-K dated May 9, 1995)
4.13 7.125% Note due May 15, 1998 (Incorporated by reference
to exhibit 4.1 to ProLogis' Form 8-K dated May 9, 1995)
4.14 7.25% Note due May 15, 2002 (Incorporated by reference
to exhibit 4.1 to ProLogis' Form 10-Q for the quarter
ended June 30, 1996)
4.15 7.95% Note due May 15, 2008 (Incorporated by reference
to exhibit 4.2 to ProLogis' Form 10-Q for the quarter
ended June 30, 1996)
4.16 8.65% Note due May 15, 2016 (Incorporated by reference
to exhibit 4.3 to ProLogis' Form 10-Q for the quarter
ended June 30, 1996)
4.17 7.81% Medium-Term Notes, Series A, due February 1, 2015
(Incorporated by reference to exhibit 4.17 to ProLogis'
Form 10K for the year ended December 31, 1996)
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
Sequential
Numbered
Number Description Page
------ ----------- ----------
<C> <S> <C>
4.18 Indenture, dated as of March 1, 1995, between ProLogis
and State Street Bank and Trust Company, as Trustee
(Incorporated by reference to exhibit 4.9 to ProLogis'
Form 10-K for the year ended December 31, 1994)
4.19 Collateral Trust Indenture, dated as of July 22, 1993,
between Krauss/Schwartz Properties, Ltd. and
NationsBank of Virginia, N.A., as Trustee (Incorporated
by reference to exhibit 4.10 to ProLogis' Form 10-K for
the year ended December 31, 1994)
4.20 First Supplemental Collateral Trust Indenture, dated as
of October 28, 1994, among ProLogis Limited
Partnership-IV, Krauss/Schwartz Properties, Ltd., and
NationsBank of Virginia, N.A., as Trustee (Incorporated
by reference to exhibit 10.6 to ProLogis' Form 10-Q for
the quarter ended September 30, 1994)
10.1 Agreement of Limited Partnership of ProLogis Limited
Partnership-I, dated as of December 22, 1993, by and
among ProLogis, as general partner, and the limited
partners set forth therein (Incorporated by reference
to exhibit 10.4 to ProLogis' Registration Statement No.
33-73382)
10.2 Transfer and Registration Rights Agreement, dated as of
December 22, 1993, among ProLogis and the investors
listed on the signature pages thereto (Incorporated by
reference to exhibit 10.10 to ProLogis' registration
statement No. 33-73382)
10.3 Amended and Restated Agreement of Limited Partnership
of ProLogis Limited Partnership-II, dated as of
February 15, 1994, among ProLogis as general partner,
and the limited partners set forth therein
(Incorporated by reference to exhibit 10.12 to
ProLogis' registration statement No. 33-78080)
10.4 Administrative Services Agreement, dated as of
September 9, 1997, between ProLogis and Security
Capital Group Incorporated (Incorporated by reference
to exhibit 10.6 to Security Capital Group
Incorporated's Form 10-Q for the quarter ended
September 30, 1997)
10.5 Third Amended and Restated Investor Agreement, dated as
of September 9, 1997, between ProLogis and SC Group
Incorporated (Incorporated by reference to exhibit 10.3
to Security Capital Group Incorporated's Form 10-Q for
the quarter ended September 30, 1997)
10.6 Form of Indemnification Agreement entered into between
ProLogis and its Trustees and executive officers
(Incorporated by reference to exhibit 10.16 to
ProLogis' registration statement No. 33-73382)
10.7 Indemnification Agreements between ProLogis and each of
its independent Trustees (Incorporated by reference to
exhibit 10.16 to ProLogis' Form 10-K for the year ended
December 31, 1995)
10.8 Declaration of Trust for the benefit of ProLogis'
independent Trustees (Incorporated by reference to
exhibit 10.17 to ProLogis' Form 10-K for the year ended
December 31, 1995)
10.9 Transfer and Registration Rights Agreement dated as of
February 15, 1994, among ProLogis and the investors
listed on the signature pages thereto (Incorporated by
reference to exhibit 10.18 to ProLogis' Registration
Statement No. 33-78080)
10.10 Share Option Plan for Outside Trustees (Incorporated by
reference to exhibit 10.18 to ProLogis' Form 10-Q for
the quarter ended June 30, 1994)
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
Sequential
Numbered
Number Description Page
------ ----------- ----------
<C> <S> <C>
10.11 Dividend Reinvestment and Share Purchase Plan
(Incorporated by reference to the Prospectus contained
in registration statement No. 33-91366)
10.12 Amended and Restated Agreement of Limited Partnership
of ProLogis Limited Partnership-III, dated as of
October 28, 1994, by and among ProLogis, as general
partner, and the limited partners set forth therein
(Incorporated by reference to exhibit 10.3 to ProLogis'
Form 10-Q for the quarter ended September 30, 1994)
10.13 Amended and Restated Agreement of Limited Partnership
of ProLogis Limited Partnership- IV, dated as of
October 28, 1994, by and among ProLogis IV, Inc., as
general partner, and the limited partners set forth
therein (Incorporated by reference to exhibit 10.4 to
ProLogis' Form 10-Q for the quarter ended September 30,
1994)
10.14 Registration Rights Agreement, dated as of October 28,
1994, among ProLogis and the Investors listed on the
signature pages thereto (Incorporated by reference to
exhibit 10.5 to ProLogis' Form 10-Q for the quarter
ended September 30, 1994)
10.15 Option Agreement and Consent, dated October 24, 1994,
by and between ProLogis and Farm Bureau Life Insurance
Company (Incorporated by reference to exhibit 10.7 to
ProLogis' Form 10-Q for the quarter ended September 30,
1994)
10.16 ProLogis Trust 1997 Long-Term Incentive Plan
(Incorporated by reference to Annex II to Security
Capital Group Incorporated's Registration Statement No.
333-26259 on Form S-1)
10.17 Form of Secured Promissory Note and Pledge Agreement
relating to Share Purchase Program
10.18 Amended and Restated Credit Agreement dated as of
August 12, 1998, between ProLogis and Nationsbank,
N.A., as agent bank (Incorporated by reference to
exhibit 10.1 to ProLogis' Form 10-Q for the quarter
ended June 30, 1998)
10.19 Loan Agreement, dated as of December 23, 1998, between
ProLogis and Connecticut General Life Insurance Company
10.20 Tranche A Promissory Note, dated as of February 22,
1999, between Prologis and Teachers Insurance and
Annuity Association of America
10.21 Tranche B Promissory Note, dated as of February 22,
1999, between Prologis and Teachers Insurance and
Annuity Association of America
10.22 Amended and Restated Investor Rights Agreement among
Meridian, Hunt Realty Acquisitions, L.P., USAA Real
Estate Company, Meridian Point Realty Trust '83, State
Street Bank and Trust Company (as Trustee for Ameritech
Pension Trust) and OTR (an Ohio general partnership,
acting on behalf of and as a nominee for the State
Teachers Retirement Board of Ohio), dated as of
February 23, 1996 (filed with Meridian Industrial
Trust, Inc.'s ("Meridian") Amendment No. 1 to
registration statement No. 333-02322 March 25, 1996,
and incorporated herein by reference).
10.23 Registration Rights Agreement, dated September 24,
1997, among Meridian, The Prudential Insurance Company
of America, The Prudential Insurance Company of America
on behalf of a single client insurance company separate
account contained in Group Annuity Contract No. GA-
9032, Strategic Performance Fund-II, Inc., and The
Prudential Variable Contract Real Property Partnership
(filed with the Schedule 13D filed on October 3, 1997
by The Prudential Insurance Company of America,
Strategic Performance Fund-II, Inc., and The Prudential
Variable Contract Real Property Partnership, and
incorporated herein by reference).
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10.24 Amended and Restated Registration Rights Agreement,
dated September 24, 1997, among Meridian, The
Prudential Insurance Company of America acting for the
benefit of the Chevron Separate Account, and The
Prudential Insurance Company of America acting for the
benefit of the Strategic Performance Fund I Separate
Account (filed with the Schedule 13D filed on October
3, 1997 by The Prudential Insurance Company of America,
Strategic Performance Fund-II, Inc., and The Prudential
Variable Contract Real Property Partnership, and
incorporated herein by reference).
10.25 Registration Rights Agreement, dated September 30,
1997, between Meridian and State Street Bank and Trust
Company, as Trustee for Ameritech Pension Trust (filed
with the Amendment No. 1 to Schedule 13D filed on
October 10, 1997 by Ameritech Pension Trust and
incorporated herein by reference).
10.26 Amended and Restated Stockholders' Agreement among
Meridian, USAA Real Estate Company, Meridian Point
Realty Trust IV Co., Meridian Point Realty Trust VI
Co., Meridian Point Realty Trust VII Co., Meridian
Point Realty Trust '83, Allen J. Anderson, C.E.
Cornutt, Peter O. Hanson, Robert E. Morgan, John S.
Moody, James M. Pollak, Kenneth N. Stensby and Lee W.
Wilson, dated as of November 10, 1995 (filed with
Meridian's registration statement No. 333-00018 on
January 3, 1996, and incorporated herein by reference).
10.27 Form of Indemnification Agreement signed by Meridian
and certain directors, officers, employees and agents
of Meridian (filed with Meridian's registration
statement No. 333-00018 on January 3, 1996, and
incorporated herein by reference).
10.28 Stock Purchase Agreement among Meridian, Harris Trust &
Savings Bank, as Trustee for Ameritech Pension Trust,
and OTR, on behalf of and as nominee for the State
Teachers Retirement Board of Ohio, dated as of December
29, 1995 (filed with Meridian's registration statement
No. 333-00018 on January 3, 1996, and incorporated
herein by reference).
10.29 Third Amended and Restated Revolving Credit Agreement,
dated September 23, 1997, among (i) Meridian, (ii)
BankBoston, N.A., Texas Commerce Bank National
Association, NationsBank of Texas, N.A. Wells Fargo
Bank, N.A., Dresdner Bank AG, First American Bank
Texas, S.S.B., (collectively, the "Banks"), (iii)
BankBoston, N.A. as Agent for the Banks, (iv) Texas
Commerce Bank National Association as Documentation
Agent for the Banks, and (v) NationsBank of Texas, N.A.
as Syndication Agent for the Banks (filed on November
14, 1997 with Meridian's Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by
reference).
10.30 Second Amended and Restated Guaranty of Payment and
Performance, dated September 23, 1997, executed by MIT
Unsecured L.P. (filed on November 14, 1997 with
Meridian's Form 10-Q for the quarter ended September
30, 1997, and incorporated herein by reference).
10.31 Form of First Amendment to Third Amended and Restated
Revolving Credit Agreement, dated February 19, 1998,
among (i) Meridian, (ii) MIT Unsecured L.P. and
Meridian Refrigerated, Inc. (iv) BankBoston, N.A.,
Chase Bank of Texas, National Association, NationsBank
of Texas, N.A., Wells Fargo Bank, N.A., Dresdner Bank
AG, New York Branch and Grand Cayman Branch, and First
American Bank Texas, S.S.B., (collectively, the
"Banks"), (iii) BankBoston, N.A. as Agent for the
Banks, (iv) Chase Bank of Texas, National Association
as Documentation Agent for the Banks, and (v)
NationsBank of Texas, N.A. as Syndication Agent for the
Banks (filed as exhibit 10.22 to Meridian's Form 10-K
for the year ended December 31, 1997, and incorporated
herein by reference).
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10.32 Form of Guaranty of Payment and Performance, dated
February 19, 1998, and signed by Meridian Refrigerated,
Inc. (filed as exhibit 10.23 to Meridian's Form 10-K
for the year ended December 31, 1997, and incorporated
herein by reference).
10.33 Amended and Restated Loan Administration Agreement
between The Prudential Insurance Company of America and
Meridian, IndTennco Limited Partnership, Metro-Sierra
Limited Partnership, and Progress Center/Alabama
Limited Partnership, dated as of February 23, 1996
(filed on March 20, 1997 as exhibit 10.24 to Meridian's
Form 10-K for 1996, and incorporated herein by
reference).
10.34 Agreement of Limited Partnership of DFW Nine between
Dallas Nine Corp. and Sierra Capital Realty Trust IV,
dated April 15, 1987 (filed with Meridian's Amendment
No. 1 to registration statement No. 333-02322 on March
25, 1996, and incorporated herein by reference).
10.35 Amendment No. 1 to Agreement of Limited Partnership of
DFW Nine between Dallas Nine Corp., Ridgelea Corp.,
Sierra Capital Realty Fund IV, and Sierra Capital
Realty Trust VI, dated June 1, 1987 (filed with
Meridian's Amendment No. 1 to registration statement
No. 333-02322 on March 25, 1996, and incorporated
herein by reference).
10.36 Assignment of General Partnership Interests and
Agreement regarding DFW Nine, between Dallas Nine
Corp., Metroplex Co. (a Nevada corporation), Metroplex
Co. (a California corporation) and DFW Nine, dated
February, 1996 (filed with Meridian's Amendment No. 1
to registration statement No. 333-02322 on March 25,
1996, and incorporated herein by reference).
10.37 Assignment of Limited Partnership Interest in MIT
Unsecured L.P. (formerly known as "DFW Nine") between
Meridian, MIT-ULP, Inc., and MIT Unsecured Inc.
(formerly known as "Metroplex Co."), dated December 31,
1996 (filed on March 20, 1997 with Meridian's Form 10-K
for 1996, and incorporated herein by reference).
10.38 Agreement of Limited Partnership of Progress
Center/Alabama Limited Partnership between ProSierra
Corporation and Sierra Capital Realty Trust VII Co.,
dated December 3, 1987 (filed with Meridian's Amendment
No. 1 to registration statement No. 333-02322 on March
25, 1996, and incorporated herein by reference).
10.39 First Amendment to Agreement of Limited Partnership of
Progress Center/Alabama Limited Partnership, dated June
29, 1990 (filed with Meridian's Amendment No. 1 to
registration statement No. 333-02322 on March 25, 1996,
and incorporated herein by reference).
10.40 Assignment of Limited Partnership Interest in MIT
Secured L.P. between Meridian, MIT-SLP, Inc. and MIT
Secured Inc. (formerly known as Progress Center/Alabama
Limited Partnership), dated December 31, 1996 (filed on
March 20, 1997 with Meridian's Form 10-K for 1996, and
incorporated herein by reference).
10.41 Amended and Restated Stock Purchase Agreement, dated
June 12, 1997, by and between Meridian, as Seller, and
The Prudential Insurance Company of America, as
Purchaser, together with a summary of the economic
terms of three additional Stock Purchase Agreements
into which Meridian as Seller has entered with
Strategic Performance Fund-II, Inc. as Purchaser, The
Prudential Variable Contract Real Property Partnership
as Purchaser, and The Prudential Insurance Company of
America on behalf of a single client insurance company
account contained in Group Annuity Contract No. GA-9032
as Purchaser (filed on August 13, 1997 with meridian's
Form 10-Q for the quarter ended June 30, 1997, and
incorporated herein by reference).
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10.42 Note Purchase Agreement among Meridian and The
Travelers Insurance Company (I/N/O TRAL & CO.), United
Services Automobile Association (I/N/O SALKELD & CO.),
The Variable Annuity Life Insurance Company, The United
States Life Insurance Company in the City of New York,
All American Life Insurance Company, The Old Line Life
Insurance Company of America, The Lincoln National Life
Insurance Company, Lincoln Life & Annuity Company of
New York, First Penn-Pacific Life Insurance Company
(I/N/O CUDD & CO), Lincoln National Health & Casualty
Insurance Company, Allied Life Insurance Company "B"
(I/N/O GERLACH & CO), sons of Norway (I/N/O VAR & CO),
Aid Association for Lutherans (I/N/O NIMER & CO),
Metropolitan Life Insurance Company, National Life
Insurance Company, Life Insurance Company of the
Southwest, Keyport Life Insurance Company (I/N/O BOST &
CO), Union Central Life Insurance Company (I/N/O HARE &
CO), and Pan-American Life Insurance Company, dated
November 15, 1997 (filed as exhibit 10.66 to Meridian's
Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference).
10.43 Second Amendment, dated June 23, 1998, to Third Amended
and Restated Revolving Credit Agreement, dated February
19, 1998, among (i) Meridian, (ii) MIT Unsecured L.P.
and Meridian Refrigerated, Inc. (iii) BankBoston, N.A.,
Chase Bank of Texas, National Association, NationsBank
of Texas, N.A., Wells Fargo Bank, N.A., Dresdner Bank
AG, New York Branch and Grand Cayman Branch, and First
American Bank Texas, S.S.B., (collectively, the
"Banks"), (iv) BankBoston, N.A. as Agent for the Banks,
(v) Chase Bank of Texas, National Association as
Documentation Agent for the Banks, and (vi) NationsBank
of Texas, N.A., as Syndication Agent for the Banks
(incorporated by reference to exhibit 10.1 to
Meridian's Form 10-Q for the quarter ended June 30,
1998).
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges
12.2 Statement re: Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Share Dividends
21.1 Subsidiaries of ProLogis
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG
23.3 Report of KPMG
23.4 Consent of John S. Moody
23.5 Consent of Kenneth N. Stensby
24.1 Power of Attorney (included at page 116)
27 Financial Data Schedule
</TABLE>
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Exhibit 10.17
FORM OF SECURED PROMISSORY NOTE
-------------------------------
$___________ _______________, ____
_______________ ("Obligor"), for value received, hereby promises to pay to
the order of Security Capital Industrial Trust, a Maryland real estate
investment trust ("Obligee"), the principal sum of _______________ ($__________)
together with any accrued but unpaid interest from the date hereof payable on
the earliest of (i) __________ __, ____ or (ii) 90 days after the date Obligor
terminates employment with Obligee for any reason other than death, Disability,
Retirement or Cause (each as defined in the Security Capital Industrial Trust
1997 Long-Term Incentive Plan (the "Plan")), provided such termination is not
following a Change in Control (as defined in the Plan), or (iii) 180 days after
the date Obligor's employment with Obligee is terminated by the Obligee
following a Change in Control for reasons other than Cause, or (iv) 365 days
after the date Obligor terminates employment with the Obligee by reason of
death, Disability or Retirement, or (v) the date that the Purchased Shares are
sold or the date that the Obligor's employment with Obligee is terminated for
Cause.
Obligor shall use the proceeds of the loan to purchase ____________ common
shares of beneficial interest of the Obligee (the "Shares") under the Plan (the
"Purchased Shares"). This Note is secured by the Collateral (as defined in the
Pledge Agreement dated as of the date hereof between Obligor and Obligee) and
the holder thereof is entitled to the benefits of such Collateral and Pledge
Agreement. The Purchased Shares shall be subject to a vesting period expiring on
the first anniversary of the date hereof (the "Vesting Date"). If Obligor's
employment with Obligee is terminated, for any reason other than death or
Disability (as defined in the Plan), prior to the Vesting Date, Obligee shall
purchase the Purchased Shares from Obligor at the then Fair Market Value (as
defined in the Plan) of such shares. If such amount is equal to or greater than
the outstanding principal and unpaid interest then due under this Note, the
Obligee shall pay the purchase price by tendering the outstanding principal and
interest amount of this Note to Obligor and a certified check for any remaining
amount due in payment of the purchase price of the Shares. If such amount is
less than the outstanding principal and unpaid interest, Obligor shall promptly
tender a certified check for any remaining amount due in payment of this Note.
Interest on the unpaid principal amount outstanding hereunder shall accrue
at the lower of (i) 6% per annum or (ii) the current annual dividend of a Share
divided by the Fair Market Value of a Share on the date the Purchased Shares
were purchased by the Obligor. The interest rate hereunder shall be adjusted as
of each January 1 to reflect the then applicable rate pursuant to the preceding
sentence and such rate shall be effective until next adjusted in accordance with
the provisions hereof. Accrued interest shall be due and payable on each
quarterly dividend payment date with respect to Shares until payment of the Note
in full. Interest shall be computed for the actual number of days elapsed on the
basis of a 365-day year.
If as of any dividend payment date, the amount of the dividend payment
received with respect to the Purchased Shares is greater than the interest
payment due as of such dividend payment date, a principal payment shall be due
and payable as of such dividend payment date in an amount
<PAGE>
equal to the excess of the dividend payment received with respect to the
Purchased Shares over the interest payment due as of such date.
Payments of principal and interest shall be made on or before the
respective due dates thereof in lawful money of the United States of America at
the address specified herein or at such other place or places as Obligee may
from time to time designate in writing. Payments delivered by registered or
certified mail, postage prepaid, properly addressed and return receipt
requested, shall be deemed made the date postmarked.
If Obligor defaults in making any payment of interest or principal
hereunder when due and such default continues for a period of 10 days after
delivery of notice thereof to Obligor, Obligee may declare the entire unpaid
balance of this Note to be immediately due and payable and such entire unpaid
balance shall thereupon become immediately due and payable; provided, however,
such balance shall not become due and payable if Obligor's failure to make such
payment is a result of Obligee's failure to make the dividend payment due on any
quarterly dividend payment date.
This Note may be prepaid in whole or in part at any time and from time to
time, without premium, penalty or notice to Obligee.
All notices, certificates and other communications ("Notices") hereunder
shall be in writing and may be either delivered personally, by nationally
recognized express courier for overnight delivery, or by facsimile (with request
for assurance of receipt in a manner appropriate with respect to communications
of that type, provided that a confirmation copy is concurrently sent by a
nationally recognized express courier for overnight delivery) or mailed, postage
prepaid, by certified or registered mail, return receipt requested, addressed as
follows:
If to Obligee: Security Capital Industrial Trust
14100 East 35th Place
Aurora, Colorado 80011
Attn: K. Dane Brooksher
With Copy To: Security Capital Industrial Trust
125 Lincoln Avenue
Santa Fe, NM 87501
Attn: Jeffrey A. Klopf
If to Obligor: [name of Obligor]
2
<PAGE>
Notices delivered personally or by facsimile shall be effective on the date
of such delivery or transmission, Notices delivered by a nationally recognized
express courier for overnight delivery shall be deemed to have been made one day
following the date so mailed and all other Notices delivered hereunder shall be
effective five days following the date so mailed. Obligee and Obligor may, by
Notice given hereunder, designate any further or different addresses to which
subsequent Notices shall be sent.
This Note shall be governed exclusively by and construed in accordance with
the internal laws of the State of Maryland.
IN WITNESS WHEREOF, Obligor has caused this Note to be executed as of the
date first above written.
/s/
--------------------
Name
SECURITY CAPITAL INDUSTRIAL TRUST
By: /s/
--------------------
K. Dane Brooksher
Its: Co-Chairman & Chief Operating Officer
3
<PAGE>
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (as amended or otherwise modified from time to time,
this "Agreement") is made and entered into as of this __th day of _____________,
____, by and between ______________________, an individual residing in _________
("Pledgor"), and SECURITY CAPITAL INDUSTRIAL TRUST, a Maryland real estate
investment trust ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgee made a loan to Pledgor in the amount of $____________,
as evidenced by a promissory note dated ____________, ____, in the original
principal amount of $___________ by Pledgor in favor of Pledgee (as amended or
otherwise modified, renewed or extended from time to time, the "Note") in order
to enable Pledgor to purchase _________ common shares of beneficial interest of
Pledgee (the "Purchased Shares"), currently evidenced by certificate number
_________________; and
WHEREAS, Pledgor and Pledgee desire to enter into this Agreement in order
to enable Pledgor to provide security for the payment and performance of all
obligations of Pledgor to Pledgee under the Note (the "Liabilities");
NOW, THEREFORE, for and in consideration of the loan made by Pledgee to
Pledgor, as evidenced by the Note (including any renewal or extension thereof),
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by Pledgor and Pledgee, the parties hereto agree
as follows:
GRANT AND PLEDGE
----------------
To secure the due and punctual payment and performance of all the
Liabilities of Pledgor to Pledgee, its successors and assigns, howsoever
created, arising or evidenced, whether direct or indirect, absolute or
contingent, or now or hereafter existing, or due or to become due, Pledgor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
Pledgee, and hereby grants to Pledgee, a security interest in and to, the
following (collectively, the "Collateral"): (a) the Purchased Shares, all of the
certificates and/or instruments representing or evidencing the Purchased Shares,
and all cash, securities, rights and other property at any time and from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such Purchased Shares, other than warrants received with
respect to the Purchased Shares to purchase shares of Class B Common Stock,
$0.01 par value, of Security Capital Group Incorporated (SCG) as described in
the Merger and Issuance Agreement dated as of March 24, 1997, as amended, by and
between the Pledgee and SCG; (b) all other property hereafter delivered in
substitution for or in additional to any of the foregoing, all certificates and
instruments representing or evidencing such property, and all cash, securities,
interest, rights and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
thereof; and (c) all proceeds of the foregoing.
<PAGE>
PLEDGOR AND PLEDGEE ADDITIONALLY AGREE AS FOLLOWS:
1. Agreements:
(a) Pledgor agrees to execute such documents and such stock powers and
other instruments of transfer and assignment relating to the Collateral and do
such other acts and things, all as Pledgee may from time to time request to
establish and maintain a valid lien upon and security interest in the Collateral
(free of all other liens, claims and rights of third parties whatsoever) to
secure payment of the Liabilities. Without limiting the generality of the
foregoing, all certificates or instruments representing or evidencing the
Collateral shall, promptly after receipt by Pledgor be delivered to Pledgee, or,
if Pledgee so directs, any agent or nominee of Pledgee.
(b) Pledgor covenants and agrees not to sell, transfer or otherwise
dispose of all or any part of the Collateral without the prior written consent
of Pledgee.
(c) Pledgor agrees after any Event of Default (as hereinafter defined)
shall have occurred and be continuing and Pledgee has notified Pledgor of
Pledgee's intention to exercise its voting power under this clause (c): (i)
Pledgee may exercise (to the exclusion of Pledgor) the voting power and all
other incidental rights of ownership with respect to any shares of capital stock
or other equity securities or beneficial interests constituting Collateral and
Pledgor hereby grants Pledgee an irrevocable proxy, exercisable under such
circumstances, to vote such Collateral; and (ii) promptly to deliver to Pledgee
such additional proxies and other documents as may be necessary to allow Pledgee
to exercise such voting power. Pledgee agrees that unless an Event of Default
shall have occurred and be continuing and Pledgee shall have given the notice
referred to in this clause (c), Pledgor shall have the exclusive voting power
with respect to any shares of capital stock or other equity securities or
beneficial interests constituting Collateral and Pledgee shall, upon the written
request of Pledgor, promptly deliver such proxies and other documents, if any,
as shall be reasonably requested by Pledgor which are necessary to allow Pledgor
to exercise voting power with respect to any such shares of capital stock or
other equity securities constituting Collateral; provided, however, that no vote
shall be cast, or consent, waiver, or ratification given, or action taken by
Pledgor that would impair any Collateral or be inconsistent with or violate any
provision of this Agreement or the Note.
(d) Pledgee shall be entitled to receive on behalf of Pledgor any and
all cash dividends, interest and other similar distributions of any and every
kind declared, paid or distributed with respect to the Collateral in the
ordinary course of business (other than liquidating distributions) which shall
be applied to the payment of the Liabilities as provided in the Note; provided,
however, any dividends received with respect to the Collateral in the form of
Common Stock shall be held as additional Collateral. To the extent that the
Pledgee determines it necessary or desirable to effect the foregoing provisions
of this paragraph (d), the Pledgor shall execute a Power of Attorney in favor of
the Pledgee.
2
<PAGE>
2. Events of Default.
(a) The occurrence of any of the following shall constitute an Event
of Default hereunder: (1) failure of Pledgor to perform any of its agreements
contained herein or (ii) failure of Pledgor to perform any of its agreements
contained in the Note (subject to any grace period contained therein, if any).
(b) Upon the occurrence of an Event of Default: (i) Pledgee may
exercise from time to time any rights and remedies available to it under the
Uniform Commercial Code as in effect from time to time in __________ or
otherwise available to it; and (ii) Pledgee may, after giving Pledgor at least
10 days' notice of its intention to do so, appropriate and apply the Collateral
toward the payment of the Liabilities, in such order and application as is set
forth hereinbelow. Any notification of intended disposition of any of the
Collateral, if mailed, shall be deemed reasonable and properly given if mailed
at least 10 days before such disposition, postage prepaid, addressed to Pledgor
at the address of Pledgor appearing in the Note. Any proceeds of any disposition
of Collateral may be applied by Pledgee to the payment of expenses in connection
with the Collateral, including reasonable attorneys' fees and legal expenses,
and any balance of such proceeds may be applied by Pledgee to the payment of
expenses in connection with the Collateral, including reasonable attorneys' fees
and legal expenses, and any balance of such proceeds may be applied by Pledgee
toward the payment of the Liabilities in such order and application as is set
forth in Section 3 hereinbelow. No delay on the part of Pledgee in the exercise
of any right or remedy shall operate as a waiver thereof, and no single or
partial exercise by Pledgee of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy.
3. Application of Proceeds of Sale or Cash Held as Collateral. Any and all
proceeds received by Pledgee at any time or from time to time pursuant to this
Agreement or as proceeds of any of the Collateral shall be applied by Pledgee as
follows:
First: to payment of the reasonable costs and expenses in enforcing
this Agreement and collecting on the Collateral, including, without limitations,
the expenses of collecting such proceeds through legal proceedings to enforce
this Agreement, the reasonable out-of-pocket expenses of Pledgee and the
reasonable fees and out-of-pocket expenses of counsel employed in connection
therewith.
Second: to the payment of amounts owing on Liabilites in such order as
Pledgee may determine; and
Third: the balance, if any, of such proceeds shall be paid to Pledgor,
and Pledgor's successors and assigns.
Upon payment in full of all Liabilities and satisfaction of all
amounts owing to Pledgee by Pledgor, Pledgee shall release its lien in its
Collateral and cooperate with Pledgor in the
3
<PAGE>
transfer back to Pledgor of the Collateral that Pledgor had transferred into the
name of Pledgee, to the extent not sold or otherwise disposed of.
4. Authority of Pledgee. Pledgee shall have, and be entitled to exercise,
all such powers hereunder as are specifically delegated to it by the terms
hereof, together with such powers as are appropriately incidental thereto, and
may execute any of its duties hereunder by or through agents or employees.
Pledgor hereby agrees to reimburse Pledgee for all expenses reasonably incurred
by it in connection with the enforcement of this Agreement.
5. Continuing Agreements. This Agreement shall in all respects be a
continuing agreement and shall remain in full force and effect until all
Liabilities have been paid in full in cash and all amounts owing to Pledgee by
Pledgor have been satisfied.
6. Notices. Any notice authorized or required by this Agreement shall be
sufficiently given if addressed to the receiving party and hand delivered or
sent by mail or facsimile to the individuals at the addresses specified in the
Note or to such other person or persons as the receiving party may from time to
time designate in writing. Such notice shall be effective upon receipt.
7. Successors. This Agreement, and the terms, covenants and conditions
hereof, shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
8. Miscellaneous.
(a) Neither this Agreement nor any provision hereof may be amended,
modified, waived, discharged or terminated, except by an instrument in writing
duly signed by or on behalf of Pledgor and Pledgee.
(b) The Section headings used herein are for convenience of reference
only and shall not define or limit the provisions of this Agreement.
(c) In addition to any other warranties heretofore and hereafter made
by Pledgor, Pledgor hereby warrants to Pledgee that Pledgor is, and at all times
while the Collateral secures the Liabilities will be, the lawful owner of the
Collateral, free of all claims and liens other than the rights of Pledgee with
respect thereto, with full right and power to grant a lien upon and security
interest in, and to deliver, pledge, assign and transfer, the Collateral to
Pledgee, subject to the security interest of Pledgee hereunder.
(d) Pledgee shall exercise reasonable care in the custody and
protection of the Collateral. Pledgee shall be deemed to have exercised
reasonable care if it takes action for that purpose as Pledgor shall request in
writing; provided, however, a failure of Pledgee (i) to comply with any such
written request, or (ii) to preserve or protect any rights with respect to the
Collateral
4
<PAGE>
against prior parties, shall not of itself be deemed a failure to exercise
reasonable care in the custody or preservation of the Collateral.
(e) All obligations of Pledgor, and all rights, powers and remedies
of Pledgee, expressed herein shall be in addition to, and not in limitation of,
those provided by law or in any written agreement or instrument (other than this
Agreement) relating to any of the Liabilities or any security therefor. In
addition to all other rights possessed by it, Pledgee may upon the occurrence of
an Event of Default and lapse of any applicable cure period take any or all of
the following actions: (i) transfer all or any part of the Collateral into the
name of Pledgee or its nominee, with or without disclosing that the Collateral
is subject to the lien and security interest hereunder; provided that aggregate
fair market value of such transferred Collateral will not exceed the amount of
the Liabilities plus a reasonable cushion to defray and pay for costs associated
with disposition of the Collateral and other charges that Pledgor has agreed to
Pay; (ii) notify any obligors on any of the Collateral to make payment to
Pledgee of any amounts due or to become due with respect thereto; (iii) enforce
collection of any of the Collateral by suit or otherwise, or surrender or
release all or any part thereof; and (iv) take control of any proceeds of any of
the Collateral.
(f) Pledgee may, furthermore, from time to time, after an Event of
Default, at its sole discretion and without notice to Pledgor, take any or all
of the following actions: (i) retain or obtain a security interest in any
property of any other persons, in addition to the Collateral to secure any of
the Liabilities (ii) retain or obtain the primary or secondary obligations of
any obligor or obligors, in addition to Pledgor, with respect to any of the
Liabilities, or release or compromise any obligation of any nature of any
obligor with respect to any of the Liabilities; (iii) extend or renew for one or
more periods (whether or not longer than the original period), alter or exchange
any of the Liabilities, or release or compromise any obligation of any nature of
any obligor with respect to any of the Liabilities; (iv) release its security
interest in, or surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Liabilities, or extend or
renew for one or more periods (whether or not longer than the original period)
or release, compromise, alter or exchange any obligations of any nature of any
obligor with respect to any such property; and (v) resort to the Collateral (or
any part or portion thereof) for payment of any of the Liabilities, whether or
not Pledgee shall have resorted to any other property securing any of the
Liabilities or shall have proceeded against Pledgor or against any other obligor
primarily or secondarily obligated with respect to any of the Liabilities.
(g) Pledgor agrees that in any sale of the Collateral whenever an
Event of Default shall have occurred and be continuing, Pledgee is authorized to
comply with any restriction in connection with the sale as its counsel advises
it is necessary in order to avoid any violation of applicable law, or in order
to obtain any required approval of the sale by any governmental regulatory
authority or official. In this regard, Pledgor agrees that such compliance will
not cause the sale to be considered not to have been made in a commercially
reasonable manner.
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<PAGE>
(h) In the event that the proceeds of any sale or other disposition
are not sufficient to pay the Liabilities in full, Pledgor shall remain liable
to Pledgee for any deficiencies.
(i) Pledgor agrees that any amount advanced by Pledgee to protect the
Collateral and any reasonable costs or expense (including reasonable attorneys'
fees) incurred in enforcing Pledgee's rights hereunder shall be added to the
Liabilities secured by the Collateral.
9. Counterparts. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
10. Governing Law; Interpretation. This Agreement shall be governed by the
internal laws of the State of Maryland. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the date first above written.
SECURITY CAPITAL INDUSTRIAL TRUST
/s/
----------------------------------------
K. Dane Brooksher
Co-Chairman & Chief Operating Officer
/s/
----------------------------------------
(Name)
Attachment
----------
The following persons have executed secured promissory notes with SCI in a
form which, except as set below, is the same as that set forth above in Exhibit
10.25 in all material respects.
<TABLE>
<CAPTION>
Name Principal Amount Due Date Interest Rate
- ---------------- ---------------- ----------------- -------------
<S> <C> <C> <C>
K. Dane Brooksher $1,885,197 September 8, 2007 (1)
Irving F. Lyons III $1,885,197 September 8, 2007 (1)
Jeffrey H. Schwartz $1,131,105 September 8, 2007 (1)
Robert J. Watson $1,131,105 September 8, 2007 (1)
Walter C. Rakowich $942,598 September 8, 2007 (1)
John W. Seiple Jr. $942,598 September 8, 2007 (1)
M. Gordon Keiser $377,035 September 8, 2007 (1)
</TABLE>
(1) Interest on the unpaid principal amount outstanding hereunder shall accrue
at the lower of (i) 6% per annum or (ii) the current annual dividend of a
Share divided by the Fair Market Value of a Share on the date the Purchased
Shares were purchased by the Obligor.
6
<PAGE>
Exhibit 10.19
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of the 23rd day of
December, 1998, by and between PROLOGIS TRUST, a Maryland real estate investment
trust ("Borrower") and CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation ("Lender").
R E C I T A L S
A. Simultaneously with the execution and delivery hereof, Lender has made
or is making a loan (the "Loan") to Borrower. The Loan is evidenced by a
Promissory Note of even date herewith in the stated original principal amount of
$150,000,000 from Borrower, as maker, to Lender, as payee (the "Note");
B. The Loan is secured, inter alia, by (i) that certain Deed to Secure
Debt and Security Agreement (the "Georgia Security Deed") of even date herewith
made by or on behalf of Borrower for the benefit of Lender encumbering with a
first priority lien and security title on and security interest in certain real
and personal properties located in the State of Georgia, which properties are
more particularly described in the Georgia Security Deed (collectively, the
"Georgia Property"); (ii) that certain Deed of Trust and Security Agreement (the
"Texas Trust Deed") of even date herewith made by Borrower, et al., for the
benefit of Lender encumbering with a first priority lien and security title on
and security interest in certain real and personal properties located in the
State of Texas, which properties are more particularly described in the Texas
Trust Deed (collectively, the "Texas Property"); and (iii) that certain Mortgage
and Security Agreement (the "Illinois Mortgage") of even date herewith made by
Borrower for the benefit of Lender encumbering with a first priority lien and
security title on and security interest in certain real and personal properties
located in the State of Illinois, which properties are more particularly
described in the Illinois Mortgage (collectively, the "Illinois Property"). The
Georgia Security Deed, the Texas Trust Deed and the Illinois Mortgage, together
with any replacement, substitute or additional security deeds, trust deeds or
mortgages hereafter granted as security for repayment of the Loan and the other
obligations of Borrower, as the same may be amended from time to time in
writing, are sometimes referred to herein, collectively, as the "Deeds". The
Georgia
<PAGE>
Property, the Texas Property, and the Illinois Property, together with any
substitute or additional collateral now or hereafter granted as security for the
repayment of the Loan and the other obligations of Borrower, including, without
limitation, now or hereafter granted by Borrower with respect thereto, are
sometimes referred to herein collectively as the "Properties" or as the
"Security". The Properties consist of the separate buildings identified by
building name and location on Exhibit A attached hereto and by this reference
made a part hereof, and the underlying land and personalty associated with each
such building. For purposes hereof, each of such buildings, including all land
and personalty associated therewith, is hereafter referred to as a "Property."
C. The Loan is further secured, inter alia, by Assignments of Rents and
Leases of even date herewith from Borrower, et al., to Lender relating to:
(i)the Georgia Property (the "Georgia Lease Assignment"), (ii) the Texas
Property (the "Texas Lease Assignment"), and (iii) the Illinois Property (the
"Illinois Lease Assignment"). The Georgia Lease Assignment, the Texas Lease
Assignment, and the Illinois Lease Assignment, together with any amendments
thereto and any replacement, substitute or additional assignments of rents or
leases which may hereafter be granted as security for the Loan, are sometimes
referred to herein individually as a "Lease Assignment" and collectively as the
"Lease Assignments".
D. This Agreement, the Note, the Deeds, the Lease Assignments and all
other documents, instruments and agreements entered into by Borrower, whether
now or hereafter entered into, which evidence, secure, or otherwise relate to
the Loan, as the same may be amended or modified in writing from time to time,
are collectively referred to herein as the "Loan Documents".
E. The Properties, together with all rights and property granted under
any of the Loan Documents, including, without limitation, any substitute or
additional collateral hereafter granted as security for the Loan, are
collectively referred to herein as the "Encumbered Property".
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and in the other Loan Documents, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby covenant and agree as follows:
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<PAGE>
1. One Loan. Notwithstanding that the Loan is secured by multiple
Deeds on various Properties, Borrower and Lender agree and acknowledge that the
Loan constitutes one single loan and is and shall be secured in its entirety by
all of the Encumbered Property, and in no event shall the Deeds and other Loan
Documents securing the Loan be deemed to constitute individual mortgage loans
relating to the Note individually. The parties agree that, upon the occurrence
of an Event of Default (after expiration of applicable grace and cure periods)
under the Note, the Deeds or any of the other Loan Documents, Lender may (but
shall not be obligated to) proceed with any or all of the rights or remedies
that it may have at law, in equity, or as otherwise provided under the Loan
Documents in any order or priority against or with respect to any or all of the
Encumbered Property as Lender may deem necessary or desirable. Borrower hereby
waives, for itself, its successors, its assigns, any other party claiming by or
through Borrower, and on behalf of any subsequent owner of any or all of the
Encumbered Property, any rights or claims it or they may have to sever the Loan
or the Encumbered Property, to marshaling of assets or to otherwise require
Lender to realize on the collateral in any particular order or priority. Any
provisions contained herein or in any of the Loan Documents which create or
appear to create a relationship between (i) a portion of the indebtedness
evidenced by the Note, and (ii) specific Deeds or specific Properties or other
collateral under any of the other Loan Documents, including, without limitation,
the provisions relating to a partial release of the Encumbered Property upon
substitution of additional collateral, or the application of casualty insurance
proceeds and condemnation awards pursuant to the provision herein below, shall
be for the specific purposes set forth therein, and shall not be interpreted to
imply that the Note and Deeds constitute several or separate mortgage loans.
2. Substitution of Collateral. Not more than two (2) times during
any calendar year during the term of the Loan, and only with Lender's written
approval, Borrower shall have the right to have up to an aggregate of eight (8)
Properties per calendar year released from the lien of the related Deed and
Assignment and the other Loan Documents, by substituting new collateral (the
"Substitute Property") for said released Properties in accordance with the
following terms and conditions:
(a) No Event of Default. There shall be no existing Event of
Default, or any condition, which with the passage of time, or giving
of notice, or both, would constitute an Event of
3
<PAGE>
Default under the Loan Documents at the time of such release and
substitution;
(b) Lender's Expenses. Borrower shall pay all costs and
expenses incurred by Lender in evaluating any proposed release and
substitution of collateral in accordance with the provisions of this
Section 2, and all costs and expenses incurred by Lender in connection
with such release and substitution of collateral, including, but not
limited to, recording fees, title fees, survey charges, recording
taxes, engineering and environmental costs and charges, and reasonable
attorney's fees of Lender's staff and outside counsel, irrespective of
whether such substitution and release of collateral actually occurs;
(c) Additional Requirements. The Substitute Property must, in
Lender's sole reasonable judgment, satisfy the following terms and
conditions:
(i) the value of the Substitute Property must equal or
exceed the value of the Property(ies) to be released;
(ii) the Substitute Property must be improved with buildings
similar to the Property(ies) to be released (including similar in
use) and no less than 90% leased and occupied under leases
acceptable to Lender as confirmed by tenant estoppels acceptable
to Lender; and the Substitute Property must be located in one of
the submarkets wherein the initial Properties are located and the
number of Substitute Properties must be comparable to the number
of Properties to be released;
(iii) the Encumbered Property (following the release of the
Property(ies) to be released and substitution of the Substitute
Property) must in the aggregate have a Loan-to-Value (as
hereinafter defined) ratio of not more than the Loan to Value
ratio immediately preceding such substitution, based on a then-
current appraisal, as determined by Lender, as of the date of the
substitution of the Substitute Property;
4
<PAGE>
(iv) the Debt Service Coverage (as hereinafter defined) on
the Loan (following the substitution of the Substitute Property),
must equal or exceed the Debt Service Coverage immediately
preceding such substitution;
(v) Borrower must submit to Lender an engineering report
for the Substitute Property, acceptable to Lender;
(vi) Borrower must provide Lender with a current as-built
survey for the Substitute Property, which survey must be
acceptable to both Lender and the applicable title insurance
company, must comply with Lender's then standard survey
requirements, and must be certified to Lender and such title
insurance company, such certification to be in form and substance
satisfactory to Lender and the title insurance company;
(vii) Lender shall conduct, at Borrower's cost and expense,
Phase I environmental audits or studies which meet ASTM E 1527
standards regarding the Substitute Property. The results of such
audits or studies must be acceptable to Lender; and
(viii) Borrower shall execute and deliver to Lender and
obtain for Lender, all documents and instruments as may be
reasonably requested by Lender so that the Substitute Property
becomes first priority security for the Loan, including, without
limitation, amendments to the Loan Documents, new first priority
deed to secure debt, deed of trust or mortgage, new title
insurance policies or endorsements to Lender's existing title
insurance policy(ies) relating to the Loan, estoppel
certificates, subordination agreements, and legal opinions, all
in form and substance satisfactory to Lender.
Notwithstanding any of the foregoing to the contrary, Lender will have the
right to reject the proposed Substitute Property if Lender determines, in the
exercise of its reasonable judgment, that the proposed Substitute Property is
not of comparable quality to the Property(ies) to be released.
5
<PAGE>
For purposes of this Agreement, "Loan-to-Value", as of a date, is defined
as the ratio of (a) the outstanding principal balance of the Loan, as of such
date, to (b) the Fair Market Value of the Encumbered Property, as of such date.
Whenever the "Fair Market Value" of the Encumbered Property is to be
determined, as of a date, Borrower shall deliver a notice to Lender describing
the event requiring such determination, which notice shall contain Borrower's
proposed determination of Fair Market Value. Borrower and Lender shall then
endeavor to agree on such Fair Market Value by written agreement. However, if
no such agreement can be reached within fifteen (15) days after receipt by
Lender of such notice of the event requiring such determination, then the issue
shall be resolved by appraisal; and Lender and Borrower, jointly, shall
promptly appoint an independent appraiser who shall hold the M.A.I. or S.R.E.A.
designation and who shall have at least 10 years experience in appraising
comparable properties. Borrower acknowledges that Lender may appoint as an
appraiser an otherwise qualified appraiser who has previously performed
appraisals on Lender's property at Lender's request (whether in connection with
the Property(ies) or any other property owned or financed by Lender) and agrees
and consents to such appraiser acting as the appraiser hereunder. At the time
of the appointment of the appraiser, Lender shall advise the appraiser in
writing (with a copy to Borrower), of the amount of the Fair Market Value
proposed by Borrower (pursuant to the first sentence of this paragraph) as well
as the amount proposed by Lender. The sole option and role of the appraiser
shall be to select which of the two proposed Fair Market Values is closest to
appraiser's determination of the Fair Market Value, and whichever of the two
Fair Market Values the appraiser so selects shall be deemed to be the Fair
Market Value for purposes of this provision. In making his determination, the
appraiser will be asked to emphasize the discounted cash flow method of
determining the Fair Market Value of the Encumbered Property. The fees of the
appraiser shall be paid by Borrower.
For purposes of this Agreement, "Debt Service Coverage" is defined as the
ratio, as reasonably determined by Lender, of (a) Net Operating Income from the
Encumbered Property for the applicable period of time to (b) Total Annual Debt
Service. "Net Operating Income" is defined as gross income from operations of
the Encumbered Property based upon the previous twelve (12)-month period from
leases of space therein (to the extent Lender reasonably projects such income
will continue for the immediately succeeding twelve (12)
6
<PAGE>
month period), subtracting therefrom all necessary and ordinary operating
expenses applicable to the Encumbered Property for such period of time (both
fixed and variable to the extent reasonably projected by Lender to continue for
the next succeeding twelve (12) month period), including but not limited to,
utilities, administrative, cleaning, landscaping, security, repairs and
maintenance, permitted ground rent payments, if any, management fees, real
estate and other taxes, assessments, and insurance, but excluding therefrom
deductions for federal, state and other income taxes, debt service expense,
depreciation or amortization of capital expenditures and other similar noncash
items. Notwithstanding the foregoing, if Borrower proposes a Substitute Property
which, due to the recent construction of the improvements on such Substitute
Property, has been occupied by tenants, in whole or in part, at least six (6)
months but less than twelve (12) months, then Net Operating Income for such
Substitute Property shall be annualized in a manner reasonably satisfactory to
Lender, based upon the actual number of months such Substitute Property has been
occupied, in whole or in part. Gross income shall not be anticipated for any
greater time period than that approved by generally accepted accounting
principles nor shall ordinary operating expenses be prepaid. Documentation of
Net Operating Income shall be certified by the chief financial officer of
Borrower with detail satisfactory to Lender and shall be subject to the approval
of Lender. "Total Annual Debt Service" shall mean the sum of (i) the annual
required debt service payments (including principal and interest) on the Loan,
plus (ii) the annual required debt service payments (including principal and
interest) on all other indebtedness secured by a lien on all or part of the
Encumbered Property for the applicable time period.
3. Tax Escrow. Notwithstanding the requirement in Section 5 of the
Deeds that an escrow be established for real estate taxes on the Encumbered
Property, Lender agrees to waive this requirement so long as Borrower maintains
an investment grade credit rating equal to BBB- or better given by Standard &
Poor's Rating Service or the equivalent rating by Duff & Phelps and/or Moody's
(the "Minimum Credit Rating").
4. Permitted Transfer. Notwithstanding anything to the contrary
contained in the Note, the Deeds or in any of the other Loan Documents, Borrower
shall have the right to a one-time sale, transfer or assignment of the
Encumbered Property (in whole, but not in part) to any party of equal
qualification and creditworthiness to the Borrower, provided:
7
<PAGE>
(a) No Event of Default. There exists at the time of the
transfer no Event of Default, nor any condition which, with the
passage of time or the giving of notice, or both, would constitute an
Event of Default under the Loan Documents;
(b) Inspection of Property. A property inspection by Lender or
Lender's designee shows that all reasonably necessary maintenance of
the improvements on the Encumbered Property has been performed, and
any damage or destruction affecting the Encumbered Property has been
completed or repaired;
(c) Qualified Real Estate Investor. The proposed transferee
shall be a Qualified Real Estate Investor. For purposes of this
provision, a "Qualified Real Estate Investor" is defined as any
reputable corporation, partnership, limited liability company, joint
venture, joint-stock company, trust or individual that meets Lender's
then current underwriting guidelines, that is based in the United
States of America, that is not the subject of any bankruptcy,
reorganization or insolvency proceedings or any criminal charges or
proceedings, and that shall not have been, at the time of transfer or
prior thereto, a litigant, plaintiff or defendant in any suit brought
against or by Lender. Lender agrees to be reasonable in the review of
such qualifications;
(d) Debt Service Coverage. The aggregate Debt Service Coverage
on the Loan exceeds 1.70 times;
(e) Real Estate Experience. The proposed transferee has specific
related commercial real estate experience in the Metropolitan
Statistical Area(s) where the Encumbered Property(ies) are located;
(f) Management. The proposed transferee must (prior to the
proposed transfer) own or manage a minimum of 10,000,000 square feet
of industrial properties;
(g) Prior Notice of Transfer. At least sixty (60) days prior to
such a transfer Borrower must provide Lender with written notice of
all of the material provisions of such transfer,
8
<PAGE>
including without limitation, the proposed date of transfer, the name,
net worth, background and address of the proposed transferee, and the
purchase price;
(h) Assumption of Obligations. Lender shall be reasonably
satisfied that the proposed transferee shall have assumed each and
every obligation of Borrower under the Loan Documents and that such
transfer shall not affect or impair Lender's security and rights under
the Loan Documents;
(i) Lender's Fee. The notice received under (g) above shall be
accompanied by Borrower's payment to Lender of a non-refundable fee
in the amount of one percent (1%) of the then outstanding principal
balance of the Loan, in cash or certified check to be retained by
Lender in order to induce Lender to allow the proposed transferee to
assume the obligations of Borrower under the Loan Documents, and such
fee (net of Lender's expenses referenced in Section 4(k) below) shall
be returned to Borrower if Lender disapproves such transfer or if such
transfer fails to be consummated for any other reason;
(j) Loan to Value Ratio. The Loan-to-Value ratio of the Loan to
the Encumbered Property must not exceed 60%; and
(k) Lender's Expenses. Borrower shall pay all of Lender's costs
and expenses associated with the transfer, including without
limitation, reasonable attorneys' fees charged by Lender's staff
counsel and special counsel.
With respect to any transfer permitted hereunder or otherwise consented to
by Lender, Borrower and the entity acquiring the interest in the Properties
shall enter into any reasonable amendments to the Loan Documents reflecting such
transfer, including, without limitation, an assignment and assumption of the
Loan Documents and amendments to UCC financing statements. In addition, Lender
may require appropriate title insurance endorsements reflecting such transfer.
5. Approval of Leases. Notwithstanding the requirement in Section
22 of the Deeds regarding approval by Lender of leases affecting the Encumbered
Property and the terms of any other Loan Documents (including the
9
<PAGE>
Lease Assignments), Lender agrees to waive its requirement to receive and
approve all leases and sub-leases (and any amendments, modifications, renewals
or extensions, assignments and subletting thereof), provided there is no Event
of Default under any of the Loan Documents, and, provided further that the
following requirements are met:
(a) Maximum Term and Size. If the term of the lease (excluding
any renewal or extension options) is no more than 10 years, then the
lease covers an area no greater than 400,000 square feet of net
rentable area; and if the term of the lease (excluding any renewal or
extension options) is more than 10 years, then the lease covers an
area no greater than 100,000 square feet of net rentable area;
(b) Standard Form. The lease is written on a standard form of
lease which Lender has previously approved in writing with no material
changes;
(c) Rental. The effective rent provided for over the lease term
is consistent with the then current market effective rent of
comparable space in competitive properties. The schedule of rent
shall not decline over the lease term, including any extension. At
Lender's option, an effective rent schedule shall be provided by
Borrower annually for written approval by Lender;
(d) No Ownership Interest. The lease does not (i) grant the
tenant any purchase option or right of first refusal to purchase the
property, (ii) grant the tenant any interest in the ownership of the
Encumbered Property or portion thereof, or provide any incentives
equivalent to such an ownership interest, or (iii) otherwise contain
terms that would cause a material impairment of Lender's security;
(e) Tenant Concessions. The lease does not provide for the
payment for tenant improvement work or leasing commissions at any time
other than prior to or at commencement of the lease;
(f) Non-Affiliates. The lease shall be an arms length
transaction and not be to Borrower, an affiliate of Borrower, or a
creditor of Borrower (other than entities that may be trade
10
<PAGE>
creditors of Borrower in the ordinary course of Borrower's business)
(provided Borrower may execute any such lease to itself, its affiliate
or its creditor so long as the leased space is less than 50,000 square
feet), and Borrower shall not assign any portion of the rental to any
third party;
(g) Copies to Lender. Borrower provides certified copies of
such lease documentation to Lender within ten (10) days after the
execution of each such lease; and
(h) Possession. The tenant is obligated to take possession
immediately upon completion of any required improvements.
Notwithstanding the foregoing, Borrower may enter into licenses or leases
with service providers for the purpose of providing services to Borrower or to
other tenants, without the prior approval of Lender, so long as each such
license or lease (i) reflects an arms length transaction with an entity not
affiliated with Borrower, and (ii) covers no more than 50,000 rentable square
feet and is for a term of no more than 10 years (excluding renewals or
extensions).
6. Representations, Warranties and Covenants of Borrower. Borrower
represents, warrants and covenants that as of the date hereof:
(a) Existence and Power. Borrower is a trust duly created,
validly existing and in good standing under the laws of the State of
Maryland, and is duly qualified to transact business in every
jurisdiction where, by the nature of its business, such qualification
is necessary, and has all trust powers and all governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted, except where any such failure does not have
and is not reasonably expected to cause a material adverse effect on
Borrower.
(b) Authorization; No Contravention. The execution, delivery and
performance by Borrower of this Agreement, the Note and the other Loan
Documents (i) are within the Borrower's trust powers, (ii) have been
duly authorized by all necessary trust action, (iii) require no action
by or in respect of or filing
11
<PAGE>
with, any governmental body, agency or official, (iv) do not
contravene, or constitute a default under, any provision of applicable
law or regulation or of the trust agreement of Borrower or of any
material agreement, judgment, injunction, order, decree or other
instrument binding upon Borrower, and (v) do not result in the
creation or imposition of any lien on any asset of Borrower other than
the liens created by the Loan Documents.
(c) Binding Effect. This Agreement, the Note, and the other
Loan Documents constitute valid and binding agreements of Borrower
enforceable in accordance with their terms, provided that such
enforceability is subject to general principles of equity and to
bankruptcy, insolvency and similar laws affecting the enforcement of
creditors' rights generally.
(d) No Litigation. There is no action, suit or proceeding
pending, or to the knowledge of Borrower, threatened, against or
affecting Borrower, before any court or arbitrator or any governmental
body, agency or official which has caused or is reasonably expected to
cause a material adverse effect on Borrower or which in any manner
draws into question the validity of or is reasonably expected to
impair the ability of Borrower to perform its obligations under, this
Agreement, the Note, or any of the other Loan Documents.
(e) Compliance with Laws; Payment of Taxes. To Borrower's
knowledge, Borrower is in compliance with all applicable laws,
regulations and similar requirements of governmental authorities,
except where (i) such compliance is being contested in good faith
through appropriate proceedings or (ii) any failure to comply does not
have and is not reasonably expected to cause a material adverse effect
on Borrower. There have been filed on behalf of Borrower, all
Federal, state and local income, excise, property and other tax
returns which are required to be filed by it and all taxes due
pursuant to such returns or pursuant to any assessment received by or
on behalf of the Borrower have been paid, except: (i) ad valorem taxes
not due and payable; and (ii) other liabilities, if they are being
contested in good faith and against which Borrower has set up
appropriate reserves. The charges, accruals and reserves on the books
of Borrower in respect of taxes
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<PAGE>
or other governmental charges are, in the opinion of Borrower,
adequate.
(f) No Default. Borrower is not in default under or with respect
to any agreement, instrument or undertaking to which it is a party or
by which it or any of its property is bound which has caused or is
reasonably expected to cause a material adverse effect on Borrower.
No Default or Event of Default has occurred and is continuing.
(g) Full Disclosure. To Borrower's knowledge, all information
heretofore furnished by Borrower to Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby
is, and all such information hereafter furnished by Borrower to Lender
will be, true, accurate and complete in all material respects.
(h) Margin Stock. Borrower is not engaged principally, or as one
of its important activities, in the business of purchasing or carrying
any margin stock, and no part of the proceeds of the Loan will be used
to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock, or be used
for any purpose which violates, or which is inconsistent with, the
provisions of Regulation X of the Board of Governors of the Federal
Reserve System.
(i) Insolvency. After giving effect to the execution and
delivery of the Loan Documents and the making of the Loan under this
Agreement: (i) Borrower will not (x) be "insolvent," within the
meaning of such term as used in O.C.G.A. (S) 18-2-22 or as defined in
(S) 101 of the "Bankruptcy Code", or Section 2 of either the "UFTA" or
the "UFCA", or as defined or used in any "Other Applicable Law" (as
those terms are defined below), or (y) be unable to pay its debts
generally as such debts become due within the meaning of Section 548
of the Bankruptcy Code, Section 4 of the UFTA or Section 6 of the
UFCA, or (z) have an unreasonably small capital to engage in any
business or transaction, whether current or contemplated, within the
meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA
or Section 5 of the UFCA; and (ii) the obligations of Borrower under
the Loan Documents and
13
<PAGE>
with respect to the Loans will not be rendered avoidable under any
Other Applicable Law. For purposes of this Section 6(i), "Bankruptcy
Code" means Title 11 of the United States Code, "UFTA" means the
Uniform Fraudulent Transfer Act, "UFCA" means the Uniform Fraudulent
Conveyance Act, and "Other Applicable Law" means any other applicable
state law pertaining to fraudulent transfers or acts voidable by
creditors, in each case as such law may be amended from time to time.
(j) Real Estate Investment Trust. Borrower is qualified under
the Internal Revenue Code as a real estate investment trust.
(k) Millennium Compliance. All computer systems used by Borrower
will be capable of the following on December 31, 1999, as well as at
all times after January 1, 2000:
(i) handling date information involving all and any dates
before, during and/or after January 1, 2000, including accepting
input, providing output and performing date calculations in whole
or in part;
(ii) operating, accurately without interruption on and in
respect of any and all dates before, during and/or after January
1, 2000 and without any change in performance;
(iii) responding to and processing two digit year input
without creating any ambiguity as to the century; and
(iv) storing and providing date input information without
creating any ambiguity as to the century.
(l) Consolidations, Mergers and Sales of Assets. Borrower will
not consolidate or merge with or into, or sell, lease or otherwise
transfer all or any substantial part of its assets to, any other
person or entity; provided, however, the foregoing shall not be deemed
to prohibit mergers where (i) Borrower is the surviving entity and
(ii) such surviving entity has a credit
14
<PAGE>
rating immediately following such merger no lower than the Minimum
Credit Rating.
(m) No Truck Terminal Facilities. To Borrower's knowledge, based
upon the representations of its tenants, no tenant which leases space
within any of the Properties operates a Truck Terminal as its main and
primary business. "Truck Terminal" as used herein means the business
of storing, servicing and maintaining commercial trucks in order to
generate a profit directly from such activities.
7. Disbursement of Loan; Co-Lender. An initial disbursement under
the Loan in the amount of $66,000,000 has been made on the date hereof by Lender
to Borrower (the "First Disbursement"). A second disbursement (the "Second
Disbursement") in the amount of $84,000,000 will be made by Lender to Borrower
on or before February 26, 1999 (the "Second Disbursement Deadline"), subject
only to the following:
(a) No Default. At the time of the second funding, there shall
then exist no Event of Default, nor any condition which, with the
passage of time or the giving of notice, or both, would constitute an
Event of Default;
(b) Representatives and Warranties True. At the time of the
second funding, all representations and warranties of Borrower
contained in any of the Loan Documents shall remain true and correct
in all material respects as if remade by Borrower at the time of the
second funding (as confirmed by a certificate of Borrower to be given
to Lender at that time);
(c) Additional Documents. Borrower shall execute and deliver to
Lender or obtain for Lender, all documents and instruments as may be
reasonably requested by Lender (including, without limitation,
amendments to the Deeds and endorsements to Lender's title insurance
policies), sufficient to assure Lender that the Second Disbursement is
secured by the Deeds without any matters of title intervening since
the date of this Agreement; and
15
<PAGE>
(d) Lender's Expenses. Borrower shall pay all of Lender's costs
and expenses associated with the second funding including, without
limitation, reasonable attorneys' fees charged by Lender's staff
counsel and special counsel.
(e) Environmental Site Assessments. Borrower shall provide
Lender on or before February 10, 1999, with current Phase I
environmental site assessments ("Phase I Assessments") for each of the
Properties, in form and content acceptable to Lender reflecting a
state of each of the Properties with regard to environmental matters
acceptable to Lender. Should Borrower be unable to provide an
acceptable Phase I Assessment as to any of the Properties, then (i)
Borrower shall be entitled to provide as to any such non-qualifying
Property(ies), Substitute Property(ies) meeting the requirements of
Section 2 hereof, and failing that (ii) the amount of the Loan will be
reduced (by first reducing the amount of the Second Disbursement) to
the extent necessary so that the Loan to Value ratio for the
Encumbered Property (excluding such non-qualifying Properties) is not
greater than 60% (including a mandatory prepayment at par of a portion
of the First Disbursement if the aggregate Fair Market Value of the
Properties as to which satisfactory Phase I Assessments are provided
is less than $110,000,000). Borrower's deadline for qualifying for
the Second Disbursement is the Second Disbursement Deadline.
(f) Asbuilt Surveys. Borrower shall obtain and deliver to Lender
at least ten (10) days prior to the funding of the Second
Disbursement, ALTA as-built surveys for the following thirteen (13)
Properties:
. Dallas Corporate Center Nos. 1-7, 9 and 10
. International Airport Industrial Center Nos. 8 and 9
(Atlanta)
. Great Southwest Distribution Center No. 5 (Dallas)
. Post Oak Business Center No. 15 (Chicago)
16
<PAGE>
Such as built surveys shall be in the form and content consistent with
Lender's standard survey requirements and such surveys shall reflect
no matters objectionable to Lender in its reasonable discretion.
Borrower acknowledges that Lender has obtained a co-lender (the "Co-
Lender") for 50% of the amount of the Loan. In no event shall Lender be liable
for any failure or refusal of Co-Lender to fund its 50% share of the Second
Disbursement. In the event Co-Lender fails or refuses to fund its share of the
Second Disbursement on or before the Second Disbursement Deadline even though
Borrower has met all conditions for such funding, Lender shall have the option,
in its sole discretion, either (i) to decline to fund its 50% of the Second
Disbursement, in which case the maximum Loan amount shall be reduced to
$66,000,000 (less any reduction pursuant to Section 7(e) above resulting from
non-qualifying Properties for which no Substitute Properties are provided) and
Lender shall have no further obligation to disburse additional Loan proceeds, or
(ii) Lender may elect to fund its 50% of the Second Disbursement, in which case
the maximum Loan amount shall be $108,000,000 (less any reduction pursuant to
Section 7(e) above resulting from non-qualifying Properties for which no
Substitute Properties are provided) and Lender shall have no further obligation
to disburse additional Loan proceeds, or (iii) Lender may elect to extend the
Second Disbursement Date for up to twenty (20) days to seek a new or additional
Co-Lender and if at the end of such twenty (20) day period Lender has not
succeeded in securing a new or additional Co-Lender such that the Second
Disbursement can be fully funded on or before March 31, 1999, then Lender shall
have the option in its sole discretion on or before March 31, 1999 to elect
either clause (i) or clause (ii) above.
In the event less than the full $150,000,000 is ultimately funded under the
Loan due to the failure or refusal of the Co-Lender to fund its pro-rata share
of the Second Disbursement even though Borrower has met all conditions for such
funding, then (i) Borrower shall be entitled to have a pro-rata share of the
collateral encumbered by the Deeds promptly released from the lien of the Loan
Documents, and (ii) Lender shall promptly refund to Borrower a pro-rata portion
of the $375,000 loan fee previously paid by Borrower to Lender. The pro-rata
portion of the collateral to be released pursuant to the immediately preceding
sentence shall be (i) as listed in Exhibit B attached hereto and by this
reference made a part hereof, if the final total Loan amount funded is
$66,000,000, (less any reduction pursuant to Section 7(e)
17
<PAGE>
above resulting from non-qualifying Properties for which no Substitute
Properties are provided) or (ii) as listed in Exhibit C attached hereto and by
this reference made a part hereof, if the final total Loan amount funded is
$108,000,000 (less any reduction pursuant to Section 7(e) above resulting from
non-qualifying Properties for which no Substitute Properties are provided).
8. Lease Security Deposits. If at any time hereafter, Borrower
fails to maintain a Minimum Credit Rating, then Borrower will promptly escrow
with Lender or its agent, as additional security for the Loan, an amount from
time to time, equal to the aggregate of all security deposits of tenants made to
the landlord from time to time under leases affecting the Properties (except as
to those leases, if any, as to which the tenants have provided Lender with a
written waiver of any obligation to refund such deposits to such tenants unless
Borrower has actually delivered such deposits to Lender).
9. Miscellaneous.
(a) Loan Agreement Governs. To the extent that any conflict
exists between any of the terms and provisions of this Agreement and
any of the terms and provisions of the Note, the Deeds or any of the
other Loan Documents, this Agreement shall control and supersede the
terms and provisions of the Note, Deeds or other Loan Documents.
(b) Event of Default. The term "Event of Default" as used herein
shall have the meanings ascribed to that term in any of the Note, the
Deeds and the other Loan Documents. This Agreement shall constitute a
"Loan Document" under the Note and the Deeds.
(c) Time of the Essence. Time is of the essence of this
Agreement, and of each of the covenants, agreements and obligations
hereunder.
(d) Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of
which, taken together, shall constitute but one agreement.
(e) Notices. Any notice, demand, request, statement or consent
made hereunder shall be given in the same manner and with the same
effect as provided in Section 43 of the Deeds.
18
<PAGE>
(f) Severability. If any provision of this Agreement shall be
held invalid or unenforceable, the same shall not affect the validity
of the remainder of this Agreement.
(g) Captions. The captions in this instrument are inserted only
as a matter of convenience and for reference, and shall not be deemed
to be any part hereof.
(h) Modifications. This Agreement may not be changed or
terminated except in writing signed by the parties hereto. The
provisions of this Agreement shall extend and be applicable to all
renewals, extensions, amendments, modifications and consolidations of
the Note, the Deeds or any of the other Loan Documents, and any and
all references herein to the Loan Documents shall be deemed to include
any such renewals, extensions, amendments, modifications and
consolidations thereof.
(i) Bind and Inure. The provisions of this Loan Agreement shall
be binding upon Borrower and any subsequent owner or owners of any or
all of the Encumbered Property or assignee of Borrower's interests
under any or all of the Note or other Loan Documents, and upon Lender
and any assignee of Lender's interests under any or all of the Note or
the other Loan Documents, and upon their respective heirs, successors
and assigns.
(j) Governing Law. This Agreement shall be construed and applied
in accordance with the laws of the State of Georgia, without regard to
its conflicts of law principles.
(k) Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental
or judicial authority by reason of such party having or being deemed
to have structured or dictated such provision.
(l) Waiver of Jury Trial; Consent to Jurisdiction. Borrower (a)
irrevocably waives, to the fullest extent permitted by law, any and
all right to trial by jury in any legal proceeding
19
<PAGE>
arising out of this Agreement, any of the other Loan Documents, or any
of the transactions contemplated hereby or thereby, (b) submits to the
nonexclusive personal jurisdiction in the State of Georgia, the courts
thereof and the United States District Courts sitting therein, for the
enforcement of this Agreement, the Note and the other Loan Documents,
(c) waives any and all personal rights under the law of any
jurisdiction to object on any basis (including, without limitation,
inconvenience of forum) to jurisdiction or venue within the State of
Georgia for the purpose of litigation to enforce this Agreement, the
Note or the other Loan Documents, and (d) agrees that service of
process may be made upon it in the manner prescribed in Section 8(e)
hereof for the giving of notice to Borrower. Nothing herein contained,
however, shall prevent the Lender from bringing any action or
exercising any rights against any security and against Borrower
personally, and against any assets of Borrower, within any other state
or jurisdiction.
(m) Rights of Co-Lenders and Co-Investors. To the extent any
portion of the Loan is funded, directly or indirectly, by Lender's co-
lenders or co-investors, such co-lenders or co-investors shall be
entitled to the benefits afforded to Lender under the Loan Documents,
as if such co-lenders or co-investors were named as lenders in the
Loan Documents.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal as of the date first written above.
BORROWER:
PROLOGIS TRUST, a Maryland real estate
investment trust
/s/ John W. Seiple, Jr.
By: _________________________________
John W. Seiple, Jr.
Managing Director
[TRUST SEAL]
20
<PAGE>
LENDER:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: CIGNA Investments, Inc., its authorized
signatory
/s/ Michael J. Riccio
By: _______________________
Michael J. Riccio
Vice President
21
<PAGE>
Exhibit 10.20
FIXED INTEREST NOTE
TIAA Appl. #CA-3208
M-000459500
TRANCHE A PROMISSORY NOTE
$93,800,000.00 New York, New York
Dated: As of February 22, 1999
FOR VALUE RECEIVED, PROLOGIS TRUST ("Borrower"), a Maryland real
estate investment trust having its principal place of business at 14100 East
35th Place, Aurora, Colorado 80011, promises to pay to TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA ("Lender"), a New York corporation, or order, at
Lender's offices at 730 Third Avenue, New York, New York 10017 or at such other
place as Lender designates in writing, the principal sum of NINETY-THREE MILLION
EIGHT HUNDRED THOUSAND AND 00/100THS DOLLARS ($93,800,000.00) (the principal sum
or so much of the principal sum as may be advanced and outstanding from time to
time, the "Principal"), in lawful money of the United States of America, with
interest on the Principal from the date of this Promissory Note (this "Note")
through and including March 1, 2009 (the "Maturity Date") at the fixed rate of
seven and two-tenths percent (7.2%) per annum (the "Fixed Interest Rate") to be
computed on the basis of a 360 day year. Each monthly payment shall be based on
a 30-day month, with a per diem rate equal to the Fixed Interest Rate divided by
360.
This Note is secured by, among other things, the 7 Tranche A First
Deeds of Trust, Assignment of Leases and Rents, Security Agreements and Fixture
Filing Statements (collectively, the "Tranche A First Deeds of Trust")
encumbering the properties owned by Borrower and identified on Schedule 1 hereto
by their street address or common name and the 5 Tranche A Subordinate Deeds of
Trust encumbering the properties owned by Borrower and identified on Schedule 2
hereto by their street address or common name, all made by Borrower for the
benefit of Lender as security for the Loan.
All capitalized terms not expressly defined in this Note will have the
definitions set forth in the Tranche A First Deeds of Trust.
Section 1. Payments of Principal and Fixed Interest.
(a) Borrower will make monthly installment payments ("Debt Service
Payments") as follows:
(i) On March 1, 1999, a payment of accrued interest on the Principal
at the Fixed Interest Rate;
<PAGE>
(ii) On April 1, 1999 and on the first day of each succeeding calendar
month through and including March 1, 2002, payments in the amount the
accrued interest on the Principal at the Fixed Interest Rate, each of which
will be applied to accrued interest on the Principal at the Fixed Interest
Rate; and
(iii) On April 1, 2002 and on the first day of each succeeding
calendar month through and including February 1, 2009, payments in the
amount of SIX HUNDRED SEVENTY-FOUR THOUSAND NINE HUNDRED SEVENTY-FOUR AND
17/100THS DOLLARS ($674,974.17), each of which will be applied first to
accrued interest on the Principal at the Fixed Interest Rate and then to
the Principal.
(b) On the Maturity Date, Borrower will pay the Principal in full
together with accrued interest at the Fixed Interest Rate and all other amounts
due under the Loan Documents.
Section 2. Prepayment Provisions.
(a) The following definitions apply:
"Discount Rate" means (x) the yield on a U.S. Treasury issue selected
by Lender, as published in The Wall Street Journal, two weeks prior to
prepayment, having a maturity date corresponding (or most closely
corresponding, if not identical) to the Maturity Date, and, if applicable,
a coupon rate corresponding (or most closely corresponding, if not
identical) to the Fixed Interest Rate plus (y) 25 basis points.
"Default Discount Rate" means the Discount Rate less 300 basis points.
"Discounted Value" means the Discounted Value of a Note Payment based
on the following formula:
NP
-------------
(1 + R/12)/n/ = Discounted Value
NP = Amount of Note Payment
R = Discount Rate or Default Discount Rate as the
case may be.
n = The number of months between the date of prepayment
and the scheduled date of the Note Payment being
discounted rounded to the nearest integer.
"Note Payment" means (i) each scheduled Debt Service Payment for the
period from the date of prepayment through the Maturity Date and (ii) the
scheduled repayment of Principal, if any, on the Maturity Date.
2
<PAGE>
"Prepayment Date Principal" means the Principal on the date of
prepayment.
(b) This Note may not be prepaid in full or in part before February
28, 2001. Commencing on March 1, 2001, provided there is no Event of
Default, Borrower may prepay this Note in full, but not in part, on the
first day of any calendar month, upon 60 days prior notice to Lender and
upon payment in full of the Debt which will include a payment (the
"Prepayment Premium") equal to the greater of (i) an amount equal to the
product of 1% times the Prepayment Date Principal and (ii) the amount by
which the sum of the Discounted Value of each remaining Note Payment,
calculated at the Discount Rate, exceeds the Prepayment Date Principal.
Provided there is no Event of Default, this Note may be prepaid in full
without payment of the Prepayment Premium during the last 180 days of the
Term. In addition, the Prepayment Premium shall not apply with respect to
any prepayment due to application by Lender of condemnation or insurance
proceeds. This Note may not be prepaid without simultaneous prepayment in
full of (x) any other notes secured by the Loan Documents and (y) that
certain Tranche B Promissory Note in the amount of $88,200,000 dated the
date hereof from Borrower to Lender.
(c) After an Acceleration or upon any other prepayment not permitted
by the Loan Documents, any tender of payment of the amount necessary to
satisfy the Debt accelerated, any judgment of foreclosure, any statement of
the amount due at the time of foreclosure (including foreclosure by power
of sale) and any tender of payment made during any redemption period after
foreclosure, will include a payment (the "Evasion Premium") equal to the
greater of (i) an amount equal to the product of 1% plus 300 basis points
times the Prepayment Date Principal, and (ii) the amount by which the sum
of the Discounted Value of each remaining Note Payment, calculated at the
Default Discount Rate, exceeds the Prepayment Date Principal.
(d) Borrower acknowledges that:
(i) a prepayment will cause damage to Lender;
(ii) the Evasion Premium is intended to compensate Lender for the loss
of its investment and the expense incurred and time and effort associated
with making the Loan, which will not be fully repaid if the Loan is
prepaid;
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by a prepayment after an Event of Default
or any other prepayment not permitted by the Loan Documents; and
(iv) the Evasion Premium represents Lender and Borrower's reasonable
estimate of Lender's damages for the prepayment and is not a penalty.
(e) BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT LENDER WOULD NOT LEND
TO BORROWER THE LOAN EVIDENCED BY THIS NOTE WITHOUT (1) BORROWER'S WAIVER
OF ANY RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO
PREPAY THIS NOTE IN WHOLE OR IN PART, WITHOUT
3
<PAGE>
PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE, AND (2)
BORROWER'S AGREEMENT, AS SET FORTH ABOVE, TO PAY LENDER A PREPAYMENT
PREMIUM UPON THE SATISFACTION OF ALL OR ANY PORTION OF THE PRINCIPAL
INDEBTEDNESS EVIDENCED FOLLOWING THE ACCELERATION OF THE MATURITY DATE
HEREOF BY REASON OF A DEFAULT HEREUNDER OR UNDER THE TRANCHE A DEEDS OF
TRUST INCLUDING, WITHOUT LIMITATION, A DEFAULT ARISING FROM THE CONVEYANCE
OF ANY RIGHT, TITLE OR INTEREST IN THE PROPERTY ENCUMBERED BY THE TRANCHE A
DEEDS OF TRUST AND BORROWER HAS CAUSED THOSE PERSONS SIGNING THIS NOTE ON
BORROWER'S BEHALF TO SEPARATELY EXECUTE THE AGREEMENT CONTAINED IN THIS
PARAGRAPH, IN COMPLIANCE WITH CALIFORNIA CIVIL CODE SECTION 2954.10, BY
PLACING THEIR SIGNATURES BELOW, BORROWER ACKNOWLEDGES THAT (I) THE GENERAL
PARTNERS, PRINCIPALS OR MEMBERS, AS THE CASE MAY BE, OF BORROWER ARE
KNOWLEDGEABLE REAL ESTATE DEVELOPERS OR INVESTORS, (II) BORROWER FULLY
UNDERSTANDS THE EFFECT OF THE ABOVE WAIVER, (III) THE MAKING OF THE LOAN BY
LENDER AT THE RATE SET FORTH ABOVE IS SUFFICIENT CONSIDERATION FOR SUCH
WAIVER, AND (IV) LENDER WOULD NOT MAKE THE LOAN WITHOUT SUCH WAIVER.
PROLOGIS TRUST
BY /s/ Scott W. Strine
-------------------
Scott W. Strine
Vice President
Section 3. Events of Default:
(a) It is an "Event of Default" under this Note:
(i) if Borrower fails to pay any amount due, as and when required,
under this Note or any other Loan Document and the failure continues for
a period of 5 days; or
(ii) if an Event of Default occurs under any other Loan Document.
(b) If an Event of Default occurs, Lender may declare all or any
portion of the Debt immediately due and payable ("Acceleration") and
exercise any of the other Remedies.
Section 4. Default Rate. Interest on the Principal will accrue at
the Default Interest Rate from the date an Event of Default occurs.
4
<PAGE>
Section 5. Late Charges.
(a) If Borrower fails to pay any Debt Service Payment when due and the
failure continues for a period of 5 days or more or fails to pay any amount
due under the Loan Documents on the Maturity Date, Borrower agrees to pay
to Lender an amount (a "Late Charge") equal to five cents ($.05) for each
one dollar ($1.00) of the delinquent payment.
(b) Borrower acknowledges that:
(i) a delinquent payment will cause damage to Lender;
(ii) the Late Charge is intended to compensate Lender for loss of use
of the delinquent payment and the expense incurred and time and effort
associated with recovering the delinquent payment;
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by the delinquency; and
(iv) the Late Charge represents Lender and Borrower's reasonable
estimate of Lender's damages from the delinquency and is not a penalty.
Section 6. Limitation of Liability. This Note is subject to the
limitations on liability set forth in the Article of the Tranche A Deeds of
Trust entitled "Limitation of Liability".
Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE
ARTICLE OF THE TRANCHE A DEEDS OF TRUST ENTITLED "WAIVERS", BORROWER WAIVES
PRESENTMENT FOR PAYMENT, DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN
THE LOAN DOCUMENTS, NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY
PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF
THE LOAN DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE
OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND
MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO THE
RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY
BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY
BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL
MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR.
Section 8. Commercial Loan. The Loan is made for the purpose of
carrying on a business or commercial activity or acquiring real or personal
property as an investment or carrying on an investment activity and not for
personal or household purposes.
5
<PAGE>
Section 9. Usury Limitations. Borrower and Lender intend to comply
with all Laws with respect to the charging and receiving of interest. Any
amounts charged or received by Lender for the use or forbearance of the
Principal to the extent permitted by Law, will be amortized and spread
throughout the Term until payment in full so that the rate or amount of interest
charged or received by Lender on account the Principal does not exceed the
Maximum Interest Rate. If any amount charged or received under the Loan
Documents that is deemed to be interest is determined to be in excess of the
amount permitted to be charged or received at the Maximum Interest Rate, the
excess will be deemed to be a prepayment of Principal when paid, without
premium, and any portion of the excess not capable of being so applied will be
refunded to Borrower. If during the Term the Maximum Interest Rate, if any, is
eliminated, then for purposes of the Loan, there will be no Maximum Interest
Rate.
Section 10. Applicable Law. This Note is governed by and will be
construed in accordance with the Laws of the State of New York except with
respect to provisions related to specific properties which shall be construed in
accordance with the laws of the state or commonwealth in which the relevant
property is located, without regard to conflict of law provisions.
Section 11. Time of the Essence. Time is of the essence with respect
to the payment and performance of the Obligations.
Section 12. Cross-Default. A default under any other note now or
hereafter secured by the Loan Documents or under any loan document related to
such other note constitutes a default under this Note and under the other Loan
Documents. When the default under the other note constitutes an Event of Default
under that note or the related loan document, an Event of Default also will
exist under this Note and the other Loan Documents.
Section 13. Construction. Unless expressly provided otherwise in
this Note, this Note will be construed in accordance with the Exhibit attached
to the Tranche A First Deeds of Trust entitled "Rules of Construction".
Section 14. Deed of Trust Provisions Incorporated. To the extent not
otherwise set forth in this Note, the provisions of the Articles of the Tranche
A First Deeds of Trust entitled "Expenses and Duty to Defend", "Waivers",
"Notices", and "Miscellaneous" are applicable to this Note and deemed
incorporated by reference as if set forth at length in this Note.
Section 15. Joint and Several Liability; Successors and Assigns. If
Maker consists of more than one entity, the obligations and liabilities of each
such entity will be joint and several. This Note binds Borrower and successors,
assigns, heirs, administrators, executors, agents and representatives and inures
to the benefit of Lender and its successors, assigns, heirs, administrators,
executors, agents and representatives.
Section 16. Absolute Obligation. Except for the Section of this Note
entitled "Limitation of Liability", no reference in this Note to the other Loan
Documents
6
<PAGE>
and no other provision of this Note or of the other Loan Documents will impair
or alter the obligation of Borrower, which is absolute and unconditional, to pay
the Principal, interest at the Fixed Interest Rate and any other amounts due and
payable under this Note, as and when required.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as
of the date first set forth above.
PROLOGIS TRUST, a Maryland real
estate investment trust
By /s/ Scott W. Strine
--------------------------
Scott W. Strine
Vice President
7
<PAGE>
Schedule 2
----------
(Tranche A Subordinate Deed of Trust Properties)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Building Name Address City, State, County
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Mid Counties 6700-6750 Artesia Boulevard (#1) Buena Park, CA, Orange County
Distribution Center 1 and 6201-6251 Knott Avenue (#2)
and 2
- ------------------------------------------------------------------------------------------
Inland Empire 1 3285 DeForest Cr. Mira Loma, CA, Riverside
County
- ------------------------------------------------------------------------------------------
Inland Empire 2 & 3 5600 and 5590 Francis Street Ontario, CA, San Bernardino
County
- ------------------------------------------------------------------------------------------
Inland Empire 4 5431 Philadelphia Street Ontario, CA, San Bernardino
County
- ------------------------------------------------------------------------------------------
Inland Empire 5 1661 S. Vintage Avenue Ontario, CA, San Bernardino
County
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.21
FIXED INTEREST NOTE
- -------------------
TIAA Appl. #CA-3209
M-000459600
TRANCHE B PROMISSORY NOTE
-------------------------
$88,200,000.00 New York, New York
Dated: As of February 22, 1999
FOR VALUE RECEIVED, PROLOGIS TRUST ("Borrower"), a Maryland real
estate investment trust having its principal place of business at 14100 East
35th Place, Aurora, Colorado 80011, promises to pay to TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA ("Lender"), a New York corporation, or order, at
Lender's offices at 730 Third Avenue, New York, New York 10017 or at such other
place as Lender designates in writing, the principal sum of EIGHTY-EIGHT MILLION
TWO HUNDRED THOUSAND AND 00/100THS DOLLARS ($88,200,000.00) (the principal sum
or so much of the principal sum as may be advanced and outstanding from time to
time, the "Principal"), in lawful money of the United States of America, with
interest on the Principal from the date of this Promissory Note (this "Note")
through and including March 1, 2009 (the "Maturity Date") at the fixed rate of
seven and two-tenths percent (7.2%) per annum (the "Fixed Interest Rate") to be
computed on the basis of a 360 day year. Each monthly payment shall be based on
a 30-day month, with a per diem rate equal to the Fixed Interest Rate divided by
360.
This Note is secured by, among other things, the 5 Tranche B First
Deeds of Trust, Assignment of Leases and Rents, Security Agreements and Fixture
Filing Statements (collectively, the "Tranche B First Deeds of Trust")
encumbering the properties owned by Borrower and identified on Schedule 1 hereto
by their street address or common name and the 7 Tranche B Subordinate Deeds of
Trust encumbering the properties owned by Borrower and identified on Schedule 2
hereto by their street address or common name, all made by Borrower for the
benefit of Lender as security for the Loan.
All capitalized terms not expressly defined in this Note will have the
definitions set forth in the Tranche B First Deeds of Trust.
Section 1. Payments of Principal and Fixed Interest.
(a) Borrower will make monthly installment payments ("Debt Service
Payments") as follows:
(i) On March 1, 1999, a payment of accrued interest on the Principal
at the Fixed Interest Rate;
<PAGE>
(ii) On April 1, 1999 and on the first day of each succeeding calendar
month through and including March 1, 2002, payments in the amount the
accrued interest on the Principal at the Fixed Interest Rate, each of which
will be applied to accrued interest on the Principal at the Fixed Interest
Rate; and
(iii) On April 1, 2002 and on the first day of each succeeding
calendar month through and including February 1, 2009, payments in the
amount of SIX HUNDRED THIRTY-FOUR THOUSAND SIX HUNDRED SEVENTY-SEVEN AND
23/100THS DOLLARS ($634,677.23), each of which will be applied first to
accrued interest on the Principal at the Fixed Interest Rate and then to the
Principal.
(b) On the Maturity Date, Borrower will pay the Principal in full
together with accrued interest at the Fixed Interest Rate and all other amounts
due under the Loan Documents.
Section 2. Prepayment Provisions.
(a) The following definitions apply:
"Discount Rate" means (x) the yield on a U.S. Treasury issue selected
by Lender, as published in The Wall Street Journal, two weeks prior to
prepayment, having a maturity date corresponding (or most closely
corresponding, if not identical) to the Maturity Date, and, if applicable,
a coupon rate corresponding (or most closely corresponding, if not
identical) to the Fixed Interest Rate plus (y) 25 basis points.
"Default Discount Rate" means the Discount Rate less 300 basis points.
"Discounted Value" means the Discounted Value of a Note Payment based
on the following formula:
NP
--------------
(1 + R/12)/n/ = Discounted Value
NP = Amount of Note Payment
R = Discount Rate or Default Discount Rate
as the case may be.
n = The number of months between the date
of prepayment and the scheduled date of
the Note Payment being discounted
rounded to the nearest integer.
"Note Payment" means (i) each scheduled Debt Service Payment for the
period from the date of prepayment through the Maturity Date and (ii) the
scheduled repayment of Principal, if any, on the Maturity Date.
2
<PAGE>
"Prepayment Date Principal" means the Principal on the date of
prepayment.
(b) This Note may not be prepaid in full or in part before February
28, 2001. Commencing on March 1, 2001, provided there is no Event of Default,
Borrower may prepay this Note in full, but not in part, on the first day of any
calendar month, upon 60 days prior notice to Lender and upon payment in full of
the Debt which will include a payment (the "Prepayment Premium") equal to the
greater of (i) an amount equal to the product of 1% times the Prepayment Date
Principal and (ii) the amount by which the sum of the Discounted Value of each
remaining Note Payment, calculated at the Discount Rate, exceeds the Prepayment
Date Principal. Provided there is no Event of Default, this Note may be prepaid
in full without payment of the Prepayment Premium during the last 180 days of
the Term. In addition, the Prepayment Premium shall not apply with respect to
any prepayment due to application by Lender of condemnation or insurance
proceeds. This Note may not be prepaid without simultaneous prepayment in full
of (x) any other notes secured by the Loan Documents and (y) that certain
Tranche A Promissory Note in the amount of $93,800,000 dated the date hereof
from Borrower to Lender.
(c) After an Acceleration or upon any other prepayment not permitted
by the Loan Documents, any tender of payment of the amount necessary to satisfy
the Debt accelerated, any judgment of foreclosure, any statement of the amount
due at the time of foreclosure (including foreclosure by power of sale) and any
tender of payment made during any redemption period after foreclosure, will
include a payment (the "Evasion Premium") equal to the greater of (i) an amount
equal to the product of 1% plus 300 basis points times the Prepayment Date
Principal, and (ii) the amount by which the sum of the Discounted Value of each
remaining Note Payment, calculated at the Default Discount Rate, exceeds the
Prepayment Date Principal.
(d) Borrower acknowledges that:
(i) a prepayment will cause damage to Lender;
(ii) the Evasion Premium is intended to compensate Lender for the loss
of its investment and the expense incurred and time and effort associated
with making the Loan, which will not be fully repaid if the Loan is
prepaid;
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by a prepayment after an Event of Default
or any other prepayment not permitted by the Loan Documents; and
(iv) the Evasion Premium represents Lender and Borrower's reasonable
estimate of Lender's damages for the prepayment and is not a penalty.
(e) BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT LENDER WOULD NOT LEND
TO BORROWER THE LOAN EVIDENCED BY THIS NOTE WITHOUT (1) BORROWER'S WAIVER OF ANY
RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS
NOTE IN WHOLE OR IN PART, WITHOUT
3
<PAGE>
PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE, AND (2) BORROWER'S
AGREEMENT, AS SET FORTH ABOVE, TO PAY LENDER A PREPAYMENT PREMIUM UPON THE
SATISFACTION OF ALL OR ANY PORTION OF THE PRINCIPAL INDEBTEDNESS EVIDENCED
FOLLOWING THE ACCELERATION OF THE MATURITY DATE HEREOF BY REASON OF A DEFAULT
HEREUNDER OR UNDER THE TRANCHE B DEEDS OF TRUST INCLUDING, WITHOUT LIMITATION, A
DEFAULT ARISING FROM THE CONVEYANCE OF ANY RIGHT, TITLE OR INTEREST IN THE
PROPERTY ENCUMBERED BY THE TRANCHE B DEEDS OF TRUST AND BORROWER HAS CAUSED
THOSE PERSONS SIGNING THIS NOTE ON BORROWER'S BEHALF TO SEPARATELY EXECUTE THE
AGREEMENT CONTAINED IN THIS PARAGRAPH, IN COMPLIANCE WITH CALIFORNIA CIVIL CODE
SECTION 2954.10, BY PLACING THEIR SIGNATURES BELOW, BORROWER ACKNOWLEDGES THAT
(I) THE GENERAL PARTNERS, PRINCIPALS OR MEMBERS, AS THE CASE MAY BE, OF BORROWER
ARE KNOWLEDGEABLE REAL ESTATE DEVELOPERS OR INVESTORS, (II) BORROWER FULLY
UNDERSTANDS THE EFFECT OF THE ABOVE WAIVER, (III) THE MAKING OF THE LOAN BY
LENDER AT THE RATE SET FORTH ABOVE IS SUFFICIENT CONSIDERATION FOR SUCH WAIVER,
AND (IV) LENDER WOULD NOT MAKE THE LOAN WITHOUT SUCH WAIVER.
PROLOGIS TRUST
By:/s/ SCOTT W. STRINE
---------------------
Scott W. Strine
Vice President
Section 3. Events of Default:
(a) It is an "Event of Default" under this Note:
(i) if Borrower fails to pay any amount due, as and when required,
under this Note or any other Loan Document and the failure continues
for a period of 5 days; or
(ii) if an Event of Default occurs under any other Loan Document.
(b) If an Event of Default occurs, Lender may declare all or any
portion of the Debt immediately due and payable ("Acceleration") and exercise
any of the other Remedies.
Section 4. Default Rate. Interest on the Principal will accrue at the
Default Interest Rate from the date an Event of Default occurs.
4
<PAGE>
Section 5. Late Charges.
(a) If Borrower fails to pay any Debt Service Payment when due and the
failure continues for a period of 5 days or more or fails to pay any amount due
under the Loan Documents on the Maturity Date, Borrower agrees to pay to Lender
an amount (a "Late Charge") equal to five cents ($.05) for each one dollar
($1.00) of the delinquent payment.
(b) Borrower acknowledges that:
(i) a delinquent payment will cause damage to Lender;
(ii) the Late Charge is intended to compensate Lender for loss of use
of the delinquent payment and the expense incurred and time and effort
associated with recovering the delinquent payment;
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by the delinquency; and
(iv) the Late Charge represents Lender and Borrower's reasonable
estimate of Lender's damages from the delinquency and is not a penalty.
Section 6. Limitation of Liability. This Note is subject to the
limitations on liability set forth in the Article of the Tranche B Deeds of
Trust entitled "Limitation of Liability".
Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE
ARTICLE OF THE TRANCHE B DEEDS OF TRUST ENTITLED "WAIVERS", BORROWER WAIVES
PRESENTMENT FOR PAYMENT, DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN
THE LOAN DOCUMENTS, NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY
PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF
THE LOAN DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE
OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND
MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO THE
RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY
BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY
BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL
MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR.
Section 8. Commercial Loan. The Loan is made for the purpose of
carrying on a business or commercial activity or acquiring real or personal
property as an investment or carrying on an investment activity and not for
personal or household purposes.
5
<PAGE>
Section 9. Usury Limitations. Borrower and Lender intend to comply
with all Laws with respect to the charging and receiving of interest. Any
amounts charged or received by Lender for the use or forbearance of the
Principal to the extent permitted by Law, will be amortized and spread
throughout the Term until payment in full so that the rate or amount of interest
charged or received by Lender on account the Principal does not exceed the
Maximum Interest Rate. If any amount charged or received under the Loan
Documents that is deemed to be interest is determined to be in excess of the
amount permitted to be charged or received at the Maximum Interest Rate, the
excess will be deemed to be a prepayment of Principal when paid, without
premium, and any portion of the excess not capable of being so applied will be
refunded to Borrower. If during the Term the Maximum Interest Rate, if any, is
eliminated, then for purposes of the Loan, there will be no Maximum Interest
Rate.
Section 10. Applicable Law. This Note is governed by and will be
construed in accordance with the Laws of the State of New York except with
respect to provisions related to specific properties which shall be construed in
accordance with the laws of the state or commonwealth in which the relevant
property is located, without regard to conflict of law provisions.
Section 11. Time of the Essence. Time is of the essence with respect
to the payment and performance of the Obligations.
Section 12. Cross-Default. A default under any other note now or
hereafter secured by the Loan Documents or under any loan document related to
such other note constitutes a default under this Note and under the other Loan
Documents. When the default under the other note constitutes an Event of
Default under that note or the related loan document, an Event of Default also
will exist under this Note and the other Loan Documents.
Section 13. Construction. Unless expressly provided otherwise in
this Note, this Note will be construed in accordance with the Exhibit attached
to the Tranche B First Deeds of Trust entitled "Rules of Construction".
Section 14. Deed of Trust Provisions Incorporated. To the extent
not otherwise set forth in this Note, the provisions of the Articles of the
Tranche B First Deeds of Trust entitled "Expenses and Duty to Defend",
"Waivers", "Notices", and "Miscellaneous" are applicable to this Note and deemed
incorporated by reference as if set forth at length in this Note.
Section 15. Joint and Several Liability; Successors and Assigns. If
Maker consists of more than one entity, the obligations and liabilities of each
such entity will be joint and several. This Note binds Borrower and successors,
assigns, heirs, administrators, executors, agents and representatives and inures
to the benefit of Lender and its successors, assigns, heirs, administrators,
executors, agents and representatives.
Section 16. Absolute Obligation. Except for the Section of this Note
entitled "Limitation of Liability", no reference in this Note to the other Loan
Documents
6
<PAGE>
and no other provision of this Note or of the other Loan Documents will impair
or alter the obligation of Borrower, which is absolute and unconditional, to pay
the Principal, interest at the Fixed Interest Rate and any other amounts due and
payable under this Note, as and when required.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as
of the date first set forth above.
PROLOGIS TRUST, a Maryland real estate investment
trust
By:/s/ SCOTT W. STRINE
-------------------
Scott W. Strine
Vice President
7
<PAGE>
Schedule 1
----------
(Tranche B First Deed of Trust Properties)
<TABLE>
<CAPTION>
Building Name Address City, State, County
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Mid Counties 6700-6750 Artesia Boulevard (#1) Buena Park, CA, Orange County
Distribution Center 1 and 6201-6251 Knott Avenue (#2)
and 2
- ------------------------------------------------------------------------------------------
Inland Empire 1 3285 DeForest Cr. Mira Loma, CA, Riverside
County
- ------------------------------------------------------------------------------------------
Inland Empire 2 & 3 5600 and 5590 Francis Street Ontario, CA, San Bernardino
County
- ------------------------------------------------------------------------------------------
Inland Empire 4 5431 Philadelphia Street Ontario, CA, San Bernardino
County
- ------------------------------------------------------------------------------------------
Inland Empire 5 1661 S. Vintage Avenue Ontario, CA, San Bernardino
County
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 2
----------
(Tranche B Subordinate Deed of Trust Properties)
<TABLE>
<CAPTION>
Building Name Address City, State, County
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Freeway Dist. Ctr. #1, 7310-7379 Telegraph Road (#1) Montebello, CA, Los Angeles
#2 and #3 and 1510-1553 Greenwood Avenue County
(#2 and #3)
- ------------------------------------------------------------------------------------------
Mid County Ind. Ctr. #1 14659 Alondra Boulevard La Mirada, CA, Los Angeles
County
- ------------------------------------------------------------------------------------------
Mid County Ind. Ctr. #2 15160-15304 Spring Avenue Santa Fe Springs, CA, Los
Angeles
- ------------------------------------------------------------------------------------------
Mid County Ind. Ctr. #3 13920 to 13950 Mica Street Santa Fe Springs, CA, Los
and #4 Angeles
- ------------------------------------------------------------------------------------------
Mid County Ind. Ctr. #5 6450 Caballero Boulevard (#5) Buena Park, CA, Orange County
and #6 and 6450-A Caballero Boulevard
(#6)
- ------------------------------------------------------------------------------------------
North County Dist. Ctr. 400 E. Orangethorpe Avenue (#1) Anaheim, CA, Orange County
#1 and #2 and 500 E. Orangethorpe Avenue
(#2)
- ------------------------------------------------------------------------------------------
Santa Ana Distribution 1395 Lyon Street Santa Ana, CA, Orange County
Center 1
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 12.1
PROLOGIS
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net earnings from operations......... $105,764 $ 32,371 $ 79,384 $47,660 $25,066
Add:
Interest expense................... 77,650 52,704 38,819 32,005 7,568
-------- -------- -------- ------- -------
Earnings as adjusted................. $183,414 $ 85,075 $118,203 $79,665 $32,634
======== ======== ======== ======= =======
Fixed charges:
Interest expense................... $ 77,650 $ 52,704 $ 38,819 $32,005 $ 7,568
Capitalized interest............... 19,173 18,365 16,138 8,599 2,208
-------- -------- -------- ------- -------
Total fixed charges.............. $ 96,823 $ 71,069 $ 54,957 $40,604 $ 9,776
======== ======== ======== ======= =======
Ratio of earnings to fixed charges... 1.9 1.2 2.2 2.0 3.3
======== ======== ======== ======= =======
</TABLE>
<PAGE>
EXHIBIT 12.2
PROLOGIS
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net earnings from operations....... $105,764 $ 32,371 $ 79,384 $47,660 $25,066
Add:
Interest expense................. 77,650 52,704 38,819 32,005 7,568
-------- -------- -------- ------- -------
Earnings as adjusted............... $183,414 $ 85,075 $118,203 $79,665 $32,634
======== ======== ======== ======= =======
Combined fixed charges and
preferred share dividends:
Interest expense................. $ 77,650 $ 52,704 $ 38,819 $32,005 $ 7,568
Capitalized interest............. 19,173 18,365 16,138 8,599 2,208
-------- -------- -------- ------- -------
Total fixed charges............ 96,823 71,069 54,957 40,604 9,776
Preferred share dividends (a).... 49,098 35,318 25,895 6,698 --
-------- -------- -------- ------- -------
Combined fixed charges and
preferred share dividends......... $145,921 $106,387 $ 80,852 $47,302 $ 9,776
======== ======== ======== ======= =======
Ratio of earnings to combined fixed
charges and preferred share
dividends......................... 1.3 (b) 1.5 1.7 3.3
======== ======== ======== ======= =======
</TABLE>
- --------
(a) ProLogis had no preferred shares in 1994.
(b) Due to a one-time, non-recurring charge of $75.4 million relating to the
costs incurred in acquiring the management companies from an affiliate,
earnings were insufficient to cover combined fixed charges and preferred
share dividends for the year ended December 31, 1997 by $21.3 million.
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES
OF
PROLOGIS TRUST, ET. AL.
<TABLE>
<CAPTION>
Jurisdiction
Name of Entity of Organization
-------------- ---------------
<S> <C>
1440 Goodyear Partners................................................ Texas
International Industrial Investments Incorporated..................... Maryland
Red Mountain Joint Venture............................................ Texas
ProLogis-Alabama (1) Incorporated..................................... Maryland
ProLogis-Alabama (2) Incorporated..................................... Maryland
ProLogis Development Services Incorporated............................ Delaware
SCI-DS Mexico Incorporated............................................ Maryland
ProLogis Houston Holdings, Inc........................................ Delaware
ProLogis IV, Inc...................................................... Delaware
(Corporate General Partner)
ProLogis Limited Partnership-I........................................ Delaware
ProLogis Limited Partnership-II....................................... Delaware
ProLogis Limited Partnership-III...................................... Delaware
(d/b/a SC Industrial Partners Limited Partnership)
ProLogis Limited Partnership-IV....................................... Delaware
SCI Mexico Industrial Trust........................................... Maryland
ProLogis-North Carolina (1) Incorporated.............................. Maryland
ProLogis-North Carolina (2) Incorporated.............................. Maryland
ProLogis-North Carolina Limited Partnership........................... Delaware
ProLogis Alabama Industrial Trust..................................... Alabama
ProLogis Management Incorporated...................................... Delaware
ProLogis International Incorporated (industrial
warehousing; forty-two subsidiaries in foreign countries.............. Delaware
Prologis b.v. and subsidiary.......................................... Netherlands
Frigoscandia S.A. (refrigerated warehousing;
thirty-seven subsidiaries in foreign countries)....................... Luxembourg
ProLogis Logistics Services Incorporated (refrigerated warehousing)... Delaware
Garonor Holdings S.A. (industrial warehousing;
three subsidiaries in foreign countries).............................. Luxembourg
Kingspark Holding S.A. (industrial development;
twenty-one subsidiaries in foreign countries)......................... Luxembourg
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Trust's previously filed
Registration Statement File Nos. 33-91366, 33-92490, 333-4961, 333-31421, 333-
39797, 333-38515, 333-52867 and 333-26597.
Arthur Andersen LLP
Chicago, Illinois
March 23, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Frigoscandia Holding AB, we hereby
consent to the use of our report dated January 28, 1999 included in the
ProLogis Trust's Form 10-K for the year ended December 31, 1998. 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.
Stockholm, March 26, 1999
KPMG
<PAGE>
EXHIBIT 23.3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
AUDIT REPORT
To the general meeting of the shareholders of Frigoscandia Holding AB
Corporate identity number 556542-7704
We have audited the annual accounts, the consolidated accounts, the
accounting records and the administration of the board of directors and the
managing director of Frigoscandia Holding AB for the year 1998. These accounts
and the administration of the company are the responsibility of the board of
directors and the managing director. Our responsibility is to express an
opinion on the annual accounts, the consolidated accounts and the
administration based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Sweden. Those standards require that we plan and perform the
audit to obtain reasonable assurance that the annual accounts and the
consolidated accounts are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the accounts. An audit also includes assessing the accounting principles used
and their application by the board of directors and the managing director, as
well as evaluating the overall presentation of information in the annual
accounts and the consolidated accounts. We examined significant decisions,
actions taken and circumstances of the company in order to be able to
determine the liability, if any, to the company of any board member or the
managing director and whether they have in any other way acted in
contravention of the Companies Act, the Annual Accounts Act or the Articles of
Association. We believe that our audit provides a reasonable basis for our
opinion set out below.
The annual accounts and the consolidated accounts have been prepared in
accordance with the Annual Accounts Act, and, consequently we recommend
that the income statements and the balance sheets of the parent company and
the group be adopted, and
that the profit of the parent company be dealt with in accordance with the
proposal in the administration report.
The board members and the managing director have not committed any act or
been guilty of any omission, which, in our opinion, could give rise to any
liability to the company. We therefore recommend
that the members of the board of directors and the managing director be
discharged from liability for the financial year.
Stockholm, January 28, 1999
KPMG
<PAGE>
EXHIBIT 23.4
CONSENT TO BE NAMED AS A TRUSTEE
I, John S. Moody, hereby consent to be nominated as a trustee of ProLogis
Trust and to be named as such in the ProLogis Trust Annual Report on Form 10-K
for the year ended December 31, 1998 filed with the Securities and Exchange
Commission.
/s/ John S. Moody
-------------------------------------
John S. Moody
Dated: March 25, 1999
<PAGE>
EXHIBIT 23.5
CONSENT TO BE NAMED AS A TRUSTEE
I, Kenneth N. Stensby, hereby consent to be nominated as a trustee of
ProLogis Trust and to be named as such in the ProLogis Trust Annual Report on
Form 10-K for the year ended December 31, 1998 filed with the Securities and
Exchange Commission.
/s/ Kenneth N. Stensby
-------------------------------------
Kenneth N. Stensby
Dated: March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 63,140
<SECURITIES> 0
<RECEIVABLES> 745,511
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,657,500
<DEPRECIATION> 254,288
<TOTAL-ASSETS> 4,330,729
<CURRENT-LIABILITIES> 0
<BONDS> 1,311,445
0
673,440
<COMMON> 1,234
<OTHER-SE> 1,581,694
<TOTAL-LIABILITY-AND-EQUITY> 4,330,729
<SALES> 345,046
<TOTAL-REVENUES> 372,795
<CGS> 0
<TOTAL-COSTS> 27,120
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,650
<INCOME-PRETAX> 62,231
<INCOME-TAX> 0
<INCOME-CONTINUING> 62,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,231
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
