===============================================================================
===============================================================================
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 01-12846
PROLOGIS TRUST
(Exact name of registrant as specified in its charter)
Maryland 74-2604728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 East 35th Place, Aurora, Colorado 80011
(Address or principal executive offices) (Zip Code)
(303) 375-9292
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days. Yes X No _____
The number of shares outstanding of the Registrant's common stock as of May
8, 2000 was 162,466,588.
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<PAGE>
ProLogis Trust
Index
<TABLE>
Page
Number(s)
---------
<S> <C>
PART I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets--March 31, 2000 and December 31, 1999................................ 3
Consolidated Statements of Earnings and Comprehensive Income
--Three months ended March 31, 2000 and 1999................................................. 4
Consolidated Statements of Cash Flows--Three months ended March 31, 2000
and 1999.................................................................................... 5
Notes to Consolidated Financial Statements...................................................... 6 - 19
Report of Independent Public Accountants........................................................ 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 21 - 29
Item 3. Quantitative and Qualitative Disclosure About Market Risk....................................... 29
Part II. Other Information
Item 4. Submission of Matters to a Vote of Securities Holders........................................... 30
Item 5. Other Information............................................................................... 30
Item 6. Exhibits........................................................................................ 30
</TABLE>
2
<PAGE>
PROLOGIS TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Real estate............................................................ $ 4,648,107 $ 4,974,951
Less accumulated depreciation........................................ 388,512 366,703
------------- -------------
4,259,595 4,608,248
Investments in and advances to unconsolidated entities................. 1,130,458 940,364
Cash and cash equivalents.............................................. 99,370 69,338
Accounts and notes receivable.......................................... 43,292 46,998
Other assets........................................................... 169,288 183,092
------------- -------------
Total assets.................................................. $ 5,702,003 $ 5,848,040
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit...................................................... $ 174,426 $ 98,700
Senior unsecured debt................................................ 1,729,722 1,729,630
Other unsecured debt................................................. -- 30,892
Mortgage notes....................................................... 513,519 657,913
Assessment bonds..................................................... 10,700 10,721
Securitized debt..................................................... 26,692 26,952
Accounts payable and accrued expenses................................ 106,454 117,651
Construction payable................................................. 41,074 23,064
Amount due to affiliate.............................................. 340 221
Distributions and dividends payable.................................. 729 54,939
Other liabilities.................................................... 51,386 81,549
------------- -------------
Total liabilities............................................. 2,655,042 2,832,232
------------- -------------
Minority interest...................................................... 61,968 62,072
Shareholders' equity:
Series A Preferred Shares; $0.01 par value; 5,400,000 shares issued
and outstanding at March 31, 2000 and December 31, 1999; stated
liquidation preference of $25.00 per share......................... 135,000 135,000
Series B Convertible Preferred Shares; $0.01 par value; 6,979,500
shares issued and outstanding at March 31, 2000 and 7,020,703
shares issued and outstanding at December 31, 1999; stated
liquidation preference of $25.00 per share......................... 174,487 175,518
Series C Preferred Shares; $0.01 par value; 2,000,000 shares issued
and outstanding at March 31, 2000 and December 1999; stated
liquidation preference of $50.00 per share......................... 100,000 100,000
Series D Preferred Shares; $0.01 par value; 10,000,000 shares issued
and outstanding at March 31, 2000 and December 31, 1999; stated
liquidation preference of $25.00 per share......................... 250,000 250,000
Series E Preferred Shares; $0.01 par value; 2,000,000 shares issued
and outstanding at March 31, 2000 and December 31, 1999; stated
liquidation preference of $25.00 per share......................... 50,000 50,000
Common shares of beneficial interest; $0.01 par value; 162,323,922
shares issued and outstanding at March 31, 2000 and 161,825,466
shares issued and outstanding at December 31, 1999................. 1,623 1,618
Additional paid-in capital........................................... 2,672,885 2,663,350
Employee share purchase notes........................................ (22,366) (22,906)
Accumulated other comprehensive income............................... (32,339) (9,765)
Distributions in excess of net earnings.............................. (344,297) (389,079)
------------- -------------
Total shareholders' equity.................................... 2,984,993 2,953,736
------------- -------------
Total liabilities and shareholders' equity.................... $ 5,702,003 $ 5,848,040
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Income:
Rental income............................................................ $ 120,809 $ 97,161
Other real estate income................................................. 18,945 13,388
Income (loss) from unconsolidated entities............................... 21,367 (9,209)
Interest................................................................. 1,871 709
--------- ---------
Total income...................................................... 162,992 102,049
--------- ---------
Expenses:
Rental expenses, net of recoveries $23,162 in 2000 and $16,883 in 1999
and amounts paid to affiliate of $306 in 2000 and $250 in 1999........ 6,547 7,189
General and administrative, including amounts paid to affiliate of $224
in 2000 and $532 in 1999.............................................. 11,241 8,421
Depreciation and amortization............................................ 39,474 27,364
Interest................................................................. 41,986 30,918
Interest rate hedge expense.............................................. -- 945
Other.................................................................... 1,218 2,166
--------- ---------
Total expenses.................................................... 100,466 77,003
--------- ---------
Earnings from operations................................................... 62,526 25,046
Minority interest share in earnings........................................ 1,654 1,169
--------- ---------
Earnings before gain on disposition of real estate and foreign currency
exchange losses.......................................................... 60,872 23,877
Gain on disposition of real estate......................................... 5,108 715
Foreign currency exchange losses, net...................................... (6,520) (8,283)
--------- ---------
Earnings before income taxes............................................... 59,460 16,309
Income tax expense:
Current.................................................................. 117 374
Deferred................................................................. -- --
--------- ---------
Total income taxes................................................ 117 374
--------- ---------
Earnings before cumulative effect of accounting change..................... 59,343 15,935
Cumulative effect of accounting change..................................... -- 1,440
--------- ---------
Net earnings............................................................... 59,343 14,495
Less preferred share dividends............................................. 14,405 13,445
--------- ---------
Net earnings attributable to Common Shares................................. 44,938 1,050
Other comprehensive income:
Foreign currency translation adjustments................................. (22,574) (441)
--------- ---------
Comprehensive income....................................................... $ 22,364 $ 609
========= =========
Weighted average Common Shares outstanding - Basic......................... 162,124 123,660
========= =========
Weighted average Common Shares outstanding - Diluted....................... 162,281 123,681
========= =========
Basic and diluted per share net earnings attributable to Common Shares:
Earnings before cumulative effect of accounting change................... $ 0.28 $ 0.02
Cumulative effect of accounting change................................... -- (0.01)
--------- ---------
Net earnings attributable to Common Shares........................ $ 0.28 $ 0.01
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
PROLOGIS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net earnings............................................................. $ 59,343 $ 14,495
Minority interest share in earnings...................................... 1,654 1,169
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization....................................... 39,474 27,364
Gain on disposition of real estate.................................. (5,108) (715)
Straight-lined rents................................................ (1,921) (1,449)
Amortization of deferred loan costs................................. 987 802
Stock-based compensation............................................ 697 618
(Income) loss from unconsolidated entities.......................... (19,029) 9,209
Foreign currency exchange (gains) losses............................ 6,553 8,373
Interest rate hedge expense......................................... -- 945
Increase in accounts receivable and other assets......................... (21,805) (8,046)
Increase (decrease) in accounts payable, accrued expenses and other
liabilities........................................................... 32,294 (11,777)
Increase in amount due to affiliate...................................... 119 410
----------- -----------
Net cash provided by operating activities.......................... 93,258 41,398
----------- -----------
Investing activities:
Real estate investments.................................................. (122,289) (102,229)
Tenant improvements and lease commissions on previously leased space..... (5,435) (4,243)
Recurring capital expenditures........................................... (5,142) (5,123)
Proceeds from dispositions of real estate................................ 98,353 46,338
Investments in and advances to unconsolidated entities................... (18,460) (9,447)
Cash acquired in Meridian Merger......................................... -- 48,962
Cash balances contributed with ProLogis European Properties S.a.r.l...... (17,968) --
----------- -----------
Net cash used in investing activities.............................. (70,941) (25,742)
----------- -----------
Financing activities:
Proceeds from exercised warrants, dividend reinvestment plan and share
purchase plans........................................................ 3,800 113
Proceeds from secured financing transactions............................. -- 439,000
Debt issuance and other transaction costs incurred....................... (64) (13,578)
Distributions paid on Common Shares...................................... (54,210) (39,386)
Distributions paid to minority interest holders.......................... (1,867) (1,679)
Dividends paid on preferred shares....................................... (14,561) (13,446)
Principal payments received on and retirements of employee share
purchase notes........................................................ 540 773
Proceeds from (payments on) derivative financial instruments............. 140 (26,996)
Payments to Meridian shareholders........................................ -- (67,581)
Proceeds from lines of credit and short-term borrowings.................. 268,126 544,500
Payments on lines of credit and short-term borrowings.................... (192,400) (381,119)
Payment on line of credit assumed in Meridian Merger..................... -- (328,400)
Regularly scheduled principal payments on mortgage notes................. (1,789) (3,265)
----------- -----------
Net cash provided by financing activities.......................... 7,715 108,936
----------- -----------
Net increase in cash and cash equivalents.................................. 30,032 124,592
Cash and cash equivalents, beginning of period............................. 69,338 63,140
----------- -----------
Cash and cash equivalents, end of period................................... $ 99,370 $ 187,732
=========== ===========
</TABLE>
See Note 8 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
PROLOGIS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
1. General:
Business
ProLogis Trust ("ProLogis") is a publicly held real estate investment
trust ("REIT") that owns and operates a global network of industrial
distribution facilities. The ProLogis Operating System(TM), comprised of the
Market Services Group, the Global Services Group, the Global Development Group
and the Integrated Solutions Group, utilizes ProLogis' international network of
distribution facilities to meet customer expansion and reconfiguration needs
globally. ProLogis believes it has distinguished itself from its competition by
developing an organizational structure and service delivery system built around
its customers. ProLogis has organized its business into three operating
segments: property operations, corporate distribution facilities services
business and temperature-controlled distribution operations. See Note 9.
Principles of Financial Presentation
The consolidated financial statements of ProLogis as of March 31, 2000
and for the three months ended March 31, 2000 and 1999 are unaudited, and
pursuant to the rules of the Securities and Exchange Commission, certain
information and footnote disclosures normally included in financial statements
have been omitted. While management of ProLogis believes that the disclosures
presented are adequate, these interim consolidated financial statements should
be read in conjunction with ProLogis' December 31, 1999 audited consolidated
financial statements contained in ProLogis' 1999 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of ProLogis' consolidated
financial position and results of operations for the interim periods. The
consolidated results of operations for the three months ended March 31, 2000 and
1999 are not necessarily indicative of the results to be expected for the entire
year. Certain of the 1999 amounts have been reclassified to conform to the 2000
financial statement presentation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
On December 29, 1998, ProLogis invested in Garonor Holdings S.A.
("Garonor Holdings") by acquiring 100% of its preferred stock. Garonor Holdings,
a Luxembourg company, owned Garonor S.A. ("ProLogis Garonor"), a real estate
operating company in France. Security Capital Group Incorporated ("Security
Capital"), ProLogis' largest shareholder, owned 100% of the common stock of
Garonor Holdings. ProLogis accounted for this investment in Garonor Holdings
under the equity method of accounting. On June 29, 1999, ProLogis acquired the
common stock of Garonor Holdings from Security Capital, resulting in ProLogis
owning all of the outstanding common and preferred stock of Garonor Holdings.
Accordingly, as of that date the accounts of Garonor Holdings are consolidated
in ProLogis' financial statements along with ProLogis' other majority owned and
controlled subsidiaries and partnerships. The results of operations of Garonor
Holdings for the period from January 1, 1999 through June 29, 1999 are reflected
by ProLogis under the equity method of accounting. ProLogis Garonor was
transferred to the ProLogis European properties S.a.r.l. prior to ProLogis
contributing 50.1% of the common stock of ProLogis European Properties S.a.r.l.
to the ProLogis European Properties Fund on January 7, 2000. See Note 3.
6
<PAGE>
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.
ProLogis and its foreign subsidiaries 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, resulting primarily from the remeasurement
of certain intercompany loans and third party debt are included in ProLogis'
results of operations. ProLogis recognized losses from remeasurement of
$7,002,000 and $8,373,000 for the three months ended March 31, 2000 and 1999,
respectively.
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
results of operations. ProLogis recognized net foreign currency exchange
transaction gains of $2,000 (comprised of a gain of $56,000 related to
settlement of foreign currency put option contracts and other net transactions
losses of $54,000) for the three months ended March 31, 2000 and net transaction
gains of $90,000 for the three months ended March 31, 1999.
ProLogis entered into foreign currency put option contracts related to
its operations in Europe for 2000. These put option contracts do not qualify for
hedge accounting treatment, therefore, ProLogis recognized net mark to market
gains related to these contracts of $480,000 for the three months ended March
31, 2000.
Accounting for Derivatives
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, 2000 and early adoption is allowed. SFAS No. 133
provides comprehensive guidelines for the recognition and measurement of
derivatives and hedging activities and, specifically, requires all derivatives
to be recorded on the balance sheet at fair value as an asset or liability, with
an offset to accumulated other comprehensive income or income. Management is
still evaluating the effects this standard will have on ProLogis' consolidated
financial position, results of operations or financial statement disclosures
based on the derivative financial instruments currently employed by ProLogis.
Cost of Start-Up Activities
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities", which requires that costs associated with organization,
pre-opening, and start-up activities be expensed as incurred was adopted by
ProLogis on January 1, 1999. Through December 31, 1998, ProLogis capitalized
costs associated with start-up activities and amortized such costs over an
appropriate period, generally five years. ProLogis expensed all unamortized
organization and start-up costs, approximating $1.4 million, as a cumulative
effect of a change in accounting principle as of January 1, 1999. Subsequent to
that date, such costs incurred have been expensed.
2. Real Estate
Investments in Real Estate
Real estate investments consisting of income producing industrial
distribution facilities, facilities under development and land held for future
development, at cost, are summarized as follows (in thousands):
7
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Operating facilities:
Improved land........................................ $ 653,404 (1) $ 736,605 (1)
Buildings and improvements........................... 3,627,173 (1) 3,871,396 (1)
----------- -----------
4,280,577 4,608,001
----------- -----------
Facilities under development (including cost of land).. 183,753 (2)(3) 186,169 (2)
Land held for development.............................. 166,245 (4) 163,696 (4)
Capitalized preacquisition costs....................... 17,532 (5) 17,085 (5)
----------- -----------
Total real estate............................ 4,648,107 4,974,951
Less accumulated depreciation.......................... 388,512 366,703
----------- -----------
$ 4,259,595 $ 4,608,248 (6)
=========== ===========
- ----------
<FN>
(1) As of March 31, 2000 and December 31, 1999, ProLogis had 1,266 and 1,328
operating buildings, respectively, consisting of 127,750,000 and 133,689,000
square feet, respectively.
(2) Facilities under development consist of 47 buildings aggregating 9,855,000
square feet as of March 31, 2000 and 51 buildings aggregating 10,721,000
square feet as of December 31, 1999.
(3) In addition to the March 31, 2000 construction payable of $41.1 million,
ProLogis had unfunded commitments on its contracts for facilities under
construction totaling $211.3 million.
(4) Land held for future development consisted of 1,786 acres as of March 31,
2000 and 1,798 acres as of December 31, 1999.
(5) Capitalized preacquisition costs include $6,479,000 and $6,253,000 of funds
on deposit with title companies as of March 31, 2000 and December 31, 1999,
respectively.
(6) On January 7, 2000, ProLogis contributed 50.1% of the common stock of one of
its wholly owned European entities, the ProLogis European Properties
S.a.r.l., that owned real estate with a net book value of $334.9 million as
of December 31, 1999 to the ProLogis European Properties Fund. ProLogis is
obligated to contributing the remaining 49.9% of the common stock to the
ProLogis European Properties Fund in January 2001. See Note 3.
</FN>
</TABLE>
ProLogis' operating facilities, facilities under development and land
held for future development are located in North America and Europe. No
individual market represents more than 10% of ProLogis' real estate assets.
Operating Lease Agreements
ProLogis leases its facilities to customers under agreements that 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
March 31, 2000, minimum lease payments on leases with lease periods greater than
one year are as follows (in thousands):
<TABLE>
<S> <C>
Remainder of 2000...................................... $ 369,466
2001................................................... 424,633
2002................................................... 342,454
2003................................................... 257,365
2004................................................... 187,528
2005 and thereafter.................................... 559,077
-----------
$ 2,140,523
===========
</TABLE>
ProLogis' largest customer (based on rental income) accounted for 1.90%
of ProLogis' rental income (on an annualized basis) for the three months ended
March 31, 2000. The annualized base rent for ProLogis' 20 largest customers
(based on rental income) accounted for 14.61% of ProLogis' rental income (on an
annualized basis) for the three months ended March 31, 2000.
3. Unconsolidated Entities:
Investments in and advances to unconsolidated entities are as follows
(in thousands):
8
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
<S> <C> <C>
Insight (1)............................... $ 2,442 $ 2,442
---------- ----------
ProLogis Logistics:
Investment (2).......................... 9,867 11,549
Notes receivable (3).................... 161,555 158,796
Accrued interest and other receivables.. 26,569 22,262
---------- ----------
197,991 192,607
---------- ----------
Frigoscandia S.A.:
Investment (2).......................... (25,516) (17,396)
Notes receivable........................ 207,893 209,314
Accrued interest and other receivables.. 24,840 22,090
---------- ----------
207,217 214,008
---------- ----------
Kingspark S.A.:
Investment (2).......................... 21,198 23,584
Notes receivable........................ 228,414 197,611
Mortgage notes receivable............... 125,320 140,668
Accrued interest and other receivables.. 23,613 19,908
---------- ----------
398,545 381,771
---------- ----------
ProLogis California:
Investment (4).......................... 121,886 121,325
Other receivables....................... 4,117 3,235
---------- ----------
126,003 124,560
---------- ----------
ProLogis European Properties Fund:
Investment (5).......................... 99,993 32,800
Other receivables (payables)............ 20,301 (7,824)
---------- ----------
120,294 24,976
---------- ----------
ProLogis European Properties S.a.r.l. (6) 77,966 --
---------- ----------
Total........................... $1,130,458 $ 940,364
========== ==========
- ----------
<FN>
(1) Investment represents ProLogis' investment in the common stock of Insight,
Inc. ("Insight"), a privately owned logistics optimization consulting
company, as adjusted for ProLogis' share of Insight's earnings or loss.
(2) Investment represents ProLogis' investment in the preferred stock of the
respective companies including acquisition costs, as adjusted for ProLogis'
share of each company's earnings or loss and cumulative translation account
adjustments, as appropriate.
(3) As of December 31, 1999, notes receivable includes $28.7 million
representing notes from Meridian Refrigerated Incorporated ("MRI") that were
acquired by ProLogis as part of the Meridian Merger (see Note 5). In 2000,
ProLogis contributed its equity interest in MRI to CS Integrated LLC
("CSI"), who had also acquired an equity interest in MRI as part of the
Meridian Merger. CSI is owned by ProLogis Logistics Services Incorporated
("ProLogis Logistics"). The MRI notes were assumed by CSI in this
transaction.
(4) Investment represents ProLogis' equity investment in ProLogis California I
LLC ("ProLogis California"), a limited liability company that began
operations on August 26, 1999, including acquisition costs, as adjusted for
ProLogis' share of the earnings of ProLogis California and for the portion
of the gain from the disposition of properties from ProLogis to ProLogis
California that does not qualify for income recognition due to ProLogis'
continuing ownership in ProLogis California.
(5) Investment represents ProLogis' equity investment in the ProLogis European
Properties Fund, including acquisition costs, as adjusted for ProLogis'
share of the earnings of the ProLogis European Properties Fund, the portion
of the gain from the disposition of facilities to the ProLogis European
Properties Fund that does not qualify for income recognition due to
ProLogis' continuing ownership in the ProLogis European Properties Fund and
cumulative translation account adjustments, as appropriate.
(6) Investment represents ProLogis' equity investment in 49.9% of the common
stock of the ProLogis European Properties S.a.r.l., a Luxembourg company,
as adjusted for ProLogis' share of the earnings of the ProLogis European
Properties S.a.r.l. Prior to January 7, 2000, ProLogis owned 100% of the
common stock of the ProLogis European Properties S.a.r.l. and the accounts
of this entity were consolidated in ProLogis' financial statements along
with ProLogis' other majority owned and controlled subsidiaries and
partnerships. On January 7, 2000, ProLogis contributed 50.1% of the common
stock to the ProLogis European Properties Fund in exchange for an equity
interest. ProLogis is obligated to contribute the remaining 49.9% of the
common stock of the ProLogis European Properties S.a.r.l. to the ProLogis
European Properties Fund in January 2001.
</FN>
</TABLE>
9
<PAGE>
ProLogis Logistics
ProLogis owns 100% of the preferred stock of ProLogis Logistics. On
April 24, 1997, ProLogis Logistics acquired a 60% interest in CSI, a
temperature-controlled distribution company operating in the United States and
Canada. From that date to June 12, 1998, ProLogis Logistics owned, at various
points in time, between 60.0% and 77.1% of CSI. On June 12, 1998, ProLogis
Logistics increased its ownership interest in CSI to 100%. As of March 31, 2000,
ProLogis had invested $19.9 million in the preferred stock of ProLogis
Logistics. As of March 31, 2000, CSI owned or operated temperature-controlled
distribution facilities aggregating 176.0 million cubic feet (including 35.5
million cubic feet of dry distribution space located in temperature-controlled
facilities). Of the total, 4.8 million cubic feet was under development. The
common stock of ProLogis Logistics is owned by an unrelated party. ProLogis
recognizes 95% of the economic benefits of the activities of ProLogis Logistics
and its subsidiaries.
As of March 31, 2000, ProLogis had the following notes receivable
outstanding:
o $132.7 million of unsecured note receivable from ProLogis Logistics;
interest at 8.0% per annum; due on April 24, 2002;
o $23.9 million of secured notes from CSI (originally MRI notes);
interest at 9.5% per annum; due March 2004; and
o $5.0 million of unsecured notes from CSI(originally MRI notes);
interest at 10.4% per annum; due March 2004.
ProLogis accounts for its investment in ProLogis Logistics under the
equity method. ProLogis recognized income (including interest income on the
notes receivable) from its investment in ProLogis Logistics of $2.9 million, and
$1.5 million for the three months ended March 31, 2000 and 1999, respectively.
Frigoscandia S.A.
On January 16, 1998, ProLogis invested in Frigoscandia S.A. by
acquiring 100% of its preferred stock. Also on January 16, 1998, Frigoscandia
S.A., a Luxembourg company, acquired Frigoscandia AB, a temperature-controlled
distribution company headquartered in Sweden. Frigoscandia AB is 100% owned by
Frigoscandia Holding AB, which is 100% owned by a wholly owned subsidiary of
Frigoscandia S.A. As of March 31, 2000, Frigoscandia AB, which operates in ten
European countries, owned or operated 196.5 million cubic feet of
temperature-controlled distribution facilities. As of March 31, 2000, ProLogis
had invested $28.5 million in the preferred stock of Frigoscandia S.A. The
common stock of Frigoscandia S.A. is owned by a limited liability company, in
which unrelated parties own 100% of the voting interests and Security Capital
owns 100% of the non-voting interests. ProLogis recognizes 95% of the economic
benefits of the activities of Frigoscandia S.A. and its subsidiaries.
As of March 31, 2000, ProLogis had the following notes receivable
outstanding:
o 776.6 million Swedish krona (the currency equivalent of approximately
$89.7 million as of March 31, 2000) unsecured note from Frigoscandia
Holding AB; interest at 5.0% per annum; due on demand;
o 0.8 million euro (the currency equivalent of approximately $0.7 million
as of March 31, 2000) unsecured note from Frigoscandia Holding AB;
interest at 5.0% per annum; due on demand;
o $87.8 million unsecured note from Frigoscandia S.A.; interest at 5.0%
per annum; $80.0 million due July 15, 2008 with the remainder due on
demand; and
o 18.6 million British pound sterling (the currency equivalent of
approximately $29.7 million as of March 31, 2000) unsecured,
non-interest bearing note from a subsidiary of Frigoscandia Holding AB;
due on demand.
ProLogis accounts for its investment in Frigoscandia S.A. under the
equity method. ProLogis recognized losses of $1.7 million and of $3.5 million
for the three months ended March 31, 2000 and 1999, respectively, (including
interest income on the mortgage notes and notes receivable).
Frigoscandia AB has a multi-currency, three-year revolving credit
agreement through a consortium of 11 European banks in the currency equivalent
of approximately $176.8 million as of March 31, 2000. The loan bears interest at
the relevant index (LIBOR or Euribor based on the currency borrowed) rate plus
0.65%. ProLogis has entered into a guaranty agreement for 25% of the loan
balance.
10
<PAGE>
Kingspark S.A.
On August 14, 1998, ProLogis invested in Kingspark Holding S.A.
("Kingspark S.A.") by acquiring 100% of its preferred stock. Also on August 14,
1998, Kingspark S.A., a Luxembourg company, acquired an industrial distribution
real estate development company operating in the United Kingdom, Kingspark Group
Holdings Limited ("ProLogis Kingspark"). As of March 31, 2000, ProLogis
Kingspark had 596,000 square feet of operating facilities, 551,000 square feet
of facilities under development and 2,514,000 square feet of facilities that it
was developing under development management agreements. Additionally, as of
March 31, 2000, ProLogis Kingspark owned 379 acres and controlled 1,427 acres of
land through purchase options, letters of intent or contingent contracts. The
land owned and controlled by ProLogis Kingspark has the capacity for the future
development of 28.3 million square feet of facilities. As of March 31, 2000,
ProLogis had invested $24.0 million in the preferred stock of Kingspark S.A. The
common stock of Kingspark S.A. is owned by a limited liability company, in which
unrelated third parties own 100% of the voting interests and Security Capital
owns 100% of the non-voting interests. ProLogis recognizes 95% of the economic
benefits of the activities of Kingspark S.A. and its subsidiaries.
ProLogis Kingspark has a loan facility with ProLogis that provides for
borrowings of up to 200 million pounds sterling. This facility is available as a
line of credit, has an interest rate of 8.0% per annum and is due on demand. As
of March 31, 2000, the currency equivalent of $111.9 million of borrowings were
outstanding on the loan facility. ProLogis also had the following notes and
mortgage notes receivable outstanding as of March 31, 2000:
o $116.5 million unsecured note from Kingspark S.A.; interest at 5.0% per
annum; due on demand;
o 47.0 million British pound sterling (the currency equivalent of
approximately $75.0 million, as of March 31, 2000) mortgage note from
ProLogis Kingspark; interest at 8.0% per annum; secured by land parcels;
due on demand; and
o 31.5 million British pound sterling (the currency equivalent of
approximately $50.3 million as of March 31, 2000) of mortgage notes from
subsidiaries of Kingspark S.A.; interest at 7.0% per annum; secured by
land parcels; due on demand.
ProLogis accounts for its investment in Kingspark S.A. under the equity
method. ProLogis recognized income of $4.8 million and a loss of $1.4 million
for the three months ended March 31, 2000 and 1999, respectively, (including
interest income on the mortgage notes and notes receivable and the line of
credit) from its investment in Kingspark S.A. ProLogis' share of Kingspark
S.A.'s income for the three months ended March 31, 2000 includes a net gain of
$0.5 million from the disposition of facilities developed by ProLogis Kingspark
to the ProLogis European Properties Fund. The gain recognized is net of $0.4
million which did not qualify for income recognition by ProLogis due to
ProLogis' continuing ownership in the ProLogis European Properties Fund that is
discussed below.
ProLogis Kingspark has a line of credit agreement with a bank in the
United Kingdom. The credit agreement provides for borrowings of up to 15.0
million pounds sterling (the currency equivalent of approximately $23.9 million
as of March 31, 2000) and has been guaranteed by ProLogis. As of March 31, 2000,
no borrowings were outstanding on the line of credit. However, as of March 31,
2000, ProLogis Kingspark had the currency equivalent of approximately $20.4
million of letters of credit outstanding that reduce the amount of available
borrowings on the line of credit. Additionally, ProLogis has an agreement
whereby it has guaranteed the performance and obligations of ProLogis Kingspark
with respect to an infrastructure agreement entered into by ProLogis Kingspark
related to the development of a land parcel. As of March 31, 2000, ProLogis had
an unfunded commitment on this guarantee agreement in the currency equivalent of
approximately $4.6 million.
ProLogis California I LLC
ProLogis California began operations on August 26, 1999 as a limited
liability company whose members are ProLogis and New York State Common
Retirement Fund ("NYSCRF"). ProLogis California operates 78 operating facilities
aggregating 11.8 million square feet, all in the Los Angeles market. All of the
facilities were acquired from ProLogis. As of March 31, 2000, ProLogis and
NYSCRF each had an equity interest in ProLogis California of $141.2 million.
ProLogis received distributions aggregating $2.4 million for the three months
ended March 31, 2000. ProLogis provides property management, leasing and
development management services to ProLogis California and earns fees for these
services.
11
<PAGE>
ProLogis' total investment in ProLogis California as of March 31, 2000
consisted of (in millions):
<TABLE>
<S> <C>
Equity interest, net of distributions..................... $ 141.2
Adjustment to carrying value (1).......................... (26.0)
ProLogis' share of ProLogis California's earnings,
excluding fees earned................................... 5.0
Other, including acquisition costs........................ 1.7
--------
121.9
Other receivables......................................... 4.1
--------
Total................................................ $ 126.0
========
- ----------
<FN>
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of properties to ProLogis California that does not qualify for
income recognition due to ProLogis' continuing ownership in ProLogis
California.
</FN>
</TABLE>
ProLogis accounts for its investment in ProLogis California under the
equity method and recognized $3.1 million of income for the three months ended
March 31, 2000 from its investment in ProLogis California, including management,
leasing and development fees of $665,000.
ProLogis European Properties Fund
The ProLogis European Properties Fund was formed on September 16, 1999
and began operations on September 23, 1999. The ProLogis European Properties
Fund owned 18 operating facilities aggregating 3.3 million square feet, all of
which were acquired from either ProLogis or ProLogis Kingspark in 1999. During
the first three months of 2000, the ProLogis European Properties Fund acquired
two additional facilities (one each from ProLogis and ProLogis Kingspark)
aggregating 290,000 square feet.
On January 7, 2000, ProLogis increased its equity investment in the
ProLogis European Properties Fund through the contribution of 50.1% of the
common stock of one of its wholly owned European entities, the ProLogis European
Properties S.a.r.l. The ProLogis European Properties S.a.r.l. owned 6.8 million
square feet of operating facilities with a net book value of $334.9 million and
held third party debt of $173.6 million as of December 31, 1999. ProLogis is
obligated to contributing the remaining 49.9% of the common stock to the
ProLogis European Properties Fund in January 2001. As of March 31, 2000 has a
44.6% ownership interest in the ProLogis European Properties Fund.
Third parties (19 institutional investors) have invested 182.6 million
euros (the currency equivalent of approximately $174.3 million as of March 31,
2000) in the ProLogis European Properties Fund and have committed to fund an
additional 877.7 million euros (the currency equivalent of approximately $838.0
million as of March 31, 2000) through 2002. ProLogis has also entered into a
subscription agreement to make capital contributions of 109.2 million euros (the
currency equivalent of approximately $104.3 million as of March 31, 2000) to the
ProLogis European Properties Fund through 2002.
The ProLogis European Properties Fund intends to acquire additional
stabilized operating facilities from ProLogis, ProLogis Kingspark and unrelated
parties, including facilities to be developed by ProLogis and ProLogis Kingspark
in the future. Stabilized facilities have been defined for purposes of the
ProLogis European Properties Fund as facilities that meet minimum leasing
criteria and minimum net operating income yields, as defined and established by
agreement for each country. The ProLogis European Properties Fund has the right
to refuse to acquire facilities that ProLogis and ProLogis Kingspark have
developed if they do not meet the established criteria. ProLogis has an
agreement to manage the ProLogis European Properties Fund for a fee pursuant to
a 20-year management agreement.
In October 1999, the ProLogis European Properties Fund entered into an
agreement with two international banks for a three-year 500.0 million euro
revolving credit facility. The facility is secured by certain assets of the
ProLogis European Properties Fund. Borrowings can be denominated in sterling
currencies or the euro, and will bear interest at rates above the relevant index
(LIBOR or Euribor).
ProLogis' total investment in the ProLogis European Properties Fund
as of March 31, 2000 consisted of (in millions of U.S. dollars):
<TABLE>
<S> <C>
Equity interest........................................ $ 101.3
Adjustment to carrying value (1)....................... (7.7)
ProLogis' share of the ProLogis European Properties
Fund's Earnings, excluding fees earned.............. 6.6
Other, net............................................. (0.2)
-------
100.0
Other receivables 20.3
-------
Total............................................. $ 120.3
=======
12
<PAGE>
- ---------
<FN>
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to the ProLogis European Properties Fund that
does not qualify for income recognition due to ProLogis' continuing
ownership in the ProLogis European Properties Fund.
</FN>
</TABLE>
ProLogis recognized $7.3 million of income, including management fees
of $1.1 million for the three months ended March 31, 2000 from its investment in
the ProLogis European Properties Fund.
ProLogis European Properties S.a.r.l.
ProLogis owns 49.9% of the common stock of the ProLogis European
Properties S.a.r.l. and recognizes 49.9% of the income of this entity under the
equity method. The ProLogis European Properties Fund owns the remaining 50.1% of
the common stock of the ProLogis European Properties S.a.r.l. and recognizes
50.1% of the income of this entity in its income. ProLogis recognizes its
investment in the ProLogis European Properties Fund under the equity method
based on its 44.6% ownership interest as of March 31, 2000. ProLogis recognized
$4.9 million of income under the equity method for the three months ended March
31, 2000 from its investment in the 49.9% of the common stock of the ProLogis
European Properties S.a.r.l.
As of March 31, 2000, the ProLogis European Properties S.a.r.l. owned
6.6 million square feet of distribution facilities including 5.0 million square
feet owned by ProLogis Garonor in France, 0.1 million square feet in the
Netherlands, 0.4 million square feet in Poland and 1.1 million square feet of
other facilities in France. Additionally, the ProLogis European Properties
S.a.r.l. had the currency equivalent of $154.6 million of debt (including $29.1
million of unsecured debt that is guaranteed by ProLogis).
Summarized Financial Information
Summarized financial information for ProLogis' unconsolidated entities
as of and for the three months ended March 31, 2000 is presented below (in
millions of U.S. dollars). The information presented is for the entire entity.
<TABLE>
<CAPTION>
ProLogis
ProLogis European
Logistics Frigoscandia Kingspark ProLogis Properties
(1) S.A.(1) S.A.(1) California (2) Fund (3)
--------- ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Total assets........... $ 348.5 $ 521.5 $ 476.4 $ 566.3 $ 673.6
Total liabilities (4).. $ 335.3 $ 552.7 $ 452.4 $ 273.8 $ 333.0
Minority interest...... $ -- $ 1.1 $ -- $ -- $ 83.6
Equity................. $ 13.2 $ (32.3) $ 24.0 $ 292.5 $ 257.0
Revenues............... $ 77.8 $ 95.3 $ 5.7 (5) $ 15.2 $ 28.2
Adjusted EBITDA (6).... $ 7.5 $ 8.3 $ 3.9 $ 12.5 $ 6.6
Net earnings (loss)
(7)(8)............... $ (0.8) $ (4.2) (9) $ (0.4) (10) $ 4.6 $ 13.9 (11)
- ----------
<FN>
(1) ProLogis has a 95% economic interest in each entity as of March 31, 2000.
(2) ProLogis has a 50% equity interest as of March 31, 2000.
(3) ProLogis has a 44.6% equity interest as of March 31, 2000. The ProLogis
European Properties S.a.r.l. is consolidated with the ProLogis European
Properties Fund. Minority interest represents ProLogis' 49.9% investment
in the common stock of the ProLogis European Properties S.a.r.l.
(4) Includes amounts due to ProLogis of $188.1 million from ProLogis
Logistics, $232.7 million from Frigoscandia S.A., $377.3 million from
Kingspark S.A., $4.1 million from ProLogis California and $20.3 million
from the ProLogis European Properties Fund and loans from third parties
(including accrued interest) of $91.5 million for ProLogis Logistics,
$202.4 million for Frigoscandia S.A., $262.9 million for ProLogis
California and $256.3 million for the ProLogis European Properties Fund.
(5) Includes $2.8 million of gains related to the disposition of facilities,
including $0.5 million from the disposition of facilities to the
ProLogis European Properties Fund.
(6) Adjusted EBITDA represents earnings from operations before interest
expense, interest income, current and deferred income taxes,
depreciation, amortization, gains and losses on property dispositions
and foreign currency exchange gains and losses.
(7) ProLogis' share of the net earnings (loss) of the respective entities
and interest income on intercompany notes and mortgage notes receivable
are recognized in the Consolidated Statements of Earnings as "Income
from unconsolidated entities".
(8) The net earnings (loss) of each company includes interest expense on
intercompany notes and mortgage notes due to ProLogis, as applicable.
13
<PAGE>
(9) Includes a net foreign currency exchange gain of $2.3 million.
(10) Includes a net foreign currency exchange gain of $0.4 million.
(11) Includes a net foreign currency exchange gain of $14.8 million.
</FN>
</TABLE>
4. Borrowings:
Unsecured Lines of Credit
ProLogis has an unsecured credit agreement with Bank of America, N.A.
("Bank of America"), Commerzbank AG and Chase Bank of Texas, National
Association, as agents for a bank group that provides for a $550.0 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 1.00% based upon ProLogis' current senior debt
ratings. ProLogis' borrowings are primarily at the 30-day LIBOR rate plus 1.00%
(7.1325% as of March 31, 2000). Additionally, the credit agreement provides for
a facility fee of 0.20% per annum. The line of credit matures on March 29, 2001
and may be extended for an additional year at ProLogis' option. As of March 31,
2000, there were no borrowings outstanding on the line of credit and ProLogis
was in compliance with all covenants contained in the credit agreement.
In addition, ProLogis has a $25.0 million unsecured discretionary line
of credit with Bank of America that matures on October 1, 2000. By agreement
between ProLogis and Bank of America, the rate of interest on and the maturity
date of each advance are determined at the time of each advance. There were no
borrowings outstanding on the line of credit as of March 31, 2000.
On December 17, 1999, ProLogis obtained a multi-currency, unsecured
revolving line of credit in the currency equivalent of 325.0 million euros (the
currency equivalent of approximately $310.3 million as of March 31, 2000)
through a group of 17 banks, on whose behalf ABN AMRO Bank, N.V. acted as agent.
The interest rate on this multi-currency, four-year revolving line of credit is
Euribor plus 0.75% or Sterling LIBOR plus 0.75% (borrowings outstanding as of
March 31, 2000 were at a weighted average interest rate of 5.04%). As of March
31, 2000, the currency equivalent of approximately $174.4 million of borrowings
were outstanding on the line of credit and ProLogis was in compliance with all
covenants contained in the credit agreement.
Mortgage Notes, Assessment Bonds and Securitized Debt
Mortgage notes, assessment bonds and securitized debt consisted of the
following as of March 31, 2000 (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:
West One Business Center #1......... 8.250% 09/01/00 (2) $ 4,302 $ 4,252
Tampa West Distribution Center #20.. 9.125 11/30/00 (3) 37 --
Rio Grande Industrial Center #1..... 8.875 09/01/01 (2) 2,831 2,544
Titusville Industrial Center #1..... 10.000 09/01/01 (2) 4,450 4,181
Prudential Insurance (4)............ 8.590 04/01/03 (2) 25,905 23,505
Sullivan 75 Distribution Center #1.. 9.960 04/01/04 (2) 1,787 1,663
Charter American Mortgage (4)....... 8.750 08/01/04 (2) 7,118 5,819
West One Business Center #3......... 9.000 09/01/04 (2) 4,297 3,847
Raines Distribution Center.......... 9.500 01/01/05 (2) 5,182 4,402
Prudential Insurance (4)(5)......... 6.850 03/01/05 (6) 52,966 48,850
Consulate Distribution Center
#300 (5).......................... 6.970 02/01/06 (2) 3,721 367
Plano Distribution Center #7 (5) 7.020 04/15/06 (2) 3,767 3,200
Connecticut General Life
Insurance (4)..................... 7.080 03/01/07 (2) 148,370 134,431
Vista Del Sol Industrial Center #1
& 2............................... 9.680 08/01/07 (3) 3,371 --
State Farm Insurance (4)(5)......... 7.100 11/01/08 (2) 15,432 13,698
Placid Street Distribution Center
#1 (5)............................ 7.180 12/01/09 (2) 7,799 5,142
Earth City Industrial Center #4..... 8.500 07/01/10 (3) 1,903 --
GMAC Commercial Mortgage (4)........ 7.750 10/01/10 (3) 7,857 --
Executive Park Distribution Center
#3................................ 8.190 03/01/11 (3) 1,039 --
Cameron Business Center #1 (5)...... 7.230 07/01/11 (2) 6,131 4,028
Platte Valley Industrial Center #9.. 8.100 04/01/17 (3) 3,226 --
Platte Valley Industrial Center #4.. 10.100 11/01/21 (3) 2,028 --
Morgan Guaranty Trust (4)........... 7.584 04/01/24 (7) 200,000 127,187
---------
$ 513,519
=========
Assessment bonds:
City of Fremont..................... 7.000% 03/01/11 (3) $ 9,348 --
Various (8)......................... (8) (8) (3) 1,352 --
---------
$ 10,700
=========
14
<PAGE>
Securitized debt:
Tranche A........................... 7.740% 02/01/04 (2) $ 18,773 $ 15,214
Tranche B........................... 9.940 02/01/04 (2) 7,919 7,215
---------
$ 26,692
=========
- ----------
<FN>
(1) The weighted average interest rates for mortgage notes, assessment bonds
and securitized debt were 9.38%, 7.13% and 8.39%, respectively as of March
31, 2000.
(2) Monthly amortization with a balloon payment due at maturity.
(3) Fully amortizing.
(4) Secured by various distribution facilities.
(5) Mortgage note was assumed by ProLogis in connection with the Meridian
Merger. See Note 5. Under purchase accounting, the mortgage note was
recorded at its fair value. Accordingly, a premium or discount was
recognized, as applicable.
(6) Carrying value includes premium, interest only with stated principal
amount due at maturity.
(7) Monthly interest only payments through May 2005, monthly principal and
interest payments from June 2005 to April 2024 with a balloon payment due
at maturity.
(8) Includes nine issues of assessment bonds with four municipalities.
Interest rates range from 5.0% to 8.75%. Maturity dates range from August
2004 to September 2016.
</FN>
</TABLE>
Mortgage notes are secured by real estate with an aggregate
undepreciated cost of $925.8 million as of March 31, 2000. Assessment bonds are
secured by real estate with an aggregate undepreciated cost of $226.8 million as
of March 31, 2000. Securitized debt is collateralized by real estate with an
aggregate undepreciated cost of $63.4 million as of March 31, 2000.
Interest Expense
For the three months ended March 31, 2000 and 1999, interest expense
was $42.0 million and $30.9 million, respectively, which is net of capitalized
interest of $4.2 million and $3.9 million, respectively. Amortization of
deferred loan costs included in interest expense was $987,000 and $802,000 for
the three months ended March 31, 2000 and 1999, respectively. The total interest
paid in cash on all outstanding debt was $30.4 million and $36.0 million during
2000 and 1999, respectively.
5. Meridian Merger
On March 30, 1999, Meridian Industrial Trust, Inc. ("Meridian"), a
publicly traded REIT that owned industrial distribution facilities in the United
States, was merged with and into ProLogis (the "Meridian Merger"). In accordance
with the terms of the Agreement and Plan of Merger dated as of November 16,
1998, as amended (the "Merger Agreement"), the approximately 33.8 million
outstanding shares of Meridian common stock were exchanged (on a 1.10 for one
basis) into approximately 37.2 million ProLogis Common Shares. In addition, the
holders of Meridian common stock received $2.00 in cash per outstanding share,
approximately $67.6 million in total. The holders of Meridian's Series D
cumulative redeemable preferred stock received a new series of ProLogis
cumulative redeemable preferred shares, Series E preferred shares, on a one for
one basis. The Series E preferred shares have an 8.75% annual dividend rate
($2.1875 per share) and an aggregate liquidation value of $50.0 million. The
total purchase price of Meridian was approximately $1.54 billion, which included
the assumption of the outstanding debt and liabilities of Meridian as of March
30, 1999 and the issuance of approximately 1.1 million stock options each to
acquire 1.1 ProLogis Common Shares and $2.00 in cash. The assets acquired from
Meridian included approximately $1.44 billion of real estate assets, an interest
in a temperature-controlled distribution business of $28.7 million and cash and
other assets aggregating $72.3 million. The transaction was structured as a
tax-free merger and was accounted for under the purchase method.
The following summarized pro forma unaudited information for the three
months ended March 31, 1999 represents the combined historical operating results
of ProLogis and Meridian with the appropriate purchase accounting adjustments,
assuming the Meridian Merger had occurred on January 1, 1999. The pro forma
financial information presented is not necessarily indicative of what ProLogis'
actual operating results would have been had ProLogis and Meridian constituted a
single entity during the three months ended March 31, 1999 (in thousands, except
per share amounts):
15
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1999
--------------
<S> <C>
Rental income........................................ $ 130,675
Earnings from operations............................. $ 20,521
Earnings attributable to Common Shares before
cumulative effect of accounting change............. $ 13,512
Net earnings attributable to Common Shares........... $ 12,072
Weighted average Common Shares outstanding:
Basic.............................................. 161,050
Diluted............................................ 161,236
Basic and diluted per share net earnings
attributable to Common Shares before
cumulative effect of accounting change............ $ 0.08
Cumulative effect of accounting change............... (0.01)
-----------
Basic and diluted per share net earnings
attributable to Common Shares..................... $ 0.07
===========
</TABLE>
6. Distributions and Dividends:
Common Distributions
On February 23, 2000, ProLogis paid a quarterly distribution of $0.335
per Common Share to shareholders of record on February 9, 2000. The distribution
level for 2000 was set at $1.34 per Common Share by the Board of Trustees in
December 1999.
Preferred Dividends
The annual dividend rates on ProLogis' preferred shares are $2.35 per
Series A preferred share, $1.75 per Series B preferred share, $4.27 per Series C
preferred share, $1.98 per Series D preferred share and $2.1875 per Series E
preferred share.
On January 31, 2000, ProLogis paid quarterly dividends of $0.5469 per
cumulative redeemable Series E preferred share. On March 31, 2000, ProLogis paid
quarterly dividends of $0.5875 per cumulative redeemable Series A preferred
share, $0.4375 per cumulative redeemable convertible Series B preferred share,
$1.0675 per cumulative redeemable Series C preferred share and $0.495 per
cumulative redeemable Series D preferred 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.
7. Earnings Per Common Share:
A reconciliation of the denominator used to calculate basic earnings
per Common Share to the denominator used to calculate diluted earnings per
Common Share for the years indicated (in thousands, except per share amounts) is
as follows:
<TABLE>
<CAPTION>
Three Months Ended,
March 31,
--------------------
2000 1999
--------- ---------
<S> <C> <C>
Net earnings attributable to Common Shares......... $ 44,938 $ 1,050
========= =========
Weighted average Common Shares outstanding -
Basic............................................ 162,124 123,660
Incremental effect of common stock equivalents
and contingently issuable shares (see Note 8).... 157 21
--------- ---------
Adjusted weighted average Common Shares
outstanding - Diluted............................. 162,281 123,681
========= =========
Basic and diluted per share net earnings
attributable to Common Shares.................... $ 0.28 $ 0.01
========= =========
</TABLE>
For the three months ended March 31, 1999, basic and diluted per share
net earnings attributable to Common Shares before the cumulative effect of
accounting change were $0.02. The following weighted-average convertible
securities were not included in the calculation of diluted net earnings per
Common Share as the effect, on an as-converted basis, was antidilutive (in
thousands):
16
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
------ ------
<S> <C> <C>
Series B preferred shares................... 8,968 9,425
====== ======
Limited partnership units................... 5,587 5,065
====== ======
</TABLE>
8. Supplemental Cash Flow Information:
Non-cash investing and financing activities for the three months ended
March 31, 2000 and 1999 are as follows:
o In connection with ProLogis' contribution of 50.1% of the common stock of
the ProLogis European Properties S.a.r.l. to the ProLogis European
Properties Fund discussed in Note 3, ProLogis received an equity interest
in the ProLogis European Properties Fund of approximately $78.0 million.
The ProLogis European Properties S.a.r.l. had total assets of $403.9
million and total liabilities of $248.1 million. ProLogis has recognized
its investment in the remaining 49.9% of the common stock under the
equity method since January 7, 2000.
o ProLogis received $0.7 million of the proceeds from its disposition of
facilities to the ProLogis European Properties Fund in the form of an
equity interest for the three months ended March 31, 2000.
o In connection with the acquisition of ProLogis Kingspark by Kingspark
S.A. discussed in Note 3, ProLogis issued approximately 201,000 Common
Shares during the three months ended March 31, 2000.
o Series B preferred shares aggregating $1.0 million and $7.1 million were
converted into Common Shares in the three months ended March 31, 2000
and 1999, respectively.
o Net foreign currency translation adjustments of $22.6 million and
$441,000 were recognized in the three months ended March 31, 2000 and
1999, respectively.
o In connection with the Meridian Merger discussed in Note 5, ProLogis
issued approximately 37.2 million Common Shares and 2.0 million Series E
preferred shares, assumed approximately 1.1 million stock options and
assumed outstanding debt and liabilities of Meridian for an aggregate
purchase price of approximately $1.54 billion in exchange for the assets
of Meridian (including cash balances acquired of $49.0 million).
o Limited partnership units aggregating $205,000 were converted into
Common Shares in the three months ended March 31, 1999.
o As of March 31, 1999, ProLogis accrued the Common Share distribution
for the second quarter of 1999 aggregating $52.7 million that was
declared on March 17, 1999.
9. Business Segments:
ProLogis has three reportable business segments:
o Property operations represents the long-term ownership and leasing of
industrial distribution facilities in North America (a portion of which
is owned through ProLogis California -- See Note 3) and Europe (a
portion of which is owned through Garonor Holdings, a subsidiary that
was recognized under the equity method of accounting until June 29, 1999
and a portion of which is owned through the ProLogis European Properties
Fund and the ProLogis European Properties S.a.r.l. in 2000-- See Note
3); each operating facility is considered to be an individual operating
segment having similar economic characteristics which are combined
within the reportable segment based upon geographic location;
o Corporate distribution facilities services business ("CDFS business")
represents the development of distribution facilities for future sale to
third parties or entities in which ProLogis has an ownership interest or
on a fee basis for third parties in North America and in Europe (a
portion of which is owned through Kingspark S.A.); the development
activities of ProLogis and Kingspark S.A. are considered to be
individual operating segments having similar economic characteristics
which are combined within the reportable segment based upon geographic
location; and
o Temperature-controlled distribution operations represents the operation
of a temperature-controlled distribution and logistics network through
investments in unconsolidated entities in North America (ProLogis
Logistics) and Europe (Frigoscandia S.A.); each company's operating
facilities are considered to be individual operating segments having
similar economic characteristics which are combined within the
reportable segment based upon geographic location.
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):
17
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Income:
Property operations:
United States (1).................... $ 119,765 $ 91,237
Mexico............................... 3,342 2,011
Europe (2)........................... 13,053 (1,796)
---------- ----------
Total property operations
segment........................ 136,160 91,452
---------- ----------
Corporate distribution facilities
services business:
United States........................ 16,812 13,327
Mexico............................... 697 --
Europe (3)(4)........................ 6,255 (1,422)
---------- ----------
Total corporate distribution
facilities services business
segment........................ 23,764 11,905
---------- ----------
Temperature-controlled distribution
operations:
North America (5).................... 2,871 1,494
Europe (6)........................... (1,674) (3,511)
---------- ----------
Total temperature-controlled
distribution operations
segment........................ 1,197 (2,017)
---------- ----------
Reconciling items:
Interest income...................... 1,871 709
---------- ----------
Total income..................... $ 162,992 $ 102,049
========== ==========
Net operating income:
Property operations:
United States (1).................... $ 112,874 $ 84,176
Mexico............................... 3,247 1,913
Europe (2)........................... 13,492 (1,826)
---------- ----------
Total property operations
segment........................ 129,613 84,263
---------- ----------
Corporate distribution facilities
services business:
United States........................ 16,812 13,327
Mexico............................... 697 --
Europe (3)(4)........................ 6,255 (1,422)
---------- ----------
Total corporate distribution
facilities services business
segment......................... 23,764 11,905
---------- ----------
Temperature-controlled distribution
operations:
North America (5).................... 2,871 1,494
Europe (6)........................... (1,674) (3,511)
---------- ----------
Total temperature-controlled
distribution operations
segment........................ 1,197 (2,017)
---------- ----------
Reconciling items:
Interest income...................... 1,871 709
General and administrative expense... (11,241) (8,421)
Depreciation and amortization........ (39,474) (27,364)
Interest expense..................... (41,986) (30,918)
Interest rate hedge expense.......... -- (945)
Other expenses....................... (1,218) (2,166)
---------- ----------
Total reconciling items......... (92,048) (69,105)
---------- ----------
Earnings from operations........ $ 62,526 $ 25,046
========== ==========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
<S> <C> <C>
Assets:
Property operations:
United States (7).................... $3,997,285 $4,017,702
Mexico............................... 146,496 178,253
Europe (7)........................... 226,654 387,362
---------- ----------
Total property operations
segment........................ 4,370,435 4,583,317
---------- ----------
Corporate distribution facilities
services business:
United States........................ 215,320 212,530
Mexico............................... 12,243 13,249
Europe (7)........................... 485,453 432,455
---------- ----------
Total corporate distribution
facilities services business
segment........................ 713,016 658,234
---------- ----------
Temperature controlled distribution
operations:
North America (7)................... 197,991 192,607
Europe (7).......................... 207,217 214,008
---------- ----------
Total temperature controlled
distribution operations
segment..................... 405,208 406,615
---------- ----------
Reconciling items:
Cash................................. 99,370 69,338
Accounts and notes receivable........ 30,556 31,084
Other assets......................... 83,418 99,452
---------- ----------
Total reconciling items.......... 213,344 199,874
---------- ----------
Total assets..................... $5,702,003 $5,848,040
========== ==========
- ----------
<FN>
(1) Includes an amount recognized under the equity method related to ProLogis'
investment in ProLogis California in 2000 in addition to the operations of
ProLogis that are reported on a consolidated basis. See Note 3 for
summarized financial information of ProLogis California.
(2) Includes amounts recognized under the equity method related to ProLogis'
investment in the ProLogis European Properties Fund (including the
operations of the ProLogis European Properties S.a.r.l.) in 2000 (including
net foreign currency exchange gains of $8.4 million) and ProLogis'
investment in Garonor Holdings in 1999 (including a $7.2 million net
foreign currency exchange loss), in addition to the operations of ProLogis
that are reported on a consolidated basis. See Note 3 for summarized
financial information of the ProLogis European Properties Fund and Note 2
for a discussion of Garonor Holdings.
(3) Includes amounts recognized under the equity method related to ProLogis'
investment in Kingspark S.A. in 2000 and 1999 (including $0.4 million of
net foreign currency exchange gains in 2000 and $2.3 million of net foreign
currency exchange losses in 1999). See Note 3 for summarized financial
information of Kingspark S.A.
(4) In 2000, includes $0.3 million of net gain recognized by ProLogis related
to the disposition of facilities to the ProLogis European Properties Fund.
Also, in 2000, includes $0.5 million of net gain recognized under the
equity method related to ProLogis Kingspark's disposition of facilities to
the ProLogis European Properties Fund. See Note 3.
(5) Represents amounts recognized under the equity method related to ProLogis'
investment in ProLogis Logistics. See Note 3 for summarized financial
information of ProLogis Logistics.
(6) Represents amounts recognized under the equity method related to ProLogis'
investment in Frigoscandia S.A. (including $2.2 million and $0.8 million of
net foreign currency exchange losses in 2000 and 1999, respectively). See
Note 3 for summarized financial information of Frigoscandia S.A.
(7) Amounts include investments in unconsolidated entities accounted for under
the equity method. See footnotes (1), (2), (3), (5) and (6) above. See also
Note 3 for summarized financial information of the unconsolidated entities
as of and for the three months ended March 31, 2000.
</FN>
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders
of ProLogis Trust:
We have reviewed the accompanying consolidated balance sheet of
ProLogis Trust and subsidiaries as of March 31, 2000, and the related
consolidated statements of earnings and comprehensive income and the
consolidated statements of cash flows for the three months ended March 31, 2000
and 1999. These financial statements are the responsibility of the Trust's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to be
in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of ProLogis Trust and
subsidiaries as of December 31, 1999, and in our report dated March 21, 2000, we
expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1999, is fairly stated in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 9, 2000
20
<PAGE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with ProLogis'
Consolidated Financial Statements and the notes thereto included in Item 1 of
this report. See also ProLogis' 1999 Annual Report on Form 10-K.
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 that
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. Factors which may affect outcomes and results include: (i) changes
in general economic conditions in ProLogis' markets that could adversely affect
demand for ProLogis' facilities and the creditworthiness of ProLogis' customers,
(ii) changes in financial markets, interest rates and foreign currency exchange
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 in ProLogis' 1999 Annual Report on Form 10-K.
Results of Operations
Net earnings attributable to Common Shares increased by $43.8 million
to $44.9 million for the first quarter of 2000 from $1.1 million for the first
quarter of 1999.
The increase in net earnings attributable to Common Shares in 2000 over
1999 was primarily the result of:
o an increase of $12.2 million in net operating income from property
operations (after deductions for depreciation), primarily the result of
the increased number of distribution facilities in operation in 2000 as
compared to 1999 (the Meridian Merger which was completed on March 30,
1999 added 32.2 million square feet of facilities to ProLogis' operating
portfolio. See "-- Meridian Merger");
o an increase of $5.6 million in other real estate income, primarily
profits earned in the CDFS business from dispositions of facilities
developed;
o a decrease of $1.8 million of net foreign currency exchange losses in
2000 of $6.5 million ($7.0 million resulting from the remeasurement of
intercompany and other debt) as compared to net foreign currency
exchange losses of $8.3 million ($8.4 million resulting from the
remeasurement of intercompany and other debt) in 1999;
o an increase of $30.6 million in income from ProLogis' investments in
unconsolidated entities due to: an increase in the earnings from
ProLogis Kingspark in 2000 (see "--Corporate Distribution Facilities
Services Business"); earnings from the ProLogis European Properties
Fund, ProLogis European Properties S.a.r.l. and ProLogis California, a
portion of whose operations was recognized on a consolidated basis in
1999 (see "--Property Operations"); and an increase in the earnings of
ProLogis' temperature-controlled distribution operations (see"--
Temperature-Controlled Distribution Operations).
o a $4.4 million increase in gains recognized on the disposition of
facilities from ProLogis' property operations segment.
These increases in net earnings in 2000 were partially offset by:
o an increase of $11.1 million in interest expense due to higher average
debt balances in 2000;
o an increase of $2.8 million in general and administrative expenses, due
to the continued expansion of the organizational infrastructure in
Europe.
21
<PAGE>
Preferred share dividends and weighted average Common Shares outstanding
both increased in 2000 as compared to 1999 primarily attributable to the
issuance of Common Shares and Series E preferred shares related to the Meridian
Merger on March 30, 1999 (see "-- Meridian Merger").
Property Operations
ProLogis owned (directly or through consolidated subsidiaries) 1,266
operating facilities totaling 127.8 million square feet as of March 31, 2000. In
addition, as of March 31, 2000, ProLogis California (in which ProLogis has a 50%
ownership interest) owned 78 operating facilities totaling 11.8 million square
feet and the ProLogis European Properties Fund (in which ProLogis' ownership
interest was approximately 44.6% as of March 31, 2000) owned 80 operating
facilities totaling 10.3 million square feet.
As of March 31, 1999, ProLogis owned 1,369 operating facilities
totaling 140.9 million square feet (246 facilities and 32.2 million square feet
were acquired on March 30, 1999 as part of the Meridian Merger and were not in
ProLogis' operations during the first quarter of 1999). In addition, ProLogis
owned 100% of the preferred stock (representing substantially all of the
economic benefits) of ProLogis Garonor (which owned 54 operating facilities
totaling 5.2 million square feet as of March 31, 1999). This investment was
accounted for under the equity method from December 29, 1998 (the date of
acquisition) until June 29, 1999. On June 29, 1999, ProLogis Garonor became a
wholly owned subsidiary of ProLogis and its results of operations after that
date have been consolidated along with ProLogis' other wholly owned
subsidiaries and partnerships.
Under the equity method, ProLogis recognizes its share of the net
earnings of certain entities that are part of ProLogis' property operations
segment: (i) ProLogis Garonor from December 29, 1998 to June 29, 1999; (ii)
ProLogis California beginning August 26, 1999; and (iii) the ProLogis European
Properties Fund beginning September 23, 1999 which includes the ProLogis
European Properties S.a.r.l. since January 7, 2000. The operations of ProLogis
Garonor are included in the ProLogis European Properties S.a.r.l. in 2000. The
amounts recognized under the equity method are based on the net earnings of the
unconsolidated entity and include interest income and interest expense,
depreciation and amortization expenses, general and administrative expenses,
income taxes and foreign currency exchange gains and losses (with respect to
ProLogis Garonor, the ProLogis European Properties Fund and the ProLogis
European Properties S.a.r.l.). See Note 3 to ProLogis' Consolidated Financial
Statements in Item 1.
ProLogis' net operating income from the property operations segment was
as follows for the three months ended March 31, 2000 and 1999 (in thousands)
(see Note 9 to ProLogis' Consolidated Financial Statements in Item 1):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
-------- ---------
<S> <C> <C>
Properties directly owned by ProLogis and its
consolidated entities:
Rental income...................................... $120,809 $ 97,161
Property operating expenses........................ 6,547 7,189
-------- ---------
Net operating income....................... 114,262 89,972
-------- ---------
Income from ProLogis California...................... 3,099 --
Income from the ProLogis European Properties
Fund............................................... 7,324 --
Income from the ProLogis European Properties
S.a.r.l............................................ 4,928 --
Loss from ProLogis Garonor........................... -- (5,709)
-------- ---------
Total property operations segment.......... $129,613 $ 84,263
======== =========
</TABLE>
Rental income increased by $23.6 million in 2000 as compared to 1999.
This increase is comprised of the following components:
o facilities completed during 2000 contributed $0.3 million of additional
rental income in 2000;
o facilities acquired during 1999 contributed $24.4 million of additional
rental income in 2000;
o facilities completed during 1999 contributed $5.0 million of additional
rental income 2000;
o facilities owned and operated as of January 1, 1999 contributed $5.9
million of additional rental income in 2000; and
o facilities that were in operation during 1999 but have subsequently been
disposed of reduced rental income in 2000 by $12.0 million.
Rental expenses, net of recoveries from tenants, decreased by $0.7
million in 2000 over 1999 primarily attributable to increases in expense
recoveries. Rental expenses, before recoveries from tenants were 24.6% of rental
income for 2000 and 24.8% of rental income for 1999. Total rental expense
recoveries were 78.0% and 70.1% of total rental expenses in 2000 and 1999,
respectively.
22
<PAGE>
ProLogis' share of the income of the ProLogis European Properties Fund
and the ProLogis European Properties S.a.r.l. includes $5.1 million and $3.3
million of net foreign currency gains in 2000. ProLogis' share of ProLogis
Garonor's loss in 1999 includes the recognition of a net foreign currency
exchange loss of $7.2 million resulting from the remeasurement of intercompany
and other debt.
The facilities that ProLogis develops are not always fully leased at the
start of construction. In addition, ProLogis may acquire facilities that are
underleased at the time of acquisition. While these situations will reduce
ProLogis' overall occupancy rate below its stabilized level in the short-term,
they do provide 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 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%, but ranging from 90% to 95%, depending on the
submarket and product type). ProLogis has been successful in increasing
occupancies on acquired and developed facilities during their initial months of
operation, resulting in an occupancy rate of 94.8% and a leased rate of 96.0%
for stabilized facilities owned by ProLogis and its consolidated and
unconsolidated entities as of March 31, 2000. The average increase in rental
rates for new and renewed leases on previously leased space (5.6 million square
feet) for all facilities including those owned by ProLogis' consolidated
and unconsolidated entities during the first quarter of 2000 was 18.0%.
Corporate Distribution Facilities Services Business
ProLogis recognized income from its CDFS business segment of $23.8
million in the first quarter of 2000 and $11.9 million in the first quarter in
1999 (see Note 9 to ProLogis' Consolidated Financial Statements in Item 1). Of
the total CDFS business segment income recognized, $4.8 million of income and a
loss of $1.4 million represents ProLogis' 95% share of the net earnings of
ProLogis Kingspark for 2000 and 1999, respectively, recognized under the equity
method. Income of $19.0 million in 2000 and $13.3 million in 1999 was earned
directly by ProLogis and its consolidated entities. This income consists
primarily of the profits from the disposition of properties that were developed
in the CDFS business segment and sold to customers or entities in which ProLogis
has an ownership interest.
In the first three months of 2000, ProLogis and its consoldiated
entities disposed of an aggregate of 2.1 million square feet of properties in
the CDFS business segment with aggregate net sales proceeds of $92.9 million. In
the same period in 1999, ProLogis disposed of 0.8 million square feet of
properties with aggregate net sales proceeds of $43.0 million. The CDFS business
segment operations have increased in volume in each year, consequently,
ProLogis' income from this segment has increased in each year.
ProLogis recognizes 95% of the net earnings of ProLogis Kingspark in
its results of operations. The net earnings of the ProLogis Kingspark include
interest income and interest expense (net of capitalized amounts), general and
administrative expenses, income taxes and foreign currency exchange gains and
losses. ProLogis Kingspark's dispositions generated aggregate net sales proceeds
of $24.3 million on the disposition of 0.2 million square feet and land parcels
in 2000 and $0.3 million on the disposition of land parcels in 1999. ProLogis
Kingspark also earned fees for developing properties under development
management agreements ($1.3 million in 2000 and $0.6 million for 1999).
ProLogis' share of the net earnings of ProLogis Kingspark includes $0.8 million
of current and deferred income tax expense and $0.4 million of net foreign
currency exchange gains for 2000. ProLogis' share of ProLogis Kingspark's net
earnings for first three months in 1999 includes $1.1 million of current and
deferred income tax benefit and $2.3 million of net foreign currency exchange
losses.
Temperature-Controlled Distribution Operations
ProLogis recognizes income from the temperature-controlled distribution
operations segment of its business under the equity method. ProLogis' share of
the net earnings (loss) of CSI and Frigoscandia was as follows (in thousands)
(see Notes 3 amd 9 to ProLogis' Consolidated Financial Statements in Item 1):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CSI.................................................. $ 2,871 $ 1,494
Frigoscandia......................................... (1,674) (3,511)
-------- --------
Total temperature-controlled distribution
operations segment..................... $ 1,197 $ (2,017)
======== ========
</TABLE>
The net earnings of the unconsolidated entities includes interest
income and interest expense, depreciation and amortization expenses, general and
administrative expenses, income taxes and foreign currency exchange gains and
losses (with respect to Frigoscandia). ProLogis recognizes 95% of the net
earnings of each entity in its results of operations.
23
<PAGE>
The increase in ProLogis' share of CSI's net earnings from 1999 to 2000
of $1.4 million is attributable primarily to the increase in cubic feet capacity
in operation in 2000 over the same period in 1999 and to income from retail
dedicated services.
ProLogis' share of Frigoscandia's net earnings in 2000 and 1999
includes a net foreign currency exchange gain of $2.2 million and a net foreign
currency exchange loss of $1.0 million, respectively. Excluding foreign currency
exchange losses, ProLogis' share of Frigoscandia's net earnings for the three
months in 2000 was approximately $1.4 million lower than for the same period in
1999. This decrease in 2000 is due to lower occupancy levels in the United
Kingdom and additional general and administrative and information technology
costs associated with integrating the European and North American
temperature-controlled operations.
Other Income and Expense Items
Interest Income
Interest income was $1.9 million in 2000, an increase of $1.2 million
over the interest income recognized in 1999 of $0.7 illion, primarily the result
of higher average cash balances.
General and Administrative Expense
General and administrative expense was $11.2 million in 2000 and $8.4
million in 1999. The increase in general and administrative expense is primarily
related to ProLogis' expanded operational infrastructure in Europe.
Depreciation and Amortization
The increase in depreciation and amortization expense of $12.1 million
in 2000 as compared to 1999 results primarily from the increases in operating
facilities each year. See "--Property Operations".
Interest Expense
Interest expense was $42.0 million and $30.9 million in 2000 and 1999,
respectively. The increase is primarily the result of the increase in the use of
debt to finance investment activities beginning in 1999 and the approximately
$250.0 million of additional debt that was assumed in the Meridian Merger (see
"--Meridian Merger"), both of which have resulted in higher average debt balance
outstanding during the three months ended March 31, 2000 as compared to the same
period in 1999.
Other Expenses
Other expenses, which were $1.2 million in 2000 and $2.2 million in
1999, includes land holding costs and the write-off of previously capitalized
pursuit costs. Land holding costs were $0.5 million in 2000 and $0.7 million in
1999. Pursuit cost write-offs were $0.7 million in 2000 and $1.5 million in
1999.
Gain on Disposition of Real Estate
In 2000, ProLogis disposed of 670,000 square feet of operating
facilities to third parties from its property operations segment generating net
sales proceeds of $26.4 million and aggregate gains of $5.1 million.
Foreign Currency Exchange Losses
The foreign currency exchange loss in 2000 consists of: (i) a net loss
from remeasurement of intercompany and other debt of $7.0 million; (ii) net
transactions gains of $2,000 (including a $56,000 gain related to the
termination of certain of ProLogis' foreign currency put options contracts); and
(iii) a mark to market gain on the foreign currency put option contracts of
$480,000. ProLogis recognized a net loss from remeasurement of intercompany and
other debt of $8.4 million and a net transactions gain of $90,000 in 1999.
Fluctuations in the foreign currency gains and losses recognized in each period
are a product of movements in the exchange rates, primarily the euro and the
level of intercompany and third party debt outstanding that is denominated in
currencies other than the U.S. dollar. During the first quarter of 2000, the
euro depreciated against the U.S. dollar which is the primary source of the
remeasurement losses recognized.
24
<PAGE>
Cumulative Effect of Accounting Change
Through 1998, ProLogis capitalized costs associated with start-up
activities and organization costs and amortized such costs over an appropriate
period, generally five years. Statement of Position ("SOP") 98-5 "Reporting on
the Costs of Start-Up Activities", which requires that costs associated with
organization, pre-opening, and start-up activities be expensed as incurred,
was adopted by ProLogis on January 1, 1999. Accordingly, ProLogis expensed $1.4
million of unamortized organization and start-up costs as a cumulative effect of
accounting change in the first quarter of 1999. Subsequent to that date, all
such costs incurred have been expensed.
Meridian Merger
On March 30, 1999, Meridian, a publicly traded REIT that owned
industrial distribution facilities in the United States, was merged with and
into ProLogis. In accordance with the terms of the Agreement and Plan of Merger
dated as of November 16, 1998, as amended, the approximately 33.8 million
outstanding shares of Meridian common stock were exchanged (on a 1.1 for one
basis) into approximately 37.2 million ProLogis Common Shares. In addition, the
holders of Meridian common stock received $2.00 in cash per outstanding share,
approximately $67.6 million in total. The holders of Meridian's Series D
cumulative redeemable preferred stock received a new series of ProLogis
cumulative redeemable preferred shares, Series E preferred shares, on a one for
one basis. The Series E preferred shares have an 8.75% annual dividend rate
($2.1875 per share) and an aggregate liquidation value of $50.0 million. The
total purchase price of Meridian was approximately $1.54 billion, which included
the assumption of the outstanding debt and liabilities of Meridian as of March
30, 1999 and the issuance of approximately 1.1 million stock options each to
acquire 1.1 ProLogis Common Shares and $2.00 in cash. The assets acquired from
Meridian included approximately $1.44 billion of real estate assets, an interest
in a temperature-controlled distribution business of $28.7 million and cash and
other assets aggregating $72.3 million. The transaction was structured as a
tax-free merger and was accounted for under the purchase method.
Environmental Matters
ProLogis did not experience any environmental condition on its
facilities which materially adversely affected its results of operations or
financial position nor is ProLogis aware of any environmental liability that
ProLogis believes would have a material adverse effect on its business,
financial condition or results of operations.
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' future investing activities within the property operations
segment and the CDFS business segment are expected to consist primarily of
acquiring land for future development and developing distribution facilities.
Within the temperature-controlled distribution operations segment, ProLogis'
future investing activities are expected to include the expansion of its current
capacity through internal development and the acquisition of existing businesses
operating in this industry. ProLogis' future investing activities are expected
to be funded with:
o cash generated by operations;
o the proceeds from the sale of non-strategic facilities to third parties;
o the proceeds from the sale of facilities developed to third parties
or to entities in which ProLogis has an ownership interest;
o the proceeds from the sale of facilities to the ProLogis European
Properties Fund;
o other capital generated from the CDFS business segment; and
o utilization of ProLogis' unsecured lines of credit.
In the short-term, borrowings and subsequent repayments on the unsecured
lines of credit will provide ProLogis with adequate liquidity and financial
flexibility to efficiently respond to market opportunities. Within the ProLogis
European Properties Fund, ProLogis has access to 877.7 million euros (the
currency equivalent of $838.0 million as of March 31, 2000) of third party
equity capital in Europe that has been committed primarily by institutional
investors for the period 2000 to 2002. This capital is available to fund
acquisitions of ProLogis' completed stabilized European developments by the
ProLogis European Properties Fund, as well as acquisitions of other facilities
from third parties. ProLogis will continue to evaluate other financing
arrangements similar to the ProLogis European Properties Fund that will provide
debt and equity financing to ProLogis.
25
<PAGE>
As of March 31, 2000, ProLogis had $575.0 million available for borrowing
under its U.S. dollar denominated unsecured lines of credit and the currency
equivalent of $135.9 million available for borrowing under its multi-currency
unsecured line of credit. As of May 8, 2000, on a combined basis ProLogis had
approximately $685.7 million of borrowing capacity available (see "-- Credit
Facilities"). Another source of future liquidity and financial flexibility is
ProLogis' shelf- registered securities which can be issued in the form of debt
securities, preferred shares, Common Shares, rights to purchase Common Shares
and preferred share purchase rights on an as-needed basis. ProLogis currently
has $608.0 million of shelf-registered securities available for issuance,
subject to ProLogis' ability to effect an offering on satisfactory terms.
Cash Operating Activities
Cash provided by operating activities increased by $51.9 million in
2000 as compared to 1999 ($93.3 million in 2000 and $41.4 million in 1999). This
increase is primarily the result of the increased number of operating facilities
in 2000 over 1999. See "-- Results of Operations -- Property Operations". Cash
provided by operating activities exceeded the cash distributions paid on Common
Shares for the three months in 2000 and 1999.
Cash Investing and Cash Financing Activities
For the three months in 2000 and 1999, ProLogis funded its investment
needs primarily with lines of credit borrowings, which were subsequently repaid
with cash flow from operations and proceeds from the dispositions of real estate
assets (from both the property operations segment and the CDFS business
segment). ProLogis' investment activities used approximately $70.9 million and
$25.7 million of cash in 2000 and 1999, respectively. ProLogis' primary
investing activity in 2000 was the contribution of 50.1% of the common stock of
the ProLogis European Properties S.a.r.l. to the ProLogis European Properties,
Fund which resulted in a decrease in cash of $18.0 million, representing the
cash balances in the ProLogis European Properties S.a.r.l at the date of the
contribution. ProLogis' primary investing activity in 1999 was the Meridian
Merger which was financed primarily with the issuance of equity securities and
the assumption of Meridian's liabilities.
Investments in real estate (including recurring capital expenditures
and tenant improvements and lease commissions on previously leased space), net
of proceeds from dispositions, used cash of $34.5 million in 2000 and $65.3
million in 1999. ProLogis' cash investments in its unconsolidated entities
aggregated $18.5 million in 2000 and $9.4 million in 1999.
ProLogis' financing activities resulted in increases in cash of $7.7
million and $108.9 million in 2000 and 1999, respectively. ProLogis' primary
cash financing activity in 2000 was net borrowings on its unsecured lines of
credit which aggregated $75.7 million. ProLogis' primary cash financing
activities in 1999 were: (i) arranging longer-term secured debt agreements that
generated $439.0 million of funds; (ii) repayments of borrowings on ProLogis'
unsecured lines of credit (net reduction in outstanding borrowings of $163.4
million in 1999); and (iii) cash payments associated with the Meridian Merger
(paydown of Meridian's outstanding line of credit of $328.4 million and $67.6
million of payments to Meridian shareholders). See "-- Results of Operations --
Meridian Merger".
Credit Facilities
ProLogis has an unsecured credit agreement with Bank of America, N.A.
("Bank of America"), Commerzbank AG and Chase Bank of Texas, National
Association, as agents for a bank group that provides for a $550.0 million
unsecured revolving line of credit. Borrowings bear interest, at ProLogis'
option, at either (a) the greater of the federal funds rate plus 0.5% and the
prime rate, or (b) LIBOR plus 1.00% based upon ProLogis' current senior debt
ratings. ProLogis' borrowings are primarily at the 30-day LIBOR rate plus 1.00%
(7.1325% as of March 31, 2000). Additionally, the credit agreement provides for
a facility fee of 0.20% per annum. The line of credit matures on March 29, 2001
and may be extended for an additional year at ProLogis' option. As of March 31,
2000, there were no borrowings outstanding on the line of credit and ProLogis
was in compliance with all covenants contained in the credit agreement.
In addition, ProLogis has a $25.0 million short-term unsecured
discretionary line of credit with Bank of America that matures on October 1,
2000. By agreement between ProLogis and Bank of America, the rate of interest on
and the maturity date of each advance are determined at the time of each
advance. There were no borrowings outstanding on the line of credit as of March
31, 2000.
On December 17, 1999, ProLogis obtained a multi-currency, unsecured
revolving line of credit in the currency equivalent of 325.0 million euros (the
currency equivalent of approximately $310.3 million as of March 31, 2000)
through a group of 17 banks, on whose behalf ABN AMRO Bank, N.V. acted as agent.
26
<PAGE>
The line of credit was obtained for the purpose of funding ProLogis' European
development activities. The interest rate on this multi-currency, four-year
revolving line of credit is Euribor plus 0.75% or Sterling LIBOR plus 0.75%,
(borrowings outstanding as of March 31, 2000 were at a weighted average interest
rate of 5.04%). As of March 31, 2000, there were 182.7 million euros of
borrowings (the currency equivalent of approximately $174.4 million as of March
31, 2000) outstanding on the line of credit and ProLogis was in compliance with
all covenants contained in the credit agreement.
Commitments
As of March 31, 2000, ProLogis had letters of intent or contingent
contracts, subject to ProLogis' final due diligence, for the acquisition of
266,000 square feet of distribution facilities at an estimated acquisition cost
of $7.0 million. The foregoing transactions are subject to a number of
conditions, and ProLogis cannot predict with certainty that they will be
consummated. In addition, as of March 31, 2000, ProLogis had $384.8 million of
budgeted development costs for developments in process, of which $211.3 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 $176.8 million as of March 31, 2000. The loan bears interest at
the relevant index (LIBOR or Euribor based on the currency borrowed) plus 0.65%.
ProLogis has entered into a guaranty agreement for 25% of the loan balance.
ProLogis Kingspark has a line of credit agreement with a bank in the
United Kingdom. The credit agreement, which provides for borrowings of up to
15.0 million pounds sterling (the currency equivalent of approximately $23.9
million as of March 31, 2000). As of March 31, 2000 no borrowings were
outstanding on the line of credit. However, as of March 31, 2000, ProLogis
Kingspark had the currency equivalent of approximately $20.4 million of letters
of credit outstanding that reduce the amount of available borrowings on the line
of credit. Additionally, ProLogis has an agreement whereby it has guaranteed the
performance and obligations of ProLogis Kingspark with respect to an
infrastructure agreement entered into by ProLogis Kingspark related to the
development of a land parcel. As of March 31, 2000, ProLogis had an unfunded
commitment on this guarantee agreement in the currency equivalent of
approximately $4.6 million.
The ProLogis European Properties S.a.r.l. has a 200.0 million French
franc unsecured loan outstanding (the currency equivalent of $29.1 million as of
March 31, 2000) that has been guaranteed by ProLogis.
Distribution and Dividend Requirements
ProLogis' current distribution policy is to pay quarterly distributions
to shareholders based upon what it considers to be a reasonable percentage of
cash flow and at the level that will allow ProLogis to continue to qualify as a
REIT for tax purposes. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, annual distributions are expected to be consistently higher than
annual earnings.
On February 23, 2000, ProLogis paid a quarterly distribution of $0.335
per Common Share to shareholders of record as of February 9, 2000. The
distribution level for 2000 was set at $1.34 per Common Share by the Board of
Trustees in December 1999.
The annual dividend rates on ProLogis' preferred shares are $2.35 per
Series A preferred share, $1.75 per Series B preferred share, $4.27 per Series C
preferred share, $1.98 per Series D preferred share and $2.1875 per Series E
preferred share. On January 31, 2000, ProLogis paid quarterly dividends of
$0.5469 per cumulative redeemable Series E preferred share. On March 31, 2000,
ProLogis paid quarterly dividends of $0.5875 per cumulative redeemable Series A
preferred share, $0.4375 per cumulative redeemable Series B preferred share;
$1.0675 per cumulative redeemable Series C preferred share and $0.495 per
cumulative redeemable Series D preferred 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 and until 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.
27
<PAGE>
Conversion to the Euro
Effective January 1, 1999, eleven of the fifteen member countries of
the European Monetary Union launched the new monetary unit, the euro, as the
single currency for the member countries of the European Monetary Union. During
the period from January 1, 1999 to January 1, 2002, a transition period will be
in effect during which time the euro will be available for non-cash
transactions. However, transactions can continue to be denominated in the old
national currencies. After January 1, 2002, all transactions must be denominated
in the euro. The targeted exchange rates of the old national currencies to the
euro were determined in May 1998. Conversion to the euro has not had, nor is
management aware of any future effects of the conversion to the euro that will
have, a material impact on its business operations or results of operations.
New Tax Legislation
The REIT Modernization Act ("RMA"), which was passed in 1999 and will
take effect on January 1, 2001, modifies certain provisions of the Internal
Revenue Code ("the Code") with respect to the taxation of REITs. Primarily, the
RMA allows for the creation of Taxable REIT Subsidiaries ("TRS") which will
allow ProLogis and other REITs to own up to 100% of a TRS (previously limited to
10% of the voting stock). Due to the previous limitations, certain of ProLogis'
current taxable subsidiaries (those entities whose operations generated income
that was restricted under the REIT rules) were formed as entities in which
ProLogis owned 100% of the preferred stock and a third party owned 100% of the
voting common stock. Accordingly, ProLogis accounted for these investments
(excluding ProLogis Development Services Incorporated which is consolidated)
under the equity method rather than consolidating the investments in its balance
sheet and results of operations. Because ProLogis will be able to own 100% of
these entities beginning on January 1, 2001, ProLogis is pursuing the purchase
of the common stock of these entities from the third parties currently owning
the stock. See Note 3 to ProLogis' Consolidated Financial Statements in Item 1.
Funds from Operations.
Funds from operations attributable to Common Shares increased $27.0
million to $87.8 million for 2000 from $60.8 million for 1999.
Funds from operations does not represent net income or cash from
operating activities in accordance with GAAP and is not necessarily indicative
of cash available to fund cash needs, which is presented in the Consolidated
Statement of Cash Flows in ProLogis' Consolidated Financial Statements in Item
1. Funds from operations should not be considered as an alternative to net
income 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. Additionally, the funds from operations measure presented by ProLogis
will not necessarily be comparable to similarly titled measures of other REITs.
ProLogis considers funds from operations to be a useful supplemental measure of
comparative period operating performance and as a supplemental measure to
provide management, financial analysts, potential investors and shareholders
with an indication of the ability of ProLogis to fund its capital expenditures
and investment activities and to fund other cash needs.
Funds from operations, as published by National Association of Real
Estate Investment Trusts ("NAREIT") is defined as net income (computed in
accordance with GAAP), excluding gains or losses from sales of previously
depreciated property and real estate related depreciation and amortization, and
after adjustments for unconsolidated entities. The adjustments for
unconsolidated entities are computed to reflect their funds from operations on
the same basis. Funds from operations as used by ProLogis is modified from the
NAREIT definition to exclude: (i) deferred income tax benefits and deferred
income tax expenses of ProLogis' taxable subsidiaries; (ii) foreign currency
exchange gains and losses resulting from debt transactions between ProLogis and
its consolidated and unconsolidated entities; (iii) foreign currency exchange
gains and losses from the remeasurement (based on current foreign currency
exchange rates) of third party debt of ProLogis' foreign consolidated and
unconsolidated entities; and (iv) mark to market adjustments related to
derivative financial instruments utilized to manage ProLogis' foreign currency
risks. These adjustments to the NAREIT definition are made to reflect ProLogis'
funds from operations on a comparable basis with other REITs who do not engage
in the types of transactions that give rise to these items.
In October 1999, NAREIT's definition of funds from operations was
changed to include non-recurring items as a component of funds from operations.
The 1999 amount presented below has been restated to reflect this change. The
effect of this restatement is a reduction of $936,000 to funds from operations
attributable to Common Shares for the three months ended March 31, 1999. For the
entire year ended December 31, 1999, the effect of the restatement is an
increase of $2,000 to funds from operations attributable to Common Shares.
28
<PAGE>
Funds from operations is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Net earnings attributable to Common Shares............... $ 44,938 $ 1,050
Add (Deduct):
Real estate related depreciation and
amortization...................................... 38,728 27,052
Gain on disposition of depreciated properties....... (5,108) (715)
Foreign currency exchange losses, net (1)........... 6,522 8,373
Cumulative effect of accounting change (2).......... -- 1,440
ProLogis' share of reconciling items of
unconsolidated entities:
Real estate related depreciation and
amortization.................................. 14,239 12,549
Gain on disposition of depreciated
properties.................................... (312) 137
Foreign currency exchange (gains) losses, net... (10,637) 10,245
Deferred income tax benefit..................... (566) (837)
Cumulative effect of accounting change (2)...... -- 1,480
--------- ---------
Funds from operations attributable to Common Shares.... $ 87,804 $ 60,774
========= =========
- ----------
<FN>
(1) See "-- Results of Operations -- Other Income and Expense Items -- Foreign
Currency Exchange Losses".
(2) See "-- Results of Operations -- Other Income and Expense Items --
Cumulative Effect of Accounting Change".
</FN>
</TABLE>
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
As of March 31, 2000, no significant change had occurred in ProLogis'
interest rate risk or foreign currency risk as discussed in ProLogis' 1999
Annual Report on From 10-K.
29
<PAGE>
PART II
Item 4. Submission of Matters to Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Share Dividends
15.1 Letter from Arthur Andersen LLP regarding unaudited financial
information dated May 9, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K:
Items Financial
Date Reported Statements
---- -------- ----------
None
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PROLOGIS TRUST
By: /s/ WALTER C. RAKOWICH
---------------------------
Walter C. Rakowich
Managing Director and
Chief Financial Officer
(Principal Financial Officer)
By:/s/ EDWARD F. LONG
----------------------------
Edward F. Long
Senior Vice President and
Controller
By:/s/ SHARI J. JONES
----------------------------
Shari J. Jones
Vice President
(Principal Accounting Officer)
Date: May 9, 2000
31
EXHIBIT 12.1
PROLOGIS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings from Operations $ 60,872 $ 23,877 $161,570 $102,936 $ 38,832 $ 79,384 $ 47,660
Add:
Interest Expense 41,986 30,918 170,746 77,650 52,704 38,819 32,005
-------- -------- -------- -------- -------- -------- --------
Earnings as Adjusted $102,858 $ 54,795 $332,316 $180,586 $ 91,536 $118,203 $ 79,665
======== ======== ======== ======== ======== ======== ========
Fixed Charges:
Interest Expense $ 41,986 $ 30,918 $170,746 $ 77,650 $ 52,704 $ 38,819 $ 32,005
Capitalized Interest 4,183 3,927 15,980 19,173 18,365 16,138 8,599
-------- -------- -------- -------- -------- -------- --------
Total Fixed Charges $ 46,169 $ 34,845 $186,726 $ 96,823 $ 71,069 $ 54,957 $ 40,604
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings, as Adjusted
to Fixed Charges 2.2 1.6 1.8 1.9 1.3 2.2 2.0
======== ======== ======== ======== ======== ======== ========
</TABLE>
EXHIBIT 12.2
PROLOGIS
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Earnings from Operations $ 60,872 $ 23,877 $161,570 $102,936 $ 38,832 $ 79,384 $ 47,660
Add:
Interest Expense 41,986 30,918 170,746 77,650 52,704 38,819 32,005
-------- -------- -------- -------- -------- -------- --------
Earnings as Adjusted $102,858 $ 54,795 $332,316 $180,586 $ 91,536 $118,203 $ 79,665
======== ======== ======== ======== ======== ======== ========
Combined Fixed Charges and
Preferred Share Dividends:
Interest Expense $ 41,986 $ 30,918 $170,746 $ 77,650 $ 52,704 $ 38,819 $ 32,005
Capitalized Interest 4,183 3,927 15,980 19,173 18,365 16,138 8,599
-------- -------- -------- -------- -------- -------- --------
Total Fixed Charges 46,169 34,845 186,726 96,823 71,069 54,957 40,604
Preferred Share Dividends 14,405 13,445 56,835 49,098 35,318 25,895 6,698
-------- -------- -------- -------- -------- -------- --------
Combined Fixed Charges and
Preferred Share Dividends $ 60,574 $ 48,290 $243,561 $145,921 $106,387 $ 80,852 $ 47,302
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings, as Adjusted
to Combined Fixed Charges and
Preferred Share Dividends 1.7 1.1 1.4 1.2 (a) 1.5 1.7
======= ======== ======== ======== ======== ======== ========
</TABLE>
(a) Due to a one-time, non-recurring, non-cash charge of $75.4 million relating
to the costs incurred in acquiring the management companies from a related
party earnings were insufficient to cover combined fixed charges and
preferred share dividends for the year ended December 31, 1997 by $14.9
million.
EXHIBIT 15.1
May 9, 2000
Board of Trustees and Shareholders
of ProLogis Trust:
We are aware that ProLogis Trust has incorporated by reference in its
Registration Statement Nos. 33-91366, 33-92490, 333-4961, 333-31421, 333-38515,
333-52867, 333-26597, 333-74917, 333-75893, 333-79813, 333-69001, 333-86081,
333-95737 and 333-36578 its Form 10-Q for the quarter ended March 31, 2000,
which includes our report dated May 9, 2000 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933 (the "Act"), that report is not considered a part of the
registration statements prepared or certified by our firm or a report prepared
or certified by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Form 10-Q for the three months ended March 31, 2000, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 99,370
<SECURITIES> 0
<RECEIVABLES> 43,292
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,648,107
<DEPRECIATION> 388,512
<TOTAL-ASSETS> 5,702,003
<CURRENT-LIABILITIES> 0
<BONDS> 2,280,633
0
709,487
<COMMON> 1,623
<OTHER-SE> 2,273,883
<TOTAL-LIABILITY-AND-EQUITY> 5,702,003
<SALES> 120,809
<TOTAL-REVENUES> 162,992
<CGS> 0
<TOTAL-COSTS> 6,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,986
<INCOME-PRETAX> 59,460
<INCOME-TAX> 117
<INCOME-CONTINUING> 59,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,938
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
