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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q/A #2
---------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] 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
10, 2001 was 173,975,171.
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PROLOGIS TRUST
INDEX
PAGE
NUMBER(S)
---------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets -- March 31, 2001 and
December 31, 2000................................. 2
Consolidated Condensed Statements of Earnings and
Comprehensive Income -- Three Months Ended March 31, 2001
and 2000.......................................... 3
Consolidated Condensed Statements of Cash Flows -- Three
Months Ended March 31, 2001 and 2000...................... 4
Notes to Consolidated Condensed Financial Statements........ 5-26
Report of Independent Public Accountants.................... 27
Item 2. Management's Discussion and Analysis of Financial
Condition and
Results of Operations.............................. 28-37
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 38
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities
Holders............................................ 38
Item 5. Other Information.................................. 38
Item 6. Exhibits........................................... 38
1
PROLOGIS TRUST
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Real estate................................................. $4,560,316 $4,689,492
Less accumulated depreciation............................. 505,890 476,982
---------- ----------
4,054,426 4,212,510
Investments in and advances to unconsolidated entities...... 1,260,650 1,453,148
Cash and cash equivalents................................... 33,522 57,870
Accounts and notes receivable............................... 57,198 50,856
Other assets................................................ 163,966 171,950
---------- ----------
Total assets...................................... $5,569,762 $5,946,334
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit........................................... $ 120,210 $ 439,822
Senior unsecured debt..................................... 1,700,086 1,699,989
Mortgage notes and other secured debt..................... 536,172 537,925
Accounts payable and accrued expenses..................... 121,269 107,494
Construction payable...................................... 14,205 40,925
Distributions and dividends payable....................... 729 57,739
Other liabilities......................................... 90,887 88,439
---------- ----------
Total liabilities................................. 2,583,558 2,972,333
---------- ----------
Minority interest........................................... 46,291 46,630
Shareholders' equity:
Series A Preferred Shares; $0.01 par value; 5,400,000
shares issued and outstanding at March 31, 2001 and
December 31, 2000; stated liquidation preference of
$25.00 per share....................................... 135,000 135,000
Series B Preferred Shares; $0.01 par value; 6,256,100
shares issued and outstanding at December 31, 2000;
stated liquidation preference of $25.00 per share...... -- 156,403
Series C Preferred Shares; $0.01 par value; 2,000,000
shares issued and outstanding at March 31, 2001 and
December 31, 2000; 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, 2001 and
December 31, 2000; 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, 2001 and
December 31, 2000; stated liquidation preference of
$25.00 per share....................................... 50,000 50,000
Common shares of beneficial interest; $0.01 par value;
173,679,733 shares issued and outstanding at March 31,
2001 and 165,287,358 shares issued and outstanding at
December 31, 2000...................................... 1,737 1,653
Additional paid-in capital.................................. 2,907,314 2,740,136
Employee share purchase notes............................... (18,049) (18,556)
Accumulated other comprehensive income...................... (76,452) (33,768)
Distributions in excess of net earnings..................... (409,637) (453,497)
---------- ----------
Total shareholders' equity........................ 2,939,913 2,927,371
---------- ----------
Total liabilities and shareholders' equity........ $5,569,762 $5,946,334
========== ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
PROLOGIS TRUST
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
THREE MONTHS ENDED
MARCH 31,
-----------------------
2001 2000
---------- ----------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Income:
Rental income............................................. $119,244 $120,809
Other real estate income.................................. 31,124 18,945
Income from unconsolidated entities....................... 8,157 21,367
Interest.................................................. 1,124 1,871
-------- --------
Total income...................................... 159,649 162,992
-------- --------
Expenses:
Rental expenses, net of recoveries of $24,864 in 2001 and
$23,162 in 2000, including amounts paid to affiliate of
$174 in 2001 and $306 in 2000.......................... 6,762 6,547
General and administrative, including amounts paid to
affiliate of $170 in 2001 and $224 in 2000............. 14,417 11,241
Depreciation and amortization............................. 37,860 39,474
Interest.................................................. 41,522 41,986
Other..................................................... 1,243 1,218
-------- --------
Total expenses.................................... 101,804 100,466
-------- --------
Earnings before minority interest........................... 57,845 62,526
Minority interest share in earnings......................... 1,376 1,654
-------- --------
Earnings before gain (loss) on disposition of real estate
and foreign currency exchange gains (losses).............. 56,469 60,872
Gain (loss) on disposition of real estate................... (1,198) 5,108
Foreign currency exchange gains (losses), net............... 2,657 (6,520)
-------- --------
Earnings before income taxes................................ 57,928 59,460
Income taxes:
Current income tax expense................................ 1,580 117
Deferred income tax expense............................... 909 --
-------- --------
Total income taxes................................ 2,489 117
-------- --------
Net earnings................................................ 55,439 59,343
Less preferred share dividends.............................. 11,432 14,405
-------- --------
Net earnings attributable to Common Shares.................. 44,007 44,938
Other comprehensive income:
Foreign currency translation adjustments.................. (42,684) (22,574)
-------- --------
Comprehensive income........................................ $ 1,323 $ 22,364
======== ========
Weighted average Common Shares outstanding -- Basic......... 167,297 162,124
======== ========
Weighted average Common Shares outstanding -- Diluted....... 174,371 162,281
======== ========
Basic net earnings attributable to Common Shares............ $ 0.26 $ 0.28
======== ========
Diluted net earnings attributable to Common Shares.......... $ 0.25 $ 0.28
======== ========
Distributions per Common Share.............................. $ 0.345 $ 0.335
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
PROLOGIS TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED,
MARCH 31,
---------------------
2001 2000
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
Operating activities:
Net earnings.............................................. $ 55,439 $ 59,343
Minority interest share in earnings....................... 1,376 1,654
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 37,860 39,474
(Gain) loss on disposition of real estate.............. 1,198 (5,108)
Straight-lined rents................................... (1,649) (1,921)
Amortization of deferred loan costs.................... 1,222 987
Stock-based compensation............................... 1,614 697
Income from unconsolidated entities.................... (4,949) (19,029)
Foreign currency exchange (gains) losses, net.......... (3,274) 6,553
Deferred income tax expense............................ 909 --
Decrease (increase) in accounts receivable and other
assets................................................. 2 (21,869)
Increase in accounts payable, accrued expenses and other
liabilities............................................ 15,045 32,294
Decrease in amount due to affiliate....................... -- 119
--------- ---------
Net cash provided by operating activities......... 104,793 93,194
--------- ---------
Investing activities:
Real estate investments................................... (185,098) (122,289)
Tenant improvements and lease commissions on previously
leased space........................................... (4,312) (5,435)
Recurring capital expenditures............................ (3,936) (5,142)
Proceeds from dispositions of real estate................. 236,900 98,353
Net (advances to) amounts received from unconsolidated
entities............................................... 209,783 (18,460)
Cash balances contributed with ProLogis European
Properties S.a.r.l. ................................... -- (17,968)
--------- ---------
Net cash provided by (used in) investing
activities...................................... 253,337 (70,941)
--------- ---------
Financing activities:
Proceeds from exercised options and dividend reinvestment
and share purchase plans............................... 13,150 3,800
Payments for the redemption of Series B convertible
preferred shares....................................... (4,583) --
Distributions paid on Common Shares....................... (57,158) (54,210)
Distributions paid to minority interest holders........... (1,752) (1,867)
Distributions paid on preferred shares.................... (11,432) (14,561)
Principal payments received on employee share purchase
notes.................................................. 507 540
Proceeds from settlement of derivative financial
instruments............................................ -- 140
Proceeds from lines of credit............................. 200,920 268,126
Payments on lines of credit............................... (520,532) (192,400)
Regularly scheduled principal payments on mortgage
notes.................................................. (1,598) (1,789)
--------- ---------
Net cash provided by (used in) financing
activities...................................... (382,478) 7,779
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (24,348) 30,032
Cash and cash equivalents, beginning of period.............. 57,870 69,338
--------- ---------
Cash and cash equivalents, end of period.................... $ 33,522 $ 99,370
========= =========
See Note 9 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. GENERAL:
BUSINESS
ProLogis Trust (collectively with its consolidated subsidiaries and
partnerships "ProLogis") is a publicly held real estate investment trust
("REIT") that owns and operates a network of industrial distribution facilities
in North America and Europe. The ProLogis Operating System(TM), comprised of the
Market Services Group, the Global Services Group, the Global Development Group
and the Integrated Solutions Group, utilizes ProLogis' international network of
distribution facilities to meet its customers' distribution space needs
globally. ProLogis has organized its business into three operating segments:
property operations, corporate distribution facilities services business ("CDFS
business") and temperature-controlled distribution operations. See Note 8.
PRINCIPLES OF FINANCIAL PRESENTATION
The consolidated condensed financial statements of ProLogis as of March 31,
2001 and for the three months ended March 31, 2001 and 2000 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 condensed financial
statements should be read in conjunction with ProLogis' December 31, 2000
audited consolidated financial statements contained in ProLogis' 2000 Annual
Report on Form 10-K, as amended.
In the opinion of management, the accompanying unaudited consolidated
condensed 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, 2001 and 2000 are not necessarily indicative of the results to be expected
for the entire year. Certain of the 2000 amounts have been reclassified to
conform to the 2001 financial statement presentation.
The preparation of consolidated condensed 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.
INTEREST EXPENSE
Interest expense was $41.5 million and $42.0 million for the three months
in 2001 and 2000, respectively, which is net of capitalized interest of $5.9
million and $4.2 million, respectively. Amortization of deferred loan costs
included in interest expense was $1.2 million and $1.0 million for the three
months in 2001 and 2000, respectively. Total interest paid in cash on all
outstanding debt was $38.9 million and $30.4 million during 2001 and 2000,
respectively.
FINANCIAL INSTRUMENTS
In the normal course of business, ProLogis uses certain derivative
financial instruments for the purpose of foreign currency exchange rate and
interest rate risk management. All derivative financial instruments are
accounted for at fair value with changes in fair value recognized immediately in
accumulated other comprehensive income or income.
5
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
ProLogis adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and for Hedging Activities," as
amended, on January 1, 2001. SFAS No. 133 provides comprehensive guidelines for
the recognition and measurement of derivatives and hedging activities and,
specifically, requires all derivatives to be recorded on the balance sheet at
fair value as an asset or liability, with an offset to accumulated other
comprehensive income or income. ProLogis' only derivative financial instruments
in effect at March 31, 2001 are foreign currency put option contracts that have
been previously marked to market through income, as they did not qualify for
hedge accounting treatment. These contracts also do not qualify for hedge
accounting treatment under SFAS No. 133, therefore, ProLogis has continued to
mark these contracts to market through income during the three months ended
March 31, 2001. ProLogis' unconsolidated entities also adopted SFAS No. 133 on
January 1, 2001. The effect to ProLogis of their adoption of SFAS No. 133 was
immaterial as these entities utilize derivative financial instruments on a
limited basis.
In assessing the fair value of its financial instruments, both derivative
and non-derivative, ProLogis uses a variety of methods and assumptions that are
based on market conditions and risks existing at each balance sheet date.
Primarily, ProLogis uses quoted market prices or quotes from brokers or dealers
for the same or similar instruments. These values represent a general
approximation of possible value and may never actually be realized.
FOREIGN CURRENCY EXCHANGE GAINS OR LOSSES
ProLogis' consolidated subsidiaries whose functional currency is not the
U.S. dollar translate their financial statements into U.S. dollars. Assets and
liabilities are translated at the exchange rate in effect as of the financial
statement date. Income statement accounts are translated using the average
exchange rate for the period. Income statement accounts that represent
significant, nonrecurring transactions are translated at the rate in effect as
of the date of the transaction. Gains and losses resulting from the translation
are included in accumulated other comprehensive income as a separate component
of shareholders' equity. ProLogis and its foreign subsidiaries have certain
transactions denominated in currencies other than their functional currency. In
these instances, nonmonetary assets and liabilities are reflected at the
historical exchange rate, monetary assets and liabilities are remeasured at the
exchange rate in effect at the end of the period, and income statement accounts
are remeasured at the average exchange rate for the period. Gains and losses
from remeasurement are included in ProLogis' results of operations. In addition,
gains or losses are recorded in the income statement when a transaction with a
third party, denominated in a currency other than the functional currency, is
settled and the functional currency cash flows realized are more or less than
expected based upon the exchange rate in effect when the transaction was
initiated.
6
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The net foreign currency exchange gains and losses recognized in ProLogis'
results of operations were as follows for the periods indicated (in thousands of
U.S. dollars):
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- --------
Gains (losses) from the remeasurement of third party debt
and remeasurement and settlement of intercompany debt,
net....................................................... $1,872 $(7,024)
Mark to market gains on foreign currency put option
contracts(1).............................................. 1,012 57
Gains (losses) from the settlement of foreign currency put
option contracts, net..................................... (255) 480
Other gains (losses), net................................... 28 (33)
------ -------
$2,657 $(6,520)
====== =======
---------------
(1) Upon settlement, the mark to market adjustments are reversed and the total
realized gain or loss is recognized.
2. AMENDED QUARTERLY REPORT ON FORM 10-Q/A #1
ProLogis' Quarterly Report on Form 10-Q for the period ended March 31, 2001
originally filed on May 10, 2001 included the financial position and results of
operations of ProLogis' subsidiary, Kingspark Holding S.A. and subsidiaries
("Kingspark S.A."), in its unaudited consolidated condensed financial statements
on a consolidated basis. Until January 5, 2001, ProLogis owned only the
non-voting preferred stock of Kingspark S.A. and reported its investment in
Kingspark S.A. under the equity method. On that date, ProLogis acquired 95% of
the membership interest (all non-voting) in Kingspark LLC, which acquired the
voting common stock of Kingspark S.A. After the change in the ownership
structure, ProLogis believed it had control of Kingspark S.A. and began
consolidating it in its financial statements along with its other majority-
owned and controlled subsidiaries and partnerships. After reconsideration of the
facts underlying its ownership position, ProLogis determined it did not have
control of Kingspark S.A. as it held no voting interest, and therefore,
consolidation was deemed inappropriate. Therefore, ProLogis has amended its
unaudited consolidated condensed financial statements as of and for the three
months ended March 31, 2001 included in this Form 10-Q/A #1 to reflect its
investment in Kingspark S.A. under the equity method, consistent with its
reporting of this investment prior to January 5, 2001. Further, ProLogis has
amended its unaudited consolidated condensed financial statements as of and for
the three months ended March 31, 2001 included in this Form 10-Q/A #1 to reflect
its investments in two other entities, whose sole purpose is to hold preferred
stock in technology companies, under the equity method. ProLogis began
consolidating these entities in 2001, but as with Kingspark S.A., subsequently
determined that its ownership interest did not give it control. These changes in
reporting have no effect on ProLogis' shareholders equity as of March 31, 2001
or its net earnings attributable to Common Shares, net earnings attributable to
Common Shares per share or comprehensive income for the three months ended March
31, 2001. These changes in reporting did result in changes in certain financial
statement amounts as of and for the three months ended March 31, 2001. The most
significant of which are as follows (in thousands):
PREVIOUSLY
AS AMENDED REPORTED
---------- ----------
Real estate................................................. $4,560,316 $4,866,802
Investments in and advances to unconsolidated entities...... $1,260,650 $ 895,776
Other real estate income.................................... $ 31,124 $ 42,854
Income (loss) from unconsolidated entities.................. $ 8,157 $ (2,044)
7
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
3. REAL ESTATE
REAL ESTATE INVESTMENTS
Real estate investments consisting of income producing industrial
distribution facilities, facilities under development and land held for future
development, at cost, are summarized as follows (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
Operating facilities:
Improved land......................................... $ 623,799 $ 648,950(1)
Buildings and improvements............................ 3,556,960 3,619,543(1)
---------- ----------
4,180,759 4,268,493
---------- ----------
Facilities under development (including cost of land)... 186,418(2)(3) 186,020(2)
Land held for development............................... 171,787(4) 187,405(4)
Capitalized preacquisition costs........................ 21,352(5) 47,574(5)
---------- ----------
Total real estate............................. 4,560,316 4,689,492
Less accumulated depreciation........................... 505,890 476,982
---------- ----------
Net real estate............................... $4,054,426 $4,212,510
========== ==========
---------------
(1) As of March 31, 2001 and December 31, 2000, ProLogis had 1,231 and 1,244
operating facilities, respectively, consisting of 125,175,000 and
126,275,000 square feet, respectively.
(2) Facilities under development consist of 47 facilities aggregating 9,781,000
square feet as of March 31, 2001 and 41 facilities aggregating 8,711,000
square feet as of December 31, 2000.
(3) In addition to the March 31, 2001 construction payable of $14.2 million,
ProLogis had unfunded commitments on its contracts for facilities under
construction totaling $211.4 million.
(4) Land held for future development consists of 1,989 acres as of March 31,
2001 and 2,047 acres as of December 31, 2000.
(5) Capitalized preacquisition costs include $9.6 million and $32.5 million of
funds on deposit with title companies as of March 31, 2001 and December 31,
2000, respectively.
ProLogis' operating facilities, facilities under development and land held
for future development are located in North America (the United States and
Mexico) and seven countries in Europe. No individual market represents more than
10% of ProLogis' real estate assets.
8
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASE AGREEMENTS
ProLogis leases its facilities to customers under agreements, which are
classified as operating leases. The leases generally provide for payment of all
or a portion of utilities, property taxes and insurance by the tenant. As of
March 31, 2001, minimum lease payments on leases with lease periods greater than
one year are as follows (in thousands):
Remainder of 2001........................................... $ 328,514
2002........................................................ 369,563
2003........................................................ 286,967
2004........................................................ 205,072
2005........................................................ 140,376
2006 and thereafter......................................... 276,260
----------
$1,606,752
ProLogis' largest customer (based on rental income) accounted for 1.5% of
ProLogis' rental income (on an annualized basis) for the three months ended
March 31, 2001. The annualized base rent for ProLogis' 25 largest customers
(based on rental income) accounted for 13.4% of ProLogis' rental income (on an
annualized basis) for the three months ended March 31, 2001.
4. UNCONSOLIDATED ENTITIES:
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED ENTITIES
Investments in and advances to unconsolidated entities are as follows (in
thousands):
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
Temperature-controlled distribution companies:
Investment in CSI/Frigo LLC(1)............................ $ 2,827 $ --
Investment in ProLogis Logistics(1)....................... 117,163 7,163
Investment in Frigoscandia S.A.(1)........................ (61,333) (50,761)
Notes receivable -- ProLogis Logistics/CSI................ -- 162,856
Mortgage notes receivable -- CSI.......................... -- 24,082
Other receivables -- ProLogis Logistics/CSI............... 1,946 36,952
Notes receivable -- Frigoscandia S.A. .................... 254,595 208,945
Other receivables -- Frigoscandia S.A. ................... 35,282 33,797
---------- ----------
350,480 423,034
---------- ----------
CDFS business:
Kingspark LLC(2).......................................... 8,493 --
Kingspark S.A.(2)......................................... 414,187 570,582
---------- ----------
422,680 570,582
---------- ----------
9
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
ProLogis California(3)...................................... 121,215 132,243
ProLogis North American Properties Fund I(4)................ 45,926 10,369
ProLogis North American Properties Fund II(5)............... 5,417 13,408
ProLogis European Properties Fund II(6)..................... 241,216 147,938
ProLogis European Properties S.a.r.l.(6).................... -- 84,767
Insight(7).................................................. 2,459 2,470
ProLogis Equipment Services(8).............................. 892 450
GoProLogis(9)............................................... 56,315 56,315
ProLogis PhatPipe(10)....................................... 14,050 11,572
---------- ----------
Total............................................. $1,260,650 $1,453,148
========== ==========
---------------
(1) CSI/Frigo LLC, a limited liability company, owns 100% of the voting common
stock of both ProLogis Logistics Services Incorporated ("ProLogis
Logistics") and Frigoscandia Holding S.A. ("Frigoscandia S.A."). ProLogis
directly owns all of the non-voting preferred stock of both ProLogis
Logistics and Frigoscandia S.A. representing a 95% interest in the earnings
of these entities.
ProLogis owns 89% of the membership interests (all non-voting) of
CSI/Frigo LLC and K. Dane Brooksher, ProLogis' chairman and chief
executive officer, owns the remaining 11% of the membership interests (all
voting) and is the managing member. ProLogis has a note agreement with
CSI/Frigo LLC that allows ProLogis to participate in its earnings such
that ProLogis recognizes 95% of the earnings of CSI/Frigo LLC. Mr.
Brooksher may transfer his membership interest, subject to certain
conditions, including the approval of ProLogis. There are no provisions
that give ProLogis the right to acquire Mr. Brooksher's membership
interests. Mr. Brooksher does not receive compensation in connection with
being the managing member. Mr. Brooksher invested $50,000 in CSI/Frigo
LLC. Mr. Brooksher's membership interests and the terms of the
participating note entitle him to receive dividends equal to 5% of the net
cash flow of CSI/Frigo LLC, as defined, if any. ProLogis' ownership
interests in CSI/Frigo LLC, ProLogis Logistics and Frigoscandia S.A. do
not result in ProLogis having ownership of or control of the voting common
stock or voting membership interests of these entities; therefore, they
are not consolidated in ProLogis' condensed financial statements. See Note
10.
Prior to January 5, 2001, the common stock of ProLogis Logistics was owned
by unrelated third parties and the common stock of Frigoscandia S.A. was
owned by a limited liability company in which unrelated third parties
owned 100% of the voting interests and Security Capital Group Incorporated
("Security Capital"), ProLogis' largest shareholder, owned 100% of the
non-voting interests. On January 5, 2001, the common stock of both
ProLogis Logistics and Frigoscandia S.A. was acquired by CSI/Frigo LLC for
an aggregate purchase price of $3.3 million.
(2) ProLogis directly owns all of the non-voting preferred stock of Kingspark
S.A., representing a 95% interest in its earnings. Kingspark LLC, a limited
liability company, owns 100% of the voting common stock of Kingspark S.A.
ProLogis owns 95% of the membership interests (all non-voting) of Kingspark
LLC and K. Dane Brooksher, ProLogis' chairman and chief executive officer,
owns the remaining 5% of the membership interests (all voting) and is the
managing member. Mr. Brooksher may transfer his membership interests,
subject to certain conditions, including the approval of ProLogis. There
are no provisions that give ProLogis the right to acquire Mr. Brooksher's
membership interests. Mr. Brooksher does not receive compensation in
connection with being the managing member. Mr. Brooksher invested $40,557
in Kingspark LLC which was loaned to him by ProLogis. The recourse loan is
payable on January 5, 2006 and bears interest at an annual rate of 8.0%.
Mr. Brooksher's membership interests
10
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
entitle him to receive dividends equal to 5% of the net cash flow of
Kingspark LLC, as defined, if any. Neither ProLogis' ownership interests in
Kingspark LLC and Kingspark S.A., nor its loan to Mr. Brooksher, result in
ProLogis having ownership of or control of the voting common stock or
voting membership interests of these entities; therefore, they are not
consolidated in ProLogis' financial statements. See Note 10.
Prior to January 5, 2001, the common stock of Kingspark S.A. was owned by
a limited liability company in which unrelated third parties owned 100% of
the voting interests and Security Capital, ProLogis' largest shareholder,
owned 100% of the non-voting interests. On January 5, 2001, the common
stock of Kingspark S.A. was acquired by Kingspark LLC for $8.1 million.
(3) ProLogis California I LLC ("ProLogis California") owned 78 operating
facilities aggregating 12.7 million square feet and had a 332,000 square
foot facility under development as of March 31, 2001, all located in the
Los Angeles/Orange County market. ProLogis had a 50.0% ownership interest
in ProLogis California as of March 31, 2001.
(4) ProLogis North American Properties Fund I LLC owned 36 operating facilities
aggregating 9.0 million square feet as of March 31, 2001. In January 2001,
ProLogis contributed three additional operating facilities to ProLogis
North American Properties Fund I for an additional equity interest of $34.1
million. This transaction increased the combined ownership interest of
ProLogis and ProLogis Development Services Incorporated ("ProLogis
Development Services") to 41.3% from 20.0%. ProLogis Development Services
is a consolidated taxable subsidiary of ProLogis that engages in CDFS
business activities in North America.
(5) ProLogis Iowa LLC ("ProLogis Principal") was formed on June 30, 2000, as a
limited liability company whose members were ProLogis with 20.0% of the
membership interests and Principal Financial Group with 80.0% of the
membership interests. ProLogis Principal owned three operating facilities
acquired from ProLogis aggregating 440,000 square feet. On March 27, 2001,
First Islamic Investment Bank E.C. acquired the 80% membership interest
from Principal Financial Group. Also on that date, this entity, under the
name ProLogis First US Properties LP ("ProLogis North American Properties
Fund II") acquired 24 operating facilities aggregating 4.0 million square
feet from ProLogis.
(6) ProLogis European Properties Fund owned 110 operating facilities
aggregating 16.0 million square feet as of March 31, 2001, including
facilities owned by ProLogis European Properties S.a.r.l. On January 7,
2001, ProLogis contributed the remaining 49.9% of the common stock of
ProLogis European Properties S.a.r.l. to ProLogis European Properties Fund
for an additional equity interest. ProLogis had contributed 50.1% of the
common stock of this entity to ProLogis European Properties Fund on January
7, 2000. As of March 31, 2001, ProLogis European Properties Fund, in which
ProLogis had a 41.8% ownership, owned 100% of ProLogis European Properties
S.a.r.l. ProLogis recognized a gain of $0.5 million related to the January
2001 transaction (total gain of $9.8 million net of $9.3 million which does
not qualify for current income recognition due to ProLogis' continuing
ownership in ProLogis European Properties Fund).
(7) Investment represents ProLogis Development Services' investment in the
common stock of Insight, Inc. ("Insight"), a privately owned logistics
optimization consulting company, as adjusted for ProLogis Development
Services' share of Insight's earnings or loss. ProLogis Development
Services had a 33.3% ownership interest in Insight as of March 31, 2001.
(8) Investment represents ProLogis Development Services' equity investment in
ProLogis Equipment Services LLC, a limited liability company whose other
member is a subsidiary of Dana Commercial Credit Corporation, as adjusted
for ProLogis Development Services' share of the earnings or loss of
ProLogis Equipment Services. ProLogis Equipment Services began operations
on April 26, 2000 for the purpose of acquiring, leasing and selling
material handling equipment and providing asset management
11
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
services for such equipment. ProLogis Development Services had a 50.0%
ownership interest in ProLogis Equipment Services as of March 31, 2001.
(9) ProLogis owns 100% of the non-voting preferred stock ($25.0 million of cash
invested and $30.4 million of preferred stock received under a license fee
agreement) of GoProLogis Incorporated ("GoProLogis") that has invested
$25.0 million in the non-cumulative preferred stock of Vizional
Technologies, Inc. (formerly GoWarehouse.com Inc.) ("Vizional
Technologies"), a provider of integrated global logistics network
technology services. GoProLogis also received $30.4 million of non-
cumulative preferred stock of Vizional Technologies under a license
agreement for the non-exclusive use of the ProLogis Operating System(TM)
over a five-year period. Investment amount also includes $0.9 million of
other costs associated with this investment. This investment was made on
July 21, 2000. The income related to the license agreement was deferred at
the inception of the agreement in 2000 and was being recognized over the
five-year term of the agreement. ProLogis accounts for its investment in
GoProLogis under the equity method. GoProLogis has not received any
dividends from its preferred stock investment in Vizional Technologies
since the investment was made in 2000. As of March 31, 2001, ProLogis had
deferred $26.2 million of income related to the license fee agreement.
ProLogis' net investment in GoProLogis was $30.1 million as of March 31,
2001 ($55.4 million of non-cumulative preferred stock and $0.9 million of
additional costs offset by $26.2 million of deferred income). ProLogis'
investment in the non-voting preferred stock of GoProLogis represents a 98%
interest in its earnings. The voting interest of GoProLogis represents a 2%
interest in its earnings. K. Dane Brooksher, ProLogis' chairman and chief
executive officer, holds the voting interest and is entitled to receive
dividends equal to 2% of the net cash flow of GoProLogis, as defined, if
any. Mr. Brooksher contributed a $1.1 million recourse promissory note to
GoProLogis in exchange for his interest in the entity, which note is
payable on July 18, 2005 and bears interest at an annual rate of 8.0%. Mr.
Brooksher is not restricted from transferring his ownership interest in
GoProLogis but ProLogis does have an option to acquire his interest
beginning in 2001 at a price equal to the principal amount plus accrued
interest under the promissory note. See Note 10.
(10) ProLogis owns 100% of the non-voting preferred stock ($6.0 million of cash
invested and $6.0 million of preferred stock received under a license fee
agreement) of ProLogis Broadband (1) Incorporated ("ProLogis PhatPipe")
that has invested $6.0 million in the non-cumulative preferred stock of
PhatPipe, Inc. ("PhatPipe"), a real estate technology company. ProLogis has
committed to fund an additional $2.0 million to ProLogis PhatPipe during
2001 under the terms of a stock purchase agreement. ProLogis PhatPipe also
received $6.0 million of non-cumulative preferred stock of PhatPipe and a
receivable for $2.0 million, both under a license agreement for the
non-exclusive use of the ProLogis Operating System(TM) over a three-year
period. Investment amount also includes $50,000 of other costs associated
with this investment. This investment was made on September 20, 2000. The
income related to the license agreement was deferred at the inception of
the agreement in 2000 and was being recognized over the three-year term of
the agreement. ProLogis accounts for its investment in ProLogis PhatPipe
under the equity method. ProLogis PhatPipe has not received any dividends
from its preferred stock investment in PhatPipe since the investment was
made in 2000. As of March 31, 2001, ProLogis had deferred $6.6 million of
income related to the license fee agreement. ProLogis' net investment in
ProLogis PhatPipe was $7.5 million as of March 31, 2001 ($12.0 million of
non-cumulative preferred stock, a $2.0 million receivable and $50,000 of
additional costs offset by $6.6 million of deferred income). ProLogis'
investment in the non-voting preferred stock of ProLogis PhatPipe
represents a 98% interest in its earnings. The voting interest of ProLogis
PhatPipe represents a 2% interest in its earnings. K. Dane Brooksher,
ProLogis' chairman and chief executive officer, holds the voting interest
and is entitled to receive dividends equal to 2% of the net cash flow of
ProLogis PhatPipe, as defined, if any. Mr. Brooksher contributed recourse
promissory notes with an aggregate of $122,449 principal amount to ProLogis
PhatPipe in exchange for his interest in the entity. A promissory note with
the principal amount of $71,429 is due September 20, 2005 and a promissory
note with the principal
12
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
amount of $51,020 is due January 4, 2006. Both notes bear interest at an
annual rate of 8.0%. Mr. Brooksher is not restricted from transferring his
ownership interest in ProLogis PhatPipe but ProLogis does have an option to
acquire his interest beginning in 2001 at a price equal to the principal
amount plus accrued interest under the promissory notes. See Note 10.
INCOME (LOSS) FROM UNCONSOLIDATED ENTITIES
ProLogis recognized income (loss) from its investments in unconsolidated
entities as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Temperature-controlled distribution companies(1)............ $(9,472) $ 1,197
Kingspark S.A.(2)........................................... 10,253 4,820
ProLogis California(3)...................................... 3,067 3,099
ProLogis North American Properties Fund I(4)................ 1,352 --
ProLogis North American Properties Fund II(5)............... 341 --
ProLogis European Properties Fund(6)........................ 402 7,324
ProLogis European Properties S.a.r.l.(7).................... 36 4,927
Insight..................................................... (10) --
GoProLogis(8)............................................... 1,521 --
ProLogis PhatPipe(8)........................................ 667 --
------- -------
$ 8,157 $21,367
======= =======
---------------
(1) For 2001 includes a loss of $1,744,000 from ProLogis Logistics Services
Incorporated ("ProLogis Logistics") and a loss of $7,728,000 from
Frigoscandia S.A. For 2000, includes income of $2,871,000 from ProLogis
Logistics and a loss of $1,674,000 from Frigoscandia S.A. Amounts include
interest income on notes due to ProLogis.
(2) Represents ProLogis' combined share of the earnings of Kingspark LLC and
Kingspark S.A. recognized under the equity method based on its ownership in
each entity.
(3) Income includes management, leasing and development fees of $666,000 for the
three months in 2001 and $665,000 for the three months in 2000. ProLogis has
had a 50.0% ownership interest in ProLogis California since its inception.
(4) ProLogis North American Properties Fund I was formed on June 30, 2000.
Income includes management fees of $512,000. ProLogis had a 41.3% ownership
interest in ProLogis North American Properties Fund I as of March 31, 2001.
(5) ProLogis North American Properties Fund II was originally formed as ProLogis
Principal on June 30, 2000. Income includes management fees of $45,000.
ProLogis had 20.0% ownership interest in ProLogis North American Properties
Fund II as of March 31, 2001.
(6) Income includes management fees of $1,722,000 for the three months in 2001
and $1,142,000 for the three months in 2000. ProLogis had a 41.8% ownership
interest in ProLogis European Properties Fund as of March 31, 2001.
(7) Represents income from ProLogis' investment in 49.9% of the common stock of
ProLogis European Properties S.a.r.l in 2000 for the period from January 7,
2000 to March 31, 2000 and in 2001 for the period from January 1, 2001 to
January 6, 2001.
13
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(8) Represents ProLogis' share of the income or losses of each company,
primarily license fees earned for the non-exclusive use of the ProLogis
Operating System(TM) under license agreements entered into in the second
quarter of 2000.
TEMPERATURE-CONTROLLED DISTRIBUTION COMPANIES
ProLogis had the following investments in temperature-controlled
distribution companies accounted for under the equity method as of March 31,
2001:
- Investment in 100% of the non-voting preferred stock of ProLogis
Logistics and 100% of the non-voting preferred stock of Frigoscandia S.A.
and in the non-voting membership interests of CSI/Frigo LLC which owns
the voting common stock of ProLogis Logistics and Frigoscandia S.A. These
combined investments entitle ProLogis to recognize in excess of 99% of
the earnings of these entities.
- ProLogis had amounts due from Frigoscandia S.A. or its subsidiaries in
the currency equivalent of $289.9 million.
- ProLogis had amounts due from ProLogis Logistics or its subsidiaries of
$1.9 million.
ProLogis Logistics owns 100% of CS Integrated LLC ("CSI"), a
temperature-controlled distribution company operating in the United States. As
of March 31, 2001, CSI owned or operated under lease agreements facilities
aggregating 181.6 million cubic feet (including 35.5 million cubic feet of dry
distribution space located in temperature-controlled facilities). Of the total,
3.5 million cubic feet were under development.
Frigoscandia S.A., through its wholly owned subsidiaries, owns 100% of
Frigoscandia AB, a temperature-controlled distribution company operating in ten
countries in Europe. As of March 31, 2001, Frigoscandia AB owned or operated
under lease agreements facilities aggregating 184.2 million cubic feet.
On January 2, 2001, ProLogis Logistics borrowed $125.0 million under
ProLogis' U.S. dollar denominated unsecured line of credit agreement as a
designated subsidiary borrower under the agreement. The proceeds from this
borrowing were used to repay $125.0 million of the outstanding notes and accrued
interest due to ProLogis. The remaining amounts due to ProLogis were converted
to preferred stock by ProLogis on January 2, 2001.
As of March 31, 2001, Frigoscandia AB had a 138.5 million euro credit
agreement (increased to 185.0 million euro in April 2001). Borrowings under the
agreement bear interest at Euribor plus 0.90% per annum. ProLogis has guaranteed
100% of the borrowings under the agreement. The currency equivalent of
approximately $122.3 million was outstanding as of March 31, 2001. Additionally,
in April 2001, the currency equivalent of approximately $45.9 million was
borrowed under the credit agreement. The agreement expires on September 28, 2001
and contains a provision to extend the due date until December 28, 2001.
KINGSPARK S.A.
On August 14, 1998, Kingspark S.A., a Luxembourg company, acquired an
industrial distribution facility development company operating in the United
Kingdom, Kingspark Group Holdings Limited ("ProLogis Kingspark"). ProLogis had
the following investments in Kingspark S.A. and Kingspark LLC accounted under
the equity method as of March 31, 2001:
- Investment in 100% of the non-voting preferred stock of Kingspark S.A.
and in 95% of the membership interests (all non-voting) of Kingspark LLC.
Kingspark LLC owns the voting common stock of Kingspark S.A. These
combined investments entitle ProLogis to recognize 99.75% of the combined
earnings of these entities.
14
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
- 81.5 million pound sterling (the currency equivalent of approximately
$118.0 million as of March 31, 2001) outstanding on an unsecured
revolving loan facility from ProLogis to Kingspark S.A.; interest at 6.3%
per annum for borrowings outstanding at March 31, 2001; due on demand;
- $129.4 million unsecured note from Kingspark S.A.; interest at 5.0% per
annum; due on demand; and
- 85.6 million pound sterling (the currency equivalent of approximately
$123.8 million as of March 31, 2001) mortgage note from Kingspark S.A.;
secured by land parcels and facilities under development; interest at
7.5% per annum; due on demand.
As of March 31, 2001, Kingspark S.A. had 0.7 million square feet of
operating facilities at an investment of $75.2 million and 1.2 million square
feet of facilities under development with a total budgeted cost of $111.4
million. Additionally, as of March 31, 2001, Kingspark S.A. owned 325 acres of
land and controlled 1,581 acres of land through purchase options, letters of
intent or contingent contracts. The land owned and controlled by Kingspark S.A.
has the capacity for the future development of approximately 28.4 million square
feet of facilities.
ProLogis Kingspark has a line of credit agreement with a bank in the United
Kingdom. The line of credit agreement provides for borrowings of up to 15.0
million pounds sterling (the currency equivalent of approximately $21.7 million
as of March 31, 2001) and has been guaranteed by ProLogis. As of March 31, 2001,
no borrowings were outstanding on the line of credit. However, as of March 31,
2001, ProLogis Kingspark had the currency equivalent of approximately $9.9
million of letters of credit outstanding that reduce the amount of available
borrowings on the line of credit.
PROLOGIS CALIFORNIA I LLC
ProLogis' total investment in ProLogis California as of March 31, 2001
consisted of (in millions):
Equity interest............................................. $160.1
Distributions ($3.7 million received in 2001)............... (27.3)
ProLogis' share of ProLogis California's earnings, excluding
fees earned............................................... 14.8
------
Subtotal.......................................... 147.6
Adjustments to carrying value(1)............................ (28.3)
Other, (including acquisition costs), net................... 1.5
------
Subtotal.......................................... 120.8
Other receivables........................................... 0.4
------
Total............................................. $121.2
======
---------------
(1) Reflects the reduction in carrying value for the amount of net gain on the
disposition of properties to ProLogis California that does not qualify for
current income recognition due to ProLogis' continuing ownership in ProLogis
California.
15
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
PROLOGIS NORTH AMERICAN PROPERTIES FUND I
ProLogis' and ProLogis Development Services' total investment in ProLogis
North American Properties Fund I as of March 31, 2001 consisted of (in
millions):
Equity interest............................................. $52.7
Distributions ($0.6 million received in 2001)............... (1.0)
ProLogis' share of ProLogis North American Properties Fund's
earnings, excluding fees earned........................... 1.1
-----
Subtotal.......................................... 52.8
Adjustments to carrying value(1)............................ (9.7)
Other (including acquisition costs), net.................... 2.7
-----
Subtotal.......................................... 45.8
Other receivables........................................... 0.1
-----
Total............................................. $45.9
=====
---------------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis North American Properties Fund I that
does not qualify for current income recognition due to ProLogis' and
ProLogis Development Services' continuing ownership in ProLogis North
American Properties Fund I.
PROLOGIS NORTH AMERICAN PROPERTIES FUND II
ProLogis' and ProLogis Development Services' total investment in ProLogis
North American Properties Fund II as of March 31, 2001 consisted of (in
millions):
Equity interest............................................. $14.0
Adjustments to carrying value(1)............................ (7.0)
Other (including acquisition costs, net..................... 1.3
-----
Subtotal.......................................... 8.3
Other payables.............................................. (2.9)
-----
Total............................................. $ 5.4
=====
---------------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis North American Properties Fund II that
does not qualify for current income recognition due to ProLogis' and
ProLogis Development Services' continuing ownership in ProLogis North
American Properties Fund II.
As of March 31, 2001, ProLogis North American Properties Fund II had a
$165.0 million short-term borrowing arrangement outstanding which is due on June
25, 2001. ProLogis North American Properties Fund II intends to obtain permanent
secured financing which will be used to repay its short-term borrowings.
ProLogis has guaranteed 100% of the short-term borrowings outstanding.
16
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
PROLOGIS EUROPEAN PROPERTIES FUND
ProLogis' total investment in ProLogis European Properties Fund as of March
31, 2001 consisted of (in millions of U.S. dollars):
Equity interest............................................. $251.5
Distributions ($5.4 million received in 2001)............... (9.4)
ProLogis' share of ProLogis European Properties Fund's
earnings, excluding fees earned........................... 9.3
------
Subtotal.......................................... 251.4
Adjustments to carrying value(1)............................ (29.2)
Other (including acquisitions costs), net................... (9.5)
------
Subtotal.......................................... 212.7
Other receivables........................................... 28.5
------
Total............................................. $241.2
======
---------------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis European Properties Fund that does not
qualify for current income recognition due to ProLogis' continuing ownership
in ProLogis European Properties Fund.
Third parties (19 institutional investors) have invested 396.9 million
euros (the currency equivalent of approximately $349.9 million as of March 31,
2001) in ProLogis European Properties Fund and have committed to fund an
additional 663.4 million euros (the currency equivalent of approximately $585.0
million as of March 31, 2001) through 2002. ProLogis has also entered into a
subscription agreement to make additional capital contributions of 84.4 million
euros (the currency equivalent of approximately $74.4 million) as of March 31,
2001.
ProLogis European Properties Fund has a credit agreement with two
international banks for a multi-currency secured revolving credit facility in
the currency equivalent of 500.0 million euros. The credit agreement matures in
October 2002. Borrowings can be denominated in pound sterling or the euro, and
bear interest at 0.55% above the relevant index (LIBOR or Euribor). As of March
31, 2001, 95.4 million euros and 73.6 million pound sterling were outstanding on
the line (the currency equivalent of approximately $189.2 million as of March
31, 2001). As of March 31, 2001, ProLogis no longer guarantees this credit
agreement. In April 2001, ProLogis European Properties Fund placed over 212.0
million euros (the currency equivalent of approximately $186.9 million as of
March 31, 2001) of permanent commercial mortgage-backed securities. After
interest rate and currency swap agreements, the effective interest rate on these
securities is 5.74%. The proceeds were used to repay borrowings on the credit
agreement.
17
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARIZED FINANCIAL INFORMATION
Summarized financial information for ProLogis' unconsolidated entities as
of and for the three months ended March 31, 2001 is presented below (in millions
of U.S. dollars). The information presented is for the entire entity.
PROLOGIS PROLOGIS
PROLOGIS NORTH NORTH
EUROPEAN AMERICAN AMERICAN
PROLOGIS FRIGOSCANDIA KINGSPARK PROLOGIS PROPERTIES PROPERTIES PROPERTIES
LOGISTICS(1) S.A.(1) S.A.(1) CALIFORNIA(2) FUND(3) FUND I(4) FUND II(5)
------------ ------------ --------- ------------- ---------- ---------- -----------
Total assets................ $368.8 $480.3 $470.7 $598.4 $964.0 $363.1 $235.7(6)
Total liabilities(7)........ $250.8 $548.8 $418.5 $303.2 $420.4 $236.9 $165.0
Minority interest........... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Equity...................... $118.0 $(68.5) $ 52.2 $295.2 $543.6 $126.2 $ 70.7
Revenues.................... $ 77.2 $ 91.3 $ 19.6 $ 16.2 $ 20.0 $ 11.5 $ 1.0
Net earnings (loss)(8)...... $ (1.8) $(10.4)(9) $ 10.6(10) $ 4.5 $ 2.2(11) $ 1.8 $ 0.2
---------------
(1) ProLogis had an ownership interest in excess of 99% in each entity as of
March 31, 2001.
(2) ProLogis had a 50% ownership interest as of March 31, 2001.
(3) ProLogis had a 41.8% ownership interest as of March 31, 2001. Includes the
ProLogis European Properties S.a.r.l. which is wholly owned by ProLogis
European Properties Fund as of March 31, 2001
(4) ProLogis and ProLogis Development Services had a combined 41.3% ownership
interest as of March 31, 2001.
(5) ProLogis and ProLogis Development Services had a combined 20.0% ownership
interest as of March 31, 2001.
(6) Includes amount due from ProLogis of $2.9 million.
(7) Includes amounts due to ProLogis of $1.9 million from ProLogis Logistics,
$289.9 million from Frigoscandia S.A., $381.0 million from Kingspark S.A.,
$0.4 million from ProLogis California, $28.5 million from ProLogis European
Properties Fund, and $0.1 million from ProLogis North American Properties
Fund I. Includes loans from third parties (including accrued interest) of
$216.0 million for ProLogis Logistics, $143.1 million for Frigoscandia
S.A., $294.8 million for ProLogis California, $340.4 million for ProLogis
European Properties Fund, $233.6 million for ProLogis North American
Properties Fund I and $165.1 million for ProLogis North American Properties
Fund II.
(8) ProLogis' share of the net earnings (loss) of the respective entities and
interest income on notes and mortgage notes due to ProLogis are recognized
in the Consolidated Statements of Earnings as "Income from unconsolidated
entities." The net earnings (loss) of each entity includes interest expense
on amounts due to ProLogis, as applicable.
(9) Includes net foreign currency exchange losses of $1.4 million.
(10) Includes net foreign currency exchange gains of $5.8 million.
(11) Includes net foreign currency exchange losses of $1.0 million.
5. SHAREHOLDERS' EQUITY:
During the three months ended March 31, 2001, ProLogis generated net
proceeds of $13.2 million from the issuance of 558,000 common shares of
beneficial interest, $0.01 par value ("Common Shares") under its 1999 Dividend
Reinvestment and Share Purchase Plan and issued 49,000 Common Shares upon the
exercise of stock options.
18
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
ProLogis called for the redemption of all of its outstanding Series B
cumulative convertible redeemable preferred shares ("Series B preferred shares")
as of March 20, 2001. Subsequent to the call for redemption on February 12,
2001, 5,908,971 Series B preferred shares were converted into 7,575,301 Common
Shares. The remaining 183,302 Series B preferred shares outstanding on March 20,
2001 were redeemed at a price of $25.00 per share, plus $0.442 in accrued and
unpaid dividends, for an aggregate redemption price of $25.442 per share.
On January 11, 2001, ProLogis announced a Common Share repurchase program
under which it may repurchase up to $100.0 million of its Common Shares. The
Common Shares will be repurchased from time to time in the open market and in
privately negotiated transactions, depending on market prices and other
conditions. As of March 31, 2001, no common shares had been repurchased.
On March 30, 2001, ProLogis called for the redemption of its outstanding
Series A cumulative, redeemable preferred shares of beneficial interest ("Series
A preferred shares") at the price of $25.00 per share, plus $0.2481 in accrued
and unpaid dividends, for an aggregate redemption price of $25.2481 per share
(the "Redemption Price"). The shares were redeemed on May 8, 2001 at a total
cost of $136.3 million.
6. DISTRIBUTIONS AND DIVIDENDS:
COMMON DISTRIBUTIONS
On February 23, 2001, ProLogis paid a quarterly distribution of $0.345 per
Common Share to shareholders of record on February 9, 2001. The distribution
level for 2001 was set by ProLogis' Board of Trustees in December 2000 at $1.38
per Common Share.
PREFERRED DIVIDENDS
The annual dividend rates on ProLogis' preferred shares are $2.35 per
cumulative redeemable Series A preferred share, $4.27 per cumulative redeemable
Series C preferred share, $1.98 per cumulative redeemable Series D preferred
share and $2.1875 per cumulative redeemable Series E preferred share.
On January 31, 2001, ProLogis paid quarterly dividends of $0.5469 per
cumulative redeemable Series E preferred share. On March 30, 2001, ProLogis paid
quarterly dividends of $0.5875 per cumulative redeemable Series A 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.
19
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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 periods indicated (in thousands, except per share amounts) is as
follows:
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Net earnings attributable to Common Shares.................. $ 44,007 $ 44,938
Add: Series B preferred share dividends..................... 81 --
-------- --------
Adjusted net earnings attributable to Common Shares......... $ 44,088 $ 44,938
======== ========
Weighted average Common Shares outstanding -- Basic......... 167,297 162,124
Incremental weighted average effect of common share
equivalents and contingently issuable shares.............. 811 157
Weighted average convertible Series B preferred shares...... 6,263 --
-------- --------
Adjusted weighted average Common Shares
outstanding -- Diluted.................................... 174,371 162,281
Per share net earnings attributable to Common Shares:
Basic..................................................... $ 0.26 $ 0.28
======== ========
Diluted................................................... $ 0.25 $ 0.28
======== ========
For the periods indicated, the following weighted average convertible
securities were not included in the calculation of diluted per share net
earnings attributable to Common Shares as the effect, on an as-converted basis,
was antidilutive (in thousands):
THREE MONTHS
ENDED
MARCH 31,
-------------
2001 2000
----- -----
Series B preferred shares................................... -- 8,968
===== =====
Limited partnership units................................... 5,088 5,587
===== =====
8. BUSINESS SEGMENTS:
ProLogis has three reportable business segments:
- Property operations represents the long-term ownership and leasing of
industrial distribution facilities in the United States (portions of
which are owned through ProLogis California, ProLogis North American
Properties Fund I and ProLogis North American Properties Fund II -- See
Note 3), Mexico and Europe (portions of which are owned through ProLogis
European Properties Fund and ProLogis European Properties S.a.r.l. -- 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;
- CDFS business represents the development of industrial distribution
facilities by ProLogis and Kingspark S.A. (which is not consolidated in
ProLogis' financial statements) in the United States, Mexico and Europe
(see Note 4) which are often disposed of to third parties or entities in
which ProLogis has an ownership interest and the development of
industrial distribution facilities by ProLogis and Kingspark S.A. on a
fee basis for third parties in the United States, Mexico and Europe; the
20
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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
- Temperature-controlled distribution operations represents the operation
of a temperature-controlled distribution and logistics network through
investments in unconsolidated entities in the United States (ProLogis
Logistics) and Europe (Frigoscandia S.A.). The operations of these
entities are considered to be one operating segment. See Note 4.
Reconciliations of the three reportable segments': (i) income from
external customers to ProLogis' total income; (ii) net operating income from
external customers to ProLogis' earnings before minority interest (ProLogis'
chief operating decision makers rely primarily on net operating income and
related measures to make decisions about allocating resources and assessing
segment performance); and (iii) assets to ProLogis' total assets are as follows
(in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Income:
Property operations:
United States(1)....................................... $119,091 $119,765
Mexico................................................. 4,230 3,342
Europe(2).............................................. 1,121 13,053
-------- --------
Total property operations segment................. 124,442 136,160
-------- --------
CDFS business:
United States(3)....................................... 28,253 16,812
Mexico................................................. (10) 697
Europe(4)(5)........................................... 13,134 6,255
-------- --------
Total CDFS business segment....................... 41,377 23,764
-------- --------
Temperature-controlled distribution operations:
North America(6)....................................... (1,744) 2,871
Europe(7).............................................. (7,728) (1,674)
-------- --------
Total temperature-controlled distribution
operations segment.............................. (9,472) 1,197
-------- --------
Reconciling items:
Interest income........................................ 1,124 1,871
Income from unconsolidated entities.................... 2,178 --
-------- --------
Total reconciling items........................... 3,302 1,871
-------- --------
Total income...................................... $159,649 $162,992
======== ========
Net operating income:
Property operations:
United States(1)....................................... $112,424 $112,874
Mexico................................................. 4,434 3,247
Europe(2).............................................. 822 13,492
-------- --------
Total property operations segment................. 117,680 129,613
-------- --------
21
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
CDFS business:
United States(3)....................................... 28,253 16,812
Mexico................................................. (10) 697
Europe(4)(5)........................................... 13,134 6,255
-------- --------
Total CDFS business segment....................... 41,377 23,764
-------- --------
Temperature-controlled distribution operations:
North America(6)....................................... (1,744) 2,871
Europe(7).............................................. (7,728) (1,674)
-------- --------
Total temperature-controlled distribution
operations segment.............................. (9,472) 1,197
-------- --------
Reconciling items:
Interest income........................................ 1,124 1,871
Income from unconsolidated entities.................... 2,178 --
General and administrative expense..................... (14,417) (11,241)
Depreciation and amortization.......................... (37,860) (39,474)
Interest expense....................................... (41,522) (41,986)
Other expenses......................................... (1,243) (1,218)
-------- --------
Total reconciling items........................... (91,740) (92,048)
-------- --------
Earnings before minority interest................. $ 57,845 $ 62,526
======== ========
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
Property operations:
United States(8).......................................... $3,754,058 $3,887,601
Mexico.................................................... 119,805 113,538
Europe(8)................................................. 324,182 308,457
---------- ----------
Total property operations segment................. 4,198,045 4,309,596
---------- ----------
CDFS business:
United States............................................. 281,302 304,697
Mexico.................................................... 30,425 26,288
Europe(8)................................................. 521,961 637,207
---------- ----------
Total CDFS business segment....................... 833,688 968,192
---------- ----------
Temperature-controlled distribution operations:
North America(8).......................................... 120,928 231,053
Europe(8)................................................. 229,552 191,981
---------- ----------
Total temperature-controlled distribution
operations segment.............................. 350,480 423,034
---------- ----------
22
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
Reconciling items:
Investments in unconsolidated entities.................... 73,716 70,807
Cash...................................................... 33,522 57,870
Accounts and notes receivable............................. 21,288 43,040
Other assets.............................................. 59,023 73,795
---------- ----------
Total reconciling items........................... 187,549 245,512
---------- ----------
Total assets...................................... $5,569,762 $5,946,334
========== ==========
---------------
(1) In addition to the operations of ProLogis that are reported on a
consolidated basis, includes amounts recognized under the equity method
related to ProLogis' investment in ProLogis California, ProLogis North
American Properties Fund I and ProLogis North American Properties Fund II in
2001 and ProLogis California in 2000. See Note 3 for summarized financial
information of ProLogis California, ProLogis North American Properties Fund
I and ProLogis North American Properties Fund II.
(2) In addition to the operations of ProLogis that are reported on a
consolidated basis, includes amounts recognized under the equity method
related to ProLogis' investment in ProLogis European Properties Fund
(including net foreign currency exchange losses of $0.8 million in 2001 and
net foreign currency gains of $5.1 million in 2000) and ProLogis European
Properties S.a.r.l. (including net foreign currency exchange losses of $0.2
million in 2001 and net foreign currency gains of $3.3 million in 2000). See
Note 3 for summarized financial information of ProLogis European Properties
Fund.
(3) In 2001, includes $20.4 million of net gains recognized by ProLogis related
to the disposition of facilities to ProLogis North American Properties Fund
II.
(4) Includes amounts recognized under the equity method related to ProLogis'
investment in Kingspark S.A. in 2001 and 2000 and Kingspark LLC in 2001
(including $5.8 million and $0.4 million of net foreign currency exchange
gains in 2001 and 2000, respectively). See Note 4.
(5) Includes $1.9 million and $0.3 million of net gains recognized by ProLogis
related to the disposition of facilities to ProLogis European Properties
Fund in 2001 and 2000, respectively. In addition, includes $10.3 million and
$0.5 million of net gains recognized under the equity method related to the
disposition of facilities to ProLogis European Properties Fund by Kingspark
S.A. in 2001 and 2000, respectively.
(6) Represents amounts recognized under the equity method related to ProLogis'
investment in ProLogis Logistics in 2001 and 2000 and in CSI/Frigo LLC in
2001. CSI/Frigo LLC recognizes income under the equity method based on its
common stock investment in ProLogis Logistics. See Note 4 for summarized
financial information of ProLogis Logistics.
(7) Represents amounts recognized under the equity method related to ProLogis'
investment in Frigoscandia S.A. in 2001 and 2000 and in CSI/Frigo LLC in
2001. Includes $1.4 million and $2.2 million of net foreign currency
exchange losses in 2001 and 2000, respectively. CSI/Frigo LLC recognizes
income under the equity method based on its common stock investment in
Frigoscandia S.A. See Note 4 for summarized financial information of
Frigoscandia S.A.
(8) Amounts include investments in unconsolidated entities accounted for under
the equity method. See Note 4 for summarized financial information of these
unconsolidated entities as of and for the three months ended March 31, 2001.
23
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the three months ended
March 31, 2001, and 2000 are as follows:
- In 2001, ProLogis contributed its 49.9% of the common stock of ProLogis
European Properties S.a.r.l. to ProLogis European Properties Fund for an
additional equity interest in ProLogis European Properties Fund of $83.0
million. In 2000, in connection with ProLogis' initial contribution of
50.1% of the common stock of ProLogis European Properties S.a.r.l. to
ProLogis European Properties Fund, ProLogis received an equity interest
in ProLogis European Properties Fund of approximately $78.0 million.
ProLogis European Properties S.a.r.l. had total assets of $403.9 million
and total liabilities of $248.1 million. ProLogis recognized its
investment in the remaining 49.9% of the common stock under the equity
method from January 7, 2000 through January 6, 2001. See Note 4.
- ProLogis received $1.6 million, $34.1 million and $13.4 million of the
proceeds from its disposition of facilities to ProLogis European
Properties Fund, ProLogis North American Properties Fund I and ProLogis
North American Properties Fund II, respectively, in the form of an equity
interest in these entities during 2001. ProLogis received $0.7 million of
the proceeds from its disposition of facilities to ProLogis European
Properties Fund in the form of an equity interest during 2000.
- ProLogis received $10.8 million of the proceeds from its disposition of a
facility to a third party in the form of a note receivable in 2001.
- In connection with the agreement for the acquisition of Kingspark S.A.,
ProLogis issued approximately 201,000 Common Shares valued at $3.9
million in 2000.
- Series B preferred shares aggregating $151.8 million and $1.0 million
were converted into Common Shares in 2001 and 2000, respectively.
- Net foreign currency translation adjustments of $(42,684,000) and
$(22,574,000) were recognized in 2001 and 2000, respectively.
10. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH CHIEF EXECUTIVE OFFICER AND CHAIRMAN
ProLogis has invested in the non-voting preferred stock of certain entities
that have ownership interests in companies that produce income that is not REIT
qualifying income (i.e., rental income and mortgage interest income) under the
Internal Revenue Code of 1986, as amended (the "Code"). Therefore, the voting
common stock of these companies was held by third parties including entities in
which Security Capital, ProLogis' largest shareholder, held non-voting
interests. The Code, as amended in 2001, allows for ProLogis to have a voting
ownership interest in these entities. ProLogis began negotiations to acquire the
voting ownership interests in these entities during 2000. Before the
acquisitions were completed it was determined that the state income tax laws
governing REITs were not all going to be changed to coincide with the amendments
to the Code. Therefore, K. Dane Brooksher, ProLogis' chairman and chief
executive officer, acquired the voting ownership interests in Frigoscandia S.A.,
ProLogis Logistics and Kingspark S.A. from the third parties and Security
Capital. See Note 4.
Mr. Brooksher's voting ownership interests in the entities in which
ProLogis has only non-voting ownership interests are:
- Kingspark LLC, a limited liability company formed on January 5, 2001,
acquired the voting common stock of Kingspark S.A. (an entity in which
ProLogis owns all of the non-voting preferred stock) for $8.1 million.
ProLogis funded the entire purchase price either directly or through
loans to Kingspark LLC or Mr. Brooksher. The ProLogis loan to Kingspark
LLC is in the principal amount of
24
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
$7.3 million, is due January 5, 2006 and bears interest at an annual rate
of 8.0%. ProLogis made a direct capital contribution to Kingspark LLC in
the amount of $770,973. Mr. Brooksher's $40,557 capital contribution to
Kingspark LLC was loaned to him by ProLogis, which recourse loan is
payable on January 5, 2006 and bears interest at an annual rate of 8.0%.
Mr. Brooksher's membership interests entitle him to receive dividends
equal to 5% of the net cash flow of Kingspark LLC, as defined, if any.
Mr. Brooksher is the managing member and he may transfer his membership
interests, subject to certain conditions, including the approval of
ProLogis. There are no provisions that give ProLogis the right to acquire
Mr. Brooksher's membership interests. Mr. Brooksher does not receive
compensation in connection with being the managing member. See Note 4.
- CSI/Frigo LLC, a limited liability company formed on January 5, 2001,
acquired the voting common stock of Frigoscandia S.A. and ProLogis
Logistics (both entities in which ProLogis owns all of the non-voting
preferred stock) for $3.3 million. ProLogis loaned $2.9 million to
CSI/Frigo LLC, which loan is due January 5, 2011 and bears interest at an
annual rate of 8.0%. ProLogis also made a capital contribution to
CSI/Frigo LLC in the amount of $404,545 and Mr. Brooksher made a $50,000
capital contribution to CSI/Frigo LLC. Mr. Brooksher's membership
interests (after considering the terms of the participating note from
CSI/Frigo LLC to ProLogis) entitle him to receive dividends equal to 5%
of the net cash flow of CSI/Frigo LLC, as defined, if any. Mr. Brooksher
is the managing member and he may transfer his membership interest,
subject to certain conditions, including the approval of ProLogis. There
are no provisions that give ProLogis the right to acquire Mr. Brooksher's
membership interests. Mr. Brooksher does not receive compensation in
connection with being the managing member.
As a result of the foregoing transactions, Mr. Brooksher has an effective
0.04% interest in the earnings of ProLogis Logistics, an effective 0.25%
interest in the earnings of Frigoscandia S.A. and an effective 0.25% interest in
the earnings of Kingspark S.A.
In 2000, ProLogis invested in GoProLogis and ProLogis PhatPipe, whose
income is not REIT qualifying income under the Code (amendments to the Code and
state income tax laws governing REITs were not in effect at this time). These
investments were structured whereby ProLogis would have only a non-voting
preferred stock ownership interest. To complete the transactions, Mr. Brooksher
acquired the voting ownership interest in each entity as noted below.
- GoProLogis owns preferred stock in Vizional Technologies. Mr. Brooksher
owns all of the voting common stock of GoProLogis, representing a 2%
interest in the earnings of GoProLogis and he is entitled to receive
dividends equal to 2% of the net cash flow of GoProLogis, as defined, if
any. ProLogis owns all of the non-voting preferred stock of GoProLogis,
representing a 98% interest in the earnings of GoProLogis and ProLogis is
entitled to receive dividends equal to the remaining 98% of net cash
flow, as defined, if any. Mr. Brooksher contributed a $1.1 million
recourse promissory note to GoProLogis in exchange for his interest in
the entity, which note is payable on July 18, 2005 and bears interest at
an annual rate of 8.0%. Mr. Brooksher is not restricted from transferring
his ownership interest in GoProLogis and ProLogis has the right to
acquire Mr. Brooksher's ownership interest beginning in 2001 for a price
equal to the outstanding principal amount of the promissory note plus
accrued and unpaid interest. See Note 4.
- ProLogis PhatPipe owns preferred stock in PhatPipe. Mr. Brooksher owns
all of the voting common stock of ProLogis PhatPipe, representing a 2%
interest in the earnings of ProLogis PhatPipe and he is entitled to
receive dividends equal to 2% of the net cash flow of GoProLogis, as
defined, if any. ProLogis owns all of the non-voting preferred stock of
ProLogis PhatPipe, representing a 98% interest in the earnings of
ProLogis PhatPipe and ProLogis is entitled to receive dividends equal to
the remaining 98% of net cash flow, as defined, if any. Mr. Brooksher
contributed recourse promissory notes with the aggregate principal amount
of $122,449 to ProLogis PhatPipe in exchange for his
25
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
interest in the entity, which notes are payable on September 20, 2005
($71,429 principal amount) and January 4, 2006 ($51,020 principal
amount). Both notes bear interest at an annual rate of 8.0%. Mr.
Brooksher is not restricted from transferring his ownership interest in
ProLogis PhatPipe and ProLogis has the right to acquire Mr. Brooksher's
ownership interest beginning in 2001 for a price equal to the outstanding
aggregate principal amount of the promissory notes plus accrued and
unpaid interest. See Note 4.
As of March 31, 2001, ProLogis had other loans outstanding from Mr.
Brooksher with an aggregate principal amount of $2,105,000. Of these, $1,867,000
was loaned to Mr. Brooksher under ProLogis' employee share purchase plan.
11. COMMITMENTS AND CONTINGENCIES:
ENVIRONMENTAL MATTERS
All of the facilities acquired by ProLogis have been subjected to
environmental reviews by ProLogis or predecessor owners. While some of these
assessments have led to further investigation and sampling, none of the
environmental assessments has revealed, nor is ProLogis aware of any
environmental liability (including asbestos related liability) that ProLogis
believes would have a material adverse effect on ProLogis' business, financial
condition or results of operations.
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of ProLogis Trust:
We have reviewed the accompanying consolidated condensed balance sheets of
ProLogis Trust and subsidiaries as of March 31, 2001, and the related
consolidated condensed statements of earnings and comprehensive income and the
consolidated condensed statements of cash flows for the three months ended March
31, 2001 and 2000. 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 auditing standards generally accepted in the United States, 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 auditing standards generally
accepted in the United States, the consolidated balance sheet of ProLogis Trust
and subsidiaries as of December 31, 2000, and in our report dated March 15,
2001, we expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated condensed balance sheet
as of December 31, 2000, 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, 2001
(except with respect
to Note 2 as to which
the date is April 3, 2002)
27
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 Condensed Financial Statements and the notes thereto included in
Item 1 of this report. See also ProLogis' 2000 Annual Report on Form 10-K, as
amended.
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 market cities; and
(iv) those factors discussed in ProLogis' 2000 Annual Report on Form 10-K, as
amended.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
ProLogis' net earnings attributable to Common Shares were $44.0 million for
the three months ended March 31, 2001 as compared to $44.9 million for the same
period in 2000. For the three months ended March 31, 2001, basic and diluted per
share net earnings attributable to Common Shares were $0.26 and $0.25 per share,
respectively. Basic and diluted per share net earnings attributable to Common
Shares were $0.28 per share for the same period in 2000.
The CDFS business segment provides capital for ProLogis to redeploy into
its development activities in addition to generating profits that contribute to
ProLogis' total income. ProLogis' income from this segment increased by $17.6
million in 2001 over 2000, primarily the result of the number of dispositions of
facilities developed by ProLogis to entities in which ProLogis maintains an
ownership interest, such as ProLogis North American Properties Fund II and
ProLogis European Properties Fund, as well as to third parties. The 2001
increases in the CDFS business segment income were offset by a $11.7 million
decrease from 2000 in the property operations segment's income. This operating
segment's net income includes rental income and net rental expenses from
facilities directly owned by ProLogis and also its share of the income of its
unconsolidated entities that engage in property operations segment activities.
Income from ProLogis' temperature-controlled distribution operations decreased
in 2001 from 2000 by $10.7 million, primarily due to losses incurred in the
European operations. See "-- Property Operations", "-- CDFS Business" and
"-- Temperature-Controlled Distribution Operations".
28
PROPERTY OPERATIONS
ProLogis owned or had ownership interests in the following operating
facilities as of the dates indicated:
MARCH 31,
-------------------------------------------
2001 2000
-------------------- --------------------
SQUARE SQUARE
NUMBER FOOTAGE NUMBER FOOTAGE
------ ----------- ------ -----------
Direct ownership(1)....................... 1,231 125,174,797 1,266 127,750,345
ProLogis California(2).................... 78 12,720,307 78 11,751,208
ProLogis North American Properties Fund
I(3).................................... 36 8,962,549 -- --
ProLogis North American Properties Fund
II(4)................................... 26 4,162,645 -- --
ProLogis European Properties Fund and
ProLogis European Properties
S.a.r.l.(5)............................. 110 15,958,676 80 10,273,249
----- ----------- ----- -----------
1,481 166,978,974 1,424 149,774,802
===== =========== ===== ===========
---------------
(1) Includes operating facilities owned by ProLogis and its consolidated
entities. The decrease in 2001 from 2000 is primarily the result of the
formation of ProLogis North American Properties Fund I in June 2000 and
ProLogis North American Properties Fund II in 2001, whose entire portfolios
consist of operating facilities that were previously directly owned by
ProLogis.
(2) ProLogis has had a 50% ownership interest in ProLogis California since its
inception. See Note 3 to ProLogis' Consolidated Condensed Financial
Statements in Item 1.
(3) ProLogis has a 41.3% ownership interest as of March 31, 2001 in ProLogis
North American Fund I which was formed on June 30, 2000. All operating
facilities owned by this entity were previously directly owned by ProLogis.
See Note 3 to ProLogis' Consolidated Condensed Financial Statements in Item
1.
(4) ProLogis has a 20.0% ownership interest as of March 31, 2001 in ProLogis
North American Fund II which was originally formed on June 30, 2000. All
operating facilities owned by this entity were previously directly owned by
ProLogis. See Note 3 to ProLogis' Consolidated Condensed Financial
Statements in Item 1.
(5) As of March 31, 2001, ProLogis' ownership interest in ProLogis European
Properties Fund is 41.8%. As of March 31, 2000, ProLogis had a 44.6%
ownership interest in the ProLogis European Properties Fund. See Note 3 to
ProLogis' Consolidated Condensed Financial Statements in Item 1.
ProLogis' property operations segment income consists of the: (i) net
operating income from the operating facilities that are owned by ProLogis
directly or through its consolidated entities and (ii) the income recognized by
ProLogis under the equity method from its investments in unconsolidated entities
engaged in property operations. See Note 8 to ProLogis' Consolidated Condensed
Financial Statements in Item 1. The amounts recognized under the equity method
are based on the net earnings of each 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 European Properties Fund and ProLogis
European Properties S.a.r.l.). ProLogis' net operating income from
29
the property operations segment was as follows (in thousands) (see Note 8 to
ProLogis' Consolidated Condensed Financial Statements in Item 1):
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Facilities directly owned by ProLogis and its consolidated
entities:
Rental income............................................. $119,244 $120,809
Property operating expenses............................... 6,762 6,547
-------- --------
Net operating income(1)........................... 112,482 114,262
-------- --------
Income from the ProLogis California......................... 3,067 3,099
Income from ProLogis North American Properties Fund I(2).... 1,352 --
Income from ProLogis North American Properties Fund II(2)... 341 --
Income from ProLogis European Properties Fund(3)............ 402 7,324
Income from ProLogis European Properties S.a.r.l.(3)........ 36 4,928
-------- --------
Total property operations segment................. $117,680 $129,613
======== ========
---------------
(1) The fluctuations in rental expenses between years is primarily the result of
the changes in the composition of the directly owned facilities in each year
in addition to increased rental expense recoveries (as a percentage of total
rental expenses) in each year. Rental expenses, before recoveries from
tenants were 26.5% of rental income for 2001 and 24.6% of rental income for
2000. Total rental expense recoveries were 78.6% and 78.0% of total rental
expenses in 2001 and 2000, respectively. The increase in rental expense
recoveries as a percentage of total rental expenses reflects ProLogis'
emphasis on on-site property management teams and the effectiveness of the
ProLogis Operating System(TM).
(2) ProLogis North American Properties Fund I and ProLogis North American
Properties Fund II began operations on June 30, 2000.
(3) In 2001, ProLogis' share of the income of ProLogis European Properties Fund
and ProLogis European Properties S.a.r.l. includes net foreign currency
losses of $0.8 million and $0.2 million, respectively. In 2000, ProLogis'
share of the income of ProLogis European Properties Fund and ProLogis
European Properties S.a.r.l. includes net foreign currency gains of $5.1
million and $3.3 million, respectively. Excluding net foreign currency
exchange gains and losses, ProLogis' share of the income of ProLogis
European Properties Fund would have been $1.3 million and $2.2 million for
2001 and 2000, respectively. Excluding net foreign currency exchange gains
and losses, ProLogis' share of the income of ProLogis European Properties
S.a.r.l. would have been $229,000 and $1.6 million for 2001 and 2000,
respectively. ProLogis European Properties Fund's income decreased in 2001
from 2000 primarily due to higher interest expense in 2001 due to higher
debt levels. ProLogis recognized income under the equity method related to
ProLogis European Properties S.a.r.l. in 2001 for only six days.
The facilities that ProLogis develops are not always pre-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 (generally 12
months) 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 94.6% and a
leased rate of 95.6% for stabilized facilities owned by ProLogis and its
consolidated and unconsolidated entities as of March 31, 2001. The average
increase in rental rates for both new and renewed leases on previously leased
space (8.5 million square feet) for all facilities including those owned by
ProLogis' consolidated and unconsolidated entities during 2001 was 20.2%. During
2001, the net operating income (rental income less net rental expenses)
generated by ProLogis'
30
"same store" portfolio of operating facilities (facilities owned by ProLogis and
its consolidated and unconsolidated entities that were in operation throughout
both 2001 and 2000) increased by 3.90% over 2000.
There has been minimal impact of the California energy situation and the
attendant increase in utility costs on ProLogis' income from the property
operations segment. ProLogis' customers are responsible for their direct utility
bills and ProLogis' facilities have minimal common utility charges, which are
generally included in amounts recovered from customers under the terms of the
lease agreements. Given the typical use of ProLogis' distribution facilities
(bulk distribution and light manufacturing and assembly uses), ProLogis believes
that its customers' total utility expenses are a small portion of the total
expenses related to the operations within ProLogis' facilities.
CDFS BUSINESS
Income from ProLogis' CDFS business segment consists primarily of: (i) the
profits from the disposition of land parcels and facilities that were developed
by ProLogis and disposed of to customers or to entities in which ProLogis has an
ownership interest; (ii) development fees earned by ProLogis; and (iii) income
recognized under the equity method from ProLogis' investment in Kingspark S.A.
Kingspark S.A. engages in CDFS business activities in the United Kingdom similar
to those activities performed directly by ProLogis. ProLogis recognizes in
excess of 99% of the net earnings of Kingspark S.A. under the equity method that
includes: interest income and interest expense (net of capitalized amounts),
general and administrative expense (net of capitalized amounts), income taxes
and foreign currency exchange gains and losses.
The CDFS business segment operations increased in volume for the three
months in 2001 over the same period in 2000; consequently, ProLogis' income from
this segment has increased in each year. The CDFS business segment income is
comprised of the following (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Net gains on disposition of land parcels and facilities
developed(1).............................................. $28,720 $17,271
Development fees and other, net............................. 2,404 1,673
Income from Kingspark S.A.(2)(3)............................ 10,253 4,820
------- -------
$41,377 $23,764
======= =======
---------------
(1) Represents gains from the disposition of land parcels and facilities
developed as follows:
- 2001: 76 acres; 4.3 million square feet; $231.9 million of proceeds
- 2000: 39 acres; 2.1 million square feet; $92.9 million of proceeds
(2) Kingspark S.A.'s income in 2001 (including ProLogis' share of Kingspark
S.A.'s income recognized through its ownership in Kingspark LLC) includes:
- Gains from the disposition of land parcels and facilities developed (1.3
million square feet; $133.1 million of proceeds; net gains of $11.7
million);
- Deferred and current income tax expense of $2.5 million; and
- Foreign currency exchange gains of $5.8 million.
(3) Kingspark S.A.'s income in 2000 includes:
- Gains from the disposition of land parcels and facilities developed (9
acres; 0.2 million square feet; $24.3 million of proceeds; net gains of
$2.6 million);
- Development fees and other miscellaneous net income of $2.6 million;
- Deferred and current income tax expense of $0.8 million; and
- Foreign currency exchange gains of $0.4 million.
31
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 income or loss of ProLogis Logistics and Frigoscandia S.A. was as
follows (in thousands) (see Notes 4 and 8 to ProLogis' Consolidated Condensed
Financial Statements in Item 1):
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Income (loss) from ProLogis Logistics....................... $(1,744) $ 2,871
Loss from Frigoscandia S.A.................................. (7,728) (1,674)
------- -------
Total temperature-controlled distribution
operations segment............................. $(9,472) $ 1,197
======= =======
Amounts recognized under the equity method of accounting from ProLogis
Logistics and Frigoscandia S.A. includes interest income and interest expense,
depreciation and amortization expense, general and administrative expense,
income taxes and foreign currency exchange gains and losses (with respect to
Frigoscandia). ProLogis recognizes in excess of 99% the net earnings of each
entity in 2001, as compared to 95% in 2000.
CSI's operating capacity was comparable in both three-month periods. The
decrease in ProLogis' share of ProLogis Logistics' net earnings from 2000 to
2001 of $4.6 million is primarily attributable to higher interest expense as a
result of increasing external debt by $125.0 million. The proceeds from the
borrowings of ProLogis Logistics were used to repay $125.0 million of
outstanding notes and accrued interest due to ProLogis. See "-- Liquidity and
Capital Resources -- Credit Facilities".
Frigoscandia's operating capacity was comparable in both three-month
periods. ProLogis' share of Frigoscandia S.A.'s net losses includes net foreign
currency exchange losses of $1.4 million and $2.2 million in 2001 and 2000,
respectively. Excluding these foreign currency exchange losses, ProLogis
recognized $6.8 million less income under the equity method in 2001 than it
recognized in 2000 from its investment in Frigoscandia S.A. The increase in
Frigoscandia S.A.'s net loss in 2001 from the loss recognized in 2000 is
primarily due to lower occupancy levels, principally the result of the reduction
in inventories of beef and pork products by the German and French governments.
ProLogis believes that the factors that contributed to the decline in
operating performance of Frigoscandia are temporary and can be partially
mitigated in the short-term by reductions in general and administrative costs
and other operating costs. However, there is no assurance that these factors are
temporary or that some or all of these factors will not continue past 2001.
ProLogis and Frigoscandia are currently monitoring the recent outbreak of foot
and mouth disease in Europe. At this time, the effect (positive or negative), if
any, on the demand for temperature-controlled distribution services and the
related transportation services offered by Frigoscandia cannot be determined.
OTHER INCOME AND EXPENSE ITEMS
INTEREST EXPENSE
Interest expense is a function of the level of borrowings outstanding
offset by interest capitalization with respect to development activities.
Interest expense was $41.5 million in 2001 and $42.0 million in 2000.
Capitalized interest was $5.9 million in 2001 and $4.2 million in 2000.
Capitalized interest levels are reflective of ProLogis' cost of funds and the
level of development activity in each year.
GAIN (LOSS) ON DISPOSITION OF REAL ESTATE
Gain on disposition of real estate represents the net gains from the
disposition of operating facilities that were acquired or developed within the
property operations segment. Generally, ProLogis disposes of facilities in the
property operations segment because such facilities are considered to be
non-strategic facilities or to complement the portfolio of developed facilities
that are acquired by entities in which ProLogis maintains an
32
ownership interest. Non-strategic facilities are assets located in markets or
submarkets that are no longer considered target markets as well as assets that
were acquired as part of previous portfolio acquisitions that are not consistent
with ProLogis' core portfolio based on the asset's size or configuration.
Property operations segment dispositions were as follows:
- 2001: 1.6 million square feet; $62.9 million of proceeds; net loss of
$1.7 million (offset by a gain of $0.5 million recognized upon the
contribution of ProLogis' 49.9% investment in the common stock of
ProLogis European Properties S.a.r.l. to ProLogis European Properties
Fund), and
- 2000: 0.7 million square feet; $26.4 million of proceeds; net gains of
$5.1 million.
FOREIGN CURRENCY EXCHANGE LOSSES
ProLogis recognized net foreign currency exchange gains of $2.7 million and
net foreign currency exchange losses of $6.5 million for 2001 and 2000,
respectively. Foreign currency exchange gains and losses are primarily the
result of the remeasurement and settlement of intercompany debt and the
remeasurement of third party debt of ProLogis' foreign subsidiaries.
Fluctuations in the foreign currency exchange gains and losses recognized in
each period are a product of movements in certain foreign currency exchange
rates, primarily the euro and the pound sterling and the level of intercompany
and third party debt outstanding that is denominated in currencies other than
the U.S. dollar.
INCOME TAXES
ProLogis is taxed as a REIT for federal income tax purposes and is not
required to pay federal income taxes if minimum distribution and income, asset
and shareholder tests are met. ProLogis Development Services is not a qualified
REIT subsidiary for tax purposes. Also, the foreign countries in which ProLogis
operates do not recognize REITs under their respective tax laws. Accordingly,
ProLogis recognizes income taxes as appropriate and in accordance with GAAP with
respect to the taxable earnings of ProLogis Development Services and its foreign
subsidiaries.
Current income tax expense recognized in 2001 and 2000 was $1.6 million and
$0.1 million, respectively. Current income tax expense is higher in 2001
primarily due to the increased level of income recognized by ProLogis' taxable
subsidiaries in the CDFS business segment. Deferred income tax expense was $0.9
million and zero in 2001 and 2000, respectively. ProLogis' deferred tax
component of total income taxes is a function of each year's temporary
differences (items that are treated differently for tax purposes than for book
purposes) as well as the need for a deferred tax valuation allowance to adjust
certain deferred tax assets (primarily deferred tax assets created by tax net
operating losses) to their estimated realizable value.
ENVIRONMENTAL MATTERS
ProLogis has not experienced 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 as well as its financing capabilities (including proceeds from the
disposition of facilities) to be adequate and expects it to continue to be
adequate to meet its anticipated development, acquisition, operating and debt
service needs as well as its shareholder distribution requirements.
ProLogis' future investing activities are expected to consist of: (i)
acquisitions of existing facilities in key distribution markets in the property
operations segment; (ii) the acquisition of land for future development and the
development of distribution facilities in the CDFS business segment for future
disposition to entities in
33
which ProLogis maintains an ownership interest or to third parties; and (iii)
certain temperature-controlled distribution facility expansions and, to a
limited extent, investments in additional temperature-controlled distribution
facilities. Temperature-controlled investments will be made as deemed necessary
to achieve strategic objectives with respect to targeted markets in the United
States or to address specific customer needs in the United States and Europe.
ProLogis' future investing activities are expected to be primarily funded with:
- cash generated by operations;
- the proceeds from the disposition of facilities developed to third
parties;
- the proceeds from the disposition of facilities to entities in which
ProLogis maintains an ownership interest, such as ProLogis European
Properties Fund or other entities that may be formed in the future; and
- utilization of ProLogis' revolving credit facilities.
In the short-term, borrowings on and subsequent repayments of ProLogis'
unsecured revolving credit facilities will provide ProLogis with adequate
liquidity and financial flexibility to efficiently respond to market
opportunities. As of May 10, 2001, on a combined basis, ProLogis had
approximately $389.8 million of short-term borrowing capacity available under
its U.S. dollar denominated and multi-currency unsecured revolving credit
facilities (see "-- Credit Facilities"). ProLogis will continue to evaluate the
public debt markets with the objective of reducing its short-term borrowings and
extending debt maturities on favorable terms.
Within ProLogis European Properties Fund, ProLogis has access to 396.9
million euros (the currency equivalent of approximately $349.9 million as of
March 31, 2001) of third party equity capital in Europe that has been committed
primarily by institutional investors through 2002 to fund acquisitions of
ProLogis' completed stabilized European developments and acquisitions of other
facilities from third parties. ProLogis European Properties Fund has a
multi-currency secured, revolving credit facility in the currency equivalent of
500.0 million euros that is utilized in conjunction with the committed equity to
provide additional capital for its acquisitions. As of March 31, 2001, 95.4
million euros and 73.6 million pounds sterling (the currency equivalent of
approximately $189.2 million) was outstanding on the 500.0 million euro credit
facility. As of March 31, 2001, ProLogis no longer guarantees this credit
agreement. In April 2001, ProLogis European Properties Fund placed over 212.0
million euros (the currency equivalent of approximately $186.9 million as of
March 31, 2001) of permanent commercial mortgage-backed securities. The proceeds
were used to repay borrowings on the credit agreement.
CASH OPERATING ACTIVITIES
Net cash provided by operating activities was $104.8 million in 2001 and
$93.3 million in 2000. The increase is primarily the result of the increased
number of operating facilities in 2001. See "-- Results of
Operations -- Property Operations". Cash provided by operating activities
exceeded the cash distributions paid on Common Shares in 2001 and 2000. See
ProLogis' Consolidated Condensed Statements of Cash Flows in Item 1.
CASH INVESTING AND CASH FINANCING ACTIVITIES
In 2001, ProLogis' investing activities provided net cash of $253.3 million
and financing activities used net cash of $382.5 million. Proceeds received from
the dispositions of real estate and the repayments of loans by and distributions
received from ProLogis' unconsolidated entities were used to fund real estate
investments and repay borrowings on ProLogis' line of credit. In 2000, ProLogis
used net cash of $70.9 million in financing activities, which was primarily
funded by borrowings on its line of credit. See ProLogis' Consolidated Condensed
Statements of Cash Flows in Item 1.
34
CREDIT FACILITIES
ProLogis has an unsecured credit agreement that provides for a $475.0
million unsecured revolving line of credit. ProLogis Logistics and ProLogis
Development Services may also borrow under the credit agreement, with such
borrowings guaranteed by ProLogis. As of March 31, 2001, ProLogis had no
borrowings outstanding on the unsecured line of credit and ProLogis was in
compliance with all covenants contained in the credit agreement. As of March 31,
2001, ProLogis Logistics had borrowed $125.0 million under the credit agreement
and ProLogis Development Services had no borrowings under the credit agreement.
ProLogis has a credit agreement that provides for a 325.0 million euro
multi-currency, unsecured revolving line of credit (the currency equivalent of
approximately $286.6 million as of March 31, 2001). As of March 31, 2001, there
were 132.8 million euros (the currency equivalent of approximately $120.2
million) of borrowings outstanding on the line of credit and ProLogis was in
compliance with all covenants contained in the credit agreement.
COMMITMENTS
As of March 31, 2001, ProLogis had letters of intent or contingent
contracts, subject to ProLogis' final due diligence, for the acquisition of 1.7
million square feet of operating facilities at an estimated acquisition cost of
$41.4 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, 2001, ProLogis had $390.5 million of budgeted
development costs for developments in process, of which $241.2 million was
unfunded.
On January 11, 2001, ProLogis announced a Common Share repurchase program
under which it may repurchase up to $100.0 million of its Common Shares. The
Common Shares will be repurchased from time to time in the open market and in
privately negotiated transactions, depending on market prices and other
conditions. As of March 31, 2001, no common shares had been repurchased.
On March 30, 2001, ProLogis called for the redemption of its outstanding
Series A cumulative, redeemable preferred shares of beneficial interest ("Series
A preferred shares") at the price of $25.00 per share, plus $0.2481 in accrued
and unpaid dividends, for an aggregate redemption price of $25.2481 per share
(the "Redemption Price"). The shares were redeemed on May 8, 2001 at a total
cost of $136.3 million.
ProLogis has entered into a subscription agreement to make additional
capital contributions to ProLogis European Properties Fund of 84.4 million euros
(the currency equivalent of approximately $74.4 million as of March 31, 2001)
through 2002. Also, ProLogis is committed to invest an additional $2.0 million
in the non-cumulative preferred stock of PhatPipe Inc. during 2001. See Note 4
to ProLogis' Consolidated Financial Statements in Item 1.
As of March 31, 2001, Frigoscandia AB had a 138.5 million euro credit
agreement (increased to 185.0 million in April 2001). ProLogis has guaranteed
100% of the borrowings under the agreement. The currency equivalent of
approximately $122.3 million was outstanding as of March 31, 2001. Additionally,
in April 2001, the currency equivalent of approximately $45.9 million was
borrowed under the credit agreement. The agreement expires on September 28, 2001
and contains a provision to extend the due date until December 28, 2001.
ProLogis European Properties Fund has a credit agreement with two
international banks for a multi-currency secured revolving credit facility in
the currency equivalent of 500.0 million euros. The credit agreement matures in
October 2002. Borrowings can be denominated in sterling currencies or the euro.
As of March 31, 2001, 95.4 million euros and 73.6 million pound sterling were
outstanding on the line (the currency equivalent of approximately $189.2 million
as of March 31, 2001). As of March 31, 2001, ProLogis no longer guarantees this
credit agreement.
ProLogis Kingspark has a line of credit agreement with a bank in the United
Kingdom that has been guaranteed by ProLogis and provides for borrowings of up
to 15.0 million pounds sterling (the currency equivalent of approximately $21.7
million as of March 31, 2001). As of March 31, 2001, no borrowings were
35
outstanding on the line of credit. However, ProLogis Kingspark had the currency
equivalent of approximately $9.9 million of letters of credit outstanding that
reduce the amount of available borrowings on the line of credit.
ProLogis has guaranteed a 140.0 million French franc (the currency
equivalent of approximately $18.8 million as of March 31, 2001) unsecured loan
outstanding of ProLogis European Properties S.a.r.l.
As of March 31, 2001, ProLogis North American Properties Fund II has a
$165.0 million short-term borrowing arrangement outstanding, due June 25, 2001.
ProLogis North American Properties Fund II intends to obtain permanent secured
financing which will be used to refinance the short-term borrowings. ProLogis
has guaranteed the 100% of the amount outstanding.
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, 2001, ProLogis paid a quarterly distribution of $0.345 per
Common Share to shareholders of record on February 9, 2001, respectively. The
distribution level for 2001 was set by ProLogis' Board of Trustees in December
2000 at $1.38 per Common Share.
The annual dividend rates on ProLogis' preferred shares are $2.35 per
cumulative redeemable Series A preferred share, $4.27 per cumulative redeemable
Series C preferred share, $1.98 per cumulative redeemable Series D preferred
share and $2.1875 per cumulative redeemable Series E preferred share.
On January 31, 2001, ProLogis paid quarterly dividends of $0.5469 per
cumulative redeemable Series E preferred share. On March 30, 2001, ProLogis paid
quarterly dividends of $0.5875 per cumulative redeemable Series A 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 for the then
current dividend period with respect to the preferred shares.
FUNDS FROM OPERATIONS
Funds from operations attributable to Common Shares increased $12.9 million
to $100.7 million for 2001 from $87.8 million for 2000.
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 Condensed
Statement of Cash Flows in ProLogis' Consolidated Condensed 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 ProLogis' ability to fund its
capital expenditures and investment activities and to fund other cash needs.
Funds from operations is defined by the National Association of Real Estate
Investment Trusts ("NAREIT") generally as net income (computed in accordance
with GAAP), excluding real estate related depreciation and amortization, gains
and losses from sales of properties, except those gains and losses from
36
sales of properties upon completion or stabilization under pre-sale agreements
and after adjustments for unconsolidated entities to reflect their funds from
operations on the same basis. ProLogis includes gains and losses from the
disposition of its CDFS business segment assets in funds from operations.
Funds from operations, as used by ProLogis, is modified from the NAREIT
definition. ProLogis' funds from operations measure does not include: (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 the other REITs that do not engage in the types of transactions that
give rise to these items.
Funds from operations is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Net earnings attributable to Common Shares.................. $ 44,007 $ 44,938
Add (Deduct):
Real estate related depreciation and amortization...... 36,377 38,728
Loss (gain) on disposition of non-CDFS business segment
assets............................................... 1,198 (5,108)
Foreign currency exchange losses, net.................. (2,884) 6,522
Deferred income tax expense............................ 909 --
ProLogis' share of reconciling items of unconsolidated
entities
Real estate related depreciation and amortization......... 18,147 14,239
Gain on disposition of non-CDFS business segment assets... (5) (312)
Foreign currency exchange (gains) losses, net............. 8,874 (10,637)
Deferred income tax expense benefit....................... (5,918) (566)
-------- --------
Funds from operations attributable to Common Shares....... $100,705 $ 87,804
======== ========
37
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2001, no significant change had occurred in ProLogis'
interest rate risk or foreign currency risk as discussed in ProLogis' 2000
Annual Report on Form 10-K.
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 April 3, 2002
99.1 Letter dated April 3, 2002 to United States Securities and Exchange
Commission related to review performed by Arthur Andersen LLP
(b) Reports on Form 8-K:
ITEMS FINANCIAL
DATE REPORTED STATEMENTS
---- -------- ----------
None
38
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/ LUKE A. LANDS
------------------------------------
Luke A. Lands
Senior Vice President and Controller
By: /s/ SHARI J. JONES
------------------------------------
Shari J. Jones
Vice President
(Principal Accounting Officer)
Date: April 15, 2002
39
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
12.1 Computation of Ratio of Earnings to Fixed Charges
(incorporated by reference to the Quarterly Report on Form
10-Q/A #1 filed April 5, 2002)
12.2 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Share Dividends (incorporated by reference to
the Quarterly Report on Form 10-Q/A #1 filed April 5, 2002)
15.1 Letter from Arthur Andersen LLP regarding unaudited
financial information dated April 3, 2002 (incorporated by
reference to the Quarterly Report on Form 10-Q/A #1 filed
April 5, 2002)
99.1 Letter dated April 3, 2002 to United States Securities and
Exchange Commission related to review performed by Arthur
Andersen LLP (incorporated by reference to the Quarterly
Report on Form 10-Q/A #1 filed April 5, 2002)