===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] 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
13, 2002 was 177,969,319.
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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,
2002 and December 31, 2001........................ 3
Consolidated Condensed Statements of Earnings
and Comprehensive Income--Three Months Ended
March 31, 2002 and 2001........................... 4
Consolidated Condensed Statements of Cash Flows--
Three Months Ended March 31, 2002 and 2001........ 5
Notes to Consolidated Condensed Financial
Statements........................................ 6 - 18
Independent Accountants' Review Report.............. 19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............20 - 31
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................... 31
PART II.Other Information
Item 4. Submission of Matters to a Vote of Securities
Holders........................................... 32
Item 5. Other Information................................... 32
Item 6. Exhibits and Reports on Form 8-K.................... 32
2
PROLOGIS TRUST
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
2002 2001
(Unaudited) (Audited)
------------- -------------
ASSETS
Real estate....................................................................... $ 4,497,621 $ 4,588,193
Less accumulated depreciation................................................... 605,510 574,871
3,892,111 4,013,322
Investments in and advances to unconsolidated entities............................ 1,348,154 1,310,735
Cash and cash equivalents......................................................... 59,689 27,989
Accounts and notes receivable..................................................... 27,699 23,829
Other assets...................................................................... 169,804 183,988
------------- -------------
Total assets............................................................ $ 5,497,457 $ 5,559,863
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit................................................................. $ 322,881 $ 375,875
Senior unsecured debt........................................................... 1,651,699 1,670,359
Mortgage notes and other secured debt........................................... 530,281 532,106
Accounts payable and accrued expenses........................................... 102,184 116,931
Construction costs payable...................................................... 10,806 19,805
Distributions and dividends payable............................................. 729 63,169
Other liabilities............................................................... 80,454 59,980
------------- -------------
Total liabilities....................................................... 2,699,034 2,838,225
------------- -------------
Minority interest................................................................. 45,058 45,639
Shareholder' equity:
Series C Preferred Shares; $0.01 par value; 2,000,000 shares issued and
outstanding at March 31, 2002 and December
31, 2001; 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, 2002 and December 31,
2001; 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, 2002 and
December 31, 2001; stated liquidation preference of
$25.00 per share............................................................. 50,000 50,000
Common shares of beneficial interest; $0.01 par value;
177,477,667 shares issued and outstanding at March 31,
2002 and 175,888,391 shares issued and outstanding at
December 31, 2001............................................................ 1,775 1,759
Additional paid-in capital........................................................ 2,998,408 2,958,613
Employee share purchase notes..................................................... (14,042) (14,810)
Accumulated other comprehensive loss.............................................. (81,877) (63,780)
Distributions in excess of net earnings........................................... (550,899) (605,783)
------------- -------------
Total shareholders' equity.............................................. 2,753,365 2,675,999
------------- -------------
Total liabilities and shareholders' equity.............................. $ 5,497,457 $ 5,559,863
============= =============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
PROLOGIS TRUST
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
-------------------------
2002 2001
----------- -----------
Income:
Rental income.............................................................. $ 112,929 $ 119,244
Other real estate income................................................... 26,416 31,124
Income from unconsolidated entities........................................ 32,345 8,157
Interest and other income.................................................. 570 1,124
----------- -----------
Total income....................................................... 172,260 159,649
----------- -----------
Expenses:
Rental expenses, net of recoveries of $23,628 in 2002 and
$24,864 in 2001, including amounts paid to affiliate of
$89 in 2001............................................................. 7,741 6,762
General and administrative, including amounts paid to
affiliate of $102 in 2002 and $313 in 2001.............................. 12,927 14,417
Depreciation and amortization.............................................. 36,231 37,860
Interest................................................................... 40,830 41,522
Other...................................................................... 821 1,243
----------- -----------
Total expenses..................................................... 98,550 101,804
----------- -----------
Earnings before minority interest............................................ 73,710 57,845
Minority interest share in earnings.......................................... 1,282 1,376
----------- -----------
Earnings before loss on disposition of real estate
and foreign currency exchange gains (losses)............................... 72,428 56,469
Loss on disposition of real estate........................................... (153) (1,198)
Foreign currency exchange gains (losses), net................................ (339) 2,657
----------- -----------
Earnings before income taxes................................................. 71,936 57,928
Income taxes:
Current income tax expense................................................. 1,060 1,580
Deferred income tax expense................................................ 7,701 909
----------- -----------
Total income taxes................................................. 8,761 2,489
----------- -----------
Net earnings................................................................. 63,175 55,439
Less preferred share dividends............................................... 8,179 11,432
----------- -----------
Net earnings attributable to Common Shares................................... 54,996 44,007
Other comprehensive income:
Foreign currency translation adjustments................................... (18,097) (42,684)
----------- -----------
Comprehensive income......................................................... $ 36,899 $ 1,323
=========== ===========
Weighted average Common Shares outstanding-- Basic........................... 176,523 167,297
=========== ===========
Weighted average Common Shares outstanding-- Diluted......................... 183,182 174,371
=========== ===========
Basic net earnings attributable to Common Shares............................. $ 0.31 $ 0.26
=========== ===========
Diluted net earnings attributable to Common Shares........................... $ 0.31 $ 0.25
=========== ===========
Distributions per Common Share............................................... $ 0.355 $ 0.345
=========== ===========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
PROLOGIS TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended,
March 31,
---------------------------
2002 2001
------------ ------------
Operating activities:
Net earnings................................................................. $ 63,175 $ 55,439
Minority interest share in earnings.......................................... 1,282 1,376
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................................. 36,231 37,860
Loss on disposition of real estate........................................ 153 1,198
Straight-lined rents...................................................... (1,352) (1,649)
Amortization of deferred loan costs....................................... 1,409 1,222
Stock-based compensation.................................................. 2,912 1,614
Income from unconsolidated entities....................................... (26,795) (4,949)
Foreign currency exchange (gains) losses, net............................. 329 (3,274)
Deferred income tax expense............................................... 7,701 909
Decrease in accounts receivable and other assets............................. 4,636 2
Increase (decrease) in accounts payable and accrued expenses and other
liabilities............................................................... (1,509) 15,045
------------ ------------
Net cash provided by operating activities ........................... 88,172 104,793
------------ ------------
Investing activities:
Real estate investments...................................................... (128,642) (185,098)
Tenant improvements and lease commissions on previously
leased space.............................................................. (1,781) (4,312)
Recurring capital expenditures............................................... (7,071) (3,936)
Proceeds from dispositions of real estate.................................... 203,484 236,900
Net (advances to) amounts received from unconsolidated entities.............. (12,481) 209,783
------------ ------------
Net cash provided by investing activities............................ 53,509 253,337
------------ ------------
Financing activities:
Net proceeds from Common Share plans......................................... 35,096 13,150
Redemption of Series B Convertible Preferred Shares.......................... -- (4,583)
Distributions paid on Common Shares.......................................... (62,552) (57,158)
Distributions paid to minority interest holders.............................. (1,871) (1,752)
Distributions paid on preferred shares....................................... (8,179) (11,432)
Principal payments on senior unsecured debt.................................. (18,750) --
Principal payments received on employee share purchase notes................. 768 507
Proceeds from settlement of derivative financial instruments................. 160 --
Proceeds from lines of credit................................................ 168,675 200,920
Payments on lines of credit.................................................. (221,669) (520,532)
Regularly scheduled principal payments on mortgage notes..................... (1,659) (1,598)
------------ ------------
Net cash used in financing activities................................ (109,981) (382,478)
------------ ------------
Net increase (decrease) in cash and cash equivalents........................... 31,700 (24,348)
Cash and cash equivalents, beginning of period................................. 27,989 57,870
------------ ------------
Cash and cash equivalents, end of period....................................... $ 59,689 $ 33,522
============ ============
See Note 8 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2002
(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, operates and develops industrial distribution facilities in
North America (the United States and Mexico), Europe and Asia (Japan). The
ProLogis Operating System(R), comprised of the Market Services Group, the Global
Services Group, the Global Development Group and the ProLogis Solutions Group,
utilizes ProLogis' international network of distribution facilities to meet its
customers' distribution space needs globally. ProLogis' business consists of
three reportable business segments: property operations, corporate distribution
facilities services business ("CDFS business") and temperature-controlled
distribution operations. See Note 7.
Principles of Financial Presentation
The consolidated condensed financial statements of ProLogis as of March 31,
2002 and for the three months ended March 31, 2002 and 2001 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, 2001
audited consolidated financial statements contained in ProLogis' 2001 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, 2002 and 2001 are not necessarily indicative of the results to be expected
for the entire year. Certain of the 2001 amounts have been reclassified to
conform to the 2002 financial statement presentation.
The preparation of consolidated condensed financial statements in
conformity with generally accepted accounting principles ("GAAP") in the United
States 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 recognized after capitalization was $40.8 million and
$41.5 million for the three months in 2002 and 2001, respectively. Amounts
capitalized for the three months in 2002 and 2001 were $5.5 million and $5.9
million, respectively. Amortization of deferred loan costs included in interest
expense recognized was $1.4 million and $1.2 million for the three months in
2002 and 2001, respectively. Total interest paid in cash on all outstanding debt
was $39.5 million and $38.9 million for the three months in 2002 and 2001,
respectively.
Recently Adopted Accounting Standards
On January 1, 2002, ProLogis adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
SFAS No. 142 provides that goodwill is no longer subject to amortization
over its estimated useful life. Rather, goodwill will be subject to at least an
annual assessment for impairment by applying a fair-value-based-test. The
impairment guidance in existing rules for equity method goodwill will continue
to apply. SFAS No. 142 requires that goodwill balances be assessed for
impairment during 2002. ProLogis had not performed this assessment as of March
31, 2002. SFAS No. 142 also changes the rules for recognition of acquired
intangible assets other than goodwill but continues to require that intangibles
assets be amortized over their useful lives. ProLogis and its unconsolidated
entities do not have any acquired intangibles other than goodwill. Had SFAS No.
142 been applicable for the three months in 2001, ProLogis' net earnings
attributable to Common Shares for the three months ended March 31, 2001 would
have changed as follows (in thousands except per share amounts):
6
Net earnings attributable to Common Shares....... $ 44,007
Goodwill amortization(1)......................... 2,551
----------
Adjusted net earnings attributable to
Common Shares.................................. $ 46,558
==========
Basic Diluted
-------- --------
Per share net earnings attributable to
Common Shares.................................. $ 0.26 $ 0.25
Goodwill amortization(1)......................... 0.02 0.02
-------- --------
Adjusted per share net earnings attributable
to Common Shares............................... $ 0.28 $ 0.27
======== ========
----------
(1) Includes ProLogis' share of the amortization expense related to goodwill
recognized by its unconsolidated entities.
SFAS No. 144 establishes a single accounting model for long-lived assets to
be disposed of by sale and provides implementation guidance with respect to
accounting for impairment of long-lived assets. In management's opinion,
ProLogis' long-lived assets are not carried at amounts in excess of their fair
values. Also, SFAS No. 144 requires that discontinued operations be measured at
the lower of carrying amount or fair value less cost to sell, similar to the
basis used for other long-lived assets, rather than at net realizable value as
previously required. Additionally, future operating losses of discontinued
operations are no longer recognized before they occur. Under SFAS No. 144, the
facilities sold by ProLogis to third parties are considered to be discontinued
operations unless such facilities were developed under a pre-sale agreement.
Facilities contributed to entities in which ProLogis maintains an ownership
interest are not considered to be discontinued operations under SFAS No. 144 due
to ProLogis' continuing involvement. Facilities disposed of by ProLogis'
unconsolidated entities also are not considered to be discontinued operations
under SFAS No. 144. For the three months ended March 31, 2002, ProLogis is not
reporting discontinued operations for the one facility sold to a third party
during the period as the effect on ProLogis' Consolidated Condensed Statement of
Earnings and Comprehensive Income is not material.
2. 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,
2002 2001
----------- ------------
Distribution facilities(1):
Improved land.................................. $ 632,587 $ 645,343
Buildings and improvements..................... 3,518,283 3,517,859
----------- -----------
4,150,870 4,163,202
----------- -----------
Facilities under development (including
cost of land)(2)(3).......................... 118,234 131,545
Land held for development(4)................... 186,529 200,737
Other costs (pre-construction and
pre-acquisition)(5).......................... 41,988 92,709
----------- -----------
Total real estate.................... 4,497,621 4,588,193
Less accumulated depreciation.................. 605,510 574,871
----------- -----------
Net real estate...................... $ 3,892,111 $ 4,013,322
=========== ===========
----------
(1) As of March 31, 2002 and December 31, 2001, ProLogis had 1,200 and 1,208
directly owned distribution facilities, respectively, consisting of
122,846,000 and 123,356,000 square feet, respectively.
(2) Facilities under development consist of 20 buildings aggregating 4,187,000
square feet as of March 31, 2002 and 16 buildings aggregating 5,357,000
square feet as of December 31, 2001.
7
(3) In addition to the March 31, 2002 construction costs payable balance of
$10.8 million, ProLogis had unfunded commitments on its contracts for
facilities under construction totaling $104.0 million as of March 31, 2002.
(4) Land held for future development consists of 1,909 acres as of March 31,
2002 and 1,976 acres as of December 31, 2001.
(5) Other costs include $1.0 million and $65.0 million of funds on deposit with
title companies as of March 31, 2002 and December 31, 2001, respectively.
ProLogis' distribution facilities, facilities under development and land
held for future development are located in North America (the United States and
Mexico), eight countries in Europe and in Japan. No individual market represents
more than 10% of ProLogis' real estate assets.
Operating Lease Agreements
ProLogis leases its facilities to customers under agreements that are
classified as operating leases. As of March 31, 2002, minimum lease payments on
leases with lease periods greater than one year for space in ProLogis' directly
owned facilities during each of the years in the five-year period ending
December 31, 2006 and thereafter are as follows (in thousands):
Remainder of 2002................................... $ 306,642
2003................................................ 339,515
2004................................................ 255,456
2005................................................ 179,939
2006................................................ 120,778
2007 and thereafter................................. 211,940
-----------
$ 1,414,270
===========
ProLogis' largest customer (based on rental income) in its directly owned
facilities accounted for 0.88% of ProLogis' annualized rental income for the
three months ended March 31, 2002. The annualized base rent for ProLogis' 25
largest customers (based on rental income) accounted for 13.8% of ProLogis'
annualized rental income for the three months ended March 31, 2002.
3. 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,
2002 2001
---------- -----------
Temperature-controlled distribution companies:
CSI/Frigo LLC.................................... $ (2,690) $ (2,492)
ProLogis Logistics(1)............................ 209,901 174,295
Frigoscandia S.A.(2)............................. 175,317 186,168
---------- ----------
382,528 357,971
---------- ----------
Real estate funds:
ProLogis California(3)........................... 123,318 118,846
ProLogis North American Properties Fund I........ 47,291 45,331
ProLogis North American Properties Fund II....... 8,285 8,210
ProLogis North American Properties Fund III...... 6,012 6,273
ProLogis North American Properties Fund IV....... 4,528 4,747
ProLogis North American Properties Fund V(4)..... 8,716 --
ProLogis European Properties Fund(5)............. 271,222 263,114
---------- ----------
469,372 446,521
---------- ----------
CDFS business:
Kingspark LLC.................................... 10,057 9,937
Kingspark S.A.................................... 482,035 490,074
---------- ----------
492,092 500,011
---------- ----------
Insight............................................ 2,482 2,479
ProLogis Equipment Services........................ 1,680 1,680
GoProLogis(6)...................................... -- 2,073
---------- ----------
Total............................... $1,348,154 $1,310,735
========== ==========
8
----------
(1) ProLogis made an additional equity investment of $31.5 million in ProLogis
Logistics Services Incorporated ("ProLogis Logistics") during the three
months ended March 31, 2002. ProLogis Logistics owns CS Integrated LLC
("CSI"), a temperature-controlled distribution company operating in the
United States. As of March 31, 2002, substantially all of the operating
assets of CSI were classified as held for sale.
(2) During the three months ended March 31, 2002, Frigoscandia S.A. and its
wholly owned subsidiaries disposed of 37.8 million cubic feet of operating
facilities representing all of its assets in Sweden, Denmark, Finland,
Norway and the Netherlands and all of its remaining assets in Germany.
These dispositions generated net proceeds of $102.0 million which were used
to repay outstanding third party debt. As of March 31, 2002, Frigoscandia
S.A. and its wholly owned subsidiaries owned or operated 115.0 million
cubic feet of temperature-controlled distribution facilities, of which 8.7
million cubic feet of operating facilities in Spain and Italy were
classified as held for sale.
(3) ProLogis California I LLC ("ProLogis California") acquired an additional
177,000 square foot facility for a total cost of $13.0 million from
ProLogis during the three months ended March 31, 2002. ProLogis made an
additional equity investment of $6.4 million in ProLogis California in
connection with this acquisition. Also during this period, ProLogis
California disposed of two facilities aggregating 348,000 square feet
generating net proceeds of $14.3 million and a gain of $1.6 million.
(4) ProLogis-Macquarie Fund ("ProLogis North American Properties Fund V") was
formed on March 28, 2002 as a partnership between Macquarie Bank Limited
with an 85% ownership interest and ProLogis with a 15% ownership interest.
Macquarie Bank Limited is an affiliate of Security Capital Group
Incorporated ("Security Capital"), ProLogis' largest shareholder (see Note
11). On formation, ProLogis North American Properties Fund V acquired 22
distribution facilities aggregating 3.9 million square feet in 12 markets
in the United States and two markets in Mexico. Investment amount
represents ProLogis' investment in this entity, including acquisition
costs, as adjusted for ProLogis' share of cumulative earnings of ProLogis
North American Properties Fund V and the portion of the gain resulting from
the disposition of ProLogis' facilities to ProLogis North American
Properties Fund V that does not qualify for income recognition by ProLogis
due to its continuing ownership in ProLogis North American Properties Fund
V.
(5) ProLogis European Properties Fund acquired two additional facilities from
ProLogis aggregating 567,000 square feet for a total cost of $26.6 million
during the three months ended March 31, 2002. Also during this period,
ProLogis European Properties Fund acquired two facilities aggregating
227,000 square feet for a total cost of $31.0 million from Kingspark
Holding S.A. and its wholly owned subsidiaries ("Kingspark S.A.").
Kingspark S.A. is an unconsolidated entity of ProLogis. ProLogis and
Kingspark S.A. made additional equity investments in ProLogis European
Properties Fund aggregating $6.8 million in connection with these
acquisitions. ProLogis also made an additional cash investment of $11.4
million in ProLogis European Properties Fund during the three months ended
March 31, 2002.
(6) During the three months ended March 31, 2002, ProLogis, under the equity
method, recognized its share of an impairment adjustment recognized by
GoProLogis Incorporated ("GoProLogis"). This impairment adjustment reduced
GoProLogis' investment in the non-cumulative preferred stock of Vizional
Technologies Inc. ("Vizional Technologies") to zero. The investment in
Vizional Technologies is GoProLogis' only asset.
Income (Loss) from Unconsolidated Entities
ProLogis recognized income (loss) from its investments in unconsolidated
entities as follows (in thousands):
9
Three Months Ended
March 31,
----------------------
2002 2001
--------- ---------
Temperature-controlled distribution companies:
CSI/Frigo LLC(1)................................. $ 233 $ (509)
ProLogis Logistics(2)............................ 3,702 (1,730)
Frigoscandia S.A.(2)............................. 6,741 (7,233)
--------- ---------
10,676 (9,472)
--------- ---------
Real estate funds:
ProLogis California(3)........................... 4,055 3,067
ProLogis North American Properties Fund I(4)..... 1,444 1,352
ProLogis North American Properties Fund II(5).... 797 341
ProLogis North American Properties Fund III(6)... 675 --
ProLogis North American Properties Fund IV(7).... 531 --
ProLogis North American Properties Fund V(8)..... 6 --
ProLogis European Properties Fund(9)............. 6,748 402
ProLogis European Properties S.a.r.l.(10)........ -- 36
--------- ---------
14,256 5,198
--------- ---------
CDFS business:
Kingspark LLC(11)................................ 173 503
Kingspark S.A.(12)............................... 9,309 9,750
--------- ---------
9,482 10,253
--------- ---------
Insight............................................ 4 (10)
GoProLogis(13)..................................... (2,073) 1,521
ProLogis PhatPipe.................................. -- 667
--------- ---------
$ 32,345 $ 8,157
========= =========
----------
(1) Amounts represent ProLogis' share of the earnings or losses of CSI/Frigo
LLC recognized under the equity method based upon its ownership interest in
CSI/Frigo LLC (effectively 95%) and interest income on outstanding notes.
CSI/Frigo LLC recognizes its share of the earnings or losses of ProLogis
Logistics and Frigoscandia S. A. under the equity method based upon its 5%
ownership interest in each entity.
(2) ProLogis recognizes its direct share of the earnings or losses of ProLogis
Logistics and Frigoscandia S.A. under the equity method based upon its
direct 95% ownership interest in each entity and also recognizes interest
income on outstanding notes, if any.
(3) Income includes property and asset management, leasing, development and
other fees of $768,000 and $666,000 for the three months in 2002 and 2001,
respectively. ProLogis has had a 50% ownership interest in ProLogis
California since its inception.
(4) Income includes property and asset management leasing, development and
other fees of $909,000 and $512,000 for the three months in 2002 and 2001,
respectively. ProLogis had a 20% ownership interest in ProLogis North
American Properties Fund I until January 14, 2001 and has had a 41.3%
ownership interest since that date.
(5) Income includes property and asset management and other fees of $534,000
and $45,000 for the three months in 2002 and 2001, respectively. No leasing
fees were earned in either period. ProLogis has had a 20% ownership
interest in ProLogis North American Properties Fund II since its inception.
(6) ProLogis North American Properties Fund III was formed on June 15, 2001.
Income includes property and asset management, leasing and other fees of
$512,000 for the three months in 2002. ProLogis has had a 20% ownership
interest in ProLogis North American Properties Fund III since its
inception.
(7) ProLogis North American Properties Fund IV was formed on September 21,
2001. Income includes property and asset management, leasing and other fees
of $323,000 for the three months in 2002. ProLogis has had a 20% ownership
interest in ProLogis North American Properties Fund IV since its inception.
(8) ProLogis North American Properties Fund V was formed on March 28, 2002.
ProLogis has a 15% ownership interest in ProLogis North American Properties
Fund V.
10
(9) Income includes property and asset management fees of $3,284,000, and
$1,722,000 for the three months in 2002 and 2001, respectively. ProLogis
recognizes its share of the earnings or losses of ProLogis European
Properties Fund based on its average ownership interest during the
respective period. ProLogis' ownership interest in ProLogis European
Properties Fund was 33.1% and 41.8% as of March 31, 2002 and 2001,
respectively.
(10) Amount in 2001 represents income from ProLogis' investment in 49.9% of the
common stock of ProLogis European Properties S.a.r.l. for the period from
January 1, 2001 to January 6, 2001. As of January 7, 2001, ProLogis
European Properties S.a.r.l. was 100% owned by ProLogis European Properties
Fund.
(11) Amounts represent ProLogis' share of the earnings or losses of Kingspark
LLC recognized under the equity method based upon its 95% ownership
interest in Kingspark LLC. Kingspark LLC recognizes its share of the
earnings or losses of Kingspark S.A. under the equity method based upon its
5% ownership interest in Kingspark S.A.
(12) ProLogis recognizes its direct share of the earnings or losses of Kingspark
S.A. under the equity method based upon its direct 95% ownership interest
in Kingspark S.A.
(13) For the three months in 2002, the amount consists of ProLogis' share of the
loss of GoProLogis recognized under the equity method. GoProLogis' loss
consists entirely of an impairment adjustment that reduces its investment
in Vizional Technologies to zero. For the three months in 2001, the amount
consists of ProLogis' share of the income of GoProLogis recognized under
the equity method. GoProLogis' income represents license fee income earned
from Vizional Technologies for the non-exclusive use of the ProLogis
Operating Systems(R).
Temperature-Controlled Distribution Companies
ProLogis' total investment in its temperature-controlled distribution
companies as of March 31, 2002 consisted of (in millions of U.S. dollars):
CSI/Frigo ProLogis Frigoscandia
LLC(1) Logistics(2) S.A.(3)
--------- --------- ------------
Equity interest................................ $ 0.4 $ 263.4 $ 22.6
ProLogis' share of the earnings of the entity.. (6.0) (64.9) (119.9)
------- -------- -------
Subtotal.................................. (5.6) 198.5 (97.3)
Other (including acquisition costs), net....... (0.3) -- (11.1)
------- -------- -------
Subtotal.................................. (5.9) 198.5 (108.4)
Notes and other receivables.................... 3.2 11.4(4) 283.7(5)
------- -------- --------
Total................................ $ (2.7) $ 209.9 $ 175.3
======= ======== ========
----------
(1) ProLogis owns 89% of the membership interests (all non-voting) and K. Dane
Brooksher, ProLogis' chairman and chief executive officer, owns 11% of the
membership interests (all voting) of CSI/Frigo LLC, a limited liability
company. Additionally, 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. ProLogis does not have
control of CSI/Frigo LLC, therefore, ProLogis accounts for its investment
in this entity under the equity method.
(2) ProLogis directly owns all of the non-voting preferred stock of ProLogis
Logistics, representing a 99.23% interest in the earnings of ProLogis
Logistics. ProLogis Logistics owns 100% of CSI, a temperature-controlled
distribution company operating in the United States. The voting common
stock of ProLogis Logistics is owned by CSI/Frigo LLC. ProLogis does not
have control of ProLogis Logistics therefore, ProLogis accounts for its
investment in this entity under the equity method.
(3) ProLogis directly owns all of the non-voting preferred stock of
Frigoscandia S.A., representing a 95% interest in the earnings of
Frigoscandia S.A., a Luxembourg company that owns, through wholly owned
subsidiaries, temperature-controlled distribution companies operating in
five countries in Europe. The voting common stock of Frigoscandia S.A. is
owned by CSI/Frigo LLC. ProLogis does not have control of Frigoscandia
S.A., therefore, ProLogis accounts for its investment in this entity under
the equity method.
11
Frigoscandia S.A., through its wholly owned subsidiary, Frigo S.a.r.l., had
a credit agreement with Bank of America N.A. ("Bank of America") as agent
for a bank group, under which borrowings of 102.5 million euros (the
currency equivalent of approximately $90.4 million) were outstanding as of
December 31, 2001. All of the borrowings outstanding were guaranteed by
ProLogis. All borrowings under the credit agreement were repaid in March
2002 with the proceeds from the sale of operating assets of Frigoscandia
S.A. and its wholly owned subsidiaries. Frigo S.a.r.l. cannot borrow any
additional amounts under the credit agreement prior to its expiration on
June 28, 2002.
(4) Represents other receivables only.
(5) In addition to other receivables aggregating $46.1 million (primarily
interest on notes receivable) the balance includes:
o 776.6 million Swedish krona (the currency equivalent of approximately
$75.0 million as of March 31, 2002) unsecured note from a wholly owned
subsidiary of Frigo S.a.r.l.; interest at 5.0% per annum; due on
demand;
o 12.8 million euro (the currency equivalent of approximately $11.1
million as of March 31, 2002) unsecured note from a wholly owned
subsidiary of Frigo S.a.r.l.; interest at 5.0% per annum; due on
demand;
o $115.5 million unsecured note from Frigoscandia S.A., interest at 5.0%
per annum; $80.0 million due July 15, 2008 with the remainder due on
demand; and
o 41.2 million euro (the currency equivalent of approximately $36.0
million as of March 31, 2002) unsecured note from Frigo S.a.r.l.;
interest at 5.0% per annum; due on demand.
Real Estate Funds
ProLogis' total investment in real estate funds as of March 31, 2002
consisted of (in millions of U.S. dollars):
ProLogis ProLogis ProLogis ProLogis ProLogis
North North North North North ProLogis
American American American American American European
ProLogis Properties Properties Properties Properties Properties Properties
California Fund I Fund II Fund III Fund IV Fund V Fund(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Equity interest.................... $ 167.5 $ 56.4 $ 14.3 $ 12.1 $ 8.4 $ 8.5 $ 337.5
Distributions...................... (42.3) (6.5) (1.9) (1.5) (0.5) -- (26.9)
ProLogis' share of the earnings
of the entity, excluding fees
earned........................... 25.1 3.2 0.6 0.2 0.4 -- 21.2
------- ------- ------- ------- ------- ------- -------
Subtotal.................... 150.3 53.1 13.0 10.8 8.3 8.5 331.8
Adjustments to carrying value(2)... (28.7) (9.5) (6.5) (5.9) (4.6) (4.0) (43.4)
Other, net(3)...................... 1.5 2.0 1.3 1.0 0.7 1.2 (20.0)
------- ------- ------- ------- ------- ------- -------
Subtotal.................... 123.1 45.6 7.8 5.9 4.4 5.7 268.4
Other receivables.................. 0.2 1.7 0.5 0.1 0.1 3.0 2.8
------- ------- ------- ------- ------- ------- -------
Total.................... $ 123.3 $ 47.3 $ 8.3 $ 6.0 $ 4.5 $ 8.7 $ 271.2
======= ======= ======= ======= ======= ======= =======
----------
(1) Third parties (21 institutional investors) have invested 709.4 million
euros (the currency equivalent of approximately $618.2 million as of March
31, 2002) in ProLogis European Properties Fund and have committed to fund
an additional 350.9 million euros (the currency equivalent of approximately
$305.8 million as of March 31, 2002) through September 2002. ProLogis is
committed under a subscription agreement to make additional capital
contributions of 46.0 million euros (the currency equivalent of
approximately $40.0 million as of March 31, 2002) through September 2002.
(2) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to each entity that does not qualify for current
income recognition by ProLogis due to ProLogis' continuing ownership in
each entity.
(3) Includes acquisition costs for all entities in addition to ProLogis' share
of the cumulative translation adjustments of ProLogis European Properties
Fund.
12
Kingspark S.A.
ProLogis owns all of the non-voting preferred stock of Kingspark S.A. and
all of the non-voting membership interests of Kingspark LLC. Kingspark LLC owns
the voting common stock of Kingspark S.A. The voting membership interest of
Kingspark LLC is owned by K. Dane Brooksher, ProLogis' chairman and chief
executive officer. These combined investments do not give ProLogis control of
these entities. Therefore, ProLogis recognizes its 99.75% share of the combined
earnings or losses of these entities under the equity method. Kingspark S.A.
owns Kingspark Group Holdings Limited ("ProLogis Kingspark"), a CDFS business in
the United Kingdom. In addition to its equity investments and other receivables
of $17.2 million (primarily interest on notes receivable), ProLogis had the
following amounts due from Kingspark S.A. and Kingspark LLC as of March 31,
2002:
o 59.0 million pound sterling (the currency equivalent of approximately
$84.1 million as of March 31, 2002) outstanding on an unsecured
revolving loan facility from ProLogis to Kingspark S.A.; interest at
5.5% per annum; due on demand;
o $117.3 million unsecured note from Kingspark S.A.; interest at 5.0%
per annum; due on demand;
o 143.5 million pound sterling (the currency equivalent of approximately
$204.5 million as of March 31, 2002) mortgage note from Kingspark
S.A.; secured by land parcels; interest at 5.1% per annum; due on
demand; and
o $7.3 million unsecured note from Kingspark LLC; interest at 8.0% per
annum; due in January 2006.
As of March 31, 2002, Kingspark S.A. owned 2.1 million square feet of
distribution facilities at an investment of $187.9 million and 2.1 million
square feet of facilities under development with a total budgeted cost of $233.9
million. Additionally, as of March 31, 2002, Kingspark S.A. owned 243 acres of
land and controlled 1,610 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 26.7 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 25.0
million pounds sterling (the currency equivalent of approximately $35.6 million
as of March 31, 2002) and has been guaranteed by ProLogis. As of March 31, 2002,
no borrowings were outstanding on the line of credit. However, as of March 31,
2002, ProLogis Kingspark had the currency equivalent of approximately $4.8
million of letters of credit outstanding that reduce the amount of available
borrowings on the line of credit.
Summarized Financial Information
Summarized financial information for certain of ProLogis' unconsolidated
entities as of March 31, 2002 and for the three months then ended is presented
below (in millions of U.S. dollars). The information presented is for the entire
entity.
ProLogis ProLogis ProLogis ProLogis ProLogis
North North North North North ProLogis
American American American American American European
ProLogis Frigoscandia ProLogis Properties Properties Properties Properties Properties Properties Kingspark
Logistics(1) S.A.(1) California Fund I(3) Fund II(4) Fund III(4)Fund IV(4) Fund V(5) Fund(6) S.A.(1)
----------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Total assets........ $327.9 $ 246.8 $ 602.6 $ 363.9 $ 233.5 $ 208.2 $ 145.3 $ 180.1 $1,601.2 $ 637.5
Total liabilities
(7)(8)............ $129.5 $ 364.9 $ 302.1 $ 238.7 $ 168.0 $ 152.7 $ 104.8 $ 123.1 $ 715.7 $ 552.4
Minority interest... $ -- $ 0.2 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Equity.............. $198.4 $(118.3) $ 300.5 $ 125.2 $ 65.5 $ 55.5 $ 40.5 $ 57.0 $ 885.5 $ 85.1
Revenues............ $ 76.9 $ 48.3 $ 17.0 $ 10.5 $ 7.0 $ 6.4 $ 4.6 $ 0.1 $ 31.1 $ 7.1
Net earnings(9)..... $ 3.5 $ 4.3 $ 6.2 $ 1.2 $ 1.1 $ 0.7 $ 1.0 $ -- (10) $ 9.7 $ 3.6
----------
(1) ProLogis had an ownership interest in excess of 99% in each entity as of
March 31, 2002.
(2) ProLogis had a 50% ownership interest in this entity as of March 31, 2002.
(3) ProLogis had a 41.3% ownership interest in this entity as of March 31,
2002.
(4) ProLogis had a 20% ownership interest in each entity as of March 31, 2002.
(5) ProLogis had a 15% ownership interest in this entity as of March 31, 2002.
(6) ProLogis had a 33.1% ownership interest in this entity as of March 31, 2002.
13
(7) Includes amounts due to ProLogis of $11.4 million from ProLogis Logistics,
$283.7 million from Frigoscandia S.A., $0.2 million from ProLogis
California, $1.7 million from ProLogis North American Properties Fund I,
$0.5 million for ProLogis North American Properties Fund II, $0.1 million
from ProLogis North American Properties Fund III, $0.1 million from
ProLogis North American Properties Fund IV, $3.0 million from ProLogis
North American Properties Fund V, $2.8 million from ProLogis European
Properties Fund and $423.1 million due from Kingspark S.A.
(8) Includes loans due to third parties of $91.5 million for ProLogis Logistics
($90.0 million guaranteed by ProLogis), $1.0 million for Frigoscandia S.A.,
$293.0 million for ProLogis California, $232.6 million for ProLogis North
American Properties Fund I, $165.0 million for ProLogis North American
Properties Fund II, $150.0 million for ProLogis North American Properties
Fund III, $103.0 million for ProLogis North American Properties Fund IV,
$120.0 million for ProLogis North American Properties Fund V (guaranteed by
ProLogis), $632.2 million for ProLogis European Properties Fund and $57.7
million for Kingspark S. A. (guaranteed by ProLogis).
(9) ProLogis' share of the net earnings of the respective entities and interest
income on amounts due to ProLogis are recognized in the Consolidated
Statements of Earnings and Comprehensive Income as "Income from
unconsolidated entities." The net earnings of each entity includes interest
expense on amounts due to ProLogis, as applicable, and includes net foreign
currency exchange gains of $4.7 million and $0.7 million for Frigoscandia
S.A. and ProLogis European Properties Fund, respectively, and a net foreign
currency exchange loss of $1.1 million for Kingspark S.A.
(10) Net earnings of this entity were $38,000 for the period from inception on
March 28, 2002 to March 31, 2002.
4. Shareholders' Equity:
During the three months ended March 31, 2002, ProLogis generated net
proceeds of $35.1 million from the issuance of 1,325,000 common shares of
beneficial interest, $0.01 par value ("Common Shares") under its 1999 Dividend
Reinvestment and Share Purchase Plan and the issuance of 264,000 Common Shares
under other Common Share plans.
ProLogis has a Common Share repurchase program under which it may
repurchase up to $100.0 million of its Common Shares. The Common Shares have
been and, to the extent these repurchases continue, will be repurchased in the
open market and in privately negotiated transactions, depending on market prices
and other conditions. As of March 31, 2002, 778,000 Common Shares were
repurchased under this program at a total cost of $16.0 million. No repurchases
occurred during the three months ended March 31, 2002.
5. Distributions and Dividends:
Common Distributions
On February 28, 2002, ProLogis paid a quarterly distribution of $0.355 per
Common Share to shareholders of record on February 14, 2002. The distribution
level for 2002 was set by ProLogis' Board of Trustees in December 2001 at $1.42
per Common Share.
Preferred Dividends
The annual dividend rates on ProLogis' cumulative redeemable preferred
shares are $4.27 per share (Series C), $1.98 per share (Series D) and $2.19 per
share (Series E).
On January 31, 2002, ProLogis paid a quarterly dividend of $0.5469 per
cumulative redeemable Series E preferred share. On March 29, 2002, ProLogis paid
quarterly dividends of $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.
6. 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:
14
Three Months Ended
March 31,
-----------------------
2002 2001
---------- ----------
Net earnings attributable to Common Shares........... $ 54,996 $ 44,007
Minority interest share in earnings.................. 1,282 --
Series B preferred share dividends................... -- 81
---------- ----------
Adjusted net earnings attributable to Common
Shares............................................. $ 56,278 $ 44,088
========== ==========
Weighted average Common Shares outstanding--Basic.... 176,523 167,297
Weighted average convertible limited partnership
units.............................................. 5,063 --
Weighted average convertible Series B preferred
shares............................................. -- 6,263
Incremental weighted average effect of
...potentially dilutive instruments................... 1,596 811
---------- ----------
Adjusted weighted average Common Shares
outstanding-- Diluted.............................. 183,182 174,371
========== ==========
Per share net earnings attributable to Common Shares:
Basic.............................................. $ 0.31 $ 0.26
========== ==========
Diluted............................................ $ 0.31 $ 0.25
========== ==========
For the three months ended March 31, 2001, weighted average limited
partnership units of 5,088,000 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.
7. Business Segments:
ProLogis has three reportable business segments:
o Property operations represents the long-term ownership (either
directly or through investments in unconsolidated real estate funds),
management and leasing of distribution facilities in the United
States, Mexico and Europe. Each operating facility is considered to be
an individual operating segment having similar economic
characteristics that are combined within the reportable segment based
upon geographic location.
o CDFS business represents the development of distribution facilities by
ProLogis and Kingspark S.A. (which is not consolidated in ProLogis'
financial statements) in the United States, Mexico, Europe and Japan
that are often sold to third parties or contributed to unconsolidated
real estate funds in which ProLogis has an ownership interest and acts
as manager. Additionally, in the United States, Mexico and Europe,
ProLogis and Kingspark S.A. earn fees for development activities on
behalf of customers and realize profits from the sale of land parcels
when their CDFS business plans no longer include development of these
parcels. The operations of this segment are considered to be one
operating segment.
o 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.
Reconciliations of the following items for ProLogis' three reportable
segments' are presented below: (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. All amounts are in thousands of U.S. dollars.
15
Three Months Ended
March 31,
------------------------
2002 2001
---------- ----------
Income:
Property operations:
United States(1)................................ $ 114,610 $ 119,091
Mexico.......................................... 5,518 4,230
Europe(1)(2).................................... 7,057 1,121
---------- ----------
Total property operations segment.......... 127,185 124,442
---------- ----------
CDFS business:
United States(3)................................ 18,363 28,253
Mexico(4)....................................... 3,556 (10)
Europe(5)(6).................................... 13,979 13,134
---------- ----------
Total CDFS business segment................ 35,898 41,377
---------- ----------
Temperature-controlled distribution operations:
United States(7)................................ 3,729 (1,744)
Europe(8)....................................... 6,947 (7,728)
---------- ----------
Total temperature-controlled distribution
operations segment....................... 10,676 (9,472)
---------- ----------
Reconciling items:
Income (loss) from unconsolidated entities...... (2,069) 2,178
Interest and other income....................... 570 1,124
---------- ----------
Total reconciling items.................... (1,499) 3,302
---------- ----------
Total income............................... $ 172,260 $ 159,649
========== ==========
Three Months Ended
March 31,
------------------------
2002 2001
---------- ----------
Net operating income:
Property operations:
United States(1)................................ $ 105,833 $ 112,424
Mexico.......................................... 6,686 4,434
Europe(1)(2).................................... 6,925 822
---------- ----------
Total property operations segment.......... 119,444 117,680
---------- ----------
CDFS business:
United States(3)................................ 17,555 27,139
Mexico(4)....................................... 3,554 (72)
Europe(5)(6).................................... 13,968 13,081
---------- ----------
Total CDFS business segment................ 35,077 40,148
---------- ----------
Temperature-controlled distribution operations:
United States(7)................................ 3,729 (1,744)
Europe(8)....................................... 6,947 (7,728)
---------- ----------
Total temperature-controlled distribution
operations segment....................... 10,676 (9,472)
---------- ----------
Reconciling items:
Income (loss) from unconsolidated entities...... (2,069) 2,178
Interest and other income....................... 570 1,124
General and administrative expense.............. (12,927) (14,417)
Depreciation and amortization................... (36,231) (37,860)
Interest expense................................ (40,830) (41,522)
Other expenses.................................. -- (14)
---------- ----------
Total reconciling items.................... (91,487) (90,511)
---------- ----------
Earnings before minority interest.......... $ 73,710 $ 57,845
========== ==========
16
March 31, December 31,
2002 2001
----------- -----------
Assets:
Property operations:
United States(9)................................... $3,688,050 $3,754,960
Mexico............................................. 123,705 149,225
Europe(9).......................................... 320,787 316,025
---------- ----------
Total property operations segment.......... 4,132,542 4,220,210
---------- ----------
CDFS business:
United States...................................... 159,527 189,752
Mexico............................................. 17,727 17,390
Europe(9).......................................... 622,954 628,764
Japan.............................................. 43,482 43,030
---------- ----------
Total CDFS business segment................ 843,690 878,936
---------- ----------
Temperature-controlled distribution operations:
United States(9)................................... 209,877 174,244
Europe(9).......................................... 172,651 183,727
---------- ----------
Total temperature-controlled distribution
operations segment....................... 382,528 357,971
---------- ----------
Reconciling items:
Investments in unconsolidated entities (9)......... 4,162 6,232
Cash and cash equivalents.......................... 59,689 27,989
Accounts and notes receivable...................... 11,080 1,880
Other assets....................................... 63,766 66,645
---------- ----------
Total reconciling items.................... 138,697 102,746
---------- ----------
Total assets............................... $5,497,457 $5,559,863
========== ==========
----------
(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 unconsolidated real estate funds. See
Note 3 for summarized financial information of these entities.
(2) Amounts recognized under the equity method include net foreign currency
exchange gains of $0.2 million and $0.8 million for the three months in
2002 and 2001, respectively. See Note 3 for summarized financial
information of ProLogis European Properties Fund.
(3) Includes $17.1 million and $20.4 million of net gains recognized by
ProLogis related to the disposition of facilities to unconsolidated real
estate funds for the three months in 2002 and 2001, respectively.
(4) Includes $3.4 million of net gains recognized by ProLogis related to the
disposition of facilities to ProLogis North American Properties Fund V for
the three months in 2002.
(5) Includes amounts recognized under the equity method related to ProLogis'
investment in Kingspark S.A. and Kingspark LLC (including $1.1 million of
net foreign currency exchange losses and $5.8 million of net foreign
currency exchange gains for the three months in 2002 and 2001,
respectively). See Note 3 for summarized financial information of Kingspark
S.A.
(6) Includes $4.4 million and $1.9 million of net gains recognized by ProLogis
related to the disposition of facilities to ProLogis European Properties
Fund for the three months in 2002 and 2001, respectively. In addition,
includes $2.7 million and $10.3 million of net gains recognized under the
equity method related to the disposition of facilities to ProLogis European
Properties Fund by Kingspark S.A. for the three months in 2002 and 2001,
respectively.
(7) Represents amounts recognized under the equity method related to ProLogis'
investment in ProLogis Logistics and CSI/Frigo LLC. CSI/Frigo LLC
recognizes income under the equity method based upon its common stock
investment in ProLogis Logistics. See Note 3 for summarized financial
information of ProLogis Logistics.
(8) Represents amounts recognized under the equity method related to ProLogis'
investment in Frigoscandia S.A. and CSI/Frigo LLC. CSI/Frigo LLC recognizes
income under the equity method based upon its common stock investment in
Frigoscandia S.A. Includes $4.7 million of net foreign currency exchange
gains for the three months in 2002 and $1.4 million of net foreign currency
exchange losses for the three months in 2001. See Note 3 for summarized
financial information of Frigoscandia S.A.
17
(9) Amounts include investments in unconsolidated entities accounted for under
the equity method. See Note 3 for summarized financial information of these
entities.
8. Supplemental Cash Flow Information
Non-cash investing and financing activities for the three months ended March
31, 2002, and 2001 are as follows:
o ProLogis received $16.2 million and $49.1 million of the proceeds from
its disposition of facilities to unconsolidated real estate funds in
the form of an equity interest in these entities during the three
months in 2002 and 2001, respectively.
o 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 during
the three months in 2001.
o Series B cumulative convertible redeemable preferred shares
aggregating $151.8 million were converted into Common Shares during
the three months in 2001.
o Net foreign currency translation adjustments of $(18,097,000) and
$(42,684,000) were recognized for the three months in 2002 and 2001,
respectively.
o 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 and cash of $16.8 million during the three months in
2001. ProLogis' basis in this investment prior to contribution was
$84.8 million.
9. Related Party Transactions
During the three months ended March 31, 2002, ProLogis paid a fee of $1.2
million to an affiliate of Security Capital, ProLogis' largest shareholder (see
Note 11), related to capital raised in ProLogis North American Properties Fund V
(see Note 3).
10. 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.
11. Subsequent Event:
On May 14, 2002, Security Capital, ProLogis' largest shareholder, became
a wholly owned subsidiary of General Electric Capital Corporation ("GE
Capital"). Under the terms of the merger agreement, GE Capital made a portion of
the ProLogis Common Shares owned by Security Capital a part of the merger
consideration to be paid to Security Capital's shareholders. After these Common
Shares are distributed, GE Capital is expected to own no more than 9.8% of the
total outstanding Common Shares of ProLogis.
18
Independent Accountants' Review Report
The Board of Trustees and Shareholders
ProLogis Trust:
We have reviewed the accompanying consolidated condensed balance sheet of
ProLogis Trust and subsidiaries as of March 31, 2002, and the related
consolidated condensed statement of earnings and comprehensive income and the
consolidated condensed statement of cash flows for the three-month period ended
March 31, 2002. These consolidated condensed 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 of
America, 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 consolidated condensed financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
San Diego, California
May 1, 2002 except as to
Note 11 which is as of May 14, 2002
19
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' 2001 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. Specifically, but not limited to, comments concerning
Prologis' expectations with respect to the United States economy, its ability to
raise private capital and generate income in the CDFS business segment and its
plans for its investment in the temperature-controlled distribution operations
segment are forward-looking statements. 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' 2001 Annual
Report on Form 10-K, as amended.
Results of Operations
Three Months Ended March 31, 2002 and 2001
ProLogis' net earnings attributable to Common Shares were $55.0 million for
the three months in 2002 as compared to $44.0 million for the same period in
2001. ProLogis adopted SFAS No. 142 on January 1, 2002. Accordingly, ProLogis
and its unconsolidated entities did not recognize amortization expense related
to goodwill for the three months ended March 31, 2002 of approximately $1.9
million ($1.8 million of which represents ProLogis' share of amortization
expense related to goodwill of its unconsolidated entities). See Note 1 to
ProLogis' Consolidated Condensed Financial Statements in Item 1. For the three
months in 2002, basic and diluted per share net earnings attributable to Common
Shares were $0.31 per share. Basic and diluted per share net earnings
attributable to Common Shares were $0.26 and $0.25 per share, respectively, for
the same period in 2001.
Net operating income from ProLogis' temperature-controlled distribution
operations segment was the primary source of the increase in ProLogis' net
earnings for the three months in 2002 over the same period in 2001. Net
operating income in this segment increased by $20.1 million in 2002 over the
same period in 2001. This increase is the result of (i) operating profits
generated in 2002 as compared to operating losses generated in 2001; (ii)
reduced interest expense due to a shifting of third party debt from these
entities to ProLogis; (iii) reduced depreciation expense as certain assets are
classified as held for sale and are no longer depreciated; and (iv) reduced
general and administrative expenses. The CDFS business segment, which provides
capital for ProLogis to fund its development activities in addition to
generating profits that contribute to ProLogis' net earnings, generated net
operating income of $35.1 million for the three months in 2002 as compared to
net operating income of $40.1 million for the three months in 2001. Net
operating income in this segment is dependent on the volume of contributions of
facilities developed by ProLogis and Kingspark S.A. to unconsolidated real
estate funds in which ProLogis maintains an ownership interest, as well as to
third parties. Net operating income from ProLogis' property operations segment
increased for the three months in 2002 over the same period in 2001 by $1.8
million. ProLogis' property operations segment's net operating income consists
of rental income and net rental expenses from facilities directly owned by
ProLogis, ProLogis' share of the earnings of its unconsolidated real estate
funds that engage in property operations segment activities and fees earned from
these entities. See "--Property Operations", "-- CDFS Business" and "--
Temperature-Controlled Distribution Operations".
20
Property Operations
ProLogis owned or had ownership interests in the following distribution
facilities as of the dates indicated (square feet in thousands):
March 31,
-----------------------------------
2002 2001
---------------- ----------------
Square Square
Number Footage Number Footage
------ ------- ------ -------
Direct ownership(1).............................. 1,200 122,846 1,231 125,175
ProLogis California(2)........................... 78 12,882 78 12,720
ProLogis North American Properties Fund I(3)..... 36 8,962 36 8,962
ProLogis North American Properties Fund II(4).... 27 4,477 26 4,163
ProLogis North American Properties Fund III(5)... 34 4,381 -- --
ProLogis North American Properties Fund IV(6).... 17 3,475 -- --
ProLogis North American Properties Fund V(7)..... 22 3,851 -- --
ProLogis European Properties Fund(8)............. 154 25,579 110 15,959
------ ------- ------ -------
1,568 186,453 1,481 166,979
====== ======= ====== =======
----------
(1) Includes distribution facilities owned by ProLogis and its consolidated
entities. The decrease in 2002 from 2001 is primarily the result of the
formation of new unconsolidated real estate funds subsequent to March 31,
2001. The entire portfolios of these entities generally consist of
distribution facilities that were previously directly owned by ProLogis.
(2) ProLogis has had a 50% ownership interest in ProLogis California since its
inception.
(3) ProLogis has had a 41.3% ownership interest in ProLogis North American
Properties Fund I since January 15, 2001 (prior to that date, ProLogis'
ownership interest was 20%). All distribution facilities owned by this
entity were previously directly owned by ProLogis.
(4) ProLogis has had a 20% ownership interest in ProLogis North American
Properties Fund II since its inception. All distribution facilities owned
by this entity were previously directly owned by ProLogis.
(5) ProLogis has had a 20% ownership interest in ProLogis North American
Properties Fund III since its inception on June 15, 2001. All distribution
facilities owned by this entity were previously directly owned by ProLogis.
(6) ProLogis has had a 20% ownership interest in ProLogis North American
Properties Fund IV since its inception on September 21, 2001. All
distribution facilities owned by this entity were previously directly owned
by ProLogis.
(7) ProLogis has had a 15% ownership interest in ProLogis North American
Properties Fund V since its inception on March 28, 2002. All distribution
facilities owned by this entity were previously directly owned by ProLogis.
(8) As of March 31, 2002 and 2001, ProLogis' ownership interest in ProLogis
European Properties Fund was 33.1% and 41.8%, respectively.
See also Note 3 to ProLogis' Consolidated Condensed Financial Statements in
Item 1.
ProLogis' property operations segment income consists of the: (i) net
operating income (rental income less net rental expenses) from the distribution
facilities that are owned by ProLogis directly and (ii) the income recognized by
ProLogis under the equity method from its investments in unconsolidated real
estate funds engaged in property operations and fee income earned from these
entities. The net operating income from distribution facilities that are
developed by ProLogis in its CDFS business segment is included in the net
operating income of the property operations segment until the facilities are
contributed to an entity in which ProLogis maintains an ownership interest or
are sold to a third party. See Note 7 to ProLogis' Consolidated Condensed
Financial Statements in Item 1. The amounts recognized under the equity method
are based on the net earnings or losses of each unconsolidated entity and
include: net operating income, interest income, 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). ProLogis' net operating income from the property operations
segment is presented below (in thousands). See Note 7 to ProLogis' Consolidated
Condensed Financial Statements in Item 1.
21
Three Months Ended
March 31,
-------------------
2002 2001
--------- ---------
Facilities directly owned by ProLogis and its consolidated
entities:
Rental income(1)......................................... $ 112,929 $ 119,244
Property operating expenses(2)........................... 7,741 6,762
--------- ---------
Net operating income............................. 105,188 112,482
--------- ---------
Income from the ProLogis California........................ 4,055 3,067
Income from ProLogis North American Properties Fund I...... 1,444 1,352
Income from ProLogis North American Properties Fund II..... 797 341
Income from ProLogis North American Properties Fund III(3). 675 --
Income from ProLogis North American Properties Fund IV(4).. 531 --
Income from ProLogis North American Properties Fund V(5)... 6 --
Income from ProLogis European Properties Fund(6)........... 6,748 402
Income from ProLogis European Properties S.a.r.l.(7)....... -- 36
--------- ---------
Total property operations segment................ $ 119,444 $ 117,680
========= =========
----------
(1) The decrease in rental income between the periods presented is due to the
changes in the number and composition of the directly owned facilities in
each period and to lower average occupancy levels of the directly owned
facilities in 2002 as compared to 2001.
(2) The $1.0 million increase in property operating expenses for the three
months in 2002 as compared to the same period in 2001 is a function of: (i)
an increase in bad debt expense (bad debt expense was $0.4 million for the
three months in 2002 and $0.1 million for the same period in 2001) and (ii)
an overall increase in operating costs (rental expenses, excluding bad debt
and before recoveries from tenants, were 27.4% of rental income for the
three months in 2002 as compared to 26.4% of rental income for the three
months in 2001) offset by (iii) a decrease in the number of directly owned
facilities in 2002 as compared to 2001. The increase in bad debt expense
and operating costs is primarily due to the downturn in general economic
conditions in the United States experienced in the latter part of 2001.
Total rental expense recoveries were 75.3% and 78.6% of total rental
expenses for the three months in 2002 and 2001, respectively. This decrease
in rental expense recoveries is primarily attributable to lower occupancy
levels which results in fewer customers available from whom certain fixed
costs may be recovered.
(3) ProLogis North American Properties Fund III began operations on June 15,
2001.
(4) ProLogis North American Properties Fund IV began operations on September
21, 2001.
(5) ProLogis North American Properties Fund V began operations on March 28,
2002.
(6) For the three months in 2002 and 2001, ProLogis' share of the earnings of
ProLogis European Properties Fund includes net foreign currency gains of
$0.2 million and net foreign currency exchange losses of $0.8 million,
respectively. Excluding net foreign currency exchange gains and losses,
ProLogis' share of the income of ProLogis European Properties Fund would
have been $6.5 million and $1.2 million for the three months in 2002 and
2001, respectively. The increase in ProLogis' combined share of the income,
excluding foreign currency gains and losses, of ProLogis European
Properties Fund for the three months in 2002 over 2001 is due to the
additional facilities owned in 2002 as compared to 2001 and lower interest
costs reflecting the lower interest rates in effect in 2002. See Note 3 to
ProLogis' Consolidated Condensed Financial Statements in Item 1.
(7) ProLogis European Properties S.a.r.l. has been 100% owned by ProLogis
European Properties Fund since January 7, 2001. The amount in 2001
represents ProLogis' share of the earnings of ProLogis European Properties
S.a.r.l. based on its 49.9% ownership interest in this entity for the
period from January 1, 2001 to January 7, 2001.
ProLogis' stabilized distribution facilities (facilities owned by ProLogis
and the unconsolidated real estate funds), were 91.0% occupied and 91.9% leased
as of March 31, 2002. ProLogis' stabilized occupancy levels have decreased as
compared to 2001 (94.6% occupied and 95.6% leased). The term "stabilized" means,
for acquisitions, any necessary capital improvements, repositioning, new
management and new marketing programs and, in the case of newly developed
facilities, construction and marketing, 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).
22
ProLogis believes that the decrease in its stabilized occupancy levels in
2002 is the result of the current economic conditions in the United States that
have led to a slowing in customer leasing decisions and in a slowing in the
absorption of new distribution facilities in the market. ProLogis does not
expect market conditions affected by the United States economy to improve until
the end of 2002 and believes that occupancies could continue to decline during
the remainder of 2002. However, ProLogis believes that its global operating
platform and the ProLogis Operating System (R) will partially mitigate the
effects of these occupancy decreases, as they have allowed ProLogis to build
strong local market presence and strong customer relationships across many
global markets. In Europe, leasing activity has remained constant and 1.4
million square feet of leases were signed during the first quarter of 2002.
ProLogis believes the leasing activity in Europe is currently affected more by a
shift in distribution patterns of its customers and their need to reduce
distribution costs than it is by the effects of general economic conditions.
The average increase in rental rates for both new and renewed leases on
previously leased space (9.4 million square feet) for all facilities, including
those owned by ProLogis' unconsolidated real estate funds, for the three months
in 2002 was 4.4% as compared to 20.2% for the same period in 2001. This decrease
is reflective of current economic conditions. For the three months in 2002, the
net operating income (rental income less net rental expenses) generated by
ProLogis' "same store" portfolio of distribution facilities (facilities owned by
ProLogis and the unconsolidated real estate funds that were in operation
throughout both three month periods in 2002 and 2001) increased by 0.7% over the
same period in 2001 (as compared to an increase of 3.3% during the three months
in 2001 as compared to the same period in 2000). The decrease in the growth rate
in same store net operating income is due to increased bad debt expense in 2002
and to lower occupancy levels in the same store portfolio in 2002 as compared to
2001.
CDFS Business
Net operating income from ProLogis' CDFS business segment consists
primarily of: (i) the profits from the disposition of land parcels and
distribution facilities that were developed by ProLogis and sold to third
parties or contributed to unconsolidated real estate funds in which ProLogis
maintains an ownership interest; (ii) development management fees earned by
ProLogis; and (iii) income recognized under the equity method from ProLogis'
investment in Kingspark S.A.
ProLogis recognizes 99.75% of the earnings of Kingspark S.A. under the
equity method (including its share recognized through its ownership in Kingspark
LLC) which includes net operating income, interest income, interest expense (net
of amounts capitalized), general and administrative expense (net of amounts
capitalized), income taxes and foreign currency exchange gains and losses. See
Note 3 to ProLogis' Consolidated Condensed Financial Statements in Item 1.
Income from the CDFS business segment is dependent on ProLogis' ability to
develop and lease distribution facilities that can be disposed of to generate
profits and its ability to raise private capital through the formation of real
estate funds or other sources. There can be no assurance that ProLogis will be
able to maintain the level of profits in this business segment.
The CDFS business segment operations decreased during the three months
ended March 31, 2002 from the same period in 2001. The CDFS business segment
income is comprised of the following (in thousands):
Three Months Ended
March 31,
-----------------------
2002 2001
--------- ---------
Net gains on disposition of land parcels
and facilities developed(1)..................... $ 24,952 $ 28,720
Development management fees....................... 517 941
Income from Kingspark S.A.(2)(3).................. 9,482 10,253
Miscellaneous fees and other income............... 947 1,463
Other expenses(4)................................. (821) (1,229)
--------- ---------
$ 35,077 $ 40,148
========= =========
----------
(1) Represents gains from the disposition of land parcels and facilities
developed as follows:
o 2002: 12 acres; 4.6 million square feet; $218.2 million of proceeds.
o 2001: 76 acres; 4.3 million square feet; $231.9 million of proceeds.
(2) ProLogis' share of Kingspark S.A.'s income for the three months in 2002
(including ProLogis' share of Kingspark S.A.'s income recognized through
its ownership in Kingspark LLC) includes, among other items:
23
o Gains from the disposition of land parcels and facilities developed (3
acres; 0.2 million square feet; $33.6 million of proceeds; net gains
of $3.4 million);
o Development fees and other miscellaneous income of $3.9 million;
o Deferred and current income tax expense of $0.9 million; and
o Foreign currency exchange losses of $1.1 million.
(3) ProLogis' share of Kingspark S.A.'s income for the three months in 2001
(including ProLogis' share of Kingspark S.A.' s income recognized through
its ownership in Kingspark LLC) includes, among other items:
o 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);
o Deferred and current income tax expense of $2.5 million; and
o Foreign currency exchange gains of $5.8 million.
(4) Includes land holding costs of $0.6 million and $0.5 million for the three
months in 2002 and 2001, respectively and the write-off of previously
capitalized pursuit costs of $0.2 million and $0.7 million for the three
months in 2002 and 2001, respectively.
During 2001, ProLogis began to direct the focus of its CDFS business
segment operations from North America to Europe, given the deteriorating
economic conditions in North America. As of March 31, 2002, 74% of ProLogis'
CDFS business segment assets were located in Europe with 21% located in North
America and the remaining 5% located in Japan. ProLogis believes that the
continuing demand for state-of-the-art distribution facilities in Europe will
continue to provide it with opportunities to expand its CDFS business. Further
to this objective, with 2,884 acres of land owned or controlled in Europe
including 1,853 acres of land owned and controlled in the United Kingdom by
Kingspark S.A., ProLogis believes it will not be affected by land entitlement
constraints that currently exist in Europe. ProLogis will continue to monitor
leasing activity and general economic conditions in the United States as it
pertains to its CDFS business segment operations. In 2001, ProLogis began its
first development project in Japan. As in Europe, ProLogis believes that demand
for state-of-the-art distribution facilities in Japan will provide opportunities
for ProLogis to expand its CDFS business.
Temperature-Controlled Distribution Operations
ProLogis recognizes income from the temperature-controlled distribution
operations segment of its business under the equity method. In March 2002, all
of the temperature-controlled distribution operating assets in Sweden, Denmark,
Finland, Norway and the Netherlands, and the remaining temperature-controlled
distribution operating assets in Germany owned by Frigoscandia S.A. and its
wholly owned subsidiaries were sold. Negotiations related to the sale of
substantially all of the temperature-controlled distribution operating assets in
the United States owned by CSI and the temperature-controlled distribution
operating assets in Spain and Italy owned by Frigoscandia S.A. and its wholly
owned subsidiaries are continuing. ProLogis' share of the earnings or losses
from this operating segment is below (in thousands). See Notes 3 and 7 to
ProLogis' Consolidated Condensed Financial Statements in Item 1.
Three Months Ended
March 31,
----------------------
2002 2001
--------- ---------
Income (loss) from ProLogis Logistics(1).............. $ 3,729 $ (1,744)
Income (loss) from Frigoscandia S.A(1)................ 6,947 (7,728)
--------- ---------
Total temperature-controlled distribution
operations segment....................... $ 10,676 $ (9,472)
========= =========
----------
(1) Includes ProLogis' direct share of the earnings or losses of each entity
and ProLogis' share of the earnings or losses of each entity based on
ProLogis' ownership in CSI/Frigo LLC. CSI/Frigo LLC, a limited liability
company, owns all of the voting common stock of ProLogis Logistics and
Frigoscandia S. A. ProLogis owns 89% of the membership interests (all
non-voting) in CSI/Frigo LLC and K. Dane Brooksher, ProLogis' chairman and
chief executive officer, owns the remaining 11% of the membership interests
(all voting). ProLogis has a note agreement with CSI/Frigo LLC that allows
ProLogis to participate in its earnings such that ProLogis will recognize
95% of the earnings of CSI/Frigo LLC. ProLogis does not have control of
CSI/Frigo LLC, therefore, ProLogis accounts for its investment in this
entity under the equity method. See Note 7 to ProLogis' Consolidated
Condensed Financial Statements in Item 1.
24
Amounts recognized by ProLogis and CSI/Frigo LLC under the equity method
from their respective investments in ProLogis Logistics and Frigoscandia S.A.
include: net operating income, interest income, interest expense, depreciation
and amortization expense, general and administrative expense, income taxes,
foreign currency exchange gains and losses (with respect to Frigoscandia S.A.).
ProLogis recognized in excess of 99% of the earnings of each entity for the
three months in 2002 and 2001.
ProLogis' share of ProLogis Logistics' net earnings (including its share
recognized through its ownership in CSI/Frigo LLC) for the three months in 2002
increased over the same period in 2001 by $5.5 million. This increase is
primarily attributable to the classification of CSI's operating assets as held
for sale. This classification under GAAP requires that all depreciation and
amortization associated with these assets cease. Consequently, CSI recognized no
depreciation or amortization expense for the three months in 2002 as compared to
the $5.0 million of depreciation and amortization expense recognized in 2001.
ProLogis' share of Frigoscandia S.A.'s net earnings for the three months in
2002 (including its share recognized through its ownership in CSI/Frigo LLC)
includes a net foreign currency exchange gain of $4.7 million. ProLogis' share
of Frigoscandia S.A.'s net loss for the three months in 2001 (including its
share recognized through its ownership in CSI/Frigo LLC) includes a net foreign
currency loss of $1.4 million. Excluding these foreign exchange gains and
losses, ProLogis recognized $8.5 million more income under the equity method, in
2002 than it recognized for the three months in 2001 from its investment in
Frigoscandia S.A. The increase in ProLogis' share of Frigoscandia S.A.'s net
earnings in 2002 from 2001 is a function of: (i) improved operating results from
assets in service in both periods; (ii) lower interest expense in 2002 due to
lower debt balances and lower interest rates; (iii) the recognition of less
depreciation and amortization expense in 2002; offset by (iv) lower income from
operations due to sales of assets after March 31, 2001. The decrease in
depreciation and amortization expense in 2002 is due to the reduced amount of
assets in operation in that period and also to the classification of certain
assets as held for sale under GAAP. This classification requires that all
depreciation and amortization associated with those assets cease.
Other Income and Expense Items
General and Administrative Expense
General and administrative expense was $12.9 million for the three months
in 2002 and $14.4 million for the three months in 2001. The decrease in general
and administrative expense is primarily attributable to the timing of costs
incurred. ProLogis does not expect this trend to continue throughout 2002.
Depreciation and Amortization
Depreciation and amortization expense was $36.2 million for the three
months in 2002 and $37.9 million for the three months in 2001. The decrease in
this expense is a function of the number of distribution facilities directly
owned by ProLogis in each period (see "-- Property Operations") and the adoption
of SFAS No. 142 which eliminated amortization related to goodwill beginning on
January 1, 2002.
Interest Expense
Interest expense is a function of the level of borrowings outstanding and
interest rates charged on borrowings, offset by interest capitalization with
respect to development activities. Interest cost before capitalization was $46.3
million for the three months in 2002 and $47.4 million for the three months in
2001. The decrease in 2002 from 2001 is primarily due to lower average interest
rates and lower average borrowings outstanding on ProLogis' lines of credit.
Interest expense recognized on borrowings is offset by interest capitalized
with respect to ProLogis' development activities. Capitalized interest was $5.5
million in 2002 and $5.9 million in 2001. Capitalized interest levels are
reflective of ProLogis' cost of funds and the level of development activity in
each year.
Other Expenses
Other expenses were $0.8 million for the three months in 2002 and $1.2
million for the same period in 2001 and includes land holding costs and the
write-off of previously capitalized pursuit costs Land holding costs were $0.6
million in 2002 and $0.5 million in 2001. Pursuit cost write-offs were $0.2
million in 2002 and $0.7 million in 2001.
Loss on Disposition of Real Estate
Loss on disposition of real estate represents the net losses from the
disposition of distribution facilities that were acquired or developed for
long-term use in the property operations segment. Generally, ProLogis disposes
of facilities in the property operations segment because such facilities are
considered to be non-strategic facilities. 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
25
or configuration. Also, ProLogis will contribute facilities from its operating
portfolio to complement the portfolio of developed distribution facilities that
are acquired by the unconsolidated real estate funds. During the three months
ended March 31, 2002, ProLogis disposed of one operating facility with net sales
proceeds of $1.5 million. This facility was not classified as a discontinued
operation under SFAS No. 144 as the effect on ProLogis' Consolidated Condensed
Statements of Earnings and Comprehensive Income is not material. See Note 1 to
ProLogis' Consolidated Condensed Financial Statements in Item 1.
During the three months ended March 31, 2001, ProLogis disposed of six
operating facilities with net sales proceeds of $62.9 million (four facilities
with net sales proceeds of $58.8 million were contributed to unconsolidated real
estate funds in which ProLogis maintains an ownership interest). Also, ProLogis
recognized a net gain of $0.5 million upon the contribution of its 49.9%
ownership of ProLogis European Properties S.a.r.l. to ProLogis European
Properties Fund in January 2001.
Income (Loss) from Unconsolidated Entities
The combined income (loss) from unconsolidated entities, recognized under
the equity method, that is not directly attributable to one of ProLogis' three
business segments was a loss of $2,069,000 for the three months in 2002 and
income of $2,178,000 for the three months in 2001. See Note 7 to ProLogis'
Consolidated Condensed Financial Statements in Item 1. For 2002, this amount
consists of: (i) a $2,073,000 loss from ProLogis' investment in GoProLogis and
(ii) income of $4,000 from ProLogis' investment in Insight, Inc. The loss
recognized by GoProLogis represents ProLogis' share of GoProLogis' impairment
adjustment that reduced GoProLogis' remaining investment in Vizional
Technologies to zero. For 2001, this amount consists of: (i) income of
$2,188,000 from ProLogis' investment in GoProLogis and ProLogis Broadband (1)
Incorporated ("ProLogis PhatPipe") and (ii) a loss of $10,000 from ProLogis'
investment in Insight, Inc. The income recognized by GoProLogis and ProLogis
PhatPipe consisted entirely of license fee income for the non-exclusive use of
the ProLogis Operating System(R) earned from Vizional Technologies and PhatPipe
Inc., respectively. ProLogis PhatPipe and GoProLogis ceased recognizing income
under the license fee agreements in the second and third quarters of 2001,
respectively. See Note 3 to ProLogis' Consolidated Condensed Financial
Statements in Item 1.
Foreign Currency Exchange Gains (Losses), Net
ProLogis recognized net foreign currency exchange losses of $0.3 million
and net foreign currency exchange gains of $2.7 million during the three months
2002 and 2001, respectively. Foreign currency exchange gains and losses are
primarily the result of the remeasurement and settlement of intercompany and
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, the
pound sterling and the yen and the level of intercompany and third party debt
outstanding that is denominated in a currency other than the functional currency
of the borrower. Changes in these currency exchange rates against the entity's
functional currency are the primary source of the remeasurement losses
recognized in these periods.
Income Taxes
ProLogis is taxed as a REIT for federal income tax purposes and is not
generally required to pay federal income taxes if minimum distribution and
income, asset and shareholder tests are met. Not all of ProLogis' consolidated
subsidiaries in the United States are qualified REIT subsidiaries 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 certain of its taxable subsidiaries.
Current income tax expense recognized during the three months in 2002 and
2001 was $1.1 million and $1.6 million, respectively. Current income tax expense
is generally a function of the level of income recognized by ProLogis' taxable
subsidiary operating in the CDFS business segment. ProLogis recognized deferred
income tax expense of $7.7 million for the three months in 2002 and $0.9 million
for the three months in 2001. ProLogis' deferred income tax component of total
income taxes is a function of each period's temporary differences (items that
are treated differently for tax purposes than for book purposes) and the
utilization of previously generated tax net operating losses that have been
recognized as deferred tax assets
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
26
ProLogis considers its liquidity and ability to generate cash from
operations as well as its financing capabilities (including proceeds from the
disposition of distribution 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) the
acquisition of land for future development and the development of distribution
facilities in the CDFS business segment for future disposition and (ii)
acquisitions of existing distribution facilities in key distribution markets in
the property operations segment. ProLogis' future investing activities are
expected to be funded with:
o cash generated by operations;
o the proceeds from the disposition of facilities developed by ProLogis
to third parties;
o the proceeds from the contribution of facilities to unconsolidated
real estate funds in which ProLogis maintains an ownership interest;
o the proceeds from the disposition of ProLogis' investment in the
temperature-controlled distribution operations segment;
o the proceeds from the sale of Common Shares under ProLogis' Common
Share plans; and
o utilization of ProLogis' U.S. dollar denominated and multi-currency
denominated lines of credit.
In the short-term, borrowings on and subsequent repayments of, ProLogis'
line of credit are expected to provide ProLogis with adequate liquidity and
financial flexibility to efficiently respond to market opportunities. As of May
13, 2002, on a combined basis, ProLogis had approximately $479.0 million of
short-term borrowings outstanding resulting in additional short-term borrowing
capacity available of $542.6 million (see "-- Borrowing Capacity and Debt
Maturities"). ProLogis has $608.0 million of shelf-registered securities which
can be issued in the form of debt securities, preferred shares, Common Shares,
rights to purchase Common Shares and preferred share purchase rights on an
as-needed basis, subject to ProLogis' ability to effect an offering on
satisfactory terms. ProLogis will continue to evaluate the public debt markets
with the objective of reducing its short-term borrowings and extending debt
maturities should favorable terms be available.
Within ProLogis European Properties Fund, ProLogis has access to 350.9
million euros (the currency equivalent of approximately $305.8 million as of
March 31, 2002) of additional third party equity capital in Europe that has been
committed primarily by institutional investors through September 2002. The
capital is committed to fund acquisitions of ProLogis' completed stabilized
European developments and acquisitions of facilities from third parties.
Cash Operating Activities
Net cash provided by operating activities was $88.2 million for the three
months in 2002 and $104.8 million for the three months in 2001. See "-- Results
of Operations -- Property Operations". Cash provided by operating activities
exceeded the cash distributions paid on Common Shares and cash dividends paid on
preferred shares for both three-month periods in 2002 and 2001. See ProLogis'
Consolidated Condensed Statements of Cash Flows in Item 1.
Cash Investing and Cash Financing Activities
For the three months in 2002, ProLogis' investing activities provided net
cash of $53.5 million and its financing activities used net cash of $110.0
million (financing activities used net cash of $39.3 million excluding cash
distributions on Common Shares and cash dividends on preferred shares). Proceeds
received from dispositions of real estate were used to fund ProLogis' real
estate investments and, along with the proceeds from sales of Common Shares,
were used to fund ProLogis' net repayment of borrowings on its lines of credit.
For the three months in 2001, ProLogis' investing activities provided net cash
of $253.3 million and its financing activities used net cash of $382.5 million
(financing activities used net cash of $313.9 million excluding cash
distributions on Common Shares and cash dividends on preferred shares). Proceeds
received from dispositions of real estate and the repayments of loans by and
distributions received from ProLogis' unconsolidated entities were used to fund
ProLogis' real estate investments and were the primary sources of funds used to
repay borrowings on ProLogis' lines of credit. See ProLogis' Consolidated
Condensed Statements of Cash Flows in Item 1.
Borrowing Capacity and Debt Maturities
ProLogis has over $1.0 billion of short-term borrowing capacity under four
revolving lines of credit. These borrowings are available in four currencies and
are summarized below (dollar amounts in millions of U.S. dollars):
27
Outstanding as of
-------------------------------
Total Weighted Average
Commitment March 31, 2002 May 13, 2002 Interest Rate(1) Expiration
---------- -------------- -------------- ---------------- -----------
$ 500.0 $ 107.0 $ 109.0 2.66% 06/06/03(2)
60.0(3) -- 44.6 -- 06/06/02
283.4(4)(5) 226.8(4)(5) 276.7(4)(5) 4.28% 12/17/03
184.9(6) 46.8(6) 48.7(6) 1.15% 09/13/04(2)
--------- -------- -------- -----
1,028.3(7) $ 380.6 $ 479.0 3.44%
========= ======== ======== =====
----------
(1) Represents the weighted average interest rate on borrowings outstanding as
of March 31, 2002.
(2) Credit agreement may be extended from this date for one year at ProLogis'
option.
(3) Borrowings can be denominated in U.S. dollars, euros, pounds sterling or
yen.
(4) Includes the currency equivalent of approximately $57.7 million of direct
borrowings by Kingspark S.A. under ProLogis' line of credit as of March,
31, 2002. ProLogis has guaranteed these borrowings. As of May 13, 2002, the
currency equivalent of approximately $84.1 was borrowed by Kingspark S.A.
under ProLogis' line of credit, all of which were guaranteed by ProLogis.
(5) Borrowings can be denominated in either euros or pounds sterling (total
commitment is 325.0 million euros). As of March 31, 2002, 257.3 million
euros were outstanding. As of May 13, 2002, 302.2 million euros were
outstanding.
(6) Borrowings are denominated in yen (total commitment is 24.5 billion yen).
As of March 31, 2002, 6.2 billion yen were outstanding. As of May 13, 2002,
6.2 billion yen were outstanding, respectively.
(7) Available borrowings as of March 31, 2002 and May 13, 2002 are reduced by
$4.5 million and $6.7 million of letters of credit outstanding,
respectively.
ProLogis has senior unsecured notes and secured debt (mortgage notes,
assessment bonds and securitized debt) outstanding as of March 31, 2002 with
annual principal payments during each of the years in the five-year period
ending December 31, 2006 and thereafter as follows (in thousands):
Remainder of 2002.................. $ 28,678
2003............................... 185,214
2004............................... 316,554
2005............................... 111,579
2006............................... 319,995
2007 and thereafter................ 1,222,011
-----------
Total principal due...... 2,184,031
Less: Original issue discount...... (2,051)
-----------
Total carrying value..... $ 2,181,980
===========
Liquidity and Capital Resources of ProLogis' Unconsolidated Entities
ProLogis has investments and advances to unconsolidated entities of $1.3
billion as of March 31, 2002. Summarized financial information for certain of
these unconsolidated entities is presented below (in millions of U.S. dollars).
The information presented is for the entire entity.
ProLogis ProLogis ProLogis ProLogis ProLogis
North North North North North ProLogis
American American American American American European
ProLogis Frigoscandia ProLogis Properties Properties Properties Properties Properties Properties Kingspark
Logistics(1) S.A.(1) California(2)Fund I(3) Fund II(4) Fund III(4)Fund IV(4) Fund V(5) Fund(6) S.A.(1)
--------- ----------- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------
Total assets....... $327.9 $ 246.8 $602.6 $363.9 $233.5 $ 208.2 $145.3 $180.1 $1,601.2 $637.5
Total liabilities.. $129.5(7) $ 364.9(8) $302.1(9) $238.7(10) $168.0(11) $ 152.7(12) $104.8(13) $123.1(14) $ 715.7(15) $552.4(16)
Minority interest.. $ -- $ 0.2 $ -- $ -- $ -- $ -- $ -- $ -- $ -- --
Equity............. $198.4 $(118.3) $300.5 $125.2 $ 65.5 $ 55.5 $ 40.5 $ 57.0 $ 885.5(17) $ 85.1
----------
28
(1) ProLogis had an ownership interest in excess of 99% in each entity as of
March 31, 2002.
(2) ProLogis had a 50% ownership interest in this entity as of March 31, 2002.
(3) ProLogis had a 41.3% ownership interest in this entity as of March 31,
2002.
(4) ProLogis had a 20% ownership interest in each entity as of March 31, 2002.
(5) ProLogis had a 15% ownership interest in this entity as of March 31, 2002.
(6) ProLogis had a 33.1% ownership interest in this entity as of March 31,
2002.
(7) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $11.4 million due to ProLogis;
o $90.0 million due to a third party; due on June 6, 2002; all of which
has been guaranteed by ProLogis; and
o $1.5 million of other third party debt; none of which has been
guaranteed by ProLogis.
(8) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $283.7 million due to ProLogis; and
o $1.0 million of other third party debt; none of which has been
guaranteed by ProLogis.
(9) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $0.2 million due to ProLogis;
o $17.2 million due to a third party; due May 31, 2005; none of which
has been guaranteed by ProLogis;
o $182.0 million due to a third party; due March 1, 2009; none of which
has been guaranteed by ProLogis; and
o $93.8 million due to a third party; due August 1, 2009; none of which
has been guaranteed by ProLogis.
(10) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $1.7 million due to ProLogis;
o $102.0 million due to a third party; due on March 10, 2011; none of
which has been guaranteed by ProLogis; and
o $130.6 million due to a third party; due on December 10, 2010; none of
which has been guaranteed by ProLogis.
(11) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $0.5 million due to ProLogis and
o $165.0 million due to a third party; due on June 1, 2007; none of
which has been guaranteed by ProLogis.
(12) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $0.1 million due to ProLogis and
o $150.0 million due to a third party; due on September 1, 2007; none of
which has been guaranteed by ProLogis.
(13) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $0.1 million due to ProLogis and
o $103.0 million due to a third party; due on January 2, 2008; none of
which has been guaranteed by ProLogis.
29
(14) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $3.0 million due to ProLogis and
o $120.0 million due to a third party; due on June 28, 2002; all of
which has been guaranteed by ProLogis.
(15) Liabilities include amounts due to ProLogis and loans from third parties in
the following amounts:
o $2.8 million due to ProLogis;
o $114.1 million (five mortgage issues) due to third parties due on
various dates ranging from July 2006 through March 2015; none of which
has been guaranteed by ProLogis;
o $189.0 million due to a third party; due on May 1, 2011; none of which
has been guaranteed by ProLogis;
o $87.1 million due to a third party; due on August 14, 2002; none of
which has been guaranteed by ProLogis; and
o $242.0 million due to a third party; due on September 15, 2002; none
of which has been guaranteed by ProLogis.
(16) Liabilities include $423.1 million due to ProLogis and $57.7 million that
has been borrowed under ProLogis' line of credit and guaranteed by
ProLogis. Additionally, ProLogis has guaranteed a 25.0 million pound
sterling (the currency equivalent of approximately $35.6 million as of
March 31, 2002) line of credit of a subsidiary of Kingspark S.A. As of
March 31, 2002, there were no borrowings outstanding on this line of
credit.
(17) ProLogis has entered into a subscription agreement to make additional
capital contributions of 46.0 million euros (the currency equivalent of
approximately $40.0 million as of March 31, 2002) through September 2002.
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 28, 2002, ProLogis paid a quarterly distribution of $0.355 per
Common Share to shareholders of record on February 14, 2002, respectively. The
distribution level for 2002 was set by ProLogis' Board of Trustees in December
2001 at $1.42 per Common Share. The payment of distributions is subject to the
discretion of the Board and is dependent upon the financial condition and
operating results of ProLogis and may be adjusted at the discretion of the Board
of Trustees during the year.
As of March 31, 2002, ProLogis had three series of cumulative redeemable
preferred shares of beneficial interest outstanding. The annual dividend rates
on ProLogis' cumulative redeemable preferred shares are $4.27 per share (Series
C), $1.98 per share (Series D) and $2.19 per share (Series E).
On January 31, 2002, ProLogis paid quarterly dividends of $0.5469 per
cumulative redeemable Series E preferred share. On March 29, 2002, ProLogis paid
quarterly dividends of $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.
Other Commitments
As of March 31, 2002, ProLogis had letters of intent or contingent
contracts, subject to ProLogis' final due diligence, for the acquisition of 1.5
million square feet of distribution facilities at an estimated acquisition cost
of $39.3 million. The foregoing transactions are subject to a number of
conditions, and ProLogis cannot predict with certainty that they will be
consummated. As of March 31, 2002, ProLogis had $1.0 million of funds on deposit
with title companies that can be used to acquire these assets. In addition, as
of March 31, 2002, ProLogis had facilities under development with an expected
cost at completion of $222.2 million of which $104.0 million was unfunded.
30
ProLogis has a Common Share repurchase program under which it may
repurchase up to $100.0 million of its Common Shares. The Common Shares have
been and, to the extent these repurchases continue, will be purchased in the
open market and in privately negotiated transactions, depending on market prices
and other conditions. As of March 31, 2002, 778,400 Common Shares were
repurchased under this program at a total cost of $16.0 million. No repurchases
occurred during the three months ended March 31, 2002. ProLogis intends to fund
the Common Share repurchase program through borrowings on its lines of credit.
Funds from Operations
Funds from operations attributable to Common Shares increased by $5.5
million to $106.2 million for the three months in 2002 from $100.7 million for
the three months in 2001.
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 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,
--------------------
2002 2001
-------- ----------
Net earnings attributable to Common Shares................. $ 54,996 $ 44,007
Add (Deduct):
Real estate related depreciation and amortization..... 34,502 36,377
Loss on disposition of non-CDFS business
segment assets..................................... 153 1,198
Foreign currency exchange (gains) losses, net......... 339 (2,884)
Deferred income tax expense........................... 7,701 909
ProLogis' share of reconciling items of unconsolidated
entities:
Real estate related depreciation and amortization.. 9,490 18,147
Gain on disposition of non-CDFS business segment
assets........................................... (814) (5)
Foreign currency exchange (gains) losses, net...... (3,930) 8,874
Deferred income tax expense (benefit) expense...... 3,732 (5,918)
-------- --------
Funds from operations attributable to Common Shares........ $106,169 $100,705
======== ========
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of March 31, 2002, no significant change had occurred in ProLogis'
interest rate risk or foreign currency risk as discussed in ProLogis' 2001
Annual Report on Form 10-K, as amended.
31
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 KPMG LLP regarding unaudited financial information dated
May 14, 2002
(b) Reports on Form 8-K:
Items Financial
Date Reported Statements
------ ---------- ------------
None
32
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: May 14, 2002
33
EXHIBIT 12.1
PROLOGIS TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
Three Months Ended
March 31, Year Ended December 31,
------------------------- ----------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Earnings from Operations $ 72,428 $ 56,469 $ 126,582 $ 236,221 $ 161,570 $ 102,936 $ 38,832
Add:
Interest Expense 40,830 41,522 163,269 172,191 170,746 77,650 52,704
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings as Adjusted $ 113,258 $ 97,991 $ 289,851 $ 408,412 $ 332,316 $ 180,586 $ 91,536
=========== =========== =========== =========== =========== =========== ===========
Fixed Charges:
Interest Expense $ 40,830 $ 41,522 $ 163,269 $ 172,191 $ 170,746 $ 77,650 $ 52,704
Capitalized Interest 5,489 5,904 24,276 18,549 15,980 19,173 18,365
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Fixed Charges $ 46,319 $ 47,426 $ 187,545 $ 190,740 $ 186,726 $ 96,823 $ 71,069
=========== =========== =========== =========== =========== =========== ===========
Ratio of Earnings, as Adjusted
to Fixed Charges 2.4 2.1 1.5 2.1 1.8 1.9 1.3
=========== =========== =========== =========== =========== =========== ===========
34
EXHIBIT 12.2
PROLOGIS TRUST
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
(Dollar amounts in thousands)
Three Months Ended
March 31, Year Ended December 31,
------------------------- ----------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Earnings from Operations $ 72,428 $ 56,469 $ 126,582 $ 236,221 $ 161,570 $ 102,936 $ 38,832
Add:
Interest Expense 40,830 41,522 163,269 172,191 170,746 77,650 52,704
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings as Adjusted $ 113,258 $ 97,991 $ 289,851 $ 408,412 $ 332,316 $ 180,586 $ 91,536
=========== =========== =========== =========== =========== =========== ===========
Combined Fixed Charges and
Preferred Share Dividends:
Interest Expense $ 40,830 $ 41,522 $ 163,269 $ 172,191 $ 170,746 $ 77,650 $ 52,704
Capitalized Interest 5,489 5,904 24,276 18,549 15,980 19,173 18,365
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Fixed Charges 46,319 47,426 187,545 190,740 186,726 96,823 71,069
Preferred Share Dividends 8,179 11,432 37,309 56,763 56,835 49,098 35,318
----------- ----------- ----------- ----------- ----------- ----------- -----------
Combined Fixed Charges and
Preferred Share Dividends $ 54,498 $ 58,858 $ 224,854 $ 247,503 $ 243,561 $ 145,921 $ 106,387
=========== =========== =========== =========== =========== =========== ===========
Ratio of Earnings, as Adjusted
to Combined Fixed Charges
and Preferred Share Dividends 2.1 1.7 1.3 1.7 1.4 1.2 (a)
=========== =========== =========== =========== =========== =========== ===========
(a) Due to a one-time, non-recurring, non-cash charge of $75.4 million relating
to the costs incurred in acquiring the management companies from a related
party, earnings were insufficient to cover combined fixed charges and
preferred share dividends for the year ended December 31, 1997 by $14.9
million.
35
EXHIBIT 15.1
May 14, 2002
Board of Trustees and Shareholders of ProLogis Trust
Denver, Colorado
Re: Registration Statement Nos. 33-91366, 33-92490, 333-31421, 333-38515,
333-26597, 333-74917, 333-75893, 333-79813, 333-69001, 333-86081,
333-46700, 333-46698, 333-43546, 333-43544, 333-36578, 333-04961,
333-60374, 333-63992, 333-70274, 333-95737, 333-75722 and 333-88150.
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated May 1, 2002 (except as to Note
11, which is as of May 14, 2002) related to our review of interim financial
information.
Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is
not considered part of a registration statement prepared or certified by an
accountant, or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
KPMG LLP
San Diego, California
36