1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 01-12846
PROLOGIS TRUST
(Exact name of registrant as specified in its charter)
Maryland 74-2604728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 East 35th Place, Aurora, Colorado 80011
(Address or principal executive offices) (Zip Code)
(303) 375-9292
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days. Yes X No
----- -----
The number of shares outstanding of the Registrant's common stock as of May
10, 2001 was 173,975,171.
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ProLogis Trust
Index
Page
Number(s)
PART I. Financial Information --------
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets--March 31, 2001
and December 31, 2000.................................... 3
Consolidated Condensed Statements of Earnings and
Comprehensive Income--Three months ended March 31,
2001 and 2000............................................ 4
Consolidated Condensed Statements of Cash Flows--Three
months ended March 31, 2001 and 2000..................... 5
Notes to Consolidated Condensed Financial Statements......... 6 - 18
Report of Independent Public Accountants..................... 19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 20 - 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 29
PART II. Other Information
Item 4. Submission of Matters to a Vote of Securities Holders........ 29
Item 5. Other Information............................................ 29
Item 6. Exhibits..................................................... 30 - 33
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PROLOGIS TRUST
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
ASSETS
March 31, December 31,
2001 2000
------------- -------------
(Unaudited) (Audited)
Real estate............................................................ $ 4,866,802 $ 4,689,492
Less accumulated depreciation........................................ 505,890 476,982
------------- -------------
4,360,912 4,212,510
Investments in and advances to unconsolidated entities................. 895,776 1,453,148
Cash and cash equivalents.............................................. 39,322 57,870
Accounts and notes receivable.......................................... 65,304 50,856
Other assets........................................................... 246,108 171,950
------------- -------------
Total assets.................................................. $ 5,607,422 $ 5,946,334
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit...................................................... $ 120,210 $ 439,822
Senior unsecured debt................................................ 1,700,086 1,699,989
Mortgage notes and other secured debt................................ 536,172 537,925
Accounts payable and accrued expenses................................ 125,302 107,494
Construction payable................................................. 22,588 40,925
Distributions and dividends payable.................................. 729 57,739
Other liabilities.................................................... 115,966 88,439
------------- -------------
Total liabilities............................................. 2,621,053 2,972,333
------------- -------------
Minority interest...................................................... 46,456 46,630
Shareholders' equity:
Series A Preferred Shares; $0.01 par value; 5,400,000
shares issued and outstanding at March 31, 2001 and
December 31, 2000; stated liquidation preference of $25.00
per share.......................................................... 135,000 135,000
Series B Preferred Shares; $0.01 par value; 6,256,100 shares
issued and outstanding at December 31, 2000; stated liquidation
preference of $25.00 per share..................................... -- 156,403
Series C Preferred Shares; $0.01 par value; 2,000,000 shares
issued and outstanding at March 31, 2001 and December 31,
2000; stated liquidation preference of $50.00 per share............ 100,000 100,000
Series D Preferred Shares; $0.01 par value; 10,000,000 shares
issued and outstanding at March 31, 2001 and December 31,
2000; stated liquidation preference of $25.00 per share............ 250,000 250,000
Series E Preferred Shares; $0.01 par value; 2,000,000 shares
issued and outstanding at March 31, 2001 and December 31,
2000; stated liquidation preference of $25.00 per share............ 50,000 50,000
Common shares of beneficial interest; $0.01 par value;
173,679,733 shares issued and outstanding at March 31,
2001 and 165,287,358 shares issued and outstanding at
December 31, 2000.................................................. 1,737 1,653
Additional paid-in capital............................................. 2,907,314 2,740,136
Employee share purchase notes.......................................... (18,049) (18,556)
Accumulated other comprehensive income................................. (76,452) (33,768)
Distributions in excess of net earnings................................ (409,637) (453,497)
------------- -------------
Total shareholders' equity.................................... 2,939,913 2,927,371
------------- -------------
Total liabilities and shareholders' equity.................... $ 5,607,422 $ 5,946,334
============= =============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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PROLOGIS TRUST
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
-----------------------
2001 2000
--------- ---------
Income:
Rental income............................................................ $ 119,764 $ 120,809
Other real estate income................................................. 42,854 18,945
Income (loss) from unconsolidated entities............................... (2,044) 21,367
Interest................................................................. 1,654 1,871
--------- ---------
Total income...................................................... 162,228 162,992
--------- ---------
Expenses:
Rental expenses, net of recoveries of $24,868 in 2001 and $23,162
in 2000, including amounts paid to affiliate of $174 in 2001
and $306 in 2000...................................................... 6,758 6,547
General and administrative, including amounts paid to affiliate
of $170 in 2001 and $224 in 2000...................................... 14,827 11,241
Depreciation and amortization............................................ 38,752 39,474
Interest................................................................. 39,382 41,986
Other.................................................................... 1,291 1,218
--------- ---------
Total expenses.................................................... 101,010 100,466
--------- ---------
Earnings from operations................................................... 61,218 62,526
Minority interest share in earnings........................................ 1,376 1,654
--------- ---------
Earnings before gain (loss) on disposition of real estate
and foreign currency exchange gains (losses).......................... 59,842 60,872
Gain (loss) on disposition of real estate.................................. (1,198) 5,108
Foreign currency exchange losses, net...................................... (3,189) (6,520)
--------- ---------
Earnings before income taxes............................................... 55,455 59,460
Income taxes:
Current income tax expense............................................... 3,436 117
Deferred income tax benefit.............................................. (3,420) --
--------- ---------
Total income taxes................................................ 16 117
--------- ---------
Net earnings............................................................... 55,439 59,343
Less preferred share dividends............................................. 11,432 14,405
--------- ---------
Net earnings attributable to Common Shares................................. 44,007 44,938
Other comprehensive income:
Foreign currency translation adjustments................................. (42,684) (22,574)
--------- ---------
Comprehensive income....................................................... $ 1,323 $ 22,364
========= =========
Weighted average Common Shares outstanding - Basic......................... 167,297 162,124
========= =========
Weighted average Common Shares outstanding - Diluted....................... 174,371 162,281
========= =========
Basic net earnings attributable to Common Shares............................ $ 0.26 $ 0.28
========= =========
Diluted net earnings attributable to Common Shares.......................... $ 0.25 $ 0.28
========= =========
Distributions per Common Share.............................................. $ 0.345 $ 0.335
========= =========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
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PROLOGIS TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended,
March 31,
--------------------------
2001 2000
----------- -----------
Operating activities:
Net earnings............................................................. $ 55,439 $ 59,343
Minority interest share in earnings...................................... 1,376 1,654
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization....................................... 38,752 39,474
(Gain) loss on disposition of real estate........................... 1,198 (5,108)
Straight-lined rents................................................ (1,649) (1,921)
Amortization of deferred loan costs................................. 1,222 987
Stock-based compensation............................................ 1,614 697
(Income) loss from unconsolidated entities.......................... 5,252 (19,029)
Foreign currency exchange losses, net............................... 2,614 6,553
Decrease (increase) in accounts receivable and other assets.............. 16,076 (21,805)
Increase in accounts payable, accrued expenses and other liabilities..... 13,194 32,294
Decrease in amount due to affiliate...................................... -- 119
----------- -----------
Net cash provided by operating activities.......................... 135,088 93,258
----------- -----------
Investing activities:
Real estate investments.................................................. (285,825) (122,289)
Tenant improvements and lease commissions on previously leased space..... (4,312) (5,435)
Recurring capital expenditures........................................... (3,936) (5,142)
Proceeds from dispositions of real estate................................ 338,350 98,353
Payments from unconsolidated entities.................................... 170,590 4,970
Investments in and advances to unconsolidated entities................... (75,755) (23,430)
Cash balances recorded upon consolidation of Kingspark Holding S. A...... 89,788 --
Cash balances contributed with ProLogis European Properties S.a.r.l...... -- (17,968)
----------- -----------
Net cash provided by (used in) investing activities................ 228,900 (70,941)
----------- -----------
Financing activities:
Proceeds from exercised options and dividend reinvestment and share
purchase plans...................................................... 13,150 3,800
Payments for the redemption of Series B convertible preferred shares..... (4,583) --
Debt issuance and other transaction costs incurred....................... (58) (64)
Distributions paid on Common Shares...................................... (57,158) (54,210)
Distributions paid to minority interest holders.......................... (1,752) (1,867)
Distributions paid on preferred shares................................... (11,432) (14,561)
Principal payments received on employee share purchase notes............. 507 540
Proceeds from settlement of derivative financial instruments............. -- 140
Proceeds from lines of credit............................................ 200,920 268,126
Payments on lines of credit.............................................. (520,532) (192,400)
Regularly scheduled principal payments on mortgage notes................. (1,598) (1,789)
----------- -----------
Net cash provided by (used in) financing activities................ (382,536) 7,715
----------- -----------
Net increase (decrease) in cash and cash equivalents....................... (18,548) 30,032
Cash and cash equivalents, beginning of period............................. 57,870 69,338
----------- -----------
Cash and cash equivalents, end of period................................... $ 39,322 $ 99,370
=========== ===========
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.
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PROLOGIS TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
1. General:
Business
ProLogis Trust (collectively with its consolidated subsidiaries and
partnerships "ProLogis") is a publicly held real estate investment trust
("REIT") that owns and operates a network of industrial distribution facilities
in North America and Europe. The ProLogis Operating System(TM), comprised of the
Market Services Group, the Global Services Group, the Global Development Group
and the Integrated Solutions Group, utilizes ProLogis' international network of
distribution facilities to meet its customers' distribution space needs
globally. ProLogis has organized its business into three operating segments:
property operations, corporate distribution facilities services business ("CDFS
business") and temperature-controlled distribution operations. See Note 7.
Principles of Financial Presentation
The consolidated condensed financial statements of ProLogis as of March 31,
2001 and for the three months ended March 31, 2001 and 2000 are unaudited and,
pursuant to the rules of the Securities and Exchange Commission, certain
information and footnote disclosures normally included in financial statements
have been omitted. While management of ProLogis believes that the disclosures
presented are adequate, these interim consolidated condensed financial
statements should be read in conjunction with ProLogis' December 31, 2000
audited consolidated financial statements contained in ProLogis' 2000 Annual
Report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of ProLogis'
consolidated financial position and results of operations for the interim
periods. The consolidated results of operations for the three months ended March
31, 2001 and 2000 are not necessarily indicative of the results to be expected
for the entire year. Certain of the 2000 amounts have been reclassified to
conform to the 2001 financial statement presentation.
The preparation of consolidated condensed financial statements in
conformity with generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
ProLogis' investment in Kingspark Holding S.A. ("Kingspark S.A."), an
industrial distribution facility development company in the United Kingdom was
previously accounted for under the equity method. ProLogis owned 100% of the
non-voting preferred stock of Kingspark S.A. and recognized substantially all
economic benefits of Kingspark S.A. and its subsidiaries through January 1,
2001. On January 5, 2001, ProLogis acquired an ownership interest in the voting
common stock of Kingspark S.A resulting in ProLogis having control of Kingspark
S.A. Accordingly, as of January 5, 2001, the accounts of Kingspark S.A. and its
subsidiaries are consolidated in ProLogis' condensed financial statements along
with ProLogis' other majority-owned and controlled subsidiaries and
partnerships.
ProLogis owns 100% of the preferred stock of ProLogis Development Services
Incorporated ("ProLogis Development Services") and realizes substantially all
economic benefits of this entity's activities. Because ProLogis advances
mortgage loans to ProLogis Development Services to fund its acquisition,
development and construction activities, ProLogis Development Services is
consolidated in ProLogis' condensed financial statements along with ProLogis'
other majority-owned and controlled subsidiaries and partnerships. ProLogis
Development Services is not a qualified REIT subsidiary of ProLogis under the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, provisions
for federal and state income taxes are recognized, as appropriate.
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Interest Expense
Interest expense was $39.4 million and $42.0 million for the three months
in 2001 and 2000, respectively, which is net of capitalized interest of $8.1
million and $4.2 million, respectively. Amortization of deferred loan costs
included in interest expense was $1.2 million and $1.0 million for the three
months in 2001 and 2000, respectively. Total interest paid in cash on all
outstanding debt was $38.9 million and $30.4 million during 2001 and 2000,
respectively.
Financial Instruments
In the normal course of business, ProLogis uses certain derivative
financial instruments for the purpose of foreign currency exchange rate and
interest rate risk management. All derivative financial instruments are
accounted for at fair value with changes in fair value recognized immediately in
accumulated other comprehensive income or income.
ProLogis adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and for Hedging Activities," as
amended, on January 1, 2001. SFAS No. 133 provides comprehensive guidelines for
the recognition and measurement of derivatives and hedging activities and,
specifically, requires all derivatives to be recorded on the balance sheet at
fair value as an asset or liability, with an offset to accumulated other
comprehensive income or income. ProLogis' only derivative financial instruments
in effect at March 31, 2001 are foreign currency put option contracts that have
been previously marked to market through income, as they did not qualify for
hedge accounting treatment. These contracts also do not qualify for hedge
accounting treatment under SFAS No. 133, therefore, ProLogis has continued to
mark these contracts to market through income during the three months ended
March 31, 2001. ProLogis' unconsolidated entities also adopted SFAS No. 133 on
January 1, 2001. The effect to ProLogis of their adoption of SFAS No. 133 was
immaterial as these entities utilize derivative financial instruments on a
limited basis.
In assessing the fair value of its financial instruments, both derivative
and non-derivative, ProLogis uses a variety of methods and assumptions that are
based on market conditions and risks existing at each balance sheet date.
Primarily, ProLogis uses quoted market prices or quotes from brokers or dealers
for the same or similar instruments. These values represent a general
approximation of possible value and may never actually be realized.
Foreign Currency Exchange Gains or Losses
ProLogis' consolidated subsidiaries whose functional currency is not the
U.S. dollar translate their financial statements into U.S. dollars. Assets and
liabilities are translated at the exchange rate in effect as of the financial
statement date. Income statement accounts are translated using the average
exchange rate for the period. Income statement accounts that represent
significant, nonrecurring transactions are translated at the rate in effect as
of the date of the transaction. Gains and losses resulting from the translation
are included in accumulated other comprehensive income as a separate component
of shareholders' equity. ProLogis and its foreign subsidiaries have certain
transactions denominated in currencies other than their functional currency. In
these instances, nonmonetary assets and liabilities are reflected at the
historical exchange rate, monetary assets and liabilities are remeasured at the
exchange rate in effect at the end of the period, and income statement accounts
are remeasured at the average exchange rate for the period. Gains and losses
from remeasurement are included in ProLogis' results of operations. In addition,
gains or losses are recorded in the income statement when a transaction with a
third party, denominated in a currency other than the functional currency, is
settled and the functional currency cash flows realized are more or less than
expected based upon the exchange rate in effect when the transaction was
initiated.
The net foreign currency exchange gains and losses recognized in ProLogis'
results of operations were as follows for the periods indicated (in thousands of
U.S. dollars):
Three months ended
March 31,
-------------------
2001 2000
-------- --------
Losses from the remeasurement of third party
debt and remeasurement and settlement of
intercompany debt, net............................. $ (4,016) $ (7,024)
Mark to market gains on foreign currency put
option contracts (1)............................... 1,012 57
Gains (losses) from the settlement of foreign
currency put option contracts, net................. (255) 480
Other gains (losses), net............................ 70 (33)
-------- --------
$ (3,189) $ (6,520)
======== ========
----------
(1) Upon settlement, the mark to market adjustments are reversed and the total
realized gain or loss is recognized.
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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,
2001 2000
----------- -----------
Operating facilities:
Improved land............................... $ 641,623 (1) $ 648,950 (1)
Buildings and improvements.................. 3,614,289 (1) 3,619,543 (1)
------------ -----------
4,255,912 4,268,493
Facilities under development (including cost
of land).................................... 260,693 (2)(3) 186,020 (2)
Land held for development..................... 323,520 (4) 187,405 (4)
Capitalized preacquisition costs.............. 26,677 (5) 47,574 (5)
----------- -----------
Total real estate................... 4,866,802 4,689,492
Less accumulated depreciation................. 505,890 476,982
----------- -----------
Net real estate..................... $ 4,360,912 $ 4,212,510
=========== ===========
----------
(1) As of March 31, 2001 and December 31, 2000, ProLogis had 1,242 and 1,244
operating facilities, respectively, consisting of 125,885,000 and
126,275,000 square feet, respectively.
(2) Facilities under development consist of 57 facilities aggregating
11,009,000 square feet as of March 31, 2001 and 41 facilities aggregating
8,711,000 square feet as of December 31, 2000.
(3) In addition to the March 31, 2001 construction payable of $22.6 million,
ProLogis had unfunded commitments on its contracts for facilities under
construction totaling $305.1 million.
(4) Land held for future development consists of 2,314 acres as of March 31,
2001 and 2,047 acres as of December 31, 2000.
(5) Capitalized preacquisition costs include $9.6 million and $32.5 million of
funds on deposit with title companies as of March 31, 2001 and December 31,
2000, respectively.
ProLogis' operating facilities, facilities under development and land held
for future development are located in North America (the United States and
Mexico) and eight countries in Europe. No individual market represents more than
10% of ProLogis' real estate assets.
Operating Lease Agreements
ProLogis leases its facilities to customers under agreements, which are
classified as operating leases. The leases generally provide for payment of all
or a portion of utilities, property taxes and insurance by the tenant. As of
March 31, 2001, minimum lease payments on leases with lease periods greater than
one year are as follows (in thousands):
Remainder of 2001........ $ 328,514
2002..................... 369,563
2003..................... 286,967
2004..................... 205,072
2005..................... 140,376
2006 and thereafter...... 276,260
----------
$1,606,752
==========
ProLogis' largest customer (based on rental income) accounted for 1.5% of
ProLogis' rental income (on an annualized basis) for the three months ended
March 31, 2001. The annualized base rent for ProLogis' 25 largest customers
(based on rental income) accounted for 13.4% of ProLogis' rental income (on an
annualized basis) for the three months ended March 31, 2001.
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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,
2001 2000
----------- -----------
Temperature-controlled distribution
companies:
Investment in CSI/Frigo LLC................ $ 2,827 $ --
Investment in ProLogis Logistics........... 117,163 7,163
Investment in Frigoscandia S.A............. (61,333) (50,761)
Notes receivable-ProLogis Logistics/CSI.... -- 162,856
Mortgage notes receivable-CSI.............. -- 24,082
Other receivables-ProLogis Logistics/CSI... 1,946 36,952
Notes receivable-Frigoscandia S.A.......... 254,595 208,945
Other receivables-Frigoscandia S.A......... 35,282 33,797
----------- -----------
350,480 423,034
----------- -----------
Kingspark S. A. (1)......................... -- 570,582
ProLogis Kingspark Joint Ventures (2)....... 64,612 --
ProLogis California (3)..................... 121,215 132,243
ProLogis North American Properties
Fund I (4)................................ 45,926 10,369
ProLogis North American Properties
Fund II (5)............................... 5,417 13,408
ProLogis European Properties Fund (6)....... 234,410 147,938
ProLogis European Properties S.a.r.l.(6).... -- 84,767
Insight (7)................................. 2,459 2,470
ProLogis Equipment Services (8)............. 892 450
GoProLogis (9).............................. 56,315 56,315
ProLogis Phatpipe (10)...................... 14,050 11,572
----------- -----------
Total............................. $ 895,776 $ 1,453,148
=========== ===========
----------
(1) Kingspark S.A. is consolidated in 2001. See Note 1.
(2) Represents investments in joint ventures that collectively own 1,307 acres
of land in the United Kingdom. ProLogis' ownership in these ventures is
50.0%.
(3) ProLogis California I LLC ("ProLogis California") owned 78 operating
facilities aggregating 12.7 million square feet and had a 332,000 square
foot facility under development as of March 31, 2001, all located in the
Los Angeles/Orange County market. ProLogis had a 50.0% ownership interest
in ProLogis California as of March 31, 2001.
(4) ProLogis North American Properties Fund I LLC owned 36 operating facilities
aggregating 9.0 million square feet as of March 31, 2001. In January 2001,
ProLogis contributed three additional operating facilities to ProLogis
North American Properties Fund I for an additional equity interest of $34.1
million. This transaction increased the combined ownership interest of
ProLogis and ProLogis Development Services to 41.3% from 20.0%.
(5) ProLogis Iowa LLC ("ProLogis Principal") was formed on June 30, 2000, as a
limited liability company whose members were ProLogis with 20.0% of the
membership interests and Principal Financial Group with 80.0% of the
membership interests. ProLogis Principal owned three operating facilities
acquired from ProLogis aggregating 440,000 square feet. On March 27, 2001,
First Islamic Investment Bank E.C. acquired the 80% membership interest
from Principal Financial Group. Also on that date, this entity, under the
name ProLogis First US Properties LP ("ProLogis North American Properties
Fund II") acquired 24 operating facilities aggregating 4.0 million square
feet from ProLogis.
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(6) ProLogis European Properties Fund owned 110 operating facilities
aggregating 16.0 million square feet as of March 31, 2001, including
facilities owned by ProLogis European Properties S.a.r.l. On January 7,
2001, ProLogis contributed the remaining 49.9% of the common stock of
ProLogis European Properties S.a.r.l. to ProLogis European Properties Fund
for an additional equity interest. ProLogis had contributed 50.1% of the
common stock of this entity to ProLogis European Properties Fund on January
7, 2000. As of March 31, 2001, ProLogis European Properties Fund, in which
ProLogis had a 41.8% ownership, owned 100% of ProLogis European Properties
S.a.r.l. ProLogis recognized a gain of $0.5 million related to the January
2001 transaction (total gain of $9.8 million net of $9.3 million which does
not qualify for current income recognition due to ProLogis' continuing
ownership in ProLogis European Properties Fund).
(7) Investment represents ProLogis Development Services' investment in the
common stock of Insight, Inc. ("Insight"), a privately owned logistics
optimization consulting company, as adjusted for ProLogis Development
Services' share of Insight's earnings or loss. ProLogis Development
Services had a 33.3% ownership interest in Insight as of March 31, 2001.
(8) Investment represents ProLogis Development Services' equity investment in
ProLogis Equipment Services LLC, a limited liability company whose other
member is a subsidiary of Dana Commercial Credit Corporation, as adjusted
for ProLogis Development Services' share of the earnings or loss of
ProLogis Equipment Services. ProLogis Equipment Services began operations
on April 26, 2000 for the purpose of acquiring, leasing and selling
material handling equipment and providing asset management services for
such equipment. ProLogis Development Services had a 50.0% ownership
interest in ProLogis Equipment Services as of March 31, 2001.
(9) Investment represents ProLogis' investment in GoProLogis Incorporated
("GoProLogis") which has invested $25.0 million in the non-cumulative
preferred stock of Vizional Technologies, Inc. (formerly GoWarehouse.com,
Inc.) ("Vizional Technologies"), a provider of integrated global logistics
network technology services. This investment was made on July 21, 2000. In
addition, investment includes $30.4 million of non-cumulative preferred
stock of Vizional Technologies received by GoProLogis under a license
agreement for the non-exclusive use of the ProLogis Operating System(TM)
over a five-year period and $0.9 million of other costs associated with
this investment. ProLogis accounts for its investment in GoProLogis on the
equity method. GoProLogis has not received any dividends from its preferred
stock investment in Vizional Technologies. As of March 31, 2001, ProLogis
had deferred $26.2 million of income related to this agreement. ProLogis
had a 98.0% ownership interest in GoProLogis as of March 31, 2001.
(10) Investment represents ProLogis' investment in ProLogis Broadband (1)
Incorporated ("ProLogis PhatPipe") which has invested $6.0 million in the
non-cumulative preferred stock of PhatPipe, Inc. ("PhatPipe"), a real
estate technology company. The investment was initially made on September
20, 2000. ProLogis has committed to invest an additional $2.0 million in
ProLogis PhatPipe during 2001. In addition, investment includes $8.0
million of non-cumulative preferred stock of PhatPipe received by ProLogis
PhatPipe under a license agreement for the non-exclusive use of the
ProLogis Operating System(TM) over a three-year period and $50,000 of other
costs associated with this investment. ProLogis accounts for its investment
in ProLogis PhatPipe on the equity method. ProLogis PhatPipe has not
received any dividends from its preferred stock investment in PhatPipe. As
of March 31, 2001, ProLogis had deferred $6.6 million of income related to
this agreement. ProLogis had a 98.0% ownership interest in ProLogis
PhatPipe as of March 31, 2001.
Income (Loss) from Unconsolidated Entities
ProLogis recognized income (loss) from its investments in unconsolidated
entities as follows (in thousands):
Three months ended
March 31,
---------------------
2001 2000
--------- ---------
Temperature-controlled distribution
companies (1)................................... $ (9,472) $ 1,197
Kingspark S.A. (2)................................ -- 4,820
ProLogis California (3)........................... 3,067 3,099
ProLogis North American Properties Fund I (4)..... 1,352 --
ProLogis North American Properties Fund II (5).... 341 --
ProLogis European Properties Fund (6)............. 454 7,324
ProLogis European Properties S.a.r.l. (7)......... 36 4,927
Insight........................................... (10) --
GoProLogis (8).................................... 1,521 --
ProLogis PhatPipe (8)............................. 667 --
--------- ---------
$ (2,044) $ 21,367
========= =========
10
11
--------------
(1) For 2001 includes a loss of $1,744,000 from ProLogis Logistics Services
Incorporated ("ProLogis Logistics") and a loss of $7,728,000 from
Frigoscandia S.A. For 2000, includes income of $2,871,000 from ProLogis
Logistics and a loss of $1,674,000 from Frigoscandia S.A. Amounts include
interest income on notes due to ProLogis.
(2) Kingspark S.A. is consolidated in 2001. See Note 1.
(3) Income includes management, leasing and development fees of $666,000 for
the three months in 2001 and $665,000 for the three months in 2000.
ProLogis has had a 50.0% ownership interest in ProLogis California since
its inception.
(4) ProLogis North American Properties Fund I was formed on June 30, 2000.
Income includes management fees of $512,000. ProLogis had a 41.3% ownership
interest in ProLogis North American Properties Fund I as of March 31, 2001.
(5) ProLogis North American Properties Fund II was originally formed as
ProLogis Principal on June 30, 2000. Income includes management fees of
$45,000. ProLogis had 20.0% ownership interest in ProLogis North American
Properties Fund II as of March 31, 2001.
(6) Income includes management fees of $1,722,000 for the three months in 2001
and $1,142,000 for the three months in 2000. ProLogis had a 41.8% ownership
interest in ProLogis European Properties Fund as of March 31, 2001.
(7) Represents income from ProLogis' investment in 49.9% of the common stock of
ProLogis European Properties S.a.r.l in 2000 for the period from January 7,
2000 to March 31, 2000 and in 2001 for the period from January 1, 2001 to
January 6, 2001.
(8) Represents license fees earned for the non-exclusive use of the ProLogis
Operating System(TM) under licensing agreements entered into in the second
quarter of 2000.
Temperature-Controlled Distribution Companies
ProLogis has the following ownership interests in temperature-controlled
distribution companies accounted for under the equity method:
o Investment in 100.0% of the preferred stock of ProLogis Logistics and
100.0% of the preferred stock of Frigoscandia S.A. The preferred stock
of each entity represents substantially all of the economic interests of
the entity (in excess of 99%).
o Investment in CSI/Frigo LLC which owns the voting common stock of
ProLogis Logistics and Frigoscandia S.A. ProLogis owns 89.0% of the
membership interests of CSI/Frigo LLC with K. Dane Brooksher, ProLogis'
chairman, owning the remaining 11.0% of the membership interests. The
common stock of ProLogis Logistics and Frigoscandia S.A. was owned by an
unrelated party until January 5, 2001 when it was purchased by CSI/Frigo
LLC. Additionally, ProLogis has a note agreement with CSI/Frigo LLC that
allows ProLogis to participate in its earnings such that it will
recognize approximately 95% of the economic interests of CSI/Frigo LLC.
o ProLogis Logistics owns 100% of CS Integrated LLC ("CSI"), a
temperature-controlled distribution company operating in the United
States. As of March 31, 2001, owned or operated under lease agreements
facilities aggregating 181.6 million cubic feet (including 35.5 million
cubic feet of dry distribution space located in temperature-controlled
facilities). Of the total, 3.5 million cubic feet were under
development.
o Frigoscandia S.A., through its wholly owned subsidiaries, owns 100% of
Frigoscandia AB, a temperature-controlled distribution company operating
in ten countries in Europe. As of March 31, 2001, Frigoscandia AB owned
or operated under lease agreements facilities aggregating 184.2 million
cubic feet.
o ProLogis had amounts due from Frigoscandia S.A. or its subsidiaries in
the currency equivalent of $289.9 million as of March 31, 2001.
o ProLogis had amounts due from ProLogis Logistics or its subsidiaries of
$1.9 million as of March 31, 2001.
On January 2, 2001, ProLogis Logistics borrowed $125.0 million under
ProLogis' U.S. dollar denominated unsecured line of credit agreement as a
designated subsidiary borrower under the agreement. The proceeds from this
borrowing were used to repay $125.0 million of the outstanding notes and accrued
interest due to ProLogis. The remaining amounts due to ProLogis were converted
to preferred stock by ProLogis on January 2, 2001.
11
12
As of March 31, 2001, Frigoscandia AB had a 138.5 million euro credit
agreement (increased to 185.0 million euro in April 2001). Borrowings under the
agreement bear interest at Euribor plus 0.90% per annum. ProLogis has guaranteed
100% of the borrowings under the agreement. The currency equivalent of
approximately $122.3 million was outstanding as of March 31, 2001. Additionally,
in April 2001, the currency equivalent of approximately $45.9 million was
borrowed under the credit agreement. The agreement expires on September 28, 2001
and contains a provision to extend the due date until December 28, 2001.
ProLogis California I LLC
ProLogis' total investment in ProLogis California as of March 31, 2001
consisted of (in millions):
Equity interest..................................... $ 160.1
Distributions ($3.7 million received in 2001)....... (27.3)
ProLogis' share of ProLogis California's earnings,
excluding fees earned............................. 14.8
--------
Subtotal..................................... 147.6
Adjustments to carrying value (1)................... (28.3)
Other, (including acquisition costs), net........... 1.5
--------
Subtotal..................................... 120.8
Other receivables................................... 0.4
--------
Total........................................ $ 121.2
========
----------
(1) Reflects the reduction in carrying value for the amount of net gain on
the disposition of properties to ProLogis California that does not
qualify for current income recognition due to ProLogis' continuing
ownership in ProLogis California.
ProLogis European Properties Fund
ProLogis' total investment in ProLogis European Properties Fund as of March
31, 2001 consisted of (in millions of U.S. dollars):
Equity interest..................................... $ 251.5
Distributions ($5.4 million received in 2001)....... (9.4)
ProLogis' share of ProLogis European Properties
Fund's earnings, excluding fees earned............ 9.3
--------
Subtotal.................................... 251.4
Adjustments to carrying value (1)................... (36.0)
Other (including acquisitions costs), net........... (9.5)
--------
Subtotal.................................... 205.9
Other receivables.................................. 28.5
--------
Total....................................... $ 234.4
========
----------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis European Properties Fund that does
not qualify for current income recognition due to ProLogis' continuing
ownership in ProLogis European Properties Fund.
Third parties (19 institutional investors) have invested 396.9 million
euros (the currency equivalent of approximately $349.9 million as of March 31,
2001) in ProLogis European Properties Fund and have committed to fund an
additional 663.4 million euros (the currency equivalent of approximately $585.0
million as of March 31, 2001) through 2002. ProLogis has also entered into a
subscription agreement to make additional capital contributions of 84.4 million
euros (the currency equivalent of approximately $74.4 million) as of March 31,
2001.
ProLogis European Properties Fund has a credit agreement with two
international banks for a multi-currency secured revolving credit facility in
the currency equivalent of 500.0 million euros. The credit agreement matures in
October 2002. Borrowings can be denominated in pound sterling or the euro, and
bear interest at 0.55% above the relevant index (LIBOR or Euribor). As of March
31, 2001, 95.4 million euros and 73.6 million pound sterling were outstanding on
the line (the currency equivalent of approximately $189.2 million as of March
31, 2001). As of March 31, 2001, ProLogis no longer guarantees this credit
agreement. In April 2001, ProLogis European Properties Fund placed over 212.0
million euros (the currency equivalent of approximately $186.9 million as of
March 31, 2001) of permanent commercial mortgage-backed securities. After
interest rate and currency swap agreements, the effective interest rate on these
securities is 5.74%. The proceeds were used to repay borrowings on the credit
agreement.
12
13
ProLogis North American Properties Fund I
ProLogis' and ProLogis Development Services' total investment in ProLogis
North American Properties Fund I as of March 31, 2001 consisted of (in
millions):
Equity interest..................................... $ 52.7
Distributions ($0.6 million received in 2001)....... (1.0)
ProLogis' share of ProLogis North American
Properties Fund's earnings, excluding fees
earned............................................ 1.1
-------
Subtotal..................................... 52.8
Adjustments to carrying value (1)................... (9.7)
Other(including acquisition costs), net............. 2.7
-------
Subtotal..................................... 45.8
Other receivables................................... 0.1
-------
Total........................................ $ 45.9
=======
----------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis North American Properties Fund I
that does not qualify for current income recognition due to ProLogis'
and ProLogis Development Services' continuing ownership in ProLogis
North American Properties Fund I.
ProLogis North American Properties Fund II
ProLogis' and ProLogis Development Services' total investment in ProLogis
North American Properties Fund II as of March 31, 2001 consisted of (in
millions):
Equity interest..................................... $ 14.0
Adjustments to carrying value (1)................... (7.0)
Other (including acquisition costs), net............ 1.3
-------
Subtotal.................................. 8.3
Other payables...................................... (2.9)
-------
Total..................................... $ 5.4
=======
----------
(1) Reflects the reduction in carrying value for amount of net gain on the
disposition of facilities to ProLogis North American Properties Fund II
that does not qualify for current income recognition due to ProLogis'
and ProLogis Development Services' continuing ownership in ProLogis
North American Properties Fund II.
As of March 31, 2001, ProLogis North American Properties Fund II had a
$165.0 million short-term borrowing arrangement outstanding which is due on June
25, 2001. ProLogis North American Properties Fund II intends to obtain permanent
secured financing which will be used to repay its short-term borrowings.
ProLogis has guaranteed 100% of the short-term borrowings outstanding.
Summarized Financial Information
Summarized financial information for ProLogis' unconsolidated entities as
of and for the three months ended March 31, 2001 is presented below (in millions
of U.S. dollars). The information presented is for the entire entity.
ProLogis ProLogis North ProLogis
ProLogis European American North American
Logistics Frigoscandia ProLogis Properties Properties Properties
(1) S.A.(1) California (2) Fund (3) Fund I (4) Fund II (5)
--------- ------------ ------------- ---------- -------------- -------------
Total assets.............. $ 368.8 $ 480.3 $ 598.4 $ 964.0 $ 363.1 $235.7 (6)
Total liabilities (7)..... $ 250.8 $ 548.8 $ 303.2 $ 420.4 $ 236.9 $165.0
Minority interest......... $ -- $ -- $ -- $ -- $ -- $ --
Equity.................... $ 118.0 $ (68.5) $ 295.2 $ 543.6 $ 126.2 $ 70.7
Revenues.................. $ 77.2 $ 91.3 $ 16.2 $ 20.0 $ 11.5 $ 1.0
Adjusted EBITDA (8)....... $ 5.7 $ 8.1 $ 13.4 $ 17.9 $ 8.6 $ 0.7
Net earnings (loss) (9)... $ (1.8) $ (10.4) (10) $ 4.5 $ 2.2 (11) $ 1.8 $ 0.2
----------
(1) ProLogis had an ownership interest in excess of 99.0% in each entity as
of March 31, 2001.
(2) ProLogis had a 50.0% ownership interest as of March 31, 2001.
(3) ProLogis had a 41.8% ownership interest as of March 31, 2001. Includes
the ProLogis European Properties S.a.r.l. which is wholly owned by
ProLogis European Properties Fund as of March 31, 2001
13
14
(4) ProLogis and ProLogis Development Services had a combined 41.3%
ownership interest as of March 31, 2001.
(5) ProLogis and ProLogis Development Services had a combined 20.0%
ownership interest as of March 31, 2001.
(6) Includes amount due from ProLogis of $2.9 million.
(7) Includes amounts due to ProLogis of $1.9 million from ProLogis
Logistics, $289.9 million from Frigoscandia S.A., $0.4 million from
ProLogis California, $28.5 million from ProLogis European Properties
Fund, and $0.1 million from ProLogis North American Properties Fund I.
Includes loans from third parties (including accrued interest) of $216.0
million for ProLogis Logistics, $143.1 million for Frigoscandia S.A.,
$294.8 million for ProLogis California, $340.4 million for ProLogis
European Properties Fund, $233.6 million for ProLogis North American
Properties Fund I and $165.1 million for ProLogis North American
Properties Fund II.
(8) Adjusted EBITDA represents earnings from operations before interest
expense, interest income, current and deferred income taxes,
depreciation, amortization, gains and losses on disposition of non-CDFS
business segment assets (see Note 7); foreign currency exchange gains
and losses resulting from the remeasurement (at current foreign currency
exchange rates) of third party and intercompany debt and mark to market
adjustments related to derivative financial instruments utilized to
manage foreign currency risks.
(9) ProLogis' share of the net earnings (loss) of the respective entities
and interest income on notes and mortgage notes due to ProLogis are
recognized in the Consolidated Condensed Statements of Earnings as
"Income from unconsolidated entities." The net earnings (loss) of each
entity includes interest expense on amounts due to ProLogis, as
applicable.
(10) Includes net foreign currency exchange losses of $1.4 million.
(11) Includes net foreign currency exchange losses of $1.0 million.
4. Shareholders' Equity:
During the three months ended March 31, 2001, ProLogis generated net
proceeds of $13.2 million from the issuance of 558,000 common shares of
beneficial interest, $0.01 par value ("Common Shares") under its 1999 Dividend
Reinvestment and Share Purchase Plan and issued 49,000 Common Shares upon the
exercise of stock options.
ProLogis called for the redemption of all of its outstanding Series B
cumulative convertible redeemable preferred shares ("Series B preferred shares")
as of March 20, 2001. Subsequent to the call for redemption on February 12,
2001, 5,908,971 Series B preferred shares were converted into 7,575,301 Common
Shares. The remaining 183,302 Series B preferred shares outstanding on March 20,
2001 were redeemed at a price of $25.00 per share, plus $0.442 in accrued and
unpaid dividends, for an aggregate redemption price of $25.442 per share.
On January 11, 2001, ProLogis announced a Common Share repurchase program
under which it may repurchase up to $100.0 million of its Common Shares. The
Common Shares will be repurchased from time to time in the open market and in
privately negotiated transactions, depending on market prices and other
conditions. As of March 31, 2001, no common shares had been repurchased.
On March 30, 2001, ProLogis called for the redemption of its outstanding
Series A cumulative, redeemable preferred shares of beneficial interest ("Series
A preferred shares") at the price of $25.00 per share, plus $0.2481 in accrued
and unpaid dividends, for an aggregate redemption price of $25.2481 per share
(the "Redemption Price"). The shares were redeemed on May 8, 2001 at a total
cost of $136.3 million.
5. Distributions and Dividends:
Common Distributions
On February 23, 2001, ProLogis paid a quarterly distribution of $0.345 per
Common Share to shareholders of record on February 9, 2001. The distribution
level for 2001 was set by ProLogis' Board of Trustees in December 2000 at $1.38
per Common Share.
Preferred Dividends
The annual dividend rates on ProLogis' preferred shares are $2.35 per
cumulative redeemable Series A preferred share, $4.27 per cumulative redeemable
Series C preferred share, $1.98 per cumulative redeemable Series D preferred
share and $2.1875 per cumulative redeemable Series E preferred share.
On January 31, 2001, ProLogis paid quarterly dividends of $0.5469 per
cumulative redeemable Series E preferred share. On March 30, 2001, ProLogis paid
quarterly dividends of $0.5875 per cumulative redeemable Series A preferred
share, $1.0675 per cumulative redeemable Series C preferred share and $0.495 per
cumulative redeemable Series D preferred share.
14
15
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:
Three Months Ended
March 31,
----------------------
2001 2000
--------- ---------
Net earnings attributable to Common Shares....... $ 44,007 $ 44,938
Add: Series B preferred share dividends......... 81 --
--------- ---------
Adjusted net earnings attributable to Common
Shares......................................... $ 44,088 $ 44,938
========= =========
Weighted average Common Shares outstanding -
Basic.......................................... 167,297 162,124
Incremental weighted average effect of common
stock equivalents and contingently issuable
shares......................................... 811 157
Weighted average convertible Series B preferred
shares......................................... 6,263 --
--------- ---------
Adjusted weighted average Common Shares
outstanding - Diluted.......................... 174,371 162,281
========= =========
Per share net earnings attributable to Common
Shares:
Basic....................................... $ 0.26 $ 0.28
========= =========
Diluted..................................... $ 0.25 $ 0.28
========= =========
For the periods indicated, the following weighted average convertible
securities were not included in the calculation of diluted per share net
earnings attributable to Common Shares as the effect, on an as-converted basis,
was antidilutive (in thousands):
Three Months Ended
March 31,
---------------------
2001 2000
-------- --------
Series B preferred shares....................... -- 8,968
======== ========
Limited partnership units....................... 5,088 5,587
======== ========
7. Business Segments:
ProLogis has three reportable business segments:
o Property operations represents the long-term ownership and leasing of
industrial distribution facilities in the United States (portions of
which are owned through ProLogis California, ProLogis North American
Properties Fund I and ProLogis North American Properties Fund II -- See
Note 3), Mexico and Europe (portions of which are owned through ProLogis
European Properties Fund and ProLogis European Properties S.a.r.l. --
See Note 3); each operating facility is considered to be an individual
operating segment having similar economic characteristics which are
combined within the reportable segment based upon geographic location;
o Corporate distribution facilities services business ("CDFS") represents
the development of industrial distribution facilities by ProLogis in
United States, Mexico and Europe (see Note 3) which are often disposed
of to third parties or entities in which ProLogis has an ownership
interest and the development of industrial distribution facilities by
ProLogis on a fee basis for third parties in the United States, Mexico
and Europe; the development activities of ProLogis are considered to be
individual operating segments having similar economic characteristics
which are combined within the reportable segment based upon geographic
location; and
o Temperature-controlled distribution operations represents the operation
of a temperature-controlled distribution and logistics network through
investments in unconsolidated entities in the United States (ProLogis
Logistics) and Europe (Frigoscandia S.A.); each company's operating
15
16
facilities are considered to be individual operating segments having
similar economic characteristics which are combined within the
reportable segment based upon geographic location. See Note 3.
Reconciliations of the three reportable segments': (i) income from external
customers to ProLogis' total income; (ii) net operating income from external
customers to ProLogis' earnings from operations (ProLogis' chief operating
decision makers rely primarily on net operating income to make decisions about
allocating resources and assessing segment performance); and (iii) assets to
ProLogis' total assets are as follows (in thousands):
Three Months Ended
March 31,
-----------------------
2001 2000
---------- ----------
Income:
Property operations:
United States (1)....................... $ 119,091 $ 119,765
Mexico.................................. 4,230 3,342
Europe (2).............................. 1,693 13,053
---------- ----------
Total property operations
segment.......................... 125,014 136,160
---------- ----------
CDFS business:
United States (3)....................... 28,253 16,812
Mexico.................................. (10) 697
Europe (4) (5).......................... 14,611 6,255
---------- ----------
Total CDFS business segment........ 42,854 23,764
---------- ----------
Temperature-controlled distribution
operations:
North America (6).................... (1,744) 2,871
Europe (7)........................... (7,728) (1,674)
---------- ----------
Total temperature-controlled
distribution operations
segment....................... (9,472) 1,197
---------- ----------
Reconciling items:
Interest income...................... 1,654 1,871
Income from unconsolidated entities.. 2,178 --
---------- ----------
Total reconciling items......... 3,832 1,871
---------- ----------
Total income.................... $ 162,228 $ 162,992
========== ==========
Net operating income:
Property operations:
United States (1).................... $ 112,424 $ 112,874
Mexico............................... 4,434 3,247
Europe (2)........................... 1,398 13,492
---------- ----------
Total property operations
segment....................... 118,256 129,613
---------- ----------
CDFS business:
United States (3).................... 28,253 16,812
Mexico............................... (10) 697
Europe (4) (5)....................... 14,611 6,255
---------- ----------
Total CDFS business segment..... 42,854 23,764
---------- ----------
Temperature-controlled distribution
operations:
North America (6).................... (1,744) 2,871
Europe (7)........................... (7,728) (1,674)
---------- ----------
Total temperature-controlled
distribution operations
segment....................... (9,472) 1,197
---------- ----------
Reconciling items:
Interest income...................... 1,654 1,871
Income from unconsolidated entities.. 2,178 --
General and administrative expense... (14,827) (11,241)
Depreciation and amortization........ (38,752) (39,474)
Interest expense..................... (39,382) (41,986)
Other expenses....................... (1,291) (1,218)
---------- ----------
Total reconciling items........... (90,420) (92,048)
---------- ----------
Earnings from operations.......... $ 61,218 $ 62,526
========== ==========
16
17
March 31, December 31,
2001 2000
---------- -----------
Assets:
Property operations:
United States (8)..................... $3,754,058 $ 3,887,601
Mexico................................ 119,805 113,538
Europe (8)............................ 388,982 308,457
---------- -----------
Total property operations
segment..................... 4,262,845 4,309,596
---------- -----------
CDFS business:
United States......................... 281,302 304,697
Mexico................................ 30,425 26,288
Europe (9)............................ 474,557 637,207
---------- -----------
Total CDFS business segment... 786,284 968,192
---------- -----------
Temperature controlled distribution
operations:
North America (8)..................... 120,928 231,053
Europe (8)............................ 229,552 191,981
---------- -----------
Total temperature controlled
distribution operations
segment..................... 350,480 423,034
---------- -----------
Reconciling items:
Investments in unconsolidated entities 73,716 70,807
Cash.................................. 39,322 57,870
Accounts and notes receivable......... 29,538 43,040
Other assets.......................... 65,237 73,795
---------- -----------
Total reconciling items....... 207,813 245,512
---------- -----------
Total assets.................. $5,607,422 $ 5,946,334
========== ===========
-----------
(1) In addition to the operations of ProLogis that are reported on a
consolidated basis, includes amounts recognized under the equity method
related to ProLogis' investment in ProLogis California, ProLogis North
American Properties Fund I and ProLogis North American Properties Fund
II in 2001 and ProLogis California in 2000. See Note 3 for summarized
financial information of ProLogis California, ProLogis North American
Properties Fund I and ProLogis North American Properties Fund II.
(2) In addition to the operations of ProLogis that are reported on a
consolidated basis, includes amounts recognized under the equity method
related to ProLogis' investment in ProLogis European Properties Fund
(including net foreign currency exchange losses of $0.8 million in 2001
and net foreign currency gains of $5.1 million in 2000) and ProLogis
European Properties S.a.r.l. (including net foreign currency exchange
losses of $0.2 million in 2001 and net foreign currency gains of $3.3
million in 2000). See Note 3 for summarized financial information of
ProLogis European Properties Fund.
(3) In 2001, includes $20.4 million of net gains recognized by ProLogis
related to the disposition of facilities to ProLogis North American
Properties Fund II.
(4) Includes amounts recognized under the equity method related to ProLogis'
investment in Kingspark S.A.in 2000 (including $0.4 million of net
foreign currency exchange gains). Kingspark S.A. is consolidated in
2001. See Notes 1 and 3.
(5) Includes $12.2 million and $0.3 million of net gains recognized by
ProLogis related to the disposition of facilities to ProLogis European
Properties Fund in 2001 and 2000, respectively. In addition, includes
$0.5 million of net gains recognized under the equity method related to
the disposition of facilities to ProLogis European Properties Fund by
Kingspark S.A. in 2000.
(6) Represents amounts recognized under the equity method related to
ProLogis' investment in ProLogis Logistics. See Note 3 for summarized
financial information of ProLogis Logistics.
(7) Represents amounts recognized under the equity method related to
ProLogis' investment in Frigoscandia S.A. (including $1.4 million and
$2.2 million of net foreign currency exchange losses in 2001 and 2000,
respectively). See Note 3 for summarized financial information of
Frigoscandia S.A.
(8) Amounts include investments in unconsolidated entities accounted for
under the equity method. See also Note 3 for summarized financial
information of the unconsolidated entities as of and for the three
months ended March 31, 2001.
(9) In 2000, includes ProLogis' investment in Kingspark S. A. and its
subsidiaries under the equity method.
17
18
8. Supplemental Cash Flow Information
Non-cash investing and financing activities for the three months ended March
31, 2001, and 2000 are as follows:
o In 2001, ProLogis contributed its 49.9% of the common stock of ProLogis
European Properties S.a.r.l. to ProLogis European Properties Fund for an
additional equity interest in ProLogis European Properties Fund of $83.0
million. In 2000, in connection with ProLogis' initial contribution of
50.1% of the common stock of ProLogis European Properties S.a.r.l. to
ProLogis European Properties Fund, ProLogis received an equity interest
in ProLogis European Properties Fund of approximately $78.0 million.
ProLogis European Properties S.a.r.l. had total assets of $403.9 million
and total liabilities of $248.1 million. ProLogis recognized its
investment in the remaining 49.9% of the common stock under the equity
method from January 7, 2000 through January 6, 2001. See Note 3.
o ProLogis received $13.6 million, $34.1 million and $13.4 million of the
proceeds from its disposition of facilities to ProLogis European
Properties Fund, ProLogis North American Properties Fund I and ProLogis
North American Properties Fund II, respectively, in the form of an
equity interest in these entities during 2001. ProLogis received $0.7
million of the proceeds from its disposition of facilities to ProLogis
European Properties Fund in the form of an equity interest during 2000.
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 in 2001.
o In connection with the agreement for the acquisition of Kingspark S.A.,
ProLogis issued approximately 201,000 Common Shares valued at $3.9
million in 2000.
o Series B preferred shares aggregating $151.8 million and $1.0 million
were converted into Common Shares in 2001 and 2000, respectively.
o Net foreign currency translation adjustments of $(42,684,000) and
$(22,574,000) were recognized in 2001 and 2000, respectively.
9. 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.
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19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and
Shareholders of ProLogis Trust:
We have reviewed the accompanying consolidated condensed balance sheets
of ProLogis Trust and subsidiaries as of March 31, 2001, and the related
consolidated condensed statements of earnings and comprehensive income and the
consolidated condensed statements of cash flows for the three months ended March
31, 2001 and 2000. These financial statements are the responsibility of the
Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to be
in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet of
ProLogis Trust and subsidiaries as of December 31, 2000, and in our report dated
March 15, 2001, we expressed an unqualified opinion on that statement. In our
opinion, the information set forth in the accompanying consolidated condensed
balance sheet as of December 31, 2000, is fairly stated in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 9, 2001
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with ProLogis'
Consolidated Condensed Financial Statements and the notes thereto included in
Item 1 of this report. See also ProLogis' 2000 Annual Report on Form 10-K.
The statements contained in this discussion that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are based on current
expectations, estimates and projections about the industry and markets in which
ProLogis operates, management's beliefs, and assumptions made by management.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. Factors which may affect outcomes and results include: (i) changes
in general economic conditions in ProLogis' markets that could adversely affect
demand for ProLogis' facilities and the creditworthiness of ProLogis' customers,
(ii) changes in financial markets, interest rates and foreign currency exchange
rates that could adversely affect ProLogis' cost of capital and its ability to
meet its financial needs and obligations, (iii) increased or unanticipated
competition for distribution facilities in ProLogis' target market cities; and
(iv) those factors discussed in ProLogis' 2000 Annual Report on Form 10-K.
Results of Operations
Three Months Ended March 31, 2001 and 2000
ProLogis' net earnings attributable to Common Shares were $44.0 million for
the three months ended March 31, 2001 as compared to $44.9 million for the same
period in 2000. For the three months ended March 31, 2001, basic and diluted per
share net earnings attributable to Common Shares were $0.26 and $0.25 per share,
respectively. Basic and diluted per share net earnings attributable to Common
Shares were $0.28 per share for the same period in 2000.
The CDFS business segment provides capital for ProLogis to redeploy into its
development activities in addition to generating profits that contribute to
ProLogis' total income. ProLogis' income from this segment increased by $19.1
million in 2001 over 2000, primarily the result of the number of dispositions of
facilities developed by ProLogis to entities in which ProLogis maintains an
ownership interest, such as ProLogis North American Properties Fund II and
ProLogis European Properties Fund, as well as to third parties. The 2001
increases in the CDFS business segment income were offset by an $11.1 million
decrease from 2000 in the property operations segment's income. This operating
segment's net income includes rental income and net rental expenses from
facilities directly owned by ProLogis and also its share of the income of its
unconsolidated entities that engage in property operations segment activities.
Income from ProLogis' temperature-controlled distribution operations decreased
in 2001 from 2000 by $10.7 million, primarily due to losses incurred in the
European operations. See "-- Property Operations", "-- CDFS Business" and "--
Temperature-Controlled Distribution Operations".
ProLogis' investment in Kingspark Holding S. A. ("Kingspark S. A."), an
industrial distribution facility development company in the United Kingdom was
accounted for under the equity method in 2000. ProLogis included its share of
the income from Kingspark S. A. and its subsidiaries in the CDFS business
segment. ProLogis owned 100% of the non-voting preferred stock of Kingspark S.
A. and recognized substantially all economic benefits of Kingspark S. A. and its
subsidiaries through January 1, 2001. On January 5, 2001, ProLogis acquired an
ownership interest in the voting common stock of Kingspark S. A resulting in
ProLogis having control of Kingspark S. A. Accordingly, as of January 5, 2001,
the accounts of Kingspark S. A. and its subsidiaries are consolidated in
ProLogis' condensed financial statements along with ProLogis' other
majority-owned and controlled subsidiaries and partnerships.
Property Operations
ProLogis owned or had ownership interests in the following operating
facilities as of the dates indicated:
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March 31,
----------------------------------------------
2001 2000
--------------------- ----------------------
Square Square
Number Footage Number Footage
------ ----------- ------ -----------
Direct ownership (1).......... 1,242 125,885,043 1,266 127,750,345
ProLogis California (2)....... 78 12,720,307 78 11,751,208
ProLogis North American
Properties Fund I (3)....... 36 8,962,549 -- --
ProLogis North American
Properties Fund II (4)...... 26 4,162,645 -- --
ProLogis European Properties
Fund and ProLogis European
Properties S.a.r.l. (5)..... 110 15,958,676 80 10,273,249
----- ----------- ----- -----------
1,492 167,689,220 1,424 149,774,802
===== =========== ===== ===========
----------
(1) Includes operating facilities owned by ProLogis and its consolidated
entities. The decrease in 2001 from 2000 is primarily the result of the
formation of ProLogis North American Properties Fund I in June 2000 and
ProLogis North American Properties Fund II in 2001, whose entire portfolios
consist of operating facilities that were previously directly owned by
ProLogis. In 2001, includes 11 operating facilities aggregating 710,246
square feet owned by Kingspark S. A. and its subsidiaries that were
previously accounted for under the equity method. In 2000, ProLogis' share
of the income from the operating facilities of Kingspark S. A. and its
subsidiaries was included in the CDFS business segment.
(2) ProLogis has had a 50.0% ownership interest in ProLogis California since
its inception. See Note 3 to ProLogis' Consolidated Condensed Financial
Statements in Item 1.
(3) ProLogis has a 41.3% ownership interest as of March 31, 2001 in ProLogis
North American Fund I which was formed on June 30, 2000. All operating
facilities owned by this entity were previously directly owned by ProLogis.
See Note 3 to ProLogis' Consolidated Condensed Financial Statements in Item
1.
(4) ProLogis has a 20.0% ownership interest as of March 31, 2001 in ProLogis
North American Fund II which was originally formed on June 30, 2000. All
operating facilities owned by this entity were previously directly owned by
ProLogis. See Note 3 to ProLogis' Consolidated Condensed Financial
Statements in Item 1.
(5) As of March 31, 2001, ProLogis' ownership interest in ProLogis European
Properties Fund is 41.8%. As of March 31, 2000, ProLogis had a 44.6%
ownership interest in the ProLogis European Properties Fund. See Note 3 to
ProLogis' Consolidated Condensed Financial Statements in Item 1.
ProLogis' property operations segment income consists of the: (i) net
operating income from the operating facilities that are owned by ProLogis
directly or through its consolidated entities and (ii) the income recognized by
ProLogis under the equity method from its investments in unconsolidated entities
engaged in property operations. See Note 7 to ProLogis' Consolidated Condensed
Financial Statements in Item 1. The amounts recognized under the equity method
are based on the net earnings of each unconsolidated entity and include:
interest income and interest expense, depreciation and amortization expenses,
general and administrative expenses, income taxes and foreign currency exchange
gains and losses (with respect to ProLogis European Properties Fund and ProLogis
European Properties S.a.r.l.). ProLogis' net operating income from the property
operations segment was as follows (in thousands) (see Note 7 to ProLogis'
Consolidated Condensed Financial Statements in Item 1):
Three Months Ended
March 31,
---------------------
2001 2000
--------- ---------
Facilities directly owned by ProLogis and its
consolidated entities:
Rental income..................................... $ 119,764 $ 120,809
Property operating expenses....................... 6,758 6,547
--------- ---------
Net operating income (1)....................... 113,006 114,262
--------- ---------
Income from the ProLogis California................. 3,067 3,099
Income from ProLogis North American Properties
Fund I (2)........................................ 1,352 --
Income from ProLogis North American Properties
Fund II (2)....................................... 341 --
Income from ProLogis European Properties Fund (3)... 454 7,324
Income from ProLogis European Properties S.a.r.l.
(3)............................................... 36 4,928
---------- ---------
Total property operations segment.............. $ 118,256 $129,613
========== =========
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------------
(1) The fluctuations in rental expenses between years is primarily the result
of the changes in the composition of the directly owned facilities in each
year in addition to increased rental expense recoveries (as a percentage of
total rental expenses) in each year. Rental expenses, before recoveries
from tenants were 26.4% of rental income for 2001 and 24.6% of rental
income for 2000. Total rental expense recoveries were 78.6% and 78.0% of
total rental expenses in 2001 and 2000, respectively. The increase in
rental expense recoveries as a percentage of total rental expenses reflects
ProLogis' emphasis on on-site property management teams and the
effectiveness of the ProLogis Operating System(TM). Net operating income in
2001 includes $0.5 million of net operating income from facilities owned by
Kingspark S. A. and its subsidiaries. In 2000, the net operating income
from the facilities owned by Kingspark S. A. and its subsidiaries was
reported under the equity method and included in the CDFS business segment.
(2) ProLogis North American Properties Fund I and ProLogis North American
Properties Fund II began operations on June 30, 2000.
(3) In 2001, ProLogis' share of the income of ProLogis European Properties Fund
and ProLogis European Properties S.a.r.l. includes net foreign currency
losses of $0.8 million and $0.2 million, respectively. In 2000, ProLogis'
share of the income of ProLogis European Properties Fund and ProLogis
European Properties S.a.r.l. includes net foreign currency gains of $5.1
million and $3.3 million, respectively. Excluding net foreign currency
exchange gains and losses, ProLogis' share of the income of ProLogis
European Properties Fund would have been $1.3 million and $2.2 million for
2001 and 2000, respectively. Excluding net foreign currency exchange gains
and losses, ProLogis' share of the income of ProLogis European Properties
S.a.r.l. would have been $229,000 and $1.6 million for 2001 and 2000,
respectively. ProLogis European Properties Fund's income decreased in 2001
from 2000 primarily due to higher interest expense in 2001 due to higher
debt levels. ProLogis recognized income under the equity method related to
ProLogis European Properties S.a.r.l. in 2001 for only six days.
The facilities that ProLogis develops are not always pre-leased at the start
of construction. In addition, ProLogis may acquire facilities that are
underleased at the time of acquisition. While these situations will reduce
ProLogis' overall occupancy rate below its stabilized level in the short-term,
they do provide opportunities to increase revenues. The term "stabilized" means
that capital improvements, repositioning, new management and new marketing
programs (or development and marketing, in the case of newly developed
facilities) have been in effect for a sufficient period of time (generally 12
months) to achieve stabilized occupancy (typically 93%, but ranging from 90% to
95%, depending on the submarket and product type). ProLogis has been successful
in increasing occupancies on acquired and developed facilities during their
initial months of operation, resulting in an occupancy rate of 94.6% and a
leased rate of 95.6% for stabilized facilities owned by ProLogis and its
consolidated and unconsolidated entities as of March 31, 2001. The average
increase in rental rates for both new and renewed leases on previously leased
space (8.5 million square feet) for all facilities including those owned by
ProLogis' consolidated and unconsolidated entities during 2001 was 20.2%. During
2001, the net operating income (rental income less net rental expenses)
generated by ProLogis' "same store" portfolio of operating facilities
(facilities owned by ProLogis and its consolidated and unconsolidated entities
that were in operation throughout both 2001 and 2000) increased by 3.90% over
2000.
There has been minimal impact of the California energy situation and the
attendant increase in utility costs on ProLogis' income from the property
operations segment. ProLogis' customers are responsible for their direct utility
bills and ProLogis' facilities have minimal common utility charges, which are
generally included in amounts recovered from customers under the terms of the
lease agreements. Given the typical use of ProLogis' distribution facilities
(bulk distribution and light manufacturing and assembly uses), ProLogis believes
that its customers' total utility expenses are a small portion of the total
expenses related to the operations within ProLogis' facilities.
CDFS Business
Income from ProLogis' CDFS business segment consists primarily of: (i) the
profits from the disposition of land parcels and facilities that were developed
by ProLogis and disposed of to customers or to entities in which ProLogis has an
ownership interest; (ii) development fees earned by ProLogis; and (iii) income
recognized under the equity method from ProLogis' investment in the Kingspark S.
A. and its subsidiaries in 2000 (Kingspark S. A. and its subsidiaries are
consolidated in 2001). Kingspark S. A. and its subsidiaries engage in CDFS
business activities in the United Kingdom similar to those activities performed
directly by ProLogis. In 2000, ProLogis recognized 95% of the net earnings of
Kingspark S. A. and its subsidiaries under the equity method that includes:
interest income and interest expense (net of capitalized amounts), general and
administrative expense (net of capitalized amounts), income taxes and foreign
currency exchange gains and losses.
22
23
The CDFS business segment operations increased in volume for the three
months in 2001 over the same period in 2000; consequently, ProLogis' income from
this segment has increased in each year. The CDFS business segment income is
comprised of the following (in thousands):
Three Months Ended
March 31,
---------------------
2001 2000
---------- ---------
Net gains on disposition of land parcels and
facilities developed (1)...................... $ 40,450 $ 17,271
Development fees and other, net................. 2,404 1,673
Income from Kingspark S.A. and its subsidiaries
(2)........................................... -- 4,820
---------- ---------
$ 42,854 $ 23,764
========== =========
----------
(1) Represents gains from the disposition of land parcels and facilities
developed as follows:
o 2001: 76 acres; 5.6 million square feet; $365.0 million of proceeds
o 2000: 39 acres; 2.1 million square feet; $92.9 million of proceeds
(2) Kingspark S. A. and its subsidiaries' income in 2000 includes:
o Gains from the disposition of land parcels and facilities developed
(9 acres; 0.2 million square feet; $24.3 million of proceeds; net gains
of $2.6 million);
o Development fees and other miscellaneous net income of $2.6 million;
o Deferred and current income tax expense of $0.8 million; and
o Foreign currency exchange gains of $0.4 million
Temperature-Controlled Distribution Operations
ProLogis recognizes income from the temperature-controlled distribution
operations segment of its business under the equity method. ProLogis' share of
the net income or loss of ProLogis Logistics and Frigoscandia S.A. was as
follows (in thousands) (see Notes 3 and 7 to ProLogis' Consolidated Condensed
Financial Statements in Item 1):
Three Months Ended
March 31,
----------------------
2001 2000
---------- ----------
Income (loss) from ProLogis Logistics.......... $ (1,744) $ 2,871
Loss from Frigoscandia S.A..................... (7,728) (1,674)
---------- ----------
Total temperature-controlled
distribution operations
segment............................ $ (9,472) $ 1,197
========== ==========
Amounts recognized under the equity method of accounting from ProLogis
Logistics and Frigoscandia S.A. includes interest income and interest expense,
depreciation and amortization expense, general and administrative expense,
income taxes and foreign currency exchange gains and losses (with respect to
Frigoscandia). ProLogis recognizes in excess of 99% the net earnings of each
entity in 2001, as compared to 95% in 2000.
CSI's operating capacity was comparable in both three-month periods. The
decrease in ProLogis' share of ProLogis Logistics' net earnings from 2000 to
2001 of $4.6 million is primarily attributable to higher interest expense as a
result of increasing external debt by $125.0 million. The proceeds from the
borrowings of ProLogis Logistics were used to repay $125.0 million of
outstanding notes and accrued interest due to ProLogis. See "-- Liquidity and
Capital Resources -- Credit Facilities".
Frigoscandia's operating capacity was comparable in both three-month
periods. ProLogis' share of Frigoscandia S.A.'s net losses includes net foreign
currency exchange losses of $1.4 million and $2.2 million in 2001 and 2000,
respectively. Excluding these foreign currency exchange losses, ProLogis
recognized $6.8 million less income under the equity method in 2001 than it
recognized in 2000 from its investment in Frigoscandia S.A. The increase in
Frigoscandia S.A.'s net loss in 2001 from the loss recognized in 2000 is
primarily due to lower occupancy levels, principally the result of the reduction
in inventories of beef and pork products by the German and French governments.
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ProLogis believes that the factors that contributed to the decline in
operating performance of Frigoscandia are temporary and can be partially
mitigated in the short-term by reductions in general and administrative costs
and other operating costs. However, there is no assurance that these factors are
temporary or that some or all of these factors will not continue past 2001.
ProLogis and Frigoscandia are currently monitoring the recent outbreak of foot
and mouth disease in Europe. At this time, the effect (positive or negative), if
any, on the demand for temperature-controlled distribution services and the
related transportation services offered by Frigoscandia cannot be determined.
Other Income and Expense Items
Interest Expense
Interest expense is a function of the level of borrowings outstanding
offset by interest capitalization with respect to development activities.
Interest expense was $39.4 million in 2001 and $42.0 million in 2000 ($39.6
million assuming ProLogis had consolidated the financial statements of Kingspark
S. A. and its subsidiaries in 2000). Total interest expense in 2000, assuming
consolidation, is lower due to the effects of interest capitalization by
Kingspark S. A. and its subsidiaries.
Capitalized interest was $8.1 million in 2001 and $4.2 million in 2000
($6.5 million assuming ProLogis had consolidated the financial statements of
Kingspark S. A. and its subsidiaries in 2000). Capitalized interest levels are
reflective of ProLogis' cost of funds and the level of development activity in
each year.
Gain (Loss) on Disposition of Real Estate
Gain on disposition of real estate represents the net gains from the
disposition of operating facilities that were acquired or developed within the
property operations segment. Generally, ProLogis disposes of facilities in the
property operations segment because such facilities are considered to be
non-strategic facilities or to complement the portfolio of developed facilities
that are acquired by entities in which ProLogis maintains an ownership interest.
Non-strategic facilities are assets located in markets or submarkets that are no
longer considered target markets as well as assets that were acquired as part of
previous portfolio acquisitions that are not consistent with ProLogis' core
portfolio based on the asset's size or configuration.
Property operations segment dispositions were as follows:
o 2001: 1.6 million square feet; $62.9 million of proceeds; net loss
of $1.7 million (offset by a gain of $0.5 million recognized upon the
contribution of ProLogis' 49.9% investment in the common stock of
ProLogis European Properties S.a.r.l. to ProLogis European Properties
Fund), and
o 2000: 0.7 million square feet; $26.4 million of proceeds; net gains of
$5.1 million.
Foreign Currency Exchange Losses
ProLogis recognized net foreign currency exchange losses of $3.2 million and
$6.5 million for 2001 and 2000, respectively. Had ProLogis consolidated the
financial statements of Kingspark S. A. and its subsidiaries in 2000, foreign
currency exchange losses for 2000 would have been $6.1 million. Foreign currency
exchange gains and losses are primarily the result of the remeasurement and
settlement of intercompany debt and the remeasurement of third party debt of
ProLogis' foreign subsidiaries. Fluctuations in the foreign currency exchange
gains and losses recognized in each period are a product of movements in certain
foreign currency exchange rates, primarily the euro and the pound sterling and
the level of intercompany and third party debt outstanding that is denominated
in currencies other than the U.S. dollar.
Income Taxes
ProLogis is taxed as a REIT for federal income tax purposes and is not
required to pay federal income taxes if minimum distribution and income, asset
and shareholder tests are met. ProLogis Development Services is not a qualified
REIT subsidiary for tax purposes. Also, the foreign countries in which ProLogis
operates do not recognize REITs under their respective tax laws. Accordingly,
ProLogis recognizes income taxes as appropriate and in accordance with GAAP with
respect to the taxable earnings of ProLogis Development Services and its foreign
subsidiaries.
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25
Current income tax expense recognized in 2001 and 2000 was $3.4 million and
$117,000, respectively (a benefit of $0.4 million assuming ProLogis had
consolidated the financial statements of Kingspark S. A. and its subsidiaries in
2000). Current income tax expense is higher in 2001 primarily due to the
increased level of income recognized by ProLogis' taxable subsidiaries in the
CDFS business segment. Deferred income tax expense was $3.4 million and zero in
2001 and 2000, respectively ($1.4 million assuming ProLogis had consolidated the
financial statements of Kingspark S. A. and its subsidiaries in 2000). ProLogis'
deferred tax component of total income taxes is a function of each year's
temporary differences (items that are treated differently for tax purposes than
for book purposes) as well as the need for a deferred tax valuation allowance to
adjust certain deferred tax assets (primarily deferred tax assets created by tax
net operating losses) to their estimated realizable value.
Environmental Matters
ProLogis has not experienced any environmental condition on its facilities,
which materially adversely affected its results of operations or financial
position nor is ProLogis aware of any environmental liability that ProLogis
believes would have a material adverse effect on its business, financial
condition or results of operations.
Liquidity and Capital Resources
Overview
ProLogis considers its liquidity and ability to generate cash from
operations as well as its financing capabilities (including proceeds from the
disposition of facilities) to be adequate and expects it to continue to be
adequate to meet its anticipated development, acquisition, operating and debt
service needs as well as its shareholder distribution requirements.
ProLogis' future investing activities are expected to consist of: (i)
acquisitions of existing facilities in key distribution markets in the property
operations segment; (ii) the acquisition of land for future development and the
development of distribution facilities in the CDFS business segment for future
disposition to entities in which ProLogis maintains an ownership interest or to
third parties; and (iii) certain temperature-controlled distribution facility
expansions and, to a limited extent, investments in additional
temperature-controlled distribution facilities. Temperature-controlled
investments will be made as deemed necessary to achieve strategic objectives
with respect to targeted markets in the United States or to address specific
customer needs in the United States and Europe. ProLogis' future investing
activities are expected to be primarily funded with:
o cash generated by operations;
o the proceeds from the disposition of facilities developed to third
parties;
o the proceeds from the disposition of facilities to entities in which
ProLogis maintains an ownership interest, such as ProLogis European
Properties Fund or other entities that may be formed in the future; and
o utilization of ProLogis' revolving credit facilities.
In the short-term, borrowings on and subsequent repayments of ProLogis'
unsecured revolving credit facilities will provide ProLogis with adequate
liquidity and financial flexibility to efficiently respond to market
opportunities. As of May 10, 2001, on a combined basis, ProLogis had
approximately $389.8 million of short-term borrowing capacity available under
its U.S. dollar denominated and multi-currency unsecured revolving credit
facilities (see "-- Credit Facilities"). ProLogis will continue to evaluate the
public debt markets with the objective of reducing its short-term borrowings and
extending debt maturities on favorable terms.
Within ProLogis European Properties Fund, ProLogis has access to 396.9
million euros (the currency equivalent of approximately $349.9 million as of
March 31, 2001) of third party equity capital in Europe that has been committed
primarily by institutional investors through 2002 to fund acquisitions of
ProLogis' completed stabilized European developments and acquisitions of other
facilities from third parties. ProLogis European Properties Fund has a
multi-currency secured, revolving credit facility in the currency equivalent of
500.0 million euros that is utilized in conjunction with the committed equity to
provide additional capital for its acquisitions. As of March 31, 2001, 95.4
million euros and 73.6 million pounds sterling (the currency equivalent of
approximately $189.2 million) was outstanding on the 500.0 million euro credit
facility. As of March 31, 2001, ProLogis no longer guarantees this credit
agreement. In April 2001, ProLogis European Properties Fund placed over 212.0
million euros (the currency equivalent of approximately $186.9 million as of
March 31, 2001) of permanent commercial mortgage-backed securities. The proceeds
were used to repay borrowings on the credit agreement.
25
26
Cash Operating Activities
Net cash provided by operating activities was $135.1 million in 2001 and
$93.3 million in 2000. The increase is primarily the result of the increased
number of operating facilities in 2001. See "-- Results of Operations --
Property Operations". Cash provided by operating activities exceeded the cash
distributions paid on Common Shares in 2001 and 2000.
Cash Investing and Cash Financing Activities
In 2001, ProLogis' investing activities provided net cash of $228.9 million
and financing activities used net cash of $382.5 million. Proceeds received from
the dispositions of real estate and the repayments of loans by and distributions
received from ProLogis' unconsolidated entities were used to fund real estate
investments and repay borrowings on ProLogis' line of credit. In 2000, ProLogis
used net cash of $70.9 million in financing activities, which was primarily
funded by borrowings on its line of credit.
Credit Facilities
ProLogis has an unsecured credit agreement that provides for a $475.0
million unsecured revolving line of credit. ProLogis Logistics and ProLogis
Development Services may also borrow under the credit agreement, with such
borrowings guaranteed by ProLogis. As of March 31, 2001, ProLogis had no
borrowings outstanding on the unsecured line of credit and ProLogis was in
compliance with all covenants contained in the credit agreement. As of March 31,
2001, ProLogis Logistics had borrowed $125.0 million under the credit agreement
and ProLogis Development Services had no borrowings under the credit agreement.
ProLogis has a credit agreement that provides for a 325.0 million euro
multi-currency, unsecured revolving line of credit (the currency equivalent of
approximately $286.6 million as of March 31, 2001). As of March 31, 2001, there
were 132.8 million euros (the currency equivalent of approximately $120.2
million) of borrowings outstanding on the line of credit and ProLogis was in
compliance with all covenants contained in the credit agreement.
Commitments
As of March 31, 2001, ProLogis had letters of intent or contingent
contracts, subject to ProLogis' final due diligence, for the acquisition of 1.7
million square feet of operating facilities at an estimated acquisition cost of
$41.4 million. The foregoing transactions are subject to a number of conditions,
and ProLogis cannot predict with certainty that they will be consummated. In
addition, as of March 31, 2001, ProLogis had $558.4 million of budgeted
development costs for developments in process, of which $305.1 million was
unfunded.
On January 11, 2001, ProLogis announced a Common Share repurchase program
under which it may repurchase up to $100.0 million of its Common Shares. The
Common Shares will be repurchased from time to time in the open market and in
privately negotiated transactions, depending on market prices and other
conditions. As of March 31, 2001, no common shares had been repurchased.
On March 30, 2001, ProLogis called for the redemption of its outstanding
Series A cumulative, redeemable preferred shares of beneficial interest ("Series
A preferred shares") at the price of $25.00 per share, plus $0.2481 in accrued
and unpaid dividends, for an aggregate redemption price of $25.2481 per share
(the "Redemption Price"). The shares were redeemed on May 8, 2001 at a total
cost of $136.3 million.
ProLogis has entered into a subscription agreement to make additional
capital contributions to ProLogis European Properties Fund of 84.4 million euros
(the currency equivalent of approximately $74.4 million as of March 31, 2001)
through 2002. Also, ProLogis is committed to invest an additional $2.0 million
in the non-cumulative preferred stock of PhatPipe Inc. during 2001. See Note 3
to ProLogis' Consolidated Condensed Financial Statements in Item 1.
As of March 31, 2001, Frigoscandia AB had a 138.5 million euro credit
agreement (increased to 185.0 million in April 2001). ProLogis has guaranteed
100% of the borrowings under the agreement. The currency equivalent of
approximately $122.3 million was outstanding as of March 31, 2001. Additionally,
in April 2001, the currency equivalent of approximately $45.9 million was
borrowed under the credit agreement. The agreement expires on September 28, 2001
and contains a provision to extend the due date until December 28, 2001.
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27
ProLogis European Properties Fund has a credit agreement with two
international banks for a multi-currency secured revolving credit facility in
the currency equivalent of 500.0 million euros. The credit agreement matures in
October 2002. Borrowings can be denominated in pound sterling or the euro.
As of March 31, 2001, 95.4 million euros and 73.6 million pound sterling were
outstanding on the line (the currency equivalent of approximately $189.2 million
as of March 31, 2001). As of March 31, 2001, ProLogis no longer guarantees this
credit agreement.
ProLogis has guaranteed a 140.0 million French franc (the currency
equivalent of approximately $18.8 million as of March 31, 2001) unsecured loan
outstanding of ProLogis European Properties S.a.r.l.
As of March 31, 2001, ProLogis North American Properties Fund II has a
$165.0 million short-term borrowing arrangement outstanding which is due June
25, 2001. ProLogis North American Properties Fund II intends to obtain permanent
secured financing which will be used to repay its short-term borrowings.
ProLogis has guaranteed the 100% of the amount outstanding.
Distribution and Dividend Requirements
ProLogis' current distribution policy is to pay quarterly distributions to
shareholders based upon what it considers to be a reasonable percentage of cash
flow and at the level that will allow ProLogis to continue to qualify as a REIT
for tax purposes. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, annual distributions are expected to be consistently higher than
annual earnings.
On February 23, 2001, ProLogis paid a quarterly distribution of $0.345 per
Common Share to shareholders of record on February 9, 2001. The distribution
level for 2001 was set by ProLogis' Board of Trustees in December 2000 at $1.38
per Common Share.
The annual dividend rates on ProLogis' preferred shares are $2.35 per
cumulative redeemable Series A preferred share, $4.27 per cumulative redeemable
Series C preferred share, $1.98 per cumulative redeemable Series D preferred
share and $2.1875 per cumulative redeemable Series E preferred share.
On January 31, 2001, ProLogis paid quarterly dividends of $0.5469 per
cumulative redeemable Series E preferred share. On March 30, 2001, ProLogis paid
quarterly dividends of $0.5875 per cumulative redeemable Series A preferred
share, $1.0675 per cumulative redeemable Series C preferred share and $0.495 per
cumulative redeemable Series D preferred share.
Pursuant to the terms of its preferred shares, ProLogis is restricted from
declaring or paying any distribution with respect to the Common Shares unless
and until all cumulative dividends with respect to the Preferred Shares have
been paid and sufficient funds have been set aside for dividends for the then
current dividend period with respect to the preferred shares.
Funds from Operations
Funds from operations attributable to Common Shares increased $12.9 million
to $100.7 million for 2001 from $87.8 million for 2000.
Funds from operations does not represent net income or cash from operating
activities in accordance with GAAP and is not necessarily indicative of cash
available to fund cash needs, which is presented in the Consolidated Condensed
Statement of Cash Flows in ProLogis' Consolidated Condensed Financial Statements
in Item 1. Funds from operations should not be considered as an alternative to
net income as an indicator of ProLogis' operating performance or as an
alternative to cash flows from operating, investing or financing activities as a
measure of liquidity. Additionally, the funds from operations measure presented
by ProLogis will not necessarily be comparable to similarly titled measures of
other REITs. ProLogis considers funds from operations to be a useful
supplemental measure of comparative period operating performance and as a
supplemental measure to provide management, financial analysts, potential
investors and shareholders with an indication of ProLogis' ability to fund its
capital expenditures and investment activities and to fund other cash needs.
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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,
--------- ---------
2001 2000
--------- ---------
Net earnings attributable to Common Shares......... $ 44,007 $ 44,938
Add (Deduct):
Real estate related depreciation and
amortization.................................. 37,139 38,728
Loss (gain) on disposition of non-CDFS business
segment assets................................ 1,198 (5,108)
Foreign currency exchange losses, net........... 3,004 6,522
Deferred income tax benefit..................... (3,420) --
ProLogis' share of reconciling items of
unconsolidated entities.......................
Real estate related depreciation and
amortization.................................. 17,380 14,239
Gain on disposition of non-CDFS business
segment assets................................ (5) (312)
Foreign currency exchange (gains) losses, net... 3,001 (10,637)
Deferred income tax expense benefit............. (1,599) (566)
--------- ---------
Funds from operations attributable to Common
Shares.......................................... $ 100,705 $ 87,804
========= =========
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2001, no significant change had occurred in ProLogis'
interest rate risk or foreign currency risk as discussed in ProLogis' 2000
Annual Report on Form 10-K.
PART II
Item 4. Submission of Matters to Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Share Dividends
15.1 Letter from Arthur Andersen LLP regarding unaudited financial
information dated May 9, 2001
(b) Reports on Form 8-K:
Items Financial
Date Reported Statements
-------- ---------- ------------
None
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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 10, 2001
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Share Dividends
15.1 Letter from Arthur Andersen LLP regarding unaudited financial
information dated May 9, 2001