-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SmIayliRhJVlLG3jTjiqZILAO2zCN0UB049mywl+DSoe2aOS2MFPPkH0r9zlAsrD 0rD+fMBCvbC3YK39qqBEgw== 0000950131-99-001857.txt : 19990330 0000950131-99-001857.hdr.sgml : 19990330 ACCESSION NUMBER: 0000950131-99-001857 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROLOGIS TRUST CENTRAL INDEX KEY: 0000899881 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 742604728 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12846 FILM NUMBER: 99576465 BUSINESS ADDRESS: STREET 1: 14100 EAST 35TH PLACE CITY: AURORA STATE: CO ZIP: 80011 BUSINESS PHONE: 3033759292 MAIL ADDRESS: STREET 1: 14100 EAST 35TH PLACE CITY: AURORA STATE: CO ZIP: 80011 FORMER COMPANY: FORMER CONFORMED NAME: SECURITY CAPITAL INDUSTRIAL TRUST DATE OF NAME CHANGE: 19931228 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to . Commission File Number 1-12846 ---------------- PROLOGIS TRUST (Exact name of registrant as specified in its charter) Maryland 74-2604728 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 14100 East 35th Place Aurora, Colorado 80011 (Address of principal executive offices and zip code) (303) 375-9292 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of Each Class on which registered ------------------- --------------------- Common Shares of Beneficial Interest, par value $0.01 Per share New York Stock Exchange Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share New York Stock Exchange Series B Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share New York Stock Exchange Series D Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Based on the closing price of the registrant's shares on March 22, 1999, the aggregate market value of the voting shares held by non-affiliates of the registrant was $1,417,219,848. As of March 22, 1999, there were outstanding approximately 123,755,133 common shares of beneficial interest of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the 1999 annual meeting of its shareholders are incorporated by reference in Part III of this report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Item Description Page ---- ----------- ---- PART 1 1. Business........................................................... 1 ProLogis Trust..................................................... 1 1998 Strategic Accomplishments..................................... 2 Business Strategy.................................................. 4 ProLogis Operating System(TM)...................................... 5 Operating Strategy................................................. 6 Investment Strategy................................................ 10 Financing Strategy................................................. 12 ProLogis Management................................................ 13 Officers and Trustees of ProLogis.................................. 14 Employees.......................................................... 17 Competition........................................................ 17 Environmental Matters.............................................. 18 Insurance Coverage................................................. 18 2. Properties......................................................... 18 Product Classification............................................. 18 Geographic Distribution............................................ 19 Facilities......................................................... 20 Partnerships....................................................... 30 ProLogis Development Services...................................... 32 Unconsolidated Subsidiaries........................................ 32 3. Legal Proceedings.................................................. 34 4. Submission of Matters to a Vote of Security Holders................ 34 PART II 5. Market for the Registrant's Common Equity and Related Stockholder 34 Matters............................................................ Dividend Reinvestment and Share Purchase Plan...................... 36 6. Selected Financial Data............................................ 36 7. Management's Discussion and Analysis of Financial Condition and 38 Results of Operations.............................................. Overview........................................................... 39 Results of Operations.............................................. 41 Environmental Matters.............................................. 46 Liquidity and Capital Resources.................................... 46 Funds from Operations.............................................. 51 Year 2000.......................................................... 52 7A. Quantitative and Qualitative Disclosure About Market Risk.......... 55 8. Financial Statements and Supplementary Data........................ 55 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Matters............................................................ 55 PART III 10. Directors and Executive Officers of the Registrant................. 56 11. Executive Compensation............................................. 56 12. Security Ownership of Certain Beneficial Owners and Management..... 56 13. Certain Relationships and Related Transactions..................... 56 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 56
PART I Item 1. Business ProLogis Trust ProLogis Trust ("ProLogis"), formerly Security Capital Industrial Trust, is a global owner and lessor of industrial distribution facilities with nearly 1,250 facilities leased to industrial space users throughout North America and Europe, making it the largest publicly held, U.S.-based company to do so. ProLogis engages in the acquisition, development, marketing, leasing and long- term ownership of industrial distribution facilities and the development of master-planned distribution parks and corporate distribution facilities for its customers. ProLogis deploys capital in markets that ProLogis believes have excellent long-term growth prospects and where it can achieve a strong market position through the acquisition and development of flexible facilities designed for both warehousing and light manufacturing uses. In addition, ProLogis, through its investments in two companies, has a network of refrigerated distribution facilities operating in North America and Europe. ProLogis is focused exclusively on meeting the distribution space needs of international, national, regional and local industrial real estate users through the ProLogis Operating System(TM) and believes it has distinguished itself from its competition by being the only entity that combines all of the following: . An international operating platform dedicated to providing distribution facilities to a targeted customer base of the 1,000 largest users of distribution facilities, 404 of which are currently ProLogis customers; . An organizational structure and service delivery system built around the customer--ProLogis believes its service approach is unique to the real estate industry as it combines international scope and expertise with strong local presence in each of its target markets; and . A disciplined investment strategy based on proprietary research that identifies high growth markets with sustainable demand for ProLogis' distribution facilities. As of January 31, 1999, ProLogis, including its unconsolidated subsidiaries, owned 134.4 million square feet of industrial distribution facilities, including 111.8 million square feet of operating facilities and 15.8 million square feet of refrigerated distribution facilities. Additionally, ProLogis had 6.8 million square feet of distribution facilities under development at a total expected investment of $324.2 million in 25 North American and European markets. As of January 31, 1999, ProLogis, including its unconsolidated subsidiaries, owned or controlled approximately 4,900 acres of land for the future development of approximately 86.0 million square feet of distribution facilities. As of January 31, 1999, 93.4% of the operating facilities and facilities under development (based on cost) directly owned by ProLogis were located in the United States, 4.6% were located in Europe and 2.0% were located in Mexico. No individual market (based on cost) represents more than 10% of ProLogis' facilities, although ProLogis' concentration in the Los Angeles/Orange County market is expected to be 10.3% after the merger, discussed in "--Proposed Merger Transaction", is completed. ProLogis expects that a significant portion of its future growth, after completion of the merger discussed below, will be in its European target markets. ProLogis' objective is to increase shareholder value by achieving long-term sustainable growth in cash flow. ProLogis has built a global network of distribution facilities and, through the ProLogis Operating System(TM), ProLogis has become a leading provider of distribution facilities in North America and Europe. The ProLogis Operating System(TM), comprised of the Market Services Group, the Global Services Group and the Global Development Group, utilizes ProLogis' international network of distribution facilities to meet customer expansion and reconfiguration needs globally. ProLogis is a real estate investment trust ("REIT") organized under Maryland law and has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Proposed Merger Transaction ProLogis has entered into an Agreement and Plan of Merger dated as of November 16, 1998, as amended, (the "Merger Agreement") with Meridian Industrial Trust, Inc. ("Meridian"), whereby Meridian would be merged with and into ProLogis (the "Merger"). Meridian is a publicly traded REIT that owns and leases industrial and refrigerated distribution facilities in the United States. The Merger Agreement, which must be approved by at least two-thirds of the holders of ProLogis common shares of beneficial interest, par value $0.01 per share ("Common Shares"), and a majority of the holders of Meridian's common stock, provides that each share of Meridian common stock will be exchanged for 1.10 Common Shares, plus $2.00 in cash. Meridian has approximately 34.2 million shares of common stock and common stock equivalents outstanding as of March 22, 1999. Additionally, ProLogis will assume Meridian's outstanding liabilities (approximately $613.2 million as of December 31, 1998) and will exchange a new share of ProLogis cumulative redeemable preferred shares with an 8.75% annual dividend rate ($2.1875 per share) for each outstanding share of Meridian Series D preferred stock (aggregate liquidation value of $50 million). ProLogis and Meridian's Joint Proxy Statement and Prospectus was mailed to ProLogis' shareholders and Meridian's stockholders on March 2, 1999. ProLogis' shareholders and Meridian's stockholders will vote on the Merger at special meetings to be held on March 30, 1999. Upon completion of the Merger, ProLogis is expected to have a total market capitalization of approximately $6.5 billion, based upon the closing price of Common Shares on March 22, 1999 and the outstanding principal amount of indebtedness of the two companies on such date. The combined real estate assets, including assets held by unconsolidated subsidiaries and joint ventures, will consist of approximately 142.0 million square feet of operating distribution facilities and 16.4 million square feet of refrigerated distribution facilities. Also, the combined company, including unconsolidated subsidiaries and joint ventures, will have 10.8 million square feet of distribution facilities under development at a total expected investment of $473.1 million. The combined company, including unconsolidated subsidiaries and joint ventures, will own distribution facilities in 94 North American and European markets and will own or control approximately 5,100 acres of land for the future development of approximately 87.9 million square feet of distribution facilities. The combined company will continue to qualify as a REIT under the Code. ProLogis intends to replace its existing $350.0 million unsecured line of credit and Meridian's existing $350.0 million unsecured line of credit with a new $700.0 million credit facility upon consummation of the Merger. ProLogis has a commitment from Nationsbank, N.A., Commerzbank and Chase Bank of Texas for this new credit facility. ProLogis expects that $550.0 million of this credit facility will be an unsecured line of credit with the remainder a short-term borrowing arrangement. Borrowings on the credit facility will bear interest generally at LIBOR plus an applicable percentage based upon ProLogis' senior unsecured debt rating (LIBOR plus 1.00% based upon ProLogis' current debt rating) plus a 0.20% annual facility fee. The new credit facility will contain financial covenants consistent with ProLogis' existing credit agreement. 1998 Strategic Accomplishments Operating Accomplishments . ProLogis' 19.2% growth in funds from operations in 1998 over 1997 was driven by its successful operating and investment strategies: . 24% of growth produced by the operating performance of ProLogis' stabilized facilities; . 45% of growth produced by ProLogis' refrigerated distribution operations; . 14% of growth produced by facilities acquired in 1998 and 1997; and . 17% of growth produced by facilities developed by ProLogis and completed in 1998 and 1997 and other development activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity of Capital Resources--Funds From Operations" and "--Investment Strategy--Investment Analysis". 2 . ProLogis' net operating income (rental revenues less rental expenses and property management fees) in 1998 increased from $257.5 million to $317.9 million and ProLogis generated earnings from operations of $110.4 million in 1998, an increase of $74.5 million over 1997. ProLogis' cash flow provided by operating activities for 1998 was $238.3 million, an increase of $45.8 million over 1997. . ProLogis' stabilized portfolio of 97.6 million square feet was 96.32% leased (95.81% occupied) as of December 31, 1998. Also, as of December 31, 1998, ProLogis' total operating portfolio of 104.5 million square feet was 94.35% leased (93.04% occupied). . During 1998, ProLogis leased approximately 32.3 million square feet of distribution space in 1,046 transactions. Rental rates on both new leases and renewals of leases on previously leased space increased 15.2% in 1998. . As of December 31, 1998, ProLogis had over 2,650 customers leasing its industrial distribution facilities in North America and Europe, of which 232 were multiple market customers (as compared to 190 multiple market customers as of December 31, 1997). ProLogis directs its marketing efforts primarily at the 1,000 largest global users of distribution facilities. As of December 31, 1998, 399 of these 1,000 targeted customers were leasing 41.2% of ProLogis' operating portfolio, as compared to 315 such customers leasing 38.2% of ProLogis' operating portfolio as of December 31, 1997. Investing Accomplishments . ProLogis' investment activities with respect to industrial distribution facilities were more heavily focused on markets outside the United States in 1998. As a percentage of total cost, ProLogis' real estate investments located outside the United States aggregated 6.9% (4.6% in Europe and 2.3% in Mexico) as of December 31, 1998 as compared to 2.1% (1.1% in Europe and 1.0% in Mexico) as of December 31, 1997. . The development of distribution facilities continues to be a major component of ProLogis' investment strategy. During 1998, ProLogis started development of 10.4 million square feet at a total expected investment of $426.6 million. Of the 1998 development starts, facilities for future use by ProLogis (referred to as inventory facilities) aggregated 5.7 million square feet at a total expected investment of $233.6 million. The remaining development starts of 4.7 million square feet at a total expected investment of $193.0 million were facilities developed for future sale or on a fee basis (referred to as corporate distribution facilities). . As of December 31, 1998, ProLogis had 8.0 million square feet under development at a total expected investment of $328.1 million (5.5 million square feet of inventory facilities and 2.5 million square feet of corporate distribution facilities). . As of December 31, 1998, ProLogis owned 1,673 acres of land for future development of distribution facilities and had an additional 962 acres under control. Of the total acres owned, 33 acres are in Europe and of the total acres under control, 34 acres are in Europe. . Acquisitions of distribution facilities aggregated 6.0 million square feet at a total expected investment of $219.7 million in 1998. . During 1998, ProLogis invested in the preferred stock of three companies. The three companies, through subsidiaries, own and lease refrigerated distribution facilities, develop industrial distribution facilities or own and lease industrial distribution facilities (see "--Properties-- Unconsolidated Subsidiaries"). These investments are: . January 1998 acquisition of Frigoscandia S.A. that, through its acquisition of Frigoscandia AB, operates approximately 192.0 million cubic feet (11.4 million square feet) of refrigerated distribution facilities in nine European countries as of December 31, 1998; . August 1998 acquisition of Kingspark S.A. that, through its acquisition of Kingspark Group Holdings Limited, operates a corporate distribution facilities business in the United Kingdom. This business had approximately 0.6 million square feet under development and owned or controlled in excess of 2,000 acres of land for future development of distribution facilities as of December 31, 1998; and 3 . December 1998 acquisition of Garonor Holdings S. A. that, through its acquisition of Garonor S.A., owns and leases 5.3 million square feet of industrial distribution facilities in France. Financing Accomplishments . ProLogis completed common equity offerings generating net proceeds of $130.3 million from the public sale of 5.5 million Common Shares. . ProLogis issued 10.0 million Series D cumulative redeemable preferred shares in April 1998 generating net proceeds of $241.5 million. . ProLogis completed two offerings of senior unsecured notes generating net proceeds of $371.5 million ($250.0 million issued in July at a coupon rate of 7.05% and $125.0 million issued in October at a coupon rate of 7.0%). . ProLogis reduced the interest rate on its $350.0 million unsecured line of credit from LIBOR plus 0.95% to LIBOR plus 0.75%. . ProLogis has arranged approximately $532.0 million of secured financing agreements at interest rates ranging from of 7.08% per annum to 7.58% per annum. As of December 31, 1998, $66.0 million was funded under one agreement. Through March 22, 1999, an additional $239.0 million has been funded and the remaining fundings will occur by the end of the second quarter of 1999. . ProLogis' debt as a percentage of undepeciated book capitalization was 41.3% as of December 31, 1998. Business Strategy ProLogis' objective is to increase shareholder value by achieving long-term sustainable growth in cash flow. ProLogis has developed a business strategy that combines an operational plan, an investment plan and a financing plan to achieve its overall objective. ProLogis was originally formed in June 1991 to take advantage of two strategic opportunities identified as a result of extensive market research: . the opportunity to build a distribution and light manufacturing asset base at costs significantly below replacement cost and a land inventory at attractive prices; and . the opportunity to create, for the first time, a national operating company which would differentiate itself from its competition through its ability to meet a corporate customer's distribution facility requirements on a national, regional and local basis. In 1997, ProLogis began expanding its operations into Mexico and Europe to meet the needs of its targeted national and international customers as they expanded and reconfigured their distribution facility requirements globally. Consistent with ProLogis' objective of expanding its services platform for its targeted customer base, in 1997 and 1998 ProLogis further expanded to serve the refrigerated logistics needs of its customers by acquiring an international refrigerated distribution network. Today, ProLogis' business is organized into the following segments: . acquisition and development of industrial distribution facilities for long-term ownership and leasing in the United States, Europe (a portion of which is owned through an unconsolidated subsidiary) and Mexico; . operation of refrigerated distribution facilities through unconsolidated subsidiaries (one operating in the United States and Canada and one operating in nine countries in Europe); and . development of distribution facilities for future sale or on a fee basis in the United States and Mexico and in the United Kingdom through an unconsolidated subsidiary. 4 This global network of distribution facilities has ProLogis well positioned to become the global leader in this rapidly consolidating industry. ProLogis Operating System(TM) The cornerstone of ProLogis' business strategy is the ProLogis Operating System(TM). The ProLogis Operating System(TM), which is comprised of the Market Services Group, the Global Services Group and the Global Development Group, has been designed to provide substantial benefits to existing and prospective ProLogis customers, including: . Relocation Capability. Because user requirements can change frequently, ProLogis' presence in 90 North American and European markets permits ProLogis to accommodate the reconfiguration needs of its customers by moving an existing customer within a market or between markets both nationally and globally. . Expansion Capability. ProLogis, through its development program, land inventory and existing facilities, can work effectively with existing and prospective customers whose growing business needs require them to expand their distribution facilities. This expansion may result in relocating the customer to larger ProLogis spaces within a market or in developing a facility specifically for the customer. . Centrally Coordinated Program. ProLogis provides a single point of contact for multi-location global users of distribution facilities through the Global Services Group, whose members are responsible for building long-term customer relationships and ensuring that all of ProLogis' services and products are consistent in quality. ProLogis' experience to date suggests that many major corporate customers prefer working with one firm to meet their distribution facility requirements. . Development Capability. ProLogis' team of development professionals build facilities to meet ProLogis' customers' needs. ProLogis incorporates the latest technology with respect to building design and building systems and has developed consistent standards and procedures that it strictly adheres to in the development of all of its facilities. Market Services Group The Market Services Group is comprised of six senior officers, 22 market officers and 101 property management and leasing professionals. ProLogis' market officers have extensive experience in marketing distribution space and are responsible for understanding the needs of existing and prospective customers in their respective markets. To meet such needs, market officers utilize their extensive knowledge of local market conditions, including the cost and availability of alternative space, and are supported by their team of property management and leasing professionals. A key role of the market officers is assisting the Global Services Group in identifying ProLogis' customers with multiple market requirements. ProLogis believes that the market officers' access to national and international ProLogis resources improves their ability to serve customers in the local market. Market officers do not develop projects or borrow or commit capital. Their focus is strictly on managing the facilities in their markets, creating and maintaining relationships with distribution space users and industrial brokers, marketing ProLogis products and identifying potential acquisition, development and leasing opportunities in their target market cities. Global Services Group The Global Services Group, comprised of 19 professionals, is dedicated to providing service to the 1,000 largest users of distribution space that ProLogis has identified as targeted customers, with the primary focus on making ProLogis the preferred provider of distribution space to these companies. The Global Services Group is headquartered in Denver and Amsterdam and has regional offices in Atlanta, Chicago, the Los Angeles metropolitan area and the New York City metropolitan area. A key function of this group is identifying 5 companies whose reconfiguration and expansion plans will create future development or multiple market opportunities to meet these customers' needs. Global Services Group professionals build long-term relationships with ProLogis' customers and provide a single point of contact to simplify and streamline the execution of such customers' distribution space plans. An ancillary benefit of this extensive contact with customers is the ability to be on the forefront of international and national distribution and logistics trends. Global Development Group The Global Development Group, comprised of 61 professionals, focuses substantial research and development efforts on creating industry-leading master-planned distribution parks and buildings. Members of the Global Development Group have extensive experience in the development and construction of these facilities. The Global Development Group is comprised principally of architects, engineers and construction professionals who oversee every aspect of the land planning and building design processes. These professionals also monitor the construction process and oversee the performance of third-party general contractors. The group's development specialists and project managers operate regionally to better serve their markets. The project managers supervise each project with oversight from ProLogis' management, pursuant to uniform standards, procedures and specifications which have been carefully designed to achieve consistent quality. ProLogis believes the depth and breadth of experience within the Global Development Group enhances the effectiveness of the Global Services Group and provides the Market Officers with a distinct competitive advantage for development opportunities in their respective markets. The customer focus of the ProLogis Operating System(TM) provides for a high-quality service level and a single point of contact for distribution solutions on a global basis and positions ProLogis to build customer relationships which will generate additional business opportunities. Operating Strategy ProLogis' operating strategy is to achieve significant market presence through acquisitions and master-planned distribution park development in its target market cities and selected submarkets of those cities. ProLogis' target market cities and submarkets are determined based upon ProLogis' market research. ProLogis defines market presence not only in terms of square feet of facilities and acres of development land owned, but also by the extent ProLogis has developed relationships with customers in such markets. ProLogis' operating strategy is designed to meet the needs of today's distribution space users, which means providing functional, cost-effective facilities and a comprehensive level of service, and to shape the future trends of the industry through innovation, service and product leadership. Property Management ProLogis provides active and effective local management in order to increase cash flow and to enhance the long-term economic performance of its facilities. In order to provide a higher level of service to its customers, ProLogis initiated direct property management services in January 1994 through a property management company that was an affiliate of Security Capital Group Incorporated ("Security Capital"), ProLogis' largest shareholder. This company provided property management services exclusively for ProLogis' facilities. On September 8, 1997, ProLogis acquired the property management company from Security Capital (see "--ProLogis Management"). ProLogis' property management group seeks to provide exceptional customer service and attention to customer needs. The group develops and implements proprietary operating, recruiting and training systems to achieve consistent levels of performance and professionalism in all target market cities it manages. Through feedback received from customers who are periodically surveyed, ProLogis' property management group can address customers' needs and concerns in a timely manner. 6 As of December 31, 1998, ProLogis' property management group was actively managing 102.2 million square feet (97.8%) of ProLogis' operating portfolio of 104.5 million square feet in the United States, Mexico and Europe. Research-Based Growth-Oriented Markets Based on its proprietary research, ProLogis focuses on selected distribution markets in the United States, Mexico and Europe where supply and demand factors allow for increased occupancy levels and rental rates. Target market cities and submarkets are selected when ProLogis' research indicates that demand for distribution and light manufacturing space is stable to strong in the near to medium term. ProLogis believes that the primary factors influencing future supply and demand for distribution facilities in ProLogis' target market cities will be continued job and population growth, related regional and local company growth, potential for reconfiguration of existing distribution networks and quality and cost of labor. ProLogis focuses its investments in three types of distribution markets: export/import growth markets, low cost manufacturing markets and growth distribution markets. In particular, ProLogis believes that the investment opportunities in these types of markets in Mexico and Europe provide significant future growth opportunities. Consequently, beginning in 1997, ProLogis has increased its investments in Mexico and Europe. See "--ProLogis Trust". Export/Import Growth Markets ProLogis believes that the growth in exports and imports represents favorable growth prospects for related distribution space. The dollar volume of U.S. exports increased over $400.0 billion from 1987 to 1998 and the dollar volume of U.S. imports increased from $477.4 billion in 1989 to $919.0 billion for 1998, as reported by the U.S. Census Bureau, Foreign Trade Division. To capitalize on this trend, ProLogis has targeted key ports (air, sea and land) which are well positioned to benefit from continued combined growth in trade with the Pacific Rim, Mexico and Europe. The total dollar volume of exports from the United States to these three international trade areas grew by approximately $130.8 billion from 1992 to 1998, as reported by the U.S. Census Bureau, Foreign Trade Division. In line with ProLogis' strategy to target key ports, ProLogis entered both the Rotterdam and Amsterdam markets during 1997. Rotterdam is one of the largest ports in the world and, in addition to its ability to accommodate all sizes of ocean-going vessels, its success is linked to its comprehensive infrastructure that facilitates distribution throughout Europe by air, rail, truck and waterways. Schiphol Airport in Amsterdam is one of the fifteen largest airports in the world based on passenger and cargo volume. Low Cost Manufacturing Markets ProLogis has targeted markets that possess long-term cost and quality of labor advantages for domestic and foreign manufacturers. One important influence on ProLogis' target market cities in Mexico and on those with close proximity to Mexico is the impact of the maquiladora (U.S./Mexico twin plant) program, which encourages companies to manufacture and assemble products close to the Mexican border. After paying a nominal value added tax, companies participating in this program ship finished products into the United States or to foreign countries for distribution or further processing. Mexico ranked as the second largest trading partner with the United States for 1998 and export and import trade between the United States and Mexico should continue to be positively affected by the North American Free Trade Agreement. ProLogis believes that the prospects for low cost manufacturing growth in these target markets are excellent. 7 Growth Distribution Markets The distribution markets that ProLogis targets must have strong potential for growth. One indicator of this potential is the access to transportation networks, including interstate highways, rail service, air cargo, intermodal facilities and/or port terminals. These markets must also offer cost advantages in terms of transportation rates, rental costs and state income and inventory taxes and there must be strong overnight truck delivery area demographics within a 500-mile radius. Additionally, these markets must have a high ratio of distribution space per capita. Market Presence ProLogis believes that by being a significant local owner and developer in a given market, it can generate above-market rental rates and occupancy levels because of its ability to reduce turnover by meeting its customers' needs to either expand or contract, by relocating them within existing inventory of distribution space or by developing new facilities. A significant market presence provides ProLogis with increased access to potential leasing and corporate distribution facilities services transactions because the industrial brokerage community and corporate users are often motivated to develop a relationship with the significant owners and developers in a particular market in order to achieve their respective business objectives. The opportunity to compete for the majority of customers' space requirements in each target market is a crucial factor in achieving ProLogis' operating objectives. Customers ProLogis' objective is to develop a customer base in each target market city which is diverse in terms of industry concentration and represents a broad spectrum of international, national, regional and local distribution space users who have potential for growth in demand for space directly owned by ProLogis. ProLogis had over 2,650 customers in the 97.3 million square feet of occupied industrial distribution space directly owned by ProLogis. As of December 31, 1998, 399 of ProLogis' targeted 1,000 largest users of distribution facilities leased 41.2% of ProLogis' operating distribution space. Of these, 232 were multiple market customers. As of December 31, 1997, 315 of the targeted 1,000 largest users of distribution facilities leased 38.2% of ProLogis' operating distribution space, of which 190 were multiple market customers. Customer Base ProLogis believes that having a large number of customers with generic space requirements in each submarket will provide the opportunity to maximize cash flow through intensively managing its customer base. At the same time, exposure to overall occupancy declines is reduced by having a diversified customer base in each submarket. ProLogis' largest customer accounted for less than 1.2% of ProLogis' 1998 rental income (on an annualized basis), and the annualized base rent for ProLogis' 20 largest customers accounted for only approximately 12.56% of ProLogis' 1998 rental income (on an annualized basis). Certain square footage characteristics of ProLogis' leases in effect as of December 31, 1998, representing a mix of local, regional, national and international customers, are summarized as follows:
Number Percentage of of Total Square Footage Leased Leases Square Footage --------------------- ------ -------------- 0-10,000............................................ 1,112 6.07% 10,001-25,000....................................... 966 16.54 25,001-50,000....................................... 564 20.51 50,001-100,000...................................... 322 23.46 100,001 and above................................... 191 33.42 ----- ------ Total........................................... 3,155 100.00% ===== ======
8 Diversified Customer Lease Expirations and Renewals Between December 31, 1998 and December 31, 1999, leases representing approximately 17.97% of the leased square feet in ProLogis' portfolio will expire, creating opportunities for ProLogis to increase rents upon renewal or replacement of those leases. As of December 31, 1998, ProLogis' lease expirations for operating facilities directly owned by ProLogis is as follows:
Percentage of Total Rentable Square Annual Base Annual Base Rents Footage Subject to Base Rents Under Represented by Expiring Leases (1) (2) Expiring Leases (1) (2) Expiring Leases (1) (2) ----------------------- ----------------------- ----------------------- 1998(3)................. 4,033,107 $ 14,117,928 3.50% 1999.................... 16,407,535 58,357,800 14.47% 2000.................... 15,875,697 63,759,744 15.81% 2001.................... 16,045,361 67,740,780 16.80% 2002.................... 13,754,066 57,482,532 14.25% 2003.................... 14,220,441 61,259,304 15.19% 2004.................... 3,681,694 14,817,420 3.67% 2005.................... 2,637,979 13,230,432 3.28% 2006.................... 2,419,682 10,807,392 2.68% 2007.................... 3,183,399 15,614,691 3.87% 2008.................... 3,504,641 18,101,641 4.49% Thereafter.............. 1,500,997 8,000,984 1.99% ---------- ------------ ------- Total............... 97,264,599 $403,290,648 100.00% ========== ============ =======
- -------- (1) Assumes customers do not exercise renewal options. (2) Represents base rent at lease expiration, annualized. (3) Includes 2,587,496 square feet expiring on December 31, 1998 and 1,445,611 square feet of space leased on a month-to-month basis. Occupancy Levels The success of ProLogis' operating strategy is reflected in the strong occupancy levels consistently achieved since its formation in 1991. The following table shows the total square footage of total operating facilities and stabilized operating facilities owned by ProLogis on each date and the historical percentage physical occupancy of such facilities as of such date.
Operating Portfolio Stabilized Portfolio (1) (1) (2) --------------------- -------------------- Square Square Footage Occupancy Footage Occupancy ----------- --------- ---------- --------- December 31, 1998.............. 104,539,940 93.04% 97,622,114 95.81% December 31, 1997.............. 90,842,484 92.02% 85,111,069 95.45% December 31, 1996.............. 80,556,110 91.21% 71,106,728 96.27% December 31, 1995.............. 58,493,330 93.48% 49,296,615 96.74% December 31, 1994.............. 39,053,995 92.40% 32,409,549 98.36% December 31, 1993.............. 11,393,881 91.22% 8,385,646 99.90% December 31, 1992.............. 1,911,204 91.18% 1,649,195 100.00% December 31, 1991(3)........... 406,000 100.00% 406,000 100.00%
- -------- (1) Includes facilities directly owned by ProLogis. (2) See definition of Stabilized in "--Investment Strategy--Investment Analysis." (3) ProLogis was formed in June 1991. 9 Leases Net leases, modified gross leases and gross leases as of December 31, 1998 represented 59.9%, 37.4% and 2.7%, respectively, of the total square footage under lease by ProLogis' customers. Under net leases, real estate taxes, insurance costs and operating expenses are passed through to customers. Under modified gross leases, real estate taxes and insurance costs in excess of specified amounts and operating expenses are passed through to customers. Under gross leases, ProLogis, as landlord, pays all real estate taxes, insurance costs and operating expenses. Investment Strategy ProLogis' investment strategy is to build an international distribution network in its target markets at prices below replacement cost and to build an inventory of land at attractive prices to support its corporate distribution facilities services and master-planned distribution park development programs. ProLogis makes direct investments in distribution facilities and land for future development as well as investments in unconsolidated subsidiaries which own and lease industrial and refrigerated distribution facilities and develop corporate distribution facilities. Investment Analysis Since inception, ProLogis' primary investment activity has focused on developing and acquiring industrial distribution facilities with prospects for long-term growth in cash flow. ProLogis has a strong preference toward facilities which are generic, and appeal to a broad base of potential customers. Such facilities are easily modified for use by different customers at reasonable costs and provide opportunities to generate superior cash flow with low on-going capital needs. In addition, ProLogis believes it has developed an industry-leading product design. This product incorporates design guidelines and construction standards that make usage more convenient for the customers and also minimizes ongoing maintenance requirements and costs. Over the long term, ProLogis expects these characteristics to enhance its cash flow. Prospective investments are analyzed pursuant to several underwriting criteria, including purchase price, replacement cost, competition and other market factors and prospects for long-term growth in cash flow. ProLogis' development or acquisition decision is based upon the expected contribution of the facility to long-term cash flow growth. The expected cash flow contribution is based on an estimate of lease revenues assuming a stabilized vacancy factor which is generally 7%, less expenses not reimbursable by customers incurred in operating the property. Future estimates of residual value and, generally, the effects of debt financing are not considered in the calculation. ProLogis' Asset Services Group, comprised of 23 professionals, is responsible for facility and land acquisitions and related due diligence globally, as well as for ProLogis' asset optimization program. ProLogis' strategy for distribution facility acquisitions focuses on these principal components. .Market coverage. In addition to the professionals in the Asset Services Group, the 22 local Market Officers also assist in identifying opportunities in their respective markets. This staffing commitment permits in-depth acquisitions coverage of ProLogis' target markets and thorough due diligence conducted in accordance with uniform procedures. .Attainment of critical mass within each target market through acquisitions of distribution space and customers in targeted sub-markets and then opportunistically adding additional assets as attractive opportunities arise. ProLogis believes it has achieved critical mass in over 25 target market cities in the United States as of December 31, 1998. For distribution facilities which ProLogis has acquired, stabilized operations generally have been achieved six to 12 months after acquisition. The underwriting criteria for development projects allow 12 months from shell completion for achievement of stabilization; however, on average stabilization has been achieved in less than 12 months. In 1998, for inventory facilities developed that reached stabilization, the average time from shell completion to stabilization was 9.1 months. "Stabilized" means that capital improvements, repositioning, new management and new marketing programs (or development and marketing, in the case of newly developed 10 facilities) have been completed and in effect for a sufficient period of time (but in no case longer than 12 months) to achieve stabilized occupancy (typically 93%, but ranging from 90% to 95%, depending on the submarket and product type) at market rents. ProLogis has been successful in increasing overall occupancies on acquired and developed facilities during their initial months of operations resulting in an occupancy rate of 95.81% for stabilized facilities owned as of December 31, 1998. Development of Master-Planned Distribution Parks ProLogis' development activities concentrate on the development of industry-leading master-planned, distribution parks in target markets that demonstrate both strong demographic growth and excellent industrial real estate fundamentals, and in which ProLogis can achieve a significant market presence. ProLogis also develops facilities for major corporations and strong regional companies within the distribution parks, and occasionally on a stand- alone basis. The 61 professionals comprising the Global Development Group have extensive experience in development and construction of such facilities. ProLogis is taking advantage of opportunities to purchase land at or below market prices in order to provide a land inventory to meet the expansion and relocation needs of ProLogis' existing customer base and to further penetrate its target markets. As of December 31, 1998, ProLogis directly owned 1,673 acres of development land, which in the aggregate will permit the development of approximately 29.8 million square feet of additional distribution space in 37 markets. Also, as of December 31, 1998, ProLogis had 962 acres under options, letters of intent or contingent contracts, subject to the completion of due diligence, which, if acquired, will permit the development of approximately 16.0 million square feet of additional distribution space in 16 markets. Master-planned park development is a key component of ProLogis' objective of achieving long-term sustainable growth in cash flow. ProLogis' parks typically range in size from 25 to 150 acres in order to create strong identity and to permit economies of scale with respect to providing customer services. ProLogis' master-planned distribution parks include controls, covenants and regulations intended to maintain and enhance the long-term desirability of the parks and thereby attract and retain high quality distribution and light manufacturing customers. Inventory Development Program In ProLogis' master-planned distribution parks, ProLogis commences development of an inventory building when it perceives an emerging demand in a specific submarket from both existing ProLogis customers who are expanding and potential new customers whose leases for their current space are approaching expiration. By having an appropriate supply of distribution space, ProLogis can meet the expansion needs of existing customers and can accommodate new customers. From inception through December 31, 1998, ProLogis completed or commenced development of 27.4 million square feet of inventory buildings with a total expected investment of $1.0 billion, including 0.2 million square feet disposed of to date, in 41 target market cities in North America and Europe. Corporate Distribution Facilities Building facilities for customers enhances ProLogis' ability to meet customers' needs. ProLogis' corporate distribution facilities program is targeted to distribution customers whose facility requirements are generic, not special purpose, so as to facilitate the facility's future marketability and functionality. From inception through December 31, 1998, ProLogis completed or commenced development of corporate distribution facilities totaling 16.1 million square feet with a total expected investment of $598.0 million, including 2.7 million square feet that have been disposed of through December 1998. In addition, as of December 31, 1998, ProLogis was in active negotiations for 5.2 million square feet of additional corporate distribution facility projects globally. In 1998, ProLogis invested in a corporate distribution facilities company in the United Kingdom. This company had in excess of 2,000 acres of land for future development of corporate distribution facilities as of December 31, 1998. See "Properties--Unconsolidated Subsidiaries." 11 Refrigerated Logistics Business As of December 31, 1998, ProLogis had investments in and advances to two unconsolidated subsidiaries of $372.6 million. These two companies had 306.1 million cubic feet of refrigerated distribution facilities (114.1 million cubic feet in the United States and Canada and 192.0 million cubic feet in nine countries in Europe) as of December 31, 1998. The refrigerated logistics business operations are seasonal, in that demand for refrigerated distribution facilities is stronger during the third quarter of the calendar year and is at its lowest during the first quarter of the calendar year. These businesses have approximately 8,000 customers (800 customers in the United States and Canada and 7,200 customers in Europe) with no customer representing in excess of 10% of ProLogis' consolidated gross revenues. These businesses employ approximately 4,800 persons (2,200 employees in the United States and Canada and 2,600 employees in Europe) and each business considers its relationships with employees to be good. Approximately 1,100 employees in the United States are covered by a collective bargaining agreement. ProLogis believes that the capital-intensive nature of the refrigerated logistics industry creates significant barriers to entry, limiting new competitors. As a result of ProLogis' ongoing research into key logistics trends, ProLogis believes that its investments in refrigerated logistics businesses represent an important opportunity which should create significant shareholder value in the future. See "Properties--Unconsolidated Subsidiaries." Portfolio and Asset Optimization ProLogis develops and acquires facilities with a view to effective long- term operation and ownership. However, ProLogis continually reviews its asset base in light of prevailing market conditions. These reviews assist ProLogis in identifying facilities in its portfolio that no longer meet its long-term investment objectives. ProLogis' asset optimization program allows ProLogis to dispose of such assets and redeploy the proceeds, often through tax-deferred exchanges, into assets with better prospects for long-term cash flow growth. ProLogis' asset optimization strategy is based on the premise that it has a finite amount of investment capital and that this capital should be deployed where it can produce maximum cash flow growth. Financing Strategy ProLogis believes that a successful REIT should have the ability to access the equity and debt markets efficiently and expeditiously. ProLogis' capital markets ability permits it to capitalize on the acquisition and development opportunities which exist in its target market cities. The borrowing capacity available through ProLogis' $375.0 million unsecured lines of credit enables ProLogis to react quickly to investment opportunities between securities offerings. ProLogis' debt as a percentage of total undepreciated book capitalization was 41.3% as of December 31, 1998, a level that provides flexibility for ProLogis to prudently utilize debt as a financing tool. Accordingly, ProLogis has arranged 8 to 25-year secured credit facilities subsequent to December 31, 1998 and expects to continue to arrange similar secured and unsecured credit facilities in the future, the proceeds of which will be used primarily for the reduction of lines of credit balances incurred as a result of ProLogis' investment activities. Since inception in 1991, the strategic vision of ProLogis' management has taken ProLogis from a privately held to a publicly traded REIT and has produced a conservative balance sheet that provides sufficient incremental debt capacity to allow ProLogis to take advantage of future investment opportunities. ProLogis raised approximately $362.9 million through private placements of its Common Shares prior to its initial public offering in March 1994, which raised additional net proceeds of approximately $36.5 million. Subsequent to its initial public offering, ProLogis has raised approximately $3.2 billion in net proceeds from public sales of both debt and equity (common and preferred) securities. To meet its short-term borrowing needs, ProLogis has a $350.0 million unsecured line of credit that provides for interest at LIBOR plus 0.75%. ProLogis has an additional $25.0 million unsecured line of credit that allows for same-day borrowings at an overnight interest rate. This facility provides ProLogis with additional flexibility to manage its outstanding borrowings and minimize idle cash balances, thus reducing interest expense. In 12 connection with the Meridian merger, ProLogis has obtained a commitment from the agent banks to refinance its $350.0 million unsecured line of credit and increase its borrowing ability to $700.0 million. See "--ProLogis Trust-- Proposed Merger Transaction". ProLogis Management ProLogis' success depends upon management's ability to provide strategic and day-to-day management, research, investment analysis, acquisition and due diligence, development, marketing, asset management, capital markets, asset disposition, management information systems support and legal and accounting services. A significant portion of these services are provided internally by ProLogis' management, while certain other administrative services are supplemented by or provided by Security Capital pursuant to an administrative services agreement ("ASA"). The ASA provides ProLogis with services or supplements services performed by ProLogis personnel including, but not limited to, payroll and human resources, cash management, accounts payable, information systems support and other computer services, research, investor relations and insurance, legal and tax administration. These services are provided in exchange for a fee equal to Security Capital's cost of providing such services, plus an overhead factor of 20%, subject to a maximum of approximately $2.0 million for the period from September 8, 1997 to December 31, 1997 and $5.1 million for 1998. Costs incurred under the ASA were $1.1 million and $3.7 million in 1997 and 1998, respectively. The ASA has been renewed for an additional year expiring on December 31, 1999 with fees charged by Security Capital for this period to be based on negotiated rates for each service provided. ProLogis believes that the quality of its management should be assessed in light of the following factors: . Management Depth. ProLogis has several senior executives with the leadership, operational, investment and financial skills and experience to oversee the entire operations of the company. . Strategic Vision. ProLogis' management has demonstrated a strategic vision in determining an operating and investment focus that has provided favorable initial yields and long-term growth prospects. ProLogis' business strategy has focused on building an international distribution network at prices below replacement cost and a land inventory at attractive prices in selected distribution markets where demographic and supply factors have permitted high occupancies at increasing rents. Through the ProLogis Operating System(TM), ProLogis has become the first international operating company that has been able to address and service a corporate customer's distribution space requirements on an international, national, regional and local basis. . Research Capability. ProLogis' management has emphasized a research-based approach in determining appropriate investment opportunities. ProLogis divides its target market cities into numerous submarkets for analysis purposes. As part of the ASA, Security Capital Real Estate Research Group Incorporated, an affiliate of Security Capital, devotes substantial time to research, on a submarket-by-submarket basis, under the supervision of the senior officers of ProLogis. . Investment Committee Process. The internal investment committee provides ProLogis with discipline and guidance to allow ProLogis to achieve its investment goals. The 11 members of ProLogis' investment committee have extensive years of experience in the real estate industry. The internal investment committee evaluates all prospective investments pursuant to uniform underwriting criteria prior to submission of investment recommendations to the investment committee of the Board of Trustees (the "Board"). The quality of the investment committee process is evident from the ability of ProLogis to achieve its investment goals. . Acquisitions Capability/Due Diligence Process/Asset Optimization. ProLogis has experienced senior personnel dedicated to acquisition activities who perform intelligent and thorough due diligence in determining whether potential investments meet ProLogis' long-term objectives. ProLogis employs 23 full-time professionals performing these functions and has developed extensive uniform systems and procedures for analysis and due diligence to ensure that ProLogis maximizes its investment opportunities. . Development Capability. By internally developing projects, ProLogis has captured additional value which normally escapes through sales premiums paid to successful developers. ProLogis' 61 development 13 professionals have substantial development experience. ProLogis has engaged in substantial development of distribution space at attractive yields and believes that development will provide growth when the market for acquisitions becomes less favorable. . Operating Capability. ProLogis believes that management can substantially improve operating performance and achieve long-term sustainable growth in cash flow by actively and effectively managing assets. ProLogis conceived of and developed the ProLogis Operating System(TM) to effectively operate ProLogis' business and provide customers with an exceptional level of coordinated, comprehensive services, including property management. . Capital Markets Capability. ProLogis has been able to effectively raise equity and debt capital which has allowed ProLogis to achieve superior growth through investment. ProLogis enhances its ability to raise capital and acquire assets by its ability to effectively communicate ProLogis' strategy and performance to investors, sellers of property and the financial media. ProLogis' personnel prepare informational materials for and conduct periodic meetings with the investment community and analysts. ProLogis believes that successfully combining the foregoing attributes significantly enhances its ability to increase cash flow and its market valuation. ProLogis' cash flow from operating activities and market valuation have increased under the current administration. Officers and Trustees of ProLogis *K. Dane Brooksher--60--Mr. Brooksher was elected as a Trustee in October 1993. He has been Chairman and Chief Executive Officer of ProLogis since March 1999 and Co-Chairman and Chief Operating Officer of ProLogis from November 1993 to March 1999. Mr. Brooksher had comparable responsibilities with ProLogis' former management company from November 1993 to September 1997. Prior thereto, Mr. Brooksher was Area Managing Partner and Chicago Office Managing Partner of KPMG Peat Marwick, independent public accountants, where he served on the Board of Directors and Management Committee and as International Development Partner for Belgium and the Netherlands. Mr. Brooksher's term as Trustee expires in 1999. *Stephen L. Feinberg--54--Mr. Feinberg was elected as a Trustee in January 1993. Since 1970, he has been Chairman of the Board and Chief Executive Officer of Dorsar Investment Co., a diversified holding company with interests in real estate and venture capital. Mr. Feinberg is also a Director of Security Capital Preferred Growth, Continental Transmission Corporation, Harvill Press Limited, St. John's College, The Santa Fe Institute, and the Feinberg Foundation, Inc. He was formerly Chairman of the Board of St. John's College, and a former director of Farrar, Strauss and Gioroux, Inc. (a private publishing company), Molecular Informatics, Inc., Border Steel Mills, Inc., Springer Building Materials Corporation, Circle K Corporation, EnerServe Products, Inc., and Texas Commerce Bank-First State. Mr. Feinberg's term as trustee expires in 2001. Donald P. Jacobs--71--Mr. Jacobs was elected as a Trustee in February 1996. Mr. Jacobs has been a member of the J.L. Kellogg Graduate School of Management of Northwestern University since 1957, and Dean since 1975. Mr. Jacobs is a member of the Board of Directors of Commonwealth Edison and its parent company, Unicom, Hartmarx Corporation, Everen Securities, Inc. and Terex Corporation. He was formerly Chairman of the Public Review Board of Andersen Worldwide. From 1990 to 1992, Mr. Jacobs was Chairman of the Advisory Committee of the Oversight Board of the Resolution Trust Corporation for the third region; from 1975 to 1979, Chairman of the Board of AMTRAK; from 1970 to 1971, Co-Staff Director of the Presidential Commission on Financial Structure and Regulation; from 1963 to 1964, Senior Economist for the Banking and Currency Committee of the U. S. House of Representatives. Mr. Jacobs' term as Trustee expires in 2001. John T. Kelley III--58--Mr. Kelley has been an Advisory Trustee of ProLogis since January 1993. He is also a Trustee of Archstone Communities Trust, a REIT affiliated with Security Capital, and a director of Regency Realty Corporation. From 1987 to 1991, Mr. Kelley was Chairman of the Board of Kelley-Harris Company, Inc., El Paso, Texas (real estate investment company); from 1968 to 1987, he was Managing Director, 14 LaSalle Partners Limited, Chicago, Illinois (corporate real estate services). Mr. Kelley is also a director of Security Capital and a former director of Tri State Media. *Irving F. Lyons, III--49--Mr. Lyons was elected as a Trustee in March 1996. He has been President of ProLogis since March 1999 and Chief Investment Officer from March 1997. Mr. Lyons was Co-Chairman of ProLogis from March 1997 to March 1999 and from December 1993 to March 1997, he was Managing Director. Mr. Lyons had comparable responsibilities with ProLogis' former management company from January 1994 to September 1997. Prior thereto, Mr. Lyons was the Managing Partner of King & Lyons, a San Francisco Bay Area industrial real estate development and management company, since its inception in 1979. Mr. Lyons' term as Trustee expires in 2000. *William G. Myers--71--Mr. Myers was elected as a Trustee in January 1995. Mr. Myers is Chief Executive Officer of Ojai Ranch and Investment Company, Inc., Santa Barbara, California, which he founded in 1963 (agri-business and other investments). He was formerly a Trustee of Archstone Communities Trust, a REIT affiliated with Security Capital. Mr. Myers serves as a Director of S.E.E. International; the Library of Congress, James Madison Council; California Historical Society Foundation; and St. Joseph's Health & Retirement Foundation. He is also a Director of the Santa Barbara Botanic Gardens, Chalone Wine Group and the Nature Conservancy. Mr. Myers' term as Trustee expires in 2000. John E. Robson--68--Mr. Robson was elected as a Trustee in April 1994. Since October 1993, Mr. Robson has served as Senior Advisor of BancBoston Robertson Stephens, Inc., a San Francisco based investment banking firm. From 1989 to 1992, Mr. Robson served as Deputy Secretary of the United States Treasury. From 1986 to 1989, Mr. Robson was Dean and Professor of Management, Emory University School of Business Administration. From 1977 to 1985, he served as President and Chief Executive Officer and as Executive Vice President of G.D. Searle & Co. (pharmaceutical and consumer products). Mr. Robson is currently a director of Monsanto Company and Northrop Grumman Corporation. Mr. Robson's term as Trustee expires in 2000. J. Andre Teixeira--46--Mr. Teixeira was appointed as a Trustee in February 1999. He has been Region Manager, Ukraine and Belarus, and President, Coca- Cola Ukraine Limited since July 1998. From 1995 to 1998, Mr. Teixeira was Director of the Development Center, Europe, for Coca-Cola Greater Europe, Director, Brussels Operations, Coca-Cola Greater Europe, and Managing Director, Coca-Cola Services S.A. Mr. Teixeira was the Africa Group Account Executive, Development, for Coca-Cola from 1994 to 1995, and Director, Research & Development, Coca-Cola Greater Europe from 1990 to 1995. Mr. Teixeira's term as Trustee expires in 1999. *Thomas G. Wattles--47--Mr. Wattles was elected as a Trustee in January 1993. He was a Director of ProLogis' predecessor since its formation in June 1991. Mr. Wattles was Non-Executive Chairman of ProLogis from March 1997 to May 1998. Mr. Wattles was Co-Chairman and Chief Investment Officer of ProLogis from November 1993 to March 1997, and had comparable responsibilities with ProLogis' former management company from June 1991 to September 1997. Mr. Wattles' term as Trustee expires in 1999. Members of ProLogis' investment committee are designated by an asterisk (*). Under terms of the Merger Agreement, ProLogis intends to appoint two members of Meridian's board of directors as trustees of ProLogis upon completion of the Merger, which is expected to be March 30, 1999 (see "-- ProLogis Trust--Proposed Merger Transaction"). These two new ProLogis trustees are: John S. Moody--49--Mr. Moody has been a director of Meridian since 1996 and is a director and the Chairman and Chief Executive Officer of Cornerstone Properties, Inc., a publicly held REIT that became self-advised in June 1995. From April 1991 to June 1995, Mr. Moody was President and Chief Executive Officer of Deutsche Bank Realty Advisors, where he was responsible for a $2 billion real estate portfolio. Deutsche Bank Realty Advisors was a wholly- owned subsidiary of Deutsche Bank AG and acted as the real estate advisor to all Deutsche Bank-sponsored real estate in North America. Mr. Moody's professional affiliations include the Association of Foreign Investors in U.S. Real Estate and the Urban Land Institute. 15 Kenneth N. Stensby--59--Mr. Stensby has been a director of Meridian since 1996 and was President and Chief Executive Officer of United Properties, a large Minneapolis-based diversified real estate company, from 1974 until his retirement in January 1995. Mr. Stensby is past President of the National Association of Industrial and Office Parks and was a director of First Asset Realty Advisors, a pension advisory subsidiary of First Bank of Minneapolis. Senior Officers *Jeffrey H. Schwartz--39--Senior Managing Director and Chief Investment Officer for International Operations of ProLogis since December 1998, where he has overall responsibility for all international investment activities and operations. Mr. Schwartz was Managing Director of ProLogis from December 1994 to December 1998; he had comparable responsibilities with ProLogis' former management company from October 1994 to September 1997. Prior thereto, Mr. Schwartz was a founder and managing partner of The Krauss/Schwartz Company, one of the largest industrial real estate developers in Florida. Mr. Schwartz has been a Director of Security Capital European Realty since November 1997. *Walter C. Rakowich--41--Managing Director and Chief Financial Officer of ProLogis since December 1998, where he is responsible for worldwide corporate finance. From December 1997 to December 1998, Mr. Rakowich was Managing Director of ProLogis. Mr. Rakowich had comparable responsibilities with ProLogis' former management company from July 1994 to September 1997. Prior thereto, Mr. Rakowich was a consultant to ProLogis in the area of due diligence and acquisitions from October 1993 to June 1994. *John W. Seiple--40--Managing Director of ProLogis since December 1997, where he has been Chief Operating Officer for North American operations since December 1998. From November 1994 to December 1997, Mr. Seiple was Senior Vice President of ProLogis and from October 1993 to September 1997, he had comparable responsibilities with ProLogis' former management company. *Robert J. Watson--49--Managing Director of ProLogis since January 1993, where he has been the Chief Operating Officer for European operations since December 1998; he was formerly the Chief Operating Officer for North American operations. From January 1993 to September 1997, he had comparable responsibilities with ProLogis' former management company. *Ned K. Anderson--52--Managing Director of ProLogis since December 1998, where he has responsibility for the Pacific Region; from December 1993 to December 1998, Mr. Anderson was Senior Vice President of ProLogis. Mr. Anderson had comparable responsibilities with ProLogis' former management company from September 1994 to September 1997. Mr. Anderson was a partner at King & Lyons. *Steven K. Meyer--50--Managing Director of ProLogis since December 1998, where he has responsibility for the Central Region of the United States. Mr. Meyer was Senior Vice President of ProLogis from December 1995 to December 1998. Mr. Meyer had comparable responsibilities with ProLogis' former management company from September 1994 to September 1997. Prior thereto, from 1990 to July 1994, Mr. Meyer was Executive Vice President with Trammell Crow Company. Paul C. Congleton--44--Senior Vice President of ProLogis since December 1998, where he has responsibility for the Southeast Region. Mr. Congleton was Vice President of ProLogis from January 1995 to December 1998; from January 1995 to September 1997, he had comparable responsibilities with ProLogis' former management company. Prior thereto, from October 1990 to December 1994, he was Principal with Overland Company. Kent W. Johnson--45--Senior Vice President of ProLogis since July 1995, where he heads the Global Services Group; from July 1995 to September 1997, he had comparable responsibilities with ProLogis' former management company. Prior thereto, from March 1994 to June 1995, Mr. Johnson was National Director for Sequent Computer Systems; from January 1977 to March 1994, he held various positions with IBM, including National Account Director and Branch Manager. 16 M. Gordon Keiser, Jr.--54--Senior Vice President of ProLogis since October 1995 and Treasurer since December 1998, where he is responsible for relationships with ProLogis lenders; from October 1995 to September 1997, he had comparable responsibilities with ProLogis' former management company. Prior thereto, from August 1988 to October 1995, Mr. Keiser was Senior Vice President of JMB Realty Corporation, where he was responsible for corporate finance and capital markets financing. Previously, he was with KPMG Peat Marwick. Mr. Keiser is a Certified Public Accountant. Edward F. Long--42--Senior Vice President and Controller of ProLogis since December 1998, where he supervises accounting, financial reporting and forecasting. From January 1996 to December 1998, Mr. Long was Vice President and Controller of ProLogis; from June 1995 to September 1997, he had comparable responsibilities with ProLogis' former management company. Prior thereto, from December 1990 to June 1995, he was Director of Financial Services for Coopers & Lybrand in Central Florida and the Carolinas. Mr. Long is a Certified Public Accountant. David S. Morze--38--Senior Vice President of ProLogis since January 1999, where he has responsibility for the Mid-Atlantic Region. Mr. Morze was Vice President of ProLogis from March 1995 to December 1998; from March 1995 to September 1997, he had comparable responsibilities with ProLogis' former management company. Prior thereto, from May 1993 to March 1995, Mr. Morze was employed by the SARES*REGIS GROUP of Northern California, where he was responsible for marketing and leasing activities in the San Francisco Eastbay Industrial Market. Edward S. Nekritz--33--Senior Vice President of ProLogis since December 1998 and Secretary since March 1999, where he serves as General Counsel and oversees the provision of all legal services for ProLogis. Mr. Nekritz also focuses on strategic initiatives and is responsible for the coordination of ProLogis' international leasing and environmental compliance programs. From September 1995 to December 1998, Mr. Nekritz was Vice President of ProLogis; from September 1995 to September 1997, he had comparable responsibilities with ProLogis' former management company. Prior thereto, from October 1990 to September 1995, Mr. Nekritz was an attorney with Mayer, Brown & Platt. John R. Rizzo--49--Senior Vice President of ProLogis since January 1999, where he supervises development services related to construction management and corporate distribution facilities. Prior thereto, from 1983 to January 1999, Mr. Rizzo was with the Perini Corporation, where his most recent position was Senior Vice President and Chief Operating Officer of Perini Management Services Incorporated. Robin P. R. von Weiler--42--Senior Vice President of ProLogis since October 1997, where he is regional director for Northern Europe. Prior thereto, from April 1972 to September 1997, he was with DTZ Zadelhoff V.O.F., where his most recent position was Vice Managing Director, Real Estate Agent and Corporate Advisor. Mr. von Weiler is a registered Real Estate Agent and a Member of the Dutch Real Estate Agents Association. Employees ProLogis directly employs approximately 480 persons in the United States, Mexico and Europe and believes its relationship with its employees to be good. ProLogis' employees are not represented by a collective bargaining agreement. Competition In general, there are numerous other industrial facilities located in close proximity to each of ProLogis' facilities. The amount of rentable space available in any target market city could have a material effect on ProLogis' capacity to rent space and on the rents charged. In addition, in many of ProLogis' submarkets, institutional investors and owners and developers of industrial facilities (including other REITs) compete for the acquisition, development and leasing of industrial space. Many of these entities have substantial resources and experience. Competition for acquisition of existing distribution facilities from industrial capital sources and from other REITs has increased substantially in the past several years. 17 Environmental Matters Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, under or in its property. The costs of removal or remediation of such substances could be substantial. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such hazardous substances. The presence of such substances may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. ProLogis has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of the properties owned or being acquired at December 31, 1998, and ProLogis is not aware of any environmental condition with respect to any of its properties that is likely to be material. ProLogis has subjected each of its properties to a Phase I environmental assessment (which does not involve invasive procedures such as soil sampling or ground water analysis) by independent consultants. While some of these assessments have led to further investigation and sampling, none of the environmental assessments has revealed, nor is ProLogis aware of, any environmental liability (including asbestos-related liability) that ProLogis believes would have a material adverse effect on its business, financial condition or results of operations. No assurance can be given, however, that these assessments and investigations reveal all potential environmental liabilities, that no prior owner or operator created any material environmental condition not known to ProLogis or the independent consultants or that future uses or conditions (including, without limitation, customer actions or changes in applicable environmental laws and regulations) will not result in unreimbursed costs relating to environmental liabilities. Insurance Coverage ProLogis and its unconsolidated subsidiaries currently carry comprehensive liability, fire, flood, earthquake, environmental, extended coverage and rental loss insurance with respect to their facilities with policy specifications and insured limits customarily carried for similar facilities. ProLogis believes its facilities and the facilities of its unconsolidated subsidiaries are adequately insured; however, an uninsured loss could result in loss of capital investment and anticipated profits. Item 2. Properties Product Classification ProLogis' objective is to focus its acquisition and development activities primarily on generic distribution facilities with an average office finish level of less than 10%. Due to typically increased costs of retrofitting customer spaces, service center product will be acquired only on a very limited basis as part of portfolio acquisitions in which the majority of product being acquired is bulk distribution. The industrial real estate on which ProLogis focuses is typically used for storage, packaging, assembly, distribution and light manufacturing of consumer and industrial products. .Distribution. ProLogis' distribution space is adaptable for both distribution and light manufacturing or assembly uses. Based upon square footage, ProLogis' operating portfolio was 99% distribution and light manufacturing facilities as of December 31, 1998. The following characteristics generally define the distribution facilities which ProLogis owns and intends to acquire or develop in the future:
Typical Range ------- ----- Clear Height............ 22 ft.-24 ft. 18 ft.-30 ft. Building Depth.......... 180 ft.-240 ft. 140 ft.-300 ft. Loading................. Dock Dock or Dock and Grade Parking Ratio........... 0.9 spaces/1,000 sq. ft. 0.5 spaces/1,000 sq. ft. 2.0 spaces/1,000 sq. ft. Average Square Footage Per Customer........... 30,829 sq. ft. 4,500-200,000 sq. ft. Site Coverage........... 45% 30-50%
18 .Service Center. Under ProLogis' definition, service centers are multi- customer buildings that have a higher percentage of office space than distribution facilities and only have grade-level loading as opposed to truck dock loading. Service center product constituted approximately 1% of the square feet in ProLogis operating portfolio as of December 31, 1998. Geographic Distribution ProLogis has direct ownership of industrial distribution facilities in the United States, Mexico and Europe. In the United States and Mexico, ProLogis has organized its operations into geographic regions to more effectively manage its portfolio. These operating regions are: Mid-Atlantic, Southeast, Central (including Mexico) and Pacific. Within these four regions, ProLogis' facilities are located in 21 states and the District of Columbia and 40 cities (including four cities in Mexico). In Europe, ProLogis' facilities are located in four countries and six cities. The table below demonstrates the geographic distribution of ProLogis' portfolio (operating facilities and facilities under development). The table excludes land held for future development which represents less than 5% of ProLogis' total investment, based on cost as of December 31, 1998 and 1997. The table does not include facilities that are owned by ProLogis' unconsolidated subsidiaries which are discussed under " -- Unconsolidated Subsidiaries". The concentration of ProLogis' facilities is expected to increase in the Dallas (to 7.5%), Los Angeles (to 10.3%) and Columbus (to 3.8%) markets after the merger with Meridian is completed.
December 31, 1998 December 31, 1997 ----------------------- ----------------------- Percentage Percentage Number of Assets Based Number of Assets Based Facilities on Cost (1) Facilities on Cost (1) ---------- ------------ ---------- ------------ North American Markets: Atlanta, Georgia....... 104 7.15% 107 8.16% Austin, Texas.......... 37 2.22 32 2.25 Birmingham, Alabama.... 6 0.96 6 1.14 Charlotte, North Carolina.............. 29 2.41 27 2.48 Chattanooga, Tennessee. 5 0.43 5 0.51 Chicago, Illinois...... 40 4.89 36 4.93 Cincinnati, Ohio....... 43 3.15 38 2.86 Columbus, Ohio......... 21 2.10 17 2.08 Dallas/Ft. Worth, Texas................. 71 5.07 67 5.38 Denver, Colorado....... 26 2.46 23 2.20 East Bay (San Francisco), California............ 44 3.55 44 4.09 El Paso, Texas......... 27 2.33 26 2.64 Fort Lauderdale/Miami, Florida............... 11 1.49 7 1.02 Houston, Texas......... 74 4.73 70 4.68 Indianapolis, Indiana.. 41 3.15 42 3.79 Juarez, Mexico......... 4 0.26 3 0.29 Kansas City, Kansas/Missouri....... 29 1.57 28 1.78 Las Vegas, Nevada...... 14 1.50 14 1.75 Los Angeles/Orange County, California.... 29 6.38 22 5.45 Louisville, Kentucky... 8 0.97 3 0.55 Memphis, Tennessee..... 25 2.13 28 1.89 Monterrey, Mexico...... 8 1.04 5 0.55 Nashville, Tennessee... 27 1.66 24 1.66 I-95 Corridor, New Jersey................ 21 3.89 11 3.42 Oklahoma City, Oklahoma.............. 6 0.29 6 0.34 Orlando, Florida....... 17 1.16 15 1.11
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December 31, 1998 December 31, 1997 ------------------------ ------------------------ Percentage Percentage Number of Assets Based Number of Assets Based Facilities on Cost (1) Facilities on Cost (1) ---------- ------------ ---------- ------------ Phoenix, Arizona....... 25 1.32 25 1.59 Portland, Oregon....... 29 2.11 27 2.23 Reno, Nevada........... 17 1.29 19 2.05 Reynosa, Mexico........ 8 0.67 4 0.36 Rio Grande Valley, Texas................. 15 0.85 15 1.00 Salt Lake City, Utah... 9 1.46 7 1.41 San Antonio, Texas..... 46 2.70 50 3.30 San Diego, California.. 3 0.38 3 0.45 Seattle, Washington.... 10 1.34 9 1.39 South Bay (San Francisco), California............ 70 6.06 70 7.26 St. Louis, Missouri.... 15 1.13 11 0.92 Tampa, Florida......... 62 3.41 59 3.85 Tijuana, Mexico........ 2 0.26 -- -- Tulsa, Oklahoma........ 10 0.37 10 0.44 Washington D.C./Baltimore, Maryland.............. 39 3.98 40 5.00 Other.................. 8 0.46 7 0.34 ----- ------ ----- ------ 1,135 94.73% 1,062 98.59% ----- ------ ----- ------ European Markets: Amsterdam, Netherlands. 4 1.18% 1 0.33% London, England........ 1 0.97 -- -- Lyon, France........... 3 0.62 1 0.28 Paris, France.......... 4 0.82 1 0.25 Rotterdam, Netherlands. 2 0.45 2 0.55 Warsaw, Poland......... 5 1.23 -- -- ----- ------ ----- ------ 19 5.27% 5 1.41% ----- ------ ----- ------ Total................ 1,154(2) 100.00% 1,067(3) 100.00% ===== ====== ===== ======
- -------- (1) Includes facilities under development at their budgeted total development costs, rather than costs incurred to date. (2) Includes 55 buildings under development. (3) Includes 62 buildings under development. Facilities The information in the following table is as of December 31, 1998. No individual facility, or group of facilities operated as a single business unit, amounted to 10% or more of ProLogis' consolidated total assets as of December 31, 1998 nor did the gross revenue from any such facilities amount to 10% or more of ProLogis' consolidated gross revenues for the year ended December 31, 1998. 20 PROLOGIS TRUST SCHEDULE OF PROPERTIES
Rentable Percentage Square ProLogis Accumulated Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances or Completed Bldgs. (1) (2) (1) (1) (3) ---------------------------- ------ ---------- --------- ------------ ------------ ------------ Operating Facilities Owned as of December 31, 1998 Amsterdam, Netherlands Airport............... 1998 2 97.62% 266,505 $ 21,929,313 $ 151,613 $ -- Zaandam............... 1998 1 100.00% 167,348 9,408,036 182,551 -- --- ------- --------- ------------ ---------- ----------- 3 98.54% 433,853 31,337,349 334,164 -- --- ------- --------- ------------ ---------- ----------- Atlanta, Georgia Central/Atlanta....... 1996 4 100.00% 347,560 3,319,074 -- -- I-20/West/Fulton...... 1994, 1995, 1996, 1997 32 95.48% 3,199,660 73,450,813 7,416,903 -- I-85/Airport.......... 1994, 1995, 1996, 1997, 1998 19 79.21% 1,134,942 45,214,151 3,814,006 6,632,083 I-85/Northeast........ 1994, 1995, 1996, 1997 44 92.66% 3,830,428 108,405,715 9,261,862 1,045,411 --- ------- --------- ------------ ---------- ----------- 99 92.23% 8,512,590 230,389,753 20,492,771 7,677,494 --- ------- --------- ------------ ---------- ----------- Austin, Texas I-35/Central.......... 1994, 1995, 1996 12 100.00% 648,939 24,490,160 2,171,339 -- I-35/North/Mopac...... 1993, 1995, 1996 8 100.00% 563,600 20,500,881 1,878,504 -- I-35/South............ 1994, 1995, 1996 12 99.49% 725,874 26,371,184 2,705,110 -- --- ------- --------- ------------ ---------- ----------- 32 99.81% 1,938,413 71,362,225 6,754,953 -- --- ------- --------- ------------ ---------- ----------- Birmingham, Alabama I-459/South/Perimeter. 1994 2 83.72% 606,850 17,242,184 2,282,576 -- I-65/Oxmoor........... 1994 4 100.00% 528,428 16,846,983 2,213,100 6,811,951 --- ------- --------- ------------ ---------- ----------- 6 91.30% 1,135,278 34,089,167 4,495,676 6,811,951 --- ------- --------- ------------ ---------- ----------- Charlotte, North Carolina I-77/Southwest (4).... 1994 13 97.89% 1,334,182 34,014,328 4,466,957 -- I-85/North Charlotte.. 1997 2 92.83% 148,394 3,769,854 179,839 -- I-85/Northeast........ 1994, 1995, 1996, 1997, 1998 11 82.52% 1,220,843 36,409,844 1,818,494 -- I-85/Northwest........ 1994 2 100.00% 404,351 6,919,533 937,191 -- --- ------- --------- ------------ ---------- ----------- 28 91.88% 3,107,770 81,113,559 7,402,481 -- --- ------- --------- ------------ ---------- ----------- Chattanooga, Tennessee Amnicola Highway...... 1994 4 100.00% 1,075,872 13,939,478 1,684,682 -- I-24/Tiftonia......... 1995 1 100.00% 72,000 1,159,573 121,594 -- --- ------- --------- ------------ ---------- ----------- 5 100.00% 1,147,872 15,099,051 1,806,276 -- --- ------- --------- ------------ ---------- ----------- Chicago, Illinois Army Trail Corridor/Chicago..... 1997, 1998 5 59.47% 788,523 29,903,921 624,637 -- I-55 Corridor......... 1998 1 56.38% 182,400 7,533,779 -- -- I-90/O'Hare (5)....... 1995, 1996, 1997, 1998 27 91.24% 3,074,164 106,567,911 5,598,379 11,159,767 South Cook County..... 1996 6 84.12% 1,005,908 24,678,024 1,271,866 -- --- ------- --------- ------------ ---------- ----------- 39 83.60% 5,050,995 168,683,635 7,494,882 11,159,767 --- ------- --------- ------------ ---------- ----------- Cincinnati, Ohio I-71/I-275............ 1995 1 100.00% 60,000 1,457,820 130,060 -- I-74/West (6)......... 1994, 1998 2 100.00% 308,880 5,938,831 388,888 1,653,704 I-75/South-N. Kentucky............. 1996, 1998 3 100.00% 628,507 16,136,342 987,563 -- I-75 North/Cincinnati. 1994, 1995, 1996, 1997, 1998 34 95.20% 2,775,065 75,156,030 5,118,358 -- --- ------- --------- ------------ ---------- ----------- 40 96.47% 3,772,452 98,689,023 6,624,869 1,653,704 --- ------- --------- ------------ ---------- -----------
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Rentable Percentage Square ProLogis Accumulated Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances or Completed Bldgs. (1) (2) (1) (1) (3) ---------------------------------- ------ ---------- --------- ------------ ------------ ------------ Columbus, Ohio I-270/East........ 1994 5 92.59% 566,398 $ 12,148,714 $ 1,410,233 $ -- I-270/Southeast... 1994 1 100.00% 121,200 1,928,231 241,883 -- I-270/West........ 1995, 1996, 1997, 1998 9 95.89% 1,059,447 24,768,567 1,933,524 -- I-270/Southwest... 1996, 1998 4 100.00% 1,068,916 27,342,268 1,706,221 -- --- ------- --------- ------------ ----------- ----------- 19 96.96% 2,815,961 66,187,780 5,291,861 -- --- ------- --------- ------------ ----------- ----------- Dallas/Fort Worth, Texas I-30/Great Southwest (4)(6). 1994, 1995, 1996, 1997, 1998 19 98.55% 1,681,508 44,010,548 2,510,970 10,962,760 I-35/Stemmons Corridor (4)..... 1994, 1995, 1996 12 93.37% 704,150 13,796,298 1,466,931 -- I-35 South/Fort Worth............ 1996 1 100.00% 74,500 2,656,843 190,180 -- I-635/Northgate (4).............. 1994, 1996 5 92.48% 531,149 11,365,357 1,348,223 -- I-635/Valwood..... 1995, 1996, 1997, 1998 18 92.48% 2,047,188 59,738,615 3,161,847 15,553,387 I-635/DFW/Airport (4).............. 1996, 1997, 1998 4 60.28% 320,708 10,221,866 387,741 -- I-820/North Fort Worth............ 1994, 1995, 1996 4 88.81% 372,883 7,595,551 847,088 -- Redbird/Loop 12... 1994, 1996 3 100.00% 380,063 8,043,492 692,722 -- --- ------- --------- ------------ ----------- ----------- 66 92.90% 6,112,149 157,428,570 10,605,702 26,516,147 --- ------- --------- ------------ ----------- ----------- Denver, Colorado I-70/Northeast (4).............. 1992, 1993, 1994, 1995, 1996, 1998 22 95.53% 2,611,255 63,165,730 8,598,463 -- --- ------- --------- ------------ ----------- ----------- 22 95.53% 2,611,255 63,165,730 8,598,463 -- --- ------- --------- ------------ ----------- ----------- East Bay (San Francisco), California Hayward/San Leandro (4)(7)... 1993, 1994 37 98.40% 2,812,314 103,730,085 14,715,085 15,655,532 Tracy............. 1993, 1997, 1998 7 73.19% 605,713 22,145,904 1,044,333 -- --- ------- --------- ------------ ----------- ----------- 44 93.93% 3,418,027 125,875,989 15,759,418 15,655,532 --- ------- --------- ------------ ----------- ----------- El Paso, Texas I-10/East/Vista Del Sol (4)...... 1993, 1994, 1995, 1996, 1997, 1998 20 87.24% 2,428,102 64,836,354 6,616,764 6,364,342 I-10/Lower Valley. 1994 1 100.00% 108,125 2,345,878 296,671 -- I-10/Northwest.... 1992, 1993, 1994, 1997, 1998 6 94.91% 629,172 18,058,802 1,548,275 -- --- ------- --------- ------------ ----------- ----------- 27 89.20% 3,165,399 85,241,034 8,461,710 6,364,342 --- ------- --------- ------------ ----------- ----------- Fort Lauderdale/Miami, Florida Airport West...... 1995, 1998 2 100.00% 188,960 8,476,746 407,572 -- I-95/Hollywood (5).............. 1995, 1997, 1998 5 91.47% 746,978 32,753,010 1,030,139 -- I-95/North (4).... 1994, 1997, 1998 3 100.00% 187,581 8,496,464 736,891 2,369,287 --- ------- --------- ------------ ----------- ----------- 10 94.33% 1,123,519 49,726,220 2,174,602 2,369,287 --- ------- --------- ------------ ----------- ----------- Houston, Texas I-10/Central Business District......... 1995 1 100.00% 168,869 3,356,441 368,363 -- I-10/West/Post Oak 1993, 1994, 1996 24 96.85% 1,500,614 43,039,474 5,513,701 10,520,585 I-610/East/Hobby.. 1994 8 99.37% 515,328 10,608,086 1,299,359 -- I-610/North....... 1993, 1994, 1995 19 96.28% 1,441,356 37,412,202 4,172,740 11,942,673 Northwest/U. S. 290.............. 1993, 1994, 1995, 1996, 1997, 1998 19 99.14% 2,016,935 52,096,391 4,431,708 -- --- ------- --------- ------------ ----------- ----------- 71 97.84% 5,643,102 146,512,594 15,785,871 22,463,258 --- ------- --------- ------------ ----------- ----------- Indianapolis, Indiana I-465/Northwest... 1994, 1995 24 92.04% 2,312,175 69,227,313 6,707,229 -- I-69/Northeast.... 1995 1 71.78% 276,000 7,022,028 787,610 -- I-70/East......... 1995 5 100.00% 382,400 6,871,809 651,724 -- I-70/West......... 1994, 1995, 1996 9 64.87% 644,754 19,773,373 1,770,533 -- I-70 Southwest/ Indianapolis..... 1997, 1998 2 94.61% 346,800 9,345,013 -- -- --- ------- --------- ------------ ----------- ----------- 41 87.20% 3,962,129 112,239,536 9,917,096 -- --- ------- --------- ------------ ----------- -----------
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Rentable Percentage Square ProLogis Accumulated Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances or Completed Bldgs. (1) (2) (1) (1) (3) ---------------------------- ------ ---------- --------- ------------ ------------ ------------ Juarez, Mexico Southeast............... 1998 3 31.16% 224,640 $ 8,408,447 $ 120,630 $ -- --- ------- --------- ------------ ---------- ----------- 3 31.16% 224,640 8,408,447 120,630 -- --- ------- --------- ------------ ---------- ----------- Kansas City, Kansas/Missouri Executive Park.......... 1998 1 100.00% 41,258 1,763,606 16,913 1,107,846 I-35/Overland Park...... 1994 3 100.00% 90,163 3,796,594 477,761 -- I-35/South Corridor..... 1994 1 100.00% 99,197 2,332,261 303,806 -- I-35/Wyandotte.......... 1994, 1996 2 100.00% 154,992 3,955,807 472,165 -- I-70/Riverside.......... 1994, 1996, 1997 22 91.81% 1,192,877 43,831,165 4,622,546 13,163,742 --- ------- --------- ------------ ---------- ----------- 29 93.81% 1,578,487 55,679,433 5,893,191 14,271,588 --- ------- --------- ------------ ---------- ----------- Las Vegas, Nevada Airport/Southwest....... 1994, 1996 5 91.95% 399,157 21,127,782 1,619,852 8,819,036 I-15/North.............. 1994, 1995, 1996, 1997 7 83.66% 844,261 25,354,343 1,795,311 317,417 I-515/Henderson......... 1997 2 67.53% 205,378 7,654,975 121,903 -- --- ------- --------- ------------ ---------- ----------- 14 83.66% 1,448,796 54,137,100 3,537,066 9,136,453 --- ------- --------- ------------ ---------- ----------- Los Angeles/Orange County, California Central Los Angeles..... 1997 3 100.00% 568,371 22,164,261 743,880 -- I-5/Mid-Counties........ 1995, 1997, 1998 8 92.37% 1,342,018 54,778,029 2,125,308 -- I-5/North-Central Orange County................. 1996 2 100.00% 1,182,051 38,958,104 1,664,536 -- I-5/South Orange County. 1996, 1997, 1998 8 87.16% 961,129 45,321,136 1,188,426 -- LAX--Commerce........... 1998 1 0.00% 99,166 3,730,607 -- -- LAX--Inland Empire...... 1998 5 95.80% 1,474,587 54,271,016 -- -- Irvine/Orange County Airport................ 1994 1 100.00% 100,000 4,377,808 497,101 -- --- ------- --------- ------------ ---------- ----------- 28 93.24% 5,727,322 223,600,961 6,219,251 -- --- ------- --------- ------------ ---------- ----------- Louisville, Kentucky I-264/Riverport......... 1995, 1996, 1998 3 100.00% 815,900 15,261,935 456,009 -- Southside............... 1998 3 100.00% 437,380 9,427,059 130,802 -- --- ------- --------- ------------ ---------- ----------- 6 100.00% 1,253,280 24,688,994 586,811 -- --- ------- --------- ------------ ---------- ----------- Lyon, France L'Isle d'Abeau.......... 1997, 1998 2 100.00% 522,280 17,116,598 301,519 11,477,216 --- ------- --------- ------------ ---------- ----------- 2 100.00% 522,280 17,116,598 301,519 11,477,216 --- ------- --------- ------------ ---------- ----------- Memphis, Tennessee I-240/Southeast......... 1994, 1995, 1996, 1997, 1998 24 94.83% 3,186,466 62,160,974 5,097,454 6,263,917 --- ------- --------- ------------ ---------- ----------- 24 94.83% 3,186,466 62,160,974 5,097,454 6,263,917 --- ------- --------- ------------ ---------- ----------- Monterrey, Mexico Apodaca................. 1997, 1998 5 90.18% 458,243 15,513,918 407,133 -- Ojo de Agua............. 1998 1 100.00% 151,720 6,420,848 14,955 -- --- ------- --------- ------------ ---------- ----------- 6 92.62% 609,963 21,934,766 422,088 -- --- ------- --------- ------------ ---------- ----------- Nashville, Tennessee I-24/Southeast.......... 1994, 1995, 1996, 1997, 1998 24 85.67% 2,537,019 54,033,617 4,718,455 -- I-40/Southeast.......... 1995, 1996 3 84.47% 154,500 4,679,462 479,078 -- --- ------- --------- ------------ ---------- ----------- 27 85.60% 2,691,519 58,713,079 5,197,533 -- --- ------- --------- ------------ ---------- ----------- New Jersey/I-95 Corridor Meadowlands............. 1996, 1998 8 95.77% 1,248,756 48,724,390 2,094,252 -- Route 287/Exit 10 I-95 (6)... 1996, 1997, 1998 9 100.00% 1,548,644 44,131,785 2,513,596 -- Route 535/Exit 8A I-95.. 1998 2 59.59% 617,600 23,940,044 90,315 -- --- ------- --------- ------------ ---------- ----------- 19 91.14% 3,415,000 116,796,219 4,698,163 -- --- ------- --------- ------------ ---------- ----------- Oklahoma City, Oklahoma I-40/Southwest.......... 1993, 1994 6 98.52% 639,942 10,457,377 1,461,940 -- --- ------- --------- ------------ ---------- ----------- 6 98.52% 639,942 10,457,377 1,461,940 -- --- ------- --------- ------------ ---------- -----------
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Rentable Percentage Square ProLogis Accumulated Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances or Completed Bldgs. (1) (2) (1) (1) (3) ---------------------------------- ------ ---------- --------- ----------- ------------ ------------ Orlando, Florida East Orlando/Titusville (5)................ 1994 1 24.64% 51,383 $ 1,972,284 $ 230,839 $ 4,658,879 I-4/33rd Street (5)(6)............. 1994, 1995, 1996 9 100.00% 489,891 14,439,399 1,360,013 862,240 Orlando Central Park............... 1994, 1997, 1998 5 88.39% 641,802 16,670,519 913,901 -- --- ------ --------- ----------- ----------- ----------- 15 90.43% 1,183,076 33,082,202 2,504,753 5,521,119 --- ------ --------- ----------- ----------- ----------- Paris, France CDG/North........... 1997 1 100.00% 301,994 8,505,776 361,760 5,854,402 Orly Airport........ 1998 2 100.00% 384,641 16,341,506 204,717 11,882,628 West................ 1998 1 100.00% 121,256 4,206,537 10,873 -- --- ------ --------- ----------- ----------- ----------- 4 100.00% 807,891 29,053,819 577,350 17,737,030 --- ------ --------- ----------- ----------- ----------- Phoenix, Arizona I-10/Central........ 1993, 1994, 1995 4 100.00% 341,407 7,716,116 1,070,345 -- I-10/West........... 1993, 1994 10 100.00% 450,329 9,143,409 1,290,775 -- Tempe............... 1992, 1996, 1998 11 91.97% 911,081 30,416,009 2,307,437 -- --- ------ --------- ----------- ----------- ----------- 25 95.70% 1,702,817 47,275,534 4,668,557 -- --- ------ --------- ----------- ----------- ----------- Portland, Oregon I-205/Clackamas..... 1998 1 50.22% 125,840 4,892,528 49,002 -- I-5/Columbia Corridor........... 1993, 1994, 1995,1996,1997,1998 16 97.13% 1,142,795 39,543,210 2,894,838 329,681 I-5/Wilsonville..... 1995, 1996 6 100.00% 379,000 14,511,544 1,211,642 128,509 Sunset Corridor..... 1997 4 71.21% 172,200 8,628,802 -- -- --- ------ --------- ----------- ----------- ----------- 27 92.03% 1,819,835 67,576,084 4,155,482 458,190 --- ------ --------- ----------- ----------- ----------- Reno, Nevada I-80/Sparks......... 1993, 1994, 1995, 1990 15 99.15% 1,225,586 36,022,412 4,273,374 -- U.S. 395/Reno North. 1996, 1998 2 53.14% 331,200 9,866,308 343,721 -- --- ------ --------- ----------- ----------- ----------- 17 89.36% 1,556,786 45,888,720 4,617,095 -- --- ------ --------- ----------- ----------- ----------- Reynosa, Mexico Del Norte........... 1998 2 100.00% 210,512 6,785,227 35,749 -- Reynosa Industrial Park............... 1997, 1998 5 72.89% 418,852 13,419,345 154,892 -- --- ------ --------- ----------- ----------- ----------- 7 81.96% 629,364 20,204,572 190,641 -- --- ------ --------- ----------- ----------- ----------- Rio Grande Valley (Brownsville), Texas I-77/Lower Valley... 1995, 1997, 1998 15 100.00% 1,126,746 31,250,745 2,174,884 3,055,597 --- ------ --------- ----------- ----------- ----------- 15 100.00% 1,126,746 31,250,745 2,174,884 3,055,597 --- ------ --------- ----------- ----------- ----------- Rotterdam, Netherlands South............... 1997, 1998 2 100.00% 316,989 16,019,945 543,702 -- --- ------ --------- ----------- ----------- ----------- 2 100.00% 316,989 16,019,945 543,702 -- --- ------ --------- ----------- ----------- ----------- Salt Lake City, Utah 2100 South/Salt Lake............... 1998 1 58.45% 192,200 5,756,004 -- -- I-15/Clearfield..... 1995 2 100.00% 832,708 17,171,498 1,504,508 -- I-215/Central....... 1995 2 89.44% 299,000 9,438,034 944,044 -- I-80/North.......... 1994, 1996 2 100.00% 361,960 11,879,520 887,717 -- --- ------ --------- ----------- ----------- ----------- 7 93.39% 1,685,868 44,245,056 3,336,269 -- --- ------ --------- ----------- ----------- ----------- San Antonio, Texas I-10/Central Business District.. 1992, 1994 2 85.23% 147,751 3,508,245 585,636 -- I-35/Central (5).... 1992, 1993, 1994, 1995, 1996, 1998 29 96.43% 2,677,827 60,076,371 7,786,780 -- I-35/North.......... 1993, 1994, 1995, 1996, 1997 14 93.40% 1,037,825 29,466,814 2,494,094 -- --- ------ --------- ----------- ----------- ----------- 45 95.18% 3,863,403 93,051,430 10,866,510 -- --- ------ --------- ----------- ----------- -----------
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Rentable Percentage Square ProLogis Accumulated Year Acquired No. of Occupancy Footage Investment Depreciation Encumbrances or Completed Bldgs. (1) (2) (1) (1) (3) ---------------------------------- ------ ---------- ----------- -------------- ------------ ------------ San Diego, California Rancho Bernardo/I-15... 1996, 1997 3 100.00% 329,427 $ 13,419,384 $ 517,883 $ -- ----- ------ ----------- -------------- ------------ ------------ 3 100.00% 329,427 13,419,384 517,883 -- ----- ------ ----------- -------------- ------------ ------------ Seattle, Washington I-405/Kent Valley.......... 1994, 1995, 1997 6 100.00% 695,923 28,183,732 2,209,999 185,351 I-5/Tacoma....... 1996 3 64.51% 339,623 13,917,765 622,434 -- ----- ------ ----------- -------------- ------------ ------------ 9 88.36% 1,035,546 42,101,497 2,832,433 185,351 ----- ------ ----------- -------------- ------------ ------------ South Bay (San Francisco), California Fremont/Newark (7)............. 1993, 1994, 1995, 1996, 1997, 1998 65 98.51% 3,026,440 195,277,435 22,148,491 20,971,065 I-880/North San Jose............ 1994 5 100.00% 507,310 19,733,160 2,791,960 -- ----- ------ ----------- -------------- ------------ ------------ 70 98.73% 3,533,750 215,010,595 24,940,451 20,971,065 ----- ------ ----------- -------------- ------------ ------------ St. Louis, Missouri Earth City (4)... 1997, 1998 9 94.38% 1,036,140 29,829,951 846,641 4,588,401 Hazelwood........ 1997 1 100.00% 61,200 1,600,112 61,056 902,452 I-270 Westport... 1997 5 100.00% 274,844 8,483,505 193,282 4,976,779 ----- ------ ----------- -------------- ------------ ------------ 15 95.76% 1,372,184 39,913,568 1,100,979 10,467,632 ----- ------ ----------- -------------- ------------ ------------ Tampa, Florida Airport/Tampa West (5)(6)..... 1994, 1995, 1996, 1998 23 96.56% 889,928 37,611,106 4,001,765 10,291,329 I-4/Lakeland..... 1994 1 100.00% 247,018 6,811,027 884,983 -- I-75/Tampa East (5)(6)(7)....... 1994, 1995, 1996, 1997, 1998 33 88.41% 2,202,022 74,397,289 6,946,838 14,617,990 Pinellas/St. Petersburg (5)(6).......... 1994 5 100.00% 83,632 2,148,045 258,741 716,917 ----- ------ ----------- -------------- ------------ ------------ 62 91.65% 3,422,600 120,967,467 12,092,327 25,626,236 ----- ------ ----------- -------------- ------------ ------------ Tulsa, Oklahoma I-44/Broken Arrow Expressway (6).. 1993, 1994 10 98.01% 573,687 13,053,734 1,757,601 635,476 ----- ------ ----------- -------------- ------------ ------------ 10 98.01% 573,687 13,053,734 1,757,601 635,476 ----- ------ ----------- -------------- ------------ ------------ Warsaw, Poland Airport.......... 1998 4 98.46% 403,338 33,350,503 728,238 -- ----- ------ ----------- -------------- ------------ ------------ 4 98.46% 403,338 33,350,503 728,238 -- ----- ------ ----------- -------------- ------------ ------------ Washington, D.C./Baltimore I- 395/Alexandria.. 1994, 1996 11 96.53% 691,077 31,872,340 3,014,392 -- I-695/Southwest.. 1995, 1996 6 92.26% 620,075 17,959,445 1,537,722 -- I-95/Capitol Heights......... 1996, 1997 2 100.00% 273,276 11,600,786 449,262 -- I-95/Corridor.... 1997, 1998 3 100.00% 494,244 19,026,931 550,134 -- I-95/Landover.... 1994 5 92.48% 384,349 16,782,683 1,927,959 -- I-95/Northeast/ Beltsville...... 1994 3 97.39% 248,981 11,607,456 1,335,318 -- I-66/Dulles (4).. 1995, 1997, 1998 8 85.49% 583,980 24,813,342 1,370,301 -- ----- ------ ----------- -------------- ------------ ------------ 38 94.17% 3,295,982 133,662,983 10,185,088 -- ----- ------ ----------- -------------- ------------ ------------ Other Locations (5)(6)(8) Other............ 1991, 1994, 1996, 1998 8 100.00% 632,192 19,043,278 961,304 519,359 ----- ------ ----------- -------------- ------------ ------------ 8 100.00% 632,192 19,043,278 961,304 519,359 ----- ------ ----------- -------------- ------------ ------------ Total Operating Facilities Owned as of December 31, 1998.......... 1,099 93.04% 104,539,940 $3,249,006,279 $254,287,988 $226,997,711 ===== ====== =========== ============== ============ ============
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Rentable Square Budgeted Accumulated Expected No. of Footage Development Depreciation Completion Bldgs (2) Cost (9) (1) Encumbrances ---------- ------ -------- ----------- ------------ ------------ Facilities Under Development as of December 31, 1998 (10)(11) Amsterdam, Netherlands Airport................ 1999 1 209,198 $10,330,199 N/A $ -- Atlanta, Georgia I-85/Northeast......... 1999 3 369,800 12,784,655 N/A -- Northwest/Atlanta...... 1999 2 303,200 10,775,009 N/A -- Austin, Texas I-35/Central........... 1999 5 237,300 10,744,166 N/A -- Charlotte, North Carolina I-77/Southwest......... 1999 1 136,000 4,386,845 N/A -- Chicago, Illinois South Cook County...... 1999 1 145,531 6,619,623 N/A -- Cincinnati, Ohio I-75 South/N. Kentucky. 1999 1 148,000 4,297,069 N/A -- I-75 North/Cincinnati.. 1999 2 455,350 15,849,312 N/A -- Columbus, Ohio I-270 Southwest........ 1999 1 188,800 5,589,904 N/A -- I-270/West............. 1999 1 84,187 2,940,244 N/A -- Dallas/Fort Worth, Texas I-30/Great Southwest... 1999 3 440,016 14,919,610 N/A -- I-635/Valwood.......... 1999 2 248,235 8,514,864 N/A -- Denver, Colorado I-70/Central........... 1999 2 357,400 13,298,594 N/A -- I-70/Northeast......... 1999 1 91,892 3,717,421 N/A -- West 1999 1 227,500 7,817,353 N/A -- Fort Lauderdale/Miami, Florida I-95/North............. 1999 1 94,500 4,569,824 N/A -- Houston, Texas I-10/Central Business District.............. 1999 1 101,250 4,034,416 N/A -- Northwest/U.S. 290..... 1999 2 543,200 17,658,985 N/A -- Juarez, Mexico Southeast.............. 1999 1 26,170 808,743 N/A -- London, England Heathrow Airport....... 1999 1 163,400 34,156,242 N/A -- Los Angeles/Orange County, California I-5/South Orange County................ 1999 1 87,500 5,603,191 N/A -- Louisville, Kentucky I-264/Riverport........ 1999 1 212,800 5,885,116 N/A -- Southside.............. 1999 1 203,520 4,389,141 N/A -- Lyon, France L'Isle d'Abeau......... 1999 1 135,841 4,945,959 N/A -- Memphis, Tennessee I-240/Southeast........ 1999 1 500,000 13,160,044 N/A -- Monterrey, Mexico Apodaca................ 1999 2 363,340 14,767,279 N/A -- New Jersey/I-95 Corridor Northern Bergen County. 1999 1 128,000 12,684,840 N/A -- Route 535/Exit 8A I-95. 1999 1 204,000 8,179,185 N/A -- Orlando, Florida Orlando Central Park... 1999 2 227,004 8,158,236 N/A --
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Rentable Budgeted Accumulated No. of Square Development Depreciation Expected Completion Bldgs Footage (2) Cost (9) (1) Encumbrances ---------------------- ------- ----------- ------------ ------------ ------------ Portland, Oregon I-5/Columbia Corridor... 1999 2 200,600 $ 8,310,689 N/A $ -- Reynosa, Mexico Reynosa Industrial Park................... 1999 1 101,311 3,534,587 N/A -- Salt Lake City, Utah 2100 South/Salt Lake City................... 1999 1 103,600 3,643,669 N/A -- I-80/North.............. 1999 1 100,800 3,988,133 N/A -- San Antonio, Texas I-35/Central............ 1999 1 128,000 3,827,253 N/A -- Seattle, Washington I-405/Kent Valley....... 1999 1 117,620 5,435,086 N/A 1,714 Tijuana, Mexico Otay Mesa............... 1999 2 262,220 9,363,145 N/A -- Warsaw, Poland West.................... 1999 1 195,495 10,238,264 N/A -- Washington, D.C./Baltimore I-95/Capitol Heights.... 1999 1 179,820 8,151,824 N/A -- ---- --------- ------------ ------- Total Facilities Under Development as of December 31, 1998 (10)(11)............... 55 8,022,400 $328,078,719 $ 1,714 ==== ========= ============ ======= Budgeted ProLogis Accumulated Acreage Development Investment Depreciation Year Acquired (2) Cost (9) (1) (1) Encumbrances ---------------------- ------- ----------- ------------ ------------ ------------ Land Held for Development as of December 31, 1998 Amsterdam, Netherlands Airport................. 1998 5.2 N/A $ 3,795,950 N/A $ -- Trade Port West......... 1998 8.7 N/A 1,641,207 N/A -- Atlanta, Georgia I-20/West/Fulton........ 1994, 1996 43.4 N/A 1,954,848 N/A -- I-85/Northeast.......... 1997, 1998 68.4 N/A 6,713,590 N/A -- Austin, Texas I-35/Central............ 1994 3.0 N/A 174,734 N/A -- I-35/North/Mopac........ 1994 20.4 N/A 1,370,778 N/A -- I-35/South.............. 1996 4.2 N/A 588,589 N/A -- Charlotte, North Carolina I-85/North Charlotte.... 1997 7.9 N/A 351,494 N/A -- I-85/Northeast.......... 1995, 1996, 1997 28.9 N/A 3,090,967 N/A -- Chicago, Illinois Army Trail Corridor/Chicago....... 1997 46.9 N/A 6,781,821 N/A -- I-55 Corridor........... 1997 29.6 N/A 3,532,371 N/A -- I-90/O'Hare............. 1996, 1997 41.1 N/A 12,558,772 N/A -- Cincinnati, Ohio I-75/South/N. Kentucky.. 1997 6.0 N/A 563,915 N/A -- I-75 North/Cincinnati... 1996, 1997 49.7 N/A 3,012,061 N/A 377,615 Columbus, Ohio I-270/West.............. 1996 2.4 N/A 98,205 N/A -- I-270/Southwest......... 1994, 1995, 1996, 1997 52.8 N/A 2,337,936 N/A -- Dallas/Fort Worth, Texas I-30/Great Southwest.... 1996 5.6 N/A 518,367 N/A -- I-635/DFW/Airport....... 1997 30.1 N/A 3,258,135 N/A --
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Budgeted ProLogis Accumulated Acreage Development Investment Depreciation Year Acquired (2) Cost (9) (1) (1) Encumbrances ---------------------- ------- ----------- ---------- ------------ ------------ Denver, Colorado Central.............................. 1998 20.1 N/A $3,539,294 N/A $ -- I-70/Northeast....................... 1994, 1997,1998 27.9 N/A 2,492,811 N/A -- El Paso, Texas I-10/East/Vista Del Sol.............. 1993, 1994, 1995, 1996 41.0 N/A 2,473,622 N/A -- I-10/Northwest....................... 1991, 1992 141.9 N/A 7,819,749 N/A -- Fort Lauderdale/Miami, Florida I-95/Hollywood....................... 1996, 1998 15.0 N/A 2,785,586 N/A -- I-95/North........................... 1998 5.5 N/A 1,176,844 N/A -- Houston, Texas Northwest/U. S. 290.................. 1993, 1997 73.4 N/A 5,499,036 N/A -- Indianapolis, Indiana I-69/Northeast....................... 1994 6.1 N/A 491,036 N/A -- I-70 Southwest/Indianapolis.......... 1996, 1998 46.2 N/A 2,574,356 N/A -- Lebanon.............................. 1998 30.0 N/A 1,090,260 N/A -- Juarez, Mexico Southeast............................ 1997 17.2 N/A 3,280,178 N/A -- Kansas City, Kansas/Missouri Executive Park....................... 1998 16.6 N/A 1,468,552 N/A -- Las Vegas, Nevada I-15/North........................... 1993, 1995, 1997 63.1 N/A 5,860,261 N/A 427,901 I-515/Henderson...................... 1995, 1996 26.2 N/A 3,009,104 N/A -- Lille, France Lille Business Park.................. 1998 9.1 N/A 1,274,761 N/A -- Los Angeles/Orange County, California I-5/Mid-Counties..................... 1997 22.3 N/A 8,849,344 N/A -- I-5/South Orange County.............. 1995, 1996 31.5 N/A 6,492,188 N/A -- Louisville, Kentucky I-264/Riverport...................... 1996, 1998 25.2 N/A 1,037,523 N/A -- Southside............................ 1998 14.0 N/A 701,710 N/A -- Memphis, Tennessee I-240/Southeast...................... 1997 44.5 N/A 3,476,025 N/A -- Monterrey, Mexico Apodaca.............................. 1998 14.1 N/A 1,795,555 N/A -- Ojo de Agua.......................... 1998 4.4 N/A 694,128 N/A -- Nashville, Tennessee I-24/Southeast....................... 1996 33.7 N/A 3,272,905 N/A -- New Jersey/I-95 Corridor Meadowlands.......................... 1997 8.5 N/A 1,602,318 N/A -- Route 535/Exit 8A I-95............... 1997 33.1 N/A 3,435,602 N/A -- Orlando, Florida Orlando Central Park................. 1996 27.6 N/A 2,583,831 N/A -- Phoenix, Arizona Tempe................................ 1992, 1996 9.6 N/A 1,299,916 N/A -- Portland, Oregon I-205/Clackamas...................... 1997 24.7 N/A 3,920,025 N/A -- Reno, Nevada South Meadows........................ 1998 85.7 N/A 11,724,383 N/A -- U.S. 395/Reno North.................. 1995 10.1 N/A 1,006,187 N/A -- Reynosa, Mexico Reynosa Industrial Park.............. 1997, 1998 28.8 N/A 2,048,399 N/A -- Rio Grande Valley (Brownsville), Texas I-77/Lower Valley.................... 1995 14.8 N/A 439,288 N/A --
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Budgeted ProLogis Accumulated Acreage Development Investment Depreciation Year Acquired (2) Cost (9) (1) (1) Encumbrances ---------------- ------- ----------- ------------ ------------ ------------ Salt Lake City, Utah I-15/Clearfield......... 1997 5.4 N/A $ 137,701 N/A $ -- I-215/Central........... 1996 16.7 N/A 1,606,013 N/A -- I-80/North.............. 1994, 1995 27.3 N/A 1,829,993 N/A -- San Antonio, Texas I-35/Central............ 1994, 1996 15.2 N/A 1,461,221 N/A -- I-35/North.............. 1996, 1997 32.3 N/A 2,961,796 N/A -- Seattle, Washington I-5/Tacoma.............. 1998 10.6 N/A 2,024,999 N/A -- St. Louis, Missouri Earth City.............. 1998 9.9 N/A 1,315,181 N/A -- Tampa, Florida I-75/Tampa East......... 1994, 1995, 1997 62.8 N/A 4,792,737 N/A -- Tijuana, Mexico Otay Mesa............... 1998 30.9 N/A 6,927,702 N/A -- Warsaw, Poland West.................... 1998 9.4 N/A 2,055,079 N/A -- Washington, D.C./Baltimore I-95/Corridor........... 1996 25.9 N/A 4,124,989 N/A -- ------- ------------ -------- Total Land Held for Development as of December 31, 1998 (12)................. 1,672.6 $180,795,928 $805,516 ======= ============ ======== Budgeted ProLogis Accumulated Acreage Development Investment Depreciation (2) Cost (9) (1) (1) Encumbrances ------- ----------- ------------ ------------ ------------ Land Subject to Fixed Price Options or Rights of First Refusal as of December 31, 1998 (13) Options Cincinnati, Ohio I-75 North/Cincinnati... 42.6 N/A N/A N/A $ -- Columbus, Ohio I-270/Southwest......... 38.8 N/A N/A N/A -- East Bay (San Francisco), California Tracy................... 309.0 N/A N/A N/A -- Indianapolis, Indiana I-70 Southwest/Indianapolis. 56.9 N/A N/A N/A -- Lebanon................. 26.1 N/A N/A N/A -- Louisville, Kentucky I-264/Riverport......... 7.0 N/A N/A N/A -- Lyon, France L'Isle d'Abeau.......... 22.5 N/A N/A N/A -- New Jersey/I-95 Corridor Mercer County........... 160.0 N/A N/A N/A -- Route 535/Exit 8A I-95.. 57.8 N/A N/A N/A -- South Bay (San Francisco), California Fremont/Newark.......... 23.0 N/A N/A N/A -- Tampa, Florida I-75/Tampa East......... 0.9 N/A N/A N/A -- ------- Total Options as of December 31, 1998.... 744.6 =======
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Budgeted Accumulated Acreage Development ProLogis Depreciation (2) Cost (9) Investment (1) (1) Encumbrances ------- ------------ -------------- ------------ ------------ Rights of First Refusal South Bay (San Francisco), California Fremont/Newark......... 21.8 N/A N/A N/A -- ----- Total Rights of First Refusal as of December 31, 1998... 21.8 ===== Total Options and Rights of First Refusal as of December 31, 1998... 766.4 ===== Grand Total as of December 31, 1998...... $328,078,719 $3,429,802,207 $254,287,988 $227,804,941 ============ ============== ============ ============
- -------- (1) Percentage Occupancy is as of December 31, 1998 for operating facilities owned as of December 31, 1998. Operating facilities as of December 31, 1998 include recently completed development facilities in initial lease- up (3.6 million square feet completed in the fourth quarter of 1998) which impacts the overall occupancy percentage as of December 31, 1998. ProLogis Investment is as of December 31, 1998 for operating facilities owned and land held for development as of December 31, 1998 and represents ProLogis' historical cost excluding above-standard tenant improvements. Depreciation is determined using the straight-line method over 30 years for buildings acquired, over 40 years for building developed and over 10 years for tenant improvements. (2) Square footage is shown for operating facilities and facilities under development; acreage is shown for land held for future development and land subject to fixed price options and rights of first refusal. (3) Facilities in certain markets are pledged as collateral under ProLogis' mortgage notes, assessment bonds and securitized debt as of December 31, 1998. See Schedule III-Real Estate and Accumulated Depreciation in Item 8 for specific facilities pledged. Subsequent to December 31, 1998 and prior to March 22, 1999 an additional $216.2 million of facilities have been pledged on $182.0 million of mortgage debt. (4) Includes facilities owned by ProLogis Limited Partnership-II at 100%. See "--Partnerships". (5) Includes facilities owned by ProLogis Limited Partnership-III at 100%. See "--Partnerships". (6) Includes facilities owned by ProLogis Limited Partnership-IV at 100%. See "--Partnerships". (7) Includes facilities owned by ProLogis Limited Partnership-I at 100%. See "--Partnerships". (8) Includes 136,000 square feet in which ProLogis has a 70.0% joint venture interest. The square footage and investment included in the table represent 100% of the facilities owned by the joint venture. (9) Represents the total budgeted development costs for facilities under development, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during construction, rather than costs incurred to date. (10) Includes 971,547 square feet in the design and permitting stage. (11) Includes 203,520 square feet currently undergoing rehabilitation. (12) During January 1999, ProLogis commenced development of 3.05 net acres resulting in an inventory of land held for development as of January 31, 1999 of 1669.5 net acres. (13) Does not include 195.4 acres of land controlled under letter of intent or contingent contract. Partnerships To facilitate certain strategic acquisitions, ProLogis formed four partnerships. As of December 31, 1998, ProLogis owned directly or indirectly 68.7%, 97.8%, 86.9% and 97.7% of ProLogis Limited Partnership-I, ProLogis Limited Partnership-II, ProLogis Limited Partnership-III and ProLogis Limited Partnership-IV, respectively (collectively, the "Partnerships"). The facilities owned through ProLogis Limited Partnership-I cannot be sold, prior to the occurrence of certain events, without the consent of the limited partners thereto, other than in tax-deferred exchanges, which restriction could adversely affect ProLogis' ability to strategically reconfigure the portion of its investment assets represented by this Partnership. There are no restrictions on the sale of facilities held by ProLogis Limited Partnership- II, ProLogis Limited Partnership-III or ProLogis Limited 30 Partnership-IV. ProLogis views all assets acquired as long-term investments but will only agree to partnership resale restrictions where the assets acquired are of such strategic quality that ProLogis anticipates that there will be no change in investment strategy with respect to such assets through the duration of the restriction. ProLogis may acquire additional facilities through partnerships in the future. The Partnerships have been organized as Delaware limited partnerships. Generally, pursuant to the Partnership agreements, ProLogis, as the sole controlling general partner in each of the Partnerships other than ProLogis Limited Partnership-IV, in which a wholly owned subsidiary of ProLogis is the sole controlling general partner, has full responsibility for the management and control of the Partnerships, and the limited partners have no authority to transact business for, or, except as described below, participate in the management decisions of, the Partnerships. However, any decision to amend certain provisions of the applicable partnership agreement, to dissolve a Partnership prior to the term set forth in the applicable partnership agreement or to enter into certain extraordinary transactions where the limited partners would not receive the same consideration as shareholders of ProLogis, would require the consent of all limited partners. Pursuant to the partnership agreements, ProLogis or its wholly owned subsidiary, as the case may be, may not voluntarily withdraw from the applicable Partnership or transfer or assign its interests in the Partnership without the consent of all of the limited partners thereto. The limited partners may freely transfer their Partnership units to affiliates, provided that such transfer does not cause a termination of the Partnership for federal income tax purposes and does not cause ProLogis to cease to comply with requirements under the Code, for qualification as a REIT. Each of the Partnership agreements grants to limited partners the right to exchange their Partnership units for Common Shares, subject to certain conditions. The Partnerships are as follows: . ProLogis Limited Partnership-I, which owned approximately $208.2 million of industrial distribution facilities located primarily in the San Francisco Bay area as of December 31, 1998, was formed in December 1993. ProLogis had a 68.7% controlling general partnership interest and there were 4,520,532 limited partnership units outstanding as of December 31, 1998. . ProLogis Limited Partnership-II, which owned approximately $58.7 million of industrial distribution facilities located primarily in Austin, Charlotte, Dallas, Denver, El Paso and the San Francisco Bay area as of December 31, 1998, was formed in May 1994. ProLogis' initial 81.2% controlling general partnership interest has subsequently been increased to 97.8% (the ownership interest as of December 31, 1998) due to the conversion of limited partnership units into Common Shares. There were 90,213 limited partnership units outstanding as of December 31, 1998. . ProLogis Limited Partnership-III, which owned approximately $55.3 million of industrial distribution facilities located primarily in Tampa, Florida as of December 31, 1998, was formed in October 1994. ProLogis had a 50.4% controlling general partnership interest at formation, which has subsequently been increased to 86.9% (the ownership interest as of December 31, 1998) as the result of additional contributions by ProLogis and the conversion of limited partnership units into Common Shares. There were 389,900 limited partnership units outstanding as of December 31, 1998. . ProLogis Limited Partnership-IV, which owned approximately $86.0 million of industrial distribution facilities located primarily in Florida, Ohio, Oklahoma and Texas as of December 31, 1998, was formed in October 1994 through a cash contribution from a wholly owned subsidiary of ProLogis, ProLogis IV, Inc., and the contribution of industrial distribution facilities from the limited partner. ProLogis' initial 96.4% controlling general partnership interest has been increased to 97.7% (the ownership interest as of December 31, 1998) as the result of additional contributions by ProLogis. There were 68,612 limited partnership units outstanding as of December 31, 1998. ProLogis Limited Partnership-IV and ProLogis IV, Inc. are legal entities separate and distinct from ProLogis, its affiliates and each other, and each has separate assets, liabilities, business functions and operations. The sole assets of ProLogis IV, Inc. are its general partner advances to and its interest in ProLogis Limited Partnership-IV. As of December 31, 1998, ProLogis Limited Partnership-IV had outstanding borrowings from ProLogis IV, Inc. of $1.4 million and ProLogis IV, Inc. had outstanding borrowings from ProLogis and its affiliates of $1.4 million. 31 For financial reporting purposes, the assets, liabilities, results of operations and cash flows of each of the Partnerships are included in ProLogis' consolidated financial statements, and the interests of the limited partners are reflected as minority interest. ProLogis Development Services ProLogis Development Services Incorporated ("ProLogis Development Services") develops corporate distribution facilities to meet customer requirements, which are subsequently sold to the customer or third parties, or contracts on a fee basis to develop distribution facilities for third parties or customers. ProLogis owns 100% of the preferred stock of ProLogis Development Services and realizes substantially all economic benefits of its activities. Because ProLogis advances mortgage loans to ProLogis Development Services to fund its acquisition, development and construction activities, ProLogis Development Services is consolidated with ProLogis. Accordingly, these loans ($247.5 million as of December 31, 1998) are reflected as real estate investments in ProLogis' consolidated financial statements. ProLogis Development Services' real estate assets represented 6.1% of ProLogis' total assets (at cost) as of December 31, 1998. ProLogis Development Services is not a qualified REIT subsidiary of ProLogis. Accordingly, ProLogis Development Services pays federal and state income taxes at the applicable corporate rate. Unconsolidated Subsidiaries In order to comply with the requirements of the Code to qualify as a REIT, ProLogis has invested in the nonvoting preferred stock of certain companies that have ownership interests in real estate companies that produce income that is not REIT "qualifying" income (i.e., rental income and mortgage interest income) under the Code. To maintain its qualification as a REIT, ProLogis can collectively invest in these companies in amounts up to 25% of the fair market value of ProLogis' total assets, with a maximum per company investment of 5% of the fair market value of ProLogis' total assets. These investments are accounted for under the equity method. ProLogis Logistics ProLogis owns 100% of the preferred stock of ProLogis Logistics Services Incorporated ("ProLogis Logistics"). ProLogis Logistics owns 100% of the membership interests of a refrigerated distribution company operating in the United States and Canada, CS Integrated LLC ("CSI"). Prior to June 12, 1998, ProLogis Logistics owned, at various points in time, between 60.0% and 77.1% of CSI. As of December 31, 1998, ProLogis had invested $19.9 million in the preferred stock of ProLogis Logistics. As of December 31, 1998, CSI owned or operated refrigerated distribution facilities aggregating 114.1 million cubic feet. The common stock of ProLogis Logistics is owned by an unrelated party. ProLogis recognizes substantially all economic benefits of ProLogis Logistics and its subsidiaries. As of December 31, 1998, ProLogis had a $128.6 million note receivable from ProLogis Logistics. The note is unsecured, bears interest at 8% per annum (reduced from 10% on November 1, 1998) and matures on April 24, 2002. Interest payments on the note are due annually. Frigoscandia S. A. On January 16, 1998, ProLogis invested in 100% of the preferred stock of Frigoscandia S.A., a Luxembourg company, which acquired on that date a refrigerated distribution company headquartered in Sweden, Frigoscandia AB. Frigoscandia AB is 100% owned by Frigoscandia Holding AB, which is 100% owned by a wholly owned subsidiary of Frigoscandia S.A. As of December 31, 1998, Frigoscandia AB, which operates in nine European countries, owned or leased 192.0 million cubic feet of refrigerated distribution facilities. As of December 31, 1998, ProLogis had invested $28.5 million in the preferred stock of Frigoscandia S.A. Prior to September 30, 1998, the common stock of Frigoscandia S.A. was owned by Security Capital. On that date, the common stock of Frigoscandia S.A. was contributed to a limited liability company, in which unrelated parties 32 own 100% of the voting interests and Security Capital owns 100% of the non- voting interests. ProLogis recognizes substantially all economic benefits of the activities of Frigoscandia S.A. and its subsidiaries. As of December 31, 1998, ProLogis had a $91.5 million note receivable from Frigoscandia Holding AB and an $85.1 million note receivable from Frigoscandia S.A. These unsecured notes bear interest at 5% per annum (reduced from 8% on November 1, 1998) and are due on demand ($80.0 million of the note receivable from Frigoscandia S.A. is due on July 15, 2008). Additionally, as of December 31, 1998, ProLogis had a $30.0 million mortgage note receivable from Frigoscandia Limited UK, a subsidiary of Frigoscandia AB. The mortgage note receivable, which provides for interest at 7% per annum (reduced from 8% on April 1, 1998) and matures on March 20, 2018, is secured by refrigerated distribution facilities. Frigoscandia AB has a multi-currency, three-year revolving credit agreement through a consortium of 11 European banks in the currency equivalent of approximately $200 million as of December 31, 1998. The loan bears interest at each currency's LIBOR rate plus 0.55%. ProLogis has entered into a guaranty agreement for 25% of the loan balance. Kingspark S.A. On August 14, 1998, ProLogis acquired 100% of the preferred stock of Kingspark Holding S.A. ("Kingspark S.A."), a Luxembourg company, that acquired on that date an industrial real estate development company, Kingspark Group Holdings Limited ("ProLogis Kingspark"), operating in the United Kingdom. As of December 31, 1998, ProLogis Kingspark had 0.4 million square feet of operating facilities, 0.4 million square feet of facilities under development and 0.2 million square feet of facilities being developed under construction management agreements. Additionally, as of December 31, 1998, ProLogis Kingspark owned 554 acres and controlled 1,489 acres of land through letter of intent or contingent contracts for future development of 35.8 million square feet of distribution facilities. As of December 31, 1998, ProLogis had invested $24.0 million in the preferred stock of Kingspark S.A. The common stock of Kingspark S.A. was owned by Security Capital. On March 10, 1999, Security Capital contributed the common stock to a limited liability company, in which unrelated parties own 100% of the voting interest and Security Capital owns 100% of the non-voting interests. ProLogis recognizes substantially all economic benefits of the activities of Kingspark S.A. and its subsidiaries. As of December 31, 1998, ProLogis had a $111.7 million note receivable from Kingspark S.A. and a $34.4 million note receivable from ProLogis Kingspark. These unsecured notes bear interest at 8% per annum and are due on demand. The interest rate on the note receivable from Kingspark S.A. was reduced to 5% per annum effective January 1, 1999. Also, as of December 31, 1998, ProLogis had a $52.4 million mortgage note receivable from ProLogis Kingspark which bears interest at 8% per annum and is secured by certain land parcels. Subsequent to December 31, 1998, ProLogis Kingspark entered into a line of credit agreement with a bank in the United Kingdom. The credit agreement, which provides for borrowings of up to 10.0 million British pounds (approximately $16.6 million as of December 31, 1998), has been guaranteed by ProLogis. Garonor Holdings On December 29, 1998, ProLogis invested in 100% of the preferred stock of Garonor Holdings S.A. ("Garonor Holdings"), a Luxembourg company, that acquired on that date in excess of 99% of the voting stock of Garonor S.A. As of December 31, 1998, ProLogis had invested $5.6 million in the preferred stock of Garonor Holdings. Garonor S.A. owns and leases approximately 5.25 million square feet of industrial distribution facilities located in France. Garonor Holdings is in the process of acquiring the remaining voting stock of Garonor S.A. The common stock of Garonor Holdings is owned by Security Capital. Security Capital can require ProLogis to purchase the Garonor Holdings common stock held by Security Capital beginning January 1, 2000. ProLogis recognizes substantially all of the economic benefits of Garonor Holdings and its subsidiaries. 33 Should Garonor Holdings acquire 100% of the voting stock of Garonor S.A., it is anticipated that the ownership of Garonor Holdings will be restructured such that ProLogis would become the sole owner and Garonor Holdings, as a wholly owned subsidiary of ProLogis, would be consolidated with the accounts of ProLogis. As of December 31, 1998, ProLogis had a $129.4 million note receivable from Garonor Holdings. The note is unsecured, bears interest at 8% per annum and is due on demand. Interest payments on the note are due annually. In connection with the acquisition of Garonor S.A., Garonor Holdings obtained two credit facilities from a French bank. One facility is in the amount of 200.0 million French francs ($35.6 million as of December 31, 1998) and is guaranteed by ProLogis. ProLogis has guaranteed an additional 10.0 million French francs ($1.8 million as of December 31, 1998), which approximates the annual interest to be charged on the facility. The second facility, in the amount of 870.0 million French francs (of which 770.0 million French francs was outstanding as of December 31, 1998), is secured by the real estate owned by Garonor S.A. ProLogis has guaranteed 50.0 million French francs of the amount outstanding as of December 31, 1998 ($8.9 million as of December 31, 1998). Garonor has the ability to borrow an additional 100.0 million French francs under this facility of which ProLogis will guarantee 50.0 million French francs. The total guaranty of 100.0 million French francs can be reduced as Garonor S.A. meets certain operating covenants. Item 3. Legal Proceedings ProLogis from time to time may be a party to a variety of legal proceedings arising in the ordinary course of its business. Such matters generally are not expected to have a material adverse effect on ProLogis' business, financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ProLogis' Common Shares are listed on the NYSE under the symbol "PLD." The following table sets forth the high and low sale prices of the Common Shares as reported in the NYSE Composite Tape, and distributions per Common Share, for the periods indicated.
High Low Distribution --------- -------- ------------ 1997: First Quarter......................... $22 1/2 $19 7/8 $0.2675 (1) Second Quarter........................ 21 3/4 18 7/8 0.2675 Third Quarter......................... 23 5/8 20 3/4 0.2675 Fourth Quarter........................ 25 1/2 22 1/2 0.2675 1998: First Quarter......................... $26 3/8 $24 1/4 $0.2850 (2) Second Quarter........................ 25 15/16 23 0.3183 Third Quarter......................... 26 20 0.3183 Fourth Quarter........................ 22 3/4 20 1/16 0.3183 1999: First Quarter (through March 22)...... $22 $18 5/8 $0.3183 (3)
- -------- (1) Declared in the fourth quarter of 1996 and paid in the first quarter of 1997. (2) Declared in the fourth quarter of 1997 and paid in the first quarter of 1998. (3) Declared in the fourth quarter of 1998 and paid in the first quarter of 1999. 34 On March 22, 1999, ProLogis had approximately 123,755,133 Common Shares outstanding, which were held of record by approximately 1,150 shareholders. ProLogis, in order to qualify as a REIT under the Code, is required to make distributions (other than capital gain distributions) to its shareholders in amounts at least equal to (i) the sum of (a) 95% of its "REIT taxable income" (computed without regard to the dividends paid deduction and its net capital gain) and (b) 95% of the net income (after tax), if any, from foreclosure property, minus (ii) the sum of certain items of noncash income. ProLogis' distribution strategy is to distribute what it believes is a conservative percentage of its cash flow, permitting ProLogis to retain funds for capital improvements and other investments. ProLogis generally announces the following year's projected annual distribution level after the annual budget review and approval by the ProLogis Board of Trustees (the "Board") in December of each year. However, due to the merger with Meridian, the Board did not announce a projected 1999 distribution level ($1.30 per Common Share) until March 1999. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of ProLogis and may be adjusted at the discretion of the Board during the budget year. For federal income tax purposes, distributions may consist of ordinary income, capital gains, non-taxable return of capital or a combination thereof. Distributions that exceed ProLogis' current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and reduce the shareholder's basis in the Common Shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholders basis in the Common Shares, it will generally be treated as gain from the sale or exchange of that shareholder's Common Shares. ProLogis annually notifies shareholders of the taxability of distributions paid during the preceding year. The following summarizes the taxability of distributions paid in 1997 and 1996 on Common Shares and the estimated taxability for 1998:
Year Ended December 31, ----------------- 1998 1997 1996 ----- ----- ----- Per Common Share: Ordinary income....................................... $1.12 $1.07 $0.88 Return of capital..................................... 0.12 -- 0.13 ----- ----- ----- Total............................................... $1.24 $1.07 $1.01 ===== ===== =====
The dividends paid on the Series A, Series B, Series C and Series D preferred shares (all of which are ordinary income to the holders of the preferred shares) are as follows:
Year Ended December 31, ------------------ 1998 1997 1996 ---- ---- ---- Series A........................................... 2.35 2.35 2.35 Series B........................................... 1.75 1.75 1.50 (1) Series C........................................... 4.27 4.27 0.57 (1) Series D........................................... 1.42 (2) -- --
- -------- (1) For the period from date of issuance to December 31, 1996. (2) For the period from date of issuance to December 31, 1998. Under federal income tax rules, ProLogis' earnings and profits are first allocated to its preferred shares, which increases the portion of the Common Shares distribution classified as return of capital. The portion of distributions characterized as return of capital results primarily from the excess of distributions over earnings primarily because non-cash charges such as depreciation are added to earnings in determining distribution levels. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." ProLogis' tax return for the year ended December 31, 1998 has not been filed, and the taxability information for 1998 is based upon the best available data. ProLogis' tax returns for prior years have not been examined by the Internal Revenue Service. Consequently, the taxability of distributions and dividends is subject to change. 35 Dividend Reinvestment and Share Purchase Plan In March 1995, ProLogis adopted a Dividend Reinvestment and Share Purchase plan (the "Plan"). The Plan allows holders of Common Shares the opportunity to acquire additional Common Shares by automatically reinvesting distributions. Common Shares are acquired pursuant to the Plan at a price equal to 98% of the market price of such Common Shares, without payment of any brokerage commission or service charge. The Plan also allows participating shareholders to purchase a limited number of additional Common Shares at 98% of the market price of such Common Shares, by making optional cash payments, without payment of any brokerage commission or service charge. Shareholders who do not participate in the Plan continue to receive distributions as declared. Item 6. Selected Financial Data The following tables set forth selected financial data relating to the historical financial condition and results of operations of ProLogis for the years indicated (amounts in thousands, except per share data). Such selected financial data is qualified in its entirety by, and should be read in conjunction with, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto incorporated by reference.
Year Ended December 31, 1998 ------------------------------------------------ 1998 1997 1996 1995 1994 -------- -------- -------- -------- ------- Operating Data: Rental income............... $345,046 $284,533 $227,000 $153,879 $70,609 Other real estate income.... 17,250 12,291 5,342 2,899 -- Income from unconsolidated subsidiaries............... 2,755 3,278 -- -- -- Total revenues.............. 372,795 296,118 233,463 158,503 71,702 Rental expenses, including property management fees... 27,120 27,008 26,674 18,460 7,244 REIT management fees paid to affiliate.................. -- 17,791 21,472 14,207 8,673 General and administrative.. 22,957 6,855 1,025 839 770 Interest rate hedge expense (1)........................ 26,050 -- -- -- -- Costs incurred in acquiring management companies from affiliate (2).............. -- 75,376 -- -- -- Earnings from operations (1) (2)........................ 110,445 35,931 82,710 50,991 28,058 Gain (loss) on disposition of real estate............. 5,565 7,378 (29) 1,053 35 Preferred share cash dividends paid............. 49,098 35,318 25,895 6,698 -- Net earnings attributable to Common Shares (1) (2)...... 62,231 4,431 53,460 42,015 25,101 Common share cash distributions paid......... $151,050 $106,556 $ 85,340 $ 64,445 $37,698 Per Share Data: Basic and diluted net earnings attributable to Common Shares (1) (2)...... $ 0.51 $ 0.04 $ 0.63 $ 0.61 $ 0.57 Series A preferred share dividends paid............. 2.35 2.35 2.35 1.24 -- Series B preferred share dividends paid............. 1.75 1.75 1.50 -- -- Series C preferred share dividends paid............. 4.27 4.27 0.57 -- -- Series D preferred share dividends paid............. 1.42 -- -- -- -- Common Share distributions declared and paid.......... $ 1.24 $ 1.07 $ 1.01 $ 0.935 $ 0.85 Weighted average Common Shares outstanding: Basic..................... 121,721 100,729 84,504 68,924 44,265 Diluted................... 122,028 100,869 84,511 74,422 44,277
36
Year Ended December 31, 1998 --------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Other Data: Reconciliation of net earnings to funds from operations (3): Net earnings attributable to Common Shares........ $ 62,231 $ 4,431 $ 53,460 $ 42,015 $ 25,101 Add (Deduct): Real estate depreciation and amortization....... 99,514 76,275 59,850 39,767 18,169 Minority interest... 4,681 3,560 3,326 3,331 2,992 (Gain) loss on disposition of real estate............. (5,565) (7,378) 29 (1,053) -- Foreign currency exchange (gains) losses, net,....... (5,281) 6,376 -- -- -- Interest rate hedge expense (1)........ 26,050 -- -- -- -- Reconciling items from unconsolidated subsidiaries....... 47,946 2,419 -- -- -- Costs incurred in acquiring management companies from affiliate (2)...... -- 75,376 -- -- -- Other, net.......... 3,483 -- 225 -- 45 ---------- ---------- ---------- ---------- ---------- Funds from operations attributable to Common Shares (1) (2) (3) (5).............. $ 233,059 $ 161,059 $ 116,890 $ 84,060 $ 46,307 ========== ========== ========== ========== ========== Weighted average Common Shares outstanding: Basic (includes convertible partnership units). 126,791 105,919 89,698 74,409 49,022 Diluted (5)......... 137,153 116,371 89,700 74,422 49,034 Net cash provided by operating activities. $ 238,253 $ 192,473 $ 136,201 $ 100,154 $ 47,222 Net cash used in investing activities. (1,264,722) (571,061) (665,878) (628,795) (631,871) Net cash provided by financing activities. $1,064,600 $ 398,827 $ 512,212 $ 529,606 $ 599,382 December 31, --------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Financial Position: Real estate owned, at cost................. $3,476,704 $2,846,591 $2,399,431 $1,767,307 $1,133,484 Land held for development.......... 180,796 159,645 109,316 60,363 42,147 Investments in and advances to unconsolidated subsidiaries......... 733,863 86,139 -- -- -- Total assets.......... 4,330,729 3,033,953 2,462,306 1,833,972 1,194,937 Lines of credit and short-term borrowings (4)....... 494,300 -- 38,600 81,000 160,000 Senior unsecured debt. 1,083,641 724,052 524,191 324,527 -- Mortgage notes, assessment bonds and securitized debt..... 227,804 133,028 139,952 145,276 144,262 Total liabilities..... 2,023,066 1,003,912 805,933 639,040 350,607 Minority interest..... 51,295 53,304 56,984 58,741 66,555 Total shareholders' equity............... $2,256,368 $1,976,737 $1,599,389 $1,136,191 $ 777,775 Number of Common Shares outstanding... 123,416 117,364 93,677 81,416 64,587
37 - -------- (1) Earnings from operations for 1998 reflect the $26.1 million mark to market adjustment associated with two interest rate hedges that, due to changing market conditions, no longer qualified for hedge accounting treatment under generally accepted accounting principles ("GAAP"). This expense was not deducted for purposes of calculating funds from operations. For purposes of calculating funds from operations, ProLogis has deferred this expense and intends to amortize it as a component of interest expense over the term of a future debt offering. (2) Earnings from operations for 1997 reflect the one-time, non-cash charge of $75.4 million associated with the costs incurred in acquiring ProLogis' management companies from Security Capital in September 1997. This one- time charge was not deducted for purposes of calculating funds from operations due to its non-recurring and non-cash nature. (3) Funds from operations represent net earnings computed in accordance with GAAP before minority interest, before gains or losses from debt restructuring, before gains or losses on disposition of depreciated property, before gains or losses from mark to market adjustments resulting from the remeasurement (based on current foreign currency exchange rates) of intercompany and other debt of ProLogis' foreign subsidiaries, before deferred tax benefits and deferred tax expenses of ProLogis' taxable subsidiaries, before significant non-recurring items that materially distort the comparative measurement of company performance over time, plus real estate depreciation and amortization (exclusive of amortization of loan costs), and after adjustments for unconsolidated subsidiaries calculated to compute their funds from operations on the same basis as ProLogis. ProLogis believes that funds from operations is helpful to a reader as a measure of the performance of an equity REIT because, along with cash flow from operating activities, investing activities and financing activities, it provides a reader with an indication of the ability of ProLogis to incur and service debt, to make capital expenditures and to fund other cash needs. The funds from operations measure presented by ProLogis, while comparable to the National Association of Real Estate Investment Trusts' definition, will not be comparable to similarly titled measures of other REITs that do not compute funds from operations in a manner consistent with ProLogis. Funds from operations is not intended to represent cash made available to shareholders. Funds from operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance as an indicator of ProLogis' operating performance, or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. Cash distributions paid to shareholders are presented above in the "Operating Data" section. (4) As of March 22, 1999, ProLogis had $214.0 million of borrowings outstanding under its $375.0 million unsecured lines of credit and $150.0 million of short-term borrowings outstanding. (5) In calculating the weighted average Common Shares for funds from operations purposes, the weighed average Series B convertible preferred shares are considered common stock equivalents. The weighted average Series B convertible preferred shares included are 10,055,000 and 10,319,000 for 1998 and 1997, respectively. The amount of dividends associated with these preferred shares are $13,668,000 and $14,088,000 for 1998 and 1997, respectively. There were no outstanding Series B convertible preferred shares prior to 1996 and the effect of these preferred shares in 1996 was anti-dilutive. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with ProLogis' consolidated financial statements and the notes thereto included in Item 8 of this report. The statements contained in this discussion that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which ProLogis operates, management's beliefs, and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Future Factors include: (i) changes in general economic conditions in its target markets that could adversely affect 38 demand for ProLogis' facilities and the creditworthiness of ProLogis' customers, (ii) changes in financial markets and interest rates that could adversely affect ProLogis' cost of capital and its ability to meet its financial needs and obligations, (iii) increased or unanticipated competition for distribution facilities in ProLogis' target markets, and (iv) those factors discussed below. These are representative of the Future Factors that could affect the outcome of the forward-looking statements. Overview General ProLogis' operating results depend primarily on the operating results of its industrial distribution facilities, which are substantially influenced by (i) the demand for and supply of industrial distribution facilities in ProLogis' North American and European target market cities; (ii) the pace and economic returns at which ProLogis can acquire and develop additional industrial distribution facilities; (iii) the extent to which ProLogis can sustain improved market performance as measured by lease rates and occupancy levels; and (iv) the demand for the corporate distribution facilities services that are provided by ProLogis Development Services and ProLogis Kingspark. In addition, the operating performance of ProLogis' two unconsolidated subsidiaries, Frigoscandia AB and CSI, that are engaged in the refrigerated logistics business also effect ProLogis' operating results. ProLogis' target market cities and submarkets have benefited substantially in recent periods from demographic trends (including population and job growth) which influence the demand for distribution facilities. ProLogis believes its ability to compete is significantly enhanced relative to other companies due to its depth of management and its ability to serve customers through the ProLogis Operating System(TM), which includes acquisition, development, property management personnel and presence in local markets. See "Business--ProLogis Operating System(TM)". As of December 31, 1998, ProLogis' real estate investments included 104.5 million square feet of operating facilities with a total expected investment of $3.4 billion. During 1998, ProLogis acquired 6.0 million square feet of operating facilities at a total expected investment of $219.7 million (excluding its investment in Garonor Holdings and Kingspark S.A.; see "-- Income (Loss) from Unconsolidated Subsidiaries" and Note 4 to the Consolidated Financial Statements in Item 8), while disposing of facilities from its operating portfolio aggregating 3.1 million square feet. During 1998, ProLogis recognized $17.3 million of other real estate income related to the activities of ProLogis Development Services, primarily from the sale of undepreciated facilities. ProLogis had 8.0 million square feet of facilities under development as of December 31, 1998 with a total expected investment at completion of $328.1 million. Development starts during 1998 aggregated 10.4 million square feet at a total expected investment of $426.6 million. Development completions during the year aggregated 9.8 million square feet at a total expected investment of $394.2 million. As of December 31, 1998, ProLogis had 1,673 acres of land in inventory for the future development of approximately 29.8 million square feet of distribution facilities. Additionally, ProLogis had 962 acres of land under control through option, letter of intent or contingent contract for the future development of 16.0 million square feet of distribution facilities. Through ProLogis' third quarter 1998 investment in Kingspark S.A., ProLogis had an additional 0.4 million square feet of operating facilities, 0.4 million square feet of facilities under development and 0.2 million square feet of facilities being developed under construction management agreements in the United Kingdom as of December 31, 1998. Additionally, as of December 31, 1998, ProLogis Kingspark owned 554 acres of land and controlled 1,489 acres of land through letter of intent or contingent contract for future development of 35.8 million square feet of distribution facilities. In 1997, ProLogis began expanding its distribution facilities operations into Europe and Mexico. This expansion was necessary to meet the needs of its targeted national and international customers as they expanded and reconfigured their distribution facility requirements globally. With over 18 target market cities identified in Europe and four target market cities identified in Mexico, ProLogis believes significant growth opportunities 39 exist internationally to enable ProLogis to meet its objective of achieving long-term sustainable growth in cash flow. As of December 31 1998 (excluding its investment in Kingspark S.A. and Garonor Holdings), ProLogis owned 2.5 million square feet of operating facilities with a total expected investment of $130.1 million in Europe and 1.5 million square feet of operating facilities with a total expected investment of $56.1 million in Mexico. Additionally, as of December 31, 1998, ProLogis had 0.7 million square feet of facilities under development in Europe with a total expected investment of approximately $59.7 million and 0.8 million square feet of facilities under development in Mexico with a total expected investment of $28.5 million. In 1997 and 1998, ProLogis invested in refrigerated logistics businesses through investments in the preferred stock of two companies. As of December 31, 1998, ProLogis' had approximately 306.1 million cubic feet of refrigerated distribution facilities in operation (114.1 million cubic feet in the United States and Canada and 192.0 million cubic feet in nine countries in Europe). As of December 31, 1997, ProLogis had approximately 69.0 million cubic feet of refrigerated distribution facilities in operation, all in the United States and Canada. Garonor Holdings, which was acquired by ProLogis on December 29, 1998, had 5.2 million square feet of operating facilities at a total expected investment of $318.2 million as of December 31, 1998. All of these operating facilities are located in France, principally near the Charles de Gaulle Airport outside Paris. No assurance can be given that the current cost of funds available to ProLogis will be available in the future or that ProLogis will continue to be able to obtain secured or unsecured debt or equity financing on favorable terms. During 1998 the real estate industry experienced a general tightening of the equity and credit markets. Additionally, no assurance can be given that the expected trends in leasing rates and economic returns on acquired and developed facilities will be realized. There are risks associated with ProLogis' development and acquisition activities which include Future Factors such as development and acquisition opportunities explored by ProLogis may subsequently be abandoned at a cost to ProLogis; construction costs of a project may exceed original estimates due to increased materials, labor or other expenses; and construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs. Acquisition activities entail risks that investments will fail to perform in accordance with expectations and that analysis with respect to the cost of improvement to bring an acquired project up to standards will prove inaccurate, as well as general investment risks associated with any new real estate investment. Although ProLogis undertakes a thorough evaluation of the physical condition of each proposed investment before it is acquired, certain defects or necessary repairs may not be detected until after it is acquired, which could increase ProLogis' total acquisition cost. There are also risks associated with the hedging strategies used to manage interest rate fluctuations on anticipated transactions. If these anticipated transactions do not occur as planned, ProLogis could incur costs. To the extent ProLogis' business activities outside the United States are conducted in a currency other than the U.S. dollar, ProLogis is exposed to foreign currency exchange rate fluctuations. However, all of ProLogis' business activities in Mexico and Poland are U.S. dollar denominated. Risks include the occurrence of any of the events described above that could adversely affect ProLogis' ability to achieve its projected returns on acquisitions and projects under development and could hinder ProLogis' ability to make expected distributions to equity holders. Proposed Merger Transaction ProLogis has entered into an Agreement and Plan of Merger dated as of November 16, 1998, as amended, with Meridian, whereby Meridian would be merged with and into ProLogis. Meridian is a publicly traded REIT that owns and leases industrial and refrigerated distribution facilities in the United States. The Merger Agreement, which must be approved by at least two-thirds of the holders of Common Shares and a majority of the holders of Meridian's common stock, provides that each share of Meridian common stock will be exchanged for 1.10 Common Shares, plus $2.00 in cash. Meridian has approximately 34.2 million shares of common stock and common stock equivalents outstanding as of March 22, 1999. Additionally, ProLogis will assume Meridian's outstanding liabilities (approximately $613.2 million as of December 31, 1998) and will exchange a new share of ProLogis cumulative redeemable preferred shares with an 8.75% annual dividend rate ($2.1875 per share) for each outstanding share of Meridian Series D preferred stock (aggregate liquidation value of $50 million). 40 The Joint Proxy Statement and Prospectus of ProLogis and Meridian was mailed to ProLogis' shareholders and Meridian's stockholders on March 2, 1999. ProLogis' shareholders and Meridian's stockholders will vote on the Merger at special meetings to be held on March 30, 1999. Upon completion of the Merger, ProLogis is expected to have a total market capitalization of approximately $6.5 billion, based on the closing price of Common Shares on March 22, 1999 and the outstanding principal amount of indebtedness of the two companies on such date. The combined real estate assets, including assets held by unconsolidated subsidiaries and joint ventures, will consist of approximately 142.0 million square feet of operating distribution facilities and 16.4 million square feet of refrigerated distribution facilities. Also, the combined company, including unconsolidated subsidiaries and joint ventures, will have 10.8 million square feet of distribution facilities under development at a total expected investment of $473.1 million. The combined company, including unconsolidated subsidiaries and joint ventures, will own distribution facilities in 94 North American and European markets and will own or control approximately 5,100 acres of land for the future development of approximately 87.9 million square feet of distribution facilities. The combined company will continue to be taxed as a REIT under the Code. ProLogis intends to replace its existing $350.0 million unsecured line of credit and Meridian's existing $350.0 million unsecured line of credit with a new $700.0 million credit facility upon consummation of the Merger. ProLogis has a commitment from Nationsbank N.A., Commerzbank and Chase Bank of Texas for this new credit facility. ProLogis expects that $550.0 million of this credit facility will be an unsecured line of credit with the remainder a short-term borrowing arrangement. Borrowings on the credit facility will bear interest generally at LIBOR plus an applicable percentage based upon ProLogis' senior unsecured debt rating (LIBOR plus 1.00% based upon ProLogis' current debt rating) plus a 0.20% annual facility fee. The new credit facility will contain financial covenants consistent with ProLogis' existing credit agreement. Results of Operations General Net earnings attributable to Common Shares increased by $57.8 million to $62.2 million for 1998 from $4.4 million for 1997. Net earnings attributable to Common Shares in 1997 was $49.0 million below the 1996 amount of $53.5 million. The increase in net earnings attributable to Common Shares in 1998 over 1997 was primarily the result of: . a one-time charge of $75.4 million incurred in September 1997 as a result of the acquisition of the management companies from Security Capital and the resulting reduction of associated expenses (see "--1997 Merger"); . an increase in net operating income from property operations (after deductions for depreciation), primarily the result of the increased number of distribution facilities in operation in 1998 as compared to 1997; . an increase in other real estate income, primarily gains on disposition of undepreciated facilities and fees generated by ProLogis Development Services; and . net foreign currency exchange gain recognized in 1998. These increases in net earnings attributable to Common Shares were partially offset by: . a net decrease in income generated by ProLogis' unconsolidated subsidiaries in 1998 from 1997, primarily due to the recognition of a net foreign currency exchange loss in 1998 and . the recognition of a $26.1 million expense in 1998 as a result of mark to market adjustments related to two interest rate protection agreements (see "Liquidity and Capital Resources--Derivative Financial Instruments"). The decrease in net earnings attributable to Common Shares in 1997 from 1996 was primarily the result of a one-time charge of $75.4 million related to the acquisition of the management companies from Security Capital in 1997, partially offset by the resulting reduction in associated expenses (see "-- 1997 Merger") and: . an increase in net operating income from property operations (after deductions for depreciation), primarily the result of the increased number of distribution facilities in operation in 1997 as compared to 1996; 41 . an increase in other real estate income, primarily gains on disposition of undepreciated facilities and fees generated by ProLogis Development Services; and . income from ProLogis' investment in an unconsolidated subsidiary in 1997. Interest expense, preferred share dividends and weighted average Common Shares outstanding all increased in 1998 as compared to 1997 and in 1997 as compared to 1996. These increases are the result of additional debt and equity used by ProLogis to finance the increases in its acquisition and development activities in each year. Property Operations As of December 31, 1998 ProLogis had 1,099 operating facilities totaling 104.5 million square feet, as of December 31, 1997 ProLogis had 1,005 operating facilities totaling 90.8 million square feet and as of December 31, 1996, ProLogis had 942 operating facilities totaling 80.6 million square feet. The increases in operating facilities resulted in increases in property-level net operating income of $60.4 million from 1997 to 1998 and $57.2 million from 1996 to 1997 as follows (in thousands):
Year Ended December 31, -------------------------- 1998 1997 1996 -------- -------- -------- Rental income.................................. $345,046 $284,533 $227,000 Property operating expenses: Rental expenses, net of recoveries........... 27,120 23,187 21,734 Property management fees paid to affiliate... -- 3,821 4,940 -------- -------- -------- 27,120 27,008 26,674 -------- -------- -------- Net operating income....................... $317,926 $257,525 $200,326 ======== ======== ========
Rental income increased by $60.5 million in 1998 as compared to 1997. This increase is comprised from the following components: . facilities acquired or developed during 1998 contributed $8.2 million and $13.9 million of additional rental revenues, respectively; . facilities acquired or developed during 1997 contributed $17.4 million and $18.8 million of additional rental revenues, respectively; . facilities owned and operated as of January 1, 1997 contributed $11.2 million of additional rental revenues; and . facilities that were in operation during 1997 but have subsequently been disposed of reduced rental revenues in 1998 by $9.0 million. Rental income increased by $57.5 million in 1997 as compared to 1996. This increase is comprised of the following components: . facilities acquired or developed during 1997 contributed $6.3 million and $8.9 million of additional rental revenues, respectively; . facilities acquired or developed during 1996 contributed $16.8 million and $24.2 million of additional rental revenues, respectively; . facilities owned and operated as of January 1, 1996 contributed $5.4 million of additional rental revenues; and . facilities that were in operation during 1996 but have subsequently been disposed of reduced rental revenues in 1997 by $4.1 million. Rental expenses, including property management fees paid to an affiliate and net of recoveries from tenants, increased by $112,000 in 1998 over 1997 and $334,000 in 1997 over 1996. Rental expenses, net of recoveries from tenants, were 24.5% of rental income for 1998, 25.7% of rental income for 1997 and 26.6% of rental income for 1996. 42 As a result of the 1997 Merger discussed below under "--1997 Merger" and in Note 8 to the Consolidated Financial Statements in Item 8, ProLogis no longer pays a property management fee. However, ProLogis did recognize the actual personnel and other operating costs associated with the property management function in rental expenses in 1998 and for the period from September 8, 1997 to December 31, 1997. ProLogis frequently acquires facilities that are underleased and develops facilities that are not fully leased at the start of construction, which reduces ProLogis' overall occupancy rate below its stabilized level but provides opportunities to increase revenues. The term "stabilized" means that capital improvements, repositioning, new management and new marketing programs (or development and marketing, in the case of newly developed facilities) have been completed and in effect for a sufficient period of time (but in no case longer than 12 months for facilities acquired by ProLogis and 12 months after shell completion for facilities developed by ProLogis) to achieve stabilized occupancy (typically 93%). ProLogis has been successful in increasing occupancies on acquired and developed facilities during their initial months of operation resulting in an occupancy rate of 95.8% and a leased rate of 96.3% for stabilized facilities owned as of December 31, 1998. The average increase in rental rates for new and renewed leases on previously leased space (17.4 million square feet) during 1998 was 15.2%. As leases are renewed or new leases are acquired, ProLogis expects most rental rates to increase in 1999. Other Real Estate Income Other real estate income consists primarily of gains on the disposition of undepreciated facilities and fees and other income received from customers or third parties for whom ProLogis develops corporate distribution facilities. Other real estate income is generated primarily by ProLogis Development Services. ProLogis Development Services develops corporate distribution facilities to meet specific customer requirements or contracts on a fee basis to develop distribution facilities for customers or third parties. Through its preferred stock ownership of ProLogis Development Services, ProLogis realizes substantially all economic benefits of these activities. ProLogis advances mortgage loans to ProLogis Development Services to fund its acquisition, development and construction activities. The activities of ProLogis Development Services are consolidated with ProLogis' activities and all intercompany balances are eliminated. Due to the timing of the completion of these development projects and the related dispositions, other real estate income recognized by ProLogis will vary on an annual basis. See "Properties-- ProLogis Development Services". Income (Loss) from Unconsolidated Subsidiaries Income (loss) from unconsolidated subsidiaries relates primarily to ProLogis' investments in 100% of the preferred stock of Frigoscandia S.A. and ProLogis Logistics, whose primary source of income is their respective investments in refrigerated logistics businesses, in Kingspark S.A., which owns an industrial real estate development company and in Garonor Holdings, which owns an industrial distribution facilities company. These investments, discussed in Note 4 to the Consolidated Financial Statements in Item 8 and in "Properties-- Unconsolidated Subsidiaries", generated income under the equity method of accounting as follows (in thousands):
Year Ended December 31, ----------------------- 1998 1997 1996 -------- ------- ---- Insight (1)...................................... $ 20 $ -- $-- -------- ------- ---- ProLogis Logistics (2): Equity in earnings (loss)...................... (4,396) (2,258) -- Management fee from CSI (3).................... 1,011 743 -- Interest income on note receivable............. 10,734 4,793 -- -------- ------- ---- 7,349 3,278 -- -------- ------- ---- Frigoscandia S.A. (4): Equity in earnings (loss) (5).................. (25,604) -- -- Interest income on mortgage notes and notes receivable.................................... 18,069 -- -- -------- ------- ---- (7,535) -- -- -------- ------- ----
43
Year Ended December 31, -------------------- 1998 1997 1996 ------- ------ ---- Kingspark S.A. (6): Equity in earnings (loss) (7)..................... (1,565) -- -- Interest income on mortgage note and note receivable....................................... 4,480 -- -- ------- ------ ---- 2,915 -- -- ------- ------ ---- Garonor Holdings (8): Equity in earnings (loss)......................... (79) -- -- Interest income on notes receivable............... 85 -- -- ------- ------ ---- 6 -- -- ------- ------ ---- Total........................................... $ 2,755 $3,278 $-- ======= ====== ====
- -------- (1) Represents ProLogis' investment in a privately owned logistics optimization consulting company that, prior to July 1, 1998, was accounted for under the cost method. (2) ProLogis Logistics was acquired on April 24, 1997. (3) ProLogis no longer receives the management fee from CSI. (4) Frigoscandia S.A. was acquired on January 16, 1998. (5) Includes a net loss of $13.3 million on the remeasurement from intercompany and other debt based on the foreign currency exchange rates in effect as of December 31, 1998. (6) Kingspark S.A. was acquired on August 14, 1998. (7) Includes a net loss of $0.9 million from the remeasurement of intercompany debt based on the foreign currency exchange rates in effect as of December 31, 1998. (8) Garonor Holdings was acquired on December 29, 1998. Foreign Currency Exchange Gains (Losses), Net The foreign exchange gain in 1998 consists of a foreign currency exchange transaction loss of $0.3 million and a $3.2 million gain related to foreign currency remeasurement adjustments. In 1997, ProLogis incurred a remeasurement loss of $0.3 million. No foreign currency exchange transaction gain or loss was recognized in 1997 due to ProLogis' limited foreign operations in that year. ProLogis did not have foreign subsidiaries in 1996. Foreign Currency Hedge Income (Expense) On December 22, 1997, ProLogis entered into two separate contracts to (i) exchange $373.8 million for 2.9 billion Swedish krona, and (ii) exchange 310.0 million German marks for $175.0 million in anticipation of the January 1998 acquisition and planned European currency denominated financing of Frigoscandia AB by Frigoscandia S.A., ProLogis' unconsolidated subsidiary. The contracts were marked to market as of December 31, 1997 and ProLogis recognized a net loss of $6.0 million in 1997. Both contracts were settled during the first quarter of 1998 at a net loss of $4.0 million. Accordingly, ProLogis recognized a net gain of $2.0 million in 1998. These foreign currency exchange hedges were one-time, non-recurring contracts that fixed the exchange rate between the U.S. dollar and the Swedish krona and German mark. ProLogis executed these hedges after the execution of the purchase agreement to acquire Frigoscandia AB, which required payment in Swedish krona. The contracts were executed exclusively for the acquisition and financing of Frigoscandia AB and were not entered into to hedge on-going income in foreign currencies. Interest Income Interest income in 1998 increased $360,000 over 1997 and increased $1.3 million in 1997 over 1996. The increases in interest income are primarily the result of higher average cash balances. 44 Depreciation and Amortization The increases in depreciation and amortization expense of $24.0 million in 1998 as compared to 1997 and $16.7 million in 1997 as compared to 1996 result primarily from the increases in operating facilities each year. See "-- Property Operations". Interest Rate Hedge Expense See "--Liquidity and Capital Resources--Derivative Financial Instruments" for a discussion of this expense. Interest Expense Interest expense is summarized as follows (in thousands):
Year Ended December 31, ------------------------- 1998 1997 1996 ------- ------- ------- Lines of credit and short-term borrowings...... $15,657 $ 4,332 $ 3,671 Senior unsecured debt.......................... 70,308 55,870 39,215 Mortgage notes................................. 5,666 5,441 6,503 Assessment bonds............................... 2,321 2,371 2,420 Securitized debt............................... 2,871 3,055 3,148 Capitalized interest........................... (19,173) (18,365) (16,138) ------- ------- ------- $77,650 $52,704 $38,819 ======= ======= =======
Interest expense on lines of credit borrowings increased $11.3 million in 1998 over 1997 and $0.7 million in 1997 over 1996 due primarily to a higher average outstanding balance ($174.9 million in 1998, $56.9 million in 1997 and $44.3 million in 1996) partially offset by a lower weighted average daily interest rate (6.46% in 1998, 6.75% in 1997 and 7.02% in 1996). Interest expense on lines of credit and short-term borrowings in 1998 includes $2.8 million related to short-term borrowings of $150.0 million for the period from September 11, 1998 to December 31, 1998. See "--Liquidity and Capital Resources--Investing and Financing Activities". Senior unsecured debt interest expense increased by $14.4 million in 1998 as compared to 1997 and $16.7 million in 1997 as compared to 1996 due primarily to interest on new senior unsecured debt issuances in each year. Interest expense recognized on borrowings is offset by interest capitalized with respect to ProLogis' development activities. Capitalized interest increased by $0.8 million in 1998 over 1997 and $2.2 million in 1997 over 1996. Capitalized interest levels are reflective of ProLogis' cost of funds and the level of development activity in each year. Other Expense Other expenses, which increased by $4.1 million in 1998 over 1997 and $1.0 million in 1997 over 1996, consist of land holding costs, the write-off of previously capitalized pursuit costs, deferred tax expense related to ProLogis' taxable subsidiaries and costs associated with the name change to ProLogis. Land holding costs were $2.2 million in 1998, $2.3 million in 1997 and $1.5 million in 1996. Pursuit cost write-offs were $2.3 million in 1998, $1.6 million in 1997 and $1.4 million in 1996. Deferred tax expense was $1.8 million in 1998 and non-recurring costs associated with the name change were $1.7 million in 1998. Preferred Share Dividends The increase in preferred share dividends of $13.8 million in 1998 over 1997 is primarily attributable to the issuance of Series D preferred shares in April 1998. The increase in preferred share dividends of $9.4 million in 1997 over 1996 is primarily attributable to the issuance of Series B and Series C preferred shares in 1996. See 45 "--Liquidity and Capital Resources--Investing and Financing Activities". 1997 Merger As a result of the 1997 Merger discussed in Note 8 to the Consolidated Financial Statements in Item 8, ProLogis terminated its REIT management and property management agreements. All employees of the REIT management and property management companies became employees of ProLogis and ProLogis directly incurs the personnel and other costs related to these functions. The costs relating to property management are recorded as rental expenses whereas the costs associated with managing the corporate entity are recorded as general and administrative expenses. In connection with this transaction, ProLogis recognized a one-time expense of $75.4 million, representing the excess of the purchase price over the net tangible assets acquired. Upon consummation of the 1997 Merger, ProLogis and Security Capital entered into the ASA, pursuant to which Security Capital provides ProLogis with certain administrative and other services as determined by ProLogis. Fees paid to Security Capital in 1998 and 1997 under the ASA were equal to Security Capital's cost of providing such services, plus an overhead factor of 20%, subject to a maximum amount of approximately $7.1 million during the initial term of the agreement, which expired on December 31, 1998. From September 8, 1997 through December 31, 1997 and for the year ended December 31, 1998, ProLogis' actual fees under the ASA were $1.1 million and $3.7 million, respectively, of which $0.2 million and $0.7 million, respectively, were capitalized. The ASA was renewed for an additional one-year term expiring on December 31, 1999 with fees charged by Security Capital for this one-year period to be based on negotiated rates for each service provided. Environmental Matters ProLogis did not experience any environmental condition on its facilities which materially adversely affected its results of operations or financial position. Liquidity and Capital Resources Overview ProLogis considers its liquidity and ability to generate cash from operations and financing activities to be adequate and expects it to continue to be adequate to meet its anticipated development, acquisition, operating and debt service needs as well as its shareholder distribution requirements. ProLogis expects to finance future activities with cash on hand, redeployment of proceeds from the disposition of selected facilities, borrowings on its credit facilities, issuance of limited partnership units, the assumption of existing mortgage debt, when applicable, secured and unsecured debt issuances and sales of Common Shares and preferred shares. ProLogis is also considering the feasibility of entering into certain joint venture agreements where the joint venture would pursue secured debt financing arrangements. The credit facilities provide ProLogis with the ability to efficiently respond to market opportunities while minimizing the amount of cash invested in short-term investments at lower yields. As of December 31, 1998 ProLogis had $30.7 million available for borrowing under its credit facilities ($161.0 million available as of March 22, 1999). Another source of future liquidity and financial flexibility is ProLogis' shelf-registered securities ($608.0 million available as of March 22, 1999) which can be issued in the form of debt securities, preferred shares, Common Shares, rights to purchase Common Shares and preferred share purchase rights on an as-needed basis, subject to ProLogis' ability to effect an offering on satisfactory terms. See "--Credit Facilities". Operating Activities Cash provided by operating activities increased by $45.8 million in 1998 as compared to 1997 ($238.3 million in 1998 and $192.5 million in 1997). Cash provided by operating activities increased by $56.3 million in 1997 as compared to 1996 ($192.5 million in 1997 as compared to $136.2 million in 1996). This increase is primarily the result of the increased number of operating facilities in each year. See "--Results of Operations-- Property Operations". 46 Investing and Financing Activities ProLogis funds its current investment needs primarily with lines of credit borrowings and short-term borrowings, which are subsequently repaid with proceeds from sales of debt and equity securities. ProLogis' investment activities used approximately $1.26 billion, $571.1 million and $665.9 million of cash in 1998, 1997 and 1996, respectively. ProLogis' financing activities provided net cash flow of $1.06 billion, $398.8 million and $512.2 million in 1998, 1997 and 1996, respectively. Cash distributions paid on Common Shares were $151.1 million, $106.6 million and $85.3 million in 1998, 1997 and 1996, respectively, which have been substantially funded by cash generated from operating activities. Investments in real estate, net of proceeds from dispositions, used cash of $695.8 million in 1998, $601.6 million in 1997 and $657.9 million in 1996. ProLogis' cash investment in ProLogis Logistics and related subsidiaries was $63.4 million in 1998 and $85.1 million in 1997. In 1998, ProLogis' net cash investments in Frigoscandia S.A. and its related subsidiaries, Kingspark S.A. and its related subsidiaries and Garonor Holdings and its related subsidiaries aggregated $235.6 million, $222.5 million and $135.0 million, respectively. Additionally, ProLogis Development Services invested $1.0 million and $0.5 million in cash in Insight during 1998 and 1997, respectively. ProLogis' primary financing activities in 1998 were: (i) the sale of Series D Preferred Shares generating net proceeds of $241.5 million; (ii) sales of Common Shares (net of repurchases of Common Shares under the employee share purchase plan) generating net proceeds of $130.6 million; (iii) net borrowings on ProLogis' credit facilities of $494.3 million; (iv) proceeds from short- term borrowings of $350.0 million ($200 million of which was used primarily to finance the acquisition of Frigoscandia AB and was repaid on March 31, 1998 after Frigoscandia Holding AB obtained third-party financing); (v) the issuance of senior unsecured debt generating net proceeds of $371.5 million; and (vi) net proceeds from a secured financing of $65.5 million. ProLogis' primary financing activities in 1997 were: (i) sales of Common Shares (net of repurchases of Common Shares under the employee share purchase plan) generating net proceeds of $406.1 million; (ii) the issuance of senior unsecured debt generating net proceeds of $197.8 million; and (iii) net repayments on ProLogis' credit facilities of $38.6 million. ProLogis' primary financing activities in 1996 were: (i) the sale of Series B and Series C preferred shares generating net proceeds of $289.1 million; (ii) sale of Common Shares generating net proceeds of $210.5 million; (iii) issuance of senior unsecured debt generating net proceeds of $197.8 million; and (iv) net repayments on ProLogis' credit facilities of $42.4 million. Credit Facilities ProLogis has a credit agreement with NationsBank, N.A. ("NationsBank") as agent for a bank group that provides for a $350.0 million unsecured revolving line of credit. Borrowings bear interest at ProLogis' option, at either (a) the greater of the federal funds rate plus 0.5% and the prime rate, or (b) LIBOR plus 0.75% based upon ProLogis' current senior debt ratings. The prime rate was 7.75% and the 30-day LIBOR rate was 5.0641% as of December 31, 1998. Additionally, the credit agreement provides for a commitment fee of 0.15% per annum of the unused line of credit balance. Under a competitive bid option contained in the credit agreement, ProLogis may be able to borrow at a lower interest rate spread over LIBOR, depending on market conditions. This option is available on up to $100.0 million of borrowings. The line of credit matures on May 1, 2000 and may be extended annually for an additional year with the approval of NationsBank and the other participating lenders. ProLogis was in compliance with all covenants contained in the credit agreement as of December 31, 1998. As of December 31, 1998, $329.0 million of borrowings were outstanding on the line of credit. In addition, ProLogis has a $25.0 million short-term unsecured discretionary line of credit with NationsBank that matures on October 1, 1999. By agreement between ProLogis and NationsBank, the rate of interest and the maturity date of each advance are determined at the time of each advance. There were $15.3 million of borrowings outstanding on the line of credit as of December 31, 1998. 47 ProLogis has a credit agreement with NationsBank that provides for a short- term loan of $150.0 million. The credit agreement expires on May 1, 1999. Borrowings bear interest at LIBOR plus 1.00% and are subject to the covenants contained in the $350.0 million unsecured credit agreement with NationsBank. As of December 31, 1998, ProLogis was in compliance with all such covenants. ProLogis expects to repay these borrowings with proceeds from the new $700.0 million credit facility discussed below. ProLogis expects that approximately $500.0 million will be borrowed on the new line of credit at closing to repay all of the borrowings on ProLogis' existing unsecured lines of credit, ProLogis' short-term loan and borrowings on Meridian's existing unsecured line of credit. Prior to the end of the second quarter of 1999, ProLogis expects to complete a public offering of senior unsecured debt, the proceeds of which will be used to repay borrowings on the new unsecured line of credit. In connection with the Meridian merger, ProLogis intends to replace its existing $350.0 million unsecured line of credit and Meridian's existing $350.0 million unsecured line of credit with a new $700.0 million credit facility. ProLogis has a commitment from Nationsbank, Commerzbank and Chase Bank of Texas for this new credit facility. ProLogis expects that $550.0 million of this credit facility will be a unsecured line of credit with the remainder a short-term borrowing arrangement. Borrowings on the credit facility will bear interest generally at LIBOR plus an applicable percentage based upon ProLogis' senior unsecured debt rating (LIBOR plus 1.00% based upon ProLogis' current debt rating) plus a 0.20% annual facility fee. The new credit facility will contain financial covenants consistent with ProLogis' existing credit agreement. See "--Proposed Merger Transaction". Other Financing Sources On December 23, 1998, ProLogis entered into a $150.0 million secured financing agreement with Connecticut General Life Insurance Company. On that date, $66.0 million was funded under the agreement and the remaining $84.0 million was funded on January 22, 1999. Under the terms of the agreement, ProLogis pledged distribution facilities ($207.0 million undepreciated cost as of December 31, 1998) as collateral under the agreement. The loan bears interest at 7.08% per annum and provides for monthly principal and interest payments of $1,006,000 through March 2007, at which time the remaining principal outstanding of $134.4 million will be due. On February 22, 1999, ProLogis entered into a $182.0 million secured financing agreement with Teachers Insurance and Annuity Association of America. Of the total borrowings, $119.4 million was funded on February 22, 1999, $35.7 million was funded on March 5, 1999 and the remaining amount is expected to be funded before the end of May 1999. The loan bears interest at 7.20% and provides for monthly interest payments through March 2002 and monthly principal and interest payments from April 2002 to March 2009, at which time the remaining balance will be due. ProLogis pledged distribution facilities with an undepreciated cost of $216.2 million as of December 31, 1998 as collateral under the agreement and will pledge additional distribution facilities upon completion of the final funding. On February 5, 1999, ProLogis received a commitment from Morgan Guaranty Trust Company of New York ("MGT") whereby MGT will lend $200.0 million to ProLogis. The loan, which will be secured by distribution facilities and will have a 25-year term, provides for interest only payments for the first six years and principal and interest payments thereafter with the remaining balance due at maturity. The loan bears interest at 7.58% per annum and is expected to be funded by the end of the first quarter of 1999. Derivative Financial Instruments ProLogis occasionally uses derivative financial instruments as hedges to manage well-defined risk associated with interest and foreign currency rate fluctuations on existing obligations or anticipated transactions. ProLogis does not use derivative financial instruments for trading purposes. The primary risks associated with derivative instruments are market risk and credit risk. Market risk is defined as the potential for loss in the value of the derivative due to adverse changes in market prices (interest rates or foreign currency rates). Through hedging, ProLogis can effectively manage the risk of increases in interest rates and fluctuations in foreign currency exchange rates. 48 Credit risk is the risk that one of the parties to a derivative contract fails to perform or meet their financial obligation under the contract. ProLogis does not obtain collateral to support financial instruments subject to credit risk but monitors the credit standing of counterparties. ProLogis does not anticipate non-performance by any of the counterparties to its derivative contracts. Should a counterparty fail to perform, however, ProLogis would incur a financial loss to the extent of the positive fair market value of the derivative instruments, if any. The following table summarizes the activity in interest rate contracts for the years ended December 31, 1998 and 1997 (in millions):
Interest Rate Interest Rate Futures Contracts Swaps ----------------- ------------- Notional amount as of December 31, 1996... $106.0 $33.0 New contracts (1)......................... 75.0 75.0 Matured or expired contracts (2).......... (106.0) (33.0) Terminated contracts...................... -- -- ------ ----- Notional amount as of December 31, 1997... 75.0 75.0 ------ ----- New contracts............................. -- -- Matured or expired contracts.............. -- -- Terminated contracts...................... -- -- ------ ----- Notional amount as of December 31, 1998(1).... $ 75.0 $75.0 ====== =====
- -------- (1) In October 1997, in anticipation of debt offerings in 1998, ProLogis entered into two interest rate protection agreements which have been renewed past the original termination dates. These agreements were entered into by ProLogis to fix the interest rate on anticipated financings. During the third quarter of 1998, ProLogis determined that the interest rate protection agreements would no longer qualify for hedge accounting treatment under GAAP based upon the following: . Due to changing conditions in the public debt markets, it was no longer considered probable that ProLogis would complete the anticipated 1998 longer term debt offerings that prompted ProLogis to enter into these interest rate protection agreements in 1997 (i.e., ProLogis would not be exposed to the interest rate risk that these instruments were intended to hedge); and . ProLogis determined, through internal analysis and through communications with independent third parties, that a high degree of correlation no longer existed between changes in the market values of these interest rate protection agreements and the "market values" of the anticipated debt offerings (i.e., the interest rate at which the debt could be issued by ProLogis under existing market conditions). Accordingly, ProLogis began marking these agreements to market as of September 30, 1998. For 1998, ProLogis recognized a non-cash expense of $26.1 million. These agreements were terminated in February 1999 at a cost of $27.0 million and were used to set the interest rate associated with the $200.0 million secured financing transaction with MGT that is scheduled to be completed in the first quarter of 1999. ProLogis intends to amortize this expense as a component of interest expense over the 25-year term of the MGT debt for purposes of calculating funds from operations. See "-- Funds From Operations". (2) Deferred gains totaling $1.9 million on matured, expired or terminated contracts were recorded on the balance sheet as of December 31, 1997. These gains relate to the unwind of hedges placed for the February and July 1997 offerings of senior unsecured debt offerings and are being amortized over the term of the debt. See "--Results of Operations--Foreign Currency Hedge Income (Expense)" for a discussion of foreign currency hedge contracts entered into in 1997 and terminated in 1998. 49 Commitments As of December 31, 1998, ProLogis had letters of intent or contingent contracts, subject to ProLogis' final due diligence, for the acquisition of 1.8 million square feet in various target markets with an acquisition cost of $74.7 million. The foregoing transactions are subject to a number of conditions, and ProLogis cannot predict with certainty that any of them will be consummated. In addition, as of December 31, 1998, ProLogis had $328.1 million of budgeted development costs for developments in process, of which $131.7 million was unfunded. Frigoscandia AB has a multi-currency, three-year revolving credit agreement through a consortium of 11 European banks in the currency equivalent of approximately $200 million as of December 31, 1998. The loan bears interest at each currency's LIBOR rate plus 0.55%. ProLogis has entered into a guaranty agreement for 25% of the loan balance. Subsequent to December 31, 1998, ProLogis Kingspark entered into a line of credit agreement with a bank in the United Kingdom. The credit agreement, which provides for borrowings of up to 10.0 million British pounds (approximately $16.6 million as of December 31, 1998), has been guaranteed by ProLogis. In connection with the acquisition of Garonor S.A., Garonor Holdings obtained two credit facilities from a French bank. One facility is in the amount of 200.0 million French francs ($35.6 million as of December 31, 1998) and is guaranteed by ProLogis. ProLogis has guaranteed an additional 10.0 million French francs ($1.8 million as of December 31, 1998), which approximates the annual interest to be charged on the facility. The second facility, in the amount of 870.0 million French francs (of which 770.0 million French francs was outstanding as of December 31, 1998), is secured by the real estate owned by Garonor S.A. ProLogis has guaranteed 50.0 million French francs of the amount outstanding as of December 31, 1998 ($8.9 million as of December 31, 1998). Garonor has the ability to borrow an additional 100.0 million French francs under this facility of which ProLogis will guarantee 50.0 million French francs. The total guaranty of 100.0 million French francs can be reduced as Garonor S.A. meets certain operating covenants. Distribution and Dividend Requirements ProLogis' current distribution policy is to pay quarterly distributions to shareholders based upon what it considers to be a reasonable percentage of cash flow and at the level that will allow ProLogis to continue to qualify as a REIT for tax purposes. Because depreciation is a non-cash expense, cash flow typically will be greater than earnings from operations and net earnings. Therefore, annual distributions are expected to be consistently higher than annual earnings. Cash distributions paid in 1998, 1997 and 1996 were $1.24 per Common Share, $1.07 per Common Share and $1.01 per Common Share, respectively. On December 15, 1998, ProLogis declared a distribution of $0.3183 per Common Share which was paid on February 24, 1999. The Board has set a projected annual distribution rate for 1999 of $1.30 per Common Share. In connection with the Meridian Merger, ProLogis will issue $50 million of new preferred shares with an annual dividend rate of 8.75% ($2.1875 per share). Pursuant to the terms of its preferred shares, ProLogis is restricted from declaring or paying any distribution with respect to the Common Shares unless all cumulative dividends with respect to the Preferred Shares have been paid and sufficient funds have been set aside for dividends that have been declared for the then current dividend period with respect to the Preferred Shares. Conversion to the Euro On January 1, 1999, eleven of the fifteen member countries of the European Monetary Union launched the new monetary unit, the euro, as the single currency for the member countries of the European Monetary Union. During the period from January 1, 1999 to January 1, 2002 a transition period will be in effect during which time the euro will be available for non-cash transactions. However, transactions can continue to be denominated in the old national currencies. After January 1, 2002, all transactions must be denominated in the euro. The targeted exchange rates of the old national currencies to the euro were determined in May 1998. Management is not aware of any effects of the conversion to the euro that will have a material impact on its business operations or results of operations. 50 Funds from Operations Funds from operations attributable to Common Shares increased $72.0 million to $233.1 million for 1998 from $161.1 million for 1997. Funds from operation attributable to Common Shares increased $44.2 million from 1996 to 1997. Funds from operations represent ProLogis' net earnings (computed in accordance with GAAP) before minority interest, before gains or losses from debt restructuring, before gains or losses on disposition of depreciated real estate, before gains or losses from mark to market adjustments resulting from the remeasurement (based on current foreign currency exchange rates) of intercompany and other debt of ProLogis' foreign subsidiaries, before deferred tax benefits and deferred tax expenses of ProLogis' taxable subsidiaries, before significant non-recurring items that materially distort the comparative measurement of company performance over time, plus real estate depreciation and amortization (exclusive of amortization of loan costs), and after adjustments for unconsolidated subsidiaries calculated to compute their funds from operations on the same basis as ProLogis. ProLogis believes that funds from operations is helpful to a reader as a measure of the performance of an equity REIT because, along with cash flow from operating activities, investing activities and financing activities, it provides a reader with an indication of the ability of ProLogis to incur and service debt, to make capital expenditures and to fund other cash needs. The funds from operations measure presented by ProLogis, while comparable to the National Association of Real Estate Investment Trusts' definition, will not be comparable to similarly titled measure of other REITs that do not compute funds from operations in a manner consistent with ProLogis. Funds from operations is not intended to represent cash made available to shareholders. Funds from operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance as an indicator of ProLogis' operating performance, or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. Funds from operations is as follows (in thousands):
Year Ended December 31, ---------------------------- 1998 1997 1996 -------- -------- -------- Net earnings attributable to Common Shares.. $ 62,231 $ 4,431 $ 53,460 Add (Deduct): Real estate depreciation and amortization........................... 99,514 76,275 59,850 Minority interest....................... 4,681 3,560 3,326 (Gain) loss on disposition of depreciated real estate................ (5,565) (7,378) 29 Non-recurring foreign currency exchange (gain) loss (1)........................ (2,054) 6,028 -- Interest rate hedge expense (2)......... 26,050 -- -- Foreign currency exchange (gains) losses (1).................................... (3,227) 348 -- Non-recurring costs (3)................. 1,686 75,376 -- Deferred tax expense related to ProLogis' taxable subsidiaries......... 1,797 -- -- ProLogis' share of reconciling items of unconsolidated subsidiaries: Real estate depreciation and amortization......................... 36,489 2,419 -- Net foreign currency exchange loss on remeasurement of intercompany and other debt........................... 14,207 -- -- Other................................. (2,750) -- -- Other................................... -- -- 225 -------- -------- -------- Funds from operations attributable to Common Shares..................................... $233,059 $161,059 $116,890 ======== ======== ========
51 - -------- (1) See "--Results of Operations--Foreign Currency Exchange Gain (Losses), Net". (2) This expense will be amortized as a component of interest expense beginning in 1999 for purposes of calculating funds from operations. See "--Liquidity and Capital Resources--Derivative Financial Instruments". (3) See "--Results of Operations--Other Expense" with respect to the 1998 amount and "--Results of Operations--1997 Merger Transaction" with respect to the 1997 amount. Year 2000 Overview The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Certain computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar business activities. ProLogis has undertaken a review of all of its computer systems and applications to determine if these programs are Year 2000 compliant and if not, the efforts that will be necessary to bring the programs into compliance. ProLogis has not identified any computer system or application that, upon failure to be Year 2000 compliant, would have a material adverse impact on its business or results of operations. Information Technology Systems ProLogis' information technology ("IT") environment is primarily a Microsoft Windows-based personal computer network (NT or Novell) utilizing desktop applications, primarily data base and spreadsheet applications. Additionally, ProLogis utilizes third-party developed software, including accounting and property management systems. ProLogis' critical computer hardware, operating systems and key general accounting, property management and financial reporting applications are Year 2000 compliant, as verified by the various vendors. ProLogis has identified one accounting application that is not Year 2000 compliant. Because ProLogis has undertaken to replace its core financial systems with computer software that will better serve its future needs (such software is Year 2000 compliant), it is not expected that the non-compliant accounting application will continue to be used by ProLogis after mid-1999. Should the enterprise-wide implementation of the new computer software not be accomplished in a timely manner and the non-compliant accounting application is still in use at the end of 1999, ProLogis has two contingency plans. The first option is to install a Year 2000 compliant version of the current software that the vendor has indicated will be available in 1999. Secondly, ProLogis can, with minimal efforts, convert this application to the Year 2000 compliant software currently in use for all other accounting applications. Should neither contingency plan be successfully implemented, ProLogis could experience a delay in reporting its financial results and also delays in processing payments to vendors beginning with the first quarter of 2000. Also, additional costs would be incurred to perform this function manually until such time as the computer application is made Year 2000 complaint. Non-IT Systems Many of ProLogis' operating facilities have microchips embedded in the building operating systems. ProLogis, as owner and lessor of these buildings, has assessed its exposure with respect to Year 2000 related failures in these operating systems. These building operating systems include programmable thermostats, security systems, communications systems, utility monitoring systems and timed locks. Under the terms of substantially all of ProLogis' building leases, the tenant has responsibility for the operating systems within their leased space, including the responsibility for addressing the Year 2000 compliance of those systems. However, ProLogis is responsible for the operating systems that control the common exterior 52 areas of the buildings, including parking lot lighting and sprinkler systems. Generally, these systems are programmed on daily or weekly cycles (as opposed to calendar-based programming). Consequently, the risk of a Year 2000 related malfunction is extremely low and any such malfunction would not have a material impact on ProLogis' operations. ProLogis is also responsible for the fire and life safety monitoring systems in its buildings. ProLogis contracts with a third party to monitor these systems. These systems are not calendar- based, because reportable events are identified as they occur. Consequently, the risk of a Year 2000 related failure is low. ProLogis is currently conducting a review of all operating systems that fall within its responsibility. Preliminary results have indicated that ProLogis' primary vendor for monitoring of fire and life safety systems has verified that their system is Year 2000 compliant. ProLogis is continuing its review of other systems and is performing testing and verification as deemed appropriate. This process is expected to be completed during the second quarter of 1999. Based upon the results of this review, ProLogis will formulate a contingency plan to address risk areas identified, if any. Should the systems that ProLogis is responsible for fail, ProLogis' tenants may experience inconveniences with respect to the maintenance and operations of the facilities (i.e., parking lot lighting and sprinkler systems). Should the fire and life safety systems fail, there could be a delay in identifying a reportable event or a reportable event could occur without being identified. In such situations, ProLogis could be exposed to the extent the failure resulted in a loss that is not covered by existing insurance policies. Third Parties Management believes that its planning efforts are adequate to address the Year 2000 issue and that its risk factors are primarily those that it cannot directly control, including the readiness of financial institutions and utility providers. Failure on the part of these entities to become Year 2000 compliant could result in disruptions in the business operations of ProLogis. Costs ProLogis' activities with respect to its assessment of Year 2000 compliance and its remediation efforts are being performed by existing personnel. ProLogis has not obtained a cost estimate for upgrading the accounting application referred to above, as the need for this contingency plan is not considered probable at this time. ProLogis' historical costs for addressing the Year 2000 issue are not material and management does not anticipate that its future costs associated with the Year 2000 issue will be material. Third- party costs and interim software solutions for Year 2000 issues have been less than $100,000 and are not expected to exceed $250,000. ProLogis does not separately track the internal costs incurred for Year 2000 compliance issues. Such costs are principally the related payroll costs of its IT group. Although the cost of replacing ProLogis' key IT systems is substantial, the replacements have been and are being made to improve operational efficiency and were not accelerated due to the Year 2000 issue. ProLogis has not delayed any material projects as a result of the Year 2000 issue. Funds expended to address Year 2000 issues have been made from operating cash flow. Unconsolidated Subsidiaries As part of its compliance program, management of ProLogis has received ongoing reports from CSI, Frigoscandia AB, ProLogis Kingspark and Garonor S.A. on the impact of the Year 2000 problem on their operations and financial results. CSI has completed testing on all IT and embedded operating systems. No critical IT or embedded operating systems have been identified that have not already been remediated or are not Year 2000 compliant. CSI is currently verifying and testing customer and supplier electronic data interface programming standards. CSI has retained an outside consulting firm to review their internal testing results. The consultants review is expected to be completed during the second quarter of 1999. CSI estimates that the total cost incurred to date and the total cost to be incurred for Year 2000 remediation is less than $250,000. Failure of CSI to procure payroll processing services that are Year 2000 compliant could result in a delay in paying its employees. Also, additional costs would be incurred to perform this function manually. 53 Frigoscandia AB has substantially completed all testing of its IT and embedded operating systems. No critical IT or embedded operating systems have been identified that have not already been remediated, with the exception of the financial reporting application for its French and Spanish operations and certain components of an inventory management system. A new financial reporting system for the French and Spanish operations is being implemented and is expected to be fully operational by May 1999. Modifications to the components of the inventory management system will be completed by the second quarter of 1999. Frigoscandia AB is currently planning a coordinated program whereby testing with key customers and critical suppliers is performed. Additionally, Frigoscandia AB is preparing detailed contingency plans in the event of unexpected Year 2000 disruptions. Frigoscandia AB estimates that the total cost incurred to date and the estimated total cost to be incurred for Year 2000 remediation is between $2 million and $4 million. Failure of Frigoscandia AB to convert the financial reporting application for its French operations to a Year 2000 compliant system could result in delays in reporting financial results beginning with the first quarter of 2000 and also delays in billings to customers and in payments to vendors. These delays could result in additional costs to Frigoscandia AB. Also, additional costs would be incurred by Frigoscandia AB to perform these functions manually. The primary accounting applications of ProLogis Kingspark are not Year 2000 compliant. To remediate this problem, ProLogis Kingspark is currently installing a Year 2000 compliant version of non-customized accounting software. Installation and testing is expected to be completed by the end of the second quarter of 1999. ProLogis Kingspark has virtually no risk associated with embedded operating systems because substantially all of ProLogis Kingspark's activities are related to development of facilities for third parties and not for its own long-term ownership. ProLogis Kingspark estimates that the total cost incurred to date and the estimated total cost to be incurred for the Year 2000 remediation is less than $100,000. Failure of ProLogis Kingspark to convert its primary accounting applications to a Year 2000 compliant system could result in delays in reporting financial results beginning with the first quarter of 2000 and also delays in billings to customers and in payments to vendors. These delays could result in additional costs to ProLogis Kingspark. Also, additional costs would be incurred by ProLogis Kingspark to perform these functions manually. Garonor S.A. has completed testing on all IT and embedded operating systems. Garonor S.A. plans to install a Year 2000 compliant version of its current financial accounting software by the end of the second quarter of 1999. Garonor S.A.'s customer billing and cash management software are also not Year 2000 compliant. Garonor S.A. is in the process of replacing these software applications and expects the new software will be in place prior to the fourth quarter of 1999. Costs to bring these applications into compliance are expected to be less than $100,000. Should the new software applications not be successfully implemented, Garonor S.A. could experience a delay in reporting its financial results and also delays in processing billings to customers and in payments to vendors. These delays could result in additional costs to Garonor S.A. Also, additional costs would be incurred by Garonor S.A. to perform these functions manually. Garonor S.A.'s responsibility for the operating systems that control the interior equipment, common exterior areas and the fire and life safety systems of its buildings is similar to that of ProLogis, as discussed above under "-- Non-IT Systems." Garonor S.A. has tested these systems and determined that they are Year 2000 compliant. In addition, Garonor S.A. has received an indemnification from the vendors who supplied these systems' with respect to any Year 2000 failures. There can be no assurances that Year 2000 remediation efforts by ProLogis, its unconsolidated subsidiaries or third parties will be properly and timely completed, and failure to do so could have a material adverse effect on ProLogis, its business and its financial condition. ProLogis cannot predict the actual effects to it of the Year 2000 problem, which depends on numerous uncertainties such as: (i) whether significant third parties properly 54 and timely address the Year 2000 issue; and, (ii) whether broad-based or systemic economic failures may occur. Due to the general uncertainty inherent in the Year 2000, ProLogis is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on its operations. ProLogis' Year 2000 compliance program is expected to significantly reduce the level of uncertainty about the Year 2000 impact in areas that are within its direct control and management of ProLogis believes that the possibility of significant interruptions of normal operations will be reduced. Item 7A. Quantitative and Qualitative Disclosure About Market Risk Interest Rate Risk ProLogis' interest rate risk is related primarily to its variable rate credit facilities. ProLogis' interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objective, ProLogis borrows on a long-term basis primarily at fixed rates and staggered maturities with its primary interest rate risk being related to its variable rate unsecured lines of credit and its variable rate short-term borrowing arrangement. ProLogis has in the past and intends in the future, to occasionally utilize derivative financial instruments as hedges in anticipation of future long-term debt transactions to manage well-defined interest rate risk exposure. ProLogis does not use derivative financial instruments for trading purposes. ProLogis had a $75.0 million interest rate futures contract and a $75.0 million interest rate swap agreement as of December 31, 1998. These interest rate protection agreements were marked to market as of December 31, 1998 and ProLogis recognized an expense related to these agreements of $26.1 million in 1998. These agreements were terminated in February 1999 at a cost of $27.0 million, with respect to the unsecured lines of credit and 6.42% with respect to the short-term borrowings. During the year ended December 31, 1998, ProLogis had weighted average outstanding borrowings of $174.9 million on its variable rate unsecured lines of credit and $43.2 million on its variable rate short-term borrowing arrangement. If interest rates had been 10% higher during 1998, interest expense on ProLogis' variable rate borrowings would have increased by approximately $1.4 million. Foreign Currency Risk ProLogis is exposed to foreign currency risk primarily to the extent ProLogis has made intercompany loans to its foreign subsidiaries that are not denominated in U.S. dollars. ProLogis has made such loans in the functional currency of certain of its subsidiaries, the proceeds of which have been used primarily to acquire and develop distribution facilities in each country. For financial reporting purposes, ProLogis recognized a remeasurement gain on its intercompany loans that are not U.S. dollar denominated (based upon foreign currency exchange rates in effect as of December 31, 1998) of $3.2 million for the year ended December 31, 1998. Had the exchange rates of the foreign currencies in which ProLogis has made such loans moved unfavorably against the U.S. dollar by 10%, ProLogis would have recognized an additional remeasurement loss of approximately $23.7 million. Item 8. Financial Statements and Supplementary Data ProLogis Consolidated Balance Sheets as of December 31, 1998 and 1997, its Consolidated Statements of Earnings and Comprehensive Income, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 1998, Notes to Consolidated Financial Statements and Schedule III--Real Estate and Accumulated Depreciation, together with the report of Arthur Andersen LLP, independent public accountants, are included under Item 14 of this report and are incorporated herein by reference. Selected quarterly financial data is presented in Note 12 of Notes to Consolidated Financial Statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Matters Not applicable. 55 PART III Item 10. Directors and Executive Officers of the Registrant For information regarding ProLogis' executive officers, see "Item 1. Business--Officers and Trustees of ProLogis." The other information required by this Item 10 is incorporated herein by reference to the description under the captions "Election of Trustees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in ProLogis' definitive proxy statement for its 1999 annual meeting of shareholders ("1998 Proxy Statement"). Item 11. Executive Compensation Incorporated herein by reference to the description under the captions "Executive Compensation," "Compensation Committee Report on Executive Compensation," "Trustee Compensation" and "Outside Trustee Plan" in the 1999 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the description under the caption "Principal Shareholders" in the 1999 Proxy Statement. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to the description under the caption "Certain Relationships and Transactions" in the 1998 Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K The following documents are filed as a part of this report: (a) Financial Statements and Schedules: 1. Financial Statements: See Index to Consolidated Financial Statements and Schedule on page 58 of this report, which is incorporated herein by reference. 2. Financial Statement Schedules: Schedule III. All other schedules have been omitted since the required information is presented in the financial statements and the related notes or is not applicable. 3. Exhibits: See Index to Exhibits on pages E-118 to E-124 of this report, which is incorporated herein by reference. 56 (b) Reports on Form 8-K: The following reports on Form 8-K were filed during the last quarter of the period covered by this report:
Item Financial Date Reported Statements ---- -------- ---------- November 18, 1998.................................... 5, 7 No December 3, 1998 (10)................................ 5, 7 Yes December 10, 1998 (1)................................ 5, 7 Yes
- -------- (1) Amended on February 25, 1999. (c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits on pages E-118 to E-124 of this report, which is incorporated herein by reference. 57 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III
Page ---- ProLogis Trust: Report of Independent Public Accountants................................. 59 Consolidated Balance Sheets.............................................. 60 Consolidated Statements of Earnings and Comprehensive Income............. 61 Consolidated Statements of Shareholders' Equity.......................... 62 Consolidated Statements of Cash Flows.................................... 64 Notes to Consolidated Financial Statements............................... 65 Report of Independent Public Accountants................................. 95 Schedule III--Real Estate and Accumulated Depreciation................... 96
58 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Trustees and Shareholders of ProLogis Trust: We have audited the accompanying consolidated balance sheets of ProLogis Trust and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of earnings and comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of a subsidiary accounted for under the equity method of accounting, in which the Trust has an investment in and advances to amounting to $229.9 million as of December 31, 1998 and a loss from unconsolidated subsidiary of $7.6 million in 1998. These statements were audited by other auditors whose report was furnished to us, and our opinion, insofar as it relates to the amounts included for that entity is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of ProLogis Trust and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois March 5, 1999 59 PROLOGIS TRUST CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, ---------------------- ASSETS 1998 1997 ------ ---------- ---------- Real estate............................................ $3,657,500 $3,006,236 Less accumulated depreciation........................ 254,288 171,525 ---------- ---------- 3,403,212 2,834,711 Investments in and advances to unconsolidated subsidiaries.......................................... 733,863 86,139 Cash and cash equivalents.............................. 63,140 25,009 Accounts receivable.................................... 11,648 12,554 Other assets........................................... 118,866 75,540 ---------- ---------- Total assets....................................... $4,330,729 $3,033,953 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Lines of credit...................................... $ 344,300 $ -- Short-term borrowings................................ 150,000 -- Senior unsecured debt................................ 1,083,641 724,052 Mortgage notes....................................... 184,964 87,937 Assessment bonds..................................... 11,281 11,894 Securitized debt..................................... 31,559 33,197 Accounts payable and accrued expenses................ 117,506 62,850 Construction payable................................. 34,025 27,221 Amount due to affiliate.............................. 395 1,138 Distributions payable................................ 39,283 33,449 Other liabilities.................................... 26,112 22,174 ---------- ---------- Total liabilities.................................. 2,023,066 1,003,912 ---------- ---------- Commitments and contingencies Minority interest...................................... 51,295 53,304 Shareholders' equity: Series A Preferred Shares; $0.01 par value; 5,400,000 shares issued and outstanding at December 31, 1998 and 1997; stated liquidation preference of $25.00 per share........................................... 135,000 135,000 Series B Convertible Preferred Shares; $0.01 par value; 7,537,600 shares issued and outstanding at December 31, 1998 and 8,000,300 shares issued and outstanding at December 31, 1997; stated liquidation preference of $25.00 per share...................... 188,440 200,008 Series C Preferred Shares; $0.01 par value; 2,000,000 shares issued and outstanding at December 31, 1998 and 1997; stated liquidation preference of $50.00 per share........................................... 100,000 100,000 Series D Preferred Shares; $0.01 par value; 10,000,000 shares issued and outstanding at December 31, 1998; stated liquidation preference of $25.00 per share........................................... 250,000 -- Common shares of beneficial interest; $0.01 par value; 123,415,711 shares issued and outstanding at December 31, 1998 and 117,364,148 shares issued and outstanding at December 31, 1997.................... 1,234 1,174 Additional paid-in capital............................. 1,907,232 1,773,465 Employee share purchase notes.......................... (25,247) (27,186) Accumulated other comprehensive income................. 23 (63) Distributions in excess of net earnings................ (300,314) (205,661) ---------- ---------- Total shareholders' equity......................... 2,256,368 1,976,737 ---------- ---------- Total liabilities and shareholders' equity......... $4,330,729 $3,033,953 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 60 PROLOGIS TRUST CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME Years Ended December 31, 1998, 1997 and 1996 (In thousands, except per share data)
1998 1997 1996 -------- -------- -------- Income: Rental income................................... $345,046 $284,533 $227,000 Other real estate income........................ 17,250 12,291 5,342 Income from unconsolidated subsidiaries......... 2,755 3,278 -- Foreign currency exchange gains (losses), net... 2,938 (348) -- Foreign currency hedge income (expense)......... 2,054 (6,028) -- Interest........................................ 2,752 2,392 1,121 -------- -------- -------- Total income.................................. 372,795 296,118 233,463 -------- -------- -------- Expenses: Rental expenses, net of recoveries of $57,415 in 1998, $42,288 in 1997 and $30,469 in 1996 and including amounts paid to affiliate of $984 in 1998 and $280 in 1997.......................... 27,120 23,187 21,734 Property management fees paid to affiliate, net of recoveries of $3,870 in 1997 and $3,208 in 1996........................................... -- 3,821 4,940 General and administrative, including amounts paid to affiliate of $1,992 in 1998 and $657 in 1997........................................... 22,957 6,855 1,025 REIT management fee paid to affiliate........... -- 17,791 21,472 Depreciation and amortization................... 100,590 76,562 59,850 Interest........................................ 77,650 52,704 38,819 Interest rate hedge expense..................... 26,050 -- -- Costs incurred in acquiring management companies from affiliate................................. -- 75,376 -- Other........................................... 7,983 3,891 2,913 -------- -------- -------- Total expenses................................ 262,350 260,187 150,753 -------- -------- -------- Earnings from operations.......................... 110,445 35,931 82,710 Minority interest share in earnings............... 4,681 3,560 3,326 -------- -------- -------- Earnings before gain (loss) on disposition of real estate........................................... 105,764 32,371 79,384 Gain (loss) on disposition of real estate......... 5,565 7,378 (29) -------- -------- -------- Net earnings...................................... 111,329 39,749 79,355 Less preferred share dividends.................... 49,098 35,318 25,895 -------- -------- -------- Net earnings attributable to Common Shares........ 62,231 4,431 53,460 Other comprehensive income: Foreign currency translation adjustments........ 86 (63) -- -------- -------- -------- Comprehensive income.............................. $ 62,317 $ 4,368 $ 53,460 ======== ======== ======== Weighted average Common Shares outstanding--Basic. 121,721 100,729 84,504 ======== ======== ======== Weighted average Common Shares outstanding-- Diluted.......................................... 122,028 100,869 84,511 ======== ======== ======== Per share net earnings attributable to Common Shares: Basic........................................... $ 0.51 $ 0.04 $ 0.63 ======== ======== ======== Diluted......................................... $ 0.51 $ 0.04 $ 0.63 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 61 PROLOGIS TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1996, 1997 and 1998 (In thousands)
Series A Series B Series C Series D Preferred Preferred Preferred Preferred Common Shares Shares at Shares at Shares at Shares at Employee Accumulated ----------------- Aggregate Aggregate Aggregate Aggregate Additional Share Other Number Par Liquidation Liquidation Liquidation Liquidation Paid-in Purchase Comprehensive of Shares Value Preference Preference Preference Preference Capital Notes Income --------- ------- ----------- ----------- ----------- ----------- ---------- -------- ------------- Balances at December 31, 1995............ 81,416 $ 814.1 $135,000 $ -- $ -- $ -- $1,059,142 $ -- $-- Sale of Common Shares.......... 12,218 122.5 -- -- -- -- 209,824 -- -- Sale of preferred shares.......... -- -- -- 201,250 100,000 -- (12,193) -- -- Dividend reinvestment and share purchase plan............ 21 0.2 -- -- -- -- 356 -- -- Common Shares issued upon exercise of warrants........ 22 0.2 -- -- -- -- 218 -- -- Net earnings.... -- -- -- -- -- -- -- -- -- Preferred share dividends paid.. -- -- -- -- -- -- -- -- -- Common Share distributions paid............ -- -- -- -- -- -- -- -- -- Common Share distributions accrued......... -- -- -- -- -- -- -- -- -- ------- ------- -------- -------- -------- -------- ---------- ------- ---- Balances at December 31, 1996............ 93,677 937.0 135,000 201,250 100,000 -- 1,257,347 -- -- Sale of Common Shares.......... 18,455 184.6 -- -- -- -- 405,082 -- -- Common Shares issued under employee share purchase plan 1,357 13.6 -- -- -- -- 28,777 (27,345) -- Common Shares issued in Merger, net of costs........... 3,692 36.9 -- -- -- -- 79,102 -- -- Dividend reinvestment and share purchase plan............ 20 0.2 -- -- -- -- 429 -- -- Limited partnership units converted to Common Shares.......... 105 1.0 -- -- -- -- 1,587 -- -- Series B Preferred Shares converted to Common Shares... 63 0.6 -- (1,242) -- -- 1,241 -- -- Principal payments on employee share purchase notes.. -- -- -- -- -- -- -- 64 -- Retirements of employee share purchase notes.. (5) (0.1) -- -- -- -- (100) 95 -- Net earnings.... -- -- -- -- -- -- -- -- -- Preferred share dividends paid.. -- -- -- -- -- -- -- -- -- Common Share distributions paid............ -- -- -- -- -- -- -- -- -- Common Share distributions accrued......... -- -- -- -- -- -- -- -- -- Accumulated other comprehensive income--foreign currency translation adjustments..... -- -- -- -- -- -- -- -- (63) ------- ------- -------- -------- -------- -------- ---------- ------- ---- Balances at December 31, 1997............ 117,364 1,173.8 135,000 200,008 100,000 -- 1,773,465 (27,186) (63) Distributions Total In Excess of Shareholders' Net Earnings Equity ------------- ------------- Balances at December 31, 1995............ $(58,765) $1,136,191 Sale of Common Shares.......... -- 209,947 Sale of preferred shares.......... -- 289,057 Dividend reinvestment and share purchase plan............ -- 356 Common Shares issued upon exercise of warrants........ -- 218 Net earnings.... 79,355 79,355 Preferred share dividends paid.. (25,895) (25,895) Common Share distributions paid............ (64,782) (64,782) Common Share distributions accrued......... (25,058) (25,058) ------------- ------------- Balances at December 31, 1996............ (95,145) 1,599,389 Sale of Common Shares.......... -- 405,267 Common Shares issued under employee share purchase plan -- 1,445 Common Shares issued in Merger, net of costs........... -- 79,139 Dividend reinvestment and share purchase plan............ -- 429 Limited partnership units converted to Common Shares.......... -- 1,588 Series B Preferred Shares converted to Common Shares... -- -- Principal payments on employee share purchase notes.. -- 64 Retirements of employee share purchase notes.. -- (5) Net earnings.... 39,749 39,749 Preferred share dividends paid.. (35,318) (35,318) Common Share distributions paid............ (81,498) (81,498) Common Share distributions accrued......... (33,449) (33,449) Accumulated other comprehensive income--foreign currency translation adjustments..... -- (63) ------------- ------------- Balances at December 31, 1997............ (205,661) 1,976,737
The accompanying notes are an integral part of these consolidated financial statements. 62 PROLOGIS TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(Continued) Years Ended December 31, 1996, 1997 and 1998 (In thousands)
Series A Series B Series C Series D Preferred Preferred Preferred Preferred Common Shares Shares at Shares at Shares at Shares at Employee Accumulated ------------------ Aggregate Aggregate Aggregate Aggregate Additional Share Other Number Par Liquidation Liquidation Liquidation Liquidation Paid-in Purchase Comprehensive of Shares Value Preference Preference Preference Preference Capital Notes Income --------- -------- ----------- ----------- ----------- ----------- ---------- -------- ------------- Sale of Common Shares.......... 5,494 54.9 -- -- -- -- 130,279 -- -- Sale of preferred shares.......... -- -- -- -- -- 250,000 (8,469) -- -- Dividend reinvestment and share purchase plan............ 18 0.1 -- -- -- -- 403 -- -- Common Shares issued upon exercise of warrants........ 12 0.1 -- -- -- -- 118 -- -- Limited partnership units converted to Common Shares.......... 20 0.2 -- -- -- -- 302 -- -- Series B Preferred Shares converted to Common Shares... 593 5.9 -- (11,568) -- -- 11,562 -- -- Principal payments on employee share purchase notes.. -- -- -- -- -- -- -- 143 -- Retirements of employee share purchase notes.. (85) (0.8) -- -- -- -- (2,039) 1,796 -- Issuance of options to subsidiaries.... -- -- -- -- -- -- 1,333 -- -- Stock-based compensation.... -- -- -- -- -- -- 278 -- -- Net earnings.... -- -- -- -- -- -- -- -- -- Preferred share dividends paid.. -- -- -- -- -- -- -- -- -- Common Share distributions paid............ -- -- -- -- -- -- -- -- -- Common Share distributions accrued......... -- -- -- -- -- -- -- -- -- Accumulated other comprehensive income--foreign currency translation adjustments..... -- -- -- -- -- -- -- -- 86 ------- -------- -------- -------- -------- -------- ---------- -------- --- Balances at December 31, 1998............ 123,416 $1,234.2 $135,000 $188,440 $100,000 $250,000 $1,907,232 $(25,247) $23 ======= ======== ======== ======== ======== ======== ========== ======== === Distributions Total In Excess of Shareholders' Net Earnings Equity ------------- ------------- Sale of Common Shares.......... -- 130,334 Sale of preferred shares.......... -- 241,531 Dividend reinvestment and share purchase plan............ -- 403 Common Shares issued upon exercise of warrants........ -- 118 Limited partnership units converted to Common Shares.......... -- 302 Series B Preferred Shares converted to Common Shares... -- -- Principal payments on employee share purchase notes.. -- 143 Retirements of employee share purchase notes.. -- (244) Issuance of options to subsidiaries.... -- 1,333 Stock-based compensation.... -- 278 Net earnings.... 111,329 111,329 Preferred share dividends paid.. (49,098) (49,098) Common Share distributions paid............ (117,601) (117,601) Common Share distributions accrued......... (39,283) (39,283) Accumulated other comprehensive income--foreign currency translation adjustments..... -- 86 ------------- ------------- Balances at December 31, 1998............ $(300,314) $2,256,368 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 63 PROLOGIS TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1998, 1997 and 1996 (In thousands)
1998 1997 1996 ----------- --------- --------- Operating activities: Net earnings............................... $ 111,329 $ 39,749 $ 79,355 Minority interest.......................... 4,681 3,560 3,326 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization............ 100,590 76,562 59,850 (Gain) loss on disposition of real estate.................................. (5,565) (7,378) 29 Straight-lined rents..................... (6,756) (5,435) (4,777) Amortization of deferred loan costs...... 2,200 1,977 2,339 Stock-based compensation................. 278 -- -- (Income) loss from unconsolidated subsidiaries............................ 11,108 (570) -- Foreign currency exchange (gains) losses, net..................................... (3,227) 348 -- Foreign currency hedge (income) expense.. (2,054) 6,028 -- Interest rate hedge expense.............. 26,050 -- -- Costs incurred in acquiring management companies from affiliate................ -- 75,376 -- Increase in accounts receivable and other assets.................................... (36,156) (24,390) (10,166) Increase in accounts payable and accrued expenses.................................. 32,580 21,464 2,531 Increase in other liabilities.............. 3,938 4,044 3,714 Increase (decrease) in amount due to affiliate................................. (743) 1,138 -- ----------- --------- --------- Net cash provided by operating activities............................ 238,253 192,473 136,201 ----------- --------- --------- Investing activities: Real estate investments.................... (695,764) (601,577) (657,873) Tenant improvements and lease commissions.. (12,757) (15,539) (14,806) Recurring capital expenditures............. (8,038) (5,523) (2,851) Proceeds from dispositions of real estate.. 109,336 137,147 9,652 Investments in and advances to unconsolidated subsidiaries............... (657,499) (85,569) -- ----------- --------- --------- Net cash used in investing activities.. (1,264,722) (571,061) (665,878) ----------- --------- --------- Financing activities: Proceeds from sale of Common Shares, net of expenses............................... 130,334 330,712 145,531 Proceeds from sale of preferred shares, net of expenses........................... 241,531 -- 289,057 Net proceeds from sale of shares to affiliate................................. -- 75,000 64,416 Proceeds from exercised warrants, dividend reinvestment and employee share purchase plan...................................... 521 429 574 Repurchase of Common Shares................ (244) (5) -- Proceeds from issuance of senior unsecured debt...................................... 374,463 199,772 199,632 Proceeds from issuance of mortgage notes... 66,000 -- -- Debt issuance and other transaction costs incurred.................................. (5,848) (3,171) (4,699) Payments on senior unsecured debt.......... (15,000) -- -- Distributions paid on Common Shares........ (151,050) (106,556) (85,340) Distributions paid to minority interest holders................................... (6,409) (5,665) (5,237) Dividends paid on preferred shares......... (49,098) (35,318) (25,895) Principal payments on employee share purchase notes............................ 143 64 -- Payments on derivative financial instruments............................... (3,974) 1,894 -- Proceeds from lines of credit and short- term borrowings........................... 1,569,225 530,991 411,200 Payments on lines of credit and short-term borrowings................................ (1,074,925) (569,591) (453,600) Regularly scheduled principal payments on secured debt.............................. (5,658) (4,925) (3,738) Mortgage notes principal payments at maturity.................................. (5,411) (14,804) (19,689) ----------- --------- --------- Net cash provided by financing activities............................ 1,064,600 398,827 512,212 ----------- --------- --------- Net increase (decrease) in cash and cash equivalents................................ 38,131 20,239 (17,465) Cash and cash equivalents, beginning of year....................................... 25,009 4,770 22,235 ----------- --------- --------- Cash and cash equivalents, end of year...... $ 63,140 $ 25,009 $ 4,770 =========== ========= ========= Noncash investing and financing activities: In conjunction with real estate acquired: Assumption of existing mortgage notes.... $ 39,845 $ 12,805 $ 18,103 Issuance of Common Shares................ $ -- $ 1,000 $ -- In conjunction with Merger (Note 8): Market value of Common Shares issued to affiliate............................... $ -- $ 79,840 $ -- Market value of tangible net assets acquired from affiliate................. $ -- $ (4,464) $ -- Notes received for Common Shares issued under employee share purchase plan........ $ -- $ 27,345 $ -- Retirements of employee share purchase notes..................................... $ (1,796) $ (95) $ -- Foreign currency translation adjustments... $ (86) $ 63 $ -- Conversion of limited partnership units into Common Shares........................ $ 302 $ 1,588 $ --
The accompanying notes are an integral part of these consolidated financial statements. 64 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS December 31, 1998 1. Description of Business: Business ProLogis Trust ("ProLogis"), formerly Security Capital Industrial Trust, a Maryland real estate investment trust ("REIT"), is a publicly held global owner and lessor of distribution facilities focused exclusively on meeting the distribution space needs of international, national, regional and local industrial real estate users through the ProLogis Operating System(TM). ProLogis engages in the acquisition, development, marketing, leasing and long- term ownership of industrial distribution facilities, and the development of master-planned distribution parks and corporate distribution facilities for its customers. ProLogis deploys capital in markets that ProLogis believes have excellent long-term growth prospects and where ProLogis believes it can achieve a strong market position through the acquisition and development of flexible facilities designed for both warehousing and light manufacturing uses. In addition, ProLogis has invested in a North American company and a European company, both of which operate refrigerated distribution facilities. Name Change The company changed its name to ProLogis Trust effective July 1, 1998. The name change is intended to create stronger name recognition among its customers as ProLogis expands globally. ProLogis recognized $1.7 million of expenses associated with the name change in 1998, which has been included with other expenses. Proposed Merger Transaction ProLogis has entered into an Agreement and Plan of Merger dated as of November 16, 1998, as amended, (the "Merger Agreement") with Meridian Industrial Trust, Inc. ("Meridian"), whereby Meridian would be merged with and into ProLogis (the "Merger"). Meridian is a publicly traded REIT that owns and leases industrial and refrigerated distribution facilities in the United States. The Merger Agreement, which must be approved by at least two-thirds of the holders of ProLogis common shares of beneficial interest, par value $0.01 per share ("Common Shares") and a majority of the holders of Meridian's common stock, provides that each share of Meridian common stock will be exchanged for 1.10 Common Shares. Meridian has approximately 34.2 million shares of common stock and common stock equivalents outstanding as of March 5, 1999. To the extent ProLogis' average price of Common Shares is less than $22.725 per share, as determined over a 15-day trading period selected at random from the 30 trading days ending five trading days prior to closing, ProLogis will contribute cash, not to exceed $2.00 per share. Additionally, ProLogis will assume Meridian's outstanding liabilities (approximately $613.2 million as of December 31, 1998) and will exchange a new share of ProLogis cumulative redeemable preferred shares with an 8.75% annual dividend rate ($2.1875 per share) for each outstanding share of Meridian Series D preferred stock (aggregate liquidation value of $50.0 million). The Joint Proxy Statement and Prospectus of ProLogis and Meridian was mailed to ProLogis' shareholders and Meridian's stockholders on March 2, 1999. ProLogis' shareholders and Meridian's stockholders will vote on the Merger at special meetings to be held on March 30, 1999. 2. Summary of Significant Accounting Policies: Principles of Financial Presentation The accounts of ProLogis, its subsidiaries and its majority-owned and controlled partnerships are consolidated in the accompanying financial statements. The effects of intercompany transactions have been eliminated. Certain amounts included in the consolidated financial statements for prior years have been reclassified to conform to the 1998 financial statement presentation. 65 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REIT Organization Status In January 1993, ProLogis, which has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, was formed as a Maryland real estate investment trust. REITs are not required to pay federal income taxes if minimum distribution and income, asset and shareholder tests are met. During 1998, 1997 and 1996, ProLogis was in compliance with the REIT requirements. Thus, no federal income tax provision has been reflected in the accompanying consolidated financial statements for ProLogis and its wholly-owned subsidiaries. The foreign countries that ProLogis operates in do not recognize REITs under their respective tax laws. Accordingly, ProLogis has recognized the applicable foreign country income taxes in its results of operations. Real Estate and Depreciation Real estate is carried at cost, which is not in excess of estimated fair market value. Costs directly associated with the successful acquisition, renovation or development of real estate are capitalized. Direct costs associated with unsuccessful acquisitions are expensed at the time the pursuit is abandoned. Depreciation is computed over the estimated useful lives of depreciable property on a straight-line basis: 10 years for tenant improvements, 30 years for acquired buildings and 40 years for buildings developed by ProLogis. Long-lived assets (primarily real estate) to be disposed of are reported at the lower of their carrying amount or fair value less cost to sell. ProLogis' management also periodically reviews long-lived assets (primarily real estate) to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", management's review involves comparing current and future operating performance of the assets, the most significant of which is undiscounted operating cash flows, to the carrying value of the assets. Based on this analysis, a provision for possible loss (based upon a comparison of discounted cash flows to ProLogis' carrying value) is recognized if necessary. In management's opinion, long-lived assets, including real estate assets, are not carried at amounts in excess of their estimated net realizable values. ProLogis acquired certain real estate through the formation of partnerships (as discussed in Note 6) wherein ProLogis contributed cash and the limited partners contributed real estate in exchange for partnership units which are ultimately exchangeable for Common Shares. In consolidating the partnerships' assets, real estate cost includes the estimated fair value attributable to the limited partners' interests as of the acquisition dates. ProLogis Development Services Incorporated ("ProLogis Development Services") develops corporate distribution facilities to meet customer requirements, which are subsequently sold to the customer or third parties. ProLogis Development Services also contracts on a fee basis to develop distribution facilities for customers. ProLogis owns 100% of the preferred stock of ProLogis Development Services and realizes substantially all economic benefits of its activities. Because ProLogis advances mortgage loans to ProLogis Development 66 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Services to fund its acquisition, development and construction activities, ProLogis Development Services is consolidated with ProLogis. Accordingly, these loans are reflected as real estate investments in ProLogis' consolidated financial statements. ProLogis Development Services is not a qualified REIT subsidiary of ProLogis. Accordingly, provisions for federal income taxes are recognized, as appropriate. Capitalization Policy Renovations and improvements are capitalized and depreciated over their estimated useful lives. Repairs and maintenance costs are expensed as incurred to the extent they are not acquisition-related renovation costs identified during ProLogis' pre-acquisition due diligence. Management costs incurred for development (including land acquisitions), renovation and leasing activities that are incremental and identifiable to a specific activity are capitalized. Prior to April 1, 1998, ProLogis also capitalized direct and incremental management costs incurred in connection with the acquisition of operating facilities. In accordance with Emerging Issues Task Force Issue 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions", which was effective on April 1, 1998, such costs are no longer capitalized. Costs capitalized to real estate are depreciated over the estimated useful lives of the real estate. Costs capitalized related to leasing activities are included with other assets and are amortized over the lease term. ProLogis' average lease term is between four and five years. ProLogis capitalizes interest costs incurred during the land development or construction period of qualifying projects. Unconsolidated Subsidiaries ProLogis' investments in the preferred stock of certain companies (excluding ProLogis Development Services) are accounted for under the equity method. Accordingly, these investments are recognized at ProLogis' cost as adjusted for ProLogis' proportionate share of the earnings or losses of the companies. ProLogis' proportionate share of the earnings or losses of these companies is recognized in total income. Cash and Cash Equivalents ProLogis considers all cash on hand, demand deposits with financial institutions and short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. Costs of Raising Capital Costs incurred in connection with the issuance of shares are deducted from shareholders' equity. Costs incurred in connection with the incurrence or renewal of debt are capitalized, included with other assets, and amortized over the term of the related loan or the renewal term. Minority Interest Minority interest is carried at cost and represents limited partners' interests in various real estate partnerships controlled by ProLogis. Certain minority interests are carried at the pro rata share of the estimated fair value of the real estate contributed as of the acquisition dates, as adjusted for subsequent earnings, contributions and distributions. Common Shares issued upon exchange of limited partnership units will be accounted for at the cost of the minority interest surrendered. 67 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Interest Rate Contracts ProLogis utilizes various interest rate contracts to hedge interest rate risk on anticipated debt offerings. To the extent the interest rate contracts are designated and effective as hedges of identified debt issuances which have a high probability of occurring, gains or losses resulting from changes in the market value of these contracts are deferred and amortized as a component of interest expense over the term of the related debt issuance. Management periodically evaluates the interest rate contracts in light of current market conditions. Should management determine that an interest rate contract can no longer be considered an effective hedge or if the occurrence of the anticipated debt issuance can no longer be considered a high probability, the interest rate contract will be marked to market value as of the end of the period and the associated income or expense will be recognized in net earnings. Foreign Currency Exchange Gains or Losses ProLogis' consolidated subsidiaries whose functional currency is not the U.S. dollar translate their financial statements into U.S. dollars. Assets and liabilities are translated at the exchange rate in effect as of the financial statement date. Income statement accounts are translated using the average exchange rate for the period. Gains and losses resulting from the translation are included in accumulated other comprehensive income as a separate component of shareholders' equity. Foreign subsidiaries of ProLogis have certain transactions denominated in currencies other than their functional currency. In these instances, nonmonetary assets and liabilities are remeasured at the historical exchange rate, monetary assets and liabilities are remeasured at the exchange rate in effect at the end of the period, and income statement accounts are remeasured at the average exchange rate for the period. Remeasurement gains and losses of such foreign subsidiaries are included in ProLogis' results of operations. ProLogis recognized a gain from remeasurement of $3,227,000 and a loss from remeasurement of $348,000 for the years ended December 31, 1998 and 1997, respectively. ProLogis did not have foreign subsidiaries in 1996. Transaction gains or losses occur when a transaction, denominated in a currency other than the functional currency, is settled and the functional currency cash flows realized are more or less than expected based upon the exchange rate in effect when the transaction was initiated. Transaction gains and losses are included in ProLogis' results of operations. ProLogis recognized a net foreign currency exchange transaction loss of $289,000 for the year ended December 31, 1998. ProLogis did not incur transaction gains or losses in 1997 due to its limited foreign operations in that year. ProLogis had no foreign subsidiaries in 1996. Revenue Recognition ProLogis leases its operating facilities under operating leases and recognizes the total lease payments provided for under the leases on a straight-line basis over the lease term. A provision for possible loss is made when collection of receivables is considered doubtful. Gains or losses on the disposition of real estate are recorded when the recognition criteria set forth under GAAP have been met, generally at the time title is transferred and ProLogis has no future obligations under the contract. Rental Expenses Rental expenses include costs of on-site and property management personnel, utilities, repairs and maintenance, property insurance and real estate taxes, net of amounts recovered from tenants under the terms of the respective leases. 68 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Stock-Based Compensation ProLogis adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which allows ProLogis to continue to account for its various stock-based compensation plans using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Under APB No. 25, if the exercise price of the stock options issued equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized, however, certain pro forma earnings per share disclosures are required. See Note 11. Comprehensive Income ProLogis adopted SFAS No. 130, "Reporting Comprehensive Income", on January 1, 1998. SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income is the total of net earnings attributable to Common Shares and other comprehensive income. The adoption of this standard did not have a significant effect on the consolidated financial position, results of operations or financial statement disclosures of ProLogis. For the years ended December 31, 1998 and 1997, ProLogis had one item of other comprehensive income, the cumulative translation adjustments account. This account has been recognized as a component of shareholders' equity. ProLogis had no items of other comprehensive income in 1996. ProLogis' displays comprehensive income and its components in its consolidated statements of earnings and comprehensive income. Earnings Per Share SFAS No. 128, "Earnings Per Share" was adopted in 1997. SFAS No. 128 replaced the presentation of primary and fully diluted earnings per share with a presentation of basic and diluted earnings per share. Diluted earnings per share reflects the potential dilution that would result if securities or other contracts to issue Common Shares were exercised or converted to Common Shares or resulted in the issuance of Common Shares that then shared in earnings. The adoption of SFAS No. 128 did not result in the restatement of previously reported earnings per share. See Note 10. Segment Reporting ProLogis adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" in 1998. SFAS No. 131 provides standards for the reporting of financial information about a public enterprise's operating segments, as well as related disclosures about products and services, geographic locations and major customers. See Note 16. Recent Accounting Pronouncements In April 1998 Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up Activities" was issued which requires that costs associated with organizational, pre-opening, and start-up activities be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. Through December 31, 1998, ProLogis capitalized costs associated with start-up activities and amortized such costs over an appropriate period, generally five years. Beginning January 1, 1999, ProLogis will adopt SOP 98-5 and will expense all unamortized organizational and start-up costs, approximating $1.6 million, as a cumulative effect of a change in accounting principle in the first quarter of 1999. SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities" was issued in June 1998. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 and early adoption is allowed. SFAS No. 133 provides comprehensive guidelines for the recognition and measurement of derivatives and hedging activities and, specifically, requires all derivatives to be recorded on the balance sheet at fair value as an asset or liability, with an offset to accumulated other comprehensive income. Management does not believe this standard will have a significant effect on ProLogis' consolidated financial position, results of operations or financial statement disclosures. 69 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) 3. Real Estate Real estate investments consisting of income producing industrial distribution facilities, facilities under development and land held for future development, at cost, are summarized as follows (in thousands):
December 31, --------------------------- 1998 1997 ---------- ---------- Operating facilities: Improved land........................... $ 517,803(1) $ 420,019(1) Buildings and improvements.............. 2,731,203(1) 2,233,585(1) ---------- ---------- 3,249,006 2,653,604 ---------- ---------- Facilities under development (including cost of land)............................ 209,670(2)(3) 180,268(2) Land held for development................. 180,796(4) 159,645(4) Capitalized preacquisition costs.......... 18,028(5) 12,719(5) ---------- ---------- Total real estate..................... 3,657,500 3,006,236 Less accumulated depreciation............. 254,288 171,525 ---------- ---------- Net real estate....................... $3,403,212 $2,834,711 ========== ==========
- -------- (1) As of December 31, 1998 and 1997, ProLogis had 1,099 and 1,005 operating buildings, respectively, consisting of 104,540,000 and 90,843,000 square feet, respectively. (2) Facilities under development consist of 55 buildings aggregating 8,022,000 square feet as of December 31, 1998 and 62 buildings aggregating 8,442,000 square feet as of December 31, 1997. (3) In addition to the December 31, 1998 construction payable of $34.0 million, ProLogis had unfunded commitments on its contracts for facilities under construction totaling $131.7 million. (4) Land held for future development consisted of 1,673 acres as of December 31, 1998 and 1,702 acres as of December 31, 1997. (5) Capitalized preacquisition costs include $2,199,000 and $3,644,000 of funds on deposit with title companies as of December 31, 1998 and 1997, respectively, for future acquisitions. ProLogis' operating facilities, facilities under development and land held for future development are located in the United States, Mexico and Europe as follows (percentage based upon total cost):
December 31, ------------ 1998 1997 ----- ----- United States............................................... 93.06% 97.92% Europe...................................................... 4.66 1.10 Mexico...................................................... 2.28 0.98 ----- ----- 100.0% 100.0% ===== =====
No individual market represents more than 10% of ProLogis' real estate assets. ProLogis Development Services The outstanding balances of development and mortgage loans made by ProLogis to ProLogis Development Services for the purchase of distribution facilities and land for distribution facility development aggregated $247.5 million and $184.8 million as of December 31, 1998 and 1997, respectively. The gains recognized on disposition of undepreciated property by ProLogis Development Services and the fees generated by ProLogis Development Services are reflected as other real estate income by ProLogis. 70 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Operating Lease Agreements ProLogis leases its facilities to customers under agreements which are classified as operating leases. The leases generally provide for payment of all or a portion of utilities, property taxes and insurance by the tenant. As of December 31, 1998, minimum lease payments receivable on leases with lease periods greater than one year are as follows (in thousands): 1999.......................... $ 349,921 2000.......................... 297,911 2001.......................... 234,219 2002.......................... 176,005 2003.......................... 121,663 Thereafter.................... 279,075 ---------- $1,458,794 ==========
4. Unconsolidated Subsidiaries: Investments in and advances to unconsolidated subsidiaries are as follows (in thousands):
December 31, ---------------- 1998 1997 -------- ------- Insight................................................. $ 1,520 $ 500 -------- ------- ProLogis Logistics: Investment (1)........................................ 13,241 7,404 Note receivable....................................... 128,634 75,207 Accrued interest and other receivables................ 9,146 3,028 -------- ------- 151,021 85,639 -------- ------- Frigoscandia S.A.: Investment (1)........................................ 2,900 -- Note receivable from Frigoscandia S.A................. 85,148 -- Note receivable from Frigoscandia Holding AB.......... 91,519 -- Mortgage note receivable from Frigoscandia Limited UK. 30,000 -- Accrued interest and other receivables................ 11,998 -- -------- ------- 221,565 -- -------- ------- Kingspark S.A.: Investment (1)........................................ 22,413 -- Note receivable from Kingspark S.A.................... 111,744 -- Note receivable from ProLogis Kingspark............... 34,391 -- Mortgage note receivable from ProLogis Kingspark...... 52,371 -- Accrued interest and other receivables................ 3,850 -- -------- ------- 224,769 -- -------- ------- Garonor Holdings: Investment (1)........................................ 5,508 -- Note receivable....................................... 129,395 -- Accrued interest receivable........................... 85 -- -------- ------- 134,988 -- -------- ------- Total................................................... $733,863 $86,139 ======== =======
71 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) - -------- (1) Investment represents ProLogis' investment in the preferred stock of the respective companies as adjusted for ProLogis' share of each company's net earnings or loss. Insight ProLogis Development Services has a 23.1% ownership interest in Insight, Inc. ("Insight"), a privately owned logistics optimization consulting company. ProLogis Development Services invested an additional $500,000 in Insight on January 2, 1999 and is committed to investing an additional $500,000 through July 1, 1999, which would bring its ownership interest to 33.3%. This investment is accounted for under the equity method. ProLogis recognized $19,700 of income from its investment in Insight for the year ended December 31, 1998. Prior to July 1, 1998, this investment was accounted for under the cost method. ProLogis Logistics ProLogis owns 100% of the preferred stock of ProLogis Logistics Services Incorporated ("ProLogis Logistics"). ProLogis Logistics owns 100% of the membership interests of a refrigerated distribution company operating in the United States and Canada, CS Integrated LLC ("CSI"). Prior to June 12, 1998, ProLogis Logistics owned, at various points in time, between 60.0% and 77.1% of CSI. As of December 31, 1998, ProLogis had invested $19.9 million in the preferred stock of ProLogis Logistics. As of December 31, 1998, CSI owned or operated refrigerated distribution facilities aggregating 114.1 million cubic feet. The common stock of ProLogis Logistics is owned by an unrelated party. ProLogis recognizes substantially all economic benefits of ProLogis Logistics and its subsidiaries. As of December 31, 1998, ProLogis had a $128.6 million note receivable from ProLogis Logistics. The note is unsecured, bears interest at 8% per annum (reduced from 10% on November 1, 1998) and matures on April 24, 2002. Interest payments on the note are due annually. ProLogis accounts for its investment in ProLogis Logistics under the equity method. ProLogis recognized income (including interest income on the note receivable and a management fee payable from CSI) from its investment in ProLogis Logistics of $7.3 million and $3.3 million for the years ended December 31, 1998 and 1997, respectively. Frigoscandia S.A. On January 16, 1998, ProLogis invested in 100% of the preferred stock of Frigoscandia S.A., a Luxembourg company, which acquired on that date a refrigerated distribution company headquartered in Sweden, Frigoscandia AB. Frigoscandia AB is 100% owned by Frigoscandia Holding AB, which is 100% owned by a wholly owned subsidiary of Frigoscandia S.A. As of December 31, 1998, Frigoscandia AB, which operates in nine European countries, owned or leased 192.0 million cubic feet of refrigerated distribution facilities. As of December 31, 1998, ProLogis had invested $28.5 million in the preferred stock of Frigoscandia S.A. Prior to September 30, 1998, the common stock of Frigoscandia S.A. was owned by Security Capital Group Incorporated ("Security Capital"), ProLogis' largest shareholder. On that date, the common stock of Frigoscandia S.A. was contributed to a limited liability company, in which unrelated parties own 100% of the voting interests and Security Capital owns 100% of the non-voting interests. ProLogis recognizes substantially all economic benefits of the activities of Frigoscandia S.A. and its subsidiaries. As of December 31, 1998, ProLogis had a $91.5 million note receivable from Frigoscandia Holding AB and an $85.1 million note receivable from Frigoscandia S.A. These unsecured notes bear interest at 5% per 72 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) annum (reduced from 8% on November 1, 1998) and are due on demand ($80.0 million of the note receivable from Frigoscandia S.A. is due on July 15, 2008). Additionally, as of December 31, 1998, ProLogis had a $30.0 million mortgage note receivable from Frigoscandia Limited UK, a subsidiary of Frigoscandia AB. The mortgage note receivable, which provides for interest at 7% per annum (reduced from 8% on April 1, 1998) and matures on March 20, 2018, is secured by refrigerated distribution facilities. ProLogis accounts for its investment in Frigoscandia S.A. under the equity method. ProLogis recognized a loss of $7.5 million for 1998 (including interest income on the mortgage note and notes receivable) from its investment in Frigoscandia S.A. Frigoscandia AB has a multi-currency, three-year revolving credit agreement through a consortium of 11 European banks in the currency equivalent of approximately $200 million as of December 31, 1998. The loan bears interest at each currency's LIBOR rate plus 0.55%. ProLogis has entered into a guaranty agreement for 25% of the loan balance. Kingspark S.A. On August 14, 1998, ProLogis invested in 100% of the preferred stock of Kingspark Holding S.A. ("Kingspark S.A."), a Luxembourg company, that acquired on that date an industrial real estate development company, Kingspark Group Holdings Limited ("ProLogis Kingspark"), operating in the United Kingdom. As of December 31, 1998, ProLogis Kingspark had 0.4 million square feet of operating facilities, 0.4 million square feet of facilities under development and 0.2 million square feet of facilities being developed under construction management agreements. Additionally, as of December 31, 1998, ProLogis Kingspark owned 554 acres and controlled 1,489 acres of land through letters of intent or contingent contracts for future development of 35.8 million square feet of distribution facilities. As of December 31, 1998, ProLogis had invested $24.0 million in the preferred stock of Kingspark S.A. The common stock of Kingspark S.A. is currently owned by Security Capital. However, Security Capital has indicated that it plans to sell or contribute the common stock to a limited liability company. ProLogis recognizes substantially all economic benefits of the activities of Kingspark S.A. and its subsidiaries. As of December 31, 1998, ProLogis had a $111.7 million note receivable from Kingspark S.A. and a $34.4 million note receivable from ProLogis Kingspark. These unsecured notes bear interest at 8% per annum and are due on demand. The interest rate on the note receivable from Kingspark S.A. was reduced to 5% per annum effective January 1, 1999. Also, as of December 31, 1998, ProLogis had a $52.4 million mortgage note receivable from ProLogis Kingspark which bears interest at 8% per annum and is secured by certain land parcels. ProLogis accounts for its investment in Kingspark S.A. under the equity method. ProLogis recognized $2.9 million of income in 1998 (including interest income on the mortgage note and notes receivable) from its investment in Kingspark S.A. Subsequent to December 31, 1998, ProLogis Kingspark entered into a line of credit agreement with a bank in the United Kingdom. The credit agreement, which provides for borrowings of up to 10.0 million British pounds (approximately $16.6 million as of December 31, 1998), has been guaranteed by ProLogis. Garonor Holdings On December 29, 1998, ProLogis invested in 100% of the preferred stock of Garonor Holdings S.A. ("Garonor Holdings"), a Luxembourg company, that acquired on that date in excess of 99% of the voting stock of Garonor S.A. As of December 31, 1998, ProLogis had invested $5.6 million in the preferred stock of Garonor 73 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Holdings. Garonor S.A. owns and leases approximately 5.25 million square feet of industrial distribution facilities located in France. Garonor Holdings is in the process of acquiring the remaining voting stock of Garonor S.A. The common stock of Garonor Holdings is owned by Security Capital. Security Capital can require ProLogis to purchase the Garonor Holdings' common stock held by Security Capital beginning January 1, 2000. ProLogis recognizes substantially all of the economic benefits of Garonor Holdings and its subsidiaries. ProLogis accounts for this investment under the equity method. Should Garonor Holdings acquire 100% of the voting stock of Garonor S.A., it is anticipated that the ownership of Garonor Holdings will be restructured such that ProLogis would become the sole owner and Garonor Holdings, as a wholly- owned subsidiary of ProLogis, would be consolidated with the accounts of ProLogis. ProLogis recognized income of $6,000 from its investment in Garonor Holdings in 1998. As of December 31, 1998, ProLogis had a $129.4 million note receivable from Garonor Holdings. The note is unsecured, bears interest at 8.0% per annum and is due on demand. Interest payments on the note are due annually. In connection with the acquisition of Garonor S.A., Garonor Holdings obtained two credit facilities from a French bank. One facility is in the amount of 200.0 million French francs ($35.6 million as of December 31, 1998) and is guaranteed by ProLogis. ProLogis has guaranteed an additional 10.0 million French francs ($1.8 million as of December 31, 1998), which approximates the annual interest to be charged on the facility. The second facility, in the amount of 870.0 million French francs (of which 770.0 million French francs was outstanding as of December 31, 1998), is secured by the real estate owned by Garonor S.A. ProLogis has guaranteed 50.0 million French francs of the amount outstanding as of December 31, 1998 ($8.9 million as of December 31, 1998). Garonor has the ability to borrow an additional 100.0 million French francs under this facility of which ProLogis will guarantee 50.0 million French francs. The total guaranty of 100.0 million French francs can be reduced as Garonor S.A. meets certain operating covenants. Summarized Financial Information Summarized financial information for ProLogis' unconsolidated subsidiaries as of and for the year ended December 31, 1998 is presented below (in millions of U.S. dollars).
ProLogis Frigoscandia Kingspark Garonor Logistics (1) S.A. (2) S.A. (3) Holdings (4) ------------- ------------ --------- ------------ Total assets............ $272.1 $613.6 $297.4 $380.0 Total liabilities (5)... $258.7 $606.7 $272.0 $374.3 Minority interest....... $ -- $ 2.0 $ -- $ -- Shareholders' equity.... $ 13.4 $ 4.9 $ 25.4 $ 5.7 Revenues................ $134.5 $399.1 $ 7.6 $ 0.2 Adjusted EBITDA (6)..... $ 22.9 $ 55.0 $ 5.8 $ 0.2 Net earnings (loss) (7) (8).................... $ 4.6 $(27.0)(9) $ (1.6)(10) $ --
- -------- (1) On June 15, 1998, additional refrigerated distribution facilities were acquired at a cost of $61.3 million. (2) Frigoscandia S.A. was acquired on January 16, 1998. (3) Kingspark S.A. was acquired on August 14, 1998. (4) Garonor Holdings was acquired on December 29, 1998. (5) Includes amounts due to ProLogis of $137.8 million from ProLogis Logistics, $218.7 million from Frigoscandia S.A., $202.4 million from Kingspark S.A. and $129.5 million from Garonor Holdings. 74 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) (6) Adjusted EBITDA represents earnings from operations before interest expense, interest income, current and deferred income taxes, depreciation, amortization and adjustments from the remeasurement of intercompany and other debt based on current foreign currency exchange rates. (7) ProLogis' share of the net earnings (loss) and interest income recognized by ProLogis on intercompany notes and mortgage notes receivable are recognized in the Statements of Earnings and Comprehensive Income as "Income (loss) from Unconsolidated Subsidiaries". (8) Net earnings (loss) of each company includes interest expense on intercompany notes and mortgage notes payable. (9) Includes a net loss of $13.3 million from the remeasurement of intercompany and other debt based on the foreign currency exchange rates in effect as of December 31, 1998. (10) Includes a net loss of $0.9 million from the remeasurement of intercompany debt based on foreign currency exchange rates in effect as of December 31, 1998. 5. Borrowings: Lines of Credit ProLogis has a credit agreement with NationsBank, N.A. ("NationsBank") as agent for a bank group that provides for a $350.0 million unsecured revolving line of credit. Borrowings bear interest at ProLogis' option, at either (a) the greater of the federal funds rate plus 0.5% and the prime rate, or (b) LIBOR plus 0.75% based upon ProLogis' current senior debt ratings. The prime rate was 7.75% and the 30-day LIBOR rate was 5.0641% as of December 31, 1998. Additionally, the credit agreement provides for a commitment fee of 0.15% per annum of the unused line of credit balance. Under a competitive bid option contained in the credit agreement, ProLogis may be able to borrow at a lower interest rate spread over LIBOR, depending on market conditions. This option is available on up to $100.0 million of borrowings. The line of credit matures on May 1, 2000 and may be extended annually for an additional year with the approval of NationsBank and the other participating lenders. ProLogis was in compliance with all covenants contained in the credit agreement as of December 31, 1998. As of December 31, 1998, $329.0 million of borrowings were outstanding on the line of credit. In addition, ProLogis has a $25.0 million short-term unsecured discretionary line of credit with NationsBank that matures on October 1, 1999. By agreement between ProLogis and NationsBank, the rate of interest on and the maturity date of each advance are determined at the time of each advance. There were $15.3 million of borrowings outstanding on the line of credit as of December 31, 1998. A summary of ProLogis' lines of credit borrowings is as follows (dollar amounts in thousands):
Year Ended December 31, ---------------------------- 1998 1997 1996 -------- -------- -------- Weighted average daily interest rate....... 6.46% 6.75% 7.02% Borrowings outstanding at December 31...... $344,300 $ -- $ 38,600 Weighted average daily borrowings.......... $174,901 $ 56,938 $ 44,268 Maximum borrowings outstanding at any month end....................................... $344,300 $143,800 $124,200 Total lines of credit at December 31....... $375,000 $375,000 $350,000
Short-term Borrowings ProLogis has a credit agreement with NationsBank that provides for a short- term loan of $150.0 million. The credit agreement expires on May 1, 1999. Borrowings bear interest at LIBOR plus 1.00% and are subject to the covenants contained in the $350.0 million unsecured credit agreement with NationsBank. As of December 31, 1998, ProLogis was in compliance with all such covenants. 75 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Senior Unsecured Debt ProLogis has issued senior unsecured notes and medium-term unsecured notes that bear interest at fixed rates, payable semi-annually (the "Notes"). The Notes are summarized as follows (in thousands of dollars):
Principal Principal Date of Original Coupon Maturity Outstanding at Payment Issuance Principal Rate Date December 31, 1998 (1) Requirement -------- --------- ------ -------- --------------------- ----------- May 16, 1995 $ 17,500 7.250% 05/15/00 $ 17,478 (2) May 16, 1995 17,500 7.300% 05/15/01 17,462 (2) May 17, 1996 50,000 7.250% 05/15/02 49,975 (3) October 9, 1998 125,000 7.000% 10/01/03 125,000 (2) July 20, 1998 250,000 7.050% 07/15/06 249,493 (2) May 17, 1996 100,000 7.950% 05/15/08 99,863 (4) March 2, 1995 150,000 8.720% 03/01/09 150,000 (5) May 16, 1995 75,000 7.875% 05/15/09 74,724 (6) February 4, 1997 100,000 7.810% 02/01/15 100,000 (7) March 2, 1995 50,000 9.340% 03/01/15 50,000 (8) May 17, 1996 50,000 8.650% 05/15/16 49,866 (9) July 11, 1997 100,000 7.625% 07/01/17 99,780 (2) ---------- ---------- $1,085,000 $1,083,641 ========== ==========
- -------- (1)Amounts are net of unamortized original issue discount. (2)Principal due at maturity. (3)Annual principal payments of $12.5 million from 5/15/99 to 5/15/02. (4)Annual principal payments of $25.0 million from 5/15/05 to 5/15/08. (5)Annual principal payments of $18.75 million from 3/1/02 to 3/1/09. (6)Annual principal payments of $9.375 million from 5/15/02 to 5/15/09. (7)Annual principal payments ranging from $10.0 million to $20.0 million from 2/1/10 to 2/1/15. (8)Annual principal payments ranging from $5.0 million to $12.5 million from 3/1/10 to 3/1/15. (9)Annual principal payments ranging from $5.0 million to $12.5 million from 5/15/10 to 5/15/16. The Notes rank equally with all other unsecured and unsubordinated indebtedness of ProLogis from time to time outstanding. The Notes are redeemable at any time at the option of ProLogis. Such redemption and other terms are governed by the provisions of an indenture agreement between ProLogis and State Street Bank and Trust Company, as trustee. Under the terms of the indenture agreement, ProLogis must meet certain financial covenants and ProLogis was in compliance with all such covenants as of December 31, 1998. 76 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Mortgage Notes, Assessment Bonds and Securitized Debt Mortgage notes, assessment bonds and securitized debt consisted of the following as of December 31, 1998 (in thousands):
Balloon Periodic Payment Interest Maturity Payment Principal Due at Description Rate (1) Date Date Balance Maturity ----------- -------- -------- -------- --------- -------- Mortgage notes: Princeton Distribution Center..................... 9.250% 02/19/99 (2) $ 378 $ 378 Oxmoor Distribution Center #1......................... 8.390 04/01/99 (2) 3,924 3,895 Oxmoor Distribution Center #2......................... 8.100 05/01/99 (2) 1,449 1,439 Oxmoor Distribution Center #3......................... 8.100 05/01/99 (2) 1,439 1,426 Peter Cooper Distribution Center #1.................. 10.625 06/01/99 (2) 2,628 2,619 Platte Valley Industrial Center #1.................. 9.750 03/01/00 (2) 364 256 West One Business Center #1. 8.250 09/01/00 (2) 4,420 4,252 Tampa West Distribution Center #20................. 9.125 11/30/00 (3) 107 -- Rio Grande Industrial Center #1......................... 8.875 09/01/01 (2) 3,055 2,544 Titusville Industrial Center #1......................... 10.000 09/01/01 (2) 4,659 4,181 Eigenbrodt Way Distribution Center #1.................. 8.590 04/01/03 (2) 1,659 1,479 Gateway Corporate Center #10........................ 8.590 04/01/03 (2) 1,901 1,361 Hayward Industrial Center I & II....................... 8.590 04/01/03 (2) 13,997 12,480 Thornton Business Center #1--#4..................... 8.590 04/01/03 (2) 9,180 8,185 Sullivan 75 Distribution Center #1.................. 9.960 04/01/04 (2) 1,817 1,663 Oceanie Distribution Center #1 and Epone Distribution Center #1.................. 8.000 07/01/04 (3) 5,970 -- Platte Valley Industrial Center #8.................. 8.750 08/01/04 (2) 1,896 1,488 Riverside Industrial Center #3......................... 8.750 08/01/04 (2) 1,489 1,170 Riverside Industrial Center #4......................... 8.750 08/01/04 (2) 4,025 3,161 West One Business Center #3. 9.000 09/01/04 (2) 4,399 3,847 Raines Distribution Center.. 9.500 01/01/05 (2) 6,264 5,902 Societe Generale (4)........ 5.700 12/01/06 (2) 23,244 8,940 CIGNA (5)................... 7.080 03/01/07 (2) 66,000 (5) Vista Del Sol Industrial Center #1.................. 9.680 08/01/07 (3) 2,625 -- Vista Del Sol Industrial Center #3.................. 9.680 08/01/07 (3) 1,111 -- Earth City Industrial Center #3......................... 8.500 07/01/10 (3) 2,281 -- GMAC Commercial Mortgage (6)........................ 7.750 10/01/10 (3) 8,186 -- Executive Park Distribution Center #3.................. 8.190 03/01/11 (3) 1,108 -- Platte Valley Industrial Center #9.................. 8.100 04/01/17 (3) 3,330 -- Platte Valley Industrial Center #4.................. 10.100 11/01/21 (3) 2,059 -- --------- $ 184,964 =========
77 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued)
Balloon Periodic Payment Interest Maturity Payment Principal Due at Description Rate (1) Date Date Balance Maturity ----------- -------- -------- -------- --------- -------- Assessment bonds: City of Wilsonville.......... 6.82% 08/19/04 (3) $ 129 $ -- City of Kent................. 5.50 05/01/05 (3) 18 -- City of Kent................. 7.85 06/20/05 (3) 104 -- City of Portland............. 8.33 11/17/07 (3) 7 -- City of Kent................. 7.98 05/20/09 (3) 64 -- City of Fremont.............. 7.00 03/01/11 (3) 9,890 -- City of Las Vegas............ 8.75 10/01/13 (3) 294 -- City of Las Vegas............ 8.75 10/01/13 (3) 289 -- City of Las Vegas............ 8.75 10/01/13 (3) 163 -- City of Portland............. 7.25 11/07/15 (3) 99 -- City of Portland............. 7.25 09/15/16 (3) 224 -- -------- $ 11,281 ======== Securitized debt: Tranche A.................... 7.74% 02/01/04 (2) $ 23,462 $20,821 Tranche B.................... 9.94 02/01/04 (2) 8,097 7,215 -------- $ 31,559 ========
- -------- (1) The weighted average interest rates for mortgage notes payable, assessment bonds payable and securitized debt in 1998 were 7.06%, 7.12% and 8.30%, respectively. (2) Monthly amortization with a balloon payment due at maturity. (3) Fully amortizing. (4) Mortgage debt is secured by Mitry-Mory #1, Isle d'Abeau Distribution Center #1 and Longjumeau Distribution Center #1 located in France. (5) On December 23, 1998, ProLogis entered into a $150.0 million secured financing agreement with Connecticut General Life Insurance Company. On that date, $66.0 million was funded under the agreement and the remaining $84.0 million was funded on January 22, 1999. A payment of $134.4 million is due at maturity. Under the terms of the agreement, ProLogis pledged distribution facilities ($207.0 million undepreciated cost as of December 31, 1998) as collateral under the agreement. (6) Mortgage debt is secured by Earth City Industrial Center #5, Westport Service Center #1 and #2, Westport Distribution Center #1, #2 and #3 and Hazelwood Distribution Center #1. Mortgage notes are secured by real estate with an aggregate undepreciated cost of $209.3 million as of December 31, 1998. Assessment bonds are secured by real estate with an aggregate undepreciated cost of $242.4 million as of December 31, 1998. Securitized debt is collateralized by real estate with an aggregate undepreciated cost of $66.2 million as of December 31, 1998. Subsequent Events On February 22, 1999, ProLogis entered into a $182.0 million secured financing agreement with Teachers Insurance and Annuity Association of America. Of the total borrowings, $119.4 million was funded on February 22, 1999, $35.7 million was funded on March 5, 1999 and the remaining amount is expected to be funded before the end of May 1999. The loan bears interest at 7.20% and provides for monthly interest payments through 78 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) March 2002 and monthly principal and interest payments from April 2002 to March 2009, at which time the remaining balance will be due. ProLogis pledged distribution facilities with an undepreciated cost of $216.2 million as of December 31, 1998 as collateral under the agreement and will pledge additional distribution facilities upon completion of the final funding. On February 5, 1999, ProLogis received a commitment from Morgan Guaranty Trust Company of New York ("MGT") whereby MGT will lend $200.0 million to ProLogis. The loan, which will be secured by distribution facilities and will have a 25-year term, provides for interest only payments for the first six years and principal and interest payments thereafter with the remaining balance due at maturity. The loan bears interest at 7.58% per annum and is expected to be funded by the end of the first quarter of 1999. Long-term Debt Maturities Approximate principal payments due on senior unsecured debt, mortgage notes payable, assessment bonds payable, securitized debt and other secured debt during each of the years in the five-year period ending December 31, 2003 and thereafter are as follows (in thousands): 1999.......................................................... $ 27,581 2000.......................................................... 40,017 2001.......................................................... 43,771 2002.......................................................... 49,212 2003.......................................................... 184,930 2004 and thereafter........................................... 967,293 ---------- Total principal due....................................... 1,312,804 Less: Original issue discount................................. (1,359) ---------- Total carrying value...................................... $1,311,445 ==========
Interest Expense For 1998, 1997 and 1996, interest expense was $77.7 million, $52.7 million, and $38.8 million, respectively, which was net of capitalized interest of $19.2 million, $18.4 million and $16.1 million, respectively. Amortization of deferred loan costs included in interest expense was $2.2 million, $2.0 million and $2.3 million for 1998, 1997 and 1996, respectively. The total interest paid in cash on all outstanding debt was $83.2 million, $61.3 million and $50.7 million during 1998, 1997 and 1996, respectively. 6. Minority Interest: Minority interest represents the limited partners' interests in real estate partnerships controlled by ProLogis. With respect to each of the partnerships either ProLogis or a subsidiary of ProLogis is the sole general partner with all management powers over the business and affairs of the partnership. The limited partners of each partnership generally do not have the right to participate in or exercise management control over the business and affairs of the partnership. With respect to each partnership the general partner may not, without the written consent of all of the limited partners, take any action that would prevent such partnership from conducting its business, possess the property of the partnership, admit an additional partner or subject a limited partner to the liability of a general partner. ProLogis owns a 70.0% general partnership interest in Red Mountain Joint Venture, which owns a $3.8 million industrial distribution facility in Albuquerque, New Mexico. In addition to this joint venture, ProLogis is the controlling general partner in four partnerships. In each of these four partnerships, the limited partners are entitled to exchange partnership units for Common Shares on a one for one basis. Additionally, the limited 79 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) partners are entitled to receive preferential cumulative quarterly distributions per unit equal to the quarterly distributions in respect of Common Shares. These four partnerships are as follows: . ProLogis Limited Partnership-I, which owned approximately $208.2 million of industrial distribution facilities located primarily in the San Francisco Bay area as of December 31, 1998, was formed in December 1993. ProLogis had a 68.7% controlling general partnership interest and there were 4,520,532 limited partnership units outstanding as of December 31, 1998. . ProLogis Limited Partnership-II, which owned approximately $58.7 million of industrial distribution facilities located primarily in Austin, Charlotte, Dallas, Denver, El Paso and the San Francisco Bay area as of December 31, 1998, was formed in May 1994. ProLogis' initial 81.2% controlling general partnership interest has subsequently been increased to 97.8% (the ownership interest as of December 31, 1998) due to the conversion of limited partnership units into Common Shares. There were 90,213 limited partnership units outstanding as of December 31, 1998. . ProLogis Limited Partnership-III, which owned approximately $55.3 million of industrial distribution facilities located primarily in Tampa, Florida as of December 31, 1998, was formed in October 1994. ProLogis had a 50.4% controlling general partnership interest at formation, which has subsequently been increased to 86.9% (the ownership interest as of December 31, 1998) as the result of additional contributions by ProLogis and the conversion of limited partnership units into Common Shares. There were 389,900 limited partnership units outstanding as of December 31, 1998. . ProLogis Limited Partnership-IV, which owned approximately $86.0 million of industrial distribution facilities located primarily in Florida, Ohio, Oklahoma and Texas as of December 31, 1998, was formed in October 1994 through a cash contribution from a wholly owned subsidiary of ProLogis, ProLogis IV, Inc., and the contribution of industrial distribution facilities from the limited partner. ProLogis' initial 96.4% controlling general partnership interest has been increased to 97.7% (the ownership interest as of December 31, 1998) as the result of additional contributions by ProLogis. There were 68,612 limited partnership units outstanding as of December 31, 1998. ProLogis Limited Partnership-IV and ProLogis IV, Inc. are legal entities separate and distinct from ProLogis, its affiliates and each other, and each has separate assets, liabilities, business functions and operations. The sole assets of ProLogis IV, Inc. are its general partner advances to and its interest in ProLogis Limited Partnership-IV. As of December 31, 1998, ProLogis Limited Partnership-IV had outstanding borrowings from ProLogis IV, Inc. of $1.4 million and ProLogis IV, Inc. had outstanding borrowings from ProLogis and its affiliates of $1.4 million. For financial reporting purposes, the assets, liabilities, results of operations and cash flows of each of the five partnerships are included in ProLogis' consolidated financial statements, and the interests of the limited partners are reflected as minority interest. 7. Shareholders' Equity: Shares Authorized As of December 31, 1998, 230,000,000 shares were authorized (increased from 180,000,000 shares on June 30, 1998 through a shareholder-approved amendment to ProLogis' Declaration of Trust). ProLogis' Board of Trustees (the "Board") may classify or reclassify any unissued shares of ProLogis stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as of distributions, qualifications and terms or conditions of redemption of such shares. 80 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Preferred Shares As of December 31, 1998, ProLogis had three series of cumulative redeemable preferred shares of beneficial interest outstanding (Series A, C and D) and one series of cumulative convertible redeemable preferred shares of beneficial interest outstanding (Series B). Holders of each series of preferred shares have, subject to certain conditions, limited voting rights. The holders of the preferred shares are entitled to receive cumulative preferential distributions based upon each series' respective liquidation preference. Such distributions are payable quarterly in arrears on the last day of March, June, September and December, when, and if, declared by the Board, out of funds legally available for payment of distributions. After the respective redemption dates, each series can be redeemed for a cash redemption price which (other than the portion consisting of accrued and unpaid distributions) is payable solely out of the sales proceeds of other capital shares of ProLogis, which may include shares of other series of preferred shares. With respect to payment of distributions, each series of preferred shares ranks on parity with ProLogis' other series of preferred shares. The Series B preferred shares are convertible at any time, unless previously redeemed, at the option of the holders thereof into Common Shares at a conversion price of $19.50 per share (equivalent to a conversion rate of 1.282 Common Shares for each Series B preferred share). ProLogis' preferred shares are summarized as follows:
Number of Shares Stated Equivalent Based Optional Outstanding as of Liquidation Dividend on Liquidation Redemption December 31, 1998 Preference Rate Preference Date (1) ----------------- ----------- -------- ---------------- ---------- Series A................ 5,400,000 $25.00 9.40% $2.35 per share 06/21/00 Series B (2)............ 7,537,600 $25.00 7.00% $1.75 per share 02/21/01 Series C................ 2,000,000 $50.00 8.54% $4.27 per share 11/13/26 Series D................ 10,000,000 $25.00 7.92% $1.98 per share 04/13/03
- -------- (1) After this date, the preferred shares can be redeemed at ProLogis' option. (2) During 1998 and 1997, Series B preferred shares of 462,700 and 49,700, respectively, were converted into 593,181 and 63,720, respectively, Common Shares. Completed Common Equity Offerings From inception (June 14, 1991) through March 31, 1994, ProLogis raised capital through various private offerings of its Common Shares. A total of 36,714,533 shares were sold during this period at prices ranging from $10.00 to $11.50 per Common Share. On March 31, 1994, ProLogis completed an initial public offering of 3,260,870 Common Shares at a price of $11.50 per Common Share. After its initial public offering and through December 31, 1998, ProLogis sold an additional 76,989,752 Common Shares at prices ranging from $15.125 to $24.50 per Common Share, of which 4,000,000 Common Shares were sold on March 18, 1998 and 1,493,878 Common Shares were sold on April 29, 1998. The sales in 1998 were made through underwritten public offerings and generated proceeds, net of underwriting discounts and offering costs of $95.6 million and $34.7 million, respectively. In total, ProLogis has raised approximately $1.84 billion in net proceeds from private and public offerings of its Common Shares since its inception. Shelf Registration On May 15, 1998, ProLogis filed an $800.0 million shelf registration statement with the Securities and Exchange Commission, which was declared effective on May 29, 1998. This shelf registration supplemented an 81 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) existing shelf registration with a remaining balance of $183.0 million. As a result of this filing, ProLogis can issue securities in the form of debt securities, preferred shares, Common Shares, rights to purchase Common Shares and preferred share purchase rights on an as-needed basis, subject to ProLogis' ability to effect offerings on satisfactory terms. As of March 5, 1999, ProLogis had $608.0 million of shelf-registered securities available for issuance. Ownership Restrictions and Significant Shareholder For ProLogis to qualify as a REIT under the Internal Revenue Code of 1986, as amended, not more than 50% in value of its outstanding shares of stock may be owned by five or fewer individuals at any time during the last half of ProLogis' taxable year. Therefore, ProLogis' Declaration of Trust restricts beneficial ownership (or ownership generally attributed to a person under the REIT tax rules) of ProLogis' outstanding shares by a single person, or persons acting as a group, to 9.8% of ProLogis' outstanding shares. This provision assists ProLogis in protecting and preserving its REIT status and protects the interest of shareholders in takeover transactions by preventing the acquisition of a substantial block of shares. Shares owned by a person or group of persons in excess of these limits are subject to redemption by ProLogis. The provision does not apply where a majority of the Board, in its sole and absolute discretion, waives such limit after determining that the status of ProLogis as a REIT for federal income tax purposes will not be jeopardized or the disqualification of ProLogis as a REIT is advantageous to the shareholders. The Board has exempted Security Capital from the ownership restrictions described above. Security Capital owned 40.4% of the outstanding Common Shares as of December 31, 1998. For tax purposes, Security Capital's ownership is attributed to its shareholders. Dividend Reinvestment and Share Purchase Plan In March 1995, ProLogis adopted a Dividend Reinvestment and Share Purchase Plan (the "1995 Plan"), which commenced in April 1995. The 1995 Plan allows holders of Common Shares the opportunity to acquire additional Common Shares by automatically reinvesting distributions. Common Shares are acquired pursuant to the 1995 Plan at a price equal to 98% of the market price of such Common Shares, without payment of any brokerage commission or service charge. The 1995 Plan also allows participating common shareholders to purchase a limited number of additional Common Shares at 98% of the market price of such Common Shares, by making optional cash payments, without payment of any brokerage commission or service charge. Holders of Common Shares who do not participate in the 1995 Plan continue to receive distributions as declared. Shareholder Purchase Rights On December 7, 1993, the Board declared a dividend of one preferred share purchase right ("Right") for each outstanding Common Share to be distributed to all holders of record of the Common Shares on December 31, 1993. Each Right entitles the registered holder to purchase one-hundredth of a Participating Preferred Share for an exercise price of $40.00 per one-hundredth of a Participating Preferred Share, subject to adjustment as provided in the Rights Agreement. The Rights will generally be exercisable only if a person or group (other than certain affiliates of ProLogis) acquires 20% or more of the Common Shares or announces a tender offer for 25% or more of the Common Shares. Under certain circumstances, upon a shareholder acquisition of 20% or more of the Common Shares (other than certain affiliates of ProLogis), each Right will entitle the holder to purchase, at the Right's then-current exercise price, a number of Common Shares having a market value of twice the Right's exercise price. The acquisition of ProLogis pursuant to certain mergers or other business transactions will entitle each holder of a Right to purchase, at the Right's then-current exercise price, a number of the acquiring 82 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) company's common shares having a market value at that time equal to twice the Right's exercise price. The Rights held by certain 20% shareholders will not be exercisable. The Rights will expire on December 7, 2003, unless the expiration date of the Rights is extended, and the Rights are subject to redemption at a price of $0.01 per Right under certain circumstances. 8. 1997 Merger Transaction: On September 8, 1997, ProLogis' shareholders approved an agreement with Security Capital to exchange Security Capital's REIT management and property management companies for 3,692,023 Common Shares (the "1997 Merger"). As a result, ProLogis became an internally managed REIT on September 9, 1997 with Security Capital remaining as ProLogis' largest shareholder. The $81.9 million value of the management companies was approved by the independent members of the Board and a fairness opinion was obtained from a third party financial advisor. The number of Common Shares issued to Security Capital was based on the average market price of the Common Shares ($22.175) over the five-day period prior to the August 6, 1997 record date for determining the ProLogis shareholders entitled to vote on the 1997 Merger. The market value of the Common Shares issued to Security Capital on September 9, 1997 was $79.8 million, of which $4.4 million was allocated to the net tangible assets acquired and the $75.4 million difference was accounted for as the cost incurred in acquiring the management companies. Because the management companies did not have significant operations other than the management of ProLogis and ProLogis' assets, the transaction did not qualify as the acquisition of a business for purposes of applying APB Opinion No. 16, "Business Combinations". Consequently, the market value of the Common Shares issued in excess of the fair value of the net tangible assets acquired was charged to operating income rather than capitalized as goodwill. As a result of the 1997 Merger, ProLogis terminated its REIT management and property management agreements. All employees of the management companies became employees of ProLogis and ProLogis directly incurs the personnel and other costs related to these functions. The costs relating to property management are recorded as rental expenses whereas the costs associated with managing the corporate entity are recorded as general and administrative expenses. Also on September 8, 1997, ProLogis and Security Capital entered into an administrative services agreement (the "ASA"). Under the ASA, Security Capital provides ProLogis with certain administrative and other services as determined by ProLogis. Fees payable to Security Capital under the ASA are equal to Security Capital's cost of providing such services, plus an overhead factor of 20%, subject to a maximum amount of approximately $7.1 million during the initial term of the agreement, which expired on December 31, 1998. From September 8, 1997 through December 31, 1997, and for the year ended December 31, 1998, ProLogis' actual fees under the ASA were $1.1 million and $3.7 million, respectively, of which $0.2 million and $0.7 million, respectively, were capitalized. The ASA was renewed for an additional one-year term expiring on December 31, 1999 with fees charged by Security Capital for this period to be based on negotiated rates for each service provided. 9. Distributions and Dividends: ProLogis' annual distribution per Common Share was $1.24 in 1998, $1.07 in 1997 and $1.01 in 1996. For Federal income tax purposes, the following summarizes the taxability of cash distributions paid on Common Shares in 1997 and 1996 and the estimated taxability for 1998:
Year Ended December 31, ----------------------- 1998 1997 1996 ------- ------- ------- Per Common Share: Ordinary income................................. $ 1.12 $ 1.07 $ 0.88 Return of capital............................... 0.12 -- 0.13 ------- ------- ------- Total......................................... $ 1.24 $ 1.07 $ 1.01 ======= ======= =======
83 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) On December 15, 1998, ProLogis declared a distribution of $0.3183 per Common Share payable on February 24, 1999 to shareholders of record as of February 10, 1999. In connection with the 1997 Merger discussed in Note 8, Security Capital issued $101.0 million of warrants pro rata to holders of Common Shares (other than Security Capital), Series B preferred shares and limited partnership units to acquire 3,608,202 shares of Class B common stock of Security Capital. Holders of Common Shares and holders of limited partnership units received 0.046549 warrants for each Common Share or unit held and holders of Series B preferred shares received 0.059676 warrants for each preferred share held. Each warrant was exercisable into one share of Security Capital Class B common stock at an exercise price of $28.00 per share. The warrants expired in September 1998. Security Capital issued the warrants as an incentive to ProLogis' shareholders to vote in favor of the 1997 Merger and to raise additional equity capital at a relatively low cost, in addition to other benefits. The dividends paid on the Series A, Series B, Series C and Series D preferred shares are as follows:
Year Ended December 31, --------------------------- 1998 (1) 1997 (1) 1996 (1) -------- -------- -------- Series A..................................... 2.35 2.35 2.35 Series B..................................... 1.75 1.75 1.50(2) Series C..................................... 4.27 4.27 0.57(2) Series D..................................... 1.42(3) -- --
- -------- (1) For federal income tax purposes all of the preferred dividends are ordinary income to the holders of the preferred shares. (2) For the period from date of issuance to December 31, 1996. (3) For the period from date of issuance to December 31, 1998. ProLogis' tax return for the year ended December 31, 1998 has not been filed, therefore the taxability information for 1998 is based upon the best available data. ProLogis' tax returns have not been examined by the Internal Revenue Service. Consequently, the taxability of the distributions and dividends is subject to change. Pursuant to the terms of its preferred shares, ProLogis is restricted from declaring or paying any distribution with respect to the Common Shares unless all cumulative distributions with respect to the preferred shares have been paid and sufficient funds have been set aside for distributions that have been declared for the then-current distribution period with respect to the preferred shares. 10. Earnings Per Share: A reconciliation of the denominator used to calculate basic earnings per share to the denominator used to calculate diluted earnings per share for the periods indicated (in thousands, except per share amounts) is as follows:
Year Ended December 31, ------------------------- 1998 1997 1996 -------- -------- ------- Net earnings attributable to Common Shares..... $ 62,231 $ 4,431 $53,460 ======== ======== ======= Weighted average Common Shares outstanding-- basic......................................... 121,721 100,729 84,504 Incremental effect of common stock equivalents. 307 140 7 -------- -------- ------- Adjusted weighted average Common Shares outstanding--diluted.......................... 122,028 100,869 84,511 ======== ======== ======= Per share net earnings attributable to Common Shares: Basic........................................ $ 0.51 $ 0.04 $ 0.63 ======== ======== ======= Diluted...................................... $ 0.51 $ 0.04 $ 0.63 ======== ======== =======
84 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) For the years ended December 31, 1998, 1997 and 1996 there were 5,070,000, 5,190,000 and 5,194,000 weighted average limited partnership units outstanding and 10,055,000, 10,319,000 and 8,831,000 weighted average Series B preferred shares outstanding on an as-converted basis, respectively, that were not assumed converted into Common Shares because they were antidilutive to earnings per share. These securities may become dilutive to earnings per share in subsequent years. 11. Long-Term Compensation Long-Term Incentive Plan and Share Option Plan for Outside Trustees ProLogis has a long-term incentive plan (the "Incentive Plan"), which includes an employee stock purchase plan, a stock option plan and a restricted share unit plan. No more than 9,410,000 Common Shares in the aggregate may be awarded under the Incentive Plan and no individual may be granted awards with respect to more than 500,000 Common Shares in any one-year period. The Incentive Plan has a ten-year term. Additionally, ProLogis has 100,000 Common Shares authorized for issuance under its Share Option Plan for Outside Trustees (the "Outside Trustees Plan") and 190,000 Common Shares authorized for issuance under the 401(k) Savings Plan and Trust that became effective on January 1, 1998. Employee Stock Purchase Plan Under the employee stock purchase plan, certain employees of ProLogis purchased 1,356,834 Common Shares on September 8, 1997 at a price of $21.21875 per share. ProLogis financed 95% of the total purchase price through ten-year, recourse notes to the participants aggregating $27.3 million. The loans, which have been recognized as a deduction from shareholders' equity, bear interest at the lower of ProLogis' annual dividend yield on Common Shares or 6% per annum. The loans are secured by the Common Shares purchased. For each Common Share purchased, participants were granted two options to purchase Common Shares at a price of $21.21875. As of December 31, 1998, there were 1,246,480 Common Shares securing the employee stock purchase notes. The changes in the notes receivable from employees during 1998 and 1997 are as follows (in thousands):
1998 1997 ------- ------- Balances at January 1................................... $27,186 $ -- Notes issued............................................ -- 27,345 Principal payments received............................. (143) (64) Retirements............................................. (1,796) (95) ------- ------- Balances at December 31................................. $25,247 $27,186 ======= =======
The outstanding notes receivable at December 31, 1998 of $25,247,000 include $22,273,000 due from officers of ProLogis. 85 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) Stock Options ProLogis has granted stock options under the Incentive Plan and the Outside Trustees Plan. Stock options outstanding as of December 31, 1998 are as follows:
Weighted Average Number of Expiration Remaining Options Exercise Price (1) Date Life --------- ------------------- ---------- --------- Outside Trustees Plan (2).................... 34,000 $15.50-$25.00 1999-2003 2.8 years Employee stock purchase plan (3)............... 2,493,054 $21.21875 2007 8.7 years Stock option plan (3) (4): 1997 awards........... 338,689 $21.21875-$23.96875 2007 8.7 years 1998 awards........... 1,525,548 $20.9375-$24.625 2008 9.8 years Options sold to unconsolidated subsidiaries (3) (4)... 471,919 $20.9375-$24.65625 2008 9.8 years --------- Total............... 4,863,210 =========
- -------- (1) Exercise price was equal to market price on the date of grant. (2) Options are fully exercisable. (3) Graded vesting at various rates over periods from two to ten years, subject to certain conditions. (4) The holders are awarded dividend equivalent units each year of the plan. The weighted average fair value of the options issued under the Incentive Plan (excluding options sold to unconsolidated subsidiaries) and the Outside Trustees Plan during 1998 was approximately $2.39 per option. The weighted average fair value of the options sold to unconsolidated subsidiaries in 1998 was approximately $2.82 per option. The activity with respect to ProLogis' stock option plans for the years ended December 31, 1998, 1997 and 1996 is presented below. All grants during 1996 relate to the Outside Trustees Plan.
Weighted Average Number of Number of Exercise Options Options Price Exercisable --------- -------- ----------- Balance at December 31, 1995.............. 10,000 $15.80 10,000 Granted................................. 8,000 17.50 8,000 Forfeited............................... -- -- -- --------- ------ ------ Balance at December 31, 1996.............. 18,000 16.56 18,000 Granted................................. 3,097,012 21.24 8,000 Exercised............................... -- -- -- Forfeited............................... (11,721) 21.22 -- --------- ------ ------ Balance at December 31, 1997.............. 3,103,291 21.21 26,000 Granted/Sold............................ 2,011,392 21.17 8,000 Exercised............................... -- -- -- Forfeited............................... (251,473) 21.22 -- --------- ------ ------ Balance at December 31, 1998.............. 4,863,210 $21.19 34,000 ========= ====== ======
ProLogis did not recognize compensation expense in 1998, 1997 or 1996 related to stock options granted as the exercise price of all options granted was equal to the market price on the date of grant. Had compensation 86 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) expense for these plans been determined using an option valuation model as provided in SFAS No. 123, ProLogis' net earnings attributable to Common Shares and net earnings per Common Share would change as follows:
1998 1997 ------- ------ Net earnings attributable to Common Shares: As reported............................................. $62,231 $4,431 Pro forma............................................... 60,805 4,016 Basic and diluted net earnings per Common Share: As reported............................................. $ 0.51 $ 0.04 Pro forma............................................... 0.50 0.04
Since employee stock options vest over several years and additional grants are likely to be made in future years, the pro forma compensation cost may not be representative of that to be expected in future years. The pro forma amounts above were calculated using the Black-Scholes model and the following assumptions:
1998 1997 ---------- ---------- Risk-free interest rate............................. 4.74% 6.35% Forecasted dividend yield........................... 7.36% 7.36% Volatility.......................................... 27.37% 19.20% Weighted average option life........................ 6.75 years 6.75 years
Restricted Share Units On October 15, 1998, the Board granted 377,500 restricted share units ("RSU") to twelve officers of ProLogis. The RSUs vest 25% per year beginning December 31, 1999 through December 31, 2002 and earn DEUs in accordance with the DEU awards under the Incentive Plan. The RSUs are valued on the award date based upon the market price of Common Shares on that date and ProLogis recognizes that value as compensation expense over the underlying vesting period. The RSUs granted in 1998 were valued at $8.0 million, of which ProLogis recognized $272,700 of compensation expense in 1998, net of amounts capitalized. Dividend Equivalent Units ("DEUs") DEUs in the form of Common Shares are awarded at a rate of one Common Share per DEU on December 31st of each year of the ten-year stock option plan and are vested to the same extent the underlying stock options are vested. The DEUs are valued on the award date based upon the market price of the Common Shares on that date and ProLogis recognizes that value as compensation expense over the underlying vesting period. As of December 31, 1998, there were 32,510 DEUs outstanding (30,129 awarded on December 31, 1998 and 2,381 awarded on December 31, 1997). ProLogis recognized compensation expense related to the DEUs of $5,000 in 1998, net of amounts capitalized. 401(k) Savings Plan and Trust ProLogis has a 401(k) Savings Plan and Trust, that provides for matching employer contributions in Common Shares of 50 cents for every dollar contributed by an employee, up to 6% of the employees' annual compensation (within the statutory compensation limit). The vesting of contributed Common Shares is based on the employee's years of service, with 20% vesting each year of service, over a five-year period. Through December 31, 1998, no Common Shares have been issued under the 401(k) Savings Plan and Trust as all matching contributions have been made with Common Shares purchased in the public market. Nonqualified Savings Plan Effective January 1, 1998, ProLogis established the Nonqualified Savings Plan to provide benefits for a select group of management. The purpose of this plan is to allow highly compensated employees the opportunity 87 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) to defer the receipt and income taxation of a certain portion of their compensation in excess of the amount permitted under the 401(k) Savings Plan and Trust. ProLogis will match the lesser of (a) 50% of the sum of deferrals under both the 401(k) Savings Plan and Trust and this plan, and (b) 3% of total compensation up to certain levels. The matching account will vest in the same manner as the 401(k) Savings Plan and Trust. Warrants During 1998, 11,764 warrants were exercised at an exercise price of $10.00. There were no outstanding warrants as of December 31, 1998. 12. Selected Quarterly Financial Data (Unaudited): Selected quarterly financial data (in thousands, except for per share amounts) for 1998 and 1997 is as follows:
Three Months Ended, -------------------------------------------- June March 31, 30, September 30, December 31, Total --------- ------- ------------- ------------ -------- 1998: Rental income......... $78,565 $84,353 $ 88,687 $93,441 $345,046 ======= ======= ======== ======= ======== Earnings from operations........... $35,458 $35,589 $ 6,407 $32,991 $110,445 Minority interest share in earnings.... 979 1,075 1,047 1,580 4,681 Gain on disposition of real estate.......... 2,066 2,212 -- 1,287 5,565 ------- ------- -------- ------- -------- Net earnings.......... 36,545 36,726 5,360 32,698 111,329 Less preferred share dividends............ 8,799 13,075 13,669 13,555 49,098 ------- ------- -------- ------- -------- Net earnings (loss) attributable to Common Shares........ $27,746 $23,651 $ (8,309) $19,143 $ 62,231 ======= ======= ======== ======= ======== Basic net earnings (loss) attributable to Common Shares..... $ 0.24 $ 0.19 $ (0.07) $ 0.16 $ 0.51 ======= ======= ======== ======= ======== Diluted net earnings (loss) attributable to Common Shares..... $ 0.23 $ 0.19 $ (0.07) $ 0.16 $ 0.51 ======= ======= ======== ======= ======== 1997: Rental income......... $67,386 $69,157 $ 72,376 $75,614 $284,533 ======= ======= ======== ======= ======== Earnings from operations........... $26,456 $29,051 $(48,363) $28,787 $ 35,931 Minority interest share in earnings.... 895 940 928 797 3,560 Gain on disposition of real estate.......... -- 3,773 2,756 849 7,378 ------- ------- -------- ------- -------- Net earnings (loss)... 25,561 31,884 (46,535) 28,839 39,749 Less preferred share dividends............ 8,829 8,830 8,829 8,830 35,318 ------- ------- -------- ------- -------- Net earnings (loss) attributable to Common Shares........ $16,732 $23,054 $(55,364) $20,009 $ 4,431 ======= ======= ======== ======= ======== Basic net earnings (loss) attributable to Common Shares..... $ 0.17 $ 0.24 $ (0.55) $ 0.18 $ 0.04 ======= ======= ======== ======= ======== Diluted net earnings (loss) attributable to Common Shares..... $ 0.17 $ 0.23 $ (0.55) $ 0.18 $ 0.04 ======= ======= ======== ======= ========
88 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) 13. Related Party Transactions: ProLogis leases space to related parties on market terms that management believes are no less favorable to ProLogis than those that could be obtained with unaffiliated third parties. These transactions are summarized as follows:
Security REIT Property Capital & Management Management Affiliates Company Company Total ---------- ---------- ---------- ---------- Rental revenue during the year ended December 31, 1996........................ $593,657 $210,856 $571,970 $1,376,483 Rental revenue during the year ended December 31, 1997........................ $833,150 $145,244 $550,092 $1,528,486 Rental revenue during the year ended December 31, 1998........................ $716,725 n/a n/a $ 716,725 Square feet leased as of December 31, 1998........... 113,139 n/a n/a 113,139 Annualized revenue for leases in effect as of December 31, 1998........................ $740,309 n/a n/a $ 740,309
The management companies were merged with and into ProLogis on September 8, 1997 as discussed in Note 8. For the REIT management company and the property management company, amounts included for the year ended December 31, 1997 are for the period from January 1, 1997 to September 8, 1997. 14. Financial Instruments: Fair Value of Financial Instruments The following estimates of the fair value of financial instruments have been determined by ProLogis using available market information and valuation methodologies believed to be appropriate for these purposes. Considerable judgement and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts ProLogis would realize upon disposition. As of December 31, 1998 and 1997, the carrying amounts of certain financial instruments employed by ProLogis, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses were representative of their fair values because of the short-term maturity of these instruments. Similarly, the carrying values of the lines of credit and short-term borrowings balances approximate fair value as of those dates since the interest rate fluctuates based on published market rates. As of December 31, 1998 and 1997, the fair values of the senior unsecured debt and the secured debt (including mortgage notes, assessment bonds and securitized debt) have been estimated based upon quoted market prices for the same or similar issues or by discounting the future cash flows using rates currently available for debt with similar terms and maturities. The increase in the fair value of ProLogis' senior unsecured debt and secured debt over the carrying value in the table below is a result of a net reduction in the interest rates available to ProLogis as of December 31, 1998 and 1997, from the interest rates in effect at the dates of issuance. The senior unsecured debt and many of the secured debt issues contain pre-payment penalties or yield maintenance provisions which would make the cost of refinancing exceed the benefit of refinancing at the lower rates. As of December 31, 1998 and 1997, the fair value of ProLogis' derivative financial instruments are the amounts at which they could be settled, based on quoted market prices or estimates obtained from brokers. The 89 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) following table reflects the carrying amount and estimated fair value of ProLogis' financial instruments (in thousands):
December 31, ------------------------------------------ 1998 1997 ---------------------- ------------------ Carrying Carrying Fair Amount Fair Value Amount Value ---------- ---------- -------- -------- Balance sheet financial instruments Senior unsecured debt.... $1,083,641 $1,108,692 $724,052 $755,799 Secured debt............. $ 227,804 $ 232,809 $133,028 $137,628 Derivative financial instruments Interest rate contracts.. $ (26,050) $ (26,050) $ -- $ (8,621) Foreign currency contracts............... $ -- $ -- $ (6,028) $ (6,028)
Derivative Financial Instruments ProLogis occasionally uses derivative financial instruments as hedges to manage well-defined risk associated with interest and foreign currency rate fluctuations on existing obligations or anticipated transactions. ProLogis does not use derivative financial instruments for trading purposes. The primary risks associated with derivative instruments are market risk and credit risk. Market risk is defined as the potential for loss in the value of the derivative due to adverse changes in market prices (interest rates or foreign currency rates). Through hedging, ProLogis can effectively manage the risk of increases in interest rates and fluctuations in foreign currency exchange rates. Credit risk is the risk that one of the parties to a derivative contract fails to perform or meet their financial obligation under the contract. ProLogis does not obtain collateral to support financial instruments subject to credit risk but monitors the credit standing of counterparties. ProLogis does not anticipate non-performance by any of the counterparties to its derivative contracts. Should a counterparty fail to perform, however, ProLogis would incur a financial loss to the extent of the positive fair market value of the derivative instruments, if any. The following table summarizes the activity in interest rate contracts for the years ended December 31, 1998 and 1997 (in millions):
Interest Rate Interest Rate Futures Contracts Swaps ----------------- ------------- Notional amount as of December 31, 1996.. $ 106.0 $ 33.0 New contracts (1)........................ 75.0 75.0 Matured or expired contracts (2)......... (106.0) (33.0) Terminated contracts..................... -- -- ------- ------ Notional amount as of December 31, 1997.. 75.0 75.0 ------- ------ New contracts............................ -- -- Matured or expired contracts............. -- -- Terminated contracts..................... -- -- ------- ------ Notional amount as of December 31, 1998 (1)..................................... $ 75.0 $ 75.0 ======= ======
- -------- (1) In October 1997, in anticipation of debt offerings in 1998, ProLogis entered into two interest rate protection agreements which have been renewed past the original termination dates. These agreements were entered into by ProLogis to fix the interest rate on anticipated financings. 90 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) During the third quarter of 1998, ProLogis determined that the interest rate protection agreements would no longer qualify for hedge accounting treatment under GAAP based upon the following: . Due to changing conditions in the public debt markets, it was no longer considered probable that ProLogis would complete the anticipated 1998 longer term debt offerings that prompted ProLogis to enter into these interest rate protection agreements in 1997 (i.e., ProLogis would not be exposed to the interest rate risk that these instruments were intended to hedge); and . ProLogis determined, through internal analysis and through communications with independent third parties, that a high degree of correlation no longer existed between changes in the market values of these interest rate protection agreements and the "market values" of the anticipated debt offerings (i.e., the interest rate at which the debt could be issued by ProLogis under existing market conditions). Accordingly, ProLogis began marking these agreements to market as of September 30, 1998. For 1998, ProLogis recognized a non-cash expense of $26.1 million. These agreements were terminated in February 1999 at a cost of $27.0 million and were used to set the interest rate associated with the $200.0 million secured financing transaction with MGT that is scheduled to be completed in the first quarter of 1999. (2) Deferred gains totaling $1.9 million on matured, expired or terminated contracts were recorded on the balance sheet as of December 31, 1997. These gains relate to the unwind of hedges placed for the February and July 1997 offerings of senior unsecured debt offerings and are being amortized over the term of the related debt. On December 22, 1997, ProLogis entered into two separate contracts to (i) exchange $373.8 million for 2.9 billion Swedish krona, and (ii) exchange 310.0 million German marks for $175.0 million in anticipation of the January 1998 acquisition and planned European currency denominated financing of Frigoscandia AB by Frigoscandia S.A., ProLogis' unconsolidated subsidiary. The contracts were marked to market as of December 31, 1997 and ProLogis recognized a net loss of $6.0 million in 1997. Both contracts were settled during the first quarter of 1998 at a net loss of $4.0 million. Accordingly, ProLogis recognized a net gain of $2.0 million in 1998. These foreign currency exchange hedges were one-time, non-recurring contracts that fixed the exchange rate between the U.S. dollar and the Swedish krona and German mark. ProLogis executed these hedges after the execution of the purchase agreement to acquire Frigoscandia AB, which required payment in Swedish krona. The contracts were executed exclusively for the acquisition and financing of Frigoscandia AB and were not entered into to hedge on-going income in foreign currencies. 15. Commitments and Contingencies: Environmental Matters All of the facilities acquired by ProLogis have been subjected to Phase I environmental reviews. While some of these assessments have led to further investigation and sampling, none of the environmental assessments has revealed, nor is ProLogis aware of any environmental liability (including asbestos related liability) that ProLogis believes would have a material adverse effect on ProLogis' business, financial condition or results of operations. 16. Business Segments: ProLogis has three reportable business segments: . acquisition and development of industrial distribution facilities for long-term ownership and leasing in the United States, Europe (a portion of which is owned through Garonor Holdings, an unconsolidated subsidiary) and Mexico--each operating facility is considered to be an individual operating segment having similar economic characteristics which are combined within the reportable segment based upon geographic location; 91 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued) . operation of refrigerated distribution facilities through unconsolidated subsidiaries in the United States (ProLogis Logistics) and Europe (Frigoscandia S.A.)--each subsidiary's operating facilities are considered to be individual operating segments having similar economic characteristics which are combined within the reportable segment based upon geographic location; and . development of distribution facilities for future sale or on a fee basis in the United States and Mexico and in the United Kingdom through an unconsolidated subsidiary (Kingspark S.A.)--the development activities of ProLogis and its unconsolidated subsidiary are considered to be individual operating segments having similar economic characteristics which are combined within the reportable segment based upon geographic location. Reconciliations of the three reportable segments': (i) income from external customers to ProLogis' total income; (ii) net operating income from external customers to ProLogis' earnings from operations (ProLogis' chief operating decision makers rely primarily on net operating income to make decisions about allocating resources and assessing segment performance); and, (iii) assets to ProLogis' total assets are as follows (in thousands):
Year ended December 31, ---------------------------- 1998 1997 1996 -------- -------- -------- Income: Leasing activities: United States.............................. $333,494 $283,909 $227,000 Europe (1)................................. 8,059 -- -- Mexico..................................... 3,499 624 -- -------- -------- -------- Total leasing activities segment......... 345,052 284,533 227,000 ======== ======== ======== Refrigerated operations: United States (2) (3)...................... 7,349 3,278 -- Europe (4) (5)............................. (7,535) -- -- -------- -------- -------- Total refrigerated operations segment.... (186) 3,278 -- -------- -------- -------- Development activities: United States.............................. 17,137 12,374 5,342 Europe (United Kingdom) (6) (7)............ 2,915 -- -- Mexico..................................... 133 (83) -- -------- -------- -------- Total development activities segment..... 20,185 12,291 5,342 -------- -------- -------- Reconciling items: Foreign currency exchange gains (losses), net....................................... 2,938 (348) -- Foreign currency hedge income (expense).... 2,054 (6,028) -- Interest income............................ 2,752 2,392 1,121 -------- -------- -------- Total reconciling items.................. 7,744 (3,984) 1,121 -------- -------- -------- Total income............................. $372,795 $296,118 $233,463 ======== ======== ========
92 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued)
Year ended December 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Net operating income: Leasing activities: United States.......................... $ 306,920 $ 256,953 $ 200,326 Europe (1)............................. 7,710 -- -- Mexico................................. 3,302 572 -- --------- --------- --------- Total leasing activities segment..... 317,932 257,525 200,326 --------- --------- --------- Refrigerated operations: United States (2) (3).................. 7,349 3,278 -- Europe (4) (5)......................... (7,535) -- -- --------- --------- --------- Total refrigerated operations segment............................. (186) 3,278 -- --------- --------- --------- Development activities: United States.......................... 17,137 12,374 5,342 Europe (United Kingdom) (6) (7)........ 2,915 -- -- Mexico................................. 133 (83) -- --------- --------- --------- Total development activities segment. 20,185 12,291 5,342 --------- --------- --------- Reconciling items: Foreign currency exchange gains (losses), net......................... 2,938 (348) -- Foreign currency hedge income (expense)............................. 2,054 (6,028) -- Interest income........................ 2,752 2,392 1,121 General and administrative expense..... (22,957) (6,855) (1,025) REIT management fee paid to affiliate.. -- (17,791) (21,472) Depreciation and amortization.......... (100,590) (76,562) (59,850) Interest expense....................... (77,650) (52,704) (38,819) Interest rate hedge expense............ (26,050) -- -- Costs incurred in acquiring management companies from affiliate.............. -- (75,376) -- Other expense.......................... (7,983) (3,891) (2,913) --------- --------- --------- Total reconciling items.............. (227,486) (237,163) (122,958) --------- --------- --------- Earnings from operations................. $ 110,445 $ 35,931 $ 82,710 ========= ========= =========
93 PROLOGIS TRUST NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, --------------------- 1998 1997 ---------- ---------- Assets: Leasing activities: United States..................................... $3,073,248 $2,787,118 Europe (1)........................................ 309,639 -- Mexico............................................ 74,494 27,828 ---------- ---------- Total leasing activities segment................ 3,457,381 2,814,946 ---------- ---------- Refrigerated operations: United States (2) (3)............................. 151,021 85,639 Europe (4)........................................ 221,566 -- ---------- ---------- Total refrigerated operations segment........... 372,587 85,639 ---------- ---------- Development activities: United States..................................... 149,521 86,415 Europe (United Kingdom) (6)....................... 224,769 -- Mexico............................................ 16,465 3,522 ---------- ---------- Total development activities segment............ 390,755 89,937 ---------- ---------- Reconciling items: Cash.............................................. 63,140 25,009 Accounts receivable............................... 1,313 167 Other assets...................................... 45,553 18,255 ---------- ---------- Total reconciling items......................... 110,006 43,431 ---------- ---------- Total assets...................................... $4,330,729 $3,033,953 ========== ==========
- -------- (1) Includes $6,000 of income recognized under the equity method of accounting related to ProLogis' investment in Garonor Holdings. See Note 4 for summarized financial information of Garonor Holdings. (2) Represents amount recognized under the equity method of accounting related to ProLogis' investment in ProLogis Logistics. See Note 4 for summarized financial information of ProLogis Logistics. (3) Includes one facility in Canada. (4) Represents amount recognized under the equity method of accounting related to ProLogis' investment in Frigoscandia S.A. See Note 4 for summarized financial information of Frigoscandia S.A. (5) Includes a net loss of $13.3 million from the remeasurement of intercompany and other debt based on the foreign currency exchange rates in effect as of December 31, 1998. (6) Represents amount recognized under the equity method of accounting related to ProLogis' investment in Kingspark S.A. See Note 4 for summarized financial information of Kingspark S.A. (7) Includes a net loss of $0.9 million from the remeasurement of intercompany debt based on the foreign currency exchange rates in effect as of December 31, 1998. ProLogis' largest customer accounted for 1.16% of ProLogis' 1998 rental income (on an annualized basis), and the annualized base rent for ProLogis' 20 largest customers accounted for approximately 12.56% of ProLogis' 1998 rental income (on an annualized basis). 94 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Trustees and Shareholders of ProLogis Trust: We have audited, in accordance with generally accepted auditing standards, the financial statements of ProLogis Trust included in this Form 10-K, and have issued our report thereon dated March 5, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The supplemental Schedule III--Real Estate and Accumulated Depreciation ("Schedule III") is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The Schedule III has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois March 5, 1999 95 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried ProLogis as of December 31, 1998 ------------------- Costs Capitalized -------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------ Operating Properties Amsterdam, Netherlands Schiphol Distribution Center.......... 2 $6,322 $ -- $15,608 $6,761 $15,169 $21,930 $ (152) Zaandam Distribution Center.......... 1 1,265 7,171 972 2,022 7,386 9,408 (183) Date of Construction/ Description Acquisition ----------- --------------- Operating Properties Amsterdam, Netherlands Schiphol Distribution Center.......... 1998 Zaandam Distribution Center.......... 1998 Atlanta, Georgia Atlanta Airport Distribution Center.......... 6 3,437 -- 13,834 5,188 12,083 17,271 (598) Atlanta NE Distribution Center.......... 8 5,582 3,047 24,278 6,276 26,631 32,907 (1,817) Atlanta West Distribution Center.......... 20 6,771 34,785 10,109 6,776 44,889 51,665 (5,299) Carter-Pacific Business Center. 3 556 3,151 552 556 3,703 4,259 (362) International Airport Industrial Center.......... 9 (d) 2,939 14,146 4,926 2,972 19,039 22,011 (2,525) LaGrange Distribution Center.......... 1 174 986 122 174 1,108 1,282 (167) Northeast Industrial Center.......... 4 1,109 6,283 149 1,050 6,491 7,541 (609) Northmont Industrial Center.......... 1 566 3,209 187 566 3,396 3,962 (482) Oakcliff Industrial Center.......... 3 608 3,446 387 608 3,833 4,441 (466) Olympic Industrial Center.......... 2 698 3,956 1,573 757 5,470 6,227 (520) Peachtree Commerce Business Center. 4 (d) 707 4,004 676 707 4,680 5,387 (704) Peachtree Distribution Center.......... 1 302 1,709 37 302 1,746 2,048 (232) Piedmont Court Distribution Center.......... 2 885 5,013 483 885 5,496 6,381 (257) Plaza Industrial Center.......... 1 66 372 85 66 457 523 (53) Pleasantdale Industrial Center.......... 2 541 3,184 403 541 3,587 4,128 (460) Regency Industrial Center.......... 9 1,853 10,480 802 1,856 11,279 13,135 (1,579) Riverside Distribution Center.......... 1 271 -- 2,939 294 2,916 3,210 (222) Sullivan 75 Distribution Center.......... 3 (d) 728 4,123 558 728 4,681 5,409 (638) Tradeport Distribution Center.......... 3 1,464 4,563 5,267 1,479 9,815 11,294 (1,028) Weaver Distribution Center.......... 2 935 5,182 577 935 5,759 6,694 (747) Westfork Industrial Center.......... 10 2,483 14,115 697 2,483 14,812 17,295 (1,729) Zip Industrial Center.......... 4 533 3,023 (237) 485 2,834 3,319 -- Atlanta, Georgia Atlanta Airport Distribution Center.......... 1996,1997, 1998 Atlanta NE Distribution Center.......... 1996,1997 Atlanta West Distribution Center.......... 1994,1996 Carter-Pacific Business Center. 1995 International Airport Industrial Center.......... 1994,1995 LaGrange Distribution Center.......... 1994 Northeast Industrial Center.......... 1996 Northmont Industrial Center.......... 1994 Oakcliff Industrial Center.......... 1995 Olympic Industrial Center.......... 1996 Peachtree Commerce Business Center. 1994 Peachtree Distribution Center.......... 1994 Piedmont Court Distribution Center.......... 1997 Plaza Industrial Center.......... 1995 Pleasantdale Industrial Center.......... 1995 Regency Industrial Center.......... 1994 Riverside Distribution Center.......... 1997 Sullivan 75 Distribution Center.......... 1994,1995 Tradeport Distribution Center.......... 1994,1996 Weaver Distribution Center.......... 1995 Westfork Industrial Center.......... 1995 Zip Industrial Center.......... 1996 Austin, Texas Corridor Park Corporate Center.......... 6 2,109 1,681 13,413 2,113 15,090 17,203 (1,406) Montopolis Distribution Center.......... 1 580 3,384 657 580 4,041 4,621 (677) Pecan Business Center.......... 4 630 3,572 404 631 3,975 4,606 (452) Austin, Texas Corridor Park Corporate Center.......... 1995,1996 Montopolis Distribution Center.......... 1994 Pecan Business Center.......... 1995
96 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried as To ProLogis of December 31, 1998 ------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------ ------------ ----------------- ------- ------------ ------------ ------------ Rutland Distribution Center.......... 2 $ 460 $ 2,617 $ 220 $ 462 $ 2,835 $ 3,297 $ (473) Southpark Corporate Center.......... 7 1,946 -- 15,199 1,946 15,199 17,145 (1,576) Walnut Creek Corporate Center.......... 12 2,707 5,649 16,134 2,707 21,783 24,490 (2,171) Date of Construction/ Description Acquisition ----------- ---------------------- Rutland Distribution Center.......... 1993 Southpark Corporate Center.......... 1994,1995,1996 Walnut Creek Corporate Center.......... 1994,1995,1996 Birmingham, Alabama Oxmoor Distribution Center.......... 4 (d) 2,398 13,591 858 2,398 14,449 16,847 (2,213) Perimeter Distribution Center.......... 2 2,489 14,109 645 2,490 14,753 17,243 (2,283) Birmingham, Alabama Oxmoor Distribution Center.......... 1994 Perimeter Distribution Center.......... 1994 Charlotte, North Carolina Barringer Industrial Center.......... 3 308 1,746 476 308 2,222 2,530 (337) Bond Distribution Center.......... 2 905 5,126 889 905 6,015 6,920 (937) Charlotte Commerce Center. 10 4,341 24,954 2,189 4,342 27,142 31,484 (4,130) Charlotte Distribution Center.......... 9 4,579 -- 23,698 6,096 22,181 28,277 (1,423) Interstate North Business Park... 2 535 3,030 205 535 3,235 3,770 (180) Northpark Distribution Center.......... 2 1,183 6,707 243 1,184 6,949 8,133 (396) Charlotte, North Carolina Barringer Industrial Center.......... 1994 Bond Distribution Center.......... 1994 Charlotte Commerce Center. 1994 Charlotte Distribution Center.......... 1995, 1996, 1997, 1998 Interstate North Business Park... 1997 Northpark Distribution Center.......... 1994,1998 Chattanooga, Tennessee Stone Fort Distribution Center.......... 4 2,063 11,688 189 2,063 11,877 13,940 (1,685) Tiftonia Distribution Center.......... 1 146 829 184 146 1,013 1,159 (122) Chattanooga, Tennessee Stone Fort Distribution Center.......... 1994 Tiftonia Distribution Center.......... 1995 Chicago, Illinois Addison Distribution Center.......... 1 646 3,662 393 640 4,061 4,701 (276) Alsip Distribution Center.......... 1 1,268 7,185 3,680 1,273 10,860 12,133 (392) Bedford Park Distribution Center.......... 1 473 2,678 40 473 2,718 3,191 (211) Bensenville Distribution Center.......... 2 1,668 9,448 2,506 1,667 11,955 13,622 (370) Bridgeview Distribution Center.......... 4 1,302 7,378 675 1,303 8,052 9,355 (668) Des Plaines Distribution Center.......... 3 2,158 12,232 590 2,159 12,821 14,980 (1,190) Elk Grove Distribution Center.......... 10 (d) 4,024 22,798 2,685 4,023 25,484 29,507 (2,197) Elmhurst Distribution Center.......... 1 713 4,043 60 713 4,103 4,816 (209) Glenview Distribution Center.......... 1 (d) 214 1,213 49 214 1,262 1,476 (95) Itasca Distribution Center.......... 3 1,613 9,143 162 1,613 9,305 10,918 (302) Mitchell Distribution Center.......... 1 (d) 1,236 7,004 606 1,236 7,610 8,846 (641) North Avenue Distribution Center.......... 3 3,201 -- 17,185 3,934 16,452 20,386 (140) Northlake Distribution Center.......... 1 372 2,106 51 372 2,157 2,529 (192) O'Hare Cargo Distribution Center.......... 2 3,566 -- 13,115 5,924 10,757 16,681 (126) Remington Lakes Business Park... 1 1,023 -- 6,510 1,193 6,340 7,533 -- Tri-Center Distribution Center.......... 3 889 5,038 263 889 5,301 6,190 (402) Woodale Distribution Center.......... 1 263 1,490 64 263 1,554 1,817 (82) Chicago, Illinois Addison Distribution Center.......... 1997 Alsip Distribution Center.......... 1998 Bedford Park Distribution Center.......... 1996 Bensenville Distribution Center.......... 1997, 1998 Bridgeview Distribution Center.......... 1996 Des Plaines Distribution Center.......... 1995, 1996 Elk Grove Distribution Center.......... 1995,1996,1997,1998 Elmhurst Distribution Center.......... 1997 Glenview Distribution Center.......... 1996 Itasca Distribution Center.......... 1996, 1997, 1998 Mitchell Distribution Center.......... 1996 North Avenue Distribution Center.......... 1997, 1998 Northlake Distribution Center.......... 1996 O'Hare Cargo Distribution Center.......... 1997 Remington Lakes Business Park... 1998 Tri-Center Distribution Center.......... 1996 Woodale Distribution Center.......... 1997
97 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried to ProLogis as of December 31, 1998 ------------------- Costs Capitalized -------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------ Cincinnati, Ohio Airpark Distribution Center.......... 3 $2,126 $ -- $14,010 $2,380 $13,756 $16,136 $ (988) Blue Ash/Interstate Distribution Center.......... 1 144 817 497 144 1,314 1,458 (130) Capital Distribution Center I........ 4 1,750 9,922 924 1,751 10,845 12,596 (1,400) Capital Distribution Center II....... 5 1,953 11,067 1,334 1,953 12,401 14,354 (1,681) Capital Industrial Center I........ 10 1,039 5,885 1,475 1,039 7,360 8,399 (913) Empire Distribution Center.......... 3 529 2,995 442 529 3,437 3,966 (374) Kentucky Drive Business Center. 4 553 3,134 583 553 3,717 4,270 (219) Princeton Distribution Center.......... 1 816 -- 4,182 1,070 3,928 4,998 -- Production Distribution Center.......... 2 (e) 717 2,717 2,505 700 5,239 5,939 (389) Sharonville Distribution Center.......... 3 1,761 -- 11,167 2,426 10,502 12,928 (216) Springdale Commerce Center. 3 421 2,384 858 421 3,242 3,663 (315) Union Center Business Park... 1 409 -- 9,576 580 9,405 9,985 -- Date of Construction/ Description Acquisition ----------- --------------- Cincinnati, Ohio Airpark Distribution Center.......... 1996,1998 Blue Ash/Interstate Distribution Center.......... 1995 Capital Distribution Center I........ 1994 Capital Distribution Center II....... 1994 Capital Industrial Center I........ 1994,1995 Empire Distribution Center.......... 1995 Kentucky Drive Business Center. 1997 Princeton Distribution Center.......... 1997 Production Distribution Center.......... 1994,1998 Sharonville Distribution Center.......... 1997,1998 Springdale Commerce Center. 1996 Union Center Business Park... 1998 Columbus, Ohio Capital Park South Distribution Center.......... 4 2,266 -- 25,076 2,297 25,045 27,342 (1,706) Columbus West Industrial Center.......... 3 645 3,655 691 645 4,346 4,991 (501) Corporate Park West............ 2 679 3,849 242 679 4,091 4,770 (342) Fisher Distribution Center.......... 1 1,197 6,785 759 1,197 7,544 8,741 (988) International Street Commerce. 1 235 -- 2,815 249 2,801 3,050 (34) McCormick Distribution Center.......... 5 1,664 9,429 1,056 1,664 10,485 12,149 (1,410) New World Distribution Center.......... 1 207 1,173 548 207 1,721 1,928 (242) Westbelt Business Center. 2 465 2,635 115 465 2,750 3,215 (69) Columbus, Ohio Capital Park South Distribution Center.......... 1996,1998 Columbus West Industrial Center.......... 1995 Corporate Park West............ 1996 Fisher Distribution Center.......... 1995 International Street Commerce. 1997 McCormick Distribution Center.......... 1994 New World Distribution Center.......... 1994 Westbelt Business Center. 1998 Dallas/Fort Worth, Texas Carter Industrial Center.......... 1 334 -- 2,323 334 2,323 2,657 (190) Dallas Corporate Center.......... 9 (d) 4,753 -- 26,751 4,900 26,604 31,504 (1,494) Franklin Distribution Center.......... 2 528 2,991 736 528 3,727 4,255 (575) Freeport Distribution Center.......... 4 1,393 5,549 3,280 1,440 8,782 10,222 (388) Great Southwest Distribution Center.......... 16 (d) 4,848 19,430 10,590 4,966 29,902 34,868 (2,308) Great Southwest Industrial Center I........ 2 (d) 308 1,744 178 308 1,922 2,230 (203) Great Southwest Industrial Center II....... 1 836 -- 6,077 1,010 5,903 6,913 -- Lone Star Distribution Center.......... 2 967 5,477 214 967 5,691 6,658 (498) Metropolitan Distribution Center.......... 1 201 1,097 722 297 1,723 2,020 (192) Dallas/Fort Worth, Texas Carter Industrial Center.......... 1996 Dallas Corporate Center.......... 1996,1997, 1998 Franklin Distribution Center.......... 1994 Freeport Distribution Center.......... 1996,1997, 1998 Great Southwest Distribution 1994,1995,1996, Center.......... 1997,1998 Great Southwest Industrial Center I........ 1995 Great Southwest Industrial Center II....... 1997 Lone Star Distribution Center.......... 1996 Metropolitan Distribution Center.......... 1995
98 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried to ProLogis as of December 31, 1998 ------------------- Costs Capitalized -------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------ Northgate Distribution Center.......... 5 $1,570 $ 8,897 $ 898 $1,570 $ 9,795 $11,365 $(1,348) Northpark Business Center. 2 467 2,648 226 467 2,874 3,341 (272) Redbird Distribution Center.......... 1 196 1,112 78 196 1,190 1,386 (195) Royal Commerce Center.......... 4 (d) 1,975 11,190 460 1,975 11,650 13,625 (504) Stemmons Distribution Center.......... 1 272 1,544 473 272 2,017 2,289 (239) Stemmons Industrial Center.......... 11 1,497 8,484 1,526 1,497 10,010 11,507 (1,228) Trinity Mills Distribution Center.......... 4 (d) 1,709 9,684 1,197 1,709 10,881 12,590 (972) Date of Construction/ Description Acquisition ----------- ------------------------ Northgate Distribution Center.......... 1994,1996 Northpark Business Center. 1995,1996 Redbird Distribution Center.......... 1994 Royal Commerce Center.......... 1997 Stemmons Distribution Center.......... 1995 Stemmons Industrial Center.......... 1994,1995,1996 Trinity Mills Distribution Center.......... 1996 Denver, Colorado Denver Business Center.......... 6 1,687 7,486 10,470 1,742 17,901 19,643 (1,929) Havana Distribution Center.......... 1 401 2,281 240 401 2,521 2,922 (440) Moline Distribution Center.......... 1 327 1,850 159 327 2,009 2,336 (323) Moncrieff Distribution Center.......... 1 314 2,493 401 314 2,894 3,208 (559) Pagosa Distribution Center.......... 1 406 2,322 407 406 2,729 3,135 (514) Upland Distribution Center I........ 6 820 5,710 8,015 821 13,724 14,545 (2,234) Upland Distribution Center II....... 6 2,456 13,946 974 2,489 14,887 17,376 (2,600) Denver, Colorado Denver Business Center.......... 1992,1994,1996,1998 Havana Distribution Center.......... 1993 Moline Distribution Center.......... 1994 Moncrieff Distribution Center.......... 1992 Pagosa Distribution Center.......... 1993 Upland Distribution Center I........ 1992,1994,1995 Upland Distribution Center II....... 1993,1994 East Bay (San Francisco), California East Bay Industrial Center.......... 1 531 3,009 187 531 3,196 3,727 (472) Eigenbrodt Way Distribution Center.......... 1 (d) 393 2,228 83 393 2,311 2,704 (387) Hayward Commerce Center.......... 4 1,933 10,955 518 1,933 11,473 13,406 (1,920) Hayward Commerce Park............ 9 2,764 15,661 1,740 2,764 17,401 20,165 (2,837) Hayward Distribution Center.......... 6 (f) 2,906 19,165 729 3,327 19,473 22,800 (3,227) Hayward Industrial Center.......... 13 (d) 4,481 25,393 1,545 4,481 26,938 31,419 (4,490) Patterson Pass Business Center. 7 3,340 4,885 13,921 3,530 18,616 22,146 (1,044) San Leandro Distribution Center.......... 3 1,387 7,862 258 1,387 8,120 9,507 (1,382) East Bay (San Francisco), California East Bay Industrial Center.......... 1994 Eigenbrodt Way Distribution Center.......... 1993 Hayward Commerce Center.......... 1993 Hayward Commerce Park............ 1994 Hayward Distribution Center.......... 1993 Hayward Industrial Center.......... 1993 Patterson Pass Business Center. 1993,1997,1998 San Leandro Distribution Center.......... 1993 El Paso, Texas Billy the Kid Distribution Center.......... 1 273 1,547 526 273 2,073 2,346 (297) Broadbent Industrial Center.......... 3 676 5,183 473 676 5,656 6,332 (1,069) Goodyear Distribution Center.......... 1 511 2,899 61 511 2,960 3,471 (453) Northwestern Corporate Center.......... 6 1,552 -- 16,507 2,205 15,854 18,059 (1,548) Pan Am Distribution Center.......... 1 318 -- 2,370 318 2,370 2,688 (306) Peter Cooper Distribution Center.......... 1 (d) 495 2,816 88 495 2,904 3,399 (441) Vista Corporate Center.......... 4 1,945 -- 10,922 1,946 10,921 12,867 (1,183) Vista Del Sol Industrial Center.......... 10 (d) 3,501 12,782 19,796 4,893 31,186 36,079 (3,165) El Paso, Texas Billy the Kid Distribution Center.......... 1994 Broadbent Industrial Center.......... 1993 Goodyear Distribution Center.......... 1994 Northwestern Corporate Center.......... 1992,1993,1994,1997,1998 Pan Am Distribution Center.......... 1995 Peter Cooper Distribution Center.......... 1994 Vista Corporate Center.......... 1994,1995,1996 Vista Del Sol Industrial Center.......... 1994,1995,1996
99 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried to ProLogis as of December 31, 1998 ------------------- Costs Capitalized -------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------ ------------ ----------------- ------ ------------ ------------ ------------ Fort Lauderdale/Miami, Florida Airport West Distribution Center.......... 2 $1,253 $ 3,825 $ 3,399 $1,973 $ 6,504 $ 8,477 $ (408) Copans Distribution Center.......... 2 504 2,857 389 504 3,246 3,750 (175) North Andrews Distribution Center.......... 1 (e) 698 3,956 92 698 4,048 4,746 (562) Port 95 Distribution Center I........ 5 4,874 6,654 21,225 6,531 26,222 32,753 (1,030) Date of Construction/ Description Acquisition ----------- ----------------------------- Fort Lauderdale/Miami, Florida Airport West Distribution Center.......... 1995,1998 Copans Distribution Center.......... 1997,1998 North Andrews Distribution Center.......... 1994 Port 95 Distribution Center I........ 1995,1997,1998 Houston, Texas Crosstimbers Distribution Center.......... 1 359 2,035 434 359 2,469 2,828 (383) Hempstead Distribution Center.......... 3 1,013 5,740 679 1,013 6,419 7,432 (1,006) I-10 Central Distribution Center.......... 2 181 1,023 190 181 1,213 1,394 (190) I-10 Central Service Center.. 1 58 330 105 58 435 493 (67) Pine Forest Business Center. 18 (d) 4,859 27,557 2,168 4,859 29,725 34,584 (3,790) Post Oak Business Center. 16 (d) 3,462 17,966 4,467 3,462 22,433 25,895 (3,036) Post Oak Distribution Center.......... 7 (d) 2,115 12,017 2,308 2,115 14,325 16,440 (2,399) South Loop Distribution Center.......... 5 1,051 5,964 1,706 1,052 7,669 8,721 (1,042) Southwest Freeway Industrial Center.......... 1 84 476 144 84 620 704 (79) West by Northwest Industrial Center.......... 16 4,132 8,382 32,150 4,368 40,296 44,664 (3,425) White Street Distribution Center.......... 1 469 2,656 232 469 2,888 3,357 (368) Houston, Texas Crosstimbers Distribution Center.......... 1994 Hempstead Distribution Center.......... 1994 I-10 Central Distribution Center.......... 1994 I-10 Central Service Center.. 1994 Pine Forest Business Center. 1993,1994,1995 Post Oak Business Center. 1993,1994,1996 Post Oak Distribution Center.......... 1993,1994 South Loop Distribution Center.......... 1994 Southwest Freeway Industrial Center.......... 1994 West by Northwest Industrial Center.......... 1993,1994,1995,1996,1997,1998 White Street Distribution Center.......... 1995 Indianapolis, Indiana Eastside Distribution Center.......... 2 471 2,668 289 472 2,956 3,428 (302) North by Northeast Distribution Center.......... 1 1,058 -- 5,964 1,059 5,963 7,022 (788) Park 100 Industrial Center.......... 24 9,770 55,369 4,088 9,665 59,562 69,227 (6,707) Indianapolis, Indiana Eastside Distribution Center.......... 1995 North by Northeast Distribution Center.......... 1995 Park 100 Industrial Center.......... 1994,1995
100 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried to ProLogis as of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Park Fletcher Distribution Center.......... 9 $ 2,687 $15,224 $ 1,863 $ 2,736 $17,038 $19,774 $(1,771) Plainfield Park Distribution Center.......... 2 885 -- 8,460 1,389 7,956 9,345 -- Shadeland Industrial Center.......... 3 428 2,431 585 429 3,015 3,444 (350) Date of Construction/ Description Acquisition ----------- ------------------- Park Fletcher Distribution Center.......... 1994,1995,1996 Plainfield Park Distribution Center.......... 1997,1998 Shadeland Industrial Center.......... 1995 Juarez, Mexico Salvarcar Industrial Center.......... 3 1,509 -- 6,899 2,066 6,342 8,408 (121) Juarez, Mexico Salvarcar Industrial Center.......... 1998 Kansas City, Kansas/Missouri 44th Street Business Center. 1 143 813 319 143 1,132 1,275 (106) Congleton Distribution Center.......... 3 518 2,937 341 518 3,278 3,796 (478) Executive Park Distribution Center.......... 1 (d) 258 1,463 42 258 1,505 1,763 (17) Lamar Distribution Center.......... 1 323 1,829 529 323 2,358 2,681 (366) Macon Bedford Distribution Center.......... 1 304 1,725 389 304 2,114 2,418 (199) Platte Valley Industrial Center.......... 11 (d) 3,867 20,017 6,121 4,002 26,003 30,005 (3,050) Riverside Distribution Center.......... 5 (d) 533 3,024 731 534 3,754 4,288 (524) Riverside Industrial Center.......... 5 (d) 1,012 5,736 372 1,012 6,108 7,120 (850) Terrace & Lackman Distribution Center.......... 1 285 1,615 432 285 2,047 2,332 (304) Kansas City, Kansas/Missouri 44th Street Business Center. 1996 Congleton Distribution Center.......... 1994 Executive Park Distribution Center.......... 1998 Lamar Distribution Center.......... 1994 Macon Bedford Distribution Center.......... 1996 Platte Valley Industrial Center.......... 1994,1997 Riverside Distribution Center.......... 1994 Riverside Industrial Center.......... 1994 Terrace & Lackman Distribution Center.......... 1994 Las Vegas, Nevada Black Mountain Distribution Center.......... 2 1,108 -- 6,547 1,206 6,449 7,655 (122) Hughes Airport Center.......... 1 876 -- 3,331 910 3,297 4,207 (495) Las Vegas Corporate Center.......... 7 (f) 4,157 -- 21,198 4,763 20,592 25,355 (1,795) West One Business Center. 4 (d) 2,468 13,985 467 2,468 14,452 16,920 (1,125) Las Vegas, Nevada Black Mountain Distribution Center.......... 1997 Hughes Airport Center.......... 1994 Las Vegas Corporate Center.......... 1994,1995,1996,1997 West One Business Center. 1996 Los Angeles / Orange County, California Foothill Business Center. 3 (g) 5,530 -- 14,305 5,814 14,021 19,835 (338) Freeway Distribution Center.......... 3 (g) 3,305 18,729 130 3,305 18,859 22,164 (744) Mid-Counties Distribution Center.......... 8 (g) 16,082 15,895 22,801 19,177 35,601 54,778 (2,125) North County Distribution Center.......... 2 (g) 16,543 -- 22,415 16,374 22,584 38,958 (1,665) Ontario Distribution Center.......... 5 (g) 8,085 45,817 369 8,085 46,186 54,271 -- Pacific Business Center.......... 5 (g) 4,196 -- 21,291 4,379 21,108 25,487 (850) Santa Ana Distribution Center.......... 1 (g) 647 3,668 63 647 3,731 4,378 (497) Union Pacific Distribution Center.......... 1 559 3,166 6 559 3,172 3,731 -- Los Angeles / Orange County, California Foothill Business Center. 1997,1998 Freeway Distribution Center.......... 1997 Mid-Counties Distribution Center.......... 1995,1997,1998 North County Distribution Center.......... 1996 Ontario Distribution Center.......... 1998 Pacific Business Center.......... 1996,1997 Santa Ana Distribution Center.......... 1994 Union Pacific Distribution Center.......... 1998
101 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Louisville, Kentucky Airpark Commerce Center........... 3 $ 1,361 $ 7,715 $ 351 $ 1,361 $ 8,066 $ 9,427 $ (131) Louisville Distribution Center........... 3 1,298 3,402 10,562 1,329 13,933 15,262 (456) Date of Construction/ Description Acquisition ----------- ------------------------ Louisville, Kentucky Airpark Commerce Center........... 1998 Louisville Distribution Center........... 1995,1996,1998 Lyon, France...... L'Isle d'Abeau Distribution Center........... 2 (d) 2,495 7,062 7,559 2,652 14,464 17,116 (302) Lyon, France...... L'Isle d'Abeau Distribution Center........... 1997,1998 Memphis, Tennessee Airport Distribution Center........... 14 3,923 22,233 3,917 3,923 26,150 30,073 (2,906) Delp Distribution Center........... 8 2,308 13,079 2,424 2,308 15,503 17,811 (1,756) Fred Jones Distribution Center........... 1 125 707 88 125 795 920 (110) Raines Distribution Center........... 1 (d) 1,635 9,264 2,458 1,635 11,722 13,357 (325) Memphis, Tennessee Airport Distribution Center........... 1995,1996 Delp Distribution Center........... 1995,1997 Fred Jones Distribution Center........... 1994 Raines Distribution Center........... 1998 Monterrey, Mexico Monterrey Industrial Park.. 5 2,714 3,785 9,015 3,773 11,741 15,514 (407) Ojo de Agua Industrial Center........... 1 983 -- 5,438 1,138 5,283 6,421 (15) Monterrey, Mexico Monterrey Industrial Park.. 1997,1998 Ojo de Agua Industrial Center........... 1998 Nashville, Tennessee Bakertown Distribution Center.......... 2 463 2,626 151 463 2,777 3,240 (289) I-40 Industrial Center.......... 3 665 3,774 240 666 4,013 4,679 (479) Interchange City Distribution Center.......... 7 3,524 12,585 8,967 4,279 20,797 25,076 (1,359) Space Park South Distribution Center.......... 15 3,499 19,830 2,388 3,499 22,218 25,717 (3,071) Nashville, Tennessee Bakertown Distribution Center.......... 1995 I-40 Industrial Center.......... 1995,1996 Interchange City Distribution Center.......... 1994,1995,1996,1997,1998 Space Park South Distribution Center.......... 1994 New Jersey / I-95 Corridor Brunswick Distribution Center.......... 2 870 4,928 1,451 870 6,379 7,249 (453) Clearview Distribution Center.......... 1 2,232 12,648 318 2,232 12,966 15,198 (903) Cranbury Business Park... 2 3,022 -- 20,918 5,361 18,579 23,940 (90) Kilmer Distribution Center.......... 4 2,526 14,313 630 2,526 14,943 17,469 (1,100) Meadowland Industrial Center.......... 8 5,676 32,167 10,882 5,677 43,048 48,725 (2,094) National Distribution Center.......... 2 513 2,908 796 513 3,704 4,217 (58) New Jersey / I-95 Corridor Brunswick Distribution Center.......... 1997 Clearview Distribution Center.......... 1996 Cranbury Business Park... 1998 Kilmer Distribution Center.......... 1996 Meadowland Industrial Center.......... 1996,1998 National Distribution Center.......... 1998 Oklahoma City, Oklahoma Melcat Distribution Center.......... 1 240 1,363 366 240 1,729 1,969 (237) Meridian Business Center. 2 195 1,109 563 196 1,671 1,867 (208) Oklahoma Distribution Center.......... 3 893 5,082 646 893 5,728 6,621 (1,017) Oklahoma City, Oklahoma Melcat Distribution Center.......... 1994 Meridian Business Center. 1994 Oklahoma Distribution Center.......... 1993
102 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Orlando, Florida 33rd Street Industrial Center.......... 9 (d)(e) $ 1,980 $ 11,237 $ 886 $ 1,980 $ 12,123 $ 14,103 $ (1,360) Chancellor Distribution Center.......... 1 380 2,156 1,077 380 3,233 3,613 (375) La Quinta Distribution Center.......... 1 354 2,006 576 354 2,582 2,936 (329) Orlando Central Park............ 3 1,378 -- 9,080 1,871 8,587 10,458 (210) Titusville Industrial Center.......... 1 (d) 283 1,603 86 283 1,689 1,972 (231) Date of Construction/ Description Acquisition ----------- ---------------------- Orlando, Florida 33rd Street Industrial Center.......... 1994,1995,1996 Chancellor Distribution Center.......... 1994 La Quinta Distribution Center.......... 1994 Orlando Central Park............ 1997,1998 Titusville Industrial Center.......... 1994 Paris, France Epone Distribution Center.......... 1 255 3,952 -- 255 3,952 4,207 (11) Longjumeau Distribution Center.......... 1 (d) 1,233 6,988 663 1,343 7,541 8,884 (166) Mitry Mory Distribution Center.......... 1 (d) 1,083 6,137 1,286 1,313 7,193 8,506 (362) Oceanie Distribution Center.......... 1 (d) 389 7,068 -- 389 7,068 7,457 (39) Paris, France Epone Distribution Center.......... 1998 Longjumeau Distribution Center.......... 1998 Mitry Mory Distribution Center.......... 1997 Oceanie Distribution Center.......... 1998 Phoenix, Arizona 24th Street Industrial Center.......... 2 503 2,852 288 503 3,140 3,643 (528) Alameda Distribution Center.......... 2 820 4,977 318 820 5,295 6,115 (633) Hohokam 10 Industrial Center.......... 5 2,940 -- 11,434 2,941 11,433 14,374 (982) I-10 West Business Center. 3 263 1,525 147 263 1,672 1,935 (306) Kyrene Commons Distribution Center.......... 2 586 2,656 1,251 587 3,906 4,493 (644) Kyrene Commons South Distribution Center.......... 2 1,096 -- 4,338 1,163 4,271 5,434 (49) Martin Van Buren Distribution Center.......... 6 572 3,285 448 572 3,733 4,305 (592) Papago Distribution Center.......... 1 420 2,383 99 420 2,482 2,902 (392) Pima Distribution Center.......... 1 306 1,742 216 306 1,958 2,264 (333) Watkins Distribution Center.......... 1 242 1,375 192 243 1,566 1,809 (210) Phoenix, Arizona 24th Street Industrial Center.......... 1994 Alameda Distribution Center.......... 1992,1998 Hohokam 10 Industrial Center.......... 1996 I-10 West Business Center. 1993 Kyrene Commons Distribution Center.......... 1992,1998 Kyrene Commons South Distribution Center.......... 1998 Martin Van Buren Distribution Center.......... 1993,1994 Papago Distribution Center.......... 1994 Pima Distribution Center.......... 1993 Watkins Distribution Center.......... 1995 Portland, Oregon Argyle Distribution Center.......... 3 946 5,388 448 946 5,836 6,782 (983) Columbia Distribution Center.......... 2 550 3,121 192 551 3,312 3,863 (456) Jennifer Distribution Center.......... 1 915 -- 3,978 1,222 3,671 4,893 (49) PDX Corporate Center East..... 4 (f) 2,198 -- 13,647 3,573 12,272 15,845 (376) PDX Corporate Center North.... 7 (f) 2,405 -- 10,648 2,542 10,511 13,053 (1,080) The Evergreen Park............ 4 1,092 -- 7,537 1,533 7,096 8,629 -- Wilsonville Corporate Center.......... 6 (f) 2,963 -- 11,548 2,964 11,547 14,511 (1,212) Portland, Oregon Argyle Distribution Center.......... 1993 Columbia Distribution Center.......... 1994 Jennifer Distribution Center.......... 1998 PDX Corporate Center East..... 1997,1998 PDX Corporate Center North.... 1995,1996 The Evergreen Park............ 1997 Wilsonville Corporate Center.......... 1995,1996
103 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Reno, Nevada Golden Valley Distribution Center.......... 2 $ 560 $ -- $ 9,306 $ 2,028 $ 7,838 $ 9,866 $ (344) Meredith Kleppe Business Center. 5 1,573 8,949 1,068 1,573 10,017 11,590 (1,684) Pacific Industrial Center.......... 4 2,501 -- 10,651 2,501 10,651 13,152 (1,226) Packer Way Business Center. 3 458 2,604 499 458 3,103 3,561 (534) Packer Way Distribution Center.......... 2 506 2,879 359 506 3,238 3,744 (568) Spice Island Distribution Center.......... 1 435 2,466 1,075 435 3,541 3,976 (262) Date of Construction/ Description Acquisition ----------- ---------------------- Reno, Nevada Golden Valley Distribution Center.......... 1996,1998 Meredith Kleppe Business Center. 1993 Pacific Industrial Center.......... 1994,1995 Packer Way Business Center. 1993 Packer Way Distribution Center.......... 1993 Spice Island Distribution Center.......... 1996 Reynosa, Mexico Del Norte Industrial Center.......... 2 809 -- 5,976 1,011 5,774 6,785 (36) Reynosa Industrial Center.......... 5 1,810 1,038 10,572 2,076 11,344 13,420 (155) Reynosa, Mexico Del Norte Industrial Center.......... 1998 Reynosa Industrial Center.......... 1997,1998 Rio Grande Valley, Texas McAllen Distribution Center.......... 1 452 -- 6,224 530 6,146 6,676 -- Rio Grande Distribution Center.......... 5 (d) 527 2,987 660 527 3,647 4,174 (412) Rio Grande Industrial Center.......... 8 (d) 2,188 12,399 1,839 2,188 14,238 16,426 (1,659) Valley Industrial Center.......... 1 230 -- 3,745 363 3,612 3,975 (103) Rio Grande Valley, Texas McAllen Distribution Center.......... 1998 Rio Grande Distribution Center.......... 1995 Rio Grande Industrial Center.......... 1995 Valley Industrial Center.......... 1997 Rotterdam, Netherlands Eamhaven Industrial Park. 2 -- 7,562 8,458 -- 16,020 16,020 (544) Rotterdam, Netherlands Eamhaven Industrial Park. 1997,1998 Salt Lake City, Utah Centennial Distribution Center.......... 2 1,149 -- 8,289 1,149 8,289 9,438 (944) Clearfield Distribution Center.......... 2 2,500 14,165 506 2,481 14,690 17,171 (1,505) Crossroads Corporate Center.......... 1 816 -- 4,940 898 4,858 5,756 -- Salt Lake International Distribution Center.......... 2 1,364 2,792 7,724 1,364 10,516 11,880 (888) Salt Lake City, Utah Centennial Distribution Center.......... 1995 Clearfield Distribution Center.......... 1995 Crossroads Corporate Center.......... 1998 Salt Lake International Distribution Center.......... 1994,1996 San Antonio, Texas 10711 Distribution Center.......... 2 582 3,301 497 582 3,798 4,380 (633) Coliseum Distribution Center.......... 2 1,102 2,380 10,387 1,613 12,256 13,869 (1,665) Distribution Drive Center.... 1 473 2,680 563 473 3,243 3,716 (640) Downtown Distribution Center.......... 1 241 1,364 227 241 1,591 1,832 (269) I-10 Central Distribution Center.......... 1 223 1,275 178 240 1,436 1,676 (317) I-35 Business Center.......... 4 663 3,773 485 663 4,258 4,921 (800) Landmark One Distribution Center.......... 1 341 1,933 315 341 2,248 2,589 (326) Macro Distribution Center.......... 1 225 1,282 219 225 1,501 1,726 (294) San Antonio, Texas 10711 Distribution Center.......... 1994 Coliseum Distribution Center.......... 1994,1995 Distribution Drive Center.... 1992 Downtown Distribution Center.......... 1994 I-10 Central Distribution Center.......... 1992 I-35 Business Center.......... 1993 Landmark One Distribution Center.......... 1994 Macro Distribution Center.......... 1993
104 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Perrin Creek Corporate Center.......... 6 $ 1,547 $ -- $ 9,646 $ 1,635 $ 9,558 $ 11,193 $ (735) San Antonio Distribution Center I........ 13 2,154 12,247 2,842 2,154 15,089 17,243 (3,087) San Antonio Distribution Center II....... 3 969 -- 5,693 885 5,777 6,662 (879) San Antonio Distribution Center III...... 7 2,042 9,684 3,390 1,709 13,407 15,116 (986) Tri-County Distribution Center.......... 1 496 -- 5,887 680 5,703 6,383 -- Woodlake Distribution Center.......... 2 248 1,405 91 248 1,496 1,744 (235) Date of Construction/ Description Acquisition ----------- ---------------------- Perrin Creek Corporate Center.......... 1995,1996 San Antonio Distribution Center I........ 1992,1993,1994 San Antonio Distribution Center II....... 1994 San Antonio Distribution Center III...... 1996,1998 Tri-County Distribution Center.......... 1997 Woodlake Distribution Center.......... 1994 San Diego, California Carmel Mountain Ranch Industrial Center.......... 3 3,732 -- 9,688 3,773 9,647 13,420 (518) San Diego, California Carmel Mountain Ranch Industrial Center.......... 1996,1997 Seattle, Washington Andover East Business Center. 2 535 3,033 237 535 3,270 3,805 (471) Fife Corporate Center.......... 3 4,059 -- 9,859 4,209 9,709 13,918 (622) Kent Corporate Center.......... 2 (f) 2,882 1,987 8,398 3,216 10,051 13,267 (1,234) Van Doren's Distribution Center.......... 2 (f) 2,473 -- 8,638 2,860 8,251 11,111 (505) Seattle, Washington Andover East Business Center. 1994 Fife Corporate Center.......... 1996 Kent Corporate Center.......... 1995 Van Doren's Distribution Center.......... 1995,1997 South Bay (San Francisco), California Bayside Business Center.......... 2 (f) 2,088 -- 4,454 2,088 4,454 6,542 (300) Bayside Corporate Center.......... 7 (f) 4,365 -- 15,824 4,365 15,824 20,189 (2,106) Bayside Plaza I. 12 (f) 5,212 18,008 625 5,216 18,629 23,845 (3,131) Bayside Plaza II.............. 2 (f) 634 -- 2,844 634 2,844 3,478 (666) Gateway Corporate Center.......... 11 (d)(f) 7,575 24,746 3,945 7,575 28,691 36,266 (5,057) Mowry Business Center.......... 4 5,933 -- 17,579 7,815 15,697 23,512 (362) Shoreline Business Center. 8 (f) 4,328 16,101 427 4,328 16,528 20,856 (2,779) Shoreline Business Center II.............. 2 (f) 922 -- 4,589 922 4,589 5,511 (822) Spinnaker Business Center. 12 (f) 7,043 25,220 947 7,043 26,167 33,210 (4,447) Thornton Business Center. 5 (d) 3,988 11,706 6,176 3,989 17,881 21,870 (2,478) Trimble Distribution Center.......... 5 2,836 16,067 830 2,836 16,897 19,733 (2,792) South Bay (San Francisco), California Bayside Business Center.......... 1996 Bayside Corporate Center.......... 1995,1996 Bayside Plaza I. 1993 Bayside Plaza II.............. 1994 Gateway Corporate Center.......... 1993,1996 Mowry Business Center.......... 1997,1998 Shoreline Business Center. 1993 Shoreline Business Center II.............. 1995 Spinnaker Business Center. 1993 Thornton Business Center. 1993,1996 Trimble Distribution Center.......... 1994 St. Louis, Missouri Earth City Industrial Center.......... 9 (d) 4,468 19,144 6,218 4,493 25,337 29,830 (847) Hazelwood Distribution Center.......... 1 (d) 233 1,322 45 233 1,367 1,600 (61) Westport Distribution Center.......... 3 (d) 761 4,310 127 761 4,437 5,198 (193) Westport Service Center.......... 2 (d) 486 2,754 46 486 2,800 3,286 -- St. Louis, Missouri Earth City Industrial Center.......... 1997,1998 Hazelwood Distribution Center.......... 1997 Westport Distribution Center.......... 1997 Westport Service Center.......... 1997
105 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Tampa, Florida Adamo Distribution Center.......... 1 $ 105 $ 595 $ 308 $ 105 $ 903 $ 1,008 $ (76) Clearwater Distribution Center.......... 2 (e) 92 524 85 92 609 701 (80) Commerce Park Distribution Center.......... 4 811 4,597 369 811 4,966 5,777 (683) Eastwood Distribution Center.......... 1 (e) 122 690 88 122 778 900 (106) Joe's Creek Distribution Center.......... 2 (e) 161 909 124 160 1,034 1,194 (149) Lakeland Distribution Center.......... 1 938 5,313 560 938 5,873 6,811 (885) Orchid Lake Industrial Center.......... 1 41 235 12 41 247 288 (34) Plant City Distribution Center.......... 1 (e) 206 1,169 64 206 1,233 1,439 (169) Sabal Park Distribution Center.......... 7 2,776 6,224 10,401 2,678 16,723 19,401 (525) Silo Bend Distribution Center.......... 4 (e) 2,887 16,358 742 2,887 17,100 19,987 (2,270) Silo Bend Industrial Center.......... 1 (e) 525 2,975 246 525 3,221 3,746 (446) St. Petersburg Service Center.. 1 35 197 21 35 218 253 (29) Tampa East Distribution Center.......... 11 (e) 2,700 15,302 1,850 2,700 17,152 19,852 (2,349) Tampa East Industrial Center.......... 2 (e) 332 1,880 (212) 332 1,668 2,000 (289) Tampa West Distribution Center.......... 15 (d)(e) 3,273 18,659 2,179 3,383 20,728 24,111 (2,794) Tampa West Industrial Center.......... 4 (e) 437 471 5,622 717 5,813 6,530 (380) Tampa West Service Center.. 4 (e) 970 5,501 501 971 6,001 6,972 (828) Date of Construction/ Description Acquisition ----------- ---------------------- Tampa, Florida Adamo Distribution Center.......... 1995 Clearwater Distribution Center.......... 1994 Commerce Park Distribution Center.......... 1994 Eastwood Distribution Center.......... 1994 Joe's Creek Distribution Center.......... 1994 Lakeland Distribution Center.......... 1994 Orchid Lake Industrial Center.......... 1994 Plant City Distribution Center.......... 1994 Sabal Park Distribution Center.......... 1996,1997,1998 Silo Bend Distribution Center.......... 1994 Silo Bend Industrial Center.......... 1994 St. Petersburg Service Center.. 1994 Tampa East Distribution Center.......... 1994 Tampa East Industrial Center.......... 1994 Tampa West Distribution Center.......... 1994,1995 Tampa West Industrial Center.......... 1994,1996,1998 Tampa West Service Center.. 1994 Tulsa, Oklahoma 52nd Street Distribution Center.......... 1 340 1,924 192 340 2,116 2,456 (304) 70th East Distribution Center.......... 1 129 733 248 129 981 1,110 (123) East 55th Street Distribution Center.......... 1 (e) 210 1,191 83 210 1,274 1,484 (179) Expressway Distribution Center.......... 4 573 3,280 670 573 3,950 4,523 (727) Henshaw Distribution Center.......... 3 500 2,829 152 499 2,982 3,481 (424) Tulsa, Oklahoma 52nd Street Distribution Center.......... 1994 70th East Distribution Center.......... 1994 East 55th Street Distribution Center.......... 1994 Expressway Distribution Center.......... 1993 Henshaw Distribution Center.......... 1994 Warsaw, Poland Warsaw Industrial Center.......... 4 2,668 30,682 -- 967 32,383 33,350 (728) Warsaw, Poland Warsaw Industrial Center.......... 1998 Washington, D.C./Baltimore Airport Commons Distribution Center.......... 2 2,320 -- 9,236 2,360 9,196 11,556 (376) Ardmore Distribution Center.......... 3 1,431 8,110 392 1,431 8,502 9,933 (1,140) Ardmore Industrial Center.......... 2 984 5,581 285 985 5,865 6,850 (788) Chantilly Distribution Center.......... 1 592 -- 5,716 1,235 5,073 6,308 (165) Concorde Industrial Center.......... 4 1,538 8,717 641 1,538 9,358 10,896 (1,098) Washington, D.C./Baltimore Airport Commons Distribution Center.......... 1997 Ardmore Distribution Center.......... 1994 Ardmore Industrial Center.......... 1994 Chantilly Distribution Center.......... 1997 Concorde Industrial Center.......... 1995
106 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ De Soto Business Park.............. 5 $ 1,774 $ 10,055 $ 3,261 $ 1,774 $ 13,316 $ 15,090 $ (1,298) Eisenhower Industrial Center............ 3 1,240 7,025 1,368 1,240 8,393 9,633 (1,121) Fleet Distribution Center............ 8 3,198 18,121 921 3,198 19,042 22,240 (1,893) Gateway Distribution Center............ 3 774 -- 6,835 1,402 6,207 7,609 (107) Hampton Central Distribution Center............ 2 1,769 -- 9,832 2,248 9,353 11,601 (449) Meadowridge Distribution Center............ 1 1,757 -- 5,714 1,896 5,575 7,471 (175) Patapsco Distribution Center............ 1 270 1,528 1,072 270 2,600 2,870 (239) Sunnyside Industrial Center............ 3 1,541 8,733 1,333 1,541 10,066 11,607 (1,335) Other Markets...... 8 (e) 1,619 8,635 8,789 1,716 17,327 19,043 (957) ----- ------- --------- --------- ------- --------- --------- -------- Total Operating Properties...... 1,099 483,056 1,637,702 1,128,248 517,803 2,731,203 3,249,006 (254,288) ----- ------- --------- --------- ------- --------- --------- -------- Land Under Development Amsterdam, Netherlands Schiphol Distribution Center............ -- -- 86 86 -- 86 -- Date of Construction/ Description Acquisition ----------- ---------------------- De Soto Business Park.............. 1996 Eisenhower Industrial Center............ 1994 Fleet Distribution Center............ 1996 Gateway Distribution Center............ 1998 Hampton Central Distribution Center............ 1996, 1997 Meadowridge Distribution Center............ 1998 Patapsco Distribution Center............ 1995 Sunnyside Industrial Center............ 1994 Other Markets...... 1991, 1994, 1996, 1998 Total Operating Properties...... Land Under Development Amsterdam, Netherlands Schiphol Distribution Center............ 1998 Atlanta, Georgia Atlanta NE at Sugarloaf......... 1,616 -- 686 2,302 -- 2,302 -- Cobb Place Distribution Center............ 1,579 -- 413 1,992 -- 1,992 -- Atlanta, Georgia Atlanta NE at Sugarloaf......... 1997, 1998 Cobb Place Distribution Center............ 1998 Austin, Texas Walnut Creek Corporate Center.. 857 -- 54 911 -- 911 -- Austin, Texas Walnut Creek Corporate Center.. 1994, 1996 Charlotte, North Carolina Charlotte Distribution Center South...... 312 -- 648 960 -- 960 -- Charlotte, North Carolina Charlotte Distribution Center South...... 1997 Chicago, Illinois Bloomingdale 100 Business Center... 940 -- 560 1,500 -- 1,500 -- Chicago, Illinois Bloomingdale 100 Business Center... 1997 Cincinnati, Ohio Airpark International Distribution Center............ 479 -- 254 733 -- 733 -- Union Center Commerce Park..... 2,442 -- 338 2,780 -- 2,780 -- Cincinnati, Ohio Airpark International Distribution Center............ 1997 Union Center Commerce Park..... 1998 Columbus, Ohio Capital Park South Distribution Center............ 285 -- 32 317 -- 317 -- International Street Commerce Center............ 220 -- 13 233 -- 233 -- Columbus, Ohio Capital Park South Distribution Center............ 1998 International Street Commerce Center............ 1998
107 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Dallas/Fort Worth, Texas Dallas Corporate Center.......... $ 961 $ -- $ 113 $ 1,074 $ -- $ 1,074 $ -- Great Southwest Distribution Center.......... 2,330 -- 58 2,388 -- 2,388 -- Date of Construction/ Description Acquisition ----------- ---------------------- Dallas/Fort Worth, Texas Dallas Corporate Center.......... 1995 Great Southwest Distribution Center.......... 1997 Denver, Colorado Coors Technology Center.......... 1,222 -- 65 1,287 -- 1,287 -- Denver Business Center.......... 457 -- 43 500 -- 500 -- Peoria Distribution Center.......... 1,363 -- 272 1,635 -- 1,635 -- Denver, Colorado Coors Technology Center.......... 1998 Denver Business Center.......... 1997 Peoria Distribution Center.......... 1997 Fort Lauderdale/Miami, Florida CenterPort Distribution Center.......... 1,008 -- 182 1,190 -- 1,190 -- Fort Lauderdale/Miami, Florida CenterPort Distribution Center.......... 1998 Houston, Texas Jersey Village Corporate Center.......... 1,536 -- 516 2,052 -- 2,052 -- West by Northwest Industrial Center.......... 277 -- 41 318 -- 318 -- World Houston Distribution Center.......... 425 -- 40 465 -- 465 -- Houston, Texas Jersey Village Corporate Center.......... 1998 West by Northwest Industrial Center.......... 1998 World Houston Distribution Center.......... 1998 Juarez, Mexico Salvacar Industrial Center.......... 176 -- 65 241 -- 241 -- Juarez, Mexico Salvacar Industrial Center.......... 1997 London, England Beavers Lane Distribution Center.......... 19,895 -- (77) 19,818 -- 19,818 -- London, England Beavers Lane Distribution Center.......... 1998 Los Angeles/Orange County, California Foothills Distribution Center.......... 1,070 -- 118 1,188 -- 1,188 -- Los Angeles/Orange County, California Foothills Distribution Center.......... 1996 Louisville, Kentucky Airpark Commerce Center.......... 175 -- 47 222 -- 222 -- Riverport Distribution Center.......... 396 -- 85 481 -- 481 -- Louisville, Kentucky Airpark Commerce Center.......... 1998 Riverport Distribution Center.......... 1996 Lyon, France Isle d'Abeau Distribution Center.......... 739 -- 147 886 -- 886 -- Lyon, France Isle d'Abeau Distribution Center.......... 1998 Memphis, Tennessee Memphis Industrial Park. 890 -- 1,055 1,945 -- 1,945 -- Memphis, Tennessee Memphis Industrial Park. 1997 Monterrey, Mexico Monterrey Industrial Center II....... 1,662 -- 1,929 3,591 -- 3,591 -- Monterrey, Mexico Monterrey Industrial Center II....... 1998 New Jersey/I-95 Corridor Cranbury Business Park... 998 -- 877 1,875 -- 1,875 -- Mahwah Distribution Center.......... 1,247 -- 1,913 3,160 -- 3,160 -- New Jersey/I-95 Corridor Cranbury Business Park... 1997 Mahwah Distribution Center.......... 1998
108 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Orlando, Florida Orlando Corporate Center............ $ 1,118 $ -- $ 315 $ 1,433 $ -- $ 1,433 $ -- Date of Construction/ Description Acquisition ----------- ---------------------- Orlando, Florida Orlando Corporate Center............ 1996 Portland, Oregon PDX Corporate Center East....... 769 -- 248 1,017 -- 1,017 -- Portland, Oregon PDX Corporate Center East....... 1997 Reynosa, Mexico Reynosa Industrial Center III............... 549 -- (26) 523 -- 523 -- Reynosa, Mexico Reynosa Industrial Center III............... 1998 Salt Lake City, Utah Crossroads Corporate Center.. 441 -- 44 485 -- 485 -- Salt Lake International Distribution Center............ 528 -- 54 582 -- 582 -- San Antonio, Texas San Antonio Distribution Center III........ 497 -- 496 993 -- 993 -- Salt Lake City, Utah Crossroads Corporate Center.. 1996 Salt Lake International Distribution Center............ 1998 San Antonio, Texas San Antonio Distribution Center III........ 1998 Seattle, Washington Van Doren's Distribution Center............ (f) 1,190 -- 58 1,248 -- 1,248 -- Seattle, Washington Van Doren's Distribution Center............ 1998 Tijuana, Mexico Tijuana Industrial Center............ 2,364 -- 629 2,993 -- 2,993 -- Tijuana, Mexico Tijuana Industrial Center............ 1998 Warsaw, Poland Blonie Industrial Park.............. 2,237 -- (544) 1,693 -- 1,693 -- Warsaw, Poland Blonie Industrial Park.............. 1998 Washington D.C./Baltimore Hampton Central Distribution Center............ 865 -- 1,485 2,350 -- 2,350 -- ------- --------- ------- ------- --------- --------- -------- Total Land Under Development..... 56,115 -- 13,332 69,447 -- 69,447 -- ------- --------- ------- ------- --------- --------- -------- Land Held for Development Amsterdam, Netherlands Schiphol Distribution Center............ 3,543 -- 253 3,796 -- 3,796 -- Venlo Distribution Center............ 1,373 -- 268 1,641 -- 1,641 -- Washington D.C./Baltimore Hampton Central Distribution Center............ 1994 Total Land Under Development..... Land Held for Development Amsterdam, Netherlands Schiphol Distribution Center............ 1998 Venlo Distribution Center............ 1998
109 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Atlanta, Georgia Atlanta NE at Sugarloaf....... $ 954 $ -- $ 468 $ 1,422 $ -- $1,422 $ -- Atlanta West Distribution Center.......... 713 -- 39 752 -- 752 -- Breckenridge Distribution Center.......... 4,147 -- 1,145 5,292 -- 5,292 -- Riverside Distribution Center.......... 1,107 -- 96 1,203 -- 1,203 -- Date of Construction/ Description Acquisition ----------- ---------------------- Atlanta, Georgia Atlanta NE at Sugarloaf....... 1997 Atlanta West Distribution Center.......... 1994 Breckenridge Distribution Center.......... 1997 Riverside Distribution Center.......... 1996 Austin, Texas Corridor Park Corporate Center.......... 1,289 -- 82 1,371 -- 1,371 -- Southpark Corporate Center.......... 525 -- 64 589 -- 589 -- Walnut Creek Corporate Center.......... 227 -- (52) 175 -- 175 -- Austin, Texas Corridor Park Corporate Center.......... 1994 Southpark Corporate Center.......... 1996 Walnut Creek Corporate Center.......... 1994, 1996 Charlotte, North Carolina Charlotte Distribution Center.......... 895 -- 503 1,398 -- 1,398 -- Charlotte Distribution Center South.... 663 -- 1,029 1,692 -- 1,692 -- Interstate North Business Park... 343 -- 8 351 -- 351 -- Charlotte, North Carolina Charlotte Distribution Center.......... 1994, 1995, 1996 Charlotte Distribution Center South.... 1997 Interstate North Business Park... 1997 Chicago, Illinois Bloomingdale 100 Business Center. 4,857 -- 1,925 6,782 -- 6,782 -- O'Hare Cargo Distribution Center.......... 8,949 -- 3,610 12,559 -- 12,559 -- Remington Lakes Business Park... 3,236 -- 296 3,532 -- 3,532 -- Chicago, Illinois Bloomingdale 100 Business Center. 1997 O'Hare Cargo Distribution Center.......... 1996, 1997 Remington Lakes Business Park... 1997 Cincinnati, Ohio Airpark International Distribution Center.......... 375 -- 189 564 -- 564 -- Princeton Distribution Center.......... (d) 436 -- (52) 384 -- 384 -- Union Center Commerce Park... 2,276 -- 352 2,628 -- 2,628 -- Cincinnati, Ohio Airpark International Distribution Center.......... 1997 Princeton Distribution Center.......... 1996 Union Center Commerce Park... 1997
110 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost to Gross Amounts At Which Carried as ProLogis of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ Columbus, Ohio Capital Park South Distribution Center.......... $ 1,505 $ -- $ 833 $ 2,338 $ -- $2,338 $ -- International Street Commerce Center.......... 101 -- (3) 98 -- 98 -- Date of Construction/ Description Acquisition ----------- ---------------------------- Columbus, Ohio Capital Park South Distribution Center.......... 1994, 1995, 1996, 1997, 1998 International Street Commerce Center.......... 1996 Dallas/Fort Worth, Texas Great Southwest Industrial Center I........ 492 -- 26 518 -- 518 -- Royal Lane Distribution Center.......... 3,220 -- 38 3,258 -- 3,258 -- Dallas/Fort Worth, Texas Great Southwest Industrial Center I........ 1996 Royal Lane Distribution Center.......... 1997 Denver, Colorado Denver Business Center Land..... 799 -- -- 799 -- 799 -- Downing Distribution Center.......... 3,487 -- 52 3,539 -- 3,539 -- Upland Distribution Center I........ 1,647 -- 47 1,694 -- 1,694 -- Denver, Colorado Denver Business Center Land..... 1998 Downing Distribution Center.......... 1998 Upland Distribution Center I........ 1994, 1997 El Paso, Texas Northwestern Corporate Center.......... 2,629 -- 5,191 7,820 -- 7,820 -- Vista Corporate Center.......... 351 -- 123 474 -- 474 -- Vista Del Sol Industrial Center.......... 1,727 -- 273 2,000 -- 2,000 -- El Paso, Texas Northwestern Corporate Center.......... 1991, 1992 Vista Corporate Center.......... 1993 Vista Del Sol Industrial Center.......... 1994, 1996 Fort Lauderdale/Miami, Florida Center Port Land............ 1,008 -- 169 1,177 -- 1,177 -- Port 95 Distribution Center I........ 2,505 -- 280 2,785 -- 2,785 -- Fort Lauderdale/Miami, Florida Center Port Land............ 1998 Port 95 Distribution Center I........ 1996 Houston, Texas Jersey Village Corporate Center.......... 3,217 -- 918 4,135 -- 4,135 -- West by Northwest Industrial Center.......... 1,263 -- 101 1,364 -- 1,364 -- Houston, Texas Jersey Village Corporate Center.......... 1997 West by Northwest Industrial Center.......... 1993
111 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried to ProLogis as of December 31, 1998 ------------------ Costs Capitalized -------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ----- ------------ ----------------- ------ ------------ ------------ ------------ Indianapolis, Indiana Lebanon Commerce Park Land....... $ 827 $-- $ 263 $1,090 $-- $1,090 $-- North by Northeast Distribution Center.......... 435 -- 56 491 -- 491 -- North Plainfield Park............ 849 -- 87 936 -- 936 -- Plainfield Park Distribution Center.......... 1,082 -- 557 1,639 -- 1,639 -- Date of Construction/ Description Acquisition ----------- ---------------- Indianapolis, Indiana Lebanon Commerce Park Land....... 1998 North by Northeast Distribution Center.......... 1994 North Plainfield Park............ 1998 Plainfield Park Distribution Center.......... 1996 Juarez, Mexico Salvacar Industrial Park. 2,484 -- 796 3,280 -- 3,280 -- Juarez, Mexico Salvacar Industrial Park. 1997 Kansas City, Missouri Executive Park.. 1,266 -- 203 1,469 -- 1,469 -- Kansas City, Missouri Executive Park.. 1998 Las Vegas, Nevada Black Mountain Distribution Center.......... 2,845 -- 164 3,009 -- 3,009 -- Hughes Airport Center.......... 263 -- 11 274 -- 274 -- Las Vegas Corporate Center.......... (f) 5,068 -- 519 5,586 -- 5,586 -- Las Vegas, Nevada Black Mountain Distribution Center.......... 1995, 1996 Hughes Airport Center.......... 1997 Las Vegas Corporate Center.......... 1993, 1995, 1997 Lille, France Lesquin Gris Land............ 1,268 -- 7 1,275 -- 1,275 -- Lille, France Lesquin Gris Land............ 1998 Los Angeles / Orange County, California Foothills Business Center. 6,577 -- (85) 6,492 -- 6,492 -- Mid-Counties Distribution Center.......... 8,828 -- 21 8,849 -- 8,849 -- Los Angeles / Orange County, California Foothills Business Center. 1995, 1996 Mid-Counties Distribution Center.......... 1997 Louisville, Kentucky Airpark Commerce Center.......... 700 -- 2 702 -- 702 -- Riverport Distribution Center.......... 218 -- (9) 209 -- 209 -- Riverport Distribution Center II....... 796 -- 33 829 -- 829 -- Louisville, Kentucky Airpark Commerce Center.......... 1998 Riverport Distribution Center.......... 1998 Riverport Distribution Center II....... 1998 Memphis, Tennessee Memphis Industrial Park. 1,673 -- 1,803 3,476 -- 3,476 -- Memphis, Tennessee Memphis Industrial Park. 1997 Monterrey, Mexico Monterrey Industrial Park II.............. 1,151 -- 645 1,796 -- 1,796 -- Ojo de Aqua Industrial Center.......... 649 -- 45 694 -- 694 -- Monterrey, Mexico Monterrey Industrial Park II.............. 1998 Ojo de Aqua Industrial Center.......... 1998 Nashville, Tennessee Nashville/l-24 Distribution Center.......... 776 -- 2,497 3,273 -- 3,273 -- Nashville, Tennessee Nashville/l-24 Distribution Center.......... 1996
112 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried to ProLogis as of December 31, 1998 -------------------- Costs Capitalized --------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- ------- ------------ ----------------- ------- ------------ ------------ ------------ New Jersey / I-95 Corridor Cranbury Business Park... $ 2,137 $-- $1,299 $ 3,436 $-- $ 3,436 $-- Meadowland Industrial Center.......... 1,600 -- 2 1,602 -- 1,602 -- Date of Construction/ Description Acquisition ----------- ------------- New Jersey / I-95 Corridor Cranbury Business Park... 1997 Meadowland Industrial Center.......... 1997 Orlando, Florida Orlando Corporate Center.......... 2,116 -- 468 2,584 -- 2,584 -- Orlando, Florida Orlando Corporate Center.......... 1996 Phoenix, Arizona Kyrene Commons Distribution Center.......... 1,278 -- 22 1,300 -- 1,300 -- Phoenix, Arizona Kyrene Commons Distribution Center.......... 1992, 1996 Portland, Oregon Jennifer Distribution Center.......... 2,935 -- 985 3,920 -- 3,920 -- Portland, Oregon Jennifer Distribution Center.......... 1997 Reno, Nevada Damonte Ranch... 10,528 -- 1,196 11,724 -- 11,724 -- Golden Valley Distribution Center.......... 347 -- 659 1,006 -- 1,006 -- Reno, Nevada Damonte Ranch... 1998 Golden Valley Distribution Center.......... 1995 Reynosa, Mexico Reynosa Industrial Center.......... 587 -- 2 589 -- 589 -- Reynosa Industrial Center III...... 1,533 -- (74) 1,459 -- 1,459 -- Reynosa, Mexico Reynosa Industrial Center.......... 1997 Reynosa Industrial Center III...... 1998 Rio Grande Valley, Texas Rio Grande Distribution Center.......... 429 -- 10 439 -- 439 -- Rio Grande Valley, Texas Rio Grande Distribution Center.......... 1995 Salt Lake City, Utah Clearfield Industrial Center.......... 125 -- 13 138 -- 138 -- Crossroads Distribution Center.......... 1,469 -- 137 1,606 -- 1,606 -- Salt Lake Industrial Center.......... 746 -- 433 1,179 -- 1,179 -- Salt Lake Industrial Center II....... 634 -- 17 651 -- 651 -- Salt Lake City, Utah Clearfield Industrial Center.......... 1997 Crossroads Distribution Center.......... 1996 Salt Lake Industrial Center.......... 1994, 1995 Salt Lake Industrial Center II....... 1995 San Antonio, Texas Coliseum Distribution Center.......... 611 -- 327 938 -- 938 -- Landmark One Distribution Center.......... 127 -- 5 132 -- 132 -- Perrin Creek Corporate Center.......... 2,637 -- 193 2,830 -- 2,830 -- San Antonio Distribution Center III...... 458 -- 66 524 -- 524 -- San Antonio, Texas Coliseum Distribution Center.......... 1994 Landmark One Distribution Center.......... 1997 Perrin Creek Corporate Center.......... 1996 San Antonio Distribution Center III...... 1996 Seattle, Washington Port of Tacoma (Carr- Gottstein)...... 1,540 -- 485 2,025 -- 2,025 -- Seattle, Washington Port of Tacoma (Carr- Gottstein)...... 1998
113 PROLOGIS TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Concluded) December 31, 1998 (In thousands)
Initial Cost Gross Amounts At Which Carried to ProLogis as of December 31, 1998 --------------------- Costs Capitalized ---------------------------------- Accumulated No. of Encum- Building & Subsequent Building & Depreciation Description Bldgs. brances Land Improvements to Acquisition Land Improvements Total (a)(b) (c) ----------- ------ ------- -------- ------------ ----------------- -------- ------------ ------------ ------------ St. Louis, Missouri Earth City Industrial Center............ $ 1,282 $ -- $ 33 $ 1,315 $ -- $ 1,315 $ -- Date of Construction/ Description Acquisition ----------- ------------- St. Louis, Missouri Earth City Industrial Center............ 1998 Tampa, Florida Sabal Park Distribution Center............ 1,800 -- 366 2,166 -- 2,166 -- Tampa East Distribution Center............ 2,810 -- (184) 2,626 -- 2,626 -- Tampa, Florida Sabal Park Distribution Center............ 1995, 1997 Tampa East Distribution Center............ 1994 Tijuana, Mexico Tijuana Industrial Center............ 5,977 -- 951 6,928 -- 6,928 -- Tijuana, Mexico Tijuana Industrial Center............ 1998 Warsaw, Poland Blonie Industrial Park.............. 1,118 -- 937 2,055 -- 2,055 -- Warsaw, Poland Blonie Industrial Park.............. 1998 Washington, D.C./Baltimore Meadowridge Distribution Center............ 3,390 -- 735 4,125 -- 4,125 -- -------- ---------- ---------- -------- ---------- ---------- --------- Total Land Held for Development. 145,828 -- 34,968 180,796 -- 180,796 -- -------- ---------- ---------- -------- ---------- ---------- --------- Grand Total..... $684,999 $1,637,702 $1,176,548 $768,046 $2,731,203 $3,499,249 $(254,288) ======== ========== ========== ======== ========== ========== ========= Washington, D.C./Baltimore Meadowridge Distribution Center............ 1996 Total Land Held for Development. Grand Total.....
114 PROLOGIS TRUST NOTE TO SCHEDULE III As of December 31, 1998 (a) Reconciliation of total cost to balance sheet caption as of December 31, 1998 (in thousands): Total per Schedule III...................................... $3,499,249 Facilities under development (excluding cost of land)....... 140,223 Capitalized preacquisition costs............................ 18,028 ---------- Total real estate....................................... $3,657,500(h) ==========
(b) The aggregate cost for federal income tax purposes was approximately $3,428,712,000. (c) Buildings are depreciated over their estimated useful lives (30 years for acquisitions, 40 years for developments). (d) $416,347,000 of these facilities secure $184,964,000 of mortgage notes. Subsequent to December 31, 1998, the mortgage notes were increased by $84,000,000. (e) $66,163,000 of these facilities secure $31,559,000 of securitized debt. (f) $242,414,000 of these facilities secure $11,281,000 of assessment bonds. (g) Subsequent to December 31, 1998, $216,237,000 of these facilities will secure $182,000,000 of mortgage notes. (h) A summary of activity for real estate and accumulated depreciation as of December 31, 1998 is as follows (in thousands): Real estate: Balance at beginning of year................................ $3,006,236 Additions: Acquisitions and completions of operating facilities...... 407,866 Improvements to operating facilities...................... 277,730 Dispositions................................................ (65,370) Change in facilities under development balance.............. 25,729 Change in capitalized preacquisition costs balance.......... 5,309 ---------- Balance at end of year...................................... $3,657,500 ========== Accumulated depreciation: Balance at beginning of year................................ $ 171,525 Depreciation expense........................................ 85,001 Accumulated depreciation associated with dispositions....... (2,238) ---------- Balance at end of year...................................... $ 254,288 ==========
115 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of ProLogis Trust, a Maryland real estate investment trust, and the undersigned Trustees and officers of Security Capital Industrial Trust, hereby constitutes and appoints K. Dane Brooksher, Walter C. Rakowich, M. Gordon Keiser, Jr., Edward F. Long and Edward S. Nekritz, or his true and lawful attorneys-in-fact and agents, for it or him and in its or his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this report, and to file each such amendment to this report, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in an about the premises, as fully to all intents and purposes as it or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them may lawfully do or cause to be done by virtue hereof. 116 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Prologis Trust /s/ K. Dane Brooksher By: _________________________________ K. Dane Brooksher Chairman, Chief Executive Officer Date: March 26, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ K. Dane Brooksher Chairman, Chief Executive March 26, 1999 ____________________________________ Officer and Trustee K. Dane Brooksher /s/ Irving F. Lyons III President, Chief Investment March 26, 1999 ____________________________________ Officer and Trustee Irving F. Lyons III /s/ Walter C. Rakowich Managing Director and March 26, 1999 ____________________________________ Chief Financial Officer Walter C. Rakowich (Principal Financial Officer) /s/ M. Gordon Keiser Senior Vice President and March 26, 1999 ____________________________________ Treasurer M. Gordon Keiser /s/ Edward F. Long Senior Vice President and March 26, 1999 ____________________________________ Controller Edward F. Long /s/ Shari J. Jones Vice President March 26, 1999 ____________________________________ (Principal Accounting Shari J. Jones Officer) /s/ Stephen L. Feinberg Trustee March 26, 1999 ____________________________________ Stephen L. Feinberg /s/ Donald P. Jacobs Trustee March 26, 1999 ____________________________________ Donald P. Jacobs /s/ William G. Myers Trustee March 26, 1999 ____________________________________ William G. Myers /s/ John E. Robson Trustee March 26, 1999 ____________________________________ John E. Robson /s/ J. Andre Teixeira Trustee March 26, 1999 ____________________________________ J. Andre Teixeira /s/ Thomas G. Wattles Trustee March 26, 1999 ____________________________________ Thomas G. Wattles
117 INDEX TO EXHIBITS Certain of the following documents are filed herewith. Certain other of the following documents have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by reference (Incorporated by reference to exhibit 3.3 to ProLogis Form 10-Q for the quarter ended June 30, 1998).
Sequential Numbered Number Description Page ------ ----------- ---------- 3.1 Amended and Restated Declaration of Trust of ProLogis (Incorporated by reference to exhibit 4.1 to ProLogis' registration statement No. 33-73382) 3.2 First Certificate of Amendment of Amended and Restated Declaration of Trust of ProLogis (Incorporated by reference to exhibit 3.1 to ProLogis' Form 8-K dated June 14, 1994) 3.3 Second Articles of Amendment of Restated Declaration of Trust of ProLogis (Incorporated by reference to exhibit 4.3 to ProLogis' Registration Statement No. 33-87306) 3.4 Articles Supplementary relating to ProLogis' Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (Incorporated by reference to exhibit 4.8 to ProLogis' Form 8-A registration statement relating to such shares) 3.5 First Articles of Amendment to Articles Supplementary relating to ProLogis' Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (Incorporated by reference to exhibit 10.3 to ProLogis' Form 10-Q for the quarter ended September 30, 1995) 3.6 Articles Supplementary relating to ProLogis' Series B Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest (Incorporated by reference to exhibit 4.1 to ProLogis' Form 8-K dated February 14, 1996) 3.7 Articles Supplementary with respect to ProLogis' Series C Cumulative Redeemable Preferred Shares of Beneficial Interest (Incorporated by reference to exhibit 4.8 to ProLogis' Form 8-A dated November 13, 1996) 3.8 Articles Supplementary with respect to ProLogis' Series D Cumulative Redeemable Preferred Shares of Beneficial Interest (Incorporated by reference to exhibit 4.10 to ProLogis' Form 8-A filed on April 8, 1998) 3.9 Form of Articles Supplementary with respect to ProLogis' Series E Cumulative Redeemable Preferred Shares of Beneficial Interest (Incorporated by reference to exhibit 3.9 to ProLogis' registration statement No. 333-69001) 3.10 Form of Articles of Merger (Incorporated by reference to exhibit 3.9 to ProLogis' registration statement No. 333-69001) 3.11 Articles of Amendment of amended and Restated Declaration of Trust of ProLogis Trust (Incorporated by reference to exhibit 3.1 to ProLogis' Form 10-Q for the quarter ended June 30, 1998) 3.12 Articles of Supplementary Rights of Series A Junior Participating Preferred Shares of ProLogis Trust (Incorporated by reference to Exhibit 3.2 to ProLogis' Form 10-Q for the quarter ended June 30, 1998) 3.13 Certificate of Amendment of Amended and Restated Declaration of Trust of ProLogis Trust (Incorporated by reference to Exhibit 3.2 to ProLogis' Form 10-Q for the quarter ended June 30, 1998) 3.14 Bylaws of ProLogis (Incorporated by reference to exhibit 4.3 to ProLogis' registration statement No. 33- 83208)
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Sequential Numbered Number Description Page ------ ----------- ---------- 4.1 Rights Agreement, dated as of December 31, 1993, between ProLogis and State Street Bank and Trust Company, as Rights Agent, including form of Rights Certificate (Incorporated by reference to exhibit 4.4 to ProLogis' registration statement No. 33-78080) 4.2 First Amendment to Rights Amendment, dated as of February 15, 1995, between SCI, State Street Bank and Trust Company and The First National Bank of Boston, as successor Rights Agent (Incorporated by reference to exhibit 3.1 to SCI's Form 10-Q for the quarter ended September 30, 1995) 4.3 Second Amendment to Rights Agreement, dated as of June 22, 1995, between ProLogis State Street Bank and Trust Company and The First National Bank of Boston (Incorporated by reference to Exhibit 3.1 to ProLogis' Form 10-Q for the quarter ended September 30, 1995) 4.4 Form of share certificate for Common Shares of Beneficial Interest of ProLogis (Incorporated by reference to exhibit 4.4 to ProLogis' registration statement No. 33-73382) 4.5 Form of share certificate for Series A Cumulative Redeemable Preferred Shares of Beneficial Interest of ProLogis (Incorporated by reference to exhibit 4.7 to ProLogis' Form 8-A registration statement relating to such shares) 4.6 8.72% Note due March 1, 2009 (Incorporated by reference to exhibit 4.7 to ProLogis' Form 10-K for the year ended December 31, 1994) 4.7 Form of share certificate for Series B Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest of ProLogis (Incorporated by reference to exhibit 4.8 to ProLogis' Form 8-A registration statement relating to such shares) 4.8 Form of share certificate for Series C Cumulative Redeemable Preferred Shares of Beneficial Interest of ProLogis (Incorporated by reference to exhibit 4.8 to ProLogis' Form 10-K for the year ended December 31, 1996) 4.9 9.34% Note due March 1, 2015 (Incorporated by reference to exhibit 4.8 to ProLogis' Form 10-K for the year ended December 31, 1994) 4.10 7.875% Note due May 15, 2009 (Incorporated by reference to exhibit 4.4 to ProLogis' Form 8-K dated May 9, 1995) 4.11 7.30% Note due May 15, 2001 (Incorporated by reference to exhibit 4.3 to ProLogis' Form 8-K dated May 9, 1995) 4.12 7.25% Note due May 15, 2000 (Incorporated by reference to exhibit 4.2 to ProLogis' Form 8-K dated May 9, 1995) 4.13 7.125% Note due May 15, 1998 (Incorporated by reference to exhibit 4.1 to ProLogis' Form 8-K dated May 9, 1995) 4.14 7.25% Note due May 15, 2002 (Incorporated by reference to exhibit 4.1 to ProLogis' Form 10-Q for the quarter ended June 30, 1996) 4.15 7.95% Note due May 15, 2008 (Incorporated by reference to exhibit 4.2 to ProLogis' Form 10-Q for the quarter ended June 30, 1996) 4.16 8.65% Note due May 15, 2016 (Incorporated by reference to exhibit 4.3 to ProLogis' Form 10-Q for the quarter ended June 30, 1996) 4.17 7.81% Medium-Term Notes, Series A, due February 1, 2015 (Incorporated by reference to exhibit 4.17 to ProLogis' Form 10K for the year ended December 31, 1996)
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Sequential Numbered Number Description Page ------ ----------- ---------- 4.18 Indenture, dated as of March 1, 1995, between ProLogis and State Street Bank and Trust Company, as Trustee (Incorporated by reference to exhibit 4.9 to ProLogis' Form 10-K for the year ended December 31, 1994) 4.19 Collateral Trust Indenture, dated as of July 22, 1993, between Krauss/Schwartz Properties, Ltd. and NationsBank of Virginia, N.A., as Trustee (Incorporated by reference to exhibit 4.10 to ProLogis' Form 10-K for the year ended December 31, 1994) 4.20 First Supplemental Collateral Trust Indenture, dated as of October 28, 1994, among ProLogis Limited Partnership-IV, Krauss/Schwartz Properties, Ltd., and NationsBank of Virginia, N.A., as Trustee (Incorporated by reference to exhibit 10.6 to ProLogis' Form 10-Q for the quarter ended September 30, 1994) 10.1 Agreement of Limited Partnership of ProLogis Limited Partnership-I, dated as of December 22, 1993, by and among ProLogis, as general partner, and the limited partners set forth therein (Incorporated by reference to exhibit 10.4 to ProLogis' Registration Statement No. 33-73382) 10.2 Transfer and Registration Rights Agreement, dated as of December 22, 1993, among ProLogis and the investors listed on the signature pages thereto (Incorporated by reference to exhibit 10.10 to ProLogis' registration statement No. 33-73382) 10.3 Amended and Restated Agreement of Limited Partnership of ProLogis Limited Partnership-II, dated as of February 15, 1994, among ProLogis as general partner, and the limited partners set forth therein (Incorporated by reference to exhibit 10.12 to ProLogis' registration statement No. 33-78080) 10.4 Administrative Services Agreement, dated as of September 9, 1997, between ProLogis and Security Capital Group Incorporated (Incorporated by reference to exhibit 10.6 to Security Capital Group Incorporated's Form 10-Q for the quarter ended September 30, 1997) 10.5 Third Amended and Restated Investor Agreement, dated as of September 9, 1997, between ProLogis and SC Group Incorporated (Incorporated by reference to exhibit 10.3 to Security Capital Group Incorporated's Form 10-Q for the quarter ended September 30, 1997) 10.6 Form of Indemnification Agreement entered into between ProLogis and its Trustees and executive officers (Incorporated by reference to exhibit 10.16 to ProLogis' registration statement No. 33-73382) 10.7 Indemnification Agreements between ProLogis and each of its independent Trustees (Incorporated by reference to exhibit 10.16 to ProLogis' Form 10-K for the year ended December 31, 1995) 10.8 Declaration of Trust for the benefit of ProLogis' independent Trustees (Incorporated by reference to exhibit 10.17 to ProLogis' Form 10-K for the year ended December 31, 1995) 10.9 Transfer and Registration Rights Agreement dated as of February 15, 1994, among ProLogis and the investors listed on the signature pages thereto (Incorporated by reference to exhibit 10.18 to ProLogis' Registration Statement No. 33-78080) 10.10 Share Option Plan for Outside Trustees (Incorporated by reference to exhibit 10.18 to ProLogis' Form 10-Q for the quarter ended June 30, 1994)
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Sequential Numbered Number Description Page ------ ----------- ---------- 10.11 Dividend Reinvestment and Share Purchase Plan (Incorporated by reference to the Prospectus contained in registration statement No. 33-91366) 10.12 Amended and Restated Agreement of Limited Partnership of ProLogis Limited Partnership-III, dated as of October 28, 1994, by and among ProLogis, as general partner, and the limited partners set forth therein (Incorporated by reference to exhibit 10.3 to ProLogis' Form 10-Q for the quarter ended September 30, 1994) 10.13 Amended and Restated Agreement of Limited Partnership of ProLogis Limited Partnership- IV, dated as of October 28, 1994, by and among ProLogis IV, Inc., as general partner, and the limited partners set forth therein (Incorporated by reference to exhibit 10.4 to ProLogis' Form 10-Q for the quarter ended September 30, 1994) 10.14 Registration Rights Agreement, dated as of October 28, 1994, among ProLogis and the Investors listed on the signature pages thereto (Incorporated by reference to exhibit 10.5 to ProLogis' Form 10-Q for the quarter ended September 30, 1994) 10.15 Option Agreement and Consent, dated October 24, 1994, by and between ProLogis and Farm Bureau Life Insurance Company (Incorporated by reference to exhibit 10.7 to ProLogis' Form 10-Q for the quarter ended September 30, 1994) 10.16 ProLogis Trust 1997 Long-Term Incentive Plan (Incorporated by reference to Annex II to Security Capital Group Incorporated's Registration Statement No. 333-26259 on Form S-1) 10.17 Form of Secured Promissory Note and Pledge Agreement relating to Share Purchase Program 10.18 Amended and Restated Credit Agreement dated as of August 12, 1998, between ProLogis and Nationsbank, N.A., as agent bank (Incorporated by reference to exhibit 10.1 to ProLogis' Form 10-Q for the quarter ended June 30, 1998) 10.19 Loan Agreement, dated as of December 23, 1998, between ProLogis and Connecticut General Life Insurance Company 10.20 Tranche A Promissory Note, dated as of February 22, 1999, between Prologis and Teachers Insurance and Annuity Association of America 10.21 Tranche B Promissory Note, dated as of February 22, 1999, between Prologis and Teachers Insurance and Annuity Association of America 10.22 Amended and Restated Investor Rights Agreement among Meridian, Hunt Realty Acquisitions, L.P., USAA Real Estate Company, Meridian Point Realty Trust '83, State Street Bank and Trust Company (as Trustee for Ameritech Pension Trust) and OTR (an Ohio general partnership, acting on behalf of and as a nominee for the State Teachers Retirement Board of Ohio), dated as of February 23, 1996 (filed with Meridian Industrial Trust, Inc.'s ("Meridian") Amendment No. 1 to registration statement No. 333-02322 March 25, 1996, and incorporated herein by reference). 10.23 Registration Rights Agreement, dated September 24, 1997, among Meridian, The Prudential Insurance Company of America, The Prudential Insurance Company of America on behalf of a single client insurance company separate account contained in Group Annuity Contract No. GA- 9032, Strategic Performance Fund-II, Inc., and The Prudential Variable Contract Real Property Partnership (filed with the Schedule 13D filed on October 3, 1997 by The Prudential Insurance Company of America, Strategic Performance Fund-II, Inc., and The Prudential Variable Contract Real Property Partnership, and incorporated herein by reference).
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Sequential Numbered Number Description Page ------ ----------- ---------- 10.24 Amended and Restated Registration Rights Agreement, dated September 24, 1997, among Meridian, The Prudential Insurance Company of America acting for the benefit of the Chevron Separate Account, and The Prudential Insurance Company of America acting for the benefit of the Strategic Performance Fund I Separate Account (filed with the Schedule 13D filed on October 3, 1997 by The Prudential Insurance Company of America, Strategic Performance Fund-II, Inc., and The Prudential Variable Contract Real Property Partnership, and incorporated herein by reference). 10.25 Registration Rights Agreement, dated September 30, 1997, between Meridian and State Street Bank and Trust Company, as Trustee for Ameritech Pension Trust (filed with the Amendment No. 1 to Schedule 13D filed on October 10, 1997 by Ameritech Pension Trust and incorporated herein by reference). 10.26 Amended and Restated Stockholders' Agreement among Meridian, USAA Real Estate Company, Meridian Point Realty Trust IV Co., Meridian Point Realty Trust VI Co., Meridian Point Realty Trust VII Co., Meridian Point Realty Trust '83, Allen J. Anderson, C.E. Cornutt, Peter O. Hanson, Robert E. Morgan, John S. Moody, James M. Pollak, Kenneth N. Stensby and Lee W. Wilson, dated as of November 10, 1995 (filed with Meridian's registration statement No. 333-00018 on January 3, 1996, and incorporated herein by reference). 10.27 Form of Indemnification Agreement signed by Meridian and certain directors, officers, employees and agents of Meridian (filed with Meridian's registration statement No. 333-00018 on January 3, 1996, and incorporated herein by reference). 10.28 Stock Purchase Agreement among Meridian, Harris Trust & Savings Bank, as Trustee for Ameritech Pension Trust, and OTR, on behalf of and as nominee for the State Teachers Retirement Board of Ohio, dated as of December 29, 1995 (filed with Meridian's registration statement No. 333-00018 on January 3, 1996, and incorporated herein by reference). 10.29 Third Amended and Restated Revolving Credit Agreement, dated September 23, 1997, among (i) Meridian, (ii) BankBoston, N.A., Texas Commerce Bank National Association, NationsBank of Texas, N.A. Wells Fargo Bank, N.A., Dresdner Bank AG, First American Bank Texas, S.S.B., (collectively, the "Banks"), (iii) BankBoston, N.A. as Agent for the Banks, (iv) Texas Commerce Bank National Association as Documentation Agent for the Banks, and (v) NationsBank of Texas, N.A. as Syndication Agent for the Banks (filed on November 14, 1997 with Meridian's Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference). 10.30 Second Amended and Restated Guaranty of Payment and Performance, dated September 23, 1997, executed by MIT Unsecured L.P. (filed on November 14, 1997 with Meridian's Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference). 10.31 Form of First Amendment to Third Amended and Restated Revolving Credit Agreement, dated February 19, 1998, among (i) Meridian, (ii) MIT Unsecured L.P. and Meridian Refrigerated, Inc. (iv) BankBoston, N.A., Chase Bank of Texas, National Association, NationsBank of Texas, N.A., Wells Fargo Bank, N.A., Dresdner Bank AG, New York Branch and Grand Cayman Branch, and First American Bank Texas, S.S.B., (collectively, the "Banks"), (iii) BankBoston, N.A. as Agent for the Banks, (iv) Chase Bank of Texas, National Association as Documentation Agent for the Banks, and (v) NationsBank of Texas, N.A. as Syndication Agent for the Banks (filed as exhibit 10.22 to Meridian's Form 10-K for the year ended December 31, 1997, and incorporated herein by reference).
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Sequential Numbered Number Description Page ------ ----------- ---------- 10.32 Form of Guaranty of Payment and Performance, dated February 19, 1998, and signed by Meridian Refrigerated, Inc. (filed as exhibit 10.23 to Meridian's Form 10-K for the year ended December 31, 1997, and incorporated herein by reference). 10.33 Amended and Restated Loan Administration Agreement between The Prudential Insurance Company of America and Meridian, IndTennco Limited Partnership, Metro-Sierra Limited Partnership, and Progress Center/Alabama Limited Partnership, dated as of February 23, 1996 (filed on March 20, 1997 as exhibit 10.24 to Meridian's Form 10-K for 1996, and incorporated herein by reference). 10.34 Agreement of Limited Partnership of DFW Nine between Dallas Nine Corp. and Sierra Capital Realty Trust IV, dated April 15, 1987 (filed with Meridian's Amendment No. 1 to registration statement No. 333-02322 on March 25, 1996, and incorporated herein by reference). 10.35 Amendment No. 1 to Agreement of Limited Partnership of DFW Nine between Dallas Nine Corp., Ridgelea Corp., Sierra Capital Realty Fund IV, and Sierra Capital Realty Trust VI, dated June 1, 1987 (filed with Meridian's Amendment No. 1 to registration statement No. 333-02322 on March 25, 1996, and incorporated herein by reference). 10.36 Assignment of General Partnership Interests and Agreement regarding DFW Nine, between Dallas Nine Corp., Metroplex Co. (a Nevada corporation), Metroplex Co. (a California corporation) and DFW Nine, dated February, 1996 (filed with Meridian's Amendment No. 1 to registration statement No. 333-02322 on March 25, 1996, and incorporated herein by reference). 10.37 Assignment of Limited Partnership Interest in MIT Unsecured L.P. (formerly known as "DFW Nine") between Meridian, MIT-ULP, Inc., and MIT Unsecured Inc. (formerly known as "Metroplex Co."), dated December 31, 1996 (filed on March 20, 1997 with Meridian's Form 10-K for 1996, and incorporated herein by reference). 10.38 Agreement of Limited Partnership of Progress Center/Alabama Limited Partnership between ProSierra Corporation and Sierra Capital Realty Trust VII Co., dated December 3, 1987 (filed with Meridian's Amendment No. 1 to registration statement No. 333-02322 on March 25, 1996, and incorporated herein by reference). 10.39 First Amendment to Agreement of Limited Partnership of Progress Center/Alabama Limited Partnership, dated June 29, 1990 (filed with Meridian's Amendment No. 1 to registration statement No. 333-02322 on March 25, 1996, and incorporated herein by reference). 10.40 Assignment of Limited Partnership Interest in MIT Secured L.P. between Meridian, MIT-SLP, Inc. and MIT Secured Inc. (formerly known as Progress Center/Alabama Limited Partnership), dated December 31, 1996 (filed on March 20, 1997 with Meridian's Form 10-K for 1996, and incorporated herein by reference). 10.41 Amended and Restated Stock Purchase Agreement, dated June 12, 1997, by and between Meridian, as Seller, and The Prudential Insurance Company of America, as Purchaser, together with a summary of the economic terms of three additional Stock Purchase Agreements into which Meridian as Seller has entered with Strategic Performance Fund-II, Inc. as Purchaser, The Prudential Variable Contract Real Property Partnership as Purchaser, and The Prudential Insurance Company of America on behalf of a single client insurance company account contained in Group Annuity Contract No. GA-9032 as Purchaser (filed on August 13, 1997 with meridian's Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference).
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Sequential Numbered Number Description Page ------ ----------- ---------- 10.42 Note Purchase Agreement among Meridian and The Travelers Insurance Company (I/N/O TRAL & CO.), United Services Automobile Association (I/N/O SALKELD & CO.), The Variable Annuity Life Insurance Company, The United States Life Insurance Company in the City of New York, All American Life Insurance Company, The Old Line Life Insurance Company of America, The Lincoln National Life Insurance Company, Lincoln Life & Annuity Company of New York, First Penn-Pacific Life Insurance Company (I/N/O CUDD & CO), Lincoln National Health & Casualty Insurance Company, Allied Life Insurance Company "B" (I/N/O GERLACH & CO), sons of Norway (I/N/O VAR & CO), Aid Association for Lutherans (I/N/O NIMER & CO), Metropolitan Life Insurance Company, National Life Insurance Company, Life Insurance Company of the Southwest, Keyport Life Insurance Company (I/N/O BOST & CO), Union Central Life Insurance Company (I/N/O HARE & CO), and Pan-American Life Insurance Company, dated November 15, 1997 (filed as exhibit 10.66 to Meridian's Form 10-K for the year ended December 31, 1997, and incorporated herein by reference). 10.43 Second Amendment, dated June 23, 1998, to Third Amended and Restated Revolving Credit Agreement, dated February 19, 1998, among (i) Meridian, (ii) MIT Unsecured L.P. and Meridian Refrigerated, Inc. (iii) BankBoston, N.A., Chase Bank of Texas, National Association, NationsBank of Texas, N.A., Wells Fargo Bank, N.A., Dresdner Bank AG, New York Branch and Grand Cayman Branch, and First American Bank Texas, S.S.B., (collectively, the "Banks"), (iv) BankBoston, N.A. as Agent for the Banks, (v) Chase Bank of Texas, National Association as Documentation Agent for the Banks, and (vi) NationsBank of Texas, N.A., as Syndication Agent for the Banks (incorporated by reference to exhibit 10.1 to Meridian's Form 10-Q for the quarter ended June 30, 1998). 12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges 12.2 Statement re: Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividends 21.1 Subsidiaries of ProLogis 23.1 Consent of Arthur Andersen LLP 23.2 Consent of KPMG 23.3 Report of KPMG 23.4 Consent of John S. Moody 23.5 Consent of Kenneth N. Stensby 24.1 Power of Attorney (included at page 116) 27 Financial Data Schedule
124 EX-10.17 2 FORM OF PROMISSORY NOTE Exhibit 10.17 FORM OF SECURED PROMISSORY NOTE ------------------------------- $___________ _______________, ____ _______________ ("Obligor"), for value received, hereby promises to pay to the order of Security Capital Industrial Trust, a Maryland real estate investment trust ("Obligee"), the principal sum of _______________ ($__________) together with any accrued but unpaid interest from the date hereof payable on the earliest of (i) __________ __, ____ or (ii) 90 days after the date Obligor terminates employment with Obligee for any reason other than death, Disability, Retirement or Cause (each as defined in the Security Capital Industrial Trust 1997 Long-Term Incentive Plan (the "Plan")), provided such termination is not following a Change in Control (as defined in the Plan), or (iii) 180 days after the date Obligor's employment with Obligee is terminated by the Obligee following a Change in Control for reasons other than Cause, or (iv) 365 days after the date Obligor terminates employment with the Obligee by reason of death, Disability or Retirement, or (v) the date that the Purchased Shares are sold or the date that the Obligor's employment with Obligee is terminated for Cause. Obligor shall use the proceeds of the loan to purchase ____________ common shares of beneficial interest of the Obligee (the "Shares") under the Plan (the "Purchased Shares"). This Note is secured by the Collateral (as defined in the Pledge Agreement dated as of the date hereof between Obligor and Obligee) and the holder thereof is entitled to the benefits of such Collateral and Pledge Agreement. The Purchased Shares shall be subject to a vesting period expiring on the first anniversary of the date hereof (the "Vesting Date"). If Obligor's employment with Obligee is terminated, for any reason other than death or Disability (as defined in the Plan), prior to the Vesting Date, Obligee shall purchase the Purchased Shares from Obligor at the then Fair Market Value (as defined in the Plan) of such shares. If such amount is equal to or greater than the outstanding principal and unpaid interest then due under this Note, the Obligee shall pay the purchase price by tendering the outstanding principal and interest amount of this Note to Obligor and a certified check for any remaining amount due in payment of the purchase price of the Shares. If such amount is less than the outstanding principal and unpaid interest, Obligor shall promptly tender a certified check for any remaining amount due in payment of this Note. Interest on the unpaid principal amount outstanding hereunder shall accrue at the lower of (i) 6% per annum or (ii) the current annual dividend of a Share divided by the Fair Market Value of a Share on the date the Purchased Shares were purchased by the Obligor. The interest rate hereunder shall be adjusted as of each January 1 to reflect the then applicable rate pursuant to the preceding sentence and such rate shall be effective until next adjusted in accordance with the provisions hereof. Accrued interest shall be due and payable on each quarterly dividend payment date with respect to Shares until payment of the Note in full. Interest shall be computed for the actual number of days elapsed on the basis of a 365-day year. If as of any dividend payment date, the amount of the dividend payment received with respect to the Purchased Shares is greater than the interest payment due as of such dividend payment date, a principal payment shall be due and payable as of such dividend payment date in an amount equal to the excess of the dividend payment received with respect to the Purchased Shares over the interest payment due as of such date. Payments of principal and interest shall be made on or before the respective due dates thereof in lawful money of the United States of America at the address specified herein or at such other place or places as Obligee may from time to time designate in writing. Payments delivered by registered or certified mail, postage prepaid, properly addressed and return receipt requested, shall be deemed made the date postmarked. If Obligor defaults in making any payment of interest or principal hereunder when due and such default continues for a period of 10 days after delivery of notice thereof to Obligor, Obligee may declare the entire unpaid balance of this Note to be immediately due and payable and such entire unpaid balance shall thereupon become immediately due and payable; provided, however, such balance shall not become due and payable if Obligor's failure to make such payment is a result of Obligee's failure to make the dividend payment due on any quarterly dividend payment date. This Note may be prepaid in whole or in part at any time and from time to time, without premium, penalty or notice to Obligee. All notices, certificates and other communications ("Notices") hereunder shall be in writing and may be either delivered personally, by nationally recognized express courier for overnight delivery, or by facsimile (with request for assurance of receipt in a manner appropriate with respect to communications of that type, provided that a confirmation copy is concurrently sent by a nationally recognized express courier for overnight delivery) or mailed, postage prepaid, by certified or registered mail, return receipt requested, addressed as follows: If to Obligee: Security Capital Industrial Trust 14100 East 35th Place Aurora, Colorado 80011 Attn: K. Dane Brooksher With Copy To: Security Capital Industrial Trust 125 Lincoln Avenue Santa Fe, NM 87501 Attn: Jeffrey A. Klopf If to Obligor: [name of Obligor] 2 Notices delivered personally or by facsimile shall be effective on the date of such delivery or transmission, Notices delivered by a nationally recognized express courier for overnight delivery shall be deemed to have been made one day following the date so mailed and all other Notices delivered hereunder shall be effective five days following the date so mailed. Obligee and Obligor may, by Notice given hereunder, designate any further or different addresses to which subsequent Notices shall be sent. This Note shall be governed exclusively by and construed in accordance with the internal laws of the State of Maryland. IN WITNESS WHEREOF, Obligor has caused this Note to be executed as of the date first above written. /s/ -------------------- Name SECURITY CAPITAL INDUSTRIAL TRUST By: /s/ -------------------- K. Dane Brooksher Its: Co-Chairman & Chief Operating Officer 3 FORM OF PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (as amended or otherwise modified from time to time, this "Agreement") is made and entered into as of this __th day of _____________, ____, by and between ______________________, an individual residing in _________ ("Pledgor"), and SECURITY CAPITAL INDUSTRIAL TRUST, a Maryland real estate investment trust ("Pledgee"). W I T N E S S E T H: WHEREAS, Pledgee made a loan to Pledgor in the amount of $____________, as evidenced by a promissory note dated ____________, ____, in the original principal amount of $___________ by Pledgor in favor of Pledgee (as amended or otherwise modified, renewed or extended from time to time, the "Note") in order to enable Pledgor to purchase _________ common shares of beneficial interest of Pledgee (the "Purchased Shares"), currently evidenced by certificate number _________________; and WHEREAS, Pledgor and Pledgee desire to enter into this Agreement in order to enable Pledgor to provide security for the payment and performance of all obligations of Pledgor to Pledgee under the Note (the "Liabilities"); NOW, THEREFORE, for and in consideration of the loan made by Pledgee to Pledgor, as evidenced by the Note (including any renewal or extension thereof), and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Pledgor and Pledgee, the parties hereto agree as follows: GRANT AND PLEDGE ---------------- To secure the due and punctual payment and performance of all the Liabilities of Pledgor to Pledgee, its successors and assigns, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto Pledgee, and hereby grants to Pledgee, a security interest in and to, the following (collectively, the "Collateral"): (a) the Purchased Shares, all of the certificates and/or instruments representing or evidencing the Purchased Shares, and all cash, securities, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Purchased Shares, other than warrants received with respect to the Purchased Shares to purchase shares of Class B Common Stock, $0.01 par value, of Security Capital Group Incorporated (SCG) as described in the Merger and Issuance Agreement dated as of March 24, 1997, as amended, by and between the Pledgee and SCG; (b) all other property hereafter delivered in substitution for or in additional to any of the foregoing, all certificates and instruments representing or evidencing such property, and all cash, securities, interest, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (c) all proceeds of the foregoing. PLEDGOR AND PLEDGEE ADDITIONALLY AGREE AS FOLLOWS: 1. Agreements: (a) Pledgor agrees to execute such documents and such stock powers and other instruments of transfer and assignment relating to the Collateral and do such other acts and things, all as Pledgee may from time to time request to establish and maintain a valid lien upon and security interest in the Collateral (free of all other liens, claims and rights of third parties whatsoever) to secure payment of the Liabilities. Without limiting the generality of the foregoing, all certificates or instruments representing or evidencing the Collateral shall, promptly after receipt by Pledgor be delivered to Pledgee, or, if Pledgee so directs, any agent or nominee of Pledgee. (b) Pledgor covenants and agrees not to sell, transfer or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. (c) Pledgor agrees after any Event of Default (as hereinafter defined) shall have occurred and be continuing and Pledgee has notified Pledgor of Pledgee's intention to exercise its voting power under this clause (c): (i) Pledgee may exercise (to the exclusion of Pledgor) the voting power and all other incidental rights of ownership with respect to any shares of capital stock or other equity securities or beneficial interests constituting Collateral and Pledgor hereby grants Pledgee an irrevocable proxy, exercisable under such circumstances, to vote such Collateral; and (ii) promptly to deliver to Pledgee such additional proxies and other documents as may be necessary to allow Pledgee to exercise such voting power. Pledgee agrees that unless an Event of Default shall have occurred and be continuing and Pledgee shall have given the notice referred to in this clause (c), Pledgor shall have the exclusive voting power with respect to any shares of capital stock or other equity securities or beneficial interests constituting Collateral and Pledgee shall, upon the written request of Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by Pledgor which are necessary to allow Pledgor to exercise voting power with respect to any such shares of capital stock or other equity securities constituting Collateral; provided, however, that no vote shall be cast, or consent, waiver, or ratification given, or action taken by Pledgor that would impair any Collateral or be inconsistent with or violate any provision of this Agreement or the Note. (d) Pledgee shall be entitled to receive on behalf of Pledgor any and all cash dividends, interest and other similar distributions of any and every kind declared, paid or distributed with respect to the Collateral in the ordinary course of business (other than liquidating distributions) which shall be applied to the payment of the Liabilities as provided in the Note; provided, however, any dividends received with respect to the Collateral in the form of Common Stock shall be held as additional Collateral. To the extent that the Pledgee determines it necessary or desirable to effect the foregoing provisions of this paragraph (d), the Pledgor shall execute a Power of Attorney in favor of the Pledgee. 2 2. Events of Default. (a) The occurrence of any of the following shall constitute an Event of Default hereunder: (1) failure of Pledgor to perform any of its agreements contained herein or (ii) failure of Pledgor to perform any of its agreements contained in the Note (subject to any grace period contained therein, if any). (b) Upon the occurrence of an Event of Default: (i) Pledgee may exercise from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in __________ or otherwise available to it; and (ii) Pledgee may, after giving Pledgor at least 10 days' notice of its intention to do so, appropriate and apply the Collateral toward the payment of the Liabilities, in such order and application as is set forth hereinbelow. Any notification of intended disposition of any of the Collateral, if mailed, shall be deemed reasonable and properly given if mailed at least 10 days before such disposition, postage prepaid, addressed to Pledgor at the address of Pledgor appearing in the Note. Any proceeds of any disposition of Collateral may be applied by Pledgee to the payment of expenses in connection with the Collateral, including reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by Pledgee to the payment of expenses in connection with the Collateral, including reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by Pledgee toward the payment of the Liabilities in such order and application as is set forth in Section 3 hereinbelow. No delay on the part of Pledgee in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Pledgee of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. 3. Application of Proceeds of Sale or Cash Held as Collateral. Any and all proceeds received by Pledgee at any time or from time to time pursuant to this Agreement or as proceeds of any of the Collateral shall be applied by Pledgee as follows: First: to payment of the reasonable costs and expenses in enforcing this Agreement and collecting on the Collateral, including, without limitations, the expenses of collecting such proceeds through legal proceedings to enforce this Agreement, the reasonable out-of-pocket expenses of Pledgee and the reasonable fees and out-of-pocket expenses of counsel employed in connection therewith. Second: to the payment of amounts owing on Liabilites in such order as Pledgee may determine; and Third: the balance, if any, of such proceeds shall be paid to Pledgor, and Pledgor's successors and assigns. Upon payment in full of all Liabilities and satisfaction of all amounts owing to Pledgee by Pledgor, Pledgee shall release its lien in its Collateral and cooperate with Pledgor in the 3 transfer back to Pledgor of the Collateral that Pledgor had transferred into the name of Pledgee, to the extent not sold or otherwise disposed of. 4. Authority of Pledgee. Pledgee shall have, and be entitled to exercise, all such powers hereunder as are specifically delegated to it by the terms hereof, together with such powers as are appropriately incidental thereto, and may execute any of its duties hereunder by or through agents or employees. Pledgor hereby agrees to reimburse Pledgee for all expenses reasonably incurred by it in connection with the enforcement of this Agreement. 5. Continuing Agreements. This Agreement shall in all respects be a continuing agreement and shall remain in full force and effect until all Liabilities have been paid in full in cash and all amounts owing to Pledgee by Pledgor have been satisfied. 6. Notices. Any notice authorized or required by this Agreement shall be sufficiently given if addressed to the receiving party and hand delivered or sent by mail or facsimile to the individuals at the addresses specified in the Note or to such other person or persons as the receiving party may from time to time designate in writing. Such notice shall be effective upon receipt. 7. Successors. This Agreement, and the terms, covenants and conditions hereof, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 8. Miscellaneous. (a) Neither this Agreement nor any provision hereof may be amended, modified, waived, discharged or terminated, except by an instrument in writing duly signed by or on behalf of Pledgor and Pledgee. (b) The Section headings used herein are for convenience of reference only and shall not define or limit the provisions of this Agreement. (c) In addition to any other warranties heretofore and hereafter made by Pledgor, Pledgor hereby warrants to Pledgee that Pledgor is, and at all times while the Collateral secures the Liabilities will be, the lawful owner of the Collateral, free of all claims and liens other than the rights of Pledgee with respect thereto, with full right and power to grant a lien upon and security interest in, and to deliver, pledge, assign and transfer, the Collateral to Pledgee, subject to the security interest of Pledgee hereunder. (d) Pledgee shall exercise reasonable care in the custody and protection of the Collateral. Pledgee shall be deemed to have exercised reasonable care if it takes action for that purpose as Pledgor shall request in writing; provided, however, a failure of Pledgee (i) to comply with any such written request, or (ii) to preserve or protect any rights with respect to the Collateral 4 against prior parties, shall not of itself be deemed a failure to exercise reasonable care in the custody or preservation of the Collateral. (e) All obligations of Pledgor, and all rights, powers and remedies of Pledgee, expressed herein shall be in addition to, and not in limitation of, those provided by law or in any written agreement or instrument (other than this Agreement) relating to any of the Liabilities or any security therefor. In addition to all other rights possessed by it, Pledgee may upon the occurrence of an Event of Default and lapse of any applicable cure period take any or all of the following actions: (i) transfer all or any part of the Collateral into the name of Pledgee or its nominee, with or without disclosing that the Collateral is subject to the lien and security interest hereunder; provided that aggregate fair market value of such transferred Collateral will not exceed the amount of the Liabilities plus a reasonable cushion to defray and pay for costs associated with disposition of the Collateral and other charges that Pledgor has agreed to Pay; (ii) notify any obligors on any of the Collateral to make payment to Pledgee of any amounts due or to become due with respect thereto; (iii) enforce collection of any of the Collateral by suit or otherwise, or surrender or release all or any part thereof; and (iv) take control of any proceeds of any of the Collateral. (f) Pledgee may, furthermore, from time to time, after an Event of Default, at its sole discretion and without notice to Pledgor, take any or all of the following actions: (i) retain or obtain a security interest in any property of any other persons, in addition to the Collateral to secure any of the Liabilities (ii) retain or obtain the primary or secondary obligations of any obligor or obligors, in addition to Pledgor, with respect to any of the Liabilities, or release or compromise any obligation of any nature of any obligor with respect to any of the Liabilities; (iii) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Liabilities, or release or compromise any obligation of any nature of any obligor with respect to any of the Liabilities; (iv) release its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and (v) resort to the Collateral (or any part or portion thereof) for payment of any of the Liabilities, whether or not Pledgee shall have resorted to any other property securing any of the Liabilities or shall have proceeded against Pledgor or against any other obligor primarily or secondarily obligated with respect to any of the Liabilities. (g) Pledgor agrees that in any sale of the Collateral whenever an Event of Default shall have occurred and be continuing, Pledgee is authorized to comply with any restriction in connection with the sale as its counsel advises it is necessary in order to avoid any violation of applicable law, or in order to obtain any required approval of the sale by any governmental regulatory authority or official. In this regard, Pledgor agrees that such compliance will not cause the sale to be considered not to have been made in a commercially reasonable manner. 5 (h) In the event that the proceeds of any sale or other disposition are not sufficient to pay the Liabilities in full, Pledgor shall remain liable to Pledgee for any deficiencies. (i) Pledgor agrees that any amount advanced by Pledgee to protect the Collateral and any reasonable costs or expense (including reasonable attorneys' fees) incurred in enforcing Pledgee's rights hereunder shall be added to the Liabilities secured by the Collateral. 9. Counterparts. This Agreement may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 10. Governing Law; Interpretation. This Agreement shall be governed by the internal laws of the State of Maryland. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered on the date first above written. SECURITY CAPITAL INDUSTRIAL TRUST /s/ ---------------------------------------- K. Dane Brooksher Co-Chairman & Chief Operating Officer /s/ ---------------------------------------- (Name) Attachment ---------- The following persons have executed secured promissory notes with SCI in a form which, except as set below, is the same as that set forth above in Exhibit 10.25 in all material respects.
Name Principal Amount Due Date Interest Rate - ---------------- ---------------- ----------------- ------------- K. Dane Brooksher $1,885,197 September 8, 2007 (1) Irving F. Lyons III $1,885,197 September 8, 2007 (1) Jeffrey H. Schwartz $1,131,105 September 8, 2007 (1) Robert J. Watson $1,131,105 September 8, 2007 (1) Walter C. Rakowich $942,598 September 8, 2007 (1) John W. Seiple Jr. $942,598 September 8, 2007 (1) M. Gordon Keiser $377,035 September 8, 2007 (1)
(1) Interest on the unpaid principal amount outstanding hereunder shall accrue at the lower of (i) 6% per annum or (ii) the current annual dividend of a Share divided by the Fair Market Value of a Share on the date the Purchased Shares were purchased by the Obligor. 6 EX-10.19 3 LOAN AGREEMENT DATED 12/23/98 Exhibit 10.19 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement") is made as of the 23rd day of December, 1998, by and between PROLOGIS TRUST, a Maryland real estate investment trust ("Borrower") and CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation ("Lender"). R E C I T A L S A. Simultaneously with the execution and delivery hereof, Lender has made or is making a loan (the "Loan") to Borrower. The Loan is evidenced by a Promissory Note of even date herewith in the stated original principal amount of $150,000,000 from Borrower, as maker, to Lender, as payee (the "Note"); B. The Loan is secured, inter alia, by (i) that certain Deed to Secure Debt and Security Agreement (the "Georgia Security Deed") of even date herewith made by or on behalf of Borrower for the benefit of Lender encumbering with a first priority lien and security title on and security interest in certain real and personal properties located in the State of Georgia, which properties are more particularly described in the Georgia Security Deed (collectively, the "Georgia Property"); (ii) that certain Deed of Trust and Security Agreement (the "Texas Trust Deed") of even date herewith made by Borrower, et al., for the benefit of Lender encumbering with a first priority lien and security title on and security interest in certain real and personal properties located in the State of Texas, which properties are more particularly described in the Texas Trust Deed (collectively, the "Texas Property"); and (iii) that certain Mortgage and Security Agreement (the "Illinois Mortgage") of even date herewith made by Borrower for the benefit of Lender encumbering with a first priority lien and security title on and security interest in certain real and personal properties located in the State of Illinois, which properties are more particularly described in the Illinois Mortgage (collectively, the "Illinois Property"). The Georgia Security Deed, the Texas Trust Deed and the Illinois Mortgage, together with any replacement, substitute or additional security deeds, trust deeds or mortgages hereafter granted as security for repayment of the Loan and the other obligations of Borrower, as the same may be amended from time to time in writing, are sometimes referred to herein, collectively, as the "Deeds". The Georgia Property, the Texas Property, and the Illinois Property, together with any substitute or additional collateral now or hereafter granted as security for the repayment of the Loan and the other obligations of Borrower, including, without limitation, now or hereafter granted by Borrower with respect thereto, are sometimes referred to herein collectively as the "Properties" or as the "Security". The Properties consist of the separate buildings identified by building name and location on Exhibit A attached hereto and by this reference made a part hereof, and the underlying land and personalty associated with each such building. For purposes hereof, each of such buildings, including all land and personalty associated therewith, is hereafter referred to as a "Property." C. The Loan is further secured, inter alia, by Assignments of Rents and Leases of even date herewith from Borrower, et al., to Lender relating to: (i)the Georgia Property (the "Georgia Lease Assignment"), (ii) the Texas Property (the "Texas Lease Assignment"), and (iii) the Illinois Property (the "Illinois Lease Assignment"). The Georgia Lease Assignment, the Texas Lease Assignment, and the Illinois Lease Assignment, together with any amendments thereto and any replacement, substitute or additional assignments of rents or leases which may hereafter be granted as security for the Loan, are sometimes referred to herein individually as a "Lease Assignment" and collectively as the "Lease Assignments". D. This Agreement, the Note, the Deeds, the Lease Assignments and all other documents, instruments and agreements entered into by Borrower, whether now or hereafter entered into, which evidence, secure, or otherwise relate to the Loan, as the same may be amended or modified in writing from time to time, are collectively referred to herein as the "Loan Documents". E. The Properties, together with all rights and property granted under any of the Loan Documents, including, without limitation, any substitute or additional collateral hereafter granted as security for the Loan, are collectively referred to herein as the "Encumbered Property". NOW, THEREFORE, in consideration of the mutual covenants contained herein and in the other Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and agree as follows: 2 1. One Loan. Notwithstanding that the Loan is secured by multiple Deeds on various Properties, Borrower and Lender agree and acknowledge that the Loan constitutes one single loan and is and shall be secured in its entirety by all of the Encumbered Property, and in no event shall the Deeds and other Loan Documents securing the Loan be deemed to constitute individual mortgage loans relating to the Note individually. The parties agree that, upon the occurrence of an Event of Default (after expiration of applicable grace and cure periods) under the Note, the Deeds or any of the other Loan Documents, Lender may (but shall not be obligated to) proceed with any or all of the rights or remedies that it may have at law, in equity, or as otherwise provided under the Loan Documents in any order or priority against or with respect to any or all of the Encumbered Property as Lender may deem necessary or desirable. Borrower hereby waives, for itself, its successors, its assigns, any other party claiming by or through Borrower, and on behalf of any subsequent owner of any or all of the Encumbered Property, any rights or claims it or they may have to sever the Loan or the Encumbered Property, to marshaling of assets or to otherwise require Lender to realize on the collateral in any particular order or priority. Any provisions contained herein or in any of the Loan Documents which create or appear to create a relationship between (i) a portion of the indebtedness evidenced by the Note, and (ii) specific Deeds or specific Properties or other collateral under any of the other Loan Documents, including, without limitation, the provisions relating to a partial release of the Encumbered Property upon substitution of additional collateral, or the application of casualty insurance proceeds and condemnation awards pursuant to the provision herein below, shall be for the specific purposes set forth therein, and shall not be interpreted to imply that the Note and Deeds constitute several or separate mortgage loans. 2. Substitution of Collateral. Not more than two (2) times during any calendar year during the term of the Loan, and only with Lender's written approval, Borrower shall have the right to have up to an aggregate of eight (8) Properties per calendar year released from the lien of the related Deed and Assignment and the other Loan Documents, by substituting new collateral (the "Substitute Property") for said released Properties in accordance with the following terms and conditions: (a) No Event of Default. There shall be no existing Event of Default, or any condition, which with the passage of time, or giving of notice, or both, would constitute an Event of 3 Default under the Loan Documents at the time of such release and substitution; (b) Lender's Expenses. Borrower shall pay all costs and expenses incurred by Lender in evaluating any proposed release and substitution of collateral in accordance with the provisions of this Section 2, and all costs and expenses incurred by Lender in connection with such release and substitution of collateral, including, but not limited to, recording fees, title fees, survey charges, recording taxes, engineering and environmental costs and charges, and reasonable attorney's fees of Lender's staff and outside counsel, irrespective of whether such substitution and release of collateral actually occurs; (c) Additional Requirements. The Substitute Property must, in Lender's sole reasonable judgment, satisfy the following terms and conditions: (i) the value of the Substitute Property must equal or exceed the value of the Property(ies) to be released; (ii) the Substitute Property must be improved with buildings similar to the Property(ies) to be released (including similar in use) and no less than 90% leased and occupied under leases acceptable to Lender as confirmed by tenant estoppels acceptable to Lender; and the Substitute Property must be located in one of the submarkets wherein the initial Properties are located and the number of Substitute Properties must be comparable to the number of Properties to be released; (iii) the Encumbered Property (following the release of the Property(ies) to be released and substitution of the Substitute Property) must in the aggregate have a Loan-to-Value (as hereinafter defined) ratio of not more than the Loan to Value ratio immediately preceding such substitution, based on a then- current appraisal, as determined by Lender, as of the date of the substitution of the Substitute Property; 4 (iv) the Debt Service Coverage (as hereinafter defined) on the Loan (following the substitution of the Substitute Property), must equal or exceed the Debt Service Coverage immediately preceding such substitution; (v) Borrower must submit to Lender an engineering report for the Substitute Property, acceptable to Lender; (vi) Borrower must provide Lender with a current as-built survey for the Substitute Property, which survey must be acceptable to both Lender and the applicable title insurance company, must comply with Lender's then standard survey requirements, and must be certified to Lender and such title insurance company, such certification to be in form and substance satisfactory to Lender and the title insurance company; (vii) Lender shall conduct, at Borrower's cost and expense, Phase I environmental audits or studies which meet ASTM E 1527 standards regarding the Substitute Property. The results of such audits or studies must be acceptable to Lender; and (viii) Borrower shall execute and deliver to Lender and obtain for Lender, all documents and instruments as may be reasonably requested by Lender so that the Substitute Property becomes first priority security for the Loan, including, without limitation, amendments to the Loan Documents, new first priority deed to secure debt, deed of trust or mortgage, new title insurance policies or endorsements to Lender's existing title insurance policy(ies) relating to the Loan, estoppel certificates, subordination agreements, and legal opinions, all in form and substance satisfactory to Lender. Notwithstanding any of the foregoing to the contrary, Lender will have the right to reject the proposed Substitute Property if Lender determines, in the exercise of its reasonable judgment, that the proposed Substitute Property is not of comparable quality to the Property(ies) to be released. 5 For purposes of this Agreement, "Loan-to-Value", as of a date, is defined as the ratio of (a) the outstanding principal balance of the Loan, as of such date, to (b) the Fair Market Value of the Encumbered Property, as of such date. Whenever the "Fair Market Value" of the Encumbered Property is to be determined, as of a date, Borrower shall deliver a notice to Lender describing the event requiring such determination, which notice shall contain Borrower's proposed determination of Fair Market Value. Borrower and Lender shall then endeavor to agree on such Fair Market Value by written agreement. However, if no such agreement can be reached within fifteen (15) days after receipt by Lender of such notice of the event requiring such determination, then the issue shall be resolved by appraisal; and Lender and Borrower, jointly, shall promptly appoint an independent appraiser who shall hold the M.A.I. or S.R.E.A. designation and who shall have at least 10 years experience in appraising comparable properties. Borrower acknowledges that Lender may appoint as an appraiser an otherwise qualified appraiser who has previously performed appraisals on Lender's property at Lender's request (whether in connection with the Property(ies) or any other property owned or financed by Lender) and agrees and consents to such appraiser acting as the appraiser hereunder. At the time of the appointment of the appraiser, Lender shall advise the appraiser in writing (with a copy to Borrower), of the amount of the Fair Market Value proposed by Borrower (pursuant to the first sentence of this paragraph) as well as the amount proposed by Lender. The sole option and role of the appraiser shall be to select which of the two proposed Fair Market Values is closest to appraiser's determination of the Fair Market Value, and whichever of the two Fair Market Values the appraiser so selects shall be deemed to be the Fair Market Value for purposes of this provision. In making his determination, the appraiser will be asked to emphasize the discounted cash flow method of determining the Fair Market Value of the Encumbered Property. The fees of the appraiser shall be paid by Borrower. For purposes of this Agreement, "Debt Service Coverage" is defined as the ratio, as reasonably determined by Lender, of (a) Net Operating Income from the Encumbered Property for the applicable period of time to (b) Total Annual Debt Service. "Net Operating Income" is defined as gross income from operations of the Encumbered Property based upon the previous twelve (12)-month period from leases of space therein (to the extent Lender reasonably projects such income will continue for the immediately succeeding twelve (12) 6 month period), subtracting therefrom all necessary and ordinary operating expenses applicable to the Encumbered Property for such period of time (both fixed and variable to the extent reasonably projected by Lender to continue for the next succeeding twelve (12) month period), including but not limited to, utilities, administrative, cleaning, landscaping, security, repairs and maintenance, permitted ground rent payments, if any, management fees, real estate and other taxes, assessments, and insurance, but excluding therefrom deductions for federal, state and other income taxes, debt service expense, depreciation or amortization of capital expenditures and other similar noncash items. Notwithstanding the foregoing, if Borrower proposes a Substitute Property which, due to the recent construction of the improvements on such Substitute Property, has been occupied by tenants, in whole or in part, at least six (6) months but less than twelve (12) months, then Net Operating Income for such Substitute Property shall be annualized in a manner reasonably satisfactory to Lender, based upon the actual number of months such Substitute Property has been occupied, in whole or in part. Gross income shall not be anticipated for any greater time period than that approved by generally accepted accounting principles nor shall ordinary operating expenses be prepaid. Documentation of Net Operating Income shall be certified by the chief financial officer of Borrower with detail satisfactory to Lender and shall be subject to the approval of Lender. "Total Annual Debt Service" shall mean the sum of (i) the annual required debt service payments (including principal and interest) on the Loan, plus (ii) the annual required debt service payments (including principal and interest) on all other indebtedness secured by a lien on all or part of the Encumbered Property for the applicable time period. 3. Tax Escrow. Notwithstanding the requirement in Section 5 of the Deeds that an escrow be established for real estate taxes on the Encumbered Property, Lender agrees to waive this requirement so long as Borrower maintains an investment grade credit rating equal to BBB- or better given by Standard & Poor's Rating Service or the equivalent rating by Duff & Phelps and/or Moody's (the "Minimum Credit Rating"). 4. Permitted Transfer. Notwithstanding anything to the contrary contained in the Note, the Deeds or in any of the other Loan Documents, Borrower shall have the right to a one-time sale, transfer or assignment of the Encumbered Property (in whole, but not in part) to any party of equal qualification and creditworthiness to the Borrower, provided: 7 (a) No Event of Default. There exists at the time of the transfer no Event of Default, nor any condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default under the Loan Documents; (b) Inspection of Property. A property inspection by Lender or Lender's designee shows that all reasonably necessary maintenance of the improvements on the Encumbered Property has been performed, and any damage or destruction affecting the Encumbered Property has been completed or repaired; (c) Qualified Real Estate Investor. The proposed transferee shall be a Qualified Real Estate Investor. For purposes of this provision, a "Qualified Real Estate Investor" is defined as any reputable corporation, partnership, limited liability company, joint venture, joint-stock company, trust or individual that meets Lender's then current underwriting guidelines, that is based in the United States of America, that is not the subject of any bankruptcy, reorganization or insolvency proceedings or any criminal charges or proceedings, and that shall not have been, at the time of transfer or prior thereto, a litigant, plaintiff or defendant in any suit brought against or by Lender. Lender agrees to be reasonable in the review of such qualifications; (d) Debt Service Coverage. The aggregate Debt Service Coverage on the Loan exceeds 1.70 times; (e) Real Estate Experience. The proposed transferee has specific related commercial real estate experience in the Metropolitan Statistical Area(s) where the Encumbered Property(ies) are located; (f) Management. The proposed transferee must (prior to the proposed transfer) own or manage a minimum of 10,000,000 square feet of industrial properties; (g) Prior Notice of Transfer. At least sixty (60) days prior to such a transfer Borrower must provide Lender with written notice of all of the material provisions of such transfer, 8 including without limitation, the proposed date of transfer, the name, net worth, background and address of the proposed transferee, and the purchase price; (h) Assumption of Obligations. Lender shall be reasonably satisfied that the proposed transferee shall have assumed each and every obligation of Borrower under the Loan Documents and that such transfer shall not affect or impair Lender's security and rights under the Loan Documents; (i) Lender's Fee. The notice received under (g) above shall be accompanied by Borrower's payment to Lender of a non-refundable fee in the amount of one percent (1%) of the then outstanding principal balance of the Loan, in cash or certified check to be retained by Lender in order to induce Lender to allow the proposed transferee to assume the obligations of Borrower under the Loan Documents, and such fee (net of Lender's expenses referenced in Section 4(k) below) shall be returned to Borrower if Lender disapproves such transfer or if such transfer fails to be consummated for any other reason; (j) Loan to Value Ratio. The Loan-to-Value ratio of the Loan to the Encumbered Property must not exceed 60%; and (k) Lender's Expenses. Borrower shall pay all of Lender's costs and expenses associated with the transfer, including without limitation, reasonable attorneys' fees charged by Lender's staff counsel and special counsel. With respect to any transfer permitted hereunder or otherwise consented to by Lender, Borrower and the entity acquiring the interest in the Properties shall enter into any reasonable amendments to the Loan Documents reflecting such transfer, including, without limitation, an assignment and assumption of the Loan Documents and amendments to UCC financing statements. In addition, Lender may require appropriate title insurance endorsements reflecting such transfer. 5. Approval of Leases. Notwithstanding the requirement in Section 22 of the Deeds regarding approval by Lender of leases affecting the Encumbered Property and the terms of any other Loan Documents (including the 9 Lease Assignments), Lender agrees to waive its requirement to receive and approve all leases and sub-leases (and any amendments, modifications, renewals or extensions, assignments and subletting thereof), provided there is no Event of Default under any of the Loan Documents, and, provided further that the following requirements are met: (a) Maximum Term and Size. If the term of the lease (excluding any renewal or extension options) is no more than 10 years, then the lease covers an area no greater than 400,000 square feet of net rentable area; and if the term of the lease (excluding any renewal or extension options) is more than 10 years, then the lease covers an area no greater than 100,000 square feet of net rentable area; (b) Standard Form. The lease is written on a standard form of lease which Lender has previously approved in writing with no material changes; (c) Rental. The effective rent provided for over the lease term is consistent with the then current market effective rent of comparable space in competitive properties. The schedule of rent shall not decline over the lease term, including any extension. At Lender's option, an effective rent schedule shall be provided by Borrower annually for written approval by Lender; (d) No Ownership Interest. The lease does not (i) grant the tenant any purchase option or right of first refusal to purchase the property, (ii) grant the tenant any interest in the ownership of the Encumbered Property or portion thereof, or provide any incentives equivalent to such an ownership interest, or (iii) otherwise contain terms that would cause a material impairment of Lender's security; (e) Tenant Concessions. The lease does not provide for the payment for tenant improvement work or leasing commissions at any time other than prior to or at commencement of the lease; (f) Non-Affiliates. The lease shall be an arms length transaction and not be to Borrower, an affiliate of Borrower, or a creditor of Borrower (other than entities that may be trade 10 creditors of Borrower in the ordinary course of Borrower's business) (provided Borrower may execute any such lease to itself, its affiliate or its creditor so long as the leased space is less than 50,000 square feet), and Borrower shall not assign any portion of the rental to any third party; (g) Copies to Lender. Borrower provides certified copies of such lease documentation to Lender within ten (10) days after the execution of each such lease; and (h) Possession. The tenant is obligated to take possession immediately upon completion of any required improvements. Notwithstanding the foregoing, Borrower may enter into licenses or leases with service providers for the purpose of providing services to Borrower or to other tenants, without the prior approval of Lender, so long as each such license or lease (i) reflects an arms length transaction with an entity not affiliated with Borrower, and (ii) covers no more than 50,000 rentable square feet and is for a term of no more than 10 years (excluding renewals or extensions). 6. Representations, Warranties and Covenants of Borrower. Borrower represents, warrants and covenants that as of the date hereof: (a) Existence and Power. Borrower is a trust duly created, validly existing and in good standing under the laws of the State of Maryland, and is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, and has all trust powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where any such failure does not have and is not reasonably expected to cause a material adverse effect on Borrower. (b) Authorization; No Contravention. The execution, delivery and performance by Borrower of this Agreement, the Note and the other Loan Documents (i) are within the Borrower's trust powers, (ii) have been duly authorized by all necessary trust action, (iii) require no action by or in respect of or filing 11 with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the trust agreement of Borrower or of any material agreement, judgment, injunction, order, decree or other instrument binding upon Borrower, and (v) do not result in the creation or imposition of any lien on any asset of Borrower other than the liens created by the Loan Documents. (c) Binding Effect. This Agreement, the Note, and the other Loan Documents constitute valid and binding agreements of Borrower enforceable in accordance with their terms, provided that such enforceability is subject to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. (d) No Litigation. There is no action, suit or proceeding pending, or to the knowledge of Borrower, threatened, against or affecting Borrower, before any court or arbitrator or any governmental body, agency or official which has caused or is reasonably expected to cause a material adverse effect on Borrower or which in any manner draws into question the validity of or is reasonably expected to impair the ability of Borrower to perform its obligations under, this Agreement, the Note, or any of the other Loan Documents. (e) Compliance with Laws; Payment of Taxes. To Borrower's knowledge, Borrower is in compliance with all applicable laws, regulations and similar requirements of governmental authorities, except where (i) such compliance is being contested in good faith through appropriate proceedings or (ii) any failure to comply does not have and is not reasonably expected to cause a material adverse effect on Borrower. There have been filed on behalf of Borrower, all Federal, state and local income, excise, property and other tax returns which are required to be filed by it and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of the Borrower have been paid, except: (i) ad valorem taxes not due and payable; and (ii) other liabilities, if they are being contested in good faith and against which Borrower has set up appropriate reserves. The charges, accruals and reserves on the books of Borrower in respect of taxes 12 or other governmental charges are, in the opinion of Borrower, adequate. (f) No Default. Borrower is not in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which has caused or is reasonably expected to cause a material adverse effect on Borrower. No Default or Event of Default has occurred and is continuing. (g) Full Disclosure. To Borrower's knowledge, all information heretofore furnished by Borrower to Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by Borrower to Lender will be, true, accurate and complete in all material respects. (h) Margin Stock. Borrower is not engaged principally, or as one of its important activities, in the business of purchasing or carrying any margin stock, and no part of the proceeds of the Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation X of the Board of Governors of the Federal Reserve System. (i) Insolvency. After giving effect to the execution and delivery of the Loan Documents and the making of the Loan under this Agreement: (i) Borrower will not (x) be "insolvent," within the meaning of such term as used in O.C.G.A. (S) 18-2-22 or as defined in (S) 101 of the "Bankruptcy Code", or Section 2 of either the "UFTA" or the "UFCA", or as defined or used in any "Other Applicable Law" (as those terms are defined below), or (y) be unable to pay its debts generally as such debts become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 6 of the UFCA, or (z) have an unreasonably small capital to engage in any business or transaction, whether current or contemplated, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA; and (ii) the obligations of Borrower under the Loan Documents and 13 with respect to the Loans will not be rendered avoidable under any Other Applicable Law. For purposes of this Section 6(i), "Bankruptcy Code" means Title 11 of the United States Code, "UFTA" means the Uniform Fraudulent Transfer Act, "UFCA" means the Uniform Fraudulent Conveyance Act, and "Other Applicable Law" means any other applicable state law pertaining to fraudulent transfers or acts voidable by creditors, in each case as such law may be amended from time to time. (j) Real Estate Investment Trust. Borrower is qualified under the Internal Revenue Code as a real estate investment trust. (k) Millennium Compliance. All computer systems used by Borrower will be capable of the following on December 31, 1999, as well as at all times after January 1, 2000: (i) handling date information involving all and any dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part; (ii) operating, accurately without interruption on and in respect of any and all dates before, during and/or after January 1, 2000 and without any change in performance; (iii) responding to and processing two digit year input without creating any ambiguity as to the century; and (iv) storing and providing date input information without creating any ambiguity as to the century. (l) Consolidations, Mergers and Sales of Assets. Borrower will not consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other person or entity; provided, however, the foregoing shall not be deemed to prohibit mergers where (i) Borrower is the surviving entity and (ii) such surviving entity has a credit 14 rating immediately following such merger no lower than the Minimum Credit Rating. (m) No Truck Terminal Facilities. To Borrower's knowledge, based upon the representations of its tenants, no tenant which leases space within any of the Properties operates a Truck Terminal as its main and primary business. "Truck Terminal" as used herein means the business of storing, servicing and maintaining commercial trucks in order to generate a profit directly from such activities. 7. Disbursement of Loan; Co-Lender. An initial disbursement under the Loan in the amount of $66,000,000 has been made on the date hereof by Lender to Borrower (the "First Disbursement"). A second disbursement (the "Second Disbursement") in the amount of $84,000,000 will be made by Lender to Borrower on or before February 26, 1999 (the "Second Disbursement Deadline"), subject only to the following: (a) No Default. At the time of the second funding, there shall then exist no Event of Default, nor any condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default; (b) Representatives and Warranties True. At the time of the second funding, all representations and warranties of Borrower contained in any of the Loan Documents shall remain true and correct in all material respects as if remade by Borrower at the time of the second funding (as confirmed by a certificate of Borrower to be given to Lender at that time); (c) Additional Documents. Borrower shall execute and deliver to Lender or obtain for Lender, all documents and instruments as may be reasonably requested by Lender (including, without limitation, amendments to the Deeds and endorsements to Lender's title insurance policies), sufficient to assure Lender that the Second Disbursement is secured by the Deeds without any matters of title intervening since the date of this Agreement; and 15 (d) Lender's Expenses. Borrower shall pay all of Lender's costs and expenses associated with the second funding including, without limitation, reasonable attorneys' fees charged by Lender's staff counsel and special counsel. (e) Environmental Site Assessments. Borrower shall provide Lender on or before February 10, 1999, with current Phase I environmental site assessments ("Phase I Assessments") for each of the Properties, in form and content acceptable to Lender reflecting a state of each of the Properties with regard to environmental matters acceptable to Lender. Should Borrower be unable to provide an acceptable Phase I Assessment as to any of the Properties, then (i) Borrower shall be entitled to provide as to any such non-qualifying Property(ies), Substitute Property(ies) meeting the requirements of Section 2 hereof, and failing that (ii) the amount of the Loan will be reduced (by first reducing the amount of the Second Disbursement) to the extent necessary so that the Loan to Value ratio for the Encumbered Property (excluding such non-qualifying Properties) is not greater than 60% (including a mandatory prepayment at par of a portion of the First Disbursement if the aggregate Fair Market Value of the Properties as to which satisfactory Phase I Assessments are provided is less than $110,000,000). Borrower's deadline for qualifying for the Second Disbursement is the Second Disbursement Deadline. (f) Asbuilt Surveys. Borrower shall obtain and deliver to Lender at least ten (10) days prior to the funding of the Second Disbursement, ALTA as-built surveys for the following thirteen (13) Properties: . Dallas Corporate Center Nos. 1-7, 9 and 10 . International Airport Industrial Center Nos. 8 and 9 (Atlanta) . Great Southwest Distribution Center No. 5 (Dallas) . Post Oak Business Center No. 15 (Chicago) 16 Such as built surveys shall be in the form and content consistent with Lender's standard survey requirements and such surveys shall reflect no matters objectionable to Lender in its reasonable discretion. Borrower acknowledges that Lender has obtained a co-lender (the "Co- Lender") for 50% of the amount of the Loan. In no event shall Lender be liable for any failure or refusal of Co-Lender to fund its 50% share of the Second Disbursement. In the event Co-Lender fails or refuses to fund its share of the Second Disbursement on or before the Second Disbursement Deadline even though Borrower has met all conditions for such funding, Lender shall have the option, in its sole discretion, either (i) to decline to fund its 50% of the Second Disbursement, in which case the maximum Loan amount shall be reduced to $66,000,000 (less any reduction pursuant to Section 7(e) above resulting from non-qualifying Properties for which no Substitute Properties are provided) and Lender shall have no further obligation to disburse additional Loan proceeds, or (ii) Lender may elect to fund its 50% of the Second Disbursement, in which case the maximum Loan amount shall be $108,000,000 (less any reduction pursuant to Section 7(e) above resulting from non-qualifying Properties for which no Substitute Properties are provided) and Lender shall have no further obligation to disburse additional Loan proceeds, or (iii) Lender may elect to extend the Second Disbursement Date for up to twenty (20) days to seek a new or additional Co-Lender and if at the end of such twenty (20) day period Lender has not succeeded in securing a new or additional Co-Lender such that the Second Disbursement can be fully funded on or before March 31, 1999, then Lender shall have the option in its sole discretion on or before March 31, 1999 to elect either clause (i) or clause (ii) above. In the event less than the full $150,000,000 is ultimately funded under the Loan due to the failure or refusal of the Co-Lender to fund its pro-rata share of the Second Disbursement even though Borrower has met all conditions for such funding, then (i) Borrower shall be entitled to have a pro-rata share of the collateral encumbered by the Deeds promptly released from the lien of the Loan Documents, and (ii) Lender shall promptly refund to Borrower a pro-rata portion of the $375,000 loan fee previously paid by Borrower to Lender. The pro-rata portion of the collateral to be released pursuant to the immediately preceding sentence shall be (i) as listed in Exhibit B attached hereto and by this reference made a part hereof, if the final total Loan amount funded is $66,000,000, (less any reduction pursuant to Section 7(e) 17 above resulting from non-qualifying Properties for which no Substitute Properties are provided) or (ii) as listed in Exhibit C attached hereto and by this reference made a part hereof, if the final total Loan amount funded is $108,000,000 (less any reduction pursuant to Section 7(e) above resulting from non-qualifying Properties for which no Substitute Properties are provided). 8. Lease Security Deposits. If at any time hereafter, Borrower fails to maintain a Minimum Credit Rating, then Borrower will promptly escrow with Lender or its agent, as additional security for the Loan, an amount from time to time, equal to the aggregate of all security deposits of tenants made to the landlord from time to time under leases affecting the Properties (except as to those leases, if any, as to which the tenants have provided Lender with a written waiver of any obligation to refund such deposits to such tenants unless Borrower has actually delivered such deposits to Lender). 9. Miscellaneous. (a) Loan Agreement Governs. To the extent that any conflict exists between any of the terms and provisions of this Agreement and any of the terms and provisions of the Note, the Deeds or any of the other Loan Documents, this Agreement shall control and supersede the terms and provisions of the Note, Deeds or other Loan Documents. (b) Event of Default. The term "Event of Default" as used herein shall have the meanings ascribed to that term in any of the Note, the Deeds and the other Loan Documents. This Agreement shall constitute a "Loan Document" under the Note and the Deeds. (c) Time of the Essence. Time is of the essence of this Agreement, and of each of the covenants, agreements and obligations hereunder. (d) Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which, taken together, shall constitute but one agreement. (e) Notices. Any notice, demand, request, statement or consent made hereunder shall be given in the same manner and with the same effect as provided in Section 43 of the Deeds. 18 (f) Severability. If any provision of this Agreement shall be held invalid or unenforceable, the same shall not affect the validity of the remainder of this Agreement. (g) Captions. The captions in this instrument are inserted only as a matter of convenience and for reference, and shall not be deemed to be any part hereof. (h) Modifications. This Agreement may not be changed or terminated except in writing signed by the parties hereto. The provisions of this Agreement shall extend and be applicable to all renewals, extensions, amendments, modifications and consolidations of the Note, the Deeds or any of the other Loan Documents, and any and all references herein to the Loan Documents shall be deemed to include any such renewals, extensions, amendments, modifications and consolidations thereof. (i) Bind and Inure. The provisions of this Loan Agreement shall be binding upon Borrower and any subsequent owner or owners of any or all of the Encumbered Property or assignee of Borrower's interests under any or all of the Note or other Loan Documents, and upon Lender and any assignee of Lender's interests under any or all of the Note or the other Loan Documents, and upon their respective heirs, successors and assigns. (j) Governing Law. This Agreement shall be construed and applied in accordance with the laws of the State of Georgia, without regard to its conflicts of law principles. (k) Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. (l) Waiver of Jury Trial; Consent to Jurisdiction. Borrower (a) irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding 19 arising out of this Agreement, any of the other Loan Documents, or any of the transactions contemplated hereby or thereby, (b) submits to the nonexclusive personal jurisdiction in the State of Georgia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Agreement, the Note and the other Loan Documents, (c) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the State of Georgia for the purpose of litigation to enforce this Agreement, the Note or the other Loan Documents, and (d) agrees that service of process may be made upon it in the manner prescribed in Section 8(e) hereof for the giving of notice to Borrower. Nothing herein contained, however, shall prevent the Lender from bringing any action or exercising any rights against any security and against Borrower personally, and against any assets of Borrower, within any other state or jurisdiction. (m) Rights of Co-Lenders and Co-Investors. To the extent any portion of the Loan is funded, directly or indirectly, by Lender's co- lenders or co-investors, such co-lenders or co-investors shall be entitled to the benefits afforded to Lender under the Loan Documents, as if such co-lenders or co-investors were named as lenders in the Loan Documents. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under seal as of the date first written above. BORROWER: PROLOGIS TRUST, a Maryland real estate investment trust /s/ John W. Seiple, Jr. By: _________________________________ John W. Seiple, Jr. Managing Director [TRUST SEAL] 20 LENDER: CONNECTICUT GENERAL LIFE INSURANCE COMPANY By: CIGNA Investments, Inc., its authorized signatory /s/ Michael J. Riccio By: _______________________ Michael J. Riccio Vice President 21 EX-10.20 4 TRANCHE A PROMISSORY NOTE 2/22/99 Exhibit 10.20 FIXED INTEREST NOTE TIAA Appl. #CA-3208 M-000459500 TRANCHE A PROMISSORY NOTE $93,800,000.00 New York, New York Dated: As of February 22, 1999 FOR VALUE RECEIVED, PROLOGIS TRUST ("Borrower"), a Maryland real estate investment trust having its principal place of business at 14100 East 35th Place, Aurora, Colorado 80011, promises to pay to TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA ("Lender"), a New York corporation, or order, at Lender's offices at 730 Third Avenue, New York, New York 10017 or at such other place as Lender designates in writing, the principal sum of NINETY-THREE MILLION EIGHT HUNDRED THOUSAND AND 00/100THS DOLLARS ($93,800,000.00) (the principal sum or so much of the principal sum as may be advanced and outstanding from time to time, the "Principal"), in lawful money of the United States of America, with interest on the Principal from the date of this Promissory Note (this "Note") through and including March 1, 2009 (the "Maturity Date") at the fixed rate of seven and two-tenths percent (7.2%) per annum (the "Fixed Interest Rate") to be computed on the basis of a 360 day year. Each monthly payment shall be based on a 30-day month, with a per diem rate equal to the Fixed Interest Rate divided by 360. This Note is secured by, among other things, the 7 Tranche A First Deeds of Trust, Assignment of Leases and Rents, Security Agreements and Fixture Filing Statements (collectively, the "Tranche A First Deeds of Trust") encumbering the properties owned by Borrower and identified on Schedule 1 hereto by their street address or common name and the 5 Tranche A Subordinate Deeds of Trust encumbering the properties owned by Borrower and identified on Schedule 2 hereto by their street address or common name, all made by Borrower for the benefit of Lender as security for the Loan. All capitalized terms not expressly defined in this Note will have the definitions set forth in the Tranche A First Deeds of Trust. Section 1. Payments of Principal and Fixed Interest. (a) Borrower will make monthly installment payments ("Debt Service Payments") as follows: (i) On March 1, 1999, a payment of accrued interest on the Principal at the Fixed Interest Rate; (ii) On April 1, 1999 and on the first day of each succeeding calendar month through and including March 1, 2002, payments in the amount the accrued interest on the Principal at the Fixed Interest Rate, each of which will be applied to accrued interest on the Principal at the Fixed Interest Rate; and (iii) On April 1, 2002 and on the first day of each succeeding calendar month through and including February 1, 2009, payments in the amount of SIX HUNDRED SEVENTY-FOUR THOUSAND NINE HUNDRED SEVENTY-FOUR AND 17/100THS DOLLARS ($674,974.17), each of which will be applied first to accrued interest on the Principal at the Fixed Interest Rate and then to the Principal. (b) On the Maturity Date, Borrower will pay the Principal in full together with accrued interest at the Fixed Interest Rate and all other amounts due under the Loan Documents. Section 2. Prepayment Provisions. (a) The following definitions apply: "Discount Rate" means (x) the yield on a U.S. Treasury issue selected by Lender, as published in The Wall Street Journal, two weeks prior to prepayment, having a maturity date corresponding (or most closely corresponding, if not identical) to the Maturity Date, and, if applicable, a coupon rate corresponding (or most closely corresponding, if not identical) to the Fixed Interest Rate plus (y) 25 basis points. "Default Discount Rate" means the Discount Rate less 300 basis points. "Discounted Value" means the Discounted Value of a Note Payment based on the following formula: NP ------------- (1 + R/12)/n/ = Discounted Value NP = Amount of Note Payment R = Discount Rate or Default Discount Rate as the case may be. n = The number of months between the date of prepayment and the scheduled date of the Note Payment being discounted rounded to the nearest integer. "Note Payment" means (i) each scheduled Debt Service Payment for the period from the date of prepayment through the Maturity Date and (ii) the scheduled repayment of Principal, if any, on the Maturity Date. 2 "Prepayment Date Principal" means the Principal on the date of prepayment. (b) This Note may not be prepaid in full or in part before February 28, 2001. Commencing on March 1, 2001, provided there is no Event of Default, Borrower may prepay this Note in full, but not in part, on the first day of any calendar month, upon 60 days prior notice to Lender and upon payment in full of the Debt which will include a payment (the "Prepayment Premium") equal to the greater of (i) an amount equal to the product of 1% times the Prepayment Date Principal and (ii) the amount by which the sum of the Discounted Value of each remaining Note Payment, calculated at the Discount Rate, exceeds the Prepayment Date Principal. Provided there is no Event of Default, this Note may be prepaid in full without payment of the Prepayment Premium during the last 180 days of the Term. In addition, the Prepayment Premium shall not apply with respect to any prepayment due to application by Lender of condemnation or insurance proceeds. This Note may not be prepaid without simultaneous prepayment in full of (x) any other notes secured by the Loan Documents and (y) that certain Tranche B Promissory Note in the amount of $88,200,000 dated the date hereof from Borrower to Lender. (c) After an Acceleration or upon any other prepayment not permitted by the Loan Documents, any tender of payment of the amount necessary to satisfy the Debt accelerated, any judgment of foreclosure, any statement of the amount due at the time of foreclosure (including foreclosure by power of sale) and any tender of payment made during any redemption period after foreclosure, will include a payment (the "Evasion Premium") equal to the greater of (i) an amount equal to the product of 1% plus 300 basis points times the Prepayment Date Principal, and (ii) the amount by which the sum of the Discounted Value of each remaining Note Payment, calculated at the Default Discount Rate, exceeds the Prepayment Date Principal. (d) Borrower acknowledges that: (i) a prepayment will cause damage to Lender; (ii) the Evasion Premium is intended to compensate Lender for the loss of its investment and the expense incurred and time and effort associated with making the Loan, which will not be fully repaid if the Loan is prepaid; (iii) it will be extremely difficult and impractical to ascertain the extent of Lender's damages caused by a prepayment after an Event of Default or any other prepayment not permitted by the Loan Documents; and (iv) the Evasion Premium represents Lender and Borrower's reasonable estimate of Lender's damages for the prepayment and is not a penalty. (e) BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT LENDER WOULD NOT LEND TO BORROWER THE LOAN EVIDENCED BY THIS NOTE WITHOUT (1) BORROWER'S WAIVER OF ANY RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS NOTE IN WHOLE OR IN PART, WITHOUT 3 PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE, AND (2) BORROWER'S AGREEMENT, AS SET FORTH ABOVE, TO PAY LENDER A PREPAYMENT PREMIUM UPON THE SATISFACTION OF ALL OR ANY PORTION OF THE PRINCIPAL INDEBTEDNESS EVIDENCED FOLLOWING THE ACCELERATION OF THE MATURITY DATE HEREOF BY REASON OF A DEFAULT HEREUNDER OR UNDER THE TRANCHE A DEEDS OF TRUST INCLUDING, WITHOUT LIMITATION, A DEFAULT ARISING FROM THE CONVEYANCE OF ANY RIGHT, TITLE OR INTEREST IN THE PROPERTY ENCUMBERED BY THE TRANCHE A DEEDS OF TRUST AND BORROWER HAS CAUSED THOSE PERSONS SIGNING THIS NOTE ON BORROWER'S BEHALF TO SEPARATELY EXECUTE THE AGREEMENT CONTAINED IN THIS PARAGRAPH, IN COMPLIANCE WITH CALIFORNIA CIVIL CODE SECTION 2954.10, BY PLACING THEIR SIGNATURES BELOW, BORROWER ACKNOWLEDGES THAT (I) THE GENERAL PARTNERS, PRINCIPALS OR MEMBERS, AS THE CASE MAY BE, OF BORROWER ARE KNOWLEDGEABLE REAL ESTATE DEVELOPERS OR INVESTORS, (II) BORROWER FULLY UNDERSTANDS THE EFFECT OF THE ABOVE WAIVER, (III) THE MAKING OF THE LOAN BY LENDER AT THE RATE SET FORTH ABOVE IS SUFFICIENT CONSIDERATION FOR SUCH WAIVER, AND (IV) LENDER WOULD NOT MAKE THE LOAN WITHOUT SUCH WAIVER. PROLOGIS TRUST BY /s/ Scott W. Strine ------------------- Scott W. Strine Vice President Section 3. Events of Default: (a) It is an "Event of Default" under this Note: (i) if Borrower fails to pay any amount due, as and when required, under this Note or any other Loan Document and the failure continues for a period of 5 days; or (ii) if an Event of Default occurs under any other Loan Document. (b) If an Event of Default occurs, Lender may declare all or any portion of the Debt immediately due and payable ("Acceleration") and exercise any of the other Remedies. Section 4. Default Rate. Interest on the Principal will accrue at the Default Interest Rate from the date an Event of Default occurs. 4 Section 5. Late Charges. (a) If Borrower fails to pay any Debt Service Payment when due and the failure continues for a period of 5 days or more or fails to pay any amount due under the Loan Documents on the Maturity Date, Borrower agrees to pay to Lender an amount (a "Late Charge") equal to five cents ($.05) for each one dollar ($1.00) of the delinquent payment. (b) Borrower acknowledges that: (i) a delinquent payment will cause damage to Lender; (ii) the Late Charge is intended to compensate Lender for loss of use of the delinquent payment and the expense incurred and time and effort associated with recovering the delinquent payment; (iii) it will be extremely difficult and impractical to ascertain the extent of Lender's damages caused by the delinquency; and (iv) the Late Charge represents Lender and Borrower's reasonable estimate of Lender's damages from the delinquency and is not a penalty. Section 6. Limitation of Liability. This Note is subject to the limitations on liability set forth in the Article of the Tranche A Deeds of Trust entitled "Limitation of Liability". Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE ARTICLE OF THE TRANCHE A DEEDS OF TRUST ENTITLED "WAIVERS", BORROWER WAIVES PRESENTMENT FOR PAYMENT, DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN THE LOAN DOCUMENTS, NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF THE LOAN DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO THE RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR. Section 8. Commercial Loan. The Loan is made for the purpose of carrying on a business or commercial activity or acquiring real or personal property as an investment or carrying on an investment activity and not for personal or household purposes. 5 Section 9. Usury Limitations. Borrower and Lender intend to comply with all Laws with respect to the charging and receiving of interest. Any amounts charged or received by Lender for the use or forbearance of the Principal to the extent permitted by Law, will be amortized and spread throughout the Term until payment in full so that the rate or amount of interest charged or received by Lender on account the Principal does not exceed the Maximum Interest Rate. If any amount charged or received under the Loan Documents that is deemed to be interest is determined to be in excess of the amount permitted to be charged or received at the Maximum Interest Rate, the excess will be deemed to be a prepayment of Principal when paid, without premium, and any portion of the excess not capable of being so applied will be refunded to Borrower. If during the Term the Maximum Interest Rate, if any, is eliminated, then for purposes of the Loan, there will be no Maximum Interest Rate. Section 10. Applicable Law. This Note is governed by and will be construed in accordance with the Laws of the State of New York except with respect to provisions related to specific properties which shall be construed in accordance with the laws of the state or commonwealth in which the relevant property is located, without regard to conflict of law provisions. Section 11. Time of the Essence. Time is of the essence with respect to the payment and performance of the Obligations. Section 12. Cross-Default. A default under any other note now or hereafter secured by the Loan Documents or under any loan document related to such other note constitutes a default under this Note and under the other Loan Documents. When the default under the other note constitutes an Event of Default under that note or the related loan document, an Event of Default also will exist under this Note and the other Loan Documents. Section 13. Construction. Unless expressly provided otherwise in this Note, this Note will be construed in accordance with the Exhibit attached to the Tranche A First Deeds of Trust entitled "Rules of Construction". Section 14. Deed of Trust Provisions Incorporated. To the extent not otherwise set forth in this Note, the provisions of the Articles of the Tranche A First Deeds of Trust entitled "Expenses and Duty to Defend", "Waivers", "Notices", and "Miscellaneous" are applicable to this Note and deemed incorporated by reference as if set forth at length in this Note. Section 15. Joint and Several Liability; Successors and Assigns. If Maker consists of more than one entity, the obligations and liabilities of each such entity will be joint and several. This Note binds Borrower and successors, assigns, heirs, administrators, executors, agents and representatives and inures to the benefit of Lender and its successors, assigns, heirs, administrators, executors, agents and representatives. Section 16. Absolute Obligation. Except for the Section of this Note entitled "Limitation of Liability", no reference in this Note to the other Loan Documents 6 and no other provision of this Note or of the other Loan Documents will impair or alter the obligation of Borrower, which is absolute and unconditional, to pay the Principal, interest at the Fixed Interest Rate and any other amounts due and payable under this Note, as and when required. IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the date first set forth above. PROLOGIS TRUST, a Maryland real estate investment trust By /s/ Scott W. Strine -------------------------- Scott W. Strine Vice President 7 Schedule 2 ---------- (Tranche A Subordinate Deed of Trust Properties)
- ------------------------------------------------------------------------------------------ Building Name Address City, State, County - ------------------------------------------------------------------------------------------ Mid Counties 6700-6750 Artesia Boulevard (#1) Buena Park, CA, Orange County Distribution Center 1 and 6201-6251 Knott Avenue (#2) and 2 - ------------------------------------------------------------------------------------------ Inland Empire 1 3285 DeForest Cr. Mira Loma, CA, Riverside County - ------------------------------------------------------------------------------------------ Inland Empire 2 & 3 5600 and 5590 Francis Street Ontario, CA, San Bernardino County - ------------------------------------------------------------------------------------------ Inland Empire 4 5431 Philadelphia Street Ontario, CA, San Bernardino County - ------------------------------------------------------------------------------------------ Inland Empire 5 1661 S. Vintage Avenue Ontario, CA, San Bernardino County - ------------------------------------------------------------------------------------------
EX-10.21 5 TRANCHE B PROMISSORY NOTE 2/22/99 EXHIBIT 10.21 FIXED INTEREST NOTE - ------------------- TIAA Appl. #CA-3209 M-000459600 TRANCHE B PROMISSORY NOTE ------------------------- $88,200,000.00 New York, New York Dated: As of February 22, 1999 FOR VALUE RECEIVED, PROLOGIS TRUST ("Borrower"), a Maryland real estate investment trust having its principal place of business at 14100 East 35th Place, Aurora, Colorado 80011, promises to pay to TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA ("Lender"), a New York corporation, or order, at Lender's offices at 730 Third Avenue, New York, New York 10017 or at such other place as Lender designates in writing, the principal sum of EIGHTY-EIGHT MILLION TWO HUNDRED THOUSAND AND 00/100THS DOLLARS ($88,200,000.00) (the principal sum or so much of the principal sum as may be advanced and outstanding from time to time, the "Principal"), in lawful money of the United States of America, with interest on the Principal from the date of this Promissory Note (this "Note") through and including March 1, 2009 (the "Maturity Date") at the fixed rate of seven and two-tenths percent (7.2%) per annum (the "Fixed Interest Rate") to be computed on the basis of a 360 day year. Each monthly payment shall be based on a 30-day month, with a per diem rate equal to the Fixed Interest Rate divided by 360. This Note is secured by, among other things, the 5 Tranche B First Deeds of Trust, Assignment of Leases and Rents, Security Agreements and Fixture Filing Statements (collectively, the "Tranche B First Deeds of Trust") encumbering the properties owned by Borrower and identified on Schedule 1 hereto by their street address or common name and the 7 Tranche B Subordinate Deeds of Trust encumbering the properties owned by Borrower and identified on Schedule 2 hereto by their street address or common name, all made by Borrower for the benefit of Lender as security for the Loan. All capitalized terms not expressly defined in this Note will have the definitions set forth in the Tranche B First Deeds of Trust. Section 1. Payments of Principal and Fixed Interest. (a) Borrower will make monthly installment payments ("Debt Service Payments") as follows: (i) On March 1, 1999, a payment of accrued interest on the Principal at the Fixed Interest Rate; (ii) On April 1, 1999 and on the first day of each succeeding calendar month through and including March 1, 2002, payments in the amount the accrued interest on the Principal at the Fixed Interest Rate, each of which will be applied to accrued interest on the Principal at the Fixed Interest Rate; and (iii) On April 1, 2002 and on the first day of each succeeding calendar month through and including February 1, 2009, payments in the amount of SIX HUNDRED THIRTY-FOUR THOUSAND SIX HUNDRED SEVENTY-SEVEN AND 23/100THS DOLLARS ($634,677.23), each of which will be applied first to accrued interest on the Principal at the Fixed Interest Rate and then to the Principal. (b) On the Maturity Date, Borrower will pay the Principal in full together with accrued interest at the Fixed Interest Rate and all other amounts due under the Loan Documents. Section 2. Prepayment Provisions. (a) The following definitions apply: "Discount Rate" means (x) the yield on a U.S. Treasury issue selected by Lender, as published in The Wall Street Journal, two weeks prior to prepayment, having a maturity date corresponding (or most closely corresponding, if not identical) to the Maturity Date, and, if applicable, a coupon rate corresponding (or most closely corresponding, if not identical) to the Fixed Interest Rate plus (y) 25 basis points. "Default Discount Rate" means the Discount Rate less 300 basis points. "Discounted Value" means the Discounted Value of a Note Payment based on the following formula: NP -------------- (1 + R/12)/n/ = Discounted Value NP = Amount of Note Payment R = Discount Rate or Default Discount Rate as the case may be. n = The number of months between the date of prepayment and the scheduled date of the Note Payment being discounted rounded to the nearest integer. "Note Payment" means (i) each scheduled Debt Service Payment for the period from the date of prepayment through the Maturity Date and (ii) the scheduled repayment of Principal, if any, on the Maturity Date. 2 "Prepayment Date Principal" means the Principal on the date of prepayment. (b) This Note may not be prepaid in full or in part before February 28, 2001. Commencing on March 1, 2001, provided there is no Event of Default, Borrower may prepay this Note in full, but not in part, on the first day of any calendar month, upon 60 days prior notice to Lender and upon payment in full of the Debt which will include a payment (the "Prepayment Premium") equal to the greater of (i) an amount equal to the product of 1% times the Prepayment Date Principal and (ii) the amount by which the sum of the Discounted Value of each remaining Note Payment, calculated at the Discount Rate, exceeds the Prepayment Date Principal. Provided there is no Event of Default, this Note may be prepaid in full without payment of the Prepayment Premium during the last 180 days of the Term. In addition, the Prepayment Premium shall not apply with respect to any prepayment due to application by Lender of condemnation or insurance proceeds. This Note may not be prepaid without simultaneous prepayment in full of (x) any other notes secured by the Loan Documents and (y) that certain Tranche A Promissory Note in the amount of $93,800,000 dated the date hereof from Borrower to Lender. (c) After an Acceleration or upon any other prepayment not permitted by the Loan Documents, any tender of payment of the amount necessary to satisfy the Debt accelerated, any judgment of foreclosure, any statement of the amount due at the time of foreclosure (including foreclosure by power of sale) and any tender of payment made during any redemption period after foreclosure, will include a payment (the "Evasion Premium") equal to the greater of (i) an amount equal to the product of 1% plus 300 basis points times the Prepayment Date Principal, and (ii) the amount by which the sum of the Discounted Value of each remaining Note Payment, calculated at the Default Discount Rate, exceeds the Prepayment Date Principal. (d) Borrower acknowledges that: (i) a prepayment will cause damage to Lender; (ii) the Evasion Premium is intended to compensate Lender for the loss of its investment and the expense incurred and time and effort associated with making the Loan, which will not be fully repaid if the Loan is prepaid; (iii) it will be extremely difficult and impractical to ascertain the extent of Lender's damages caused by a prepayment after an Event of Default or any other prepayment not permitted by the Loan Documents; and (iv) the Evasion Premium represents Lender and Borrower's reasonable estimate of Lender's damages for the prepayment and is not a penalty. (e) BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT LENDER WOULD NOT LEND TO BORROWER THE LOAN EVIDENCED BY THIS NOTE WITHOUT (1) BORROWER'S WAIVER OF ANY RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS NOTE IN WHOLE OR IN PART, WITHOUT 3 PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE, AND (2) BORROWER'S AGREEMENT, AS SET FORTH ABOVE, TO PAY LENDER A PREPAYMENT PREMIUM UPON THE SATISFACTION OF ALL OR ANY PORTION OF THE PRINCIPAL INDEBTEDNESS EVIDENCED FOLLOWING THE ACCELERATION OF THE MATURITY DATE HEREOF BY REASON OF A DEFAULT HEREUNDER OR UNDER THE TRANCHE B DEEDS OF TRUST INCLUDING, WITHOUT LIMITATION, A DEFAULT ARISING FROM THE CONVEYANCE OF ANY RIGHT, TITLE OR INTEREST IN THE PROPERTY ENCUMBERED BY THE TRANCHE B DEEDS OF TRUST AND BORROWER HAS CAUSED THOSE PERSONS SIGNING THIS NOTE ON BORROWER'S BEHALF TO SEPARATELY EXECUTE THE AGREEMENT CONTAINED IN THIS PARAGRAPH, IN COMPLIANCE WITH CALIFORNIA CIVIL CODE SECTION 2954.10, BY PLACING THEIR SIGNATURES BELOW, BORROWER ACKNOWLEDGES THAT (I) THE GENERAL PARTNERS, PRINCIPALS OR MEMBERS, AS THE CASE MAY BE, OF BORROWER ARE KNOWLEDGEABLE REAL ESTATE DEVELOPERS OR INVESTORS, (II) BORROWER FULLY UNDERSTANDS THE EFFECT OF THE ABOVE WAIVER, (III) THE MAKING OF THE LOAN BY LENDER AT THE RATE SET FORTH ABOVE IS SUFFICIENT CONSIDERATION FOR SUCH WAIVER, AND (IV) LENDER WOULD NOT MAKE THE LOAN WITHOUT SUCH WAIVER. PROLOGIS TRUST By:/s/ SCOTT W. STRINE --------------------- Scott W. Strine Vice President Section 3. Events of Default: (a) It is an "Event of Default" under this Note: (i) if Borrower fails to pay any amount due, as and when required, under this Note or any other Loan Document and the failure continues for a period of 5 days; or (ii) if an Event of Default occurs under any other Loan Document. (b) If an Event of Default occurs, Lender may declare all or any portion of the Debt immediately due and payable ("Acceleration") and exercise any of the other Remedies. Section 4. Default Rate. Interest on the Principal will accrue at the Default Interest Rate from the date an Event of Default occurs. 4 Section 5. Late Charges. (a) If Borrower fails to pay any Debt Service Payment when due and the failure continues for a period of 5 days or more or fails to pay any amount due under the Loan Documents on the Maturity Date, Borrower agrees to pay to Lender an amount (a "Late Charge") equal to five cents ($.05) for each one dollar ($1.00) of the delinquent payment. (b) Borrower acknowledges that: (i) a delinquent payment will cause damage to Lender; (ii) the Late Charge is intended to compensate Lender for loss of use of the delinquent payment and the expense incurred and time and effort associated with recovering the delinquent payment; (iii) it will be extremely difficult and impractical to ascertain the extent of Lender's damages caused by the delinquency; and (iv) the Late Charge represents Lender and Borrower's reasonable estimate of Lender's damages from the delinquency and is not a penalty. Section 6. Limitation of Liability. This Note is subject to the limitations on liability set forth in the Article of the Tranche B Deeds of Trust entitled "Limitation of Liability". Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE ARTICLE OF THE TRANCHE B DEEDS OF TRUST ENTITLED "WAIVERS", BORROWER WAIVES PRESENTMENT FOR PAYMENT, DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN THE LOAN DOCUMENTS, NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF THE LOAN DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO THE RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR. Section 8. Commercial Loan. The Loan is made for the purpose of carrying on a business or commercial activity or acquiring real or personal property as an investment or carrying on an investment activity and not for personal or household purposes. 5 Section 9. Usury Limitations. Borrower and Lender intend to comply with all Laws with respect to the charging and receiving of interest. Any amounts charged or received by Lender for the use or forbearance of the Principal to the extent permitted by Law, will be amortized and spread throughout the Term until payment in full so that the rate or amount of interest charged or received by Lender on account the Principal does not exceed the Maximum Interest Rate. If any amount charged or received under the Loan Documents that is deemed to be interest is determined to be in excess of the amount permitted to be charged or received at the Maximum Interest Rate, the excess will be deemed to be a prepayment of Principal when paid, without premium, and any portion of the excess not capable of being so applied will be refunded to Borrower. If during the Term the Maximum Interest Rate, if any, is eliminated, then for purposes of the Loan, there will be no Maximum Interest Rate. Section 10. Applicable Law. This Note is governed by and will be construed in accordance with the Laws of the State of New York except with respect to provisions related to specific properties which shall be construed in accordance with the laws of the state or commonwealth in which the relevant property is located, without regard to conflict of law provisions. Section 11. Time of the Essence. Time is of the essence with respect to the payment and performance of the Obligations. Section 12. Cross-Default. A default under any other note now or hereafter secured by the Loan Documents or under any loan document related to such other note constitutes a default under this Note and under the other Loan Documents. When the default under the other note constitutes an Event of Default under that note or the related loan document, an Event of Default also will exist under this Note and the other Loan Documents. Section 13. Construction. Unless expressly provided otherwise in this Note, this Note will be construed in accordance with the Exhibit attached to the Tranche B First Deeds of Trust entitled "Rules of Construction". Section 14. Deed of Trust Provisions Incorporated. To the extent not otherwise set forth in this Note, the provisions of the Articles of the Tranche B First Deeds of Trust entitled "Expenses and Duty to Defend", "Waivers", "Notices", and "Miscellaneous" are applicable to this Note and deemed incorporated by reference as if set forth at length in this Note. Section 15. Joint and Several Liability; Successors and Assigns. If Maker consists of more than one entity, the obligations and liabilities of each such entity will be joint and several. This Note binds Borrower and successors, assigns, heirs, administrators, executors, agents and representatives and inures to the benefit of Lender and its successors, assigns, heirs, administrators, executors, agents and representatives. Section 16. Absolute Obligation. Except for the Section of this Note entitled "Limitation of Liability", no reference in this Note to the other Loan Documents 6 and no other provision of this Note or of the other Loan Documents will impair or alter the obligation of Borrower, which is absolute and unconditional, to pay the Principal, interest at the Fixed Interest Rate and any other amounts due and payable under this Note, as and when required. IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the date first set forth above. PROLOGIS TRUST, a Maryland real estate investment trust By:/s/ SCOTT W. STRINE ------------------- Scott W. Strine Vice President 7 Schedule 1 ---------- (Tranche B First Deed of Trust Properties)
Building Name Address City, State, County - ------------------------------------------------------------------------------------------ Mid Counties 6700-6750 Artesia Boulevard (#1) Buena Park, CA, Orange County Distribution Center 1 and 6201-6251 Knott Avenue (#2) and 2 - ------------------------------------------------------------------------------------------ Inland Empire 1 3285 DeForest Cr. Mira Loma, CA, Riverside County - ------------------------------------------------------------------------------------------ Inland Empire 2 & 3 5600 and 5590 Francis Street Ontario, CA, San Bernardino County - ------------------------------------------------------------------------------------------ Inland Empire 4 5431 Philadelphia Street Ontario, CA, San Bernardino County - ------------------------------------------------------------------------------------------ Inland Empire 5 1661 S. Vintage Avenue Ontario, CA, San Bernardino County - ------------------------------------------------------------------------------------------
Schedule 2 ---------- (Tranche B Subordinate Deed of Trust Properties)
Building Name Address City, State, County - ------------------------------------------------------------------------------------------ Freeway Dist. Ctr. #1, 7310-7379 Telegraph Road (#1) Montebello, CA, Los Angeles #2 and #3 and 1510-1553 Greenwood Avenue County (#2 and #3) - ------------------------------------------------------------------------------------------ Mid County Ind. Ctr. #1 14659 Alondra Boulevard La Mirada, CA, Los Angeles County - ------------------------------------------------------------------------------------------ Mid County Ind. Ctr. #2 15160-15304 Spring Avenue Santa Fe Springs, CA, Los Angeles - ------------------------------------------------------------------------------------------ Mid County Ind. Ctr. #3 13920 to 13950 Mica Street Santa Fe Springs, CA, Los and #4 Angeles - ------------------------------------------------------------------------------------------ Mid County Ind. Ctr. #5 6450 Caballero Boulevard (#5) Buena Park, CA, Orange County and #6 and 6450-A Caballero Boulevard (#6) - ------------------------------------------------------------------------------------------ North County Dist. Ctr. 400 E. Orangethorpe Avenue (#1) Anaheim, CA, Orange County #1 and #2 and 500 E. Orangethorpe Avenue (#2) - ------------------------------------------------------------------------------------------ Santa Ana Distribution 1395 Lyon Street Santa Ana, CA, Orange County Center 1 - ------------------------------------------------------------------------------------------
EX-12.1 6 COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 PROLOGIS COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES (Dollar amounts in thousands)
Year Ended December 31, ------------------------------------------ 1998 1997 1996 1995 1994 -------- -------- -------- ------- ------- Net earnings from operations......... $105,764 $ 32,371 $ 79,384 $47,660 $25,066 Add: Interest expense................... 77,650 52,704 38,819 32,005 7,568 -------- -------- -------- ------- ------- Earnings as adjusted................. $183,414 $ 85,075 $118,203 $79,665 $32,634 ======== ======== ======== ======= ======= Fixed charges: Interest expense................... $ 77,650 $ 52,704 $ 38,819 $32,005 $ 7,568 Capitalized interest............... 19,173 18,365 16,138 8,599 2,208 -------- -------- -------- ------- ------- Total fixed charges.............. $ 96,823 $ 71,069 $ 54,957 $40,604 $ 9,776 ======== ======== ======== ======= ======= Ratio of earnings to fixed charges... 1.9 1.2 2.2 2.0 3.3 ======== ======== ======== ======= =======
EX-12.2 7 COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED EXHIBIT 12.2 PROLOGIS COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS (Dollar amounts in thousands)
Year Ended December 31, ------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- ------- ------- Net earnings from operations....... $105,764 $ 32,371 $ 79,384 $47,660 $25,066 Add: Interest expense................. 77,650 52,704 38,819 32,005 7,568 -------- -------- -------- ------- ------- Earnings as adjusted............... $183,414 $ 85,075 $118,203 $79,665 $32,634 ======== ======== ======== ======= ======= Combined fixed charges and preferred share dividends: Interest expense................. $ 77,650 $ 52,704 $ 38,819 $32,005 $ 7,568 Capitalized interest............. 19,173 18,365 16,138 8,599 2,208 -------- -------- -------- ------- ------- Total fixed charges............ 96,823 71,069 54,957 40,604 9,776 Preferred share dividends (a).... 49,098 35,318 25,895 6,698 -- -------- -------- -------- ------- ------- Combined fixed charges and preferred share dividends......... $145,921 $106,387 $ 80,852 $47,302 $ 9,776 ======== ======== ======== ======= ======= Ratio of earnings to combined fixed charges and preferred share dividends......................... 1.3 (b) 1.5 1.7 3.3 ======== ======== ======== ======= =======
- -------- (a) ProLogis had no preferred shares in 1994. (b) Due to a one-time, non-recurring charge of $75.4 million relating to the costs incurred in acquiring the management companies from an affiliate, earnings were insufficient to cover combined fixed charges and preferred share dividends for the year ended December 31, 1997 by $21.3 million. EX-21.1 8 SUBSIDIARIES OF PROLOGIS Exhibit 21.1 ------------ SUBSIDIARIES OF PROLOGIS TRUST, ET. AL.
Jurisdiction Name of Entity of Organization -------------- --------------- 1440 Goodyear Partners................................................ Texas International Industrial Investments Incorporated..................... Maryland Red Mountain Joint Venture............................................ Texas ProLogis-Alabama (1) Incorporated..................................... Maryland ProLogis-Alabama (2) Incorporated..................................... Maryland ProLogis Development Services Incorporated............................ Delaware SCI-DS Mexico Incorporated............................................ Maryland ProLogis Houston Holdings, Inc........................................ Delaware ProLogis IV, Inc...................................................... Delaware (Corporate General Partner) ProLogis Limited Partnership-I........................................ Delaware ProLogis Limited Partnership-II....................................... Delaware ProLogis Limited Partnership-III...................................... Delaware (d/b/a SC Industrial Partners Limited Partnership) ProLogis Limited Partnership-IV....................................... Delaware SCI Mexico Industrial Trust........................................... Maryland ProLogis-North Carolina (1) Incorporated.............................. Maryland ProLogis-North Carolina (2) Incorporated.............................. Maryland ProLogis-North Carolina Limited Partnership........................... Delaware ProLogis Alabama Industrial Trust..................................... Alabama ProLogis Management Incorporated...................................... Delaware ProLogis International Incorporated (industrial warehousing; forty-two subsidiaries in foreign countries.............. Delaware Prologis b.v. and subsidiary.......................................... Netherlands Frigoscandia S.A. (refrigerated warehousing; thirty-seven subsidiaries in foreign countries)....................... Luxembourg ProLogis Logistics Services Incorporated (refrigerated warehousing)... Delaware Garonor Holdings S.A. (industrial warehousing; three subsidiaries in foreign countries).............................. Luxembourg Kingspark Holding S.A. (industrial development; twenty-one subsidiaries in foreign countries)......................... Luxembourg
EX-23.1 9 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Trust's previously filed Registration Statement File Nos. 33-91366, 33-92490, 333-4961, 333-31421, 333- 39797, 333-38515, 333-52867 and 333-26597. Arthur Andersen LLP Chicago, Illinois March 23, 1999 EX-23.2 10 CONSENT OF KPMG EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants of Frigoscandia Holding AB, we hereby consent to the use of our report dated January 28, 1999 included in the ProLogis Trust's Form 10-K for the year ended December 31, 1998. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1998 or performed any audit procedures subsequent to the date of our report. Stockholm, March 26, 1999 KPMG EX-23.3 11 CONSENT OF KPMG EXHIBIT 23.3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AUDIT REPORT To the general meeting of the shareholders of Frigoscandia Holding AB Corporate identity number 556542-7704 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Frigoscandia Holding AB for the year 1998. These accounts and the administration of the company are the responsibility of the board of directors and the managing director. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director, as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. We examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director and whether they have in any other way acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act, and, consequently we recommend that the income statements and the balance sheets of the parent company and the group be adopted, and that the profit of the parent company be dealt with in accordance with the proposal in the administration report. The board members and the managing director have not committed any act or been guilty of any omission, which, in our opinion, could give rise to any liability to the company. We therefore recommend that the members of the board of directors and the managing director be discharged from liability for the financial year. Stockholm, January 28, 1999 KPMG EX-23.4 12 CONSENT OF JOHN S. MOODY EXHIBIT 23.4 CONSENT TO BE NAMED AS A TRUSTEE I, John S. Moody, hereby consent to be nominated as a trustee of ProLogis Trust and to be named as such in the ProLogis Trust Annual Report on Form 10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission. /s/ John S. Moody ------------------------------------- John S. Moody Dated: March 25, 1999 EX-23.5 13 CONSENT OF KENNETH N. STENSBY EXHIBIT 23.5 CONSENT TO BE NAMED AS A TRUSTEE I, Kenneth N. Stensby, hereby consent to be nominated as a trustee of ProLogis Trust and to be named as such in the ProLogis Trust Annual Report on Form 10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission. /s/ Kenneth N. Stensby ------------------------------------- Kenneth N. Stensby Dated: March 26, 1999 EX-27 14 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 63,140 0 745,511 0 0 0 3,657,500 254,288 4,330,729 0 1,311,445 0 673,440 1,234 1,581,694 4,330,729 345,046 372,795 0 27,120 0 0 77,650 62,231 0 62,231 0 0 0 62,231 0.51 0.51
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