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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
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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
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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.
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TABLE OF CONTENTS
Item Description Page
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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".
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. 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
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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.
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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
19
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
--- ------- --------- ------------ ---------- -----------
21
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 --
--- ------- --------- ------------ ----------- -----------
22
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 --
--- ------- --------- ------------ ---------- -----------
23
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