UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2002 | ||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from _________ to __________ |
Commission File Number 01-12846
PROLOGIS
| Maryland (State or other jurisdiction of incorporation or organization) |
74-2604728 (I.R.S. Employer Identification No.) |
|
| 14100 East 35th Place, Aurora, Colorado (Address or principal executive offices) |
80011 (Zip Code) |
(303) 375-9292
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant’s common shares as of November 11, 2002 was 178,156,257.
PROLOGIS
INDEX
| Page | ||||||||||||
| Number(s) | ||||||||||||
| PART I. | Financial Information |
|||||||||||
| Item 1. | Consolidated Condensed Financial Statements: |
|||||||||||
Consolidated Condensed Balance Sheets — September 30, 2002
and December 31, 2001 |
3 | |||||||||||
Consolidated Condensed Statements of Earnings and
Comprehensive Income — Three and Nine Months Ended
September 30, 2002 and 2001 |
4 | |||||||||||
Consolidated Condensed Statements of Cash Flows — Nine Months
Ended September 30, 2002 and 2001 |
5 | |||||||||||
Notes to Consolidated Condensed Financial Statements |
6 - 20 | |||||||||||
Independent Accountants’ Review Report |
21 | |||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
22 - 36 | ||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
36 | ||||||||||
| Item 4. | Controls and Procedures |
37 | ||||||||||
| PART II. | Other Information |
|||||||||||
| Item 2. | Changes in Securities and Use of Proceeds |
38 | ||||||||||
| Item 4. | Submission of Matters to a Vote of Securities Holders |
38 | ||||||||||
| Item 5. | Other Information |
38 | ||||||||||
| Item 6. | Exhibits and Reports on Form 8-K |
38 | ||||||||||
2
PROLOGIS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
| September 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (Unaudited) | (Audited) | |||||||||||
ASSETS |
||||||||||||
Real estate |
$ | 5,021,310 | $ | 4,588,193 | ||||||||
Less accumulated depreciation |
666,415 | 574,871 | ||||||||||
| 4,354,895 | 4,013,322 | |||||||||||
Investments in and advances to unconsolidated entities |
991,745 | 1,310,735 | ||||||||||
Cash and cash equivalents |
82,673 | 27,989 | ||||||||||
Accounts and notes receivable |
36,579 | 23,829 | ||||||||||
Other assets |
292,552 | 183,988 | ||||||||||
Total assets |
$ | 5,758,444 | $ | 5,559,863 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Liabilities: |
||||||||||||
Lines of credit |
$ | 397,582 | $ | 375,875 | ||||||||
Senior unsecured debt |
1,630,004 | 1,670,359 | ||||||||||
Mortgage notes and other secured debt |
523,585 | 532,106 | ||||||||||
Accounts payable and accrued expenses |
160,884 | 116,931 | ||||||||||
Construction costs payable |
29,335 | 19,805 | ||||||||||
Distributions and dividends payable |
729 | 63,169 | ||||||||||
Other liabilities |
129,157 | 59,980 | ||||||||||
Total liabilities |
2,871,276 | 2,838,225 | ||||||||||
Minority interest |
42,973 | 45,639 | ||||||||||
Shareholders’ equity: |
||||||||||||
Series C Preferred Shares; $0.01 par value; 2,000,000 shares
issued and outstanding at September 30, 2002 and December 31,
2001; stated liquidation preference of $50.00 per share |
100,000 | 100,000 | ||||||||||
Series D Preferred Shares; $0.01 par value; 10,000,000 shares
issued and outstanding at September 30, 2002 and December 31,
2001; stated liquidation preference of $25.00 per share |
250,000 | 250,000 | ||||||||||
Series E Preferred Shares; $0.01 par value; 2,000,000
shares issued and outstanding at September 30, 2002 and
December 31, 2001; stated liquidation preference of
$25.00 per share |
50,000 | 50,000 | ||||||||||
Common shares of beneficial interest; $0.01 par value;
179,570,653 shares issued and outstanding at September 30,
2002 and 175,888,391 shares issued and outstanding at
December 31, 2001 |
1,796 | 1,759 | ||||||||||
Additional paid-in capital |
3,047,044 | 2,958,613 | ||||||||||
Employee share purchase notes |
(10,831 | ) | (14,810 | ) | ||||||||
Accumulated other comprehensive income (loss) |
1,503 | (63,780 | ) | |||||||||
Distributions in excess of net earnings |
(595,317 | ) | (605,783 | ) | ||||||||
Total shareholders’ equity |
2,844,195 | 2,675,999 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 5,758,444 | $ | 5,559,863 | ||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
PROLOGIS
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Income: |
||||||||||||||||||||
Rental income |
$ | 108,577 | $ | 116,162 | $ | 332,631 | $ | 353,098 | ||||||||||||
Other real estate income |
39,841 | 26,007 | 91,563 | 83,828 | ||||||||||||||||
Income (loss) from unconsolidated entities |
(14,004 | ) | 14,612 | 55,638 | 28,630 | |||||||||||||||
Interest and other income |
536 | 1,464 | 1,911 | 4,827 | ||||||||||||||||
Total income |
134,950 | 158,245 | 481,743 | 470,383 | ||||||||||||||||
Expenses: |
||||||||||||||||||||
Rental expenses, net of recoveries of $23,499 and $70,220 |
||||||||||||||||||||
| for the three and nine months in 2002 and $23,484 and $72,236 for the three and nine months in 2001, respectively, and including amounts paid to affiliate of $89 for the nine months in 2001 | 8,478 | 7,973 | 24,995 | 21,655 | ||||||||||||||||
General and administrative, including amounts paid to
affiliate of $154 and $330 for the three and nine months
in 2002 and $114 and $627 for the three and nine months
in 2001, respectively |
14,222 | 11,042 | 40,650 | 38,153 | ||||||||||||||||
Depreciation and amortization |
38,357 | 36,040 | 110,533 | 106,403 | ||||||||||||||||
Interest |
35,759 | 41,211 | 116,790 | 123,377 | ||||||||||||||||
Other |
1,336 | 675 | 3,181 | 2,667 | ||||||||||||||||
Total expenses |
98,152 | 96,941 | 296,149 | 292,255 | ||||||||||||||||
Earnings before minority interest |
36,798 | 61,304 | 185,594 | 178,128 | ||||||||||||||||
Minority interest share in earnings |
1,285 | 1,470 | 3,875 | 4,304 | ||||||||||||||||
Earnings before gains on disposition of real estate and
foreign currency exchange gains (losses) |
35,513 | 59,834 | 181,719 | 173,824 | ||||||||||||||||
Gains on disposition of real estate, net |
482 | 3,488 | 5,129 | 863 | ||||||||||||||||
Foreign currency exchange gains (losses), net |
4,404 | (6,545 | ) | (2,468 | ) | (2,236 | ) | |||||||||||||
Earnings before income taxes |
40,399 | 56,777 | 184,380 | 172,451 | ||||||||||||||||
Income taxes: |
||||||||||||||||||||
Current income tax expense |
3,207 | 435 | 6,703 | 2,344 | ||||||||||||||||
Deferred income tax expense (benefit) |
3,801 | (748 | ) | 16,097 | 3,507 | |||||||||||||||
Total income taxes |
7,008 | (313 | ) | 22,800 | 5,851 | |||||||||||||||
Net earnings |
33,391 | 57,090 | 161,580 | 166,600 | ||||||||||||||||
Less preferred share dividends |
8,179 | 8,179 | 24,537 | 29,130 | ||||||||||||||||
Net earnings attributable to Common Shares |
25,212 | 48,911 | 137,043 | 137,470 | ||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||
Foreign currency translation adjustments |
12,769 | 43,200 | 65,283 | (19,430 | ) | |||||||||||||||
Comprehensive income |
$ | 37,981 | $ | 92,111 | $ | 202,326 | $ | 118,040 | ||||||||||||
Weighted average Common Shares outstanding — Basic |
178,336 | 174,507 | 177,626 | 171,932 | ||||||||||||||||
Weighted average Common Shares outstanding — Diluted |
180,785 | 175,586 | 184,789 | 174,945 | ||||||||||||||||
Basic net earnings attributable to Common Shares |
$ | 0.14 | $ | 0.28 | $ | 0.77 | $ | 0.80 | ||||||||||||
Diluted net earnings attributable to Common Shares |
$ | 0.14 | $ | 0.28 | $ | 0.76 | $ | 0.79 | ||||||||||||
Distributions per Common Share |
$ | 0.355 | $ | 0.345 | $ | 1.065 | $ | 1.035 | ||||||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
PROLOGIS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Operating activities: |
|||||||||||
Net earnings |
$ | 161,580 | $ | 166,600 | |||||||
Minority interest share in earnings |
3,875 | 4,304 | |||||||||
Adjustments to reconcile net earnings to net cash provided
by operating activities: |
|||||||||||
Depreciation and amortization |
110,533 | 106,403 | |||||||||
Gain on disposition of real estate |
(5,129 | ) | (863 | ) | |||||||
Straight-lined rents |
(3,676 | ) | (5,392 | ) | |||||||
Amortization of deferred loan costs |
3,696 | 3,689 | |||||||||
Stock-based compensation |
8,215 | 5,150 | |||||||||
Income from unconsolidated entities |
(35,328 | ) | (15,673 | ) | |||||||
Foreign currency exchange losses, net |
13,545 | 495 | |||||||||
Deferred income tax expense |
16,097 | 3,507 | |||||||||
Decrease in accounts receivable and other assets |
(22,654 | ) | (30,476 | ) | |||||||
Increase in accounts payable and accrued expenses and other liabilities |
24,839 | 37,096 | |||||||||
Net cash provided by operating activities |
275,593 | 274,840 | |||||||||
Investing activities: |
|||||||||||
Real estate investments |
(675,152 | ) | (612,374 | ) | |||||||
Tenant improvements and lease commissions on previously leased space |
(19,218 | ) | (16,379 | ) | |||||||
Recurring capital expenditures |
(27,719 | ) | (23,401 | ) | |||||||
Proceeds from dispositions of real estate |
744,194 | 690,752 | |||||||||
Proceeds from repayment of note receivable |
— | 10,424 | |||||||||
Cash balances recorded upon consolidation of Kingspark Holding S.A. |
9,532 | — | |||||||||
(Advances to) amounts received from unconsolidated entities, net |
(53,649 | ) | 176,228 | ||||||||
Net cash provided by (used in) investing activities |
(22,012 | ) | 225,250 | ||||||||
Financing activities: |
|||||||||||
Net proceeds from issuances under Common Share plans |
131,161 | 48,575 | |||||||||
Repurchase of Common Shares |
(55,325 | ) | (16,000 | ) | |||||||
Redemption of Series A preferred shares |
— | (135,000 | ) | ||||||||
Redemption of Series B convertible preferred shares |
— | (4,583 | ) | ||||||||
Debt issuance and other transaction costs incurred |
— | (1,815 | ) | ||||||||
Distributions paid on Common Shares |
(189,017 | ) | (177,332 | ) | |||||||
Distributions paid on preferred shares |
(24,537 | ) | (29,130 | ) | |||||||
Distributions paid to minority interest holders |
(5,458 | ) | (5, | ||||||||