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, 2003 |
| [ ] |
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 | 74-2604728 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 14100 East 35th Place, Aurora, Colorado | 80011 | |
| (Address or principal executive offices) | (Zip Code) |
(303) 375-9292
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is accelerated file (as defined in Rule 12b-2 of the Securities Act of 1934).
Yes [X] No [ ]
The number of shares outstanding of the Registrant’s common shares as of November 10, 2003 was 179,921,826.
PROLOGIS
INDEX
| Page | ||||||||||||
| Number(s) | ||||||||||||
PART I. |
Financial Information | |||||||||||
| Item 1. | Consolidated Condensed Financial Statements: | |||||||||||
| Consolidated Condensed Balance Sheets — September 30, 2003 and December 31, 2002 | 3 | |||||||||||
| Consolidated Condensed Statements of Earnings (Loss) and Comprehensive Income (Loss) — Three and Nine Months Ended September 30, 2003 and 2002 | 4 | |||||||||||
| Consolidated Condensed Statements of Cash Flows — Nine Months Ended September 30, 2003 and 2002 | 5 | |||||||||||
| Notes to Consolidated Condensed Financial Statements | 6 – 31 | |||||||||||
| Independent Accountants’ Review Report | 32 | |||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 – 50 | ||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 50 | ||||||||||
| Item 4. | Controls and Procedures | 50 | ||||||||||
PART II. |
Other Information | |||||||||||
| Item 5. | Changes in Securities and Use of Proceeds | 51 | ||||||||||
| Item 6. | Submission of Matters to a Vote of Securities Holders | 51 | ||||||||||
| Item 7. | Other Information | 51 | ||||||||||
| Item 8. | Exhibits and Reports on Form 8-K | 51 | ||||||||||
2
PROLOGIS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
| September 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
ASSETS |
||||||||||||
Real estate |
$ | 5,538,063 | $ | 5,395,527 | ||||||||
Less accumulated depreciation |
813,025 | 712,319 | ||||||||||
| 4,725,038 | 4,683,208 | |||||||||||
Investments in and advances to unconsolidated investees |
889,380 | 821,431 | ||||||||||
Cash and cash equivalents |
154,640 | 110,809 | ||||||||||
Accounts and notes receivable |
40,087 | 39,329 | ||||||||||
Other assets |
273,927 | 268,748 | ||||||||||
Total assets |
$ | 6,083,072 | $ | 5,923,525 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Liabilities: |
||||||||||||
Lines of credit |
$ | 533,270 | $ | 545,906 | ||||||||
Senior unsecured debt |
1,901,682 | 1,630,094 | ||||||||||
Mortgage notes and other secured debt |
518,325 | 555,978 | ||||||||||
Accounts payable and accrued expenses |
160,667 | 154,082 | ||||||||||
Construction costs payable |
16,402 | 27,880 | ||||||||||
Other liabilities |
105,867 | 80,631 | ||||||||||
Total liabilities |
3,236,213 | 2,994,571 | ||||||||||
Minority interest |
38,716 | 42,467 | ||||||||||
Shareholders’ equity: |
||||||||||||
Series C Preferred Shares; at stated liquidation
preference of $50.00 per share; $0.01 par value;
2,000,000 shares issued and outstanding at September
30, 2003 and December 31, 2002 |
100,000 | 100,000 | ||||||||||
Series D Preferred Shares; at stated liquidation
preference of $25.00 per share; $0.01 par value;
10,000,000 shares issued and outstanding at
September 30, 2003 and December 31, 2002 |
250,000 | 250,000 | ||||||||||
Series E Preferred Shares; at stated liquidation
preference of $25.00 per share; $0.01 par value;
2,000,000 shares issued and outstanding at December
31, 2002 |
— | 50,000 | ||||||||||
Common shares of beneficial interest; $0.01 par
value; 179,684,192 shares issued and outstanding at
September 30, 2003 and 178,145,614 shares issued and
outstanding at December 31, 2002 |
1,797 | 1,781 | ||||||||||
Additional paid-in capital |
3,062,394 | 3,021,686 | ||||||||||
Accumulated other comprehensive income |
92,800 | 47,264 | ||||||||||
Distributions in excess of net earnings |
(698,848 | ) | (584,244 | ) | ||||||||
Total shareholders’ equity |
2,808,143 | 2,886,487 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 6,083,072 | $ | 5,923,525 | ||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
PROLOGIS
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Income: |
||||||||||||||||||
Rental income |
$ | 108,896 | $ | 108,577 | $ | 336,243 | $ | 332,631 | ||||||||||
Other real estate income |
26,097 | 39,841 | 87,017 | 91,563 | ||||||||||||||
Income (loss) from unconsolidated investees |
(18,439 | ) | (14,004 | ) | 21,648 | 55,638 | ||||||||||||
Interest and other income |
223 | 536 | 1,199 | 1,911 | ||||||||||||||
Total income |
116,777 | 134,950 | 446,107 | 481,743 | ||||||||||||||
Expenses: |
||||||||||||||||||
Rental expenses, net of recoveries of $24,147 and
$76,163 for the three and nine months in 2003,
respectively, and $23,499 and $70,220 for the three
and nine months in 2002, respectively |
8,266 | 8,478 | 28,156 | 24,995 | ||||||||||||||
General and administrative |
16,432 | 14,222 | 46,671 | 40,650 | ||||||||||||||
Depreciation and amortization |
41,378 | 38,357 | 123,613 | 110,533 | ||||||||||||||
Interest |
39,069 | 35,759 | 115,856 | 116,790 | ||||||||||||||
Other |
1,307 | 1,336 | 3,006 | 3,181 | ||||||||||||||
Total expenses |
106,452 | 98,152 | 317,302 | 296,149 | ||||||||||||||
Earnings from operations |
10,325 | 36,798 | 128,805 | 185,594 | ||||||||||||||
Minority interest share in earnings |
1,186 | 1,285 | 3,796 | 3,875 | ||||||||||||||
Earnings before gains (losses) on dispositions of
real estate and
foreign currency exchange gains (expense/losses) |
9,139 | 35,513 | 125,009 | 181,719 | ||||||||||||||
Gains (losses) on dispositions of real estate, net |
(216 | ) | 482 | 3,374 | 5,129 | |||||||||||||
Foreign currency exchange gains (expense/losses), net |
(1,970 | ) | 4,404 | (10,741 | ) | (2,468 | ) | |||||||||||
Earnings before income taxes |
6,953 | 40,399 | 117,642 | 184,380 | ||||||||||||||
Income taxes: |
||||||||||||||||||
Current income tax expense (benefit) |
(727 | ) | 3,207 | 1,869 | 6,703 | |||||||||||||
Deferred income tax expense |
4,380 | 3,801 | 9,929 | 16,097 | ||||||||||||||
Total income tax expense |
3,653 | 7,008 | 11,798 | 22,800 | ||||||||||||||
Net earnings |
3,300 | 33,391 | 105,844 | 161,580 | ||||||||||||||
Less preferred share dividends |
7,092 | 8,179 | 23,450 | 24,537 | ||||||||||||||
Less excess of redemption value over carrying value of
preferred shares redeemed |
3,587 | — | 3,587 | — | ||||||||||||||
Net earnings (loss) attributable to Common Shares |
(7,379 | ) | 25,212 | 78,807 | 137,043 | |||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||
Foreign currency translation adjustments |
(53,086 | ) | 12,769 | 45,536 | 65,283 | |||||||||||||
Comprehensive income (loss) |
$ | (60,465 | ) | $ | 37,981 | $ | 124,343 | $ | 202,326 | |||||||||
Weighted average Common Shares outstanding – Basic |
179,458 | 178,336 | 179,023 | 177,626 | ||||||||||||||
Weighted average Common Shares outstanding – Diluted |
179,458 | 180,785 | 181,906 | 179,809 | ||||||||||||||
Net earnings (loss) attributable to Common Shares per
share – Basic |
$ | (0.04 | ) | $ | 0.14 | $ | 0.44 | $ | 0.77 | |||||||||
Net earnings (loss) attributable to Common Shares per
share – Diluted |
$ | (0.04 | ) | $ | 0.14 | $ | 0.43 | $ | 0.76 | |||||||||
Distributions per Common Share |
$ | 0.36 | $ | 0.355 | $ | 1.08 | $ | 1.065 | ||||||||||
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, | |||||||||||
| 2003 | 2002 | ||||||||||
Operating activities: |
|||||||||||
Net earnings |
$ | 105,844 | $ | 161,580 | |||||||
Minority interest share in earnings |
3,796 | 3,875 | |||||||||
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|||||||||||
Depreciation and amortization |
123,613 | 110,533 | |||||||||
Gains on dispositions of real estate, net |
(3,374 | ) | (5,129 | ) | |||||||
Straight-lined rents |
(5,271 | ) | (3,676 | ) | |||||||
Amortization of deferred loan costs |
4,471 | 3,696 | |||||||||
Share-based compensation |
9,879 | 8,215 | |||||||||
Adjustments to income from unconsolidated investees |
11,600 | (35,328 | ) | ||||||||
Foreign currency exchange expense/losses, net |
9,942 | 13,545 | |||||||||
Deferred income tax expense |
9,929 | 16,097 | |||||||||
Increase in accounts receivable and other assets |
(31,913 | ) | (22,132 | ) | |||||||
Increase in accounts payable and accrued expenses and
other liabilities |
25,080 | 24,839 | |||||||||
Net cash provided by operating activities |
263,596 | 276,115 | |||||||||
Investing activities: |
|||||||||||
Real estate investments |
(878,826 | ) | (671,160 | ) | |||||||
Tenant improvements and lease commissions on previously leased space |
(30,746 | ) | (25,389 | ) | |||||||
Recurring capital expenditures |
(17,510 | ) | (26,062 | ) | |||||||
Proceeds from dispositions of real estate |
730,694 | 744,194 | |||||||||
Cash balance recorded upon consolidation of Kingspark S.A. |
— | 9,532 | |||||||||
Net (advances to) amounts received from unconsolidated investees |
10,424 | (53,649 | ) | ||||||||
Net cash used in investing activities |
(185,964 | ) | (22,534 | ) | |||||||
Financing activities: |
|||||||||||
Net proceeds from sales of Common Shares and issuances of Common
Shares under plans |
33,931 | 131,161 | |||||||||
Repurchases of Common Shares, net of costs |
(9,771 | ) | (55,325 | ) | |||||||
Redemption of Series E Preferred Shares |
(50,000 | ) | — | ||||||||
Distributions paid on Common Shares |
(194,141 | ) | (189,017 | ) | |||||||
Distributions paid to minority interest holders |
(7,593 | ) | (5,458 | ) | |||||||
Distributions paid on preferred shares |
(23,450 | ) | (24,537 | ) | |||||||
Proceeds from issuance of senior unsecured debt |
300,000 | — | |||||||||
Proceeds from issuance of secured debt |
31,000 | — | |||||||||
Debt issuance costs incurred |
(3,239 | ) | — | ||||||||
Principal payments on senior unsecured debt |
(28,125 | ) | (40,625 | ) | |||||||
Net repayments on lines of credit and short-term borrowings |
(12,636 | ) | (9,736 | ) | |||||||
Regularly scheduled principal payments on secured debt |
(5,059 | ) | (5,627 | ) | |||||||
Principal payments on secured debt at maturity and prepayments |
(62,844 | ) | (2,473 | ) | |||||||
Principal payments on employee share purchase notes |
— | 3,979 | |||||||||
Purchases of derivative financial instruments |
(1,874 | ) | (1,398 | ) | |||||||
Proceeds from settlement of derivative financial instruments |
— | 159 | |||||||||
Net cash used in financing activities |
(33,801 | ) | (198,897 | ) | |||||||
Net increase in cash and cash equivalents |
43,831 | 54,684 | |||||||||
Cash and cash equivalents, beginning of period |
110,809 | 27,989 | |||||||||
Cash and cash equivalents, end of period |
$ | 154,640 | $ | 82,673 | |||||||
See Note 9 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
PROLOGIS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2003 and 2002
(Unaudited)
1. General
Business
ProLogis, collectively with its consolidated subsidiaries and partnerships, is a publicly held real estate investment trust (“REIT”) that owns (directly or through unconsolidated investees), operates and develops industrial distribution properties in North America (the United States and Mexico), Europe (11 countries) and Asia (Japan). In April 2003, ProLogis announced that it had established a representative office in China but ProLogis owned no real estate assets in China as of September 30, 2003. The ProLogis Operating System®, comprised of the Market Services Group, the Global Services Group, the Global Development Group and the ProLogis Solutions Group, utilizes ProLogis’ international network of properties to meet its customers’ distribution space needs globally. ProLogis’ business consists of two reportable business segments: