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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, 1999.
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 of (I.R.S. employer
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 Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share New York Stock Exchange
Series E Cumulative 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 was 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 14, 2000,
the aggregate market value of the voting shares held by non-affiliates of the
registrant was $2,030,987,388.
At March 14, 2000, there were outstanding approximately 162,252,057 common
shares of beneficial interest of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 2000 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 I
1. Business.................................................... 1
ProLogis Trust............................................ 1
Business Strategy and Operating Segments.................. 3
ProLogis Operating System(TM)............................. 12
Financing Strategy........................................ 13
ProLogis Management....................................... 14
Environmental Matters..................................... 19
Insurance Coverage........................................ 19
2. Properties.................................................. 20
Industrial Distribution Facilities........................ 20
Geographic Distribution................................... 20
Facilities................................................ 22
Consolidated Entities..................................... 26
Unconsolidated Entities................................... 28
3. Legal Proceedings......................................... 29
4. Submission of Matters to a Vote of Security Holders....... 29
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 30
Dividend Reinvestment and Share Purchase Plan............. 32
6. Selected Financial Data..................................... 33
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Results of Operations..................................... 36
Environmental Matters..................................... 43
Liquidity and Capital Resources........................... 43
New Tax Legislation....................................... 48
Funds from Operations..................................... 48
Year 2000................................................. 50
Risk Factors.............................................. 51
7A. Quantitative and Qualitative Disclosure About Market Risk... 54
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....................................................... 57
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PART I
ITEM 1. BUSINESS
PROLOGIS TRUST
ProLogis Trust ("ProLogis") is a real estate investment trust ("REIT") that
operates a global network of industrial distribution facilities. ProLogis owns
(directly, through consolidated entities or through investments in other real
estate entities accounted for under the equity method) 162.3 million square feet
of industrial distribution facilities operating or under development and 365.9
million cubic feet of temperature-controlled distribution facilities operating
or under development (including 35.5 million cubic feet of dry distribution
space located in temperature-controlled facilities) located throughout North
America and Europe. This network of distribution facilities makes ProLogis the
largest publicly held U.S.-based, global owner and lessor of industrial
distribution and temperature-controlled distribution facilities. The ProLogis
Operating System(TM), comprised of the Market Services Group, the Global
Services Group, the Global Development Group and the Integrated Solutions Group,
utilizes ProLogis' international network of distribution facilities to meet its
customers' distribution space needs globally. ProLogis believes it has
distinguished itself from its competition by developing an organizational
structure and service delivery system built around its customers. ProLogis
believes that its service approach, which combines international scope and
expertise and a strong local presence in each of its target markets, makes it
attractive to its targeted customer base that includes the largest global users
of distribution facilities. ProLogis is organized under Maryland law and has
elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code").
ProLogis' business strategy is designed to: 1) achieve long-term
sustainable growth in cash flow; 2) reduce the need for ProLogis to issue
additional public debt or public equity capital; and 3) increase the overall
return on equity for shareholders. ProLogis has organized its business into
three operating segments in order to achieve its objectives. For a discussion of
certain financial information regarding each segment see Note 18 and for a
discussion of ProLogis' investments in unconsolidated entities see Note 5 to
ProLogis' Consolidated Financial Statements in Item 8. These three segments are:
- Property Operations -- The long-term ownership, management and leasing of
industrial distribution facilities in North America and Europe, primarily
distribution space that is adaptable for both distribution and light
manufacturing or assembly uses. This segment generates income from rents
and reimbursement of property operating expenses from unaffiliated
customers and earns management fees from entities in which it has an
ownership interest. As of December 31, 1999, in this operating segment
ProLogis owned and operated (directly, through consolidated entities or
through investments in other real estate entities that are accounted for
under the equity method) 148.5 million square feet of industrial
distribution facilities at an investment of $5.4 billion (133.7 million
square feet at an investment of $4.6 billion for properties that are
owned directly by ProLogis and its consolidated entities). Of the total,
137.9 million square feet are located in North America and the remaining
10.6 million square feet are located in Europe. Also, as of December 31,
1999, ProLogis and its consolidated entities owned 2.7 million square
feet of facilities under development with a total budgeted cost of $98.7
million, all located in North America. Upon completion, these facilities
are expected to become a part of ProLogis' operating portfolio.
- Corporate Distribution Facilities Services Business -- Development of
industrial distribution facilities for future sale to unaffiliated
customers or entities in which ProLogis has an ownership interest or for
a development fee for unaffiliated customers in North America and Europe.
In addition, entities in which ProLogis has an ownership interest that
own and operate industrial distribution facilities acquire facilities
from ProLogis or its affiliates that were developed within this operating
segment. ProLogis' investments in these other entities, and fees earned
from these entities, are reflected in ProLogis' property operations
segment. The development activities in this operating segment are
performed directly by ProLogis, by a consolidated entity in which
ProLogis recognizes substantially all of the economic benefits or through
an unconsolidated entity that is accounted for under the equity method in
which ProLogis recognizes substantially all of the economic benefits.
Income from this segment is derived from the profit resulting from the
sale of the facilities developed and from fees paid by customers for the
development of a facility
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on their behalf. As of December 31, 1999, ProLogis had, either directly,
through its consolidated entity or through an unconsolidated entity, 10.2
million square feet of facilities under development with a total budgeted
cost of $543.0 million (8.0 million square feet at a total budgeted
development cost of $325.5 million for properties owned directly by
ProLogis and its consolidated entity). Also as of December 31, 1999,
ProLogis owned or controlled, either directly, through its consolidated
entity or through an unconsolidated entity, 4,832 acres of land for the
future development of approximately 80.1 million square feet of
industrial distribution facilities (3,020 acres of land for the future
development of approximately 51.6 million square feet on properties owned
directly by ProLogis and its consolidated entity). Upon completion, these
facilities are expected to be sold to customers or to entities in which
ProLogis has an ownership interest.
- Temperature-Controlled Distribution Operations -- Operation of
temperature-controlled distribution facilities where fees are earned from
unaffiliated customers for various services associated with a
temperature-controlled distribution environment. Such services include:
1) total supply chain management; 2) management of customer inventory and
related services, (i.e. case picking, sorting, labeling, stenciling,
shrink wrapping and blast freezing); 3) temperature-controlled product
consolidation and transportation services; and 4) third-party logistics
services and facility management for leading grocery retailers. In this
segment, ProLogis recognizes substantially all of the economic benefits
of two companies that are accounted for under the equity method. As of
December 31, 1999, these unconsolidated entities owned or operated 359.9
million cubic feet of temperature-controlled distribution space
(including 35.5 million cubic feet of dry distribution space located in
temperature-controlled facilities) and had 6.1 million cubic feet of
temperature-controlled distribution space under development. Of the total
cubic feet in operation, 167.6 million cubic feet are located in North
America and 192.3 million cubic feet are located in nine European
countries. Of the facilities under development, 4.8 million cubic feet
are located in North America (Atlanta) and 1.3 million cubic feet are
located in Europe (Denmark).
1999 Operating Performance
ProLogis' 12.2% growth in funds from operations (on a per share basis) in
1999 over 1998 was driven by its successful operating and investment strategies.
Total funds from operations increased by $91.8 million from $228.4 million in
1998 to $320.2 million in 1999. The contribution to total funds from operations
by ProLogis' operating segments for 1999 and 1998 is as follows (see also Note
18 to ProLogis' Consolidated Financial Statements in Item 8):
- 70.6% and 78.2% of total funds from operations is attributable to the
property operations segment in 1999 and 1998, respectively;
- 20.3% and 8.1% of total funds from operations is attributable to the
corporate distribution facilities services business segment in 1999 and
1998, respectively; and
- 9.2% and 13.6% of total funds from operations is attributable to the
temperature-controlled distribution operations segment in 1999 and 1998,
respectively.
Funds from operations is a performance measure used by REITs and is defined
and discussed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Funds
from Operations".
ProLogis' net operating income (rental revenues less rental expenses)
increased from $317.9 million in 1998 to $458.3 million in 1999. ProLogis
generated earnings from operations of $166.5 million in 1999, an increase of
$58.9 million over 1998. ProLogis' cash flow provided by operating activities
for 1999 was $271.4 million, an increase of $33.1 million over 1998. Net
earnings attributable to Common Shares of $124.0 million in 1999 was nearly two
times greater than the 1998 amount of $62.2 million. See ProLogis' Consolidated
Financial Statements in Item 8.
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BUSINESS STRATEGY AND OPERATING SEGMENTS
Business Strategy
ProLogis was originally formed in 1991 with the objective of building a
distribution and light manufacturing asset base at costs significantly below
replacement cost and a land inventory for the future development of distribution
facilities. Additionally, ProLogis intended to create a national operating
company that 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 expanded its property 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. To enhance its North American property
operations and service platform, ProLogis completed a merger with Meridian
Industrial Trust Inc. ("Meridian"), a publicly held REIT, in March 1999 (the
"Meridian Merger"). The Meridian Merger added 32.2 million square feet of
operating facilities, 228 acres of land for future development and 15.2 million
cubic feet of temperature-controlled distribution facilities to ProLogis'
holdings. The Meridian Merger is discussed in Note 3 to ProLogis' Consolidated
Financial Statements in Item 8 and in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Meridian Merger".
Having established its core property operations business, in 1997 and 1998
ProLogis expanded its service platform by acquiring an international
temperature-controlled distribution network. Also, to enhance its corporate
distribution facilities services business, ProLogis acquired an industrial
distribution development company with extensive holdings in the United Kingdom
in August 1998.
To further its objective of increasing cash flows without the need to raise
additional capital through direct public debt and public equity offerings,
ProLogis expanded its operations in Europe through the formation of the ProLogis
European Properties Fund in September 1999 (see Note 5 to ProLogis' Consolidated
Financial Statements in Item 8). The ProLogis European Properties Fund, in which
ProLogis maintains an ownership interest, enables ProLogis to take advantage of
the growth opportunities in the European industrial distribution industry by
accessing over 1.06 billion euros (the currency equivalent of $1.07 billion as
of December 31, 1999 based on currency exchange rates quoted by Reuters) of
third party equity capital that has been committed to the ProLogis European
Properties Fund by a group of institutional investors. Formation of the ProLogis
European Properties Fund enhances the ProLogis Operating System(TM) because the
capital commitments secured through this entity will allow ProLogis to expand
its operating platform in Europe.
Additionally, in the third quarter of 1999, ProLogis sold over $550 million
of real estate assets to a limited liability company in which ProLogis has a 50%
equity interest. The formation of this company and subsequent sale of assets
allowed ProLogis to privately raise additional capital to be used for its
investment activities. See Note 5 to ProLogis' Consolidated Financial Statements
in Item 8.
Also in 1999, ProLogis formed its Integrated Solutions Group (see "--
ProLogis Operating System(TM) -- Integrated Solutions Group") with the objective
of increasing ProLogis' service income thereby growing cash flows in a less
capital intensive manner.
ProLogis' network of distribution facilities has positioned it to become
the global leader in this rapidly consolidating industry. ProLogis' three
operating segments, property operations, corporate distribution facilities
services business and temperature-controlled distribution operations, are
discussed below.
Property Operations Segment
Investments
In the property operations segment, ProLogis owned and operated (directly,
through its consolidated entities or through investments in other real estate
entities accounted for under the equity method) 1,424 industrial distribution
facilities aggregating 148.5 million square feet as of December 31, 1999.
ProLogis' investment strategy with respect to the property operations segment is
to focus its development and acquisition activities primarily on generic
distribution facilities with an average office finish level of less than 10%.
ProLogis' distribution space is adaptable for both distribution and light
manufacturing or assembly uses. ProLogis has invested in selected distribution
markets in North America and Europe where ProLogis believes the distribution
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dynamics are strong and supply and demand factors allow for high occupancy
levels and increasing rental rates. The market characteristics ProLogis
evaluates include: 1) growth in imports and exports that represent favorable
distribution growth prospects for distribution space; 2) markets possessing
long-term cost and quality of labor advantages for domestic and international
manufacturers (such as markets benefitting from the U.S./Mexico twin plant
program); and 3) markets with strong potential for distribution growth,
generally indicated by their proximity to large regional and local population
centers with good access to transportation networks, by cost advantages in terms
of transportation rates and state income and inventory taxes or by a high ratio
of distribution space per capita.
Property operations segment investment activities in 1999 included the
following:
- In March 1999, the Meridian Merger was completed which added 32.2 million
square feet of operating facilities in 25 markets in the United States.
- In August 1999, ProLogis sold 78 operating facilities aggregating 11.5
million square feet, two properties under development and two land
parcels to a limited liability company, ProLogis California I LLC
("ProLogis California"), in which ProLogis has a 50% equity interest.
ProLogis continues to manage the facilities in addition to providing
leasing and development management services to ProLogis California. See
"Item 2. Properties -- Unconsolidated Entities" and Note 5 to ProLogis'
Consolidated Financial Statements in Item 8.
- In September 1999, the ProLogis European Properties Fund began operations
with the acquisition of 12 operating facilities aggregating 2.2 million
square feet. The facilities were acquired from ProLogis and from
Kingspark Group Holdings Limited ("ProLogis Kingspark"), an entity in
which ProLogis owns 100% of the preferred stock (representing
substantially all of the economic benefits). ProLogis Kingspark develops
industrial distribution facilities in the United Kingdom. In December
1999, the ProLogis European Properties Fund acquired six additional
operating facilities aggregating 1.1 million square feet from ProLogis
and ProLogis Kingspark. ProLogis manages the assets of the ProLogis
European Properties Fund and earns fees for these services. ProLogis had
a 19.68% ownership interest in the ProLogis European Properties Fund as
of December 31, 1999. On January 7, 2000, ProLogis contributed 50.1% of
the common stock of one of its wholly owned European entities to the
ProLogis European Properties Fund. As of December 31, 1999, this entity
owned real estate with a net book value of $334.9 million (61 buildings
aggregating 6.8 million square feet) and held secured debt of $142.7
million and unsecured debt of $30.9 million. After this contribution,
ProLogis' ownership in the ProLogis European Properties Fund was
increased to 44.29%. ProLogis is committed to contributing the remaining
49.9% of the common stock of this entity to the ProLogis European
Properties Fund in January 2001. See "Item 2. Properties -- Facilities",
"Item 2. Properties--Unconsolidated Entities" and Note 5 to ProLogis'
Consolidated Financial Statements in Item 8.
- During 1999, ProLogis completed the development of 4.5 million square
feet of facilities at a total budgeted development cost of $179.8 for use
in the property operations segment. As of December 31, 1999, ProLogis had
2.7 million square feet of facilities under development with a total
budgeted development cost of $98.7 million that, upon completion, are
expected to be included in ProLogis' operating portfolio.
- Acquisitions of existing distribution facilities were limited to two
buildings in Mexico aggregating 98,000 square feet.
Operations
The property operations segment generated 85% of ProLogis' total revenues
in 1999 (including amounts recognized under the equity method with respect to
ProLogis' unconsolidated entities). This segment generated 94% of revenues in
both 1998 and 1997 (including amounts recognized under the equity method with
respect to ProLogis' unconsolidated entities). See Note 18 to ProLogis'
Consolidated Financial Statements in Item 8.
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Operational achievements in this operating segment in 1999 included the
following:
- ProLogis' stabilized industrial distribution facilities portfolio of
141.6 million square feet (including facilities directly owned, owned by
consolidated entities or owned by unconsolidated entities) was 96.52%
leased (96.02% occupied) as of December 31, 1999. Also, as of December
31, 1999, ProLogis' total operating portfolio of 148.5 million square
feet (including facilities owned by ProLogis' consolidated and
unconsolidated entities) was 94.95% leased (94.45% occupied). Stabilized
facilities are those in which capital improvements, repositioning, new
management and new marketing programs (or development and marketing, in
the case of newly developed facilities) have been in effect for a
sufficient period of time (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).
- During 1999, ProLogis, its consolidated and unconsolidated entities
leased 33.2 million square feet of distribution space in 1,122
transactions. Rental rates on both new leases and renewals of leases on
previously leased space increased 15.5% in 1999 and the weighted average
customer retention rate was 68.1% in 1999.
Market Presence
The facilities in the property operations segment that are owned directly
by ProLogis or through its consolidated entities are located in 46 cities in
North America and seven cities in Europe. As of December 31, 1999, no individual
market represents more than 10% of ProLogis' total real estate assets. ProLogis'
largest markets (based on cost) are Dallas/Fort Worth (8.5%), Chicago (6.8%),
Atlanta (6.7%), Paris, France (6.3%), San Francisco (South Bay) (5.11%) and San
Francisco (East Bay) (4.9%). All of the facilities owned by ProLogis California
are located in the Los Angeles market. The 18 facilities owned by the ProLogis
European Properties Fund are located in 13 markets in Europe.
ProLogis has sought to achieve significant market presence through the
development and acquisition of master-planned distribution parks in its target
market cities and selected submarkets of those cities. The target market cities
and submarkets are selected when ProLogis' market research indicates that the
long-term demand for distribution and light manufacturing space is stable to
strong. The primary factors influencing future supply and demand for
distribution facilities in ProLogis' target market cities will be continued job
and population growth, import/export growth, related regional and local company
growth, potential for reconfiguration of existing distribution networks and
quality and cost of labor.
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 with a comprehensive
level of service. ProLogis aims to shape the future trends of the industry
through innovation, service and product leadership. ProLogis believes that by
being a significant local owner and developer in a given market, it can generate
high relative rental rates and occupancy levels, primarily because it has the
ability to reduce turnover by meeting its customers' needs to either expand or
contract. With its network of industrial distribution facilities and land
positions, ProLogis is able to either relocate customers within its existing
inventory of distribution space or develop new facilities to meet the customer's
needs.
In addition, a strong market presence provides ProLogis with increased
access to potential leasing and corporate distribution facilities services
transactions. ProLogis' experience has been that many members of the industrial
brokerage community and many corporate users are motivated to develop
relationships with the significant owners and developers in a particular market
to facilitate their respective distribution needs. Having the opportunity to
compete for a large percentage of the space requirements in each market is a
crucial factor in achieving ProLogis' operating objectives.
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Competition
In general, there are numerous other industrial facilities located in close
proximity to ProLogis' facilities. The amount of rentable space available in any
market could have a material effect on ProLogis' ability 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 and land, both from
institutional capital sources and from other REITs, has increased over the past
several years.
Property Management
ProLogis provides active and effective management to directly serve its
customers at the local level -- a strategy that ProLogis believes will enhance
the long-term economic performance of its facilities and increase cash flow.
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 throughout the ProLogis network. Of
facilities directly owned and owned by ProLogis' consolidated and unconsolidated
entities, ProLogis' property management group was managing 96.7% of ProLogis'
North American operating facilities and all of ProLogis' European facilities.
Customers
One of ProLogis' objectives is to develop a customer base in each market
that 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 distribution space owned by
ProLogis. As of December 31, 1999, ProLogis (including its consolidated and
unconsolidated entities) had over 3,600 customers in 140.3 million square feet
of occupied industrial distribution space. ProLogis believes that having a large
number of customers with generic space requirements in each submarket reduces
ProLogis' exposure to overall occupancy declines. ProLogis' largest customer
accounted for less than 2% of ProLogis' 1999 rental income (on an annualized
basis) and the annualized base rent for ProLogis' 20 largest customers accounted
for approximately 14% of ProLogis' 1999 rental income (on an annualized basis).
Employees
ProLogis and its consolidated entities directly employ approximately 600
persons in North America and Europe. Of the total, approximately 350 employees
are assigned directly to the property operations segment. ProLogis' other
employees may provide assistance in this segment but are not directly assigned
to property operations. ProLogis believes its relationship with its employees to
be good. ProLogis' employees are not represented by a collective bargaining
agreement.
Seasonal Nature of the Business
The demand for industrial distribution space is not seasonal.
Future Plans
ProLogis' business plan for the property operations segment in North
America calls for development and acquisition of existing distribution
facilities to serve its customers, to enhance ProLogis' market presence in
specific submarkets and to take advantage of opportunities where ProLogis
believes it has the ability to achieve very favorable returns. ProLogis believes
that its current level of investment in this operating segment in North America,
including the facilities currently under development that will be part of the
operating portfolio upon completion, enables it to service its customers at a
high level and increase returns to shareholders.
ProLogis' market research and customer feedback identified strong demand
for distribution space in Europe as cross-border trade increases and many
companies move to consolidate and reconfigure their distribution
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networks. Consolidation and the emergence of dominant regional distribution
centers provide opportunities for ProLogis as a single-source pan-European
provider of distribution facilities. Consequently, ProLogis' business plan for
the property operations segment in Europe emphasizes growth in key distribution
markets through the ProLogis European Properties Fund, primarily from the
development of facilities within ProLogis' corporate distribution facilities
services business segment that will be sold to the ProLogis European Properties
Fund and then managed by ProLogis.
ProLogis intends to self-fund its future investment activities in the
property operations segment through operating cash flow, the disposition of
non-strategic facilities and sales to the ProLogis European Properties Fund. The
non-strategic assets are identified as those facilities that provide ProLogis
with limited opportunities to increase cash flow and returns through increases
in occupancy levels and rental rates. See the discussion of factors that could
effect the future plans of ProLogis and its consolidated and unconsolidated
entities at "Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Risk Factors".
Corporate Distribution Facilities Services Business Segment
Investment
ProLogis operates its corporate distribution facilities services business
segment ("CDFS business") in North America directly or through a consolidated
entity in which ProLogis realizes substantially all of the economic benefits,
ProLogis Development Services Incorporated ("ProLogis Development Services")
(see "Item 2. Properties -- ProLogis Development Services"). In Europe
(excluding the United Kingdom), ProLogis directly operates its CDFS business
segment. In the United Kingdom, the CDFS business is operated by ProLogis
Kingspark, an unconsolidated entity in which ProLogis recognizes substantially
all of the economic benefits (see "Item 2. Properties -- Unconsolidated
Entities"). ProLogis' CDFS business is customer-driven in that ProLogis will
develop facilities for customers in locations desired by the customer. ProLogis
will then sell the facility and redeploy the capital into land acquisitions and
development opportunities. ProLogis does not intend to incur capital risk in
this operating segment. In situations where ProLogis' customers need a
specialized facility or need a facility in a market that ProLogis does not
consider to have favorable dynamics, ProLogis will meet the customer's needs on
a fee development basis only.
As of December 31, 1999, the CDFS business segment had 10.2 million square
feet of facilities under development with a total budgeted development cost of
$543.0 million (including 8.0 million square feet with a total budgeted
development cost of $325.5 million owned directly by ProLogis and ProLogis
Development Services). These facilities are being developed with the objective
of selling the facility to a third party or to an entity in which ProLogis has
an ownership interest. To the extent the facilities are sold to entities in
which ProLogis has an ownership interest, ProLogis' interest in the operations
of these facilities will be included in its property operations segment.
ProLogis, ProLogis Development Services and ProLogis Kingspark also earn fees
under development management agreements. During 1999, 2.1 million square feet
were developed under such agreements.
ProLogis, ProLogis Development Services and ProLogis Kingspark have land
positions (land owned or controlled through option, letter of intent,
development rights agreement or contingent contract) aggregating 4,832 acres
with the capacity for developing approximately 80.1 million square feet of
distribution facilities. Of the total land positions, 3,020 acres, with the
capacity for developing approximately 51.6 million square feet of distribution
facilities, are owned or controlled by ProLogis and ProLogis Development
Services. A significant portion of this land will be used within the CDFS
business to develop facilities that will either be sold to third parties or to
entities in which ProLogis has an ownership interest. However, some of the
acreage could be used for future developments of facilities that, when
completed, could be included in ProLogis' operating portfolio.
Investment activities in the CDFS business in 1999 included the following:
- Development starts aggregated 8.0 million square feet at a total budgeted
development cost of $498.6 million. Of these starts, 4.0 million square
feet at a total budgeted development cost of $355.8 million were in
Europe.
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- Development completions aggregated 7.6 million square feet at a total
budgeted development cost of $403.5 million (3.1 million square feet at a
total budgeted development cost of $221.4 million located in Europe).
- Land acquisitions aggregating 938.1 acres in 1999, 724.7 acres in North
America and 213.4 acres in Europe. This land can be used for the
development of approximately 16.4 million square feet of distribution
facilities.
Operations
In 1999, the CDFS business generated $70.5 million of ProLogis' total
revenues as compared to 1998 and 1997 when the CDFS business generated $20.5
million and $12.3 million of total revenues, respectively. As a percentage of
total revenues, this operating segment has grown from 4% in 1997 to over 12% in
1999. In this operating segment, ProLogis recognizes its share of the net
earnings of ProLogis Kingspark under the equity method as a component of its
total revenues ($23.9 million in 1999 and $2.9 million for the period from
acquisition on August 14, 1998 to December 31, 1998). See Note 18 to ProLogis'
Consolidated Financial Statements in Item 8.
The primary source of income in the CDFS business segment is the aggregate
profits from dispositions of facilities. In addition, income in the CDFS
business segment includes development management fees, earned primarily by
ProLogis Kingspark. The CDFS business generated funds from operations of $76.5
million in 1999 ($28.9 million in North America and $47.6 million in Europe). Of
the total European contribution to funds from operations in the CDFS business
segment, ProLogis' share of ProLogis Kingspark's funds from operations was $29.8
million in 1999. In 1998 and 1997, the CDFS business generated funds from
operations of $22.2 million and $12.3 million, respectively. All of the funds
from operations generated by the CDFS business segment were from North America
in 1998 (except for ProLogis' share of ProLogis Kingspark's funds from
operations of $4.9 million) and 1997. Funds from operations is discussed and
defined at "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Funds from Operations".
Operational achievements in the CDFS business in 1999 included the
following:
- ProLogis, ProLogis Development Services and ProLogis Kingspark sold 6.5
million square feet of facilities with net sales proceeds of $512.9
million.
- ProLogis Kingspark had 1.2 million square feet of facilities being
developed on behalf of customers under development management agreements.
Fees earned by ProLogis Kingspark under such agreements were $5.4 million
in 1999.
Market Presence
ProLogis' CDFS business spans substantially all of the property operations
markets. Currently, ProLogis has facilities under development in this operating
segment in 24 markets (including six markets in Europe) and has land positions
in 39 markets (including six markets in Europe).
Competition
There are a number of other local, regional and national developers engaged
in industrial distribution facility development in the same North American
markets that ProLogis conducts business. Competition for land acquisitions, from
both institutional capital sources and other REITs, has increased over the past
several years. The disposition market in North America is competitive and is
driven by the supply of new developments and interest rate levels.
ProLogis believes that there are no other REITs or pan-European real estate
operating companies in direct competition with their operations in Europe.
However, there are a number of local and regional developers in ProLogis' target
markets. The formation of the ProLogis European Properties Fund allows ProLogis
and ProLogis Kingspark to sell the facilities it develops in the CDFS business
to the ProLogis European Properties Fund at independently appraised values (i.e.
95% of appraised value) which minimizes the effects of competition.
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In addition, ProLogis, ProLogis Development Services and ProLogis Kingspark
believe that they have a significant competitive advantage based upon the
strategic locations of their extensive land positions owned or under control.
Also, as the only industrial distribution facilities and services provider
operating on a national, pan-European and global basis, ProLogis believes it has
differentiated itself from many of its competitors.
Customers
ProLogis leverages off its existing customer relationships, primarily
within the property operations segment and utilizes the ProLogis Operating
System(TM) in identifying and marketing its CDFS business. See "-- ProLogis
Operating System(TM)".
Employees
ProLogis and its consolidated entities directly employ approximately 600
persons in North America and Europe. Of the total, approximately 75 employees
perform development activities including activities related to the CDFS business
segment. ProLogis' other employees may provide assistance in this segment but
are not directly assigned to the CDFS business segment. ProLogis believes its
relationship with its employees to be good. ProLogis' employees are not
represented by a collective bargaining agreement.
ProLogis Kingspark employs 55 persons. ProLogis Kingspark's employees do
not participate in a collective bargaining agreement and ProLogis Kingspark
believes its relationship with its employees to be good.
Seasonal Nature of the Business
The demand for the industrial distribution facilities that are developed by
ProLogis' CDFS business is not impacted on a seasonal basis. However, the
development process can be impeded by weather, potentially delaying construction
completions, particularly during the winter months in certain markets.
Future Plans
ProLogis' objective is to utilize the capital generated in the CDFS
business to self-fund future CDFS business activities in North America and
Europe, thereby minimizing the need for ProLogis to raise additional direct
public debt and public equity capital. In addition, proceeds from the
disposition of non-strategic assets in the property operations segment can be
re-invested in higher yielding new development facilities within the CDFS
business segment. ProLogis' research indicates that favorable market conditions
are likely to continue in 2000 directly impacting this operating segment.
Specifically, a limited supply of new state-of-the-art distribution space in
Europe and the reconfiguration of supply chains necessitated by the increase in
e-commerce businesses globally should favorably impact demand for the facilities
and services provided by ProLogis within its CDFS operating segment.
ProLogis believes that significant shareholder value can be achieved by
expanding its service offerings to customers with limited need for ProLogis to
raise additional public debt and public equity capital. ProLogis will continue
to develop facilities for third parties and earn fees for these services in
2000. In addition, ProLogis has expanded the scope of the ProLogis Operating
System(TM) through the formation of the Integrated Solutions Group (see
"-- ProLogis Operating System(TM) -- Integrated Solutions Group"). The
Integrated Solutions Group will provide distribution-related services for
customers including network optimization tools, tax incentive analysis and tax
negotiation consulting, site selection and design consulting services. See the
discussion of factors that could effect the future plans of ProLogis, ProLogis
Development Services and ProLogis Kingspark at "Item 7. Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Risk Factors".
Temperature-Controlled Distribution Operations
Investments
In April 1997, ProLogis expanded its services platform by acquiring CS
Integrated LLC a temperature-controlled-distribution company operating in the
United States. ProLogis recognizes substantially all of the economic benefits of
the entity that owns 100% of CS Integrated LLC (collectively, "CSI"). As of
December 31,
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1999 CSI owned or operated 54 temperature-controlled distribution facilities
aggregating 167.6 million cubic feet (including 35.5 million cubic feet of dry
distribution space located in temperature-controlled facilities) and had 4.8
million cubic feet under development in Atlanta. In January 1998, ProLogis
acquired 100% of the preferred stock of a company in which it recognizes
substantially all of the economic benefits. This company owns, through its
wholly owned subsidiaries, 100% of a temperature-controlled distribution company
headquartered in Sweden, Frigoscandia AB (collectively, "Frigoscandia"). As of
December 31, 1999, Frigoscandia, which operates in nine European countries,
owned or operated 88 temperature-controlled distribution facilities aggregating
192.3 million cubic feet and had 1.3 million cubic feet under development in
Denmark. ProLogis accounts for its investments in CSI and Frigoscandia under the
equity method. See "Item 2. Properties -- Unconsolidated Entities" and Note 5 to
ProLogis' Consolidated Financial Statements in Item 8.
In order to provide value-added supply chain management services to its
customers, CSI and Frigoscandia leverage their existing temperature-controlled
facilities network with information technology investments that increase the
velocity and visibility of inventory and information throughout the entire
supply chain. Additionally, CSI and Frigoscandia have and will continue to
expand their respective temperature-controlled capacity through expansion and
acquisition in selected markets that they believe will enhance their existing
network and provide opportunities for growth in operating profits and cash
flows. Accordingly, CSI added 53.5 million cubic feet of operating capacity in
1999, including 15.2 million cubic feet that was acquired in connection with the
Meridian Merger. The remaining increase resulted from additional capacity in the
retail dedicated segment (see "-- Operations"). Frigoscandia's cubic feet
capacity was constant throughout 1999. However, to better serve its key
customers, improvements and upgrades were made to its primary distribution
service centers in the United Kingdom, Denmark, Sweden and Germany.
During 1999, both CSI and Frigoscandia enhanced and improved their
logistics information technology systems. These systems are being coordinated on
a global basis which, when completed, will enable CSI and Frigoscandia to
maximize synergies within and between the North American operations and the
European operations.
Operations
ProLogis recognizes its share of the net earnings of CSI and Frigoscandia
under the equity method as a component of its total revenues. For 1999,
ProLogis' share of the net earnings of CSI and Frigoscandia was $6.4 million. In
1998 and 1997, ProLogis' share of the net earnings of CSI and Frigoscandia was a
loss of $186,000 and income of $3.3 million, respectively. The income in 1997
consisted entirely of income from CSI. See Note 18 to ProLogis' Consolidated
Financial Statements in Item 8. ProLogis' share of the funds from operations of
CSI and Frigoscandia was $46.1 million in 1999 as compared to $45.7 million in
1998 and $3.3 million in 1997 (CSI only). Funds from operations is discussed and
defined at "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Funds from Operations".
In 1999, CSI increased its non-asset based retail dedicated business
segment, where CSI provides all logistics services (i.e. labor and
transportation) to supermarket retailers in distribution facilities not owned by
CSI. This business segment enables CSI to increase its revenues without
significantly increasing its invested capital.
Market Presence
Market presence in the temperature-controlled distribution industry is
generally defined by the volume available for storage of frozen and chilled
foods in addition to the transportation network in place to serve its customers.
With 54 facilities and 167.6 million cubic feet in operation (including 35.5
million cubic feet of dry distribution space operated in temperature-controlled
facilities), CSI has the third largest temperature-controlled distribution
network in the United States (based on cubic feet in operation). CSI's largest
markets (based on cubic feet in operation) are Phoenix (17.8%), Southeastern
Pennsylvania (15.2%), Atlanta (9.9%), Southern California (7.0%) and Chicago
(6.6%).
Frigoscandia is the largest temperature-controlled distribution company in
Europe with 88 facilities in 12 markets and nine countries, consisting of 192.3
million cubic square feet in operation and 1.3 million cubic
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feet under development. Based on cubic feet in operation, France (36.9%), the
United Kingdom (24.0%) and Germany (14.4%) represent the largest concentrations
within Frigoscandia's service territory.
This strong market presence in both North America and Europe benefits CSI
and Frigoscandia in light of the trend toward industry consolidation. ProLogis
believes that CSI and Frigoscandia are well positioned to provide supply-chain
management services to major food manufacturers and retailers across multiple
markets.
Competition
In North America, CSI competes directly with several national
temperature-controlled distribution companies. However, the primary competition
in many markets is from local and considerably smaller warehouse operators. In
Europe, Frigoscandia has a distinct advantage over its competitors as few other
European temperature-controlled distribution companies have operations in more
than one market (as compared to the 12 markets in which Frigoscandia operates).
Additionally, Frigoscandia is the largest operator of temperature-controlled
distribution facilities in Europe, with a temperature-controlled storage volume
of approximately three times that of its closest competitor. The
temperature-controlled logistics industry has significant barriers to entry due
to its capital-intensive nature.
Customers
CSI has approximately 3,275 customers including some of the nation's
leading supermarket retailers in the United States. Of CSI's total revenues,
approximately 59% were derived from its 20 largest customers. CSI's largest
customer accounted for approximately 33% of total revenues. Frigoscandia has
approximately 6,000 customers and its largest customer accounted for
approximately 9% of total revenues. Frigoscandia's 20 largest customers
accounted for approximately 45% of total revenues.
The objective of the temperature-controlled distribution operations segment
is to develop a customer base with complementary needs to build a highly
effective consolidated supply chain for temperature-controlled foods. In
addition to the marketing efforts designed to meet this objective, CSI and
Frigoscandia have begun coordinated global marketing efforts aimed at leveraging
off their existing customer relationships with multinational companies.
Employees
CSI and Frigoscandia directly employ all employees in the
temperature-controlled distribution operations segment. CSI employs
approximately 3,700 persons in the United States, of whom approximately 41%
participate in collective bargaining agreements. Frigoscandia employs
approximately 2,800 persons in 12 European countries (including three countries
where Frigoscandia provides transportation services but has no temperature-
controlled distribution facilities), of whom approximately 80% participate in
collective bargaining agreements. Both CSI and Frigoscandia believe their
relationships with their employees to be good.
Seasonal Nature of the Business
The temperature-controlled distribution operations segment is seasonal, in
that demand for temperature-controlled distribution facilities is stronger
during the third quarter of the calendar year and is at its lowest level in the
first quarter of the calendar year. The seasonal nature of
temperature-controlled distribution operations coincides with the lower demand
for frozen foods, such as ice cream, during the winter months and the timing of
the harvests of various food crops in the third quarter of the year, which
increases the demand for temperature-controlled storage capacity during that
time.
Future Plans
ProLogis believes that the overall temperature-controlled logistics
industry supply and demand trends are positive and signal continued
consolidation, optimization and globalization. ProLogis views its investments in
CSI and Frigoscandia as one temperature-controlled distribution network
delivering worldwide temperature-controlled logistics solutions to national,
pan-European and global customers. Expansion into new markets in
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North America and Europe will be considered to the extent that such expansion is
necessary to enable CSI and Frigoscandia to expand its services to the major
food manufacturers and retailers that operate across multiple markets and
internationally. These expansions are expected to be principally funded with
internal capital generated from the operations of each company. Strong emphasis
in the year 2000 will be placed on the global marketing of the varied service
offerings that CSI and Frigoscandia can provide to customers who can benefit
from a single-source global temperature-controlled logistics provider.
Additionally, investments in information technology in 2000 will enhance the
operation of both CSI and Frigoscandia by upgrading their warehouse management
systems and labor management systems thereby improving productivity and service
quality. These efforts will provide CSI and Frigoscandia with opportunities to
increase their service offerings, including integrated supply chain management,
transportation services and retail dedicated services without the need for
significant additional capital investments from ProLogis. See the discussion of
factors that could effect the future plans of ProLogis, CSI and Frigoscandia at
"Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Risk Factors".
PROLOGIS OPERATING SYSTEM(TM)
The cornerstone of ProLogis' business strategy is the ProLogis Operating
System(TM). The ProLogis Operating System(TM) is comprised of the Market
Services Group, the Global Services Group, the Global Development Group and the
newly formed Integrated Solutions Group. The ProLogis Operating System(TM) is a
customer service delivery system that 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 over 50 North American and European markets permits
ProLogis to accommodate the reconfiguration needs of its customers by
relocating 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.
- Development Capability. ProLogis' team of development professionals
builds generic facilities that will appeal to a wide variety of customers
or to specifically 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.
- 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 are
limiting the number of services providers that they work with to meet
their distribution facility requirements.
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 that will generate additional business opportunities.
Market Services Group
The Market Services Group is comprised of five senior officers, 23 market
officers, three country officers in Europe and approximately 315 property
management and leasing employees. 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
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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 16 employees, is dedicated to
providing service to the 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 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 72 employees, focuses
substantial research and development efforts on creating industry-leading
master-planned distribution parks and facilities. 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 that 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.
Integrated Solutions Group
The Integrated Solutions Group, currently comprised of four employees,
coordinates a menu of value-added customer services including supply chain
optimization, strategic site selection, business location services and design
build/fee development. The Integrated Solutions Group was formed in August 1999
to further develop ProLogis' ability to service all areas of its customer's
distribution needs. ProLogis believes that the offering of these additional
services will allow ProLogis to deepen its customer relationships with
relatively small additional capital requirements.
FINANCING STRATEGY
ProLogis believes that a successful real estate operating company should
have the ability to access the equity and debt markets efficiently and
expeditiously to permit it to capitalize on business opportunities within each
of its operating segments. ProLogis funded its capital requirements in 1999 with
internally generated capital, asset sales, private equity, public debt and other
debt financing transactions. Historically, ProLogis has utilized and will
continue to utilize the borrowing capacity available through its unsecured lines
of credit to finance investment opportunities as they arise pending completion
of asset sales and longer-term debt or equity financing
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arrangements. ProLogis' total debt as a percentage of total undepreciated book
capitalization was 43.0% as of December 31, 1999.
During 1999, the following financing activities were completed:
- ProLogis completed a series of secured debt financing transactions with
aggregate principal of $466.0 million at an average interest rate of
7.34% ($182.0 million of this debt was assumed by ProLogis California
when the company was formed -- see Note 5 to ProLogis' Consolidated
Financial Statements in Item 8).
- ProLogis completed a $500.0 million unsecured public debt offering in
April 1999, at an average interest rate of 6.90%.
- ProLogis' U.S. dollar denominated, short-term borrowing capacity was
increased from $375.0 million to $575.0 million. ProLogis' average
interest rate on the $45.0 million of outstanding borrowings on the U.S.
dollar denominated unsecured lines of credit as of December 31, 1999 was
7.46%.
- A multi-currency line of credit in the currency equivalent of 325.0
million euros (the currency equivalent of $327.3 million as of December
31, 1999 based on currency exchange rates quoted by Reuters) was put in
place. The outstanding borrowings as of December 31, 1999 of 53.3 million
euros (the currency equivalent of $53.7 million as of December 31, 1999
based on currency exchange rates quoted by Reuters) were at a weighted
average interest rate of 4.25%.
- Formation of the ProLogis European Properties Fund which will allow
ProLogis to access over 1.06 billion euros (the currency equivalent of
$1.07 billion as of December 31, 1999 based on currency exchange rates
quoted by Reuters) of third party equity capital committed by a group of
institutional investors. This capital is to be used to fund acquisitions
of industrial distribution facilities in Europe from ProLogis, ProLogis
Kingspark or third parties. Of the total commitment, 182.6 million euros
(the currency equivalent of $184.0 million as of December 31, 1999 based
on currency exchange rates quoted by Reuters) was funded through December
31, 1999.
- In 1999, ProLogis disposed of 20.6 million square feet of facilities: (i)
sales of non-strategic facilities aggregated 2.6 million square feet with
net proceeds of $99.5 million; (ii) facilities sold to ProLogis
California aggregated 11.5 million square feet with total proceeds of
$538.3 million (of which 50% represented third party investment and
portions of the proceeds were received in the form of an equity interest
in ProLogis California, the assumption of $199.3 million of ProLogis debt
by ProLogis California and the issuance of $62.0 million of debt by
ProLogis California); (iii) dispositions of facilities in the CDFS
business segment to third parties aggregated 3.2 million square feet and
net proceeds of $256.4 million; and (iv) sales of facilities from
ProLogis and ProLogis Kingspark to the ProLogis European Properties Fund
aggregated 3.3 million square feet with total proceeds of $256.5 million
(of which $38.4 million was received in the form of an equity interest in
the ProLogis European Properties Fund).
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 Group Incorporated ("Security
Capital"), ProLogis' largest shareholder, pursuant to an administrative services
agreement ("ASA"). The ASA supplements services performed by ProLogis personnel
including, but not limited to, payroll and human resources, cash management,
accounts payable, specified information systems support, research and insurance
services. These services are provided in exchange for a fee based on negotiated
rates for each service provided. Total fees incurred under the ASA were $3.4
million in 1999. The ASA expires on December 31, 2000.
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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 operation 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 acquiring (at prices below replacement
cost) and developing an international distribution network and a land
inventory in selected distribution markets where demographic and supply
factors have permitted high relative occupancies at increasing rents.
Through the ProLogis Operating System(TM), ProLogis believes it is 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 divides its target market cities into
numerous submarkets for analysis purposes. ProLogis' management has
emphasized a submarket by submarket research-based approach in
determining appropriate investment opportunities.
- Investment Committee Process. An internal investment committee provides
ProLogis with discipline and guidance to allow ProLogis to achieve its
investment goals. The 12 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").
- Acquisitions Capability/Due Diligence Process/Asset
Optimization. ProLogis has experienced senior personnel who perform
disciplined and thorough due diligence in determining whether potential
investments and divestitures meet ProLogis' long-term objectives.
ProLogis employs 24 professionals performing these functions and has
developed extensive uniform systems and procedures for analysis and due
diligence to ensure that ProLogis maximizes its investment and
divestiture opportunities.
- Development Capability. By internally developing projects, ProLogis has
captured additional value that normally escapes through sales premiums
paid to third party developers. ProLogis has approximately 115 employees
performing development activities (including 43 of ProLogis Kingspark's
employees) with significant development experience. ProLogis has engaged
in substantial development of distribution facilities (50.8 million
square feet at a total investment of $1.9 billion developed since 1991).
- 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,
leasing and development management services. ProLogis also provides
comprehensive asset management services provided to entities in which
ProLogis has an ownership interest.
- Capital Markets Capability. ProLogis has been able to effectively raise
equity and debt capital that has allowed it to achieve strong growth in
cash flows 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.
Executive Officers and Trustees of ProLogis
Officers and Trustees of ProLogis
*K. Dane Brooksher -- 61 -- 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
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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 is also a Director of
Butler Manufacturing Company. Mr. Brooksher's term as Trustee expires in 2002.
*Stephen L. Feinberg -- 55 -- 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., Inc., a diversified holding company with
interests in real estate and venture capital. Mr. Feinberg is also a Director of
Security Capital Preferred Growth Incorporated, 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 -- 72 --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, Terex Corporation, and CDW. 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.
*Irving F. Lyons, III -- 50 -- 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.
John S. Moody -- 51 -- Mr. Moody was elected a Trustee in March 1999. He
was a director of Meridian Industrial Trust from 1996 to March 1999. Mr. Moody
is a Director and President 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. Mr. Moody's term as Trustee expires in 2001.
*William G. Myers -- 72 -- 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 and a former Director of S.E.E.
International, Itedek, Inc. and Bank of A. Levy. Mr. Myers serves as a Director
of 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 and a Trustee of H.C.R.C. Merritt Trusts. Mr. Myers' term as Trustee
expires in 2000.
John E. Robson -- 69 -- Mr. Robson was elected as a Trustee in April 1994.
Since October 1993, Mr. Robson has served as Senior Advisor of Robertson
Stephens, 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
16
19
G.D. Searle & Co. (pharmaceutical and consumer products). Mr. Robson is
currently a director of Exide Corporation, Monsanto Company and Northrop Grumman
Corporation. Mr. Robson's term as Trustee expires in 2000.
*Kenneth N. Stensby -- 60 -- Mr. Stensby was elected as a Trustee in March
1999. He was a director of Meridian Industrial Trust from 1996 to March 1999.
Mr. Stensby 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. Mr.
Stensby is currently a director of Corner House. Mr. Stensby's term as Trustee
expires in 2002.
J. Andre Teixeira -- 47 -- Mr. Teixeira was appointed as a Trustee in
February 1999. He is President of Coca-Cola for the Russia/Ukraine Region. He is
also General Manager for Coca-Cola Russia, Ukraine and Belarus. Mr. Teixeira
also serves as Head of Representation for the Coca-Cola Export Corporation,
Moscow. 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 2001.
*Thomas G. Wattles -- 48 -- 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 is
currently a director of Security Capital, Urban Growth Properties Trust, CWS
Communities Trust and Security Capital-European Realty (all affiliates of
Security Capital). Mr. Wattles' term as Trustee expires in 2002.
Members of ProLogis' investment committee are designated by an asterisk
(*).
Senior Officers
*Jeffrey H. Schwartz -- 40 -- Vice Chairman for International Operations
since June 1999, where he has overall responsibility for all international
investment activities and operations. Mr. Schwartz was Senior Managing Director
and Chief Investment Officer for International Operations of ProLogis from
December 1998 to June 1999. 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 -- 42 -- 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 -- 41 -- 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 -- 50 -- 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.
17
20
*Ned K. Anderson -- 53 -- Managing Director of ProLogis since December
1998, where he has responsibility for the Pacific Region of the United States;
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. Prior thereto, Mr.
Anderson was a partner at King & Lyons, a San Francisco Bay Area industrial real
estate development and management company.
Paul C. Congleton -- 45 -- Managing Director of ProLogis since September
1999, where he heads the Global Services Group. Mr. Congleton was a Senior Vice
President of ProLogis from December 1998 to September 1999, 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.
*Steven K. Meyer -- 51 -- 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.
Robin P. R. von Weiler -- 43 -- Managing Director and Regional Head of
ProLogis since December 1999, where he is responsible for Northern and Central
Europe. Mr. von Weiler was a Senior Vice President of ProLogis from October 1997
to December 1999, where he was responsible for global services and marketing in
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.
Frank H. Fallon -- 38 -- Senior Vice President of ProLogis since September
1999, where he has responsibility for the Southeast Region of the United States.
From January 1995 to September 1999, Mr. Fallon was Vice President of ProLogis;
from September 1995 to September 1997, he had comparable responsibilities with
ProLogis' former management company. Prior thereto, from March 1987 to December
1994, Mr. Fallon was with Trammell Crow Company
Kent W. Johnson -- 46 -- Senior Vice President of ProLogis since July 1995,
where he heads the Integrated Solutions Group; from July 1995 to September 1997,
he headed the Global Services Group for 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.
M. Gordon Keiser, Jr. -- 55 -- 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.
Edward F. Long -- 43 -- Senior Vice President and Controller of ProLogis
since December 1998, where he is responsible for worldwide accounting, financial
reporting and financial 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.
Debra A. McRight -- 40 -- Senior Vice President of ProLogis since December
1999, where she is responsible for national property management operations. From
September 1995 to December 1999, Ms. McRight was Vice President of ProLogis;
from September 1995 to September 1997, she had comparable responsibilities with
ProLogis' former management company. Prior thereto, from June 1989 to February
1995, she was with Paragon Group, Inc.
18
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David S. Morze -- 39 -- Senior Vice President of ProLogis since March 1999,
where he has responsibility for the Mid-Atlantic Region of the United States.
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 -- 34 -- 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 -- 50 -- 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.
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 as of December 31,
1999, and ProLogis is not aware of any environmental condition with respect to
any of its properties that is likely to be material. ProLogis or the predecessor
owners have subjected each of its properties to an 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 consolidated and unconsolidated entities currently carry
comprehensive insurance coverage including, liability, fire, flood, earthquake,
environmental, extended coverage and rental loss as appropriate for the markets
where each entities' facilities and business operations are located. The
insurance coverage contains policy specifications and insured limits customarily
carried for similar facilities. ProLogis believes its facilities and the
facilities of its consolidated and unconsolidated entities are adequately
insured; however, an uninsured loss could result in loss of capital investment
and anticipated profits.
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ITEM 2. PROPERTIES
INDUSTRIAL DISTRIBUTION FACILITIES
ProLogis and its consolidated entities (see -- "Consolidated
Entities -- Partnerships") have invested primarily in generic industrial
distribution facilities with an average office finish level of less than 10%.
Due to the costs associated with retrofitting customer spaces, service center
product has been acquired only on a very limited basis, generally as part of
portfolio acquisitions in which the majority of product being acquired was bulk
distribution. ProLogis' industrial real estate is typically used for storage,
packaging, assembly, distribution and light manufacturing of consumer and
industrial products.
- Distribution. ProLogis' distribution space is adaptable for both bulk
distribution and light manufacturing or assembly uses. Based upon square
footage, ProLogis' operating portfolio was comprised of 88.1% bulk
distribution and 10.5% light manufacturing facilities as of December 31,
1999.
- Service Center and Other. 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. As of December 31, 1999, service center product
constituted approximately 1.1% of the square feet in ProLogis' operating
portfolio and other miscellaneous facilities (primarily office
facilities), acquired as part of portfolio acquisitions, constitute 0.3%
of the square feet in ProLogis' operating portfolio.
GEOGRAPHIC DISTRIBUTION
ProLogis and its consolidated entities (see -- "Consolidated
Entities -- Partnerships") have direct ownership of industrial distribution
facilities in North America and Europe. In North America (United States and
Mexico), ProLogis' facilities are located in 25 states and the District of
Columbia and 46 cities (including four cities in Mexico). In Europe, ProLogis'
facilities are located in four countries and seven 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, 1999 and 1998. The table does not include
facilities that are owned by ProLogis' unconsolidated entities which are
discussed under " -- Unconsolidated Entities".
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- ---------------------------
PERCENTAGE PERCENTAGE
NUMBER OF ASSETS BASED NUMBER OF ASSETS BASED
FACILITIES ON COST(1) FACILITIES ON COST(1)
---------- ------------ ---------- ------------
NORTH AMERICAN MARKETS:
Atlanta, Georgia........................ 103 6.20% 104 7.15%
Austin, Texas........................... 33 1.53 37 2.22
Birmingham, Alabama..................... 6 0.69 6 0.96
Charlotte, North Carolina............... 32 2.28 29 2.41
Chattanooga, Tennessee.................. 5 0.30 5 0.43
Chicago, Illinois....................... 64 6.25 40 4.89
Cincinnati, Ohio........................ 46 3.04 43 3.15
Columbus, Ohio.......................... 32 4.43 21 2.10
Dallas/Fort Worth, Texas................ 120 8.31 71 5.07
Denver, Colorado........................ 28 1.82 26 2.46
Detroit, Michigan....................... 21 0.78 4 0.14
East Bay (San Francisco), California.... 54 4.59 44 3.55
El Paso, Texas.......................... 22 1.56 27 2.33
Fort Lauderdale/Miami, Florida.......... 16 1.58 11 1.49
Houston, Texas.......................... 84 4.29 74 4.73
I-95 Corridor, New Jersey............... 35 4.27 21 3.89
Indianapolis, Indiana................... 45 2.85 41 3.15
Juarez, Mexico.......................... 6 0.27 4 0.26
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DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- ---------------------------
PERCENTAGE PERCENTAGE
NUMBER OF ASSETS BASED NUMBER OF ASSETS BASED
FACILITIES ON COST(1) FACILITIES ON COST(1)
---------- ------------ ---------- ------------
Kansas City, Kansas/Missouri............ 29 1.14 29 1.57
Las Vegas, Nevada....................... 18 2.18 14 1.50
Los Angeles/Orange County,
California(2)........................ 4 0.95 29 6.38
Louisville, Kentucky.................... 10 1.19 8 0.97
Memphis, Tennessee...................... 40 2.80 25 2.13
Monterrey, Mexico....................... 10 0.90 8 1.04
Nashville, Tennessee.................... 31 1.72 27 1.66
Oklahoma City, Oklahoma................. 6 0.21 6 0.29
Orlando, Florida........................ 23 1.73 17 1.16
Phoenix, Arizona........................ 32 1.63 25 1.32
Portland, Oregon........................ 26 1.42 29 2.11
Reno, Nevada............................ 19 1.50 17 1.29
Reynosa, Mexico......................... 12 0.77 8 0.67
Rio Grande Valley, Texas................ 14 0.49 15 0.85
Salt Lake City, Utah.................... 10 1.16 9 1.46
San Antonio, Texas...................... 47 2.08 46 2.70
San Diego, California................... -- -- 3 0.38
Seattle, Washington..................... 15 1.21 10 1.34
South Bay (San Francisco), California... 72 4.68 70 6.06
St. Louis, Missouri..................... 15 0.95 15 1.13
Tampa, Florida.......................... 62 2.52 62 3.41
Tijuana, Mexico......................... 4 0.42 2 0.26
Tulsa, Oklahoma......................... 9 0.23 10 0.37
Washington D.C./Baltimore, Maryland..... 40 3.05 39 3.98
Other................................... 3 0.13 4 0.32
----- ------ ----- ------
1,303 90.10 1,135 94.73
----- ------ ----- ------
EUROPEAN MARKETS(3)(4)(5):
Amsterdam, Netherlands.................. 1 0.20 4 1.18
Cologne, Germany........................ 1 0.33 -- --
Lille, France........................... 2 0.15 -- --
London, England......................... -- -- 1 0.97
Lyon, France............................ 3 0.50 3 0.62
Paris, France........................... 57 6.36 4 0.82
Rotterdam, Netherlands.................. 3 0.52 2 0.45
Warsaw, Poland.......................... 9 1.84 5 1.23
----- ------ ----- ------
76 9.90 19 5.27
----- ------ ----- ------
Total........................... 1,379(6) 100.00% 1,154(7) 100.00%
===== ====== ===== ======
- ---------------
(1) Facilities under development are reflected at their total budgeted
development cost, rather than cost incurred to date.
(2) In 1999, does not include 78 buildings owned by ProLogis California, an
unconsolidated entity in which ProLogis has a 50% ownership interest as of
December 31, 1999. See "-- Unconsolidated Entities" for additional
information on these facilities.
(3) In 1999, does not include 18 buildings owned by the ProLogis European
Properties Fund, an unconsolidated entity in which ProLogis has a 19.68%
ownership interest as of December 31, 1999. See "-- Unconsolidated Entities"
for additional information on these facilities.
21
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(4) Does not include facilities owned by ProLogis Kingspark (15 operating
facilities and 14 facilities under development as of December 31, 1999 and
15 operating facilities and five facilities under development as of December
31, 1998), an unconsolidated entity in which ProLogis recognizes
substantially all of the economic benefits. See "-- Unconsolidated
Entities".
(5) On January 7, 2000, ProLogis contributed 50.1% of the common stock of one of
its wholly owned European entities to the ProLogis European Properties Fund
and is committed to contributing the remaining 49.9% of the common stock to
the ProLogis European Properties Fund in January 2001. This entity owned 61
facilities (54 facilities in Paris, five facilities in Warsaw, one facility
in Lyon and one facility in Rotterdam) representing approximately 6.9% of
ProLogis' assets (operating facilities and facilities under development).
(6) Includes 51 buildings under development.
(7) Includes 55 buildings under development.
FACILITIES
The information in the following table is as of December 31, 1999 for the
facilities owned by ProLogis and its consolidated entities in North America and
Europe. 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, 1999 or generated gross revenue equal to 10% or more of
ProLogis' consolidated gross revenues for the year ended December 31, 1999. The
table does not include facilities that are owned by ProLogis' unconsolidated
entities which are discussed under "-- Unconsolidated Entities".
PERCENTAGE RENTABLE
NO. OF OCCUPANCY SQUARE FOOTAGE INVESTMENT ENCUMBRANCES
BLDGS. (1) (2) (3) (4)
------ ---------- -------------- -------------- ------------
OPERATING FACILITIES OWNED AS OF
DECEMBER 31, 1999(5):
NORTH AMERICAN MARKETS:
Atlanta, Georgia........... 102 90.63% 10,387,479 $ 309,214,441 $ 39,067,157
Austin, Texas.............. 33 95.09 2,041,409 77,048,515 --
Birmingham, Alabama........ 6 97.87 1,135,278 34,390,764 --
Charlotte, North
Carolina(6).............. 30 95.56 3,802,670 108,347,568 40,805,692
Chattanooga, Tennessee..... 5 100.00 1,147,872 15,154,843 --
Chicago, Illinois(7)....... 64 92.54 8,035,702 313,788,625 46,374,007
Cincinnati, Ohio(8)........ 45 94.05 4,726,802 146,293,557 40,497,330
Columbus, Ohio............. 31 100.00 6,160,622 212,409,143 40,735,793
Dallas/Fort Worth,
Texas(6)(8)(9)........... 118 92.93 12,024,827 389,544,811 68,624,175
Denver, Colorado(6)........ 26 96.99 3,084,301 82,583,116 --
Detroit, Michigan.......... 21 85.76 820,932 39,376,762 --
East Bay (San Francisco),
California(6)(10)........ 53 99.47 5,368,799 223,354,014 15,309,989
El Paso, Texas(6).......... 20 90.41 2,423,983 64,899,270 3,446,843
Fort Lauderdale/Miami,
Florida(7)(8)............ 14 90.03 1,437,058 67,318,075 2,137,690
Houston, Texas............. 84 93.98 7,448,797 215,263,465 47,848,401
I-95 Corridor, New
Jersey(8)................ 32 99.75 4,991,937 190,394,174 28,374,495
Indianapolis, Indiana...... 45 83.29 4,908,137 143,008,379 --
Juarez, Mexico............. 5 100.00 288,786 10,911,576 --
Kansas City,
Kansas/Missouri.......... 29 90.83 1,578,487 57,319,731 13,778,445
Las Vegas, Nevada(9)....... 17 96.76 2,061,291 100,429,463 22,941,817
Los Angeles/Orange County,
California(11)........... 3 100.00 605,548 23,775,360 --
Louisville, Kentucky....... 8 99.95 1,682,788 40,030,408 6,114,170
22
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PERCENTAGE RENTABLE
NO. OF OCCUPANCY SQUARE FOOTAGE INVESTMENT ENCUMBRANCES
BLDGS. (1) (2) (3) (4)
------ ---------- -------------- -------------- ------------
Memphis, Tennessee......... 39 95.45 5,415,819 130,757,790 15,485,333
Monterrey, Mexico.......... 8 100.00 973,303 38,063,833 --
Nashville, Tennessee....... 29 94.52 3,177,349 75,764,488 --
Oklahoma City, Oklahoma.... 6 96.06 639,942 10,674,408 --
Orlando, Florida(7)(8)..... 23 81.49 2,112,100 86,696,058 12,979,216
Phoenix, Arizona........... 32 99.12 2,446,332 81,821,252 --
Portland, Oregon........... 26 85.07 1,957,295 71,336,274 414,479
Reno, Nevada............... 17 91.85 1,556,786 47,198,323 --
Reynosa, Mexico............ 9 90.03 765,674 25,378,728 --
Rio Grande Valley
(Brownsville), Texas..... 14 94.72 916,746 24,714,456 2,877,600
Salt Lake City, Utah....... 9 100.00 1,890,268 53,008,891 --
San Antonio, Texas(7)...... 46 95.42 3,991,403 98,538,471 --
Seattle, Washington........ 15 98.59 1,390,447 60,910,418 4,985,349
South Bay (San Francisco),
California(10)........... 72 97.21 3,768,371 235,215,326 20,116,111
St. Louis, Missouri(6)..... 15 86.84 1,621,825 47,631,368 9,906,808
Tampa, Florida(7)(8)(10)... 61 91.67 3,358,403 121,270,212 31,932,890
Tijuana, Mexico............ 2 100.00 262,220 9,173,870 --
Tulsa, Oklahoma............ 9 100.00 523,463 11,754,885 --
Washington, D.C./Baltimore,
Maryland(6).............. 38 96.23 3,315,902 138,096,133 37,220,360
Other(7)(8)................ 3 100.00 193,562 6,565,883 468,592
----- ------ ----------- -------------- ------------
Subtotal North America... 1,264 94.12 126,440,715 4,239,427,127 552,442,742
----- ------ ----------- -------------- ------------
EUROPEAN MARKETS(12):
Lille, France.............. 2 52.95 219,112 7,458,220 --
Lyon, France............... 1 100.00 296,720 7,856,904 4,797,421
Paris, France.............. 54 93.46 5,802,889 290,740,988 137,932,339
Rotterdam, Netherlands..... 2 38.84 355,998 15,426,721 --
Warsaw, Poland............. 5 67.03 573,129 39,426,346 --
----- ------ ----------- -------------- ------------
Subtotal Europe(12)...... 64 87.73 7,247,848 360,909,179 142,729,760
----- ------ ----------- -------------- ------------
TOTAL OPERATING
FACILITIES OWNED AS
OF DECEMBER 31,
1999(5)............. 1,328 93.78% 133,688,563 $4,600,336,306 $695,172,502
===== ====== =========== ============== ============
RENTABLE BUDGETED
SQUARE DEVELOPMENT
NO. OF FOOTAGE INVESTMENT COSTS
BLDGS. (2) (3) (13)
------ ---------- ------------ ------------
FACILITIES UNDER DEVELOPMENT AS OF
DECEMBER 31, 1999(14)(15):
NORTH AMERICAN MARKETS:
Atlanta, Georgia..................... 1 51,600 1,627,001 $ 2,410,800
Charlotte, North Carolina............ 2 178,000 4,439,919 6,284,890
Cincinnati, Ohio..................... 1 205,920 4,358,008 6,420,453
Columbus, Ohio....................... 1 378,283 5,453,824 10,004,947
Dallas/Fort Worth, Texas............. 2 868,425 6,287,474 28,213,658
Denver, Colorado..................... 2 208,800 4,309,707 9,093,060
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RENTABLE BUDGETED
SQUARE DEVELOPMENT
NO. OF FOOTAGE INVESTMENT COSTS
BLDGS. (2) (3) (13)
------ ---------- ------------ ------------
East Bay (San Francisco),
California......................... 1 200,000 4,922,217 7,141,304
El Paso, Texas....................... 2 426,580 4,064,227 13,650,269
Fort Lauderdale/Miami, Florida....... 2 257,750 7,512,819 11,988,350
I-95 Corridor, New Jersey............ 3 482,720 20,332,955 24,226,111
Juarez, Mexico....................... 1 73,150 2,078,356 2,677,877
Las Vegas, Nevada.................... 1 235,520 1,960,950 8,874,076
Los Angeles/Orange County,
California......................... 1 763,228 7,733,649 24,131,163
Louisville, Kentucky................. 2 693,000 14,601,206 19,844,317
Memphis, Tennessee................... 1 360,000 1,795,590 9,790,347
Monterrey, Mexico.................... 2 194,100 3,555,654 7,164,487
Nashville, Tennessee................. 2 320,400 6,038,536 10,712,190
Reno, Nevada......................... 2 771,131 21,615,462 27,809,659
Reynosa, Mexico...................... 3 375,179 4,938,757 13,152,320
Salt Lake City, Utah................. 1 149,800 3,188,221 5,296,079
San Antonio, Texas................... 1 160,000 4,157,754 5,910,823
Tampa, Florida....................... 1 115,200 1,511,421 5,538,684
Tijuana, Mexico...................... 2 352,900 5,274,105 12,078,985
Washington, D.C./Baltimore,
Maryland........................... 2 303,200 9,057,588 15,188,967
-- ---------- ------------ ------------
Subtotal North America............. 39 8,124,886 150,815,400 287,603,816
-- ---------- ------------ ------------
EUROPEAN MARKETS:
Amsterdam, Netherlands............... 1 160,491 5,033,872 10,250,060
Cologne, Germany..................... 1 222,459 3,090,942 16,747,841
Lyon, France......................... 2 484,110 8,172,399 17,413,191
Paris, France........................ 3 415,360 12,826,942 28,795,925
Rotterdam, Netherlands............... 1 238,406 2,143,225 10,453,111
Warsaw, Poland....................... 4 1,075,321 4,086,456 52,964,592
-- ---------- ------------ ------------
Subtotal Europe.................... 12 2,596,147 35,353,836 136,624,720
-- ---------- ------------ ------------
TOTAL FACILITIES UNDER
DEVELOPMENT AS OF DECEMBER 31,
1999(14)(15).................. 51 10,721,033 $186,169,236 $424,228,536
== ========== ============ ============
ACREAGE INVESTMENT ENCUMBRANCES
(2) (3) (4)
------- ------------ ------------
LAND HELD FOR DEVELOPMENT AS OF DECEMBER 31,
1999(16)(17):
NORTH AMERICAN MARKETS:
Atlanta, Georgia................................... 98.8 $ 7,469,303 $ --
Austin, Texas...................................... 27.7 2,141,471 --
Charlotte, North Carolina.......................... 25.3 2,446,431 --
Chicago, Illinois.................................. 172.1 29,555,762 --
Cincinnati, Ohio................................... 53.9 4,174,844 --
Columbus, Ohio..................................... 77.3 2,871,689 --
Dallas/Fort Worth, Texas........................... 77.3 4,433,969 --
Denver, Colorado................................... 15.6 1,405,890 --
Detroit, Michigan.................................. 70.0 2,817,513 --
East Bay (San Francisco), California............... 38.7 5,079,463 --
El Paso, Texas..................................... 122.4 6,494,513 --