UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Commission File Number 01-12846

PROLOGIS

(303) 375-9292
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

Yes [X] No [  ]

     Indicate by check mark whether the registrant is accelerated file (as defined in Rule 12b-2 of the Securities Act of 1934).

Yes [X] No [  ]

     The number of shares outstanding of the Registrant’s common shares as of May 5, 2004 was 181,359,530.

PROLOGIS

INDEX

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PROLOGIS

CONSOLIDATED CONDENSED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated condensed financial statements.

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PROLOGIS

CONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS AND COMPREHENSIVE INCOME

(Continued)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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PROLOGIS

CONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS AND COMPREHENSIVE INCOME (CONTINUED)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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PROLOGIS

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

See Note 11 for information on non-cash investing and financing activities and other information.

The accompanying notes are an integral part of these consolidated condensed financial statements.

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PROLOGIS

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. General:

          Business

          ProLogis (collectively with its consolidated subsidiaries and partnerships “ProLogis”) is a publicly held real estate investment trust (“REIT”) that owns (directly or through unconsolidated investees), operates and develops industrial distribution properties in North America (the United States and Mexico), Europe (11 countries) and Asia (Japan). ProLogis has initiated operations in China, but ProLogis owned no real estate assets in China at March 31, 2004. ProLogis has elected to be taxed as a REIT under the Internal Revenue code of 1986, as amended (the “Code”).

          ProLogis’ business consists of two reportable business segments: property operations and the corporate distribution facilities services business (“CDFS business”). The property operations segment represents the long-term ownership, management and leasing of distribution properties. The CDFS business segment primarily encompasses the development of distribution properties that are either contributed to an unconsolidated property fund in which ProLogis has an ownership interest and acts as manager, or sold to third parties. Additionally, ProLogis will acquire distribution properties in the CDFS business segment that are generally rehabilitated and/or repositioned prior to being contributed to a property fund. See Note 10.

          Principles of Financial Presentation

          ProLogis’ Consolidated Condensed Financial Statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The accounts of ProLogis, its wholly owned subsidiaries and its majority owned and controlled subsidiaries and partnerships are consolidated in the accompanying financial statements and are presented in ProLogis’ functional currency, the U.S. dollar. ProLogis consolidates all entities in which it owns a majority voting interest and those variable interest entities, as defined, in which it is the primary beneficiary. All material intercompany transactions, including transactions with unconsolidated investees, have been eliminated.

          The Consolidated Condensed Financial Statements of ProLogis as of March 31, 2004 and for the three months ended March 31, 2004 and 2003 are unaudited and, pursuant to the rules of the United States Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures normally included in financial statements have been omitted. Management of ProLogis believes that the disclosures presented are adequate; however, these interim Consolidated Condensed Financial Statements should be read in conjunction with ProLogis’ December 31, 2003 audited Consolidated Financial Statements contained in ProLogis’ 2003 Annual Report on Form 10-K.

          Interpretation No. 46, “Consolidation of Variable Interest Entities”, was issued in January 2003 and revised in December 2003. The revised Interpretation No. 46 (“FIN 46R”) was adopted by ProLogis as of January 1, 2004. FIN 46R clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, and requires that variable interest entities in which ProLogis is the primary beneficiary be presented on a consolidated basis in its financial statements. As a result of adopting FIN 46R, ProLogis began consolidating its investments in TCL Holding S.A. (“TCL Holding”), formerly Frigoscandia Holding S.A., and CSI/Frigo LLC, a company that holds the voting ownership interest in TCL Holding, as of January 1, 2004. Through December 31, 2003, ProLogis presented its investments in TCL Holding and CSI/Frigo LLC under the equity method. ProLogis’ combined effective ownership in these entities was 99.75% at December 31, 2003. None of ProLogis’ other unconsolidated investees are variable interest entities as defined in FIN 46R. Therefore, ProLogis will continue to present its investments in these entities under the equity method. See Note 3.

          The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

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liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

          Certain amounts included in ProLogis’ Consolidated Condensed Financial Statements for the prior period have been reclassified to conform to the 2004 financial statement presentation.

     Proposed Acquisition Transaction

          On May 3, 2004, ProLogis and certain private REIT subsidiaries of established investment funds (the “Fund Partners”) established five property funds (the “Acquiring Property Funds”). Also on that date, ProLogis and the Acquiring Property Funds entered into an agreement to acquire the outstanding equity and operating units of Keystone Property Trust (“Keystone”) (the “Keystone Transaction”). ProLogis has a 20% ownership interest in the Acquiring Property Funds with the remainder owned by the Fund Partners. As part of the Keystone Transaction, ProLogis, through a wholly owned subsidiary, will directly acquire certain assets of Keystone. Consideration for the common equity of Keystone will be paid in cash at $23.80 per share. ProLogis anticipates that a portion of the consideration that it pays will be in the form of limited partnership units that are convertible into ProLogis’ common shares of beneficial interest, par value $0.01 per share (“Common Shares”). Keystone, a publicly traded REIT, owns and leases industrial distribution properties located in New Jersey, Pennsylvania, Indiana, Florida, South Carolina and Ohio. The Keystone Acquisition is subject to the approval of Keystone’s shareholders.

          Collectively, the Acquiring Property Funds would acquire $1.37 billion of assets from Keystone, including 22.9 million square feet of operating properties. ProLogis’ direct acquisition includes operating properties aggregating 2.4 million square feet, Keystone’s 20% ownership interests in two unconsolidated entities that own 7.7 million square feet of operating properties, Keystone’s 50% ownership interest in an unconsolidated entity that is developing a 0.8 million square foot property and land positions aggregating 126 acres. The assets to be acquired directly by ProLogis are valued at $290.0 million. The Acquiring Property Funds anticipate that Keystone’s existing direct fixed-rate obligations will be retired after the closing date. The combined value of the Keystone Transaction is estimated to be $1.66 billion, including the assumption of liabilities and transaction expenses.

          In anticipation of the proposed transaction, the Acquiring Property Funds have entered into interest rate swap agreements to hedge a portion of the future interest payments associated with the secured debt that the Acquiring Property Funds anticipate will be obtained as part of the financing of the Keystone Transaction. ProLogis believes that the interest rate swap agreements qualify for hedge accounting treatment. Certain of the interest rate swap agreements are subject to an indemnification agreement between the Acquiring Property Funds and ProLogis. Under the indemnification agreement, ProLogis is obligated to make any settlement payments that may become due and, alternatively, ProLogis is entitled to receive any settlement proceeds that may be paid. This indemnification agreement relates to interest swap agreements with an aggregate notional amount of $185.2 million, the approximate amount of the secured debt to be obtained by the Acquiring Property Funds attributable to ProLogis’ 20% ownership interest.

          Keystone will file a proxy statement with the SEC related to the Keystone Transaction. ProLogis anticipates that the Keystone Transaction will close during the third quarter of 2004.

2. Real Estate:

     Real Estate Assets

          Real estate assets directly owned by ProLogis consist of income producing industrial distribution properties, industrial distribution properties under development and land held for future development of industrial distribution properties. ProLogis’ real estate assets, presented at cost, include the following as of the dates indicated (in thousands of U.S. dollars):

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          ProLogis’ directly owned real estate assets are located in North America (the United States and Mexico), 11 countries in Europe and in Japan. No individual market in any country, as defined by ProLogis and presented in Item 2 of its 2003 Annual Report on Form 10-K, represents more than 10% of ProLogis’ total real estate assets, before depreciation.

     Operating Lease Agreements

          ProLogis leases its operating properties to customers under agreements that are generally classified as operating leases. At March 31, 2004, minimum lease payments on leases with lease periods greater than one year for space in ProLogis’ directly owned properties for the remainder of 2004 and the other years in the five-year period ending December 31, 2008 and thereafter are as follows (in thousands of U.S. dollars):

          For ProLogis’ directly owned properties, the largest customer and the 25 largest customers accounted for 1.27% and 15.75%, respectively, of ProLogis’ annualized collected base rents at March 31, 2004.

3. Unconsolidated Investees:

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     Summary of Investments and Income

          Since 1997, ProLogis has invested in various entities in which its ownership interest is less than 100% and in which it does not have control as defined under GAAP. Accordingly, these investments are presented under the equity method in ProLogis’ Consolidated Condensed Financial Statements. Generally, these entities are not variable interest entities as defined in FIN 46R (see Note 1). Certain of these investments were originally structured such that ProLogis’ ownership interest would allow ProLogis to continue to comply with the requirements of the Code to qualify as a REIT. However, with respect to ProLogis’ investments in property funds, having an ownership interest of 50% or less is part of ProLogis’ business strategy. This business strategy allows ProLogis to realize, for financial reporting purposes, a portion of the profits from its development activities, raise private equity capital or issue private debt instruments, generate fee income, provide liquidity to fund its future development activities, while still allowing ProLogis to maintain a long-term ownership interest in its developed properties.

          ProLogis’ investments in entities that were accounted for under the equity method are summarized by type of investee as follows as of the dates indicated (in thousands of U.S. dollars):

          ProLogis recognizes income or losses from its investments in its unconsolidated investees consisting of its proportionate shares of the net earnings or losses of these investees recognized under the equity method and interest income on advances made to these investees, if any. Further, ProLogis earns fees for providing services to the property funds. The amounts recognized by ProLogis from its investments in unconsolidated investees are summarized as follows for the periods indicated (in thousands of U.S. dollars):

     Property Funds

          Since 1999, ProLogis has formed eight property funds. ProLogis’ ownership interests in these property funds range from 14% to 50%. The property funds own operating properties that have generally been contributed to the property funds by ProLogis. In most cases, ProLogis receives ownership interests in the property funds as part of the proceeds received from these contributions. ProLogis recognizes its proportionate share of the net earnings or losses of each property fund under the equity method. ProLogis earns fees for acting as the manager of each of the property funds and may earn additional fees by providing other services to certain of the property funds including, but not limited to, development and leasing activities performed on their behalf.

          ProLogis’ investments in the eight property funds, presented under the equity method, were as follows as of the dates indicated (in thousands of U.S. dollars):

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          ProLogis’ investments in the property funds at March 31, 2004 consisted of the following components (in millions of U.S. dollars):