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ProLogis Reports Strong Second Quarter Results
Growth Driven by Solid Gains in CDFS Business and Improving Property
Fundamentals; Continued Strong Level of Development Starts Support $3.0 Billion
Global Pipeline
DENVER, July 28 /PRNewswire-FirstCall/ -- ProLogis (NYSE:PLD), a leading
global provider of distribution facilities and services, today reported
adjusted funds from operations as defined by ProLogis of $0.75 per diluted
share for the second quarter of 2005, a 15.4% increase over $0.65 in the second
quarter of 2004. After relocation charges and recognition of cumulative
translation losses related to the sale of its temperature-controlled business,
funds from operations as defined by ProLogis (FFO) for the second quarter of
2005 were $0.67 per share. Net earnings per diluted share were $0.40 for the
second quarter of 2005, compared with $0.42 for the same period in 2004.
For the six months ended June 30, 2005, adjusted FFO as defined by ProLogis was
$1.37 per diluted share, up 18.1% from $1.16 in the first six months of 2004.
After the charges noted above, FFO as defined by ProLogis was $1.22, compared
with $1.14 in the prior year, which included a $0.02 per share charge related
to redemption of the company's remaining Series D Preferred Shares in the first
quarter of 2004. Net earnings per diluted share for the six months ended June
30, 2005, were $0.69, compared with $0.66 in the comparable period of 2004.
"Market conditions continue to improve, supporting another quarter of
exceptionally strong development starts and record leasing activity. Globally,
we are experiencing further strengthening of property operations with increased
occupancies, stable-to-improving rental rates and positive net absorption," said
Jeffrey H. Schwartz, chief executive officer. "We also are very excited about
the opportunities to strengthen our overall business as a result of the
Catellus merger, announced earlier in the quarter, and expect to complete the
merger in September."
During the quarter, ProLogis began new developments with a total expected
investment of over $730 million, bringing its year-to-date total to $1.48
billion. "This solid momentum early in the year supports an increase in our
development start guidance to $1.9 - $2.0 billion in 2005. In turn, growth in
development gains and improving property performance supports an increase in
our full-year guidance for adjusted FFO per share to $2.60 - $2.68 and earnings
per share to $1.60 - $1.80," Mr. Schwartz said. Previous guidance was for $2.55
- $2.65 per share and $1.40 - $1.60 per share, respectively. The company added
that its FFO per share guidance is prior to expected one-time merger integration
costs, corporate relocation and temperature-controlled charges.
Strengthening Operating Property Fundamentals
The company reported a 2.98% increase in same-store net operating income (a
4.07% increase when straight-lined rents are excluded) and a 2.35% increase in
same-store average occupancies when compared with the second quarter of 2004.
The company also achieved a 62 basis point improvement in its stabilized leased
percentage over the first quarter of 2005, reaching 92.8% -- its highest level
since the fourth quarter of 2001.
"The trends we're seeing in improved property performance are supported by
strong customer demand globally. In the majority of North American markets,
occupancies are up, and we are seeing rent growth in an increasing number of
markets. In Europe, where we have significantly increased our development
pipeline, customers continue to actively reconfigure their distribution
operations for greater efficiency, despite economic softness in some regions.
In Japan and China, where there is a shortage of modern logistics space,
customer requirements have driven year-to-date development starts of more than
$450 million, with strong leasing of recently completed facilities," Mr.
Schwartz added.
New Development Leasing Drives Record CDFS Pipeline
Walter C. Rakowich, president and chief operating officer, said, "Our
geographic breadth and solid customer relationships drove another quarter of
remarkably strong development activity. We now have a record Corporate
Distribution Facilities Services (CDFS) pipeline of completions, repositioned
acquisitions and properties under development of just under $3.0 billion, which
is well diversified across three continents.
"We continue to achieve strong leasing in our development pipeline, with second
quarter completions over 67% pre-leased, and completions in the last twelve
months over 81% leased. Additionally, we signed more than 3.8 million square
feet of new CDFS leases in the second quarter -- over 50% with repeat
customers. Among the new CDFS leases signed in the quarter were agreements
with Williams-Sonoma in Memphis, Hitachi in Tokyo, GEFCO in Germany and D-Link
in the United Kingdom," Mr. Rakowich added.
Strong Demand for Japan Developments and New Exclusive Development Rights in
China
"In Japan, demand remains strong, with our pipeline of more than $741 million
of properties under development and recent completions over 66% leased. During
the quarter, we contributed ProLogis Park Osaka, our largest completed
development to date at over 1.3 million square feet, to ProLogis Japan Property
Fund.
"Our operations in China are also gaining momentum. In support of our global
port strategy, we recently formed a joint venture with the Tianjin
Economic-Technological Development Area (TEDA) to develop a logistics park that
can support up to 1.4 million square feet of distribution space. TEDA is located
just three miles from Tianjin Port, China's fourth largest container port and is
25 miles from downtown Tianjin, the second largest city in northern China,
behind Beijing," Mr. Schwartz concluded.
Second Quarter 2005 Selected Financial and Operating Information
* Announced $5.5 billion merger agreement with Catellus Development
Corporation (NYSE:CDX), expected to close by the end of September
2005, pending shareholder approvals.
* Achieved FFO from CDFS transactions of $73.4 million for the quarter,
up 28% from $57.5 million in the second quarter of 2004. FFO amounts
do not include unrecognized deferred gains of $14.4 million for the
current period and $12.0 million for the same period in 2004.
Post-deferral, post-tax CDFS margins were 28.3% for the quarter.
* Recycled $339.2 million of capital through CDFS dispositions and
contributions during the quarter and $636.0 million year to date.
* Started new developments, including those within CDFS joint ventures,
with total expected investment of $730.5 million during the quarter
and $1.48 billion year to date.
* Increased ProLogis' share of FFO from property funds to $23.6 million
for the quarter, up 40% from $16.9 million in the prior year.
* Grew second quarter fee income from property funds to $16.5 million,
up 39% from $11.9 million in the prior year.
* Increased total assets owned and under management to $16.6 billion, up
from $15.9 billion at December 31, 2004.
* The sale of ProLogis' French temperature-controlled operations
resulted in a $0.07 per share adjustment in the second quarter for
cumulative translation losses in addition to the $0.06 per
share impairment charge taken in the first quarter. ProLogis
completed the sale in July 2005.
Copies of ProLogis' second quarter 2005 supplemental information will be
available from the company's website at http://ir.prologis.com/ or by request
at 800-820-0181. The supplemental information also is available on the SEC's
website at http://www.sec.gov/. The related conference call will be available
via a live webcast on the company's website at http://ir.prologis.com/ at 10:00
am Eastern Time on Thursday, July 28, 2005. A replay of the webcast will be
available on the company's website until August 11, 2005.
ProLogis is a leading provider of distribution facilities and services with
321.3 million square feet (29.9 million square meters) in 2,079 distribution
facilities owned, managed and under development in 76 markets in North America,
Europe and Asia. ProLogis continues to expand the industry's first and largest
global network of distribution facilities with the objective of building
shareholder value. The company expects to achieve this through the ProLogis
Operating System(R) and its commitment to be 'The Global Distribution Solution'
for its customers, providing exceptional facilities and services to meet their
expansion and reconfiguration needs.
In addition to historical information, this press release contains
forward-looking statements under the federal securities laws. Because these
statements are based on current expectations, estimates and projections about
the industry and markets in which ProLogis operates, management's beliefs and
assumptions made by management, they involve uncertainties that could
significantly impact ProLogis' financial results. Forward-looking statements
are not guarantees of future performance, involve certain risks, uncertainties
and assumptions that are difficult to predict. Actual operating results may be
affected by changes in general economic conditions; increased or unanticipated
competitive market conditions; changes in financial markets, interest rates and
foreign currency exchange rates that could adversely affect ProLogis' cost of
capital, its ability to meet its financing needs and obligations and its
results of operations; the availability of private capital; geopolitical
concerns and uncertainties and therefore, may differ materially from what is
expressed or forecasted in this press release. For a discussion of factors
that could affect ProLogis' financial condition and results of operations,
refer to "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risk Factors" in ProLogis' Annual Report on Form
10-K/A #1 for the year ended December 31, 2004.
ProLogis
Second Quarter 2005
Unaudited Financial Results
Selected Financial Information
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004(1) % Change 2005 2004(1) % Change
Net Earnings
Attributable to
Common Shares:
Net Earnings
attributable to
Common Shares $77,169 $79,295 -2.7% $132,243 $122,792 7.7%
Net Earnings
per diluted
Common Share $0.40 $0.42 -4.8% $0.69 $0.66 4.5%
Funds From Operations and
Funds From Operations,
as adjusted:
Funds From
Operations
attributable to
Common Shares $130,744 $122,108 7.1% $236,767 $213,921 10.7%
Add back:
excess of
redemption values
over carrying
values of preferred
shares
redeemed (2) -- -- -- 4,236
Add back:
relocation
expenses (3) 1,052 691 3,803 691
Add back:
cumulative
translation losses
and impairment
charge
related to
temperature-
controlled
distribution
assets (6) 13,780 -- 26,864 --
Funds From
Operations
attributable to
Common Shares,
as adjusted $145,576 $122,799 18.5% $267,434 $218,848 22.2%
Funds From Operations
attributable to
Common Shares
per diluted share $0.67 $0.65 3.1% $1.22 $1.14 7.0%
Add back:
excess of
redemption
values over
carrying values
of preferred
shares redeemed (2) -- -- -- 0.02
Add back:
relocation
expenses (3) 0.01 -- 0.02 --
Add back:
cumulative
translation
losses and
impairment
charge related
to temperature-
controlled
distribution
assets (6) 0.07 -- 0.13 --
Funds From Operations
per diluted
Common Share,
as adjusted $0.75 $0.65 15.4% $1.37 $1.16 18.1%
EBITDA:
EBITDA $216,169 $201,224 7.4% $407,614 $368,994 10.5%
Distributions:
Actual distributions
per Common
Share (4) $0.370 $0.365 1.4% $0.740 $0.730 1.4%
Footnotes follow ProLogis' Consolidated Balance Sheets.
ProLogis
Second Quarter 2005
Unaudited Financial Results
Consolidated Statements of Earnings
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004(1) 2005 2004(1)
Revenues:
Rental income (7)(8)(9) $136,079 $136,716 $272,776 $273,812
Property management and
other property fund fees 16,478 11,852 33,005 23,119
Development management
fees and other
CDFS income (5) 3,195 527 3,326 2,049
Total revenues 155,752 149,095 309,107 298,980
Expenses:
Rental expenses (7)(9) 37,237 35,124 76,387 71,358
General and administrative 23,612 20,137 47,773 39,703
Depreciation and
amortization (9) 43,221 41,976 86,474 84,438
Relocation expenses (3) 1,052 691 3,803 691
Other expenses 1,369 1,476 3,282 2,472
Total expenses 106,491 99,404 217,719 198,662
Gains on dispositions of
certain CDFS business assets,
net (5)(9)(10):
Net proceeds from
dispositions (10)(11) 317,995 474,159 600,586 630,040
Costs of assets disposed of 245,047 420,671 472,297 549,394
Total gains, net 72,948 53,488 128,289 80,646
Operating Income 122,209 103,179 219,677 180,964
Income from unconsolidated
property funds 11,004 9,416 22,775 18,953
Income (loss) from
unconsolidated CDFS
joint ventures (12) (268) -- 189 --
Income (loss) from
other unconsolidated
investees, net 137 (683) 178 (383)
Interest expense (13) (34,877) (37,691) (71,485) (77,314)
Interest and other income 1,803 470 3,177 1,208
Earnings before minority
interest 100,008 74,691 174,511 123,428
Minority interest (1,261) (1,241) (2,602) (2,467)
Earnings before certain
net gains and
net foreign currency gains 98,747 73,450 171,909 120,961
Gains recognized on
dispositions of certain
non-CDFS business assets, net -- 6,072 -- 6,072
Gains on partial
disposition of investment
in property fund (14) -- 3,328 -- 3,328
Foreign currency
exchange gains, net (15) 3,695 7,912 3,581 11,225
Earnings before
income taxes 102,442 90,762 175,490 141,586
Income taxes:
Current income tax expense 3,577 3,784 4,750 5,997
Deferred income tax expense 1,982 6,846 2,821 9,585
Total income taxes 5,559 10,630 7,571 15,582
Earnings from
Continuing Operations 96,883 80,132 167,919 126,004
Discontinued Operations:
(Losses) income attributable
to assets held
for sale (6) (13,780) 3,453 (25,150) 6,848
Assets disposed of:
Operating income (losses)
attributable to
assets disposed of (9) -- 313 (6) 594
Gains (losses) recognized
on dispositions, net (9):
Non-CDFS business assets -- (2,298) 2,207 (2,844)
CDFS business assets 420 4,049 (19) 9,464
Total discontinued
operations (13,360) 5,517 (22,968) 14,062
Net Earnings 83,523 85,649 144,951 140,066
Less preferred
share dividends 6,354 6,354 12,708 13,038
Less excess of redemption
values over carrying values
of preferred shares
redeemed (2) -- -- -- 4,236
Net Earnings Attributable
to Common Shares $77,169 $79,295 $132,243 $122,792
Weighted average Common
Shares outstanding - basic 186,715 181,399 186,436 181,066
Weighted average Common
Shares outstanding - diluted 196,761 190,022 196,484 190,018
Net Earnings
per Common Share-Basic:
Continuing operations $0.48 $0.41 $0.83 $0.60
Discontinued operations (0.07) 0.03 (0.12) 0.08
Net Earnings Attributable
to Common Shares-Basic $0.41 $0.44 $0.71 $0.68
Net Earnings
per Common Share-Diluted:
Continuing operations $0.47 $0.39 $0.81 $0.59
Discontinued operations (0.07) 0.03 (0.12) 0.07
Net Earnings Attributable
to Common Shares-Diluted $0.40 $0.42 $0.69 $0.66
Calculation of Net Earnings per Common Share on a Diluted Basis
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004(1) 2005 2004(1)
Basic Net Earnings
Attributable to Common Shares $77,169 $79,295 $132,243 $122,792
Minority interest 1,261 1,241 2,602 2,467
Diluted Net Earnings
Attributable to Common Shares $78,430 $80,536 $134,845 $125,259
Weighted average Common
Shares outstanding - Basic 186,715 181,399 186,436 181,066
Weighted average
limited partnership units,
as if converted 5,539 4,681 5,541 4,682
Incremental weighted average
effect of potentially
dilutive instruments (a) 4,507 3,942 4,507 4,270
Weighted average
Common Shares
outstanding - Diluted 196,761 190,022 196,484 190,018
Diluted Net Earnings
per Common Share $0.40 $0.42 $0.69 $0.66
(a) On a weighted average basis, the total potentially dilutive
instruments outstanding were 10,986,000 and 11,199,000 for the three
months ended June 30, 2005 and 2004, respectively, and 11,083,000 and
11,466,000 for the six months ended June 30, 2005 and 2004,
respectively.
Footnotes follow ProLogis' Consolidated Balance Sheets.
ProLogis
Second Quarter 2005
Unaudited Financial Results
Consolidated Statements of Funds From Operations
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004(1) 2005 2004(1)
Revenues:
Rental income (7)(8) $136,079 $137,582 $273,002 $275,736
Property management
and other property
fund fees 16,478 11,852 33,005 23,119
Development
management fees
and other
CDFS income (5) 3,195 527 3,326 2,049
Total revenues 155,752 149,961 309,333 300,904
Expenses:
Rental expenses (7) 37,237 35,431 76,543 72,027
General and
administrative 23,612 20,137 47,773 39,703
Depreciation of
non-real estate assets 1,618 2,060 3,363 3,984
Relocation expenses (3) 1,052 691 3,803 691
Other expenses 1,369 1,476 3,282 2,472
Total expenses 64,888 59,795 134,764 118,877
Gains on dispositions of
CDFS business assets,
net (5)(9)(10):
Net proceeds from
dispositions (10)(11) 324,828 519,582 610,355 743,612
Costs of assets
disposed of 251,460 462,045 482,085 653,502
Total gains, net 73,368 57,537 128,270 90,110
164,232 147,703 302,839 272,137
Income from
unconsolidated
property funds 23,600 16,902 46,134 34,899
Income from other
unconsolidated CDFS
joint ventures (12) 80 -- 817 --
Income from other
unconsolidated
investees, net 190 100 289 400
Interest expense (13) (34,877) (37,691) (71,485) (77,314)
Interest and
other income 1,803 470 3,177 1,208
Gain on partial
disposition of
investment in
property fund (14) -- 3,164 -- 3,164
Foreign currency
exchange gains
(expenses/losses),
net (15) 688 (605) 419 (1,328)
Current income
tax expense (3,577) (3,784) (4,750) (5,997)
(12,093) (21,444) (25,399) (44,968)
Funds From Operations
before assets
held for sale 152,139 126,259 277,440 227,169
Funds From Operations
attributable to
assets held for sale (6) (13,780) 3,444 (25,363) 6,493
Funds From Operations 138,359 129,703 252,077 233,662
Less preferred
share dividends 6,354 6,354 12,708 13,038
Less excess of
redemption values
over carrying values
of preferred shares
redeemed (2) -- -- -- 4,236
Less minority interest 1,261 1,241 2,602 2,467
Funds From Operations
Attributable to
Common Shares $130,744 $122,108 $236,767 $213,921
Weighted average
Common Shares
outstanding - basic 186,715 181,399 186,436 181,066
Weighted average
Common Shares
outstanding - diluted 196,761 190,022 196,484 190,018
Funds From Operations
per Common Share:
Basic $0.70 $0.67 $1.27 $1.18
Diluted $0.67 $0.65 $1.22 $1.14
Calculation of Funds From Operations per Common Share on a Diluted Basis
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004(1) 2005 2004(1)
Basic Funds From
Operations Attributable
to Common Shares $130,744 $122,108 $236,767 $213,921
Minority interest 1,261 1,241 2,602 2,467
Diluted Funds From
Operations Attributable
to Common Shares $132,005 $123,349 $239,369 $216,388
Weighted average
Common Shares
outstanding - Basic 186,715 181,399 186,436 181,066
Weighted average
limited partnership units,
as if converted 5,539 4,681 5,541 4,682
Incremental weighted
average effect of
potentially
dilutive instruments (a) 4,507 3,942 4,507 4,270
Weighted average
Common Shares
outstanding - Diluted 196,761 190,022 196,484 190,018
Diluted Funds From
Operations
per Common Share $0.67 $0.65 $1.22 $1.14
(a) On a weighted average basis, the total potentially dilutive
instruments outstanding were 10,986,000 and 11,199,000 for the three
months ended June 30, 2005 and 2004, respectively, and 11,083,000 and
11,466,000 for the six months ended June 30, 2005 and 2004,
respectively.
See ProLogis' Consolidated Statements of Earnings and the Reconciliations
of Net Earnings to Funds From Operations.
Footnotes follow ProLogis' Consolidated Balance Sheets.
ProLogis
Second Quarter 2005
Unaudited Financial Results
ProLogis' Definition of Funds From Operations
ProLogis' Definition of Funds From Operations
Funds From Operations is a non-Generally Accepted Accounting Principles
(GAAP) measure that is commonly used in the real estate industry.
The most directly comparable GAAP measure to Funds From Operations is
Net Earnings. Although the National Association of Real Estate
Investment Trusts (NAREIT) has published a definition of Funds From
Operations, modifications to the NAREIT calculation of Funds From
Operations are common among REITs, as companies seek to provide
financial measures that meaningfully reflect their business. Funds
From Operations, as defined by ProLogis, is presented as a supplemental
financial measure. Funds From Operations is not used by ProLogis as,
nor should it be considered to be, an alternative to Net Earnings
computed under GAAP as an indicator of ProLogis' operating performance
or as an alternative to cash from operating activities computed under
GAAP as an indicator of ProLogis' ability to fund its cash needs.
Funds From Operations is not meant to represent a comprehensive system
of financial reporting and does not present, nor does ProLogis intend
it to present, a complete picture of its financial condition and
operating performance. ProLogis believes that GAAP Net Earnings
remains the primary measure of performance and that Funds From
Operations is only meaningful when it is used in conjunction with
GAAP Net Earnings. Further, ProLogis believes that its consolidated
financial statements, prepared in accordance with GAAP, provide the
most meaningful picture of its financial condition and its operating
performance.
NAREIT's Funds From Operations measure adjusts GAAP Net Earnings to
exclude historical cost depreciation and gains and losses from the
sales of previously depreciated properties. ProLogis agrees that these
two NAREIT adjustments are useful to investors for the following
reasons:
(a) historical cost accounting for real estate assets in accordance
with GAAP assumes, through depreciation charges, that the value of real
estate assets diminishes predictably over time. NAREIT stated in its
White Paper on Funds From Operations "since real estate asset values
have historically risen or fallen with market conditions, many industry
investors have considered presentations of operating results for real
estate companies that use historical cost accounting to be insufficient
by themselves." Consequently, NAREIT's definition of Funds From
Operations reflects the fact that real estate, as an asset class,
generally appreciates over time and depreciation charges required by
GAAP do not reflect the underlying economic realities.
(b) REITs were created as a legal form of organization in order to
encourage public ownership of real estate as an asset class through
investment in firms that were in the business of long-term ownership
and management of real estate. The exclusion, in NAREIT's definition
of Funds From Operations, of gains and losses from the sales of
previously depreciated operating real estate assets allows investors
and analysts to readily identify the operating results of the long-term
assets that form the core of a REIT's activities and assists in
comparing those operating results between periods.
At the same time that NAREIT created and defined its Funds From
Operations concept for the REIT industry, it also recognized that
"management of each of its member companies has the responsibility and
authority to publish financial information that it regards as useful to
the financial community." ProLogis believes that financial analysts,
potential investors and shareholders who review its operating results
are best served by a defined Funds From Operations measure that
includes other adjustments to GAAP Net Earnings in addition to those
included in the NAREIT defined measure of Funds From Operations.
The ProLogis Defined Funds From Operations measure excludes the
following items from GAAP Net Earnings that are not excluded in the
NAREIT Defined Funds From Operations measure: (i) deferred income tax
benefits and deferred income tax expenses recognized by ProLogis'
taxable subsidiaries; (ii) certain foreign currency exchange gains and
losses resulting from certain debt transactions between ProLogis and
its foreign consolidated subsidiaries and its foreign unconsolidated
investees; (iii) foreign currency exchange gains and losses from the
remeasurement (based on current foreign currency exchange rates) of
certain third party debt of ProLogis' foreign consolidated subsidiaries
and its foreign unconsolidated investees; and (iv) mark-to-market
adjustments associated with derivative financial instruments utilized
to manage ProLogis' foreign currency risks. Funds From Operations of
ProLogis' unconsolidated investees is calculated on the same basis as
ProLogis.
The items that ProLogis excludes from GAAP Net Earnings, while not
infrequent or unusual, are subject to significant fluctuations from
period to period that cause both positive and negative effects on
ProLogis' results of operations, in inconsistent and unpredictable
directions. Most importantly, the economics underlying the items that
ProLogis excludes from GAAP Net Earnings are not the primary drivers in
management's decision-making process and capital investment decisions.
Period to period fluctuations in these items can be driven by
accounting for short-term factors that are not relevant to long-term
investment decisions, long-term capital structures or to long-term tax
planning and tax structuring decisions. Accordingly, ProLogis believes
that investors are best served if the information that is made
available to them allows them to align their analysis and evaluation of
ProLogis' operating results along the same lines that ProLogis'
management uses in planning and executing its business strategy.
Real estate is a capital-intensive business. Investors' analyses of the
performance of real estate companies tend to be centered on
understanding the asset value created by real estate investment
decisions and understanding current operating returns that are being
generated by those same investment decisions. The adjustments to GAAP
Net Earnings that are included in arriving at the ProLogis Defined
Funds From Operations measure are helpful to management in making real
estate investment decisions and evaluating its current operating
performance. ProLogis believes that these adjustments are also helpful
to industry analysts, potential investors and shareholders in their
understanding and evaluation of ProLogis' performance on the key
measures of net asset value and current operating returns generated on
real estate investments.
While ProLogis believes that its defined Funds From Operations measure
is an important supplemental measure, neither NAREIT's nor ProLogis'
measure of Funds From Operations should be used alone because they
exclude significant economic components of GAAP Net Earnings and are,
therefore, limited as an analytical tool. Some of these limitations
are:
-- Depreciation and amortization of real estate assets are economic
costs that are excluded from Funds From Operations. Funds From
Operations is limited as it does not reflect the cash requirements that
may be necessary for future replacements of the real estate assets.
Further, the amortization of capital expenditures and leasing costs
necessary to maintain the operating performance of distribution
properties are not reflected in Funds From Operations.
-- Gains or losses from property dispositions represent changes in the
value of the disposed properties. Funds From Operations, by excluding
these gains and losses, does not capture realized changes in the value
of disposed properties arising from changes in market conditions.
-- The deferred income tax benefits and expenses that are excluded from
ProLogis' Defined Funds From Operations measure result from the
creation of a deferred income tax asset or liability that may have to
be settled at some future point. ProLogis' Defined Funds From
Operations measure does not currently reflect any income or expense
that may result from such settlement.
-- The foreign currency exchange gains and losses that are excluded
from ProLogis' Defined Funds From Operations measure are generally
recognized based on movements in foreign currency exchange rates
through a specific point in time. The ultimate settlement of ProLogis'
foreign currency-denominated net assets is indefinite as to timing and
amount. ProLogis' Funds From Operations measure is limited in that it
does not reflect the current period changes in these net assets that
result from periodic foreign currency exchange rate movements.
ProLogis compensates for these limitations by using its Funds From
Operations measure only in conjunction with GAAP Net Earnings. To
further compensate, ProLogis always reconciles its Funds From
Operations measure to GAAP Net Earnings in its financial reports.
Additionally, ProLogis provides investors with its complete financial
statements prepared under GAAP, its definition of Funds From
Operations, which includes a discussion of the limitations of using
ProLogis' non-GAAP measure, and a reconciliation of ProLogis' GAAP
measure (Net Earnings) to its non-GAAP measure (Funds From Operations
as defined by ProLogis) so that investors can appropriately incorporate
this ProLogis measure and its limitations into their analyses.
ProLogis
Second Quarter 2005
Unaudited Financial Results
Consolidated Statements of EBITDA
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004(1) 2005 2004(1)
Revenues:
Rental income (7)(8) $136,079 $137,582 $273,002 $275,736
Property management
and other property
fund fees 16,478 11,852 33,005 23,119
Development management
fees and other
CDFS income (5) 3,195 527 3,326 2,049
155,752 149,961 309,333 300,904
Expenses:
Rental expenses (7) 37,237 35,431 76,543 72,027
General and administrative 23,612 20,137 47,773 39,703
Relocation expenses (3) 751 426 3,049 426
Other expenses 1,369 1,476 3,282 2,472
62,969 57,470 130,647 114,628
Gains on dispositions of
CDFS business assets,
net (5)(9)(10)(11) 80,702 72,142 143,267 113,270
173,485 164,633 321,953 299,546
Income from unconsolidated
property funds 40,969 29,827 81,418 60,229
Income from other
unconsolidated CDFS
joint ventures (12) 122 -- 920 --
Income from other
unconsolidated investees, net 363 610 656 910
Interest and other income 1,803 470 3,177 1,208
Gain on partial disposition
of investment in
property fund (14) -- 3,164 -- 3,164
Foreign currency exchange
gains (expenses/losses),
net (15) 688 (605) 419 (1,328)
EBITDA attributable to
assets held for sale (6) -- 4,366 1,673 7,732
EBITDA before
minority interest 217,430 202,465 410,216 371,461
Less minority interest 1,261 1,241 2,602 2,467
EBITDA $216,169 $201,224 $407,614 $368,994
See ProLogis' Consolidated Statements of Earnings and the Reconciliations
of Net Earnings to EBITDA.
Footnotes follow ProLogis' Consolidated Balance Sheets.
ProLogis' definition of EBITDA (Earnings before Interest, Taxes,
Depreciation and Amortization):
ProLogis believes that EBITDA is a useful supplemental measure in the
calculation of Return on Capital measures. ProLogis believes that
Return on Capital measures are useful in analyzing the financial
returns resulting from capital deployment decisions and for comparing
returns associated with alternative investment decisions. EBITDA, as
computed by ProLogis, does not represent Net Earnings or cash from
operating activities that are computed in accordance with GAAP and is
not indicative of cash available to fund cash needs, which ProLogis
presents in its Consolidated Statements of Cash Flows and includes in
its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that
are filed with the Securities and Exchange Commission. Accordingly, the
EBITDA measure presented by ProLogis should not be considered as an
alternative to Net Earnings as an indicator of ProLogis' operating
performance, or as an alternative to cash flows from operating,
investing, or financing activities as a measure of liquidity.
The EBITDA measure presented by ProLogis will not be comparable to
similarly titled measures of other REITs.
EBITDA generally represents Net Earnings (computed in accordance with
GAAP) excluding: (i) interest expense; (ii) income tax expenses and
benefits; and (iii) depreciation and amortization expenses. In
ProLogis' computation of EBITDA the following items are also excluded:
(i) preferred dividends and charges related to the redemption of
preferred shares; (ii) the foreign currency exchange gains and losses
that are also excluded in ProLogis' definition of Funds From Operations;
(iii) impairment charges; and (iv) gains and losses from the
dispositions of non-CDFS business assets. In addition, ProLogis adjusts
the gains and losses from the contributions and sales of developed
properties recognized as CDFS income to reflect these gains and losses
as if no interest cost had been capitalized during the development of
the properties (i.e. the gains are larger since capitalized interest is
not included in the basis of the assets contributed and sold). EBITDA
of ProLogis' unconsolidated investees is calculated on the same basis as
ProLogis.
ProLogis
Second Quarter 2005
Unaudited Financial Results
Reconciliations of Net Earnings to Funds From Operations and EBITDA
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 (1) 2005 2004 (1)
Reconciliation of Net Earnings to
Funds From Operations:
Net Earnings Attributable to
Common Shares: $77,169 $79,295 $132,243 $122,792
Add (Deduct) NAREIT Defined
Adjustments:
Real estate related depreciation
and amortization 41,603 39,916 83,111 80,454
Funds From Operations adjustment
to gain on partial disposition
of investment in property fund
(14) -- (164) -- (164)
Gains recognized on dispositions
of non-CDFS business assets,
net -- (6,072) -- (6,072)
Reconciling items attributable
to discontinued operations:
Assets held for sale - gains on
dispositions of non-CDFS
business assets, net (6) -- -- -- (241)
Assets disposed of - losses
(gains) recognized on
dispositions of non-CDFS
business assets, net (9) -- 2,298 (2,207) 2,844
Assets disposed of - real
estate related depreciation
and amortization (9) -- 246 76 661
Totals discontinued
operations -- 2,544 (2,131) 3,264
ProLogis' share of reconciling
items from unconsolidated
investees (16):
ProLogis Property Funds:
Real estate related
depreciation and amortization 12,819 9,105 25,612 18,104
Losses (gains) on dispositions
of non-CDFS business assets,
net 102 (426) (336) (720)
Other amortization items (17) (1,246) (1,016) (2,457) (1,533)
Totals ProLogis Property
Funds 11,675 7,663 22,819 15,851
CDFS Joint Ventures (12):
Real estate related
depreciation and amortization 348 -- 628 --
Other investees (16):
Real estate related
depreciation and amortization 53 135 111 135
Losses on dispositions of
non-CDFS business assets, net -- 648 -- 648
Totals NAREIT Defined
Adjustments 53,679 44,670 104,538 94,116
Subtotals -- NAREIT Defined
Funds From Operations 130,848 123,965 236,781 216,908
Add (Deduct) ProLogis Defined
Adjustments:
Foreign currency exchange gains,
net (15) (3,007) (8,517) (3,162) (12,553)
Deferred income tax expense 1,982 6,846 2,821 9,585
Reconciling items attributable
to discontinued operations:
Assets held for sale-deferred
income tax benefit (6) -- (9) (213) (114)
ProLogis' share of reconciling
items from unconsolidated
investees (16):
ProLogis Property Funds:
Foreign currency exchange
(gains) expenses/losses, net
(15) (277) (86) (550) 252
Deferred income tax expense
(benefit) 1,198 (91) 1,090 (157)
Totals ProLogis Property
Funds 921 (177) 540 95
Totals ProLogis Defined
Adjustments (104) (1,857) (14) (2,987)
ProLogis Defined Funds From
Operations Attributable to
Common Shares $130,744 $122,108 $236,767 $213,921
Reconciliation of Net Earnings to
EBITDA:
Net Earnings Attributable to
Common Shares: $77,169 $79,295 $132,243 $122,792
Add (Deduct):
NAREIT Defined Adjustments to
compute Funds From Operations 53,679 44,670 104,538 94,116
ProLogis Defined Adjustments to
compute Funds From Operations (104) (1,857) (14) (2,987)
Other adjustments to compute
ProLogis' EBITDA measure:
Interest expense 34,877 37,691 71,485 77,314
Depreciation of non-real estate
assets 1,618 2,060 3,363 3,984
Depreciation of non-real estate
assets included in relocation
expenses (3) 301 265 754 265
Current income tax expense 3,577 3,784 4,750 5,997
Adjustments to CDFS gains for
interest capitalized to
disposed assets: 7,334 14,605 14,997 23,160
Preferred share dividends 6,354 6,354 12,708 13,038
Excess of redemption values
over carrying values of
preferred shares redeemed (2) -- -- -- 4,236
Reconciling items attributable
to discontinued operations -
assets held for sale (6):
Current income tax expense -- 922 172 1,239
Cumulative translation losses
and impairment charge 13,780 -- 26,864 --
ProLogis' share of reconciling
items from unconsolidated
investees (16):
ProLogis Property Funds:
Interest expense 16,551 12,220 32,883 23,929
Current income tax and other
expense 1,188 915 2,437 1,752
Other amortization items (17) (370) (210) (36) (351)
Totals ProLogis Property
Funds 17,369 12,925 35,284 25,330
CDFS Joint Ventures (12):
Interest expense 40 -- 99 --
Depreciation of non-real
estate assets 2 -- 4 --
Totals CDFS Joint Ventures 42 -- 103 --
Other investees:
Depreciation of non-real
estate assets 63 165 134 165
Current income tax expense 110 345 233 345
Totals other investees 173 510 367 510
ProLogis' EBITDA measure $216,169 $201,224 $407,614 $368,994
See ProLogis' Consolidated Statements of Earnings.
Footnotes follow ProLogis' Consolidated Balance Sheets.
ProLogis
Second Quarter 2005
Unaudited Financial Results
Consolidated Balance Sheets
(in thousands)
June 30, December 31,
2005 2004 (1)
Assets:
Investments in real estate assets:
Operating properties $5,288,044 $5,047,414
Properties under development
(including cost of land) 748,342 575,703
Land held for development 562,573 596,001
Other investments (18) 169,462 114,613
6,768,421 6,333,731
Less accumulated depreciation 1,061,870 989,221
Net investments in real estate
assets 5,706,551 5,344,510
Investments in unconsolidated
investees:
Investments in ProLogis Property Funds 800,039 839,675
Investments in CDFS Joint Ventures 67,511 40,487
Investments in other unconsolidated
investees 27,271 28,351
Total investments in unconsolidated
investees 894,821 908,513
Cash and cash equivalents 157,061 236,529
Accounts and notes receivable 59,099 92,015
Other assets 431,432 401,564
Discontinued operations-assets
held for sale (6) 95,152 114,668
Total assets $7,344,116 $7,097,799
Liabilities and Shareholders' Equity:
Liabilities:
Lines of credit $1,297,156 $912,326
Short-term borrowings 47,700 47,676
Senior unsecured notes 1,871,472 1,962,316
Secured debt and assessment bonds 444,861 491,643
Construction costs payable 82,239 63,509
Interest payable 39,197 50,924
Accounts payable and accrued expenses 144,770 141,408
Other liabilities 197,816 196,240
Discontinued operations-assets
held for sale (6) 60,552 62,991
Total liabilities 4,185,763 3,929,033
Minority interest 65,690 66,273
Shareholders' equity:
Series C Preferred Shares at
stated liquidation preference
of $50.00 per share 100,000 100,000
Series F Preferred Shares at
stated liquidation preference
of $25.00 per share 125,000 125,000
Series G Preferred Shares at
stated liquidation preference
of $25.00 per share 125,000 125,000
Common Shares at $.01 par value
per share 1,868 1,858
Additional paid-in capital 3,286,107 3,249,576
Accumulated other comprehensive
income (19) 153,735 194,445
Distributions in excess of net
earnings (699,047) (693,386)
Total shareholders' equity 3,092,663 3,102,493
Total liabilities and
shareholders' equity $7,344,116 $7,097,799
Footnotes follow ProLogis' Consolidated Balance Sheets.
ProLogis
Second Quarter 2005
Unaudited Financial Results
Notes to Consolidated Financial Statements
(1) Certain 2004 amounts included in this Supplemental Information
package have been reclassified to conform to the 2005 presentation.
(2) On December 11, 2003, ProLogis called for the redemption of all of
the remaining 5,000,000 Series D Preferred Shares outstanding at a
price of $25.00 per share, plus $0.066 in accrued and unpaid
dividends. The redemption of these shares was completed on
January 12, 2004 at a total redemption value of $125.3 million. In
accordance with FASB-EITF Topic D-42, in the first quarter of 2004,
ProLogis recognized a charge of $4.2 million associated with the
excess of the redemption value over the carrying value of ProLogis'
remaining Series D Preferred Shares.
(3) Represents the costs incurred (including accrued employee
termination costs) associated with ProLogis' relocation of its
information technology and corporate accounting functions from El
Paso, Texas to Denver, Colorado and the move of its Denver corporate
headquarters to a new building in Denver. Such relocations are
expected to occur and costs are expected to be incurred through the
first quarter of 2006. Costs include (i) employee termination
costs; (ii) costs associated with the hiring and training of new
personnel and other costs including travel and temporary facility
costs; (iii) and accelerated depreciation associated with non-real
estate assets whose useful life has been shortened due to the
relocations. The costs incurred are as follows (in thousands):
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
Employee termination
costs $81 $381 $717 $381
Hiring, training and
other costs 670 45 2,332 45
Accelerated
depreciation 301 265 754 265
$1,052 $691 $3,803 $691
(4) The annual distribution rate for 2005 is $1.48 per Common Share.
The amount of the Common Share distribution may be adjusted at the
discretion of the Board of Trustees.
(5) The corporate distribution facilities services business ("CDFS
business") segment represents the development of distribution
properties with the intent to either contribute the properties to a
ProLogis Property Fund in which ProLogis has an ownership interest
and acts as manager or sell the properties to a third party, and the
acquisition and rehabilitation or acquisition and repositioning of
distribution properties with the intent to contribute the properties
to a ProLogis Property Fund. This segment's income also includes
fees earned for development activities performed on behalf of
customers or third parties and gains or losses from the dispositions
of land parcels that no longer fit into ProLogis' development plans.
ProLogis includes the income generated in the CDFS business segment
in its computation of Funds From Operations and EBITDA. Further,
ProLogis has ownership interests in various unconsolidated joint
ventures that engage in CDFS activities in the United Kingdom, the
United States and China. See note 12.
(6) At June 30, 2005, ProLogis owned a temperature-controlled
distribution business in France, which was sold in July 2005 and is
shown as assets held for sale in the Consolidated Financial
Statements. Due to the sale and liquidation of the business,
ProLogis recognized an impairment charge and cumulative translation
losses during 2005.
(7) Represents rental income earned and rental expenses incurred while
ProLogis owns a property directly. Under the terms of the
respective lease agreements, some or all of ProLogis' rental
expenses are recovered from its customers. Amounts recovered are
included as a component of rental income. Rental expenses also
include ProLogis' direct expenses associated with its management of
the ProLogis Property Funds' operations. For properties that have
been contributed to ProLogis Property Funds, ProLogis recognizes its
share of the total operations of the Property Funds under the equity
method and presents these amounts below Operating Income in its
Consolidated Statements of Earnings, Funds From Operations and
EBITDA.
(8) Amounts include straight-line rents of $1,696,000 and $2,711,000 for
the three months ended June 30, 2005 and 2004, respectively, and
$3,425,000 and $4,912,000 for the six months ended June 30, 2005 and
2004, respectively, and rental expense recoveries from customers of
$25,878,000 and $25,186,000 for the three months ended June 30, 2005
and 2004, respectively, and $52,412,000 and $52,094,000 for the six
months ended June 30, 2005 and 2004, respectively.
(9) Properties disposed of to third parties are considered to be
discontinued operations unless such properties were developed under
a pre-sale agreement. Through June 30, 2005, ProLogis sold six such
properties to third parties, four of which were non-CDFS business
assets. Accordingly, the operations of these properties for the
three and six months ended June 30, 2005 and 2004 and the aggregate
net gains or losses recognized upon their dispositions are presented
as discontinued operations. One property was sold in the second
quarter of 2005, but had no rental revenue in 2005 or 2004. In
addition, the operations of the 20 properties sold during 2004 (ten
of which were CDFS business assets) are presented as discontinued
operations in ProLogis' Consolidated Statements of Earnings for the
three and six months ended June 30, 2004. These amounts are not
presented as discontinued operations in either of ProLogis'
Consolidated Statements of Funds From Operations or EBITDA. The
operating amounts that are presented as discontinued operations
(other than the net gains or losses recognized upon disposition)
are as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Rental income $-- $866 $226 $1,924
Rental expenses -- (307) (156) (669)
Depreciation and
amortization -- (246) (76) (661)
$-- $313 $(6) $594
(10) When ProLogis contributes properties to a ProLogis Property Fund in
which it has an ownership interest, ProLogis does not recognize a
portion of the proceeds in its computation of the gain resulting
from the contribution. The amount of the proceeds that cannot be
recognized is determined based on ProLogis' continuing ownership
interest in the contributed property that arises due to ProLogis'
ownership interest in the Property Fund acquiring the property.
ProLogis defers this portion of the proceeds by recognizing a
reduction to its investment in the applicable Property Fund.
ProLogis adjusts its proportionate share of the earnings or losses
that it recognizes under the equity method from the Property Fund in
later periods to reflect the Property Fund's depreciation expense as
if the depreciation expense was computed on ProLogis' lower basis in
the contributed real estate assets rather than on the Property
Fund's basis in the contributed real estate assets. If a loss is
recognized when a property is contributed to a ProLogis Property
Fund, the entire loss is recognized. See note 11 for the amount of
cumulative gross proceeds that have not been recognized as of
June 30, 2005.
Gross proceeds deferred related to contributions during the three
months ended June 30, 2005 and 2004 were $14,396,000 and
$12,003,000, respectively, and during the six months ended
June 30, 2005 and 2004 were $25,654,000 and $20,915,000,
respectively. When a property that ProLogis originally contributed
to a ProLogis Property Fund is disposed of to a third party,
ProLogis recognizes the amount of the gain that it had previously
deferred as a part of its CDFS income during the period that the
disposition occurs, in addition to ProLogis' proportionate share of
the gain or loss recognized by the Property Fund. Further, during
periods when ProLogis' ownership interest in a ProLogis Property
Fund decreases, ProLogis will recognize gains to the extent that
previously deferred proceeds are recognized to coincide with
ProLogis' new ownership interest in the ProLogis Property Fund.
(11) As of June 30, 2005, the cumulative gross proceeds that have not
been recognized in computing the gains from the contributions of
properties by ProLogis to ProLogis Property Funds (before subsequent
amortization) are presented below (in thousands). See note 10.
Gross Proceeds Not Recognized
CDFS Non-CDFS
Transactions Transactions Totals
ProLogis European
Properties Fund $90,335 $9,344 $99,679
ProLogis California
LLC 5,350 26,129 31,479
ProLogis North
American Properties
Fund I 8,278 862 9,140
ProLogis North
American Properties
Fund II 7,366 -- 7,366
ProLogis North
American Properties
Fund III 5,651 337 5,988
ProLogis North
American Properties
Fund IV 3,805 810 4,615
ProLogis North
American Properties
Fund V 23,803 871 24,674
ProLogis North
American Properties
Funds VI-X 2,751 -- 2,751
ProLogis Japan
Properties Fund 32,493 -- 32,493
Totals $179,832 $38,353 $218,185
(12) ProLogis has invested in joint ventures that perform CDFS business
activities (see note 5), in the United Kingdom, in China (initial
investment in July 2004) and in North America (initial investment in
August 2004). ProLogis has an average 50% ownership interest in
each of the CDFS joint ventures.
(13) Includes amortization of deferred loan costs of $1,188,000 and
$1,321,000 for the three months ended June 30, 2005 and 2004,
respectively, and $2,367,000 and $2,813,000 for the six months ended
June 30, 2005 and 2004, respectively. Excludes interest that has
been capitalized based on ProLogis' development activities of
$15,141,000 and $9,299,000 for the three months ended June 30, 2005
and 2004, respectively, and $27,581,000 and $16,686,000 for the six
months ended June 30, 2005 and 2004, respectively.
(14) In June 2004, ProLogis disposed of a portion of its ownership
interest in ProLogis North American Properties Fund V. As provided
in certain formation agreements, ProLogis exchanged a certain
portion of its investment into shares of Macquarie ProLogis Trust,
the listed property trust in Australia that has an 86.0% ownership
interest in ProLogis North American Properties Fund V. Upon receipt
of the shares, they were immediately sold by ProLogis in the public
market. ProLogis recognized a net gain of $3,328,000 in its
Consolidated Statement of Earnings and a net gain of $3,164,000 on
this disposition in both its Consolidated Statements of Funds From
Operations and EBITDA.
(15) Foreign currency exchange gains and losses that are recognized as a
component of Net Earnings computed under GAAP generally result from:
(i) remeasurement and/or settlement of certain debt transactions
between ProLogis and its foreign consolidated subsidiaries and
foreign unconsolidated investees (depending on the type of loan, the
currency in which the loan is denominated and the form of ProLogis'
investment); (ii) remeasurement and/or settlement of certain third
party debt of ProLogis' foreign consolidated subsidiaries (depending
on the currency in which the loan is denominated); and (iii)
mark-to-market adjustments related to derivative financial
instruments utilized to manage foreign currency risks. ProLogis
generally excludes these types of foreign currency exchange gains
and losses from the ProLogis Defined Funds From Operations measure
and also from its computation of EBITDA.
Foreign currency exchange gains and losses that result from
transactions (including certain intercompany debt and equity
investments) that are settled in a currency other than the reporting
company's functional currency and from the settlement of derivative
financial instruments utilized to manage foreign currency risks are
included in the ProLogis Defined Funds From Operations measure and
in ProLogis' computation of EBITDA.
(16) ProLogis reports its investments in the ProLogis Property Funds,
CDFS Joint Ventures and certain other investments under the equity
method. For purposes of calculating Funds From Operations and
EBITDA, the Net Earnings of each of its unconsolidated investees is
adjusted to be consistent with the calculation of these measures by
ProLogis.
(17) Consists primarily of adjustments to the amounts ProLogis recognizes
under the equity method that are necessary to recognize the amount
of the gains that were not recognized at the contribution date due
to the deferral of certain proceeds based on ProLogis' ownership
interest in the ProLogis Property Fund acquiring the property.
See note 11.
(18) Other investments primarily include: (i) funds that are held in
escrow pending the completion of tax-deferred exchange transactions;
(ii) earnest money deposits associated with potential acquisitions;
(iii) costs incurred during the pre-acquisition due diligence
process; (iv) costs incurred during the pre-construction phase
related to future development projects; and (v) costs related to
ProLogis' corporate office buildings.
(19) Accumulated other comprehensive income includes cumulative foreign
currency translation adjustments and unrealized gains and losses
associated with derivative financial instruments that receive hedge
accounting treatment. ProLogis also recognizes its proportionate
share of the accumulated other comprehensive income balances of its
unconsolidated investees.
DATASOURCE: ProLogis
CONTACT: Investors, Melissa Marsden, +1-303-576-2622,
, or Media, Rick Roth, +1-303-576-2641,
, both of ProLogis; or Financial Media, Suzanne Dawson,
Linden Alschuler Kaplan, Inc., 212-329-1420, , for ProLogis
Web site: http://ir.prologis.com/