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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/

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