Prologis Annual Report 2005

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FY2005 Annual Report · Prologis

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sustainability

2005 Summary Annual Report

The long-term growth plan ProLogis set in motion

a year ago is well underway. Our 2005 results were

excellent, and we’re confident in our ability to continue

to execute our plan for sustained, profitable growth

well into the future.

But sustaining our performance and building a

company that excels long term transcends traditional

financial growth.

Our commitment includes creating an environment

in which our people can recognize their full potential

and build mutually beneficial relationships with our

customers. And as a leader in our industry, we are

committed to implementing innovative solutions for

sustainable development while making a difference

in our communities and our world.

These are the keys to true sustainability.

Mission

To be the leading global provider of distribution

facilities and services to the world’s largest users

of distribution space, thereby creating value for

our customers and shareholders.

Profile

ProLogis is one of the world’s largest providers of

Operating in:

North America

United States, Mexico,

Canada

Europe

Belgium, Czech Republic,

France, Germany, Hungary,

Italy, The Netherlands,

Poland, Spain, Sweden,

industrial distribution facilities, with operations in

United Kingdom

Asia

Japan, China, South Korea

77 markets across North America, Europe and Asia.

We have over 375 million square feet of industrial

space in 2,340 buildings, representing over $22 billion

of assets owned, managed and under development.

These strategically located, state-of-the-art facilities

help customers, like DHL, Nippon Express, Unilever,

Home Depot and Wal-Mart, meet the needs of their

customers wherever they are throughout the world.

Table of Contents
1
4

To Our Shareholders
Sustainability
Our business, our shareholders

10 Sustainability

Our people, our customers

16 Sustainability

Our planet, our communities
22 Financial Highlights from Our CFO
23 Condensed Consolidated
Financial Statements

27 Management’s Responsibility
27 Report of Independent Registered

Public Accounting Firm

30 ProLogis Board and Senior Officers
32 Faces of ProLogis
IBC Shareholder Information

2005 Highlights

• Grew ProLogis’ defined funds from operations

• Increased management fees by 31.8% and

per share, as adjusted, (FFO) to $2.71, up 11.5%

our share of funds from operations from property

from $2.43 in 2004, while net earnings per diluted

funds by 19.6%

share were $1.76, up 63% from $1.08 in 2004

• Established early market leadership position in

• Completed merger with Catellus Development

China with $200 million of properties

Corporation, which added 42 million square feet of

commercial space and solidified leading positions

• Began development of a record $2.2 billion of new

in six key North American logistics markets

facilities, up more than 73% over 2004

• Achieved record leasing of 95 million square feet of

• Significantly strengthened management team on

space in global markets, a 44% increase over 2004

global basis

• Increased property fund capacity with the formation

• Increased dividend for the 12th consecutive year

of Japan Fund II and, in early 2006, the North American

to a projected rate of $1.60 per share for 2006,

Industrial Fund, with combined capacity of $7 billion

up 8% over 2005

ProLogis Defined
Funds from Operations,
as Adjusted*
(per share)

1
7
2
$

1
4
2
$

3
4
2
$

Total Revenue*
(in millions)

0
3
1
2
$

3
8
9
1
$

4
9
4
1
$

Total Assets Owned
and Managed*
(in billions)

3
2
2
$

9
5
1
$

7
1
1
$

Dividend per Share

*
0
6
1
$

8
4
1
$

6
4
1
$

*Before $0.24 (2003), $0.32
(2004) and $0.20 (2005)
in certain charges, including
impairment, relocation, merger
integration and preferred
redemption charges

*As reported in FFO,
includes CDFS
disposition proceeds

*Includes 100% of
assets of ProLogis’
unconsolidated investees

*Projected for 2006

To Our Shareholders

Our commitment to sustainability is deeply rooted in the culture

at ProLogis. We believe it is our responsibility to focus on

leveraging our leading global platform to bring together the

best and most cost-effective, energy-saving and environmental

practices from around the world to create value in a sustainable

manner. Our focus on customer relationships and profitable

growth and our commitment to both our shareholders and our

people are stronger than ever.

In recent years, as we have grown our development and property

fund businesses, we have endeavored to enhance our leading

global presence while maximizing shareholder returns. The

breadth of our global property platform and strong customer

relationships helped us to sustain growth when many global

economies struggled, and these same core competitive strengths

will propel us forward during more robust economic times.

By any measure, 2005 was a year of tremendous accom-

plishment. We exceeded others’ expectations, posting 11.5%

growth in funds from operations, while making significant

progress toward our long-term objectives. Last year at this

time, we embarked on a five-year plan to grow assets owned

and managed to $30 billion, comprising 500 million square

feet of space, and to achieve a pace of $2 billion in new

development annually by the end of 2009. While these goals

seemed aggressive to some at the time, our talented global

team has, in the first year, made significant strides. We ended

2005 with more than $22 billion of assets owned, managed

and under development, comprising over 375 million square

feet, and began a record $2.2 billion of new development.

Catellus Merger Provides Important Benefits

Our $5.3 billion merger with Catellus Development Corporation

in September was the most significant event of 2005, adding

momentum to our initiatives in North America. The transaction

was notable in many respects. Most important, we were joined

by a team of 75 experienced development and local market

professionals, including Ted Antenucci, formerly president of

Catellus Commercial Development, who now heads our global

P R O L O G I S 2 0 0 5 1

Jeffrey H. Schwartz (r)
Chief Executive Officer

Walter C. Rakowich (l)
President and
Chief Operating Officer

By focusing on sustainability of

our properties, developing our people

and nurturing strong customer relation-

ships, we can leverage our strengths

to capture opportunities in 2006

and beyond.

development team. In addition, Nelson Rising, formerly

Catellus’ chief executive officer, and Christine Garvey, both

Catellus board members, have joined the ProLogis board,

providing important continuity and valued insight.

The merger added roughly 42 million square feet of high-

quality, recently developed commercial space, enhancing our

leading positions in six of the largest US logistics markets

and providing an additional 2,500 acres of well-located land

to support the development of another 40 million square feet

of space. The merger with Catellus also brought expertise in

the redevelopment of abandoned airports and military bases

into attractive, mixed-use projects. Projects of this nature require

expertise and financial wherewithal but also a sensitivity to

place and community. These redevelopment projects will add

to our portfolio of properties while providing fees from infra-

structure development and profits from the sale of improved

land for non-industrial uses.

Six months following the merger, we are excited about the

way the two organizations have come together. We are already

realizing the benefits of combining the two strongest develop-

ment organizations and most extensive land positions in the

United States through expanded customer relationships and

leasing activity.

Strong Global Demand Supports Improved Fundamentals

We continued to experience strong customer demand in 2005,

sustained by the growth in global trade and the ongoing need

Annualized Base Rents
from Top 25 Customers
(in millions)

Global Leasing
(in millions of square feet)

Development Starts*
(in millions)

for companies to make distribution efficiency a business

imperative. This strong demand led to further increases in

our occupancy levels and record leasing activity on all three

continents. Across the globe, we leased approximately 95 mil-

lion square feet, up almost 44% over leasing activity in 2004.

We also achieved significant improvement in our same-store

measures with the highest occupancies we’ve seen in over four

years, increases in net operating income and higher rent levels

in the second half of the year.

0
4
3
3
$

9
4
9

4
5
1
2
$

0
9
6
2
$

5
6
0
2
$

0
6
6

9
6
5

5
4
2
1
$

4
7
6
$

*Total expected invest-
ment, including 100%
of development JVs.

P R O L O G I S 2 0 0 5

There are some US markets in which speculative construction

Our Ability to Sustain More than Simply Growth

has picked up. However, we estimate that new deliveries of

In the pages of this report, we will elaborate on our approach

space in the top 30 US markets amounted to about 2% of

to sustainability, not only as it relates to growth but also the

the existing competitive base in 2005, still well below annual

sustainability of development, our customer relationships, our

increases of about 3.5% during the late ’90s. Overall, leasing

organization and our communities. We believe we have the

activity continues to outpace new construction deliveries.

platform of people in place and the expertise required to be

We closely watch how quickly new construction is absorbed

a global leader in this important area. Equally important is

in addition to key business indicators, such as GDP growth,

our leadership in sound governance practices. We are proud

sales-to-inventory ratios and manufacturing indices, so we are

to have been recognized by Institutional Investor as one of

positioned to react quickly if conditions change.

the most shareholder-friendly companies in our industry.

In Europe, our stabilized portfolio remains well leased at 94%

Our success builds on the strong foundation established over the

while economic conditions are steadily improving. In Japan,

past years, and we would be remiss not to mention the contribu-

demand remains strong with our new facilities being fully leased

tions made by Dane Brooksher, who, while retired at the end

within a few months of completion. In China, strong GDP

of 2004 as chief executive officer, has continued to offer us

growth coupled with increased domestic consumption con-

valuable counsel as chairman of our board. We are grateful as

tinue to provide us with significant opportunities.

well for the wisdom and experience of all our board members.

Overall, we’re encouraged by conditions across our global

As we develop and grow our business and our organization

markets. Key business drivers are trending positively and

in a strong, sustainable manner, we remain ever focused on

occupancy levels in our portfolio of properties that have been

providing higher levels of customer service throughout the

complete for more than one year are above market average

world, and we thank our customers for the opportunity to help

in virtually every market in which we operate. Additionally,

them grow their business platforms. Finally, we want to thank

we continue to capture a growing share of new development

all of our ProLogis associates, who are pictured on the inside

activity, driven by our strong customer relationships and the

back cover. These teammates were the true force driving our

breadth of our global presence.

excellent results in 2005 and will be instrumental in sustain-

ing our growth in profitability and operations while enhancing

New Funds Support Future Growth

our unique culture as we move forward.

As we continue to expand our market share and take advantage

of opportunities, it is critical to have the capital in place to

support our growth. During the year, we raised a second Japan

fund with the capacity to support an additional $3 billion of

development. In addition, in February, we announced the for-

Jeffrey H. Schwartz

mation of a $4 billion open-end, infinite-life North American

Chief Executive Officer

fund, our largest raising of private capital to date. This fund

allowed us to redeem our partners’ interest in expiring funds

while supporting our development and acquisition activity in

North America for the next two to three years. Going forward,

we believe this perpetual, liquid structure will provide impor-

Walter C. Rakowich

tant benefits for us and our investors.

President and Chief Operating Officer

P R O L O G I S 2 0 0 5 3

4 P R O L O G I S 2 0 0 5

sustain

Our business, our shareholders

Since our IPO in 1994, we have consistently grown

earnings, assets and dividends and seen appreciation in

share price, demonstrating the sustainability of our financial

performance. Our unparalleled global development pipeline

and expanding property fund business support our

confidence in the long-term success of our business plan.

Sustaining profitable long-term

The ProLogis Business Model

In this manner, we recycle our initial investment in CDFS prop-

In our early years, we grew primarily by acquiring properties in

erties into new development and acquisitions. By continuing to

the United States. Today, while we continue to make acquisitions,

manage these properties under long-term agreements, we recog-

our growth is fueled by our expansive development and fund

nize management fees as well as our proportionate share of each

management businesses, not only in the United States but in

fund’s earnings. We also maintain key customer relationships.

Europe and Asia as well. This expansion helped us become the

largest, US-based, global developer and manager of industrial

Our numbers underscore the strength of this approach. In 1994,

properties. We ended 2005 with a record Corporate Distribution

we had 16 million square feet of facilities in 15 US markets,

Facilities Services (CDFS) pipeline of approximately $3.3 bil-

with a total value of less than $500 million. Today, we are in

lion – up nearly 70% from the year before – driven by strong

77 markets, with more than 375 million square feet owned,

fundamentals, new markets and greater opportunities.

managed or under development, representing approximately

Our global development drives our expansion, while our

$22 billion.

business plan allows us to grow by accessing and managing

We believe our development pipeline will enable us to achieve

a variety of capital sources. We raise third-party capital for

growth within our funds of roughly $2 to $2.5 billion per

ProLogis property funds. We contribute our completed, stabi-

year. A core objective for us is to increase total assets under

lized properties to these funds, generating development gains,

management to approximately $30 billion by 2009. We remain

and we co-invest a portion of these gains in our funds, result-

optimistic about reaching that goal, given solid industry funda-

ing in average ownership in the funds of 10% to 25%.

mentals and the past success of our strategic plan.

P R O L O G I S 2 0 0 5

growth

Top: Growing globalization
and rampant brand extension
of consumer products require
manufacturers to get their prod-
ucts to market quickly and
efficiently. Our state-of-the-art
facilities located in the world’s
largest logistics markets are key
to accomplishing that goal.

Middle: The ability to recycle cap-
ital is the core of ProLogis’ fund
strategy. Masato Miki, ProLogis
Japan Co-President, evaluates
opportunities to invest capital for
maximum returns and manages
our fund business in Japan.

Bottom: Creating thriving metropol-
itan areas from infill redevelopment
locations is a core competency
of Catellus Development Corp.
Pacific Commons, in California, is
a perfect example of how respon-
sible development can effectively
meet the needs of both business
and the community.

P R O L O G I S 2 0 0 5 7

P R O L O G I S 2 0 0 5

Global Growth

The remarkable growth in international trade seen over the past

several years shows little sign of abating, as the manufacture

of consumer goods shifts increasingly to regions of the world

with low labor costs. That trend is fundamentally changing how

companies get their products to the world’s largest consumer

markets. As they rethink their supply chains, modern, efficiently

designed industrial warehouses play a crucial role.

At year end, market conditions were healthy or improving

on all three continents in which we do business. Our North

American stabilized portfolio occupancy increased by 2.75 per-

centage points in 2005, nearly double the industry average.

Importantly, this improvement was achieved at a time when

an additional 100 million square feet of new space was added

to the top 30 US markets.

ProLogis continues to benefit from dynamics that are fundamentally

changing the manufacturing, retailing and distribution industries

on a global basis.

In Europe, demand for high-quality space continues to

strengthen, driven by the growth in outsourcing of logistics

services and the increase in cross-border trade brought about

by the expansion of the European Union. ProLogis serves

as the leading pan-European industrial warehouse provider,

with the ability to serve customers in multiple markets across

11 countries.

In Asia, we experienced a record development year due

to several market drivers. Among them is the move by an

increasing number of Japanese companies to streamline

distribution and to lease, rather than own, real estate assets.

In China, increased port traffic, driven by the explosion of

global trade and growing domestic consumption, requires

enhanced supply chains that deliver goods more efficiently

throughout the country.

Of course, we are not immune from future downturns in global

markets. But given the track record of our operating model,

the scale and reach of our platform and the long-term trends

in our industry, we continue to see a future bright with promise

and opportunity.

P R O L O G I S 2 0 0 5 9

In 2005, ProLogis began develop-
ment of a record $2.2 billion of
facilities worldwide, driven by
improving global economies and
strong customer demand. These
facilities add to our CDFS pipeline,
thereby supporting the sustain-
ability of future growth.

ability

Our people, our customers

ProLogis was founded on a simple idea – we could create

exceptional value by forging long-term ties with our

customers and focusing on quality facilities and services.

Traditional real estate firms concentrated on generating

a high volume of single transactions. We embrace a

different approach.

The ability to provide superior

Sustainable Relationships

Our customers trust us to serve them effectively. That’s why

Sustainable relationships have been the key to success at

they often return to us when seeking to build new facilities,

ProLogis over the past decade, and they remain so today.

whether it’s in Asia, North America or Europe. A good example

We operate with a clear, precisely defined view of our global

is adidas®, one of the world’s premier makers of athletic

customer base, which includes manufacturers, retailers,

apparel and sporting goods. The company is a customer in

distributors, transportation companies, third-party logistics

North America, with 500,000 square feet leased from us in

providers and other enterprises around the world with large-

metropolitan Cincinnati. In late 2005, adidas needed a new

scale needs for industrial space.

The Focus 500

distribution center in China. They asked us again to serve as

their facilities provider, leading us to develop 650,000 square

feet for them at ProLogis Park Suzhou, outside Shanghai. In

We serve more than 4,600 customers, but we concentrate

fact, more than 40 global companies do business with us on

our strategic sales and marketing efforts on a segment we’ve

multiple continents, including industry leaders like Hitachi,

defined as the “Focus 500.” Members of this target group

Unilever, Bridgestone, L’Oreal, Coca-Cola and Nippon Express.

have been identified based on their size and the nature of

Over the past year, 50% of our newly developed space has

their distribution needs. At the end of 2005, we did business

been leased to repeat customers.

with 314 of the Focus 500, and they leased approximately

50% of our total space.

1 2

P R O L O G I S 2 0 0 5

service

Top: Listening to customers is key
in building long-term relationships.
JimPerry(l),CEOofOfficeScapes,
knew what his company needed in
their Denver showroom. Working
with Ted Antenucci, President
Global Development, OfficeScapes
was the first customer at the
Stapleton Airport redevelopment
project in Denver, Colorado.

Middle: The global success of
ProLogis lies in hiring nationals
to ensure consistency with local
customs and expectations. From
left to right, managing directors
Robin von Weiler, Northern and
Central Europe; Ming Mei, China;
Alan Curtis, United Kingdom; and
Ranald Hahn, Southern Europe,
oversee their regions and provide
a single point of contact for large-
scale international users of
distribution space.

Bottom: Opportunity lies in rela-
tionships. Home Depot, a customer
of ours since the early ‘90s, has
become the second largest retailer
in the United States. As they have
grown, so has their relationship
with us. In 2005, we signed four
leases with them for over two mil-
lion square feet, including a
678,000 square-foot expansion
in Atlanta.

P R O L O G I S 2 0 0 5 1 3

A Leading Industrial Platform to Serve Customers

Today, we operate what we believe is the world’s most extensive

platform of industrial real estate, including approximately

9,900 acres of land owned and controlled to support future

development. We maintain a leading position in some of the

most strategically important distribution markets around the

world – markets such as Los Angeles, Tokyo and the Midlands

region of the United Kingdom.

Another key advantage is our position in the world’s top

container ports, since seaports process more than 90% of

global trade. Today, we have properties in 18 of the largest

75 ports worldwide. These 18 ports account for 30% of the

global volume in shipping containers. Our port presence has

grown to almost 85 million square feet, and we have land

available to support more than 38 million square feet of

future port-related development.

Serving our customers well does more than generate repeat business.

It hones our understanding of the market and enables us to build an

industry-leading portfolio of properties.

Our properties are in the right markets, of the right size,

and built with the right design. We believe they will deliver

a sustainable competitive advantage for us over the long term,

creating value for customers and investors as well.

People Make the Difference

A key reason for our success is the ability of our people.

Whether it is a market officer in China, a fund manager in

Japan, a development professional in the United Kingdom, a

US property manager or the finance, accounting, tax and legal

professionals that underpin our operations, our people take pride

in our success and in delivering the best solutions to our cus-

tomers. We don’t outsource property management, customer

service or other key functions to third-party providers.

Local nationals across the world build and operate our business.

Our teams are made up of skilled real estate professionals with

in-depth knowledge of local market dynamics, who communi-

cate fluently with customers in their language. It is our people

who differentiate us from our competitors and ensure that we

will continue to grow and thrive around the globe.

1 4

P R O L O G I S 2 0 0 5

A leading provider of third-party
logisticsservicesinJapan,Hitachi
Transport System is helping
customers modernize their distri-
bution networks. Mike Yamada (l),
ProLogis Japan Co-President, and
Shinya Hasegawa, Vice President
and Executive Officer, Solution
Business Management, worked
together on three new leases in
2005. InJanuary2006,Hitachi
signed its third build-to-suit
agreement, bringing the total to
be leased from ProLogis to over
1.8 million square feet.

P R O L O G I S 2 0 0 5 1 5

sustainability

Our planet, our communities

Sustainability has been defined in many ways. We see

it as a state where the needs of people and commerce

can be met while supporting our communities, protecting

our environment and in some cases, restoring the ability

of the land to provide for future generations.

Sustaining our business and the

Sustaining the Environment

ProLogis Park Sideway will include features designed to limit

Managing environmental impact is our responsibility as one

environmental impacts, including heat-absorbent solar walls,

of the world’s largest industrial real estate developers. At

irrigation systems that recycle rainwater, convenient links to

ProLogis, the nature of our business requires us to work effec-

mass transit and bike paths for park employees. The public

tively with government agencies, community groups and other

agency overseeing the project called our plan “a benchmark

organizations to address concerns about how our facilities

for the rest of Europe’s commercial property industry.”

might affect adjacent neighborhoods and natural habitats.

We will strive to become the leader in developing standards

We are fortunate to have world-class expertise in this area.

for economically feasible sustainable development. But no

In France, Japan and the United Kingdom, we recently began

development can accurately be deemed sustainable unless it

investigating sustainable development techniques and have

creates economic value for investors. At ProLogis Park Sideway,

incorporated elements such as solar roofing panels and effec-

environmental technologies will be independently measured to

tive use of landscaping, which help mitigate the impact of

determine which ones deliver the greatest impact relative to the

carbon emissions on the environment.

cost. By gathering scientific data to support economic decisions,

we help create lasting sustainability and value for shareholders.

Our brownfield redevelopment initiatives in Europe are well

known and were recognized recently in the United Kingdom,

Viewed as a US leader in redevelopment, Catellus is continuing

where we were selected to undertake a large-scale redevelop-

its work on projects like the former Robert Mueller Municipal

ment project on the strength of our environmental credentials.

Airport in Austin, Texas, and the Los Angeles Air Force Base.

1 8

P R O L O G I S 2 0 0 5

planet

Top: Solar panels help to reduce
dependence on less environmen-
tally friendly energy sources.
We have begun to incorporate
and evaluate these and other
eco-friendly advances to strike a
balance between social responsi-
bility and economic accountability.

Middle: Whether it’s a closed
military base, former railyard or
abandoned airport, some of the
best opportunities for expansion
in key markets are through rede-
velopment. Commonly located
near major cities, such projects
provide us the opportunity to help
redefine the role of these sites
in their communities.

Bottom: Giving back to the com-
munities in which our associates
work and live is a core ProLogis
value. In 2005, we donated four
facilities to support the gathering
and distribution of relief supplies
to those affected by hurricanes
Katrina and Rita.

P R O L O G I S 2 0 0 5 1 9

2 0

P R O L O G I S 2 0 0 5

Sustainable Development at Home

Earlier in 2006, we formally opened our new world headquarters

in Denver, Colorado. After years of working from converted ware-

house space, we have brought together all of our Denver-based

employees to improve productivity, create a more integrated

organization and further our strong corporate culture.

We incorporated a wide array of environmental technologies

and design features into our building, including an illumination

system that harvests sunlight to reduce power consumption

and recharging stations for electric vehicles. We are pleased to

incorporate cutting-edge technologies into our new headquarters

and believe these features will generate long-term benefits –

for our company and the environment.

As a leader in our industry, we are fully aware of our social obligations

and are committed to making a contribution to the betterment of the

communities in which we operate.

Commitment to Our Communities

Our geographic diversity means we are well positioned to

support our customers’ distribution space needs throughout

the world’s largest logistics markets. It also means we have a

dedicated group of more than 1,000 ProLogis associates living

and working in those same 77 global markets, who know best

what those communities need. Employees at our global head-

quarters are active in local literacy initiatives and work in

programs designed for at-risk children. In Amsterdam, we

are a patron of Emma Children’s Hospital, supporting research

and helping to make children with cancer a little more com-

fortable. In Chicago, our team helps the homeless through

their efforts with the Greater Chicago Food Depository. We also

support Shanghai Sunrise, a university scholarship program

for underprivileged children in China, and Building Blocks, a

parent/toddler program, in the United Kingdom. We encourage

our associates to be actively engaged in their local communi-

ties in whatever manner delivers the most impact. In this way,

we contribute to the sustainability of our organization and

the communities in which we live.

P R O L O G I S 2 0 0 5 2 1

In Denver, ProLogis associates,
like Mari Akers, First Vice
President Human Resources,
participate in programs such as
Junior Achievement. Interaction
with successful members of the
business community helps stu-
dents like Yenny Blanco visualize
the opportunities that a solid
education can provide.

Financial Highlights from Our CFO

In our CDFS business, we continued to commit capital to

In 2005, we met or exceeded

developments throughout the world, starting $2.2 billion of new

our expectations in every segment.

developments, up from $1.2 billion in 2004. After completing

We increased FFO per share,

asset contributions to property funds and third-party sales of

adjusted for merger and one-time

$1.3 billion, at healthy 22.4% margins, we ended the year with

charges, by 11.5% to $2.71 per

$3.3 billion in our CDFS pipeline. This strong pipeline will be

share. The growth in our cash

an important part of our growth over the next few years.

Dessa M. Bokides

flows and future prospects gave

our board confidence to raise our

dividend by 8%, from an annual rate of $1.48 per share, to

$1.60 per share in 2006.

During 2005, we strengthened our platform through the $5.3 bil-

lion merger with Catellus. The merger increased our wholly owned

properties by over 30%, our land positions by 45% and strength-

ened our balance sheet through the addition of 56 million shares.

All three segments of our business enjoyed excellent results.

Funds from operations per share

were $2.71, up 11.5% over $2.43

in the prior year – our strongest

annual increase since US economic

conditions began to slow in 2000.

We were especially pleased with our property performance.

Finally, our strong leasing and development activity drove the

Stabilized occupancies increased to 94.5% from 92.3% at the

growth in our fund management business. We are pleased with

end of 2004. Higher occupancies, combined with significantly

the recurring cash flow that is generated by this business and

less negative rent growth on expiring leases (negative 1.5% in

our ability to recycle capital to fund future developments. We

2005 compared to negative 5.8% in 2004), led to an increase

successfully raised a fund with $3 billion of capacity in Japan

in same store net operating income of 1.5%. For the year, 73%

and set the foundation for our open-end, infinite-life North

of customers remained in place when their leases expired.

American Industrial Fund that closed in early 2006 with $4 bil-

This is our strongest retention rate since 1997.

lion of capacity. We also increased our financial flexibility through

Property Operations*
(in millions)

7
9
6
4
$

2
9
0
4
$

6
4
0
4
$

FFO from CDFS
Dispositions*
(in millions)

Fund Management
Income*
(in millions)

3
3
3
2
$

7
9
0
2
$

5
6
2
1
$

3
1
3
1
$

6
7
1
1
$

the formation of a $2.6 billion, multi-currency global line of

credit and a $900 million debt offering.

During 2005, we saw improvement in most of our operating

measures and enjoyed access to both public and private debt

2
3
6
1
$

and equity to further our growth. Furthermore, we improved

our coverage ratios and retained a conservative balance sheet

while delivering a total return to our shareholders of 11.7%.

Dessa M. Bokides

Chief Financial Officer

*As reported in FFO

2 2

P R O L O G I S 2 0 0 5

Condensed Consolidated Statements of Earnings
Years Ended December 31,

(In thousands, except per share data)

2005

2004

2003

Revenues
Rental income
CDFS dispositions proceeds
Property management and other fees and incentives
Development management and other income

Total revenues

Expenses
Rental expenses
Cost of CDFS dispositions
General and administrative
Depreciation and amortization
Merger integration expenses
Relocation expenses
Other expenses

Total expenses
Operating income
Earnings from unconsolidated property funds
Earnings (losses) from CDFS joint ventures and other unconsolidated investees
Interest expense
Interest income on long-term notes receivable
Other interest and other income
Earnings before minority interest
Minority interest
Earnings before certain net gains
Gains recognized on dispositions of certain non-CDFS business assets

and investments in property funds, net

Foreign currency exchange gains (expenses/losses), net
Earnings before income taxes
Income taxes

Current income tax expense
Deferred income tax expense

Total income taxes

Earnings from continuing operations
Discontinued operations

Income attributable to disposed assets
Losses related to temperature-controlled distribution assets
Gains recognized on dispositions, net

Non-CDFS business assets
CDFS business assets

Total discontinued operations

Net Earnings
Less preferred share dividends
Less excess of redemption values over carrying values

of preferred shares redeemed

Net Earnings Attributable to Common Shares
Weighted average common shares outstanding – Basic
Weighted average common shares outstanding – Diluted
Net earnings per share attributable to common shares – Basic

Continuing operations
Discontinued operations

Net earnings per share attributable to common shares – Basic
Net earnings per share attributable to common shares – Diluted

Continuing operations
Discontinued operations

Net earnings per share attributable to common shares – Diluted
Distributions per common share

See ProLogis’ Annual Report on Form 10-K for Audited Consolidated Financial Statements and Notes.

$÷«635,186
1,140,457
66,934
25,464
1,868,041

176,119
917,782
107,164
199,377
12,152
4,451
8,633
1,425,678
442,363

46,078
6,421
(178,369)
6,781
10,724
333,998
5,243
328,755

–
15,979
344,734

14,847
12,045
26,892

317,842

6,411
(25,150)

86,444
10,616
78,321
396,163
25,416

–
$÷«370,747
203,337
213,713

$÷÷÷÷«1.44
0.38
$÷÷÷÷«1.82

$÷÷÷÷«1.39
0.37
$÷÷÷÷«1.76
$÷÷÷÷«1.48

$÷«527,065
1,288,665
50,778
2,698
1,869,206

136,642
1,111,698
84,861
166,409
–
6,794
5,519
1,511,923
357,283

42,899
(801)
(152,551)
–
5,721
252,551
4,875
247,676

9,400
14,686
271,762

24,870
18,692
43,562

228,200

6,998
(36,671)

1,549
32,719
4,595
232,795
25,746

4,236
$«÷202,813
182,226
191,801

$÷÷÷«÷1.09
0.02
$÷÷÷«÷1.11

$÷÷÷«÷1.06
0.02
$÷÷÷«÷1.08
$÷÷÷«÷1.46

$÷«525,778
900,978
44,184
2,349
1,473,289

130,911
774,452
65,907
158,792
–
–
7,608
1,137,670
335,619
27,265
(12,231)
(154,427)
–
1,883
198,109
4,959
193,150

76,354
(10,587)
258,917

4,759
10,615
15,374

243,543

7,132
–

–
–
7,132
250,675
30,485

7,823
$÷«212,367
179,245
187,222

$÷÷÷«÷1.14
0.04
$÷÷÷÷«1.18

$÷÷÷«÷1.12
0.04
$÷÷÷÷«1.16
$÷÷÷÷«1.44

P R O L O G I S 2 0 0 5 2 3

Condensed Consolidated Balance Sheets
December 31,

(In thousands)

Assets
Real estate

Less accumulated depreciation

Investments in and advances to unconsolidated investees
Cash and cash equivalents
Accounts and notes receivable
Other assets
Discontinued operations – assets held for sale

Total assets

Liabilities and Shareholders’ Equity
Liabilities
Debt
Accounts payable and accrued expenses
Other liabilities
Discontinued operations – assets held for sale

Total liabilities
Minority interest

Shareholders’ Equity
Series C preferred shares
Series F preferred shares
Series G preferred shares
Common shares
Additional paid-in capital
Accumulated other comprehensive income
Distributions in excess of net earnings

Total shareholders’ equity
Total liabilities and shareholders’ equity

See ProLogis’ Annual Report on Form 10-K for Audited Consolidated Financial Statements and Notes.

2005

2004

$11,875,130
1,118,547
10,756,583
1,049,743
191,716
327,214
788,840
–
$13,114,096

$÷6,677,880
332,339
557,210
–
7,567,429
58,644

100,000
125,000
125,000
2,438
5,606,017
149,586
(620,018)
5,488,023
$13,114,096

$6,333,731
989,221
5,344,510
908,513
236,529
92,015
401,564
114,668
$7,097,799

$3,413,961
255,841
196,240
62,991
3,929,033
66,273

100,000
125,000
125,000
1,858
3,249,576
194,445
(693,386))
3,102,493
$7,097,799

2 4

P R O L O G I S 2 0 0 5

Condensed Consolidated Statements of Cash Flows
Years Ended December 31,

(In thousands)

2005

2004

2003

Operating Activities
Net earnings
Minority interest share in earnings
Adjustments to reconcile net earnings to net cash provided

by operating activities
Straight-lined rents
Cost of share-based compensation awards
Depreciation and amortization
Cumulative translation losses and impairment charge on assets held for sale
Equity in earnings from unconsolidated investees
Distributions from and changes in operating receivables of

unconsolidated investees

Amortization of deferred loan costs and net premium on debt
Gains recognized on dispositions of non-CDFS business assets

and investments in property funds, net

Adjustments to foreign currency exchange amounts recognized
Provision for deferred income taxes

Increase in accounts and notes receivable and other assets
Increase (decrease) in accounts payable and accrued expenses

and other liabilities

Net cash provided by operating activities

Investing Activities
Real estate investments
Tenant improvements and lease commissions on previously leased space
Recurring capital expenditures
Cash used in Catellus Merger in 2005 and Keystone Transaction in 2004,

net of cash acquired

Cash received associated with Keystone Transaction
Proceeds from dispositions of real estate assets
Proceeds from dispositions of investments in unconsolidated investees
Proceeds from repayments of notes receivable
Net cash amounts (invested in/advanced to) received from

unconsolidated investees

Adjustment to cash balance resulting from reporting change

Net cash used in investing activities

Financing Activities
Net proceeds from sales and issuances of common shares under various

common share plans, net of repurchases
Net proceeds from sales of preferred shares
Redemptions of preferred shares
Distributions paid on common shares
Minority interest redemptions and distributions
Dividends paid on preferred shares
Debt and equity issuance costs paid
Repayment of debt assumed in Catellus Merger
Net proceeds from lines of credit and short-term borrowings
Proceeds from issuance of senior notes and secured debt
Payments on senior notes, secured debt and assessment bonds
Purchases of derivative contracts, net of settlement proceeds
Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

$÷÷396,163
5,243

$÷÷232,795
4,875

$÷÷250,675
4,959

(11,323)
23,928
204,378
26,864
(52,499)

89,633
1,521

(86,444)
(11,316)
12,045
(84,933)

(15,070)
498,190

(2,479,818)
(53,919)
(26,989)

(1,292,644)
–
1,516,614
–
59,991

(10,193)
–
(2,286,958)

45,641
–
–
(297,379)
(13,953)
(25,416)
(8,112)
(106,356)
1,348,023
890,011
(119,067)
30,563
1,743,955
(44,813)
236,529
$÷÷191,716

(9,654)
19,544
174,606
50,582
(42,098)

76,518
5,741

(10,949)
(10,477)
18,692
(68,424)

117,102
558,853

(1,654,988)
(46,693)
(24,561)

(510,560)
177,106
1,405,420
13,209
–

(52,233)
3,284
(690,016)

146,782
–
(125,000)
(266,135)
(7,685)
(25,746)
(4,507)
–
210,784
420,573
(312,465)
(412)
36,189
(94,974)
331,503
$÷÷236,529

(7,236)
15,453
164,969
–
(15,034)

38,607
5,892

(76,354)
13,083
10,615
(62,646)

23,576
366,559

(1,167,925)
(41,036)
(22,789)

–
–
835,172
246,242
–

35,242
–
(115,094)

32,614
241,767
(175,000)
(258,187)
(9,341)
(31,214)
(10,426))
–
75,149
331,000
(224,756)
(2,377)
(30,771)
220,694
110,809
$÷÷331,503

See ProLogis’ Annual Report on Form 10-K for Audited Consolidated Financial Statements and Notes (including information on supplemental non-cash investing and financing activities).

P R O L O G I S 2 0 0 5 2 5

Condensed Consolidated Statements of Shareholders’ Equity
and Comprehensive Income
Years Ended December 31,

(In thousands)

Common shares (par value) at beginning of year

Issuance of common shares in connection with the Catellus Merger
Issuances of common shares, net of repurchases
Conversions of limited partnership units
Common shares (par value) at end of year
Preferred shares at stated liquidation preference at beginning of year

Redemptions of preferred shares
Issuances of preferred shares

Preferred shares at stated liquidation preference at end of year
Additional paid-in capital at beginning of year

Issuance of common shares in connection with the Catellus Merger
Issuances of common shares, net of repurchases
Conversions of limited partnership units
Excess of redemption values over carrying values of preferred shares redeemed
Cost of issuing preferred shares
Cost of issuing common shares
Change in receivables from timing differences on equity transactions
Sales of share-based compensation awards to unconsolidated investees
Cost of share-based compensation awards

Additional paid-in capital at end of year
Accumulated other comprehensive income at beginning of year

Foreign currency translation adjustments
Unrealized gains (losses) on derivative contracts, net
Accumulated other comprehensive income at end of year
Distributions in excess of net earnings at beginning of year

Net earnings
Preferred share dividends
Excess of redemption values over carrying values of preferred shares redeemed
Common share distributions

Distributions in excess of net earnings at end of year
Total shareholders’ equity at end of year
Comprehensive income attributable to common shares

Net earnings
Preferred share dividends
Excess of redemption values over carrying values of preferred shares redeemed
Foreign currency translation adjustments
Gains (losses) on derivative contracts, net

Comprehensive income attributable to common shares

See ProLogis’ Annual Report on Form 10-K for Audited Consolidated Financial Statements and Notes.

2005

$÷÷÷«1,858
559
21
–
$÷÷÷«2,438
$÷«350,000
–
–
$÷«350,000
$3,249,576
2,285,029
43,126
150
–
–
(1,395)
2,494
–
27,037
$5,606,017
$÷«194,445
(70,076)
25,217
$÷«149,586
$÷(693,386)
396,163
(25,416)
–
(297,379)
$÷(620,018)
$5,488,023

$÷«396,163
(25,416)
–
(70,076)
25,217
$÷«325,888

2004

$÷÷÷«1,802
–
56
–
$÷÷÷«1,858
$«««475,000
(125,000)
–
$«««350,000
$3,073,959
–
148,248
869
4,236
(473))
(157))
(1,365))
–
24,259
$3,249,576
$÷«138,235
63,276
(7,066)
$÷«194,445
$÷(630,064)
232,795
(25,746)
(4,236)
(266,135)
$÷(693,386)
$3,102,493

$÷«232,795
(25,746)
(4,236)
63,276
(7,066)
$÷«259,023

2003

$÷÷÷«1,781
–
20
1
$÷÷÷«1,802
$«««400,000
(175,000)
250,000
$÷«475,000
$3,021,686
–
34,401
355
7,823
(8,233)
(74)
(1,736)
319
19,418
$3,073,959
$«««««35,119
101,157
1,959
$÷«138,235
$÷(584,244)
250,675
(30,485)
(7,823)
(258,187)
$÷(630,064)
$3,058,932

$÷«250,675
(30,485)
(7,823)
101,157
1,959
$÷«315,483

2 6

P R O L O G I S 2 0 0 5

Report of Independent Registered
Public Accounting Firm
The Board of Trustees and Shareholders
ProLogis:
We have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
balance sheets of ProLogis and subsidiaries as of December 31, 2005
and 2004, and the related consolidated statements of earnings, share-
holders’ equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2005 (not
presented herein); and in our report dated March 14, 2006, we expressed
an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
condensed consolidated financial statements is fairly stated, in all
material respects, in relation to the consolidated financial statements
from which it has been derived.

Los Angeles, California
March 14, 2006

Management’s Responsibility for
Financial Statements
Management is responsible for the preparation, integrity and objectivity
of the condensed consolidated financial statements and other financial
information presented in this report. The accompanying condensed
consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America,
applying certain estimates and judgments as required.

ProLogis’ internal controls are designed to provide reasonable assur-
ance as to the integrity and reliability of the financial statements and
to adequately safeguard, verify and maintain accountability of assets.
Such controls are based on established written policies and procedures,
are implemented by trained, skilled personnel with an appropriate
segregation of duties and are monitored through a comprehensive
internal audit program. These policies and procedures prescribe that
ProLogis and all its employees are to maintain the highest ethical
standards in its business practices throughout the world.

KPMG LLP, independent registered public accountants, has been
retained to audit ProLogis’ 2005 financial statements. Their accom-
panying report is based on an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board
(United States), which include the consideration of ProLogis’ internal
controls to establish a basis for reliance thereon in determining the
nature, timing and extent of audit tests to be applied. The Board of
Trustees exercises its responsibility for these financial statements
through its Audit Committee, which consists entirely of independent,
non-management Board members. One of the responsibilities of
the Audit Committee is to meet periodically with the independent
auditors and with ProLogis’ internal auditors, both privately and
with management present, to review accounting, auditing, internal
controls and financial reporting matters.

Jeffrey H. Schwartz
Chief Executive Officer

Dessa M. Bokides
Chief Financial Officer

P R O L O G I S 2 0 0 5 2 7

Condensed Consolidated Statements of Funds From Operations
Unaudited

Years Ended December 31,

(In thousands, except per share data)

Revenues
Rental income
CDFS dispositions proceeds
Property management and other fees and incentives
Development management and other income

Total revenues

Expenses
Rental expenses
Cost of CDFS dispositions
General and administrative
Depreciation of non-real estate assets
Merger integration expenses
Relocation expenses
Other expenses

Total expenses

Other Income (Expense)
FFO from unconsolidated property funds
FFO from CDFS joint ventures and other unconsolidated investees
Interest expense
Interest income on long-term notes receivable
Other interest and other income
Gains recognized on dispositions of investments in property funds, net
Foreign currency exchange gains (expenses/losses), net
Current income tax expense
Losses related to temperature-controlled distribution assets

Total other income (expense)

FFO
Less preferred share dividends
Less excess of redemption values over carrying values

of preferred shares redeemed

Less minority interest
FFO Attributable to Common Shares

Weighted average Common Shares outstanding – Basic
Weighted average Common Shares outstanding – Diluted

Basic per share FFO attributable to common shares
Diluted per share FFO attributable to common shares

2005

2004

2003

$÷«649,530
1,240,950
66,934
25,464
1,982,878

179,815
1,007,659
107,164
7,153
12,152
4,451
8,633
1,327,027
655,851

96,261
8,449
(178,639)
6,781
10,724
–
1,914
(14,847)
(25,363)
(94,720)

561,131
25,416

–
5,243
$÷«530,472

203,337
213,713

$÷÷÷÷«2.61
$÷÷÷÷«2.51

$«÷546,948
1,529,647
50,778
2,698
2,130,071

142,393
1,319,961
84,861
8,065
–
6,794
5,519
1,567,593
562,478

80,504
1,416
(153,334)
–
5,721
3,164
(1,904)
(24,870)
(37,915)
(127,218)

435,260
25,746

4,236
4,875
$«÷400,403

182,226
191,801

$«««««««÷2.20
$«««««««÷2.11

$÷«546,064
900,978
44,184
2,349
1,493,575

136,840
774,452
65,907
7,884
–
–
7,608
992,691
500,884

73,387
(16,907)
(155,475)
–
1,883
47,822
(2,823)
(4,759)
–
(56,872)

444,012
30,485

7,823
4,959
$÷«400,745

179,245
187,222

$«««««««÷2.24
$«««««««÷2.17

Funds From Operations
Funds from operations (“FFO”) is a non-GAAP measure that is commonly used in the
real estate industry. The most directly comparable GAAP measure to FFO is net earnings.
Although the National Association of Real Estate Investment Trusts (“NAREIT”) has
published a definition of FFO, modifications to the NAREIT calculation of FFO are
common among REITs, as companies seek to provide financial measures that meaning-
fully reflect their business. FFO, as we define it, is presented as a supplemental financial
measure. We do not use FFO as, nor should it be considered to be, an alternative to
net earnings computed under GAAP as an indicator of our operating performance or as
an alternative to cash from operating activities computed under GAAP as an indicator
of our ability to fund our cash needs.

FFO is not meant to represent a comprehensive system of financial reporting and
does not present, nor do we intend it to present, a complete picture of our financial
condition and operating performance. We believe net earnings computed under GAAP
remains the primary measure of performance and that FFO is only meaningful when
it is used in conjunction with net earnings computed under GAAP. Further, we believe
our consolidated financial statements, prepared in accordance with GAAP, provide the
most meaningful picture of our financial condition and our operating performance.

NAREIT’s FFO measure adjusts net earnings computed under GAAP to exclude his-
torical cost depreciation and gains and losses from the sales of previously depreciated
properties. We agree 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 FFO “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 FFO
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 FFO, of gains and losses from the sales of previously depreci-
ated 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 activity and
assists in comparing those operating results between periods.

At the same time that NAREIT created and defined its FFO 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.” We believe financial analysts, potential investors
and shareholders who review our operating results are best served by a defined FFO
measure that includes other adjustments to net earnings computed under GAAP in
addition to those included in the NAREIT defined measure of FFO.

2 8

P R O L O G I S 2 0 0 5

Reconciliation of Net Earnings to Funds From Operations
Unaudited

Years Ended December 31,

(In thousands)

Reconciliation of Net Earnings to FFO
Net earnings attributable to common shares
Add (deduct) NAREIT defined adjustments

Real estate related depreciation and amortization
Adjustment to gains recognized on dispositions of certain non-CDFS

business assets and investments in property funds, net
Reconciling items attributable to discontinued operations

Gains recognized on dispositions of non-CDFS business assets, net
Real estate related depreciation and amortization

Totals discontinued operations

Our share of reconciling items from unconsolidated investees

Real estate related depreciation and amortization
FFO adjustment to gain recognized on disposition of CDFS

business segment assets

Losses (gains) on dispositions of non-CDFS business business assets, net
Other amortization items

Totals unconsolidated investees
Totals NAREIT defined adjustments

Subtotals – NAREIT defined FFO
Add (deduct) our defined adjustments

Foreign currency exchange losses (gains), net
Deferred income tax expense
Reconciling items attributable to discontinued operations

Assets disposed of – deferred income tax benefit

Our share of reconciling items from unconsolidated investees

Foreign currency exchange losses, net
Deferred income tax expense (benefit)

Totals unconsolidated investees

Totals our defined adjustments

FFO attributable to common shares as defined by us

Funds From Operations (continued)
Our defined FFO measure excludes the following items from net earnings computed under
GAAP that are not excluded in the NAREIT defined FFO measure: (i) deferred income
tax benefits and deferred income tax expenses recognized by our subsidiaries; (ii) certain
foreign currency exchange gains and losses resulting from certain debt transactions
between us and our foreign consolidated subsidiaries and our 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 our foreign con-
solidated subsidiaries and our foreign unconsolidated investees; and (iv) mark-to-market
adjustments associated with derivative financial instruments utilized to manage foreign
currency risks. FFO of our unconsolidated investees is calculated on the same basis.

The items that we exclude from net earnings computed under GAAP, while not infre-

quent or unusual, are subject to significant fluctuations from period to period that
cause both positive and negative effects on our results of operations, in inconsistent
and unpredictable directions. Most importantly, the economics underlying the items
that we exclude from net earnings computed under GAAP 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
long-term tax planning and tax structuring decisions. Accordingly, we believe investors
are best served if the information that is made available to them allows them to align
their analysis and evaluation of our operating results along the same lines that our
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 net earnings
computed under GAAP that are included in arriving at our defined FFO measure are
helpful to management in making real estate investment decisions and evaluating our
current operating performance. We believe these adjustments are also helpful to industry
analysts, potential investors and shareholders in their understanding and evaluation of
our performance on the key measures of net asset value and current operating returns
generated on real estate investments.

2005

2004

2003

$370,747

$202,813

$212,367

192,224

158,344

–

(86,444)
3,967
(82,477)

57,766

–
(1,114)
(5,134)
51,518
161,265
532,012

(14,065)
12,045

(213)

298
395
693
(1,540)
$530,472

(6,236)

(1,718)
6,351
4,633

42,635

–
601
(3,498)
39,738
196,479
399,292

(16,590)
18,692

(1,075)

443
(359)
84
1,111
$400,403

150,908

(28,532)

–
6,177
6,177

46,413

(1,823)
(12,322)
(2,040)
30,228
158,781
371,148

7,764
10,615

–

11,721
(503)
11,218
29,597
$400,745

While we believe our defined FFO measure is an important supplemental measure,
neither NAREIT’s nor our measure of FFO should be used alone because they exclude
significant economic components of net earnings computed under GAAP 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 FFO. FFO is limited, as it does not reflect the cash requirements that
may be necessary for future replacements of the real estate assets. Further, the amorti-
zation of capital expenditures and leasing costs necessary to maintain the operating
performance of distribution properties are not reflected in FFO.
– Gains or losses from property dispositions represent changes in the value of the
disposed properties. By excluding these gains and losses, FFO 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 our defined
FFO measure result from the creation of a deferred income tax asset or liability that
may have to be settled at some future point. Our defined FFO measure does not cur-
rently reflect any income or expense that may result from such settlement.
– The foreign currency exchange gains and losses that are excluded from our defined
FFO measure are generally recognized based on movements in foreign currency exchange
rates through a specific point in time. The ultimate settlement of our foreign currency-
denominated net assets is indefinite as to timing and amount. Our FFO 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.

We compensate for these limitations by using the FFO measure only in conjunction
with net earnings computed under GAAP. To further compensate, we always reconcile
our FFO measure to net earnings computed under GAAP in our financial reports.
Additionally, we provide investors with complete financial statements prepared under
GAAP, our definition of FFO, which includes a discussion of the limitations of using
our non-GAAP measure, and a reconciliation of our GAAP measure (net earnings) to
our non-GAAP measure (FFO, as we define it), so that investors can appropriately
incorporate this measure and its limitations into their analyses.

P R O L O G I S 2 0 0 5 2 9

K. Dane Brooksher

Christine N. Garvey

Stephen L. Feinberg

George L. Fotiades

Donald P. Jacobs

Irving F. Lyons, III

Walter C. Rakowich

Nelson C. Rising

Jeffrey H. Schwartz

D. Michael Steuert

Kenneth N. Stensby

J. André Teixeira

William D. Zollars

Andrea M. Zulberti

3 0

P R O L O G I S 2 0 0 5

ProLogis Board
K. Dane Brooksher
Chairman
ProLogis

Stephen L. Feinberg 1
Chairman and
Chief Executive Officer
Dorsar Investment Co., Inc.

George L. Fotiades 2, 3
President and
Chief Operating Officer
Cardinal Health, Inc.

Christine N. Garvey 2
Former Global Head of
Corporate Real Estate Services
Deutsche Bank AG London

Donald P. Jacobs 1, 3
Dean Emeritus
J.L. Kellogg School
of Management
Northwestern University

Irving F. Lyons, III
Vice Chairman
ProLogis

Walter C. Rakowich
President and
Chief Operating Officer
ProLogis

Nelson C. Rising
Former Chairman and
Chief Executive Officer
Catellus Development Corp.

Jeffrey H. Schwartz
Chief Executive Officer
ProLogis

Kenneth N. Stensby 2
Former Senior Vice President
Mortgage Origination
Heitman Real Estate
Investment Management

D. Michael Steuert 2
Senior Vice President and
Chief Financial Officer
Fluor Corporation

J. André Teixeira 3
Chairman & Partner
BBL Partners LLC
Partner eemPOK

William D. Zollars 1
Chairman, President and
Chief Executive Officer
YRC Worldwide Inc.

Andrea M. Zulberti 2
Former Managing Director
Barclays Global Investors

ProLogis
Executive Committee
Jeffrey H. Schwartz
Chief Executive Officer

Walter C. Rakowich
President and
Chief Operating Officer

Ted R. Antenucci
President Global Development

Dessa M. Bokides
Chief Financial Officer

Ming Z. Mei
MD China

Steven K. Meyer
Europe President and
Chief Operating Officer

Masato Miki
Japan Co-President

Edward S. Nekritz
General Counsel and Secretary

Robert J. Watson
North America President
and Chief Operating Officer

Mike Yamada
Japan Co-President

ProLogis
Senior Officers
Gary E. Anderson
MD Central/Mexico Region –
North America

Bert Angel
SVP Global Solutions Group –
Europe

Gregory J. Arnold
SVP Global Solutions Group –
North America

Patrick J. Boot
SVP China

Eric D. Brown
SVP Central/Mexico Region –
North America

Stephen L. Bryan
SVP Development –
North America

James P. Cavanagh
SVP So. California –
North America

Paul C. Congleton
MD Fund Management
and Real Estate Research –
North America

Alan J. Curtis
MD United Kingdom

Michael de Jong-Douglas
SVP Central Europe

Jeffrey S. Finnin
SVP and
Chief Accounting Officer

Andrew Griffiths
SVP United Kingdom

Kenneth R. Hall
SVP Global Development –
Europe

Ranald A. Hahn
MD Southern Europe

Larry H. Harmsen
MD Capital Deployment –
North America

M. Gordon Keiser, Jr.
SVP and Treasurer

Douglas A. Kiersey, Jr.
SVP Midwest Region –
North America

Robert A. Kritt
SVP Acquisitions and Dispositions –
North America

W. Scott Lamson
SVP Pacific Region –
North America

Luke A. Lands
MD and Europe
Chief Financial Officer

Paul D. Loosmann
SVP Northeast Region –
North America

Daniel R. Marcus
SVP No. California –
North America

Melissa A. Marsden
SVP Investor Relations and
Corporate Communications

Brian N. Marsh
SVP Midwest Region –
North America

Thomas T. Marshall
EVP Catellus Development Corp.

Charles A. McPhee
SVP Pacific Region –
North America

Debra A. McRight
SVP Client Services –
North America

Michael Nachamkin
SVP Northeast Region –
North America

Kiyoshi Nagasawa
SVP Development –
Japan

David D. Riefe
SVP Chicago –
North America

John R. Rizzo
MD Global Development –
North America/Asia

Francois de la Rochefoucauld
SVP Southern Europe

Joerg Schroeder
SVP Northern Europe

Richard H. Strader
SVP Southeast Region –
North America

Charles E. Sullivan
SVP Southeast Region –
North America

Neville D.E. Teagarden
SVP and Chief Information Officer

Kazuhiro Tsutsumi
SVP Finance and
Fund Management –
Japan

Gregory J. Weaver
SVP Catellus Development Corp.

Robin P.R. von Weiler
MD Northern and Central Europe

1 Compensation Committee
2 Audit Committee
3 Governance Committee

MD – Managing Director
EVP – Executive Vice President
SVP – Senior Vice President

P R O L O G I S 2 0 0 5 3 1

We believe that our key asset, the one that gives us

our real competitive advantage in the marketplace, is

the talented group of associates who represent ProLogis

around the world. These dedicated individuals take

pride in creating value not only by building, acquiring

and managing quality, state-of-the-art facilities but

by establishing and sustaining long-term relationships

with our customers.

Whether it is a market officer in Germany, a fund

manager in Japan or an information technology

professional in Denver, these individuals are the

foundation of our success and will be the drivers

of our continued growth.

With this photo tribute, we give our thanks and

acknowledge the many faces of ProLogis.

3 2

P R O L O G I S 2 0 0 5

Shareholder Information
World Headquarters

ProLogis

4545 Airport Way

Denver, CO 80239 USA

303.567.5000

800.566.2706

Annual Meeting

The Annual Meeting of Shareholders of ProLogis will be held

at the company’s world headquarters, identified above, at

10:30 am Mountain Time on Friday, May 26, 2006.

Shareholders

As of March 16, 2006, ProLogis had in excess of 62,000

record and beneficial common shareholders.

Independent Registered Public Accountants

KPMG LLP

Los Angeles, California

Transfer Agent

Computershare

P.O. Box 43010

Providence, RI 02940-3010

800.956.3378

781.575.3120 outside the United States

Shareholder account information may also be accessed from

its website at www.computershare.com/equiserve.

Information Requests

ProLogis’ audited consolidated financial statements are available

upon request. The 2005 Annual Report Form on 10-K to the

Securities and Exchange Commission and additional company

materials can be obtained by calling the Investor Relations

information line at 800.820.0181 or by visiting the company’s

website at http://ir.prologis.com and clicking on the appropriate

sections of the site.

Analyst Contact:

Melissa Marsden

SVP, Investor Relations and

Corporate Communications

303.567.5622

mmarsden@prologis.com

ProLogis Dividend Reinvestment and Share Purchase Plan
The ProLogis Dividend Reinvestment and Share Purchase Plan
offers the opportunity to purchase common shares at a 0% to 2%
discount from market price, as determined by the company. Copies
of the plan prospectus and enrollment forms are available from our
transfer agent, Computershare, at www.computershare.com/equiserve
or by calling 800.956.3378.

Quarterly Stock Price Ranges and Distributions
New York Stock Exchange: PLD

2005 Stock Price

2004 Stock Price

Quarter

High

Low

Dividend

High

Low

Dividend

First

Second

Third

Fourth

$43.50 $36.67
$42.34 $36.50
$46.41 $40.12
$47.61 $39.81

$0.37

$36.00 $30.80 $0.365

$36.39 $27.62 $0.365

$36.95 $32.74 $0.365

$43.33 $35.30 $0.365

Notice of Capital Gain Dividends
This notice is provided to inform the shareholders of ProLogis of the
capital gain portion of dividends received during 2005 pursuant to
Internal Revenue Code §857(b)(3)(C). This notice is being provided
in addition to a 2005 Form 1099-DIV that has been mailed to all
shareholders. The following table displays the taxability of company
distributions for the year ended December 31, 2005, and designates
the portion of the dividends that are capital gain dividends.

The tax treatment to shareholders of these distributions could
vary depending on the shareholder’s particular situation (i.e., foreign,
tax-exempt, etc.). Shareholders should consult their own tax advisors
regarding the treatment of these distributions.

Long-Term
Long-Term Unrecaptured
§1250

Taxable
Ordinary Capital Gain
Dividends

Dividends

Capital Gain Dividends

Qualified Return of
Capital

Class of Stock

Common

66.73%

1.54%

8.76% 4.57% 18.41%

Series C Preferred

81.79%

1.88%

10.73% 5.60%

Series F Preferred

81.79%

1.88%

10.73% 5.60%

Series G Preferred

81.79%

1.88%

10.73% 5.60%

This report was printed with soy-based inks on recycled paper that contains
30% post consumer waste. The paper was made using renewable wind power,
is Green Seal certified and acid free.

Design: Coates and Coates. Printing: Graphic Press.

Japan
Shiodome City Center
8th Floor
1-5-2 Higashi-Shimbashi
Minato-ku
Tokyo, Japan 105-7108
+81 3 6215 8480

China
2707-2708, Azia Center
1233 Lu Jia Zui Ring Road, Pudong
Shanghai, 200120
PR China
+86 21 6105 3999

World Headquarters
4545 Airport Way
Denver, CO 80239
www.prologis.com
303.567.5000

European Headquarters
18 Boulevard Royal
L-2449, Luxembourg
+352 26 20 57 40

European Customer
Service Headquarters
World Trade Center, Tower F
6 Floor, Schiphol Blvd 115
Schiphol, Noord Holland
1118 BG, Schiphol Airport
The Netherlands
+31 20 655 66 66