Prologis
Annual Report 2006

Plain-text annual report

sustainability 2 0 0 6 S U S T A I N A B I L I T Y R E P O R T E X E C U T I V E I N T R O D U C T I O N Jeffrey H. Schwartz, CEO, and Walter C. Rakowich, President and COO, share their thoughts on the importance of sustainability and corporate responsibility to ProLogis been unproductively developed and/or is considered to have a low landscape value. We are also involved in urban redevelopment, the creation of master-planned, mixed-use developments at the site of former airports and military bases. In recent years, several of our sustainability-related efforts have been publicly recognized, certified or rewarded: • Our global headquarters facility in Denver, Colorado, received a prestigious Leadership in Energy and Environmental Design (LEED) certification from the U.S. Green Building Council. • ProLogis Park Chanteloup in France was recognized with a 2005 Logistics Innovation Award. The park’s Jeffrey H. Schwartz, Walter C. Rakowich Sustainability has long been central to our way of doing state-of-the-art design features one of the largest solar business at ProLogis. We see it as a multi-faceted business panel installations in France. approach that underpins the entirety of our activities • ProLogis Parc Maishima II in Japan is the first and is a part of our corporate culture. From implementing distribution facility in Osaka to have received rating leading-edge, environmentally friendly features in our issuer CASBEE’s second-highest “A” rating, recognizing distribution facilities, to acting responsibly on behalf of the facility’s superior sustainable features and design. our shareholders, to supporting local efforts to improve • ProLogis was a 2006 recipient of the “Leader in the Light” our communities, we strive to create sustainable value award. This competition, sponsored by the National for all our stakeholders. Association of Real Estate Investment Trusts (NAREIT), We seek to lead by example and are proud to have honors member companies that have demonstrated launched numerous pilot projects around the world superior and sustained energy use practices. that have given us world-class expertise in sustainable warehouse design. For example, we are implementing an It is our hope that the many sustainability-related efforts interior lighting retrofit program in the United States that we are undertaking will serve to guide and inspire both can reduce electricity usage by up to 75%. In the United US and global real estate development efforts and will Kingdom, we have begun development at a new distribu- further help to sustain the environment for many genera- tion park that will evaluate a number of cutting-edge, tions to come. environmentally friendly building materials and construc- tion methods. And in Japan, we recently completed an industrial facility in Osaka that utilizes a new pavement technology for neutralizing vehicle carbon emissions. ProLogis is active in brownfield redevelopment, a complex process that involves cleaning up and developing Jeffrey H. Schwartz Walter C. Rakowich contaminated land as well as redeveloping land that has Chief Executive Officer President and Chief Operating Officer P R O L O G I S S U S T A I N A B I L I T Y mission Our mission with regard to sustainability is straightforward: to be the leading global provider of sustainable distribution facilities and to create an optimal balance between shareholder value, the environment and corporate social responsibility. To ProLogis, sustainability is a business approach that C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y recognizes economic, environmental and social objectives. Corporate social responsibility is a core value of our It defines who we are and how we operate. company. Through our partnerships, corporate giving, We strive to retain the trust and support of our community outreach, employee involvement and educa- shareholders, customers, employees and the communi- tion we are committed to building healthy and productive ties in which we operate and to manage our business in relationships with our employees, business partners and a way that benefits all of our stakeholders. the local communities in which we do business around This inaugural sustainability report outlines the the world. activities we are undertaking, refining and monitoring in order to make this mission a reality. R E P O R T G U I D E This report is global in scope and covers ProLogis’ E N V I R O N M E N T A L P E R F O R M A N C E activities in North America, Europe and Asia for the full ProLogis is committed to continuously improving the year ended December 31, 2006 unless otherwise noted. environmental performance of our global portfolio. Through We have engaged a third-party assurance provider to state-of-the-art design and construction, innovative cus- assist us in expanding the scope and level of detail we tomer programs, active engagement with suppliers and include in future sustainability reports, as well as devel- benchmarking our performance, we strive to be the world oping and refining data collection methodologies. leader in environmental best practice in our industry. We incorporate the October 2006 G3 Guidelines as released by the Global Reporting Initiative (GRI) as a S U S T A I N I N G P R O F I T A B L E G R O W T H general framework for this report. GRI is an international, ProLogis is committed to leveraging its global leadership multi-stakeholder network through which a recognized position to sustain profitable growth. We strive to maintain sustainability reporting framework has been developed. industry-leading long-term financial performance through Our approach to this publication is to report on the our diversified business model, the world’s largest global most significant sustainability impacts that arise from platform of distribution facilities and strong relationships our business activities, over which we have the greatest with the companies we serve. degree of control or influence. We intend to improve P R O L O G I S S U S T A I N A B I L I T Y R E P O R T 3 GRI Profile Indicators Indicator Description 1.1 p2 2.1 p5 Statement from the CEO and President/COO about the relevance of sustainability to ProLogis and its strategy Name of organization 2.2 – 2.4 p5 Primary products and services; operational structure, location of headquarters 2.5 Back cover 2.6 10-K; proxy 2.7 p5; back cover Countries of operation Nature of ownership; legal form Markets served (including geographic breakdown, sectors served and types of customers/beneficiaries) 2.8 p5,14; 10-K Scale of organization: employees, sales, capital and products 2.9 n/a 2.10 p2 Significant changes during reporting period relating to size, structure or ownership Awards received in the reporting period 3.1 – 3.3 p3 Reporting period, cycle and date of most recent previous report 3.4 Back cover Contact point for questions regarding this report 3.5 – 3.7 p3 Process for defining report content; boundary and limitations of report 3.8 n/a Basis for reporting on joint ventures, subsidiaries and other entities that can significantly affect comparability from period to period 3.10 – 3.11 n/a Re-statements or significant changes from previous reports 3.12 p4 4.1 – 4.4 p10 – 11 4.14 p5 4.15 p5 GRI Standard Disclosures table Governance structure; indication if chair is also executive officer; independence of members; mechanism for direction to the highest governance body List of stakeholder groups engaged by the organization Basis for identification and selection of stakeholders with whom to engage our understanding of those sustainability issues that are most material to our business and our stakeholders to ensure that our reporting remains relevant and useful. This report has been externally assured and GRI-checked as meeting the requirements for GRI’s Application Level “C+”. We include reportable information for the Profile and GRI indicators shown below. We plan to report our progress and improvement in these key measures in future reports as our data collection and measurement systems are expanded. GRI Content Index EC1 p10 EC2 p12 EN4 p7 EN6 p6 EN16 p7 LA1 p15 LA2 p15 HR4 p14 SO7 p14 PR5 p15 Direct economic value generated & distributed Financial implications and other risks and opportunities due to climate change Indirect energy consumption by primary source Use of energy-efficient or renewable energy initiatives to achieve reductions in energy required Greenhouse gas emissions Total workforce by employment type, contract and region Total number and rate of employee turnover by age group, gender and region Total number of incidents of discrimination and actions taken Total number of legal actions for anti-competitive behavior, anti-trust, and monopoly practices and their outcome Customer satisfaction measurement I N D E P E N D E N T A S S U R A N C E S T AT E M E N T S U P P L E M E N T This 2006 Prologis Sustainability Report has been subjected to independent assurance by csrnetwork. In conducting the assurance, csrnetwork evaluated the Materiality, Completeness and Responsiveness of the Report in line with the guidelines of the AA1000 Assurance Standard as well as the requirements for reporting at the C+ level for the Global Reporting Initiative G3 guidelines. The full draft of this assurance statement, including the scope of the assurance process, responsibilities, findings and recommendations, can be found at: http://ir.prologis.com/investors/sustainability.cfm. csr network ltd U.K. April 2007 4 P R O L O G I S S U S T A I N A B I L I T Y R E P O R T Company Overview F U N D M A N A G E M E N T Our fund management segment represents the long-term ProLogis is the world’s largest owner, manager and investment management of unconsolidated property developer of distribution facilities, with operations in funds, and the properties they own, with the objective 20 countries spanning three continents. of generating a high level of returns to us and our fund The company has $26.7 billion of assets owned, partners. Along with the income recognized under the managed and under development, comprising 422 mil- equity method from our investments in the property lion square feet (39.2 million square meters) in 2,466 funds, we include fees and incentives earned for services properties as of December 31, 2006. ProLogis’ customers performed on behalf of the property funds (primarily include manufacturers, retailers, transportation compa- property management and asset management services) nies, third-party logistics providers and other enterprises and interest earned on advances to the property funds, with large-scale distribution needs. Headquartered in if any, in this segment. Denver, Colorado, ProLogis employs more than 1,250 people worldwide. C D F S B U S I N E S S We are organized under Maryland law and have elected Our CDFS business segment primarily encompasses to be taxed as a REIT under the Internal Revenue Code of our development of properties that generally are either 1986, as amended. Our European headquarters are located contributed to a property fund or sold to third parties. in the Grand Duchy of Luxembourg with our European Additionally, we acquire properties with the intent to customer service headquarters located in Amsterdam, rehabilitate and/or reposition the property in the CDFS the Netherlands. Our regional offices in Asia are located business segment prior to being contributed to a property in Tokyo, Japan, and Shanghai, China. TT fund. We engage in commercial mixed-use development Our business is currently organized into three activities generally with the intention of selling the reportable business segments: (1) property operations, land or completed projects to third parties. (2) fund management and (3) CDFS business. Additionally, we have land positions, including land P R O P E R T Y O P E R A T I O N S owned by the CDFS joint ventures and land controlled through contracts or options, for future development Our property operations segment represents the of industrial distribution properties or other commer- direct long-term ownership of industrial distribution cial development. and retail properties. Composition of Revenue (in millions) Total Square Feet Owned, Managed and Under Development (in millions) 4 6 4 2 $ , 9 6 8 1 $ , 4 3 8 1 $ , 2 2 4 7 7 3 8 9 2 K E Y S T A K E H O L D E R E N G A G E M E N T We define our key stakeholders as any person or group of people who may affect, or be affected by, ProLogis’ operations. We communicate openly and engage in good faith with our stakeholders, and we encourage honest feedback from them. These stakeholders include customers, investors, planners, non-governmental organizations, suppliers, employees and the communities in which we operate. Our engagement takes various forms including opinion surveys, investor meetings, one-on-one meetings and industry forums. 04 05 06 04 05 06 CDFS Fund Management Property Operations P R O L O G I S S U S T A I N A B I L I T Y R E P O R T 5 E N V I R O N M E N T A L P E R F O R M A N C E environmental ProLogis is committed to continuously improving the environmental performance of our global portfolio.Through state-of-the-art design and construction, innovative customer programs, active engagement with suppliers and benchmarking our performance, we strive to be the world leader in environmental best practice in our industry. As global warming has become a top public policy issue • Solar and wind power that provide alternative energy sys- around the world, governments have begun enacting tems, especially photovoltaic solar cells and wind turbines environmental standards for real estate development. • Low-usage water systems that utilize treated “gray” Our customers around the globe also are being required water and recycled rainwater, resulting in lower water to address many of the same issues, resulting in the consumption at facilities management of these issues becoming a new imperative • Special landscaping that can help to minimize water in industrial real estate today. consumption and reduce net carbon emissions S U S T A I N A B L E D E S I G N Our new developments are increasingly combining multi- ProLogis has moved decisively in response to these ple sustainability-related features. For example, ProLogis trends and has taken a leadership role in piloting a announced in February 2007 that it will develop a 530,000 number of sustainability initiatives around the world. square-foot industrial facility in the Midlands area of the We are exploring several sustainable warehouse United Kingdom for leading supermarket chain Sainsbury’s. design features: The facility will utilize a variety of technologies and • Recycled and locally sourced construction materials environmental features designed to significantly reduce that reduce environmental impact on-site energy consumption and carbon emissions: • Skylights and clerestory windows that increase natural • Solar walls that generate heat from sunlight light, thereby lowering electricity usage and improving • Wall-mounted photovoltaic panels that work environments for warehouse personnel generate electricity • T5 and T8 energy-efficient fluorescent lights that offer • An on-site power plant that reuses the heat significantly improved energy performance over traditional produced by air conditioning metal halide systems • An on-site recycling facility • High-reflectance, white thermoplastic polyolefin (TPO) • Energy-efficient lighting systems roofing that offers the same performance as traditional • Air-tight exterior building construction black EPDM rubber roofing at essentially the same cost but with less load on the building’s cooling system In 2007, we intend to develop minimum design standards • Air-tight building construction that reduces air leakage, for new global developments that will meet or exceed the thereby permanently lowering costs for heating and requirements for environmental certification from major air conditioning global rating systems such as LEED, CASBEE and BREEAM. 6 P R O L O G I S S U S T A I N A B I L I T Y R E P O R T We have established the following company-wide targets, which we intend to achieve by 2010: • Install renewable energy sources that have a combined generation capacity of over 25 million KWh per year • Reduce the use of potable water for landscape irrigation by 50% in accordance with LEED methodology • Utilize 20% recycled content, based on cost, on all new product • Divert 75% of construction debris from disposal in landfills and incinerators on all new projects P R O L O G I S L I G H T I N G R E T R O F I T P R O G R A M ( N O R T H A M E R I C A ) In 2006, ProLogis began testing the benefits of replacing Energy-efficient T8 Fluorescent Lighting Anixter International Facility (Chicago, IL – US) D E T A R O P R O C N I S T C E T I H C R A N A M T I E H standard metal halide lights with high-efficiency T5 and C H I C A G O C L I M A T E E X C H A N G E ( C C X ) T8 fluorescent lights at select customer facilities. Although ProLogis has joined the Chicago Climate Exchange, the the initial investment can sometimes be more costly, world’s first and North America’s only voluntary, legally suppliers estimate that a customer can fully recoup its binding greenhouse gas emissions reduction, registry investment in a fluorescent lighting system in 12 – 36 and trading program. months. (Actual payback period will depend upon the Membership in the exchange requires ProLogis to cost of electricity, hours per day of electricity usage and completely offset the “carbon footprint” associated with the availability of cost-offsetting, energy-savings incentive its business operations in the US1 In addition, the programs.) In addition, T5 and T8 lights are rust-free, company can also earn tradable credits when it builds dust- and moisture-resistant, and easy to clean. warehouses that reduce energy consumption through ProLogis outfitted approximately 2.5 million square new technology and high-quality design. feet of combined new and existing space with high-effi- ProLogis offices are powered by electricity and, in ciency lights during 2006. Our experience so far has some cases, natural gas. The emissions associated with shown that electricity consumption may be reduced by electricity consumption are considered indirect, as the up to 75% with these fluorescent lighting systems. power is not generated on site. Emissions due to the con- Due to the overwhelming success of this program, we sumption of natural gas are considered direct because that have now made T5/T8 lights available in all new buildings resource is consumed on site. The measurement of our in North America. These actions are consistent with our energy usage and the resulting greenhouse gas emissions is objective of providing innovative, cost-effective sustain- part of our commitment to sustainability reporting. ProLogis able solutions to our customers. pledges to have carbon neutral US operations from 2006 through 2010.1 We will achieve this through a combination “ProLogis is to be commended for becoming of organic reductions and offset procurement. In addition, the first real estate company in the world to join CCX. Like our other member companies, we aim to expand our carbon footprint measurement and carbon-neutral status globally. ProLogis is a leader in its sector, and also US Carbon Footprint a leader in the global effort to address the Electricity/Indirect Energy Consumption (KWh) 7,616,478 challenge of climate change.” R I C H A R D S A N D O R Chairman and CEO of the Chicago Climate Exchange rr Natural Gas (Therms) Carbon Footprint 1 (metric tons of CO2) 49,571 8,387 1 ff US operations include electricity and natural gas usage at ProLogis of fices as well as emissions associated with travel via plane, automobile, commuter rail, intercity rail and bus. rr Note: These figures are based upon actual utility bills and travel reports where footage and estimations whererr exact data was available and based upon squarerr not available. Sources of emissions factors used in the calculation are the US EPA, World Resources Institute and the Chicago Climate Exchange. P R O L O G I S S U S T A I N A B I L I T Y R E P O R T 7 B R O W N F I E L D R E D E V E L O P M E N T Through our merger with Catellus Development Hercules, California, is one such development. This Corporation in 2005, ProLogis has acquired substantial 206-acre community, located on the site of former oil expertise in brownfield development. This complex process and asphalt refineries, includes single and multi-family involves the cleanup and development or redevelopment homes, a school, office buildings, 14 acres of public of land that contains, or potentially contains, hazardous parks and open space. Remediation efforts involved soil substances, contaminants or pollutants. Ultimate devel- and ground decontamination and clean-up to Regional opment of such land offers several benefits to varied Water Quality Control Board standards. stakeholders. First, development of former brownfield sites takes development pressure off greenfield development. P R O L O G I S W O R L D H E A D Q U A R T E R S In addition, the local environment is improved as In February 2006, ProLogis formally opened its global indigenous wildlife returns to formerly uninhabitable headquarters facility in Denver, Colorado. The five-story surroundings. Finally, the economic well-being of the building comprises more than 89,000 square feet of local community is enhanced as an increased tax base space and can accommodate up to 325 people. enables the local government to provide additional The building features a number of state-of-the-art public services to its constituents. technologies designed to improve energy efficiency and mitigate impacts on the environment. Among them: an ProLogis Park Sideway (United Kingdom) ProLogis Park 294 (US) ProLogis Park Sideway is being developed on the site of a former coal mine. Designed as a ‘test bed’ for In 2004, ProLogis completed a 460,000 square-foot facility for Anixter International in the Chicago area. leading sustainable warehouse design features, the park will be ProLogis and Anixter worked together to incorporate multiple remarkable for the sheer number of environmentally friendly sustainable technologies into the facility’s design. The facility, technologies on one site. which has recently received LEED certification, includes the The park is expected to achieve at least a 32% reduction following environmentally friendly features: in carbon dioxide emissions, as compared to normal logistics • An advanced energy-control system spaces. An independent consultant will measure and publicly • Low maintenance landscaping release the results. Features will include: • Energy-efficient lighting and skylights • Exterior building fabrics that decrease air leakage • Recycled building materials • Enhanced skylights that increase natural light • Reversible exhaust fans • High-efficiency lighting • Roof-mounted solar panels, heat-absorbent solar walls and solar thermal hot water systems • Wind turbines • Landscaping designed to offset the development’s carbon dioxide emissions • Irrigation systems that use gray water and recycled rainwater ProLogis Park Sideway, artist’s rendering (United Kingdom) Anixter International Facility at ProLogis Park 294 (Chicago, IL – US) 8 P R O L O G I S S U S T A I N A B I L I T Y R E P O R T illumination system that harvests sunlight during the day and reduces power consumption; energy-efficient glass; high-reflectance roofing material; a landscape irrigation system that uses reclaimed gray water; and recharging stations for electric vehicles. The cost premium to incorporate sustainable and green building features and technologies in the design and construction of the facility was less than 3% of the total project budget. As a result of this investment, we have already seen returns in terms of increased energy efficiency, employee productivity and pride in ownership. For instance, the lighting control system alone cuts electrical usage by 30%. We believe the corporate headquarters is nearly 40% ProLogis World Headquarters (Denver, Colorado) more energy efficient than a similar building would be (USGBC), an independent, non-profit association dedi- without such sustainable attributes. cated to sustainable building design and construction. As ProLogis’ headquarters recently received a prestigious of December 31, 2006, ours was the only private sector LEED certification from the U.S. Green Building Council commercial facility in Denver with LEED certification. ProLogis Park Chanteloup (France) ProLogis Parc Maishima II (Japan) ProLogis Park Chanteloup is an award-winning, 10-facility, 2.7 million square-foot industrial park located ProLogis Parc Maishima II is a 608,000 square-foot facility located in Osaka, Japan. approximately 19 miles (30 kilometers) south of Paris. Completed in the fourth quarter of 2006, this building is The park, which opened in 2005, is one of the largest notable for being the only distribution facility in Osaka to have private sector logistics parks in Southern Europe. It received received an “A” (its second highest on a scale of five) rating a 2005 Logistics Innovation Award at Europe’s International by CASBEE Osaka. CASBEE, which stands for Comprehensive Week of Transportation and Logistics Conference. Assessment System for Building Environmental Efficiency, On-site amenities include conference facilities, a staff is a national rating system that assesses the environmental restaurant, childcare center and a jogging/bicycle track. performance of sustainability-promoting buildings. The facilities also possess several environmentally friendly ProLogis Parc Maishima II can restrain and reduce carbon features including: dioxide and greenhouse gas emissions by way of its standout • photovoltaic solar panels that generate electricity environmental preservation features, including: • recharging stations for electric vehicles • An energy-efficient, occupancy sensor lighting system • a rainwater harvesting system that supplies water for • Ice thermal storage and an air-conditioning system that park landscaping makes ice at night, stores it in non-corrosive tanks, and uses it to cool the building the following day Solar Panels at ProLogis Park Chanteloup (Moissy-Cramayel, France) ProLogis Parc Maishima II (Osaka, Japan) P R O L O G I S S U S T A I N A B I L I T Y R E P O R T 9 E C O N O M I C P E R F O R M A N C E economic Our business model enables us to grow by accessing and ProLogis has distributed over $1.9 billion in common managing a variety of capital sources around the globe. dividends to investors since January 1, 2000. We have Our fund management business is a powerful engine of increased our dividend every year, from $1.34 per share growth with more than $12.2 billion of industrial assets in 2000 to an expected $1.84 per share in 2007, repre- under management. Our equity partners get access to senting a compounded annual growth rate of over 4.6%. ProLogis’ high-quality portfolio through our contribution In the five years ending December 31, 2006, ProLogis of properties and benefit from professional management common shares provided a total return (price appreciation and our strong ties with global customers. ProLogis has plus reinvested dividends) of approximately 253% to the opportunity to establish relationships with equity part- investors, compared with 35% for the S&P 500 and ners around the world, aligning our interests with theirs. 39% for the Dow Jones Industrial Average. In addition, our fund management business enables us ProLogis remains committed to furthering meaningful to expand with less of our overall capital invested, since corporate governance practices and maintaining a business we retain a 10 to 25% interest in the funds. In this way, environment of uncompromising integrity. We continue to we leverage our operating system and achieve higher enhance these objectives through our governance policies returns on invested capital. and compliance with the Sarbanes-Oxley Act of 2002 We are a globally diversified company. As of and the rules of the New York Stock Exchange (“NYSE”). December 31, 2006, over 40% of our total investments Our board of trustees comprises 12 members who are represent activity undertaken outside North America. elected annually. We require that a majority of our board This diversification helps mitigate the impact of economic be independent under listing standards adopted by the downturn in any one region of the world and helps support NYSE. To determine whether a trustee is independent, sustained economic growth. the board must affirmatively determine that there is no direct or indirect material relationship between the company and the trustee. 1 0 P R O L O G I S S U S T A I N A B I L I T Y R E P O R T Our independent trustees, meaning those who are not C O R P O R A T E G O V E R N A N C E Q U O T I E N T ( C G Q ) officers or employees of ProLogis, meet in regular executive Institutional Shareholder Services (ISS) assigned ProLogis sessions without management present. The chair of these an Industry Corporate Governance Quotient® (CGQ ®) rating executive sessions is the Chairman of the Board. of 92.3 in March 2007. ISS’ CGQ is the most widely You may communicate with any of the trustees, recognized third-party measure of corporate governance. individually or as a group, by writing to them c/o Edward ISS analysts use publicly available information such as S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, public disclosure documents and company websites to Colorado 80239. All communications should prominently objectively measure and rate the quality of a company’s indicate on the outside of the envelope that they are corporate governance program. US companies are ranked intended for the full board, for outside trustees only, or using 65 different variables across eight categories: board for any particular group or member of the board. of directors, charter and bylaw provisions, executive and The ProLogis Board is responsible for reviewing and director compensation, audit, anti-takeover provisions, stock approving strategic plans, corporate actions and financial ownership, progressive practices and director education. objectives. At present, the Chairman of the Board is not an officer of the company. D O M I N I 4 0 0 S O C I A L I N D E X We have made several shareholder-friendly changes ProLogis was added to the Domini 400 Social Index to our corporate governance practices in recent years. (DSI) in May 2006. The DSI is a stock index comprising We eliminated the so-called “poison pill” in December equities subject to multiple social screens. It is a widely 2003 by way of a Shareholder Rights Plan. We also recognized benchmark for measuring the impact of social shifted from plurality to majority voting in 2006. Finally, screening on financial returns and the performance we declassified our board in 2005, which paved the way of socially screened portfolios. for annual re-election of all trustees beginning in 2006. Continuous Dividend Growth and Growth in Funds From Operations (FFO) (per share) 0 8 1 $ . . 4 2 1 $ 2 0 2 $ . . 0 3 1 $ 1 2 2 $ . . 4 3 1 $ 5 3 2 $ . 9 3 2 $ . 1 4 2 $ . . 3 4 2 $ 1 7 2 $ . . 8 3 1 $ . 2 4 1 $ . 4 4 1 $ 6 4 1 $ . 8 4 1 $ . 3 1 1 $ . 4 9 0 $ . 0 3 1 $ . . 1 0 1 $ . 1 5 1 7 $ 0 1 $ . * 0 9 3 $ . 0 7 3 $ . $26.0 Billion Total Market Capitalization (as of December 31, 2006) 1% 39% . 4 8 1 $ 0 6 1 $ . 60% 95 96 97 98 99 00 01 02 03 04 05 06 07 Dividend Funds From Operations, as Adjusted *Midpoint of company guidance Equity Debt Preferreds P R O L O G I S S U S T A I N A B I L I T Y R E P O R T 1 1 “ProLogis is an example of a company that is way of its LEED certification process. At the same time, walking the talk. LEED certification is a high standard that will deliver what is promised: over 4,900 additional buildings were waiting in the queue for LEED ratings, reflecting the swell in demand for buildings being constructed with environmental an environmentally friendly, safe and healthy considerations in mind.2 environment for ProLogis employees, as well as for the community at large.” R I C K F E D R I Z Z I CEO & Founding Chairman, U.S. Green Building Council F U T U R E O P P O R T U N I T I E S We believe that environmentally friendly facilities will become increasingly sought after by tenants and that facilities without green features face economic risk or, potentially, ultimate obsolescence. Research already shows that green buildings generate significant economic benefits. According to a McGraw-Hill 2006 SmartMarket Report, green buildings command 3% higher rental rates, realize an average increase of 7.5% in building value, The past year has seen the subject of climate change deliver 3.5% higher occupancy rates and improve return move into the mainstream. The Intergovernmental Panel on investment by an average 6.6%.3 on Climate Change’s recently released report reiterated By increasingly utilizing environmentally friendly three broad points over which scientists are now generally features in our new developments and retro-fitting existing in agreement: the evidence that Earth is warming is facilities, ProLogis is creating a class of environmentally unequivocal; this warming is in large part human-caused, superior facilities that will be made available to our namely by our emission of greenhouse gases; and there customers going forward. These premium facilities should will be serious ramifications of global warming on the help sustain ProLogis’ economic value for the long term. Earth’s environment.1 Simultaneously, so-called “green buildings” are going mainstream as well. The USGBC had, as of December 2006, certified 669 buildings as green by 1 2 3 yr nmental Panel on Climate Change, “Summar rr gg Intergrr over Februaryr 5, 2007. Charles Lockwood, “As Green as the Grass Outside,” Barron’s, December 25, 2006. McGraw-Hill Construction, Green Building SmartMarket Report, 2006. for Policymakers,” Total Investments by Region Total Assets Owned, Managed and Under Development (in billions) 8% 10% 14% 31% 25% 28% 61% 65% 58% . 2 5 $ . 5 2 $ . 1 3 $ . 2 1 $ . 8 1 $ . 4 0 $ . 7 6 2 $ . 1 2 2 $ . 9 5 1 $ . 7 1 1 $ . 3 0 1 $ . 9 7 $ . 6 8 $ . 2 7 $ 04 North America Europe Asia 05 06 93 94 95 96 97 98 99 00 01 02 03 04 05 06 1 2 P R O L O G I S S U S T A I N A B I L I T Y R E P O R T S O C I A L P E R F O R M A N C E social Corporate social responsibility is a core value of our company. Through our partnerships, corporate giving, community outreach, employee involvement and education, we are committed to building healthy and productive relationships with our employees, business partners and the local communities in which we do business around the world. C O M M U N I T Y I N V O L V E M E N T charities. Some of the organizations we helped include: ProLogis is proud to invest in the communities in which • Eight different • Five food banks we operate. We contribute our time, our expertise and elementary schools • The Salvation Army our financial support in numerous ways around the globe, • The Humane Society • Junior Achievement all with the goal of making a positive difference to people • Race for the Cure • Two children’s hospitals and organizations in need. • Toys for Tots We intend to further develop our company-wide • YMCA community investment strategy in 2007 and to begin to measure our financial investments as a percentage E U R O P E • Habitat for Humanity • Boys and Girls Clubs of America of company profits. In Amsterdam, ProLogis is proud to provide financial We also plan to create, in 2007, a company-wide support for scientific research at Emma Children’s Hospital. volunteer program that provides each ProLogis employee We also support breast cancer research, education and with two paid days each year that may be used for com- advocacy through our support of the Women’s Club of munity volunteer efforts. The Hague’s Pink Gala. In the United Kingdom, we support or sponsor a variety T H E P R O L O G I S F O U N D A T I O N of community organizations and efforts, including a youth The ProLogis Foundation was established with the goal football (soccer) league in the West Midlands, a child- of providing financial support to institutions of higher protection charity, the Parkinson’s Disease Society, and education and charitable organizations across North DebRA, a charity that works with children who suffer America. In 2006, ProLogis donated $5 million to the from an incurable skin condition. Foundation to help support its efforts. In Central Europe, ProLogis sponsors a number N O R T H A M E R I C A of educational organizations and community programs in support of children and young adults. We supported In 2006, approximately 300 of our North American the Lech Walesa Institute’s educational foundation and a employees in 17 different North American offices took youth music festival in Poland. We have provided financial part in a variety of activities benefiting over 50 different support for the construction of children’s sports fields in Romania, the Czech Republic and Poland, and have sponsored special events for hungry and poor children in Poland. Separately, we provided financial support for construction of a public bridge in Romania in 2006. P R O L O G I S S U S T A I N A B I L I T Y R E P O R T 1 3 In Japan, ProLogis recently completed improvements to a public park and bus facility near ProLogis Parc Amagasaki. ProLogis Japan received a letter of apprecia- tion from the City of Amagasaki for its services and monetary contribution. E M P L O Y M E N T P R A C T I C E S ProLogis affirms the company’s commitment to Equal Employment Opportunity (“EEO”). We believe that our associates are our most important assets. We seek to hire and retain superior associates by committing to excellent employment standards. We further encourage our associates to enhance their skills and abilities in order to reach their full potential. To further their professional development, associates have access to ProLogis University, an educational program Ground-breaking Ceremony for the ProLogis Hope School Wang Pu, China (January 2007) A S I A Many schools in rural China are located in remote that includes a series of annual motivational meetings mountain areas and lack basic infrastructure such as where learning and networking abilities abound. Functional electricity and running water. Some school buildings department training sessions are also conducted by the even lack windows or closeable doors. It is not unusual Marketing, Development, Accounting and Property for students to walk two to three hours simply to get Management groups. to school. Therefore, many students live in dormitories Currently, ProLogis Human Resources associates with at school during the week and finance their lodging hiring responsibility typically attend at least one diversity- expenses by growing and selling fruits and vegetables. related career fair each year. ProLogis China has established a program whereby ToTT the extent required by federal, state and local laws, we will donate 1 RMB toward construction of an ele- ProLogis will recruit, hire, train, promote and compensate mentary school in rural China for each square meter candidates for employment and our current associates (10.76 square feet) of ProLogis-completed development without regard to race, color, age, religion, sex, national in that country. origin, disability or sexual orientation. All other personnel Working with the local Salvation Army on our first such actions, including, but not limited to, disciplinary action project, ProLogis has committed to build and finance an and fringe benefits programs, will be based on the expansion to an elementary school in Southern China, same principles. located in the town of Wang Pu, Wuzhou City in Guangxi ProLogis follows all relevant federal and state laws Province. The new school, to be called the ProLogis Hope applicable to individuals with disabilities, Vietnam-era and School, will take on students from neighboring villages disabled veterans, and endeavors to maintain guidelines whose schools were destroyed by severe rainstorms in 2006. and practices that meet the standards required by law. ProLogis will finance construction of a 1,000 square meter We plan to establish a worldwide sustainability employee facility that will include 10 classrooms, a staff office, education and awareness program during 2007 and be in restrooms and dormitory facilities. We will also supply a position to report on its progress in next year’s report. the school with desks, blackboards, school supplies and library books. After construction is completed around E M P L O Y M E N T S T A T I S T I C S August 2007, we will continue our personal involvement On December 31, 2006, ProLogis had 1,263 employees by offering our ProLogis China employees the opportunity plus 54 contract or temporary workers, for a total global to schedule two-week visits to the school, during which work force of 1,317. During 2006, 173 employees left the they may interact with and teach the students. These organization due to dismissal, retirement or resignation, visits will also be funded by ProLogis. representing a global employee turnover rate of 13.7%. 1 4 P R O L O G I S S U S T A I N A B I L I T Y R E P O R T Of the 173, 50.9% were male and 49.1% were female. rate their general experience with ProLogis personnel Further employment statistics may be found below. and contractors, as well as to rate the condition of their During 2006, ProLogis was not party to any legal ProLogis facilities. actions for anti-competitive behavior, anti-trust and/or The percentage of responding customers offering monopoly practices. The company had two incidents a reply of “good” or “excellent” in our 2006 survey is of discrimination raised during the year. Of the two, depicted in the following chart. one was dismissed for lack of substance and the other was settled at no fault out of court. North America 2006 Customer Survey Results Percentage of Respondents Awarding Ratings of 4 and 5; Ratings of 4 and 5 equate to “good” and “excellent” C U S T O M E R S A T I S F A C T I O N We continuously strive to be our customers’ industrial Leasing property business partner of choice. Our business strategy Property Management incorporates the proprietary ProLogis Operating System®, a customer-focused leasing and property management Maintenance philosophy that allows us to provide superior customer General Experience service at the local level. Our property managers spend a significant amount of time interacting with customers, understanding and Facilities 89% 89% 86% 85% 77% anticipating their needs. We seek to exceed customers’ Since we first began surveying our customers in 1995, high expectations with regards to levels of service. This we have instituted various programs designed in response superior service is reflected in our high levels of customer to survey results. We initiated and maintain a vendor retention and customer satisfaction, which in turn benefit education program in order to communicate our high ProLogis shareholders economically through low turnover service standard to ProLogis vendors. We have also and other customer receivable costs. implemented internal programs that put property man- We conduct substantial North American customer agers in front of customers on an almost daily basis. satisfaction surveys every two years. Written surveys are Our goal is to maintain a rating above 85% in each of the conducted in-house. We ask customers to rate their areas of leasing, property management, maintenance and ProLogis personal contacts in areas of leasing, property general experience in the 2008 survey and to continue management and maintenance. They are also asked to our practice of providing superior customer service. Global Employment by Type 1 Employees by Region Employee Turnover by Region Employee Turnover by Age2 1 4 2 1 , 9 8 7 4 2 5 2 Full Time Part Time Contract/Temporary % 8 1 % 4 1 % 7 2 % 0 2 % 4 1 % 3 1 % 4 1 % 3 1 % 3 1 % 5 1 % 3 1 9 8 2 5 8 1 % 7 % 8 % 6 % 3 North America Europe Asia North America Europe Asia North America Europe Asia 50+ 40 – 49 30 – 39 20 – 29 1Contract/Temporary workers are not ProLogis employees 2Percentage of employees per age group who terminated their employment with ProLogis in 2006 P R O L O G I S S U S T A I N A B I L I T Y R E P O R T 1 5 (cid:25) (cid:26) (cid:27) (cid:28) (cid:29) (cid:26) (cid:6) (cid:30) (cid:31) (cid:14) (cid:19) (cid:14) (cid:32) (cid:17) (cid:14) (cid:29)(cid:13)(cid:21)(cid:9) (cid:54)(cid:5)(cid:14)(cid:2)(cid:18) (cid:27)(cid:18)(cid:28)(cid:18)(cid:2) (cid:66)(cid:9)(cid:8)(cid:6)(cid:18) (cid:44)(cid:14)(cid:2)(cid:21)(cid:18)(cid:28)(cid:9)(cid:8)(cid:6) 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