Leeds%20School%20of%20Business

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October 20, 2004
Leeds School of Business University of Colorado
Walter C. Rakowich
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ProLogis - 1996

• 36 markets
• 86.5 million square feet
• 2.5 Billion of wholly owned assets

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ProLogis-European Opportunity

• Opportunity
• Dominant regional distribution hubs emerging to
  efficiently serve unified marketplace
• Major companies consolidating and reconfiguring
  distribution networks
• Functional obsolescence of much existing stock
• Growing need for single-source provider of
  Pan-European distribution space
• Strategy
• Establish market-leading positions in major
  distribution hubs
• Employ a local team of nationals in each market
• Control land for new development
• Leverage off of established global customer
  relationships for growth
• Identify a capital source to help fund growth

Estimated to be a 3 billion opportunity
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ProLogis Stock Price
ProLogis Common Stock Share Price
ProLogis Annual FFO Per Share
Significant decline in multiple renders common
equity too expensive for growth
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ProLogis Property Fund Business

• Strategy
• Raise private equity primarily from institutional
  investors looking for long-term stable returns
• Develop facilities on our balance sheet at
  wholesale value
• Create value through leasing
• Contribute to property funds at retail value
• Co-invest profit and receive cash for wholesale
  value thereby recycling capital
• Manage the properties in funds for fees thereby
  increasing returns on invested capital
• Benefits
• Access a broader, less dilutive, base of equity
  for growth
• Retain customer relationships
• Grow platform globally in a more capital-light
  manner which increases return on equity

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Property Fund Example

• Development Cost
• Land 200
• Building 500
• Soft Costs 300
• Total Building Cost 1,000 Assume 10 NOI Return
  100/yr
• Appraised Value 1,200 Equivalent to 8.3 NOI
  Return
• Profit 200
• Composition of Consideration
• Equity
• Investors (Cash) 400
• ProLogis (Units) 200
• Total Equity 600
• Debt (Cash) 600
• Total Consideration 1,200

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Property Fund Example

• Return on Equity
• Equity Partners ProLogis Total
• Percentage Ownership 67 33 100
• Total Investment 800 400 1,200
• Debt 400 200 600
• Equity 400 200 600
• Unleveraged NOI Return (8.3) 67 33 100
• Mgmt Fees (Avg 75 bps on Value) (6) (3) (9)
• Interest Expense (at 5) (20) (10) (30)
• Fund Level Income 41 20 61
• Add Back Mgmt Fees 9
• ProLogis Income 29
• Return on Equity 10 15

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ProLogis European Properties Fund - Structure

• Fund equity commitments Initial equity raise of
  1.04 billion in 1999 from 19 institutional
  investors. Subsequent equity raise of 637
  million, expected total capacity of 4.2 billion
  (5.2 billion)
• ProLogis ownership Largest owner of the Fund,
  20 minimum long-term ownership, 22.5 ownership
  as of 6/30/04
• Leverage 60 maximum, 52 as of 6/30/04
• Investment criteria Fund will purchase
  stabilized distribution facilities in identified
  target markets
• Management ProLogis will manage day-to-day
  operations of the Fund within the ProLogis
  Operating System pursuant to a 20-year
  management contract
• Management fees ProLogis receives asset
  management fees and property management fees and
  incentive management fees
• ProLogis incentive return ProLogis receives 20
  incentive return above 12 internal rate of
  return to common equity unitholders (including
  ProLogis) determined at liquidation
• Governance Seven-member committee (ProLogis has
  three representatives)
• Initial term/liquidity Potential IPO in 7-10
  years. No puts to ProLogis but ProLogis has
  buyout option at NAV at termination

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ProLogis European Properties Fund
Fund Assets

• Debt Overview
• Warehouse Facility of 500 million in total
  capacity
• Private financing with two banks
• Purchase of properties is financed with
  combination of equity and debt proceeds from the
  warehouse facility
• Extremely competitive pricing of EURIBOR 35 bps
• Warehouse facility debt is refinanced with CMBS
  or local mortgage debt once critical mass of
  properties is achieved
• CMBS (Commercial Mortgage Backed Security) Debt
• Permanent public financing, generally seven year
  terms and rated by rating agencies
• Pricing range of 35 90 bps over EURIBOR swap
  rates for A, AA and AAA tranches
• Four issuances totaling over 900 million, fifth
  issuance expected in 2H04

( Billions)
Equity
Debt
YE
24 Fund Investors
North America
SE Asia
Europe
Middle East
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ProLogis Property Funds(Post Keystone
Acquisition)

• Year of Sq. Feet Investment
• Inception (Millions) ( Millions)
• ProLogis European Properties Fund 1999 43.6 3,186
  
• ProLogis California LLC 1999 13.0 622
• ProLogis North American Fund I 2000 9.4 376
• ProLogis North American Fund II 2001 4.5 235
• ProLogis North American Fund III 2001 4.4 209
• ProLogis North American Fund IV 2001 3.5 141
• ProLogis North American Fund V 2002 25.3 1,038
• ProLogis North American Funds VI-X 2004 25.4 1,499
  
• ProLogis North American Funds XI
  XII 2004 7.7 485
• ProLogis Japan Properties Fund 2002 2.5 546
• Totals 139.3 8,337

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ProLogis - Today

• ASIA
• 3 Active markets in Japan (and 3 targeted in
  China)
• 6.4 MSF
• 462 M wholly owned
• 546 M fund owned

• NORTH AMERICA
• 42 Markets
• 225 MSF
• 4.7 B wholly owned
• 4.6 B fund owned

• EUROPE
• 26 Markets
• 54.7 MSF
• 728 M wholly owned
• 3.2 B fund owned

Over 14 Billion of Total Assets Today
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Growth in Return on Equity
Implementation of Property Fund Strategy
Last public equity offering April 1998
14.2
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ProLogis Stock Price
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S t r a t e g i c
G l o b a l
ProLogis World Headquarters 14100 East 35th
Place Aurora, CO 80011
[phone]
F a c i l i t i e s
prologis.com