ProLogis Reports Fourth Quarter Results

DENVER, Feb. 3 /PRNewswire-FirstCall/ -- ProLogis , a leading global provider of distribution facilities and services, today reported adjusted funds from operations as defined by ProLogis of $0.56 per diluted share for the fourth quarter of 2004, compared with $0.80 in the fourth quarter of 2003. After relocation and temperature-controlled impairment charges, funds from operations as defined by ProLogis (FFO) for the fourth quarter of 2004 was $0.28 per share, compared with $0.78 in the same period of 2003, which included a preferred share redemption charge. Net earnings were $262,000, or less than $0.01 per share, for the fourth quarter of 2004, compared with $0.71 per share for the same period in 2003. The decrease in net earnings between the periods is primarily attributable to the temperature-controlled impairment charge of $0.27 per share in the fourth quarter of 2004 and a $0.40 per share gain the fourth quarter of 2003 related to the partial redemption of ProLogis' investment in ProLogis European Properties Fund.

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For the year ended December 31, 2004, adjusted FFO per diluted share grew to $2.43 from $2.41 in 2003. After charges resulting from preferred redemption, relocation and the temperature-controlled impairment noted above, FFO for 2004 was $2.11 per share. After charges resulting from preferred redemptions and temperature-controlled impairment, FFO for 2003 was $2.17. Net earnings per diluted share for 2004 were $1.08 per share, compared with $1.16 per share in 2003.

"Our results for the fourth quarter strengthened significantly, with a 195 basis point improvement in average same-store occupancy and a dramatic pick up in development activity," said Jeffrey H. Schwartz, chief executive officer. "The pace of leasing accelerated in the second half of the year, leading to a 121 basis point improvement in average same-store occupancy and positive same-store net operating income growth for the year. This pick up in momentum sets the tone for 2005, as we start the new year with a record development pipeline and an overall stabilized leased percentage of 92.3% -- our highest level in three years."

"Globally, demand for modern distribution facilities is growing. In North America, new supply remains reasonable, and we are seeing positive net absorption and occupancy gains in nearly every market. In Europe, leasing activity has strengthened despite lingering economic softness in some of our markets. Our stabilized portfolio in Europe is 93.8% leased, up from 89.2% a year ago, and our facilities in The Netherlands, Italy, Hungary, Czech Republic, Belgium and Sweden are fully leased. In Japan, customer interest in modern, more functional space remains high, supporting record development levels and rapid leasing of our major inventory projects. And in China, new government initiatives to improve the country's distribution network are creating opportunities for us to serve many of our existing, as well as new, customers," Mr. Schwartz added.

Record Development Starts Support Future Growth in Property Fund Income and Fees

Walter C. Rakowich, president and chief operating officer, said, "Improving global customer demand led to a surge in development starts of more than $450 million in the fourth quarter, bringing us to over $1.2 billion of total starts for the year -- up nearly 80% over 2003 levels and above our revised expectations. As a result, our pipeline of properties representing future contributions to ProLogis property funds grew to a record $1.93 billion, up from $1.61 billion at the end of 2003. Leasing of our Corporate Distribution Facilities Services (CDFS) properties also was brisk, with more than 18.2 million square feet of new CDFS leases signed in 2004 -- 49% of which was with repeat customers. As a result of this activity, we also had record dispositions and contributions to ProLogis property funds of more than $1.5 billion during the year. These contributions, together with the $1.7 billion acquisition of Keystone Property Trust in the third quarter, led to a 64% increase in assets under management in our funds compared with the end of 2003."

Asian Business Gains Momentum

"Our business in Asia continues to expand, reflecting the shift from ownership to leasing and the need for modern functional distribution space," Mr. Schwartz added. During the fourth quarter, the company started $165 million of new developments in Asia and recently announced two new developments in the Tokyo area totaling $266 million. "We also have made significant leasing progress on two major inventory projects. ProLogis Parc Osaka, which was completed in the fourth quarter, is already 80% committed with leases and LOIs from ten companies, including global customers such as Nippon Express, DHL, FedEx and Yamato Logistics. In addition, we signed a letter of intent with a Japanese logistics provider for the remaining space at ProLogis Parc Yokohama, bringing us to over 90% leased on this one million square-foot facility, which is not scheduled for completion until mid year. In China, we began development of two facilities at ProLogis Park Northwest Shanghai and entered into a new joint venture to develop distribution facilities at the planned Yangshan International Deep Water Port."

Selected Financial and Operating Information * Achieved FFO from CDFS transactions of $44.0 million for the quarter from $41.1 million in the fourth quarter of 2003. For the year, FFO from CDFS transactions was $209.7 million, up 65.8% from $126.5 million in 2003. FFO amounts do not include unrecognized deferred gains of $12.4 million for the quarter and $43.4 million for the year. Pre-deferral CDFS margins were 16.5% for the quarter and 18.3% for the year. * Increased average same-store occupancies by 1.95% for the quarter, while same-store net operating income increased 0.27% over the fourth quarter of 2003 (a 0.67% increase when straight-lined rents are excluded). For the year, average same-store occupancies increased by 1.21%, while same-store net operating income increased 0.15% over 2003 (a 0.26% increase when straight-lined rents are excluded). * Recycled $397.8 million of capital through CDFS dispositions and contributions during the quarter and a record $1.56 billion for the year. * Exceeded targeted development with record $1.21 billion of starts in 2004. * Increased ProLogis' share of FFO from property funds to $23.7 million, from $19.8 million in the fourth quarter of 2003. For the year, ProLogis' share of FFO from property funds was $80.5 million, compared with $73.4 million in 2003. * Grew fourth quarter fee income from property funds to $14.7 million, up from $11.7 million in 2003. For the year, fee income rose to $50.8 million from $44.2 million in 2003. * Increased total assets owned and under management by 35%, to $15.88 billion, up from $11.72 billion at December 31, 2003.

Copies of ProLogis' fourth quarter 2004 supplemental information will be available from the company's web site at http://ir.prologis.com/ or by request at 800-820-0181. The supplemental information also is available on the SEC's web site at http://www.sec.gov/. The related conference call will be available via a live web cast on the company's web site at http://ir.prologis.com/ at 10:00 am Eastern Time on Thursday, February 3, 2005. A replay of the web cast will be available on the company's web site until February 17, 2005.

ProLogis is a leading provider of distribution facilities and services with 297.9 million square feet (27.7 million square meters) in 1,994 distribution facilities owned, managed and under development in 72 markets in North America, Europe and Asia. ProLogis continues to expand the industry's first and largest global network of distribution facilities with the objective of building shareholder value. The company expects to achieve this through the ProLogis Operating System(R) and its commitment to be 'The Global Distribution Solution' for its customers, providing exceptional facilities and services to meet their expansion and reconfiguration needs.

In addition to historical information, this press release contains forward-looking statements under the federal securities laws. These statements are based on current expectations, estimates and projections about the industry and markets in which ProLogis operates, management's beliefs and assumptions made by management. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Actual operating results may be affected by changes in national and local economic conditions, competitive market conditions, changes in financial markets or interest rates that could adversely affect ProLogis' cost of capital and its ability to meet its financing needs and obligations, weather, obtaining governmental approvals and meeting development schedules, and therefore, may differ materially from what is expressed or forecasted in this press release. For a discussion of factors that could affect ProLogis' financial condition and results of operations, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in ProLogis' Annual Report on Form 10-K for the year ended December 31, 2003.

ProLogis Fourth Quarter 2004 Unaudited Financial Results Consolidated Statements of Earnings (in thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2004 (1) 2003 (2) 2004 (1) 2003 (2) Revenues: Rental income (3)(4)(5) $134,978 $132,757 $544,663 $542,840 Property management and other property fund fees 14,728 11,735 50,778 44,184 Development management fees and other CDFS income (6) 276 740 2,698 2,349 Total revenues 149,982 145,232 598,139 589,373 Expenses: Rental expenses (3)(5) 35,910 32,275 142,280 135,779 General and administrative 21,766 19,236 82,147 65,907 Depreciation and amortization (5) 44,911 41,187 172,244 164,291 Relocation expenses (7) 3,949 -- 6,794 -- Other expenses 1,846 4,603 5,519 7,608 Total expenses 108,382 97,301 408,984 373,585 Gains on certain dispositions of CDFS business assets, net (5)(6)(8): Net proceeds from dispositions (8)(9) 376,933 167,120 1,288,665 900,978 Costs of assets disposed of 334,566 126,003 1,111,698 774,452 Total gains, net 42,367 41,117 176,967 126,526 Operating Income 83,967 89,048 366,122 342,314 Income from unconsolidated property funds 12,369 11,209 42,899 27,265 Income (losses) from other unconsolidated investees, net (10) 203 14,627 (801) (12,231) Interest expense (11) (37,733) (39,619) (153,334) (155,475) Interest and other income 970 684 3,007 1,883 Earnings before minority interest 59,776 75,949 257,893 203,756 Minority interest (1,064) (1,163) (4,875) (4,959) Earnings before certain net gains and net foreign currency gains (expenses/losses) 58,712 74,786 253,018 198,797 Gains (losses) recognized on dispositions of certain non- CDFS business assets, net -- (1,736) 6,072 1,638 Gains on partial dispositions of investments in property funds (12) -- 74,716 3,328 74,716 Foreign currency exchange gains (expenses/losses), net (13) 4,804 154 14,686 (10,587) Earnings before income taxes 63,516 147,920 277,104 264,564 Income taxes: Current income tax expense 6,692 2,890 24,870 4,759 Deferred income tax expense 6,717 686 18,692 10,615 Total income taxes 13,409 3,576 43,562 15,374 Net Earnings from Continuing Operations 50,107 144,344 233,542 249,190 Discontinued Operations: Losses attributable to assets held for sale (14) (47,512) -- (36,671) -- Assets disposed of in 2004: Operating income (losses) attributable to assets disposed of (5) (1) 486 1,656 1,485 Gains recognized on dispositions, net (5): Non-CDFS business assets 2,436 -- 1,549 -- CDFS business assets 1,586 -- 32,719 -- Total discontinued operations (43,491) 486 (747) 1,485 Net Earnings 6,616 144,830 232,795 250,675 Less preferred share dividends 6,354 7,035 25,746 30,485 Less excess of redemption values over carrying values of preferred shares redeemed (15) -- 4,236 4,236 7,823 Net Earnings Attributable to Common Shares (16) $262 $133,559 $202,813 $212,367 Weighted average Common Shares outstanding -- basic 184,533 179,901 182,226 179,245 Weighted average Common Shares outstanding -- diluted 189,522 188,451 191,801 187,222 Net Earnings per Common Share- Basic: Continuing operations $0.23 $0.74 $1.12 $1.18 Discontinued operations (0.23) -- -- -- Net Earnings Attributable to Common Shares-Basic $-- $0.74 $1.12 $1.18 Net Earnings per Common Share- Diluted: Continuing operations $0.23 $0.71 $1.08 $1.16 Discontinued operations (0.23) -- -- -- Net Earnings Attributable to Common Shares-Diluted $-- $0.71 $1.08 $1.16 Calculation of Net Earnings per Common Share on a Diluted Basis (in thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2004 (1) 2003 (2) 2004 (1) 2003 (2) Basic Net Earnings Attributable to Common Shares $262 $133,559 $202,813 $212,367 Minority interest (a) -- 1,163 4,875 4,959 Diluted Net Earnings Attributable to Common Shares $262 $134,722 $207,688 $217,326 Weighted average Common Shares outstanding -- Basic 184,533 179,901 182,226 179,245 Weighted average limited partnership units, as if converted (a) -- 4,722 5,035 4,773 Incremental weighted average effect of potentially dilutive instruments (b) 4,989 3,828 4,540 3,204 Weighted average Common Shares outstanding -- Diluted 189,522 188,451 191,801 187,222 Diluted Net Earnings per Common Share $-- $0.71 $1.08 $1.16 (a) Weighted average limited partnership units of 5,550,000 for the three months ended December 31, 2004 are not included in the calculation of diluted net earnings per Common Share as the effect, on an as if converted basis, is antidilutive. (b) On a weighted average basis, all potentially dilutive instruments outstanding were 11,584,000 and 11,873,000 for the three months ended December 31, 2004 and 2003, respectively, and 11,356,000 and 10,937,000 for the twelve months ended December 31, 2004 and 2003, respectively. Footnotes follow ProLogis' Consolidated Balance Sheets. ProLogis Fourth Quarter 2004 Unaudited Financial Results Consolidated Statements of Funds From Operations (in thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2004 (1) 2003 (2) 2004 (1) 2003 (2) Revenues: Rental income (3)(4) $135,175 $133,658 $547,612 $546,064 Property management and other property fund fees 14,728 11,735 50,778 44,184 Development management fees and other CDFS income (6) 276 740 2,698 2,349 Total revenues 150,179 146,133 601,088 592,597 Expenses: Rental expenses (3) 36,092 32,521 143,057 136,840 General and administrative 21,766 19,236 82,147 65,907 Depreciation of non-real estate assets 2,104 1,881 8,065 7,884 Relocation expenses (7) 3,949 -- 6,794 -- Other expenses 1,846 4,603 5,519 7,608 Total expenses 65,757 58,241 245,582 218,239 Gains on dispositions of CDFS business assets, net (5)(6)(8): Net proceeds from dispositions (8)(9) 385,360 167,120 1,529,647 900,978 Costs of assets disposed of 341,407 126,003 1,319,961 774,452 Total gains, net 43,953 41,117 209,686 126,526 128,375 129,009 565,192 500,884 Income from unconsolidated property funds 23,654 19,762 80,504 73,387 Income (losses) from other unconsolidated investees, net (10) 549 3,883 1,416 (16,907) Interest expense (11) (37,733) (39,619) (153,334) (155,475) Interest and other income 970 684 3,007 1,883 Gains on partial dispositions of investments in property funds (12) -- 47,822 3,164 47,822 Foreign currency exchange expenses/losses, net (13) (118) (612) (1,904) (2,823) Current income tax expense (6,692) (2,890) (24,870) (4,759) (19,370) 29,030 (92,017) (56,872) Funds From Operations before assets held for sale 109,005 158,039 473,175 444,012 Funds From Operations attributable to assets held for sale (14) (48,273) -- (37,915) -- Funds From Operations 60,732 158,039 435,260 444,012 Less preferred share dividends 6,354 7,035 25,746 30,485 Less excess of redemption values over carrying values of preferred shares redeemed (15) -- 4,236 4,236 7,823 Less minority interest 1,064 1,163 4,875 4,959 Funds From Operations Attributable to Common Shares $53,314 $145,605 $400,403 $400,745 Weighted average Common Shares outstanding -- Basic 184,533 179,901 182,226 179,245 Weighted average Common Shares outstanding -- Diluted 195,072 188,451 191,801 187,222 Funds From Operations per Common Share: Basic $0.29 $0.81 $2.20 $2.24 Diluted $0.28 $0.78 $2.11 $2.17 Calculation of Funds From Operations Per Common Share on a Diluted Basis (in thousands, except per share amounts) Three Months Ended Twelve Months Ended December 31, December 31, 2004 (1) 2003 (2) 2004 (1) 2003 (2) Basic Funds From Operations Attributable to Common Shares $53,314 $145,605 $400,403 $400,745 Minority interest 1,064 1,163 4,875 4,959 Diluted Funds From Operations Attributable to Common Shares $54,378 $146,768 $405,278 $405,704 Weighted average Common Shares outstanding -- Basic 184,533 179,901 182,226 179,245 Weighted average limited partnership units, as if converted 5,550 4,722 5,035 4,773 Incremental weighted average effect of potentially dilutive instruments (a) 4,989 3,828 4,540 3,204 Weighted average Common Shares outstanding -- Diluted 195,072 188,451 191,801 187,222 Diluted Funds From Operations per Common Share $0.28 $0.78 $2.11 $2.17 (a) On a weighted average basis, all potentially dilutive instruments outstanding were 11,584,000 and 11,873,000 for the three months ended December 31, 2004 and 2003, respectively, and 11,356,000 and 10,937,000 for the twelve months ended December 31, 2004 and 2003, respectively. See ProLogis' Consolidated Statements of Earnings and the Reconciliations of Net Earnings to Funds From Operations. Footnotes follow ProLogis' Consolidated Balance Sheets. ProLogis Fourth Quarter 2004 Unaudited Financial Results ProLogis' Definition of Funds From Operations Funds From Operations is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to Funds From Operations is Net Earnings. Although NAREIT has published a definition of Funds From Operations, modifications to the NAREIT calculation of Funds From Operations are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business. Funds From Operations, as defined by ProLogis, is presented as a supplemental financial measure. Funds From Operations is not used by ProLogis as, nor should it be considered to be, an alternative to Net Earnings computed under GAAP as an indicator of ProLogis' operating performance or as an alternative to cash from operating activities computed under GAAP as an indicator of ProLogis' ability to fund its cash needs. Funds From Operations is not meant to represent a comprehensive system of financial reporting and does not present, nor does ProLogis intend it to present, a complete picture of its financial condition and operating performance. ProLogis believes that GAAP Net Earnings remains the primary measure of performance and that Funds From Operations is only meaningful when it is used in conjunction with GAAP Net Earnings. Further, ProLogis believes that its consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of its financial condition and its operating performance. NAREIT's Funds From Operations measure adjusts GAAP Net Earnings to exclude historical cost depreciation and gains and losses from the sales of previously depreciated properties. ProLogis agrees that these two NAREIT adjustments are useful to investors for the following reasons: (a) historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds From Operations "since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves." Consequently, NAREIT's definition of Funds From Operations reflects the fact that real estate, as an asset class, generally appreciates over time and that the depreciation charges required by GAAP do not reflect the underlying economic realities. (b) REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT's definition of Funds From Operations, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT's activities and assists in comparing those operating results between periods. At the same time that NAREIT created and defined its Funds From Operations concept for the REIT industry, it also recognized that "management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community." ProLogis believes that financial analysts, potential investors and shareholders who review its operating results are best served by a defined Funds From Operations measure that includes other adjustments to GAAP Net Earnings in addition to those included in the NAREIT defined measure of Funds From Operations. The ProLogis Defined Funds From Operations measure excludes the following items from GAAP Net Earnings that are not excluded in the NAREIT Defined Funds From Operations measure: (i) deferred income tax benefits and deferred income tax expenses recognized by ProLogis' taxable subsidiaries; (ii) certain foreign currency exchange gains and losses resulting from certain debt transactions between ProLogis and its foreign consolidated subsidiaries and its foreign unconsolidated investees; (iii) foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of ProLogis' foreign consolidated subsidiaries and its foreign unconsolidated investees; and (iv) mark-to-market adjustments associated with derivative financial instruments utilized to manage ProLogis' foreign currency risks. Funds From Operations of ProLogis' unconsolidated investees is calculated on the same basis as ProLogis. The items that ProLogis excludes from GAAP Net Earnings, while not infrequent or unusual, are subject to significant fluctuations from period to period that cause both positive and negative effects on ProLogis' results of operations, in inconsistent and unpredictable directions. Most importantly, the economics underlying the items that ProLogis excludes from GAAP Net Earnings are not the primary drivers in management's decision-making process and capital investment decisions. Period-to-period fluctuations in these items can be driven by accounting for short-term factors that are not relevant to long-term investment decisions, long-term capital structures or to long-term tax planning and tax structuring decisions. Accordingly, ProLogis believes that investors are best served if the information that is made available to them allows them to align their analysis and evaluation of ProLogis' operating results along the same lines that ProLogis' management uses in planning and executing its business strategy. Real estate is a capital-intensive business. Investors' analyses of the performance of real estate companies tend to be centered on understanding the asset value created by real estate investment decisions and understanding current operating returns that are being generated by those same investment decisions. The adjustments to GAAP Net Earnings that are included in arriving at the ProLogis Defined Funds From Operations measure are helpful to management in making real estate investment decisions and evaluating its current operating performance. ProLogis believes that these adjustments are also helpful to industry analysts, potential investors and shareholders in their understanding and evaluation of ProLogis' performance on the key measures of net asset value and current operating returns generated on real estate investments. While ProLogis believes that its defined Funds From Operations measure is an important supplemental measure, neither NAREIT's nor ProLogis' measure of Funds From Operations should be used alone because they exclude significant economic components of GAAP Net Earnings and are, therefore, limited as an analytical tool. Some of these limitations are: --Depreciation and amortization of real estate assets are economic costs that are excluded from Funds From Operations. Funds From Operations is limited as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Further, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of distribution properties are not reflected in Funds From Operations. --Gains or losses from property dispositions represent changes in the value of the disposed properties. Funds From Operations, by excluding these gains and losses, does not capture realized changes in the value of disposed properties arising from changes in market conditions. --The deferred income tax benefits and expenses that are excluded from ProLogis' Defined Funds From Operations measure result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. ProLogis' Defined Funds From Operations measure does not currently reflect any income or expense that may result from such settlement. --The foreign currency exchange gains and losses that are excluded from ProLogis' Defined Funds From Operations measure are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of ProLogis' foreign currency- denominated net assets is indefinite as to timing and amount. ProLogis' Defined Funds From Operations measure is limited in that it does not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements. ProLogis compensates for these limitations by using its Funds From Operations measure only in conjunction with GAAP Net Earnings. To further compensate, ProLogis always reconciles its Funds From Operations measure to GAAP Net Earnings in its financial reports. Additionally, ProLogis provides investors with its complete financial statements prepared under GAAP, its definition of Funds From Operations, which includes a discussion of the limitations of using ProLogis' non-GAAP measure, and a reconciliation of ProLogis' GAAP measure (Net Earnings) to its non-GAAP measure (Funds From Operations as defined by ProLogis) so that investors can appropriately incorporate this ProLogis measure and its limitations into their analyses. ProLogis Fourth Quarter 2004 Unaudited Financial Results Consolidated Statements of EBITDA (in thousands) Three Months Ended Twelve Months Ended December 31, December 31, 2004 (1) 2003 (2) 2004 (1) 2003 (2) Revenues: Rental income (3)(4) $135,175 $133,658 $547,612 $546,064 Property management and other property fund fees 14,728 11,735 50,778 44,184 Development management fees and other CDFS income (6) 276 740 2,698 2,349 150,179 146,133 601,088 592,597 Expenses: Rental expenses (3) 36,092 32,521 143,057 136,840 General and administrative 21,766 19,236 82,147 65,907 Relocation expenses (7) 3,031 -- 4,948 -- Other expenses 1,846 4,603 5,519 7,608 62,735 56,360 235,671 210,355 Gains on dispositions of CDFS business assets, net (5)(6)(8)(9) 50,475 44,159 246,614 142,084 137,919 133,932 612,031 524,326 Income from unconsolidated property funds 39,818 32,872 134,997 124,206 Income from other unconsolidated investees, net (10) 885 6,132 2,471 28,188 Interest and other income 970 684 3,007 1,883 Gains on partial dispositions of investments in property funds (12) -- 47,822 3,164 47,822 Foreign currency exchange expenses/losses, net (13) (118) (612) (1,904) (2,823) EBITDA attributable to assets held for sale (14) 3,298 -- 15,589 -- EBITDA before minority interest 182,772 220,830 769,355 723,602 Less minority interest 1,064 1,163 4,875 4,959 EBITDA $181,708 $219,667 $764,480 $718,643 See ProLogis' Consolidated Statements of Earnings and the Reconciliations of Net Earnings to EBITDA. Footnotes follow ProLogis' Consolidated Balance Sheets. ProLogis' definition of EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization): ProLogis believes that EBITDA is a useful supplemental measure in the calculation of Return on Capital measures. ProLogis believes that Return on Capital measures are useful in analyzing the financial returns resulting from capital deployment decisions and for comparing returns associated with alternative investment decisions. EBITDA, as computed by ProLogis, does not represent Net Earnings or cash from operating activities that are computed in accordance with GAAP and is not indicative of cash available to fund cash needs, which ProLogis presents in its Consolidated Statements of Cash Flows and includes in its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q that are filed with the Securities and Exchange Commission. Accordingly, the EBITDA measure presented by ProLogis should not be considered as an alternative to Net Earnings as an indicator of ProLogis' operating performance, or as an alternative to cash flows from operating, investing, or financing activities as a measure of liquidity. The EBITDA measure presented by ProLogis will not be comparable to similarly titled measures of other REITs. EBITDA generally represents Net Earnings (computed in accordance with GAAP) excluding: (i) interest expense; (ii) income tax expenses and benefits; and (iii) depreciation and amortization expenses. In ProLogis' computation of EBITDA the following items are also excluded: (i) preferred dividends and charges related to the redemption of preferred shares; (ii) the foreign currency exchange gains and losses that are also excluded in ProLogis' definition of Funds From Operations; (iii) impairment charges; and (iv) gains and losses from the dispositions of non-CDFS business assets. In addition, ProLogis adjusts the gains and losses from the contributions and sales of developed properties recognized as CDFS income to reflect these gains and losses as if no interest cost had been capitalized during the development of the properties (i.e. the gains are larger since capitalized interest is not included in the basis of the assets contributed and sold). EBITDA of ProLogis' unconsolidated investees is calculated on the same basis as ProLogis. ProLogis Fourth Quarter 2004 Unaudited Financial Results Reconciliations of Net Earnings to Funds From Operations and EBITDA (in thousands) Three Months Ended Twelve Months Ended December 31, December 31, 2004 (1) 2003 (2) 2004 (1) 2003 (2) Reconciliation of Net Earnings to Funds From Operations: Net Earnings Attributable to Common Shares $262 $133,559 $202,813 $212,367 Add (Deduct) NAREIT Defined Adjustments: Real estate related depreciation and amortization 42,807 39,306 164,179 156,407 Funds From Operations adjustments to gains on partial dispositions of investments in property funds (12) -- (26,894) (164) (26,894) (Gains) losses recognized on dispositions of non-CDFS business assets, net -- 1,736 (6,072) (1,638) Reconciling items attributable to discontinued operations: Assets held for sale-(gains) losses on dispositions of non- CDFS business assets, net (14) 72 -- (169) -- Assets disposed of in 2004- gains recognized on dispositions of non-CDFS business assets, net (5) (2,436) -- (1,549) -- Assets disposed of in 2004-real estate related depreciation and amortization (5) 16 169 516 678 Totals discontinued operations (2,348) 169 (1,202) 678 ProLogis' share of reconciling items from unconsolidated investees (17): ProLogis Property Funds: Real estate related depreciation and amortization 12,893 8,955 41,999 36,632 Gains on dispositions of non- CDFS business assets, net (48) (2,400) (767) (2,418) Other amortization items (18) (1,062) 49 (3,498) (2,040) Totals ProLogis Property Funds 11,783 6,604 37,734 32,174 Temperature-controlled distribution investees (1)(14)(19): Real estate related depreciation and amortization 107 3,185 301 9,781 (Gains) losses on dispositions of non-CDFS business assets, net -- (12,217) 1,368 (11,727) Totals temperature- controlled distribution investees 107 (9,032) 1,669 (1,946) CDFS Joint Ventures: Real estate related depreciation and amortization 239 -- 335 -- Totals NAREIT Defined Adjustments 52,588 11,889 196,479 158,781 Subtotals--NAREIT Defined Funds From Operations 52,850 145,448 399,292 371,148 Add (Deduct) ProLogis Defined Adjustments: Foreign currency exchange (gains) expenses/losses, net (13) (4,922) (766) (16,590) 7,764 Deferred income tax expense 6,717 686 18,692 10,615 Reconciling items attributable to discontinued operations: Assets held for sale-deferred income tax (benefit) expense (14) (833) -- (1,075) -- ProLogis' share of reconciling items from unconsolidated investees (17): ProLogis Property Funds: Foreign currency exchange (gains) expenses/losses, net (13) (311) 1,211 443 13,363 Deferred income tax (benefit) expense (187) 738 (572) 585 Totals ProLogis Property Funds (498) 1,949 (129) 13,948 Temperature-controlled distribution investees (1)(14)(19): Foreign currency exchange gains, net (13) -- (1,499) -- (1,642) Deferred income tax benefit -- (213) -- (1,088) Totals temperature- controlled distribution investees -- (1,712) -- (2,730) CDFS Joint Ventures: Deferred income tax expense -- -- 213 -- Totals ProLogis Defined Adjustments 464 157 1,111 29,597 ProLogis Defined Funds From Operations Attributable to Common Shares $53,314 $145,605 $400,403 $400,745 Reconciliation of Net Earnings to EBITDA: Net Earnings Attributable to Common Shares $262 $133,559 $202,813 $212,367 Add (Deduct): NAREIT Defined Adjustments to compute Funds From Operations 52,587 11,889 196,479 158,781 ProLogis Defined Adjustments to compute Funds From Operations 464 157 1,111 29,597 Other adjustments to compute ProLogis' EBITDA measure: Interest expense 37,733 39,619 153,334 155,475 Depreciation of non-real estate assets 2,104 1,881 8,065 7,884 Depreciation of non-real estate assets included in relocation expenses (7) 918 -- 1,846 -- Current income tax expense 6,692 2,890 24,870 4,759 Adjustments to CDFS gains for interest capitalized to disposed assets 6,522 3,042 36,928 15,558 Preferred share dividends 6,354 7,035 25,746 30,485 Excess of redemption values over carrying values of preferred shares redeemed (15) -- 4,236 4,236 7,823 Reconciling items attributable to discontinued operations: Assets held for sale-current income tax expense (14) 989 -- 2,922 -- Assets held for sale- impairment charge 50,582 -- 50,582 -- ProLogis' share of reconciling items from unconsolidated investees (17): ProLogis Property Funds: Interest expense 14,462 13,267 50,669 49,766 Current income tax expense 988 298 3,633 2,014 Other amortization items (18) 714 (455) 191 (961) Totals ProLogis Property Funds 16,164 13,110 54,493 50,819 CDFS Joint Ventures: Interest expense 48 427 48 2,273 Depreciation of non-real estate assets 2 -- 2 -- Current income tax expense -- 167 -- 554 Totals CDFS Joint Ventures 50 594 50 2,827 Temperature-controlled distribution investees (1)(14)(19): Interest expense -- 53 -- 91 Depreciation of non-real estate assets 130 179 367 2,089 Adjustments to carrying value -- -- -- 38,286 Current income tax expense 156 1,423 638 1,802 Totals temperature- controlled distribution investees 286 1,655 1,005 42,268 ProLogis' EBITDA measure $181,708 $219,667 $764,480 $718,643 See ProLogis' Consolidated Statements of Earnings. Footnotes follow ProLogis' Consolidated Balance Sheets. ProLogis Fourth Quarter 2004 Unaudited Financial Results Consolidated Balance Sheets (in thousands) December 31, December 31, 2004 (1) 2003 (2) Assets: Investments in real estate assets: Operating properties (20) $5,057,207 $4,868,795 Properties under development (including cost of land) (20) 575,703 404,581 Land held for development (20) 597,830 511,163 Other investments (21) 102,991 69,508 6,333,731 5,854,047 Less accumulated depreciation 989,221 847,221 Net investments in real estate assets 5,344,510 5,006,826 Investments in unconsolidated investees: Investments in ProLogis Property Funds 839,675 548,243 Investments in CDFS Joint Ventures 40,487 12,734 Investment in temperature- controlled distribution investees 5,152 113,830 Investments in other unconsolidated investees 23,199 2,486 Total investments in unconsolidated investees 908,513 677,293 Cash and cash equivalents 236,529 331,503 Accounts and notes receivable 92,015 44,906 Other assets 401,564 306,938 Discontinued operations-assets held for sale (1)(14) 114,668 -- Total assets $7,097,799 $6,367,466 Liabilities and Shareholders' Equity: Liabilities: Lines of credit $912,326 $699,468 Short-term borrowings (22) 47,676 -- Senior unsecured notes 1,962,316 1,776,789 Secured debt and assessment bonds 491,643 514,412 Construction costs payable 63,509 26,825 Interest payable 50,924 39,807 Accounts payable and accrued expenses 141,408 109,264 Other liabilities 196,240 104,192 Discontinued operations-assets held for sale (1)(14) 62,991 -- Total liabilities 3,929,033 3,270,757 Minority interest 66,273 37,777 Shareholders' equity: Series C Preferred Shares at stated liquidation preference of $50.00 per share 100,000 100,000 Series D Preferred Shares at stated liquidation preference of $25.00 per share (23) -- 125,000 Series F Preferred Shares at stated liquidation preference of $25.00 per share 125,000 125,000 Series G Preferred Shares at stated liquidation preference of $25.00 per share 125,000 125,000 Common Shares at $.01 par value per share 1,858 1,802 Additional paid-in capital 3,249,576 3,073,959 Accumulated other comprehensive income (24) 194,445 138,235 Distributions in excess of Net Earnings (693,386) (630,064) Total shareholders' equity 3,102,493 3,058,932 Total liabilities and shareholders' equity $7,097,799 $6,367,466 Footnotes follow ProLogis' Consolidated Balance Sheets. ProLogis Fourth Quarter 2004 Unaudited Financial Results Notes to Consolidated Financial Statements (1) ProLogis adopted Interpretation No. 46R, "Consolidation of Variable Interest Entities," in January 2004. This accounting pronouncement requires that variable interest entities in which ProLogis has a majority variable interest be presented on a consolidated basis rather than under the equity method as of January 1, 2004. Accordingly, ProLogis' investments in TCL Holding S.A. (formerly Frigoscandia S.A.) are presented on a consolidated basis as of January 1, 2004. This change in reporting method for 2004 does not result in a restatement of the financial information presented for previous periods. This accounting pronouncement does not change the presentation of any of ProLogis' other investments as these investees are not variable interest entities. (2) Certain 2003 amounts included in this Supplemental Information package have been reclassified to conform to the 2004 presentation. (3) Represents rental income earned and rental expenses incurred while ProLogis owns a property directly. Under the terms of their respective lease agreements, some or all of ProLogis' rental expenses are recovered from its customers. Amounts recovered are included as a component of rental income. Rental expense amounts also include ProLogis' direct expenses associated with its management of the ProLogis Property Funds' operations. For properties that have been contributed to a ProLogis Property Fund, ProLogis recognizes its share of the total operations of the Property Fund under the equity method and presents these amounts below Operating Income in its Consolidated Statements of Earnings, Funds From Operations and EBITDA. (4) Amounts include straight-lined rents of $2,080,000 and $1,965,000 for the three months ended December 31, 2004 and 2003, respectively, and $9,654,000 and $7,236,000 for the twelve months ended December 31, 2004 and 2003, respectively, and rental expense recoveries from customers of $23,963,000 and $23,285,000 for the three months ended December 31, 2004 and 2003, respectively, and $101,168,000 and $99,448,000 for the twelve months ended December 31, 2004 and 2003, respectively. (5) Properties disposed of to third parties are considered to be discontinued operations unless such properties were developed under a pre-sale agreement. Through December 31, 2004, ProLogis sold 20 such properties to third parties (ten of which were CDFS business assets). Accordingly, the operations of these properties during 2004 and the aggregate net gains or losses recognized upon their dispositions are presented as discontinued operations. Amounts attributable to the operations of these properties during 2003 have been reclassified and are presented as discontinued operations in ProLogis' Consolidated Statements of Earnings for that period. These amounts are not presented as discontinued operations in either of ProLogis' Consolidated Statements of Funds From Operations or EBITDA. The operating amounts that are presented as discontinued operations (other than the net gains or losses recognized upon disposition) are as follows (in thousands): Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Rental income $197 $901 $2,949 $3,224 Rental expenses (182) (246) (777) (1,061) Depreciation and amortization (16) (169) (516) (678) $(1) $486 $1,656 $1,485 (6) The corporate distribution facilities services business ("CDFS business") segment represents the development of distribution properties with the intent to either contribute the properties to a ProLogis Property Fund in which ProLogis has an ownership interest and acts as manager or sell the properties to a third party, and the acquisition and rehabilitation or acquisition and repositioning of distribution properties with the intent to contribute the properties to a ProLogis Property Fund. This segment's income also includes fees earned for development activities performed on behalf of customers or third parties and gains or losses from the dispositions of land parcels that no longer fit into ProLogis' development plans. ProLogis includes the income generated in the CDFS business segment in its computation of Funds From Operations and EBITDA. Further, ProLogis has ownership interests in various unconsolidated joint ventures that engage in CDFS activities in the United Kingdom, the United States and China. (7) Represents the costs incurred as of December 31, 2004 (including accrued employee-related costs) associated with ProLogis' plan to relocate its information technology and corporate accounting functions from El Paso, Texas to Denver, Colorado and its eventual move of all of its operations in Denver to new corporate headquarters. Such relocation is expected to occur and costs are expected to be incurred through the end of 2005. For the three and twelve months ended December 31, 2004, includes $1,154,000 and $2,594,000, respectively, of severance related employee costs, $1,877,000 and $2,354,000, respectively, of other costs and $918,000 and $1,846,000, respectively, of additional depreciation associated with non-real estate assets located in El Paso and Denver. (8) When ProLogis contributes properties to a ProLogis Property Fund in which it has an ownership interest, ProLogis does not recognize a portion of the proceeds in its computation of the gain resulting from the contribution. The amount of the proceeds that cannot be recognized is determined based on ProLogis' continuing ownership interest in the contributed property that arises due to ProLogis' ownership interest in the Property Fund acquiring the property. ProLogis defers this portion of the proceeds by recognizing a reduction to its investment in the applicable Property Fund. ProLogis adjusts its proportionate share of the earnings or losses that it recognizes under the equity method from the Property Fund in later periods to reflect the Property Fund's depreciation expense as if the depreciation expense was computed on ProLogis' lower basis in the contributed real estate assets rather than on the Property Fund's basis in the contributed real estate assets. If a loss is recognized when a property is contributed to a ProLogis Property Fund, the entire loss is recognized. See note 9 for the amount of cumulative gross proceeds that have not been recognized as of December 31, 2004. Gross proceeds deferred related to contributions during the three months ended December 31, 2004 and 2003 were $12,446,000 and $4,869,000, respectively, and for contributions during the twelve months ended December 31, 2004 and 2003 were $43,433,000 and $25,933,000, respectively. When a property that ProLogis originally contributed to a ProLogis Property Fund is disposed of to a third party, ProLogis recognizes the amount of the gain that it had previously deferred as a part of its CDFS income during the period that the disposition occurs. Further, during periods when ProLogis' ownership interest in a ProLogis Property Fund decreases, ProLogis will recognize gains to the extent that previously deferred proceeds are recognized to coincide with ProLogis' new ownership interest in the ProLogis Property Fund. ProLogis' ownership interests in certain of the ProLogis Property Funds decreased during 2004 and during both the three and twelve month periods in 2003. The amount of previously deferred proceeds that were recognized as a result of these ownership changes were $4.1 million for the twelve months ended December 31, 2004 and $25.9 million and $27.1 million for the three and twelve months ended December 31, 2003, respectively, resulting in the recognition of additional gains of these amounts during the applicable period. (9) As of December 31, 2004, the cumulative gross proceeds that have not been recognized in computing the gains from the contributions of properties by ProLogis to ProLogis Property Funds (before subsequent amortization) are presented below (in thousands). See note 8. Gross Proceeds Not Recognized CDFS Non-CDFS Transactions Transactions Totals ProLogis European Properties Fund $86,083 $9,344 $95,427 ProLogis California LLC 5,350 26,129 31,479 ProLogis North American Properties Fund I 8,283 868 9,151 ProLogis North American Properties Fund II 7,366 -- 7,366 ProLogis North American Properties Fund III 5,650 337 5,987 ProLogis North American Properties Fund IV 3,805 810 4,615 ProLogis North American Properties Fund V 17,659 871 18,530 ProLogis North American Properties Funds VI-X 2,759 -- 2,759 ProLogis Japan Properties Fund 17,223 -- 17,223 Totals $154,178 $38,359 $192,537 (10) Includes ProLogis' proportionate shares of the earnings or losses, Funds From Operations and EBITDA of unconsolidated investees recognized under the equity method as follows (in thousands): Three Months Twelve Months Ended Ended December 31, December 31, 2004 2003 2004 2003 Earnings (losses): TCL Holding S.A. (a) $332 $14,799 $1,188 $(13,013) ProLogis Logistics (b) (132) -- (1,703) -- CDFS Joint Ventures (c) 220 (172) 189 730 Other investees (217) -- (475) 52 $203 $14,627 $(801) $(12,231) ProLogis Defined Funds From Operations: TCL Holding S.A. (a) $439 $4,055 $1,489 $(17,689) ProLogis Logistics (b) (132) -- (335) -- CDFS Joint Ventures (c) 459 (172) 737 730 Other investees (217) -- (475) 52 $549 $3,883 $1,416 $(16,907) EBITDA: TCL Holding S.A. (a) $725 $5,710 $2,494 $24,579 ProLogis Logistics (b) (132) -- (335) -- CDFS Joint Ventures (c) 509 422 787 3,557 Other investees (217) -- (475) 52 $885 $6,132 $2,471 $28,188 (a) See notes 1, 14 and 19. For the twelve months ended December 31, 2003, included in the net loss recognized by ProLogis is a charge of $38.3 million representing ProLogis' proportionate share of an impairment charge recognized in the third quarter of 2003 associated with TCL Holding S.A.'s net assets in the United Kingdom that were held for sale at that time. The disposition of these assets was completed in December 2003 at which time ProLogis recognized a gain of $10.6 million (including a realized foreign currency gain of $6.8 million that resulted from the repatriation of net sales proceeds to the United States) representing its proportionate share of the net gain recognized at disposition by TCL Holding S.A. (b) Represents expenses of $132,000 for the three months ended December 31, 2004 and expenses of $335,000 and additional losses of $1,368,000 recognized for the twelve months ended December 31, 2004. The expenses represent adjustments in 2004 to the operating expenses accrued by ProLogis' United States temperature-controlled distribution company prior to its disposition in October 2002. The additional losses represent adjustments in 2004 to the net gain recognized by ProLogis upon the disposition of this company in October 2002. (c) See note 6. ProLogis has investments in four joint ventures that perform CDFS business activities in the United Kingdom. In November 2003, ProLogis discontinued its participation and significantly reduced its ownership interest in one joint venture that held interests in 11 operating properties. The remaining three joint ventures own no operating properties and engage primarily in development activities. In July 2004, ProLogis invested in a joint venture that performs CDFS business activities in China. In August 2004, as part of the Keystone Transaction (see note 20), ProLogis acquired an ownership interest in a CDFS joint venture operating in the United States. ProLogis has a 50% ownership interest in all of the CDFS joint ventures. (11) Includes amortization of deferred loan costs of $1,558,000 and $1,421,000 for the three months ended December 31, 2004 and 2003, respectively, and $5,741,000 and $5,891,000 for the years ended December 31, 2004 and 2003, respectively. Excludes interest that has been capitalized based on ProLogis' development activities of $10,717,000 and $7,604,000 for the three months ended December 31, 2004 and 2003, respectively, and $37,388,000 and $36,425,000 for the years ended December 31, 2004 and 2003, respectively. (12) In June 2004, ProLogis, as provided in certain formation agreements, exchanged a certain portion of its investment in ProLogis North American Properties Fund V into shares of Macquarie ProLogis Trust, the listed property trust in Australia that has an 85.8% ownership interest in ProLogis North American Properties Fund V. The shares were sold by ProLogis in the public market immediately upon receipt. Based on its book basis in the interest disposed of, ProLogis recognized a net gain of $3,328,000 on this disposition in its Consolidated Statement of Earnings and a net gain of $3,164,000 on this disposition in both its Consolidated Statements of Funds From Operations and EBITDA. In December 2003, ProLogis European Properties Fund disposed of 13 operating properties located in the United Kingdom that were originally contributed to ProLogis European Properties Fund by ProLogis. ProLogis European Properties Fund used the proceeds from this disposition to redeem certain of its outstanding equity units. ProLogis accepted the offer of redemption with respect to 37.16% of the units it held. Based on its book basis of the units redeemed, ProLogis recognized a net gain of $74.7 million on the partial redemption of its investment in its Consolidated Statement of Earnings and a net gain of $47.8 million on this same transaction in its Consolidated Statements of Funds from Operations and EBITDA. The gain recognized by ProLogis in Net Earnings, Funds from Operations and EBITDA includes a foreign currency exchange gain of $47.9 million that results from the repatriation of the cash proceeds from the redemption to the United States. (13) Foreign currency exchange gains and losses that are recognized as a component of Net Earnings computed under GAAP generally result from: (i) remeasurement and/or settlement of certain debt transactions between ProLogis and its foreign consolidated subsidiaries and foreign unconsolidated investees (depending on the type of loan, the currency in which the loan is denominated and the form of ProLogis' investment); (ii) remeasurement and/or settlement of certain third party debt of ProLogis' foreign consolidated subsidiaries (depending on the currency in which the loan is denominated); and (iii) mark-to-market adjustments related to derivative financial instruments utilized to manage foreign currency risks. ProLogis generally excludes these types of foreign currency exchange gains and losses from the ProLogis Defined Funds From Operations measure and also from its computation of EBITDA. Foreign currency exchange gains and losses that result from transactions (including certain intercompany debt and equity investments) that are settled in a currency other than the reporting company's functional currency and from the settlement of derivative financial instruments utilized to manage foreign currency risks are included in the ProLogis Defined Funds From Operations measure and in ProLogis' computation of EBITDA. (14) TCL Holding S.A. owns a temperature-controlled distribution operating network in Europe, primarily in France. ProLogis presented its investments in TCL Holding S.A. under the equity method in 2003. As a result of adopting Interpretation No. 46R, ProLogis began presenting its investments in TCL Holding S.A. on a consolidated basis in 2004 (see note 1). TCL Holding S.A.'s operations in France were classified as "held for sale" during portions of 2003. However, because ProLogis' investments were presented under the equity method, ProLogis was not required to reflect the portion of its investments in this unconsolidated investee related to the French operations separately as assets held for sale in 2003. Therefore, the French operations are shown as assets held for sale in ProLogis' Consolidated Financial Statements only in 2004. The losses generated in 2004 are the result of an impairment charge. (15) These charges have been recognized in accordance with FASB-EITF Topic D-42 and represent the excess of the redemption values over the carrying values of ProLogis' Series E Preferred Shares that were redeemed in July 2003 and ProLogis' remaining Series D Preferred Shares that were redeemed in January 2004. (16) For the fourth quarter of 2004, Net Earnings attributable to Common Shares was $0.3 million as compared to $133.6 million for the fourth quarter of 2003. This decrease is primarily attributable to 1) an impairment adjustment of $50.6 million recognized in 2004 associated with the temperature-controlled assets that are held for sale and 2) a gain of $74.7 million recognized in 2003 from the partial redemption of ProLogis' investment in ProLogis European Properties Fund. (17) ProLogis reports its investments in the ProLogis Property Funds and certain other investments under the equity method. Until January 1, 2004, ProLogis presented its investments in TCL Holding S.A. under the equity method (see note 1). For purposes of calculating Funds From Operations and EBITDA, the Net Earnings of each of its unconsolidated investees is adjusted to be consistent with the calculation of these measures by ProLogis. (18) Consists primarily of adjustments to the amounts that ProLogis recognizes under the equity method that are necessary to recognize the amount of the gains that were not recognized at the contribution date due to the deferral of certain proceeds based on ProLogis' ownership interest in the ProLogis Property Fund acquiring the property. See note 8. (19) In 2004, represents TCL Holding S.A.'s investment in a temperature-controlled distribution company operating in Austria. While ProLogis' investments in TCL Holding S.A. were presented under the equity method in 2003, this Austrian investment was not separately presented in ProLogis' balance sheet. See notes 1 and 14. (20) On May 3, 2004, ProLogis and affiliates of established investment funds managed by Eaton Vance Management agreed to acquire Keystone Property Trust, subject to an acquisition agreement that was approved by Keystone's shareholders at the July 30, 2004 shareholders' meeting. The transaction closed on August 4, 2004. Additionally, ProLogis acquired certain operating properties, properties under development and land parcels as part of its direct acquisitions in the Keystone Transaction. (21) Other investments include: (i) funds that are held in escrow pending the completion of tax-deferred exchange transactions; (ii) earnest money deposits associated with potential acquisitions; (iii) costs incurred during the pre-acquisition due diligence process; and (iv) costs incurred during the pre-construction phase related to future development projects. (22) In the fourth quarter of 2004, ProLogis repaid the $95.0 million of borrowings outstanding under a short-term credit agreement that expired on December 16, 2004. Borrowings outstanding at December 31, 2004 represent the currency equivalent of 57.8 million Canadian dollars that were borrowed under a credit agreement that expires in February 2005. Borrowings under this agreement were used to acquire a land parcel for future development in Toronto, Canada. (23) On December 11, 2003, ProLogis called for the redemption of all of the remaining 5,000,000 Series D Preferred Shares outstanding at a price of $25.00 per share, plus $0.066 in accrued and unpaid dividends. The redemption of these shares was completed on January 12, 2004 at a total redemption value of $125.3 million. ProLogis recognized a charge of $4.2 million associated with this redemption in January 2004. See note 15. (24) Accumulated other comprehensive income includes cumulative foreign currency translation adjustments and unrealized gains and losses associated with derivative financial instruments that receive hedge accounting treatment. ProLogis also recognizes its proportionate share of the accumulated other comprehensive income balances of its unconsolidated investees.