Prologis Inc (PLD) 2002 Q1 法說會逐字稿

Good day everyone. My name is Debbie Daniel and I will be your conference facilitator today. I would like to welcome everyone to the ProLogis first quarter 2002 financial results conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

At this time, I'd like to turn the conference over to Ms. Melissa Marsden, Vice President of Investor Relations with ProLogis. Please go ahead, Ms. Marsden.

Thank you, Debbie. Good morning everyone, welcome to our first quarter 2002 conference call. By now you all should have received a link to our release and supplementals, but if not, those documents are available from our Web site at prologis.com under Investor Relations.

This morning we are going to first hear from Dane Brooksher, Chairman and Chief Executive Officer, who will comment on overall market conditions and key accomplishments in the quarter, and then Walt Rakowich, Chief Financial Officer, will comment on development and investment activity, operating performance, and objectives for 2002.

But before we get underway, I would like to quickly state that this conference call will contain forward-looking statements under Federal Securities Laws. These statements are based on current expectations, estimates and projections about the market and the industry in which ProLogis operates, as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors. For a list of these factors, please refer to the forward-looking statement notice in our 10-K. And also, as we've done in the past, to allow a broader range of investors the opportunity to ask their questions, we would ask you to please limit your questions to one at a time.

Dane, would you please begin?

Thank you Melissa, and good morning everybody. As you note, Bud's not with us today; he's in Australia working on the plan IPO of the Macquarie ProLogis Trust, and Walt, in Bud's absence, will cover our investment activities and comment on key market results.

I'd like to begin with a brief discussion of our results and review a couple of key accomplishments for the quarter. But first, let me comment on what we're seeing in our North American markets.

Overall, U.S. markets remain soft. Companies are still not willing to commit capital for expansion, and while the level of inquiries in our markets is up, it has not yet resulted in significant signed new leases. And what we see is companies that had previously shelved their build-to-suit and network reconfiguration plans, are now taking those plans back off the shelf and starting to discuss expansion, readying themselves for a possible economic pickup. They're taking a close look at space availability so they're not caught short by not knowing what's out there when conditions do improve. But again, we continue to see reluctance to commit to move forward. And certainly, in my opinion, corporate America is not convinced that the recession is over.

And this market environment is reflected in our operating property performance, which has flattened out. Our year-to-date results are on track with our expectations, and fairly consistent with the fourth quarter. Same Store NOI growth of one percent was about in line with the fourth quarter. Rent growth of 4.4 percent also is consistent with the 5.7 percent growth last quarter. Occupancies in our North American markets are down slightly, but in line with expectations.

We are disappointed with the pace of leasing for new developments, but overall, ProLogis properties are performing better than the overall market by approximately 100-200 basis points, again results that do not reflect an upturn in economic activity. In Europe, the economy has slowed. However, our business continues to perform quite well, driven by network reconfigurations and growth in outsourcing to third-party Logistics' providers. On balance, Europe is performing as planned and we expect it to remain on track for the rest of the year. Turning briefly to Japan, we recently named Jeff Swartz [phonetic] as President and Chief Operating Officer for Asia, and Jeff and his team are actively working on several new development opportunities and finalizing the terms of a Japan Fund with a private capital source. And the DHL project is on schedule for completion this fall. Now turning back to our first quarter results, we are pleased that despite the weakened North American economy, we achieved 3.5 percent growth in FFO per share, and a 24-percent increase in net earnings per share. As I said, operating property performance was basically flat. Our Temperature-Controlled income was up, and CDF income was down from last year, but in line with our expectations. Growth in income was primarily due to an increase in management fee income of $3.4 million, a 115-percent increase over last year, representing annualized growth of over $13 million, or seven cents per share for the year.

We continue to execute our business strategy, which not only supports growth in a weak economy but will help accelerate growth when market conditions improve. Our strong customer relationships continue to drive our CDF business, which in turn fuels growth in our Property Fund, leading to growth in related fees.

In addition, gains from Property Fund contributions add to growth a net asset value. In the first quarter, our CDF contributions generated $44.7 million in NAV [phonetic] growth, or 24 cents per share. Our contributions also increased the assets we have under management in our funds, $3.2 billion today, up from $2.1 billion a year ago, creating growth in earnings from fund income and management fees. Including assets in our funds, ProLogis owned and manages $8.2 billion in total real estate assets, up from $7.9 billion at the end of 2001.

We also continue to execute our strategy of enhancing returns by expanding our Private Global Capital sources. In the first quarter, we formed a new North American Property Fund with Macquarie Bank, a leading developer and manager of sector-specific property funds in Australia. With this new Fund, we are moving closer to our goal of securing long-term funding for our CDF business in North America, much as we did in Europe.

We contributed an initial $177 million of CDF properties to the Fund, and have targeted additional properties to contribute throughout the remainder of 2002. Together with Macquarie, we plan to list this fund on the Australia Stock Exchange in June. This public company structure offers several key advantages. It provides a continuing source of capital with an infinite life and an attractive incentive fee structure, and we'll have more details on this Fund when the Prospectus becomes available in June.

Another key objective for 2002 is to recycle $900 million to $1 billion in CDF dispositions. We're right on track with that goal, and Walt will have more to say about it in a minute.

We also have an objective to significantly reduce our investment in the Temperature-Control business and to exit that business over time. In the first quarter, we closed on just over $100 million in two separate sales, out of a total of $400 million we identified in January. While there are no guarantees on closing the remaining $300 million, there are buyers in various stages of due diligence and we continue to make progress on those sales.

To conclude, first quarter results were generally in line with expectations and reflects the overall softness in the economy. We believe we are well positioned to outperform as markets improve. We have the only global platform in the business, an exceptional customer base, dedicated, focused employees, and a business plan that will enable us to achieve our objectives in 2002 and beyond. We are focused on our mission to increase shareholder value by continuing to manage our business to generate a solid growth in earnings, return on capital, and net asset value per share, which we estimate today is in excess of $26 per share.

And before I turn it over to Walt, I want to mention the GE Capital/Security Capital transaction. As you know, on Monday, Security Capital announced that GE Capital intended to distribute 39.1 million shares of ProLogis, and to retain a 9.8 percent interest in ProLogis after the merger closes. And we can't really add any color beyond what was reported in the 13-D, and GE Capital has until May 4th to revoke their decision, and they will make an announcement at that time.

And now, I'll turn it over to Walt.

Thanks Dane, and good morning.

First, I'm going to cover how we're doing relative to our investment and operating objectives for 2002, then comment on some of our key markets, and finally comment on our financial results.

You will recall that our objective for 2002 investment activity calls for development starts of $700-$800 million. In the first quarter, we began $136 million of new development, and it is typical for starts to be slightly under-weighted in the first quarter due to seasonality, and we are still comfortable with our first - our full-year assumptions and the expected mix of 70-75 percent in Europe, 15-20 percent in North America, and 10 percent in Japan.

During the first quarter, we had total dispositions of $253 million and remain comfortable with our target of $900 million to $1 billion this year. We continued to fund our investment activity by recycling capital from contributions to our Property Funds. Of our total dispositions in the first quarter, over 98 percent were contributed to our Funds, which will add to our management fee income and in turn, add to our net asset value. With the addition of our new fund with Macquarie Bank, we now have over $3.2 billion in gross asset value in our Funds, with approximately $1.5 billion of that amount in Europe and $1.7 billion of that amount in North America, bringing the combined asset value of our Funds to more than 40 percent of our total operating platform.

Our assumptions for 2002 also included acquisitions of $150-$250 million. We completed a total of $61 million in acquisitions in the first quarter, and these acquisitions, which primarily add to our critical mass in the Great Southwest sub-market in Dallas, are over 91-percent leased with a first-year yield of nine percent, and with a very strong rental upside. We are comfortable with our acquisition targets for the year, though the environment for portfolio acquisitions has become more competitive as Cap rates have strengthened for functional industrial products throughout our markets. Unfortunately, we continue to be disappointed by the slow pace of leasing in our new developments in North America. Of the 6.6 million square feet that we completed in North America over the last 12 months, we are 51-percent leased, down from 60-percent leased of our prior 12-month completions one year ago. However, we are not alone. In the top-ten markets in the U.S., 47 million square feet of inventory development was completed in 2001, of which only 41 percent was leased at yearend. As Dane mentioned, we are beginning to see more activity in terms of user interest, but that pickup in interest has not yet materialized into a pickup in signed transactions. In Europe, we continue to see good activity in our development leasing. Of the 7.7 million square feet of facilities completed in Europe in the last 12 months, we were 69-percent leased as of March 31st, with leases or Letters of Intent out to bring that total to 85 percent. The results underscore our rationale for shifting our development focus outside of the U.S.

Looking at a few key U.S. markets, we continue to see softness with increasing vacancies and declines in market rents, although we see signs that our markets may be stabilizing. And as we've noted for the last several quarters, new speculative development activity has fallen off dramatically.

The San Francisco Bay area markets are among the hardest recently hit with vacancies now at nine percent and declines in market rental rates of about five to eight percent. In the South Bay and East Bay, negative absorption appears to be leveling off, while in the Central Valley sub-market there is some inventory development yet to be delivered. Important to note however, is that only 250,000 square feet of bulk industrial space is under construction today in the entire Bay area.

The outlook in Los Angeles is a bit better. Vacancies range from five to 10 percent in most sub-markets and there is minimal new construction. Market rents have softened a bit, but we are still seeing new leasing requirements in the South Bay and Inland Empire.

In Dallas, development has come to a halt, with only one speculative industrial building under construction. Rental rates have stabilized, although down about 10 percent from a year ago, with overall market vacancy of about 11 percent. Chicago occupancies dropped to 90.4 percent from 91 percent at yearend, with market rental rates down five to 15 percent, depending on the sub-market and product type. Supply has remained in check with no new speculative starts in any of our four sub-markets. The pace of leasing in the O'Hara sub-market is slow but steady. In the I-55 corridor, leasing activity has picked up and much of the new supply has been absorbed. However, demand continues to be slow in North Dupage [phonetic] and South Cooke. Overall, northern New Jersey occupancy remains at 93 percent, with rents down 10 to 12 percent over a year ago. Supply and demand remained in balance throughout the region except for Exit 8A, which is over-supplied with very little new activity.

And in Atlanta, activity has increased a bit, especially among users of larger space. There are only two speculative buildings under development, and rental rates are down about five to eight percent. Overall market occupancy stands at about 86 percent. In terms of ProLogis' other North American markets, Memphis, Indianapolis, and Seattle are on our Watch List with the likelihood of experiencing further weakness, generally due to supply, demand, and balances. On the other hand, Northern Virginia, Denver, Houston, San Antonio, and our markets in Mexico are in good shape with above-average occupancies and continued stable rental rates. In Europe, the picture is brighter. While decision-making has slowed somewhat, companies are committing capital to expansion and buildings continue to lease. In the UK, we've seen strong demand driven by the retail sector. In addition to our recent leasing to retailers Argos and Sainsbury's, we leased 160,000 square feet to Dansk & Netto, a major European food retailer at our park in Daventry. This demand, coupled with restricted land supply, have led to an average market rental rate increase of about three percent, with certain sub-markets, such as Southeast London, expected to have somewhat higher growth. In Northern Europe, rents have increased in Rotterdam, where significant land restrictions exist. Likewise, activity in German markets is increasing due to the lack of suitable sites for Logistics developments. The French markets of Leone [phonetic], Lihaus, [phonetic] and Marseilles remain strong due to limited supply and sustained demand, and the Paris market is a bit more static, but due to indexation, rents continue to increase by about 2.5 to four percent. And Spain and Italy remain strong due to acceleration in requirements from modern distribution space in these previously under-served markets. Overall, Europe generally remains positive with companies reconfiguring their distribution networks in light of the restructuring brought about by the EU. Now, turning to our financial results, performance in the first quarter met our expectations with FFO at 59 cents per share, up 3.5 percent, and EPS at 31 cents, up 24 percent from the first quarter of last year. In addition, we paid a quarterly dividend of 35.5 cents per share, a 2.9-percent increase over last year. As for our operating businesses, our operating property results were within our previous guidance with cash same-store NOI growth of one percent, and rental rate growth of 4.4 percent. As expected, stabilized occupancy slipped to 91.9 percent at March 31st, from 93.1 percent at December 31st, driven by softer market conditions and under-leased new developments recently added to the pool of properties. It is important to note that at March 31st, vacancies in our new developments added approximately 100 basis points to our overall vacancy rate.

Our CDFS business produced profits of $37 million for the quarter, down about 15 percent from last year, but slightly ahead of our expectations for this year. Our profit margin on dispositions for the quarter was 14.9 percent pre-deferral, 11.5 percent post-deferral, consistent with our previous guidance. We continue to see a strong institutional appetite for new industrial product, with Cap rates strengthening throughout our markets by 15-25 basis points over the last three to six months. And for the quarter, our Property Fund business continued to grow, with property income of $12.5 million, up 28 percent from the first quarter of 2001, and fees of $6.3 million, up 115 percent from the same period last year.

As we've mentioned in prior calls, we are very excited about this business, because it allows us to grow in a less capital-intensive manner and generate superior returns on invested capital. Finally, our Refrigeration business had a good quarter in both Europe and the U.S. Overall, results were driven by: better operating margins, reduced overhead, and lower interest expense. Note also that GAAP accounting requires that all depreciation, including non-real estate depreciation, cease for assets held for sale, which added about a penny per share to our Funds from operations. And we continue to make progress in our disposition efforts, selling our operations in Sweden, Norway, Denmark, and Finland during the quarter, generating about $102 million in net proceeds. We used those proceeds to pay off substantially all of the remaining third-party debt in our European operation. And as Dane mentioned, we continue to work on additional rationalization of the business and will keep you apprised of our progress. As for the remainder of the year, our previous full-year guidance and the underlying assumptions remaining - excuse me - remain unchanged, with expected Funds From Operations (FFO) per share of $2.40-$2.48. Although we're seeing some positive signs in the markets, we remain cautious and continue to run the business this year assuming no pickup at all. In the meantime, we continue to see tremendous opportunity for long-term growth in earnings and net asset value per share. We have an ever-expanding geographical platform, a very strong balance sheet, tremendous market position, and great people, and we will continue to leverage off of those strengths to build a global franchise that accesses capital and serves customers around the world.

Now, let me turn it back over to Dane.

Thanks Walt, and we'll now open it up for questions.

We'll go first to Greg Whyte at Morgan Stanley.

Good morning guys. Can you just sort of reconcile a couple of comments you made on the call with regards to the sort of slightly slower-than-expected lease-up of new developments, that a sort of confirmation that you would expect to still hit the sort of initial development starts for this year?

Greg, the slower leasing in developments clearly, in North - relate to North America. And if you really think about our development starts in North America, they are substantially reduced from where they were two years ago. And if you look back probably two years ago, we were doing $400 billion in development starts, or so, in North America, $350-$400, that is going to likely be, at the most, in the low $100s this year. So basically, development starts are down in North America, probably by as much as, you know, 60-70 percent from levels two or three years ago. And the lion's share of that business, we believe, is just simply incremental build-to-suit type growth that you'll see in the markets, people reconfiguring, but certainly, a lot slower level than what we saw many years ago. The flipside of that is that, in Europe two or three years ago, we were doing $300 million, $250-$300 million in development, and it wouldn't surprise us to see numbers in the $550-$650 level this year, really completely picking up the loss in the U.S. development markets. And of course, some of that is expansion into additional markets in Europe. Some of that is penetration of our existing markets in our existing customers there. And then finally, of course, we had Japan where we had a start last year of $52 million. And again, we feel very, very good about that market, and hopefully you'll see some more of that this year.

So, overall, basically, we've shifted towards international markets where we feel very comfortable of our leasing, and I think that, you know, we feel good about keeping our development starts in that $700-$800 million range as a result of the diversity in moving into the international markets.

And we'll go next to Kelly Hamhaw [phonetic] at [indiscernible] Capital.

Hi. Walter, you were quoted in the Wall Street Journal yesterday in an article that was documenting the deterioration in the duration of warehouse leases. How severely is this impacting ProLogis?

Well, when you say how severely is this affecting ProLogis, really the article was related to the actual lease terms becoming shorter. And, you know, Kelly, I think that as the markets do weaken, it shouldn't surprise anybody that customers are less reluctant to sign up on a longer-term basis. We have not seen an appreciable change in that number quite frankly, but we're going to do what our customers want us to do. I mean, we've got to, you know, we've got to conform ultimately to customer demand. And again, we haven't seen a tremendous difference, one year versus the next, in terms of our leasing, in terms of the lease term. And I will also underscore that by saying that as our European operation grows, in fact, our total lease terms are actually lengthening because the average lease term in the U.S. tends to be 4.5-5 years; the average lease term in Europe tends to be in the eight-year type level. So again, as our income shifts more internationally, you'll see the average lease term for ProLogis basically going up over time, just simply because of the shift.

And we'll go next to David Fick at Legg-Mason.

Good morning. A question on your Australian Capital Venture, can you talk a little bit in further detail about how you expect that structure to work, and what's different about it than your other - your other North American Funds, as well as what you anticipate the cost of capital will be in that Fund?

David, yes, the Fund in substance is not any different than our other North American Funds. We will continue to manage all those properties, receive property management fees, and we will retain an ownership in the Fund of some 15-16 percent. The source of the continuing capital will be the Australian Retail Shareholder Market, and that's a very, very strong market in Australia.

So that we look at this now as an opportunity for us to access lower-cost of capital and for us to access capital on a long-term basis at very attractive rates.

Walt, you may want to comment further with respect to some of the terms.

Sure. Dave, as Dane mentioned, there really are some key advantages to us, and I'm not sure we're going to be able to address the cost of capital with you because that will be debatable one way or the other, but I think it's certainly - we've taken a look at this versus some other sources in the market and, believe me, we looked at it long and hard, and ultimately we determined that this was the most attractive source. It's not only attractive from a cost perspective, but it's also an infinite life, as Dane mentioned, and it can be expanded as well. So, we like those aspects of it. The interesting thing to us is that in Australia the growth in the market is very much driven by something called "Superannuation Funds," which is tantamount to our 401K funds. You know the net capital flows into the public real estate markets are increasing by about 15 percent per year. And, you know, the listed property trusts there own roughly over 30 percent of the institutional quality real estate in Australia, and want to diversify their risks out of Australia and into other continents.

So, we think this is a terrific opportunity for us to access a growing capital source with an infinite life that can be expanded and meet all of our requirements that we see. As Dane said, we're going to continue to own an interest; we will manage the Fund, much like our other Funds. So we don't see it as a different source of capital in that regard.

So, anyway, hopefully that answers your question.

And we'll go next to David Kopp [phonetic] of Robertson Stephens.

Hey, guys. I'm here with Jay Loop [phonetic] as well. This is a follow-up on the Australian Fund. Where do you anticipate the capitalization of that Fund being upon IPO? You know, i.e., what should we be looking for there, in terms of additional asset contributions in the next month or so?

Dave, the Fund itself will be in the neighborhood of $400-$500 million, U.S. dollars, that is. And that's both equity and debt. It should be roughly 50-percent leveraged, in that neighborhood. And as Dane said, we'll own in the neighborhood of 16 percent of the Fund. And the Fund will be set up to not just buy our development properties, but also co-invest with us to acquire U.S. real estate assets.

And we'll go next to Lee Schalop at Banc of America Securities.

Hi guys. On the CDFS business, your previous guidance was $125-$135 for the year. You're running a little ahead of that at the first-quarter pace. Should we anticipate you're going to get to that higher level, or will it move down over the course of the year?

Lee, I wouldn't - I wouldn't look at the quarterly aberration as being something that you could put on a run-rate basis. The CDFS income might be up slightly, but that, you know, I wouldn't take that and, you know, add another $15 or $20 million to it. The one thing that I should mention that creates a little bit of the aberration, and also creates the aberration frankly in interest expense as well as G&A, is that the net effect of interest expense and capitalized interest as it relates to our European development subsidiary, Kingspart, are taken out of interest - the interest expense line item and lumped into the CDFS income line item where all of Kingspart's net income is reported. And the same holds true for Kingspart's G&A.

So, the bottom line effect is zero. This is a change that was made as a result of us deconsolidating Kingspart. And therefore, I would say that you should expect CDFS income for the year to be up, perhaps as much as $7 million, and then the corresponding offset to that would be that ProLogis' interest expense would be up roughly $10 million for the year, and G&A would be down roughly $3 million for the year. So, the net effect would be zero, and all it really is, is the consolidation of Kingspart into one line item, and then putting that into the CDFS income line item. So, that's causing some of the aberration.

And we'll go next to Rahul Bhattachariee at Merrill Lynch.

Hey Walt. Do you have a specific occupancy statistic in mind with regard to your guidance for this year?

You know, Rahul, we had mentioned that we believed that occupancies would be down about 100-200 basis points from the average occupancy levels of last year, and we still continue to believe that that will be the case.

We'll go next to Don Fandetti at Wachovia Securities.

Dane, one quick question. Can you give us an update on your network rollouts, for example, the number of reconfigurations and square feet that you're working on?

Yes, I can. We're working on several at this particular point in time in various stages. The one that's being implemented today is around $250 million worth of facilities in five to seven markets. We're about halfway through that one. So that will continue throughout the year.

The others are, at this particular point in time, still in the planning stages, but hopefully, the companies will, as I said before, pull the trigger and commit to move forward here shortly.

We'll go next to Drew Figdore [phonetic] at John McStay Investments.

Yes, actually, do you know if the security capital shareholders will be getting the dividend coming up?

No, I don't know. No, I don't.

We'll go next to Lou Taylor, Deutsche Bank Securities.

Hi, thanks. Walt, can you talk a little bit about the Refrigeration piece? And what I'm trying to reconcile is the huge drop in interest expense there over the last couple of quarters. It seemed to have come down a lot faster than the debt, or at least the third-party debt, there. Was there any intercompany debt that came into play? What was causing that?

No, I absolutely can address that for you Lou. You know I think there are a couple of things going on in Refrigeration. No.1, quite frankly, they're performing better than they were a year ago, and much better than they were two years ago on a combined basis. And I should also mention that you would probably note the reductions in overhead that we had taken on a year-over-year basis, which now are beginning to kick in. But as you said, one of the big swing items is the lower interest expense. If you look at Frigoscandia in the first quarter of 2001 versus now, you'll see that we actually paid down debt from $185 million to $97 million, and of course, now, moving into the second quarter, it'll be zero. But we did pay down almost $100 million in debt there, but we also paid down CSI's debt from $216 million to $92 million.

So No. 1, you've got substantial, over $200 million in debt pay-down over the last year, not withstanding the pay-down that will occur moving into the second quarter. And second, much of this debt is short-term, so we've been somewhat the recipient of the interest rate movement down, which, as you know, is down by over 400 basis points year over year. And so that - when you take the combined over $200 million of pay-down plus interest rates down 400 basis points, you'll come very, very close to what the delta is.

And we'll go next to Jon Litt at Salomon Smith Barney.

A question on the Australian Property Fund, is that an exclusive arrangement, or if the Australian markets get tapped out, could you expand it elsewhere? And also, are you planning on doing any sort of a road show to support the overhang of security capital this year as being distributed?

Answering your last question first, yes, we will be, after the transaction is complete, on the road talking to shareholders, Jon. And obviously, we do have flexibility with respect to alternatives, other capital alternatives to the Australian funded things that don't work out like we'd planned. But we fully expect, frankly, that, based on the early indications, the Australian Fund is going to be very successful.

Yes, Jon, just a point on the Australian Fund. The goal really is to raise a fund that would be large enough in committed capital to take down our properties through the end of this year and into 2003. Now after that - and of course, that Fund would be - that would be raised, the equity would basically be raised and committed to. After that, are we committed to that? No, we're not committed to that, assuming that we couldn't raise more money on the Australian market.

And we'll go next to Greg Whyte at Morgan Stanley.

Just a quick follow-up question, guys, can you just update us on where you stand with the buyback program, how much is authorized and how much has been used?

Yes, Greg, No. 1, we had to get out of the market due to the GE Security Capital transaction, and we can't really go back in until after it closes. And we have $85 million left on our $100-million authorization for use in stock buybacks after that.

OK, thanks.

And we'll go next to Lou Taylor at Deutsche Banc Securities.

Yes, just to finish up on this Refrigerator, in terms of the debt pay-down, where did the debt come from? Was it just debt from ProLogis that did it?

Do you mean the capital - where did the capital come from?

Where did the capital come from?

Yes, good question. Actually it did, Lou, some of it. Let me back up. Keep in mind, remember we sold last year the German operation, which generated in the neighborhood of $42 million or so of proceeds. We sold the Czechoslovakian operation, which generated, I don't know, $5 or $6 million of proceeds. So half of the pay-down in Frigoscandia was simply the sale of assets last year throughout the year. And then, some of that was to pay, you know, ProLogis, you know, generating excess capital through our recycling program last year, knowing that we were in a disposition mode, if you will, of the business and eager to begin to pay down some of the debt associated with the businesses. Clearly, all of CSI was in that mode - we were in that mode with ProLogis paying the debt down with our capital last year.

And we'll go next to Jim Sullivan at Green Street Advisors.

Hey guys. Walt, can you provide some breakdown for the CDFS revenue, how much was from gains on building sales; how much was from land sales; and finally, how much was other income?

Yes, I sure can. If you would just give me one quick second, I will - I will answer that question. Building sales, Jim, were about $24 million, $24.2 million; land sales, $1 million; and basically fees - basically fees were about $11.7 million, fees and other income.

And we'll go again to Lou Taylor at Deutsche Banc.

With regards to Kingspart, how much of the first quarter results were due to the consolidation of Kingspart in to the CDF business?

None of the - well, keep in mind that the net effect in the first quarter results is zero. And just so - just to, you know, talk a little bit more about this, just so you know, remember we - in conjunction with the review of the Security Capital Group GE merger, our 2000 and 2001 10-Ks were reviewed by the SEC. We own in excess of 99 percent of the economics of Kingspark, and believe that we substantially control the activities. But the SEC took the position that since we did not own the common stock that it should not be consolidated but should be shown on the equity method, absolutely no effect on our earnings, our equity, or our NAV per share, but just simply a movement around in line items, if you will. So it had no effect whatsoever on our first quarter results. It just simply pushes some line items up and some line items down because now you have to consolidate all of Kingspark into one line item and put it on the equity method.

Long term, we would like to ultimately consolidate Kingspark, and quite frankly we will be working towards that goal.

And we'll take a follow-up from Don Fandetti at Wachovia Securities.

Walt, one last clarification, how much of your sequential occupancy change do you think was due to newly stabilized developments?

Right. Good question. About 40 percent of the sequential movement down in occupancy this quarter, just this quarter, Don, from 1231 to 331, was due to developments entering into the pool that were -they were not previously leased.

And we'll take a question from Jim Barr [phonetic] at Loomis Sales.

Could you elaborate a little bit on your intentions for share repurchases this year?

Well, as I said, we have $85 million left on our $100 million authorization, which we have available to repurchase shares in the market after the GE Security Capital transaction closes, and we will be evaluating the repurchase of shares as we move past that merger time and evaluating all the factors necessary to make the decision whether or not to buy shares.

That is all the questions we have at this time. I'll turn it back to our speakers for additional or closing remarks.

Well, thank you, thanks everybody for being with us, and thanks for your continuing interest in ProLogis. We look forward to talking to you again after the second quarter.

Thank you for participating in today's ProLogis first quarter 2002 financial results conference call. This conference call will be available for replay beginning today, May 2nd, at 2:00 p.m. Eastern time, running through 11:59 Eastern time on May 16th, 2002. To access the replay, you may dial 800-203-1112, or 719-457-0820. Again, that toll-free number for the Continental United States is 800-203-1112. The replay passcode is 755625.

Thank you, you may disconnect at this time.