Incorporated: 1991 as Security Capital Industrial Trust
Sales: $679.6 million (2002)
Stock Exchanges: New York
Ticker Symbol: PLD
NAIC: 525930 Real Estate Investment Trusts
ProLogis is the world leader in leasing and managing distribution centers. It owns more industrial warehouses, and refrigerated warehouses, than anyone else. The company has kept a rather low profile, considering its rapid expansion and international reach. ProLogis (formerly ProLogis Trust) owned or managed assets worth more than $10 billion in 2002—more than 1,700 properties in North America, Europe, and Asia. Most of its U.S. facilities are concentrated in the six hubs of Atlanta, Dallas, southern California, San Francisco, Chicago, and New Jersey. ProLogis takes a customer service-driven approach, and provides management services in addition to simply building and leasing industrial and refrigerated warehouse space.
William Sanders believed in the power of leverage through size: i.e., larger companies could achieve better terms in borrowing money and charging rent. Through his Santa Fe-based Security Capital Group Inc., Sanders formed Security Capital Industrial Trust (SCI) in 1991. SCI began buying property in 1993, becoming one of the first to enter the Denver market after the real estate crash of the late 1980s.
Security Capital Industrial Trust (SCI) was a REIT—a real estate investment trust. This type of structure had been set up by Congress in 1960 to allow shareholders to invest in a range of different real estate properties at once, much like a mutual fund. What made REITs a hot prospect among investors was the fact that they were not required to pay corporate taxes as long as they disbursed 95 percent of net income to shareholders.
Security Capital Industrial Trust (SCI) began operations in 1991. According to the Journal of Commerce, SCFs target market was the thousand top companies with global distribution. By the end of the decade, it would have contracts with 400 of them. Leasing warehouses was attractive to these corporations because it did not tie up as much capital as owning them. Having SCI manage them allowed them to concentrate more on their core businesses.
Security Capital Industrial Trust had a successful initial public offering (IPO) in April 1994. SCI owned 16.1 million square feet of industrial property in 16 cities by the time of its IPO. It was preparing to break ground on Denver’s first “spec” warehouse in ten years. Although no tenants were lined up in advance, SCI was reserving 20,000 square feet of the space for its own headquarters, where it would employ 70 people. This left 61,000 square feet of space to lease.
Cool Business, New Territory in 1997
SCI bought Christian Salvesen’s U.S. refrigerated warehouse business in April 1997, paying $122.3 million (£75.2 million) for 17 warehouses. It made another cool purchase in December 1997, buying Continental Freezers of Illinois. This brought SCI up to 20 refrigerated warehouses and distribution centers, with a total of 78 million cubic feet. It was the largest U.S.-based publicly traded owner of warehouses and distribution centers. The June 1998 purchase of Hatfield, Pennsylvania-based Rosenberger Cold Storage Cos. increased SCFs cold holdings by 27 percent, reported the Denver Post.
SCI started its European operations with a three-person office near Amsterdam Schiphol Airport in July 1997. Within two years, it would be the market leader. A large buy in Europe in December 1997 made SCI a major player in the continent’s refrigerated distribution services market. Sweden’s Frigo-scandia AB was acquired for $395 million from ASG, a transportation and logistics company. Frigoscandia had 90 refrigerated warehouses in eight countries; it led Europe with a 15 percent market share (SCI had a 5 percent market share in the United States). The buy tripled SCI’s refrigerated distribution space, to 263 million cubic feet in the United States and Europe. It helped SCI edge out its nearest rival, Americold Corp. of Portland, Oregon, for leadership of the category, reported the Denver Post.
Since SCI viewed industrial property as a service business, reported the Financial Times, this global reach enhanced its value to such multinational clients as Nestlé, Unilever, Campbell Soup, and Pepsico. The emergence of the European Union, and the simplification of shipping between member states, was prompting many of these to consolidate their distribution operations in Europe.
New Name in 1998
Security Capital Industrial Trust got a new name in March 1998: ProLogis Trust. (The ticker symbol changed from SCN to PLD.) In March 2003, the company dropped the “Trust” from the name on its charter, becoming simply “ProLogis.” The name, an abbreviation of “professional logistics,” reflected the firm’s dominance in logistics services around the world, and the importance of this business in light of the increasing trend toward globalization. ProLogis then owned more than 1,100 facilities in a dozen countries. It had about 4,000 employees around the world and 100 at its Aurora, Colorado headquarters.
ProLogis entered the U.K. market in August 1998 with the purchase of Kingspark Holding S.A. for $157 million (£95 million). According to the Financial Times, ProLogis planned to offer shorter-term leases (five to ten years) than were standard in the United Kingdom (15 to 25 years), aimed at thirdparty logistics providers such as NFC, which controlled a third of the United Kingdom’s distribution market. (It also operated in the United States as Excel.) ProLogis’s policy of building facilities “on spec,” before clients were lined up, made it attractive to growing international companies under pressure to find scarce space. Another factor working in the company’s favor there, as one official told the Journal of Commerce, was the increased outsourcing of distribution in Europe compared with the United States.
Just three months later, in November 1998, ProLogis announced a massive deal that would grow its holdings by 30 percent. In a wave of mergers among REITs, the company agreed to buy Meridian Industrial Trust Inc. in a deal worth $1.47 billion in stock ($862.5 million) and assumed debt. Meridian boasted 36 million square feet of distribution space centered in Chicago, Dallas, and Los Angeles; nearly all of its assets were in core markets of ProLogis. Meridian had been created in 1996 from the merger of four smaller companies, which had combined assets of $250 million at the time. It had grown quickly in a short time, but unlike ProLogis, had not managed its own properties. Lower stock prices and tighter credit had produced consolidation in the REIT business, reported Canada’s National Post.
Global Expansion in the Late 1990s
Expansion continued in Europe. In December 1998, Pro-Logis agreed to pay $317 million for Garonor S.A., which owned five million square feet of warehouse space in France. Its holdings in Paris and Marseille would be the basis for ProLogis’s presence in central Europe. Garonor’s client list included Hoescht Marion Roussell Ltd. and Siemens AG.
Rapid growth in Europe was attained organically as well as by acquisition. ProLogis had built more than 600,000 square feet of warehouse space in The Netherlands, making it the country’s largest developer. To fund continued development in Europe amid rising property prices, ProLogis established a $1 billion European Property Fund in September 1999. In July of the next year, it launched a much smaller North American Properties Fund to bankroll expansion on its home continent.
Continuing Expansion Beyond 2000
ProLogis survived the consolidation of William Sanders’s 16 companies to five in early 2000. Sanders also controlled giant apartment developer Archstone Communities.
ProLogis debuted a new line of business in the spring of 2000, Equipment Services. This unit financed distribution equipment such as conveyor belts and storage racks. Later in the year, ProLogis acquired a 30 percent holding in GOwarehouse, a developer of supply-chain management software.
E-commerce was another important area of expansion. Pro-Logis developed a 750,000-square-foot warehouse in the United Kingdom for amazon.com, and developed for Barnesandnoble.com a 600,000-square-foot building near Reno, Nevada. ProLogis had a hundred e-commerce firms and related businesses on its target list.
ProLogis partnered with foreign banks and governments to fund its business at home and abroad. A June 2002 public offering with Macquarie Bank of Australia raised A$400 million to fund 55 distribution centers in the United States and Mexico (a market ProLogis had entered in 1997). Six other funds held $2.9 billion worth of property managed by ProLogis. At the same time, ProLogis was starting a $1 billion fund with the government of Singapore to develop industrial properties in Japan. Japan and Europe both had unfilled demand for industrial warehouses, a ProLogis official stated in Britain’s Financial Times. Opportunities there helped offset a weakness in the U.S. market.
Mission: To be the leading global provider of distribution facilities and innovative service solutions to the world’s largest users of distribution space, thereby creating value for our customers and shareholders.
An important trend was that of consolidating warehouses. In mid-2002 ProLogis announced that it was helping Unilever PLC trim its 15 U.S. distribution centers to a $200 million network of five warehouses totaling nearly five million square feet. The deal was expected to save Unilever $20 million a year. The contract only included Unilever’s household and personal products, not food products.
Annual revenues rose 15 percent from $523 million to $679 million in 2002. Net earnings more than doubled, from $91 million to $216 million. ProLogis Trust owned or managed assets worth more than $10 billion, a figure up 21 percent from the previous year.
PLD International Incorporated; ProLogis BV (Luxembourg); ProLogis Developments Holdings Sari (Luxembourg); Pro-Logis-France Developments Incorporated; ProLogis Japan Incorporated; ProLogis UK Holdings S.A. (Luxembourg).
Principal Operating Units
Global Development Group; Global Services Group; Market Services Group; ProLogis Solutions Group.
AMB Property Corporation; First Industrial Realty Trust.
- Security Capital Industrial Trust (SCI) begins operations.
- Security Capital goes public on the New York Stock Exchange.
- Acquisitions build refrigerated warehouse business in the United States and Europe.
- SCI is renamed ProLogis; the United Kingdom’s Kingspark Group is acquired.
- ProLogis acquires Meridian Industrial Trust in a $1.5 billion deal.
- ProLogis enters the Japanese market.
Barnard, Bruce, “ProLogis Takes the Continent by Surprise,” Journal of Commerce, July 16, 1999, p. 5.
Beard, Alison, “Real Estate Trusts Are Looking Abroad to Offset Woes at Home,” Financial Times (London), November 5, 2002, p. 29.
Berke, Jonathan, “Prologis Closes North America Fund,” Daily Deal, July 25, 2000.
Cohen, Norma, “ProLogis Buys UK Warehouse Chain,” Financial Times (London), August 20, 1998, p. 21.
Couch, Mark P., “ProLogis Gets Huge Account with Unilever; Aurora Company to Provide Warehouse Network, Services,” Denver Post, July 18, 2002, p. C1.
_____, “ProLogis to Build a Third Warehouse for Coors Brewing; Distribution Facility in Golden to Be Completed by September,” Denver Post, January 16, 2002, p. C10.
_____, “Warehouse Builder Sees Growth at Home, Abroad,” Denver Post, December 15, 2002, p. K5.
“Denver’s ProLogis to Buy French Developer; Purchase Part of REIT’s Global Expansion Plan,” Rocky Mountain News, December 12, 1998, p. 1B.
Gose, Joe, “The Ground Floor: Thanks to E-Commerce, Warehouses Aren’t Just for Storage Anymore,” Barron’s, March 13, 2000, p. 58.
Graham, Sandy, “ProLogis Is Quietly Successful,” Denver Rocky Mountain News, August 27, 2000, p. 3G.
Gresser, Charis, “Christian Salvesen Makes £75m US Disposal,” Financial Times (London), April 26, 1997, p. 19.
Harley, Robert, “Macquarie ProLogis Delivers on Acquisition Promise,” Australian Financial Review, February 13, 2003, p. 44.
_____, “Macquarie to Seek $400m for Trust,” Australian Financial Review, May 3, 2002, p. 75.
Hijino, Ken, “Singapore Link on Japan Estates,” Financial Times (London), June 21, 2002, p. 29.
House, Kathryn, “Flying Start for Macquarie ProLogis,” Australian Financial Review, June 27, 2002, p. 40.
Kirkpatrick, David D., “ProLogis Agrees to Pay $940 Million to Acquire Rival Meridian Industrial,” Wall Street Journal, November 18, 1998, p. A8.
Locke, Tom, “ProLogis Trust Sees Future in Foreign Expansion,” Wall Street Journal, June 30, 1999.
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_____, “Security Capital Adds to Cold Storage Buildings,” Denver Post, June 17, 1998, p. C3.
_____, “U.S. Realty Firms See Room for Big Growth,” Denver Post, February 21, 1999, p. E2.
Pandya, Mukul, “A Low-Key REIT Grows Rapidly,” Business News New Jersey, March 10, 1997, p. 8.
“ProLogis Acquires Meridian,” Denver Post, November 18, 1998, p. C1.
“ProLogis Is Buying Developer,” Denver Post, December 12, 1998, p. C1.
“ProLogis Purchase of Meridian Part of Real Estate Merger Trend: Slumping Stock and Tighter Credit Deter REIT Acquisitions,” National Post (Canada), November 18, 1998, p. C13.
Raabe, Steve, “ ‘Cool’ Deal Inked; Local Firm Buys European Outfit,” Denver Post, December 16, 1997, p. CI.
_____, “ ‘Spec’ Industrial Warehouse to Be Built,” Denver Post, May 25, 1994, p. C2.
“Security Capital Group,” Going Public: The IPO Reporter, May 19, 1997, p. 9.
Thangavelu, Poonkulali, “GE Extends Reach in Commercial RE,” National Mortgage News, December 31, 2001, p. 2.
—Frederick C. Ingram