ProLogis Reports Fourth Quarter and Full-Year 2008 Results

- FFO, Excluding Significant Non-cash Items, In line with Guidance -

- Closes Asia Transaction -

- First Quarter Dividend to be Paid in Cash -

- Company Outlines Expectations for 2009 Results -

DENVER, Feb. 9 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), a leading global provider of distribution facilities, today reported funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $3.68 per diluted share for the year ended December 31, 2008, compared with $4.61 per share in 2007. FFO, including significant non-cash items, was $0.68 per share, compared with $4.61 in 2007. For 2008, the company reported a net loss of $1.65 per diluted share, compared with net earnings of $3.94 in 2007.

For the fourth quarter ended December 31, 2008, FFO, excluding significant non-cash items, was $0.61 per share, compared with $0.79 in 2007. FFO, including significant non-cash items, for the fourth quarter of 2008 was a net loss of $2.43 per diluted share, compared with a net gain of $0.79 in the fourth quarter of 2007. The company reported a net loss of $3.34 per diluted share for the fourth quarter of 2008, compared with net earnings of $0.43 per diluted share for the fourth quarter of 2007.

"After a thorough review of the assets on our balance sheet and in our unconsolidated investees, we recognized impairment charges where appropriate, given the current economic climate and our long-term intent for the properties," said Walter C. Rakowich, chief executive officer. "Excluding these adjustments, our results were in line with expectations, and these non-cash charges do not affect our liquidity or our conviction in the long-term value of our global portfolio."

Fundamentals Held Up in Fourth Quarter but Now Seeing Softening

"Our operating fundamentals held up reasonably well in the fourth quarter, with essentially flat same-store net operating income, stable levels of leasing activity and above-average customer retention, despite a decrease in activity levels toward the end of the year," Rakowich added.

"Companies are dealing with capital limitations and the uncertainties of the current economic environment and are therefore hesitant to incur the cost to relocate their facilities. As a result, our customer retention is healthy, but lease-up of newly developed inventory space is tepid. Fortunately, most markets are not significantly oversupplied, and new development deliveries in 2009 are expected to be at the lowest level in decades. We continue to closely monitor market conditions and believe that the quality of our people and strength of our customer relationships will help us maintain better leasing levels than overall market averages during these difficult times."

Disposition and Contribution Activity Supports De-leveraging Goal

In November 2008, ProLogis outlined a series of actions to achieve a reduction of roughly $2 billion in direct debt during 2009. The plan includes reducing the company's development pipeline through fund contributions, asset sales and a halt in all but previously committed development starts.

During the fourth quarter, ProLogis completed total dispositions with aggregate proceeds of $1.33 billion, including contributions to ProLogis property funds of $1.25 billion. Ted R. Antenucci, chief investment officer, said, "We pulled several development projects in the fourth quarter that were previously included in our year-to-date new construction starts, resulting in a reduction of over $345 million. For the full year, new development starts were just $2.1 billion in 2008, down by more than half from our initial expectation of $4.4 to $4.8 billion, in light of the rapidly deteriorating economic environment in the fourth quarter of 2008.

"While we have an additional $885 million of costs associated with completing and leasing our development pipeline, we do not anticipate significant commitments beyond that level because we intend to pursue development management opportunities and projects funded by venture partners that enable us to leverage our development infrastructure and monetize land. Between the reduction in new development spending, the sale of our China operations and 2008 disposition activity, we have reduced our development pipeline to just over $5 billion, from nearly $8 billion at the end of the third quarter."

Summary of Impairments and Non-cash Adjustments

In total, the company recorded impairments and non-cash adjustments of approximately $811 million.

Components of the non-cash charges recognized in the fourth quarter are as follows:

    --  Impairment of goodwill and other assets of $320.6 million;
    --  Impairment of land and operating properties of  $274.7 million;
    --  Impairment related to assets held for sale - China operations of
        $198.2 million;
    --  ProLogis' share of losses and impairments in property funds of $108.2
        million; and
    --  Gain on early extinguishment of debt of $90.7 million.

The company also recognized a charge of $26.4 million, or $0.10 per diluted share, in the fourth quarter related to its reduction in workforce. This amount is reflected in FFO, excluding significant non-cash items.

Asia Transaction Closed

Additionally, the company said that it has closed the previously announced sale of its operations in China and property fund interests in Japan to affiliates of GIC Real Estate (GIC RE), the real estate investment arm of the Government of Singapore Investment Corporation. Total cash consideration for the transaction is $1.3 billion, which will be used to reduce debt and for general corporate purposes. The funding will occur in two phases; $500 million was received by ProLogis upon closing and the remaining $800 million will be funded upon completion of year-end audits of certain entities, which the company expects to provide as soon as possible, but no later than early in the second quarter.

GIC RE has assumed all liabilities associated with the properties acquired. In addition, GIC RE will reimburse ProLogis approximately $45 million of development funding expended by the company in China since November 1, 2008.

While the impairment charge of $198 million associated with the sale of the company's China operations is included in the non-cash charges taken in 2008 outlined above, the gain of approximately $140 million associated with the sale of the company's property fund interests in Japan will be recognized in 2009. As a result of the Asia transaction, ProLogis' development pipeline is reduced by $1.0 billion, including over $200 million in costs to complete development of the assets previously owned directly and within ProLogis' development joint ventures in China.

First Quarter Dividend to be Paid in Cash

William E. Sullivan, chief financial officer, added, "With our recently closed sale of certain Asian operations for $1.3 billion and other initiatives, we are making significant progress toward our de-leveraging goal. Additionally, the ProLogis Board has declared the company's first quarter dividend of $0.25 per common share, which will be paid in cash."

The company noted that it is the ProLogis Board's intent to pay regular quarterly dividends in cash; however, it reserves the right to review this decision in light of overall credit availability and the company's liquidity position each quarter. The $0.25 per share first quarter common dividend will be payable on February 27, 2009, to shareholders of record on February 19, 2009.

Business Drivers Support 2009 Guidance

Additionally, the company provided revised 2009 guidance of $1.85 to $2.05 in FFO per share and $1.05 to $1.15 in earnings per share. "With economic weakness anticipated to persist through 2009, we are focused on our core industrial business in our existing markets. Our guidance reflects that focus; however, sizeable asset sales or other corporate actions could alter our expectations, which we will reflect in future guidance," Sullivan added. For details on the key business drivers and assumptions that support the company's 2009 guidance, please use this link: http://ir.prologis.com/investors/business_drivers.cfm or visit the company's website at http://ir.prologis.com.

    Selected Financial and Operating Information
    --  Same-store net operating income in the quarter was essentially flat.
        Average full-year, same-store net operating income grew by 1.62
        percent with a 0.84 percent increase in same-store leasing and 2.81
        percent same-store rent growth on turnovers.
    --  Reported leasing of 94.7 percent in the direct owned, non-development
        portfolio, compared with 95.2 percent at December 31, 2007.
    --  Recycled a total of $4.9 billion of capital through contributions and
        dispositions during the year.  Post-deferral, post-tax margins for
        all CDFS dispositions averaged 10.6 percent for the fourth quarter and
        16.0 percent for full year 2008.
    --  Grew income from ProLogis' Investment Management business by 20.7
        percent, to $306.6 million for the year, before our share of losses in
        ProLogis European Properties, compared with $254.1 million in 2007.
    --  Ended the year with total liquidity of $1.25 billion, including cash
        and availability under the company's global lines of credit.

Copies of ProLogis' fourth quarter/year-end 2008 supplemental information will be available from the company's website at http://ir.prologis.com. The supplemental information also is available on the SEC's website at http://www.sec.gov. The related conference call will be available via a live webcast on the company's website at http://ir.prologis.com at 10:00 a.m. Eastern Time on Tuesday, February 10, 2009. A replay of the webcast will be available on the company's website until February 24, 2009. Additionally, a podcast of the company's conference call will be available on the company's website as well as on the REITCafe website located at http://www.REITcafe.com.

About ProLogis

ProLogis is a leading global provider of distribution facilities, with more than 475 million square feet of industrial space (44 million square meters) in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 4,000 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. For additional information about the company, go to http://www.prologis.com.

The statements above that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking 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, they involve uncertainties that could significantly impact ProLogis' financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future -- including statements relating to rent and occupancy growth, development activity and changes in sales or contribution volume of developed properties, general conditions in the geographic areas where we operate and the availability of capital in existing or new property funds -- are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, (v) maintenance of real estate investment trust ("REIT") status, (vi) availability of financing and capital, (vii) changes in demand for developed properties, and (viii) those additional factors discussed in "Item 1A. Risk Factors" of ProLogis' Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and in "Item 1A -Risk Factors" in ProLogis' Annual Report on Form 10-K for the year ended December 31, 2007. ProLogis undertakes no duty to update any forward-looking statements appearing in this press release.



                                     Overview

    (in thousands, except per share amounts)
    Summary of Results
                                  Three Months Ended    Twelve Months Ended
                                     December 31,           December 31,
                                    2008       2007       2008        2007
    Revenues                     $1,492,246  $794,803  $5,654,826  $6,188,672

    Net earnings (loss) (a)       $(887,065) $113,278   $(432,196) $1,048,917
    Net earnings (loss) per
     share - Diluted (a)             $(3.34)    $0.43      $(1.65)      $3.94

    FFO, including significant
     non-cash items (a)           $(645,929) $211,235    $180,870  $1,227,008
      Add (deduct) significant
       non-cash items:
        Impairment of goodwill
         and other assets           320,636         -     320,636           -
        Impairment related to
         assets held for sale -
         China operations           198,236         -     198,236           -
        Impairment of real
         estate properties          274,705         -     274,705           -
        Our share of the
         loss/impairment
         recorded by PEPR           108,195         -     108,195           -
        Gain on early
         extinguishment of debt     (90,719)        -     (90,719)          -
          Total adjustments for
           significant non-cash
           items                    811,053         -     811,053           -
    FFO, excluding significant
     non-cash items (a)            $165,124  $211,235    $991,923  $1,227,008

    FFO per share - Diluted,
     including significant non-
     cash items (a)                  $(2.43)    $0.79       $0.68       $4.61
      Add back - summarized
       significant non-cash
       adjustments - per share         3.04         -        3.00           -
    FFO per share - Diluted,
     excluding significant non-
     cash items (a)                   $0.61     $0.79       $3.68       $4.61

    Distributions per common
     share (b)                      $0.5175     $0.45       $2.07       $1.80


    (a) These amounts are attributable to common shares.
    (b) The annual distribution rate for 2008 was $2.07 per common share. In
        November 2008, the Board of Trustees set the distribution for 2009 at
        $1.00 per common share, subject to market conditions and Real Estate
        Investment Trust ("REIT") distribution requirements. The payment of
        common share distributions and its composition between cash and stock
        is dependent upon our financial condition and operating results and
        may be adjusted at the discretion of the Board of Trustees during the
        year.



                           Consolidated Balance Sheets

    (in thousands, except per share data)

                                               December 31,       December 31,
                                                  2008 (1)            2007
    Assets:
       Investments in real estate assets:
         Industrial properties:
             Core                               $7,925,019         $8,149,392
             Completed development               3,031,449          2,850,687
             Properties under development        1,163,610          1,986,285
         Land held for development               2,481,216          2,152,960
         Retail and mixed use properties           358,992            336,279
         Land subject to ground leases
          and other                                424,489            450,923
         Other investments                         321,397            652,319
                                                15,706,172         16,578,845
         Less accumulated depreciation           1,583,299          1,368,458
             Net investments in real
              estate assets                     14,122,873         15,210,387

       Investments in and advances to
        unconsolidated investees:
         Property funds                          1,957,977          1,755,113
         Other investees                           312,016            590,164
             Total investments in and
              advances to unconsolidated
              investees                          2,269,993          2,345,277

       Cash and cash equivalents                   174,636            399,910
       Accounts and notes receivable               244,778            340,039
       Other assets                              1,129,182          1,408,814
       Discontinued operations - assets
        held for sale (1)                        1,310,754             19,607
             Total assets                      $19,252,216        $19,724,034

    Liabilities and Shareholders' Equity:
       Liabilities:
         Debt                                  $11,007,636        $10,506,068
         Accounts payable and accrued
          expenses                                 658,868            933,075
         Other liabilities                         751,238            769,408
         Discontinued operations -
          assets held for sale (1)                 389,884                424
             Total liabilities                  12,807,626         12,208,975

       Minority interest                            19,878             78,661

       Shareholders' equity:
         Series C preferred shares at
          stated liquidation preference
          of $50 per share                         100,000            100,000
         Series F preferred shares at
          stated liquidation preference
          of $25 per share                         125,000            125,000
         Series G preferred shares at
          stated liquidation preference
          of $25 per share                         125,000            125,000
         Common shares at $.01 par value
          per share                                  2,670              2,577
         Additional paid-in capital              6,688,615          6,412,473
         Accumulated other comprehensive
          (loss) income                            (29,374)           275,322
         (Distributions in excess of net
          earnings) retained earnings             (587,199)           396,026
             Total shareholders' equity          6,424,712          7,436,398
             Total liabilities and
              shareholders' equity             $19,252,216        $19,724,034

    Footnotes follow Financial Statements



                      Consolidated Statements of Operations

    (in thousands, except per share amounts)

                                   Three Months Ended    Twelve Months Ended
                                      December 31,           December 31,
                                    2008       2007       2008        2007
     Revenues:
       Rental income (2)           $239,107  $253,798  $1,002,493  $1,052,219
       CDFS disposition proceeds:
         Developed and
          repositioned properties 1,192,935   438,296   4,206,446   2,530,377
         Acquired property
          portfolios                 18,781    68,240     289,019   2,475,035
       Property management and
        other fees and incentives    33,815    32,040     131,011     104,719
       Development management and
        other income                  7,608     2,429      25,857      26,322
           Total revenues         1,492,246   794,803   5,654,826   6,188,672

     Expenses:
       Rental expenses               73,236    69,070     325,049     284,421
       Cost of CDFS dispositions:
         Developed and
          repositioned properties 1,083,272   346,931   3,547,500   1,835,274
         Acquired property
          portfolios                 18,781    68,240     289,019   2,406,426
       General and
        administrative (3)           43,592    53,602     204,300     193,204
       Reduction in workforce (3)    23,131         -      23,131           -
       Impairment of real estate
        properties (4)              274,705         -     274,705      12,600
       Depreciation and
        amortization (5)            103,290    81,835     339,491     302,413
       Other expenses                17,446     3,479      28,104      12,363
           Total expenses         1,637,453   623,157   5,031,299   5,046,701

     Operating income (loss)       (145,207)  171,646     623,527   1,141,971

     Other income (expense):
       Earnings (loss) from
        unconsolidated property
        funds, net (6)             (105,024)   12,997     (69,116)     94,453
       Earnings (loss) from other
        unconsolidated investees,
        net                             914    (1,424)     13,342       4,573
       Interest expense (7)         (88,737)  (81,087)   (341,305)   (368,512)
       Impairment of goodwill and
        other assets (4)           (320,636)        -    (320,636)          -
       Gain on early
        extinguishment of debt (8)   90,719         -      90,719           -
       Interest and other income,
        net                           2,526       331      16,522      32,129
           Total other income
            (expense)              (420,238)  (69,183)   (610,474)   (237,357)

     Earnings (loss) before
      minority interest            (565,445)  102,463      13,053     904,614
     Minority interest share in
      income                           (172)   (1,403)     (3,837)     (4,814)

     Earnings (loss) before
      certain net gains            (565,617)  101,060       9,216     899,800
     Gains recognized on
      dispositions of certain
      non-CDFS business assets (9)    5,853     1,293      11,668     146,667
     Foreign currency exchange
      gains (losses), net (10)     (115,303)   (3,141)   (148,281)      8,132
     Earnings (loss) before
      income taxes                 (675,067)   99,212    (127,397)  1,054,599
     Income taxes:
       Current income tax expense    15,726     8,768      63,441      66,339
       Deferred income tax
        expense (benefit)           (14,834)   (5,090)      4,570         516
           Total income taxes           892     3,678      68,011      66,855
     Earnings (loss) from
      continuing operations        (675,959)   95,534    (195,408)    987,744
     Discontinued operations:
       Income (loss) attributable
        to assets held for sale
        and disposed properties
        (1)(11)                     (15,626)    3,874     (32,630)      5,099
       Impairment related to
        assets held for sale -
        China operations (1)       (198,236)        -    (198,236)          -
       Gains recognized on
        dispositions:
           Non-CDFS business assets   1,557    14,044       9,718      52,776
           CDFS business assets       7,551     6,184       9,783      28,721
              Total discontinued
               operations          (204,754)   24,102    (211,365)     86,596
     Net earnings (loss)           (880,713)  119,636    (406,773)  1,074,340
     Less preferred share
      dividends                       6,352     6,358      25,423      25,423
     Net earnings (loss)
      attributable to common
      shares                      $(887,065) $113,278   $(432,196) $1,048,917

     Weighted average common
      shares outstanding - Basic    265,898   258,110     262,729     256,873
     Weighted average common
      shares outstanding -
      Diluted                       265,898   268,293     262,729     267,226

     Net earnings (loss) per
      share attributable to
      common shares - Basic:
       Continuing operations         $(2.57)    $0.35      $(0.85)      $3.74
       Discontinued operations        (0.77)     0.09       (0.80)       0.34
           Net earnings (loss) per
            share attributable to
            common shares - Basic    $(3.34)    $0.44      $(1.65)      $4.08

     Net earnings (loss) per
      share attributable to
      common shares - Diluted:
       Continuing operations         $(2.57)    $0.34      $(0.85)      $3.62
       Discontinued operations        (0.77)     0.09       (0.80)       0.32
           Net earnings (loss) per
            share attributable to
            common shares - Diluted  $(3.34)    $0.43      $(1.65)      $3.94

    Footnotes follow Financial Statements



              Consolidated Statements of Funds From Operations (FFO)

    (in thousands, except per share amounts)

                                  Three Months Ended    Twelve Months Ended
                                     December 31,           December 31,
                                    2008       2007       2008        2007
     Revenues:
       Rental income               $249,778  $259,781  $1,035,335  $1,079,960
       CDFS disposition proceeds:
          Developed and
           repositioned
           properties             1,239,378   470,772   4,271,786   2,736,151
          Acquired property
           portfolios                18,781    68,240     372,667   2,475,035
       Property management and
        other fees and incentives    34,466    32,040     132,038     104,719
       Development management and
        other income                  7,822     2,734      26,344      26,670
          Total revenues          1,550,225   833,567   5,838,170   6,422,535

     Expenses:
       Rental expenses               79,488    70,432     343,192     292,064
       Cost of CDFS dispositions:
          Developed and
           repositioned
           properties             1,123,320   375,836   3,605,923   2,018,523
          Acquired property
           portfolios                18,781    68,240     372,667   2,406,426
       General and
        administrative (3)           52,498    57,585     226,021     204,558
       Reduction in workforce (3)    26,431         -      26,431           -
       Impairment of real estate
        properties (4)              274,705         -     274,705      12,600
       Depreciation of corporate
        assets                        4,177     2,885      16,332      10,882
       Other expenses                21,400     3,479      33,192      12,363
          Total expenses          1,600,800   578,457   4,898,463   4,957,416

                                    (50,575)  255,110     939,707   1,465,119
     Other income (expense):
       FFO from unconsolidated
        property funds (6)          (62,039)   45,600      66,415     149,400
       FFO from other
        unconsolidated investees        858     6,307       6,162      18,991
       Interest expense             (89,109)  (80,810)   (341,696)   (368,065)
       Impairment related to
        assets held for sale -
        China operations (1)       (198,236)        -    (198,236)          -
       Impairment of goodwill and
        other assets (4)           (320,636)        -    (320,636)          -
       Gain on early
        extinguishment of debt (8)   90,719         -      90,719           -
       Interest and other income,
        net                           3,724     1,479      20,806      34,001
       Foreign currency exchange
        gains (losses), net             723     2,559      (7,009)     24,299
       Current income tax
        expense (12)                (16,727)   (9,400)    (56,170)    (65,311)

          Total other income
           (expense)               (590,723)  (34,265)   (739,645)   (206,685)

     FFO, including significant
      non-cash items               (641,298)  220,845     200,062   1,258,434

     Less preferred share
      dividends                       6,352     6,358      25,423      25,423
     Less minority interest share
      in income (loss)               (1,721)    3,252      (6,231)      6,003
     FFO attributable to common
      shares, including
      significant non-cash items  $(645,929) $211,235    $180,870  $1,227,008

     Adjustments for significant
      non-cash items                811,053         -     811,053           -
     FFO attributable to common
      shares, excluding
      significant non-cash items   $165,124  $211,235    $991,923  $1,227,008

     Weighted average common
      shares outstanding - Basic    265,898   258,110     262,729     256,873

     FFO per share attributable
      to common shares, including
      significant non-cash items:
       Basic                         $(2.43)    $0.82       $0.69       $4.78
       Diluted                       $(2.43)    $0.79       $0.68       $4.61

     FFO per share attributable
      to common shares, excluding
      significant non-cash items:
       Basic                          $0.62     $0.82       $3.78       $4.78
       Diluted                        $0.61     $0.79       $3.68       $4.61

    Footnotes follow Financial Statements



            Reconciliations of Net Earnings (Loss) to FFO and EBITDA

    (in thousands)
    Reconciliation of net earnings (loss) to FFO, including significant non-
    cash items
                                 Three Months Ended      Twelve Months Ended
                                    December 31,            December 31,
                                  2008       2007        2008        2007
    Net earnings (loss) (a)    $(887,065)  $113,278   $(432,196)  $1,048,917
      Add (deduct) NAREIT
       defined adjustments:
        Real estate related
         depreciation and
         amortization             99,113     78,950     323,159      291,531
        Adjustments to gains
         on CDFS dispositions
         for depreciation         (1,156)    (2,613)     (2,866)      (6,196)
        Gains recognized on
         dispositions of
         certain non-CDFS
         business assets          (5,806)    (1,293)    (11,620)    (146,667)
        Reconciling items
         attributable to
         discontinued
         operations (11):
          Gains recognized on
           dispositions of non-
           CDFS business assets   (1,557)   (14,044)     (9,718)     (52,776)
          Real estate related
           depreciation and
           amortization            3,157      2,586      11,485        9,454
            Total discontinued
             operations            1,600    (11,458)      1,767      (43,322)
        Our share of
         reconciling items
         from unconsolidated
         investees:
          Real estate related
           depreciation and
           amortization           51,159     35,357     155,067       99,026
          Gains on dispositions
           of non-CDFS business
           assets                   (329)    (1,181)       (492)     (35,672)
          Other amortization
           items                  (3,337)    (2,355)    (15,840)      (8,731)
            Total unconsolidated
             investees            47,493     31,821     138,735       54,623

              Total NAREIT
               defined
               adjustments       141,244     95,407     449,175      149,969

                Subtotal-NAREIT
                 defined FFO    (745,821)   208,685      16,979    1,198,886

      Add (deduct) our
       defined adjustments:
        Foreign currency
         exchange losses, net    117,145      4,789     144,364       16,384
        Current income tax
         expense (12)                  -          -       9,656        3,038
        Deferred income tax
         expense (benefit)       (15,406)    (5,160)      4,073          550

        Our share of
         reconciling items
         from unconsolidated
         investees:
          Foreign currency
           exchange losses
           (gains), net              (82)    (4,005)      2,331        1,823
          Unrealized losses on
           derivative
           contracts, net         18,007          -      23,005            -
          Deferred income tax
           expense (benefit)     (19,772)     6,926     (19,538)       6,327
            Total unconsolidated
             investees            (1,847)     2,921       5,798        8,150

              Total our defined
               adjustments        99,892      2,550     163,891       28,122

    FFO, including
     significant non-cash
     items (a)                 $(645,929)  $211,235    $180,870   $1,227,008



    Reconciliation of FFO, including significant non-cash items, to FFO,
    excluding significant non-cash items

                               Three Months Ended       Twelve Months Ended
                                   December 31,            December 31,
                                 2008       2007         2008        2007
    FFO, including
     significant non-cash
     items (a)                 $(645,929)  $211,235     $180,870   $1,227,008
      Add (deduct)
       significant non-cash
       items:
        Impairment of goodwill
         and other assets (4)    320,636          -      320,636            -
        Impairment related to
         assets held for sale
         - China operations (1)  198,236          -      198,236            -
        Impairment of real
         estate properties (4)   274,705          -      274,705            -
        Our share of the
         loss/impairment
         recorded by PEPR (6)    108,195          -      108,195            -
        Gain on early
         extinguishment of
         debt (8)                (90,719)         -      (90,719)           -
          Total adjustments for
           significant non-cash
           items                 811,053          -      811,053            -

    FFO, excluding
     significant non-cash
     items (a)                  $165,124   $211,235     $991,923   $1,227,008



    Reconciliation of FFO, excluding significant non-cash items, to EBITDA

                               Three Months Ended      Twelve Months Ended
                                  December 31,             December 31,
                                2008       2007          2008         2007
    FFO, excluding
     significant non-cash
     items (a)                 $165,124   $211,235     $991,923   $1,227,008
       Interest expense          89,109     80,810      341,696      368,065
       Depreciation of
        corporate assets          4,177      2,885       16,332       10,882
       Current income tax
        expense included in
        FFO                      16,727      9,400       56,170       65,311
       Adjustments to CDFS
        gains on dispositions
        for interest
        capitalized              12,637     11,036       57,632       43,669
       Preferred share
        dividends                 6,352      6,358       25,423       25,423
       Reconciling items
        attributable to
        discontinued
        operations                  372       (277)         391         (447)
       Impairment charges             -        659            -       13,259
       Share of reconciling
        items from
        unconsolidated
        investees                33,812     43,393      173,900      127,558

    Earnings before interest,
     taxes, depreciation and
     amortization (EBITDA)     $328,310   $365,499   $1,663,467   $1,880,728

    See Consolidated Statements of Operations and Consolidated Statements of
    FFO.
    Footnotes follow Financial Statements

    (a) Attributable to common shares.



                         Calculation of Per Share Amounts

    (in thousands, except per share amounts)

    Net Earnings (Loss) Per Share

                                   Three Months Ended    Twelve Months Ended
                                      December 31,          December 31,
                                     2008       2007      2008        2007
    Net earnings (loss) -
     Basic (a)                     $(887,065) $113,278  $(432,196) $1,048,917
    Minority interest attributable
     to convertible limited
     partnership units (b)                 -     1,404          -       4,813
    Adjusted net earnings (loss) -
     Diluted (a)                   $(887,065) $114,682  $(432,196) $1,053,730

    Weighted average common shares
     outstanding - Basic             265,898   258,110    262,729     256,873
    Incremental weighted average
     effect of conversion of
     limited partnership units (b)         -     5,053          -       5,078
    Incremental weighted average
     effect of stock awards (b)            -     5,130          -       5,275
    Weighted average common shares
     outstanding - Diluted           265,898   268,293    262,729     267,226

    Net earnings (loss) per share
     - Diluted (a)                    $(3.34)    $0.43     $(1.65)      $3.94



    FFO Per Share, including significant non-cash items

                            Three Months Ended     Twelve Months Ended
                               December 31,           December 31,
                              2008      2007        2008       2007
    FFO - Basic, including
     significant non-cash
     items (a)             $(645,929) $211,235    $180,870  $1,227,008
    Minority interest
     attributable to
     convertible limited
     partnership units (b)         -     1,404           -       4,813
    FFO - Diluted,
     including significant
     non-cash items (a)    $(645,929) $212,639    $180,870  $1,231,821

    Weighted average
     common shares
     outstanding - Basic     265,898   258,110     262,729     256,873
    Incremental weighted
     average effect of
     conversion of limited
     partnership units (b)         -     5,053           -       5,078
    Incremental weighted
     average effect of
     stock awards (b)              -     5,130       3,372       5,275
    Weighted average
     common shares
     outstanding - Diluted   265,898   268,293     266,101     267,226

    FFO per share -
     Diluted, including
     significant non-cash
     items (a)                $(2.43)    $0.79       $0.68       $4.61



    FFO Per Share, excluding significant non-cash items

                           Three Months Ended      Twelve Months Ended
                               December 31,            December 31,
                             2008       2007         2008       2007
    FFO - Basic, including
     significant non-cash
     items (a)             $(645,929) $211,235     $180,870  $1,227,008
    Adjustments for
     significant non-cash
     items                   811,053         -      811,053           -
    Minority interest
     attributable to
     convertible limited
     partnership units           172     1,404        3,837       4,813
    FFO - Diluted,
     excluding significant
     non-cash items (a)     $165,296  $212,639     $995,760  $1,231,821

    Weighted average
     common shares
     outstanding - Basic     265,898   258,110      262,729     256,873
    Incremental weighted
     average effect of
     conversion of limited
     partnership units         2,551     5,053        4,447       5,078
    Incremental weighted
     average effect of
     stock awards              1,527     5,130        3,372       5,275
    Weighted average
     common shares
     outstanding - Diluted   269,976   268,293      270,548     267,226

    FFO per share -
     Diluted, excluding
     significant non-cash
     items (a)                 $0.61     $0.79        $3.68       $4.61


    (a) Attributable to common shares.
    (b) During a loss period, the impact from convertible partnership units
        and stock awards are not included as the impact is anti-dilutive.



    Notes to Financial Statements

Please also refer to our annual and quarterly financial statements filed with the Securities and Exchange Commission on Forms 10-K and 10-Q for further information about us and our business. Certain 2007 amounts in our financial statements have been reclassified to conform to the 2008 presentation.

Due to recent economic conditions and the resulting changes in our near- term business strategy, we have reorganized our business segments. As a result, as of December 31, 2008, we have two operating segments- Direct Owned and Investment Management, and we no longer include any assets in the CDFS Business segment. We have continued to present the results of operations of our CDFS Business segment separately.

Our direct owned segment represents the direct, long-term ownership of industrial distribution properties. Our investment strategy in this segment focuses primarily on the ownership and leasing of industrial distribution properties in key distribution markets. We consider these properties to be our Core Portfolio. Also included in this segment are operating properties we developed with the intent to contribute the properties to an unconsolidated property fund that we previously referred to as our "CDFS Pipeline", and we now refer to as our Completed Development Portfolio. Due to the current economic conditions, there is uncertainty regarding future contributions to the property funds. We may contribute either Core or Development properties to the property funds or sell them to third parties. If we contribute or sell Development properties in the future, we expect to recognize FFO to the extent the proceeds received exceed our original investment (i.e. prior to depreciation). In addition, we have industrial distribution properties that are currently under development (also included in our Development Portfolio) and land available for development that is part of this segment as well. The investment management segment represents the investment management of unconsolidated property funds and joint ventures and the properties they own.

    (1)  On December 23, 2008, we announced the signing of a binding
         agreement to sell our operations in China and our property fund
         interests in Japan, to affiliates of GIC Real Estate (GIC RE), the
         real estate investment company of the Government of Singapore
         Investment Corporation, for total cash consideration of
         $1.3 billion.

         Of the total cash consideration, $800 million was related to the
         China operations. The sale of operations in China includes all our
         assets and liabilities, including real estate, investments in joint
         ventures and a property fund, as well as the assumption of all
         liabilities. The total consideration will be adjusted for
         development funding we made for the China operations after November
         1, 2008 and through the date of closing. In accordance with
         Statement of Financial Accounting Standards (''SFAS'') 144,
         ''Accounting for the Impairment or Disposal of Long-Lived Assets"
         (''SFAS 144''), we have classified all of the assets and liabilities
         associated with our China operations as Assets and Liabilities Held
         for Sale in our accompanying Consolidated Balance Sheet as of
         December 31, 2008.  Based on the carrying values of these assets and
         liabilities, as compared with the estimated sales proceeds less
         costs to sell, we recognized an impairment of $198.2 million that is
         included in Discontinued Operations in the fourth quarter of 2008.
         In addition, the results of our China operations are presented as
         discontinued operations in our accompanying Consolidated Statements
         of Operations for all periods. As we include discontinued operations
         in our calculations of FFO, the results of our China operations are
         included in the appropriate line items for our Consolidated
         Statements of FFO. The 2008 operating information presented
         throughout this report does not include China.

         The sale closed on February 9, 2009 and the funding will occur in
         two phases; we received $500 million upon closing and the remaining
         $800 million will be funded upon completion of year-end audits of
         certain entities, which the company expects to provide as soon as
         possible, but no later than early in the second quarter.  While the
         impairment charge of $198.2 million associated with the sale of our
         China operations is included in 2008, the gain of approximately
         $140 million associated with the sale of our property fund interests
         in Japan will be recognized in 2009.

         In addition, we have entered into an agreement to sell one property
         in Japan to GIC RE. This property has been classified as Held for
         Sale in our accompanying Consolidated Balance Sheet as of December
         31, 2008, and its operations have been included in Discontinued
         Operations for all periods presented in our accompanying
         Consolidated Statements of Operations. See note 11 for more
         information on this and other properties classified as discontinued
         operations.

    (2)  In our Consolidated Statements of Operations, rental income includes
         the following (in thousands):



                            Three Months Ended       Twelve Months Ended
                               December 31,               December 31,
                             2008         2007         2008          2007
          Rental income   $175,644     $188,663     $736,765     $791,100
          Rental expense
           recoveries       53,923       54,799      231,809      217,022
          Straight-lined
           rents             9,540       10,336       33,919       44,097
                          $239,107     $253,798   $1,002,493   $1,052,219



    (3)   As we have previously announced in the fourth quarter of 2008, in
          response to the difficult economic climate, we initiated G&A expense
          reductions with a near-term target of a 20 to 25 % reduction. These
          initiatives include a Reduction in Workforce ("RIF") and reductions
          to other expenses. In December, we implemented a RIF program with a
          total cost of the program of $26.4 million, included in our
          Statements of FFO, which includes $3.3 million for China that is
          presented as discontinued operations in our Statements of
          Operations. In addition, we have implemented various cost savings
          measures in an effort to reduce G&A. We may incur RIF charges in
          2009 for additional employees identified due to our change in
          business strategy.

    (4)  The global financial markets have undergone pervasive and
          fundamental disruptions. The credit crisis, and the impact to us,
          worsened during the fourth quarter of 2008. As a result of these
          significant adverse changes in market conditions, we reviewed our
          assets for potential impairment under the appropriate accounting
          literature and considering current market conditions, as well as our
          intent with regard to owning or disposing of the asset. In
          connection with that review, in the fourth quarter of 2008, we
          recorded the following impairment charges (in millions):



             Included in "Impairment of Real Estate Properties":
               Land Held for Development                             $194.2
               Completed Development Properties                        34.8
               Other Real Estate Investments                           45.7
                 Total Impairment of Real Estate Properties           274.7

             Total Impairment of Goodwill and Other Assets    320.6

                 Total direct owned impairment charges included
                  in continuing operations                           $595.3



    (5)   As of September 30, 2008, we had classified a group of properties
          that we had developed or acquired with the intent to contribute to a
          property fund or sell to a third party as our "CDFS Pipeline".  Our
          policy is to not depreciate these properties during the period from
          completion until their contribution provided they meet certain
          criteria. With the reorganization of our business segments and the
          uncertainty as to when, or if, these properties will be contributed,
          in the fourth quarter we recorded an adjustment of $30.9 million to
          depreciate these buildings from the date of stabilization
          through December 31, 2008.

    (6)   In December 2008, we purchased units in ProLogis European Properties
          Fund II ("PEPF II") from ProLogis European Properties ("PEPR") that
          represented an approximate 20% interest in PEPF II for €43 million
          ($61.1 million). The units were purchased at a discount to net asset
          value due to PEPR's current financial situation. As a result of this
          transaction and contributions made in December, as of December 31,
          2008, we own a 34.3% direct interest in PEPF II and have assumed
          €348 million of PEPR's future equity commitments related to these
          units. PEPR owns a 10.4% interest in PEPF II and as a result of our
          ownership in PEPR, we own an additional 2.6% of PEPF II indirectly
          (combined direct and indirect ownership in PEPF II at December 31,
          2008 was 36.9%).

          In January 2009, PEPR received offers for their remaining 10.4%
          interest in PEPF II for €10.5 million.  As a result of the sale of
          its PEPF II units to us and the impairment of their remaining
          ownership (based on offers received), PEPR recognized a total loss
          of €310.9 million in the fourth quarter of 2008. Our share of this
          loss, reflected as FFO/Earnings (Loss) from Unconsolidated Property
          Funds in our consolidated financial statements, was $108.2 million.

          In connection with our purchase of PEPR's interest in PEPF II, PEPR
          has a 12-month option to repurchase the 20% interest from us at our
          cost per unit (including any capital contributions we have made
          related to these units).

     (7)  The following table presents the components of interest expense as
          reflected in our Consolidated Statements of Operations (in
          thousands):



                             Three Months Ended       Twelve Months Ended
                                 December 31,             December 31,
                               2008       2007         2008          2007

          Gross interest
           expense          $117,114   $119,351     $477,933     $487,410
          Amortization
           of discount
           (premium), net        891       (984)        (702)      (7,797)
           Amortization of
            deferred loan
            costs              3,619      2,728       12,759       10,555
             Interest
              expense
              before
              capitalization 121,624    121,095      489,990      490,168
           Less: capitalized
            amounts           32,887     40,008      148,685      121,656
           Net interest
            expense          $88,737    $81,087     $341,305     $368,512



          In May 2008, the Financial Accounting Standards Board issued Staff
          Position No. APB 14-1 "Accounting for Convertible Debt Instruments
          that May Be Settled in Cash Upon Conversion (Including Partial Cash
          Settlement)" that requires separate accounting for the debt and
          equity components of convertible debt. The value assigned to the
          debt component is the estimated fair value of a similar bond without
          the conversion feature, which would result in the debt being
          recorded at a discount. The resulting debt discount would be
          amortized over the expected period outstanding (i.e., through the
          first optional redemption date) as additional non-cash interest
          expense. The effective date of the change is January 1, 2009 with
          the application of the new accounting applied retrospectively to
          both new and existing convertible instruments, including the notes
          issued in 2007 and 2008. As a result of the new accounting,
          beginning in 2009, we will recognize additional non-cash interest
          expense of between $73 million and $83 million per annum, prior to
          the capitalization of interest due to our development activities.
          Prior periods will be restated for the partial year impact.

     (8)  During the fourth quarter of 2008, we began a tender offer to
          purchase certain of our unsecured senior notes. We completed the
          tender offer in December 2008 by purchasing $309.7 million principal
          amount of 5.25 percent unsecured notes due November 15, 2010 for
          $216.8 million. We utilized cash on hand and borrowings under our
          global lines of credit to fund the tender offer. This represents
          approximately 62 percent of the principal amount of this series of
          notes outstanding prior to the tender offer. In connection with this
          transaction, we recognized a gain of $90.7 million that is reported
          as "Gain on Early Extinguishment of Debt" in our Consolidated
          Statements of Operations and FFO.

     (9)  During 2008, we contributed one non-CDFS property to the ProLogis
          Mexico Industrial Fund and one non-CDFS property to the North
          American Industrial Fund. During 2007, we contributed 66 non-CDFS
          properties to ProLogis North American Industrial Fund and 11 non-
          CDFS properties to ProLogis Mexico Industrial Fund.  The gains
          related to the dispositions of non-CDFS properties were included in
          earnings but not included in our calculation of FFO.

     (10) During the fourth quarter of 2008, we recognized net foreign
          currency exchange losses related to the remeasurement of inter-
          company loans between the U.S. and our consolidated subsidiaries in
          Japan and Europe due to the fluctuations in the exchange rates of
          U.S. dollars to both the yen and the euro between September 30, 2008
          and December 31, 2008. These losses are not included in our
          calculation of FFO.

     (11) The operations of the properties held for sale or disposed of to
          third parties and the aggregate net gains recognized upon their
          disposition are presented as discontinued operations in our
          Consolidated Statements of Operations for all periods presented,
          unless the property was developed under a pre-sale agreement. During
          2008, we disposed of 15 properties to third parties, six of which
          were CDFS properties, as well as land subject to a ground lease.
          During 2007, we disposed of 80 properties to third parties, five of
          which were CDFS properties, as well as land subject to ground
          leases.

          We had two properties classified as held for sale on our
          Consolidated Balance Sheet, as of December 31, 2007, which were sold
          during the first quarter of 2008.  See also note 1 above for a
          discussion of the China operations and one property in Japan that
          are classified as held for sale at December 31, 2008.

          The income (loss) attributable to these properties (excluding the
          results of our China operations) are as follows (in thousands):



                             Three Months Ended         Twelve Months Ended
                                 December 31,               December 31,
                              2008          2007         2008          2007
          Rental income       $997         $1,753       $2,330      $14,384
          Rental expenses      124           (661)      (1,208)      (5,080)
          Depreciation and
           amortization        (39)          (519)      (1,988)      (4,405)
            Income (loss)
             attributable
             to disposed
             properties     $1,082           $573       $(866)       $4,899



          For purposes of our Consolidated Statements of FFO, we do not
          segregate discontinued operations.  In addition, we include the
          disposition proceeds and the cost of dispositions for all CDFS
          properties disposed of during the period in the calculation of FFO,
          including those classified as discontinued operations.

     (12) In connection with purchase accounting, we record all of the
          acquired assets and liabilities at the estimated fair values at the
          date of acquisition. For our taxable subsidiaries, we generally
          recognize the deferred tax liabilities that represent the tax effect
          of the difference between the tax basis carried over and the fair
          values of these assets at the date of acquisition. As taxable income
          is generated in these subsidiaries, we recognize a deferred tax
          benefit in earnings as a result of the reversal of the deferred tax
          liability previously recorded at the acquisition date and we record
          current income tax expense representing the entire current income
          tax liability. In our calculation of FFO, we only include the
          current income tax expense to the extent the associated income is
          recognized for financial reporting purposes.

SOURCE ProLogis