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The year 2007 was an outstanding one for ProLogis with strong financial performance and solid operating fundamentals. But more important, it was a year in which we utilized the breadth of our global platform and leveraged the depth of our organization to position ourselves for 2008 and beyond.

We significantly enhanced our investment management business with the formation of three new property funds, one each in the United States, Mexico and Europe. We also completed our first acquisition within our South Korea fund and repositioned another fund, recognizing our share of the increased value of those properties over the past five years. In total, we secured equity commitments that allow us to grow our investment management business to more than $33 billion over the next three years, from $19 billion in assets under management at year end.

In our CDFS development business, we began a record $4.1 billion of new facilities supported by the strength of global demand in existing markets and our expansion into major new logistics areas. During the year, we entered the Middle East with our first project in Dubai and initiated development in South Korea as well as in new, high-growth markets throughout China, Japan, Central Europe and Mexico.

We acquired the industrial business of Parkridge, our best competitor in Europe, and invested in Parkridge's retail and mixed-use business. In addition, we made substantial progress in our global retail and mixed-use business through Catellus Development Group in the United States and our retail development joint venture that is building Wal-Mart centers in China.

With the completion of two successful convertible debt offerings, we raised more than $2.4 billion at very attractive interest rates and strengthened our financial position. We continue to see a flight to quality and believe that credit is available for quality assets and moderately leveraged business models. With our strong balance sheet and our expanded investment management capacity, we have positioned ourselves well to take advantage of current market opportunities.

Turning to this year and beyond, we continue to closely monitor market conditions. Globally, supply and demand remain well balanced. While our U.S. outlook has become more cautious, markets are generally stable with high occupancies and continued growth in rental rates. Additionally, industry fundamentals are much healthier than they were at the beginning of any other down cycle in recent memory. Nonetheless, we have shifted our U.S. development mix toward a greater portion of preleased business and expect that 80% to 85% of our development and investment capital in 2008 will be deployed outside the United States.

While there is disagreement about the connection between the U.S. economy and that of other countries, it is important to bear in mind that the global market for logistics space is not directly correlated to economic growth. Rather, demand continues to be driven by functional obsolescence, growth in global trade - currently more than double the growth rate of global GDP - and the need for more cost-efficient distribution networks. We see these as sustainable, secular trends - not cyclical ones.

We believe our leading presence in 118 of the world's largest logistics markets, including our top position near major global ports, provides unmatched geographic breadth, thereby mitigating the impact of any single economy on our overall results. This coverage enables us to address customers' global supply chain requirements and deploy our capital in only the strongest markets.

We have already seen that the tightening of credit is causing a decline in speculative development by private developers. This will provide stronger, better capitalized companies, such as ProLogis, with additional development and acquisition opportunities.

In summary, given the potential we see across our global markets, we remain confident about our ability to capitalize on our leading market presence. Most important, we have deep, talented local teams across the globe and are well positioned, financially and organizationally, to take advantage of market conditions in 2008 and beyond.

My sincerest thanks to all ProLogis associates and our Board for their dedication and support, which allows us to continue to drive value for our investors.

Jeffrey H. Schwartz
Chairman and Chief Executive Officer

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