Bridgestone, through its multiple brands including Firestone, is one of ProLogis' three-continent customers. Being internally managed allows us to better respond to changes in our global customers' distribution network needs.

INCOME DIVERSITY Through our property operations segment, we own and manage the world's largest portfolio of distribution space. Our local teams around the world build our business by focusing on customers. These relationships support our growth as those customers expand, enter new markets and reconfigure their supply chain networks. Over the last five years, half of the space in our newly developed facilities has been leased to repeat customers. We expect income from this core segment to continue to grow over the next few years. Strong overall market occupancies and moderate new construction are driving increases in rental rates, which are just now catching up with the sharp rise in land and construction material costs in recent years. In fact, at the end of 2006, we achieved our strongest increases in rental rates since the second quarter of 2002.

Our fund management business is a powerful engine of growth with more than $12.2 billion of industrial assets under management. Our equity partners get access to ProLogis' high-quality portfolio through our contribution of properties and benefit from professional management and our strong ties with global customers. ProLogis has the opportunity to establish relationships with equity partners around the world, aligning our interests with theirs. In addition, our fund management business enables us to expand with less of our overall capital invested, since we retain a 10 to 25 percent interest in the funds. In this way, we leverage our operating system and achieve higher returns on invested capital. During 2006, we recognized some of the value created over time within this business by purchasing our partner's interest in three North American property funds and subsequently contributing those assets into a new North American fund. With this transaction and the PEPR IPO, we unlocked earnings and created perpetual, liquid structures for fund investors.

Robert Watson, CEO (l), and Peter Cassells, CFO, of ProLogis European Properties (PEPR), led the team that successfully launched PEPR's initial public offering in September 2006. ProLogis acts as manager of the public fund and remains its largest investor.