Jeffrey H. Schwartz, Chief Executive Officer; Walter C. Rakowich, President and Chief Operating Officer; Ted R. Antenucci, President Global Development

Yangshan, which opened in 2005, will be the largest container port in the world when fully developed. It is set to become a crucial node in the global supply chain and will help process the steadily increasing flow of goods between China and western markets. Over the course of the last year, I and other ProLogis management team members have been to Yangshan several times to visit the facilities we are developing at our exclusive distribution park just off the bridge on the mainland. On every trip, I am struck by how quickly global trade and logistics outsourcing have changed our industry and how important it has been for ProLogis to build a global platform over the past 10 years.

The same trends are clearly evident at other ProLogis developments all over the world. In Japan, demand for space at our distribution parks in Tokyo, Osaka and other key markets has been truly exceptional, as companies embrace outsourcing of logistics. East of the Los Angeles/Long Beach port complex, our 25 million square-foot stabilized portfolio in the Inland Empire was fully occupied at year end. In Central Europe, we have seen robust demand from third-party logistics companies looking to serve markets in Western Europe as well as growing domestic consumption.

Today, the breadth and balance of our operations are among our most important strategic advantages and are key drivers of our financial performance. In 2006, we recorded 36 percent growth in funds from operations per share, driven by strong performance in all three of our business segments. We achieved record gains from our global development activity, solid increases in property fund income and fees and continued improvement in property operations.

Our diverse global platform, strategic land positions and strong customer relationships support future growth in our development, or CDFS, business. Our $2.5 billion of new development in 2006 was well balanced across North America, Europe and Asia. Based on continued strength in customer demand, we plan to increase development starts in 2007 by roughly 20 to 30 percent. This development, led by Ted Antenucci and our talented teams throughout the world, also will be distributed fairly evenly across the three continents, thereby minimizing our exposure to any single national or regional economy.

Building on this momentum, in February 2007, we acquired the industrial development business of Parkridge, one of our top competitors in Europe. As a result, we now have access to strategic land positions on which we can develop an additional $3 billion of properties in Central Europe and the United Kingdom. The transaction extends our leadership position as Europe's largest provider of distribution facilities and enhances our organization through the addition of some of Europe's top real estate professionals.

Additionally, we achieved meaningful improvement in our property operations business last year. We leased over 100 million square feet of space - a record amount - and this strong leasing activity is continuing into 2007. At the end of 2006, growth in rental rates and net operating income in our same-store pool were at their highest levels since the second quarter of 2002, driven by occupancies that have recovered and remained stable at approximately 95 percent.

We thank you for your continued support as we explore new ways to leverage the strength of our business and our colleagues' demonstrated ability to deliver value for our customers and shareholders.

Jeffrey H. Schwartz
Chief Executive Officer