<PAGE>

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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                  FORM 10-K/A
                               (Amendment No. 1)

(Mark One)
   [X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2001

                                      OR

   [_]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

            For the Transition period from __________ to __________

                        Commission File Number 1-13355

                      SECURITY CAPITAL GROUP INCORPORATED
            (Exact Name of Registrant as Specified in Its Charter)
                      Maryland                 36-3692698
                   (State or Other
                     Jurisdiction                (I.R.S.
                  of Incorporation or    Employer Identification
                     Organization)                No.)
                 125 Lincoln Avenue,              87501
                Santa Fe, New Mexico           (Zip Code)
                (Address of Principal
                  Executive Offices)

       Registrant's Telephone Number, Including Area Code (505) 982-9292

          Securities registered pursuant to Section 12(b) of the Act:


                                          Name of Each Exchange
                 Title of Each Class       on Which Registered
                 -------------------       -------------------
              Class A Common Stock, par
                value $.01 per share     New York Stock Exchange
              Class B Common Stock, par
                value $.01 per share     New York Stock Exchange
              Preferred Share Purchase
                Rights                   New York Stock Exchange

          Securities registered pursuant to Section 12(g) of the Act:

                                     NONE

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

   Based on the closing price of the registrant's Class A and Class B Common
Stock on March 22, 2002, the aggregate market value of the voting common equity
held by non-affiliates of the registrant was $3,139,008,300.

   At March 22, 2002, there were 640,088 shares of the registrant's Class A
Common Stock outstanding and 109,144,503 shares of the registrant's Class B
Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     NONE
================================================================================

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                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
Item Description                                                                           Page
---- -----------                                                                           ----
<C>  <S>                                                                                   <C>

                                            PART I
1.   Business.............................................................................   1
2.   Properties...........................................................................  10
3.   Legal Proceedings....................................................................  11
4.   Submission of Matters to a Vote of Security Holders..................................  12

                                            PART II
5.   Market for Registrant's Common Equity and Related Stockholder Matters................  13
6.   Selected Financial Data..............................................................  13
7.   Management's Discussion and Analysis of Financial Condition and Results of Operations  15
7A.  Quantitative and Qualitative Disclosures About Market Risk...........................  29
8.   Financial Statements and Supplementary Data..........................................  29
9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.  29

                                           PART III
10.  Directors and Executive Officers of the Registrant...................................  30
11.  Executive Compensation...............................................................  31
12.  Security Ownership of Certain Beneficial Owners and Management.......................  38
13.  Certain Relationships and Related Transactions.......................................  43

                                            PART IV
14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................  45
</TABLE>



   The purpose of this Form 10-K/A is to amend certain disclosures set forth in
Items 1, 2, 3, 7 and 8 to the Annual Report on Form 10-K.


<PAGE>

Item 1. Business

Overview


   On December 14, 2001, Security Capital Group Incorporated (Security Capital)
and GE Capital Corporation (GE Capital) through its Commercial Real Estate
business, announced that they have entered into a definitive agreement for GE
Capital to acquire Security Capital for approximately $4 billion, or $26 in
value per class B common share. In the merger, each share of Security Capital
class B stock will be converted into the right to receive $26.00 in cash,
subject to the substitution, at the election of GE Capital, of a combination of
cash and common shares of beneficial interest of ProLogis Trust owned by
Security Capital with an agreed aggregate value of $26.00. The value of the
ProLogis common shares will be measured during the 10 consecutive full trading
days preceding the 2 consecutive full trading days preceding the Security
Capital stockholder's meeting to vote on the transaction. Each share of
Security Capital class A stock will be converted into the right to receive 50
times the per share class B consideration. GE Capital has informed Security
Capital that its current plan is to cause Security Capital to distribute some
(but not all) of the ProLogis common shares to Security Capital stockholders,
such that each share of class B stock would be entitled to receive
approximately 0.19 ProLogis common shares. GE Capital has not made a formal
election and has informed Security Capital that it intends to continue to
evaluate its alternatives and could change its plans.


   Security Capital is an international real estate operating and investment
management company. The company's strategy is to own all or a high percentage
of six real estate businesses that function as private operating divisions.
Security Capital currently has ownership positions in nine real estate
businesses. The principal offices of Security Capital are in Brussels, Chicago,
El Paso, Houston, London, Luxembourg, New York and Santa Fe.

   During 2001, Security Capital took a number of actions with respect to its
interests in its portfolio of companies. These actions included the following:

  .  the acquisition of the remaining interests Security Capital did not own in
     Security Capital U.S. Realty (SC-U.S. Realty) in January 2001;

  .  the sale of Security Capital's interests in Archstone Communities Trust
     (predecessor to Archstone-Smith Trust) in February 2001;

  .  the sale of Security Capital's interests in CWS Communities Trust (CWS
     Communities) in August 2001;

  .  the sale of Security Capital's interests in Homestead Village Incorporated
     (Homestead Village) in November 2001;

  .  the sale of Security Capital's interests in CarrAmerica Realty Corporation
     (CarrAmerica) during November and December 2001; and

  .  the entry into an agreement to acquire Storage USA, Incorporated (Storage
     USA) in December 2001.

                                      1

<PAGE>

Security Capital had the following structure at December 31, 2001:


<TABLE>
<CAPTION>
                                                        Ownership
                                                        ---------
             <S>                                        <C>
             Public Companies
                ProLogis...............................     28%
                Regency................................     59%
                Storage USA............................     42%
             Private Divisions
                Belmont................................     99%
                InterPark..............................     97%
                Security Capital Research & Management.    100%
                Security Capital European Realty.......     35%
                    Access Storage Solutions...........    100%(1)
                    EuroOffice.........................    100%(1)
                    Interparking.......................     85%(1)
</TABLE>
--------
(1) Represents Security Capital European Realty's ownership of this entity,
    which is a subsidiary of Security Capital European Realty.

   Security Capital was formed in 1991 as a private real estate company
incorporated in Maryland. Since September 1997, its shares have been publicly
traded on the New York Stock Exchange (SCZ). Upon the completion of the
acquisition by GE Capital, Security Capital shares will no longer be publicly
traded.

   Investments in Real Estate Operating Companies

   Security Capital currently has direct and indirect investments in nine real
estate operating companies focused on distribution facilities and services,
neighborhood shopping centers, self-storage, parking, office, and senior
assisted living communities, as well as a capital management business focused
on real estate investments and securities. The combined total market
capitalization of these investees was $15.2 billion as of December 31, 2001.

   Investments as of December 31, 2001 include the following:

<TABLE>
<CAPTION>
                                                     Direct/Indirect Equity Market   Total Market
                                     Direct/Indirect      Full       Capitalization Capitalization
                                      Common Share      Ownership         (2)            (2)
             Investees                  Ownership          (1)       (in millions)  (in millions)
             ---------               --------------- --------------- -------------- --------------
<S>                                  <C>             <C>             <C>            <C>
BelmontCorp.........................       99.8%           97.8%         $  135         $  217
City Center Retail Trust............       99.9%           99.9%            176            176
ProLogis Trust......................       28.4%           26.5%          4,271          6,849
Regency Centers Corporation.........       59.5%           57.9%          2,067          3,464
Storage USA.........................       41.6%           38.0%          1,368          2,214
InterPark...........................       97.2%           69.3%            225            855
Security Capital European Realty (3)       34.6%           34.4%          1,275          1,281
   Access Storage Solutions (4) (5).      100.0%           96.8%            279            357
   EuroOffice (4) (6)...............      100.0%          100.0%            622          1,069
   Interparking Group (4) (7).......       85.0%           85.0%             (7)            (7)
</TABLE>
--------
(1) Full ownership assumes contractual equity commitments by investors have
    been funded, convertible instruments have been converted into common
    shares, and options and warrants for common shares have been exercised.

(2) Equity market capitalization assumes full ownership excluding conversions
    or exercises of options with a strike price lower than the December 31,
    2001 market value. The resulting number of common shares is multiplied by
    the closing price of the common shares on such date for those companies
    listed on an exchange or, in the case of private entities, the last private
    equity offering price. Total market capitalization is equity market
    capitalization plus debt that has not been converted.

                                      2

<PAGE>

(3) The management and Board of Directors of Security Capital European Realty
    (SC-European Realty) receive operating and investment advice from a
    subsidiary of Security Capital.

(4) This company is an investee of SC-European Realty through a subsidiary and
    is not directly owned by Security Capital. The ownership percentage
    reflected is that of SC-European Realty.

(5) SC-European Realty's storage interests are operated under two groups,
    Access Self-Storage Holdings S.A. (Access Self-Storage) in Europe and
    Millers Storage Holdings S.A. (Millers Storage) in Australia, which
    combined form Access Storage Solutions. SC-European Realty's common share
    ownership of each of Access Self-Storage and Millers Storage is 100%.

(6) EuroOffice comprises Akeler Holdings S.A. (Akeler) and certain assets of
    Bernheim-Comofi S.A. (Bernheim-Comofi). SC-European Realty's common share
    ownership of each of Akeler and Bernheim-Comofi is 100%.

(7) Interparking Group is owned 85% by Bernheim-Comofi. Interparking Group's
    equity and total market capitalization are included in the market
    capitalization of EuroOffice.

   BelmontCorp (Belmont). Belmont is a private company focused on becoming an
industry leader as a developer, owner and operator of senior assisted living
residential communities in the United States. Belmont differentiates itself
from competitors through its purpose-built facility design and proprietary
operating system. Belmont is creating its communities in infill locations in
prime suburban areas of large metropolitan markets that have excellent senior
demographics and high barriers to entry. As of December 31, 2001, Belmont had
6 properties in operation, 5 properties under development and 4 properties in
planning.

   City Center Retail Trust (City Center Retail). City Center Retail was
created to provide high quality customer service on a national basis to top
U.S. and international retailers. City Center Retail's portfolio consists of 3
properties. Management of City Center Retail is evaluating strategic
alternatives that could include the sale of a portion or all of its assets.
Security Capital does not plan any further investment in this entity.

   ProLogis Trust (ProLogis) (NYSE: PLD). ProLogis is a leading global provider
of integrated distribution facilities and services, with 1,587 distribution
facilities owned, managed or under development throughout North America, Europe
and Japan. With a current total market capitalization of approximately $6.8
billion, ProLogis has built a global network of distribution facilities with
its primary objective to increase shareholder value. ProLogis plans to achieve
this objective through its ProLogis Operating System(TM), and its commitment to
be "The Global Distribution Solution" by providing exceptional corporate
distribution services and facilities to meet customer expansion and
reconfiguration needs globally. As of December 31, 2001, ProLogis owned,
managed or had under development a total of 190.3 million square feet of
distribution facilities in 99 global markets.

   Regency Centers Corporation (Regency) (NYSE: REG). Regency is a leading
national owner, operator and developer focused on grocery-anchored,
neighborhood retail centers. Regency's significant customer driven development
program provides for Regency's grocery and specialty retail customers' growth
needs, creates modern shopping centers, resulting in new 20 year leases from
the grocery anchors and generating attractive returns on invested capital. As
of December 31, 2001, Regency owned 272 retail properties, excluding
build-to-suit properties, totaling 29.1 million square feet.

   Storage USA (NYSE: SUS). Storage USA engages in the management, acquisition,
development, construction and franchising of self-storage facilities. At
December 31, 2001, Storage USA owned, managed and franchised 558 facilities
with a total of 37.9 million square feet in 33 states and the District of
Columbia.

   As discussed below, in December 2001 Security Capital and Storage USA
entered into an agreement for Security Capital to acquire Storage USA.

                                      3

<PAGE>

   InterPark Incorporated (InterPark). InterPark is a private company and
leading manager and owner of parking facilities in cities throughout the United
States. InterPark owns 52 facilities with 34,000 spaces, leases (directly and
through a joint venture) 151 facilities with 40,000 spaces, and manages for
third parties 173 facilities with 55,000 spaces. InterPark currently operates
in major markets nationally, including Atlanta, Chicago, Denver, New York,
Tampa and Washington, D.C.

   SC-European Realty. SC-European Realty is a Luxembourg-based real estate
company that owns investments predominantly in Europe in start-up or existing
real estate operating companies. Each strategic investment of SC-European
Realty has an objective to become a leader in its respective product niche.
SC-European Realty, with $1.4 billion of committed equity capital, has three
strategic businesses: Access Storage Solutions, EuroOffice, and Interparking,
which are engaged in owning and/or operating self-storage facilities, offices,
and public car-park facilities, respectively.

   Each business plans to be pan-European and has significant opportunities for
branding, market expansion, and increased service revenues.

  SC-European Realty's Strategic Ownership Positions:

   Access Storage Solutions (Access). Access Self-Storage, a private company,
is the largest developer and owner of self-storage facilities located in Europe
(in terms of number of facilities) with 58 facilities in two countries. In
addition, SC-European Realty owns Millers Storage, one of the leading
self-storage companies in Australia with 19 facilities. As of December 31,
2001, Access Self-Storage and Millers Storage owned 77 operating properties,
with approximately 3.8 million square feet of space and had another ten
properties under development.

   EuroOffice. SC-European Realty's suburban office interests are undertaken
through two private companies, Akeler and Bernheim-Comofi. Together, Akeler and
Bernheim-Comofi form EuroOffice which has a customer-driven development
strategy for multinational companies. Akeler owns, operates and develops
suburban office buildings and office parks primarily in the U.K., while
Bernheim-Comofi owns, operates and develops suburban office and office parks
primarily in Belgium. Located in six key European markets, at December 31,
2001, the two companies had a total of 13 operating properties with
approximately 1.2 million square feet of space and another 7 properties under
development.

   Interparking Group (Interparking). Interparking S.A., a private company, is
the leading continental European owner-operator of off-street public parking
facilities (in terms of number of off-street sites and spaces). As of December
31, 2001, Interparking owned or has the option to purchase 41 facilities with
24,000 spaces, operated under long-term leases and concessions 76 facilities
with 41,000 spaces, and managed under short-term agreements 146 facilities with
68,000 spaces in 82 cities across seven countries. In December 2001,
SC-European Realty increased its ownership position in Interparking from 73.6%
to 85% in a private transaction.

   Security Capital Research & Management (SC-Research & Management).
SC-Research & Management is a registered investment adviser that manages
capital invested in publicly traded and privately owned real estate securities.
Based in Chicago, SC-Research & Management has been investing in real estate
securities since 1995, primarily through:

  .  Institutional separate account management and sub-advisory arrangements

  .  Mutual funds and privately managed accounts

  .  Security Capital Preferred Growth Incorporated, a private real estate
     investment trust

   As of December 31, 2001, SC-Research & Management had total assets under
management of $3.1 billion, compared to $2.1 billion as of December 31, 2000.
SC-Research & Management utilizes a rigorous investment process that integrates
important research perspectives on real estate markets, company cash flow
potential and equity market pricing trends with disciplined investment
execution capabilities in the open market and in the structuring, negotiation
and closing of private placement securities.

                                      4

<PAGE>

   SC-Research & Management advises Security Capital Real Estate Mutual Funds
Incorporated, an open-end investment management company with two mutual funds,
Security Capital U.S. Real Estate Shares (SUSIX) and Security Capital European
Real Estate Shares (SEUIX). As of December 31, 2001, on a trailing 3 and 5-year
basis, SUSIX was ranked in the top 5% of real estate mutual funds by an
independent mutual fund information provider. Additionally, in November 2001,
SC-Research & Management launched a new fund offering with Nuveen Investments,
the Nuveen Real Estate Income Fund (Amex: JRS). JRS is a closed-end,
exchange-traded fund that SC-Research & Management subadvises. SC-Research &
Management also advises Security Capital Preferred Growth Incorporated
(SC-Preferred Growth), a private real estate investment trust investing in
convertible preferred securities of public and private real estate companies.

Significant Developments During 2001

   During 2001, Security Capital engaged in the following significant
transactions as it focused its capital pursuant to the strategy described above:

  SC-U.S. Realty Acquisition

   Prior to January 16, 2001, Security Capital owned 40.6% of the outstanding
common stock of SC-U.S. Realty. On January 16, 2001, Security Capital acquired
the assets of SC-U.S. Realty in exchange for 45.4 million Security Capital
Class B Shares and $112 million of cash to SC-U.S. Realty shareholders (other
than Security Capital) who elected cash. In addition, Security Capital funded
$434 million to repay indebtedness of SC-U.S. Realty existing on the date of
acquisition. The transaction provided important benefits, which included the
elimination of a complex structural relationship and removal of a tier of
discount and unrealized value. As a result of the purchase, all investees
directly owned by SC-U.S. Realty became directly owned by Security Capital and
dividends previously paid to SC-U.S. Realty from its investees are paid to
Security Capital.

  Archstone Sale

   On February 28, 2001, Security Capital sold substantially all of its
remaining shares of Archstone stock, generating $643 million of net proceeds in
cash. The proceeds were used to pay off debt incurred in the SC-U.S. Realty
acquisition, with the balance used for share repurchases or retained in cash
equivalents pending future investment.

  CWS Communities Sale

   On August 3, 2001, Security Capital sold its entire 94.1% ownership in CWS
Communities for net proceeds, after taxes and transaction costs, of $270.0
million in cash. The proceeds were retained in cash equivalents pending future
investments.

  CarrAmerica Sales

   On November 16, 2001, Security Capital sold 9.2 million of its shares of
CarrAmerica to CarrAmerica. On December 19, 2001, Security Capital sold its
remaining 19.4 million shares of CarrAmerica in a secondary public offering.
The transactions generated $760.3 million of net proceeds in cash. The proceeds
were retained in cash equivalents pending future investments.

  Homestead Village Sale


   On November 20, 2001, Security Capital sold its entire 99.9% ownership in
Homestead Village to BRE/Homestead Village LLC, an affiliate of Blackstone Real
Estate Advisors established specifically for this purchase for a total value of
$740 million. The consideration received in the transaction included $480
million in cash, a $115 million promissory note due November 2006 issued by
BRE/HV Holdings LLC, the parent company of BRE/Homestead Village LLC (BRE/HV
Holdings LLC owns no assets other than its ownership in BRE/Homestead Village
LLC), to Security Capital, and BRE/Homestead Village LLC's assumption of $145
million in liabilities. The promissory note carries an initial coupon of 12%
that increases by 100 basis points


                                      5

<PAGE>


annually; interest can be accrued to the extent Homestead Village's cash flow
is insufficient for a particular period. This note represents a mezzanine loan
that is secured by BRE/Homestead Village LLC's interest in a subsidiary that
owns 92 Homestead Village properties that are subject to $400 million of first
mortgage financing. The note does not have any security interest in the actual
properties. Security Capital has been informed by the purchaser of Homestead
that it plans to prepay this note in the near future, but no assurance can be
given that a prepayment will occur. Net cash proceeds from the sale, excluding
future proceeds from the promissory note and after transaction costs, were
approximately $462 million.


  Agreement to Acquire Storage USA

   On December 5, 2001, Security Capital and Storage USA entered into a
purchase and sale agreement which provides for the sale of all of the assets of
Storage USA, including its interests in SUSA Partnership, L.P., its operating
partnership, to Security Capital, and the merger of Storage USA, Inc. with and
into SUSA Partnership, L.P. The Purchase and Sale Agreement was amended by a
letter agreement, dated as of January 17, 2002, to reflect the increase in the
consideration payable to Storage USA shareholders and the limited partners of
the operating partnership from $42.00 to $42.50 per share or unit as a result
of the settlement of shareholder class action litigation commenced in
connection with the transaction. The transaction is subject to approval by the
holders of a majority of Storage USA's common shares outstanding and other
customary conditions to closing. No assurance can be given that this
transaction will close.

  Share Repurchase Program

   In April 2001, Security Capital completed a modified Dutch auction
self-tender offer in which approximately 9.3 million Class B Shares were
purchased at a purchase price of $20.50 per share, or a total of $191 million.
Since the share repurchase program began in August 1999, Security Capital has
repurchased $541 million or 31.9 million Class B common stock equivalents,
representing approximately 26% of shares outstanding. In addition, from October
1999 to April 2000, Security Capital has repurchased $80.5 million principal
amount of 6.5% Convertible Subordinated Debentures due 2016, which were
convertible into 3.5 million Class B Shares, at a gain of $20.2 million.

Agreements with Operating Companies

   Security Capital has the following agreements with its affiliates.

  Investor Agreements

   Security Capital has entered into investor agreements with several of its
investees, including ProLogis, Regency and Storage USA. The investor agreements
provide Security Capital with rights regarding board representation and major
transactions. The scope of Security Capital's rights depends on its percentage
ownership of the common stock of the investee. Generally, if Security Capital
owns at least 10% of the outstanding common stock of the investee, Security
Capital has the right to approve any increase in the size of the board of
directors or trustees and to nominate a proportionate number of directors or
trustees of the investee. However, for investees with publicly traded
securities, the number of trustees or directors Security Capital may nominate
is limited to less than a majority of the board. The investor agreements also
provide Security Capital with the right of prior approval or consultation on
major matters and actions, including the issuance of securities and the
incurrence of indebtedness, and provide Security Capital with registration
rights regarding the common stock of such investee held by Security Capital.
The investor agreements with Regency and Storage USA limit Security Capital's
ownership in each investee to specified ownership percentages and include
standstill provisions which limit the ability of Security Capital to take or
propose certain extraordinary activities involving the investee without the
consent of the board of directors of the investee. The investor agreement also
constrains Security Capital's ability to dispose of its investment in each
investee to ensure that no transfer will exceed certain ownership limits.

                                      6

<PAGE>

  Administrative Services Agreements

   SCGroup Incorporated (SCGroup), a wholly-owned subsidiary of Security
Capital, provides a variety of administrative services, including cash
management, human resources, information systems, payroll, accounts payable
processing, risk management and tax administration to subsidiaries and some
other affiliates of Security Capital under administrative services agreements.
In 2001, SCGroup received $13.3 million in fees for such services. The
administrative services agreements generally have effective terms of one year.
No assurances can be given that all or any of these administrative services
agreements will continue to be renewed. There is a trend to return certain
administrative activities to unconsolidated customers as new technological
infrastructures are completed (ProLogis having internalized most shared
services). Security Capital expects its fees under these agreements to diminish.

  Advisory Agreements

   A wholly-owned subsidiary provides SC-European Realty with advice with
respect to strategy, investments, financing, administrative and other matters.
Fees for such services are based upon the value of SC-European Realty's
investments. During 2001, such fees totaled $14.8 million. The advisory
agreement has a five-year term ending November 2002, which renews automatically
for an additional two-year term unless the agreement is terminated by
SC-European Realty.

Employees

   As of February 28, 2002, Security Capital employed 212 persons at the
corporate level, and its affiliated operating companies employed 12,855
persons. Except for certain employees of InterPark, none of Security Capital's
employees are covered by collective bargaining agreements. InterPark has
approximately 930 employees (315 through a joint venture) covered by collective
bargaining agreements. Security Capital believes its relations with its
employees are good.

Competition

   There are numerous developers, operators, real estate companies and other
owners of real estate that compete with Security Capital's operating affiliates
in seeking land for development to operate their respective businesses.
Security Capital's operating companies compete on a global, regional and
national basis with no individual market material to Security Capital as a
whole. All of the properties of Security Capital's operating companies are
located in developed areas that include various competitors. The number of
competitive properties in a particular market could have a material adverse
effect on Security Capital's operating companies and on the rents charged by
them. Security Capital's operating companies may compete with others that have
greater resources and whose officers, directors and trustees have more
experience than the officers, directors and trustees of Security Capital's
operating companies.

   The global real estate securities management business of Security Capital
competes for capital and investment opportunities with a large number of
investment management firms as well as certain insurance companies, commercial
banks and other financial institutions, some of which may have greater access
to capital and other resources and which may offer a wider range of services
than Security Capital. Real estate securities investment management firms can
be formed with relatively small amounts of capital and depend most
significantly on the continued involvement of their professional staff.
Security Capital believes that competition among real estate securities
investment management firms is affected principally by investment performance,
development and implementation of investment strategies, information
technologies and databases and client service performance.

   The mutual fund industry is highly competitive. SC-European Real Estate
Shares and SC-US Real Estate Shares are in direct competition with other real
estate mutual funds sold directly by investment management firms and
broker-dealers, as well as other investment alternatives offered by banks and
other financial

                                      7

<PAGE>

institutions. There are over 60 mutual funds which focus on publicly traded
real estate company securities. Many of these mutual funds have longer
histories and may have greater access to capital through more established
distribution channels. Competition in the sale of mutual funds is affected by a
number of factors including industry/sector returns, performance, ratings by
independent mutual fund information providers, advertising and sales promotion
efforts, the level of fees and distribution channels available.

Trademarks and Service Marks

   Security Capital uses a number of trademarks, including ''Security Capital''
and variants thereof. All trademarks, service marks and copyright registrations
associated with the business of Security Capital are registered in the name of
Security Capital and, if not maintained, expire over various periods of time
beginning in 2005. Security Capital intends to defend vigorously against
infringement of its trademarks, service marks and copyrights.

Government Regulation

   The real estate operating companies in which Security Capital has an
investment are subject to governmental regulations. Government authorities at
the federal, state and local levels are actively involved in the issuance and
enforcement of regulations relating to land use and zoning restrictions.
Regulations may be issued which could have the effect of restricting or
curtailing certain uses of existing structures or requiring that the structures
be renovated or altered in some fashion. The issuance of any such regulations
could have the effect of increasing the expenses and lowering the profitability
of any of the properties affected. Security Capital does not believe that any
of these regulations will have a material impact on it or the operating
companies in which it has an investment.

   Under the Americans with Disabilities Act (ADA), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Although Security Capital's operating companies have
attempted to satisfy ADA requirements in the designs for their properties to
the extent ADA is applicable to their property type, no assurance can be given
that a material ADA claim will not be asserted against any of Security
Capital's operating companies, which could result in a judicial order requiring
compliance and the expenditure of substantial sums to achieve compliance, an
imposition of fines or an award of damages to private litigants.

   Most states require a license to operate an assisted living community.
Regulations vary across state lines and affect the physical and operating
characteristics of a community. Life safety is of primary concern to
regulators, given the age and frailty of the senior assisted living population.
Belmont believes that its operating communities meet the standards set by
regulators in each of the markets it has entered and has received the necessary
permits and approvals for its operating communities. Certain states require
that an assisted living provider obtain a Certificate of Need prior to applying
for a building permit or operating license. While Belmont to date has been
successful with this requirement in all the states where it has sought to do
business, the process is arduous and may impede entry into some markets in the
future.

   SC-Research & Management is registered as an investment advisor with the SEC
and its advisory activities are subject to extensive federal regulation.

Environmental Matters

   The real estate operating companies in which Security Capital has an
investment are subject to environmental and health and safety laws and
regulations related to the ownership, operation, development and acquisition of
real estate. Under those laws and regulations, the operating companies may be
liable for, among other things, the costs of removal or remediation of certain
hazardous substances, including asbestos-related liability. Those laws and
regulations often impose liability without regard to fault.

                                      8

<PAGE>

   As part of their due diligence procedures, the operating companies in which
Security Capital has an investment generally conduct Phase I environmental
assessments on each of their properties prior to their acquisition; however, no
assurance can be given that those assessments have revealed all potential
environmental liabilities. Security Capital is not aware of any environmental
condition on any of the properties of the companies in which it has an
investment which is likely to have a material adverse effect on its
consolidated financial position or results of operations; however, no assurance
can be given that any such condition does not exist or may not arise in the
future.

Senior Executive Officers of Security Capital

   The following are senior executive officers of Security Capital:

   C. Ronald Blankenship--52--Director, Vice Chairman and Chief Operating
Officer since May 1998. Previously, Mr. Blankenship was Managing Director of
Security Capital since 1991. Prior to June 1997, he was the Chairman of
Archstone. Between May 1999 and November 2001, he was Interim Chairman, Chief
Executive Officer and a Director of Homestead Village. Mr. Blankenship is a
Trustee of ProLogis and Director of Belmont, InterPark, Macquarie Capital
Partners LLC, Regency and Storage USA.

   Jeffrey A. Klopf--53--Senior Vice President and Secretary of Security
Capital since January 1996. Mr. Klopf provides legal services to Security
Capital and some of its directly-owned operating companies.

   Anthony R. Manno, Jr.--49--Managing Director of SC-Research & Management
since January 1995, where he is responsible for investment strategy and
execution. Mr. Manno was a member of Security Capital's Investment Committee
from March 1994 to June 1996. Mr. Manno has been President of SC-Preferred
Growth since January 2000, and Chairman and President of Security Capital Real
Estate Mutual Funds since January 1997.

   Caroline S. McBride--48--Managing Director of the Capital Division since
March 1997, where she provides operating oversight for companies in which
Security Capital has direct ownership positions. From June 1996 to July 1997,
Ms. McBride was Managing Director of SC-Research & Management. Ms. McBride is a
Director of Storage USA, InterPark and Belmont.

   A. Richard Moore--56--Managing Director of SC-European Realty since June
2000 and Managing Director of the Capital Division since May 1998. Mr. Moore
was Interim Chief Financial Officer for Homestead Village from May 1999 to July
2000. From March 1990 to May 1998, Mr. Moore was a Vice President with Goldman,
Sachs & Co., where his most recent position was in the Equity Research
Department. Mr. Moore is Director of SC-European Realty, Access, Akeler and
Bernheim-Comofi.

   Constance B. Moore--46--Managing Director of the Capital Division since
January 1999, where she provides operating oversight for companies in which
Security Capital has direct ownership positions. From July 1998 to December
1998, Ms. Moore was Co-Chairman and Chief Operating Officer of Archstone, and a
Trustee of Archstone from July 1998 to July 2000. From January 1996 to July
1998, Ms. Moore was Co-Chairman, Chief Operating Officer and Director of
Security Capital Atlantic Incorporated (which merged into Archstone). Ms. Moore
is a Trustee of City Center Retail and Urban Growth Property Trust and a
Director of Belmont, InterPark, Interparking S.A. and Macquarie Capital
Partners LLC.

   David T. Novick--37--Senior Vice President of Security Capital since March
2001, and Vice President of Security Capital from May 1998 to March 2001. He
provides legal services to SC-Research & Management and its advised entities.
From September 1989 to May 1998, Mr. Novick was an attorney, and most recently
a partner, with the law firm of Katten Muchin & Zavis.

   Russell C. Platt--41--Managing Director of SC-Research & Management since
March 2001, where he is responsible for new product development, global
expansion and client capital. Prior thereto, from April 2000 to

                                      9

<PAGE>

March 2001, Mr. Platt was Managing Director of Forum Partners (a property
finance firm); from January 1999 to April 2000, he was President of JER
International (an investment management firm). Mr. Platt was a Managing
Director with Morgan Stanley from August 1982 to July 1999 in its global real
estate business of Morgan Stanley Asset Management and served as a director of
the Morgan Stanley Real Estate Funds.

   William D. Sanders--60--Founder, Chairman and Chief Executive Officer of
Security Capital. Mr. Sanders currently serves as a Director of SC-European
Realty, Storage USA and Macquarie Capital Partners LLC, and an Advisory
Director of Regency. He is Chairman of the National Association of Real Estate
Investment Trusts.

   Kenneth D. Statz--43--Managing Director of SC-Research & Management since
December 1997, where he is responsible for the development and implementation
of portfolio investment strategy. From July 1996 to December 1997, Mr. Statz
was Senior Vice President of SC-Research & Management.

   James C. Swaim--49--Managing Director of SCGroup since December 2000 and
Senior Vice President of Security Capital since December 1998. From December
1997 to December 1998, Mr. Swaim was Vice President of Security Capital. Mr.
Swaim is the principal accounting officer for Security Capital. From July 1996
to December 1997, he was a private business and financial consultant.

   Paul E. Szurek--41--Managing Director of SCGroup and Chief Financial Officer
of Security Capital since July 1997. From January 1996 through June 1997, Mr.
Szurek was Managing Director of SC-U.S. Realty and EU Management, where he was
responsible for operations, corporate finance and mergers and acquisitions.

   Thomas G. Wattles--50--Managing Director of Security Capital since 1991. Mr.
Wattles was Non-Executive Chairman of ProLogis from March 1997 to May 1998,
Co-Chairman and Chief Investment Officer of ProLogis from November 1993 to
March 1997, and Director of ProLogis' predecessor since its formation in 1991.
Mr. Wattles is a Trustee of Urban Growth Property Trust and ProLogis, and a
Director of Access, Akeler, Bernheim-Comofi, InterPark, Millers Storage,
Regency, and SC-European Realty.

Item 2. Properties

   Security Capital's principal office is in Santa Fe, New Mexico, and its
directly owned affiliates have domestic offices in Chicago, El Paso, Houston
and New York and international offices in Brussels, London and Luxembourg. The
companies in which Security Capital has investments have offices throughout the
United States and in Europe. While Security Capital itself does not own
investment real estate, the companies in which Security Capital has investments
own an extensive number of properties. None of the individual properties owned
by any of the Security Capital affiliates constitutes more than ten percent of
the total consolidated assets of Security Capital or provides more than ten
percent of the gross consolidated revenue of Security Capital. These properties
are summarized below as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                       Approximate Square Footage
     Company                Location                   Type                or Number of Units
     -------                --------                   ----            --------------------------
<S>                <C>                        <C>                    <C>         <C>     <C>
Belmont            South, Midwest and West    Senior assisted living Operating         6 properties
                   U.S.A.                     communities                            860 units
                                                                                       5 properties
                                                                     Development     701 units
                                                                     In planning       4 properties
                                                                                     536 units
City Center Retail Chicago, San Francisco and Retail facilities      Operating         2 properties
                   Washington, D.C.                                              923,758 sq.ft.
                                                                     Development       1 property
                                                                                  58,759 sq.ft.
</TABLE>

                                      10

<PAGE>


<TABLE>
<CAPTION>
                                                          Approximate Square Footage
 Company          Location                 Type               or Number of Units
 -------          --------                 ----           --------------------------
<S>       <C>                       <C>                <C>         <C>    <C>
InterPark Atlanta, Chicago, Denver, Parking facilities Operating       52 properties
          New York, Tampa and                                      33,510 spaces
          Washington, D.C.
ProLogis  Throughout Europe, North  Distribution       Operating    1,542 properties
          America and Japan         facilities                      186.2 million sq.ft.
                                                                       16 properties
                                                       Development    5.4 million sq.ft.
Regency   Throughout U.S.A          Grocery-anchored   Operating      231 properties
                                    retail centers                   25.2 million sq.ft.
                                                       Development     41 properties
                                                                      3.9 million sq.ft.
</TABLE>

<TABLE>
<S>          <C>                  <C>                     <C>         <C>    <C>
Storage USA  Throughout U.S.A.    Self-storage facilities Operating      411 properties
                                                                        28.1 million sq.ft.
                                                          Development      3 properties
                                                                         0.3 million sq.ft.
                                                          In planning      7 property
                                                                         0.6 million sq.ft.
Access       Australia and Europe Self-storage facilities Operating       77 properties
                                                                         3.8 million sq.ft.
                                                          Development     10 properties
                                                                         0.8 million sq.ft.
                                                          In planning      2 properties
                                                                         0.1 million sq.ft.
EuroOffice   Europe               Offices                 Operating       13 properties
                                                                         1.2 million sq.ft.
                                                          Development      7 properties
                                                                         0.6 million sq.ft.
                                                          In planning     21 properties
                                                                         9.0 million sq.ft.
Interparking Europe               Parking facilities      Operating       41 properties
                                                                      23,530 spaces
</TABLE>

   In addition to the above properties owned by Security Capital's investees,
Security Capital and its 100% owned subsidiaries lease properties in Chicago,
El Paso, London, Luxembourg, New York and Santa Fe. Security Capital leases its
El Paso property from ProLogis under a lease, which expires July 31, 2005, and
has annual lease payments of approximately $570,000.

Item 3. Legal Proceedings

   Security Capital and its subsidiaries are parties to certain legal
proceedings arising in the ordinary course of their business, none of which are
expected to have a material adverse impact on Security Capital.

   On January 17, 2002, Security Capital and Storage USA reached an agreement
in principle to settle the seven putative class action lawsuits filed on or
about November 6 and 8, 2001, by alleged shareholders of Storage USA against
each of Storage USA's directors and Security Capital in connection with the
announced acquisition of Storage USA by Security Capital. As a condition to the
settlement, Security Capital has agreed to increase the amount per share that
the shareholders of Storage USA would receive in the transaction from $42.00 to
$42.50. Holders of units of limited partnership in Storage USA's operating
partnership, SUSA Partnership, L.P. would also be entitled to receive the
increased consideration in the transaction with respect to each unit held

                                      11

<PAGE>

by them, if they do not elect to continue as limited partners of the operating
partnership. The settlement is subject to a number of conditions, including
court approval and consummation of the acquisition by Security Capital.
However, regardless of whether court approval of the settlement shall have been
obtained prior to the consummation of the acquisition, the increased price to
be paid by Security Capital will apply if the acquisition is consummated. Other
than the increase in the per-share consideration to be received by Storage USA
shareholders and the operating partnership's limited partners in the
transaction with Security Capital, the other terms of the agreement governing
the transaction remain unchanged.


   On March 12, 2002, a group of limited partners of the Storage USA operating
partnership, owning in the aggregate 463,732 limited partnership units filed
suit in the Chancery Court of Tennessee for the Thirtieth Judicial District at
Memphis against Storage USA, the Storage USA operating partnership and Security
Capital. The plaintiffs purport to bring the action individually on their own
behalf and as a class action on behalf of all limited partners of the Storage
USA operating partnership and on behalf of a subclass of those limited partners
who are parties to tax deferral agreements with the Storage USA operating
partnership. Among other forms of relief sought in the complaint as described
below, the plaintiffs seek to enjoin the Security Capital/Storage USA
transactions on the grounds that the Security Capital/Storage USA transactions
are in violation of the existing partnership agreement of the Storage USA
operating partnership, of the Tennessee Revised Uniform Limited Partnership Act
and of the tax deferral agreements. The plaintiffs allege in the complaint that
they seek to prevent the plaintiffs and other limited partners of the operating
partnership from being cashed out from the operating partnership without a vote
and without appraisal rights and at an unfair price and from being coerced to
give up their existing contractual rights under the existing partnership
agreement and the tax deferral agreements. The complaint purports to state
causes of action against all of the defendants for alleged breach of fiduciary
duty on the grounds that the vote of the minority limited partners is not being
sought for the Security Capital/Storage USA transactions, the limited partners
are not being offered appraisal rights in the Security Capital/Storage USA
transactions and the special committee did not contain any limited partners or
representatives of the limited partners. The complaint further purports to
state causes of action against all defendants for violation of the Tennessee
Revised Uniform Limited Partnership Act by asserting that Storage USA's
ownership of both general and limited partnership interests amounts to a
conflict of interest and that therefore the limited partners, other than
Storage USA, should be offered the opportunity to vote on the Security
Capital/Storage USA transactions. The complaint purports to state an additional
cause of action against both Storage USA and the Storage USA operating
partnership for breach of the existing partnership agreement because the
minority limited partners are not being afforded the right to vote on the
Security Capital/Storage USA transactions or the proposed amendment and
restatement of the operating partnership's partnership agreement. The
plaintiffs further assert that the consummation of the Security Capital/Storage
USA transactions will trigger adverse tax consequences for them contrary to the
provisions of their tax deferral agreements. The complaint alleges that
Security Capital was aware of the contractual relationships between the
plaintiffs and Storage USA and the Storage USA operating partnership under the
tax deferral agreements and that Security Capital caused and aided and abetted
the breaches of, and interfered with, these contractual relationships. The
relief sought in the complaint includes preliminarily and permanently enjoining
the Transactions, rescinding and setting aside the proposed Security
Capital/Storage USA transactions in the event they are consummated, ordering
the appointment of a special committee comprised of limited partners and the
plaintiff class representatives and their attorneys to insure fair protection
and adequate procedural safeguards in connection with any transaction for the
buyout of the limited partners' units of the operating partnership,
specifically enforcing the existing partnership agreement and the tax deferral
agreements, and awarding compensatory damages, prejudgment interest, and
attorneys' and experts' fees and expenses. A hearing has been scheduled for
June 5, 2002 with respect to the preliminary injunction sought by the
plaintiffs'. If the plaintiffs are not successful in preliminarily and
permanently enjoining the Security Capital/Storage USA transactions, they may
continue to seek compensatory damages.


Item 4. Submission of Matters to a Vote of Security Holders

   None.

                                      12

<PAGE>

                                    PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

   On December 14, 2001, GE Capital, through its Commercial Real Estate
business announced the agreement to acquire Security Capital. Upon the
completion of the acquisition by GE Capital, shares of Security Capital will no
longer be listed on the NYSE. Through the filing date of this report, Security
Capital's Class A Shares were listed on the NYSE under the symbol ''SCZ.A'' and
the Class B Shares were listed on the NYSE under the symbol ''SCZ''. The table
below indicates the range of the high and low sales prices of the daily trading
prices of Class A Shares and the Class B Shares for the periods listed.
<TABLE>
<CAPTION>
                                       Class A    Class A     Class B    Class B
                                     Common High Common Low Common High Common Low
                                     ----------- ---------- ----------- ----------
<S>                                  <C>         <C>        <C>         <C>
2000:
   First Quarter....................   $  695      $  600     $14.69      $12.00
   Second Quarter...................   $  850      $  680     $17.00      $13.75
   Third Quarter....................   $  966      $  825     $19.63      $16.63
   Fourth Quarter...................   $  990      $  940     $20.06      $18.81
2001:
   First Quarter....................   $1,069      $  936     $21.98      $18.94
   Second Quarter...................   $1,080      $  998     $21.73      $19.77
   Third Quarter....................   $1,075      $  825     $21.80      $16.80
   Fourth Quarter...................   $1,275      $  900     $25.45      $17.95
2002:
   First Quarter (through March 22).   $1,282      $1,266     $25.65      $25.34
</TABLE>

   At March 22, 2002, there were approximately 565 holders of record of the
Class A Shares and 237 holders of record of the Class B Shares.

   Holders of Class A Shares are entitled to receive ratably such dividends as
may be authorized by the Board of Directors of Security Capital (the Board) out
of funds legally available therefore. Class B Share dividends will be paid in
the same form and at the same time as Class A Share dividends, except that, in
the event of a stock split or stock dividend, holders of Class A Shares will
receive Class A Shares and holders of Class B Shares will receive Class B
Shares, unless otherwise specifically designated by resolution of the Board.

   Security Capital has not paid any dividends on its Class A Shares or Class B
Shares during 1999, 2000 or 2001. Any payment of dividends will depend upon the
results of operations, capital requirements and financial condition of Security
Capital, loan covenants and such other factors as the Board deems relevant, and
none are expected to be paid in the foreseeable future. The Board intends to
follow a policy of retaining earnings to finance Security Capital's growth and
for general corporate purposes and, therefore, Security Capital has no present
intention to pay any dividends or make any distributions on Class A Shares or
Class B Shares.

   Security Capital's line of credit covenants restrict dividends, such that
during a non-monetary default, no payments, other than dividends paid on
Security Capital's Series B Preferred Shares, are permitted. Distributions and
dividends paid, other than those on Security Capital's Series B Preferred
Shares, cannot exceed 50% of the cash flow available for distributions,
provided no event of default has occurred and is continuing. In the event of a
monetary default, all distributions are prohibited.

   Security Capital's 6.5% Convertible Subordinated Debentures due 2016 provide
that no dividends shall be permitted if a default exists, if immediately before
and immediately after giving effect to a dividend payment, Security Capital's
consolidated equity, determined in accordance with generally accepted
accounting principles (GAAP), does not exceed $300 million or if the ratio of
indebtedness, as defined, to consolidated shareholders' equity is not less than
the ratio of 5 to 1.

Item 6. Selected Financial Data

   The following table sets forth selected financial information of Security
Capital for 2001, 2000, 1999, 1998, and 1997 (in thousands, except per share
data). The Company's consolidated financial information included below has

                                      13

<PAGE>

been derived from the Company's consolidated financial statements. Arthur
Andersen LLP's report on the consolidated financial statements for the years
ended December 31, 2001 and 2000 is included in this report on page 45. The
following selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations,'' and with the consolidated financial statements and notes thereto
included in this report.

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                      ------------------------------------------------
                                                      2001(1)    2000     1999       1998       1997
                                                      -------- -------- ---------  ---------  --------
<S>                                                   <C>      <C>      <C>        <C>        <C>
Operating Data:
Equity in earnings (loss) of investees............... $140,835 $369,045 $  85,440  $ (60,860) $171,873
Property revenues....................................  401,544  274,980   226,730    144,374    58,397
Realized gains (losses) (2)..........................  122,522  154,893   (53,856)   (12,582)    8,024
Total revenues.......................................  684,137  801,684   266,655     71,627   261,763
Property expenses....................................  192,442  117,965   101,795     63,339    25,089
General, administrative and other expenses, net of
  reimbursements from related parties................   60,248   25,010    55,330     45,017    36,189
Provision for loss (3)...............................       --   69,481    65,296         --        --
Interest expense:
   Security Capital..................................   77,698   78,161    82,331     59,220   102,380
   Majority-owned subsidiaries (4)...................   44,846   30,397    51,123     22,983     2,054
                                                      -------- -------- ---------  ---------  --------
    Total interest expense...........................  122,544  108,558   133,454     82,203   104,434
                                                      -------- -------- ---------  ---------  --------
Net earnings (loss) attributable to Common Shares (5) $183,530 $317,269 $(116,996) $(157,104) $106,154
                                                      ======== ======== =========  =========  ========
</TABLE>

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                        ---------------------------------------------
                                                          2001     2000     1999      1998     1997
                                                        -------- -------- --------  --------  -------
<S>                                                     <C>      <C>      <C>       <C>       <C>
Per Share Data:
Series A Preferred Share cash dividends (6)............ $     --       -- $     --  $  27.50  $ 75.00
Series B Preferred Share cash dividends (6)............ $  70.00 $  70.00 $  70.00  $  44.33  $    --
Net earnings (loss) per Class B Equivalent Share: (7)
   Basic............................................... $   1.32 $   2.95 $  (0.98) $  (1.29) $  1.39
   Diluted............................................. $   1.28 $   2.74 $  (0.98) $  (1.29) $  1.28
Weighted average Class B Equivalent Shares outstanding:
   Basic...............................................  139,432  107,514  119,255   121,325   76,577
   Diluted.............................................  151,371  126,232  119,255   121,325   93,054
</TABLE>

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                             ------------------------------------------------------
                                              2001(1)      2000       1999       1998       1997
                                             ---------- ---------- ---------- ---------- ----------
<S>                                          <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:
Investments, at equity...................... $1,676,317 $2,476,389 $2,659,398 $3,071,772 $2,658,748
Real estate, net of accumulated depreciation  1,081,643    999,278  1,073,474  1,164,869    716,882
Total assets................................  4,758,522  3,637,213  3,957,151  4,510,357  3,614,239
Long-term debt:
   Security Capital (8).....................    896,074    929,494    978,557    937,010    323,024
   Majority-owned subsidiaries (4)..........    558,218    182,685    378,210    343,362    301,606
   Minority interests (9)...................     10,895         63     94,723    132,718    107,135
    Total shareholders' equity.............. $3,160,941 $2,292,989 $2,180,787 $2,422,979 $2,548,873
</TABLE>
--------
(1) In January 2001, Security Capital acquired the net assets of SC-U.S. Realty
    for 45.4 million Class B Shares and $565 million in cash, resulting in
    increased revenues, expenses and real estate assets.
(2) The realized gains in 2000 and 2001 were primarily the result of the sale
    of substantially all of Security Capital's shares of Archstone, partially
    offset by the realized loss from the sale of Homestead Village in November
    2001.
(3) Represents loss provisions recorded at Homestead Village in 2000, and in
    1999 relates to the sale of Strategic Hotel Capital in which Security
    Capital disposed of its 33% ownership.
(4) Security Capital does not guarantee the debt of any of its consolidated or
    unconsolidated operating companies.
(5) 2001 net earnings includes a $2.4 million adjustment to equity in earnings
    of SC-European Realty recorded subsequent to the issuance of Security
    Capital's 2001 year-end earnings report on February 14, 2002.

                                      14

<PAGE>

(6) 257,642 Series B Preferred Shares were issued on May 12, 1998, in exchange
    for 139,000 Series A Preferred Shares then outstanding and 3,293,288 Class
    B Shares.
(7) Includes the conversion of Class A Shares into Class B Shares at a ratio of
    1:50.
(8) During 1998, Security Capital issued $614 million of long-term debt.
(9) Prior to 2000, the minority interests primarily relate to Homestead
    Village, which was 87% owned by Security Capital until June 2000, after
    which it was 99.9% owned. In November 2001, Security Capital sold all of
    its interest in Homestead Village.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward-Looking Statements

   The statements contained in this report that are not historical facts are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based on current expectations, management's
beliefs, and assumptions made by management. Words such as ''expects,''
''anticipates,'' ''intends,'' ''plans,'' ''believes,'' ''seeks,''
''estimates,'' and variations of such words and similar expressions are
intended to identify forward-looking statements. These statements are not
guarantees of future performance. Actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. Security Capital undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law.

   The important factors that could cause Security Capital's actual results to
differ materially from those expressed in the forward-looking statements
include, among others,

    .  changes in general economic conditions,

    .  changes in capital availability and interest rates,

    .  increased or unexpected competition,

    .  changes in capital markets generally or the market for real estate
       securities, and

    .  changes in tax laws.

For more detail, see "Risk Factors" at the end of Item 7.

Critical Accounting Policies

   Security Capital believes that its most significant accounting policies deal
with:


    .  Use of consolidation or equity method accounting for its
       investees--Generally, investees in which Security Capital owns more than
       50% of the common stock are consolidated. Security Capital owns
       approximately 59.5% of the outstanding common stock of Regency; however
       its ability to exercise voting control over these shares is limited by
       the Stockholders Agreement by and among Regency, Security Capital
       Holdings S.A., Security Capital U.S. Realty and The Regency Group, Inc.
       dated as of July 10, 1996, as amended, including amendments to reflect
       Security Capital's purchase of Security Capital Holdings S.A. and the
       shareholder approval of the liquidation of Security Capital U.S. Realty
       (as amended, the "Stockholders Agreement"). This agreement is filed as
       Exhibit 10.6 to this Annual Report on Form 10-K.



       The Stockholders Agreement provides that Security Capital will vote all
       of its shares of Regency in accordance with the recommendations of
       Regency's board of directors or proportionally in accordance with the
       votes of the other holders of Regency common stock. This broad voting
       restriction is subject to a limited qualified exception pursuant to
       which Security Capital can vote its shares of Regency in its


                                      15

<PAGE>


       sole and absolute discretion with regard to amendments to Regency's
       charter or bylaws that would materially adversely affect Security
       Capital and with regard to "Extraordinary Transactions" (which include
       mergers, consolidations, sale of a material portion of Regency's assets,
       issuances of securities in an amount which requires a shareholder vote
       and other similar transactions out of the ordinary course of business).
       However, the limited exception is itself further qualified. Even with
       respect to charter and by-law amendments and Extraordinary Transactions,
       Security Capital may only vote shares representing ownership of 49% of
       the outstanding Regency common stock at its discretion, any shares owned
       by Security Capital in excess of 49% must be voted in accordance with
       the recommendations of Regency's board of directors or proportionally in
       accordance with the votes of the other holders of Regency common stock.
       With regard to Extraordinary Transactions which require a 2/3rds vote
       (i.e. where Security Capital could block the outcome if it voted 49% of
       the stock), Security Capital may only vote shares representing ownership
       of 32% of the outstanding Regency common stock. Security Capital may
       vote its shares to elect a certain number of nominees to the Regency
       board of directors, however this right is similarly limited. Security
       Capital has the right to nominate the greater of three directors or the
       number of directors proportionate to its ownership, however Security
       Capital may not nominate more than 49% of the Regency board of directors.



       The effect of these limitations is such that notwithstanding the fact
       that Security Capital owns more than a majority of the currently
       outstanding shares of Regency common stock, Security Capital may not, in
       compliance with the Stockholders Agreement, exercise voting control with
       respect to more than 49% of the outstanding shares of Regency (and may
       vote those shares in its discretion only with respect to the limited
       matters listed above).



       Use of the equity method of accounting to account for Regency has no
       impact on Security Capital's net income, but if Regency were
       consolidated, real estate assets, debt outstanding, revenues and
       expenses would be larger and the equity investment and equity in
       earnings would be smaller.



       On December 14, 2001 Security Capital entered into an agreement with GE
       Capital pursuant to which, assuming consummation, an indirect wholly
       owned subsidiary of GE Capital will be merged with and into Security
       Capital with Security Capital surviving as an indirect wholly owned
       subsidiary of GE Capital.


    .  Depreciation methods and lives--Security Capital's investees generally
       depreciate their real estate over lives ranging from 20 to 40 years,
       using the straight-line method. While the Company believes these are
       appropriate lives and method, use of different lives and methods could
       result in different impacts on net income. Additionally, the value of
       real estate is typically based on market conditions and property
       performance, so depreciated book value of real estate may not reflect
       the market value of real estate assets. It has been management's
       experience that operating real estate assets typically can be sold for
       more than depreciated book value.

    .  Revenue recognition--As described in Note 1 to the consolidated
       financial statements, Security Capital's consolidated investees
       generally recognize revenue as rents are received. Since most of the
       leases are less than one year in duration, the company believes this is
       the appropriate policy to use. Some of Security Capital's unconsolidated
       investees have longer term leases. As required by GAAP, revenue under
       these leases is recognized on a straight-line basis over the lease term.
       Additional rents based on sales volume are recognized when reported
       sales volume exceeds the sales volume level stated in the lease
       agreement. In addition, Security Capital recognizes interest income on
       notes receivable based on the terms of the instrument. No reserves of
       principal or accrued interest are made unless circumstances indicate a
       reserve is necessary.

    .  Impairment of long-lived assets--Security Capital and its investees
       periodically review their long-lived assets, primarily real estate and
       investments in unconsolidated entities, for impairment whenever events
       or changes in circumstances indicate that the carrying amount of such
       assets may not be recoverable. Management's review involves comparing
       current and future operating performance of the assets, the most
       significant of which is undiscounted operating cash flows, to the
       carrying value of the assets. Based on this analysis, a provision for
       possible loss is recognized if necessary.

                                      16

<PAGE>

Overview

   The results of operations are discussed below, followed by a discussion of
Security Capital's Liquidity and Capital Resources. These sections should be
read in conjunction with the consolidated financial statements and accompanying
notes thereto.

   Because of the 2001 sales of Archstone, CWS Communities, CarrAmerica and
Homestead Village and the temporary deployment of the proceeds into debt
reduction and cash equivalents, 2002 earnings and cash flow will not include
any income or dividends from these entities. Only interest income on the
proceeds will be reflected in the 2002 results until the cash equivalents are
invested in the purchase of Storage USA or other investments. Therefore,
earnings and cash flow are expected to be lower than 2001 until the proceeds
are fully deployed.

Results of Operations

   Results for 2001 were significantly impacted by changes in the equity in
earnings from investees and the levels of investment in investees. These
changes were due to the sales of investees (resulting in decreased equity in
earnings), the temporary investment of sales proceeds in low yielding cash
equivalents pending future investments, and write-offs of non-core investments
at the investee level. A substantial portion of Security Capital's earnings are
generated by transactional activities in several of its investees. The timing
and frequency of these vary, which may lead to fluctuations in consolidated
results from year to year.

  Investments in Public Companies

   Security Capital generates earnings from its investments in public
companies. These investments are not consolidated and Security Capital reports
its share of their respective earnings. Cash flow from the investments in
public companies are generated through receipt of dividends. (See note 2 to the
consolidated financial statements for detail of dividends received.)

   Presented below is Security Capital's equity in earnings (loss) for the
years ended December 31, 2001, 2000 and 1999 (dollar amounts in millions) and
Security Capital's percentage common share ownership interest in unconsolidated
investees as of December 31, 2001, 2000 and 1999. Explanations of earnings
changes at the investee level which materially impacted Security Capital's
equity in earnings follow the table.

<TABLE>
<CAPTION>
                          Equity in Earnings (Loss)
                          ------------------------     % Ownership
                           Year Ended December 31,  as of December 31,
                          ------------------------  ------------------
                           2001      2000    1999    2001  2000  1999
                          ------    ------  ------  -----  ----- -----
           <S>            <C>       <C>     <C>     <C>    <C>   <C>
           Archstone..... $  7.3    $ 81.9  $ 79.7     --  25.8% 39.2%
           CarrAmerica...   20.0        --      --     --     --    --
           ProLogis......   26.3      48.0    41.1  28.4%  30.2% 30.8%
           Regency.......   62.9        --      --  59.5%     --    --
           SC-U.S. Realty  (16.5)    206.5   (46.8)    --  40.6% 39.6%
           Storage USA...   28.6        --      --  41.6%     --    --
                          ------    ------  ------
                          $128.6    $336.4  $ 74.0
                          ======    ======  ======
</TABLE>

  Archstone

   Security Capital sold its investment in Archstone between July 2000 and
February 2001, including the February 28, 2001 sale of substantially all of its
remaining 31.7 million Archstone shares (realizing a gain of $217.1 million),
eliminating Archstone as a source of income for Security Capital.

   Archstone's increase in earnings for 2000 compared to 1999 was due primarily
to an increase in rental rates and improvement in operating margins. Security
Capital's ownership position in Archstone decreased from

                                      17

<PAGE>

39.2% as of December 31, 1999 to 25.8% at December 31, 2000 as a result of
Security Capital selling portions of its Archstone stock in three separate
stock sales transactions. Accordingly, Security Capital's earnings for
Archstone also decreased in 2000.

  ProLogis


   ProLogis' net income decreased from $157.7 million in 2000 to $90.8 million
in 2001. During 2001, ProLogis wrote-off $42.8 million in technology
investments and recorded a provision for loss of $88.4 million in operating
assets and other impairment charges related to its temperature-controlled
operations. Partially offsetting these write-offs and provisions was an
increase in earnings from its transaction based corporate distribution
facilities business (the development and sale of industrial buildings) of $38.4
million, or 31.5%, a decrease in foreign currency exchange losses of $14.2
million due to more stable foreign currency exchange rates and a decrease in
preferred dividends of $19.5 million due to the redemption of preferred shares
during 2001. ProLogis has announced that it is planning to sell the majority of
its temperature-controlled business, which realized a loss $17.3 million,
exclusive of the provision mentioned above, in 2001 compared to a loss of $8.3
million in 2000.


   Equity in earnings from ProLogis increased in 2000 compared to 1999 due to
increased activity in its corporate distribution facilities business. In 2000,
ProLogis recognized $71.3 million of transactional gains compared to $44.8
million in 1999.

  SC-U.S. Realty

   For the period from January 1, 2001 through January 16, 2001, SC-U.S. Realty
recognized unrealized losses of $47.7 million on the market value of its
investments in public real estate companies.

   As a result of the acquisition of the assets of SC-U.S. Realty on January
16, 2001, Security Capital no longer records its share of SC-U.S. Realty's
earnings (which were significantly affected by unrealized securities gains and
losses used in fair value accounting); rather, it records its share of earnings
from the former investees of SC-U.S. Realty. Earnings of Security Capital prior
to January 16, 2001, reflect the impact of unrealized gains and losses from
market value fluctuations of SC-U.S. Realty investees. Earnings of Security
Capital thereafter do not. Much of the variance in earnings of Security Capital
from 2000 and 2001 relates to this change.

   SC-U.S. Realty's increase in net income in 2000 compared to 1999 was due
primarily to a $562.1 million increase in market prices for the shares of its
underlying investments, partially offset when one investee experienced realized
losses on sales of a portion of its real estate investments.

   SC-U.S. Realty experienced losses in 1999 primarily from the overall
decrease in market prices for the shares in its underlying investments. The
portfolio of strategic long-term investments experienced a $183.8 million
market value decline in 1999 (which included a $65.6 million loss on the sale
of its special opportunity investment portfolio).

   Net investment income (loss) (defined as dividends and other investment
income net of administrative expenses, advisor fees, taxes and interest) for
SC-U.S. Realty was $(2.8) million, $85.6 million and $71.0 million for the
years ended 2001, 2000 and 1999, respectively. The decrease in net investment
income from 2000 to 2001 is due to the sixteen days that SC-U.S. Realty
operated. The increase in net investment income during 2000 compared to 1999 is
due to decreased interest expense on its line of credit.

   The following discusses changes in the results of operations of former
SC-U.S. Realty investees. As Security Capital did not directly own these
investees in 2000, their 2000 results are not included in Security Capital's
2000 financial statements.

                                      18

<PAGE>

  CarrAmerica

   During the fourth quarter of 2001, Security Capital sold its shares of
CarrAmerica for net after-tax proceeds of $760.3 million. No gain or loss was
recorded on the sale due to purchase accounting resulting from the SC-U.S.
Realty acquisition.

   CarrAmerica's net income from continuing operations decreased from $147.2
million to $79.1 million for 2001 compared to 2000. In the fourth quarter,
CarrAmerica recognized an impairment loss of $42.2 million related to its
investment in HQ Global Workplaces, Inc. CarrAmerica had a $36.4 million gain
on the sale of assets in 2000. Excluding the impairment loss in 2001 and the
gain in 2000, results are similar in both periods. Security Capital believes
office vacancy rates nationally increased significantly from 2000 to 2001, but
CarrAmerica was able to achieve an average occupancy of 96.5% across its
operating portfolio in 2001.

  Regency

   Net income in 2001 increased by $12.9 million, or 15.2%, compared to 2000
primarily due to a provision for loss on sale of operating properties recorded
in 2000 that was $11.4 million higher than in 2001. In addition, Regency's
operating properties experienced a 3.2% same store net operating income growth
(defined as rental revenues less rental expenses). On a same store basis,
average rental rates, percentage rents and tenant recoveries increases were
partially offset by a decline in occupancy from 95.3% in 2000 to 94.9% in 2001.
This increase in net operating income was partially offset by increased
depreciation expense, interest expense, and preferred unit distributions of
approximately $14.5 million due to more properties being in operation.

  Storage USA

   Storage USA's net income increased by $2.0 million to $64.2 million for 2001
compared to 2000. The increase was due to revenue growth of 6.2% on a same
store basis and increased service income partially offset by an increase in
property level expenses. Included in this improvement was $3.0 million in
charges incurred by Storage USA's special committee in conjunction with the
purchase of Storage USA by Security Capital.

  Investments in Private Divisions

  Belmont

   Belmont's activities involve the operation and development of senior
assisted living facilities. As of December 31, 2001, Belmont had six operating
communities, one of which had stabilized occupancies throughout 2001
(stabilized occupancies being defined as those achieved after a property has
been operating for 24 months). Construction is underway on five sites with four
properties in the planning process. Belmont's net earnings decreased $0.5
million to a loss of $7.2 million for the year ended December 31, 2001, due to
higher interest expense offset by positive net operating income from additional
operating properties. Belmont experienced a net loss of approximately $15.9
million for the year ended 1999, due to $5.3 million of start-up expenses. As
of December 31, 2001 Belmont's operating properties had the following
occupancies:

<TABLE>
<CAPTION>
                                                          12/31/01
            Name               Location     Opening Date  Occupancy
            ----               --------     ------------  ---------
            <S>             <C>            <C>            <C>
            West University Houston, TX    December, 1998    96%
            Green Hills.... Nashville, TN  October, 1999     88%
            St. Matthews... Louisville, KY December, 1999   100%
            Memphis........ Memphis, TN    February, 2000    97%
            Sabre Springs.. San Diego, CA  March, 2001       47%
            Geneva Road.... Chicago, IL    April, 2001       39%
</TABLE>

                                      19

<PAGE>

   Belmont's strategy focuses exclusively on infill markets with high barriers
to entry. Current 2002 development projects include:

<TABLE>
<CAPTION>
                                                           Projected
     Name                          Location               Opening Date
     ----                          --------               ------------
     <S>                  <C>                        <C>
     Under construction:
        Hollywood........ Los Angeles, CA            Opened in January 2002
        Glenview......... Chicago, IL                Opened in January 2002
        San Jose......... San Francisco Bay Area, CA 2nd Qtr 2002
        Burbank.......... Los Angeles, CA            3rd Qtr 2002
        Sunnyvale........ San Francisco Bay Area, CA 3rd Qtr 2002
     Land owned:
        Buffalo Grove.... Chicago, IL                3rd Qtr 2003
        Oakbrook Terrace. Chicago, IL                2nd Qtr 2004
</TABLE>

  City Center Retail

   City Center Retail has two operating properties and one property under
redevelopment. Management is evaluating strategic alternatives, which could
include the sale of a portion or all of its assets. Occupancies of the two
operating properties were 91.1% at the end of 2001 compared to 88.3% in 2000.
During 2001, one property was sold. No gain or loss was recognized due to
purchase accounting resulting from the SC-U.S. Realty acquisition.

  CWS Communities

   Security Capital directly owned CWS Communities during the period from
January 16, 2001, when it was acquired from SC-U.S. Realty, to August 3, 2001,
when it was sold. No gain or loss was recorded on the sale due to purchase
accounting resulting from the SC-U.S. Realty acquisition. Results for that
period reflect performance of 45 operating properties that were 92.4% occupied
in 2001 compared to 91.2% in 2000.

  Homestead Village

   In November 2001, Security Capital sold its entire ownership in Homestead
Village for a total value of $740.0 million and recognized a loss of $102.7
million, not including $49.9 million of tax benefits realized on the sale. This
included $480.0 million in cash, the assumption of $145.0 million of
liabilities, and the issuance of a five-year $115.0 million note by the
purchaser. Net proceeds, excluding the five year note and transaction costs,
were approximately $462.0 million. The note has an initial rate of 12% that
increases by 100 basis points annually. The note represents a mezzanine loan to
the purchaser that is subordinate to $400 million of first mortgage financing
on the Homestead Village properties. As a result of the sale, equity in
earnings from Homestead Village was not recorded after November 2001.

   Homestead Village's net operating income in 2001 was lower than in 2000 due
to the sale of 25 properties in the first quarter of 2001 and decreased
occupancies from 82.7% to 72.4% due to slower economic conditions (Security
Capital believes that lodging companies in the United States generally
experienced dramatic declines in occupancy during 2001 due to a slower economy
and after-effects of the September 11, 2001 attacks on the World Trade Center
in New York City). Homestead Village's net income in 2000 was higher than 1999
due to an increase in occupancy as well as benefits from restructuring in 1999.

   In 2000, 29 operating properties were classified as held for sale and a
provision for loss of $71.0 million was recorded to reduce the properties'
carrying value to their estimated fair value less costs to sell. During the
fourth quarter of 2000 and first quarter of 2001, Homestead Village sold 25 of
these properties at the reduced carrying value for proceeds of approximately
$81.4 million which were primarily used to reduce debt of Homestead Village.

                                      20

<PAGE>

   During 1999, Homestead Village recorded a special charge of $65.3 million
primarily for write-downs of land held for sale, write-offs of costs of
pursuing other land parcels and the costs of severance of personnel.

  InterPark

   In January 2001, Urban Growth Property Trust (Urban Growth) merged into
InterPark Holdings, the property manager for most of Urban Growth's properties,
and is now part of InterPark. Because of the merger, prior year information is
not comparable. 2001 results reflect the operating performance of 52 owned
properties, 103 leased properties, 148 managed properties, and a joint venture
involving 73 properties.

  SC-European Realty

   SC-European Realty's net income decreased by $16.5 million to a loss of $4.8
million for 2001 compared to 2000 primarily due to an $11.3 million restatement
in accounting for the purchase of Interparking offset by a $4.6 million
increase in foreign exchange gains. Gains on sales of office development
properties increased $19.3 million to $71.6 million compared to the same period
in 2000. During 2001, SC-European Realty recorded a $5.5 million loss provision
for a planned property sale. In addition, SC-European Realty's parking
affiliate's operating performance increased due to acquisitions and improved
operations.

   SC-European Realty's current investments are primarily in operating and
development companies with 14% of its real estate assets pre-stabilized at
December 31, 2001. It is expected that earnings from operations, excluding the
impact of property sales, for SC-European Realty will increase as additional
properties reach stabilization. However, there is no assurance this will occur
and failure to do so would impair the ability of SC-European Realty to grow
both its portfolio and its earnings. A substantial portion of SC-European
Realty's earnings are generated by transactional activities in several of its
investees. The timing, frequency and profitability of these activities are
difficult to predict, which may lead to variations in consolidated results year
to year.

  SC-Preferred Growth

   SC-Preferred Growth's change in earnings for the years ended 2001, 2000, and
1999 was due primarily to changes in market prices for the shares in its
underlying investments and increases in SC-Preferred Growth's weighted average
net assets at fair value. The market value of SC-Preferred Growth's investments
increased by $169.0 million in 2001, increased by $187.0 million in 2000, and
declined $61.0 million in 1999 compared to the previous period. SC-Preferred
Growth's net assets at fair value were $1.0 billion at year-end 2001 and 2000,
and $860.8 million at year-end 1999.

Other Items

  Realized Gains (Losses)

   Realized capital gains decreased by $32.4 million from 2000 to 2001. In
2001, Security Capital recognized a gain of $217.1 million on the sale of its
remaining investment in Archstone partially offset by a $102.7 million loss on
the sale of its investment in Homestead Village. In 2000, Security Capital
recognized a gain of $155.0 million on the sale of Archstone shares. In 1999,
Security Capital sold its interest in Strategic Hotel, generating a loss of
$55.2 million.

  Interest Expense

   Consolidated interest expense was $122.5 million in 2001, $108.6 million in
2000, and $133.5 million in 1999. The increase from 2001 compared to 2000 was
due to the consolidation of debt from InterPark upon completion of the SC-U.S.
Realty acquisition in January 2001. The decrease from 1999 to 2000 was due to
the

                                      21

<PAGE>

reduction of line of credit balances (from operating cash flow and asset sales)
and the elimination of interest on the Homestead Village convertible mortgages
which were purchased from Archstone in July 2000.

  Preferred Share Dividends

   Preferred share dividends were $18.0 million in each of 2001, 2000, and
1999. See note 5 to the consolidated financial statements for further
discussion.

  General, administrative and other expenses

   General, administrative and other expenses by entity for 2001, 2000 and 1999
were as follows (in thousands):

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                      ----------------------------
                                                        2001      2000      1999
                                                      --------  --------  --------
<S>                                                   <C>       <C>       <C>
Security Capital, before related party reimbursements $ 58,685  $ 81,186  $106,350
Reimbursements from related parties..................  (40,618)  (85,269)  (88,366)
Belmont..............................................    8,077     6,765     8,923
City Center Retail (1)...............................      748        --        --
CWS Communities (1)..................................    1,044        --        --
Homestead Village....................................   19,941    22,294    28,023
InterPark (1)........................................   12,335        --        --
SC-European Real Estate Shares.......................       36        34       400
                                                      --------  --------  --------
                                                      $ 60,248  $ 25,010  $ 55,330
                                                      ========  ========  ========
</TABLE>
--------
(1) Former SC-U.S. Realty investments and not directly owned by Security
    Capital prior to 2001.

   Reimbursements declined in 2001 compared to 2000 as a result of lower
capital markets fees and unconsolidated investees absorbing more administrative
activities.

  Provision for Income Taxes

   The effective tax rate of 15.8% on earnings from operations for 2001 was
lower than the U.S. statutory tax rate of 35% primarily due to $44.3 million of
operating loss carryforwards from Homestead Village not previously benefited
and non-taxable earnings of a foreign subsidiary.

   The effective tax rate of 27.4% on earnings from operations for 2000 was
lower than the U.S. statutory rate of 35% primarily due to the use of $28.9
million of capital and operating loss carryforwards at consolidated
subsidiaries and non-taxable earnings of a foreign subsidiary.

   The effective income tax benefit was 11.1% of loss from operations for 1999,
which is less than the U.S. statutory tax rate of 35% due to losses at
consolidated subsidiaries and capital losses generated from the 1999 sale of
Strategic Hotel that were not benefited until 2000.

                                      22

<PAGE>

   Security Capital's tax basis in investees owned on January 1, 2001 is
generally equal to its original cost basis for such assets (in the case of
former investees of SC-U.S. Realty, its tax basis in such investees), reduced
by the portion of the cumulative dividends received from investees which may
have been characterized for tax purposes as return of capital. Security
Capital's basis on which taxes would be calculated upon a sale of the
investments in its investees at December 31, 2001, was as follows (in
thousands):

<TABLE>
                          <S>                <C>
                          Belmont........... $ 98,822
                          City Center Retail  188,515
                          InterPark.........  206,642
                          ProLogis..........  631,348
                          Regency...........  713,556
                          SC-European Realty  440,548
                          Storage USA.......  373,869
</TABLE>

  Extraordinary Items

   2001 included extraordinary losses on early extinguishments of debt totaling
$3.7 million.

   2000 included extraordinary gains on early extinguishments of debt totaling
$21.8 million. Security Capital exchanged with an unaffiliated party
approximately 1.6 million shares of Archstone for $42.5 million face value of
6.5% convertible debentures of Security Capital, resulting in an extraordinary
gain of $6.1 million, net of tax. The second extraordinary gain, amounting to
$15.7 million, net of tax, related to the in-substance extinguishment of the
Homestead Village convertible mortgages acquired by Security Capital as partial
consideration for approximately 17.5 million Archstone shares sold to Archstone.

   1999 included extraordinary gains on early extinguishments of debt, net of
minority interest, totaling $16.0 million. The first, amounting to $10.9
million, related to the repurchase of $37.8 million principal amount of 6.5%
convertible debentures by Security Capital. The second, amounting to $5.1
million, related to full settlement of a finders' fee liability by Homestead
Village.

  EBDADT

   Earnings before depreciation, amortization and deferred taxes, or EBDADT, is
considered by management to be an additional measure of operating performance
for Security Capital and its affiliates, supplementing net earnings as measured
by GAAP. Among other things, GAAP net earnings includes the impact of real
estate depreciation. The value of real estate assets generally changes in
response to existing market conditions and does not necessarily diminish in
value predictably over time, as historical cost depreciation implies.
Therefore, consistent with real estate industry practice, EBDADT adjusts GAAP
net earnings by eliminating real estate related depreciation. EBDADT of real
estate investees which are not REITs or which conduct development-for-sale
activities includes gains and losses on sales of operating properties.
Consistent with the equity method of accounting, Security Capital reflects in
its EBDADT its share of basic EBDADT of each investee plus interest income and
realized gains from each investee. EBDADT should not be considered as an
alternative to net earnings or any other GAAP measurement of performance or as
an alternative to cash flows from operating, investing or financing activities,
or as a measure of Security Capital's liquidity.

                                      23

<PAGE>

   Components of EBDADT before special items are (in thousands):

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                                --------------------------
                                                  2001     2000     1999
                                                -------- -------- --------
    <S>                                         <C>      <C>      <C>
    Equity in EBDADT of investees/divisions (1) $496,420 $440,827 $341,490
    Interest and other income..................   11,650    2,393    3,255
                                                -------- -------- --------
       Total income............................  508,070  443,220  344,745
                                                -------- -------- --------
    Operating expenses.........................   29,506   33,878   39,415
    Interest expense...........................   77,059   78,118   82,303
                                                -------- -------- --------
       Total expenses..........................  106,565  111,996  121,718
                                                -------- -------- --------
    Convertible preferred share dividends......   18,035   18,035   18,035
                                                -------- -------- --------
    Basic EBDADT before current income
     taxes and special items...................  383,470  313,189  204,992
       Current income tax expense (benefit)....   37,593   10,981   (2,175)
                                                -------- -------- --------
    Basic EBDADT before special items.......... $345,877 $302,208 $207,167
                                                ======== ======== ========
</TABLE>

--------
(1) Includes the EBDADT impacts of restatements in SC-European Realty's
    purchase accounting resulting from the purchase of Interparking and an
    adjustment to equity in EBDADT of SC-European Realty recorded subsequent to
    the issuance of Security Capital's 2001 year-end earnings report on
    February 14, 2002. The reduction to EBDADT attributable to these
    adjustments is $3.8 million in 2001, $3.9 million in 2000 and $4.6 million
    in 1999.

   In evaluating performance internally, Security Capital distinguishes between
normal operating activities (including recurring gains and losses therein) and
strategic charges (primarily gains or losses resulting from decisions to sell
investments in, or exit from, an entire real estate sector). Security Capital
characterizes these gains or losses from strategic changes as "special items".
The Company incurred the following special items for the years ended 2001, 2000
and 1999 (in thousands).

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                 ---------------------------
                                                   2001      2000     1999
                                                 --------  -------- --------
  <S>                                            <C>       <C>      <C>
  Gain on sale of Archstone stock, net of tax... $160,087  $123,144 $     --
  Loss on sale of Homestead Village, net of tax.  (52,790)       --       --
  CarrAmerica investment impairment.............  (15,733)       --       --
  Loss on sale of Strategic Hotel...............       --        --  (55,288)
  Homestead Village's special charges related to
    curtailing its development program..........       --     1,519  (45,581)
  Other, net of tax.............................   (1,309)    6,152   10,942
                                                 --------  -------- --------
                                                 $ 90,255  $130,815 $(89,927)
                                                 ========  ======== ========
</TABLE>

Liquidity and Capital Resources

   At March 22, 2002, Security Capital had $1.4 billion of cash and cash
equivalents and investment commitments of $1.2 billion, including $1.1 billion
for the acquisition of Storage USA.

  Cash from Operations

   Cash provided by operations increased by $31.3 million during 2001 compared
to 2000. This increase was primarily a result of the acquisition of SC-U.S.
Realty whereby Security Capital now receives additional property revenues, net
of property expenses, from its former consolidated investees and dividends from
SC-U.S. Realty's

                                      24

<PAGE>

former unconsolidated investees. Property revenues, net of property expenses,
of City Center Retail, CWS Communities and InterPark totaled $82.3 million
which were partially offset by a $32.1 million reduction from Homestead Village
due to the sale of 25 properties in January 2001, slower economic conditions
during 2001 and the sale of Homestead Village in November 2001. Dividends from
CarrAmerica, Regency, and Storage USA totaling $146.5 million were partially
offset by a $55.7 million reduction in dividends because of the sale of
Archstone in February 2001. Offsetting this increase in cash flow were
increases in general, administrative and other expenses of $35.2 million and
interest expense of $14.0 million due to the consolidation of City Center
Retail, CWS Communities and InterPark. In addition, Security Capital paid $23.3
million more in income taxes due to taxes on the sale of Archstone and the
utilization of capital and operating loss carryforwards in 2000.

  Investment Activity

   Security Capital's investment activity primarily consists of allocations
(redemptions) of its capital to its various affiliates. The following table
summarizes Security Capital's capital allocations to its primary investments
for the years ended December 31, 2001, 2000, and 1999 (in millions):

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                     -------------------------
                                                      2001     2000     1999
                                                     -------  -------  -------
 <S>                                                 <C>      <C>      <C>
 Allocations to (proceeds from sale of):
    Archstone....................................... $(700.3) $(503.2) $    --
    Belmont.........................................    32.9     24.2     37.8
    CarrAmerica.....................................  (787.0)      --       --
    CWS Communities.................................  (291.6)      --       --
    Homestead Village...............................  (721.9)    65.3       --
    Publicly traded real estate securities..........      --    (16.2)   (55.9)
    SC-European Realty..............................      --       --     64.8
    Strategic Hotel.................................      --       --   (329.5)

 Purchase of SC-U.S. Realty investees:
    Cash paid to dissenting shareholders of SC-U.S.
      Realty and transaction costs.................. $ 142.0  $    --  $    --
    Payment to redeem SC-U.S. Realty convertible
      debentures....................................   406.6       --       --
    Value of Security Capital common stock issued...   894.4       --       --

 Real estate investment by consolidated investees:
    Belmont......................................... $  71.5  $  57.0  $  43.4
    City Center Retail..............................     4.2       --       --
    Homestead Village...............................    11.8     11.5     93.7
    InterPark.......................................   272.8       --       --

 Real estate sales by consolidated investees:
    Homestead Village............................... $ (80.3) $ (24.6) $ (73.0)
    City Center Retail..............................   (16.8)      --       --
    CWS Communities.................................    (3.1)      --       --
</TABLE>

  Financing Activity

   Security Capital increased its total debt from $1.2 billion at year-end 2000
to $1.5 billion at year-end 2001. This increase was primarily due to $376.6
million of mortgage notes payable and $100 million of convertible debentures at
InterPark that are now consolidated as a result of the acquisition of SC-U.S.
Realty (but remain the separate obligations of InterPark). Partially offsetting
this was $145.0 million of debt that was assumed by the purchaser of Homestead
Village. In addition, the following financing transactions occurred in 2001:

    .  Repurchase of 11.8 million equivalent shares, or an aggregate of $245.9
       million of Security Capital common stock discussed below.

                                      25

<PAGE>

   ./  Security Capital borrowed $530 million on a transaction loan as a result
       of the acquisition of SC-U.S. Realty. The loan bore interest at LIBOR +
       1.3%. On February 28, 2001, Security Capital fully repaid the loan with
       proceeds from the sale of Archstone shares. /

   Security Capital's 2001 year-end parent company
debt-to-total-market-capitalization ratio (as defined in note 2 on page 3) was
17.6% compared to 27.0% at year-end 2000. The maximum maturity in any year is
$285.3 million in 2005.


   In January 2001, Security Capital, Macquarie Bank Limited and the management
of Security Capital's broker-dealer formed a new entity, Macquarie Capital
Partners LLC, in which Security Capital owns a 40% position. Macquarie Capital
Partners focuses on providing real estate investment banking services to select
clients globally, including leading real estate operating companies and
institutional investors. Security Capital contributed net assets of its capital
markets business with a book value of approximately $700,000 and a funding
commitment for an additional $4 million in cash for its 40% interest, Macquarie
Bank Limited contributed $2 million in cash and a commitment for an additional
$8 million in cash for its 40% interest and management of Macquarie Capital
Partners LLC (Messrs. George Ahl, Iyad Al-Arrayed, Thomas Conway, Gerard de
Gunzburg, Rory Hardick, Cyrus Heaton, Garrett House, Nigel King, John
Montaquila, Michael Scandalios, George Scott, Donald Suter, Christopher Vallace
and Mmes. Laure Duhot and Wendy Schalmo--all formerly management and employees
of Security Capital's broker-dealer but not currently employees of Security
Capital) contributed approximately $10,000 in cash for its 20% interest. The
20% acquired by management of Macquarie Capital Partners LLC is subordinate to
the interests of Security Capital and Macquarie Bank Limited with respect to
future earnings or capital distributions. Based on this subordination of the
20% interest to receive distributions of earnings or capital, the $10,000
contributed represented the fair value of the interest, and no compensation was
received by management of Macquarie Capital Partners LLC. Security Capital
carried over its historic cost basis in these net assets to its investment in
Macquarie Partners.


  Stock and Debenture Repurchase Programs

   In April 2001, Security Capital completed a modified Dutch auction
self-tender offer in which approximately 9.3 million Class B Shares were
purchased at $20.50 per share, or a total of $191 million. Since the share
repurchase program began in August 1999, Security Capital repurchased $541
million or 31.9 million Class B common stock equivalents, representing
approximately 26% of shares outstanding. In addition, Security Capital
repurchased $80.5 million principal amount of 6.5% Convertible Subordinated
Debentures due 2016, which were convertible into 3.5 million Class B Shares, at
a gain of $20.2 million.

  Derivative Financial Instruments

   As of December 31, 2001 and 2000, Security Capital had no significant
derivative financial instruments.

   Belmont entered into two interest rate swap agreements in 2000 to hedge its
exposure to changes in floating interest rates. In both swaps, Belmont
exchanges monthly payments based on 30-day LIBOR for payments based on a
pre-determined fixed rate. The swaps have notional amounts that increase as the
construction loan balances on which they are based grow. The swaps have a
maximum notional amount of $20.0 million and a weighted-average fixed rate of
6.4%. The swaps have two-year terms that expire no later than July 2003. At
December 31, 2001, the notional amounts under the swaps was $18.0 million.

  Future Capital Commitments and Liquidity

   As of December 31, 2001, Security Capital and its subsidiaries have a
remaining funding commitment of $33.6 million to SC-European Realty and $74.8
million to Belmont. Security Capital has also agreed to make $46.1 million of
loans available to InterPark for future acquisitions. Security Capital and its
consolidated subsidiaries do not have any significant amounts of debt maturing
in 2002. In 2003, approximately $151.5 million of debt matures, $48.3 million
of which represents short-term construction financing at Belmont which is
expected to be repaid from cash from operations, line of credit availability or
long-term mortgage debt issuances for the Belmont debt.

                                      26

<PAGE>

   Security Capital expects to use available cash on hand to effect the
acquisition of Storage USA. Approximately $1.1 billion will be required to
complete the transaction, including the repayment and cancellation of the
Storage USA's line of credit and the payment of transaction fees and expenses.
Storage USA's long-term debt, mortgages payable and other borrowings
aggregating approximately $695 million at December 31, 2001 will remain
outstanding. After the purchase of Storage USA for cash, Security Capital will
have approximately $300 million of cash equivalents on hand for future
investments or share purchases. The board of directors of Security Capital has
authorized an additional $250 million share buyback (which will not occur if
the GE merger takes place).

   Availability of borrowings under Security Capital's line of credit are
subject to a borrowing base which essentially requires Security Capital to have
three publicly-traded affiliates. Upon the acquisition of Storage USA, Security
Capital will no longer meet this requirement (but Security Capital has adequate
cash on hand to complete the Storage USA transaction and fund its other
commitments without resorting to its credit line). Security Capital has not yet
renegotiated the borrowing base under the line of credit because of the
expectation that the line of credit will not be needed after the GE merger is
closed. If required to renegotiate such line of credit, no assurance can be
given that the terms, conditions and amounts available would not change
materially.

   Security Capital expects that cash flows from operations and funds currently
on hand will be sufficient to enable Security Capital to satisfy its
anticipated cash requirements for operations and currently committed
investments. In the longer term, Security Capital intends to finance its
business activities through the selective sale of assets, internally generated
cash flow, its line of credit, and future issuance of equity and debt
securities. The business activities to be financed may include investments in
new business initiatives, and additional investments in certain existing
affiliates.

   Factors which may impact Security Capital's liquidity and financial position
are described below under Risk Factors.

Risk Factors

   The following matters may affect Security Capital's future financial
performance.

  Reliance on Dividends and Earnings of Investees

   Most of Security Capital's cash flow and earnings comes from real estate
operating companies in which it owns shares. Security Capital is partially
dependent on dividends and fees it receives from these companies to meet its
operating expense needs and to pay principal and interest on its debt. Although
Security Capital has influence over these real estate operating companies
because of its significant ownership interest and contractual rights, it has a
non-majority ownership interest and the right to designate nominees for fewer
than a majority of the board seats for its public investees, and does not have
unilateral control in several of these companies. Decisions or actions of
investee management could adversely affect Security Capital. A decline in
occupancy or rents charged by investees could impact their cash flow which
could result in reduced dividends paid to Security Capital, which would
adversely affect Security Capital's liquidity.

  Conflicts of Interest

   Transactions with publicly-traded affiliates have occurred and may occur in
the future. Several of Security Capital's directors or senior officers are
directors or trustees of its publicly-traded affiliates, or own shares of such
affiliates. Those persons may have conflicts of interest in affiliate
transactions. Where Security Capital engages in these types of transactions it
has or will obtain disinterested director approval or shareholder approval,
when necessary, for transactions in which directors may have a conflict of
interest. Neither Security Capital's charter nor its bylaws contain any
restrictions on interested party transactions. Such transactions generally
require formation of special committees of the directors or trustees of the
affiliates and generally take substantial amount of time and management's
attention to complete.

                                      27

<PAGE>

  Real Estate Risks

   Security Capital is subject to the following risks unique to the real estate
business:

   ./  Changes in specific economic conditions or commercial patterns that
       reduce demand for real estate (for example, a recession or change in
       technology that reduces demand for real estate facilities or which
       results in bankruptcy of tenants). /

    .  Changes in tax laws or market conditions that make real estate
       investment less attractive relative to other investment opportunities.
       Such changes would reduce the number of buyers for real estate and
       adversely affect real estate asset values. Selling real estate assets
       typically takes longer than selling other types of assets, so it is more
       difficult to mitigate the effect of unfavorable changes by selling the
       affected assets before the change.

    .  Changes in tax laws or capital markets, which result in excess capital
       flowing into new real estate development and excess real estate supply,
       which could result in lower occupancies, reduced rents or lower real
       estate valuations.

    .  When equity and/or debt capital is unavailable or expensive for real
       estate companies Security Capital is adversely affected, primarily
       because the value of assets under management, on which fees are based,
       is lower, and the ability to pursue attractive investment opportunities,
       including new start-up companies, is limited (and investees in the
       start-up phase may need to reduce activities and incur related charges).

  Risks of Changes in Investments

   Security Capital has sold some of its investments and intends to redeploy
the capital into increasing its ownership in other affiliates which it believes
will generate better returns over time as a result of operating performance and
consolidation synergies. These disposition and acquisition transactions may
involve significant transaction expenses and market friction or price
negotiations. No assurance can be given that the improved operating performance
and synergies contemplated by Security Capital will offset the expenses and
pricing frictions these transactions may involve.

  Investment Company Act Risk

   Security Capital is not registered as an investment company under the
Investment Company Act of 1940, in reliance on an exemption provided by Rule
3a-1 issued under the Investment Company Act. The Investment Company Act does
not require Security Capital to register as an investment company because
Security Capital is principally engaged in the real estate business through
companies that it primarily controls. To the extent Security Capital and its
affiliates dispose of some of their equity interests or do not elect to
participate in future equity offerings by its investees or those investees
issue substantial additional equity securities in a business combination to
unaffiliated parties, Security Capital's ownership interest in and control over
those investees could diminish. Under those circumstances, Security Capital
could potentially be required to register as an investment company under the
Investment Company Act. Security Capital would suffer additional regulatory
costs and expenses, and might be required to discontinue certain operations or
investments, if the Investment Company Act required it to register as an
investment company.

  Insurance Coverage For Investees Does Not Include All Potential Losses

   Security Capital's investees currently carry comprehensive insurance
coverage, including liability, fire, flood, earthquake, environmental, extended
coverage and rental loss, as appropriate for the markets where the facilities
and business operations are located. The insurance coverage contains policy
specifications and insured limits customarily carried for similar facilities.
However, there are certain losses, including losses from floods and losses from
earthquakes, acts of war, riots or terrorism, that are not generally insured
against or that are not generally fully insured against because it is not
economically feasible or prudent to do so. In addition, certain insurance, such
as losses from terrorism, may not be available when policies are renewed.
Should an uninsured loss or a loss in excess of insured limits occur with
respect to one or more of Security Capital's investees'

                                      28

<PAGE>

facilities, the investee could experience a significant loss of capital
invested and potential revenues in these properties and could potentially
remain obligated under any recourse debt associated with the facility.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

   Security Capital's exposure to market risks consists of interest rate risk
related to its own borrowings (and those of its consolidated investments) and
equity price risk related to its investments in marketable equity securities
and its investments in SC-Preferred Growth, SC-US Real Estate Shares, and
SC-European Real Estate Shares which use fair value accounting.

   Security Capital's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To mitigate interest rate risk, Security Capital
borrows on a long-term basis, primarily at fixed rates and staggered
maturities; therefore, Security Capital's primary interest rate risk is related
to its variable rate line of credit (LOC). Security Capital occasionally
utilizes derivative financial instruments as hedges in anticipation of future
long-term debt transactions to manage well-defined interest rate risk exposure.
Security Capital had no outstanding interest rate hedges as of December 31,
2001 or 2000. During 2000, Belmont entered into two interest rate swap
agreements. At December 31, 2001, the notional amount under these swaps was
$18.0 million.

   Security Capital manages its equity price risks by limiting the percentage
of its assets invested in marketable equity securities for trading purposes. As
of December 31, 2001 and 2000, less than 1% of total assets were invested in
mutual funds that were available for sale.

  Sensitivity Analysis

   The table below represents the impact of hypothetical changes in interest
rates on Security Capital and its consolidated affiliates (in thousands):

<TABLE>
<CAPTION>
                                          Average  Hypothetical   Impact
                        Variable Interest  2001    Interest Rate    on
       Type of Debt       Rate Exposure   Balance     Change     Earnings
       ------------     ----------------- -------- ------------- --------
       <S>              <C>               <C>      <C>           <C>
       Security Capital   LIBOR+120 bps   $  8,601     + 1%       $   86
       Belmont.........       7.7%        $ 37,601     + 1%       $  376
       InterPark.......   LIBOR+165 bps   $137,200     + 1%       $1,372
</TABLE>

   Security Capital's investments in SC-Preferred Growth, SC-US Real Estate
Shares and SC-European Real Estate Shares all use fair value accounting and are
subject to equity price risk. A hypothetical 10% change in the market value of
their underlying investments would amount to a $14.6 million change in Security
Capital's earnings.

Item 8. Financial Statements and Supplementary Data

   Security Capital's Consolidated Balance Sheets as of December 31, 2001 and
2000, and its Consolidated Statements of Operations and Comprehensive Income
(Loss), Shareholders' Equity and Cash Flows for each of the years in the
three-year period ended December 31, 2001, together with the report of Arthur
Andersen LLP, independent public accountants, are included under Item 14 of
this report and are incorporated herein by reference. Selected quarterly
financial data is presented in Note 8 of the Notes to the Consolidated
Financial Statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

   Not applicable.

                                      29

<PAGE>

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

   C. Ronald Blankenship--52--Vice Chairman and Chief Operating Officer of
Security Capital since May 1998. Director of Belmont, Regency, InterPark,
Macquarie Capital Partners LLC, and Storage USA. Managing Director of Security
Capital from 1991 until 1998. Trustee of ProLogis since May 2000. Prior to June
1997, Chairman of Archstone and a Trustee of Archstone, a former affiliate of
Security Capital, from March 2000 to February 2001. Interim Chairman, Chief
Executive Officer and a Director of Homestead Village from May 1999 until
November 2001. From 1996 until December 2001 Director of CarrAmerica. Mr.
Blankenship is a Class I Director, has served as a Director since 1998, and his
term as Director expires in 2003.

   Hermann Buerger--58--Regional Board Member of Commerzbank AG since 2002, and
Executive Vice President of Commerzbank AG from 1989 to 2002. Director of Ptek
Holdings, Inc. and Commerzbank Capital Markets Corporation. Mr. Buerger is a
Class I Director, has served as Director since 1996, and his term as Director
expires in 2003.

   John P. Frazee, Jr.--57--Mr. Frazee is a private investor. Formerly Chairman
and Chief Executive Officer of Paging Network, Inc. from 1997 to 2000, and
President from 1997 to 1999. In 2000, Paging Network, Inc. filed for and
emerged from bankruptcy proceedings. From 2000 until 2001, he served as
Non-executive Chairman of Vast Solutions, Inc., a subsidiary of Paging Network,
Inc. In 2001, Vast Solutions, Inc. filed for bankruptcy proceedings. Formerly,
Mr. Frazee was President and Chief Operating Officer of Sprint Corporation.
Director of Cable Satellite Public Affairs Network (C-SPAN) and Cabot
Microelectronics Corporation. Mr. Frazee is a Class I Director, has served as a
Director since 1991, and his term as Director expires in 2003.

   Cyrus F. Freidheim, Jr.--66--Vice Chairman of Booz.Allen Hamilton Inc., an
international management consulting firm, which he joined in 1966. Mr.
Freidheim is a Director of Household International Inc., CS Tech, Inc. and
Pharmaceutical Industries, Ltd. Mr. Freidheim is a Class II Director, has
served as a Director since 1991 and his term as Director expires in 2004.

   H. Laurance Fuller--63--Co-Chairman and Director of BP Amoco p.l.c. from
January 1999 until March 2000. Formerly Chairman and Chief Executive Officer of
Amoco Corporation. Mr. Fuller is a Director of Abbott Laboratories, J.P. Morgan
Chase Corporation and Motorola, Inc. Mr. Fuller is a Class II Director, has
served as a Director since 1991, and his term as Director expires in 2004.

   Janet Hill--54--Vice President of Alexander & Associates, Incorporated, a
corporate consulting firm which she joined in 1981. Mrs. Hill was the Special
Assistant of the Secretary of the Army from 1978 to 1981. Mrs. Hill is a
Director of Nextel Communications, Inc., Wendy's International, Inc.,
Progressive Insurance Company, and Dean Foods, Inc. Mrs. Hill is a Class II
Director, has served as Director since January 2001, and her term as Director
expires in 2004.

   Ray L. Hunt--58--Chairman and Chief Executive Officer of Hunt Oil Company,
and Chairman, Chief Executive Officer and President of Hunt Consolidated Inc.
since 1981. Mr. Hunt is a Director of Halliburton Company, Electronic Data
Systems Corporation, King Ranch, Inc. and PepsiCo, Inc. and a Class C Director
of the Federal Reserve Bank of Dallas. Mr. Hunt is a Class II Director, has
served as a Director since 1991, and his term as Director expires in 2004.

   John T. Kelley, III--61--Founding Officer and Advisory Trustee of ProLogis
since January 1993. Mr. Kelley was a Trustee of Archstone from 1988 to February
2001, and a Director of Regency since March 1999, prior to which he served as
Chairman of the Board of Pacific Retail Trust. Mr. Kelley is a Class III
Director, has served as a Director since 1991, and his term as Director expires
in 2002.

   Jay O. Light--60--Mr. Light has been a professor at the Harvard Business
School since 1970 and Senior Associate Dean since 1988. Mr. Light has been a
director of SC-European Realty since 1997 and was a director of SC-U.S. Realty
from 1996 until January 2001. He is a Trustee of GMO Funds and Director of
Harvard Management Company. Mr. Light is a Class II Director, has served as a
Director since 2001, and his term as Director expires in 2002.

                                      30

<PAGE>

   William D. Sanders--60--Founder, Chairman and Chief Executive Officer of
Security Capital. Mr. Sanders is a Director of Macquarie Capital Partners LLC,
SC-European Realty and Storage USA, and is an Advisory Director of Regency.
From 1996 until December 2001, he was a Director of CarrAmerica. He is Chairman
of the National Association of Real Estate Investment Trusts (NAREIT). Mr.
Sanders is a Class III Director, has served as a Director since 1991, and his
term as Director expires in 2002.

   Peter S. Willmott--64--Chairman and Chief Executive Officer of Willmott
Services, Inc. since 1989. Mr. Willmott is a Director of FedEx Corporation. Mr.
Willmott is a Class III Director, has served as a Director since 1991, and his
term as Director expires in 2002.

   In 2000, Frank P. Lowy, Jr. became an advisory director to Security Capital.
Mr. Lowy, age 71, has been Chairman of Westfield America Management Limited
since 1996, Chairman of Westfield America, Inc. since 1994, and Founder and
Chairman of Westfield Holdings Limited. Mr. Lowy is a member of the board of
the Reserve Bank of Australia since 1995, and director of the Daily Mail and
General Trust p.1.c. (U.K.) since 1994. An advisory director is permitted to
attend Board meetings but does not have a right to vote on matters considered
by the Board.

   For information regarding senior executive officers, see "Item
1--Business--Senior Executive Officers of Security Capital."

Item 11. Executive Compensation

Director Compensation

   Security Capital pays an annual retainer of $35,000 to Directors who are not
officers or employees of Security Capital or its affiliates. The retainer is
paid quarterly to the Directors in cash or, at the election of the Director, in
Class B Shares based on the then current fair market value of the Class B
Shares. Non-employee chairpersons of the Board committees receive an additional
annual retainer of $5,000 payable in cash or, at the election of the Director,
in Class B Shares based on the then current fair market value of the Class B
Shares. Non-employee directors receive $1,500 for each Board or Committee
meeting attended payable in cash or, at the election of the Directors, in Class
B Shares based on the then current fair market value of the Class B Shares.
Officers of Security Capital or its affiliates who are Directors are not paid
any Director fees. Directors are reimbursed for any out-of-town travel expenses
incurred in connection with attendance at Board meetings.

Outside Directors Plan

   The purpose of the Security Capital Group Incorporated 1996 Outside
Directors Plan (the Outside Directors Plan) is to enable each Director who is
not an employee or officer of Security Capital or any of its affiliates (an
Outside Director) to increase their ownership of Security Capital and thereby
further the identity of their interests with those of Security Capital's other
shareholders. The Secretary of Security Capital (the Administrator) administers
the Outside Directors Plan with a view to Security Capital's best interests and
the Outside Directors Plan's objectives.

   Under the Outside Directors Plan, each Outside Director is entitled to
receive on January 1 of each year an option to purchase 7,500 Class B Shares at
a price per Class B Share equal to the fair market value of a Class B Share on
that date. On January 1, 2001, Outside Directors received options to purchase
6,500 Class B Shares at a price per share equal to the fair market value of a
Class B Share on that date. The reduction in the number of options was due to
depletion of the number of Class B Shares then remaining available for grant
under the Outside Directors Plan. On May 17, 2001, Outside Directors received
options to purchase 1,000 Class B Shares

                                      31

<PAGE>

at a price per share equal to the fair market value of a Class B Share on that
date. The grants were made after the Outside Directors Plan was amended in
March 2001 to increase the number of Class B Shares reserved for issuance under
the Outside Directors Plan by 400,000. Before March 1998, each Outside Director
received an annual option to purchase 150 Class A Shares at a price per Class A
Share equal to the fair market value of a Class A Share on January 1 of each
year.

   The number of Class B Shares currently reserved for issuance upon exercise
of options granted under the Outside Directors Plan is 573,750. Options for a
total of 3,075 Class A Shares and 257,692 Class B Shares have been issued and
are outstanding under the Outside Directors Plan. In the event of certain
transactions affecting the type or number of outstanding shares, the
Administrator may make adjustments to Class A Shares, Class B Shares and
options that are subject to the Outside Directors Plan. In March 2001, the
Board amended the Outside Directors Plan to increase the number of Class B
Shares reserved for issuance upon exercise of options granted under the Outside
Directors Plan by 400,000 shares, from 173,750 to 573,750.

   Options granted after March 1998 may be exercised immediately. Options
granted before March 1998 had a one year vesting period. Each option expires on
the ten-year anniversary of the date of grant.

Executive Compensation

   The following table presents compensation for 1999, 2000, and 2001 paid to
the Named Executive Officers:

<TABLE>
<CAPTION>
                               Annual Compensation                       Long-Term Compensation
                      -------------------------------------- -----------------------------------------------
                                                               Class A     Class B
                                                               Shares      Shares    Restricted
                                                Other Annual Underlying  Underlying    Stock     All Other
                                                Compensation    Stock       Stock      Awards   Compensation
  Name and Position   Year Salary ($) Bonus ($)     (1)      Options (#) Options (#)  ($) (2)     ($) (3)
  -----------------   ---- ---------- --------- ------------ ----------- ----------- ---------- ------------
<S>                   <C>  <C>        <C>       <C>          <C>         <C>         <C>        <C>
William D. Sanders    2001  650,000   1,248,000        --        --        392,050     393,763      6,288
 Chairman and Chief   2000  650,000   1,050,000        --        --        350,000          --      6,132
  Executive Officer   1999  650,000     641,500    19,398        --        375,000          --      6,216
C. Ronald Blankenship 2001  600,000   1,298,000   140,829        --        392,050     393,763      6,756
 Vice Chairman and    2000  600,000   1,050,000    28,800        --        350,000          --      7,860
 Chief Operating      1999  550,000     574,150        --        --        160,000   1,121,250      4,718
 Officer.............
Thomas G. Wattles     2001  450,000    843,000     98,058        --        230,000     262,515      6,450
  Managing Director   2000  450,000    700,000     44,901        --        200,000          --      6,900
                      1999  450,000    445,500      2,876        --        100,000     731,250      7,440
Anthony R. Manno, Jr. 2001  450,000    771,750     24,044        --        140,000     240,016      5,370
 Managing Director... 2000  400,000    640,000      5,006        --        110,000          --      5,460
                      1999  350,000    401,000     34,434        --         40,000     292,500      5,328
Constance B. Moore    2001  400,000    525,000     48,113        --        136,500     178,139      6,450
 Managing Director    2000  400,000    475,000         --        --        108,000          --      6,780
                      1999  400,000    507,000         --        235       360,000          --    149,954
</TABLE>

--------
(1) Includes earnings deferred under the non-qualified savings plan and the
    401(k) qualified savings plan.

(2) Amounts shown represent restricted stock unit awards made in 1999 and 2001
    under the 1998 Long-Term Incentive Plan. Awards granted in 1999 vest in
    one-fourth increments on the first, second, third and fourth anniversaries
    of December 1, 1999. Awards granted in 2001 are the Matching RSUs awarded
    pursuant to the Share Purchase Matching Program described below. These
    awards vest in full on the third anniversary of the date of grant, and are
    subject to early forfeiture if the participant is not employed by Security
    Capital on the vesting date or if the participant sells Class B Shares
    acquired under the Share Purchase Matching Program before the vesting date.
    The aggregate number of Class B Shares covered by restricted stock unit
    awards and the value of the restricted stock unit awards at December 31,
    2001, based on the closing price of the Class B Shares on that date, for
    the Named Executive Officers were: Mr. Sanders--140,389 shares
    ($3,561,669); Mr. Blankenship--212,389 shares ($5,388,309); Mr.
    Wattles--153,593 shares ($3,896,654); Mr. Manno--106,428 shares
    ($2,700,078); and Ms. Moore--54,224 shares ($1,375,663).

(3) Includes contributions made by Security Capital in 1999, 2000 and 2001
    under its 401(k) savings plan and its non-qualified savings plan and the
    dollar value of insurance premiums paid by Security Capital for term life
    insurance for the benefit of the Named Executive Officer. Beginning in
    1998, Security Capital has matched up to 50% of the first 6% of
    compensation contributed by the employee under the 401(k) savings plan or
    non-qualified savings plan with Class B Shares. The 1999 amount for Ms.
    Moore also includes relocation reimbursements.

                                      32

<PAGE>

   In December 1999, the Board granted restricted stock unit awards under the
1998 Long-Term Incentive Plan to certain key executives whom the Compensation
Committee deemed critical to the long-term success of Security Capital to
promote long-term retention and provide incentives to these key executives to
achieve targeted shareholder value goals. The restricted stock unit awards are
composed of units which will vest for a specified number of Class B Shares. A
recipient can elect to defer vesting of a restricted stock unit award. The
Board granted restricted stock unit awards to 21 key executives, including the
Named Executive Officers (other than Mr. Sanders and Ms. Moore who instead
elected to receive options for Class B Shares), for a total of 426,800 Class B
Shares, which awards vested 25% on December 1, 2000, 25% vested on December 1,
2001, 25% will vest on December 1, 2002, and 25% will vest on December 1, 2003.
All restricted stock unit awards will vest earlier in the case of the
recipient's retirement, disability or death, or upon a change of control and
termination of the recipient's employment.

   In December 2000, the Board approved a Share Purchase Matching Program (the
Program) under the 1998 Long-Term Incentive Plan for all bonus-eligible
employees of Security Capital. The purpose of the Program is to further
increase ownership of Security Capital stock and promote retention of
employees. Under the Program, bonus-eligible employees could elect to receive
up to 50% of their total annual cash bonus for 2000 performance in the form of
Class B Shares. The Class B Shares were valued at the fair market value of the
Class B Shares on January 8, 2001, the date on which the shares were sold to
the participants. For every Class B Share that participants purchased under the
Program in 2001, Security Capital granted .75 restricted stock unit awards
(Matching RSUs), which Matching RSUs are composed of units which will vest for
a specified number of Class B Shares. The Class B Shares acquired under the
Program are fully vested at the time of purchase and may be disposed of at any
time by the participant. The Matching RSUs were granted in January 2001, vest
in full on the third anniversary of the date of grant, and are subject to early
forfeiture if the participant is not employed by Security Capital on the
vesting date or if the participant sells Class B Shares acquired under the
Program before the vesting date. All Matching RSUs will vest earlier, assuming
the participant has not sold any Class B Shares acquired under the Program
before such date, in the case of the participant's retirement, disability or
death, or upon a change in control and termination of the participant's
employment. A total of 39 employees, including the Named Executive Officers,
participated in the Program in 2001. A total of 181,383 Class B Shares were
acquired, and a total of 136,046 Matching RSUs were granted, under the Program
in January 2001.

   In December 2001, the Board approved continuance of the Program, except that
the Matching RSUs were reduced to .50 matching RSUs for every Class B Share
that participants purchased under the Program in 2002. Under the Program,
bonus-eligible employees could elect to receive up to 50% of their total annual
cash bonus for 2000 performance in the form of Class B Shares. The Class B
Shares were valued at the fair market value of the Class B Shares on January
18, 2002, the date on which the shares were sold to the participants. For every
Class B Share that participants purchased under the Program in 2002, Security
Capital granted .50 Matching RSUs, which Matching RSUs are composed of units
which will vest for a specified number of Class B Shares. The Class B Shares
acquired under the Program are fully vested at the time of purchase and may be
disposed of at any time by the participant. The Matching RSUs were granted in
January 2002, vest in full on the third anniversary of the date of grant, and
are subject to early forfeiture if the participant is not employed by Security
Capital on the vesting date or if the participant sells Class B Shares acquired
under the Program before the vesting date. All Matching RSUs will vest earlier,
assuming the participant has not sold any Class B Shares acquired under the
Program before such date, in the case of the participant's retirement,
disability or death, or upon a change in control and termination of the
participant's employment. A total of 84 employees, including the Named
Executive Officers, participated in the Program in 2002. A total of 201,800
Class B Shares were acquired, and a total of 100,920 Matching RSUs were
granted, under the Program in January 2002.

                                      33

<PAGE>

                                 Option Grants

   During 2001, options for 2,621,000 Class B Shares were granted by the
Management Development and Compensation Committee of the Board of Directors
(the Compensation Committee) to 113 key employees and officers of Security
Capital and its affiliates. The following table presents information about
individual grants of options to the Named Executive Officers.

                               Individual Grants

<TABLE>
<CAPTION>
                                          Percent of
                                         Total Options
                        Class B Shares    Granted to   Exercise or                Grant
                      Underlying Options Employees in  Base Price  Expiration Date Present
        Name           Granted (#) (1)     2001 (%)     ($/share)     Date    Value ($) (2)
        ----          ------------------ ------------- ----------- ---------- -------------
<S>                   <C>                <C>           <C>         <C>        <C>
William D. Sanders...      156,250                       $21.30      8/21/11   $1,023,313
                           235,800                       $21.25     11/30/11   $1,540,670
                           -------
                           392,050           14.96%
C. Ronald Blankenship      156,250                       $21.30      8/21/11   $1,023,313
                           235,800                       $21.25     11/30/11   $1,540,670
                           -------
                           392,050           14.96%
Thomas G. Wattles....      100,000                       $21.30      8/21/11   $  654,920
                           130,000                       $21.25     11/30/11   $  849,394
                           -------
                           230,000            8.78%
Anthony R. Manno, Jr.       40,000                       $21.30      8/21/11   $  261,968
                           100,000                       $21.25     11/30/11   $  653,380
                           -------
                           140,000            5.34%
Constance B. Moore...       40,000                       $21.30      8/21/11   $  261,968
                            96,500                       $21.25     11/30/11   $  630,512
                           -------
                           136,500            5.21%
</TABLE>
--------
(1) These options become exercisable in one-third increments on the first,
    second, and third anniversaries of the dates of grant, except that such
    options may be exercised earlier in the case of the optionee's retirement,
    disability or death or upon a change of control and termination of the
    optionee's employment.

(2) The amounts shown are based on the Black-Scholes option pricing model. The
    material assumptions incorporated in the Black-Scholes model for estimating
    the value of the options include the following: risk-free interest rates of
    4.58%; expected lives of 5.5  years; no expected dividends; and expected
    volatility of 21%.

                                      34

<PAGE>

Option Exercises in 2001 and Year-End Option Values

   The following table presents information about the year-end value of
unexercised options owned by the Named Executive Officers and option exercises
by Named Executive Officers during 2001.

<TABLE>
<CAPTION>
                                                                                            Value of Unexercised in-
                                                                                              the-money options at
                                               Number of Class A Shares and Class B Shares     December 31, 2001
                                               Underlying Unexercised Options at Year-End            ($)(1)
                                              --------------------------------------------- ------------------------
                   Class A  Class B
                    Shares   Shares                                   Class A
                   Acquired Acquired            Class A     Class B   Shares     Class B
                      On       On     Value     Shares      Shares    Unexer-    Shares                    Unexer-
                   Exercise Exercise Realized Exercisable Exercisable cisable Unexercisable Exercisable    cisable
                      #        #        $          #           #         #          #            $            $
                   -------- -------- -------- ----------- ----------- ------- ------------- -----------   ---------
<S>                <C>      <C>      <C>      <C>         <C>         <C>     <C>           <C>           <C>
William D. Sanders    --       --         --     6,551      525,860      916     886,783     6,748,367    6,060,373
C. Ronald
  Blankenship.....    --       --         --    11,510      470,289    1,212     796,592     9,875,883    5,053,377
Thomas G. Wattles.    --       --         --     9,640      272,005    1,019     465,114     7,245,022    3,074,501
Anthony R. Manno,
  Jr..............    --       --         --     3,182      169,101      316     270,814     2,360,641    1,562,514
Constance B.
  Moore...........   396       --    188,482     2,033      215,999      145     388,501     2,830,329    3,181,418
</TABLE>
--------
(1) Based on the December 31, 2001, NYSE closing prices of $1,266.70 per Class
    A Share and $25.37 per Class B Share.

Employment Contracts, Termination of Employment and Change-in-Control
Arrangements

   Security Capital has no employment contracts with any executive officer.

   Under Security Capital's 1998 Long-Term Incentive Plan, if (i) a
participant's employment is terminated or constructively terminated by Security
Capital or a successor to Security Capital or an affiliated entity which is his
or her employer for reasons other than cause following a change in control (as
defined in the 1998 Long-Term Incentive Plan) of Security Capital or (ii) the
1998 Long-Term Incentive Plan is terminated by Security Capital or its
successor following a change in control without provision for the continuation
of outstanding awards, all unexpired options will become immediately
exercisable and all restricted stock unit awards will immediately vest. The
Company's 1995 Option Plan (the 1995 Option Plan) contains similar provisions
for options granted under that plan.

   Security Capital has entered into change in control agreements with each of
its officers, including the Named Executive Officers. Each of the existing
change in control agreements, as in effect before the modifications provided
for eight senior officers in the new agreements with GE Capital described
below, provided for continued employment of the executive for two years
following a change in control with position, duties, pay, benefits and
perquisites no less favorable than those that existed before the change in
control. If the executive experienced a Termination, as defined in the
agreement, he or she would be entitled to pay and benefits for a specified
number of years. The number of years ranged from three years for those
executives, two years for four executives and one year for one executive. In
addition, if the executive is subject to the federal excise tax on "excess
parachute payments" he or she will be made whole for that tax by Security
Capital. Each existing agreement defines a Termination as a termination by
Security Capital (or its successors) for any reason other than death,
disability or cause or by the executive upon (a) a significant change in the
Executives' authorities or duties or a breach by Security Capital of its
obligations under the agreement; (b) relocation of the executive's office more
than fifty (50) miles; (c) a reasonable determination by the executive that, as
a result of the change in control, there has been a change in circumstances
significantly affecting the nature and scope of the executive's

                                      35

<PAGE>

authorities and duties such that the executive is unable to exercise the
authorities, powers, functions or duties associated with the executive's
position or (d) the failure of Security Capital to obtain a satisfactory
agreement from any successor to assume such agreements.

   In 2001, the change in control agreements were amended to provide for
clarification of the definition of change in control, clarification of the
target bonus payable upon a change in control and elimination of a provision
relating to pooling.

   GE Capital has entered into agreements, dated as of December 14, 2001, with
the five Named Executive Officers plus three other senior officers (the
"December 14, 2001 Agreements"). The December 14, 2001 Agreements modified the
existing change in control agreements with each of these executives. The
December 14, 2001 Agreements with GE Capital modify the existing agreements by
shortening the term to one year following completion of the merger. Each
December 14, 2001 Agreement also provides that the executive will receive a
specified amount in cash at the effective time of the merger, which has been
calculated to be equal to 50% of the cash severance the executive would have
received under the existing agreement upon a Termination, plus an additional
amount equal to the pro rata bonus for the portion of calendar year 2002
preceding the effective time of the merger based on the executive's bonus for
2001. Each December 14, 2001 Agreement further provides for an additional
payment equal to the same specified amount, at the end of the term or upon a
Termination, whichever occurs first. In addition, following termination of the
executive's employment for any reason other than cause, the executive and/or
his family will continue to receive medical and other benefits for the
specified number of years discussed above.

   On March 22, 2002, Security Capital entered into letter agreements (the
"Letter Agreements") and GE Capital and Security Capital have together entered
into restrictive covenants agreements (the "Restrictive Covenants Agreements")
with Messrs. Sanders, Blankenship, Wattles, Szurek, A.R. Moore, and Ms. C.
Moore (collectively, the "Executives"). The Letter Agreements and Restrictive
Covenants Agreements supersede the change in control agreements, as modified by
the December 14, 2001 Agreements, for each of the Executives.

   Restrictive Covenants Agreements. Pursuant to the Restrictive Covenants
Agreements, each Executive has agreed, for a period of eighteen (18) months
following the completion of the merger (the "Restricted Period"), not to become
associated as an executive or board member with, or otherwise actively
participate in the management of, any entity that owns and operates (i)
self-storage facilities, (ii) retail shopping centers anchored by
grocery-stores, drugstores, or certain general merchandise discount stores, or
(iii) central business district parking facilities (whether domestic or
international). The foregoing prohibition is applicable to businesses above
certain thresholds with respect to the value of its assets owned or acquired.
In addition, the Restrictive Covenants Agreements also include covenants with
respect to the non-solicitation of employees or customers, non-disparagement
and confidentiality. In consideration for entering into the Restrictive
Covenants Agreements, the Executives will be paid, at the completion of the
merger, the following amounts (less applicable withholding taxes): Mr. Sanders,
$7,338,800; Mr. Blankenship, $7,535,467; Mr. Wattles, $4,935,800; Mr. Moore,
$2,395,000; Ms. Moore, $2,395,000; and Mr. Szurek, $2,183,567.

   Letter Agreements. Pursuant to the Letter Agreements, each Executive agreed
to terminate any rights he or she may have under (i) the Executive's change of
control agreement, as of immediately prior to the completion of the merger, and
(ii) such Executive's December 14, 2001 Agreement, as of the date of the Letter
Agreements. The Letter Agreements provide that each Executive will continue in
the employ of Security Capital for a period of one year commencing at the
completion of the merger (the "Term"), subject to the termination provisions
described in the next paragraph, with pay, benefits and perquisites no less
favorable than those which existed before completion of the merger.

   The Letter Agreements may be terminated by the Executive or Security Capital
with thirty days prior notice of termination by the terminating party. In the
event of a termination of the Executive's employment during the Term (i)
voluntarily by the Executive or (ii) by the Company for any reason other than
death, disability, or cause

                                      36

<PAGE>

(as defined in the Letter Agreement), Security Capital is required to (1) pay
to the Executive all accrued and unpaid salary through the date of the
Executive's termination of employment and (2) continue the Executive's welfare
and other fringe benefits for the period commencing on the date of such
termination and ending three (3) years from the expiration of the one-year term
in the case of Messrs. Sanders, Blankenship and Wattles and two (2) years from
the expiration of the one-year term in the case of Messrs. Moore and Szurek and
Ms. Moore. If the completion of the merger occurs after May 1, 2002, the
company shall pay each executive a pro rata bonus for the fiscal year in which
the merger occurs, for the period commencing on May 1, 2002 and ending on the
completion of the merger.

   The Letter Agreements also provide that if any payment or benefit to which
the Executive is entitled becomes subject to the parachute payment excise tax
(whether under the Letter Agreement or any other arrangement), the Executive
will be entitled to receive excise tax gross-up payments. Security Capital and
GE Capital do not expect that any excise tax gross-up payments to any of the
Executives will be required. The Letter Agreements provide, however, that if a
tax authority makes a final determination that a parachute payment excise tax
is due and owing by an Executive, Security Capital will be obligated to make an
excise tax gross-up payment based on such final determination at such time. GE
Capital has agreed to cause Security Capital to honor its obligations under the
Letter Agreements after the completion of the merger.

Loans to Executive Officers

   See "Item 13. Certain Relationships and Related Transactions" for a
description of loans made to executive officers of Security Capital.

1998 Long-Term Incentive Plan

   The 1998 Long-Term Incentive Plan authorizes the establishment of one or
more qualified and non-qualified option programs and authorizes the award of
share grants (any of which may be subject to restrictions). A total of
12,257,733 Class B Shares was reserved originally for issuance and 1,614,320
remain available for award at February 22, 2002. In the event of certain
transactions affecting the type or number of outstanding shares, the shares and
awards subject to the 1998 Long-Term Incentive Plan may be adjusted. All exempt
employees of Security Capital or any of its affiliates are eligible to
participate in the 1998 Long-Term Incentive Plan. The Compensation Committee
determines, subject to full Board approval for senior officers, which employees
and other persons providing advisory services to Security Capital and its
affiliates are eligible to receive awards under the 1998 Long-Term Incentive
Plan, and the terms and conditions of those awards. Options expire on the date
determined by the Compensation Committee which will not be later than the tenth
anniversary of the grant date.

   The 1998 Long-Term Incentive Plan also provides that the Compensation
Committee may award participants stock, the distribution of which is subject to
the satisfaction of conditions established by the Compensation Committee. The
number of shares and the conditions will be established by the Compensation
Committee at the time the award is made, provided that any performance period
will be at least one year and no more than 2,451,546 Class B Shares (20% of the
total aggregate shares reserved for grant under the 1998 Long-Term Incentive
Plan) may be for stock awards. 820,562 Class B Shares remain available for
stock awards at February 22, 2002.

   Subject to obtaining any approvals required by applicable law or New York
Stock Exchange requirements, the Board may amend or terminate the 1998
Long-Term Incentive Plan at any time, provided that no amendment or termination
may materially adversely affect the rights of participants under any award made
under the 1998 Long-Term Incentive Plan prior to the date that the amendment or
termination is adopted by the Board.

1995 Option Plan

   The 1995 Option Plan provides for the granting of options to purchase Class
A Shares. The Compensation Committee administers the 1995 Option Plan
determining, among other things, the employees of Security Capital

                                      37

<PAGE>

or its subsidiaries or affiliates to whom awards under the 1995 Option Plan
will be granted, and the exercise price which may not be less than the greater
of the fair market value of an underlying Class A Share on the date of the
grant of the option or the par value of the underlying share. The expiration
date for each option is no later than the ten-year anniversary of the date on
which the option is granted.

   In August, 2001, the Board amended the 1995 Option Plan to provide for the
issuance of Class B Shares in place of the 64,195 Class A Shares which remained
available for grant under the 1995 Option Plan at that date. Options for up to
3,209,756 Class B Shares remain available for grant under the 1995 Option Plan
at February 22, 2002. In the event of certain transactions affecting the type
or number of shares outstanding, the number of shares or awards outstanding
under the 1995 Option Plan may be adjusted.

   Subject to obtaining any approvals required by applicable law or New York
Stock Exchange requirements, the Board may amend or terminate the 1995 Option
Plan at any time, provided that no amendment or termination may materially
adversely affect the rights of any participant or beneficiary under any option
granted under the 1995 Option Plan prior to the date that amendment or
termination is adopted by the Board.

Other Option Plans

   Security Capital's predecessors also adopted the Security Capital Realty
Investors Incorporated Option Plans A and B (each, a Realty Option Plan) and
the Security Capital Group Incorporated 1991 and 1992 Option Plans A and the
1991 and 1992 Option Plans B (each, a Group Option Plan). The Realty Option
Plans provide for the grant of options to purchase Class A Shares. Each of the
Group Option Plans provides for the grant of options to purchase Class A
Shares. Generally, all of the plans contain terms substantially similar to the
1995 Option Plan. The number of Class A Shares reserved for issuance pursuant
to options under the Realty Option Plans A and B and the Group 1991 and 1992
Option Plans A and the 1991 and 1992 Option Plans B are 16,366; 3,845; 9,982;
29,946; 7,010 and 21,031, respectively. Of those shares 2,430, 4, 1,076, 5,189,
748, and 1,866 respectively, remain available for the granting of options
thereunder at February 22, 2002.

Effect of Merger on Stock Option and Restricted Stock Unit Awards

   Each outstanding option and restricted stock unit award, whether vested or
unvested, will automatically be canceled at the effective time of the merger.
GE Capital will, or will cause the surviving corporation in the merger to,
provide the holder of each Security Capital stock option the difference between
the exercise price for the option and $26.00 either all in cash or, at the
election of the holder, partially in cash and partially in shares of ProLogis
stock, if these shares form part of the merger consideration, times the number
of shares subject to the option, and provide to the holder of each restricted
stock unit award an amount equal to $26.00 times the number of shares subject
to the restricted stock unit award either all in cash or, at the election of
the holder, partially in cash and partially in shares of ProLogis stock, if
these shares form part of the merger consideration, in each case net of
applicable withholding. GE Capital has also agreed that the account balances of
all employees under Security Capital's 401(k) plan and Nonqualified Savings
Plan and of all non-employee directors under the Deferred Fee Plan for
Directors will vest upon completion of the merger. The portion of such account
balances under the Nonqualified Savings Plan and the Deferred Fee Plan for
Directors that are deemed invested in Security Capital common stock will be
converted upon completion of the merger into cash balances or, if GE Capital
elects to substitute ProLogis common shares for part of the cash consideration,
and the employee or director so elects, into an account deemed invested in the
applicable merger consideration.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The following table sets forth, as of February 8, 2002, the beneficial
ownership of Class A Shares and Class B Shares for (i) each Director of
Security Capital, (ii) the Chief Executive Officer and the four other most
highly compensated executive officers of Security Capital during 2001 (the
Named Executive Officers), (iii) each person known to Security Capital to be
the beneficial owner of more than 5% of the outstanding Class A Shares

                                      38

<PAGE>

or Class B Shares and (iv) the Directors, an advisory director and executive
officers of Security Capital as a group. The last column shows the percentage
of votes represented by the outstanding voting securities held by such persons.
Unless otherwise indicated in the footnotes, the shares are owned directly, and
the indicated person or entity has sole voting and investment power. The
address of each Director and Named Executive Officer and the advisory director
is c/o Security Capital Group Incorporated at the administrative offices of
SCGroup Incorporated located at 7777 Market Center Avenue, El Paso, Texas 79912.

<TABLE>
<CAPTION>
                                                                Class A Shares        Class B Shares
                                                               ----------------  -----------------------
Name and Address of Beneficial Owner                           Number (1) % (2)  Number (3) (4) % (2) (5)
------------------------------------                           ---------- -----  -------------- ---------
<S>                                                            <C>        <C>    <C>            <C>
C. Ronald Blankenship (6).....................................   13,108    1.77%    2,151,959      2.02%
Hermann Buerger (7)...........................................      375       *     6,654,955      6.01%
John P. Frazee, Jr. (8).......................................    6,065       *       333,259         *
Cyrus F. Freidheim, Jr. (9)...................................    3,045       *       217,350         *
H. Laurance Fuller (10).......................................    4,958       *       277,900         *
Janet Hill....................................................        0       *        14,507         *
Ray L. Hunt (11)..............................................   27,660    3.79%    1,663,024      1.58%
John T. Kelley, III (12)......................................    4,549       *       272,096         *
Jay O. Light..................................................        0       *        44,509         *
William D. Sanders (13).......................................   81,211   10.95%    5,638,017      5.14%
Peter S. Willmott (14)........................................    4,219       *       322,297         *
Frank P. Lowy, Jr.(15)........................................   52,431    7.22%    4,585,836      4.30%
Thomas G. Wattles (16)........................................   11,053    1.50%    1,460,172      1.38%
Anthony R. Manno, Jr..........................................    3,905       *       776,275         *
Constance B. Moore............................................    2,650       *       836,976         *
Total Directors and executive officers as a Group (23 persons)  224,255   28.24%   27,611,486     21.37%
Commonwealth of Pennsylvania, Public School Employes'            97,723   13.45%   13,372,453     12.27%
  Retirement System (17)
   5 North 5th Street
   Harrisburg, PA 17101
United States Steel and Carnegie Pension Fund (18)               74,285   10.23%    3,714,250      3.44%
   350 Park Avenue, 17th Floor
   New York, NY 10022
Pacific Financial Research, Inc. (19)                            12,857    1.77%    9,097,854      8.64%
   9601 Wilshire Blvd., Suite 800
   Beverly Hills, CA 90210
Wellington Management Company, LLP (20)                               0       *     5,862,850      5.63%
   72 State Street
   Boston, MA 02100
</TABLE>
--------
*  Less than 1%

(1) Includes Class A Shares which may be acquired upon conversion of
    convertible debentures, or the exercise of options or warrants, within 60
    days for Messrs. Blankenship (12,722), Buerger (375), Frazee (2,553),
    Freidheim (2,553), Fuller (2,553), Mrs. Hill (0), Messrs. Hunt (2,553),
    Kelley (2,553), Light (0), Sanders (15,528), Willmott (1,189), Wattles
    (10,659), Manno (3,498) and Ms. Moore (2,178), and all Directors and
    executive officers as a group (67,817).

(2) For each person who owns restricted stock units which vest within 60 days,
    or options or convertible securities which are exercisable or convertible
    within 60 days, the calculation of the percentage ownership assumes that
    only that person has exercised all of his or her options or warrants and
    converted all of his or her convertible securities and that no other person
    has restricted stock units which have vested, has exercised any outstanding
    options or has converted any convertible securities.

                                      39

<PAGE>

(3) Each Class A Share may be converted at any time into 50 Class B Shares.
    Includes Class B Shares which may be acquired upon conversion of Class A
    Shares, including Class A Shares which may be acquired upon the exercise of
    options or warrants, or upon conversion of convertible debentures, as
    described in footnote 1 above.

(4) Includes Class B Shares which may be acquired upon the exercise of options
    or vesting of restricted stock units within 60 days for Messrs. Blankenship
    (1,492,036), Buerger (30,000), Frazee (30,000), Freidheim (30,000), Fuller
    (30,000), Mrs. Hill (14,507), Messrs. Hunt (30,000), Kelley (30,000), Light
    (10,685), Sanders (1,565,306), Willmott (30,000), Wattles (899,003), Manno
    (553,933) and Ms. Moore (663,888), and all Directors and executive officers
    as a group (7,289,565). Includes Class B stock held through the 401(k)
    savings plan as of February 8, 2002, for Messrs. Blankenship (731), Sanders
    (1,236), Wattles (1,316), Manno (1,092) and Ms. Moore (1,405) and all
    executive officers as a group (13,661).

(5) For each person who owns Class A Shares, the calculation of the percentage
    ownership assumes that only that person has converted all of his or her
    Class A Shares into Class B Shares and that no other person has converted
    any Class A Shares.

(6) Includes 2,000 Class B Shares held by a corporation of which Mr.
    Blankenship is a controlling shareholder.

(7) Mr. Buerger is Regional Board Member of Commerzbank AG in New York.
    Commerzbank AG, Grand Cayman Bank, Corporate Center at Rye, 555 Theodore
    Fremd Ave., Suite B-200, Rye, NY 10580, beneficially owns 6,606,205 Class B
    Shares as a result of owning 257,642 Series B Preferred Shares, with
    respect to all of which it has sole power to vote or direct the vote and
    sole power to dispose or direct the disposition, which shares are included
    in Mr. Buerger's amount. Mr. Buerger disclaims beneficial ownership of
    these shares.

   On March 22, 2002, GE Capital entered into a Stock Purchase Agreement with
   Commerzbank AG, Grand Cayman Branch (the "Purchase Agreement"), which
   provides for, among other things, GE Capital to purchase from Commerzbank
   AG, Grand Cayman Branch, all of the shares of Series B Preferred Shares held
   of record and beneficially owned by Commerzbank AG, Grand Cayman Branch. The
   purchase of the Series B Preferred Shares by GE Capital is conditioned upon,
   among other things, all conditions to the consummation of the GE Capital
   merger having been satisfied or waived and the GE Capital merger having been
   consummated immediately prior to the purchase of the Series B Preferred
   Shares. Subject to the terms and conditions contained in the Purchase
   Agreement, GE Capital will purchase the shares of Series B Preferred Shares
   from Commerzbank AG, Grand Cayman Branch for a per share amount equal to
   $1,000 plus all accrued and unpaid dividends payable thereon (calculated at
   the dividend rate and otherwise in accordance with the terms of the
   designations of the Series B Preferred Shares) up to, but excluding the date
   of purchase.

(8) Includes five Class A Shares held by Mr. Frazee's children and three Class
    A Shares held by his wife.

(9) Includes 100 Class A Shares held by a family trust and 5,750 Class B Shares
    held by Mr. Freidheim's wife.

(10) Includes two Class A Shares held by Mr. Fuller's wife.

(11) Includes eight Class A Shares held by family trusts for which Mr. Hunt is
     trustee; and 7,352 Class A Shares for which Mr. Hunt shares beneficial
     ownership pursuant to a power of attorney. Excludes 3,521 Class A Shares
     which Mr. Hunt's wife owns as separate property; 23,771 Class A Shares
     held by Hunt Private Equity Group, Inc. and 3,672 Class A Shares held by
     Mt. Vernon Insurance Company, the capital stock of which is held
     indirectly through a series of corporation by trusts for the benefit of
     Mr. Hunt and members of his family, as to which Mr. Hunt disclaims
     beneficial ownership. Includes 250,000 Class B Shares held by family
     trusts which have granted Mr. Hunt authority with respect to the voting
     and disposition of these shares.

(12) Includes 1,995 Class A Shares and 14,375 Class B Shares held by a trust of
     which Mr. Kelley is trustee.

(13) Includes 778 Class A Shares held by the Sanders Foundation; 5,775 Class A
     Shares held by Sanders Partners Incorporated; 2,286 Class A Shares held by
     two family partnerships; and 19,938 Class A Shares held by the William D.
     Sanders and Luanne Sanders Charitable Remainder Trust.

                                      40

<PAGE>

(14) Includes three Class A Shares held by Mr. Willmott's children and two
     Class A Shares held by Mr. Willmott's wife.

(15) Mr. Lowy is an advisory director. The Class A Shares and the Class B
     Shares are held by LFG Holding Pty., Limited, an Australian corporation in
     which interests associated with Mr. Lowy and members of his family own a
     100% interest.

(16) Includes two Class A Shares held by Mr. Wattles' wife, eight Class A
     Shares held by his children, 149 Class A Shares and 7,203 Class B Shares
     held in an IRA account.

(17) Information with respect to the beneficial ownership of Commonwealth of
     Pennsylvania Public School Employes' Retirement System ("PSERS") is
     included herein in reliance on an amended Schedule 13G dated February 4,
     2002, and a Form 4 statement for January 2002 filed with the SEC. The
     filings indicate that PSERS has sole power to vote or direct the vote of
     97,723  Class A Shares and sole power to vote or direct the vote of
     8,486,303 Class B Shares and sole power to dispose or direct the
     disposition of 97,723 Class A Shares and sole power to dispose or direct
     the disposition of 8,486,303 Class B Shares. Prior to the commencement of
     the Security Capital share repurchase program in 1999, PSERS had purchased
     shares in the open market which represented a 9.8% ownership interest.
     Because of the Security Capital share repurchase program and a reduction
     in the number of shares outstanding, PSERS exceeded the 9.8% ownership
     limit contained in Security Capital's charter. The Board of Security
     Capital has approved PSERS holding more than 9.8% of the outstanding
     shares, provided that PSERS does not purchase additional shares. PSERS
     acquired additional shares as a result of its ownership of Security
     Capital U.S. Realty shares which were exchanged for Class B Shares as a
     result of the business combination between Security Capital and Security
     Capital U.S. Realty.

(18) Information with respect to beneficial ownership of United States Steel
     and Carnegie Pension Fund is included herein in reliance on an amended
     Schedule 13G dated February 13, 2002, filed with the SEC. The Schedule 13G
     indicates that United States Steel and Carnegie Pension Fund has sole
     power to vote and sole power to dispose of 74,285 Class A Shares.

(19) Information with respect to beneficial ownership of Pacific Financial
     Research, Inc. is included herein in reliance on a Schedule 13G dated
     February 14, 2002, filed with the SEC. The Schedule 13G indicates that
     Pacific Financial Research, Inc. has sole power to vote 8,406,000 Class B
     Shares, including 642,850 Class B Shares issuable upon conversion of Class
     A Shares; no voting power for 641,354 Class B Shares, including 23,700
     Class B Shares issuable upon conversion of Class A Shares and 54,164 Class
     B Shares issuable upon conversion of convertible debentures; sole
     dispositive power of 8,993,690 Class B Shares and shared dispositive power
     of 54,164 Class B Shares.

(20) Information with respect to beneficial ownership of Wellington Management
     Company, LLP is included herein in reliance on an amended Schedule 13G
     dated February 14, 2002, filed with the SEC. The Schedule 13G indicates
     that Wellington Management Company, LLP has shared power to vote or direct
     the vote of 5,833,550 Class B Shares and shared power to dispose or direct
     the disposition of 5,862,850 Class B Shares.

                                      41

<PAGE>

   The following table sets forth, as of February 8, 2002, the beneficial
ownership of the outstanding common shares of each of ProLogis, Storage USA,
Regency, and SC-European Realty, each of which is an affiliate of Security
Capital, for (i) each Director of Security Capital, (ii) each Named Executive
Officer and (iii) the Directors and executive officers of Security Capital as a
group. The address of each person listed below is c/o Security Capital Group
Incorporated at the administrative offices of SCGroup Incorporated located at
7777 Market Center Avenue, El Paso, Texas 79912. Unless otherwise indicated in
the footnotes, all of the interests are owned directly, and the indicated
person or entity has sole voting and investment power.

<TABLE>
<CAPTION>
                                                                      SC-European
                                            ProLogis    Storage USA     Realty       Regency
                                          ------------- ------------ ------------- ------------
Name of Beneficial Owner                  Number  % (1) Number % (1) Number  % (1) Number % (1)
------------------------                  ------- ----- ------ ----- ------- ----- ------ -----
<S>                                       <C>     <C>   <C>    <C>   <C>     <C>   <C>    <C>
C. Ronald Blankenship (2)................     878   *    7,837   *         0   *        0   *
Hermann Buerger..........................       0   *        0   *         0   *        0   *
John P. Frazee, Jr. (3)..................   2,929   *        0   *         0   *        0   *
Cyrus F. Freidheim, Jr...................      14   *        0   *         0   *        0   *
H. Laurance Fuller (4)...................   2,846   *        0   *         0   *        0   *
Janet Hill...............................       0   *        0   *         0   *        0   *
Ray L. Hunt (5)..........................       0   *        0   *   382,500   *      480   *
John T. Kelley, III (6)..................  88,833   *        0   *         0   *   30,800   *
Jay O. Light.............................   1,601   *        0   *         0   *        0   *
William D. Sanders (7)...................     455   *    9,739   *   106,250   *    9,187   *
Peter S. Willmott (8)....................       6   *    1,000   *         0   *        0   *
Frank P. Lowy............................       0   *        0   *         0   *        0   *
Thomas G. Wattles (9)....................  28,821   *        0   *         0   *       61   *
Anthony R. Manno, Jr.....................       0   *        0   *         0   *        0   *
Constance B. Moore.......................       0   *        0   *         0   *        0   *
All Directors and executive officers as a
  Group (23 persons)..................... 128,981   *   29,183   *   489,600   *   44,372   *
</TABLE>
--------
*  Less than 1%.
(1) For each person who owns options which are exercisable within 60 days, the
    calculation of the percentage ownership assumes that only that person has
    exercised all of his options and that no other person has exercised any
    outstanding options.

(2) Storage USA shares include 6,000 shares which may be acquired upon exercise
    of options within 60 days.

(3) ProLogis common shares include 402 shares held by Mr. Frazee's wife and
    1,206 shares held by his children.

(4) Includes 402 ProLogis common shares held by Mr. Fuller's wife.

(5) The SC-European Realty shares are shares for which Mr. Hunt shares
    beneficial ownership pursuant to powers of attorney. Excludes 425,000
    shares owned by Hunt Securities Corporation, as to which Mr. Hunt disclaims
    beneficial ownership.

(6) ProLogis common shares and Regency shares are held in a trust for which Mr.
    Kelley is trustee.

(7) ProLogis shares are held by Mr. Sanders' wife. Storage shares include 7,722
    shares which may be acquired upon exercise of options within 60 days.

(8) Includes four ProLogis shares held by Mr. Willmott's children and two
    ProLogis shares held by Mr. Willmott's wife.

(9) ProLogis shares include 2,574 shares held by Mr. Wattles' children and
    8,040 shares held in an IRA account for Mr. Wattles and his wife. Regency
    shares are held by one of Mr. Wattles' children.

Section 16(a) Beneficial Ownership Reporting Compliance

   Section 16(a) of the Exchange Act requires Security Capital's Directors,
executive officers and beneficial owners of more than 10 percent of the
outstanding Class A Shares or Class B Shares to file reports of ownership

                                      42

<PAGE>

and changes in ownership of the Class A Shares or Class B Shares with the
Securities and Exchange Commission and to send copies of those reports to
Security Capital. Based solely on a review of those reports and amendments
thereto furnished to Security Capital and on written representations of certain
of those persons that they were not required to file certain of those reports,
Security Capital believes that no such person failed to file any such report on
a timely basis during 2000.

Item 13. Certain Relationships and Related Transactions

   C. Ronald Blankenship, a Director, Vice Chairman and Chief Operating Officer
of Security Capital, is a party to a full recourse secured note and related
pledge agreement executed in 1996 with Security Capital, under which Security
Capital loaned Mr. Blankenship $925,000. The note is due on the earlier of
January 15, 2005, 120 days after Mr. Blankenship is no longer an officer of
Security Capital or, if a change of control of Security Capital occurs and Mr.
Blankenship's employment with Security Capital is terminated, one year after
such termination. Interest accrues at six percent per year and is payable
annually on January 15 each year the note is outstanding. The note is secured
by Class A Shares of Security Capital owned by Mr. Blankenship, common shares
of Archstone and ProLogis owned by Mr. Blankenship, and a life insurance policy
on Mr. Blankenship in the amount of $925,000, which policy names Security
Capital as beneficiary. Mr. Blankenship has also agreed that if he exercises
any options for Security Capital securities prior to payment of the note, any
securities obtained upon exercise of those options will become subject to the
pledge agreement and the net proceeds (after payment of minimum withholding
taxes) from the sale of any securities obtained upon exercise of those options
will be immediately applied to payment of the note.

   Thomas G. Wattles, a Managing Director of Security Capital, is a party to a
full recourse secured note and related pledge agreement executed in 1997, under
which Security Capital loaned Mr. Wattles $418,936.93. The note is due on the
earlier of January 15, 2005, 120 days after Mr. Wattles is no longer an officer
of Security Capital or, if a change of control of Security Capital occurs and
Mr. Wattles' employment with Security Capital is terminated, one year after
such termination. Interest accrues at six percent per year and is payable
annually on January 15 each year the note is outstanding. The note is secured
by Class A Shares of Security Capital owned by Mr. Wattles, common shares of
ProLogis owned by Mr. Wattles, and by a life insurance policy on Mr. Wattles in
the amount of $536,000, which policy has been assigned to Security Capital. Mr.
Wattles has also agreed that if he exercises any options for Security Capital
securities prior to payment of the note, any securities obtained upon exercise
of those options will become subject to the pledge agreement and the net
proceeds (after payment of minimum withholding taxes) from the sale of any
securities obtained upon exercise of those options will be immediately applied
to payment of the note.

   Anthony R. Manno, Jr., a Managing Director of SC-Research & Management, has
a loan outstanding with Security Capital in the principal amount of $250,000
under a secured amended and restated note dated December 1, 1999 (originally
issued in June 1997). The note is due on January 12, 2003 or 120 days after the
date Mr. Manno ceases to be an officer of any affiliate of Security Capital.
Interest on the note accrues at a rate of six percent per annum, and is payable
annually. Mr. Manno used the proceeds of the loan to purchase shares of
SC-Preferred Growth, which is managed by SC-Research & Management, and the note
is secured by those shares.

   Paul E. Szurek, Chief Financial Officer of Security Capital, has a loan
outstanding with Security Capital in the principal amount of $75,000 under a
note dated October 30, 1995. The note is due on January 4, 2005, and interest
accrues at a floating rate per annum equal to the lowest rate charged by Morgan
Guaranty Trust Company of New York to its most creditworthy corporate customers
for unsecured loans having a maturity of ninety days or less, in effect from
time to time, plus .25%. Interest is payable semiannually. Mr. Szurek used the
proceeds of the loan to purchase common shares of SC-U.S. Realty, which company
was acquired by Security Capital in 2001 and which shares were exchanged for
Class B Shares. At the time the loan was originally made, Mr. Szurek was
scheduled to become an officer of SC-U.S. Realty.

   In February 1999, Security Capital sold a house located in Santa Fe, New
Mexico, and a community club membership, associated with the house to Constance
B. Moore and her husband for $730,000, as part of their

                                      43

<PAGE>

relocation to Santa Fe. Security Capital had purchased the house and
membership, in July 1997 for $790,000 from a former employee of Security
Capital as part of his relocation. Ms. Moore and her husband have agreed that
if they sell the house for more than $685,000, Security Capital will receive
50% of the proceeds above $685,000 and Security Capital will reimburse Ms.
Moore for any losses resulting from the sale of the house for less than
$685,000. Ms. Moore and her husband have no obligation to share with Security
Capital any of the proceeds from a sale of the club membership.

   Homestead Village, a former affiliate of Security Capital, had a $35 million
revolving credit facility and a $61 million term loan with Commerzbank AG, New
York Branch (Commerzbank), an affiliate of the entity which owns Security
Capital's Series B Preferred Shares, as the arranger or agent, and other
lenders. Prior to April 27, 2001, borrowings accrued interest at rates equal to
2.5% over LIBOR, 2% over the prime rate and 2.5% over the federal funds rate.
Homestead Village paid $26 million in principal on the term loan in February
2001 in connection with the sale of 23 Homestead Village properties to an
unaffiliated purchaser. On April 27, 2001, Homestead Village entered into an
amended and restated credit facility which provided solely for a revolving line
of up to $35.0 million in borrowings, a reduction in the interest rate of 2.0%
over LIBOR and an extension of the maturity date to February 2004. During the
balance of 2001, there was an average of $9.7 million outstanding on the
revolving line, which was paid prior to November 2001. The revolving credit
facility was cancelled upon the sale of Homestead Village in November 2001.

   In connection with the business combination with SC-U.S. Realty, a former
affiliate of Security Capital, which was completed in January 2001, Security
Capital entered into an Amended and Restated Credit Agreement, dated as of
December 8, 2000, among Security Capital and 11 financial institutions (the
Revolving Credit Facility), and a Term Loan Agreement, dated as of December 8,
2000, among Security Capital and 11 financial institutions (the Term Loan).
Under the Revolving Credit Facility, Security Capital could have borrowed up to
$470 million on a revolving basis, subject to the value of certain securities
beneficially owned by Security Capital less certain liabilities of Security
Capital. Borrowings accrued interest at the election of Security Capital of
either LIBOR or a Base Rate (defined as the higher of Wells Fargo prime rate or
the Federal Funds rate plus .50%) plus in each case a margin (1.20% as of
December 31, 2001), based upon Security Capital's credit rating. The Revolving
Credit Facility was amended in June 2001 reducing the total borrowings
available to $450 million and extending the agreement through April 6, 2003,
with an option to renew for successive one-year periods with the approval of
lenders. The Revolving Credit Facility is guaranteed by several wholly-owned
subsidiaries of Security Capital. Commerzbank has a $55 million commitment for
the Revolving Credit Facility. As of March 22, 2002, there are no borrowings
under the Revolving Credit Facility. The Revolving Credit Facility is expected
to be terminated upon the closing of the GE merger.

   Security Capital borrowed $530 million under the Term Loan. Borrowings
accrued interest at the election of Security Capital at either LIBOR or a Base
Rate (defined as the higher of Wells Fargo prime rate or the Federal Funds rate
plus .50%), plus in each case a margin (1.30% at December 31, 2000), based upon
Security Capital's credit rating. The agreement was effective through January
17, 2002, with an option to extend with the approval of the lenders. The Term
Loan was guaranteed by SC Realty. Commerzbank had a $75 million commitment for
the Term Loan. The Term Loan was paid in full and terminated on February 28,
2001.

   During 2000 and 2001, InterPark entered into a financing arrangement with
PSERS, a beneficial owner of more than 5% of the outstanding Class A and Class
B Shares, for $100 million of subordinated convertible debt financing with a
maturity date of June 30, 2010. The interest rate is 7.00% with 4.00% current,
paid in semi-annual payments and 3.00% accrued. At the option of PSERS, the
outstanding debt may be converted into shares of common stock of InterPark, on
or after June 10, 2005, at a conversion rate of $12.20 per share. At
December 31, 2001, $100 million was outstanding under this arrangement.

                                      44

<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

   The following documents are filed as a part of this report:

      (a) Financial Statements and Schedules:

          1. Financial Statements:

             See Index to Financial Statements below, which is incorporated
          herein by reference.

          2. Financial Statement Schedules:

 Schedule I.

 Schedule III.

   All other schedules have been omitted since the required information is
presented in the financial statements and the related notes or is not
applicable.

          3. Exhibits:

             See Index to Exhibits, which is incorporated herein by reference.

      (b) Reports on Form 8-K: The following reports on Form 8-K were filed
   during the last quarter of the period covered by this report:

<TABLE>
<CAPTION>
                                                   Financial
                   Date              Item Reported Statements
                   ----              ------------- ----------
                   <S>               <C>           <C>
                   November 7, 2001. Items 7 and 9     No
                   November 21, 2001 Items 2 and 7     No
                   November 30, 2001 Items 2 and 7     No
                   December 26, 2001 Items 2 and 7     No
</TABLE>

      (c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are
   listed in the Index to Exhibits, which is incorporated herein by reference.

                                      45

<PAGE>

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                          -------
<S>                                                                                                       <C>
Security Capital Group Incorporated
   Report of Independent Public Accountants..............................................................      47
   Consolidated Balance Sheets as of December 31, 2001 and 2000..........................................      48
   Consolidated Statements of Operations and Comprehensive Income for the years ended
     December 31, 2001, 2000 and 1999....................................................................   49-50
   Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000
     and 1999............................................................................................      51
   Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999............   52-53
   Notes to Consolidated Financial Statements............................................................   54-77
   Schedule I - Condensed Financial Information of Registrant............................................   78-81
   Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2001.......................   82-83
Regency Centers Corporation
   Independent Auditors' Report..........................................................................      84
   Consolidated Balance Sheets as of December 31, 2001 and 2000..........................................      85
   Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999............      86
   Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001,
     2000 and 1999.......................................................................................      87
   Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999............   88-89
   Notes to Consolidated Financial Statements............................................................  90-103
   Independent Auditors' Report on Financial Statement Schedule..........................................     104
   Schedule III - Combined Real Estate and Accumulated Depreciation as of December 31, 2001.............. 105-110
Archstone Communities Trust
   Independent Auditors' Report..........................................................................     111
   Balance Sheets as of December 31, 2000 and 1999.......................................................     112
   Statements of Earnings for the years ended December 31, 2000, 1999 and 1998...........................     113
   Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998...............     114
   Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.........................     115
   Notes to Financial Statements......................................................................... 116-138
   Independent Auditors' Report..........................................................................     139
   Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2000....................... 140-146
Security Capital U.S. Realty
   Auditors' Report......................................................................................     147
   Consolidated Statements of Net Assets at December 31, 2000 and 1999...................................     148
   Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998............     149
   Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998............     150
   Consolidated Statements of Changes in Net Assets for the years ended December 31, 2000, 1999 and 1998.     151
   Consolidated Statements of Changes in Shares Outstanding for the years ended
     December 31, 2000, 1999 and 1998....................................................................     151
   Consolidated Financial Highlights for the years ended December 31, 2000, 1999 and 1998................     151
   Consolidated Schedules of Strategic Investment Positions at December 31, 2000 and 1999................     152
   Consolidated Schedules of Other Investment Positions at December 31, 2000 and 1999....................     153
   Notes to the Consolidated Financial Statements........................................................ 154-160
ProLogis Trust
   Report of Independent Public Accountants..............................................................     161
   Consolidated Balance Sheets as of December 31, 2001 and 2000..........................................     162
   Consolidated Statements of Earnings for the years ended December 31, 2001, 2000 and 1999..............     163
   Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999..     164
   Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999............     165
   Notes to Consolidated Financial Statements............................................................ 166-207
   Report of Independent Public Accountants..............................................................     208
   Schedule III--Real Estate and Accumulated Depreciation as of December 31, 2001........................ 209-221
</TABLE>


                                      46

<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Security Capital Group Incorporated:

   We have audited the accompanying consolidated balance sheets of Security
Capital Group Incorporated (a Maryland Corporation) and subsidiaries as of
December 31, 2001 and 2000 and the related consolidated statements of
operations and comprehensive income (loss), shareholders' equity, and cash
flows for each of the three years ended December 31, 2001. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedules referred to below based on our audits.
We did not audit the financial statements of Security Capital EU Management
Holdings (for the years ended 2001, 2000 and 1999), Archstone Communities Trust
(for the years ended 2000 and 1999), CarrAmerica Realty Corporation (for the
year ended 2001), Regency Centers Corporation (for the year ended 2001),
Security Capital European Realty (for the year ended 2000) and the combined
financial statements of four subsidiaries of Security Capital European Realty
(Akeler Holdings S.A., B.C. Holdings S.A., CWE Property Holdings S.A. and
Access Self-Storage Holdings S.A.) (for the year ended 2001) for which the
accompanying statements reflect 10% and 25% of the total consolidated assets of
Security Capital Group Incorporated and subsidiaries as of December 31, 2001
and 2000, respectively, and 13%, 11% and 17% of the total consolidated income
in the consolidated statements of operations of Security Capital Group
Incorporated and subsidiaries for each of the three years ended December 31,
2001, respectively. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
amounts included for those entities, is based solely on the reports of other
auditors.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.

   In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Security Capital Group Incorporated and
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.

   Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The attached Schedules I
and III are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basis consolidated
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, based on our audits and the reports of other auditors, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                          ARTHUR ANDERSEN LLP

Chicago, Illinois
March 27, 2002

                                      47

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

                          CONSOLIDATED BALANCE SHEETS

                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                         December 31,
                                                                                                    ----------------------
                                                                                                       2001         2000
                                                                                                    ----------   ----------
<S>                                                                                                 <C>          <C>
                                             ASSETS
Investments, at equity:
    Archstone Communities Trust.................................................................... $       --   $  488,884
    ProLogis Trust.................................................................................    513,508      565,184
    Regency Centers Corporation....................................................................    466,871           --
    Security Capital European Realty...............................................................    381,856      393,200
    Security Capital U.S. Realty...................................................................         --      925,417
    SC-Research & Management:
     Security Capital Preferred Growth Incorporated................................................     91,079       88,716
     SC-US Real Estate Shares......................................................................     14,967       14,988
    Storage USA, Incorporated......................................................................    208,036           --
                                                                                                    ----------   ----------
                                                                                                     1,676,317    2,476,389
Real estate, less accumulated depreciation.........................................................  1,081,643      999,278
Investments in publicly traded real estate securities, at market value.............................     10,245       10,993
                                                                                                    ----------   ----------
       Total real estate investments...............................................................  2,768,205    3,486,660
Cash and cash equivalents..........................................................................  1,468,020       28,917
Note receivable....................................................................................    115,000           --
Deferred income tax asset..........................................................................    281,845           --
Other assets.......................................................................................    125,452      121,636
                                                                                                    ----------   ----------
       Total assets................................................................................ $4,758,522   $3,637,213
                                                                                                    ==========   ==========
                              LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
    Lines of credit................................................................................ $       --   $   66,500
    Mortgage and construction notes payable........................................................    458,218       45,668
    Long-term debt.................................................................................    799,745      699,676
    Convertible debentures.........................................................................    196,329      229,818
    Capital lease obligation.......................................................................         --      137,017
    Accounts payable and accrued expenses..........................................................    132,394      112,650
    Deferred income tax liability..................................................................         --       52,832
                                                                                                    ----------   ----------
       Total liabilities...........................................................................  1,586,686    1,344,161
Minority interests.................................................................................     10,895           63
Shareholders' Equity:
    Class A Common Shares, $.01 par value; 15,543,012 shares authorized;
     826,031 and 1,029,728 shares issued and outstanding in 2001 and 2000, respectively............          8           10
    Class B Common Shares, $.01 par value; 234,199,346 authorized;
     98,117,903 and 51,737,531 shares issued and outstanding in 2001 and 2000, respectively........        981          517
    Series B Preferred Shares, $.01 par value; 257,642 shares issued and outstanding in 2001 and
     2000; stated liquidation preference of $1,000 per share.......................................    257,642      257,642
    Additional paid-in capital.....................................................................  2,824,338    2,126,290
    Accumulated other comprehensive income (loss)..................................................    (49,179)     (35,091)
    Retained earnings (deficit)....................................................................    127,151      (56,379)
                                                                                                    ----------   ----------
       Total shareholders' equity..................................................................  3,160,941    2,292,989
                                                                                                    ----------   ----------
       Total liabilities and shareholders' equity.................................................. $4,758,522   $3,637,213
                                                                                                    ==========   ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      48

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                        AND COMPREHENSIVE INCOME (LOSS)

                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                           ----------------------------
                                                             2001      2000     1999
                                                           --------  -------- ---------
<S>                                                        <C>       <C>      <C>
INCOME:
Property revenues:
   BelmontCorp............................................ $ 19,835  $ 12,462 $   3,230
   City Center Retail Trust...............................   20,506        --        --
   CWS Communities Trust..................................   30,789        --        --
   Homestead Village Incorporated.........................  205,857   262,518   223,500
   InterPark..............................................  124,557        --        --
Equity in earnings (loss) of:
   Archstone Communities Trust............................    7,308    81,955    79,700
   CarrAmerica Realty Corporation.........................   19,971        --        --
   ProLogis Trust.........................................   26,323    48,010    41,072
   Regency Centers Corporation............................   62,927        --        --
   Security Capital European Realty.......................      516     2,284    (2,669)
   Security Capital U.S. Realty...........................  (16,475)  206,501   (46,798)
   SC-Research & Management:
       Security Capital Preferred Growth Incorporated.....   10,622    23,412     2,888
       SC-US Real Estate Shares...........................    1,066     6,883        --
   Storage USA, Incorporated..............................   28,577        --        --
   Strategic Hotel Capital Incorporated...................       --        --    11,247
Realized capital gains (losses)...........................  122,522   154,893   (53,856)
Other.....................................................   19,236     2,766     8,341
                                                           --------  -------- ---------
                                                            684,137   801,684   266,655
                                                           --------  -------- ---------
EXPENSES:
Property expenses:
   BelmontCorp............................................   15,692    10,216     3,786
   City Center Retail Trust...............................    9,227        --        --
   CWS Communities Trust..................................   10,767        --        --
   Homestead Village Incorporated.........................   83,200   107,749    98,009
   InterPark..............................................   73,556        --        --
General, administrative and other expenses,
  net of reimbursements from related parties..............   60,248    25,010    55,330
Depreciation and amortization.............................   60,906    45,981    44,915
Interest expense..........................................  122,544   108,558   133,454
Provision for loss on real estate and special charges.....       --    69,481    65,296
                                                           --------  -------- ---------
                                                            436,140   366,995   400,790
                                                           --------  -------- ---------
Earnings (loss) from operations........................... $247,997  $434,689 $(134,135)
                                                           --------  -------- ---------
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      49

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 AND COMPREHENSIVE INCOME (LOSS)--(Continued)

                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                      -----------------------------
                                                                        2001      2000      1999
                                                                      --------  --------  ---------
<S>                                                                   <C>       <C>       <C>
Earnings (loss) from operations...................................... $247,997  $434,689  $(134,135)
Provision for income tax expense (benefit):
   Current...........................................................   81,875    58,588       (785)
   Deferred..........................................................  (42,616)   60,457    (14,064)
                                                                      --------  --------  ---------
Total income expense (benefit).......................................   39,259   119,045    (14,849)
   Minority interests in net earnings (loss) of subsidiaries.........    3,494     2,154    (20,429)
                                                                      --------  --------  ---------
Earnings (loss) before extraordinary items and change in
 accounting principle:...............................................  205,244   313,490    (98,857)
   Extraordinary items--gain (loss) on early extinguishments of debt.   (3,679)   21,814     16,032
   Change in accounting principle--cumulative effect on prior........
   years of expensing costs of start-up activities...................       --        --    (16,136)
                                                                      --------  --------  ---------
Net earnings (loss)..................................................  201,565   335,304    (98,961)
   Less Preferred Share dividends....................................  (18,035)  (18,035)   (18,035)
                                                                      --------  --------  ---------
Net earnings (loss) attributable to common shares....................  183,530   317,269   (116,996)
Other comprehensive income (loss):
   Foreign currency translation adjustments, net.....................  (14,088)  (23,071)   (17,395)
                                                                      --------  --------  ---------
Comprehensive income (loss).......................................... $169,442  $294,198  $(134,391)
                                                                      ========  ========  =========
Weighted-average Class B common share equivalents outstanding:
   Basic.............................................................  139,432   107,514    119,255
                                                                      ========  ========  =========
   Diluted...........................................................  151,371   126,232    119,255
                                                                      ========  ========  =========
Earnings (loss) per share:
   Basic earnings (loss) before extraordinary items and
     change in accounting principle.................................. $   1.34  $   2.75  $   (0.98)
   Extraordinary items--gains (losses) on early extinguishments
     of debt.........................................................    (0.02)     0.20       0.13
   Change in accounting principle--cumulative effect of
     expensing costs of start-up activities..........................       --        --      (0.13)
                                                                      --------  --------  ---------
   Basic net earnings (loss) attributable to common shares........... $   1.32  $   2.95  $   (0.98)
                                                                      ========  ========  =========
   Diluted earnings (loss) before extraordinary items and
     change in accounting principle.................................. $   1.30  $   2.57  $   (0.98)
   Extraordinary items--gains (losses) on early extinguishments
     of debt.........................................................    (0.02)     0.17       0.13
   Change in accounting principle--cumulative effect of
     expensing cost of start-up activities...........................       --        --      (0.13)
                                                                      --------  --------  ---------
   Diluted net earnings (loss) attributable to common shares......... $   1.28  $   2.74  $   (0.98)
                                                                      ========  ========  =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      50

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                                and Subsidaries
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         (In thousands, except shares)

<TABLE>
<CAPTION>
                                                             Common Stock
                                                 ------------------------------------
                                                      Class A                Class B
                                                 ----------------      ------------------        Series B Preferred
                                                   Shares       Par      Shares         Par          Shares at
                                                 Outstanding   Value   Outstanding     Value     Liquidation Value
                                                 -----------   -----   -----------     -----     ------------------
<S>                                              <C>           <C>     <C>             <C>       <C>
Balances at December 31, 1998...................  1,487,109     $15     47,628,481     $ 476         $ 257,642
  Conversion of Class A Shares to
   Class B Shares...............................  (207,867)     (2)     10,393,335       104               --
  Conversion of 2016 Convertible Debentures to
   Class B Shares...............................         43      --        260,953         3                --
  Share repurchase program......................    (69,705)     (1)    (5,601,547)      (56)               --
  Issuance of Shares, net.......................      8,831      --         14,398        --                --
  Net loss......................................         --      --             --        --                --
  Series B Preferred Share dividends............         --      --             --        --                --
  Foreign currency translation adjustments, net.         --      --             --        --                --
                                                  ---------     ---    -----------     -----         ---------
Balances at December 31, 1999................... 1,218,411     $12...   52,695,620     $ 527         $257,642
  Conversion of Class A Shares to
   Class B Shares...............................  (130,868)     (1)..    6,543,409        66                --
  Conversion of 2016 Convertible Debentures to
   Class B Shares...............................        --      --...       54,353        --                --
  Share repurchase program......................   (64,482)     (1)..   (7,796,900)      (78)               --
  Effect of SC-U.S. Realty's sale of Security
   Capital shares, net..........................        --      --...           --        --                --
  Issuance of Shares, net.......................     6,667      --...      241,049         2                --
  Net earnings..................................        --      --...           --        --                --
  Series B Preferred Share dividends............        --      --...           --        --                --
  Foreign currency translation adjustments, net.        --      --...           --        --                --
                                                  ---------     ---    -----------     -----         ---------
Balances at December 31, 2000................... 1,029,728     $10...   51,737,531     $ 517         $257,642
  Conversion of Class A Shares to
   Class B Shares...............................  (218,350)     (2)..   10,917,478       109                --
  Conversion of 2016 Convertible
   Debentures to Class B Shares.................        --      --...    1,465,728        15                --
  Share repurchase program......................        --      --...  (11,806,416)     (118)               --
  Issuance of Shares, net.......................    14,653      --...      406,536         4                --
  Distribution to SC-U.S. Realty
   shareholders.................................        --      --...   45,397,046       454                --
  Net earnings..................................        --      --...           --        --                --
  Series B Preferred Share dividends............        --      --...           --        --                --
  Foreign currency translation adjustments, net.         --      --             --        --                --
                                                  ---------     ---    -----------     -----         ---------
Balances at December 31, 2001...................    826,031     $ 8     98,117,903     $ 981         $ 257,642
                                                  =========     ===    ===========     =====         =========
</TABLE>
<TABLE>
<CAPTION>


                                                                 Accumulated
                                                                    Other                       Total
                                                  Paid-in       Comprehensive Accumulated   Shareholders'
                                                  Capital       Income (Loss)   Deficit        Equity
                                                 ----------     ------------- -----------   -------------
<S>                                              <C>            <C>           <C>           <C>
Balances at December 31, 1998................... $2,416,123       $  5,375     $(256,652)    $2,422,979
  Conversion of Class A Shares to
   Class B Shares...............................       (102)        --         --           --
  Conversion of 2016 Convertible Debentures to
   Class B Shares...............................      6,070             --            --          6,073
  Share repurchase program......................   (119,205)            --            --       (119,262)
  Issuance of Shares, net.......................      5,388             --            --          5,388
  Net loss......................................         --             --       (98,961)       (98,961)
  Series B Preferred Share dividends............         --             --       (18,035)       (18,035)
  Foreign currency translation adjustments, net.         --        (17,395)           --        (17,395)
                                                 ----------       --------     ---------     ----------
Balances at December 31, 1999................... $2,308,274      $(12,020)  $(373,648)    $2,180,787
  Conversion of Class A Shares to
   Class B Shares...............................        (65)           --          --             --
  Conversion of 2016 Convertible Debentures to
   Class B Shares...............................      1,287            --          --          1,287
  Share repurchase program......................   (176,089)           --          --       (176,168)
  Effect of SC-U.S. Realty's sale of Security
   Capital shares, net..........................    (13,756)           --          --        (13,756)
  Issuance of Shares, net.......................      6,639            --          --          6,641
  Net earnings..................................         --            --     335,304        335,304
  Series B Preferred Share dividends............         --            --     (18,035)       (18,035)
  Foreign currency translation adjustments, net.         --       (23,071)         --        (23,071)
                                                 ----------       --------     ---------     ----------
Balances at December 31, 2000................... $2,126,290      $(35,091)  $ (56,379)    $2,292,989
  Conversion of Class A Shares to
   Class B Shares...............................       (107)           --          --             --
  Conversion of 2016 Convertible
   Debentures to Class B Shares.................     31,160            --          --         31,175
  Share repurchase program......................   (247,789)           --          --       (247,907)
  Issuance of Shares, net.......................     20,538            --          --         20,542
  Distribution to SC-U.S. Realty
   shareholders.................................    894,246            --          --        894,700
  Net earnings..................................         --            --     201,565        201,565
  Series B Preferred Share dividends............         --            --     (18,035)       (18,035)
  Foreign currency translation adjustments, net.         --        (14,088)           --        (14,088)
                                                 ----------       --------     ---------     ----------
Balances at December 31, 2001................... $2,824,338       $(49,179)    $ 127,151     $3,160,941
                                                 ==========       ========     =========     ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      51

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (In thousands)

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                            -------------------------------
                                                                               2001       2000       1999
                                                                            ----------  ---------  --------
<S>                                                                         <C>         <C>        <C>
Operating Activities:
   Net earnings (loss)..................................................... $  201,565  $ 335,304  $(98,961)
   Adjustments to reconcile net earnings (loss) to cash flows provided by
     operating activities:
       Deferred income tax expense (benefit)...............................    (42,616)    60,457   (14,064)
       Minority interests..................................................      3,494      2,154   (20,429)
       (Gain) loss on early extinguishments of debt, net of tax............      3,679    (21,814)  (16,032)
       Cumulative effect on prior years of expensing costs of start-up
         activities........................................................         --         --    16,136
       Equity in earnings of unconsolidated investees less than (in
         excess) of distributions..........................................     96,895   (222,040)   71,857
       Realized capital losses (gains).....................................   (122,522)  (154,893)   53,856
       Depreciation and amortization.......................................     60,906     45,981    44,915
       Provision for loss on real estate and special charges...............         --     69,481    51,587
       Other...............................................................      6,765      1,879    11,067
   Decrease in other assets................................................      4,100      8,979     1,236
   (Decrease) increase in accounts payable and accrued expenses............    (41,600)    13,910     6,649
                                                                            ----------  ---------  --------
          Net cash flows provided by operating activities..................    170,666    139,398   107,817
                                                                            ----------  ---------  --------
Investing Activities:
   Real estate investments:
       BelmontCorp.........................................................    (71,526)   (57,042)  (43,389)
       Homestead Village Incorporated......................................    (11,752)   (11,478)  (93,722)
       InterPark...........................................................   (272,820)        --        --
       Other...............................................................     (4,179)        --        --
   Proceeds from sale of properties and land...............................    100,220     24,577    72,995
   Purchase of minority interest in Homestead Village......................         --    (65,303)       --
   Cash paid to dissenting shareholders of SC-U.S. Realty and
     transaction costs.....................................................   (142,025)        --        --
   Cash acquired from SC-U.S. Realty and consolidated subsidiaries.........     35,691         --        --
   Proceeds from sales of:
       Archstone Communities Trust.........................................    700,285    265,385        --
       CWS Communities Trust...............................................    291,597         --        --
       CarrAmerica Realty Corporation......................................    786,995         --        --
       Homestead Village Incorporated......................................    461,807         --        --
       Strategic Hotel Capital Incorporated................................         --         --   329,451
       Publicly traded real estate securities, net.........................        131     16,250    55,945
   Investment in SC-European Realty........................................         --        (11)  (64,805)
   Other...................................................................       (899)     3,086    (1,078)
                                                                            ----------  ---------  --------
          Net cash flows provided by investing activities.................. $1,873,525  $ 175,464  $255,397
                                                                            ----------  ---------  --------
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      52

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

              CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)

                                (In thousands)

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                         --------------------------------
                                                                            2001       2000       1999
                                                                         ----------  ---------  ---------
<S>                                                                      <C>         <C>        <C>
Financing Activities:
   Proceeds from lines of credit........................................ $  520,371  $ 369,000  $ 478,830
   Payments on lines of credit..........................................   (690,259)  (518,849)  (782,961)
   Proceeds from transaction loan.......................................    530,000         --         --
   Payments on transaction loan.........................................   (530,000)        --         --
   Proceeds from issuances of long-term debt and notes..................    240,001     29,396    101,339
   Payments on notes and capital leases.................................    (16,152)    (5,686)  (153,602)
   Payment to redeem SC-U.S. Realty convertible debentures..............   (406,601)        --         --
   Repurchase of common shares, net of issuances........................   (227,365)  (169,527)   (88,578)
   Sale of real estate, net.............................................         --         --    127,360
   Preferred dividends paid.............................................    (18,035)   (18,035)   (18,035)
   Other................................................................     (7,048)    (2,811)   (10,209)
                                                                         ----------  ---------  ---------
       Net cash flows used in financing activities......................   (605,088)  (316,512)  (345,856)
                                                                         ----------  ---------  ---------
Net increase (decrease) in cash and cash equivalents....................  1,439,103     (1,650)    17,358
Cash and cash equivalents, beginning of year............................     28,917     30,567     13,209
                                                                         ----------  ---------  ---------
Cash and cash equivalents, end of year.................................. $1,468,020  $  28,917  $  30,567
                                                                         ==========  =========  =========
Non-Cash Investing and Financing Activities:
   Acquisition of SC-U.S. Realty's assets:
       Assumption of SC-U.S. Realty convertible notes (subsequently
         redeemed)...................................................... $ (406,601) $      --  $      --
       Other liabilities assumed, net of other assets acquired..........    (12,710)        --         --
       Net deferred tax assets acquired.................................    227,011         --         --
       Value of Security Capital common stock issued....................   (894,700)        --         --
                                                                         ==========  =========  =========
   Sale of Homestead Village:
       Note receivable issued by purchaser.............................. $  115,000  $      --  $      --
       Liabilities assumed by purchaser.................................    145,047         --         --
                                                                         ==========  =========  =========
   Increase in property and equipment and lease obligation from capital
     lease.............................................................. $       --  $      --  $ 145,000
                                                                         ==========  =========  =========
   Effect of SC-U.S. Realty's sale of Security Capital shares........... $       --  $  13,756  $      --
                                                                         ==========  =========  =========
   Exchange of convertible debentures for Archstone shares.............. $       --  $  42,500  $      --
                                                                         ==========  =========  =========
   Homestead Village convertible mortgages received and extinguished,
     as consideration for Archstone shares.............................. $       --  $ 221,334  $      --
                                                                         ==========  =========  =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      53

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1) Description of Business and Summary of Significant Accounting Policies

  Business

   On December 14, 2001, Security Capital Group Incorporated (Security Capital)
and GE Capital Corporation (GE Capital), through its Commercial Real Estate
business, announced that they have entered into a definitive agreement for GE
Capital to acquire Security Capital for approximately $4 billion, or $26 in
value per class B common share. The transaction, which is subject to approval
of the Security Capital shareholders, requisite governmental approvals and
filings and satisfaction of customary conditions, is expected to close in the
second quarter of 2002. No assurance can be given that this transaction will
close.

   Security Capital is an international real estate operating and investment
management company. The company's strategy is to own all or a high percentage
of six real estate businesses that function as private operating divisions.
Security Capital currently has ownership positions in nine real estate
businesses. The principal offices of Security Capital are in Brussels, Chicago,
El Paso, Houston, London, Luxembourg, New York and Santa Fe.

  Principles of Financial Presentation

   The accompanying consolidated financial statements include the results of
Security Capital, its wholly-owned subsidiaries and its majority-owned
investees, which include BelmontCorp (Belmont), City Center Retail Trust (City
Center Retail), CWS Communities Trust (CWS Communities, sold in August 2001),
Homestead Village Incorporated (Homestead Village, sold in November 2001),
InterPark, and Security Capital European Real Estate Shares (SC-European Real
Estate Shares). All significant intercompany accounts and transactions have
been eliminated in consolidation.

   The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses recognized during
the reporting period. Actual results could differ from those estimates.

   Certain reclassifications have been made in the 2000 and 1999 consolidated
financial statements and notes to consolidated financial statements in order to
conform to the 2001 presentation.

  Cash and Cash Equivalents

   Security Capital considers all cash on hand, demand deposits with financial
institutions, and short-term, highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31,
2001, Security Capital maintained $1.4 billion of cash equivalents with three
institutions: approximately 38% at Federated Investors; 27% at JP Morgan; and
35% at Bank One. The cash equivalents are invested in money market accounts
containing high-credit short-term investments managed by the above
institutions, and as such, are not obligations of, or subject to the credit
risk of the managing institution.


  Equity-Method Investees



   Investments in which Security Capital has less than 50% voting control are
accounted for under the equity method. Equity-method investees are initially
recorded at cost with subsequent adjustments to reflect Security


                                      54

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Capital's proportionate share of income (loss) of the investee, other basis
adjustments and dividends received from the investee. Security Capital's
proportionate share of the income (loss) of the investee is included in net
income.



   A loss in value of an investment that is other than a temporary decline is
recognized in the amount of the difference between the carrying amount and
current fair value. Generally, factors that are considered when determining if
a decline is other than temporary include:



    .  A significant decrease in the investees' market value for publicly
       traded investees



    .  A significant adverse change in legal factors or in the business climate
       of an investee that could affect the value of the investee or an adverse
       action or assessment by a regulator



    .  An investees' current period operating or cash flow loss combined with a
       history of operating or cash flow losses or a projection or forecast
       that demonstrates continuing losses.



   In addition, investees perform impairment tests on their long-lived assets.
Any impairment loss recognized by the investee would be recognized by Security
Capital as a component of equity in earnings from the investees.



   Security Capital owns approximately 59.5% of the outstanding common stock of
Regency; however its ability to exercise voting control over these shares is
limited by the Stockholders Agreement by and among Regency, Security Capital
Holdings S.A., Security Capital U.S. Realty and The Regency Group, Inc. dated
as of July 10, 1996, as amended, including amendments to reflect Security
Capital's purchase of Security Capital Holdings S.A. and the shareholder
approval of the liquidation of Security Capital U.S. Realty (as amended, the
"Stockholders Agreement").



   The Stockholders Agreement provides that Security Capital will vote all of
its shares of Regency in accordance with the recommendations of Regency's board
of directors or proportionally in accordance with the votes of the other
holders of Regency common stock. This broad voting restriction is subject to a
limited qualified exception pursuant to which Security Capital can vote its
shares of Regency in its sole and absolute discretion with regard to amendments
to Regency's charter or bylaws that would materially adversely affect Security
Capital and with regard to "Extraordinary Transactions" (which include mergers,
consolidations, sale of a material portion of Regency's assets, issuances of
securities in an amount which requires a shareholder vote and other similar
transactions out of the ordinary course of business). However, the limited
exception is itself further qualified. Even with respect to charter and by-law
amendments and Extraordinary Transactions, Security Capital may only vote
shares representing ownership of 49% of the outstanding Regency common stock at
its discretion, any shares owned by Security Capital in excess of 49% must be
voted in accordance with the recommendations of Regency's board of directors or
proportionally in accordance with the votes of the other holders of Regency
common stock. With regard to Extraordinary Transactions which require a 2/3rds
vote (i.e. where Security Capital could block the outcome if it voted 49% of
the stock), Security Capital may only vote shares representing ownership of 32%
of the outstanding Regency common stock. Security Capital may vote its shares
to elect a certain number of nominees to the Regency board of directors,
however this right is similarly limited. Security Capital has the right to
nominate the greater of three directors or the number of directors
proportionate to its ownership, however Security Capital may not nominate more
than 49% of the Regency board of directors.



   The effect of these limitations is such that notwithstanding the fact that
Security Capital owns more than a majority of the currently outstanding shares
of Regency common stock, Security Capital may not, in compliance with the
Stockholders Agreement, exercise voting control with respect to more than 49%
of the outstanding shares of Regency (and may vote those shares in its
discretion only with respect to the limited matters listed above).


                                      55

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



   On December 14, 2001 Security Capital entered into an agreement with GE
Capital pursuant to which, assuming consummation, an indirect wholly owned
subsidiary of GE Capital will be merged with and into Security Capital with
Security Capital surviving as an indirect wholly owned subsidiary of GE Capital.


  Real Estate and Depreciation

   Real estate is carried at cost, which is not in excess of net realizable
value. Costs directly related to land acquisition, and development or
renovation of real estate are capitalized. Costs incurred in connection with
the pursuit of unsuccessful acquisitions or developments are expensed at the
time the pursuit is abandoned.

   Repairs and maintenance are expensed as incurred. Renovations and
improvements are capitalized and depreciated over their estimated useful lives.

   Depreciation is computed over the expected useful lives of depreciable
property on a straight-line basis. Properties are depreciated principally over
the useful lives of 20 to 40 years for buildings and improvements and 2 to 10
years for furnishings and other equipment.

   Properties and land held for sale are stated at the lower of cost or
estimated fair value less estimated costs to sell.

   Security Capital and its investees periodically review their long-lived
assets, primarily real estate and investments in unconsolidated entities, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Management's review
involves comparing current and future operating performance of the assets, the
most significant of which is undiscounted operating cash flows, to the carrying
value of the assets. Based on this analysis, a provision for possible loss is
recognized if necessary.

  Capitalized Interest

   Security Capital's consolidated subsidiaries capitalize interest during the
period of construction as part of the cost of real estate projects under
development.

  Deferred Loan Fees

   Costs incurred in connection with the issuance or renewal of debt are
capitalized, included with other assets and amortized over the term of the
related loan (issuance costs) or the renewal period.

  Revenue Recognition

   Interest Income

   Security Capital recognizes interest income on notes receivable based on the
terms of the instrument. No reserve of principal or accrued interest are made
unless circumstances indicate a reserve is necessary.

   Security Capital's subsidiaries enter into operating leases with tenants for
various time periods and terms as follows:

    Retail Facilities--City Center Retail

   City Center Retail leases retail space to tenants under agreements which
contain provisions for base rent plus additional rents based on sales volume
(percentage rents). Percentage rents are recognized as tenants' reported sales
volume exceeds the sales volume level stated in the lease agreement.

                                      56

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


    Parking Facilities--InterPark


   In addition to daily parking revenue, InterPark leases certain parking
facilities under agreements with varying terms. InterPark also manages certain
facilities for third party owners and receives a management fee based upon a
percentage of the facilities' revenue. Minimum base management fees are
recognized on the straight-line method over the term of the agreement.
Incentive management fees are recognized once the respective contractual
thresholds have been satisfied.


    Manufactured Housing Communities--CWS Communities

   CWS Communities leased homesites under operating leases with initial terms
typically of one year. Revenue was recognized ratably over the lease term.

    Senior Assisted Living--Belmont

   Belmont collects fees for housing, support services, and additional
services. Revenue is recognized when the services are rendered.

    Extended Stay Lodging--Homestead Village

   Homestead Village rented rooms in its hotel properties. Room revenue and
other revenue was recognized when services were rendered.

   For some properties, the Company's subsidiaries record as revenues tenant
recoveries for taxes, maintenance, and other costs on certain leases. These
revenues are recognized in the period in which the costs are incurred. Minimum
rent is recognized on a straight-line basis over the term of the lease
regardless of when the payments are due.

  Income Taxes

   Income taxes are determined using the asset and liability method. The
Company records deferred taxes to provide for temporary differences between the
carrying amounts of assets and liabilities used for financial reporting
purposes, respectively. Deferred taxes are calculated using the income tax
rates expected to be in effect, under existing legislation, at the date such
temporary differences are expected to reverse.

  Other Comprehensive Income

   Other comprehensive income for Security Capital and its equity method
investees consists of foreign currency translation adjustments, which have been
recorded as a component of equity pursuant to Statement of Financial Accounting
Standards No. 52.

   Security Capital records its share of foreign currency translation gains and
losses at ProLogis Trust (ProLogis) and Security Capital European Realty
(SC-European Realty) as a component of comprehensive income. Assets and
liabilities are translated at the exchange rate in effect as of the financial
statement date. Income statement accounts are translated using the average
exchange rate for the period.

  Interest Rate Contracts

   Security Capital did not enter into any interest rate contracts during 2001
or 2000. During 2000, a consolidated subsidiary entered into two interest rate
swap agreements (see Note 4). At December 31, 2001 the notional amount under
these swaps was $18.0 million.

                                      57

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Employee Stock Based Compensation

   Security Capital has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" (SFAS 123) and continues to
apply the accounting provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) as allowed under SFAS 123, making the pro forma
fair value disclosures required by SFAS 123. In accordance with APB 25, total
compensation cost is measured by the difference between the quoted market price
of stock at the date of grant or award and the price, if any, to be paid by an
employee, and is recognized as expense over the period the employee performs
the related services.

  Change in Accounting Principle

   In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5),
establishing accounting standards requiring the expensing of organizational,
pre-opening and start-up costs. Security Capital adopted SOP 98-5 effective
January 1, 1999. Upon adoption, any material unamortized organizational,
pre-opening and start-up costs were written off as a cumulative effect of
adoption of an accounting standard. The cumulative impact of the adoption of
SOP 98-5 on Security Capital's results of operation and financial position was
$16,136,000 in the first quarter of 1999, primarily related to Homestead
Village and Belmont.

  Recent Accounting Pronouncements

   In June 2001, Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" was issued which established standards for the
accounting and reporting of goodwill and other intangible assets. Under this
statement, goodwill is not amortized but instead is tested on an annual basis
for impairment. The new rules, which became effective on January 1, 2002, are
not expected to have a material impact on Security Capital's financial position
or results of operations in 2002.

   In August 2001, Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", was issued
which addresses the financial accounting and reporting for the impairment or
disposal of long-lived assets, superseding SFAS No. 121. The new rules which
became effective January 1, 2002, are not expected to have a material impact on
Security Capital's financial position or results of operations in 2002.

                                      58

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(2) Investments in Securities of Real Estate Related Entities and Real Estate

   Security Capital held the following investments at December 31, 2001 and
2000 (in thousands):

<TABLE>
<CAPTION>
                                                                                          Security Capital's
                                                                                            Net Investments
                                                                                             (Redemptions)
                                                                        % Ownership as    for the Year Ended
                                                                        of December 31,      December 31,
                                                                        --------------   --------------------
            Investment             Type of Entity                       2001       2000    2001       2000
            ----------             ------------------------------------ ----       ----  ---------  ---------
<S>                                <C>                                  <C>        <C>   <C>        <C>
CURRENT EQUITY-METHOD INVESTEES:
ProLogis (1)                       Industrial REIT                        28.4%    30.2% $      --  $      --
Regency (1)(2)                     Grocery-anchored retail REIT           59.5%(3)   --    473,986         --
SC-European Realty (4)(5)          Global real estate investments         34.6%    34.6%        --         11
SC-Preferred Growth (5)            Convertible security investments in
                                   real estate companies                   9.7%     9.2%        --        266
SC-US Real Estate Shares (6)       U.S. real estate securities fund       10.2%    13.8%        --    (16,250)
Storage USA (1)(2)(7)              Self-storage REIT                      41.6%      --    205,216         --
CURRENT CONSOLIDATED INVESTEES:
Belmont (4)(5)                     Senior assisted living                 99.8%    99.9%    32,897     24,235
City Center Retail (2)(5)          Retail                                 99.9%      --     94,225         --
InterPark (2)(4)(5)                Parking facility                       97.2%      --    337,521         --
                                   ownership & management
SC-European Real Estate Shares (6) European real estate securities fund   99.6%    99.9%        --         --
FORMER INVESTEES:
Archstone Communities Trust (1)(8) Apartment REIT                           --     25.8%  (700,285)  (503,209)
CarrAmerica (1)(2)(9)              Office REIT                              --       --   (786,995)        --
CWS Communities (2)(5)(10)         Manufactured housing                     --       --   (291,597)        --
                                   communities REIT
Homestead Village (5)(11)          Extended-stay lodging                    --     99.9%  (721,854)    65,303
SC-U.S. Realty (1)(2)              U.S. real estate investments             --     40.6%  (908,783)        --
</TABLE>
--------
(1) Publicly traded.
(2) On January 16, 2001, Security Capital acquired the remaining shares of
    SC-U.S. Realty it did not already own (see note 10 for further discussion).
    In connection with this transaction, Security Capital acquired its
    interests in Regency, Storage USA, City Center Retail, InterPark,
    CarrAmerica, and CWS Communities.
(3) Although Security Capital owns a majority interest of shares outstanding,
    this entity is not consolidated as voting rights do not exceed 49% per
    agreement with the investee.
(4) As of December 31, 2001, Security Capital and its subsidiaries have a
    remaining funding commitment of $33.6 million to SC-European Realty, $74.8
    million to Belmont and $29.3 million to InterPark.
(5) Private entity.
(6) Mutual fund.
(7) On December 5, 2001, Security Capital entered into an agreement to acquire
    Storage USA (see note 12 for further discussion).
(8) During 2000 and 2001, Security Capital sold substantially all of its
    investment in Archstone (see note 12 for further discussion).
(9) In December 2001, Security Capital sold all of its investment in
    CarrAmerica (see note 12 for further discussion).
(10) On August 3, 2001, Security Capital sold its investment in CWS Communities
     (see note 12 for further discussion).
(11) On November 20, 2001, Security Capital sold its investment in Homestead
     Village (see note 12 for further discussion).

                                      59

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Security Capital received dividends and interest from its investees for the
years ended December 31, 2001, 2000 and 1999, as follows (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
                                                  Dividends Received
                                          ----------------------------------
                                             2001        2000        1999
                                           --------    --------    --------
   <S>                                    <C>         <C>         <C>
   Dividends:
      Archstone.......................... $ 13,006... $ 68,697... $ 80,720..
      CarrAmerica........................   52,913...       --...       --..
      CWS Communities (1)................    7,949...       --...       --..
      Homestead Village (1)..............   14,550...   50,000...       --..
      ProLogis...........................   68,863...   66,871...   64,870..
      Regency............................   68,542...       --...       --..
      SC-European Real Estate Shares (1).      206...       78...      463..
      SC-Preferred Growth................    8,258...   10,466...    5,166..
      SC-US Real Estate Shares...........    1,087...      970...    2,149..
      Storage USA........................   25,061...       --...       --..
                                           --------    --------    --------
                                           260,435...  197,082...  153,368..
   Interest:
      Strategic Hotel (2)................       --...       --...    6,541..
                                           --------    --------    --------
                                          $260,435... $197,082... $159,909..
                                           ========    ========    ========
                                          Dividend Amount Per Investee Share
                                          ----------------------------------
                                             2001        2000        1999
                                           --------    --------    --------
      Archstone.......................... $ 0.4252... $ 1.5400... $ 1.4800..
      CarrAmerica........................   1.8500...       --...       --..
      CWS Communities (1)................   0.3100...       --...       --..
      Homestead Village (1)..............   0.1212...   0.4165...       --..
      ProLogis...........................   1.3800...   1.3400...   1.3000..
      Regency............................   2.0000...       --...       --..
      SC-European Real Estate Shares (1).   0.2014...   0.0762...   0.4463..
      SC-Preferred Growth (3)............   1.3400...   1.3400...   1.3125..
      SC-US Real Estate Shares...........   0.8100...   0.5283...   0.5129..
      Storage USA........................   2.1300...       --...       --..
</TABLE>

--------
(1) Dividends from Homestead Village, SC-European Real Estate Shares and CWS
    Communities to Security Capital are eliminated in consolidation.

(2) Includes deferred interest income from Strategic Hotel of $3,041 for the
    year ended December 31, 1999.

(3) Exclusive of $0.75 of capital gains dividends received in 2001.

                                      60

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following summarizes real estate investments of Security Capital's
consolidated investees as of December 31, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>
                                                Estimated
                                               Useful Lives
                                                (in years)  December 31, 2001 December 31, 2000
                                               ------------ ----------------- -----------------
<S>                                            <C>          <C>               <C>
Belmont:
Senior assisted living properties:............    20-40
   Operating communities......................                 $  100,165         $ 53,793
   Communities under construction.............                     89,965           64,858
   Communities in planning....................                     14,484           14,302
   Land held for future development...........                        777              777
                                                               ----------         --------
       Total real estate, at cost.............                    205,391          133,730
       Less accumulated depreciation..........                     (5,365)          (2,548)
                                                               ----------         --------
          Subtotal............................                    200,026          131,182
                                                               ----------         --------
City Center (acquired on January 16, 2001):
Retail facilities:............................    20-40
   Operating properties.......................                     68,966               --
   Re-developments under construction.........                     21,251               --
                                                               ----------         --------
       Total real estate, at cost.............                     90,217               --
       Less accumulated depreciation..........                    (12,900)              --
                                                               ----------         --------
          Subtotal............................                     77,317               --
                                                               ----------         --------
Homestead Village (sold on November 26, 2001):
Extended stay lodging properties:.............    20-40
   Owned properties...........................                         --          719,400
   Properties under capital lease.............                         --          145,000
   Developments under construction............                         --            2,787
   Properties held for sale...................                         --           84,391
   Land held for sale.........................                         --            2,532
                                                               ----------         --------
       Total real estate, at cost.............                         --          954,110
       Less accumulated depreciation..........                         --          (86,014)
                                                               ----------         --------
          Subtotal............................                         --          868,096
                                                               ----------         --------
InterPark (acquired on January 16, 2001):
Parking facilities:...........................    20-40
   Operating properties.......................                    842,281               --
   Developments under construction............                        868               --
                                                               ----------         --------
       Total real estate, at cost.............                    843,149               --
       Less accumulated depreciation..........                    (38,849)              --
                                                               ----------         --------
          Subtotal............................                    804,300               --
                                                               ----------         --------
Real Estate, less accumulated depreciation....                 $1,081,643         $999,278
                                                               ==========         ========
</TABLE>

   Real estate cost for City Center Retail and InterPark represents the
allocated purchase cost of such assets as of January 16, 2001 when those assets
were acquired from SC-U.S. Realty, plus actual cost of assets purchased
thereafter.

   Unfunded commitments for Belmont communities under construction were $27.4
million at December 31, 2001, which will result in total expected construction
costs of $117.4 million.

                                      61

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Presented below is summarized financial information for Security Capital's
equity-method investees as of and for the years ended December 31, 2001, 2000,
and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                            CarrAmerica  Regency    Storage
                                                                              (1)(2)       (1)      USA (1)
                                                                            ----------- ---------- ----------
                                                                               2001       2001       2001
                                                                            ----------- ---------- ----------
<S>                                                                         <C>         <C>        <C>
Total assets...............................................................  $    n/a   $3,109,314 $1,756,334
Total liabilities..........................................................       n/a    1,478,811    953,242
Minority interest..........................................................       n/a      411,452    128,599
Shareholders' equity.......................................................       n/a    1,219,051    674,493
Revenues...................................................................   538,646      388,550    295,370
Net earnings before extraordinary items and change in accounting principles    79,061       97,699     64,232
Net earnings attributable to common shares.................................    44,356       97,699     64,232
Security Capital share of net earnings.....................................    19,971       62,927     28,577
</TABLE>


<TABLE>
<CAPTION>
                                                Archstone (3)                 ProLogis
                                            --------------------- --------------------------------
                                               2000       1999       2001       2000       1999
                                            ---------- ---------- ---------- ---------- ----------
<S>                                         <C>        <C>        <C>        <C>        <C>
Total assets............................... $5,019,697 $5,302,437 $5,603,941 $5,946,334 $5,848,040
Total liabilities..........................  2,674,754  2,679,628  2,882,303  2,972,333  2,832,232
Minority interest..........................     93,337     55,303     45,639     46,630     62,072
Shareholders' equity.......................  2,251,606  2,567,506  2,675,999  2,927,371  2,953,736
Revenues...................................    723,234    667,022    523,125    643,521    567,392
Net earnings before extraordinary items and
 change in accounting principles...........    262,296    228,259    128,144    214,478    182,274
Net earnings attributable to common shares.    236,045    204,528     90,835    157,715    123,999
Security Capital share of net earnings.....     81,955     79,700     26,323     48,010     41,072
</TABLE>


<TABLE>
<CAPTION>
                                                                        Strategic Hotel
                                                                              (4)             SC-European Realty (5)
                                                                        --------------- ---------------------------------
                                                                             1999        2001(5)       2000       1999
                                                                        --------------- ----------  ---------- ----------
<S>                                                                     <C>             <C>         <C>        <C>
Total assets...........................................................    $    n/a     $2,465,467  $2,554,047 $1,904,712
Total liabilities......................................................         n/a      1,351,505   1,387,682    673,593
Minority interest......................................................         n/a         28,533      42,421     34,527
Shareholders' equity...................................................         n/a      1,085,429   1,123,944  1,137,410
Revenues...............................................................     350,133        398,072     374,930    120,393
Net earnings (loss) before extraordinary items and change in accounting
 principles............................................................      15,462         (4,757)     11,774     (9,254)
Net earnings (loss) attributable to common shares......................      15,462         (4,757)     11,774    (10,172)
Security Capital share of net earnings (loss)..........................       4,706            516       2,284     (2,669)
Security Capital interest income from affiliate........................       6,541             --          --         --
</TABLE>

<TABLE>
<CAPTION>
                                                        SC-Preferred Growth          SC-U.S. Realty (1)
                                                  -------------------------------  ----------------------
                                                     2001       2000       1999       2000        1999
                                                  ---------- ----------  --------  ----------  ----------
<S>                                               <C>        <C>         <C>       <C>         <C>
Total assets..................................... $1,260,424 $1,057,196  $881,391  $2,967,572  $2,530,886
Total liabilities................................    324,501     95,648    68,461     591,967     636,008
Shareholders' equity.............................    935,923    961,548   812,930   2,375,605   1,894,878
Net investment income............................     62,186     53,378    53,767      78,052      70,992
Realized gains (losses) on investments...........     25,500     (2,123)  (16,337)    (83,391)    (65,587)
Increase(decrease) in market value of investments     24,353    145,851    (7,103)    506,638    (152,693)
Net earnings (loss)..............................    112,040    197,107    30,327     432,079    (126,823)
Security Capital share of net earnings (loss)....     10,622     23,412     2,888     206,501     (46,798)
</TABLE>
--------
(1) On January 16, 2001 Security Capital acquired all the assets of SC-U.S.
    Realty, including equity investments in CarrAmerica, Regency and Storage
    USA.
(2) Security Capital sold all of its remaining shares of CarrAmerica in
    November and December 2001.
(3) Security Capital sold substantially all of its remaining shares of
    Archstone in February 2001.
(4) Security Capital sold its entire ownership position in September 1999 and
    no equity in earnings were recorded subsequent to June 28, 1999.
(5) Net earnings attributable to common shares includes $11,282 relating to a
    restatement in accounting for the purchase of a subsidiary for 1998, 1999
    and 2000 and an adjustment recorded subsequent to the issuance of Security
    Capital's year-end earnings report on February 14, 2002.

                                      62

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(3) Segment Reporting

   As a result of the purchase of SC-U.S. Realty and the formation of Macquarie
Capital Partners LLC in 2001, the activities formerly classified as the Capital
and Financial Services Divisions are now classified in their respective
functional categories and the Financial Services Division segment was
eliminated. Net income of the former Global Capital Management Group has been
combined with other operating companies. The expenses of the former Capital
Division, Corporate Services Group and Security Capital Real Estate Research
Group are included in general and administrative expenses. The revenues earned
from these businesses are offset against general and administrative expenses as
they represent reimbursement of costs. The 2000 segment information has been
restated to reflect this change in reportable segments.

   Security Capital operates its business in one reportable segment-ownership
of real estate operating and capital management companies. This segment records
revenues by reporting its pro-rata share of its investees' earnings before
depreciation, amortization and deferred taxes (EBDADT). EBDADT is considered by
management to be an additional measure of operating performance for Security
Capital and its affiliates, supplementing net earnings as measured by GAAP.
Among other things, GAAP net earnings includes the impact of real estate
depreciation. The value of real estate assets generally changes in response to
existing market conditions and does not necessarily diminish in value
predictably over time, as historical cost depreciation implies. Therefore,
consistent with real estate industry practice, EBDADT adjusts GAAP net earnings
by eliminating real estate related depreciation. EBDADT of real estate
investees which are not REITs or which conduct development-for-sale activities
includes gains and losses on sales of operating properties. In evaluating
performance internally, Security Capital distinguishes between normal operating
activities (including recurring gains and losses therein) and strategic charges
(primarily gains or losses resulting from decisions to sell investments in, or
exit from, an entire real estate sector). Security Capital characterizes these
gains or losses from strategic changes as "special items". Consistent with the
equity method of accounting, Security Capital reflects in its EBDADT its share
of basic EBDADT of each investee plus interest income and realized gains from
each investee. EBDADT should not be considered as an alternative to net
earnings or any other GAAP measurement of performance or as an alternative to
cash flows from operating, investing or financing activities, or as a measure
of Security Capital's liquidity.

                                      63

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Presented below is a statement of EBDADT reconciled to net earnings (in
thousands).

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                           -------------------------------
                                                             2001       2000       1999
                                                           ---------  ---------  ---------
<S>                                                        <C>        <C>        <C>
Equity in EBDADT of investees/divisions (1)............... $ 496,420  $ 440,827  $ 341,490
Interest and other income.................................    11,650      2,393      3,255
                                                           ---------  ---------  ---------
   Total income...........................................   508,070    443,220    344,745
Operating expenses........................................    29,506     33,878     39,415
Interest expense..........................................    77,059     78,118     82,303
                                                           ---------  ---------  ---------
   Total expense..........................................   106,565    111,996    121,718
                                                           ---------  ---------  ---------
Convertible preferred share dividends.....................    18,035     18,035     18,035
                                                           ---------  ---------  ---------
Basic EBDADT before current income taxes
  and special items.......................................   383,470    313,189    204,992
   Current income tax expense (benefit)...................    37,593     10,981     (2,175)
                                                           ---------  ---------  ---------
Basic EBDADT before special items.........................   345,877    302,208    207,167
   Gain on sale of Archstone stock, net of tax............   160,087    123,144         --
   Loss on sale of Homestead Village, net of tax..........   (52,790)        --         --
   CarrAmerica investment impairment......................   (15,733)        --         --
   Loss on sale of Strategic Hotel........................        --         --    (55,288)
   Homestead Village special charges......................        --      1,519    (45,581)
   Other, net.............................................    (1,309)     6,152     10,942
                                                           ---------  ---------  ---------
Basic EBDADT after special items..........................   436,132    433,023    117,240
Investee reconciling items:
   Real estate depreciation...............................  (232,206)  (160,701)  (187,794)
   Gains on sale of depreciated properties................    15,357     32,120     37,244
   Provision for loss on operating assets and real estate.   (25,621)   (72,368)        --
   Unrealized gains (losses), including foreign
     currency.............................................    (1,286)   185,183    (58,780)
   EBDADT, net of dividends from
     strategic investees of SC-U.S. Realty................        --    (34,810)   (26,742)
   Other..................................................   (22,866)    (6,607)     1,539
                                                           ---------  ---------  ---------
                                                            (266,622)   (57,183)  (234,533)
                                                           ---------  ---------  ---------
Security Capital reconciling items:
   Deferred tax expense (benefit).........................     9,183    (60,457)    14,064
   Change in accounting principle.........................        --         --    (16,136)
   Other..................................................     4,837      1,886      2,369
                                                           ---------  ---------  ---------
                                                              14,020    (58,571)       297
                                                           ---------  ---------  ---------
Net earnings attributable to common shares................ $ 183,530  $ 317,269  $(116,996)
                                                           =========  =========  =========
</TABLE>
--------
(1) Equity in EBDADT of SC-European Realty in 2000 and 1999 includes an
    adjustment recorded subsequent to the issuance of Security Capital's
    year-end earnings report on February 14, 2002. The reduction to EBDADT
    attributable to this adjustment is $0.5 million in 2000 and $1.7 million in
    1999.

                                      64

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   For internal management purposes, Security Capital values its assets at fair
value. Presented below is a reconciliation of assets at fair value to assets
presented in accordance with GAAP as of December 31, 2001 and 2000 (in
thousands):

<TABLE>
<CAPTION>
                                                                    2001        2000
                                                                 ----------  ----------
<S>                                                              <C>         <C>
Fair value (1).................................................. $5,624,092  $4,200,824
   Excess of assets at fair value over consolidated GAAP assets.   (623,075)   (430,940)
   Proceeds from assumed exercise of options and warrants (2)...   (242,495)   (132,671)
                                                                 ----------  ----------
GAAP Assets..................................................... $4,758,522  $3,637,213
                                                                 ==========  ==========
</TABLE>
--------
(1) To calculate fair value, public company investments and mutual funds are
    based on stock exchange closing prices, which may differ from the
    investments' underlying net asset or realizable value. Private divisions
    are valued at original Security Capital cost or SC-U.S. Realty carryover
    appraised value, or in the case of closed-end funds holdings traded
    securities, their current net asset value. The net asset value of these
    entities may fluctuate from time to time based on asset value changes.
    Security Capital will revalue an investment downward if the investee
    experiences sustained degradation of operating performance or if changed
    circumstances indicate cost does not reflect fair value.

(2) Includes only those options and warrants whose exercise price is equal to
    or less than market value as of these dates.


   Security Capital and its consolidated investees earned no revenues outside
of the United States and all of its long-lived assets are located in the United
States. No revenue from a single third party amounts to 10% or more of Security
Capital's revenue.


(4) Indebtedness

   A summary of indebtedness as of December 31, 2001 and 2000, is as follows
(in thousands):

<TABLE>
<CAPTION>
                                                         2001
                                          -----------------------------------
                                          Security
                                          Capital  Belmont InterPark  Total
                                          -------- ------- --------- --------
  <S>                                     <C>      <C>     <C>       <C>
  Lines of credit........................ $     -- $    -- $     --  $     --
  Mortgage and construction notes payable       --  81,607  376,611   458,218
  Long-term debt.........................  699,745      --  100,000   799,745
  Convertible Debentures.................  196,329      --       --   196,329
</TABLE>

<TABLE>
<CAPTION>
                                                         2000
                                          -----------------------------------
                                          Security         Homestead
                                          Capital  Belmont  Village   Total
                                          -------- ------- --------- --------
  <S>                                     <C>      <C>     <C>       <C>
  Lines of credit........................ $     -- $    -- $ 66,500  $ 66,500
  Mortgage and construction notes payable       --  45,668       --    45,668
  Long-term debt.........................  699,676      --       --   699,676
  Convertible Debentures.................  229,818      --       --   229,818
  Capital lease obligation...............       --      --  137,017   137,017
</TABLE>

                                      65

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Lines of Credit:

   A summary of the lines of credit borrowings as of and for the years ended
December 31, 2001 and 2000, is as follows (dollar amounts in thousands);

<TABLE>
<CAPTION>
                                                  2001                          2000
                                      ----------------------------  ----------------------------
                                      Security  Homestead           Security  Homestead
                                      Capital    Village  Combined  Capital    Village  Combined
                                      --------  --------- --------  --------  --------- --------
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>
Total lines of credit................ $450,000   $    --  $450,000  $470,000  $110,000  $580,000
Borrowings outstanding at December 31       --        --        --        --    66,500    66,500
Weighted average daily borrowings....    8,787    19,198    27,985    83,920    80,678   164,598
Weighted average daily interest rate.     5.74%     6.77%     6.45%     7.65%     8.99%     8.31%
Interest rate as of December 31......     5.21%       --      5.21%     7.99%     9.19%     9.19%
</TABLE>

   On June 12, 2001, Security Capital amended its unsecured revolving line of
credit with Wells Fargo Bank, National Association (Wells Fargo), as agent for
a group of lenders. Up to $450 million can be drawn on the line and borrowings
accrue at LIBOR plus a margin of 1.2%, based upon Security Capital's credit
rating, or a Base Rate defined as the higher of Wells Fargo prime rate or the
Federal Fund's rate plus 0.50%.

   The line of credit requires maintenance of certain financial covenants.
Security Capital and its subsidiaries were in compliance with all such
covenants at December 31, 2001.

   Availability of borrowings under Security Capital's line of credit are
subject to a borrowing base which essentially requires Security Capital to have
three publicly-traded affiliates. Upon completion of the transaction to acquire
Storage USA, Security Capital will no longer meet this requirement (but
Security Capital has adequate cash on hand to complete the Storage USA
transaction and fund its other commitments without resorting to its credit
line). Security Capital has not yet renegotiated the borrowing base under the
line of credit because of the expectation that the line of credit will not be
needed after the GE merger is closed. If required to renegotiate such line of
credit, no assurance can be given that the terms, conditions and amounts
available would not change materially.

   During a non-monetary default, no payments other than dividends paid on
Security Capital's Series B Preferred Shares are permitted. Distributions and
dividends paid, other than those on Security Capital's Series B Preferred
Shares, cannot exceed 50% of the cash flow available for distributions,
provided no event of default has occurred and is continuing. In the event of a
monetary default, all distributions are prohibited.

   A wholly-owned subsidiary of Security Capital has two letters of credit for
$2.75 million which bear interest at 0.75% annually and have maturity dates
from June 2002 to August 2002 and are automatically extended annually unless
otherwise cancelled. Security Capital also has two letters of credit
outstanding on their line of credit with Wells Fargo Bank. The aggregate amount
of these two letters of credit are $2.7 million and are at a cost of 0.25%
annually with maturities in June 2002 and November 2002.

                                      66

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Senior Unsecured Notes:

   The following unsecured long-term debt was issued and outstanding at
December 31, 2001 (in thousands):

<TABLE>
<CAPTION>
     Principal  Interest Maturity  Semi-annual Interest     Balance at
      Amount      rate     Date       Payment Dates      December 31, 2001
      ------    -------- --------  --------------------  -----------------
     <S>        <C>      <C>      <C>                    <C>
     $100,000     7.75%  11/15/03 May and November 15        $ 99,964
       14,700     7.66%  12/21/04 March and September 15       14,701
        5,000     7.75%  01/11/05 March and September 15        5,000
       54,550     7.80%  01/12/05 March and September 15       54,550
       25,750     7.80%  01/19/05 March and September 15       25,750
      200,000     6.95%  06/15/05 June and December 15        199,894
      100,000     7.15%  06/15/07 June and December 15         99,886
      200,000     7.70%  06/15/28 June and December 15        200,000
     --------                                                --------
     $700,000                                                $699,745
     ========                                                ========
</TABLE>

   All of the notes are redeemable at any time at the option of Security
Capital, in whole or in part, at a redemption price equal to the sum of the
principal amount of the notes being redeemed plus accrued interest thereon to
the redemption date plus an adjustment, if any, based on the yield to maturity
relative to treasury security market yields available at redemption.

   Under the terms of the indentures under which the notes were issued,
Security Capital may incur additional debt only if, after giving effect to the
debt being incurred, (i) the ratio of debt to adjusted total assets, as defined
in the indentures, does not exceed 50%, and (ii) the fixed charge coverage
ratio, as defined in the indentures, for the four preceding fiscal quarters is
not less than 1.5 to 1.0. In addition, Security Capital may not at any time
permit its consolidated tangible net worth, as defined in the indentures, to be
less than $1,500,000,000. At December 31, 2001, Security Capital was in
compliance with all covenants contained in the indentures.

  Convertible Debentures:

   As of December 31, 2001 and 2000, Security Capital had outstanding
$196,329,000 and $229,818,000, respectively, of 6.5% convertible subordinated
debentures due 2016. The convertible debentures accrue interest at 6.5% paid
semi-annually in June and December. The convertible debentures are convertible
into Class A Shares at $1,153.90 per share, at the option of the holder.
Security Capital can redeem the convertible debentures at par plus accrued
interest at any time, upon not less than 60 days nor more than 90 days prior
written notice to the holders.

   In 2000, Security Capital repurchased approximately $32.8 million ($42.7
million principal amount) of the convertible debentures, resulting in an
extraordinary gain of approximately $9.4 million.

  Belmont Mortgage and Construction Notes Payable:

   As of December 31, 2001, Belmont had $112.0 million of construction
financing committed, with $64.0 million outstanding. Monthly payments consist
of principal and interest or interest only at variable interest rates of 30-day
LIBOR plus a margin, prime plus a margin or are subject to a 7.5% floor. The
loans have a weighted average life of 1.9 years with options to extend for an
additional one to two years. The loans are secured by deeds

                                      67

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of trust on land, buildings, furniture, fixtures and the assignment of rents
and leases. The effective weighted average interest rate at December 31, 2001
was 8.92%. Belmont entered into two interest rate swap agreements in 2000 to
hedge its exposure to changes in floating interest rates. In both swaps,
Belmont exchanges monthly payments based on 30-day LIBOR for payments based on
a pre-determined fixed rate. The swaps have a maximum notional amount of $20.0
million and a weighted-average fixed rate of 6.4%. The swaps have two-year
terms that expire no later than July 2003. At December 31, 2001, the notional
amount under the swaps was $18.0 million.

   At December 31, 2001, Belmont had outstanding $17.6 million of fixed rate
financing that is secured by a deed of trust on land, buildings, furniture,
fixtures and the assignment of rents and leases. The debt matures December 2010
and 2011. The effective interest rate is 7.79%.

   The terms of these debt instruments require Belmont to maintain certain
financial ratios. Belmont was in compliance with all such requirements as of
December 31, 2001.

  InterPark Mortgages Payable and Long-Term Debt:

   InterPark's mortgages payable generally feature monthly principal and
interest payments or monthly interest-only payments with balloon payments due
at maturity. At December 31, 2001, InterPark had $239.4 million in mortgages
payable with a weighted average fixed interest rate of 7.3% and aggregate
monthly principal and interest payments of approximately $1.7 million. In
addition, InterPark had a loan with interest-only payments bearing interest at
1.65% above one-month LIBOR with a principal balance of $137.2 million. The
maturity dates on theses mortgages range from February 2002 through December
2048 (see Scheduled Debt Maturities below).

   During 2000 and 2001, InterPark entered into a financing arrangement with a
shareholder of Security Capital Group for $100 million of subordinated
convertible debt financing with a maturity date of June 30, 2010. The interest
rate is 7.00% with 4.00% current, paid in semi-annual payments and 3.00%
accrued. At the option of the holder, the outstanding debt may be converted
into shares of common stock of InterPark, on or after June 10, 2005, at a
conversion rate of $12.20 per share. At December 31, 2001, $100 million was
outstanding under this arrangement.


  Capital Lease Obligation:

   In 1999, Homestead Village completed a sale and leaseback of 18 Homestead
Village properties for $145 million. The lease term ran through 2015 with
minimum rent payments of approximately $16 million per year and a minimum
payment of $1.5 million per year to a furniture, fixture and equipment reserve.
The proceeds from the sale were used to repay a mortgage note. The lease was
considered a capital lease for financial reporting purposes. The lease was
assumed by the purchaser of Homestead Village.

                                      68

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Scheduled Debt Maturities:

   Approximate principal payments due during each of the next five years and
thereafter are as follows (in thousands):

<TABLE>
<CAPTION>
                           Security
                           Capital  Belmont InterPark   Total
                           -------- ------- --------- ----------
                <S>        <C>      <C>     <C>       <C>
                2002...... $     -- $15,839 $  3,144  $   18,983
                2003......   99,745  48,274    3,519     151,538
                2004......   14,700     766    3,758      19,224
                2005......  285,300     315  141,278     426,893
                2006......       --     340   69,779      70,119
                Thereafter  496,329  16,073  255,133     767,535
                           -------- ------- --------  ----------
                Total..... $896,074 $81,607 $476,611  $1,454,292
                           ======== ======= ========  ==========
</TABLE>

      Security Capital does not guarantee, and is not liable for, the debt
   incurred by its subsidiaries.

  Interest:

   Presented below is the interest cost incurred by Security Capital and its
consolidated subsidiaries for the years ended December 31, 2001, 2000, and 1999
(in thousands).

<TABLE>
<CAPTION>
                                                    2001     2000     1999
                                                  -------- -------- --------
   <S>                                            <C>      <C>      <C>
   Total interest incurred....................... $128,389 $111,750 $141,663
                                                  ======== ======== ========
   Belmont, City Center Retail, CWS Communities,
     Homestead Village and InterPark capitalized
     interest included in total interest incurred $  5,845 $  3,192 $  8,209
                                                  ======== ======== ========
   Interest paid in cash......................... $129,216 $118,968 $133,643
                                                  ======== ======== ========
   Amortization of deferred financing costs
     included in interest expense................ $  5,806 $  4,938 $  6,155
                                                  ======== ======== ========
</TABLE>


(5) Shareholders' Equity

  Share Repurchase Program

   In April 2001, Security Capital completed a modified Dutch auction
self-tender offer in which approximately 9.3 million Class B shares were
purchased at a purchase price of $20.50 per share, or a total of $191 million.
Since the share repurchase program began in August 1999, Security Capital
repurchased $541 million or 31.9 million Class B common stock equivalents,
representing approximately 26% of shares outstanding. In addition, Security
Capital repurchased $80.5 million principal amount of 6.5% Convertible
Subordinated Debentures due 2016, which were convertible into 3.5 million Class
B Shares, at a gain of $20.2 million. The board of directors has authorized an
additional $250 million of share repurchases.

  Shelf Registration

   As of December 31, 2001, Security Capital had $800 million in
shelf-registered securities available for issuance in the form of Class A
Shares, Class B Shares, unsecured debt securities, preferred shares or warrants
to purchase any of the above securities. In addition, $200 million is available
for debt to be issued under a medium-term note program.

                                      69

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Series B Preferred Shares

   The Series B Preferred Shares have a liquidation preference of $1,000 per
share for an aggregate preference of $257,642,000 plus any accrued and unpaid
dividends. Subject to certain adjustments, each Series B Preferred Share is
convertible, at the option of the holder at any time, into 25.641026 Class B
Shares (a conversion price of $39.00 per share). The Series B Preferred Shares
are initially convertible into a total of 6,606,205 Class B Shares and are
entitled to receive cumulative preferential cash distributions at the rate of
7.0% of the liquidation preference per annum. The Series B Preferred Shares are
redeemable, at the option of Security Capital, after May 12, 2003, at a
redemption price equal to $1,000 per share plus any accrued and unpaid
dividends.

  Debenture Interest Reinvestment Plan

   Participants in Security Capital's Debenture Interest Reinvestment Plan may
reinvest the cash portion of their interest payments applicable to Security
Capital's convertible debentures in Class A Shares at the fair value per share
determined as of the prior quarter end date.

  Per Share Data

   The following is a reconciliation of the numerators and denominators used to
calculate basic and diluted earnings per Class B Share equivalent for the
periods indicated (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                    -----------------------------
                                                                      2001      2000      1999
                                                                    --------  --------  ---------
<S>                                                                 <C>       <C>       <C>
Earnings (loss) before extraordinary items and change in accounting
  principle........................................................ $205,244  $313,490  $ (98,857)
Less Preferred Share dividends.....................................  (18,035)  (18,035)   (18,035)
                                                                    --------  --------  ---------
Earnings (loss) before extraordinary items and change in accounting
  principle--Basic.................................................  187,209   295,455   (116,892)
Convertible subordinated debenture interest, net of tax............    9,952    10,506         --
Preferred Share dividends..........................................       --    18,035         --
                                                                    --------  --------  ---------
Earnings (loss) before extraordinary items and change in accounting
  principle--Diluted............................................... $197,161  $323,996  $(116,892)
                                                                    ========  ========  =========
Weighted-average Class B Share Equivalents Outstanding--Basic......  139,432   107,514    119,255
Increase in shares which would result from:
   Exercise of options.............................................    2,040     1,544         --
   Conversion of subordinated debentures...........................    9,899    10,568         --
   Conversion of Series B Preferred Shares.........................       --     6,606         --
                                                                    --------  --------  ---------
Weighted-average Class B Share Equivalents Outstanding--Diluted....  151,371   126,232    119,255
                                                                    ========  ========  =========
</TABLE>

   For 2001, convertible securities issued by InterPark are not assumed
converted as the effect is anti-dilutive.

   For 2001, the Series Preferred B Shares are not assumed converted for the
purpose of calculating diluted earnings per Class B common share equivalent as
the effects are anti-dilutive.

   For the loss period in 1999, the convertible subordinated debentures and the
Series B Preferred Shares are not assumed converted and the conversion of
options and warrants are not assumed exercised for the purpose of calculating
diluted earnings per Class B Share as the effects are anti-dilutive.

                                      70

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(6) Stock Based Compensation

   Security Capital has stock option plans for directors, officers and key
employees which provide for grants of non-qualified stock options and incentive
options. Under all option plans, the option exercise price equals the fair
value of the stock as of the date of grant. Vesting of the options commences no
more than three years from grant date and options are fully vested no more than
six years from grant date. Options expire ten years from date of grant. As of
December 31, 2001, options to purchase 66,739 Class A Shares and 2,289,395
Class B Shares are available for issue.

   Security Capital has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the option plans. As
permitted by SFAS 123, Security Capital has applied its provisions to options
granted subsequent to December 31, 1994. Since the SFAS 123 method of
accounting has not been applied to options granted prior to 1995, the resulting
pro forma compensation cost (as if SFAS 123 had been fully adopted) may not be
representative of such costs to be expected in future years. The pro forma
effect of SFAS 123, treating as an operating cost the estimated fair value of
options granted, is summarized as follows (in thousands, except share data):

<TABLE>
<CAPTION>
                                                   2001     2000     1999
                                                 -------- -------- ---------
  <S>                                            <C>      <C>      <C>
  Net earnings (loss)--as reported.............. $183,530 $317,269 $(116,996)
  Net earnings (loss)--pro forma for SFAS 123... $172,051 $308,351 $(126,116)

  Basic earnings (loss) per share--as reported.. $   1.32 $   2.95 $   (0.98)
  Basic earnings (loss) per share--pro forma.... $   1.23 $   2.87 $   (1.06)

  Diluted earnings (loss) per share--as reported $   1.28 $   2.74 $   (0.98)
  Diluted earnings (loss) per share--pro forma.. $   1.20 $   2.67 $   (1.06)
</TABLE>

   Pro forma net earnings for 2001, 2000 and 1999 include a deferred tax
benefit of $6.1 million, $4.8 million, and $4.9 million, respectively, related
to the additional compensation expense.

   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively:

<TABLE>
<CAPTION>
                                                     2001   2000   1999
                                                     -----  -----  -----
      <S>                                            <C>    <C>    <C>
      Risk-free interest rates:
         Class A Shares.............................  2.26%  5.52%  6.28%
         Class B Shares.............................  4.58%  5.02%  6.58%

      Expected lives (in years):
         Class A Shares.............................  1.00   1.00   2.97
         Class B Shares.............................  5.50   5.50   6.25

      Expected dividends............................  None   None   None

      Expected volatility:
         Class A Shares.............................    34%    36%    32%
         Class B Shares.............................    21%    27%    30%

      Weighted average fair value per share granted:
         Class A Shares............................. $ 143  $ 158  $ 197
         Class B Shares............................. $6.52  $6.69  $6.01
</TABLE>

                                      71

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A summary of the status of Security Capital's stock option plans at December
31, 2001, 2000 and 1999, and changes during the years then ended is presented
in the following table:

<TABLE>
<CAPTION>
                                                  Common Stock
                                    ----------------------------------------
                                    Class A  Wtd. Avg.  Class B    Wtd. Avg.
                                    Shares   Ex. Price  Shares     Ex. Price
                                    -------  --------- ----------  ---------
   <S>                              <C>      <C>       <C>         <C>
   Outstanding at December 31, 1998 204,927   $  983    3,897,773   $15.98
      Granted......................     235      692    2,612,800    13.73
      Exercised....................  (1,766)     212           --       --
      Forfeited.................... (24,895)   1,264     (922,803)   15.81
                                    -------            ----------
   Outstanding at December 31, 1999 178,501   $  951    5,587,770   $14.96
      Granted......................      78      952    2,475,750    18.98
      Exercised....................  (4,369)     223     (135,862)   15.64
      Forfeited.................... (27,868)   1,193   (1,107,666)   15.40
                                    -------            ----------
   Outstanding at December 31, 2000 146,342   $  925    6,819,992   $16.27
      Granted......................     569      985    2,691,192    21.24
      Exercised.................... (14,582)     507     (356,440)   15.00
      Forfeited....................  (5,052)   1,286     (433,168)   16.60
                                    -------            ----------
   Outstanding at December 31, 2001 127,277   $  959    8,721,576   $17.83
                                    =======            ==========
</TABLE>

   The following table summarizes information about options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                    Options Outstanding                 Options Exercisable
    --------------------------------------------------- --------------------
                                    Wtd. Avg.    Wtd.                 Wtd.
    Range of Exercise               Remaining    Avg.                 Avg.
    Prices for Class A   Number    Contractual Exercise   Number    Exercise
        and B Shares   Outstanding    Life      Price   Exercisable  Price
        ----------     ----------- ----------- -------- ----------- --------
    <S>                <C>         <C>         <C>      <C>         <C>
     Class A Shares:
      $116 - 1,300....    105,501     2.71      $  829     101,939   $  823
      $1,301 - 1,600..     21,776     5.90      $1,587      16,235   $1,591
                        ---------                        ---------
                          127,277     3.25      $  959     118,174   $  928
                        =========                        =========
     Class B Shares:
      $12 - 24........  8,721,576     8.37      $17.83   3,247,965   $16.05
</TABLE>

                                      72

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Restricted Stock Awards

   In December 2001, 2000, and 1999, Security Capital awarded 207,305, 13,000,
and 560,386 restricted Class B Share units, respectively, to certain employees.
As of December 31, 2001, there were 1,329,732 restricted stock awards
outstanding. Each restricted Class B Share unit provides the holder with an
award of one Class B Share, subject to either a three-year, four-year, or
five-year performance-related vesting schedule. The related compensation
expense is being recognized over the vesting periods. Compensation expense
recognized was $3,536,623, $4,173,640 and $3,576,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

  401(k) Plan and Nonqualified Savings Plan

   Security Capital has a 401(k) plan and a nonqualified savings plan. The
plans work together to provide for matching employer contributions of 50 cents
for every dollar contributed by an employee, up to 6% of the employees' annual
compensation. The matching employer contributions are made in Class B Shares,
which vest based on years of service at a rate of 20% per year.

(7) Income Taxes

   Security Capital files a Federal income tax return including its
consolidated subsidiaries. SC-European Real Estate Shares has complied with the
provisions of the Internal Revenue Code available to regulated investment
companies and intends to distribute investment company net taxable income and
net capital gains to shareholders. Therefore, no provision for federal income
taxes has been made in Security Capital's consolidated financial statements for
tax at the SC-European Real Estate Shares entity level.

   A reconciliation of income tax expense computed at the U.S. federal
statutory tax rate of 35% in 2001, 2000 and 1999 to the amount recorded in the
consolidated financial statements is as follows (in thousands):

<TABLE>
<CAPTION>
                                                       2001      2000      1999
                                                     --------  --------  --------
<S>                                                  <C>       <C>       <C>
Computed U.S. Federal expected provision (benefit).. $ 86,799  $151,387  $(39,834)
Increases (decreases) resulting from:
   Change in valuation allowance(1).................       --   (11,041)   11,295
   Non-taxable foreign income, net..................   (1,993)   (9,910)   (8,500)
   State and foreign taxes..........................     (622)    1,397       (86)
   Net operating losses (recognized) not recognized.  (44,334)  (17,878)   21,818
   Other............................................     (591)    5,090       458
                                                     --------  --------  --------
Actual U.S. Federal provision (benefit)............. $ 39,259  $119,045  $(14,849)
                                                     ========  ========  ========
</TABLE>
--------
(1) As of December 31, 1999, represents the valuation allowance provided
    against the capital loss tax benefit on the provision for loss on the sale
    of Strategic Hotel. During 2000, the valuation allowance was reversed as
    Security Capital generated capital gains to offset this loss.

                                      73

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 2001 and 2000, are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           2001      2000
                                                         --------  --------
   <S>                                                   <C>       <C>
   Deferred tax assets:
      Homestead Village net operating losses............ $ 35,490  $ 45,981
      Investments in equity method operating companies..  206,168        --
      Depreciable assets................................   41,411        --
      Lease obligation, mortgages and other liabilities.    5,275    63,239
      Other.............................................      400     1,781
                                                         --------  --------
      Gross deferred tax assets.........................  288,744   111,001
      Valuation allowance...............................       --   (28,414)
                                                         --------  --------
      Deferred tax assets, net of valuation allowances..  288,744    82,587
   Deferred tax liabilities:
      Investments in equity method operating companies..   (4,875)  (54,613)
      Depreciable assets................................       --   (80,806)
      Other.............................................   (2,024)       --
                                                         --------  --------
   Net deferred tax asset (liability)................... $281,845  $(52,832)
                                                         ========  ========
</TABLE>

(8) Selected Quarterly Financial Data (Unaudited)

   Selected quarterly financial data (in thousands, except per share amounts)
for 2001 and 2000 is summarized below.

<TABLE>
<CAPTION>
                                                              Quarter Ended
                                              --------------------------------------------   Year Ended
                                              March 31, June 30, September 30, December 31, December 31,
                                              --------- -------- ------------- ------------ ------------
<S>                                           <C>       <C>      <C>           <C>          <C>
2001:
   Revenues, including equity in earnings.... $368,943  $188,989   $149,850     $ (23,645)    $684,137
   Earnings (loss) from operations...........  251,556    75,137     38,814      (117,510)     247,997
   Net earnings (loss).......................  158,511    42,876     19,590       (37,447)     183,530
   Basic earnings (loss) per Class B Share...     1.12      0.31       0.14         (0.27)        1.32
   Diluted earnings (loss) per Class B Share.     1.03      0.30       0.14         (0.27)        1.28

2000:
   Revenues, including equity in earnings.... $ 96,811  $246,596   $276,523     $ 181,754     $801,684
   Earnings from operations..................   20,500    94,833    205,942       113,414      434,689
   Net earnings..............................   12,365    69,545    150,635        84,724      317,269
   Basic earnings per Class B Share..........     0.11      0.64       1.40          0.81         2.95
   Diluted earnings per Class B Share........     0.11      0.60       1.24          0.75         2.74
</TABLE>

   The first and second quarter results differ from those reported in the
respective Forms 10-Q due to the restatement discussed in the September 30,
2001 Form 10-Q.

                                      74

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(9) Fair Values of Financial Instruments

   The following disclosures of the estimated fair value of financial
instruments were determined by Security Capital based on quoted market prices
for the same or similar issues or by discounting the future cash flows using
rates currently available for debt with similar terms and maturities.
Considerable judgment and a high degree of subjectivity are involved in
developing these estimates and, accordingly, they are not necessarily
indicative of amounts that Security Capital could realize upon disposition.

   The carrying amount of cash and cash equivalents, other assets, accounts
payable and accrued expenses approximate fair value as of December 31, 2001 and
2000, because of the short maturity of these instruments. Similarly, the
carrying value of lines of credit borrowings, the Belmont construction notes
payable and certain InterPark mortgages payable approximates fair value at the
balance sheet dates since the interest rates fluctuate based on published
market rates.

   The following table reflects the carrying amount and estimated fair value of
Security Capital's financial instruments at December 31 (in thousands):

<TABLE>
<CAPTION>
                                        2001                2000
                                 ------------------- -------------------
                                 Carrying            Carrying
                                  Amount  Fair Value  Amount  Fair Value
                                 -------- ---------- -------- ----------
       <S>                       <C>      <C>        <C>      <C>
       Note receivable.......... $115,000  $115,000  $     --  $     --

       Long-term debt...........  699,745   736,502   699,676   649,092
       Convertible debentures...  196,329   221,095   229,818   177,764
       InterPark fixed-rate debt  338,103   340,413        --        --
</TABLE>

(10) Purchase of SC-U.S. Realty Assets

   On January 16, 2001, SC Realty Incorporated, an indirect wholly-owned
subsidiary of Security Capital, purchased all of the assets of SC-U.S. Realty
in exchange for the issuance of 45.4 million Class B Shares with a market value
of $894.7 million and the payment of $112 million in cash to SC-U.S. Realty
shareholders who elected to receive cash. In addition, Security Capital funded
$435 million to repay indebtedness of SC-U.S. Realty existing on the date of
acquisition. As a result of the acquisition, all investees directly owned by
SC-U.S. Realty became directly owned by Security Capital.

   The acquisition was accounted for under the purchase method of accounting.
Because the fair-value of the assets acquired was more than the purchase price,
approximately $599.3 million of negative goodwill was recognized. The negative
goodwill reduced the investments in real estate companies that are accounted
for under the equity method of accounting and the long-lived assets of the two
real estate companies that are consolidated, namely their real estate and
intangible assets. Negative goodwill was not applied to the investment in
CarrAmerica or to the real estate of CWS Communities, as Security Capital sold
these investments within twelve months of the acquisition of SC-U.S. Realty and
under the purchase method of accounting their subsequent sales price equals
their fair value at the time of acquisition (see note 12 for further
discussion).

                                      75

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following pro forma financial information for the year ended December
31, 2000 assumes that the acquisition of SC-U.S. Realty had occurred on January
1, 2000 (in thousands, except per share amounts):

<TABLE>
                        <S>                     <C>
                        Income................. $685,254
                        Expenses...............  587,792
                                                --------
                        Net earnings........... $ 97,462
                                                ========
                        Net earnings per share:
                           Basic............... $   0.64
                                                ========
                           Diluted............. $   0.63
                                                ========
</TABLE>

(11) Commitments and Contingencies and Related Party Transactions

   Security Capital and its investees are parties to various claims and routine
litigation arising in the ordinary course of business. Based on advice of legal
counsel, Security Capital does not believe that the results of all claims and
litigation, individually or in the aggregate, will have a material adverse
effect on its business, financial position or results of operations.

   Security Capital's investees are subject to environmental and health and
safety laws and regulations related to the ownership, operation, development
and acquisition of real estate. Under such laws and regulations, Security
Capital's investees may be liable for, among other things, the costs of removal
or remediation of certain hazardous substances, including asbestos-related
liability. Such laws and regulations often impose liability without regard to
fault.

   As part of their due diligence procedures, Security Capital's investees
generally conduct Phase I environmental assessments on each property prior to
acquisition. The cost of complying with environmental regulations was not
material to Security Capital's results of operations. Security Capital and its
investees are not aware of any environmental condition on any of their
properties which is likely to have a material adverse effect on Security
Capital's financial condition or results of operations.

   As of December 31, 2001, Security Capital and its subsidiaries have a
remaining funding commitment to SC-European Realty of $33.6 million, $74.8
million to Belmont and $46.1 million to InterPark. At December 31, 2001,
Belmont had approximately $27.4 million of unfunded commitments for
developments under construction. During 2001, SC-European Realty decreased, on
a pro rata basis, funding commitments from its shareholders, which decreased
Security Capital's commitment by $44.1 million. As mentioned in note 12,
Security Capital has entered into an agreement to acquire Storage USA. The
total cost is estimated to be approximately $1.1 billion, which includes the
purchase price, assumption of liabilities, taxes and transaction costs.

   At December 31, 2001, Security Capital had $1.7 million of interest bearing
loans outstanding to officers and employees.

                                      76

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(12) Sales of Investments and Pending Purchase

   During 2000, Security Capital sold 22.8 million shares of Archstone
recognizing realized gains of approximately $155.1 million.

   During 2001, Security Capital sold all or substantially all of the following
investments:

  .  Archstone in February 2001, resulting in a gain of $217.1 million and
     generating $700.3 million of proceeds, and $57.3 million of estimated
     income taxes.

  .  CWS Communities in August 2001 for $291.6 million in cash. Net proceeds
     from the transaction, after taxes and transaction costs, were $270.0
     million.

  .  Homestead Village in November 2001 for a total value of $740 million that
     resulted in a loss of $102.7 million. The consideration received in the
     transaction includes $480 million in cash, the assumption by the purchaser
     of $145 million in liabilities and the issuance to Security Capital of a
     $115 million promissory note. The promissory note carries an initial
     coupon of 12% that increases by 100 basis points annually and matures in
     five years. The note represents a mezzanine loan to the purchaser that is
     subordinate to $400 million of first mortgage financing on the Homestead
     Village properties. Net cash proceeds from the sale, excluding future
     proceeds from the promissory note and after transaction costs, were
     approximately $462 million.

  .  CarrAmerica in November and December 2001. The transactions generated net
     proceeds to Security Capital of $760 million.

   Under the purchase method of accounting for business combinations, no gain
or loss was recognized on the sale of CWS Communities or CarrAmerica as any
gains or losses on sale within twelve months of the acquisition of SC-U.S.
Realty are reflected as purchase price adjustments.

   Security Capital entered into a purchase and sale agreement, dated December
5, 2001 by and among Storage USA, Storage USA Trust, SUSA Partnership, L.P.,
and Security Capital, which provides for the sale of all of the assets of
Storage USA, including its interests in SUSA Partnership, L.P., its operating
partnership, to Security Capital, and the merger of Storage USA into SUSA
Partnership, L.P. Each holder of shares of Storage USA common stock and limited
partnership interest in the Storage USA operating partnership, other than
Security Capital and its affiliates, will be entitled to receive $42.50 per
share in cash. The Storage USA transaction is subject to shareholder approval
and other customary closing conditions. After the completion of the Storage USA
transactions, Security Capital will own all of the assets, and assume the
indebtedness, of Storage USA and Storage USA will no longer be publicly traded.
No assurance can be given that this transaction will close.

                                      77

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED

           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        BALANCE SHEETS (Unconsolidated)

                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                      ----------------------
                                                                         2001        2000
                                                                      ----------  ----------
                               ASSETS
                               ------
<S>                                                                   <C>         <C>
Investments in and advances to subsidiaries.......................... $3,841,918  $3,174,799
Cash and cash equivalents............................................        187       3,331
Deferred tax asset...................................................    154,353          --
Other assets.........................................................     87,216      44,603
                                                                      ----------  ----------
       Total assets.................................................. $4,083,674  $3,222,733
                                                                      ==========  ==========

                LIABILITIES AND SHAREHOLDERS' EQUITY
                ------------------------------------
Liabilities:
   Long-term debt.................................................... $  699,745  $  699,676
   Convertible debentures............................................    196,329     229,818
   Accounts payable and accrued expenses.............................     26,659         250
                                                                      ----------  ----------
       Total liabilities.............................................    922,733     929,744
                                                                      ----------  ----------
Shareholders' Equity:
   Class A Shares, $.01 par value; 15,543,012 shares authorized;
     826,031 and 1,029,728 shares issued and outstanding
     in 2001 and 2000, respectively..................................          8          10
   Class B Shares, $.01 par value; 234,199,346 shares authorized;
     98,117,903 and 51,737,531 shares issued and outstanding
     in 2001 and 2000, respectively..................................        981         517
   Series B Preferred Shares, $.01 par value; 257,642 shares issued
     and outstanding in 2001 and 2000; stated liquidation preference
     of $1,000 per share.............................................    257,642     257,642
   Additional paid-in capital........................................  2,824,338   2,126,290
   Accumulated other comprehensive income (loss).....................    (49,179)    (35,091)
   Retained earnings (deficit).......................................    127,151     (56,379)
                                                                      ----------  ----------
       Total shareholders' equity....................................  3,160,941   2,292,989
                                                                      ----------  ----------
       Total liabilities and shareholders' equity.................... $4,083,674  $3,222,733
                                                                      ==========  ==========
</TABLE>

                                      78

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED

           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT



   STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unconsolidated)

                                (In thousands)

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                               -----------------------------
                                                                 2001        2000      1999
                                                               --------    --------  ---------
<S>                                                            <C>         <C>       <C>
INCOME:
   Equity in earnings (loss) of subsidiaries, net of tax...... $288,398    $384,453  $ (10,519)
   Interest and other income..................................    6,139      11,335      8,432
                                                               --------    --------  ---------
                                                                294,537     395,788     (2,087)
                                                               --------    --------  ---------
EXPENSES:
   General, administrative and other expenses.................   15,109      17,844     18,587
   Interest expense...........................................   77,044      78,570     83,745
                                                               --------    --------  ---------
                                                                 92,153      96,414    102,332
                                                               --------    --------  ---------
Earnings (loss) from operations and before income taxes.......  202,384     299,374   (104,419)
                                                               --------    --------  ---------
Provision for income benefit (expense):
   Current....................................................  (37,883)     29,778      5,702
   Deferred...................................................   39,009          --       (140)
                                                               --------    --------  ---------
Total income tax benefit (expense)............................    1,126      29,778      5,562
                                                               --------    --------  ---------
Net earnings (loss) before extraordinary items and change in
  accounting principle........................................  203,510     329,152    (98,857)
   Extraordinary items--gain (loss) on early extinguishments
     of debt..................................................   (1,945)      6,152     16,032
   Change in accounting principle--cumulative effect on
     on prior years of expensing costs of start-up activities.       --          --    (16,136)
                                                               --------    --------  ---------
Net earnings (loss)...........................................  201,565     335,304    (98,961)
   Preferred Share dividends..................................  (18,035)    (18,035)   (18,035)
                                                               --------    --------  ---------
Net earnings (loss) attributable to common shares.............  183,530     317,269   (116,996)
Other comprehensive income (loss):
   Foreign currency translation adjustments, net..............  (14,088)    (23,071)   (17,395)
                                                               --------    --------  ---------
Comprehensive income (loss)................................... $169,442    $294,198  $(134,391)
                                                               ========    ========  =========
</TABLE>

                                      79

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED

           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT



                   STATEMENTS OF CASH FLOWS (Unconsolidated)

                                (In thousands)

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                 --------------------------------
                                                                    2001       2000       1999
                                                                 ----------  ---------  ---------
<S>                                                              <C>         <C>        <C>
Operating Activities:
   Net earnings (loss).......................................... $  201,565  $ 335,304  $ (98,961)
   Adjustments to reconcile net earnings (loss) to cash flows
     provided by operating activities:
       Equity in (earnings) loss of subsidiaries................   (288,398)  (384,453)    10,519
       Distributions from subsidiaries..........................  1,368,635    457,689    550,061
       Provision (benefit) for deferred income taxes............    (39,009)        --        140
       Other....................................................     (2,147)    (6,152)       104
   Increase in other assets.....................................    (42,613)   (49,180)    (2,557)
   Decrease (increase) in accounts payable and accrued expenses.     26,409     (5,318)    (8,458)
                                                                 ----------  ---------  ---------
        Net cash provided by operating activities...............  1,224,442    347,890    450,848
                                                                 ----------  ---------  ---------
Investing Activities:
   Investment in and advances to subsidiaries...................   (982,186)   (66,445)  (305,560)
   Other........................................................         --        274      1,169
                                                                 ----------  ---------  ---------
        Net cash flows used in investing activities.............   (982,186)   (66,171)  (304,391)
                                                                 ----------  ---------  ---------
Financing Activities:
   Extinguishment of debt.......................................         --         --    (27,428)
   Proceeds from sale of common shares, net of expense..........         --      6,641      5,880
   Proceeds from line of credit.................................    362,300    336,000    436,910
   Payments on line of credit...................................   (362,300)  (426,900)  (509,410)
   Proceeds from transaction loan...............................    530,000
   Payments on transaction loan.................................   (530,000)
   Proceeds from long-term debt offerings.......................         --         --     85,317
   Repurchase of common shares..................................   (227,365)  (176,168)  (119,754)
   Preferred dividends paid.....................................    (18,035)   (18,035)   (18,035)
   Other........................................................         --         --         52
                                                                 ----------  ---------  ---------
        Net cash flows used in financing activities.............   (245,400)  (278,462)  (146,468)
                                                                 ----------  ---------  ---------
Net increase (decrease) in cash and cash equivalents............     (3,144)     3,257        (11)
Cash and cash equivalents, beginning of year....................      3,331         74         85
                                                                 ----------  ---------  ---------
Cash and cash equivalents, end of year.......................... $      187  $   3,331  $      74
                                                                 ==========  =========  =========
Non-Cash Investing and Financing Activities:
   Value of Security Capital common shares
     issued to acquire SC-U.S. Realty's assets.................. $ (894,700) $      --  $      --
                                                                 ==========  =========  =========
   Effect of SC-U.S. Realty's sale of
     Security Capital shares.................................... $       --  $  13,756  $      --
                                                                 ==========  =========  =========
   Exchange of convertible debentures
     for Archstone shares....................................... $       --  $  42,500  $      --
                                                                 ==========  =========  =========
</TABLE>

                                      80

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED

           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT


           NOTES TO CONDENSED FINANCIAL STATEMENTS (Unconsolidated)

1. Investments in Subsidiaries

   Security Capital has investments in subsidiaries that hold interests in the
following companies: Belmont, City Center Retail, InterPark, ProLogis, Regency,
SC-European Realty, SC-European Real Estate Shares, SC-Preferred Growth, SC-US
Real Estate Shares, and Storage USA.

   Dividends from consolidated subsidiaries amounted to $1,368,635,000,
$457,689,000, and $550,061,000 during 2001, 2000, and 1999, respectively.

2. Indebtedness

   See discussion on Security Capital's line of credit, Senior Unsecured Notes
and Convertible Debt in note 4 to the consolidated financial statements.

3. Income Taxes

   Security Capital files a consolidated Federal income tax return with its
subsidiaries. Security Capital entered into transactions in 2001 involving the
sale of its investment in Homestead Village that generated previously
unrecognized tax benefits of $44.3 million.

   Certain deferred taxes are recorded by Security Capital subsidiaries on its
equity method investments. See additional discussion in note 7 to the
consolidated financial statements.

4. Reclassifications

   Certain amounts in 1999 and 2000 have been reclassified to conform to the
2001 presentation.

                                      81

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED
                               and Subsidiaries

            SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION

                               December 31, 2001
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                                    Gross Amounts
                                                            Initial Cost                          At Which Carried
                                                            to Investee         Costs          as of December 31, 2001
                                                        -------------------- Capitalized -----------------------------------
                                                                             Subsequent
                                         No. of Encum-           Building &      to               Building &
Description                              Bldgs  brances  Land   Improvements Acquisition  Land   Improvements Total(a)(b)(d)
-----------                              ------ ------- ------- ------------ ----------- ------- ------------ --------------
<S>                                      <C>    <C>     <C>     <C>          <C>         <C>     <C>          <C>
Belmont
  City/ Property Name
  Chicago, Illinois
   Belmont Village at Geneva Road.......    1   $12,567 $ 2,354        --     $ 18,653   $ 2,354   $ 18,653      $ 21,007
   Belmont Village of Buffalo Grove.....    1        --   1,736        --        1,818     1,736      1,818         3,554
   Belmont Village of Glenview..........          7,798   2,604        --       18,044     2,604     18,044        20,648
   Belmont Village of Oakbrook Terrace..    1        --   3,416        --        1,690     3,416      1,690         5,106
  Houston, Texas
   Belmont Village at West University...    1    10,294   3,504        --       12,655     3,504     12,655        16,159
   First Colony.........................    1        --     775        --            2       775          2           777
  Louisville, Kentucky
   Belmont Village of St. Matthews......    1     6,802   1,842        --       10,249     1,842     10,249        12,091
  Los Angeles, California
   Belmont Village of Burbank...........    1        81   3,765        --       10,899     3,765     10,899        14,664
   Belmont Village of Hollywood.........    1     8,589   1,349        --       18,773     1,349     18,773        20,122
  Memphis, Tennessee
   Belmont Village of Memphis...........    1     7,406   2,212        --        9,647     2,212      9,647        11,859
  Nashville, Tennessee
   Belmont Village of Green Hills.......    1     8,622   2,449        --       12,626     2,449     12,626        15,075
  San Diego, California
   Belmont Village of Sabre Springs.....    1    14,071   4,857        --       19,117     4,857     19,117        23,974
  San Francisco Bay Area, California
   Belmont Village of San Jose..........    1     4,981   2,817        --       15,726     2,817     15,726        18,543
   Belmont Village of Sunnyvale.........    1       395   4,585        --        8,714     4,585      8,714        13,299
   Unallocated development costs........    1        --      --        --        5,823        --      5,823         5,823
                                           --   ------- -------   -------     --------   -------   --------      --------
Total Belmont...........................   14    81,606  38,265        --      164,436    38,265    164,436       202,701
                                           --   ------- -------   -------     --------   -------   --------      --------
City Center Retail
  City/ Property Name
  Chicago, Illinois
   Streets of Woodfield.................    1        --  10,400     9,990       67,254    12,301     75,343        87,644
  San Francisco, California
   100 Grand Avenue.....................    1        --   1,415    18,956          880     1,430     19,821        21,251
  Washington, D.C.
   Mazza Gallerie.......................    1        --  14,304    14,242       39,418    14,304     53,660        67,964
                                           --   ------- -------   -------     --------   -------   --------      --------
Total City Center Retail................    3        --  26,119    43,188      107,552    28,035    148,824       176,859
                                           ==   ======= =======   =======     ========   =======   ========      ========
      Grand Total.......................   17   $81,606 $64,384   $43,188     $271,988   $66,300   $313,260      $379,560
                                           ==   ======= =======   =======     ========   =======   ========      ========
</TABLE>
<TABLE>
<CAPTION>




                                         Accumulated     Date of
                                         Depreciation Construction/
Description                               (a)(c)(d)    Acquisition
-----------                              ------------ -------------
<S>                                      <C>          <C>
Belmont
  City/ Property Name
  Chicago, Illinois
   Belmont Village at Geneva Road.......   $   542        2001
   Belmont Village of Buffalo Grove.....        --        2001
   Belmont Village of Glenview..........        --        2000
   Belmont Village of Oakbrook Terrace..        --        2001
  Houston, Texas
   Belmont Village at West University...     1,394        1998
   First Colony.........................                  1997
  Louisville, Kentucky
   Belmont Village of St. Matthews......       847        1999
  Los Angeles, California
   Belmont Village of Burbank...........        --        2000
   Belmont Village of Hollywood.........        --        1999
  Memphis, Tennessee
   Belmont Village of Memphis...........       772        2000
  Nashville, Tennessee
   Belmont Village of Green Hills.......     1,061        1999
  San Diego, California
   Belmont Village of Sabre Springs.....       749        2001
  San Francisco Bay Area, California
   Belmont Village of San Jose..........        --        1999
   Belmont Village of Sunnyvale.........        --        2000
   Unallocated development costs........        --          --
                                           -------
Total Belmont...........................     5,365
                                           -------
City Center Retail
  City/ Property Name
  Chicago, Illinois
   Streets of Woodfield.................     6,097        1997
  San Francisco, California
   100 Grand Avenue.....................     1,967        1998
  Washington, D.C.
   Mazza Gallerie.......................     4,836        1997
                                           -------
Total City Center Retail................    12,900
                                           =======
      Grand Total.......................   $18,265
                                           =======
</TABLE>

                                      82

<PAGE>

                      SECURITY CAPITAL GROUP INCORPORATED

            SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION

                               December 31, 2001

                                (In thousands)

--------
(a) Reconciliation of total cost to real estate balance sheet caption at
    December 31, 2001 (in thousands):

<TABLE>
<S>                                                                       <C>
Total per Schedule III................................................... $  379,560
Purchase accounting adjustments resulting from the acquisition of SC-U.S.
  Realty.................................................................    (86,642)
Other unallocated capitalized costs......................................      2,690
Other real estate used in the parking garage business....................    843,149
                                                                          ----------
       Total real estate, at cost........................................  1,138,757
Accumulated depreciation.................................................    (57,114)
                                                                          ----------
       Real estate, less accumulated depreciation........................ $1,081,643
                                                                          ==========
</TABLE>

(b) The aggregate cost for federal income tax purposes was approximately
    $202,701 (Belmont) and $176,199 (City Center Retail).

(c) Belmont: Buildings are depreciated over their estimated useful lives 20-40
    years for buildings and improvements. CCRT: Buildings are depreciated over
    40 years.

(d) A summary of activity for real estate and accumulated depreciation as of
    December 31, 2001 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                         City Center
                                                Belmont    Retail     Total
                                                -------- ----------- --------
  <S>                                           <C>      <C>         <C>
  Real Estate
   Balance at beginning of year................ $131,284  $188,936   $320,220
   Additions:
     Acquisitions and completions of operating
       facilities..............................   45,221        --     45,221
     Improvements to operating facilities......      153     3,809      3,962
   Dispositions................................       --   (14,939)   (14,939)
   Change in construction in progress balance..   26,043      (947)    25,096
                                                --------  --------   --------
   Balance at end of year...................... $202,701  $176,859   $379,560
                                                ========  ========   ========
  Accumulated depreciation
   Balance at beginning of year................ $  2,548  $  8,738   $ 11,286
   Depreciation expense........................    2,817     5,307      8,124
   Accumulated depreciation associated with
     dispositions..............................       --    (1,145)    (1,145)
                                                --------  --------   --------
   Balance at end of year...................... $  5,365  $ 12,900   $ 18,265
                                                ========  ========   ========
</TABLE>


                                      83

<PAGE>

                         Independent Auditors' Report

The Shareholders and Board of Directors
Regency Centers Corporation:

   We have audited the accompanying consolidated balance sheets of Regency
Centers Corporation and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Regency
Centers Corporation and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.

                                          KPMG LLP

Jacksonville, Florida
January 31, 2002

                                      84

<PAGE>

                          REGENCY CENTERS CORPORATION

                          Consolidated Balance Sheets

                          December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                                    2001           2000
                                                                                               --------------  -------------
                                          ASSETS
                                          ------
<S>                                                                                            <C>             <C>
Real estate investments (notes 2, 5 and 9):
    Land...................................................................................... $  600,081,672    564,089,984
    Buildings and improvements................................................................  1,914,961,155  1,813,554,881
                                                                                               --------------  -------------
                                                                                                2,515,042,827  2,377,644,865
    Less: accumulated depreciation............................................................    202,325,324    147,053,900
                                                                                               --------------  -------------
                                                                                                2,312,717,503  2,230,590,965
    Properties in development.................................................................    408,437,476    296,632,730
    Operating properties held for sale........................................................    158,121,462    184,150,762
    Investments in real estate partnerships (note 4)..........................................     75,229,636     85,198,279
                                                                                               --------------  -------------
       Net real estate investments............................................................  2,954,506,077  2,796,572,736
Cash and cash equivalents.....................................................................     27,853,264    100,987,895
Notes receivable..............................................................................     32,504,941     66,423,893
Tenant receivables, net of allowance for uncollectible accounts of $4,980,335 and
 $4,414,085 at December 31, 2001 and 2000, respectively.......................................     47,723,145     39,407,777
Deferred costs, less accumulated amortization of $20,402,059 and $13,910,018 at
 December 31, 2001 and 2000, respectively.....................................................     34,399,242     21,317,141
Other assets..................................................................................     12,327,567     10,434,298
                                                                                               --------------  -------------
                                                                                               $3,109,314,236  3,035,143,740
                                                                                               ==============  =============
                           LIABILITIES AND STOCKHOLDERS' EQUITY
                           ------------------------------------
Liabilities:
    Notes payable (note 5).................................................................... $1,022,720,748    841,072,156
    Unsecured line of credit (note 5).........................................................    374,000,000    466,000,000
    Accounts payable and other liabilities....................................................     73,434,322     75,460,304
    Tenants' security and escrow deposits.....................................................      8,656,456      8,262,885
                                                                                               --------------  -------------
       Total liabilities......................................................................  1,478,811,526  1,390,795,345
                                                                                               --------------  -------------
Preferred units (note 6)......................................................................    375,403,652    375,407,777
Exchangeable operating partnership units......................................................     32,108,191     34,899,813
Limited partners' interest in consolidated partnerships.......................................      3,940,011      8,625,839
                                                                                               --------------  -------------
       Total minority interest................................................................    411,451,854    418,933,429
                                                                                               --------------  -------------
Stockholders' equity (notes 6, 7 and 8):
    Series 2 cumulative convertible preferred stock and paid in capital; $.01 par value per
     share: 1,502,532 shares authorized, 1,487,507 shares issued and outstanding at
     December 31, 2001 and 2000, respectively; liquidation preference $20.83 per share........     34,696,112     34,696,112
    Common stock $.01 par value per share: 150,000,000 shares authorized; 60,995,496
     and 60,234,925 shares issued at December 31, 2001 and 2000, respectively.................        609,955        602,349
    Treasury stock; 3,394,045 and 3,336,754 shares held at December 31, 2001 and 2000,
     respectively, at cost....................................................................    (67,346,414)   (66,957,282)
    Additional paid in capital................................................................  1,327,579,434  1,317,668,173
    Distributions in excess of net income.....................................................    (68,226,276)   (51,064,870)
    Stock loans...............................................................................     (8,261,955)    (9,529,516)
                                                                                               --------------  -------------
       Total stockholders' equity.............................................................  1,219,050,856  1,225,414,966
                                                                                               --------------  -------------
Commitments and contingencies (notes 9 and 10)
                                                                                               $3,109,314,236  3,035,143,740
                                                                                               ==============  =============
</TABLE>

          See accompanying notes to consolidated financial statements

                                      85

<PAGE>

                          REGENCY CENTERS CORPORATION

                     Consolidated Statements of Operations

             For the Years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                             2001         2000         1999
                                                         ------------  -----------  -----------
<S>                                                      <C>           <C>          <C>
Revenues:
   Minimum rent (note 9)................................ $271,713,124  256,279,019  218,039,441
   Percentage rent......................................    5,833,674    5,231,517    5,000,272
   Recoveries from tenants..............................   76,068,575   69,707,918   55,919,788
   Service operations revenue...........................   31,494,739   27,226,411   18,239,486
   Equity in income of investments in
     real estate partnerships...........................    3,439,397    3,138,553    4,687,944
                                                         ------------  -----------  -----------
       Total revenues...................................  388,549,509  361,583,418  301,886,931
                                                         ------------  -----------  -----------
Operating expenses:
   Depreciation and amortization........................   67,505,587   59,430,262   48,611,519
   Operating and maintenance............................   50,239,821   47,297,799   39,204,109
   General and administrative...........................   20,560,939   19,932,609   19,274,225
   Real estate taxes....................................   38,734,782   34,998,404   28,253,961
   Other expenses.......................................    4,356,384    1,936,686      472,526
                                                         ------------  -----------  -----------
       Total operating expenses.........................  181,397,513  163,595,760  135,816,340
                                                         ------------  -----------  -----------
Interest expense (income):
   Interest expense.....................................   74,416,416   71,970,783   60,067,007
   Interest income......................................   (5,577,487)  (4,807,711)  (2,196,954)
                                                         ------------  -----------  -----------
       Net interest expense.............................   68,838,929   67,163,072   57,870,053
                                                         ------------  -----------  -----------
       Income before gain, provision on real estate
        investments and minority interests..............  138,313,067  130,824,586  108,200,538
Gain (loss) on sale of operating properties.............      699,376    4,506,982     (232,989)
Provision for loss on operating properties held for sale   (1,595,136) (12,995,412)          --
                                                         ------------  -----------  -----------
       Income before minority interests.................  137,417,307  122,336,156  107,967,549
Minority interest preferred unit distributions..........  (33,475,007) (29,601,184) (12,368,403)
Minority interest of exchangeable partnership units.....   (2,557,003)  (2,492,419)  (2,897,778)
Minority interest of limited partners...................     (721,090)  (2,631,721)  (2,855,404)
                                                         ------------  -----------  -----------
       Net income.......................................  100,664,207   87,610,832   89,845,964
Preferred stock dividends...............................   (2,965,099)  (2,817,228)  (2,244,593)
                                                         ------------  -----------  -----------
       Net income for common stockholders............... $ 97,699,108   84,793,604   87,601,371
                                                         ============  ===========  ===========
Net income for common stockholders per share (note 7):
   Basic................................................ $       1.70         1.49         1.61
                                                         ============  ===========  ===========
   Diluted.............................................. $       1.69         1.49         1.61
                                                         ============  ===========  ===========
</TABLE>

          See accompanying notes to consolidated financial statements

                                      86

<PAGE>

                          REGENCY CENTERS CORPORATION

                Consolidated Statements of Stockholders' Equity

             For the Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>



                                                                                                             -
                                  Series 1 and 2          Class B                Additional    Distributions
                                    Preferred    Common   Common    Treasury      Paid In       in exess of     Stock
                                      Stock      Stock     Stock     Stock        Capital       Net Income      Loans
                                  -------------- -------  -------  -----------  -------------  ------------- -----------
<S>                               <C>            <C>      <C>      <C>          <C>            <C>           <C>
Balance at
  December 31, 1998..............   $        --  254,889   25,000           --    578,466,708   (19,395,744)  (8,609,390)
Common stock issued as
 compensation or purchased by
 directors or officers...........            --    2,499       --           --      3,731,625            --           --
Common stock issued or
 redeemed under stock loans......            --     (528)      --           --     (1,312,203)           --    1,623,552
Common stock issued for
  partnership units exchanged....            --    3,961       --           --      7,591,712            --           --
Common stock issued for
  Class B conversion.............            --   29,755  (25,000)          --         (4,755)           --           --
Preferred stock issued to
  acquire Pacific................    35,046,570       --       --           --             --            --           --
Common stock issued to acquire
 Pacific.........................            --  305,669       --           --    715,434,215            --   (3,998,954)
Common stock issued for
  preferred stock conversion.....      (350,458)     150       --           --        350,308            --           --
Repurchase of common stock
 (note 6)........................            --       --       --  (54,536,612)            --            --           --
Cash dividends declared:
  Common stock ($1.84 per
   share) and preferred stock....            --       --       --           --             --   (97,229,758)          --
Net income.......................            --       --       --           --             --    89,845,964           --
                                   ------------  -------  -------  -----------  -------------  ------------  -----------
Balance at
  December 31, 1999..............   $34,696,112  596,395       --  (54,536,612) 1,304,257,610   (26,779,538) (10,984,792)
Common stock issued as
 compensation or purchased by
 directors or officers...........            --    2,226       --           --      4,791,861            --           --
Common stock redeemed under
 stock loans.....................            --     (445)      --   (1,332,251)      (192,818)           --    1,455,276
Common stock issued for
  partnership units exchanged....            --    4,138       --           --      9,807,737            --           --
Common stock issued to
  acquire real estate............            --       35       --           --         88,889            --           --
Reallocation of minority interest            --       --                    --     (1,085,106)           --           --
Repurchase of common stock
 (note 6)........................            --       --       --  (11,088,419)            --            --           --
Cash dividends declared:
Common stock ($1.92 per share)
 and preferred stock.............            --       --       --           --             --  (111,896,164)          --
Net income.......................            --       --       --           --             --    87,610,832           --
                                   ------------  -------  -------  -----------  -------------  ------------  -----------
Balance at
  December 31, 2000..............   $34,696,112  602,349       --  (66,957,282) 1,317,668,173   (51,064,870)  (9,529,516)
Common stock issued as
 compensation or purchase by
 directors or officers...........            --    6,493       --      (51,027)     7,556,021            --           --
Common stock redeemed
  under stock loans..............            --     (102)      --     (182,741)      (278,563)           --    1,267,561
Common stock issued for
  partnership units exchanged....            --    1,216       --           --      3,219,237            --           --
Common stock issued to acquire
 real estate.....................            --       16       --           --         43,180            --           --
Reallocation of minority interest            --       --                    --       (628,614)           --           --
Repurchase of common stock.......            --      (17)      --     (155,364)            --            --           --
Cash dividends declared:
   Common stock ($2.00 per
    share)and preferred stock....            --       --       --           --             --  (117,825,613)          --
Net income.......................            --       --       --           --             --   100,664,207           --
                                   ------------  -------  -------  -----------  -------------  ------------  -----------
Balance at
   December 31, 2001.............   $34,696,112  609,955       --  (67,346,414) 1,327,579,434   (68,226,276)  (8,261,955)
                                   ============  =======  =======  ===========  =============  ============  ===========
</TABLE>
<TABLE>
<CAPTION>




                                      Total
                                  Stockholders'
                                     Equity
                                  -------------
<S>                               <C>
Balance at
  December 31, 1998..............   550,741,463
Common stock issued as
 compensation or purchased by
 directors or officers...........     3,734,124
Common stock issued or
 redeemed under stock loans......       310,821
Common stock issued for
  partnership units exchanged....     7,595,673
Common stock issued for
  Class B conversion.............            --
Preferred stock issued to
  acquire Pacific................    35,046,570
Common stock issued to acquire
 Pacific.........................   711,740,930
Common stock issued for
  preferred stock conversion.....            --
Repurchase of common stock
 (note 6)........................   (54,536,612)
Cash dividends declared:
  Common stock ($1.84 per
   share) and preferred stock....   (97,229,758)
Net income.......................    89,845,964
                                  -------------
Balance at
  December 31, 1999.............. 1,247,249,175
Common stock issued as
 compensation or purchased by
 directors or officers...........     4,794,087
Common stock redeemed under
 stock loans.....................       (70,238)
Common stock issued for
  partnership units exchanged....     9,811,875
Common stock issued to
  acquire real estate............        88,924
Reallocation of minority interest    (1,085,106)
Repurchase of common stock
 (note 6)........................   (11,088,419)
Cash dividends declared:
Common stock ($1.92 per share)
 and preferred stock.............  (111,896,164)
Net income.......................    87,610,832
                                  -------------
Balance at
  December 31, 2000.............. 1,225,414,966
Common stock issued as
 compensation or purchase by
 directors or officers...........     7,511,487
Common stock redeemed
  under stock loans..............       806,155
Common stock issued for
  partnership units exchanged....     3,220,453
Common stock issued to acquire
 real estate.....................        43,196
Reallocation of minority interest      (628,614)
Repurchase of common stock.......      (155,381)
Cash dividends declared:
   Common stock ($2.00 per
    share)and preferred stock....  (117,825,613)
Net income.......................   100,664,207
                                  -------------
Balance at
   December 31, 2001............. 1,219,050,856
                                  =============
</TABLE>

          See accompanying notes to consolidated financial statements

                                      87

<PAGE>

                          REGENCY CENTERS CORPORATION

                     Consolidated Statements of Cash Flows

             For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                           2001           2000          1999
                                                                       -------------  ------------  ------------
<S>                                                                    <C>            <C>           <C>
Cash flows from operating activities:
  Net income.......................................................... $ 100,664,207    87,610,832    89,845,964
  Adjustments to reconcile net income to net
   cash provided by operating activities:
   Depreciation and amortization......................................    67,505,587    59,430,262    48,611,519
   Deferred loan cost and debt premium amortization...................     1,136,734       609,107       556,100
   Stock based compensation...........................................     6,217,572     4,719,212     2,411,907
   Minority interest preferred unit distribution......................    33,475,007    29,601,184    12,368,403
   Minority interest of exchangeable partnership units................     2,557,003     2,492,419     2,897,778
   Minority interest of limited partners..............................       721,090     2,631,721     2,855,404
   Equity in income of investments in real estate partnerships........    (3,439,397)   (3,138,553)   (4,687,944)
   (Gain) loss on sale of operating properties........................      (699,376)   (4,506,982)      232,989
   Provision for loss on operating properties held for sale...........     1,595,136    12,995,412            --
   Changes in assets and liabilities:
    Tenant receivables................................................    (9,304,128)   (4,170,897)  (12,342,419)
    Deferred leasing costs............................................   (11,691,159)  (10,454,805)   (5,025,687)
    Other assets......................................................    (4,213,411)   (4,732,220)       74,863
    Tenants' security and escrow deposits.............................       303,740       248,331     1,238,955
    Accounts payable and other liabilities............................      (771,305)    5,196,868    12,264,438
                                                                       -------------  ------------  ------------
      Net cash provided by operating activities.......................   184,057,300   178,531,891   151,302,270
                                                                       -------------  ------------  ------------
Cash flows from investing activities:
  Acquisition and development of real estate..........................  (332,702,732) (432,545,686) (232,524,318)
  Proceeds from sale of real estate...................................   142,016,541   165,926,227    76,542,059
  Acquisition of Pacific, net of cash acquired........................            --            --    (9,046,230)
  Acquistion of partners' interest in investments
   in real estate partnerships, net of cash acquired..................     2,416,621    (1,402,371)           --
  Investment in real estate partnerships..............................   (45,562,955)  (66,890,477)  (30,752,019)
  Capital improvements................................................   (15,837,052)  (19,134,500)  (21,535,961)
  Proceeds from sale of real estate partnerships......................     2,967,481            --            --
  Repayment of notes receivable.......................................    67,582,696    15,673,125            --
  Distributions received from investments in real estate partnerships.    16,811,892     3,109,586       704,474
                                                                       -------------  ------------  ------------
      Net cash used in investing activities...........................  (162,307,508) (335,264,096) (216,611,995)
                                                                       -------------  ------------  ------------
Cash flows from financing activities:
  Net proceeds from common stock issuance.............................        65,264        25,276       223,375
  Repurchase of common stock..........................................      (155,381)  (11,088,419)  (54,536,612)
  Purchase of limited partners' interest in consolidated partnerships.            --    (2,925,158)     (633,673)
  Redemption of partnership units.....................................      (110,487)   (1,435,694)   (1,620,939)
  Net distributions to limited partners in consolidated partnerships..    (5,248,010)   (2,139,886)   (1,071,831)
  Distributions to exchangeable partnership unit holders..............    (3,144,987)   (3,652,033)   (3,534,515)
  Distributions to preferred unit holders.............................   (33,475,007)  (29,601,184)  (12,368,403)
  Dividends paid to common stockholders...............................  (114,860,514) (109,078,935)  (94,985,165)
  Dividends paid to preferred stockholders............................    (2,965,099)   (2,817,228)   (2,244,593)
  Net proceeds from fixed rate unsecured notes........................   239,582,400   159,728,500   249,845,300
  (Additional costs) net proceeds from issuance of preferred units....        (4,125)   91,591,503   205,016,274
  (Repayment) proceeds of unsecured line of credit, net...............   (92,000,000)  218,820,690  (142,051,875)
  Proceeds from notes payable.........................................            --    18,153,368       445,207
  Repayment of notes payable..........................................   (67,273,620) (112,669,554)  (32,534,707)
  Scheduled principal payments........................................    (6,146,318)   (6,230,191)   (6,085,360)
  Deferred loan costs.................................................    (9,148,539)   (3,078,398)   (4,355,008)
                                                                       -------------  ------------  ------------
      Net cash (used in) provided by financing activities.............   (94,884,423)  203,602,657    99,507,475
                                                                       -------------  ------------  ------------
      Net (decrease) increase in cash and cash equivalents............   (73,134,631)   46,870,452    34,197,750
Cash and cash equivalents at beginning of period......................   100,987,895    54,117,443    19,919,693
                                                                       -------------  ------------  ------------
Cash and cash equivalents at end of period............................ $  27,853,264   100,987,895    54,117,443
                                                                       =============  ============  ============
</TABLE>

                                      88

<PAGE>

                          REGENCY CENTERS CORPORATION

              Consolidated Statements of Cash Flows--(Continued)

             For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                             2001        2000       1999
                                                                          ----------- ---------- -----------
<S>                                                                       <C>         <C>        <C>
Supplemental disclosure of cash flow information--cash paid for
 interest (net of capitalized interest of approximately
 $21,195,000, $14,553,000 and $11,029,000 in 2001, 2000
 and 1999, respectively)................................................. $67,546,988 66,261,518  52,914,976
                                                                          =========== ========== ===========
Supplemental disclosure of non-cash transactions:
Mortgage loans assumed for the acquisition of real estate................ $ 8,120,912 19,947,565 402,582,015
                                                                          =========== ========== ===========
Notes receivable taken in connection with sales of development properties $33,663,744 66,423,893  15,673,125
                                                                          =========== ========== ===========
Real estate contributed as investment in real estate partnerships........ $12,418,278  4,500,648          --
                                                                          =========== ========== ===========
Mortgage loan assumed, exchangeable operating partnership units
 and common stock issued for the acquisition of partners'
 interest in real estate partnerships.................................... $ 9,754,225  1,287,111          --
                                                                          =========== ========== ===========
Exchangeable operating partnership units and common stock issued
 for investments in real estate partnerships............................. $        --    329,948   1,949,020
                                                                          =========== ========== ===========
Preferred and common stock and exchangeable operating partnership
 units issued for the acquisition of real estate                          $        --    103,885 771,351,617
                                                                          =========== ========== ===========
Other liabilities assumed to acquire real estate......................... $        --         --  13,897,643
                                                                          =========== ========== ===========
</TABLE>

          See accompanying notes to consolidated financial statements

                                      89

<PAGE>

                          REGENCY CENTERS CORPORATION

                  Notes to Consolidated Financial Statements

                               December 31, 2001

1. Summary of Significant Accounting Policies

  (a) Organization and Principles of Consolidation


   The accompanying consolidated financial statements include the accounts of
Regency Centers Corporation, its wholly owned qualified REIT subsidiaries, and
also partnerships in which it has voting control (the "Company" or "Regency").
All significant intercompany balances and transactions have been eliminated in
the consolidated financial statements. The Company owns approximately 97% of
the outstanding common units ("Units") of Regency Centers, L.P., ("RCLP").
Regency invests in real estate through its partnership interest in RCLP. All of
the acquisition, development, operations and financing activity of Regency,
including the issuance of Units or preferred units, are executed by RCLP. The
equity interests of third parties held by RCLP and the majority owned or
controlled partnerships are included in the consolidated financial statements
as preferred or exchangeable operating partnership units ("Units") and limited
partners' interest in consolidated partnerships. The Company is a qualified
real estate investment trust ("REIT"), which began operations in 1993 as
Regency Realty Corporation. In February 2001, the Company changed its name to
Regency Centers Corporation.


  (b) Revenues

   The Company leases space to tenants under agreements with varying terms.
Leases are accounted for as operating leases with minimum rent recognized on a
straight-line basis over the term of the lease regardless of when payments are
due. Accrued rents are included in tenant receivables. Minimum rent has been
adjusted to reflect the effects of recognizing rent on a straight-line basis.

   Substantially all of the lease agreements contain provisions that provide
additional rents based on tenants' sales volume (contingent or percentage rent)
or reimbursement of the tenants' share of real estate taxes and certain common
area maintenance (CAM) costs. These additional rents are recognized when the
tenants achieve the specified targets as defined in the lease agreements.

   Service operations revenue includes management fees, commission income, and
development-related profits from the sales of recently developed real estate
properties and land. The Company recorded gains from the sales of development
properties and land of $28.1, million $25.5 million, and $14.4 million for the
years ended December 31, 2001, 2000, and 1999, respectively. Service operations
revenue does not include gains or losses from the sale of operating properties
previously held for investment which are included in gain or loss on the sale
of operating properties.

   The Company accounts for profit recognition on sales of real estate in
accordance with FASB Statement No. 66, "Accounting for Sales of Real Estate."
In summary, profits from sales will not be recognized by the Company unless a
sale has been consummated; the buyer's initial and continuing investment is
adequate to demonstrate a commitment to pay for the property; the Company has
transferred to the buyer the usual risks and rewards of ownership; and the
Company does not have substantial continuing involvement with the property.

  (c) Real Estate Investments

   Land, buildings and improvements are recorded at cost. All direct and
indirect costs clearly associated with the acquisition, development and
construction of real estate projects are capitalized as buildings and
improvements.

   Maintenance and repairs which do not improve or extend the useful lives of
the respective assets are reflected in operating and maintenance expense. The
property cost includes the capitalization of interest expense incurred during
construction based on average outstanding expenditures.

                                      90

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


  (c) Real Estate Investments (continued)

   Depreciation is computed using the straight-line method over estimated
useful lives of up to forty years for buildings and improvements, term of lease
for tenant improvements, and three to seven years for furniture and equipment.

   Operating properties held for sale include properties that no longer meet
the Company's long-term investment standards, such as expected growth in
revenue or market dominance. Once identified and marketed for sale, these
properties are segregated on the balance sheet as operating properties held for
sale. The Company also develops shopping centers and stand-alone retail stores
for resale. Once completed, these developments are also included in operating
properties held for sale. Operating properties held for sale are carried at the
lower of cost or fair value less estimated selling costs. Depreciation and
amortization are suspended during the period held for sale. Results from
operations from these properties resulted in net income of $10.5 million and
$6.8 million for the years ended December 31, 2001 and 2000, respectively.


   The Company reviews its real estate portfolio for value impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company determines impairment based upon the
difference between estimated sales value (less estimated costs to sell) and net
book value. During 2001, the Company recorded a provision for loss on one
shopping center of $1.6 million due to an anchor tenant bankruptcy and other
tenants continuing to vacate the shopping center upon expiration of their
leases. During 2000, the Company recorded a provision for loss on operating
properties held for sale of $13.0 million related to a portfolio of properties
under contract for sale that no longer met Regency's long-term investment
standards. These properties were classified as operating properties held for
sale at December 31, 2000, and depreciation and amortization was suspended.


  (d) Income Taxes

   The Company believes it qualifies and intends to continue to qualify as a
REIT under the Internal Revenue Code (the "Code"). As a REIT, the Company is
allowed to reduce taxable income by all or a portion of its distributions to
stockholders. As distributions have exceeded taxable income, no provision for
federal income taxes has been made in the accompanying consolidated financial
statements.

   Earnings and profits, which determine the taxability of dividends to
stockholders, differ from net income reported for financial reporting purposes
primarily because of different depreciable lives and cost bases of the shopping
centers, and other timing differences.


   Regency Realty Group, Inc., ("RRG"), a wholly-owned subsidiary of the
Company is subject to federal and state income taxes and files separate tax
returns. RRG had taxable income of $9.8 million, $2.3 million, and $5.0 million
for the years ended December 31, 2001, 2000 and 1999, respectively. RRG
incurred federal and state income tax of $4.0 million, $0.9 million, and $2.0
million in 2001, 2000 and 1999, respectively, which are included in other
expenses.

   Effective January 1, 2001, the Company and RRG jointly elected for RRG to be
treated as a Taxable REIT Subsidiary of the Company as such term is defined in
Section 856(l) of the Code. Such election is not expected to impact the tax
treatment of either the Company or RRG.

   At December 31, 2001 and 2000, the net book basis of real estate assets
exceeds the tax basis by approximately $109 million and $115 million,
respectively, primarily due to the difference between the cost basis of the
assets acquired and their carryover basis recorded for tax purposes.

                                      91

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


  (d) Income Taxes (continued)

   The following summarizes the tax status of dividends paid during the years
ended December 31 (unaudited):

<TABLE>
<CAPTION>
                                              2001   2000  1999
                                              -----  ----  ----
               <S>                            <C>    <C>   <C>
               Dividend per share............ $2.00  1.92  1.84
               Ordinary income...............    83%   82%   75%
               Capital gain..................     3%    5%    2%
               Return of capital.............    13%   11%   23%
               Unrecaptured Section 1250 gain     1%    2%   --
</TABLE>

  (e) Deferred Costs

   Deferred costs include deferred leasing costs and deferred loan costs, net
of amortization. Such costs are amortized over the periods through lease
expiration or loan maturity. Deferred leasing costs consist of internal and
external commissions associated with leasing the Company's shopping centers.
Net deferred leasing costs were $22.2 million and $15.3 million at December 31,
2001 and 2000, respectively. Deferred loan costs consists of initial direct and
incremental costs associated with financing activities. Net deferred loan costs
were $12.2 million and $6.0 million at December 31, 2001 and 2000, respectively.

  (f) Earnings Per Share

   Basic net income per share of common stock is computed based upon the
weighted average number of common shares outstanding during the year. Diluted
net income per share also includes common share equivalents for stock options,
exchangeable operating partnership units, and preferred stock when dilutive.
See note 7 for the calculation of earnings per share.

  (g) Cash and Cash Equivalents

   Any instruments which have an original maturity of ninety days or less when
purchased are considered cash equivalents.

  (h) Estimates

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company's management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

  (i) Stock Option Plan

   The Company applies the provisions of SFAS No. 123, "Accounting for Stock
Based Compensation", which allows companies a choice in the method of
accounting for stock options. Entities may recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant or
continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made as if the fair-value-based method defined in SFAS No. 123
had been applied. APB Opinion No. 25 "Accounting for Stock Issued to Employees"
and related interpretations state that compensation expense would be recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.

                                      92

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


  (j) Reclassifications

   Certain reclassifications have been made to the 2000 and 1999 amounts to
conform to classifications adopted in 2001.

2. Acquisitions of Shopping Centers

   During 2001, the Company acquired three grocery-anchored shopping centers
for $72.8 million representing 435,720 SF of gross leasable area.

   On August 3, 2000, the Company acquired the non-owned portion of two
properties in one joint venture for $2.5 million in cash. The net assets of the
joint venture were and continue to be consolidated by the Company. Prior to
acquiring the non-owned portion, the joint venture partner's interest was
reflected as limited partners' interest in consolidated partnerships in the
Company's financial statements.

   The 2001 and 2000 acquisitions were accounted for as purchases and as such
the results of their operations are included in the consolidated financial
statements from the date of the acquisition. None of the acquisitions were
significant to the operations of the Company in the year in which they were
acquired or the year preceding the acquisition.

   During 2000, the Company paid contingent consideration of $5.0 million
related to the acquisition of 43 shopping centers and joint ventures acquired
during 1998. No additional contingent consideration is due related to any
acquisitions of the Company.

3. Segments

   The Company was formed, and currently operates, for the purpose of 1)
operating and developing Company-owned retail shopping centers (Retail
segment), and 2) providing services including management fees and commissions
earned from third parties, and development related profits and fees earned from
the sales of shopping centers, outparcels and build-to-suit properties to third
parties (Service operations segment). The Company's reportable segments offer
different products or services and are managed separately because each requires
different strategies and management expertise. There are no inter-segment sales
or transfers.

   The Company assesses and measures operating results starting with net
operating income for the Retail segment and revenues for the Service operations
segment and converts such amounts into a performance measure referred to as
Funds From Operations ("FFO"). The operating results for the individual retail
shopping centers have been aggregated since all of the Company's shopping
centers exhibit highly similar economic characteristics as neighborhood
shopping centers, and offer similar degrees of risk and opportunities for
growth. FFO as defined by the National Association of Real Estate Investment
Trusts consists of net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sales of income-producing property held for investment, plus depreciation and
amortization of real estate, and adjustments for unconsolidated investments in
real estate partnerships and joint ventures. The Company further adjusts FFO by
distributions made to holders of Units and preferred stock that results in a
diluted FFO amount. The Company considers diluted FFO to be the industry
standard for reporting the operations of REITs. Adjustments for investments in
real estate partnerships are calculated to reflect diluted FFO on the same
basis. While management believes that diluted FFO is the most relevant and
widely used measure of the Company's performance, such amount does not
represent cash flow from operations as defined by accounting principles
generally accepted in the United States of America, should not be considered an
alternative to net income as an indicator of the Company's operating
performance, and is not indicative of cash available to fund all cash flow
needs. Additionally, the Company's calculation of diluted FFO, as provided
below, may not be comparable to similarly titled measures of other REITs.

                                      93

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


3. Segments (continued)

   The accounting policies of the segments are the same as those described in
note 1. The revenues, diluted FFO, and assets for each of the reportable
segments are summarized as follows for the years ended December 31, 2001, 2000,
and 1999. Assets not attributable to a particular segment consist primarily of
cash and deferred costs.

<TABLE>
<CAPTION>
                                                               2001         2000         1999
                                                           ------------  -----------  -----------
<S>                                                        <C>           <C>          <C>
Revenues:
   Retail segment......................................... $357,054,770  334,357,007  283,647,445
   Service operations segment.............................   31,494,739   27,226,411   18,239,486
                                                           ------------  -----------  -----------
       Total revenues..................................... $388,549,509  361,583,418  301,886,931
                                                           ============  ===========  ===========
Funds from Operations:
   Retail segment net operating income.................... $268,779,543  256,567,786  215,956,386
   Service operations segment income......................   31,494,739   27,226,411   18,239,486
   Adjustments to calculate diluted FFO:
       Interest expense...................................  (74,416,416) (71,970,783) (60,067,007)
       Interest income....................................    5,577,487    4,807,711    2,196,954
       General and administrative and other...............  (24,917,323) (21,869,295) (19,746,751)
       Non-real estate depreciation.......................   (2,194,623)  (1,459,326)  (1,003,092)
       Minority interest of limited partners..............     (721,090)  (2,631,721)  (2,855,404)
       Gain on sale of operating properties including
         depreciation on developments sold................   (1,692,843)  (3,082,625)     232,989
       Minority interest in depreciation
         and amortization.................................     (228,320)    (481,184)    (584,048)
       Share of joint venture depreciation
         and amortization.................................      750,470    1,287,793      987,912
       Distributions on preferred units...................  (33,475,007) (29,601,184) (12,368,403)
                                                           ------------  -----------  -----------
       Funds from Operations--diluted.....................  168,956,617  158,793,583  140,989,022
                                                           ------------  -----------  -----------
   Reconciliation to net income for common
     stockholders:
   Real estate related depreciation
     and amortization.....................................  (65,310,964) (57,970,936) (47,608,427)
   Minority interest in depreciation
     and amortization.....................................      228,320      481,184      584,048
   Share of joint venture depreciation
     and amortization.....................................     (750,470)  (1,287,793)    (987,912)
   Provision for loss on operating properties
     held for sale........................................   (1,595,136) (12,995,412)          --
   Gain (loss) on sale of operating properties............    1,692,843    3,082,625     (232,989)
   Minority interest of exchangeable
     operating partnership units..........................   (2,557,003)  (2,492,419)  (2,897,778)
                                                           ------------  -----------  -----------
       Net income......................................... $100,664,207   87,610,832   89,845,964
                                                           ============  ===========  ===========
Assets (in thousands):
   Retail segment......................................... $  2,631,592    2,454,476    2,463,639
   Service operations segment.............................      403,142      447,929      123,233
   Cash and other assets..................................       74,580      132,739       68,064
                                                           ------------  -----------  -----------
       Total assets....................................... $  3,109,314    3,035,144    2,654,936
                                                           ============  ===========  ===========
</TABLE>

                                      94

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


4. Investments in Real Estate Partnerships

   The Company accounts for all investments in which it owns 50% or less and
does not have controlling financial interest using the equity method. The
Company's combined investment in these partnerships was $75.2 million and $85.2
million at December 31, 2001 and 2000, respectively. Net income is allocated to
the Company in accordance with the respective partnership agreements.

   The Company has a 20% equity interest in Columbia Regency Retail Partners,
LLC ("Columbia"), a joint venture with Columbia PERFCO Partners, L.P.
("PERFCO") that was formed for the purpose of investing in retail shopping
centers. During 2001, Columbia acquired two shopping centers from the Company
for $32.3 million, acquired two shopping centers from unaffiliated sellers for
$42.0 million, and acquired three shopping centers from PERFCO for $73.4
million. During 2001 and 2000, the Company recognized gains on the sale of
shopping centers to Columbia of $1.0 million and $3.7 million, respectively,
which represents gain recognition on only that portion of Columbia not owned by
the Company, and received net proceeds of $24.9 million and $40.5 million,
respectively. The gains are included in service operations revenue as
development property gains.

   The Company has a 25% equity interest in Macquarie CountryWide-Regency, LLC,
("MCWR") a joint venture with an affiliate of Macquarie CountryWide Trust of
Australia, a Sydney, Australia-based property trust focused on investing in
grocery-anchored shopping centers. During 2001, MCWR acquired five shopping
centers from the Company for $36.7 million. During 2001, the Company recognized
gains on the sale of shopping centers to MCWR of $1.8 million, which represents
gain recognition on only that portion of MCWR not owned by the Company, and
received net proceeds of $27.8 million. The Company recognized gains of $1.3
million from the sale of development properties which are included in service
operations revenue as development property gains. The Company also recognized
gains of $0.5 million from the sale of operating properties previously held for
investment which are included in gains on sale of operating properties.

   With the exception of Columbia and MCWR, both of which intend to continue
expanding their investment in shopping centers, the investments in real estate
partnerships represent single asset entities formed for the purpose of
developing or owning a retail shopping center.

   The Company's investments in real estate partnerships as of December 31 2001
and 2000 consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                Ownership  2001    2000
                                                --------- ------- ------
        <S>                                     <C>       <C>     <C>
        Columbia Regency Retail Partners, LLC..    20%    $31,092  4,817
        Macquarie CountryWide-Regency, LLC.....    25%      4,180     --
        OTR/Regency Texas Realty Holdings, L.P.    30%     16,590 16,277
        Regency Ocean East Partnership, L.P....    25%      2,783  2,129
        RRG-RMC Tracy, LLC.....................    50%     12,339  6,663
        Tinwood, LLC...........................    50%      7,177  4,124
        GME/RRG I, LLC.........................    50%      1,069     --
        K & G/Regency II, LLC..................    50%         --  6,618
        Regency/DS Ballwin, LLC................    50%         -- 19,064
        T & M Shiloh Development Company.......    50%         -- 11,310
        R & KS Dell Range Development, LLC.....    50%         --  8,839
        M & KS Woodman Development, LLC........    50%         --  4,520
        R & KS Aspen Park Development, LLC.....    50%         --    837
                                                          $75,230 85,198
</TABLE>

                                      95

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


4. Investments in Real Estate Partnerships (continued)

   Summarized financial information for the unconsolidated investments on a
combined basis, is as follows (in thousands):

<TABLE>
<CAPTION>
                                                December 31, December 31,
                                                    2001         2000
                                                ------------ ------------
       <S>                                      <C>          <C>
       Balance Sheets:
          Investment property, net.............   $286,096     148,945
          Other assets.........................      8,581       9,123
                                                  --------     -------
              Total assets.....................   $294,677     158,068
                                                  ========     =======
       Notes payable and other debt............   $ 67,489      14,323
       Other liabilities.......................      5,983      25,105
       Equity and partner's capital............    221,205     118,640
                                                  --------     -------
              Total liabilities and equity.....   $294,677     158,068
                                                  ========     =======
</TABLE>

   The revenues and expenses are summarized as follows for the years ended
December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                           2001    2000   1999
                                          ------- ------ ------
                <S>                       <C>     <C>    <C>
                Statements of Operations:
                Total revenues........... $26,896 19,235 16,208
                Total expenses...........  14,066 13,147  8,501
                                          ------- ------ ------
                   Net income............ $12,830  6,088  7,707
                                          ======= ====== ======
</TABLE>

   Unconsolidated partnerships and joint ventures had mortgage loans payable of
$67.5 million at December 31, 2001 and the Company's proportionate share of
these loans was $14.7 million. $62.5 million of the mortgage loans payable are
non-recourse and contain no other provisions that would result in a contingent
liability to the Company. The Company is the guarantor of a $5.0 million
mortgage loan for Regency Ocean East Partnership, L.P.

5. Notes Payable and Unsecured Line of Credit

   The Company's outstanding debt at December 31, 2001 and 2000 consists of the
following (in thousands):

<TABLE>
<CAPTION>
                                                 2001      2000
                                              ---------- ---------
             <S>                              <C>        <C>
             Notes Payable:
                Fixed rate mortgage loans.... $  240,091   270,491
                Variable rate mortgage loans.     21,691    40,640
                Fixed rate unsecured loans...    760,939   529,941
                                              ---------- ---------
                    Total notes payable......  1,022,721   841,072
             Unsecured line of credit........    374,000   466,000
                                              ---------- ---------
                    Total.................... $1,396,721 1,307,072
                                              ========== =========
</TABLE>

                                      96

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


5. Notes Payable and Unsecured Line of Credit (continued)

   On April 30, 2001, the Company modified the terms of its line of credit (the
"Line") by reducing the commitment to $600 million, reducing the interest rate
spread from 1.0% to .85% and extending the maturity date to April 2004.
Interest rates paid on the Line at December 31, 2001 and 2000 were based on
LIBOR plus .85% and 1.0% or 2.913% and 7.875%, respectively. The spread that
the Company pays on the Line is dependent upon maintaining specific investment
grade ratings. The Company is required to comply and is in compliance with
certain financial and other covenants customary with this type of unsecured
financing. The Line is used primarily to finance the acquisition and
development of real estate, but is also available for general working capital
purposes.

   Subsequent to December 31, 2001, the Company paid down the Line using the
net proceeds of an unsecured debt offering for $250 million completed on
January 15, 2002. The notes have a fixed interest rate of 6.75%, were priced at
99.850%, are due on January 15, 2012 and are guaranteed by the Company.

   On December 12, 2001, the Company, through RCLP, completed a $20 million
unsecured debt offering with an interest rate of 7.25%. The notes were priced
at 99.375%, are due on December 12, 2011 and are guaranteed by the Company. On
January 22, 2001, the Company, through RCLP, completed a $220 million unsecured
debt offering with an interest rate of 7.95%. The notes were priced at 99.867%,
are due on January 15, 2011 and are guaranteed by the Company. The net proceeds
of the offerings were used to reduce the balance of the Line.

   On December 15, 2000, the Company, through RCLP, completed a $10 million
unsecured private debt offering with an interest rate of 8.0%. The notes were
priced at 99.375%, are due on December 15, 2010 and are guaranteed by the
Company. On August 29, 2000, the Company, through RCLP, completed a $150
million unsecured debt offering with an interest rate of 8.45%. The notes were
priced at 99.819%, are due on September 1, 2010 and are guaranteed by the
Company. The net proceeds of the offerings were used to reduce the balance of
the Line.

   Mortgage loans are secured by certain real estate properties, and may be
prepaid, but could be subject to a yield-maintenance premium. Mortgage loans
are generally due in monthly installments of interest and principal and mature
over various terms through 2019. Variable interest rates on mortgage loans are
currently based on LIBOR plus a spread in a range of 125 basis points to 175
basis points. Fixed interest rates on mortgage loans range from 6.82% to 9.5%.

   As of December 31, 2001, scheduled principal repayments on notes payable and
the Line were as follows (in thousands):

<TABLE>
<CAPTION>
                                      Scheduled
                                      Principal Term Loan   Total
           Scheduled Payments by Year Payments  Maturities Payments
           -------------------------- --------- ---------- ---------
           <S>                        <C>       <C>        <C>
           2002......................  $ 5,051     44,083     49,134
           2003......................    4,803     22,863     27,666
           2004 (includes the Line)..    5,185    585,829    591,014
           2005......................    4,011    148,029    152,040
           2006......................    3,578     24,089     27,667
           Beyond 5 Years............   29,422    511,933    541,355
           Unamortized debt premiums.       --      7,845      7,845
                                       -------  ---------  ---------
                  Total..............  $52,050  1,344,671  1,396,721
                                       =======  =========  =========
</TABLE>

                                      97

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


5. Notes Payable and Unsecured Line of Credit (continued)
   The fair value of the Company's notes payable and Line are estimated based
on the current rates available to the Company for debt of the same remaining
maturities. Variable rate notes payable and the Line are considered to be at
fair value, since the interest rates on such instruments reprice based on
current market conditions. Fixed rate loans assumed in connection with real
estate acquisitions are recorded in the accompanying financial statements at
fair value. Based on the borrowing rates currently available to the Company for
loans with similar terms and average maturities, the fair value of long-term
debt is $1.43 billion.

6. Stockholders' Equity and Minority Interest

   The Company, through RCLP, has issued Cumulative Redeemable Preferred Units
("Preferred Units") in various amounts since 1998. The issues were sold
primarily to institutional investors in private placements for $100.00 per
unit. The Preferred Units, which may be called by the Partnership at par after
certain dates, have no stated maturity or mandatory redemption, and pay a
cumulative, quarterly dividend at fixed rates. At any time after 10 years from
the date of issuance, the Preferred Units may be exchanged for Cumulative
Redeemable Preferred Stock ("Preferred Stock") at an exchange rate of one share
for one unit. The Preferred Units and the related Preferred Stock are not
convertible into common stock of the Company. The net proceeds of these
offerings were used to reduce the Line. At December 31, 2001 and 2000 the face
value of total preferred units issued was $384 million with an average fixed
distribution rate of 8.72%.

   Terms and conditions of the Preferred Units are summarized as follows:

<TABLE>
<CAPTION>
           Units     Issue    Issuance   Distribution Callable by  Redeemable
 Series    Issued    Price     Amount        Rate       Company   by Unitholder
 ------   --------- ------- ------------ ------------ ----------- -------------
 <S>      <C>       <C>     <C>          <C>          <C>         <C>
 Series A 1,600,000 $ 50.00 $ 80,000,000    8.125%     06/25/03     06/25/08
 Series B   850,000  100.00   85,000,000    8.750%     09/03/04     09/03/09
 Series C   750,000  100.00   75,000,000    9.000%     09/03/04     09/03/09
 Series D   500,000  100.00   50,000,000    9.125%     09/29/04     09/29/09
 Series E   700,000  100.00   70,000,000    8.750%     05/25/05     05/25/10
 Series F   240,000  100.00   24,000,000    8.750%     09/08/05     09/08/10
          ---------         ------------
          4,640,000         $384,000,000
          =========         ============
</TABLE>

   During 2000, the remaining Series 1 preferred stock was converted into
537,107 shares of Series 2 preferred stock. Series 2 preferred stock is
convertible into common stock on a one-for-one basis. The Series 2 preferred
shares are entitled to quarterly dividends in an amount equal to the common
dividend and are cumulative. The Company may redeem the preferred stock any
time after October 20, 2010 at a price of $20.83 per share, plus all accrued
but unpaid dividends.

   During 1999, the Board of Directors authorized the repurchase of
approximately $65 million of the Company's outstanding shares through periodic
open market transactions or privately negotiated transactions. At March 31,
2000, the Company had completed the program by purchasing 3.25 million shares.




   Security Capital owns approximately 59.5% of the outstanding common stock of
Regency; however its ability to exercise voting control over these shares is
limited by the Stockholders Agreement by and among Regency, Security Capital
Holdings S.A., Security Capital U.S. Realty and The Regency Group, Inc. dated
as of July 10, 1996, as amended, including amendments to reflect Security
Capital's purchase of Security Capital


                                      98

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


Holdings S.A. and the shareholder approval of the liquidation of Security
Capital U.S. Realty (as amended, the "Stockholders Agreement").



   The Stockholders Agreement provides that Security Capital will vote all of
its shares of Regency in accordance with the recommendations of Regency's board
of directors or proportionally in accordance with the votes of the other
holders of Regency common stock. This broad voting restriction is subject to a
limited qualified exception pursuant to which Security Capital can vote its
shares of Regency in its sole and absolute discretion with regard to amendments
to Regency's charter or bylaws that would materially adversely affect Security
Capital and with regard to "Extraordinary Transactions" (which include mergers,
consolidations, sale of a material portion of Regency's assets, issuances of
securities in an amount which requires a shareholder vote and other similar
transactions out of the ordinary course of business). However, the limited
exception is itself further qualified. Even with respect to charter and by-law
amendments and Extraordinary Transactions, Security Capital may only vote
shares representing ownership of 49% of the outstanding Regency common stock at
its discretion, any shares owned by Security Capital in excess of 49% must be
voted in accordance with the recommendations of Regency's board of directors or
proportionally in accordance with the votes of the other holders of Regency
common stock. With regard to Extraordinary Transactions which require a 2/3rds
vote (i.e. where Security Capital could block the outcome if it voted 49% of
the stock), Security Capital may only vote shares representing ownership of 32%
of the outstanding Regency common stock. Security Capital may vote its shares
to elect a certain number of nominees to the Regency board of directors,
however this right is similarly limited. Security Capital has the right to
nominate the greater of three directors or the number of directors
proportionate to its ownership, however Security Capital may not nominate more
than 49% of the Regency board of directors.



   The effect of these limitations is such that notwithstanding the fact that
Security Capital owns more than a majority of the currently outstanding shares
of Regency common stock, Security Capital may not, in compliance with the
Stockholders Agreement, exercise voting control with respect to more than 49%
of the outstanding shares of Regency (and may vote those shares in its
discretion only with respect to the limited matters listed above).



   On December 14, 2001 Security Capital entered into an agreement with GE
Capital pursuant to which, assuming consummation, an indirect wholly owned
subsidiary of GE Capital will be merged with and into Security Capital with
Security Capital surviving as an indirect wholly owned subsidiary of GE
Capital. Assuming that Security Capital continues in existence following its
acquisition by GE Capital, Regency believes that the Stockholders' Agreement
will remain in full force and effect; however, Regency is not a party to any of
the agreements between Security Capital and GE Capital.


                                      99

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


7. Earnings Per Share

   The following summarizes the calculation of basic and diluted earnings per
share for the years ended December 31, 2001, 2000 and 1999 (in thousands except
per share data):

<TABLE>
<CAPTION>
                                                                           2001    2000   1999
                                                                         -------- ------ ------
<S>                                                                      <C>      <C>    <C>
Basic Earnings Per Share (EPS) Calculation:
   Weighted average common shares outstanding...........................   57,465 56,754 53,494
                                                                         -------- ------ ------
   Net income for common stockholders................................... $ 97,699 84,794 87,601
   Less: dividends paid on Class B common stock.........................       --     --  1,409
                                                                         -------- ------ ------
Net income for Basic EPS................................................ $ 97,699 84,794 86,192
                                                                         -------- ------ ------
Basic EPS............................................................... $   1.70   1.49   1.61
                                                                         -------- ------ ------
Diluted Earnings Per Share (EPS) Calculation
   Weighted average shares outstanding for Basic EPS....................   57,465 56,754 53,494
   Exchangeable operating partnership units.............................    1,593  1,851  2,004
   Incremental shares to be issued under common stock options using the
     Treasury Method....................................................      216     54      4
                                                                         -------- ------ ------
Total diluted shares....................................................   59,274 58,659 55,502
                                                                         -------- ------ ------
Net income for Basic EPS................................................ $ 97,699 84,794 86,192
Add: minority interest of exchangeable operating partnership units......    2,557  2,492  2,898
                                                                         -------- ------ ------
Net income for Diluted EPS.............................................. $100,256 87,286 89,090
                                                                         -------- ------ ------
Diluted EPS............................................................. $   1.69   1.49   1.61
                                                                         -------- ------ ------
</TABLE>

   The Series 1 and Series 2 preferred stock are not included in the above
calculation because their effects are anti-dilutive.

8. Long-Term Stock Incentive Plans

   The Company has a Long-Term Omnibus Plan (the "Plan") pursuant to which the
Board of Directors may grant stock and stock options to officers, directors and
other key employees. The Plan provides for the issuance of up to 12%of the
Company's common shares outstanding not to exceed 8.5 million shares. Stock
options are granted with an exercise price equal to the stock's fair market
value at the date of grant. All stock options granted have ten year terms, and
contain vesting terms of one to five years from the date of grant.

   At December 31, 2001, there were approximately 1.6 million shares available
for grant under the Plan. The per share weighted-average fair value of stock
options granted during 2001 and 2000 was $2.32 and $2.18 on the date of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions: 2001--expected dividend yield 7.3%, risk-free
interest rate of 5.2%, expected volatility 20%, and an expected life of 6.0
years; 2000--expected dividend yield 8.1%, risk-free interest rate of 6.7%,
expected volatility 20%, and an expected life of 6.0 years. The Company applies
APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation
cost has been recognized for its stock options in the consolidated financial
statements.

                                      100

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


8. Long-Term Stock Incentive Plans (continued)

   Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
for common stockholders would have been reduced to the pro forma amounts
indicated below (in thousands except per share data):

<TABLE>
<CAPTION>
            Net income for common stockholders  2001    2000   1999
            ---------------------------------- ------- ------ ------
            <S>                                <C>     <C>    <C>
                 As reported:                  $97,699 84,794 87,601
                  Net income per share:
                        Basic................. $  1.70   1.49   1.61
                        Diluted............... $  1.69   1.49   1.61
                 Pro forma:                    $96,776 83,864 85,448
                  Net income per share:
                        Basic................. $  1.68   1.48   1.57
                        Diluted............... $  1.68   1.47   1.57
</TABLE>

   Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                         Weighted
                                           Number of     Average
                                            Shares    Exercise Price
                                           ---------  --------------
            <S>                            <C>        <C>
            Outstanding, December 31, 1998 1,708,577      $24.71
                                           ---------      ------
               Granted....................   860,767       20.70
               Pacific merger............. 1,251,719       24.24
               Forfeited..................   (87,395)      25.69
               Exercised..................    (4,000)      17.88
                                           ---------      ------
            Outstanding, December 31, 1999 3,729,668       23.61
                                           ---------      ------
               Granted....................    52,924       21.59
               Forfeited..................  (170,798)      25.52
               Exercised..................   (21,017)      21.69
                                           ---------      ------
            Outstanding, December 31, 2000 3,590,777       23.50
                                           ---------      ------
               Granted....................   591,614       25.01
               Forfeited..................   (79,009)      24.11
               Exercised..................  (420,420)      21.62
                                           ---------      ------
            Outstanding, December 31, 2001 3,682,962      $23.94
                                           ---------      ------
</TABLE>

   The following table presents information regarding all options outstanding
at December 31, 2001:

<TABLE>
<CAPTION>
                             Weighted
                              Average                   Weighted
                 Number of   Remaining                  Average
                  Options   Contractual    Range of     Exercise
                Outstanding    Life     Exercise Prices  Price
                ----------- ----------- --------------- --------
                <S>         <C>         <C>             <C>
                 1,751,862     7.13      $ 16.75-24.69   $21.92
                 1,931,100     6.01        25.00-27.69    25.77
                               ----      -------------   ------
                 3,682,962     6.54      $ 16.75-27.69   $23.94
                               ----      -------------   ------
</TABLE>

                                      101

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


8. Long-Term Stock Incentive Plans (continued)

   The following table presents information regarding options currently
exercisable at December 31, 2001:

<TABLE>
<CAPTION>
                                                  Weighted
                       Number of                  Average
                        Options      Range of     Exercise
                      Exercisable Exercise Prices  Price
                      ----------- --------------- --------
                      <S>         <C>             <C>
                       1,029,944   $16.75-24.69    $22.14
                       1,564,115    25.00-27.69     25.67
                                   ------------    ------
                       2,594,059   $16.75-27.69    $24.27
                                   ============    ======
</TABLE>

   Also as part of the Plan, officers and other key employees have received
loans to purchase stock with market rates of interest, have been granted
restricted stock, and have been granted dividend equivalents. During 2001,
2000, and 1999, the Company charged $6.0 million, $3.4 million, and $1.0
million, respectively, to income on the consolidated statements of operations
related to the Plan.

9. Operating Leases

   The Company's properties are leased to tenants under operating leases with
expiration dates extending to the year 2037. Future minimum rents under
noncancelable operating leases as of December 31, 2001, excluding tenant
reimbursements of operating expenses and excluding additional contingent
rentals based on tenants' sales volume are as follows (in thousands):

<TABLE>
<CAPTION>
                      Year Ending December 31,   Amount
                      ------------------------ ----------
                      <S>                      <C>
                                2002           $  266,670
                                2003              260,209
                                2004              230,431
                                2005              200,167
                                2006              162,290
                             Thereafter           112,409
                                               ----------
                               Total           $1,232,176
                                               ==========
</TABLE>

   The shopping centers' tenant base includes primarily national and regional
supermarkets, drug stores, discount department stores and other retailers and,
consequently, the credit risk is concentrated in the retail industry. There
were no tenants that individually represented 10% or more of the Company's
combined minimum rent.

10. Contingencies

   The Company, like others in the commercial real estate industry, is subject
to numerous environmental laws and regulations. The operation of dry cleaning
plants at the Company's shopping centers is the principal environmental
concern. The Company believes that the tenants who operate these plants do so
in accordance with current laws and regulations and has established procedures
to monitor their operations. Additionally, the Company uses all legal means to
cause tenants to remove dry cleaning plants from its shopping centers. Where
available, the Company has applied and been accepted into state-sponsored
environmental programs. The Company has a blanket environmental insurance
policy that covers it against third party liabilities and

                                      102

<PAGE>

                          REGENCY CENTERS CORPORATION

            Notes to Consolidated Financial Statements--(Continued)

                               December 31, 2001


10. Contingencies (continued)

remediation costs on shopping centers that currently have no known
environmental contamination. The Company has also placed environmental
insurance on specific properties with known contamination in order to mitigate
its environmental risk. Management believes that the ultimate disposition of
currently known environmental matters will not have a material effect on the
financial position, liquidity, or operations of the Company. At December 31,
2001 and 2000, the Company had recorded environmental liabilities of $1.8
million and $2.1 million, respectively.

11. Market and Dividend Information (Unaudited)

   The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "REG". The Company currently has approximately 3,500
shareholders. The following table sets forth the high and low prices and the
cash dividends declared on the Company's common stock by quarter for 2001 and
2000:

<TABLE>
<CAPTION>
                               2001                      2000
                    -------------------------- -------------------------



       -                               Cash                      Cash
       Quarter       High      Low   Dividends  High     Low   Dividends
        Ended        Price    Price  Declared   Price   Price  Declared
        ----        -------- ------- --------- ------- ------- ---------
       <S>          <C>      <C>     <C>       <C>     <C>     <C>
       March 31.... $25.0000 22.6250    .50    20.9375 18.3125    .48
       June 30.....  25.5600 23.0000    .50    23.7500 19.2500    .48
       September 30  26.3500 22.7200    .50    24.0000 21.2500    .48
       December 31.  27.7500 24.5100    .50    24.0625 20.7500    .48
</TABLE>

12. Summary of Quarterly Financial Data (Unaudited)

   Presented below is a summary of the consolidated quarterly financial data
for the years ended December 31, 2001 and 2000 (amounts in thousands, except
per share data):

<TABLE>
<CAPTION>
                                             First  Second   Third  Fourth
                                            Quarter Quarter Quarter Quarter
                                            ------- ------- ------- -------
     <S>                                    <C>     <C>     <C>     <C>
     2001:
     Revenues.............................. $92,992 95,271  97,717  102,570
        Net income for common stockholders.  22,412 23,405  26,106   25,776
     Net income per share:
        Basic..............................     .39    .41     .45      .45
        Diluted............................     .39    .41     .45      .45
     2000:
     Revenues.............................. $81,202 86,263  92,638  101,480
        Net income for common stockholders.  21,621 15,418  23,881   23,874
     Net income per share:
        Basic..............................     .38    .27     .42      .42
        Diluted............................     .38    .27     .42      .42
</TABLE>

                                      103

<PAGE>

                         Independent Auditors' Report
                        On Financial Statement Schedule

The Shareholders and Board of Directors
Regency Centers Corporation

   Under date of January 31, 2002, we reported on the consolidated balance
sheets of Regency Centers Corporation and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2001. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.

   In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

                                          KPMG LLP

Jacksonville, Florida
January 31, 2002

                                      104

<PAGE>

                          REGENCY CENTERS CORPORATION

       SCHEDULE III -- Combined Real Estate and Accumulated Depreciation
                               December 31, 2001

<TABLE>
<CAPTION>
                                       Initial Cost                                               Total Cost
                                 ------------------------- Cost Capitalized -----------------------------------------
                                              Building &    Subsequent to                Building &   Properties held
                                    Land     Improvements    Acquisition       Land     Improvements     for Sale
                                 ----------- ------------- ---------------- ----------- ------------- ---------------
<S>    <C>                       <C>         <C>           <C>              <C>         <C>           <C>
     7 ANASTASIA SHOPPING PLAZA    1,072,451     3,617,493       368,141      1,072,451     3,985,634            --
   600 ARAPAHO VILLAGE               837,148     8,031,688       277,463        837,148     8,309,151            --
   200 ASHFORD PLACE               2,803,998     9,943,994      (403,272)     2,583,998     9,760,722            --
    71 AVENTURA SHOPPING CENTER    2,751,094     9,317,790       549,869      2,751,094     9,867,659            --
   505 BECKETT COMMONS             1,625,242     5,844,871     2,351,281      1,625,242     8,196,152            --
   166 BENEVA                      2,483,547     8,851,199       342,568      2,483,547     9,193,767            --
   506 BENT TREE PLAZA             1,927,712     6,659,082        10,197      1,927,712     6,669,279            --
    51 BERKSHIRE COMMONS           2,294,960     8,151,236       186,294      2,294,960     8,337,530            --
   185 BETHANY PARK PLACE          4,604,877     5,791,750           325      4,604,877     5,792,075            --
   150 BLOOMINGDALE                3,861,759    14,100,891       409,899      3,861,759    14,510,790            --
   625 BLOSSOM VALLEY              7,803,568    10,320,913       164,465      7,803,568    10,485,378            --
    52 BOLTON PLAZA                2,660,227     6,209,110     1,512,090      2,634,664     7,746,763            --
    69 BONNERS POINT                 859,854     2,878,641       259,800        859,854     3,138,441            --
   619 BOULEVARD CENTER            3,659,040     9,658,227       417,212      3,659,040    10,075,439            --
   147 BOYNTON LAKES PLAZA         2,783,000    10,043,027     1,323,853      2,783,000    11,366,880            --
   202 BRIARCLIFF LA VISTA           694,120     2,462,819       611,727        694,120     3,074,546            --
   203 BRIARCLIFF VILLAGE          4,597,018    16,303,813     7,877,881      4,597,018    24,181,694            --
   666 BRISTOL WARNER              5,000,000    11,997,016       681,343      5,000,000    12,678,359            --
   508 BROOKVILLE PLAZA            1,208,012     4,205,994    (5,414,006)            --            --            --
   204 BUCKHEAD COURT              1,737,569     6,162,941     1,722,211      1,627,569     7,995,152            --
   621 BUCKLEY SQUARE              2,970,000     5,126,240        54,342      2,970,000     5,180,582            --
   133 CAMBRIDGE SQUARE              792,000     2,916,034     1,346,535        792,000     4,262,569            --
   139 CARMEL COMMONS              2,466,200     8,903,187     2,059,224      2,466,200    10,962,411            --
    54 CARRIAGE GATE                 740,960     2,494,750     1,699,361        740,960     4,194,111            --
   610 CASA LINDA PLAZA            4,515,000    30,809,330       201,630      4,515,000    31,010,960            --
   684 CASCADE PLAZA               3,023,165    10,694,460   (13,717,625)            --            --            --
    48 CENTER OF SEVEN SPRINGS     1,737,994     6,290,048    (2,204,701)            --            --     5,823,341
   614 CHAMPIONS FOREST            2,665,875     8,678,603       107,282      2,665,875     8,785,885            --
    82 CHASEWOOD PLAZA             1,675,000    11,390,727     6,411,513      2,476,486    17,000,754            --
   501 CHERRY GROVE                3,533,146    12,710,297     1,978,777      3,533,146    14,689,074            --
   663 CHERRY PARK MARKET          2,400,000    16,162,934       482,700      2,400,000    16,645,634            --
   519 CHEYENNE MEADOWS            1,601,425     7,700,084        59,705      1,601,425     7,759,789            --
    13 CITY VIEW SHOPPING CENTER   1,207,204     4,341,304       118,113      1,207,204     4,459,417            --
    90 COLUMBIA MARKETPLACE        1,280,158     4,285,745       524,243      1,280,158     4,809,988            --
   601 COOPER STREET               2,078,891    10,682,189        38,749      2,078,891    10,720,938            --
   649 COSTA VERDE                12,740,000    25,261,188       333,894     12,740,000    25,595,082            --
    63 COUNTRY CLUB                1,105,201     3,709,452       220,323      1,105,201     3,929,775            --
   628 COUNTRY CLUB CALIF          3,000,000    11,657,200       103,854      3,000,000    11,761,054            --
    76 COURTYARD SHOPPING CENTER   1,761,567     4,187,039       (82,028)     5,866,578            --            --
   167 CREEKSIDE PHASE II            390,802     1,397,415       380,052        370,527     1,797,742            --
</TABLE>
<TABLE>
<CAPTION>
                          of
                     Accumulated
                     Accumulated   Depreciation
           Total     Depreciation --------------  Mortgages
       ------------- ------------  -----------
<S>    <C>           <C>          <C>            <C>
     7     5,058,085     985,316      4,072,769           --
   600     9,146,299     625,602      8,520,697           --
   200    12,344,720   1,610,832     10,733,888    4,318,762
    71    12,618,753   3,622,355      8,996,398    8,166,259
   505     9,821,394     699,398      9,121,996           --
   166    11,677,314     736,611     10,940,703           --
   506     8,596,991     709,437      7,887,554    5,316,054
    51    10,632,490   1,779,484      8,853,006           --
   185    10,396,952     877,834      9,519,118
   150    18,372,549   1,482,799     16,889,750           --
   625    18,288,946     767,653     17,521,293           --
    52    10,381,427   1,667,430      8,713,997           --
    69     3,998,295     859,865      3,138,430           --
   619    13,734,479     719,394     13,015,085           --
   147    14,149,880   1,129,736     13,020,144           --
   202     3,768,666     592,827      3,175,839           --
   203    28,778,712   3,243,674     25,535,038   12,739,215
   666    17,678,359     920,238     16,758,121           --
   508            --          --             --           --
   204     9,622,721   1,185,065      8,437,656           --
   621     8,150,582     447,830      7,702,752           --
   133     5,054,569     472,367      4,582,202           --
   139    13,428,611   1,323,070     12,105,541           --
    54     4,935,071   1,259,905      3,675,166           --
   610    35,525,960   2,283,316     33,242,644           --
   684            --          --             --           --
    48     5,823,341          --      5,823,341           --
   614    11,451,760     635,956     10,815,804           --
    82    19,477,240   4,316,371     15,160,869           --
   501    18,222,220   1,360,415     16,861,805           --
   663    19,045,634   1,377,522     17,668,112           --
   519     9,361,214     622,644      8,738,570
    13     5,666,621     629,587      5,037,034           --
    90     6,090,146   1,125,585      4,964,561           --
   601    12,799,829     777,596     12,022,233           --
   649    38,335,082   2,339,385     35,995,697           --
    63     5,034,976     921,044      4,113,932           --
   628    14,761,054     842,506     13,918,548           --
    76     5,866,578          --      5,866,578           --
   167     2,168,269      62,093      2,106,176
</TABLE>

                                      105

<PAGE>

                          REGENCY CENTERS CORPORATION

       SCHEDULE III -- Combined Real Estate and Accumulated Depreciation
                               December 31, 2001

<TABLE>
<CAPTION>
                                        Initial Cost                                         Total Cost
                                  ------------------------- Cost Capitalized -----------------------------------------
                                               Building &    Subsequent to                Building &   Properties held
                                     Land     Improvements    Acquisition       Land     Improvements     for Sale
                                  ----------- ------------- ---------------- ----------- ------------- ---------------
<S>                               <C>         <C>           <C>              <C>         <C>           <C>
205 CROMWELL SQUARE                1,771,892     6,285,288       435,854      1,771,892     6,721,142            --
673 CROSSROADS                     3,513,903     2,595,055            --      3,513,903     2,595,055            --
206 CUMMING 400                    2,374,562     8,420,776       669,944      2,374,562     9,090,720            --
149 DELK SPECTRUM                  2,984,577    11,048,896        39,927      2,984,577    11,088,823            --
160 DELL RANGE                     2,209,280     8,439,212            --      2,209,280     8,439,212
635 DIABLO PLAZA                   5,300,000     7,535,866       270,586      5,300,000     7,806,452            --
219 DUNWOODY HALL                  1,819,209     6,450,922     5,163,877      2,521,838    10,912,170            --
215 DUNWOODY VILLAGE               2,326,063     7,216,045     2,556,687      2,326,063     9,772,732            --
502 EAST POINTE                    1,868,120     6,742,983     1,000,605      2,634,366     6,977,342            --
 89 EAST PORT PLAZA                3,257,023    11,611,363    (1,910,245)            --            --    12,958,141
639 EL CAMINO                      7,600,000    10,852,428       365,611      7,600,000    11,218,039            --
648 EL NORTE PARKWAY PLA           2,833,510     6,332,078       115,592      2,833,510     6,447,670            --
629 ENCINA GRANDE                  5,040,000    10,378,539       175,081      5,040,000    10,553,620            --
216 ENSLEY SQUARE                    915,493     3,120,928      (978,912)       915,493     2,142,016            --
510 EVANS CROSSING                 1,468,743     5,123,617     1,563,158      1,696,319     6,459,199            --
154 FLEMING ISLAND                 3,076,701     6,291,505     3,780,320      3,076,701    10,071,825            --
500 FRANKLIN SQUARE                2,584,025     9,379,749     1,670,400      2,584,025    11,050,149            --
650 FRIARS MISSION                 6,660,000    27,276,992        55,244      6,660,000    27,332,236            --
161 FRISCO PRESTONBROOK            4,703,516    10,761,732       219,502      4,409,509    11,275,241            --
145 GARDEN SQUARE                  2,073,500     7,614,748       506,090      2,136,135     8,058,203            --
156 GARNER FESTIVAL                5,591,099    19,897,197     1,795,998      5,591,099    21,693,195            --
207 GLENWOOD VILLAGE               1,194,198     4,235,476       258,767      1,194,198     4,494,243            --
170 HAMPSTEAD VILLAGE              2,769,901     6,379,103     1,081,711      3,844,152     6,386,563            --
665 HANCOCK                        8,231,581    24,248,620     1,354,290      8,231,581    25,602,910            --
226 HARPETH VILLAGE FIELDSTONE     2,283,874     5,559,498     3,746,115      2,283,874     9,305,613            --
606 HARWOOD HILLS VILLAGE          2,852,704     8,996,133       402,233      2,852,704     9,398,366            --
674 HEBRON PARK                    1,887,281     5,375,951    (7,263,232)            --            --            --
687 HERITAGE LAND                 12,390,000            --            --     12,390,000            --            --
644 HERITAGE PLAZA                        --    23,675,957       728,785             --    24,404,742            --
152 HIGHLAND SQUARE                2,615,250     9,359,722     9,690,217      3,375,950    18,289,239            --
608 HILLCREST VILLAGE              1,600,000     1,797,686        18,506      1,600,000     1,816,192            --
695 HILLSBORO MARKET CENTER          260,420     2,982,137            --        260,420     2,982,137
159 HINSDALE LAKE COMMONS          4,217,840    15,039,854     1,674,017      5,729,008    15,202,703            --
141 HYDE PARK                      9,240,000    33,340,181     2,958,552      9,735,102    35,803,631            --
659 INGLEWOOD PLAZA                1,300,000     1,862,406       161,567      1,300,000     2,023,973            --
680 JAMES CENTER                   2,706,000     9,451,497     7,483,181             --            --    19,640,678
675 KELLER TOWN CENTER             2,293,527    12,239,464            --      2,293,527    12,239,464
512 KERNERSVILLE PLAZA             1,741,562     6,081,020       538,639      1,741,562     6,619,659            --
</TABLE>
<TABLE>
<CAPTION>
                                   Total Cost
                                   ----------                 Total Cost
                                                                Net of
                                               Accumulated   Accumulated
                                      Total    Depreciation  Depreciation  Mortgages
                                   ----------  ------------  ------------  ---------
<S>                                <C>         <C>           <C>           <C>
205 CROMWELL SQUARE                 8,493,034   1,020,353      7,472,681          --
673 CROSSROADS                      6,108,958     183,671      5,925,287          --
206 CUMMING 400                    11,465,282   1,379,048     10,086,234   6,190,464
149 DELK SPECTRUM                  14,073,400   1,166,958     12,906,442   9,791,165
160 DELL RANGE                     10,648,492     143,059     10,505,433
635 DIABLO PLAZA                   13,106,452     594,020     12,512,432          --
219 DUNWOODY HALL                  13,434,008   1,180,916     12,253,092          --
215 DUNWOODY VILLAGE               12,098,795   1,421,066     10,677,729          --
502 EAST POINTE                     9,611,708     771,383      8,840,325   4,962,796
 89 EAST PORT PLAZA                12,958,141          --     12,958,141          --
639 EL CAMINO                      18,818,039     848,828     17,969,211          --
648 EL NORTE PARKWAY PLA            9,281,180     489,417      8,791,763          --
629 ENCINA GRANDE                  15,593,620     789,322     14,804,298          --
216 ENSLEY SQUARE                   3,057,509     578,240      2,479,269          --
510 EVANS CROSSING                  8,155,518     613,679      7,541,839   4,041,163
154 FLEMING ISLAND                 13,148,526     667,628     12,480,898   3,142,069
500 FRANKLIN SQUARE                13,634,174   1,252,462     12,381,712   8,649,850
650 FRIARS MISSION                 33,992,236   1,934,662     32,057,574  17,097,838
161 FRISCO PRESTONBROOK            15,684,750     739,191     14,945,559          --
145 GARDEN SQUARE                  10,194,338     884,785      9,309,553   6,148,357
156 GARNER FESTIVAL                27,284,294   1,741,441     25,542,853          --
207 GLENWOOD VILLAGE                5,688,441     708,683      4,979,758   1,920,636
170 HAMPSTEAD VILLAGE              10,230,715     581,821      9,648,894   9,249,885
665 HANCOCK                        33,834,491   1,930,526     31,903,965          --
226 HARPETH VILLAGE FIELDSTONE     11,589,487     918,660     10,670,827          --
606 HARWOOD HILLS VILLAGE          12,251,070     669,212     11,581,858          --
674 HEBRON PARK                            --          --             --          --
687 HERITAGE LAND                  12,390,000          --     12,390,000          --
644 HERITAGE PLAZA                 24,404,742   1,806,545     22,598,197          --
152 HIGHLAND SQUARE                21,665,189   1,433,911     20,231,278   3,592,844
608 HILLCREST VILLAGE               3,416,192     131,670      3,284,522          --
695 HILLSBORO MARKET CENTER         3,242,557      14,638      3,227,919
159 HINSDALE LAKE COMMONS          20,931,711   1,197,523     19,734,188          --
141 HYDE PARK                      45,538,733   4,186,556     41,352,177          --
659 INGLEWOOD PLAZA                 3,323,973     151,232      3,172,741          --
680 JAMES CENTER                   19,640,678          --     19,640,678   5,361,068
675 KELLER TOWN CENTER             14,532,991     584,375     13,948,616          --
512 KERNERSVILLE PLAZA              8,361,221     618,230      7,742,991   4,983,220
</TABLE>

                                      106

<PAGE>

                          REGENCY CENTERS CORPORATION

       SCHEDULE III -- Combined Real Estate and Accumulated Depreciation
                               December 31, 2001

<TABLE>
<CAPTION>
                                       Initial Cost                                         Total Cost
                                  ------------------------- Cost Capitalized -----------------------------------------
                                               Building &    Subsequent to                Building &   Properties held
                                     Land     Improvements    Acquisition       Land     Improvements     for Sale
                                  ----------- ------------- ---------------- ----------- ------------- ---------------
<S>                               <C>         <C>           <C>              <C>         <C>           <C>
168 KINGS CROSSING (SUN CITY)      2,349,602     4,599,101    (6,948,703)            --            --            --
146 KINGSDALE SHOPPING CENTER      3,866,500    14,019,614     5,404,459      4,027,691    19,262,882            --
 68 LAGRANGE MARKETPLACE             983,923     3,294,003       133,933        983,923     3,427,936            --
652 LAKE MERIDIAN                  6,510,000    12,121,889       347,623      6,510,000    12,469,512            --
515 LAKE PINE PLAZA                2,008,110     6,908,986       612,580      2,008,110     7,521,566            --
509 LAKESHORE                      1,617,940     5,371,499        66,583      1,617,940     5,438,082            --
620 LEETSDALE MARKETPLACE          3,420,000     9,933,701        13,863      3,420,000     9,947,564            --
622 LITTLETON SQUARE               2,030,000     8,254,964        23,083      2,030,000     8,278,047            --
520 LLOYD KING CENTER              1,779,180     8,854,803         9,180      1,779,180     8,863,983            --
218 LOEHMANNS PLAZA                3,981,525    14,117,891       879,247      3,981,525    14,997,138            --
634 LOEHMANNS PLAZA CALIFORNIA     5,420,000     8,679,135       207,069      5,420,000     8,886,204            --
143 LOVEJOY STATION                1,540,000     5,581,468        64,667      1,540,000     5,646,135            --
 73 LUCEDALE MARKETPLACE             641,565     2,147,848       140,567        641,565     2,288,415            --
677 MACARTHUR PARK PHASE I         3,915,848     6,837,889        (2,943)            --            --    10,750,794
140 MAINSTREET SQUARE              1,274,027     4,491,897       142,530      1,274,027     4,634,427            --
135 MARINERS VILLAGE               1,628,000     5,907,835       280,730      1,628,000     6,188,565            --
613 MARKET AT PRESTON FOREST       4,400,000    10,752,712         3,919      4,400,000    10,756,631            --
615 MARKET AT ROUND ROCK           2,000,000     9,676,170        73,226      2,000,000     9,749,396            --
112 MARKETPLACE ST PETE            1,287,000     4,662,740       376,599      1,287,000     5,039,339            --
 84 MARTIN DOWNS VILLAGE
    CENTER                         2,000,000     5,133,495     3,254,391      2,437,664     7,950,222            --
 85 MARTIN DOWNS VILLAGE
    SHOPPES                          700,000     1,207,861     3,361,188        817,135     4,451,914            --
503 MAXTOWN ROAD (NORTHGATE)       1,753,136     6,244,449        39,547      1,753,136     6,283,996            --
513 MAYNARD CROSSING               4,066,381    14,083,800     1,273,501      4,066,381    15,357,301            --
221 MEMORIAL BEND SHOPPING
    CENTER                         3,256,181    11,546,660     2,406,868      3,366,181    13,843,528            --
223 MERCHANTS VILLAGE              1,054,306     3,162,919    (4,217,225)            --            --            --
 43 MILLHOPPER                     1,073,390     3,593,523     1,331,752      1,073,390     4,925,275            --
612 MILLS POINTE                   2,000,000    11,919,176        38,183      2,000,000    11,957,359            --
609 MOCKINGBIRD COMMON             3,000,000     9,675,600       264,338      3,000,000     9,939,938            --
186 MONUMENT JACKSON CREEK         2,999,482     6,476,151            --      2,999,482     6,476,151            --
645 MORNINGSIDE PLAZA              4,300,000    13,119,929       125,291      4,300,000    13,245,220            --
662 MURRAYHILL MARKETPLACE         2,600,000    15,753,034     1,334,443      2,600,000    17,087,477            --
157 NASHBORO                       1,824,320     7,167,679       432,712      1,824,320     7,600,391            --
 20 NEWBERRY SQUARE                2,341,460     8,466,651     1,240,970      2,341,460     9,707,621            --
647 NEWLAND CENTER                12,500,000    12,221,279       541,367     12,500,000    12,762,646            --
616 NORTH HILLS                    4,900,000    18,972,202       106,034      4,900,000    19,078,236            --
 19 NORTH MIAMI SHOPPING
    CENTER                           603,750     2,021,250    (2,625,000)            --            --            --
197 NORTHLAKE VILLAGE I            2,662,000     9,684,740       293,747      2,662,000     9,978,487            --
</TABLE>
<TABLE>
<CAPTION>
                                     Total Cost
                                     ----------                 Total Cost
                                                                  Net of
                                                 Accumulated   Accumulated
                                        Total    Depreciation  Depreciation  Mortgages
                                     ----------  ------------  ------------  ---------
<S>                                  <C>         <C>           <C>           <C>
168 KINGS CROSSING (SUN CITY)                --          --             --           --
146 KINGSDALE SHOPPING CENTER        23,290,573   1,948,992     21,341,581           --
 68 LAGRANGE MARKETPLACE              4,411,859     824,120      3,587,739           --
652 LAKE MERIDIAN                    18,979,512     933,082     18,046,430           --
515 LAKE PINE PLAZA                   9,529,676     710,671      8,819,005    5,668,646
509 LAKESHORE                         7,056,022     549,356      6,506,666    3,531,287
620 LEETSDALE MARKETPLACE            13,367,564     729,707     12,637,857           --
622 LITTLETON SQUARE                 10,308,047     589,030      9,719,017           --
520 LLOYD KING CENTER                10,643,163     703,255      9,939,908
218 LOEHMANNS PLAZA                  18,978,663   2,363,132     16,615,531           --
634 LOEHMANNS PLAZA CALIFORNIA       14,306,204     676,418     13,629,786           --
143 LOVEJOY STATION                   7,186,135     644,494      6,541,641           --
 73 LUCEDALE MARKETPLACE              2,929,980     574,039      2,355,941           --
677 MACARTHUR PARK PHASE I           10,750,794          --     10,750,794           --
140 MAINSTREET SQUARE                 5,908,454     580,678      5,327,776           --
135 MARINERS VILLAGE                  7,816,565     791,621      7,024,944           --
613 MARKET AT PRESTON FOREST         15,156,631     762,464     14,394,167           --
615 MARKET AT ROUND ROCK             11,749,396     711,944     11,037,452    7,022,217
112 MARKETPLACE ST PETE               6,326,339     806,247      5,520,092           --
 84 MARTIN DOWNS VILLAGE
    CENTER                           10,387,886   2,076,058      8,311,828           --
 85 MARTIN DOWNS VILLAGE
    SHOPPES                           5,269,049   1,039,953      4,229,096           --
503 MAXTOWN ROAD (NORTHGATE)          8,037,132     616,507      7,420,625    5,114,262
513 MAYNARD CROSSING                 19,423,682   1,436,762     17,986,920   11,183,540
221 MEMORIAL BEND SHOPPING
    CENTER                           17,209,709   2,231,257     14,978,452    7,533,729
223 MERCHANTS VILLAGE                        --          --             --           --
 43 MILLHOPPER                        5,998,665   1,583,607      4,415,058           --
612 MILLS POINTE                     13,957,359     877,373     13,079,986           --
609 MOCKINGBIRD COMMON               12,939,938     750,108     12,189,830           --
186 MONUMENT JACKSON CREEK            9,475,633     576,180      8,899,453           --
645 MORNINGSIDE PLAZA                17,545,220     985,423     16,559,797           --
662 MURRAYHILL MARKETPLACE           19,687,477   1,254,341     18,433,136    7,810,800
157 NASHBORO                          9,424,711     539,353      8,885,358
 20 NEWBERRY SQUARE                  12,049,081   2,324,964      9,724,117           --
647 NEWLAND CENTER                   25,262,646   1,015,110     24,247,536           --
616 NORTH HILLS                      23,978,236   1,363,705     22,614,531    8,080,012
 19 NORTH MIAMI SHOPPING
    CENTER                                   --          --             --           --
197 NORTHLAKE VILLAGE I              12,640,487     313,863     12,326,624    6,766,369
</TABLE>

                                      107

<PAGE>

                          REGENCY CENTERS CORPORATION

       SCHEDULE III -- Combined Real Estate and Accumulated Depreciation
                               December 31, 2001

<TABLE>
<CAPTION>

                                       Initial Cost                                         Total Cost
                                  ------------------------- Cost Capitalized -----------------------------------------
                                               Building &    Subsequent to                Building &   Properties held
                                     Land     Improvements    Acquisition       Land     Improvements     for Sale
                                  ----------- ------------- ---------------- ----------- ------------- ---------------
<S>                               <C>         <C>           <C>              <C>         <C>           <C>
602 NORTHVIEW PLAZA               1,956,961     8,694,879        57,767      1,956,961     8,752,646            --
642 OAKBROOK PLAZA                4,000,000     6,365,704       102,001      4,000,000     6,467,705            --
138 OAKLEY PLAZA                  1,772,540     6,406,975    (8,179,515)            --            --            --
 86 OCEAN BREEZE                  1,250,000     3,341,199     2,582,099      1,527,400     5,645,898            --
134 OLD ST AUGUSTINE PLAZA        2,047,151     7,355,162     1,132,261      2,047,151     8,487,423            --
  9 ORCHARD SQUARE                1,155,000     4,135,353     3,470,484      1,423,610     7,337,227            --
209 PACES FERRY PLAZA             2,811,522     9,967,557     2,180,459      2,811,622    12,147,916            --
 80 PALM HARBOUR SHOPPING
    VILLAGE                       2,899,928    10,998,230     1,456,006      2,924,399    12,429,765            --
 50 PALM TRAILS PLAZA             2,438,996     5,818,523       (25,160)     2,218,233     6,014,126            --
164 PARK PLACE                    2,231,745     7,974,362       142,820      2,231,745     8,117,182            --
 17 PARKWAY STATION               1,123,200     4,283,917       394,689      1,123,200     4,678,606            --
617 PASEO VILLAGE                 2,550,000     7,780,102       458,467      2,550,000     8,238,569            --
 66 PEACHLAND PROMENADE           1,284,562     5,143,564       199,275      1,284,561     5,342,840            --
224 PEARTREE VILLAGE              5,196,653     8,732,711    10,768,493      5,196,653    19,501,204            --
155 PIKE CREEK                    5,077,406    18,860,183     1,101,996      5,077,406    19,962,179            --
618 PIMA CROSSING                 5,800,000    24,891,690       206,172      5,800,000    25,097,862            --
657 PINE LAKE VILLAGE             6,300,000    10,522,041        73,571      6,300,000    10,595,612            --
148 PINE TREE PLAZA                 539,000     1,995,927     3,472,330        539,000     5,468,257            --
638 PLAZA DE HACIENDA             4,230,000    11,741,933       140,533      4,230,000    11,882,466            --
640 PLAZA HERMOSA                 4,200,000     9,369,630       181,516      4,200,000     9,551,146            --
539 POWELL STREET PLAZA           8,247,800    29,279,275            --      8,247,800    29,279,275
222 POWERS FERRY SQUARE           3,607,647    12,790,749     4,292,933      3,607,647    17,083,682            --
210 POWERS FERRY VILLAGE          1,190,822     4,223,606       287,187      1,190,822     4,510,793            --
611 PRESTON PARK                  6,400,000    46,896,071     1,223,920      6,400,000    48,119,991            --
165 QUEENSBOROUGH                 1,826,000     6,501,056      (798,632)     1,163,021     6,365,403            --
636 REDONDO VILLAGE CENTER               --            --        24,752             --        24,752            --
211 REGENCY COURT                 3,571,337    12,664,014    (1,683,798)            --            --    14,551,553
 18 REGENCY SQUARE BRANDON          577,975    18,156,719    11,032,638      4,414,611    25,352,721            --
603 RIDGLEA PLAZA                 1,675,498    12,912,138       128,081      1,675,498    13,040,219            --
144 RIVERMONT STATION             2,887,213    10,445,109       118,455      2,887,213    10,563,564            --
646 RONA PLAZA                    1,500,000     4,356,480        15,370      1,500,000     4,371,850            --
 70 RUSSELL RIDGE                 2,153,214            --     6,642,188      2,215,341     6,580,061            --
658 SAMMAMISH HIGHLAND            9,300,000     7,553,288       100,306      9,300,000     7,653,594            --
693 SAN FERNANDO VALUE SQUARE     2,448,407     8,765,266   (11,213,673)            --            --            --
632 SAN LEANDRO                   1,300,000     7,891,091       131,293      1,300,000     8,022,384            --
 91 SANDY PLAINS VILLAGE          2,906,640    10,412,440     1,757,906      2,906,640    12,170,346            --
212 SANDY SPRINGS VILLAGE           733,126     2,565,411     1,112,061        733,126     3,677,472            --
643 SANTA ANA DOWTOWN             4,240,000     7,319,468       786,842      4,240,000     8,106,310            --
633 SEQUOIA STATION               9,100,000    17,899,819       101,824      9,100,000    18,001,643            --
</TABLE>
<TABLE>
<CAPTION>

                                    Total Cost
                                    ----------                 Total Cost
                                                                 Net of
                                                Accumulated   Accumulated
                                       Total    Depreciation  Depreciation  Mortgages
                                    ----------  ------------  ------------  ---------
<S>                                 <C>         <C>           <C>           <C>
602 NORTHVIEW PLAZA                 10,709,607     635,643     10,073,964           --
642 OAKBROOK PLAZA                  10,467,705     534,638      9,933,067           --
138 OAKLEY PLAZA                            --          --             --           --
 86 OCEAN BREEZE                     7,173,298   1,514,254      5,659,044           --
134 OLD ST AUGUSTINE PLAZA          10,534,574   1,292,505      9,242,069           --
  9 ORCHARD SQUARE                   8,760,837     794,319      7,966,518           --
209 PACES FERRY PLAZA               14,959,538   1,810,860     13,148,678           --
 80 PALM HARBOUR SHOPPING
    VILLAGE                         15,354,164   1,732,094     13,622,070           --
 50 PALM TRAILS PLAZA                8,232,359     565,480      7,666,879           --
164 PARK PLACE                      10,348,927     658,243      9,690,684           --
 17 PARKWAY STATION                  5,801,806     718,760      5,083,046           --
617 PASEO VILLAGE                   10,788,569     607,828     10,180,741           --
 66 PEACHLAND PROMENADE              6,627,401   1,050,775      5,576,626    3,910,006
224 PEARTREE VILLAGE                24,697,857   2,286,725     22,411,132   12,239,230
155 PIKE CREEK                      25,039,585   1,816,360     23,223,225   11,766,607
618 PIMA CROSSING                   30,897,862   1,805,889     29,091,973           --
657 PINE LAKE VILLAGE               16,895,612     760,474     16,135,138           --
148 PINE TREE PLAZA                  6,007,257     458,052      5,549,205           --
638 PLAZA DE HACIENDA               16,112,466     866,487     15,245,979    6,405,084
640 PLAZA HERMOSA                   13,751,146     696,825     13,054,321           --
539 POWELL STREET PLAZA             37,527,075      60,999     37,466,076
222 POWERS FERRY SQUARE             20,691,329   2,461,616     18,229,713           --
210 POWERS FERRY VILLAGE             5,701,615     686,887      5,014,728    2,813,847
611 PRESTON PARK                    54,519,991   3,370,687     51,149,304           --
165 QUEENSBOROUGH                    7,528,424     466,740      7,061,684           --
636 REDONDO VILLAGE CENTER              24,752          --         24,752           --
211 REGENCY COURT                   14,551,553          --     14,551,553           --
 18 REGENCY SQUARE BRANDON          29,767,332   8,212,053     21,555,279           --
603 RIDGLEA PLAZA                   14,715,717     986,775     13,728,942           --
144 RIVERMONT STATION               13,450,777   1,214,816     12,235,961           --
646 RONA PLAZA                       5,871,850     312,236      5,559,614           --
 70 RUSSELL RIDGE                    8,795,402   1,198,436      7,596,966    5,783,932
658 SAMMAMISH HIGHLAND              16,953,594     559,557     16,394,037           --
693 SAN FERNANDO VALUE SQUARE               --          --             --           --
632 SAN LEANDRO                      9,322,384     591,773      8,730,611           --
 91 SANDY PLAINS VILLAGE            15,076,986   1,675,037     13,401,949           --
212 SANDY SPRINGS VILLAGE            4,410,598     659,250      3,751,348           --
643 SANTA ANA DOWTOWN               12,346,310     586,934     11,759,376           --
633 SEQUOIA STATION                 27,101,643   1,280,701     25,820,942           --
</TABLE>

                                      108

<PAGE>

                          REGENCY CENTERS CORPORATION

       SCHEDULE III -- Combined Real Estate and Accumulated Depreciation
                               December 31, 2001

<TABLE>
<CAPTION>

                                       Initial Cost                                         Total Cost
                                  ------------------------- Cost Capitalized -----------------------------------------
                                               Building &    Subsequent to                Building &   Properties held
                                     Land     Improvements    Acquisition       Land     Improvements     for Sale
                                  ----------- ------------- ---------------- ----------- ------------- ---------------
<S>                               <C>         <C>           <C>              <C>         <C>           <C>
  661 SHERWOOD MARKET CENTER     3,475,000    15,897,972        55,348      3,475,000    15,953,320           --
  524 SHILOH PHASE II              288,135     1,822,692      (672,692)       288,135     1,150,000           --
  181 SHILOH SPRINGS             4,968,236     7,859,381            --      4,968,236     7,859,381           --
  153 SHOPPES @ 104              2,651,000     9,523,429       624,818      2,651,000    10,148,247           --
  514 SHOPPES AT MASON           1,576,656     5,357,855            --      1,576,656     5,357,855           --
  151 SILVERLAKE                 2,004,860     7,161,869       127,790      2,004,860     7,289,659           --
   72 SOUTH MONROE               1,200,000     6,566,974    (1,345,539)       874,999     5,546,436           --
  655 SOUTH POINT PLAZA          5,000,000    10,085,995        65,822      5,000,000    10,151,817           --
  158 SOUTH POINTE CROSSING      4,399,303    11,116,491       889,186      4,399,303    12,005,677           --
  653 SOUTHCENTER                1,300,000    12,250,504         5,489      1,300,000    12,255,993           --
  239 SOUTHGATE VILLAGE          1,335,335     5,193,599            --      1,335,335     5,193,599           --
  604 SOUTHPARK                  3,077,667     9,399,976       120,891      3,077,667     9,520,867           --
  517 ST ANN SQUARE              1,541,883     5,597,282        19,817      1,541,883     5,617,099           --
  511 STATLER SQUARE             2,227,819     7,479,952       720,700      2,227,819     8,200,652           --
  626 STRAWFLOWER VILLAGE        4,060,228     7,232,936        74,253      4,060,228     7,307,189           --
  184 STROH RANCH                4,138,423     7,110,856       131,856      4,138,423     7,242,712           --
  664 SUNNYSIDE 205              1,200,000     8,703,281       154,179      1,200,000     8,857,460           --
  542 SWEETWATER PLAZA           4,340,600    15,242,149                    4,340,600    15,242,149           --
  142 TAMIAMI TRAILS             2,046,286     7,462,646       219,996      2,046,286     7,682,642           --
  679 TARRANT PARKWAY VILLAGE    2,202,605     3,953,781            --      2,202,605     3,953,781           --
  627 TASSAJARA CROSSING         8,560,000    14,899,929        91,463      8,560,000    14,991,392           --
   95 TEQUESTA SHOPPES           1,782,000     6,426,042    (2,443,096)            --            --    5,764,946
   42 TERRACE WALK               1,196,286     2,935,683       214,505      1,196,286     3,150,188           --
64/77 THE MARKETPLACE            1,211,605     4,056,242     2,933,975      1,758,434     6,443,388           --
  623 THE PROMENADE              2,526,480    12,712,811   (15,239,291)            --            --           --
  605 THE VILLAGE                  522,313     6,984,992       223,286        522,313     7,208,278           --
  660 THOMAS LAKE                6,000,000    10,301,811         5,304      6,000,000    10,307,115           --
  233 TINWOOD HOTEL SITE         6,942,321            --     1,328,870             --            --    8,271,191
  137 TOWN CENTER AT MARTIN
      DOWNS                      1,364,000     4,985,410        66,314      1,364,000     5,051,724           --
  213 TOWN SQUARE                  438,302     1,555,481     6,258,449        882,895     7,369,337           --
  651 TWIN PEAKS                 5,200,000    25,119,758        89,897      5,200,000    25,209,655           --
   46 UNION SQUARE SHOPPING
      CENTER                     1,578,654     5,933,889       432,411      1,578,656     6,366,298           --
  131 UNIVERSITY COLLECTION      2,530,000     8,971,597       528,645      2,530,000     9,500,242           --
   65 UNIVERSITY MARKETPLACE     3,250,562     7,044,579    (3,845,597)            --            --    6,449,544
  607 VALLEY RANCH CENTRE        3,021,181    10,727,623         1,026      3,021,181    10,728,649           --
  637 VENTURA VILLAGE            4,300,000     6,351,012       103,388      4,300,000     6,454,400           --
  113 VILLAGE CENTER 6           3,885,444    10,799,316       630,294      3,885,444    11,429,610           --
   47 VILLAGE IN TRUSSVILLE        973,954     3,260,627       137,818        973,954     3,398,445           --
</TABLE>
<TABLE>
<CAPTION>


                                   Total Cost
                                   ----------                 Total Cost
                                                                Net of
                                               Accumulated   Accumulated
                                      Total    Depreciation  Depreciation  Mortgages
                                   ----------  ------------  ------------  ---------
<S>                                <C>         <C>           <C>           <C>
  661 SHERWOOD MARKET CENTER       19,428,320   1,199,671     18,228,649           --
  524 SHILOH PHASE II               1,438,135      53,272      1,384,863           --
  181 SHILOH SPRINGS               12,827,617   2,279,856     10,547,761           --
  153 SHOPPES @ 104                12,799,247   1,012,653     11,786,594           --
  514 SHOPPES AT MASON              6,934,511     523,891      6,410,620    3,717,145
  151 SILVERLAKE                    9,294,519     675,478      8,619,041           --
   72 SOUTH MONROE                  6,421,435     552,075      5,869,360           --
  655 SOUTH POINT PLAZA            15,151,817     737,282     14,414,535           --
  158 SOUTH POINTE CROSSING        16,404,980     918,934     15,486,046           --
  653 SOUTHCENTER                  13,555,993     873,078     12,682,915           --
  239 SOUTHGATE VILLAGE             6,528,934      61,866      6,467,068    5,413,857
  604 SOUTHPARK                    12,598,534     677,432     11,921,102           --
  517 ST ANN SQUARE                 7,158,982     751,822      6,407,160    4,625,224
  511 STATLER SQUARE               10,428,471     847,462      9,581,009    5,213,128
  626 STRAWFLOWER VILLAGE          11,367,417     546,548     10,820,869           --
  184 STROH RANCH                  11,381,135     628,569     10,752,566           --
  664 SUNNYSIDE 205                10,057,460     650,921      9,406,539           --
  542 SWEETWATER PLAZA             19,582,749      31,754     19,550,995           --
  142 TAMIAMI TRAILS                9,728,928     902,133      8,826,795           --
  679 TARRANT PARKWAY VILLAGE       6,156,386     168,204      5,988,182
  627 TASSAJARA CROSSING           23,551,392   1,070,078     22,481,314           --
   95 TEQUESTA SHOPPES              5,764,946          --      5,764,946           --
   42 TERRACE WALK                  4,346,474     877,742      3,468,732           --
64/77 THE MARKETPLACE               8,201,822   1,419,527      6,782,295    2,067,448
  623 THE PROMENADE                        --          --             --           --
  605 THE VILLAGE                   7,730,591     528,151      7,202,440           --
  660 THOMAS LAKE                  16,307,115     732,107     15,575,008           --
  233 TINWOOD HOTEL SITE            8,271,191          --      8,271,191           --
  137 TOWN CENTER AT MARTIN
      DOWNS                         6,415,724     651,384      5,764,340           --
  213 TOWN SQUARE                   8,252,232     423,337      7,828,895           --
  651 TWIN PEAKS                   30,409,655   1,835,828     28,573,827           --
   46 UNION SQUARE SHOPPING
      CENTER                        7,944,954     919,720      7,025,234           --
  131 UNIVERSITY COLLECTION        12,030,242   1,259,906     10,770,336           --
   65 UNIVERSITY MARKETPLACE        6,449,544          --      6,449,544           --
  607 VALLEY RANCH CENTRE          13,749,830     785,800     12,964,030           --
  637 VENTURA VILLAGE              10,754,400     460,628     10,293,772           --
  113 VILLAGE CENTER 6             15,315,054   1,851,574     13,463,480           --
   47 VILLAGE IN TRUSSVILLE         4,372,399     838,350      3,534,049           --
</TABLE>

                                      109

<PAGE>

                          REGENCY CENTERS CORPORATION

       SCHEDULE III -- Combined Real Estate and Accumulated Depreciation
                               December 31, 2001

<TABLE>
<CAPTION>


                                       Initial Cost                                         Total Cost
                                  ------------------------- Cost Capitalized -----------------------------------------
                                               Building &    Subsequent to                Building &   Properties held
                                     Land     Improvements    Acquisition       Land     Improvements     for Sale
                                  ----------- ------------- ---------------- ----------- ------------- ---------------
<S>                               <C>         <C>           <C>              <C>         <C>           <C>
    656 WALKER CENTER               3,840,000     6,417,522        72,185      3,840,000     6,489,707            --
    162 WATERFORD TOWNE CENTER      5,650,058     6,843,671     1,413,082      6,336,936     7,569,875            --
     53 WELLEBY                     1,496,000     5,371,636     1,624,219      1,496,000     6,995,855            --
     41 WELLINGTON MARKET PLACE     5,070,384    13,308,972    (2,521,710)            --            --    15,857,646
    132 WELLINGTON TOWN SQUARE      1,914,000     7,197,934       869,261      1,914,000     8,067,195            --
     87 WEST COUNTY                 1,491,462     4,993,155       189,445      1,491,462     5,182,600            --
    667 WEST HILLS                  2,200,000     6,045,233         7,105      2,200,000     6,052,338            --
    630 WEST PARK PLAZA             5,840,225     4,991,746       177,215      5,840,225     5,168,961            --
    236 WESTBROOK COMMONS           3,366,000    11,928,393            --      3,366,000    11,928,393            --
    507 WESTCHESTER PLAZA           1,857,048     6,456,178       674,505      1,857,048     7,130,683            --
671/672 WESTLAKE VILLAGE CENTER     7,042,728    25,744,011       556,267      7,042,728    26,300,278            --
    190 WILLA SPRINGS SHOPPING
        CENTER                      1,779,092     9,266,550            --      1,779,092     9,266,550            --
    516 WINDMILLER PLAZA PHASE I    2,620,355    11,190,526       977,176      2,620,355    12,167,702            --
    136 WOODCROFT SHOPPING CENTER   1,419,000     5,211,981       437,564      1,419,000     5,649,545            --
    641 WOODMAN VAN NUYS            5,500,000     6,835,246       164,801      5,500,000     7,000,047            --
    187 WOODMEN PLAZA               6,014,033    10,077,698            --      6,014,033    10,077,698            --
    631 WOODSIDE CENTRAL            3,500,000     8,845,697        31,755      3,500,000     8,877,452            --
    504 WORTHINGTON PARK CENTRE     3,346,203    10,053,858       947,237      3,346,203    11,001,095            --
        OPERATING BUILD TO SUIT
        PROPERTIES                 17,268,850    38,766,639     2,018,139             --            --    58,053,628
                                  ----------- -------------    ----------    ----------- -------------   -----------
                                  650,855,683 1,923,260,598    99,048,008    600,081,672 1,914,961,155   158,121,462
                                  =========== =============    ==========    =========== =============   ===========
</TABLE>
<TABLE>
<CAPTION>


                                     Total Cost
                                     ----------                 Total Cost
                                                                  Net of
                                                 Accumulated   Accumulated
                                        Total    Depreciation  Depreciation  Mortgages
                                     ----------  ------------  ------------  ---------
<S>                                <C>          <C>          <C>           <C>
    656 WALKER CENTER                10,329,707     474,386      9,855,321           --
    162 WATERFORD TOWNE CENTER       13,906,811     669,237     13,237,574
     53 WELLEBY                       8,491,855   1,352,228      7,139,627           --
     41 WELLINGTON MARKET PLACE      15,857,646          --     15,857,646           --
    132 WELLINGTON TOWN SQUARE        9,981,195   1,143,337      8,837,858           --
     87 WEST COUNTY                   6,674,062   1,317,509      5,356,553           --
    667 WEST HILLS                    8,252,338     428,946      7,823,392    5,087,043
    630 WEST PARK PLAZA              11,009,186     370,982     10,638,204           --
    236 WESTBROOK COMMONS            15,294,393     226,857     15,067,536           --
    507 WESTCHESTER PLAZA             8,987,731     871,730      8,116,001    5,479,343
671/672 WESTLAKE VILLAGE CENTER      33,343,006   2,191,176     31,151,830           --
    190 WILLA SPRINGS SHOPPING
        CENTER                       11,045,642     243,518     10,802,124           --
    516 WINDMILLER PLAZA PHASE I     14,788,057   1,050,857     13,737,200           --
    136 WOODCROFT SHOPPING CENTER     7,068,545     813,495      6,255,050           --
    641 WOODMAN VAN NUYS             12,500,047     499,185     12,000,862    5,515,768
    187 WOODMEN PLAZA                16,091,731   1,030,600     15,061,131           --
    631 WOODSIDE CENTRAL             12,377,452     641,543     11,735,909           --
    504 WORTHINGTON PARK CENTRE      14,347,298   1,211,406     13,135,892    4,628,152
        OPERATING BUILD TO SUIT
        PROPERTIES                   58,053,628   2,880,324     55,173,304    2,650,433
                                  ------------- -----------  -------------  -----------
                                  2,673,164,289 202,325,324  2,470,838,965  265,698,754
                                  ============= ===========  =============  ===========
</TABLE>

                                      110

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholders
Archstone Communities Trust:

   We have audited the accompanying balance sheets of Archstone Communities
Trust as of December 31, 2000 and 1999, and the related statements of earnings,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Archstone Communities Trust
as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.

                                          KPMG LLP

Chicago, Illinois
January 30, 2001, except as to Note 16, which is as of February 28, 2001

                                      111

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                                BALANCE SHEETS

                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                    December 31, December 31,
                                     ASSETS                                             2000         1999
                                     ------                                         ------------ ------------
<S>                                                                                 <C>          <C>
Real estate........................................................................  $5,058,910   $5,086,486
Less accumulated depreciation......................................................     375,672      300,658
                                                                                     ----------   ----------
                                                                                      4,683,238    4,785,828
Investments in and advances to unconsolidated real estate entities.................     229,012      130,845
Mortgage notes receivable, net.....................................................         124      210,357
                                                                                     ----------   ----------
       Net investments.............................................................   4,912,374    5,127,030
Cash and cash equivalents..........................................................       9,077       10,072
Restricted cash in tax-deferred exchange escrow....................................       3,274       68,729
Other assets.......................................................................      94,972       96,606
                                                                                     ----------   ----------
       Total assets................................................................  $5,019,697   $5,302,437
                                                                                     ==========   ==========
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
Liabilities:
   Unsecured credit facilities.....................................................  $  193,719   $  493,536
   Long-Term Unsecured Debt........................................................   1,401,262    1,276,572
   Mortgages payable...............................................................     875,804      694,948
   Dividends payable...............................................................      50,330       53,518
   Accounts payable................................................................      24,029       26,677
   Accrued expenses................................................................      86,334       74,462
   Other liabilities...............................................................      43,276       59,915
                                                                                     ----------   ----------
       Total liabilities...........................................................   2,674,754    2,679,628
                                                                                     ----------   ----------
Minority interest:
   Perpetual preferred units.......................................................      73,187       41,996
   Convertible operating partnership units.........................................      20,150       13,307
                                                                                     ----------   ----------
       Total minority interest.....................................................      93,337       55,303
                                                                                     ----------   ----------
Shareholders' equity:
   Series A Convertible Preferred Shares (3,306,035 shares in 2000 and 3,705,390
     in 1999, liquidation preference of $25 per share).............................      82,651       92,635
   Series B Preferred Shares (4,186,800 shares in 2000 and 4,200,000 shares in
     1999, liquidation preference of $25 per share)................................     104,670      105,000
   Series C Preferred Shares (1,989,200 shares in 2000 and 2,000,000 shares in
     1999, liquidation preference of $25 per share)................................      49,730       50,000
   Series D Preferred Shares (1,992,200 shares in 2000 and 2,000,000 shares in
     1999, liquidation preference of $25 per share)................................      49,805       50,000
   Common Shares (122,838,167 shares in 2000 and 139,008,353 in 1999)..............     122,838      139,008
   Additional paid-in capital......................................................   1,949,270    2,291,026
   Unrealized holding gain.........................................................       2,817          394
   Employee share purchase notes...................................................      (6,764)     (19,170)
   Distributions in excess of net earnings.........................................    (103,411)    (141,387)
                                                                                     ----------   ----------
       Total shareholders' equity..................................................   2,251,606    2,567,506
                                                                                     ----------   ----------
       Total liabilities and shareholders' equity..................................  $5,019,697   $5,302,437
                                                                                     ==========   ==========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      112

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                            STATEMENTS OF EARNINGS

                   (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                                       --------------------------
                                                                         2000     1999     1998
                                                                       -------- -------- --------
<S>                                                                    <C>      <C>      <C>
Revenues:
   Rental revenues.................................................... $688,544 $637,808 $484,539
   Income from unconsolidated real estate entities....................    2,575    2,118       --
   Other income.......................................................   32,115   27,096   29,106
                                                                       -------- -------- --------
                                                                        723,234  667,022  513,645
                                                                       -------- -------- --------
Expenses:
   Rental expenses....................................................  164,391  163,110  130,558
   Rental expenses paid to affiliate..................................    2,409    1,996    2,521
   Real estate taxes..................................................   58,808   52,421   40,681
   Depreciation on real estate investments............................  143,694  132,437   96,337
   Interest expense...................................................  145,173  121,494   83,350
   General and administrative expenses................................   22,434   20,521   13,978
   General and administrative expenses paid to affiliate..............      723    1,635    2,114
   Provision for possible loss on investments.........................    5,200    2,000    4,700
   Other expenses.....................................................    3,936    2,069    4,835
                                                                       -------- -------- --------
                                                                        546,768  497,683  379,074
                                                                       -------- -------- --------
Earnings from operations..............................................  176,466  169,339  134,571
   Less: minority interest--perpetual preferred units.................    5,915      942       --
       minority interest--convertible operating partnership units.....    1,326    1,118      645
   Plus: gains on dispositions of depreciated real estate, net........   93,071   62,093   65,531
                                                                       -------- -------- --------
Earnings before extraordinary items...................................  262,296  229,372  199,457
   Less: extraordinary items--loss on early extinguishment of debt....      911    1,113    1,497
                                                                       -------- -------- --------
Net earnings..........................................................  261,385  228,259  197,960
   Less: Preferred Share dividends....................................   25,340   23,733   20,938
                                                                       -------- -------- --------
Net earnings attributable to Common Shares--Basic..................... $236,045 $204,526 $177,022
                                                                       ======== ======== ========
Weighted average Common Shares outstanding--Basic.....................  131,874  139,801  118,592
                                                                       -------- -------- --------
Weighted average Common Shares outstanding--Diluted...................  137,730  139,829  125,825
                                                                       -------- -------- --------
Earnings before extraordinary items per Common Share:
   Basic.............................................................. $   1.80 $   1.47 $   1.51
                                                                       ======== ======== ========
   Diluted............................................................ $   1.78 $   1.47 $   1.50
                                                                       ======== ======== ========
Net earnings per Common Share:
   Basic.............................................................. $   1.79 $   1.46 $   1.49
                                                                       ======== ======== ========
   Diluted............................................................ $   1.78 $   1.46 $   1.49
                                                                       ======== ======== ========
Distributions paid per Common Share................................... $   1.54 $   1.48 $   1.39
                                                                       ======== ======== ========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      113

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                      STATEMENTS OF SHAREHOLDERS' EQUITY

                 Years ended December 31, 2000, 1999 and 1998
                                (In thousands)

<TABLE>
<CAPTION>
                                 Series A
                                Convertible  Series B    Series C    Series D
                                 Preferred   Preferred   Preferred   Preferred
                                 Shares at   Shares at   Shares at   Shares at                        Unrealized Employee
                                 Aggregate   Aggregate   Aggregate   Aggregate   Common   Additional   Holding    Share
                                Liquidation Liquidation Liquidation Liquidation Shares at  Paid-in       Gain    Purchase
                                Preference  Preference  Preference  Preference  Par Value  Capital      (Loss)    Notes
                                ----------- ----------- ----------- ----------- --------- ----------  ---------- --------
<S>                             <C>         <C>         <C>         <C>         <C>       <C>         <C>        <C>

Balances at December 31, 1997..  $135,210    $105,000     $    --     $    --   $ 92,634  $1,268,741   $ 83,794  $(17,238)
 Comprehensive income:

   Net Earnings................        --          --          --          --         --          --         --        --
   Preferred Share dividends
    paid.......................        --          --          --          --         --          --         --        --
   Other comprehensive
    income.....................        --          --          --          --         --          --    (83,794)       --
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Comprehensive income
 attributable to Common
 Shares........................        --          --          --          --         --          --         --        --
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Common Share distributions.....        --          --          --          --         --          --         --        --
 Atlantic Merger...............        --          --      50,000          --     47,752   1,049,728         --   (11,338)
Issuance of shares, net of
 expenses......................        --          --          --          --      2,050      41,959         --        --
Other, net.....................   (17,695)         --          --          --        877      16,086         --     2,301
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Balances at December 31, 1998..   117,515     105,000      50,000          --    143,313   2,376,514         --   (26,275)
 Comprehensive income:
   Net Earnings................        --          --          --          --         --          --         --        --
   Preferred Share dividends
   paid........................        --          --          --          --         --          --         --        --
   Other comprehensive
   income......................        --          --          --          --         --          --        394        --
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Comprehensive income
 attributable to Common
 Shares........................        --          --          --          --         --          --         --        --
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Common Share distributions.....        --          --          --          --         --          --         --        --
Repurchase of shares, net of
 expenses......................      (750)         --          --          --     (6,098)   (114,733)        --        --
Issuance of shares, net of
 expenses......................        --          --          --      50,000         --      (1,740)        --        --
Other, net.....................   (24,130)         --          --          --      1,793      30,985         --     7,105
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Balances at December 31, 1999..    92,635     105,000      50,000      50,000    139,008   2,291,026        394   (19,170)
Comprehensive income:
   Net Earnings................        --          --          --          --         --          --         --        --
   Preferred Share dividends
   paid........................        --          --          --          --         --          --         --        --
   Other comprehensive
   income......................        --          --          --          --         --          --      2,423        --
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Comprehensive income
 attributable to Common
 Shares........................        --          --          --          --         --          --         --        --
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Common Share distributions.....        --          --          --          --         --          --         --        --
 Repurchase of shares, net of
 expenses......................        --        (330)       (270)       (195)   (17,479)   (366,268)        --        --
Other, net.....................    (9,984)         --          --          --      1,309      24,512         --    12,406
                                 --------    --------     -------     -------   --------  ----------   --------  --------
Balances at December 31, 2000..  $ 82,651    $104,670     $49,730     $49,805   $122,838  $1,949,270   $  2,817  $ (6,764)
                                 ========    ========     =======     =======   ========  ==========   ========  ========
</TABLE>
<TABLE>
<CAPTION>



                                Distributions
                                  in Excess
                                   of Net
                                  Earnings      Total
                                ------------- ----------
<S>                             <C>           <C>

Balances at December 31, 1997..   $(127,705)  $1,540,436
 Comprehensive income:

   Net Earnings................     197,960      197,960
   Preferred Share dividends
    paid.......................     (20,938)     (20,938)
   Other comprehensive
    income.....................          --      (83,794)
                                  ---------   ----------
Comprehensive income
 attributable to Common
 Shares........................          --       93,228
                                  ---------   ----------
Common Share distributions.....    (187,059)    (187,059)
 Atlantic Merger...............          --    1,136,142
Issuance of shares, net of
 expenses......................          --       44,009
Other, net.....................          --        1,569
                                  ---------   ----------
Balances at December 31, 1998..   (137,742)    2,628,325
 Comprehensive income:
   Net Earnings................     228,259      228,259
   Preferred Share dividends
   paid........................     (23,733)     (23,733)
   Other comprehensive
   income......................          --          394
                                  ---------   ----------
Comprehensive income
 attributable to Common
 Shares........................          --      204,920
                                  ---------   ----------
Common Share distributions.....    (208,173)    (208,173)
Repurchase of shares, net of
 expenses......................          --     (121,581)
Issuance of shares, net of
 expenses......................          --       48,260
Other, net.....................           2       15,755
                                  ---------   ----------
Balances at December 31, 1999..    (141,387)   2,567,506
Comprehensive income:
   Net Earnings................     261,385      261,385
   Preferred Share dividends
   paid........................     (25,340)     (25,340)
   Other comprehensive
   income......................          --        2,423
                                  ---------   ----------
Comprehensive income
 attributable to Common
 Shares........................          --      238,468
                                  ---------   ----------
Common Share distributions.....    (198,069)    (198,069)
 Repurchase of shares, net of
 expenses......................          --     (384,542)
Other, net.....................          --       28,243
                                  ---------   ----------
Balances at December 31, 2000..   $(103,411)  $2,251,606
                                  =========   ==========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      114

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                           STATEMENTS OF CASH FLOWS

                                (In thousands)

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                             -------------------------------
                                                                               2000       1999       1998
                                                                             ---------  ---------  ---------
<S>                                                                          <C>        <C>        <C>
Operating activities:
   Net earnings............................................................. $ 261,385  $ 228,259  $ 197,960
   Adjustments to reconcile net earnings to net cash flow provided by
     operating activities:
       Depreciation and amortization........................................   145,571    133,817     96,908
       Gains on dispositions of depreciated real estate, net................   (93,071)   (62,093)   (65,531)
       Gain on exchange of Homestead mortgage notes, net of
         writedown..........................................................    (6,560)        --         --
       Provision for possible loss on investments...........................     5,200      2,000      4,700
       Extraordinary item...................................................       911      1,113      1,497
       Minority interest....................................................     7,241      2,060        645
   Change in accounts payable, accrued expenses and other liabilities.......     6,277    (16,581)     6,527
   Other, net...............................................................    (4,634)     7,435    (11,553)
                                                                             =========  =========  =========
          Net cash flow provided by operating activities....................   322,320    296,010    231,153
                                                                             ---------  ---------  ---------
Investing activities:
   Real estate investments..................................................  (671,148)  (769,076)  (688,151)
   Change in investments in and advances to unconsolidated real estate
     entities...............................................................   (68,995)   (32,729)        --
   Proceeds from dispositions, net of closing costs.........................   770,679    572,741    401,031
   Cash acquired in Atlantic Merger.........................................        --         --     79,359
   Change in tax-deferred exchange escrow...................................    65,455     22,145    (90,874)
   Change in pursuit costs and earnest money deposits.......................    14,798     (9,376)    (5,438)
   Funding of convertible mortgage notes receivable.........................        --         --    (11,895)
   Other, net...............................................................    (5,226)    (7,619)    (2,796)
                                                                             ---------  ---------  ---------
          Net cash flow provided by (used in) investing activities..........   105,563   (223,914)  (318,764)
                                                                             ---------  ---------  ---------
Financing activities:
   Proceeds from (payments on) unsecured long-term debt.....................   125,000    (30,000)   447,200
   Debt issuance costs......................................................   (10,372)    (6,304)   (14,281)
   Proceeds from secured debt...............................................   156,527     36,206    268,450
   Proceeds from tax-exempt bond refinancing................................        --     16,000         --
   Principal prepayments of mortgages payable...............................   (41,658)   (57,574)  (107,009)
   Regularly scheduled principal payments on mortgages payable..............    (4,833)    (5,391)    (4,316)
   Proceeds from (repayments on) unsecured credit facilities, net...........  (299,817)   228,885   (356,621)
   Repurchase of Common and Preferred Shares................................  (179,461)  (121,581)        --
   Proceeds from issuance of Common Shares, net.............................        --         --     44,009
   Proceeds from issuance of Preferred Shares and perpetual preferred
     units..................................................................    31,215     90,229         --
   Cash dividends paid on Common Shares.....................................  (201,257)  (208,018)  (165,190)
   Cash dividends paid on Preferred Shares..................................   (25,340)   (23,733)   (20,938)
   Cash dividends paid to minority interests................................    (7,241)    (2,060)      (645)
   Proceeds from dividend reinvestment and repayment of share
     purchase loans, net....................................................    18,646      7,251        470
   Other, net...............................................................     9,713      3,947      1,674
                                                                             ---------  ---------  ---------
          Net cash flow provided by (used in) financing activities..........  (428,878)   (72,143)    92,803
                                                                             ---------  ---------  ---------
Net change in cash and cash equivalents.....................................      (995)       (47)     5,192
Cash and cash equivalents at beginning of period............................    10,072     10,119      4,927
                                                                             ---------  ---------  ---------
Cash and cash equivalents at end of period.................................. $   9,077  $  10,072  $  10,119
                                                                             =========  =========  =========
</TABLE>
 See Note 15 for supplemental information on non-cash investing and financing
                                  activities.
  The accompanying notes are an integral part of these financial statements.

                                      115

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                         NOTES TO FINANCIAL STATEMENTS

                       December 31, 2000, 1999 and 1998

(1) Description of Business and Summary of Significant Accounting Policies

  Business

   Archstone is an equity REIT organized in 1963 under the laws of the State of
Maryland. We are focused on the operation, development, redevelopment,
acquisition and long-term ownership of apartment communities in protected
markets throughout the United States characterized by: (i) limited new supply;
(ii) expensive single-family home prices; and (iii) strong economic
fundamentals.

  Principles of Consolidation

   The accounts of Archstone and its controlled subsidiaries are consolidated
in the accompanying financial statements. All significant intercompany accounts
and transactions have been eliminated in consolidation. We use the equity
method to account for investments when we do not control but have the ability
to exercise significant influence over the operating and financial policies of
the investee. For an investee accounted for under the equity method, our share
of net earnings or losses of the investee is reflected in income as earned and
dividends are credited against the investment as received.

  Use of estimates

   The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and the related notes. Actual results could differ
from those estimates. Estimates and assumptions are reviewed periodically and
the effects of revisions are reflected in the period they are determined to be
necessary.

  Cash and Cash Equivalents

   Cash and cash equivalents consist of cash on hand, demand deposits with
financial institutions and short-term, highly liquid investments with original
maturities of three months or less.

  Restricted Cash in Tax-Deferred Exchange Escrow

   Represents disposition proceeds which have been set aside and designated to
fund future tax deferred exchanges of qualifying real estate investments.

  Real Estate and Depreciation

   Real estate, other than properties held for sale, is carried at cost.
Long-lived assets designated as being held for sale are reported at the lower
of their carrying amount or estimated fair value less cost to sell, and
thereafter are no longer depreciated. We review long-lived assets to be held
and used for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. This review
involves comparing an investment's book value to its estimated future cash
flows, on an undiscounted basis.

   We capitalize direct and certain related indirect costs associated with the
successful acquisition, development or improvement of real estate. Capitalized
costs associated with unsuccessful acquisition or development pursuits are
expensed at the time the pursuit is abandoned.

                                      116

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


   Depreciation is computed over the expected useful lives of depreciable
property on a straight-line basis as follows:

<TABLE>
              <S>                                      <C>
              Buildings and related land improvements. 20-40 years
              Furniture, fixtures, equipment and other  5-10 years
</TABLE>

  Interest

   During 2000, 1999 and 1998, the total interest paid in cash on all
outstanding debt, was $157.7 million, $148.0 million and $96.4 million,
respectively.

   We capitalize interest incurred during the construction period as part of
the cost of apartment communities under development. Interest capitalized
during 2000, 1999 and 1998 aggregated $24.3 million, $31.9 million and $29.9
million, respectively.

  Cost of Raising Capital

   Costs incurred in connection with the issuance of equity securities are
deducted from shareholders' equity. Costs incurred in connection with the
issuance or renewal of debt are capitalized as other assets and are amortized
into interest expense over the term of the related loan or the renewal period.
The balance of any unamortized loan costs associated with old debt is expensed
upon replacement with new debt. Amortization of loan costs included in interest
expense for 2000, 1999 and 1998 was $5.0 million, $4.8 million and $3.3
million, respectively.

  Interest Rate Contracts

   We occasionally utilize derivative financial instruments to lower our
overall borrowing costs and designate these financial instruments as hedges of
specific liabilities or anticipated transactions. The costs associated with
entering into these agreements, as well as the related gains or losses on such
agreements, are deferred and are amortized into interest expense over the term
of the underlying debt. See Note 11 for additional information.

  Revenue and Gain Recognition

   We generally lease our apartment units under operating leases with terms of
one-year or less. Rental revenue is recognized according to the terms of the
underlying leases which approximates the revenue which would be recognized if
spread evenly over the lease term.

   Gains on sales of real estate are recorded when the recognition criteria set
forth by GAAP have been met.

  Rental Expenses

   Rental expenses shown on the accompanying Statements of Earnings include
costs associated with on-site and property management personnel, utilities (net
of utility reimbursements from residents), repairs and maintenance, make-ready,
property insurance, marketing, landscaping and other on-site and related
administrative costs.

  Federal Income Taxes

   We have made an election to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, and we believe we qualify as a REIT and have made all
required distributions of our taxable income. Accordingly, no provision has
been made for federal income taxes in the accompanying financial statements.

                                      117

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



  Comprehensive Income

   Comprehensive income, which is defined as net earnings and all other
non-owner changes in equity, is displayed in the accompanying Statements of
Shareholders' Equity. The amounts reflected as "other comprehensive income" in
2000 and 1999 reflect unrealized holding gains and losses on the change in
market values for various available-for-sale investments.

  Per Share Data

   Following is a reconciliation of basic earnings per share to diluted
earnings per share for the periods indicated (in thousands):

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                         --------------------------
                                                                           2000     1999     1998
                                                                         -------- -------- --------
<S>                                                                      <C>      <C>      <C>
Reconciliation of numerator between basic and diluted net earnings per
  Common Share(1):
Net earnings attributable to Common Shares--Basic....................... $236,045 $204,526 $177,022
   Dividends on Series A Convertible Preferred Shares...................    7,254       --    9,332
   Minority interest--convertible operating partnership units...........    1,326       --      645
                                                                         -------- -------- --------
Net earnings attributable to Common Shares--Diluted..................... $244,625 $204,526 $186,999
                                                                         ======== ======== ========
Reconciliation of denominator between basic and diluted net earnings per
  Common Share(1):
Weighted average number of Common Shares outstanding--Basic.............  131,874  139,801  118,592
   Assumed conversion of Series A Convertible Preferred Shares into
     Common Shares......................................................    4,721       --    6,765
   Minority interest--convertible operating partnership units...........      876       --      458
   Incremental options and warrants.....................................      259       28       10
                                                                         -------- -------- --------
Weighted average number of Common Shares outstanding--Diluted...........  137,730  139,829  125,825
                                                                         ======== ======== ========
</TABLE>
--------
(1) Excludes the impact of potentially dilutive equity securities during the
    periods in which they are anti-dilutive.

  Reclassifications

   Certain of the 1999 and 1998 amounts have been reclassified to conform to
the 2000 presentation.

                                      118

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


(2) Real Estate

  Investments in Real Estate

   Equity investments in real estate, at cost, were as follows (dollar amounts
in thousands):

<TABLE>
<CAPTION>
                                                              December 31,
                                                   -----------------------------------
                                                         2000              1999
                                                   ----------------- -----------------
                                                   Investment Units  Investment Units
                                                   ---------- ------ ---------- ------
<S>                                                <C>        <C>    <C>        <C>
Apartment communities:
   Operating communities.......................... $4,651,275 62,509 $4,444,289 68,255
   Communities under construction (1).............    298,519  4,107    563,020  7,830
   Development communities In Planning (1)........
     Owned........................................     75,662  1,902     45,481  2,096
     Under Control (2)............................         --  2,167         --  2,375
                                                   ---------- ------ ---------- ------
          Total development communities In
            Planning..............................     75,662  4,069     45,481  4,471
                                                   ---------- ------ ---------- ------
     Total apartment communities..................  5,025,456 70,685  5,052,790 80,556
                                                   ---------- ------ ---------- ------
   Other real estate assets.......................     10,584            10,826
   Hotel asset....................................     22,870            22,870
                                                   ----------        ----------
          Total real estate....................... $5,058,910        $5,086,486
                                                   ==========        ==========
</TABLE>
--------
(1) Unit information is based on management's estimates and has not been
    audited or reviewed by Archstone's independent auditors.

(2) Archstone's investment as of December 31, 2000 and 1999 for developments
    Under Control was $5.9 million and $5.3 million, respectively, and is
    reflected in the "Other assets" caption of Archstone's Balance Sheets.

  Capital Expenditures

   In conjunction with the underwriting of each acquisition of an operating
community, we prepare acquisition budgets that encompass the incremental
capital needed to achieve our investment objectives. These expenditures,
combined with the initial purchase price and related closing costs, are
capitalized and classified as "acquisition-related" capital expenditures, as
incurred.

   As part of our operating strategy, we periodically evaluate each community's
physical condition relative to established business objectives and the
community's competitive position in its market. In conducting these
evaluations, we consider our return on investment in relation to our long-term
cost of capital as well as our research and analysis of competitive market
factors. Based on these factors, we make decisions on needed capital
expenditures, which are classified as either "redevelopment" or "recurring".

   The redevelopment category includes: (i) redevelopment initiatives, which
are intended to reposition the community in the marketplace and include items
such as significant upgrades to the interiors, exteriors, landscaping and
amenities; (ii) revenue-enhancing expenditures, which include investments that
are expected to produce incremental community revenues, such as building
garages, carports and storage facilities or gating a community; and (iii)
expense-reducing expenditures, which include items such as water submetering
systems and xeriscaping that reduce future operating costs.

                                      119

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



   Recurring capital expenditures consist of significant expenditures for items
having a useful life in excess of one-year, which are incurred to maintain a
community's long-term physical condition at a level commensurate with our
stringent operating standards. Examples of recurring capital expenditures
include roof replacements, parking lot resurfacing and exterior painting.

   Repairs, maintenance and make-ready expenditures (including the replacement
of carpets, appliances and other interior items) are expensed as incurred, to
the extent they are not incremental first year deferred maintenance costs
needed to reposition an asset. Make-ready expenditures are costs incurred in
preparing a vacant apartment unit for the next resident.

   The change in investments in real estate at cost, consisted of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                          ----------------------------------
                                                             2000        1999        1998
                                                          ----------  ----------  ----------
<S>                                                       <C>         <C>         <C>
Balance at January 1..................................... $5,086,486  $4,771,315  $2,567,599
                                                          ----------  ----------  ----------
Apartment communities:
   Real estate assets acquired in the Atlantic Merger....         --          --   1,823,727
   Acquisition-related expenditures......................    372,539     401,392     268,465
   Redevelopment expenditures............................     37,547      72,517      56,321
   Recurring capital expenditures........................     13,937      13,022       9,461
   Development expenditures, excluding land acquisitions.    228,819     334,049     346,629
   Acquisition and improvement of land for development...     68,308      43,417      45,739
   Dispositions..........................................   (743,287)   (542,554)   (342,066)
   Provision for possible loss on investments............     (5,200)       (450)         --
                                                          ----------  ----------  ----------
Net apartment community activity.........................    (27,337)    321,393   2,208,276
                                                          ----------  ----------  ----------
Other:
   Change in other real estate assets....................       (239)     (4,672)     (3,860)
   Provision for possible loss on investments............         --      (1,550)       (700)
                                                          ----------  ----------  ----------
Net other activity.......................................       (239)     (6,222)     (4,560)
                                                          ----------  ----------  ----------
Balance at December 31................................... $5,058,910  $5,086,486  $4,771,315
                                                          ==========  ==========  ==========
</TABLE>

   At December 31, 2000, we had unfunded contractual commitments related to
real estate investment activities aggregating approximately $182.6 million of
which $176.7 million related to communities under construction.

   We were committed to the sale of seven apartment communities and certain
other real estate assets having an aggregate carrying value of $107.7 million
as of December 31, 2000. Each property's carrying value is less than or equal
to its estimated fair market value, net of estimated costs to sell. The
property-level earnings, after mortgage interest and depreciation, from
communities held for disposition at December 31, 2000, which are included in
Archstone's earnings from operations for 2000, 1999 and 1998, were $5.6
million, $5.3 million and $5.5 million, respectively.

                                      120

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



(3) Investments in and Advances to Unconsolidated Real Estate Entities

   We have investments in entities that we account for using the equity method.
The most significant of these investments are discussed below.

   Ameriton is a corporation whose business is acquiring and developing
properties to sell to third parties. Archstone owns all Class B non-voting
common shares, which entitles us to 95% of the net operating cash flow of
Ameriton. Our investments in and advances to Ameriton at December 31, 2000 and
December 31, 1999 were $209.3 million and $130.8 million, respectively.

   In June and July of 2000, we formed two joint ventures with FIIB. The
ventures were formed through our contribution of a total of 11 apartment
communities with an estimated aggregate fair value of approximately $237.0
million. FIIB contributed a total of $66.7 million of cash for an 80% ownership
interest in each of the ventures. The ventures also obtained an aggregate of
$153.7 million in mortgage loans from Freddie Mac secured by the 11
communities. We maintained a 20% ownership interest in each of the ventures
valued at approximately $16.7 million and received cash distributions totaling
$220.4 million. For financial reporting purposes, we accounted for the
transactions as a partial disposition of the communities, which resulted in
recognition of an aggregate net gain of $13.3 million. We only recognized 80%
of the total gain, due to the 20% continuing ownership interest in the joint
ventures. The ventures have a five-year life with flexible liquidation terms to
ensure an orderly disposition of the communities, based on prevailing market
conditions. We receive management fees for managing the communities and the
ventures.

(4) Mortgage Notes Receivable

   In October 1996, we contributed 54 extended-stay-lodging assets to Homestead
in exchange for common stock and convertible mortgage notes. The common stock
was distributed to our shareholders in November 1996. In total, we received
$221.3 million (face amount) of convertible mortgage notes in exchange for
development financing provided to Homestead from 1996 through 1998, including
the notes received in exchange for the initial contribution of properties.

   During the three months ended March 31, 2000, we determined that for various
reasons, including the then proposed transaction that eliminated the publicly
traded common shares of Homestead, the conversion feature associated with our
Homestead mortgage notes had no continuing economic value. Therefore, a
write-off of the net unamortized balance of the conversion feature, aggregating
$2.8 million, was recorded. The remaining balances associated with the
convertible mortgage notes were not affected.

   In July 2000, we completed a transaction to repurchase approximately 17.5
million of our Common Shares held by Security Capital in exchange for Homestead
mortgage notes with a face amount of $221.3 million and cash of $178.7 million.
The Homestead mortgage notes and related balances had a net book value of
$195.7 million on the date of the transaction. We recognized a gain of $9.3
million related to this transaction in the third quarter of 2000.

(5) Borrowings

  Unsecured Credit Facilities

   In December 2000, we closed a $580 million unsecured revolving line of
credit facility, which replaced our previous line that was scheduled to mature
in 2001. The $0.9 million in unamortized loan costs related to the prior line
were expensed as an extraordinary item in 2000.

                                      121

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


   The $580 million unsecured revolving credit facility is provided by a group
of financial institutions led by The Chase Manhattan Bank. The $580 million
unsecured credit facility matures in December 2003 and provides us with a
one-year extension option. The unsecured credit facility bears interest at the
greater of prime or the federal funds rate plus 0.50%, or at our option, LIBOR
(6.75% at December 31, 2000 and an average of 6.41% for the year ended December
31, 2000) plus 0.65%. The spread over LIBOR can vary from LIBOR plus 0.50% to
LIBOR plus 1.25% based upon the rating of our Long-Term Unsecured Debt. Under a
competitive bid option contained in the credit agreement, we may be able to
borrow up to $290 million at a lower interest rate spread over LIBOR, depending
on market conditions. Under the agreement, we pay a facility fee, which can
vary from 0.125% to 0.200% of the commitment, (current facility fee is 0.15%)
based upon the rating of our Long-Term Unsecured Debt. Archstone paid facility
fees on unsecured credit facilities of $1.1 million, $1.1 million and $0.8
million in 2000, 1999 and 1998, respectively.

   The following table summarizes our unsecured credit facility borrowings (in
thousands, except for percentages):

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                      ----------------------
                                                         2000         1999
                                                       --------     --------
     <S>                                              <C>          <C>
     Total unsecured credit facility................. $580,000     $750,000
     Borrowings outstanding at December 31...........  150,000      485,000
     Weighted average daily borrowings...............  305,016      387,082
     Maximum borrowings outstanding during the period $618,000     $485,000
     Weighted average daily nominal interest rate....     7.01%        5.98%
     Weighted average daily effective interest rate..     7.45%        6.37%
</TABLE>

   We also have a short-term unsecured borrowing agreement with The Chase
Manhattan Bank, which provides for maximum borrowings of $100 million. The
agreement bears interest at an overnight rate that ranged from 6.25% to 7.63%
during 2000. At December 31, 2000 and 1999, there were $43.7 million and $8.5
million of borrowings outstanding under this agreement, respectively.

  Long-Term Unsecured Debt

   A summary of our Long-Term Unsecured Debt outstanding at December 31, 2000
and 1999 follows (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                         Effective  Balance at   Balance at    Average
                                 Coupon  Interest  December 31, December 31,  Remaining
Type of Debt                     Rate(1)  Rate(2)      2000         1999     Life (Years)
------------                     ------- --------- ------------ ------------ ------------
<S>                              <C>     <C>       <C>          <C>          <C>
Long-term unsecured senior notes  7.48%    7.68%    $1,325,547   $1,200,857      6.9
Unsecured tax-exempt bonds......  4.79%    5.14%        75,715       75,715      7.4
                                  ----     ----     ----------   ----------      ---
   Total/average................  7.34%    7.54%    $1,401,262   $1,276,572      7.0
                                  ====     ====     ==========   ==========      ===
</TABLE>
--------
(1) Represents a fixed rate for the long-term unsecured notes and a variable
    rate for the unsecured tax-exempt bonds.

(2) Represents the effective interest rate, including interest rate hedges,
    loan cost amortization and other ongoing fees and expenses, where
    applicable.

   The $1.3 billion of long-term unsecured senior notes generally have
semi-annual interest payments and either amortizing annual principal payments
or balloon payments due at maturity. The unsecured tax-exempt bonds require
semi-annual interest payments and are due upon maturity in 2008 (see--Scheduled
Debt Maturities). The notes are generally redeemable at our option, in whole or
in part, and the unsecured tax-exempt

                                      122

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

bonds are generally redeemable upon sale of the related property. The
redemption price is generally equal to the sum of the principal amount of the
notes being redeemed plus accrued interest through the redemption date plus a
standard make-whole premium, if any.

  Mortgages Payable

   Archstone's mortgages payable generally feature either monthly interest and
principal payments or monthly interest only payments with balloon payments due
at maturity (see--Scheduled Debt Maturities). A summary of mortgages payable
outstanding at December 31, 2000 follows (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                       Principal Balance at
                                                           December 31,
                                    Effective Interest --------------------
    Type of Mortgage                     Rate (1)         2000      1999
    ----------------                ------------------  --------  --------
    <S>                             <C>                <C>        <C>
    Fannie Mae (2).................        6.96%       $406,989   $304,365
    Conventional fixed rate........        7.76%        200,694    110,776
    Tax-exempt fixed rate..........        7.30%         17,676     56,576
    Tax-exempt floating rate.......        5.10%        226,325    192,847
    Other..........................        5.65%         24,120     30,384
                                           ----         --------  --------
       Total/average mortgage debt.        6.63%       $875,804   $694,948
                                           ====         ========  ========
</TABLE>
--------
(1) Includes the effect of interest rate hedges, credit enhancement fees, other
    bond-related costs and loan cost amortization, where applicable, as of
    December 31, 2000.

(2) Represents a long-term secured debt agreement with Fannie Mae. The Fannie
    Mae secured debt matures January 2006, although Archstone has the option to
    extend the term of any portion of the debt for up to an additional 30-year
    period at any time, subject to Fannie Mae's approval.

   The changes in mortgages payable during 2000 and 1999 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                          2000      1999
                                                        --------  --------
     <S>                                                <C>       <C>
     Balances at January 1............................. $694,948  $676,613
          Notes assumed or originated..................  227,536   141,613
          Bond refinancing.............................   (2,420)  (59,715)
          Regularly scheduled principal amortization...   (4,833)   (5,391)
          Prepayments, final maturities and other......  (39,427)  (58,172)
                                                        --------  --------
     Balances at December 31........................... $875,804  $694,948
                                                        ========  ========
</TABLE>

  Scheduled Debt Maturities

   Approximate principal payments due during each of the next five calendar
years and thereafter, are as follows (in thousands):

<TABLE>
<CAPTION>
                                     Mortgages Payable
                                  -----------------------
                                   Regularly
                       Long-Term   Scheduled     Final
                       Unsecured   Principal   Maturities
                         Debt     Amortization and Other    Total
                       ---------- ------------ ---------- ----------
            <S>        <C>        <C>          <C>        <C>
            2001...... $   70,010   $  5,738    $  5,121  $   80,869
            2002......     97,810      6,288         102     104,200
            2003......    171,560      6,656      14,843     193,059
            2004......     51,560      7,069      36,448      95,077
            2005......    251,560      7,355      28,018     286,933
            Thereafter    758,762    110,264     647,902   1,516,928
                       ----------   --------    --------  ----------
               Total.. $1,401,262   $143,370    $732,434  $2,277,066
                       ==========   ========    ========  ==========
</TABLE>

                                      123

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



   The average annual principal payments due from 2006 to 2020 are $99.1
million per year.

   The $580 million unsecured credit facility matures in December 2003 and has
a one-year extension option.

  Other

   Archstone's debt instruments generally contain certain covenants common to
the type of facility or borrowing, including financial covenants establishing
minimum debt service coverage ratios and maximum leverage ratios. We were in
compliance with all financial covenants pertaining to our debt instruments at
December 31, 2000.

   See Note 11 for a summary of derivative financial instruments used in
connection with our debt instruments.

(6) Distributions to Shareholders

   To maintain our status as a REIT, we are generally required to distribute at
least 90% of our taxable income (95% for taxable years ending prior to January
1, 2001). The payment of distributions is subject to the discretion of the
Board and is dependent upon our strategy, financial condition and operating
results. At its December 2000 Board meeting, the Board announced an anticipated
increase in the annual distribution level from $1.54 to $1.64 per Common Share.

   The following table summarizes the cash dividends paid per share on Common
Shares and Preferred Shares in 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                  2000  1999  1998
                                                  ----- ----- -----
            <S>                                   <C>   <C>   <C>
            Common Shares........................ $1.54 $1.48 $1.39
            Series A Convertible Preferred Shares $2.07 $1.99 $1.87
            Series B Preferred Shares............ $2.25 $2.25 $2.25
            Series C Preferred Shares (1)........ $2.16 $2.16 $1.08
            Series D Preferred Shares (2)........ $2.19 $0.88 $  --
</TABLE>
--------
(1) In 1998, represents dividends paid subsequent to the Atlantic Merger.

(2) Shares were issued in August 1999. The annualized dividend level is $2.1875
    per share.

                                      124

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



(7) Minority Interest

  Perpetual Preferred Units

   At various dates, consolidated subsidiaries of Archstone have issued
perpetual preferred units to limited partnerships in exchange for cash. The
total net proceeds of $31.2 million in 2000 and $42.0 million in 1999 from the
issuance of these units were used to repay borrowings under our unsecured
credit facilities. All perpetual preferred units issued to date have a
liquidation preference of $25 per unit and are paid a fixed cumulative
quarterly distribution each quarter. We have the option to redeem the units at
par on dates ranging from 2004 to 2005. Unless redeemed, the units are
cnvertible into a specified series of non-convertible preferred shares after
certain dates. Following is a summary of outstanding perpetual preferred units
as of December 31, 2000:

<TABLE>
<CAPTION>
                                                     Annual
                                         Total    Distribution
             Effective                Liquidation     Rate        Convertible
           Issuance Date      Units   Preference   (Per unit)     on or After
         ------------------ --------- ----------- ------------ ------------------
<S>      <C>                <C>       <C>         <C>          <C>
Series E August 13, 1999      520,000 $13 million   $2.0938    August 13, 2009
Series E November 19, 1999    400,000  10 million    2.0938    November 19, 1999
Series E February 4, 2000     680,000  17 million    2.0938    August 13, 2009
                            --------- -----------   -------
                            1,600,000 $40 million   $2.0938
Series F September 27, 1999   800,000  20 million    2.0313    September 27, 2009
Series G March 3, 2000        600,000  15 million    2.1563    March 3, 2010
                            --------- -----------   -------
                            3,000,000 $75 million   $2.0896
                            ========= ===========   =======
</TABLE>

  Convertible Operating Partnership Units

   As of December 31, 2000, 1999 and 1998, there were 949,000, 598,000 and
913,000 convertible partnership units outstanding that had been issued by
consolidated subsidiaries of Archstone in exchange for real estate assets. The
units are convertible into Common Shares on a one-for-one basis and are
generally entitled to distributions in amounts equal to those distributed on
Common Shares.

  General

   All of the units are reflected as minority interest in the accompanying
Balance Sheets. The income allocated to these minority interests, which is
generally equal to the amount of unit distributions, is reflected as minority
interest expense in the accompanying Statements of Earnings.

(8) Shareholders' Equity

  Shares of Beneficial Interest

   Archstone's declaration of trust authorizes us to issue up to 250,000,000
shares of beneficial interest, $1.00 par value per share, consisting of Common
Shares, preferred shares and such other shares of beneficial interest as the
Board may create and authorize from time to time. The Board may classify or
reclassify any unissued shares from time to time by setting or changing the
preferences, conversion rights, voting powers, restrictions, limitations as to
distributions, qualifications of terms or conditions of redemption.

  Preferred Shares

   The Series A Convertible Preferred Shares issued in November 1993 have a
liquidation preference of $25 per share for an aggregate liquidation preference
at December 31, 2000 of $82.7 million. Holders of the Series A

                                      125

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

Convertible Preferred Shares are entitled only to limited voting rights under
certain conditions. Each Series A Convertible Preferred Share is convertible,
in whole or in part at the option of the holder at any time, into 1.3469 Common
Shares. During 2000, 1999 and 1998, approximately 399,000, 965,000 and 708,000
of Series A Convertible Preferred Shares were converted into approximately
538,000, 1,300,000 and 953,000 Common Shares, respectively. This activity is
included in "Other, net" in the accompanying Statements of Shareholders' Equity.

   Distributions on the Series A Convertible Preferred Shares are payable in an
amount per share equal to the greater of $1.75 per annum or the annualized
quarterly distribution rate on the Common Shares multiplied by the 1.3469
conversion factor. Based on our anticipated 2001 Common Share dividend level,
the annualized dividend on the Series A Convertible Preferred Shares will be
$2.209. The Series A Convertible Preferred Shares are redeemable at our option
after November 30, 2003.

   A summary of Archstone's Series B, Series C and Series D Preferred Shares
outstanding at December 31, 2000 follows:

<TABLE>
<CAPTION>
                                       Liquidation     Total
                             Shares    Preference   Liquidation    Dividend     Redeemable
Perpetual Preferred Shares Outstanding (Per share)  Preference    (Per share) on or After(1)
-------------------------- ----------- ----------- -------------- ----------- ---------------
<S>                        <C>         <C>         <C>            <C>         <C>
         Series B......... 4.2 million   $25.00    $104.7 million   $2.2500   May 24, 2000
         Series C......... 2.0 million    25.00      49.7 million    2.1563   August 20, 2002
         Series D......... 2.0 million    25.00      49.8 million    2.1875   August 6, 2004
                           -----------   ------    --------------   -------
                           8.2 million   $25.00    $204.2 million   $2.2120
                           ===========   ======    ==============   =======
</TABLE>
--------
(1) We may redeem the shares for cash, in whole or in part, at a redemption
    price of $25 per share plus any accrued but unpaid distributions, if any,
    to the redemption date. The redemption price (other than the portion
    thereof consisting of accrued and unpaid distributions) is payable solely
    out of the sale proceeds of other shares of Archstone, which may include
    other series of preferred shares.

   The holders of the Preferred Shares do not have preemptive rights over the
holders of Common Shares. The Preferred Shares have no stated maturity and are
not subject to any sinking fund and we are not obligated to redeem or retire
the shares. Holders of the Preferred Shares are entitled to receive, when and
as declared by the Board, out of funds legally available for the payment of
distributions, cumulative preferential cash distributions. The Series B, Series
C and Series D Preferred Shares are not convertible into any other Archstone
securities.

   All Preferred Share distributions are cumulative from the date of original
issue and are payable quarterly in arrears on the last day of each March, June,
September and December. All dividends due and payable on Preferred Shares have
been accrued and paid as of the end of each fiscal year. All series of
Preferred Shares rank on a parity as to distributions and liquidation proceeds.

   If six quarterly dividends payable (whether or not consecutive) on any
series or class of Preferred Shares that are of equal rank with respect to
dividends and any distribution of assets, shall not be paid in full, the number
of Outside Trustees shall be increased by two and the holders of all such
Preferred Shares voting as a class regardless of series or class, shall be
entitled to elect the two additional Outside Trustees. Whenever all arrears in
dividends have been paid, the right to elect the two additional Outside
Trustees shall cease and the terms of such Outside Trustees shall terminate.

                                      126

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


  Dividend Reinvestment and Share Purchase Plan

   We established the Dividend Reinvestment and Share Purchase Plan in December
1997 to increase ownership in the company by private investors. Under the plan,
holders of Common Shares have the ability to automatically reinvest their cash
dividends to purchase additional Common Shares at a two percent discount from
market rates, based on the average of the high and low sales price of a Common
Share on the day of the purchase. Additionally, existing and prospective
investors have the ability to tender cash payments that will be applied towards
the purchase of Common Shares. The amount purchased by an individual is limited
to a maximum of $5,000 per month, with any investments above the limitation
requiring company approval. We have not granted approval for any purchases
above the $5,000 threshold since inception of the plan. In January 1998, we
filed a registration statement with the SEC registering the offering of
2,000,000 Common Shares, which may be issued pursuant to the terms of the plan.
As of December 31, 2000 Archstone had 1,138,827 Common Shares left to issue
under this plan.

  Ownership Restrictions and Significant Shareholder

   Our governing documents restrict beneficial ownership of our outstanding
shares by a single person, or persons acting as a group, to 9.8% of the Common
Shares and 25% of each series of Preferred Shares. The purpose of these
provisions is to assist in protecting and preserving our REIT status and to
protect the interests of shareholders in takeover transactions by preventing
the acquisition of a substantial block of shares without first negotiating with
the Board. For us to qualify as a REIT under the Internal Revenue Code of 1986,
as amended, not more than 50% in value of our outstanding capital shares may be
owned by five or fewer individuals at any time during the last half of our
taxable year. The provision permits five persons to acquire up to a maximum of
9.8% each of the Common Shares, or an aggregate of 49% of the outstanding
Common Shares.

   Common Shares owned by a person or group of persons in excess of the 9.8%
limit is subject to redemption. The provision does not apply where a majority
of the Board, in its sole and absolute discretion, waives such limit after
determining that our eligibility to qualify as a REIT for federal income tax
purposes will not be jeopardized or the disqualification as a REIT is
advantageous to shareholders.

   Under an investor agreement executed in 1990, the Board permitted Security
Capital to acquire up to 49% of Archstone's fully converted Common Shares.
Security Capital's ownership of Common Shares is attributed for tax purposes to
its shareholders. In July 2000, we completed a transaction to repurchase
approximately 17.5 million of our Common Shares held by Security Capital in
exchange for Homestead mortgage notes with a face amount of $221.3 million and
cash of $178.7 million. In addition, Security Capital sold 5.3 million Common
Shares to other investors during 2000, reducing its investment to 25.8% of our
outstanding Common Shares at December 31, 2000. See Note 16 for additional
information on Security Capital's liquidation of its remaining investment in
Archstone's Common Shares subsequent to year-end.

  Purchase Rights

   In 1994, the Board authorized a shareholder distribution of one purchase
right for each Common Share held. Holders of additional Common Shares issued
after this date and prior to the expiration of the purchase rights in July 2004
will be entitled to one purchase right for each additional Common Share.

   Each purchase right entitles the holder under certain circumstances to
purchase from Archstone one one-hundredth of a Participating Preferred Share at
a price of $60 per one one-hundredth of a Participating Preferred Share,
subject to adjustment. Purchase rights are exercisable when a person or group
of persons acquires

                                      127

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

beneficial ownership of 20% or more of the fully converted Common Shares (49%
in the case of Security Capital and certain defined affiliates), or takes
formal actions, the intent of which would result in the beneficial ownership by
a person of 25% or more of the outstanding Common Shares (49% in the case of
Security Capital and certain defined affiliates). Under certain circumstances,
each purchase right entitles the holder to purchase, at the purchase right's
then current exercise price, a number of Common Shares having a market value of
twice the purchase right's exercise price. The acquisition of Archstone
pursuant to certain transactions or other business transactions would entitle
each holder to purchase, at the purchase right's then current exercise price, a
number of the acquiring company's common shares having a market value at that
time equal to twice the purchase right's exercise price. The purchase rights
will expire in July 2004 and are subject to redemption in whole, but not in
part, at a price of $0.01 per purchase right payable in cash, shares of
Archstone or any other form of consideration determined by the Board.

  Shelf Registration

   In December 1998, we filed a $750 million shelf registration with the SEC to
supplement an existing shelf registration with a balance of $77.2 million.
These securities can be issued in the form of Long-Term Unsecured Debt, Common
Shares or Preferred Shares on an as-needed basis, subject to our ability to
complete offerings on satisfactory terms. As of December 31, 2000 we had
approximately $577.2 million in shelf-registered securities available for
issuance.

(9) Atlantic Merger

   In July 1998, Security Capital Atlantic Incorporated ("Atlantic"), an
affiliated apartment REIT which operated primarily in the southeast and
mid-Atlantic markets of the United States, was merged with and into Security
Capital Pacific Trust ("Pacific"). Atlantic and Pacific traded on the NYSE
under the symbols "SCA" and "PTR," respectively, prior to the merger. The
combined company continued its existence under the name Archstone and is traded
on the NYSE under the symbol "ASN." In accordance with the terms of the
Atlantic Merger, each outstanding Atlantic common share was converted into the
right to receive one Common Share and each outstanding Atlantic Series A
preferred share was converted into the right to receive one comparable share of
a new class of Series C preferred shares. As a result, 47,752,052 Common Shares
and 2,000,000 Series C Preferred Shares were issued to Atlantic's shareholders
in exchange for all of the outstanding Atlantic common shares and Atlantic
Series A Preferred Shares. In addition, Archstone assumed Atlantic's debt and
other liabilities. The Atlantic Merger added 91 operating apartment communities
(24,414 units) and 34 development communities (9,358 units) to the portfolio.
The total purchase price paid for Atlantic aggregated approximately $1.9
billion. The transaction was structured as a tax-free transaction and was
accounted for under the purchase method.

                                      128

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


   The following summarized pro forma unaudited information represents the
combined historical operating results of Pacific and Atlantic with the
appropriate purchase accounting adjustments, assuming the Atlantic Merger had
occurred on January 1, 1998. The pro forma financial information presented is
not necessarily indicative of what Archstone's actual operating results would
have been had the two companies constituted a single entity during such periods
(in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                                         Year Ended
                                                                      December 31, 1998
                                                                      -----------------
<S>                                                                   <C>
Total revenues.......................................................     $610,866
                                                                          ========
Net earnings attributable to Common Shares before extraordinary items     $201,562
                                                                          ========
Net earnings attributable to Common Shares...........................     $199,842
                                                                          ========
Weighted average Common Shares outstanding:
   Basic.............................................................      141,939
                                                                          ========
   Diluted...........................................................      148,714
                                                                          ========
Earnings attributable to Common Shares before extraordinary items per
  Common Share:
   Basic and Diluted.................................................     $   1.42
                                                                          ========
Net earnings attributable to Common Shares per Common Share:
   Basic and Diluted.................................................     $   1.41
                                                                          ========
</TABLE>

(10) Benefit Plans

   In September 1997, our Common Shareholders approved the long-term incentive
plan. To date, there have been four types of awards issued under the plan: (i)
an employee share purchase program with matching options; (ii) share options
with a dividend equivalent unit ("DEU") feature; (iii) share options without a
DEU feature; and (iv) restricted Common Share unit awards with a DEU feature.
No more than 8,650,000 share or option awards in the aggregate may be granted
under the plan and no individual may be awarded more than 500,000 share or
option awards in any one-year period. As of December 31, 2000 Archstone had
2,106,918 share awards available for future grants. The plan has a 10-year term.

  1997 Employee Share Purchase Program with Matching Options

   As of December 31, 2000, there were 333,555 Common Shares outstanding that
had been purchased by certain officers and other employees at prices ranging
from $22.06 to $23.34 per Common Share under the employee share purchase
program. This share purchase program was conducted in 1997 when Archstone
became an internally managed REIT. There have been no employee share purchase
programs initiated since that time. Archstone financed 95% of the total
purchase price through 10-year notes from the participants. The share purchase
notes are recorded as a reduction in shareholders' equity and are included in
"Other, net" on the accompanying Statements of Shareholders' Equity. The notes
bear interest at approximately 6.0% per annum. All dividends on the shares are
applied to interest and principal on the notes, with no cash distributions to
employees. The notes are fully recourse to the participant and are also secured
by the Common Shares purchased. For each Common Share purchased, participants
were granted two options. Each option entitles the participant to purchase one
Common Share at the market price of the underlying share on the date of grant.
The matching share options

                                      129

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

gradually vest over a five-year period. A reconciliation of the notes due from
employees during 2000 and 1999 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                2000     1999
                                              --------  -------
               <S>                            <C>       <C>
               Beginning balance............. $ 19,170  $26,275
               Repayments upon sale of shares  (12,308)  (6,854)
               Regular principal payments....      (98)    (251)
                                              --------  -------
                  Ending balance............. $  6,764  $19,170
                                              ========  =======
</TABLE>

   Of the notes outstanding at December 31, 2000, approximately $5.2 million
were due from officers.

  Dividend Equivalent Units

   Under the long-term incentive plan participants who are awarded share
options or restricted Common Share units may be credited with DEUs with respect
to such rewards. The DEUs credited in relation to share options or restricted
Common Share units are awarded annually each year and vest under substantially
the same terms as the underlying share options or restricted Common Shares.

   DEUs credited in relation to share options generally represent the average
number of share options held at each record date, multiplied by the difference
between the average annual dividend yield on Common Shares and the average
dividend yield for the Standard & Poor's 500 Stock Index. The average annual
dividend yield for the Standard & Poor's 500 Stock Index is not deducted when
calculating DEUs credited in relation to restricted Common Share units or when
calculating the DEUs earned on previously-earned DEUs. As of December 31, 2000,
there were a total of 233,721 DEUs outstanding awarded to 123 holders of share
options and restricted Common Share units. We recognize the value of the DEUs
awarded as compensation expense over the vesting period, net of any previously
recorded DEU expense related to forfeitures. The matching options granted in
connection with the 1997 employee purchase program and all of the options
granted in 2000 did not have a DEU feature.

  Share Options and Trustee Options

   The exercise price of each share option granted is equal to the Common Share
closing price on the date of grant. The share options awarded generally vest at
a rate of 25% per year.

   Additionally, Archstone has authorized 200,000 Common Shares for issuance to
Outside Trustees. The exercise price of Outside Trustee options is equal to the
average of the highest and lowest market price per share on the date of grant.
All of the options granted prior to 1999 have a five-year term and are
exercisable in whole or in part at any time. The options issued in 1999 and
2000 have a DEU feature, a 10-year term and vest over a four-year period.

   A summary of all share options outstanding at December 31, 2000 follows:

<TABLE>
<CAPTION>
                                               Exercise Prices               Weighted-Average
                                  Number of --------------------- Expiration    Remaining
                                   Options      Range     Average    Date    Contractual Life
                                  --------- ------------- ------- ---------- ----------------
<S>                               <C>       <C>           <C>     <C>        <C>
Matching options under the 1997
  employee share purchase program 1,243,884 $21.19-$23.34 $22.18  2007-2008     6.75 years
Share options with DEUs.......... 1,608,120 $19.00-$23.75 $20.63  2007-2009     8.03 years
Share options without DEUs....... 1,215,209 $21.88-$24.63 $24.60       2010     9.92 years
Outside Trustees.................    86,000 $19.34-$22.59 $22.21  2001-2010     6.70 years
                                  --------- ------------- ------
   Total......................... 4,153,213 $19.00-$24.63 $22.29
                                  ========= ============= ======
</TABLE>

                                      130

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


   A summary of the status of our share option plans as of December 31, 2000,
1999 and 1998, and changes during the years ended on those dates is presented
below:

<TABLE>
<CAPTION>
                                                      Weighted
                                                      Average   Number of
                                           Number of  Exercise   Options
                                            Options    Price   Exercisable
                                           ---------  -------- -----------
      <S>                                  <C>        <C>      <C>
      Balance/Average at December 31, 1997 1,885,417   $21.99      38,000
                                           ---------   ------   ---------
         Assumed in the Atlantic Merger... 1,260,138    22.44
         Granted.......................... 1,582,754    20.67
         Exercised........................    (8,000)   16.14
         Forfeited........................  (563,660)   22.30
                                           ---------   ------
      Balance/Average at December 31, 1998 4,156,649   $21.62      48,000
                                           ---------   ------   ---------
         Granted..........................   923,528    20.74
         Exercised........................   (10,000)   18.83
         Forfeited........................  (873,763)   21.87
                                           ---------   ------
      Balance/Average at December 31, 1999 4,196,414   $21.36     873,325
                                           ---------   ------   ---------
         Granted.......................... 1,259,776    24.51
         Exercised........................  (371,333)   21.49
         Forfeited........................  (931,644)   21.40
                                           ---------   ------
      Balance/Average at December 31, 2000 4,153,213   $22.29   1,182,120
                                           =========   ======   =========
</TABLE>

  Proforma Compensation Expense

   We have adopted SFAS No. 123, Accounting for Stock-Based Compensation, which
allows us to continue to account for our various share option plans under APB
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and
related interpretations. Under APB 25, if the exercise price of the share
options equals the market price of the underlying share on the date of grant,
no compensation expense is recognized. Accordingly, we did not recognize
compensation expense related to share options, as the exercise price of all
options granted was equal to the market price on the date of grant. Had
compensation cost for these plans been determined using the option valuation
models prescribed by SFAS No. 123, net earnings attributable to Common Shares
and earnings per Common Share for 2000, 1999 and 1998 would change as follows:

<TABLE>
<CAPTION>
                                                  2000     1999     1998
                                                -------- -------- --------
     <S>                                        <C>      <C>      <C>
     Net earnings attributable to Common Shares
       (in thousands):
        As reported............................ $236,045 $204,526 $177,022
                                                ======== ======== ========
        Pro forma.............................. $235,022 $203,348 $175,991
                                                ======== ======== ========
     Basic earnings per Common Share:
        As reported............................ $   1.79 $   1.46 $   1.49
                                                ======== ======== ========
        Pro forma.............................. $   1.78 $   1.45 $   1.48
                                                ======== ======== ========
     Diluted earnings per Common Share:
        As reported............................ $   1.78 $   1.46 $   1.49
                                                ======== ======== ========
        Pro forma.............................. $   1.77 $   1.45 $   1.48
                                                ======== ======== ========
</TABLE>


                                      131

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

   The pro forma amounts above were calculated using the Black-Scholes model,
using the following assumptions:

<TABLE>
<CAPTION>
                                               2000       1999       1998
                                            ---------- ---------- ----------
   <S>                                      <C>        <C>        <C>
   Weighted average risk-free interest rate      5.43%      6.52%      4.74%
   Weighted average dividend yield.........      6.77%      6.97%      6.43%
   Weighted average volatility.............     23.65%     16.31%     25.44%
   Weighted average expected option life... 6.25 years 6.27 years 6.74 years
</TABLE>

   The weighted average fair value of all options granted (excluding Trustee
options) was approximately $3.00, $2.00 and $3.00 per option during 2000, 1999
and 1998, respectively.

  Restricted Common Share Unit Awards

   During 2000, 1999 and 1998 we awarded 131,942, 360,394 and 220,572
restricted Common Share units with a DEU feature to certain employees under the
long-term incentive plan, respectively, of which 92,029 have been forfeited.
Each restricted Common Share unit is subject to certain vesting provisions, and
upon settlement provides the holder with one Common Share. The restricted
Common Share units and related DEU feature generally vest at 20%-50% per year
over a two- to five-year period. We recognize the value of the awards and the
related DEUs as compensation expense over the vesting period.

  401(k) Plan and Nonqualified Savings Plan

   In December 1997, the Board established a 401(k) plan and a nonqualified
savings plan, which both became effective on January 1, 1998. The plans work
together to provide for matching employer contributions of fifty cents for
every dollar contributed by an employee, up to 6% of the employees' annual
compensation. The matching employer contributions are made in Common Shares,
which vest based on years of service at a rate of 20% per year.

  Deferred Fee Plan for Non-Employee Trustees

   Each non-employee member of our Board has the opportunity to defer receipt
of all or a portion of the service fees they otherwise would have been paid in
cash. If a participant elects to have their fees deferred, the fees are accrued
based on the amount that would be payable if he had used the cash to purchase
Common Shares on the date the fee was received and reinvested any dividends
received during the deferral period into additional Common Shares.
Distributions can be deferred up to the date the Trustee ceases to serve on the
Board and are payable in Common Shares.

(11) Financial Instruments

  Fair Value of Financial Instruments

   At December 30, 2000 and 1999, our financial instruments included cash and
cash equivalents, restricted cash held in a tax-deferred exchange escrow, stock
investments, receivables, accounts payable, borrowings and interest rate
contracts.

   At December 31, 2000 and 1999, the fair values of cash and cash equivalents,
restricted cash held in a tax-deferred exchange escrow, receivables and
accounts payable approximated their carrying values because of the short-term
nature of these instruments. The estimated fair values of other financial
instruments subject to fair

                                      132

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

value disclosures and the related carrying amounts are summarized in the table
below. These fair values were determined based on available market information
and valuation methodologies believed to be appropriate for these purposes.
Considerable judgment and a high degree of subjectivity are involved in
developing these estimates and, therefore, are not necessarily indicative of
the actual amounts that we could realize upon disposition (in thousands):

<TABLE>
<CAPTION>
                                          2000                  1999
                                  --------------------- ---------------------
                                   Carrying              Carrying
                                   Amounts   Fair Value  Amounts   Fair Value
                                  ---------- ---------- ---------- ----------
  <S>                             <C>        <C>        <C>        <C>
  Stock investments.............. $   16,182 $   16,182 $    7,761 $    7,761
  Borrowings:
     Unsecured credit facilities. $  193,719 $  193,719 $  493,536 $  493,536
     Long-Term Unsecured Debt....  1,401,262  1,392,216  1,276,572  1,209,395
     Mortgages payable...........    875,804    892,733    694,948    690,032
  Interest rate contracts:
     Interest rate swaps......... $       -- $    6,599 $       -- $   12,791
     Interest rate caps..........        715        559        975      3,027
</TABLE>

  Interest Rate Risk Management

   We are exposed to the impact of interest rate changes and will occasionally
utilize interest rate swaps and interest rate caps as hedges with the objective
of lowering our overall borrowing costs. Our pay-floating swaps effectively
convert medium and long-term tax-exempt bond obligations to BMA Municipal Swap
Index(TM) variable rate instruments. These swap agreements expire in three-to
eight-years. Pay-fixed swaps and interest rate cap agreements effectively
convert floating rate obligations, which are typically indexed to LIBOR, to
fixed rate instruments. The pay-fixed swap agreements expire in one-to
six-years and the interest rate cap agreements expire in one-to five-years.

   The following table reflects changes in the notional or contractual amounts
of our interest rate contracts during 2000 and 1999 (in thousands). Renewals of
existing positions are not included.

<TABLE>
<CAPTION>
                                      Pay Floating Pay Fixed Interest
                                         Swaps       Swaps   Rate Caps
                                      ------------ --------- ---------
         <S>                          <C>          <C>       <C>
         Balance at December 31, 1998   $     --   $     --  $     --
                                        --------   --------  --------
            Additions................    119,311    205,000   118,450
                                        --------   --------  --------
         Balance at December 31, 1999   $119,311   $205,000  $118,450
                                        --------   --------  --------
            Additions................     54,450         --    34,508
                                        --------   --------  --------
         Balance at December 31, 2000   $173,761   $205,000  $152,958
                                        --------   --------  --------
</TABLE>

  New Accounting Guidance

   We adopted SFAS No. 133/138, Accounting for Derivative Instruments and
Hedging Activities on January 1, 2001. This new accounting standard requires
companies to carry all derivative instruments on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. We use only qualifying
hedges that are designated specifically to reduce exposure to interest rate
risk. This is typically accomplished using interest rate swaps, interest rate
caps or by locking in rates on anticipated debt issuances.


                                      133

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

   For financial reporting purposes, the accounting will vary depending on the
type of hedge and its effectiveness. With respect to a fair value hedge, both
changes in the fair value of the derivative hedging instrument and changes in
the fair value of the hedged item will be recorded in earnings each reporting
period. These amounts should completely offset with no resulting earnings
impact, except for the portion of the hedge that proves to be ineffective, if
any. In the case of a cash flow hedge, changes in fair value related to the
effective portion of the hedge are accumulated in other comprehensive income
and subsequently reclassified to earnings during the period that the hedged
item impacts earnings. The portion of the cash flow hedge that is ineffective
at offsetting cash flows will be recognized in earnings immediately. The
reduction in fair value on a cash flow hedge, such as an interest rate cap,
relating to the passage of time is recorded in earnings each period.

   Upon adoption of SFAS No. 133/138, we recorded a net transition unrealized
loss of approximately $200,000, related to the cumulative effect of an
accounting change in net earnings, and a net transition unrealized gain of
approximately $3.8 million in accumulated other comprehensive income (equity)
which is expected to reverse over the next two years. The impact to our balance
sheet consisted of an increase to total assets of approximately $6.4 million
and an increase to our debt balances of approximately $2.8 million. In general,
the amount of volatility will vary with the level of derivative activities
during any period. As a matter of policy, we pursue hedging strategies that
result in the least degree of earnings volatility possible under the new
accounting standard.

                                      134

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


(12) Selected Quarterly Financial Data (Unaudited)

   Selected quarterly financial data (in thousands, except per share amounts)
for 2000 and 1999 is summarized below. The sum of the quarterly earnings per
Common Share amounts may not equal the annual earnings per Common Share amounts
due primarily to changes in the number of Common Shares outstanding from
quarter to quarter.

<TABLE>
<CAPTION>
                                                          Three Months Ended        Year Ended
                                                      -------------------------- -----------------
                                                        3-31     6-30     9-30    12-31    12-31
                                                      -------- -------- -------- -------- --------
<S>                                                   <C>      <C>      <C>      <C>      <C>
2000:
   Total revenues.................................... $177,016 $184,813 $187,889 $173,516 $723,234
   Earnings from operations..........................   43,197   46,882   49,971   36,416  176,466
   Gains on dispositions of depreciated real estate,
     net.............................................    4,132   41,869   37,495    9,575   93,071
   Less minority interest:
     Perpetual preferred units.......................    1,214    1,567    1,567    1,567    5,915
     Convertible operating partnership units.........      230      366      365      365    1,326
   Less extraordinary item...........................       --       --       --      911      911
   Less Preferred Share dividends....................    6,431    6,370    6,307    6,232   25,340
                                                      -------- -------- -------- -------- --------
   Net earnings attributable to Common Shares--
     Basic........................................... $ 39,454 $ 80,448 $ 79,227 $ 36,916 $236,045
                                                      ======== ======== ======== ======== ========
   Net earnings per Common Share:
     Basic........................................... $   0.28 $   0.58 $   0.62 $   0.30 $   1.79
                                                      ======== ======== ======== ======== ========
     Diluted......................................... $   0.28 $   0.57 $   0.61 $   0.30 $   1.78
                                                      ======== ======== ======== ======== ========
1999:
   Total revenues.................................... $161,387 $163,317 $168,872 $173,446 $667,022
                                                      -------- -------- -------- -------- --------
   Earnings from operations..........................   39,668   42,753   43,746   43,172  169,339
   Gains on dispositions of depreciated real estate,
     net.............................................    5,319   13,659   27,909   15,206   62,093
   Less minority interest:
     Perpetual preferred units.......................       --       --      164      778      942
     Convertible operating partnership units.........      338      338      221      221    1,118
   Less extraordinary item...........................    1,113       --       --       --    1,113
   Less Preferred Share dividends....................    5,691    5,617    6,036    6,389   23,733
                                                      -------- -------- -------- -------- --------
   Net earnings attributable to Common Shares--
     Basic........................................... $ 37,845 $ 50,457 $ 65,234 $ 50,990 $204,526
                                                      ======== ======== ======== ======== ========
   Net earnings per Common Share:
     Basic........................................... $   0.27 $   0.36 $   0.47 $   0.37 $   1.46
                                                      ======== ======== ======== ======== ========
     Diluted......................................... $   0.27 $   0.36 $   0.46 $   0.37 $   1.46
                                                      ======== ======== ======== ======== ========
</TABLE>

(13) Segment Data

   We define each of our apartment communities as individual operating
segments. We have determined that all of our apartment communities have similar
economic characteristics and also meet the other criteria, which permit the
apartment communities to be aggregated into one reportable segment. We rely
primarily on Net Operating Income for purposes of making decisions about
allocating resources and assessing segment performance.

                                      135

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


   Following are reconciliations of the reportable segment's: (i) revenues to
consolidated revenues; (ii) Net Operating Income to consolidated earnings from
operations; and (iii) assets to consolidated assets, for the periods indicated
(in thousands):

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                    ------------------------------
                                                      2000       1999       1998
                                                    ---------  ---------  --------
<S>                                                 <C>        <C>        <C>
Reportable apartment communities segment
  revenues......................................... $ 684,438  $ 634,028  $478,144
Other non-reportable operating segment revenues (1)    38,796     32,994    35,501
                                                    ---------  ---------  --------
Total segment and consolidated revenues............ $ 723,234  $ 667,022  $513,645
                                                    =========  =========  ========

                                                        Year Ended December 31,
                                                    ------------------------------
                                                      2000       1999       1998
                                                    ---------  ---------  --------
Reportable apartment communities segment Net
  Operating Income (2)............................. $ 458,842  $ 416,515  $305,309
Other non-reportable operating segment Net
  Operating Income.................................     4,094      3,766     5,470
                                                    ---------  ---------  --------
       Total segment Net Operating Income..........   462,936    420,281   310,779
                                                    ---------  ---------  --------
Reconciling items:
   Income from unconsolidated real estate entities.     2,575      2,118        --
   Other income....................................    32,115     27,096    29,106
   Depreciation on real estate investments.........  (143,694)  (132,437)  (96,337)
   Interest expense................................  (145,173)  (121,494)  (83,350)
   General and administrative expenses.............   (23,157)   (22,156)  (16,092)
   Other expenses..................................    (9,136)    (4,069)   (9,535)
                                                    ---------  ---------  --------
Consolidated earnings from operations.............. $ 176,466  $ 169,339  $134,571
                                                    =========  =========  ========
</TABLE>

<TABLE>
<CAPTION>
                                                           December 31,
                                                       ---------------------
                                                          2000       1999
                                                       ---------- ----------
   <S>                                                 <C>        <C>
   Reportable operating communities segment assets.... $4,694,938 $4,819,307
   Other non-reportable operating segment assets (3)..    256,939    371,727
                                                       ---------- ----------
          Total segment assets........................  4,951,877  5,191,034
                                                       ---------- ----------
   Reconciling items:
      Cash and cash equivalents.......................        503        515
      Restricted cash in tax-deferred exchange escrow.      3,274     68,729
      Other assets....................................     64,043     42,159
                                                       ---------- ----------
   Consolidated total assets.......................... $5,019,697 $5,302,437
                                                       ========== ==========
</TABLE>
--------
(1) Includes $13.6 million, $23.6 million and $22.9 million of interest income
    on the Homestead mortgage notes in 2000, 1999 and 1998, respectively.
    Income from our unconsolidated real estate entities, interest income on
    cash equivalents and other notes receivable are also included. The year
    ended December 31, 2000 includes a $3.3 million gain in the sale of
    Spectrum Apartment Locators, an apartment locator company acquired in
    January 1998, and a $9.3 million gain on the exchange of Homestead mortgage
    notes for Common Shares held by Security Capital.

                                      136

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


(2) Net Operating Income is defined as rental revenues less rental expenses and
    real estate taxes.
(3) Includes $229.0 million and $130.8 million of investment in and advances to
    our unconsolidated real estate entities during 2000 and 1999, respectively,
    and various other real estate investments.

   We do not derive any of our consolidated revenues from foreign countries and
do not have any major customers that individually account for 10% or more of
our consolidated revenues.

(14) Commitments and Contingencies

   Archstone is a party to various claims and routine litigation arising in the
ordinary course of business. We do not believe that the results of any of such
claims and litigation, individually or in the aggregate, will have a material
adverse effect on our business, financial position or results of operations.

   Archstone is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of our due
diligence investigation procedures, we conduct Phase I environmental
assessments on each property prior to acquisition. The cost of complying with
environmental regulations was not material to Archstone's results of operations
for any of the years in the three-year period ended December 31, 2000. We are
not aware of any environmental condition on any of our communities, which is
likely to have a material effect on Archstone's financial condition or results
of operations.

   See Note 2 for real estate-related commitments.

(15) Supplemental Cash Flow Information

   Significant non-cash investing and financing activities for the years ended
December 31, 2000, 1999 and 1998 are as follows:

    (i) See Note 9 regarding the Atlantic Merger.

   (ii) We completed a transaction to repurchase approximately 17.5 million of
        our Common Shares held by Security Capital in exchange for Homestead
        mortgage notes with a face amount of $221.3 million and cash of $178.7
        million. On the date of the transaction, the Homestead mortgage notes
        had a net book value of $195.7 million.

  (iii) In connection with the acquisition of apartment communities, we assumed
        mortgage debt of $71.0 million, $105.4 million and $93.7 million
        (excluding mortgage debt assumed in the Atlantic Merger) during the
        years ended December 31, 2000, 1999 and 1998, respectively.

   (iv) Holders of Series A Convertible Preferred Shares converted $10.0
        million, $24.1 million and $17.7 million of their shares into Common
        Shares during the years ended December 31, 2000, 1999 and 1998,
        respectively.

   (vi) In 2000, we entered into joint venture transactions formed through our
        contribution of apartment communities and land in exchange for cash and
        an ownership interest in each of the ventures with an aggregate
        carrying value of $19.7 million.

  (vii) A consolidated subsidiary acquired a development site in Los Angeles
        County, California in exchange for cash and 351,000 convertible
        operating partnership units valued at approximately $6.8 million during
        the year ended December 31, 2000.

 (viii) We refinanced approximately $54.8 million and $59.7 million in bonds
        during the year ended December 31, 2000 and 1999, respectively.

                                      137

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


(16) Subsequent Event

   On November 22, 2000, we filed a Form S-3 with the SEC relating to the
registration of all of the Common Shares owned at that time by Security
Capital. On February 28, 2001, Security Capital sold 29.5 million Common Shares
under this registration statement in an underwritten offering at a price of
$23.30 per share ($22.08 per share after underwriting discounts). Concurrent
with this sale, Archstone repurchased 2.3 million Common Shares from Security
Capital at $22.08 per share, which is the same net price per share received by
Security Capital in the offering. The repurchase of shares was funded using
proceeds from borrowings under our unsecured credit facilities. We expect to
repay these borrowings with proceeds from dispositions. As a result of these
transactions, Security Capital liquidated its entire investment in Archstone's
Common Shares and is no longer entitled to Board representation or any other
special rights previously associated with its investment. Both of Security
Capital's designees to the Board, C. Ronald Blankenship and John T. Kelley III,
resigned concurrent with the closing of the transactions.

                                      138

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholders
Archstone Communities Trust:

   Under date of January 30, 2001, except as to Note 16 which is as of February
28, 2001, we reported on the balance sheets of Archstone Communities Trust as
of December 31, 2000 and 1999, and the related statements of earnings,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule. This financial statement schedule is the responsibility of
the company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

   In our opinion, such financial statement schedule as listed in the
accompanying index, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

                                          KPMG LLP

Chicago, Illinois
January 30, 2001

                                      139

<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                   REAL ESTATE AND ACCUMULATED DEPRECIATION

                               December 31, 2000
                         (dollar amounts in thousands)

                                                                   SCHEDULE III

<TABLE>
<CAPTION>
                                                     Initial Cost to                  Gross Amount at Which Carried
                                                        Archstone                         at December 31, 2000
                                                    -----------------        Costs    -----------------------------
                                                               Buildings  Capitalized            Buildings
                                                                   &      Subsequent                 &
                                         Encum-                Improve--      to                 Improve--
                                   Units brances     Land        ments    Acquisition   Land       ments     Totals
                                   ----- -------    -------    ---------  -----------  -------   ---------  -------
<S>                                <C>   <C>        <C>        <C>        <C>         <C>        <C>        <C>
Apartment Communities:
Albuquerque, New Mexico:
   Comanche Wells.................  179  $    --    $   719     $ 4,072     $   850   $   719     $ 4,922   $ 5,641
   La Paloma......................  424       --      4,135          --      20,277     4,135      20,277    24,412
   Pavilions......................  240       --      2,182       7,624       6,533     2,182      14,157    16,339
   Telegraph Hill.................  200       --      1,216       6,889       1,171     1,216       8,060     9,276
   Vista Del Sol..................  168       --      1,105       4,419       1,470     1,105       5,889     6,994
   Vistas at Seven Bar Ranch......  572       --      3,541       5,351      21,091     3,541      26,442    29,983
   Wellington Place...............  280       --      1,881       7,523       2,047     1,881       9,570    11,451
Atlanta, Georgia:
   Archstone Roswell..............  664   30,032      6,791      38,484         771     6,791      39,255    46,046
   Archstone Vinings..............  200       --      1,787      10,126       1,478     1,787      11,604    13,391
   Archstone Perimeter Center.....  365   15,729      4,245      24,053         459     4,245      24,512    28,757
   Cameron Briarcliff.............  220       --      2,515      14,250         427     2,515      14,677    17,192
   Archstone North Point..........  264   14,606      2,248      12,740       8,102     2,248      20,842    23,090
   Archstone State Bridge.........  224       --      2,119      12,010       4,990     2,119      17,000    19,119
   Cameron Brook..................  440   18,558      4,050      22,950         532     4,050      23,482    27,532
   Cameron Dunwoody...............  238       --      2,747      15,566         278     2,747      15,844    18,591
   Archstone Gwinnett Place.......  304    9,898      2,389      13,537         350     2,389      13,887    16,276
   Cameron Pointe.................  214   12,308      2,725      15,440       1,327     2,725      16,767    19,492
   Cameron Station................  348   14,751      2,880      16,321         704     2,880      17,025    19,905
   Cameron Woodlands..............  644       --      4,901      27,775         622     4,901      28,397    33,298
   Trolley Square.................  270   15,356      2,918      16,534       1,153     2,918      17,687    20,605
   Winterscreek...................  200    4,779      1,561       8,846         166     1,561       9,012    10,573
Austin, Texas:
   Archstone Hunter's Run I & II..  400   14,524      2,197          --      18,188     2,197      18,188    20,385
   Archstone Monterey Ranch I.....  168       --        424          --       9,622       424       9,622    10,046
   Archstone Monterey Ranch II....  456   17,816      1,151          --      23,895     1,151      23,895    25,046
   Archstone Monterey Ranch III...  448       --      1,131          --      30,274     1,131      30,274    31,405
   Archstone Northwest Hills......  314       --      1,311       7,431       3,736     1,311      11,167    12,478
   Shadowood......................  236       --      1,197       4,787       1,259     1,197       6,046     7,243
Boston, Massachusetts:
   Archstone Burlington...........  312   36,346      6,721      38,087       1,584     6,721      39,671    46,392
   Archstone Tewksbury I..........   77    3,022      1,189       6,739         313     1,189       7,052     8,241
   Archstone Tewksbury II.........  168       --      3,235         660      17,369     3,235      18,029    21,264
   Archstone Bear Hill............  324       --     77,230         127         452    77,230         579    77,809
   Archstone Canton...............  227   15,853     31,662         453         390    31,662         843    32,505
   Northgate Heights..............  207       --     27,921          51          17    27,921          68    27,989
   Stone Ends.....................  280   13,859     23,156          70          52    23,156         122    23,278
Charlotte, North Carolina:
   Archstone Tyvola Centre........  404       --      3,470       2,461      22,120     3,470      24,581    28,051
   Archstone Matthews.............  212    8,800      2,034      11,526         222     2,034      11,748    13,782
   Archstone Eastover.............  128       --      1,431       8,107       1,276     1,431       9,383    10,814
   Archstone North Cross..........  312   15,308      3,573      20,264         366     3,573      20,630    24,203
   Archstone Reafield.............  324       --      3,009      17,052       1,282     3,009      18,334    21,343
   Archstone Steele Creek.........  264       --      2,475      14,028         300     2,475      14,328    16,803
Chicago, Illinois:
   Foxfire........................  294    8,000      3,137      17,770       2,317     3,137      20,087    23,224
   Garden Glen....................  460   33,410      6,844      38,722       2,808     6,844      41,530    48,374
</TABLE>
<TABLE>
<CAPTION>




                                                  Con--
                                   Accumulated  struction   Year
                                   Depreciation   Year    Acquired
                                   ------------ --------- --------
<S>                                <C>          <C>       <C>
Apartment Communities:
Albuquerque, New Mexico:
   Comanche Wells.................    $  909      1985      1994
   La Paloma......................     3,778      1996      1993
   Pavilions......................     3,526        (a)       (a)
   Telegraph Hill.................       959      1986      1996
   Vista Del Sol..................     1,153      1987      1993
   Vistas at Seven Bar Ranch......     4,282        (b)       (b)
   Wellington Place...............     1,723      1981      1993
Atlanta, Georgia:
   Archstone Roswell..............     4,445      1988      1998
   Archstone Vinings..............     1,141      1978      1998
   Archstone Perimeter Center.....     2,583      1990      1998
   Cameron Briarcliff.............     1,531      1989      1998
   Archstone North Point..........     1,407      1999      1998
   Archstone State Bridge.........     1,071      1999      1998
   Cameron Brook..................     2,421      1988      1998
   Cameron Dunwoody...............     1,674      1989      1998
   Archstone Gwinnett Place.......     1,451      1986      1998
   Cameron Pointe.................     1,686      1987      1998
   Cameron Station................     1,830        (d)     1998
   Cameron Woodlands..............     2,950        (e)     1998
   Trolley Square.................     1,829      1989      1998
   Winterscreek...................       953      1984      1998
Austin, Texas:
   Archstone Hunter's Run I & II..     3,006        (f)     1993
   Archstone Monterey Ranch I.....       615      1999      1993
   Archstone Monterey Ranch II....     2,976      1996      1993
   Archstone Monterey Ranch III...       134        (c)     1993
   Archstone Northwest Hills......     1,933      1979      1993
   Shadowood......................     1,125      1985      1993
Boston, Massachusetts:
   Archstone Burlington...........     2,449      1989      1999
   Archstone Tewksbury I..........       403      1995      1999
   Archstone Tewksbury II.........       734      2000      1999
   Archstone Bear Hill............     1,713      1999      2000
   Archstone Canton...............       535      1992      2000
   Northgate Heights..............        81      1978      2000
   Stone Ends.....................        67      1975      2000
Charlotte, North Carolina:
   Archstone Tyvola Centre........        97        (c)     1998
   Archstone Matthews.............     1,164      1998      1998
   Archstone Eastover.............       918      1987      1998
   Archstone North Cross..........     1,377      1997      1998
   Archstone Reafield.............     1,865      1987      1998
   Archstone Steele Creek.........     1,471      1997      1998
Chicago, Illinois:
   Foxfire........................     1,438      1988      1999
   Garden Glen....................     3,097      1987      1999
</TABLE>

                                      140

<PAGE>

<TABLE>
<CAPTION>
                                                   Initial Cost to                  Gross Amount at Which Carried
                                                      Archstone            Costs        at December 31, 2000
                                                 -------------------    Capitalized -----------------------------
                                                            Buildings & Subsequent             Buildings &
                                      Encum-                 Improve--      to                   Improve
                                Units brances     Land         ments    Acquisition   Land       -ments     Totals
                                ----- -------    -------    ----------- ----------- -------    ----------- --------
<S>                             <C>   <C>        <C>        <C>         <C>         <C>        <C>         <C>
Apartment Communities:
Chicago, Illinois: (continued)
 Prairie Court (i).............  125  $ 7,250    $ 2,071     $ 11,708     $   343   $ 2,071     $ 12,051   $ 14,122
 Arlington Heights.............  240       --     18,090          111         444    18,090          555     18,645
Dallas, Texas:
 Archstone Knoxbridge..........  334   15,261      4,668       26,453         911     4,668       27,364     32,032
 Archstone Legacy..............  244       --      1,532        8,683       2,792     1,532       11,475     13,007
 Archstone Spring Creek........  278       --      1,613        9,140       3,360     1,613       12,500     14,113
 Oaks at Park Boulevard, The...  216       --      1,386        5,543       3,230     1,386        8,773     10,159
 Summerstone...................  192       --      1,028        5,824       2,378     1,028        8,202      9,230
 Timber Ridge I & II...........  352       --      1,672        5,671      11,085     1,672       16,756     18,428
Denver, Colorado:
 Archstone Dakota Ridge........  480   25,675      2,108           24      32,530     2,108       32,554     34,662
 Archstone Red Rocks II........  172       --        828          529      14,960       828       15,489     16,317
 Archstone Red Rocks I.........  408       --      3,128       12,512       6,696     3,128       19,208     22,336
 Fox Creek I...................  175       --      1,167        4,669       1,734     1,167        6,403      7,570
 Fox Creek II..................  112       --         --           --       8,818        --        8,818      8,818
 Legacy Heights................  384   17,671      2,049            4      20,542     2,049       20,546     22,595
 Reflections I & II............  416       --      2,396        6,362      14,827     2,396       21,189     23,585
 Archstone Quincy Commons......  204    8,500      2,416       13,674         766     2,416       14,440     16,856
 Silver Cliff..................  312       --      2,410       13,656       1,708     2,410       15,364     17,774
 Archstone DTC.................  156       --      1,030        4,596       3,652     1,030        8,248      9,278
 Wendemere at the Ranch........  256   12,545      2,606       14,769         650     2,606       15,419     18,025
Ft. Lauderdale/West Palm Beach:
 Archstone at Woodbine.........  408       --      3,803        1,832      22,374     3,803       24,206     28,009
 Archstone Pembroke Pines......  308       --      2,675       15,159       2,300     2,675       17,459     20,134
 Archstone Waterview...........  192       --      1,847       10,464       1,007     1,847       11,471     13,318
 Cameron at the Villages.......  384       --      3,298       18,686       1,491     3,298       20,177     23,475
 Cameron Cove..................  221    8,078      1,648        9,338       1,049     1,648       10,387     12,035
 Cameron Gardens...............  300       --      2,803       15,882       6,094     2,803       21,976     24,779
 Cameron Hidden Harbor.........  200    4,959      1,868       10,587       1,457     1,868       12,044     13,912
 Cameron Palms.................  340       --      2,252       12,763      13,941     2,252       26,704     28,956
 Cameron Park I................  196       --      2,129       12,063       2,656     2,129       14,719     16,848
 Cameron Waterways.............  300       --      3,678       20,840         501     3,678       21,341     25,019
 Archstone Island Reach........  280       --      2,764       15,662       1,308     2,764       16,970     19,734
 Park Place at Turtle Run......  350       --      2,598       14,721         223     2,598       14,944     17,542
Houston, Texas:
 7100 Almeda...................  348       --      1,713        9,706       2,788     1,713       12,494     14,207
 Archstone Brompton Court......  794       --      4,058       22,993       9,529     4,058       32,522     36,580
 Archstone Medical Center I....  360   11,715      4,210           --      14,757     4,210       14,757     18,967
 Archstone Medical Center II...  318       --      3,368           --      15,935     3,368       15,935     19,303
 Archstone Memorial Heights....  616   25,047     12,333           --      23,063    12,333       23,063     35,396
Indianapolis, Indiana:
 Arbor Green...................  208       --      1,597        9,049        (436)    1,597        8,613     10,210
 Archstone River Ridge.........  202       --        461        2,612      11,301       461       13,913     14,374
Inland Empire, California:
 Crossing, The.................  296       --      2,227       12,622       2,387     2,227       15,009     17,236
 Miramonte.....................  290       --      2,357       13,364       1,557     2,357       14,921     17,278
 Sierra Hills..................  300   17,706      2,810       15,921       2,187     2,810       18,108     20,918
 Terracina.....................  736       --      5,780       32,757       3,655     5,780       36,412     42,192
 Westcourt.....................  515       --      1,909       10,817       4,908     1,909       15,725     17,634
 Woodsong......................  262       --      1,846       10,469       1,125     1,846       11,594     13,440
Las Vegas, Nevada:
 Horizons at Piccole Ranch.....  408       --      3,173       18,048       1,877     3,173       19,925     23,098
 La Tierra at the Lakes........  896       --      5,904       33,561       7,133     5,904       40,694     46,598
Los Angeles, California:
 Oakridge......................  178       --      3,212       18,200       1,752     3,212       19,952     23,164
 Regency Court.................  174       --      1,962       11,118       1,297     1,962       12,415     14,377
 Studio Colony.................  450   24,305     58,837          134       3,083    58,837        3,217     62,054
</TABLE>
<TABLE>
<CAPTION>



                                               Con--
                                Accumulated  struction   Year
                                Depreciation   Year    Acquired
                                ------------ --------- --------
<S>                             <C>          <C>       <C>
Apartment Communities:
Chicago, Illinois: (continued)
 Prairie Court (i).............    $  535      1987      1999
 Arlington Heights.............       374      1986      2000
Dallas, Texas:
 Archstone Knoxbridge..........     1,620      1994      1998
 Archstone Legacy..............     2,043      1985      1993
 Archstone Spring Creek........     2,190      1983      1993
 Oaks at Park Boulevard, The...     1,381      1986      1993
 Summerstone...................     1,426      1983      1993
 Timber Ridge I & II...........     2,258        (g)       (g)
Denver, Colorado:
 Archstone Dakota Ridge........     1,624      1999      1997
 Archstone Red Rocks II........        81      2000      1999
 Archstone Red Rocks I.........     3,439      1984      1993
 Fox Creek I...................     1,358      1984      1993
 Fox Creek II..................       159      1999      1995
 Legacy Heights................     1,817      1998      1997
 Reflections I & II............     3,447        (h)       (h)
 Archstone Quincy Commons......       526      1986      1999
 Silver Cliff..................     2,680      1991      1994
 Archstone DTC.................     1,396      1981      1992
 Wendemere at the Ranch........     1,214      1984      1999
Ft. Lauderdale/West Palm Beach:
 Archstone at Woodbine.........       116        (c)     1999
 Archstone Pembroke Pines......     1,737      1988      1998
 Archstone Waterview...........     1,207      1988      1998
 Cameron at the Villages.......     2,101      1987      1998
 Cameron Cove..................     1,061      1986      1998
 Cameron Gardens...............     1,236      1999      1998
 Cameron Hidden Harbor.........     1,228      1986      1998
 Cameron Palms.................     1,295      1999      1998
 Cameron Park I................     1,051      1999      1998
 Cameron Waterways.............     1,912      1998      1998
 Archstone Island Reach........     1,154      1990      1999
 Park Place at Turtle Run......     1,568      1989      1998
Houston, Texas:
 7100 Almeda...................     2,090      1984      1994
 Archstone Brompton Court......     5,693      1972      1994
 Archstone Medical Center I....     2,438      1996      1994
 Archstone Medical Center II...     1,077      1999      1994
 Archstone Memorial Heights....     4,091      1996      1996
Indianapolis, Indiana:
 Arbor Green...................       992      1989      1998
 Archstone River Ridge.........       683      2000      1998
Inland Empire, California:
 Crossing, The.................     1,918      1989      1996
 Miramonte.....................     2,036      1989      1995
 Sierra Hills..................     1,780      1990      1997
 Terracina.....................     4,550      1988      1996
 Westcourt.....................     2,212      1986      1996
 Woodsong......................     1,363      1985      1996
Las Vegas, Nevada:
 Horizons at Piccole Ranch.....     3,017      1990      1995
 La Tierra at the Lakes........     6,427      1986      1995
Los Angeles, California:
 Oakridge......................     1,283      1985      1998
 Regency Court.................       840      1988      1999
 Studio Colony.................     1,110      1987      2000
</TABLE>

                                      141

<PAGE>

<TABLE>
<CAPTION>
                                                     Initial Cost to                  Gross Amount at Which Carried at
                                                        Archstone            Costs           December 31, 2000
                                                    ------------------    Capitalized --------------------------------
                                                              Buildings & Subsequent             Buildings &
                                         Encum-                Improve--      to                  Improve--
                                   Units brances     Land        ments    Acquisition   Land        ments     Totals
                                   ----- -------    ------    ----------- -----------  ------    ----------- --------
<S>                                <C>   <C>        <C>       <C>         <C>         <C>        <C>         <C>
Apartment Communities:
Minneapolis, Minnesota:
 Eden Commons.....................  196  $ 5,900    $1,973     $ 11,181     $   571   $1,973      $ 11,752   $ 13,725
 Regency Woods....................  282   14,381     3,591       20,368         779    3,591        21,147     24,738
 Willow Creek.....................  240       --     1,976       11,192       3,139    1,976        14,331     16,307
Nashville, Tennessee:
 Archstone Bellevue...............  225    4,902     2,235       12,660       1,118    2,235        13,778     16,013
 Archstone Briley Parkway.........  360       --     2,471       14,003         645    2,471        14,648     17,119
 Archstone Brentwood..............  380       --     2,672       15,143       2,355    2,672        17,498     20,170
 Archstone Shadowbluff............  220    5,595     1,422        8,059         207    1,422         8,266      9,688
Orange County, California:
 Las Flores.......................  504    7,232     8,900          264      41,473    8,900        41,737     50,637
 Newpointe........................  160       --     1,403        7,981         866    1,403         8,847     10,250
 Rivermeadows.....................  152       --     2,082       11,797       1,810    2,082        13,607     15,689
 Archstone Aliso Viejo............  241   23,497     4,872           --      22,956    4,872        22,956     27,828
 Archstone Villa Marseilles.......  192    3,566     1,970       11,162       5,027    1,970        16,189     18,159
 Windemere........................  182       --     2,611       14,815         738    2,611        15,553     18,164
 Archstone San Paloma.............  216    2,311     3,774          117       8,925    3,774         9,042     12,816
Orlando, Florida:
 Archstone Promenade..............  212       --     2,236       12,671       1,150    2,236        13,821     16,057
 Cameron Springs..................  340       --     2,893       16,391       1,102    2,893        17,493     20,386
 Cameron Wellington I & II........  312       --     3,110       17,620         530    3,110        18,150     21,260
 Kingston Village.................  120       --     1,039        5,887       1,226    1,039         7,113      8,152
Phoenix, Arizona:
 Cochise at Arrowhead I & II......  472       --     3,620           --      27,419    3,620        27,419     31,039
 Foxfire..........................  188       --     1,055        5,976       1,612    1,055         7,588      8,643
 Archstone Deer Valley Village II.  336       --     1,768           76      16,166    1,768        16,242     18,010
 Peaks at Papago Park, The........  768       --     5,131       23,408      10,741    5,131        34,149     39,280
 Ridge, The.......................  380       --     1,852       10,492       1,583    1,852        12,075     13,927
 San Marbeya......................  404   23,380     3,675           93      23,340    3,675        23,433     27,108
 Archstone Old Town Scottsdale....  472       --     3,527           --      21,598    3,527        21,598     25,125
 San Palmera......................  412       --     3,515           --      23,305    3,515        23,305     26,820
 Scottsdale Greens................  644   23,447     3,489       19,774       9,789    3,489        29,563     33,052
Portland, Oregon:
 Arbor Heights....................  348       --     2,669           --      20,816    2,669        20,816     23,485
 Brighton.........................  233       --     1,675        9,532       2,251    1,675        11,783     13,458
 Cambridge Crossing...............  250       --     2,260           --      13,471    2,260        13,471     15,731
 Hedges Creek.....................  408       --     3,758          162      23,703    3,758        23,865     27,623
 Preston's Crossing...............  228       --       851           --      12,337      851        12,337     13,188
 Timberline.......................  130       --     1,058        5,995         765    1,058         6,760      7,818
Raleigh, North Carolina:
 Archstone Olde Raleigh...........  228   11,754     2,732       15,482         494    2,732        15,976     18,708
 Archstone at Preston.............  388       --       882        4,996      22,468      882        27,464     28,346
 Archstone Southpoint.............  288       --     1,719        9,741       9,019    1,719        18,760     20,479
 Archstone Lynn Crest.............  228       --     2,031       11,508         133    2,031        11,641     13,672
 Archstone West Millbrook.........  368       --     3,145       17,820       2,197    3,145        20,017     23,162
 Archstone Ridgewood..............  228       --     1,694        9,599       1,564    1,694        11,163     12,857
 Archstone Crabtree Valley........  268       --     2,575       14,590         406    2,575        14,996     17,571
 Archstone Olde Apex..............  328       --     2,107       11,940       8,180    2,107        20,120     22,227
 Archstone University Tower.......  186       --     2,204       12,511         220    2,204        12,731     14,935
 Archstone Cornerstone............  302       --     3,748       21,239         479    3,748        21,718     25,466
 Archstone Poplar Place...........  230       --     2,189       12,407         954    2,189        13,361     15,550
 Archstone North Park.............  336   14,893     3,136       17,763         185    3,136        17,948     21,084
Reno, Nevada:
 Enclave I & II, The..............  408       --     3,485           --      27,168    3,485        27,168     30,653
 Vista Ridge......................  324       --     2,002           --      19,439    2,002        19,439     21,441
</TABLE>
<TABLE>
<CAPTION>



                                                  Con--
                                   Accumulated  struction   Year
                                   Depreciation   Year    Acquired
                                   ------------ --------- --------
<S>                                <C>          <C>       <C>
Apartment Communities:
Minneapolis, Minnesota:
 Eden Commons.....................    $  663      1987      1998
 Regency Woods....................       935      1988      1999
 Willow Creek.....................       567      1979      1999
Nashville, Tennessee:
 Archstone Bellevue...............       868      1986      1998
 Archstone Briley Parkway.........     1,778      1986      1998
 Archstone Brentwood..............     1,744      1988      1998
 Archstone Shadowbluff............       871      1986      1998
Orange County, California:
 Las Flores.......................     3,063      1999      1996
 Newpointe........................     1,063      1987      1996
 Rivermeadows.....................     1,378      1986      1997
 Archstone Aliso Viejo............     1,321      1998      1996
 Archstone Villa Marseilles.......     1,594      1991      1996
 Windemere........................     1,124      1987      1999
 Archstone San Paloma.............        --        (n)     1998
Orlando, Florida:
 Archstone Promenade..............     1,184      1999      1998
 Cameron Springs..................     1,802      1986      1998
 Cameron Wellington I & II........     1,666      1988      1998
 Kingston Village.................       698      1982      1998
Phoenix, Arizona:
 Cochise at Arrowhead I & II......     2,070      1999      1995
 Foxfire..........................     1,286      1985      1994
 Archstone Deer Valley Village II.         3        (c)     1996
 Peaks at Papago Park, The........     6,110        (j)       (j)
 Ridge, The.......................     2,236      1987      1993
 San Marbeya......................     1,379      1999      1997
 Archstone Old Town Scottsdale....     4,050      1994      1993
 San Palmera......................     2,950      1997      1995
 Scottsdale Greens................     5,654      1980      1994
Portland, Oregon:
 Arbor Heights....................     2,237      1998      1996
 Brighton.........................     1,373      1985      1996
 Cambridge Crossing...............     1,513      1998      1996
 Hedges Creek.....................     1,258      1999      1997
 Preston's Crossing...............     1,684      1996      1995
 Timberline.......................       866      1990      1996
Raleigh, North Carolina:
 Archstone Olde Raleigh...........     1,641      1995      1998
 Archstone at Preston.............     1,165      2000      1998
 Archstone Southpoint.............       904      1999      1998
 Archstone Lynn Crest.............     1,480      1997      1998
 Archstone West Millbrook.........     1,954        (k)     1998
 Archstone Ridgewood..............     1,050      1985      1998
 Archstone Crabtree Valley........     1,545      1987      1998
 Archstone Olde Apex..............     1,229      1999      1998
 Archstone University Tower.......       857      1997      1998
 Archstone Cornerstone............     2,239      1997      1998
 Archstone Poplar Place...........     1,374      1987      1998
 Archstone North Park.............     2,112      1996      1998
Reno, Nevada:
 Enclave I & II, The..............     1,756      1998      1996
 Vista Ridge......................     2,694      1997      1995
</TABLE>

                                      142

<PAGE>

<TABLE>
<CAPTION>
                                                                                            Gross Amount at Which Carried at
                                                      Initial Cost to Archstone    Costs           December 31, 2000
                                                      ------------------------- Capitalized --------------------------------
                                                                    Buildings & Subsequent             Buildings &
                                           Encum-                    Improve--      to                  Improve--
                                     Units brances       Land          ments    Acquisition   Land        ments     Totals
                                     ----- -------     -------      ----------- -----------  -------   ----------- --------
<S>                                  <C>   <C>        <C>           <C>         <C>         <C>        <C>         <C>
Apartment Communities:
Richmond, Virginia:
 Archstone Swift Creek I............  288  $    --    $   812         $ 4,604    $ 17,907   $   812     $ 22,511   $ 23,323
 Archstone Swift Creek II...........  144       --        869             137       4,631       869        4,768      5,637
 Cameron Crossing I & II............  424       --      4,968          28,155       1,504     4,968       29,659     34,627
Salk Lake City, Utah:
 Archstone River Oaks...............  448       --      5,400             213      29,570     5,400       29,783     35,183
 Brighton Place.....................  336       --      2,091          11,892       4,704     2,091       16,596     18,687
 Carrington Place...................  142    3,287      1,072           6,072         946     1,072        7,018      8,090
 Cloverland.........................  186    4,054      1,392           7,886       1,390     1,392        9,276     10,668
 Crossroads.........................  240    4,435      1,521           8,619       1,096     1,521        9,715     11,236
 Fairstone at Riverview.............  492       --      4,636              --      27,501     4,636       27,501     32,137
 Mountain Shadow....................  262       --        927           4,730       6,519       927       11,249     12,176
 Raintree...........................  152       --        948           5,373       1,079       948        6,452      7,400
 Riverbend..........................  200       --      1,357           7,692       1,261     1,357        8,953     10,310
San Antonio, Texas:
 Archstone Huebner Oaks.............  344       --      1,455           8,248       2,172     1,455       10,420     11,875
 Camino Real........................  176       --      1,084           4,338       2,784     1,084        7,122      8,206
 Contour Place......................  126       --        456           1,829         839       456        2,668      3,124
 Crescent, The......................  306       --      1,145              --      15,660     1,145       15,660     16,805
 Archstone Medical Center...........  276       --      1,631              --      12,203     1,631       12,203     13,834
 Archstone The Quarry...............  224    9,141      1,644              --      10,861     1,644       10,861     12,505
 Water at Northern Hills, The.......  305       --      1,251           7,105       2,217     1,251        9,322     10,573
San Diego, California:
 Archstone La Jolla.................  296       --      4,741          26,866       1,845     4,741       28,711     33,452
 Archstone Mission Valley...........  736       --     20,893             656      56,074    20,893       56,730     77,623
 Archstone Torrey Hills.............  340       --     10,400             659      32,532    10,400       33,191     43,591
 Archstone University Towne
 Centre.............................  328   20,900      4,616          26,160       2,819     4,616       28,979     33,595
 Archstone Del Mar..................  232   14,655      3,802          21,546       2,842     3,802       24,388     28,190
 Club Pacifica......................  264       --      2,141          12,132       1,609     2,141       13,741     15,882
 Ocean Crest........................  450       --      3,918          22,207       3,787     3,918       25,994     29,912
 Archstone Seaport Village..........  387       --      5,963          33,789       2,158     5,963       35,947     41,910
 Archstone Aviara...................  208       --      2,659          15,066       2,184     2,659       17,250     19,909
San Francisco (Bay Area),California:
 Archstone Emerald Park.............  324       --      8,950             170      40,324     8,950       40,494     49,444
 Archstone Hacienda.................  540    4,737     18,696             668      57,233    18,696       57,901     76,597
 Archstone Marina Bay...............  468       --      5,952          33,728       1,345     5,952       35,073     41,025
 Archstone Monterey Grove...........  224       --      4,451              13      22,574     4,451       22,587     27,038
 Archstone San Ramon................  496   40,452      7,820          44,311       2,797     7,820       47,108     54,928
 Archstone Willow Glen..............  412       --     16,140             746      40,369    16,140       41,115     57,255
 Ashton Place.......................  948   44,876      9,782          55,429      33,438     9,782       88,867     98,649
 Harborside.........................  149       --      3,213          18,210         575     3,213       18,785     21,998
 Los Padres Village.................  251       --      4,579          25,946       1,444     4,579       27,390     31,969
 Redwood Shores.....................  304   21,040      5,608          31,778       2,781     5,608       34,559     40,167
 Archstone Walnut Creek.............  510       --      5,788          32,802       1,745     5,788       34,547     40,335
 Archstone Morgan Hill..............  138       --     19,091              45         360    19,091          405     19,496
 Archstone Mountain View............  180       --     33,773              36          21    33,773           57     33,830
 Archstone Sausalito................  198   16,439     34,318              39          --    34,318           39     34,357
Seattle, Washington:
 Archstone Inglewood Hill...........  230       --      2,463              68      18,229     2,463       18,297     20,760
 Archstone Northcreek...............  524       --      5,750             261      35,703     5,750       35,964     41,714
 Cambrian, The......................  422       --      6,231          35,309       2,185     6,231       37,494     43,725
 Canyon Creek.......................  336   16,436      5,250              --      21,993     5,250       21,993     27,243
 Canyon Creek II....................  222    7,698      2,705          15,330       2,263     2,705       17,593     20,298
 Forestview.........................  192       --      1,681              --      13,936     1,681       13,936     15,617
 Harbour Pointe.....................  230       --      2,027              --      13,152     2,027       13,152     15,179
 Newport Crossing...................  192       --      1,694           9,602         939     1,694       10,541     12,235
 Redmond Hill East..................  590       --      4,745          26,711       6,152     4,745       32,863     37,608
</TABLE>
<TABLE>
<CAPTION>



                                                    Con--
                                     Accumulated  struction   Year
                                     Depreciation   Year    Acquired
                                     ------------ --------- --------
<S>                                  <C>          <C>       <C>
Apartment Communities:
Richmond, Virginia:
 Archstone Swift Creek I............    $  838      2000      1998
 Archstone Swift Creek II...........        --        (n)     1998
 Cameron Crossing I & II............     2,952      1998      1998
Salk Lake City, Utah:
 Archstone River Oaks...............     1,580      2000      1997
 Brighton Place.....................     2,656      1979      1995
 Carrington Place...................       636      1986      1997
 Cloverland.........................       846      1985      1997
 Crossroads.........................     1,189      1986      1996
 Fairstone at Riverview.............     2,835      1998      1996
 Mountain Shadow....................     1,440        (l)       (l)
 Raintree...........................       535      1984      1998
 Riverbend..........................       725      1985      1998
San Antonio, Texas:
 Archstone Huebner Oaks.............     1,867      1983      1993
 Camino Real........................     1,273      1979      1993
 Contour Place......................       784      1984      1992
 Crescent, The......................     3,198      1994      1992
 Archstone Medical Center...........     2,080      1996      1993
 Archstone The Quarry...............     1,867      1995      1993
 Water at Northern Hills, The.......     1,646      1982      1994
San Diego, California:
 Archstone La Jolla.................     3,152      1991      1996
 Archstone Mission Valley...........       101        (c)     1998
 Archstone Torrey Hills.............     1,521      2000      1997
 Archstone University Towne
 Centre.............................     2,432      1986      1997
 Archstone Del Mar..................     1,838      1991      1998
 Club Pacifica......................     1,734      1987      1996
 Ocean Crest........................     2,746        (m)       (m)
 Archstone Seaport Village..........     2,290      1992      1999
 Archstone Aviara...................     1,164      1986      1998
San Francisco (Bay Area),California:
 Archstone Emerald Park.............     1,706      2000      1997
 Archstone Hacienda.................     2,217      2000      1997
 Archstone Marina Bay...............     3,613      1991      1997
 Archstone Monterey Grove...........     1,105      2000      1997
 Archstone San Ramon................     4,914      1988      1997
 Archstone Willow Glen..............         7        (c)     1998
 Ashton Place.......................     9,099      1970      1996
 Harborside.........................     2,000      1989      1996
 Los Padres Village.................     2,662      1988      1997
 Redwood Shores.....................     3,891      1986      1996
 Archstone Walnut Creek.............     4,559      1988      1995
 Archstone Morgan Hill..............       204      1989      2000
 Archstone Mountain View............        97      1965      2000
 Archstone Sausalito................        33      1978      2000
Seattle, Washington:
 Archstone Inglewood Hill...........       922      2000      1997
 Archstone Northcreek...............     2,238      2000      1998
 Cambrian, The......................     3,614      1991      1997
 Canyon Creek.......................     2,397      1997      1997
 Canyon Creek II....................     1,356      1989      1998
 Forestview.........................     1,111      1998      1996
 Harbour Pointe.....................     1,324      1997      1996
 Newport Crossing...................     1,135      1990      1997
 Redmond Hill East..................     4,818      1990      1995
</TABLE>

                                      143

<PAGE>

<TABLE>
<CAPTION>

                                                      Initial Cost to Archstone     Costs
                                                      -------------------------  Capitalized
                                                                   Buildings &   Subsequent
                                          Encum--                   Improve--        to
                                   Units  brances        Land         ments      Acquisition
                                   ------ --------     --------    -----------   -----------
<S>                                <C>    <C>         <C>          <C>           <C>
Apartment Communities:
Seattle, Washington: (continued)
  Redmond Hill West...............    184 $  6,196    $  2,084     $   11,833    $    2,401
  Stonemeadow Farms...............    280       --       4,370             --        18,200
  Waterford Place.................    360       --       4,131         23,407         1,981
Stamford, New York:
  Stamford........................    160       --       5,775          1,225         4,629
Tampa/St. Petersburg, Florida:
  Archstone Boot Ranch............    250       --       2,102         11,910         1,070
 Archstone Rocky Creek............    264       --         511          2,896        15,726
 Archstone Bayshore...............    328       --       2,035         11,530         2,154
 Cameron Lakes....................    207       --       1,570          8,897           950
 Cameron Palm Habor...............    168    5,407       1,293          7,325           665
 Country Place Village I..........     88       --         777          4,400           910
 Country Place Village II.........    100       --         805          4,563           594
Ventura County, California:
 Le Cub...........................    370       --       4,958         28,097         2,638
 Pelican Point....................    400       --       4,365         24,735         2,493
 Moorpark.........................    312       --       4,203            641        10,540
Washington, D.C.:
 Archstone Bellemeade Farms.......    316   15,002       3,250         18,416         1,055
 Archstone Fair Lakes.............    282   18,524       3,687         20,893         1,083
 Archstone Governor's Green.......    338       --       1,836         10,402        23,011
 Archstone Milestone II...........    132       --       2,009            435         9,206
 Archstone Kingstowne.............    358       --       5,429         30,760           856
 Archstone Kendall Ridge..........    184       --       2,089         11,838           494
 Archstone Milestone I............    444       --       5,633         31,920           357
 Archstone Saybrooke..............    252       --       3,210         18,190           580
 Archstone Woodlands Park.........    392       --       6,989            494        25,208
 Archstone Government Center......    404       --       5,704         38,310         1,956
 Columbia Town Center.............    531       --       5,545          1,071         6,084
 West Springfield Terrace.........    244       --       2,918         16,537           430
                                   ------ --------     --------    ----------    ----------
Total Apartment Communities--
 Operating and Under Construction. 66,616 $875,804    $981,030     $2,360,457    $1,608,307
                                   ====== ========     ========    ==========    ==========
Other:
Development Communites in Planning
 and Owned........................
Hotel Asset.......................
Other Real Estate Assets (o)......

Total Real Estate Assets..........

</TABLE>
<TABLE>
<CAPTION>
                                   Gross Amount at Which Carried at
                                          December 31, 2000
                                   --------------------------------
                                               Buildings &                                Con--
                                                Improve--                  Accumulated  struction   Year
                                     Land         ments        Totals      Depreciation   Year    Acquired
                                   --------    -----------   ----------    ------------ --------- --------
<S>                                <C>         <C>           <C>           <C>          <C>       <C>
Apartment Communities:
Seattle, Washington: (continued)
  Redmond Hill West............... $  2,084    $   14,234    $   16,318      $  1,154     1986      1999
  Stonemeadow Farms...............    4,370        18,200        22,570         1,292     1999      1997
  Waterford Place.................    4,131        25,388        29,519         2,195     1989      1997
Stamford, New York:
  Stamford........................    5,775         5,854        11,629            --       (n)     2000
Tampa/St. Petersburg, Florida:
  Archstone Boot Ranch............    2,102        12,980        15,082         1,331     1988      1998
 Archstone Rocky Creek............      511        18,622        19,133           878     2000      1998
 Archstone Bayshore...............    2,035        13,684        15,719         1,314     1984      1998
 Cameron Lakes....................    1,570         9,847        11,417         1,037     1986      1998
 Cameron Palm Habor...............    1,293         7,990         9,283           837     1988      1998
 Country Place Village I..........      777         5,310         6,087           507     1982      1998
 Country Place Village II.........      805         5,157         5,962           518     1983      1998
Ventura County, California:
 Le Cub...........................    4,958        30,735        35,693         2,968     1987      1997
 Pelican Point....................    4,365        27,228        31,593         2,530     1985      1997
 Moorpark.........................    4,203        11,181        15,384            --       (n)     1999
Washington, D.C.:
 Archstone Bellemeade Farms.......    3,250        19,471        22,721         1,248     1988      1998
 Archstone Fair Lakes.............    3,687        21,976        25,663         1,185     1988      1998
 Archstone Governor's Green.......    1,836        33,413        35,249         1,236     2000      1998
 Archstone Milestone II...........    2,009         9,641        11,650            79     2000      1999
 Archstone Kingstowne.............    5,429        31,616        37,045         1,266     1988      1999
 Archstone Kendall Ridge..........    2,089        12,332        14,421         1,294     1990      1998
 Archstone Milestone I............    5,633        32,277        37,910         3,495     1997      1998
 Archstone Saybrooke..............    3,210        18,770        21,980         1,944     1990      1998
 Archstone Woodlands Park.........    6,989        25,702        32,691           181     2000      1998
 Archstone Government Center......    5,704        40,266        45,970         1,452     1989      1999
 Columbia Town Center.............    5,545         7,155        12,700            --       (n)     2000
 West Springfield Terrace.........    2,918        16,967        19,885         1,793     1978      1998
                                   --------    ----------    ----------      --------
Total Apartment Communities--
 Operating and Under Construction. $981,030    $3,968,764    $4,949,794      $371,003
                                   ========    ==========    ==========      ========
Other:
Development Communites in Planning
 and Owned........................                               75,662            --
Hotel Asset.......................                               22,870         4,669
Other Real Estate Assets (o)......                               10,584            --
                                                             ----------      --------
Total Real Estate Assets..........                           $5,058,910      $375,672
                                                             ==========      ========
</TABLE>

                                      144

<PAGE>

--------
(a) Phase I (118 units) was acquired in 1991 and Phase II (122 units) was
    developed in 1992.

(b) Vistas at Seven Bar Ranch (364 units) was developed in 1996 and Corrales
    Pointe (208 units) was acquired in 1993.

(c) As of December 31, 2000, community was in lease-up.

(d) Phase I (108 units) was constructed in 1981 and Phase II (240 units) was
    constructed in 1983.

(e) Phase I (332 units) was constructed in 1983 and Phase II (312 units) was
    constructed in 1985.

(f) Phase I (240 units) was developed in 1995 and Phase II (160 units) was
    developed in 1996.

(g) Phase I (160 units) was acquired in 1994 and constructed in 1984 and Phase
    II (192 units) was acquired in 1996 and developed in 1998.

(h) Phase I (208 units) was acquired in 1993 and Phase II (208 units) was
    developed in 1996.

(i) Community is owned by Archstone and managed by a third party.

(j) Phase I and II (624 units) were acquired in 1994 and Phase III (144 units)
    was developed in 1996.

(k) Phase I (196 units) was constructed in 1985 and Phase II (172 units) was
    constructed in 1982.

(l) Phase I (174 units) was acquired in 1995 and constructed in 1985 and Phase
    II (88 units) was acquired in 1996 and constructed in 1996.

(m) Camino Pointe (150 units) was constructed in 1985 and acquired in 1998 and
    Ocean Crest (300 units) was constructed in 1993 and acquired in 1996.

(n) As of December 31, 2000 community was under construction.

(o) Includes land that is not In Planning and a non-multifamily property held
    for sale.

                                      145

<PAGE>

   The following is a reconciliation of the carrying amount and related
accumulated depreciation of Archstone's investment in real estate, at cost (in
thousands):

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                          ----------------------------------
                    Carrying Amounts                         2000        1999        1998
                    ----------------                      ----------  ----------  ----------
<S>                                                       <C>         <C>         <C>
Balance at January 1..................................... $5,086,486  $4,771,315  $2,567,599
                                                          ----------  ----------  ----------
Apartment communities:
   Real estate assets acquired in the Atlantic Merger....         --          --   1,823,727
   Acquisition-related expenditures......................    372,539     401,392     268,465
   Redevelopment expenditures............................     37,547      72,517      56,321
   Recurring capital expenditures........................     13,937      13,022       9,461
   Development expenditures, excluding land acquisitions.    228,819     334,049     346,629
   Acquisition and improvement of land for development...     68,308      43,417      45,739
   Dispositions..........................................   (743,287)   (542,554)   (342,066)
   Provision for possible loss on investments............     (5,200)       (450)         --
                                                          ----------  ----------  ----------
Net apartment community activity.........................    (27,337)    321,393   2,208,276
                                                          ----------  ----------  ----------
Other:
   Change in other real estate assets....................       (239)     (4,672)     (3,860)
   Provision for possible loss on investments............         --      (1,550)       (700)
                                                          ----------  ----------  ----------
Net other activity.......................................       (239)     (6,222)     (4,560)

                                                          ----------  ----------  ----------
Balance at December 31................................... $5,058,910  $5,086,486   4,771,315
                                                          ==========  ==========  ==========

                                                                     December 31,
                                                          ----------------------------------
                Accumulated Depreciation                     2000        1999        1998
                ------------------------                  ----------  ----------  ----------
Balance at January 1..................................... $  300,658  $  205,795  $  129,718
Depreciation for the year................................    143,694     132,437      96,337
Accumulated depreciation on real estate dispositions.....    (68,624)    (37,230)    (20,260)
Other....................................................        (56)       (344)         --
                                                          ----------  ----------  ----------
Balance at December 31................................... $  375,672  $  300,658  $  205,795
                                                          ==========  ==========  ==========
</TABLE>

                                      146

<PAGE>

                               AUDITORS' REPORT

To the Board of Directors and Shareholders of
Security Capital U.S. Realty
Luxembourg

   We have audited the consolidated financial statements, which consist of the
consolidated statements of net assets, the consolidated statements of
operations, the consolidated statements of changes in net assets, the
consolidated statements of cash flows, the consolidated statements of changes
in shares outstanding, the consolidated financial highlights, the consolidated
schedules of investments and the notes to the consolidated financial statements
of Security Capital U.S. Realty (the "Company") as of 31 December 2000 and 1999
and for each of the three years ended 31 December 2000, 1999, and 1998. These
consolidated financial statements are the responsibility of the Board of
Directors of the Company. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

   We conducted our audits in accordance with International Standards on
Auditing and auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management and the Board of Directors of the
Company, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

   As described in Note 1 to the financial statements, the shareholders of the
Company approved a merger with Security Capital Group Incorporated which
resulted in Security Capital U.S. Realty being placed into liquidation on
16 January 2001. These financial statements do not reflect any adjustments
required upon the liquidation of the Company as the outcome of the shareholder
vote to approve the merger and liquidation of the Company was unknown as at 31
December 2000.

   In our opinion, the attached consolidated financial statements audited by us
present fairly, in all material respects, the financial position of the Company
and its subsidiaries at 31 December 2000 and 1999, and the results of their
operations and their cash flows and their financial highlights for each of the
three years ended 31 December 2000, 1999, and 1998 in conformity with
Luxembourg legal and regulatory requirements and in conformity with accounting
principles generally accepted in the United States of America.

PricewaterhouseCoopers S.a r.l.                       Luxembourg, 14 March 2001
Reviseur d'entreprises
Represented by

Pascal Rakovsky
                                          Amaury Evrard

                                      147

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

                     CONSOLIDATED STATEMENTS OF NET ASSETS

           (In thousands U.S. $, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                    31 December 31 December
                                                                                       2000        1999
                                                                                    ----------- -----------
<S>                                                                                 <C>         <C>
Assets
Strategic investment positions at value:
   CarrAmerica (Cost $699,905; $699,905, respectively)............................. $  895,644  $  604,247
   City Center Retail (Cost $175,722; $304,132, respectively)......................    175,722     304,132
   CWS Communities (Cost $256,739; $236,488, respectively).........................    256,739     236,488
   Regency (Cost $759,807; $759,807, respectively).................................    811,847     685,465
   Storage USA (Cost $394,362; $394,362, respectively).............................    373,560     355,911
   Urban Growth Property (Cost $234,082; $188,582, respectively)...................    291,800     188,582
Other investment positions at value:
   Security Capital Group Incorporated (Cost $0; $165,000 respectively)............         --      95,780
   Private investment positions (Cost $39,602; $42,019, respectively)..............     39,347      42,019
                                                                                    ----------  ----------
Total investments..................................................................  2,844,659   2,512,624
Cash and cash equivalents..........................................................    102,943       2,732
Accounts receivable and other......................................................     19,970      15,530
                                                                                    ----------  ----------
       Total Assets................................................................ $2,967,572  $2,530,886
                                                                                    ==========  ==========

Liabilities
Accounts payable and accrued expenses.............................................. $    4,863  $    6,033
Taxes payable other than income taxes..............................................      4,596       4,818
Deferred income tax................................................................     55,473          --
Line of credit.....................................................................    123,500     239,000
Convertible notes..................................................................    403,535     386,157
                                                                                    ----------  ----------
Total Liabilities..................................................................    591,967     636,008
                                                                                    ----------  ----------
       Total Net Assets (Shareholders' Equity)..................................... $2,375,605  $1,894,878
                                                                                    ==========  ==========

Authorised 250,000,000 shares of $4.00 par value, 86,561,872 shares issued;
  74,883,958 outstanding at 31 December 2000 and 76,700,437 outstanding at
  31 December 1999................................................................. $  346,247  $  346,247
Share premium account..............................................................  1,536,855   1,564,939
                                                                                    ----------  ----------
Paid-In Capital....................................................................  1,883,102   1,911,186
Legal reserve......................................................................     30,375      30,375
Reserve for own shares.............................................................    212,304     184,219
Undistributed net operating income.................................................    304,708     219,144
Accumulated net realised (loss)/gain...............................................    (71,547)     11,844
Unrealised appreciation/(depreciation) on strategic investment and other investment
  positions, net of deferred tax expense of $55,473 in 2000........................    228,967    (277,671)
Acquisition of own shares..........................................................   (212,304)   (184,219)
                                                                                    ----------  ----------
Shareholders' Equity............................................................... $2,375,605  $1,894,878
                                                                                    ----------  ----------
Net Asset Value per share.......................................................... $    31.72  $    24.70
                                                                                    ==========  ==========
</TABLE>

   The accompanying notes form an integral part of the financial statements.

                                      148

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                             (In thousands U.S. $)


<TABLE>
<CAPTION>
                                                                                    Years Ended 31 December
                                                                                ------------------------------
                                                                                  2000      1999       1998
                                                                                --------  ---------  ---------
<S>                                                                             <C>       <C>        <C>
Income
Gross dividends from strategic investment positions:
   CarrAmerica................................................................. $ 52,916  $  52,916  $  51,999
   City Center Retail..........................................................       --      6,990         --
   CWS Communities.............................................................   18,612      9,057      4,783
   Regency.....................................................................   65,805     57,852     56,422
   Storage USA.................................................................   32,473     31,532     29,934
   Urban Growth Property.......................................................    8,847     10,160      4,338
                                                                                --------  ---------  ---------
                                                                                 178,653    168,507    147,476
Gross dividends from other investment positions................................       --      8,925     20,908
                                                                                --------  ---------  ---------
                                                                                 178,653    177,432    168,384
Interest income from Security Capital debentures...............................      745      3,575      3,575
Interest and other income......................................................    6,768      4,188      1,132
                                                                                --------  ---------  ---------
Total Gross Income.............................................................  186,166    185,195    173,091
   Withholding tax on dividends received.......................................  (26,754)   (24,152)   (16,266)
                                                                                --------  ---------  ---------
Total Income................................................................... $159,412  $ 161,043  $ 156,825
                                                                                ========  =========  =========
Expenses
Operating advisor fees.........................................................   31,795     32,544     35,220
Custodian fees.................................................................      583        475        459
Directors fees.................................................................      250        155        103
Professional expenses..........................................................    1,534      1,500      1,843
Administrative expenses........................................................    1,339      1,404      2,057
Amortisation of convertible notes deferred costs...............................    1,582      1,573        959
Taxes other than income taxes..................................................    1,889      4,555      2,429
Line of credit arrangement and commitment fees.................................    1,048      1,177      2,561
Interest on line of credit.....................................................    7,308     20,045     18,434
Interest on convertible notes..................................................   26,520     26,623     14,861
                                                                                --------  ---------  ---------
Total Expenses.................................................................   73,848     90,051     78,926
                                                                                --------  ---------  ---------

Net Operating Income...........................................................   85,564     70,992     77,899
Net Realised And Unrealised Gain/(Loss) On Strategic Investment
  And Other Investment Positions:
Net realised (loss)/gain on strategic investment and other investment positions  (83,391)   (65,587)    32,878
Net increase/(decrease) in appreciation on strategic investment and other
  investment positions.........................................................  562,111   (152,693)  (642,372)
                                                                                --------  ---------  ---------
Net Gain/(Loss) On Strategic Investment And Other Investment Positions.........  478,720   (218,280)  (609,494)
                                                                                --------  ---------  ---------

Increase/(Decrease) In Net Assets Resulting from Operations, before tax........  564,284   (147,288)  (531,595)
Deferred income tax expense....................................................   55,473         --         --
                                                                                --------  ---------  ---------
Increase/(Decrease) In Net Assets Resulting From Operations.................... $508,811  $(147,288) $(531,595)
                                                                                ========  =========  =========
</TABLE>

   The accompanying notes form an integral part of the financial statements.

                                      149

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (In thousands U.S. $)

<TABLE>
<CAPTION>
                                                                                    Years Ended 31 December
                                                                                -------------------------------
                                                                                  2000       1999       1998
                                                                                ---------  ---------  ---------
<S>                                                                             <C>        <C>        <C>
Operating Activities:
   Increase/(decrease) in net assets resulting from operations................. $ 508,811  $(147,288) $(531,595)
   Adjustments to reconcile increase in net assets resulting from operations
     to net cash provided by operating activities:
       Realised loss/(gain)....................................................    83,391     65,587    (32,878)
       Unrealised gain (increase)/decrease.....................................  (562,111)   152,693    642,372
       Accretion on convertible notes..........................................    17,378     16,217      9,387
       Amortisation of convertible notes deferred costs........................     1,582      1,573        959
       Changes in operating assets and liabilities:
          Accounts receivable and other........................................    (6,021)     6,886    (10,266)
          Accounts payable and accrued expenses................................    (1,080)    (1,233)      (256)
          Operating advisor fees payable.......................................       (90)    (6,230)     1,371
          Taxes payable other than income taxes................................      (222)     3,512        286
          Deferred income taxes................................................    55,473         --         --
                                                                                ---------  ---------  ---------
              Net cash provided by operating activities........................    97,111     91,717     79,380
                                                                                ---------  ---------  ---------
Investing Activities:
   Return of capital--distribution from City Center Retail.....................   111,989         --         --
   Proceeds from sale of investment in Security Capital........................    96,889         --         --
   Proceeds from sale of other investment positions............................     4,609    242,776    368,979
   Fundings in strategic investment positions:
       CarrAmerica.............................................................        --        (54)   (63,464)
       City Center Retail......................................................        --        (97)  (220,370)
       CWS Communities.........................................................   (20,250)   (82,925)   (60,963)
       Advances--CWS Communities...............................................   (31,000)        --         --
       Repayments of advances--CWS Communities.................................    31,000         --         --
       Regency.................................................................        --        (19)   (10,634)
       Storage USA.............................................................        --        (90)   (45,828)
       Urban Growth Property...................................................        --     (7,500)  (163,379)
       Advances--Urban Growth Property.........................................   (45,500)        --         --
   Fundings in other investment positions......................................    (1,053)   (36,351)  (367,424)
                                                                                ---------  ---------  ---------
              Net cash provided by/(used) in investing activities..............   146,684    115,740   (563,083)
                                                                                ---------  ---------  ---------
Financing Activities:
   Acquisition of own shares...................................................   (28,084)  (184,219)        --
   Net proceeds from convertible note offering.................................        --         --    352,667
   Offering expenses charged against share premium account.....................        --         --       (440)
   Net (repayments)/draw-downs from line of credit.............................  (115,500)   (23,500)   132,500
                                                                                ---------  ---------  ---------
              Net cash (used) in/provided by financing activities..............  (143,584)  (207,719)   484,727
                                                                                ---------  ---------  ---------
Net increase/(decrease) in cash and cash equivalents...........................   100,211       (262)     1,024
Cash and cash equivalents, beginning of the year...............................     2,732      2,994      1,970
                                                                                ---------  ---------  ---------
Cash and cash equivalents, end of the year..................................... $ 102,943  $   2,732  $   2,994
                                                                                =========  =========  =========
Supplemental disclosure of cash flow information:
   Tax paid.................................................................... $   2,111  $   1,043  $   2,141
                                                                                =========  =========  =========
   Interest paid on borrowings................................................. $  17,547  $  30,012  $  22,987
                                                                                =========  =========  =========
</TABLE>

  The accompanying notes form an integral part of these financial statements.

                                      150

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

               CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

                             (In thousands U.S. $)

<TABLE>
<CAPTION>
                                                                              Years Ended 31 December
                                                                        ----------------------------------
                                                                           2000        1999        1998
                                                                        ----------  ----------  ----------
<S>                                                                     <C>         <C>         <C>
Operations:
Net operating income................................................... $   85,564  $   70,992  $   77,899
Net realised (loss)/gain on strategic investment and other investment
  positions............................................................    (83,391)    (65,587)     32,878
Increase/(decrease) in appreciation on strategic investment and other
  investment positions.................................................    562,111    (152,693)   (642,372)
Deferred income tax expense............................................    (55,473)         --          --
                                                                        ----------  ----------  ----------
Increase/(decrease) in net assets resulting from operations............    508,811    (147,288)   (531,595)
Capital Transactions:
(Decrease) in share premium account....................................    (28,084)   (184,219)       (440)
Increase in reserve for own shares.....................................     28,084     184,219          --
Acquisition of own shares during the year..............................    (28,084)   (184,219)         --
                                                                        ----------  ----------  ----------
(Decrease) in net assets resulting from capital transactions...........    (28,084)   (184,219)       (440)
Net Assets:
Increase/(decrease) in net assets during the year......................    480,727    (331,507)   (532,035)
Net assets at the beginning of the year................................  1,894,878   2,226,385   2,758,420
                                                                        ----------  ----------  ----------
Net assets at the end of the year (includes undistributed net operating
  income of $304,708 for 2000, $219,144 for 1999, and $148,152
  for 1998)............................................................ $2,375,605  $1,894,878  $2,226,385
                                                                        ==========  ==========  ==========
</TABLE>

           CONSOLIDATED STATEMENTS OF CHANGES IN SHARES OUTSTANDING

<TABLE>
<CAPTION>
                                                     Number of shares
                                            ----------------------------------
                                                 Years Ended 31 December
                                            ----------------------------------
                                               2000        1999        1998
                                            ----------  ----------  ----------
  <S>                                       <C>         <C>         <C>
  At the beginning of the year............. 76,700,437  86,561,872  86,561,872
  Acquisition of own shares during the year (1,816,479) (9,861,435)         --
                                            ----------  ----------  ----------
  At the end of the year................... 74,883,958  76,700,437  86,561,872
                                            ==========  ==========  ==========
</TABLE>

                       CONSOLIDATED FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                                    Years Ended 31 December
                                                                                    ----------------------
                                                                                     2000    1999    1998
                                                                                    ------  ------  ------
<S>                                                                                 <C>     <C>     <C>
Per-share data:
Net asset value at the beginning of the year....................................... $24.70  $25.72  $31.87
Net operating income...............................................................   1.14    0.86    0.90
Net change in unrealised appreciation and realised gain on strategic investment and
  other investment positions in the year, net of deferred tax expense in 2000......   5.63   (2.65)  (7.05)
Acquisition of own shares during the year..........................................   0.25    0.77      --
                                                                                    ------  ------  ------
Net Asset Value per share at the end of the year................................... $31.72  $24.70  $25.72
                                                                                    ======  ======  ======
</TABLE>

   The accompanying notes form an integral part of the financial statements.

                                      151

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

           CONSOLIDATED SCHEDULES OF STRATEGIC INVESTMENT POSITIONS

                              At 31 December 2000
                (in thousands U.S. $, except shares held and %)

<TABLE>
<CAPTION>
                                              Number of                          Percentage
Strategic Investment Positions Security Type Shares Held    Cost      Value    of Total Assets
------------------------------ ------------- ----------- ---------- ---------- ---------------
<S>                            <C>           <C>         <C>        <C>        <C>
CarrAmerica................... Common Stock  28,603,417  $  699,905 $  895,644      30.2%
City Center Retail............ Common Stock  30,390,000     175,722    175,722       5.9%
CWS Communities............... Common Stock  25,640,858     256,739    256,739       8.6%
Regency....................... Common Stock  34,273,236     759,807    811,847      27.4%
Storage USA................... Common Stock  11,765,654     394,362    373,560      12.6%
Urban Growth Property (1)..... Common Stock  18,824,100     234,082    291,800       9.8%
                                                         ---------- ----------      ----
Total investment in strategic
  positions...................                           $2,520,617 $2,805,312      94.5%
                                                         ========== ==========      ====
</TABLE>
--------
(1) In addition to the shares held with a cost and fair value of $188.6
    million, advances of $45.5 million to Urban Growth Property are included in
    these amounts.

                              At 31 December 1999
                (in thousands U.S. $, except shares held and %)

<TABLE>
<CAPTION>
                                              Number of                          Percentage
Strategic Investment Positions Security Type Shares Held    Cost      Value    of Total Assets
------------------------------ ------------- ----------- ---------- ---------- ---------------
<S>                            <C>           <C>         <C>        <C>        <C>
CarrAmerica................... Common Stock  28,603,417  $  699,905 $  604,247      23.9%
City Center Retail............ Common Stock  30,390,000     304,132    304,132      12.0%
CWS Communities............... Common Stock  23,615,858     236,488    236,488       9.3%
Regency....................... Common Stock  34,273,236     759,807    685,465      27.1%
Storage USA................... Common Stock  11,765,654     394,362    355,911      14.1%
Urban Growth Property......... Common Stock  18,824,100     188,582    188,582       7.4%
                                                         ---------- ----------      ----
Total investment in strategic
  positions...................                           $2,583,276 $2,374,825      93.8%
                                                         ========== ==========      ====
</TABLE>


   The accompanying notes form an integral part of the financial statements.

                                      152

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

             CONSOLIDATED SCHEDULES OF OTHER INVESTMENT POSITIONS

                              At 31 December 2000
                (in thousands U.S. $, except shares held and %)

<TABLE>
<CAPTION>
                                                                                  Percentage
Other Investment Positions                                       Cost    Value  of Total Assets
--------------------------                                      ------- ------- ---------------
<S>                                                             <C>     <C>     <C>
Companies in which SC-U.S. Realty owns a 5% or greater interest $39,273 $39,018       1.3%
Companies in which SC-U.S. Realty owns less than 5% interest...     329     329       -- %
                                                                ------- -------       ---
Total investment in other investment positions................. $39,602 $39,347       1.3%
                                                                ======= =======       ===
</TABLE>

                              At 31 December 1999
                        (in thousands U.S. $, except %)

<TABLE>
<CAPTION>
                                                                                    Percentage
Other Investment Positions                                        Cost    Value   of Total Assets
--------------------------                                      -------- -------- ---------------
<S>                                                             <C>      <C>      <C>
Companies in which SC-U.S. Realty owns a 5% or greater interest $ 39,215 $ 39,215       1.6%
Companies in which SC-U.S. Realty owns less than 5% interest...    2,804    2,804       0.1%
                                                                -------- --------       ---
Total investment in private investment positions............... $ 42,019 $ 42,019       1.7%
Investment in Security Capital Group Incorporated..............  165,000   95,780       3.8%
                                                                -------- --------       ---
Total investment in other investment positions................. $207,019 $137,799       5.5%
                                                                ======== ========       ===
</TABLE>



   The accompanying notes form an integral part of the financial statements.

                                      153

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               31 December 2000

Note1--Organization and Significant Accounting Policies

  Organization and Transaction Agreement

   Security Capital U.S. Realty (the "Company") is a research-driven real
estate company focused on taking significant strategic investment positions
(with board representation, consultation and other rights) in value-added real
estate operating companies based in the United States. The Company's primary
capital deployment objective has been to take a proactive ownership role in
businesses that it believes can potentially generate above-average rates of
return. The Company is organised in Luxembourg as a Societe d'Investissement a
Capital Fixe (a company with a fixed capital).

   The Company owns its assets through its direct and indirect wholly-owned
subsidiaries, including Security Capital Holdings S.A. (such subsidiaries
collectively referred to herein as "HOLDINGS").

   The Company is 40.6% owned by Security Capital Group Incorporated ("Security
Capital"). On 26 September 2000, the Company and Security Capital entered into
an agreement to combine the Company and Security Capital which agreement was
approved by the shareholders of both companies in January 2001. Under the terms
of the transaction agreement shareholders of the Company receive either (i)
1.15 shares of Security Capital Class B common stock for each outstanding share
of the Company or (ii) if they voted against the transaction and validly
elected to receive cash, they receive $22.37 per share which represents an
amount of cash in U.S. dollars equal to 1.15 multiplied by the average of the
daily high and low per share sales prices of the Security Capital Class B
common stock on the New York Stock Exchange during the fifteen trading days
ending on the sixth trading day before the extraordinary meeting of the
shareholders for the vote on the transaction. Security Capital will acquire the
assets of the Company, consisting primarily of the shares in Security Capital
Holdings S.A., and assume or provide the necessary funds to satisfy the
liabilities of the Company. Consummation of the transaction, which includes a
plan of liquidation of the Company, is expected to be substantially complete
during February 2001.

  Principles of Financial Presentation

   All accounts of HOLDINGS have been consolidated with the Company and all
significant intercompany transactions have been eliminated upon consolidation.

   The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States and in accordance
with Luxembourg legal and regulatory requirements. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

   The Company accounts for its investments at fair value in accordance with
the U.S. specialised industry accounting rules prescribed by the American
Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide
for Investment Companies (the "Guide"). Thus, investment in publicly traded
companies are valued at market determined by using closing market prices on the
NYSE, or other recognised stock exchanges when appropriate, as of the balance
sheet date, subject to an appropriate adjustment for transfer restrictions, if
any. For privately held investments, the Company will, whenever the Board of
Directors believes significant developments have occurred affecting the value
of an investment and on at least an annual basis, utilise valuation techniques
and methodologies appropriate to the nature of the investment to derive fair
value. These will include

                                      154

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

external valuation, cash flow valuation techniques and valuation information
derived through placements of private companies' securities as well as review
by management for other specific indicators of changes in value relating to
property performance and/or significant changes in local or general market
conditions. The Board of Directors, in its discretion, may permit some other
method of valuation to be used, if it determines that such valuation better
reflects the fair value of any of the Company's assets.

   Under fair value accounting, unrealised gains or losses are determined by
comparing the fair value of the securities held to the cost of such securities.
Unrealised gains or losses relating to changes in fair value of the Company's
investments are reported as a component of net earnings. Deferred income taxes,
if any, are recorded at the applicable statutory rate as the estimate of taxes
payable as if such gains were realised. Under current tax laws, and in light of
the Company's operating methods and plans, certain of the Company's investment
gains in majority owned U.S. real estate companies may be subject to income
taxes.

   As of 31 December 2000 and 1999, 26.8% and 30.5%, respectively, of the
Company's investments were in private or untraded securities valued at their
fair value as determined by the Board of Directors, using the methodology
described above. This value may differ from the value that would have been used
had a trading market for these securities existed. The valuation of assets
assumes that any assets disposed of would be sold in an orderly process; any
forced sale of assets under short-term pressures, which is not foreseen, could
adversely affect realisable values.

  Accounting for Investments and Income

   All purchases and sales of publicly traded securities are recorded as of the
trade date (i.e., the date that the Company's broker actually executes an order
to buy or sell). All purchases and sales of privately held securities are
recorded as of the dates the actual purchase or sale is made. Dividend income
is recorded on the ex-dividend date for each dividend declared by an issuer.
Dividends received are presented on a gross basis. HOLDINGS may be entitled to
refunds on a portion of dividends which represent a return of capital for U.S.
tax purposes. Interest income is recorded on the accrual basis. Interest
received is stated net of withholding taxes. Realised gains and losses on sales
of shares are determined on the average cost method.

  Cash and Cash Equivalents

   All cash on hand, demand deposits with financial institutions and
short-term, highly liquid investments with original maturities of three months
or less are considered to be cash equivalents.

  Deferred Financing Cost/Discounts

   Underwriting fees relating to the issuance of the $450 million aggregate
principal amount at maturity 2% Senior Unsecured Convertible Notes due 2003
(the "Convertible Notes") have been capitalised and are amortised over the term
of the obligation. Unamortised fees aggregate $3.8 million at 31 December 2000.
Discounts on the Convertible Notes are accreted as a component of interest
expense using the effective interest method over the term of the obligation.
Unamortised discount is $46.5 million at 31 December 2000.

  New Accounting Rules

   During June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities".
This statement provides new accounting and reporting standards for the use of
derivative instruments. Adoption of this statement is required by the Company
effective 1 January 2001. Although the Company has not historically used such
instruments, it is not precluded from doing so. Management believes that the
impact of such adoption will not be material to the financial statements.

                                      155

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 2--Investments

   The Company objective has been to have over 95% of its assets deployed in
strategic investment positions and less than 5% invested in other investment
positions.

  Strategic Investment Positions

   Strategic investment positions represent significant (minimum of 25% of each
issuer's fully diluted common stock outstanding) equity ownership positions in
public companies or in private companies. With private companies which the
Company sponsors, it owns substantially more than 50% of the voting shares. The
Company is the largest shareholder of its strategic investees, has
representation on their boards of directors, and influences their operations
and strategies through ongoing consultation and research. Strategic investees
are characterised by the perceived potential for a superior market niche and
the ultimate potential for market preeminence with a focused strategy and
product.

  Other Investment Positions

   Historically, other investment positions primarily consisted of ownership
positions of less than 10% of the fully diluted stock in entities taxed as real
estate investment trusts ("REITs") under the U.S. Internal Revenue Code of 1986
and other U.S. real estate companies. The investments took the form of either
direct investments in, or public market purchases of, shares of companies that
the Company believed possessed the requisite fundamentals to generate strong
cash flow growth and/or value appreciation. During the first quarter 2000, the
Company completed the sale of its public other investment positions' portfolio.
At 31 December 2000, the Company has invested $39.6 million primarily in two
private investment positions, both of which are U.S. real estate operating
companies.

   As of 31 December 1999, the Company had deployed a total of $165.0 million
in securities of Security Capital, which in turn owned approximately 39.6% of
the Company as of 31 December 1999. This amount was made up of investments in
Security Capital common stock and convertible subordinated debentures. On
22 February 2000, the Company sold all the common stock of Security Capital,
receiving net proceeds of $57.0 million, and on 14 March 2000 the Company sold
all the debentures of Security Capital, receiving net proceeds of $39.9 million.

Note 3--Line Of Credit

   HOLDINGS has a $350 million unsecured line of credit with Commerzbank
Aktiengesellschaft and a consortium of European and international banks which
is guaranteed by the Company (the "Line"). The Line will expire 1 December
2001. Borrowings under the Line bear interest at (a) the sum of (x) the greater
of the federal funds rate plus 0.5% per annum or the United States prime rate
and (y) a margin of 0% to 0.85% per annum (based on the Company's current
senior unsecured long-term debt rating) or (b) at HOLDINGS's option, LIBOR plus
a margin of 1.00% to 1.85% per annum (also based on the Company's current
senior unsecured long-term debt). Additionally, there is a commitment fee of
0.15% to 0.20% per annum (based on the amount of the line which remains
undrawn). All borrowings under the Line are subject to covenants that the
Company must maintain at all times, including: (i) unsecured liabilities may
not exceed 40% of the market value of a borrowing base of owned securities,
(ii) shareholders' equity must exceed the sum of $1.5 billion and 75% of the
net proceeds of sales of equity securities after 31 December 1999, (iii) a
ratio of total liabilities to net worth of not more than 1:1, (iv) a
fixed-charge coverage ratio of not less than 1.5:1, (v) an interest-coverage
ratio of not less than 2:1 and (vi) secured debt may not exceed 10% of
consolidated market net worth. As of 31 December 2000, the Company was in
compliance with these covenants.

                                      156

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Average daily borrowings under the Line were $72.6 million for the year
ended 31 December 2000. Average daily borrowings under a previous line of
credit were $297.9 million and $274.4 million for the years ended 31 December
1999 and 1998, respectively. The weighted average interest rates for the years
ended 31 December 2000, 1999, and 1998 were 7.60% per annum, 6.60% per annum,
and 6.67% per annum, respectively. The weighted average stated rate of interest
on borrowings outstanding at 31 December 2000 is 8.4%. At the time of the
acquisition of the Company by Security Capital in January 2001, the outstanding
balance on the line was paid in full with funds provided by Security Capital
and the line cancelled.

Note 4--Convertible Notes

   Proceeds from the Company's 2% Senior Unsecured Convertible Notes
("Convertible Notes") at issuance, and carrying amount as of the balance sheet
dates, are as follows:

<TABLE>
<CAPTION>
                                                  At 31 December At 31 December
                                                       2000           1999
                                                  -------------- --------------
                                                      (in thousands U.S. $)
 <S>                                              <C>            <C>
    Convertible Notes proceeds...................    $360,554       $360,554
    Accumulated accretion on Convertible Notes...      42,981         25,603
                                                     --------       --------
                                                     $403,535       $386,157
                                                     ========       ========
</TABLE>

   During May 1998, the Company issued $450 million (aggregate principal amount
at maturity) of Convertible Notes which are convertible at the option of the
holder at any time prior to maturity at a conversion rate equal to 26.39095
shares of the Company per $1,000 aggregate principal amount at maturity of the
Convertible Notes or an aggregate of 11,875,927 shares upon conversion.
Interest is payable semi-annually at the rate of 2.0% per annum on 22 May and
22 November of each year. Effective 1 March 2000, the interest rate payable on
the Convertible Notes was increased to 2.25% per annum. The 2.25% per annum
interest rate was in effect until 14 May 2000, and as of the close of business
on 14 May 2000, the interest rate on the Convertible Notes was reduced to 2.0%
per annum. The Convertible Notes were sold at a discount to their principal
amount at maturity and additional interest accretes at an annual rate of 6.75%
less the 2.0% payment, compounded semi-annually, to par by 22 May 2003. The
Convertible Notes may be redeemed, in whole or in part, at the option of the
Company on or after 23 May 2001 at their accreted value, together with accrued
and unpaid interest.

   As the transaction agreement to combine Security Capital and the Company, as
described in Note 1, has been approved by the shareholders of both companies in
January 2001, the Company has subsequent to year end deposited with the
indenture trustee for the Convertible Notes an amount of $415.2 million, which
will provide for the redemption of the Convertible Notes at their then accreted
value on 23 May 2001, and for payment of all accrued and unpaid interest
through the 23 May 2001 date of redemption.

   Conversion of the Convertible Notes would be anti-dilutive for the years
ended 31 December 2000 and 1999.

Note 5--Advisory and Other Agreements

   The Company has an advisory agreement with Security Capital U.S. Realty
Management Holdings S.A. (the "Operating Advisor"), a wholly owned subsidiary
of Security Capital. This agreement requires the Operating Advisor to provide
the Company with advice with respect to strategy, investments, financing and
certain other administrative matters. The agreement automatically renews for
successive two-year periods unless either party gives notice it will not renew.
The Operating Advisor subcontracts for certain services through affiliates
based in London, United Kingdom and Chicago, Illinois, United States. The
Operating Advisor is entitled to an advisory

                                      157

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


fee, payable monthly in arrears, at an annual rate of 1.25% of the average
monthly value of invested assets (excluding investments in Security Capital
securities and investments of short-term cash and cash equivalents). The
Company pays its own third-party operating and administrative expenses and
transaction costs, although the Operating Advisor's fee is reduced to the
extent that third-party operating and administrative expenses (but not
transaction costs) exceed 0.25% per annum of the average monthly value of
invested assets (excluding investments in Security Capital securities and
investments of short-term cash and cash equivalents). Such third party
operating and administrative costs as a ratio of the average monthly value of
assets were 0.06%, 0.08% and 0.09% for the years ended 31 December 2000, 1999
and 1998, respectively.

   The Company pays fees to (i) Banque Internationale a Luxembourg as
Administrative Agent, Corporate Agent and Paying Agent, (ii) First European
Transfer Agent S.A. as Registrar and Transfer Agent, and (iii) Security Capital
European Services S.A. as Domiciliary Agent and Service Agent, in accordance
with usual practice in Luxembourg. Such fees are payable quarterly and are
based on the Company's gross assets.

Note 6--Taxation

   Security Capital U.S. Realty, as separate from HOLDINGS, is not liable for
any Luxembourg tax on income. Security Capital U.S. Realty is liable in
Luxembourg for a capital tax of 0.06% per annum of its net asset value. Cash
dividends and interest received by Security Capital U.S. Realty or HOLDINGS on
their investments may be subject to non-recoverable withholding or other taxes
in the countries of origin. U.S. withholding tax rates of 15% were generally in
effect for dividends received for all periods presented.

   Under the current United States-Luxembourg tax treaty, the Company believes
that HOLDINGS qualifies for a 15% rate of withholding tax on dividends of
operating income from the REIT investments currently held by HOLDINGS and from
its future REIT investments (if any). The Company also believes that HOLDINGS
will qualify for a 15% rate of withholding tax under the proposed United
States-Luxembourg tax treaty ratified by the United States on most, if not all,
of the REIT investments currently held by HOLDINGS and from future REIT
investments (if any). The Company's beliefs are based on the advice of tax
counsel and the manner in which management intends to operate the Company.
There can be no assurance that these favourable rates will be achieved as to
all such investments. These benefits are also dependent on HOLDINGS meeting the
"limitations on benefits" test under Article 24 of the proposed new treaty. The
tests prescribed by Article 24, particularly in terms of stock ownership
requirements, base erosion and publicly traded criteria, are inherently factual
in nature. Such tests will only need to be applied to HOLDINGS at a future, and
presently indeterminate, point in time and will be dependent on the particular
facts at such time. However, management will use its best efforts to ensure
that HOLDINGS meets the conditions for claiming the reduced treaty withholding
tax rate at the relevant times and the Company currently believes that such
conditions will be met.

   Under the U.S. Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") the gain on disposition of a majority-owned U.S. real property
interest by the Company would be subject to U.S. income tax. Accordingly a
deferred tax expense and deferred tax liability has been provided on the
unrealised gains on the Company's investments in Regency and Urban Growth
Property as of 31 December 2000.

   HOLDINGS, an ordinary corporate taxpayer under Luxembourg law, owns all of
the consolidated group's interests in REITs and other U.S. real estate
companies. Corporations which are resident Luxembourg taxpayers are taxed on
their worldwide net income, determined on the basis of gross income less costs
incurred. Certain items of income and capital gains are excluded from the
calculation of income received for tax purposes, including income and capital
gains from certain investments which meet certain holding period (generally one
calendar year) and size requirements. HOLDINGS operates so as to have the
highest possible percentage of its

                                      158

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


investments qualify for the exclusion. Interest accrued on advances from the
Company to HOLDINGS is deducted in determining HOLDINGS's taxable income.

   Income paid from HOLDINGS to the Company is subject to various levels of
tax, including withholding taxes. Gross cash (but not accrued) interest
payments from HOLDINGS to the Company are subject to withholding tax at a rate
of 3.75%. No dividends were paid to the Company during the reporting periods.

<TABLE>
<CAPTION>
                                          For the years ended 31 December
                                          -------------------------------
                                             2000       1999      1998
                                           -------    -------    -------
       <S>                                <C>        <C>        <C>
          Gross cash interest payments... $16,053    $89,783    $25,262
                                           =======    =======    =======
          Capital tax.................... $ 1,287    $ 1,188    $ 1,481
          Withholding tax................     602      3,367        947
                                           -------    -------    -------
                                          $ 1,889    $ 4,555    $ 2,428
                                           =======    =======    =======
</TABLE>

Note 7--Directors' Share Option Equivalents

   Each of the Company's independent directors has received share option
equivalents ("SOE") of 25,000 shares of the Company at exercise prices ranging
from $12.30 to $28.88 per share. All grants of SOEs were for services rendered
by the Board of Directors subsequent to their grant. SOEs do not represent a
right to purchase shares from the Company, but a right to receive a restricted
cash payment equal to the excess, if any, of the closing stock price of 25,000
shares on the day of exercise over the exercise price, which was the closing
stock price on the date of grant. Prior to the approval of the transaction
agreement described in Note 1, such payments were required to be applied to the
purchase of shares or American Depositary Shares in the open market at the
closing stock price on the date of exercise. Directors were granted a vested
right to exercise one half of their SOEs immediately, and rights to the balance
vest on the fourth anniversary of their issuance. The right to exercise all
SOEs expires five years from the date of grant. The transaction agreement
described in Note 1 provided for immediate vesting of all the Company's
outstanding SOEs upon approval of the transaction, which approval occurred in
January 2001

   The Company has accrued an expense and a liability over the vesting period.
This accrual is adjusted for changes in the Company's closing stock price at
each balance sheet date with the resultant change representing a
charge/(reduction) to administrative expenses for the period in the
consolidated statement of operations. The charges/(reduction) were $416,700,
$(256,000) and $561,000 for the years ended 31 December 2000, 1999 and 1998,
respectively. At 31 December 2000, there were 125,000 SOEs granted and
outstanding at a weighted average exercise price of $19.27, of which 75,000
were vested at a weighted average exercise price of $18.30. Upon the vesting of
all outstanding SOEs upon the approval of the transaction agreement described
in Note 1, a payment of $538,500 was made in satisfaction of all amounts owed
on the outstanding SOEs.

                                      159

<PAGE>

                         SECURITY CAPITAL U.S. REALTY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



Note 8--Commitments

   The Company's existing and committed fundings at cost as of 31 December 2000
were as follows:

<TABLE>
<CAPTION>
                                              Total    Total Cost Amount
                                             Amount     (Amount   to be
                                            Committed   Funded)   Funded
                                            ---------- ---------- -------
                                                (in thousands U.S. $)
      <S>                                   <C>        <C>        <C>
         CarrAmerica (NYSE: CRE)........... $  699,905 $  699,905 $    --
         City Center Retail (Private)......    175,722    175,722      --
         CWS Communities (Private).........    300,329    256,739  43,590
         Regency (NYSE: REG)...............    759,807    759,807      --
         Storage USA (NYSE: SUS)...........    394,362    394,362      --
         Urban Growth Property (Private)...    188,582    188,582      --
         Private investment positions......     39,602     39,602      --
                                            ---------- ---------- -------
             Total......................... $2,558,309 $2,514,719 $43,590
                                            ========== ========== =======
</TABLE>

   Under the transaction agreement to combine Security Capital and the Company,
as described in Note 1, the funding obligation to CWS Communities will be
assumed by Security Capital on the closing date.

Note 9--Legal Reserve

   According to Luxembourg law, an annual transfer of 5% of the net profit to a
legal reserve is required until this reserve equals 10% of the value of the
issued Share capital. No transfer was made in 2000 as a result of the decrease
in net assets resulting from operations for the year ended 31 December 1999.

Note 10--Share Repurchase Programme

   In 2000 and 1999 share repurchase programmes were initiated under which the
Company repurchased a total of 11,677,914 shares at an aggregate cost of $212.3
million, representing approximately 13.5% of the Company's shares outstanding
at the commencement of the initial programme.

   The net asset value per share as of 31 December 2000 has been calculated on
74,883,958 shares outstanding.

                                      160

<PAGE>


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Trustees and Shareholders of


ProLogis Trust



   We have audited the accompanying consolidated balance sheets of ProLogis
Trust and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of earnings, shareholders' equity and comprehensive
income, and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Frigoscandia Holding AB and CS Integrated LLC accounted for under the equity
method of accounting, in which the Trust has investments in and advances to
amounting to $416.6 million and $397.7 million as of December 31, 2001 and
2000, respectively, and earnings (loss) from unconsolidated entities of $(71.3)
million, $(12.0) million and $6.3 million in 2001, 2000 and 1999, respectively.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for these entities is based solely on the reports of the other auditors.



   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.



   In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of ProLogis Trust and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.



                                          ARTHUR ANDERSEN LLP



Chicago, Illinois


April 3, 2002


                                      161

<PAGE>


                                PROLOGIS TRUST



                          CONSOLIDATED BALANCE SHEETS



                       (In thousands, except share data)



<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                    ----------------------
                                      ASSETS                                           2001        2000
                                      ------                                        ----------  ----------
<S>                                                                                 <C>         <C>
Real estate........................................................................ $4,588,193  $4,689,492
   Less accumulated depreciation...................................................    574,871     476,982
                                                                                    ----------  ----------
                                                                                     4,013,322   4,212,510
Investments in and advances to unconsolidated entities.............................  1,310,735   1,453,148
Cash and cash equivalents..........................................................     27,989      57,870
Accounts and notes receivable......................................................     23,829      34,989
Other assets.......................................................................    228,066     187,817
                                                                                    ----------  ----------
       Total assets................................................................ $5,603,941  $5,946,334
                                                                                    ==========  ==========

                       LIABILITIES AND SHAREHOLDERS' EQUITY
                       ------------------------------------
Liabilities:
   Lines of credit................................................................. $  375,875  $  439,822
   Senior unsecured debt...........................................................  1,670,359   1,699,989
   Mortgage notes and other secured debt...........................................    532,106     537,925
   Accounts payable and accrued expenses...........................................    133,242     106,097
   Construction payable............................................................     19,805      40,925
   Distributions and dividends payable.............................................     63,169      57,739
   Other liabilities...............................................................     87,747      89,836
                                                                                    ----------  ----------
       Total liabilities...........................................................  2,882,303   2,972,333
                                                                                    ----------  ----------
Minority interest..................................................................     45,639      46,630
Shareholders' equity:
   Series A Preferred Shares; $0.01 par value; 5,400,000 shares issued and
     outstanding at December 31, 2000; stated liquidation preference of $25.00 per
     share.........................................................................         --     135,000
   Series B Convertible Preferred Shares; $0.01 par value; 6,256,100 shares issued
     and outstanding at December 31, 2000; stated liquidation preference of $25.00
     per share.....................................................................         --     156,403
   Series C Preferred Shares; $0.01 par value; 2,000,000 shares issued and
     outstanding at December 31, 2001 and 2000; stated liquidation preference of
     $50.00 per share..............................................................    100,000     100,000
   Series D Preferred Shares; $0.01 par value; 10,000,000 shares issued and
     outstanding at December 31, 2001 and 2000; stated liquidation preference of
     $25.00 per share..............................................................    250,000     250,000
   Series E Preferred Shares; $0.01 par value; 2,000,000 shares issued and
     outstanding at December 31, 2001 and 2000; stated liquidation preference of
     $25.00 per share..............................................................     50,000      50,000
   Common shares of beneficial interest; $0.01 par value; 175,888,391 shares
     issued and outstanding at December 31, 2001 and 165,287,358 shares issued
     and outstanding at December 31, 2000..........................................      1,759       1,653
Additional paid-in capital.........................................................  2,958,613   2,740,136
Employee share purchase notes......................................................    (14,810)    (18,556)
Accumulated other comprehensive income.............................................    (63,780)    (33,768)
Distributions in excess of net earnings............................................   (605,783)   (453,497)
                                                                                    ----------  ----------
       Total shareholders' equity..................................................  2,675,999   2,927,371
                                                                                    ----------  ----------
       Total liabilities and shareholders' equity.................................. $5,603,941  $5,946,334
                                                                                    ==========  ==========
</TABLE>



  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      162

<PAGE>


                                PROLOGIS TRUST



                      CONSOLIDATED STATEMENTS OF EARNINGS



                 Years Ended December 31, 2001, 2000 and 1999


                     (In thousands, except per share data)



<TABLE>
<CAPTION>
                                                                              2001      2000      1999
                                                                            --------  --------  --------
<S>                                                                         <C>       <C>       <C>
Income:
   Rental income........................................................... $465,777  $480,088  $491,826
   Other real estate income................................................  104,436    78,103    46,678
   Income (loss) from unconsolidated entities..............................  (51,222)   78,063    22,519
   Interest income.........................................................    4,134     7,267     6,369
                                                                            --------  --------  --------
       Total income........................................................  523,125   643,521   567,392
                                                                            --------  --------  --------
Expenses:
   Rental expenses, net of recoveries of $95,813 in 2001, $91,706 in 2000
     and $87,907 in 1999 and including amounts paid to affiliate of $89 in
     2001, $1,188 in 2000 and $1,314 in 1999...............................   28,700    27,177    33,501
   General and administrative, including amounts paid to affiliate of $681
     in 2001, $958 in 2000 and $1,582 in 1999..............................   50,274    44,954    38,284
   Depreciation and amortization...........................................  143,465   151,483   152,447
   Interest................................................................  163,629   172,191   170,746
   Other...................................................................    4,014     5,909     5,865
                                                                            --------  --------  --------
       Total expenses......................................................  390,082   401,714   400,843
                                                                            --------  --------  --------
Earnings before minority interest..........................................  133,043   241,807   166,549
Minority interest share in earnings........................................    6,461     5,586     4,979
                                                                            --------  --------  --------
Earnings before gain on disposition of real estate and foreign currency
  exchange losses..........................................................  126,582   236,221   161,570
Gain on disposition of real estate, net....................................   10,008     1,314    38,994
Foreign currency exchange losses, net......................................   (3,721)  (17,927)  (16,818)
                                                                            --------  --------  --------
Earnings before income taxes...............................................  132,869   219,608   183,746
Income taxes:
   Current income tax expense..............................................    2,467       900     1,472
   Deferred income tax expense.............................................    2,258     4,230        --
                                                                            --------  --------  --------
       Total income taxes..................................................    4,725     5,130     1,472
                                                                            --------  --------  --------
Earnings before cumulative effect of accounting change.....................  128,144   214,478   182,274
Cumulative effect of accounting change.....................................       --        --     1,440
                                                                            --------  --------  --------
Net earnings...............................................................  128,144   214,478   180,834
Less preferred share dividends.............................................   37,309    56,763    56,835
                                                                            --------  --------  --------
Net earnings attributable to Common Shares................................. $ 90,835  $157,715  $123,999
                                                                            ========  ========  ========
Weighted average Common Shares outstanding--Basic..........................  172,755   163,651   152,412
                                                                            ========  ========  ========
Weighted average Common Shares outstanding--Diluted........................  175,197   164,401   152,739
                                                                            ========  ========  ========
Basic per share net earnings attributable to Common Shares:
   Earnings before cumulative effect of accounting change.................. $   0.53  $   0.96  $   0.82
   Cumulative effect of accounting change..................................       --        --     (0.01)
                                                                            --------  --------  --------
       Net earnings attributable to Common Shares.......................... $   0.53  $   0.96  $   0.81
                                                                            ========  ========  ========
Diluted per share net earnings attributable to Common Shares:
   Earnings before cumulative effect of accounting change.................. $   0.52  $   0.96  $   0.82
   Cumulative effect of accounting change..................................       --        --     (0.01)
                                                                            --------  --------  --------
       Net earnings attributable to Common Shares.......................... $   0.52  $   0.96  $   0.81
                                                                            ========  ========  ========
</TABLE>



  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      163

<PAGE>


                                PROLOGIS TRUST



                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                           AND COMPREHENSIVE INCOME



                 Years Ended December 31, 2001, 2000 and 1999


                                (In thousands)



<TABLE>
<CAPTION>
                                                                            2001        2000        1999
                                                                         ----------  ----------  ----------
<S>                                                                      <C>         <C>         <C>
Common Shares--Number of shares at beginning of year....................    165,287     161,825     123,416
    Issuance of Common Shares under Common Share plans..................      3,502       1,642         344
    Repurchase of Common Shares.........................................       (778)         --          --
    Conversion of limited partnership units.............................         25         238          14
    Redemption or conversion of Series B Preferred Shares...............      7,785         980         663
    Issuance of Common Shares in merger transaction.....................         --          --      37,388
    Issuance of Common Shares in acquisition of unconsolidated entity...         67         602          --
                                                                         ----------  ----------  ----------
Common Shares--Number of shares at end of year..........................    175,888     165,287     161,825
                                                                         ==========  ==========  ==========
Common Shares (par value) at beginning of year.......................... $  1,652.9  $  1,618.3  $  1,234.2
    Issuance of Common Shares under Common Share plans..................       35.0        16.4         3.4
    Repurchase of Common Shares.........................................       (7.8)         --          --
    Conversion of limited partnership units.............................        0.2         2.4         0.2
    Redemption or conversion of Series B Preferred Shares...............       77.9         9.8         6.6
    Issuance of Common Shares in merger transaction.....................         --          --       373.9
    Issuance of Common Shares in acquisition of unconsolidated entity...        0.7         6.0          --
                                                                         ----------  ----------  ----------
Common Shares (par value) at end of year................................ $  1,758.9  $  1,652.9  $  1,618.3
                                                                         ==========  ==========  ==========
Preferred Shares at beginning of year................................... $  691,403  $  710,518  $  673,440
    Redemption or conversion of Series B Preferred Shares...............   (156,403)    (19,115)    (12,922)
    Redemption of Series A Preferred Shares.............................   (135,000)         --          --
    Issuance of Series E Preferred Shares in merger transaction.........         --          --      50,000
                                                                         ----------  ----------  ----------
Preferred Shares at end of year......................................... $  400,000  $  691,403  $  710,518
                                                                         ==========  ==========  ==========
Additional paid-in capital at beginning of year......................... $2,740,136  $2,663,350  $1,907,232
    Issuance of Common Shares under Common Share plans..................     70,850      30,251       6,327
    Repurchase of Common Shares.........................................    (15,992)         --          --
    Conversion of limited partnership units.............................        216       8,167         205
    Redemption or conversion of Series B Preferred Shares...............    151,742      19,105      12,916
    Issuance of Common Shares in merger transaction.....................         --          --     733,307
    Issuance of Common Shares in acquisition of unconsolidated entity...      1,452      11,872          --
    Sale of stock options to unconsolidated entities....................      1,091       2,153       1,226
    Stock-based compensation costs......................................      9,118       5,238       2,137
                                                                         ----------  ----------  ----------
Additional paid-in capital at end of year............................... $2,958,613  $2,740,136  $2,663,350
                                                                         ==========  ==========  ==========
Employee share purchase notes at beginning of year...................... $  (18,556) $  (22,906) $  (25,247)
    Principal payments on employee share purchase notes.................      3,746       4,350       2,341
                                                                         ----------  ----------  ----------
Employee share purchase notes at end of year............................ $  (14,810) $  (18,556) $  (22,906)
                                                                         ==========  ==========  ==========
Accumulated other comprehensive income at beginning of year............. $  (33,768) $   (9,765) $       23
    Foreign currency translation adjustments............................    (30,012)    (24,003)     (9,788)
                                                                         ----------  ----------  ----------
Accumulated other comprehensive income at end of year................... $  (63,780) $  (33,768) $   (9,765)
                                                                         ==========  ==========  ==========
Distributions in excess of net earnings at beginning of year............ $ (453,497) $ (389,079) $ (300,314)
    Net earnings........................................................    128,144     214,478     180,834
    Preferred Share dividends...........................................    (37,309)    (56,763)    (56,835)
    Common Share distributions paid.....................................   (180,681)   (165,123)   (158,554)
    Common Share distributions accrued..................................    (62,440)    (57,010)    (54,210)
                                                                         ----------  ----------  ----------
Distributions in excess of net earnings at end of year.................. $ (605,783) $ (453,497) $ (389,079)
                                                                         ==========  ==========  ==========
Total shareholders' equity at end of year............................... $2,675,999  $2,927,371  $2,953,736
                                                                         ==========  ==========  ==========
Comprehensive income:
    Net earnings........................................................ $  128,144  $  214,478  $  180,834
Preferred Share dividends...............................................    (37,309)    (56,763)    (56,835)
Foreign currency translation adjustments................................    (30,012)    (24,003)     (9,788)
                                                                         ----------  ----------  ----------
Comprehensive income.................................................... $   60,823  $  133,712  $  114,211
                                                                         ==========  ==========  ==========
</TABLE>



  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      164

<PAGE>


                                PROLOGIS TRUST



                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                 Years Ended December 31, 2001, 2000 and 1999


                                (In thousands)



<TABLE>
<CAPTION>
                                                                                                 2001        2000
                                                                                               ---------  ----------
<S>                                                                                            <C>        <C>
Operating activities:
   Net earnings............................................................................... $ 128,144  $  214,478
   Adjustments to reconcile net earnings to net cash providedby operating activities:
      Minority interest share in earnings.....................................................     6,461       5,586
      Depreciation and amortization...........................................................   143,465     151,483
      Gain on disposition of real estate......................................................   (10,008)     (1,314)
      Straight-lined rents....................................................................    (6,215)     (6,716)
      Amortization of deferred loan costs.....................................................     5,233       4,597
      Stock-based compensation................................................................     7,194       3,811
      (Income) loss from unconsolidated entities..............................................    68,129     (64,239)
      Deferred income tax expense.............................................................     2,258       4,230
      Foreign currency exchange (gains) losses, net...........................................    (4,780)     20,956
      Interest rate hedge expense.............................................................        --          --
      Cumulative effect of accounting change..................................................        --          --
   Increase in accounts receivable and other assets...........................................   (45,200)    (43,123)
   Increase in accounts payable, accrued expenses and other liabilities.......................    52,179      35,409
                                                                                               ---------  ----------
         Net cash provided by operating activities............................................   346,860     325,158
                                                                                               ---------  ----------
Investing activities:
   Real estate investments....................................................................  (789,488)   (631,968)
   Tenant improvements and lease commissions on previously leased space.......................   (21,672)    (19,623)
   Recurring capital expenditures.............................................................   (29,081)    (23,895)
   Proceeds from dispositions of real estate..................................................   855,993     489,020
   Net (advances to) amounts received from unconsolidated entities............................    72,677    (188,750)
   Proceeds from repayment of note receivable.................................................    11,591      11,671
   Adjustments to cash balances resulting from mergers and contributions......................               (17,968)
                                                                                               ---------  ----------
         Net cash provided by (used in) investing activities..................................   100,020    (381,513)
                                                                                               ---------  ----------
Financing activities:
   Net proceeds from Common Share plans.......................................................    71,229      30,734
   Repurchase of Common Shares, net of costs..................................................   (16,000)         --
   Redemption of Series A Preferred Shares....................................................  (135,000)         --
   Redemption of Series B Convertible Preferred Shares........................................    (4,583)         --
   Proceeds from financing transactions.......................................................        --          --
   Debt issuance and other transaction costs incurred.........................................    (1,815)     (4,598)
   Distributions paid on Common Shares (includes $11,132 paid in 1999 in merger transaction)..  (237,691)   (219,333)
   Distributions paid to minority interest holders............................................    (7,116)     (7,123)
   Dividends paid on preferred shares (includes $729 paid in 1999 in merger transaction)......   (37,309)    (56,763)
   Principal payments on senior unsecured debt................................................   (30,000)    (30,000)
   Principal payments received on employee share purchase notes...............................     3,746       4,350
   Payments on the purchase of derivative financial instruments...............................    (2,931)     (1,371)
   Proceeds from settlement of derivative financial instruments...............................       106       2,179
   Proceeds from lines of credit and short-term borrowings....................................   642,188   1,075,473
   Payments on lines of credit and short-term borrowings......................................  (706,135)   (734,351)
   Payments in merger transaction.............................................................        --          --
   Regularly scheduled principal payments on secured debt.....................................    (7,906)     (7,100)
   Principal payments on secured debt at maturity and prepayments.............................    (7,544)     (7,210)
                                                                                               ---------  ----------
         Net cash provided by (used in) financing activities..................................  (476,761)     44,887
                                                                                               ---------  ----------
Net increase (decrease) in cash and cash equivalents..........................................   (29,881)    (11,468)
Cash and cash equivalents, beginning of year..................................................    57,870      69,338
                                                                                               ---------  ----------
Cash and cash equivalents, end of year........................................................ $  27,989  $   57,870
                                                                                               =========  ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                                                  1999
                                                                                               -----------
<S>                                                                                            <C>
Operating activities:
   Net earnings............................................................................... $   180,834
   Adjustments to reconcile net earnings to net cash providedby operating activities:
      Minority interest share in earnings.....................................................       4,979
      Depreciation and amortization...........................................................     152,447
      Gain on disposition of real estate......................................................     (38,994)
      Straight-lined rents....................................................................      (9,889)
      Amortization of deferred loan costs.....................................................       4,440
      Stock-based compensation................................................................       1,657
      (Income) loss from unconsolidated entities..............................................     (20,948)
      Deferred income tax expense.............................................................          --
      Foreign currency exchange (gains) losses, net...........................................      11,344
      Interest rate hedge expense.............................................................         945
      Cumulative effect of accounting change..................................................       1,440
   Increase in accounts receivable and other assets...........................................     (37,359)
   Increase in accounts payable, accrued expenses and other liabilities.......................      20,480
                                                                                               -----------
         Net cash provided by operating activities............................................     271,376
                                                                                               -----------
Investing activities:
   Real estate investments....................................................................    (459,252)
   Tenant improvements and lease commissions on previously leased space.......................     (19,751)
   Recurring capital expenditures.............................................................     (28,114)
   Proceeds from dispositions of real estate..................................................     564,827
   Net (advances to) amounts received from unconsolidated entities............................    (141,037)
   Proceeds from repayment of note receivable.................................................          15
   Adjustments to cash balances resulting from mergers and contributions......................      48,962
                                                                                               -----------
         Net cash provided by (used in) investing activities..................................     (34,350)
                                                                                               -----------
Financing activities:
   Net proceeds from Common Share plans.......................................................       6,331
   Repurchase of Common Shares, net of costs..................................................          --
   Redemption of Series A Preferred Shares....................................................          --
   Redemption of Series B Convertible Preferred Shares........................................          --
   Proceeds from financing transactions.......................................................     966,075
   Debt issuance and other transaction costs incurred.........................................     (58,248)
   Distributions paid on Common Shares (includes $11,132 paid in 1999 in merger transaction)..    (208,969)
   Distributions paid to minority interest holders............................................      (7,251)
   Dividends paid on preferred shares (includes $729 paid in 1999 in merger transaction)......     (56,835)
   Principal payments on senior unsecured debt................................................     (12,500)
   Principal payments received on employee share purchase notes...............................       2,341
   Payments on the purchase of derivative financial instruments...............................     (27,715)
   Proceeds from settlement of derivative financial instruments...............................          --
   Proceeds from lines of credit and short-term borrowings....................................   1,939,845
   Payments on lines of credit and short-term borrowings......................................  (2,335,445)
   Payments in merger transaction.............................................................    (395,981)
   Regularly scheduled principal payments on secured debt.....................................      (6,560)
   Principal payments on secured debt at maturity and prepayments.............................     (35,916)
                                                                                               -----------
         Net cash provided by (used in) financing activities..................................    (230,828)
                                                                                               -----------
Net increase (decrease) in cash and cash equivalents..........................................       6,198
Cash and cash equivalents, beginning of year..................................................      63,140
                                                                                               -----------
Cash and cash equivalents, end of year........................................................ $    69,338
                                                                                               ===========
</TABLE>



See Note 12 for information on non-cash investing and financing activities.



  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      165

<PAGE>


                                PROLOGIS TRUST



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                               December 31, 2001



1. Description of Business:



   ProLogis Trust (collectively with its consolidated subsidiaries and
partnerships "ProLogis") is a publicly held real estate investment trust
("REIT") that owns, operates and develops industrial distribution facilities in
North America (United States and Mexico), Europe and Asia (Japan). The ProLogis
Operating System(R), comprised of the Market Services Group, the Global
Services Group, the Global Development Group and the ProLogis Solutions Group,
utilizes ProLogis' international network of distribution facilities to meet its
customers' distribution space needs globally. ProLogis' business consists of
three reportable business segments: property operations, corporate distribution
facilities services business ("CDFS business") and temperature-controlled
distribution operations. See Note 10.



2. Summary of Significant Accounting Policies:



  Principles of Financial Presentation



   The accounts of ProLogis, its wholly owned subsidiaries and its majority
owned and controlled subsidiaries and partnerships are consolidated in the
accompanying financial statements. All material intercompany transactions,
including transactions with unconsolidated entities, have been eliminated.



   ProLogis Development Services Incorporated ("ProLogis Development Services")
is a subsidiary of ProLogis that operates in the CDFS business segment. See
Note 10. ProLogis owned only the non-voting preferred stock of ProLogis
Development Services, representing a 95% interest until October 2001 when
ProLogis also acquired the voting common stock. ProLogis has advanced mortgage
loans to fund ProLogis Development Services' acquisition, development and
construction activities since its inception. A charitable trust owned the
voting common stock of ProLogis Development Services prior to October 2001 but
had no substantive role in the decision-making process regarding the operations
of ProLogis Development Services. Accordingly, ProLogis consolidated ProLogis
Development Services in its financial statements. In October 2001, ProLogis
acquired the voting common stock from the charitable trust for $1.3 million. As
of December 31, 2001, ProLogis owned 100% of ProLogis Development Services and
continues to consolidate ProLogis Development Services in its financial
statements. ProLogis Development Services is not a qualified REIT subsidiary
under the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
provisions for federal and state income taxes are recognized, as appropriate.



   The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.



   Certain amounts included in the consolidated financial statements for prior
years have been reclassified to conform to the 2001 financial statement
presentation.



  REIT Organization Status



   In January 1993, ProLogis was formed as a Maryland REIT and has elected to
be taxed as a REIT under the Code.


                                      166

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   REITs are not generally required to pay federal income taxes if minimum
distribution, income, asset and shareholder tests are met. During 2001, 2000
and 1999, ProLogis was in compliance with the REIT requirements. Thus, no
federal income tax provision has been reflected in the accompanying
consolidated financial statements for ProLogis and its wholly owned
subsidiaries which are qualified REIT subsidiaries. ProLogis recognizes income
taxes in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes" for its subsidiaries that are not
qualified REIT subsidiaries. Additionally, the foreign countries that ProLogis
operates in do not recognize REITs under their respective tax laws.
Accordingly, ProLogis has recognized foreign country income taxes, as
applicable.



  Long-Lived Assets



   Real estate is carried at cost, which is not in excess of estimated fair
market value. Costs directly associated with the successful acquisition,
renovation or development of real estate are capitalized. Direct costs
associated with unsuccessful acquisitions are expensed at the time the pursuit
is abandoned. Renovations and improvements to real estate assets are
capitalized. Repairs and maintenance costs are expensed as incurred to the
extent they are not acquisition-related renovation costs identified during
ProLogis' pre-acquisition due diligence.



   General and administrative costs incurred for pre-acquisition and
development activities (including land acquisitions), renovation and leasing
activities that are incremental and identifiable to a specific activity are
capitalized to the specific real estate assets. ProLogis capitalizes interest
costs incurred during the land development and construction periods of
qualifying projects. Costs capitalized related to leasing activities are
included with other assets.



   Depreciation of real estate assets is computed over the estimated useful
lives of depreciable property on a straight-line basis: seven years for capital
improvements, 10 years for tenant improvements, 30 years for acquired
facilities and 40 years for facilities developed by ProLogis. Capitalized lease
costs are amortized over the lease term. ProLogis' average lease term is
between six and seven years.



   ProLogis acquired certain real estate through the formation of partnerships
wherein ProLogis, the general partner, contributed cash and the limited
partners contributed real estate in exchange for partnership units which are
ultimately exchangeable for ProLogis' common shares of beneficial interest,
("Common Shares"). In consolidating the partnerships' assets, real estate cost
includes the estimated fair value attributable to the limited partners'
interests as of the acquisition dates. See Note 6.



   ProLogis' investments in certain entities are accounted for under the equity
method. Accordingly, these investments are recognized at ProLogis' cost as
adjusted for ProLogis' proportionate share of the earnings or losses of the
companies, distributions received and other basis adjustments, as appropriate.
ProLogis' proportionate share of the earnings or losses of these companies is
recognized in income. See Note 4.



   ProLogis' management periodically reviews long-lived assets (primarily real
estate and investments in unconsolidated entities) that it owns for impairment
whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable in accordance with the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." In management's opinion, long-lived assets and
certain identifiable intangibles, primarily real estate assets and investments
in unconsolidated entities, are not carried at amounts in excess of their fair
values. Long-lived assets and certain identifiable intangibles, primarily real
estate and investments in unconsolidated entities, to be disposed of, if any,
are reported at the lower of their carrying amount or fair value less cost to
sell. In 2001, ProLogis' share of the aggregate impairment adjustments
recognized by its unconsolidated entities was $131.2 million. See Note 4.


                                      167

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   Recently issued accounting pronouncements that address long-lived assets are:



  .  SFAS No. 142, "Goodwill and Other Intangible Assets"--provides that
     goodwill is no longer subject to amortization over its estimated useful
     life. Rather, goodwill will be subject to at least an annual assessment
     for impairment by applying a fair-value-based-test (the impairment
     guidance in existing rules for equity method goodwill will continue to
     apply). SFAS No. 142 also changes the rules for recognition of acquired
     intangible assets other than goodwill but continues to require that
     intangible assets be amortized over their useful lives.



  .  SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
     Assets"--establishes a single accounting model for long-lived assets to be
     disposed of by sale and provides implementation guidance with respect to
     accounting for impairment of long-lived assets. SFAS No. 144 requires that
     discontinued operations be measured on the same basis as other long-lived
     assets (the lower of the carrying amount or fair value less cost to sell)
     rather than at the net realizable value as previously required.
     Additionally, future operating losses of discontinued operations are no
     longer recognized before they occur.



   SFAS Nos. 142 and 144 are effective for ProLogis' fiscal year ending
December 31, 2002. Management is still evaluating the effects these standards
will have, if any, on ProLogis' consolidated financial position, results of
operations or financial statement disclosures. For the years ended December 31,
2001, 2000 and 1999, ProLogis recognized amortization expense related to
recognized goodwill of $0.1 million, $2.1 million and $0.5 million,
respectively, as a component of "Depreciation and amortization" in its
Consolidated Statements of Earnings. For the years ended December 31, 2001,
2000 and 1999, ProLogis' share of the goodwill amortization of its
unconsolidated entities recognized under the equity method was $10.0 million,
$10.1 million and $9.8 million, respectively. These amounts are included as a
component of "Income (loss) from unconsolidated entities" in ProLogis'
Consolidated Statements of Earnings.



  Cash and Cash Equivalents



   ProLogis considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original maturities
of three months or less to be cash equivalents.



  Minority Interest



   ProLogis acquired a controlling interest in five partnerships that owned
real estate (the "Partnerships"), which are consolidated in ProLogis' financial
statements. The Partnerships are ProLogis Limited Partnership--I, ProLogis
Limited Partnership--II, ProLogis Limited Partnership--III, ProLogis Limited
Partnership--IV and Meridian Realty Partners Limited Partnership. The
acquisition of the controlling interest resulted in a step-up to fair value of
the real estate owned by the Partnerships. Therefore, the minority interest in
the Partnerships has been stated at each holders' respective share of the fair
value of the real estate at the date of acquisitions, as adjusted for
subsequent earnings, contributions and distributions. Common Shares issued upon
exchange of the limited partner interests are accounted for at the carrying
value of the minority interest surrendered.



  Costs of Raising Capital



   Costs incurred in connection with the issuance of shares are deducted from
shareholders' equity. Costs incurred in connection with the incurrence or
renewal of debt are capitalized, included with other assets, and amortized over
the term of the related loan or the renewal term.


                                      168

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




  Financial Instruments



   ProLogis adopted SFAS No. 133, "Accounting for Derivative Instruments and
for Hedging Activities," as amended, on January 1, 2001. SFAS No. 133 provides
comprehensive guidelines for the recognition and measurement of derivatives and
hedging activities and, specifically, requires all derivatives to be recorded
on the balance sheet at fair value as an asset or liability, with an offset to
accumulated other comprehensive income or income.



   In the normal course of business, ProLogis uses certain derivative financial
instruments for the purpose of foreign currency exchange rate and interest rate
risk management. To qualify for hedge accounting, the derivative instruments
used for risk management purposes must effectively reduce the risk exposure
that they are designed to hedge. For instruments associated with the hedge of
anticipated transactions, hedge effectiveness criteria also require that the
occurrence of the underlying transactions be probable. Instruments meeting
these hedging criteria are formally designated as hedges at the inception of
the contract. Those risk management instruments not meeting these criteria are
accounted for at fair value with changes in fair value recognized immediately
in net income.



   In assessing the fair value of its financial instruments, both derivative
and non-derivative, ProLogis uses a variety of methods and assumptions that are
based on market conditions and risks existing at each balance sheet date.
Primarily, ProLogis uses quoted market prices or quotes from brokers or dealers
for the same or similar instruments. These values represent a general
approximation of possible value and may never actually be realized.



   ProLogis' financial instruments, including derivative instruments are
further discussed in Note 16.



  Foreign Operations



   The U.S. dollar is the functional currency for ProLogis' consolidated and
unconsolidated entities operating in the United States and Mexico. The
functional currency for ProLogis' consolidated and unconsolidated entities
operating outside North America is the local currency of the country in which
the entity is located (euro for members of the European Union, krona for
Sweden, pound sterling for the United Kingdom, zloty for Poland and yen for
Japan).



   ProLogis' consolidated subsidiaries whose functional currency is not the
U.S. dollar translate their financial statements into U.S. dollars. Assets and
liabilities are translated at the exchange rate in effect as of the financial
statement date. Income statement accounts are translated using the average
exchange rate for the period. Income statement accounts that represent
significant, nonrecurring transactions are translated at the rate in effect as
of the date of the transaction. Gains and losses resulting from the translation
are included in accumulated other comprehensive income as a separate component
of shareholders' equity. ProLogis translates its share of the income of its
unconsolidated entities whose functional currency is not the U.S. dollar at the
average exchange rate for the period. ProLogis and its foreign entities have
certain transactions denominated in currencies other than their functional
currency. In these instances, nonmonetary assets and liabilities are reflected
at the historical exchange rate, monetary assets and liabilities are remeasured
at the exchange rate in effect at the end of the period, and income statement
accounts are remeasured at the average exchange rate for the period. Gains and
losses from remeasurement are included in ProLogis' results of operations. In
addition, gains or losses are recorded in the income statement when a
transaction with a third party, denominated in a currency other than the
functional currency, is settled and the functional currency cash flows realized
are more or less than expected based upon the exchange rate in effect when the
transaction was initiated.


                                      169

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   The net foreign currency exchange gains and losses recognized in ProLogis'
results of operations were as follows for the periods indicated (in thousands
of U.S. dollars):



<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                       ---------------------------
                                                        2001      2000      1999
                                                       -------  --------  --------
<S>                                                    <C>      <C>       <C>
Losses from the remeasurement and settlement of third
  party and intercompany debt, net.................... $(2,509) $(18,762) $(16,549)
Mark to market gains (losses) on foreign currency put
  option contracts(1).................................   1,122      (854)      (47)
Gains (losses) from the settlement of foreign currency
  put option contracts, net(1)........................  (2,149)    1,481       (45)
Other gains (losses), net.............................    (185)      208      (177)
                                                       -------  --------  --------
Total................................................. $(3,721) $(17,927) $(16,818)
                                                       =======  ========  ========
</TABLE>

--------

(1) ProLogis entered into foreign currency put option contracts related to its
    operations in Europe for 2001, 2000 and 1999. These put option contracts do
    not qualify for hedge accounting treatment; therefore, ProLogis marks these
    contracts to market as of the end of the applicable accounting period. Upon
    settlement, the mark to market adjustments are reversed and the total
    realized gain or loss is recognized. See Note 16.



  Revenue Recognition



   ProLogis leases its operating facilities under operating leases and
recognizes the total minimum lease payments provided for under the leases on a
straight-line basis over the lease term. A provision for possible loss is made
when collection of receivables is considered doubtful.



   Gains or losses on the disposition of real estate are recorded when the
recognition criteria set forth under SFAS No. 66, "Accounting for Sales of Real
Estate" have been met, generally at the time title is transferred and ProLogis
has no future involvement with the asset sold. When ProLogis sells assets to
entities in which it has an ownership interest, ProLogis does not recognize the
portion of any gain resulting from the sale to the extent of its ownership
interest in the entity acquiring the assets. Further, under certain
circumstances, ProLogis defers portions of the gains on sales of assets to the
extent that a portion of the sales proceeds consists of non-monetary
consideration. ProLogis adjusts its share of the earnings recognized under the
equity method from these entities to reflect depreciation expense based on its
lower basis with respect to the assets that were acquired from ProLogis. Gains
and losses resulting from the disposition of assets in the CDFS business
segment are recognized as "Other real estate income" in ProLogis' Consolidated
Statements of Earnings. See Note 10.



  Rental Expenses



   Rental expenses primarily includes the cost of on-site and property
management personnel, utilities, repairs and maintenance, property insurance
and real estate taxes. Under the terms of the respective leases, some or all of
ProLogis' rental expenses are recovered from its tenants. Amounts recovered
from tenants reduce the rental expenses recognized.



  Stock-Based Compensation



   ProLogis adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which allows ProLogis to continue to account for its various stock-based
compensation plans using Accounting Principles Board ("APB")


                                      170

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Under APB No. 25, if the exercise price of the stock options
issued equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized. Under SFAS No. 123, the fair
value of the stock options issued is recognized as compensation expense.
ProLogis generally issues stock options to employees and members of its Board
of Trustees (the "Board") with an exercise price equal to the average of the
high and low market prices on the day the options are issued. Therefore, no
compensation expense is recognized. Generally, any changes to the terms of
options or other instruments awarded will result in the use of variable
accounting under SFAS No. 123 and the recognition of compensation expense.
Certain pro forma earnings per share disclosures required by SFAS No. 123 are
presented in Note 13.



  Cost of Start-Up Activities



   Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up
Activities," which requires that costs associated with organization,
pre-opening, and start-up activities be expensed as incurred was adopted by
ProLogis on January 1, 1999. Through December 31, 1998, ProLogis capitalized
costs associated with start-up activities and amortized such costs over an
appropriate period, generally five years. ProLogis expensed all unamortized
organization and start-up costs, approximating $1.4 million, as a cumulative
effect of an accounting change as of January 1, 1999. Subsequent to that date,
such costs incurred have been expensed.



3. Real Estate



  Real Estate Investments



   Real estate investments directly owned by ProLogis consisting of income
producing industrial distribution facilities, facilities under development and
land held for future development, at cost, are summarized as follows (in
thousands):



<TABLE>
<CAPTION>
                                                               December 31,
                                                      ---------------------------
                                                         2001             2000
                                                      ----------       ----------
<S>                                                   <C>              <C>
Operating facilities:
   Improved land..................................... $  645,343(1)    $  648,950(1)
   Buildings and improvements........................  3,536,638(1)     3,619,543(1)
                                                      ----------       ----------
                                                       4,181,981        4,268,493
                                                      ----------       ----------
Facilities under development (including cost of land)    131,545(2)(3)    186,020(2)
Land held for development............................    200,737(4)       187,405(4)
Capitalized preacquisition costs.....................     73,930(5)        47,574(5)
                                                      ----------       ----------
       Total real estate.............................  4,588,193        4,689,492
Less accumulated depreciation........................    574,871          476,982
                                                      ----------       ----------
       Net real estate............................... $4,013,322       $4,212,510
                                                      ==========       ==========
</TABLE>

--------

(1) As of December 31, 2001 and December 31, 2000, ProLogis had 1,208 and 1,244
    operating facilities, respectively, consisting of 123,356,000 and
    126,275,000 square feet, respectively.


(2) Facilities under development consist of 16 buildings aggregating 5,357,000
    square feet as of December 31, 2001 and 41 buildings aggregating 8,711,000
    square feet as of December 31, 2000.


(3) In addition to the December 31, 2001 construction payable of $19.8 million,
    ProLogis had unfunded commitments on its contracts for facilities under
    construction totaling $132.2 million.


                                      171

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



(4) Land held for future development consisted of 1,976 acres as of December
    31, 2001 and 2,047 acres as of December 31, 2000.


(5) Capitalized preacquisition costs include $65.0 million and $32.5 million of
    funds on deposit with title companies as of December 31, 2001 and December
    31, 2000, respectively.



   ProLogis' operating facilities, facilities under development and land held
for future development are located in North America (the United States and
Mexico), eight countries in Europe and in Japan. No individual market
represents more than 10% of ProLogis' real estate assets.



  Operating Lease Agreements



   ProLogis leases its facilities to customers under agreements, which are
classified as operating leases. As of December 31, 2001, minimum lease payments
on leases with lease periods greater than one year for space in ProLogis'
directly owned facilities during each of the years in the five-year period
ending December 31, 2006 and thereafter are as follows (in thousands):



<TABLE>
                         <S>                 <C>
                         2002............... $  400,344
                         2003...............    321,303
                         2004...............    236,003
                         2005...............    166,751
                         2006...............    106,130
                         2007 and thereafter    205,714
                                             ----------
                                             $1,436,245
                                             ==========
</TABLE>



   ProLogis' largest customer (based on rental income) in its directly owned
facilities accounted for 0.82% of ProLogis' rental income (on an annualized
basis) for the year ended December 31, 2001. The annualized base rent for
ProLogis' 25 largest customers (based on rental income) accounted for 13.2% of
ProLogis' rental income (on an annualized basis) for the year ended December
31, 2001.


                                      172

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




4. Unconsolidated Entities:



  Investments In and Advances To Unconsolidated Entities



   Investments in and advances to unconsolidated entities are as follows (in
thousands):



<TABLE>
<CAPTION>
                                                           December 31,
                                                      ----------------------
                                                         2001        2000
                                                      ----------  ----------
   <S>                                                <C>         <C>
   Temperature-controlled distribution companies:
      CSI/Frigo LLC(1)............................... $   (2,492) $       --
      ProLogis Logistics(2)..........................    174,295     231,053
      Frigoscandia S.A.(3)...........................    186,168     191,981
                                                      ----------  ----------
                                                         357,971     423,034
                                                      ----------  ----------
   Distribution real estate entities:
      ProLogis California(4).........................    118,846     132,243
      ProLogis North American Properties Fund I(5)...     45,331      10,369
      ProLogis North American Properties Fund II(6)..      8,210      13,408
      ProLogis North American Properties Fund III(7).      6,273          --
      ProLogis North American Properties Fund IV(8)..      4,747          --
      ProLogis European Properties Fund(9)...........    263,114     147,938
      ProLogis European Properties S.a.r.l.(9).......         --      84,767
                                                      ----------  ----------
                                                         446,521     388,725
                                                      ----------  ----------
   CDFS business:
      Kingspark LLC..................................      9,937          --
      Kingspark S. A.(10)............................    490,074     570,582
                                                      ----------  ----------
                                                         500,011     570,582
                                                      ----------  ----------
   Insight(11).......................................      2,479       2,470
   ProLogis Equipment Services(12)...................      1,680         450
   GoProLogis(13)....................................      2,073      56,315
   ProLogis PhatPipe(14).............................         --      11,572
                                                      ----------  ----------
   Total............................................. $1,310,735  $1,453,148
                                                      ==========  ==========
</TABLE>

--------

 (1) CSI/Frigo LLC, a limited liability company, owns 100% of the voting common
     stock of both ProLogis Logistics Services Incorporated ("ProLogis
     Logistics") and Frigoscandia Holding S.A. ("Frigoscandia S.A."). ProLogis
     directly owns all of the non-voting preferred stock of both ProLogis
     Logistics and Frigoscandia S.A. representing a 95% interest in the
     earnings of these entities. ProLogis owns 89% of the membership interests
     (all non-voting) of CSI/Frigo LLC and K. Dane Brooksher, ProLogis'
     chairman and chief executive officer, owns the remaining 11% of the
     membership interests (all voting) and is the managing member. ProLogis has
     a note agreement with CSI/Frigo LLC that allows ProLogis to participate in
     its earnings such that ProLogis recognizes 95% of the earnings of
     CSI/Frigo LLC. Mr. Brooksher may transfer his membership interest, subject
     to certain conditions, including the approval of ProLogis. There are no
     provisions that give ProLogis the right to acquire Mr. Brooksher's
     membership interests. Mr. Brooksher does not receive compensation in
     connection with being the managing member. Mr. Brooksher invested $50,000
     in CSI/Frigo LLC. Mr. Brooksher's membership interest and the terms of the
     participating note entitle him to receive dividends equal to 5% of the net
     cash flow, as defined, if any. ProLogis' interests in CSI/Frigo LLC,
     ProLogis Logistics Services and Frigoscandia S.A. do not result in
     ProLogis having ownership of or control of the voting common stock or
     voting membership interests of these entities; therefore, they are not
     consolidated in ProLogis' financial statements. See Note 15.


                                      173

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)





Prior to January 5, 2001, the common stock of ProLogis Logistics was owned by
      unrelated third parties and the common stock of Frigoscandia S.A. was
      owned by a limited liability company in which unrelated parties owned
      100% of the voting interests and Security Capital Group Incorporated
      ("Security Capital"), ProLogis' largest shareholder, owned 100% of the
      non-voting interests. On January 5, 2001, the common stock of both
      ProLogis Logistics and Frigoscandia S.A. was acquired by CSI/Frigo LLC
      for an aggregate purchase price of $3.3 million.


 (2) ProLogis Logistics owns 100% of CS Integrated LLC ("CSI"), a
     temperature-controlled distribution company operating in the United
     States. As of December 31, 2001, CSI owned or operated facilities
     aggregating 178.4 million cubic feet (including 35.5 million cubic feet of
     dry distribution space located in its facilities). In January 2002,
     negotiations commenced for the sale of substantially all of the operating
     assets of CSI and, accordingly, these assets were classified as assets
     held for sale by CSI in January 2002. Through its investment in ProLogis
     Logistics, ProLogis' share of the write-downs and other impairment charges
     recorded by ProLogis Logistics was $53.3 million. This amount reflects
     ProLogis' share of a charge of $32.0 million from the write-down of
     operating assets recorded by CSI under SFAS No. 121 and ProLogis' share of
     charges totalling $21.3 million from the impairment of ProLogis Logistics'
     investment in CSI recorded by ProLogis Logistics under SFAS No. 121 in
     2001. As a result of these charges, the carrying value of ProLogis'
     investment in ProLogis Logistics as of December 31, 2001 is reported at
     the lower of cost or estimated fair value.


 (3) Frigoscandia S.A., through a wholly owned subsidiary, owns 100% of
     Frigoscandia Holding AB ("Frigoscandia"), which owns
     temperature-controlled distribution companies operating in nine countries
     in Europe. As of December 31, 2001, these companies owned or operated
     facilities aggregating 154.4 million cubic feet. During 2001, Frigoscandia
     disposed of substantially all of the operating assets in Germany and all
     of the operating assets in the Czech Republic (aggregating 27.0 million
     cubic feet) for a net loss of $4.4 million. As of December 31, 2001,
     negotiations were ongoing to sell 46.6 million cubic feet of
     Frigoscandia's operating assets. These assets, located in five countries,
     were classified by Frigoscandia as assets held for sale as of December 31,
     2001. Through its investment in Frigoscandia S.A., ProLogis' share of the
     write-downs and other impairment charges recorded by Frigoscandia S.A. was
     $35.1 million reflecting ProLogis' share of a $31.2 million charge from
     the write-down of operating assets that Frigoscandia held for sale and
     other impairment charges recorded by Frigoscandia under SFAS No. 121 and
     ProLogis' share of a charge of $3.9 million from the impairment of
     Frigoscandia S.A.'s investment in Frigoscandia recorded by Frigoscandia
     S.A. under SFAS No. 121 in 2001. As a result of these charges, the
     carrying value of Prologis' investment in Frigoscandia S.A. as of December
     31, 2001 is reported at the lower of cost or estimated fair value.


 (4) Represents ProLogis' investment in the membership interests of ProLogis
     California I LLC ("ProLogis California"), a limited liability company that
     began operations on August 26, 1999, including acquisition costs, as
     adjusted for ProLogis' cumulative share of the earnings or losses of
     ProLogis California, distributions from ProLogis California and for the
     portion of the gain resulting from the disposition of ProLogis' properties
     to ProLogis California that does not qualify for income recognition by
     ProLogis due to its continuing ownership in ProLogis California. ProLogis
     California's members are ProLogis and New York State Common Retirement
     Fund. ProLogis California owns 79 operating facilities aggregating 13.1
     million square feet, all located in the Los Angeles/Orange County market.
     ProLogis has had a 50% ownership interest in this entity since its
     inception.


 (5) Represents ProLogis' and ProLogis Development Services' investment in the
     membership interests of ProLogis North American Properties Fund I LLC, a
     limited liability company that began operations on June 30, 2000,
     including acquisition costs, as adjusted for ProLogis' and ProLogis
     Development Services' cumulative share of the earnings or losses of
     ProLogis North American Properties Fund I, distributions from ProLogis
     North American Properties Fund I and the portion of the gain resulting
     from the disposition of ProLogis' and ProLogis Development Services'
     facilities to ProLogis North American Properties Fund I


                                      174

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



    that does not qualify for income recognition by ProLogis or ProLogis
    Development Services due to their continuing ownership in ProLogis North
    American Properties Fund I. ProLogis North American Properties Fund I's
    members are ProLogis, ProLogis Development Services and the State Teachers
    Retirement Board of Ohio. As of December 31, 2001, ProLogis North American
    Properties Fund I owns 36 operating facilities aggregating 9.0 million
    square feet in 16 United States markets (including three operating
    facilities contributed to ProLogis North American Properties Fund I for an
    additional equity interest of $34.1 million in January 2001). The combined
    ownership interests of ProLogis and ProLogis Development Services in this
    entity was 20% from its inception until January 15, 2001 and has been 41.3%
    after that date.


 (6) This entity was originally formed on June 30, 2000 as a limited liability
     company whose members were ProLogis and Principal Financial Group. This
     entity owned three operating facilities, all acquired from ProLogis,
     aggregating 440,000 square feet. On March 27, 2001, First Islamic
     Investment Bank E.C. acquired the membership interest held by Principal
     Financial Group and, under the name ProLogis First US Properties LP
     ("ProLogis North American Properties Fund II"), acquired 24 additional
     operating facilities aggregating 4.0 million square feet from ProLogis and
     ProLogis Development Services. This acquisition brought the total
     portfolio to 27 operating facilities aggregating 4.5 million square feet
     in 13 United States markets, also the balances as of December 31, 2001.
     The investment represents ProLogis' and ProLogis Development Services'
     investment in the membership interests of ProLogis North American
     Properties Fund II, including acquisition costs, as adjusted for ProLogis'
     and ProLogis Development Services' share of the cumulative earnings or
     losses of ProLogis North American Properties Fund II, distributions from
     ProLogis North American Properties Fund II and the portion of the gain
     resulting from the disposition of ProLogis' and ProLogis Development
     Services' facilities to ProLogis North American Properties Fund II that
     does not qualify for income recognition by ProLogis or ProLogis
     Development Services due to their continuing ownership in ProLogis North
     American Properties Fund II. ProLogis and ProLogis Development Services
     have had a combined 20% ownership interest in this entity since its
     inception.


 (7) ProLogis Second US Properties LP ("ProLogis North American Properties Fund
     III") was formed on June 15, 2001 as a limited liability company whose
     members are ProLogis and ProLogis Development Services and First Islamic
     Investment Bank E.C. In June 2001, this entity acquired 34 operating
     facilities aggregating 4.4 million square feet in 15 United States markets
     from ProLogis and ProLogis Development Services, also the balances as of
     December 31, 2001. Investment represents ProLogis' and ProLogis
     Development Services' investment in the membership interests of ProLogis
     North American Properties Fund III, including acquisition costs, as
     adjusted for ProLogis' and ProLogis Development Services' share of the
     cumulative earnings or losses of ProLogis North American Properties Fund
     III, distributions from ProLogis North American Properties Fund III and
     the portion of the gain resulting from the disposition of ProLogis' and
     ProLogis Development Services' facilities to ProLogis North American
     Properties Fund III that does not qualify for income recognition by
     ProLogis or ProLogis Development Services due to their continuing
     ownership in ProLogis North American Properties Fund III. ProLogis and
     ProLogis Development Services have had a combined 20% ownership interest
     in this entity since its inception.


 (8) ProLogis Third US Properties LP ("ProLogis North American Properties Fund
     IV") was formed on September 21, 2001 as a limited liability company whose
     members are ProLogis and First Islamic Investment Bank E.C. In September
     2001, this entity acquired 17 operating facilities aggregating 3.5 million
     square feet in 10 United States markets from ProLogis, also the balances
     as of December 31, 2001. Investment represents ProLogis' investment in the
     membership interests of ProLogis North American Properties Fund IV,
     including acquisition costs, as adjusted for ProLogis' share of the
     cumulative net earnings or losses of ProLogis North American Properties
     Fund IV, distributions from ProLogis North American Properties Fund IV and
     the portion of the gain resulting from the disposition of ProLogis'
     facilities to ProLogis North American Properties Fund IV that does not
     qualify for income recognition by


                                      175

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



    ProLogis due to its continuing ownership in ProLogis North American
    Properties Fund IV. ProLogis has had a 20% ownership interest in this
    entity since its inception.


 (9) Represents ProLogis' investment in the common units of ProLogis European
     Properties Fund which began operations on September 23, 1999, including
     acquisition costs, as adjusted for ProLogis' share of the cumulative
     earnings or losses of ProLogis European Properties Fund, distributions
     from ProLogis European Properties Fund, the portion of the gain resulting
     from the disposition of ProLogis' facilities to ProLogis European
     Properties Fund that does not qualify for income recognition by ProLogis
     due to its continuing ownership in ProLogis European Properties Fund and
     cumulative translation account adjustments, as appropriate. As of December
     31, 2001, ProLogis European Properties Fund owns 141 operating facilities
     aggregating 23.1 million square feet in 24 European markets, including
     facilities owned by ProLogis European Properties S.a.r.l. ProLogis
     European Properties S.a.r.l. was previously 100% owned by ProLogis. In
     2000 and 2001, ProLogis contributed 50.1% and 49.9%, respectively, of the
     common stock of ProLogis European Properties S.a.r.l. to ProLogis European
     Properties Fund for an additional equity interest. ProLogis European
     Properties Fund owned 100% of ProLogis European Properties S.a.r.l. as of
     December 31, 2001. As of December 31, 2001 and 2000, ProLogis owned 35.4%
     and 34.4%, respectively, of ProLogis European Properties Fund.


(10) ProLogis owns all of the non-voting preferred stock of Kingspark S.A.,
     representing a 95% interest in its earnings. Kingspark LLC, a limited
     liability company, owns all of the voting common stock of Kingspark S.A.
     ProLogis owns 95% of the membership interests (all non-voting) of
     Kingspark LLC and K. Dane Brooksher, ProLogis' chairman and chief
     executive officer, owns the remaining 5% of the membership interests (all
     voting) and is the managing member. Mr. Brooksher may transfer his
     membership interests subject to certain conditions, including the approval
     of ProLogis. There are no provisions that give ProLogis the right to
     acquire Mr. Brooksher's membership interest. Mr. Brooksher does not
     receive compensation in connection with being the managing member. Mr.
     Brooksher invested $40,557 in Kingspark LLC which was loaned to him by
     ProLogis. The recourse loan is payable on January 5, 2006 and bears
     interest at an annual rate of 8.0%. Mr. Brooksher's membership interests
     entitle him to receive dividends equal to 5% of the net cash flow of
     Kingspark LLC, as defined, if any. Neither ProLogis' ownership interests
     in Kingspark LLC and Kingspark S.A., nor its loan to Mr. Brooksher, result
     in ProLogis having ownership of or control of the voting common stock or
     voting membership interests of these entities; therefore, they are not
     consolidated in ProLogis' financial statements. See Note 15.


Prior to January 5, 2001, the common stock of Kingspark S.A. was owned by a
      limited liability company in which unrelated third parties owned 100% of
      the voting interests and Security Capital, ProLogis' largest shareholder,
      owned 100% of the non-voting interests. On January 5, 2001, the common
      stock of Kingspark S.A. was acquired by Kingspark LLC for an aggregate
      purchase price of $8.1 million.


(11) Represents ProLogis Development Services' equity investment in the common
     stock of Insight, Inc. ("Insight"), a privately owned logistics
     optimization consulting company, as adjusted for ProLogis Development
     Services' cumulative share of Insight's earnings or losses. ProLogis
     Development Services had a 33.3% ownership interest in Insight as of
     December 31, 2001 and 2000.


(12) Investment represents ProLogis Development Services' (through a wholly
     owned subsidiary) investment in the membership interests of ProLogis
     Equipment Services LLC, a limited liability company whose other member is
     a subsidiary of Dana Commercial Credit Corporation, as adjusted for
     ProLogis Development Services' cumulative share of ProLogis Equipment
     Services' earnings or losses. ProLogis Equipment Services began operations
     on April 26, 2000 for the purpose of acquiring, leasing and selling
     material handling equipment and providing asset management services for
     such equipment. ProLogis Development Services has had a 50% ownership
     interest in ProLogis Equipment Services since its inception.


(13) ProLogis owns 100% of the non-voting preferred stock ($25.0 million of
     cash invested and $30.4 million of preferred stock received under a
     license fee agreement) of GoProLogis Incorporated ("GoProLogis"),


                                      176

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



    that has invested $25.0 million in the non-cumulative preferred stock of
    Vizional Technologies, Inc. (formerly GoWarehouse.com, Inc.) ("Vizional
    Technologies"), a provider of integrated global logistics network
    technology services. GoProLogis also received $30.4 million of
    non-cumulative preferred stock of Vizional Technologies under a license
    agreement for the non-exclusive use of the ProLogis Operating System(R)
    over a five-year period. This investment was made on July 21, 2000. The
    income related to the license agreement was deferred at the inception of
    the agreement in 2000 and was being recognized over the five-year term of
    the agreement. As of December 31, 2000, ProLogis' net investment in
    GoProLogis was $28.6 million ($55.4 million of non-cumulative preferred
    stock and $0.9 million of additional costs offset by $27.7 million of
    deferred income). During 2001, ProLogis recognized its share of deferred
    license fee income increasing its net investment by $3.0 million to $31.6
    million before recognizing its share of an impairment adjustment ($29.5
    million) in the fourth quarter of 2001. This impairment adjustment reduces
    GoProLogis' investment in the non-cumulative preferred stock of Vizional
    Technologies to its estimated fair value of $2.1 million. GoProLogis never
    received any dividends from its investment in Vizional Technologies since
    the investment was made in 2000. ProLogis' investment in the non-voting
    preferred stock of GoProLogis represents a 98% interest in the earnings of
    GoProLogis. The voting interest in GoProLogis, representing a 2% interest
    in the earnings, is held by K. Dane Brooksher, ProLogis' chairman and chief
    executive officer, and entitles him to receive dividends equal to 2% of the
    net cash flow of GoProLogis, as defined, if any. Mr. Brooksher contributed
    a $1.1 million recourse promissory note to GoProLogis in exchange for his
    interest in the entity, which note is payable on July 18, 2005 and bears
    interest at an annual rate of 8.0%. Mr. Brooksher is not restricted from
    transferring his ownership interest in GoProLogis but ProLogis does have an
    option to acquire Mr. Brooksher's ownership interest at a price equal to
    the principal amount plus accrued interest under the promissory note. See
    Note 15.


(14) ProLogis owns 100% of the non-voting preferred stock ($6.0 million of cash
     invested and $6.0 million of preferred stock received under a license
     agreement) of ProLogis Broadband (1) Incorporated ("ProLogis PhatPipe"),
     that has invested $6.0 million in the non-cumulative preferred stock of
     PhatPipe, Inc. ("PhatPipe"), a real estate technology company. ProLogis
     PhatPipe also received $6.0 million of non-cumulative preferred stock of
     PhatPipe and a receivable of $2.0 million, both under a license agreement
     for the non-exclusive use of the ProLogis Operating System(R) over a
     three-year period. This investment was made on September 20, 2000. The
     income related to the license agreement was deferred at the inception of
     the agreement in 2000 and was being recognized over the three-year term of
     the agreement. As of December 31, 2000, ProLogis' net equity investment in
     ProLogis PhatPipe was $4.3 million ($7.0 million of non-cumulative
     preferred stock owned at that time, a $4.5 million receivable and $42,000
     of additional costs offset by $7.3 million of deferred income). During
     2001, ProLogis acquired an additional $2.5 million of non-cumulative
     preferred stock for cash, received $2.5 million of its original receivable
     in additional non-cumulative preferred stock and recognized $0.7 million
     of deferred license fee income increasing its net investment by $3.0
     million to $7.5 million before recognizing its share of an impairment
     adjustment recorded by ProLogis PhatPipe related to its investment in
     PhatPipe in the second quarter of 2001. This impairment adjustment
     reflects a write-down of ProLogis PhatPipe's entire $7.5 million net
     investment in PhatPipe. ProLogis PhatPipe has not received any dividends
     from its preferred stock investment in PhatPipe since the investment was
     made in 2000. ProLogis' investment in the non-voting preferred stock of
     ProLogis PhatPipe represents a 98% interest in the earnings of ProLogis
     PhatPipe. ProLogis recognized its share of the impairment charge in June
     2001. The voting interest in ProLogis PhatPipe, representing a 2% interest
     in the earnings, is held by K. Dane Brooksher, ProLogis' chairman and
     chief executive officer, and entitles him to receive dividends equal to 2%
     of the net cash flow of ProLogis PhatPipe, as defined, if any. Mr.
     Brooksher contributed $122,449 of recourse promissory notes to ProLogis
     PhatPipe in exchange for his interest in the entity. A promissory note
     with the principal amount of $71,429 is due September 20, 2005 and a
     promissory note with the principal amount of $51,020 is due January 4,
     2006. Both notes bear interest at an annual rate of 8.0%. Mr. Brooksher is
     not restricted from


                                      177

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



    transferring his interest in ProLogis PhatPipe but ProLogis does have an
    option to acquire Mr. Brookshers' interest at a price equal to the
    aggregate principal amount of the promissory notes plus accrued interest
    under the promissory notes. See Note 15.



  Income (Loss) from Unconsolidated Entities



   ProLogis recognized income (loss) from its investments in unconsolidated
entities as follows (in thousands):



<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                   -----------------------------
                                                     2001       2000      1999
                                                   ---------  --------  --------
<S>                                                <C>        <C>       <C>
Temperature-controlled distribution companies:
   CSI/Frigo LLC(1)............................... $  (5,975) $     --  $     --
   ProLogis Logistics(2)..........................   (56,405)   11,950    10,791
   Frigoscandia S.A.(2)...........................   (49,088)  (20,298)   (4,364)
                                                   ---------  --------  --------
                                                    (111,468)   (8,348)    6,427
                                                   ---------  --------  --------
Distribution real estate entities:
   ProLogis California(3).........................    13,147    13,178     3,917
   ProLogis North American Properties Fund I(4)...     4,648     1,806        --
   ProLogis North American Properties Fund II(5)..     2,328       612        --
   ProLogis North American Properties Fund III(6).     1,178        --        --
   ProLogis North American Properties Fund IV(7)..       598        --        --
   ProLogis European Properties Fund(8)...........    15,798    15,648       820
   ProLogis European Properties S.a.r.l.(9).......       205     8,041        --
                                                   ---------  --------  --------
                                                      37,902    39,285     4,737
                                                   ---------  --------  --------
Kingspark S.A.(10)................................    55,839    43,795    23,855
Insight...........................................         9        27       (77)
ProLogis Equipment Services.......................      (209)     (130)       --
GoProLogis(11)....................................   (26,506)    2,693        --
ProLogis PhatPipe(11).............................    (6,789)      741        --
ProLogis Garonor(12)..............................        --        --   (12,423)
                                                   ---------  --------  --------
                                                   $ (51,222) $ 78,063  $ 22,519
                                                   =========  ========  ========
</TABLE>

--------

 (1) CSI/Frigo LLC recognizes its share of the income or losses of ProLogis
     Logistics and Frigoscandia S.A. under the equity method. Amounts represent
     ProLogis' share of the income or losses of CSI/Frigo LLC for the periods
     presented and interest income on outstanding notes.


 (2) Represents ProLogis' direct share of the income or losses of ProLogis
     Logistics and Frigoscandia S.A. recognized under the equity method based
     on its ownership of the non-voting preferred stock of each entity and
     interest income on outstanding notes. During 2001, ProLogis Logistics
     recognized a charge of $53.3 million and Frigoscandia S.A. recognized a
     charge of $35.1 million, both related to the write-down of the operating
     assets of their operating companies and other impairment charges related
     to their investments in these companies. In 2001, also includes an
     aggregate charge of $5.7 million representing the write-off of certain
     technology investments of the operating companies.


 (3) Income includes management, leasing and development fees of $3,093,000,
     $2,655,000 and $930,000 for 2001, 2000 and 1999, respectively. ProLogis
     has had a 50% ownership interest in ProLogis California since its
     inception.


 (4) ProLogis North American Properties Fund I was formed on June 30, 2000.
     Income includes property and asset management and other fees of $2,192,000
     and $668,000 for 2001 and 2000, respectively. ProLogis


                                      178

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



    and ProLogis Development Services had a combined 20% ownership interest in
    ProLogis North American Properties Fund I from its inception on June 30,
    2000 to January 14, 2001, and a combined 41.3% ownership interest from
    January 15, 2001 to December 31, 2001.


 (5) ProLogis North American Properties Fund II was originally formed on June
     30, 2000. Income includes property and asset management and other fees of
     $1,603,000 and $52,000 for 2001 and 2000, respectively. ProLogis (together
     with ProLogis Development Services since March 27, 2001) has had a 20%
     ownership interest in ProLogis North American Properties Fund II since its
     inception.


 (6) ProLogis North American Properties Fund III was formed on June 15, 2001.
     Income includes property and asset management and other fees of $1,010,000
     for 2001. ProLogis and ProLogis Development Services have had a combined
     20% ownership interest in ProLogis North American Properties Fund III
     since its inception.


 (7) ProLogis North American Properties Fund IV was formed on September 21,
     2001. Income includes property and asset management and other fees of
     $315,000 for 2001. ProLogis has had a 20% ownership interest in ProLogis
     North American Properties Fund IV since its inception.


 (8) Income includes property and asset management fees of $8,285,000,
     $5,272,000 and $269,000 for 2001, 2000 and 1999, respectively. ProLogis
     recognizes its share of the earnings or loss of ProLogis European
     Properties Fund based on its average ownership interest during the period.
     ProLogis' ownership interest in ProLogis European Properties Fund was
     35.4% and 34.4% as of December 31, 2001 and 2000, respectively.


 (9) Represents income from ProLogis' investment in 49.9% of the common stock
     of ProLogis European Properties S.a.r.l. in 2000 for the period from
     January 7, 2000 to December 31, 2000 and in 2001 for the period from
     January 1, 2001 to January 6, 2001. As of January 7, 2001, ProLogis
     European Properties S.a.r.l. was 100% owned by ProLogis European
     Properties Fund.


(10) ProLogis acquired Kingspark S.A. on August 14, 1998. ProLogis' share of
     Kingspark S.A.'s earnings or loss includes net gains from the disposition
     of facilities developed by Kingspark S.A. to ProLogis European Properties
     Fund of $23.0 million in 2001, $4.3 million in 2000 and $4.5 million in
     1999. These gains are net of $12.8 million in 2001, $2.5 million in 2000
     and $1.1 million in 1999 that did not qualify for income recognition by
     Kingspark S.A. due to ProLogis' continuing ownership in ProLogis European
     Properties Fund.


(11) Represents ProLogis' share of the earnings of each company. Loss for each
     company includes the write-down of their respective preferred stock
     investments in Vizional Technologies ($29.5 million) and PhatPipe ($7.5
     million) offset by license fees earned for the non-exclusive use of the
     ProLogis Operating System(R) under licensing agreements entered into in
     2000. GoProLogis and ProLogis PhatPipe ceased recognizing income under the
     agreements with PhatPipe and Vizional Technologies in the first and second
     quarters of 2001, respectively.


(12) On December 29, 1998, ProLogis invested in Garonor Holdings S.A. ("Garonor
     Holdings") by acquiring 100% of its non-voting preferred stock. Garonor
     Holdings, a Luxembourg company, owned Garonor S.A. ("ProLogis Garonor"), a
     real estate operating company in France. Security Capital owned 100% of
     the voting common stock of Garonor Holdings. On June 29, 1999, ProLogis
     acquired the common stock of Garonor Holdings from Security Capital,
     resulting in ProLogis owning all of the outstanding common and preferred
     stock of Garonor Holdings. Accordingly, as of that date the accounts of
     Garonor Holdings were consolidated in ProLogis' financial statements along
     with ProLogis' other majority owned and controlled subsidiaries and
     partnerships. The results of operations of Garonor Holdings for the period
     from December 29, 1998 through June 29, 1999 are reflected by ProLogis
     under the equity method. ProLogis Garonor was transferred to ProLogis
     European Properties S.a.r.l. prior to ProLogis contributing 50.1% of the
     common stock of ProLogis European Properties S.a.r.l. to ProLogis European
     Properties Fund on January 7, 2000


                                      179

<PAGE>

                                PROLOGIS TRUST

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


    for an additional equity interest. On January 7, 2001, ProLogis contributed
    the remaining 49.9% of the common stock of ProLogis European Properties
    S.a.r.l. to ProLogis European Properties Fund for an additional equity
    interest.



  Temperature-Controlled Distribution Companies



   ProLogis' total investment in its temperature-controlled distribution
companies as of December 31, 2001 consisted of (in millions of U.S. dollars):



<TABLE>
<CAPTION>
                                              CSI/Frigo   ProLogis   Frigoscandia
                                               LLC(1)   Logistics(2)   S.A.(3)
                                              --------- ------------ ------------
<S>                                           <C>       <C>          <C>
Equity interest..............................   $ 0.4      $231.9      $  22.6
ProLogis' share of the earnings of the entity    (6.2)      (68.5)      (124.0)
                                                -----      ------      -------
   Subtotal..................................    (5.8)      163.4       (101.4)
Other (including acquisition costs), net.....     0.1          --         (2.4)
                                                -----      ------      -------
   Subtotal..................................    (5.7)      163.4       (103.8)
Notes and other receivables..................     3.2        10.9(4)     290.0(5)
                                                -----      ------      -------
   Total.....................................   $(2.5)     $174.3      $ 186.2
                                                =====      ======      =======
</TABLE>

--------

(1) ProLogis owns 89% of the membership interests (all non-voting) and Mr.
    Brooksher owns 11% of the membership interests (all voting) of CSI/Frigo
    LLC. Additionally, ProLogis has a note agreement with CSI/Frigo LLC that
    allows ProLogis to participate in its earnings such that ProLogis
    recognizes 95% of the earnings of CSI/Frigo LLC. ProLogis does not have
    control of ProLogis Logistics or Frigoscandia S.A., therefore, ProLogis
    accounts for its investments in this entity under the equity method.


(2) ProLogis directly owns all of the non-voting preferred stock of ProLogis
    Logistics, representing a 99.23% interest in the earnings of ProLogis
    Logistics. ProLogis Logistics owns 100% of CSI, a temperature- controlled
    distribution company operating in the United States. The common stock of
    ProLogis Logistics was owned by an unrelated party until January 5, 2001,
    when it was purchased by CSI/Frigo LLC.


   In January 2001, ProLogis Logistics borrowed $125.0 million under ProLogis'
   $500.0 million credit agreement as a designated subsidiary borrower. See
   Note 5. The proceeds from this borrowing were used to repay $125.0 million
   of the outstanding notes and accrued interest due to ProLogis in January
   2001. The remaining amounts due to ProLogis were converted to preferred
   stock on January 5, 2001. As of December 31, 2001, ProLogis Logistics had
   $31.5 million of borrowings outstanding under ProLogis' credit agreement.
   Additionally, ProLogis Logistics had $90.0 million of direct borrowings
   outstanding under a credit agreement as of December 31, 2001 that are
   guaranteed by ProLogis.


(3) ProLogis directly owns all of the non-voting stock of Frigoscandia S.A.,
    representing a 95% interest in the earnings of Frigoscandia S.A., a
    Luxembourg company that owns, through wholly owned subsidiaries,
    temperature-controlled distribution companies operating in nine countries
    in Europe. The voting common stock of Frigoscandia S.A. was owned by a
    limited liability company in which Security Capital owned 100% of the
    non-voting interests and unrelated third parties owned 100% of the voting
    interests until January 5, 2001 when it was acquired by CSI/Frigo LLC.


   Frigoscandia S.A., through its wholly owned subsidiary, Frigo S.a.r.l., has
   a credit agreement with Bank of America N.A. ("Bank of America") as agent
   for a bank group, under which borrowings of 102.5 million euros (the
   currency equivalent of approximately $90.4 million as of December 31, 2001)
   were outstanding as of December 31, 2001. All of the borrowings outstanding
   have been guaranteed by ProLogis. The credit agreement expires on June 28,
   2002.


                                      180

<PAGE>

                                PROLOGIS TRUST

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(4) Represents other receivables only.


(5) In addition to other receivables (primarily interest on notes receivable)
    the balance includes:


  .  776.6 million Swedish krona (the currency equivalent of approximately
     $72.5 million as of December 31, 2001) unsecured note from Frigoscandia;
     interest at 5.0% per annum; due on demand;


  .  12.8 million euro (the currency equivalent of approximately $11.3 million
     as of December 31, 2001) unsecured note from Frigoscandia; interest at
     5.0% per annum; due on demand;


  .  $115.5 million unsecured note from Frigoscandia S.A.,; interest at 5.0%
     per annum; $80.0 million due July 15, 2008 with the remainder due on
     demand; and


  .  57.3 million Euro (the currency equivalent of approximately $50.5 million
     as of December 31, 2001) unsecured note from Frigo S.a.r.l.; interest at
     5% per annum; due on demand.





  Distribution Real Estate Entities



   ProLogis' total investment in its distribution real estate entities as of
December 31, 2001 consisted of (in millions of U.S. dollars):



<TABLE>
<CAPTION>
                                                ProLogis   ProLogis   ProLogis   ProLogis
                                                 North      North      North      North     ProLogis
                                                American   American   American   American   European
                                     ProLogis  Properties Properties Properties Properties Properties
                                    California   Fund I    Fund II    Fund III   Fund IV    Fund(1)
                                    ---------- ---------- ---------- ---------- ---------- ----------
<S>                                 <C>        <C>        <C>        <C>        <C>        <C>
Equity interest....................   $161.1     $54.4      $14.3      $12.1      $ 8.4      $319.3
Distributions......................    (38.0)     (5.4)      (1.6)      (1.1)      (0.2)      (17.2)
ProLogis' share of the earnings of
  the entity, excluding fees earned     22.0       2.7        0.4        0.1        0.3        17.9
                                      ------     -----      -----      -----      -----      ------
   Subtotal........................    145.1      51.7       13.1       11.1        8.5       320.0
Adjustments to carrying value(2)...    (27.8)     (9.5)      (6.5)      (5.9)      (4.6)      (48.8)
Other, net(3)......................      1.5       2.0        1.3        1.0        0.7       (14.5)
                                      ------     -----      -----      -----      -----      ------
   Subtotal........................    118.8      44.2        7.9        6.2        4.6       256.7
Other receivables..................       --       1.1        0.3        0.1        0.1         6.4
                                      ------     -----      -----      -----      -----      ------
   Total...........................   $118.8     $45.3      $ 8.2      $ 6.3      $ 4.7      $263.1
                                      ======     =====      =====      =====      =====      ======
</TABLE>

--------

(1) Third parties (21 institutional investors) have invested 604.3 million
    euros (the currency equivalent of approximately $532.9 million as of
    December 31, 2001) in ProLogis European Properties Fund and have committed
    to fund an additional 456.0 million euros (the currency equivalent of
    approximately $402.1 million as of December 31, 2001) through September
    2002. ProLogis has also entered into a subscription agreement to make
    additional capital contributions of 58.9 million euros (the currency
    equivalent of approximately $51.9 million as of December 31, 2001) through
    September 2002.


(2) Reflects the reduction in carrying value for amount of net gain on the
    disposition of facilities to each entity that does not qualify for current
    income recognition by ProLogis due to ProLogis' continuing ownership in
    each entity.


(3) Includes acquisition costs for all entities in addition to ProLogis' share
    of the cumulative translation adjustments of ProLogis European Properties
    Fund.



  Kingspark S.A.



   On August 14, 1998, Kingspark S.A., a Luxembourg company, acquired an
industrial distribution facility development company operating in the United
Kingdom, Kingspark Group Holdings Limited ("ProLogis


                                      181

<PAGE>

                                PROLOGIS TRUST

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Kingspark"). ProLogis had the following investments in Kingspark S.A. and
Kingspark LLC accounted under the equity method as of December 31, 2001:



  .  Investment in all of the non-voting preferred stock of Kingspark S.A. and
     in the non-voting membership interests of Kingspark LLC. Kingspark LLC
     owns the voting common stock of Kingspark S.A. These combined investments
     entitle ProLogis to recognize 99.75% of the combined earnings of these
     entities.



  .  59.0 million pound sterling (the currency equivalent of approximately
     $85.3 million as of December 31, 2001) outstanding on an unsecured
     revolving loan facility from ProLogis to Kingspark S.A.; interest at 6.0%
     per annum; due on demand;



  .  $108.8 million unsecured note from Kingspark S.A.; interest at 5.0% per
     annum; due on demand; and



  .  153.2 million pound sterling (the currency equivalent of approximately
     $221.3 million as of December 31, 2001) mortgage note from Kingspark S.A.;
     secured by land parcels; interest at 6.0% per annum; due on demand.



   As of December 31, 2001, Kingspark S.A. had 1.6 million square feet of
operating facilities at an investment of $140.5 million and 2.4 million square
feet of facilities under development with a total budgeted cost of $262.2
million. Additionally, as of December 31, 2001, Kingspark S.A. owned 185 acres
of land and controlled 1,595 acres of land through purchase options, letters of
intent or contingent contracts. The land owned and controlled by Kingspark S.A.
has the capacity for the future development of approximately 25.9 million
square feet of facilities.



   ProLogis Kingspark has a line of credit agreement with a bank in the United
Kingdom. The line of credit agreement provides for borrowings of up to 25.0
million pounds sterling (the currency equivalent of approximately $36.1 million
as of December 31, 2001) and has been guaranteed by ProLogis. As of December
31, 2001, no borrowings were outstanding on the line of credit. However, as of
December 31, 2001, ProLogis Kingspark had the currency equivalent of
approximately $5.5 million of letters of credit outstanding that reduce the
amount of available borrowings on the line of credit.



  Summarized Financial Information



   Summarized financial information for ProLogis' unconsolidated entities as of
December 31, 2001 is presented below (in millions of U.S. dollars). The
information presented is for the entire entity.



<TABLE>
<CAPTION>
                                                                      ProLogis   ProLogis   ProLogis
                                                           ProLogis    North      North      North
                                                            North     American   American   American   ProLogis
                                                           American  Properties Properties Properties  European
                    ProLogis   Frigoscandia   ProLogis    Properties    Fund       Fund       Fund    Properties Kingspark
                  Logistics(1)   S.A.(1)    California(2) Fund I(3)    II(4)      III(4)     IV(5)     Fund(6)    S.A.(1)
                  ------------   -------    ------------- ---------    -----      ------     -----     -------    -------
<S>               <C>          <C>          <C>           <C>        <C>        <C>        <C>        <C>        <C>
Total assets.....    $328.9      $ 401.7       $591.1       $360.6     $235.3     $209.3     $146.2    $1,477.3   $550.4
Total liabili-
 ties(7)(8)......    $165.5      $ 515.0       $301.0       $238.7     $169.0     $152.6     $104.7    $  676.5   $467.8
Minority interest    $   --      $   0.2       $   --       $   --     $   --     $   --     $   --    $     --   $   --
Equity(9)........    $163.4      $(113.5)      $290.1       $121.9     $ 66.3     $ 56.7     $ 41.5    $  800.8   $ 82.6
Revenues.........    $314.1      $ 369.1       $ 67.0       $ 42.3     $ 21.7     $ 12.6     $  4.6    $   87.2   $ 62.9
Net earnings
 (loss)(10)......    $(56.2)     $ (57.5)      $ 18.8       $  5.7     $  1.9     $  0.6     $  1.4    $   23.8   $ 41.1
</TABLE>

--------

 (1) ProLogis had an ownership interest in excess of 99% in each entity as of
     December 31, 2001.


 (2) ProLogis had a 50% ownership interest in this entity as of December 31,
     2001.


 (3) ProLogis and ProLogis Development Services had a combined 41.3% ownership
     interest in this entity as of December 31, 2001.


                                      182

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



 (4) ProLogis and ProLogis Development Services had a combined 20% ownership
     interest in each entity as of December 31, 2001.


 (5) ProLogis had a 20% ownership interest in this entity as of December 31,
     2001.


 (6) ProLogis had a 35.4% ownership interest in this entity as of December 31,
     2001. Includes the ProLogis European Properties S.a.r.l. which is wholly
     owned by ProLogis European Properties Fund as of December 31, 2001.


 (7) Includes amounts due to ProLogis of $10.9 million from ProLogis Logistics,
     $290.0 million from Frigoscandia S.A., $1.1 million from ProLogis North
     American Properties Fund I, $0.3 million for ProLogis North American
     Properties Fund II, $0.1 million from ProLogis North American Properties
     Fund III, $0.1 million from ProLogis North American Properties Fund IV,
     $6.4 million from ProLogis European Properties Fund and $433.7 million due
     from Kingspark S.A.


 (8) Includes loans due to third parties of $124.1 million for ProLogis
     Logistics ($121.5 million guaranteed by ProLogis), $97.2 million for
     Frigoscandia S.A. ($90.4 million guaranteed by ProLogis), $293.1 million
     for ProLogis California, $232.6 million for ProLogis North American
     Properties Fund I, $165.0 million for ProLogis North American Properties
     Fund II, $150.0 million for ProLogis North American Properties Fund III,
     $103.0 million for ProLogis North American Properties Fund IV and $598.2
     million for ProLogis European Properties Fund.


 (9) ProLogis has entered into a subscription agreement to make additional
     capital contributions of 58.9 million euros (the currency equivalent of
     approximately $51.9 million as of December 31, 2001) through September
     2002.


(10) ProLogis' share of the net earnings (loss) of the respective entities and
     interest income on notes and mortgage notes due to ProLogis are recognized
     in the Consolidated Statements of Earnings as "Income (loss) from
     unconsolidated entities." The net earnings (loss) of each entity includes
     interest expense on amounts due to ProLogis, as applicable. Includes net
     foreign currency exchange losses of $3.5 million for Frigoscandia S.A. and
     net foreign currency gains of $1.9 million and $4.6 million for ProLogis
     European Properties Fund and Kingspark S.A., respectively.



5. Borrowings:



  Lines of Credit



   ProLogis has a credit agreement with Bank of America, Commerzbank AG and JP
Morgan Chase Bank, formerly Chase Manhattan Bank, as agents for a 12 member
bank group that provides for a $500.0 million revolving line of credit.
ProLogis Logistics may also borrow under the credit agreement with such
borrowings guaranteed by ProLogis. ProLogis' borrowings under the agreement
generally bear interest at the London Interbank Offering Rate ("LIBOR") plus an
applicable margin. The margin is based upon ProLogis' current senior debt
ratings. ProLogis' borrowings in 2001 were primarily at the 30-day LIBOR rate
plus 0.75%. Borrowings outstanding as of December 31, 2001 were at a weighted
average interest rate of 2.68%. Additionally, the credit agreement provides for
a facility fee of 0.15% per annum. The credit agreement matures on June 6, 2003
and may be extended for an additional year at ProLogis' option. As of December
31, 2001, ProLogis had $172.0 million of borrowings outstanding on the line of
credit (all of which were borrowed directly by ProLogis Development Services
Incorporated, a consolidated entity of ProLogis) and ProLogis was in compliance
with all covenants contained in the credit agreement. Also, as of December 31,
2001, ProLogis Logistics had borrowed $31.5 million under the credit agreement.



   ProLogis has a $60.0 million discretionary line of credit with Bank of
America that matures on June 6, 2002. In addition to borrowing in U.S. dollars,
ProLogis my borrow in euros, pound sterling or Japanese yen. As of December 31,
2001, ProLogis' borrowing ability under the discretionary line of credit was
reduced by $6.3 million, the amount of ProLogis' outstanding letters of credit
issued by Bank of America. By agreement between


                                      183

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



ProLogis and Bank of America, the rate of interest on and the maturity date of
each advance are determined at the time of each advance. There were no
borrowings outstanding on the discretionary line of credit as of December 31,
2001.



   ProLogis has a credit agreement with ABN AMRO Bank N.V. as agent, that
provides for a 325.0 million euro revolving line of credit (the currency
equivalent of approximately $286.6 million as of December 31, 2001) through a
group of 18 banks. ProLogis' borrowings under the agreement (which can be
denominated in euro or pound sterling) generally bear interest at the rate of
the Banking Federation of the European Union ("EURIBOR") plus 0.75% or Sterling
LIBOR plus 0.75%. Borrowings outstanding as of December 31, 2001 were at a
weighted average interest rate of 4.24%. Additionally, the credit agreement
provides for an unused commitment fee of 0.375% per annum. The credit agreement
matures on December 17, 2003. As of December 31, 2001, the currency equivalent
of approximately $156.4 million of borrowings were outstanding on the line of
credit and ProLogis was in compliance with all covenants contained in the
credit agreement.



   ProLogis has a credit agreement with Sumitomo Mitsui Banking Corporation as
agent, that provides for a 24.5 billion yen revolving line of credit (the
currency equivalent of $187.6 million as of December 31, 2001) through a group
of 11 banks. ProLogis' borrowings under the agreement generally bear interest
at the Tokyo Interbank Offering Rate ("TIBOR") plus 1.00%. Borrowings
outstanding as of December 31, 2001 were at a weighted average interest rate of
1.09%. Additionally, the credit agreement provides for an unused commitment fee
of 0.25% per annum. The credit agreement matures on September 13, 2004 and may
be extended for an additional year at ProLogis' option. As of December 31,
2001, the currency equivalent of approximately $47.5 million of borrowings were
outstanding on the line of credit and ProLogis was in compliance with all
covenants contained in the agreement.



   A summary of ProLogis' unsecured lines of credit borrowings is as follows
(in thousands of U.S. dollars):



<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                      ------------------------------
                                                         2001       2000      1999
                                                      ----------  --------  --------
<S>                                                   <C>         <C>       <C>
Weighted average daily interest rate(1)..............       4.95%     6.33%     6.13%
Borrowings outstanding as of December 31(1).......... $  375,875  $439,822  $ 98,700
Weighted average daily borrowings(1)................. $  314,582  $251,528  $232,821
Maximum borrowings outstanding at any month
  end(1)............................................. $  429,402  $439,822  $440,100
Total borrowing capacity on all lines of credit as of
  December 31(2)..................................... $1,002,651  $832,317  $902,340
</TABLE>

--------

(1) Excludes $31.5 million of direct borrowings by ProLogis Logistics in 2001.
    See Note 4.


(2) Total borrowing capacity as of December 31, 2001 has been reduced by $31.5
    million of outstanding borrowings of ProLogis Logistics. See Note 4.


                                      184

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




  Senior Unsecured Notes



   ProLogis has issued senior unsecured notes that bear interest at fixed rates
to be paid on a semi-annual basis (the "Notes"). The Notes outstanding as of
December 31, 2001 are summarized as follows (in thousands):



<TABLE>
<CAPTION>
                                                               Principal
                                   Coupon Maturity Principal    Payment
      Date of Issuance  Par Value   Rate    Date   Balance(1) Requirement
      ----------------  ---------- ------ -------- ---------- -----------
      <S>               <C>        <C>    <C>      <C>        <C>
      May 17, 1996..... $   12,500 7.250% 05/15/02 $   12,498     (2)
      October 9, 1998..    125,000 7.000% 10/01/03    125,000     (2)
      April 26, 1999...    250,000 6.700% 04/15/04    249,791     (2)
      July 20, 1998....    250,000 7.050% 07/15/06    249,689     (2)
      November 20, 1997    135,000 7.250% 11/20/07    134,215     (2)
      April 26, 1999...    250,000 7.100% 04/15/08    249,949     (2)
      May 17, 1996.....    100,000 7.950% 05/15/08     99,905     (3)
      March 2, 1995....    150,000 8.720% 03/01/09    150,000     (4)
      May 16, 1995.....     75,000 7.875% 05/15/09     74,829     (5)
      November 20, 1997     25,000 7.300% 11/20/09     24,804     (2)
      February 4, 1997.    100,000 7.810% 02/01/15    100,000     (6)
      March 2, 1995....     50,000 9.340% 03/01/15     50,000     (7)
      May 17, 1996.....     50,000 8.650% 05/15/16     49,881     (8)
      July 11, 1997....    100,000 7.625% 07/01/17     99,798     (2)
                        ----------                 ----------
                        $1,672,500                 $1,670,359
                        ==========                 ==========
</TABLE>

--------

(1) Amounts are net of applicable unamortized original issue discount.


(2) Principal due at maturity.


(3) Annual principal payments of $25.0 million from May 15, 2005 to May 15,
    2008.


(4) Annual principal payments of $18.75 million from March 1, 2002 to March 1,
    2009.


(5) Annual principal payments of $9.375 million from May 15, 2002 to May 15,
    2009.


(6) Annual principal payments ranging from $10.0 million to $20.0 million from
    February 1, 2010 to February 1, 2015.


(7) Annual principal payments ranging from $5.0 million to $12.5 million from
    March 1, 2010 to March 1, 2015.


(8) Annual principal payments ranging from $5.0 million to $12.5 million from
    May 15, 2010 to May 15, 2016.



   The Notes rank equally with all other unsecured and unsubordinated
indebtedness of ProLogis outstanding from time to time. The Notes are
redeemable at any time at ProLogis' option. Such redemption and other terms are
governed by the provisions of an indenture agreement or, with respect to the
$160.0 million of Notes issued on November 20, 1997, note purchase agreements.
Under the terms of the indenture agreement and the note purchase agreements,
ProLogis must meet certain financial covenants. ProLogis was in compliance with
all such covenants as of December 31, 2001.


                                      185

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




  Secured Debt



   Secured debt as of December 31, 2001 consisted of the following (in
thousands):



<TABLE>
<CAPTION>
                                                                                  Balloon
                                                               Periodic           Payment
                                            Interest Maturity  Payment  Principal  Due at
Description                                 Rate(1)    Date      Date    Balance  Maturity
-----------                                 -------- --------  -------- --------- --------
<S>                                         <C>      <C>       <C>      <C>       <C>
Mortgage notes:
   Prudential Insurance(3).................   8.59%  04/01/03     (2)   $ 24,580  $ 23,505
   Sullivan 75 Distribution Center #1......   9.96   04/01/04     (2)      1,739     1,663
   Charter American Mortgage(3)............   8.75   08/01/04     (2)      6,651     5,818
   West One Business Center #3.............   9.00   09/01/04     (2)      4,144     3,847
   Raines Distribution Center..............   9.50   01/01/05     (2)      2,941     1,128
   Prudential Insurance(3)(4)..............   6.85   04/01/05     (5)     51,923    48,850
   Consulate Distribution Center #300(4)...   6.97   02/01/06     (2)      3,575     3,585
   Plano Distribution Center #7(4).........   7.02   04/15/06     (2)      3,623     3,015
   Interchange Distribution Ctr. #8 & #9...   8.14   06/01/06     (2)      7,124     6,651
   Connecticut General Life Insurance(3)...   7.08   03/01/07     (2)    145,458   134,431
   Vista Del Sol Industrial Center #1 & 2..   9.68   08/01/07     (6)      2,777        --
   State Farm Insurance(3)(4)..............   7.10   11/01/08     (2)     15,158    13,065
   Placid Street Distribution Center #1(4).   7.18   12/01/09     (2)      7,426     6,529
   Earth City Industrial Center #4.........   8.50   07/01/10     (6)      1,886        --
   GMAC Commercial Mortgage(3).............   7.75   10/01/10     (6)      6,758        --
   Executive Park Distribution Center #3...   8.19   03/01/11     (6)        929        --
   Cameron Business Center #1(4)...........   7.23   07/01/11     (2)      5,912     4,526
   Platte Valley Industrial Center #9......   8.10   04/01/17     (6)      3,061        --
   Platte Valley Industrial Center #4......  10.10   11/01/21     (6)      1,978        --
   Morgan Guaranty Trust(3)................   7.58   04/01/24     (7)    200,000   127,187
                                                                        --------
                                                                        $497,643
                                                                        ========
Assessment bonds:
   City of Fremont.........................   7.00%  03/01/11     (6)   $  8,145        --
   Various(8)..............................     (8)        (8)    (6)      1,185        --
   City of Tracy...........................   7.20   09/01/24     (6)      2,577        --
                                                                        --------
                                                                        $ 11,907
                                                                        --------
Securitized debt:
   Tranche A...............................   7.74%  02/01/04     (2)   $ 14,925  $ 13,405
   Tranche B...............................   9.94   02/01/04     (2)      7,631     7,215
                                                                        --------
                                                                        $ 22,556
                                                                        ========
       Total secured debt..................                             $532,106
                                                                        ========
</TABLE>

--------

(1) The weighted average interest rates for mortgage notes, assessment bonds
    and securitized debt were 7.46%, 7.13% and 8.48%, respectively as of
    December 31, 2001. The total weighted average interest rate for ProLogis'
    secured borrowings is 7.50%.


(2) Monthly amortization with a balloon payment due at maturity.


(3) Secured by various distribution facilities.


(4) Mortgage note was assumed by ProLogis in connection with the 1999 merger
    transaction. See Note 11. Under purchase accounting, the mortgage note was
    recorded at its fair value. Accordingly, a premium or


                                      186

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



   discount was recognized, as applicable. Balloon payments due at maturity are
   not adjusted for recorded premiums or discounts.


(5) Carrying value includes premium. Terms are interest only with stated
    principal amount of $48.9 million due at maturity.

(6) Fully amortizing.

(7) Monthly interest only payments through May 2005, monthly principal and
    interest payments from June 2005 to April 2024 with a balloon payment due
    at maturity.


(8) Includes ten issues of assessment bonds with four municipalities. Interest
    rates range from 5.50% per annum to 8.75% per annum. Maturity dates range
    from August 2004 to March 2021.



   Mortgage notes, assessment bonds and securitized debt are secured by real
estate with an aggregate undepreciated cost of $934.3 million, $234.1 million
and $61.4 million, respectively, as of December 31, 2001.



  Long-Term Debt Maturities



   Approximate principal payments due on senior unsecured notes and secured
debt (mortgage notes, assessment bonds and securitized debt) during each of the
years in the five-year period ending December 31, 2006 and thereafter are as
follows (in thousands):



<TABLE>
                   <S>                           <C>
                   2002......................... $   49,252
                   2003.........................    185,214
                   2004.........................    316,554
                   2005.........................    111,579
                   2006.........................    319,995
                   2007 and thereafter..........  1,222,012
                                                 ----------
                      Total principal due.......  2,204,606
                   Less: Original issue discount     (2,141)
                                                 ----------
                      Total carrying value...... $2,202,465
                                                 ==========
</TABLE>



  Interest Expense



   For 2001, 2000 and 1999, interest expense was $163.6 million, $172.2 million
and $170.7 million, respectively, which is net of capitalized interest of $24.3
million, $18.5 million and $16.0 million, respectively. Amortization of
deferred loan costs included in interest expense was $5.2 million, $4.6 million
and $4.4 million for 2001, 2000 and 1999, respectively. The total interest paid
in cash on all outstanding debt was $183.3 million, $178.4 million and $169.8
million during 2001, 2000 and 1999, respectively.



6. Minority Interest:



   Of the total minority interest as of December 31, 2001, $45.6 million
represents the limited partners' interests in the Partnerships controlled by
ProLogis. With respect to each of the Partnerships either ProLogis or a
subsidiary of ProLogis is the sole general partner with all management powers
over the business and affairs of the Partnership. The limited partners of each
Partnership generally do not have the right to participate in or exercise
management control over the business and affairs of the Partnership. With
respect to each partnership the general partner may not, without the written
consent of all of the limited partners, take any action that would prevent such
Partnership from conducting its business, possess the property of the
partnership, admit an additional partner or subject a limited partner to the
liability of a general partner.


                                      187

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   As of December 31, 2001, ProLogis or a consolidated subsidiary of ProLogis
is the controlling general partner in the Partnerships. In each of the
Partnerships, the limited partners are entitled to exchange partnership units
for Common Shares. Additionally, the limited partners are entitled to receive
preferential cumulative quarterly distributions per unit equal to the quarterly
distributions in respect of Common Shares. The Partnerships as of December 31,
2001 are as follows:



<TABLE>
<CAPTION>
                                             Investment in                Limited
                                   Formation  Real Estate  ProLogis' Partnership Units
Entity                               Date    (in millions) Ownership    Outstanding
------                             --------- ------------- --------- -----------------
<S>                                <C>       <C>           <C>       <C>
ProLogis Limited Partnership-I....   1993       $213.1(1)    68.65%      4,520,532(2)
ProLogis Limited Partnership-II...   1994       $ 60.1       97.82%         90,213(2)
ProLogis Limited Partnership-III..   1994       $ 35.9       79.63%        350,964(2)
ProLogis Limited Partnership-IV(3)   1994       $106.1       98.49%         68,612(2)
Meridian Realty Partners Limited
  Partnership.....................     (4)      $ 10.4       87.00%         29,712(5)
</TABLE>

--------

(1) These facilities cannot be sold, prior to the occurrence of certain events,
    without the consent of the limited partners thereto, other than in
    tax-deferred exchanges.


(2) Each unit is convertible into one Common Share.


(3) ProLogis Limited Partnership-IV was formed through a cash contribution from
    a wholly owned subsidiary of ProLogis, ProLogis-IV, Inc. and the
    contribution of distribution facilities from the limited partner. ProLogis
    Limited Partnership-IV and ProLogis-IV, Inc. are legal entities separate
    and distinct from ProLogis, its affiliates and each other, and each has
    separate assets, liabilities, business functions and operations. The sole
    assets of ProLogis-IV, Inc. are its general partner advances to and its
    interest in ProLogis Limited Partnership-IV. As of December 31, 2001,
    ProLogis Limited Partnership-IV had outstanding borrowings from
    ProLogis-IV, Inc., of $0.3 million and ProLogis-IV, Inc. had outstanding
    borrowings from ProLogis and its affiliates of $0.3 million.


(4) Acquired in 1999 merger transaction. See Note 11.


(5) Each unit is convertible into 1.1 Common Shares, plus $2.00.



7. Shareholders' Equity:



  Shares Authorized



   As of December 31, 2001, 275,000,000 shares were authorized. The Board may
increase the number of authorized shares and may classify or reclassify any
unissued shares of ProLogis stock from time to time by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as of distributions, qualifications and terms or conditions of
redemption of such shares.



  Common Shares



   ProLogis had 175,888,391 and 165,287,358 Common Shares outstanding as of
December 31, 2001 and 2000. Common Shares have a par value of $0.01 per share.



   ProLogis' holders of Common Shares may acquire additional Common Shares by
automatically reinvesting distributions under the 1999 Dividend Reinvestment
and Share Purchase Plan (the "1999 Common Share Plan"). Holders of Common
Shares who do not participate in the 1999 Common Share Plan continue to receive
distributions as declared. The 1999 Common Share Plan also allows both holders
of Common Shares and persons who are not holders of Common Shares to purchase a
limited number of additional Common Shares by making optional cash payments,
without payment of any brokerage commission or service charge. Common Shares are


                                      188

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



acquired pursuant to the 1999 Common Share Plan at a price equal to 98% of the
market price of such Common Shares. During 2001, ProLogis generated net
proceeds of $67.1 million from the issuance of 3,261,000 Common Shares under
the 1999 Common Share Plan.



   In January 2001, ProLogis announced a Common Share repurchase program under
which it may repurchase up to $100.0 million of its Common Shares. The Common
Shares have been and, to the extent these repurchases continue, they will be
repurchased in the open market and in privately negotiated transactions,
depending on market prices and other conditions. During 2001, 778,400 Common
Shares were purchased under this program at a total cost of $16.0 million.



   ProLogis' employees participate in various long-term compensation plans as
discussed in Note 13. Compensation under these plans is generally in the form
of Common Shares. In 2001, ProLogis issued 241,000 Common Shares under these
plans generating net proceeds of $3.8 million. Also in 2001, 25,000 Common
Shares were issued upon conversion of limited partnership units. See Note 6.



   In May 2001, ProLogis' shareholders approved the establishment of the
ProLogis Trust Employee Share Purchase Plan (the "Employee Share Plan"). Under
the terms of the Employee Share Plan, employees of ProLogis and its
participating entities may purchase Common Shares, through payroll deductions
only, at a discounted price of 85% of the fair market value of such Common
Shares. Subject to certain provisions, the aggregate number of Common Shares
which may be issued under the Plan may not exceed 5,000,000. ProLogis began
issuing Common Shares under the Employee Share Plan in January 2002.



  Preferred Shares



   As of December 31, 2001, ProLogis had three series of cumulative redeemable
preferred shares of beneficial interest outstanding ("Series C Preferred
Shares", "Series D Preferred Shares" and "Series E Preferred Shares"). Holders
of each series of preferred shares have, subject to certain conditions, limited
voting rights. The holders of the preferred shares are entitled to receive
cumulative preferential dividends based upon each series' respective
liquidation preference. Such dividends are payable quarterly in arrears on the
last day of March, June, September and December for Series C Preferred Shares
and Series D Preferred Shares and are payable quarterly in arrears on the last
day of January, April, July and October for Series E Preferred Shares, when,
and if, declared by the Board, out of funds legally available for payment of
dividends. After the respective redemption dates, each series can be redeemed
at ProLogis' option for a cash redemption price which (other than the portion
consisting of accrued and unpaid dividends) is payable solely out of the
cumulative sales proceeds of other capital shares of ProLogis, which may
include shares of other series of preferred shares. With respect to payment of
dividends, each series of preferred shares ranks on parity with ProLogis' other
series of preferred shares.



   ProLogis redeemed all of its outstanding Series B cumulative convertible
redeemable preferred shares of beneficial interest ("Series B Convertible
Preferred Shares") as of March 20, 2001. Prior to the call for redemption,
163,827 Series B Convertible Preferred Shares were converted into 210,026
Common Shares. Subsequent to the call for redemption, 5,908,971 Series B
Convertible Preferred Shares were converted into 7,575,301 Common Shares. The
remaining 183,302 Series B Convertible Preferred Shares outstanding on March
20, 2001 were redeemed at a price of $25.00 per share, plus $0.442 in accrued
and unpaid dividends. The aggregate redemption cost (including accrued
dividends) of the Series B Convertible Preferred Shares was $4.7 million.



   ProLogis redeemed all 5,400,000 of its outstanding Series A cumulative
preferred shares of beneficial interest ("Series A Preferred Shares") as of May
8, 2001 at the price of $25.00 per share, plus $0.2481 in accrued


                                      189

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



and unpaid dividends. The aggregate redemption cost (including accrued
dividends) of the Series A Preferred Shares was $136.3 million.



   ProLogis' preferred shares as of December 31, 2001 are summarized as follows:



<TABLE>
<CAPTION>
                                                        Dividend
                    Number of    Stated             Equivalent Based  Optional
                     Shares    Liquidation Dividend  on Liquidation  Redemption
                   Outstanding Preference    Rate      Preference       Date
                   ----------- ----------- -------- ---------------- ----------
<S>                <C>         <C>         <C>      <C>              <C>
Series C Preferred
  Shares..........  2,000,000    $50.00      8.54%  $4.27 per share   11/13/26
Series D Preferred
  Shares.......... 10,000,000    $25.00      7.92%  $1.98 per share   04/13/03
Series E Preferred
  Shares..........  2,000,000    $25.00      8.75%  $2.19 per share   06/30/03
</TABLE>



  Shelf Registration



   ProLogis has a shelf registration statement on file with the Securities and
Exchange Commission that allows ProLogis to issue securities in the form of
debt securities, preferred shares, Common Shares, rights to purchase Common
Shares and preferred share purchase rights on an as-needed basis. These $608.0
million of shelf-registered securities are available for issuance, subject to
ProLogis' ability to effect an offering on satisfactory terms.



  Ownership Restrictions and Significant Shareholder



   For ProLogis to qualify as a REIT under the Code, not more than 50% in value
of its outstanding shares of stock may be owned by five or fewer individuals at
any time during the last half of ProLogis' taxable year. Therefore, ProLogis'
Declaration of Trust restricts beneficial ownership (or ownership generally
attributed to a person under the REIT tax rules) of ProLogis' outstanding
shares by a single person, or persons acting as a group, to 9.8% of ProLogis'
outstanding shares. This provision assists ProLogis in protecting and
preserving its REIT status and protects the interest of shareholders in
takeover transactions by preventing the acquisition of a substantial block of
shares.



   Shares owned by a person or group of persons in excess of these limits are
subject to redemption by ProLogis. The provision does not apply where a
majority of the Board, in its sole and absolute discretion, waives such limit
after determining that the status of ProLogis as a REIT for federal income tax
purposes will not be jeopardized or the disqualification of ProLogis as a REIT
is advantageous to the shareholders.



   Security Capital, ProLogis' largest shareholder with 28.4% of ProLogis'
outstanding Common Shares as of December 31, 2001, is exempt from the ownership
restrictions described above. For tax purposes, Security Capital's ownership is
attributed to its shareholders. In December 2001, Security Capital announced
that it had entered into a definitive agreement for General Electric Capital
Corporation ("GE Capital") to acquire the outstanding shares of Security
Capital Class B common stock for a price of $26.00 per share. The merger
agreement, if approved by the shareholders of Security Capital and GE Capital,
will give GE Capital the option of combining the ProLogis Common Shares owned
by Security Capital with cash to acquire the Security Capital Class B stock
outstanding. GE Capital has announced that it intends to retain ownership of
9.8% of the Common Shares outstanding but has reserved the right to distribute
more, or less, of the Common Shares owned by Security Capital to Security
Capital's shareholders in the merger.


                                      190

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




  Shareholder Purchase Rights



   On December 7, 1993, the Board declared a dividend of one preferred share
purchase right ("Right") for each outstanding Common Share to be distributed to
all holders of record of the Common Shares on December 31, 1993. Each Right
entitles the registered holder to purchase one-hundredth of a Participating
Preferred Share for an exercise price of $40.00 per one-hundredth of a
Participating Preferred Share, subject to adjustment as provided in the Rights
Agreement. The Rights will generally be exercisable only if a person or group
(other than certain affiliates of ProLogis) acquires 20% or more of the Common
Shares or announces a tender offer for 25% or more of the Common Shares. Under
certain circumstances, upon a shareholder acquisition of 20% or more of the
Common Shares (other than certain affiliates of ProLogis), each Right will
entitle the holder to purchase, at the Right's then-current exercise price, a
number of Common Shares having a market value of twice the Right's exercise
price. The acquisition of ProLogis pursuant to certain mergers or other
business transactions will entitle each holder of a Right to purchase, at the
Right's then-current exercise price, a number of the acquiring company's common
shares having a market value at that time equal to twice the Right's exercise
price. The Rights held by certain 20% shareholders will not be exercisable. The
Rights will expire on December 7, 2003, unless the expiration date of the
Rights is extended, and the Rights are subject to redemption at a price of
$0.01 per Right under certain circumstances.



8. Distributions and Dividends:



  Common Share Distributions



   ProLogis' annual distribution per Common Share for 2001, 2000 and 1999 and
the taxability of cash distributions paid on Common Shares for Federal income
tax purposes (estimated taxability for 2001) are as follows:



<TABLE>
<CAPTION>
                                       Year Ended December 31,
                                       -----------------------
                                        2001    2000    1999
                                        -----   -----   -----
                 <S>                   <C>     <C>     <C>
                 Per Common Share:
                    Ordinary income... $1.09   $1.19   $0.84
                    Capital gains.....  0.19    0.15    0.35
                    Return of capital.  0.10      --    0.11
                                        -----   -----   -----
                        Total......... $1.38   $1.34   $1.30
                                        =====   =====   =====
</TABLE>



   The distribution level for 2002 was set at $1.42 per Common Share by the
Board on December 14, 2001. Also on that date, ProLogis declared a distribution
of $0.355 per Common Share payable on February 28, 2002 to holders of Common
Shares on February 14, 2002.



  Preferred Share Dividends



   Annual dividends per preferred share were as follows:



<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                             ------------------------
                                             2001(1)   2000(2) 1999(3)
                                             -------   ------- -------
       <S>                                   <C>       <C>     <C>
       Series A Preferred Shares............  $0.84(4)  $2.35   $2.35
       Series B Convertible Preferred Shares   0.44(4)   1.75    1.75
       Series C Preferred Shares............   4.27      4.27    4.27
       Series D Preferred Shares............   1.98      1.98    1.98
       Series E Preferred Shares............   2.19      2.19    1.64(5)
</TABLE>


                                      191

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


--------

(1) For federal income tax purpose $0.71 of the Series A dividend, $0.38 of the
    Series B dividend, $3.63 of Series C dividend, $1.68 of the Series D
    dividend and $1.86 of the Series E dividend are treated as ordinary income
    to the holders. The remaining portion of each dividend represents capital
    gains.


(2) For federal income tax purposes $2.08 of the Series A dividend, $1.55 of
    the Series B dividend, $3.78 of the Series C dividend, $1.75 of the Series
    D dividend and $1.94 of the Series E dividend are treated as ordinary
    income to the holders. The remaining portion of each dividend represents
    capital gains.


(3) For federal income tax purposes $1.65 of the Series A dividend, $1.23 of
    the Series B dividend, $3.00 of the Series C dividend, $1.39 of the Series
    D dividend and $1.15 of the Series E dividend are treated as ordinary
    income to the holders. The remaining portion of each dividend represents
    capital gains.


(4) The Series A Preferred Shares were redeemed as of May 8, 2001 and the
    Series B Convertible Preferred Shares were redeemed as of March 20, 2001.


(5) For the period from date of issuance to December 31, 1999.



   Pursuant to the terms of its preferred shares, ProLogis is restricted from
declaring or paying any distribution with respect to the Common Shares unless
all cumulative dividends with respect to the preferred shares have been paid
and sufficient funds have been set aside for dividends that have been declared
for the then-current dividend period with respect to the preferred shares.



   ProLogis' tax return for the year ended December 31, 2001 has not been
filed. The taxability information for 2001 is based upon the best available
data. ProLogis' tax returns for prior years have not been examined by the
Internal Revenue Service. Consequently, the taxability of distributions is
subject to change.



9. Earnings Per Common Share:



   A reconciliation of the denominator used to calculate basic net earnings per
Common Share to the denominator used to calculate diluted net earnings per
Common Share for the years indicated (in thousands, except per share amounts)
is as follows:



<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                     --------------------------
                                                       2001     2000     1999
                                                     -------- -------- --------
 <S>                                                 <C>      <C>      <C>
 Net earnings attributable to Common Shares......... $ 90,835 $157,715 $123,999
 Series B Convertible Preferred Share dividends.....       81       --       --
                                                     -------- -------- --------
 Adjusted net earnings attributable to Common Shares $ 90,916 $157,715 $123,999
                                                     ======== ======== ========
 Weighted average Common Shares outstanding--
   Basic............................................  172,755  163,651  152,412
 Weighted average conversion of Series B Convertible
   Preferred Shares.................................    1,544       --       --
 Incremental weighted average effect of common
   share equivalents and contingently issuable
   Common Shares (see Note 13)......................      898      750      327
                                                     -------- -------- --------
 Adjusted weighted average Common Shares
   outstanding--Diluted.............................  175,197  164,401  152,739
                                                     ======== ======== ========
 Basic per share net earnings attributable to Common
   Shares........................................... $   0.53 $   0.96 $   0.81
                                                     ======== ======== ========
 Diluted per share net earnings attributable to
   Common Shares.................................... $   0.52 $   0.96 $   0.81
                                                     ======== ======== ========
</TABLE>


                                      192

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   For the year ended December 31, 1999, basic and diluted per share net
earnings attributable to Common Shares before the cumulative effect of
accounting change were $0.82. The following convertible securities are not
included in the calculation of diluted per share net earnings attributable to
Common Shares as the effect, on an as-converted basis, is antidilutive (in
thousands):



<TABLE>
<CAPTION>
                                                     Year Ended
                                                    December 31,
                                                  -----------------
                                                  2001  2000  1999
                                                  ----- ----- -----
            <S>                                   <C>   <C>   <C>
            Series B Convertible Preferred Shares    -- 8,417 9,221
                                                  ===== ===== =====
            Limited partnership units............ 5,087 5,348 5,461
                                                  ===== ===== =====
</TABLE>



10. Business Segments:



   ProLogis has three reportable business segments:



  .  Property operations represents the long-term ownership (either directly or
     through investments in unconsolidated entities), management and leasing of
     industrial distribution facilities in the United States, Mexico and
     Europe. Each operating facility is considered to be an individual
     operating segment having similar economic characteristics that are
     combined within the reportable segment based upon geographic location. See
     Note 4.



  .  CDFS business represents the development of industrial distribution
     facilities by ProLogis and Kingspark S.A. (which is not consolidated in
     ProLogis' financial statements) in the United States, Mexico, Europe and
     Japan that are often sold to third parties or contributed to entities in
     which ProLogis maintains an ownership interest and acts as manager.
     Additionally, in the United States, Mexico and Europe, ProLogis and
     Kingspark S.A. earn fees for development activities on behalf of customers
     and realizes profits from the sale of land parcels when their development
     plans no longer include these parcels. The activities in this segment are
     considered to be individual operating segments having similar economic
     characteristics that are combined within the reportable segment based upon
     geographic location.



  .  Temperature-controlled distribution operations represents the operation of
     a temperature-controlled distribution and logistics network through
     investments in unconsolidated entities in the United States (ProLogis
     Logistics) and Europe (Frigoscandia S.A.). The operations of these
     entities are considered to be one operating segment. See Note 4.


                                      193

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   Reconciliations of the three reportable segments': (i) income from external
customers to ProLogis' total income; (ii) net operating income from external
customers to ProLogis' earnings before minority interest (ProLogis' chief
operating decision makers rely primarily on net operating income and related
measures to make decisions about allocating resources and assessing segment
performance); and (iii) assets to ProLogis' total assets are as follows (in
thousands):



<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                       -----------------------------
                                                                         2001       2000      1999
                                                                       ---------  --------  --------
<S>                                                                    <C>        <C>       <C>
Income:
   Property operations:
       United States(1)............................................... $ 463,673  $476,098  $457,592
       Mexico.........................................................    19,370    15,504    10,503
       Europe(2)......................................................    20,636    27,771    16,045
                                                                       ---------  --------  --------
          Total property operations segment...........................   503,679   519,373   484,140
                                                                       ---------  --------  --------
   CDFS business:
       United States(3)...............................................    71,979    58,812    28,861
       Mexico.........................................................       (10)    1,517        --
       Europe(4)(5)...................................................    88,306    61,569    41,672
                                                                       ---------  --------  --------
          Total CDFS business segment.................................   160,275   121,898    70,533
                                                                       ---------  --------  --------
   Temperature-controlled distribution operations:
       United States(6)...............................................   (58,496)   11,950    10,791
       Europe(7)......................................................   (52,972)  (20,298)   (4,364)
                                                                       ---------  --------  --------
          Total temperature-controlled distribution operations
            segment...................................................  (111,468)   (8,348)    6,427
                                                                       ---------  --------  --------
   Reconciling items:
       Income (loss) from unconsolidated entities.....................   (33,495)    3,331       (77)
       Interest income................................................     4,134     7,267     6,369
                                                                       ---------  --------  --------
          Total reconciling items.....................................   (29,361)   10,598     6,292
                                                                       ---------  --------  --------
          Total income................................................ $ 523,125  $643,521  $567,392
                                                                       =========  ========  ========
   Net operating income:
       Property operations:
       United States(1)............................................... $ 435,804  $448,074  $424,633
       Mexico.........................................................    19,546    15,093    10,569
       Europe(2)......................................................    19,629    29,029    15,437
                                                                       ---------  --------  --------
          Total property operations segment...........................   474,979   492,196   450,639
                                                                       ---------  --------  --------
   CDFS business:
       United States(3)...............................................    68,163    54,051    24,265
       Mexico.........................................................       (73)    1,472       (30)
       Europe(4)(5)...................................................    88,203    61,511    41,378
                                                                       ---------  --------  --------
          Total CDFS business segment.................................   156,293   117,034    65,613
                                                                       ---------  --------  --------
   Temperature-controlled distribution operations:
       United States(6)...............................................   (58,496)   11,950    10,791
       Europe(7)......................................................   (52,972)  (20,298)   (4,364)
                                                                       ---------  --------  --------
          Total temperature-controlled distribution operations
            segment...................................................  (111,468)   (8,348)    6,427
                                                                       ---------  --------  --------
</TABLE>


                                      194

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                            ----------------------------------
                                                               2001        2000        1999
                                                            ----------  ----------  ----------
<S>                                                         <C>         <C>         <C>
   Reconciling items:
       Income (loss) from unconsolidated entities..........    (33,495)      3,331         (77)
       Interest income.....................................      4,134       7,267       6,369
       General and administrative expense..................    (50,274)    (44,954)    (38,284)
       Depreciation and amortization.......................   (143,465)   (151,483)   (152,447)
       Interest expense....................................   (163,629)   (172,191)   (170,746)
       Other expense.......................................        (32)     (1,045)       (945)
                                                            ----------  ----------  ----------
          Total reconciling items..........................   (386,761)   (359,075)   (356,130)
                                                            ----------  ----------  ----------
          Earnings before minority interest................ $  133,043  $  241,807  $  166,549
                                                            ==========  ==========  ==========

                                                                       December 31,
                                                            ----------------------------------
                                                               2001        2000        1999
                                                            ----------  ----------  ----------
Assets:
   Property operations:
       United States(8).................................... $3,754,960  $3,887,601  $4,017,702
       Mexico..............................................    149,225     113,538     178,253
       Europe(8)...........................................    316,025     308,457     387,362
                                                            ----------  ----------  ----------
          Total property operations segment................  4,220,210   4,309,596   4,583,317
                                                            ----------  ----------  ----------
   CDFS business:
       United States.......................................    189,752     304,697     210,088
       Mexico..............................................     17,390      26,288      13,249
       Europe(8)...........................................    672,843     637,207     432,455
       Japan...............................................     43,030          --          --
                                                            ----------  ----------  ----------
          Total CDFS business segment......................    923,015     968,192     655,792
                                                            ----------  ----------  ----------
   Temperature controlled distribution operations:
       United States(8)....................................    174,244     231,053     192,607
       Europe(8)...........................................    183,727     191,981     214,008
                                                            ----------  ----------  ----------
          Total temperature controlled distribution
            operations segment.............................    357,971     423,034     406,615
                                                            ----------  ----------  ----------
   Reconciling items:
       Investments in and advances to unconsolidated
         entities..........................................      6,232      70,807       2,442
       Cash................................................     27,989      57,870      69,338
       Accounts and notes receivable.......................      1,879      43,040      31,084
       Other assets........................................     66,645      73,795      99,452
                                                            ----------  ----------  ----------
          Total reconciling items..........................    102,745     245,512     202,316
                                                            ----------  ----------  ----------
          Total assets..................................... $5,603,941  $5,946,334  $5,848,040
                                                            ==========  ==========  ==========
</TABLE>


                                      195

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


--------

(1) In addition to the operations of ProLogis that are reported on a
    consolidated basis, includes amounts recognized under the equity method
    related to ProLogis' investment in unconsolidated distribution real estate
    entities. See Note 4 for summarized financial information of these
    unconsolidated entities.


(2) In addition to the operations of ProLogis that are reported on a
    consolidated basis, includes amounts recognized under the equity method
    related to ProLogis' investment in unconsolidated distribution real estate
    entities (including net foreign currency exchange gains of $0.8 million,
    $4.7 million and $0.3 million in 2001, 2000 and 1999, respectively). In
    1999, also includes ProLogis' investment in Garonor Holdings (including a
    $13.0 million net foreign currency exchange loss). See Note 4 for
    summarized financial information of these unconsolidated entities.


(3) In 2001 and 2000, includes $56.2 million and $29.4 million, respectively,
    of net gains recognized by ProLogis related to the disposition of
    facilities to unconsolidated distribution real estate entities.


(4) Includes amounts recognized under the equity method related to ProLogis'
    investment in Kingspark S.A. (including $4.6 million of net foreign
    currency losses in 2001, $0.3 million of net foreign currency exchange
    gains in 2000, and $1.5 million of net foreign exchange losses in 1999).
    See Note 4.


(5) Includes $29.5 million, $13.7 million and $17.3 million of net gains
    recognized by ProLogis related to the disposition of facilities to ProLogis
    European Properties Fund in 2001, 2000 and 1999, respectively. In addition,
    includes $23.0 million, $4.3 million and $4.5 million of net gains
    recognized under the equity method related to the disposition of facilities
    to ProLogis European Properties Fund by Kingspark S.A. in 2001, 2000 and
    1999. See Note 4.


(6) Represents amounts recognized under the equity method related to ProLogis'
    investments in ProLogis Logistics in 2001, 2000 and 1999 and in CSI/Frigo
    LLC in 2001. CSI/Frigo LLC recognizes income under the equity method based
    on its common stock investment in ProLogis Logistics. See Note 4 for
    summarized financial information of these entities.


(7) Represents amounts recognized under the equity method related to ProLogis'
    investments in Frigoscandia S.A. in 2001, 2000 and 1999 (including $3.5
    million, $0.8 million and $1.3 million of net foreign exchange losses in
    2001, 2000 and 1999, respectively) and CSI/Frigo LLC in 2001. CSI/Frigo LLC
    recognizes income under the equity method based on its common stock
    investment in Frigoscandia S.A. See Note 4 for summarized financial
    information of these entities.


(8) Amounts include investments in unconsolidated entities accounted for under
    the equity method. See Note 4 for summarized financial information of these
    unconsolidated entities.



11. Merger Transaction



   On March 30, 1999, Meridian Industrial Trust, Inc. ("Meridian"), a publicly
traded REIT that owned industrial distribution facilities in the United States,
was merged with and into ProLogis. In accordance with the terms of the
Agreement and Plan of Merger dated November 16, 1998, as amended (the "Merger
Agreement"), the approximately 33.8 million outstanding shares of Meridian
common stock were exchanged (on a 1.1 for one basis) into approximately 37.2
million ProLogis Common Shares. In addition, the holders of Meridian common
stock received $2.00 in cash per outstanding share, approximately $67.6 million
in total. The holders of Meridian's Series D cumulative redeemable preferred
stock received a new series of ProLogis cumulative redeemable preferred shares,
Series E preferred shares, on a one for one basis. The Series E preferred
shares have an 8.75% annual dividend rate ($2.1875 per share) and an aggregate
liquidation value of $50.0 million. The total purchase price of Meridian was
approximately $1.54 billion, which included the assumption of the outstanding
debt and liabilities of Meridian as of March 30, 1999 and the issuance of
approximately 1.0 million stock options, each to acquire 1.1 ProLogis Common
Shares and $2.00 in cash. The assets acquired from Meridian included
approximately $1.42 billion of real estate assets, an interest in a
temperature-controlled distribution


                                      196

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



operations company of $28.7 million and cash and other assets aggregating $72.3
million. ProLogis retired $328.4 million of short-term debt of Meridian. The
transaction was structured as a tax-free merger and was accounted for under the
purchase method.



   The following summarized pro forma unaudited information represents the
combined historical operating results of ProLogis and Meridian for the year
ended December 31, 1999, with the appropriate purchase accounting adjustments,
assuming the merger with Meridian had occurred on January 1, 1999. The pro
forma financial information presented is not necessarily indicative of what
ProLogis' actual operating results would have been had ProLogis and Meridian
constituted a single entity during the same period (in thousands, except per
share amounts):



<TABLE>
 <S>                                                                 <C>
 Rental income...................................................... $525,340
 Earnings before minority interest.................................. $170,681
 Earnings attributable to Common Shares before cumulative effect of
   accounting change................................................ $136,461
 Net earnings attributable to Common Shares......................... $135,021
 Weighted average Common Shares outstanding:
    Basic...........................................................  160,705
    Diluted.........................................................  161,044
 Basic per share net earnings attributable to Common Shares before
   cumulative effect of accounting change........................... $   0.85
 Cumulative effect of accounting change.............................    (0.01)
                                                                     --------
 Basic per share net earnings attributable to Common Shares......... $   0.84
                                                                     ========
 Diluted per share net earnings attributable to Common Shares before
   cumulative effect of accounting change........................... $   0.85
 Cumulative effect of accounting change.............................    (0.01)
                                                                     --------
 Diluted per share net earnings attributable to Common Shares....... $   0.84
                                                                     ========
</TABLE>



12. Supplemental Cash Flow Information



   Non-cash investing and financing activities for the years ended December 31,
2001, 2000 and 1999 are as follows:



  .  ProLogis received $92.6 million, $44.4 million and $171.6 million of the
     proceeds from the disposition of facilities to unconsolidated distribution
     real estate entities in the form of an equity interest in these entities
     during 2001, 2000 and 1999, respectively.


  .  ProLogis received $2.3 million, $7.7 million and $5.2 million of the
     proceeds from its disposition of facilities to third parties in the form
     of notes receivable in 2001, 2000 and 1999, respectively.


  .  In connection with the acquisition of a facility and the incurrence of
     assessment bonds, ProLogis assumed $10.3 million of secured debt in 2001.


  .  In connection with the original agreement for the acquisition of the
     Kingspark S.A., ProLogis issued 67,000 Common Shares valued at $1.5
     million and 602,000 Common Shares valued at $11.9 million in 2001 and
     2000, respectively.


  .  Series B Convertible Preferred Shares aggregating $151.8 million, $19.1
     million and $12.9 million were converted into Common Shares in 2001, 2000
     and 1999, respectively.


  .  Net foreign currency translation adjustments of $(30.0) million, $(24.0)
     million and $(9.8) million were recognized in 2001, 2000 and 1999,
     respectively.


                                      197

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



  .  Limited partnership units aggregating $0.2 million, $8.2 million (total
     minority interest of $13.9 million less $5.7 million representing amounts
     due to ProLogis by the holder of the units) and $0.2 million were
     converted into Common Shares in 2001, 2000 and 1999, respectively.


  .  ProLogis received $13.2 million of the proceeds from the disposition of
     facilities to North American Properties Fund II in the form of notes
     receivable from this entity during 2000. The note was repaid in 2001.


  .  In 2001, ProLogis contributed its 49.9% of the common stock of ProLogis
     European Properties S.a.r.l. to ProLogis European Properties Fund for an
     additional equity interest in ProLogis European Properties Fund of $83.0
     million. In 2000, in connection with ProLogis' initial contribution of
     50.1% of the common stock of ProLogis European Properties S.a.r.l. to
     ProLogis European Properties Fund, ProLogis received an equity interest in
     ProLogis European Properties Fund of approximately $78.0 million. ProLogis
     European Properties S.a.r.l. had total assets of $403.9 million and total
     liabilities of $248.1 million. ProLogis recognized its investment in the
     remaining 49.9% of the common stock under the equity method from January
     7, 2000 through January 6, 2001. See Note 4.


  .  In connection with the 1999 merger transaction discussed in Note 11,
     ProLogis issued approximately 37.2 million Common Shares and 2.0 million
     Series E Preferred Shares, assumed approximately 1.0 million stock options
     and assumed outstanding debt and liabilities of Meridian for an aggregate
     purchase price of approximately $1.54 billion in exchange for the assets
     of Meridian (including cash balances acquired of $49.0 million).



13. Long-Term Compensation



  Long-Term Incentive Plan and Share Option Plan for Outside Trustees



   ProLogis has a long-term incentive plan (the "Incentive Plan"), which
includes an employee share purchase plan, a share option plan, a restricted
share unit plan and a performance share plan. No more than 14,600,000 Common
Shares in the aggregate may be awarded under the Incentive Plan and no
individual may be granted awards with respect to more than 500,000 Common
Shares in any one-year period. The Incentive Plan has a 10-year term.
Additionally, ProLogis has 500,000 Common Shares authorized for issuance under
its Share Option Plan for Outside Trustees (the "Outside Trustees Plan"). As of
December 31, 2001, 2,556,000 Common Shares remain to be issued under the
Incentive Plan and 372,000 Common Shares remain to be issued under the Outside
Trustees Plan.



  Employee Share Purchase Plan



   Under the employee share purchase plan certain employees of ProLogis
purchased 1,356,834 Common Shares on September 8, 1997 at a price of $21.21875
per share. ProLogis financed 95% of the total purchase price through ten-year,
recourse notes to the participants aggregating $27.3 million. The loans, which
have been recognized as a deduction from shareholders' equity, bear interest at
the lower of ProLogis' annual dividend yield on Common Shares or 6% per annum.
The loans are secured by the Common Shares purchased. For each Common Share
purchased, participants were granted two options to purchase Common Shares at a
price of $21.21875. As of December 31, 2001, there were 770,000 Common Shares
securing the employee share purchase notes. The outstanding notes receivable at
December 31, 2001 of $14,810,000 include $13,397,000 due from officers of
ProLogis.



  Share Options



   ProLogis has granted share options under the Incentive Plan and the Outside
Trustees Plan. Share options outstanding as of December 31, 2001 are as follows:


                                      198

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




<TABLE>
<CAPTION>
                                                                    Weighted
                                                                     Average
                           Number of                     Expiration Remaining
                            Options   Exercise Price(1)     Date      Life
                           --------- ------------------- ---------- ---------
  <S>                      <C>       <C>                 <C>        <C>
  Outside Trustees Plan(2)    98,000    $19.75-$25.00    2002-2011  6.0 years
  Employee share purchase
    plan(3)............... 1,794,754      $21.21875        2007     5.7 years
  Share option plan(2)(3):
     1997 awards..........   221,811 $21.21875-$23.96875   2007     5.7 years
     1998 awards.......... 1,147,556  $20.9375-$224.625    2008     6.8 years
     1999 awards.......... 1,153,041 $17.1875-$19.71875    2009     7.7 years
     2000 awards.......... 1,186,194   $20.0625-$24.25     2010     8.6 years
     2001 awards.......... 1,570,167   $20.675-$22.02      2011     9.7 years
  Meridian options(4).....   309,346  $16.375-$23.9375     2004     2.2 years
  Options sold to
    unconsolidated
    entities(2)........... 1,609,991  $18.625-$24.5625   2008-2011  7.9 years
                           ---------
         Total............ 9,090,860
                           =========
</TABLE>

--------

(1) Exercise price is equal to the average of the high and low market prices on
    the date of grant.


(2) The holders of options awarded before 2001 are awarded dividend equivalent
    units ("DEUs") each year of the plan, except for holders of 24,000 options
    issued under the Outside Trustees Plan prior to 1999 which do not earn
    DEUs. The holders of options awarded after 2000 earn DEUs only through the
    vesting period of the underlying stock option.


(3) Graded vesting at various rates over periods from one to 10 years, subject
    to certain conditions.


(4) Options are fully exercisable. ProLogis share options issued to holders of
    Meridian options are exercisable into 1.1 Common Shares, plus $2.00. See
    Note 11.



   The weighted average fair value of the share options issued under the
Incentive Plan to ProLogis' employees, issued under the Outside Trustees Plan
and sold to unconsolidated entities during 2001 was $2.38 per option (excluding
the value of the DEUs to be earned). The activity with respect to ProLogis'
share options for the years ended December 31, 2001, 2000 and 1999 is presented
below.



<TABLE>
<CAPTION>
                                                           Weighted
                                                           Average   Number of
                                                Number of  Exercise   Options
                                                 Options    Price   Exercisable
                                                ---------  -------- -----------
<S>                                             <C>        <C>      <C>
Balance at December 31, 1998................... 4,863,210   $21.19   2,757,559
   Granted/Sold................................ 2,066,133    20.41     899,551
   Issued in 1999 merger transaction (Note 11). 1,025,850    20.13   1,025,850
   Exercised...................................    (4,000)   15.50      (4,000)
   Forfeited...................................  (487,985)   21.02          --
                                                ---------   ------   ---------
Balance at December 31, 1999................... 7,463,208    20.37   4,678,960
   Granted/Sold................................ 1,702,028    23.94     483,163
   Exercised...................................  (744,171)   19.80    (744,171)
   Forfeited...................................  (700,459)   20.55          --
                                                ---------   ------   ---------
Balance at December 31, 2000................... 7,720,606    21.11   4,417,952
   Granted/Sold................................ 1,832,538    20.69      10,000
   Exercised...................................  (237,229)   22.35    (237,229)
   Forfeited...................................  (225,055)   21.44          --
                                                ---------   ------   ---------
Balance at December 31, 2001................... 9,090,860    21.04   4,190,723
                                                =========   ======   =========
</TABLE>


                                      199

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   ProLogis did not recognize compensation expense in 2001, 2000 or 1999
related to share options granted as the exercise price of all options granted
was equal to the average of the high and low market prices on the date of
grant. Had compensation expense for these plans been determined using an option
valuation model as provided in SFAS No. 123, ProLogis' net earnings
attributable to Common Shares and net earnings per Common Share would change as
follows:



<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                         -------------------------
                                                          2001     2000     1999
                                                         ------- -------- --------
<S>                                                      <C>     <C>      <C>
Net earnings attributable to Common Shares:
   As reported.......................................... $90,835 $157,715 $123,999
   Pro forma............................................  86,808  154,857  121,767
Basic and diluted per share net earnings attributable to
  Common Shares:
   As reported--basic................................... $  0.53 $   0.96 $   0.81
   As reported--diluted.................................    0.52     0.96     0.81
   Pro forma--basic.....................................    0.50     0.95     0.80
   Pro forma--diluted...................................    0.49     0.94     0.80
</TABLE>



   Since share options vest over several years and additional grants are likely
to be made in future years, the pro forma compensation cost may not be
representative of compensation cost to be expected in future years.



   The pro forma amounts above were calculated using the Black-Scholes model
and the following assumptions:



<TABLE>
<CAPTION>
                                           Year Ended December 31,
                                     ----------------------------------
                                        2001        2000        1999
                                     ----------  ----------  ----------
        <S>                          <C>         <C>         <C>
        Risk-free interest rate.....       4.65%       4.99%       6.58%
        Forecasted dividend yield...       6.19%       5.65%       6.10%
        Volatility..................      21.07%      22.28%      23.01%
        Weighted average option life 6.25 years  6.25 years  6.25 years
</TABLE>



  Restricted Share Units



   Restricted share units ("RSUs") in the form of Common Shares are awarded at
a rate of one Common Share per RSU from time to time to employees of ProLogis.
The RSUs are valued on the award date based upon the market price of the Common
Shares on that date. ProLogis recognizes the value of the RSUs awarded over the
applicable vesting period as compensation expense. As of December 31, 2001,
there were 587,500 RSUs outstanding at a total value of $12.6 million. As of
December 31, 2001, 243,125 of the outstanding RSUs are vested at a total value
of $6.2 million, which has been expensed. The remaining RSUs will vest as
follows:



<TABLE>
<CAPTION>
                                    Number of Related
                                      Units   Expenses
                                    --------- --------
                                      (In thousands)
                          <S>       <C>       <C>
                          2002.....  116,875   $1,991
                          2003.....   46,300      619
                          2004.....   41,875      885
                          2005.....   55,575    1,158
                          2006.....   41,875      885
                          2007.....   41,875      885
                                     -------   ------
                             Total.  344,375   $6,423
                                     =======   ======
</TABLE>


                                      200

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




  Performance Share Plan



   Under the performance share plan, certain employees are awarded performance
share awards ("PSAs") in the form of Common Shares if certain performance
criteria is met. Employees who have earned PSAs must be employed by ProLogis
for two years after the award is made to receive any of the underlying Common
Shares. The PSAs carry no voting rights during this two-year waiting period but
do earn DEUs, which are awarded at the end of the two-year waiting period.



   As of December 31, 2001, there were 341,733 PSAs outstanding at a total
value of $7.5 million, of which $2.0 million has been expensed. The two-year
waiting period on 171,975 PSAs ($3.8 million) expires on December 31, 2002
while the two-year waiting period on all of the remaining PSAs expires on
December 31, 2003.



  Dividend Equivalent Units



   DEUs in the form of Common Shares are awarded at a rate of one Common Share
per DEU on December 31st of each year that the underlying share options, RSUs
or PSAs that earn DEUs are outstanding. The DEUs vest to the same extent the
underlying award vests. The DEUs are valued on the award date (December 31st)
based upon the market price of the Common Shares on that date and ProLogis
recognizes that value as compensation expense over the underlying vesting
period of the underlying award. Of the total RSUs outstanding, 167,500 RSUs do
not earn DEUs but rather earn dividends at ProLogis' current Common Share
distribution rate. As of December 31, 2001, there were 724,381 DEUs
outstanding, of which 418,910 were vested. The DEUs outstanding have a total
value of $15.5 million, of which $8.5 million has been expensed as of December
31, 2001. The remaining DEUS will vest as follows:



<TABLE>
<CAPTION>
                                     Number  Related
                                    of Units Expenses
                                    -------- --------
                                     (In thousands)
                          <S>       <C>      <C>
                          2002..... 181,094   $4,366
                          2003.....  84,370    1,763
                          2004.....  33,300      720
                          2005.....   6,707      144
                                    -------   ------
                             Total. 305,471   $6,993
                                    =======   ======
</TABLE>



  401(k) Savings Plan and Trust



   ProLogis has a 401(k) Savings Plan and Trust ("401(k) Plan"), that provides
for matching employer contributions in Common Shares of 50 cents for every
dollar contributed by an employee, up to 6% of the employees' annual
compensation (within the statutory compensation limit). A total of 190,000
Common Shares have been authorized for issuance under the 401(k) Plan. The
vesting of contributed Common Shares is based on the employees' years of
service, with 20% vesting each year of service, over a five-year period.
Through December 31, 2001, no Common Shares have been issued under the 401(k)
Plan as all matching contributions have been made with Common Shares purchased
in the public market.



  Nonqualified Savings Plan



   ProLogis has a Nonqualified Savings Plan to provide benefits for certain
employees. The purpose of this plan is to allow highly compensated employees
the opportunity to defer the receipt and income taxation of a certain portion
of their compensation in excess of the amount permitted under the 401(k) Plan.
ProLogis will


match the lesser of (a) 50% of the sum of deferrals under both the 401(k) Plan
and this plan, and (b) 3% of total compensation up to certain levels. The
matching account will vest in the same manner as the 401(k) Plan.


                                      201

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




14. Selected Quarterly Financial Data (Unaudited):



   Selected quarterly financial data (in thousands, except for per share
amounts) for 2001 and 2000 is as follows:



<TABLE>
<CAPTION>
                                                      Three Months Ended,
                                         ---------------------------------------------
                                         March 31, June 30,  September 30, December 31,  Total
                                         --------- --------  ------------- ------------ --------
<S>                                      <C>       <C>       <C>           <C>          <C>
2001:
Rental income........................... $119,244  $117,147    $115,947      $113,439   $465,777
                                         ========  ========    ========      ========   ========
Earnings (loss) before minority interest $ 57,845  $ 58,979    $ 61,304      $(45,085)  $133,043
Minority interest share in earnings.....    1,376     1,458       1,470         2,157      6,461
Gain (loss) on disposition of real
  estate, net...........................   (1,198)   (1,427)      3,488         9,145     10,008
Foreign currency exchange gains
  (losses), net.........................    2,657     1,652      (6,545)       (1,485)    (3,721)
Total income taxes......................    2,489     3,675        (313)       (1,126)     4,725
                                         --------  --------    --------      --------   --------
Net earnings (loss).....................   55,439    54,071      57,090       (38,456)   128,144
Less preferred share dividends..........   11,432     9,519       8,179         8,179     37,309
                                         --------  --------    --------      --------   --------
Net earnings (loss) attributable to
  Common Shares......................... $ 44,007  $ 44,552    $ 48,911      $(46,635)  $ 90,835
                                         ========  ========    ========      ========   ========
Basic per share net earnings (loss)
  attributable to Common Shares......... $   0.26  $   0.26    $   0.28      $  (0.27)  $   0.53
                                         ========  ========    ========      ========   ========
Diluted per share net earnings (loss)
  attributable to Common Shares......... $   0.25  $   0.26    $   0.28      $  (0.27)  $   0.52
                                         ========  ========    ========      ========   ========
</TABLE>



   ProLogis' Quarterly Reports on Form 10-Q for the periods ended March 31,
2001, June 30, 2001 and September 30, 2001 originally filed on May 10, 2001,
August 10, 2001 and November 13, 2001, respectively, included the financial
position and results of operations of ProLogis' subsidiary, Kingspark S.A., in
its unaudited consolidated condensed financial statements on a consolidated
basis. Until January 5, 2001, ProLogis owned only the non-voting preferred
stock of Kingspark S.A. and reported its investment in Kingspark S.A. under the
equity method. On that date, ProLogis acquired 95% of the membership interest
(all non-voting) in Kingspark LLC, which acquired the voting common stock of
Kingspark S.A. After the change in the ownership structure, ProLogis believed
it had control of Kingspark S.A. and began consolidating it in its financial
statements along with its other majority-owned and controlled subsidiaries and
partnerships. After reconsideration of the facts underlying its ownership
position, ProLogis determined it did not control Kingspark S.A., as it held no
voting interest, and therefore, consolidation was deemed inappropriate.
Therefore, ProLogis has amended its unaudited consolidated condensed financial
statements for each of the three quarterly periods in 2001 to reflect its
investment in Kingspark S.A. under the equity method, consistent with its
reporting of this investment prior to January 5, 2001. Further, ProLogis has
amended its unaudited consolidated condensed financial statements for each of
the three quarterly periods in 2001 to reflect its investments in GoProLogis
and ProLogis PhatPipe, whose sole purpose is to hold preferred stock in
technology companies, under the equity method. ProLogis began consolidating
these entities in 2001, but as with Kingspark S.A., subsequently determined
that its ownership interest did not give it control. These changes in reporting
had no effect on ProLogis' originally reported shareholders equity, net
earnings attributable to Common Shares, net earnings attributable to common
shares per share or comprehensive income for any of the three quarterly periods
in 2001.




                                      202

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




<TABLE>
<CAPTION>
                                                 Three Months Ended,
                                    ----------------------------------------------
                                    March 31, June 30,  September 30, December 31,  Total
                                    --------- --------  ------------- ------------ --------
<S>                                 <C>       <C>       <C>           <C>          <C>
2000:
Rental income...................... $120,809  $119,696    $121,519      $118,064   $480,088
                                    ========  ========    ========      ========   ========
Earnings before minority interest.. $ 62,526  $ 52,612    $ 67,194      $ 59,475   $241,807
Minority interest share in earnings    1,654     1,435       1,228         1,269      5,586
Gain (loss) on disposition of real
  estate, net......................    5,108    (4,801)        702           305      1,314
Foreign currency exchange gains
  (losses), net....................   (6,520)  (11,929)     (1,929)        2,451    (17,927)
Total income taxes.................      117       708       2,000         2,305      5,130
                                    --------  --------    --------      --------   --------
Net earnings.......................   59,343    33,739      62,739        58,657    214,478
Less preferred share dividends.....   14,405    14,150      14,120        14,088     56,763
                                    --------  --------    --------      --------   --------
Net earnings attributable to Common
  Shares........................... $ 44,938  $ 19,589    $ 48,619      $ 44,569   $157,715
                                    ========  ========    ========      ========   ========
Basic per share net earnings
  attributable to Common Shares.... $   0.28  $   0.12    $   0.30      $   0.27   $   0.96
                                    ========  ========    ========      ========   ========
Diluted per share net earnings
  attributable to Common Shares.... $   0.28  $   0.12    $   0.29      $   0.27   $   0.96
                                    ========  ========    ========      ========   ========
</TABLE>



15. Related Party Transactions:



  Transactions with Security Capital



   ProLogis leases distribution space to Security Capital, its largest
shareholder, and certain of its affiliates on market terms that management
believes are no less favorable to ProLogis than those that could be obtained
with unaffiliated third parties. ProLogis' base rental income related to these
leases were $534,000, $757,000 and $756,000 for the years ended December 31,
2001, 2000 and 1999, respectively. As of December 31, 2001, 60,103 square feet
were leased to related parties with annualized base rental revenues for these
leases of $472,000.



   Previously, ProLogis and Security Capital, its largest shareholder, were
parties to an administrative services agreement (the "ASA") under which
Security Capital provided ProLogis with certain administrative and other
services as determined by ProLogis. Substantially all of the services
originally provided under the ASA have been transferred to ProLogis. ProLogis'
fees under the ASA were $0.8 million, $2.5 million and $3.5 million for 2001,
2000 and 1999, respectively. Of these fees, $0.05 million, $0.4 million and
$0.6 million were capitalized in 2001, 2000 and 1999, respectively. ProLogis
recognized the ASA fees related to property management activities as a
component of rental expenses.



   ProLogis paid other fees to Security Capital, its largest shareholder, or
its affiliates as follows:



  .  $2.8 million related to capital raised in ProLogis North American
     Properties Funds II, III and IV in 2001 (an additional $1.1 million was
     directly paid by ProLogis North American Properties Funds II, III and IV).
     See Note 4.



  .  $0.1 million related to capital raised in ProLogis California in 2000. See
     Note 4.



  .  $15.6 million related to capital raised in ProLogis California and
     ProLogis European Properties Fund and in connection with the 1999 merger
     transaction. See Notes 4 and 11.


                                      203

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




  Transactions with Chairman and Chief Executive Officer



    Investments



   ProLogis has invested in the non-voting preferred stock of certain entities
that have ownership interests in companies that produce income that is not REIT
qualifying income (i.e., rental income and mortgage interest income) under the
Code. Therefore, the voting common stock of these companies was held by third
parties including entities in which Security Capital, ProLogis' largest
shareholder, held non-voting interests. The Code, as amended in 2001, allows
for ProLogis to have a voting ownership interest in these entities. ProLogis
began negotiations to acquire the voting ownership interests in these entities
in 2000. Before the acquisitions were completed it was determined that the
state income tax laws governing REITs were not all going to be changed to
coincide with the amendments to the Code. Therefore, K. Dane Brooksher,
ProLogis' chairman and chief executive officer, acquired the voting ownership
interests in Frigoscandia S.A., ProLogis Logistics and Kingspark S.A. from the
third parties and Security Capital.



   Mr. Brooksher's voting ownership interests in the entities in which ProLogis
has only non-voting ownership interests are:



  .  Kingspark LLC, a limited liability company formed on January 5, 2001,
     acquired the voting common stock interest of Kingspark S.A. (an entity in
     which ProLogis owns all of the non-voting preferred stock) for $8.1
     million. ProLogis funded the entire purchase price either directly or
     through loans to Kingspark LLC or Mr. Brooksher. The ProLogis loan to
     Kingspark LLC is in the principal amount of $7.3 million, is due January
     5, 2006 and bears interest at an annual rate of 8.0%. ProLogis made a
     direct capital contribution to Kingspark LLC in the amount of $770,973.
     Mr. Brooksher's $40,557 capital contribution to Kingspark LLC was loaned
     to him by ProLogis, which recourse loan is payable on January 5, 2006 and
     bears interest at an annual rate of 8.0%. Mr. Brooksher's membership
     interest entitles him to receive dividends equal to 5% of the net cash
     flow of Kingspark LLC, as defined, if any. Mr. Brooksher is the managing
     member and he may transfer his membership interests, subject to certain
     conditions, including the approval of ProLogis. There are no provisions
     that give ProLogis the right to acquire Mr. Brooksher's membership
     interests. Mr. Brooksher does not receive compensation in connection with
     being the managing member. See Note 4.



  .  CSI/Frigo LLC, a limited liability company formed on January 5, 2001,
     acquired the voting common stock interests of Frigoscandia S.A. and
     ProLogis Logistics (both entities in which ProLogis owns all of the
     non-voting preferred stock) for an aggregate of approximately $3.3
     million. ProLogis loaned CSI/ Frigo LLC $2.9 million, which loan is due
     January 5, 2011 and bears interest at an annual rate of 8%. ProLogis also
     made a capital contribution to CSI/Frigo LLC in the amount of $404,545 and
     Mr. Brooksher made a $50,000 capital contribution to CSI/Frigo LLC. Mr.
     Brooksher's membership interests (after considering the terms of the
     participating note from CSI/Frigo LLC to ProLogis) entitles him to receive
     dividends equal to 5% of the net cash flow of CSI/Frigo LLC, as defined,
     if any. Mr. Brooksher is the managing member and he may transfer his
     membership interests, subject to certain conditions, including the
     approval of ProLogis. There are no provisions that give ProLogis the right
     to acquire Mr. Brooksher's membership interests. Mr. Brooksher does not
     receive compensation in connection with being the managing member.



   As a result of the foregoing transactions, Mr. Brooksher has an effective
0.04% interest in the earnings of ProLogis Logistics, an effective 0.25%
interest in the earnings of Frigoscandia S.A. and an effective 0.25% interest
in the earnings of Kingspark S.A. See Note 4.



   In 2000, ProLogis invested in GoProLogis and ProLogis PhatPipe, whose income
is not REIT qualifying income under the Code (amendments to the Code and state
income tax laws governing REITs were not in effect


                                      204

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



at this time). These investments were structured whereby ProLogis would have
only a non-voting preferred stock ownership interest. To complete the
transactions, Mr. Brooksher acquired the voting ownership interest in each
entity as noted below.



  .  GoProLogis owns preferred stock in Vizional Technologies. Mr. Brooksher
     owns all of the voting common stock of GoProLogis, representing a 2%
     interest in the earnings of GoProLogis and he is entitled to receive
     dividends equal to 2% of the net cash flow of GoProLogis, as defined, if
     any. ProLogis owns all of the non-voting preferred stock of GoProLogis,
     representing a 98% interest in the earnings of GoProLogis and ProLogis is
     entitled to receive dividends equal to the remaining 98% of net cash flow,
     as defined, if any. Mr. Brooksher contributed a $1.1 million recourse
     promissory note to GoProLogis in exchange for his interest in the entity,
     which note is payable on July 18, 2005 and bears interest at an annual
     rate of 8.0%. Mr. Brooksher is not restricted from transferring his
     ownership interest in GoProLogis and ProLogis has the right to acquire Mr.
     Brooksher's ownership interest beginning in 2001 for a price equal to the
     outstanding principal amount of the promissory note plus accrued and
     unpaid interest. See Note 4.



  .  ProLogis PhatPipe owns preferred stock in PhatPipe. Mr. Brooksher owns all
     of the voting common stock of ProLogis PhatPipe, representing a 2%
     interest in the earnings of ProLogis PhatPipe and he is entitled to
     receive dividends equal to 2% of the net cash flow of ProLogis PhatPipe,
     as defined, if any. ProLogis owns all of the non-voting preferred stock of
     ProLogis PhatPipe, representing a 98% interest in the earnings of ProLogis
     PhatPipe and ProLogis is entitled to receive dividends equal to the
     remaining 98% of net cash flow, as defined, if any. Mr. Brooksher
     contributed recourse promissory notes with the aggregate principal amount
     of $122,449 to ProLogis PhatPipe in exchange for his interest in the
     entity, which note is payable on September 20, 2005 ($71,429 principal
     amount) and January 4, 2006 ($51,020 principal amount). Both notes bear
     interest at an annual rate of 8%. Mr. Brooksher is not restricted from
     transferring his ownership interest in ProLogis PhatPipe and ProLogis has
     the right to acquire Mr. Brooksher's ownership interest beginning in 2001
     for a price equal to the outstanding aggregate principal amount of the
     promissory notes plus accrued and unpaid interest. See Note 4.



  Loans



   As of December 31, 2001, ProLogis had other loans outstanding from Mr.
Brooksher with an aggregate principal amount of $2,091,000. Of these, a loan
for $237,500 was repaid in January 2002 and the remainder was loaned under
ProLogis' employee share purchase plan, the terms of which are discussed in
Note 13.



16. Financial Instruments:



  Fair Value of Financial Instruments



   The following estimates of the fair value of financial instruments have been
determined by ProLogis using available market information and valuation
methodologies believed to be appropriate for these purposes. Considerable
judgment and a high degree of subjectivity are involved in developing these
estimates and, accordingly, they are not necessarily indicative of amounts
ProLogis would realize upon disposition.



   As of December 31, 2001 and 2000, the carrying amounts of certain financial
instruments employed by ProLogis, including cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses were representative of their
fair values because of the short-term maturity of these instruments. Similarly,
the carrying values of the lines of credit balances approximate fair value as
of those dates since the interest rate fluctuates based on published market
rates. As of December 31, 2001 and 2000, the fair values of the senior
unsecured debt and the secured debt (including mortgage notes, assessment bonds
and securitized debt) have been estimated


                                      205

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



based upon quoted market prices for the same or similar issues or by
discounting the future cash flows using rates currently available for debt with
similar terms and maturities. The differences in the fair value of ProLogis'
senior unsecured debt and secured debt from the carrying value in the table
below are the result of differences in the interest rates available to ProLogis
as of December 31, 2001 and 2000, from the interest rates in effect as of the
dates the debt was issued. The senior unsecured debt and many of the secured
debt issues contain pre-payment penalties or yield maintenance provisions which
would make the cost of refinancing exceed the benefit of refinancing at the
lower rates.



   As of December 31, 2001 and 2000, the fair value of ProLogis' derivative
financial instruments are the amounts at which they could be settled, based on
quoted market prices or estimates obtained from brokers or dealers.



   The following table reflects the carrying amount and estimated fair value of
ProLogis' financial instruments (in thousands):



<TABLE>
<CAPTION>
                                                  December 31,
                                   -------------------------------------------
                                           2001                  2000
                                   --------------------- ---------------------
                                    Carrying              Carrying
                                     Amount   Fair Value   Amount   Fair Value
                                   ---------- ---------- ---------- ----------
 <S>                               <C>        <C>        <C>        <C>
 Balance sheet financial
   instruments:
    Senior unsecured debt......... $1,670,359 $1,718,919 $1,699,989 $1,703,737
    Secured debt.................. $  532,106 $  568,389 $  537,925 $  543,967
 Derivative financial instruments:
    Foreign currency put option
      contracts................... $    2,686 $    2,686 $      446 $      446
</TABLE>



  Derivative Financial Instruments



   ProLogis uses derivative financial instruments as hedges to manage
well-defined risk associated with interest and foreign currency rate
fluctuations on existing or anticipated obligations and transactions. ProLogis
does not use derivative financial instruments for trading purposes.



   The primary risks associated with derivative instruments are market risk and
credit risk. Market risk is defined as the potential for loss in the value of
the derivative due to adverse changes in market prices (interest rates or
foreign currency rates). The use of derivative financial instruments allows
ProLogis to manage the risks of increases in interest rates and fluctuations in
foreign currency exchange rates with respect to the effects these fluctuations
would have on ProLogis' income and cash flows.



   Credit risk is the risk that one of the parties to a derivative contract
fails to perform or meet their financial obligation under the contract.
ProLogis does not obtain collateral to support financial instruments subject to
credit risk but monitors the credit standing of counterparties. ProLogis does
not anticipate non-performance by any of the counterparties to its derivative
contracts. Should a counterparty fail to perform, however, ProLogis would incur
a financial loss to the extent of the positive fair market value of the
derivative instruments, if any.


                                      206

<PAGE>


                                PROLOGIS TRUST



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




   The following table summarizes the activity in derivative financial
instruments for the years ended December 31, 2001 and 2000 (in millions):



<TABLE>
<CAPTION>
                                                               Foreign
                                                  Interest     Currency
                                                 Rate Swap       Put
                                                 Agreements   Options(1)
                                                 ----------   ----------
        <S>                                      <C>          <C>
        Notional amounts as of December 31, 1999  $ 169.9       $ 23.2
        New contracts...........................       --         55.5
        Matured or expired contracts............       --        (34.9)
        Contracts transferred...................   (169.9)(2)       --
                                                  -------       ------
        Notional amounts as of December 31, 2000       --         43.8
        New contracts...........................       --         65.5
        Matured or expired contracts............       --        (43.8)
                                                  -------       ------
        Notional amounts as of December 31, 2001  $    --       $ 65.5
                                                  =======       ======
</TABLE>

--------

(1) ProLogis entered into foreign currency put option contracts during 2001 and
    2000 related to its operations in Europe. The put option contracts provide
    ProLogis with the option to exchange foreign currencies for U.S. dollars at
    a fixed exchange rate such that if the foreign currency were to depreciate
    against the U.S. dollar to predetermined levels as set by the contracts,
    ProLogis could exercise its options and mitigate its foreign currency
    exchange losses. The notional amounts of the put option contracts represent
    the U.S. dollar equivalent related to the put option contracts with
    notional amounts of 45.8 million euros and 17.4 million pounds sterling as
    of December 31, 2001 and 47.1 million euros as of December 31, 2000. These
    contracts do not qualify for hedge accounting treatment and have been
    marked to market through income. ProLogis recognized aggregate expense of
    $1,027,000 in 2001, aggregate income of $627,000 in 2000 and an aggregate
    loss of $92,000 in 1999 on the put option contracts. These amounts include
    mark to market income of $1,122,000 in 2001, mark to market expense of
    $854,000 in 2000 and mark to market expense of $47,000 in 1999. See Note 1.


(2) Represents interest rate swap agreements related to debt of ProLogis
    European Properties S.a.r.l. See Note 4.



17. Commitments and Contingencies:



  Environmental Matters



   All of the facilities acquired by ProLogis have been subjected to
environmental reviews by ProLogis or predecessor owners. While some of these
assessments have led to further investigation and sampling, none of the
environmental assessments has revealed, nor is ProLogis aware of any
environmental liability (including asbestos related liability) that ProLogis
believes would have a material adverse effect on ProLogis' business, financial
condition or results of operations.


                                      207

<PAGE>


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Trustees and Shareholders of


ProLogis Trust:



   We have audited, in accordance with auditing standards generally accepted in
the United States, the financial statements of ProLogis Trust included in this
Form 10-K, and have issued our report thereon dated April 3, 2002. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The supplemental Schedule III--Real Estate and Accumulated Depreciation
("Schedule III") is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The Schedule III has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.



                                          ARTHUR ANDERSEN, LLP



Chicago, Illinois


April 3, 2002


                                      208

<PAGE>


                                PROLOGIS TRUST



            SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION



                               December 31, 2001


                         (Dollar amounts in thousands)



<TABLE>
<CAPTION>
                                                                                 Costs    Gross Amounts At Which Carried
                                                     Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                     ------------------------ Subsequent  ------------------------------
                                      No. of Encum-              Buildings &      To                 Building &   Total
Description                           Bldgs. brances   Land      Improvements Acquisition   Land    Improvements  (a,b)
-----------                           ------ -------  ------     ------------ ----------- -------   ------------ -------
<S>                                   <C>    <C>     <C>         <C>          <C>         <C>       <C>          <C>
Operating Properties
Atlanta, Georgia
 Atlanta Airport Distribution Center.    3           $1,758        $    --      $ 5,249   $ 1,765     $ 5,242    $ 7,007
 Atlanta NE Distribution Center......    8     (d)    5,582          3,047       24,467     6,276      26,820     33,096
 Atlanta West Distribution Center....   20            6,771         34,785       13,156     6,774      47,938     54,712
 Breckenridge Distribution Center....    1            1,440             --        4,196     1,440       4,196      5,636
 Carter-Pacific Business Center......    3              556          3,151          837       556       3,988      4,544
 Cedars Distribution Center..........    1            1,366          7,739        2,435     1,692       9,848     11,540
 Cobb Place Distribution Center......    2            1,579             --        9,742     2,106       9,215     11,321
 Greenwood Industrial Center.........    1            2,497             --       11,396     2,497      11,396     13,893
  International Airport Industrial
   Center............................    9     (e)    2,939         14,146        5,430     2,972      19,543     22,515
 LaGrange Distribution Center........    1              174            986          553       174       1,539      1,713
 Northeast Industrial Center.........    4            1,109          6,283        1,755     1,050       8,097      9,147
 Northmont Industrial Center.........    1              566          3,209          351       566       3,560      4,126
 Oakcliff Industrial Center..........    3              608          3,446          502       608       3,948      4,556
 Olympic Industrial Center...........    2              698          3,956        1,646       757       5,543      6,300
  Peachtree Commerce Business
   Center............................    4     (e)      707          4,004          935       707       4,939      5,646
  Piedmont Court Distribution
   Center............................    2              885          5,013        1,775       885       6,788      7,673
 Plaza Industrial Center.............    1               66            372           95        66         467        533
 Pleasantdale Industrial Center......    2              541          3,184          635       541       3,819      4,360
 Riverside Distribution Center.......    3            2,533         13,336        1,696     2,556      15,009     17,565
 Sullivan 75 Distribution Center.....    3     (f)      728          2,786        2,821       728       5,607      6,335
 Tradeport Distribution Center.......    3            1,464          4,563        6,089     1,479      10,637     12,116
 Weaver Distribution Center..........    2              935          5,182          888       935       6,070      7,005
 Westfork Industrial Center..........   10            2,483         14,115        1,378     2,483      15,493     17,976

Austin, Texas
 Corridor Park Corporate Center......    6            1,652          1,681       13,923     2,113      15,143     17,256
 Montopolis Distribution Center......    1              580          3,384          854       580       4,238      4,818
 Rutland Distribution Center.........    2              460          2,617          472       462       3,087      3,549
 Southpark Corporate Center..........    7            1,946             --       15,174     1,946      15,174     17,120
 Walnut Creek Corporate Center.......   11            2,366          2,920       19,393     2,425      22,254     24,679

Barcelona, Spain
 Sant Boi Distribution Center........    1            5,497             --        5,818     5,497       5,818     11,315

Charlotte, North Carolina
  Barringer Industrial Center........    3              308          1,746          594       308       2,340      2,648
 Bond Distribution Center............    2              905          5,126        1,017       905       6,143      7,048
 Carowinds Distribution Center.......    1            3,600         20,400           --     3,600      20,400     24,000
 Charlotte Commerce Center...........   10     (d)    4,341         24,954        5,352     4,342      30,305     34,647
 Charlotte Distribution Center.......    9     (d)    4,578             --       24,553     6,096      23,035     29,131
  Charlotte Distribution Center
   South.............................    1              309             --        4,253     1,082       3,480      4,562
 Interstate North Business Park......    2              535          3,030          367       535       3,397      3,932
 Northpark Distribution Center.......    2     (d)    1,183          6,707          858     1,184       7,564      8,748
 Ridge Creek Distribution Center.....    1            1,240          7,027            5     1,240       7,032      8,272

Chattanooga, Tennessee
 Stone Fort Distribution Center......    4            2,063         11,688          552     2,063      12,240     14,303
 Tiftonia Distribution Center........    1              146            829          186       146       1,015      1,161
</TABLE>


<TABLE>
<CAPTION>


                                      Accumulated        Date of
                                      Depreciation    Construction/
Description                               (c)          Acquisition
-----------                           ------------ -------------------
<S>                                   <C>          <C>
Operating Properties
Atlanta, Georgia
 Atlanta Airport Distribution Center.   $ (1,014)         1996
 Atlanta NE Distribution Center......     (4,869)       1996,1997
 Atlanta West Distribution Center....    (11,144)       1994,1996
 Breckenridge Distribution Center....         --          2001
 Carter-Pacific Business Center......       (939)         1995
 Cedars Distribution Center..........       (916)         1999
 Cobb Place Distribution Center......       (587)         1999
 Greenwood Industrial Center.........         --          2001
  International Airport Industrial
   Center............................     (4,649)       1994,1995
 LaGrange Distribution Center........       (315)         1994
 Northeast Industrial Center.........     (1,705)         1996
 Northmont Industrial Center.........       (863)         1994
 Oakcliff Industrial Center..........       (917)         1995
 Olympic Industrial Center...........     (1,219)         1996
  Peachtree Commerce Business
   Center............................     (1,281)         1994
  Piedmont Court Distribution
   Center............................     (1,219)         1997
 Plaza Industrial Center.............       (118)         1995
 Pleasantdale Industrial Center......       (933)         1995
 Riverside Distribution Center.......     (1,376)         1999
 Sullivan 75 Distribution Center.....     (1,513)       1994,1995
 Tradeport Distribution Center.......     (2,251)       1994,1996
 Weaver Distribution Center..........     (1,446)         1995
 Westfork Industrial Center..........     (3,412)         1995

Austin, Texas
 Corridor Park Corporate Center......     (3,119)       1995,1996
 Montopolis Distribution Center......     (1,222)         1994
 Rutland Distribution Center.........       (807)         1993
 Southpark Corporate Center..........     (3,455)    1994,1995,1996
 Walnut Creek Corporate Center.......     (4,471)    1994,1995,1996

Barcelona, Spain
 Sant Boi Distribution Center........         --          2001

Charlotte, North Carolina
  Barringer Industrial Center........       (633)         1994
 Bond Distribution Center............     (1,573)         1994
 Carowinds Distribution Center.......     (1,842)         1999
 Charlotte Commerce Center...........     (7,662)         1994
 Charlotte Distribution Center.......     (4,461)  1995,1996,1997,1998
  Charlotte Distribution Center
   South.............................         --          2001
 Interstate North Business Park......       (604)         1997
 Northpark Distribution Center.......     (1,260)       1994,1998
 Ridge Creek Distribution Center.....        (49)         2001

Chattanooga, Tennessee
 Stone Fort Distribution Center......     (2,977)         1994
 Tiftonia Distribution Center........       (229)         1995
</TABLE>


                                      209

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                   Costs    Gross Amounts At Which Carried
                                                       Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                       ------------------------ Subsequent  ------------------------------
                                        No. of Encum-              Buildings &      To                Building &   Total
Description                             Bldgs. brances   Land      Improvements Acquisition  Land    Improvements  (a,b)
-----------                             ------ -------  ------     ------------ ----------- ------   ------------ -------
<S>                                     <C>    <C>     <C>         <C>          <C>         <C>      <C>          <C>
Chicago, Illinois
 Addison Distribution Center...........    1           $  646        $ 3,662      $   454   $  640     $ 4,122    $ 4,762
 Alsip Distribution Center.............    2    (f)     2,093         11,859        7,030    2,549      18,433     20,982
 Bedford Park Distribution Center......    1              360          2,806           --      360       2,806      3,166
  Bensenville Distribution Center......    2            1,668          9,448        3,783    1,667      13,232     14,899
  Bloomingdale 100 Business Center.....    1              359             --        5,893    1,601       4,651      6,252
  Bolingbrook Distribution Center......    2            4,565         25,864          753    4,564      26,618     31,182
  Bridgeview Distribution Center.......    4            1,302          7,378        1,405    1,303       8,782     10,085
  Des Plaines Distribution Center......    3            2,158         12,232        2,216    2,159      14,447     16,606
  Elk Grove Distribution Center........   20   (e)(f)   7,689         43,568        6,532    7,689      50,100     57,789

  Elmhurst Distribution Center.........    1              713          4,043          342      713       4,385      5,098
  Glendale Heights Distribution
   Center..............................    3            3,903         22,119          592    3,903      22,711     26,614
  Glenview Distribution Center.........    2   (e)(f)   1,156          6,550          834    1,156       7,384      8,540
  Itasca Distribution Center...........    3            1,613          9,143          799    1,613       9,942     11,555
  Lombard Distribution Center..........    1    (f)     1,170          6,630           74    1,170       6,704      7,874
  Mitchell Distribution Center.........    1    (e)     1,236          7,004        1,235    1,236       8,239      9,475
  North Avenue Distribution Center.....    2            3,201             --        8,989    2,047      10,143     12,190
  Northlake Distribution Center........    1              372          2,106          264      372       2,370      2,742
  O'Hare Cargo Distribution Center.....    2            3,566             --       16,574    5,924      14,216     20,140
  Pleasant Prairie Distribution Center.    1            1,314          7,450           --    1,315       7,449      8,764
  Remington Lakes Distribution
   Center..............................    1            2,761             --       11,106    2,761      11,106     13,867
  Romeoville Distribution Center.......    2            1,104          6,258           15    1,104       6,273      7,377
  South Holland Distribution Center....    2    (f)     1,156          6,550          817    1,156       7,367      8,523
  Woodale Distribution Center..........    1              263          1,490          131      263       1,621      1,884

Cincinnati, Ohio
  Airpark Distribution Center..........    3    (d)     1,692             --       21,589    4,060      19,221     23,281
  Capital Distribution Center I........    4    (d)     1,750          9,922        1,535    1,751      11,456     13,207
  Capital Distribution Center II.......    5    (d)     1,953         11,067        2,508    1,953      13,575     15,528
  Capital Industrial Center I..........   10    (d)     1,039          5,885        2,412    1,105       8,231      9,336
  Constitution Distribution Center.....    1            1,465          8,301            6    1,465       8,307      9,772
  Empire Distribution Center...........    3    (d)       529          2,995          827      529       3,822      4,351
  Kentucky Drive Business Center.......    4              553          3,134        1,053      553       4,187      4,740
  Production Distribution Center.......    2    (g)       717          2,717        2,697      824       5,307      6,131
  Sharonville Distribution Center......    3    (d)     1,761             --       11,418    2,424      10,755     13,179
  Springdale Commerce Center...........    3              421          2,384        1,320      421       3,704      4,125
  Union Center Business Park...........    2              979             --        6,754      979       6,754      7,733

Columbus, Ohio
  Alum Creek Distribution Center.......    1            1,118          6,284           --    1,118       6,284      7,402
  Canal Pointe Distribution Center.....    1            1,237          7,013            1    1,238       7,013      8,251
  Capital Park South Distribution
   Center..............................    6    (d)     2,551             --       36,436    2,892      36,095     38,987
  Charter Street Distribution Center...    1    (f)     1,245          7,055            7    1,245       7,062      8,307
  Columbus West Industrial Center......    3    (d)       645          3,655        1,221      645       4,876      5,521
  Corporate Park West..................    2    (d)       679          3,849          343      679       4,192      4,871
  Fisher Distribution Center...........    1            1,197          6,785        1,684    1,197       8,469      9,666
  Foreign Trade Center I...............    5            6,527         36,989        3,320    6,992      39,844     46,836
  International Street Commerce........    2              455             --        6,704      483       6,676      7,159
  McCormick Distribution Center........    5            1,664          9,429        2,538    1,664      11,967     13,631
  New World Distribution Center........    1              207          1,173        1,202      207       2,375      2,582
  South Park Distribution Center.......    1            1,086          6,151           10    1,085       6,162      7,247
  Westbelt Business Center.............    2    (d)       465          2,635          364      465       2,999      3,464
</TABLE>


<TABLE>
<CAPTION>


                                        Accumulated        Date of
                                        Depreciation    Construction/
Description                                 (c)          Acquisition
-----------                             ------------ -------------------
<S>                                     <C>          <C>
Chicago, Illinois
 Addison Distribution Center...........   $  (831)          1997
 Alsip Distribution Center.............    (2,788)        1997,1999
 Bedford Park Distribution Center......      (496)          1996
  Bensenville Distribution Center......    (2,629)          1997
  Bloomingdale 100 Business Center.....        --           2001
  Bolingbrook Distribution Center......    (2,450)          1999
  Bridgeview Distribution Center.......    (1,662)          1996
  Des Plaines Distribution Center......    (2,819)        1995,1996
  Elk Grove Distribution Center........    (7,651)     1995,1996,1997,
                                                          1998,1999
  Elmhurst Distribution Center.........      (679)          1997
  Glendale Heights Distribution
   Center..............................    (2,102)          1999
  Glenview Distribution Center.........      (903)        1996,1999
  Itasca Distribution Center...........    (1,356)     1996,1997,1998
  Lombard Distribution Center..........      (616)          1999
  Mitchell Distribution Center.........    (1,688)          1996
  North Avenue Distribution Center.....    (1,383)        1997,1998
  Northlake Distribution Center........      (422)          1996
  O'Hare Cargo Distribution Center.....    (1,385)          1997
  Pleasant Prairie Distribution Center.      (673)          1999
  Remington Lakes Distribution
   Center..............................        --           2001
  Romeoville Distribution Center.......      (566)          1999
  South Holland Distribution Center....      (655)          1999
  Woodale Distribution Center..........      (263)          1997

Cincinnati, Ohio
  Airpark Distribution Center..........    (2,255)        1996,2000
  Capital Distribution Center I........    (2,758)          1994
  Capital Distribution Center II.......    (3,395)          1994
  Capital Industrial Center I..........    (2,056)        1994,1995
  Constitution Distribution Center.....      (750)          1999
  Empire Distribution Center...........      (864)          1995
  Kentucky Drive Business Center.......      (894)          1997
  Production Distribution Center.......      (859)        1994,1998
  Sharonville Distribution Center......    (1,166)        1997,1998
  Springdale Commerce Center...........      (849)          1996
  Union Center Business Park...........        (6)          2001

Columbus, Ohio
  Alum Creek Distribution Center.......       (26)          2001
  Canal Pointe Distribution Center.....      (633)          1999
  Capital Park South Distribution
   Center..............................    (4,864)   1996,1998,1999,2000
  Charter Street Distribution Center...      (638)          1999
  Columbus West Industrial Center......    (1,096)          1995
  Corporate Park West..................      (828)          1996
  Fisher Distribution Center...........    (2,073)          1995
  Foreign Trade Center I...............    (3,614)          1999
  International Street Commerce........      (533)        1997,1999
  McCormick Distribution Center........    (2,809)          1994
  New World Distribution Center........      (599)          1994
  South Park Distribution Center.......      (557)          1999
  Westbelt Business Center.............      (366)          1998
</TABLE>


                                      210

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                Costs    Gross Amounts At Which Carried
                                                    Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                    ------------------------ Subsequent  ------------------------------
                                    No. of Encum-               Buildings &      To                Building &   Total
Description                         Bldgs. brances    Land      Improvements Acquisition   Land   Improvements  (a,b)
-----------                         ------ -------   -------    ------------ ----------- -------  ------------ --------
<S>                                 <C>    <C>      <C>         <C>          <C>         <C>      <C>          <C>
Dallas/Fort Worth, Texas
  Arlington Corporate Center.......    2            $ 2,135       $    --      $ 8,412   $ 2,135    $ 8,412    $ 10,547
  Carter Industrial Center.........    1                334            --        2,359       334      2,359       2,693
  Centerport Distribution Center...    2    (f)       1,558         8,830          239     1,558      9,069      10,627
  Dallas Corporate Center..........   11    (e)       5,714            --       33,496     6,012     33,198      39,210
  Enterprise Distribution Center...    3              2,719        15,410           --     2,719     15,410      18,129
  Freeport Distribution Center.....    4              1,393         5,549        4,180     1,440      9,682      11,122
  Freeport Corporation Center......    1              1,142            --       11,930     2,250     10,822      13,072
  Great Southwest Distribution
   Center..........................   36   (e)(f)    16,580        81,174        8,971    16,071     90,654     106,725

  Great Southwest Industrial
   Center I........................    2    (e)         234         1,326          937       308      2,189       2,497
  Lone Star Distribution Center....    1                512         2,896          193       511      3,090       3,601
  Northgate Distribution Center....   13    (f)       4,722        26,367        8,208     4,722     34,575      39,297
  Northpark Business Center........    1                197         1,117          294       197      1,411       1,608
  Pinnacle Park Distribution
   Center..........................    2              5,058            --       22,371     5,058     22,371      27,429
  Plano Distribution Center........    7    (f)       3,915        22,186          244     3,915     22,430      26,345
  Redbird Distribution Center......    2              1,095         6,212          329     1,096      6,540       7,636
  Royal Commerce Center............    4    (e)       1,975        11,190        1,677     1,975     12,867      14,842
  Royal Distribution Center........    1                811         4,598            1       811      4,599       5,410
  Stemmons Distribution Center.....    1                272         1,544          450       272      1,994       2,266
  Stemmons Industrial Center.......   14              2,216        12,559        3,113     2,566     15,322      17,888
  Trinity Mills Distribution
   Center..........................    7    (e)       4,453        27,346            1     4,453     27,347      31,800
  Valwood Business Center..........    4              1,884        10,676            7     1,884     10,683      12,567
  Valwood Distribution Center......    7    (f)       4,430        25,101          566     4,430     25,667      30,097

Denver, Colorado
  Denver Business Center...........    6              2,015         7,486       11,331     2,015     18,817      20,832
  Downing Distribution Center......    1                 --         3,877           71        --      3,948       3,948
  Havana Distribution Center.......    1                401         2,281          691       401      2,972       3,373
  Moline Distribution Center.......    1                327         1,850          241       327      2,091       2,418
  Moncrieff Distribution Center....    1                314         2,493          561       314      3,054       3,368
  Pagosa Distribution Center.......    1                406         2,322          511       406      2,833       3,239
  Upland Distribution Center I.....    6                821         5,710        8,543       821     14,253      15,074
  Upland Distribution Center II....    6              2,456        13,946        2,261     2,489     16,174      18,663

El Paso, Texas
  Billy the Kid Distribution
   Center..........................    1                273         1,547          568       273      2,115       2,388
  Goodyear Distribution Center.....    1                511         2,899          257       511      3,156       3,667
  Northwestern Corporate Center....    7              1,552            --       21,554     2,365     20,741      23,106

  Vista Corporate Center...........    4              1,945            --       11,259     2,029     11,175      13,204
  Vista Del Sol Industrial Center..    5    (f)       1,245            --       20,799     2,636     19,408      22,044

Fort Lauderdale/Miami, Florida
  Airport West Distribution
   Center..........................    2              1,253         3,825        3,455     1,974      6,559       8,533
  CenterPort Distribution Center...    5              4,309        11,806        8,458     4,522     20,051      24,573
  Copans Distribution Center.......    2                504         2,857          366       504      3,223       3,727
  North Andrews Distribution
   Center..........................    1    (g)         698         3,956           97       698      4,053       4,751
  Port Lauderdale Distribution
   Center..........................    2                896            --        7,842     2,205      6,533       8,738

Houston, Texas
  Brittmore Distribution Center....    2              1,838        10,417          710     1,838     11,127      12,965
  Crosstimbers Distribution
   Center..........................    1                359         2,035          518       359      2,553       2,912
  Hempstead Distribution Center....    3              1,013         5,740        1,111     1,013      6,851       7,864
  I-10 Central Distribution Center.    2                181         1,023          303       181      1,326       1,507
</TABLE>


<TABLE>
<CAPTION>


                                    Accumulated        Date of
                                    Depreciation    Construction/
Description                             (c)          Acquisition
-----------                         ------------ -------------------
<S>                                 <C>          <C>
Dallas/Fort Worth, Texas
  Arlington Corporate Center.......   $     (2)         2001
  Carter Industrial Center.........       (496)         1996
  Centerport Distribution Center...       (811)         1999
  Dallas Corporate Center..........     (4,760)  1996,1997,1998,1999
  Enterprise Distribution Center...     (1,391)         1999
  Freeport Distribution Center.....     (1,435)    1996,1997,1998
  Freeport Corporation Center......         (4)         2000
  Great Southwest Distribution
   Center..........................    (10,738)    1994,1995,1996,
                                                 1997,1999,2000,2001
  Great Southwest Industrial
   Center I........................       (473)         1995
  Lone Star Distribution Center....       (605)         1996
  Northgate Distribution Center....     (4,388)  1994,1996,1999,2001
  Northpark Business Center........       (318)         1995
  Pinnacle Park Distribution
   Center..........................         (4)         2001
  Plano Distribution Center........     (2,040)         1999
  Redbird Distribution Center......       (822)       1994,1999
  Royal Commerce Center............     (1,901)         1997
  Royal Distribution Center........        (32)         2001
  Stemmons Distribution Center.....       (454)         1995
  Stemmons Industrial Center.......     (2,926)  1994,1995,1996,1999
  Trinity Mills Distribution
   Center..........................     (3,198)    1996,1999,2001
  Valwood Business Center..........        (74)         2001
  Valwood Distribution Center......     (2,359)         1999

Denver, Colorado
  Denver Business Center...........     (3,954)  1992,1994,1996,2001
  Downing Distribution Center......       (322)         1999
  Havana Distribution Center.......       (817)         1993
  Moline Distribution Center.......       (555)         1994
  Moncrieff Distribution Center....       (926)         1992
  Pagosa Distribution Center.......       (908)         1993
  Upland Distribution Center I.....     (3,870)    1992,1994,1995
  Upland Distribution Center II....     (4,514)       1993,1994

El Paso, Texas
  Billy the Kid Distribution
   Center..........................       (548)         1994
  Goodyear Distribution Center.....       (761)         1991
  Northwestern Corporate Center....     (3,248)    1992,1993,1994,
                                                   1997,1998,2000
  Vista Corporate Center...........     (2,389)    1994,1995,1996
  Vista Del Sol Industrial Center..     (3,407)    1995,1997,1998

Fort Lauderdale/Miami, Florida
  Airport West Distribution
   Center..........................     (1,008)       1995,1998
  CenterPort Distribution Center...     (1,409)       1999,2001
  Copans Distribution Center.......       (588)       1997,1998
  North Andrews Distribution
   Center..........................       (969)         1994
  Port Lauderdale Distribution
   Center..........................       (730)         1997

Houston, Texas
  Brittmore Distribution Center....     (1,161)         1999
  Crosstimbers Distribution
   Center..........................       (655)         1994
  Hempstead Distribution Center....     (1,783)         1994
  I-10 Central Distribution Center.       (374)         1994
</TABLE>


                                      211

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                Costs    Gross Amounts At Which Carried
                                                    Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                    ------------------------ Subsequent  ------------------------------
                                     No. of Encum-              Buildings &      To                 Building &   Total
Description                          Bldgs. brances   Land      Improvements Acquisition   Land    Improvements  (a,b)
-----------                          ------ -------  -------    ------------ ----------- -------   ------------ -------
<S>                                  <C>    <C>     <C>         <C>          <C>         <C>       <C>          <C>
  I-10 Central Service Center.......    1           $    58       $   330      $   130   $    58     $   460    $   518
  Jersey Village Corporate Center...    1             1,536            --       11,734     2,063      11,207     13,270
  Kempwood Business Center..........    4             1,746         9,894           60     1,746       9,954     11,700
  Perimeter Distribution Center.....    2               813         4,604          159       813       4,763      5,576
  Pine Forest Business Center.......   18     (e)     4,859        27,557        3,765     4,859      31,322     36,181
  Pine North Distribution Center....    2               847         4,800          377       847       5,177      6,024
  Pine Timbers Distribution Center..    2             2,956        16,750        1,475     2,956      18,225     21,181
  Pinemont Distribution Center......    2               642         3,636          284       642       3,920      4,562
  Post Oak Business Center..........   15     (e)     3,005        15,378        4,334     3,005      19,712     22,717
  Post Oak Distribution Center......    7     (e)     2,115        12,017        4,021     2,115      16,038     18,153
  South Loop Distribution Center....    5             1,051         5,964        1,970     1,052       7,933      8,985
  Southwest Freeway Industrial
   Center...........................    1                84           476          173        84         649        733
  West by Northwest Industrial
   Center...........................   16             4,368         8,382       33,556     4,368      41,938     46,306

  White Street Distribution Center..    1               469         2,656          339       469       2,995      3,464

I-95 Corridor, New Jersey
  Bellmawr Distribution Center......    1               212         1,197           63       211       1,261      1,472
  Brunswick Distribution Center.....    2               870         4,928        1,665       870       6,593      7,463
  Clearview Distribution Center.....    1             2,232        12,648          411     2,232      13,059     15,291
  Cranbury Business Park............    1             2,012            --       10,814     2,012      10,814     12,826
  Kilmer Distribution Center........    4     (d)     2,526        14,313          895     2,526      15,208     17,734
  Meadowland Industrial Center......    8     (d)     5,676        32,167       13,123     5,677      45,289     50,966
  Mt. Laurel Distribution Center....    3               826         4,679          224       826       4,903      5,729
  National Distribution Center......    2               513         2,908        1,080       513       3,988      4,501
  Pennsauken Distribution Center....    4               490         2,778          124       490       2,902      3,392

Indianapolis, Indiana
  Airport Business Center...........    2               600         3,406        4,561       934       7,633      8,567
  Eastside Distribution Center......    3             1,447         8,197          674     1,448       8,870     10,318
  North by Northeast Distribution
   Center...........................    1             1,058            --        6,373     1,059       6,372      7,431
  Park 100 Industrial Center........   25            10,751        60,928        7,547    10,646      68,580     79,226
  Park Fletcher Distribution Center.    9             2,687        15,224        3,832     2,785      18,958     21,743
  Shadeland Industrial Center.......    3               428         2,431          944       429       3,374      3,803

Juarez, Mexico
  Salvacar Industrial Center........    7             3,144            --       13,572     3,955      12,761     16,716
  Rio Bravo Industrial Center.......    1               349         1,979          282       410       2,200      2,610
  Ramon Rivera Industrial Center....    1               445            --        3,173     2,246       1,372      3,618
  Los Aztecas Industrial Center.....    1               148           837           85         0       1,070      1,070

Kansas City, Kansas/Missouri
  44th Street Business Center.......    1               143           813          471       143       1,284      1,427
  Congleton Distribution Center.....    3               518         2,937          609       518       3,546      4,064
  Executive Park Distribution
   Center...........................    1     (f)       258         1,463          243       258       1,706      1,964
  Lamar Distribution Center.........    1               323         1,829          804       323       2,633      2,956
  Macon Bedford Distribution
   Center...........................    1               304         1,725          512       304       2,237      2,541
  Platte Valley Industrial Center...   11     (f)     3,867        20,017        8,471     4,002      28,353     32,355
  Riverside Distribution Center.....    5     (f)       533         3,024        1,063       534       4,086      4,620
  Riverside Industrial Center.......    5     (f)     1,012         5,736        1,078     1,012       6,814      7,826
  Terrace & Lackman Distribution
   Center...........................    1               285         1,615          602       285       2,217      2,502

Las Vegas, Nevada
  Black Mountain Distribution
   Center...........................    2             1,108            --        7,716     1,206       7,618      8,824
</TABLE>


<TABLE>
<CAPTION>


                                     Accumulated        Date of
                                     Depreciation    Construction/
Description                              (c)          Acquisition
-----------                          ------------ -------------------
<S>                                  <C>          <C>
  I-10 Central Service Center.......   $   (138)         1994
  Jersey Village Corporate Center...        (39)         1999
  Kempwood Business Center..........       (181)         2001
  Perimeter Distribution Center.....       (437)         1999
  Pine Forest Business Center.......     (7,410)    1993,1994,1995
  Pine North Distribution Center....       (537)         1999
  Pine Timbers Distribution Center..     (1,915)         1999
  Pinemont Distribution Center......       (409)         1999
  Post Oak Business Center..........     (5,367)    1993,1994,1996
  Post Oak Distribution Center......     (4,617)       1993,1994
  South Loop Distribution Center....     (2,156)         1994
  Southwest Freeway Industrial
   Center...........................       (187)         1994
  West by Northwest Industrial
   Center...........................     (8,061)    1993,1994,1995,
                                                    1996,1997,1998
  White Street Distribution Center..       (704)         1995

I-95 Corridor, New Jersey
  Bellmawr Distribution Center......       (122)         1999
  Brunswick Distribution Center.....     (1,543)         1997
  Clearview Distribution Center.....     (2,335)         1996
  Cranbury Business Park............         (2)         2001
  Kilmer Distribution Center........     (2,839)         1996
  Meadowland Industrial Center......     (9,957)    1996,1997,1998
  Mt. Laurel Distribution Center....       (444)         1999
  National Distribution Center......       (745)         1998
  Pennsauken Distribution Center....       (256)         1999

Indianapolis, Indiana
  Airport Business Center...........       (573)         1999
  Eastside Distribution Center......     (1,133)       1995,1999
  North by Northeast Distribution
   Center...........................     (1,638)         1995
  Park 100 Industrial Center........    (14,710)    1994,1995,1999
  Park Fletcher Distribution Center.     (3,936)    1994,1995,1996
  Shadeland Industrial Center.......       (774)         1995

Juarez, Mexico
  Salvacar Industrial Center........     (1,014)  1998,1999,2000,2001
  Rio Bravo Industrial Center.......        (22)         2001
  Ramon Rivera Industrial Center....        (51)         2000
  Los Aztecas Industrial Center.....        (72)         1999

Kansas City, Kansas/Missouri
  44th Street Business Center.......       (257)         1996
  Congleton Distribution Center.....       (898)         1994
  Executive Park Distribution
   Center...........................       (185)         1998
  Lamar Distribution Center.........       (760)         1994
  Macon Bedford Distribution
   Center...........................       (519)         1996
  Platte Valley Industrial Center...     (6,318)       1994,1997
  Riverside Distribution Center.....     (1,144)         1994
  Riverside Industrial Center.......     (1,694)         1994
  Terrace & Lackman Distribution
   Center...........................       (582)         1994

Las Vegas, Nevada
  Black Mountain Distribution
   Center...........................       (987)         1997
</TABLE>


                                      212

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                Costs    Gross Amounts At Which Carried
                                                    Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                    ------------------------ Subsequent  ------------------------------
                                     No. of Encum-              Buildings &      To                  Building &   Total
Description                          Bldgs. brances   Land      Improvements Acquisition   Land     Improvements  (a,b)
-----------                          ------ -------  -------    ------------ ----------- -------    ------------ -------
<S>                                  <C>    <C>     <C>         <C>          <C>         <C>        <C>          <C>
  Cameron Business Center...........    1     (f)   $ 1,634       $ 9,256      $    91   $ 1,634      $ 9,347    $10,981
  Hughes Airport Center.............    1               876            --        3,340       910        3,306      4,216
  Las Vegas Corporate Center........    7     (h)     4,677            --       21,978     4,775       21,880     26,655
  Placid Street Distribution Center.    1     (f)     2,620        14,848           33     2,620       14,881     17,501
  South Arville Center..............    1             1,440         8,160           35     1,440        8,195      9,635
  West One Business Center..........    4     (f)     2,468        13,985          935     2,468       14,920     17,388

Liege, Belgium
  Liege Distribution Center.........    1               496            --        6,216       496        6,216      6,712

Lille, France
  Lille Distribution Center.........    1               963            --        5,331       963        5,331      6,294

Los Angeles/Orange County,
 California
  Inland Empire Distribution
   Center...........................    1               889         5,037        4,508     1,546        8,888     10,434
  Torrance Distribution Center......    3            25,181            --       26,541    25,181       26,541     51,722

Louisville, Kentucky
  Airpark Commerce Center...........    4             1,583         8,971        3,079     1,583       12,050     13,633
  Louisville Distribution Center....    2               680         3,402        4,561       689        7,954      8,643
  New Cut Road Distribution
   Center...........................    1             2,090            --        9,815     2,090        9,815     11,905
  Riverport Distribution Center.....    1     (f)     1,515         8,585          354     1,515        8,939     10,454

Memphis, Tennessee
  Airport Distribution Center.......   20             7,160        40,573        7,361     7,160       47,934     55,094
  Centerpointe Distribution Center..    3             2,497        14,151          315     2,497       14,466     16,963
  Delp Distribution Center..........   10     (f)     4,886        27,687        4,553     4,886       32,240     37,126
  Fred Jones Distribution Center....    1               125           707          177       125          884      1,009
  Memphis Industrial Center.........    1             1,597            --        8,817     1,597        8,817     10,414
  Olive Branch Distribution Center..    2     (f)     2,892        16,389          154     2,892       16,543     19,435
  Raines Distribution Center........    1     (f)     1,635         9,264        3,342     1,635       12,606     14,241
  Southwide Industrial Center.......    4               725         4,105          179       724        4,285      5,009
  Willow Lake Distribution Center...    1     (f)       613         3,474           35       613        3,509      4,122

Monterrey, Mexico
  Monterrey Industrial Park.........    9             5,220         3,785       29,908     9,036       29,877     38,913
  Ojo de Agua Industrial Center.....    2               983            --       11,526     1,881       10,628     12,509

Nashville, Tennessee
  Bakertown Distribution Center.....    2               463         2,626          422       463        3,048      3,511
  I-40 Industrial Center............    4             1,711         9,698          688     1,712       10,385     12,097
  Interchange City Distribution
   Center...........................    7             3,524        12,585       10,700     4,279       22,530     26,809

  Nashville/I-24 Distribution
   Center...........................  3.      (f)     1,712.       8,196.      6,290.      2,670      13,528.     16,198
  Space Park South Distribution
   Center........................... 15.              3,499.      19,830.      4,908.      3,499      24,738.     28,237

Ok lahoma City, Oklahoma
  Melcat Distribution Center........  1.                240.       1,363.        862.        240       2,225.      2,465
  Meridian Business Center..........  2.                195.       1,109.        685.        196       1,793.      1,989
  Oklahoma Distribution Center......  3.                893.       5,082.        825.        893       5,907.      6,800

Orlando, Florida
  33rd Street Industrial Center.....  9.      (g)     1,980.      11,237.      1,710.      1,980      12,947.     14,927
  Chancellor Distribution Center....  1.                380.       2,156.      1,152.        380       3,308.      3,688
  Consulate Distribution Center.....  3.      (f)..   4,148.      23,617.         --.      4,148      23,617.     27,765
  La Quinta Distribution Center.....  1.                354.       2,006.        679.        354       2,685.      3,039
  Orlando Central Park..............  3.              1,378.          --.      9,298.      1,871       8,805.     10,676
  Princeton Oaks Distribution
   Center...........................  1.      (f)..     900.       5,100.         --.        900       5,100.      6,000
</TABLE>


<TABLE>
<CAPTION>


                                     Accumulated        Date of
                                     Depreciation    Construction/
Description                              (c)          Acquisition
-----------                          ------------ -------------------
<S>                                  <C>          <C>
  Cameron Business Center...........   $  (845)          1999
  Hughes Airport Center.............      (865)          1994
  Las Vegas Corporate Center........    (4,387)   1994,1995,1996,1997
  Placid Street Distribution Center.    (1,342)          1999
  South Arville Center..............      (742)          1999
  West One Business Center..........    (2,759)          1996

Liege, Belgium
  Liege Distribution Center.........        --           2001

Lille, France
  Lille Distribution Center.........        --           2001

Los Angeles/Orange County,
 California
  Inland Empire Distribution
   Center...........................      (812)          1999
  Torrance Distribution Center......        (3)          2001

Louisville, Kentucky
  Airpark Commerce Center...........    (2,031)          1998
  Louisville Distribution Center....    (1,247)        1995,1998
  New Cut Road Distribution
   Center...........................        (1)          2001
  Riverport Distribution Center.....      (775)          1999

Memphis, Tennessee
  Airport Distribution Center.......    (8,802)     1995,1996,1999
  Centerpointe Distribution Center..      (468)          2001
  Delp Distribution Center..........    (5,599)     1995,1997,1999
  Fred Jones Distribution Center....      (222)          1994
  Memphis Industrial Center.........        (7)          2001
  Olive Branch Distribution Center..    (1,517)          1999
  Raines Distribution Center........    (2,362)          1998
  Southwide Industrial Center.......      (402)          1999
  Willow Lake Distribution Center...      (317)          1999

Monterrey, Mexico
  Monterrey Industrial Park.........    (2,986)   1997,1998,1999,2000
  Ojo de Agua Industrial Center.....      (634)        1998,2001

Nashville, Tennessee
  Bakertown Distribution Center.....      (652)          1995
  I-40 Industrial Center............    (1,550)     1995,1996,1999
  Interchange City Distribution
   Center...........................    (4,080)       1994,1995,
                                                    1996,1997,1998
  Nashville/I-24 Distribution
   Center...........................    (157).      2000,2001
  Space Park South Distribution
   Center...........................  (6,185).        1994

Ok lahoma City, Oklahoma
  Melcat Distribution Center........    (535).        1994
  Meridian Business Center..........    (462).        1994
  Oklahoma Distribution Center......  (1,739).        1993

Orlando, Florida
  33rd Street Industrial Center.....  (2,834).   1994,1995,1996
  Chancellor Distribution Center....    (713).        1994
  Consulate Distribution Center.....  (2,142).        1999
  La Quinta Distribution Center.....    (586).        1994
  Orlando Central Park..............  (1,116).      1997,1998
  Princeton Oaks Distribution
   Center...........................    (460).        1999
</TABLE>


                                      213

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                   Costs    Gross Amounts At Which Carried
                                                       Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                       ------------------------ Subsequent  ------------------------------
                                        No. of Encum-              Buildings &      To                 Building &   Total
Description                             Bldgs. brances   Land      Improvements Acquisition  Land     Improvements  (a,b)
-----------                             ------ -------  ------     ------------ ----------- ------    ------------ -------
<S>                                     <C>    <C>     <C>         <C>          <C>         <C>       <C>          <C>
  Titusville Industrial Center.........  1.            $  283..     $ 1,603.    $   139.    $  283     $ 1,742.    $ 2,025

Phoenix, Arizona
  24th Street Industrial Center........  2.               503..       2,852.        837.       506       3,686.      4,192
  Alameda Distribution Center..........  2.               820..       4,977.        998.       820       5,975.      6,795
  Black Canyon Business Center.........  3.               717..       4,062.        354.       717       4,416.      5,133
  Hohokam 10 Industrial Center.........  6.             4,258..       7,467.     11,288.     4,258      18,755.     23,013
  I-10 West Business Center............  3.               263..       1,525.        341.       263       1,866.      2,129
  Kyrene Commons Distribution
   Center..............................  3.             2,369..       5,475.         28.     1,093       6,779.      7,872
  Kyrene Commons South
   Distribution Center.................  2.             1,096..          --.      5,036.     1,163       4,969.      6,132
  Martin Van Buren Distribution
   Center..............................  6.               572..       3,285.        871.       572       4,156.      4,728
  Papago Distribution Center...........  1.               420..       2,383.        195.       420       2,578.      2,998
  Pima Distribution Center.............  1.               306..       1,742.        428.       306       2,170.      2,476
  Watkins Distribution Center..........  1.               242..       1,375.        325.       243       1,699.      1,942

Portland, Oregon
  Argyle Distribution Center...........  3.               946..       5,388.        650.       946       6,038.      6,984
  Columbia Distribution Center.........  2.               550..       3,121.        345.       551       3,465.      4,016
  PDX Corporate Center East............  2.      (h)    1,785            --.      6,998.     2,100       6,683.      8,783
  PDX Corporate Center North...........    7     (h)    2,405             --       10,775    2,542       10,638     13,180
  Wilsonville Corporate Center.........  6.      (h)    2,963            --.     12,163.     2,964      12,162.     15,126

Poznan, Poland
  Poznan Distribution Center...........  2.               819..          --.      6,661.       820       6,660.      7,480

Reno, Nevada
  Golden Valley Distribution Center....  2.               560..          --.     10,247.     2,035       8,772.     10,807
  Meredith Kleppe Business Center......  5.             1,573..       8,949.      1,530.     1,573      10,479.     12,052
  Pacific Industrial Center............ 10.      (f)    9,566        40,036.     11,178.     9,566      51,214.     60,780
  Packer Way Business Center...........  3.               458..       2,604.        748.       458       3,352.      3,810
  Packer Way Distribution Center.......  2.               506..       2,879.      1,046.       506       3,925.      4,431
  Damonte Ranch Dist Ctr...............  2.             4,579..          --.     25,718.     6,555      23,742.     30,297
  Spice Island Distribution Center.....  1.               435..       2,466.      1,138.       435       3,604.      4,039

Reynosa, Mexico
  Colonial Industrial Center...........  2.               943..       1,574.      3,956.       670       5,803.      6,473
  Del Norte Industrial Center..........  2.               809..          --.      6,406.     1,065       6,150.      7,215
  Del Norte Industrial Center II.......  1.               675..          --.      6,383.     1,274       5,784.      7,058
  Reynosa Industrial Center III........  4.             2,149..          --.     13,409.     2,228      13,330.     15,558
  Reynosa Industrial Center............  6.             2,035..       1,038.     14,394.     2,313      15,154.     17,467

Salt Lake City, Utah
  Centennial Distribution Center.......  2.             1,149..          --.      8,464.     1,149       8,464.      9,613
  Clearfield Distribution Center.......  2.             2,500..      14,165.        995.     2,481      15,179.     17,660
  Crossroads Corporate Center..........  1.               642..          --.      4,266.       719       4,189.      4,908
  Salt Lake International Distribution
   Center..............................  2.             1,367..       2,792.      8,472.     1,364      11,267.     12,631

San Antonio, Texas
  10711 Distribution Center............  2.               582..       3,301.        766.       582       4,067.      4,649
  Coliseum Distribution Center.........  2.             1,102..       2,380.     10,784.     1,613      12,653.     14,266
  Distribution Drive Center............  1.               473..       2,680.        858.       473       3,538.      4,011
  Downtown Distribution Center.........  1.               241..       1,364.        321.       241       1,685.      1,926
  I-10 Central Distribution Center.....  1.               223..       1,275.        240.       240       1,498.      1,738
  I-35 Business Center.................  4.               663..       3,773.      1,121.       663       4,894.      5,557
</TABLE>


<TABLE>
<CAPTION>


                                        Accumulated      Date of
                                        Depreciation  Construction/
Description                                 (c)        Acquisition
-----------                             ------------ ----------------
<S>                                     <C>          <C>
  Titusville Industrial Center......... $  (408).       1994

Phoenix, Arizona
  24th Street Industrial Center........    (972).       1994
  Alameda Distribution Center..........  (1,398).    1992,1998
  Black Canyon Business Center.........    (416).       1999
  Hohokam 10 Industrial Center.........  (3,147).    1996,1999
  I-10 West Business Center............    (548).       1993
  Kyrene Commons Distribution
   Center..............................  (1,353).   1992,1998,1999
  Kyrene Commons South
   Distribution Center.................    (634).       1998
  Martin Van Buren Distribution
   Center..............................  (1,160).    1993,1994
  Papago Distribution Center...........    (675).       1994
  Pima Distribution Center.............    (566).       1993
  Watkins Distribution Center..........    (390).       1995

Portland, Oregon
  Argyle Distribution Center...........  (1,681).       1993
  Columbia Distribution Center.........    (847).       1994
  PDX Corporate Center East............  (1,020).       1997
  PDX Corporate Center North...........    (2,397)      1995,1996
  Wilsonville Corporate Center.........  (2,692).    1995,1996

Poznan, Poland
  Poznan Distribution Center...........       --.       2001

Reno, Nevada
  Golden Valley Distribution Center....  (1,449).    1996,1998
  Meredith Kleppe Business Center......  (2,901).       1993
  Pacific Industrial Center............  (2,869).   1994,1995,2001
  Packer Way Business Center...........    (963).       1993
  Packer Way Distribution Center.......  (1,068).       1993
  Damonte Ranch Dist Ctr...............     (57).    2000,2001
  Spice Island Distribution Center.....    (619).       1996

Reynosa, Mexico
  Colonial Industrial Center...........    (135).    1999,2000
  Del Norte Industrial Center..........    (781).       1998
  Del Norte Industrial Center II.......       --.       2000
  Reynosa Industrial Center III........    (222).    2000,2001
  Reynosa Industrial Center............  (1,842).   1997,1998,1999

Salt Lake City, Utah
  Centennial Distribution Center.......  (1,766).       1995
  Clearfield Distribution Center.......  (3,168).       1995
  Crossroads Corporate Center..........      (3).       2000
  Salt Lake International Distribution
   Center..............................  (2,332).    1994,1996

San Antonio, Texas
  10711 Distribution Center............  (1,120).       1994
  Coliseum Distribution Center.........  (3,120).    1994,1995
  Distribution Drive Center............  (1,133).       1992
  Downtown Distribution Center.........    (471).       1994
  I-10 Central Distribution Center.....    (501).       1992
  I-35 Business Center.................  (1,459).       1993
</TABLE>


                                      214

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                  Costs    Gross Amounts At Which Carried
                                                      Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                      ------------------------ Subsequent  ------------------------------
                                       No. of Encum-              Buildings &      To                Building &   Total
Description                            Bldgs. brances   Land      Improvements Acquisition  Land    Improvements  (a,b)
-----------                            ------ -------  ------     ------------ ----------- ------   ------------ -------
<S>                                    <C>    <C>     <C>         <C>          <C>         <C>      <C>          <C>
  Landmark One Distribution Center....    1           $  341        $ 1,933      $   377   $  341     $ 2,310    $ 2,651
  Macro Distribution Center...........    1              225          1,282          438      225       1,720      1,945
  Perrin Creek Corporate Center.......    6            1,547             --       10,089    1,634      10,002     11,636
  San Antonio Distribution Center I...   13            2,154         12,247        4,769    2,154      17,016     19,170
  San Antonio Distribution Center II..    3              945             --        6,295      885       6,355      7,240
  San Antonio Distribution Center III.    6            1,709          9,684        2,946    1,841      12,498     14,339
  Woodlake Distribution Center........    2              248          1,405          522      248       1,927      2,175

San Francisco (East Bay), California
  Barrington Business Center..........    3            1,741          9,863          353    1,741      10,216     11,957
  Central Valley Distribution Center..    3            5,180         29,357           63    5,181      29,419     34,600
  Central Valley Industrial Center....    2            3,694         20,938        3,096    4,147      23,581     27,728
  East Bay Industrial Center..........    1              531          3,009          431      531       3,440      3,971
  Eigenbrodt Way Distribution
   Center.............................    1    (f)       393          2,228          282      393       2,510      2,903
  Hayward Commerce Center.............    4            1,933         10,955          745    1,933      11,700     13,633
  Hayward Commerce Park...............    9            2,764         15,661        3,036    2,764      18,697     21,461
  Hayward Distribution Center.........    6            2,906         19,165        2,477    3,327      21,221     24,548
  Hayward Industrial Center...........   13    (f)     4,481         25,393        2,221    4,481      27,614     32,095
  Patterson Pass Business Center......    7            4,064          4,885       24,530    5,625      27,854     33,479
  San Leandro Distribution Center.....    3            1,387          7,862          825    1,387       8,687     10,074

San Francisco (South Bay), California
  Bayside Business Center.............    2    (h)     2,088             --        4,555    2,088       4,555      6,643
  Bayside Corporate Center............    7    (h)     4,365             --       16,215    4,365      16,215     20,580
  Bayside Plaza I.....................   12    (h)     5,212         18,008        1,436    5,216      19,440     24,656
  Bayside Plaza II....................    2    (h)       634             --        2,915      634       2,915      3,549
  Gateway Corporate Center............   11   (f)(h)   7,575         24,746        4,765    7,575      29,511     37,086
  Mowry Business Center...............    4            5,933             --       18,083    7,815      16,201     24,016
  Overlook Distribution Center........    1            1,573          8,915           29    1,573       8,944     10,517
  Shoreline Business Center...........    8    (h)     4,328         16,101          679    4,328      16,780     21,108
  Shoreline Business Center II........    2    (h)       922             --        4,806      922       4,806      5,728
  Spinnaker Business Center...........   12    (h)     7,043         25,220        1,730    7,043      26,950     33,993
  Thornton Business Center............    5    (f)     3,988         11,706        6,325    3,989      18,030     22,019
  Trimble Distribution Center.........    5            2,836         16,067        1,818    2,836      17,885     20,721

Seattle, Washington
  Andover East Business Center........    2              535          3,033          306      535       3,339      3,874
  Fife Corporate Center...............    3            4,059             --       10,618    4,209      10,468     14,677
  Kent Corporate Center...............    2    (h)     2,882          1,987        9,066    3,216      10,719     13,935
  Park at Woodinville A...............    5    (f)     1,937         10,976          652    1,937      11,628     13,565
  Van Doren's Distribution Center.....    2    (h)     2,473             --        8,880    2,860       8,493     11,353

St. Louis, Missouri
  Earth City Industrial Center........    8    (f)     3,375         19,144        3,170    3,375      22,314     25,689
  Hazelwood Distribution Center.......    2    (f)       847          4,802          192      847       4,994      5,841
  Westport Distribution Center........    3    (f)       761          4,310          327      761       4,637      5,398

Tampa, Florida
  Adamo Distribution Center...........    6            2,105         11,930          433    2,105      12,363     14,468
  Commerce Park Distribution Center...    4              811          4,597        1,156      811       5,753      6,564
  Eastwood Distribution Center........    1    (g)       122            690           95      122         785        907
  Joe's Creek Distribution Center.....    2    (g)       161            909          136      160       1,046      1,206
  Lakeland Distribution Center........    1              938          5,313          622      938       5,935      6,873
  Orchid Lake Industrial Center.......    1               41            235           23       41         258        299
  Plant City Distribution Center......    1    (g)       206          1,169          132      206       1,301      1,507
  Sabal Park Distribution Center......    7    (d)     2,341          5,610       12,600    2,678      17,873     20,551
</TABLE>


<TABLE>
<CAPTION>


                                       Accumulated        Date of
                                       Depreciation    Construction/
Description                                (c)          Acquisition
-----------                            ------------ -------------------
<S>                                    <C>          <C>
  Landmark One Distribution Center....   $  (594)          1994
  Macro Distribution Center...........      (493)          1993
  Perrin Creek Corporate Center.......    (1,862)        1995,1996
  San Antonio Distribution Center I...    (5,286)     1992,1993,1994
  San Antonio Distribution Center II..    (1,595)          1994
  San Antonio Distribution Center III.    (2,621)          1996
  Woodlake Distribution Center........      (457)          1994

San Francisco (East Bay), California
  Barrington Business Center..........      (958)          1999
  Central Valley Distribution Center..    (2,652)          1999
  Central Valley Industrial Center....    (2,133)          1999
  East Bay Industrial Center..........      (888)          1994
  Eigenbrodt Way Distribution
   Center.............................      (668)          1993
  Hayward Commerce Center.............    (3,168)          1993
  Hayward Commerce Park...............    (5,010)          1994
  Hayward Distribution Center.........    (5,573)          1993
  Hayward Industrial Center...........    (7,530)          1993
  Patterson Pass Business Center......    (2,457)   1993,1997,1998,2000
  San Leandro Distribution Center.....    (2,310)          1993

San Francisco (South Bay), California
  Bayside Business Center.............    (1,004)          1996
  Bayside Corporate Center............    (4,432)        1995,1996
  Bayside Plaza I.....................    (5,235)          1993
  Bayside Plaza II....................    (1,163)          1994
  Gateway Corporate Center............    (8,501)        1993,1996
  Mowry Business Center...............    (2,177)        1997,1998
  Overlook Distribution Center........      (811)          1999
  Shoreline Business Center...........    (4,556)          1993
  Shoreline Business Center II........    (1,516)          1995
  Spinnaker Business Center...........    (7,365)          1993
  Thornton Business Center............    (4,225)        1993,1996
  Trimble Distribution Center.........    (4,728)          1994

Seattle, Washington
  Andover East Business Center........      (851)          1994
  Fife Corporate Center...............    (1,847)          1996
  Kent Corporate Center...............    (2,523)          1995
  Park at Woodinville A...............    (1,104)          1999
  Van Doren's Distribution Center.....    (1,584)        1995,1997

St. Louis, Missouri
  Earth City Industrial Center........    (3,746)        1997,1998
  Hazelwood Distribution Center.......      (546)        1997,1999
  Westport Distribution Center........      (718)          1997

Tampa, Florida
  Adamo Distribution Center...........      (344)        1995,2001
  Commerce Park Distribution Center...    (1,389)          1994
  Eastwood Distribution Center........      (203)          1994
  Joe's Creek Distribution Center.....      (267)          1994
  Lakeland Distribution Center........    (1,484)          1994
  Orchid Lake Industrial Center.......       (61)          1994
  Plant City Distribution Center......      (313)          1994
  Sabal Park Distribution Center......    (2,286)     1996,1997,1998
</TABLE>


                                      215

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                              Costs     Gross Amounts At Which Carried
                                                  Initial Cost to ProLogis Capitalized      as of December 31, 2001
                                                  ------------------------ Subsequent  ---------------------------------
                                   No. of Encum-              Buildings &      To                Building &
Description                        Bldgs. brances    Land     Improvements Acquisition   Land   Improvements Total (a,b)
-----------                        ------ -------  --------   ------------ ----------- -------- ------------ -----------
<S>                                <C>    <C>     <C>         <C>          <C>         <C>      <C>          <C>
  Silo Bend Distribution
   Center.........................     4    (g)   $  2,887     $   16,358  $    1,427  $  2,887  $   17,785  $   20,672
  Silo Bend Industrial Center.....     1    (g)        525          2,975         357       525       3,332       3,857
  St. Petersburg Service
   Center.........................     1                35            197          21        35         218         253
  Tampa East Distribution
   Center.........................    10    (g)      2,700         15,302       1,823     2,541      17,284      19,825
  Tampa East Industrial
   Center.........................     2    (g)        332          1,880         288       332       2,168       2,500
  Tampa West Distribution
   Center.........................    15    (g)      3,273         18,659       3,424     3,319      22,037      25,356
  Tampa West Industrial
   Center.........................     4    (g)        437            471       5,616       717       5,807       6,524
  Tampa West Service
   Center.........................     2    (g)        422          2,569         186       423       2,754       3,177

Tijuana, Mexico
  Tijuana Industrial Center.......     5             3,816             --      22,321     8,672      17,465      26,137

Tulsa, Oklahoma
  52nd Street Distribution Center.     1               340          1,924         249       340       2,173       2,513
  70th East Distribution Center...     1               129            733         350       129       1,083       1,212
  Expressway Distribution Center..     4               573          3,280       1,219       573       4,499       5,072
  Henshaw Distribution
   Center.........................     3               500          2,829         350       499       3,180       3,679

Warsaw, Poland
  Blonie Industrial Park..........     1             1,378             --       6,818     1,079       7,117       8,196

Washington D.C./Baltimore,
 Maryland
  Airport Commons
   Distribution Center............     2    (d)      2,320             --       9,280     2,360       9,240      11,600
  Ardmore Distribution
   Center.........................     3             1,431          8,110         924     1,431       9,034      10,465
  Ardmore Industrial Center.......     2               984          5,581         870       985       6,450       7,435
  Concorde Industrial Center......     4    (d)      1,538          8,717       1,130     1,538       9,847      11,385
  De Soto Business Park...........     5             1,774         10,055       3,888     1,774      13,943      15,717
  Eisenhower Industrial
   Center.........................     3    (d)      1,240          7,025       1,519     1,240       8,544       9,784
  Fleet Distribution Center.......     8    (d)      3,198         18,121       1,904     3,115      20,108      23,223
  Gateway Distribution
   Center.........................     3               774             --       7,836     1,414       7,196       8,610
  Hampton Central
   Distribution Center............     2             1,769             --       9,771     2,251       9,289      11,540
  Meadowridge Distribution
   Center.........................     1    (d)      1,757             --       5,777     1,902       5,632       7,534
  Patapsco Distribution
   Center.........................     1               270          1,528       1,152       270       2,680       2,950
  Sunnyside Industrial
   Center.........................     3             1,541          8,733       1,667     1,541      10,400      11,941
  Troy Hill Distribution
   Center.........................     2             2,105             --       6,275     2,105       6,275       8,380
Other.............................     4    (g)      2,962         15,475       4,085     3,108      19,414      22,522
                                   -----           --------    ----------  ----------  --------  ----------  ----------
    Total Operating
     Properties................... 1,208          $600,690     $2,184,741  $1,388,119  $645,344  $3,528,206  $4,173,550
                                   =====           ========    ==========  ==========  ========  ==========  ==========

Facilities Under
 Development
Budapest, Hungary
  Budapest Park...................                   1,178             --       1,777     2,955          --       2,955

Carlisle, Pennsylvania
  Carlisle Distribution Center....                   5,135             --      15,414    20,549          --      20,549

Chicago, Illinois
  I-55 Distribution Center........                   3,029             --       3,791     6,820          --       6,820
  O'Hare Cargo Distribution
   Center.........................                   3,376             --      11,469    14,845          --      14,845

Dortmund, Germany
  Krefeld Distribution Center.....                   1,868             --       2,021     3,889          --       3,889

Las Vegas, Nevada
  Las Vegas Corporate
   Center.........................                     368             --         600       968          --         968
</TABLE>


<TABLE>
<CAPTION>


                                   Accumulated     Date of
                                   Depreciation Construction/
Description                            (c)       Acquisition
-----------                        ------------ --------------
<S>                                <C>          <C>
  Silo Bend Distribution
   Center.........................  $  (4,127)       1994
  Silo Bend Industrial Center.....       (823)       1994
  St. Petersburg Service
   Center.........................        (51)       1994
  Tampa East Distribution
   Center.........................     (4,227)       1994
  Tampa East Industrial
   Center.........................       (544)       1994
  Tampa West Distribution
   Center.........................     (5,198)    1994,1995
  Tampa West Industrial
   Center.........................     (1,005)  1994,1996,1998
  Tampa West Service
   Center.........................       (643)       1994

Tijuana, Mexico
  Tijuana Industrial Center.......       (648)  1999,2000,2001

Tulsa, Oklahoma
  52nd Street Distribution Center.       (578)       1994
  70th East Distribution Center...       (262)       1994
  Expressway Distribution Center..     (1,329)       1993
  Henshaw Distribution
   Center.........................       (785)       1994

Warsaw, Poland
  Blonie Industrial Park..........         --        2000

Washington D.C./Baltimore,
 Maryland
  Airport Commons
   Distribution Center............     (1,563)       1997
  Ardmore Distribution
   Center.........................     (2,168)       1994
  Ardmore Industrial Center.......     (1,592)       1994
  Concorde Industrial Center......     (2,247)       1995
  De Soto Business Park...........     (3,448)       1996
  Eisenhower Industrial
   Center.........................     (2,228)       1994
  Fleet Distribution Center.......     (4,205)       1996
  Gateway Distribution
   Center.........................       (642)       1998
  Hampton Central
   Distribution Center............     (1,466)    1996,1997
  Meadowridge Distribution
   Center.........................       (622)       1998
  Patapsco Distribution
   Center.........................       (622)       1995
  Sunnyside Industrial
   Center.........................     (2,514)       1994
  Troy Hill Distribution
   Center.........................         --        2001
Other.............................     (2,131)    1994,1999
                                    ---------
    Total Operating
     Properties...................  $(574,871)
                                    =========

Facilities Under
 Development
Budapest, Hungary
  Budapest Park...................         --        2001

Carlisle, Pennsylvania
  Carlisle Distribution Center....         --        2001

Chicago, Illinois
  I-55 Distribution Center........         --        2001
  O'Hare Cargo Distribution
   Center.........................         --        2001

Dortmund, Germany
  Krefeld Distribution Center.....         --        2001

Las Vegas, Nevada
  Las Vegas Corporate
   Center.........................         --        2001
</TABLE>


                                      216

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                               Costs    Gross Amounts At Which Carried
                                                   Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                   ------------------------ Subsequent  ------------------------------
                                    No. of Encum-              Buildings &      To                Building &   Total
Description                         Bldgs. brances   Land      Improvements Acquisition   Land   Improvements  (a,b)
-----------                         ------ -------  -------    ------------ ----------- -------- ------------ --------
<S>                                 <C>    <C>     <C>         <C>          <C>         <C>      <C>          <C>
Le Havre, France                                   $   737         $--        $ 8,428   $  9,165     $--      $  9,165
  Le Havre.........................

Madrid, Spain
  Alcala...........................                  7,772          --          1,314      9,086      --         9,086

Marseille, France
  Clesud Grans Miramas
   Distribution Center.............                  1,591          --          2,172      3,763      --         3,763

Milan, Italy
  Piacenza Distribution Center.....                    358          --          1,070      1,428      --         1,428

Tilburg, Netherlands
  Tilburg Distribution Center......                  1,483          --          7,048      8,531      --         8,531

Tokyo, Japan
  Toyko Distribution Center........                 32,863          --          7,863     40,726      --        40,726

Venlo, Netherlands
  Trade Port West..................                  3,106          --          5,713      8,819      --         8,819
                                                    -------        ---        -------   --------     ---      --------
    Total Facilities Under
     Development...................                 62,864          --         68,680    131,544      --       131,544
                                                    -------        ---        -------   --------     ---      --------
Land Held for Development

Atlanta, Georgia
  Atlanta West Distribution
   Center..........................                    561          --            193        754      --           754
  Breckenridge Distribution Center.                  2,504          --          1,961      4,465      --         4,465
  Greenwood Ind Park...............                  8,272          --          2,909     11,181      --        11,181

Austin Texas,
  Southpark Corporate Center.......                    524          --             64        588      --           588
  Walnut Creek Corporate
   Center..........................                    135          --             40        175      --           175

Baltimore, Maryland
  Meadowridge Distribution Center..                    760          --            324      1,084      --         1,084

Barcelona, Spain
  Sant Boi Park....................                  2,995          --          6,080      9,075      --         9,075

Budapest, Hungary
  Budapest Park....................                  3,558          --          1,300      4,858      --         4,858

Charlotte, North Carolina
  Charlotte Distribution Center
   South...........................                    352          --            810      1,162      --         1,162
  Interstate North Business Park...                    342          --              9        351      --           351

Chicago, Illinois
  I-55 Distribution Center.........                  8,590          --          2,757     11,347      --        11,347
  O'Hare Cargo Distribution
   Center..........................                  3,927          --          2,508      6,435      --         6,435

Cincinnati, Ohio
  Airpark West Distribution
   Center..........................                  2,212          --          1,020      3,232      --         3,232
  West Chester Com Park I..........                  4,502          --          1,037      5,539      --         5,539

Columbus, Ohio
  Capital Park South
   Distribution Center.............                  2,040          --            220      2,260      --         2,260
  International Street Commerce
   Center..........................                    101          --              8        109      --           109
</TABLE>


<TABLE>
<CAPTION>


                                    Accumulated        Date of
                                    Depreciation    Construction/
Description                             (c)          Acquisition
-----------                         ------------ -------------------
<S>                                 <C>          <C>
Le Havre, France                        $--             2001
  Le Havre.........................

Madrid, Spain
  Alcala...........................      --             2001

Marseille, France
  Clesud Grans Miramas
   Distribution Center.............      --             2001

Milan, Italy
  Piacenza Distribution Center.....      --             2001

Tilburg, Netherlands
  Tilburg Distribution Center......      --             2001

Tokyo, Japan
  Toyko Distribution Center........      --             2001

Venlo, Netherlands
  Trade Port West..................      --             2001
                                        ---
    Total Facilities Under
     Development...................      --
                                        ---
Land Held for Development

Atlanta, Georgia
  Atlanta West Distribution
   Center..........................      --             1994
  Breckenridge Distribution Center.      --           1997,1998
  Greenwood Ind Park...............      --             2000

Austin Texas,
  Southpark Corporate Center.......      --             1996
  Walnut Creek Corporate
   Center..........................      --             1994

Baltimore, Maryland
  Meadowridge Distribution Center..      --             1996

Barcelona, Spain
  Sant Boi Park....................      --             2000

Budapest, Hungary
  Budapest Park....................      --             2001

Charlotte, North Carolina
  Charlotte Distribution Center
   South...........................      --             1997
  Interstate North Business Park...      --             1997

Chicago, Illinois
  I-55 Distribution Center.........      --             2000
  O'Hare Cargo Distribution
   Center..........................      --           1996,1997

Cincinnati, Ohio
  Airpark West Distribution
   Center..........................      --             2000
  West Chester Com Park I..........      --        1997,2000,2001

Columbus, Ohio
  Capital Park South
   Distribution Center.............      --      1994,1998,1999,2000
  International Street Commerce
   Center..........................      --             1996
</TABLE>


                                      217

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                  Costs    Gross Amounts At Which Carried
                                                      Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                      ------------------------ Subsequent  ------------------------------
                                       No. of Encum-              Buildings &      To                 Building &   Total
Description                            Bldgs. brances   Land      Improvements Acquisition   Land    Improvements  (a,b)
-----------                            ------ -------  ------     ------------ -----------  ------   ------------ ------
<S>                                    <C>    <C>     <C>         <C>          <C>         <C>       <C>          <C>
Dallas/Fort Worth, Texas
  Freeport Corporate Center...........                $1,373          $--        $2,587    $3,960        $--      $3,960
  Lewisville Distribution Center......                 5,188           --         1,311     6,499         --       6,499
  Plano Distribution Center...........                 1,166           --            --     1,166         --       1,166

Denver, Colorado
  Upland Distribution Center I........                   519           --            31       550         --         550

Dortmund, Germany
  Krefeld Park........................                 2,584           --           101     2,685         --       2,685

Dulles, Virginia
  ProLogis Park--Dulles...............                 1,165           --         1,269     2,434         --       2,434

El Paso, Texas
  Goodyear Distribution Center........                   555           --            18       573         --         573
  Northwestern Corporate Center.......                 1,086           --         2,095     3,181         --       3,181
  Vista Del Sol Industrial Center.....                   324           --            12       336         --         336
  Vista Del Sol Industrial Center II..                 1,268           --           398     1,666         --       1,666
  Vista Del Sol Industrial Center III.                   306           --           473       779         --         779

Fort Lauderdale/Miami, Florida
  Port Lauderdale Distribution Center.                 2,522           --           311     2,833         --       2,833

Houston, Texas
  Jersey Village Corporate Center.....                 3,217           --         1,065     4,282         --       4,282
  West by Northwest Industrial Center.                   898           --           137     1,035         --       1,035

I-95 Corridor, New Jersey
  Cranbury Bus Park...................                   650           --           176       826         --         826
  Rancocas Distribution Center........                 1,270           --            --     1,270         --       1,270

Indianapolis, Indiana
  Airport Business Center.............                 2,214           --            --     2,214         --       2,214
  Lebanon Commerce Park Land..........                   827           --           945     1,772         --       1,772
  North Plainfield Park Distribution
   Center.............................                 2,928           --             5     2,933         --       2,933
  Plainfield Park Distribution Center.                 1,082           --           563     1,645         --       1,645

Juarez, Mexico
  Libramiento Aeropuerto..............                 1,403           --           502     1,905         --       1,905
  Los Aztecas Industrial Center.......                   669           --            48       717         --         717
  Ramon Rivera Industrial Center......                   445           --            25       470         --         470

Kansas City, Kansas/Missouri
  Executive Park......................                 1,267           --           259     1,526         --       1,526

Las Vegas, Nevada
  Black Mountain Distribution Center..                 1,242           --           115     1,357         --       1,357
  Hughes Airport Center...............                   262           --            11       273         --         273
  Las Vegas Corporate Center..........          (b)    3,547           --         1,174     4,721         --       4,721

Le Havre, France
  Le Havre............................                 2,171           --            --     2,171         --       2,171

Liege, Belgium
  Liege Park..........................                   651           --            --       651         --         651

Los Angeles/Orange County,
 California
  Ontario Distribution Center.........                 1,623           --            --     1,623         --       1,623
</TABLE>


<TABLE>
<CAPTION>


                                       Accumulated     Date of
                                       Depreciation Construction/
Description                                (c)       Acquisition
-----------                            ------------ -------------
<S>                                    <C>          <C>
Dallas/Fort Worth, Texas
  Freeport Corporate Center...........     $--          1999
  Lewisville Distribution Center......      --        2000,2001
  Plano Distribution Center...........      --          1999

Denver, Colorado
  Upland Distribution Center I........      --          1997

Dortmund, Germany
  Krefeld Park........................      --          2001

Dulles, Virginia
  ProLogis Park--Dulles...............      --          2000

El Paso, Texas
  Goodyear Distribution Center........      --          2001
  Northwestern Corporate Center.......      --          1991
  Vista Del Sol Industrial Center.....      --          1994
  Vista Del Sol Industrial Center II..      --        1995,1996
  Vista Del Sol Industrial Center III.      --          1999

Fort Lauderdale/Miami, Florida
  Port Lauderdale Distribution Center.      --          2001

Houston, Texas
  Jersey Village Corporate Center.....      --          1997
  West by Northwest Industrial Center.      --          1993

I-95 Corridor, New Jersey
  Cranbury Bus Park...................      --          1997
  Rancocas Distribution Center........      --          2001

Indianapolis, Indiana
  Airport Business Center.............      --          1999
  Lebanon Commerce Park Land..........      --          1998
  North Plainfield Park Distribution
   Center.............................      --          2001
  Plainfield Park Distribution Center.      --          1996

Juarez, Mexico
  Libramiento Aeropuerto..............      --          1997
  Los Aztecas Industrial Center.......      --          2000
  Ramon Rivera Industrial Center......      --          2000

Kansas City, Kansas/Missouri
  Executive Park......................      --          1998

Las Vegas, Nevada
  Black Mountain Distribution Center..      --          1995
  Hughes Airport Center...............      --          1997
  Las Vegas Corporate Center..........      --        1995,1997

Le Havre, France
  Le Havre............................      --          1998

Liege, Belgium
  Liege Park..........................      --          2001

Los Angeles/Orange County,
 California
  Ontario Distribution Center.........      --          1999
</TABLE>


                                      218

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                                   Costs    Gross Amounts At Which Carried
                                                       Initial Cost to ProLogis Capitalized    as of December 31, 2001
                                                       ------------------------ Subsequent  ------------------------------
                                        No. of Encum-              Buildings &      To                 Building &   Total
Description                             Bldgs. brances   Land      Improvements Acquisition   Land    Improvements  (a,b)
-----------                             ------ -------  ------     ------------ -----------  ------   ------------ ------
<S>                                     <C>    <C>     <C>         <C>          <C>         <C>       <C>          <C>
Louisville, Kentucky
  I-65 Meyer Distribution Center.......                $2,911          $--        $  513    $3,424        $--      $3,424
  Riverport Distribution Center........                   600           --            36       636         --         636

Lyon, France
  Isle d'Abeau Distribution Center.....                 5,294           --            --     5,294         --       5,294

Madrid, Spain
  Alcala...............................                 4,023           --         3,954     7,977         --       7,977

Memphis, Tennessee
  Distriplex Distribution Center.......                 1,919           --            28     1,947         --       1,947
  Memphis Industrial Park..............                   299           --           262       561         --         561
  Stateline Distribution Center........                 2,682           --         1,306     3,988         --       3,988

Milan, Italy
  Piacenza Distribution Center.........                   136           --         1,193     1,329         --       1,329

Monterrey Mexico
  Monterrey Industrial Park............                 3,798           --           131     3,929         --       3,929

Orlando, Florida
  Orlando Central Park.................                 2,152           --           690     2,842         --       2,842

Portland, Oregon
  Clackmas Distribution Center.........                 2,139           --           749     2,888         --       2,888

Reno, Nevada
  Damonte Ranch........................                 2,454           --           841     3,295         --       3,295
  Golden Valley Distribution Center....                   347           --           536       883         --         883

Reynosa, Mexico
  Del Norte Industrial Center II.......                 1,391           --           432     1,823         --       1,823
  Pharr Bridge Industrial Center.......                 3,912           --         1,906     5,818         --       5,818
  Reynosa Industrial Center III........                   149           --            33       182         --         182
  Reynosa Industrial Park..............                   362           --            28       390         --         390

Rhine/Ruhr Region, Germany
  Cologne Eifeltor Distribution Center.                   615           --         1,470     2,085         --       2,085

Rotterdam, Netherlands
  Moerdijk Distribution Center.........                 1,402           --            --     1,402         --       1,402

Salt Lake City, Utah
  Centennial Distribution Center.......                   824           --           100       924         --         924
  Clearfield Industrial Center.........                   125           --            21       146         --         146
  Salt Lake International Distribution
   Center..............................                   878           --            76       954         --         954

San Antonio, Texas
  Coliseum Distribution Center.........                   611           --           335       946         --         946
  Perrin Creek Corporate Center........                 2,637           --           196     2,833         --       2,833
  San Antonio Distribution Center III..                   458           --            72       530         --         530
  T3ri-County Distribution Center......                   773           --            26       799         --         799
</TABLE>


<TABLE>
<CAPTION>


                                        Accumulated     Date of
                                        Depreciation Construction/
Description                                 (c)       Acquisition
-----------                             ------------ -------------
<S>                                     <C>          <C>
Louisville, Kentucky
  I-65 Meyer Distribution Center.......     $--          2001
  Riverport Distribution Center........      --          1999

Lyon, France
  Isle d'Abeau Distribution Center.....      --          2001

Madrid, Spain
  Alcala...............................      --          2001

Memphis, Tennessee
  Distriplex Distribution Center.......      --          2000
  Memphis Industrial Park..............      --          1997
  Stateline Distribution Center........      --          2001

Milan, Italy
  Piacenza Distribution Center.........      --          1999

Monterrey Mexico
  Monterrey Industrial Park............      --        1998,2000

Orlando, Florida
  Orlando Central Park.................      --          1996

Portland, Oregon
  Clackmas Distribution Center.........      --          1997

Reno, Nevada
  Damonte Ranch........................      --          1998
  Golden Valley Distribution Center....      --          1995

Reynosa, Mexico
  Del Norte Industrial Center II.......      --          1998
  Pharr Bridge Industrial Center.......      --          2000
  Reynosa Industrial Center III........      --          1998
  Reynosa Industrial Park..............      --          1997

Rhine/Ruhr Region, Germany
  Cologne Eifeltor Distribution Center.      --          2000

Rotterdam, Netherlands
  Moerdijk Distribution Center.........      --          2001

Salt Lake City, Utah
  Centennial Distribution Center.......      --          1996
  Clearfield Industrial Center.........      --          1995
  Salt Lake International Distribution
   Center..............................      --        1994,1995

San Antonio, Texas
  Coliseum Distribution Center.........      --          1994
  Perrin Creek Corporate Center........      --          1996
  San Antonio Distribution Center III..      --          1996
  T3ri-County Distribution Center......      --          2000
</TABLE>


                                      219

<PAGE>


                                PROLOGIS TRUST



      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)



<TABLE>
<CAPTION>
                                                                          Costs     Gross Amounts At Which Carried
                                              Initial Cost to ProLogis Capitalized      as of December 31, 2001
                                              ------------------------ Subsequent  --------------------------------- Accumulated
                               No. of Encum-              Buildings &      To                Building &              Depreciation
Description                    Bldgs. brances    Land     Improvements Acquisition   Land   Improvements Total (a,b)     (c)
-----------                    ------ -------  --------   ------------ ----------- -------- ------------ ----------- ------------
<S>                            <C>    <C>     <C>         <C>          <C>         <C>      <C>          <C>         <C>
San Francisco (East Bay),
 California
  Patterson Pass Business
   Center.....................                $    887     $       --  $      135  $  1,022  $       --  $    1,022   $      --
  Tracy Industrial Park.......          (b)      4,684             --         730     5,414          --       5,414          --

Seattle, Washington
  Port of Tacoma..............                   1,543             --         429     1,972          --       1,972          --

Tampa, Florida
  Sabal Park Distribution
   Center.....................                   1,178             --          44     1,222          --       1,222          --
  Tampa East Distribution
   Center.....................                     233             --          --       233          --         233          --
  Tampa East Industrial
   Center.....................                   1,783             --          39     1,822          --       1,822          --
  Tampa West Distribution
   Center.....................                     113             --         153       266          --         266          --

Tijuana, Mexico
  Tijuana Industrial Center...                   1,474             --          28     1,502          --       1,502          --

Tongeren, Belgium
  Lille Bus Park..............                     144             --          36       180          --         180          --

Warsaw, Poland
  Blonie Industrial Park......                   1,085             --         652     1,737          --       1,737          --
  Poznan Park.................                     797             --       1,035     1,832          --       1,832          --
  Teresin Distribution Center.                   1,472             --       3,570     5,042          --       5,042          --
                                 -             --------    ----------  ----------  --------  ----------  ----------   ---------
    Total Land Held for
     Development..............                 144,081             --      56,656   200,737          --     200,737          --
                                 -             --------    ----------  ----------  --------  ----------  ----------   ---------
    GRAND TOTAL...............                $807,635     $2,184,741  $1,513,455  $977,625  $3,528,206  $4,505,831   $(574,871)
                                 =             ========    ==========  ==========  ========  ==========  ==========   =========
</TABLE>


<TABLE>
<CAPTION>


                                  Date of
                               Construction/
Description                     Acquisition
-----------                    -------------
<S>                            <C>
San Francisco (East Bay),
 California
  Patterson Pass Business
   Center.....................     1999
  Tracy Industrial Park.......     2000

Seattle, Washington
  Port of Tacoma..............     1998

Tampa, Florida
  Sabal Park Distribution
   Center.....................     1995
  Tampa East Distribution
   Center.....................     1994
  Tampa East Industrial
   Center.....................     1994
  Tampa West Distribution
   Center.....................     1994

Tijuana, Mexico
  Tijuana Industrial Center...     1998

Tongeren, Belgium
  Lille Bus Park..............     2000

Warsaw, Poland
  Blonie Industrial Park......     1998
  Poznan Park.................     2001
  Teresin Distribution Center.     2000

    Total Land Held for
     Development..............

    GRAND TOTAL...............

</TABLE>


                                      220

<PAGE>

                                PROLOGIS TRUST

      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)


--------

(a) Reconciliation of real estate investments per Schedule III to the
    Consolidated Balance Sheet as of


December 31, 2001 (in thousands):


<TABLE>
         <S>                                              <C>
         Total per Schedule III.......................... $4,505,831
         Minority interest in real estate company........      8,432
         Capitalized preacquisition costs................     73,930
                                                          ----------
                Total per Consolidated Balance Sheet..... $4,588,193(i)
                                                          ==========
</TABLE>


(b) The aggregate cost for federal income tax purposes was approximately
    $4,337,555,635.


(c) Buildings are depreciated over their estimated useful lives (7 years for
    capital improvements, 10 years for tenant improvements, 30 years for
    facilities acquired and 40 years for facilities developed).


(d) $344,344,000 of these facilities will secure $200,000,000 of mortgage notes.


(e) $216,305,000 of these facilities secure $145,459,000 of mortgage notes.


(f) $373,655,000 of these facilities secure $152,184,000 of mortgage notes.


(g) $61,405,000 of these facilities secure $22,556,000 of securitized debt.


(h) $234,110,000 of these facilities secure $11,907,000 of assessment bonds.


(i) A summary of activity for real estate and accumulated depreciation as
    follows (in thousands):

<TABLE>
<S>                                                                    <C>
Real estate investments:
   Balance at December 31, 2000....................................... $4,689,492
   Acquisitions, completions and improvements to operating facilities.    658,879
   Dispositions.......................................................   (832,732)
   Change in facilities under development balance.....................     46,198
   Change in capitalized preacquisition costs balance.................     26,356
                                                                       ----------
   Balance at December 31, 2001....................................... $4,588,193
                                                                       ----------
Accumulated depreciation:
   Balance at December 31, 2000....................................... $  476,982
   Depreciation expense...............................................    120,899
   Accumulated depreciation associated with dispositions..............    (23,010)
                                                                       ----------
   Balance at December 31, 2001....................................... $  574,871
                                                                       ==========
</TABLE>

                                      221

<PAGE>

                               POWER OF ATTORNEY

   KNOW ALL MEN BY THESE PRESENTS, that each of Security Capital Group
Incorporated, a Maryland corporation, and the undersigned Directors and
Officers of Security Capital Group Incorporated, hereby constitutes and
appoints William D. Sanders, C. Ronald Blankenship, Thomas G. Wattles, Paul E.
Szurek, James C. Swaim and Jeffrey A. Klopf its or his true and lawful
attorneys-in-fact and agents, for it or him and in its or his name, place and
stead, in any and all capacities, with full power to act alone, to sign any and
all amendments to this report, and to file each such amendment to this report,
with all exhibits thereto, and any and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as it or he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them may lawfully do or cause to be
done by virtue hereof.


                                      222

<PAGE>

                                  SIGNATURES


   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to this
report to be signed on its behalf by the undersigned, thereunto duly authorized.


                                          SECURITY CAPITAL GROUP INCORPORATED


                                          By:       /s/    WILLIAM D. SANDERS*

                                            -----------------------------------
                                                     William D. Sanders
                                                Chairman, Director and Chief
                                                Executive Officer (Principal
                                                     Executive Officer)


Date: April 15, 2002


   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


          Signature                         Title                     Date
          ---------                         -----                     ----
   /s/ WILLIAM D. SANDERS*    Chairman, Director and             April 15, 2002
-----------------------------   Chief Executive Officer
     William D. Sanders         (Principal Executive Officer)
     /s/ PAUL E. SZUREK*                                         April 15, 2002
----------------------------- Chief Financial Officer (Principal
       Paul E. Szurek           Financial Officer)
     /s/ JAMES C. SWAIM*                                         April 15, 2002
----------------------------- Principal Accounting Officer
       James C. Swaim
 /s/ C. RONALD BLANKENSHIP*                                      April 15, 2002
----------------------------- Director, Vice Chairman
    C. Ronald Blankenship
    /s/ HERMANN BUERGER*                                         April 15, 2002
----------------------------- Director
       Hermann Buerger
  /s/ JOHN P. FRAZEE, JR.*                                       April 15, 2002
----------------------------- Director
     John P. Frazee, Jr.
/s/ CYRUS F. FREIDHEIM, JR.*                                     April 15, 2002
----------------------------- Director
   Cyrus F. Freidheim, Jr.
   /s/ H. LAURANCE FULLER*                                       April 15, 2002
----------------------------- Director
     H. Laurance Fuller
     /s/ JANET M. HILL*                                          April 15, 2002
----------------------------- Director
        Janet M. Hill
      /s/ RAY L. HUNT*                                           April 15, 2002
----------------------------- Director
         Ray L. Hunt
   /s/ JOHN T. KELLEY III*
----------------------------- Director                           April 15, 2002
     John T. Kelley III
      /s/ JAY O. LIGHT*
----------------------------- Director                           April 15, 2002
        Jay O. Light
   /s/ PETER S. WILLMOTT*
----------------------------- Director                           April 15, 2002
      Peter S. Willmott



                             /S/ JEFFREY A. KLOPF


 *By: ________________________________________________________________________


                                Jeffrey A. Klopf,


                                 Attorney-in-fact


                                      223

<PAGE>

                               INDEX TO EXHIBITS

   Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and Exchange
Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.

<TABLE>
<CAPTION>
Exhibit
  No.                                           Document Description
-------                                         --------------------
<C>     <S>
 2.1    Agreement and Plan of Merger dated as of December 14, 2001, by and among Security Capital,
        General Electric Capital Corporation and EB Acquisition Corp (incorporated by reference to Exhibit
        99.1 to Security Capital's Current Report on Form 8-K filed on December 17, 2001).
 2.2    Transaction Agreement, dated as of September 26, 2000, among Security Capital Group Incorporated,
        SC Realty Incorporated and Security Capital U.S. Realty (incorporated by reference to Exhibit 10.1 to
        Security Capital's Current Report on Form 8-K filed on September 26, 2000).
 2.3    Purchase and Sale Agreement dated as of July 19, 2000 between Archstone Communities Trust and
        Security Capital (incorporated by reference to Exhibit 2 to Security Capital's Current Report on Form
        8-K, dated July 24, 2000).
 2.4    Purchase and Sale Agreement dated as of February 15, 2001 between Archstone Communities Trust
        and Security Capital (incorporated by reference to Exhibit 99.1 to Archstone's Current Report on
        Form 8-K, dated February 15, 2001).
 2.5    Underwriting Agreement dated as of February 22, 2001 among Security Capital, Archstone
        Communities Trust and underwriters named therein (incorporated by reference to Exhibit 1 to
        Security Capital's Schedule 13D, Amendment No.32, for Archstone, dated February 28, 2001).
 2.6    Agreement and Plan of Mergers, dated as of November 20, 2001, by and among BRE/Homestead
        Village L.L.C., Homestead Village Incorporated, Security Capital Lodging Incorporated and certain
        direct corporate subsidiaries of Homestead Village Incorporated (incorporated by reference to Exhibit
        2.1 for Security Capital's Current Report on Form 8-K filed November 30, 2001).
 2.7    Term Note, dated as of November 20, 2001, from BRE/HV Holdings L.L.C. to Security Capital
        Lodging Incorporated (incorporated by reference to Exhibit 10.1 for Security Capital's Current Report
        on Form 8-K filed November 30, 2001).
 2.8    Intercreditor Agreement, dated as of November 20, 2001, between Bear, Stearns Funding, Inc. and
        Security Capital Lodging Incorporated (incorporated by reference to Exhibit 10.2 for Security
        Capital's Current Report on Form 8-K filed November 30, 2001).
 2.9    Pledge Agreement, dated as of November 20, 2001, between Blackstone Hospitality Acquisitions III
        L.L.C. and Security Capital Lodging Incorporated (incorporated by reference to Exhibit 10.3 for
        Security Capital's Current Report on Form 8-K filed November 30, 2001).
 2.10   Pledge Agreement, dated as of November 20, 2001, between BRE/HV Holdings L.L.C. and Security
        Capital Lodging Incorporated (incorporated by reference to Exhibit 10.4 for Security Capital's
        Current Report on Form 8-K filed November 30, 2001).
 2.11   Purchase and Sale Agreement by and between Security Capital and CarrAmerica Realty Corporation,
        dated as of November 15, 2001 (incorporated by reference to Exhibit 17 to Security Capital's
        Schedule 13D, Amendment No. 18, for CarrAmerica dated November 16, 2001).
 2.12   Letter from Security Capital to CarrAmerica Realty Corporation, dated as of November 15, 2001
        (incorporated by reference to Exhibit 18 to Security Capital's Schedule 13D, Amendment No.18, for
        CarrAmerica dated November 16, 2001).
</TABLE>

                                      224

<PAGE>


<TABLE>
<CAPTION>
Exhibit
  No.                                            Document Description
-------                                          --------------------
<C>     <S>
 2.13   Underwriting Agreement, dated as of November 16, 2001, by and among CarrAmerica, Security
        Capital and underwriters name therein. (Incorporated by reference to the Current Report on Form 8-K,
        filed December 17, 2001 by CarrAmerica).
 2.14   Termination Agreement dated as of December 13, 2001, by and among Security Capital and
        CarrAmerica Realty Corporation (incorporated by reference to Exhibit 2.3 to Security Capital's
        Current Report on Form 8-K filed on December 26, 2001).
 2.15   Letter Agreement, dated September 7, 2001, between Security Capital and Storage USA, Inc.
        (incorporated by reference to Exhibit 14 to Schedule 13D, Amendment No. 16, filed by Security
        Capital for Storage USA, Inc. on October 9, 2001).
 2.16   Letter Agreement, dated October 31, 2001, among Storage USA, Inc., SUSA Partnership, L.P.,
        Storage USA Trust and Security Capital (incorporated by reference to Exhibit 16 to Schedule 13D,
        Amendment No. 17, filed by Security Capital for Storage USA, Inc. on October 31, 2001).
 2.17   Purchase and Sale Agreement, dated as of December 5, 2001, by and among Storage USA, Inc.,
        Storage USA Trust, SUSA Partnership, L.P. and Security Capital (incorporated by reference to
        Exhibit 22 to Schedule 13D, Amendment No. 21, filed by Security Capital for Storage USA, Inc. on
        December 6, 2001).
 2.18   Letter Agreement, dated January 17, 2002, among Storage USA, Inc., Storage USA Trust, SUSA
        Partnership, L.P. and Security Capital (incorporated by reference to Exhibit 27 to Schedule 13D,
        Amendment No. 23, filed by Security Capital for Storage USA, Inc. on January 17, 2002).
 3.1    Security Capital Articles of Amendment and Restatement (incorporated by reference to Exhibit to
        Security Capital's Registration Statement on Form S-11 (File No.333-26037))
 3.2    Security Capital Articles Supplementary - Series B Cumulative Convertible Redeemable Voting
        Preferred Stock (incorporated by reference to Exhibit 3 to Security Capital's Quarterly Report on
        Form 10-Q for the quarterly period ended March 31, 1998)
 3.3*   Security Capital Articles Supplementary - 4,595,988 Shares of Class B Common Stock, filed with the
        Maryland State Department of Assessments and Taxation on October 3, 2000.
 3.4    Security Capital Amended and Restated Bylaws (incorporated by reference to Exhibit 4.2 to Security
        Capital's Registration Statement on Form S-11 (File No.333-26037))
 3.5    Bylaw Amendments (incorporated by reference to Exhibit 3.1 to Security Capital's Current Report on
        Form 8-K, dated December 10, 1998)
 3.6    Bylaw Amendments (incorporated by reference to Exhibit 3.1 to Security Capital's Current Report on
        Form 8-K, dated December 9, 1999)
 4.1    Rights Agreement, dated as of April 21, 1997, between Security Capital and The First National Bank
        of Boston, as rights Agent, including form of Rights Certificate (incorporated by reference to Exhibit
        4.1 to Security Capital's Quarterly Report on Form 10-Q for the quarterly period ended September 30,
        1997)
 4.2*   First Amendment to Rights Agreement, dated as of October 31, 2001, by and among Security Capital
        and The First National Bank of Boston and EquiServe Trust Company, N.A.
 4.3*   Amendment No. 2 to Rights Agreement, dated as of December 14, 2001, between Security Capital
        and EquiServe Trust Company, N.A.
 4.4    Form of stock certificate for shares of Class A common stock of Security Capital (incorporated by
        reference to Exhibit 4.4 to Security Capital's Registration Statement on Form S-11 (File No.333-
        26037))
</TABLE>


                                      225

<PAGE>

<TABLE>
<CAPTION>
Exhibit
  No.                                            Document Description
-------                                          --------------------
<C>     <S>
 4.5    Form of stock certificate for shares of Class B common stock of Security Capital (incorporated by
        reference to Exhibit 4.5 to Security Capital's Registration Statement on Form S-11 (File No. 333--
         26037))
 4.6    Form of 6.50% Convertible Subordinated Debentures due March 29, 2016 (incorporated by reference
        to Exhibit 4.7 to Security Capital's Registration Statement on Form S-11 (File No.333--26037))
 4.7    Exchange Agreement and Registration Rights Agreement, dated May 7, 1998, between Security
        Capital and Commerzbank Aktiengesellschaft, Grand Cayman Branch (incorporated by reference to
        Exhibits 4.1 and 4.2 to Security Capital's Quarterly Report on Form 10-Q for the quarterly period
        ended March 31, 1998)
 4.8    Indenture, dated June 18, 1998, from Security Capital to State Street Bank and Trust Company, as
        trustee (incorporated by reference to Exhibit 4.1 to Security Capital's Registration Statement on Form
        S-4 (File No.333-61401))
 4.9    Form of 6.95% Exchange Notes due 2005 (incorporated by reference to Exhibit 4.2 to Security
        Capital's Registration Statement on Form S-4 (File No.333-61401))
 4.10   Form of 7.15% Exchange Notes due 2007 (incorporated by reference to Exhibit 4.3 to Security
        Capital's Registration Statement on Form S-4 (File No.333-61401))
 4.11   Form of 7.70% Exchange Notes due 2028 (incorporated by reference to Exhibit 4.4 to Security
        Capital's Registration Statement on Form S-4 (File No.333-61401))
 4.12   Indenture, dated as of November 16, 1998, from Security Capital to State Street Bank and Trust
        Company, as trustee (incorporated by reference to Exhibit 4.10 to Security Capital's Annual Report
        on Form 10-K for the year ended December 31, 1998)
 4.13   Resolution of the Board of Directors of Security Capital adopted November 16, 1998, pursuant to
        Section 301 of the Indenture, dated as of November 16, 1998, from Security Capital to State Street
        Bank and Trust Company, as trustee (incorporated by reference to Exhibit 4.11 to Security Capital's
        Annual Report on Form 10-K for the year ended December 31, 1998)
 4.14   Form of Fixed Rate Note under the Indenture, dated as of November 16, 1998, from Security Capital
        to State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 4.12 to
        Security Capital's Annual Report on Form 10-K for the year ended December 31, 1998)
 4.15   Form of Floating Rate Note under the Indenture, dated as of November 16, 1998, from Security
        Capital to State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 4.13
        to Security Capital's Annual Report on Form 10-K for the year ended December 31, 1998)
 4.16   Amended and Restated Credit Agreement, dated as of December 8, 2000 by and between Security
        Capital and Bank of America, N.A., The Chase Manhattan Bank, Wells Fargo Bank, National
        Association and Chase Securities Inc. (incorporated by reference to Exhibit 10.1 to Security Capital's
        Current Report on Form 8-K, dated January 16, 2001).
 4.17   Amended and Restated Credit Agreement, dated as of June 12, 2001, by and between Security Capital
        and Bank of America, N.A., the Chase Manhattan Bank, Wells Fargo Bank, National Association and
        Chase Securities, Inc. (incorporated by reference to Exhibit 4.1 to Security Capital's Quarterly Report
        on Form 10-Q for the quarterly period ended June 30, 2001).
 4.18   Amended and Restated Credit Agreement, dated as of August 31, 2001, by and between Security
        Capital and Bank of America, N.A., the Chase Manhattan Bank, Wells Fargo Bank, National
        Association and Chase Securities, Inc. (incorporated by reference to Exhibit 4.1 to Security Capital's
        Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001).
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Exhibit
  No.                                            Document Description
-------                                          --------------------
<C>     <S>
 4.19   Term Loan Agreement, dated as of December 8, 2000 by and between Security Capital and Bank of
        America, N.A., The Chase Manhattan Bank, Wells Fargo Bank, National Association and Chase
        Securities Inc. (incorporated by reference to Exhibit 10.2 to Security Capital's Current Report on
        Form 8-K, dated January 16, 2001).
 4.20   Distribution Agreement, dated December 20, 2000, among Security Capital, J.P. Morgan Securities,
        Inc., Banc of America Securities LLC, Chase Securities, Deutsche Bank Securities Inc., First Union
        Securities, Inc., and Goldman, Sachs & Co., (incorporated by reference to Exhibit 1 to Security
        Capital's Current Report on Form 8-K, dated January 14, 2001).
 4.21   Resolution of the pricing committee of the Board of Directors of Security Capital dated December 1,
        2000 pursuant to Section 301 of the Indenture, dated November 16, 1998, from Security Capital to
        State Street Bank and Trust Company, as Trustee, establishing the Medium-Term Note, Series B
        Program (incorporated by reference to Exhibit 4.1 to Security Capital's Current Report on Form 8-K,
        dated January 8, 2001).
 4.22   Form of Medium-Term Note, Series B (Fixed Rate Note) due nine months or more from date of issue
        (incorporated by reference to Exhibit 4.2 to Security Capital's Current Report on Form 8-K, dated
        January 8, 2001).
 4.23   Form of Medium-Term Note, Series B (Floating Rate Note) due nine months or more from date of
        issue (incorporated by reference to Exhibit 4.3 to Security Capital's Current Report on Form 8-K,
        dated January 8, 2001).
 10.1   Third Amended and Restated Investor Agreement, dated September 9, 1997, between ProLogis and
        Security Capital (incorporated by reference to Exhibit 10.3 to Security Capital's Quarterly Report on
        Form 10-Q for the quarterly period ended September 30, 1997)
 10.2   Amendment Number 1, dated as of December 10, 2001, to the Third Amended and Restated Investor
        Agreement, dated as of September 9, 1997, by and between ProLogis and Security Capital
        (incorporated by reference to Exhibit 2 to Security Capital's Schedule 13D, Amendment No. 12, for
        ProLogis dated December 10, 2001).
 10.3   Letter Agreement, dated July 28, 2000, among Security Capital, CarrAmerica Realty Corporation and
        Carr Realty L.P. (incorporated by reference to Exhibit 14.2 to Schedule 13D, Amendment No.14, of
        Security Capital U.S. Realty related to CarrAmerica Realty Corporation dated September 27, 2000).
 10.4   Joint Filing Agreement, dated as of January 18, 2001, between Security Capital, SC Realty
        Incorporated and Security Capital Holdings S.A. (incorporated by reference to Exhibit 16 to Schedule
        13D, Amendment No. 15, filed by Security Capital for CarrAmerica Realty Corporation on January
        19, 2001).
 10.5   Letter Agreement, dated June 14, 2000, between Security Capital and Regency Realty Corporation
        (incorporated by reference to Exhibit 10.2 to Schedule 13D, Amendment No.10, of Security Capital
        U.S. Realty related to Regency Realty Corporation dated September 27, 2000).
 10.6   Joint Filing Agreement, dated as of January 18, 2001, between Security Capital, SC Realty
        Incorporated and Security Capital Holdings S.A., Arden Square Holdings S.a.r.l., Blossom Valley
        Holdings S.a.r.l., Coopers Street Plaza Holdings S.a.r.l., Dallas Holdings S.a.r.l., El Camino Holdings
        S.a.r.l. and Friars Mission Holdings S.a.r.l. (incorporated by reference to Exhibit 12 to Schedule 13D,
        Amendment No. 11, filed by Security Capital for Regency Centers Corporation on January 19, 2001).
 10.7   Letter Agreement, dated July 7, 2000, between Security Capital and Storage USA, Inc., (incorporated
        by reference to Exhibit 11 to the Schedule 13D, Amendment No. 11, of Security Capital U.S. Realty
        related to Storage USA, Inc., dated September 27, 2000).
</TABLE>

                                      227

<PAGE>

<TABLE>
<CAPTION>
Exhibit
  No.                                           Document Description
-------                                         --------------------
<C>     <S>
 10.8   Administrative Services Agreement, dated September 9, 1997, between Archstone and Security
        Capital (incorporated by reference to Exhibit 10.5 to Security Capital's Quarterly Report on Form 10-
        Q for the quarterly period ended September 30, 1997)
 10.9   Administrative Services Agreement, dated September 9, 1997, between ProLogis and Security Capital
        (incorporated by reference to Exhibit 10.6 to Security Capital's Quarterly Report on Form 10-Q for
        the quarterly period ended September 30, 1997)
 10.10  Form of Indemnification Agreement entered into between Security Capital and each of its directors
        and officers (incorporated by reference to Exhibit 10.26 to Security Capital's Registration Statement
        on Form S-11 (File No.333-26037))
 10.11  Security Capital Group Incorporated 1998 Long-Term Incentive Plan (incorporated by reference to
        Exhibit 10.11 on Security Capital's Annual Report on Form 10-K for the year ended December 31,
        1998)
 10.12  1996 Security Capital Outside Directors Plan (incorporated by reference to Exhibit 10.27 to Security
        Capital's Registration Statement on Form S-11 (File No.333-26037))
 10.13  1996 Security Capital Outside Directors Plan, Amendment dated as of March 29, 2001 (incorporated
        by reference to Security Capital's Form S-8 filed July 24, 2001 (File No. 333-38521)).
 10.14  Security Capital 1995 Option Plan (as amended and restated effective as of December 3, 1996)
        (incorporated by reference to Exhibit 10.28 to Security Capital's Registration Statement on Form S-11
        (File No.333-26037))
 10.15  Security Capital Deferred Fee Plan for Directors (incorporated by reference to Exhibit 10.29 to Form
        S-11 to Security Capital's Registration Statement on Form S-11 (File No.333-26037))
 10.16  Security Capital Deferred Fee Plan for Directors, Amendment dated as of March 29, 2001
        (incorporated by reference to Security Capital's Form S-8 filed July 24, 2001 (File No. 333-65704)).
 10.17  Security Capital 1991 Option Plan A (as amended and restated effective as of December 3, 1996)
        (incorporated by reference to Exhibit 10.30 to Security Capital's Registration Statement on Form S-11
        (File No.333-26037))
 10.18  Security Capital 1991 Option Plan B (as amended and restated effective as of December 3, 1996)
        (incorporated by reference to Exhibit 10.31 to Security Capital's Registration Statement on Form S-11
        (File No.333-26037))
 10.19  Security Capital 1992 Option Plan A (as amended and restated effective as of December 3, 1996)
        (incorporated by reference to Exhibit 10.32 to Security Capital's Registration Statement on Form S-11
        (File No.333-26037))
 10.20  Security Capital 1992 Option Plan B (as amended and restated effective as of December 3, 1996)
        (incorporated by reference to Exhibit 10.33 to Security Capital's Registration Statement on Form S-11
        (File No.333-26037))
 10.21  Security Capital Realty Investors 1991 Option Plan A (as amended and restated effective December 3,
        1996) (incorporated by reference to Exhibit 10.34 to Security Capital's Registration Statement on
        Form S-11 (File No.333-26037))
 10.22  Security Capital Realty Investors 1991 Option Plan B (as amended and restated effective December 3,
        1996) (incorporated by reference to Exhibit 10.35 to Security Capital's Registration Statement on
        Form S-11 (File No.333-26037))
</TABLE>

                                      228

<PAGE>


<TABLE>
<CAPTION>
Exhibit
  No.                                           Document Description
-------                                         --------------------
<C>     <S>
10.23   Form of Secured Promissory Note from certain executive officers to Security Capital (incorporated
        by reference to Exhibit 10.36 to Security Capital's Registration Statement on Form S-11 (File
        No.333-26037))

10.24   Purchase and Sale Agreement, dated as of August 12, 1999, between Security Capital and Strategic
        Hotel Capital Incorporated (incorporated by reference to Exhibit 10.22 to Security Capital's Current
        Report on Form 8-K, dated September 10, 1999)

10.25   Agreement and Plan of Merger by and among Security Capital, HSD Acquisition Corporation and
        Homestead Village Incorporated dated as of May 2, 2000 (incorporated by reference to Schedule TO
        of Security Capital, dated May 9, 2000).

10.26*  Change in Control Agreement, dated as of November 29, 2001, between Security Capital Group
        Incorporated and Anthony R. Manno, Jr.

10.27*  Employment Arrangement dated as of December 14, 2001, between Anthony R. Manno, Jr. and
        General Electric Capital Corporation

10.28*  Letter Agreement dated as of March 22, 2002, between William D. Sanders, Security Capital Group
        Incorporated and General Electric Capital Corporation.

10.29*  Restrictive Covenants Agreement dated as of March 22, 2002, between William D. Sanders, Security
        Capital Group Incorporated and General Electric Capital Corporation.

10.30*  Letter Agreement dated as of March 22, 2002, between C. Ronald Blankenship, Security Capital
        Group Incorporated and General Electric Capital Corporation.

10.31*  Restrictive Covenants Agreement dated as of March 22, 2002, between C. Ronald Blankenship,
        Security Capital Group Incorporated and General Electric Capital Corporation.

10.32*  Letter Agreement dated as of March 22, 2002, between Thomas G. Wattles, Security Capital Group
        Incorporated and General Electric Capital Corporation.

10.33*  Restrictive Covenants Agreement dated as of March 22, 2002, between Thomas G. Wattles, Security
        Capital Group Incorporated and General Electric Capital Corporation.

10.34*  Letter Agreement dated as of March 22, 2002, between Constance B. Moore, Security Capital Group
        Incorporated and General Electric Capital Corporation.

10.35*  Restrictive Covenants Agreement dated as of March 22, 2002, between Constance B. Moore,
        Security Capital Group Incorporated and General Electric Capital Corporation.

10.36   Form of Support Agreement, dated as of December 14, 2001, by and among General Electric Capital
        Corporation, EB Acquisition Corp and William D. Sanders and Ray L. Hunt (incorporated by
        reference to Exhibit 2 to Schedule 13D filed by General Electric Capital Corporation for Security
        Capital on December 26, 2001).

10.37*  Form of Share Purchase Agreement under Security Capital 1998 Long-Term Incentive Plan, dated as
        of January 8, 2001, by and between Participant and Security Capital.

10.38*  Form of Matching RSU Agreement under Security Capital 1998 Long-Term Incentive Plan, dated as
        of January 8, 2001, by and between Participant and Security Capital.

10.39*  Form of Share Purchase Agreement under Security Capital 1998 Long-Term Incentive Plan, dated as
        of January 14, 2002, by and between Participant and Security Capital.
</TABLE>


                                      229

<PAGE>


<TABLE>
<CAPTION>
Exhibit
  No.                                       Document Description
-------                                     --------------------
<C>     <S>
10.40*  Form of Matching RSU Agreement under Security Capital 1998 Long-Term Incentive Plan, dated as
        of January 14, 2002, by and between Participant and Security Capital.

12.1*   Computation of Ratio of Earnings to Fixed Charges

12.2*   Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividends

*21     Subsidiaries of Security Capital

23.1    Consent of Arthur Andersen LLP

23.2    Consent of KPMG LLP

23.3    Consent of KPMG LLP

23.4    Opinion of KPMG LLP

23.5    Consent of KPMG LLP

23.6    Consent of PricewaterhouseCoopers S.a.r.l.

23.7    Consent of PricewaterhouseCoopers

23.8    Opinion of PricewaterhouseCoopers

23.9    Consent of PricewaterhouseCoopers S.a.r.l.

23.10   Opinion of PricewaterhouseCoopers S.a.r.l.

23.11   Consent of PricewaterhouseCoopers

23.12   Opinion of PricewaterhouseCoopers

23.13   Consent of PricewaterhouseCoopers S.a.r.l.

23.14   Opinion of PricewaterhouseCoopers S.a.r.l.

24      Power of Attorney (included at page 222)

99.1    Letter to Securities and Exchange Commission re: Arthur Andersen audit assurances
</TABLE>

--------

 * Previously filed in Security Capital's 2001 Form 10-K, filed April 1, 2002.


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