Exhibit 99.1
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Prologis Reports Second Quarter Results
 
Prologis, Inc. Announces Second Quarter 2011 Earnings Results
- Integration Plan on Track -
- Enhanced Platform Delivers Strong Operating Results -
- Company Confirms Second Half Guidance, With a Bias to Higher End of Range -

SAN FRANCISCO, July [28], 2011 — Prologis, Inc. (NYSE: PLD), the leading global owner, operator and developer of industrial real estate, today reported results for the second quarter of 2011.
On June 3, 2011, AMB Property Corporation and ProLogis completed their merger and became Prologis, Inc. Under the structure of the merger, AMB Property Corporation was the legal acquirer and ProLogis was the accounting acquirer. Therefore financial results for the second quarter reflect two months of stand-alone legacy ProLogis and approximately one month of results of the combined company. These quarterly results also reflect the consolidation, of approximately one month, of ProLogis European Properties (Euronext/Amsterdam: PEPR, hereafter “PEPR”) due to the acquisition of a controlling interest by the company. All prior periods financial comparisons reflect legacy ProLogis results. The operating metric and capital deployment comparisons for 2011 have been generally conformed to legacy ProLogis definitions and represent the combined company.
Core funds from operations (“Core FFO”) per fully diluted share amounted to $0.35 for the second quarter of 2011, compared to $0.28 for legacy ProLogis for the same quarter in 2010. Funds from operations, as defined by Prologis (“FFO”) per fully diluted share was $0.03 for the second quarter of 2011, compared to $0.32 for legacy ProLogis, for the same period in 2010. The differential between Core FFO and FFO in the second quarter of 2011 relates to impairment charges of $0.34 per share and merger costs of $0.33 per share, offset by net gains on acquisitions and dispositions of real estate of $0.34 per share.
Net loss per share for the second quarter of 2011 was $(0.49), compared to a loss of $(0.11) for the same quarter in 2010. The year-over-year change primarily relates to the impairment charges and merger costs, again offset by net gains on acquisitions and dispositions of real estate.
“Our global footprint and access to capital provide us with the ability to seize opportunities around the world as the economic recovery continues,” said Hamid R. Moghadam, chairman and co-chief executive officer. “Operating performance was strong, demonstrated by significant improvements in same-store net operating income, occupancy and rent change on rollover. We believe our company’s positive performance in the second quarter is indicative of a trend that will continue through the rest of 2011 and into 2012.”
Operating Portfolio Metrics
Prologis’ operating portfolio was 90.7 percent occupied at the end of the second quarter, up more than 80 basis points from 89.9 percent occupied at March 31, 2011.Same-store net operating income increased by 3.1 percent for the second quarter, compared to a 0.7 percent increase in the first quarter of this year. Rental rates on leases signed in the same-store pool decreased (6.1) percent for the second quarter, a significant improvement over the (8.9) percent decline in the first quarter.
Leasing Activity
During the second quarter, the company leased a total of 33.5 million square feet (3.1 million square meters) in its operating portfolio and 1.4 million square feet (126,348 square meters) in its development portfolio. Year-to-date, Prologis has leased approximately 68 million square feet (6.3 million square meters) in its operating and development portfolios. The company also achieved a 76.7 percent tenant retention rate for the quarter, signing 22 million square feet (2 million square meters) of renewals.
Capital Markets Activity
During the second quarter, Prologis:
    Completed the issuance and sale of 34.5 million shares of its common stock in a public offering at a price of $33.50 per share, generating approximately $1.1 billion in net proceeds. The follow-on offering is part of the company’s strategic priority to further strengthen its balance sheet. Prologis utilized the proceeds from the equity offer to fully repay debt under the bridge facility used to fund the company’s tender offer for PEPR. The remainder of the proceeds was used to reduce debt under the Prologis global senior credit facility and for general corporate purposes.
 
    Completed an exchange offer for $4.6 billion of legacy ProLogis senior unsecured notes and convertible debt, with approximately $4.4 billion, or 95 percent, of the aggregate principal amount of legacy ProLogis notes having been validly tendered for exchange. The legacy ProLogis notes were exchanged for notes issued by Prologis, Inc.’s operating partnership, Prologis, L.P. and guaranteed by Prologis, Inc.
 
    Entered into a new $1.75 billion global senior credit agreement with a syndicate of 20 banks. The pricing on the new facility represents a reduction of 180 basis points from the pricing of the legacy ProLogis global credit facility, which was terminated at the closing of the merger.


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    Amended a JPY 36.5 billion ($456 million) revolving credit agreement with a syndicate of eight banks. The revised pricing on this facility represents a reduction of 70 basis points from the yen revolver pricing in place immediately prior to the amendment of the agreement.
As of June 30, 2011, Prologis’ liquidity exceeded $1.5 billion, consisting of $1.3 billion of availability on its lines of credit and $261 million in unrestricted cash and cash equivalents.
Private Capital Activity
Year-to-date through June 30, 2011, Prologis raised $1.3 billion of new third-party equity in its Private Capital business, with $207 million of that amount raised in the second quarter.
As previously announced, the company completed a mandatory tender offer for PEPR, a Luxembourg closed-ended investment fund. As of June 30, 2011 Prologis owned approximately 92.4 percent of the outstanding units of PEPR.
Also as previously announced, Prologis acquired its partner’s 50 percent interest in its AMB-SGP joint venture during the second quarter.
Capital Deployment Activity
Year-to-date through June 30, 2011, the combined company deployed $796 million, $368 million of which was deployed in the second quarter. Activity in the second quarter included:
  $317 million of new development starts in seven countries. Nine of the 13 projects are build-to-suit.
 
  $50 million in acquisitions comprising 4 properties totaling approximately 910,000 square feet (85,000 square meters).
Also during the quarter, in partnership with Bank of America Merrill Lynch and NRG Energy, Prologis announced an offer of a conditional commitment from the U.S. Department of Energy’s Loan Programs Office to help finance a 733-megawatt distributed rooftop solar power generation project, the largest of its kind in the world. The government loan guarantee supporting $1.4 billion of debt facilitates a total project size of about $2.6 billion, which is being financed primarily by the private sector over the next four years. Prologis will lease its rooftops and will also act as developer, construction manager and program sponsor, in addition to making a modest equity investment.
During the second quarter, the combined company completed $258 million in asset dispositions, primarily consisting of $115 million related to the closing of the remaining Catellus assets and $144 million of industrial land building sales.
Common Stock Dividend Update
Subject to approval from its board of directors, Prologis expects to declare its third-quarter dividend in September, payable in October 2011.
Integration Update
The company has identified more than $90 million of merger cost synergies including gross G&A savings, reduced facility fees on its global line of credit and lower amortization of non real estate assets. Since closing the merger, Prologis has already realized approximately 60 percent of these merger synergies and expects to realize the total amount on a run rate basis by year-end 2012.
“Our overall progress on the integration is on target and in many areas is ahead of plan,” said Walter C. Rakowich co-chief executive officer. “When we put the companies together, we gained an unparalleled platform of distribution facilities throughout the world. We are able to serve customers in ways few other companies can, and we can accomplish this at an overall lower cost of capital. The organization is already beginning to benefit from combining the two businesses and, importantly, our customers are benefiting as well. The merger has primed Prologis for success globally.”
Guidance for the Remainder of 2011
The company expects to achieve its previously provided Core FFO guidance of $0.78 to $0.82 per share for the second half 2011, with an expectation in the higher end of the range. The company also expects to recognize a net loss of $0.15-$0.18 per share for the second half of 2011. In reconciling from net earnings (loss) to Core FFO, Prologis adds back real estate depreciation, amortization expense and merger costs estimated at $0.93 to $1.02 per share. Net income guidance excludes any potential gains (losses) recognized from property dispositions due to the variability of timing, composition of properties and estimate of proceeds.
Webcast and Conference Call Information
The company will host a webcast/conference call to discuss quarterly results, current market conditions and future outlook on Thursday, July 28, 2011, at 10:00 a.m. Eastern Time. Interested parties are encouraged to access the live webcast by clicking the microphone icon located near the top of the opening page at: http://ir.prologis.com. Interested parties also can participate via conference call by dialing (877) 256-7020 domestically or (706) 643-7823 internationally with reservation code 83570494.
About Prologis
Prologis, Inc. is the leading owner, operator and developer of industrial real estate, focused on global and regional markets across the Americas, Europe and Asia. As of


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June 30 2011, Prologis owned or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects expected to total approximately 600 million square feet (55.7 million square meters) in 22 countries. The company leases modern distribution facilities to more than 4,500 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises.
Some of the information included in this press release contains forward-looking statements which are made pursuant to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future events. The events or circumstances reflected in forward-looking statements might not occur. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them. We caution you not to place undue reliance on forward-looking statements, which reflect our analysis only and speak only as of the date of this report or the dates indicated in the statements. We assume no obligation to update or supplement forward-looking statements. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: changes in general economic conditions in California, the U.S. or globally (including financial market fluctuations), global trade or in the real estate sector (including risks relating to decreasing real estate valuations and impairment charges); risks associated with using debt to fund the company’s business activities, including refinancing and interest rate risks; the company’s failure to obtain, renew, or extend necessary financing or access the debt or equity markets; the company’s failure to maintain its current credit agency ratings or comply with its debt covenants; risks related to the merger transaction with ProLogis, including litigation related to the merger, and the risk that the merger may not achieve its intended results; risks related to the company’s obligations in the event of certain defaults under co-investment venture and other debt; defaults on or non-renewal of leases by customers, lease renewals at lower than expected rent or failure to lease properties at all or on favorable rents and terms; difficulties in identifying properties, portfolios of properties, or interests in real-estate related entities or platforms to acquire and in effecting acquisitions on advantageous terms and the failure of acquisitions to perform as the company expects; unknown liabilities acquired in connection with the acquired properties, portfolios of properties, or interests in real-estate related entities; the company’s failure to successfully integrate acquired properties and operations; risks and uncertainties affecting property development, redevelopment and value-added conversion (including construction delays, cost overruns, the company’s inability to obtain necessary permits and financing, the company’s inability to lease properties at all or at favorable rents and terms, and public opposition to these activities); the company’s failure to set up additional funds, attract additional investment in existing funds or to contribute properties to its co-investment ventures due to such factors as its inability to acquire, develop, or lease properties that meet the investment criteria of such ventures, or the co-investment ventures’ inability to access debt and equity capital to pay for property contributions or their allocation of available capital to cover other capital requirements; risks and uncertainties relating to the disposition of properties to third parties and the company’s ability to effect such transactions on advantageous terms and to timely reinvest proceeds from any such dispositions; risks of doing business internationally and global expansion, including unfamiliarity with the new markets and currency
risks; risks of changing personnel and roles; losses in excess of the company’s insurance coverage; changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws; increases in real property tax rates; risks associated with the company’s tax structuring; increases in interest rates and operating costs or greater than expected capital expenditures; environmental uncertainties and risks related to natural disasters; and our failure to qualify and maintain our status as a real estate investment trust. Our success also depends upon economic trends generally, various market conditions and fluctuations and those other risk factors discussed under the heading “Risk Factors” and elsewhere in our most recent annual report on Form 10-K for the year ended December 31, 2010 and our other public reports.
Prologis Contacts
     
     
Tracy A. Ward
 
Sara M. Klein
SVP, IR & Corporate Communications
  Manager, Media and Public Relations
Direct +1 415 733 9565
  Direct +1 415 733 9447
Email tward@prologis.com
  Email sklein@prologis.com


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Prologis, Inc. is the leading owner, operator and developer of industrial real estate, focused on global and regional markets across the Americas, Europe and Asia. As of June 30 2011, Prologis owned or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects expected to total approximately 600 million square feet (55.7 million square meters) in 22 countries. The company leases modern distribution facilities to more than 4,500 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises.
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AMERICAS       EUROPE       ASIA       TOTAL (A)
Operating Portfolio (msf)
  399   Operating Portfolio (msf)   144   Operating Portfolio (msf)   24   567
Leased percentage %
  91.5  
Leased percentage %
  90.2  
Leased percentage %
  94.7   91.3
Occupied percentage %
  91.0  
Occupied percentage %
  89.3  
Occupied percentage %
  93.4   90.7
Development Portfolio (msf)
  3.1   Development Portfolio (msf)   3.3   Development Portfolio (msf)   6.2   12.6
Total expected investment (millions)
  $ 211.9  
Total expected investment (millions)
  $ 268.9  
Total expected investment (millions)
  $ 812.4   $ 1,293.2
Gross book value (millions)
  $ 117.5  
Gross book value (millions)
  $ 139.5  
Gross book value (millions)
  $ 444.9   $ 701.9
Land Inventory (acres)
  7,330   Land Inventory (acres)   3,816   Land Inventory (acres)   93   11,239
Gross book value (millions)
  $ 1,053.4  
Gross book value (millions)
  $ 821.0  
Gross book value (millions)
  $ 206.6   $ 2,081.0
 
(A)   Includes both consolidated and unconsolidated assets under management. Does not include approximately 20 million square feet of mixed-use properties, properties in which Prologis has an ownership interest but doesn’t manage, and properties managed by Prologis on behalf of other third parties.
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(in thousands, except per share amounts)   Three Months Ended June 30,     Six Months Ended June 30,  
    2011 (A)     2010 (A)     2011 (A)     2010 (A)  
Revenues
  $ 335,901     $ 219,146     $ 574,808     $ 436,514  
Net loss attributable to common shares
  $ (151,471)     $ (23,150)     $ (198,087)     $ (114,279)  
FFO, as defined by Prologis
  $ 8,195     $ 67,844     $ 70,341     $ 74,961  
Core FFO
  $ 109,662     $ 60,334     $ 184,069     $ 112,671  
Core EBITDA, as adjusted
  $ 352,015     $ 167,622     $ 690,235     $ 330,201  
                 
 
                               
                 
Per common share — diluted:
                               
Net loss attributable to common shares
  $ (0.49)     $ (0.11)     $ (0.70)     $ (0.54)  
FFO, as defined by Prologis
  $ 0.03     $ 0.32     $ 0.25     $ 0.35  
Core FFO
  $ 0.35     $ 0.28     $ 0.65     $ 0.53  
                 
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(A)   We completed the merger with AMB (the “Merger”) on June 3, 2011. The financial results presented throughout this supplemental include ProLogis for the full period and AMB results from the date of the Merger going forward. Results for 2011 include approximately one month of the impact from both the Merger and PEPR acquisition. See the Notes and Definitions for more information.
(B)   Includes legacy AMB and ProLogis for all periods.
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(in thousands)   June 30, 2011     March 31, 2011 (A)     December 31, 2010 (A)  
Assets:
                       
Investments in real estate assets:
                       
Operating portfolio
  $ 22,629,855     $ 10,807,183     $ 10,714,799  
Development portfolio
    632,196       452,813       365,362  
Land
    2,033,725       1,599,966       1,533,611  
Other real estate investments
    452,978       281,546       265,869  
 
                 
 
    25,748,754       13,141,508       12,879,641  
Less accumulated depreciation
    1,764,289       1,656,781       1,595,678  
 
                 
Net investments in properties
    23,984,465       11,484,727       11,283,963  
Investments in and advances to unconsolidated investees
    3,012,144       2,084,696       2,024,661  
Notes receivable backed by real estate
    359,228       358,323       302,144  
Assets held for sale
    171,765       215,714       574,791  
 
                 
Net investments in real estate
    27,527,602       14,143,460       14,185,559  
 
Cash and cash equivalents
    260,893       24,744       37,634  
Restricted cash
    68,390       34,088       27,081  
Accounts receivable and other assets
    1,277,621       733,403       652,393  
 
                 
Total assets
  $ 29,134,506     $ 14,935,695     $ 14,902,667  
 
                 
 
                       
Liabilities and Equity:
                       
Liabilities:
                       
Debt
  $ 12,119,952     $ 6,415,034     $ 6,506,029  
Accounts payable, accrued expenses, and other liabilities
    1,944,309       894,272       876,283  
 
                 
Total liabilities
    14,064,261       7,309,306       7,382,312  
 
                 
 
Equity:
                       
Shareholders’ equity:
                       
Preferred shares
    582,200       350,000       350,000  
Common shares
    4,589       2,550       2,545  
Additional paid-in capital
    16,375,867       9,669,017       9,671,560  
Accumulated other comprehensive income (loss)
    225,364       213,465       (3,160)  
Distributions in excess of net earnings
    (2,842,842)       (2,626,381)       (2,515,722)  
 
                 
Total shareholders’ equity
    14,345,178       7,608,651       7,505,223  
Noncontrolling interests, including limited partnership units
    725,067       17,738       15,132  
 
                 
Total equity
    15,070,245       7,626,389       7,520,355  
 
                 
Total liabilities and equity
  $ 29,134,506     $ 14,935,695     $ 14,902,667  
 
                 
 
(A)   Represents legacy Prologis only.
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(in thousands, except per share amounts)   Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011 (A)     2010     2011 (A)     2010  
Revenues:
                               
Rental income
  $ 294,670     $ 188,205     $ 500,088     $ 375,835  
Private capital revenue
    32,311       28,307       61,481       56,969  
Development management and other income
    8,920       2,634       13,239       3,710  
                 
Total revenues
    335,901       219,146       574,808       436,514  
                 
 
                               
Expenses:
                               
Rental expenses
    81,140       54,089       144,447       110,313  
Private capital expenses
    11,596       9,931       22,148       20,250  
General and administrative
    51,840       38,921       91,023       80,927  
Merger, acquisition and other integration expenses
    103,052             109,040        
Depreciation, amortization and other expenses
    128,666       81,887       216,015       161,295  
                 
Total expenses
    376,294       184,828       582,673       372,785  
                 
 
                               
Operating income (loss)
    (40,393)       34,318       (7,865)       63,729  
 
                               
Other income (expense):
                               
Earnings from unconsolidated investees, net
    11,399       3,304       25,040       11,277  
Interest expense
    (113,059)       (118,920)       (203,621)       (228,899)  
Impairment of other assets
    (103,823)             (103,823)        
Net gains on acquisitions and dispositions of investments in real estate
    102,529       10,959       106,254       22,766  
Foreign currency and derivative gains (losses) and other income (expenses), net
    (4,978)       (8,576)       (6,183)       (5,060)  
Gain (loss) on early extinguishment of debt, net
          975             (46,658)  
                 
Total other income (expense)
    (107,932)       (112,258)       (182,333)       (246,574)  
                 
 
Loss before income taxes
    (148,325)       (77,940)       (190,198)       (182,845)  
Income tax expense (benefit) — current and deferred
    6,429       (40,249)       12,798       (32,047)  
                 
Loss from continuing operations
    (154,754)       (37,691)       (202,996)       (150,798)  
Discontinued operations:
                               
Income attributable to disposed properties and assets held for sale
    2,952       20,122       9,070       40,574  
Net gains on dispositions, net of related impairment charges and taxes
    8,175       979       10,135       9,127  
                 
Total discontinued operations
    11,127       21,101       19,205       49,701  
                 
Consolidated net loss
    (143,627)       (16,590)       (183,791)       (101,097)  
Net earnings attributable to noncontrolling interests
    (202)       (191)       (285)       (444)  
                 
Net loss attributable to controlling interests
    (143,829)       (16,781)       (184,076)       (101,541)  
Less preferred share dividends
    7,642       6,369       14,011       12,738  
                 
Net loss attributable to common shares
  $ (151,471 )   $ (23,150)     $ (198,087 )   $ (114,279 )
                 
Net loss per share attributable to common shares — diluted
  $ (0.49)     $ (0.11)     $ (0.70)     $ (0.54)  
                 
 
(A)   Includes approximately one month of the impact from the Merger and PEPR acquisition.
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(in thousands)   Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011 (A)     2010     2011 (A)     2010  
Revenues:
                               
Rental income
  $ 297,629     $ 230,249     $ 513,001     $ 461,167  
Private capital revenue
    32,311       28,307       61,481       56,969  
Development management and other income
    8,920       2,634       13,239       3,710  
                 
Total revenues
    338,860       261,190       587,721       521,846  
                 
 
                               
Expenses:
                               
Rental expenses
    81,128       65,395       147,815       133,281  
Private capital expenses
    11,596       9,931       22,148       20,250  
General and administrative
    51,840       38,921       91,023       80,927  
Merger, acquisition and other integration expenses
    103,052             109,040        
Impairment of real estate properties
    2,659       367       2,659       367  
Depreciation of corporate assets and other expenses
    8,714       7,755       17,007       15,417  
                 
Total expenses
    258,989       122,369       389,692       250,242  
                 
 
                               
Operating FFO
    79,871       138,821       198,029       271,604  
 
                               
Other income (expense):
                               
FFO from unconsolidated investees
    49,704       44,508       98,399       82,176  
Interest expense
    (113,059)       (118,920)       (203,621)       (228,899)  
Impairment of other assets
    (103,823)             (103,823)        
Net gains on acquisitions and dispositions of investments in real estate
    106,752       10,756       109,320       21,102  
Foreign currency exchange gains (losses) and other expenses, net
    5,309       (1,138)       2,469       (831)  
Gain (loss) on early extinguishment of debt, net
          975             (46,658)  
Current income tax expense
    (6,311)       (598)       (13,732)       (10,351)  
                 
Total other income (expense)
    (61,428)       (64,417)       (110,988)       (183,461)  
                 
 
                               
Less preferred share dividends
    7,642       6,369       14,011       12,738  
Less FFO attributable to noncontrolling interests
    2,606       191       2,689       444  
                 
FFO, as defined by Prologis
    8,195       67,844       70,341       74,961  
 
Impairment charges
    106,482       367       106,482       367  
Japan disaster expenses
    (1,315)             5,610        
Merger and other integration expenses
    103,052             109,040        
Net gains on acquisitions and dispositions of investments in real estate
    (106,752)       (10,756)       (109,320)       (21,102)  
Income tax expense on dispositions
                1,916       851  
Adjustments made in 2010, not applicable to 2011
          2,879             57,594  
                 
Total of adjustments
    101,467       (7,510)       113,728       37,710  
                 
 
                               
                 
Core FFO
  $ 109,662     $ 60,334     $ 184,069     $ 112,671  
                 
Core FFO per share diluted
  $ 0.35     $ 0.28     $ 0.65     $ 0.53  
                 
 
(A)   Includes approximately one month of the impact from the Merger and PEPR acquisition.
()


 

()
                                 
(in thousands)   Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011 (A)     2010     2011 (A)     2010  
Reconciliation of Net Loss to FFO
                               
 
Net loss attributable to common shares
     $ (151,471)        $ (23,150)        $ (198,087)        $ (114,279)  
Add (deduct) NAREIT defined adjustments:
                               
Real estate related depreciation and amortization
    119,952       73,765       199,008       145,511  
Adjustments related to dispositions
    (6,592)       9,434       (11,169)       10,999  
Reconciling items related to noncontrolling interests
    (2,404)             (2,404)        
Our share of reconciling items from unconsolidated investees
    36,660       35,676       72,337       69,843  
             
Subtotal-NAREIT defined FFO
    (3,855)       95,725       59,685       112,074  
 
                               
Add (deduct) our defined adjustments:
                               
Unrealized foreign currency and derivative losses, net
    10,287       7,438       8,652       4,229  
Deferred income tax expense (benefit)
    118       (40,847)       982       (42,398)  
Our share of reconciling items from unconsolidated investees
    1,645       5,528       1,022       1,056  
             
FFO, as defined by Prologis
     $ 8,195        $ 67,844        $ 70,341        $ 74,961  
 
                               
Adjustments to Core FFO
    101,467       (7,510)       113,728       (37,710)  
                 
Core FFO
     $ 109,662        $ 60,334        $ 184,069        $ 112,671  
             
 
(A)   Adjustment for acquisitions made during the quarter, including the Merger and PEPR acquisition to reflect NOI for the full period.
()

 


 

()
 
Reconciliation of Consolidated Net Loss to Core EBITDA, as adjusted
                                 
(dollars in thousands)   Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Consolidated net loss
     $ (143,627)        $ (16,590)        $ (183,791)     $ (101,097)  
Net gains on acquisitions and dispositions of investments in real estate
    (113,363)       (11,938)       (120,964)       (32,744)  
Depreciation and amortization
    123,079       76,871       205,744       152,012  
Interest expense
    113,059       118,920       203,621       228,899  
Impairment charges
    106,482       367       106,482       367  
Merger and other integration expenses
    103,052             109,040        
Current and deferred income tax expense (benefit)
    6,429       (40,249)       14,714       (31,196)  
Pro forma adjustment (A)
    104,573             263,994        
Income on properties sold during the quarter included in discontinued operations
    (2,952)       (20,122)       (9,070)       (40,574)  
Other non-cash charges
    18,293       13,803       21,270       16,482  
Other adjustments made to derive Core FFO
    (1,315)       2,879       5,610       57,594  
                 
Core EBITDA, as adjusted, prior to our share of unconsolidated investees
    313,710       123,991       616,650       249,743  
Our share of reconciling items from unconsolidated investees:
                               
Depreciation and amortization
    36,660       35,676       72,337       69,843  
Other non-cash charges
    1,645       8,528       1,022       4,631  
Realized losses (gains) on derivative activity
          (523)       226       5,984  
                 
Core EBITDA, as adjusted
     $ 352,015        $ 167,622        $ 690,235        $ 330,201  
                 
 
                               
Prologis debt to core EBITDA:
                               
Consolidated core EBITDA, as adjusted — annualized
     $ 1,408,060        $ 670,488                  
Prologis consolidated debt as of June 30
     $ 12,035,862        $ 8,271,884                  
Prologis consolidated debt to core EBITDA ratio
    8.55 x      12.34 x                 
Debt to core EBITDA, including our share of unconsolidated investees:
                               
Core EBITDA, as adjusted — annualized
     $ 1,408,060        $ 670,488                  
Our share of interest and current income taxes from unconsolidated investees
    123,668       178,392                  
                                     
Core EBITDA, as adjusted-annualized
     $ 1,531,728        $ 848,880                  
                                     
 
                               
Prologis consolidated debt as of June 30
     $ 12,035,862        $ 8,271,884                  
Our share of debt of unconsolidated investees as of June 30
    2,677,319       2,549,423                  
                                     
Total debt, including our share of unconsolidated investees
     $ 14,713,181        $ 10,821,307                  
                                     
Debt to core EBITDA ratio (including our share of unconsolidated investees)
    9.61 x      12.75 x                 
(A) Adjustment for acquisitions made during the quarter, including the Merger and PEPR acquisition to reflect NOI for the full period.
()

 


 

()
(square feet and gross book value in thousands)
                                                 
    # of                                
Markets   bldgs     Square Feet     Leased %     Occupied %     Gross Book Value     % of Total  
Global Markets
                                               
Central
    472       72,584       91.7 %     91.1 %   $ 3,848,864       8.8 %
East
    531       76,550       91.2 %     90.7 %     5,330,444       12.2 %
Northwest
    329       36,122       91.6 %     90.7 %     3,011,456       6.9 %
Southwest
    343       64,569       96.1 %     96.0 %     5,267,348       12.1 %
On Tarmac
    32       2,649       93.6 %     93.6 %     360,152       0.8 %
 
                                   
U.S. total
    1,707       252,474       92.7 %     92.2 %     17,818,264       40.8 %
Canada
    18       6,235       91.3 %     91.3 %     708,625       1.6 %
Latin America
    88       17,746       92.0 %     91.3 %     1,108,593       2.5 %
 
                                   
Americas total
    1,813       276,455       92.6 %     92.1 %     19,635,482       45.0 %
Europe:
                                               
Northern Europe
    150       31,303       90.7 %     90.5 %     2,981,499       3.9 %
Southern Europe
    162       40,764       89.1 %     89.1 %     3,463,519       6.8 %
Central and Eastern Europe
    107       22,811       84.9 %     83.0 %     1,685,614       7.9 %
United Kingdom
    85       20,166       93.4 %     93.4 %     2,457,831       5.6 %
 
                                   
Europe total
    504       115,044       89.5 %     89.0 %     10,588,463       24.2 %
Asia:
                                               
Japan
    37       15,049       94.5 %     93.9 %     3,745,520       8.6 %
China
    18       4,361       95.3 %     95.3 %     223,462       0.5 %
Singapore
    5       942       100.0 %     100.0 %     125,995       0.3 %
 
                                   
Asia total
    60       20,352       94.9 %     94.5 %     4,094,977       9.4 %
 
                                               
 
                                   
Total global markets
    2,377       411,851       91.8 %     91.3 %     34,318,922       78.6 %
 
                                   
Regional and other markets
                                               
Americas
    767       122,647       89.1 %     88.5 %     6,454,698       14.8 %
Europe
    113       28,682       93.2 %     90.5 %     2,312,087       5.3 %
Asia
    7       3,436       93.5 %     87.1 %     586,679       1.3 %
 
                                   
Total regional and other markets
    887       154,765       90.0 %     88.8 %     9,353,464       21.4 %
 
                                   
 
                                               
 
                                   
Total operating portfolio — combined
    3,264       566,616       91.3 %     90.7 %   $ 43,672,386       100.0 %
 
                                   
Consolidated
                                               
Americas
    1,526       207,779       90.1 %     89.6 %   $ 13,507,440       30.9 %
Europe
    343       80,622       87.4 %     86.2 %     6,625,303       15.2 %
Asia
    29       13,914       93.4 %     91.2 %     2,497,112       5.7 %
 
                                   
Total operating portfolio — consolidated
    1,898       302,315       89.5 %     88.7 %     22,629,855       51.8 %
 
                                   
Unconsolidated
                                               
Americas
    1,054       191,323       93.1 %     92.5 %     12,582,740       28.8 %
Europe
    274       63,104       93.8 %     93.3 %     6,275,247       14.4 %
Asia
    38       9,874       96.5 %     96.5 %     2,184,544       5.0 %
 
                                   
Total operating portfolio — unconsolidated
    1,366       264,301       93.4 %     92.9 %     21,042,531       48.2 %
 
                                   
 
                                               
 
                                   
Total operating portfolio — combined
    3,264       566,616       91.3 %     90.7 %   $ 43,672,386       100.0 %
 
                                   
()

 


 

(GRAPHIC)
(dollars and square feet in thousands)
Period Ending Occupancy by Region (A)
(GRAPHIC)

                                 
Leasing Activity   (A)     (A)     (B)     (B)  
    Q2 2011     Q1 2011     Q4 2010     Q3 2010  
     
Square feet of leases signed:
                               
Properties under development
    1,360       877       1,100       327  
Operating properties:
                               
New leases
    11,841       14,773       12,285       9,992  
Renewals
    21,697       17,225       21,130       16,703  
     
Total square feet of leases signed
    34,898       32,875       34,515       27,022  
Weighted average customer retention
    76.7%       65.8%       87.4%       76.0%  
Turnover costs (per square foot)
     $ 1.37        $ 1.35        $ 1.02        $ 1.06  
 
                                 
Capital Expenditures   (A)     (A)     (B)     (B)  
    Q2 2011     Q1 2011     Q4 2010     Q3 2010  
     
Capital expenditures
     $ 24,880        $ 16,701        $ 20,262        $ 17,326  
$  per square feet
     $ 0.04        $ 0.03        $ 0.05        $ 0.04  
Tenant improvements
    24,741       19,787       22,771       20,017  
Leasing commissions
    21,682       19,741       14,161       12,945  
     
Total
     $ 71,303        $ 56,229        $ 57,194        $ 50,288  
% of gross NOI (D)
    11.3%       8.9%       12.6%       12.2%  
Weighted average ownership percent
    69.0%       65.2%       60.7%       65.5%  
Prologis share
    49,215        $ 36,645        $ 34,689        $ 32,959  
 
                 
Same Store Information (c)            
    Q2 2011 ()     Q1 2011 ()  
 
 
               
Square feet of population
    552,370       554,504  
Percentage change:
               
Rental income
    2.2%       2.0%  
Rental expenses
    (0.3%)       2.3%  
Net operating income
    3.1%       0.7%  
Average occupancy
    2.5%       3.0%  
 
               
Square feet of leasing activity
    27,721       28,233  
Percentage change in rental rates
    (6.1%)       (8.9%)  
 


 
(A)   Includes legacy AMB and ProLogis for the periods presented.
 
(B)   Includes only legacy ProLogis.
 
(C)   Portfolio includes legacy AMB and ProLogis for both periods. See the Notes and Definitions for further explanations.
 
(D)   Based on proforma NOI
(GRAPHIC)

 


 

(GRAPHIC)

                 
(square feet and dollars in thousands)                
Top Customers  
 
    % of Annual     Total Square  
    Base Rent     Feet  
 
Deutsche Post AG (DHL)
    2.4%       11,773  
CEVA Logistics
    1.5%       7,651  
Kuehne & Nagel
    1.2%       6,423  
Home Depot, Inc
    1.1%       5,685  
SNCF Geodis
    0.9%       5,021  
FedEx Corporate Services Inc
    0.8%       2,720  
United States Government
    0.8%       1,473  
Unilever
    0.7%       5,208  
Wincanton Logistics
    0.7%       2,915  
PepsiCo
    0.7%       3,994  
 
Top 10 customers
    10.8%       52,863  
11 - 25
    7.2%       34,836  
 
Top 25 customers
    18.0%       87,699  
 
                                 
 
Lease Expirations  
 
    Annual Base     Percentage of     Occupied     Percentage of  
Year   Rent     Total     Square Feet     Total  
 
Month to month customers
     $ 39,532       1.4%       9,910       1.9%  
Remainder of 2011
    166,136       5.8%       30,805       6.0%  
2012
    461,462       16.0%       86,458       16.8%  
2013
    452,389       15.7%       80,270       15.6%  
2014
    390,205       13.5%       70,502       13.7%  
2015
    359,903       12.5%       64,663       12.6%  
2016
    279,234       9.7%       51,583       10.0%  
Thereafter
    738,683       25.4%       119,513       23.4%  
 
Total
     $ 2,887,544       100%       513,704       100%  
 


(GRAPHIC)

 


 

(GRAPHIC)
                                                                 
(in thousands)                                      
Building Acquisitions (A)     Building Dispositions (A)  
    Q2 2011     YTD 2011     Q2 2011     YTD 2011  
    Square             Square             Square             Square        
    Feet     Acq. Cost     Feet     Acq. Cost     Feet     Sale Price     Feet     Sale Price  
Americas
                                                               
Consolidated
    163        $ 8,344       163        $ 8,344       284       20,685       3,338        $ 132,411  
Unconsolidated
    42       12,230       321        $ 29,530       229        $ 31,800       629        $ 37,598  
 
                                                               
Europe
                                                               
Consolidated
                            89        $ 8,956       362        $ 25,989  
Unconsolidated
    89        $ 8,956       392        $ 31,191                          
 
                                                               
Asia
                                                               
Consolidated
    616        $ 20,450       616        $ 20,450       179        $ 42,951       179        $ 42,951  
Unconsolidated
                                               
 
                                                               
 
                                               
Total
    910        $ 49,980       1,492        $ 89,515       781        $ 104,392       4,508        $ 238,949  
 
                                               
 
                                                               
All Regions
                                                               
Consolidated
    779        $ 28,794       779        $ 28,794       552        $ 72,592       3,879        $ 201,351  
Unconsolidated
    131       21,186       713       60,721       229       31,800       629       37,598  
 
                                               
Total
    910        $ 49,980       1,492        $ 89,515       781        $ 104,392       4,508        $ 238,949  
 
                                               
                 
Other Capital Deployment Activity (A)  
    Q2 2011 (B)     YTD 2011 (B)  
Investments
               
Acquisition of units in PEPR
     $ 1,030,844        $ 1,030,844  
Acquisition of SGP Property Fund
     $ 51,627        $ 51,627  
Invested in unconsolidated investees
     $ 8,200        $ 32,364  
 
               
Dispositions
               
Disposition of Catellus assets
     $ 115,065        $ 472,319  
Dispositions of land
     $ 30,187        $ 39,286  
Sale of Los Nogales Trust shares
     $ 8,330        $ 8,330  
 
(A)   Includes legacy AMB and ProLogis for all periods.
 
(B)   Does not include merger with AMB, which was all stock.
(GRAPHIC)

 


 

(GRAPHIC)
                                                                         
(dollars and square feet in thousands)                                                              
                                                            Prologis Share  
    # of             Investment     Cost to     Total Expected             Targeted     Investment     Total Expected  
    Properties     Square Feet     Balance     Complete     Investment     Leased %     Year 1 Yield     Balance     Investment  
Consolidated:
                                                                       
Completed — pre-stabilized:
                                                                       
Americas
    4       1,335        $ 61,370        $ 1,610        $ 62,980       0.0%                $ 61,370        $ 62,980  
Europe
    1       115       11,078       276       11,354       100.0%               11,078       11,354  
                     
Total completed pre-stabilized
    5       1,450       72,448       1,886       74,334       7.9%               72,448       74,334  
 
                                                                       
Under construction:
                                                                       
Americas
    6       1,073       29,515       58,283       87,798       56.0%               29,515       87,798  
Europe
    10       2,859       124,947       116,346       241,293       78.9%               124,947       241,293  
Asia
    7       4,665       406,740       326,146       732,886       29.9%               406,740       732,886  
                     
Total under construction
    23       8,597       561,202       500,775       1,061,977       49.4%               561,202       1,061,977  
 
                                                                       
       
Total consolidated development portfolio
    28       10,047        $ 633,650        $ 502,661        $ 1,136,311       43.4%       7.3%        $ 633,650        $ 1,136,311  
       
 
                                                                       
Unconsolidated:
                                                                       
Completed — pre-stabilized:
                                                                       
Americas
    1       85        $ 6,662        $        $ 6,662       100.0%                $ 2,051        $ 2,051  
 
                                                                       
Under construction:
                                                                       
Americas
    3       624       19,908       34,568       54,476       3.4%               4,977       13,597  
Europe
    2       284       3,516       12,756       16,272       100.0%               1,044       4,833  
Asia
    4       1,572       38,211       41,266       79,477       4.2%               5,732       11,922  
                     
Total under construction
    9       2,480       61,635       88,590       150,225       15.0%               11,753       30,352  
 
                                                                       
       
Total unconsolidated development portfolio
    10       2,565        $ 68,297        $ 88,590        $ 156,887       17.8%       10.2%        $ 13,804        $ 32,403  
       
 
                                                                       
Combined:
                                                                       
Completed and under construction:
                                                                       
Americas
    14       3,117        $ 117,455        $ 94,461        $ 211,916       22.7%                $ 97,913        $ 166,426  
Europe
    13       3,258       139,541       129,378       268,919       81.5%               137,069       257,480  
Asia
    11       6,237       444,951       367,412       812,363       23.4%               412,472       744,808  
       
Total development portfolio
    38       12,612        $ 701,947        $ 591,251        $ 1,293,198       38.2%       7.6%        $ 647,454        $ 1,168,714  
       
                             
              Prologis          
      TEI     Share     %    
       
 
Build to Suit
     $ 325,536        $ 313,536       27%    
 
Speculative
    967,662       855,178       73%    
       
 
 
     $ 1,293,198        $ 1,168,714       100%    
     
(GRAPHIC)

 


 

(GRAPHIC)
                                                 
(square feet and total expected investment in thousands)                                
    Q2 2011 (A)     YTD 2011 (A)  
    Consolidated     Unconsolidated     Total     Consolidated     Unconsolidated     Total  
Americas
                                               
Square Feet
    607       22       629       607       624       1,231  
Total expected investment
     $ 49,652        $ 719        $ 50,371        $ 49,652        $ 58,759        $ 108,411  
Cost per square foot
     $ 82        $ 33        $ 80        $ 82        $ 94        $ 88  
Leased % at start
    57.0%       100.0%       58.5%       57.0%       3.4%       29.9%  
 
                                               
Europe
                                               
Square Feet
    413       284       697       1,941       284       2,225  
Total expected investment
     $ 34,011        $ 16,272        $ 50,283        $ 167,403        $ 16,272        $ 183,675  
Cost per square foot
     $ 82        $ 57        $ 72        $ 86        $ 57        $ 83  
Leased % at start
    54.5%       100.0%       73.0%       63.9%       100.0%       68.5%  
 
                                               
Asia
                                               
Square Feet
    1,447             1,447       3,668             3,668  
Total expected investment
     $ 216,350              $ 216,350        $ 424,094              $ 424,094  
Cost per square foot
     $ 150              $ 150        $ 116              $ 116  
Leased % at start
    14.9%             14.9%       5.9%             5.9%  
 
                                               
Total
                                               
Square Feet
    2,467       306       2,773       6,216       908       7,124  
Total expected investment
     $ 300,013        $ 16,991        $ 317,004        $ 641,149        $ 75,031        $ 716,180  
Cost per square foot
     $ 122        $ 56        $ 114        $ 103        $ 83        $ 101  
Leased % at start
    31.9%       100.0%       39.4%       29.0%       33.6%       29.6%  
 
(A)   Amounts include legacy AMB and Prologis for all periods.
(GRAPHIC)

 


 

(GRAPHIC)
                                 
Land- by Market   Acres   % of Total   Investment   % of Total
Consolidated portfolio                   (in thousands)        
Global markets
                               
Central
    1,192       10.9%        $ 93,082       4.6%  
East
    1,912       17.5%       342,370       16.8%  
Northwest
    151       1.4%       14,862       0.7%  
Southwest
    809       7.4%       129,680       6.4%  
 
               
U.S. total
    4,064       37.2%       579,994       28.5%  
Canada
    230       2.1%       95,233       4.7%  
Latin America
    621       5.7%       167,532       8.2%  
 
               
Americas total
    4,915       45.0%       842,759       41.4%  
Northern Europe
    327       3.0%       140,666       7.0%  
Southern Europe
    496       4.5%       94,126       4.6%  
Central and Eastern Europe
    904       8.3%       128,784       6.3%  
United Kingdom
    1,123       10.3%       282,522       13.9%  
 
               
Europe total
    2,850       26.1%       646,098       31.8%  
Japan
    70       0.7%       167,475       8.2%  
 
               
Asia total
    70       0.7%       167,475       8.2%  
 
                               
 
               
Total global markets
    7,835       71.8%       1,656,332       81.4%  
 
               
 
                               
Regional and other markets
                               
Americas
    2,097       19.2%       163,425       8.0%  
Europe
    966       8.8%       174,901       8.6%  
Asia
    23       0.2%       39,067       2.0%  
 
               
Total regional and other markets
    3,086       28.2%       377,393       18.6%  
 
               
 
                               
 
               
Total consolidated land portfolio
    10,921       100.0%        $ 2,033,725       100.0%  
 
               
 
 
Consolidated
                               
Americas
    7,012       64.2%        $ 1,006,184       49.4%  
Europe
    3,816       34.9%       820,999       40.4%  
Asia
    93       0.9%       206,542       10.2%  
 
                       
Total consolidated
    10,921       100.0%       2,033,725       100.0%  
 
               
Unconsolidated investees
                               
Americas
    318       100.0%       47,231       100.0%  
 
               
Total unconsolidated investees
    318       100.0%       47,231       100.0%  
 
               
 
                               
 
                       
Grand total combined land portfolio(A)
    11,239                $ 2,080,956          
 
               
(A)   This table does not include the acres and value associated with our land use rights in China, which are valued at $12.1 million and $9.0 million in our consolidated and unconsolidated portfolio, respectively.
(GRAPHIC)

 


 

(GRAPHIC)
Fund Summary
                     
        Ownership            
Property/Co-Investment Venture (A)   Date Established   Percentage   Geographic Focus   Investment Type   Term
 
ProLogis California
  August 1999   50%   US   Unconsolidated   Open end
ProLogis North American Properties Fund I
  June 2000   41%   US   Unconsolidated   January 2013
Prologis Institutional Alliance Fund II
  June 2001   24%   US   Consolidated   December 2014 (estimated)
ProLogis North American Properties Fund XI
  February 2003   20%   US   Unconsolidated   December 2023
Prologis AMS
  June 2004   39%   US   Consolidated   December 2012, extendable 4 years
Prologis Targeted U.S. Logistics Fund
  October 2004   31%   US   Unconsolidated   Open end
Prologis SGP Mexico, LLC
  December 2004   22%   Mexico   Unconsolidated   December 2016; extendable 5 years
ProLogis North American Industrial Fund
  March 2006   23%   US/Canada   Unconsolidated   Open end
Prologis DFS Fund I
  October 2006   15%   US   Unconsolidated   Upon final sale
ProLogis North American Industrial Fund III
  July 2007   20%   US   Unconsolidated   July 2015
ProLogis Mexico Industrial Fund
  August 2007   20%   Mexico   Unconsolidated   August 2017; extendable 5 years
ProLogis North American Industrial Fund II
  August 2007   37%   US/Mexico   Unconsolidated   August 2017
Prologis Mexico Fondo Logistico
  July 2010   20%   Mexico   Consolidated   July 2020
Prologis Brazil Logistics Partners Fund I (B)
  December 2010   50%   Brazil   Unconsolidated   December 2017; extendable 2 years
 
                   
Prologis Japan Fund 1
  June 2005   20%   Japan   Unconsolidated   June 2013; extendable 2 years
ProLogis Korea Fund
  August 2007   20%   Korea   Unconsolidated   August 2022
Prologis China Logistics Venture 1
  March 2011   15%   China   Unconsolidated   March 2018
 
                   
ProLogis European Properties
  September 1999   93%   Europe   Consolidated   Open end
Prologis Targeted Europe Logistics Fund
  June 2007   37%   Europe   Unconsolidated   Open end
ProLogis European Properties Fund II
  August 2007   30%   Europe   Unconsolidated   Open end
Prologis Europe Logistics Venture 1
  February 2011   15%   Europe   Unconsolidated   Perpetual
 
(dollars in thousands)
Condensed Balance Sheet of the Unconsolidated Property Funds, Combined (C)
                                 
    As of June 30, 2011  
    Americas     Europe     Asia     Total  
Operating industrial properties, before depreciation
  $ 12,582,740     $ 6,275,247     $ 2,184,544     $ 21,042,531  
Accumulated depreciation
    (1,126,124 )     (292,718 )     (11,640 )     (1,430,482 )
Properties under development and land
    21,736       3,516       38,211       63,463  
Other assets
    67,139       288,353       976,362       1,331,854  
             
Total assets
  $ 11,545,491     $ 6,274,398     $ 3,187,477     $ 21,007,366  
             
 
                               
Third party debt
  $ 6,023,165     $ 2,257,188     $ 979,477     $ 9,259,830  
Other liabilities
    441,081       405,941       127,536       974,558  
             
Total liabilities
  $ 6,464,246     $ 2,663,129     $ 1,107,013     $ 10,234,388  
             
 
                               
Weighted average ownership
    29.25 %     31.32 %     19.64 %     28.46 %
 
(A)   Legal name changes have not been made for all entities at this time.
 
(B)   Our effective ownership percentage is 25%, as our investments included in a consolidated entity that is 50% owned.
 
(C)   Includes the unconsolidated property funds presented above based on the total entity not our share.
(GRAPHIC)

 


 

(GRAPHIC)
(dollars in thousands)
                                 
    For the Three Months Ended June 30, 2011  
    Americas     Europe     Asia     Total  
             
 
FFO and Net Earnings (Loss) of the Unconsolidated Property Funds, Combined (A) (B)
 
Rental income
  $ 195,054     $ 169,385     $ 15,112     $ 379,551  
 
Rental expenses
    (47,838 )     (38,464 )     (5,962 )     (92,264 )
             
Net operating income from properties
    147,216       130,921       9,150       287,287  
 
Other income (expense) net, including G&A
    (5,841 )     (9,564 )     (218 )     (15,623 )
 
Interest expense
    (79,053 )     (46,478 )     (3,489 )     (129,020 )
 
Current income tax expense
    (478 )     (4,581 )     (429 )     (5,488 )
             
 
FFO of the property funds
    61,844       70,298       5,014       137,156  
 
Real estate related depreciation and amortization
    (77,341 )     (49,559 )     (1,403 )     (128,303 )
 
Deferred tax benefit (expense) and other income, net
    150       (3,471 )     (73 )     (3,394 )
             
 
Net earnings (loss) of the property funds
  $ (15,347 )   $ 17,268     $ 3,538     $ 5,459  
             
 
                               
Prologis’ Share of FFO and Net Earnings (Loss) of the Unconsolidated Property Funds, Combined (A)
Prologis’ share of the property fund’s FFO
  $ 20,169     $ 23,118     $ 1,105     $ 44,392  
 
Interest and preferred dividend income
    1,580       1,480       18       3,078  
 
Fees paid to Prologis
    13,573       13,806       2,343       29,722  
             
 
FFO recognized by Prologis
  $ 35,322     $ 38,404     $ 3,466     $ 77,192  
             
 
Prologis’ share of the property fund’s net earnings
  $ 424     $ 4,200     $ 942     $ 5,566  
 
Interest and preferred dividend income
    1,580       1,480       18       3,078  
 
Fees paid to Prologis
    13,573       13,806       2,343       29,722  
             
 
Net earnings recognized by Prologis
  $ 15,577     $ 19,486     $ 3,303     $ 38,366  
             
 
(A)   Includes the unconsolidated property funds listed on the previous page, including the AMB funds from merger date going forward and also the results of PEPR up to the date of consolidation.
 
(B)   Represents the entire entity, not our proportionate share
(GRAPHIC)

 


 

(GRAPHIC)
                                                                                         
    Prologis                                  
    Unsecured     Secured             Consolidated     Total     Unconsolidated             Prologis  
    Senior     Convertible     Credit     Other     Mortgage             Investees     Consolidated     Investees     Total     Share of  
Maturity   Debt     Debt     Facilities     Debt     Debt     Total     Debt     Debt     Fund Debt     Debt     Total Debt  
(in millions)
                                                                                       
2011
  $ 25     $     $     $     $ 27     $ 52     $ 95     $ 147     $ 382     $ 529     $ 200  
2012
    76       593             156       168       993       832       1,825       1,120       2,945       1,975  
2013
    376       528             1       111       1,016       686       1,702       1,560       3,262       1,973  
2014
    373             187       1       291       852       1,219       2,071       1,582       3,653       2,531  
2015
    286       460       614       219       177       1,756       19       1,775       1,112       2,887       2,114  
2016
    641                   1       257       899       41       940       1,055       1,995       1,218  
2017
    700                   1       77       778             778       737       1,515       972  
2018
    900                   1       141       1,042       1       1,043       650       1,693       1,206  
2019
    647                   1       251       899       1       900       172       1,072       975  
2020
    685                   1       6       692       1       693       403       1,096       802  
Thereafter
                      11       149       160       2       162       476       638       309  
     
Subtotal
  $ 4,709     $ 1,581     $ 801     $ 393     $ 1,655     $ 9,139     $ 2,897     $ 12,036     $ 9,249     $ 21,285     $ 14,275  
Unamortized net (discounts) premiums
    94       (105 )     2       9       27       27       57       84       11       95       89  
     
Subtotal
  $ 4,803     $ 1,476     $ 803     $ 402     $ 1,682     $ 9,166     $ 2,954     $ 12,120     $ 9,260     $ 21,380     $ 14,364  
Noncontrolling interests’ share of debt
                                        (439 )     (439 )     (6,577 )     (7,016 )      
     
Prologis share of debt
  $ 4,803     $ 1,476     $ 803     $ 402     $ 1,682     $ 9,166     $ 2,515     $ 11,681     $ 2,683     $ 14,364     $ 14,364  
Weighted average interest rate (A)
    5.7 %     4.9 %     2.2 %     2.5 %     4.7 %     5.0 %     4.7 %     4.9 %     5.1 %     5.0 %     5.0 %
Weighted average remaining maturity in years
    6.0       2.0       3.6       3.8       5.6       5.0       2.2       4.3       4.1       4.2       4.3  
                                                                 
Market Equity     Preferred Shares     Line of Credit Availability (in millions)  
Security   Shares     Price     Value             Dividend     Liquidation     Aggregate lender commitments       $2,212  
    (in thousands)     (in thousands)     Preferred Shares     Rate     Preference       Less:          
Common Stock
    458,872     $ 35.84     $ 16,445,966                     (in thousands)   Borrowings outstanding     801  
Partnership Units
    3,362     $ 35.84       120,494     Series L     6.50 %   $ 50,000      
Outstanding Letters of credit
    95  
 
                                                         
Total
    462,234             $ 16,566,460     Series M     6.75 %     57,500     Current availability   $ 1,316  
 
                                                         
 
                          Series O     7.00 %     75,000                  
 
                          Series P     6.85 %     50,000                  
 
                          Series Q     8.54 %     100,000                  
 
                          Series R     6.75 %     125,000                  
 
                          Series S     6.75 %     125,000                  
 
                                                           
 
                                    7.08 %   $ 582,500                  
 
                                                           
(A) Interest rate is based on the effective rate and weighted based on borrowings outstanding.
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(in thousands, except for percentages and per square foot)
Consolidated
                                                 
            Investment     Inv. Bal.     Pro Forma     Annualized     Percent  
    Square Feet     Balance     per Sq. Ft.     NOI(A)     NOI(A)     Leased  
Operating properties:
                                               
Core > 75% leased
    256,888     $ 19,831,889     $ 77     $ 322,857     $ 1,291,428       98.4 %
Core < 75% leased
    45,427       2,797,966       62       (B )     (B )     39.4 %
Land subject to ground leases and other
            321,588               2,282       9,128          
 
                                   
Total operating properties
    302,315     $ 22,951,443     $ 75                       89.5 %
 
                                   
 
                              Pro Forma
Annualized
NOI
 
    Sq. Ft.     Investment
Balance
    TEI     TEI
per Sq. Ft.
    Pro Forma
NOI
     
 
Prestabilized:
                                               
Americas
    1,335     $ 61,370     $ 62,980     $ 47     $ 1,008     $ 4,032  
Europe
    115       11,078       11,354       99       225       900  
Asia
                                     
 
                                   
Total prestabilized
    1,450     $ 72,448     $ 74,334     $ 51     $ 1,233   $ 4,932  
 
                                   
 
                                               
Properties under development
                                               
Build-to-suit:
                                               
Americas
    346     $ 12,611     $ 35,391     $ 102     $ 1,265     $ 5,060  
Europe
    2,033       102,953       169,088       83       3,395       13,580  
Asia
    738       53,732       100,768       137       1,650       6,600  
 
                                   
Total build-to-suit
    3,117       169,296       305,247       98       6,310     25,240  
 
                                               
Speculative:
                                               
Americas
    726       16,904       52,406       72       1,175       4,700  
Europe
    827       21,994       72,205       87       1,438       5,752  
Asia
    3,927       353,008       632,118       161       10,702       42,808  
 
                                   
Total speculative
    5,480       391,906       756,729       138       13,315     53,260  
 
                                   
 
Total properties under development
    8,597     $ 561,202     $ 1,061,976     $ 124     $ 19,625   $ 78,500  
 
                                   
                         
    Investment     Second        
    Balance     Quarter 2011     Year-to-Date  
 
Land
  $ 2,033,725                  
 
                     
Development management and other income
          $ 8,920     $ 13,239  
 
                   
 
(A)   Includes an adjustment for acquisitions made during the quarter, including the AMB merger and PEPR acquisition to reflect NOI for a full quarter.
 
(B)   Includes operating expense for the unleased portion and therefore is not applicable for estimating NAV. Investment balance per square foot is provided.
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(in thousands)
Private Capital
                                         
                            Prologis Share     Prologis Share  
    Investment             Prologis Share     Annualized     Debt, Net of  
    Balance     Square Feet     NOI     NOI     Other Net Assets  
 
Prologis interest in unconsolidated property fund/co-investment ventures:
                                       
Americas
  $ 1,588,381       191,323     $ 73,329     $ 293,316     $ (2,408,499 )
Europe
  $ 720,933       63,105     $ 29,783     $ 119,132     $ (781,587 )
Asia
  $ 297,376       9,873     $ 4,933     $ 19,732     $ (158,122 )
                 
    Actual Second        
    Quarter 2011     Annualized  
 
Private capital fees
  $ 32,311     $ 129,244  
Private capital expenses
    (11,596 )     (46,384 )
 
           
 
  $ 20,715     $ 82,860  
 
           
Other
         
    June 30, 2011  
Other assets
       
Cash and cash equivalents
  $ 260,893  
Restricted cash
    68,390  
Deposits, prepaid assets and other tangible assets
    932,837  
Accounts receivable
    197,475  
Notes receivable backed by real estate
    359,228  
Investments in and advances to other unconsolidated investees
    405,454  
Assets held for sale, net of liabilities
    169,756  
 
     
Total other assets
  $ 2,394,033  
 
     
 
       
Liabilities, noncontrolling interests and preferred equity
       
Debt
  $ 12,119,952  
Premium on debt, net
    (84,610 )
 
     
Total debt
    12,035,342  
Other liabilities, payables, and accrued expenses
    1,942,300  
Noncontrolling interests
    725,067  
Preferred shares
    582,200  
 
     
Total liabilities, noncontrolling interests and preferred shares
  $ 15,284,909  
 
     
Total common shares and convertible limited partnership units outstanding
    462,234  
 
     
Franchise value
       
Operating platform
       
Value of Private capital future promotes
       
Development platform
       
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Please refer to our annual and quarterly financial statements filed with the Securities and Exchange Commission on Forms 10-K and 10-Q and other public reports for further information about us and our business. Certain amounts from previous periods presented in the Supplemental Information have been reclassified to conform to the 2011 presentation.
Our direct owned segment represents the direct, long-term ownership of industrial properties. Our investment strategy in this segment focuses primarily on the ownership and leasing of industrial properties in key distribution markets. Our intent is to hold and use these properties; however, depending on market and other conditions, we may contribute or sell these properties to property funds, co-investment ventures or sell to third parties. When we contribute or sell properties we have developed, we recognize FFO to the extent the proceeds received exceed our original investment (i.e. prior to depreciation) and present the results as Net Gains on Dispositions. In addition, we have industrial properties that are currently under development and land available for development that are part of this segment as well. We may develop the land or sell to third parties, depending on market conditions, customer demand and other factors. The private capital segment represents primarily the management of unconsolidated property funds and joint ventures and the properties they own.
On June 3, 2011, AMB Property Corporation (“AMB”) and ProLogis combined through a merger of equals (the “Merger”). As a result of the Merger, each outstanding share of ProLogis common shares was converted into 0.4464 shares of AMB common stock, with cash paid in lieu of fractional shares. At the time of the Merger, AMB changed its name to Prologis, Inc. After consideration of all applicable factors pursuant to the business combination accounting rules, the Merger resulted in a reverse acquisition in which AMB was considered the “legal acquirer” because AMB issued its common stock to ProLogis shareholders and ProLogis was considered the “accounting acquirer” due to various factors including that former ProLogis shareholders hold the largest portion of the voting rights in the merged entity and ProLogis appointees represent the majority of the Board of Directors. As such, the historical results of ProLogis are included for the full period and AMB results are included from the date of the Merger going forward.
In April 2011, we purchased 11.1 million ordinary units of ProLogis European Properties (“PEPR”), increasing our ownership interest to approximately 39%, and launched a mandatory tender offer to acquire any or all of the outstanding ordinary units and convertible preferred units of PEPR that we did not own at that time. On May 25, 2011, we settled on our mandatory tender offer. Pursuant to the tender offer and open-market purchases made during the tender period, we acquired an additional 96.5 million ordinary units and 2.7 million convertible preferred units of PEPR for an aggregate purchase price of approximately €615.5 million. We funded the aggregate purchases through borrowings under our existing credit facilities and a new €500 million bridge facility, which was subsequently repaid with proceeds received from our June equity offering.
After completion of the tender offer, we began consolidating PEPR. In addition, in accordance with the accounting rules for business combinations, we marked our equity investment in PEPR to fair value, which resulted in the recognition of a gain of €59.6 million ($85.9 million). Following the tender offer, and including purchases through June 30, 2011, we owned approximately 92.3% of the voting ordinary units of PEPR and 94.6% of the convertible preferred units as of June 30, 2011.
We have preliminarily allocated the aggregate purchase price related to the Merger of $5.8 billion and for PEPR of €1.1 billion ($1.6 billion) as set forth below. The preliminary allocations are based on our preliminary valuations, estimates and assumptions and are subject to change.
                         
(amounts in thousands)   Merger     PEPR     Total  
     
Investments in real estate properties
  $ 8,103,716     $ 4,456,304     $ 12,560,020  
Investments in and advances to unconsolidated investees
    1,632,179             1,632,179  
Cash, accounts receivable and other assets
    736,432       100,677       837,109  
Debt
    (3,646,719 )     (2,240,764 )     (5,887,483 )
Accounts payable, accrued expenses and other liabilities
    (434,072 )     (555,628 )     (989,700 )
Noncontrolling interests
    (535,087 )     (133,651 )     (668,738 )
APIC (Stock Options)
    (62,395 )           (62,395 )
 
                 
Total purchase price
  $ 5,794,054     $ 1,626,938     $ 7,420,992  
 
Assets Held For Sale and Discontinued Operations. As of June 30, 2011, we had 7 land parcels and 8 operating properties that met the criteria as held for sale. The amounts included in Assets Held for Sale include real estate investment balances and the related assets and liabilities for each property.
During the six months ended June 30, 2011, we disposed of 38 non-development properties aggregating 2.8 million square feet to third parties, including 31 properties aggregating 1.3 million square feet that were included in Assets Held for Sale at December 31, 2010. During all of 2010, we disposed of land subject to ground leases and 205 properties aggregating 25.4 million square feet to third parties, 2 of which were development properties.
The operations of the properties held for sale and properties that are disposed of to third parties during a period, including the aggregate net gains recognized upon their disposition, are presented as discontinued operations in our Consolidated Statements of Operations for all periods presented. The income attributable to these properties was as follows (in thousands):
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
     
Rental income
  $ 2,959     $ 42,044     $ 12,913     $ 85,332  
Rental expenses
    12       (11,306 )     (3,368 )     (22,968 )
Depreciation and amortization
    (19 )     (10,616 )     (475 )     (21,790 )
 
                       
 
                               
Income attributable to disposed properties and assets held for sale
  $ 2,952     $ 20,122     $ 9,070     $ 40,574  
 
For purposes of our Consolidated Statements of FFO, we do not segregate discontinued operations. In addition, we include the gains from disposition of land parcels and development properties in the calculation of FFO, including those classified as discontinued operations.
Assets Under Management (“AUM”) represents the estimated value of the real estate we own or manage through our consolidated and unconsolidated investees. We calculate AUM by adding the noncontrolling interests share of the estimated fair value of the real estate investment to our share of total market capitalization.
Calculation of Per Share Amounts are as follows (in thousands, except per share amounts):


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    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Net earnings (loss)
Net earnings (loss)
  $ (151,471 )   $ (23,150 )   $ (198,087 )   $ (114,279 )
         
Weighted average common shares outstanding — Basic (a)
    307,756       212,840       281,384       212,441  
         
Weighted average common shares outstanding — Diluted (a)
    307,756       212,840       281,384       212,441  
         
 
                               
Net earnings (loss) per share — Basic
  $ (0.49 )   $ (0.11 )   $ (0.70 )   $ (0.54 )
         
Net earnings (loss) per share — Diluted
  $ (0.49 )   $ (0.11 )   $ (0.70 )   $ (0.54 )
         
FFO, as defined by Prologis
FFO, as defined by Prologis
  $ 8,195     $ 67,844     $ 70,341     $ 74,961  
Noncontrolling interest attributable to convertible limited partnership units
                136        
         
FFO — Diluted, as defined by Prologis
  $ 8,195     $ 67,844     $ 70,477     $ 74,961  
         
 
                               
Weighted average common shares outstanding — Basic (a)
    307,756       212,840       281,384       212,441  
Incremental weighted average effect of conversion of limited partnership units
                807        
Incremental weighted average effect of stock awards
    750       1,284       709       1,359  
         
Weighted average common shares outstanding — Diluted (a)
    308,506       214,124       282,900       213,800  
         
FFO per share — Diluted, as defined by Prologis
  $ 0.03     $ 0.32     $ 0.25     $ 0.35  
         
Core FFO
Core FFO
  $ 109,662     $ 60,334     $ 184,069     $ 112,674  
Noncontrolling interest attributable to convertible limited partnership units
    68             136        
         
Core FFO — Diluted
  $ 109,730     $ 60,334     $ 184,205     $ 112,674  
         
Weighted average common shares outstanding — Basic (a)
    307,756       212,840       281,384       212,441  
Incremental weighted average effect of conversion of limited partnership units
    1,269             807        
Incremental weighted average effect of stock awards
    750       1,284       709       1,359  
         
Weighted average common shares outstanding — Diluted (a)
    309,775       214,124       282,900       213,800  
         
Core FFO per share — Diluted
  $ 0.35     $ 0.28     $ 0.65     $ 0.53  
 
 
(a)   The historical ProLogis shares outstanding have been adjusted by the Merger exchange ratio of 0.4464. These amounts include the assumed issuance of 254.8 million shares as of the Merger date and the issuance of 34.5 million shares in connection with the June equity offering. We received net proceeds from the equity offering of $1.1 billion, which were used to repay outstanding borrowings on the bridge facility and on credit facilities.
Core EBITDA, As Adjusted. We use Core EBITDA, as adjusted to measure both our operating performance and liquidity. We calculate Core EBITDA, as adjusted beginning with consolidated net earnings/loss and removing the affect of interest, income taxes, depreciation and amortization, impairment charges, gains or losses from the acquisition or disposition of investments in real estate, gains or losses on early extinguishment of debt and derivative contracts (including cash charges), similar adjustments we make to our Core FFO (see definition below), and other non-cash charges (such as stock based compensation amortization and unrealized gains or losses on foreign currency and derivative activity), including our share of these items (other than interest and current income taxes) from unconsolidated investees.
We consider Core EBITDA, as adjusted to provide investors relevant and useful information because it permits investors to view income from operations on an unleveraged basis before the effects of income tax, non-cash depreciation and amortization expense and other items (including stock-based compensation amortization and certain unrealized gains and losses), gains or losses from the acquisition or disposition of investments in real estate, items that affect comparability, and other significant non-cash items. In 2011, we adjusted Core EBITDA to include a proforma adjustment to reflect a full period of NOI on the operating properties we acquired through the Merger and PEPR acquisition and to exclude Merger, Acquisition and Other Integration Expenses and costs associated with the hurricane and tsunami that occurred in first quarter 2011 in Japan. By excluding interest expense, adjusted EBITDA allows investors to measure our operating performance independent of our capital structure and indebtedness and, therefore, allows for a
more meaningful comparison of our operating performance to that of other companies, both in the real estate industry and in other industries. Gains and losses on the early extinguishment of debt and derivatives contracts generally included the costs of repurchasing debt securities. Although difficult to predict, these items may be recurring given the uncertainty of the current economic climate and its adverse effects on the real estate and financial markets. While not infrequent or unusual in nature, these items result from market fluctuations that can have inconsistent effects on our results of operations. The economics underlying these items reflect market and financing conditions in the short-term but can obscure our performance and the value of our long-term investment decisions and strategies.
As a liquidity measure, we believe that Core EBITDA, as adjusted helps investors to analyze our ability to meet interest payment obligations and to make quarterly preferred share dividends. We believe that investors should consider Core EBITDA, as adjusted in conjunction with net income (the primary measure of our performance) and the other required Generally Accepted Accounting Principles (“GAAP”) measures of our performance and liquidity, to improve their understanding of our operating results and liquidity, and to make more meaningful comparisons of our performance against other companies. By using Core EBITDA, as adjusted, an investor is assessing the earnings generated by our operations, but not taking into account the eliminated expenses or gains incurred in connection with such operations. As a result, core EBITDA, as adjusted has limitations as an analytical tool and should be used in conjunction with our required GAAP presentations. Core EBITDA, as adjusted does not reflect our historical cash expenditures or future cash requirements for working capital, capital expenditures distribution requirements or contractual commitments. Core EBITDA, as adjusted also does not reflect the cash required to make interest and principal payments on our outstanding debt.
While Core EBITDA, as adjusted is a relevant and widely used measure of operating performance and liquidity, it does not represent net income or cash flow from operations as defined by GAAP and it should not be considered as an alternative to those indicators in evaluating operating performance or liquidity. Further, our computation of Core EBITDA, as adjusted may not be comparable to EBITDA reported by other companies. We compensate for the limitations of Core EBITDA, as adjusted by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of Core EBITDA, as adjusted and a reconciliation of Core EBITDA, as adjusted to consolidated net earnings (loss), a GAAP measurement.
Estimated Investment Capacity is our estimate of the gross real estate, which could be acquired through the use of the equity commitments from our property fund or co-investment venture partners, plus our funding obligations and estimated debt capitalization.
FFO; FFO, as defined by Prologis; FFO, excluding significant non-cash items; Core FFO (collectively referred to as “FFO”). FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings. Although the National Association of Real Estate Investment Trusts (“NAREIT”) has published a definition of FFO, modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business.
FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We believe net earnings computed under GAAP remains the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings computed under GAAP. Further, we believe our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and our operating performance.


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NAREIT’s FFO measure adjusts net earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales of previously depreciated properties. We agree that these two NAREIT adjustments are useful to investors for the following reasons:
(i)   historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on FFO “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.
(ii)   REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods. We include the gains and losses from dispositions of land and development properties, as well as our proportionate share of the gains and losses from dispositions recognized by our unconsolidated investees, in our definition of FFO.
Our FFO Measures
At the same time that NAREIT created and defined its FFO measure for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe shareholders, potential investors and financial analysts who review our operating results are best served by a defined FFO measure that includes other adjustments to net earnings computed under GAAP in addition to those included in the NAREIT defined measure of FFO. Our FFO measures are used by management in analyzing our business and the performance of our properties and we believe that it is important that shareholders, potential investors and financial analysts understand the measures management uses.
We use our FFO measures as supplemental financial measures of operating performance. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.
FFO, as defined by Prologis
To arrive at FFO, as defined by Prologis, we adjust the NAREIT defined FFO measure to exclude:
(i)   deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;
 
(ii)   current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in GAAP earnings that is excluded from our defined FFO measure;
 
(iii)   foreign currency exchange gains and losses resulting from debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated investees;
 
(iv)   foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of our foreign consolidated subsidiaries and our foreign unconsolidated investees; and
 
(v)   mark-to-market adjustments associated with derivative financial instruments.
We calculate FFO, as defined by Prologis for our unconsolidated investees on the same basis as we calculate our FFO, as defined by Prologis.
We use this FFO measure, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) assess our performance as compared to similar real estate companies and the industry in general; and (v) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of short-term items that we do not expect to affect the underlying long-term performance of the properties. The long-term performance of our properties is principally driven by rental income. While not infrequent or unusual, these additional items we exclude in calculating FFO, as defined by Prologis, are subject to significant fluctuations from period to period that cause both positive and negative short-term effects on our results of operations, in inconsistent and unpredictable directions that are not relevant to our long-term outlook.
We believe investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy.
FFO, excluding significant non-cash items
When we began to experience the effects of the global economic crises in the fourth quarter of 2008, we decided that FFO, as defined by Prologis, did not provide all of the information we needed to evaluate our business in this environment. As a result, we developed FFO, excluding significant non-cash items to provide additional information that allowed us to better evaluate our operating performance during that unprecedented economic time. Beginning in 2011, we no longer use FFO, excluding significant non-cash items.
Core FFO
Core FFO includes FFO, as defined by Prologis, adjusted to remove gains (losses) on acquisitions or dispositions of investments in real estate that are included in FFO, as defined by Prologis. If we recognize impairment charges due to the expected disposition of investments in real estate, we exclude those impairment charges. We may also adjust for certain other significant items that affect comparability as noted in the reconciliation. In 2011, we have adjusted to exclude Merger, Acquisitions and Other Integration Expenses and losses for the hurricanes and tsunamis in March 2011 in Japan.
Limitations on Use of our FFO Measures
While we believe our defined FFO measures are important supplemental measures, neither NAREIT’s nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly they are two of many measures we use when analyzing our business. Some of these limitations are:
  The current income tax expenses that are excluded from our defined FFO measures represent the taxes that are payable.
 
  Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Further, the amortization of capital expenditures


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    and leasing costs necessary to maintain the operating performance of industrial properties are not reflected in FFO.
 
  Gains or losses from property acquisitions and dispositions or impairment charges related to expected dispositions represent changes in the value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of acquired or disposed properties arising from changes in market conditions.
 
  The deferred income tax benefits and expenses that are excluded from our defined FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our defined FFO measures do not currently reflect any income or expense that may result from such settlement.
 
  The foreign currency exchange gains and losses that are excluded from our defined FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.
We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. To assist investors in compensating for these limitations, we reconcile our defined FFO measures to our net earnings computed under GAAP. This information should be read with our complete financial statements prepared under GAAP.
General and Administrative Expenses (“G&A”) consisted of the following (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
 
Gross G&A expense
  $ 82,060     $ 63,577     $ 148,604     $ 130,733  
Reported as rental expense
    (5,154 )     (4,831 )     (10,065 )     (9,833 )
Reported as private capital management expenses
    (11,596 )     (9,931 )     (22,148 )     (20,250 )
Capitalized amounts
    (13,470 )     (9,894 )     (25,368 )     (19,723 )
     
Net G&A
  $ 51,840     $ 38,921     $ 91,023     $ 80,927  
 
Global Markets comprise the largest, most liquid markets benefiting from demand tied to global trade. These markets are defined by large population centers with high consumption per capita and typically feature major seaports, airports, and other transportation infrastructure tied to global trade. While initial returns might be lower, global markets tend to outperform overall markets in terms of growth and total return.
Impairment of Other Assets. During the three months ended June 30, 2011, we recognized impairment charges related to two of our investments in property funds, as we believed the decline in value of our investments to be other than temporary and due to a pending sale of our interest to our fund partner.
Interest Expense consisted of the following (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2011     2010     2011  
     
Gross interest expense
  $ 112,701     $ 113,225     $ 201,759     $ 218,234  
Amortization of (premium)/discount, net
    5,069       12,198       12,908       27,532  
Amortization of deferred loan costs
    7,765       7,435       12,761       13,917  
     
Interest expense before capitalization.
    125,535       132,858       227,428       259,683  
Capitalized amounts
    (12,476 )     (13,938 )     (23,807 )     (30,784 )
         
Net interest expense
  $ 113,059     $ 118,920     $ 203,621     $ 228,899  
 
Market Equity is defined as the total number of outstanding shares of our common stock and common limited partnership units multiplied by the closing price per share of our common stock at period end.
Merger, Acquisition and Other Integration Expenses. In connection with the Merger, we have incurred and expect to incur additional significant transaction, integration, and transitional costs. These costs include investment banker advisory fees; legal, tax, accounting and valuation fees; termination and severance costs (both cash and stock based compensation awards) for terminated and transitional employees; system conversion; and other integration costs. Certain of these costs were obligations of AMB and were expensed prior to the closing of the Merger by AMB. The remainder of the costs will be expensed by us as incurred, which in some cases will be through the end of 2012. At the time of the merger, we cancelled our existing credit facilities and wrote-off the remaining unamortized deferred loan costs associated with such facilities, which is included. In addition, we have included costs associated with the acquisition of a controlling interest in PEPR and reduction in workforce charges associated with dispositions made or expected to be made in 2011. The following is a breakdown of the costs incurred during the three and six months ended June 30, 2011 (in thousands):
                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2011  
 
Professional Fees
  $ 39,308     $ 41,489  
Termination, severance and employee costs
    30,530       34,337  
Office closure, travel and other costs
    22,345       22,345  
Write-off of deferred loan costs
    10,869       10,869  
     
Total
  $ 103,052     $ 109,040  
 
Net Asset Value (“NAV”). We consider NAV to be a useful supplemental measure of our operating performance because it enables both management and investors to estimate the fair value of a business. The assessment of the fair value of a particular segment of our business is subjective in that it involves estimates and can be calculated using various methods. Therefore, in this supplemental report, we have presented the financial results and investments related to our business segments that we believe are important in calculating our NAV but have not presented any specific methodology nor provided any guidance on the assumptions or estimates that should be used in the calculation.
The components of NAV do not consider the potential changes in rental and fee income streams or the franchise value associated with our global operating platform, private capital platform, or development platform.


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Pro forma NOI for our operating properties is adjusted to reflect the NOI for properties that were acquired during the quarter for a full quarter. Pro forma NOI for our properties under development is based on current total expected investment and an estimated stabilized yield.
Net Gains on Acquisitions and Dispositions of Investments in Real Estate includes the gains we recognized from the consolidation of PEPR and the acquisition of a controlling interest in a joint venture in Japan.
Net Operating Income (“NOI”) represents rental income less rental expenses.
Operating Portfolio includes stabilized operating industrial properties we own or that are owned by an unconsolidated investee accounted for by the equity method of accounting and we manage.
Operating Segments — Direct Owned represents the direct long-term ownership of industrial properties, including land and the development of properties.
Operating Segments — Private Capital represents the management of unconsolidated property funds and joint ventures and the properties they own.
Pre-stabilized Development represents properties that are complete but have not yet reached Stabilization.
Regional Markets, similar to global markets, also benefit from large-population centers and demand. They are located at key crossroads in the supply chain and/or near economic centers for leading national or global industries. The company‘s assets reflect the highest quality class-A product in that market and are often less supply- constrained and focus on delivering bulk goods to customers.
Rental Income includes the following (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
 
Rental income
  $ 224,697     $ 137,020     $ 372,543     $ 272,880  
Rental expense recoveries
    59,211       41,760       104,052       83,213  
Straight-lined rents
    10,762       9,425       23,493       19,742  
     
 
  $ 294,670     $ 188,205     $ 500,088     $ 375,835  
 
Same Store. We evaluate the operating performance of the industrial operating properties we own and manage using a “same store” analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of changes in the composition of the portfolio on performance measures. We include all consolidated properties owned by us, and properties owned by property funds and joint ventures that are managed by us and in which we have an equity interest (referred to as “unconsolidated investees”), in our same store analysis. We have defined the same store portfolio, for the quarter ended June 30, 2011, as those operating properties that were in operation at January 1, 2010 and have been in operation throughout the full periods in both 2011 and 2010 either by ProLogis or AMB. We have removed all properties that were disposed of to a third party from the population for both periods. We believe the factors that impact rental income, rental expenses and net operating income in the same store portfolio are generally the same as for the total operating portfolio. In order to derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the current exchange rate to translate from local currency into U.S. dollars, for both periods, to derive the same store results.
Same Store Average Occupancy represents the change in the average occupied percentage for all periods presented.
Same Store Rental Expense represents gross property operating expenses. In computing the percentage change in rental expenses for the same store analysis, rental expenses include property management expenses for our direct owned properties based on the property management fee that has been computed as provided in the individual agreements under which our wholly owned management companies provide property management services to each property (generally, the fee is based on a percentage of revenues).
Same Store Rental Rate Growth represents the change in effective rental rates (average rate over the lease term) on new leases signed during the period as compared with the previous effective rental rates in that same space.
Same Store Rental Income includes the amount of rental expenses that are recovered from customers under the terms of their respective lease agreements. In computing the percentage change in rental income for the same store analysis, rental income (as computed under GAAP) is adjusted to remove the net termination fees recognized for each period. Net termination fees generally represent the gross fee negotiated at the time a customer is allowed to terminate its lease agreement offset by the customer’s rent leveling asset that was previously recognized. Removing the net termination fees for the same store calculation allows us to evaluate the growth or decline in each property’s rental income without regard to items that are not indicative of the property’s recurring operating performance. Customer terminations are negotiated under specific circumstances and are not subject to specific provisions or rights allowed under the lease agreements.
Turnover Costs represent the costs incurred in connection with the signup of a lease, including leasing commissions and tenant improvements. Tenant improvements include costs to prepare a space for a new tenant, except for space that is being leased for the first time (i..e. in a new development property) and, for a lease renewal with the same tenant.
Stabilization is generally defined as properties for which development has been completed for one year or are 90% occupied. Upon stabilization, a property is moved into our operating portfolio.
Tenant Retention is the square footage of all leases rented by existing tenants divided by the square footage of all expiring and rented leases during the reporting period, excluding the square footage of tenants that default or buy-out prior to expiration of their lease, short-term tenants and the square footage of month-to-month leases.
Total Estimated Investment (“TEI”) represents total estimated cost of development or expansion, including land, development and leasing costs. TEI is based on current projections and is subject to change. Non-U.S. Dollar investments are translated to U.S. Dollars using the exchange rate at period end or the date of development start for purposes of calculating development starts in any period.
Total Market Capitalization is defined by as our share of total debt plus the liquidation preference of the preferred shares and the market equity.


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