pld-10k_20191231.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

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

For the transition period from ______________ to ______________

Commission File Number: 001-13545 (Prologis, Inc.) 001-14245 (Prologis, L.P.)

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)


Maryland (Prologis, Inc.) Delaware (Prologis, L.P.)	94-3281941 (Prologis, Inc.) 94-3285362 (Prologis, L.P.)
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Pier 1, Bay 1, San Francisco, California	94111
(Address or principal executive offices)	(Zip Code)

(415) 394-9000

(Registrant’s telephone number, including area code)

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

	Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Prologis, Inc.	Common Stock, $0.01 par value	PLD	New York Stock Exchange
Prologis, L.P.	1.375% Notes due 2021	PLD/21	New York Stock Exchange
Prologis, L.P.	3.000% Notes due 2022	PLD/22	New York Stock Exchange
Prologis, L.P.	3.375% Notes due 2024	PLD/24	New York Stock Exchange
Prologis, L.P.	3.000% Notes due 2026	PLD/26	New York Stock Exchange
Prologis, L.P.	2.250% Notes due 2029	PLD/29	New York Stock Exchange
Prologis, L.P.	Floating Rate Notes due 2020	PLD/20B	New York Stock Exchange

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

Prologis, Inc. – NONE

Prologis, L.P. – NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Prologis, Inc.: Yes ☑ No ☐	Prologis, L.P.: Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


Prologis, Inc.: Yes ☐ No ☑	Prologis, L.P.: Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Prologis, Inc.: Yes ☑ No ☐ Prologis, L.P.: Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter periods that the registrant was required to submit such files). Prologis, Inc.: Yes ☑ No ☐ Prologis, L.P.: Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Prologis, Inc.:	☑	Large accelerated filer	☐	Accelerated filer	☐	Smaller reporting company
	☐	Non-accelerated filer			☐	Emerging growth company

Prologis, L.P.:	☐	Large accelerated filer	☐	Accelerated filer	☐	Smaller reporting company
	☑	Non-accelerated filer			☐	Emerging growth company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).


Prologis, Inc.: Yes ☐ No ☑	Prologis, L.P.: Yes ☐ No ☑

Based on the closing price of Prologis, Inc.’s common stock on June 30, 2019, the aggregate market value of the voting common equity held by nonaffiliates of Prologis, Inc. was $50,236,866,166.

The number of shares of Prologis, Inc.’s common stock outstanding at February 5, 2020, was approximately 738,743,000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Part III of this report are incorporated by reference to the registrant’s definitive proxy statement for the 2020 annual meeting of its stockholders or will be provided in an amendment filed on Form 10-K/A.

EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2019, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the OP collectively.

The Parent is a real estate investment trust (a “REIT”) and the general partner of the OP. At December 31, 2019, the Parent owned 97.23% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.77% common limited partnership interests are owned by unaffiliated investors and certain current and former directors and officers of the Parent.

We operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As sole general partner, the Parent has control of the OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates the OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

We believe combining the annual reports on Form 10-K of the Parent and the OP into this single report results in the following benefits:

•	enhances investors’ understanding of the Parent and the OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•	eliminates duplicative disclosure and provides a more streamlined and readable presentation as a substantial portion of the Company’s disclosure applies to both the Parent and the OP; and

•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the OP and are presented as general partner’s capital within partners’ capital in the OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the OP’s consolidated financial statements.

To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of Prologis.

TABLE OF CONTENTS

Item	Description	Page
	PART I
1.	Business	3
	The Company	3
	Operating Segments	5
	Future Growth	6
	Code of Ethics and Business Conduct	9
	Environmental Stewardship, Social Responsibility and Governance	9
	Environmental Matters	9
	Governmental Matters	9
	Insurance Coverage	9
1A.	Risk Factors	9
1B.	Unresolved Staff Comments	18
2.	Properties	18
	Geographic Distribution	18
	Lease Expirations	21
	Co-Investment Ventures	22
3.	Legal Proceedings	22
4.	Mine Safety Disclosures	22
	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
	Market Information and Holders	23
	Preferred Stock Dividends	23
	Sale of Unregistered Securities	23
	Securities Authorized for Issuance Under Equity Compensation Plans	24
	Other Stockholder Matters	24
6.	Selected Financial Data	24
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Management’s Overview	25
	Results of Operations	26
	Environmental Matters	34
	Liquidity and Capital Resources	34
	Off-Balance Sheet Arrangements	38
	Contractual Obligations	38
	Critical Accounting Policies	39
	New Accounting Pronouncements	40
	Funds from Operations Attributable to Common Stockholders/Unitholders	40
7A.	Quantitative and Qualitative Disclosures About Market Risk	42
8.	Financial Statements and Supplementary Data	43
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43
9A.	Controls and Procedures	43
9B.	Other Information	44
	PART III
10.	Directors, Executive Officers and Corporate Governance	45
11.	Executive Compensation	45
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
13.	Certain Relationships and Related Transactions, and Director Independence	45
14.	Principal Accounting Fees and Services	45
	PART IV
15.	Exhibits, Financial Statements and Schedules	45
16.	Form 10-K Summary	45

The statements in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate as well as management’s beliefs and assumptions. Such statements involve uncertainties that could significantly impact our financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” and “estimates” including variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to rent and occupancy growth, acquisition and development activity, contribution and disposition activity, general conditions in the geographic areas where we operate, our debt, capital structure and financial position, our ability to form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and therefore actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic and political climates; (ii) changes in global financial markets, interest rates and foreign currency exchange rates; (iii) increased or unanticipated competition for our properties; (iv) risks associated with acquisitions, dispositions and development of properties; (v) maintenance of Real Estate Investment Trust (“REIT”) status, tax structuring and changes in income tax laws and rates; (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings; (vii) risks related to our investments in our co-investment ventures, including our ability to establish new co-investment ventures; (viii) risks of doing business internationally, including currency risks; (ix) environmental uncertainties, including risks of natural disasters; and (x) those additional factors discussed under Item 1A. Risk Factors in this report. We undertake no duty to update any forward-looking statements appearing in this report except as may be required by law.

PART I

ITEM 1. Business

Prologis, Inc. is a self-administered and self-managed REIT and is the sole general partner of Prologis, L.P. through which it holds substantially all of its assets. We operate Prologis, Inc. and Prologis, L.P. as one enterprise and, therefore, our discussion and analysis refers to Prologis, Inc. and its consolidated subsidiaries, including Prologis, L.P. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We have a significant ownership in the co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity.

Prologis, Inc. began operating as a fully integrated real estate company in 1997 and elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (“Internal Revenue Code” or “IRC”). We believe the current organization and method of operation will enable Prologis, Inc. to maintain its status as a REIT. Prologis, L.P. was also formed in 1997.

We operate and manage our business on an owned and managed (“O&M”) basis and therefore evaluate the operating performance of the properties for our O&M portfolio, which includes our consolidated properties and properties owned by our unconsolidated co-investment ventures. We make operating decisions based on our total O&M portfolio, as we manage the properties regardless of ownership. We also evaluate our results based on our proportionate economic ownership of each property included in the O&M portfolio (“our share”) as it represents the financial results of our share of the O&M portfolio.

Included in our discussion below are references to funds from operations (“FFO”) and net operating income (“NOI”), neither of which are U.S. generally accepted accounting principles (“GAAP”). See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of Net Earnings Attributable to Common Stockholders in the Consolidated Statements of Income to our FFO measures and a reconciliation of NOI to Operating Income, the most directly comparable GAAP measure.

Our corporate headquarters is located at Pier 1, Bay 1, San Francisco, California 94111, and our other principal office locations are in Amsterdam, Denver, Luxembourg, Mexico City, Shanghai, Singapore and Tokyo.

Our Internet address is www.prologis.com. All reports required to be filed with the Securities and Exchange Commission (“SEC”) are available and can be accessed free of charge through the Investor Relations section of our website. The common stock of Prologis, Inc. is listed on the New York Stock Exchange (“NYSE”) under the ticker “PLD” and is a component of the Standard & Poor’s (“S&P”) 500.

THE COMPANY

As the global leader in logistics real estate, Prologis has a presence in 19 countries across four continents. We own, manage and develop well-located, high-quality logistics facilities, with a focus on the consumption side of the global supply chain. Our local teams actively manage our portfolio, which encompasses leasing and property management, capital deployment and opportunistic dispositions, generally allowing us to recycle capital to self-fund our development and acquisition activities. The majority of our properties in the United States (“U.S.”) are wholly owned, while our properties outside the U.S. are primarily held in co-investment ventures which has the benefit of mitigating our exposure to foreign currency movements.

Our portfolio is focused on the world’s most vibrant centers of commerce and our scale allows us to respond to our customers’ needs for the highest-quality buildings across these locations. As e-commerce increasingly moves to the forefront of the global supply chain, it

drives demand for logistics real estate close to the end consumer. Over time, we have invested in properties located within infill and urban areas in our largest global markets with immediate access to the consumer population; these are our Last Touch^® facilities. This positioning gives us the unique ability to provide our customers with the right solutions in their supply chains that, in turn, allows them to meet end consumer expectations. As we look to the future of logistics real estate, we strive to innovate through the development of multistory logistics facilities, creating community workforce programs to develop skilled labor, leveraging technology to invest in data driven operational efficiencies and negotiating better pricing on common products and services that our customers need. Our customers turn to us because they know that a strategic relationship with Prologis is a competitive advantage.

At December 31, 2019, we owned or had investments in properties, on a wholly-owned basis or through ventures, in the following geographies (dollars in billions, based on gross book value and total expected investment (as defined below) and square feet in millions):

On January 8, 2020, our two U.S. co-investment ventures acquired the wholly-owned real estate assets of Industrial Property Trust Inc. (“IPT”) for approximately $4 billion (our investment was approximately $1.6 billion). The portfolio included 236 properties, aggregating 38 million square feet. The portfolio was generally split evenly between the two co-investment ventures.

On February 4, 2020, we acquired Liberty Property Trust and Liberty Property Limited Partnership (collectively “Liberty”) through a merger transaction which we refer to as the “Liberty Transaction” and is fully detailed in Note 20 to our Consolidated Financial Statements. The Liberty portfolio was primarily comprised of logistics real estate assets, including 550 industrial operating properties, aggregating 108 million square feet, which were highly complementary to our U.S. portfolio in terms of product quality, location and growth potential. The portfolio also included development in progress and land for future logistics facilities and office properties. The acquisition expanded our presence in target markets such as Lehigh Valley, Chicago, Houston, Central Pennsylvania, New Jersey and Southern California. The total acquisition price was approximately $13 billion through the issuance of equity based on the value of the Prologis common stock issued using the closing price on February 3, 2020 and the assumption of debt. As a result of the closely aligned portfolios and similar business strategy, we anticipate integrating the IPT and Liberty properties while adding minimal property management expenses and further scaling our operations.

Throughout this discussion, we reflect amounts in U.S. dollars, our reporting currency. Included in these amounts are consolidated and unconsolidated investments denominated in foreign currencies, principally the British pound sterling, euro and Japanese yen that are impacted by fluctuations in exchange rates when translated to U.S. dollars. We mitigate our exposure to foreign currency fluctuations by investing outside the U.S. through co-investment ventures, borrowing in the functional currency of our consolidated subsidiaries and utilizing derivative financial instruments.

OPERATING SEGMENTS

Our business comprises two operating segments: Real Estate Operations and Strategic Capital.

Below is information summarizing consolidated activity within our segments over the last three years (in millions):

(1)	NOI from Real Estate Operations is calculated directly from our Consolidated Financial Statements as Rental Revenues and Development Management and Other Revenues less Rental Expenses and Other Expenses.

(2)

A developed property moves into the operating portfolio when it meets our definition of stabilization, which is the earlier of one year after completion or reaching 90% occupancy. Amounts represent our total expected investment (“TEI”), which includes the estimated cost of development, including land, construction and leasing costs.

Real Estate Operations

Rental. Rental operations comprise the largest component of our operating segments and generally contribute 85% to 90% of our consolidated revenues, earnings and funds from operations (“FFO”). We collect rent from our customers through long-term operating leases, including reimbursements for the majority of our property operating costs. We expect to generate long-term internal growth by increasing rents, maintaining high occupancy rates and controlling expenses. The primary driver of our revenue growth will be rolling in-place leases to current market rents, which are increasing in the majority of our markets. We believe our active portfolio management, combined with the skills of our property, leasing, maintenance, capital, energy, sustainability and risk management teams, allow us to maximize NOI across our portfolio. A significant amount of our rental revenue, NOI and cash flows are generated in the U.S.

Development. Given the scarcity of modern logistics facilities in urban centers, our development business allows us to build what our customers need. We develop properties to meet these needs, deepen our market presence and refresh our portfolio quality. We believe we have a competitive advantage due to (i) the strategic locations of our land bank; (ii) the development expertise of our local teams; and (iii) the depth of our customer relationships. Successful development and redevelopment efforts provide significant earnings growth as projects lease up and generate income and increase the net asset value of our Real Estate Operations segment. Based on our current estimates, our consolidated land, including options, has the potential to support the development of $9.4 billion of TEI of new logistics space. Generally, we develop properties in the U.S. for long-term hold and outside the U.S. for contribution to our unconsolidated co-investment ventures.

Strategic Capital

Our strategic capital segment allows us to partner with some of the world’s largest institutional investors to grow our business through private capital. We also access capital in this segment through two publicly traded vehicles: Nippon Prologis REIT, Inc. in Japan and FIBRA Prologis in Mexico. We align our interests with those of our partners by holding significant ownership interests in all of our unconsolidated co-investment ventures (ranging from 15% to 50%), which generally allows us to reduce our exposure to foreign currency movements for investments outside the U.S.

This segment produces stable, long-term cash flows and generally contributes 10% to 15% of our consolidated revenues, earnings and FFO. We generate strategic capital revenues from our unconsolidated co-investment ventures, principally through asset and property management services. These revenues are principally earned from open-ended or long-term ventures. We earn additional revenues by providing leasing, acquisition, construction, development, legal and disposition services. In certain ventures, we also have the ability to earn revenues through incentive fees (“promotes” or “promote revenues”) periodically during the life of a venture or upon liquidation. We plan to profitably grow this business by increasing our assets under management in existing or new ventures. Most of the strategic capital revenues are generated outside the U.S. NOI in this segment is calculated directly from our Consolidated Financial Statements as Strategic Capital Revenues less Strategic Capital Expenses and excludes property-related NOI.

FUTURE GROWTH

We believe the quality and scale of our global portfolio, the expertise of our team, the depth of our customer relationships and the strength of our balance sheet give us unique competitive advantages to grow revenues, NOI, earnings, FFO and cash flows.

(1)

General and Administrative (“G&A”) Expenses is a line item in the Consolidated Financial Statements. Adjusted G&A expenses is calculated from our Consolidated Financial Statements as G&A Expenses and Strategic Capital Expenses, less expenses under the Prologis Promote Plan (“PPP”) and property-level management expenses for the properties owned by the ventures.

•

Rent Growth. We expect market rents to continue to grow over the next few years, driven by demand for the location and quality of our properties. Due to strong market rent growth over the last several years, our in-place leases have considerable upside potential. We estimate that our leases are more than 15% below current market rent on the basis of our weighted average ownership at December 31, 2019. Therefore, even if market rent growth remains flat, a lease renewal will translate into increased future rental income, on a consolidated basis or through the earnings we recognize from our unconsolidated co-investment ventures based on our ownership. We have experienced positive rent change on rollover (comparing the net effective rent (“NER”) of the new lease to the prior lease for the same space) every quarter since 2013. We expect this trend to continue for several more years due to our current in-place rents being below market coupled with increasing market rents.

•

Value Creation from Development. A successful development and redevelopment program involves maintaining control of well-located and entitled land. We believe that the carrying value of our land bank is below its current fair value. Due to the strategic nature of our land bank and development expertise of our teams, we expect to create value as we build out the land bank. We measure the estimated value of a development project as the margin above our anticipated cost to develop. We calculate the margin by comparing the estimated yield on the investment to capitalization rates from our underwriting models. As properties under development stabilize, we expect to realize the value creation principally through contributions to the unconsolidated co-investment ventures and increases in the NOI of our operating portfolio.

•

Economies of Scale from Growth. We use adjusted G&A expenses as a percentage of the O&M portfolio to measure and manage our overhead costs. We have the systems and infrastructure in place to grow both our consolidated portfolio and O&M portfolio with limited incremental G&A expense. We believe we can continue to grow NOI and strategic capital revenues organically and through accretive development and acquisition activity while further reducing G&A as a percentage of our investments in real estate. The acquisitions of the Liberty and IPT portfolios are key examples of this where we increased our O&M portfolio by $17.0 billion and expect minimal increases to G&A expenses.

•

Staying “Ahead of What’s Next™”. We are working on initiatives to create value beyond the real estate by reengineering our customers’ experience, utilizing our scale to streamline our procurement activities and negotiating better pricing on products and services for us and our customers, as well as delivering enhancements to our business through innovation and data analytics.

Competition

Real estate ownership is highly fragmented, and we therefore face competition from many owners and operators. Competitively priced logistics space could impact our occupancy rates and have an adverse effect on how much rent we can charge, which in turn could affect our operating results. We may face competition regarding our capital deployment activities, including local, regional and national operators or developers. We also face competition from investment managers for institutional capital within our strategic capital business.

Despite the competition we may face, our strategic focus over the years has given us distinct competitive advantages, including the following:

•	a portfolio of properties strategically located in markets characterized by large population densities and growing consumption, typically near large labor pools and extensive transportation infrastructure, including our Last Touch^® facilities;

•	the development of logistics facilities with sustainable design features that will continue to meet customer needs for high-quality buildings;

•	established relationships with customers served by our experienced and responsive local and regional teams;

•	the ability to leverage our organizational scale and structure to provide a single point of contact for our focus customers to solve concerns and address their needs through our in-house global customer solutions team;

•	an investment across the portfolio in environmental stewardship, social responsibility and governance (“ESG”) practices that enhance asset value while improving sustainability performance;

•	proven property management and leasing expertise;

•	relationships and successful track record with current and prospective investors in our strategic capital business;

•	a strategically located land bank;

•	local teams with development expertise; and

•	a strong balance sheet and credit ratings, coupled with significant liquidity.

Customers

Our broad customer base represents a spectrum of international, national, regional and local logistics users. At December 31, 2019, in our Real Estate Operations segment representing our consolidated properties, we had more than 2,900 customers occupying 362 million square feet of logistics operating properties. Below are the primary types of goods in our buildings for our consolidated real estate properties at December 31, 2019:

(1)

NER is calculated using the estimated total cash to be received over the term of the lease divided by the lease term to determine the amount of cash rent payments received per year. Amounts derived in a currency other than the U.S. dollar have been translated using the average rate from the previous year.

The following table details our top 25 customers for our consolidated real estate properties at December 31, 2019 (square feet in millions):

Top Customers	% of NER		Total Occupied Square Feet
1. Amazon		5.8		17
2. Home Depot		1.9		7
3. FedEx		1.7		4
4. UPS		1.3		4
5. Geodis		0.9		4
6. XPO Logistics		0.8		3
7. U.S. Government		0.8		1
8. NFI		0.7		2
9. Wal-Mart		0.7		2
10. DHL		0.6		2
Top 10 Customers		15.2		46
11. PepsiCo		0.6		3
12. Office Depot		0.5		2
13. DSV Air and Sea		0.5		2
14. Kimberly-Clark		0.5		3
15. Ingram Micro		0.4		2
16. Kuehne + Nagel		0.4		1
17. APL Logistics		0.4		2
18. Bed Bath & Beyond, Inc.		0.4		2
19. Georgia-Pacific		0.4		1
20. Expeditors International of Washington, Inc.		0.3		1
21. C&S Wholesale Grocers		0.3		1
22. Anixter International Inc.		0.3		1
23. Essendant		0.3		2
24. International Paper		0.3		1
25. Ford Motor		0.3		1
Top 25 Customers		21.1		71

In our Strategic Capital segment, we view our partners and investors as our customers. At December 31, 2019, in our co-investment ventures, we partnered with approximately 132 investors, several of which invest in multiple ventures.

Employees

We believe our employees are the most important part of our business. When attracting, developing and retaining talent, we seek individuals who hold varied experiences and viewpoints to create an inclusive and diverse culture and workplace that allows each employee to do their best work and drive our collective success. We focus on leadership development at every level of the organization. We align employees’ goals with our overall strategic direction to create a clear link between individual efforts and the long-term success of the organization and then provide effective feedback on their performance towards goals to ensure their growth. We believe a commitment to our employees’ learning and development through training, educational opportunities and mentorship is critical to our ability to continue to innovate. Through performance plans, talent recognition and individual development planning, along with reward packages, we advance our talent pool and create a sustainable and long-term enterprise.

The following table summarizes our total number of employees at December 31, 2019:

Geographies
U.S. ⁽¹⁾			932
Other Americas			139
Europe			398
Asia			243
Total			1,712

(1)	This includes employees who were based in the U.S. but also support other geographies.

We allocate the employee costs to provide property management and leasing functions to our Real Estate Operations and Strategic Capital segments based on the square footage of the respective portfolios. The employee costs to perform only Strategic Capital functions are allocated directly to that segment.

We believe we have good relationships with our employees. Prologis employees are not organized under collective bargaining agreements, other than in Brazil, although some employees in Europe are represented by statutory Works Councils and as such, benefit from applicable labor agreements.

CODE OF ETHICS AND BUSINESS CONDUCT

We maintain a Code of Ethics and Business Conduct applicable to our board of directors (the “Board”) and all of our officers and employees, including the principal executive officer, the principal financial officer and the principal accounting officer, and other people performing similar functions. A copy of our Code of Ethics and Business Conduct is available on our website, www.prologis.com. In addition to being accessible through our website, copies of our Code of Ethics and Business Conduct can be obtained, free of charge, upon written request to Investor Relations, Pier 1, Bay 1, San Francisco, California 94111. Any amendments to or waivers of our Code of Ethics and Business Conduct that apply to the principal executive officer, the principal financial officer, the principal accounting officer, or other people performing similar functions, and that relate to any matter enumerated in Item 406(b) of Regulation S-K, will be disclosed on our website.

ENVIRONMENTAL STEWARDSHIP, SOCIAL RESPONSIBILITY AND GOVERNANCE (“ESG”)

The principles of ESG are a natural fit in our business strategy. ESG creates value for our company by strengthening our relationships with our customers, investors, employees and the communities in which we do business — delivering a strategic business advantage while positively impacting the environment. We develop modern and efficient building designs with state-of-the-art technology to stay ahead of our customers’ needs while advancing structural, transportation, and energy requirements. We invest in sustainable design features and practices, such as the addition of solar panels, cool roofs, light emitting diode (“LED”) lighting, electric vehicle charging stations, waste and diversion recycling and xeriscaping, that result in cost-savings and operational efficiency for our customers and reduce energy and water consumption, as well as decrease greenhouse gas emissions across our portfolio and corporate operations.

We are committed to social responsibility and strengthening relationships important to our business through customer partnerships, investor outreach, community involvement, labor solutions and inclusion and diversity initiatives, as well as a focus on our employees and our customers’ employees through health and wellness programs and building design. Through our community workforce initiative, for example, we partner with local community organizations to provide logistics training and help our customers with their labor needs, while benefitting local economies and providing new career opportunities. Our strong governance and oversight allows us to mitigate risk and preserve value, creating a culture of uncompromising integrity through our Board independence and diversity, open communication with our stockholders and a risk management framework that supports our investment and process decisions. The strength of our balance sheet and credit ratings, ability to stay ahead of customer needs, engagement with our employees through ethics and anti-corruption training, along with stockholder outreach ensures the financial, operational and reputational resilience of our organization for the long-term. Our approach is reinforced by our Code of Ethics and Business Conduct, as described above.

ENVIRONMENTAL MATTERS

We are exposed to various environmental risks that may result in unanticipated losses and affect our operating results and financial condition. Either the previous owners or we have conducted environmental reviews on a majority of the properties we have acquired, including land. While some of these assessments have led to further investigation and sampling, none of the environmental assessments have revealed an environmental liability, in excess of what was provided for in the underwriting of the acquisition, that we believe would have a material adverse effect on our business, financial condition or results of operations. See further discussion in Item 1A. Risk Factors and Note 16 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

GOVERNMENTAL MATTERS

We are exposed to various regulatory requirements, taxes, tariffs, trade wars and laws within the countries in which we operate and unexpected changes in these items may result in unanticipated losses, adverse tax consequences and affect our operating results and financial condition. In addition, we may be impacted by the ability of our non-U.S. subsidiaries to dividend or otherwise transfer cash among our subsidiaries due to currency exchange control regulations and transfer pricing regulations. The impact of regional or country-specific economic instability, including government shutdowns or other internal trade alliances or agreements could also have a material adverse effect on our business, financial condition or results of operations. See further discussion in Item 1A. Risk Factors.

INSURANCE COVERAGE

We carry insurance coverage on our properties. We determine the type of coverage and the policy specifications and limits based on what we deem to be the risks associated with our ownership of properties and our business operations in specific markets. Such coverage typically includes property damage and rental loss insurance resulting from such perils as fire, windstorm, flood, earthquake and terrorism; commercial general liability insurance; and environmental insurance. Insurance is maintained through a combination of commercial insurance, self-insurance and a wholly-owned captive insurance entity. The costs to insure our properties are primarily covered through reimbursements from our customers. We believe our insurance coverage contains policy specifications and insured limits that are customary for similar properties, business activities and markets and we believe our properties are adequately insured. See further discussion in Item 1A. Risk Factors.

ITEM 1A. Risk Factors

Our operations and structure involve various risks that could adversely affect our business and financial condition, including but not limited to, our financial position, results of operations, cash flow, ability to make distributions and payments to security holders and the market value of our securities. These risks relate to Prologis as well as our investments in consolidated and unconsolidated entities and

include among others, (i) general risks; (ii) risks related to our business; (iii) risks related to financing and capital; and (iv) income tax risks.

General Risks

As a global company, we are subject to social, political and economic risks of doing business in many countries.

We conduct a significant portion of our business and employ a substantial number of people outside of the U.S. During 2019, we generated approximately $599 million or 18.0% of our revenues from operations outside the U.S. Circumstances and developments related to international operations that could negatively affect us include, but are not limited to, the following factors:

•	difficulties and costs of staffing and managing international operations in certain geographies, including differing employment practices and labor issues;

•	local businesses and cultural factors that differ from our usual standards and practices;

•	volatility in currencies and currency restrictions, which may prevent the transfer of capital and profits to the U.S.;

•	challenges in establishing effective controls and procedures to regulate operations in different geographies and to monitor compliance with applicable regulations, such as the Foreign Corrupt Practices Act, the United Kingdom (“U.K.”) Bribery Act and other similar laws;

•	unexpected changes in regulatory requirements, taxes, tariffs, trade wars and laws within the countries in which we operate;

•	potentially adverse tax consequences;

•	the responsibility of complying with multiple and potentially conflicting laws, e.g., with respect to corrupt practices, employment and licensing;

•	the impact of regional or country-specific business cycles and economic instability, including government shutdowns, uncertainty in the U.K., or further withdrawals from the European Union or other international trade alliances or agreements;

•	political instability, uncertainty over property rights, civil unrest, drug trafficking, political activism or the continuation or escalation of terrorist or gang activities;

•	foreign ownership restrictions in operations with the respective countries; and

•	access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations.

In addition, we may be impacted by the ability of our non-U.S. subsidiaries to dividend or otherwise transfer cash among our subsidiaries due to currency exchange control regulations, transfer pricing regulations and potentially adverse tax consequences, among other factors.

Disruptions in the global capital and credit markets may adversely affect our operating results and financial condition.

To the extent there is turmoil in the global financial markets, this turmoil has the potential to adversely affect (i) the value of our properties; (ii) the availability or the terms of financing that we have or may anticipate utilizing; (iii) our ability to make principal and interest payments on, or refinance any outstanding debt when due; and (iv) the ability of our customers to enter into new leasing transactions or satisfy rental payments under existing leases. Disruptions in the capital and credit markets may also adversely affect the market price of our securities and our ability to make distributions and payments to our security holders.

Our business and operations could suffer in the event of system failures or cyber security attacks.

Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal and hosted information technology systems, our systems are vulnerable to damages from any number of sources, including energy blackouts, natural disasters, terrorism, war, telecommunication failures and cyber security attacks, such as computer viruses or unauthorized access. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions. Any compromise of our security could result in a violation of applicable privacy and other laws, unauthorized access to information of ours and others, significant legal and financial exposure, damage to our reputation, loss or misuse of the information and a loss of confidence in our security measures, which could harm our business.

Risks associated with our dependence on key personnel.

We depend on the deep industry knowledge and the efforts of our executive officers and other key employees. From time to time, our personnel and their roles may change. While we believe that we are able to retain our key talent and find suitable employees to meet

our needs, the loss of key personnel, any change in their roles or the limitation of their availability could adversely affect our business. If we are unable to continue to attract and retain our executive officers, or if compensation costs required to attract and retain key employees become more expensive, our performance and competitive position could be materially adversely affected.

Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.

The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management continually reviews the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result in misstatements or restatements of our financial statements or a decline in the price of our securities.

The depreciation in the value of the foreign currency in countries where we have a significant investment may adversely affect our results of operations and financial position.

We hold significant real estate investments in international markets where the U.S. dollar is not the functional currency. At December 31, 2019, approximately $7.4 billion or 18.5% of our total consolidated assets were invested in a currency other than the U.S. dollar, principally the British pound sterling, euro and Japanese yen. For the year ended December 31, 2019, $413 million or 17.2% of our total consolidated segment NOI was denominated in a currency other than the U.S. dollar. As a result, we are subject to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. A significant change in the value of the foreign currency of one or more countries where we have a significant investment may have a material adverse effect on our business and, specifically, our U.S. dollar reported financial position and results of operations.

Our hedging of foreign currency and interest rate risk may not effectively limit our exposure to other risks.

We attempt to mitigate our risk by borrowing in the currencies in which we have significant investments thereby providing a natural hedge. We may also enter into derivative financial instruments that we designate as net investment hedges, as these amounts offset the translation adjustments on the underlying net assets of our foreign investments. We enter into other foreign currency contracts, such as forwards, to reduce fluctuations in foreign currency cash flow associated with the translation of future earnings of our international subsidiaries. Although we attempt to mitigate the potential adverse effects of changes in foreign currency rates there can be no assurance that those attempts will be successful. Hedging arrangements involve risks, such as the risk of fluctuation in the relative value of the foreign currency or interest rates and the risk that counterparties may fail to honor their obligations under these arrangements. The funds required to settle such arrangements could be significant depending on the stability and movement of the hedged foreign currency or the size of the underlying financing and the applicable interest rates at the time of the breakage. The failure to hedge effectively against foreign exchange changes or interest rate changes may adversely affect our business.

Compliance or failure to comply with regulatory requirements could result in substantial costs.

We are required to comply with many regulations in different countries, including (but not limited to) the Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws and regulations. Our properties are also subject to various federal, state and local regulatory requirements, such as the Americans with Disabilities Act and state and local fire and life-safety requirements. Noncompliance could result in the imposition of governmental fines or the award of damages to private litigants. While we believe that we are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us.

Risks Related to our Business

Real estate investments are not as liquid as certain other types of assets, which may reduce economic returns to investors.

Real estate investments are not as liquid as certain other types of investments and this lack of liquidity may limit our ability to react promptly to changes in economic or other conditions. Significant expenditures associated with real estate investments, such as secured mortgage debt payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investments. As a REIT, under the IRC, we are only able to hold property for sale in the ordinary course of business through taxable REIT subsidiaries in order to not incur punitive taxation on any tax gain from the sale of such property. We may dispose of certain properties that have been held for investment to generate liquidity. If we do not satisfy certain safe harbors or we believe there is too much risk of incurring the punitive tax on any tax gain from the sale, we may not pursue such sales.

We may decide to sell or contribute properties to certain of our unconsolidated co-investment ventures or sell properties to third parties to generate proceeds to fund our capital deployment activities. Our ability to sell or contribute properties on advantageous terms is affected by: (i) competition from other owners of properties that are trying to dispose of their properties; (ii) market conditions, including the capitalization rates applicable to our properties; and (iii) other factors beyond our control. If our competitors sell assets similar to assets we intend to divest in the same markets or at valuations below our valuations for comparable assets, we may be unable to divest our assets at favorable pricing or at all. The unconsolidated co-investment ventures or third parties who might acquire our properties may need to have access to debt and equity capital, in the private and public markets, in order to acquire properties from us. Should they have limited or no access to capital on favorable terms, then dispositions and contributions could be delayed.

If we do not have sufficient cash available to us through our operations, sales or contributions of properties or available credit facilities to continue operating our business as usual, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, divesting properties, whether or not they otherwise meet our strategic objectives to keep in the long term, at less than optimal terms, incurring debt, entering into leases with new customers at lower rental rates or less than optimal terms or entering into lease renewals with our existing customers without an increase in rental rates. There can be no assurance, however, that such alternative ways to increase our liquidity will be available to us. Additionally, taking such measures to increase our liquidity may adversely affect our business, and in particular, our distributable cash flow and debt covenants.

Our investments are concentrated in the logistics sector and our business would be adversely affected by an economic downturn in that sector.

Our investments in real estate assets are concentrated in the logistics sector. This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities were more diversified.

General economic conditions and other events or occurrences that affect areas in which our properties are geographically concentrated, may impact financial results.

We are exposed to general economic conditions, local, regional, national and international economic conditions and other events and occurrences that affect the markets in which we own properties. Our operating performance is further impacted by the economic conditions of the specific markets in which we have concentrations of properties.

At December 31, 2019, 35.0% of our consolidated operating properties or $11.2 billion (based on consolidated gross book value, or investment before depreciation) were located in California (Central Valley, San Francisco Bay Area and Southern California markets), which represented 28.6% of the aggregate square footage of our operating properties and 28.4% of our NOI. Our revenues from, and the value of, our properties located in California may be affected by local real estate conditions (such as an oversupply of or reduced demand for logistics properties) and the local economic climate. Business layoffs, downsizing, industry slowdowns, changing demographics and other factors may adversely impact California’s economic climate. Because of the investment we have located in California, a downturn in California’s economy or real estate conditions, including state income tax and property tax laws, could adversely affect our business.

In addition to California, we also have significant holdings (defined as more than 3% of total consolidated investment before depreciation) in operating properties in certain markets located in Atlanta, Central and Eastern Pennsylvania, Chicago, Dallas/Fort Worth, Houston, New Jersey/New York City, Seattle and South Florida. Of these markets, no single market contributed more than 10% of our total consolidated investment before depreciation. Our operating performance could be adversely affected if conditions become less favorable in any of the markets in which we have a concentration of properties. Conditions such as an oversupply of logistics space or a reduction in demand for logistics space, among other factors, may impact operating conditions. Any material oversupply of logistics space or material reduction in demand for logistics space could adversely affect our overall business.

Our O&M portfolio, which includes our wholly-owned properties and properties included in our co-investment ventures, has concentrations of properties in the same markets mentioned above, as well as in markets in France, Germany, Japan, Mexico and the U.K., and are subject to the economic conditions in those markets.

A number of our investments, both wholly-owned and owned through co-investment ventures, are located in areas that are known to be subject to earthquake activity. U.S. properties located in active seismic areas include properties in our markets in California and Seattle. International properties located in active seismic areas include Japan and Mexico. We generally carry earthquake insurance on our properties located in areas historically subject to seismic activity, subject to coverage limitations and deductibles, if we believe it is commercially reasonable. We evaluate our earthquake insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants and in some specific instances have elected to self-insure our earthquake exposure based on this analysis. We have elected not to carry earthquake insurance for our assets in Japan based on this analysis.

Furthermore, a number of our properties are located in areas that are known to be subject to hurricane or flood risk. We carry hurricane and flood hazard insurance on all of our properties located in areas historically subject to such activity, subject to coverage limitations and deductibles, if we believe it is commercially reasonable. We evaluate our insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.

Investments in real estate properties are subject to risks that could adversely affect our business.

Investments in real estate properties are subject to varying degrees of risk. While we seek to minimize these risks through geographic diversification of our portfolio, market research and our asset management capabilities, these risks cannot be eliminated. Factors that may affect real estate values and cash flows include:

•	local conditions, such as oversupply or a reduction in demand;

•	technological changes, such as reconfiguration of supply chains, autonomous vehicles, robotics, 3D printing or other technologies;

•	the attractiveness of our properties to potential customers and competition from other available properties;

•	increasing costs of maintaining, insuring, renovating and making improvements to our properties;

•	our ability to rehabilitate and reposition our properties due to changes in the business and logistics needs of our customers;

•	our ability to control rents and variable operating costs; and

•	governmental regulations and the associated potential liability under, and changes in, environmental, zoning, usage, tax, tariffs and other laws.

Our customers may be unable to meet their lease obligations or we may be unable to lease vacant space or renew leases or re-lease space on favorable terms as leases expire.

Our operating results and distributable cash flow would be adversely affected if a significant number of our customers were unable to meet their lease obligations. At December 31, 2019, our top 10 customers accounted for 15.2% of our NER. In the event of default by a significant number of customers, we may experience delays and incur substantial costs in enforcing our rights as landlord, and we may be unable to re-lease spaces. A customer may experience a downturn in its business, which may cause the loss of the customer or may weaken its financial condition, resulting in the customer’s failure to make rental payments when due or requiring a restructuring that might reduce cash flow from the lease. In addition, a customer may seek the protection of bankruptcy, insolvency or similar laws, which could result in the rejection and termination of such customer’s lease and thereby cause a reduction in our available cash flow.

We are also subject to the risk that, upon the expiration of leases they may not be renewed by existing customers, the space may not be re-leased to new customers or the terms of renewal or re-leasing (including the cost of required renovations or concessions to customers) may be less favorable to us than current lease terms. Our competitors may offer space at rental rates below current market rates or below the rental rates we currently charge our customers, we may lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge to retain customers when leases expire.

We may acquire properties that involve risks that could adversely affect our business and financial condition.

We have acquired properties and will continue to acquire properties, through the direct acquisition of real estate and the acquisition of entities that own the real estate and through additional investments in co-investment ventures that acquire properties. The acquisition of properties involves risks, including the risk that the acquired property will not perform as anticipated and that any actual costs for rehabilitation, repositioning, renovation and improvements identified in the pre-acquisition due diligence process will exceed estimates. When we acquire properties, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. Additionally, there is, and it is expected there will continue to be, significant competition for properties that meet our investment criteria as well as risks associated with obtaining financing for acquisition activities. The acquired properties or entities may be subject to liabilities, including tax liabilities, which may be without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based on ownership of any of these entities or properties, then we may have to pay substantial sums to settle it.

We may be unable to integrate the Liberty and IPT operations successfully and realize the anticipated synergies and other benefits or do so within the anticipated timeframe.

We will be required to devote significant management attention and resources to integrating the operations of Liberty and IPT. Potential difficulties we may encounter in the integration process include the following:

•	the inability to successfully integrate the operations of Liberty and IPT in a manner that permits us to achieve the cost savings anticipated to result from these transactions, which would result in the anticipated benefits not being realized in the timeframe currently anticipated or at all;

•	the inability to dispose of non-industrial assets or operations that are outside of our area of expertise;

•	potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with these transactions; and

•	performance shortfalls as a result of the diversion of management's attention caused by completing these transactions and integrating the companies' operations.

For all these reasons, it is possible that the integration process could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our operations, services, standards, controls, procedures and policies, any of which could adversely affect the ability of Prologis to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits of these transactions, or could otherwise adversely affect our business and financial results.

Our real estate development strategies may not be successful.

Our real estate development strategy is focused on monetizing land in the future through development of logistics facilities to hold for long-term investment, contribution or sale to a co-investment venture or third party, depending on market conditions, our liquidity needs and other factors. We may increase our investment in the development, renovation and redevelopment business and we expect to complete the build-out and leasing of our current development portfolio. We may also develop, renovate and redevelop properties within existing or newly formed co-investment ventures. The real estate development, renovation and redevelopment business includes the following significant risks:

•	we may not be able to obtain financing for development projects on favorable terms or at all;

•	we may explore development opportunities that may be abandoned and the related investment impaired;

•	we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;

•	we may have construction costs that exceed our estimates and projects may not be completed, delivered or stabilized as planned due to defects or other issues;

•	we may not be able to attract third-party investment in new development co-investment ventures or sufficient customer demand for our product;

•	we may have properties that perform below anticipated levels, producing cash flow below budgeted amounts;

•	we may seek to sell certain land parcels and not be able to find a third party to acquire such land or the sales price will not allow us to recover our investment, resulting in impairment charges;

•	we may not be able to lease properties we develop on favorable terms or at all;

•	we may not be able to capture the anticipated enhanced value created by our value-added properties on expected timetables or at all;

•	we may experience delays (temporary or permanent) if there is public or government opposition to our activities; and

•	we may have substantial renovation, new development and redevelopment activities, regardless of their ultimate success, that require a significant amount of management’s time and attention, diverting their attention from our day-to-day operations.

We are subject to risks and liabilities in connection with forming co-investment ventures, investing in new or existing co-investment ventures, attracting third-party investment and managing properties through co-investment ventures.

At December 31, 2019, we had investments in co-investment ventures, both public and private, that owned operating properties with a gross book value of approximately $41 billion. Our organizational documents do not limit the amount of available funds that we may invest in these ventures, and we may and currently intend to develop and acquire properties through co-investment ventures and investments in other entities when warranted by the circumstances. However, there can be no assurance that we will be able to form new co-investment ventures, or attract third-party investment or that additional investments in new or existing ventures to develop or acquire properties will be successful. Further, there can be no assurance that we are able to realize value from such investments.

Our co-investment ventures involve certain additional risks that we do not otherwise face, including:

•	our partners may share certain approval rights over major decisions made on behalf of the ventures;

•	if our partners fail to fund their share of any required capital contributions, then we may choose to contribute such capital;

•	our partners might have economic or other business interests or goals that are inconsistent with our business interests or goals that would affect our ability to operate the property;

•	the venture or other governing agreements often restrict the transfer of an interest in the co-investment venture or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;

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our relationships with our partners are generally contractual in nature and may be terminated or dissolved under the terms of the agreements, and in such event, we may not continue to manage or invest in the assets underlying such relationships resulting in reduced fee revenues or obtaining direct ownership of the properties through acquisition; and

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disputes between us and our partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable co-investment venture to additional risk.

We generally seek to maintain sufficient influence over our co-investment ventures to permit us to achieve our business objectives; however, we may not be able to continue to do so indefinitely. We have formed publicly traded investment vehicles, such as NPR and FIBRA Prologis, for which we serve as sponsor or manager. We have contributed, and may continue to contribute, assets into such vehicles. There is a risk that our managerial relationship may be terminated.

We are exposed to various environmental risks, which may result in unanticipated losses that could affect our business and financial condition.

Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances. The costs of removal or remediation of such substances could be substantial. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such hazardous substances. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination.

Environmental laws in some countries, including the U.S., also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of our properties are known to contain asbestos-containing building materials.

In addition, some of our properties are leased or have been leased, in part, to owners and operators of businesses that use, store or otherwise handle petroleum products or other hazardous or toxic substances, creating a potential for the release of such hazardous or toxic substances. Furthermore, certain of our properties are on, adjacent to or near other properties that have contained or currently contain petroleum products or other hazardous or toxic substances, or upon which others have engaged, are engaged or may engage in activities that may release such hazardous or toxic substances. From time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions for which we believe that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. In connection with certain divested properties, we have agreed to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.

We are exposed to the potential impacts of future climate change, which may result in unanticipated losses that could affect our business and financial condition.

We are also exposed to potential physical risks from possible future changes in climate. Our logistics facilities may be exposed to rare catastrophic weather events, such as severe storms, fires or floods. If the frequency of extreme weather events increases, our exposure to these events could increase. We do not currently consider ourselves to be exposed to regulatory risks related to climate change, as the operation of our buildings typically does not generate a significant amount of greenhouse gas emissions. However, we may be adversely impacted as a real estate developer in the future by potential impacts to the supply chain or stricter energy efficiency standards or greenhouse gas regulations for the commercial building sectors. We cannot give any assurance that other such conditions do not exist or may not arise in the future. The potential impacts of future climate change on our real estate properties could adversely affect our ability to lease, develop or sell such properties or to borrow using such properties as collateral.

Our insurance coverage does not include all potential losses.

We and our unconsolidated co-investment ventures carry insurance coverage including property damage and rental loss insurance resulting from certain perils such as fire and additional perils as covered under an extended coverage policy, namely windstorm, flood, earthquake and terrorism; commercial general liability insurance; and environmental insurance, as appropriate for the markets where each of our properties and business operations are located. The insurance coverage contains policy specifications and insured limits customarily carried for similar properties, business activities and markets. We believe our properties and the properties of our co-investment ventures are adequately insured. Certain losses, however, including losses from floods, earthquakes, acts of war, acts of terrorism or riots, generally are not insured against or not fully insured against because it is not deemed economically feasible or prudent to do so. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, we could experience a significant loss of capital invested and future revenues in these properties and could potentially remain obligated under any recourse debt associated with the property.

Furthermore, we cannot be sure that the insurance companies will be able to continue to offer products with sufficient coverage at commercially reasonable rates. If we experience a loss that is uninsured or that exceeds insured limits with respect to one or more of our properties or if the insurance companies fail to meet their coverage commitments to us in the event of an insured loss, then we could lose the capital invested in the damaged properties, as well as the anticipated future revenues from those properties and, if there is recourse debt, then we would remain obligated for any mortgage debt or other financial obligations related to the properties. Any such losses or higher insurance costs could adversely affect our business.

Risks Related to Financing and Capital

We may be unable to refinance our debt or our cash flow may be insufficient to make required debt payments.

We are subject to risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. There can be no assurance that we will be able to refinance any maturing indebtedness, that such refinancing would be on terms as favorable as the terms of the maturing indebtedness, or that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, our business and financial condition will be negatively impacted and, if the maturing debt is secured, the lender may foreclose on the property securing such indebtedness. Our credit facilities and certain other debt bears interest at variable rates. Increases in interest rates would increase our interest expense under these agreements.

Covenants in our credit agreements could limit our flexibility and breaches of these covenants could adversely affect our financial condition.

The terms of our various credit agreements, including our credit facilities, the indentures under which our senior notes and term loans are issued and other note agreements, require us to comply with a number of customary financial covenants, such as maintaining debt service coverage ratio, leverage ratios, fixed charge coverage ratios and other operating covenants including maintaining insurance coverage. These covenants may limit our flexibility to run our business, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness. If we default under the covenant provisions and are unable to cure the default, refinance the indebtedness or meet payment obligations, our business and financial condition generally and, in particular, the amount of our distributable cash flow could be adversely affected.

Adverse changes in our credit ratings could negatively affect our financing activity.

At December 31, 2019, our credit ratings were A3 from Moody’s and A- from S&P, both with stable outlook. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization.

The credit ratings of our senior notes and preferred stock are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analyses of us. Our credit ratings can affect the amount of capital we can access, as well as the terms and pricing of any debt we may incur. There can be no assurance that we will be able to maintain our current credit ratings, and in the event our credit ratings are downgraded, we would likely incur higher borrowing costs and may encounter difficulty in obtaining additional financing. Also, a downgrade in our credit ratings may trigger additional payments or other negative consequences under our credit facilities and other debt instruments. Adverse changes in our credit ratings could negatively impact our business and, in particular, our refinancing and other capital market activities, our ability to manage debt maturities, our future growth and our development and acquisition activity.

The Financial Conduct Authority (“FCA”), the authority that regulates the London Inter-bank Offered Rate (“LIBOR”), announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 which will require transition to an alternative reference rate that could have a negative impact on our required debt payments and the value of our related debt and derivative financial instruments.

In July 2017, the FCA announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, in the U.S., the Federal Reserve Board and the Federal Reserve Bank of New York identified the Secured Overnight Financing Rate as its preferred alternative rate for USD LIBOR in debt and derivative financial instruments. Additionally, other global regulators have undertaken reference rate reform initiatives to identify a preferred alternative rate for other interbank offered rates (“IBORs”).

We have variable-rate debt of $2.0 billion at December 31, 2019 that are indexed to LIBOR, CDOR and Yen LIBOR (herein referred to as “IBOR-indexed”). Our loan documents contain provisions that contemplate alternative methods to determine the base rate applicable to our IBOR-indexed debt to the extent IBOR-indexed rates are not available. Additionally, no mandatory prepayment or redemption provisions would be triggered under our loan documents in the event that the IBOR-indexed rates are not available. If a contract is not transitioned to a preferred alternative rate and IBOR-indexed rates are discontinued, the impact on our debt and derivative financial instruments is likely to vary by contract. If IBOR-indexed rates are discontinued or if the methods of calculating the rates change, interest rates on our current or future indebtedness may be adversely affected. While we currently expect IBOR-indexed rates to be available until the end of 2021, it is possible that they will become unavailable prior to that time.

We anticipate managing the transition to a preferred alternative rate using the language set out in our agreements and through potentially modifying our debt and derivative instruments, however future market conditions may not allow immediate implementation of desired modifications and we may incur significant associated costs in doing so. We will continue to monitor and evaluate the potential impact on our debt payments and value of our related debt and derivative financial instruments, however, we are not able to predict when IBOR-indexed rates will cease to be available.

In order to meet REIT distribution requirements we may need access to external sources of capital.

To qualify as a REIT, we are required each year to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) to our stockholders and we may be subject to tax to the extent our taxable income is not fully distributed. Historically, we have satisfied these distribution requirements by making cash distributions to our

stockholders, however, we may elect to pay a portion of the distribution in shares of our stock. Assuming we continue to satisfy these distribution requirements with cash, we may not be able to fund all future capital needs, including acquisition and development activities, from cash retained from operations and may have to rely on third-party sources of capital. Furthermore, to maintain our REIT status and not have to pay federal income and excise taxes, we may need to borrow funds on a short-term basis to meet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. Our ability to access debt and equity capital on favorable terms or at all depends on a number of factors, including general market conditions, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of our securities.

Our stockholders may experience dilution if we issue additional common stock or units in the OP.

Any additional future issuance of common stock or OP units will reduce the percentage of our common stock and units owned by investors. In most circumstances, stockholders and unitholders will not be entitled to vote on whether or not we issue additional common stock or units. In addition, depending on the terms and pricing of any additional offering of our common stock or units and the value of the properties, our stockholders and unitholders may experience dilution in both book value and fair value of their common stock or units.

Income Tax Risks

The failure of Prologis, Inc. to qualify as a REIT would have serious adverse consequences.

Prologis, Inc. elected to be taxed as a REIT under Sections 856 through 860 of the IRC commencing with the taxable year ended December 31, 1997. We believe Prologis, Inc. has been organized and operated to qualify as a REIT under the IRC and believe that the current organization and method of operation comply with the rules and regulations promulgated under the IRC to enable Prologis, Inc. to continue to qualify as a REIT. However, it is possible that we are organized or have operated in a manner that would not allow Prologis, Inc. to qualify as a REIT, or that our future operations could cause Prologis, Inc. to fail to qualify. Qualification as a REIT requires us to satisfy numerous requirements (some annually and others on a quarterly basis) established under highly technical and complex sections of the IRC for which there are only limited judicial and administrative interpretations and involves the determination of various factual matters and circumstances not entirely within our control. For example, to qualify as a REIT, Prologis, Inc. must derive at least 95% of its gross income in any year from qualifying sources. In addition, Prologis, Inc. must pay dividends to its stockholders aggregating annually at least 90% of its taxable income (determined without regard to the dividends paid deduction and by excluding capital gains) and must satisfy specified asset tests on a quarterly basis. Historically, we have satisfied these distribution requirements by making cash distributions to our stockholders, but we may choose to satisfy these requirements by making distributions of cash or other property, including, in limited circumstances, our own stock. The provisions of the IRC and applicable Treasury regulations regarding qualification as a REIT are more complicated for Prologis, Inc. because we hold substantially all of our assets through the OP.

If Prologis, Inc. fails to qualify as a REIT in any taxable year, we will be required to pay federal income tax (including, for taxable years prior to 2018, any applicable alternative minimum tax) on taxable income at regular corporate rates. Unless we are entitled to relief under certain statutory provisions, Prologis, Inc. would be disqualified from treatment as a REIT for the four taxable years following the year in which it lost the qualification and would be subject to corporate tax on built-in gains that exist at the time of REIT re-election if recognized within the five-year period after re-election, and potentially 10 years for certain states. If Prologis, Inc. lost its REIT status, our net earnings would be significantly reduced for each of the years involved. In addition, we may need to borrow additional funds or liquidate some investments to pay any additional tax liability. Accordingly, funds available for investment, operations and distributions would be reduced.

Furthermore, we own a direct or indirect interest in certain subsidiary REITs that elected to be taxed as REITs under Sections 856 through 860 of the IRC. Provided that each subsidiary REIT qualifies as a REIT, our interest in such subsidiary REIT will be treated as a qualifying real estate asset for purposes of the REIT asset tests, and any dividend income or gains derived by us from such subsidiary REIT will generally be treated as income that qualifies for purposes of the REIT 95% and 75% gross income tests. To qualify as a REIT, the subsidiary REIT must independently satisfy all of the REIT qualification requirements. If such subsidiary REIT were to fail to qualify as a REIT, and certain relief provisions did not apply, it would be treated as a regular taxable corporation and its income would be subject to U.S. federal income tax. In addition, a failure of the subsidiary REIT to qualify as a REIT would have an adverse effect on the ability of Prologis, Inc. to comply with the REIT income and asset tests, and thus its ability to qualify as a REIT.

In addition, we may acquire properties through the acquisition of REIT entities that own the real estate. If a gain in such assets is not otherwise recognized by the seller or target in such acquisitions, and such entities were to fail to satisfy the REIT requirements for any year, they would be disqualified from treatment as a REIT for the four taxable years following the year in which the REIT qualification was lost and the acquired assets would be subject to corporate tax on built-in gains that exist at the time of REIT re-election or, if earlier, at the time of Prologis’ acquisition of the assets. A sale of such assets within the 5-year recognition period, and potentially 10 years for certain states, could result in corporate tax liabilities that could be significant.

Certain property transfers may generate prohibited transaction income, resulting in a penalty tax on gain attributable to the transaction.

From time to time, we may transfer or otherwise dispose of some of our properties, including by contributing properties to our co-investment ventures. Under the IRC, any gain resulting from transfers of properties we hold as inventory or primarily for sale to customers in the ordinary course of business is treated as income from a prohibited transaction subject to a 100% penalty tax. We do not believe that our transfers or disposals of property or our contributions of properties into our co-investment ventures are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service (“IRS”) may contend that certain transfers or dispositions of properties by us or contributions of properties into our co-investment ventures are prohibited transactions. While we believe that the IRS would not prevail in any such dispute, if the IRS were to argue successfully that a transfer, disposition or contribution of property constituted a prohibited transaction, we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT.

Legislative or regulatory action could adversely affect us.

In recent years, numerous legislative, judicial and administrative changes have been made to the U.S., state, local and foreign income tax laws applicable to investments in real estate, REITs, similar entities and investments. Additional changes are likely to continue to occur in the future, both in and outside of the U.S. and may impact our taxation or that of our stockholders. Any increases in tax liability could be substantial and would reduce the amount of cash available for other purposes.

Complying with REIT requirements may limit our flexibility or cause us to forego otherwise attractive opportunities.

Our use of taxable REIT subsidiaries (“TRSs”) enables us to engage in non-REIT qualifying business activities. Under the IRC, no more than 20% of the value of the assets of a REIT may be represented by securities of one or more TRSs and other non-qualifying assets. This limitation may hinder our ability to make certain attractive investments, including the purchase of non-qualifying assets, the expansion of non-real estate activities and investments in the businesses to be conducted by our TRSs, and to that extent limit our opportunities.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

GEOGRAPHIC DISTRIBUTION

We predominately invest in logistics facilities. Our properties are typically used for distribution, storage, packaging, assembly and light manufacturing of consumer products. The vast majority of our operating properties are used by our customers for retail and online fulfillment and business-to-business transactions.

The following tables provide details of our consolidated operating properties, investment in land and development portfolio and our O&M portfolio. The O&M portfolio includes the properties we consolidate and the properties owned by our unconsolidated co-investment ventures reflected at 100% of the amount included in the ventures’ financial statements as calculated on a GAAP basis, not our proportionate share.

Included in the operating property information below for our consolidated operating properties are 382 buildings owned primarily by one co-investment venture that we consolidate but of which we own less than 100% of the equity. No individual property or market amounted to 10% or more of our consolidated total assets at December 31, 2019, or generated revenue equal to 10% or more of our consolidated total revenues for the year ended December 31, 2019, with the exception of the Southern California market. Dollars and square feet in the following tables are in millions:

	Consolidated Operating Properties						O&M
Geographies	Rentable Square Footage		Gross Book Value		Encumbrances⁽¹⁾		Rentable Square Footage		Gross Book Value
U.S.:
Atlanta		22	$	1,319	$	14		25	$	1,488
Baltimore/Washington D.C.		6		674		13		10		1,044
Central and Eastern Pennsylvania		18		1,282		-		20		1,501
Central Valley		15		1,046		10		16		1,159
Chicago		37		2,848		9		47		3,648
Dallas/Fort Worth		25		1,574		8		32		2,091
Houston		12		1,025		10		19		1,528
New Jersey/New York City		27		2,827		45		35		3,853
San Francisco Bay Area		19		2,600		25		23		3,070
Seattle		13		1,793	*			20		2,457
South Florida		11		1,315		29		16		1,856
Southern California		68		7,318		18		86		9,338
Remaining Markets – U.S. (16 markets)⁽²⁾		64		3,970		42		85		5,360
Subtotal U.S.		337		29,591		223		434		38,393
Other Americas:
Brazil		-		-		-		10		627
Canada		10		866		150		10		866
Mexico		4		258		-		39		2,356
Subtotal Other Americas		14		1,124		150		59		3,849
Europe:
France		1		67		-		31		2,486
Germany		1		78		-		24		2,021
Netherlands		-		-		-		22		1,990
U.K.	*			69		-		25		3,733
Remaining Countries – Europe (8 countries)⁽³⁾		3		141		-		78		5,566
Subtotal Europe		5		355		-		180		15,796
Asia:
China	*			10		-		27		1,993
Japan		2		275		157		34		6,255
Singapore		1		141		-		1		141
Subtotal Asia		3		426		157		62		8,389
Total operating portfolio⁽⁴⁾		359		31,496		530		735		66,427
Value-added properties⁽⁵⁾		3		397		-		5		565
Total operating properties		362	$	31,893	$	530		740	$	66,992

Items notated by ‘*’ indicate an amount less than one million that rounds to zero.

	Consolidated – Investment in Land						Consolidated – Development Portfolio
Geographies	Acres		Estimated Build Out Potential (square feet)⁽⁶⁾		Current Investment		Rentable Square Footage Upon Completion		TEI⁽⁷⁾
U.S.:
Atlanta		203		2	$	23	*		$	15
Baltimore/Washington D.C.		-		-		-	*			10
Central and Eastern Pennsylvania		29	*			8		-		-
Central Valley		948		19		145		2		148
Chicago		100		2		13		1		72
Dallas/Fort Worth		8		1		2		1		91
Houston		177		3		33	*			13
New Jersey/New York City		20	*			11		1		105
San Francisco Bay Area		13	*		*			1		200
Seattle		9	*			14		1		71
South Florida		70		1		61	*			48
Southern California		79		1		74		2		232
Remaining Markets – U.S. (16 markets)		385		7		100		8		744
Subtotal U.S.		2,041		36		484		17		1,749
Other Americas:
Brazil		196		4		20		-		-
Canada		167		3		88		1		49
Mexico		449		8		83		1		87
Subtotal Other Americas		812		15		191		2		136
Europe:
France		230		4		28		1		86
Germany		36		1		20		1		114
Netherlands		10	*			9		2		157
U.K.		138		2		86		2		354
Remaining Countries – Europe (8 countries)		1,066		22		181		5		355
Subtotal Europe		1,480		29		324		11		1,066
Asia:
Japan		78		4		103		6		1,019
Subtotal Asia		78		4		103		6		1,019
Total land and development portfolio		4,411		84	$	1,102		36	$	3,970

Items notated by ‘*’ indicate an amount less than one million that rounds to zero.

(1)

Certain of our consolidated properties are pledged as security under secured mortgage debt and assessment bonds. For purposes of this table, the total principal balance of a debt issuance that is secured by a pool of properties is allocated among the properties in the pool based on each property’s investment balance. In addition to the amounts reflected here, we also have $38 million of encumbrances related to one prestabilized property and one property under development not included in consolidated operating properties.

(2)	No remaining market within the U.S. represented more than 2% of the total gross book value of the consolidated operating properties.

(3)	No remaining country within Europe represented more than 2% of the total gross book value of the O&M operating properties.

(4)

Included in our consolidated operating properties are properties that we consider to be held for contribution and are presented within Assets Held for Sale or Contribution in the Consolidated Balance Sheets. We include these properties in our operating portfolio as they are expected to be contributed to our co-investment ventures and remain in our O&M operating portfolio. At December 31, 2019, we had investments in real estate properties that were expected to be contributed to our unconsolidated co-investment ventures totaling $605 million and aggregating 8 million square feet. See Note 6 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for further information on our Assets Held for Sale or Contribution.

(5)	Value-added properties are properties we have either acquired at a discount and believe we could provide greater returns post-stabilization or properties we expect to repurpose to a higher and better use.

(6)	Represents the estimated finished square feet available for lease upon completion of a building on existing parcels of land.

(7)

TEI is based on current projections and is subject to change. As noted in the table below, our current investment was $1.9 billion, leaving approximately $2.1 billion of additional required investment. At December 31, 2019, based on TEI, approximately 23% of the properties in the development portfolio were already completed but not yet stabilized and approximately 64% of the properties under development in the development portfolio were expected to be completed by December 31, 2020. The remainder of our properties under development were expected to be completed before December 2021.

The following table summarizes our investment in consolidated real estate properties at December 31, 2019 (in millions):

	Investment Before Depreciation
Operating properties, excluding assets held for sale or contribution	$	31,288
Development portfolio, including cost of land		1,868
Land		1,102
Other real estate investments ⁽¹⁾		966
Total consolidated real estate properties	$	35,224

(1)

Included in other real estate investments were: (i) non-logistics real estate; (ii) land parcels that are ground leased to third parties; (iii) our corporate headquarters; (iv) costs related to future development projects, including purchase options on land; (v) earnest money deposits associated with potential acquisitions; and (vi) infrastructure costs related to projects we are developing on behalf of others.

LEASE EXPIRATIONS

We generally lease our properties on a long-term basis (the average term for leases commenced in 2019 was 66 months). The following table summarizes the lease expirations of our consolidated operating portfolio for leases in place at December 31, 2019 (dollars and square feet in millions):


					NER
	Number of Leases		Occupied Square Feet		Dollars		% of Total			Dollars Per Square Foot ⁽¹⁾
2020		635		36	$	210		10.0	%	$	5.83
2021		800		54		299		14.2	%		5.54
2022		749		56		321		15.3	%		5.73
2023		618		46		276		13.1	%		6.00
2024		609		47		298		14.2	%		6.34
2025		219		24		154		7.3	%		6.42
2026		120		19		118		5.6	%		6.21
2027		95		13		80		3.8	%		6.15
2028		70		12		82		3.9	%		6.83
2029		89		17		119		5.7	%		7.00
Thereafter		62		19		144		6.9	%		7.58
		4,066		343	$	2,101		100.0	%	$	6.13
Month to month		69		3
Total consolidated		4,135		346

(1)	Dollars per square foot was calculated by dividing NER by the occupied square feet of the lease.

CO-INVESTMENT VENTURES

Included in our O&M portfolio are consolidated and unconsolidated co-investment ventures that hold investments in real estate properties, primarily logistics facilities that we also manage. Our unconsolidated co-investment ventures are accounted for under the equity method. The amounts included for the unconsolidated ventures are reflected at 100% of the amount included in the ventures’ financial statements as calculated on a GAAP basis, not our proportionate share. The following table summarizes our consolidated and unconsolidated co-investment ventures at December 31, 2019 (in millions):

	Operating Properties
	Square Feet		Gross Book Value		Investment in Land		Development Portfolio – TEI
Consolidated Co-Investment Venture
U.S.:
Prologis U.S. Logistics Venture (“USLV”)		65	$	6,142	$	12	$	76
Total		65	$	6,142	$	12	$	76

Unconsolidated Co-Investment Ventures
U.S.:
Prologis Targeted U.S. Logistics Fund (“USLF”)		99	$	8,920	$	-	$	-
Other Americas:
FIBRA Prologis		35		2,102		6		6
Prologis Brazil Logistics Venture ("PBLV") and other joint ventures		10		627		116		64
Subtotal Other Americas		45		2,729		122		70
Europe:
Prologis European Logistics Fund (“PELF”)		120		10,838		6		44
Prologis European Logistics Partners Sàrl (“PELP”)		52		3,972		23		33
Prologis UK Logistics Venture (“UKLV”)		4		677		102		122
Subtotal Europe		176		15,487		131		199
Asia:
Nippon Prologis REIT (“NPR”)		32		5,980		-		-
Prologis China Core Logistics Fund (“PCCLF”) ⁽¹⁾		21		1,741		-		8
Prologis China Logistics Venture ⁽¹⁾		5		242		30		1,223
Subtotal Asia		58		7,963		30		1,231
Total		378	$	35,099	$	283	$	1,500

(1)

In December 2019, we formed PCCLF, an unconsolidated co-investment venture investing in properties in China, with eight partners. At that time, we and our existing partner in Prologis China Logistics Venture I, LP received equity interests in PCCLF for the contribution of the existing portfolio of assets consisting of 79 properties totaling 22 million square feet. The seven new partners contributed cash, which was used to redeem a portion of our existing partner’s investment in PCCLF. We maintained our ownership percentage in these assets subsequent to the contribution and therefore did not recognize a gain.

For more information regarding our unconsolidated and consolidated co-investment ventures, see Notes 5 and 11 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

ITEM 3. Legal Proceedings

From time to time, we and our co-investment ventures are parties to a variety of legal proceedings arising in the ordinary course of business.

In connection with the Liberty Transaction, six lawsuits have been filed seeking damages and/or rescission, among other things. An adverse decision being entered for any lawsuit may adversely affect our financial results. See Note 20 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for further information on the Liberty Transaction.

We do not believe that the ultimate disposition of any additional matters to which we are currently a party will result in a material adverse effect on our business, financial position or results of operations.

ITEM 4. Mine Safety Disclosures

Not Applicable.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

MARKET INFORMATION AND HOLDERS

Our common stock is listed on the NYSE under the symbol “PLD.”

Stock Performance Graph

The following line graph compares the change in Prologis, Inc. cumulative total stockholder’s return on shares of its common stock from December 31, 2014, to the cumulative total return of the S&P 500 Stock Index and the Financial Times and Stock Exchange NAREIT Equity REITs Index from December 31, 2014, to December 31, 2019. The graph assumes an initial investment of $100 in our common stock and each of the indices on December 31, 2014, and, as required by the SEC, the reinvestment of all dividends. The return shown on the graph is not necessarily indicative of future performance.

This graph and the accompanying text are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

PREFERRED STOCK DIVIDENDS

At December 31, 2019 and 2018, we had 1.4 million shares of the Series Q preferred stock with a liquidation preference of $50 per share that will be redeemable at our option on or after November 13, 2026. Dividends payable per share was $4.27 for the years ended December 31, 2019 and 2018.

For more information regarding dividends, see Note 9 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

SALES OF UNREGISTERED SECURITIES

During 2019, we issued 1.2 million shares of common stock of Prologis, Inc. in connection with the redemption of common units of Prologis, L.P. The shares of common stock were issued in reliance on the exemption from registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(a)(2) thereof.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

For information regarding securities authorized for issuance under our equity compensation plans, see Notes 9 and 12 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

OTHER STOCKHOLDER MATTERS

Common Stock Plans

Further information relative to our equity compensation plans will be provided in our 2020 Proxy Statement or in an amendment filed on Form 10-K/A.

ITEM 6. Selected Financial Data

The following table summarizes selected financial data related to our historical financial condition and results of operations for both Prologis, Inc. and Prologis, L.P. (in millions, except for per share and unit amounts):

	2019			2018			2017			2016			2015
Operating Data:
Total revenues	$	3,331		$	2,804		$	2,618		$	2,533		$	2,197
Gains on dispositions of development properties and land, net	$	468		$	470		$	328		$	334		$	258
Gains on other dispositions of investments in real estate, net	$	390		$	371		$	855		$	423		$	501
Consolidated net earnings	$	1,702		$	1,823		$	1,761		$	1,293		$	926
Net earnings per share/unit attributable to common stockholders/ unitholders – Basic	$	2.48		$	2.90		$	3.10		$	2.29		$	1.66
Net earnings per share/unit attributable to common stockholders/ unitholders – Diluted	$	2.46		$	2.87		$	3.06		$	2.27		$	1.64
Dividends per common share and distributions per common unit	$	2.12		$	1.92		$	1.76		$	1.68		$	1.52
Consolidated Balance Sheet Data:
Total assets	$	40,032		$	38,418		$	29,481		$	30,250		$	31,395
Total debt	$	11,906		$	11,090		$	9,413		$	10,608		$	11,627
FFO attributable to common stockholders/unitholders ⁽¹⁾:
Reconciliation of net earnings to FFO:
Net earnings attributable to common stockholders	$	1,567		$	1,643		$	1,642		$	1,203		$	863
Total NAREIT defined adjustments		950			707			101			534			461
Total our modified adjustments		74			(118	)		52			(35	)		(15	)
FFO, as modified by Prologis attributable to common stockholders/ unitholders ⁽¹⁾	$	2,591		$	2,232		$	1,795		$	1,702		$	1,309
Total core defined adjustments		(427	)		(444	)		(244	)		(302	)		(128	)
Core FFO attributable to common stockholders/unitholders ⁽¹⁾	$	2,164		$	1,788		$	1,551		$	1,400		$	1,181

(1)	FFO; FFO, as modified by Prologis; and Core FFO attributable to common stockholders/unitholders are non-GAAP measures. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for our definition of FFO measures and a complete reconciliation to net earnings.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this report and the matters described under Item 1A. Risk Factors.

A discussion regarding our financial condition and results of operations for 2019 compared to 2018 is presented below. Information on 2017 is included in graphs only to show year over year trends in our results of operations. Our financial condition for 2017 and results of operations for 2017 and 2018 compared to 2017 can be found under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference herein to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 13, 2019, and is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.ir.prologis.com.

MANAGEMENT’S OVERVIEW

Summary of 2019

During the year ended December 31, 2019, operating fundamentals remained strong for our O&M portfolio. Our occupancy decreased to 96.5% at December 31, 2019 as compared to 97.5% at December 31, 2018 due to our focus on rental rate growth as evidenced by our weighted average net effective rent change of 23.7% in our O&M portfolio during 2019.

In 2019, we completed the following significant activities as described in the Notes to the Consolidated Financial Statements:

•

In January, we formed PBLV, a Brazilian unconsolidated co-investment venture, with one partner. We contributed an initial portfolio of real estate properties to PBLV consisting of 14 operating properties totaling 7 million square feet and 371 acres of land. We received total proceeds of $620 million, including cash and units, which represents a 20% equity interest.

•	Excluding the contribution to PBLV, we generated net proceeds of $2.4 billion and realized net gains of $719 million, primarily from the contribution of properties to our unconsolidated co-investment ventures in Europe, Japan and the U.S.

•	In February, we redeemed a portion of our investment in a European unconsolidated co-investment venture for proceeds of €278 million ($313 million).

•

In December, we formed PCCLF, an unconsolidated co-investment venture investing in properties in China, with eight partners. At that time, we and our existing partner in Prologis China Logistics Venture I, LP received equity interests in PCCLF for the contribution of the existing portfolio of assets consisting of 79 properties totaling 22 million square feet. The seven new partners contributed cash, which was used to redeem a portion of our existing partner’s investment in PCCLF. We maintained our ownership percentage in these assets subsequent to the contribution and therefore did not recognize a gain.

•	We earned promotes aggregating $181 million ($121 million net of related expenses), of which $166 million was recorded in Strategic Capital Revenues, primarily from PELF, and $15 million was recorded in Net Earnings Attributable to Noncontrolling Interests.

•	We completed the following financing activities that resulted in extending our debt maturities to 7.8 years and lowering our effective interest rate to 2.2%, both on a weighted average basis at December 31, 2019.

•

In January, we upsized our global senior credit facility to $3.5 billion, maturing in January 2023.

•

In January, we also entered into two unsecured Japanese yen term loans for a total of ¥15.0 billion ($137 million) that bear interest of Yen LIBOR plus 0.5% to 0.6% and mature in January 2028 and 2030.

•

In March, we entered into an unsecured Japanese yen term loan agreement (the “March 2019 Yen Term Loan”) under which we can draw Japanese yen in an aggregate amount not to exceed ¥85.0 billion ($783 million at December 31, 2019). The March 2019 Yen Term Loan bears interest at Yen LIBOR plus 0.4% and matures in March 2026. We used the proceeds to repay the majority of the outstanding balance of ¥100.0 billion ($897 million) on our 2016 Japanese yen term loan.

•

In March, we also completed a private placement for ¥10.0 billion ($91 million) of senior notes with a stated interest rate of 1.2%, maturing in March 2039.

•

In September, we issued three series of senior notes for a total of €1.8 billion ($2.0 billion), bearing a weighted-average fixed interest rate of 0.7% and maturing in September 2027 through 2049. We utilized the proceeds to pay off senior notes of €600 million ($656 million) bearing an interest rate of 1.4% and maturing in October 2020 and $499 million on our multi-currency term loan.

•

At December 31, 2019, we had $3.7 billion of available borrowing capacity under our credit facilities and total liquidity of $4.8 billion, including unrestricted cash balances.

Subsequent to year end, we closed the following transactions in 2020:

•	On January 3^rd, we redeemed €400 million ($446 million) of senior notes bearing a floating rate of Euribor plus 0.3%.

•	On January 8^th, our two U.S. co-investment ventures acquired the wholly-owned real estate assets of IPT for approximately $4 billion (our investment was approximately $1.6 billion). See Notes 5 and 11 to our Consolidated Financial Statements for more information on this transaction.

•	On February 4^th, we completed the Liberty Transaction for approximately $13 billion through the issuance of equity and the assumption of debt. See Note 20 to our Consolidated Financial Statements for more information on this transaction.

RESULTS OF OPERATIONS

We evaluate our business operations based on the NOI of our two operating segments: Real Estate Operations and Strategic Capital. NOI by segment is a non-GAAP performance measure that is calculated using revenues and expenses directly from our financial statements. We consider NOI by segment to be an appropriate supplemental measure of our performance because it helps management and investors understand our operating results.

Below is a reconciliation of our NOI by segment to Operating Income per the Consolidated Financial Statements (in millions). Each segment’s NOI is reconciled to a line item in the Consolidated Financial Statements in their respective segment discussions below.

	2019			2018
Real Estate Operations – NOI	$	2,091		$	1,784
Strategic Capital – NOI		307			249
General and administrative expenses		(266	)		(239	)
Depreciation and amortization expenses		(1,140	)		(947	)
Operating income before gains on real estate transactions, net		992			847
Gains on dispositions of development properties and land, net		468			470
Gains on other dispositions of investments in real estate, net		390			371
Operating income	$	1,850		$	1,688

See Note 17 to the Consolidated Financial Statements for more information on our segments and a reconciliation of each business segment’s NOI to Operating Income and Earnings Before Income Taxes.

Real Estate Operations

This operating segment principally includes rental revenue and rental expenses recognized from our consolidated properties. We allocate the costs of our property management and leasing functions to the Real Estate Operations segment through Rental Expenses and the Strategic Capital segment through Strategic Capital Expenses based on the square footage of the relative portfolios. The operating fundamentals in the markets in which we operate continue to be strong, which has increased rents and kept occupancies high. In addition, this segment is impacted by our development, acquisition and disposition activities.

Below are the components of Real Estate Operations revenues, expenses and NOI (in millions), derived directly from the Consolidated Financial Statements.

	2019			2018
Rental revenues ⁽¹⁾	$	2,832		$	2,389
Development management and other revenues		6			9
Rental expenses		(734	)		(601	)
Other expenses		(13	)		(13	)
Real Estate Operations – NOI	$	2,091		$	1,784

(1)	As disclosed in Note 2 to the Consolidated Financial Statements, under the new lease standard, we adopted the practical expedient to present rental revenue and rental recoveries as a single component under Rental Revenues in our Consolidated Statements of Income.

The change in Real Estate Operations NOI in 2019 compared to 2018 was impacted by the following items (dollars in millions):

(1)	Acquisition activity increased NOI in 2019, compared to 2018, primarily due to the acquisition of DCT Industrial Trust Inc. and DCT Industrial Operating Partnership LP (collectively “DCT”), which was completed for $8.5 billion on August 22, 2018 (“DCT Transaction”).

(2)

During both years, we experienced positive rental rate growth. Rental rate growth (or rent change) is a combination of the rollover of existing leases to higher rental rates and contractual rent increases on existing leases. If a lease has a contractual rent increase driven by a metric that is not known at the time the lease commences, such as the consumer price index or a similar metric, the rent increase is not included in rent leveling and therefore, impacts the rental revenue we recognize. We experienced an increase in NER change from 29.4% in 2018 to 32.8% in 2019, that was marginally reduced by a decrease in average occupancy of 0.6% during the same period. See below for key metrics on rent change on rollover and occupancy for the consolidated operating portfolio.

(3)	We calculate changes in NOI from development completions period over period by comparing the change in NOI generated on the pool of developments that completed on or after January 1, 2018 through December 31, 2019 year over year.

(4)

Other activity decreased NOI in 2019, compared to 2018, primarily due to internal costs of $25 million related to leasing activities, partially reduced by lower non-recoverable expenses, both in 2019, and changes in foreign currency exchange rates. Beginning in 2019 with the adoption of the new lease accounting standard, we no longer capitalize internal costs related to our leasing activities.

Below are key operating metrics of our consolidated operating portfolio.

(1)	In August 2018, we completed the DCT Transaction and acquired a portfolio of logistics real estate assets aggregating 68 million square feet.

(2)	Consolidated square feet of leases commenced and weighted average net effective rent change were calculated for leases with initial terms of one year or greater.

Development Activity

The following table summarizes consolidated development activity (dollars and square feet in millions):

	2019			2018
Starts:
Number of new development projects during the period		74			67
Square feet		25			26
TEI	$	2,741		$	2,408
Percentage of build-to-suits based on TEI		44.0	%		40.8	%

Stabilizations:
Number of development projects stabilized during the period		72			60
Square feet		26			21
TEI	$	2,422		$	1,824
Weighted average stabilized yield ⁽¹⁾		6.3	%		6.5	%
Estimated value at completion	$	3,313		$	2,459
Estimated weighted average margin		36.8	%		34.8	%

(1)	We calculate the weighted average stabilized yield as estimated NOI assuming stabilized occupancy divided by TEI.

At December 31, 2019, our consolidated development portfolio, including properties under development and prestabilized properties with a TEI of $4.0 billion, was 50.0% leased and expected to be completed before December 2021. For additional information on our development portfolio at December 31, 2019, see Item 2. Properties.

Capital Expenditures

We capitalize costs incurred in renovating and improving our operating properties as part of the investment basis or within other assets. The following graph summarizes our total capital expenditures, excluding development costs, and property improvements per average square foot of our consolidated operating properties during each year:

(1)	In 2019, total capital expenditures increased primarily due to a larger portfolio and leasing our operating properties at higher rental rates and longer lease terms.

Strategic Capital

This operating segment includes revenues from asset and property management, other fees for services performed and promote revenue earned from the unconsolidated entities. Revenues associated with the Strategic Capital segment fluctuate because of changes in the size of the portfolios through acquisitions and dispositions, the fair value of the properties and other transactional activity including foreign currency exchange rates and timing of promotes. These revenues are reduced by the direct costs associated with the asset and property-level management expenses for the properties owned by these ventures. We allocate the costs of our property management and leasing functions to the Strategic Capital segment through Strategic Capital Expenses and to the Real Estate Operations segment through Rental Expenses based on the square footage of the relative portfolios.

Below are the components of Strategic Capital revenues, expenses and NOI, derived directly from the Consolidated Financial Statements (in millions):

	2019			2018
Strategic capital revenues	$	492		$	406
Strategic capital expenses		(185	)		(157	)
Strategic Capital – NOI	$	307		$	249

Below is additional detail of our Strategic Capital revenues, expenses and NOI (in millions):

	U.S. ⁽¹⁾						Other Americas						Europe						Asia						Total
	2019			2018			2019			2018			2019			2018			2019			2018			2019			2018
Strategic capital revenues ($)
Recurring fees ⁽²⁾		75			65			31			23			106			95			56			48			268			231
Transactional fees ⁽³⁾		11			9			5			3			17			23			25			22			58			57
Promote revenue⁽⁴⁾		-			1			5			6			161			57			-			54			166			118
Total strategic capital revenues ($)		86			75			41			32			284			175			81			124			492			406
Strategic capital expenses ($)		(97	)		(70	)		(14	)		(12	)		(38	)		(39	)		(36	)		(36	)		(185	)		(157	)
Strategic Capital - NOI ($)		(11	)		5			27			20			246			136			45			88			307			249

(1)	The U.S. expenses include compensation, personnel costs and PPP awards for employees who were based in the U.S. but also support other geographies.

(2)	Recurring fees include asset and property management fees.

(3)	Transactional fees include leasing commission, acquisition, development and other fees.

(4)

We generally earn promote revenue directly from third-party investors in the co-investment ventures and occasionally from the venture. The promote is generally based on cumulative returns over a three-year period. Under either structure, when the promote is earned we recognize the third-party investors’ share of the promote. Approximately 40% of the promote earned by us is paid to our employees as a combination of cash and stock awards pursuant to the terms of the PPP and expensed through Strategic Capital Expenses, as vested.

The following real estate investments were held through our unconsolidated co-investment ventures based on historical cost at December 31 (dollars and square feet in millions):

	U.S.				Other Americas				Europe				Asia				Total
	2019		2018		2019 ⁽¹⁾		2018		2019		2018		2019 ⁽²⁾		2018		2019		2018
Ventures		1		1		2		2		3		3		3		2		9		8
Operating properties		605		566		214		209		731		669		144		125		1,694		1,569
Square feet		99		91		44		39		176		159		59		51		378		340
Total assets ($)		8,408		7,303		2,707		2,137		14,677		13,028		8,758		7,089		34,550		29,557

(1)	PBLV and our other Brazilian joint ventures are combined as one venture for the purpose of this table.

(2)	In December, we formed PCCLF, an unconsolidated co-investment venture investing in properties in China, with eight partners. At that time, we and our existing partner in Prologis China Logistics Venture I, LP contributed the existing portfolio of assets to PCCLF.

See Note 5 to the Consolidated Financial Statements for additional information on our unconsolidated co-investment ventures.

G&A Expenses

G&A expenses were $266 million and $239 million for 2019 and 2018, respectively. G&A expenses increased in 2019 as compared to 2018, due to higher compensation expenses based largely on the increase in our share price.

We capitalize certain internal costs, including salaries and related expenses, directly related to our development activities. We previously capitalized G&A related to our internal leasing activities, however, beginning January 1, 2019 these costs were expensed and recorded to Rental Expenses in the Consolidated Statements of Income.

The following table summarizes capitalized G&A amounts (in millions):

	2019			2018
Building and land development activities	$	68		$	63
Leasing activities		-			21
Operating building improvements and other		20			16
Total capitalized G&A expenses	$	88		$	100
Capitalized salaries and related costs as a percent of total salaries and related costs		19.5	%		24.5	%

Depreciation and Amortization Expenses

Depreciation and amortization expenses were $1.1 billion and $947 million for 2019 and 2018, respectively.

The following table highlights the key changes in depreciation and amortization expenses in 2019 as compared to 2018 (dollars in millions):

(1)	The acquisition of properties primarily includes the DCT Transaction through which we acquired operating properties and the related intangible assets in the third quarter of 2018. See Note 3 to the Consolidated Financial Statements for more information on the DCT Transaction.

Gains on Real Estate Transactions, Net

The following table summarizes our Gains on Dispositions of Development Properties and Land, net and Gains on Other Dispositions of Investments in Real Estate, net, which includes sales of non-developed properties (primarily operating properties) and other real estate transactions, for the years ended December 31 (in millions):

	2019		2018
Gains on dispositions of development properties and land, net
Contributions to unconsolidated entities	$	403	$	423
Dispositions to third parties		65		47
Total gains on dispositions of development properties and land, net	$	468	$	470

Gains on other dispositions of investments in real estate, net
Contributions to unconsolidated entities	$	98	$	36
Dispositions to third parties		157		335
Total gains on contributions and dispositions, net	$	255	$	371
Gains on partial redemptions of investment in an unconsolidated co-investment venture		135		-
Total gains on other dispositions of investments in real estate, net	$	390	$	371

We utilized the proceeds from these transactions primarily to fund our capital investments during both periods. See Note 4 to the Consolidated Financial Statements for further information on these transactions.

Our Owned and Managed (“O&M”) Operating Portfolio

We manage our business and review our operating fundamentals on an O&M basis, which includes properties wholly owned by us or owned by one of our co-investment ventures. We believe reviewing the fundamentals this way allows management to understand the entire impact to the financial statements, as it will affect both the Real Estate Operations and Strategic Capital segments, as well as the net earnings we recognize from our unconsolidated co-investment ventures based on our ownership. We do not control the unconsolidated co-investment ventures for purposes of GAAP and the presentation of the ventures’ operating information does not represent a legal claim.

Our O&M operating portfolio does not include our development portfolio, value-added properties, non-industrial properties or properties held for sale to third parties and was as follows at December 31 (square feet in millions):

	2019							2018
	Number of Properties		Square Feet		Percentage Occupied			Number of Properties		Square Feet		Percentage Occupied
Consolidated		1,882		359		96.1	%		1,835		348		97.2	%
Unconsolidated		1,676		376		96.8	%		1,561		339		97.8	%
Total		3,558		735		96.5	%		3,396		687		97.5	%

Below are the key operating metrics summarizing the leasing activity of our O&M operating portfolio.

(1)	Square feet of leases commenced and weighted average net effective rent change were calculated for leases with initial terms of one year or greater. We retained more than 70% of our customers, based on the total square feet of leases commenced, for each year.

(2)	Turnover costs are defined as leasing commissions and tenant improvements and represent the obligations incurred in connection with the lease commencement for leases greater than one year. In 2019 and 2018, turnover costs per square foot

increased, however, due to the longer terms and higher rents on leases commenced, this resulted in a lower cost as a percentage of lease value.

Same Store Analysis

Our same store metrics are non-GAAP financial measures, which are commonly used in the real estate industry and expected from the financial community, on both a net effective and cash basis. We evaluate the performance of the 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, which allows us and investors to analyze our ongoing business operations. We determine our same store metrics on property NOI, which is calculated as rental revenue less rental expense for the applicable properties in the same store population for both consolidated and unconsolidated properties based on our ownership interest, as further defined below.

We define our same store population for the three months ended December 31, 2019 as the properties in our O&M operating portfolio, including the property NOI for both consolidated properties and properties owned by the unconsolidated co-investment ventures at January 1, 2018 and owned throughout the same three-month period in both 2018 and 2019. We believe the drivers of property NOI for the consolidated portfolio are generally the same for the properties owned by the ventures in which we invest and therefore we evaluate the same store metrics of the O&M portfolio based on Prologis’ ownership in the properties (“Prologis Share”). The same store population excludes properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period (January 1, 2018) and properties acquired or disposed of to third parties during the period. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the reported period-end exchange rate to translate from local currency into the U.S. dollar, for both periods.

As non-GAAP financial measures, the same store metrics have certain limitations as an analytical tool and may vary among real estate companies. As a result, we provide a reconciliation of Rental Revenues less Rental Expenses (“Property NOI”) (from our Consolidated Financial Statements prepared in accordance with U.S. GAAP) to our Same Store Property NOI measures.

We evaluate the results of our same store portfolio on a quarterly basis. The following is a reconciliation of our consolidated rental revenues, rental expenses and property NOI for each quarter in 2019 and 2018 to the full year, as included in the Consolidated Statements of Income and within Note 19 to the Consolidated Financial Statements and to the respective amounts in our same store portfolio analysis for the three months ended December 31 (dollars in millions):

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			Full Year
2019
Rental revenues	$	697		$	701		$	711		$	723		$	2,832
Rental expenses		(188	)		(181	)		(181	)		(184	)		(734	)
Property NOI	$	509		$	520		$	530		$	539		$	2,098
2018
Rental revenues	$	556		$	545		$	609		$	679		$	2,389
Rental expenses		(143	)		(133	)		(147	)		(178	)		(601	)
Property NOI	$	413		$	412		$	462		$	501		$	1,788

	Three Months Ended December 31,
	2019			2018			% Change
Reconciliation of Consolidated Property NOI to Same Store Property NOI measures:

Rental revenues	$	723		$	679
Rental expenses		(184	)		(178	)
Consolidated Property NOI	$	539		$	501

Adjustments to derive same store results:
Property NOI from consolidated properties not included in same store portfolio and other adjustments⁽¹⁾⁽²⁾		(157	)		(128	)
Property NOI from unconsolidated co-investment ventures included in same store portfolio⁽¹⁾⁽²⁾		452			434
Third parties' share of Property NOI from properties included in same store portfolio ⁽¹⁾⁽²⁾		(364	)		(355	)
Prologis Share of Same Store Property NOI – Net Effective⁽²⁾	$	470		$	452			4.0	%
Consolidated properties straight-line rent and fair value lease adjustments included in same store portfolio ⁽³⁾		(3	)		(5	)
Unconsolidated co-investment ventures straight-line rent and fair value lease adjustments included in same store portfolio⁽³⁾		(5	)		(5	)
Third parties' share of straight-line rent and fair value lease adjustments included in same store portfolio⁽²⁾⁽³⁾		4			4
Prologis Share of Same Store Property NOI – Cash⁽²⁾⁽³⁾	$	466		$	446			4.6	%

(1)

We exclude properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period and properties acquired or disposed of to third parties during the period. We also exclude net termination and renegotiation fees to allow us to evaluate the growth or decline in each property’s rental revenues without regard to one-time items that are not indicative of the property’s recurring operating performance. Net termination and renegotiation fees represent the gross fee negotiated to allow a customer to terminate or renegotiate their lease, offset by the write-off of the asset recorded due to the adjustment to straight-line rents over the lease term. Same Store Property NOI is adjusted to include an allocation of property management expenses for our consolidated properties based on the property management services provided to each property (generally, based on a percentage of revenues). On consolidation, these amounts are eliminated and the actual costs of providing property management services are recognized as part of our consolidated rental expense.

(2)

We include the Property NOI for the same store portfolio for both consolidated properties and properties owned by the co-investment ventures based on our investment in the underlying properties. In order to calculate our share of Same Store Property NOI from the co-investment ventures in which we own less than 100%, we use the co-investment ventures’ underlying Property NOI for the same store portfolio and apply our ownership percentage at December 31, 2019 to the Property NOI for both periods, including the properties contributed during the period. We adjust the total Property NOI from the same store portfolio of the co-investment ventures by subtracting the third parties’ share of both consolidated and unconsolidated co-investment ventures.

During the periods presented, certain wholly owned properties were contributed to a co-investment venture and are included in the same store portfolio. Neither our consolidated results nor those of the co-investment ventures, when viewed individually, would be comparable on a same store basis because of the changes in composition of the respective portfolios from period to period (e.g. the results of a contributed property are included in our consolidated results through the contribution date and in the results of the venture subsequent to the contribution date based on our ownership interest at the end of the period). As a result, only line items labeled “Prologis Share of Same Store Property NOI” are comparable period over period.

(3)

We further remove certain noncash items (straight-line rent and amortization of fair value lease adjustments) included in the financial statements prepared in accordance with U.S. GAAP to reflect a Same Store Property NOI – Cash measure.

We manage our business and compensate our executives based on the same store results of our O&M portfolio at 100% as we manage our portfolio on an ownership blind basis. We calculate those results by including 100% of the properties included in our same store portfolio.

Other Components of Income (Expense)

Earnings from Unconsolidated Entities, Net

We recognized net earnings from unconsolidated entities, which are accounted for using the equity method, of $200 million and $298 million during 2019 and 2018, respectively. The decrease in earnings year over year was primarily due to significant gains recognized in 2018 on real estate dispositions in Europe. The earnings we recognize can be impacted by: (i) variances in revenues and expenses of each venture; (ii) the size and occupancy rate of the portfolio of properties owned by each venture; (iii) gains or losses from the dispositions of properties and extinguishment of debt; (iv) our ownership interest in each venture; and (v) fluctuations in foreign currency exchange rates used to translate our share of net earnings to U.S. dollars.

See the discussion of our unconsolidated entities above in the Strategic Capital segment discussion and in Note 5 to the Consolidated Financial Statements for a further breakdown of our share of net earnings recognized.

Interest Expense

The following table details our net interest expense (dollars in millions):

	2019			2018
Gross interest expense	$	271		$	269
Amortization of debt discount and debt issuance costs, net		17			12
Capitalized amounts		(48	)		(52	)
Net interest expense	$	240		$	229
Weighted average effective interest rate during the year		2.4	%		3.0	%

Net interest expense increased by $11 million, primarily due to higher average debt balances in 2019 as compared to 2018. The increase in debt year over year was due to the assumption of debt in the DCT Transaction in August 2018 that was mostly refinanced with debt at lower interest rates. Additionally, we recognized a gain upon settlement of the interest rate swaps on the Canadian term loan in 2018.

See Note 8 to the Consolidated Financial Statements and the Liquidity and Capital Resources section, for further discussion of our debt and borrowing costs.

Foreign Currency and Derivative Gains (Losses), Net

We are exposed to foreign currency exchange risk related to investments in and earnings from our foreign investments. We may use derivative financial instruments to manage foreign currency exchange rate risk. We recognize the change in fair value of the undesignated derivative contracts in unrealized gains and losses. Upon settlement of these transactions, we recognize realized gains or losses.

We primarily hedge our foreign currency risk by borrowing in the currencies in which we invest thereby providing a natural hedge. We may also issue debt in a currency that is not the same functional currency of the borrowing entity and we generally designate the debt as a nonderivative net investment hedge. We recognize the remeasurement and settlement of the unhedged portion of the debt and accrued interest in unrealized gains or losses. We also recognize the change in fair value and settlement of any undesignated derivative contracts to hedge the eventual payment of these borrowings in a foreign currency in unrealized gains or losses.

The following table details our foreign currency and derivative gains (losses), net included in earnings (in millions):

	2019			2018
Realized foreign currency and derivative gains (losses), net:
Gains (losses) on the settlement of undesignated derivatives	$	28		$	(3	)
Gains on the settlement of transactions with third parties		1			-
Total realized foreign currency and derivative gains (losses), net		29			(3	)

Unrealized foreign currency and derivative gains (losses), net:
Gains (losses) on the change in fair value of undesignated derivatives and unhedged debt		(74	)		125
Gains (losses) on remeasurement of certain assets and liabilities		3			(5	)
Total unrealized foreign currency and derivative gains (losses), net		(71	)		120
Total foreign currency and derivative gains (losses), net	$	(42	)	$	117

See Note 2 to the Consolidated Financial Statements for more information about our foreign currency and derivative financial instrument policies and Note 15 to the Consolidated Financial Statements for more information about our derivative and nonderivative transactions.

Losses on Early Extinguishment of Debt, Net

We recognized a loss of $16 million and $3 million upon extinguishment of debt in 2019 and 2018, respectively. Through our financing activities in both 2019 and 2018 we reduced our effective interest rate and lengthened the maturities of our debt. See Note 8 to the Consolidated Financial Statements and the Liquidity and Capital Resources section, for more information regarding our debt repurchases.

Income Tax Expense

We recognize income tax expense related to our taxable REIT subsidiaries and in certain local, state and foreign jurisdictions in which we operate. Our current income tax expense fluctuates from period to period based primarily on the timing of our taxable income.

Deferred income tax expense (benefit) is generally a function of the period’s temporary differences and the utilization of net operating losses generated in prior years that had been previously recognized as deferred income tax assets in taxable subsidiaries.

The following table summarizes our income tax expense (benefit) (in millions):

	2019		2018
Current income tax expense:
Income tax expense	$	48	$	44
Income tax expense on dispositions		15		17
Income tax expense on dispositions related to acquired tax liabilities		-		1
Total current income tax expense		63		62

Deferred income tax expense (benefit):
Income tax expense		12		2
Income tax benefit on dispositions related to acquired tax liabilities		-		(1	)
Total deferred income tax expense		12		1
Total income tax expense	$	75	$	63

Our income taxes are discussed in more detail in Note 13 to the Consolidated Financial Statements.

Net Earnings Attributable to Noncontrolling Interests

This amount represents the third-party investors’ share of the earnings generated in consolidated entities in which we do not own 100% of the equity, reduced by the third-party share of fees or promotes payable to us and earned during the period. We had net earnings attributable to noncontrolling interests of $129 million and $174 million in 2019 and 2018, respectively. Included in these amounts were $47 million and $49 million in 2019 and 2018, respectively, of net earnings attributable to the common limited partnership unitholders of Prologis, L.P.

See Note 11 to the Consolidated Financial Statements for further information on our noncontrolling interests.

Other Comprehensive Income (Loss)

ENVIRONMENTAL MATTERS

See Note 16 in the Consolidated Financial Statements for further information about environmental liabilities.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We consider our ability to generate cash from operating activities, distributions from our co-investment ventures, contributions and dispositions of properties and available financing sources to be adequate to meet our anticipated future development, acquisition, operating, debt service, dividend and distribution requirements.

Near-Term Principal Cash Sources and Uses

In addition to dividends and distributions, we expect our primary cash needs may consist of the following:

•

completion of the development and leasing of the properties in our consolidated development portfolio (at December 31, 2019, 105 properties in our development portfolio were 50.0% leased with a current investment of $1.9 billion and a TEI of $4.0 billion when completed and leased, leaving $2.1 billion of estimated additional required investment);

•	development of new properties which we may hold for long-term investment or subsequently contribute to unconsolidated co-investment ventures, including the acquisition of land in certain markets;

•	capital expenditures and leasing costs on properties in our operating portfolio;

•	repayment of debt and scheduled principal payments of $536 million in 2020, of which $446 million of senior notes were redeemed in January 2020;

•	additional investments in current unconsolidated entities or new investments in future unconsolidated entities;

•

acquisition of operating properties or portfolios of operating properties, including the acquisition of IPT described above, (depending on market and other conditions) for direct, long-term investment in our consolidated portfolio (this might include acquisitions from our co-investment ventures); and

•	repurchase of our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise.

We expect to fund our cash needs principally from the following sources (subject to market conditions):

•	available unrestricted cash balances ($1.1 billion at December 31, 2019);

•	net cash flow from property operations;

•	fees earned for services performed on behalf of the co-investment ventures, including promotes;

•	distributions received from the co-investment ventures;

•	proceeds from the disposition of properties, land parcels or other investments to third parties;

•	proceeds from the contributions of properties to current or future co-investment ventures;

•	proceeds from the sale of a portion of our investments in co-investment ventures to achieve long-term ownership targets;

•	borrowing capacity under our current credit facility arrangements, other facilities or borrowing arrangements ($3.7 billion available at December 31, 2019); and

•	proceeds from the issuance of debt.

We may also generate proceeds from the issuance of equity securities, subject to market conditions. In February 2020, we completed the Liberty Transaction for approximately $13 billion through the issuance of equity and the assumption of debt.

Debt

The following table summarizes information about our consolidated debt by currency at December 31 (dollars in millions):

	2019								2018
	Weighted Average Interest Rate			Amount Outstanding		% of Total			Weighted Average Interest Rate			Amount Outstanding		% of Total
British pound sterling		2.3	%	$	657		5.5	%		2.3	%	$	636		5.8	%
Canadian dollar		3.4	%		280		2.3	%		3.6	%		266		2.4	%
Euro		1.9	%		6,129		51.5	%		2.2	%		4,894		44.1	%
Japanese yen		0.7	%		2,329		19.6	%		0.9	%		1,952		17.6	%
U.S. dollar		4.4	%		2,511		21.1	%		4.5	%		3,342		30.1	%
Total debt ⁽¹⁾		2.2	%	$	11,906					2.7	%	$	11,090

(1)	The weighted average maturity for total debt outstanding at December 31, 2019 and 2018 was 94 and 76 months, respectively.

Our credit ratings at December 31, 2019, were A3 from Moody’s and A- from Standard & Poor’s, both with stable outlook. These ratings allow us to borrow at an advantageous rate. Adverse changes in our credit ratings could negatively impact our business and, in particular, our refinancing and other capital market activities, our ability to manage debt maturities, our future growth and our development and acquisition activity. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization.

At December 31, 2019, we were in compliance with all of our financial debt covenants. These covenants include customary financial covenants for total debt, encumbered debt and fixed charge coverage ratios.

See Note 8 to the Consolidated Financial Statements for further discussion on our debt.

Equity Commitments Related to Certain Co-Investment Ventures

Certain co-investment ventures have equity commitments from us and our venture partners. Our venture partners fulfill their equity commitment with cash. We may fulfill our equity commitment through contributions of properties or cash.

The following table summarizes the remaining equity commitments at December 31, 2019 (in millions):

	Equity Commitments
	Prologis		Venture Partners		Total		Exchange Rate	Expiration Date
Prologis Targeted U.S. Logistics Fund	$	-	$	1,919	$	1,919	N/A	2022
Prologis European Logistics Fund		-		747		747	1.12 U.S. dollar/ 1 euro	2022
Prologis UK Logistics Venture		11		59		70	1.32 U.S. dollar/ 1 British pound sterling	2021
Prologis China Core Logistics Fund⁽¹⁾		-		311		311	0.14 U.S. dollar/ 1 Chinese renminbi	2022
Prologis China Logistics Venture ⁽¹⁾		321		1,818		2,139	N/A	2020 – 2024
Prologis Brazil Logistics Venture		48		193		241	0.25 U.S. dollar/ 1 Brazilian real	2026
Total	$	380	$	5,047	$	5,427

(1)

As discussed above, in December 2019 we formed PCCLF with eight venture partners with initial equity commitments of ¥4,622 million ($657 million). At that time, we and our existing partner in Prologis China Logistics Venture I, LP contributed the real estate portfolio to PCCLF in exchange for equity interests. The contributions from the seven new partners were used to redeem a portion of our existing partner’s investment in PCCLF.

See the Cash Flow Summary below for more information about our investment activity in the co-investment ventures.

Cash Flow Summary

The following table summarizes our cash flow activity (in millions):

	2019			2018
Net cash provided by operating activities	$	2,264		$	1,804
Net cash used in investing activities	$	(685	)	$	(664	)
Net cash used in financing activities	$	(840	)	$	(1,232	)
Net increase (decrease) in cash and cash equivalents, including the effect of foreign currency exchange rates	$	745		$	(103	)

Operating Activities

Cash provided by operating activities, exclusive of changes in receivables and payables, was impacted by the following significant activities:

•

Real estate operations. We receive the majority of our operating cash through the net revenues of our Real Estate Operations segment. See the Results of Operations section above for further explanation on our Real Estate Operations segment. The revenues from this segment include noncash adjustments for straight-lined rents and amortization of above and below market leases of $98 million and $67 million for 2019 and 2018, respectively.

•

Strategic capital. We also generate operating cash through our Strategic Capital segment by providing asset and property management and other services to our unconsolidated co-investment ventures. See the Results of Operations section above for the key drivers of the net revenues from our Strategic Capital segment. Included in Strategic Capital Revenues is the third-party investors’ share that is owed for fees and promotes, which is recognized in operating activities in the period the cash is received.

•

G&A expenses and equity-based compensation awards. We incurred $266 million and $239 million of G&A costs in 2019 and 2018, respectively. Included in these amounts are equity-based, noncash compensation expenses of $98 million and $76 million in 2019 and 2018, respectively, which were recorded to Rental Expenses in the Real Estate Operations segment, Strategic Capital Expenses in the Strategic Capital segment and G&A Expenses.

•

Operating distributions from unconsolidated entities. We received $347 million and $350 million of distributions from our unconsolidated entities in 2019 and 2018, respectively. Certain unconsolidated co-investment ventures distribute the total promote, including our share, that is recorded to Investment In and Advances to Unconsolidated Entities and is included in operating activities in the period the cash is received.

•	Cash paid for interest and income taxes, net. We paid combined amounts for interest and income taxes, net of amounts received, of $277 million and $266 million in 2019 and 2018, respectively. See Note 8 and Note 13 to the Consolidated Financial Statements for further information on this activity.

Investing Activities

Cash provided by investing activities is driven by proceeds from contributions and dispositions of real estate properties, including the contribution of the initial portfolio of properties to PBLV. Cash used in investing activities is principally driven by our capital deployment activities of investing in real estate development, acquisitions and capital expenditures. See Note 4 to the Consolidated Financial Statements for further information on these activities. In addition, the following significant transactions also impacted our cash provided by or used in investing activities:

•

DCT Transaction, net of cash acquired. We paid net cash of $46 million to complete the DCT Transaction in 2018, primarily due to transaction costs. The acquisition was financed through the issuance of equity and assumption of debt. See Notes 3 and 18 to the Consolidated Financial Statements for more detail on the DCT Transaction.

•

Investments in and advances to. We invested cash in our unconsolidated entities that represented our proportionate share, of $276 million and $160 million in 2019 and 2018, respectively. The ventures used the funds for the acquisition of properties, development and repayment of debt. See Note 5 to the Consolidated Financial Statements for more detail on our unconsolidated co-investment ventures.

•

Return of investment. We received distributions from unconsolidated entities as a return of investment of $389 million and $360 million during 2019 and 2018, respectively. Included in these amounts were distributions from venture activities including proceeds from property sales, debt refinancing and the redemption of our investment in certain unconsolidated entities.

•	Proceeds from repayment of notes receivable backed by real estate. We received $34 million for the repayment of notes received in connection with the disposition of real estate to third parties in 2018.

•	Settlement of net investment hedges. We paid net cash of $7 million and received $18 million from the settlement of net investment hedges during 2019 and 2018, respectively. See Note 15 to the Consolidated Financial Statements for further information on our derivative transactions.

Financing Activities

Cash provided by and used in financing activities is principally driven by proceeds from and payments on credit facilities and other debt, along with dividends paid on common and preferred stock and noncontrolling interest contributions and distributions.

Our repurchase of and payments on debt and proceeds from the issuance of debt consisted of the following activity (in millions):

	2019		2018
Repurchase of and payments on debt (including extinguishment costs) ⁽¹⁾
Regularly scheduled debt principal payments and payments at maturity	$	29	$	201
Secured mortgage debt		433		508
Senior notes		669		973
Term loans		2,171		2,484
Total	$	3,302	$	4,166

Proceeds from the issuance of debt
Secured mortgage debt	$	250	$	229
Senior notes		2,053		2,493
Term loans		1,674		2,178
Total	$	3,977	$	4,900

(1)	We completed the DCT Transaction in 2018 and assumed $1.9 billion of debt, of which $1.8 billion was paid off with the proceeds from the issuance of senior notes. The assumption of $1.9 billion of debt was excluded from the table above.

OFF-BALANCE SHEET ARRANGEMENTS

Unconsolidated Co-Investment Venture Debt

We had investments in and advances to our unconsolidated co-investment ventures, at December 31, 2019, of $5.9 billion. The ventures listed below had total third-party debt of $9.4 billion at December 31, 2019. Certain of our ventures do not have third-party debt and are therefore excluded. This debt is non-recourse to Prologis and other investors in the co-investment ventures and matures and bears interest as follows at December 31, 2019 (dollars in millions):

	Total ⁽¹⁾		Weighted Average Interest Rate	Gross Book Value ⁽¹⁾		Ownership %
Prologis Targeted U.S. Logistics Fund	$	2,130	3.8%	$	8,920	27.3%
FIBRA Prologis		769	4.6%		2,112	47.1%
Prologis European Logistics Fund		2,749	2.1%		10,854	24.1%
Prologis UK Logistics Venture		464	3.3%		862	15.0%
Nippon Prologis REIT		2,199	0.7%		5,980	15.1%
Prologis China Core Logistics Fund		597	6.0%		1,749	15.6%
Prologis China Logistics Venture		500	3.8%		948	15.0%
Total	$	9,408		$	31,425

(1)

The weighted average loan-to-value ratio for all unconsolidated co-investment ventures was 26.0% at December 31, 2019. Loan-to-value, a non-GAAP measure, was calculated as the percentage of total third-party debt to the gross book value of real estate for each venture and weighted based on the cumulative gross book value of all unconsolidated co-investment ventures.

At December 31, 2019, we did not guarantee any third-party debt of the unconsolidated co-investment ventures. In our role as the manager or sponsor, we work with the co-investment ventures to maintain sufficient liquidity and refinance their maturing debt. There can be no assurance that the co-investment ventures will be able to refinance any maturing indebtedness on terms as favorable as the maturing debt, or at all. If the ventures are unable to refinance the maturing indebtedness with newly issued debt, they may be able to obtain funds by voluntary capital contributions from us and our partners or by selling assets. Certain of our ventures also have credit facilities, or unencumbered properties, both of which may be used to obtain funds.

CONTRACTUAL OBLIGATIONS

Long-Term Contractual Obligations

The following table summarizes our long-term contractual obligations at December 31, 2019 (in millions):

	Payments Due by Period
	Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years		Total
Debt obligations, other than credit facilities	$	536	$	1,680	$	2,064	$	7,530	$	11,810
Interest on debt obligations, other than credit facilities		257		468		345		867		1,937
Unfunded commitments on the development portfolio ⁽¹⁾		1,647		454		-		-		2,101
Operating and financing lease payments ⁽²⁾		44		88		75		776		983
Total	$	2,484	$	2,690	$	2,484	$	9,173	$	16,831

(1)

We had properties in our consolidated development portfolio (completed and under development) at December 31, 2019, with a TEI of $4.0 billion. The unfunded commitments presented include not only those costs that we are obligated to fund under construction contracts, but all costs necessary to place the property into service, including the estimated costs of tenant improvements, marketing and leasing costs that we expect to incur as the property is leased.

(2)	Beginning January 1, 2019, as a lessee we were required to record both a right-of-use asset and lease liability for our ground and office space leases based on the present value of our future minimum lease payments. See Note 2 to the Consolidated Financial Statements for additional information.

Distribution and Dividend Requirements

Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we will meet the dividend requirements of the IRC, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities.

Under the IRC, REITs may be subject to certain federal income and excise taxes on our undistributed taxable income.

We paid quarterly cash dividends of $0.53 and $0.48 per common share in 2019 and 2018, respectively. Our future common stock dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time,

including our financial condition, operating results and REIT distribution requirements, and may be adjusted at the discretion of the Board during the year.

We make distributions on the common limited partnership units outstanding at the same per unit amount as our common stock dividend. The Class A Units in the OP are entitled to a quarterly distribution equal to $0.64665 per unit so long as the common units receive a quarterly distribution of at least $0.40 per unit. We paid a quarterly distribution of $0.64665 per Class A Unit in 2019 and 2018.

At December 31, 2019, we had 1.4 million shares of Series Q preferred stock outstanding with a liquidation preference of $50 per share. The annual dividend rate is 8.54% per share and dividends are payable quarterly in arrears. Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock have been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.

Other Commitments

On a continuing basis, we are engaged in various stages of negotiations for the acquisition or disposition of individual properties or portfolios of properties.

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that involves an estimate or assumption that is subjective and requires management judgment about the effect of a matter that is inherently uncertain and material to an entity’s financial condition and results of operations. Management’s best judgment considers historical and current economic conditions and expectations for the future. Changes in estimates could affect our financial position and specific items in our results of operations that are used by stockholders, potential investors, industry analysts and lenders in their evaluation of our performance. Of the significant accounting policies discussed in Note 2 to the Consolidated Financial Statements, those presented below have been identified by us as meeting the criteria to be considered critical accounting policies. Refer to Note 2 for more information on these critical accounting policies.

Acquisitions

We generally account for an acquisition of a single property or portfolio of properties as an asset acquisition. We measure the real estate assets acquired through an asset acquisition based on their cost or total consideration exchanged and any excess consideration or bargain purchase amount is allocated to the real estate properties, excluding those identified as held for sale, on a relative fair value basis.

We make estimates as part of our valuation of the assumed assets and liabilities at the acquisition date. The components of an acquisition typically include buildings, land, improvements, intangible assets or liabilities related to the acquired leases, debt, deferred tax assets and liabilities and other assumed assets and liabilities. The purchase price allocation is based on the expected future cash flows of the property and various characteristics of the markets where the property is located utilizing an income approach methodology, which may be a discounted cash flow analysis or applying a capitalization rate to the estimated NOI of a property. Key assumptions include market rents, growth rates, and discount and capitalization rates. Estimates of future cash flows are based on a number of factors including historical operating results, known trends and market and economic conditions. We determine discount and capitalization rates by market based on recent transactions and other market data. The fair value of land is generally based on relevant market data, such as a comparison of the subject site to similar parcels that have recently been sold or are currently being offered on the market for sale. The use of different assumptions to value the acquired properties and intangible assets and assumed liabilities could affect the future revenues and expenses we recognize over the estimated remaining useful life or lease term.

Recoverability of Real Estate Assets

We assess the carrying values of our respective long-lived assets whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable.

Recoverability of real estate assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. To review our real estate assets for recoverability, we consider current market conditions and property-level operating results, as well as our intent with respect to holding or disposing of the asset. Our intent with regard to the underlying assets might change as market conditions change. Fair value is determined through various valuation techniques, including discounted cash flow models, applying a capitalization rate to the estimated NOI of a property, quoted market values and third-party appraisals, where considered necessary. The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. If our analysis indicates that the carrying value of a property that we expect to hold is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the property. Assumptions and estimates used in the recoverability analyses for future cash flows, including market rents, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions or our intent with regard to our investment that occurs subsequent to our impairment analyses could impact these assumptions and result in future impairment.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2 to the Consolidated Financial Statements.

FUNDS FROM OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS/UNITHOLDERS (“FFO”)

FFO is a non-GAAP financial measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings.

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales, along with impairment charges, of previously depreciated properties. We also exclude the gains on revaluation of equity investments upon acquisition of a controlling interest and the gain recognized from a partial sale of our investment, as these are similar to gains from the sales of previously depreciated properties. We exclude similar adjustments from our unconsolidated entities and the third parties’ share of our consolidated co-investment ventures.

Our FFO Measures

Our FFO measures begin with NAREIT’s definition and we make certain adjustments to reflect our business and the way that management plans and executes our business strategy. While not infrequent or unusual, the additional items we adjust for in calculating FFO, as modified by Prologis and Core FFO, both as defined below, are subject to significant fluctuations from period to period. Although these items may have a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long term. These items have 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 calculate our FFO measures, as defined below, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our FFO measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our FFO measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

These FFO measures are used by management as supplemental financial measures of operating performance and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses. 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.

We analyze our operating performance principally by the rental revenue of our real estate and the revenues from our strategic capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities.

FFO, as modified by Prologis attributable to common stockholders/unitholders (“FFO, as modified by Prologis”)

To arrive at FFO, as modified by Prologis, we adjust the NAREIT defined FFO measure to exclude the impact of foreign currency related items and deferred tax, specifically:

•	deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;

•	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 earnings that is excluded from our defined FFO measure; and

•

foreign currency exchange gains and losses resulting from (i) debt transactions between us and our foreign entities, (ii) third-party debt that is used to hedge our investment in foreign entities, (iii) derivative financial instruments related to any such debt transactions, and (iv) mark-to-market adjustments associated with other derivative financial instruments.

We use FFO, as modified by Prologis, so that management, analysts and investors are able to evaluate our performance against other REITs that do not have similar operations or operations in jurisdictions outside the U.S.

Core FFO attributable to common stockholders/unitholders (“Core FFO”)

In addition to FFO, as modified by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as modified by Prologis, to exclude the following recurring and nonrecurring items that we recognized directly in FFO, as modified by Prologis:

•	gains or losses from the disposition of land and development properties that were developed with the intent to contribute or sell;

•	income tax expense related to the sale of investments in real estate;

•	impairment charges recognized related to our investments in real estate generally as a result of our change in intent to contribute or sell these properties;

•	gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and

•	expenses related to natural disasters.

We use Core FFO, including by segment and geographies, to: (i) assess our operating performance as compared to other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (iii) evaluate the performance of our management; (iv) budget and forecast future results to assist in the allocation of resources; (v) provide guidance to the financial markets to understand our expected operating performance; and (vi) evaluate how a specific potential investment will impact our future results.

Limitations on the use of our FFO measures

While we believe our modified 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, these are only a few of the many measures we use when analyzing our business. Some of the limitations are:

•	The current income tax expenses that are excluded from our modified FFO measures represent the taxes and transaction costs 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. Furthermore, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of logistics facilities are not reflected in FFO.

•

Gains or losses from non-development property dispositions and impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of disposed properties arising from changes in market conditions.

•

The deferred income tax benefits and expenses that are excluded from our modified 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 modified 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 modified 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.

•	The gains and losses on extinguishment of debt or preferred stock that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our obligation at less or more than our future obligation.

•	The natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete Consolidated Financial Statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our modified FFO measures to our net earnings computed under GAAP as follows (in millions):

	2019			2018
Reconciliation of net earnings attributable to common stockholders/unitholders to FFO measures:
Net earnings attributable to common stockholders	$	1,567		$	1,643

Add (deduct) NAREIT defined adjustments:
Real estate related depreciation and amortization		1,102			913
Gains on other dispositions of investments in real estate, net		(390	)		(371	)
Reconciling items related to noncontrolling interests		(8	)		23
Our share of reconciling items included in earnings related to unconsolidated entities		246			142
NAREIT defined FFO attributable to common stockholders/unitholders		2,517			2,350

Add (deduct) our modified adjustments:
Unrealized foreign currency and derivative losses (gains), net		69			(120	)
Deferred income tax expense		12			1
Current income tax expense on dispositions related to acquired tax liabilities		-			1
Our share of reconciling items included in earnings related to unconsolidated entities		(7	)		-
FFO, as modified by Prologis attributable to common stockholders/unitholders		2,591			2,232

Adjustments to arrive at Core FFO:
Gains on dispositions of development properties and land, net		(468	)		(470	)
Current income tax expense on dispositions		15			17
Losses on early extinguishment of debt, net		16			3
Reconciling items related to noncontrolling interests		-			6
Our share of reconciling items included in earnings related to unconsolidated entities		10			-
Core FFO attributable to common stockholders/unitholders	$	2,164		$	1,788

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to the impact of foreign exchange-related variability and earnings volatility on our foreign investments and interest rate changes. See our risk factors in Item 1A. Risk Factors, specifically: The depreciation in the value of the foreign currency in countries where we have a significant investment may adversely affect our results of operations and financial position and we may be unable to refinance our debt or our cash flow may be insufficient to make required debt payments. See also Notes 2 and 15 in the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data for more information about our foreign operations and derivative financial instruments.

We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 10% adverse change in foreign currency exchange rates or interest rates at December 31, 2019. The results of the sensitivity analysis are summarized in the following sections. The sensitivity analysis is of limited predictive value. As a result, revenues and expenses, as well as our ultimate realized gains or losses with respect to foreign currency exchange rate and interest rate fluctuations will depend on the exposures that arise during a future period, hedging strategies at the time and the prevailing foreign currency exchange rates and interest rates.

Foreign Currency Risk

We are exposed to foreign currency exchange variability related to investments in and earnings from our foreign investments. Foreign currency market risk is the possibility that our results of operations or financial position could be better or worse than planned because of changes in foreign currency exchange rates. We primarily hedge our foreign currency risk by borrowing in the currencies in which we invest thereby providing a natural hedge. We may also issue debt in a currency that is not the same functional currency of the borrowing entity and we generally designate the debt as a nonderivative net investment hedge. Additionally, we hedge our foreign currency risk by entering into derivative financial instruments that we designate as net investment hedges, as these amounts offset the translation adjustments on the underlying net assets of our foreign investments. At December 31, 2019, after consideration of our ability to borrow in the foreign currencies in which we invest and also derivative and nonderivative financial instruments as discussed in Note 15 to the Consolidated Financial Statements, we had minimal net equity denominated in a currency other than the U.S. dollar.

For the year ended December 31, 2019, $545 million or 16.4% of our total consolidated revenue was denominated in foreign currencies. We enter into other foreign currency contracts, such as forwards, to reduce fluctuations in foreign currency associated with the translation of the future earnings of our international subsidiaries. We have forward contracts that were not designated as hedges, denominated principally in British pound sterling, Canadian dollar, euro, Japanese yen and Swedish krona, and have an aggregate notional amount of $1.1 billion to mitigate risk associated with the translation of the future earnings of our subsidiaries denominated in these currencies. Although the impact to net earnings is mitigated through higher translated U.S. dollar earnings from these currencies,

a weakening of the U.S. dollar against these currencies by 10% could result in a $111 million cash payment on settlement of these contracts.

Interest Rate Risk

We are also exposed to the impact of interest rate changes on future earnings and cash flows. To mitigate that risk, we generally borrow with fixed rate debt and we may use derivative instruments to fix the interest rate on our variable rate debt. At December 31, 2019, $10.0 billion of our debt bore interest at fixed rates and therefore the fair value of these instruments was affected by changes in market interest rates. At December 31, 2019, $2.0 billion of our debt bore interest at variable rates. The following table summarizes the future repayment of debt and scheduled principal payments at December 31, 2019 (dollars in millions):

	2020			2021			2022			2023			Thereafter			Total			Fair Value
Fixed rate debt	$	19		$	818		$	798		$	884		$	7,437		$	9,956		$	10,487
Weighted average interest rate ⁽¹⁾		6.0	%		1.7	%		3.2	%		4.4	%		2.3	%		2.6	%

Variable rate debt
Credit facilities	$	-		$	184		$	-		$	-		$	-		$	184		$	184
Term loans		-			-			-			131			1,013			1,144			1,147
Senior notes		449			-			-			-			-			449			449
Secured mortgage debt		68			64			-			-			130			262			261
Total variable rate debt	$	517		$	248		$	-		$	131		$	1,143		$	2,039		$	2,041

(1)	The interest rates represent the effective interest rates (including amortization of the debt issuance costs and the noncash premiums and discounts) at December 31, 2019 for the debt outstanding.

At December 31, 2019, the weighted average effective interest rate on our variable rate debt was 0.6%. Changes in interest rates can cause interest expense to fluctuate on our variable rate debt. On the basis of our sensitivity analysis, a 10% increase in interest rates on our average outstanding variable rate debt balances would result in additional annual interest expense of $1 million for the year ended December 31, 2019, which equates to a change in interest rates of 8 basis points on our average outstanding variable rate debt balances and 1 basis point on our average total debt portfolio balances.

ITEM 8. Financial Statements and Supplementary Data

The Consolidated Balance Sheets of Prologis, Inc. and Prologis, L.P. at December 31, 2019 and 2018, the Consolidated Statements of Income of Prologis, Inc. and Prologis, L.P., the Consolidated Statements of Comprehensive Income of Prologis, Inc. and Prologis, L.P., the Consolidated Statements of Equity of Prologis, Inc., the Consolidated Statements of Capital of Prologis, L.P. and the Consolidated Statements of Cash Flows of Prologis, Inc. and Prologis, L.P. for each of the years in the three-year period ended December 31, 2019, Notes to Consolidated Financial Statements and Schedule III — Real Estate and Accumulated Depreciation, together with the reports of KPMG LLP, independent registered public accounting firm, are included under Item 15 of this report and are incorporated herein by reference. Selected unaudited quarterly financial data are presented in Note 19 of the Consolidated Financial Statements.

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

None.

ITEM 9A. Controls and Procedures

Controls and Procedures (The Parent)

Prologis, Inc. carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”)) at December 31, 2019. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Subsequent to December 31, 2019, there were no significant changes in the internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the internal control over financial reporting was conducted at December 31, 2019, based on the criteria described in “Internal Control — Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that, at December 31, 2019, the internal control over financial reporting was effective.

Our internal control over financial reporting at December 31, 2019, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.

Limitations of the Effectiveness of Controls

Management’s assessment included an evaluation of the design of the internal control over financial reporting and testing of the operational effectiveness of the internal control over financial reporting. The internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Controls and Procedures (The OP)

Prologis, L.P. carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) at December 31, 2019. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Subsequent to December 31, 2019, there were no significant changes in the internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Changes in Internal Control over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Limitations of the Effectiveness of Controls

ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated herein by reference to, including relevant sections in our 2020 Proxy Statement, under the captions entitled Board of Directors and Corporate Governance; Executive Officers; Executive Compensation; Director Compensation; Security Ownership; Equity Compensation Plans and Additional Information or will be provided in an amendment filed on Form 10-K/A.

ITEM 11. Executive Compensation

The information required by this item is incorporated herein by reference to the relevant sections in our 2020 Proxy Statement, under the captions entitled Board of Directors and Corporate Governance; Executive Officers; Executive Compensation and Director Compensation or will be provided in an amendment filed on Form 10-K/A.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated herein by reference to the relevant sections in our 2020 Proxy Statement, under the captions entitled Security Ownership and Equity Compensation Plans or will be provided in an amendment filed on Form 10-K/A.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to the relevant sections in our 2020 Proxy Statement, under the caption entitled Board of Directors and Corporate Governance or will be provided in an amendment filed on Form 10-K/A.

ITEM 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to the relevant sections in our 2020 Proxy Statement, under the caption entitled Audit Matters or will be provided in an amendment filed on Form 10-K/A.

PART IV

ITEM 15. Exhibits, Financial Statements and Schedules

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

(a) Financial Statements and Schedules:

1. Financial Statements:

See Index to the Consolidated Financial Statements and Schedule III on page 46 of this report, which is incorporated herein by reference.

2. Financial Statement Schedules:

Schedule III — Real Estate and Accumulated Depreciation

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

(b) Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to the Exhibits on pages 98 to 105 of this report, which is incorporated herein by reference.

(c) Financial Statements: See Index to the Consolidated Financial Statements and Schedule III on page 46 of this report, which is incorporated by reference.

ITEM 16. Form 10-K Summary

Not Applicable.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III

	Page Number
Prologis, Inc. and Prologis, L.P.:
Reports of Independent Registered Public Accounting Firm	47
Prologis, Inc.:
Consolidated Balance Sheets	50
Consolidated Statements of Income	51
Consolidated Statements of Comprehensive Income	52
Consolidated Statements of Equity	53
Consolidated Statements of Cash Flows	54
Prologis, L.P.:
Consolidated Balance Sheets	55
Consolidated Statements of Income	56
Consolidated Statements of Comprehensive Income	57
Consolidated Statements of Capital	58
Consolidated Statements of Cash Flows	59
Prologis, Inc. and Prologis, L.P.:
Notes to the Consolidated Financial Statements	60
Note 1. Description of the Business	60
Note 2. Summary of Significant Accounting Policies	60
Note 3. DCT Transaction	67
Note 4. Real Estate	68
Note 5. Unconsolidated Entities	70
Note 6. Assets Held for Sale or Contribution	73
Note 7. Other Assets and Other Liabilities	73
Note 8. Debt	74
Note 9. Stockholders' Equity of Prologis, Inc.	77
Note 10. Partners' Capital of Prologis, L.P.	78
Note 11. Noncontrolling Interests	79
Note 12. Long-Term Compensation	79
Note 13. Income Taxes	82
Note 14. Earnings Per Common Share or Unit	84
Note 15. Financial Instruments and Fair Value Measurements	85
Note 16. Commitments and Contingencies	88
Note 17. Business Segments	89
Note 18. Supplemental Cash Flow Information	91
Note 19. Selected Quarterly Financial Data (Unaudited)	93
Note 20. Subsequent Events	94
Schedule III — Real Estate and Accumulated Depreciation	95

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Prologis, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Prologis, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 10, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the Company’s evaluation of the expected holding period for operating properties and land

As discussed in Notes 2 and 4, the Company had $31,288 million of operating properties and $1,102 million of land as of December 31, 2019. The Company tests the recoverability of operating properties and land whenever events or changes in circumstances, including shortening the expected holding period of such assets, indicate that the carrying amount of these assets may not be recoverable.

We identified the assessment of the Company’s evaluation of the expected holding period for operating properties and land as a critical audit matter. Subjective auditor judgment was required to assess the relevant events or changes in circumstances that the Company used to evaluate its expected holding period. A shortening of the expected holding period could indicate a potential impairment.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s recoverability of operating properties and land process including controls related to determining the expected holding period and any related changes. We evaluated the Company’s expected holding period by inquiring of management regarding the expected holding period, considering the current economic environment, reading minutes of the meetings of the Company’s Board of Directors, reading external communications with investors and analysts, and analyzing documents prepared by the Company regarding proposed real estate transactions and potential triggering events.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Denver, Colorado

February 10, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Prologis, L.P. and the Board of Directors of Prologis, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Prologis, L.P. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Critical Audit Matter

Assessment of the Company’s evaluation of the expected holding period for operating properties and land

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Denver, Colorado

February 10, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Prologis, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Prologis, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 10, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

We have audited Prologis, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Denver, Colorado

February 10, 2020

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	December 31,
	2019			2018
ASSETS
Investments in real estate properties	$	35,224,414		$	34,586,987
Less accumulated depreciation		5,437,662			4,656,680
Net investments in real estate properties		29,786,752			29,930,307
Investments in and advances to unconsolidated entities		6,237,371			5,745,294
Assets held for sale or contribution		720,685			622,288
Net investments in real estate		36,744,808			36,297,889

Lease right-of-use assets		486,330			-
Cash and cash equivalents		1,088,855			343,856
Other assets		1,711,857			1,775,919
Total assets	$	40,031,850		$	38,417,664

LIABILITIES AND EQUITY
Liabilities:
Debt	$	11,905,877		$	11,089,815
Lease liabilities		471,634			-
Accounts payable and accrued expenses		704,954			760,515
Other liabilities		877,601			766,446
Total liabilities		13,960,066			12,616,776

Equity:
Prologis, Inc. stockholders’ equity:
Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,379 shares issued and outstanding and 100,000 preferred shares authorized at December 31, 2019 and 2018		68,948			68,948
Common stock; $0.01 par value; 631,797 and 629,616 shares issued and outstanding at December 31, 2019 and 2018, respectively		6,318			6,296
Additional paid-in capital		25,719,427			25,685,987
Accumulated other comprehensive loss		(990,398	)		(1,084,671	)
Distributions in excess of net earnings		(2,151,168	)		(2,378,467	)
Total Prologis, Inc. stockholders’ equity		22,653,127			22,298,093
Noncontrolling interests		3,418,657			3,502,795
Total equity		26,071,784			25,800,888
Total liabilities and equity	$	40,031,850		$	38,417,664

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Years Ended December 31,
	2019			2018			2017
Revenues:
Rental	$	2,831,818		$	2,388,791		$	2,225,141
Strategic capital		491,886			406,300			373,889
Development management and other		6,917			9,358			19,104
Total revenues		3,330,621			2,804,449			2,618,134
Expenses:
Rental		734,266			600,648			569,523
Strategic capital		184,661			157,040			155,141
General and administrative		266,718			238,985			231,059
Depreciation and amortization		1,139,879			947,214			879,140
Other		13,149			13,560			12,205
Total expenses		2,338,673			1,957,447			1,847,068

Operating income before gains on real estate transactions, net		991,948			847,002			771,066
Gains on dispositions of development properties and land, net		467,577			469,817			327,528
Gains on other dispositions of investments in real estate, net		390,241			371,179			855,437
Operating income		1,849,766			1,687,998			1,954,031

Other income (expense):
Earnings from unconsolidated entities, net		200,178			298,260			248,567
Interest expense		(239,953	)		(229,141	)		(274,486	)
Interest and other income, net		24,213			14,663			13,731
Foreign currency and derivative gains (losses), net		(41,715	)		117,096			(57,896	)
Losses on early extinguishment of debt, net		(16,126	)		(2,586	)		(68,379	)
Total other income (expense)		(73,403	)		198,292			(138,463	)
Earnings before income taxes		1,776,363			1,886,290			1,815,568
Total income tax expense		74,517			63,330			54,609
Consolidated net earnings		1,701,846			1,822,960			1,760,959
Less net earnings attributable to noncontrolling interests		128,887			173,599			108,634
Net earnings attributable to controlling interests		1,572,959			1,649,361			1,652,325
Less preferred stock dividends		6,009			5,935			6,499
Loss on preferred stock repurchase		-			-			3,895
Net earnings attributable to common stockholders	$	1,566,950		$	1,643,426		$	1,641,931

Weighted average common shares outstanding – Basic		630,580			567,367			530,400
Weighted average common shares outstanding – Diluted		654,903			590,239			552,300

Net earnings per share attributable to common stockholders – Basic	$	2.48		$	2.90		$	3.10

Net earnings per share attributable to common stockholders – Diluted	$	2.46		$	2.87		$	3.06

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Years Ended December 31,
	2019			2018			2017
Consolidated net earnings	$	1,701,846		$	1,822,960		$	1,760,959
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		98,482			(190,590	)		63,455
Unrealized gains (losses) on derivative contracts, net		(1,335	)		(1,323	)		22,591
Comprehensive income		1,798,993			1,631,047			1,847,005
Net earnings attributable to noncontrolling interests		(128,887	)		(173,599	)		(108,634	)
Other comprehensive loss (income) attributable to noncontrolling interests		(2,874	)		8,900			(50,231	)
Comprehensive income attributable to common stockholders	$	1,667,232		$	1,466,348		$	1,688,140

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

				Common Stock							Accumulated			Distributions
				Number				Additional			Other			in Excess of			Non-
	Preferred			of		Par		Paid-in			Comprehensive			Net			controlling			Total
	Stock			Shares		Value		Capital			Income (Loss)			Earnings			Interests			Equity
Balance at January 1, 2017	$	78,235			528,671	$	5,287	$	19,455,039		$	(937,473	)	$	(3,610,007	)	$	3,467,059		$	18,458,140
Consolidated net earnings		-			-		-		-			-			1,652,325			108,634			1,760,959
Effect of equity compensation plans		-			2,000		20		74,506			-			-			41,446			115,972
Capital contributions		-			-		-		-			-			-			254,214			254,214
Repurchase of preferred stock		(9,287	)		-		-		-			-			(3,895	)		-			(13,182	)
Purchase of noncontrolling interests		-			-		-		(202,040	)		-			-			(611,807	)		(813,847	)
Conversion of noncontrolling interests		-			1,515		15		47,711			-			-			(47,726	)		-
Foreign currency translation gains, net		-			-		-		-			13,810			-			49,645			63,455
Unrealized gains on derivative contracts, net		-			-		-		-			22,005			-			586			22,591
Reallocation of equity		-			-		-		(12,143	)		-			-			12,143			-
Dividends ($1.76 per common share) and other distributions		-			-		-		(66	)		-			(942,884	)		(199,611	)		(1,142,561	)
Balance at December 31, 2017	$	68,948			532,186	$	5,322	$	19,363,007		$	(901,658	)	$	(2,904,461	)	$	3,074,583		$	18,705,741
Consolidated net earnings		-			-		-		-			-			1,649,361			173,599			1,822,960
Effect of equity compensation plans		-			1,251		12		33,544			-			-			52,219			85,775
DCT Transaction, net of issuance costs		-			96,179		962		6,321,667			-			-			298,092			6,620,721
Capital contributions		-			-		-		-			-			-			181,866			181,866
Redemption of noncontrolling interests		-			-		-		(11,257	)		-			-			(64,663	)		(75,920	)
Foreign currency translation losses, net		-			-		-		-			(181,728	)		-			(8,862	)		(190,590	)
Unrealized losses on derivative contracts, net		-			-		-		-			(1,285	)		-			(38	)		(1,323	)
Reallocation of equity		-			-		-		(20,849	)		-			-			20,849			-
Dividends ($1.92 per common share) and other distributions		-			-		-		(125	)		-			(1,123,367	)		(224,850	)		(1,348,342	)
Balance at December 31, 2018	$	68,948			629,616	$	6,296	$	25,685,987		$	(1,084,671	)	$	(2,378,467	)	$	3,502,795		$	25,800,888
Consolidated net earnings		-			-		-		-			-			1,572,959			128,887			1,701,846
Effect of equity compensation plans		-			961		10		37,008			-			-			67,691			104,709
Capital contributions		-			-		-		-			-			-			11,604			11,604
Purchase of noncontrolling interests		-			-		-		2,133			-			-			(15,383	)		(13,250	)
Redemption of noncontrolling interests		-			1,220		12		32,878			-			-			(141,323	)		(108,433	)
Contribution to Brazil venture		-			-		-		-			-			-			(12,630	)		(12,630	)
Foreign currency translation gains, net		-			-		-		-			95,572			-			2,910			98,482
Unrealized losses on derivative contracts, net		-			-		-		-			(1,299	)		-			(36	)		(1,335	)
Reallocation of equity		-			-		-		(38,561	)		-			-			38,561			-
Dividends ($2.12 per common share) and other distributions		-			-		-		(18	)		-			(1,345,660	)		(164,419	)		(1,510,097	)
Balance at December 31, 2019	$	68,948			631,797	$	6,318	$	25,719,427		$	(990,398	)	$	(2,151,168	)	$	3,418,657		$	26,071,784

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years Ended December 31,
	2019			2018			2017
Operating activities:
Consolidated net earnings	$	1,701,846		$	1,822,960		$	1,760,959
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(98,426	)		(66,938	)		(81,021	)
Equity-based compensation awards		97,557			76,093			76,640
Depreciation and amortization		1,139,879			947,214			879,140
Earnings from unconsolidated entities, net		(200,178	)		(298,260	)		(248,567	)
Operating distributions from unconsolidated entities		346,517			349,877			307,220
Decrease (increase) in operating receivables from unconsolidated entities		11,557			(39,890	)		(30,893	)
Amortization of debt discounts and debt issuance costs, net		17,006			12,653			751
Gains on dispositions of development properties and land, net		(467,577	)		(469,817	)		(327,528	)
Gains on other dispositions of investments in real estate, net		(390,241	)		(371,179	)		(855,437	)
Unrealized foreign currency and derivative losses (gains), net		70,693			(120,358	)		68,956
Losses on early extinguishment of debt, net		16,126			2,586			68,379
Deferred income tax expense (benefit)		12,221			1,448			(5,005	)
Decrease (increase) in accounts receivable, lease right-of-use assets and other assets		(108,165	)		(72,955	)		37,278
Increase in accounts payable and accrued expenses, lease liabilities and other liabilities		115,219			30,125			36,374
Net cash provided by operating activities		2,264,034			1,803,559			1,687,246
Investing activities:
Real estate development		(1,795,137	)		(1,953,144	)		(1,606,133	)
DCT Transaction, net of cash acquired		-			(45,870	)		-
Real estate acquisitions		(1,006,043	)		(999,131	)		(442,696	)
Tenant improvements and lease commissions on previously leased space		(179,274	)		(134,868	)		(153,255	)
Property improvements		(143,029	)		(93,073	)		(110,635	)
Proceeds from dispositions and contributions of real estate properties		2,331,623			2,310,388			3,236,603
Investments in and advances to unconsolidated entities		(276,169	)		(160,358	)		(249,735	)
Acquisition of a controlling interest in unconsolidated entities, net of cash received		-			-			(374,605	)
Return of investment from unconsolidated entities		389,463			360,278			209,151
Proceeds from repayment of notes receivable backed by real estate		-			34,260			32,100
Proceeds from the settlement of net investment hedges		23,640			29,425			7,541
Payments on the settlement of net investment hedges		(30,424	)		(11,703	)		(5,058	)
Net cash provided by (used in) investing activities		(685,350	)		(663,796	)		543,278
Financing activities:
Proceeds from issuance of common stock		6,082			6,891			32,858
Dividends paid on common and preferred stock		(1,345,660	)		(1,123,367	)		(942,884	)
Repurchase of preferred stock		-			-			(13,182	)
Noncontrolling interests contributions		11,604			170,066			240,925
Noncontrolling interests distributions		(164,419	)		(224,850	)		(207,788	)
Settlement of noncontrolling interests		(109,811	)		(75,920	)		(813,847	)
Tax paid for shares withheld		(22,434	)		(26,508	)		(19,775	)
Debt and equity issuance costs paid		(17,656	)		(17,446	)		(7,054	)
Net proceeds from (payments on) credit facilities		127,566			(674,559	)		283,255
Repurchase of and payments on debt		(3,301,827	)		(4,166,088	)		(3,578,889	)
Proceeds from the issuance of debt		3,976,956			4,899,680			2,419,797
Net cash used in financing activities		(839,599	)		(1,232,101	)		(2,606,584	)

Effect of foreign currency exchange rate changes on cash		5,914			(10,852	)		15,790
Net increase (decrease) in cash and cash equivalents		744,999			(103,190	)		(360,270	)
Cash and cash equivalents, beginning of year		343,856			447,046			807,316
Cash and cash equivalents, end of year	$	1,088,855		$	343,856		$	447,046

See Note 18 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31,
	2019		2018
ASSETS
Investments in real estate properties	$	35,224,414	$	34,586,987
Less accumulated depreciation		5,437,662		4,656,680
Net investments in real estate properties		29,786,752		29,930,307
Investments in and advances to unconsolidated entities		6,237,371		5,745,294
Assets held for sale or contribution		720,685		622,288
Net investments in real estate		36,744,808		36,297,889

Lease right-of-use assets		486,330		-
Cash and cash equivalents		1,088,855		343,856
Other assets		1,711,857		1,775,919
Total assets	$	40,031,850	$	38,417,664

LIABILITIES AND CAPITAL
Liabilities:
Debt	$	11,905,877	$	11,089,815
Lease liabilities		471,634		-
Accounts payable and accrued expenses		704,954		760,515
Other liabilities		877,601		766,446
Total liabilities		13,960,066		12,616,776

Capital:
Partners’ capital:
General partner – preferred		68,948		68,948
General partner – common		22,584,179		22,229,145
Limited partners – common		355,076		371,281
Limited partners – Class A common		288,187		295,045
Total partners’ capital		23,296,390		22,964,419
Noncontrolling interests		2,775,394		2,836,469
Total capital		26,071,784		25,800,888
Total liabilities and capital	$	40,031,850	$	38,417,664

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit amounts)

	Years Ended December 31,
	2019			2018			2017
Revenues:
Rental	$	2,831,818		$	2,388,791		$	2,225,141
Strategic capital		491,886			406,300			373,889
Development management and other		6,917			9,358			19,104
Total revenues		3,330,621			2,804,449			2,618,134
Expenses:
Rental		734,266			600,648			569,523
Strategic capital		184,661			157,040			155,141
General and administrative		266,718			238,985			231,059
Depreciation and amortization		1,139,879			947,214			879,140
Other		13,149			13,560			12,205
Total expenses		2,338,673			1,957,447			1,847,068

Operating income before gains on real estate transactions, net		991,948			847,002			771,066
Gains on dispositions of development properties and land, net		467,577			469,817			327,528
Gains on other dispositions of investments in real estate, net		390,241			371,179			855,437
Operating income		1,849,766			1,687,998			1,954,031

Other income (expense):
Earnings from unconsolidated entities, net		200,178			298,260			248,567
Interest expense		(239,953	)		(229,141	)		(274,486	)
Interest and other income, net		24,213			14,663			13,731
Foreign currency and derivative gains (losses), net		(41,715	)		117,096			(57,896	)
Losses on early extinguishment of debt, net		(16,126	)		(2,586	)		(68,379	)
Total other income (expense)		(73,403	)		198,292			(138,463	)
Earnings before income taxes		1,776,363			1,886,290			1,815,568
Total income tax expense		74,517			63,330			54,609
Consolidated net earnings		1,701,846			1,822,960			1,760,959
Less net earnings attributable to noncontrolling interests		82,222			124,712			63,620
Net earnings attributable to controlling interests		1,619,624			1,698,248			1,697,339
Less preferred unit distributions		6,009			5,935			6,499
Loss on preferred unit repurchase		-			-			3,895
Net earnings attributable to common unitholders	$	1,613,615		$	1,692,313		$	1,686,945

Weighted average common units outstanding – Basic		641,128			575,798			536,335
Weighted average common units outstanding – Diluted		654,903			590,239			552,300

Net earnings per unit attributable to common unitholders – Basic	$	2.48		$	2.90		$	3.10

Net earnings per unit attributable to common unitholders – Diluted	$	2.46		$	2.87		$	3.06

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Years Ended December 31,
	2019		2018		2017
Consolidated net earnings	$	1,701,846	$	1,822,960	$	1,760,959
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		98,482