pld-10q_20200331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2020

☐	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

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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.	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

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 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 (§232.405 of this chapter) 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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	☒

The number of shares of Prologis, Inc.’s common stock outstanding at April 27, 2020, was approximately 738,582,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2020, 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 March 31, 2020, the Parent owned 97.21% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.79% 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 quarterly reports on Form 10-Q 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.

PROLOGIS

INDEX

			Page Number
PART I.	Financial Information
	Item 1.	Financial Statements		1
	Prologis, Inc.:
		Consolidated Balance Sheets – March 31, 2020 and December 31, 2019		1
		Consolidated Statements of Income – Three Months Ended March 31, 2020 and 2019		2
		Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2020 and 2019		3
		Consolidated Statements of Equity – Three Months Ended March 31, 2020 and 2019		4
		Consolidated Statements of Cash Flows – Three Months Ended March 31, 2020 and 2019		5
	Prologis, L.P.:
		Consolidated Balance Sheets – March 31, 2020 and December 31, 2019		6
		Consolidated Statements of Income – Three Months Ended March 31, 2020 and 2019		7
		Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2020 and 2019		8
		Consolidated Statements of Capital – Three Months Ended March 31, 2020 and 2019		9
		Consolidated Statements of Cash Flows – Three Months Ended March 31, 2020 and 2019		10
	Prologis, Inc. and Prologis, L.P.:
		Notes to the Consolidated Financial Statements		11
		Note 1. General		11
		Note 2. Liberty Transaction		12
		Note 3. Real Estate		13
		Note 4. Unconsolidated Entities		14
		Note 5. Assets Held for Sale or Contribution		16
		Note 6. Debt		16
		Note 7. Stockholder's Equity of Prologis, Inc.		18
		Note 8. Noncontrolling Interests		19
		Note 9. Long-Term Compensation		19
		Note 10. Earnings Per Common Share or Unit		20
		Note 11. Financial Instruments and Fair Value Measurements		22
		Note 12. Business Segments		25
		Note 13. Supplemental Cash Flow Information		27
		Reports of Independent Registered Public Accounting Firm		28
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		49
	Item 4.	Controls and Procedures		51
PART II.	Other Information
	Item 1.	Legal Proceedings		51
	Item 1A.	Risk Factors		51
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		51
	Item 3.	Defaults Upon Senior Securities		52
	Item 4.	Mine Safety Disclosures		52
	Item 5.	Other Information		52
	Item 6.	Exhibits		52

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	March 31, 2020			December 31,
	(Unaudited)			2019
ASSETS
Investments in real estate properties	$	48,112,299		$	35,224,414
Less accumulated depreciation		5,662,351			5,437,662
Net investments in real estate properties		42,449,948			29,786,752
Investments in and advances to unconsolidated entities		6,834,758			6,237,371
Assets held for sale or contribution		1,975,524			720,685
Net investments in real estate		51,260,230			36,744,808

Lease right-of-use assets		510,191			486,330
Cash and cash equivalents		807,871			1,088,855
Other assets		2,428,955			1,711,857
Total assets	$	55,007,247		$	40,031,850

LIABILITIES AND EQUITY
Liabilities:
Debt	$	15,676,592		$	11,905,877
Lease liabilities		498,112			471,634
Accounts payable and accrued expenses		888,341			704,954
Other liabilities		1,168,332			877,601
Total liabilities		18,231,377			13,960,066

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 March 31, 2020 and December 31, 2019		68,948			68,948
Common stock; $0.01 par value; 738,563 shares and 631,797 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		7,386			6,318
Additional paid-in capital		35,416,341			25,719,427
Accumulated other comprehensive loss		(1,142,352	)		(990,398	)
Distributions in excess of net earnings		(2,090,881	)		(2,151,168	)
Total Prologis, Inc. stockholders’ equity		32,259,442			22,653,127
Noncontrolling interests		4,516,428			3,418,657
Total equity		36,775,870			26,071,784
Total liabilities and equity	$	55,007,247		$	40,031,850

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

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended
	March 31,
	2020			2019
Revenues:
Rental	$	878,807		$	696,807
Strategic capital		96,591			73,805
Development management and other		2,843			1,440
Total revenues		978,241			772,052
Expenses:
Rental		227,618			188,068
Strategic capital		46,574			38,058
General and administrative		69,689			69,701
Depreciation and amortization		345,970			284,009
Other		14,574			3,834
Total expenses		704,425			583,670

Operating income before gains on real estate transactions, net		273,816			188,382
Gains on dispositions of development properties and land, net		162,750			42,441
Gains on other dispositions of investments in real estate, net		31,491			145,767
Operating income		468,057			376,590

Other income (expense):
Earnings from unconsolidated entities, net		88,730			56,666
Interest expense		(75,642	)		(60,507	)
Interest and other income, net		370			7,910
Foreign currency and derivative gains, net		113,329			8,734
Losses on early extinguishment of debt, net		(42,767	)		(2,116	)
Total other income		84,020			10,687
Earnings before income taxes		552,077			387,277
Total income tax expense		30,913			13,512
Consolidated net earnings		521,164			373,765
Less net earnings attributable to noncontrolling interests		30,111			25,219
Net earnings attributable to controlling interests		491,053			348,546
Less preferred stock dividends		1,635			1,499
Net earnings attributable to common stockholders	$	489,418		$	347,047

Weighted average common shares outstanding – Basic		698,272			629,676
Weighted average common shares outstanding – Diluted		723,983			654,359

Net earnings per share attributable to common stockholders – Basic	$	0.70		$	0.55

Net earnings per share attributable to common stockholders – Diluted	$	0.70		$	0.55

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

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2020			2019
Consolidated net earnings	$	521,164		$	373,765
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		(133,533	)		60,080
Unrealized losses on derivative contracts, net		(23,448	)		(2,633	)
Comprehensive income		364,183			431,212
Net earnings attributable to noncontrolling interests		(30,111	)		(25,219	)
Other comprehensive loss (income) attributable to noncontrolling interests		5,027			(1,982	)
Comprehensive income attributable to common stockholders	$	339,099		$	404,011

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

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended March 31, 2020 and 2019

(Unaudited)

(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, 2020	$	68,948		631,797		$	6,318		$	25,719,427		$	(990,398	)	$	(2,151,168	)	$	3,418,657		$	26,071,784
Consolidated net earnings		-		-			-			-			-			491,053			30,111			521,164
Effect of equity compensation plans		-		518			5			(3,121	)		-			-			26,439			23,323
Liberty Transaction, net of issuance costs		-		106,723			1,067			9,801,412			-			-			211,567			10,014,046
Repurchases of common shares		-		(539	)		(5	)		(34,824	)		-			-			-			(34,829	)
Capital contributions		-		-			-			-			-			-			916,974			916,974
Redemption of noncontrolling interests		-		64			1			2,783			-			-			(19,595	)		(16,811	)
Foreign currency translation losses, net		-		-			-			-			(129,161	)		-			(4,372	)		(133,533	)
Unrealized losses on derivative contracts, net		-		-			-			-			(22,793	)		-			(655	)		(23,448	)
Reallocation of equity		-		-			-			(69,327	)		-			-			69,327			-
Dividends ($0.58 per common share) and other distributions		-		-			-			(9	)		-			(430,766	)		(132,025	)		(562,800	)
Balance at March 31, 2020	$	68,948		738,563		$	7,386		$	35,416,341		$	(1,142,352	)	$	(2,090,881	)	$	4,516,428		$	36,775,870

			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, 2019	$	68,948		629,616	$	6,296	$	25,685,987		$	(1,084,671	)	$	(2,378,467	)	$	3,502,795		$	25,800,888
Consolidated net earnings		-		-		-		-			-			348,546			25,219			373,765
Effect of equity compensation plans		-		764		7		(1,198	)		-			-			23,220			22,029
Capital contributions		-		-		-		-			-			-			6,538			6,538
Redemption of noncontrolling interests		-		363		4		2,980			-			-			(43,207	)		(40,223	)
Contribution to Brazil venture		-		-		-		-			-			-			(12,630	)		(12,630	)
Foreign currency translation gains, net		-		-		-		-			58,019			-			2,061			60,080
Unrealized losses on derivative contracts, net		-		-		-		-			(2,554	)		-			(79	)		(2,633	)
Reallocation of equity		-		-		-		(33,304	)		-			-			33,304			-
Dividends ($0.53 per common share) and other distributions		-		-		-		(16	)		-			(336,094	)		(47,643	)		(383,753	)
Balance at March 31, 2019	$	68,948		630,743	$	6,307	$	25,654,449		$	(1,029,206	)	$	(2,366,015	)	$	3,489,578		$	25,824,061

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

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2020			2019
Operating activities:
Consolidated net earnings	$	521,164		$	373,765
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(23,738	)		(27,912	)
Equity-based compensation awards		31,808			31,758
Depreciation and amortization		345,970			284,009
Earnings from unconsolidated entities, net		(88,730	)		(56,666	)
Operating distributions from unconsolidated entities		106,732			96,401
Decrease in operating receivables from unconsolidated entities		60,739			49,488
Amortization of debt discounts and debt issuance costs, net		1,175			4,162
Gains on dispositions of development properties and land, net		(162,750	)		(42,441	)
Gains on other dispositions of investments in real estate, net		(31,491	)		(145,767	)
Unrealized foreign currency and derivative gains, net		(109,726	)		(7,158	)
Losses on early extinguishment of debt, net		42,767			2,116
Deferred income tax expense		2,993			793
Decrease (increase) in accounts receivable, lease right-of-use assets and other assets		105,648			(13,470	)
Decrease in accounts payable and accrued expenses, lease liabilities and other liabilities		(123,468	)		(54,164	)
Net cash provided by operating activities		679,093			494,914
Investing activities:
Real estate development		(443,044	)		(368,596	)
Real estate acquisitions		(439,059	)		(274,528	)
Liberty Transaction, net of cash acquired		(22,659	)		-
IPT Transaction, net of cash acquired		(1,664,555	)		-
Tenant improvements and lease commissions on previously leased space		(39,396	)		(40,338	)
Property improvements		(13,639	)		(13,612	)
Proceeds from dispositions and contributions of real estate properties		723,887			595,496
Investments in and advances to unconsolidated entities		(251,673	)		(75,559	)
Return of investment from unconsolidated entities		139,900			355,539
Proceeds from repayment of notes receivable backed by real estate		4,312			-
Proceeds from the settlement of net investment hedges		2,352			9,761
Payments on the settlement of net investment hedges		(5,599	)		(28,524	)
Net cash provided by (used in) investing activities		(2,009,173	)		159,639
Financing activities:
Proceeds from issuance of common stock		850			2,482
Repurchase and retirement of common stock		(34,829	)		-
Dividends paid on common and preferred stock		(430,766	)		(336,094	)
Noncontrolling interests contributions		916,974			6,538
Noncontrolling interests distributions		(132,025	)		(47,643	)
Settlement of noncontrolling interests		(16,811	)		(40,223	)
Tax paid for shares withheld		(22,736	)		(21,094	)
Debt and equity issuance costs paid		(31,118	)		(14,692	)
Net payments on credit facilities		(125,166	)		(24,565	)
Repurchase of and payments on debt		(4,065,075	)		(1,418,438	)
Proceeds from the issuance of debt		4,991,113			1,145,095
Net cash provided by (used in) financing activities		1,050,411			(748,634	)

Effect of foreign currency exchange rate changes on cash		(1,315	)		1,255
Net decrease in cash and cash equivalents		(280,984	)		(92,826	)
Cash and cash equivalents, beginning of period		1,088,855			343,856
Cash and cash equivalents, end of period	$	807,871		$	251,030

See Note 13 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)


	March 31, 2020		December 31,
	(Unaudited)		2019
ASSETS
Investments in real estate properties	$	48,112,299	$	35,224,414
Less accumulated depreciation		5,662,351		5,437,662
Net investments in real estate properties		42,449,948		29,786,752
Investments in and advances to unconsolidated entities		6,834,758		6,237,371
Assets held for sale or contribution		1,975,524		720,685
Net investments in real estate		51,260,230		36,744,808

Lease right-of-use assets		510,191		486,330
Cash and cash equivalents		807,871		1,088,855
Other assets		2,428,955		1,711,857
Total assets	$	55,007,247	$	40,031,850

LIABILITIES AND CAPITAL
Liabilities:
Debt	$	15,676,592	$	11,905,877
Lease liabilities		498,112		471,634
Accounts payable and accrued expenses		888,341		704,954
Other liabilities		1,168,332		877,601
Total liabilities		18,231,377		13,960,066

Capital:
Partners’ capital:
General partner – preferred		68,948		68,948
General partner – common		32,190,494		22,584,179
Limited partners – common		573,481		355,076
Limited partners – Class A common		350,961		288,187
Total partners’ capital		33,183,884		23,296,390
Noncontrolling interests		3,591,986		2,775,394
Total capital		36,775,870		26,071,784
Total liabilities and capital	$	55,007,247	$	40,031,850

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

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit amounts)

	Three Months Ended
	March 31,
	2020			2019
Revenues:
Rental	$	878,807		$	696,807
Strategic capital		96,591			73,805
Development management and other		2,843			1,440
Total revenues		978,241			772,052
Expenses:
Rental		227,618			188,068
Strategic capital		46,574			38,058
General and administrative		69,689			69,701
Depreciation and amortization		345,970			284,009
Other		14,574			3,834
Total expenses		704,425			583,670

Operating income before gains on real estate transactions, net		273,816			188,382
Gains on dispositions of development properties and land, net		162,750			42,441
Gains on other dispositions of investments in real estate, net		31,491			145,767
Operating income		468,057			376,590

Other income (expense):
Earnings from unconsolidated entities, net		88,730			56,666
Interest expense		(75,642	)		(60,507	)
Interest and other income, net		370			7,910
Foreign currency and derivative gains, net		113,329			8,734
Losses on early extinguishment of debt, net		(42,767	)		(2,116	)
Total other income		84,020			10,687
Earnings before income taxes		552,077			387,277
Total income tax expense		30,913			13,512
Consolidated net earnings		521,164			373,765
Less net earnings attributable to noncontrolling interests		16,141			14,645
Net earnings attributable to controlling interests		505,023			359,120
Less preferred unit distributions		1,635			1,499
Net earnings attributable to common unitholders	$	503,388		$	357,621

Weighted average common units outstanding – Basic		710,141			640,504
Weighted average common units outstanding – Diluted		723,983			654,359

Net earnings per unit attributable to common unitholders – Basic	$	0.70		$	0.55

Net earnings per unit attributable to common unitholders – Diluted	$	0.70		$	0.55

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

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2020			2019
Consolidated net earnings	$	521,164		$	373,765
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		(133,533	)		60,080
Unrealized losses on derivative contracts, net		(23,448	)		(2,633	)
Comprehensive income		364,183			431,212
Net earnings attributable to noncontrolling interests		(16,141	)		(14,645	)
Other comprehensive loss (income) attributable to noncontrolling interests		663			(263	)
Comprehensive income attributable to common unitholders	$	348,705		$	416,304

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

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

Three Months Ended March 31, 2020 and 2019

(Unaudited)

(In thousands)

	General Partner										Limited Partners											Non-
	Preferred				Common						Common						Class A Common					controlling
	Units		Amount		Units			Amount			Units			Amount			Units		Amount			Interests			Total
Balance at January 1, 2020		1,379	$	68,948		631,797		$	22,584,179			9,933		$	355,076			8,613	$	288,187		$	2,775,394		$	26,071,784
Consolidated net earnings		-		-		-			491,053			-			8,319			-		5,651			16,141			521,164
Effect of equity compensation plans		-		-		518			(3,116	)		1,191			26,439			-		-			-			23,323
Liberty Transaction, net of issuance costs		-		-		106,723			9,802,479			2,288			210,190			-		-			1,377			10,014,046
Repurchases of common units		-		-		(539	)		(34,829	)		-			-			-		-			-			(34,829	)
Capital contributions		-		-		-			-			-			-			-		-			916,974			916,974
Redemption of limited partners units		-		-		64			2,784			(254	)		(19,595	)		-		-			-			(16,811	)
Foreign currency translation losses, net		-		-		-			(129,161	)		-			(2,301	)		-		(1,408	)		(663	)		(133,533	)
Unrealized losses on derivative contracts, net		-		-		-			(22,793	)		-			(406	)		-		(249	)		-			(23,448	)
Reallocation of capital		-		-		-			(69,327	)		-			4,977			-		64,350			-			-
Distributions ($0.58 per common unit) and other		-		-		-			(430,775	)		-			(9,218	)		-		(5,570	)		(117,237	)		(562,800	)
Balance at March 31, 2020		1,379	$	68,948		738,563		$	32,190,494			13,158		$	573,481			8,613	$	350,961		$	3,591,986		$	36,775,870

	General Partner									Limited Partners											Non-
	Preferred				Common					Common						Class A Common					controlling
	Units		Amount		Units		Amount			Units			Amount			Units		Amount			Interests			Total
Balance at January 1, 2019		1,379	$	68,948		629,616	$	22,229,145			10,516		$	371,281			8,849	$	295,045		$	2,836,469		$	25,800,888
Consolidated net earnings		-		-		-		348,546			-			5,968			-		4,606			14,645			373,765
Effect of equity compensation plans		-		-		764		(1,191	)		1,355			23,220			-		-			-			22,029
Capital contributions		-		-		-		-			-			-			-		-			6,538			6,538
Redemption of noncontrolling interests		-		-		-		(9,835	)		-			-			-		-			(11,258	)		(21,093	)
Redemption of limited partners units		-		-		363		12,819			(661	)		(31,949	)		-		-			-			(19,130	)
Contribution to Brazil venture		-		-		-		-			-			-			-		-			(12,630	)		(12,630	)
Foreign currency translation gains, net		-		-		-		58,019			-			1,031			-		767			263			60,080
Unrealized losses on derivative contracts, net		-		-		-		(2,554	)		-			(45	)		-		(34	)		-			(2,633	)
Reallocation of capital		-		-		-		(33,304	)		-			33,634			-		(330	)		-			-
Distributions ($0.53 per common unit) and other		-		-		-		(336,110	)		-			(7,414	)		-		(5,723	)		(34,506	)		(383,753	)
Balance at March 31, 2019		1,379	$	68,948		630,743	$	22,265,535			11,210		$	395,726			8,849	$	294,331		$	2,799,521		$	25,824,061

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

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2020			2019
Operating activities:
Consolidated net earnings	$	521,164		$	373,765
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(23,738	)		(27,912	)
Equity-based compensation awards		31,808			31,758
Depreciation and amortization		345,970			284,009
Earnings from unconsolidated entities, net		(88,730	)		(56,666	)
Operating distributions from unconsolidated entities		106,732			96,401
Decrease in operating receivables from unconsolidated entities		60,739			49,488
Amortization of debt discounts and debt issuance costs, net		1,175			4,162
Gains on dispositions of development properties and land, net		(162,750	)		(42,441	)
Gains on other dispositions of investments in real estate, net		(31,491	)		(145,767	)
Unrealized foreign currency and derivative gains, net		(109,726	)		(7,158	)
Losses on early extinguishment of debt, net		42,767			2,116
Deferred income tax expense		2,993			793
Decrease (increase) in accounts receivable, lease right-of-use assets and other assets		105,648			(13,470	)
Decrease in accounts payable and accrued expenses, lease liabilities and other liabilities		(123,468	)		(54,164	)
Net cash provided by operating activities		679,093			494,914
Investing activities:
Real estate development		(443,044	)		(368,596	)
Real estate acquisitions		(439,059	)		(274,528	)
Liberty Transaction, net of cash acquired		(22,659	)		-
IPT Transaction, net of cash acquired		(1,664,555	)		-
Tenant improvements and lease commissions on previously leased space		(39,396	)		(40,338	)
Property improvements		(13,639	)		(13,612	)
Proceeds from dispositions and contributions of real estate properties		723,887			595,496
Investments in and advances to unconsolidated entities		(251,673	)		(75,559	)
Return of investment from unconsolidated entities		139,900			355,539
Proceeds from repayment of notes receivable backed by real estate		4,312			-
Proceeds from the settlement of net investment hedges		2,352			9,761
Payments on the settlement of net investment hedges		(5,599	)		(28,524	)
Net cash provided by (used in) investing activities		(2,009,173	)		159,639
Financing activities:
Proceeds from issuance of common partnership units in exchange for contributions from Prologis, Inc.		850			2,482
Repurchase and retirement of common units		(34,829	)		-
Distributions paid on common and preferred units		(445,554	)		(349,231	)
Noncontrolling interests contributions		916,974			6,538
Noncontrolling interests distributions		(117,237	)		(34,506	)
Settlement of noncontrolling interests		-			(21,093	)
Redemption of common limited partnership units		(16,811	)		(19,130	)
Tax paid for shares of the Parent withheld		(22,736	)		(21,094	)
Debt and equity issuance costs paid		(31,118	)		(14,692	)
Net payments on credit facilities		(125,166	)		(24,565	)
Repurchase of and payments on debt		(4,065,075	)		(1,418,438	)
Proceeds from the issuance of debt		4,991,113			1,145,095
Net cash provided by (used in) financing activities		1,050,411			(748,634	)

Effect of foreign currency exchange rate changes on cash		(1,315	)		1,255
Net decrease in cash and cash equivalents		(280,984	)		(92,826	)
Cash and cash equivalents, beginning of period		1,088,855			343,856
Cash and cash equivalents, end of period	$	807,871		$	251,030

See Note 13 for information on noncash investing and financing activities and other information.

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

PROLOGIS, INC. AND PROLOGIS, L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. GENERAL

Business. Prologis, Inc. (or the “Parent”) commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and believes the current organization and method of operation will enable it to maintain its status as a REIT. The Parent is the general partner of Prologis, L.P. (or the “Operating Partnership” or “OP”). Through the OP, we are engaged in the ownership, acquisition, development and management of logistics facilities with a focus on key markets in 19 countries on four continents. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity. Our current business strategy consists of two operating business segments: Real Estate Operations and Strategic Capital. Our Real Estate Operations segment represents the ownership and development of logistics properties. Our Strategic Capital segment represents the management of unconsolidated co-investment ventures and other ventures. See Note 12 for further discussion of our business segments. Unless otherwise indicated, the Notes to the Consolidated Financial Statements apply to both the Parent and the OP. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and OP collectively.

For each share of preferred or common stock the Parent issues, the OP issues a corresponding preferred or common partnership unit, as applicable, to the Parent in exchange for the contribution of the proceeds from the stock issuance. At March 31, 2020, the Parent owned a 97.21% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.79% common limited partnership interests, which include 8.6 million Class A common limited partnership units (“Class A Units”) in the OP, are owned by unaffiliated investors and certain current and former directors and officers of the Parent. Each partner’s percentage interest in the OP is determined based on the number of OP units held, including the number of OP units into which Class A Units are convertible, compared to total OP units outstanding at each period end and is used as the basis for the allocation of net income or loss to each partner. At the end of each reporting period, a capital adjustment is made in the OP to reflect the appropriate ownership interest for each of the common unitholders. These adjustments are reflected in the line items Reallocation of Equity in the Consolidated Statements of Equity of the Parent and Reallocation of Capital in the Consolidated Statements of Capital of the OP.

As the sole general partner of the OP, the Parent has complete responsibility and discretion in the day-to-day management and control of the OP and 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 general partner with control of the OP, the Parent is the primary beneficiary and therefore consolidates the OP. Because the Parent’s only significant asset is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

Basis of Presentation. The accompanying Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are presented in our reporting currency, the U.S. dollar. All material intercompany transactions with consolidated entities have been eliminated.

The accompanying unaudited interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes that the disclosures presented in these financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for both the Parent and the OP for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC, and other public information.

New Accounting Pronouncements.

Accounting for Lease Concessions Related to the Effects of the Coronavirus (“COVID-19”) Pandemic. In April 2020, the Financial Accounting Standards Board (“FASB”) issued a Staff Question-and-Answer (“Q&A”) to clarify whether lease concessions related to the effects of COVID-19 require the application of the lease modification guidance under the new lease standard, which we adopted on January 1, 2019. For rent deferrals granted as of April 27^th, we are allowing customers to defer rental payments until later in 2020, in exchange for a note receivable, and we are continuing to recognize rental revenue during the period. In accordance with the Q&A, we are electing to not apply the lease modification guidance to concessions that result in deferred rent as the total cash flows required by the modified lease agreements are materially the same as the cash flows required under the original lease and there are no substantive changes to the consideration. As of April 27, 2020, we have granted deferral requests of $8.6 million with an average of 30 days of rent deferred per customer. If we grant concessions to a customer that modify the terms and significantly change the underlying cash flows of the original lease for the remaining term, we will account for these changes as a lease modification.

Reference Rate Reform. In March 2020, the FASB issued an Accounting Standard Update (“ASU”) that provided practical expedients to address existing guidance on contract modifications and hedge accounting due to the expected market transition from the London Inter-bank Offered Rate (“LIBOR”) and other interbank offered rates (together “IBORs”) to alternative reference rates, such as the Secured Overnight Financing Rate. In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. We refer to this transition as “reference rate reform.”

The first practical expedient allows companies to elect to not apply certain modification accounting requirements to debt, derivative and lease contracts affected by reference rate reform if certain criteria are met. These criteria include the following: (i) the contract referenced an IBOR rate that is expected to be discontinued; (ii) the modified terms directly replace or have the potential to replace the IBOR rate that is expected to be discontinued; and (iii) any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the IBOR rate. If the contract meets all three criteria, there is no requirement for remeasurement of the contract at the modification date or reassessment of the previous accounting determination.

The second practical expedient allows companies to change the reference rate and other critical terms related to the reference rate reform in derivative hedge documentation without having to de-designate the hedging relationship. This allows for companies to continue applying hedge accounting to existing cash flow and net investment hedges.

The ASU was effective upon issuance on a prospective basis beginning January 1, 2020 and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, we elected to apply the hedge accounting practical expedient to our net investment hedges and cash flow hedges. We will continue to evaluate our debt, derivative and lease contracts that are eligible for modification relief and may apply those elections as needed.

NOTE 2. LIBERTY TRANSACTION

On February 4, 2020, we acquired Liberty Property Trust and Liberty Property Limited Partnership (collectively “Liberty” or the “Liberty Transaction”).

The Liberty Transaction was completed for $13.0 billion through the issuance of equity based on the value of the Prologis common stock and units issued of $10.0 billion and the assumption of debt of $2.8 billion, and includes transaction costs. In connection with the transaction, each issued and outstanding share or unit held by a Liberty stockholder or unitholder was converted automatically into 0.675 shares of Prologis common stock or common units of Prologis, L.P., respectively, including shares and units under Liberty’s equity incentive plan that became fully vested at closing.

Through the Liberty Transaction, we acquired a portfolio primarily comprised of logistics real estate assets, including 519 industrial operating properties, aggregating 99.6 million square feet, which are highly complementary to our U.S. portfolio in terms of product quality, location and growth potential in our key markets. There was approximately 34 million square feet of non-strategic industrial properties acquired in the Liberty Transaction for which our intent is not to operate these properties long-term. Depending on the expected hold period, these assets are either classified as Assets Held for Sale or Contribution or Other Real Estate Investments in the Consolidated Balance Sheets. In addition, we acquired an ownership interest in eight other ventures that own industrial and office properties.

The aggregate equity consideration is calculated below (in millions, except price per share):

Number of Prologis shares and units issued upon conversion of Liberty shares and units at February 4, 2020		109.01
Multiplied by closing price of Prologis' common stock on February 3, 2020	$	91.87
Fair value of Prologis shares and units issued	$	10,015

We accounted for the Liberty Transaction as an asset acquisition and as a result, the transaction costs were capitalized to the basis of the acquired properties. Transaction costs included investment banker advisory fees, legal fees and other costs. Under acquisition accounting, the total purchase price was allocated to the Liberty real estate properties, excluding those held for sale, on a relative fair value basis. Other monetary assets acquired and liabilities assumed, including debt, are recorded at fair value. The purchase price allocation of Liberty resulted primarily in net investments in real estate and related net intangible assets financed by the issuance of Prologis shares and units and the assumption of debt.

In connection with the Liberty Transaction and the related Form S-4, on December 19, 2019, Liberty and Liberty’s board of directors (the “Liberty Board”) were sued in a putative class action lawsuit, the McDonough Action, filed in the United States District Court for the District of New Jersey. On January 7, 2020, Liberty and the Liberty Board were sued in another putative class action lawsuit, the Yonchuk Action, filed in in the United States District Court for the District of Maryland, in connection with the Liberty Transaction and the related Form S-4. The complaints in the McDonough Action and Yonchuk Action allege that Liberty and the Liberty Board violated federal securities laws by omitting material information from the Form S-4, rendering the Form S-4 materially deficient.

In both outstanding actions, the plaintiffs seek, among other things, (i) rescission of the transaction and/or (ii) damages, and (iii) attorneys' fees and costs in connection with these lawsuits. Although the ultimate outcome of litigation cannot be predicted with certainty, we believe that these lawsuits are without merit and intend to defend against these actions vigorously.

NOTE 3. REAL ESTATE

Investments in real estate properties consisted of the following (dollars and square feet in thousands):

	Square Feet				Number of Buildings
	Mar 31,		Dec 31,		Mar 31,		Dec 31,		Mar 31,		Dec 31,
	2020 ⁽¹⁾		2019		2020 ⁽¹⁾		2019		2020 ⁽¹⁾		2019
Operating properties:
Buildings and improvements		439,507		354,297		2,260		1,876	$	30,471,635	$	23,067,625
Improved land										11,957,756		8,220,208
Development portfolio, including land costs:
Prestabilized		6,622		9,133		24		28		510,338		784,584
Properties under development		27,617		26,893		71		77		1,326,456		1,084,683
Land ⁽²⁾										1,463,982		1,101,646
Other real estate investments ⁽³⁾										2,382,132		965,668
Total investments in real estate properties										48,112,299		35,224,414
Less accumulated depreciation										5,662,351		5,437,662
Net investments in real estate properties									$	42,449,948	$	29,786,752

(1)	The portfolio acquired in the Liberty Transaction, excluding properties classified as Assets Held for Sale or Contribution, was included in investments in real estate properties at March 31, 2020. See Note 2 for more information.

(2)	At March 31, 2020 and December 31, 2019, our land is comprised of 5,870 and 4,411 acres, respectively.

(3)

Included in other real estate investments were: (i) non-strategic real estate assets acquired in the Liberty Transaction for which our intent is not to operate these properties long-term; (ii) land parcels that are ground leased to third parties; (iii) non-logistics real estate; (iv) our corporate headquarters; (v) costs related to future development projects, including purchase options on land; (vi) earnest money deposits associated with potential acquisitions; and (vii) infrastructure costs related to projects we are developing on behalf of others.

Acquisitions

The following table summarizes our real estate acquisition activity, excluding the Liberty Transaction as discussed in Note 2 (dollars and square feet in thousands):

	Three Months Ended March 31,
	2020 ⁽¹⁾		2019
Number of operating properties		137		12
Square feet		20,256		967
Acres of land		267		188
Acquisition cost of net investments in real estate⁽²⁾	$	2,393,767	$	312,252

(1)

On January 8, 2020, our two U.S. co-investment ventures, Prologis Targeted U.S. Logistics Fund, L.P. (“USLF”) and Prologis U.S. Logistics Venture (“USLV”), acquired the wholly-owned real estate assets of Industrial Property Trust Inc. (“IPT”) for $2.0 billion each in a cash transaction, including transaction costs and the assumption and repayment of debt (the “IPT Transaction”). As USLV is a consolidated co-investment venture, the number of operating properties, square feet and acquisition cost are included in the consolidated acquisition activity. For further discussion on the acquisition by USLF, see Note 4, and for USLV, see Notes 6 and 8.

(2)	Includes the acquisition cost of properties classified in other real estate investments of $86.8 million for the three months ended March 31, 2020. We did not acquire properties classified in other real estate investments during the three months ended March 31, 2019.

Dispositions

The following table summarizes our dispositions of net investments in real estate (dollars and square feet in thousands):

	Three Months Ended March 31,
	2020		2019
Dispositions of development properties and land, net
Contributions to unconsolidated entities
Number of properties		9		5
Square feet		3,524		1,212
Net proceeds	$	554,343	$	124,322
Gains on contributions, net	$	144,745	$	30,833

Dispositions to third parties
Number of properties		2		2
Square feet		1,112		670
Net proceeds	$	79,220	$	52,024
Gains on dispositions, net	$	18,005	$	11,608
Total gains on dispositions of development properties and land, net	$	162,750	$	42,441

Other dispositions of investments in real estate, net ⁽¹⁾
Number of properties		18		14
Square feet		2,305		6,937
Net proceeds	$	160,557	$	619,843
Gains on contributions and dispositions, net	$	31,491	$	10,745
Gains on partial redemption of investment in an unconsolidated co-investment venture⁽²⁾	$	-	$	135,022
Total gains on other dispositions of investments in real estate, net	$	31,491	$	145,767

(1)

In January 2019, we formed Prologis Brazil Logistics Venture (“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 6.9 million square feet and 371 acres of land. We received cash proceeds and units for our 20.0% equity interest.

(2)	In February 2019, we redeemed a portion of our investment in a European unconsolidated co-investment venture.

NOTE 4. UNCONSOLIDATED ENTITIES

Summary of Investments

We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with partners and investors and we provide asset and property management services to these entities, which we refer to as co-investment ventures. These entities may be consolidated or unconsolidated, depending on the structure, our partner’s participation and other rights and our level of control of the entity. This note details our investments in unconsolidated co-investment ventures, which are related parties and are accounted for using the equity method of accounting. See Note 8 for more detail regarding our consolidated investments that are not wholly owned.

We also have investments in other ventures, generally with one partner and that we do not manage, which we account for using the equity method. We refer to our investments in both unconsolidated co-investment ventures and other ventures, collectively, as unconsolidated entities.

The following table summarizes our investments in and advances to our unconsolidated entities (in thousands):

	March 31,		December 31,
	2020		2019
Unconsolidated co-investment ventures	$	5,910,369	$	5,873,784
Other ventures ⁽¹⁾		924,389		363,587
Total	$	6,834,758	$	6,237,371

(1)	In February 2020, we completed the Liberty Transaction and acquired an equity method investment in eight ventures.

Unconsolidated Co-Investment Ventures

The following table summarizes the Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to our unconsolidated co-investment ventures (in thousands):

	Three Months Ended March 31,
	2020		2019
Recurring fees	$	74,687	$	62,117
Transactional fees		19,960		11,348
Promote revenue		591		-
Total strategic capital revenues from unconsolidated co-investment ventures ⁽¹⁾	$	95,238	$	73,465

(1)	These amounts exclude strategic capital revenues from other ventures.

The following table summarizes the key property information, financial position and operating information of our unconsolidated co-investment ventures (not our proportionate share) and the amounts we recognized in the Consolidated Financial Statements related to these ventures (dollars and square feet in millions):

	U.S.						Other Americas						Europe						Asia						Total
As of:	Mar 31, 2020 ⁽¹⁾			Dec 31, 2019			Mar 31, 2020⁽²⁾			Dec 31, 2019			Mar 31, 2020			Dec 31, 2019			Mar 31, 2020			Dec 31, 2019			Mar 31, 2020			Dec 31, 2019
Key property information:
Ventures		1			1			2			2			3			3			3			3			9			9
Operating properties		689			605			214			214			745			731			151			144			1,799			1,694
Square feet		112			99			45			44			178			176			63			59			398			378

Financial position:
Total assets ($)		10,301			8,408			2,871			2,707			14,444			14,677			9,236			8,758			36,852			34,550
Third-party debt ($)		2,925			2,130			770			769			3,148			3,213			3,550			3,296			10,393			9,408
Total liabilities ($)		3,371			2,514			807			801			4,491			4,575			3,992			3,751			12,661			11,641

Our investment balance ($) ⁽³⁾		1,720			1,728			791			658			2,678			2,800			721			688			5,910			5,874
Our weighted average ownership ⁽⁴⁾		24.8	%		27.3	%		40.8	%		39.1	%		30.0	%		30.2	%		15.2	%		15.1	%		25.8	%		27.1	%

	U.S.						Other Americas						Europe						Asia						Total
Operating Information:	Mar 31, 2020 ⁽¹⁾			Mar 31, 2019			Mar 31, 2020⁽²⁾			Mar 31, 2019			Mar 31, 2020			Mar 31, 2019			Mar 31, 2020			Mar 31, 2019			Mar 31, 2020			Mar 31, 2019
For the three months ended:
Total revenues ($)		233			179			68			67			290			271			138			120			729			637
Net earnings ($)		34			29			23			34			78			71			26			37			161			171

Our earnings from unconsolidated co-investment ventures, net ($)		9			9			9			13			25			25			4			6			47			53

(1)	In January 2020, USLF acquired a portfolio of 108 operating properties, aggregating 18.3 million square feet, in the IPT Transaction for cash consideration of $2.0 billion, including transaction costs and the assumption and repayment of debt.

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

(3)

Prologis’ investment balance is presented at our adjusted basis derived from the ventures’ U.S. GAAP information. The difference between our ownership interest of a venture’s equity and our investment balance at March 31, 2020 and December 31, 2019, results principally from four types of transactions: (i) deferred gains from the contribution of property to a venture prior to January 1, 2018; (ii) recording additional costs associated with our investment in the venture; (iii) receivables, principally for fees and promotes ($94.7 million and $152.0 million, respectively); and (iv) customer security deposits retained subsequent to property contributions to Nippon Prologis REIT, Inc.

(4)	Represents our weighted average ownership interest in all unconsolidated co-investment ventures based on each entity’s contribution of total assets before depreciation, net of other liabilities.

Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures

At March 31, 2020, our remaining equity commitments were $366.7 million, principally for Prologis China Logistics Venture. The equity commitments expire from 2020 to 2026.

NOTE 5. ASSETS HELD FOR SALE OR CONTRIBUTION

We have investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at March 31, 2020 and December 31, 2019. At the time of classification, these properties were expected to be sold to third parties or were recently stabilized and expected to be contributed to unconsolidated co-investment ventures within twelve months. The amounts included in Assets Held for Sale or Contribution represented real estate investment balances and the related assets and liabilities for each property.

Assets held for sale or contribution, including certain properties acquired through the Liberty Transaction and the IPT Transaction, consisted of the following (dollars and square feet in thousands):

	March 31,		December 31,
	2020		2019
Number of operating properties		161		28
Square feet		24,935		9,371
Total assets held for sale or contribution	$	1,975,524	$	720,685
Total liabilities associated with assets held for sale or contribution – included in Other Liabilities	$	46,515	$	41,994

NOTE 6. DEBT

All debt is incurred by the OP or its consolidated subsidiaries. The following table summarizes our debt (dollars in thousands):

	March 31, 2020					December 31, 2019
	Weighted Average Interest Rate ⁽¹⁾			Amount Outstanding ⁽²⁾		Weighted Average Interest Rate⁽¹⁾			Amount Outstanding ⁽²⁾
Credit facilities		0.4	%	$	52,522		0.4	%	$	184,255
Senior notes ⁽³⁾		2.3	%		13,045,081		2.4	%		9,660,570
Term loans and unsecured other ⁽³⁾		1.1	%		1,930,955		0.9	%		1,441,882
Secured mortgage⁽³⁾⁽⁴⁾		3.7	%		648,034		3.4	%		619,170
Total		2.2	%	$	15,676,592		2.2	%	$	11,905,877

(1)

The interest rates presented represent the effective interest rates (including amortization of debt issuance costs and the noncash premiums or discounts) at the end of the period for the debt outstanding and include the impact of a designated interest rate swap, which effectively fixes the interest rate on the related variable rate debt.

(2)	We borrow in the functional currencies of the countries where we invest. Included in the outstanding balances were borrowings denominated in the following currencies:

	March 31, 2020					December 31, 2019
	Amount Outstanding		% of Total			Amount Outstanding		% of Total
British pound sterling	$	1,085,836		6.9	%	$	656,549		5.5	%
Canadian dollar		255,073		1.6	%		279,730		2.3	%
Euro		6,236,824		39.8	%		6,128,986		51.5	%
Japanese yen		2,078,927		13.3	%		2,329,381		19.6	%
U.S. dollar		6,019,932		38.4	%		2,511,231		21.1	%
Total	$	15,676,592				$	11,905,877

(3)

Through the Liberty Transaction, we assumed approximately $2.5 billion of senior notes, $246.9 million of secured mortgage debt and a $100.1 million term loan with a weighted average stated interest rate of 3.8%. Prior to March 31, 2020, we paid down $1.8 billion of the assumed debt with senior notes we issued at lower rates in February 2020, as detailed below. See below for additional activity on debt assumed and early extinguishment of debt in the Liberty Transaction.

(4)	Through the IPT Transaction, USLV assumed approximately $341.8 million of secured mortgage debt, all of which was paid down at closing. See below for early extinguishment of debt in the IPT Transaction.

Credit Facilities

In January 2019, we recast our global senior credit facility (the “Global Facility”), under which we may draw in British pounds sterling, Canadian dollars, euro, Japanese yen, Mexican pesos and U.S. dollars on a revolving basis up to $3.5 billion (subject to currency fluctuations). Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based on

the public debt ratings of the OP. The Global Facility is scheduled to mature in January 2023; however, we may extend the maturity date for six months on two occasions, subject to the satisfaction of certain conditions and payment of extension fees. We have the ability to increase the Global Facility to $4.5 billion, subject to currency fluctuations and obtaining additional lender commitments.

We also have a Japanese yen revolver (the “Revolver”) with availability of ¥50.0 billion ($460.7 million at March 31, 2020). We have the ability to increase the Revolver to ¥65.0 billion ($598.9 million at March 31, 2020), subject to obtaining additional lender commitments. Pricing under the Revolver, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP. The Revolver is scheduled to mature in February 2021; however, we may extend the maturity date for one year, subject to the satisfaction of certain conditions and payment of extension fees.

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities.”

The following table summarizes information about our Credit Facilities at March 31, 2020 (in millions):


Aggregate lender commitments	$	3,923
Less:
Borrowings outstanding		53
Outstanding letters of credit		40
Current availability	$	3,830

Senior Notes

The following table summarizes the issuances and redemptions of senior notes during the three months ended March 31, 2020 (principal in thousands):

	Aggregate Principal
Initial Borrowing Date	Borrowing Currency		USD ⁽¹⁾		Weighted Average Stated Interest Rate at March 31, 2020	Maturity Dates
February ⁽²⁾	€	1,350,000	$	1,485,405	0.8%	February 2022 – 2035
February ⁽²⁾	$	2,200,000	$	2,200,000	2.6%	April 2027 – 2050
February	£	250,000	$	322,490	1.9%	February 2035

	Aggregate Principal
Redemption Date	Borrowing Currency		USD ⁽¹⁾		Stated Interest Rate	Maturity Date
January	€	400,000	$	445,880	Euribor plus 0.3%	January 2020
March ⁽²⁾	€	700,000	$	783,090	1.4%	May 2021

(1)	The exchange rate used to calculate into U.S. dollars was the spot rate at the settlement date.

(2)

We utilized the proceeds from these issuances to redeem $1.7 billion of senior notes assumed in the Liberty Transaction, as discussed above, and our €700.0 million ($783.1 million) senior notes due in May 2021. The remainder of the proceeds were used for the repayment of other debt and general corporate purposes.

In February 2020, we completed an exchange offer for two series of Liberty’s senior notes for an aggregate amount of $750.0 million, with $689.8 million, or 92%, of the aggregate principal amount being validly tendered for exchange. These senior notes are in the aggregate principal amounts of $400.0 million due in October 2026 with an interest rate of 3.3% and $350.0 million due in February 2029 with an interest rate of 4.4%. The senior notes were exchanged for notes issued by a wholly owned subsidiary and guaranteed by the OP. As a result of the exchange offer, we have no separate remaining financial reporting obligations or financial covenants associated with the senior notes assumed in the Liberty Transaction. All other terms of the newly issued senior notes remained substantially the same.

Term Loans

During the three months ended March 31, 2020, we extended the maturity of the multi-currency term loan (“2017 Term Loan”) by one year until May 2021. We may extend the maturity date by one more year to 2022, subject to the satisfaction of certain conditions and the payment of an extension fee. During the three months ended March 31, 2020 and 2019, we borrowed a net $500.0 million and paid down $500.0 million on the 2017 Term Loan, respectively.

Long-Term Debt Maturities

Scheduled principal payments due on our debt for the remainder of 2020 and for each year through the period ended December 31, 2024, and thereafter were as follows at March 31, 2020 (in thousands):

	Unsecured
	Credit		Senior			Term Loans			Secured
Maturity	Facilities		Notes			and Other			Mortgage			Total
2020 ⁽¹⁾	$	-	$	-		$	10,785		$	19,109		$	29,894
2021 ^(1)(2)(3)		52,522		-			500,000			30,895			583,417
2022		-		931,260			-			11,745			943,005
2023		-		850,000			119,617			33,719			1,003,336
2024		-		766,920			-			262,138			1,029,058
Thereafter		-		10,528,222			1,308,454			289,832			12,126,508
Subtotal		52,522		13,076,402			1,938,856			647,438			15,715,218
Unamortized net premiums		-		26,219			-			2,864			29,083
Unamortized debt issuance costs		-		(57,540	)		(7,901	)		(2,268	)		(67,709	)
Total	$	52,522	$	13,045,081		$	1,930,955		$	648,034		$	15,676,592

(1)	We expect to repay the amounts maturing in the next twelve months with cash generated from operations, proceeds from dispositions of real estate properties, or as necessary, with borrowings on our Credit Facilities.

(2)	Included in the 2021 maturities is the 2017 Term Loan that can be extended until 2022.

(3)	Included in the 2021 maturities is the Revolver that can be extended until 2022.

Early Extinguishment of Debt

During the three months ended March 31, 2020, we recognized $42.8 million in losses, mostly due to the redemption of the €700.0 million ($783.1 million) senior notes in March and the extinguishment of debt assumed in the Liberty Transaction and the IPT Transaction, which represented the excess of the prepayment penalties over the premium recorded upon assumption of the debt. During the three months ended March 31, 2019, losses on early extinguishment of debt were not significant.

Financial Debt Covenants

We have $13.0 billion of senior notes and $1.9 billion of term loans outstanding at March 31, 2020 that were subject to certain financial covenants under their related indentures. We are also subject to financial covenants under our Credit Facilities and certain secured mortgage debt. At March 31, 2020, we were in compliance with all of our financial debt covenants.

Guarantee of Finance Subsidiary Debt

In 2018, we formed finance subsidiaries as part of our operations in Europe (Prologis Euro Finance LLC), Japan (Prologis Yen Finance LLC) and the U.K. (Prologis Sterling Finance LLC).

These entities are 100% indirectly owned by the OP and all unsecured debt issued or to be issued by each entity is or will be fully and unconditionally guaranteed by the OP. There are no restrictions or limits on the OP’s ability to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial statements of Prologis Euro Finance LLC, Prologis Yen Finance LLC and Prologis Sterling Finance LLC are not provided.

NOTE 7. STOCKHOLDER’S EQUITY OF PROLOGIS, INC.

In March 2020, the Board of Directors authorized a new share purchase program for the repurchase of outstanding shares of our common stock on the open market or in privately negotiated transactions for an aggregate purchase price of up to $1.0 billion. During the three months ended March 31, 2020, we repurchased and retired 0.5 million shares of common stock for an aggregate price of $34.8 million at a weighted average price of $64.66 per share on the open market.

NOTE 8. NONCONTROLLING INTERESTS

Prologis, L.P.

We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option, into shares of the Parent’s common stock, generally at a rate of one share of common stock to one limited partnership unit. We also consolidate certain entities in which we do not own 100% of the equity, but the equity of these entities is not exchangeable into our common stock.

Prologis, Inc.

The noncontrolling interests of the Parent include the noncontrolling interests described above for the OP, as well as the limited partnership units in the OP that are not owned by the Parent. The outstanding limited partnership units receive quarterly cash distributions equal to the quarterly dividends paid on our common stock pursuant to the terms of the applicable partnership agreements.

The following table summarizes our ownership percentages and noncontrolling interests and the consolidated entities’ total assets and liabilities (dollars in thousands):

	Our Ownership Percentage						Noncontrolling Interests				Total Assets				Total Liabilities
	Mar 31, 2020			Dec 31, 2019			Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019
Prologis U.S. Logistics Venture ⁽¹⁾		55.0	%		55.0	%	$	3,493,533	$	2,677,846	$	7,879,419	$	6,077,016	$	123,772	$	99,397
Other consolidated entities⁽²⁾	various			various				98,453		97,548		1,004,525		849,620		79,221		85,186
Prologis, L.P.								3,591,986		2,775,394		8,883,944		6,926,636		202,993		184,583
Limited partners in Prologis, L.P. ⁽³⁾⁽⁴⁾								924,442		643,263		-		-		-		-
Prologis, Inc.							$	4,516,428	$	3,418,657	$	8,883,944	$	6,926,636	$	202,993	$	184,583

(1)	As discussed in Note 3, in January 2020, USLV acquired a portfolio of 127 operating properties, aggregating 19.0 million square feet, in the IPT Transaction for $2.0 billion, including transaction costs and the assumption and repayment of debt.

(2)

Includes our two partnerships that have issued limited partnership units to third parties, as discussed above, along with various other consolidated entities. The limited partnership units outstanding at March 31, 2020 and December 31, 2019 were exchangeable into cash or, at our option, 0.3 million shares of the Parent’s common stock.

(3)	We had 8.6 million Class A Units that were convertible into 8.1 million limited partnership units of the OP at March 31, 2020 and December 31, 2019.

(4)

At March 31, 2020 and December 31, 2019, excluding the Class A Units, there were limited partnership units in the OP that were exchangeable into cash or, at our option, 8.5 million and 6.2 million shares of the Parent’s common stock, respectively. We issued 2.3 million limited partnership units in the Liberty Transaction. Also included are the vested OP Long-Term Incentive Plan Units (“LTIP Units”) associated with our long-term compensation plan. See further discussion of LTIP Units in Note 9.

NOTE 9. LONG-TERM COMPENSATION

Equity-Based Compensation Plans and Programs

Prologis Outperformance Plan (“POP”)

We allocate participation points or a percentage of the compensation pool to participants under our POP corresponding to three-year performance periods beginning every January 1. The fair value of the awards is measured at the grant date and amortized over the period from the grant date to the date at which the awards vest, which ranges from three to ten years. The performance hurdle (“Outperformance Hurdle”) at the end of the initial three-year performance period requires our three-year compound annualized total stockholder return (“TSR”) to exceed a threshold set at the three-year compound annualized TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points. If the Outperformance Hurdle is met, a compensation pool will be formed equal to 3% of the excess value created, subject to a maximum as defined for each performance period. POP awards cannot be paid at a time when our absolute TSR is negative, therefore, if after seven years the TSR has not been positive, the awards will be forfeited.

We granted participation points for the 2020 – 2022 performance period in January 2020, with a fair value of $28.8 million using a Monte Carlo valuation model that assumed a risk-free interest rate of 1.7% and an expected volatility of 16.0%. The 2020 – 2022 performance period has an absolute maximum cap of $100 million. If an award is earned at the end of the initial three-year performance

period, then 20% of the POP award is paid and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the three-year performance period is subject to an additional three-year holding requirement.

The Outperformance Hurdle was met for the 2017 – 2019 performance period, which resulted in awards being earned at December 31, 2019. Initial awards of $75.0 million in aggregate were awarded in January 2020 in the form of 0.3 million shares of common stock and 0.5 million POP LTIP Units and LTIP Units. Participants are not able to sell or transfer equity awards received until three years after the end of the initial period. One-third of the remaining compensation pool in excess of the $75 million aggregate initial award amounts can be earned at the end of each of the three years following the end of the initial three-year performance period if our performance meets or exceeds the MSCI US REIT Index at the end of each of such three years. Vesting for the 2017 – 2019 performance period for our Named Executive Officers (“NEOs”) follows the construct of the 2020 – 2022 performance period as described above, such that 20% of any amounts earned were awarded in January 2020 subject to a three-year holding period, and 80% of amounts earned at December 31, 2019 will cliff vest at the end of the seventh year following the initial three-year performance period.

Other Equity-Based Compensation Plans and Programs

Our other equity-based compensation plans and programs include (i) the Prologis Promote Plan (“PPP”); (ii) the annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iii) the annual bonus exchange program. Awards under these plans and programs may be issued in the form of restricted stock units (“RSUs”) or LTIP Units at the participant’s election. RSUs and LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and the grant date value is charged to compensation expense over the service period.

Summary of Award Activity

RSUs

The following table summarizes the activity for RSUs for the three months ended March 31, 2020 (units in thousands):

				Weighted Average
	Unvested RSUs			Grant Date Fair Value
Balance at January 1, 2020		1,165		$	68.44
Granted		362			93.17
Vested and distributed		(437	)		61.74
Forfeited		(23	)		73.64
Balance at March 31, 2020		1,067		$	77.68

LTIP Units

The following table summarizes the activity for LTIP Units for the three months ended March 31, 2020 (units in thousands):

	Vested			Unvested			Unvested Weighted Average
	LTIP Units			LTIP Units			Grant Date Fair Value
Balance at January 1, 2020		3,714			2,678		$	60.06
Granted		-			658			93.23
Vested LTIP Units		888			(888	)		64.12
Vested POP LTIP Units ⁽¹⁾		303			-		N/A
Unvested POP LTIP Units ⁽¹⁾		-			345			19.03
Conversion to common limited partnership units		(201	)		-		N/A
Balance at March 31, 2020		4,704			2,793		$	61.44

(1)

Vested and unvested units were based on the POP performance criteria being met for the 2017 – 2019 performance period and represented the earned award amounts. Vested and unvested units are included in the award discussion above. These amounts also include awards earned for prior performance periods related to the compensation pool in excess of the initial award.

NOTE 10. EARNINGS PER COMMON SHARE OR UNIT

We determine basic earnings per share or unit based on the weighted average number of shares of common stock or units outstanding during the period. We compute diluted earnings per share or unit based on the weighted average number of shares or units outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.

The computation of our basic and diluted earnings per share and unit was as follows (in thousands, except per share and unit amounts):

	Three Months Ended
	March 31,
Prologis, Inc.	2020		2019
Net earnings attributable to common stockholders – Basic	$	489,418	$	347,047
Net earnings attributable to exchangeable limited partnership units⁽¹⁾		14,049		10,657
Adjusted net earnings attributable to common stockholders – Diluted	$	503,467	$	357,704

Weighted average common shares outstanding – Basic		698,272		629,676
Incremental weighted average effect on exchange of limited partnership units ⁽¹⁾		20,230		19,718
Incremental weighted average effect of equity awards		5,481		4,965
Weighted average common shares outstanding – Diluted⁽²⁾		723,983		654,359

Net earnings per share attributable to common stockholders:
Basic	$	0.70	$	0.55
Diluted	$	0.70	$	0.55

	Three Months Ended
	March 31,
Prologis, L.P.	2020			2019
Net earnings attributable to common unitholders	$	503,388		$	357,621
Net earnings attributable to Class A Units		(5,651	)		(4,606	)
Net earnings attributable to common unitholders – Basic		497,737			353,015
Net earnings attributable to Class A Units		5,651			4,606
Net earnings attributable to exchangeable other limited partnership units		79			83
Adjusted net earnings attributable to common unitholders – Diluted	$	503,467		$	357,704

Weighted average common partnership units outstanding – Basic		710,141			640,504
Incremental weighted average effect on exchange of Class A Units		8,062			8,356
Incremental weighted average effect on exchange of other limited partnership units		299			534
Incremental weighted average effect of equity awards of Prologis, Inc.		5,481			4,965
Weighted average common units outstanding – Diluted ⁽²⁾		723,983			654,359

Net earnings per unit attributable to common unitholders:
Basic	$	0.70		$	0.55
Diluted	$	0.70		$	0.55

(1)

The exchangeable limited partnership units include the units as discussed in Note 8. Earnings allocated to the exchangeable OP units not held by the Parent have been included in the numerator and exchangeable common units have been included in the denominator for the purpose of computing diluted earnings per share for all periods as the per share and unit amount is the same.

(2)	Our total weighted average potentially dilutive shares and units outstanding consisted of the following:

	Three Months Ended
	March 31,
	2020		2019
Class A Units		8,062		8,356
Other limited partnership units		299		534
Equity awards		7,709		7,673
Prologis, L.P.		16,070		16,563
Common limited partnership units		11,869		10,828
Prologis, Inc.		27,939		27,391

NOTE 11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

In the normal course of business, our operations are exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates. We may enter into derivative financial instruments to offset these underlying market risks. There have been no significant changes in our policy or strategy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

The following table presents the fair value of our derivative financial instruments recognized within Other Assets and Other Liabilities on the Consolidated Balance Sheets (in thousands):

	March 31, 2020				December 31, 2019
	Asset		Liability		Asset		Liability
Undesignated derivatives
Foreign currency contracts
Forwards
Brazilian real	$	1,861	$	-	$	181	$	49
British pound sterling		11,333		33		731		3,823
Canadian dollar		7,070		-		523		1,855
Chinese renminbi		3		23		-		81
Euro		13,765		5		7,135		2,034
Japanese yen		6,133		1		3,889		97
Swedish krona		1,638		-		-		797

Designated derivatives
Foreign currency contracts
Net investment hedges
British pound sterling		10,141		1,432		807		13,189
Canadian dollar		5,590		-		-		1,926

Interest rate swaps
Cash flow hedges
Euro		106		-		-		-
Total fair value of derivatives	$	57,640	$	1,494	$	13,266	$	23,851

Undesignated Derivative Financial Instruments

Foreign Currency Contracts

The following table summarizes the activity of our undesignated foreign currency contracts for the three months ended March 31 (in millions, except for weighted average forward rates and number of active contracts):

	2020																					2019
	CAD			EUR			GBP			JPY			SEK			Other			Total			BRL			CAD			EUR			GBP			JPY			Total
Notional amounts at January 1 ($)		120			581			178			182			31			15			1,107			5			55			314			118			177			669
New contracts ($)		-			809			294			60			9			19			1,191			489			-			-			112			-			601
Matured, expired or settled contracts ($)		(11	)		(1,003	)		(267	)		(15	)		(3	)		(23	)		(1,322	)		(494	)		(9	)		(35	)		(21	)		(20	)		(579	)
Notional amounts at March 31 ($)		109			387			205			227			37			11			976			-			46			279			209			157			691

Weighted average forward rate at March 31		1.32			1.16			1.77			103.08			9.41									-			1.28			1.21			1.22			104.86
Active contracts at March 31		35			61			64			53			32									-			20			29			22			30

The following table summarizes the undesignated derivative financial instruments exercised and associated realized and unrealized gains in Foreign Currency and Derivative Gains, Net in the Consolidated Statements of Income (in millions, except for number of exercised contracts):

	Three Months Ended March 31,
	2020		2019
Exercised contracts		33		23
Realized gains on the matured, expired or settled contracts	$	4	$	1
Unrealized gains on the change in fair value of outstanding contracts	$	47	$	7

Designated Derivative Financial Instruments

Foreign Currency Contracts

The following table summarizes the activity of our foreign currency contracts designated as net investment hedges for the three months ended March 31 (in millions, except for weighted average forward rates and number of active contracts):

	2020								2019
	CAD		GBP			Total			BRL			CAD		GBP		Total
Notional amounts at January 1 ($)		97		387			484			460			100		127		687
New contracts ($)		-		324			324			489			-		262		751
Matured, expired or settled contracts ($)		-		(576	)		(576	)		(949	)		-		-		(949	)
Notional amounts at March 31 ($)		97		135			232			-			100		389		489

Weighted average forward rate at March 31		1.32		1.35						-			1.28		1.30
Active contracts at March 31		2		1						-			2		6

Interest Rate Swaps

The following table summarizes the activity of our interest rate swaps designated as cash flow hedges for the three months ended March 31 (in millions):

	2020					2019
	EUR		USD			EUR
Notional amounts at January 1 ($)		-		-			500
New contracts ($) ⁽¹⁾⁽²⁾		165		750			-
Matured, expired or settled contracts ($) ⁽²⁾		-		(750	)		-
Notional amounts at March 31 ($)		165		-			500

(1)	During the first quarter of 2020, we entered into one interest rate swap contract with an aggregate notional amount of €150.0 million ($165.0 million) to effectively fix the interest rate on our senior notes bearing a floating rate of Euribor plus 0.3% issued in February 2020.

(2)

During the first quarter of 2020, we entered into four treasury lock contracts with an aggregate notional amount of $750.0 million to effectively fix the interest rate on the forecasted issuance of senior notes, which were then issued in February 2020. Subsequent to issuance, we recorded a loss of $16.8 million associated with these derivatives that will be amortized out of Accumulated Other Comprehensive Income/Loss to Interest Expense, in accordance with our policy.

Designated Nonderivative Financial Instruments

The following table summarizes our debt and accrued interest, designated as a hedge of our net investment in international subsidiaries (in millions):

	March 31, 2020		December 31, 2019
British pound sterling	$	633	$	329
Euro	$	-	$	850

The following table summarizes the recognized unrealized gains in Foreign Currency and Derivative Gains, Net on the remeasurement of the unhedged portion of our debt and accrued interest for the three months ended March 31 (in millions):

		2020
Unrealized gains on the unhedged portion		$	82

The unrealized loss on the unhedged portion recognized during the three months ended March 31, 2019 was not material.

Other Comprehensive Income (Loss)

The change in Other Comprehensive Income (Loss) in the Consolidated Statements of Comprehensive Income during the periods presented is due to the translation into U.S. dollars from the consolidation of the financial statements of our consolidated subsidiaries whose functional currency is not the U.S. dollar. The change in fair value of the effective portion of our derivative financial instruments that have been designated as net investment hedges and cash flow hedges and the translation of our nonderivative financial instruments as discussed above are also included in Other Comprehensive Income (Loss).

The following table presents these changes in Other Comprehensive Income (Loss) (in thousands):

	Three Months Ended March 31,
	2020			2019
Derivative net investment hedges	$	25,359		$	(19,452	)
Debt designated as nonderivative net investment hedges		32,750			63,657
Cumulative translation adjustment		(191,642	)		15,875
Total foreign currency translation gains (losses), net	$	(133,533	)	$	60,080

Cash flow hedges^{(1) (2)}	$	(15,525	)	$	1,105
Our share of derivatives from unconsolidated co-investment ventures		(7,923	)		(3,738	)
Total unrealized losses on derivative contracts, net	$	(23,448	)	$	(2,633	)
Total change in other comprehensive income (loss)	$	(156,981	)	$	57,447

(1)

We estimate an additional expense of $5.7 million will be reclassified to Interest Expense over the next 12 months from March 31, 2020, due to the amortization of previously settled derivatives designated as cash flow hedges.

(2)

Included in the three months ended March 31, 2020 was $16.8 million in losses associated with the termination of the four treasury lock contracts.

Fair Value Measurements

There have been no significant changes in our policy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Fair Value Measurements on a Recurring Basis

At March 31, 2020 and December 31, 2019, other than the derivatives discussed previously, we did not have any significant financial assets or financial liabilities that were measured at fair value on a recurring basis in the Consolidated Financial Statements. All of our derivatives held at March 31, 2020 and December 31, 2019, were classified as Level 2 of the fair value hierarchy.

Fair Value Measurements on Nonrecurring Basis

Acquired properties and assets we expect to sell or contribute are significant nonfinancial assets that met the criteria to be measured at fair value on a nonrecurring basis. At March 31, 2020 and December 31, 2019, we estimate the fair value of our properties using Level 2 or Level 3 inputs from the fair value hierarchy. See more information on our acquired properties in Notes 2 and 3 and assets held for sale or contribution in Note 5.

Fair Value of Financial Instruments

At March 31, 2020 and December 31, 2019, the carrying amounts of certain financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses were representative of their fair values.

The differences in the fair value of our debt from the carrying value in the table below were the result of differences in interest rates or borrowing spreads that were available to us at March 31, 2020 and December 31, 2019, as compared with those in effect when the

debt was issued or assumed, including reduced borrowing spreads due to our improved credit ratings. The senior notes and many of the issuances of secured mortgage debt contain prepayment penalties or yield maintenance provisions that could make the cost of refinancing the debt at lower rates exceed the benefit that would be derived from doing so.

The following table reflects the carrying amounts and estimated fair values of our debt (in thousands):

	March 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Credit Facilities	$	52,522	$	52,522	$	184,255	$	184,255
Senior notes		13,045,081		12,693,738		9,660,570		10,228,715
Term loans and unsecured other		1,930,955		1,953,500		1,441,882		1,463,841
Secured mortgage		648,034		682,740		619,170		651,047
Total	$	15,676,592	$	15,382,500	$	11,905,877	$	12,527,858

The fair value of the senior notes decreased during the three months ended March 31, 2020 due to the increase in bond yields in the market as compared to the lower weighted average interest rates on our senior notes.

NOTE 12. BUSINESS SEGMENTS

Our current business strategy includes two operating segments: Real Estate Operations and Strategic Capital. We generate revenues, earnings, net operating income and cash flows through our segments, as follows:

•

Real Estate Operations. This operating segment represents the ownership and development of operating properties and is the largest component of our revenue and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. Our Real Estate Operations segment also includes development activities that lead to rental operations, including land held for development and properties currently under development. Within this line of business, we utilize the following: (i) our land bank; (ii) the development expertise of our local teams; and (iii) our customer relationships. Land we own and lease to customers under ground leases, along with land and buildings we lease, is also included in this segment.

•

Strategic Capital. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset management and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing, legal and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.

Reconciliations are presented below for: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to Total Assets. Our chief operating decision makers rely primarily on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of Total Revenues, Operating Income, Earnings Before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain corporate income and expenses, are not allocated but reflected as reconciling items.

The following reconciliations are presented in thousands:

	Three Months Ended March 31,
		2020			2019
Revenues:
Real estate operations segment:
U.S.	$	829,383		$	651,869
Other Americas		26,079			23,865
Europe		15,502			8,557
Asia		10,686			13,956
Total real estate operations segment		881,650			698,247
Strategic capital segment:
U.S.		34,342			20,268
Other Americas		9,111			7,900
Europe		32,590			28,838
Asia		20,548			16,799
Total strategic capital segment		96,591			73,805

Total revenues		978,241			772,052

Segment net operating income:
Real estate operations segment:
U.S. ⁽¹⁾		602,604			471,076
Other Americas		19,456			19,053
Europe		10,155			5,544
Asia		7,243			10,672
Total real estate operations segment		639,458			506,345
Strategic capital segment:
U.S. ⁽¹⁾		13,624			3,327
Other Americas		5,179			5,422
Europe		20,594			19,151
Asia		10,620			7,847
Total strategic capital segment		50,017			35,747

Total segment net operating income		689,475			542,092

Reconciling items:
General and administrative expenses		(69,689	)		(69,701	)
Depreciation and amortization expenses		(345,970	)		(284,009	)
Gains on dispositions of development properties and land, net		162,750			42,441
Gains on other dispositions of investments in real estate, net		31,491			145,767
Operating income		468,057			376,590

Earnings from unconsolidated entities, net		88,730			56,666
Interest expense		(75,642	)		(60,507	)
Interest and other income, net		370			7,910
Foreign currency and derivative gains, net		113,329			8,734
Losses on early extinguishment of debt, net		(42,767	)		(2,116	)
Earnings before income taxes	$	552,077		$	387,277

	March 31, 2020		December 31, 2019
Segment assets:
Real estate operations segment:
U.S.	$	41,487,331	$	27,999,868
Other Americas		1,286,433		1,332,237
Europe		1,474,343		1,379,579
Asia		706,421		879,072
Total real estate operations segment		44,954,528		31,590,756
Strategic capital segment: ⁽²⁾
U.S.		14,211		14,529
Europe		25,280		25,280
Asia		353		359
Total strategic capital segment		39,844		40,168
Total segment assets		44,994,372		31,630,924

Reconciling items:
Investments in and advances to unconsolidated entities		6,834,758		6,237,371
Assets held for sale or contribution		1,975,524		720,685
Lease right-of-use assets		115,270		111,439
Cash and cash equivalents		807,871		1,088,855
Other assets		279,452		242,576
Total reconciling items		10,012,875		8,400,926
Total assets	$	55,007,247	$	40,031,850

(1)	This includes compensation, personnel costs and Prologis Promote Plan awards for employees who were located in the U.S. but also support other geographies.

(2)	Represents management contracts and goodwill recorded in connection with business combinations associated with the Strategic Capital segment. Goodwill was $25.3 million at March 31, 2020 and December 31, 2019.

NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION

Our significant noncash investing and financing activities for the three months ended March 31, 2020 and 2019 included the following:

•	We completed the Liberty Transaction on February 4, 2020 for $13.0 billion through the issuance of equity and the assumption of debt. See Note 2 for more information on this transaction.

•

We recognized Lease Right-of-Use Assets and Lease Liabilities on the Consolidated Balance Sheets, including any new leases, renewals, modifications and terminations after January 1, 2020 of $3.8 million each, and $393.0 million and $400.3 million, respectively, after January 1, 2019 related to leases in which we are the lessee. Amounts in 2019 are due to our adoption of the new lease standard on January 1, 2019.

•	We capitalized $8.3 million and $7.5 million in 2020 and 2019, respectively, of equity-based compensation expense.

•

We received $57.1 million and $177.2 million in 2020 and 2019, respectively, of ownership interests in certain unconsolidated co-investment ventures as a portion of our proceeds from the contribution of properties to these entities, as disclosed in Note 4. Included in 2019 was our initial 20.0% investment in PBLV in exchange for our contribution of the initial portfolio of properties to PBLV upon formation.

•	We issued 0.1 million and 0.4 million shares in 2020 and 2019, respectively, of the Parent’s common stock upon redemption of an equal number of common limited partnership units in the OP.

We paid $110.5 million and $95.4 million for interest, net of amounts capitalized, for the three months ended March 31, 2020 and 2019, respectively.

We paid $21.7 million and $26.5 million for income taxes, net of refunds, for the three months ended March 31, 2020 and 2019, respectively.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Prologis, Inc.:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Prologis, Inc. and subsidiaries (the Company) as of March 31, 2020, the related consolidated statements of income, comprehensive income, and equity for the three-month periods ended March 31, 2020 and 2019, the related consolidated statements of cash flows for the three-month periods ended March 31, 2020 and 2019, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 10, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. 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 reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Denver, Colorado
April 30, 2020

Report of Independent Registered Public Accounting Firm

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

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Prologis, L.P. and subsidiaries (the Company) as of March 31, 2020, the related consolidated statements of income, comprehensive income, and capital for the three-month periods ended March 31, 2020 and 2019, the related consolidated statements of cash flows for the three-month periods ended March 31, 2020 and 2019, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of income, comprehensive income, capital, and cash flows for the year then ended (not presented herein); and in our report dated February 10, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

/s/ KPMG LLP

Denver, Colorado
April 30, 2020

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of this report and our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”).

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, 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; (x) risks related to the coronavirus (“COVID-19”) pandemic; and (xi) those additional factors discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019. We undertake no duty to update any forward-looking statements appearing in this report except as may be required by law.

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., collectively. 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 entities.

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 these 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 measurements calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). See below for a reconciliation of Net Earnings Attributable to Common Stockholders/Unitholders in the Consolidated Statements of Income to our FFO measures and a reconciliation of NOI to Operating Income, the most directly comparable GAAP measure.

MANAGEMENT’S OVERVIEW

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 utilizing our scale to negotiate 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.

In late 2019, COVID-19 surfaced, continued to spread globally and has been categorized as a global pandemic. The COVID-19 outbreak has disrupted financial markets and global, national and local economies. For further discussion on both the current and potential future operational and financial impacts to our business, as well as our response to protect employees and customers, see the Summary of 2020 section below.

On January 8, 2020, our two U.S. co-investment ventures, Prologis U.S. Logistics Venture (“USLV”) and Prologis Targeted U.S. Logistics Fund (“USLF”) acquired the wholly-owned real estate assets of Industrial Property Trust Inc. (“IPT”) for $2.0 billion each, which we refer to as the “IPT Transaction” and is detailed in Notes 3, 4 and 8 to the Consolidated Financial Statements. Our aggregate investment in the acquisitions was $1.6 billion. The portfolio included 235 industrial operating properties, aggregating 37 million square feet.

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 detailed in Note 2 to the Consolidated Financial Statements. The Liberty portfolio was primarily comprised of logistics real estate assets, including 519 industrial operating properties, aggregating 100 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 $13.0 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, and includes transaction costs. As a result of the closely aligned portfolios and similar business strategy, we integrated the IPT and Liberty properties while adding minimal property management expenses and further scaling our operations.

On a combined basis, there were 42 million square feet of non-strategic industrial properties with a gross book value of approximately $3 billion acquired in both the Liberty Transaction and the IPT Transaction for which our intent is not to operate these properties long-term. Depending on the expected hold period, these assets are either classified as Assets Held for Sale or Contribution or Other Real Estate Investments in the Consolidated Balance Sheets.

At March 31, 2020, our total O&M portfolio at 100%, including properties and development projects (based on gross book value and total expected investment (“TEI”)), totaled $90.8 billion across 965 million square feet (90 million square meters) and four continents. Our share of the total O&M portfolio was $57.9 billion. We lease modern logistics facilities to a diverse base of approximately 5,500 customers.

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

Below is information summarizing consolidated activity within our segments (in millions):

(1)	NOI from Real Estate Operations is calculated directly from the 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 TEI, which is comprised of the estimated cost of development or expansion, 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 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. 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, we believe 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 $10.5 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, financing, legal and disposition services. In certain ventures, we also have the ability to earn revenues through incentive fees (“promotes” or “promote revenue”) 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)	Calculated using the trailing twelve months immediately prior to the period ended.

(2)

General and Administrative (“G&A”) Expenses is a line item in the Consolidated Financial Statements. Adjusted G&A expenses is calculated from the 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. For the first quarter of 2020, we annualized adjusted G&A expenses.

•

Rent Growth. We expect market rents to remain flat for the remainder of 2020. 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 approximately 15% below current market rent on the basis of our weighted average ownership at March 31, 2020. Therefore, even if market rents remain 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 positive rent change trend to continue for several more years due to our current in-place rents being below market.

•

Value Creation from Development. A successful development and redevelopment program involves maintaining control of well-located and entitled land. We believe 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 realize future value creation 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 real estate basis 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. As noted in the graph above, the acquisitions of the Liberty and IPT portfolios are key examples of this where we increased our O&M portfolio by approximately $17 billion in the first quarter of 2020 and had minimal increases to G&A expenses, resulting in lower G&A expenses as a percentage of the real estate basis.

•

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.

SUMMARY OF 2020

During the three months ended March 31, 2020, we saw no meaningful impact on our O&M portfolio operating fundamentals despite the disruption in the financial markets and downturn of the economy due to COVID-19. Customers that serve essential daily needs and the stay-at-home economy are driving demand including general retailers, food, medical supplies and electronics, along with supporting industries like paper, packaging and transportation. Conversely those customers serving the hospitality and brick and mortar retail segments, including clothing, sporting goods and home furnishings are less active in terms of demand for logistics space. E-commerce has been the clear driver of leasing activity and we expect an acceleration of e-commerce adoption due to consumer demand. Given the dynamic nature of the pandemic, it is difficult to predict the impact on our business and future financial condition and operating results. See Item 1A. Risk Factors in Part II. Other Information for further discussion on these risks.

In the O&M portfolio, our portfolio quality and customer composition appear to be mitigating the impact of COVID-19 on our operations. For the thirty days ended April 20^th, we experienced the following activity and compared this thirty-day period in 2020 to the same period in 2019:

•	we signed 198 leases, totaling 18 million square feet, representing an increase of 21% after adjusting for portfolio size;

•	our lease proposal generations are up 21%;

•	lease negotiation gestation periods for new leases have declined by 14 days; and

•	our retention rate was 81%, slightly higher than comparable periods.

As of April 27, 2020, we received 89% of April rent payments from our customers which is on pace with our historical experience. We received requests from certain customers for rent concessions. In situations where we have granted a concession, it is generally the deferral of the rent payment to a period later in 2020, which will have no impact on revenue recognition. As of April 27, 2020, we have granted deferral requests of $19 million for 405 customers, or 29 basis points of annualized rent with an average of 33 days of rent deferred per customer. Although COVID-19 had a minimal impact on first quarter rent collections, we do expect to see an increase in bad debt during the remainder of the year.

Construction of certain development properties was delayed due to governmental restrictions and we have suspended several recently started speculative development projects for the short-term and expect to commence development depending on market conditions. We plan to continue the development of buildings that are build-to-suit and commence with new speculative developments when market conditions warrant. See further discussion in the Results of Operations section below.

At March 31, 2020, we had total available liquidity of $4.6 billion, including current aggregate availability on our global senior credit facility and Japanese yen revolver of $3.8 billion and unrestricted cash balances of $808 million. Assuming we extend the maturity of our $500 million multi-currency term loan, we have no significant debt due until 2022. Our unconsolidated co-investment ventures have low debt leverage and continue to raise capital.

COVID-19 began impacting our company in January when our employees in China started working remotely and we implemented our business continuity plan. While most of our employees have been working remotely since mid-March, our property level teams continue to make exterior property inspections under certain protocols to keep them and our customers safe. Business continuity, communication plans and technology are in place, allowing all functions of the business to work smoothly during this time. We have not had any lay-offs and we have extended financial assistance to employees in need. In addition, we are providing assistance across the

globe in the form of direct cash grants, supplies and the donation of over one million square feet through our Space for Good program. Also, the Prologis Foundation has allocated $5 million to be donated to COVID-19 relief organizations.

We entered this unprecedented time in 2020 with strong market conditions, a well-positioned portfolio, a significant in-place-to market rent spread on leases and a strong balance sheet.

We completed the following significant activities in 2020 as described in the Notes to the Consolidated Financial Statements:

•

In January, our U.S. co-investment ventures, USLV and USLF, acquired the wholly-owned real estate assets of IPT for $2.0 billion each, including the assumption and repayment of debt. As USLV is a consolidated co-investment venture, our Results of Operations section includes a discussion of the acquired properties. USLF is an unconsolidated co-investment venture and therefore the acquisition is included in the discussion of our O&M Operating Portfolio. For further discussion on the acquisition by USLF, see Note 4, and for USLV, see Notes 6 and 8.

•

In February, we completed the Liberty Transaction for $13.0 billion through the issuance of equity and the assumption of debt. We assumed $2.8 billion of debt with a weighted average stated interest rate of 3.8%. Prior to March 31, 2020, we paid down $1.8 billion of the assumed debt with senior notes we issued at lower rates in February 2020, as detailed below. See Note 2 to the Consolidated Financial Statements for more information on the Liberty Transaction.

•	We generated net proceeds of $794 million and realized net gains of $194 million, primarily from the contribution of properties to our unconsolidated co-investment ventures in Europe and Japan and dispositions to third parties in the U.S.

•	We completed the following financing activities that resulted in extending our weighted average remaining maturity to 10 years and keeping our weighted average effective interest rate at 2.2% (principal in millions):

	Aggregate Principal
Initial Borrowing Date	Borrowing Currency		USD ⁽¹⁾		Weighted Average Stated Interest Rate at March 31, 2020	Maturity Dates
February	€	1,350	$	1,485	0.8%	February 2022 – 2035
February	$	2,200	$	2,200	2.6%	April 2027 – 2050
February	£	250	$	322	1.9%	February 2035

	Aggregate Principal
Redemption Date	Borrowing Currency		USD ⁽¹⁾		Stated Interest Rate	Maturity Date
January	€	400	$	446	Euribor plus 0.3%	January 2020
March	€	700	$	783	1.4%	May 2021

(1)

The exchange rate used to calculate into U.S. dollars was the spot rate at the settlement date.

In February 2020, we completed an exchange offer for two series of Liberty’s senior notes for an aggregate amount of $750 million, with $690 million, or 92%, of the aggregate principal amount being validly tendered for exchange. These senior notes are in the aggregate principal amounts of $400 million due in October 2026 with an interest rate of 3.3% and $350 million due in February 2029 with an interest rate of 4.4%. The senior notes were exchanged for notes issued by a wholly owned subsidiary and guaranteed by the OP. All other terms of the newly issued senior notes remained substantially the same.

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.

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2020 AND 2019

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 for the three months ended March 31 (in millions). Each segment’s NOI is reconciled to the respective line items in the Consolidated Financial Statements in the respective segment discussion below.

	2020			2019
Real Estate Operations – NOI	$	639		$	506
Strategic Capital – NOI		50			36
General and administrative expenses		(69	)		(69	)
Depreciation and amortization expenses		(346	)		(284	)
Operating income before gains on real estate transactions, net		274			189
Gains on dispositions of development properties and land, net		163			42
Gains on other dispositions of investments in real estate, net		31			146
Operating income	$	468		$	377

See Note 12 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 have been 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 for the three months ended March 31, derived directly from line items in the Consolidated Financial Statements (in millions):

	2020			2019
Rental revenues	$	879		$	697
Development management and other revenues		3			1
Rental expenses		(228	)		(188	)
Other expenses		(15	)		(4	)
Real Estate Operations – NOI	$	639		$	506

The change in Real Estate Operations NOI for the three months ended March 31, 2020 from the same period in 2019, was impacted by the following items (in millions):

(1)	Acquisition activity increased NOI in 2020, compared to 2019, primarily due to the Liberty Transaction and the IPT Transaction.

(2)

During both periods, 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 consolidated NER change from 29.1% during the three months ended March 31, 2019 to 31.3% for the same period in 2020. 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 were completed on or after January 1, 2019 through March 31, 2020.

Below are key operating metrics of our consolidated operating portfolio.

(1)	The decrease in occupancy was driven primarily by significantly higher lease roll during the first quarter of 2020 and changes in the composition of the operating portfolio as a result of deployment activity.

The increase in consolidated square feet for the first quarter of 2020 is a result of properties acquired in the Liberty Transaction and the IPT Transaction, excluding non-strategic industrial properties acquired for which our intent is not to operate these properties long-term.

(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.

(3)	Calculated using the trailing twelve months immediately prior to the period ended.

Development Activity

The following table summarizes consolidated development activity for the three months ended March 31 (dollars and square feet in millions):

	2020			2019
Starts:
Number of new development projects during the period		4			12
Square feet		2			3
TEI	$	299		$	236
Percentage of build-to-suits based on TEI		16.6	%		40.5	%

Stabilizations:
Number of development projects stabilized during the period		19			14
Square feet		6			6
TEI	$	673		$	668
Weighted average stabilized yield ⁽¹⁾		6.3	%		6.2	%
Estimated value at completion	$	941		$	872
Estimated weighted average margin		39.8	%		30.5	%

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

During the three months ended March 31, 2020, we suspended several recently started speculative development projects with a TEI of $311 million, which remain within our consolidated development portfolio at period end. At March 31, 2020, our active development portfolio, including properties under development and prestabilized properties, is expected to be completed before December 2021 with a TEI of $3.4 billion, leaving $1.6 billion remaining to be spent and was 61.9% leased.

Capital Expenditures

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

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 for the three months ended March 31, derived directly from the line items in the Consolidated Financial Statements (in millions):

	2020			2019
Strategic capital revenues	$	97		$	74
Strategic capital expenses		(47	)		(38	)
Strategic Capital – NOI	$	50		$	36

Below is additional detail of our Strategic Capital revenues, expenses and NOI for the three months ended March 31 (in millions):

	U.S. ⁽¹⁾				Other Americas				Europe				Asia				Total
	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Strategic capital revenues ($)
Recurring fees ⁽²⁾		25		17		8		7		28		25		15		13		76		62
Transactional fees⁽³⁾		9		3		1		1		4		4		6		4		20		12
Promote revenue ⁽⁴⁾		-		-		-		-		1		-		-		-		1		-
Total strategic capital revenues ($)		34		20		9		8		33		29		21		17		97