ProLogis Reports Fourth Quarter/Year-end 2009 Results

- Full-year FFO per Share in Line with Previous Guidance -

- Property Market Fundamentals Showing Signs of Improvement -

- Company Establishes 2010 Guidance -

DENVER, Feb. 11 /PRNewswire-FirstCall/ -- ProLogis (NYSE: PLD), a leading global provider of distribution facilities, today reported funds from operations as defined by ProLogis (FFO), excluding significant non-cash items, of $1.15 per diluted share in 2009, compared with $3.51 for 2008. (See Summary of Results table for details). These amounts reflect the add back of impairments on real estate properties, goodwill and other assets totaling $0.81 per diluted share in 2009 and $3.01 in 2008. ProLogis reported a net loss per diluted share of $0.01 for 2009, compared with a net loss of $1.82 for 2008.

For the fourth quarter, FFO, excluding significant non-cash items, was $0.13 per diluted share in 2009, compared with $0.56 in 2008. These amounts reflect the add back of impairments on real estate properties, goodwill and other assets totaling $0.78 per diluted share in the fourth quarter of 2009 and $3.04 in 2008. For the fourth quarter of 2009, the company reported a net loss per diluted share of $0.86, compared with a net loss of $3.39 in the same period of 2008.

Reconciliation to Previous Guidance

In addition to the non-cash impairment charges referred to above, the company experienced various non-recurring charges in the fourth quarter and earlier in 2009, as detailed below. FFO, excluding significant non-cash items and non-recurring charges, was $1.41 per diluted share for the full year, in line with the company’s previous guidance of $1.39 to $1.43. For the fourth quarter, FFO, excluding significant non-cash items and non-recurring charges, was $0.23 per diluted share.

    
    
                                                   Three Months  Twelve Months
                                                       Ended        Ended
                                                    December 31,  December 31,
                                                        2009         2009
                                                        ----         ----
    
    FFO, excluding significant non-cash items           $0.13       $1.15
      Add (deduct) non-recurring charges:                       
        Indemnifications related to
         contributed or sold properties                  0.08        0.09
        Realized losses on foreign currency
         transactions                                       -        0.05
        Capital markets costs                            0.03        0.04
        ProLogis' share of losses on sale
         of fund assets                                     -        0.03
        Reduction in workforce                              -        0.03
        Other                                            0.01        0.04
        Adjustments to tax and
         compensation-related liabilities               (0.02)      (0.02)
                                                         ----        ----
          Add summarized non-recurring charges           0.10        0.26
                                                         ----        ----
            FFO, excluding significant
             non-cash items and non-recurring
             charges                                    $0.23       $1.41

Significant Accomplishments in 2009 Position Company for Future Opportunities

“We began 2009 with an action plan and aggressive goals related to asset dispositions, debt reduction and development portfolio leasing,” said Walter C. Rakowich, chief executive officer. “Throughout the year, we made tough choices and remained highly focused on stabilizing the company. We are pleased to have accomplished our goals, putting the company on firm financial footing and positioning us to take advantage of opportunities as market conditions improve.”

Among ProLogis’ specific goals for 2009 were to:  reduce debt by $2 billion, complete $1.5 to $1.7 billion of asset dispositions and contributions to property funds (exclusive of the sale of certain Asian operations) and achieve static development portfolio leasing of 60 to 70 percent. At year end 2009, the company had reduced debt by $2.7 billion, completed $1.53 billion of property dispositions and contributions and achieved static development portfolio leasing of 68.2 percent.

Continued Signs of Stabilization and Improvement in Property Markets

“While focusing on our action plan, we also worked diligently to maintain stable occupancies in our core portfolio,” Rakowich added. “The bottoming of market occupancies and rents that we began to see in mid-2009 held up in the fourth quarter, with some markets showing improvement. For the top 31 North American markets we track, overall net demand turned positive in the fourth quarter, and we saw similar pockets of positive take-up in Europe. And, although we expect net effective rental rates on turnovers to be negative throughout 2010, we believe improving occupancies and the continued lack of new supply will pave the way for improving rental rates in 2011.”

ProLogis’ non-development portfolio was 92.4 percent leased at the end of the fourth quarter, down slightly compared with 92.7 percent leased at September 30. Same-store net operating income (SS NOI), as adjusted (excluding same-store assets associated with the company’s development portfolio), decreased 4.2 percent, a slight improvement over the third quarter SS NOI decline. Net effective rental rates on turnover of 23.6 million square feet, or 6.0 percent of the adjusted same-store pool, were down 11.7 percent for the quarter, representing an improvement over the third quarter decline.

Build-to-Suit Development Demand Supports Reductions in Land Position

“While new speculative development has remained virtually non-existent, during the fourth quarter we continued to see demand for build-to-suit development from customers whose supply chain optimization requirements could not be met with the available supply of space,” said Ted R. Antenucci, chief investment officer. ProLogis’ fourth quarter starts consisted of a 667,000-square-foot facility for a major home improvement retailer in Southern California and a 504,000-square-foot facility for a leading UK retailer in Scotland. Including joint venture partner capital contributions, total expected investment for all build-to-suit developments started in the second half of 2009 is $336 million.

“Given the continued interest from customers in build-to-suits, we expect to start $700 to $800 million of new development in 2010, primarily in Europe and Asia. We also will continue to pursue land sales, which when combined with new development, will allow us to begin to monetize roughly $350 to $400 million of land in 2010,” Antenucci added.

Strategic Repositioning of Asset Base

“In 2009, we used the proceeds from nearly $2.9 billion of contributions and dispositions, including the sale of certain Asian operations, to reduce debt and fund our development portfolio,” said Rakowich. “Having stabilized our balance sheet, we are now looking to fund new development activity in a slightly different, leverage-neutral manner. Due to improving property values and growing institutional demand for quality properties, in 2010 we plan to generate $1.3 to $1.5 billion of proceeds from sales of existing assets and contributions to funds, primarily in the United States, and use the proceeds to fund the remaining costs associated with our existing development portfolio as well as 2010 development starts. This approach will allow us to retain more of our non-US development on our balance sheet, thereby improving the geographic diversification of our direct owned assets.”  

Continued Financing Progress for ProLogis and Property Funds

“We continued to focus on further extending and smoothing the debt maturities both on ProLogis’ balance sheet and in our property funds,” said William E. Sullivan, chief financial officer. “In the fourth quarter, we issued $600 million of 10-year, ProLogis senior notes and closed on a $108 million secured financing in Japan on our balance sheet.  Since the beginning of the fourth quarter, we closed on euro 886 million of financings in our European funds, effectively reducing 2010 maturities within those funds to approximately euro 327 million.  This is significant progress from the over euro 1.8 billion of 2010 fund debt maturities we were faced with at the beginning of 2009.”

Guidance for 2010

ProLogis established full-year 2010 FFO guidance, excluding significant non-cash items, of $0.74 to $0.78 per share, of which approximately $0.10 relates to expected gains on dispositions of development and land. Net earnings are expected to be between $0.25 and $0.29 per diluted share. A summary of the business drivers supporting ProLogis’ 2010 guidance is available at http://ir.prologis.com/2010BusinessDrivers.cfm.

Copies of ProLogis’ fourth quarter 2009 supplemental information will be available from the company’s website at http://ir.prologis.com in the “Annual & Supplemental Reports” section before open of market on Thursday, February 11, 2010. The company will host a webcast/conference call on Thursday, February 11, 2010, at 10:00 a.m. Eastern Time.  The live webcast and the replay will be available on the company’s website at http://ir.prologis.com.  Additionally, a podcast of the company's conference call will be available on the company's website.

About ProLogis

ProLogis is a leading global provider of distribution facilities, with more than 475 million square feet of industrial space owned and managed (44 million square meters) in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 4,400 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. For additional information about the company, go to www.prologis.com.

Follow ProLogis on Twitter: http://twitter.com/ProLogis

The statements above 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 ProLogis operates, management’s beliefs and assumptions made by management, they involve uncertainties that could significantly impact ProLogis’ financial results.  Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” 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 and changes in sales or contribution volume of developed properties, general conditions in the geographic areas where we operate and the availability of capital in existing or new property funds – 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 climates, (ii) changes in financial markets, interest rates and foreign currency exchange rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, (v) maintenance of real estate investment trust (“REIT”) status, (vi) availability of financing and capital, (vii) changes in demand for developed properties, and (viii) those additional factors discussed in reports filed with the Securities and Exchange Commission by ProLogis under the heading “Risk Factors.”  ProLogis undertakes no duty to update any forward-looking statements appearing in this press release.

    
    
    
                                    Overview                               
                                                                           
    (in thousands, except per share amounts)                               
    Summary of Results     
                                                    
                               Three Months Ended     Twelve Months Ended  
                                  December 31,           December 31,      
                             ---------------------  ---------------------- 
                                2009     2008 (1)       2009     2008 (1)  
                             ---------  ----------  ----------  ---------- 
    Revenues (9)             $ 260,318  $1,468,335  $1,223,082  $5,565,983 
                                                                           
    Net loss (a)             $(408,459) $ (901,232) $   (2,650) $ (479,226)
    Net loss per share -                                                   
     Diluted (a)             $   (0.86) $    (3.39) $    (0.01)     $(1.82)
                                                                           
    FFO, including                                                         
     significant non-cash                                                  
     items (a)               $(305,761) $ (660,096) $  138,885  $  133,840 
      Add (deduct)                                                         
       significant non-cash                                                
       items:                                                              
        Impairment of real                                                 
         estate properties     207,668     274,705     331,592     274,705 
        Impairment of                                                      
         goodwill and other                                                
         assets                157,076     320,636     163,644     320,636 
        Impairment (net                                                    
         gain) related to                                                  
         disposed assets -                                                 
         China operations            -     198,236      (3,315)    198,236 
        Loss (gains) on                                                    
         early                                                             
         extinguishment of                                                 
         debt                      960     (90,719)   (172,258)    (90,719)
        Our share of the                                                   
         loss/impairment                                                   
         recorded by PEPR                                                  
         related to PEPF II          -     108,195           -     108,195 
        Our share of                                                       
         similar (gains)                                                   
         losses recognized                                                 
         by the property                                                   
         funds, net              2,882           -       9,240           - 
                             ---------  ----------  ----------  ---------- 
          Total adjustments                                                
           for significant                                                 
           non-cash items      368,586     811,053     328,903     811,053 
                             ---------  ----------  ----------  ---------- 
    FFO, excluding                                                         
     significant non-cash                                                  
     items (a)               $  62,825  $  150,957  $  467,788  $  944,893 
                             =========  ==========  ==========  ========== 
                                                                           
    FFO per share -                                                        
     Diluted, including                                                    
     significant non-cash                                                  
     items (a)               $   (0.65) $    (2.48) $     0.34  $     0.50 
      Add (deduct) -                                                       
       summarized                                                          
       significant non-cash                                                
       adjustments - per                                                   
       share                      0.78        3.04        0.81        3.01 
                             ---------  ----------  ----------  ---------- 
    FFO per share -                                                        
     Diluted, excluding                                                    
     significant non-cash                                                  
     items (a)               $    0.13  $     0.56  $     1.15  $     3.51 
                             =========  ==========  ==========  ========== 
                                                                           
    (a) These amounts are attributable to common shares.    
    
    Footnotes follow Financial Statements 
    
    
    
                         Consolidated Balance Sheets                     
                                                                         
    (in thousands, except per share data)                                
                                                                         
                                               December 31,  December 31, 
                                                   2009        2008 (1)   
                                               -----------   ------------ 
    Assets:                                                              
      Investments in real estate                                         
       assets (1):                                                       
        Industrial properties:                                           
          Core                                 $ 7,436,539   $ 7,924,507 
          Completed development                  4,108,962     3,031,449 
          Properties under development             191,127     1,181,344 
        Land held for development                2,569,343     2,482,582 
        Retail and mixed use properties            291,038       358,992 
        Land subject to ground leases and                                
         other                                     385,222       425,001 
        Other investments                          233,665       321,397 
                                               -----------   ----------- 
                                                15,215,896    15,725,272 
        Less accumulated depreciation            1,671,100     1,583,299 
                                               -----------   ----------- 
            Net investments in real estate                               
             assets                             13,544,796    14,141,973 
                                                                         
      Investments in and                                                 
       advances to                                                       
       unconsolidated investees:                                         
        Property funds (2)                       1,876,650     1,957,977 
        Other unconsolidated investees             275,073       312,016 
                                               -----------   ----------- 
            Total investments in and                                     
             advances to unconsolidated                                  
             investees                           2,151,723     2,269,993 
                                                                         
      Cash and cash equivalents                     34,362       174,636 
      Accounts and notes                                                 
       receivable                                  136,754       244,778 
      Other assets (1)                           1,017,780     1,126,993 
      Discontinued operations -                                          
       assets held for sale (2)                          -     1,310,754 
                                               -----------   ----------- 
            Total assets                       $16,885,415   $19,269,127 
                                               ===========   =========== 
                                                                         
    Liabilities and Equity:                                              
      Liabilities:                                                       
        Debt (1)(2)(3)(4)(5)                   $ 7,977,778   $10,711,368 
        Accounts payable and accrued expenses      455,919       658,868 
        Other liabilities                          444,432       751,238 
        Discontinued operations - assets                                 
         held for sale (2)                               -       389,884 
                                               -----------   ----------- 
            Total liabilities                    8,878,129    12,511,358 
                                               -----------   ----------- 
                                                                         
      Equity (6):                                                        
        ProLogis shareholders' equity:                                   
          Series C preferred shares at stated                            
           liquidation preference of $50 per                             
           share                                   100,000       100,000 
          Series F preferred shares at stated                            
           liquidation preference of $25 per                             
           share                                   125,000       125,000 
          Series G preferred shares at stated                            
           liquidation preference of $25 per                             
           share                                   125,000       125,000 
          Common shares at $.01 par value                                
           per share                                 4,742         2,670 
          Additional paid-in capital (1)         8,524,867     7,070,108 
          Accumulated other comprehensive                                
           income (loss)                            42,298       (29,374)
          Distributions in excess of net                                 
           earnings (1)                           (934,583)     (655,513)
                                               -----------   ----------- 
            Total ProLogis shareholders'                                 
             equity                              7,987,324     6,737,891 
        Noncontrolling interests (7)                19,962        19,878 
                                               -----------   ----------- 
            Total equity                         8,007,286     6,757,769 
                                               -----------   ----------- 
            Total liabilities and equity       $16,885,415   $19,269,127 
                                               ===========   =========== 
                                                                         
    Footnotes follow Financial Statements 
    
    
    
                      Consolidated Statements of Operations                  
                                                                             
    (in thousands, except per share amounts)                                 
                                                                             
                                  Three Months Ended    Twelve Months Ended 
                                     December 31,          December 31,     
                                  --------------------  -------------------- 
                                     2009     2008 (1)     2009     2008 (1) 
                                  ---------  ---------  ---------  --------- 
    Revenues:                                                                
      Rental income (8)           $ 227,362  $ 215,196  $ 891,095  $ 913,650 
      Property management and                                                
       other                                                                 
       fees and incentives (2)       31,563     33,815    142,763    131,011 
      CDFS disposition
       proceeds (9):                                                         
        Developed and                                                        
         repositioned                                                        
         properties (2)                   -  1,192,935    180,237  4,206,446 
        Acquired property                                                    
         portfolios                       -     18,781          -    289,019 
      Development management and                                             
       other income                   1,393      7,608      8,987     25,857 
                                  ---------  ---------  ---------  --------- 
         Total revenues             260,318  1,468,335  1,223,082  5,565,983 
                                  ---------  ---------  ---------  --------- 
                                                                             
    Expenses:                                                                
      Rental expenses (10)           65,595     60,324    269,956    277,320 
      Investment management                                                  
       expenses (10)                 11,835     12,344     43,416     50,761 
      Cost of CDFS
       dispositions (1)(9):                                                  
        Developed and                                                        
         repositioned                                                        
         properties                       -  1,086,150          -  3,551,700 
        Acquired property                                                    
         portfolios                       -     18,781          -    289,019 
      General and administrative                                             
       (4)(10)(11)                   52,161     36,987    180,486    177,350 
      Reduction in workforce (11)         -     23,131     11,745     23,131 
      Impairment of real estate                                              
       properties (12)              207,668    274,705    331,592    274,705 
      Depreciation and                                                       
       amortization                  84,153     97,435    315,807    317,315 
      Other expenses                  4,617     17,446     24,025     28,104 
                                  ---------  ---------  ---------  --------- 
        Total expenses              426,029  1,627,303  1,177,027  4,989,405 
                                  ---------  ---------  ---------  --------- 
                                                                             
    Operating income (loss)        (165,711)  (158,968)    46,055    576,578 
                                                                             
    Other income (expense):                                                  
      Earnings (loss) from                                                   
       unconsolidated property                                               
       funds, net (13)               (6,227)  (105,024)    24,908    (69,116)
      Earnings from other                                                    
       unconsolidated
       investees, net                   301        914      3,151     13,342 
      Interest expense (1)(14)     (107,486)  (100,314)  (373,305)  (385,065)
      Impairment of goodwill and                                             
       other assets (12)           (157,076)  (320,636)  (163,644)  (320,636)
      Other income (expense), net   (33,503)     2,526    (39,349)    16,522 
      Net gains on dispositions                                              
       of real estate
       properties (9)                12,843      5,853     35,262     11,668 
      Foreign currency exchange                                              
       gains (losses), net (15)         728   (115,303)    35,626   (148,281)
      Gains (loss) on early                                                  
       extinguishment of debt (3)      (960)    90,719    172,258     90,719 
                                  ---------  ---------  ---------  --------- 
        Total other income                                                   
         (expense)                 (291,380)  (541,265)  (305,093)  (790,847)
                                  ---------  ---------  ---------  --------- 
                                                                             
    Loss before income                                                       
     taxes                         (457,091)  (700,233)  (259,038)  (214,269)
      Current income tax expense                                             
       (benefit) (2)                   (878)    15,726     29,262     63,441 
      Deferred income tax expense                                            
       (benefit)                     (2,600)   (14,834)   (23,287)     4,570 
                                  ---------  ---------  ---------  --------- 
        Total income taxes           (3,478)       892      5,975     68,011 
                                  ---------  ---------  ---------  --------- 
    Loss from continuing                                                     
     operations                    (453,613)  (701,125)  (265,013)  (282,280)
    Discontinued
     operations (16):                                                        
      Income (loss) attributable                                             
       to disposed properties         1,490     (4,455)    24,163     11,049 
      Net gain (impairment)                                                  
       related to disposed
       assets - China                                            
       operations (2)                     -   (198,236)     3,315   (198,236)
      Net gains on dispositions:                                             
        Non-development                                                      
         properties                  21,024      1,557    220,815      9,718 
        Development properties                                               
         and land subject to                                                 
         ground leases (2)           29,146      7,551     40,649      9,783 
                                  ---------  ---------  ---------  --------- 
            Total discontinued                                              
             operations              51,660   (193,583)   288,942   (167,686)
                                  ---------  ---------  ---------  --------- 
    Consolidated net                                                         
     earnings (loss)               (401,953)  (894,708)    23,929   (449,966)
    Net earnings                                                             
     attributable to                                                         
     noncontrolling                                                          
     interests (7)                     (190)      (172)    (1,156)    (3,837)
                                  ---------  ---------  ---------  --------- 
    Net earnings (loss)                                                      
     attributable to                                                         
     controlling interests (1)     (402,143)  (894,880)    22,773   (453,803)
    Less preferred share                                                     
     dividends                        6,316      6,352     25,423     25,423 
                                  ---------  ---------  ---------  --------- 
    Net loss                                                                 
     attributable to                                                         
     common shares                $(408,459) $(901,232) $  (2,650) $(479,226)
                                  =========  =========  =========  ========= 
                                                                             
    Weighted average                                                         
     common shares                                                           
     outstanding -Basic (6)         473,561    265,898    403,149    262,729 
    Weighted average common                                                  
     shares outstanding -                                                    
     Diluted (6)                    473,561    265,898    403,149    262,729 
                                                                             
    Net earnings (loss) per share 
     attributable to common                                                  
     shares - Basic:                                                         
      Continuing operations       $   (0.97) $   (2.66) $   (0.73) $   (1.18)
      Discontinued operations          0.11      (0.73)      0.72      (0.64)
                                  ---------  ---------  ---------  --------- 
        Net earnings (loss) per
         share attributable to
         common shares - Basic    $   (0.86) $   (3.39) $   (0.01) $   (1.82)
                                  =========  =========  =========  ========= 
                                                                             
    Net earnings (loss) per share 
     attributable to common                                                  
     shares -Diluted:                                                        
      Continuing operations       $   (0.97) $   (2.66) $   (0.73) $   (1.18)
      Discontinued operations          0.11      (0.73)      0.72      (0.64)
                                  ---------  ---------  ---------  --------- 
        Net earnings (loss) per
         share attributable to
         common shares -Diluted   $   (0.86) $   (3.39) $   (0.01) $   (1.82)
                                  =========  =========  =========  ========= 
                                                                             
    Footnotes follow Financial Statements 
    
    
    
            Consolidated Statements of Funds From Operations (FFO)       
                                                                         
    (in thousands, except per share amounts)                             
                                                                         
                               Three Months Ended     Twelve Months Ended  
                                  December 31,            December 31,     
                             ---------------------   --------------------- 
                                2009      2008 (1)     2009     2008 (1)  
                             ---------   ---------   ---------  ---------- 
    Revenues:                                                             
      Rental income          $ 229,906   $ 249,778   $ 941,587  $1,035,335 
      Property management                                                 
       and other fees and                                                 
       incentives (2)           31,563      34,466     142,856     132,038 
      CDFS disposition                                                     
       proceeds (9):                                                      
        Developed and                                                     
         repositioned                                                     
         properties (2)              -   1,239,378     180,237   4,271,786 
        Acquired property                                                 
         portfolios                  -      18,781           -     372,667 
      Development                                                         
       management and other                                               
       income                    1,393       7,822       8,987      26,344 
                             ---------   ---------   ---------  ---------- 
        Total revenues         262,862   1,550,225   1,273,667   5,838,170 
                             ---------   ---------   ---------  ---------- 
                                                                          
    Expenses:                                                              
      Rental expenses (10)      66,162      73,746     284,390     319,378 
      Investment management                                                
       expenses (10)            11,835      12,344      43,416      50,761 
      Cost of CDFS                                                        
       dispositions (1)(9):                                               
        Developed and                                                     
         repositioned                                                     
         properties                  -   1,126,198           -   3,610,123 
        Acquired property                                                  
         portfolios                  -      18,781           -     372,667 
      General and                                                         
       administrative                                                     
       (10)(11)                 52,161      45,896     181,791     199,074 
      Reduction in                                                        
       workforce (11)                -      26,431      11,745      26,431 
      Impairment of real                                                  
       estate
       properties (12)         207,668     274,705     331,592     274,705 
      Depreciation of                                                     
       corporate assets          3,828       4,177      15,897      16,332 
      Other expenses             4,617      21,400      24,031      33,192 
                             ---------   ---------   ---------  ---------- 
        Total expenses         346,271   1,603,678     892,862   4,902,663 
                             ---------   ---------   ---------  ---------- 
                                                                          
    Operating FFO              (83,409)    (53,453)    380,805     935,507 
                                                                          
    Other income (expense):                                               
      FFO from                                                             
       unconsolidated                                                     
       property funds (13)      41,679     (62,039)    157,197      66,415 
      FFO from other                                                      
       unconsolidated                                                     
       investees                 1,952         858      10,878       6,162 
      Interest expense (1)    (107,486)   (100,398)   (373,135)   (384,526)
      Net gain (impairment)                                               
       related to assets                                                  
       held for                                                           
       sale - China                                                       
       operations (2)                -    (198,236)      3,315    (198,236)
      Impairment of                                                      
       goodwill and other                                                
       assets (12)            (157,076)   (320,636)   (163,644)   (320,636)
      Other income                                                       
       (expense), net          (33,503)      3,724     (39,277)     20,806 
      Net gains on                                                       
       dispositions of real                                              
       estate                                                            
       properties (9)           35,515           -      65,587           - 
      Foreign currency                                                   
       exchange gains                                                    
       (losses), net              (503)        723     (22,571)     (7,009)
      Gains (loss) on early                                              
       extinguishment of                                                 
       debt (3)                   (960)     90,719     172,258      90,719 
      Current income tax                                                 
       benefit
       (expense) (2)(17)         4,536     (16,727)    (25,805)    (56,170)
                             ---------   ---------   ---------  ---------- 
        Total other income                                               
         (expense)            (215,846)   (602,012)   (215,197)   (782,475)
                             ---------   ---------   ---------  ---------- 
                                                                         
    FFO                       (299,255)   (655,465)    165,608     153,032 
                                                                         
    Less preferred share                                                 
     dividends                   6,316       6,352      25,423      25,423 
    Less net earnings                                                    
     (loss) attributable to                                              
     noncontrolling                                                      
     interests (7)                 190      (1,721)      1,300      (6,231)
                             ---------   ---------   ---------  ---------- 
    FFO attributable to                                                  
     common shares,                                                      
     including                                                           
     significant non-cash                                                
     items                   $(305,761)  $(660,096)  $ 138,885  $  133,840 
                                                                         
    Adjustments for                                                      
     significant non-cash                                                
     items                     368,586     811,053     328,903     811,053 
                             ---------   ---------   ---------  ---------- 
    FFO attributable to                                                  
     common shares,                                                      
     excluding                                                           
     significant non-cash                                                
     items                   $  62,825   $ 150,957   $ 467,788  $  944,893 
                             =========   =========   =========  ========== 
                                                                         
    Weighted average common                                              
     shares outstanding -                                                
     Basic (6)                 473,561     265,898     403,149     262,729 
                                                                         
    FFO per share                                                        
     attributable to common                                              
     shares, including                                                   
     significant non-cash                                                
     items:                                                              
      Basic                  $   (0.65)  $   (2.48)  $    0.34  $     0.51 
                             =========   =========   =========  ========== 
      Diluted                $   (0.65)  $   (2.48)  $    0.34  $     0.50 
                             =========   =========   =========  ========== 
                                                                         
    FFO per share                                                        
     attributable to common                                              
     shares, excluding                                                   
     significant non-cash                                                
     items:                                                              
      Basic                  $    0.13   $    0.57   $    1.16  $     3.60 
                             =========   =========   =========  ========== 
      Diluted                $    0.13   $    0.56   $    1.15  $     3.51 
                             =========   =========   =========  ========== 
                                                                         
                                                                         
    Footnotes follow Financial Statements 
    
    
    
                   Reconciliations of Net Loss to FFO and EBITDA
    
    (in thousands)
    Reconciliation of net loss to FFO, including significant non-cash items
    
                              Three Months Ended      Twelve Months Ended
                                  December 31,           December 31,
                              ---------------------   --------------------
                                 2009      2008 (1)     2009     2008 (1)
                              ---------   ---------   --------   ---------
    Net loss (a)              $(408,459)  $(901,232)  $ (2,650)  $(479,226)
      Add (deduct)
       NAREIT
       defined
       adjustments:
        Real estate
         related
         depreciation
         and amortization        80,325      93,258    299,910     300,983
        Adjustments to
         gains on
         dispositions for
         depreciation            (3,183)     (1,156)    (5,387)     (2,866)
        Gains on
         dispositions of
         non-development/
         non-CDFS
         properties              (3,291)     (5,806)    (4,937)    (11,620)
        Reconciling items
         attributable to
         discontinued
         operations (16):
          Gains on
           dispositions of
           non-development/
           non-CDFS
           properties           (21,024)     (1,557)  (220,815)     (9,718)
          Real estate
           related
           depreciation
           and amortization         487       9,012     11,319      33,661
                              ---------   ---------   --------   ---------
            Total
             discontinued
             operations         (20,537)      7,455   (209,496)     23,943
        Our share of
         reconciling
         items from
         unconsolidated
         investees:
          Real estate
           related
           depreciation and
           amortization          40,361      51,159    154,315     155,067
          Adjustment to
           gains/losses
           on dispositions
           for depreciation      (1,681)       (329)    (9,569)       (492)
          Other
           amortization
           items                 (3,954)     (3,337)   (11,775)    (15,840)
                              ---------   ---------   --------   ---------
            Total
             unconsolidated
             investees           34,726      47,493    132,971     138,735
                              ---------   ---------   --------   ---------
              Total NAREIT
               defined
               adjustments       88,040     141,244    213,061     449,175
                              ---------   ---------   --------   ---------
                Subtotal-
                 NAREIT
                 defined
                 FFO           (320,419)   (759,988)   210,411     (30,051)
    
      Add (deduct)
       our defined
       adjustments:
        Foreign
         currency
         exchange
         losses
         (gains),
         net (15)                (1,231)    117,145    (58,128)    144,364
        Current income
         tax expense (17)         3,658           -      3,658       9,656
        Deferred income
         tax expense
         (benefit)               (2,600)    (15,406)   (23,299)      4,073
    
        Our share of
         reconciling
         items from
         unconsolidated
         investees:
          Foreign currency
           exchange losses
           (gains), net (15)       (947)        (82)    (1,737)      2,331
          Unrealized
           losses (gains)
           on derivative
           contracts, net        (1,394)     18,007     (7,561)     23,005
          Deferred income
           tax expense
           (benefit)             17,172     (19,772)    15,541     (19,538)
                              ---------   ---------   --------   ---------
            Total
             unconsolidated
             investees           14,831      (1,847)     6,243       5,798
                              ---------   ---------   --------   ---------
              Total our
               defined
               adjustments       14,658      99,892    (71,526)    163,891
                              ---------   ---------   --------   ---------
    FFO, including
     significant
     non-cash
     items (a)                $(305,761)  $(660,096)  $138,885   $ 133,840
                              =========   =========   ========   =========
    
    
    Reconciliation of FFO, including significant non-cash items, to FFO,
     excluding significant non-cash items
    
                                Three Months Ended    Twelve Months Ended
                                    December 31,          December 31,
                              ---------------------   --------------------
                                 2009      2008 (1)     2009      2008 (1)
                              ---------   ---------   --------    --------
    FFO, including
     significant
     non-cash items (a)       $(305,761)  $(660,096)  $138,885    $133,840
      Add (deduct)
       significant
       non-cash items:
        Impairment
         of real estate
         properties (12)        207,668     274,705    331,592     274,705
        Impairment of
         goodwill and
         other assets (12)      157,076     320,636    163,644     320,636
        Impairment
         (net gain)
         related to
         disposed assets
         - China
         operations (2)               -     198,236     (3,315)    198,236
        Loss (gains)
         on early
         extinguishment
         of debt (3)                960     (90,719)  (172,258)    (90,719)
        Our share of
         the loss/
         impairment
         recorded by
         PEPR                         -     108,195          -     108,195
        Our share of
         certain (gains)
         losses
         recognized by
         the property
         funds                    2,882           -      9,240           -
                              ---------   ---------   --------    --------
          Total
           adjustments
           for significant
           non-cash
           items                368,586     811,053    328,903     811,053
                              ---------   ---------   --------    --------
    FFO, excluding
     significant
     non-cash items (a)       $  62,825   $ 150,957   $467,788    $944,893
                              =========   =========   ========    ========
    
    
    Reconciliation of FFO, excluding significant non-cash items, to EBITDA
    
                                 Three Months Ended     Twelve Months Ended
                                    December 31,            December 31,
                               --------------------   ----------------------
                                 2009      2008 (1)      2009      2008 (1)
                               --------    --------   ----------  ----------
    FFO, excluding
     significant
     non-cash items (a)        $ 62,825    $150,957   $  467,788  $  944,893
      Interest expense          107,486     100,398      373,135     384,526
      Depreciation of
        corporate assets          3,828       4,177       15,897      16,332
      Current income
       tax expense
       (benefit)
       included in FFO           (4,536)     16,727       25,805      56,170
      Adjustments
       to gains on
       dispositions
       for interest
       capitalized                5,251      12,637       16,795      57,632
      Preferred share
       dividends                  6,316       6,352       25,423      25,423
      Share of
       reconciling
       items from
       unconsolidated
       investees                 41,284      33,812      173,682     173,900
                               --------    --------   ----------  ----------
    Earnings before
     interest, taxes,
     depreciation and
     amortization
     (EBITDA)                  $222,454    $325,060   $1,098,525  $1,658,876
                               ========    ========   ==========  ==========
    
    See Consolidated Statements of Operations and Consolidated Statements
     of FFO.
    
    Footnotes follow Financial Statements
    
    (a) Attributable to common shares.
    
    
    
                           Calculation of Per Share Amounts
    
    (in thousands, except per share amounts)
    
    Net Loss Per Share
    
                                 Three Months Ended       Twelve Months Ended
                                     December 31,             December 31,
                               ----------------------    ---------------------
                                2009 (a)     2008 (a)     2009 (a)    2008 (a)
                               ---------    ---------    --------   ----------
    Net loss - Basic (b)       $(408,459)   $(901,232)   $ (2,650)  $(479,226)
    Noncontrolling interest
     attributable to
     convertible limited
     partnership units (c)             -            -           -           -
                               ---------    ---------    --------   ---------
    Adjusted loss -
     Diluted (b)               $(408,459)   $(901,232)   $ (2,650)  $(479,226)
                               =========    =========    ========   =========
    Weighted average common
     shares outstanding -
     Basic                       473,561      265,898     403,149     262,729
    Incremental weighted
     average effect of
     conversion of limited
     partnership units (c)             -            -           -           -
    Incremental weighted
     average effect of stock
     awards (d)                        -            -           -           -
                               ---------    ---------    --------   ---------
    Weighted average common
     shares outstanding -
     Diluted                     473,561      265,898     403,149     262,729
    
    Net loss per share -
     Diluted (b)               $   (0.86)   $   (3.39)   $  (0.01)  $   (1.82)
                               =========    =========    ========   =========
    
    FFO Per Share, including significant non-cash items
    
                                 Three Months Ended      Twelve Months Ended
                                     December 31,            December 31,
                               ----------------------    --------------------
                                2009 (a)     2008 (a)      2009        2008
                               ---------    ---------    --------    --------
    FFO - Basic, including
     significant non-cash
     items (b)                 $(305,761)   $(660,096)   $138,885    $133,840
    Noncontrolling interest
     attributable to
     convertible limited
     partnership units (c)             -            -           -           -
                               ---------    ---------    --------    --------
    FFO - Diluted, including
     significant non-cash
     items (b)                 $(305,761)   $(660,096)   $138,885    $133,840
                               =========    =========    ========    ========
    Weighted average common
     shares outstanding -
     Basic                       473,561      265,898     403,149     262,729
    Incremental weighted
     average effect of
     conversion of limited
     partnership units (c)             -            -           -           -
    Incremental weighted
     average effect of stock
     awards (d)                        -            -       2,474       3,372
                               ---------    ---------    --------    --------
    Weighted average common
     shares outstanding -
     Diluted                     473,561      265,898     405,623     266,101
                               =========    =========    ========    ========
    FFO per share - Diluted,
     including significant
     non-cash items (b)        $   (0.65)   $   (2.48)   $   0.34    $   0.50
                               =========    =========    ========    ========
    
    FFO Per Share, excluding significant non-cash items
    
                                  Three Months Ended     Twelve Months Ended
                                     December 31,            December 31,
                               ----------------------    --------------------
                                 2009          2008       2009        2008
                               ---------    ---------    --------    --------
    FFO - Basic, including
     significant non-cash
     items (b)                 $(305,761)   $(660,096)   $138,885    $133,840
    Adjustments for
     significant
     non-cash items              368,586      811,053     328,903     811,053
    Noncontrolling interest
     attributable to
     convertible
     limited partnership
     units (c)                         -          172       1,156       3,837
                               ---------    ---------    --------    --------
    FFO - Diluted, excluding
     significant non-cash
     items (b)                 $  62,825    $ 151,129    $468,944    $948,730
                               =========    =========    ========    ========
    Weighted average common
     shares outstanding -
     Basic                       473,561      265,898     403,149     262,729
    Incremental weighted
     average effect of
     conversion of limited
     partnership units (c)             -        2,551       1,100       4,447
    Incremental weighted
     average effect of
     stock awards (d)              3,159        1,527       2,474       3,372
                               ---------    ---------    --------    --------
    Weighted average common
     shares outstanding -
     Diluted                     476,720      269,976     406,723     270,548
                               =========    =========    ========    ========
    FFO per share - Diluted,
     excluding significant
     non-cash items (b)        $    0.13    $    0.56    $   1.15    $   3.51
                               =========    =========    ========    ========
    
    (a) In periods with a net loss, the inclusion of any incremental shares is
        anti-dilutive, and, therefore, both basic and diluted shares are the 
        same.
    (b) Attributable to common shares.
    (c) If the impact of the conversion of limited partnership units is anti-
        dilutive, the income and shares are not included in the diluted per 
        share calculation.
    (d) Total weighted average potentially dilutive awards outstanding were 
        10,949 and 10,833 for the three months ended December 31, 2009 and 
        2008, respectively, and 11,539 and 10,204 for the year-ended December
        31, 2009 and 2008, respectively. Of the potentially dilutive 
        instruments, 5,639 and 7,506, were anti-dilutive for the three months 
        ended December 31, 2009 and 2008, respectively, and 6,781 and 6,647, 
        were anti-dilutive for the year-ended December 31, 2009 and 2008. In a
        loss period, the effect of stock awards is not included as the impact 
        is anti-dilutive.
    
    
    Notes to Financial Statements
    
    Please also refer to our annual and quarterly financial statements filed 
    with the Securities and Exchange Commission on Forms 10-K and 10-Q for 
    further information about us and our business. Certain 2008 amounts 
    included in our financial statements have been reclassified to conform to 
    the 2009 presentation.
    
    (1)  In May 2008, the Financial Accounting Standards Board ("FASB") issued
         a new standard that requires separate accounting for the debt and 
         equity components of certain convertible debt. The value assigned to 
         the debt component is the estimated fair value of a similar bond 
         without the conversion feature at the time of issuance, which would 
         result in the debt being recorded at a discount. The resulting debt 
         discount is amortized through the first redeemable option date as 
         additional non-cash interest expense. We adopted this standard on 
         January 1, 2009, as required, on a retroactive basis for the 
         convertible notes we issued in 2007 and 2008.  As a result, we 
         restated our 2008 results to reflect the additional interest expense 
         and the additional capitalized interest related to our development 
         activities for both properties we currently own, as well as 
         properties that were contributed during the applicable periods. This 
         restatement impacted earnings and FFO. 
    
         The following tables illustrate the impact of the restatement on our 
         Consolidated Balance Sheets and Consolidated Statements of Operations
         and FFO for these periods (in thousands):
    
    
                                         As of December 31, 2008
                                  ------------------------------------------
                                  As Reported     Adjustments    As Restated
                                  -----------     -----------    -----------
         Consolidated
          Balance
          Sheet:
         ------------
         Net investments
          in real
          estate assets           $15,706,172      $  19,100     $15,725,272
         Other assets             $ 1,129,182      $  (2,189)    $ 1,126,993
         Debt                     $11,007,636      $(296,268)    $10,711,368
         Additional
          paid in
          capital                 $ 6,688,615      $ 381,493     $ 7,070,108
         Distributions
          in excess
          of net earnings         $  (587,199)     $ (68,314)    $  (655,513)
    
    
                                For the Three Months Ended, December 31, 2008
                                ---------------------------------------------
                                  As Reported   Adjustments(a)   As Restated
                                  -----------   --------------   -----------
                                                                 (before 2009
                                                                 discontinued
                                                                  operations
                                                                  adjustment)
         Consolidated
          Statements of
          Operations:
         --------------
         Cost of CDFS
          dispositions             $1,102,053       $  2,878      $1,104,931
         Interest expense,
          net of
          capitalization           $   88,737       $ 11,289      $  100,026
         Net loss
          attributable to
          controlling
          interests                $ (880,713)      $(14,167)     $ (894,880)
    
    
                               For the Twelve Months Ended, December 31, 2008
                               ----------------------------------------------
                                  As Reported   Adjustments (a)  As Restated
                                  -----------   ---------------  -----------
                                                                 (before 2009
                                                                  discontinued
                                                                  operations
                                                                  adjustment)
         Consolidated
          Statements of
          Operations:
         ---------------
         Cost of CDFS
          dispositions             $3,836,519       $  4,200      $3,840,719
         Interest expense,
          net of
          capitalization           $  341,305       $ 42,830      $  384,135
         Net loss
          attributable to
          controlling
          interests                $ (406,773)      $(47,030)     $ (453,803)
    
         (a) The adjustments are the same in our Consolidated Statements of
             FFO.
    
    
    (2)  On February 9, 2009, we sold our operations in China and our property
         fund interests in Japan to affiliates of GIC Real Estate, the real 
         estate investment company of the Government of Singapore Investment 
         Corporation ("GIC RE"), for total cash consideration of $1.3 billion
         ($845 million related to China and $500 million related to the Japan
         investments).  We used the proceeds primarily to pay down borrowings 
         on our credit facilities. 
    
         All of the assets and liabilities associated with our China 
         operations were classified as Assets and Liabilities Held for Sale in
         our accompanying Consolidated Balance Sheet as of December 31, 2008. 
         In the fourth quarter of 2008, based on the carrying values of these 
         assets and liabilities, as compared with the estimated sales proceeds
         less costs to sell, we recognized an impairment of $198.2 million. In
         connection with the sale in the first quarter of 2009, we recognized 
         a $3.3 million gain on sale.  In addition, the results of our China 
         operations are presented as discontinued operations in our 
         accompanying Consolidated Statements of Operations for all periods. 
         All operating information presented throughout this report excludes 
         China operations.   
    
         In connection with the sale of our investments in the Japan property
         funds, we recognized a gain of $180.2 million. The gain is reflected 
         as CDFS Proceeds in our Consolidated Statements of Operations and 
         FFO, as it represents previously deferred gains on the contribution 
         of properties to the property funds based on our ownership interest 
         in the property funds at the time of original contribution of 
         properties. We also recognized $20.5 million in current income tax 
         expense related to the Japan portion of the transaction. In April 
         2009, we sold one property in Japan to GIC RE for $128.1 million, 
         resulting in a gain on sale of $13.1 million that is reflected as 
         Discontinued Operations – Net Gains on Dispositions of Development 
         Properties and Land Subject to Ground Leases and as Net Gains on 
         Dispositions of Real Estate Properties in our Consolidated Statements
         of Operations and FFO, respectively.  The building and related 
         borrowings were classified as held for sale at December 31, 2008.
    
         We continued to manage the Japan properties until July 2009. In 
         connection with the termination of the management agreement, we 
         earned a termination fee of $16.3 million that is included in 
         Property Management and Other Fees and Incentives in our Consolidated
         Statements of Operations and FFO. 
    
    (3)  During the three and twelve months ended December 31, 2009 in 
         connection with our announced initiatives to reduce debt, we 
         repurchased portions of several series of notes outstanding, the 
         majority of which were at a discount, and extinguished some secured 
         mortgage debt prior to maturity. These transactions resulted in the 
         recognition of net gains or losses and are summarized, as follows (in
         thousands):
    
    
                                     For the         For the    For the Three
                                      Three          Twelve      and Twelve
                                   Months Ended   Months Ended  Months Ended
                                   December 31,   December 31,  December 31,
                                       2009            2009         2008
                                   ------------   ------------  -------------
         Convertible Senior
          Notes:
           Original principal
            amount                    $117,736     $  653,993       $      -
           Cash purchase price        $102,920     $  454,023       $      -
         Senior Notes (a):
           Original principal
            amount                    $224,506     $  587,698       $309,722
           Cash purchase price        $226,754     $  545,618       $216,805
         Secured Mortgage Debt:
           Original principal
            amount (b)                $      -     $  227,017       $      -
           Cash extinguishment
            price                     $      -     $  227,017       $      -
    
         Total:
           Original principal
            amount                    $342,242     $1,468,708       $309,722
           Cash purchase/
            extinguishment price      $329,674     $1,226,658       $216,805
           Gain (loss) on early
            extinguishment of
            debt(c)                   $   (960)    $  172,258       $ 90,719
    
         (a) Included in the twelve months ended December 31, 2009 is the 
             repurchase of euro 248.7 million ($356.4 million) original
             principal amount of our Euro senior notes for euro
             235.1 million ($338.7 million).
         (b) In addition, there was an unamortized premium of $11.4 million 
             (recorded at acquisition) that was included in the calculation
             of the gain on early extinguishment.
         (c) Represents the difference between the recorded debt (net of the 
             discount or premium) and the consideration we paid to retire the
             debt.
    
    
    (4)  On October 1, 2009, we completed a consent solicitation with regard 
         to certain of our senior notes, and entered into a new supplemental 
         indenture (the Ninth Supplemental Indenture) that amended certain 
         indenture covenants, defined terms and thresholds for certain events 
         of default.
    
         We recognized $14.5 million in fees and expenses related to the 
         consent solicitation that are included in General and Administrative 
         Expenses ("G&A") in our Consolidated Statements of Operations and 
         FFO.
    
    (5)  In August 2009, we amended the Global Line, extending the maturity to
         August 21, 2012 and reducing the size of our aggregate commitments to
         $2.25 billion (subject to currency fluctuations) after October 2010. 
         The Global Line will continue to have lender commitments of $3.7 
         billion (subject to currency fluctuations) until October 2010, 
         although our borrowing capacity may be less. 
    
         In August 2009, we issued $350 million of senior notes with a stated 
         interest rate of 7.625% and a maturity of August 2014. On October 30,
         2009, we issued $600 million of senior notes with a stated interest 
         rate of 7.375% and a maturity of October 2019. We used the proceeds 
         from both issuances primarily to repay borrowings under our Global 
         Line and other debt. 
    
    (6)  On April 14, 2009, we completed a public offering of 174.8 million 
         common shares at a price of $6.60 per share and received net proceeds
         of $1.1 billion that were used to repay borrowings under our credit 
         facilities. During the third quarter of 2009, we issued 29.8 million 
         shares and received gross proceeds of $331.9 million and paid 
         offering expenses of approximately $6.9 million under our at the 
         market share issuance plan. 
    
    (7)  On January 1, 2009, we adopted the provisions of a new accounting 
         standard that requires noncontrolling interests (previously referred 
         to as minority interests) to be reported as a component of equity and
         changes the accounting for transactions with noncontrolling interest 
         holders. 
    
    (8)  In our Consolidated Statements of Operations, rental income includes 
         the following (in thousands):
    
    
                                   Three Months Ended    Twelve Months Ended
                                      December 31,           December 31,
                                   -------------------   -------------------
                                     2009       2008       2009       2008
                                   --------   --------   --------   --------
         Rental income             $169,188   $158,259   $658,462   $669,460
         Rental expense recoveries   46,621     47,591    194,775    210,934
         Straight-lined rents        11,553      9,346     37,858     33,256
                                   --------   --------   --------   --------
                                   $227,362   $215,196   $891,095   $913,650
                                   ========   ========   ========   ========
    
    
    (9)  In response to market conditions, during the fourth quarter of 2008 
         we modified our business strategy.  As a result, as of December 31, 
         2008, we have two operating segments - Direct Owned and Investment 
         Management, and we no longer have a CDFS Business segment. We 
         presented the results of operations of our CDFS Business segment 
         separately in 2008. 
    
         Our direct owned segment represents the direct, long-term ownership 
         of industrial properties. Our investment strategy in this segment 
         focuses primarily on the ownership and leasing of industrial 
         properties in key distribution markets. We consider these properties 
         to be our Core Portfolio. Also included in this segment are operating
         properties we developed with the intent to contribute the properties 
         to an unconsolidated property fund that we previously referred to as 
         our "CDFS Pipeline" and, beginning December 31, 2008, we now refer to
         as our Completed Development Portfolio. Our intent is to hold the 
         Core and Development properties, however, we may contribute either 
         Core or Development properties to the property funds, to the extent 
         there is fund capacity, or sell them to third parties.  When we 
         contribute or sell Development properties, we recognize FFO to the 
         extent the proceeds received exceed our original investment (i.e. 
         prior to depreciation). However, beginning January 1, 2009, we now 
         present the results as Net Gains on Dispositions, rather than as CDFS
         Disposition Proceeds and Cost of CDFS Dispositions. In addition, we 
         have industrial properties that are currently under development (also
         included in our Development Portfolio) and land available for 
         development that are part of this segment as well. The investment 
         management segment represents the investment management of 
         unconsolidated property funds and joint ventures and the properties 
         they own.
    
    (10) Beginning in 2009, we are reporting the direct costs associated with 
         our investment management segment for all periods presented as a 
         separate line item "Investment Management Expenses" in our 
         Consolidated Statements of Operations and FFO. These costs include 
         the property management expenses associated with the property-level 
         management of the properties owned by the property funds and joint 
         ventures (previously included in Rental Expenses) and the investment 
         management expenses associated with the asset management of the 
         property funds and joint ventures (previously included in General and
         Administrative Expenses). In order to allocate the property 
         management expenses between the properties owned by us and the 
         properties owned by the property funds and joint ventures, we use the
         square feet owned at the beginning of the period by the respective 
         portfolios. See note 2 related to the Japan properties that we no 
         longer manage. 
    
    (11) As we announced in the fourth quarter of 2008, in response to the 
         difficult economic climate, we initiated G&A reductions with a near-
         term target of a 20 to 25% reduction in G&A prior to capitalization 
         or allocation. These initiatives include a Reduction in Workforce 
         ("RIF") and reductions to other expenses through various cost savings
         measures. Due to the changes in our business strategy in the fourth 
         quarter of 2008, we halted the majority of our new development 
         activities, which, along with lower gross G&A, has resulted in lower 
         capitalized G&A. Our G&A included in our Statements of Operations 
         consisted of the following  (in thousands):
    
    
                                  Three Months Ended     Twelve Months Ended
                                      December 31,           December 31,
                                  ------------------     -------------------
                                   2009       2008         2009       2008
                                  -------    -------     --------   --------
         Gross G&A(a)             $80,187    $89,299     $294,598   $400,648
         Reclassed to
          discontinued
          operations, net of
          capitalized amounts(b)        -     (8,906)      (1,305)   (21,721)
         Capitalized amounts
          and amounts reported
          as rental and
          investment management
          expenses                (28,026)   (43,406)    (112,807)  (201,577)
                                  -------    -------     --------   --------
         Net G&A                  $52,161    $36,987     $180,486   $177,350
                                  =======    =======     ========   ========
    
         (a) Included in G&A in the fourth quarter of 2009 is $14.5 million of
             fees and expenses associated with the consent solicitation 
             discussed in Note 4.
    
         (b) G&A costs included in discontinued operations is net of $2.3 
             million and $11.3 million of capitalized costs for the three and 
             twelve months ended December 31, 2008, respectively.
    
    
    (12) During 2009 and 2008, we recorded impairment charges of certain of 
         our real estate properties and other assets as outlined below (in 
         millions):
    
    
                                      Three Months Ended  Twelve Months Ended
                                         December 31,        December 31,
                                       -----------------   -----------------
                                        2009       2008     2009       2008
                                       ------     ------   ------     ------
         Included in "Impairment
          of Real Estate
          Properties":
           Land held for
            development                $135.8     $194.2   $137.0     $194.2
           Completed and under
            development properties        3.5       34.8    126.2       34.8
           Retail and mixed use
            properties                   46.2          -     46.2          -
           Land subject to ground
            leases and other             17.6          -     17.6          -
           Other real estate
            investments                   4.6       45.7      4.6       45.7
                                       ------     ------   ------     ------
             Total impairment of
              real estate properties   $207.7     $274.7   $331.6     $274.7
    
         Included in "Impairment
          of Goodwill and Other
          Assets":
           Goodwill                    $    -     $175.4   $    -     $175.4
           Other assets                 157.1      145.2    163.6      145.2
                                       ------     ------   ------     ------
             Total impairment of
              goodwill and other
              assets                   $157.1     $320.6   $163.6     $320.6
                                       ------     ------   ------     ------
         Total direct owned
          impairment charges
          included in continuing
          operations                   $364.8     $595.3   $495.2     $595.3
                                       ======     ======   ======     ======
    
    
         The impairment charges of real estate properties that we recognized 
         in 2008 and 2009 were primarily based on valuations of real estate, 
         which had declined due to market conditions, that we no longer 
         expected to hold for long-term investment. Included in the 2009 
         impairment charges is $9.2 million that should have been recorded in 
         2008. This amount, along with an additional $3.0 million of deferred 
         tax expense, was recorded in 2009 and relates to a revision of our 
         estimated deferred income tax liabilities associated with our 
         international operations. In order to generate liquidity, we have 
         contributed certain completed properties to property funds (primarily
         in Europe) and sold or intend to sell certain land parcels or 
         properties to third parties. To the extent these properties are 
         expected to be sold at a loss, we record an impairment charge when 
         the loss is known. The impairment charges related to goodwill that we
         recognized in the fourth quarter of 2008 and related to other assets 
         that we recognized in 2009 and 2008 were similarly caused by the 
         decline in the real estate markets.
    
    
    (13) The following table represents our share of income (loss) recognized 
         by the property funds related to derivative activity and the sale of 
         real estate properties (in thousands). 
    
    
                              Three Months Ended        Twelve Months Ended
                                  December 31,             December 31,
                              -------------------      ---------------------
                                2009       2008           2009        2008
                              -------   ---------      ---------  ----------
         Included in
          Earnings from
          Unconsolidated
          Property Funds in
          our Consolidated
          Statements of
          Operations:
           Derivative gain
            (loss)             $1,394   $ (19,189)     $ (6,306)  $ (32,278)
           Gain (loss) from
            the sale of
            properties and
            impairment
            charges, net       $  946   $(107,887)     $ (4,831)  $(106,420)
    
         Included in FFO
          from
          Unconsolidated
          Property Funds in
          our Consolidated
          Statements of
          FFO:
           Derivative loss     $    -   $  (1,182)     $(13,867)  $  (9,274)
           Gain (loss) from
            the sale of
            properties and
            impairment
            charges, net       $  683   $(108,218)     $(12,720)  $(106,914)
    
    
         In the fourth quarter of 2008 we recognized a loss of $108.2 million 
         representing our share of the loss recognized by PEPR from the sale 
         of its 30% ownership interest in PEPF II. We acquired PEPR's 20% 
         interest in PEPF II in December 2008, and PEPR sold its remaining 
         ownership in PEPF II of approximately 10% to third parties in early 
         2009.
    
    (14) The following table presents the components of interest expense as 
         reflected in our Consolidated Statements of Operations (in 
         thousands): 
    
    
                                   Three Months Ended    Twelve Months Ended
                                       December 31,          December 31,
                                   -------------------   -------------------
                                     2009       2008       2009       2008
                                   --------   --------   --------   --------
         Gross interest expense    $101,314   $117,113   $382,899   $477,933
         Amortization of
          discount, net              16,494     18,451     67,542     63,676
         Amortization of
          deferred loan costs         5,877      3,474     17,069     12,238
                                   --------   --------   --------   --------
           Interest expense
            before
            capitalization          123,685    139,038    467,510    553,847
         Capitalized amounts        (16,199)   (38,724)   (94,205)  (168,782)
                                   --------   --------   --------   --------
         Net interest expense      $107,486   $100,314   $373,305   $385,065
                                   ========   ========   ========   ========
    
    
         Gross interest expense decreased in 2009 from 2008 due to 
         significantly lower debt levels, offset by increases in borrowing 
         rates. The decrease in capitalized amounts is due to less development
         activity.
    
    (15) Included in Foreign Currency Exchange Gains (Losses), Net, for the 
         twelve months ended December 31, 2009 and 2008, are net foreign 
         currency exchange gains and losses, respectively, related to the 
         remeasurement of inter-company loans between the U.S. and our 
         consolidated subsidiaries in Japan and Europe due to the fluctuations
         in the exchange rates of U.S. dollars to the yen, the euro and pound 
         sterling during the applicable periods. We do not include the
         gains and losses related to inter-company loans in our calculation of
         FFO. 
    
    (16) The operations of the properties held for sale or disposed of to 
         third parties and the aggregate net gains recognized upon their 
         disposition are presented as discontinued operations in our 
         Consolidated Statements of Operations for all periods presented, 
         unless the property was developed under a pre-sale agreement. 
    
         As discussed in Note 2 above, all of the assets and liabilities 
         associated with our China operations were classified as Assets and 
         Liabilities Held for Sale in our accompanying Consolidated Balance 
         Sheet as of December 31, 2008, as well as one property in Japan that 
         we sold in April 2009.
    
         During 2009, other than our China operations, we disposed of land 
         subject to ground leases and 140 properties (aggregating 14.8 million
         square feet, 3 of which were development properties) to third 
         parties. This includes a portfolio of 90 properties aggregating 9.6 
         million square feet that were sold to a single venture during the 
         third quarter in which we retained a 5% interest.  We continue
         to manage these properties. During 2008, we disposed of land subject 
         to ground leases and 15 properties to third parties, including 6 
         development properties. 
    
         The income (loss) attributable to these properties was as follows (in
          thousands):
    
    
                                    Three Months Ended  Twelve Months Ended
                                        December 31,        December 31,
                                    ------------------  -------------------
                                      2009       2008     2009       2008
                                     ------    -------  -------   --------
         Rental income               $2,544    $34,582  $50,492   $121,685
         Rental expenses               (567)   (13,422) (14,434)   (42,058)
         Depreciation and
          amortization                 (487)    (9,012) (11,319)   (33,661)
         Other expenses, net              -    (16,603)    (576)   (34,917)
                                     ------    -------  -------   --------
    
         Income (loss) attributable
          to disposed properties     $1,490    $(4,455) $24,163   $ 11,049
                                     ======    =======  =======   ========
    
    
         For purposes of our Consolidated Statements of FFO, we do not 
         segregate discontinued operations.  In addition, we include the gains
         from disposition of land parcels and Completed Development Properties
         (2009) and CDFS properties (2008) in the calculation of FFO, 
         including those classified as discontinued operations.
    
    (17) In connection with purchase accounting, we record all of the acquired
         assets and liabilities at the estimated fair values at the date of 
         acquisition. For our taxable subsidiaries, we recognize the deferred 
         tax liabilities that represent the tax effect of the difference 
         between the tax basis carried over and the fair values at the date of
         acquisition. As taxable income is generated in these subsidiaries, we
         recognize a deferred tax benefit in earnings as a result of the 
         reversal of the deferred tax liability previously recorded at the 
         acquisition date and we record current income tax expense 
         representing the entire current income tax liability. In our 
         calculation of FFO, we only include the current income tax expense to
         the extent the associated income is recognized for financial 
         reporting purposes.
    

SOURCE ProLogis