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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K
 
     
(Mark One)
   
 
x
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2009
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from     to     
 
Commission File Number 1-12846
 
 
 
(PROLOGIS LOGO)
(Exact name of registrant as specified in its charter)
 
     
Maryland
(State or other jurisdiction
of incorporation or organization)
  74-2604728
(I.R.S. employer
identification no.)
 
4545 Airport Way
Denver, CO 80239
(Address of principal executive offices and zip code)
 
(303) 567-5000
 
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
    Name of each exchange
Title of Each Class
 
on which registered
 
Common Shares of Beneficial Interest, par value $0.01 per share
  New York Stock Exchange
Series F Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share
  New York Stock Exchange
Series G Cumulative Redeemable Preferred Shares of Beneficial Interest par value $0.01 per share
  New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
 
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website; if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter periods that the registrant was required to submit and post such files). Yes þ No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
         
(Check one)
  þ     Large accelerated filer   o     Accelerated filer
    o     Non-accelerated filer (do not check if a smaller reporting company)   o     Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No þ
 
Based on the closing price of the registrant’s shares on June 30, 2009, the aggregate market value of the voting common equity held by non-affiliates of the registrant was $3,563,239,800.
 
At February 19, 2010, there were outstanding approximately 474,204,900 common shares of beneficial interest of the registrant.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s definitive proxy statement for the 2010 annual meeting of its shareholders are incorporated by reference in Part III of this report.
 


 

 
TABLE OF CONTENTS
 
                 
Item
 
Description
  Page
 
PART I
  1.     Business     3  
         Business Strategy     4  
         Our Operating Segments     5  
         Our Management     9  
         Environmental Matters     12  
         Insurance Coverage     12  
  1A.     Risk Factors     13  
  1B.     Unresolved Staff Comments     21  
  2.     Properties     21  
         Geographic Distribution     21  
         Properties     21  
         Unconsolidated Investees     25  
  3.     Legal Proceedings     26  
  4.     Submission of Matters to a Vote of Security Holders     26  
 
PART II
  5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     27  
         Market Information and Holders     27  
         Distributions and Dividends     27  
         Securities Authorized for Issuance Under Equity Compensation Plans     28  
         Other Shareholder Matters     28  
  6.     Selected Financial Data     29  
  7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     30  
         Management’s Overview     30  
         Results of Operations     33  
         Portfolio Information     42  
         Environmental Matters     45  
         Liquidity and Capital Resources     45  
         Off-Balance Sheet Arrangements     51  
         Contractual Obligations     53  
         Critical Accounting Policies     54  
         New Accounting Pronouncements     56  
         Funds from Operations     56  
  7A.     Quantitative and Qualitative Disclosure About Market Risk     62  
  8.     Financial Statements and Supplementary Data     64  
  9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     64  
  9A.     Controls and Procedures     64  
  9B.     Other Information     64  
 
PART III
  10.     Directors, Executive Officers and Corporate Governance     65  
  11.     Executive Compensation     65  
  12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     65  
  13.     Certain Relationships and Related Transactions, and Director Independence     65  
  14.     Principal Accounting Fees and Services     65  
 
PART IV
  15.     Exhibits, Financial Statement Schedules     65  
 EX-10.25
 EX-10.26
 EX-10.27
 EX-12.1
 EX-12.2
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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Certain statements contained in this discussion or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words and phrases such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “designed to achieve”, 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 or profitability of developed properties, economic and market 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. Many of the factors that may affect outcomes and results are beyond our ability to control. For further discussion of these factors see “Item 1A Risk Factors” in this annual report on Form 10-K. All references to “we”, “us” and “our” refer to ProLogis and our consolidated subsidiaries.
 
PART I
 
ITEM 1. Business
 
ProLogis is a leading global provider of industrial distribution facilities. We are a Maryland real estate investment trust (“REIT”) and have elected to be taxed as such under the Internal Revenue Code of 1986, as amended (the “Code”). Our world headquarters is located in Denver, Colorado. Our European headquarters is located in the Grand Duchy of Luxembourg with our European customer service headquarters located in Amsterdam, the Netherlands. Our primary office in Asia is located in Tokyo, Japan.
 
Our Internet website address is www.prologis.com. All reports required to be filed with the Securities and Exchange Commission (the “SEC”) are available or may be accessed free of charge through the Investor Relations section of our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. Our common shares trade under the ticker symbol “PLD” on the New York Stock Exchange (“NYSE”).
 
We were formed in 1991, primarily as a long-term owner of industrial distribution space operating in the United States. Over time, our business strategy evolved to include the development of properties for contribution to property funds in which we maintain an ownership interest and the management of those property funds and the properties they own. Originally, we sought to differentiate ourselves from our competition by focusing on our corporate customers’ distribution space requirements on a national, regional and local basis and providing customers with consistent levels of service throughout the United States. However, as our customers’ needs expanded to markets outside the United States, so did our portfolio and our management team. Today, we are an international real estate company with operations in North America, Europe and Asia. Our business strategy is to integrate international scope and expertise with a strong local presence in our markets, thereby becoming an attractive choice for our targeted customer base, the largest global users of distribution space, while achieving long-term sustainable growth in cash flow.
 
Industrial distribution facilities are a crucial link in the modern supply chain, and they serve three primary purposes for supply-chain participants: (i) support accurate and seamless flow of goods to their appointed destinations; (ii) function as processing centers for goods; and (iii) enable companies to store enough inventory to meet surges in demand and to cushion themselves from the impact of a break in the supply chain.


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At December 31, 2009, our total portfolio of properties owned, managed, and under development includes direct-owned properties and properties owned by property funds and joint ventures that we manage. These properties are located in North America, Europe and Asia and are broken down as follows:
 
                         
    Number of
             
    Properties     Square Feet     Investment  
          (in thousands)     (in thousands)  
 
Total owned, managed and under development:
                       
Industrial properties:
                       
Operating properties
           1,188            191,623     $      11,545,501  
Properties under development
    5       2,930       191,127  
Retail and mixed use properties
    29       1,150       291,038  
Land held for development
    n/a       n/a       2,569,343  
Other real estate investments
    n/a       n/a       618,887  
                         
Total
    1,222       195,703       15,215,896  
Investment management-industrial properties(1)
    1,379       284,262       19,913,874  
                         
Total properties owned and under management
    2,601       479,965     $ 35,129,770  
                         
 
 
(1) Amounts represent the entity’s investment in the operating property, not our proportionate share.
 
Business Strategy
 
In late 2008, we modified our business strategy to adjust to the global financial market and economic disruptions. This new strategy entailed limiting our development activities to conserve capital and focus on strengthening our balance sheet.
 
Narrowing our focus allowed us to work on specific goals we set forth for 2009, which were to:
 
•     reduce debt by $2.0 billion;
 
•     recast our global line of credit;
 
•     complete the properties under development as of the end of 2008 and focus on leasing our total development portfolio;
 
•     manage our core portfolio of industrial distribution properties to maintain and improve our net operating income stream from these assets;
 
•     generate liquidity through contributions of properties to our property funds and through sales of real estate to third parties; and
 
•     reduce gross general and administrative expenses (“G&A”) by 20% to 25%.
 
In 2009, we generated liquidity through the issuance of nearly $1.5 billion of common equity as well as nearly $2.9 billion of asset dispositions and property fund contributions, including $1.3 billion from the sale of certain Asian operations. These transactions allowed us to reduce our debt by $2.7 billion from December 31, 2008. In addition, we renegotiated and extended our global line of credit, simplified the debt covenants related to our senior notes and extended the maturities of our debt. See further discussion in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
 
We reduced our gross G&A by 26.5% in 2009 from 2008, through various cost savings initiatives, including a reduction in workforce (“RIF”) program. We executed leasing in our development portfolio in 2009, increasing the leased percentage to 64.3% at December 31, 2009 from 41.4% at the beginning of the year.


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Now that we have achieved our goals for 2009, we believe we are in a better liquidity position and can focus on our longer-term strategy of conservative growth through the ownership, management and development of industrial properties with a concentrated focus on customer service. Included in our objectives for 2010 and beyond are to:
 
•     retain more of our development assets in order to improve the geographic diversification of our direct owned properties, as most of our planned developments are in international markets;
 
•     monetize our investment in land of $2.6 billion at December 31, 2009; and
 
•     continue to focus on staggering and extending our debt maturities.
 
We plan to accomplish these objectives by generating proceeds through selective sales of real estate properties (primarily located in the U.S.) and land parcels, and limited contribution of development properties to the property funds. We will use the proceeds to fund our development activities, which will allow us to respond to new build-to-suit (pre-leased) opportunities to better serve our customers and to transition our non-income producing land into income producing properties. We will continue to focus on leasing the development portfolio (representing 53.5 million square feet at December 31, 2009 that was 64.3% leased).
 
Our Operating Segments
 
The following discussion of our business segments should be read in conjunction with “Item 1A Risk Factors”, our property information presented in “Item 2 Properties”, “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our segment footnote - Note 20 to our Consolidated Financial Statements in Item 8.
 
Our current business strategy includes two operating segments: (i) direct owned and (ii) investment management. Our direct owned segment represents the direct long-term ownership of industrial and retail properties. Our investment management segment represents the long-term investment management of property funds, other unconsolidated investees and the properties they own.
 
Operating Segments - Direct Owned
 
Our direct owned segment represents the long-term ownership of industrial and retail properties. Our investment strategy focuses primarily on the ownership and leasing of these properties in key distribution markets. We divide our operating properties into two categories, properties that we developed (“completed development properties”) and all other operating properties (“core properties”). Prior to December 31, 2008, the completed development properties were referred to as our CDFS properties.
 
Also included in this segment are industrial properties that are currently under development, land available for development and land subject to ground leases.


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Investments
 
At December 31, 2009, the following properties are in the direct owned segment and located in North America, Europe and Asia (square feet and investment in thousands):
 
                                 
                      Investment (before
 
    Number
                depreciation) at
 
    of Properties     Square Feet     Leased Percentage     December 31, 2009  
 
Industrial and retail properties:
                               
Core properties
    1,025            141,019            90.1 %   $      7,436,539  
Completed development properties
    163       50,604       62.2 %     4,108,962  
Properties under development
    5       2,930       100.0 %     191,127  
Retail properties
    27       1,014       91.5 %     251,948  
                                 
Total industrial and retail properties
         1,220       195,567       83.0 %     11,988,576  
                                 
Land held for development
                            2,569,343  
Land subject to ground leases and other
                            385,222  
                                 
Total
                          $ 14,943,141  
                                 
 
Results of Operations
 
We earn rent from our customers, including reimbursement of certain operating costs, under long-term operating leases (with an average lease term of five to six years at December 31, 2009). The revenue in this segment decreased in 2009 principally due to the contributions of properties (generally completed and fully leased development properties) to the unconsolidated property funds and decreases in rental rates on turnovers, offset partially by new leasing activity in our completed development properties. However, rental revenues generated by the lease-up of newly developed properties have not been adequate to offset the loss of rental revenues from fully leased property contributions. We expect our total revenues from this segment to increase slightly in 2010 through increases in occupied square feet predominantly in our development portfolio, offset partially with decreases from contributions of properties we made in 2009 or may make in 2010. We anticipate the increases in occupied square feet to come from leases that were signed in 2009, but have not commenced occupancy, and future leasing activity in 2010.
 
Market Presence
 
At December 31, 2009, our 1,188 industrial operating properties in this segment aggregating 191.6 million square feet were located in 39 markets in 3 countries in North America (1 market in Canada, 6 markets in Mexico and 32 markets in the United States), 28 markets in 12 countries in Europe (Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden and the United Kingdom) and 6 markets in 2 countries in Asia (Japan and South Korea). Our largest markets for this segment in North America (based on our investment in the properties) are Atlanta, Chicago, Dallas/Fort Worth, Inland Empire, Los Angeles, New Jersey and San Francisco — South Bay. Our largest investments in Europe are in Poland and the United Kingdom and our largest investment in Asia is in Japan. Our 5 properties under development at December 31, 2009 aggregated 2.9 million square feet and were located in 1 market in North America, 3 markets in Europe and 1 market in Asia. At December 31, 2009, we owned 10,360 acres of land with an investment of $2.6 billion and located in North America (6,275 acres, $1.1 billion investment), Europe (3,959 acres, $1.2 billion investment) and Asia (126 acres, $0.3 billion investment). The retail properties and land subject to ground leases are all located in the United States. See further detail in “Item 2 Properties”.
 
Competition
 
The existence of competitively priced distribution space available in any market could have a material impact on our ability to rent space and on the rents that we can charge. To the extent we wish to acquire land for future development of properties in our direct owned segment, we may compete with local, regional, and national developers. We also face competition from other investment managers in attracting capital for our property funds to be utilized to acquire properties from us or third parties.


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We believe we have competitive advantages due to (i) our ability to quickly respond to customer’s needs for high-quality distribution space in key global distribution markets; (ii) our established relationships with key customers serviced by our local personnel; (iii) our ability to leverage our organizational structure to provide a single point of contact for our global customers; (iv) our property management and leasing expertise; (v) our relationships and proven track record with current and prospective investors in the property funds; (vi) our global experience in the development and management of industrial properties; (vii) the strategic locations of our land positions; and (viii) our personnel who are experienced in the land acquisition and entitlement process.
 
Property Management
 
Our business strategy includes a customer service focus that enables us to provide responsive, professional and effective property management services at the local level. To enhance our management services, we have developed and implemented proprietary operating and training systems to achieve consistent levels of performance and professionalism and to enable our property management team to give the proper level of attention to our customers. We manage substantially all of our operating properties.
 
Customers
 
We have developed a customer base that is diverse in terms of industry concentration and represents a broad spectrum of international, national, regional and local distribution space users. At December 31, 2009, in our direct owned segment, we had 2,468 customers occupying 155.2 million square feet of industrial and retail space. Our largest customer and 25 largest customers accounted for 2.3% and 21.4%, respectively, of our annualized collected base rents at December 31, 2009.
 
Employees
 
We employ 1,135 persons in our entire business. Our employees work in 3 countries in North America (725 persons), in 13 countries in Europe (310 persons) and in 2 countries in Asia (100 persons). Of the total, we have assigned 645 employees to our direct owned segment and 40 employees to our investment management segment. We have 450 employees who work in corporate positions who are not assigned to a segment who may assist with segment activities. We believe our relationships with our employees are good. Our employees are not organized under collective bargaining agreements, although some of our employees in Europe are represented by statutory Works Councils and benefit from applicable labor agreements.
 
Future Plans
 
Our current business plan allows for the selective development of industrial properties (generally pre-leased) to: (i) address the specific expansion needs of customers; (ii) enhance our market presence in a specific country, market or submarket; (iii) take advantage of opportunities where we believe we have the ability to achieve favorable returns; (iv) monetize our existing land positions through pre-committed development of industrial properties to primarily hold for long-term investment; and (v) improve the geographic diversification of our portfolio. In addition, we expect to complete the development of the properties we have under development, focus on leasing the properties in our development portfolio and complete the properties under development in joint ventures in which we have an ownership interest.
 
In 2010, we intend to fund our investment activities in the direct owned segment by generating proceeds through selective sales of completed real estate properties and land parcels. Additionally, depending on market conditions and the capital available from our fund partners, we may contribute core properties and/or completed development properties to the property funds.
 
Operating Segments — Investment Management
 
The investment management segment represents the investment management of unconsolidated property funds and certain joint ventures and the properties they own. We utilize our investment management expertise to


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manage the property funds and joint ventures and we utilize our leasing and property management expertise to manage the properties owned by these entities.
 
Our property fund strategy:
 
•     allows us, as the manager of the property funds, to maintain and expand our market presence and customer relationships;
 
•     allows us to maintain a long-term ownership position in the properties;
 
•     allows us to earn fees for providing services to the property funds; and
 
•     provides us an opportunity to earn incentive performance participation income based on the investors’ returns over a specified period.
 
Investments
 
As of December 31, 2009, we had investments in and advances to 15 property funds totaling $1.9 billion with ownership interests ranging from 20% to 50%. These investments are in North America — 12 aggregating $1,010.2 million; Europe — 2 aggregating $845.0 million; and Asia — 1 with $21.4 million. These property funds own, on a combined basis, 1,287 distribution properties aggregating 274.2 million square feet with a total entity investment (not our proportionate share) in operating properties of $19.5 billion. Also included in this segment are certain industrial joint ventures, which we manage and that own 92 operating properties with 10.0 million square feet all located in North America.
 
Results of Operations
 
We recognize our proportionate share of the earnings or losses from our investments in unconsolidated property funds and certain joint ventures that are accounted for under the equity method. In addition, we recognize fees and incentives earned for services performed on behalf of these and other entities. We provide services to these entities, which may include property management, asset management, leasing, acquisition, financing and development services. We may also earn incentives from our property funds depending on the return provided to the fund partners over a specified period.
 
We report the costs associated with our investment management segment as a separate line item Investment Management Expenses in our Consolidated Statements of Operations. These costs include the direct expenses associated with the asset management of the property funds provided by 40 individuals (as of December 31, 2009 and as discussed below) who are assigned to our investment management segment. In addition, in order to achieve efficiencies and economies of scale, all of our property management functions are provided by a team of professionals who are assigned to our direct owned segment. These individuals perform the property-level management of the properties we own and the properties we manage that are owned by the unconsolidated investees. We allocate the costs of our property management function to the properties we own (reported in Rental Expenses) and the properties owned by the unconsolidated investees (included in Investment Management Expenses), by using the square feet owned at the beginning of the period by the respective portfolios. For 2009, we allocated approximately 55% of our total property management costs to the investment management segment.
 
Market Presence
 
At December 31, 2009, the property funds on a combined basis owned 1,287 properties aggregating 274.2 million square feet located in 45 markets in 3 countries in North America (Canada, Mexico and the United States), 35 markets in 12 countries in Europe (Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden, and the United Kingdom) and 2 markets in 1 country in Asia (South Korea). The industrial joint ventures included in this segment are located in the United States and operate 92 industrial properties with 10.0 million square feet that we manage, including one joint venture that is not accounted for on the equity method. See further detail in “Item 2 Unconsolidated Investees”.


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Competition
 
As the manager of the property funds, we compete with other fund managers for institutional capital. As the manager of the properties owned by the property funds, we compete with other industrial properties located in close proximity to the properties owned by the property funds. The amount of rentable distribution space available and its current occupancy in any market could have a material effect on the ability to rent space and on the rents that can be charged by the fund properties. We believe we have competitive advantages as discussed above in “Operating Segments — Direct Owned”.
 
Property Management
 
We manage the properties owned by unconsolidated investees utilizing our leasing and property management experience from the employees who are in our direct owned segment. Our business strategy includes a customer service focus that enables us to provide responsive, professional and effective property management services at the local level. To enhance our management services, we have developed and implemented proprietary operating and training systems to achieve consistent levels of performance and professionalism and to enable our property management team to give the proper level of attention to our customers.
 
Customers
 
As in our direct owned segment, we have developed a customer base in the property funds and joint ventures that is diverse in terms of industry concentration and represents a broad spectrum of international, national, regional and local distribution space users. At December 31, 2009, our unconsolidated investees, on a combined basis, had 2,153 customers occupying 254.9 million square feet of distribution space. The largest customer, and 25 largest customers of our unconsolidated investees, on a combined basis, accounted for 4.0% and 27.3%, respectively, of the total combined annualized collected base rents at December 31, 2009. In addition, in this segment we consider our fund partners to also be our customers. As of December 31, 2009 in our private property funds, we partnered with 42 investors, several of which invest in multiple funds.
 
Employees
 
The property funds generally have no employees of their own. We have assigned 40 employees directly to the asset management of the property funds in our investment management segment. As discussed above, we have employees in our direct owned segment that are responsible for the property management functions we provide for the properties owned by the property funds, as well as the properties we own. We have 450 employees who work in corporate positions and are not assigned to a segment who also assist with these activities as well.
 
Future Plans
 
We expect to continue to increase our investments in property funds. We expect to achieve these increases through the existing property funds’ acquisition of properties from us, or from third parties, depending on market factors and available capacity, or through the creation of new property funds. We expect the fee income we earn from the property funds and our proportionate share of net earnings of the property funds will increase as the size and value of the portfolios owned by the property funds grows and as more equity is deployed in the funds. We will continue to explore our options related to both new and existing property funds.
 
Our Management
 
Our executive team is led by our Chief Executive Officer, Walter C. Rakowich, who also serves as a member of our Board of Trustees (the “Board”) and an Executive Committee of eleven people, as follows:
 
Executive Committee
 
Walter C. Rakowich* — 52 — Chief Executive Officer of ProLogis since November 2008. Mr. Rakowich was ProLogis’ President and Chief Operating Officer from January 2005 to November 2008 and ProLogis’ Chief


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Financial Officer from December 1998 to September 2005. Mr. Rakowich has been with ProLogis in various capacities since July 1994. Prior to joining ProLogis, Mr. Rakowich was a consultant to ProLogis in the area of due diligence and acquisitions, and he was a principal with Trammell Crow Company, a diversified commercial real estate company in North America. Mr. Rakowich served on the Board from August 2004 to May 2008 and was reappointed to the Board in November 2008.
 
Gary E. Anderson — 44 — Head of Global Investment Management since March 2009, where he is responsible for managing ProLogis’ property funds as well as raising additional private capital for our investment management business. Mr. Anderson also serves on the board of directors of ProLogis European Properties (“PEPR”), one of our unconsolidated investees that is publicly traded on the Euronext stock exchange in Amsterdam. Mr. Anderson was President of Europe and the Middle East, as well as Chairman of ProLogis’ European Operating Committee from November 2006 to March 2009. Mr. Anderson was the Managing Director responsible for investments and development in ProLogis’ Central and Mexico Regions from May 2003 to November 2006 and has been with ProLogis in various capacities since August 1994. Prior to joining ProLogis, Mr. Anderson was in the management development program of Security Capital Group, a real estate holding company.
 
Ted R. Antenucci* — 45 — President and Chief Investment Officer since May 2007. Mr. Antenucci also serves on the board of directors of PEPR, one of our unconsolidated investees that is publicly traded on the Euronext stock exchange in Amsterdam. Mr. Antenucci was ProLogis’ President of Global Development from September 2005 to May 2007. From September 2001 to September 2005, Mr. Antenucci was president of Catellus Commercial Development Corporation, an industrial and retail real estate company that was merged with ProLogis in September 2005. Mr. Antenucci was with affiliates of Catellus Commercial Development Corporation in various capacities from April 1999 to September 2001.
 
Philip N. Dunne — 41 — President — Europe since July 2009, where he is responsible for all aspects of ProLogis’ business performance in Continental Europe and the United Kingdom, including investments and development. He is also Chairman of ProLogis’ European Management Executive Committee. Prior to this, Mr. Dunne was Chief Operating Officer, Europe and the Middle East. Prior to joining ProLogis on December 1, 2008, Mr. Dunne was the Chief Operating Officer — EMEA at Jones Lang LaSalle, a global financial and professional services firm specializing in real estate services and investment management.
 
Larry H. Harmsen — 47 — President — United States and Canada since February 2009, where he is responsible for all aspects of business performance for ProLogis’ U.S. and Canada operations. He has been responsible for capital deployment in North America since July 2005. Previous to this and since 2003, Mr. Harmsen had been responsible for capital deployment in North America’s Pacific Region. Prior to this and since 1995, Mr. Harmsen oversaw ProLogis’ Southern California market. Prior to joining ProLogis, Mr. Harmsen was a vice president and general partner of Lincoln Property Company for 10 years.
 
John P. Morland — 51 — Managing Director — Global Human Resources since October 2006, where he is responsible for strategic human resources initiatives to align ProLogis’ human capital strategy with overall business activities. Prior to joining ProLogis, Mr. Morland was the Global Head of Compensation at Barclays Global Investors at its San Francisco headquarters from April 2000 to March 2005.
 
Edward S. Nekritz* — 44 — General Counsel of ProLogis since December 1998, Secretary of ProLogis since March 1999 and Head of Global Strategic Risk Management since March 2009. Mr. Nekritz oversees the provision of all legal services and strategic risk management for ProLogis. Mr. Nekritz is also responsible for ProLogis Investment Services Group, which handles all aspects of contract negotiations, real estate and corporate due diligence and closings on acquisitions, dispositions and financings. Mr. Nekritz has been with ProLogis in various capacities since September 1995. Prior to joining ProLogis, Mr. Nekritz was an attorney with Mayer, Brown & Platt (now Mayer Brown LLP).
 
John R. “Jack” Rizzo — 60 — Chief Sustainability Officer and Head of Global Construction for ProLogis since 2009, where he is responsible for implementing our global sustainability initiatives and for maintaining our leadership position in business excellence, environmental stewardship and corporate social responsibility.


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Mr. Rizzo is also responsible for all new industrial development projects worldwide. Mr. Rizzo has been with ProLogis since 1999. Prior to joining ProLogis, Mr. Rizzo was Senior Vice President and Chief Operating Officer of Perini Management Services, Inc., an affiliate of Perini Corporation, a global construction management and general contracting firm, and was responsible for international construction operations.
 
Charles E. Sullivan — 52 — Head of Global Operations since February 2009 where he has overall responsibility for global operations, including property management, leasing, information technology and marketing. Mr. Sullivan was Managing Director of ProLogis with overall responsibility for operations in North America from October 2006 to February 2009 and has been with ProLogis in various capacities since October 1994. Prior to joining ProLogis, Mr. Sullivan was an industrial broker with Cushman & Wakefield of Florida, a real estate brokerage and services company.
 
William E. Sullivan* — 55 — Chief Financial Officer since April 2007. Prior to joining ProLogis, Mr. Sullivan was the founder and president of Greenwood Advisors, Inc., a financial consulting and advisory firm focused on providing strategic planning and implementation services to small and mid-cap companies since 2005. From 2001 to 2005, Mr. Sullivan was chairman and chief executive officer of SiteStuff, an online procurement company serving the real estate industry and he continued as their chairman through June 2007.
 
Mike Yamada — 56 — President-Japan since February 2009 where he is responsible for all aspects of business performance for ProLogis’ Japan operations. Mr. Yamada was Japan Co-President from March 2006 to February 2009, where he was responsible for development and leasing activities in Japan and a Managing Director with ProLogis from December 2004 to March 2006 with similar responsibilities in Japan. He has been with ProLogis in various capacities since April 2002. Prior to joining ProLogis, Mr. Yamada was a senior officer of Fujita Corporation, a construction company in Japan.
 
* These individuals are our Executive Officers under Item 401 of Regulation S-K.
 
In addition to the leadership and oversight provided by our executive committee, in the United States, a regional director leads each of our four regions (Midwest, East, West and Southwest), and is responsible for both operations and capital deployment. In Europe, each of the four regions (Northern Europe, Central and Eastern Europe, Southern Europe and the United Kingdom) are led by either one or two individuals responsible for operations and capital deployment. Japan, Mexico and South Korea each have one individual who is responsible for operations and capital deployment.
 
We maintain a Code of Ethics and Business Conduct applicable to our Board and all of our officers and employees, including the principal executive officer, the principal financial officer and the principal accounting officer, or persons performing similar functions. A copy of our Code of Ethics and Business Conduct is available on our website, www.prologis.com. In addition to being accessible through our website, copies of our Code of Ethics and Business Conduct can be obtained, free of charge, upon written request to Investor Relations, 4545 Airport Way, Denver, Colorado 80239. Any amendments to or waivers of our Code of Ethics and Business Conduct that apply to the principal executive officer, the principal financial officer, or the principal accounting officer, or persons performing similar functions, and that relate to any matter enumerated in Item 406(b) of Regulation S-K, will be disclosed on our website.
 
Capital Management, Customer Service and Capital Deployment
 
We have a team of professionals dedicated to managing and leasing all the properties in our portfolio, which includes both direct-owned properties and those owned by the property funds that we manage. Our marketing team comprises a network of regional directors, market officers and property managers who are directly responsible for understanding and meeting the needs of existing and prospective customers in their respective markets.
 
Our marketing team works closely with our Global Solutions Group to identify and accommodate customers with multiple market requirements. The Global Solutions Group’s primary focus is to position us as the preferred provider of distribution space to large users of industrial distribution space. The professionals in our


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Global Solutions Group also seek to build long-term relationships with our existing customers by addressing their international distribution and logistics needs. The Global Solutions Group provides our customers with outsourcing options for network optimization tools, strategic site selection assistance, business location services, material handling equipment and design consulting services. The integration of our local market expertise with our global platform enables us to better serve customers throughout all of our markets.
 
Our network of regional directors and market officers also leads our capital deployment efforts. They are responsible for deploying our capital resources in an efficient and productive manner that will best serve our long-term objective of increasing shareholder value. They evaluate acquisition, disposition and development opportunities in light of market conditions in their respective markets and regions, and they work closely with the Global Development Group to, among other things, create master-planned distribution parks utilizing the extensive experience of the Global Development Group. The Global Development Group incorporates the latest technology with respect to building design and systems and has developed standards and procedures to which we strictly adhere in the development of all properties to ensure that properties we develop are of a consistent quality.
 
We strive to build in accordance with the accepted green building rating system in all of our regions of operation. Beginning in 2008, all of our new developments in the United States comply with the U.S. Green Building Council’s standards for Leadership in Energy and Environmental Design (LEED®). In the United Kingdom, since 2008, we have been committed to developing any new properties to achieve at least a “Very Good” rating in accordance with the Building Research Establishment’s Environmental Assessment Method (BREEAM). In Japan, many of our facilities comply with the Comprehensive Assessment System for Building Environmental Efficiency (CASBEE). Where rating systems do not exist, we implement best practices learned from developing sustainable buildings across our global portfolio. In total, counting all three rating systems, ProLogis has 55 buildings with 23.8 million square feet (2.2 million square meters) of development registered or certified as green buildings.
 
Environmental Matters
 
We are exposed to various environmental risks that may result in unanticipated losses that could affect our operating results and financial condition. Either the previous owners or we subjected a majority of the properties we have acquired, including land, to environmental reviews. While some of these assessments have led to further investigation and sampling, none of the environmental assessments has revealed an environmental liability that we believe would have a material adverse effect on our business, financial condition or results of operations. See Note 19 to our Consolidated Financial Statements in Item 8 and “Item 1A Risk Factors”.
 
Insurance Coverage
 
We carry insurance coverage on our properties. We determine the type of coverage and the policy specifications and limits based on what we deem to be the risks associated with our ownership of properties and our business operations in specific markets. Such coverages include property damage and rental loss insurance resulting from such perils as fire, additional perils as covered under an extended coverage policy, named windstorm, flood, earthquake and terrorism; commercial general liability insurance; and environmental insurance. Insurance is maintained through a combination of commercial insurance, self insurance and through a wholly-owned captive insurance entity. We believe that our insurance coverage contains policy specifications and insured limits that are customary for similar properties, business activities and markets and we believe our properties are adequately insured. However, an uninsured loss could result in loss of capital investment and anticipated profits.


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ITEM 1A. Risk Factors
 
Our operations and structure involve various risks that could adversely affect our financial condition, results of operations, distributable cash flow and the value of our common shares. These risks include, among others:
 
General
 
The current market disruptions may adversely affect our operating results and financial condition.
 
The global financial markets have been undergoing pervasive and fundamental disruptions since the third quarter of 2008. The continuation or intensification of such volatility may lead to additional adverse impacts on the general availability of credit to businesses and could lead to a further weakening of the U.S. and global economies. To the extent that turmoil in the financial markets continues and/or intensifies, it has the potential to materially affect the value of our properties and our investments in our unconsolidated investees, the availability or the terms of financing that we and our unconsolidated investees have or may anticipate utilizing, our ability and that of our unconsolidated investees to make principal and interest payments on, or refinance, any outstanding debt when due and/or may impact the ability of our customers to enter into new leasing transactions or satisfy rental payments under existing leases.
 
The market volatility has made the valuation of our properties and those of our unconsolidated investees more difficult. There may be significant uncertainty in the valuation, or in the stability of the value, of our properties and those of our unconsolidated investees, that could result in a substantial decrease in the value of our properties and those of our unconsolidated investees.
 
As a result, we may not be able to recover the current carrying amount of our properties, our investments in and advances to our unconsolidated investees and/or goodwill, which may require us to recognize an impairment charge in earnings in addition to the charges we recognized in 2009 and 2008. Additionally, certain of the fees we generate from our unconsolidated investees are dependent upon the value of the properties held by the investees or the level of contributions we make to the investees. Therefore, property value decreases have impacted and may continue to impact certain fees paid to us by our unconsolidated investees.
 
The pervasive and fundamental disruptions that the global financial markets have been experiencing has led to extensive and unprecedented governmental intervention. It is impossible to predict what, if any, additional interim or permanent governmental restrictions and/or increased regulation may be imposed on the financial markets and/or the effect of such restrictions and regulations on us and our results of operations.
 
General Real Estate Risks
 
General economic conditions and other events or occurrences that affect areas in which our properties are geographically concentrated, may impact financial results.
 
We are exposed to the general economic conditions, the local, regional, national and international economic conditions and other events and occurrences that affect the markets in which we own properties. Our operating performance is further impacted by the economic conditions of the specific markets in which we have concentrations of properties. Approximately 24.3% of our direct owned operating properties (based on our investment before depreciation) are located in California. Properties in California may be more susceptible to certain types of natural disasters, such as earthquakes, brush fires, flooding and mudslides, than properties located in other markets and a major natural disaster in California could have a material adverse effect on our operating results. We also have significant holdings (defined as more than 3.0% of our total investment before depreciation in direct owned operating properties), in certain markets located in Atlanta, Chicago, Dallas/Fort Worth, New Jersey and Japan. Our operating performance could be adversely affected if conditions become less favorable in any of the markets in which we have a concentration of properties. Conditions such as an oversupply of distribution space or a reduction in demand for distribution space, among other factors, may impact operating conditions. Any material oversupply of distribution space or material reduction in


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demand for distribution space could adversely affect our results of operations, distributable cash flow and the value of our securities. In addition, the property funds and joint ventures in which we have an ownership interest have concentrations of properties in the same markets mentioned above, as well as Pennsylvania, Reno, France, Germany, Poland and the United Kingdom and are subject to the economic conditions in those markets.
 
Real property investments are subject to risks that could adversely affect our business.
 
Real property investments are subject to varying degrees of risk. While we seek to minimize these risks through geographic diversification of our portfolio, market research and our property management capabilities, these risks cannot be eliminated. Some of the factors that may affect real estate values include:
 
•     local conditions, such as an oversupply of distribution space or a reduction in demand for distribution space in an area;
 
•     the attractiveness of our properties to potential customers;
 
•     competition from other available properties;
 
•     our ability to provide adequate maintenance of, and insurance on, our properties;
 
•     our ability to control rents and variable operating costs;
 
•     governmental regulations, including zoning, usage and tax laws and changes in these laws; and
 
•     potential liability under, and changes in, environmental, zoning and other laws.
 
Our investments are concentrated in the industrial distribution sector and our business would be adversely affected by an economic downturn in that sector or an unanticipated change in the supply chain dynamics.
 
Our investments in real estate assets are primarily concentrated in the industrial distribution sector. This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities were more diversified.
 
Our real estate development strategies may not be successful.
 
We have developed a significant number of industrial properties since our inception. In late 2008, we scaled back our development activities in response to current economic conditions and, in 2009, we have resumed development activity in a selective manner through build-to-suit transactions on our land, including opportunities to use development capital or take out commitments from one of our partners or customers.
 
As of December 31, 2009, we had 163 completed development properties that were 62.2% leased (19.1 million square feet of unleased space) and we had 5 industrial properties under development that were 100.0% leased. As of December 31, 2009, we had approximately $307.8 million of costs remaining to be spent related to our development portfolio to complete the development and lease the space in these properties.
 
Additionally as of December 31, 2009, we had 10,360 acres of land with a current investment of $2.6 billion for potential future development of industrial properties or other commercial real estate projects or for sale to third parties. Within our land positions, we have concentrations in many of the same markets as our operating properties. Approximately 16.8% of our land (based on the current investment balance) is in the United Kingdom. During 2009, we recorded impairment charges of $137.0 million, due to the decrease in current estimated fair value of the land and increased probability that we will dispose of certain land parcels rather than develop as previously planned. We will look to monetize the land in the future through sale to third parties, development of industrial properties to hold for long-term investment or sale to an unconsolidated investee for development, depending on market conditions, our liquidity needs and other factors.


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We will be subject to risks associated with such development, leasing and disposition activities, all of which may adversely affect our results of operations and available cash flow, including, but not limited to:
 
•     the risk that we may not be able to lease the available space in our recently completed developments at rents that are sufficient to be profitable;
 
•     the risk that we will seek to sell certain land parcels and we will not be able to find a third party to acquire such land or that the sales price will not allow us to recover our investment, resulting in additional impairment charges;
 
•     the risk that development opportunities explored by us may be abandoned and the related investment will be impaired;
 
•     the risk that we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, building, occupancy and other governmental permits and authorizations;
 
•     the risk that due to the increased cost of land, our activities may not be as profitable;
 
•     the risk that construction costs of a property may exceed the original estimates, or that construction may not be concluded on schedule, making the project less profitable than originally estimated or not profitable at all; including the possibility of contract default, the effects of local weather conditions, the possibility of local or national strikes by construction-related labor and the possibility of shortages in materials, building supplies or energy and fuel for equipment; and
 
•     the risk that occupancy levels and the rents that can be earned for a completed project will not be sufficient to make the project profitable.
 
Our business strategy to provide liquidity to reduce debt by contributing properties to property funds or disposing of properties to third parties may not be successful.
 
Our ability to contribute or sell properties on advantageous terms is affected by competition from other owners of properties that are trying to dispose of their properties; current market conditions, including the capitalization rates applicable to our properties; and other factors beyond our control. The property funds or third parties who might acquire our properties may need to have access to debt and equity capital, in the private and public markets, in order to acquire properties from us. Should the property funds or third parties have limited or no access to capital on favorable terms, then contributions and dispositions could be delayed resulting in adverse effects on our liquidity, results of operations, distributable cash flow, debt covenant ratios, and the value of our securities.
 
We may acquire properties, which involves risks that could adversely affect our operating results and the value of our securities.
 
We may acquire industrial properties in our direct owned segment. The acquisition of properties involves risks, including the risk that the acquired property will not perform as anticipated and that any actual costs for rehabilitation, repositioning, renovation and improvements identified in the pre-acquisition due diligence process will exceed estimates. There is, and it is expected there will continue to be, significant competition for properties that meet our investment criteria as well as risks associated with obtaining financing for acquisition activities.
 
Our operating results and distributable cash flow will depend on the continued generation of lease revenues from customers.
 
Our operating results and distributable cash flow would be adversely affected if a significant number of our customers were unable to meet their lease obligations. We are also subject to the risk that, upon the expiration of leases for space located in our properties, leases may not be renewed by existing customers, the space may not be re-leased to new customers or the terms of renewal or re-leasing (including the cost of required


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renovations or concessions to customers) may be less favorable to us than current lease terms. In the event of default by a significant number of customers, we may experience delays and incur substantial costs in enforcing our rights as landlord. A customer may experience a downturn in its business, which may cause the loss of the customer or may weaken its financial condition, resulting in the customer’s failure to make rental payments when due or requiring a restructuring that might reduce cash flow from the lease. In addition, a customer may seek the protection of bankruptcy, insolvency or similar laws, which could result in the rejection and termination of such customer’s lease and thereby cause a reduction in our available cash flow.
 
Our ability to renew leases or re-lease space on favorable terms as leases expire significantly affects our business.
 
Our results of operations, distributable cash flow and the value of our securities would be adversely affected if we were unable to lease, on economically favorable terms, a significant amount of space in our operating properties. We have 28.4 million square feet of industrial and retail space (out of a total of 155.2 million occupied square feet representing 15.3% of total annual base rents) with leases that expire in 2010, including 4.4 million square feet of leases that are on a month-to-month basis. In addition, our unconsolidated investees have a combined 37.4 million square feet of industrial space (out of a total 254.9 million occupied square feet representing 13.0% of total annual base rent) with leases that expire in 2010, including 5.5 million square feet of leases that are on a month-to-month basis. The number of industrial and retail properties in a market or submarket could adversely affect both our ability to re-lease the space and the rental rates that can be obtained in new leases.
 
Real estate investments are not as liquid as other types of assets, which may reduce economic returns to investors.
 
Real estate investments are not as liquid as other types of investments and this lack of liquidity may limit our ability to react promptly to changes in economic or other conditions. In addition, significant expenditures associated with real estate investments, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investments. Like other companies qualifying as REITs under the Code, we are only able to hold property for sale in the ordinary course of business through taxable REIT subsidiaries in order to avoid punitive taxation on the gain from the sale of such property. While we are planning to dispose of certain properties that have been held for investment in order to generate liquidity, if we do not satisfy certain safe harbors or if we believe there is too much risk of incurring the punitive tax on the gain from the sale, we may not pursue such sales.
 
Our insurance coverage does not include all potential losses.
 
We and our unconsolidated investees currently carry insurance coverage including property damage and rental loss insurance resulting from such perils as fire, additional perils as covered under an extended coverage policy, named windstorm, flood, earthquake and terrorism; commercial general liability insurance; and environmental insurance, as appropriate for the markets where each of our properties and business operations are located. The insurance coverage contains policy specifications and insured limits customarily carried for similar properties, business activities and markets. We believe our properties and the properties of our unconsolidated investees, including the property funds, are adequately insured. However, there are certain losses, including losses from floods, earthquakes, acts of war, acts of terrorism or riots, that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, we could experience a significant loss of capital invested and potential revenues in these properties and could potentially remain obligated under any recourse debt associated with the property.
 
We are exposed to various environmental risks that may result in unanticipated losses that could affect our operating results and financial condition.
 
Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic


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substances. The costs of removal or remediation of such substances could be substantial. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such hazardous substances.
 
A majority of the properties we acquire are subjected to environmental reviews either by us or by the predecessor owners. In addition, we may incur environmental remediation costs associated with certain land parcels we acquire in connection with the development of the land. In connection with the merger in 2005 with Catellus Development Corporation (“Catellus”), we acquired certain properties in urban and industrial areas that may have been leased to, or previously owned by, commercial and industrial companies that discharged hazardous materials. We established a liability at the time of acquisition to cover such costs. We adjust the liabilities, as appropriate, when additional information becomes available. We purchase various environmental insurance policies to mitigate our exposure to environmental liabilities. We are not aware of any environmental liability that we believe would have a material adverse effect on our business, financial condition or results of operations.
 
We cannot give any assurance that other such conditions do not exist or may not arise in the future. The presence of such substances on our real estate properties could adversely affect our ability to lease or sell such properties or to borrow using such properties as collateral and may have an adverse effect on our distributable cash flow.
 
We are exposed to the potential impacts of future climate change and climate-change related risks
 
We consider that we are exposed to potential physical risks from possible future changes in climate. Our distribution facilities may be exposed to rare catastrophic weather events, such as severe storms and/or floods. If the frequency of extreme weather events increases due to climate change, our exposure to these events could increase.
 
We do not currently consider our company to be exposed to regulatory risks related to climate change, as our operations do not emit a significant amount of greenhouse gases. However, we may be adversely impacted as a real estate developer in the future by stricter energy efficiency standards for buildings.
 
Risks Related to Financing and Capital
 
Our operating results and financial condition could be adversely affected if we are unable to make required payments on our debt or are unable to refinance our debt.
 
We are subject to risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. There can be no assurance that we will be able to refinance any maturing indebtedness, that such refinancing would be on terms as favorable as the terms of the maturing indebtedness, or we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flow and our financial condition would be adversely affected and, if the maturing debt is secured, the lender may foreclose on the property securing such indebtedness. Our credit facilities and certain other debt bears interest at variable rates. Increases in interest rates would increase our interest expense under these agreements. In addition, our unconsolidated investees have short-term debt that was used to acquire properties from us or third parties and other maturing indebtedness. If these investees are unable to refinance their indebtedness or meet their payment obligations, it may impact our distributable cash flow and our financial condition and/or we may be required to recognize impairment charges to our investments similar to those we recognized in 2009.
 
Covenants in our credit agreements could limit our flexibility and breaches of these covenants could adversely affect our financial condition.
 
The terms of our various credit agreements, including our credit facilities, the indenture under which our senior notes are issued and other note agreements, require us to comply with a number of customary financial


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covenants, such as maintaining debt service coverage, leverage ratios, fixed charge ratios and other operating covenants including maintaining insurance coverage. In addition, our credit facility contains various covenants and certain borrowing limitations based on the value of our unencumbered property pool (as defined in the agreement). These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness. If we default under our covenant provisions and are unable to cure the default, refinance our indebtedness or meet our payment obligations, the amount of our distributable cash flow and our financial condition would be adversely affected.
 
Federal Income Tax Risks
 
Failure to qualify as a REIT could adversely affect our cash flows.
 
We have elected to be taxed as a REIT under the Code commencing with our taxable year ended December 31, 1993. In addition, we have a consolidated subsidiary that has elected to be taxed as a REIT and certain unconsolidated investees that are REITs and are subject to all the risks pertaining to the REIT structure, discussed herein. To maintain REIT status, we must meet a number of highly technical requirements on a continuing basis. Those requirements seek to ensure, among other things, that the gross income and investments of a REIT are largely real estate related, that a REIT distributes substantially all of its ordinary taxable income to shareholders on a current basis and that the REIT’s equity ownership is not overly concentrated. Due to the complex nature of these rules, the available guidance concerning interpretation of the rules, the importance of ongoing factual determinations and the possibility of adverse changes in the law, administrative interpretations of the law and changes in our business, no assurance can be given that we, or our REIT subsidiaries, will qualify as a REIT for any particular period.
 
If we fail to qualify as a REIT, we will be taxed as a regular corporation, and distributions to shareholders will not be deductible in computing our taxable income. The resulting corporate income tax liabilities could materially reduce our cash flow and funds available for dividends and/or reinvestment. Moreover, we might not be able to elect to be treated as a REIT for the four taxable years after the year during which we ceased to qualify as a REIT. In addition, if we later requalified as a REIT, we might be required to pay a full corporate-level tax on any unrealized gains in our assets as of the date of requalification, or upon subsequent disposition, and to make distributions to our shareholders equal to any earnings accumulated during the period of non-REIT status.
 
REIT distribution requirements could adversely affect our financial condition.
 
To maintain qualification as a REIT under the Code, generally a REIT must annually distribute to its shareholders at least 90% of its REIT taxable income, computed without regard to the dividends paid deduction and net capital gains. This requirement limits our ability to accumulate capital and, therefore, we may not have sufficient cash or other liquid assets to meet the distribution requirements. Difficulties in meeting the distribution requirements might arise due to competing demands for our funds or to timing differences between tax reporting and cash receipts and disbursements, because income may have to be reported before cash is received or because expenses may have to be paid before a deduction is allowed. In addition, the Internal Revenue Service (the “IRS”) may make a determination in connection with the settlement of an audit by the IRS that increases taxable income or disallows or limits deductions taken thereby increasing the distribution we are required to make. In those situations, we might be required to borrow funds or sell properties on adverse terms in order to meet the distribution requirements and interest and penalties could apply, which could adversely affect our financial condition. If we fail to make a required distribution, we would cease to qualify as a REIT.
 
Prohibited transaction income could result from certain property transfers.
 
We contribute properties to property funds and sell properties to third parties from the REIT and from taxable REIT subsidiaries (“TRS”). Under the Code, a disposition of a property from other than a TRS could be deemed a prohibited transaction. In such case, a 100% penalty tax on the resulting gain could be assessed. The determination that a transaction constitutes a prohibited transaction is based on the facts and circumstances


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surrounding each transaction. The IRS could contend that certain contributions or sales of properties by us are prohibited transactions. While we do not believe the IRS would prevail in such a dispute, if the IRS successfully argued the matter, the 100% penalty tax could be assessed against the gains from these transactions, which may be significant.
 
Additionally, any gain from a prohibited transaction may adversely affect our ability to satisfy the income tests for qualification as a REIT.
 
Liabilities recorded for pre-existing tax audits may not be sufficient.
 
We are subject to a pending audit by the IRS for the 2003 through 2005 income tax returns of Catellus, including certain of its subsidiaries and partnerships. We have recorded an accrual for the liabilities that may arise from these audits. See Note 15 to our Consolidated Financial Statements in Item 8. The finalization of the remaining audits may result in an adjustment in which the actual liabilities or settlement costs, including interest and potential penalties, if any, may prove to be more than the liability we have recorded.
 
Uncertainties relating to Catellus’ estimate of its “earnings and profits” attributable to C-corporation taxable years may have an adverse effect on our distributable cash flow.
 
In order to qualify as a REIT, a REIT cannot have at the end of any REIT taxable year any undistributed earnings and profits that are attributable to a C-corporation taxable year. A REIT has until the close of its first full taxable year as a REIT in which it has non-REIT earnings and profits to distribute these accumulated earnings and profits. Because Catellus’ first full taxable year as a REIT was 2004, Catellus was required to distribute these earnings and profits prior to the end of 2004. Failure to meet this requirement would result in Catellus’ disqualification as a REIT. Catellus distributed its accumulated non-REIT earnings and profits in December 2003, well in advance of the 2004 year-end deadline, and believed that this distribution was sufficient to distribute all of its non-REIT earnings and profits. However, the determination of non-REIT earnings and profits is complicated and depends upon facts with respect to which Catellus may have less than complete information or the application of the law governing earnings and profits, which is subject to differing interpretations, or both. Consequently, there are substantial uncertainties relating to the estimate of Catellus’ non-REIT earnings and profits, and we cannot be assured that the earnings and profits distribution requirement has been met. These uncertainties include the possibility that the IRS could upon audit, as discussed above, increase the taxable income of Catellus, which would increase the non-REIT earnings and profits of Catellus. There can be no assurances that we have satisfied the requirement that Catellus distribute all of its non-REIT earnings and profits by the close of its first taxable year as a REIT, and therefore, this may have an adverse effect on our distributable cash flow.
 
There are potential deferred and contingent tax liabilities that could affect our operating results or financial condition.
 
Palmtree Acquisition Corporation, our subsidiary that was the surviving corporation in the merger with Catellus in 2005, is subject to a federal corporate level tax at the highest regular corporate rate (currently 35%) and potential state taxes on any gain recognized within ten years of Catellus’ conversion to a REIT from a disposition of any assets that Catellus held at the effective time of its election to be a REIT, but only to the extent of the built-in-gain based on the fair market value of those assets on the effective date of the REIT election (which was January 1, 2004). Gain from a sale of an asset occurring more than 10 years after the REIT conversion will not be subject to this corporate-level tax. We do not currently expect to dispose of any asset of the surviving corporation in the merger if such disposition would result in the imposition of a material tax liability unless we can affect a tax-deferred exchange of the property. However, certain assets are subject to third party purchase options that may require us to sell such assets, and those assets may carry deferred tax liabilities that would be triggered on such sales. We have recorded deferred tax liabilities related to these built-in-gains. There can be no assurances that our plans in this regard will not change and, if such plans do change or if a purchase option is exercised, that we will be successful in structuring a tax-deferred exchange.


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Other Risks
 
We are dependent on key personnel.
 
Our executive and other senior officers have a significant role in our success. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely affect our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.
 
Share prices may be affected by market interest rates.
 
Our current quarterly distribution is $0.15 per common share. The annual distribution rate on common shares as a percentage of our market price may influence the trading price of such common shares. An increase in market interest rates may lead investors to demand a higher annual distribution rate than we have set, which could adversely affect the value of our common shares.
 
As a global company, we are subject to social, political and economic risks of doing business in foreign countries.
 
We conduct a significant portion of our business and employ a substantial number of people outside of the United States. During 2009, we generated approximately 34% of our revenue from operations outside the United States, primarily due to proceeds from the sale of our investments in the Japan funds. Circumstances and developments related to international operations that could negatively affect our business, financial condition or results of operations include, but are not limited to, the following factors:
 
•     difficulties and costs of staffing and managing international operations in certain regions;
 
•     currency restrictions, which may prevent the transfer of capital and profits to the United States;
 
•     unexpected changes in regulatory requirements;
 
•     potentially adverse tax consequences;
 
•     the responsibility of complying with multiple and potentially conflicting laws, e.g., with respect to corrupt practices, employment and licensing;
 
•     the impact of regional or country-specific business cycles and economic instability;
 
•     political instability, civil unrest, drug trafficking, political activism or the continuation or escalation of terrorist or gang activities (particularly with respect to our operations in Mexico); and
 
•     foreign ownership restrictions with respect to operations in countries.
 
Although we have committed substantial resources to expand our global development platform, if we are unable to successfully manage the risks associated with our global business or to adequately manage operational fluctuations, our business, financial condition and results of operations could be harmed.
 
In addition, our international operations and, specifically, the ability of our non-U.S. subsidiaries to dividend or otherwise transfer cash among our subsidiaries, including transfers of cash to pay interest and principal on our debt, may be affected by currency exchange control regulations, transfer pricing regulations and potentially adverse tax consequences, among other things.


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The depreciation in the value of the foreign currency in countries where we have a significant investment may adversely affect our results of operations and financial position.
 
We have pursued, and intend to continue to pursue, growth opportunities in international markets where the U.S. dollar is not the national currency. At December 31, 2009, approximately 42% of our total assets are invested in a currency other than the U.S. dollar, primarily the euro, Japanese yen and British pound sterling. As a result, we are subject to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. A significant change in the value of the foreign currency of one or more countries where we have a significant investment may have a material adverse effect on our results of operations and financial position. Although we attempt to mitigate adverse effects by borrowing under debt agreements denominated in foreign currencies and, on occasion and when deemed appropriate, using derivative contracts, there can be no assurance that those attempts to mitigate foreign currency risk will be successful.
 
We are subject to governmental regulations and actions that affect operating results and financial condition.
 
Many laws, including tax laws, and governmental regulations apply to us, our unconsolidated investees and our properties. Changes in these laws and governmental regulations, or their interpretation by agencies or the courts, could occur, which might affect our ability to conduct business.
 
ITEM 1B. Unresolved Staff Comments
 
None.
 
ITEM 2. Properties
 
We have directly invested in real estate assets that are primarily generic industrial properties. In Japan, our industrial properties are generally multi-level centers, which is common in Japan due to the high cost and limited availability of land. Our properties are typically used for storage, packaging, assembly, distribution, and light manufacturing of consumer and industrial products. Based on the square footage of our operating properties in the direct owned segment at December 31, 2009, our properties are 99.5% industrial properties; including 92.1% used for bulk distribution, 6.5% used for light manufacturing and assembly, and 0.9% used for other purposes, primarily service centers, while the remaining 0.5% of our properties are retail.
 
At December 31, 2009, we owned 1,215 operating properties in our direct owned segment; including 1,188 industrial properties located in North America, Europe, and Asia and 27 retail properties in North America. In North America, our properties are located in 32 markets in 19 states in the United States and the District of Columbia, 6 markets in Mexico and 1 market in Canada. Our properties are located in 28 markets in 12 countries in Europe and 6 markets in 2 countries in Asia.
 
Geographic Distribution
 
For this presentation, we define our markets based on the concentration of properties in a specific area. A market, as defined by us, can be a metropolitan area, a city, a subsection of a metropolitan area, a subsection of a city or a region of a state or country.
 
Properties
 
The information in the following tables is as of December 31, 2009 for the operating properties, properties under development and land we own, including 84 buildings owned by entities we consolidate but of which we own less than 100%. All of these assets are included in our direct owned segment. This includes our development portfolio of operating properties we developed or are currently developing. No individual property or group of properties operating as a single business unit amounted to 10% or more of our consolidated total assets at December 31, 2009. No individual property or group of properties operating as a single business unit generated income equal to 10% or more of our consolidated gross revenues for the year


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ended December 31, 2009. These tables do not include properties that are owned by property funds or other unconsolidated investees, which are discussed under “— Unconsolidated Investees”.
 
                                         
                Rentable
    Investment
       
    No. of
    Percentage
    Square
    Before
       
    Bldgs.     Leased (1)     Footage     Depreciation     Encumbrances (2)  
 
Operating properties owned in the direct owned segment at December 31, 2009 (dollars and rentable square footage in thousands):
                                       
Industrial properties:
                                       
North America — by Country, by Market (39 markets)(3):
                                       
United States:
                                       
Atlanta, Georgia
    68         90.24 %       10,523     $ 369,616     $           49,123  
Austin, Texas
    12       98.16 %     870       34,663        
Central Valley, California
    12       88.23 %     4,447       240,753       9,436  
Charlotte, North Carolina
    31       95.95 %     3,623       119,842       35,115  
Chicago, Illinois
    83       93.32 %     18,354       1,007,796       158,710  
Cincinnati, Ohio
    21       59.95 %     3,603       109,735       22,212  
Columbus, Ohio
    30       88.09 %     5,873       225,940       35,388  
Dallas/Fort Worth, Texas
    95       89.63 %     15,032       605,333       66,237  
Denver, Colorado
    26       92.24 %     4,147       221,381       35,241  
El Paso, Texas
    16       93.18 %     2,050       65,009        
Houston, Texas
    65       98.10 %     5,875       215,378       8,735  
I-81 Corridor, Pennsylvania
    10       86.35 %     3,737       194,234        
Indianapolis, Indiana
    30       88.08 %     3,155       115,298       8,147  
Inland Empire, California
    38       89.63 %     16,180       1,280,686       187,045  
Las Vegas, Nevada
    9       67.95 %     1,074       60,671       4,380  
Los Angeles, California
    65       95.78 %     5,464       600,135       67,459  
Louisville, Kentucky
    12       98.67 %     3,261       112,721       3,846  
Memphis, Tennessee
    20       90.14 %     4,661       135,822        
Nashville, Tennessee
    29       97.01 %     2,985       86,206        
New Jersey
    34       94.90 %     6,583       426,525       86,281  
Orlando, Florida
    17       70.96 %     1,916       99,012        
Phoenix, Arizona
    31       73.11 %     2,559       121,935        
Portland, Oregon
    14       97.96 %     1,635       106,514       35,748  
Reno, Nevada
    18       91.72 %     3,213       133,946       10,576  
San Antonio, Texas
    41       93.64 %     3,742       136,937       3,313  
San Francisco (East Bay), California
    46       97.63 %     4,208       280,602       47,243  
San Francisco (South Bay), California
    72       92.67 %     4,447       406,884       34,078  
Seattle, Washington
    2       61.67 %     246       28,479       7,570  
South Florida
    19       63.28 %     1,732       131,678       11,553  
St. Louis, Missouri
    6       68.91 %     686       23,115        
Tampa, Florida
    52       86.27 %     3,565       148,196       8,819  
Washington D.C./Baltimore, Maryland
    28       83.86 %     4,537       232,248       14,328  
Other
    2       80.39 %     367       19,387        
                                         
Subtotal United States
    1,054       89.62 %     154,350       8,096,677       950,583  
                                         
Mexico:
                                       
Guadalajara
    2       14.32 %     269       11,783        
Juarez
    8       51.34 %     947       43,255        
Mexico City
    9       70.49 %     2,301       127,990        
Monterrey
    4       52.37 %     746       32,025        
Reynosa
    4       48.84 %     607       25,687        
Tijuana
    3       74.43 %     692       34,786        
                                         
Subtotal Mexico
    30       60.21 %     5,562       275,526        
                                         
Canada — Toronto
    2       20.91 %     526       43,535        
                                         
Subtotal North America
    1,086       88.00 %     160,438       8,415,738       950,583  
                                         
Europe — by Country (28 markets)(4):
                                       
Czech Republic
    8       30.97 %     2,115       193,666        
France
    12       56.46 %     3,056       232,464        
Germany
    13       65.31 %     2,171       170,010        
Hungary
    4       64.59 %     1,095       63,692        
Italy
    4       17.63 %     1,330       87,405        
Netherlands
    1       0.00 %     273       15,131        


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                Rentable
    Investment
       
    No. of
    Percentage
    Square
    Before
       
    Bldgs.     Leased (1)     Footage     Depreciation     Encumbrances (2)  
 
Poland
    21       36.15 %     5,181       306,520        
Romania
    4       98.22 %     1,154       56,865        
Slovakia
    4       83.81 %     1,245       85,661        
Spain
    3       14.67 %     891       53,716        
Sweden
    1       60.29 %     878       59,417        
United Kingdom
    13       23.32 %     3,162       325,768        
                                         
Subtotal Europe
    88       45.18 %     22,551       1,650,315        
                                         
Asia — by Country (6 markets)(5):
                                       
Japan
    10       71.03 %     8,209       1,434,650       153,818  
Korea
    4       100.00 %     425       44,798       5,185  
                                         
Subtotal Asia
    14       72.45 %     8,634       1,479,448       159,003  
                                         
Total industrial properties
    1,188       82.70 %     191,623       11,545,501       1,109,586  
                                         
Retail properties:
                                       
North America — by Country (3 markets):
                                       
United States
    27       91.54 %     1,014       251,948       4,194  
                                         
Total retail properties
    27       91.54 %     1,014       251,948       4,194  
                                         
Total operating properties owned in the direct owned segment at December 31, 2009
    1,215       82.75 %     192,637     $ 11,797,449     $ 1,113,780  
                                         
 
                                                         
                Properties Under Development  
                            Rentable
          Total
 
    Land Held for Development     No. of
    Percentage
    Square
    Current
    Expected
 
    Acreage     Investment     Bldgs.     Leased (1)     Footage     Investment     Cost (6)  
 
Land held for development and properties under development at December 31, 2009 (dollars and rentable square footage in thousands):
                                                       
North America — by Country, by Market (37 total markets):
                                                       
United States:
                                                       
Atlanta, Georgia
      467     $ 37,454                       $     $  
Austin, Texas
    10       5,475                                
Central Valley, California
    799       23,602                                
Charlotte, North Carolina
    20       3,554                                
Chicago, Illinois
    739       86,876                                
Cincinnati, Ohio
    76       8,182                                
Columbus, Ohio
    233       13,918                                
Dallas, Texas
    470       32,178                                
Denver, Colorado
    94       10,015                                
East Bay, California
    27       25,255                                
El Paso, Texas
    68       4,055                                
Houston, Texas
    122       8,338                                
Indianapolis, Indiana
    91       5,147                                
Inland Empire, California
    466       109,613       1       100.00 %     667       18,729       57,178  
Jacksonville, Florida
    103       18,054                                
Las Vegas, Nevada
    68       34,715                                
Los Angeles, California
    20       41,951                                
Louisville, Kentucky
    13       600                                
Memphis, Tennessee
    159       10,651                                
Nashville, Tennessee
    280       158,815                                
New Jersey
    16       4,195                                
Norfolk, Virginia
    83       10,029                                
Pennsylvania
    307       33,119                                
Phoenix, Arizona
    148       23,755                                
Portland, Oregon
    23       3,172                                
Reno, Nevada
    178       18,459                                
San Antonio, Texas
    55       5,971                                
South Florida
    82       53,631                                
Tampa, Florida
    43       3,695                                
Washington D.C./Baltimore, Maryland
    137       24,050                                

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                Properties Under Development  
                            Rentable
          Total
 
    Land Held for Development     No. of
    Percentage
    Square
    Current
    Expected
 
    Acreage     Investment     Bldgs.     Leased (1)     Footage     Investment     Cost (6)  
 
Mexico:
                                                       
Guadalajara
    48       14,979                                
Juarez
    148       20,532                                
Matamoros
    122       19,599                                
Mexico City
    121       46,068                                
Monterrey
    159       34,048                                
Reynosa
    107       13,053                                
Canada — Toronto
    173       94,298                                
                                                         
Subtotal North America
    6,275       1,061,101       1       100.00 %     667       18,729       57,178  
                                                         
Europe — by Country (35 total markets):
                                                       
Austria
    33       29,401                                
Belgium
    30       13,451                                
Czech Republic
    367       91,655                                
France
    316       79,275                                
Germany
    261       101,879                                
Hungary
    345       86,074                                
Italy
    73       21,801                                
Netherlands
    38       24,725       1       100.00 %     548       33,536       43,436  
Poland
    948       178,623                                
Romania
    90       19,523                                
Slovakia
    117       34,876                                
Spain
    98       67,842       1       100.00 %     861       46,741       62,758  
Sweden
    6       2,139                                
United Kingdom
    1,237       432,368       1       100.00 %     504       11,318       39,370  
                                                         
Subtotal Europe
    3,959       1,183,632       3       100.00 %     1,913       91,595       145,564  
                                                         
Asia — by Country (5 total markets):
                                                       
Japan
    94       288,123       1       100.00 %     350       80,803       92,957  
Korea
    32       36,487                                
                                                         
Subtotal Asia
    126       324,610       1       100.00 %     350       80,803       92,957  
                                                         
Total land held for development and properties under development in the direct owned segment at December 31, 2009
    10,360     $ 2,569,343         5         100.00 %     2,930     $ 191,127       $ 295,699  
                                                         
 
The following is a summary of our direct-owned investments in real estate assets at December 31, 2009:
 
         
    Investment
 
    Before Depreciation
 
    (in thousands)  
 
Industrial and retail properties
  $ 11,797,449  
Land subject to ground leases and other (7)
    385,222  
Properties under development
    191,127  
Land held for development
    2,569,343  
Mixed use properties
    39,090  
Other investments (8)
    233,665  
         
Total
  $           15,215,896  
         
 
 
(1) Represents the percentage leased at December 31, 2009. Operating properties at December 31, 2009 include completed development properties that may be in the initial lease-up phase, which reduces the overall leased percentage (see notes 3, 4 and 5 below for information regarding developed properties).
 
(2) Certain properties are pledged as security under our secured mortgage debt and assessment bonds at December 31, 2009. For purposes of this table, the total principal balance of a debt issuance that is secured by a pool of properties is allocated among the properties in the pool based on each property’s investment balance. In addition to the amounts reflected here, we also have $1.1 million of encumbrances

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related to other real estate assets not included in the direct owned segment. See Schedule III — Real Estate and Accumulated Depreciation to our Consolidated Financial Statements in Item 8 for additional identification of the properties pledged.
 
(3) In North America, includes 67 completed development properties aggregating 21.3 million square feet at a total investment of $1.1 billion that are 76.1% leased and in our development portfolio.
 
(4) In Europe, includes 84 completed development properties aggregating 20.9 million square feet at a total investment of $1.5 billion that are 44.1% leased and in our development portfolio.
 
(5) In Asia, includes 12 completed development properties aggregating 8.4 million square feet at a total investment of $1.5 billion that are 71.8% leased and in our development portfolio.
 
(6) Represents the total expected cost to complete a property under development and may include the cost of land, fees, permits, payments to contractors, architectural and engineering fees, interest, project management costs and other appropriate costs to be capitalized during construction and also leasing costs, rather than the total actual costs incurred to date.
 
(7) Amount represents investments of $314.9 million in land subject to ground leases, an investment of $36.1 million in railway depots, an investment of $29.9 million in parking lots and $4.3 million in solar panels.
 
(8) Other investments include: (i) restricted funds that are held in escrow pending the completion of tax-deferred exchange transactions involving operating properties ($45.6 million); (ii) certain infrastructure costs related to projects we are developing on behalf of others; (iii) costs incurred related to future development projects, including purchase options on land; (iv) costs related to our corporate office buildings, which we occupy; and (v) earnest money deposits associated with potential acquisitions.
 
Unconsolidated Investees
 
At December 31, 2009, our investments in and advances to unconsolidated investees totaled $2.2 billion. The property funds totaled $1.9 billion and the industrial and retail joint ventures totaled $134.0 million at December 31, 2009 and are all included in our investment management segment. The remaining unconsolidated investees totaled $141.1 million at December 31, 2009 and are not included in either of our reportable segments.
 
Investment Management Segment
 
At December 31, 2009, our ownership interests range from 20% to 50% in 15 property funds and several other entities that are presented under the equity method. We act as manager of each of these entities. We also have an ownership interest in a joint venture that we manage and do not account for under the equity method. These entities primarily own or are developing industrial properties.
 
The information provided in the table below (dollars and square footage in thousands) is only for our unconsolidated entities included in this segment with operating industrial properties and represents the total entity, not just our proportionate share. See “Item 1 Business” and Note 6 to our Consolidated Financial Statements in Item 8.
 


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                Rentable
             
    No. of
    No. of
    Square
    Percentage
    Entity’s
 
    Bldgs.     Markets     Footage     Leased     Investment (1)  
 
North America:
                                       
Property funds:
                                       
ProLogis California
      80       2       14,178       94.19 %   $ 700,588  
ProLogis North American Properties Fund I
    35       16       9,033       97.04 %     376,176  
ProLogis North American Properties Fund VI
    21       6       8,384       92.70 %     507,627  
ProLogis North American Properties Fund VII
    29       8       6,205       86.36 %     399,520  
ProLogis North American Properties Fund VIII
    24       8       3,064       94.61 %     193,718  
ProLogis North American Properties Fund IX
    19       7       3,306       70.40 %     191,626  
ProLogis North American Properties Fund X
    29       9       4,191       84.67 %     224,237  
ProLogis North American Properties Fund XI
    12       2       3,616       96.80 %     181,869  
ProLogis North American Industrial Fund
    258       31       49,656       94.85 %     2,948,285  
ProLogis North American Industrial Fund II
    148       31       36,018       89.72 %     2,170,506  
ProLogis North American Industrial Fund III
    120       7       24,693       92.10 %     1,752,896  
ProLogis Mexico Industrial Fund
    72       11       9,144       86.41 %     573,849  
                                         
Property funds
    847       45 (2)     171,488       91.89 %     10,220,897  
Industrial joint ventures(3)
    92       13       10,021       94.47 %     444,985  
                                         
Total North America
    939       46 (2)     181,509       92.03 %     10,665,882  
                                         
Europe — property funds:
                                       
ProLogis European Properties
    232       28       52,978       95.80 %     4,518,277  
ProLogis European Properties Fund II
    196       30       48,041       96.80 %     4,579,539  
                                         
Total Europe
    428       35 (2)     101,019       96.27 %     9,097,816  
                                         
Asia — property funds:
                                       
ProLogis Korea Fund
    12       2       1,734       97.82 %     150,176  
                                         
Total Asia
    12       2 (2)     1,734       97.82 %     150,176  
                                         
Total unconsolidated investees
      1,379         83            284,262            93.57 %   $      19,913,874  
                                         
 
 
(1) Investment represents 100% of the carrying value of the properties, before depreciation, of each entity at December 31, 2009.
 
(2) Represents the total number of markets in each continent on a combined basis.
 
(3) Includes 90 properties that we manage but do not account for under the equity method.
 
ITEM 3. Legal Proceedings
 
From time to time, we and our unconsolidated investees are parties to a variety of legal proceedings arising in the ordinary course of business. We believe that, with respect to any such matters that we are currently a party to, the ultimate disposition of any such matter will not result in a material adverse effect on our business, financial position or results of operations.
 
ITEM 4. Submission of Matters to a Vote of Security Holders
 
Not applicable.

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PART II
 
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information and Holders
 
Our common shares are listed on the NYSE under the symbol “PLD”. The following table sets forth the high and low sale prices, as reported in the NYSE Composite Tape, and distributions per common share, for the periods indicated.
 
                         
    High Sale
    Low Sale
    Per Common Share
 
    Price     Price     Cash Distribution  
 
2008:
                       
First Quarter
  $ 64.00     $ 51.04     $ 0.5175  
Second Quarter
    66.51       53.42       0.5175  
Third Quarter
    54.89       34.61       0.5175  
Fourth Quarter
    39.85       2.20       0.5175  
2009:
                       
First Quarter
  $ 16.68     $ 4.87     $ 0.25  
Second Quarter
    9.77       6.10       0.15  
Third Quarter
    13.30       6.54       0.15  
Fourth Quarter
    15.04       10.76       0.15  
2010:
                       
First Quarter (through February 19)
  $   14.12     $   11.32     $      0.15 (1)
 
 
(1) Declared on February 1, 2010 and payable on February 26, 2010 to holders of record on February 12, 2010.
 
On February 19, 2010, we had approximately 474,204,900 common shares outstanding, which were held of record by approximately 7,900 shareholders.
 
Distributions and Dividends
 
In order to comply with the REIT requirements of the Code, we are generally required to make common share distributions and preferred share dividends (other than capital gain distributions) to our shareholders in amounts that together at least equal (i) the sum of (a) 90% of our “REIT taxable income” computed without regard to the dividends paid deduction and net capital gains and (b) 90% of the net income (after tax), if any, from foreclosure property, minus (ii) certain excess non-cash income. Our common share distribution policy is to distribute a percentage of our cash flow that ensures that we will meet the distribution requirements of the Code and that allows us to maximize the cash retained to meet other cash needs, such as capital improvements and other investment activities.
 
The payment of common share distributions is dependent upon our financial condition, operating results and REIT distribution requirements and may be adjusted at the discretion of the Board during the year.
 
In addition to common shares, we have issued cumulative redeemable preferred shares of beneficial interest. At December 31, 2009, we had three series of preferred shares outstanding (“Series C Preferred Shares”, “Series F Preferred Shares” and “Series G Preferred Shares”). Holders of each series of preferred shares outstanding have limited voting rights, subject to certain conditions, and are entitled to receive cumulative preferential dividends based upon each series’ respective liquidation preference. Such dividends are payable quarterly in arrears on the last day of March, June, September and December. Dividends on preferred shares are payable when, and if, they have been declared by the Board, out of funds legally available for payment of dividends. After the respective redemption dates, each series of preferred shares can be redeemed at our


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option. The cash redemption price (other than the portion consisting of accrued and unpaid dividends) with respect to Series C Preferred Shares is payable solely out of the cumulative sales proceeds of other capital shares of ours, which may include shares of other series of preferred shares. With respect to the payment of dividends, each series of preferred shares ranks on parity with our other series of preferred shares. Annual per share dividends paid on each series of preferred shares were as follows for the periods indicated:
 
                 
    Years Ended December 31,  
    2009     2008  
 
Series C Preferred Shares 
  $   4.27     $   4.27  
Series F Preferred Shares
  $ 1.69     $ 1.69  
Series G Preferred Shares
  $ 1.69     $ 1.69  
 
Pursuant to the terms of our preferred shares, we are restricted from declaring or paying any distribution with respect to our common shares unless and until all cumulative dividends with respect to the preferred shares have been paid and sufficient funds have been set aside for dividends that have been declared for the then-current dividend period with respect to the preferred shares.
 
For more information regarding our distributions and dividends, see Note 11 to our Consolidated Financial Statements in Item 8.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
For information regarding securities authorized for issuance under our equity compensation plans see Notes 11 and 12 to our Consolidated Financial Statements in Item 8.
 
Other Shareholder Matters
 
Other Issuances of Common Shares
 
In 2009, we issued 413,500 common shares, upon exchange of limited partnership units in our majority-owned and consolidated real estate partnerships. These common shares were issued in transactions exempt from registration under Section 4(2) of the Securities Act of 1933.
 
Common Share Plans
 
We have approximately $84.1 million remaining on our Board authorization to repurchase common shares that began in 2001. We have not repurchased our common shares since 2003.
 
See our 2010 Proxy Statement for further information relative to our equity compensation plans.


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ITEM 6. Selected Financial Data
 
The following table sets forth selected financial data relating to our historical financial condition and results of operations for 2009 and the four preceding years. Certain amounts for the years prior to 2009 presented in the table below have been reclassified to conform to the 2009 financial statement presentation and to reflect discontinued operations. The amounts in the table below are in millions, except for per share amounts.
 
                                         
    Years Ended December 31,  
    2009     2008 (1)     2007 (1)     2006     2005  
 
Operating Data:
                                       
Total revenues (2)
  $      1,223     $      5,566     $      6,106     $      2,362     $      1,748  
Total expenses
  $ 1,177     $ 4,989     $ 5,007     $ 1,636     $ 1,355  
Operating income (2)
  $ 46     $ 577     $ 1,099     $ 726     $ 393  
Interest expense
  $ 373     $ 385     $ 390     $ 296     $ 177  
Earnings (loss) from continuing operations (3)
  $ (265 )   $ (282 )   $ 929     $ 679     $ 272  
Discontinued operations (4)
  $ 289     $ (168 )   $ 129     $ 199     $ 129  
Consolidated net earnings (loss)
  $ 24     $ (450 )   $ 1,058     $ 878     $ 401  
Net earnings (loss) attributable to common shares
  $ (3 )   $ (479 )   $ 1,028     $ 849     $ 371  
Net earnings (loss) per share attributable to common shares — Basic:
                                       
Continuing operations
  $ (0.73 )   $ (1.18 )   $ 3.50     $ 2.64     $ 1.19  
Discontinued operations
    0.72       (0.64 )     0.50       0.81       0.63  
                                         
Net earnings (loss) per share attributable to common shares — Basic (3)
  $ (0.01 )   $ (1.82 )   $ 4.00     $ 3.45     $ 1.82  
                                         
Net earnings (loss) per share attributable to common shares — Diluted:
                                       
Continuing operations
  $ (0.73 )   $ (1.18 )   $ 3.38     $ 2.55     $ 1.16  
Discontinued operations
    0.72       (0.64 )     0.48       0.77       0.60  
                                         
Net earnings (loss) per share attributable to common shares — Diluted (3)
  $ (0.01 )   $ (1.82 )   $ 3.86     $ 3.32     $ 1.76  
                                         
Weighted average common shares outstanding:
                                       
Basic
    403       263       257       246       203  
Diluted
    403       263       267       257       214  
Common Share Distributions:
                                       
Common share cash distributions paid
  $ 272     $ 543     $ 473     $ 393     $ 297  
Common share distributions paid per share
  $ 0.70     $ 2.07     $ 1.84     $ 1.60     $ 1.48  
FFO (5):
                                       
Reconciliation of net earnings to FFO:
                                       
Net earnings (loss) attributable to common shares
  $ (3 )   $ (479 )   $ 1,028     $ 849     $ 371  
Total NAREIT defined adjustments
    213       449       150       149       161  
Total our defined adjustments
    (71 )     164       28       (53 )     (2 )
                                         
FFO attributable to common shares as defined by ProLogis, including significant non-cash items
    139       134       1,206       945       530  
Add (deduct) significant non-cash items:
                                       
Impairment of real estate properties
    331       275                    
Impairment of goodwill and other assets
    164       321                    
Impairment (net gain) related to disposed assets — China operations
    (3 )     198                    
Gain on early extinguishment of debt
    (172 )     (91 )                  
Losses related to temperature-controlled distribution assets
                            25  
Our share of the loss/impairment recorded by an unconsolidated investee
          108                    
Our share of certain losses recognized by the property funds, net
    9                          
                                         
FFO attributable to common shares as defined by ProLogis, excluding significant non-cash items
  $ 468     $ 945     $ 1,206     $ 945     $ 555  
                                         
Cash Flow Data:
                                       
Net cash provided by operating activities (2)
  $ 116     $ 884     $ 1,233     $ 687     $ 488  
Net cash provided by (used in) investing activities
  $ 1,208     $ (1,343 )   $ (4,079 )   $ (2,069 )   $ (2,223 )
Net cash provided by (used in) financing activities
  $ (1,463 )   $ 358     $ 2,742     $ 1,645     $ 1,713  
 
                                         
    As of December 31,  
    2009     2008 (1)     2007 (1)     2006     2005  
 
Financial Position:
                                       
Real estate owned, excluding land held for development, before depreciation
  $      12,647     $      13,243     $      14,428     $      12,500     $      10,830  
Land held for development
  $ 2,569     $ 2,483     $ 2,153     $ 1,397     $ 1,045  
Investments in and advances to unconsolidated investees
  $ 2,152     $ 2,270     $ 2,345     $ 1,300     $ 1,050  
Total assets
  $ 16,885     $ 19,269     $ 19,724     $ 15,904     $ 13,126  
Total debt
  $ 7,978     $ 10,711     $ 10,217     $ 8,387     $ 6,678  
Total liabilities
  $ 8,878     $ 12,511     $ 11,920     $ 9,453     $ 7,580  
Noncontrolling interests
  $ 20     $ 20     $ 79     $ 52     $ 58  
ProLogis shareholders’ equity
  $ 7,987     $ 6,738     $ 7,725     $ 6,399     $ 5,488  
Number of common shares outstanding
    474       267       258       251       244  
 
 
(1) Effective January 1, 2009, we adopted a new accounting standard related to our convertible debt that resulted in the restatement of 2008 and 2007 amounts. See Note 2 to our Consolidated Financial Statements in Item 8 for more information.


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(2) Changes in global economic conditions in late 2008 resulted in changes to our business strategy, including the elimination of our CDFS segment. During 2009, we contributed and sold certain properties. However, they are now reflected as net gains, rather than revenues, in our Consolidated Statements of Operations and as cash provided by investing activities, rather than operating. See our Consolidated Financial Statements in Item 8 for more information.
 
(3) During 2009, we recognized impairment charges of $331.6 million on certain of our real estate properties, $143.6 million on certain of our unconsolidated investments, and $20.0 million related to other assets. During 2008, we recognized impairment charges of $274.7 million on certain of our real estate properties, $175.4 million related to goodwill, $113.7 million on certain of our unconsolidated investments, $31.5 million related to other assets, and our share of impairment charges recorded by an unconsolidated investee of $108.2 million. See our Consolidated Financial Statements in Item 8 for more information.
 
(4) Discontinued operations include income (loss) attributable to assets held for sale and disposed properties, net gains recognized on the disposition of properties to third parties and, in 2008, an impairment charge of $198.2 million as a result of our sale in February 2009 of our China operations. Amounts in 2005 include impairment charges related to temperature controlled distribution assets of $25.2 million.
 
(5) Funds from operations (“FFO”) is a non-U.S. generally accepted accounting principle (“GAAP”) measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings. Although the National Association of Real Estate Investment Trusts (“NAREIT”) has published a definition of FFO, modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business. FFO, as we define it, is presented as a supplemental financial measure. FFO is not used by us as, nor should it be considered to be, an alternative to net earnings computed under GAAP as an indicator of our operating performance or as an alternative to cash from operating activities computed under GAAP as an indicator of our ability to fund our cash needs.
 
FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We believe net earnings computed under GAAP remains the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and our operating performance.
 
At the same time that NAREIT created and defined its FFO concept for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe that financial analysts, potential investors and shareholders who review our operating results are best served by a defined FFO measure that includes other adjustments to net earnings computed under GAAP in addition to those included in the NAREIT defined measure of FFO. Our FFO measures are discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds From Operations”.
 
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion in conjunction with our Consolidated Financial Statements included in Item 8 of this report and the matters described under “Item 1A. Risk Factors”.
 
Management’s Overview
 
We are a self-administered and self-managed REIT that owns, operates and develops real estate properties, primarily industrial properties, in North America, Europe and Asia (directly and through our unconsolidated investees). Our business is primarily driven by requirements for modern, well-located industrial space in key global distribution locations. Our focus on our customers’ needs has enabled us to become a leading global provider of industrial distribution properties.


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Our business strategy currently includes two operating segments: direct owned and investment management. Our direct owned segment represents the direct long-term ownership of industrial and retail properties. Our investment management segment represents the long-term investment management of property funds and certain other unconsolidated investees, and the properties they own. We generate revenues; earnings; FFO, as defined at the end of Item 7; and cash flows through our segments primarily as follows:
 
•     Direct Owned Segment-We earn rent from our customers, including reimbursements of certain operating costs, under long-term operating leases for the properties that we own. The revenue in this segment has decreased due to contribution of properties to property funds and a decrease in rental rates on turnover, offset partially with increases in occupancy levels within our development portfolio. Rental revenues generated by the lease-up of newly developed properties have not been adequate to offset the loss of rental revenues from the decrease in the property portfolio. We expect our total revenues from this segment to increase slightly in 2010 through increases in occupied square feet predominantly in our development portfolio, offset partially with decreases from contributions of properties we made in 2009 or may make in 2010. We anticipate the increases in occupied square feet to come from leases that were signed in 2009, but have not commenced occupancy, and future leasing activity in 2010. Our development portfolio, including completed development properties and those currently under development, was 64.3% leased at December 31, 2009 and 41.4% leased at December 31, 2008. Our intent is to hold the properties in our direct owned segment for long-term investment, including the development of new properties utilizing our existing land. However, we may contribute certain properties to a property fund or sell land or properties to third parties, depending on market conditions and liquidity needs.
 
•     Investment Management Segment — We recognize our proportionate share of the earnings or losses from our investments in unconsolidated property funds and certain joint ventures that are accounted for under the equity method. In addition, we recognize fees and incentives earned for services performed on behalf of these and other entities. We provide services to these entities, which may include property management, asset management, leasing, acquisition, financing and development. We may also earn incentives from our property funds depending on the return provided to the fund partners over a specified period.
 
As discussed earlier, on December 31, 2008, all of the assets and liabilities in the CDFS business segment were transferred into our two remaining segments. In 2009, we recognized income from the previously deferred gains from the Japan property funds that were deferred upon original contributions and triggered with the sale of our investments. During 2008 and 2007, our CDFS business segment primarily encompassed our development or acquisition of real estate properties that were subsequently contributed to a property fund in which we had an ownership interest and managed, or sold to third parties.
 
Summary of 2009
 
In late 2008, we modified our business strategy to adjust to the global financial market and economic disruptions at that time. This new strategy entailed limiting our development activities to conserve capital and focus on strengthening our balance sheet.
 
Narrowing our focus allowed us to work on specific goals we set forth for 2009, which were to:
 
•     reduce debt by $2.0 billion;
 
•     recast our global line of credit;
 
•     complete the properties under development as of the end of 2008 and focus on leasing our total development portfolio;
 
•     manage our core portfolio of industrial distribution properties to maintain and improve our net operating income stream from these assets;
 
•     generate liquidity through contributions of properties to our property funds and through sales of real estate to third parties; and
 
•     reduce gross G&A by 20% to 25%.


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Since December 31, 2008, we have achieved each of these goals, including reducing our debt by $2.7 billion, through the following activities:
 
Debt activity (all are discussed in further detail below under “- Liquidity and Capital Resources”):
•     In August 2009, we amended and restated our global line of credit (“Global Line”), extending the maturity to August 2012 and reducing the size of our aggregate commitments to $2.25 billion (subject to currency fluctuations), after October 2010.
 
•     On October 1, 2009, pursuant to a consent solicitation and to support our objective of simplifying our debt structure, we amended certain covenants and events of default related to certain of our senior notes.
 
•     During 2009, we issued five- and ten-year senior notes for a total of $950.0 million.
 
•     During 2009, we closed on $499.9 million of secured mortgage debt in five separate transactions.
 
•     In 2009, we repurchased certain senior and other notes and secured mortgage debt that resulted in the recognition of a gain of $172.3 million and reduced our debt obligations by $242.1 million.
 
Equity issuances:
•     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 (“Equity Offering”).
 
•     During the third quarter, we generated net proceeds of $325.1 million from the issuance of 29.8 million common shares under our at-the-market equity issuance program, after payment of $6.9 million of commissions to the sales agent.
 
Asset dispositions and contributions:
•     We generated $1.3 billion of cash from the sale of our China operations ($845.5 million) and our investments in the Japan property funds ($500.0 million) in the first quarter of 2009. We entered into a sale agreement in December 2008, at which time we recorded an impairment charge of $198.2 million on our China operations and classified the assets and liabilities as held for sale.
 
•     In connection with the sale of our investments in the Japan property funds, we recognized a net gain of $180.2 million and $20.5 million of current income tax expense. The gain is reflected as CDFS proceeds as it represents the recognition of previously deferred gains on the contributions of properties to the property funds based on our ownership interest in the property fund at the time of original contributions.
 
•     During 2009, we generated aggregate proceeds of $1.5 billion from the contribution of 43 properties to ProLogis European Properties Fund II, and the sale of land parcels and 140 properties to third parties.
 
Other:
•     We reduced our gross G&A by 26.5% in 2009 from 2008, through various cost savings initiatives, including a RIF program.
 
•     We executed leasing in our development portfolio in 2009, including completed properties and properties under development, increasing the leased percentage to 64.3% at December 31, 2009 from 41.4% at the beginning of the year.
 
Objectives for 2010
 
Now that we have achieved our goals for 2009, we believe we are in a better liquidity position and can focus on our longer-term strategy of conservative growth through the ownership, management and development of industrial properties with a concentrated focus on customer service. Included in our objectives for 2010 and beyond are to:
 
•     retain more of our development assets in order to improve the geographic diversification of our direct owned properties as most of our planned developments are in international markets;


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•     monetize our investment in land of $2.6 billion at December 31, 2009; and
 
•     continue to focus on staggering and extending our debt maturities.
 
We plan to accomplish these objectives by generating proceeds through selective sales of completed real estate properties (primarily located in the U.S.) and land parcels, and limited contribution of development properties to the property funds. We will use these proceeds to fund our development activities, which will allow us to respond to new build-to-suit opportunities to better serve our customers and to transition our non-income producing land into income producing properties. We will continue to focus on leasing the unleased portion of our development portfolio (representing 53.5 million square feet at December 31, 2009 that was 64.3% leased).
 
Results of Operations
 
Summary
 
The following table illustrates the net operating income for each of our segments, along with the reconciling items to Income (Loss) from Continuing Operations on our Consolidated Statements of Operations (dollars in thousands):
 
                                       
    Years Ended December 31,     Percentage Change
    2009     2008     2007     2009 vs 2008     2008 vs 2007
 
Net operating income — direct owned segment
  $ 606,561     $ 634,542     $ 734,707       (4 )%     (14)%
Net operating income — investment management segment
    122,694       15,680       162,003       682 %     (90)%
Net operating income — CDFS business segment
    180,237       654,746       763,695       (72 )%     (14)%
General and administrative expenses
    (180,486 )     (177,350 )     (170,398 )     2 %     4%
Reduction in workforce
    (11,745 )     (23,131 )           (49 )%     N/A
Impairment of real estate properties
    (331,592 )     (274,705 )     (12,600 )     21 %     2,080%
Depreciation and amortization expense
    (315,807 )     (317,315 )     (286,279 )           11%
Earnings from certain other unconsolidated investees, net
    4,712       8,796       7,794       (46 )%     13%
Interest expense
    (373,305 )     (385,065 )     (389,844 )     (3 )%     (1)%
Impairment of goodwill and other assets
    (163,644 )     (320,636 )           (49 )%     N/A
Other income (expense), net
    (39,809 )     16,063       31,686       (348 )%     (49)%
Net gains on dispositions of real estate properties
    35,262       11,668       146,667       202 %     (92)%
Foreign currency exchange gains (losses), net
    35,626       (148,281 )     8,132       124 %     (1,923)%
Gain on early extinguishment of debt
    172,258       90,719             90 %     N/A
Income tax expense
    (5,975 )     (68,011 )     (66,855 )     (91 )%     2%
                                       
Earnings (loss) from continuing operations
  $   (265,013 )   $   (282,280 )   $   928,708       (6 )%     (130)%
                                       
 
Effective January 1, 2009, we adopted a new accounting standard related to our convertible debt that resulted in the restatement of 2008 and 2007 amounts (see Note 2 to our Consolidated Financial Statements in Item 8 for more information). Also, see Note 20 to our Consolidated Financial Statements in Item 8 for additional information regarding our segments and a reconciliation of net operating income to earnings (loss) before income taxes.
 
We began to experience the effects from the global financial market and economic disruptions in late 2008, which resulted in changes to our business strategy. In order to generate liquidity, we identified certain real estate properties that we no longer expected to hold for long-term investment. We recognized impairment charges in 2009 and 2008 due to the change in our intent and based on valuations of that real estate, which had declined due to market conditions. The impairment charges related to goodwill and other assets that we recognized in 2009 and 2008 were similarly caused by the decline in the real estate markets. The decline in the real estate markets has also led to lower profit margins on contributions and sales. The financial market disruption also provided us the opportunity to repurchase some of our debt at a discount, resulting in a net gain.
 
Our direct owned portfolio has decreased each year since 2007, principally from the contributions of properties to the unconsolidated property funds. This portfolio decrease impacts our direct owned segment through the


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decrease in net operating income. Occupancy levels also affect net operating income for this segment. We have begun to see an increase in leasing activity in 2009, after declines in 2008.
 
In February 2009, we sold our investment in the Japan funds, which were included in the Investment Management segment, and continued to manage the properties until July 2009. In connection with the termination of the management agreement, we earned a termination fee of $16.3 million. In 2008, we recognized a loss of $108.2 million representing our share of the loss recognized by PEPR upon the sale and impairment of its ownership interests in ProLogis European Properties Fund II (“PEPF II”). We also recognized our share of realized and unrealized losses of $32.3 million related to interest rate derivative contracts held by certain property funds. In 2007, we recognized $38.2 million that represented our proportionate share of a gain recognized by PEPR from the sale of certain properties. Without these items in 2009, 2008 and 2007, net operating income from this segment in 2009 decreased $17.2 million from 2008 and increased $32.4 million in 2008 compared to 2007.
 
As discussed earlier, we changed our business strategy in late 2008 and discontinued the CDFS business segment. In 2009, the only transaction in this segment is the gain from the sale of our investments in the Japan property funds in February 2009. The decrease in net operating income from this segment in 2008 compared to 2007 is due to decreased contribution levels and lower profit margins.
 
Direct Owned Segment
 
The net operating income of the direct owned segment consists of rental income and rental expenses from industrial and retail properties that we own and land subject to ground leases. The size and leased percentage of our direct owned operating portfolio fluctuates due to the timing of development and contributions and affects the net operating income we recognize in this segment. Also included in this segment is land we own and lease to customers under ground leases, development management and other income and land holding and acquisition costs. The net operating income from the direct owned segment, excluding amounts presented as discontinued operations in our Consolidated Financial Statements, was as follows (in thousands):
 
                         
    Years Ended December 31,  
    2009     2008     2007  
 
Rental and other income
  $ 900,082     $ 939,507     $ 996,340  
Rental and other expenses
    293,521       304,965       261,633  
                         
Total net operating income - direct owned segment
  $   606,561     $   634,542     $   734,707  
                         
 
We had a direct owned operating portfolio at December 31, 2009 and 2008, as follows (square feet in thousands):
 
                                                 
    2009     2008  
    Number of
                Number of
             
    Properties     Square Feet     Leased %     Properties     Square Feet     Leased %  
 
Core industrial properties
    1,025       141,019       90.1 %     1,157       154,947       92.2 %
Retail properties
    27       1,014       91.5 %     34       1,404       94.5 %
                                                 
Subtotal non-development properties
    1,052       142,033       90.1 %     1,191       156,351       92.2 %
Completed development properties (1)
    163       50,604       62.2 %     140       40,763       43.5 %
                                                 
Total
         1,215            192,637            82.8 %          1,331            197,114            82.1 %
                                                 
 
 
(1) Included at December 31, 2009 are 51 properties with 14.7 million square feet on which development was completed in 2009. Included as of December 31, 2008 are 42 properties with 9.0 million square feet that were contributed to PEPF II during 2009 and therefore, are no longer in our portfolio as of December 31, 2009. The leased percentage fluctuates based on the composition of properties.
 
The decrease in rental income in 2009 from 2008, and in 2008 from 2007, is due to the decrease in the property portfolio, which is a result of contributions of properties to the unconsolidated property funds and decreases in rental rates on turnovers, offset partially by increased occupancy in our development properties;


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and changes in rental recoveries. Under the terms of our lease agreements, we are able to recover the majority of our rental expenses from customers. Rental expense recoveries, included in both rental income and expenses, were $194.8 million, $210.9 million and $197.9 million for the years ended December 31, 2009, 2008 and 2007 respectively. The decrease from 2008 to 2009 is primarily due to the decrease in the property portfolio. In addition to the decreased recoverable expenses, property management costs and certain non-recoverable costs have decreased as well. The non-recoverable costs in 2008 include a $6.0 million insurance adjustment due to a tornado that struck certain properties owned by us and owned by the property funds and insured by us through our insurance company.
 
Investment Management Segment
 
The net operating income of the investment management segment consists of: (i) earnings or losses recognized under the equity method from our investments in property funds and certain joint ventures; (ii) fees and incentives earned for services performed; and (iii) interest earned on advances; offset by (iv) our direct costs of managing these entities and the properties they own.
 
The net earnings or losses of the unconsolidated investees may include the following income and expense items, in addition to rental income and rental expenses: (i) interest income and interest expense; (ii) depreciation and amortization expenses; (iii) general and administrative expenses; (iv) income tax expense; (v) foreign currency exchange gains and losses; (vi) gains or losses on dispositions of properties or investments; and (vii) impairment charges. The fluctuations in income we recognize in any given period are generally the result of: (i) variances in the income and expense items of the unconsolidated investees; (ii) the size of the portfolio and occupancy levels; (iii) changes in our ownership interest; and (iv) fluctuations in foreign currency exchange rates at which we translate our share of net earnings to U.S. dollars, if applicable.
 
We report the 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 of $43.4 million, $50.8 million and $33.9 million in 2009, 2008 and 2007, respectively. These costs include the direct expenses associated with the asset management of the property funds provided individuals who are assigned to our investment management segment. In addition, in order to achieve efficiencies and economies of scale, all of our property management functions are provided by a team of professionals who are assigned to our direct owned segment. These individuals perform the property-level management of the properties we own and the properties we manage that are owned by the unconsolidated investees. We allocate the costs of our property management function to the properties we own (reported in Rental Expenses) and the properties owned by the unconsolidated investees (included in Investment Management Expenses), by using the square feet owned at the beginning of the period by the respective portfolios. The increases in 2008 were due to the increased size of our investment management portfolio, while the decrease in 2009 was due to the sale of our Japan investments.
 
See Note 6 to our Consolidated Financial Statements in Item 8 for additional information on our unconsolidated investees.
 
The net operating income from the investment management segment for the years ended December 31 was as follows (in thousands):
 
                         
    2009     2008     2007  
 
Unconsolidated property funds:
                       
North America (1)
  $ 29,996     $ 40,982     $ 50,140  
Europe (2)
    67,651       (60,488 )     90,617  
Asia (3)
    6,188       30,640       24,467  
Other (4)
    18,859       4,546       (3,221 )
                         
Total net operating income - investment management segment
  $   122,694     $   15,680     $   162,003  
                         


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(1) Represents the income earned by us from our investments in 12 property funds in North America. Our ownership interests ranged from 20% to 50% at December 31, 2009. These property funds on a combined basis owned 847, 854 and 777 properties that were 91.9%, 94.7% and 96.1% leased at December 31, 2009, 2008 and 2007, respectively. The fluctuation in properties is primarily due to contributions we made to two of the funds (North American Industrial Fund and Mexico Industrial Fund) in 2007 and 2008, offset by the sale of properties to third parties by certain funds in 2009.
 
Included in 2009 are $15.8 million of expenses that represent our share of deferred tax expense recognized by the Mexico Industrial Fund and $6.3 million of losses that represents our share of realized and unrealized losses that were recognized by certain of the property funds related to derivative contracts that no longer met the requirements for hedge accounting. These expenses are offset by $7.2 million that represents our share of the gain from the early extinguishment of debt by the North American Industrial Fund.
 
Included in 2008 are $28.2 million of losses that relate to the change in value and settlement of derivative contracts.
 
(2) Represents the income earned by us from our investments in two property funds in Europe, PEPR and PEPF II. On a combined basis, these funds owned 428, 399 and 288 properties that were 96.3%, 97.6% and 97.7% leased at December 31, 2009, 2008 and 2007, respectively. The increase in properties for all three years is due primarily to contributions we made to PEPF II, offset somewhat by the sale of properties by PEPR to third parties.
 
Our common ownership interest in PEPR and PEPF II was 24.8% and 32.1%, respectively, at December 31, 2009. At December 31, 2008, our ownership interest in PEPR was 24.9% and our ownership interest in PEPF II included our direct ownership interest of 34.3% and our indirect 2.6% interest through our ownership in PEPR.
 
Included in 2008 are $108.2 million of losses representing our share of losses recognized by PEPR on the sale of its 20% investment in PEPF II to us and an impairment charge related to the sale of its remaining 10% interest. In February 2009, PEPR sold its 10% interest to a third party, which decreased our ownership interest in PEPF II to 34.3%.
 
(3) Represents the income earned by us from our 20% ownership interest in one property fund in South Korea and two property funds in Japan through February 2009, at which time we sold our investments in Japan. These property funds on a combined basis owned 12, 83 and 66 properties that were 97.8%, 99.6% and 99.3% leased at December 31, 2009, 2008 and 2007.
 
(4) Includes property management fees from joint ventures and other entities offset by investment management expenses. 2009 includes fees earned from the Japan property funds after February 2009 through July 2009 and, in connection with the termination of the property management agreement for these properties, we earned a termination fee of $16.3 million.
 
CDFS Business Segment
 
Net operating income of the CDFS business segment for 2009, 2008 and 2007 was $180.2 million, $654.7 million and $763.7 million, respectively. As previously discussed, our business strategy no longer includes the CDFS business segment. The amount in 2009 is the gain from the sale of our investments in the Japan property funds in February 2009, while the amounts in 2008 and 2007 consisted of gains recognized principally from the contributions of 180 properties and 262 properties, respectively, to the property funds.
 
Operational Outlook
 
During 2009, industrial property fundamentals continued to mirror the global economic weakness. We are experiencing a very challenging leasing environment throughout the majority of our markets with increased leasing costs and lower rental rates due to the competitive markets. Partially offsetting the impact of these market trends on our business is our continued strong customer retention.


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However, during the third quarter of 2009 and into the fourth quarter, the global market fundamentals began to show signs of stability. Globally, industrial demand is still soft, but we are seeing signs of increased customer activity. Market occupancy declines are slowing globally and leasing activity has increased. Market rents remain lower than a year ago and we expect this to remain the case in the near future. However, we believe this situation will reverse itself when market occupancies trend upward.
 
The industry as a whole has had sharply reduced levels of new supply. We expect demand in the U.S. to improve as Gross Domestic Product (“GDP”) growth returns. We believe significant obsolescence and ownership shifts in Europe and Asia will continue to drive demand in those regions.
 
In our total operating portfolio, including properties managed by us and owned by our unconsolidated investees that are accounted for under the equity method, we leased 108.1 million square feet, 121.5 million square feet, and 108.6 million square feet of space during 2009, 2008 and 2007, respectively. The total operating portfolio was 89.2% leased at December 31, 2009, as compared to 88.4% leased at December 31, 2008.
 
In our direct owned portfolio, we leased 57.9 million square feet, including 21.1 million square feet of leases in our development portfolio (both completed properties and those under development) in 2009. Repeat business with our global customers is important to our long-term growth. During 2009, 57.4% of the space leased in our newly developed properties was with repeat customers. Although leasing activity was slower on expiring leases during 2009, existing customers renewed their leases 75.1% of the time in 2009 as compared with 79.3% in 2008. As of December 31, 2009, our total direct owned operating portfolio of industrial and retail properties was 82.8% leased, as compared with 82.1% at December 31, 2008. Excluding the development portfolio, our direct owned operating portfolio was 90.1% leased at December 31, 2009, as compared to 92.2% leased at December 31, 2008.
 
As we previously disclosed, we have significantly reduced our development activity. During 2009, we started development of seven properties totaling 2.3 million square feet that were all 100% leased prior to the commencement of development. We are receiving an increase in requests for build-to-suit (pre-leased) proposals. In an effort to monetize our land holdings, we have begun to take advantage of opportunities to develop principally pre-leased buildings on our land, including opportunities to use development capital or take out commitments from one of our partners or customers. We will continue to evaluate future opportunities for such developments directly and within unconsolidated investees.
 
In addition during 2009, we completed the development of 67 buildings aggregating 19.1 million square feet that were 66.9% leased at December 31, 2009, contributed 43 development properties to PEPF II aggregating 9.2 million square feet that were 97.6% leased, and sold 2 development properties to a third party. As of December 31, 2009, our development portfolio consisted of 163 completed properties that were 62.2% leased and 5 properties under development that were 100% leased, resulting in the development portfolio being 64.3% leased at December 31, 2009, as compared to 41.4% leased at December 31, 2008. As of December 31, 2009, we expect to incur an additional $307.8 million of development and leasing costs related to our development portfolio.


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Other Components of Operating Income
 
General and Administrative Expenses (“G&A”) — and — Reduction in Workforce (“RIF”)
 
Net G&A expenses for the years ended December 31, consisted of the following (in thousands):
 
                         
    2009     2008     2007  
 
Gross G&A
  $ 294,598     $ 400,648     $ 359,792  
Reclassed to discontinued operations, net of capitalized amounts
    (1,305 )     (21,721 )     (11,354 )
Reported as rental expenses
    (19,446 )     (25,306 )     (27,460 )
Reported as investment management expenses
    (43,416 )     (50,761 )     (33,948 )
Capitalized amounts
    (49,945 )     (125,510 )     (116,632 )
                         
Reported as net G&A
  $ 180,486     $ 177,350     $ 170,398  
                         
 
In response to the difficult economic environment, in late 2008 we implemented G&A cost cutting initiatives with a near-term target of a 20% to 25% reduction in G&A, prior to capitalization or allocations for 2009. These initiatives included a RIF program and reductions to other expenses through various cost saving measures.
 
Due to the changes in our business strategy in the fourth quarter of 2008, we significantly reduced our new development activities, which, along with lower gross G&A, resulted in lower capitalized G&A in 2009.
 
We recognized $2.0 million in 2009 and $5.0 million in 2007 of expense related to a contribution to our charitable foundation.
 
Impairment of Real Estate Properties
 
During 2009, 2008 and 2007, we recognized impairment charges of real estate properties of $331.6 million, $274.7 million and $12.6 million, respectively. During 2009 and 2008, as a result of significant adverse changes in market conditions, we reviewed our assets for potential impairment under the appropriate accounting literature. We considered current market conditions, as well as our intent with regard to owning or disposing of the asset, and recognized impairments of certain operating buildings, land and predevelopment costs, all included in our direct owned segment. In 2007, the impairment charge related to a portfolio of buildings we had decided to sell. See Note 14 to our Consolidated Financial Statements in Item 8 for more information.
 
Depreciation and Amortization
 
Depreciation and amortization expenses were $315.8 million, $317.3 million, and $286.3 million in 2009, 2008, and 2007, respectively. The increase in 2008 over 2007 is due primarily to an adjustment in depreciation expense and a higher level of amortization expense related to leasing commissions and other leasing costs. As of September 30, 2008, we had classified a group of properties that we had developed or acquired with the intent to contribute to a property fund or sell to a third party. Our policy was to not depreciate these properties during the period from completion until contribution, provided they met certain criteria. With the changes in our business segments and the uncertainty as to when, or if, these properties will be contributed, in the fourth quarter of 2008, we recorded an adjustment of $30.9 million to depreciate these buildings through December 31, 2008 based on our depreciation policy for buildings we expect to hold for long-term investment.


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Interest Expense
 
Interest expense for the years ended December 31, includes the following components (in thousands):
 
                         
    2009     2008     2007  
 
Interest expense
  $ 382,899     $ 477,933     $ 487,410  
Amortization of discount, net
    67,542       63,676       15,952  
Amortization of deferred loan costs
    17,069       12,238       10,362  
                         
Interest expense before capitalization
    467,510       553,847       513,724  
Capitalized amounts
    (94,205 )     (168,782 )     (123,880 )
                         
Net interest expense
  $      373,305     $      385,065     $      389,844  
                         
 
As previously discussed, on January 1, 2009, we adopted a new accounting standard that required separate accounting for the debt and equity components of certain convertible debt. As a result, we restated 2008 and 2007 amounts 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 we contributed during the applicable periods.
 
The decrease in interest expense in 2009 over 2008 is due to significantly lower debt levels, offset by higher average borrowing rates and lower capitalization due to less development activity in 2009. Our future interest expense, both gross and the portion capitalized, will vary depending on, among other things, the level of our development activities.
 
Impairment of Goodwill and Other Assets
 
We performed our annual impairment review of the goodwill allocated to the direct owned segment in North America and the investment management segment in Europe during the fourth quarter of 2009 and no impairment was indicated. We own a substantial portfolio of operating real estate properties within our direct owned segment in North America and the carrying value of this segment, including goodwill, was significantly lower than the estimated net asset value. The fair value of the investment management segment in Europe was also significantly in excess of the carrying value, including goodwill. Within our investment management segment, we include our investments in property funds, as well as the fee income that is generated from the management of the property funds and the properties they own.
 
During the fourth quarter of 2009 we also performed our annual impairment review of the goodwill allocated to the direct owned segment in Europe. First, we estimated the fair value of this segment using a combination of net asset value analyses, discounted cash flows and market based valuation methodologies. The carrying value of this segment, including goodwill, was in excess of the estimated fair value so in accordance with our accounting policy we performed further analysis. As part of this analysis the estimated fair value of the segment was allocated to all of the identifiable assets and liabilities, with any residual value being the implied fair value of goodwill. As the implied fair value of the goodwill was in excess of the carrying value of the goodwill, we concluded that goodwill was recoverable and that no impairment was necessary.
 
In connection with our review of goodwill in 2008, which was triggered by the significant decrease in our common stock price and the decline in fair value of certain of our real estate properties, specifically investments in land in the United Kingdom, we recognized an impairment charge of $175.4 million related to goodwill allocated to the direct owned segment in the Europe reporting unit. This goodwill related to an acquisition made in 2007.
 
In 2009 and 2008, we recorded impairment charges of $163.6 million and $145.2 million, respectively, on certain of our investments in and advances to unconsolidated investees, notes receivable and other assets, as we did not believe these amounts to be recoverable based on the present value of the estimated future cash flows associated with these assets.


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See Notes 6 and 14 to our Consolidated Financial Statements in Item 8 for further information on the impairment of our investments in and advances to unconsolidated investees, goodwill and other assets.
 
Other Income (Expense), Net
 
We recognized other expense not allocated to a segment of $39.8 million in 2009 and income of $16.0 million and $31.7 million in 2008 and 2007, respectively. The primary components in 2009 were adjustments of $20.3 million to accruals we had related to rent indemnifications we had made to certain property funds due to changes in leasing and other assumptions and settlement costs of $13.0 million related to an obligation we assumed in the 2005 acquisition of Catellus. The income in 2008 and 2007 was primarily interest income.
 
Net Gains on Dispositions of Real Estate Properties
 
During 2009, we recognized net gains of $35.3 million related to the contribution of properties ($13.0 million), the recognition of previously deferred gains from PEPR and ProLogis Korea Fund on properties they sold to third parties ($9.9 million), the sale of land parcels ($6.4 million), and a gain on settlement of an obligation to our fund partner in connection with the restructure of the North American Industrial Fund II ($6.0 million). The contribution activity resulted in total cash proceeds of $643.7 million and included 43 properties aggregating 9.2 million square feet to PEPF II.
 
In 2008 and 2007, we recognized gains of $11.7 million and $146.7 million on the contribution of 2 properties and 77 properties, respectively, from our direct owned segment (non-CDFS properties) to certain of the unconsolidated property funds. If we realize a gain on contribution of a property, we recognize the portion attributable to the third party ownership in the property fund. If we realize a loss on contribution, we recognize the full amount of the impairment as soon as it is known. Due to our continuing involvement through our ownership in the property fund, these dispositions are not included in discontinued operations.
 
As discussed earlier, in 2008 and 2007, contribution activity of CDFS/development properties and land was reported as CDFS Proceeds and Cost of CDFS Dispositions within our CDFS business segment.
 
Foreign Currency Exchange Gains (Losses), Net
 
We and certain of our foreign consolidated subsidiaries have intercompany or third party debt that is not denominated in the entity’s functional currency. When the debt is remeasured against the functional currency of the entity, a gain or loss may result. To mitigate our foreign currency exchange exposure, we borrow in the functional currency of the borrowing entity when appropriate. Certain of our intercompany debt is remeasured with the resulting adjustment recognized as a cumulative translation adjustment in Other Comprehensive Income (Loss). This treatment is applicable to intercompany debt that is deemed to be long-term in nature. If the intercompany debt is deemed short-term in nature, when the debt is remeasured, we recognize a gain or loss in earnings.
 
We recognized net foreign currency exchange gains of $35.6 million in 2009, losses of $148.3 million in 2008, and gains of $8.1 million in 2007. Predominantly, the gains or losses recognized in earnings relate to intercompany loans between the U.S. parent and our consolidated subsidiaries in Japan and Europe due to the fluctuations in the exchange rates of U.S. dollars to the yen, euro and British pound sterling.
 
Additionally, we may utilize derivative financial instruments to manage certain foreign currency exchange risks. During 2009, we entered into and settled forward contracts to buy yen to manage the foreign currency fluctuations related to the sale of our investments in the Japan property funds and recognized losses of $5.7 million. During the year ended December 31, 2008, we recognized net losses of $3.1 million associated with forward contracts on certain intercompany loans. Included in our 2007 foreign currency exchange gains was $26.6 million from the settlement of several foreign currency forward contracts we purchased to manage the foreign currency fluctuations of an acquisition price, which was denominated in Australian dollars. See Note 18 to our Consolidated Financial Statements in Item 8 for more information on our derivative financial instruments.


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Gain on Early Extinguishment of Debt
 
During late 2008 and all of 2009, in connection with our announced initiatives discussed earlier, we purchased portions of several series of notes outstanding at a discount and extinguished some secured mortgage debt prior to maturity, which resulted in the recognition of gains of $172.3 million in 2009 and $90.7 million in 2008. The gain represents the difference between the recorded debt, including related debt issuance costs, premiums and discounts, and the consideration we paid to retire the debt. See Note 9 to our Consolidated Financial Statements in Item 8 for more information.
 
Income Tax Expense
 
During 2009, 2008 and 2007, our current income tax expense was $29.3 million, $63.4 million and $66.3 million, respectively. We recognize current income tax expense for income taxes incurred by our taxable REIT subsidiaries and in certain foreign jurisdictions, as well as certain state taxes. We also include in current income tax expense the interest accrual associated with our unrecognized tax benefit liabilities. Our current income tax expense fluctuates from period to period based primarily on the timing of our taxable income and changes in tax and interest rates. In the first quarter of 2009, in connection with the sale of our investments in the Japan property funds, we recognized current tax expense of $20.5 million.
 
Certain 1999 through 2005 federal and state income tax returns of Catellus have been under audit by the Internal Revenue Service (“IRS”) and various state taxing authorities. In November 2008, we agreed to enter into a closing agreement with the IRS for the settlement of the 1999 through 2002 audits. As a result, in 2008, we increased our unrecognized tax liability by $85.4 million, including interest and penalties. As this liability was an income tax uncertainty related to an acquired company, we increased goodwill by $66.9 million related to the liability that existed at the acquisition date. The remaining amount is included in current income tax expense in 2008. We made cash payments of $226.6 million in 2009 in connection with this closing agreement and settlement of certain state tax audits.
 
In 2009, we recognized a deferred tax benefit of $23.3 million, and in 2008 and 2007, we recognized deferred tax expense of $4.6 million and $0.5 million, respectively. Deferred income tax expense is generally a function of the period’s temporary differences and the utilization of net operating losses generated in prior years that had been previously recognized as deferred income tax assets in certain of our taxable subsidiaries operating in the U.S. or in foreign jurisdictions. Deferred income tax liabilities also relate to indemnification agreements for contributions to certain property funds.
 
Our income taxes and the current tax indemnification agreements are discussed in more detail in Note 15 to our Consolidated Financial Statements in Item 8.
 
Discontinued Operations
 
Discontinued operations represent a component of an entity that has either been disposed of or is classified as held for sale if both the operations and cash flows of the component have been or will be eliminated from ongoing operations of the entity as a result of the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. The results of operations of the component of the entity that has been classified as discontinued operations are reported separately in our consolidated financial statements.
 
In February 2009, we sold our operations in China. Accordingly, we classified our China operations as held for sale at December 31, 2008 and included the results in discontinued operations for all periods presented in our Consolidated Statements of Operations. Based on the carrying values of the assets and liabilities to be sold as compared with the estimated sales proceeds, less costs to sell, we recognized an impairment charge of $198.2 million in 2008, which is included in discontinued operations. See additional information on the China sale in Note 3 to our Consolidated Financial Statements in Item 8. In addition to our China operations, we had one and two properties classified as held for sale as of December 31, 2008 and 2007 and the results of these properties are also included in discontinued operations.


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During 2009, 2008 and 2007, in addition to our China operations, we disposed of land subject to ground leases and 140, 15 and 80 properties, respectively, to third parties. These properties met the requirements to be classified as discontinued operations. Therefore, the results of operations for these properties, as well as the gain recognized upon disposition, are included in discontinued operations.
 
Other Comprehensive Income (Loss) — Foreign Currency Translation Gains (Losses), Net
 
For our consolidated subsidiaries whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars at the time we consolidate those subsidiaries’ financial statements. Generally, assets and liabilities are translated at the exchange rate in effect as of the balance sheet date. The resulting translation adjustments, due to the fluctuations in exchange rates from the beginning of the period to the end of the period, are included in Other Comprehensive Income (Loss).
 
During 2009, we recognized net gains in Other Comprehensive Income (Loss) of $59.9 million. This includes $209.2 million in gains related to foreign currency translations of our international business units into U.S. dollars upon consolidation, mainly as a result of the strengthening of the British pound sterling to the U.S. dollar offset partially by the strengthening of the U.S. dollar to the euro and yen, from the beginning of the year to December 31, 2009. These gains were offset by a decrease in other comprehensive income of $149.3 million, as a result of the sale of our China operations and our investments in the Japan property funds in February 2009, and represents the gains previously included as currency translation adjustments. During 2008, we recognized $279.6 million of net losses due to the strengthening of the U.S dollar to the euro and British pound sterling, offset partially by the strengthening of the yen to the U.S. dollar. During 2007, we recognized net gains of $90.0 million due primarily to the strengthening of the euro and British pound sterling to the U.S. dollar.
 
Portfolio Information
 
Our total operating portfolio of properties includes industrial and retail properties owned by us and industrial properties owned by the property funds and joint ventures we manage and account for on the equity method. The operating portfolio does not include properties under development, properties held for sale or any other properties owned by unconsolidated investees, and was as follows (square feet in thousands):
 
                                                 
    December 31,  
    2009     2008     2007  
    Number of
    Square
    Number of
    Square
    Number of
    Square
 
Reportable Business Segment
  Properties     Feet     Properties     Feet     Properties     Feet  
 
Direct Owned
         1,215            192,637            1,331            197,114            1,409            208,530  
Investment Management
    1,289       274,617       1,339       297,665       1,170       250,951  
                                                 
Totals
    2,504       467,254       2,670       494,779       2,579       459,481  
                                                 
 
Same Store Analysis
 
We evaluate the performance of the operating properties we own and manage using a “same store” analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of changes in the composition of the portfolio on performance measures. We include properties owned by us, and properties owned by the unconsolidated investees (accounted for on the equity method) that are managed by us (referred to as “unconsolidated investees”), in our same store analysis. We have defined the same store portfolio for the three months ended December 31, 2009 as those properties that were in operation at October 1, 2008 and have been in operation throughout the three-month periods in both 2009 and 2008, including completed development properties. We have removed all properties that were disposed of to a third party or were classified as held for sale from the population for both periods. We believe the factors that impact rental income, rental expenses and net operating income in the same store portfolio are generally the same as for the total portfolio. In order to derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the current exchange rate to translate from local currency into U.S. dollars, for both periods, to derive the same store results. The same store portfolio, for the three months ended December 31, 2009, included 2,402 properties that aggregated 436.2 million square feet.


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The following is a reconciliation of our consolidated rental income, rental expenses and net operating income (calculated as rental income less rental expenses), for the full year as included in our Consolidated Statements of Operations in Item 8, to the respective amounts in our same store portfolio analysis for the fourth quarter.
 
                                         
    Three Months Ended        
    March 31,     June 30,     September 30,     December 31,     Full Year  
 
2009
                                       
Rental income
  $ 216,662     $ 225,455     $ 221,616     $ 227,362     $ 891,095  
Rental expenses
    66,974       69,154       68,233       65,595       269,956  
                                         
Net operating income
  $ 149,688     $ 156,301     $ 153,383     $ 161,767     $ 621,139  
                                         
2008
                                       
Rental income
  $ 241,663     $ 234,689     $ 222,102     $ 215,196     $ 913,650  
Rental expenses
    77,639       72,014       67,343       60,324       277,320  
                                         
Net operating income
  $   164,024     $   162,675     $   154,759     $   154,872     $   636,330  
                                         
 
                         
    For the Three Months Ended
       
    December 31,     Percentage
 
    2009     2008     Change  
 
Rental Income (1)(2)
                       
Consolidated:
                       
Rental income per our Consolidated Statements of Operations (see above)
  $ 227,362     $ 215,196          
Adjustments to derive same store results:
                       
Rental income of properties not in the same store portfolio — properties developed and acquired during the period and land subject to ground leases
    (31,703 )     (15,144 )        
Effect of changes in foreign currency exchange rates and other
    (1,803 )     2,869          
Unconsolidated investees :
                       
Rental income of properties managed by us and owned by our unconsolidated investees
    395,410       386,907          
                         
Same store portfolio — rental income (2)(3)
    589,266       589,828       (0.10 )%
                         
Less completed development properties (4)
    (49,644 )     (35,425 )        
                         
Adjusted same store portfolio — rental income (2)(3)(4)
  $   539,622     $   554,403            (2.67 )%
                         
Rental Expenses (1)(5)
                       
Consolidated:
                       
Rental expenses per our Consolidated Statements of Operations (see above)
  $ 65,595     $ 60,324          
Adjustments to derive same store results:
                       
Rental expenses of properties not in the same store portfolio — properties developed and acquired during the period and land subject to ground leases
    (15,220 )     (7,959 )        
Effect of changes in foreign currency exchange rates and other
    5,596       4,773          
Unconsolidated investees :
                       
Rental expenses of properties managed by us and owned by our unconsolidated investees
    94,727       84,659          
                         
Same store portfolio — rental expenses (3)(5)
    150,698       141,797       6.28 %
                         
Less completed development properties (4)
    (19,325 )     (13,320 )        
                         
Adjusted same store portfolio — rental expenses (3)(4)(5)
  $   131,373     $   128,477         2.25 %
                         
 


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    For the Three Months Ended
       
    December 31,     Percentage
 
    2009     2008     Change  
 
Net Operating Income (1)
                       
Consolidated:
                       
Net operating income per our Consolidated Statements of Operations (see above)
  $ 161,767     $ 154,872          
Adjustments to derive same store results:
                       
Net operating income of properties not in the same store portfolio — properties developed and acquired during the period and land subject to ground leases
    (16,483 )     (7,185 )        
Effect of changes in foreign currency exchange rates and other
    (7,399 )     (1,904 )        
Unconsolidated investees :
                       
Net operating income of properties managed by us and owned by our unconsolidated investees
    300,683       302,248          
                         
Same store portfolio — net operating income (3)
    438,568       448,031       (2.11 )%
                         
Less completed development properties (4)
    (30,319 )     (22,105 )        
                         
Adjusted same store portfolio — rental expenses (3)(4)
  $   408,249     $   425,926         (4.15 )%
                         
 
 
(1) As discussed above, our same store portfolio aggregates industrial and retail properties from our consolidated portfolio and industrial properties owned by the unconsolidated investees (accounted for on the equity method) that are managed by us. During the periods presented, certain properties owned by us were contributed to a property fund and are included in the same store portfolio on an aggregate basis. Neither our consolidated results nor that of the unconsolidated investees, when viewed individually, would be comparable on a same store basis due to the changes in composition of the respective portfolios from period to period (for example, the results of a contributed property would be included in our consolidated results through the contribution date and in the results of the unconsolidated investee subsequent to the contribution date).
 
(2) Rental income in the same store portfolio includes straight-line rents and rental recoveries, as well as base rent. We exclude the net termination and renegotiation fees from our same store rental income to allow us to evaluate the growth or decline in each property’s rental income without regard to items that are not indicative of the property’s recurring operating performance. Net termination and renegotiation fees represent the gross fee negotiated to allow a customer to terminate or renegotiate their lease, offset by the write-off of the asset recognized due to the adjustment to straight-line rents over the lease term. The adjustments to remove these items are included as “effect of changes in foreign currency exchange rates and other” in the tables above.
 
(3) These amounts include rental income, rental expenses and net operating income of both our consolidated industrial and retail properties and those industrial properties owned by our unconsolidated investees (accounted for on the equity method) and managed by us.
 
(4) The same store portfolio results include the benefit of leasing in certain of our completed development properties that meet our definition. We have also presented the results for the adjusted same store portfolio, for core properties only, by excluding the 156 completed development properties in operation that we owned as of October 1, 2008 and that are still included in the same store portfolio (either owned by us or our unconsolidated investees that we manage).
 
(5) Rental expenses in the same store portfolio include the direct operating expenses of the property such as property taxes, insurance, utilities, etc. In addition, we include an allocation of the property management expenses for our direct-owned properties based on the property management fee that is provided for in the individual management agreements under which our wholly owned management companies provides property management services to each property (generally, the fee is based on a percentage of revenues). On consolidation, the management fee income earned by the management company and the management fee expense recognized by the properties are eliminated and the actual costs of providing property management services are recognized as part of our consolidated rental expenses. These expenses fluctuate based

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on the level of properties included in the same store portfolio and any adjustment is included as “effect of changes in foreign currency exchange rates and other” in the above table.
 
Environmental Matters
 
For a discussion of environmental matters, see Note 19 to our Consolidated Financial Statements in Item 8 and also Item 1A Risk Factors.
 
Liquidity and Capital Resources
 
Overview
 
We consider our ability to generate cash from operating activities, contributions and dispositions of properties and from available financing sources to be adequate to meet our anticipated future development, acquisition, operating, debt service and shareholder distribution requirements.
 
As discussed earlier, our focus in 2009 placed significant emphasis on liquidity. During the fourth quarter of 2008, we set a goal to simplify our debt structure and reduce our total debt by at least $2.0 billion by December 31, 2009. As of December 31, 2009, we have exceeded this goal and reduced debt since December 31, 2008 by $2.7 billion through the following actions:
 
     
•   generated cash through contributions of properties to the unconsolidated property funds or sales of assets to third parties;
 
— During 2009, we received $1.3 billion in proceeds from the sale of our China operations and investments in the Japan property funds. In addition, we generated $1.5 billion in proceeds during 2009 from the contributions of properties to the property funds and sales of land and properties to third parties.
•   repurchased our senior notes and convertible notes at a discount and extinguished certain secured mortgage debt prior to maturity;
 
— We purchased $1.2 billion notional amount of portions of several series of senior and other notes and extinguished $227.0 million of secured mortgage debt during 2009. This resulted in the reduction of $242.1 million in debt and a gain of $172.3 million in 2009.
•   recasted our Global Line and simplified our debt structure;
 
— In August 2009, we amended and extended our Global Line, and in October 2009 we amended the financial covenants of our senior notes --both discussed below.
•   issued equity;
 
— In April 2009, we completed the Equity Offering that resulted in net proceeds to us of $1.1 billion. During 2009, we generated net proceeds of $325.1 million through the issuance of 29.8 million common shares under our at-the-market equity issuance program.
•   reduced cash needs;
 
— We halted early-stage infrastructure on development projects and implemented G&A cost savings initiatives and a RIF program with a target to reduce gross G&A in 2009 by 20% to 25%. Our gross G&A in 2009 was 26.5% lower than 2008.
•   and lowered our common share distribution.
 
— We reduced our annual distributions on our common shares in 2009 from $542.8 million to $271.8 million.


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During 2009, we focused on staggering and extending our debt maturities through the following activities:
 
•     We issued $350.0 million of 7.625% senior notes due August 2014, at 99.489% of par, for an all-in-rate of 7.75%.
 
•     We issued $600.0 million of 7.375% senior notes due October 2019, at 99.728% of par value for an all-in-rate of 7.414%.
 
•     We closed on $499.9 million in secured mortgage debt, which includes $101.8 million at 6.5% due July 2014, $245.5 million at 7.55% due July 2019, ¥4.3 billion of 4.09% TMK bonds ($44.4 million) that matures in June 2012, and ¥10.0 billion of 2.74% TMK bonds ($108.2 million) that matures in December 2012. Both TMK bonds have variable interest rates, but were fixed using derivative swap contracts. TMK bonds are a financing vehicle in Japan for special purpose companies known as TMKs.
 
The proceeds from the issuance of the senior notes and secured mortgage debt were used to repay borrowings on our credit facilities or other debt. See Note 9 to our Consolidated Financial Statements in Item 8 for further information.
 
Credit Facilities
 
Information related to our Global Line as of December 31, 2009 (dollars in millions):
 
         
Borrowing base
  $ 3,907.7  
Borrowing capacity (1)
  $ 2,149.2  
Less:
       
Borrowings outstanding
    736.6  
Outstanding letters of credit
    99.3  
Debt due within one year
    232.9  
         
Current availability
  $   1,080.4  
         
 
 
(1) Borrowing capacity represents 55% of the borrowing base related to the Global Line.
 
In August 2009, we amended our Global Line to, among other things, extend the maturity to August 21, 2012 and reduce the size of the aggregate commitments to $2.25 billion, after October 2010, from the current level of $3.7 billion (in each case subject to currency fluctuations). The Global Line includes covenants that may limit the amount of indebtedness that we and our subsidiaries can incur to an amount that may be less than the aggregate lender commitments under the Global Line, depending on the timing and use of proceeds of the borrowings. The borrowing base covenant in the Global Line limits the aggregate amount of indebtedness (including obligations under the Global Line and other recourse indebtedness maturing within one year) to no more than 55% of the value (determined by a formula as of the end of each fiscal quarter) of our unencumbered property pool, as defined in the Global Line.
 
Our current availability to borrow under the Global Line is calculated as the lesser of (i) the aggregate lender commitments and (ii) the borrowing capacity, in each case reduced by the outstanding borrowings, letters of credit and recourse debt due within one year; resulting in current availability of $1.1 billion at December 31, 2009. Therefore, the amount of funds that we may borrow under the Global Line will vary from time to time based upon the outstanding amount of such specified indebtedness and the quarterly formulaic valuation of our unencumbered property pool. Our current availability to borrow would remain $1.1 billion at December 31, 2009, even if the aggregate lender commitments were reduced to $2.25 billion.
 
We may draw funds from a syndicate of banks in U.S. dollars, euros, Japanese yen, British pound sterling and Canadian dollars, and until October 2010, South Korean won. Lenders who did not participate in the amended and extended facility will be subject to the pre-amendment pricing structure through October 2010, while the new pricing structure is effective immediately to extending lenders. Based on our public debt ratings and a pricing grid, interest on the borrowings under the Global Line accrues at a variable rate based upon the


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interbank offered rate in each respective jurisdiction in which the borrowings are outstanding and we pay utilization fees that are calculated on the outstanding balance. The interest and utilization fees result in a weighted average borrowing rate of 2.27% per annum at December 31, 2009 using local currency rates.
 
In connection with the amendment of the Global Line, we repaid the balance outstanding and terminated our existing multi-currency credit facility, which was scheduled to mature in October, 2009, with borrowings under the Global Line. We have a 9.7 million British pound sterling facility, which matures December 31, 2010 and is equal to the outstanding letters of credit under the facility.
 
Near-Term Principal Cash Sources and Uses
 
In addition to common share distributions and preferred share dividend requirements, we expect our primary short and long-term cash needs will consist of the following:
 
•     completion of the development and leasing of the properties in our development portfolio (a);
 
•     selective development of new operating properties, that are generally pre-leased, for long-term investment utilizing our existing land;
 
•     repayment of debt, including payments on our credit facilities or opportunistic repurchases of convertible, senior or other notes;
 
•     scheduled principal payments in 2010 of $232.9 million;
 
•     capital expenditures and leasing costs on properties;
 
•     investments in current or future unconsolidated property funds, including the purchase of additional common units in PEPR (at this time, we do not intend to increase our equity ownership of PEPR beyond 33.33 percent) and our expected remaining capital commitments of $280.0 million (b); and
 
•     depending on market conditions, direct acquisition of operating properties and/or portfolios of operating properties in key distribution markets for direct, long-term investment.
 
 
(a) As of December 31, 2009, we had 5 properties under development with a current investment of $192.0 million and a total expected investment of $295.7 million when completed and leased, with $103.7 million remaining to be spent. We also had 163 completed development properties with a current investment of $4.1 billion and a total expected investment of $4.3 billion when leased, with $204.1 million remaining to be spent.
 
(b) We may fulfill our equity commitment with properties we contribute to the property funds or cash, depending on the property fund as discussed below. However, to the extent a property fund acquires properties from a third party or requires cash to retire debt or has other cash needs, we may be required or agree to contribute our proportionate share of the equity component in cash to the property fund. During the year ended December 31, 2009, we used cash for investments in or advances to our unconsolidated investees of approximately $401.4 million, as discussed below.
 
We expect to fund cash needs for 2010 and future years primarily with cash from the following sources, all subject to market conditions:
 
•     available cash balances ($34.4 million at December 31, 2009);
 
•     property operations;
 
•     fees and incentives earned for services performed on behalf of the property funds and distributions received from the property funds;
 
•     proceeds from the disposition of properties or land parcels to third parties;


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•     cash proceeds from the contributions of properties to property funds;
 
•     borrowing capacity under existing credit facilities ($1.1 billion available as of December 31, 2009), other future facilities or borrowing arrangements;
 
•     proceeds from the issuance of equity securities, including sales under our at-the-market equity issuance program, under which we have 10.2 million common shares remaining; and
 
•     proceeds from the issuance of debt securities, including secured mortgage debt.
 
We may seek to retire or purchase our outstanding debt or equity securities through cash purchases, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We have approximately $84.1 million remaining on authorization to repurchase common shares that was approved by our Board in 2001. We have not repurchased our common shares since 2003.
 
Debt Covenants
 
On October 1, 2009, we completed a consent solicitation with regard to our senior notes, other than our convertible notes, to amend certain covenants and events of default contained in the indenture governing the notes and to provide that all series of the senior notes issued under the indenture, other than convertible notes, will have the same financial covenants and events of default. Due to the terms of the convertible notes, they are not subject to financial covenants.
 
We are also subject to covenants under our Global Line. The financial covenants include leverage ratios, fixed charge and debt service coverage ratios, investments and indebtedness to total asset value ratios, minimum consolidated net worth and restrictions on distributions, redemptions and borrowing limitations.
 
The most restrictive covenants relate to the total leverage ratio, the fixed charge coverage ratio and the borrowing limitations. All covenants are calculated based on the definitions and calculations included in the respective debt agreements.
 
As of December 31, 2009, we were in compliance with all of our debt covenants.
 
Equity Commitments Related to Certain Property Funds
 
Certain property funds have equity commitments from us and our fund partners. We may fulfill our equity commitment through contributions of properties or cash or we may not be required to fulfill them before expiration. Our fund partners fulfill their equity commitment with cash. We are committed to offer to contribute substantially all of the properties that we develop and stabilize in Europe and Mexico to these respective funds. These property funds are committed to acquire such properties, subject to certain exceptions, including that the properties meet certain specified leasing and other criteria, and that the property funds have available capital. We are not obligated to contribute properties at a loss. Depending on market conditions, our liquidity needs and other factors, we may make contributions of properties to these property funds through the remaining commitment period in 2010.


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The following table outlines the activity of these commitments in 2009 (in millions):
 
                                                         
    NAIF (1)     Mexico (2)     PEPF II (3)  
          Fund
          Fund
    ProLogis
    ProLogis
    Fund
 
    ProLogis     Partners     ProLogis     Partners     Series A     Series B     Partners  
 
Remaining equity commitments at December 31, 2008 (4)
  $   72.5     $   211.7     $   44.3     $   246.7       295.9       272.2       857.4  
Capital called for the repayment of debt
    (54.1 )     (174.2 )                              
Capital called for the acquisition of properties from us
                                  (108.5 )     (341.6 )
                                                         
Remaining equity commitments at December 31, 2009 (local currency)
  $ 18.4     $ 37.5     $ 44.3     $ 246.7     295.9     163.7     515.8  
                                                         
Remaining equity commitments at December 31, 2009
(in U.S. dollars)
  $ 18.4     $ 37.5     $ 44.3     $ 246.7     $ 424.5     $ 234.9     $ 739.8  
                                                         
Expiration date for remaining commitments
  Feb — 2010   Aug — 2010   Aug — 2010
 
 
(1) During 2009, the ProLogis North American Industrial Fund called capital to repay borrowings outstanding under its credit facility and to repay certain secured mortgage debt, which resulted in a gain on early extinguishment of $31.1 million. In February 2010, the property fund called $23.2 million of capital, including $0.8 million in cash from ProLogis, to acquire one property from us. The remaining equity commitments expire at the end of February 2010.
 
(2) ProLogis Mexico Industrial Fund may use the remaining equity commitments to pay down existing debt or other liabilities, including amounts due to us, or to make acquisitions of properties from us or third parties depending on market conditions and other factors.
 
(3) PEPF II’s equity commitments are denominated in euro. The ProLogis commitments include a commitment on the Series B units we acquired from PEPR in December 2008 that we are required to fund with cash. During 2009, we contributed 43 properties to PEPF II for gross proceeds of $643.7 million that were financed by PEPF II with all equity, including our co-investment of $152.7 million in cash under this commitment. We did not make any contributions in 2009 under the Series A commitment. We are not required to fund the remaining Series A commitment in cash and we anticipate it will expire unused.
 
(4) Excludes commitments related to the ProLogis Korea Fund as the agreements were amended and there are no longer any remaining commitments.
 
Generally, the properties are contributed based on third-party appraised value, other than PEPF II in 2009. For contributions we made in 2009 to PEPF II, the capitalization rate was determined based on a third party appraisal then a margin of 0.25 to 0.75 percentage points was added to the capitalization rate, depending on the quarter the properties were contributed. We may receive additional proceeds for the 2009 contributions if values at the end of 2010 are higher than those used to determine contribution values.
 
In addition to the capital contributions we made under these commitments, we also made additional discretionary investments in the property funds of $173.5 million in 2009. These investments included the purchase of preferred convertible units in PEPR ($59.4 million), a preferred investment in ProLogis North American Industrial Fund II ($85.0 million), contributions to ProLogis North American Properties Fund XI and ProLogis North American Properties Fund I to repay debt ($3.7 million) and advances to ProLogis North American Industrial Fund III ($25.4 million).
 
For more information on the property funds, see Note 6 to our Consolidated Financial Statements in Item 8.
 
Cash Provided by Operating Activities
 
Net cash provided by operating activities was $116.0 million for 2009, $884.2 million for 2008, and $1.2 billion for 2007. The decrease is due primarily to gains of $654.7 million and $763.7 million recognized in 2008 and 2007, respectively, on the contributions of CDFS properties. These gains were lower in 2009 and, due to the changes in our business strategy, no longer included in cash provided by operating activities.


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In addition in 2009, we paid $226.6 million in taxes related to the settlement of audits that were in process at the time of our acquisition of Catellus Development Corporation in 2005. Prior to payment, these amounts were included in the liability for unrecognized tax benefits. Excluding these payments, cash provided by operating activities exceeded the cash distributions paid on common shares and dividends paid on preferred shares in all three periods.
 
Cash Investing and Cash Financing Activities
 
For 2009, investing activities provided net cash of $1.2 billion. For 2008 and 2007, investing activities used net cash of $1.3 billion and $4.1 billion, respectively. The following are the more significant activities for all periods presented:
 
•     In 2009, we received $1.3 billion in proceeds from the sale of our China operations and our property fund interests in Japan. The proceeds were used to pay down borrowings on our credit facilities.
 
•     We generated net cash from contributions and dispositions of properties and land parcels of $1.5 billion, $4.5 billion and $3.6 billion in 2009, 2008 and 2007, respectively.
 
•     We invested $1.3 billion in real estate during the year ended December 31, 2009, $5.6 billion for the same period in 2008, and $5.3 billion for the same period in 2007, excluding Macquarie ProLogis Trust (“MPR”), which owned 88.7% of a property fund, and Parkridge Holdings Limited (“Parkridge”) acquisitions (see below). The real estate investment amounts include costs for current and future development projects; the acquisition of operating properties (25 properties and 41 properties with an aggregate purchase price of $324.0 million and $351.6 million in 2008 and 2007, respectively); acquisitions of land or land use rights for future development; and recurring capital expenditures and tenant improvements on existing operating properties. At December 31, 2009, we had 5 properties aggregating 2.9 million square feet under development, with a total expected investment of $295.7 million.
 
•     We invested cash of $401.4 million, $329.6 million and $661.8 million in 2009, 2008 and 2007, respectively, in unconsolidated investees in connection with property contributions we made, repayment of debt by the investees and two new preferred investments in existing property funds. In 2009, our investments principally include $152.7 million in PEPF II, $59.4 million in PEPR, $85.0 million in North American Industrial Fund II and $54.1 million in the North American Industrial Fund. In 2008, our investments principally include $167.3 million in PEPF II and $68.5 million in joint ventures operating in China. In 2007, our investments principally include $100.0 million in ProLogis North American Industrial Fund II (discussed below), $360.0 million in ProLogis North American Industrial Fund III, and excludes the initial investment in the Parkridge retail business, which is detailed separately.
 
•     We received distributions from unconsolidated investees as a return of investment of $78.1 million, $127.0 million and $50.2 million in 2009, 2008 and 2007, respectively.
 
•     We generated net cash proceeds from payments on notes receivable of $10.7 million, $4.2 million, and $97.4 million in 2009, 2008 and 2007, respectively.
 
•     In February 2007, we purchased the industrial business and made a 25% investment in the retail business of Parkridge. The total purchase price was $1.3 billion of which we paid cash of $733.9 million and the balance in common shares or assumption of liabilities.
 
•     On July 11, 2007, we completed the acquisition of MPR for total consideration of approximately $2.0 billion, consisting of $1.2 billion of cash and the assumption of debt and other liabilities of $0.8 billion. The cash portion was financed by the issuance of a $473.1 million term loan and a $646.2 million convertible loan with an affiliate of Citigroup. On August 27, 2007, when Citigroup converted $546.2 million of the convertible loan into equity of a newly created property fund, ProLogis


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North American Industrial Fund II, we made a $100.0 million cash equity contribution to the property fund, which it used to repay the remaining balance on the convertible loan.
 
For 2009, financing activities used net cash of $1.5 billion. For 2008 and 2007, financing activities provided net cash of $358.1 million and $2.7 billion, respectively. The following are the more significant activities for all periods presented as summarized below:
 
•     In April 2009, we closed on the Equity Offering and received net proceeds of $1.1 billion. In addition to the Equity Offering, we generated proceeds from the sale and issuance of common shares of $337.4 million, $222.2 million and $46.9 million in 2009, 2008 and 2007, respectively. The proceeds in 2009 include $331.9 million from our at-the-market equity issuance program.
 
•     In 2009, we purchased and extinguished $1.5 billion original principal amount of our senior, convertible senior and other notes, along with certain secured mortgage debt, for a total of $1.2 billion. In 2008, we purchased and extinguished $309.7 million original principal amount of our senior notes for a total of $216.8 million.
 
•     In 2009, we issued $950.0 million of senior notes and closed on $499.9 million of secured mortgage debt, which includes ¥14.3 billion in TMK bonds. In 2008, we issued $550.0 million convertible senior notes and $600.0 million of senior notes. In 2007, we issued $2.4 billion convertible senior notes and $781.8 million of senior notes.
 
•     During 2007, we received proceeds of $1.1 billion and $600.1 million under facilities used to partially finance the MPR and Parkridge acquisitions, respectively (see Note 5 and Note 6 to our Consolidated Financial Statements in Item 8).
 
•     We had net payments on our credit facilities of $2.4 billion and $431.5 million in 2009 and 2007, respectively and net borrowings of $743.9 million in 2008.
 
•     We had net payments on our other debt of $351.8 million, $985.2 million and $1.2 billion for the years ended December 31, 2009, 2008 and 2007, respectively.
 
•     We paid distributions to holders of common shares of $271.8 million, $542.8 million and $472.6 million in 2009, 2008 and 2007, respectively. We paid dividends on preferred shares of $25.4 million, $25.4 million and $31.8 million in 2009, 2008 and 2007, respectively.
 
Off-Balance Sheet Arrangements
 
Unconsolidated Investees


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We had investments in and advances to property funds at December 31, 2009 of $2.2 billion. The property funds had total third party debt of $9.3 billion (for the entire entity, not our proportionate share) at December 31, 2009 that matures as follows (dollars in millions):
 
                                                                 
    2010     2011     2012     2013     2014     Thereafter     Discount     Total (1)  
 
ProLogis California LLC
  $     $     $     $     $ 137.5     $ 172.5     $     $ 310.0  
ProLogis North American Properties Fund I (2)
    122.7       111.8                                     234.5  
ProLogis North American Properties Fund VI-X
    1.9       2.2       871.0       12.4                         887.5  
ProLogis North American Properties Fund XI
    42.9       0.6       0.7       0.4                   (0.1 )     44.5  
ProLogis North American Industrial Fund (3)
                52.0       80.0             1,112.2             1,244.2  
ProLogis North American Industrial Fund II (4)
    157.5             154.0       64.0       566.3       391.2       (9.5 )     1,323.5  
ProLogis North American Industrial Fund III (5)
    2.4       120.7       94.3       385.6       146.5       280.0       (2.6 )     1,026.9  
ProLogis Mexico Industrial Fund (6)
                99.1       170.0                         269.1  
ProLogis European Properties (7)
    664.9             384.1       453.8       847.9                   2,350.7  
ProLogis European Properties Fund II (8)
    627.1             160.0       517.6       243.7       49.8             1,598.2  
ProLogis Korea Fund
          16.0       32.1                               48.1  
                                                                 
Total property funds
  $  1,619.4     $  251.3     $  1,847.3     $  1,683.8     $  1,941.9     $  2,005.7     $  (12.2 )   $  9,337.2  
                                                                 
 
 
(1) As of December 31, 2009, we had not guaranteed any of the third party debt. See note (4) below. In our role as the manager of the property funds, we work with the property funds to refinance their maturing debt. We are in various stages of discussions with banks on extending or refinancing the 2010 maturities. As noted below, a majority of the 2010 maturities have been substantially addressed. There can be no assurance that the property funds will be able to refinance any maturing indebtedness at terms as favorable as the maturing debt, or at all. If the property funds are unable to refinance the maturing indebtedness with newly issued debt, they may be able to otherwise obtain funds by capital contributions from us and our fund partners, or by selling assets. Certain of the property funds also have credit facilities, which may be used to obtain funds. Generally, the property funds issue long-term debt and utilize the proceeds to repay borrowings under the credit facilities. Information on remaining equity commitments of the property funds is presented above.
 
(2) The debt included in 2010 maturities is due December 2010. The property fund is in discussions about a re-financing or extending the term of this debt.
 
(3) ProLogis North American Industrial Fund has a $50.0 million credit facility that matures July 17, 2010, and was completely available at December 31, 2009.
 
(4) We have pledged properties we own directly, valued at approximately $275.0 million, to serve as additional collateral on a loan payable to an affiliate of our fund partner that is due in 2014 and outstanding derivative contracts. Of the $157.5 million due in 2010, $85.0 million matures in June and the remaining amount matures in September. The property fund has a loan commitment for $71.0 million of new secured mortgage debt with a seven year maturity and a commitment to refinance $81 million with the current lender for five years. The remaining balance will be paid with cash.
 
(5) During the first quarter of 2009, we and our fund partner each loaned the property fund $25.4 million that is payable with operating cash flow, matures at dissolution of the partnership and bears interest at LIBOR plus 8%. The outstanding balance at December 31, 2009 was $22.6 million and is not included in the maturities above as it is not third party debt.
 
(6) In addition to its existing third party debt, this property fund has a note payable to us for $14.3 million at December 31, 2009.
 
(7) PEPR has three credit facilities with aggregate borrowing capacity of €867 million (approximately $1.2 billion). As of December 31, 2009, two facilities had outstanding borrowings of $535.0 million due December 2010 and another facility had outstanding borrowings of $384.1 million due December 2012. The aggregate remaining capacity at December 31, 2009 was $325.6 million. In January 2010, PEPR issued €392.7 million ($553.3 million) of secured mortgage debt due 2014, the proceeds of which were used to repay outstanding debt that was scheduled to mature in 2010, including a portion of the credit facility.


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(8) As of December 31, 2009, PEPF II had a €600 million credit facility (approximately $860.6 million) due May 2010, under which $627.1 million was outstanding and $233.5 million was available to borrow under this facility. In January 2010, PEPF II issued €181 million ($255.0 million) of secured mortgage debt due 2014; the proceeds of which were used to pay down the outstanding balance on the credit facility that is scheduled to mature in 2010. In February 2010, PEPF II decreased the commitments under the facility to €300 million.
 
Contractual Obligations
 
Long-Term Contractual Obligations
 
We had long-term contractual obligations at December 31, 2009 as follows (in millions):
 
                                         
    Payments Due By Period  
          Less than
    1 to 3
    3 to 5
    More than
 
    Total     1 year     years     years     5 years  
 
Debt obligations, other than credit facilities
  $ 7,420     $ 233     $ 1,758     $ 2,011     $ 3,418  
Interest on debt obligations, other than credit facilities
    2,262       373       674       513       702  
Unfunded commitments on development projects (1)
    104       104                    
Unfunded capital commitments to unconsolidated investees (2)
    280       280                    
Amounts due on credit facilities
    737             737              
Interest on lines of credit
    45       17       28              
Tax liabilities (3)
    65       16       48       1        
                                         
Totals
  $  10,913     $  1,023     $  3,245     $  2,525     $  4,120  
                                         
 
 
(1) We had properties under development at December 31, 2009 with a total expected investment of $295.7 million. The unfunded commitments presented include not only those costs that we are obligated to fund under construction contracts, but all costs necessary to place the property into service, including the costs of tenant improvements, marketing and leasing costs.
 
(2) Generally, we fulfill our equity commitment with a portion of the proceeds from properties we contribute to the property fund. However, to the extent a property fund acquires properties from a third party or requires cash to pay-off debt or has other cash needs, we may be required to contribute our proportionate share of the equity component in cash to the property fund. See discussion above in “- Off-Balance Sheet Arrangements”.
 
(3) These amounts represent an estimate of our income tax liabilities, including an estimate of the period of settlement. See Note 15 to our Consolidated Financial Statements in Item 8.
 
Other Commitments
 
On a continuing basis, we are engaged in various stages of negotiations for the acquisition and/or disposition of individual properties or portfolios of properties.
 
Distribution and Dividend Requirements
 
Our common share distribution policy is to distribute a percentage of our cash flow to ensure we will meet the distribution requirements of the Code, relative to maintaining our REIT status, while still allowing us to maximize the cash retained to meet other cash needs such as capital improvements and other investment activities.
 
Cash distributions per common share paid in 2009, 2008 and 2007 were $0.70, $2.07 and $1.84, respectively. Our 2009 dividend was $0.25 for the first quarter and $0.15 for each of the second, third and fourth quarters. The payment of common share distributions is dependent upon our financial condition, operating results and


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REIT distribution requirements and may be adjusted at the discretion of the Board during the year. A cash distribution of $0.15 per common share for the first quarter of 2010 was declared on February 1, 2010. This distribution will be paid on February 26, 2010 to holders of common shares on February 12, 2010.
 
At December 31, 2009, we had three series of preferred shares outstanding. The annual dividend rates on preferred shares are $4.27 per Series C Preferred Share, $1.69 per Series F Preferred Share and $1.69 per Series G Preferred Share.
 
Pursuant to the terms of our preferred shares, we are restricted from declaring or paying any distribution with respect to our common shares unless and until all cumulative dividends with respect to the preferred shares have been paid and sufficient funds have been set aside for dividends that have been declared for the then current dividend period with respect to the preferred shares.
 
Critical Accounting Policies
 
A critical accounting policy is one that is both important to the portrayal of an entity’s financial condition and results of operations and requires judgment on the part of management. Generally, the judgment requires management to make estimates and assumptions about the effect of matters that are inherently uncertain. Estimates are prepared using management’s best judgment, after considering past and current economic conditions and expectations for the future. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Changes in estimates could affect our financial position and specific items in our results of operations that are used by shareholders, potential investors, industry analysts and lenders in their evaluation of our performance. Of the accounting policies discussed in Note 2 to our Consolidated Financial Statements in Item 8, those presented below have been identified by us as critical accounting policies.
 
Impairment of Long-Lived Assets and Goodwill
 
We assess the carrying values of our respective long-lived assets, including goodwill, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable.
 
Recoverability of real estate assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. In order to review our real estate assets for recoverability, we consider current market conditions, as well as our intent with respect to holding or disposing of the asset. Fair value is determined through various valuation techniques; including discounted cash flow models, quoted market values and third party appraisals, where considered necessary. If our analysis indicates that the carrying value of the real estate asset is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property.
 
We use a two step approach to our goodwill impairment evaluation. The first step of the goodwill impairment test is used to identify whether there is any potential impairment. If the fair value of a reporting unit exceeds its corresponding book value, including goodwill, the goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of the reporting unit exceeds its fair value, the second step of the impairment test is performed. The second step requires that we compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill to measure the amount of impairment loss, if any.
 
Generally, we use net asset value analyses to estimate the fair value of the reporting unit where the goodwill is allocated. We estimate the current fair value of the assets and liabilities in the reporting unit through various valuation techniques; including discounted cash flow models, applying a capitalization rate to estimated net operating income of a property, quoted market values and third-party appraisals, as considered necessary. The fair value of the reporting unit also includes an enterprise value premium that we estimate a third party would be willing to pay for the particular reporting unit. The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to


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manage our underlying business. However, assumptions and estimates about future cash flows, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions that occur subsequent to our impairment analyses could impact these assumptions and result in future impairment of our goodwill.
 
The use of projected future cash flows and other estimates of fair value are based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. However, assumptions and estimates about future cash flows, discount rates and capitalization rates are complex and subjective. Use of other estimates and assumptions may result in changes in the impairment charges recognized. Changes in economic and operating conditions that occur subsequent to our impairment analyses could impact these assumptions and result in future impairment charges of our real estate properties and/or goodwill. In addition, our intent with regard to the underlying assets might change as market conditions change, as well as other factors, especially in the current global economic environment.
 
Investments in Unconsolidated Investees
 
When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate the equity investment and any advances made to the investee for impairment by estimating our ability to recover our investment from future expected cash flows. If we determine the loss in value is other than temporary, we recognize an impairment charge to reflect the investment at fair value. The use of projected future cash flows and other estimates of fair value, the determination of when a loss is other than temporary, and the calculation of the amount of the loss, is complex and subjective. Use of other estimates and assumptions may result in different conclusions. Changes in economic and operating conditions that occur subsequent to our review could impact these assumptions and result in future impairment charges of our equity investments.
 
Revenue Recognition
 
We recognize gains from the contributions and sales of real estate assets, generally at the time the title is transferred, consideration is received and we no longer have substantial continuing involvement with the real estate sold. In many of our transactions, an entity in which we have an ownership interest will acquire a real estate asset from us. We make judgments based on the specific terms of each transaction as to the amount of the total profit from the transaction that we recognize given our continuing ownership interest and our level of future involvement with the investee that acquires the assets. We also make judgments regarding the timing of recognition in earnings of certain fees and incentives when they are fixed and determinable.
 
Business Combinations
 
We acquire individual properties, as well as portfolios of properties or businesses. When we acquire a business or individual operating properties, with the intention to hold the investment for the long-term, we allocate the purchase price to the various components of the acquisition based upon the fair value of each component. The components typically include land, building, debt and other assumed liabilities, intangible assets related to above and below market leases, value of costs to obtain tenants and goodwill, deferred tax liabilities and other assets and liabilities in the case of an acquisition of a business. In an acquisition of multiple properties, we must also allocate the purchase price among the properties. The allocation of the purchase price is based on our assessment of estimated fair value and often times based upon the expected future cash flows of the property and various characteristics of the markets where the property is located. The initial allocation of the purchase price is based on management’s preliminary assessment, which may differ when final information becomes available. Subsequent adjustments made to the initial purchase price allocation are made within the allocation period, which typically does not exceed one year.
 
Consolidation
 
We consolidate all entities that are wholly owned and those in which we own less than 100% but control, as well as any variable interest entities in which we are the primary beneficiary. We evaluate our ability to


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control an entity and whether the entity is a variable interest entity and we are the primary beneficiary through the consideration of various factors, including: the form of our ownership interest and legal structure; our representation on the entity’s governing body; the size of our investment (including loans); estimates of future cash flows; our ability and the rights of other investors to participate in significant decisions; and the ability of other investors or partners to replace us as manager or general partner and/or liquidate the entity, if applicable. Investments in entities in which we do not control but over which we have the ability to exercise significant influence over operating and financial policies are presented under the equity method. Investments in entities that we do not control and over which we do not exercise significant influence are carried at the lower of cost or fair value, as appropriate. Our ability to correctly assess our influence and/or control over an entity affects the presentation of these investments in our consolidated financial statements.
 
Capitalization of Costs and Depreciation
 
We capitalize costs incurred in developing, renovating, acquiring and rehabilitating real estate assets as part of the investment basis. Costs incurred in making certain other improvements are also capitalized. During the land development and construction periods, we capitalize interest costs, insurance, real estate taxes and certain general and administrative costs of the personnel performing development, renovations, rehabilitation and leasing activities if such costs are incremental and identifiable to a specific activity. Capitalized costs are included in the investment basis of real estate assets except for the costs capitalized related to leasing activities, which are presented as a component of other assets. We estimate the depreciable portion of our real estate assets and related useful lives in order to record depreciation expense. Prior to 2008, if we developed properties with the intent to contribute the property to a property fund, we did not depreciate these properties during the period from completion of the development through the date the property was contributed. With the changes in our business strategy, and the uncertainty with respect to the timing of future contributions to the property funds, we expect to hold these properties long-term and have begun to depreciate them. Our ability to accurately assess the properties to depreciate and to estimate the depreciable portions of our real estate assets and useful lives is critical to the determination of the appropriate amount of depreciation expense recorded and the carrying value of the underlying assets. Any change to the assets to be depreciated and the estimated depreciable lives of these assets would have an impact on the depreciation expense recognized.
 
Income Taxes
 
As part of the process of preparing our consolidated financial statements, significant management judgment is required to estimate our income tax liability, the liability associated with open tax years that are under review and our compliance with REIT requirements. Our estimates are based on interpretation of tax laws. We estimate our actual current income tax due and assess temporary differences resulting from differing treatment of items for book and tax purposes resulting in the recognition of deferred income tax assets and liabilities. These estimates may have an impact on the income tax expense recognized. Adjustments may be required by a change in assessment of our deferred income tax assets and liabilities, changes in assessments of the recognition of income tax benefits for certain non-routine transactions, changes due to audit adjustments by federal and state tax authorities, our inability to qualify as a REIT, the potential for built-in-gain recognition, changes in the assessment of properties to be contributed to TRSs and changes in tax laws. Adjustments required in any given period are included within income tax expense. We recognize the tax benefit from an uncertain tax position only if it is “more-likely-than-not” that the tax position will be sustained on examination by taxing authorities.
 
New Accounting Pronouncements
 
See Note 2 to our Consolidated Financial Statements in Item 8.
 
Funds from Operations
 
FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings. Although National Association of Real Estate Investment Trusts


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(“NAREIT”) has published a definition of FFO, modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business.
 
FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We believe net earnings computed under GAAP remains the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings computed under GAAP. Further, we believe our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and our operating performance.
 
NAREIT’s FFO measure adjusts net earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales of previously depreciated properties. We agree that these two NAREIT adjustments are useful to investors for the following reasons:
 
(i)  historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on FFO “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.
 
(ii)  REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods. We include the gains and losses from dispositions of land, development properties and properties acquired in our CDFS business segment, as well as our proportionate share of the gains and losses from dispositions recognized by the property funds, in our definition of FFO.
 
Our FFO Measures
 
At the same time that NAREIT created and defined its FFO measure for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe shareholders, potential investors and financial analysts who review our operating results are best served by a defined FFO measure that includes other adjustments to net earnings computed under GAAP in addition to those included in the NAREIT defined measure of FFO. Our FFO measures are used by management in analyzing our business and the performance of our properties and we believe that it is important that shareholders, potential investors and financial analysts understand the measures management uses.
 
We use our FFO measures as supplemental financial measures of operating performance. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.
 
FFO, including significant non-cash items
 
To arrive at FFO, including significant non-cash items, we adjust the NAREIT defined FFO measure to exclude:
 
(i)  deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;


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(ii)  current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in GAAP earnings that is excluded from our defined FFO measure;
 
(iii)  certain foreign currency exchange gains and losses resulting from certain debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated investees;
 
(iv)  foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of our foreign consolidated subsidiaries and our foreign unconsolidated investees; and
 
(v)  mark-to-market adjustments associated with derivative financial instruments utilized to manage foreign currency and interest rate risks.
 
We calculate FFO, including significant non-cash items for our unconsolidated investees on the same basis as we calculate our FFO, including significant non-cash items.
 
We use this FFO measure, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) assess our performance as compared to similar real estate companies and the industry in general; and (v) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of short-term items that we do not expect to affect the underlying long-term performance of the properties. The long-term performance of our properties is principally driven by rental income. While not infrequent or unusual, these additional items we exclude in calculating FFO, including significant non-cash items, are subject to significant fluctuations from period to period that cause both positive and negative short-term effects on our results of operations, in inconsistent and unpredictable directions that are not relevant to our long-term outlook.
 
We believe investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy.
 
FFO, excluding significant non-cash items
 
When we began to experience the effects of the global economic crises in the fourth quarter of 2008, we decided that FFO, including significant non-cash items, did not provide all of the information we needed to evaluate our business in this environment. As a result, we developed FFO, excluding significant non-cash items to provide additional information that allows us to better evaluate our operating performance in this unprecedented economic time.
 
To arrive at FFO, excluding significant non-cash items, we adjust FFO, including significant non-cash items, to exclude the following items that we recognized directly or our share recognized by our unconsolidated investees:
 
Non-recurring items
 
(i)  impairment charges related to the sale of our China operations;
 
(ii)  impairment charges of goodwill; and
 
(iii)  our share of the losses recognized by PEPR on the sale of its investment in PEPF II.


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Recurring items
 
(i)  impairment charges of completed development properties that we contributed or expect to contribute to a property fund;
 
(ii)  impairment charges of land or other real estate properties that we sold or expect to sell;
 
(iii)  impairment charges of other non-real estate assets, including equity investments;
 
(iv)  our share of impairment charges of real estate that is sold or expected to be sold by an unconsolidated investee; and
 
(v)  gains from the early extinguishment of debt.
 
We believe that these items, both recurring and non-recurring are driven by factors relating to the fundamental disruption in the global financial and real estate markets, rather than factors specific to the company or the performance of our properties or investments.
 
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. In order to generate liquidity, we decided to sell our China operations in the fourth quarter of 2008 at a loss and, therefore, we recognized an impairment charge. Also, to generate liquidity, we have contributed or intend to contribute certain completed properties to property funds 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 and other assets that we recognized in 2009 and the fourth quarter of 2008 were similarly caused by the decline in the real estate markets. All of these impairment charges are discussed in further detail in Note 14 to our Consolidated Financial Statements in Item 8.
 
Also, PEPR sold its entire equity investment in PEPF II in order to generate liquidity, which resulted in the recognition of a loss in the fourth quarter of 2008. Certain of our unconsolidated investees have recognized and may continue to recognize similar impairment charges of real estate that they expect to sell, which impacts our equity in earnings of such investees.
 
In connection with our announced initiatives to reduce debt, we have purchased portions of our debt securities in 2008 and 2009. The substantial decrease in the market price of our debt securities presented us with an opportunity to acquire our outstanding indebtedness at a cost less than the principal amount of that indebtedness. As a result, we recognized net gains on the early extinguishment of this debt. Certain of our unconsolidated investees have recognized or may recognize similar gains or losses, which impacts our equity in earnings of such investees.
 
During this turbulent time, we have recognized certain of these recurring charges and gains over several quarters in 2008 and 2009 and we believe it is reasonably likely that we will recognize similar charges and gains in the near future, which we anticipate to be through the second or third quarter of 2010. As we continue to focus on generating liquidity, we believe it is likely that we will recognize additional impairment charges of land, completed properties and certain other non-real estate assets that we or our unconsolidated investees will sell in the near future. However, we believe that as the financial markets stabilize, our liquidity needs change and the capital available to the existing unconsolidated property funds to acquire our completed development properties is expended, the potential for impairment charges of real estate properties or other non-real estate assets will disappear or become immaterial in the near future. We may purchase more of our outstanding debt securities, which could result in us recognizing additional gains from the early extinguishment of debt, although given the recovery that has already occurred in the market price of these securities, we would expect the gains to become immaterial in the near future.
 
We analyze our operating performance primarily by the rental income of our real estate, net of operating, administrative and financing expenses, which is not directly impacted by short-term fluctuations in the market


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value of our real estate or debt securities. As a result, although these significant non-cash items have had a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long-term.
 
As described above, in the fourth quarter of 2008, we began using FFO, excluding significant non-cash items, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) assess our performance as compared to similar real estate companies and the industry in general; and (v) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of short-term items that we do not expect to affect the underlying long-term performance of the properties we own. As noted above, we believe the long-term performance of our properties is principally driven by rental income. We believe investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy.
 
As the impact of these recurring items dissipates, we expect that the usefulness of FFO, excluding significant non-cash items will similarly dissipate and we will go back to using only FFO, including significant non-cash items.
 
Limitations on Use of our FFO Measures
 
While we believe our defined FFO measures are important supplemental measures, neither NAREIT’s nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly they are two of many measures we use when analyzing our business. Some of these limitations are:
 
•     The current income tax expenses that are excluded from our defined FFO measures represent the taxes that are payable.
 
•     Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Further, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of industrial properties are not reflected in FFO.
 
•     Gains or losses from property dispositions represent changes in the value of the disposed properties. By excluding these gains and losses, FFO does not capture realized changes in the value of disposed properties arising from changes in market conditions.
 
•     The deferred income tax benefits and expenses that are excluded from our defined FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our defined FFO measures do not currently reflect any income or expense that may result from such settlement.
 
•     The foreign currency exchange gains and losses that are excluded from our defined FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.
 
•     The non-cash impairment charges that we exclude from our FFO, excluding significant non-cash items, have been or may be realized as a loss in the future upon the ultimate disposition of the related real estate properties or other assets through the form of lower cash proceeds.


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•     The gains on extinguishment of debt that we exclude from our FFO, excluding significant non-cash items, provides a benefit to us as we are settling our debt at less than our future obligation.
 
We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. To assist investors in compensating for these limitations, following is a reconciliation of our defined FFO measures to our net earnings computed under GAAP. This information should be read with our complete financial statements prepared under GAAP and the rest of the disclosures we file with the SEC to fully understand our FFO measures and the limitations on its use.
 
FFO, including significant non-cash items, attributable to common shares as defined by us was $138.9 million, $133.8 million and $1,205.7 million for the years ended December 31, 2009, 2008 and 2007, respectively. FFO, excluding significant non-cash items, attributable to common shares as defined by us was $467.8 million, $944.9 million and $1,205.7 million for the years ended December 31, 2009, 2008 and 2007, respectively. The


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reconciliations of FFO attributable to common shares as defined by us to net earnings attributable to common shares computed under GAAP are as follows for the periods indicated (in thousands):
 
                         
    Years Ended December 31,  
    2009     2008     2007  
 
FFO:
                       
Reconciliation of net earnings to FFO:
                       
Net earnings (loss) attributable to common shares
  $ (2,650 )   $ (479,226 )   $ 1,027,635  
Add (deduct) NAREIT defined adjustments:
                       
Real estate related depreciation and amortization
    299,910       300,983       275,397  
Adjustments to gains on dispositions for depreciation
    (5,387 )     (2,866 )     (6,196 )
Gains on dispositions of non-development/non-CDFS properties
    (4,937 )     (11,620 )     (146,667 )
Reconciling items attributable to discontinued operations:
                       
Gains on dispositions of non-development/non-CDFS properties
    (220,815 )     (9,718 )     (52,776 )
Real estate related depreciation and amortization
    11,319       33,661       25,588  
                         
Total discontinued operations
    (209,496 )     23,943       (27,188 )
Our share of reconciling items from unconsolidated investees:
                       
Real estate related depreciation and amortization
    154,315       155,067       99,026  
Adjustment to on dispositions for depreciation
    (9,569 )     (492 )     (35,672 )
Other amortization items
    (11,775 )     (15,840 )     (8,731 )
                         
Total unconsolidated investees
    132,971       138,735       54,623  
                         
Total NAREIT defined adjustments
    213,061       449,175       149,969  
                         
Subtotal — NAREIT defined FFO
    210,411       (30,051 )     1,177,604  
Add (deduct) our defined adjustments:
                       
Foreign currency exchange losses (gains), net
    (58,128 )     144,364       16,384  
Current income tax expense
    3,658       9,656       3,038  
Deferred income tax expense (benefit)
    (23,299 )     4,073       550  
Our share of reconciling items from unconsolidated investees:
                       
Foreign currency exchange losses (gains), net
    (1,737 )     2,331       1,823  
Unrealized losses (gains) on derivative contracts, net
    (7,561 )     23,005        
Deferred income tax expense (benefit)
    15,541       (19,538 )     6,327  
                         
Total unconsolidated investees
    6,243       5,798       8,150  
                         
Total our defined adjustments
    (71,526 )     163,891       28,122  
                         
FFO, including significant non-cash items, attributable to common shares, as defined by us
    138,885       133,840       1,205,726  
Impairment of goodwill and other assets
    163,644       320,636        
Impairment related to assets held for sale (gain on sale) — China operations
    (3,315 )     198,236        
Impairment of real estate properties
    331,592       274,705        
Our share of the loss/impairment recorded by PEPR
          108,195        
Our share of certain losses recognized by the property funds, net
    9,240              
Gain on early extinguishment of debt
    (172,258 )     (90,719 )      
                         
FFO, excluding significant non-cash items, attributable to common shares, as defined by us
  $  467,788     $  944,893     $  1,205,726  
                         
 
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk
 
We are exposed to the impact of interest rate changes and foreign-exchange related variability and earnings volatility on our foreign investments. We have used certain derivative financial instruments, primarily foreign currency put option and forward contracts, to reduce our foreign currency market risk, as we deem appropriate. We have also used interest rate swap agreements to reduce our interest rate market risk. We do not use


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financial instruments for trading or speculative purposes and all financial instruments are entered into in accordance with established polices and procedures.
 
We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 10% adverse change in year end interest rates. The results of the sensitivity analysis are summarized below. The sensitivity analysis is of limited predictive value. As a result, our ultimate realized gains or losses with respect to interest rate and foreign currency exchange rate fluctuations will depend on the exposures that arise during a future period, hedging strategies at the time and the prevailing interest and foreign currency exchange rates.
 
Interest Rate Risk
 
Our interest rate risk management objective is to limit the impact of future interest rate changes on earnings and cash flows. To achieve this objective, we primarily borrow on a fixed rate basis for longer-term debt issuances. In 2009, we entered into two three-year TMK bond agreements totaling ¥14.3 billion ($153.8 million as of December 31, 2009) with variable interest rates and concurrently entered into interest rate swap agreements to fix the interest rate for the term of the notes. We have no other derivative contracts outstanding at December 31, 2009.
 
Our primary interest rate risk is created by our variable rate lines of credit. During the year ended December 31, 2009, we had weighted average daily outstanding borrowings of $1.6 billion on our variable rate lines of credit. Based on the results of the sensitivity analysis, which assumed a 10% adverse change in interest rates, the estimated market risk exposure for the variable rate lines of credit was approximately $2.7 million of cash flow for the year ended December 31, 2009.
 
As a result of a change in accounting effective January 1, 2009, our non-cash interest expense for the year ended December 31, 2009 increased $63.0 million, prior to capitalization of interest related to our development activities. See Note 2 to our Consolidated Financial Statements in Item 8 for further information.
 
The unconsolidated property funds that we manage, and in which we have an equity ownership, may enter into interest rate swap contracts. See Note 6 to our Consolidated Financial Statements in Item 8 for further information on these derivatives.
 
Foreign Currency Risk
 
Foreign currency risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates.
 
Our primary exposure to foreign currency exchange rates relates to the translation of the net income of our foreign subsidiaries into U.S. dollars, principally euro, British pound sterling and yen. To mitigate our foreign currency exchange exposure, we borrow in the functional currency of the borrowing entity, when appropriate. We also may use foreign currency put option contracts to manage foreign currency exchange rate risk associated with the projected net operating income of our foreign consolidated subsidiaries and unconsolidated investees. At December 31, 2009, we had no put option contracts outstanding and, therefore, we may experience fluctuations in our earnings as a result of changes in foreign currency exchange rates.
 
We also have some exposure to movements in exchange rates related to certain intercompany loans we issue from time to time and we may use foreign currency forward contracts to manage these risks. At December 31, 2009, we had no forward contracts outstanding and, therefore, we may experience fluctuations in our earnings from the remeasurement of these intercompany loans due to changes in foreign currency exchange rates.
 
Fair Value of Financial Instruments
 
See Note 17 to our Consolidated Financial Statements in Item 8.


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ITEM 8. Financial Statements and Supplementary Data
 
Our Consolidated Balance Sheets as of December 31, 2009 and 2008, our Consolidated Statements of Operations, Comprehensive Income (Loss), Equity and Cash Flows for each of the years in the three-year period ended December 31, 2009, Notes to Consolidated Financial Statements and Schedule III — Real Estate and Accumulated Depreciation, together with the reports of KPMG LLP, Independent Registered Public Accounting Firm, are included under Item 15 of this report and are incorporated herein by reference. Selected unaudited quarterly financial data is presented in Note 22 of our Consolidated Financial Statements.
 
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
ITEM 9A. Controls and Procedures
 
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2009. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Subsequent to December 31, 2009, there were no significant changes in our internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Management’s Report on Internal Control over Financial Reporting
 
We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
 
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of December 31, 2009 based on the criteria described in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that, as of December 31, 2009, our internal control over financial reporting was effective.
 
The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.
 
Limitations of the Effectiveness of Controls
 
Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
ITEM 9B. Other Information
 
On February 25, 2010, William D. Zollars notified ProLogis of his decision to retire from the board of trustees of ProLogis effective following the meeting of the board of trustees on May 14, 2010. He will not stand for re-election as trustee at the next annual meeting of the shareholders of ProLogis on May 14, 2010.


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PART III
 
ITEM 10. Directors, Executive Officers and Corporate Governance
 
Trustees and Officers
 
The information required by this item is incorporated herein by reference to the description under Item 1 — Our Management — Executive Committee (but only with respect to Walter C. Rakowich, Ted R. Antenucci, Edward S. Nekritz and William E. Sullivan), and to the descriptions under the captions “Election of Trustees — Nominees,” “Additional Information — Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance — Code of Ethics and Business Conduct,” and “Board of Trustees and Committees — Audit Committee” in our 2010 Proxy Statement.
 
ITEM 11. Executive Compensation
 
The information required by this item is incorporated herein by reference to the descriptions under the captions “Compensation Matters” and “Board of Trustees and Committees — Management Development and Compensation Committee — Compensation Committee Interlocks and Insider Participation” in our 2010 Proxy Statement.
 
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information required by this item is incorporated herein by reference to the descriptions under the captions “Information Relating to Trustees, Nominees and Executive Officers — Common Shares Beneficially Owned” and “Compensations Matters — Equity Compensation Plans” in our 2010 Proxy Statement.
 
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
 
The information required by this item is incorporated herein by reference to the descriptions under the captions “Information Relating to Trustees, Nominees and Executive Officers — Certain Relationships and Related Transactions” and “Corporate Governance — Trustee Independence” in our 2010 Proxy Statement.
 
ITEM 14. Principal Accounting Fees and Services
 
The information required by this item is incorporated herein by reference to the description under the caption “Independent Registered Public Accounting Firm” in our 2010 Proxy Statement.
 
PART IV
 
ITEM 15. Exhibits, Financial Statement Schedules
 
The following documents are filed as a part of this report:
 
(a) Financial Statements and Schedules:
 
1. Financial Statements:
 
See Index to Consolidated Financial Statements and Schedule III on page 133 of this report, which is incorporated herein by reference.
 
2. Financial Statement Schedules:
 
Schedule III — Real Estate and Accumulated Depreciation
 
All other schedules have been omitted since the required information is presented in the Consolidated Financial Statements and the related Notes or is not applicable.
 
(b) Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits on pages 154 to 158 of this report, which is incorporated herein by reference.
 
(c) Financial Statements: See Index to Consolidated Financial Statements and Schedule III on page 133 of this report, which is incorporated by reference.


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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE III
 
         
    Page
 
ProLogis:
       
    67  
    69  
    70  
    71  
    72  
    73  
    74  
    132  
    133  


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Trustees and Shareholders
ProLogis:
 
We have audited the accompanying consolidated balance sheets of ProLogis and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of ProLogis’ management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ProLogis and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
 
As discussed in Note 2 to the consolidated financial statements, the Company adopted FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), included in ASC subtopic 470-20, Debt with Conversion and Other Options, as of January 1, 2009.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ProLogis’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2010 expressed an unqualified opinion on the effectiveness of ProLogis’ internal control over financial reporting.
 
KPMG LLP
 
Denver, Colorado
February 26, 2010


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Trustees and Shareholders
ProLogis:
 
We have audited ProLogis’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ProLogis’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on ProLogis’ internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, ProLogis maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ProLogis and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated February 26, 2010 expressed an unqualified opinion on those consolidated financial statements.
 
KPMG LLP
 
Denver, Colorado
February 26, 2010


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PROLOGIS

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
                 
    December 31,  
    2009     2008  
 
ASSETS
Real estate
  $ 15,215,896     $ 15,725,272  
Less accumulated depreciation
    1,671,100       1,583,299  
                 
      13,544,796       14,141,973  
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
    1,017,780       1,126,993  
Discontinued operations-assets held for sale
          1,310,754  
                 
Total assets
  $ 16,885,415     $ 19,269,127  
                 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
               
Debt
  $ 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
          389,884  
                 
Total liabilities
    8,878,129       12,511,358  
                 
Equity:
               
ProLogis shareholders’ equity:
               
Series C preferred shares at stated liquidation preference of $50 per share; $0.01 par value; 2,000 shares issued and outstanding at December 31, 2009 and 2008
    100,000       100,000  
Series F preferred shares at stated liquidation preference of $25 per share; $0.01 par value; 5,000 shares issued and outstanding at December 31, 2009 and 2008
    125,000       125,000  
Series G preferred shares at stated liquidation preference of $25 per share; $0.01 par value; 5,000 shares issued and outstanding at December 31, 2009 and 2008
    125,000       125,000  
Common shares; $0.01 par value; 474,162 shares issued and outstanding at December 31, 2009 and 267,005 shares issued and outstanding at December 31, 2008
    4,742       2,670  
Additional paid-in capital
    8,524,867       7,070,108  
Accumulated other comprehensive income (loss)
    42,298       (29,374 )
Distributions in excess of net earnings
    (934,583 )     (655,513 )
                 
Total ProLogis shareholders’ equity
    7,987,324       6,737,891  
Noncontrolling interests
    19,962       19,878  
                 
Total equity
    8,007,286       6,757,769  
                 
Total liabilities and equity
  $ 16,885,415     $ 19,269,127  
                 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


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PROLOGIS

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2009, 2008 and 2007
(In thousands, except per share data)
 
                         
    2009     2008     2007  
 
Revenues:
                       
Rental income
  $ 891,095     $ 913,650     $ 970,018  
Property management and other fees and incentives
    142,763       131,011       104,719  
CDFS disposition proceeds:
                       
Developed and repositioned properties
    180,237       4,206,446       2,530,377  
Acquired property portfolios
          289,019       2,475,035  
Development management and other income
    8,987       25,857       26,322  
                         
Total revenues
    1,223,082       5,565,983       6,106,471  
                         
Expenses:
                       
Rental expenses
    269,956       277,320       249,713  
Investment management expenses
    43,416       50,761       33,948  
Cost of CDFS dispositions:
                       
Developed and repositioned properties
          3,551,700       1,835,291  
Acquired property portfolios
          289,019       2,406,426  
General and administrative
    180,486       177,350       170,398  
Reduction in workforce
    11,745       23,131        
Impairment of real estate properties
    331,592       274,705       12,600  
Depreciation and amortization
    315,807       317,315       286,279  
Other expenses
    24,025       28,104       12,363  
                         
Total expenses
    1,177,027       4,989,405       5,007,018  
                         
Operating income
    46,055       576,578       1,099,453  
Other income (expense):
                       
Earnings (loss) from unconsolidated property funds, net
    24,908       (69,116 )     94,453  
Earnings from other unconsolidated investees, net
    3,151       13,342       4,573  
Interest expense
    (373,305 )     (385,065 )     (389,844 )
Impairment of goodwill and other assets
    (163,644 )     (320,636 )      
Other income (expense), net
    (39,349 )     16,522       32,129  
Net gains on dispositions of real estate properties
    35,262       11,668       146,667  
Foreign currency exchange gains (losses), net
    35,626       (148,281 )     8,132  
Gain on early extinguishment of debt
    172,258       90,719        
                         
Total other income (expense)
    (305,093 )     (790,847 )     (103,890 )
                         
Earnings (loss) before income taxes
    (259,038 )     (214,269 )     995,563  
Current income tax expense
    29,262       63,441       66,339  
Deferred income tax expense (benefit)
    (23,287 )     4,570       516  
                         
Total income taxes
    5,975       68,011       66,855  
                         
Earnings (loss) from continuing operations
    (265,013 )     (282,280 )     928,708  
                         
Discontinued operations:
                       
Income attributable to disposed properties, net
    24,163       11,049       47,667  
Net gain (impairment) related to disposed assets - China operations
    3,315       (198,236 )      
Net gains on dispositions:
                       
Non-development properties
    220,815       9,718       52,776  
Development properties and land subject to ground leases
    40,649       9,783       28,721  
                         
Total discontinued operations
    288,942       (167,686 )     129,164  
                         
Consolidated net earnings (loss)
    23,929       (449,966 )     1,057,872  
Net earnings attributable to noncontrolling interests
    (1,156 )     (3,837 )     (4,814 )
                         
Net earnings (loss) attributable to controlling interests
    22,773       (453,803 )     1,053,058  
Less preferred share dividends
    25,423       25,423       25,423  
                         
Net earnings (loss) attributable to common shares
  $ (2,650 )   $ (479,226 )   $ 1,027,635  
                         
 
(Continued)


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PROLOGIS

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Years Ended December 31, 2009, 2008 and 2007
(In thousands, except per share data)
 
                         
    2009     2008     2007  
 
Weighted average common shares outstanding — Basic
    403,149       262,729       256,873  
                         
Weighted average common shares outstanding — Diluted
    403,149       262,729       267,226  
                         
Net earnings (loss) per share attributable to common shares — Basic:
                       
Continuing operations
  $ (0.73 )   $ (1.18 )   $ 3.50  
Discontinued operations
    0.72       (0.64 )     0.50  
                         
Net earnings (loss) per share attributable to common shares — Basic
  $ (0.01 )   $ (1.82 )   $ 4.00  
                         
Net earnings (loss) per share attributable to common shares — Diluted:
                       
Continuing operations
  $ (0.73 )   $ (1.18 )   $ 3.38  
Discontinued operations
    0.72       (0.64 )     0.48  
                         
Net earnings (loss) per share attributable to common shares — Diluted
  $ (0.01 )   $ (1.82 )   $ 3.86  
                         
Distributions per common share
  $ 0.70     $ 2.07     $ 1.84  
                         
 
PROLOGIS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 2009, 2008 and 2007
(In thousands)
 
                         
    2009     2008     2007  
 
Net earnings (loss) attributable to controlling interests
  $ 22,773     $ (453,803 )   $ 1,053,058  
Comprehensive income (loss):
                       
Foreign currency translation gains (losses), net
    59,888       (279,568 )     90,015  
Unrealized gains (losses) on derivative contracts, net
    11,784       (25,128 )     (31,615 )
                         
Comprehensive income (loss) attributable to common shares
  $ 94,445     $ (758,499 )   $ 1,111,458  
                         
 
The accompanying notes are an integral part of these Consolidated Financial Statements


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PROLOGIS

CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands)
 
                                                                 
          Common Shares           Accumulated
    Distributions
             
          Number
          Additional
    Other
    in Excess of
    Non-
       
    Preferred
    of
          Paid-in
    Comprehensive
    Net
    controlling
       
    Stock     Shares     Amount     Capital     Income (Loss)     Earnings     Interests     Total  
 
Balance as of January 1, 2007
  $ 350,000       250,912     $ 2,509     $ 6,000,119     $ 216,922     $ (170,971 )   $ 52,268     $ 6,450,847  
Effect of adoption of new accounting standards
                      310,575             (30,554 )           280,021  
Consolidated net earnings
                                  1,074,340       6,003       1,080,343  
Issuances of common shares in connection with acquisitions
          4,781       48       339,449                         339,497  
Issuances of common shares under common share plans, net of issuance costs
          1,891       19       37,558                         37,577  
Non controlling issuances (conversions), net
          128       1       4,444                   28,766       33,211  
Foreign currency translation gains, net
                            90,015             1,180       91,195  
Unrealized gains/amortization on derivative contracts, net
                            (31,615 )                 (31,615 )
Cost of share-based compensation awards
                      30,903                         30,903  
Distributions
                                  (498,073 )     (9,556 )     (507,629 )
                                                                 
Balance as of December 31, 2007
  $ 350,000       257,712     $ 2,577     $ 6,723,048     $ 275,322     $ 374,742     $ 78,661     $ 7,804,350  
                                                                 
Effect of adoption of new accounting standard
                      70,918             (47,030 )           23,888  
Consolidated net earnings (loss)
                                  (406,773 )     3,837       (402,936 )
Issuances of common shares under common share plans, net of issuance costs
          5,381       54       218,926                         218,980  
Non controlling issuances (conversions), net
          3,912       39       17,126                   (12,942 )     4,223  
Foreign currency translation gains, net
                            (279,568 )           96       (279,472 )
Unrealized gains/amortization on derivative contracts, net
                            (25,128 )                 (25,128 )
Cost of share-based compensation awards
                      40,090                         40,090  
Distributions
                                  (576,452 )     (9,129 )     (585,581 )
Reclassification of non-controlling interests to held for sale
                                        (40,645 )     (40,645 )
                                                                 
Balance as of December 31, 2008
  $ 350,000       267,005     $ 2,670     $ 7,070,108     $ (29,374 )   $ (655,513 )   $ 19,878     $ 6,757,769  
                                                                 
Consolidated net earnings
                                  22,773       1,156       23,929  
Issuances of common shares in Equity Offering, net of issuance costs
          174,800       1,748       1,105,272                         1,107,020  
Issuances of common shares under common share plans, net of issuance costs
          31,943       320       324,909                         325,229  
Non controlling issuances (conversions), net
          414       4       1,483                   (1,386 )     101  
Foreign currency translation gains, net
                            59,888             1,937       61,825  
Unrealized gains/amortization on derivative contracts, net
                            11,784                   11,784  
Cost of share-based compensation awards
                      23,095                         23,095  
Distributions
                                  (301,843 )     (1,623 )     (303,466 )
                                                                 
Balance as of December 31, 2009
  $ 350,000       474,162     $ 4,742     $ 8,524,867     $ 42,298     $ (934,583 )   $ 19,962     $ 8,007,286  
                                                                 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


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PROLOGIS

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009, 2008 and 2007
(In thousands)
 
                         
    2009     2008     2007  
 
Operating activities:
                       
Net earnings (loss) attributable to controlling interests
  $ 22,773     $ (453,803 )   $ 1,053,058  
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
                       
Noncontrolling interests share in earnings (loss), net
    1,300       (6,231 )     6,003  
Straight-lined rents
    (38,997 )     (34,063 )     (44,403 )
Cost of share-based compensation awards
    17,242       28,321       23,934  
Depreciation and amortization
    327,126       350,976       311,867  
Equity in earnings from unconsolidated investees
    (28,861 )     71,956       (105,618 )
Changes in operating receivables and distributions from unconsolidated investees
    69,656       19,956       74,348  
Amortization of deferred loan costs
    17,069       12,239       10,362  
Amortization of debt discount, net
    67,542       63,676       15,952  
Debt related expenses
    14,547              
Impairment of goodwill and other assets
    163,644       320,636        
Impairment related to assets held for sale — China operations
          198,236        
Impairment of real estate properties
    331,592       274,705       13,259  
Gains on dispositions of assets included in discontinued operations
    (264,779 )     (19,501 )     (28,721 )
Gains recognized on disposition of investments in Japan property funds
    (180,237 )            
Gains recognized on property dispositions, net
    (35,262 )     (11,668 )     (199,443 )
Gain on early extinguishment of debt
    (172,258 )     (90,719 )      
Unrealized foreign currency exchange losses (gains), net
    (58,128 )     144,364       16,229  
Deferred income tax expense (benefit)
    (23,299 )     4,072       550  
Decrease (increase) in accounts and notes receivable and other assets
    100,253       87,551       (130,821 )
(Decrease) increase in accounts payable and accrued expenses and other liabilities
    (214,921 )     (76,472 )     216,338  
                         
Net cash provided by operating activities
    116,002       884,231       1,232,894  
                         
Investing activities:
                       
Real estate investments
    (1,268,743 )     (5,523,402 )     (5,240,809 )
Tenant improvements and lease commissions on previously leased space
    (49,783 )     (58,076 )     (67,317 )
Non-development capital expenditures
    (26,506 )     (36,902 )     (37,948 )
Cash consideration paid in Parkridge acquisition, net of cash acquired
                (700,812 )
Purchase of Macquarie ProLogis Trust (“MPR”), net of cash acquired
                (1,137,028 )
Investments in and advances to unconsolidated investees
    (401,386 )     (329,553 )     (661,796 )
Proceeds from disposition of investments in Japan property funds
    500,000              
Return of investment from unconsolidated investees
    78,079       126,983       50,243  
Proceeds from dispositions of real estate assets — China operations
    845,468              
Proceeds from dispositions of real estate assets
    1,520,519       4,474,228       3,618,622  
Advances on notes receivable
                (18,270 )
Proceeds from repayment of notes receivable
    10,722       4,200       115,620  
                         
Net cash provided by (used in) investing activities
    1,208,370       (1,342,522 )     (4,079,495 )
                         
Financing activities:
                       
Proceeds from sales and issuances of common shares
    1,491,137       222,162       46,855  
Distributions paid on common shares
    (271,845 )     (542,792 )     (472,645 )
Dividends paid on preferred shares
    (25,416 )     (25,423 )     (31,781 )
Noncontrolling interest (distributions) contributions, net
    (1,548 )     23,827       (9,341 )
Debt and equity issuance costs paid
    (125,190 )     (12,121 )     (15,830 )
Net (payments on) proceeds from credit facilities
    (2,400,194 )     743,934       (431,506 )
Repurchase of senior and other notes and extinguishment of secured mortgage debt
    (1,226,658 )     (216,805 )      
Proceeds from issuance of debt to finance MPR and Parkridge acquisitions
                1,719,453  
Proceeds from issuance of senior notes and secured mortgage debt
    1,448,871       1,150,544       3,110,818  
Payments on senior notes, secured mortgage debt and assessment bonds
    (351,793 )     (985,223 )     (1,174,335 )
                         
Net cash (used in) provided by financing activities
    (1,462,636 )     358,103       2,741,688  
                         
Effect of foreign currency exchange rate changes on cash
    (2,010 )     (13,950 )     29,032  
Net decrease in cash and cash equivalents
    (140,274 )     (114,138 )     (75,881 )
Cash and cash equivalents, beginning of year
    174,636       399,910       475,791  
Cash and cash equivalents, assets held for sale
          (111,136 )      
                         
Cash and cash equivalents, end of year
  $ 34,362     $ 174,636     $ 399,910  
                         
 
See Note 21 for information on non-cash investing and financing activities and other information.
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
1.   Description of Business:
 
ProLogis, collectively with our consolidated subsidiaries (“we”, “our”, “us”, “the Company” or “ProLogis”), is a publicly held real estate investment trust (“REIT”) that owns, operates and develops (directly and through our unconsolidated investees) primarily industrial properties in North America, Europe and Asia. Through 2008, our business consisted of three reportable business segments: (i) direct owned; (ii) investment management; and (iii) CDFS business. Our direct owned segment represents the direct long-term ownership of industrial properties. Our investment management segment represents the long-term investment management of property funds and joint ventures and the properties they own. Our CDFS business segment primarily encompassed our development or acquisition of real estate properties that were generally contributed to a property fund in which we had an ownership interest and managed or sold to third parties. Changes in global economic conditions resulted in changes in our business strategy in late 2008 and therefore, as of December 31, 2008, our business strategy no longer includes the CDFS business segment. See Note 20 for further discussion of our business segments.
 
2.   Summary of Significant Accounting Policies:
 
Basis of Presentation and Consolidation. The accompanying consolidated financial statements are presented in our reporting currency, the U.S. dollar. All material intercompany transactions with consolidated entities have been eliminated.
 
We consolidate all entities that are wholly owned and those in which we own less than 100% but control, as well as any variable interest entities in which we are the primary beneficiary. We evaluate our ability to control an entity and whether the entity is a variable interest entity and we are the primary beneficiary through the consideration of the following factors:
 
  (i)   the form of our ownership interest and legal structure;
  (ii)  our representation on the entity’s governing body;
  (iii)  the size of our investment (including loans);
  (iv)  estimates of future cash flows;
  (v)   our ability to participate in policy making decisions, including but not limited to, the acquisition or disposition of investment properties and the incurrence or refinancing of debt;
  (vi)  the rights of other investors to participate in the decision making process; and
  (vii)  the ability for other partners or owners to replace us as manager and/or liquidate the venture, if applicable.
 
Adjustments and Reclassifications. Certain amounts included in the accompanying consolidated financial statements for 2008 and 2007 have been adjusted due to the required retroactive application of a new accounting standard that we adopted as of January 1, 2009, as further discussed below. In addition in 2009, we began reporting the costs associated with our investment management segment as Investment Management Expenses in our Consolidated Statements of Operations. These costs include the property-level management expenses associated with the properties owned by the unconsolidated investees (previously included in Rental Expenses) and the direct expenses associated with the asset management of the property funds (previously included in General and Administrative Expenses). Therefore, we have reclassified these expenses in 2008 and 2007, as well as certain other 2008 and 2007 amounts, to conform to the 2009 financial statement presentation. We have evaluated all subsequent events for adjustment to or disclosure in these financial statements through the issuance of these financial statements.
 
Use of Estimates. The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as


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of the date of the financial statements, and revenue and expenses during the reporting period. Our actual results could differ from those estimates and assumptions. Although we believe the assumptions and estimates we made are reasonable and appropriate, as discussed in the applicable sections throughout these Consolidated Financial Statements, different assumptions and estimates could materially impact our reported results. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions and changes in market conditions could impact our future operating results.
 
Foreign Operations. The U.S. dollar is the functional currency for our consolidated subsidiaries and unconsolidated investees operating in the United States and Mexico and certain of our consolidated subsidiaries that operate as holding companies for foreign investments. The functional currency for our consolidated subsidiaries and unconsolidated investees operating in countries other than the United States and Mexico is the principal currency in which the entity’s assets, liabilities, income and expenses are denominated, which may be different from the local currency of the country of incorporation or the country where the entity conducts its operations.
 
The functional currencies of our consolidated subsidiaries and unconsolidated investees generally include the British pound sterling, Canadian dollar, euro, Japanese yen and Korean won. The Chinese remnimbi was also a functional currency through February 2009 and is included in discontinued operations. We are parties to business transactions denominated in these and other currencies.
 
For our consolidated subsidiaries whose functional currency is not the U.S. dollar, we translate their financial statements into U.S. dollars at the time we consolidate those subsidiaries’ financial statements. Generally, assets and liabilities are translated at the exchange rate in effect as of the balance sheet date. The resulting translation adjustments are included in the Accumulated Other Comprehensive Income (Loss) in ProLogis Shareholders’ Equity. Certain balance sheet items, primarily equity-related accounts, are reflected at the historical exchange rate. Income statement accounts are translated using the average exchange rate for the period and income statement accounts that represent significant non-recurring transactions are translated at the rate in effect as of the date of the transaction. We translate our share of the net earnings or losses of our unconsolidated investees whose functional currency is not the U.S. dollar at the average exchange rate for the period.
 
We and certain of our consolidated subsidiaries have intercompany and third party debt that is not denominated in the entity’s functional currency. When the debt is remeasured against the functional currency of the entity, a gain or loss can result. The resulting adjustment is generally reflected in results of operations, unless it is intercompany debt that is deemed to be long-term in nature. The remeasurement of such long-term debt results in the recognition of a cumulative translation adjustment in Accumulated Other Comprehensive Income (Loss) in ProLogis Shareholders’ Equity.
 
Gains or losses are included in results of operations when transactions with a third party, denominated in a currency other than the entity’s functional currency, are settled. We occasionally utilize derivative financial instruments to manage certain foreign currency exchange risks.
 
We are subject to foreign currency risk due to potential fluctuations in exchange rates between certain foreign currencies and the U.S. dollar. A significant change in the value of the foreign currency of one or more countries where we have a significant investment would have an effect on our reported results of operations and financial position. Although we attempt to mitigate adverse effects by borrowing under debt agreements denominated in the same functional currency as the investment and, on occasion and when deemed appropriate, through the use of derivative contracts, there can be no assurance that those attempts to mitigate foreign currency risk will be successful.
 
See our policy footnote on financial instruments and Note 18 for more information related to our derivative financial instruments.


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Business Combinations. In December 2007, the Financial Standards Accounting Board (“FASB”) issued a new accounting standard for business combinations that we adopted January 1, 2009. This accounting standard requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value”. This accounting standard broadened the scope of what qualifies as a business combination to include the acquisition of an operating property by us and our unconsolidated investees. Transaction costs related to the acquisition of a business that were previously capitalized are expensed under this new standard. The transaction costs related to the acquisition of land and equity method investments continue to be capitalized. This accounting standard requires subsequent adjustments of tax uncertainties that occur after the purchase price allocation period to be recognized in earnings. Previously, these adjustments were recognized in the purchase price as an adjustment to goodwill. The initial adoption of this accounting standard did not have a material impact on our financial position or results of operations, although it may have a more significant impact in the future depending on our acquisition activity.
 
When we acquire a business or individual operating properties, with the intention to hold the investment for the long-term, we allocate the purchase price to the various components of the acquisition based upon the fair value of each component. We estimate the following:
 
     
     
•         the fair value of the buildings as if vacant;
 
— The fair value allocated to land is generally based on relevant market data.
     
•         the market value of above and below market leases based upon our best estimate of current market rents;
 
— The value of each lease is recorded in either other assets or other liabilities, as appropriate.
     
•         the value of costs to obtain tenants, primarily leasing commissions;
 
— These costs are recorded in other assets.
     
•         the value of debt based on quoted market rates for the same or similar issues, or by discounting future cash flows using rates currently available for debt with similar terms and maturities;
 
— Any discount or premium is included in the principal amount.
     
•         the value of any management contracts by discounting future expected cash flows under these contracts; and
   
     
•         the value of all other assumed assets and liabilities based on the best information available.
   
 
We amortize the acquired assets or liabilities as follows:
 
  •     Above and below market leases are charged to rental income over the average remaining estimated life of the lease.
  •     Leasing commissions are charged to amortization expense over the average remaining estimated life of the lease.
  •     Debt discount or premium is charged to interest expense using the effective interest method over the remaining term of the related debt.
  •     Management contracts are charged against income over the remaining term of the contract.
 
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. A gain may be recognized to the extent the purchase price is less than the fair value of net tangible and intangible assets acquired.


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Long-Lived Assets
 
Real Estate Assets. Real estate assets are carried at depreciated cost. Costs incurred that are directly associated with the successful acquisition of real estate assets were capitalized as part of the investment basis of the real estate assets through December 31, 2008. Beginning January 1, 2009, these costs are now expensed as discussed above, other than as they relate to the acquisition of land. Costs incurred in developing, renovating, rehabilitating and improving real estate assets are capitalized as part of the investment basis of the real estate assets. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred.
 
During the land development and construction periods of qualifying projects, we capitalize interest costs, insurance, real estate taxes and general and administrative costs of the personnel performing the development, renovation, rehabilitation and leasing activities; if such costs are incremental and identifiable to a specific activity. Capitalized costs are included in the investment basis of real estate assets, except for the costs capitalized related to leasing activities that are included in other assets. When a municipal district finances costs we incur for public infrastructure improvements, we record the costs in real estate until we are reimbursed.
 
The depreciable portions of real estate assets are charged to depreciation expense on a straight-line basis over their respective estimated useful lives. Depreciation commences at the earlier of stabilization (defined as 93% occupied) or one year after completion of construction. We generally use the following useful lives: 5 to 7 years for capital improvements, 10 years for standard tenant improvements, 25 years for depreciable land improvements on developed buildings, 30 years for industrial properties acquired, 40 years for office and retail properties acquired and 40 years for properties we develop. Capitalized leasing costs are amortized over the respective lease term. Our average lease term for all leases in effect at December 31, 2009 was between five and six years. Prior to 2008, if we developed properties with the intent to contribute the property to a property fund, we did not depreciate these properties during the period from the completion of the development through the date the property was contributed. With the changes in our business strategy, and the uncertainty with respect to the timing of future contributions to the property funds, we expect to hold these properties long-term and began to depreciate them in 2008.
 
We assess the carrying values of our respective long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Recoverability of the assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. In order to review our assets for recoverability, we consider current market conditions, as well as our intent with respect to holding or disposing of the asset. Fair value is determined through various valuation techniques; including discounted cash flow models; quoted market values; and third party appraisals, where considered necessary. If our analysis indicates that the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property.
 
We estimate the future undiscounted cash flows based on our intent as follows:
 
  (i)  for real estate properties that we intend to hold long-term, including land held for development, properties currently under development and operating buildings, recoverability is assessed based on the estimated future net rental income from operating the property;
  (ii)  for land parcels we intend to sell, recoverability is assessed based on estimated fair value, less costs to sell;
  (iii)  for real estate properties currently under development and operating buildings we intend to sell, recoverability is assessed based on proceeds from disposition that are estimated based on future net rental income of the property and expected market capitalization rates; and


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  (iv)  for costs incurred related to the potential acquisition of land or development of a real estate property, recoverability is assessed based on the probability that the acquisition or development is likely to occur as of the measurement date.
 
The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. However, assumptions and estimates about future cash flows, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions and our ultimate investment intent that occur subsequent to our impairment analyses could impact these assumptions and result in future impairment of our real estate properties.
 
Goodwill. Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. We perform an annual impairment test for goodwill at the reporting unit level. The annual review is performed during the fourth quarter for all our reporting units. Additionally, we evaluate the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amounts of goodwill may not be fully recoverable.
 
We use a two step approach to our goodwill impairment evaluation. The first step of the goodwill impairment test is used to identify whether there is any potential impairment. If the fair value of a reporting unit exceeds its corresponding book value, including goodwill, the goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of the reporting unit exceeds its fair value, the second step of the impairment test is performed. The second step requires that we compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill to measure the amount of impairment loss, if any.
 
Generally, we use net asset value analyses to estimate the fair value of the reporting unit where the goodwill is allocated. We estimate the current fair value of the assets and liabilities in the reporting unit through various valuation techniques; including discounted cash flow models, applying a capitalization rate to estimated net operating income of a property, quoted market values and third-party appraisals, as considered necessary. The fair value of the reporting unit also includes an enterprise value premium that we estimate a third party would be willing to pay for the particular reporting unit. The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. However, assumptions and estimates about future cash flows, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions that occur subsequent to our impairment analyses could impact these assumptions and result in future impairment of our goodwill.
 
Assets Held for Sale and Discontinued Operations. Discontinued operations represent a component of an entity that has either been disposed of or is classified as held for sale if both the operations and cash flows of the component have been or will be eliminated from ongoing operations of the entity as a result of the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. The results of operations of a component of our business or properties that have been classified as discontinued operations are also reported as discontinued operations for all periods presented. We classify a component of our business or property as held for sale when certain criteria are met. At such time, the respective assets and liabilities are presented separately on our Consolidated Balance Sheets and depreciation is no longer recognized. Assets held for sale are reported at the lower of their carrying amount or their estimated fair value less the costs to sell the assets.
 
Properties disposed of to third parties are considered discontinued operations unless such properties were developed under a pre-sale agreement. Properties contributed to property funds in which we maintain an


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ownership interest, act as manager and account for the property fund under the equity method are not considered discontinued operations due to our continuing involvement with the properties.
 
Investments in Unconsolidated Investees. Our investments in certain entities are presented under the equity method. The equity method is used when we have the ability to exercise significant influence over operating and financial policies of the investee but do not have control of the investee. Under the equity method, these investments (including advances to the investee) are initially recognized in the balance sheet at our cost and are subsequently adjusted to reflect our proportionate share of net earnings or losses of the investee, distributions received, deferred gains from the contribution of properties and certain other adjustments, as appropriate. When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate the equity investment and any advances made for impairment by estimating our ability to recover our investment from future expected cash flows. If we determine the loss in value is other than temporary, we recognize an impairment charge to reflect the equity investment and any advances made at fair value.
 
Cash and Cash Equivalents. We consider all cash on hand, demand deposits with financial institutions, and short-term highly liquid investments with original maturities of three months or less to be cash equivalents. Our cash and cash equivalents are financial instruments that are exposed to concentrations of credit risk. We invest our cash with high-credit quality institutions. Cash balances may be invested in money market accounts that are not insured. We have not realized any losses in such cash investments or accounts and believe that we are not exposed to any significant credit risk.
 
Convertible Debt. In May 2008, the FASB issued an accounting standard that required separate accounting for the debt and equity components of certain convertible debt, such as the debt we have issued. The value assigned to the debt component is the estimated fair value at the date of issuance of a similar bond without the conversion feature, which results in the debt being recorded at a discount. The resulting debt discount is amortized over the estimated remaining life of the debt (the first cash redemption date in 2012 and 2013 for our outstanding convertible notes) as additional non-cash interest expense. We adopted this accounting standard on January 1, 2009 on a retroactive basis to the convertible notes we issued in 2007 and 2008. As a result, we adjusted 2008 and 2007 amounts to reflect the adjustments to debt and equity, as well as the additional interest expense. This adjustment also impacted the interest we would have capitalized related to our development activities for both properties we currently own, as well as properties that were contributed or sold during the periods the convertible notes were outstanding.
 
The following tables illustrate the impact of this accounting standard on our Consolidated Balance Sheets and Consolidated Statements of Operations for these periods (in thousands):
 
                         
    As of December 31, 2008  
    As Reported     Adjustments     As Adjusted  
 
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 )
 


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    For the Year Ended December 31, 2008  
    As Reported     Adjustments     As Adjusted  
                (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 )
Net loss per share attributable to common shares —
                       
Basic
  $ (1.65 )   $ (0.17 )   $ (1.82 )
Net loss per share attributable to common shares —
                       
Diluted
  $ (1.65 )   $ (0.17 )   $ (1.82 )
 
                         
    For the Year Ended December 31, 2007  
    As Reported     Adjustments     As Adjusted  
                (before 2009 discontinued
 
                operations adjustment)  
 
Consolidated Statements of Operations:
                       
Cost of CDFS dispositions
  $  4,241,700     $  17     $  4,241,717  
Interest expense, net of capitalization
  $ 368,512     $ 21,265     $ 389,777  
Net earnings attributable to controlling interests
  $ 1,074,340     $  (21,282 )   $ 1,053,058  
Net earnings per share attributable to common shares — Basic
  $ 4.08     $ (0.08 )   $ 4.00  
Net earnings per share attributable to common shares — Diluted
  $ 3.94     $ (0.08 )   $ 3.86  
 
See Note 9 for additional information on our convertible notes.
 
Noncontrolling Interests. In December 2007, the FASB issued a new accounting standard for noncontrolling interests in consolidated financial statements. We adopted this accounting standard on January 1, 2009, which required noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, and changed the accounting for transactions with noncontrolling interest holders. The adoption of the accounting standard changed the classification and reporting of our noncontrolling interests.
 
We recognize the noncontrolling interests in real estate partnerships in which we consolidate using each noncontrolling holder’s respective share of the estimated fair value of the real estate as of the date of formation. Noncontrolling interest that was created or assumed as a part of a business combination is recognized at fair value as of the date of the transaction. Noncontrolling interest is subsequently adjusted for additional contributions, distributions to noncontrolling holders and the noncontrolling holders’ proportionate share of the net earnings or losses of each respective entity.
 
Certain limited partnership interests issued by us in connection with the formation of a real estate partnership and as consideration in a business combination are exchangeable into our common shares. Common shares issued upon exchange of a holder’s noncontrolling interest are accounted for at our carrying value of the surrendered noncontrolling interest.
 
Costs of Raising Capital. Costs incurred in connection with the issuance of both common shares and preferred shares are treated as a reduction to additional paid-in capital. Costs incurred in connection with the issuance or renewal of debt are capitalized in other assets, and amortized to interest expense over the term of the related debt.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Revenue Recognition.
 
Rental and other income. We lease our operating properties to customers under agreements that are classified as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Generally, under the terms of our leases, some or all of our rental expenses are recovered from our customers. We reflect amounts recovered from customers as a component of rental income. A provision for possible loss is made if the collection of a receivable balance is considered doubtful. Some of our retail and ground leases provide for additional rent based on sales over a stated base amount during the lease year. We recognize this additional rent when each customer’s sales exceed their sales threshold. We recognize interest income and management, development and other fees and incentives when earned, fixed and determinable.
 
Gains on Disposition of Real Estate. Gains on the disposition of real estate are recorded when the recognition criteria have been met, generally at the time title is transferred, and we no longer have substantial continuing involvement with the real estate sold.
 
When we contribute a property to a property fund or joint venture in which we have an ownership interest, we do not recognize a portion of the gain realized. If a loss is realized it is recognized when known. The amount of gain not recognized, based on our ownership interest in the entity acquiring the property, is deferred by recognizing a reduction to our investment in the applicable unconsolidated investee. We adjust our proportionate share of net earnings or losses recognized in future periods to reflect the investees’ recorded depreciation expense as if it were computed on our lower basis in the contributed properties rather than on the entity’s basis. Through 2008, we reflected the gains recognized from contributions of CDFS properties to property funds and joint ventures in operating cash flows. As a result of the changes in our segments in 2009, these gains are now included in investing activities.
 
When a property that we originally contributed to a property fund or joint venture is disposed of to a third party, we recognize the amount of the gain we had previously deferred, along with our proportionate share of the gain recognized by the investee. During periods when our ownership interest in an investee decreases, we recognize gains relating to previously deferred gains to coincide with our new ownership interest in the investee.
 
Rental Expenses. Rental expenses primarily include the cost of on-site property management personnel, utilities, repairs and maintenance, property insurance and real estate taxes.
 
Investment Management Expenses. These costs include the property management expenses associated with the property-level management of the properties owned by our unconsolidated investees (previously included in Rental Expenses) and the direct investment management expenses associated with the asset management of the property funds (previously included in General and Administrative Expenses).
 
Share-Based Compensation. We account for stock-based compensation by measuring the cost of employee services received in exchange for an award of an equity instrument based on the fair value of the award on the grant date. We recognize the cost over the period during which an employee is required to provide service in exchange for the award, generally the vesting period. We treat dividend equivalent units (“DEUs”) as dividends, which are charged to retained earnings and factored into the computation of the fair value of the underlying share award at grant date. See Note 12 for more information on our stock based compensation.
 
Income Taxes. ProLogis was formed as a Maryland REIT in January 1993 and we have, along with our consolidated REIT subsidiary, elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Under the Code, REITs are generally not required to pay federal income taxes if they distribute 100% of their taxable income and meet certain income, asset and shareholder tests. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates


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(including any alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even as a REIT, we may be subject to certain state and local taxes on our own income and property, and to federal income and excise taxes on our undistributed taxable income.
 
We have elected taxable REIT subsidiary (“TRS”) status for some of our consolidated subsidiaries. This allows us to provide services that would otherwise be considered impermissible for REITs. Many of the foreign countries in which we have operations do not recognize REITs or do not accord REIT status under their respective tax laws to our entities that operate in their jurisdiction. In the United States, we are taxed in certain states in which we operate. Accordingly, we recognize income tax expense for the federal and state income taxes incurred by our TRSs, taxes incurred in certain states and foreign jurisdictions, and interest and penalties associated with our unrecognized tax benefit liabilities.
 
In July 2006, the FASB issued an interpretation of the existing accounting standard for accounting for income taxes. The interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on various income tax accounting issues, including derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result, we may recognize the tax benefit from an uncertain tax position only if it is “more-likely-than-not” that the tax position will be sustained on examination by taxing authorities. We adopted the provisions of this interpretation in 2007 and, as a result, we recognized a $9.3 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of distributions in excess of net earnings.
 
Deferred income taxes are recognized in certain taxable entities. Deferred income tax is generally a function of the period’s temporary differences (items that are treated differently for tax purposes than for financial reporting purposes), the utilization of tax net operating losses generated in prior years that had been previously recognized as deferred income tax assets and deferred income tax liabilities related to indemnification agreements related to certain contributions to property funds. A valuation allowance for deferred income tax assets is provided if we believe all or some portion of the deferred income tax asset may not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances that causes a change in the estimated realizability of the related deferred income tax asset is included in deferred tax expense. See Note 15 for further discussion of income taxes.
 
Financial Instruments. We may use certain types of derivative financial instruments for the purpose of managing certain foreign currency exchange rate and interest rate risk. We reflect our derivative financial instruments at fair value and record changes in the fair value of these derivatives each period in earnings, unless specific hedge accounting criteria are met. To qualify for hedge accounting treatment, generally the derivative instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge (primarily interest rate swaps) and, if a derivative instrument is utilized to hedge an anticipated transaction, the anticipated transaction must be probable of occurring. Derivative instruments meeting these hedging criteria are formally designated as hedges at the inception of the contract.
 
The unrealized gains and losses resulting from changes in fair value of an effective hedge are recorded in Accumulated Other Comprehensive Income (Loss) and are amortized to earnings over the remaining term of the hedged items. The ineffective portion of a hedge, if any, is immediately recognized in earnings to the extent that the change in value of the derivative instrument does not perfectly offset the change in value of the item being hedged. We estimate the fair value of our financial instruments through a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. Primarily, we use quoted market prices or quotes from brokers or dealers for the same or similar instruments. These values represent a general approximation of possible value and may never actually be realized.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
In March 2008, the FASB issued an accounting standard that required enhanced disclosures related to derivative instruments and hedging activities. This accounting standard required disclosures relating to: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedge items are accounted for; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. We adopted this accounting standard on January 1, 2009 and as it only required enhanced disclosures, the adoption did not have a significant impact on our consolidated financial statements. See Note 18 for information on our financial instruments.
 
Fair value measurements. On January 1, 2008, we adopted a new accounting standard for our financial assets and liabilities, primarily derivative instruments, to which either we or our unconsolidated investees are a party. This accounting standard established a framework for measuring fair value and disclosures about fair value measurements. On January 1, 2009, we adopted the provisions of this accounting standard for our non-financial assets and liabilities.
 
We have estimated fair value using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that we would realize upon disposition. The fair value hierarchy consists of three broad levels, which are described below:
 
  •     Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
 
  •     Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
 
  •     Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
 
Environmental costs. We incur certain environmental remediation costs, including cleanup costs, consulting fees for environmental studies and investigations, monitoring costs, and legal costs relating to cleanup, litigation defense, and the pursuit of responsible third parties. Costs incurred in connection with operating properties and properties previously sold are expensed. Costs related to undeveloped land are capitalized as development costs. Costs incurred for properties to be disposed are included in the cost of the properties upon disposition. We maintain a liability for the estimated costs of environmental remediation expected to be incurred in connection with undeveloped land, operating properties and properties previously sold that we adjust as appropriate as information becomes available.
 
Recent Accounting Pronouncements. In June 2009, the FASB issued a new accounting standard that will be effective on January 1, 2010. This accounting standard is a revision to a previous FASB interpretation and changes how a reporting entity evaluates whether an entity is a variable interest entity (“VIE”) and which entity is considered the primary beneficiary of a VIE and is therefore required to consolidate such VIE. This accounting standard will also require continuous reassessments of which party within the VIE is considered the primary beneficiary and will require a number of new disclosures related to VIE’s. We are still evaluating this accounting standard but do not believe that it will have a material impact on our financial position and results of operations upon adoption.
 
On July 1, 2009, the FASB issued the FASB Accounting Standards Codification (“ASC” or the “Codification”) that establishes the exclusive authoritative reference for U.S. GAAP for use in financial statements, except for Securities and Exchange Commission (“SEC”) rules and interpretive releases, which are also authoritative


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards.
 
3.   Sale of China Operations and Property Fund Interest in Japan
 
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 ($845.5 million related to China and $500.0 million related to the Japan investments). We used these proceeds primarily to pay down borrowings on our credit facilities.
 
All of the assets and liabilities associated with our China operations were classified as Discontinued Operations — Assets and Liabilities Held for Sale in our accompanying Consolidated Balance Sheet as of December 31, 2008, at which time we recognized an impairment of $198.2 million. At the completion of the sale in 2009, we recognized a net gain of $3.3 million. The results of our China operations, including the impairment and gain on sale, are presented as discontinued operations in our accompanying Consolidated Statements of Operations for all periods.
 
In connection with the sale of our investments in the Japan property funds, we recognized a net gain of $180.2 million. The gain is reflected as CDFS Proceeds in our Consolidated Statements of Operations, as it represents the recognition of previously deferred gains on the contribution of properties to these property funds based on our ownership interest in the property funds at the time of original contribution. We also recognized $20.5 million in current income tax expense related to a portion of the transaction.
 
In addition, as part of this transaction, we entered into an agreement to sell one property in Japan to GIC RE. Therefore, this property was classified as held for sale as of December 31, 2008, along with borrowings of $108.6 million under our credit facilities, and its operations have been included in discontinued operations for all periods presented in our accompanying Consolidated Statements of Operations. In April 2009, we sold the Japan property for proceeds of $128.1 million, resulting in a gain of $13.1 million. See Note 8 for detail of all amounts included in discontinued operations.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
4.   Real Estate:
 
Real estate assets are presented at cost, and consist of the following (in thousands):
 
                 
    December 31,  
    2009     2008  
 
Industrial properties (1):
               
Improved land
  $ 2,625,885     $ 2,413,840  
Buildings and improvements
    8,919,616       8,542,116  
Retail and mixed use properties (2):
               
Improved land
    74,511       81,117  
Buildings and improvements
    216,527       277,875  
Properties under development, including cost of land (3)
    191,127       1,181,344  
Land held for development (4)
    2,569,343       2,482,582  
Land subject to ground leases and other (5)
    385,222       425,001  
Other investments (6)
    233,665       321,397  
                 
                 
Total real estate assets
    15,215,896       15,725,272  
Less accumulated depreciation
    1,671,100       1,583,299  
                 
Net real estate assets
  $ 13,544,796     $ 14,141,973  
                 
 
 
(1) At December 31, 2009 and 2008, we had 1,188 and 1,297 distribution properties consisting of 191.6 million square feet and 195.7 million square feet, respectively.
 
(2) At December 31, 2009 and 2008, we had 29 and 34 retail properties consisting of 1.2 million square feet and 1.4 million square feet, respectively. We also owned two office properties with aggregate cost of $39.1 million at December 31, 2009 and one office property with a cost of $7.9 million at December 31, 2008.
 
(3) Properties under development consisted of 5 properties aggregating 2.9 million square feet at December 31, 2009 and 65 properties aggregating 19.8 million square feet at December 31, 2008. Our total expected investment upon completion of the properties under development at December 31, 2009 was $295.7 million, including development and leasing costs.
 
(4) Land held for development consisted of 10,360 acres and 10,134 acres at December 31, 2009 and 2008, respectively, and includes land parcels that we may develop or sell depending on market conditions and other factors.
 
(5) At December 31, 2009 and 2008, amount represents investments of $314.9 million and $367.9 million in land we own and lease to our customers under long-term ground leases, an investment of $36.1 million and $35.3 million in railway depots and $29.9 million and $21.8 million in parking lots, respectively. At December 31, 2009, this amount also includes $4.3 million in solar panels.
 
(6) Other investments include: (i) restricted funds that are held in escrow pending the completion of tax-deferred exchange transactions involving operating properties ($45.6 million and $9.0 million at December 31, 2009 and 2008, respectively); (ii) certain infrastructure costs related to projects we are developing on behalf of others; (iii) costs incurred related to future development projects, including purchase options on land; (iv) costs related to our corporate office buildings, which we occupy; and (v) earnest money deposits associated with potential acquisitions.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
At December 31, 2009, we owned real estate assets in North America (Canada, Mexico and the United States), Europe (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden, and the United Kingdom) and Asia (Japan and South Korea).
 
During 2008 and 2007, we completed individual and portfolio acquisitions of industrial properties, other than those discussed in Note 5, as follows (aggregated, dollars and square feet in thousands). No such acquisitions were made in 2009:
 
                                 
    Number of
  Aggregate
  Aggregate
   
    Properties   Square Feet   Purchase Price   Debt Assumed
 
2008
    25       5,812     $ 324,029     $ 6,599  
2007
    41       7,347     $ 351,639     $ 27,305  
 
During 2009, we recognized net gains of $35.3 million related to the contribution of properties ($13.0 million), the recognition of previously deferred gains from PEPR and ProLogis Korea Fund on properties they sold to third parties ($9.9 million), the sale of land parcels ($6.4 million), and a gain on settlement of an obligation to our fund partner in connection with the restructure of the North American Industrial Fund II ($6.0 million). The contribution activity resulted in total cash proceeds of $643.7 million and included 43 properties aggregating 9.2 million square feet to ProLogis European Property Fund II (“PEPF II”).
 
If we realize a gain on contribution of a property, we recognize the portion attributable to the third party ownership in the property fund until the property is sold to a third party. If we realize a loss on contribution, we recognize the full amount of the impairment as soon as it is known. Due to our continuing involvement through our ownership in the property fund, these dispositions are not included in discontinued operations. As discussed earlier, in 2008 and 2007, contribution activity was reported as CDFS Proceeds and Cost of CDFS Dispositions within our CDFS business segment. See Note 8 for further discussion of properties we sold to third parties that are reported in discontinued operations.
 
During the years ended December 31, 2009 and 2008, we recorded impairment charges of $331.6 and $274.7 million, respectively, related to our real estate. See Note 14 for further discussion of these impairment charges.
 
Prior to 2008, we identified properties that we developed or acquired with the intent to contribute to an unconsolidated property fund. Our policy was to not depreciate these properties during the period from completion or acquisition until their contribution to the property fund. In 2008, in connection with the changes in our business strategy discussed earlier, including uncertainty as to when, or if, these properties will be contributed and our intent to hold and operate these properties for our own use, we no longer identify specific properties for contribution to property funds. As a result, we recorded a $30.9 million adjustment to depreciation expense to depreciate these properties through December 31, 2008.
 
Operating Lease Agreements
 
We lease our operating properties and certain land parcels to customers under agreements that are generally classified as operating leases. Our largest customer and 25 largest customers accounted for 2.28% and 21.39%, respectively, of our annualized collected base rents at December 31, 2009. At December 31, 2009, minimum lease payments on leases with lease periods greater than one year for space in our operating properties and


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
leases of land subject to ground leases, during each of the years in the five-year period ending December 31, 2014 and thereafter are as follows (in thousands):
 
         
2010
  $ 673,599  
2011
    605,827  
2012
    495,619  
2013
    389,026  
2014
    298,730  
Thereafter
    1,705,610  
         
    $  4,168,411  
         
 
These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses. In addition to minimum rental payments, our customers pay reimbursements for their pro rata share of specified operating expenses, which amounted to $194.8 million, $210.9 million and $197.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. These reimbursements are reflected as rental income and rental expenses in the accompanying Consolidated Statements of Operations.
 
5.   Acquisitions:
 
In February 2007, we purchased the industrial business and made a 25% investment in the retail business of Parkridge Holdings Limited (“Parkridge”), a European developer. The total purchase price was $1.3 billion, which was financed with $733.9 million in cash, including amounts settled in cash subsequent to the purchase date, the issuance of 4.8 million common shares (valued for accounting purposes at $71.01 per share for a total of $339.5 million) and the assumption of $191.5 million in debt and other liabilities. The cash portion of the acquisition was funded with borrowings under our credit facilities.
 
The acquisition included 6.3 million square feet of operating distribution properties, including developments under construction, and 1,139 acres of land, primarily in Central Europe and the United Kingdom. We allocated the purchase price based on estimated fair values and recorded approximately $724.7 million of real estate assets, $156.3 million of investments in joint ventures and other unconsolidated investees, $58.1 million of cash and other tangible assets and $325.8 million of goodwill and other intangible assets, which are included in Other Assets in our Consolidated Balance Sheet. During 2008, we recognized an impairment charge of $175.4 million related to this allocated goodwill (see Note 14). The Parkridge acquisition would not have had a material impact on our consolidated results of operations for the year ended December 31, 2007, and as such, we have not presented any pro forma financial information.
 
See also Note 4 for information on real estate property acquisitions.
 
6.   Unconsolidated Investees:
 
Our investments in and advances to these unconsolidated investees, which are accounted for under the equity method, are summarized by type of investee as follows (in thousands):
 
                 
    December 31,  
    2009     2008  
 
Property funds
  $ 1,876,650     $ 1,957,977  
Other investees
    275,073       312,016  
                 
Totals
  $ 2,151,723     $ 2,269,993  
                 


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Property Funds
 
We have investments in several property funds that own portfolios of operating industrial properties. Many of these properties were originally developed by ProLogis and contributed to these property funds, although certain of the property funds have also acquired properties from third parties. When we contribute a property to a property fund, we may receive ownership interests as part of the proceeds generated by the contribution. We earn fees for acting as manager of the property funds and the properties they own. We may earn additional fees by providing other services including, but not limited to, acquisition, development, construction management, leasing and financing activities. We may also earn incentive performance returns based on the investors’ returns over a specified period.
 
Summarized information regarding our investments in property funds is as follows (in thousands):
 
                         
    Years Ended December 31,  
    2009     2008     2007  
 
Earnings (loss) from unconsolidated property funds:
                       
North America
  $ (12,085 )   $ 3,271     $ 17,161  
Europe
    33,141       (94,429 )     60,913  
Asia
    3,852       22,042       16,379  
                         
Total earnings (loss) from unconsolidated property funds
  $ 24,908     $ (69,116 )   $ 94,453  
                         
Property management and other fees and incentives:
                       
North America
  $ 63,413     $ 61,753     $ 47,164  
Europe
    50,814       51,969       43,752  
Asia
    2,542       17,289       13,803  
                         
Total property management and other fees and incentives
  $  116,769     $  131,011     $  104,719  
                         
 
We also earned property management fees from joint ventures and other entities of $26.0 million during the year ended December 31, 2009. This included fees earned from the Japan property funds after February 2009, which is the date we sold our investments in the funds, through July 2009. In connection with the termination of the property management agreement for these properties, we earned a termination fee of $16.3 million that is included within Property Management and Other Fees and Incentives in our Consolidated Statements of Operations for the year ended December 31, 2009.
 
Included within Other Income (Expense), in our Consolidated Statements of Operations for the year ended December 31, 2009 is $20.3 million of expense due to an increase in accruals related to rent indemnifications we had provided to certain property funds because of changes in leasing and other assumptions.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Information about our property funds (the names in parentheses represent the legal names of the entities) is as follows:
 
                                                 
    As of December 31,  
          Square
                   
    Number of
    feet
                Investment in
 
    properties
    (in
    Ownership
    and advances to
 
    owned     millions)     Percentage     (In thousands)  
Fund Names
  2009     2009     2009     2008     2009     2008  
 
ProLogis California (ProLogis California I LLC ) (1)
    80       14.2       50.0 %     50.0 %   $ 94,498     $ 102,685  
ProLogis North American Properties Fund I ( ProLogis North American Properties Fund I LLC) (1)
    35       9.0       41.3 %     41.3 %     21,295       25,018  
ProLogis North American Properties Fund VI (Allagash Property Trust) (1)
    21       8.4       20.0 %     20.0 %     34,424       35,659  
ProLogis North American Properties Fund VII (Brazos Property Trust) (1)
    29       6.2       20.0 %     20.0 %     32,289       32,679  
ProLogis North American Properties Fund VIII (Cimmaron Property Trust) (1)
    24       3.1       20.0 %     20.0 %     12,283       13,281  
ProLogis North American Properties Fund IX (Deerfield Property Trust) (1) (2)
    19       3.3       20.0 %     20.0 %           13,375  
ProLogis North American Properties Fund X (Elkhorn Property Trust) (1) (2)
    29       4.2       20.0 %     20.0 %           15,567  
ProLogis North American Properties Fund XI (KPJV, LLP) (1)
    12       3.6       20.0 %     20.0 %     22,115       28,322  
ProLogis North American Industrial Fund (3)
    258       49.7       23.0 %     23.1 %     241,988       191,088  
ProLogis North American Industrial Fund II (ProLogis NA2 LP) (1) (4)
    148       36.0       37.0 %     36.9 %     336,511       265,575  
ProLogis North American Industrial Fund III (ProLogis NA3 LP) (1)
    120       24.7       20.0 %     20.0 %     140,047       122,148  
ProLogis Mexico Industrial Fund (ProLogis MX Fund LP) (5)
    72       9.1       24.2 %     24.2 %     74,754       96,320  
PEPR (ProLogis European Properties) (6)
    232       53.0       24.8 %     24.9 %     383,389       321,984  
PEPF II (ProLogis European Properties II) (7)
    196       48.0       32.1 %     36.9 %     461,631       312,600  
ProLogis Korea Fund (ProLogis Korea Properties Trust) (1)
    12       1.7       20.0 %     20.0 %     21,426       21,867  
ProLogis Japan properties funds (1) (8)
                      20.0 %           359,809  
                                                 
Totals
      1,287         274.2                     $ 1,876,650     $ 1,957,977  
                                                 
 
 
(1) We have one fund partner in each of these property funds.
 
(2) During 2009, we recognized an aggregate impairment charge of $28.5 million, representing the carrying value of our investments in ProLogis North American Properties Fund IX and X. We recorded the impairment charge due to recent events, which indicated that we may not be able to recover our investment balances. The impairment charge was included in Impairment of Goodwill and Other Assets in our Consolidated Statements of Operations.
 
(3) We refer to the combined entities in which we have ownership interests with ten institutional investors as one property fund named ProLogis North American Industrial Fund. Our ownership percentage is based on our levels of ownership interest in these different entities. During 2009, we made capital contributions of $54.1 million, representing our share of the additional capital called by this property fund to repay outstanding borrowings on its credit facilities and secured mortgage debt.
 
(4) In July 2007, we acquired all of the units in Macquarie ProLogis Trust, an Australian listed property trust (“MPR”) which had an 88.7% ownership interest in ProLogis North American Properties Fund V. The total consideration was approximately $2.0 billion consisting of cash in the amount of $1.2 billion and assumed liabilities of $0.8 billion. We entered into foreign currency forward contracts to economically hedge the purchase price of MPR. As this type of contract does not qualify for hedge accounting treatment, we


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
recognized gains of $26.6 million in 2007 when the contract settled that are included in Foreign Currency Exchange Gains (Losses), Net in our Consolidated Statements of Operations.
 
As a result of the MPR acquisition, we owned 100% and consolidated the results of the assets for approximately two months in 2007, at which time the lender converted certain of the bridge debt into equity of a new property fund, ProLogis North American Industrial Fund II, in which we have a 37.0% equity interest at December 31, 2009. Upon conversion by the lender in the third quarter of 2007, we recognized net gains of $68.6 million that are reflected in proceeds from and costs of CDFS Acquired Property Portfolios in our Consolidated Statements of Operations.
 
On July 1, 2009, we and our fund partner amended a loan agreement and the governing documents of this property fund. The property fund extended the term of a $411.3 million loan payable to an affiliate of our fund partner, which was scheduled to mature in July 2009, until 2014 with an option for an additional extension until 2016. As part of the restructuring, we made an $85.0 million cash capital contribution to the property fund and we may be required to make an additional cash contribution in the future of up to $25.0 million for the repayment of debt or other obligations. In addition, we pledged properties we own directly, valued at approximately $275.0 million, to serve as additional collateral on the loan and related interest rate swap contract. As a result, we are entitled to receive a 10% preferred distribution on all new contributions paid out of operating cash flow prior to other distributions. Upon liquidation of the property fund, we are entitled to receive a 10% preferred return per annum on our initial equity investment and the return of our total investment prior to any other distributions.
 
(5) We refer to the combined entities in which we have ownership interests as one property fund named ProLogis Mexico Industrial Fund, which was formed with several institutional investors in September 2007. During 2008, we loaned this property fund $153.1 million that was used to repay bridge financing that had matured and for a portion of the costs related to a third party acquisition. Through December 31, 2009 and 2008, the fund had repaid $138.7 million and $137.9 million, respectively, of this loan primarily with proceeds obtained from third party financing. The loan bears interest at LIBOR plus a margin and is payable upon demand.
 
(6) In December 2008, we purchased units in PEPF II from PEPR that represented a 20% interest for €43 million ($61.1 million) and assumed €348 million of PEPR’s future equity commitments related to these units. The units were purchased at a discount to net asset value due to PEPR’s near-term liquidity needs. In January 2009, PEPR received offers for their remaining 10.4% interest in PEPF II for €10.5 million. As a result of the sale of units to us and the impairment of their remaining ownership (based on offers received), PEPR recognized a total loss of €310.9 million ($434.3 million) in 2008. Our share of this loss, reflected as Earnings (Loss) from Unconsolidated Property Funds in our Consolidated Statements of Operations, was $108.2 million.
 
In December 2009, PEPR issued €61 million of preferred units with a 10.5% dividend that were offered to its current investors. We invested €41.6 million ($59.4 million) in 7.0 million preferred units that are included in our investment balance. The preferred units are convertible into common units at a rate of one for one at our option. PEPR has the option to redeem the units after seven years or in certain limited circumstances.
 
(7) PEPF II was formed with several third party investors in July 2007. From July 2007 through December 2008, we owned approximately 24% of PEPF II, which included an indirect interest through PEPR’s 30% interest. Our ownership interest has changed based on PEPR’s sale of its 10.4% interest in PEPF II in January 2009 and due to the contributions of properties we made to PEPR II in 2009.
 
(8) On February 9, 2009, we sold our interests in the Japan property funds (see Note 3).


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
Equity Commitments Related to Certain Property Funds
 
Certain property funds have equity commitments from us and our fund partners. We may fulfill our equity commitment through contributions of properties or cash or we may not be required to fulfill them before expiration. Our fund partners fulfill their equity commitment with cash. We are committed to offer to contribute substantially all of the properties that we develop and stabilize in Europe and Mexico to these respective funds. These property funds are committed to acquire such properties, subject to certain exceptions, including that the properties meet certain specified leasing and other criteria, and that the property funds have available capital. We are not obligated to contribute properties at a loss. Depending on market conditions, our liquidity needs and other factors, we may make contributions of properties to these property funds through the remaining commitment period in 2010.
 
The following table outlines the activity of these commitments in 2009 (in millions):
 
                                                         
    NAIF (1)     Mexico (2)     PEPF II (3)  
          Fund
          Fund
    ProLogis
    ProLogis
    Fund
 
    ProLogis     Partners     ProLogis     Partners     Series A     Series B     Partners  
 
Remaining equity commitments at December 31, 2008 (4)
  $   72.5     $   211.7     $   44.3     $   246.7       295.9       272.2       857.4  
Capital called for the repayment of debt
    (54.1 )     (174.2 )                              
Capital called for the acquisition of properties from us
                                  (108.5 )     (341.6 )
                                                         
Remaining equity commitments at December 31, 2009 (local currency)
  $ 18.4     $ 37.5     $ 44.3     $ 246.7     295.9     163.7     515.8  
                                                         
Remaining equity commitments at December 31, 2009 (in U.S. dollars)
  $ 18.4     $ 37.5     $ 44.3     $ 246.7     $ 424.5     $ 234.9     $ 739.8  
                                                         
Expiration date for remaining commitments
  Feb — 2010   Aug — 2010   Aug — 2010
 
 
(1) During 2009, the ProLogis North American Industrial Fund called capital to repay borrowings outstanding under its credit facility and to repay certain secured mortgage debt, which resulted in a gain on early extinguishment of $31.1 million. In February 2010, the property fund called $23.2 million of capital, including $0.8 million in cash from ProLogis, to acquire one property from us. The remaining equity commitments expire at the end of February 2010.
 
(2) ProLogis Mexico Industrial Fund may use the remaining equity commitments to pay down existing debt or other liabilities, including amounts due to us, or to make acquisitions of properties from us or third parties depending on market conditions and other factors.
 
(3) PEPF II’s equity commitments are denominated in euro. The ProLogis commitments include a commitment on the Series B units we acquired from PEPR in December 2008 that we are required to fund with cash. During 2009, we contributed 43 properties to PEPF II for gross proceeds of $643.7 million that were financed by PEPF II with all equity, including our co-investment of $152.7 million in cash under this commitment. We did not make any contributions in 2009 under the Series A commitment. We are not required to fund the remaining Series A commitment in cash and we anticipate it will expire unused.
 
(4) Excludes commitments related to the ProLogis Korea Fund as the agreements were amended and there are no longer any remaining commitments.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
Generally, the properties are contributed based on third-party appraised value, other than PEPF II in 2009. For contributions we made in 2009 to PEPF II, the capitalization rate was determined based on a third party appraisal then a margin of 0.25 to 0.75 percentage points was added to the capitalization rate, depending on the quarter the properties were contributed. We may receive additional proceeds for the 2009 contributions if values at the end of 2010 are higher than those used to determine contribution values.
 
In addition to the capital contributions we made under these commitments, we also made additional discretionary investments in the property funds of $173.5 million in 2009. These investments included the purchase of preferred convertible units in PEPR ($59.4 million), a preferred investment in ProLogis North American Industrial Fund II ($85.0 million), contributions to ProLogis North American Properties Fund XI and ProLogis North American Properties Fund I to repay debt ($3.7 million) and advances to ProLogis North American Industrial Fund III ($25.4 million).
 
Summarized financial information of the property funds on a combined basis (for the entire entity, not our proportionate share) and our investments in such funds is presented below (dollars in millions):
 
                                 
    2009  
    North America     Europe (1)     Asia (2)     Total  
 
Revenues
  $ 855.5     $ 736.3     $ 40.9     $ 1,632.7  
Net earnings (loss) (3)(4)
  $ (104.4 )   $ 75.5     $ 16.4     $ (12.5 )
Total assets
  $ 9,700.0     $ 8,807.5     $ 150.6     $ 18,658.1  
Amounts due to us (5)
  $ 50.0     $ 31.2     $     $ 81.2  
Third party debt (6)
  $ 5,340.3     $ 3,948.8     $ 48.1     $ 9,337.2  
Total liabilities
  $ 5,647.5     $ 4,773.8     $ 51.6     $ 10,472.9  
Noncontrolling interest
  $ 10.7     $ 15.8     $     $ 26.5  
Fund partners’ equity
  $ 4,041.6     $ 4,017.9     $ 99.1     $ 8,158.6  
Our weighted average ownership at end of period (7)
    27.6 %     28.5 %     20.0 %     27.9 %
Our investment balance (8)
  $ 1,010.2     $ 845.1     $ 21.4     $ 1,876.7  
Deferred gains, net of amortization (9)
  $ 243.1     $ 297.4     $     $ 540.5  
 
                                 
    2008  
    North America     Europe     Asia     Total  
 
Revenues
  $ 835.8     $ 665.6     $ 299.6     $ 1,801.0  
Net earnings (loss) (3)(4)
  $ (24.2 )   $ (404.6 )   $ 82.8     $ (346.0 )
Total assets
  $ 9,979.2     $ 8,982.9     $ 5,821.6     $ 24,783.7  
Amounts due to us (5)
  $ 30.2     $ 22.4     $ 147.4     $ 200.0  
Third party debt (6)
  $ 5,726.0     $ 4,829.9     $ 2,906.5     $ 13,462.4  
Total liabilities
  $ 5,985.4     $ 5,581.1     $ 3,855.1     $ 15,421.6  
Noncontrolling interests
  $ 10.7     $ 19.8     $     $ 30.5  
Fund partners’ equity
  $ 3,983.1     $ 3,382.0     $ 1,966.5     $ 9,331.6  
Our weighted average ownership at end of period (7)
    27.5 %     30.2 %     20.0 %     26.9 %
Our investment balance (8)
  $ 941.7     $ 634.6     $ 381.7     $ 1,958.0  
Deferred gains, net of amortization (9)
  $ 246.7     $ 299.0     $ 163.3     $ 709.0  


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
The following transactions impacted the results and financial position of the property funds during 2009 and 2008:
 
(1) The variances in the revenues, total assets, third party debt and total liabilities of the European property funds between 2008 and 2009 are mainly as a result of changes in the size of the property portfolios due to contributions of properties to PEPF II and fluctuations in foreign currency exchange rates, which we use to translate the assets and liabilities to U.S. dollars.
 
(2) The reduction in revenues, net earnings, total assets, third party debt and total liabilities relating to the Asian property funds between 2008 and 2009 was due to the sale of our interests in the Japan property funds in February 2009 (see Note 3).
 
(3) In 2007, two of the North America property funds entered into interest rate forward swap contracts and designated them as cash flow hedges. Certain of these derivative contracts no longer met the requirements for hedge accounting and, therefore, the change in fair value of these contracts was recognized within earnings, along with the gain or loss upon settlement. As a result, included in net earnings (loss) from North America for 2009 and 2008 are net losses of $17.1 million and $77.0 million, respectively.
 
During 2009, the North American Funds that own properties in Mexico recognized $79.5 million of deferred tax expense. In 2009, two North American property funds recorded impairment charges aggregating $11.1 million related to properties they planned to sell. In 2009, ProLogis North American Industrial Fund repaid debt scheduled to mature in 2011 and 2012 at a discount that resulted in the recognition of a $31.1 million gain on early extinguishment of debt.
 
(4) During 2009, PEPR sold 14 properties to unrelated third parties resulting in a loss of $15.3 million. The Europe results include properties that we contributed to PEPF II during 2009. Included in the net loss for Europe in 2008 was the loss on sale and impairment of PEPR’s investment in PEPF II, as discussed above, of $434.3 million.
 
(5) During 2009, we and our fund partner each loaned $25.4 million to ProLogis North American Industrial Fund III that was used to repay maturing debt of the property fund. These notes will be paid with operating cash flow, mature at dissolution of the property fund and bear interest at LIBOR plus 8%. As of December 31, 2009, the outstanding balance was $22.6 million. In addition, as of December 31, 2009 and 2008, ProLogis Mexico Industrial Fund had a note payable to us for $14.3 million and $15.3 million, respectively. The remaining amounts represent current balances from services provided by us.
 
(6) As of December 31, 2009 and 2008, we had not guaranteed any of the third party debt of the property funds. On July 1, 2009, in connection with the restructuring and amendment of the partnership and loan agreements discussed earlier, we pledged direct owned properties, valued at approximately $275 million, to serve as additional collateral for the loan of ProLogis North American Industrial Fund II that is payable to an affiliate of our fund partner and for the related interest rate swap contract.
 
(7) Represents our weighted average ownership interest in all property funds combined based on each entity’s contribution to total assets, before depreciation, net of other liabilities.
 
(8) The difference between our percentage ownership interest in the property fund’s equity and our investment balance results principally from three types of transactions: (i) deferring a portion of the gains we recognized from a contribution of one of our properties to a property fund as a result of our continuing ownership in the property (see next footnote); (ii) recording additional costs associated with our investment in the property fund; and (iii) advances to the property fund.
 
(9) This amount is recorded as a reduction to our investment and represents the gains that were deferred when we contributed a property to a property fund due to our continuing ownership in the property.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
Other unconsolidated investees
 
We have investments in entities that develop and own industrial and retail properties, perform land and mixed-use development activity, own a hotel and office properties. The amounts we have recognized as our proportionate share of the earnings (loss) from our investments in these entities are summarized as follows (in thousands):
 
                         
    Years Ended December 31,  
    2009     2008     2007  
 
North America
  $ 2,814     $ 11,527     $ 7,428  
Europe
    337       1,815       (2,855 )
                         
Total earnings from other unconsolidated investees
  $ 3,151     $ 13,342     $ 4,573  
                         
 
Our investments in and advances to these entities were as follows as of December 31 (in thousands):
 
                 
    2009     2008  
 
North America
  $ 148,137     $ 150,963  
Europe
    96,191       161,053  
Asia
    30,745        
                 
Total
  $ 275,073     $ 312,016  
                 
 
The investment in Europe includes our 25% ownership interest in and advances to an entity that develops retail and mixed use properties. As a result of the decline in global market conditions during the fourth quarter of 2008, we evaluated the recoverability of our investment in and advances to this entity, and recognized an impairment charge of $113.7 million. We also began evaluating our options associated with this investment. During the second quarter of 2009, the entity’s shareholders and lenders approved a restructuring plan that included using the proceeds received from the orderly disposition of assets to repay debt. During the fourth quarter of 2009, we reviewed the entity’s progress with executing this plan, the cash generated from asset sales and estimated future cash flows. As a result of this review, we evaluated the recoverability of our investment in and advances to the entity and recognized a further impairment charge of $115.1 million during the fourth quarter of 2009. Included in the 2009 impairment charge is $25.1 million that represents the cumulative translation losses we had recognized on this investment that were previously included as a component of equity. At December 31, 2009, we have a remaining balance of $45.0 million of advances that we expect to recover based on estimated future cash flows from the entity’s disposition of assets.
 
The investment in Asia relates to a new joint venture in Japan to which we contributed land. The joint venture is with one partner and is accounted for under the equity method, as we do not have majority voting rights and all substantive decisions require unanimous consent of both us and our partner. Our partner is responsible for funding 51% of the costs of construction and we are responsible for 49%. The joint venture intends to obtain secured financing and use the proceeds to reimburse our costs of construction. After the financing is in place, our total investment in this joint venture is expected to equal our land investment balance and represent 60% of the joint venture equity.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
7.   Other Assets and Other Liabilities:
 
Our other assets consisted of the following, net of amortization and depreciation, if applicable, as of December 31 (in thousands):
 
                 
    2009     2008  
 
Goodwill
  $ 399,037     $ 395,626  
Value added taxes receivable
    125,768       250,707  
Leasing commissions
    119,496       115,194  
Rent leveling assets and above market leases
    106,009       81,558  
Fixed assets
    39,637       80,323  
Loan fees
    76,994       37,138  
Non-qualified savings plan assets
    699       24,901  
Other
    150,140       141,546  
                 
Totals
  $  1,017,780     $  1,126,993  
                 
 
Our other liabilities consisted of the following, net of amortization, if applicable, as of December 31 (in thousands):
 
                 
    2009     2008  
 
Income tax liabilities
  $ 171,602     $ 367,626  
Tenant security deposits
    56,529       120,590  
Accrued disposition costs
    41,526       91,476  
Unearned rents
    43,388       60,331  
Non-qualified savings plan liabilities
    886       27,206  
Value added taxes payable
    24,690       10,571  
Below market leases
    6,908       7,332  
Other
    98,903       66,106  
                 
Totals
  $  444,432     $  751,238  
                 
 
The expected future amortization of leasing commissions assets is summarized in the table below. We also expect our above and below market leases and rent leveling assets, which total $99.1 million at December 31, 2009, to be amortized into rental income as follows (in thousands):
 
                 
    Amortization
    Net Charge (Increase) to
 
    Expense     Rental Income  
 
2010
  $ 33,060     $ (2,408 )
2011
    27,865       16,909  
2012
    21,293       17,380  
2013
    14,328       14,191  
2014
    8,726       11,793  
Thereafter
    14,224       41,236  
                 
Total
  $  119,496     $           99,101  
                 
 
As of December 31, 2009 and 2008, total accumulated impairment of goodwill was $175.4 million, all of which was recorded in 2008.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
During 2009 and 2008, we recorded impairment charges on certain other assets of $20.0 million and $13.6 million, respectively. See Note 14 for additional information.
 
8.  Assets Held for Sale and Discontinued Operations:
 
Held for Sale
 
As discussed in Note 3 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. We had no properties classified as held for sale at December 31, 2009.
 
A summary of the amounts included in Assets Held for Sale, at December 31, 2008 was as follows (in thousands):
 
         
Assets — discontinued operations — assets held for sale:
       
Investments in real estate assets:
       
Industrial properties
  $ 471,221  
Properties under development
    225,971  
Land held for development
    245,965  
Other investments
    147,356  
         
      1,090,513  
Accumulated depreciation
    (15,463 )
         
Net investments in real estate assets
    1,075,050  
Investments in and advances to unconsolidated investees:
       
Property funds
    32,952  
Other investees
    247,507  
         
Total investments in and advances to unconsolidated investees
    280,459  
Cash and cash equivalents
    111,136  
Other assets
    42,345  
         
Total assets before impairment
    1,508,990  
Impairment of assets
    (198,236 )
         
Total assets — discontinued operations — assets held for sale
  $      1,310,754  
         
Liabilities — discontinued operations — assets held for sale:
       
Debt
  $ 218,463  
Other liabilities
    104,547  
Noncontrolling interests
    66,874  
         
Total liabilities — discontinued operations — assets held for sale
  $ 389,884  
         
 
Discontinued Operations
 
The operations of the properties held for sale or disposed of to third parties, including our China operations, 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


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
pre-sale agreement. Interest expense is included in discontinued operations only if it is directly attributable to these operations or properties.
 
During 2009, other than our China operations, we disposed of land subject to ground leases and 140 properties to third parties aggregating 14.8 million square feet, 3 of which were development properties. This includes a portfolio of 90 properties aggregating 9.6 million square feet that we continue to manage that were sold to a single venture during the second quarter. During 2008, we disposed of land subject to ground leases and 15 properties to third parties, 6 of which were development properties.
 
Income attributable to discontinued operations for the years ended December 31 is summarized as follows (in thousands):
 
                         
    2009     2008     2007  
 
Revenues:
                       
Rental income
  $ 50,492     $ 121,685     $ 109,942  
CDFS dispositions proceeds — acquired property portfolios
          83,648        
Other income
    93       1,514       348  
                         
Total revenues
    50,585       206,847       110,290  
                         
Expenses:
                       
Rental expenses
    14,434       42,058       31,209  
Cost of CDFS dispositions — acquired property portfolios
          83,648        
General and administrative
    1,305       21,721       11,354  
Reduction in workforce
          3,300        
Depreciation and amortization
    11,319       33,661       25,588  
Other expenses
    7       5,088        
                         
Total expenses
    27,065       189,476       68,151  
                         
Operating income
    23,520       17,371       42,139  
Total other income (expense)
    787       (16,390 )     6,717  
Net (earnings) loss attributable to noncontrolling interest
    (144 )     10,068       (1,189 )
                         
Income attributable to assets held for sale and disposed properties
    24,163       11,049       47,667  
Net gain (impairment) related to disposed assets — China operations
    3,315       (198,236 )      
Net gains recognized on property dispositions
    261,464       19,501       81,497  
                         
Total discontinued operations
  $   288,942     $   (167,686 )   $   129,164  
                         
 
The following information relates to properties disposed of and recorded as discontinued operations, excluding the China operations and including minor adjustments to previous dispositions, during each of the years ended December 31 (dollars in thousands):
 
                         
    2009   2008   2007
 
Number of properties
    140       15       80  
Net proceeds from dispositions
  $   845,186     $   127,428     $   426,838  
Net gains from dispositions
  $ 261,464     $ 19,501     $ 81,497  


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
9.   Debt:
 
Our debt consisted of the following as of December 31 (dollars in thousands):
 
                                 
    2009     2008  
    Weighted
          Weighted
       
    Average
    Amount
    Average
    Amount
 
    Interest Rate     Outstanding     Interest Rate     Outstanding  
 
Global Line
    2.27%     $ 736,591       2.38%     $ 2,617,764  
Credit Facility (1)
                2.81%       600,519  
Senior and other notes
    6.31%       4,047,905       5.60%       3,995,410  
Convertible senior notes (2)
    5.55%       2,078,441       5.56%       2,590,133  
Secured mortgage debt
    6.40%       1,090,126       6.79%       877,916  
Assessment bonds
    6.49%       24,715       6.55%       29,626  
                                 
Totals
    5.75%     $   7,977,778       4.75%     $   10,711,368  
                                 
 
 
(1) In 2009, we repaid the balance outstanding and terminated our existing multi-currency credit facility (the “Credit Facility”), which was scheduled to mature on October 6, 2009, with borrowings under our global line of credit (the “Global Line”).
 
(2) The weighted average interest rate reflects the effective rate after the adoption of the new accounting standard for convertible debt (see Note 2 for more information on the adoption). The weighted coupon interest rate was 2.2% for both periods.
 
Beginning in the fourth quarter of 2008 and throughout 2009, in connection with our announced initiatives to reduce debt, we purchased portions of several series of notes outstanding, the majority of which were at a discount, and extinguished some secured mortgage debt prior to maturity, as follows (in thousands):
 
                 
    For the Year Ended
    For the Year Ended
 
    December 31, 2009     December 31, 2008  
 
Convertible Notes
               
Original principal amount
  $ 653,993     $  
Cash purchase price
  $ 454,023     $  
Senior Notes (1)
               
Original principal amount
  $ 587,698     $      309,722  
Cash purchase price
  $ 545,618     $ 216,805  
Secured Mortgage Debt
               
Original principal amount (2)
  $ 227,017     $  
Cash extinguishment price
  $ 227,017     $  
Total
               
Original principal amount
  $      1,468,708     $ 309,722  
Cash purchase / extinguishment price
  $ 1,226,658     $ 216,805  
Net gain on early extinguishment of debt (3)
  $ 172,258     $ 90,719  
 
 
(1) Included in the year ended December 31, 2009 is the repurchase of €248.7 million ($356.4 million) original principal amount of our other notes for €235.1 million ($338.7 million).
 
(2) 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.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
(3) Although we reduced our debt obligations by $242.1 million and $92.9 million in 2009 and 2008, respectively, the gain is calculated based on the recorded debt balance, which may include unamortized related debt issuance costs, premiums, and discounts.
 
Credit Facilities
 
Information related to our combined credit facilities are summarized below (dollars in millions):
 
                         
    2009     2008     2007  
 
For the years ended December 31:
                       
Weighted average daily interest rate
    1.62 %     3.26 %     3.72 %
Weighted average daily borrowings
  $ 1,641.9     $ 3,248.4     $ 3,075.9  
Maximum borrowings outstanding at any month-end
  $   3,285.3     $   3,663.6     $   3,538.2  
As of December 31:
                       
Aggregate borrowing capacity (1)
  $ 2,164.8     $ 4,432.1     $ 4,354.9  
Borrowings outstanding
  $ 736.6     $ 3,218.3     $ 2,564.4  
Outstanding letters of credit (1)
  $ 114.9     $ 142.4     $ 148.2  
Aggregate remaining capacity available
  $ 1,080.4     $ 1,071.5     $ 1,642.4  
 
 
(1) At December 31, 2009, included in this borrowing capacity and letters of credit is a credit facility with outstanding commitments equal to the outstanding letters of credit of 9.7 million British pound sterling ($15.6 million).
 
Information related to our Global Line as of December 31, 2009 (dollars in millions):
 
         
Borrowing base
  $ 3,907.7  
Borrowing capacity (1)
  $ 2,149.2  
Less:
       
Borrowings outstanding
    736.6  
Outstanding letters of credit
    99.3  
Debt due within one year
    232.9  
         
Current availability
  $   1,080.4  
         
 
 
(1) Borrowing capacity represents 55% of the borrowing base related to the Global Line.
 
In August 2009, we amended our Global Line to, among other things, extend the maturity to August 21, 2012 and reduce the size of the aggregate commitments to $2.25 billion, after October 2010, from the current level of $3.7 billion (in each case subject to currency fluctuations). The Global Line includes covenants that may limit the amount of indebtedness that we and our subsidiaries can incur to an amount that may be less than the aggregate lender commitments under the Global Line, depending on the timing and use of proceeds of the borrowings. The borrowing base covenant in the Global Line limits the aggregate amount of indebtedness (including obligations under the Global Line and other recourse indebtedness maturing within one year) to no more than 55% of the value (determined by a formula as of the end of each fiscal quarter) of our unencumbered property pool, as defined in the Global Line.
 
Our current availability to borrow under the Global Line is calculated as the lesser of (i) the aggregate lender commitments and (ii) the borrowing capacity, in each case reduced by the outstanding borrowings, letters of credit and recourse debt due within one year; resulting in current availability of $1.1 billion at December 31, 2009. Therefore, the amount of funds that we may borrow under the Global Line will vary from time to time


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
based upon the outstanding amount of such specified indebtedness and the quarterly formulaic valuation of our unencumbered property pool. Our current availability to borrow would remain $1.1 billion at December 31, 2009, even if the aggregate lender commitments were reduced to $2.25 billion.
 
We may draw funds from a syndicate of banks in U.S. dollars, euros, Japanese yen, British pound sterling and Canadian dollars, and until October 2010, South Korean won. Lenders who did not participate in the amended and extended facility will be subject to the pre-amendment pricing structure through October 2010, while the new pricing structure is effective immediately to extending lenders. Based on our public debt ratings and a pricing grid, interest on the borrowings under the Global Line accrues at a variable rate based upon the interbank offered rate in each respective jurisdiction in which the borrowings are outstanding and we pay utilization fees that are calculated on the outstanding balance. The interest and utilization fees result in a weighted average borrowing rate of 2.27% per annum at December 31, 2009 using local currency rates.
 
Senior and Other Notes
 
On August 14, 2009, we issued $350.0 million of 7.625% senior notes maturing in 2014, at 99.489% of par value for an all-in-rate of 7.75%. On October 30, 2009 we issued $600.0 million of 7.375% senior notes maturing October 2019, at 99.728% of par value for an all-in-rate of 7.414%. We used the proceeds from both issuances to repay borrowings under our Global Line and other debt.
 
During 2009, we repaid maturing notes of $303.1 million primarily with borrowings under our Global Line.
 
Our senior and other notes outstanding at December 31, 2009 are summarized as follows (dollars in thousands):
 
                 
    Principal
    Coupon
 
Maturity Date
  Balance     Rate  
 
Senior notes:
               
November 15, 2010 (1)
    190,278       5.25 %
April 1, 2012 (1)
    280,788       5.50 %
March 1, 2013 (1)
    262,066       5.50 %
August 15, 2014 (1) (2)
    350,000       7.63 %
February 1, 2015 (3)
    100,000       7.81 %
March 1, 2015 (4)
    30,000       9.34 %
November 15, 2015 (1)
    400,000       5.63 %
April 1, 2016 (1)
    400,000       5.75 %
May 15, 2016 (5)
    50,000       8.65 %
November 15, 2016 (1)
    550,000       5.63 %
July 1, 2017 (1)
    100,000       7.63 %
May 15, 2018 (1)
    600,000       6.63 %
October 30, 2019 (1) (6)
    600,000       7.38 %
                 
Total senior notes
    3,913,132          
Other notes — April 13, 2011 (1) (7)
    145,294       4.38 %
                 
Total par value
    4,058,426          
Discount, net
    (10,521 )        
                 
Total senior and other notes, net
  $   4,047,905          
                 


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
(1) Principal due at maturity.
 
(2) We issued these notes in August 2009.
 
(3) Beginning on February 1, 2010, and through February 1, 2015, requires annual principal payments ranging from $10.0 million to $20.0 million.
 
(4) Beginning on March 1, 2010, and through March 1, 2015, requires annual principal payments ranging from $3.0 million to $7.5 million.
 
(5) Beginning on May 15, 2010, and through May 15, 2016, requires annual principal payments ranging from $5.0 million to $12.5 million.
 
(6) We issued these notes in October 2009.
 
(7) Represents notes with principal outstanding of €101.3 million.
 
Our obligations under the senior notes are effectively subordinated in certain respects to any of our debt that is secured by a lien on real property, to the extent of the value of such real property. The senior notes require interest payments be made quarterly, semi-annually or annually.
 
We have designated the senior and other notes and our credit facilities as “Designated Senior Debt” under and as defined in the Amended and Restated Security Agency Agreement dated as of October 6, 2005 (the “Security Agency Agreement”) among various creditors (or their representatives) and Bank of America, N.A., as Collateral Agent. The Security Agency Agreement provides that all Designated Senior Debt holders will, subject to certain exceptions and limitations, have the benefit of certain pledged intercompany receivables and share payments and other recoveries received post default/post acceleration so that all Designated Senior Debt holders receive payment of substantially the same percentage of their respective credit obligations. In connection with the amendments to our Global Line described above, we amended the terms of the Security Agency Agreement to permit us to pledge collateral (“Specified Collateral”) to the holders of certain Designated Senior Debt (“Specified DS Debt”) without subjecting that collateral to the sharing arrangements with other holders of Designated Senior Debt. The Specified Collateral may include any property owned by us or any of our consolidated subsidiaries, except that no property that constitutes pledged collateral for all Designated Senior Debt may become Specified Collateral. No proceeds from Specified Collateral received by holders of Specified DS Debt will be deducted or otherwise taken into consideration when allocating proceeds among the credit parties pursuant to the Security Agency Agreement unless the holder of such Designated Senior Debt has been paid in full.
 
All of the senior and other notes are redeemable at any time at our option, subject to certain prepayment penalties. Such redemption and other terms are governed by the provisions of indenture agreements, various note purchase agreements and a trust deed.
 
Convertible Notes
 
We have issued three series of convertible senior notes ($550 million issued May 2008, $1.25 billion issued March 2007 and $1.12 billion issued November 2007). We refer to the three convertible senior note issuances as “Convertible Notes”. During 2009, we repurchased portions of the Convertible Notes with an aggregate principal amount of $654.0 million, as discussed above.
 
The Convertible Notes are senior obligations of ProLogis and are convertible, under certain circumstances, for cash, our common shares or a combination of cash and our common shares, at our option, at a conversion rate per $1,000 of principal amount of the notes of 13.1614 shares for the March 2007 issuance, 12.2926 shares for


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
the November 2007 issuance and 13.1203 shares for the May 2008 issuance. The initial conversion price ($76.58 for the March 2007 issuance, $82.00 for the November 2007 issuance and $76.22 for the May 2008 issuance) represented a premium of approximately 20% over the closing price of our common shares at the date of first sale and is subject to adjustment under certain circumstances. The Convertible Notes, issued in 2007 and 2008, are redeemable at our option beginning in 2012 and 2013, respectively, for the principal amount plus accrued and unpaid interest and at any time prior to maturity to the extent necessary to preserve our status as a REIT. Holders of the Convertible Notes have the right to require us to repurchase their Convertible Notes for cash on specific dates approximately every five years beginning in 2012 and 2013 and at any time prior to their maturity upon certain limited circumstances. Therefore, we have reflected these amounts in 2012 and 2013 in the schedule of debt maturities below based on the first put date and we will amortize the discount through these dates.
 
While we have the legal right to settle the conversion in either cash or shares, we intend to settle the principal balance of the Convertible Notes in cash and, therefore, we have not included the effect of the conversion of these notes in our computation of diluted earnings per share. Based on the current conversion rates, 29.2 million shares would be required to settle the principal amount in shares. Such potentially dilutive shares, and the corresponding adjustment to interest expense, are not included in our computation of diluted earnings per share. The amount in excess of the principal balance of the notes (the “Conversion Spread”) will be settled in cash or, at our option, ProLogis common shares. If the Conversion Spread becomes dilutive to our earnings per share, (i.e., if our share price exceeds $75.98 for the March 2007 issuance, $81.35 for the November 2007 issuance or $76.22 for the May 2008 issuance) we will include the shares required to satisfy the conversion spread in our computation of diluted earnings per share.
 
After the adoption of the new accounting standard on January 1, 2009 related to convertible debt with terms similar to our Convertible Notes, as discussed in Note 2, below is information related to the Convertible Notes (in thousands):
 
                         
    December 31, 2009     December 31, 2008     December 31, 2007  
 
Principal amount
  $ 2,266,507     $ 2,920,500     $ 2,370,500  
Discount
    (188,066 )     (330,367 )     (326,492 )
                         
Net carrying balance required to satisfy the conversion spread
  $     2,078,441     $     2,590,133     $     2,044,008  
                         
Additional paid-in capital — conversion option
  $ 381,493     $ 381,493     $ 310,575  
 
Interest expense related to the Convertible Notes for the years ended December 31 included the following components (in thousands):
 
                         
    2009     2008     2007  
 
Coupon rate
  $ 55,951     $ 58,420     $ 24,505  
Amortization of discount
    71,662       73,374       27,638  
Amortization of deferred loan costs
    3,801       3,470       1,373  
                         
Interest expense
  $   131,414     $   135,264     $   53,516  
                         
Effective interest rate
    5.55 %     5.70 %     5.38 %
 
Secured Mortgage Debt
 
During 2009, we issued a total of ¥14.3 billion in TMK bonds, including ¥10 billion ($108.2 million at December 31, 2009) at 2.74% due December 2012, and ¥4.3 billion ($45.6 million at December 31, 2009) at


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
4.09% due June 2012. TMK bonds are a financing vehicle in Japan for special purpose companies known as TMKs. We also issued $347.3 million of secured mortgage debt including $101.8 million at 6.5% due July 2014 and $245.5 million at 7.55% due July 2019. These 2009 financings are secured by 66 real estate properties with an aggregate undepreciated cost of $1.4 billion at December 31, 2009.
 
Our secured mortgage debt outstanding includes any premium or discount recorded at acquisition and consisted of the following at December 31, 2009 (dollars in thousands):
 
                                 
                      Balloon
 
          Periodic
          Payment
 
    Interest
    Payment
    Carrying
    Due at
 
Maturity Date
  Rate (1)     Date     Value     Maturity  
 
June 23, 2012
    4.09 %(2)     (4 )   $ 45,628     $  45,628  
December 16, 2012
    2.74 %(2)     (4 )     108,190     $ 108,190  
July 1, 2014
    6.50 %     (3 )     101,750     $ 101,750  
August 1, 2015
    5.47 %     (4 )     128,528     $ 111,690  
April 12, 2016
    7.25 %     (4 )     196,265     $ 149,917  
July 10, 2019
    7.55 %     (3 )     245,500     $ 245,500  
April 1, 2024
    7.58 %     (4 )     190,230     $ 127,187  
Various
    (5 )     (5 )     74,035       (5)  
                                 
Total secured mortgage debt(6)
                  $ 1,090,126          
                                 
 
 
(1) The weighted average annual interest rate for our total secured mortgage debt was 6.4% at December 31, 2009.
 
(2) Represents the effective fixed interest rates including interest rate swap contracts.
 
(3) Principal due at maturity.
 
(4) Monthly amortization with a balloon payment due at maturity.
 
(5) Includes six mortgage notes with interest rates ranging from 4.7% to 7.23%, maturing from 2011 to 2025, primarily requiring monthly amortization with a balloon payment at maturity. The combined balloon payment for all of the notes is $71.2 million.
 
(6) The debt is secured by 216 real estate properties with an aggregate undepreciated cost of $2.6 billion at December 31, 2009.
 
Assessment Bonds
 
The assessment bonds are issued by municipalities and guaranteed by us as a means of financing infrastructure and are secured by assessments (similar to property taxes) on various underlying real estate properties with an aggregate undepreciated cost of $953.0 million at December 31, 2009. Interest rates range from 5.78% per annum to 8.75% per annum. Maturity dates range from 2011 to 2033.
 
Debt Covenants
 
We have approximately $6.0 billion of senior notes outstanding as of December 31, 2009, that have been issued under the 1995 indenture (“Original Indenture”) or supplemental indentures. We refer to the Original Indenture, as amended by supplemental indentures, collectively as the “Indenture”. These senior notes are subject to certain financial covenants. The Convertible Notes, although issued under the Indenture, are not subject to financial covenants.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
On October 1, 2009, at the completion of a consent solicitation with regard to the senior notes, other than the Convertible Notes, we and the trustee under the Indenture entered into a Ninth Supplemental Indenture (the “Ninth Supplemental Indenture”) giving effect to the Indenture amendments described in the solicitation statement dated September 21, 2009. The Ninth Supplemental Indenture became operative upon payment of a consent fee. The Indenture amendments are binding on all holders of the senior notes, other than the Convertible Notes, including non-consenting holders. The amended covenants, defined terms and thresholds for certain events of default, as included in the Ninth Supplemental Indenture, are consistent with the Eighth Supplemental Indenture, which was entered into with the trustee in August 2009 in connection with the issuance of $350.0 million of senior notes. Therefore, as of October 1, 2009, all senior notes, other than the Convertible Notes, issued under the Indenture are now subject to one consistent set of financial covenants, defined terms and thresholds for certain events of default.
 
In consideration for the consents from the record holders of the solicited notes to the proposed amendments, in October 2009, we paid to each record holder $2.50 for each $1,000 in principal amount of solicited notes as to which we had received a valid (and unrevoked) consent on or prior to the consent solicitation expiration date from such record holder. These costs were deferred and will be amortized into interest expense over the remaining life of the notes. In addition, we recognized $14.5 million in fees and expenses related to the consent solicitation that are included in General and Administrative Expenses in our Consolidated Statements of Operations.
 
As of December 31, 2009, we were in compliance with all of our debt covenants.
 
Long-Term Debt Maturities
 
Principal payments due on our debt, excluding the Global Line, during each of the years in the five-year period ending December 31, 2014 and thereafter are as follows (in thousands):
 
         
2010 (1)
  $ 232,854  
2011 (1)
    188,441  
2012 (2)
    1,569,352  
2013 (2) (3)
    1,497,740  
2014
    513,653  
Thereafter
    3,417,667  
         
Total principal due
    7,419,707  
Discount, net
    (178,520 )
         
Total carrying value
  $   7,241,187  
         
 
 
(1) We expect to repay the amounts maturing in 2010 and 2011 with borrowings under our Global Line or with proceeds from the issuance of debt or equity securities, depending on market conditions.
 
(2) The maturities in 2012 and 2013 include the aggregate principal amounts of the convertible notes of $1,103.7 million and $1,162.8 million, respectively, based on the year in which the holders first have the right to require us to repurchase their notes.
 
(3) The convertible notes issued in November 2007 are included as 2013 maturities since the holders have the right to require us to repurchase their notes for cash in January 2013. The holders of these notes also have the option to convert their notes in November 2012, which we may settle in cash or common shares, at our option.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
Interest Expense
 
Interest expense included the following components (in thousands):
 
                         
    Years Ended December 31,  
    2009     2008     2007  
 
Gross interest expense
  $ 382,899     $ 477,933     $ 487,410  
Amortization of discount, net
    67,542       63,676       15,952  
Amortization of deferred loan costs
    17,069       12,238       10,362  
                         
      467,510       553,847       513,724  
Capitalized amounts
    (94,205 )     (168,782 )     (123,880 )
                         
Net interest expense
  $   373,305     $   385,065     $   389,844  
                         
 
The amount of interest paid in cash, net of amounts capitalized, for the years ended December 31, 2009, 2008 and 2007 was $290.2 million, $339.5 million and $356.8 million, respectively.
 
10.   Noncontrolling Interests:
 
We have reported noncontrolling interests related to two real estate partnerships in North America and other entities we consolidate but do not wholly own. The real estate partnerships have limited partnership units, held by noncontrolling interest holders, that are convertible into our common shares generally at a rate of one common share to one unit. Information at December 31 is as follows (dollars in thousands):
 
                                         
    2009     2008  
          Noncontrolling
                Noncontrolling
 
Type of Entity
  Balance     Interests           Balance     Interests  
 
North America limited partnerships (1)(2)(3)(4)
  $ 12,608       3-7 %           $ 14,396       4-7 %
North America — joint ventures
    611       1-25 %             676       1-25 %
Europe joint venture
    6,743       50 %             4,806       50 %
                                         
    $      19,962                     $   19,878          
                                         
 
 
(1) At December 31, 2009 and 2008, an aggregate of 810,163 and 1,233,566 limited partnership units, respectively, held by noncontrolling interest holders are convertible into an equal number of common shares. The majority of the outstanding limited partnership units are entitled to receive cumulative preferential quarterly cash distributions equal to the quarterly distributions paid on our common shares.
 
(2) Certain properties owned by one of these partnerships cannot be sold, other than in tax-deferred exchanges, prior to the occurrence of certain events and without the consent of the limited partners. The partnership agreement provides that a minimum level of debt must be maintained within the partnership, which can include intercompany debt to us.
 
(3) In 2009 and 2008, outstanding limited partnership units of 413,500 and 3,911,923, respectively, were converted into an equal number of common shares.
 
(4) In 2009, outstanding limited partnership units of 9,903 were converted to cash in exchange for the sale of the property that was in the partnership.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
11.  ProLogis Shareholders’ Equity:
 
Shares Authorized
 
On February 27, 2009, the Board of Trustees (the “Board”) approved Articles of Amendment (the “Amendment”) to our Amended and Restated Declaration of Trust. The Amendment increased the total number of shares of beneficial interest that we have the authority to issue from 375 million to 750 million shares, including an increase in the number of common shares from 363 million to 738 million shares. The Board may, without shareholder approval, increase the number of authorized shares and may classify or reclassify any unissued shares of our stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of such shares.
 
Common Shares
 
On April 14, 2009, we completed a public offering of 174.8 million common shares at a price of $6.60 per share (“Equity Offering”). We received net proceeds of $1.1 billion that were used to repay borrowings under our credit facilities.
 
In February 2007, we issued 4.8 million common shares in connection with the Parkridge acquisition (see Note 5).
 
We sell and/or issue common shares under various common share plans, including share-based compensation plans as follows:
 
•      1999 Dividend Reinvestment and Share Purchase Plan, as amended (the “1999 Dividend Reinvestment Plan”): Allows holders of common shares to automatically reinvest distributions and certain holders and persons who are not holders of common shares to purchase a limited number of additional common shares by making optional cash payments, without payment of any brokerage commission or service charge. Common shares that are acquired under the 1999 Dividend Reinvestment Plan through reinvestment of distributions are acquired at a price we determine ranging from 98% to 100% of the market price of such common shares.
 
•      Controlled Offering Program: Currently allows us to sell up to 40 million common shares through one designated agent who earns a fee up to 2% of the gross proceeds, as agreed on a transaction-by-transaction basis. In 2009, we issued 29.8 million shares, resulting in 10.2 million shares available for future issuance.
 
•      The Incentive Plan and Outside Trustees Plan: Certain of our employees and outside trustees participate in share-based compensation plans that provide compensation, generally in the form of common shares. See Note 12 for additional information on these plans.
 
•      ProLogis Trust Employee Share Purchase Plan (the “Employee Share Plan”): Certain of our employees may purchase common shares, through payroll deductions only, at a discounted price of 85% of the market price of the common shares. The aggregate fair value of common shares that an individual employee can acquire in a calendar year under the Employee Share Plan is $25,000. Subject to certain provisions, the aggregate number of common shares that may be issued under the Employee Share Plan may not exceed 5.0 million common shares. As of December 31, 2009, we have 4.5 million shares available under this plan.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
Under the plans discussed above, we issued shares and received gross proceeds as follows (in thousands):
 
                                                 
    2009     2008     2007  
    Shares     Proceeds     Shares     Proceeds     Shares     Proceeds  
 
1999 Dividend Reinvestment Plan
    224     $ 1,901       335     $ 4,376       66     $ 4,145  
Controlled Offering Program
      29,757       331,942       3,367       196,381              
Incentive Plan and Outside Trustees Plan
    1,767       2,192       1,603       19,455       1,781       40,570  
Employee Share Plan
    195       1,362       76       1,950       44       2,140  
                                                 
Total
    31,943     $  337,397         5,381     $ 222,162         1,891     $  46,855  
                                                 
 
Limited partnership units were redeemed into 0.4 million common shares in 2009, 3.9 million common shares in 2008, and 128,000 common shares in 2007 (see Note 10).
 
We have approximately $84.1 million remaining on our Board authorization to repurchase common shares that began in 2001. We have not repurchased our common shares since 2003.
 
Preferred Shares
 
At December 31, 2009, we had three series of preferred shares outstanding (“Series C Preferred Shares”, “Series F Preferred Shares”, and “Series G Preferred Shares”). Holders of each series of preferred shares have, subject to certain conditions, limited voting rights and all holders are entitled to receive cumulative preferential dividends based upon each series’ respective liquidation preference. Such dividends are payable quarterly in arrears on the last day of March, June, September and December. Dividends on preferred shares are payable when, and if, they have been declared by the Board, out of funds legally available for the payment of dividends. After the respective redemption dates, each series of preferred shares can be redeemed at our option. The cash redemption price (other than the portion consisting of accrued and unpaid dividends) with respect to Series C Preferred Shares is payable solely out of the cumulative sales proceeds of our other capital shares, which may include shares of other series of preferred shares. With respect to the payment of dividends, each series of preferred shares ranks on parity with the other series of preferred shares.
 
Our preferred shares outstanding at December 31, 2009 are summarized as follows:
 
                         
        Dividend
   
        Equivalent Based
  Optional
    Dividend
  on Liquidation
  Redemption
    Rate   Preference   Date
 
Series C Preferred Shares
    8.54 %   $ 4.27 per share       11/13/26  
Series F Preferred Shares
    6.75 %   $ 1.69 per share       (a)  
Series G Preferred Shares
    6.75 %   $ 1.69 per share       (a)  
 
 
(a) These shares are currently redeemable at our option.
 
Ownership Restrictions
 
For us to qualify as a REIT under the Code, five or fewer individuals may not own more than 50% of the value of our outstanding shares of beneficial interest at any time during the last half of our taxable year. Therefore, our Declaration of Trust restricts beneficial ownership (or ownership generally attributed to a person under the REIT tax rules) of our outstanding shares of beneficial interest by a single person, or persons acting as a group, to 9.8% of our outstanding shares. This provision assists us in protecting and preserving our


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
REIT status and protects the interests of shareholders in takeover transactions by preventing the acquisition of a substantial block of outstanding shares.
 
Shares of beneficial interest owned by a person or group of persons in excess of these limits are subject to redemption by us. The provision does not apply where a majority of the Board, in its sole and absolute discretion, waives such limit after determining that the status of us as a REIT for federal income tax purposes will not be jeopardized or the disqualification of us as a REIT is advantageous to our shareholders.
 
Distributions and Dividends
 
The following summarizes the taxability of our common share distributions and preferred share dividends (taxability for 2009 is estimated):
 
                         
    Years Ended December 31,  
    2009     2008     2007  
 
Per common share:
                       
Ordinary income
  $ 0.58     $ 1.01     $ 0.89  
Qualified dividend
    0.09       0.01        
Capital gains
    0.03       1.05       0.64  
Return of capital
                0.31  
                         
Total distribution
  $      0.70     $      2.07     $      1.84  
                         
Per preferred share — Series C:
                       
Ordinary income
  $ 3.56     $ 2.07     $ 2.47  
Qualified dividend
    0.54       0.03        
Capital gains
    0.17       2.17       1.80  
                         
Total dividend
  $ 4.27     $ 4.27     $ 4.27  
                         
Per preferred share — Series F:
                       
Ordinary income
  $ 1.41     $ 0.82     $ 0.98  
Qualified dividend
    0.21       0.01        
Capital gains
    0.07       0.86       0.71  
                         
Total dividend
  $ 1.69     $ 1.69     $ 1.69  
                         
Per preferred share — Series G:
                       
Ordinary income
  $ 1.41     $ 0.82     $ 0.98  
Qualified dividend
    0.21       0.01        
Capital gains
    0.07       0.86       0.71  
                         
Total dividend
  $ 1.69     $ 1.69     $ 1.69  
                         
 
In order to comply with the REIT requirements of the Code, we are generally required to make common share distributions (other than capital gain distributions) to our shareholders at least equal to (i) the sum of (a) 90% of our “REIT taxable income” computed without regard to the dividends paid deduction and net capital gains and (b) 90% of the net income (after tax), if any, from foreclosure property, minus (ii) certain excess non-cash income. Our common share distribution policy is to distribute a percentage of our cash flow to ensure we will meet the distribution requirements of the Code, while allowing us to maximize the cash retained to meet other cash needs, such as capital improvements and other investment activities.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Common share distributions are characterized for federal income tax purposes as ordinary income, qualified dividend, capital gains, non-taxable return of capital or a combination of the four. Common share distributions that exceed our current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and generally reduce the shareholder’s basis in the common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholder’s basis in the common shares, it will generally be treated as a gain from the sale or exchange of that shareholder’s common shares. At the beginning of each year, we notify our shareholders of the taxability of the common share distributions paid during the preceding year.
 
Our 2009 dividend was $0.25 for the first quarter and $0.15 for each of the second, third and fourth quarters. The payment of common share distributions is dependent upon our financial condition, operating results and REIT distribution requirements and may be adjusted at the discretion of the Board during the year. A cash distribution of $0.15 per common share for the first quarter of 2010 was declared on February 1, 2010. This distribution will be paid on February 26, 2010 to holders of common shares on February 12, 2010.
 
Pursuant to the terms of our preferred shares, we are restricted from declaring or paying any distribution with respect to our common shares unless and until all cumulative dividends with respect to the preferred shares have been paid and sufficient funds have been set aside for dividends that have been declared for the then-current dividend period with respect to the preferred shares.
 
Our tax return for the year ended December 31, 2009 has not been filed. The taxability information presented for our distributions and dividends paid in 2009 is based upon management’s estimate. Our tax returns for previous tax years have not been examined by the Internal Revenue Service (“IRS”) other than those discussed in Note 15. Consequently, the taxability of distributions and dividends is subject to change.
 
12.  Long-Term Compensation:
 
The 2006 long-term incentive plan together with our 1997 long-term incentive plan and outside trustees plan (the “Incentive Plan”) have been approved by our shareholders and provides for grants of share options, stock appreciation rights (“SARs”), full value awards and cash incentive awards to employees and other persons providing services to us and our subsidiaries, including outside trustees. No more than 28,560,000 common shares in the aggregate may be awarded under the Incentive Plan. In any one calendar-year period, no participant shall be granted: (i) more than 500,000 share options and SARs; (ii) more than 200,000 full value performance based awards; or (iii) more than $10,000,000 in cash incentive awards. Common shares may be awarded under the Incentive Plan until it is terminated by the Board. At December 31, 2009, 3.7 million common shares were available for future issuance under the Incentive Plan.
 
Share Options
 
We have granted various share options to our employees and trustees, subject to certain conditions. Each share option is exercisable into one common share. The holders of share options granted before 2001 earn dividend equivalent units (“DEUs”) on December 31st of each year until the earlier of the date the underlying share option is exercised or the expiration date of the underlying share option. At December 31, 2009, there were 491,169 share options with a weighted average exercise price and remaining life of $24.12 and 0.7 years, respectively, that will earn DEUs in the future. Share options granted to employees generally have graded vesting over a four-year period and have an exercise price equal to the market price on the date of grant. Share options granted to outside trustees generally vest immediately. There were no share options granted in 2009.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Share options outstanding at December 31, 2009 were as follows:
 
                                 
                      Weighted Average
 
    Number of
          Expiration
    Remaining Life
 
    Options     Exercise Price     Date     (in years)  
 
Outside trustees
    85,000     $ 20.75 - $43.80       2010-2015       3.2  
Incentive Plan:
                               
2000 grants
    476,169     $ 21.75 - $24.25       2010       0.7  
2001 grants
    276,142     $ 20.67 - $22.02       2011       1.7  
2002 grants
    523,841     $ 22.98 - $24.76       2012       2.7  
2003 grants
    666,842     $ 30.00 - $31.26       2013       3.6  
2004 grants
    1,143,805     $ 29.41 - $41.50       2014       4.3  
2005 grants
    663,155     $ 40.86 - $45.46       2015       5.8  
2006 grants
    491,105     $ 54.51 - $59.92       2016       6.8  
2007 grants
    573,748     $ 60.60 - $64.82       2017       7.8  
2008 grants
    1,138,893     $ 6.87 - $61.75       2018       8.9  
                                 
Total
    6,038,700                         5.2  
                                 
 
The activity for the year ended December 31, 2009, with respect to our share options, is presented below:
 
                                         
    Options Outstanding     Options Exercisable  
          Weighted
          Weighted
    Weighted
 
          Average
          Average
    Average
 
    Number of
    Exercise
    Number of
    Exercise
    Life
 
    Options     Price     Options     Price     (in years)  
 
Balance at January 1, 2009
    7,779,747     $ 31.76                          
Exercised
    (237,500 )     6.87                          
Forfeited
    (1,503,547 )     33.73                          
                                         
Balance at December 31, 2009
    6,038,700     $   32.25       4,740,748     $   34.77            4.3  
                                         
 
We recognize the value of the share options granted as compensation expense over the applicable vesting period using the grant-date fair value. The weighted-average grant-date fair value of options granted during 2008 and 2007 was $2.38 and $11.42, respectively. Total remaining compensation cost related to unvested share options as of December 31, 2009 was $5.5 million, prior to adjustments for forfeited awards and capitalized amounts due to our development and leasing activities.
 
The activity for the year ended December 31, 2009, with respect to our non-vested share options, is presented below:
 
                 
          Weighted-Average
 
    Number of
    Grant-Date
 
    Shares     Fair Value  
 
Balance at January 1, 2009
    2,253,029     $ 5.04  
Vested
    (757,329 )     3.67  
Forfeited
    (197,748 )     10.51  
                 
Balance at December 31, 2009
    1,297,952     $      5.01  
                 


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Full Value Awards
 
Restricted Share Units
 
Restricted share units (“RSUs”) are granted to certain employees at a rate of one common share per RSU. The RSUs are valued on the grant date based upon the market price of a common share on that date. We recognize the value of the RSUs granted as compensation expense over the applicable vesting period, which is generally four or five years. The RSUs do not carry voting rights during the vesting period, but do generally earn DEUs that vest according to the underlying RSU. The weighted-average fair value of RSUs granted during the years 2009, 2008 and 2007 was $6.52, $10.51 and $63.25, respectively. In addition, annually we issue fully vested deferred share units to our outside trustees, which are expensed at the time of grant and earn DEUs.
 
Contingent Performance Shares
 
Certain employees are granted contingent performance shares (“CPSs”). There were grants of CPSs each year beginning in 2005 through 2008. No CPSs were granted in 2009. The CPSs are earned based on our ranking in a defined subset of companies in the National Association of Real Estate Investment Trust’s (“NAREIT’s”) published index. These CPSs generally vest over a three-year period. The amount of CPSs to be issued will be based on our ranking at the end of the three-year period, and may range from zero to twice the targeted award, or a maximum of 394,000 shares at December 31, 2009. For purposes of calculating compensation expense, we consider the CPSs to have a market condition and, therefore, we have estimated the grant date fair value of the CPSs using a pricing valuation model. We recognize the value of the CPSs granted as compensation expense utilizing the grant date fair value and the target shares over the vesting period. The amount of compensation expense is not adjusted based on the CPSs paid out at the end of the vesting period, but is adjusted for forfeited awards. The CPSs issued in 2008 were all to our former Chief Executive Officer, had different terms in connection with his employment agreement and were forfeited when he resigned in November 2008.
 
Performance Share Awards
 
Certain employees were granted Performance Share Awards (“PSAs”) that are earned based on individual and company performance criteria. The PSAs are valued based upon the market price of a common share on grant date. We recognize the value of the PSAs granted as compensation expense over the vesting period.
 
PSAs were granted through 2005 that had a two year vesting period. In 2009, we granted 829,571 PSAs to certain employees that vest over three years. The ultimate number of shares to be issued varied from 50% — 150% of the original award based on the attainment of certain individual and company goals for 2009. At the end of 2009, 190,313 shares were earned.
 
These awards carry no voting rights during the vesting period, but do earn DEUs that are vested at the end of the vesting period of the underlying award. The weighted-average fair value of PSAs and CPSs granted during the years 2009, 2008 and 2007 was $6.93, $22.72, and $71.48, respectively.
 
Dividend Equivalent Units
 
RSUs, CPSs, PSAs and certain share options granted through 2000 earn DEUs in the form of common shares at a rate of one common share per DEU. Beginning in 2010, RSUs will earn quarterly cash dividends, rather than DEUs. We treat the DEUs as dividends, which are charged to retained earnings and factored into the computation of the fair value of the underlying share award at grant date.
 
Summary of Activity of RSUs, CPSs and PSAs


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Activity with respect to our RSUs, CPSs and PSAs is as follows:
 
                         
    Shares Outstanding        
    Number of
    Weighted Average
    Number of
 
    Shares     Original Value     Vested Shares  
 
Balance at January 1, 2009
    3,381,009     $ 34.13       844,602  
                         
Granted
    2,020,083       6.73          
Distributed
    (1,619,530 )     25.22          
Forfeited
    (379,778 )     48.72          
                         
Balance at December 31, 2009
    3,401,784     $      20.47         143,268  
                         
 
Total remaining compensation cost related to unvested RSUs, CPSs and PSAs as of December 31, 2009 was $30.8 million, prior to adjustments for forfeited awards and capitalized amounts due to our development and leasing activities. The remaining expense will be recognized through 2013, which equates to a weighted average period of 1.6 years.
 
The activity for the year ended December 31, 2009, with respect to our non-vested RSUs, CPSs and PSAs is presented below:
 
                 
          Weighted-Average
 
    Number of
    Grant-Date
 
    Shares     Fair Value  
 
Balance at January 1, 2009
    2,536,407     $ 32.96  
Granted
    2,020,083       6.73  
Vested
    (918,196 )     13.79  
Forfeited
    (379,778 )     48.72  
                 
Balance at December 31, 2009
     3,258,516     $   20.26  
                 
 
Compensation Expense
 
During the years ended December 31, 2009, 2008 and 2007, we recognized $17.2 million, $28.3 million and $23.9 million, respectively, of compensation expense including awards granted to our outside trustees and net of forfeited awards. These amounts include expense reported as General and Administrative Expenses, RIF charges and Discontinued Operations and are net of $5.8 million, $12.1 million and $10.8 million, respectively, that was capitalized due to our development and leasing activities.
 
We calculated the fair value of the share options granted in each of the following years (no share options were granted in 2009) using a Black-Scholes pricing model and the following weighted average assumptions:
 
                 
    Years Ended December 31,
    2008   2007
 
Risk-free interest rate
    2.56%       3.78%  
Dividend yield
    1.92%       3.44%  
Volatility
    40.35%       23.43%  
Weighted average option life
    5.8 years       5.8 years  
 
We use historical data to estimate dividend yield, share option exercises, expected term and employee departure behavior used in the Black-Scholes pricing model. The risk-free interest rate for periods within the expected term of the share option is based on the U.S. Treasury yield curve in effect at the time of grant. To


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
calculate expected volatility, we use historical volatility of our common stock and implied volatility of traded options on our common stock.
 
Other Plans
 
We have a 401(k) Savings Plan and Trust (“401(k) Plan”), that provides for matching employer contributions in common shares of 50 cents for every dollar contributed by an employee, up to 6% of the employee’s annual compensation (within the statutory compensation limit). A total of 190,000 common shares have been authorized for issuance under the 401(k) Plan. The vesting of contributed common shares is based on the employee’s years of service, with 20% vesting each year of service, over a five-year period. Through December 31, 2009, no common shares have been issued under the 401(k) Plan. All of our matching contributions have been made with common shares purchased by us in the open market.
 
We have a nonqualified savings plan to provide benefits for certain employees. The purpose of this plan is to allow highly compensated employees the opportunity to defer the receipt and income taxation of a certain portion of their compensation in excess of the amount permitted under the 401(k) Plan. We match the lesser of (a) 50% of the sum of deferrals under both the 401(k) Plan and this plan, and (b) 3% of total compensation up to certain levels. The matching contributions vest in the same manner as the 401(k) Plan. On a combined basis for both plans, our contributions under the matching provisions were $1.1 million, $1.4 million and $1.1 million for 2009, 2008 and 2007, respectively.
 
13.  Reduction in Workforce:
 
During the fourth quarter of 2008, in response to the difficult economic climate, we initiated General and Administrative expense reductions with a near-term target of a 20% to 25% reduction in gross expense. These initiatives included a reduction in workforce (“RIF”) plan that had a total cost of $11.7 million and $26.4 million in the years ended December 31, 2009 and 2008, respectively, including $3.3 million for China that is presented as discontinued operations in our Consolidated Statements of Operations.
 
14.   Impairment Charges:
 
Impairment of Real Estate Properties
 
During 2009, 2008 and 2007 we recognized impairment charges related to certain of our real estate properties as outlined below (in thousands):
 
                         
    Years Ended December 31,  
    2009     2008     2007  
 
Land
  $      136,996     $      194,137     $        —  
Industrial properties — core
                12,600  
Industrial properties — properties under development
          19,814        
Industrial properties — completed properties
    126,205       15,026        
Retail and mixed use properties
    46,137              
Ground leases and other
    17,630              
Other real estate investments
    4,624       45,728        
                         
Total
  $ 331,592     $ 274,705     $ 12,600  
                         
 
The impairment charges related to real estate properties that we recognized during 2009 and 2008 were based primarily on valuations of real estate, which had declined due to market conditions, that we no longer expected


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
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, or intend to contribute, certain industrial properties to property funds (primarily in Europe) and sold or intend to sell certain land parcels or completed properties to third parties. In 2007, the impairment charge related to a portfolio of buildings we had decided to sell.
 
These impairment charges represent the difference between the estimated proceeds from disposition and our cost basis at the time of contribution/sale and were due to our intent to contribute or sell these properties at the time of the impairment charge. We estimated the proceeds from contribution of these properties based on the future net rental income of the property and the expected market capitalization rates or on third party appraisals. In the case of properties to be contributed to PEPF II, we further adjusted the capitalization rates based on our contribution agreement with PEPF II.
 
The estimate of proceeds from disposition is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business and represents primarily Level 3 input, as discussed in our summary of significant accounting policies. However, assumptions and estimates about future rental income, market capitalization rates and the timing of the contribution/sale are complex and subjective. Changes in economic and operating conditions and the ultimate investment intent that may occur in the future could impact these assumptions and result in additional impairment charges of these or other real estate properties.
 
Impairment of Goodwill and Other Assets
 
During the years ended December 31, 2009 and 2008, we recognized impairment charges related to goodwill, investments in and advances to unconsolidated investees and other assets as outlined below (in thousands):
 
                 
    2009     2008  
 
Goodwill
  $      —     $      175,419  
Investment in and advances to unconsolidated investees
    143,640       113,724  
Notes Receivable
          17,893  
Other Assets
    20,004       13,600  
                 
Total
  $      163,644     $ 320,636  
                 
 
We performed our annual impairment review of the goodwill allocated to the direct owned segments in North America and Europe, and the investment management segment in Europe during the fourth quarter of 2009 and no impairment was indicated.
 
During the fourth quarter of 2008, we changed our business strategy in response to the deterioration in the global economy to no longer focus on CDFS business activities. As a result, the investment and development activities previously included in the CDFS business segment were transferred, along with the related assets, to the direct owned and investment management segments (Europe reporting unit). The related goodwill was transferred to the respective segments based on the relative fair value of the assets transferred. Due to the economic conditions, including the significant decrease in our common stock price and the decline in fair value of certain of our real estate properties, specifically investments in land in the United Kingdom, we performed an additional review of goodwill as of December 31, 2008. In connection with this review, we recognized an impairment charge of $175.4 million relating to the goodwill allocated to the direct owned segment in the Europe reporting unit. This goodwill related to an acquisition made in 2007.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
In 2009 and 2008, we recorded impairment charges on certain of our investments in and advances to unconsolidated investees, notes receivable and other assets as we did not believe these amounts to be recoverable based on the prevent value of the estimated future cash flows associated with these assets. See Note 6 for discussion relating to the impairment of our investment in and advances to two property funds and an entity that develops retail and mixed use properties in Europe.
 
15.   Income Taxes:
 
Components of Earnings (Loss) before Income Taxes
 
Components of earnings (loss) before income taxes for the years ended December 31, are as follows (in thousands):
 
                         
    2009     2008     2007  
 
Domestic
  $      (224,032 )   $      (39,724 )   $      214,845  
International
    (35,006 )     (174,545 )     780,718  
                         
Total
  $ (259,038 )   $ (214,269 )   $ 995,563  
                         
 
Summary of Current and Deferred Income Taxes
 
Components of the provision for income taxes for the years ended December 31, are as follows (in thousands):
 
                         
    2009     2008     2007  
 
Current income tax expense
                       
Federal
  $ 13,586     $ 30,020     $ 28,264  
Non-U.S. 
    14,610       32,283       35,423  
State and local
    1,066       1,138       2,652  
                         
Total Current
    29,262       63,441       66,339  
                         
Deferred income tax expense(benefit)
                       
Federal
    (22,529 )     9,637       (16,197 )
Non-U.S. 
    (758 )     (5,067 )     16,713  
                         
Total Deferred
    (23,287 )     4,570       516  
                         
Total income tax expense
  $        5,975     $       68,011     $       66,855  
                         
 
Current Income Taxes
 
Current income tax expense is generally a function of the level of income recognized by our TRSs, state income taxes, taxes incurred in foreign jurisdictions and interest and penalties associated with our income tax liabilities. For the year ended December 31, 2009, we recognized a $3.7 million benefit due to the release of accruals for interest and penalties associated with our uncertain tax positions. For the years ended December 31, 2008 and 2007, we recognized expenses of $37.7 million and $22.0 million related to interest and penalties on our uncertain tax positions. During the years ended December 31, 2009, 2008 and 2007, cash paid for income taxes was $234.6 million, $67.3 million and $35.9 million, respectively.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Deferred Income Taxes
 
Deferred income tax expense is generally a function of the period’s temporary differences, the utilization of tax net operating losses generated in prior years that had been previously recognized as deferred income tax assets and deferred income tax liabilities related to indemnification agreements for contributions to certain property funds.
 
For federal income tax purposes, certain acquisitions have been treated as tax-free transactions resulting in a carry-over basis for tax purposes. For financial reporting purposes and in accordance 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 income tax liabilities that represent the tax effect of the difference between the tax basis carried over and the fair value of the tangible assets at the date of acquisition. If taxable income is generated in these subsidiaries, we recognize a deferred income tax benefit in earnings as a result of the reversal of the deferred income tax liability previously recorded at the acquisition date and we record current income tax expense representing the entire current income tax liability. Any increases or decreases to the deferred income tax liability recorded in connection with these acquisitions, related to tax uncertainties acquired, was reflected as an adjustment to goodwill through December 31, 2008. During the year ended December 31, 2008, we decreased deferred tax liabilities and goodwill by $8.8 million. Due to the issuance of a new accounting standard, beginning in 2009, any increases or decreases related to tax uncertainties will be reflected in earnings.
 
Deferred income tax assets and liabilities as of December 31, were as follows (in thousands):
 
                 
    2009     2008  
 
Deferred income tax assets:
               
Net operating loss carryforwards(1)
  $   107,236     $   57,387  
Basis difference — real estate properties
    67,090       6,378  
Basis difference — equity investees
    9,994       5,838  
Alternative minimum tax credit carryforward
    1,050       921  
Other — temporary differences
    11,790       8,916  
                 
Total deferred income tax assets
    197,160       79,440  
Valuation allowance
    (141,068 )     (39,612 )
                 
Net deferred income tax assets
    56,092       39,828  
                 
Deferred income tax liabilities:
               
Basis difference — real estate properties
    49,860       5,009  
Built-in gains — real estate properties
    22,666       23,279  
Basis difference — equity investees
    5,606       11,210  
Built-in gains — equity investees
    24,741       24,741  
Indemnification liabilities
    37,903       38,412  
Other — temporary differences
    21,748       20,105  
                 
Total deferred income tax liabilities
    162,524       122,756  
                 
Net deferred income tax liabilities
  $ 106,432     $ 82,928  
                 
 
 
(1) At December 31, 2009, we had net operating loss (“NOL”) carryforwards as follows:
 


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
                         
    U.S.     Europe     Mexico  
 
Gross NOL carryforward
  $ 53.4     $ 220.9     $ 152.8  
Tax-effected NOL
    19.5     $ 44.1       43.6  
Valuation allowance
          (44.1 )     (43.6 )
                         
Net deferred tax asset-NOL carryforward
  $ 19.5     $     $  
                         
Expiration periods
    2022 — 2029       2014 — indefinite       2010 — 2018  
 
The deferred tax asset valuation allowance is adequate to reduce the total deferred tax asset to an amount that will “more-likely-than-not” be realized.
 
Liability for Unrecognized Tax Benefits
 
For 2009, 2008 and 2007, we believe we and our consolidated REIT subsidiary have complied with the REIT requirements of the Code. The statute of limitations for our tax returns is generally three years, with our major tax jurisdictions being the United States, Japan, Mexico, Poland, Luxembourg and the United Kingdom. As such, our tax returns that remain subject to examination would be primarily from 2006 and thereafter, except for Catellus, a subsidiary we acquired in 2005.
 
Certain 1999 through 2005 federal and state income tax returns of Catellus have been under audit by the IRS and various state taxing authorities. In November 2008, we agreed to enter into a closing agreement with the IRS for the settlement of the 1999 through 2002 audits. As a result, in 2008, we increased our unrecognized tax liability by $85.4 million, including interest and penalties. As this liability was an income tax uncertainty related to an acquired company, we increased goodwill by $66.6 million related to the liability that existed at the acquisition date. The remaining amount was included in current income tax expense in 2008. We made cash payments of $226.6 million in 2009 in connection with this closing agreement and settlement of certain state tax audits. Certain federal income tax returns for Catellus for 2003 through 2005 are still under audit by the IRS.
 
The liability for unrecognized tax benefits principally consists of estimated federal and state income tax liabilities associated with acquired companies and includes accrued interest and penalties of $34.4 million and $114.4 million at December 31, 2009 and 2008, respectively. A reconciliation of the liability for unrecognized tax benefits is as follows (in thousands):
 
                 
    2009     2008  
 
Balance at January 1,
  $ 284,698     $  192,438  
Additions based on tax positions related to the current year
    7,207       4,785  
Additions for tax positions of prior years
    15,746       143,045  
Reductions for tax positions of prior years
    (6,886 )     (49,168 )
Settlements on tax positions of prior years
    (226,601 )      
Reductions due to lapse of applicable statute of limitations
    (8,994 )     (6,402 )
                 
Balance at December 31,
  $ 65,170     $ 284,698  
                 
 
Indemnification Agreements
 
We have indemnification agreements related to most property funds operating outside of the United States for the contribution of certain properties. We enter into agreements whereby we indemnify the funds, or our fund partners, for taxes that may be assessed with respect to certain properties we contribute to these funds. Our

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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
contributions to these funds are generally structured as contributions of shares of companies that own the real estate assets. Accordingly, the capital gains associated with the step up in the value of the underlying real estate assets, for tax purposes, are deferred and transferred to the funds at contribution. We have generally indemnified these funds to the extent that the funds: (i) incur capital gains or withholding tax as a result of a direct sale of the real estate asset, as opposed to a transaction in which the shares of the company owning the real estate asset are transferred or sold or (ii) are required to grant a discount to the buyer of shares under a share transfer transaction as a result of the funds transferring the embedded capital gain tax liability to the buyer of the shares in the transaction. The agreements generally limit the amount that is subject to our indemnification with respect to each property to 100% of the actual tax liabilities related to the capital gains that are deferred and transferred by us to the funds at the time of the initial contribution less any deferred tax assets transferred with the property.
 
In 2007, we recognized a deferred tax benefit of $6.3 million for the reversal of the obligation related to ProLogis North American Properties Fund V.
 
The ultimate outcome under these agreements is uncertain as it is dependent on the method and timing of dissolution of the related property fund or disposition of any properties by the property fund. Two of our previous agreements were terminated without any amounts being due or payable by us. We consider the probability, timing and amounts in estimating our potential liability under the agreements, which we have estimated as $37.9 million and $38.4 million at December 31, 2009 and 2008, respectively. We continue to monitor these agreements and the likelihood of the sale of assets that would result in recognition and will adjust the potential liability in the future as facts and circumstances dictate.
 
16.   Earnings Per Common Share:
 
We determine basic earnings per share based on the weighted average number of common shares outstanding during the period. We compute diluted earnings per share based on the weighted average number of common shares outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.
 
The following table sets forth the computation of our basic and diluted earnings (loss) per share (in thousands, except per share amounts):
 
                         
    Years Ended December 31,  
    2009 (1)     2008 (1)     2007  
 
Net earnings (loss) attributable to common shares
  $ (2,650 )   $ (479,226 )   $ 1,027,635  
Noncontrolling interests attributable to convertible limited partnership units (2)
                4,814  
                         
Adjusted net earnings (loss) attributable to common shares
  $ (2,650 )   $ (479,226 )   $ 1,032,449  
                         
Weighted average common shares outstanding — Basic
    403,149       262,729       256,873  
Incremental weighted average effect of conversion of limited partnership units
                5,078  
Incremental weighted average effect of share awards (3)
                5,275  
                         
Weighted average common shares outstanding — Diluted
    403,149       262,729       267,226  
                         
Net earnings (loss) per share attributable to common shares — Basic
  $ (0.01 )   $ (1.82 )   $ 4.00  
                         
Net earnings (loss) per share attributable to common shares — Diluted
  $ (0.01 )   $ (1.82 )   $ 3.86  
                         


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
(1) 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.
 
(2) Includes the noncontrolling interest related to the convertible limited partnership units, which are included in incremental shares. If the impact of the conversion of limited partnership units is anti-dilutive, the income and shares are not included in the per share calculation.
 
(3) Total weighted average potentially dilutive share awards outstanding for 2007 (in thousands) were 10,098 and the majority were dilutive.
 
17.   Related Party Transactions:
 
In September 2009, Irving F. Lyons, III, trustee and former Chief Investment Officer and Trustee converted limited partnership units, in the limited partnerships in which we own a majority interest and consolidate, into 410,000 of our common shares. As of December 31, 2009, Mr. Lyons owns 226,613 of the outstanding partnership units. On June 8, 2007, Jeffrey H. Schwartz, our former Chief Executive Officer, also converted similar limited partnership units into 128,000 of our common shares. See Note 10 for more information regarding these limited partnerships in North America.
 
Also see Note 6 for a discussion of transactions between us and the property funds.
 
18.   Financial Instruments and Fair Value Measurements:
 
Derivative Financial Instruments
 
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates and interest rates. To manage these risks, we may enter into various derivatives contracts. Foreign currency contracts, including forwards and options, may be used to manage foreign currency exposure. We may use interest rate swaps to manage the effect of interest rate fluctuations. We do not use derivative financial instruments for trading purposes. The majority of our derivative financial instruments are customized derivative transactions and are not exchange-traded. Management reviews our hedging program, derivative positions, and overall risk management strategy on a regular basis. We only enter into transactions that we believe will be highly effective at offsetting the underlying risk.
 
Our use of derivatives does generate the risk that counterparties may default on a derivative contract. We establish exposure limits for each counterparty to minimize this risk and provide counterparty diversification. Substantially all of our derivative exposures are with counterparties that have long-term credit ratings of single-A or better. We enter into master agreements with counterparties that generally allow for netting of certain exposures; therefore, the actual loss we would recognize if all counterparties failed to perform as contracted would be significantly lower. To mitigate pre-settlement risk, minimum credit standards become more stringent as the duration of the derivative financial instrument increases. To minimize the concentration of credit risk, we enter into derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to be minimal.
 
All derivatives are recognized at fair value in the Consolidated Balance Sheets within the line items Other Assets or Accounts Payable and Accrued Expenses, as applicable. We do not net our derivative position by counterparty for purposes of balance sheet presentation and disclosure. The accounting for gains and losses


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
that result from changes in the fair values of derivative instruments depends on whether the derivatives are designated as and qualify as hedging instruments. Derivatives can be designated as fair value hedges, cash flow hedges or hedges of net investments in foreign operations. We do not typically designate derivatives as fair value hedges or hedges of net investments.
 
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in Accumulated Other Comprehensive Income (Loss). We reclassify changes in the fair value of derivatives into the applicable line item in our Consolidated Statements of Operations in which the hedged items are recorded in the same period that the underlying hedged items affect earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures hedged, fluctuations in the value of the derivative instruments will generally be offset by changes in the fair values or cash flows of the underlying exposures being hedged. The changes in fair values of derivatives that were not designated and/or did not qualify as hedging instruments are immediately recognized into earnings.
 
For derivatives that will be accounted for as hedging instruments in accordance with the accounting standards, we formally designate and document, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, we formally assess both at inception and at least quarterly thereafter, whether the derivatives used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures. Any ineffective portion of a derivative financial instrument’s change in fair value is immediately recognized into earnings. Derivatives not designated as hedges are not speculative and are used to manage our exposure to foreign currency fluctuations but do not meet the strict hedge accounting requirements.
 
Our interest rate risk management strategy is to limit the impact of future interest rate changes on earnings and cash flows. To achieve this objective, we primarily borrow on a fixed rate basis for longer-term debt issuances. The maximum length of time that we hedge our exposure to future cash flows is typically less than 10 years. We use cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in interest rates. We typically designate our interest rate swap agreements as cash flow hedges as these derivative instruments may be used to manage the interest rate risk on potential future debt issuances or to fix the interest rate on a variable rate debt issuance. The effective portion of the gain or loss on the derivative is reported as a component of Accumulated Other Comprehensive Income (Loss) in our Consolidated Balance Sheets, and reclassified into the line item, Interest Expense in the Consolidated Statements of Operations over the corresponding period of the hedged item. Losses on the derivative representing hedge ineffectiveness are recognized in Interest Expense at the time the ineffectiveness occurred.
 
There was no ineffectiveness recorded during the years ended December 31, 2009 and 2008. The amount reclassified to interest expense for the years ended December 31, 2009 and 2008 is not considered material.
 
We generally do not designate the following derivative contracts as hedges:
 
•      Foreign currency forwards — we may use foreign currency forward contracts to manage the foreign currency fluctuations of intercompany loans not deemed to be a long-term investment and certain transactions denominated in a currency other than the entity’s functional currency. These contracts are marked-to-market through earnings, as they are not designated as hedges. The gains or losses resulting from these derivative instruments are included in Foreign Currency Exchange Gains (Losses), Net in our Consolidated Statements of Operations. For contracts associated with intercompany loans, the impact on


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
earnings is generally offset by the remeasurement gains and losses recognized on the related intercompany loans. We had no outstanding foreign currency forwards at December 31, 2009.
 
•      Foreign currency put options — we may use foreign currency put option contracts to manage foreign currency exchange rate risk associated with the projected net operating income of our foreign consolidated subsidiaries and unconsolidated investees. These contracts are marked-to-market through earnings in Foreign Currency Exchange Gains (Losses), Net, as they do not qualify for hedge accounting treatment. We had no outstanding foreign currency put options at December 31, 2009.
 
The following table summarizes the activity in our derivative contracts for the years ended December 31, 2009, 2008 and 2007 (in millions):
 
                         
    Foreign Currency
    Foreign Currency
    Interest
 
    Put Options (1)     Forwards (2)     Rate Swaps (3)  
 
Notional amounts at January 1, 2007
  $     54.7     $ 661.0     $       —  
New contracts
          2,637.2       959.2  
Matured or expired contracts
    (54.7 )     (2,937.5 )     (959.2 )
                         
                         
Notional amounts at December 31, 2007
          360.7        
New contracts
                250.0  
Matured or expired contracts
          (360.7 )     (250.0 )
                         
                         
Notional amounts at December 31, 2008
                 
New contracts
          351.7       157.7  
Matured or expired contracts
          (351.7 )      
                         
                         
Notional amounts at December 31, 2009
  $     $     $ 157.7  
                         
 
 
(1) The foreign currency put option contracts are paid in full at execution and are related to our operations in Europe and Japan. The put option contracts provide us with the option to exchange euros, pounds sterling and yen for U.S. dollars at a fixed exchange rate such that, if the euro, British pound sterling or yen were to depreciate against the U.S. dollar to predetermined levels as set by the contracts, we could exercise our options and mitigate our foreign currency exchange losses. We did not recognize any expense in 2009, 2008 or 2007.
 
(2) Certain of the foreign currency forward contracts outstanding in 2008 and 2007 were designed to manage the foreign currency fluctuations of intercompany loans and allowed us to sell British pounds sterling and euros at a fixed exchange rate to the U.S. dollar. We had no forward contracts related to intercompany loans outstanding at December 31, 2009. We recognized net losses of $5.7 million, $3.1 million and $95.9 million for the years ended December 31, 2009, 2008 and 2007, respectively, related to these contracts.
 
During 2009, we entered into and settled forward contracts to buy yen to manage the foreign currency fluctuations related to the sale of our investments in the Japan property funds and recognized losses of $5.7 million in Foreign Currency Exchange Gains (Losses), Net in our Consolidated Statements of Operations.
 
During the second quarter of 2007, we purchased several foreign currency forward contracts to manage the foreign currency fluctuations of the purchase price of MPR (see Note 6). These contracts allowed us to buy Australian dollars at a fixed exchange rate to the U.S. dollar. Derivative instruments used to manage the foreign currency fluctuations of an anticipated business combination do not qualify for hedge accounting treatment and are included in earnings. The contracts settled in July 2007 in connection with


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
the completed acquisition and resulted in the recognition of a net gain of $26.6 million in Foreign Currency Exchange Gains (Losses), Net for the year ended December 31, 2007.
 
(3) During 2009, 2008 and 2007, we entered into several contracts with total notional amounts of $157.7 million, $250.0 million, and $959.2 million, respectively, associated with anticipated debt issuances.
 
  •      In 2009, we entered into two interest rate swap contracts to fix the interest rate on our variable rate TMK bonds (¥4.3 billion and ¥10.0 billion, respectively) that mature in June 2012 and December 2012, respectively. We designated the contracts as cash flow hedges and they qualify for hedge accounting treatment. We have recorded a liability of $0.9 million in Accounts Payable and Accrued Expenses in our Consolidated Balance Sheets at December 31, 2009.
 
  •      During 2008, in connection with the issuance of senior notes and convertible senior notes, we entered into contracts that qualified as cash flow hedges and recognized a decrease in value of $3.3 million, associated with the unwinding of these contracts, in Accumulated Other Comprehensive Income (Loss) and began amortizing as an increase to interest expense as interest payments are made on the related notes.
 
  •      In 2007, we entered into contracts with notional amounts of $188.0 million and $271.2 million and which represented our share of future debt issuances by ProLogis North American Industrial Fund III, ProLogis North American Industrial Fund II respectively. These contracts were transferred into the funds at formation, at which time the contracts qualified for hedge accounting treatment by the funds. We also entered into contracts with an aggregate notional amount of $500.0 million associated with a future debt issuance. All of these contracts qualified for hedge accounting treatment and allowed us to fix a portion of the interest rate associated with the anticipated issuance of senior notes. In connection with the issuance of the convertible notes, we unwound these contracts, recognized a decrease in value of $1.4 million in Accumulated Other Comprehensive Income (Loss) and began amortizing as an increase to interest expense as interest payments are made on the senior notes.
 
Fair Value Measurements
 
Fair Value Measurements on a Recurring Basis
 
At December 31, 2009 and 2008, we do not have any significant financial assets or financial liabilities that are measured at fair value on a recurring basis in our consolidated financial statements.
 
Fair Value Measurements on a Non-Recurring Basis
 
Non-financial assets measured at fair value on a non-recurring basis in our consolidated financial statements consist of real estate assets and investments in and advances to unconsolidated investees that were subject to impairment charges to write them down to their estimated fair values during 2009 due to changes in market conditions and/or our intent with regard to these assets. See Notes 6 and 14 for additional information related to inputs and valuation techniques used to measure these impairments. The table below aggregates the fair values of these assets at December 31, 2009 by the levels in the fair value hierarchy (in thousands):
 
                                 
    Level 1     Level 2     Level 3     Total  
 
Real estate assets
  $     $     $ 409,944     $ 409,944  
Investments in and advances to other unconsolidated investees
  $     $     $ 45,000     $ 45,000  
 
Financial Assets and Liabilities not Measured at Fair Value
 
At December 31, 2009 and 2008, the carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts and notes receivable, and accounts payable and accrued expenses were


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
representative of their fair values due to the short-term nature of these instruments or, the recent acquisition of these items.
 
At December 31, 2009 and 2008, we estimated the fair value of our senior and other notes and convertible notes, based upon quoted market prices for the same (Level 1) or similar (Level 2) issues when current quoted market prices are available. We estimated the fair value of our credit facilities by discounting the future cash flows using rates and borrowing spreads currently available to us (Level 3). We estimated the fair value of our secured mortgage debt and assessment bonds that does not have current quoted market prices available by discounting the future cash flows using rates currently available to us for debt with similar terms and maturities (Level 3). The differences in the fair value of our debt from the carrying value are the result of differences in interest rates and/or borrowing spreads that were available to us at December 31, 2009 and 2008, as compared with those in effect when the debt was issued or acquired. In addition, based on debt market conditions as of December 31, 2008, many of our public debt issuances were trading at a significant discount to par value. The senior notes and many of the issues of secured mortgage debt contain pre-payment penalties or yield maintenance provisions that could make the cost of refinancing the debt at the 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):
 
                                 
    December 31,  
    2009     2008  
    Carrying
          Carrying
       
    Value     Fair Value     Value     Fair Value  
 
Debt:
                               
Global Line and Credit Facility
  $ 736,591     $ 716,993     $ 3,218,283     $ 3,175,128  
Senior and other notes
    4,047,905       3,981,971       3,995,410       2,284,892  
Convertible senior notes
    2,078,441       2,058,507       2,590,133       1,289,163  
Secured mortgage debt
    1,090,126       1,094,526       877,916       837,727  
Assessment bonds
    24,715       24,197       29,626       32,903  
                                 
Total debt
  $   7,977,778     $   7,876,194     $  10,711,368     $  7,619,813  
                                 
 
19.   Commitments and Contingencies:
 
Environmental Matters
 
A majority of the properties we acquire, including land, are subjected to environmental reviews either by us or the previous owners. In addition, we may incur environmental remediation costs associated with certain land parcels we acquire in connection with the development of the land. We have acquired certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous materials. We establish a liability at the time of acquisition to cover such costs. We adjust the liabilities as appropriate when additional information becomes available. We purchase various environmental insurance policies to mitigate our exposure to environmental liabilities. We are not aware of any environmental liability that we believe would have a material adverse effect on our business, financial condition or results of operations.
 
Off-Balance Sheet Liabilities
 
We have issued performance and surety bonds and standby letters of credit in connection with certain development projects, to guarantee certain tax obligations and the construction of certain real property improvements and infrastructure, such as grading, sewers and streets. Performance and surety bonds are commonly required by public agencies from real estate developers. Performance and surety bonds are renewable and expire upon the payment of the taxes due or the completion of the improvements and


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
infrastructure. As of December 31, 2009, we had approximately $71.6 million outstanding under such arrangements.
 
At December 31, 2009, we had made debt guarantees to certain of our unconsolidated investees that, based on the investee’s outstanding balance, totaled $1.3 million. None of these guarantees were provided to the unconsolidated property funds. See Note 6 for further discussion related to the property funds.
 
We may be required to make additional capital contributions to certain of our unconsolidated investees, representing our proportionate ownership interest, should additional capital contributions be necessary to fund development or acquisition costs, repayment of debt or operation shortfalls. See Note 6.
 
From time to time we enter into Special Limited Contribution Agreements (“SLCA”) in connection with certain contributions of properties to certain of our property funds. Under the SLCAs, we are obligated to make an additional capital contribution to the respective property fund under certain circumstances, the occurrence of which we believe to be remote. Specifically, we would be required to make an additional capital contribution to the property fund if the property fund is in default on third-party debt, the default remains uncured, and the third-party lender does not receive a specified minimum level of repayment after pursuing all contractual and legal remedies against the property fund. To the extent that a third-party lender receives repayment of principal and to the extent that the property fund liquidates its assets to satisfy any remaining repayment deficit, our obligations under the SLCA are reduced on a dollar-for-dollar basis. Our potential obligations under the respective SLCAs, as a percentage of the fair value of the real estate assets in the property funds, range from 5% to 37%. Given the respective year-end capital structures of the various funds impacted by SLCAs and structural provisions within the SLCAs, we estimate that the minimum level of fund devaluation required to trigger an SLCA liability ranges between 79% and 27% of fund value. We believe that the likelihood of declines in the values of the assets that support the third-party loans of the magnitude necessary to require an additional capital contribution is generally remote, especially in light of the geographically diversified portfolios of properties owned by the property funds. The potential obligations under the SLCAs aggregated $348.9 million and $352.6 million at December 31, 2009 and December 31, 2008, respectively. The combined value of the assets in the property funds that are subject to the provisions of the SLCAs was approximately $4.0 billion at December 31, 2009. Based on our assessment of the probability and range of loss, we have estimated the fair value and recognized a liability of $1.3 million related to our potential obligations at December 31, 2009.
 
As of December 31, 2009, $9.1 million of Community Facility District bonds were outstanding that were originally issued to finance public infrastructure improvements at one of our development projects. We are required to satisfy any shortfall in annual debt service obligation for these bonds if tax revenues generated by the project are insufficient. As of December 31, 2009, we have not been required to, nor do we expect to be required to, satisfy any shortfall in annual debt service obligation for these bonds other than through our payment of normal project and special district taxes.
 
Settlement Costs
 
Included within Other Income (Expense) in our Consolidated Statements of Operations for the year ended December 31, 2009 are settlement costs of $13.0 million related to an obligation we assumed in the 2005 acquisition of Catellus.
 
20.   Business Segments:
 
As discussed in Note 1, we modified our business strategy during the fourth quarter of 2008 to no longer focus on the CDFS business segment. We made contributions and dispositions of CDFS properties through December 2008 and have reported the results of operations of this activity within this business segment. As of December 31, 2008, we transferred all of the assets from the CDFS business segment into our two remaining


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
segments. We now intend to principally hold the properties we had previously planned to contribute, and, therefore, we have transferred these assets to our direct owned segment. The investments we have in joint ventures have been transferred to our investment management segment. Our current segments are as follows:
 
  •      Direct Owned — representing the direct long-term ownership of industrial distribution and retail properties. Each operating property is considered to be an individual operating segment having similar economic characteristics that are combined within the reportable segment based upon geographic location. We own real estate in North America (Canada, Mexico and the United States), Europe (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden and the United Kingdom) and Asia (Japan and South Korea). Also included in this segment is the development of properties for continued direct ownership, including land held for development and properties currently under development. Beginning in 2009, we also include the land we own and lease to customers under ground leases that was previously included in our other operating segments. Therefore, we have reclassified 2008 amounts to conform to the 2009 presentation.
 
  •      Investment Management — representing the long-term investment management of property funds and industrial and retail joint ventures and the properties they own. We recognize our proportionate share of the earnings or losses from our investments in unconsolidated property funds and joint ventures operating in North America, Europe and Asia. Along with the income recognized under the equity method, we include fees and incentives earned for services performed on behalf of the unconsolidated investees and interest income earned on advances to unconsolidated investees, if any. We utilize our leasing and property management expertise to efficiently manage the properties and our unconsolidated investees, and we allocate the costs as Investment Management Expenses in this segment. Each investment in a property fund or joint venture is considered to be an individual operating segment having similar economic characteristics that are combined within the reportable segment based upon geographic location. Our operations in the investment management segment are in North America (Canada, Mexico and the United States), Europe (Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden, and the United Kingdom), and Asia (Japan, through July 2009, and South Korea).
 
In addition, throughout 2008, we operated a third segment. As discussed above, due to changes in our business strategy, we no longer have a CDFS business segment in 2009, other than as discussed below for the sale of our investments in Japan.
 
  •      CDFS business — primarily encompassed our development of real estate properties that were subsequently contributed to a property fund in which we had an ownership interest and acted as manager, or sold to third parties. Additionally, we acquired properties with the intent to rehabilitate and/or reposition the property prior to contributing to a property fund. The proceeds and related costs of these dispositions are presented as Developed and Repositioned Properties in the Consolidated Statements of Operations. In addition, we occasionally acquired a portfolio of properties with the intent of contributing the portfolio to an existing or future property fund. The proceeds and related costs of these dispositions are presented as Acquired Property Portfolios in the Consolidated Statements of Operations. During the period between the completion of development or acquisition of a property and the date the property is contributed to a property fund or sold to a third party, the property and its associated rental income and rental expenses were included in the direct owned segment because the primary activity associated with the property during that period is leasing. Upon contribution or sale, the resulting gain or loss was included in the income of the CDFS business segment. The separate activities in this segment were considered to be individual operating segments having similar economic characteristics that are combined within the reportable segment based upon geographic location. When a property that we originally contributed to a property fund


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
  was sold to a third party, we recognized any gain that was deferred due to our ownership interest in the property fund at the time of contribution as CDFS proceeds. In 2009, the only activity being reported in the CDFS segment is the gain on sale of our investments in the Japan property funds as it is essentially the recognition of gains from this segment that were deferred due to our ownership interests at the time of the original contributions.
 
During 2009, we contributed some completed industrial properties to PEPF II and sold some land and properties to third parties. We now present the results as Net Gains on Dispositions, either in continuing operations (in the case of contributions to a property fund or sales of land) or discontinued operations. We present the operations and net gains associated with properties sold to third parties, including land subject to ground leases, or classified as held for sale as discontinued operations, which results in the restatement of prior years operating results to exclude the items presented as discontinued operations.
 
Reconciliations are presented below for: (i) each reportable business segment’s revenue from external customers to our total revenues; (ii) each reportable business segment’s net operating income from external customers to our earnings before income taxes; and (iii) each reportable business segment’s assets to our 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 our revenues, earnings (loss) 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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
as certain corporate income and expenses, are reflected as reconciling items. The following reconciliations are presented in thousands:
 
                                 
    Years Ended December 31,        
    2009     2008     2007        
 
Revenues (1):
                               
Direct Owned (2):
                               
North America
  $ 784,559     $ 797,250     $ 836,265          
Europe
    63,948       108,619       124,394          
Asia
    51,575       33,638       35,681          
                                 
Total direct owned segment
    900,082       939,507       996,340          
                                 
Investment management (3):
                               
North America
    53,440       68,994       65,603          
Europe
    82,632       (41,884 )     100,164          
Asia
    30,038       39,331       30,184          
                                 
Total investment management segment
    166,110       66,441       195,951          
                                 
CDFS business (4):
                               
North America
          1,027,563       2,862,104          
Europe
          2,614,877       1,488,645          
Asia
    180,237       853,025       654,663          
                                 
Total CDFS business segment
    180,237       4,495,465       5,005,412          
                                 
Total segment revenue
    1,246,429       5,501,413       6,197,703          
Reconciling items (5)
    (23,347 )     64,570       (91,232 )        
                                 
Total revenues
  $      1,223,082     $      5,565,983     $      6,106,471          
                                 
Net operating income:
                               
Direct owned (6):
                               
North America
  $ 554,338     $ 558,371     $ 620,125          
Europe
    16,821       51,983       86,428          
Asia
    35,402       24,188       28,154          
                                 
Total direct owned segment
    606,561       634,542       734,707          
                                 
Investment management (3)(7):
                               
North America
    29,759       44,842       51,418          
Europe
    66,327       (59,802 )     86,116          
Asia
    26,608       30,640       24,469          
                                 
Total investment management segment
    122,694       15,680       162,003          
                                 
CDFS business (8):
                               
North America
          121,102       242,054          
Europe
          310,765       280,539          
Asia
    180,237       222,879       241,102          
                                 
Total CDFS business segment
    180,237       654,746       763,695          
                                 
Total segment net operating income
    909,492       1,304,968       1,660,405          
Reconciling items:
                               
General and administrative expenses
    (180,486 )     (177,350 )     (170,398 )        
Reduction in workforce
    (11,745 )     (23,131 )              
Impairment of real estate properties (9)
    (331,592 )     (274,705 )     (12,600 )        
Depreciation and amortization expense
    (315,807 )     (317,315 )     (286,279 )        
Earnings from other unconsolidated investees, net
    4,712       8,796       7,794          
Interest expense
    (373,305 )     (385,065 )     (389,844 )        
Impairment of goodwill and other assets (10)
    (163,644 )     (320,636 )              
Other income (expense), net
    (39,809 )     16,063       31,686          
Net gains on dispositions of real estate properties
    35,262       11,668       146,667          
Foreign currency exchange gains (losses), net
    35,626       (148,281 )     8,132          
Gain on early extinguishment of debt
    172,258       90,719                
                                 
Total reconciling items
    (1,168,530 )     (1,519,237 )     (664,842 )        
                                 
Total earnings (loss) before income taxes
  $ (259,038 )   $ (214,269 )   $ 995,563          
                                 
 


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
                 
    December 31,  
    2009     2008  
 
Assets (11):
               
Direct owned:
               
North America (10)
  $ 9,241,846     $ 9,326,387  
Europe (10)
    3,389,616       4,177,976  
Asia
    1,932,187       1,791,611  
                 
Total direct owned segment
    14,563,649       15,295,974  
                 
Investment management (12):
               
North America
    1,027,367       959,689  
Europe (10)
    956,365       803,235  
Asia
    52,170       381,674  
                 
Total investment management segment
    2,035,902       2,144,598  
                 
Reconciling items:
               
Investments in and advances to other unconsolidated investees
    141,107       150,681  
Cash and cash equivalents
    34,362       174,636  
Accounts and notes receivable
    1,574       2,253  
Other assets
    108,821       190,231  
Discontinued operations — assets held for sale
          1,310,754  
                 
Total reconciling items
    285,864       1,828,555  
                 
Total assets
  $ 16,885,415     $ 19,269,127  
                 
 
 
(1) Includes revenues attributable to the United States for the years ended December 31, 2009, 2008 and 2007 of $811.1 million, $1,610.6 million and $3,489.7 million, respectively.
 
(2) Includes rental income of our industrial and retail properties and land subject to ground leases, as well as development management and other income.
 
(3) Includes investment management fees and incentive returns and our share of the earnings or losses recognized under the equity method from our investments in unconsolidated property funds and certain industrial and retail joint ventures along with interest earned on advances to these unconsolidated investees. In 2008, the revenues and net operating income of this segment were reduced by $108.2 million representing our proportionate share of the loss on sale/impairment recognized by one of the property funds in Europe. See Note 6 for more information.
 
(4) In 2009, includes the recognition of gains previously deferred from CDFS contributions to the Japan property funds due to the sale of our investments in the property funds in February 2009. In 2008 and 2007, includes proceeds received on CDFS property dispositions, fees earned from customers and third parties for development activities and interest income on notes receivable related to asset dispositions.
 
(5) Amount represents the earnings or losses recognized under the equity method from our investments in unconsolidated investees that are reflected in the revenues of the investment management segment and interest income on notes receivable related to asset dispositions that are reflected in revenues of the CDFS business segment. These items are not presented as a component of revenues in our Consolidated Statements of Operations.

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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
(6) Includes rental income less rental expenses of our distribution and retail properties and land subject to ground leases, as well as development management and other income less related expenses.
 
(7) Also includes the costs we incur to manage the unconsolidated investees and the properties they own.
 
(8) In 2009, includes the recognition of gains previously deferred from CDFS contributions to the Japan property funds due to the sale of our investment’s in the Japan property funds in February 2009. In 2008 and 2007 includes net gains on CDFS property dispositions, fees earned from customers and third parties for development activities and interest income on notes receivable related to asset dispositions, offset partially by land holding costs and the write-off of previously capitalized pursuit costs associated with potential CDFS business assets when it became likely the assets would not be acquired.
 
(9) During 2009, we recognized impairment charges related to our real estate properties in our Direct Owned segment ($157.9 million in North America and $173.7 million in Europe). During 2008, we recognized impairment charges related to our real estate properties in our Direct Owned segment ($21.0 million in North America and $253.7 million in Europe). See Note 14 for more discussion of these charges.
 
(10) During 2009, we recognized impairment charges of $28.5 million to write-off our investments in ProLogis North American Properties Fund IX and X. During 2009 and 2008 we recognized impairment charges of $115.1 million and $113.7 million, respectively, related to our investment in and advances to an unconsolidated investee in Europe. These impairments related to our Investment Management segment and are discussed further in Note 6.
 
During 2008, in connection with changes made to our business strategy, we transferred the investment and development activities previously included in the CDFS business segment, along with the related assets, to the direct owned and investment management segments (Europe reporting unit). The related goodwill was transferred to the respective segments based on the relative fair value of the assets transferred. In connection with our review of goodwill for recoverability in the fourth quarter of 2008, we recognized an impairment charge of $175.4 million related to goodwill in the direct owned segment in Europe. See Note 14 for additional information. The goodwill allocated to a segment, subsequent to impairment and reallocation, was as follows at December 31 (in thousands).
 
                 
               Segment/Reporting Unit   2009     2008  
 
               Direct Owned:
               
               North America
  $ 235,519     $ 235,519  
               Europe
    130,758       127,347  
                 
               Total direct owned segment
    366,277       362,866  
                 
               Investment management:
               
               Europe
    25,286       25,286  
                 
               Total allocated
    391,563       388,152  
               Not allocated to a segment/reporting unit
    7,474       7,474  
                 
               Total goodwill
  $   399,037     $   395,626  
                 
 
(11) Includes long-lived assets attributable to the United States as of December 31, 2009 and 2008 of $9.7 billion and $10.3 billion, respectively.
 
(12) Represents our investments in and advances to the property funds and certain investments in industrial and retail joint ventures.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
21.   Supplemental Cash Flow Information:
 
Non-cash investing and financing activities for the years ended December 31, 2009, 2008 and 2007 were as follows:
 
•      We received $30.3 million, $455.0 million and $351.3 million of ownership interests in certain unconsolidated investees as a portion of our proceeds from the contribution of properties to these property funds during 2009, 2008 and 2007, respectively. In 2007, in connection with these contributions, we recorded $51.6 million in potential liabilities for future obligations we may have associated with these transactions, which have subsequently been settled or adjusted.
 
•      We capitalized portions of the total cost of our share-based compensation awards of $5.8 million, $12.1 million and $10.8 million to the investment basis of our real estate and other assets during the years ended December 31, 2009, 2008, and 2007, respectively.
 
•      We settled $1.6 million, $21.3 million and $4.4 million of noncontrolling interest liabilities with the conversion of limited partnership units into 413,500 common shares, 3.9 million common shares and 128,000 common shares in 2009, 2008 and 2007, respectively.
 
•      We recorded $6.7 million and $27.8 million of noncontrolling interest liabilities associated with investments made in entities that we consolidate and own less that 100% in 2008 and 2007, respectively.
 
•      We assumed $6.6 million and $27.3 million of debt and other liabilities in 2008 and 2007, respectively, in connection with the acquisition of properties.
 
•      As partial consideration for property contributions in 2008, the China property fund assumed $47.9 million in construction liabilities.
 
•      We recognized a $9.3 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of distributions in excess of earnings in connection with the adoption of the provisions of a new accounting standard.
 
•      In connection with the acquisition of all of the units in MPR in July 2007 (see Note 6), we assumed $828.3 million of debt and reallocated our equity investment of $47.7 million to assets acquired.
 
•      As a result of the conversion by Citigroup of its convertible loan into equity of ProLogis North American Industrial Fund II in August 2007, we began accounting for our investment in this property fund under the equity method of accounting. This transaction resulted in a disposition of $2.0 billion of real estate assets and $1.9 billion of associated debt in exchange for an equity investment of $219.1 million and the recognition of a gain.
 
See also the discussion of non-cash items related to the Parkridge acquisition in 2007 in Note 5 and the discussion of uncertain tax positions and other income tax matters in Note 15.


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PROLOGIS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
 
22.   Selected Quarterly Financial Data (Unaudited):
 
Selected quarterly 2009 and 2008 data has been adjusted from previously disclosed amounts due to the disposal of properties in 2009 whose results of operations were reclassified to discontinued operations in our Consolidated Statements of Operations. The selected quarterly data was as follows:
 
                                 
    Three Months Ended,  
    March 31,     June 30,     September 30,     December 31,  
 
2009:
                               
Total revenues
  $ 433,293     $ 259,053     $ 270,418     $ 260,318  
                                 
Operating income (loss)
  $ 221,994     $ (35,162 )   $ 24,934     $ (165,711 )
                                 
Earnings (loss) from continuing operations
  $ 170,669     $ 39,741     $ (21,810 )   $ (453,613 )
                                 
Net earnings (loss) attributable to common shares
  $ 178,732     $ 238,865     $ (11,788 )   $ (408,459 )
                                 
Net earnings (loss) per share attributable to common shares — Basic (1)
  $ 0.67     $ 0.59     $ (0.03 )   $ (0.86 )
                                 
Net earnings (loss) per share attributable to common shares — Diluted (1)(2)
  $ 0.66     $ 0.58     $ (0.03 )   $ (0.86 )
                                 
2008:
                               
Total revenues
  $   1,625,028     $   1,487,129     $   985,491     $   1,468,335  
                                 
Operating income (loss)
  $ 349,024     $ 256,222     $ 130,300     $ (158,968 )
                                 
Earnings (loss) from continuing operations
  $ 178,782     $ 210,628     $ 29,435     $ (701,125 )
                                 
Net earnings (loss) attributable to common shares
  $ 183,521     $ 206,332     $ 32,153     $ (901,232 )
                                 
Net earnings (loss) per share attributable to common shares — Basic (1)
  $ 0.71     $ 0.79     $ 0.12     $ (3.39 )
                                 
Net earnings (loss) per share attributable to common shares — Diluted (1)(2)
  $ 0.69     $ 0.76     $ 0.12     $ (3.39 )
                                 
 
 
(1) Quarterly earnings per common share amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common shares outstanding and included in the calculation of diluted shares.
 
(2) In periods with a net loss, the inclusion of any incremental shares is anti-dilutive, and therefore, both basic and diluted loss per share is the same.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Trustees and Shareholders
ProLogis:
 
Under date of February 26, 2010, we reported on the consolidated balance sheets of ProLogis and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule, Schedule III — Real Estate and Accumulated Depreciation (Schedule III). Schedule III is the responsibility of ProLogis’ management. Our responsibility is to express an opinion on Schedule III based on our audits.
 
In our opinion, Schedule III — Real Estate and Accumulated Depreciation, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
As discussed in Note 2 to the consolidated financial statements, the Company adopted FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), included in ASC subtopic 470-20, Debt with Conversion and Other Options, as of January 1, 2009.
KPMG LLP
 
Denver, Colorado
February 26, 2010


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PROLOGIS
SCHEDULE III
 - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                   
            Initial Cost to
    Costs
                           
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
  Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
  Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
 
Acquisition
 
                                                                   
Industrial Operating Properties(d)
                                                                 
                                                                   
North American Markets:
                                                                 
                                                                   
United States:
                                                                 
                                                                   
Atlanta, Georgia
                                                                 
                                                                   
Atlanta NE Distribution Center
  8   (e)     5,582       3,047       27,282       6,276       29,635       35,911       (13,212)   1996, 1997
                                                                   
Atlanta West Distribution Center
  16   (e)     9,769       43,856       16,710       9,588       60,747       70,335       (21,965)   1994, 1996, 2005, 2006
                                                                   
Berkeley Lake Distribution Center
  1   (e)     2,178       8,712       35       2,046       8,879       10,925       (807)   2006
                                                                   
Braselton Business Park
  1   (e)     3,860       15,258       14       3,817       15,315       19,132       (879)   2008
                                                                   
Buford Distribution Center(d)
  1         1,487       -           5,388       1,487       5,388       6,875       (203)   2007
                                                                   
Cedars Distribution Center
  1         1,366       7,739       3,045       1,692       10,458       12,150       (4,034)   1999
                                                                   
Douglas Hill Distribution Center
  4         11,599       46,825       1,202       11,677       47,949       59,626       (6,671)   2005
                                                                   
Greenwood Industrial Park(d)
  1         3,989       -           21,743       3,989       21,743       25,732       (1,557)   2006
                                                                   
Horizon Distribution Center
  1         2,846       11,385       173       2,846       11,558       14,404       (1,054)   2006
                                                                   
LaGrange Distribution Center
  1         174       986       724       174       1,710       1,884       (1,072)   1994
                                                                   
Midland Distribution Center
  1   (e)     1,919       7,679       1,446       1,919       9,125       11,044       (879)   2006
                                                                   
Northeast Industrial Center
  3   (f)     841       4,744       2,290       782       7,093       7,875       (4,006)   1996
                                                                   
Northmont Industrial Center
  1         566       3,209       1,169       566       4,378       4,944       (2,505)   1994
                                                                   
Peachtree Corners Business Center
  5   (f)     1,519       7,253       2,361       1,519       9,614       11,133       (3,652)   1994, 2006
                                                                   
Piedmont Ct. Distribution Center
  2   (f)     885       5,013       2,585       885       7,598       8,483       (4,182)   1997
                                                                   
Pleasantdale Industrial Center
  2         541       3,184       1,353       541       4,537       5,078       (2,434)   1995
                                                                   
Riverside Distribution Center
  3         2,533       13,336       3,403       2,556       16,716       19,272       (6,263)   1999
                                                                   
South Royal Atlanta Distribution Center
  1         356       2,019       505       356       2,524       2,880       (570)   2002
                                                                   
Tradeport Distribution Center
  3   (e)     1,464       4,563       7,195       1,479       11,743       13,222       (6,018)   1994, 1996
                                                                   
Weaver Distribution Center
  2   (f)     935       5,182       2,096       935       7,278       8,213       (3,876)   1995
                                                                   
Westfork Industrial Center
  10   (e)     2,483       14,115       3,900       2,442       18,056       20,498       (9,118)   1995
                                   
                                   
                                                                   
Total Atlanta, Georgia
  68         56,892       208,105       104,619       57,572       312,044       369,616       (94,957)    
                                   
                                   
                                                                   
Austin, Texas
                                                                 
                                                                   
Corridor Park Corporate Center
  6         1,652       1,681       15,406       2,113       16,626       18,739       (8,459)   1995, 1996
                                                                   
Montopolis Distribution Center
  1         580       3,384       1,675       580       5,059       5,639       (2,769)   1994
                                                                   
Southpark Corporate Center
  2         684       -           4,996       684       4,996       5,680       (2,457)   1994
                                                                   
Walnut Creek Corporate Center
  3         461       4,089       55       515       4,090       4,605       (2,143)   1994
                                   
                                   
                                                                   
Total Austin, Texas
  12         3,377       9,154       22,132       3,892       30,771       34,663       (15,828)    
                                   
                                   


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PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Central Valley, California
                                                                   
                                                                     
Central Valley Distribution Center
  1         2,233       13,432       506       2,233       13,938       16,171       (5,026 )   1999
                                                                     
Central Valley Industrial Center
  4   (e)     11,418       48,726       11,526       11,868       59,802       71,670       (18,210 )   1999, 2002, 2005
                                                                     
Manteca Distribution Center
  1         9,280       27,841       62       9,280       27,903       37,183       (4,010 )   2005
                                                                     
Patterson Pass Business Center (d)
  3   (f)     1,862       4,885       8,373       1,886       13,234       15,120       (3,787 )   1993, 2007
                                                                     
Tracy II Distribution Center (d)
  3         6,783       20,384       73,442       10,856       89,753       100,609       (1,885 )   2007, 2009
                                     
                                     
                                                                     
Total Central Valley, California
  12         31,576       115,268       93,909       36,123       204,630       240,753       (32,918 )    
                                     
                                     
                                                                     
Charlotte, North Carolina
                                                                   
                                                                     
Barringer Industrial Center
  3         308       1,746       1,143       308       2,889       3,197       (1,638 )   1994
                                                                     
Bond Distribution Center
  2         905       5,126       2,252       905       7,378       8,283       (3,927 )   1994
                                                                     
Charlotte Commerce Center
  10   (e)     4,341       24,954       9,586       4,342       34,539       38,881       (19,535 )   1994
                                                                     
Charlotte Distribution Center
  9   (e)     4,578       -           26,624       6,096       25,106       31,202       (11,850 )   1995, 1996, 1997, 1998
                                                                     
Interstate North Business Park (d)
  3         948       3,030       5,507       954       8,531       9,485       (2,391 )   1997, 2006
                                                                     
Northpark Distribution Center
  2   (e)     1,183       6,707       2,410       1,184       9,116       10,300       (4,426 )   1994, 1998
                                                                     
West Pointe Business Center (d)
  1         2,416       -           9,487       2,416       9,487       11,903       (450 )   2006
                                                                     
Wilson Business Park Distribution Center
  1         976       5,598       17       968       5,623       6,591       (545 )   2007
                                     
                                     
                                                                     
Total Charlotte, North Carolina
  31         15,655       47,161       57,026       17,173       102,669       119,842       (44,762 )    
                                     
                                     
                                                                     
Chicago, Illinois
                                                                   
                                                                     
Addison Distribution Center
  1   (f)     646       3,662       824       640       4,492       5,132       (2,115 )   1997
                                                                     
Alsip Distribution Center
  2         2,093       11,859       9,138       2,549       20,541       23,090       (11,309 )   1997, 1999
                                                                     
Arlington Heights Distribution Center
  1         831       3,326       631       831       3,957       4,788       (397 )   2006
                                                                     
Bedford Park Industrial Center
  1         941       4,907       2,011       941       6,918       7,859       (991 )   2005
                                                                     
Bensenville Distribution Center
  1         926       3,842       5,673       940       9,501       10,441       (5,597 )   1997
                                                                     
Bolingbrook Distribution Center
  5   (e)     15,299       68,440       2,156       15,110       70,785       85,895       (14,888 )   1999, 2006
                                                                     
Des Plaines Distribution Center
  3   (e)     2,158       12,232       5,030       2,159       17,261       19,420       (9,113 )   1995, 1996
                                                                     
Elk Grove Distribution Center (d)
  26   (f)     32,828       94,843       36,454       32,716       131,409       164,125       (35,210 )   1995, 1996, 1997, 1998, 1999, 2006, 2009
                                                                     
Elmhurst Distribution Center
  1         713       4,043       977       713       5,020       5,733       (2,367 )   1997
                                                                     
Glendale Heights Distribution Center
  3   (e)     3,903       22,119       3,146       3,903       25,265       29,168       (9,303 )   1999
                                                                     
Glenview Distribution Center
  2         1,156       6,550       1,727       1,156       8,277       9,433       (3,747 )   1996, 1999
                                                                     
I-55 Distribution Center (d)
  2   (e)     5,383       25,504       31,528       10,484       51,931       62,415       (2,310 )   2007
                                                                     
Itasca Distribution Center
  2         604       3,382       1,147       604       4,529       5,133       (2,111 )   1996, 1997
                                                                     
Lombard Distribution Center
  1   (f)     1,170       6,630       397       1,170       7,027       8,197       (2,633 )   1999


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Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Minooka Distribution Center (d)
  2         12,240       41,745       15,609       12,203       57,391       69,594       (6,396 )   2005, 2008
                                                                     
Mitchell Distribution Center
  1         1,236       7,004       2,170       1,236       9,174       10,410       (4,713 )   1996
                                                                     
Northbrook Distribution Center
  1   (f)     2,056       8,227       286       2,056       8,513       10,569       (791 )   2007
                                                                     
Northlake Distribution Center
  1   (f)     372       2,106       705       372       2,811       3,183       (1,439 )   1996
                                                                     
Pleasant Prairie Distribution Center
  1         1,314       7,450       2,379       1,315       9,828       11,143       (3,507 )   1999
                                                                     
Rochelle Distribution Center (d)
  1         4,457       20,100       510       4,402       20,665       25,067       (492 )   2008
                                                                     
Romeoville Distribution Center
  6   (e)     23,731       96,764       1,072       23,731       97,836       121,567       (15,531 )   1999, 2005
                                                                     
S.C. Johnson & Son (d)
  1         2,267       15,911       604       2,225       16,557       18,782       (382 )   2008
                                                                     
Waukegan Distribution Center
  2         4,368       17,632       684       4,368       18,316       22,684       (1,776 )   2007
                                                                     
West Chicago Distribution Center
  1         3,125       12,499       421       3,125       12,920       16,045       (1,797 )   2005
                                                                     
Woodale Distribution Center
  1         263       1,490       445       263       1,935       2,198       (956 )   1997
                                                                     
Woodridge Distribution Center (d)
  14   (e)     46,575       197,289       11,861       49,942       205,783       255,725       (27,542 )   2005, 2007
                                     
                                     
                                                                     
Total Chicago, Illinois
  83         170,655       699,556       137,585       179,154       828,642       1,007,796       (167,413 )    
                                     
                                     
                                                                     
Cincinnati, Ohio
                                                                   
                                                                     
Airpark Distribution Center
  2   (e)     1,128       -           11,840       1,716       11,252       12,968       (4,830 )   1996
                                                                     
Capital Distribution Center II
  5   (e)     1,953       11,067       4,506       1,953       15,573       17,526       (8,663 )   1994
                                                                     
Constitution Distribution Center
  1         1,465       8,301       658       1,465       8,959       10,424       (3,326 )   1999
                                                                     
Dues Drive Distribution Center
  1         921       5,218       2,168       921       7,386       8,307       (1,437 )   2003
                                                                     
Empire Distribution Center
  3   (e)     529       2,995       2,290       529       5,285       5,814       (2,950 )   1995
                                                                     
Enterprise Distribution Center
  1   (f)     1,275       7,222       35       1,275       7,257       8,532       (776 )   2005
                                                                     
Fairfield Business Center
  1         348       1,971       581       381       2,519       2,900       (548 )   2004
                                                                     
Fairfield Distribution Center
  1         586       3,319       1,307       586       4,626       5,212       (1,112 )   2002
                                                                     
Park I-275 (d)
  1         3,899       12,014       1,525       3,863       13,575       17,438       (120 )   2008
                                                                     
Production Distribution Center
  2         717       2,717       2,910       824       5,520       6,344       (2,210 )   1994, 1998
                                                                     
Sharonville Distribution Center
  3   (e)     1,761       -           12,509       2,424       11,846       14,270       (4,170 )   1997, 1998
                                     
                                     
                                                                     
Total Cincinnati, Ohio
  21         14,582       54,824       40,329       15,937       93,798       109,735       (30,142 )    
                                     
                                     
                                                                     
Columbus, Ohio
                                                                   
                                                                     
Brookham Distribution Center
  2         5,964       23,858       3,368       5,965       27,225       33,190       (4,041 )   2005
                                                                     
Canal Pointe Distribution Center
  1         1,237       7,013       1,942       1,280       8,912       10,192       (2,940 )   1999
                                                                     
Capital Park South Distribution Center
  3   (e)     1,588       -           25,219       1,980       24,827       26,807       (9,995 )   1996
                                                                     
Charter Street Distribution Center
  1   (e)     1,245       7,055       461       1,245       7,516       8,761       (2,657 )   1999
                                                                     
Corporate Park West
  2   (e)     679       3,847       1,794       679       5,641       6,320       (2,846 )   1996


135


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Etna Distribution Center (d)
  1         3,308       -           13,749       1,669       15,388       17,057       (712 )   2007
                                                                     
Fisher Distribution Center
  1         1,197       6,785       2,420       1,197       9,205       10,402       (5,377 )   1995
                                                                     
Foreign Trade Center I
  5   (e)     6,527       36,989       6,576       6,992       43,100       50,092       (15,530 )   1999
                                                                     
McCormick Distribution Center
  5   (e)     1,664       9,429       7,716       1,664       17,145       18,809       (8,310 )   1994
                                                                     
New World Distribution Center
  1         207       1,173       2,222       207       3,395       3,602       (1,964 )   1994
                                                                     
South Park Distribution Center
  2   (e)     3,344       15,182       2,065       3,343       17,248       20,591       (3,805 )   1999, 2005
                                                                     
Westbelt Business Center
  3         1,777       7,168       199       1,777       7,367       9,144       (881 )   2006
                                                                     
Westpointe Distribution Center
  2   (e)     1,450       7,601       362       1,446       7,967       9,413       (1,034 )   2007
                                                                     
Wingate Distribution Center
  1         152       859       549       152       1,408       1,560       (625 )   1994
                                     
                                     
                                                                     
Total Columbus, Ohio
  30         30,339       126,959       68,642       29,596       196,344       225,940       (60,717 )    
                                     
                                     
                                                                     
Dallas/Fort Worth, Texas
                                                                   
                                                                     
Alliance Distribution Center
  1         3,654       14,613       1       3,653       14,615       18,268       (2,091 )   2005
                                                                     
Carter Industrial Center
  1         334       -           2,351       334       2,351       2,685       (1,062 )   1996
                                                                     
Centerport Distribution Center
  1         1,250       7,082       629       1,250       7,711       8,961       (2,760 )   1999
                                                                     
Dallas Corporate Center
  10   (e)     5,161       -           31,193       5,357       30,997       36,354       (13,197 )   1996, 1997, 1998, 1999
                                                                     
Enterprise Distribution Center
  1         1,107       5,702       816       1,133       6,492       7,625       (2,333 )   1999
                                                                     
Flower Mound Distribution Center
  1         5,157       20,991       2,283       5,157       23,274       28,431       (1,592 )   2007
                                                                     
Freeport Distribution Center
  4   (e)     1,393       5,549       4,991       1,440       10,493       11,933       (4,580 )   1996, 1997, 1998
                                                                     
Great Southwest Distribution Center
  36   (e)     38,300       173,329       15,809       36,848       190,590       227,438       (51,199 )   1995, 1996, 1997,1999, 2000, 2001, 2002, 2005
                                                                     
Lancaster Distribution Center (d)
  2         5,388       14,362       19,305       5,350       33,705       39,055       (1,092 )   2007, 2008
                                                                     
Lone Star Distribution Center
  1         512       2,896       1,346       511       4,243       4,754       (2,078 )   1996
                                                                     
Northgate Distribution Center (d)
  9   (e)     15,481       72,651       7,499       16,323       79,308       95,631       (15,043 )   1994, 1999, 2005, 2008
                                                                     
Pinnacle Park Distribution Center (h)
  1         5,058       -           19,652       3,880       20,830       24,710       (4,937 )   2001
                                                                     
Redbird Distribution Center
  2   (f)     1,095       6,212       2,091       1,096       8,302       9,398       (3,478 )   1994, 1999
                                                                     
Royal Distribution Center
  1         811       4,598       615       811       5,213       6,024       (1,541 )   2001
                                                                     
Stemmons Distribution Center
  1         272       1,544       793       272       2,337       2,609       (1,168 )   1995
                                                                     
Stemmons Industrial Center
  11         1,820       11,705       4,783       1,819       16,489       18,308       (8,576 )   1994, 1995, 1996, 1999
                                                                     
Trinity Mills Distribution Center
  7   (e)     4,453       27,346       3,612       4,405       31,006       35,411       (12,669 )   1996, 1999, 2001
                                                                     
Valwood Business Center
  4         3,785       16,846       891       3,662       17,860       21,522       (3,473 )   2001, 2006
                                                                     
Valwood Distribution Center
  1         850       4,890       476       850       5,366       6,216       (1,786 )   1999
                                     
                                     
                                                                     
Total Dallas/Fort Worth, Texas
  95         95,881       390,316       119,136       94,151       511,182       605,333       (134,655 )    
                                     
                                     


136


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Denver, Colorado
                                                                   
                                                                     
Denver Business Center
  4         865       6,907       3,596       882       10,486       11,368       (5,288 )   1992, 2002
                                                                     
Pagosa Distribution Center
  1   (e)     406       2,322       1,142       406       3,464       3,870       (1,990 )   1993
                                                                     
Stapleton Business Center
  12   (e)     34,634       139,256       3,203       34,635       142,458       177,093       (20,757 )   2005
                                                                     
Upland Distribution Center
  6   (f)     808       4,421       12,237       821       16,645       17,466       (8,944 )   1992, 1994, 1995
                                                                     
Upland Distribution Center II
  3         1,295       5,159       5,130       1,328       10,256       11,584       (5,692 )   1993
                                     
                                     
                                                                     
Total Denver, Colorado
  26         38,008       158,065       25,308       38,072       183,309       221,381       (42,671 )    
                                     
                                     
                                                                     
El Paso, Texas
                                                                   
                                                                     
Billy the Kid Distribution Center
  1         273       1,547       1,556       273       3,103       3,376       (1,546 )   1994
                                                                     
Goodyear Distribution Center
  1         511       2,899       1,002       511       3,901       4,412       (1,777 )   1991
                                                                     
Northwestern Corporate Center
  5         981       -           19,094       1,986       18,089       20,075       (8,094 )   1992, 1993, 1994, 1997
                                                                     
Pan Am Distribution Center
  1   (f)     196       1,110       1,595       196       2,705       2,901       (725 )   2002
                                                                     
Vista Corporate Center
  4         1,945       -           12,197       1,946       12,196       14,142       (5,694 )   1994, 1995, 1996
                                                                     
Vista Del Sol Industrial Center II
  4   (f)     996       -           19,107       2,056       18,047       20,103       (8,403 )   1995, 1997, 1998
                                     
                                     
                                                                     
Total El Paso, Texas
  16         4,902       5,556       54,551       6,968       58,041       65,009       (26,239 )    
                                     
                                     
                                                                     
Houston, Texas
                                                                   
                                                                     
Blalock Distribution Center
  2         595       3,370       1,125       595       4,495       5,090       (1,092 )   2002
                                                                     
Brittmore Distribution Center
  2         1,838       10,417       1,352       1,838       11,769       13,607       (4,647 )   1999
                                                                     
Crosstimbers Distribution Center
  1         359       2,035       1,116       359       3,151       3,510       (1,624 )   1994
                                                                     
Hempstead Distribution Center
  3   (f)     1,013       5,740       3,619       1,013       9,359       10,372       (4,520 )   1994
                                                                     
Hobby Business Park
  1         721       2,885       263       721       3,148       3,869       (498 )   2005
                                                                     
Kempwood Business Center
  4   (f)     1,746       9,894       1,971       1,746       11,865       13,611       (4,201 )   2001
                                                                     
Northpark Distribution Center (d)
  3   (e)     3,912       16,568       1,602       3,873       18,209       22,082       (788 )   2006, 2008
                                                                     
Perimeter Distribution Center
  2         813       4,604       998       813       5,602       6,415       (2,332 )   1999
                                                                     
Pine Forest Business Center
  9         2,665       14,132       6,417       2,665       20,549       23,214       (9,920 )   1993, 1995
                                                                     
Pine North Distribution Center
  2         847       4,800       836       847       5,636       6,483       (2,248 )   1999
                                                                     
Pine Timbers Distribution Center
  2         2,956       16,750       3,431       2,956       20,181       23,137       (8,088 )   1999
                                                                     
Pinemont Distribution Center
  2         642       3,636       670       642       4,306       4,948       (1,762 )   1999
                                                                     
Post Oak Business Center
  15         3,005       15,378       8,433       3,005       23,811       26,816       (13,029 )   1993, 1994, 1996
                                                                     
Post Oak Distribution Center
  7         2,115       12,017       6,061       2,039       18,154       20,193       (10,932 )   1993, 1994
                                                                     
South Loop Distribution Center
  5         1,051       5,964       4,269       1,052       10,232       11,284       (5,948 )   1994
                                                                     
Southland Distribution Center
  1         1,209       6,849       1,514       1,209       8,363       9,572       (1,423 )   2002


137


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
West by Northwest Industrial Center
  3         468       2,149       3,952       664       5,905       6,569       (3,198 )   1993, 1994
White Street Distribution Center
  1         469       2,656       1,481       469       4,137       4,606       (2,022 )   1995
                                     
                                     
Total Houston, Texas
  65         26,424       139,844       49,110       26,506       188,872       215,378       (78,272 )    
                                     
                                     
I-81 Corridor, Pennsylvania
                                                                   
Harrisburg Distribution Center
  1         2,243       12,572       700       2,231       13,284       15,515       (2,510 )   2004
Harrisburg Industrial Center
  1         782       6,190       870       782       7,060       7,842       (1,477 )   2002
Kraft Distribution Center
  1         2,457       13,920       70       2,457       13,990       16,447       (5,008 )   1999
Lehigh Valley Distribution Center
  4         6,636       37,114       2,680       6,601       39,829       46,430       (7,381 )   2004
Middleton Distribution Center
  1         4,190       23,478       151       4,168       23,651       27,819       (4,238 )   2004
Park 33 Distribution Center (d)
  1         13,411       -           32,116       13,423       32,104       45,527       (872 )   2007
Quakertown Distribution Center
  1         6,966       -           27,688       6,966       27,688       34,654       (2,445 )   2006
                                     
                                     
Total I-81 Corridor, Pennsylvania
  10         36,685       93,274       64,275       36,628       157,606       194,234       (23,931 )    
                                     
                                     
Indianapolis, Indiana
                                                                   
Eastside Distribution Center
  2         1,204       6,820       1,286       1,275       8,035       9,310       (3,164 )   1995, 1999
Logo Court Distribution Center
  1         3,352       18,678       197       3,334       18,893       22,227       (3,385 )   2004
North by Northeast Corporate Center
  1         1,058       -           7,017       1,059       7,016       8,075       (3,185 )   1995
Park 100 Industrial Center
  14   (e)     4,948       28,691       11,700       4,900       40,439       45,339       (20,057 )   1994, 1995
Park Fletcher Distribution Center
  9         2,687       15,224       6,983       2,785       22,109       24,894       (11,509 )   1994, 1995, 1996
Shadeland Industrial Center
  3         428       2,431       2,594       429       5,024       5,453       (2,910 )   1995
                                     
                                     
Total Indianapolis, Indiana
  30         13,677       71,844       29,777       13,782       101,516       115,298       (44,210 )    
                                     
                                     
Inland Empire, California
                                                                   
California Commerce Center
  1   (e)     4,201       7,802       100       4,201       7,902       12,103       (1,145 )   2005
Crossroads Business Park
  7   (e)     -           84,519       65,062       51,662       97,919       149,581       (14,261 )   2005
Haven Distribution Center (d)
  5   (e)     100,127       73,902       8,027       99,712       82,344       182,056       (1,240 )   2008
Inland Empire Distribution Center
  5   (e)     41,355       74,536       6,108       42,134       79,865       121,999       (11,824 )   2005
Kaiser Distribution Center
  8   (e)     130,680       242,618       15,397       136,030       252,665       388,695       (33,370 )   2005, 2008
Meridian Park
  1         13,016       24,268       -           12,931       24,353       37,284       (1,450 )   2008
ProLogis Park Ontario
  2   (e)     25,500       47,366       153       25,499       47,520       73,019       (4,408 )   2007
Rancho Cucamonga Distribution Center
  6   (g)     51,283       95,241       248       51,283       95,489       146,772       (13,696 )   2005
Redlands Distribution Center (d)
  2   (e)     21,543       43,423       28,088       22,810       70,244       93,054       (4,432 )   2006, 2007
Riverbluff Distribution Center (d)
  1   (e)     43,003       -           33,120       43,003       33,120       76,123       (574 )   2009
                                     
                                     
Total Inland Empire, California
  38         430,708       693,675       156,303       489,265       791,421       1,280,686       (86,400 )    
                                     
                                     


138


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Las Vegas, Nevada
                                                                   
                                                                     
Black Mountain Distribution Center
  2         1,108       -           7,189       1,206       7,091       8,297       (3,017 )   1997
                                                                     
Cameron Business Center
  1   (e)     1,634       9,256       327       1,634       9,583       11,217       (3,493 )   1999
                                                                     
Hughes Airport Center
  1         876       -           3,454       910       3,420       4,330       (1,924 )   1994
                                                                     
Placid St. Distribution Center
  1         2,620       14,848       168       2,620       15,016       17,636       (5,367 )   1999
                                                                     
West One Business Center
  4         2,468       13,985       2,738       2,468       16,723       19,191       (7,470 )   1996
                                     
                                     
                                                                     
Total Las Vegas, Nevada
  9         8,706       38,089       13,876       8,838       51,833       60,671       (21,271 )    
                                     
                                     
                                                                     
Los Angeles, California
                                                                   
                                                                     
Anaheim Industrial Center
  13   (e)     32,275       59,983       1,212       32,275       61,195       93,470       (8,732 )   2005
                                                                     
Dominguez North Industrial Center
  2   (e)     7,340       13,739       202       7,366       13,915       21,281       (1,335 )   2007
                                                                     
Fullerton Industrial Center
  2         8,238       15,300       125       8,239       15,424       23,663       (2,213 )   2005
                                                                     
Industry Distribution Center
  7   (g)     50,268       93,355       2,083       50,268       95,438       145,706       (13,551 )   2005
                                                                     
Los Angeles Industrial Center
  2         3,777       7,015       321       3,777       7,336       11,113       (1,039 )   2005
                                                                     
Mid Counties Industrial Center
  14   (e)     45,864       87,107       11,001       45,830       98,142       143,972       (15,670 )   2005, 2006
                                                                     
Orange Industrial Center
  2         5,930       11,014       4       5,930       11,018       16,948       (1,576 )   2005
                                                                     
Santa Ana Distribution Center
  2         4,318       8,019       111       4,318       8,130       12,448       (1,163 )   2005
                                                                     
South Bay Distribution Center
  4   (e)     14,478       27,511       1,966       15,280       28,675       43,955       (3,830 )   2005, 2007
                                                                     
Tustin Industrial Center
  2         4,553       8,456       46       4,553       8,502       13,055       (1,231 )   2005
                                                                     
Vernon Distribution Center
  15         25,439       47,250       1,835       25,441       49,083       74,524       (7,209 )   2005
                                     
                                     
                                                                     
Total Los Angeles, California
  65         202,480       378,749       18,906       203,277       396,858       600,135       (57,549 )    
                                     
                                     
                                                                     
Louisville, Kentucky
                                                                   
                                                                     
Airpark Commerce Center
  4         1,583       8,971       5,714       1,583       14,685       16,268       (8,006 )   1998
                                                                     
Cedar Grove Distribution Center (d)
  2         6,065       30,404       585       6,025       31,029       37,054       (2,818 )   2005, 2008
                                                                     
Commerce Crossings Distribution Center
  1         1,912       7,649       89       1,912       7,738       9,650       (1,104 )   2005
                                                                     
I-65 Meyer Dist. Center (d)
  2         4,258       -           23,882       4,565       23,575       28,140       (1,414 )   2006, 2007
                                                                     
Louisville Distribution Center
  2   (e)     680       3,402       4,646       689       8,039       8,728       (3,359 )   1995, 1998
                                                                     
Riverport Distribution Center
  1         1,515       8,585       2,781       1,515       11,366       12,881       (4,002 )   1999
                                     
                                     
                                                                     
Total Louisville, Kentucky
  12         16,013       59,011       37,697       16,289       96,432       112,721       (20,703 )    
                                     
                                     
                                                                     
Memphis, Tennessee
                                                                   
                                                                     
Airport Distribution Center
  5         2,052       10,888       5,225       2,063       16,102       18,165       (8,298 )   1995, 1996, 1999
                                                                     
Centerpointe Distribution Center
  1         1,401       9,019       365       1,401       9,384       10,785       (3,359 )   2001
                                                                     
Delp Distribution Center
  6         3,870       21,853       (1,969 )     3,870       19,884       23,754       (12,185 )   1995, 1999


139


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
DeSoto Distribution Center (d)
  1         4,761       -           26,338       4,761       26,338       31,099       (697 )   2007
                                                                     
Fred Jones Distribution Center
  1         125       707       199       125       906       1,031       (555 )   1994
                                                                     
Memphis Distribution Center
  1         480       2,723       440       481       3,162       3,643       (827 )   2002
                                                                     
Olive Branch Distribution Center
  2         2,892       16,389       2,348       2,892       18,737       21,629       (7,494 )   1999
                                                                     
Raines Distribution Center
  1         1,635       4,262       9,269       1,635       13,531       15,166       (7,186 )   1998
                                                                     
Southpark Distribution Center
  1         859       4,866       834       859       5,700       6,559       (923 )   2003
                                                                     
Willow Lake Distribution Center
  1         613       3,474       (96 )     613       3,378       3,991       (1,481 )   1999
                                     
                                     
                                                                     
Total Memphis, Tennessee
  20         18,688       74,181       42,953       18,700       117,122       135,822       (43,005 )    
                                     
                                     
                                                                     
Nashville, Tennessee
                                                                   
                                                                     
Bakertown Distribution Center
  2         463       2,626       652       463       3,278       3,741       (1,755 )   1995
                                                                     
I-40 Industrial Center
  4         1,711       9,698       1,513       1,712       11,210       12,922       (5,012 )   1995, 1996, 1999
                                                                     
Interchange City Distribution Center (d)
  8   (f)     5,179       26,540       5,083       6,382       30,420       36,802       (5,365 )   1998, 2003, 2008
                                                                     
Space Park South Distribution Center
  15         3,499       19,830       9,412       3,499       29,242       32,741       (16,546 )   1994
                                     
                                     
                                                                     
Total Nashville, Tennessee
  29         10,852       58,694       16,660       12,056       74,150       86,206       (28,678 )    
                                     
                                     
                                                                     
New Jersey
                                                                   
                                                                     
Bellmawr Distribution Center
  1         212       1,197       382       211       1,580       1,791       (706 )   1999
                                                                     
Brunswick Distribution Center
  2         870       4,928       1,967       870       6,895       7,765       (3,893 )   1997
                                                                     
Chester Distribution Center
  1         548       5,319       1       548       5,320       5,868       (3,261 )   2002
                                                                     
Exit 8A Distribution Center
  1         7,626       44,103       397       7,787       44,339       52,126       (6,357 )   2005
                                                                     
Exit 10 Distribution Center
  6   (e)     22,738       126,961       1,490       22,738       128,451       151,189       (18,330 )   2005
                                                                     
Kilmer Distribution Center
  4   (e)     2,526       14,313       2,749       2,526       17,062       19,588       (8,310 )   1996
                                                                     
Meadowland Distribution Center
  4   (e)     10,272       57,480       1,427       10,271       58,908       69,179       (8,388 )   2005
                                                                     
Meadowland Industrial Center
  8   (e)     5,676       32,167       16,123       5,677       48,289       53,966       (27,646 )   1996, 1997, 1998
                                                                     
Mount Olive Distribution Center
  1         1,509       8,552       (62 )     1,500       8,499       9,999       (673 )   2007
                                                                     
Mt. Laurel Distribution Center
  2         588       2,885       1,372       592       4,253       4,845       (1,691 )   1999
                                                                     
Pennsauken Distribution Center
  2         192       958       372       203       1,319       1,522       (531 )   1999
                                                                     
Port Reading Business Park (d)
  2   (e)     11,177       -           37,510       11,309       37,378       48,687       (2,630 )   2005, 2009
                                     
                                     
                                                                     
Total New Jersey
  34         63,934       298,863       63,728       64,232       362,293       426,525       (82,416 )    
                                     
                                     
                                                                     
Orlando, Florida
                                                                   
                                                                     
33rd Street Industrial Center
  9         1,980       11,237       4,325       1,980       15,562       17,542       (8,017 )   1994, 1995, 1996
                                                                     
Beltway Commerce Center
  3         17,178       25,526       1,723       17,082       27,345       44,427       (56 )   2008
                                                                     
Chancellor Distribution Center
  1         380       2,156       1,557       380       3,713       4,093       (1,949 )   1994


140


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
Consulate Distribution Center
  3   (f)     4,148       23,617       1,136       4,148       24,753       28,901       (9,202 )   1999
LaQuinta Distribution Center
  1         354       2,006       1,689       354       3,695       4,049       (2,137 )   1994
                                     
                                     
Total Orlando, Florida
  17         24,040       64,542       10,430       23,944       75,068       99,012       (21,361 )    
                                     
                                     
Phoenix, Arizona
                                                                   
24th Street Industrial Center
  2         503       2,852       1,498       561       4,292       4,853       (2,625 )   1994
Alameda Distribution Center
  2         3,872       14,358       1,942       3,872       16,300       20,172       (2,372 )   2005
Buckeye Road Industrial Center
  2         1,236       4,988       976       1,236       5,964       7,200       (1,109 )   2005
Hohokam 10 Business Center
  6   (f)     4,258       7,467       13,190       4,258       20,657       24,915       (8,709 )   1996, 1999
I-10 West Business Center
  3         263       1,525       850       263       2,375       2,638       (1,349 )   1993
Kyrene Commons Distribution Center
  3   (f)     2,369       5,475       511       1,093       7,262       8,355       (3,510 )   1992, 1998, 1999
Martin Van Buren Distribution Center
  6         572       3,285       1,990       572       5,275       5,847       (3,028 )   1993, 1994
Papago Distribution Center
  3         4,828       20,017       1,939       4,829       21,955       26,784       (4,380 )   1994, 2005
Roosevelt Distribution Center
  1         1,766       7,065       34       1,766       7,099       8,865       (1,020 )   2005
University Dr Distribution Center
  1         683       2,735       184       683       2,919       3,602       (422 )   2005
Watkins Street Distribution Center
  1         242       1,375       467       243       1,841       2,084       (960 )   1995
Wilson Drive Distribution Center
  1         1,273       5,093       254       1,273       5,347       6,620       (750 )   2005
                                     
                                     
Total Phoenix, Arizona
  31         21,865       76,235       23,835       20,649       101,286       121,935       (30,234 )    
                                     
                                     
Portland, Oregon
                                                                   
Argyle Distribution Center
  3         946       5,388       3,348       946       8,736       9,682       (3,904 )   1993
Columbia Distribution Center
  2         550       3,121       1,140       551       4,260       4,811       (2,330 )   1994
PDX Corporate Center North Phase II (d)
  1   (e)(g)     5,077       9,895       1,670       5,051       11,591       16,642       (178 )   2008
Southshore Corporate Center
  5   (e)     13,061       52,299       1,162       13,273       53,249       66,522       (7,248 )   2005, 2006
Wilsonville Corporate Center
  3   (e)     1,569       -           7,288       1,588       7,269       8,857       (3,632 )   1995
                                     
                                     
Total Portland, Oregon
  14         21,203       70,703       14,608       21,409       85,105       106,514       (17,292 )    
                                     
                                     
Reno, Nevada
                                                                   
Golden Valley Distribution Center
  3   (e)     2,975       13,686       11,200       4,451       23,410       27,861       (5,791 )   1996, 1998, 2005
Meredith Kleppe Business Center
  1         526       754       3,563       526       4,317       4,843       (2,222 )   1993
Packer Way Distribution Center
  2         506       2,879       1,620       506       4,499       5,005       (2,753 )   1993
Spice Island Distribution Center
  1   (f)     435       2,466       2,323       435       4,789       5,224       (2,154 )   1996
Tahoe-Reno Industrial Center (d)
  1         3,281       -           23,029       3,281       23,029       26,310       (875 )   2007
Vista Industrial Park
  10   (e)     9,566       40,036       15,101       9,566       55,137       64,703       (17,947 )   1994, 1995, 2001
                                     
                                     
Total Reno, Nevada
  18         17,289       59,821       56,836       18,765       115,181       133,946       (31,742 )    
                                     
                                     


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PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
San Antonio, Texas
                                                                   
10711 Distribution Center
  2   (f)     582       3,301       1,947       582       5,248       5,830       (3,122 )   1994
City Park East Distribution Center (d)
  4         1,344       9,645       1,504       1,334       11,159       12,493       (1,197 )   2003, 2008
Coliseum Distribution Center
  1         428       -           4,986       465       4,949       5,414       (2,893 )   1994
Dist Drive Center
  1         473       2,680       1,231       473       3,911       4,384       (2,390 )   1992
Eisenhauer Distribution Center (d)
  1         836       884       3,170       474       4,416       4,890       (122 )   2007
Macro Distribution Center
  3   (f)     1,705       9,024       2,273       1,705       11,297       13,002       (2,017 )   2002
Perrin Creek Corporate Center
  1         288       -           1,295       206       1,377       1,583       (633 )   1996
Rittiman East Industrial Park
  7         5,902       23,746       254       5,902       24,000       29,902       (2,751 )   2006
Rittiman West Industrial Park
  2         1,237       4,950       373       1,230       5,330       6,560       (619 )   2006
San Antonio Distribution Center I
  9         1,589       9,028       6,633       1,589       15,661       17,250       (8,987 )   1992, 1993, 1994
San Antonio Distribution Center II
  3         945       -           6,560       885       6,620       7,505       (3,281 )   1994
San Antonio Distribution Center III
  3         969       4,913       3,214       973       8,123       9,096       (4,355 )   1996
Tri-County Distribution Center
  2   (e)     3,183       12,743       219       3,184       12,961       16,145       (945 )   2007
Woodlake Distribution Center
  2         248       1,405       1,230       248       2,635       2,883       (1,576 )   1994
                                     
                                     
Total San Antonio, Texas
  41         19,729       82,319       34,889       19,250       117,687       136,937       (34,888 )    
                                     
                                     
San Francisco (East Bay), California
                                                                   
Alvarado Business Center
  10         20,739       62,595       2,069       20,739       64,664       85,403       (9,373 )   2005
Eigenbrodt Way Distribution Center
  1   (e)     393       2,228       502       393       2,730       3,123       (1,511 )   1993
Hayward Commerce Center
  4         1,933       10,955       2,513       1,933       13,468       15,401       (7,106 )   1993
Hayward Distribution Center
  6   (e)     2,906       19,165       5,726       3,327       24,470       27,797       (13,297 )   1993
Hayward Industrial Center
  13   (e)     4,481       25,393       5,634       4,481       31,027       35,508       (17,064 )   1993
Livermore Distribution Center
  4         8,992       26,976       1,461       8,992       28,437       37,429       (4,248 )   2005
Oakland Industrial Center
  3         8,234       24,704       529       8,235       25,232       33,467       (3,681 )   2005
Regatta Business Park
  2   (e)     7,688       23,063       257       7,688       23,320       31,008       (3,351 )   2005
San Leandro Distribution Center
  3   (e)     1,387       7,862       2,217       1,387       10,079       11,466       (5,340 )   1993
                                     
                                     
Total San Francisco (East Bay), California
  46         56,753       202,941       20,908       57,175       223,427       280,602       (64,971 )    
                                     
                                     
San Francisco (South Bay), California
                                                                   
Bayside Corporate Center
  7   (g)     4,365       -           18,718       4,365       18,718       23,083       (9,663 )   1995, 1996
Bayside Plaza I
  12   (g)     5,212       18,008       4,845       5,216       22,849       28,065       (12,160 )   1993
Bayside Plaza II
  2   (g)     634       -           3,296       634       3,296       3,930       (1,955 )   1994
Gateway Corporate Center
  10   (g)     6,736       24,746       6,368       6,744       31,106       37,850       (16,841 )   1993
Mowry Business Center
  4         5,933       -           19,442       7,815       17,560       25,375       (7,490 )   1997, 1998


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PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
Overlook Distribution Center
  1   (f)     1,573       8,915       96       1,573       9,011       10,584       (3,227 )   1999
Pacific Commons Industrial Center
  6   (g)     27,568       82,855       1,932       27,591       84,764       112,355       (12,094 )   2005
Pacific Industrial Center
  6   (e)     21,676       65,083       1,957       21,675       67,041       88,716       (9,688 )   2005
Shoreline Business Center
  8   (g)     4,328       16,101       3,179       4,328       19,280       23,608       (9,809 )   1993
Spinnaker Business Center
  12   (g)     7,043       25,220       5,576       7,043       30,796       37,839       (16,521 )   1993
Thornton Business Center
  4         2,047       11,706       1,726       2,066       13,413       15,479       (6,990 )   1993
                                     
                                     
Total San Francisco (South Bay), California
  72         87,115       252,634       67,135       89,050       317,834       406,884       (106,438 )    
                                     
                                     
Seattle, Washington
                                                                   
ProLogis Park SeaTac (d)
  2   (e)     12,230       14,170       2,079       12,457       16,022       28,479       (167 )   2008
                                     
                                     
Total Seattle, Washington
  2         12,230       14,170       2,079       12,457       16,022       28,479       (167 )    
                                     
                                     
South Florida
                                                                   
Airport West Distribution Center
  2   (e)     1,253       3,825       3,303       1,974       6,407       8,381       (2,612 )   1995, 1998
Boca Distribution Center
  1         1,474       5,918       217       1,474       6,135       7,609       (719 )   2006
CenterPort Distribution Center
  3         2,083       11,806       954       2,083       12,760       14,843       (4,795 )   1999
Copans Distribution Center
  2         504       2,857       492       504       3,349       3,853       (1,422 )   1997, 1998
Dade Distribution Center
  1         2,589       14,670       300       2,589       14,970       17,559       (2,216 )   2005
North Andrews Distribution Center
  1         698       3,956       101       698       4,057       4,755       (2,060 )   1994
Pompano Beach Distribution Center (d)
  3         11,101       15,137       2,283       11,035       17,486       28,521       (97 )   2008
Port Lauderdale Distribution Center
  2   (e)     896       -           8,071       2,205       6,762       8,967       (2,554 )   1997
ProLogis Park I-595
  2   (e)     1,998       11,326       482       1,999       11,807       13,806       (2,704 )   2003
Sawgrass Distribution Center (d)
  2         10,016       -           13,368       10,016       13,368       23,384       -         2009
                                     
                                     
Total South Florida
  19         32,612       69,495       29,571       34,577       97,101       131,678       (19,179 )    
                                     
                                     
St. Louis, Missouri
                                                                   
Earth City Industrial Center
  5         2,225       12,820       4,470       2,226       17,289       19,515       (8,079 )   1997, 1998
Westport Distribution Center
  1         366       1,247       1,987       365       3,235       3,600       (1,304 )   1997
                                     
                                     
Total St. Louis, Missouri
  6         2,591       14,067       6,457       2,591       20,524       23,115       (9,383 )    
                                     
                                     
Tampa, Florida
                                                                   
Adamo Distribution Center
  6   (f)     2,105       11,930       2,387       2,105       14,317       16,422       (4,615 )   1995, 2001
Commerce Park Distribution Center
  4         811       4,597       1,476       811       6,073       6,884       (3,494 )   1994
Eastwood Distribution Center
  1         122       690       96       122       786       908       (397 )   1994
Lakeland Distribution Center
  1         938       5,313       1,326       938       6,639       7,577       (3,516 )   1994
Madison Distribution Center
  1         -           5,313       287       3,188       2,412       5,600       (75 )   2007


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PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Orchid Lake Industrial Center
  1         41       235       61       41       296       337       (142 )   1994
                                                                     
Plant City Distribution Center
  1         206       1,169       241       206       1,410       1,616       (761 )   1994
                                                                     
Sabal Park Distribution Center
  8   (e)     3,180       -           26,443       3,516       26,107       29,623       (9,114 )   1996, 1997, 1998, 2002
                                                                     
Silo Bend Distribution Center
  4         2,887       16,358       3,574       2,887       19,932       22,819       (10,553 )   1994
                                                                     
Silo Bend Industrial Center
  1         525       2,975       899       525       3,874       4,399       (1,954 )   1994
                                                                     
Tampa East Distribution Center
  9         2,627       14,835       2,773       2,468       17,767       20,235       (9,552 )   1994
                                                                     
Tampa East Industrial Center
  1         303       1,513       909       303       2,422       2,725       (1,127 )   1994
                                                                     
Tampa West Distribution Center
  11         2,874       16,128       3,670       2,919       19,753       22,672       (10,593 )   1994, 1995
                                                                     
Tampa West Industrial Center
  3         346       -           6,033       635       5,744       6,379       (2,418 )   1996, 1998
                                     
                                     
                                                                     
Total Tampa, Florida
  52         16,965       81,056       50,175       20,664       127,532       148,196       (58,311 )    
                                     
                                     
                                                                     
Washington D.C./Baltimore, Maryland
                                                                   
                                                                     
1901 Park 100 Drive
  1         2,409       7,227       846       2,409       8,073       10,482       (930 )   2006
                                                                     
7616 Canton Center Dr
  1         1,521       4,528       7       1,521       4,535       6,056       (372 )   2007
                                                                     
Airport Commons Distribution Center
  2   (e)     2,320       -           8,987       2,360       8,947       11,307       (3,039 )   1997
                                                                     
Ardmore Distribution Center
  3         1,431       8,110       1,723       1,431       9,833       11,264       (5,289 )   1994
                                                                     
Ardmore Industrial Center
  2         984       5,581       1,305       985       6,885       7,870       (3,841 )   1994
                                                                     
Corcorde Industrial Center
  4   (e)     1,538       8,717       3,167       1,538       11,884       13,422       (6,227 )   1995
                                                                     
DeSoto Business Park
  6         2,709       12,892       7,416       2,710       20,307       23,017       (7,015 )   1996, 2007
                                                                     
Gateway Distribution Center
  2         192       -           4,612       831       3,973       4,804       (1,342 )   1998
                                                                     
Hickory Ridge Distribution Center
  2         15,988       47,964       842       15,988       48,806       64,794       (6,861 )   2005
                                                                     
Meadowridge Distribution Center
  1   (e)     1,757       -           6,076       1,902       5,931       7,833       (2,039 )   1998
                                                                     
Patapsco Distribution Center
  1         270       1,528       1,054       270       2,582       2,852       (1,228 )   1995
                                                                     
ProLogis Park Edgewood
  1         4,244       12,732       5,606       4,244       18,338       22,582       (3,389 )   2005
                                                                     
White Oak Distribution Center
  1         3,986       24,107       1,445       3,986       25,552       29,538       (4,950 )   2002
                                                                     
Winchester Distribution Center
  1         3,286       13,141       -           3,286       13,141       16,427       (1,880 )   2005
                                     
                                     
                                                                     
Total Washington D.C./Baltimore, Maryland
  28         42,635       146,527       43,086       43,461       188,787       232,248       (48,402 )    
                                     
                                     
                                                                     
Other
                                                                   
                                                                     
Shawnee Distribution Center
  1         2,859       11,431       3       2,858       11,435       14,293       (1,636 )   2005
                                                                     
Valley Industrial Center
  1         363       -           4,731       363       4,731       5,094       (1,620 )   1997
                                     
                                     
                                                                     
Total Other
  2         3,222       11,431       4,734       3,221       16,166       19,387       (3,256 )    
                                     
                                     


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PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Mexico:
                                                                   
                                                                     
Guadalajara
                                                                   
                                                                     
El Salto Distribution Center (d)
  2         4,473       6,159       1,151       4,449       7,334       11,783       (82 )   2008
                                     
                                     
                                                                     
Total Guadalajara, Mexico
  2         4,473       6,159       1,151       4,449       7,334       11,783       (82 )    
                                     
                                     
                                                                     
Juarez
                                                                   
                                                                     
Bermudez Industrial Center
  2         1,155       4,619       3,463       1,158       8,079       9,237       (787 )   2007
                                                                     
Centro Industrial Center (d)
  3         8,274       -           13,288       8,274       13,288       21,562       (43 )   2009
                                                                     
Del Norte Industrial Center II (d)
  2         1,523       5,729       729       1,512       6,469       7,981       (85 )   2008
                                                                     
Ramon Rivera Lara Industrial Center
  1         445       -           4,030       2,269       2,206       4,475       (541 )   2000
                                     
                                     
                                                                     
Total Juarez, Mexico
  8         11,397       10,348       21,510       13,213       30,042       43,255       (1,456 )    
                                     
                                     
                                                                     
Mexico City
                                                                   
                                                                     
Cedros-Tepotzotlan Distribution Center (d)
  2         11,990       6,719       14,039       12,799       19,949       32,748       (1,381 )   2006, 2007
                                                                     
Nor-T Distribution Center
  4         7,247       32,135       2,673       5,898       36,157       42,055       (4,049 )   2006
                                                                     
Puente Grande Distribution Center (d)
  2         14,975       6,813       10,513       14,945       17,356       32,301       (377 )   2008, 2009
                                                                     
Toluca Distribution Center (d)
  1         7,952       -           12,934       7,952       12,934       20,886       (45 )   2009
                                     
                                     
                                                                     
Total Mexico City, Mexico
  9         42,164       45,667       40,159       41,594       86,396       127,990       (5,852 )    
                                     
                                     
                                                                     
Monterrey
                                                                   
                                                                     
Monterrey Airport (d)
  3         9,263       12,878       7,580       9,218       20,503       29,721       (614 )   2007, 2008
                                                                     
Monterrey Industrial Park
  1         272       -           2,032       277       2,027       2,304       (863 )   1997
                                     
                                     
                                                                     
Total Monterrey, Mexico
  4         9,535       12,878       9,612       9,495       22,530       32,025       (1,477 )    
                                     
                                     
                                                                     
Reynosa
                                                                   
                                                                     
El Puente Industrial Center (d)
  2         1,906       5,823       1,280       1,889       7,120       9,009       (128 )   2008
                                                                     
Pharr Bridge Industrial Center (d)
  2         3,947       3,682       9,049       3,936       12,742       16,678       (123 )   2008, 2009
                                     
                                     
                                                                     
Total Reynosa, Mexico
  4         5,853       9,505       10,329       5,825       19,862       25,687       (251 )    
                                     
                                     
                                                                     
Tijuana
                                                                   
                                                                     
ProLogis Park Alamar (d)
  3         20,540       17,081       (2,835 )     20,536       14,250       34,786       (390 )   2008
                                     
                                     
                                                                     
Total Tijuana, Mexico
  3         20,540       17,081       (2,835 )     20,536       14,250       34,786       (390 )    
                                     
                                     


145


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PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
Canada:
                                                                   
Toronto
                                                                   
Bolton Distribution Center (d)
  1         9,189       -           23,661       9,189       23,661       32,850       -         2009
Mississauga Gateway Center (d)
  1         1,512       6,320       2,853       2,638       8,047       10,685       (149 )   2008
                                     
                                     
Total Toronto, Canada
  2         10,701       6,320       26,514       11,827       31,708       43,535       (149 )    
                                     
                                     
Subtotal North American Markets
  1,086         1,752,946       4,975,087       1,687,705       1,842,363       6,573,375       8,415,738       (1,592,018 )    
                                     
                                     
European Markets
                                                                   
Czech Republic:
                                                                   
Ostrava Distribution Center (d)
  2         7,993       57,501       2,374       10,478       57,390       67,868       (658 )   2008
Stenovice Distribution Center (d)
  3         4,222       32,424       17,456       4,685       49,417       54,102       (308 )   2008, 2009
Uzice Distribution Center (d)
  3         8,838       -           62,858       8,938       62,758       71,696       (725 )   2007, 2009
                                     
                                     
Total Czech Republic
  8         21,053       89,925       82,688       24,101       169,565       193,666       (1,691 )    
                                     
                                     
France:
                                                                   
Avignon Distribution Center (d)
  1         3,405       24,084       (2,024 )     3,280       22,185       25,465       (393 )   2008
Isle d’Abeau Distribution Center
  1         12,792       20,230       9,120       9,038       33,104       42,142       (3,885 )   2006
Le Havre Distribution Center (d)
  1         540       -           17,349       540       17,349       17,889       -         2009
Macon Distribution Center (d)
  1         2,065       -           27,063       3,280       25,848       29,128       (1,554 )   2006
Moissy Cramayel Distribution Center (d)
  1         -           6,161       -           -           6,161       6,161       (96 )   2009
Rennes Distribution Center (d)
  1         616       -           13,197       616       13,197       13,813       -         2009
Strasbourg Distribution Center (d)
  2         67       30,427       (905 )     -           29,589       29,589       (584 )   2008
Vemars Distribution Center (d)
  4         13,944       -           54,333       13,944       54,333       68,277       -         2009
                                     
                                     
Total France
  12         33,429       80,902       118,133       30,698       201,766       232,464       (6,512 )    
                                     
                                     
Germany:
                                                                   
Alzenau Distribution Center (d)
  1         4,618       9,832       (996 )     4,505       8,949       13,454       (149 )   2008
Augsburg Distribution Center (d)
  2         9,218       -           20,574       9,218       20,574       29,792       -         2009
Billbrook Hamburg Distribution Center (d)
  1         6,908       -           13,267       6,908       13,267       20,175       (207 )   2009
Cologne Eifeltor Distribution Center (d)
  1         3,040       12,585       360       3,286       12,699       15,985       (13 )   2008
Heilbronn Distribution Center (d)
  3         13,765       -           41,415       13,765       41,415       55,180       (93 )   2009
Herford Distribution Center (d)
  2         2,643       -           12,274       2,643       12,274       14,917       -         2009
Kolleda Distribution Center (d)
  1         289       4,306       10       291       4,314       4,605       (67 )   2008
Meerane Distribution Center (d)
  1         830       5,714       166       810       5,900       6,710       -         2008
Weilerswist Distribution Center (d)
  1         2,403       6,685       104       2,338       6,854       9,192       (78 )   2008
                                     
                                     
Total Germany
  13         43,714       39,122       87,174       43,764       126,246       170,010       (607 )    
                                     
                                     


146


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Hungary:
                                                                   
                                                                     
Batta Distribution Center (d)
  1         2,497       15,829       227       4,762       13,791       18,553       (43 )   2008
                                                                     
Budapest Park Phase II (d)
  1         952       21,215       (2,906 )     4,693       14,568       19,261       (390 )   2008
                                                                     
Budapest-Sziget Dist. Center (d)
  1         2,763       9,500       168       3,057       9,374       12,431       (49 )   2008
                                                                     
Hegyeshalom Distribution Center (d)
  1         965       -           12,482       1,154       12,293       13,447       (496 )   2007
                                     
                                     
                                                                     
Total Hungary
  4         7,177       46,544       9,971       13,666       50,026       63,692       (978 )    
                                     
                                     
                                                                     
Italy:
                                                                   
                                                                     
Lodi Distribution Center
  2         7,996       35,613       7,332       13,063       37,878       50,941       (4,624 )   2005, 2006
                                                                     
Romentino Distribution Center (d)
  2         3,758       -           32,706       3,975       32,489       36,464       (2,337 )   2006
                                     
                                     
                                                                     
Total Italy
  4         11,754       35,613       40,038       17,038       70,367       87,405       (6,961 )    
                                     
                                     
                                                                     
Netherlands:
                                                                   
                                                                     
Venlo Dist. Center. (d)
  1         3,494       11,126       511       3,649       11,482       15,131       (132 )   2008
                                     
                                     
                                                                     
Total Netherlands
  1         3,494       11,126       511       3,649       11,482       15,131       (132 )    
                                     
                                     
                                                                     
Poland:
                                                                   
                                                                     
Bedzin Distribution Center (d)
  2         4,279       -           9,326       4,279       9,326       13,605       (95 )   2009
                                                                     
Blonie II Distribution Center (d)
  2         7,317       -           23,111       7,317       23,111       30,428       -         2009
                                                                     
Chorzow Distribution Center (d)
  2         18,009       -           42,001       18,009       42,001       60,010       (99 )   2009
                                                                     
Janki Distribution Center (d)
  1         2,348       12,497       (456 )     3,229       11,160       14,389       (174 )   2008
                                                                     
Nadarzyn Distribution Center (d)
  1         2,960       -           8,358       2,960       8,358       11,318       -         2009
                                                                     
Piotrkow Distribution Center (d)
  2         1,006       9,764       436       2,723       8,483       11,206       (62 )   2008
                                                                     
Piotrkow II Distribution Center (d)
  1         1,861       -           6,507       1,861       6,507       8,368       -         2009
                                                                     
Poznan II Distribution Center (d)
  1         5,554       -           4,608       1,769       8,393       10,162       (270 )   2007
                                                                     
ProLogis Park Rawa (d)
  1         3,151       -           10,979       3,151       10,979       14,130       -         2009
                                                                     
Sochaczew Distribution Center. (d)
  2         144       12,782       1,884       858       13,952       14,810       (189 )   2008
                                                                     
Szczecin Distribution Center (d)
  1         3,430       21,344       1,473       4,055       22,192       26,247       (115 )   2008
                                                                     
Warsaw II Distribution Center (d)
  1         2,114       -           11,399       3,218       10,295       13,513       (91 )   2008
                                                                     
Wroclaw Distribution Center (d)
  2         3,839       33,390       1,000       6,531       31,698       38,229       (306 )   2008
                                                                     
Wroclaw III Distribution Center (d)
  2         7,033       -           33,072       7,033       33,072       40,105       -         2009
                                     
                                     
                                                                     
Total Poland
  21         63,045       89,777       153,698       66,993       239,527       306,520       (1,401 )    
                                     
                                     


147


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
                                                                     
Romania:
                                                                   
                                                                     
Bucharest Distribution Center (d)
  4         7,592       33,188       16,085       10,346       46,519       56,865       (1,717 )   2007, 2008
                                     
                                     
                                                                     
Total Romania
  4         7,592       33,188       16,085       10,346       46,519       56,865       (1,717 )    
                                     
                                     
                                                                     
Slovakia:
                                                                   
                                                                     
Bratislava Distribution Center (d)
  3         6,280       45,922       15,522       6,162       61,562       67,724       (3,787 )   2007, 2008
                                                                     
Sered Distribution Center (d)
  1         2,864       -           15,073       2,864       15,073       17,937       -         2009
                                     
                                     
                                                                     
Total Slovakia
  4         9,144       45,922       30,595       9,026       76,635       85,661       (3,787 )    
                                     
                                     
                                                                     
Spain:
                                                                   
                                                                     
Massalaves Distribution Center (d)
  1         3,051       -           10,373       3,051       10,373       13,424       -         2009
                                                                     
Sallent Distribution Center (d)
  1         10,146       -           6,480       10,146       6,480       16,626       -         2009
                                                                     
Tarancon Distribution Center (d)
  1         4,146       18,319       1,201       4,020       19,646       23,666       (184 )   2008
                                     
                                     
                                                                     
Total Spain
  3         17,343       18,319       18,054       17,217       36,499       53,716       (184 )    
                                     
                                     
                                                                     
Sweden:
                                                                   
                                                                     
Jonkoping Distribution Center (d)
  1         2,392       -           57,025       2,392       57,025       59,417       -         2009
                                     
                                     
                                                                     
Total Sweden
  1         2,392       -           57,025       2,392       57,025       59,417       -          
                                     
                                     
                                                                     
United Kingdom:
                                                                   
                                                                     
Coventry Distribution Center (d)
  1         4,322       -           7,476       3,497       8,301       11,798       (249 )   2007
                                                                     
Crewe Distribution Center (d)
  1         11,478       19,049       2,499       11,963       21,063       33,026       (241 )   2008
                                                                     
Hayes Distribution Center (d)
  2         9,755       -           35,410       30,109       15,056       45,165       (689 )   2007
                                                                     
Houghton Main Distribution Center (d)
  1         8,993       -           26,155       7,387       27,761       35,148       (1,388 )   2006
                                                                     
Midpoint Park (d)
  2         29,189       30,098       (2,659 )     30,465       26,163       56,628       (62 )   2008
                                                                     
North Kettering Bus Pk (d)
  2         22,367       -           25,997       17,937       30,427       48,364       (1,265 )   2007
                                                                     
Peterborough Dist. Center. (d)
  1         6,554       -           13,848       5,861       14,541       20,402       (409 )   2007
                                                                     
Pineham Distribution Center (d)
  2         18,368       29,767       5,422       22,478       31,079       53,557       (351 )   2008
                                                                     
Stafford Distribution Center (d)
  1         10,765       -           10,915       7,845       13,835       21,680       (530 )   2007
                                     
                                     
                                                                     
Total United Kingdom
  13         121,791       78,914       125,063       137,542       188,226       325,768       (5,184 )    
                                     
                                     
                                                                     
Subtotal European Markets
  88         341,928       569,352       739,035       376,432       1,273,883       1,650,315       (29,154 )    
                                     
                                     
                                                                     
Asian Markets
                                                                   
                                                                     
Japan:
                                                                   
                                                                     
Chiba Distribution Center (d)
  1   (e)     29,647       56,727       (45 )     28,881       57,448       86,329       (1,352 )   2008
                                                                     
Iwanuma I Land (d)
  1         6,377       38,225       1,989       6,155       40,436       46,591       (258 )   2008


148


Table of Contents

 
PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
Kitanagoya Distribution Center (d)
  1         28,163       -           57,127       28,163       57,127       85,290       -         2009
ProLogis Park Aichi Distribution Center (d)
  1         26,362       -           88,239       31,955       82,646       114,601       (3,295 )   2007
ProLogis Park Ichikawa (d)
  1         91,315       165,709       3,959       88,976       172,007       260,983       (1,108 )   2008
ProLogis Park Ichikawa II (d)
  1         61,553       -           114,901       61,553       114,901       176,454       -         2009
ProLogis Park Maishima III (d)
  1         25,124       98,516       (628 )     24,363       98,649       123,012       (2,066 )   2008
ProLogis Park Narita III (d)
  1         24,527       86,956       1,327       23,805       89,005       112,810       (1,114 )   2008
ProLogis Park Osaka II (d)
  1   (e)     30,630       -           178,173       37,128       171,675       208,803       (7,042 )   2007
Zama Distribution Center (d)
  1         59,798       -           159,979       59,798       159,979       219,777       -         2009
                                     
                                     
Total Japan
  10         383,496       446,133       605,021       390,777       1,043,873       1,434,650       (16,235 )    
                                     
                                     
Korea:
                                                                   
ProLogis Park Deokpyung
  1         5,062       6,364       1,974       4,074       9,326       13,400       (1,177 )   2006
ProLogis Park Namyangju (d)
  1         4,140       -           10,951       4,140       10,951       15,091       (157 )   2009
ProLogis Park Okcheon (d)
  1         819       2,349       467       927       2,708       3,635       (96 )   2008
ProLogis Park Yongin
  1   (e)     8,871       2,221       1,580       7,176       5,496       12,672       (441 )   2007
                                     
                                     
Total Korea
  4         18,892       10,934       14,972       16,317       28,481       44,798       (1,871 )    
                                     
                                     
Subtotal Asian Markets
  14         402,388       457,067       619,993       407,094       1,072,354       1,479,448       (18,106 )    
                                     
                                     
Total Industrial Operating Properties
  1,188         2,497,262       6,001,506       3,046,733       2,625,889       8,919,612       11,545,501       (1,639,278 )    
                                     
                                     
Retail and Office operating properties
                                                                   
Chicago, Illinois
                                                                   
Glenview Office Center
  1         -           -           7,859       1,313       6,546       7,859       (711 )   2005
                                     
                                     
Total Chicago, Illinois
  1         -           -           7,859       1,313       6,546       7,859       (711 )    
                                     
                                     
Denver, Colorado Airport Way
  1         2,284       -           28,945       2,284       28,945       31,229       -         2009
                                     
                                     
Total Denver, Colorado
  1         2,284       -           28,945       2,284       28,945       31,229       -          
                                     
                                     
Los Angeles / Orange County, California
                                                                   
Newport Retail Center
  1         4,478       10,450       (10,072 )     4,478       378       4,856       (1,121 )   2005
Woodland Retail Center
  3         10,376       24,208       393       10,375       24,602       34,977       (2,658 )   2005
                                     
                                     
Total Los Angeles / Orange County, California
  4         14,854       34,658       (9,679 )     14,853       24,980       39,833       (3,779 )    
                                     
                                     
San Francisco (East Bay), California
                                                                   
EB Bridge Shopping Center
  8   (g)     23,042       81,693       502       23,042       82,195       105,237       (10,307 )   2005
Granada Shopping Center
  1         2,604       9,232       408       2,604       9,640       12,244       (1,002 )   2005
                                     
                                     
Total San Francisco (East Bay), California
  9         25,646       90,925       910       25,646       91,835       117,481       (11,309 )    
                                     
                                     


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PROLOGIS
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2009
(In thousands of U.S. dollars, as applicable)
 
                                                                     
            Initial Cost to
    Costs
                             
            ProLogis     Capitalized
    Gross Amounts At Which Carried as of December 31, 2009     Accumulated
    Date of
    No. of
  Encum-
        Building &
    Subsequent
          Building &
          Depreciation
    Construction/
Description
 
Bldgs.
 
brances
 
Land
   
Improvements
   
To Acquisition
   
Land
   
Improvements
   
Total (a,b)
   
(c)
   
Acquisition
 
San Francisco (South Bay), California
                                                                   
Pacific Commons Retail
  14         28,144       64,829       1,663       30,415       64,221       94,636       (8,867 )   2005, 2006, 2008
                                     
                                     
Total San Francisco (South Bay), California
  14         28,144       64,829       1,663       30,415       64,221       94,636       (8,867 )    
                                     
                                     
Total Retail Operating Properties
  29         70,928       190,412       29,698       74,511       216,527       291,038       (24,666 )    
                                     
                                     
Total Operating Properties
  1,217         2,568,190       6,191,918       3,076,431       2,700,400       9,136,139       11,836,539       (1,663,944 )    
                                     
                                     
Properties Under Development
                                                                   
North American Markets:
                                                                   
United States
                                                                   
Inland Empire, California
                                                                   
Crossroads Business Park
  1         17,212       -           1,517       17,212       1,517       18,729       -         2009
                                     
                                     
Total Inland Empire, California
  1         17,212       -           1,517       17,212       1,517       18,729       -          
                                     
                                     
Subtotal North American Markets
  1         17,212       -           1,517       17,212       1,517       18,729       -          
                                     
                                     
European Markets:
                                                                   
Netherlands
                                                                   
Oosterhout Distribution Center
  1         16,367       -           17,169       16,367       17,169       33,536       -         2009
                                     
                                     
Total Netherlands
  1         16,367       -           17,169       16,367       17,169       33,536       -          
                                     
                                     
Spain
                                                                   
Zaragoza Distribution Center
  1         24,402       -           22,339       24,402       22,339       46,741       -         2009
                                     
                                     
Total Spain
  1         24,402       -           22,339       24,402       22,339       46,741       -          
                                     
                                     
United Kingdom
                                                                   
Co-op Prologis M8 - Scotland
  1         7,530       -           3,788       7,530       3,788       11,318       -         2009
                                     
                                     
Total United Kingdom
  1         7,530       -           3,788       7,530       3,788       11,318       -          
                                     
                                     
Subtotal European Markets
  3         48,299       -           43,296       48,299       43,296       91,595       -          
                                     
                                     
Asian Markets:
                                                                   
Japan
                                                                   
Ebina Distribution Center
  1         55,446       -           25,357       55,446       25,357       80,803       -         2009
                                     
                                     
Total Japan
  1         55,446       -           25,357       55,446       25,357       80,803       -          
                                     
                                     
Subtotal Asian Markets
  1         55,446       -           25,357       55,446       25,357       80,803       -          
                                     
                                     
Total Properties Under Development
  5         120,957       -           70,170       120,957       70,170       191,127       -          
                                     
                                     
GRAND TOTAL
  1,222         2,689,147       6,191,918       3,146,601       2,821,357       9,206,309       12,027,666       (1,663,944 )    
                                     
                                     
 


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PROLOGIS
SCHEDULE III CONSOLIDATED REAL ESTATE
AND ACCUMULATED DEPRECIATION (Continued)
 
(a)  Reconciliation of real estate assets per Schedule III to our Consolidated Balance Sheet as of December 31, 2009 (in thousands):
 
         
Total per Schedule III
  $ 12,027,666  
Land held for development
    2,569,343  
Land subject to ground leases and other
    385,222 (e)(g)
Other investments
    233,665  
         
Total per consolidated balance sheet
  $   15,215,896 (h)
         
 
(b)  The aggregate cost for Federal tax purposes at December 31, 2009 of our real estate assets was approximately $12,197,275,000
 
(c)  Real estate assets (excluding land balances) are depreciated over their estimated useful lives. These useful lives are generally 7 years for capital improvements, 10 years for standard tenant improvements, 30 years for acquired industrial properties, 40 years for office and retail properties acquired and 40 years for properties we develop.
 
Reconciliation of accumulated depreciation per Schedule III to our Consolidated Balance Sheets as of December 31, 2009 (in thousands):
 
         
Total accumulated depreciation per Schedule III
  $  1,663,944  
Accumulated depreciation on other investments
    7,156  
         
Total per Consolidated Balance Sheet
  $ 1,671,100  
         
 
(d)  Total industrial properties include 163 properties developed in the completed development portfolio aggregating 50.6 million square feet at a total investment of $4.1 billion. See “Item 1. Business - Operating Segments - Direct Owned”.
 
(e)  Properties with an aggregate undepreciated cost of $2,643,037,300 secure $1,090,126,300 of mortgage notes. See Note 9 to our Consolidated Financial Statements in Item 8.
 
(f)  Properties with an aggregate undepreciated cost of $277,268,800 serve as collateral for a loan of the ProLogis American Industrial Fund II. See Note 6 to our Consolidated Financial Statements in Item 8.
 
(g)  Assessment bonds of $24,715,300 are secured by assessments (similar to property taxes) on various underlying real estate properties with an aggregate undepreciated cost of $953,045,100. See Note 9 to our Consolidated Financial Statements in Item 8.
 
(h)  A summary of activity for our real estate assets and accumulated depreciation for the years ended December 31 (in thousands):
 
                         
    2009     2008     2007  
 
Real estate assets:
                       
Balance at beginning of year
  $ 12,496,292     $ 13,370,979     $ 11,615,735  
Acquisitions of operating properties, transfers of development completions from CIP and improvements to operating properties
    1,857,947       4,154,685       5,437,923  
Basis of operating properties disposed of
    (1,145,256 )     (3,993,178 )     (4,693,606 )
Change in properties under development balance
    (990,217 )     (807,025 )     1,023,527  
Impairment of real estate properties (1)
    (191,100 )     (36,942 )     (12,600 )
Assets transferred to held-for-sale
    -           (192,227 )     -      
                         
Balance at end of year
  $  12,027,666     $  12,496,292     $  13,370,979  
                         
Accumulated Depreciation:
                       
Balance at beginning of year
  $ 1,581,672     $ 1,366,637     $ 1,278,693  
Depreciation expense
    276,400       261,614       211,887  
Balances retired upon disposition of operating properties
    (194,128 )     (40,326 )     (123,943 )
Assets transferred to held-for-sale
    -           (6,253 )     -      
                         
Balance at end of year
  $ 1,663,944     $ 1,581,672     $ 1,366,637  
                         
 
 
(1) The impairment charges relating to real estate properties that we recognized during 2009 and 2008 were based primarily on valuations of real estate, which had declined due to market conditions, that we no longer expected to hold for long term investment. The 2007 impairment charge related to a portfolio of buildings we had decided to sell. See Note 14 to our Consolidated Financial Statements in Item 8 for more information related to our impairment charges.
 


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PROLOGIS
 
  By: 
/s/  WALTER C. RAKOWICH
Walter C. Rakowich
Chief Executive Officer and Trustee
 
Date: February 26, 2010
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
             
Signature
 
Title
 
Date
 
         
/s/  WALTER C. RAKOWICH

Walter C. Rakowich
  Chief Executive Officer and Trustee   February 26, 2010
         
/s/  WILLIAM E. SULLIVAN

William E. Sullivan
  Chief Financial Officer   February 26, 2010
         
/s/  JEFFREY S. FINNIN

Jeffrey S. Finnin
  Chief Accounting Officer   February 26, 2010
         
/s/  STEPHEN L. FEINBERG

Stephen L. Feinberg
  Chairman of the Board of Trustees   February 26, 2010
         
/s/  GEORGE L. FOTIADES

George L. Fotiades
  Trustee   February 26, 2010
         
/s/  CHRISTINE N. GARVEY

Christine N. Garvey
  Trustee   February 26, 2010
         
/s/  LAWRENCE V. JACKSON

Lawrence V. Jackson
  Trustee   February 26, 2010
         
/s/  DONALD P. JACOBS

Donald P. Jacobs
  Trustee   February 26, 2010
         
/s/  IRVING F. LYONS III

Irving F. Lyons III
  Trustee   February 26, 2010
         
/s/  D. MICHAEL STEUERT

D. Michael Steuert
  Trustee   February 26, 2010


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Signature
 
Title
 
Date
 
         
/s/  J. ANDRÉ TEIXEIRA

J. André Teixeira
  Trustee   February 26, 2010
         
/s/  WILLIAM D. ZOLLARS

William D. Zollars
  Trustee   February 26, 2010
         
/s/  ANDREA M. ZULBERTI

Andrea M. Zulberti
  Trustee   February 26, 2010


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Certain of the following documents are filed herewith. Certain other of the following documents that have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
 
             
Exhibit
       
Number
     
Description
 
  1 .1     Sales Agreement dates February 27, 2007, between ProLogis and Cantor Fitzgerald & Co. (incorporated by reference to exhibit 1.1 to ProLogis’ Form 10-K for the year ended December 31, 2006).
  1 .2     Equity Distribution Agreement, dated June 2, 2009, between ProLogis and Citigroup Global Markets Inc. (incorporated by reference to exhibit 1.1 to ProLogis’ Form 8-K filed on June 2, 2009).
  3 .1     Articles of Amendment and Restatement of Declaration of Trust of ProLogis (incorporated by reference to exhibit 4.1 to ProLogis’ Form 10-Q for the quarter ended June 30, 1999).
  3 .2     Certificate of Amendment, dated as of May 22, 2002, to Amended and Restated of Declaration of Trust of ProLogis (incorporated by reference to exhibit 99.1 to ProLogis’ Form 8-K dated May 30, 2002).
  3 .3     Articles of Amendment to Amended and Restated Declaration of Trust of ProLogis dated as of May 19, 2005 (incorporated by reference to exhibit 3.1 to ProLogis’ Form 8-K filed on May 20, 2005).
  3 .4     Articles of Amendment to Amended and Restated Declaration of Trust of ProLogis dated as of July 12, 2005 (incorporated by reference to exhibit 3.1 to ProLogis’ Form 8-K filed on July 13, 2005).
  3 .5     Articles of Amendment to Amended and Restated Declaration of Trust of ProLogis dated as of February 27, 2009 (incorporated by reference to exhibit 3.5 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  3 .6     Amended and Restated Bylaws of ProLogis dated as of March 15, 2005 (incorporated by reference to exhibit 3.1 to ProLogis’ Form 8-K filed on March 21, 2005).
  3 .7     Amendment to Amended and Restated Bylaws, dated as of March 15, 2006 (incorporated by reference to exhibit 3.1 to ProLogis’ Form 8-K filed on March 17, 2006).
  3 .8     Amendment to Amended and Restated Bylaws, dated as of December 9, 2008 (incorporated by reference to exhibit 3.1 to ProLogis’ Form 8-K filed on December 12, 2008).
  3 .9     Articles Supplementary Classifying and Designating the Series F Cumulative Redeemable Preferred Shares of Beneficial Interest (incorporated by reference to exhibit 4.2 to ProLogis’ Form 8-K dated December 24, 2003).
  3 .10     Articles Supplementary Classifying and Designating the Series G Cumulative Redeemable Preferred Shares of Beneficial Interest (incorporated by reference to exhibit 4.3 to ProLogis’ Form 8-K dated December 24, 2003).
  3 .11     Articles Supplementary Reclassifying and Designating Shares of Beneficial Interest of ProLogis as Common Shares of Beneficial Interest (incorporated by reference to exhibit 3.2 to ProLogis’ Form 8-K filed on July 13, 2005).
  4 .1     Form of share certificate for common shares of Beneficial Interest of ProLogis (incorporated by reference to exhibit 4.4 to ProLogis’ registration statement No. 33-73382).
  4 .2     Form of share certificate for Series C Cumulative Redeemable Preferred Shares of Beneficial Interest of ProLogis (incorporated by reference to exhibit 4.8 to ProLogis’ Form 10-K for the year ended December 31, 1996).
  4 .3     Form of share certificate for Series F Cumulative Redeemable Preferred Shares of Beneficial Interest of ProLogis (incorporated by reference to exhibit 4.1 to ProLogis’ Form 8-K dated November 26, 2003).
  4 .4     Form of share certificate for Series G Cumulative Redeemable Preferred Shares of Beneficial Interest of ProLogis (incorporated by reference to exhibit 4.1 to ProLogis’ Form 8-K dated December 24, 2003).


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  4 .5     ProLogis Trust Employee Share Purchase Plan, as amended and restated (incorporated by reference to exhibit 4.27 to ProLogis’ Form S-8, dated September 27, 2001).
  4 .6     Indenture, dated as of March 1, 1995, between ProLogis and State Street Bank and Trust Company, as Trustee (incorporated by reference to Exhibit 4.9 to ProLogis’ Form 10-K for the year ended December 31, 1994).
  4 .7     First Supplemental Indenture, dated as of February 9, 2005, by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to exhibit 4.1 to ProLogis’ Form 8-K dated February 9, 2005).
  4 .8     Second Supplemental Indenture dated as of November 2, 2005 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to Exhibit 4.1 to ProLogis’ Form 8-K filed on November 4, 2005).
  4 .9     Third Supplemental Indenture dated as of November 2, 2005 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to Exhibit 4.2 to ProLogis’ Form 8-K filed on November 4, 2005).
  4 .10     Fourth Supplemental Indenture dated as of March 26, 2007 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to exhibit 4.1 to ProLogis’ form 8-K filed on March 26, 2007).
  4 .11     Fifth Supplemental Indenture dated as of November 8, 2007 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to exhibit 4.1 to ProLogis’ form 8-K filed on November 7, 2007).
  4 .12     Sixth Supplemental Indenture dated as of May 7, 2008 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to exhibit 4.1 to ProLogis’ form 10-Q for the quarter ended June 30, 2008).
  4 .13     Seventh Supplemental Indenture dated as of May 7, 2008 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to exhibit 4.2 to ProLogis’ form 10-Q for the quarter ended June 30, 2008).
  4 .14     Eighth Supplemental Indenture dated as of August 14, 2009 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to exhibit 4.1 to ProLogis’ form 8-K filed on August 14, 2009).
  4 .15     Ninth Supplemental Indenture dated as of October 1, 2009 by and between ProLogis and U.S. Bank National Association, as Trustee (as successor in interest to State Street Bank and Trust Company) (incorporated by reference to exhibit 4.1 to ProLogis’ form 8-K filed on October 2, 2009).
  4 .17     9.34% Note due March 1, 2015 (incorporated by reference to exhibit 4.8 to ProLogis’ Form 10-K for the year ended December 31, 1994).
  4 .18     7.875% Note due May 15, 2009 (incorporated by reference to exhibit 4.4 to ProLogis’ Form 8-K dated May 9, 1995).
  4 .19     8.65% Note due May 15, 2016 (incorporated by reference to exhibit 4.3 to ProLogis’ Form 10-Q for the quarter ended June 30, 1996).
  4 .20     7.81% Medium-Term Notes, Series A, due February 1, 2015 (incorporated by reference to exhibit 4.17 to ProLogis’ Form 10-K for the year ended December 31, 1996).
  4 .21     7.625% Note due July 1, 2017 (incorporated by reference to exhibit 4 to ProLogis’ Form 8-K dated July 11, 1997).
  4 .22     Form of 5.50% Promissory Note due March 1, 2013 (incorporated by reference to exhibit 4.26 to ProLogis’ Form10-K for the year ended December 31, 2002).


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  4 .23     Form of 2.25% Convertible Notes due 2037 (incorporated by reference to exhibit 10.3 to ProLogis’ 10-Q for the quarter ended March 31, 2007).
  4 .24       7.625% Note due August 15, 2014 (incorporated by reference to exhibit 4.3 to ProLogis’ Form 8-K filed on August 14, 2009).
  4 .25       7.375% Note due October 30, 2019 (incorporated by reference to exhibit 4.2 to ProLogis’ Form 8-K filed on October 30, 2009).
  4 .26       7.375% Note due October 30, 2019 (incorporated by reference to exhibit 4.3 to ProLogis’ Form 8-K filed on October 30, 2009).
  10 .1     Agreement of Limited Partnership of ProLogis Limited Partnership-I, dated as of December 22, 1993, by and among ProLogis, as general partner, and the limited partners set forth therein (incorporated by reference to exhibit 10.4 to ProLogis’ Registration Statement No. 33-73382).
  10 .2     Agreement of Limited Partnership of Meridian Realty Partners, L.P. (incorporated by reference to exhibit 99.1 to ProLogis’ Registration Statement No. 333-86081).
  10 .3     Amended and Restated Agreement of Limited Partnership of ProLogis Fraser, L.P. dated as of August 4, 2004 (incorporated by reference to exhibit 10.1 to ProLogis’ Form 10-Q for the quarter ended September 30, 2004).
  10 .4     Form of Indemnification Agreement entered into between ProLogis and its Trustees and executive officers (incorporated by reference to exhibit 10.16 to ProLogis’ Registration Statement No. 33-73382).
  10 .5     Indemnification Agreement between ProLogis and each of its independent Trustees (incorporated by reference to exhibit 10.16 to ProLogis’ Form 10-K for the year ended December 31, 1995).
  10 .6     Declaration of Trust for the benefit of ProLogis’ independent Trustees (incorporated by reference to exhibit 10.17 to ProLogis’ Form 10-K for the year ended December 31, 1995).
  10 .7     Amended and Restated Security Agency Agreement dated as of October 6, 2005, among Bank of America, N.A., as global administrative agent under the Global Senior Credit Agreement referred to therein, certain other creditors of ProLogis and Bank of America, N.A., as collateral agent (incorporated by reference to Exhibit 10.2 to ProLogis’ Form 8-K filed on November 4, 2005).
  10 .8       Amendment and Supplement No 1 dated as of August 21, 2009 to the Amended And Restated Security Agency Agreement dated as of October 6, 2005 among Bank of America, N.A., as Global Administrative Agent on behalf of the Global Lenders defined therein, certain Other Creditors of ProLogis and Bank of America, as Collateral Agent (incorporated by reference to Exhibit 10.2 to ProLogis Form 8-K filed on August 26, 2009).
  10 .9       Third Amendment to Global Senior Credit Agreement dated as of August 21, 2009 among ProLogis and certain affiliate borrowers, as borrowers, Bank of America, N.A., as Global Administrative Agent, Collateral Agent, U.S. Funding Agent, U.S. Swing Line Lender, and a U.S. L/C Issuer, Bank of America, N.A., acting through its Canada branch, as Canadian Funding Agent and a Canadian L/C Issuer, ABN Amro Bank N.V., as Euro Funding Agent, Euro Swing Line Lender, and a Euro L/C issuer, Sumitomo Mitsui Banking Corporation, as a Global Co-Syndication Agent, Yen Funding Agent, KRW Funding Agent, and a Yen L/C Issuer, The Royal Bank of Scotland plc and JPMorgan Chase Bank, N.A., as Global Co-Syndication Agents, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to ProLogis Form 8-K filed on August 26, 2009).
  10 .10     1999 Dividend Reinvestment and Share Purchase Plan (incorporated by reference to the Prospectus filed January 5, 2007 pursuant to Rule 424(b)(3) with respect to Registration Statement No. 333-102166).
  10 .11*     ProLogis 2000 Share Option Plan for Outside Trustees (as Amended and Restated Effective as of December 31, 2009) (incorporated by reference to exhibit 10.13 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .12*     ProLogis Trust 1997 Long-Term Incentive Plan (as Amended and Restated Effective as of September 26, 2002 (incorporated by reference to exhibit 10.1 to ProLogis’ Form 8-K dated February 19, 2003).


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  10 .13*     ProLogis 2006 Long-Term Incentive Plan (incorporated by reference to exhibit 10.2 to ProLogis’ Form 8-K filed on June 2, 2006).
  10 .14*     ProLogis Nonqualified Savings Plan (as Amended and Restated effective as of December 31, 2009) (incorporated by reference to exhibit 10.16 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .15*     ProLogis Executive Deferred Compensation Plan (effective as of December 31, 2009) (incorporated by reference to exhibit 10.17 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .16*     ProLogis Deferred Fee Plan for Trustees (as Amended and Restated as of December 31, 2009) (incorporated by reference to exhibit 10.18 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .17*     Third Amended and Restated Employment Agreement, dated January 7, 2009, entered into between ProLogis and Walter C. Rakowich (incorporated by reference to exhibit 10.19 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .18*     Amended and Restated Employment Agreement, effective as of December 31, 2009, entered into between ProLogis and Ted R. Antenucci (incorporated by reference to exhibit 10.20 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .19*     Form of Executive Protection Agreements entered into between ProLogis and Edward S. Nekritz and William E. Sullivan, effective as of December 31, 2009 (incorporated by reference to exhibit 10.23 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .20*     Executive Protection Agreement entered into between ProLogis and Gary E. Anderson, effective as of December 31, 2009 (incorporated by reference to exhibit 10.24 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .21*     Advisory Agreement, dated May 15, 2007, entered into between ProLogis and K. Dane Brooksher (incorporated by reference to exhibit 10.1 to ProLogis’ Form 10-Q for the quarter ended June 30, 2007). [TBD whether material]
  10 .22     Master Implementation Agreement, dated December 23, 2008, entered into between ProLogis and Reco China Logistics Pte Ltd, relating to the sale and purchase of ProLogis’ interest in: (i) PRC Holdco; (ii) the Japan Trusts; (iii) Master Lessees; (iv) Barbados Managementco; (v) HK Managementco; (vi) Barbados Targetcos; (vii) Targetco (each as defined therein) (incorporated by reference to exhibit 10.29 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .23     Supplemental Agreement, dated February 9, 2009, entered into between ProLogis and Reco China Logistics Pte Ltd (incorporated by reference to exhibit 10.30 to ProLogis’ Form 10-K for the year ended December 31, 2008).
  10 .24     Transfer and Registration rights Agreement, dated as of December 22, 1993, among ProLogis and the persons set forth therein (incorporated by reference to exhibit 10.10 to ProLogis’ registration statement no. 33-73382)
  10 .25       Form of Non Qualified Share Option Award Terms; ProLogis 2006 Long-Term Incentive Plan
  10 .26       Form of Restricted Share Award Terms; ProLogis 2006 Long-Term Incentive Plan
  10 .27       Form of Performance Share Award Terms; ProLogis 2006 Long-Term Incentive Plan
  12 .1     Statement re: Computation of Ratio of Earnings to Fixed Charges.
  12 .2     Statement re: Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividends.
  21 .1     Subsidiaries of ProLogis.
  23 .1     Consent of KPMG LLP.
  31 .1     Certification of Chief Executive Officer.
  31 .2     Certification of Chief Financial Officer.


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  32 .1     Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  99 .1     Registration Rights Agreement dated February 9, 2007, between ProLogis and each of the parties identified therein (incorporated by reference to exhibit 99.10 to ProLogis’ Form 10-K for the year ended December 31, 2006).
  101       The following materials from ProLogis’ Annual Report on Form 10-K for the year ended December 31, 2009 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Equity (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements, tagged as blocks of text.
 
* Management Contract or Compensatory Plan or Arrangement


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