UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

or

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

For the transition period from             to             

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

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)

Maryland (Prologis, Inc.) Delaware (Prologis, L.P.)	94-3281941 (Prologis, Inc.) 94-3285362 (Prologis, L.P.)
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Pier 1, Bay 1, San Francisco, California	94111
(Address or principal executive offices)	(Zip Code)

(415) 394-9000

(Registrant’s telephone number, including area code)

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

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

AMB Property Corporation

AMB Property, L.P.

	Title of Each Class	Name of Each Exchange on Which Registered
Prologis, Inc.	Common Stock, $.01 par value	New York Stock Exchange
Prologis, Inc.	6.50% Series L Cumulative Redeemable Preferred Stock	New York Stock Exchange
Prologis, Inc.	6.75% Series M Cumulative Redeemable Preferred Stock	New York Stock Exchange
Prologis, Inc.	7.00% Series O Cumulative Redeemable Preferred Stock	New York Stock Exchange
Prologis, Inc.	6.85% Series P Cumulative Redeemable Preferred Stock	New York Stock Exchange
Prologis, Inc.	6.75% Series R Cumulative Redeemable Preferred Stock	New York Stock Exchange
Prologis, Inc.	6.75% Series S Cumulative Redeemable Preferred Stock	New York Stock Exchange
Prologis, L.P.	None	None

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

Prologis, Inc. - NONE

Prologis, L.P. - NONE

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

Prologis, Inc.: Yes þ No ¨            Prologis, L.P.: Yes þ No ¨

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

Prologis, Inc.: Yes ¨ No þ            Prologis, L.P.: Yes ¨ 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. Prologis, Inc.: Yes þ No ¨    Prologis, L.P.: Yes þ No ¨

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). Prologis, Inc.: Yes þ No ¨    Prologis, L.P.: Yes þ No ¨

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. ¨

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):

Prologis, Inc.:	þ    Large accelerated filer	¨    Accelerated filer
	¨    Non-accelerated filer (do not check if a smaller reporting company)	¨    Smaller reporting company

Prologis, L.P.:	¨    Large accelerated filer	¨    Accelerated filer
	þ    Non-accelerated filer (do not check if a smaller reporting company)	¨    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).

Prologis, Inc.: Yes ¨ No þ            Prologis, L.P.: Yes ¨ No þ

Based on the closing price of Prologis, Inc.’s common stock on June 30, 2012, the aggregate market value of the voting common equity held by non-affiliates of Prologis, Inc. was $15,163,537,027.

The number of shares of Prologis, Inc.’s common stock outstanding as of February 22, 2013 was approximately 462,807,491.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Part III of this report are incorporated by reference to the registrant’s definitive proxy statement for the 2013 annual meeting of its stockholders or will be provided in an amendment filed on Form 10-K/A.

EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2012 of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company”, “Prologis”, “we,” “our” or “us” means Prologis, Inc. and the Operating Partnership collectively.

Prologis, Inc. is a real estate investment trust (a “REIT”) and the general partner of the Operating Partnership. As of December 31, 2012, Prologis, Inc. owned an approximate 99.59% common general partnership interest in the Operating Partnership and 100% of the preferred units in the Operating Partnership. The remaining approximate 0.41% common limited partnership interests are owned by non-affiliated investors and certain current and former directors and officers of Prologis, Inc. As the sole general partner of the Operating Partnership, Prologis, Inc. has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.

We operate Prologis, Inc. and the Operating Partnership as one enterprise. The management of Prologis, Inc. consists of the same members as the management of the Operating Partnership. These members are officers of Prologis, Inc. and employees of the Operating Partnership or one of its direct or indirect subsidiaries. As general partner with control of the Operating Partnership, Prologis, Inc. consolidates the Operating Partnership for financial reporting purposes, and Prologis, Inc. does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of Prologis, Inc. and the Operating Partnership are the same on their respective financial statements.

We believe combining the annual reports on Form 10-K of Prologis, Inc. and the Operating Partnership into this single report results in the following benefits:

• enhances investors’ understanding of Prologis, Inc. and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

• eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company’s disclosure applies to both Prologis, Inc. and the Operating Partnership; and

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

We believe it is important to understand the few differences between Prologis, Inc. and the Operating Partnership in the context of how we operate as an interrelated consolidated company. Prologis, Inc.’s only material asset is its ownership of partnership interests in the Operating Partnership. As a result, Prologis, Inc. does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. Prologis, Inc. itself does not issue any indebtedness, but guarantees the unsecured debt of the Operating Partnership. The Operating Partnership holds substantially all the assets of the business, directly or indirectly, and holds the ownership interests in the Company’s investment in certain entities. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by Prologis, Inc., which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the business through the Operating Partnership’s operations, its incurrence of indebtedness and the issuance of partnership units to third parties.

Noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of Prologis, Inc. and those of the Operating Partnership. The noncontrolling interests in the Operating Partnership’s financial statements include the interests in consolidated entities not owned by the Operating Partnership. The noncontrolling interests in Prologis, Inc.’s financial statements include the same noncontrolling interests at the Operating Partnership level, as well as the common limited partnership interests in the Operating Partnership, which are accounted for as partners’ capital by the Operating Partnership.

In order to highlight the differences between Prologis, Inc. and the Operating Partnership, there are separate sections in this report, as applicable, that separately discuss Prologis, Inc. and the Operating Partnership including separate financial statements, controls and procedures sections, and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of Prologis, Inc. and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of Prologis.

TABLE OF CONTENTS

Item	Description	Page
	PART I
1.	Business		4
	The Company		4
	Investment Strategy		5
	Business Strategy		5
	Our Operating Segments		6
	Management’s Overview		6
	Code of Ethics and Business Conduct		7
	Environmental Matters		7
	Insurance Coverage		8
1A.	Risk Factors		8
1B.	Unresolved Staff Comments		16
2.	Properties		16
	Geographic Distribution		16
	Unconsolidated Co-Investment Ventures		19
3.	Legal Proceedings		19
4.	Mine Safety Disclosures		19
	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19
	Market Information and Holders		19
	Dividends		20
	Securities Authorized for Issuance Under Equity Compensation Plans		21
	Other Stockholder Matters		21
6.	Selected Financial Data		22
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
	Management’s Overview		24
	Results of Operations		27
	Portfolio Information		32
	Environmental Matters		35
	Liquidity and Capital Resources		35
	Off-Balance Sheet Arrangements		39
	Contractual Obligations		39
	Critical Accounting Policies		40
	New Accounting Pronouncements		42
	Funds from Operations		42
7A.	Quantitative and Qualitative Disclosure About Market Risk		45
8.	Financial Statements and Supplementary Data		46
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		46
9A.	Controls and Procedures		46
9B.	Other Information		47
	PART III
10.	Directors, Executive Officers and Corporate Governance		47
11.	Executive Compensation		48
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		48
13.	Certain Relationships and Related Transactions, and Director Independence		48
14.	Principal Accounting Fees and Services		48
	PART IV
15.	Exhibits, Financial Statement Schedules		48

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

PART I

ITEM 1. Business

The Company

We are the leading global owner, operator and developer of industrial real estate, focused on global and regional markets across the Americas, Europe and Asia. As of December 31, 2012, on an owned and managed basis, we had properties and development projects totaling 554 million square feet (51.5 million square meters) in 21 countries. These properties are leased to approximately 4,500 customers, including third-party logistics providers, manufacturers, retailers, transportation companies, and other enterprises.

Of the 554 million square feet of our owned and managed portfolio as of December 31, 2012:

• 522 million square feet were in our operating portfolio with a gross book value of $40.1 billion that were 94.0% occupied;

• 22 million square feet were in our development portfolio with a total expected investment of $2.1 billion that were 50.8% leased;

• 10 million square feet consisted of properties in which we have an ownership interest but do not manage and other properties we own, including assets held for sale; and

• the largest customer and 25 largest customers accounted for 2.0% and 18.7%, respectively, of the annualized base rent.

Prologis, Inc. commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), and believes the current organization and method of operation will enable Prologis, Inc. to maintain its status as a REIT. The Operating Partnership was also formed in 1997.

We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with private capital investors and provide asset and property management services to these entities. We refer to these entities as co-investment ventures. Our ownership interest in these entities generally ranges from 15-50%. These entities may be consolidated or unconsolidated, depending on the structure, our partner’s participating and other rights and our level of control of the entity. The co-investment ventures may have one or more investors. We also have investments in joint ventures, generally with one partner and that we do not manage. We refer to our investments in the entities accounted for on the equity method, both unconsolidated co-investment ventures and joint ventures, as unconsolidated entities.

Our global headquarters are located at Pier 1, Bay 1, San Francisco, California 94111 and our global operational headquarters are located at 4545 Airport Way, Denver, Colorado 80239. Our other principal office locations are in Amsterdam, the Grand Duchy of Luxembourg, Mexico City, Shanghai, Singapore and Tokyo.

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. The common stock of Prologis, Inc. is listed on the New York Stock Exchange (“NYSE”) under the ticker “PLD” and is a component of the S&P 500.

Merger of AMB and ProLogis and Acquisition of PEPR

On June 3, 2011, AMB Property Corporation (“AMB”) completed a merger with ProLogis, a Maryland REIT (“ProLogis”) in which ProLogis shareholders received 0.4464 of a share of common stock of AMB for each outstanding common share of beneficial interest in ProLogis (the “Merger”). In the Merger, AMB was the legal acquirer and ProLogis was the accounting acquirer. Following the Merger, AMB changed its

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name to Prologis, Inc. In May 2011, we also acquired a controlling interest in and began consolidating ProLogis European Properties (“PEPR”) (the “PEPR Acquisition”). Our results for 2011 reflect approximately seven months of the impact of the Merger and the PEPR Acquisition. Therefore, period to period comparisons may not be meaningful. See Note 3 to the Consolidated Financial Statements in Item 8 for more information relating to both the Merger and PEPR Acquisition.

Investment Strategy

We believe that gross domestic product (“GDP”) growth and growth in global trade are important drivers of demand for our product. Trade and GDP are correlated as higher levels of investment, production and consumption within a globalized economy are consistent with increased levels of imports and exports. As the world produces and consumes more, we believe that the volume of global trade will continue to increase at a rate in excess of growth in global GDP. Significant supply chain reconfiguration, obsolescence and customers’ preference to lease, rather than own, facilities also drive demand for quality distribution space.

Our investment strategy focuses on providing distribution and logistics space to customers whose businesses are tied to global trade and depend on the efficient movement of goods through the global supply chain to support global trade. We have a deep global presence with assets under management of $43.1 billion spanning 21 countries on four continents. Our properties are primarily located in two main market categories, global markets and regional markets. Global markets comprise approximately 30 of the largest markets tied to global trade. These markets feature large population centers with high per-capita consumption rates and are located near major airports, seaports and ground transportation systems. Similar to global markets, regional markets benefit from large population centers but typically are not as tied to the global supply chain and are often less supply constrained. We intend to primarily hold only the highest quality class-A product in global and regional markets. As of December 31, 2012, global and regional markets represented approximately 83% and 12%, respectively of our overall owned and managed platform (based on our share of net operating income of the properties). We also own a small number of assets in other markets, which account for approximately 5% of our owned and managed platform, and from which we generally plan to exit from in an orderly fashion in the next few years, although we may continue to opportunistically invest in other markets. Our portfolio allows us to have local market knowledge, construction expertise and a commitment to sustainable design. We are supported by a broad and diverse customer base, comprising relationships with multinational corporations that result in repeatable business.

Business Strategy

Our business strategy includes two operating segments: Real Estate Operations and Private Capital. We generate revenue, earnings, net operating income (calculated as rental income less rental expenses), funds from operations (or FFO as defined in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and cash flows through our segments primarily through three lines of business, as follows:

Real Estate Operations Segment

Rental Operations - This represents the primary source of our core revenue, earnings and FFO. We collect rent from our customers under operating leases, including reimbursements for the vast majority of our operating costs. We seek to generate long-term internal growth in rental income by maintaining a high occupancy rate at our properties, by controlling expenses and through contractual rent increases on existing space and renewals on rollover space, thus capitalizing on the economies of scale inherent in owning, operating and growing a large global portfolio. Our rental income is diversified due to both our global presence and our broad customer base. We expect to generate long-term internal growth in rents by increasing our occupancy rate and through rent increases on existing space and renewals on rollovers. We believe that our property management and leasing teams, regular maintenance programs, capital expenditure programs, energy management and sustainability programs create cost efficiencies, allowing us to leverage our global platform and provide flexible solutions for our customers as well as for us.

Capital Deployment Activities - Our development and re-development activities support our rental operations and are therefore included with that line of business for segment reporting. We develop and re-develop industrial properties primarily in global and regional markets to meet our customers’ needs. Within this line of business, we provide additional value creation by utilizing: (i) the land that we currently own in global and regional markets; (ii) the development expertise of our local personnel; (iii) our global customer relationships; and (iv) the demand for high quality distribution facilities in key markets. We seek to increase our rental income and the net asset value of the Company through the leasing of newly developed space, as well as through the acquisition of new properties. Depending on several factors, we may develop properties directly or in co-investment ventures for long-term hold, for contribution into one of our co-investment ventures, or for sale to third parties. Properties that we choose to contribute or sell may result in the recognition of gains or losses. Generally, in the United States, Europe and Japan we are developing directly while in emerging markets such as Brazil, China and Mexico we are developing with our private capital partners in a variety of co-investment ventures.

Private Capital Segment - We co-invest in properties with private capital investors through a variety of co-investment ventures. We have a direct and long-standing relationship with a significant number of institutional investors. We tailor industrial portfolios to investors’ specific needs and deploy capital in both close-ended and open-ended venture structures and other joint ventures, while providing complete portfolio management and financial reporting services. We generally own 15-50% in these ventures. We believe our co-investment in each of our ventures provides a strong alignment of interests with our co-investment partners’ interests. We generate revenues from our unconsolidated co-investment ventures by providing asset management and property management services. We may also earn revenues through additional services provided such as leasing, acquisition, construction, development, disposition, legal and tax services. Depending on the structure of the venture and the returns provided to our partners, we may also earn revenues through incentive returns or promotes. We believe our co-investment program with private capital investors will continue to serve as a source of capital for new investments and provide revenues for

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our stockholders, as well as mitigate risk associated with our foreign currency exposure. We expect to grow this business with the formation of new ventures, such as the two ventures discussed below under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and by raising additional third-party capital in our existing ventures.

Our Operating Segments

As discussed above, our current business strategy includes two operating segments: Real Estate Operations, which includes our Capital Deployment activities, and Private Capital. Please see “Item 1A Risk Factors”, our property information and market presence as presented in “Item 2. Properties”, a discussion of our segment results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our segment footnote – Note 22 to our Consolidated Financial Statements in Item 8 for more information with regard to the investments and results of operations of our segments.

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, which impacts both of our operating segments. To the extent we wish to acquire land for future development of properties in our Real Estate Operations segment or dispose of land, we may compete with local, regional, and national developers. We also face competition from investment managers for institutional capital within our Private Capital segment.

We believe we have competitive advantages due to (i) our ability to respond quickly to customers’ needs for high-quality distribution space in key global distribution markets; (ii) our established relationships with key customers served by our local personnel; (iii) our ability to leverage our organizational structure to provide a single point of contact for our global customers through our Global Customer Solutions team; (iv) our property management and leasing expertise; (v) our relationships and proven track record with current and prospective investors in our private capital business; (vi) our global experience in the development and management of industrial properties; (vii) the strategic locations of our land that we expect to develop; and (viii) our personnel who are experienced in the land entitlement process.

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, 2012, in our Real Estate Operations segment, we had 3,832 customers occupying 296.5 million square feet of distribution space. In the unconsolidated properties we manage, we had 2,703 customers occupying 195.9 million square feet of distribution space. In our Real Estate Operations segment, our largest customer and 25 largest customers accounted for 1.6% and 18.7%, respectively, of our annualized base rent at December 31, 2012.

Within our Global Customer Solutions team, we develop long-term relationships with our customers and understand their business and needs, serving as their strategic partner for real estate on a global basis. Keeping in close contact with customers and focusing on exceptional customer service sets us apart from other real estate providers as much more than a landlord. We believe that what we offer in terms of scope, scale and quality of assets is unique. Our in-depth knowledge of our markets helps us stay ahead of trends and create forward-thinking solutions for their distribution networks. This depth of customer knowledge results in greater retention and expanded service, which garners additional business from the same customer across multiple geographies. In our Real Estate Operations segment, approximately 50.0% of our annual base rent is derived from customers who lease from us in more than one location and more than one country.

In our Private Capital segment, we consider our private capital investors to be our customers. As of December 31, 2012, we partnered with 107 investors, several of which invest in multiple ventures.

Employees

We employ 1,445 persons in our entire organization. Our employees work in four countries in the Americas (875 persons), in 15 countries in Europe (385 persons) and in three countries in Asia (185 persons). Of the total, we have assigned 885 employees to our Real Estate Operations segment and 100 employees to our Private Capital segment. We have 460 employees who work in corporate and support 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.

Management’s Overview

At the time of the Merger, we established our key strategic priorities to guide our path through the end of 2013. These priorities were:

• to align our portfolio with our investment strategy while serving the needs of our customers;

• to strengthen our financial position and build one of the top balance sheets in the REIT industry;

• to streamline our private capital business and position it for substantial growth;

• to improve the utilization of our low yielding assets; and

• to build the most effective and efficient organization in the REIT industry and to become the employer of choice among top professionals interested in real estate as a career.

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Align our Portfolio with our Investment Strategy

As discussed above, we have categorized our portfolio into three main segments – global, regional and other markets. By segmenting our markets in this manner, we were able to construct a plan that includes culling the portfolio for buildings and potentially submarkets that are no longer a strategic fit. We expect to use the proceeds from dispositions to pay down debt that is secured by the disposed assets, if any, repay other debt and to recycle capital into new development projects and/or strategic acquisitions.

Strengthen our Financial Position

We intend to further strengthen our financial position by lowering our financial risk and currency exposure and building one of the strongest balance sheets in the REIT industry. We expect to lower our financial risk by reducing leverage and maintaining staggered debt maturities, which will increase our financial flexibility and provide for continued access to capital markets. This financial flexibility will position us to capitalize on market opportunities across the entire business cycle as they arise. We expect to reduce our exposure to foreign currency exchange fluctuations by borrowing in local currency where appropriate, and utilizing derivative contracts to hedge our foreign denominated equity and swap U.S. dollar–denominated debt into obligations denominated in foreign currencies. We expect to also lower our foreign currency risk by holding assets outside the United States primarily in co-investment ventures in which we maintain an ownership interest and provide services generating private capital revenue. We will accomplish this through contributions and sales to our existing and newly formed co-investment ventures, including the new ventures in Europe and Japan discussed below under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In addition, we expect that new development projects, particularly in those emerging markets such as Brazil, China and Mexico, will be done in conjunction with our private capital partners.

Streamline Private Capital Business

We are working with our private capital investors to rationalize certain of our co-investment ventures. Some of our legacy co-investment ventures have fee structures that do not adequately compensate us for the services we provide. Therefore, we have terminated or restructured certain of these co-investment ventures. In other cases, we may combine some co-investment ventures to gain operational efficiencies. In every case, however, we have and will continue to work very closely with our partners and venture investors who have been and will be active participants in these decisions. We expect to continue with these activities during 2013. We plan to grow our private capital business with the deployment of the private capital commitments we have already raised, formation of new co-investment ventures, including the new ventures in Europe and Japan, and raising incremental capital for our existing co-investment ventures.

Improve the Utilization of Our Low Yielding Assets

We plan to increase the value of our low yielding assets by stabilizing our operating portfolio to 95% leased, completing the build-out and lease-up of our development projects as well as monetizing our land through development or sale to third parties.

Build the most effective and efficient organization in the REIT industry and become the employer of choice among top professionals interested in real estate as a career

We realized more than $115 million of cost synergies on an annualized basis, compared to the combined expenses of AMB and ProLogis on a pre-Merger basis. These synergies included gross general and administrative savings, reduced global line of credit facility fees and lower amortization of non real estate assets. We will continue to look for and achieve additional savings opportunities. In addition, we implemented a new enterprise wide system that includes a property management/billing system (implemented in April 2012), a human resources system (implemented in July 2012), a general ledger and accounting system and a data warehouse (implemented in January 2013). In connection with this implementation, we are striving to utilize the most effective global business processes with the enhanced system functionality, and have also implemented several analytical tools to further empower and assist our regional and local teams. In early 2012, we implemented two new compensation plans that we believe will better align employees’ compensation to our company performance. We believe these efforts and others will help us with the attainment of this objective.

See “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our 2012 results and progress attaining the objectives outlined above.

Code of Ethics and Business Conduct

We maintain a Code of Ethics and Business Conduct applicable to our Board of Directors (“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, Pier 1, Bay 1, San Francisco, California 94111. Any amendments to or waivers of our Code of Ethics and Business Conduct that apply to the principal executive officer, the principal financial officer, 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.

Environmental Matters

We are exposed to various environmental risks that may result in unanticipated losses and affect our operating results and financial condition. Either the previous owners or we subjected a majority of the properties we have acquired, including land, to environmental reviews. While

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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 21 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 coverage includes property damage and rental loss insurance resulting from such perils as fire, additional perils as covered under an extended coverage policy, namely 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 revenues and earnings. See further discussion in “Item 1A. Risk Factors”.

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 value of our securities. These risks include, among others:

General

Disruptions in the Global Capital and Credit Markets may adversely affect our operating results and financial condition.

Global market and economic conditions have been challenging with tighter credit conditions and slower growth in most major economies during the last few years. Although signs of recovery are emerging, there are continued concerns about the systemic impact of inflation, the availability and cost of credit, a lagging real estate market and geopolitical issues that contribute to increased market volatility and uncertain expectations for the global economy. To the extent there is turmoil in the financial markets, it has the potential to materially affect the value of our properties and investments in our unconsolidated entities, the availability or the terms of financing that we and our unconsolidated entities have or may anticipate utilizing, our ability and that of our unconsolidated entities to make principal and interest payments on, or refinance any outstanding debt when due and may impact the ability of our customers to enter into new leasing transactions or satisfy rental payments under existing leases.

The market volatility over the last several years has made the valuation of our properties and those of our unconsolidated entities more difficult. There may be significant uncertainty in the valuation, or in the stability of the value, of our properties and those we invest in through unconsolidated entities, that could result in a decrease in the value of our properties and our investments in unconsolidated entities. As a result, we may not be able to recover the current carrying amount of our investments in real estate properties, including our unconsolidated entities, which may require us to recognize an impairment charge in earnings where it is known in addition to the charges we previously recognized.

Any additional, continued or recurring disruptions in the capital and credit markets may adversely affect our financial condition, results of operations, cash flow and ability to make distributions and payments to our security holders and the market price of our securities.

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

We conduct a significant portion of our business and employ a substantial number of people outside of the United States. During 2012, we generated approximately 41.8% or $838.6 million of our revenue from operations outside the United States. Circumstances and developments related to international operations that could negatively affect our business, financial condition, results of operations or cash flow include, but are not limited to, the following factors:

• difficulties and costs of staffing and managing international operations in certain regions;

• differing employment practices and labor issues;

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

• volatility in currencies;

• currency restrictions, which may prevent the transfer of capital and profits to the United States;

• unexpected changes in regulatory requirements and other laws;

• potentially adverse tax consequences;

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

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• the impact of regional or country-specific business cycles and economic instability;

• political instability, uncertainty over property rights, civil unrest, drug trafficking, political activism or the continuation or escalation of terrorist or gang activities (particularly with respect to our operations in Mexico);

• foreign ownership restrictions with respect to operations in countries; and

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

Our global growth also subjects us to certain risks, including risks associated with funding increasing headcount, integrating new offices, and establishing effective controls and procedures to regulate the operations of new offices and to monitor compliance with regulations such as the Foreign Corrupt Practices Act, the United Kingdom Bribery Act and similar laws.

Although we have committed substantial resources to expand our global 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-United States 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.

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 functional currency. At December 31, 2012, approximately 40.6% or $11.1 billion of our total assets are invested in a currency other than the U.S. dollar, primarily the British pound sterling, euro and Japanese yen. 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 financial position, debt covenant ratios, results of operations and cash flow. Although we attempt to mitigate adverse effects by borrowing under debt agreements denominated in foreign currencies and using derivative contracts, there can be no assurance that those attempts to mitigate foreign currency risk will be successful. Hedging arrangements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements and the risk of fluctuation in the relative value of the foreign currency. The funds required to settle such arrangements could be significant depending on the stability and movement of foreign currency. The failure to hedge effectively against exchange rate changes may materially adversely affect our results of operations and financial position.

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

Real estate investments are not as liquid as certain other types of investments and this lack of liquidity may limit our ability to react promptly to changes in economic or other conditions. In addition, significant expenditures associated with real estate investments, such as secured 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 Internal Revenue Code, we are only able to hold property for sale in the ordinary course of business through taxable REIT subsidiaries in order to not incur punitive taxation on any tax gain from the sale of such property. While we may dispose of certain properties that have been held for investment in order to generate liquidity, if we do not satisfy certain safe harbors or we believe there is too much risk of incurring the punitive tax on any tax gain from the sale, we may not pursue such sales.

In the event that we do not have sufficient cash available to us through our operations or available credit facilities to continue operating our business as usual, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, divesting ourselves of properties, whether or not they otherwise meet our strategic objectives to keep in the long term, at less than optimal terms, incurring debt, entering into leases with our customers at lower rental rates or less than optimal terms or entering into lease renewals with our existing customers without an increase in rental rates at turnover. There can be no assurance, however, that such alternative ways to increase our liquidity will be available to us. Additionally, taking such measures to increase our liquidity may adversely affect our financial condition, results of operations, cash flow, our ability to make distributions and payments to our security holders and the market price of our securities.

Risks Related to our Business

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

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

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As of December 31, 2012, approximately 25.1% of our consolidated operating properties or $5.7 billion (based on investment before depreciation) are located in California, which represented 20.5% of the aggregate square footage of our operating properties and 23.1% of our annualized base rent. Our revenue from, and the value of, our properties located in California may be affected by local real estate conditions (such as an oversupply of or reduced demand for industrial properties) and the local economic climate. Business layoffs, downsizing, industry slowdowns, changing demographics and other factors may adversely impact California’s economic climate. Because of the number of properties we have located in California, a downturn in California’s economy or real estate conditions could adversely affect our financial condition, results of operations, cash flow and ability to make distributions and payments to our security holders and the market price of our securities.

In addition to California, we also have significant holdings (defined as more than 3% of total investment before depreciation) in operating properties in certain global and regional markets located in Chicago, Dallas/Fort Worth, France, Japan, Mexico, New Jersey/New York City, South Florida and the United Kingdom. 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 demand for distribution space could adversely affect our results of operations, distributable cash flow and the value of our securities.

In addition, the unconsolidated entities in which we invest have concentrations of properties in the same markets mentioned above, as well as in markets in Germany, the Netherlands, Poland and Seattle are subject to the economic conditions in those markets.

A number of our properties are located in areas that are known to be subject to earthquake activity. United States properties located in active seismic areas include properties in the San Francisco Bay Area, Los Angeles, and Seattle. International properties located in active seismic areas include Japan and Mexico. We generally carry earthquake insurance on our properties located in areas historically subject to seismic activity, subject to coverage limitations and deductibles if we believe it is commercially reasonable. We evaluate our earthquake insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants and in some specific instances have elected to self insure our earthquake exposure based on this analysis. We have elected not to carry earthquake insurance for wholly owned assets in Japan based on this analysis.

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

Our insurance coverage does not include all potential losses.

We and our unconsolidated entities currently carry insurance coverage including property damage and rental loss insurance resulting from certain perils such as fire and additional perils as covered under an extended coverage policy, namely windstorm, flood, earthquake and terrorism; commercial general liability insurance; and environmental insurance, as appropriate for the markets where each of our properties and business operations are located. The insurance coverage contains policy specifications and insured limits customarily carried for similar properties, business activities and markets. We believe our properties and the properties of our unconsolidated entities 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 future revenues in these properties and could potentially remain obligated under any recourse debt associated with the property.

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

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

Investments in real estate properties are subject to varying degrees of risk. While we seek to minimize these risks through geographic diversification of our portfolio, market research and our 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;

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• increasing costs of rehabilitating, repositioning, renovating and making improvements to our 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.

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 operating results and distributable cash flow will depend on the continued generation of lease revenues from customers and we may be unable to lease vacant space or renew leases or re-lease space on favorable terms as leases expire.

Our operating results and distributable cash flow would be adversely affected if a significant number of our customers were unable to meet their lease obligations. 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 renovations or concessions to customers) may be less favorable to us than current lease terms. Our competitors may offer space at rental rates below current market rates or below the rental rates we currently charge our customers, we may lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers when our customers’ leases expire. In the event of default by a significant number of customers, we may experience delays and incur substantial costs in enforcing our rights as landlord, and may be unable to re-lease spaces. A customer may experience a downturn in its business, which may cause the loss of the customer or may weaken its financial condition, resulting in the customer’s failure to make rental payments when due or requiring a restructuring that might reduce cash flow from the lease. In addition, a customer may seek the protection of bankruptcy, insolvency or similar laws, which could result in the rejection and termination of such customer’s lease and thereby cause a reduction in our available cash flow.

If we decide to contribute or sell properties to an unconsolidated entity or third parties to generate proceeds, we may not be successful.

We may contribute or sell properties to certain of our unconsolidated entities or third parties on a case-by-case basis. Our ability to sell properties on advantageous terms is affected by competition from other owners of properties that are trying to dispose of their properties; market conditions, including the capitalization rates applicable to our properties; and other factors beyond our control. If our competitors sell assets similar to assets we intend to divest in the same markets and/or at valuations below our valuations for comparable assets, we may be unable to divest our assets at favorable pricing or on favorable terms or at all. The unconsolidated entity or third parties who might acquire our properties may need to have access to debt and equity capital, in the private and public markets, in order to acquire properties from us. Should they have limited or no access to capital on favorable terms, then dispositions could be delayed. If we are unable to generate proceeds through property sales we may have to delay our deleveraging plans, which may result in adverse effects on our liquidity, distributable cash flow, debt covenant ratio, and the market price 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. The acquisition of properties involves risks, including the risk that the acquired property will not perform as anticipated and that any actual costs for rehabilitation, repositioning, renovation and improvements identified in the pre-acquisition due diligence process will exceed estimates. When we acquire properties, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. Additionally, there is, and it is expected there will continue to be, significant competition for properties that meet our investment criteria as well as risks associated with obtaining financing for acquisition activities.

Our real estate development strategies may not be successful.

Our real estate development strategy is focused on monetizing land in the future through sales to third parties, development of industrial properties to hold for long-term investment or contribution or sale to an unconsolidated entity, depending on market conditions, our liquidity needs and other factors. We may expand investment in our development, renovation and redevelopment business and we will complete the build-out and leasing of our development platform. We may also develop, renovate and redevelop properties within existing or newly formed development co-investment ventures. The real estate development, renovation and redevelopment business involves significant risks that could adversely affect our financial condition, results of operations, cash flow and ability to make distributions and payments to our security holders and the market price of our securities, which include the following risks:

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

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

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

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

• the properties may perform below anticipated levels, producing cash flow below budgeted amounts;

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

• construction costs, total investment amounts and our share of remaining funding may exceed our estimates and projects may not be completed, delivered or stabilized as planned;

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

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

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

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

We are exposed to various environmental risks that may result in unanticipated losses that could affect our operating results, financial condition and cash flow.

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

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

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

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

As of December 31, 2012, we had an investment in real estate containing approximately 214.5 million square feet held through unconsolidated entities. Our organizational documents do not limit the amount of available funds that we may invest in unconsolidated entities, and we may and currently intend to develop and acquire properties through co-investment ventures and investments in other entities when warranted by the circumstances. However, there can be no assurance that we will be able to form new co-investment ventures, attract third party investment or make additional investments in new or existing co-investment ventures, successfully develop or acquire properties through unconsolidated entities, or realize value from such unconsolidated entities. Our inability to do so may have an adverse effect on our growth, our earnings and the market price of our securities.

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Our partners in our unconsolidated investments may share certain approval rights over major decisions and some partners may manage the properties in the unconsolidated entities. Our unconsolidated investments involve certain risks, including:

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

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

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

• our relationships with our partners are generally contractual in nature and may be terminated or dissolved under the terms of the agreements, and in such event, we may not continue to manage or invest in the assets underlying such relationships resulting in reduced fee revenue or causing a need to purchase such interest to continue ownership; and

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

We generally seek to maintain sufficient influence over our unconsolidated entities to permit us to achieve our business objectives; however, we may not be able to do so. We have formed publicly traded investment vehicles, like our publicly traded REIT in Japan, for which we serve as sponsor and/or manager. We have contributed, and may continue to contribute, assets into such vehicles. As with any of our publicly traded entities or funds, there is a risk that we may not be able to continue to manage such entities and their assets in the event that our managerial relationship is terminated.

The occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flow and ability to make distributions and payments to our security holders and the market price of our securities.

Contingent or unknown liabilities could adversely affect our financial condition.

We have acquired and may in the future acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of any of these entities or properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Contingent or unknown liabilities with respect to entities or properties acquired might include:

• liabilities for environmental conditions;

• losses in excess of our insured coverage;

• accrued but unpaid liabilities incurred in the ordinary course of business;

• tax, legal and regulatory liabilities; and

• claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of our properties.

Risks Related to Financing and Capital

We face risks associated with the use of debt to fund our business activities, including refinancing and interest rate risks, and 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 that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, 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 Global Senior Credit Agreement, Japanese yen-based credit agreement and certain other debt bears interest at variable rates. Increases in interest rates would increase our interest expense under these agreements. From time to time, we may enter into interest rate swap or cap agreements. Such hedging arrangements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. The funds required to settle any swap breakage arrangements, if any, could be significant depending on the size of underlying financing and the applicable interest rates at the time of breakage. The failure to hedge effectively against interest rate changes may materially adversely affect our results of operations and financial position. In addition, our unconsolidated entities may be unable to refinance indebtedness or meet payment obligations, which may impact our distributable cash flow and our financial condition and/or we may be required to recognize impairment charges of our investments.

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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 Global Senior Credit Agreement and Japanese yen-based credit agreement, the indentures under which our senior notes are issued and other note agreements, require us to comply with a number of customary financial covenants, such as maintaining debt service coverage, leverage ratios, fixed charge ratios and other operating covenants including maintaining insurance coverage. 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 the covenant provisions and are unable to cure the default, refinance the indebtedness or meet payment obligations, the amount of our distributable cash flow and our financial condition could be adversely affected.

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

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

We are dependent on external sources of capital.

In order to qualify as a REIT, we are required each year to distribute to our stockholders at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) and we may be subject to tax to the extent our income is not fully distributed. While historically we have satisfied these distribution requirements by making cash distributions to our stockholders, we may choose to satisfy these requirements by making distributions of cash or other property, including, in limited circumstances, our own stock. For distributions with respect to taxable years ending on or before December 31, 2012, and in some cases declared as late as December 31, 2013, the REIT can satisfy up to 90% of the distribution requirements discussed above through the distribution of shares of our stock if certain conditions are met. Assuming we continue to satisfy these distribution requirements with cash, we may not be able to fund all future capital needs, including acquisition and development activities, from cash retained from operations and may have to rely on third-party sources of capital. Further, in order to maintain our REIT status and not have to pay federal income and excise taxes, we may need to borrow funds on a short-term basis to meet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. Our ability to access debt and equity capital on favorable terms or at all is dependent upon a number of factors, including general market conditions, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of our securities.

Our stockholders may experience dilution if we issue additional common stock.

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

Federal Income Tax Risks

Our failure to qualify as a REIT would have serious adverse consequences.

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

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If we fail to qualify as a REIT in any taxable year, we will be required to pay federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate rates. Unless we are entitled to relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost the qualification. If we lost our REIT status, our net earnings would be significantly reduced for each of the years involved.

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

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

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

Legislative or regulatory action could adversely affect us.

In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax taws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future, and may impact our taxation or that of our stockholders.

Other Risks

Risks Associated with our Dependence on Key Personnel.

We depend on the efforts of our executive officers and other key employees. From time to time, our personnel and their roles may change. In connection with the completion of the Merger, there were changes to our personnel and their roles. While we believe that we have retained our key talent and have found suitable employees to meet our personnel needs, the loss of key personnel, any change in their roles, or the limitation of their availability could adversely affect our financial condition, results of operations, cash flow and ability to make distributions and payments to security holders and the market price of our securities. If we are unable to continue to attract and retain our executive officers, or if compensation costs required to attract and retain key employees become more expensive, our performance and competitive position could be materially adversely affected.

Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.

Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to comply with the Americans with Disabilities Act, including removing access barriers, then our cash flow and the amounts available to make distributions and payments to our security holders may be adversely affected. Our properties are also subject to various federal, state and local regulatory requirements, such as state and local fire and life-safety requirements. We could incur fines or private damage awards if we fail to comply with these requirements. While we believe that our properties are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us that will affect our cash flow and results of operations.

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 entities 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.

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

The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures

15

and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in the price of our securities, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.

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 ourselves 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 potential impacts to the supply chain and/or stricter energy efficiency standards for buildings.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

We are invested in real estate properties 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 distribution, storage, packaging, assembly and light manufacturing of consumer and industrial products. Based on the square footage of the operating properties included in our Real Estate Operations segment at December 31, 2012 (and discussed below), all of our properties are industrial properties; consisting of 92.8% used for bulk distribution, 4.7% used for light manufacturing and assembly, 1.0% used for flex industrial, 0.9% used for on-tarmac and 0.6% used for other purposes.

Geographic Distribution

Our investment strategy focuses on providing distribution and logistics space to customers whose businesses are tied to global trade and depend on the efficient movement of goods through the global supply chain. Our properties are primarily located in two main market types, global markets and regional markets. Global markets account for 84.7% of our consolidated operating properties (based on investment balance) and comprise approximately 30 of the largest and most liquid markets tied to global trade. These markets feature large population centers with high per-capita consumption rates and close proximity to airports, seaports and ground transportation systems. Regional markets account for 11.6% of our consolidated operating properties. Similar to global markets, regional markets benefit from large population centers but typically are not as tied to the global supply chain and are often less supply constrained.

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The information in the following tables is as of December 31, 2012 for our consolidated operating properties, properties in our development portfolio and land, including 157 buildings owned by entities we consolidate but of which we own less than 100%. All of these assets are included in our Real Estate Operations segment. This includes our 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, 2012 or generated income equal to 10% or more of our consolidated gross revenues for the year ended December 31, 2012. These tables do not include properties that are owned by unconsolidated entities.

Consolidated operating properties in the Real Estate Operations segment at December 31, 2012 (dollars and rentable square footage in thousands):	No. of Bldgs.		Percentage Occupied (1)			Rentable Square Footage		Investment Before Depreciation		Encumbrances (2)
Americas:
Global Markets:
United States:
Atlanta		78		86.0	%		10,472		$ 424,410		$ 75,335
Baltimore/Washington		41		94.6	%		4,492		299,283		35,188
Central & Eastern PA		11		97.8	%		5,309		285,152		69,977
Central Valley, CA		16		92.4	%		6,575		333,683		25,590
Chicago		154		91.8	%		25,890		1,469,246		222,846
Dallas/Fort Worth		114		96.0	%		17,633		774,282		161,134
Houston		57		98.7	%		6,015		271,037		55,036
New Jersey/New York City		109		94.3	%		14,187		1,070,086		184,581
San Francisco Bay Area		199		92.2	%		16,069		1,592,440		95,256
Seattle		26		97.5	%		3,386		317,331		14,292
South Florida		68		95.0	%		6,653		686,232		58,425
Southern California		227		98.4	%		42,215		3,740,092		495,623
On Tarmac		28		90.9	%		2,302		263,253		7,834
Canada		14		100.0	%		4,690		464,319		-
Mexico		85		92.6	%		13,969		770,367		196,335
Regional Markets - United States:
Cincinnati		17		97.8	%		3,387		116,234		44,907
Columbus		31		95.3	%		7,174		261,857		32,638
Denver		24		95.6	%		3,968		226,971		31,367
Indianapolis		22		93.3	%		2,614		94,862		41,079
Louisville		8		93.7	%		3,435		141,268		22,067
Memphis		13		99.8	%		5,236		170,873		9,091
Nashville		25		94.0	%		2,957		83,783		9,056
Orlando		26		88.5	%		3,141		190,981		-
San Antonio		29		95.5	%		3,759		159,485		19,526
Savannah		1		100.0	%		346		16,890		-
Other Markets - United States (11 Markets):		106		94.5	%		16,776		776,964		112,890
Subtotal Americas		1,529		94.7	%		232,650		15,001,381		2,020,073
Europe:
Global Markets:
Belgium		3		99.2	%		908		71,888		7,189
France		67		93.6	%		17,215		1,290,990		211,503
Germany		21		99.3	%		3,688		252,767		32,708
Netherlands		16		89.4	%		3,515		282,811		25,008
Poland		33		83.6	%		8,081		432,368		89,666
Spain		21		83.4	%		5,532		490,378		36,121
United Kingdom		39		96.4	%		7,666		745,172		171,244
Regional Markets:
Czech Republic		21		92.1	%		4,369		317,245		40,548
Hungary		19		87.0	%		3,178		178,597		6,550
Italy		23		85.3	%		7,400		466,725		78,513
Slovakia		1		100.0	%		287		16,947		-
Sweden		4		100.0	%		2,012		161,522		-
Other Markets (2 Markets)		5		96.1	%		1,276		64,139		-
Subtotal Europe		273		90.9	%		65,127		4,771,549		699,050
Asia:
Global Markets:
China		7		97.9	%		1,750		55,000		-
Japan		21		97.7	%		13,526		2,534,601		1,260,752
Singapore		5		100.0	%		942		149,669		-
Subtotal Asia		33		97.9	%		16,218		2,739,270		1,260,752
Total operating portfolio		1,835		94.1	%		313,995		$ 22,512,200		$ 3,979,875
Value added properties (5 Markets)		18		45.6	%		2,352		96,048		-
Total operating properties		1,853		93.7	%		316,347		$ 22,608,248		$ 3,979,875

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	Investment in Land				Development Portfolio
Consolidated land and development portfolio in the Real Estate Operations segment at December 31, 2012 (dollars and rentable square footage in thousands):	Acres		Investment		No. of Bldgs.		Percentage Leased (1)			Rentable Square Footage		Current Investment		Total Expected Investment (3)
Americas:
Global Markets:
United States:
Atlanta		616		$25,656		1		100.0	%		1,119		$20,539		$43,925
Baltimore/Washington		106		13,137		2		40.5	%		171		15,136		17,078
Central & Eastern PA		311		27,187		1		0	%		493		11,710		25,257
Central Valley		1,155		37,521		1		100.0	%		1,017		24,912		117,226
Chicago		567		49,233		-		-			-		-		-
Dallas/Ft. Worth		459		26,909		2		37.9	%		1,052		25,087		40,473
Houston		47		5,422		3		23.5	%		429		11,769		24,494
New Jersey/New York City		323		132,340		3		86.3	%		1,224		53,585		140,800
Seattle		-		-		1		0	%		241		5,547		16,995
South Florida		377		148,691		1		89.2	%		190		12,606		15,580
Southern California		882		184,053		2		0	%		1,215		58,400		74,995
Canada		183		62,451		2		0	%		910		53,502		107,351
Mexico		901		177,060		5		8.1	%		1,237		43,660		72,453
Regional Markets:
United States:
Central Florida		129		25,686		-		-			-		-		-
Cincinnati		15		1,480		-		-			-		-		-
Columbus		199		6,692		-		-			-		-		-
Denver		66		8,727		-		-			-		-		-
Indianapolis		127		4,474		-		-			-		-		-
Memphis		165		7,293		-		-			-		-		-
Savannah		229		13,097		-		-			-		-		-
Other Markets - United States (8 Markets)		488		39,052		1		0	%		486		9,730		22,694
Subtotal Americas		7,345		996,161		25		41.2	%		9,784		346,183		719,321
Europe:
Global Markets:
Belgium		30		10,363		-		-			-		-		-
France		503		89,911		3		48.4	%		769		37,924		55,543
Germany		116		22,405		-		-			-		-		-
Netherlands		68		67,839		-		-			-		-		-
Poland		775		96,606		3		100.0	%		466		11,375		25,420
Spain		100		15,717		-		-			-		-		-
United Kingdom		987		257,055		3		100.0	%		698		36,968		76,575
Regional Markets:
Czech Republic		247		40,530		-		-			-		-		-
Hungary		338		38,111		-		-			-		-		-
Italy		107		32,840		-		-			-		-		-
Slovakia		95		16,915		1		0.5	%		260		13,057		14,648
Other markets (2 Markets)		119		21,381		-		-			-		-		-
Subtotal Europe		3,485		709,673		10		70.1	%		2,193		99,324		172,186
Asia:
Global Markets:
China		18		8,459		3		77.0	%		568		5,373		22,913
Japan		67		80,071		7		79.2	%		5,456		500,763		804,534
Subtotal Asia		85		88,530		10		79.0	%		6,024		506,136		827,447
Total land and development portfolio		10,915		$    1,794,364		45		57.4	%		18,001		$    951,643		$  1,718,954

The following is a summary of our investment in consolidated real estate properties at December 31, 2012:

	Investment Before Depreciation (in thousands)
Industrial operating properties	$	22,608,248
Development portfolio, including cost of land		951,643
Land		1,794,364
Other real estate investments (4)		454,868
Total	$	25,809,123

(1) Represents the percentage occupied for our operating properties and the percentage leased for the properties in the development portfolio at December 31, 2012. Operating properties at December 31, 2012 include development properties completed more than one year ago that may be in the initial lease-up phase, which reduces the overall leased percentage.

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(2) Certain properties are pledged as security under our secured mortgage debt and assessment bonds at December 31, 2012. 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 a $44.3 million of encumbrances related to other real estate properties not included in the Real Estate Operations 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) Represents the total expected investment when the property under development is completed and leased. This includes the cost of land, development and leasing costs.

(4) Included in other investments are: (i) certain non-industrial real estate; (ii) our corporate office buildings; (iii) land parcels that are ground leased to third parties; (iv) certain infrastructure costs related to projects we are developing on behalf of others; (v) restricted funds that are held in escrow pending the completion of tax-deferred exchange transactions involving operating properties; (vi) costs related to future development projects, including purchase options on land; and (vii) earnest money deposits associated with potential acquisitions.

In December 2012 and February 2013, we announced the formation of two new co-investment ventures in Europe and Japan, respectively. We have 207 operating properties aggregating approximately $5.0 billion that we have contributed or expect to contribute these two entities in 2013. See further discussion below under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Unconsolidated Co-Investment Ventures

At December 31, 2012, we had investments in real estate properties, primarily industrial properties that we also manage, through our equity investments in unconsolidated co-investment ventures. These investments include 1,163 properties aggregating 208.8 million square feet and a total gross book value of operating buildings of $17.6 billion. See further discussion in Note 6 to our Consolidated Financial Statements in Item 8.

ITEM 3. Legal Proceedings

From time to time, we and our unconsolidated entities 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. Mine Safety Disclosures

Not Applicable

PART II

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

Market Information and Holders

Our common stock is listed on the NYSE under the symbol “PLD”. The following table sets forth the high and low sale price of the common stock of Prologis, Inc. (AMB pre-Merger), as reported in the NYSE Composite Tape, and the declared dividends per common share, for the periods indicated.

	High		Low		Dividends (1)
2011
First Quarter (1)	$	36.47	$	31.75	$	0.28
Second Quarter (1)		37.44		31.76		0.28
Third Quarter		37.46		23.94		0.28
Fourth Quarter		30.56		21.74		0.28
2012
First Quarter	$	36.03	$	28.16	$	0.28
Second Quarter		36.62		30.03		0.28
Third Quarter		37.58		31.03		0.28
Fourth Quarter		36.80		32.31		0.28
2013
First Quarter (through February 22)	$	40.74	$	37.35	$	0.28	(2)

(1) The per share stock price and dividends in the first and second quarter of 2011 are different than the amounts disclosed in our Consolidated Financial Statements in Item 8. The difference is due to the distinction between legal and accounting acquirer. The pre-Merger information presented in the table above is historical AMB amounts, as it was the legal acquirer.

(2) Declared on February 27, 2013 and payable on March 29, 2013 to holders of record on March 12, 2013.

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On February 22, 2013, we had approximately 462,807,491 shares of common stock outstanding, which were held of record by approximately 6,200 stockholders.

Stock Performance Graph

The following line graph compares the change in Prologis, Inc. cumulative total stockholder’s return on shares of its common stock from December 31, 2007 to the cumulative total return of the Standard and Poor’s 500 Stock Index and the FTSE NAREIT Equity REITs Index from December 31, 2007 to December 31, 2012. The graph assumes an initial investment of $100 in the common stock of Prologis, Inc. (AMB pre-Merger) and each of the indices on December 31, 2007 and, as required by the SEC, the reinvestment of all dividends. The return shown on the graph is not necessarily indicative of future performance.

*$100 invested on 12/31/07 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Copyright ^© 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

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

Dividends

In order to comply with the REIT requirements of the Internal Revenue Code, we are generally required to make common and preferred stock dividends (other than capital gain distributions) to our stockholders 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 stock distribution policy is to distribute a percentage of our cash flow that ensures that we will meet the distribution requirements of the Internal Revenue Code and that allows us to also retain cash to meet other needs, such as capital improvements and other investment activities.

In 2012, we paid a quarterly cash dividend of $0.28 per common share. Our future common stock dividends may vary and will be determined by our Board upon the circumstances prevailing at the time, including our financial condition, operating results and REIT distribution requirements, and may be adjusted at the discretion of the Board during the year.

In addition to common stock, at December 31, 2012, we had seven series of preferred stock outstanding (“Series L Preferred Stock”, “Series M Preferred Stock”, “Series O Preferred Stock”, “Series P Preferred Stock”, “Series Q Preferred Stock”, “Series R Preferred Stock” and “Series S Preferred Stock”).

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Holders of each series of preferred stock outstanding have limited voting rights, subject to certain conditions, and are entitled to receive cumulative preferential dividends based upon each series’ respective liquidation preference. Dividends for Series Q, R and S are payable quarterly in arrears on the last day of March, June, September and December. Dividends for Series L, M, O and P are payable quarterly in arrears on the 15^th day of April, July, October and January. Dividends on preferred stock 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 stock can be redeemed at our option. With respect to the payment of dividends, each series of preferred stock ranks on parity with our other series of preferred stock. The following table sets forth the Company’s dividends paid or payable per share for the years ended December 31, 2012 and 2011:

	Years Ended December 31,
	2012		2011(1)
Series L Preferred stock	$	1.63	$	1.63
Series M Preferred stock	$	1.69	$	1.69
Series O Preferred stock	$	1.75	$	1.75
Series P Preferred stock	$	1.71	$	1.71
Series Q Preferred stock	$	4.27	$	3.20
Series R Preferred stock	$	1.69	$	1.27
Series S Preferred stock	$	1.69	$	1.27

(1) The dividends are different than the amounts disclosed in our Consolidated Financial Statements in Item 8. The difference is due to the distinction between legal and accounting acquirer. The pre-Merger information presented above is historical AMB amounts as it was the legal acquirer. The Series Q, R and S Preferred Stock was issued in connection with the Merger in 2011 and exchanged for the outstanding C, F and G Cumulative Redeemable Preferred Shares of beneficial interest in ProLogis, respectively. Amounts reflect actual dividends paid or payable during 2011 subsequent to the Merger.

Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock have been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.

For more information regarding our 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 14 to our Consolidated Financial Statements in Item 8.

Other Stockholder Matters

Common Stock Plans

See our 2013 Proxy Statement or our subsequent amendment of this Form 10-K 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 related to our historical financial condition and results of operations for 2012 and the four preceding years. As previously discussed, since Prologis was the accounting acquirer in the Merger, the historical results of Prologis are included for the entire period presented and AMB’s results are included subsequent to the Merger. Certain amounts for the years prior to 2012 presented in the table below have been reclassified to conform to the 2012 financial statement presentation and to reflect discontinued operations. The amounts in the tables below are in millions, except for per share amounts.

Prologis, Inc.

	Years Ended December 31,
	2012		2011 (1)		2010		2009		2008
Operating Data:
Total revenues (2)	$	2,006	$	1,451	$	840	$	987	$	5,329
Total expenses (2)	$	1,898	$	1,347	$	1,454	$	1,045	$	4,851
Operating income (loss) (2)(3)	$	108	$	104	$	(614)	$	(58)	$	478
Interest expense	$	507	$	468	$	461	$	373	$	384
Earnings (loss) from continuing operations (3)	$	(93)	$	(267)	$	(1,601)	$	(368)	$	(379)
Discontinued operations (3)	$	63	$	109	$	331	$	392	$	(71)
Consolidated net earnings (loss) (3)	$	(30)	$	(158)	$	(1,270)	$	24	$	(450)
Net earnings (loss) attributable to common stockholders (3)	$	(81)	$	(188)	$	(1,296)	$	(3)	$	(479)
Net earnings (loss) per share attributable to common stockholders — Basic:
Continuing operations (4)	$	(0.32)	$	(0.80)	$	(7.41)	$	(2.19)	$	(3.47)
Discontinued operations (4)		0.14		0.29		1.51		2.18		(0.61)
Net earnings (loss) per share attributable to common stockholders - Basic (3)(4)	$	(0.18)	$	(0.51)	$	(5.90)	$	(0.01)	$	(4.08)
Net earnings (loss) per share attributable to common stockholders - Diluted:
Continuing operations (4)	$	(0.32)	$	(0.80)	$	(7.41)	$	(2.19)	$	(3.47)
Discontinued operations (4)		0.14		0.29		1.51		2.18		(0.61)
Net earnings (loss) per share attributable to common stockholders — Diluted (3)(4)	$	(0.18)	$	(0.51)	$	(5.90)	$	(0.01)	$	(4.08)
Weighted average common shares outstanding:
Basic (4)		460		371		220		180		117
Diluted (4)		460		371		220		180		117
Common Share Distributions:
Common share cash distributions paid	$	520	$	387	$	281	$	272	$	543
Common share distributions per share (4)	$	1.12	$	1.06	$	1.25	$	1.57	$	4.63
FFO (5):
Reconciliation of net earnings (loss) to FFO:
Net earnings (loss) attributable to common shares (3)	$	(81)	$	(188)	$	(1,296)	$	(3)	$	(479)
Total NAREIT defined adjustments		633		660		368		260		449
Total our defined adjustments		-		(60)		(46)		(71)		164
FFO attributable to common shares as defined by Prologis	$	552	$	412	$	(974)	$	186	$	134
Cash Flow Data:
Net cash provided by operating activities (2)	$	463	$	207	$	241	$	89	$	888
Net cash provided by (used in) investing activities (2)	$	530	$	(233)	$	733	$	1,235	$	(1,347)
Net cash provided by (used in) financing activities	$	(1,072)	$	163	$	(970)	$	(1,463)	$	358

	As of December 31,
	2012		2011 (1)		2010		2009		2008
Financial Position:
Real estate properties, excluding land, before depreciation	$	24,015	$	22,803	$	11,346	$	12,606	$	13,234
Land	$	1,794	$	1,984	$	1,534	$	2,574	$	2,483
Net investments in properties	$	23,328	$	22,630	$	11,284	$	13,508	$	14,134
Investments in and advances to unconsolidated entities	$	2,196	$	2,858	$	2,025	$	2,107	$	2,195
Total assets	$	27,310	$	27,724	$	14,903	$	16,797	$	19,210
Total debt	$	11,791	$	11,382	$	6,506	$	7,978	$	10,711
Total liabilities	$	13,537	$	13,268	$	7,382	$	8,790	$	12,452
Noncontrolling interests	$	704	$	794	$	15	$	20	$	20
Stockholders’ equity	$	13,069	$	13,662	$	7,505	$	7,987	$	6,738
Number of common shares outstanding (4)		462		459		254		212		119

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Operating Partnership

	Years Ended December 31,
	2012			2011 (1)			2010			2009			2008
Operating Data:
Total revenues (2)	$	2,006		$	1,451		$	840		$	987		$	5,329
Total expenses (2)	$	1,898		$	1,347		$	1,454		$	1,045		$	4,851
Operating income (loss) (2)(3)	$	108		$	104		$	(614	)	$	(58	)	$	478
Interest expense	$	507		$	468		$	461		$	373		$	384
Earnings (loss) from continuing operations (3)	$	(93	)	$	(267	)	$	(1,601	)	$	(368	)	$	(379	)
Discontinued operations (3)	$	63		$	109		$	331		$	392		$	(71	)
Consolidated net earnings (loss) (3)	$	(30	)	$	(158	)	$	(1,270	)	$	24		$	(450	)
Net earnings (loss) attributable to common unitholders (3)	$	(81	)	$	(188	)	$	(1,296	)	$	(3	)	$	(479	)
Net earnings (loss) per unit attributable to common unitholders - Basic:
Continuing operations (4)	$	(0.32	)	$	(0.80	)	$	(7.41	)	$	(2.19	)	$	(3.47	)
Discontinued operations (4)		0.14			0.29			1.51			2.18			(0.61	)
Net earnings (loss) per unit attributable to common unitholders - Basic (3)(4)	$	(0.18	)	$	(0.51	)	$	(5.90	)	$	(0.01	)	$	(4.08	)
Net earnings (loss) per unit attributable to common unitholders - Diluted:
Continuing operations (4)	$	(0.32	)	$	(0.80	)	$	(7.41	)	$	(2.19	)	$	(3.47	)
Discontinued operations (4)		0.14			0.29			1.51			2.18			(0.61	)
Net earnings (loss) per unit attributable to common unitholders - Diluted (3)(4)	$	(0.18	)	$	(0.51	)	$	(5.90	)	$	(0.01	)	$	(4.08	)
Weighted average common units outstanding:
Basic (4)		462			372			220			180			117
Diluted (4)		462			372			220			180			117
Common Unit Distributions:
Common unit cash distributions paid	$	528		$	388		$	281		$	272		$	543
Common unit distributions per unit (4)	$	1.12		$	1.06		$	1.25		$	1.57		$	4.63
FFO (5):
Reconciliation of net earnings (loss) to FFO:
Net earnings (loss) attributable to common units (3)	$	(81	)	$	(188	)	$	(1,296	)	$	(3	)	$	(479	)
Total NAREIT defined adjustments		633			660			368			260			449
Total our defined adjustments		-			(60	)		(46	)		(71	)		164
FFO attributable to common units as defined by Prologis	$	552		$	412		$	(974	)	$	186		$	134
Cash Flow Data:
Net cash provided by operating activities (2)	$	463		$	207		$	241		$	89		$	888
Net cash provided by (used in) investing activities (2)	$	530		$	(233	)	$	733		$	1,235		$	(1,347	)
Net cash provided by (used in) financing activities	$	(1,072	)	$	163		$	(970	)	$	(1,463	)	$	358

	As of December 31,
	2012		2011 (1)		2010		2009		2008
Financial Position:
Real estate properties, excluding land, before depreciation	$	24,015	$	22,803	$	11,346	$	12,606	$	13,234
Land	$	1,794	$	1,984	$	1,534	$	2,574	$	2,483
Net investments in properties	$	23,328	$	22,630	$	11,284	$	13,508	$	14,134
Investments in and advances to unconsolidated entities	$	2,196	$	2,858	$	2,025	$	2,107	$	2,195
Total assets	$	27,310	$	27,724	$	14,903	$	16,797	$	19,210
Total debt	$	11,791	$	11,382	$	6,506	$	7,978	$	10,711
Total liabilities	$	13,537	$	13,268	$	7,382	$	8,790	$	12,452
Noncontrolling interests	$	653	$	735	$	15	$	20	$	20
Partner’s capital	$	13,120	$	13,721	$	7,505	$	7,987	$	6,738
Number of common units outstanding (4)		464		461		254		212		119

(1) In 2011, we completed the Merger and PEPR Acquisition (see Note 3 to our Consolidated Financial Statements in Item 8 for additional information). Activity in 2011 included seven months of results in connection with the Merger and PEPR Acquisition.

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(2) During 2012, 2011, 2010 and 2009, we contributed certain properties to unconsolidated entities with any resulting gain or loss reflected as net gains in our Consolidated Statements of Operations and as cash provided by investing activities in our Consolidated Statements of Cash Flows. In 2008, our segments were slightly different and therefore we reflected these contributions as gross revenues and expenses and as cash provided by operating activities.

(3) During 2012, we recognized impairment charges of $283.5 million on certain real estate properties, which included $30.6 million in Discontinued Operations, and $16.1 million related to other assets. During 2011, we recognized impairment charges of $23.9 million on certain real estate properties, which included $2.7 million in Discontinued Operations, and $126.4 million related to goodwill and other assets. During 2010, we recognized impairment charges of $824.3 million on certain of our real estate properties, which included $87.7 million in Discontinued Operations, and $412.7 million related to goodwill and other assets. During 2009, we recognized impairment charges of $331.6 million on certain of our real estate properties and $163.6 million related to goodwill and other assets. During 2008, we recognized impairment charges of $274.7 million on certain of our real estate properties and $320.6 million related to goodwill and other assets. In addition, during 2008, we recognized impairment charges of $198.2 million in Discontinued Operations related to the net assets of our China operations that were reclassified as held for sale and our share of impairment charges recorded by an unconsolidated entity of $108.2 million. See Note 16 to our Consolidated Financial Statements in Item 8 for more information related to our impairment charges.

(4) The historical shares and units of ProLogis were adjusted by the Merger exchange ratio of 0.4464 for the periods prior to the Merger. As a result, the per share/unit calculations and shares/units outstanding were also adjusted.

(5) See definitions of FFO in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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

The following discussion should be read 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

At the time of the Merger, we established our key strategic priorities to guide our path through the end of 2013. These priorities were:

• to align our portfolio with our investment strategy while serving the needs of our customers;

• to strengthen our financial position and build one of the top balance sheets in the REIT industry;

• to streamline our private capital business and position it for substantial growth;

• to improve the utilization of our low yielding assets; and

• to build the most effective and efficient organization in the REIT industry and to become the employer of choice among top professionals interested in real estate as a career.

Align our Portfolio with our Investment Strategy

We have categorized our portfolio into three main segments – global, regional and other markets. By segmenting our markets in this manner, we were able to construct a plan that includes culling the portfolio for buildings and potentially submarkets that are no longer a strategic fit. We expect to use the proceeds from dispositions to pay down debt that is secured by the disposed assets, if any, repay other debt and to recycle capital into new development projects and/or strategic acquisitions.

Strengthen our Financial Position

We intend to further strengthen our financial position by lowering our financial risk and currency exposure and building one of the strongest balance sheets in the REIT industry. We expect to lower our financial risk by reducing leverage and maintaining staggered debt maturities, which will increase our financial flexibility and provide for continued access to capital markets. This financial flexibility will position us to capitalize on market opportunities across the entire business cycle as they arise. We expect to reduce our exposure to foreign currency exchange fluctuations by borrowing in local currency where appropriate, and utilizing derivative contracts to hedge our foreign denominated equity and swap U.S. dollar–denominated debt into obligations denominated in foreign currencies. We expect to also lower our foreign currency risk by holding assets outside the United States primarily in co-investment ventures in which we maintain an ownership interest and provide services generating private capital revenue. We will accomplish this through contributions and sales to our existing and newly formed co-investment ventures, including the new ventures in Europe and Japan discussed below. In addition, we expect that new development projects, particularly in those emerging markets such as Brazil, China and Mexico, will be done in conjunction with our private capital partners.

Streamline Private Capital Business

We are working with our private capital investors to rationalize certain of our co-investment ventures. Some of our legacy co-investment ventures have fee structures that do not adequately compensate us for the services we provide. Therefore, we have terminated or restructured certain of these co-investment ventures. In other cases, we may combine some co-investment ventures to gain operational efficiencies. In every case, however, we have and will continue to work very closely with our partners and venture investors who have been and will be active participants in these decisions. We expect to continue with these activities during 2013. We plan to grow our private capital business with the deployment of the private capital commitments we have already raised, formation of new co-investment ventures, including the new ventures in Europe and Japan, and raising incremental capital for our existing co-investment ventures.

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Improve the Utilization of Our Low Yielding Assets

We plan to increase the value of our low yielding assets by stabilizing our operating portfolio to 95% leased, completing the build-out and lease-up of our development projects as well as monetizing our land through development or sale to third parties.

Build the most effective and efficient organization in the REIT industry and become the employer of choice among top professionals interested in real estate as a career

We realized more than $115 million of cost synergies on an annualized basis, compared to the combined expenses of AMB and ProLogis on a pre-Merger basis. These synergies included gross general and administrative savings, reduced global line of credit facility fees and lower amortization of non real estate assets. We will continue to look for and achieve additional savings opportunities. In addition, we implemented a new enterprise wide system that includes a property management/billing system (implemented in April 2012), a human resources system (implemented in July 2012), a general ledger and accounting system and a data warehouse (implemented in January 2013). In connection with this implementation, we are striving to utilize the most effective global business processes with the enhanced system functionality, and have also implemented several analytical tools to further empower and assist our regional and local teams. In early 2012, we implemented two new compensation plans that we believe will better align employees’ compensation to our company performance. We believe these efforts and others will help us with the attainment of this objective.

Summary of 2012

• In support of our objective to streamline our private capital co-investment ventures, we successfully concluded five co-investment ventures (six since the Merger) and one other unconsolidated joint venture (further discussed in Notes 3 and 6 to our Consolidated Financial Statements in Item 8), as follows:

• During the third quarter, we completed the delisting of PEPR from two European stock exchanges and we acquired 100% of its assets and liabilities. We plan to contribute the majority of these properties to a new co-investment venture as discussed below.

• During the first quarter, we acquired our partner’s interest in Prologis North America Fund II (“NAIF II”) and dissolved Prologis California and divided the portfolio equally with our partner. In the fourth quarter, we dissolved Prologis North America Properties Fund I (“Fund I”) and divided the portfolio according to the ownership of each partner. These three transactions increased our investment in real estate by $2.2 billion and our debt by $1.4 billion. We recognized net gains on acquisitions of real estate properties of $294.2 million as a result of adjusting our equity investment to fair value at the time of consolidation. We refer to these transactions collectively as “Co-Investment Venture Acquisitions”.

• We concluded Prologis North American Properties Fund XI by disposing of the remaining asset in the co-investment venture during the third quarter.

• In the fourth quarter, we dissolved one of our other unconsolidated joint ventures and divided the portfolio according to the ownership of the partners.

• In December 2012, we announced our plan to form two new ventures in Japan and Europe:

• On December 12, we announced the approval from our Board to sponsor a Japanese REIT (“J-REIT”) to serve as the long-term investment vehicle for our properties developed in Japan. In early 2013, we launched the initial public offering for Nippon Prologis REIT, Inc. (“NPR”). On February 14, 2013, NPR was listed on the Japan Stock Exchange and commenced trading. At that time, NPR acquired a portfolio of 12 properties from us for an aggregate purchase price of ¥173 billion ($1.9 billion), resulting in ¥153 billion ($1.7 billion at February 14, 2013) in net cash proceeds. We will retain at least a 15% equity ownership interest in NPR and will provide pipeline, operational and personnel assistance under a support agreement. As a result of this transaction, in the first quarter we will recognize a gain of approximately $300 million after the deferral of the gain related to our ongoing investment. We intend to use the proceeds primarily for the repayment of debt and future investment in Japan.

• On December 20, we signed a definitive agreement to form a euro-denominated co-investment venture, Prologis European Logistics Partners Sarl (“PELP”). Our partner is Norges Bank Investment Management, which is the manager of the Norwegian Government Pension Fund Global. PELP will be structured as a 50/50 joint venture. The venture has an initial term of 15 years, which may be extended for additional 15-year periods. We will have the ability to reduce our ownership to 20% following the second anniversary of closing. The venture will acquire a portfolio of high-quality properties currently owned by us in 11 target European global markets. We expect to contribute 195 properties for total estimated proceeds of approximately of €2.3 billion ($3.1 billion at December 31, 2012). As the expected proceeds were less than our carrying cost at December 31, 2012, we recognized an impairment charge of $135 million in the fourth quarter of 2012 related to the expected contribution in March 2013. This charge represented the loss on the entire portfolio of properties and was driven primarily by properties that we had developed during 2008 and 2009 at peak values.

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• Although our strategic objective is to further improve our credit metrics, we temporarily increased our total debt to $11.8 billion at December 31, 2012 from $11.4 billion at December 31, 2011. Our significant debt activity during the year was as follows:

• We increased our debt by $1.4 billion in connection with the Co-Investment Venture Acquisitions, as discussed above.

• We issued secured property-level debt on assets in Japan (known as TMK bonds) or increased existing TMK bonds for a combined amount of ¥49.0 billion ($569.0 million as of December 31, 2012).

• We entered into a €487.5 million ($648.5 million as of December 31, 2012) multi-currency senior term loan agreement and used the proceeds to pay off two outstanding term loans with the remainder used to pay down our credit facilities.

• We repaid $1.9 billion of debt with the proceeds from dispositions and contributions of properties. In 2013, we plan to significantly reduce debt with the proceeds received from contributions to the two co-investment ventures discussed above, along with other dispositions and contributions of properties as we align our portfolio with our investment strategy.

• In order to reduce our exposure to the risk of movements in exchange rates, we entered into derivative contracts with an aggregate notional amount of €1.0 billion to hedge our euro denominated net investment. These hedges qualify for hedge accounting. We plan to further reduce our currency risk by completing the contribution of real estate properties to co-investment ventures in Japan and Europe in which we maintain an ownership interest (as discussed above).

• We generated aggregate proceeds of $2.0 billion from the disposition of land, land subject to ground leases and 200 operating buildings to third parties and the contribution of 25 operating buildings to three unconsolidated co-investment ventures. We used the proceeds primarily to reduce our outstanding debt, acquire real estate properties and fund our development activities. We recognized net gains of $19.3 million in continuing operations and $65.9 million in discontinued operations as a result of these transactions.

• We commenced construction of 40 projects on an owned and managed basis aggregating 16.9 million square feet with a total expected investment of $1.6 billion (our share was $1.4 billion), including 20 projects (or 57% of the total expected investment) that were 100% leased prior to the start of development. We used $384.2 million of land we already owned for these projects. This represents an increase in development activity that we expect to further increase in 2013.

• We leased a total of 145.3 million square feet in our owned and managed portfolio and increased the occupancy of the total operating portfolio to 94.0% and 94.5% leased at December 31, 2012 as compared to 92.2% occupied and 92.5% leased at December 31, 2011.

• We increased the percentage of our total owned and managed portfolio that is in global markets to 84.5% (based on gross investment balance).

Operational Outlook

The recovery in industrial real estate markets continues around the world. We believe all signals point to a positive outlook for our sector. The International Monetary Fund is forecasting global trade growth at 3.8% for 2013 and approximately 5% for 2014. Improving industrial production and new goods orders also indicate strengthening economic growth. According to the United States Bureau of Economic Analysis, inventories in the United States have now been growing for the last 11 out of 12 quarters, and are almost back to their pre-crisis levels. We expect further rebuilding of inventories this year to levels that will surpass the previous peak. This increase in inventories is driven primarily by the fact that the United States population has grown by 12 million during that same timeframe.

Total net absorption during the fourth quarter was 56 million square feet according to CBRE, Inc., the strongest single quarter since 2006. The availability rate continues to fall (12.8% at December 31, 2012) and supply remains at historically low levels. Further, as the recovery broadens throughout the United States, demand should increase across more of the major tenant business sectors, further reducing vacancy spaces smaller than 100,000 square feet. This segment is closely tied to the recovery in the housing market and we expect demand to increase in the future. Thus, overall conditions in the United States industrial market should continue to improve and as such we are forecasting 150 million square feet of net absorption in 2013.

In Europe, net absorption continues to be positive, and has been, since we began collecting the data series, in the first quarter of 2011. The supply of class-A distribution space remains constrained in both Japan and China. We expect the supply chain reconfiguration in Japan and growing consumption in China to continue to drive demand for our product in the long-term. Demand for class-A facilities remains strong in Latin America. Brazil continues to be an underserved logistics market as growing GDP and increasing consumption is driving high levels of new requirements into the market. Demand momentum has been similarly positive in Mexico, benefitting from the economic recovery in the U.S. and increasingly frequent instances of ‘near-shoring’ of production activities. Net absorption has been positive for several years and market occupancy rates increased 80 basis points to 91.5 percent during 2012 across the six largest markets.

In our total owned and managed operating portfolio, we leased a record 145.3 million square feet of space in 2012. We ended the year with 94.0% occupancy in our owned and managed operating portfolio, up 180 basis points over year end 2011. The effective rental rates on leases signed during the fourth quarter of 2012 in our same store portfolio (as defined below) decreased by 2.4% when compared with the rental

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rates on the previous leases on that same space. The decline was primarily attributed to regional markets in Europe where leases were signed at the high point of the prior cycle. Rent change is continuing its upward trend in our portfolio and we expect positive rollover in 2013. Tenant retention in the fourth quarter was 87.3%.

Due to the lack of supply of class-A facilities, high space utilization rates and decreasing vacancy rates, we expect development volume to increase in our markets. Our development business comprises speculative development, build-to-suit development, value-added conversions and redevelopment. We expect to develop directly and within our co-investment structures depending on location, market conditions, submarkets or building sites and availability of capital. In response to this increasing demand, we are actively pursuing various development opportunities, and we commenced development of 40 properties in our owned and managed portfolio during 2012.

Results of Operations

Summary

The following table illustrates the net operating income for each of our segments, along with the reconciling items to Loss from Continuing Operations in our Consolidated Statements of Operations for the years ended December 31 (in thousands):

	2012		2011		2010
Net operating income – Real Estate Operations segment	$	1,347,127	$	931,118	$	502,072
Net operating income – Private Capital segment		62,959		82,657		81,867
Other:
General and administrative expenses		(228,068)		(195,161)		(165,981)
Merger, acquisition and other integration expenses		(80,676)		(140,495)		-
Impairment of real estate properties		(252,914)		(21,237)		(736,612)
Depreciation and amortization		(739,981)		(552,849)		(294,867)
Earnings from unconsolidated entities, net		31,676		59,935		23,678
Interest expense		(507,484)		(468,072)		(461,166)
Impairment of goodwill and other assets		(16,135)		(126,432)		(412,745)
Interest and other income, net		22,878		12,008		15,847
Gains on acquisitions and dispositions of investments in real estate, net		305,607		111,684		28,488
Foreign currency and derivative gains (losses), net		(20,497)		41,172		(11,081)
Gain (loss) on early extinguishment of debt, net		(14,114)		258		(201,486)
Income tax benefit (expense)		(3,580)		(1,776)		30,499
Loss from continuing operations	$	(93,202)	$	(267,190)	$	(1,601,487)

See Note 22 to our Consolidated Financial Statements in Item 8 for additional information regarding our segments and a reconciliation of net operating income to Loss Before Income Taxes.

Real Estate Operations Segment

The net operating income of the Real Estate Operations segment consisted of rental income and rental expenses from industrial properties that we own and consolidate and is impacted by our capital deployment activities. This segment excludes amounts presented as Discontinued Operations in our Consolidated Financial Statements for all periods. The size and percentage of occupancy of our consolidated operating portfolio fluctuates due to the timing of acquisitions, development activity and contributions. Such fluctuations affect the net operating income we recognize in this segment in a particular period. Also included in this segment is revenue from land we own and lease to customers under ground leases and development management and other income, offset by acquisition, disposition and land holding costs. The net operating income from the Real Estate Operations segment for the years ended December 31 was as follows (in thousands):

	2012		2011		2010
Rental and other income	$	1,879,182	$	1,313,708	$	717,626
Rental and other expenses		532,055		382,590		215,554
Total net operating income - Real Estate Operations segment	$	1,347,127	$	931,118	$	502,072

The increase in rental income and rental expense in 2012 from 2011 was due primarily to the impact of the Merger and the PEPR Acquisition in the second quarter of 2011, the Co-Investment Venture Acquisitions and other acquisitions in 2012 and increased occupancy in our consolidated operating properties (from 91.4% at December 31, 2011 to 93.7% at December 31, 2012), including the completion and stabilization of new development properties. The results for 2012 included rental income and expenses from properties acquired through the Merger and PEPR Acquisition of $834.0 million and $228.9 million, respectively, while 2011 included approximately seven months of rental income and expense of properties acquired through the Merger and PEPR Acquisition of $524.7 million and $142.5 million, respectively. In our consolidated portfolio, we leased 88.5 million square feet in 2012 compared to 63.4 million square feet in 2011.

The increase in net operating income in 2011 over 2010 was due primarily to the impact of the Merger and the PEPR Acquisition in the second quarter of 2011, increased occupancy in our consolidated operating properties (from 85.9% at December 2010 to 91.4% at December 2011) and the completion and stabilization of new development properties.

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We calculate the change in effective rental rates on leases signed during the quarter as compared to the previous rent on that same space in our same store portfolio (as defined below). During 2012 (over the four quarters), the percentage change in rental rates ranged from a decrease of 3.9% to a decrease of 1.1%. During 2011 (over the four quarters), the percentage change in rental rates ranged from a decrease of 8.9% to a decrease of 4.5%. A decline in rental rates was due to: (i) leases turning that were put in place when market rents were at or near peak and (ii) decreased market rents.

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 rental expenses, were 74.0%, 73.7% and 75.6% of total rental expenses for the years ended December 31, 2012, 2011 and 2010, respectively.

Our consolidated operating properties as of December 31 were as follows (square feet in thousands):

	Number of Properties		Square Feet		Occupied %
2012		1,853		316,347		93.7%
2011(1)		1,797		291,051		91.4%
2010		985		168,547		85.9%

(1) The amount at December 31, 2011 included 848 properties with 126.3 million square feet that were acquired through the Merger and PEPR Acquisition.

As discussed earlier, we have 207 operating properties aggregating approximately $5.0 billion that we have contributed in 2013 or expect to contribute to NPR and PELP. As a result, we expect to have decreased rental income and rental expenses in 2013 in this segment. We will account for our continuing ownership in the properties through our equity ownership in the ventures by recognizing our share of the net income or loss of the ventures. We will also recognize additional revenue in our Private Capital segment from the property management and asset management services we will provide.

Private Capital Segment

The net operating income of the Private Capital segment consisted of fees and incentives earned for services performed for our unconsolidated co-investment ventures and certain joint ventures and third parties, reduced by our direct costs of managing these entities and the properties they own.

The direct costs associated with our Private Capital segment totaled $63.8 million, $55.0 million and $40.7 million for the years ended December 31, 2012, 2011 and 2010, respectively, and are included in the line item Private Capital Expenses in our Consolidated Statements of Operations. These expenses include the direct expenses associated with the asset management of the unconsolidated co-investment ventures provided by our employees who are assigned to our Private Capital 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 Real Estate Operations segment. These individuals perform the property-level management of the properties in our owned and managed portfolio including properties we consolidate and the properties we manage that are owned by the unconsolidated entities. We allocate the costs of our property management function to the properties we consolidate (reported in Rental Expenses) and the properties owned by the unconsolidated entities (included in Private Capital Expenses), by using the square feet owned by the respective portfolios. The increase in Private Capital Expenses in 2012 is due to the increased private capital platform and infrastructure that was part of the Merger, offset partially with a decline in the portion of our property management expenses that are allocated to this segment due to the consolidation of PEPR in June 2011 and the Co-Investment Venture Acquisitions in 2012.

The net operating income from the Private Capital segment, representing fees earned reduced by private capital expenses, for the years ended December 31 was as follows (in thousands):

	2012		2011		2010
Unconsolidated entities:
Americas (1)	$	31,637	$	42,644	$	40,354
Europe (2)		21,699		30,708		41,200
Asia (3)		9,623		9,305		313
Total net operating income - Private Capital segment	$	62,959	$	82,657	$	81,867

(1) Represents the fees earned by us from several unconsolidated entities. The decrease in net operating income in 2012 is due to the successful conclusion of four co-investment ventures in the United States during the year. As of December 31, 2012, we had six co-investment ventures (three in the United States, two in Mexico and one in Brazil). In 2011, the net operating income increased as a result of three new ventures acquired as part of the Merger, offset with a decrease due to the sale of properties in three ventures. In 2010, we had ten co-investment ventures and sold our interests in three of these ventures in December 2010.

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(2) Represents the fees earned by us from several unconsolidated entities. In 2012, we had three co-investment ventures. In 2011, we had one co-investment venture during the entire year, we included PEPR up to the date we began consolidating at the end of May 2011, and added two co-investment ventures acquired through the Merger. In 2010 we had two co-investment ventures.

(3) Represents the fees earned by us from several unconsolidated entities. In 2012, we had two co-investment ventures. In 2011, we acquired an investment in an unconsolidated co-investment venture in each of Japan and China in connection with the Merger, and sold our investment in the South Korea co-investment venture during the third quarter. In 2010, we only had one co-investment venture, which was in South Korea.

We expect the net operating income of this segment to increase in 2013 due to NPR and PELP and from the contributions of properties to existing co-investment ventures, offset slightly by the decrease in revenue from some other co-investment ventures as they are concluded.

See Note 6 to our Consolidated Financial Statements in Item 8 for additional information on our unconsolidated entities.

Other Components of Income

General and Administrative (“G&A”) Expenses

G&A expenses for the years ended December 31 consisted of the following (in thousands):

	2012		2011		2010
Gross G&A expense	$	394,845	$	332,632	$	266,932
Reported as rental expenses		(35,954)		(24,741)		(19,709)
Reported as private capital expenses		(63,820)		(54,962)		(40,659)
Capitalized amounts		(67,003)		(57,768)		(40,583)
Net G&A	$	228,068	$	195,161	$	165,981

The increase in G&A expenses and the various components from 2011 to 2012 and from 2010 to 2011 was due principally to the larger infrastructure associated with the combined company following the Merger and the PEPR Acquisition. The increase in capitalized G&A is due to our increased development and leasing activities since the Merger.

We capitalize certain costs directly related to our development and leasing activities. Capitalized G&A expenses included salaries and related costs, as well as other general and administrative costs. The capitalized G&A costs for the years ended December 31, was as follows (in thousands):

	2012		2011		2010
Development activities	$	42,417	$	34,301	$	14,612
Leasing activities		23,183		21,390		24,775
Costs related to internally developed software		1,403		2,077		1,196
Total capitalized G&A expenses	$	67,003	$	57,768	$	40,583

For the years ended December 31, 2012, 2011 and 2010, the capitalized salaries and related costs represented 19.1%, 19.3% and 16.1%, respectively, of our total capitalizable salaries and related costs. In addition, in 2012, we capitalized $1.2 million of salaries and related costs related to internally developed software that were included as Merger, Acquisition and Other Integration Expenses. Salaries and related costs are comprised primarily of wages, other compensation and employee-related expenses. In 2012, we began consolidated development projects with a total expected investment of $1.3 billion ($0.6 billion in the fourth quarter) as compared to $0.8 billion in 2011. As discussed earlier, we expect our development activity to continue to increase in 2013.

Merger, Acquisition and Other Integration Expenses

In connection with the Merger and other related activities, we incurred significant transaction, integration and transitional costs of $80.7 million and $140.5 million during the years ended December 31, 2012 and 2011, respectively. We believe the majority of these costs have been realized as of December 31, 2012 and any additional costs incurred in 2013 will be included in G&A Expenses. See Note 15 to our Consolidated Financial Statements in Item 8 for more detail on these expenses.

Impairment of Real Estate Properties

During 2012, 2011 and 2010, we recognized impairment charges of real estate properties in continuing operations of $252.9 million, $21.2 million and $736.6 million, respectively, due to our change of intent to no longer hold these assets for long-term investment. In 2012, these impairment charges related to our planned contribution of properties to PELP ($135.3 million), land parcels that we expected to sell to third parties ($88.9 million) and operating buildings we expected to contribute or sell ($28.7 million). In 2010, the charges primarily included land as a result of our change in strategy. Changes in economic and operating conditions and our ultimate intent with regard to our

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investments in real estate that occur in the future may result in additional impairment charges or gains at the time of sale. See Note 16 to our Consolidated Financial Statements in Item 8 for more detail on the process we took to value these assets and the related impairment charges recognized.

Depreciation and Amortization

Depreciation and amortization was $740.0 million, $552.8 million and $294.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. The increase from 2011 to 2012 is due to additional depreciation and amortization expenses associated with the assets (including intangible assets) acquired in the Merger and PEPR Acquisition during the second quarter of 2011 and the Co-Investment Venture Acquisitions in 2012, as well as completed and leased development properties and additional leasing and capital improvements in our operating properties. The increase from 2010 to 2011 is primarily due to additional depreciation and amortization expenses associated with the properties acquired through the Merger and PEPR Acquisition, completed and leased development properties and increased leasing activity.

Earnings from Unconsolidated Entities, Net

We recognized net earnings of $31.7 million, $59.9 million and $23.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. These earnings relate to our investment in unconsolidated entities that are accounted for on the equity method. The earnings decreased in 2012 from 2011 due to the consolidation of PEPR and the Co-Investment Venture Acquisitions, as such ventures were previously accounted for under the equity method. This decrease was partially offset by earnings from investments acquired through the Merger. In 2012, we recorded a loss of $9.3 million for our share of a loss on the early extinguishment of debt in Prologis North American Industrial Fund III. The primary reason for the increase in 2011 over 2010 is due to the investments we acquired through the Merger, partially offset by the consolidation of PEPR. The earnings we recognize are impacted by: (i) variances in revenues and expenses of the entity; (ii) the size and occupancy rate of the portfolio of properties owned by the entity; (iii) our ownership interest in the entity; and (iv) fluctuations in foreign currency exchange rates used to translate our share of net earnings to U.S. dollars, if applicable. We manage the majority of the properties in which we have an ownership interest as part of our total owned and managed portfolio. See discussion of our portfolio results in the section, “Portfolio Information”. See also Note 6 to our Consolidated Financial Statements in Item 8 for further breakdown of our share of net earnings recognized.

We expect increases in earnings from unconsolidated entities in 2013 due to our share of net earnings from NPR and PELP that we expect to recognize after contributions made in 2013.

Interest Expense

Interest expense from continuing operations included the following components (in thousands) for the years ended December 31:

	2012		2011		2010
Gross interest expense	$	580,787	$	500,019	$	435,289
Amortization of discount (premium), net		(36,687)		228		47,136
Amortization of deferred loan costs		16,781		20,476		32,402
Interest expense before capitalization		560,881		520,723		514,827
Capitalized amounts		(53,397)		(52,651)		(53,661)
Net interest expense	$	507,484	$	468,072	$	461,166

Gross interest expense increased in 2012 and 2011 from the previous year primarily due to higher debt levels as a result of the Merger, the PEPR Acquisition and the Co-Investment Venture Acquisitions in 2012, partially offset by lower effective borrowing costs and replacement of debt at lower rates.

Although our strategic objective is to reduce our debt and leverage with proceeds from property dispositions, we temporarily increased our debt in 2012 by $1.4 billion from the Co-Investment Venture Acquisitions. We plan to pay down debt with the proceeds from the contribution of properties in early 2013 and disposition of properties in 2013. As a result of the Merger and PEPR Acquisition, we added approximately $5.9 billion of debt at fair value at the beginning of June 2011 and approximately seven months of related interest expense in 2011, which increased our debt balance as of December 31, 2011 to $11.4 billion. See Note 10 to our Consolidated Financial Statements in Item 8 and Liquidity and Capital Resources for further discussion of our debt and borrowing costs.

Our weighted average effective borrowing cost was 4.6%, 5.6% and 6.5% for the years ended December 31, 2012, 2011 and 2010, respectively. Our future interest expense, both gross interest and the portion capitalized, will vary depending on, among other things, our effective borrowing rate and the level of our development activities.

Impairment of Goodwill and Other Assets

Based on our review of goodwill in 2010, we recognized an impairment charge of $368.5 million related to goodwill allocated to the Real Estate Operations segment in the Americas and Europe reporting units. The review of goodwill was triggered by the strategic decision we made in the fourth quarter of 2010 to significantly downsize our development platform and, as a result, to sell to third parties certain other assets, some of which were acquired in the acquisitions that originally created the goodwill.

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In 2012, 2011 and 2010, we recorded impairment charges of $16.1 million, $126.4 million and $44.3 million, respectively, on certain of our investments in and advances to unconsolidated entities, 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, including estimated sales proceeds, or we believed the decline in fair value to be other than temporary.

See Notes 2 and 16 to our Consolidated Financial Statements in Item 8 for further information on our process with regard to analyzing the recoverability of goodwill and other assets.

Gains on Acquisitions and Dispositions of Investments in Real Estate, Net

In 2012, we recognized net gains on acquisitions and dispositions of investments in real estate in continuing operations of $305.6 million, which included $294.2 million of gains related to the Co-Investment Venture Acquisitions and $11.4 million of gains principally related to contribution activity. We received proceeds of $381.9 million from the contribution of 25 properties aggregating 4.8 million square feet.

During 2011, we recognized net gains on acquisitions and dispositions of investments in real estate in continuing operations of $111.7 million. This included gains recognized in the second quarter related to the PEPR Acquisition ($85.9 million) and the acquisition of our partner’s interest in one of our other unconsolidated joint ventures in Japan ($13.5 million). The gains represent the adjustment to fair value of our equity investments at the time we gained control and consolidated the entities. The contribution activity in 2011 resulted in cash proceeds of $590.8 million and net gains of $12.3 million.

During 2010, we recognized net gains on dispositions of investments in real estate in continuing operations of $28.5 million, which related to the contribution of land and operating properties to unconsolidated entities ($58.3 million gain), additional proceeds from contributions we made to PEPF II in 2009 based on valuations received as of December 31, 2010 and our contribution agreement with the venture ($27.4 million gain) and the sale of land parcels to third parties ($7.4 million gain), offset by a loss of $64.6 million related to the sale of certain unconsolidated entities.

The 2010 contribution activity resulted in cash proceeds of $469.7 million related to the contribution of development properties aggregating 2.1 million square feet and land to unconsolidated entities, and the sale of 90% of two development properties in Japan aggregating 1.3 million square feet. We continue to own 10% of the Japan properties, which are accounted for under the equity method of accounting, and we continue to manage the properties.

If we realize a gain on contribution or sale of a property to an unconsolidated entity, we recognize the portion attributable to the third party ownership in the entity. If we realize a loss on contribution, we recognize the full amount as soon as it is known. Due to our continuing involvement through our ownership in the unconsolidated entity, these dispositions are not included in discontinued operations.

Foreign Currency and Derivative Gains (Losses), Net

We and certain of our foreign consolidated subsidiaries may 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 Foreign Currency Translation Loss, Net in our Consolidated Statements of 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 $7.4 million in 2012, and losses of $5.9 million and $11.5 million in 2011 and 2010, respectively, related to the remeasurement of debt. Predominantly the gains or losses recognized in earnings relate to the remeasurement of intercompany loans between the United States parent and certain consolidated subsidiaries in Japan and Europe and result from fluctuations in the exchange rates of U.S. dollar to the euro, Japanese yen and British pound sterling. In addition, we recognized net foreign currency exchange losses of $5.6 million, and gains of $2.1 million and $0.4 million from the settlement of transactions with third parties during December 31, 2012, 2011 and 2010, respectively.

We recognized an unrealized loss of $22.3 million in 2012 and an unrealized gain of $45.0 million in 2011 on the derivative instrument (exchange feature) related to our exchangeable senior notes, which became exchangeable at the time of the Merger.

Gains (Losses) on Early Extinguishment of Debt, Net

During the years ended December 31, 2012, 2011 and 2010, we purchased portions of several series of senior notes, senior exchangeable notes and Eurobonds outstanding and extinguished some secured mortgage debt prior to maturity, which resulted in the recognition of losses of $14.1 million in 2012, gains of $0.3 million in 2011, and losses of $201.5 million in 2010. The gains or losses represent the difference between the recorded debt (net of premiums and discounts and including related debt issuance costs) and the consideration we paid to retire the debt, including fees. Included in this amount in 2012 are losses that were included in Other Comprehensive Income (Loss) in our Consolidated Statements of Comprehensive Income (Loss) related to hedge transactions and were deemed unrecoverable in the fourth quarter of 2012. These hedges were associated with debt that is expected to be repaid before maturity in Europe with the proceeds from the contributions to PELP in early 2013. See Note 10 to our Consolidated Financial Statements in Item 8 for more information regarding our debt repurchases.

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Income Tax Benefit (Expense)

During the years ended December 31, 2012, 2011 and 2010, our current income tax expense was $17.9 million, $21.6 million and $21.7 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 associated with our liability for uncertain tax positions. 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 2012, 2011 and 2010, we recognized a net deferred tax benefit of $14.3 million, $19.8 million and $52.2 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 United States or in foreign jurisdictions. The deferred tax benefit recorded during 2010 is primarily due to impairment charges recorded to the book basis of real estate properties and investments in unconsolidated entities, net operating loss (“NOL”) carryforwards recorded for certain jurisdictions, and the reversal of deferred tax liabilities related to built-in-gains. In addition, during the second quarter of 2010, we recognized a deferred income tax benefit of approximately $27.5 million resulting from the conversion of two of our European management companies to taxable entities. This conversion was approved by the applicable tax authorities in June 2010 and created an asset for tax purposes that will be utilized against future taxable income as it is amortized. The deferred tax benefit was partially offset by an increase to the valuation allowance in certain jurisdictions because we could not sustain a conclusion that it was more likely than not that we could realize the deferred tax assets and NOL carryforwards.

Our income taxes are discussed in more detail in Note 17 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 that have been classified as discontinued operations are reported separately in our Consolidated Financial Statements in Item 8.

During 2012, 2011 and 2010, we disposed of land subject to ground leases and 200, 94 and 205 operating properties, respectively, to third parties that met the requirements to be classified as discontinued operations. We recognized aggregate net gains on these transactions, net of impairment charges, of $35.1 million, $58.6 million and $234.6 million during 2012, 2011 and 2010, respectively. The results of operations of these properties for 2012, 2011 and 2010 were $27.6 million, $50.6 million and $96.5 million, respectively.

See Notes 4 and 9 to our Consolidated Financial Statements in Item 8.

Other Comprehensive Income (Loss) – Foreign Currency Translation 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 Foreign Currency Translation Losses, Net in our Consolidated Statements of Comprehensive Income (Loss).

During 2012, we recorded unrealized net losses of $79.0 million as the Japanese yen rates weakened to the U.S. dollar by 10.1% from December 31, 2011 to December 31, 2012, offset slightly by the euro and British pound sterling slightly strengthening against the U.S. dollar during the same period. During 2011, we recorded unrealized net losses of $192.6 million as the euro and British pound sterling remained relatively flat from December 31, 2010 to December 31, 2011, but both weakened to the U.S. dollar from the Merger and PEPR Acquisition date to December 31, 2011. These losses were offset slightly by the strengthening of the Japanese yen to the U.S. dollar during 2011. During 2010, we recognized unrealized net losses of $45.2 million mainly as a result of the weakening of the euro and British pound sterling to the U.S. dollar, offset by the Japanese yen strengthening against the U.S. dollar, from the beginning of the year to December 31, 2010.

Portfolio Information

Our total owned and managed properties includes operating industrial properties but not properties under development, properties held for sale or non-industrial properties and was as follows as of December 31 (square feet in thousands):

	2012				2011				2010
	Number of Properties		Square Feet		Number of Properties		Square Feet		Number of Properties		Square Feet
Consolidated		1,853		316,347		1,797		291,051		985		168,547
Unconsolidated		1,163		208,753		1,403		267,752		1,179		255,367
Totals		3,016		525,100		3,200		558,803		2,164		423,914

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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 from our consolidated portfolio, and properties owned by the co-investment ventures (accounted for on the equity method) that are managed by us (referred to as “unconsolidated entities”), including those owned and managed by AMB prior to the Merger, in our same store analysis. We have defined the same store portfolio, for the three months ended December 31, 2012, as those properties that were in operation at January 1, 2011 and have been in operation throughout the same three-month periods in both 2012 and 2011. 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. The same store portfolio, for the three months ended December 31, 2012, included 502.0 million of aggregated square feet.

The following is a reconciliation of our consolidated rental income, rental expenses and net operating income (calculated as rental income and recoveries 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 (dollars in thousands).

	Three Months Ended
	March 31		June 30		September 30		December 31		Full Year
2012
Rental income and recoveries	$	445,405	$	470,388	$	471,688	$	481,743	$	1,869,224
Rental expenses		119,278		126,746		127,779		131,696		505,499
Net operating income	$	326,127	$	343,642	$	343,909	$	350,047	$	1,363,725
2011
Rental income and recoveries	$	187,931	$	268,429	$	423,286	$	415,226	$	1,294,872
Rental expenses		57,680		73,667		117,043		110,169		358,559
Net operating income	$	130,251	$	194,762	$	306,243	$	305,057	$	936,313

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	For the Three Months Ended December 31,
	2012		2011		Percentage Change
Rental Income (1)(2)
Consolidated:
Rental income per our Consolidated Statements of Operations	$	387,299	$	332,721
Rental recoveries per our Consolidated Statements of Operations		94,444		82,505
Adjustments to derive same store results:
Rental income and recoveries of properties not in the same store portfolio — properties developed and acquired during the period and land subject to ground leases		(31,849)		(16,711)
Effect of changes in foreign currency exchange rates and other		(227)		(7,748)
Unconsolidated entities:
Rental income of properties managed by us and owned by our unconsolidated entities		318,070		363,190
Same store portfolio – rental income (2)(3)	$	767,737	$	753,957		1.8%
Rental Expenses (1)(4)
Consolidated:
Rental expenses per our Consolidated Statements of Operations	$	131,696	$	110,169
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		(8,246)		(8,287)
Effect of changes in foreign currency exchange rates and other		1,302		579
Unconsolidated entities:
Rental expenses of properties managed by us and owned by our unconsolidated entities		83,927		93,018
Adjusted same store portfolio – rental expenses (3)(4)	$	208,679	$	195,479		6.8%
Net Operating Income (1)
Consolidated:
Net operating income per our Consolidated Statements of Operations	$	350,047	$	305,057
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		(23,603)		(8,424)
Effect of changes in foreign currency exchange rates and other		(1,529)		(8,327)
Unconsolidated entities:
Net operating income of properties managed by us and owned by our unconsolidated entities		234,143		270,172
Adjusted same store portfolio – net operating income (3)	$	559,058	$	558,478		0.1%

(1) As discussed above, our same store portfolio includes industrial properties from our consolidated portfolio and owned by the unconsolidated entities (accounted for on the equity method) that are managed by us. During the periods presented, certain properties owned by us were contributed to a co-investment venture and are included in the same store portfolio on an aggregate basis. Neither our consolidated results nor those of the unconsolidated entities, 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 are included in our consolidated results through the contribution date and in the results of the unconsolidated entities subsequent to the contribution date).

(2) 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 activity of both our consolidated industrial properties and those owned by our unconsolidated entities (accounted for on the equity method) and managed by us.

(4) 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 provide 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 companies and the management fee expense recognized by the

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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 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

A majority of the properties acquired by us were subjected to environmental reviews either by us or the previous owners. While some of these assessments have led to further investigation and sampling, none of the environmental assessments have revealed an environmental liability that we believe would have a material adverse effect on our business, financial condition or results of operations.

We record a liability for the estimated costs of environmental remediation to be incurred in connection with certain operating properties we acquire, as well as certain land parcels we acquire in connection with the planned development of the land. The liability is established to cover the environmental remediation costs, including cleanup costs, consulting fees for studies and investigations, monitoring costs and legal costs relating to cleanup, litigation defense, and the pursuit of responsible third parties. 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.

Liquidity and Capital Resources

Overview

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

Near-Term Principal Cash Sources and Uses

In addition to dividends to the common and preferred stockholders of Prologis, Inc. and distributions to the limited partnership units of the Operating Partnership, we expect our primary cash needs will consist of the following:

• repayment of debt including payments on our credit facilities and scheduled principal payments in 2013 of $1.5 billion;

• completion of the development and leasing of the properties in our consolidated development portfolio (a);

• development of new properties for long-term investment, including the acquisition of land in certain markets;

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

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

• depending on market and other conditions, acquisition of operating properties and/or portfolios of operating properties in global or regional markets for direct, long-term investment (this might include acquisitions from our co-investment ventures); and

• depending on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, we may repurchase our outstanding debt or equity securities through cash purchases, in open market purchases, privately negotiated transactions, tender offers or otherwise.

(a) As of December 31, 2012, we had 45 properties in our development portfolio that were 57.4% leased with a current investment of $959.6 million and a total expected investment of $1.7 billion when completed and leased, leaving $759.3 million remaining to be spent.

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

• available unrestricted cash balances ($100.8 million at December 31, 2012);

• property operations;

• fees and incentives earned for services performed on behalf of the co-investment ventures and distributions received from the co-investment ventures;

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

• proceeds from the contributions or sales of properties to current or future co-investment ventures, including our planned contributions to NPR and PELP;

• borrowing capacity under our current credit facility arrangements discussed below ($1.2 billion available as of December 31, 2012), other facilities or borrowing arrangements;

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• proceeds from the issuance of equity securities; and

• proceeds from the issuance of debt securities, including secured mortgage debt.

Debt

As of December 31, 2012, we had $11.8 billion of debt. During 2012 we temporarily increased our debt by $1.4 billion as part of the Co-Investment Venture Acquisitions and the issuance of $493.1 million of new debt, offset partially by repayments of debt.

As of December 31, 2012, we had credit facilities with an aggregate borrowing capacity of $2.1 billion, of which $1.2 billion was available remaining capacity.

As of December 31, 2012, we were in compliance with all of our debt covenants. These covenants include customary financial covenants for total debt ratios, encumbered debt ratios and fixed charge coverage ratios.

In February 2013, we entered into a $500 million bridge loan under which we can borrow in U.S. dollar, euro or yen. We borrowed ¥20 billion under the bridge loan to make our initial cash investment in NPR. As discussed earlier, on February 14, 2013 we closed on the contribution of properties to NPR and received ¥153 billion ($1.7 billion) in net cash proceeds, which were used to pay down existing secured mortgage debt on the properties being contributed, the borrowings outstanding on this bridge loan and the remainder will be used to repay the outstanding borrowings on our credit facilities.

In connection with the PELP contribution, we expect to use the proceeds to further reduce debt and to fund our development and acquisition activities.

See Note 10 to our Consolidated Financial Statements in Item 8 for further information on our debt.

Equity Commitments Related to Certain Co-Investment Ventures

Certain co-investment ventures have equity commitments from us and our venture partners. We may fulfill our equity commitment through contributions of properties or cash. Our venture partners fulfill their equity commitment with cash. We are committed to offer to contribute certain properties that we develop and stabilize in select markets in Europe, Mexico and Japan to certain co-investment ventures. These ventures are committed to acquire such properties, subject to certain exceptions, including that the properties meet certain specified leasing and other criteria, and that the ventures have available capital. Generally the venture obtains financing for the properties and therefore the equity commitment is less than the acquisition price of the real estate. We are not obligated to contribute properties at a loss. Depending on market conditions, the investment objectives of the ventures, our liquidity needs and other factors, we may make contributions of properties to these ventures through the remaining commitment period.

The following table is a summary of remaining equity commitments as of December 31, 2012 (in millions):

	Equity commitments		Expiration date for remaining commitments
Prologis Targeted U.S. Logistics Fund (1)
Prologis	$	-		Open-Ended	(1)
Venture Partners	$	30.0
Prologis SGP Mexico (2)
Prologis	$	24.6		(2	)
Venture Partner	$	98.1
Europe Logistics Venture 1 (3)
Prologis	$	54.5		February 2014
Venture Partner	$	309.0
Prologis China Logistics Venture 1
Prologis	$	68.6		March 2015
Venture Partner	$	388.7
Total Unconsolidated
Prologis	$	147.7
Venture Partner	$	825.8
Prologis Brazil Fund
Prologis	$	118.5		December 2013
Venture Partner	$	118.5
Total Consolidated
Prologis	$	118.5
Venture Partner	$	118.5
Grand Total
Prologis	$	266.2
Venture Partners	$	944.3

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(1) We secured $295.5 million in commitments from third parties in 2012 in order to fund future acquisitions from us and third parties that meet the venture’s investment strategy, or to pay down existing debt. During 2012, the venture called capital of $265.5 million from these investors primarily to fund third party acquisitions.

(2) These equity commitments will be called only if needed to pay outstanding debt of the venture. The relevant debt was due in 2012, which was automatically extended until the third quarter of 2013. There is also an option to extend until the third quarter of 2014.

(3) Equity commitments are denominated in euro and reported above in U.S. dollar. During 2012, this venture acquired two buildings from third parties with capital previously called. Also during 2012, this venture called capital of €136.0 million ($178.6 million) of which €20.4 million ($26.8 million) represented our share to fund the contribution of nine buildings from us and the acquisition of one building from a third party.

For more information on our unconsolidated co-investment ventures, see Note 6 to our Consolidated Financial Statements in Item 8.

Cash Provided by Operating Activities

Net cash provided by operating activities was $463.5 million, $207.1 million and $240.8 million for the years ended December 31, 2012, 2011 and 2010, respectively. In 2012, 2011 and 2010, cash provided by operating activities was less than the cash dividends paid on common and preferred stock by $104.3 million, $207.0 million and $65.3 million, respectively. We used proceeds from the disposition of real estate properties ($2.0 billion in 2012, $1.6 billion in both 2011 and 2010) to fund dividends on common and preferred stock not covered by cash flows from operating activities.

Cash Investing and Cash Financing Activities

For the years ended December 31, 2012, 2011 and 2010, investing activities provided net cash of $529.6 million, used net cash of $233.1 million and provided net cash of $733.3 million, respectively. The following are the significant activities for all periods presented:

• We generated cash from contributions and dispositions of properties and land parcels of $2.0 billion in 2012 and $1.6 billion in both 2011 and 2010. In 2012, we disposed of land, land subject to ground leases and 200 operating properties and contributed 25 operating properties to unconsolidated entities. We have a stated objective to reduce debt that we expect to achieve in part with proceeds received from sales and contributions of properties and, therefore, expect this activity to continue. In 2011, we disposed of land, land subject to ground leases and 94 operating properties that included the majority of our non-industrial assets and contributed 57 operating properties to unconsolidated entities. In 2010, we disposed of land and 205 operating properties and contributed 9 operating properties to unconsolidated entities.

• In 2012, 2011 and 2010, we invested $793.3 million, $811.0 million and $324.5 million, respectively, in real estate development and leasing costs for first generation leases. We have 30 properties under development and 15 properties that are completed but not stabilized as of December 31, 2012 and we expect to continue to develop new properties as the opportunities arise.

• We invested $214.2 million, $144.1 million and $85.8 million in our operating properties during 2012, 2011 and 2010, respectively, which included recurring capital expenditures, tenant improvements and leasing commissions on existing operating properties that were previously leased. The increase in 2012 is primarily a result of our larger portfolio from the Merger, PEPR Acquisition and Co-Investment Venture Acquisitions and our significant leasing activity.

• In 2012, we acquired 1,537 acres of land and 12 operating properties aggregating 1.6 million square feet for a combined total of $254.4 million. In 2011, we acquired 78 acres of land and 8 operating properties aggregating 1.5 million square feet for a combined total of $214.8 million. In 2010, we acquired 33 acres of land and 10 operating properties aggregating 2.4 million square feet for a combined total of $133.7 million.

• In connection with the acquisition of NAIF II in 2012, we repaid the loan from NAIF II to our partner for a total of $336.1 million. Also in 2012, we paid $47.8 million in connection with the acquisition of two of our unconsolidated entities.

• In 2012, 2011 and 2010, we invested cash of $165.0 million, $37.8 million and $335.4 million, respectively, in unconsolidated entities net of repayment of advances by the entities. Our investment in 2012 primarily relates to an increase in our unconsolidated joint ventures in Brazil.

• We received distributions from unconsolidated entities as a return of investment of $291.7 million, $170.2 million and $220.2 million during 2012, 2011 and 2010, respectively. We received $95.0 million during 2012, which represented a return of capital, from one of our other joint ventures that held a note receivable that was repaid during the year.

• In 2012 we received a full redemption of a $55.0 million note receivable that was issued in 2011 through the sale of non-industrial assets. In 2010, we invested $188.0 million in a preferred equity interest in a subsidiary of a buyer of a portfolio of assets and we purchased an $81.0 million loan to NAIF II from the lender.

• In connection with the Merger in 2011, we acquired $234.0 million in cash.

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• During the second quarter of 2011, we used $1.0 billion of cash to purchase units in PEPR. The acquisition was funded with borrowings on a new €500 million bridge facility (“PEPR Bridge Facility”), put in place for the acquisition, and borrowings under our other credit facilities that were subsequently paid from our equity offering (see below for more detail).

For the years ended December 31, 2012, 2011 and 2010, financing activities used net cash of $1.1 billion, provided net cash of $163.3 million and used net cash of $1.0 billion, respectively. The following are the significant activities for all periods presented:

• In 2012, we repurchased and extinguished exchangeable senior notes, secured mortgage debt, senior term loans, and secured mortgage and other debt of consolidated entities for $1.7 billion. In 2011 and 2010, we repurchased and extinguished senior notes, exchangeable senior notes and secured mortgage debt for $894.2 million and $3.1 billion, respectively.

• In 2012, we incurred $1.4 billion of debt, principally secured mortgage debt and senior term loan debt. We used the proceeds from the senior term loan to pay off the two outstanding term loans assumed in connection with the Merger and the remainder to pay down borrowings on our credit facilities. In 2011, we incurred $577.9 million in secured mortgage debt and borrowed $721.0 million on the PEPR Bridge Facility. In 2010, we issued $1.1 billion of senior notes due 2017 and 2020 and $460.0 million of exchangeable senior notes due 2015. The proceeds were used to repay borrowings under our credit facilities. We also incurred $300.3 million in secured mortgage debt.

• We received net proceeds on our credit facilities of $9.1 million in 2012 and borrowed a net $37.6 million and $246.3 million in 2011 and 2010, respectively. In connection with the Merger in 2011, we repaid the outstanding balance under our existing global line of credit and entered into new credit facilities.

• We made net payments of $196.7 million, $975.5 million and $257.5 million on regularly scheduled debt principal and maturity payments during 2012, 2011 and 2010, respectively. In 2011, we used $711.8 million in proceeds from our equity offering to repay the amounts borrowed under the PEPR Bridge Facility. Additionally, 2011 activity included the repayment of €101.3 million ($146.8 million) of the euro notes that matured in April 2011.

• We generated proceeds from the issuance of common stock under our incentive stock plans, principally stock options, of $31.0 million in 2012. We had minimal activity in 2011. We generated proceeds from the sale and issuance of common stock under our various common share plans of $30.8 million during 2010, primarily from our at-the-market equity issuance program. The at-the-market equity program was terminated in connection with the Merger.

• We paid distributions of $520.3 million, $387.1 million and $280.7 million to our common stockholders during 2012, 2011 and 2010, respectively. We paid dividends on our preferred stock of $47.6 million, $27.0 million and $25.4 million during 2012, 2011 and 2010, respectively.

• As part of the liquidation of PEPR, we made payments of $117.3 million in 2012 to purchase additional units of PEPR. Also in 2012, we purchased shares in Prologis Institutional Alliance Fund II for $14.1 million and our partner’s interest in certain properties in the Brazil Fund of $4.4 million and redeemed units of our limited partners in the Operating Partnership for cash of $5.8 million.

• In 2012 and 2011, noncontrolling interest partners made contributions of $70.8 million and $123.9 million, respectively, primarily for the purchase of real estate properties by our consolidated co-investment venture, Mexico Fondo Logistico. In addition, we distributed $44.1 million and $17.4 million to various noncontrolling interests in 2012 and 2011, respectively.

• In June 2011, we completed an equity offering and issued 34.5 million shares of common stock and received net proceeds of approximately $1.1 billion. The proceeds were used to repay the PEPR Bridge Facility completely and the remainder was used to repay a portion of the borrowings outstanding under our credit facilities. In 2010, we received net proceeds of $1.1 billion from the issuance of 41.1 million common shares.

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Off-Balance Sheet Arrangements

Unconsolidated Co-Investment Ventures Debt

We had investments in and advances to certain unconsolidated co-investment ventures at December 31, 2012 of $2.0 billion. These unconsolidated ventures had total third party debt of $7.2 billion (in the aggregate, not our proportionate share) at December 31, 2012. This debt is primarily secured or collateralized by properties within the venture and is non-recourse to Prologis or the other investors in the co-investment ventures and matures as follows (in millions):

	2013		2014		2015		2016		2017		Thereafter		Discount/ Premium			Total (1)		Prologis Ownership % at 12/31/12
Prologis North American Industrial Fund	$	80.0	$	-	$	108.7	$	444.0	$	205.0	$	354.5	$	-		$	1,192.2		23.1	%
Prologis North American Industrial Fund III (2)		502.4		146.2		-		-		-		-		(0.8	)		647.8		20.0	%
Prologis Targeted U.S. Logistics Fund (3)		187.1		103.3		180.2		241.5		14.2		823.2		16.6			1,566.1		23.9	%
Prologis Mexico Industrial Fund		-		-		-		-		214.1		-		-			214.1		20.0	%
Prologis SGP Mexico		62.5		3.9		4.1		144.8		-		-		-			215.3		21.6	%
Prologis European Properties Fund II		84.7		574.0		258.9		233.8		66.5		520.3		(4.1	)		1,734.1		29.7	%
Prologis Targeted Europe Logistics Fund		9.6		395.2		232.1		2.3		2.5		-		8.4			650.1		32.4	%
Prologis Japan Fund 1 (4)		478.6		2.4		4.1		110.4		249.5		-		3.9			848.9		20.0	%
Prologis China Logistics Venture 1		-		-		-		124.0		-		-		-			124.0		15.0	%
Total co-investment ventures	$	1,404.9	$	1,225.0	$	788.1	$	1,300.8	$	751.8	$	1,698.0	$	24.0		$	7,192.6

(1) As of December 31, 2012, we had guaranteed $30.4 million of the third party debt of the co-investment ventures. In our role as the manager, we work with the co-investment ventures to refinance their maturing debt. There can be no assurance that the co-investment ventures will be able to refinance any maturing indebtedness on terms as favorable as the maturing debt, or at all. If the ventures are unable to refinance the maturing indebtedness with newly issued debt, they may be able to obtain funds by voluntary capital contributions from us and our partners or by selling assets. Certain of the ventures also have credit facilities, or unencumbered properties, both of which may be used to obtain funds. Generally, the co-investment ventures issue long-term debt and utilize the proceeds to repay borrowings under the credit facilities.

(2) This venture is working with the lender to extend the maturity of this debt and may also sell properties and use the proceeds to repay debt.

(3) This venture expects to pay 2013 maturities through asset sales, equity contributions and the issuance of new debt.

(4) This venture expects to sell certain properties in 2013 and use the proceeds to repay debt.

Contractual Obligations

Long-Term Contractual Obligations

We had long-term contractual obligations at December 31, 2012 as follows (in millions):

	Payments Due By Period
	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
Debt obligations, other than credit facilities	$	1,476	$	3,580	$	2,335	$	3,445	$	10,836
Interest on debt obligations, other than credit facilities		483		764		558		432		2,237
Unfunded commitments on the development portfolio (1)		546		213		-		-		759
Operating lease payments		38		71		58		385		552
Amounts due on credit facilities		-		889		-		-		889
Interest on credit facilities		16		11		-		-		27
Totals	$	2,559	$	5,528	$	2,951	$	4,262	$	15,300

(1) We had properties in our development portfolio (completed and under development) at December 31, 2012 with a total expected investment of $1.7 billion. The unfunded commitments presented include not only those costs that we are obligated to fund under construction contracts, but all costs necessary to place the property into service, including the estimated costs of tenant improvements, marketing and leasing costs that we will incur as the property is leased.

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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 dividend policy on our common stock is to distribute a percentage of our cash flow to ensure we will meet the dividend requirements of the Internal Revenue Code, relative to maintaining our REIT status, while still allowing us to retain cash to meet other needs such as capital improvements and other investment activities.

In 2012, we paid a quarterly cash dividend of $0.28 per common share. A cash dividend of $0.28 for the first quarter of 2013 was declared on February 27, 2013. This dividend will be paid on March 29, 2013 to holders of common shares on March 12, 2013. Our future common stock dividends may vary and will be determined by our Board upon the circumstances prevailing at the time, including our financial condition, operating results and REIT distribution requirements, and may be adjusted at the discretion of the Board during the year.

At December 31, 2012, we had seven series of preferred stock outstanding. The annual dividend rates on preferred stock are 6.5% per Series L share, 6.75% per Series M share, 7.0% per Series O share, 6.85% per Series P share, 8.54% per Series Q share, 6.75% per Series R share and 6.75% per Series S share. The dividends on preferred stock are payable quarterly in arrears.

Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock has been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.

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 stockholders, 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. 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. Fair value is determined 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, where considered necessary. The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. If our analysis indicates that the carrying value of 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.

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.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update that permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. We utilized the qualitative assessment for our 2012 annual impairment test.

Assumptions and estimates used in the recoverability analyses for future cash flows, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions or our intent with regard to our investment that occurs subsequent to our impairment analyses could impact these assumptions and result in future impairment of our real estate properties and/or goodwill.

Other than Temporary Impairment of Investments in Unconsolidated Entities

When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate whether the loss in value is other than temporary. If we determine there is a loss in value that is other than temporary, we recognize an impairment charge to reflect the

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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, as well as changes in our intent with regard to our investment, that occur subsequent to our review could impact these assumptions and result in future impairment charges of our equity investments.

Revenue Recognition – Gains on Disposition of Real Estate

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 entity that acquires the assets. We also make judgments regarding recognition in earnings of certain fees and incentives based on when they are earned, 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, intangible assets related to above and below market leases, value of costs to obtain tenants, deferred tax liabilities and other assumed 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 is based upon the expected future cash flows of the property and various characteristics of the markets where the property is located. The fair value may also include an enterprise value premium that we estimate a third party would be willing to pay for a portfolio of properties. 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 control an entity and whether the entity is a variable interest entity and we are the primary beneficiary through consideration of the substantive terms of the arrangement to identify which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity. 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, rehabilitating, and improving real estate assets as part of the investment basis. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. 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, and rehabilitation if such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. Capitalized costs are included in the investment basis of real estate assets. We also capitalize costs incurred to successfully originate a lease that result directly from, and are essential to, the acquisition of that lease. Leasing costs that meet the requirements for capitalization 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. Our ability 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 taxable REIT subsidiaries 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.

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Derivative Financial Instruments

All derivatives are recognized at fair value in our 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 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.

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 in earnings. Derivatives not designated as hedges are not speculative and may be used to manage our exposure to foreign currency fluctuations and variable interest rates but do not meet the strict hedge accounting requirements.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and hedges of net investments in foreign operations are recorded in Accumulated Other Comprehensive Loss in our Consolidated Balance Sheets. 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 in earnings. For cash flow hedges, 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.

New Accounting Pronouncements

See Note 2 to our Consolidated Financial Statements in Item 8.

Funds from Operations (“FFO”)

FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings. Although the National Association of Real Estate Investment Trusts (“NAREIT”) has published a definition of FFO, modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business.

FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We believe net earnings computed under GAAP remains the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings computed under GAAP. Further, we believe our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and our operating performance.

NAREIT’s FFO measure adjusts net earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales, along with impairment charges, of previously depreciated properties. We agree that these 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, along with impairment charges, 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 and impairment charges of land and development properties, as well as our proportionate share of the gains and losses from dispositions and impairment charges recognized by our unconsolidated entities, 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 stockholders, potential investors and financial analysts who review our operating results are best served by a defined FFO measure

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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 stockholders, potential investors and financial analysts understand the measures management uses.

We use these FFO measures, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) assess our performance as compared to similar real estate companies and the industry in general; and (v) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of short-term items that we do not expect to affect the underlying long-term performance of the properties. The long-term performance of our properties is principally driven by rental income. While not infrequent or unusual, these additional items we exclude in calculating FFO, as defined by Prologis, are subject to significant fluctuations from period to period that cause both positive and negative short-term effects on our results of operations in inconsistent and unpredictable directions that are not relevant to our long-term outlook.

We use our FFO measures as supplemental financial measures of operating performance. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

FFO, as defined by Prologis

To arrive at FFO, as defined by Prologis, we adjust the NAREIT defined FFO measure to exclude:

(i) deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;

(ii) current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in GAAP earnings that is excluded from our defined FFO measure;

(iii) foreign currency exchange gains and losses resulting from debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated entities;

(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 entities; and

(v) mark-to-market adjustments associated with derivative financial instruments.

We calculate FFO, as defined by Prologis for our unconsolidated entities on the same basis as we calculate our FFO, as defined by Prologis.

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.

Core FFO

In addition to FFO, as defined by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as defined by Prologis, to exclude the following recurring and non-recurring items that we recognized directly or our share recognized by our unconsolidated entities to the extent they are included in FFO, as defined by Prologis:

(i) gains or losses from acquisition, contribution or sale of land or development properties;

(ii) income tax expense related to the sale of investments in real estate;

(iii) impairment charges recognized related to our investments in real estate (either directly or through our investments in unconsolidated entities) generally as a result of our change in intent to contribute or sell these properties;

(iv) impairment charges of goodwill and other assets;

(v) gains or losses from the early extinguishment of debt;

(vi) merger, acquisition and other integration expenses; and

(vii) expenses related to natural disasters.

We believe it is appropriate to further adjust our FFO, as defined by Prologis for certain recurring items as they were driven by transactional activity and factors relating to the financial and real estate markets, rather than factors specific to the on-going operating performance of our properties or investments. The impairment charges we recognized 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. We currently have and have had over the past several years a stated priority to strengthen our financial position. We expect to accomplish this by reducing our debt, our investment in certain low yielding assets, such as land that we decide not to develop and our exposure to foreign currency exchange fluctuations. As a result, we have sold to third parties or contributed to unconsolidated entities real estate properties that, depending on market conditions, might result in a gain or loss. The impairment charges related to goodwill and other assets that we have recognized were similarly caused by the decline in the real estate markets. Also in connection with our stated priority to reduce debt and extend debt maturities, we have purchased portions of our debt securities. As a result, we recognized net gains or losses on the early extinguishment of certain debt due to the financial market conditions at that time.

We have also adjusted for some non-recurring items. The merger, acquisition and other integration expenses include costs we incurred in 2011 and 2012 associated with the Merger and PEPR Acquisition and the integration of our systems and processes. We have not adjusted for the

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acquisition costs that we have incurred as a result of routine acquisitions but only the costs associated with significant business combinations that we would expect to be infrequent in nature. Similarly, the expenses related to the natural disaster in Japan that we recognized in 2011 are a rare occurrence but we may incur similar expenses again in the future.

We analyze our operating performance primarily by the rental income of our real estate and the revenue driven by our private capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities. As a result, although these 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.

We use Core FFO, 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) provide guidance to the financial markets to understand our expected operating performance; (v) assess our operating performance as compared to similar real estate companies and the industry in general; and (vi) 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 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.

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

• The deferred income tax benefits and expenses that are excluded from our defined FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our defined FFO measures do not currently reflect any income or expense that may result from such settlement.

• The foreign currency exchange gains and losses that are excluded from our defined FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.

• The impairment charges of goodwill and other assets that we exclude from Core FFO, have been or may be realized as a loss in the future upon the ultimate disposition of the related investments or other assets through the form of lower cash proceeds.

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

• The Merger, acquisition and other integration expenses and the natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

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We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete consolidated financial statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our defined FFO measures to our net earnings computed under GAAP for the years ended December 31 as follows (in thousands).

	2012		2011		2010
FFO:
Reconciliation of net loss to FFO measures:
Net loss attributable to common stockholders	$	(80,946)	$	(188,110)	$	(1,295,920)
Add (deduct) NAREIT defined adjustments:
Real estate related depreciation and amortization		721,436		533,854		278,781
Impairment charges on certain real estate properties		34,801		5,300		126,987
Net gain on non-FFO dispositions and acquisitions		(222,752)		(7,338)		(179,679)
Reconciling items related to noncontrolling interests		(27,680)		(19,889)		-
Our share of reconciling items included in earnings from unconsolidated entities		127,323		147,608		141,721
Subtotal-NAREIT defined FFO		552,182		471,425		(928,110)
Add (deduct) our defined adjustments:
Unrealized foreign currency and derivative losses (gains), net		14,892		(39,034)		11,487
Deferred income tax benefit		(8,804)		(19,803)		(52,223)
Our share of reconciling items included in earnings from unconsolidated entities		(5,835)		(900)		(5,351)
FFO, as defined by Prologis		552,435		411,688		(974,197)
Impairment charges		264,844		145,028		1,110,072
Natural disaster expenses		-		5,210		-
Merger, acquisition and other integration expenses		80,676		140,495		-
Gains on acquisitions and dispositions of investments in real estate, net		(121,303)		(117,800)		(110,786)
Loss (gain) on early extinguishment of debt		14,114		(258)		201,486
Income tax expense on dispositions