Business Combinations

12 Months Ended

Dec. 31, 2011

Business Combinations [Abstract]

Business Combinations

3. Business Combinations

Merger of AMB and ProLogis

As discussed in Note 1, we completed the Merger on June 3, 2011. After consideration of all applicable factors pursuant to the business combination accounting rules, the Merger resulted in a reverse acquisition in which AMB was the “legal acquirer” because AMB issued its common stock to ProLogis shareholders and ProLogis was the “accounting acquirer” due to various factors, including the fact that ProLogis shareholders held the largest portion of the voting rights in the merged entity and ProLogis appointees represented the majority of the Board of Directors. In our Consolidated Financial Statements, the historical results of ProLogis are included for the entire period presented and the results of AMB are included subsequent to the Merger.

As ProLogis was the accounting acquirer, the calculation of the purchase price for accounting purposes is based on the price of ProLogis common shares and common shares ProLogis would have had to issue to achieve a similar ownership split between AMB stockholders and ProLogis shareholders. We estimated the fair value of the pre-combination portion of AMB’s stock-based compensation awards based on market data and, in the case of the stock options, we used a Black-Scholes model to estimate the fair value of these awards as of the Merger date. An adjustment was made to equity for the vested portion while the unvested portion will be expensed over the remaining service period. The purchase price allocation reflects aggregate consideration of approximately $5.9 billion, as calculated below (in millions, except price per share):

ProLogis shares and limited partnership units outstanding at June 2, 2011 (60% of total shares of the combined company)		571.4
Total shares of the combined company (for accounting purposes)		952.3
Number of AMB shares to be issued (40% of total shares of the combined company)		380.9
Multiplied by price of ProLogis common share on June 2, 2011	$	15.21
Consideration associated with common shares issued	$	5,794.1
Add consideration associated with share based payment awards.		62.4
Total consideration of the Operating Partnership	$	5,856.5

The allocation of the purchase price requires a significant amount of judgment. The allocation was based on our valuation, estimates and assumptions of the acquisition date fair value of the tangible and intangible assets and liabilities acquired. While the current allocation of the purchase price is substantially complete, the valuation of the real estate properties is in process of being finalized. We do not expect future revisions, if any, to have a significant impact on our financial position or results of operations. The allocation of the purchase price was as follows (in millions):

Investments in real estate properties	$	8,172.8
Investments in and advances to unconsolidated investees		1,620.3
Cash, accounts receivable and other assets		687.8
Debt		(3,646.7)
Accounts payable, accrued expenses and other liabilities		(430.5)
Noncontrolling interests		(547.2)
Total purchase price of the Operating Partnership	$	5,856.5

Acquisition of ProLogis European Properties

In April 2011, we purchased 11.1 million ordinary units of PEPR, increasing our ownership interest to approximately 39%, and launched a mandatory tender offer to acquire any or all of the outstanding ordinary units and convertible preferred units of PEPR that we did not own at that time. On May 25, 2011, we settled our mandatory tender offer that resulted in the acquisition of an additional 96.5 million ordinary units and 2.7 million convertible preferred units of PEPR. During all of the second quarter of 2011, we made aggregate cash purchases totaling €715.8 million ($1.0 billion). We funded the purchases through borrowings under our global line of credit and a new €500 million bridge facility, which was subsequently repaid with proceeds from our June equity offering (“June 2011 Equity Offering”).

Upon completion of the tender offer, we met the requirements to consolidate PEPR. In accordance with the accounting rules for business combinations, we marked our equity investment in PEPR from carrying value to fair value of approximately €486 million, which resulted in the recognition of a gain of €59.6 million ($85.9 million). We refer to this transaction as the “PEPR Acquisition”. The fair value was based on the trading price for our previously owned units and our acquisition price for the PEPR units purchased during the tender offer period. As of December 31, 2011, we owned approximately 93.7% of the voting ordinary units of PEPR and 94.9% of the convertible preferred units.

We have allocated the aggregate purchase price, representing the share of PEPR we owned at the time of consolidation of €1.1 billion or ($1.6 billion) as set forth below. The allocation was based on our valuation, estimates and assumptions of the acquisition date fair value of the tangible and intangible assets and liabilities acquired. While the current allocation of the purchase price is substantially complete, the valuation of the real estate properties is being finalized. We do not expect future revisions, if any, to have a significant impact on our financial position or results of operations. The allocation of the purchase price was as follows (in millions):

Investments in real estate properties	$	4,453.0
Cash, accounts receivable and other assets		251.8
Debt		(2,240.7)
Accounts payable, accrued expenses and other liabilities		(703.5)
Noncontrolling interests		(133.7)
Total purchase price	$	1,626.9

Summary of Significant Estimates

The purchase price allocations for the Merger and the PEPR Acquisition were based on our assessment of the fair value of the acquired assets and liabilities using both Level 2 and 3 inputs, as summarized below.

Investments in Real Estate Properties. We estimated the fair value generally by applying an income approach methodology using a discounted cash flow analysis. Key assumptions included in the discounted cash flow analysis included origination costs and discount and capitalization rates. Discount and capitalization rates were determined by market based on recent appraisals, transactions or other market data. The fair value also includes a portfolio premium that we estimate a third party would be willing to pay for the entire portfolio. If we expected to sell the property in the near term, the fair value of the real estate was based on third party appraisals, letters of intent, or purchase and sales agreements. Our valuations were based, in part, on a valuation prepared by an independent valuation firm.

Investments in Unconsolidated Investees. We estimated the fair value of the investee by using similar valuation methods as those used for consolidated real estate properties and debt. We multiplied the net asset value by our ownership percentage in the investee to estimate the fair value of our investment.

Intangible Assets. The fair value of in place leases was calculated based upon our estimate of the costs to obtain tenants, primarily leasing commissions, in each of the applicable markets. An asset or liability was recognized for acquired leases with favorable or unfavorable rents based on our estimate of current market rents in each of the applicable markets. The recognition of value of existing investment management agreements was calculated by discounting future expected cash flows under these agreements. Our valuations of the intangible assets were based, in part, on a valuation prepared by an independent valuation firm.

Debt. The fair value of debt was estimated based on contractual future cash flows discounted using borrowing spreads and market interest rates that would be available to us for the issuance of debt with similar terms and remaining maturities. In the case of publicly traded debt, the fair value was estimated based on available market data.

Noncontrolling Interest. We estimated the portion of the fair value of the net assets owned by third parties based on the fair value of the consolidated real estate properties and debt.

Pro forma Information (unaudited)

The following unaudited pro forma financial information presents our results as though the Merger and the PEPR Acquisition, as well as the June 2011 Equity Offering that was used to fund the PEPR Acquisition, had been consummated as of January 1, 2010. The pro forma information does not necessarily reflect the actual results of operations had the transactions been consummated at the beginning of the period indicated nor is it necessarily indicative of future operating results. The pro forma information does not give effect to any cost synergies or other operating efficiencies that could result from the Merger and also does not include any merger and integration expenses. The results for 2011 include approximately seven months of actual results for both the Merger and the PEPR Acquisition and five months of pro forma adjustments. Actual results in 2011 included rental income and rental expenses of the acquired properties of $565.5 million and $147.6 million, respectively.

(amounts in thousands, except per share amounts)	2011		2010
Total revenues	$	1,981,579	$	1,898,083
Net loss attributable to common shares	$	(70,988)	$	(1,374,283)
Net loss per share attributable to common shares - basic	$	(0.15)	$	(3.24)
Net loss per share attributable to common shares - diluted	$	(0.15)	$	(3.24)

These results include certain adjustments, primarily decreased revenues resulting from the amortization of the net asset from the acquired leases with favorable or unfavorable rents relative to estimated market rents, increased depreciation and amortization expense resulting from the adjustment of real estate assets to estimated fair value and recognition of intangible assets related to in-place leases and acquired management contracts and lower interest expense due to the accretion of the fair value adjustment of debt.