Long-Term Compensation

12 Months Ended

Dec. 31, 2011

Long-Term Compensation [Abstract]

Long-Term Compensation

14. Long-Term Compensation

Under its incentive plans, ProLogis had stock options and full value awards (restricted share units (“RSUs”) and performance share awards (“PSAs”)) outstanding as of the date the Merger was completed. Pursuant to the Merger, each outstanding award of ProLogis was converted into 0.4464 of a newly issued award of the REIT. Additionally, the exercise prices of stock options and the grant date fair values of full value awards have been adjusted to reflect the conversion of the underlying award. Stock options, restricted stock and RSUs granted under AMB’s incentive plans were adjusted to fair value pursuant to the Merger. The portion related to vested awards was recognized as adjustments to paid in capital while the unvested awards will be amortized over their remaining service periods.

The 2006 long-term incentive plan, the 2002 long-term incentive plan, and the outside directors plan (collectively, the “Incentive Plan”) have been approved by our stockholders and provide for grants of stock options, stock appreciation rights (“SARs”), full value awards and cash incentive awards to employees and other persons providing services to us and our subsidiaries, including outside directors. Approximately 35.9 million shares of common stock in the aggregate were authorized under the Incentive Plan, of which 4.9 million shares of common stock were available for future issuance at December 31, 2011. Under the 2002 long-term incentive plan, in any one calendar-year period, no participant shall be granted more than 1 million shares per year. Under the 2006 long-term incentive plan, in any one calendar-year period, no participant shall be granted: (i) more than 500,000 stock options and SARs; (ii) more than 500,000 full value performance based awards; or (iii) more than $10,000,000 in cash incentive awards. Common stock may be awarded under the Incentive Plan until it is terminated by the Board or the ten-year anniversary of the plan pursuant to the terms of the applicable plan.

Stock Options

We have granted various stock options to our employees and outside directors, subject to certain conditions. Each stock option is exercisable into one share of common stock. Stock options granted to employees generally have graded vesting over a three-or four year period and have an exercise price equal to the market price on the date of the grant. Stock options granted to outside directors generally vest immediately or within one year of the grant. The maximum contractual term of the stock option is ten years. No stock options were granted in 2011, 2010 and 2009.

The activity for the year ended December 31, 2011, with respect to our stock options is presented below:

	Options Outstanding				Options Exercisable
	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price		Weighted Average Life (in years)
Balance at January 1, 2011		1,438,514	$	66.89
Options acquired in Merger		9,052,566		30.66
Settled		(124,278)		71.64
Exercised		(249,813)		22.01
Forfeited/Expired		(237,029)		59.88
Balance at December 31, 2011		9,879,960	$	34.93		8,239,656	$	37.13		4.4

Total remaining compensation cost related to unvested options as of December 31, 2011, is $8.5 million, prior to adjustments for capitalized amounts due to our development and leasing activities. The remaining expense will be recognized through 2015, which equates to a weighted average period of 1.28 years.

As discussed in Note 3, we estimated the fair value of the AMB stock options using the Black- Scholes pricing model as of the Merger date. The fair value of the vested awards were included as part of the total Merger consideration. We will expense the unvested portion over the remaining service period. We used the following assumptions:

Expected volatility	25-55%
Weighted average volatility	45.8%
Expected dividends	3.73%
Expected term (in years)	1-6
Risk-free rate	0.19-1.92%

We use historical data to estimate dividend yield, expected term and employee departure behavior used in the Black-Scholes pricing model. The risk-free interest for periods within the expected term of the share option is based on the U.S. treasury yield curve in effect at the time of the Merger. To calculate the expected volatility of Prologis we weighted the historical volatility of ProLogis and AMB, as well as peer group data.

Full Value Awards

We have granted full value awards, generally in the form of restricted share units, restricted stock awards and performance-based awards, to certain employees, generally on an annual basis. These stock awards, each representing one share of common stock, generally vest ratably over a continued service period and earn cash dividends or dividend equivalent units (“DEUs) (at our common stock dividend rate) over the vesting period. The fair value of the awards is charged to compensation expense over the service period. Cash dividends and DEUs are charged to retained earnings and factored into the computation of the fair value of the underlying stock award at grant date.

Restricted Share Units (“RSUs”)

RSUs are valued on the grant date based on the market price of common stock on that date. We recognize the value of the RSUs earned as compensation expense over the applicable service period, which is generally the vesting period of three years. Through 2009, RSUs earned DEUs that vested according to the underlying RSU. In 2010, we began to pay cash dividends on the RSUs during the vesting period. We issue fully vested deferred stock awards to our outside directors, which earn DEUs that are also fully vested. The fair value of the deferred stock awards, which is the market price of common stock on the grant date, is expensed at the time of grant. The weighted average fair value of RSUs and deferred stock awards granted during the years 2011, 2010 and 2009 was $29.81, $27.58 and $14.61, respectively.

Performance-Based Shares (“PSAs”)

We granted performance-based shares in the form of PSAs in 2011, 2010 and 2009. Employees were granted a targeted number of PSAs, which are then earned based on specified performance criteria over a performance period. Earned PSAs are also subject to an additional vesting period. During the performance period, the unearned PSAs accrue DEUs, which will be earned and vested according to the underlying award. In 2010, we began to pay cash dividends on earned PSAs during the additional vesting period.

In 2011, 2010 and 2009, PSAs were granted to certain employees at a targeted amount that could be earned based on specific individual and company performance criteria, generally over a one-year performance period. Employees could earn between 0% and 200% of PSAs granted in 2011 and 2010 with a performance period ending December 31, 2011 and December 31, 2010, respectively. The PSAs vest ratably over a three-year period from the date of grant. In 2011, we granted 280,525 PSAs and based on the attainment of specified individual and company performance goals, a total of 326,475 were earned. In 2010, we granted 242,406 PSAs and based on the attainment of specified individual and company performance goals, a total of 225,943 were earned. In 2009, we granted 370,320 PSAs and based the attainment of specified individual and company performance goals, a total of 455,276 were earned. PSAs are valued based upon the market price of our common stock on the date of grant. We recognize the value of the PSAs earned as compensation expense using front loaded vesting over the service period, which includes the performance period.

The weighted-average fair value of the PSAs granted during the years 2011, 2010 and 2009 was $32.77, $30.65 and $15.52, respectively.

Summary of Activity of our RSUs and PSAs

The activity for the year ended December 31, 2011 with respect to our RSU and PSA awards is as follows:

	Number of Shares		Weighted Average Grant-Date Fair Value		Number of Shares Vested
Balance at January 1, 2011		1,863,420	$	31.00		87,935
Awards acquired in Merger		89,864		34.07
Granted		1,027,960		34.13
Settled		(149,053)		58.51
Distributed		(976,185)		29.66
Forfeited		(171,293)		58.29
Balance at December 31, 2011		1,684,713	$	30.43		48,735

Restricted Stock

Restricted stock is valued based on the grant date on the market price of common stock on that date. The vesting period for the restricted stock is generally been three to four years. We recognize the value of the restricted stock earned as compensation expense over the applicable service period, which is generally the vesting period. The restricted stock has voting rights and is included in our outstanding shares.

The activity for the year ended December 31, 2011, with respect to our unvested restricted stock is presented below:

	Number of Shares		Weighted Average Grant-Date Fair Value
Balance at January 1, 2011		-	$	-
Awards acquired in Merger		1,228,944		34.07
Granted		15,500		33.82
Vested		(44,060)		34.07
Forfeited		(7,402)		34.07
Balance at December 31, 2011		1,192,982	$	34.07

Compensation Expense

During the years ended December 31, 2011, 2010 and 2009, we recognized $31.5 million, $25.1 million and $17.2 million, respectively, of compensation expense including awards granted to our outside trustees and net of forfeited awards. These amounts include expense reported as General and Administrative Expenses and Merger, Acquisition and Other Integrated Expenses and are net of $8.7 million, $5.3 million and $5.8 million, respectively, that was capitalized due to our development and leasing activities.

Total remaining compensation cost related to unvested RSUs, PSAs and RSAs as of December 31, 2011, is $47.1 million, prior to adjustments for capitalized amounts due to our development and leasing activities. The remaining expense will be recognized through 2015, which equates to a weighted average period of 1.6 years.

Other Plans

As of December 31, 2011, we had two 401(k) Savings Plan and Trusts (“401(k) Plans”), one from ProLogis and one from AMB. The 401(k) Plans provide for matching employer contributions of 50 cents for every dollar contributed by an employee, up to 6% of the employee’s annual compensation (within the statutory compensation limit). In the ProLogis 401(k) plan, vesting in the matching employer contributions is based on the employee’s years of service, with 20% vesting each year of service, over a five-year period. In the AMB 401(k) plan, matching employer contributions vests in full after one year of service by the employee. In 2012, both plans will be merged into one plan.

At December 31, 2011, we have two nonqualified savings plan to provide benefits for certain employees, one from ProLogis and one from AMB. The purpose of these plans is to allow highly compensated employees the opportunity to defer the receipt and income taxation of a certain portion of their compensation in excess of the amount permitted under the 401(k) Plan. In the ProLogis deferred compensation plan, we match the lesser of (a) 50% of the sum of deferrals under both the 401(k) Plan and this plan, and (b) 3% of total compensation up to certain levels. These matching contributions vest in the same manner as the ProLogis 401(k) Plan. In the AMB deferred compensation plan, employer matching was not offered. Effective as of January 1, 2012, a new deferred compensation plan for Prologis was established.

On a combined basis for all plans, our contributions under the matching provisions were $1.6 million, $1.3 million and $1.1 million for 2011, 2010 and 2009, respectively.