10.

Debt

All debt is held directly or indirectly by the Operating Partnership. The REIT itself does not have any indebtedness, but guarantees the unsecured debt of the Operating Partnership. We generally do not guarantee the debt issued by non-wholly owned subsidiaries.

Our debt consisted of the following as of December 31 (dollars in thousands):


	2012				2011
	Weighted Average Interest Rate (1)		Amount Outstanding (2)		Weighted Average Interest Rate (1)		Amount Outstanding
Credit Facilities		1.5 %	$	888,966		2.2 %	$	936,796
Senior notes (3)(4)		5.6 %		5,223,136		6.3 %		4,772,607
Exchangeable senior notes (5)		4.6 %		876,884		4.8 %		1,315,448
Secured mortgage debt (3)(6)		4.0 %		3,625,908		4.7 %		1,725,773
Secured mortgage debt of consolidated entities (3)(7)		4.4 %		450,923		4.5 %		1,468,637
Other debt of consolidated entities (3)		4.8 %		67,749		5.3 %		775,763
Other debt (8)		1.8 %		657,228		2.4 %		387,384

Totals		4.4 %	$	11,790,794		5.1 %	$	11,382,408

(1)	The interest rates represent the effective interest rates (including amortization of the non-cash premiums or discount).

(2)	Included in the outstanding balances are borrowings denominated in non-U.S. dollars: euro ($1.8 billion), Japanese yen ($2.1 billion) and British pound sterling ($0.2 billion).

(3)

As discussed in Note 13 in connection with the liquidation of PEPR in 2012, we acquired the remaining interest in PEPR’s assets and liabilities. As such, $1.4 billion was reclassified from debt of consolidated entities to $538.7 million of senior notes and $852.2 million of secured mortgage debt. Also, as part of the Co-Investment Venture Acquisitions, we assumed $1.0 billion of secured mortgage debt.

(4)	Notes are due January 2013 to July 2020 and interest rates range from 2.3% to 9.3%.

(5)	Interest rates range from 3.3% to 5.9% and include the impact of amortization of the non-cash discount related to these notes. The weighted average coupon interest rate was 2.8% and 2.6% as of December 31, 2012 and 2011, respectively. See below for more detail on these notes.

(6)	Debt is due January 2013 to May 2025 and interest rates range from 0.8% to 7.6%. The debt is secured by 402 real estate properties with an aggregate undepreciated cost of $7.6 billion at December 31, 2012.

(7)	Debt is due January 2013 to December 2027 and interest rates range from 1.9% to 8.3%. The debt is secured by 107 real estate properties with an aggregate undepreciated cost of $1.0 billion at December 31, 2012.

(8)

The debt includes $17.6 million of assessment bonds and $639.6 million of corporate term loans with varying interest rates from 1.6% to 7.9% that are due May 2013 to September 2033. The assessment bonds are issued by municipalities and guaranteed by us as a means of financing infrastructure and secured by assessments (similar to property taxes) on various underlying real estate properties with an aggregate undepreciated cost of $864.3 million at December 31, 2012.

During 2011 and 2010, we repurchased certain senior and exchangeable senior notes outstanding, and also repaid certain secured mortgage debt in Japan. The original principal amount of the debt activity during 2011 and 2010 was $894.5 million and $3.0 billion, respectively, creating a gain of less than $1.0 million and a loss of $201.5 million in 2011 and 2010, respectively.

Credit Facilities

We have a global senior credit facility (“Global Facility”), from which funds may be drawn in U.S. dollar, euro, Japanese yen, British pound sterling and Canadian dollar on a revolving basis. The loans cannot exceed $1.7 billion (subject to currency fluctuations). We may increase the Global Facility to $2.7 billion, subject to currency fluctuations and obtaining additional lender commitments. The Global Facility is scheduled to mature on June 3, 2015, but we may, at our option and subject to the satisfaction of certain conditions and payment of an extension fee, extend the maturity date to June 3, 2016. Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based upon the public debt ratings of the Operating Partnership. The Global Facility contains customary representations, covenants and defaults (including a cross-acceleration to other recourse indebtedness of more than $50 million).

We also have a ¥36.5 billion (approximately $424.0 million at December 31, 2012) Japanese yen revolver (the “Revolver”). The Revolver matures on March 1, 2014, but we may, at our option and subject to the satisfaction of customary conditions and payment of an extension fee, extend the maturity date to February 27, 2015. We may increase availability under the Revolver to an amount not exceeding ¥56.5 billion (approximately $656.0 million at December 31, 2012) subject to obtaining additional lender commitments. Pricing under the Revolver is consistent with the Global Facility pricing. The Revolver contains certain customary representations, covenants and defaults that are substantially the same as the corresponding provisions of the Global Facility.

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities”.

Commitments and availability under our Credit Facilities were as follows (dollars in millions):


	2012		2011		2010
For the years ended December 31:
Weighted average daily interest rate		1.6 %		2.7 %		2.5 %
Weighted average daily borrowings	$	815.2	$	870.9	$	501.1
Maximum borrowings outstanding at any month-end	$	1,633.9	$	2,368.1	$	1,010.2
As of December 31:
Aggregate borrowing capacity	$	2,118.3	$	2,184.6	$	1,601.5
Borrowings outstanding	$	888.9	$	934.9	$	520.1
Outstanding letters of credit	$	68.0	$	85.0	$	88.2
Aggregate remaining capacity available	$	1,161.4	$	1,164.7	$	993.2

Senior Notes

The senior unsecured notes are issued by the Operating Partnership and guaranteed by the REIT. Our obligations under the senior notes are effectively subordinated in certain respects to any of our debt that is secured by a lien on real property, to the extent of the value of such real property. The senior notes require interest payments be made quarterly, semi-annually or annually. All of the senior and other notes are redeemable at any time at our option, subject to certain prepayment penalties. Such redemption and other terms are governed by the provisions of indenture agreements, various note purchase agreements and a trust deed.

Exchangeable Senior Notes

On March 16, 2010, we issued $460.0 million of 3.3% exchangeable senior notes maturing in 2015 (“2010 Exchangeable Notes”). The 2010 Exchangeable Notes are exchangeable at any time by holders at an initial conversion rate of 25.8244 shares per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $38.72 per share, subject to adjustment upon the occurrence of certain events. The holders of the notes have the right to require us to repurchase their notes for cash at any time on or prior to the maturity date upon a change in control or a termination of trading (each as defined in the notes). Due to the terms of the 2010 Exchangeable Notes, including that a conversion must be settled in common stock, the accounting for these notes is different than the exchangeable senior notes we issued in 2007 and 2008. The 2010 Exchangeable Notes are reflected at the issuance amount and interest is recognized based on the stated coupon rate and the amortization of the cash discount.

We also issued three series of exchangeable senior notes in 2007 and 2008 and refer to them collectively as the “2007 and 2008 Exchangeable Notes”. The 2007 and 2008 Exchangeable Notes are senior obligations of Prologis and are exchangeable, under certain circumstances, for cash, our common stock or a combination of cash and our common stock, at our option, at a conversion rate per $1,000 of principal amount of the notes of 5.8752 shares for the March 2007 issuance, 5.4874 shares for the November 2007 issuance and 5.8569 shares for the May 2008 issuance. The initial conversion price ($170.21 for the March 2007 issuance, $182.24 for the November 2007 issuance and $170.74 for the May 2008 issuance) represented a premium of approximately 20% over the closing price of our common stock at the date of first sale and is subject to adjustment under certain circumstances. The 2007 and 2008 Exchangeable Notes are redeemable at our option beginning in 2012 and 2013, respectively, for the principal amount plus accrued and unpaid interest and at any time prior to maturity to the extent necessary to preserve our status as a real estate investment trust. Holders of the 2007 and 2008 Exchangeable Notes have the right to require us to repurchase their notes for cash on specific dates approximately every five years beginning in 2012 and 2013, respectively, and at any time prior to their maturity upon certain limited circumstances. Therefore, we have reflected these amounts in 2013 in the schedule of debt maturities below based on the first put date and we amortized the discount through these dates.

In April 2012, we redeemed $448.9 million of the exchangeable notes that were issued in March 2007, which was when the holders had the right to require us to repurchase their notes for cash. In January 2013, we redeemed $141.4 million of the exchangeable notes issued in November 2007.

Interest expense related to our 2007 and 2008 exchangeable notes for the years ended December 31 included the following components (in thousands):


	2012		2011		2010
Coupon rate	$	14,312	$	24,810	$	37,562
Amortization of discount		18,425		32,393		48,128
Amortization of deferred loan costs		1,280		2,071		2,691

Interest expense	$	34,017	$	59,274	$	88,381

Effective interest rate		4.6 %		4.8 %		4.9 %

The unamortized discount at December 31, 2012 and 2011 was $4.2 million and $22.6 million, respectively. The carrying amount of the equity component is determined by deducting the fair value of the debt component from the initial proceeds of the exchangeable debt instrument as a whole. Additional paid-in capital under the conversion option was $381.5 million at December 31, 2012 and 2011.

While we have the legal right to settle the conversion in either cash or stock, we intend to settle the principal balance of the 2007 and 2008 Exchangeable Notes in cash. As stated above, the 2010 Exchangeable Notes are required to be settled in common stock. Based on current conversion rates, 2.8 million and 11.9 million shares would be required to settle the principal amount in stock for the 2007 and 2008 Exchangeable Notes and the 2010 Exchangeable Notes, respectively. The conversion of the exchangeable notes into stock, and the corresponding adjustment to interest expense, are included in our computation of diluted earnings per share/unit, unless the impact is anti-dilutive. During 2012, 2011, and 2010, the impact of these notes was anti-dilutive.

The exchangeable senior notes are issued by the Operating Partnership and are exchangeable into common stock of the REIT. The accounting for the exchangeable senior notes requires us to separate the fair value of the derivative instrument (exchange feature) from the debt instrument and account for it separately as a derivative contract. We have determined that the exchangeable notes issued in 2010 are the only exchangeable notes where the fair value of the derivative is not zero at December 31, 2012. At each reporting period, we adjust the derivative instrument to fair value with the resulting adjustment being recorded in earnings as Foreign Currency and Derivative Gains (Losses), Net. The fair value of the derivative associated with our exchangeable notes was a liability of $39.8 million and $17.5 million at December 31, 2012 and December 31, 2011, respectively. We recognized an unrealized loss of $22.3 million and an unrealized gain of $45.0 million for the years ended December 31, 2012 and 2011, respectively.

Secured Mortgage Debt

TMK bonds are a financing vehicle in Japan for special purpose companies known as TMKs. In 2012, we issued ¥36.6 billion ($424.5 million as of December 31, 2012) of new TMK bonds with maturity dates ranging from December 2013 to May 2019 with interest rates ranging from 0.8% to 1.4% and secured by nine properties with an undepreciated cost at December 31, 2012 of $767.3 million.

In addition, in 2012, we amended our existing TMK bonds, increasing amounts outstanding by ¥12.4 billion ($144.5 million as of December 31, 2012). As a result, the range of maturities on these bonds changed from 2012 to 2014 to a range of December 2014 to April 2018, and the interest rates were reduced from a range of 1.8% to 4.0% to a range of 1.0% to 1.8%.

In connection with the Co-Investment Venture Acquisitions in 2012, along with one other land acquisition, we assumed secured mortgage debt of $1.0 billion that is secured by land and 107 properties with a total undepreciated cost of $1.3 billion at December 31, 2012.

Other Debt

On February 2, 2012, we entered into a senior term loan agreement where we may obtain loans in an aggregate amount not to exceed €487.5 million ($648.5 million at December 31, 2012). The loans can be obtained in U.S. dollar, euro, Japanese yen, and British pound sterling. We may increase the borrowings to approximately €987.5 million ($1.3 billion at December 31, 2012), subject to obtaining additional lender commitments. The loan agreement is scheduled to mature on February 2, 2014, but we may extend the maturity date three times at our option, in each case up to one year, subject to satisfaction of certain conditions and payment of an extension fee. We fully drew the senior term loan and used the proceeds to pay off two term loans assumed in connection with the Merger and the remainder to pay down borrowings on our Credit Facilities.

Debt Covenants

We have approximately $6.1 billion of senior notes and exchangeable senior notes outstanding as of December 31, 2012. The senior notes were issued under two separate indentures, as supplemented, and are subject to certain financial covenants. The exchangeable senior notes, as well as approximately $180.7 million of notes that were not exchanged for Prologis senior notes at the time of the Merger, are not subject to financial covenants.

We are also subject to financial covenants under our Credit Facilities and certain secured mortgage debt.

As of December 31, 2012, we were in compliance with all of our debt covenants.

Debt Maturities

Principal payments due on our consolidated debt during each of the years in the ten-year period ending December 31, 2022 and thereafter are as follows (in millions):


	Prologis												Consolidated Entities’ Debt (1)		Total Consolidated Debt
	Unsecured								Secured Mortgage Debt
Maturity	Senior Debt		Exchangeable Notes		Credit Facilities		Other Debt		Secured Mortgage Debt		Total
2013(2)(3)	$	376	$	484	$	-	$	-	$	410	$	1,270	$	207	$	1,477
2014		916		-		420		640		981		2,957		65		3,022
2015(3)		287		460		469		1		205		1,422		25		1,447
2016		640		-		-		1		318		959		127		1,086
2017		700		-		-		1		544		1,245		4		1,249
2018		900		-		-		1		309		1,210		74		1,284
2019		647		-		-		1		501		1,149		2		1,151
2020		677		-		-		1		9		687		2		689
2021		-		-		-		1		155		156		2		158
2022		-		-		-		-		7		7		3		10
Thereafter		-		-		-		10		137		147		5		152

Subtotal	$	5,143	$	944	$	889	$	657	$	3,576	$	11,209	$	516	$	11,725
Unamortized (discounts) premiums, net		80		(67)		-		-		50		63		3		66

Total	$	5,223	$	877	$	889	$	657	$	3,626	$	11,272	$	519	$	11,791

(1)	Our consolidated entities have $14.3 million available to borrow under credit facilities.

(2)

We expect to repay the amounts maturing in 2013 related to our wholly owned debt with cash generated from operations, proceeds from the disposition of wholly owned real estate properties and with borrowings on our Credit Facilities. The maturities in 2013 in our consolidated but not wholly owned subsidiaries principally include $79.2 million of secured mortgage debt, which we expect to extend, or pay, through the issuance of new debt, with proceeds from asset sales, available cash, or equity contributions to our consolidated entities by us and our venture partners.

(3)	The maturities in 2013 and 2015 include the aggregate principal amounts of the exchangeable senior notes, as this is when the holders first have the right to require us to repurchase their notes for cash.

Interest Expense

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


	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

		560,881		520,723		514,827
Capitalized amounts		(53,397)		(52,651)		(53,661)

Net interest expense	$	507,484	$	468,072	$	461,166

The amount of interest paid in cash, net of amounts capitalized, for the years ended December 31, 2012, 2011 and 2010 was $546.6 million, $467.4 million and $381.8 million, respectively.