16.

Impairment Charges

Impairment of Real Estate Properties

We recognized impairment charges related to certain of our real estate properties for the years ended December 31 as outlined below (in thousands):


	2012		2011		2010
Included in Continuing Operations:
Land	$	88,969	$	-	$	734,668
Operating properties		163,945		21,237		1,349
Other real estate		-		-		595

Impairment of real estate properties - continuing operations		252,914		21,237		736,612
Discontinued Operations - operating properties and land subject to ground leases		30,596		2,659		87,702

Total impairment charges	$	283,510	$	23,896	$	824,314

Land

In the fourth quarter of 2012, we reviewed our land bank based on our current intent to hold long-term (through the development of an industrial property) or to sell. This review resulted in a change in our intent from long-term hold to sell for some land parcels and the identification of other land parcels that had previously been impaired, through the 2010 review as discussed below, that are located primarily in Central and Eastern Europe for which the market has continued to lag in the global economic recovery. We have not experienced the same improvement in land values in these regional and other European markets that we have had in a majority of our global markets. The fair value of the land parcels was based on internal valuations, which were corroborated primarily from brokers’ opinion of value and comparable land sales, if available. If the carrying value of the land parcel exceeded fair value we adjusted the carrying value of the land. Accordingly, we recognized impairment charges of $77.5 million based on our evaluation of our investment in land as of December 31, 2012.

Additionally during 2012, we recorded impairment charges of $11.4 million on land parcels that we expected to sell as the carrying value exceeded the fair value at that time. The fair value of the land was based on purchase and sale agreements.

During the fourth quarter of 2010, we made a strategic decision to more aggressively pursue land sales. As a result of this decision, we undertook a complete evaluation of all land positions. As a result of our change in intent, if the carrying value of the land exceeded fair value, based on valuations and other relevant market data, we adjusted the carrying value of the land targeted for disposition to fair value. Accordingly, we recognized impairment charges of $687.6 million based on our change in intent and evaluation of the fair value of our land as of December 31, 2010. We also recognized impairment charges of $47.1 million related to land sold as part of a larger transaction as discussed below.

Operating Properties

As discussed in Note 6, we announced the signing of a definitive agreement for the formation of a new fund in Europe, PELP. Based on this agreement, we assessed the recoverability of the portfolio of assets we expect to contribute to PELP by comparing the total expected proceeds to the carrying value of the portfolio of assets as of December 31, 2012. As a result of this analysis, we recorded impairment charges of $135.3 million in continuing operations.

Additionally, at December 31, 2012, we recorded impairment charges of $28.7 million in continuing operations related to operating properties that we expect to sell or contribute to co-investment ventures. The impairment charges were calculated based on the carrying values of these assets as compared with the fair value.

Impairment charges of $30.6 million recorded in discontinued operations relate to operating properties that we expect to sell to third parties at less than our carrying value at that time. We estimated fair value primarily based upon letters of intent, purchase and sale agreements, and third party appraisals. These properties were either sold during 2012 or are held for sale as of December 31, 2012.

In 2011, we recorded impairment charges of $21.2 million in continuing operations related to real estate properties we expected to sell. Impairment charges of $2.7 million recorded in discontinued operations related to the South Korean properties sold to a third party in 2011.

In 2010, we made a decision to sell our retail and mixed-use properties and certain other non-core real estate investments. As a result, we classified all of these assets and related liabilities as Assets and Liabilities Held for Sale in our accompanying Consolidated Balance Sheet as of December 31, 2010. Based on the carrying values of these assets and liabilities, as compared with the estimated sales proceeds less costs to sell, we recognized an impairment charge of $168.8 million ($47.1 million related to land and included in Impairment of Real Estate Properties, $44.3 million related to the joint ventures and other assets and recorded in Impairment of Goodwill and Other Assets (described below); and $77.4 million was associated with operating properties and included in Discontinued Operations – Net Gains on Dispositions, Net of Related Impairment Charges and Taxes). We also recorded impairment charges of $10.3 million related primarily to our industrial properties in South Korea that we sold in 2011.

Impairment of Goodwill and Other Assets

We recognized impairment charges related to goodwill and other assets for the years ended December 31 as outlined below (in thousands):


	2012		2011		2010
Goodwill	$	-	$	-	$	368,451
Investment in and advances to unconsolidated entities		-		103,824		41,437
Notes receivable		16,135		22,608		2,857

Total impairment of goodwill and other assets	$	16,135	$	126,432	$	412,745

Goodwill

In 2010, we recorded an impairment charge related to goodwill allocated to the Americas and Europe Real Estate Operations reporting units of $235.5 million and $132.9 million, respectively. As part of our review, we compared the estimated fair value of each reporting unit with its carrying value, including goodwill. We estimated the fair value of assets and liabilities in each reporting unit through various valuation techniques as outlined in our summary of significant accounting policies. For the Real Estate Operations reporting units in the Americas and Europe, the carrying values exceeded the fair values. We then calculated the implied goodwill for each reporting unit by allocating the estimated fair values to the underlying assets and liabilities and determined that goodwill was impaired for each reporting unit.

The fair value of these reporting units in 2010 decreased due principally to the strategic decision we made in the fourth quarter of 2010 to significantly downsize our development platform. As a result, we targeted for sale to third parties a substantial portion of our land that we had previously expected to develop, some of which was acquired in the acquisitions that originally created the goodwill. In addition, we planned to sell to third parties our non-core and certain other assets that we acquired in connection with these same acquisitions.

Other Assets

In the second quarter of 2011, we recorded impairment charges of $103.8 million primarily related to two of our investments in unconsolidated entities. This included one investment in the United States, Prologis NAIII, where our carrying value exceeded the fair value. This entity has not had the same appreciation in value in its portfolio that we have experienced in our consolidated portfolio and in several of our other entities. We determined the fair value of the underlying real estate assets using discounted cash flow models developed externally by a third party, which we corroborated through our discounted cash flow models. Based on the duration of time that the value of our investment has been less than carrying value and the lack of recovery as compared to our other real estate investments, we no longer believed the decline to be temporary. Also included was our investment in a co-investment venture in South Korea that we sold to our venture partner in July 2011. We had previously recognized an impairment associated with this investment due to the decline in value that we believed to be other than temporary.

We had a receivable from an entity that developed retail and mixed use properties in Europe that was secured by land parcels. In late 2011, the entity went into administration. In exchange for the note receivable, we received three land parcels and debt. Based on the fair value of the land less the assumption of debt received in the exchange and information available to us in the fourth quarter of 2011, the remaining receivable balance of $20.5 million was impaired. In the first quarter of 2012, we recorded an additional impairment charge of $16.1 million as a result of additional information that became available in the first quarter of 2012 and provided additional evidence indicating that the value of the land is less than originally estimated in the fourth quarter of 2011.

In 2010, we recorded impairment charges of $41.4 million for investments in other joint ventures and $2.9 million for a note receivable in connection with the expected sale of these non-core real estate investments, as discussed above in real estate impairments.