10.

Stockholders’ Equity of the REIT

Shares Authorized

At December 31, 2013, 1.1 billion shares were authorized to be issued by the REIT, of which 1.0 billion shares represent common stock. The Board may, without stockholder approval, classify or reclassify any unissued shares of our stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of such shares. As of December 31, 2013, we had 498.8 million shares of common stock outstanding.

Common Stock

On April 30, 2013, we completed a public offering of 35.65 million shares of common stock at a price of $41.60 per share, generating approximately $1.4 billion in net proceeds.

In June 2013, we entered into an equity distribution agreement that allows us to sell up to $750 million aggregate gross sales proceeds of shares of common stock in an at-the-market offering program, through two designated agents, who earn a fee of up to 2% of the gross proceeds, as agreed to on a transaction-by-transaction basis. We have not issued any shares of common stock under this program.

Under the Incentive Plan and Outside Trustees Plan, certain of our employees and outside directors were able to participate in stock-based compensation plans that provided compensation, generally in the form of common stock. In 2012, the new Prologis, Inc. 2012 Long-Term Incentive Plan was approved, which replaced all prior active incentive plans. See Note 13 for additional information on these plans. Under these plans, we received gross proceeds and issued shares of common stock as follows for the years ended December 31 (in thousands),


	2013		2012		2011
Gross proceeds received	$	22,410	$	30,980	$	749
Shares of common stock issued		1,358		2,258		793

Limited partnership units were redeemed for $4.9 million and $5.8 million in 2013 and 2012, respectively. We did not redeem any limited partnership units in 2011. See Note 12 for more details.

In 2011, in connection with the Merger, holders of ProLogis common shares received 0.4464 of a newly issued share of AMB common stock, ProLogis became a subsidiary of AMB and AMB changed its name to Prologis, Inc. Because ProLogis was the accounting acquirer (as discussed in Note 3), the historical ProLogis shares outstanding were adjusted by the Merger exchange ratio and restated. As of the Merger date, 169.6 million shares were added to reflect the outstanding shares of common stock of AMB. In addition, in June 2011 we issued 34.5 million shares of common stock generating net proceeds of $1.1 billion.

Preferred Stock

On April 19, 2013, we redeemed all of the outstanding series L, M, O, P, R and S preferred stock. We recognized a loss of $9.1 million in the first quarter of 2013, which primarily represented the difference between redemption value and carrying value net of deferred issuance costs. This amount was recognized in March when we notified the holders of our intent to redeem these series of preferred stock.

We have two million shares of series Q preferred stock, our only remaining outstanding series of preferred stock, with a liquidation preference of $50 per share, a par value of $0.01, and a dividend rate of 8.54%, which will be redeemable at our option on or after November 13, 2026. Holders have, subject to certain conditions, limited voting rights and all holders are entitled to receive cumulative preferential dividends based upon liquidation preference. The dividends are payable quarterly in arrears on the last day of March, June, September, and December. Dividends are payable when, and if, they have been declared by the Board, out of funds legally available for the payment of dividends. The cash redemption price (other than the portion consisting of accrued and unpaid dividends) is payable solely out of the cumulative sales proceeds of our other capital stock, which may include stock of other series of preferred stock.

We had the following preferred stock issued and outstanding as of December 31 (in thousands):


	2013		2012
Series L	$	-	$	49,100
Series M		-		57,500
Series O		-		75,300
Series P		-		50,300
Series Q		100,000		100,000
Series R		-		125,000
Series S		-		125,000

Total preferred stock	$	100,000	$	582,200

Ownership Restrictions

For us to qualify as a real estate investment trust under the Internal Revenue Code, five or fewer individuals may not own more than 50% of the value of our outstanding stock at any time during the last half of our taxable year. Therefore, our charter restricts beneficial ownership (or ownership generally attributed to a person under the real estate investment trust tax rules, by a person, or persons acting as a group, of issued and outstanding common and series Q preferred stock that would cause that person to own or be deemed to own more than 9.8% (by value or number of shares, whichever is more restrictive) of our issued and outstanding capital stock. Further, subject to certain exceptions, no person shall at any time directly or indirectly acquire ownership of more than 25% of any of the series Q preferred stock. These provisions assist us in protecting and preserving our real estate investment trust status and protect the interests of stockholders in takeover transactions by preventing the acquisition of a substantial block of outstanding shares of stock.

Shares of stock owned by a person or group of persons in excess of these limits are subject to redemption by us. The provision does not apply where a majority of the Board, in its sole and absolute discretion, waives such limit after determining that the status of us as a real estate investment trust for federal income tax purposes will not be jeopardized or the disqualification of us as a real estate investment trust is advantageous to our shareholders.

Dividends

In 2013, 2012 and 2011, we paid all of our dividends in cash. The following summarizes the taxability of our common and preferred stock dividends for the years ended December 31:


	2013 (1)		2012		2011
Common Stock: (2)
Ordinary income	$	-	$	0.38	$	0.07
Qualified dividend		-		0.20		0.01
Capital gains		1.12		0.54		0.84
Return of capital		-		-		0.14

Total distribution	$	1.12	$	1.12	$	1.06

Preferred Stock - Series L (3):
Ordinary income	$	-		0.55		0.15
Qualified dividend		-		0.28		-
Capital gains		0.41		0.80		1.07

Total dividend	$	0.41		1.63		1.22

Preferred Stock - Series M (3):
Ordinary income	$	-		0.57		0.15
Qualified dividend		-		0.30		-
Capital gains		0.42		0.82		1.11

Total dividend	$	0.42		1.69		1.26

Preferred Stock - Series O (3):
Ordinary income	$	-		0.59		0.16
Qualified dividend		-		0.31		-
Capital gains		0.44		0.85		1.15

Total dividend	$	0.44		1.75		1.31

Preferred Stock - Series P (3):
Ordinary income	$	-		0.58		0.15
Qualified dividend		-		0.30		-
Capital gains		0.43		0.83		1.13

Total dividend	$	0.43		1.71		1.28

Preferred Stock - Series Q (4):
Ordinary income	$	-	$	1.44	$	0.38
Qualified dividend		-		0.75		0.04
Capital gains		4.27		2.08		3.85

Total dividend	$	4.27	$	4.27	$	4.27
Preferred Stock - Series R (4):
Ordinary income	$	-	$	0.57	$	0.15
Qualified dividend		-		0.30		0.02
Capital gains		0.42		0.82		1.52

Total dividend	$	0.42	$	1.69	$	1.69

Preferred Stock - Series S (4):
Ordinary income	$	-	$	0.57	$	0.15
Qualified dividend		-		0.30		0.02
Capital gains		0.42		0.82		1.52

Total dividend	$	0.42	$	1.69	$	1.69

(1)	Taxability for 2013 is estimated.

(2)	The historical shares were adjusted by the Merger exchange ratio of 0.4464.

(3)	Represents the dividends paid since the Merger.

(4)	Upon completion of the Merger, each outstanding Series C, F and G Cumulative Redeemable Preferred Share of beneficial interest in ProLogis was exchanged for a newly issued share of Cumulative Redeemable Preferred Stock, Series Q, R and S, respectively.

In order to comply with the real estate investment trust requirements of the Internal Revenue Code, we are generally required to make common stock distributions (other than capital gain distributions) to our stockholders at least equal to (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 dividend policy is to distribute a percentage of our cash flow to ensure we will meet the distribution requirements of the Internal Revenue Code, while allowing us to retain cash to meet other needs, such as capital improvements and other investment activities.

Common stock dividends are characterized for federal income tax purposes as ordinary income, qualified dividend, capital gains, non-taxable return of capital or a combination of the four. Common stock dividends that exceed our current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and generally reduce the stockholder’s basis in the common stock. To the extent that a dividend exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common stock, it will generally be treated as a gain from the sale or exchange of that stockholder’s common stock. At the beginning of each year, we notify our stockholders of the taxability of the common stock dividends paid during the preceding year.

The payment of common stock dividends is dependent upon our financial condition, operating results and real estate investment trust distribution requirements and may be adjusted at the discretion of the Board during the year.

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.

Our tax return for the year ended December 31, 2013 has not been filed. The taxability information presented for our dividends paid in 2013 is based upon management’s estimate. Our tax returns for open tax years have not been examined by the Internal Revenue Service, other than those discussed in Note 16. Consequently, the taxability of dividends is subject to change.