Long-Term Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Long-Term Compensation

9. Long-Term Compensation

At September 30, 2014, Prologis had stock options and full value awards (restricted stock, performance share awards and restricted stock units (“RSUs”) of Prologis and a special class of limited partnership units of the Operating Partnership (“LTIP Units”), as described below) outstanding under its incentive plans.

Summary of Activity

The activity for the nine months ended September 30, 2014, with respect to our RSU and performance share awards, was as follows (number of shares in thousands):

	Number of Awards			Weighted Average Grant-Date Fair Value		Number of Awards Vested
Balance at December 31, 2013		2,266
Granted (1)		1,333
Vested and distributed		(1,019	)
Forfeited		(54	)
Balance at September 30, 2014		2,526		$	39.39		106

(1) All awards granted during the period were in the form of RSUs and generally vest over three years.

The activity for the nine months ended September 30, 2014, with respect to our stock options, was as follows (number of options in thousands):

	Options Outstanding
	Number of Options			Weighted Average Exercise Price		Options Exercisable
Balance at December 31, 2013		6,253
Exercised		(548	)
Forfeited / Expired		(193	)
Balance at September 30, 2014		5,512		$	34.74		5,511

Outperformance Plan

We grant awards in the form of points under our Outperformance Plan (“OPP”) corresponding to three-year performance periods. As of September 30, 2014, all awards were equity classified. At the end of the applicable performance period, if the performance criteria are met, the participants’ points will be paid in the form of common stock of the REIT. The fair value of the awards are measured as of the grant date and amortized over the performance period.

We granted points on February 13, 2014, with a fair value of $23.1 million as of the date of the grant using a Monte Carlo valuation model that assumed a risk free interest rate of 0.67% and an expected volatility of 46% for Prologis and 30% for the index of selected peer companies. Such points relate to a three-year performance period that began on January 1, 2014, and will end on December 31, 2016. We also granted points in 2013 (three-year performance period will end on December 31, 2015) and 2012 (three-year performance period will end on December 31, 2014).

We recognized $6.9 million and $20.8 million of compensation expense related to our outstanding OPP awards during the three and nine months ended September 30, 2014, respectively, and $5.0 million and $18.0 million during the three and nine months ended September 30, 2013, respectively.

Prologis Promote Plan

The Prologis Promote Plan (“PPP”) was modified in the third quarter of 2014 to allow certain participants the option to receive LTIP Units in lieu of RSUs. Under the PPP, the awards may be settled in cash or RSUs (or LTIP Units if elected), which vest over a specified period of time. Each LTIP Unit represents a partnership interest in the Operating Partnership and, after vesting, may be convertible into a common unit in the Operating Partnership after the satisfaction of certain conditions. This modification did not trigger additional compensation expense. A compensation pool was funded in August 2014 associated with an incentive fee earned from one of our co-investment ventures. The total value of the awards in the third quarter 2014 from this compensation pool was $11.3 million, of which $4.2 million was paid in cash, approximately 57,000 RSUs were issued with a grant date fair value of $2.4 million and approximately 113,000 LTIP Units were issued with a grant date fair value of $4.7 million. The RSUs and LTIP Units vest over three years.