Note 4. Real Estate

Investments in real estate properties consisted of the following at December 31 (dollars and square feet in thousands):

	Square Feet and Acres (1)				Number of Buildings (1)
	2015		2014		2015		2014		2015		2014
Industrial operating properties:
Improved land	-		-		-		-		$	5,874,052	$	4,227,637
Buildings and improvements		333,830		282,282		1,872		1,607		17,861,693		14,407,815
Development portfolio, including land costs:
Prestabilized		12,598		7,448		28		24		918,099		547,982
Properties under development		19,630		22,844		63		55		954,804		925,998
Land		7,404		9,017	-		-			1,359,794		1,577,786
Other real estate investments (2)										552,926		502,927
Total investments in real estate properties										27,521,368		22,190,145
Less accumulated depreciation										3,274,284		2,790,781
Net investments in real estate properties									$	24,247,084	$	19,399,364

(1)	Items indicated by ‘- -‘ are not applicable.

(2)

Included in other real estate investments are: (i) certain non-industrial real estate; (ii) land parcels that are ground leased to third parties; (iii) our corporate office buildings; (iv) infrastructure costs related to projects we are developing on behalf of others; (v) earnest money deposits associated with potential acquisitions and (vi) costs related to future development projects, including purchase options on land.

At December 31, 2015, we owned real estate assets in the Americas (Canada, Mexico and the United States), Europe (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden and the United Kingdom) and Asia (China, Japan and Singapore).

Acquisitions

The following table summarizes our real estate acquisition activity for the years ended December 31 (dollars and square feet in thousands):

	2015		2014		2013
Acquisitions of operating properties from unconsolidated co-investment ventures
Number of industrial operating properties		-		231		58
Square feet		-		45,663		16,319
Real estate acquisition value	$	-	$	2,658,252	$	1,141,128
Gains on revaluation of equity investments upon acquisition of a controlling interest	$	-	$	201,319	$	34,787

Acquisitions of operating properties from third parties
Number of industrial operating properties		52		8		12
Square feet		7,375		1,004		3,262
Real estate acquisition value	$	829,598	$	78,314	$	146,331

The table above does not include the properties acquired in the KTR acquisition, as this transaction is explained in Note 3.

Dispositions

The following table summarizes our real estate disposition activity for the years ended December 31 (dollars and square feet in thousands):

	2015		2014		2013
Continuing operations
Contributions to unconsolidated co-investment ventures
Number of properties		31		126		254
Square feet		8,355		25,247		71,503
Net proceeds (1)	$	835,385	$	1,825,311	$	6,479,707
Net gains on contributions (1)	$	148,987	$	188,268	$	555,196
Dispositions to third parties
Number of properties		136		145		-
Square feet		23,024		19,856		-
Net proceeds (1)	$	2,352,645	$	1,365,318	$	177,273
Net gains on dispositions (1)	$	609,900	$	336,203	$	7,673

Discontinued operations
Number of properties		-		-		89
Square feet		-		-		9,196
Net proceeds from dispositions	$	-	$	-	$	608,286
Net gains on dispositions, including related impairment charges and taxes (2)	$	-	$	-	$	116,550

(1)	Includes land parcels.

(2)	We recorded $1.2 million of income tax expense in 2013 related to the disposition of properties in discontinued operations.

Detail of Significant Transactions with Co-Investment Ventures (Related Parties)

Below are the significant contributions to our co-investment ventures, which are also included in the table above. We had no significant contributions in 2015.

In the second quarter of 2014, we launched the initial public offering of FIBRA Prologis, a Mexican REIT. In connection with the offering, FIBRA Prologis purchased 177 properties aggregating 29.7 million square feet (12.6 million square feet related to our wholly owned portfolio, 7.6 million square feet from our consolidated co-investment venture Prologis Mexico Fondo Logistico (“AFORES”) and 9.5 million square feet from our unconsolidated co-investment venture Prologis Mexico Industrial Fund). Also in 2014, AFORES contributed its remaining operating properties and the balance of its secured debt to FIBRA Prologis in two separate transactions. The difference between the amount received and the noncontrolling interests balance related to the properties contributed was $34.6 million, and was adjusted through equity with no gain or loss recognized. On the basis of this transaction, we recognized a gain on disposition of investments in real estate of $52.5 million; current tax expense of $32.4 million; deferred tax benefit of $55.5 million; and earnings attributable to noncontrolling interest of $61.0 million.

In the first quarter of 2013, we completed the initial public offering of Nippon Prologis REIT, Inc. (“NPR”), a publicly traded company listed on the Tokyo Stock Exchange. NPR acquired a portfolio of 12 properties totaling 9.6 million square feet from us for an aggregate purchase price of ¥173 billion ($1.9 billion). As a result of this transaction, we recognized a gain on disposition of investments in real estate of $337.9 million, net of a $59.6 million deferral due to our ongoing investment.

Also during the first quarter of 2013, we closed Prologis European Logistics Partners Sàrl (“PELP”), a European joint venture with Norges Bank Investment Management (“NBIM”). The venture acquired a portfolio from us for approximately €2.3 billion ($3.0 billion) consisting of 195 properties and 48.7 million square feet in Europe. As a result of this transaction, we recognized a gain on disposition of investments in real estate of $1.8 million, net of a deferred gain due to our ongoing investment. In connection with the closing, a warrant NBIM received at signing to acquire six million shares of our common stock with a strike price of $35.64 became exercisable. We used a Black-Scholes pricing model to value the warrant and this value was included as consideration in the overall result of the transaction. In the fourth quarter of 2014, NBIM exercised the warrant for an aggregate strike price of $213.8 million.

Operating Lease Agreements

We lease our operating properties and certain land parcels to customers under agreements that are generally classified as operating leases. Our weighted average lease term, based on square feet for all leases in effect at December 31, 2015, was six years. Our largest customer and 25 largest customers accounted for 4.5% and 20.0%, respectively, of our net effective rent (“NER”) at December 31, 2015. We calculate NER using the estimated total cash to be received over the term of the lease (including base rent and expense reimbursements) divided by the lease term to determine the amount of rent and expense reimbursements received per year.

The following table summarizes our minimum lease payments on leases with lease periods greater than one year for space in our operating properties, pre-stabilized development properties and leases of land subject to ground leases at December 31, 2015 (in thousands):

2016	$	1,565,119
2017		1,372,310
2018		1,131,572
2019		886,821
2020		711,827
Thereafter		2,456,484
Total	$	8,124,133

These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude reimbursements of operating expenses.

Lease Commitments

We have entered into operating ground leases as a lessee on certain land parcels, primarily on-tarmac facilities and office space with remaining lease terms of 1 to 74 years. The following table summarizes our future minimum rental payments under non-cancelable operating leases in effect at December 31, 2015 (in thousands):

2016	$	32,183
2017		29,540
2018		27,769
2019		25,144
2020		24,116
Thereafter		220,625
Total	$	359,377