Real Estate

12 Months Ended

Dec. 31, 2019

NOTE 4. REAL ESTATE

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

	Square Feet				Number of Buildings
	2019		2018 ⁽¹⁾		2019		2018 ⁽¹⁾		2019		2018 ⁽¹⁾
Operating properties:
Buildings and improvements		354,297		354,762		1,876		1,858	$	23,067,625	$	22,587,267
Improved land										8,220,208		8,044,888
Development portfolio, including land costs:
Prestabilized		9,133		8,709		28		30		784,584		828,064
Properties under development		26,893		27,715		77		70		1,084,683		1,314,737
Land ⁽²⁾										1,101,646		1,192,220
Other real estate investments ⁽³⁾										965,668		619,811
Total investments in real estate properties										35,224,414		34,586,987
Less accumulated depreciation										5,437,662		4,656,680
Net investments in real estate properties									$	29,786,752	$	29,930,307

(1)	The portfolio acquired in the DCT Transaction, excluding 49 operating properties classified as Assets Held for Sale or Contribution, was included in investments in real estate at December 31, 2018. See Note 3 for more information.

(2)	At December 31, 2019 and 2018, our land was comprised of 4,411 and 4,929 acres, respectively.

(3)

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

At December 31, 2019, we owned real estate assets in the U.S. and other Americas (Brazil, Canada and Mexico), Europe (Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden and the United Kingdom (“U.K.”)) and Asia (China, Japan and Singapore).

Acquisitions

The following table summarizes our real estate acquisition activity, excluding the DCT Transaction as discussed in Note 3, for the years ended December 31 (dollars and square feet in thousands):

	2019		2018		2017 ⁽²⁾
Number of operating properties		22		20		16
Square feet		1,405		4,757		6,859
Acres of land		1,269		1,210		1,392
Acquisition cost of net investments in real estate properties ⁽¹⁾	$	1,074,815	$	1,008,718	$	1,139,410

(1)	Includes the acquisition cost of properties classified in other real estate investments of $302.9 million, $72.3 million and $50.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(2)

In August 2017, we acquired our partner’s interest in certain joint ventures in Brazil for an aggregate price of R$1.2 billion ($381.7 million). As a result of this transaction, we began consolidating real estate properties that included twelve operating properties, two prestabilized properties and 531 acres of undeveloped land. We accounted for the transaction as a step-acquisition under the business combination rules and recognized a gain. The results of operations for these real estate properties were not significant in 2017. In January 2019, we contributed the majority of these real estate assets into a newly formed joint venture.

On February 4, 2020, we completed the acquisition of Liberty Property Trust and Liberty Property Limited Partnership (collectively “Liberty” or the “Liberty Transaction”). The Liberty Transaction was completed for approximately $13 billion through the issuance of

equity based on the value of the Prologis common stock issued using the closing price on February 3, 2020 and the assumption of debt. The Liberty portfolio was primarily comprised of logistics real estate assets, including 502 consolidated industrial operating properties, aggregating 96.4 million square feet, which were highly complementary to our U.S. portfolio in terms of product quality, location and growth potential in our key markets. For further information on the Liberty Transaction see Note 20.

Dispositions

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

	2019		2018		2017
Gains on dispositions of development properties and land, net
Contributions to unconsolidated entities
Number of properties		26		36		29
Square feet		8,676		12,230		10,049
Net proceeds	$	1,328,858	$	1,459,963	$	1,394,403
Gains on contributions, net⁽¹⁾	$	402,922	$	422,540	$	310,869

Dispositions to third parties
Number of properties		5		8		6
Square feet		1,351		3,297		2,322
Net proceeds	$	204,197	$	343,277	$	290,679
Gains on dispositions, net	$	64,655	$	47,277	$	16,659
Total gains on dispositions of development properties and land, net	$	467,577	$	469,817	$	327,528

Gains on other dispositions of investments in real estate, net
Contributions to unconsolidated entities ⁽²⁾⁽³⁾
Number of properties		19		4		193
Square feet		8,212		885		38,122
Net proceeds	$	840,906	$	51,466	$	1,807,583
Gains on contributions, net⁽¹⁾	$	98,062	$	36,567	$	536,165

Dispositions to third parties
Number of properties		47		70		104
Square feet		7,604		12,150		14,825
Net proceeds ⁽⁴⁾	$	651,306	$	905,210	$	990,822
Gains on dispositions, net ⁽⁴⁾	$	157,157	$	334,612	$	258,052
Gains on revaluation of equity investments upon acquisition of a controlling interest	$	-	$	-	$	61,220
Gains on partial redemptions of investment in an unconsolidated co-investment venture ⁽⁵⁾	$	135,022	$	-	$	-
Total gains on other dispositions of investments in real estate, net	$	390,241	$	371,179	$	855,437

(1)

Amounts in 2019 and 2018 reflect the adoption of the new revenue recognition standard under which we recognized the entire gain attributed to contributions of real estate properties to unconsolidated entities. Amounts in 2017 reflect our prior recognition of the gain to the extent of the third-party ownership in the unconsolidated entity acquiring the property with the deferral of a portion of the gain related to our ownership.

(2)

In 2017, we contributed 190 operating properties totaling 37.1 million square feet owned by Prologis North American Industrial Fund ("NAIF") to Prologis Targeted U.S. Logistics Fund ("USLF"), our unconsolidated co-investment venture. In exchange for the contribution, we received cash proceeds and additional units and USLF assumed $956.0 million of secured debt.

(3)

In 2019, we formed Prologis Brazil Logistics Venture (“PBLV”), a Brazilian unconsolidated co-investment venture, with one partner. We contributed an initial portfolio of real estate properties to PBLV consisting of 14 operating properties totaling 6.9 million square feet and 371 acres of land. We received cash proceeds and units for our 20% equity interest.

(4)	In 2017, we sold our investment in Europe Logistics Venture 1.

(5)	In 2019, we redeemed a portion of our investment in a European unconsolidated co-investment venture.

Leases

As a Lessor

We lease our operating properties to customers under agreements that are classified as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Our weighted average lease term remaining was 50 and 52 months based on square feet for all leases in effect at December 31, 2019 and 2018, respectively.

The following table summarizes the minimum lease payments due from our customers on leases with an original lease term greater than one year for space in our operating properties, prestabilized and under development properties, leases of land subject to ground leases and assets held for sale or contribution at December 31 (in thousands):

	2019			2018
2020	$	2,133,581	2019	$	2,006,475
2021		1,922,139	2020		1,867,253
2022		1,618,649	2021		1,589,102
2023		1,317,729	2022		1,278,281
2024		1,013,632	2023		990,970
Thereafter		3,479,038	Thereafter		3,293,320
Total	$	11,484,768	Total	$	11,025,401

These amounts do not reflect future rental revenue from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed.

As a Lessee

We have approximately 130 ground and office space leases in which we are the lessee, which primarily qualify as operating leases, with remaining lease terms of 1 to 90 years at December 31, 2019.

The following table summarizes the fixed, future minimum rental payments, excluding variable costs, for which the lease has commenced at December 31^st, with amounts for 2019 discounted by our incremental borrowing rates to calculate the lease liabilities of our leases (in thousands):

	2019			2018
2020	$	43,529	2019	$	38,769
2021		46,038	2020		38,267
2022		41,624	2021		34,307
2023		39,915	2022		32,312
2024		35,400	2023		30,180
Thereafter		776,205	Thereafter		670,147
Total undiscounted rental payments		982,711	Total undiscounted rental payments	$	843,982
Less imputed interest		511,077
Total lease liabilities	$	471,634

The weighted average remaining lease term for these leases was 33 and 28 years at December 31, 2019 and 2018, respectively. We do not include renewal options in the lease term for calculating the lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to exercise the option. The weighted average incremental borrowing rate was 3.7% at December 31, 2019. We assigned a collateralized interest rate to each lease based on the term of the lease and the currency in which the lease was denominated.