SUSTAINABLE
GROWTH
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SHareHolDerS letter
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Hamid r. Moghadam
Chairman and
Chief Executive Officer
SHareHolDerS letter
2013 annual report
Dear FelloW SHareHolDerS,
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In 2013, we completed a plan that advanced our aspirations to be the leading global company in the real
estate industry, measured by customer service, employee engagement and financial strength, and that
paved the way for meaningful growth—growth supported by the strongest market conditions we have
witnessed in a decade.
early CoMpletion oF a poWerFul plan
At completion of our merger in 2011, we established five strategic priorities to strengthen and simplify
the new company. Our objectives were designed to make it easier for customers to do business with us
and for our team to grow the company, both in profitability and in scale. We gave ourselves 10 quarters
to reach our goals. We reached them in eight.
AlIgnIng thE POrtFOlIO
Our plan was to refine the combined portfolio, aligning it with our investment strategy of increased
allocation to global markets. We targeted “regional” properties for disposition and worked to exit “other”
markets entirely in an orderly, measured approach. At the time of the merger, 79% of the portfolio was
allocated to global markets. By year-end 2013, we increased that allocation to 85%, through a series of
transactions focused on profitable sales of assets in non-strategic locations with proceeds redeployed
into developments and acquisitions in target markets.
to provide a sense of scale and profitability, in 2013, we:
• sold or contributed $8.4 billion in assets at an average capitalization rate of 6.4%;
• started $1.8 billion of new developments at an estimated profit margin of more than 19%; and
•
invested $2.4 billion in new properties and equity in six of our ventures.
together, our 2013 transactions provided a more focused portfolio and grew our assets under
management by 7.8%.
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to maximize the productivity of our assets, we needed to increase the occupancy of our portfolio, and
put our land bank to work. Our global operations teams delivered outstanding results, leasing a record
152 million square feet of space in 2013. their efforts drove global occupancy to 95.1% by year-end, with
positive rent growth across all continents.
During the year, we monetized $450 million of land through development starts and third-party sales. We
stabilized $1.4 billion of development projects with an estimated value creation margin of more than 30%.
While development margins at this level are not sustainable, they do highlight the value of our land bank.
today we estimate the market value of our land is at least 20% greater than its book value.
strEAmlInIng InvEstmEnt mAnAgEmEnt
At the time of the merger, our combined private capital business was well regarded, but frankly, too
complex. Our goal was to reduce the number of investment vehicles, each with a distinct focus, and
to increase profitability. specifically, we worked to create long-duration ventures, open-end funds and
geographically focused public entities. these types of vehicles now represent approximately 90% of our
investment management revenues, versus 68% at the merger.
Our approach enables us to tap capital in private markets as well as in public entities.
2013 examples include:
• our Japan-focused J-rEIt, which completed its successful IPO and two secondary offerings;
• the launch of our $1 billion China Fund II with hIP China logistics Investments; and
• the signed $1 billion joint venture with norges Bank Investment management for investment in
Prologis assets in u.s. markets.
these successful ventures underscore the strength of our platform and partnerships. today we have
$17.9 billion of third-party assets under management—a number we expect to grow from private and
public sources across our global platform.
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strEngthEnIng Our FInAnCIAl POsItIOn
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the realignment of our assets played a pivotal role in our ability to build a strong balance sheet.
We reduced our look-through leverage, including preferreds, from 50% at the merger to approximately
37% at year end. looking forward, we expect this metric to further decline. During 2013, our capital
markets activity focused on refinancing our unsecured bonds. Our activity lowered our average interest
rate by more than 100 basis points to 4.5%, and extended our weighted average maturity to more than
six years. We reduced our exposure to foreign currency risk by increasing our u.s. net equity from 45%
at the time of the merger to 77% at year-end. this strong financial position enhances our ability to fund
Sustainable Growth
our future growth.
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BuIlDIng OrgAnIzAtIOnAl ExCEllEnCE
Our fifth objective was to build a highly effective and efficient organization, largely through systems
implementations and the elimination of redundancies. soon after the merger, we reduced our annual
operating expenses by $115 million. general and administrative (g&A) expenses as a percentage of
assets under management have decreased from 113 basis points at the plan’s inception to 69 basis
points at year-end 2013.
a neW CoMpany WortH a FreSH look
Our team has built a strong foundation with the successful completion of our post-merger plan. We have
an operating platform of unequaled scale and quality and an inspiring plan for future growth based on
the following key elements:
First, we expect significant rent growth over the next four years. We have entered the “sweet spot” of
the market cycle. the synchronized improvement we are seeing throughout our portfolio provides
real visibility into market conditions. Demand is outpacing supply and is driving vacancy rates below
historical lows. market rents have substantial room to increase, as they remain significantly below
replacement-cost-justified rents.
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For example, in 2013, u.s. markets had net absorption of 233 million square feet of industrial space—the
highest level since 2005. Despite this high level of demand, supply remains quite low. new deliveries
totaled just 67 million square feet in 2013—significantly short of the 100 million square feet required each
year just to replace obsolete stock.
the gap between supply and demand for space is the widest in history. this imbalance has pushed
u.s. market vacancy below prior-cycle lows to 7.2%—well below the long-run historical market norm
of 8%. market conditions are also very strong in latin America. mexico continues to see growth both
from domestic consumption and export activity. Brazil’s largest markets continue to demonstrate strong
demand for modern logistics space, given the lack of supply.
Europe is building on an early-stage recovery with improved year-over-year occupancy and higher
effective rents. It is in Asia, however, where we see some of the strongest market conditions. In
China, new space requirements from domestic retailers and e-commerce customers pushed portfolio
occupancy to 98%. Japan continues to see tightening of vacancy rates and upward pressure on rents,
with significant constraints on new development.
second, we want to use our land bank, development expertise and global customer relationships to
create substantial value through development. the key to a successful development program is having
strategic land control. In this regard, we are in an excellent position. We have the potential to build
approximately 200 million square feet of additional space, or about $10 billion in new development, at
high incremental returns on capital. We will be prudent with our development, with starts averaging in
the $2.5 billion range annually. We expect the value creation potential on this level of starts will average
between $300 million and $400 million a year, across the cycle.
third, our scale in existing markets allows us to grow with little incremental investment in overhead.
Our platform is scaled for profitability, and our assets can grow by at least $10 billion with very small
additions to g&A. Our acquisition pipeline is beginning to grow through proprietary opportunities, such
as investing in our funds, and as more third-party transactions come to market.
We see several years of favorable market conditions, across our regions, pushing occupancies to levels
last seen in the ’90s, supporting our thesis of an extended period of rental and earnings growth.
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On a closing note, I want to acknowledge and thank two remarkable executives who completed their
planned transitions and took well-deserved retirements in 2013.
guy Jaquier joined us at AmB 13 years ago, playing a critical role in establishing and expanding our
business outside the united states. he developed and mentored our global acquisition teams and
helped to build a logistics real estate portfolio of unparalleled quality. In guy’s most recent role as chief
executive officer, Private Capital, he re-energized our investment management business, enhancing its
appeal to investors and its benefit to Prologis shareholders.
nancy hemmenway joined AmB 13 years ago as a key member of our senior management team. she
retired from Prologis as chief human resources officer, where she established herself as one of our most
trusted advisors. nancy’s contributions and insights have been invaluable, whether guiding the human
resources function or navigating our complex merger. she has put a lasting mark on our corporate culture.
As we look to the future, Prologis has a very straightforward plan—a plan for growth that capitalizes
rental recovery, value creation and scale. Our planned growth is supported by a strong balance sheet,
ample liquidity and the best logistics real estate fundamentals in more than a decade.
We are energized by our prospects and are grateful for your support and confidence.
thank you,
Hamid r. Moghadam
Chairman and Chief executive officer
march 14, 2014
CHairMan’S ViDeo
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hamid r. moghadam, chairman and CEO, talks about the major accomplishments of 2013 and what is
driving the company’s plan for sustainable growth.
Senior leaDerSHip
(left to right)
Hamid r. Moghadam
thomas S. olinger
edward S. nekritz
eugene F. reilly
Chairman and
Chief Financial Officer
Chief legal Officer &
Chief Executive Officer,
Chief Executive Officer
general Counsel
the Americas
Michael S. Curless
Chief Investment Officer
Diana l. Scott
gary e. anderson
Chief human
resources Officer
Chief Executive Officer,
Europe & Asia
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SuStainaBle groWtH
RISING RENTS
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SuStainaBle groWtH
RISING RENTS
We expect significant rent growth over the next four years.
We have entered the “sweet spot” of the market cycle. the
synchronized improvement we are seeing throughout our
portfolio provides real visibility into market conditions. Demand
is outpacing supply and is driving vacancy rates below historical
lows. market rents have substantial room to increase, as they
remain significantly below replacement-cost-justified rents.
95.1%
occupied
152m
square feet leased in 2013
FFO growth
all organic
SuStainaBle groWtH
CREATING VALUE
THROUGH
DEVELOPMENT
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SuStainaBle groWtH
CREATING VALUE THROUGH
DEVELOPMENT
$1.8B
of development starts in 2013
We want to use our land bank, development expertise and global
customer relationships to create substantial value through
development. the key to a successful development program is
having strategic land control. In this regard, we are in an excellent
position. We have the potential to build approximately 200
million square feet of additional space, or about $10 billion in new
development, at high incremental returns on capital. We will be
prudent with our development, with starts averaging in the $2.5
billion range annually. We expect the value creation potential on
this level of starts will average between $300 million and $400
million a year, across the cycle.
$450m
of land monetized in 2013
30% margin
on development stabilizations
SuStainaBle groWtH
EFFICIENCIES
FROM
EXPANDING
SCALE
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SuStainaBle groWtH
EFFICIENCIES FROM
EXPANDING SCALE
21
operating countries
Our scale in existing markets allows us to grow with little
incremental investment in overhead. Our platform is scaled for
profitability, and our assets can grow by at least $10 billion with
4,500
very small additions to g&A. Our acquisition pipeline is beginning
to grow through proprietary opportunities, such as investing in
our funds, and as more third-party transactions
come to market.
customers across the globe
$4.1B
of third-party equity raised
in 2013
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neWS
30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23
1983 marked the earliest foundations of Prologis 30 years ago. the company has become a global leader
in real estate built for sustainable growth. Watch the above video and learn more about significant
moments in our history at the 30th anniversary website.
neWS
30 yearS | Jan 10 Jan 22 Mar 19 aug 7 Sep 4 Sep 23 oCt 1 noV 5 noV 11 DeC 23
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PROLOGIS
ESTABLISHES
REAL ESTATE
INVESTMENT
TRUST IN JAPAN
read More
9.6m
$2B
square feet (890,000 sQm)
(JPY 173B) in appraised
3.4 Years
average weighted age of
of total space
value of assets
properties
neWS
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PROLOGIS SIGNS
ONE MILLION
SQUARE FOOT
BUILD-TO-SUIT
WITH
AMAZON.COM
read More
90 Acre
development project
1m+
8th
square feet fulfillment
global market served
center
for Amazon
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PROLOGIS AND
NORGES BANK
INVESTMENT MAN-
AGEMENT CLOSE
€2.4 BILLION JOINT
VENTURE IN
EUROPE
read More
195 Class-A
logistics facilities
49m
square feet (4.5 msm)
stabilized portfolio
50/50
partnership
neWS
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PROLOGIS
CONCLUDES
PROLOGIS NORTH
AMERICAN
INDUSTRIAL
FUND III
read More
82
8.1m
95.4%
property funds across the
square feet of the portfolio
occupancy at Prologis
united states
acquired by Prologis
acquired properties
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PROLOGIS TO
DEVELOP 700,000
SQUARE FEET IN
THE UNITED
KINGDOM
read More
165,000
535,000
square foot build-to-suit
square feet of speculative
agreement with hi logistics
development
3
properities designed to
achieve BrEEAm
accreditation
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PROLOGIS SIGNS
576,000 SQUARE
FOOT BUILD-TO-
SUIT IN BRAZIL
read More
Bts
agreement with
Walmart.com Brazil
576,000
square foot (535,000 sQm)
distribution center
4.9m
square feet (455,220 sQm)
total capacity at
Cajamar I and II
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PROLOGIS RAISES
€450 MILLION
($610 MILLION)
FOR PROLOGIS
EUROPEAN
PROPERTIES
FUND II
read More
220+
5.2m
properties owned by PEPF II
square meters (55.5 msF)
as of June 30, 2013
of total space
12
European countries
with properties owned
by PEPF II
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PROLOGIS
ANNOUNCES
NIPPON PROLOGIS
REIT’S ISSUANCE
OF NEW
INVESTMENT
UNITS
read More
JPY 32B
2.6m
4
($324 million) in investment
square feet (242,000 sQm)
Class-A properties to
units issued
of total space
be acquired
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PROLOGIS
LAUNCHES CHINA
JOINT VENTURE
WITH CAPACITY
OVER USD
$1 BILLION
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$588m
of committed equity
$1B+
potential investment
capacity
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PROLOGIS FORMS
$1 BILLION JOINT
VENTURE WITH
NORGES BANK
INVESTMENT MAN-
AGEMENT IN THE
UNITED STATES
read More
66
logistics facilities in
stabilized portfolio
12.8m
square feet of space
across the u.s.
55/45
joint venture
(55% Prologis, 45% nBIm)
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FinanCial HigHligHtS
reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS
REVENUE SUMMARY (In thOusAnDs)
2013
2012
2011
$1,750,486
$1,960,518
$1,421,771
AmB and Prologis completed the merger (the “merger”) on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share
and earnings per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined
company from the date of the merger going forward. relative to the financial information, please see Prologis’ Annual report on Form 10-K for the year
ended December 31, 2013 (the “2013 Form 10-K”).
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FinanCial HigHligHtS
reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS
FFO PER SHARE/UNIT (BAsIC)
2013
2012
2011
$1.76
$1.20
$1.11
AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share and earnings per
share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined company from the
date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K. FFO per share/unit (basic) is a non-gAAP measure-
ment. Please see the 2013 Form 10-K for a discussion of FFO and a reconciliation of FFO to net earnings (loss).
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FinanCial HigHligHtS
reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS
FFO PER SHARE/UNIT (DIlutED)
2013
2012
2011
$1.73
$1.19
$1.10
AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share and earnings
per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined company from
the date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K. FFO per share/unit (diluted) is a non-gAAP
measurement. Please see the 2013 Form 10-K for a discussion of FFO and a reconciliation of FFO to net earnings (loss).
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FinanCial HigHligHtS
reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS
EARNINGS PER SHARE (BAsIC)
2013
$0.65
2012
($0.18)
2011
($0.51)
AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share and earnings per
share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the combined company from the
date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K.
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FinanCial HigHligHtS
reVenue FFo (BaSiC) FFo (DiluteD) earningS DiViDenDS
DIVIDENDS PER COMMON SHARE/UNIT
2013
2012
2011
$1.12
$1.12
$1.06
AmB and Prologis completed the merger on June 3, 2011. As Prologis was the accounting acquirer in the merger, revenue, FFO per share, earnings per
share and dividends per share presented in this Annual report reflect such measures for legacy Prologis through the date of the merger and for the com-
bined company from the date of the merger going forward. relative to the financial information, please see the 2013 Form 10-K.