•  

    Sustainable
    Growth

  •  

    Sustainable
    Growth

  •  

    Sustainable
    Growth

  • Shareholders Letter

     

    Hamid R. Moghadam
    Chairman and
    Chief Executive Officer

  •  

    Shareholders Letter

    Dear Fellow Shareholders,

    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.

    2 / 9
  •  

    Shareholders Letter

    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%.

    Improving asset utilization

    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.

    3 / 9
  •  

    Shareholders Letter

    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.

    4 / 9
  •  

    Shareholders Letter

    Strengthening our financial position

    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 our future growth.

    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.

    5 / 9
  •  

    Shareholders Letter

    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.

    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.

    6 / 9
  •  

    Shareholders Letter

    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.

    7 / 9
  •  

    Shareholders Letter

    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.

    Acknowledgments

    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.

    8 / 9
  •  

    Shareholders Letter

    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's signature

    Hamid R. Moghadam
    Chairman and Chief Executive Officer

    March 14, 2014

    9 / 9
 

Chairman's Video

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
Chairman and
Chief Investment Officer
Thomas S. Olinger
Chairman Financial Officer
Michael S. Curless
Chief Investment Officer
Edward S. Nekritz
Chief Legal Officer &
General Counsel
Diana L Scott
Chief Human
Resources Officer
Eugene F. Reilly
Chief Executive Officer,
The Americas
Gary E Anderson
Chief Executive Officer,
Europe & Asia
  • Sustainable Growth

    Rising Rents

  • 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

  • Sustainable Growth

    Creating Value Through Development

    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.

     / 
    • $1.8B

      of development starts in 2013

    • $450M

      of land monetized in 2013

    • 30% Margin

      on development stabilizations

  • Sustainable Growth

    Efficiencies
    From
    Expanding
    Scale

  • Sustainable Growth

    Efficiencies from
    Expanding Scale

    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.

     / 
    • 21

      operating countries

    • 4,500

      customers across the globe

    • $4.1B

      of third-party equity raised in 2013

  • 30 Years of Global Impact

    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.

  • Prologis
    establishes
    real estate
    investment
    trust in japan

    Read more

    9.6M
    square feet (890,000 SQM) of total space
    $2B
    (JPY 173B) in appraised value of assets
    3.4 Years
    average weighted age of properties
  • Prologis Signs
    One Million
    Square Foot
    Build-To-Suit
    with Amazon.com

    Read more

    90 Acre
    development project
    1M+
    square feet fulfillment center
    8th
    global market served for Amazon
  • Prologis and Norges Bank Investment MGT 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
  • Prologis
    Concludes
    Prologis North
    American
    Industrial
    Fund III

    Read more

    82
    property funds across the
    United States
    8.1M
    square feet of the portfolio acquired by Prologis
    95.4%
    occupancy at Prologis acquired properties
  • Prologis to
    Develop 700,000
    Square Feet in
    the United
    Kingdom

    Read more

    165,000
    square foot build-to-suit agreement with Hi Logistics
    535,000
    square feet of speculative development
    3
    properities designed to achieve BREEAM accreditation
  • 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
  • Prologis Raises
    €450 Million
    ($610 Million)
    for Prologis
    European
    Properties
    Fund II

    Read more

    220+
    properties owned by PEPF II as of June 30, 2013
    5.2M
    square meters (55.5 MSF) of total space
    12
    European countries with properties owned by PEPFII
  • Prologis
    Announces
    Nippon Prologis
    REIT's Issuance
    of New
    Investment
    Units

    Read more

    90 Acre
    development project
    JPY 32B
    ($324 million) in investment units issued
    2.6M
    square feet (242,000 SQM) of total space
  • Prologis Launches China
    Joint Venture
    with Capacity
    Over USD
    $1 Billion

    Read more

    90 Acre
    development project
    $588M
    of committed equity
    $1B+
    potential investment capacity
  • 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)
  1. 30 YEARS
  2. JAN 10
  3. JAN 22
  4. MAR 19
  5. AUG 7
  6. SEP 4
  7. SEP 23
  8. OCT 1
  9. NOV 5
  10. NOV 11
  11. DEC 23
  • Revenue Summary(In Thousands)

    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").

  • Ffo per share/unit(Basic)

    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 measurement. Please see the 2013 Form 10-K for a discussion of FFO and a reconciliation of FFO to net earnings (loss).

  • Ffo per share/unit(diluted)

    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).

  • Earnings per share(basic)

    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.

  • Dividends per common share/unit

    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 combined company from the date of the Merger going forward. Relative to the financial information, please see the 2013 Form 10-K.

  1. Revenue
  2. FFO (BASIC)
  3. FFO (DILUTED)
  4. Earnings
  5. Dividends