# Prologis, Inc. (PLD) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Prologis, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1045609/000156459023001902/pld-10k_20221231.htm
Accession: 0001564590-23-001902
Filing date: 2023-02-14
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PLD/
All MD&A years: /company/PLD/mda/
Previous year: /company/PLD/mda/fy2021/ (FY 2021)
Next year: /company/PLD/mda/fy2023/ (FY 2023)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this report and the matters described under Item 1A. Risk Factors.

A discussion regarding our financial condition and results of operations for 2022 compared to 2021 is presented below. Information on 2020 is included in graphs only to show year over year trends in our results of operations and operating metrics. Our financial condition for 2020, results of operations for 2020 and 2021 compared to 2020 and details on the acquisitions of Industrial Property Trust Inc. (“IPT” or the “IPT Transaction”) and Liberty Property Trust and Liberty Property Limited Partnership (“Liberty” or the “Liberty Transaction”) referenced throughout this document can be found under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference herein to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 9, 2022, and is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.ir.prologis.com.

MANAGEMENT’S OVERVIEW

Summary of 2022

In 2022, our operating results were robust and we ended the year in a solid financial position. Strong demand and low vacancy in the global logistics markets drove increases in market rents throughout the year, which translated into significant rent change on rollover and same-store growth in our O&M portfolio. Our O&M operating portfolio occupancy was 98.2% at December 31, 2022 and rent change on leases commenced during 2022 was 48.0%, on a net effective basis, based on our ownership share. Our 2022 results are representative of the prospects we see for our business despite challenging headwinds from the capital markets, ongoing inflation, steeply rising interest rates and the war and energy crisis in Europe that are all pressuring the global economy. Due to current market conditions, we expect some decline in asset valuations in 2023 and therefore will continue to be disciplined as we evaluate capital deployment activities, including a focus on build-to-suit developments and a pause on contributions into our open-ended funds in the near term. We believe we are well-positioned to organically grow revenues given the increase in market rents over the last several years and our high lease mark-to-market. However, we will be cautious as we manage our business in this uncertain environment.  

We completed the following significant activities in 2022, as described in the Notes to the Consolidated Financial Statements:

[[GREPCENT_TABLE]]
[["\u2022","On October 3, 2022, we completed the Duke Transaction for $23.2 billion through the issuance of equity and assumption of debt. We assumed $4.2 billion of debt with a weighted average stated interest rate of 2.3% and 4.9% at fair value. We paid down the balance of $745 million on Duke\u2019s line of credit subsequent to closing the acquisition. The Duke portfolio was primarily comprised of logistics real estate assets, including 494 industrial operating properties, aggregating 144 million square feet."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","We generated net proceeds of $2.7 billion and realized net gains of $1.2 billion, principally from the contribution of properties to our unconsolidated co-investment ventures in Europe and Japan and dispositions of non-strategic assets to third parties, primarily in the U.S."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","We earned promotes aggregating $505 million ($386 million net of related strategic capital expenses), primarily during the third quarter of 2022 from the third-party investors in PELF in Europe."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","With the overall strengthening of the U.S. dollar against the foreign currencies in which we operate, in 2022 we realized net gains upon settlement of undesignated derivative instruments that offset the negative impact of the translation of our earnings to U.S. dollars."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","In June, we terminated our global senior credit facility (the \u201c2019 Global Facility\u201d) and entered into the 2022 Global Facility with a borrowing capacity of up to $3.0 billion and an extended initial maturity date of June 2026. We also upsized our second global senior credit facility (the \u201c2021 Global Facility\u201d), increasing its borrowing capacity up to $2.0 billion. This resulted in increasing our total borrowing capacity under both facilities to $5.0 billion and modifying the base rate of the aggregate lender commitments in U.S. dollars from the U.S. dollar London Inter-bank Offered Rate to the Secured Overnight Financing Rate."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","At December 31, 2022, we had total available liquidity of $4.1 billion, with aggregate availability under our credit facilities of $3.9 billion and unrestricted cash balances of $278 million."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["\u2022","At December 31, 2022, we had total senior notes of $19.8 billion, with a weighted average remaining maturity of 10 years and an effective interest rate of 2.3%. In addition to the senior notes assumed in the Duke Transaction, we issued $3.3 billion of senior notes in 2022 (principal in millions):"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","Aggregate Principal","","","Issuance Date Weighted Average"],["","Issuance Date","","Borrowing Currency","","","USD (1)","","","Interest Rate","","","Years","","","Maturity Dates"],["","January","","\u00a3","60","","","$","81","","","2.1%","","","","20.0","","","December 2041"],["","February (2)","","\u20ac","1,550","","","$","1,768","","","1.0%","","","","8.5","","","February 2024 \u2013 2034"],["","July","","\u00a5","30,965","","","$","227","","","1.4%","","","","15.5","","","July 2027 \u2013 2042"],["","September (2)","","$","650","","","$","650","","","4.6%","","","","10.3","","","January 2033"],["","November","","C$","500","","","$","362","","","5.3%","","","","8.2","","","January 2031"],["","December","","\u00a5","24,200","","","$","178","","","1.8%","","","","13.4","","","December 2027 \u2013 2037"],["","Total","","","","","","$","3,266","","","2.3%","","","","9.8"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","The exchange rate used to calculate into U.S. dollars was the spot rate at the settlement date."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","A portion of the net proceeds from the issuance of these notes were used to finance green projects eligible under our green bond framework."]]
[[/GREPCENT_TABLE]]

On October 6, 2022, we completed an exchange offer and consent solicitation for nine series of Duke’s senior notes for an aggregate amount of $3.4 billion, with $3.2 billion, or 96%, of the aggregate principal amount being validly tendered for exchange. The validly tendered senior notes were exchanged for notes issued by the OP. As a result of the consent solicitation, we have no separate remaining financial reporting obligations or financial covenants associated with the senior notes assumed in the Duke Transaction. All other terms of the assumed Duke senior notes remained substantially the same.

RESULTS OF OPERATIONS

We evaluate our business operations based on the NOI of our two operating segments: Real Estate (Rental Operations and Development) and Strategic Capital. NOI by segment is a non-GAAP performance measure that is calculated using revenues and expenses directly from our financial statements. We consider NOI by segment to be an appropriate supplemental measure of our performance because it helps management and investors understand our operating results.

Below is our NOI by segment per our Consolidated Financial Statements and a reconciliation of NOI by segment to Operating Income per the Consolidated Financial Statements (in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Real estate segment:"],["Rental revenues","","$","4,913","","","$","4,148"],["Development management and other revenues","","","21","","","","20"],["Rental expenses","","","(1,206",")","","","(1,041",")"],["Other expenses","","","(40",")","","","(22",")"],["Real Estate Segment \u2013 NOI","","","3,688","","","","3,105"],["Strategic capital segment:"],["Strategic capital revenues","","","1,040","","","","591"],["Strategic capital expenses","","","(304",")","","","(207",")"],["Strategic Capital Segment\u2013 NOI","","","736","","","","384"],["General and administrative expenses","","","(331",")","","","(294",")"],["Depreciation and amortization expenses","","","(1,813",")","","","(1,578",")"],["Operating income before gains on real estate transactions, net","","","2,280","","","","1,617"],["Gains on dispositions of development properties and land, net","","","598","","","","817"],["Gains on other dispositions of investments in real estate, net","","","589","","","","773"],["Operating income","","$","3,467","","","$","3,207"]]
[[/GREPCENT_TABLE]]

See Note 17 to the Consolidated Financial Statements for more information on our segments and a reconciliation of each business segment’s NOI to Operating Income and Earnings Before Income Taxes.

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Real Estate Segment

This operating segment principally includes rental revenue and rental expenses recognized from our consolidated properties. We allocate the costs of our property management and leasing functions to the Real Estate Segment through Rental Expenses and the Strategic Capital Segment through Strategic Capital Expenses based on the square footage of the relative portfolios. In addition, this segment is impacted by our development, acquisition and disposition activities.

Below are the components of Real Estate Segment NOI, derived directly from line items in the Consolidated Financial Statements (in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Rental revenues","","$","4,913","","","$","4,148"],["Development management and other revenues","","","21","","","","20"],["Rental expenses","","","(1,206",")","","","(1,041",")"],["Other expenses","","","(40",")","","","(22",")"],["Real Estate Segment \u2013 NOI","","$","3,688","","","$","3,105"]]
[[/GREPCENT_TABLE]]

The change in Real Estate Segment (“RES”) NOI in 2022 compared to 2021 of approximately $583 million was impacted by the following activities (in millions):

[[GREPCENT_TABLE]]
[["(1)","Acquisition activity is principally due to the Duke Transaction on October 3, 2022. We primarily recognized intangible liabilities for the lower in-place rents, as compared to current market rents, under the acquired leases from Duke. These intangible liabilities are amortized to rental revenues over the remaining lease term, which on average is 64 months."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","During both periods, we experienced positive rental rate growth. Rental rate growth is a combination of higher rental rates on rollover of leases (or rent change) and contractual rent increases on existing leases. If a lease has a contractual rent increase driven by a metric that is not known at the time the lease commences, such as the consumer price index or a similar metric, the rent increase is not included in rent leveling and therefore impacts the rental revenue we recognize. Significant rent change during both periods continues to be a key driver in increasing rental income. See below for key metrics on rent change on rollover and occupancy."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","We calculate changes in NOI from development completions period over period by comparing the change in NOI generated on the pool of developments that completed on or after January 1, 2021 through December 31, 2022."]]
[[/GREPCENT_TABLE]]

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Below are key operating metrics of our consolidated operating portfolio, which excludes non-strategic industrial properties.

[[GREPCENT_TABLE]]
[["(1)","In 2022, we completed the Duke Transaction."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Consolidated square feet of leases commenced and weighted average net effective rent change were calculated for leases with initial terms of one year or greater."]]
[[/GREPCENT_TABLE]]

Development Activity

The following table summarizes consolidated development activity (dollars and square feet in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Starts:"],["Number of new development buildings during the period","","","91","","","","78"],["Square feet","","","31","","","","26"],["TEI","","$","4,679","","","$","3,478"],["Percentage of build-to-suits based on TEI","","","39.1","%","","","46.2","%"],["Stabilizations:"],["Number of development buildings stabilized during the period","","","69","","","","62"],["Square feet","","","22","","","","19"],["TEI","","$","2,772","","","$","2,329"],["Percentage of build-to-suits based on TEI","","","38.9","%","","","42.7","%"],["Weighted average stabilized yield (1)","","","6.2","%","","","6.1","%"],["Estimated value at completion","","$","4,294","","","$","3,613"],["Estimated weighted average margin (2)","","","54.9","%","","","55.1","%"],["Estimated value creation","","$","1,522","","","$","1,284"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","We calculate the weighted average stabilized yield as estimated NOI assuming stabilized occupancy divided by TEI."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Estimated weighted average margin is calculated on development properties as estimated value creation, less estimated closing costs and taxes, if any, on properties expected to be sold or contributed, divided by TEI."]]
[[/GREPCENT_TABLE]]

At December 31, 2022, the consolidated development portfolio, including properties under development and pre-stabilized properties, was expected to be completed before November 2024 with a TEI of $7.5 billion and was 45.2% leased. The development portfolio included 15 buildings that were properties under development by Duke and acquired at the time of the acquisition. Our investment in the development portfolio was $4.2 billion at December 31, 2022 leaving $3.3 billion remaining to be spent. For additional information on our development portfolio at December 31, 2022, see Item 2. Properties.

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Capital Expenditures

We capitalize costs incurred in improving and leasing our operating properties as part of the investment basis or within other assets. The following graph summarizes capitalized expenditures, excluding development costs, of our consolidated operating properties during each year:

Our capital expenditures continue to increase year over year as we grow the consolidated operating portfolio through development and acquisitions. We plan to continue allocating capital in 2023 to renovate and modernize our operating portfolio, including the addition of sustainable and efficient building features.

Strategic Capital Segment

This operating segment includes revenues from asset management and property management services performed, transactional services for acquisition, disposition and leasing activity and promote revenue earned primarily from the unconsolidated co-investment ventures. Revenues associated with the Strategic Capital Segment fluctuate because of changes in the size of the portfolios through acquisitions and dispositions, the fair value of the properties and other transactional activity including foreign currency exchange rates and timing of promotes. These revenues are reduced by the direct costs associated with the asset and property-level management expenses for the properties owned by these ventures. We allocate the costs of our property management and leasing functions to the Strategic Capital Segment through Strategic Capital Expenses and to the Real Estate Segment through Rental Expenses based on the square footage of the relative portfolios. For further details regarding the key property information and summarized financial condition and operating results of our unconsolidated co-investment ventures, refer to Note 5 to the Consolidated Financial Statements.

Below are the components of Strategic Capital Segment NOI derived directly from the line items in the Consolidated Financial Statements (in millions):  

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Strategic capital revenues","","$","1,040","","","$","591"],["Strategic capital expenses","","","(304",")","","","(207",")"],["Strategic Capital Segment \u2013 NOI","","$","736","","","$","384"]]
[[/GREPCENT_TABLE]]

Below is additional detail of our Strategic Capital Segment revenues, expenses and NOI (in millions):

[[GREPCENT_TABLE]]
[["","","U.S. (1)","Other Americas","Europe","Asia","Total"],["","","2022","","","2021","","","2022","","","2021","","","2022","","","2021","","","2022","","","2021","","","2022","","","2021"],["Strategic capital revenues ($)"],["Recurring fees (2)","","","178","","","","136","","","","45","","","","38","","","","167","","","","156","","","","78","","","","79","","","","468","","","","409"],["Transactional fees (3)","","","22","","","","14","","","","6","","","","8","","","","20","","","","30","","","","19","","","","32","","","","67","","","","84"],["Promote revenue (4)","","","15","","","","22","","","","32","","","","13","","","","458","","","","63","","","","-","","","","-","","","","505","","","","98"],["Total strategic capital revenues ($)","","","215","","","","172","","","","83","","","","59","","","","645","","","","249","","","","97","","","","111","","","","1,040","","","","591"],["Strategic capital expenses ($) (4)","","","(155",")","","","(112",")","","","(20",")","","","(12",")","","","(87",")","","","(45",")","","","(42",")","","","(38",")","","","(304",")","","","(207",")"],["Strategic Capital Segment - NOI ($)","","","60","","","","60","","","","63","","","","47","","","","558","","","","204","","","","55","","","","73","","","","736","","","","384"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The U.S. expenses include compensation and personnel costs for employees who are based in the U.S. but also support other geographies."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Recurring fees include asset management and property management fees. The increase in fees is primarily due to higher asset management fees driven by the increases in the fair value of the properties based on third party valuations. We saw some decline in asset values in the last half of 2022, and we expect to see additional decline in 2023."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Transactional fees include leasing commissions and acquisition, disposition, development and other fees."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(4)","We generally earn promote revenue directly from third-party investors in the co-investment ventures based on the cumulative returns of the venture over a three-year period or the stabilization of individual development projects owned by the venture. An increase in asset valuations in the co-investment ventures during the promote period is one of the significant drivers of returns that can translate into earning future promote revenues. Included above is promote revenue earned from PELF in September 2022. Approximately 40% of the promote earned by us from the co-investment ventures is paid to our employees as a combination of cash and stock-based awards pursuant to the terms of the PPP and expensed through Strategic Capital Expenses, as vested."]]
[[/GREPCENT_TABLE]]

G&A Expenses

G&A expenses were $331 million and $294 million for 2022 and 2021, respectively. G&A expenses increased in 2022 as compared to 2021, principally due to inflationary increases and higher compensation expenses based on our performance. We expect that 2023 will include additional investments we are making in our Prologis Essentials business, primarily in the energy teams. We capitalize certain internal costs that are incremental and directly related to our development and building improvement activities.

The following table summarizes capitalized G&A (in millions):  

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Building and land development activities","","$","107","","","$","95"],["Operating building improvements and other","","","45","","","","29"],["Total capitalized G&A expenses","","$","152","","","$","124"],["Capitalized salaries and related costs as a percent of total salaries and related costs","","","22.7","%","","","21.9","%"]]
[[/GREPCENT_TABLE]]

Depreciation and Amortization Expenses

Depreciation and amortization expenses were $1.8 billion and $1.6 billion in 2022 and 2021, respectively.

The change in depreciation and amortization expenses in 2022 compared to 2021 of approximately $235 million was impacted by the following activities (in millions):

[[GREPCENT_TABLE]]
[["(1)","Included in acquisitions are the operating properties, other real estate properties and related lease intangibles acquired in the Duke Transaction."]]
[[/GREPCENT_TABLE]]

Gains on Real Estate Transactions, Net

Gains on the disposition of development properties and land were $598 million and $817 million for 2022 and 2021, respectively, and primarily included gains from the contribution of properties we developed to our unconsolidated co-investment ventures in Europe and Japan for 2022 and additionally in the U.S. for 2021. Gains on other dispositions of investments in real estate were $589 million and $773 million for 2022 and 2021, respectively, which included sales of non-strategic operating properties in the U.S., including properties acquired in the LPT Transaction and the IPT Transaction. Additionally, 2021 included the sale of our ownership interest in one of our

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unconsolidated ventures and the contribution of operating properties to our unconsolidated co-investment venture in the U.S. We utilized the proceeds from these transactions primarily to fund our development activities during both periods. See Note 4 to the Consolidated Financial Statements for further information on these transactions.

Our Owned and Managed (“O&M”) Operating Portfolio

We manage our business and review our operating fundamentals on an O&M basis, which includes our consolidated properties and properties owned by our unconsolidated co-investment ventures. We believe reviewing the fundamentals this way allows management to understand the entire impact to the financial statements, as it will affect both the Real Estate Segment and the Strategic Capital Segment, as well as the net earnings we recognize from our unconsolidated co-investment ventures based on our ownership. We do not control the unconsolidated co-investment ventures for purposes of GAAP and the presentation of the ventures’ operating information does not represent a legal claim.

Our O&M operating portfolio does not include our development portfolio, value-added properties, non-industrial properties or properties we do not have the intent to hold long-term that are classified as either held for sale or within other real estate investments. Value-added properties are properties we have either acquired at a discount and believe we could provide greater returns post-stabilization or properties we expect to repurpose to a higher and better use. See below for information on our O&M operating portfolio at December 31 (square feet in millions):

[[GREPCENT_TABLE]]
[["","2022","","","2021"],["","Number of Properties","","","Square Feet","","","Percentage Occupied","","","Number of Properties","","","Square Feet","","","Percentage Occupied"],["Consolidated","","2,812","","","","595","","","","98.3","%","","","2,300","","","","446","","","","98.2","%"],["Unconsolidated","","2,177","","","","488","","","","98.1","%","","","1,987","","","","456","","","","97.3","%"],["Total","","4,989","","","","1,083","","","","98.2","%","","","4,287","","","","902","","","","97.7","%"]]
[[/GREPCENT_TABLE]]

Below are the key leasing metrics of our O&M operating portfolio.

[[GREPCENT_TABLE]]
[["","(1)","Square feet of leases commenced and weighted average net effective rent change were calculated for leases with initial terms of one year or greater. We retained approximately 70% or more of our customers, based on the total square feet of leases commenced, for each year. In 2022, we experienced a significant increase in net effective rent change due to increasing market rents."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Turnover costs include external leasing commissions and tenant improvements and represent the obligations incurred in connection with the lease commencement for leases greater than one year. In 2022, spend on turnover costs remained similar to 2021, however, the value of the leases commenced increased due to strong market rent growth."]]
[[/GREPCENT_TABLE]]

Same Store Analysis

Our same store metrics are non-GAAP financial measures, which are commonly used in the real estate industry and expected from the financial community, on both a net effective and cash basis. We evaluate the performance of the operating properties we own and manage using a “same store” analysis because the population of properties in this analysis is consistent from period to period, which allows us and investors to analyze our ongoing business operations. We determine our same store metrics on property NOI, which is calculated as rental revenue less rental expense for the applicable properties in the same store population for both consolidated and unconsolidated properties based on our ownership interest, as further defined below.

We define our same store population for the three months ended December 31, 2022 as the properties in our O&M operating portfolio, including the property NOI for both consolidated properties and properties owned by the unconsolidated co-investment ventures at January 1, 2021 and owned throughout the same three-month period in both 2021 and 2022. We believe the drivers of property NOI for the consolidated portfolio are generally the same for the properties owned by the ventures in which we invest and therefore we evaluate the same store metrics of the O&M portfolio based on Prologis’ ownership in the properties (“Prologis Share”). The same store population excludes properties held for sale to third parties, along with development properties that were not stabilized at the beginning

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of the period (January 1, 2021) and properties acquired or disposed of to third parties during the period. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the reported period-end exchange rate to translate from local currency into the U.S. dollar, for both periods.

As non-GAAP financial measures, the same store metrics have certain limitations as analytical tools and may vary among real estate companies. As a result, we provide a reconciliation of Rental Revenues less Rental Expenses (“Property NOI”) (from our Consolidated Financial Statements prepared in accordance with U.S. GAAP) to our Same Store Property NOI measures.

We evaluate the results of our same store portfolio on a quarterly basis. The following is a reconciliation of our consolidated rental revenues, rental expenses and property NOI for each quarter in 2022 and 2021 to the full year, as included in the Consolidated Statements of Income and within Note 19 to the Consolidated Financial Statements and to the respective amounts in our same store portfolio analysis for the three months ended December 31 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Three Months Ended"],["","","March 31,","","","June 30,","","","September 30,","","","December 31,","","","Full Year"],["2022"],["Rental revenues","","$","1,077","","","$","1,093","","","$","1,152","","","$","1,591","","","$","4,913"],["Rental expenses","","","(276",")","","","(270",")","","","(285",")","","","(375",")","","","(1,206",")"],["Property NOI","","$","801","","","$","823","","","$","867","","","$","1,216","","","$","3,707"],["2021"],["Rental revenues","","$","1,022","","","$","1,015","","","$","1,037","","","$","1,074","","","$","4,148"],["Rental expenses","","","(278",")","","","(245",")","","","(256",")","","","(262",")","","","(1,041",")"],["Property NOI","","$","744","","","$","770","","","$","781","","","$","812","","","$","3,107"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Three Months Ended December 31,"],["","2022","","","2021","","","% Change"],["Reconciliation of Consolidated Property NOI to Same Store Property NOI measures:"],["Rental revenues","$","1,591","","","$","1,074"],["Rental expenses","","(375",")","","","(262",")"],["Consolidated Property NOI","$","1,216","","","$","812"],["Adjustments to derive same store results:"],["Property NOI from consolidated properties not included in same store portfolio and other adjustments (1)","","(471",")","","","(118",")"],["Property NOI from unconsolidated co-investment ventures included in same store portfolio (1)(2)","","615","","","","578"],["Third parties' share of Property NOI from properties included in same store portfolio (1)(2)","","(502",")","","","(475",")"],["Prologis Share of Same Store Property NOI \u2013 Net Effective (2)","$","858","","","$","797","","","","7.7","%"],["Consolidated properties straight-line rent and fair value lease adjustments included in same store portfolio (3)","","(17",")","","","(24",")"],["Unconsolidated co-investment ventures straight-line rent and fair value lease adjustments included in same store portfolio (3)","","(9",")","","","(15",")"],["Third parties' share of straight-line rent and fair value lease adjustments included in same store portfolio (2)(3)","","7","","","","11"],["Prologis Share of Same Store Property NOI \u2013 Cash (2)(3)","$","839","","","$","769","","","","9.1","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","We exclude properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period and properties acquired or disposed of to third parties during the period. We also exclude net termination and renegotiation fees to allow us to evaluate the growth or decline in each property\u2019s rental revenues without regard to one-time items that are not indicative of the property\u2019s recurring operating performance. Net termination and renegotiation fees represent the gross fee negotiated to allow a customer to terminate or renegotiate their lease, offset by the write-off of the asset recorded due to the adjustment to straight-line rents over the lease term. Same Store Property NOI is adjusted to include an allocation of property management expenses for our consolidated properties based on the property management services provided to each property (generally, based on a percentage of revenues). On consolidation, these amounts are eliminated and the actual costs of providing property management and leasing services are recognized as part of our consolidated rental expense."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(2)","We include the Property NOI for the same store portfolio for both consolidated properties and properties owned by the co-investment ventures based on our investment in the underlying properties. In order to calculate our share of Same Store Property NOI from the co-investment ventures in which we own less than 100%, we use the co-investment ventures\u2019 underlying Property NOI for the same store portfolio and apply our ownership percentage at December 31, 2022 to the Property NOI for both periods, including the properties contributed during the period. We adjust the total Property NOI from the same store portfolio of the co-investment ventures by subtracting the third parties\u2019 share of both consolidated and unconsolidated co-investment ventures."]]
[[/GREPCENT_TABLE]]

During the periods presented, certain wholly owned properties were contributed to a co-investment venture and are included in the same store portfolio. Neither our consolidated results nor those of the co-investment ventures, when viewed individually, would be comparable on a same store basis because of the changes in composition of the respective portfolios from period to period (e.g. the results of a contributed property are included in our consolidated results through the contribution date and in the results of the venture subsequent to the contribution date based on our ownership interest at the end of the period). As a result, only line items labeled “Prologis Share of Same Store Property NOI” are comparable period over period.

[[GREPCENT_TABLE]]
[["(3)","We further remove certain noncash items (straight-line rent and amortization of fair value lease adjustments) included in the financial statements prepared in accordance with U.S. GAAP to reflect a Same Store Property NOI \u2013 Cash measure."]]
[[/GREPCENT_TABLE]]

We manage our business and compensate our executives based on the same store results of our O&M portfolio at 100% as we manage our portfolio on an ownership blind basis. We calculate those results by including 100% of the properties included in our same store portfolio.

Other Components of Income (Expense)

Earnings from Unconsolidated Entities, Net

We recognized net earnings from unconsolidated entities, which are accounted for using the equity method, of $311 million and $404 million during 2022 and 2021, respectively. Included in 2021 is our share of the gains recognized upon the sale of certain non-strategic assets acquired in the IPT Transaction and the sale by UKLV of its operating properties to our unconsolidated co-investment ventures, PELF and PELP.

The earnings we recognize can be impacted by: (i) variances in revenues and expenses of each venture; (ii) the size and occupancy rate of the portfolio of properties owned by each venture; (iii) gains or losses from the dispositions of properties and extinguishment of debt; (iv) our ownership interest in each venture; and (v) fluctuations in foreign currency exchange rates used to translate our share of net earnings to U.S. dollars. See the discussion of our unconsolidated entities above in the Strategic Capital Segment discussion and in Note 5 to the Consolidated Financial Statements for a further breakdown of our share of net earnings recognized.

Interest Expense

The following table details our net interest expense (dollars in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Gross interest expense","","$","345","","","$","299"],["Amortization of debt discount and debt issuance costs, net","","","24","","","","9"],["Capitalized amounts","","","(60",")","","","(42",")"],["Net interest expense","","$","309","","","$","266"],["Weighted average effective interest rate during the year","","","1.8","%","","","1.7","%"]]
[[/GREPCENT_TABLE]]

Interest expense increased in 2022, as compared to 2021, primarily due to assuming $4.2 billion of debt in the Duke Transaction with a weighted average interest rate at fair value of 4.9%, which included $2.9 billion of senior notes and a $501 million term loan. Additionally, we issued $3.3 billion of senior notes with a weighted average interest rate of 2.3%, at the issuance date, in 2022.

See Note 8 to the Consolidated Financial Statements and the Liquidity and Capital Resources section below, for further discussion of our debt and borrowing costs.

Foreign Currency and Derivative Gains (Losses) and Other Income (Expense), Net

We recognized foreign currency and derivative gains (losses) and other income (expense), net, of $242 million and $165 million for the year ended December 31, 2022 and 2021, respectively.

We are exposed to foreign currency exchange risk related to investments in and earnings from our foreign investments. We primarily hedge our foreign currency risk related to our investments by borrowing in the currencies in which we invest thereby providing a natural hedge. We have issued debt in a currency that is not the same functional currency of the borrowing entity and have designated a portion of the debt as a nonderivative net investment hedge. We recognize the remeasurement and settlement of the translation adjustment on the unhedged portion of the debt and accrued interest in unrealized gains or losses. We may use derivative financial instruments to manage foreign currency exchange rate risk related to our earnings. We recognize the change in fair value of the

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undesignated derivative contracts in unrealized gains and losses. Upon settlement of these transactions, we recognize realized gains or losses.

The following table details our foreign currency and derivative gains (losses), net included in earnings (in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Realized foreign currency and derivative gains (losses), net:"],["Gains (losses) on the settlement of undesignated derivatives","","$","145","","","$","(8",")"],["Gains (losses) on the settlement of transactions with third parties","","","1","","","","(1",")"],["Total realized foreign currency and derivative gains (losses), net","","","146","","","","(9",")"],["Unrealized foreign currency and derivative gains, net:"],["Gains on the change in fair value of undesignated derivatives and unhedged debt","","","83","","","","169"],["Gains on remeasurement of certain assets and liabilities","","","9","","","","4"],["Total unrealized foreign currency and derivative gains, net","","","92","","","","173"],["Total foreign currency and derivative gains, net","","$","238","","","$","164"]]
[[/GREPCENT_TABLE]]

See Note 2 to the Consolidated Financial Statements for more information about our foreign currency and derivative financial instrument policies and Note 15 to the Consolidated Financial Statements for more information about our derivative and nonderivative transactions.

Losses on Early Extinguishment of Debt, Net

We recognized $20 million and $187 million of losses on the early extinguishment of debt in 2022 and 2021, respectively. The losses in 2021 included the redemption of $1.5 billion of senior notes with stated maturities between 2024 and 2025. See Note 8 to the Consolidated Financial Statements and the Liquidity and Capital Resources section, for more information regarding our debt.

Income Tax Expense

We recognize income tax expense related to our taxable REIT subsidiaries and in the local, state and foreign jurisdictions in which we operate. Our current income tax expense (benefit) fluctuates from period to period based primarily on the timing of our taxable income, including gains on the disposition of properties and fees earned from the co-investment ventures. Deferred income tax expense (benefit) is generally a function of the period’s temporary differences and the utilization of net operating losses generated in prior years that had been previously recognized as deferred income tax assets in taxable subsidiaries.

The following table summarizes our income tax expense (benefit) (in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Current income tax expense (benefit):"],["Income tax expense","","$","130","","","$","108"],["Income tax expense on dispositions","","","13","","","","62"],["Income tax expense (benefit) on dispositions related to acquired tax liabilities","","","(21",")","","","3"],["Total current income tax expense","","","122","","","","173"],["Deferred income tax expense (benefit):"],["Income tax expense","","","13","","","","4"],["Income tax benefit on dispositions related to acquired tax liabilities","","","-","","","","(3",")"],["Total deferred income tax expense","","","13","","","","1"],["Total income tax expense","","$","135","","","$","174"]]
[[/GREPCENT_TABLE]]

Our income taxes are discussed in more detail in Note 13 to the Consolidated Financial Statements.

Net Earnings Attributable to Noncontrolling Interests

This amount represents the third-party investors’ share of the earnings generated in consolidated entities in which we do not own 100% of the equity, reduced by the third-party share of fees or promotes payable to us and earned during the period. We had net earnings attributable to noncontrolling interests of $191 million and $209 million in 2022 and 2021, respectively. Included in these amounts were $92 million and $82 million in 2022 and 2021, respectively, of net earnings attributable to the common limited partnership unitholders of Prologis, L.P. Included in 2021 was the sale of non-strategic operating properties in our consolidated co-investment venture in the U.S.

See Note 11 to the Consolidated Financial Statements for further information on our noncontrolling interests.

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Other Comprehensive Income (Loss)

The key driver of changes in Accumulated Other Comprehensive Income (Loss) (“AOCI/L”) in 2022 and 2021 was the currency translation adjustment derived from changes in exchange rates during both periods primarily on our net investments in real estate outside the U.S. and the borrowings we issue in the functional currencies of the countries where we invest. These borrowings serve as a natural hedge of our foreign investments. In addition, we use derivative financial instruments, such as foreign currency forward and option contracts to manage foreign currency exchange rate risk related to our foreign investments and interest rate swaps to manage interest rate risk, that when designated the change in fair value is included in AOCI/L.

See Note 2 to the Consolidated Financial Statements for more information about our foreign currency and derivative financial instrument policies and Note 15 to the Consolidated Financial Statements for more information about our derivative and nonderivative transactions and other comprehensive income (loss).

ENVIRONMENTAL MATTERS

See Note 16 in the Consolidated Financial Statements for further information about environmental liabilities.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We consider our ability to generate cash from operating activities, distributions from our co-investment ventures, contributions and dispositions of properties and available financing sources to be adequate to meet our anticipated future development, acquisition, operating, debt service, dividend and distribution requirements.

Given the uncertain macro environment and the impact on real estate valuations, we expect to be cautious as we evaluate capital deployment activities, including a focus on build-to-suit developments and a pause on contributions in the near term.

Near-Term Principal Cash Sources and Uses

In addition to dividends and distributions, we expect our primary cash needs will consist of the following:

[[GREPCENT_TABLE]]
[["\u2022","completion of the development and leasing of the properties in our consolidated development portfolio (at December 31, 2022, 136 properties in our development portfolio were 45.2% leased with a current investment of $4.2 billion and a TEI of $7.5 billion when completed and leased, leaving $3.3 billion of estimated additional required investment);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","development of new properties that we may hold for long-term investment or subsequently contribute to unconsolidated co-investment ventures, including the acquisition of land;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","the acquisition of other real estate investments that we acquire with the intention of redeveloping into industrial properties;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","capital expenditures and leasing costs on properties in our operating portfolio, including investments in solar panels and other renewable energy improvements;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","repayment of debt and scheduled principal payments of $33 million in 2023;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","additional investments in current and future unconsolidated co-investment ventures and other ventures; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","the acquisition of operating properties or portfolios of operating properties (depending on market and other conditions) for direct, long-term investment in our consolidated portfolio (this might include acquisitions from our unconsolidated entities). In October 2022, we completed the Duke Transaction for $23.2 billion through the issuance of equity and the assumption of debt."]]
[[/GREPCENT_TABLE]]

We expect to fund our cash needs principally from the following sources (subject to market conditions):

[[GREPCENT_TABLE]]
[["\u2022","net cash flow from property operations;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","fees earned for services performed on behalf of co-investment ventures;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","distributions received from co-investment ventures;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","proceeds from the contribution of properties to current or future co-investment ventures;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","proceeds from the disposition of properties or other investments to third parties;"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["\u2022","available unrestricted cash balances ($278 million at December 31, 2022);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","borrowing capacity under our current credit facility arrangements ($3.9 billion available at December 31, 2022); and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","proceeds from the issuance of debt."]]
[[/GREPCENT_TABLE]]

Long-term, we may also voluntarily repurchase our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise. We may also fund our cash needs from the issuance of equity securities, subject to market conditions, and the through sale of a portion of our investments in co-investment ventures.

Debt

The following table summarizes information about our consolidated debt by currency at December 31 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["","","Weighted Average Interest Rate","","","Amount Outstanding","","","% of Total","","","Weighted Average Interest Rate","","","Amount Outstanding","","","% of Total"],["British pound sterling","","","2.1","%","","$","1,228","","","","5.1","%","","","2.1","%","","$","1,377","","","","7.8","%"],["Canadian dollar","","","4.5","%","","","815","","","","3.4","%","","","2.7","%","","","284","","","","1.6","%"],["Euro","","","1.3","%","","","7,991","","","","33.5","%","","","1.0","%","","","7,408","","","","41.8","%"],["Japanese yen","","","1.0","%","","","3,308","","","","13.9","%","","","0.9","%","","","2,879","","","","16.2","%"],["U.S. dollar","","","3.6","%","","","10,534","","","","44.1","%","","","2.6","%","","","5,767","","","","32.6","%"],["Total debt (1)","","","2.5","%","","$","23,876","","","","100.0","%","","","1.6","%","","$","17,715","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The weighted average remaining maturity for total debt outstanding at December 31, 2022 and 2021 was 9 and 10 years, respectively."]]
[[/GREPCENT_TABLE]]

Our credit ratings at December 31, 2022, were A3 from Moody’s with a stable outlook and A from Standard & Poor’s with a stable outlook. These ratings allow us to borrow at an advantageous interest rate. Adverse changes in our credit ratings could negatively impact our business and, in particular, our refinancing and other capital market activities, our ability to manage debt maturities, our future growth and our development and acquisition activity. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization.

At December 31, 2022, we were in compliance with all of our financial debt covenants. These covenants include a number of customary financial covenants, such as maintaining debt service coverage ratios, leverage ratios and fixed charge coverage ratios.

See Note 8 to the Consolidated Financial Statements for further discussion on our debt.

Equity Commitments Related to Certain Co-Investment Ventures

Certain co-investment ventures have equity commitments from us and our venture partners. Our venture partners fulfill their equity commitment with cash. We may fulfill our equity commitment through contributions of properties or cash.

The following table summarizes the remaining equity commitments at December 31, 2022 (in millions):

[[GREPCENT_TABLE]]
[["","","Equity Commitments (1)"],["","","Prologis","","","Venture Partners","","","Total","","","Expiration Date"],["Prologis Targeted U.S. Logistics Fund","","$","-","","","$","1,027","","","$","1,027","","","2024 \u2013 2025 (2)"],["Prologis European Logistics Fund","","","-","","","","211","","","","211","","","2025 (2)"],["Prologis China Logistics Venture","","","252","","","","1,318","","","","1,570","","","2023 \u2013 2028"],["Prologis Brazil Logistics Venture","","","36","","","","141","","","","177","","","2026"],["Total","","$","288","","","$","2,697","","","$","2,985"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The equity commitments for the co-investment ventures that operate in a different functional currency than the U.S. dollar were calculated using the foreign currency exchange rate at December 31, 2022."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Venture partners have the option to cancel their equity commitment starting 18 months after the initial commitment date."]]
[[/GREPCENT_TABLE]]

See the Cash Flow Summary below for more information about our investment activity in our co-investment ventures.

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Cash Flow Summary

The following table summarizes our cash flow activity (in millions):

[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Net cash provided by operating activities","","$","4,126","","","$","2,996"],["Net cash used in investing activities","","$","(4,499",")","","$","(1,990",")"],["Net cash (used in) provided by financing activities","","$","116","","","$","(1,008",")"],["Net decrease in cash and cash equivalents, including the effect of foreign currency exchange rates on cash","","$","(278",")","","$","(42",")"]]
[[/GREPCENT_TABLE]]

Operating Activities

Cash provided by and used in operating activities, exclusive of changes in receivables and payables, was impacted by the following significant activities:

[[GREPCENT_TABLE]]
[["\u2022","Real Estate Segment. We receive the majority of our operating cash through the net revenues of our Real Estate Segment, including the recovery of our operating costs. Cash flows generated by the Real Estate Segment are impacted by our acquisition, development and disposition activities, which are drivers of NOI recognized during each period. See the Results of Operations section above for further explanation of our Real Estate Segment. The revenues from this segment include noncash adjustments for straight-lined rents and amortization of above and below market leases of $268 million and $148 million for 2022 and 2021, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Strategic Capital Segment. We also generate operating cash through our Strategic Capital Segment by providing asset management and property management and other services to our unconsolidated co-investment ventures. See the Results of Operations section above for the key drivers of the net revenues from our Strategic Capital Segment. Included in Strategic Capital Revenues is the third-party investors\u2019 share that is owed for promotes, which is recognized in operating activities in the period the cash is received, generally the quarter after the revenue is recognized."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","G&A expenses and equity-based compensation awards. We incurred $331 million and $294 million of G&A expenses in 2022 and 2021, respectively. We recognized equity-based, noncash compensation expenses of $175 million and $113 million in 2022 and 2021, respectively, which were recorded to Rental Expenses in the Real Estate Segment, Strategic Capital Expenses in the Strategic Capital Segment and G&A Expenses."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Operating distributions from unconsolidated entities. We received $410 million and $440 million of distributions as a return on our investment from the cash flows generated from the operations of our unconsolidated entities in 2022 and 2021, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Cash paid for interest, net of amounts capitalized. We paid interest, net of amounts capitalized, of $234 million and $279 million in 2022 and 2021, respectively. See Note 8 to the Consolidated Financial Statements for further information on this activity."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Cash paid for income taxes, net of refunds. We paid income taxes, net of refunds, of $130 million and $149 million in 2022 and 2021, respectively. See Note 13 to the Consolidated Financial Statements for further information on this activity."]]
[[/GREPCENT_TABLE]]

Investing Activities

Cash provided by investing activities is driven by proceeds from the sale of real estate assets that include the contribution of properties we developed to our unconsolidated co-investment ventures as well as the sale of operating properties. Contribution and disposition  activity in 2022 was significantly lower than in 2021 due to the sale of non-strategic assets in 2021 and a pause on contributions in the fourth quarter of 2022. Cash used in investing activities is primarily driven by our capital deployment activities of investing in real estate development, acquisitions and capital expenditures as discussed above. Acquisition activity includes land for future development, operating properties and other real estate assets. See Note 4 to the Consolidated Financial Statements for further information on these activities. In addition, the following significant transactions also impacted our cash used in and provided by investing activities:  

[[GREPCENT_TABLE]]
[["\u2022","Duke Transaction, net of cash acquired. We paid net cash of $92 million to complete the Duke Transaction in 2022, primarily due to transaction costs. The acquisition was financed through the issuance of equity and the assumption of debt. A portion of this debt was paid down subsequent to the acquisition, see the Financing Activities section below. See Note 3 to the Consolidated Financial Statements for more information on this transaction."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Investments in and advances to our unconsolidated entities. We invested cash in our unconsolidated entities that represented our proportionate share, of $442 million and $798 million in 2022 and 2021, respectively. The ventures used the funds for the acquisition of properties, development and repayment of debt. See Note 5 to the Consolidated Financial Statements for more detail on our unconsolidated co-investment ventures."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["\u2022","Return of investment from unconsolidated entities. We received distributions from unconsolidated entities as a return of investment of $77 million and $58 million in 2022 and 2021, respectively. Included in these amounts were distributions from venture activities including proceeds from property sales, debt refinancing and the redemption of our investment in certain unconsolidated entities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Net proceeds from (payments on) the settlement of net investment hedges. We received $56 million and paid $13 million for the settlement of net investment hedges in 2022 and 2021, respectively. See Note 15 to the Consolidated Financial Statements for further information on our derivative transactions."]]
[[/GREPCENT_TABLE]]

Financing Activities

Cash provided by and used in financing activities is principally driven by proceeds from and payments on credit facilities and other debt, along with dividends paid on common and preferred stock and noncontrolling interest contributions and distributions.

Our repurchase of and payments on debt and proceeds from the issuance of debt consisted of the following activity (in millions):

[[GREPCENT_TABLE]]
[["","","2022 (1)","","","2021"],["Repurchase of and payments on debt (including extinguishment costs)"],["Regularly scheduled debt principal payments and payments at maturity","","$","914","","","$","10"],["Secured mortgage debt","","","328","","","","656"],["Senior notes","","","3","","","","1,644"],["Term loans","","","136","","","","250"],["Total","","$","1,381","","","$","2,560"],["Proceeds from the issuance of debt"],["Secured mortgage debt","","$","331","","","$","242"],["Senior notes","","","3,256","","","","2,902"],["Term loans","","","529","","","","454"],["Total","","$","4,116","","","$","3,598"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","We completed the Duke Transaction in 2022 and assumed $4.2 billion of debt. We paid down the balance of $745 million on Duke\u2019s line of credit subsequent to closing the acquisition which is reflected in Net proceeds from (payments on) credit facilities. The assumption of debt was excluded from this table."]]
[[/GREPCENT_TABLE]]

Unconsolidated Co-Investment Venture Debt

We had investments in and advances to our unconsolidated co-investment ventures of $8.1 billion at December 31, 2022. The ventures listed below had total third-party debt of $13.5 billion at December 31, 2022 with a weighted average remaining maturity of 7 years and weighted average interest rate of 2.8%. Certain of our ventures do not have third-party debt and are therefore excluded. This debt is non-recourse to Prologis and other investors in the co-investment ventures and bears interest as follows at December 31, 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Total Debt (1)","","","Weighted Average Interest Rate","","","Gross Book Value of Real Estate (1)","","","Ownership %"],["Prologis Targeted U.S. Logistics Fund","","$","3,468","","","3.5%","","","$","13,155","","","26.2%"],["FIBRA Prologis","","","920","","","4.0%","","","","2,939","","","47.9%"],["Prologis European Logistics Fund","","","5,315","","","2.4%","","","","17,581","","","23.8%"],["Nippon Prologis REIT","","","2,395","","","0.7%","","","","6,669","","","15.1%"],["Prologis China Core Logistics Fund","","","826","","","5.3%","","","","2,331","","","15.5%"],["Prologis China Logistics Venture","","","589","","","5.5%","","","","1,168","","","15.0%"],["Total","","$","13,513","","","","","","","$","43,843"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The weighted average loan-to-value ratio for all unconsolidated co-investment ventures was 26.3% at December 31, 2022. Loan-to-value, a non-GAAP measure, was calculated as the percentage of total third-party debt to the gross book value of real estate for each venture and weighted based on the cumulative gross book value of all unconsolidated co-investment ventures."]]
[[/GREPCENT_TABLE]]

At December 31, 2022, we did not guarantee any third-party debt of the unconsolidated co-investment ventures. In our role as the manager or sponsor, we work with the co-investment ventures to maintain sufficient liquidity and refinance their maturing debt. There can be no assurance that the co-investment ventures will be able to refinance any maturing indebtedness on terms as favorable as the maturing debt, or at all. If the ventures are unable to refinance the maturing indebtedness with newly issued debt, they may be able to obtain funds by voluntary capital contributions from us and our partners or by selling assets. Certain of our ventures also have credit facilities, or unencumbered properties, both of which may be used to obtain funds.

40

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Dividend and Distribution Requirements

Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we will meet the dividend requirements of the IRC, relative to maintaining our REIT status, while still allowing us to retain cash to fund our capital deployment and other investment activities.

Under the IRC, REITs may be subject to certain federal income and excise taxes on undistributed taxable income.

We paid quarterly cash dividends of $0.79 and $0.63 per common share in 2022 and 2021, respectively. Our future common stock dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition, operating results and REIT distribution requirements, and may be adjusted at the discretion of the Board during the year.

We make distributions on the common limited partnership units outstanding at the same per unit amount as our common stock dividend. The Class A common limited partnership units (“Class A Units”) in the OP are entitled to a quarterly distribution equal to $0.64665 per unit so long as the common units receive a quarterly distribution of at least $0.40 per unit. We paid a quarterly cash distribution of $0.64665 per Class A Unit in 2022 and 2021.

At December 31, 2022, our Series Q preferred stock had an annual dividend rate of 8.54% per share and the dividends are payable quarterly in arrears.

Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock have been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.

Other Commitments

On an ongoing basis, we are engaged in various stages of negotiations for the acquisition or disposition of individual properties or portfolios of properties.

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that involves an estimate or assumption that is subjective and requires management judgment about the effect of a matter that is inherently uncertain and material to an entity’s financial condition and results of operations. Management’s judgment considers historical and current economic conditions and expectations for the future. Changes in estimates could affect our financial position and specific items in our results of operations that are used by stockholders, potential investors, industry analysts and lenders in their evaluation of our performance. Of the significant accounting policies discussed in Note 2 to the Consolidated Financial Statements, those presented below have been identified by us as meeting the criteria to be considered critical accounting policies as they relate to our financial condition as of December 31, 2022 and 2021 and our operating results for the three-year period ended December 31, 2022. Refer to Note 2 for more information on these critical accounting policies.

Asset Acquisitions

We generally account for an acquisition of a single property or portfolio of properties as an asset acquisition. We measure the real estate assets acquired through an asset acquisition based on their cost or total consideration exchanged. The difference between the cost and the estimated fair value (excess or bargain consideration) is allocated to the real estate properties and related lease intangibles on a relative fair value basis. Assets we do not intend to hold long-term are recorded at fair value. At a property-level, we allocate the fair value to the components, which include building, land, improvements, and intangible assets or liabilities related to acquired leases. The most significant portion of the allocation is to building and land and requires the use of market based estimates and assumptions.

The fair value of real estate properties subject to purchase price allocation is based on the expected future cash flows of the property and various characteristics of the markets where the property is located utilizing an income approach methodology, which may be a discounted cash flow analysis or applying a capitalization rate to the estimated net operating income of a property. Key assumptions may include market rents and capitalization rates. Estimates of future cash flows are based on a number of factors including historical operating results, known trends and market and economic conditions. We determine capitalization rates by market based on recent transactions and other market data and adjust if necessary, based on the property characteristics. The fair value of land is generally based on relevant market data, such as a comparison of the subject site to similar parcels that have recently been sold or are currently being offered on the market for sale. The use of different assumptions to value the acquired properties and allocate the most significant portion of the property value between the building and land could affect the depreciation expense we recognize over the estimated remaining useful life.

Recoverability of Real Estate Assets

We assess the carrying values of our respective long-lived assets whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. This assessment is primarily triggered based on the shortening of the

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expected hold period due to our change in intent to sell a property in the near term. We have processes to monitor our intent with regard to our investments and the estimated disposition value in comparison to the current carrying value. If our assessment of potential triggering events indicates that the carrying value of a property that we expect to sell in the near term is not recoverable, we recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the property. We determine the fair value of the property based on the proceeds from disposition that are estimated based on quoted market values, third-party appraisals or discounted cash flow models that utilize the future net operating income of the property and expected market capitalization rates. The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. Changes in economic and operating conditions could impact our intent and the assumptions used in determining the fair value that could result in future impairment.

NEW ACCOUNTING PRONOUNCEMENTS

None.

FUNDS FROM OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS/UNITHOLDERS (“FFO”)

FFO is a non-GAAP financial measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings.

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales net of any related tax, along with impairment charges, of previously depreciated properties. We also exclude the gains on revaluation of equity investments upon acquisition of a controlling interest and the gain recognized from a partial sale of our investment, as these are similar to gains from the sales of previously depreciated properties. We exclude similar adjustments from our unconsolidated entities and the third parties’ share of our consolidated co-investment ventures.

Our FFO Measures

Our FFO measures begin with NAREIT’s definition and we make certain adjustments to reflect our business and the way that management plans and executes our business strategy. While not infrequent or unusual, the additional items we adjust for in calculating FFO, as modified by Prologis and Core FFO, both as defined below, are subject to significant fluctuations from period to period. Although these items may have a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long term. These items have both positive and negative short-term effects on our results of operations in inconsistent and unpredictable directions that are not relevant to our long-term outlook.

We calculate our FFO measures, as defined below, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our FFO measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our FFO measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

These FFO measures are used by management as supplemental financial measures of operating performance and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

We analyze our operating performance principally by the rental revenue of our real estate and the revenues from our strategic capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities.

FFO, as modified by Prologis attributable to common stockholders/unitholders (“FFO, as modified by Prologis”)

To arrive at FFO, as modified by Prologis, we adjust the NAREIT defined FFO measure to exclude the impact of foreign currency related items and deferred tax, specifically:

[[GREPCENT_TABLE]]
[["\u2022","deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in earnings that is excluded from our defined FFO measure; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","foreign currency exchange gains and losses resulting from (i) debt transactions between us and our foreign entities, (ii) third-party debt that is used to hedge our investment in foreign entities, (iii) derivative financial instruments related to any such debt transactions, and (iv) mark-to-market adjustments associated with other derivative financial instruments."]]
[[/GREPCENT_TABLE]]

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We use FFO, as modified by Prologis, so that management, analysts and investors are able to evaluate our performance against other REITs that do not have similar operations or operations in jurisdictions outside the U.S.

Core FFO attributable to common stockholders/unitholders (“Core FFO”)

In addition to FFO, as modified by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as modified by Prologis, to exclude the following recurring and nonrecurring items that we recognize directly in FFO, as modified by Prologis:

[[GREPCENT_TABLE]]
[["\u2022","gains or losses from the disposition of land and development properties that were developed with the intent to contribute or sell;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","income tax expense related to the sale of investments in real estate;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","impairment charges recognized related to our investments in real estate generally as a result of our change in intent to contribute or sell these properties;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","expenses related to natural disasters."]]
[[/GREPCENT_TABLE]]

We use Core FFO, including by segment and region, to: (i) assess our operating performance as compared to other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (iii) evaluate the performance of our management; (iv) budget and forecast future results to assist in the allocation of resources; (v) provide guidance to the financial markets to understand our expected operating performance; and (vi) evaluate how a specific potential investment will impact our future results.

Limitations on the use of our FFO measures

While we believe our modified FFO measures are important supplemental measures, neither NAREIT’s nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly, these are only a few of the many measures we use when analyzing our business. Some of the limitations are:

[[GREPCENT_TABLE]]
[["\u2022","The current income tax expenses that are excluded from our modified FFO measures represent the taxes that are payable."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Furthermore, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of logistics facilities are not reflected in FFO."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","Gains or losses from property dispositions and impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of disposed properties arising from changes in market conditions."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","The deferred income tax benefits and expenses that are excluded from our modified FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our modified FFO measures do not currently reflect any income or expense that may result from such settlement."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","The foreign currency exchange gains and losses that are excluded from our modified FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","The gains and losses on extinguishment of debt or preferred stock that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our obligation at less or more than our future obligation."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2022","The natural disaster expenses that we exclude from Core FFO are costs that we have incurred."]]
[[/GREPCENT_TABLE]]

We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete Consolidated Financial Statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our modified FFO measures to our net earnings computed under GAAP as follows (in millions):

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[[GREPCENT_TABLE]]
[["","","2022","","","2021"],["Reconciliation of net earnings attributable to common stockholders to FFO measures:"],["Net earnings attributable to common stockholders","","$","3,359","","","$","2,934"],["Add (deduct) NAREIT defined adjustments:"],["Real estate related depreciation and amortization","","","1,763","","","","1,534"],["Gains on other dispositions of investments in real estate, net of taxes","","","(595",")","","","(749",")"],["Reconciling items related to noncontrolling interests","","","(13",")","","","5"],["Our share of reconciling items included in earnings related to unconsolidated entities","","","363","","","","200"],["NAREIT defined FFO attributable to common stockholders/unitholders","","","4,877","","","","3,924"],["Add (deduct) our modified adjustments:"],["Unrealized foreign currency and derivative gains, net","","","(85",")","","","(173",")"],["Deferred income tax expense","","","13","","","","1"],["Current income tax expense (benefit) on dispositions related to acquired tax liabilities","","","(21",")","","","3"],["Reconciling items related to noncontrolling interests","","","-","","","","1"],["Our share of reconciling items included in earnings related to unconsolidated entities","","","(42",")","","","(1",")"],["FFO, as modified by Prologis attributable to common stockholders/unitholders","","","4,742","","","","3,755"],["Adjustments to arrive at Core FFO:"],["Gains on dispositions of development properties and land, net","","","(598",")","","","(817",")"],["Current income tax expense on dispositions","","","18","","","","38"],["Losses on early extinguishment of debt, net","","","20","","","","187"],["Reconciling items related to noncontrolling interests","","","5","","","","7"],["Our share of reconciling items included in earnings related to unconsolidated entities","","","1","","","","2"],["Core FFO attributable to common stockholders/unitholders","","$","4,188","","","$","3,172"]]
[[/GREPCENT_TABLE]]