| Business Segments |
Our current business strategy includes two operating segments: Real Estate Operations and Private Capital. We generate revenues,
earnings, net operating income (calculated as rental income less rental expenses) and cash flows through our segments, as follows:
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Real Estate Operations — This represents the direct long-term ownership of industrial operating properties and is the primary source of our core
revenue and earnings. We collect rent from our customers under operating leases, including reimbursements for the vast majority of our operating costs. Each operating property is considered to be an individual operating segment having similar
economic characteristics that are combined within the reportable segment based upon geographic location. Our real estate operations segment also includes development and re-development activities. We develop and re-develop industrial properties
primarily in global and regional markets to meet our customers’ needs. We provide additional value creation by utilizing: (i) the land that we currently own in global and regional markets; (ii) the development expertise of our local personnel;
(iii) our global customer relationships; and (iv) the demand for high quality distribution facilities in key markets. Land held for development, properties currently under development and land we own and lease to customers under ground leases are
also included in this segment.
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We own real estate in the Americas (Canada, Mexico and the United States), Europe
(Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden and the United Kingdom) and Asia (China, Japan and Singapore)
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Private Capital — This represents the long-term management of unconsolidated co-investment ventures and other joint ventures. We have a direct and
long-standing relationship with a significant number of institutional investors. We tailor industrial portfolios to investors’ specific needs and deploy capital in both close-ended and open-ended fund structures and joint ventures, while
providing complete portfolio management and financial reporting services. We recognize fees and incentives earned for services performed on behalf of the unconsolidated entities and certain third parties.
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We report the costs associated with our private capital segment for all periods presented in the line item Private Capital
Expenses in our Consolidated Statements of Operations. These costs include the direct expenses associated with the asset management of the property funds provided by individuals who are assigned to our private capital segment. In addition, in
order to achieve efficiencies and economies of scale, all of our property management functions are provided by a team of professionals who are assigned to our real estate operations segment. These individuals perform the property-level management of
the properties we own and the properties we manage that are owned by the unconsolidated entities. We allocate the costs of our property management function to the properties we consolidate (reported in Rental Expenses) and the properties
owned by the unconsolidated entities (included in Private Capital Expenses), by using the square feet owned by the respective portfolios. We are further reimbursed by the co-investments ventures for certain expenses associated with managing
these property funds.
Each entity we manage is considered to be an individual operating segment having similar economic
characteristics that are combined within the reportable segment based upon geographic location. Our operations in the private capital segment are in the Americas (Brazil, Canada, Mexico and the United States), Europe (Belgium, the Czech Republic,
France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden and the United Kingdom) and Asia (China and Japan).
We
present the operations and net gains associated with properties sold to third parties or classified as held for sale as discontinued operations, which results in the restatement of prior year operating results to exclude the items presented as
discontinued operations.
Reconciliations are presented below for: (i) each reportable business segment’s revenue from external
customers to our Total Revenues; (ii) each reportable business segment’s net operating income from external customers to our Earnings (Loss) before Income Taxes; and (iii) each reportable business segment’s assets
to our Total Assets. Our chief operating decision makers rely primarily on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of our Total
Revenues, Earnings (Loss) before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain
corporate income and expenses, are reflected as reconciling items. The following reconciliations are presented in thousands:
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2012 |
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2011 |
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2012 |
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2011 |
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Revenues:
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Real estate operations (1):
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Americas
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$ |
317,840 |
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$ |
191,948 |
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$ |
610,350 |
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$ |
340,936 |
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Europe
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116,325 |
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62,440 |
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235,803 |
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88,985 |
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Asia
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55,590 |
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33,548 |
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109,209 |
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56,974 |
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Total Real Estate Operations segment
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489,755 |
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287,936 |
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955,362 |
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486,895 |
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Private capital (2):
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Americas
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16,470 |
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16,548 |
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34,824 |
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32,697 |
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Europe
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9,326 |
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13,977 |
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18,463 |
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27,302 |
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Asia
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5,197 |
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2,451 |
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10,063 |
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2,812 |
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Total Private Capital segment
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30,993 |
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32,976 |
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63,350 |
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62,811 |
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Total revenues
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$ |
520,748 |
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$ |
320,912 |
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$ |
1,018,712 |
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$ |
549,706 |
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Net operating income:
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Real estate operations (3):
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Americas
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$ |
219,032 |
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$ |
135,720 |
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$ |
424,629 |
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$ |
237,485 |
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Europe
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88,181 |
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43,537 |
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177,938 |
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58,860 |
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Asia
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43,284 |
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25,893 |
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84,759 |
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42,882 |
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Total Real Estate Operations segment
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350,497 |
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205,150 |
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687,326 |
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339,227 |
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Private capital (2)(4):
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Americas
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7,798 |
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9,323 |
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15,745 |
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18,714 |
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Europe
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5,418 |
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10,038 |
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10,802 |
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19,843 |
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Asia
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2,702 |
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2,019 |
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4,847 |
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2,106 |
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Total Private Capital segment
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15,918 |
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21,380 |
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31,394 |
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40,663 |
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Total segment net operating income
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366,415 |
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226,530 |
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718,720 |
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379,890 |
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Reconciling items:
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General and administrative expenses
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(51,415 |
) |
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(51,840 |
) |
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(111,574 |
) |
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(91,023 |
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Merger, acquisition and other integration expenses
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(21,186 |
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(103,052 |
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(31,914 |
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(109,040 |
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Impairment of real estate properties
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— |
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— |
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(3,185 |
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— |
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Depreciation and amortization
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(186,770 |
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(118,606 |
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(374,640 |
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(198,183 |
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Earnings from unconsolidated entities, net
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3,889 |
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11,399 |
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17,884 |
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25,040 |
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Interest expense
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(127,946 |
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(112,916 |
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(261,328 |
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(203,443 |
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Impairment of other assets
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— |
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(103,823 |
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(16,135 |
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(103,823 |
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Interest and other income, net
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5,912 |
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5,277 |
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11,013 |
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2,698 |
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Gains on acquisitions and dispositions of investments in real estate, net (5)
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520 |
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102,529 |
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268,291 |
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106,254 |
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Foreign currency and derivative gains (losses), net
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12,753 |
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(10,255 |
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(14,022 |
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(8,881 |
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Gain (loss) on early extinguishment of debt, net
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(500 |
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— |
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4,919 |
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— |
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Total reconciling items
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(364,743 |
) |
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(381,287 |
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(510,691 |
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(580,401 |
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Earnings (loss) before income taxes
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$ |
1,672 |
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$ |
(154,757 |
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$ |
208,029 |
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$ |
(200,511 |
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June 30, |
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December 31, |
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2012 |
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2011 |
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Assets:
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Real estate operations:
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Americas
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$ |
15,274,332 |
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$ |
13,305,147 |
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Europe
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6,400,136 |
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6,823,814 |
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Asia
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3,615,947 |
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3,502,033 |
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Total Real Estate Operations segment
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25,290,415 |
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23,630,994 |
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Private capital (6):
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Americas
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25,137 |
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43,394 |
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Europe
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60,576 |
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61,946 |
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Asia
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7,867 |
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9,368 |
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Total Private Capital segment
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93,580 |
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114,708 |
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Total segment assets
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25,383,995 |
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23,745,702 |
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Reconciling items:
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Investments in and advances to unconsolidated entities
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2,220,172 |
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2,857,755 |
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Notes receivable backed by real estate
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245,654 |
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322,834 |
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Assets held for sale
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50,672 |
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444,850 |
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Cash and cash equivalents
|
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293,631 |
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176,072 |
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Other assets
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221,439 |
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176,699 |
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Total reconciling items
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3,031,568 |
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3,978,210 |
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Total assets
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$ |
28,415,563 |
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$ |
27,723,912 |
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| (1) |
Includes rental income of our industrial properties and land subject to ground leases, as well as development management and other income. |
| (2) |
Includes revenues earned from managing our unconsolidated entities and certain third parties. |
| (3) |
Includes rental income less rental expenses of our industrial properties and land subject to ground leases, as well as development management and other income less
related expenses. |
| (4) |
Amounts are reduced by the direct costs we incur to manage the unconsolidated entities and certain third parties that are presented as Private Capital Expenses
in our Consolidated Statements of Operations. |
| (5) |
Included in 2012 is a $273.0 million gain on acquisition of Prologis California in February 2012. See Note 2 for further information on this transaction.
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| (6) |
Represents management contracts recorded in connection with business combinations and goodwill associated with the Private Capital segment. |
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