Prologis, Inc. - Quarter Report: 2023 September (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-13545 (Prologis, Inc.) 001-14245 (Prologis, L.P.)

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)


Maryland (Prologis, Inc.) Delaware (Prologis, L.P.)		94-3281941 (Prologis, Inc.) 94-3285362 (Prologis, L.P.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Pier 1, Bay 1, San Francisco, California		94111
(Address or principal executive offices)		(Zip Code)

(415) 394-9000

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


	Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Prologis, Inc.	Common Stock, $0.01 par value	PLD	New York Stock Exchange
Prologis, L.P.	3.000% Notes due 2026	PLD/26	New York Stock Exchange
Prologis, L.P.	2.250% Notes due 2029	PLD/29	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.


Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit such files).


Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Prologis, Inc.:
Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐


Prologis, L.P.:
Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).


Prologis, Inc.	Yes	☐	No	☒
Prologis, L.P.	Yes	☐	No	☒

The number of shares of Prologis, Inc.’s common stock outstanding at October 25, 2023, was approximately 923,971,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2023, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the OP collectively.

The Parent is a real estate investment trust (a “REIT”) and the general partner of the OP. At September 30, 2023, the Parent owned a 97.58% common general partnership interest in the OP and substantially all of the preferred units in the OP. The remaining 2.42% common limited partnership interests are owned by unaffiliated investors and certain current and former directors and officers of the Parent.

We operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As sole general partner, the Parent has control of the OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates the OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

We believe combining the quarterly reports on Form 10-Q of the Parent and the OP into this single report results in the following benefits:

•

enhances investors’ understanding of the Parent and the OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•

eliminates duplicative disclosure and provides a more streamlined and readable presentation as a substantial portion of the Company’s disclosure applies to both the Parent and the OP; and

•

creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the OP and are presented as general partner’s capital within partners’ capital in the OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the OP’s consolidated financial statements.

To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of Prologis.

PROLOGIS

INDEX


			Page Number
PART I.	Financial Information
	Item 1.	Financial Statements		1
	Prologis, Inc.:
		Consolidated Balance Sheets – September 30, 2023 and December 31, 2022		1
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2023 and 2022		2
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2023 and 2022		3
		Consolidated Statements of Equity – Three and Nine Months Ended September 30, 2023 and 2022		4
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022		5
	Prologis, L.P.:
		Consolidated Balance Sheets – September 30, 2023 and December 31, 2022		6
		Consolidated Statements of Income – Three and Nine Months Ended September 30, 2023 and 2022		7
		Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2023 and 2022		8
		Consolidated Statements of Capital – Three and Nine Months Ended September 30, 2023 and 2022		9
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2023 and 2022		10
	Prologis, Inc. and Prologis, L.P.:
		Notes to the Consolidated Financial Statements		11
		Note 1. General		11
		Note 2. Duke Transaction		11
		Note 3. Real Estate		12
		Note 4. Unconsolidated Entities		13
		Note 5. Assets Held for Sale or Contribution		15
		Note 6. Debt		15
		Note 7. Noncontrolling Interests		17
		Note 8. Long-Term Compensation		18
		Note 9. Earnings Per Common Share or Unit		19
		Note 10. Financial Instruments and Fair Value Measurements		21
		Note 11. Business Segments		24
		Note 12. Supplemental Cash Flow Information		26
		Reports of Independent Registered Public Accounting Firm		27
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		49
	Item 4.	Controls and Procedures		50
PART II.	Other Information
	Item 1.	Legal Proceedings		51
	Item 1A.	Risk Factors		51
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		51
	Item 3.	Defaults Upon Senior Securities		51
	Item 4.	Mine Safety Disclosures		51
	Item 5.	Other Information		51
	Item 6.	Exhibits		51

Index

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)



	September 30, 2023			December 31, 2022
ASSETS
Investments in real estate properties	$	87,021,585		$	81,623,396
Less accumulated depreciation		10,439,374			9,036,085
Net investments in real estate properties		76,582,211			72,587,311
Investments in and advances to unconsolidated entities		9,091,824			9,698,898
Assets held for sale or contribution		797,758			531,257
Net investments in real estate		86,471,793			82,817,466

Cash and cash equivalents		740,841			278,483
Other assets		4,736,775			4,801,499
Total assets	$	91,949,409		$	87,897,448

LIABILITIES AND EQUITY
Liabilities:
Debt	$	27,578,197		$	23,875,961
Accounts payable and accrued expenses		1,721,108			1,711,885
Other liabilities		4,389,242			4,446,509
Total liabilities		33,688,547			30,034,355

Equity:
Prologis, Inc. stockholders’ equity:
Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,279 shares issued and outstanding and 100,000 preferred shares authorized at September 30, 2023 and December 31, 2022		63,948			63,948
Common stock; $0.01 par value; 923,974 shares and 923,142 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		9,240			9,231
Additional paid-in capital		54,197,865			54,065,407
Accumulated other comprehensive loss		(185,783	)		(443,609	)
Distributions in excess of net earnings		(449,439	)		(457,695	)
Total Prologis, Inc. stockholders’ equity		53,635,831			53,237,282
Noncontrolling interests		4,625,031			4,625,811
Total equity		58,260,862			57,863,093
Total liabilities and equity	$	91,949,409		$	87,897,448

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Revenues:
Rental	$	1,777,359		$	1,151,846		$	5,062,583		$	3,322,159
Strategic capital		136,848			594,752			1,070,584			884,916
Development management and other		457			4,294			1,055			15,025
Total revenues		1,914,664			1,750,892			6,134,222			4,222,100
Expenses:
Rental		416,076			284,707			1,216,568			830,846
Strategic capital		84,069			130,555			306,684			239,418
General and administrative		96,673			87,903			292,097			245,663
Depreciation and amortization		642,010			401,450			1,846,545			1,200,410
Other		12,342			7,004			31,686			28,214
Total expenses		1,251,170			911,619			3,693,580			2,544,551

Operating income before gains on real estate transactions, net		663,494			839,273			2,440,642			1,677,549
Gains on dispositions of development properties and land, net		89,030			74,678			273,907			390,686
Gains on other dispositions of investments in real estate, net		129,584			1,019			158,392			585,854
Operating income		882,108			914,970			2,872,941			2,654,089

Other income (expense):
Earnings from unconsolidated entities, net		71,365			84,925			217,786			241,481
Interest expense		(181,053	)		(63,884	)		(466,882	)		(188,241	)
Foreign currency and derivative gains and other income, net		67,964			171,832			102,682			364,623
Gains (losses) on early extinguishment of debt, net		-			-			3,275			(18,895	)
Total other income (expense)		(41,724	)		192,873			(143,139	)		398,968
Earnings before income taxes		840,384			1,107,843			2,729,802			3,053,057
Income tax expense		(41,243	)		(38,669	)		(152,541	)		(117,725	)
Consolidated net earnings		799,141			1,069,174			2,577,261			2,935,332
Less net earnings attributable to noncontrolling interests		51,514			53,710			148,983			157,690
Net earnings attributable to controlling interests		747,627			1,015,464			2,428,278			2,777,642
Less preferred stock dividends		1,453			1,531			4,381			4,600
Net earnings attributable to common stockholders	$	746,174		$	1,013,933		$	2,423,897		$	2,773,042

Weighted average common shares outstanding – Basic		924,395			740,719			924,228			740,585
Weighted average common shares outstanding – Diluted		951,908			766,372			951,643			766,019

Net earnings per share attributable to common stockholders – Basic	$	0.81		$	1.37		$	2.62		$	3.74

Net earnings per share attributable to common stockholders – Diluted	$	0.80		$	1.36		$	2.61		$	3.72

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Consolidated net earnings	$	799,141		$	1,069,174		$	2,577,261		$	2,935,332
Other comprehensive income:
Foreign currency translation gains, net		146,281			239,062			284,229			761,102
Unrealized gains (losses) on derivative contracts, net		3,702			24,902			(19,998	)		67,230
Comprehensive income		949,124			1,333,138			2,841,492			3,763,664
Net earnings attributable to noncontrolling interests		(51,514	)		(53,710	)		(148,983	)		(157,690	)
Other comprehensive income attributable to noncontrolling interests		(3,396	)		(6,829	)		(6,405	)		(21,705	)
Comprehensive income attributable to common stockholders	$	894,214		$	1,272,599		$	2,686,104		$	3,584,269

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

Three Months Ended September 30, 2023 and 2022


			Common Stock						Accumulated			Distributions
			Number				Additional		Other			in Excess of			Non-
	Preferred		of		Par		Paid-in		Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital		Income (Loss)			Earnings			Interests			Equity
Balance at July 1, 2023	$	63,948		923,861	$	9,239	$	54,115,592	$	(332,370	)	$	(390,779	)	$	4,612,194		$	58,077,824
Consolidated net earnings		-		-		-		-		-			747,627			51,514			799,141
Effect of equity compensation plans		-		6		-		35,021		-			-			68,350			103,371
Capital contributions		-		-		-		-		-			-			62			62
Redemption of noncontrolling interests		-		107		1		6,206		-			-			(9,497	)		(3,290	)
Foreign currency translation gains, net		-		-		-		-		142,969			-			3,312			146,281
Unrealized gains on derivative contracts, net		-		-		-		-		3,618			-			84			3,702
Reallocation of equity		-		-		-		41,046		-			-			(41,046	)		-
Dividends ($0.87 per common share) and other distributions		-		-		-		-		-			(806,287	)		(59,942	)		(866,229	)
Balance at September 30, 2023	$	63,948		923,974	$	9,240	$	54,197,865	$	(185,783	)	$	(449,439	)	$	4,625,031		$	58,260,862


			Common Stock						Accumulated			Distributions
			Number				Additional		Other			in Excess of			Non-
	Preferred		of		Par		Paid-in		Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital		Income (Loss)			Earnings			Interests			Equity
Balance at July 1, 2022	$	63,948		740,360	$	7,404	$	35,573,940	$	(328,761	)	$	(740,764	)	$	4,298,171		$	38,873,938
Consolidated net earnings		-		-		-		-		-			1,015,464			53,710			1,069,174
Effect of equity compensation plans		-		23		-		15,496		-			-			26,754			42,250
Capital contributions		-		-		-		-		-			-			838			838
Redemption of noncontrolling interests		-		28		-		1,357		-			-			(3,874	)		(2,517	)
Foreign currency translation gains, net		-		-		-		-		232,919			-			6,143			239,062
Unrealized gains on derivative contracts, net		-		-		-		-		24,216			-			686			24,902
Reallocation of equity		-		-		-		15,526		-			-			(15,526	)		-
Dividends ($0.79 per common share) and other distributions		-		-		-		-		-			(587,645	)		(53,681	)		(641,326	)
Balance at September 30, 2022	$	63,948		740,411	$	7,404	$	35,606,319	$	(71,626	)	$	(312,945	)	$	4,313,221		$	39,606,321

Nine Months Ended September 30, 2023 and 2022


			Common Stock							Accumulated			Distributions
			Number				Additional			Other			in Excess of			Non-
	Preferred		of		Par		Paid-in			Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital			Income (Loss)			Earnings			Interests			Equity
Balance at January 1, 2023	$	63,948		923,142	$	9,231	$	54,065,407		$	(443,609	)	$	(457,695	)	$	4,625,811		$	57,863,093
Consolidated net earnings		-		-		-		-			-			2,428,278			148,983			2,577,261
Effect of equity compensation plans		-		330		4		70,176			-			-			152,176			222,356
Capital contributions		-		-		-		-			-			-			1,760			1,760
Redemption of noncontrolling interests		-		502		5		29,004			-			-			(98,768	)		(69,759	)
Foreign currency translation gains, net		-		-		-		-			277,341			-			6,888			284,229
Unrealized losses on derivative contracts, net		-		-		-		-			(19,515	)		-			(483	)		(19,998	)
Reallocation of equity		-		-		-		33,281			-			-			(33,281	)		-
Dividends ($2.61 per common share) and other distributions		-		-		-		(3	)		-			(2,420,022	)		(178,055	)		(2,598,080	)
Balance at September 30, 2023	$	63,948		923,974	$	9,240	$	54,197,865		$	(185,783	)	$	(449,439	)	$	4,625,031		$	58,260,862


			Common Stock							Accumulated			Distributions
			Number				Additional			Other			in Excess of			Non-
	Preferred		of		Par		Paid-in			Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital			Income (Loss)			Earnings			Interests			Equity
Balance at January 1, 2022	$	63,948		739,827	$	7,398	$	35,561,608		$	(878,253	)	$	(1,327,828	)	$	4,315,337		$	37,742,210
Consolidated net earnings		-		-		-		-			-			2,777,642			157,690			2,935,332
Effect of equity compensation plans		-		349		4		36,613			-			-			87,153			123,770
Capital contributions		-		-		-		-			-			-			11,921			11,921
Redemption of noncontrolling interests		-		235		2		10,929			-			-			(63,436	)		(52,505	)
Foreign currency translation gains, net		-		-		-		-			741,234			-			19,868			761,102
Unrealized gains on derivative contracts, net		-		-		-		-			65,393			-			1,837			67,230
Reallocation of equity		-		-		-		(2,821	)		-			-			2,821			-
Dividends ($2.37 per common share) and other distributions		-		-		-		(10	)		-			(1,762,759	)		(219,970	)		(1,982,739	)
Balance at September 30, 2022	$	63,948		740,411	$	7,404	$	35,606,319		$	(71,626	)	$	(312,945	)	$	4,313,221		$	39,606,321

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended
	September 30,
	2023			2022
Operating activities:
Consolidated net earnings	$	2,577,261		$	2,935,332
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(466,686	)		(107,565	)
Equity-based compensation awards		210,022			140,022
Depreciation and amortization		1,846,545			1,200,410
Earnings from unconsolidated entities, net		(217,786	)		(241,481	)
Operating distributions from unconsolidated entities		536,104			316,299
Increase in operating receivables from unconsolidated entities		(98,227	)		(480,588	)
Amortization of debt discounts and debt issuance costs, net		55,526			6,875
Gains on dispositions of development properties and land, net		(273,907	)		(390,686	)
Gains on other dispositions of investments in real estate, net		(158,392	)		(585,854	)
Unrealized foreign currency and derivative gains, net		(22,006	)		(239,645	)
Losses (gains) on early extinguishment of debt, net		(3,275	)		18,895
Deferred income tax expense		9,836			23,714
Decrease in other assets		66,281			143,333
Increase in accounts payable and accrued expenses and other liabilities		237,340			109,752
Net cash provided by operating activities		4,298,636			2,848,813
Investing activities:
Real estate development		(2,507,664	)		(2,231,821	)
Real estate acquisitions		(3,648,920	)		(2,232,354	)
Duke Transaction, net of cash acquired		(28,111	)		-
Tenant improvements and lease commissions on previously leased space		(271,011	)		(262,177	)
Property improvements		(156,520	)		(117,563	)
Proceeds from dispositions and contributions of real estate		1,310,442			1,721,993
Investments in and advances to unconsolidated entities		(246,135	)		(192,335	)
Return of investment from unconsolidated entities		304,901			58,528
Proceeds from the settlement of net investment hedges		31,045			45,033
Payments on the settlement of net investment hedges		(161	)		(771	)
Net cash used in investing activities		(5,212,134	)		(3,211,467	)
Financing activities:
Dividends paid on common and preferred stock		(2,420,022	)		(1,762,759	)
Noncontrolling interests contributions		1,760			11,921
Noncontrolling interests distributions		(178,055	)		(219,970	)
Settlement of noncontrolling interests		(69,759	)		(52,505	)
Tax paid with shares withheld		(19,814	)		(25,427	)
Debt and equity issuance costs paid		(58,320	)		(31,912	)
Net proceeds from (payments on) credit facilities		(1,328,136	)		60,357
Repurchase of and payments on debt		(270,344	)		(886,746	)
Proceeds from the issuance of debt		5,746,977			3,394,353
Net cash provided by financing activities		1,404,287			487,312

Effect of foreign currency exchange rate changes on cash		(28,431	)		(44,493	)
Net increase in cash and cash equivalents		462,358			80,165
Cash and cash equivalents, beginning of period		278,483			556,117
Cash and cash equivalents, end of period	$	740,841		$	636,282

See Note 12 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)



	September 30, 2023		December 31, 2022
ASSETS
Investments in real estate properties	$	87,021,585	$	81,623,396
Less accumulated depreciation		10,439,374		9,036,085
Net investments in real estate properties		76,582,211		72,587,311
Investments in and advances to unconsolidated entities		9,091,824		9,698,898
Assets held for sale or contribution		797,758		531,257
Net investments in real estate		86,471,793		82,817,466

Cash and cash equivalents		740,841		278,483
Other assets		4,736,775		4,801,499
Total assets	$	91,949,409	$	87,897,448

LIABILITIES AND CAPITAL
Liabilities:
Debt	$	27,578,197	$	23,875,961
Accounts payable and accrued expenses		1,721,108		1,711,885
Other liabilities		4,389,242		4,446,509
Total liabilities		33,688,547		30,034,355

Capital:
Partners’ capital:
General partner – preferred		63,948		63,948
General partner – common		53,571,883		53,173,334
Limited partners – common		854,388		843,263
Limited partners – Class A common		472,347		464,781
Total partners’ capital		54,962,566		54,545,326
Noncontrolling interests		3,298,296		3,317,767
Total capital		58,260,862		57,863,093
Total liabilities and capital	$	91,949,409	$	87,897,448

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Revenues:
Rental	$	1,777,359		$	1,151,846		$	5,062,583		$	3,322,159
Strategic capital		136,848			594,752			1,070,584			884,916
Development management and other		457			4,294			1,055			15,025
Total revenues		1,914,664			1,750,892			6,134,222			4,222,100
Expenses:
Rental		416,076			284,707			1,216,568			830,846
Strategic capital		84,069			130,555			306,684			239,418
General and administrative		96,673			87,903			292,097			245,663
Depreciation and amortization		642,010			401,450			1,846,545			1,200,410
Other		12,342			7,004			31,686			28,214
Total expenses		1,251,170			911,619			3,693,580			2,544,551

Operating income before gains on real estate transactions, net		663,494			839,273			2,440,642			1,677,549
Gains on dispositions of development properties and land, net		89,030			74,678			273,907			390,686
Gains on other dispositions of investments in real estate, net		129,584			1,019			158,392			585,854
Operating income		882,108			914,970			2,872,941			2,654,089

Other income (expense):
Earnings from unconsolidated entities, net		71,365			84,925			217,786			241,481
Interest expense		(181,053	)		(63,884	)		(466,882	)		(188,241	)
Foreign currency and derivative gains and other income, net		67,964			171,832			102,682			364,623
Gains (losses) on early extinguishment of debt, net		-			-			3,275			(18,895	)
Total other income (expense)		(41,724	)		192,873			(143,139	)		398,968
Earnings before income taxes		840,384			1,107,843			2,729,802			3,053,057
Income tax expense		(41,243	)		(38,669	)		(152,541	)		(117,725	)
Consolidated net earnings		799,141			1,069,174			2,577,261			2,935,332
Less net earnings attributable to noncontrolling interests		32,613			24,979			87,833			79,257
Net earnings attributable to controlling interests		766,528			1,044,195			2,489,428			2,856,075
Less preferred unit distributions		1,453			1,531			4,381			4,600
Net earnings attributable to common unitholders	$	765,075		$	1,042,664		$	2,485,047		$	2,851,475

Weighted average common units outstanding – Basic		939,602			753,616			939,448			753,515
Weighted average common units outstanding – Diluted		951,908			766,372			951,643			766,019

Net earnings per unit attributable to common unitholders – Basic	$	0.81		$	1.37		$	2.62		$	3.74

Net earnings per unit attributable to common unitholders – Diluted	$	0.80		$	1.36		$	2.61		$	3.72

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Consolidated net earnings	$	799,141		$	1,069,174		$	2,577,261		$	2,935,332
Other comprehensive income:
Foreign currency translation gains, net		146,281			239,062			284,229			761,102
Unrealized gains (losses) on derivative contracts, net		3,702			24,902			(19,998	)		67,230
Comprehensive income		949,124			1,333,138			2,841,492			3,763,664
Net earnings attributable to noncontrolling interests		(32,613	)		(24,979	)		(87,833	)		(79,257	)
Other comprehensive loss (income) attributable to noncontrolling interests		260			470			(20	)		955
Comprehensive income attributable to common unitholders	$	916,771		$	1,308,629		$	2,753,639		$	3,685,362

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

(Unaudited)

(In thousands)

Three Months Ended September 30, 2023 and 2022


	General Partner									Limited Partners											Non-
	Preferred				Common					Common						Class A Common					controlling			Total
	Units		Amount		Units		Amount			Units			Amount			Units		Amount			Interests			Capital
Balance at July 1, 2023		1,279	$	63,948		923,861	$	53,401,682			14,538		$	840,369			8,595	$	469,424		$	3,302,401		$	58,077,824
Consolidated net earnings		-		-		-		747,627			-			12,344			-		6,557			32,613			799,141
Effect of equity compensation plans		-		-		6		35,021			331			68,350			-		-			-			103,371
Capital contributions		-		-		-		-			-			-			-		-			62			62
Redemption of limited partners units		-		-		107		6,207			(134	)		(9,497	)		-		-			-			(3,290	)
Foreign currency translation gains (losses), net		-		-		-		142,969			-			2,307			-		1,265			(260	)		146,281
Unrealized gains on derivative contracts, net		-		-		-		3,618			-			53			-		31			-			3,702
Reallocation of capital		-		-		-		41,046			-			(41,675	)		-		629			-			-
Distributions ($0.87 per common unit) and other		-		-		-		(806,287	)		-			(17,863	)		-		(5,559	)		(36,520	)		(866,229	)
Balance at September 30, 2023		1,279	$	63,948		923,974	$	53,571,883			14,735		$	854,388			8,595	$	472,347		$	3,298,296		$	58,260,862


	General Partner									Limited Partners											Non-
	Preferred				Common					Common						Class A Common					controlling			Total
	Units		Amount		Units		Amount			Units			Amount			Units		Amount			Interests			Capital
Balance at July 1, 2022		1,279	$	63,948		740,360	$	34,511,819			12,662		$	590,224			8,595	$	374,526		$	3,333,421		$	38,873,938
Consolidated net earnings		-		-		-		1,015,464			-			17,736			-		10,995			24,979			1,069,174
Effect of equity compensation plans		-		-		23		15,496			131			26,754			-		-			-			42,250
Capital contributions		-		-		-		-			-			-			-		-			838			838
Redemption of limited partners units		-		-		28		1,357			(45	)		(3,874	)		-		-			-			(2,517	)
Foreign currency translation gains (losses), net		-		-		-		232,919			-			4,069			-		2,544			(470	)		239,062
Unrealized gains on derivative contracts, net		-		-		-		24,216			-			422			-		264			-			24,902
Reallocation of capital		-		-		-		15,526			-			(15,878	)		-		352			-			-
Distributions ($0.79 per common unit) and other		-		-		-		(587,645	)		-			(12,896	)		-		(5,558	)		(35,227	)		(641,326	)
Balance at September 30, 2022		1,279	$	63,948		740,411	$	35,229,152			12,748		$	606,557			8,595	$	383,123		$	3,323,541		$	39,606,321

Nine Months Ended September 30, 2023 and 2022


	General Partner									Limited Partners											Non-
	Preferred				Common					Common						Class A Common					controlling			Total
	Units		Amount		Units		Amount			Units			Amount			Units		Amount			Interests			Capital
Balance at January 1, 2023		1,279	$	63,948		923,142	$	53,173,334			14,640		$	843,263			8,595	$	464,781		$	3,317,767		$	57,863,093
Consolidated net earnings		-		-		-		2,428,278			-			39,919			-		21,231			87,833			2,577,261
Effect of equity compensation plans		-		-		330		70,180			1,174			152,176			-		-			-			222,356
Capital contributions		-		-		-		-			-			-			-		-			1,760			1,760
Redemption of limited partners units		-		-		502		29,009			(1,079	)		(98,768	)		-		-			-			(69,759	)
Foreign currency translation gains, net		-		-		-		277,341			-			4,422			-		2,446			20			284,229
Unrealized losses on derivative contracts, net		-		-		-		(19,515	)		-			(311	)		-		(172	)		-			(19,998	)
Reallocation of capital		-		-		-		33,281			-			(34,018	)		-		737			-			-
Distributions ($2.61 per common unit) and other		-		-		-		(2,420,025	)		-			(52,295	)		-		(16,676	)		(109,084	)		(2,598,080	)
Balance at September 30, 2023		1,279	$	63,948		923,974	$	53,571,883			14,735		$	854,388			8,595	$	472,347		$	3,298,296		$	58,260,862


	General Partner									Limited Partners											Non-
	Preferred				Common					Common						Class A Common					controlling			Total
	Units		Amount		Units		Amount			Units			Amount			Units		Amount			Interests			Capital
Balance at January 1, 2022		1,279	$	63,948		739,827	$	33,362,925			12,354		$	557,097			8,595	$	360,702		$	3,397,538		$	37,742,210
Consolidated net earnings		-		-		-		2,777,642			-			48,415			-		30,018			79,257			2,935,332
Effect of equity compensation plans		-		-		349		36,617			969			87,153			-		-			-			123,770
Capital contributions		-		-		-		-			-			-			-		-			11,921			11,921
Redemption of limited partners units		-		-		235		10,931			(575	)		(63,436	)		-		-			-			(52,505	)
Foreign currency translation gains (losses), net		-		-		-		741,234			-			12,763			-		8,060			(955	)		761,102
Unrealized gains on derivative contracts, net		-		-		-		65,393			-			1,126			-		711			-			67,230
Reallocation of capital		-		-		-		(2,821	)		-			2,514			-		307			-			-
Distributions ($2.37 per common unit) and other		-		-		-		(1,762,769	)		-			(39,075	)		-		(16,675	)		(164,220	)		(1,982,739	)
Balance at September 30, 2022		1,279	$	63,948		740,411	$	35,229,152			12,748		$	606,557			8,595	$	383,123		$	3,323,541		$	39,606,321

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended
	September 30,
	2023			2022
Operating activities:
Consolidated net earnings	$	2,577,261		$	2,935,332
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(466,686	)		(107,565	)
Equity-based compensation awards		210,022			140,022
Depreciation and amortization		1,846,545			1,200,410
Earnings from unconsolidated entities, net		(217,786	)		(241,481	)
Operating distributions from unconsolidated entities		536,104			316,299
Increase in operating receivables from unconsolidated entities		(98,227	)		(480,588	)
Amortization of debt discounts and debt issuance costs, net		55,526			6,875
Gains on dispositions of development properties and land, net		(273,907	)		(390,686	)
Gains on other dispositions of investments in real estate, net		(158,392	)		(585,854	)
Unrealized foreign currency and derivative gains, net		(22,006	)		(239,645	)
Losses (gains) on early extinguishment of debt, net		(3,275	)		18,895
Deferred income tax expense		9,836			23,714
Decrease in other assets		66,281			143,333
Increase in accounts payable and accrued expenses and other liabilities		237,340			109,752
Net cash provided by operating activities		4,298,636			2,848,813
Investing activities:
Real estate development		(2,507,664	)		(2,231,821	)
Real estate acquisitions		(3,648,920	)		(2,232,354	)
Duke Transaction, net of cash acquired		(28,111	)		-
Tenant improvements and lease commissions on previously leased space		(271,011	)		(262,177	)
Property improvements		(156,520	)		(117,563	)
Proceeds from dispositions and contributions of real estate		1,310,442			1,721,993
Investments in and advances to unconsolidated entities		(246,135	)		(192,335	)
Return of investment from unconsolidated entities		304,901			58,528
Proceeds from the settlement of net investment hedges		31,045			45,033
Payments on the settlement of net investment hedges		(161	)		(771	)
Net cash used in investing activities		(5,212,134	)		(3,211,467	)
Financing activities:
Distributions paid on common and preferred units		(2,488,993	)		(1,818,509	)
Noncontrolling interests contributions		1,760			11,921
Noncontrolling interests distributions		(109,084	)		(164,220	)
Redemption of common limited partnership units		(69,759	)		(52,505	)
Tax paid with shares of the Parent withheld		(19,814	)		(25,427	)
Debt and equity issuance costs paid		(58,320	)		(31,912	)
Net proceeds from (payments on) credit facilities		(1,328,136	)		60,357
Repurchase of and payments on debt		(270,344	)		(886,746	)
Proceeds from the issuance of debt		5,746,977			3,394,353
Net cash provided by financing activities		1,404,287			487,312

Effect of foreign currency exchange rate changes on cash		(28,431	)		(44,493	)
Net increase in cash and cash equivalents		462,358			80,165
Cash and cash equivalents, beginning of period		278,483			556,117
Cash and cash equivalents, end of period	$	740,841		$	636,282

See Note 12 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Index

PROLOGIS, INC. AND PROLOGIS, L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. GENERAL

Business. Prologis, Inc. (or the “Parent”) commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or “IRC”), and believes the current organization and method of operation will enable it to maintain its status as a REIT. The Parent is the general partner of Prologis, L.P. (or the “Operating Partnership” or “OP”). Through the OP, we are engaged in the ownership, acquisition, development and management of logistics facilities with a focus on key markets in 19 countries on four continents. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity. Our current business strategy consists of two operating business segments: Real Estate (Rental Operations and Development) and Strategic Capital. Our Real Estate Segment represents the ownership, leasing and development of logistics properties. Our Strategic Capital Segment represents the management of properties owned by our unconsolidated co-investment ventures and other ventures. See Note 11 for further discussion of our business segments. Unless otherwise indicated, the Notes to the Consolidated Financial Statements apply to both the Parent and the OP. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and OP collectively.

For each share of preferred or common stock the Parent issues, the OP issues a corresponding preferred or common partnership unit, as applicable, to the Parent in exchange for the contribution of the proceeds from the stock issuance. At September 30, 2023, the Parent owned a 97.58% common general partnership interest in the OP and substantially all of the preferred units in the OP. The remaining 2.42% common limited partnership interests, which include Class A common limited partnership units (“Class A Units”) in the OP, are owned by unaffiliated investors and certain current and former directors and officers of the Parent. Each partner’s percentage interest in the OP is determined based on the number of OP units held, including the number of OP units into which Class A Units are convertible, compared to total OP units outstanding at each period end and is used as the basis for the allocation of net income or loss to each partner. At the end of each reporting period, a capital adjustment is made in the OP to reflect the appropriate ownership interest for each of the common unitholders. These adjustments are reflected in the line items Reallocation of Equity in the Consolidated Statements of Equity of the Parent and Reallocation of Capital in the Consolidated Statements of Capital of the OP.

As the sole general partner of the OP, the Parent has complete responsibility and discretion in the day-to-day management and control of the OP and we operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As general partner with control of the OP, the Parent is the primary beneficiary and therefore consolidates the OP. Because the Parent’s only significant asset is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

Basis of Presentation. The accompanying Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are presented in our reporting currency, the U.S. dollar. Intercompany transactions with consolidated entities have been eliminated.

The accompanying unaudited interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes that the disclosures presented in these financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for both the Parent and the OP for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, and other public information.

NOTE 2. DUKE TRANSACTION

On October 3, 2022, we acquired Duke Realty Corporation and Duke Realty Limited Partnership (collectively “Duke” or the “Duke Transaction”). Through the Duke Transaction, we acquired a portfolio primarily comprised of logistics real estate assets, including 494 industrial operating properties, aggregating 144.4 million square feet, which are highly complementary to our U.S. portfolio in terms of product quality, location and growth potential in our key markets. There was approximately 15 million square feet of non-strategic industrial operating properties acquired in the Duke Transaction for which our intent is not to operate these properties long term. These assets are classified as other real estate investments within Investments in Real Estate Properties in the Consolidated Balance Sheets. The portfolio also included properties under development, land for future development and investments in other ventures.

Index

The Duke Transaction was completed for $23.2 billion through the issuance of equity based on the value of the Prologis common stock and units issued of $18.8 billion, the assumption of debt of $4.2 billion and transaction costs. In connection with the transaction, each issued and outstanding share or unit held by a Duke shareholder or unitholder was converted automatically into 0.475 shares of Prologis common stock or common units of Prologis, L.P., respectively, including shares and units under Duke’s equity incentive plan that became fully vested at closing.

The aggregate equity consideration is calculated below (in millions, except price per share):


Number of Prologis shares and units issued upon conversion of Duke's shares and units at October 3, 2022		184.80
Multiplied by price of Prologis' common stock on September 30, 2022	$	101.60
Fair value of Prologis shares and units issued	$	18,776

We accounted for the Duke Transaction as an asset acquisition and as a result, the transaction costs of $239.8 million were capitalized to the basis of the acquired properties. Transaction costs included the direct costs incurred to acquire the real estate assets.

Under acquisition accounting, the total cost or total consideration exchanged is allocated to the real estate properties and related lease intangibles on a relative fair value basis. As the fair value of the properties acquired exceeded the purchase price, we allocated the bargain consideration at a property-level based on the relative fair value of the property in comparison to the total portfolio. All other assets acquired and liabilities assumed, including debt, and real estate assets that we intend to sell in the next twelve months were recorded at fair value. The total purchase price, including transaction costs, was allocated as follows (in millions):


Net investments in real estate	$	24,915
Cash and other assets		441
Debt		(4,162	)
Intangible liabilities, net of intangible assets (1)		(1,457	)
Accounts payable, accrued expenses and other liabilities		(719	)
Noncontrolling interests		(2	)
Total purchase price, including transaction costs	$	19,016

(1)

Intangible assets of $836.6 million and intangible liabilities of $2.3 billion were included within Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets. The acquired lease intangibles from the Duke Transaction will be amortized over the terms of the respective leases with a weighted average remaining lease term of 64 months at October 3, 2022.

NOTE 3. REAL ESTATE

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


	Square Feet				Number of Buildings
	Sep 30,		Dec 31,		Sep 30,		Dec 31,		Sep 30,		Dec 31,
	2023		2022		2023		2022		2023		2022
Operating properties:
Buildings and improvements		620,413		597,362		2,933		2,825	$	51,476,222	$	48,650,334
Improved land										22,390,537		20,388,461
Development portfolio, including land costs:
Prestabilized		12,738		4,874		40		15		1,718,732		597,553
Properties under development		25,042		44,011		70		121		2,701,514		3,614,601
Land (1)										3,730,346		3,338,121
Other real estate investments (2)										5,004,234		5,034,326
Total investments in real estate properties										87,021,585		81,623,396
Less accumulated depreciation										10,439,374		9,036,085
Net investments in real estate properties									$	76,582,211	$	72,587,311

(1)

At September 30, 2023 and December 31, 2022, our land was comprised of 8,094 and 7,188 acres, respectively.

(2)

Included in other real estate investments were: (i) land parcels we own and lease to third parties; (ii) non-strategic real estate assets, primarily acquired from the Duke Transaction, that we do not intend to operate long term; (iii) non-industrial real estate assets that we intend to redevelop into industrial properties; and (iv) costs associated with potential acquisitions and future development projects, including purchase options on land.

Index

Acquisitions

The following table summarizes our real estate acquisition activity (dollars and square feet in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023 (1)		2022
Number of operating properties		-		9		76		22
Square feet		-		1,952		14,941		3,746
Acres of land		890		590		1,128		1,796
Acquisition cost of net investments in real estate, excluding other real estate investments	$	116,112	$	314,736	$	3,626,672	$	1,562,962

Acquisition cost of other real estate investments	$	37,343	$	33,627	$	77,624	$	636,841

(1)

On June 29, 2023, we acquired a real estate portfolio comprised of 70 operating properties in the U.S., aggregating 13.8 million square feet, for cash consideration of $3.1 billion.

Dispositions

The following table summarizes our dispositions of net investments in real estate that include contributions to unconsolidated co-investment ventures and dispositions to third parties (dollars and square feet in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Dispositions of development properties and land, net (1)
Number of properties		2		7		7		18
Square feet		1,530		1,203		3,652		4,966
Net proceeds	$	272,250	$	168,601	$	738,207	$	846,350
Gains on dispositions of development properties and land, net	$	89,030	$	74,678	$	273,907	$	390,686

Other dispositions of investments in real estate, net (2)
Number of properties		19		-		24		102
Square feet		2,415		-		2,775		8,676
Net proceeds	$	263,567	$	-	$	635,140	$	1,264,280
Gains on other dispositions of investments in real estate, net	$	129,584	$	1,019	$	158,392	$	585,854

(1)

The gains we recognize in Gains on Dispositions of Development Properties and Land, Net in the Consolidated Statements of Income are principally driven by the contribution of newly developed properties to our unconsolidated co-investment ventures and occasionally sales to a third party.

(2)

During the nine months ended September 30, 2023, we sold our ownership interest in an unconsolidated office joint venture.

Leases

We recognized lease right-of-use assets of $677.0 million and $735.4 million within Other Assets and lease liabilities of $587.0 million and $638.8 million within Other Liabilities, for land and office space leases in which we are the lessee, in the Consolidated Balance Sheets at September 30, 2023 and December 31, 2022, respectively.

NOTE 4. UNCONSOLIDATED ENTITIES

Summary of Investments

We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with partners and investors and we provide asset management and property management services to these entities, which we refer to as co-investment ventures. These entities may be consolidated or unconsolidated depending on the structure, our partner’s participation and other rights and our level of control of the entity. This note details our investments in unconsolidated co-investment ventures, which are related parties and accounted for using the equity method of accounting. See Note 7 for more detail regarding our consolidated investments that are not wholly owned.

We also have investments in other ventures, generally with one partner, which we account for using the equity method. We refer to our investments in both unconsolidated co-investment ventures and other ventures, collectively, as unconsolidated entities.

Index

The following table summarizes our investments in and advances to unconsolidated entities (in thousands):


	September 30,		December 31,
	2023		2022
Unconsolidated co-investment ventures	$	7,953,412	$	8,073,927
Other ventures (1)		1,138,412		1,624,971
Total	$	9,091,824	$	9,698,898

(1)

Included in other ventures is our $193.2 million and $162.6 million investment in early and growth-stage companies that are focused on emerging technologies in the logistics sector at September 30, 2023 and December 31, 2022, respectively.

Unconsolidated Co-Investment Ventures

The following table summarizes the Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to our unconsolidated co-investment ventures (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Recurring fees	$	113,947	$	115,902	$	340,842	$	344,945
Transactional fees		15,757		19,805		44,359		54,553
Promote revenue (1)		3,993		456,038		673,665		475,552
Total strategic capital revenues from unconsolidated co-investment ventures (2)	$	133,697	$	591,745	$	1,058,866	$	875,050

(1)

Includes promote revenue earned from unconsolidated co-investment ventures in the U.S. and Mexico in June 2023 and in Europe in September 2022.

(2)

These amounts exclude strategic capital revenues from other ventures.

The following table summarizes the key property information, financial position and operating information of our unconsolidated co-investment ventures on a U.S. GAAP basis (not our proportionate share) and the amounts we recognized in the Consolidated Financial Statements related to these ventures (dollars and square feet in millions):


	U.S.						Other Americas (1)						Europe						Asia (2)						Total
At:	Sep 30, 2023			Dec 31, 2022			Sep 30, 2023			Dec 31, 2022			Sep 30, 2023			Dec 31, 2022			Sep 30, 2023			Dec 31, 2022			Sep 30, 2023			Dec 31, 2022
Key property information:
Ventures		1			1			2			2			2			2			4			3			9			8
Operating properties		741			739			266			260			995			989			226			217			2,228			2,205
Square feet		124			123			61			60			220			219			94			89			499			491

Financial position:
Total assets ($)		11,747			12,617			4,056			3,744			22,222			22,502			9,807			9,964			47,832			48,827
Third-party debt ($)		4,039			3,468			916			919			5,462			5,315			3,913			3,811			14,330			13,513
Total liabilities ($)		4,738			4,143			1,025			1,011			7,428			7,292			4,330			4,279			17,521			16,725

Our investment balance ($) (3)		2,294			2,398			1,142			1,070			3,736			3,786			781			820			7,953			8,074
Our weighted average ownership (4)		27.3	%		26.2	%		38.7	%		41.0	%		31.3	%		31.0	%		15.2	%		15.2	%		27.7	%		27.4	%

	U.S.						Other Americas (1)						Europe						Asia						Total
Operating Information:	Sep 30, 2023			Sep 30, 2022			Sep 30, 2023			Sep 30, 2022			Sep 30, 2023			Sep 30, 2022			Sep 30, 2023			Sep 30, 2022			Sep 30, 2023			Sep 30, 2022
For the three months ended:
Total revenues ($)		330			297			109			97			429			342			164			152			1,032			888
Net earnings ($)		86			73			52			35			66			113			28			34			232			255

Our earnings from unconsolidated co-investment ventures, net ($)		24			20			18			12			23			41			5			5			70			78

For the nine months ended:
Total revenues ($)		983			874			314			282			1,255			1,052			491			478			3,043			2,686
Net earnings ($)		262			213			142			99			226			344			56			100			686			756

Our earnings from unconsolidated co-investment ventures, net ($)		71			58			49			34			74			111			10			16			204			219

(1)

Prologis Brazil Logistics Venture (“PBLV”) and our other Brazilian joint ventures are combined as one venture for the purpose of this table.

(2)

In April 2023, we formed Prologis Japan Core Logistics Fund ("PJLF") with two investors through the initial contribution of assets for which we received cash and equity ownership. We made additional contributions to PJLF in the third quarter of 2023. We account for our investment in PJLF under the equity method of accounting. At September 30, 2023, our ownership interest was 16.3%.

Index

(3)

Prologis’ investment balance is presented at our adjusted basis. The difference between our ownership interest of a venture’s equity and our investment balance at September 30, 2023 and December 31, 2022, results principally from four types of transactions: (i) deferred gains from the contribution of property to a venture prior to January 1, 2018; (ii) recording additional costs associated with our investment in the venture; (iii) receivables, principally for fees and promotes ($255.3 million and $193.7 million, respectively); and (iv) customer security deposits retained subsequent to property contributions to Nippon Prologis REIT, Inc.

(4)

Represents our weighted average ownership interest in all unconsolidated co-investment ventures based on each entity’s contribution of total assets before depreciation, net of other liabilities.

Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures

At September 30, 2023, our outstanding equity commitments were $893.6 million, principally for Prologis China Logistics Venture, Prologis European Logistics Fund and USLF. The equity commitments expire from 2023 to 2033 if they have not been previously called. Typically, equity commitments are used for future development and acquisitions in the unconsolidated co-investment ventures.

NOTE 5. ASSETS HELD FOR SALE OR CONTRIBUTION

We had investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at September 30, 2023 and December 31, 2022. At the time of classification, these properties were expected to be sold to third parties or were recently stabilized and expected to be contributed to unconsolidated co-investment ventures within twelve months. The amounts included in Assets Held for Sale or Contribution in the Consolidated Balance Sheets represented real estate investment balances and the related assets and liabilities.

Assets held for sale or contribution consisted of the following (dollars and square feet in thousands):


	September 30,		December 31,
	2023		2022
Number of operating properties		20		21
Square feet		6,883		4,061
Total assets held for sale or contribution	$	797,758	$	531,257
Total liabilities associated with assets held for sale or contribution – included in Other Liabilities	$	38,386	$	4,536

NOTE 6. DEBT

All debt is incurred by the OP or its consolidated subsidiaries. The following table summarizes our debt (dollars in thousands):


	September 30, 2023					December 31, 2022
	Weighted Average			Amount		Weighted Average		Amount
	Interest Rate (1)	Years (2)		Outstanding (3)		Interest Rate (1)	Years (2)	Outstanding (3)
Credit facilities	4.6%		3.6	$	212,748	4.2%	2.8	$	1,538,461
Senior notes	2.9%		10.4		24,741,952	2.3%	10.3		19,786,253
Term loans and unsecured other	2.8%		3.9		2,253,857	2.3%	4.9		2,106,592
Secured mortgage	3.8%		3.8		369,640	3.0%	4.3		444,655
Total	2.9%		9.8	$	27,578,197	2.5%	9.2	$	23,875,961

(1)

The weighted average interest rates represent the effective interest rates (including amortization of debt issuance costs and noncash premiums or discounts) at the end of the period for the debt outstanding and include the impact of designated interest rate swaps, which effectively fix the interest rate on certain variable rate debt.

(2)

The weighted average years represents the remaining maturity in years on the debt outstanding at period end.

Index

(3)

We borrow in the functional currencies of the countries where we invest. Included in the outstanding balances were borrowings denominated in the following currencies:


	September 30, 2023								December 31, 2022
	Weighted Average Interest Rate			Amount Outstanding		% of Total			Weighted Average Interest Rate			Amount Outstanding		% of Total
British pound sterling		2.2	%	$	1,274,242		4.6	%		2.1	%	$	1,228,483		5.1	%
Canadian dollar		5.0	%		819,390		3.0	%		4.5	%		814,491		3.4	%
Chinese renminbi		3.7	%		238,553		0.9	%		-			-		-
Euro		2.0	%		9,736,225		35.3	%		1.3	%		7,991,301		33.5	%
Japanese yen		1.0	%		2,925,039		10.6	%		1.0	%		3,308,009		13.9	%
U.S. dollar		3.9	%		12,584,748		45.6	%		3.6	%		10,533,677		44.1	%
Total		2.9	%	$	27,578,197		100.0	%		2.5	%	$	23,875,961		100.0	%

Credit Facilities

The following table summarizes information about our available liquidity at September 30, 2023 (in millions):



Aggregate lender commitments
Credit facilities	$	6,370
Less:
Borrowings outstanding		213
Outstanding letters of credit		37
Current availability		6,120
Cash and cash equivalents		741
Total liquidity	$	6,861

We have a global senior credit facility (the “2022 Global Facility”) with a borrowing capacity of $3.0 billion (subject to currency fluctuations). On April 5, 2023, we amended and restated our other global senior credit facility (the “2021 Global Facility”) as the 2023 Global Facility and upsized its borrowing capacity to $3.0 billion (subject to currency fluctuations). We may draw on both facilities in British pounds sterling, Canadian dollars, euro, Japanese yen, Mexican pesos and U.S. dollars on a revolving basis. The 2022 Global Facility is scheduled to initially mature in June 2026 and the 2023 Global Facility in June 2027; however, we can extend the maturity date for each facility by six months on two occasions, subject to the payment of extension fees. We also have the ability to increase each credit facility to $4.0 billion, subject to currency fluctuations and obtaining additional lender commitments.

We also have a Japanese yen revolver (the "Yen Credit Facility"). On August 25, 2023, we amended and restated the Yen Credit Facility, upsizing its borrowing capacity by ¥3.5 billion for total commitments of ¥58.5 billion ($392.0 million at September 30, 2023). We have the ability to increase the borrowing capacity of the Yen Credit Facility to ¥75.0 billion ($502.6 million at September 30, 2023), subject to obtaining additional lender commitments. The Yen Credit Facility is initially scheduled to mature in August 2027; however, we may extend the maturity date for one year, subject to the payment of extension fees.

We refer to the 2022 Global Facility, the 2023 Global Facility and the Yen Credit Facility, collectively, as our “Credit Facilities.” Pricing for the Credit Facilities, including the spread over the applicable benchmark and the rates applicable to facility fees and letter of credit fees, varies based on the public debt ratings of the OP.

Senior Notes

The following table summarizes the issuances of senior notes during the nine months ended September 30, 2023 (principal in thousands):


	Aggregate Principal				Issuance Date Weighted Average
Issuance Date	Borrowing Currency		USD (1)		Interest Rate	Years	Maturity Dates
January	€	1,250,000	$	1,354,125	4.1%	13.8	January 2030 – 2043
March	$	1,200,000	$	1,200,000	4.9%	17.7	June 2033 – 2053
May	€	750,000	$	808,425	4.6%	10.0	May 2033
June	$	2,000,000	$	2,000,000	5.1%	13.2	June 2028 – 2053
Total			$	5,362,550	4.7%	13.9

(1)

The exchange rate used to calculate into U.S. dollars was the spot rate at the settlement date.

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Term Loans

In the third quarter of 2023, we entered into Chinese renminbi term loans totaling ¥1.7 billion ($239.4 million) with an issuance date weighted average interest rate of 3.5% maturing between September 2024 to 2026.

Long-Term Debt Maturities

Scheduled principal payments due on our debt for the remainder of 2023 and for each year through the period ended December 31, 2027, and thereafter were as follows at September 30, 2023 (in thousands):


	Unsecured
	Credit		Senior			Term Loans			Secured
Maturity	Facilities		Notes			and Other			Mortgage			Total
2023 (1)	$	-	$	-		$	-		$	1,684		$	1,684
2024 (1)(2)		-		317,820			100,281			96,121			514,222
2025 (3)		-		33,504			724,404			167,520			925,428
2026 (4)		31,782		1,294,868			708,905			3,980			2,039,535
2027 (5)		180,966		1,707,417			47,916			4,156			1,940,455
Thereafter		-		21,979,912			676,428			89,135			22,745,475
Subtotal		212,748		25,333,521			2,257,934			362,596			28,166,799
Unamortized premiums (discounts), net		-		(477,240	)		710			8,136			(468,394	)
Unamortized debt issuance costs, net		-		(114,329	)		(4,787	)		(1,092	)		(120,208	)
Total	$	212,748	$	24,741,952		$	2,253,857		$	369,640		$	27,578,197

(1)

We expect to repay the amounts maturing in the next twelve months with cash generated from operations, proceeds from dispositions of real estate properties, or as necessary, with additional borrowings.

(2)

Included in the 2024 maturities was a Chinese term loan ($100.3 million at September 30, 2023) that can be extended until 2026, subject to the prevailing interest rate at the time of extension.

(3)

Included in the 2025 maturities was a Canadian term loan ($223.4 million at September 30, 2023) that can be extended until 2027.

(4)

Included in the 2026 maturities was the 2022 Global Facility ($31.8 million at September 30, 2023) that can be extended until 2027.

(5)

Included in the 2027 maturities was the 2023 Global Facility ($181.0 million at September 30, 2023) that can be extended until 2028.

Financial Debt Covenants

Our senior notes, term loans and Credit Facilities outstanding at September 30, 2023 were subject to certain financial covenants under their related documents. At September 30, 2023, we were in compliance with all of our financial debt covenants.

Guarantee of Finance Subsidiary Debt

We have finance subsidiaries as part of our operations in Europe (Prologis Euro Finance LLC), Japan (Prologis Yen Finance LLC) and the U.K. (Prologis Sterling Finance LLC) in order to mitigate our foreign currency risk by borrowing in the currencies in which we invest. These entities are 100% indirectly owned by the OP and all unsecured debt issued or to be issued by each entity is or will be fully and unconditionally guaranteed by the OP. There are no restrictions or limits on the OP’s ability to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 13-01 of Regulation S-X, the separate financial statements of Prologis Euro Finance LLC, Prologis Yen Finance LLC and Prologis Sterling Finance LLC are not provided.

NOTE 7. NONCONTROLLING INTERESTS

Prologis, L.P.

We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option, shares of the Parent’s common

Index

stock, generally at a rate of one share of common stock to one limited partnership unit. We also consolidate certain entities in which we do not own 100% of the equity but the equity of these entities is not exchangeable into our common stock.

Prologis, Inc.

The noncontrolling interests of the Parent include the noncontrolling interests described above for the OP, as well as the limited partnership units in the OP that are not owned by the Parent. The outstanding limited partnership units receive quarterly cash distributions equal to the quarterly dividends paid on our common stock pursuant to the terms of the applicable partnership agreements.

The following table summarizes these entities (dollars in thousands):


	Our Ownership Percentage						Noncontrolling Interests				Total Assets				Total Liabilities
	Sep 30, 2023			Dec 31, 2022			Sep 30, 2023		Dec 31, 2022		Sep 30, 2023		Dec 31, 2022		Sep 30, 2023		Dec 31, 2022
Prologis U.S. Logistics Venture		55.0	%		55.0	%	$	3,152,160	$	3,182,858	$	7,161,018	$	7,225,438	$	165,959	$	158,453
Other consolidated entities (1)		-		various				146,136		134,909		1,060,117		1,737,311		142,533		259,524
Prologis, L.P.								3,298,296		3,317,767		8,221,135		8,962,749		308,492		417,977
Limited partners in Prologis, L.P. (2)(3)								1,326,735		1,308,044		-		-		-		-
Prologis, Inc.							$	4,625,031	$	4,625,811	$	8,221,135	$	8,962,749	$	308,492	$	417,977

(1)

Includes two partnerships that have issued limited partnership units to third parties, as discussed above, along with various other consolidated entities. The limited partnership units outstanding at September 30, 2023 and December 31, 2022 were exchangeable into cash or, at our option, 0.3 million shares of the Parent’s common stock.

(2)

We had 8.6 million Class A Units that were convertible into 8.1 million and 8.0 million limited partnership units of the OP at September 30, 2023 and December 31, 2022, respectively.

(3)

There were limited partnership units in the OP, excluding the Class A Units, that were exchangeable into cash or, at our option, 9.2 million and 10.0 million shares of the Parent’s common stock, at September 30, 2023 and December 31, 2022, respectively. Also included are the vested OP Long-Term Incentive Plan Units (“LTIP Units”) associated with our long-term compensation plans of 5.5 million and 4.6 million shares of the Parent’s common stock at September 30, 2023 and December 31, 2022, respectively. See further discussion of LTIP Units in Note 8.

NOTE 8. LONG-TERM COMPENSATION

Equity-Based Compensation Plans and Programs

Prologis Outperformance Plan (“POP”)

We have allocated participation points or a percentage of the compensation pool to participants under our POP corresponding to three-year performance periods beginning every January 1. The fair value of the awards is measured at the grant date and amortized over the period from the grant date to the date at which the awards vest, which ranges from three to ten years. The performance hurdle (“Outperformance Hurdle”) at the end of the initial three-year performance period requires our three-year compound annualized total stockholder return (“TSR”) to exceed a threshold set at the three-year compound annualized TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points. If the Outperformance Hurdle is met, a compensation pool will be formed equal to 3% of the excess value created, subject to a maximum as defined by each performance period. POP awards cannot be paid at a time when we meet the outperformance hurdle yet our absolute TSR is negative. If after seven years our absolute TSR has not been positive, the awards will be forfeited.

We granted participation points for the 2023 – 2025 performance period in January 2023, with a fair value of $28.3 million using a Monte Carlo valuation model that assumed a risk-free interest rate of 4.2% and an expected volatility of 35.0% for Prologis and 31.0% for the MSCI US REIT Index. The 2023 – 2025 performance period has an absolute maximum cap of $100.0 million. If an award is earned at the end of the initial three-year performance period, then 20% of the POP award is paid at the end of the initial performance period and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the initial three-year performance period is subject to an additional three-year holding requirement. Awards are in the form of common stock, restricted stock units, POP LTIP Units and LTIP Units.

The Outperformance Hurdle was met for the 2020 – 2022 performance period, which resulted in awards of $100.0 million being earned at December 31, 2022 and awarded in January 2023. Additionally, awards of $22.4 million were earned at December 31, 2022 and awarded in January 2023 for prior performance periods related to the compensation pool in excess of the initial award based on the terms of the POP awards granted prior to 2018. The tables below include POP awards that were earned but are unvested, while any vested awards are reflected within the Consolidated Statements of Equity and Capital. The initial grant date fair value derived using a Monte Carlo valuation model was used in determining the grant date fair value per unit in the tables below.

Index

Other Equity-Based Compensation Plans and Programs

Our other equity-based compensation plans and programs include (i) the Prologis Promote Plan (“PPP”); (ii) the annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iii) the annual bonus exchange program. Awards under these plans and programs may be issued in the form of restricted stock units (“RSUs”) or LTIP Units at the participant’s election. RSUs and LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and the grant date value is charged to compensation expense over the service period.

Summary of Award Activity

RSUs

The following table summarizes the activity for RSUs for the nine months ended September 30, 2023 (units in thousands):


				Weighted Average
	Unvested RSUs			Grant Date Fair Value
Balance at January 1, 2023		1,533		$	100.59
Granted		1,136			104.78
Vested and distributed		(429	)		117.29
Forfeited		(40	)		113.01
Balance at September 30, 2023		2,200		$	99.27

LTIP Units

The following table summarizes the activity for LTIP Units for the nine months ended September 30, 2023 (units in thousands):


	Unvested			Weighted Average
	LTIP Units			Grant Date Fair Value
Balance at January 1, 2023		4,214		$	73.31
Granted		2,567			100.16
Vested LTIP Units		(1,019	)		108.99
Forfeited		(2	)		142.72
Balance at September 30, 2023		5,760		$	78.94

NOTE 9. EARNINGS PER COMMON SHARE OR UNIT

We determine basic earnings per share or unit based on the weighted average number of shares of common stock or units outstanding during the period. We compute diluted earnings per share or unit based on the weighted average number of shares or units outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.

The computation of our basic and diluted earnings per share and unit was as follows (in thousands, except per share and unit amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Prologis, Inc.	2023		2022		2023		2022
Net earnings attributable to common stockholders – Basic	$	746,174	$	1,013,933	$	2,423,897	$	2,773,042
Net earnings attributable to exchangeable limited partnership units (1)		19,054		28,792		61,497		78,648
Adjusted net earnings attributable to common stockholders – Diluted	$	765,228	$	1,042,725	$	2,485,394	$	2,851,690

Weighted average common shares outstanding – Basic		924,395		740,719		924,228		740,585
Incremental weighted average effect on exchange of limited partnership units (1)		23,627		21,230		23,615		21,246
Incremental weighted average effect of equity awards		3,886		4,423		3,800		4,188
Weighted average common shares outstanding – Diluted (2)		951,908		766,372		951,643		766,019

Net earnings per share attributable to common stockholders:
Basic	$	0.81	$	1.37	$	2.62	$	3.74
Diluted	$	0.80	$	1.36	$	2.61	$	3.72

Index


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Prologis, L.P.	2023			2022			2023			2022
Net earnings attributable to common unitholders	$	765,075		$	1,042,664		$	2,485,047		$	2,851,475
Net earnings attributable to Class A Units		(6,557	)		(10,995	)		(21,231	)		(30,018	)
Net earnings attributable to common unitholders – Basic		758,518			1,031,669			2,463,816			2,821,457
Net earnings attributable to Class A Units		6,557			10,995			21,231			30,018
Net earnings attributable to exchangeable other limited partnership units		153			61			347			215
Adjusted net earnings attributable to common unitholders – Diluted	$	765,228		$	1,042,725		$	2,485,394		$	2,851,690

Weighted average common partnership units outstanding – Basic		939,602			753,616			939,448			753,515
Incremental weighted average effect on exchange of Class A Units		8,121			8,034			8,096			8,017
Incremental weighted average effect on exchange of other limited partnership units		299			299			299			299
Incremental weighted average effect of equity awards of Prologis, Inc.		3,886			4,423			3,800			4,188
Weighted average common units outstanding – Diluted (2)		951,908			766,372			951,643			766,019

Net earnings per unit attributable to common unitholders:
Basic	$	0.81		$	1.37		$	2.62		$	3.74
Diluted	$	0.80		$	1.36		$	2.61		$	3.72

(1)

Earnings allocated to the exchangeable OP units not held by the Parent have been included in the numerator and exchangeable common units have been included in the denominator for the purpose of computing diluted earnings per share for all periods as the per share and unit amount is the same.

(2)

Our total weighted average potentially dilutive shares and units outstanding consisted of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Class A Units		8,121		8,034		8,096		8,017
Other limited partnership units		299		299		299		299
Equity awards		7,252		6,557		7,347		6,309
Prologis, L.P.		15,672		14,890		15,742		14,625
Common limited partnership units		15,207		12,897		15,220		12,930
Prologis, Inc.		30,879		27,787		30,962		27,555

Index

NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

In the normal course of business, our operations are exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates. We may enter into derivative financial instruments to offset these underlying market risks. There have been no significant changes in our policy and strategy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

The following table presents the fair value of our derivative financial instruments recognized within Other Assets and Other Liabilities in the Consolidated Balance Sheets (in thousands):


	September 30, 2023				December 31, 2022
	Asset		Liability		Asset		Liability
Undesignated derivatives
Foreign currency contracts
Forwards
Brazilian real	$	-	$	569	$	35	$	494
British pound sterling		19,973		638		29,187		648
Canadian dollar		9,210		-		12,074		2
Chinese renminbi		2,318		2		657		364
Euro		34,156		1,877		51,317		2,801
Japanese yen		57,758		-		34,022		2,344
Mexican peso		-		444		-		-
Swedish krona		6,659		1		6,292		-
Options
Mexican peso		1,629		1,738		-		-

Designated derivatives
Foreign currency contracts
Net investment hedges
British pound sterling		10,254		-		23,534		-
Canadian dollar		12,915		-		24,552		-

Interest rate swaps
Cash flow hedges
Euro		3,790		-		44,982		-
U.S. dollar		-		-		584		29
Total fair value of derivatives	$	158,662	$	5,269	$	227,236	$	6,682

Undesignated Derivative Financial Instruments

Foreign Currency Contracts

The following table summarizes the activity of our undesignated foreign currency contracts for the nine months ended September 30 (in millions, except for weighted average forward rates and number of active contracts):


	2023																	2022
	CAD			EUR			GBP			JPY			Other		Total			CAD			EUR			GBP			JPY			Other			Total
Notional amounts at January 1 ($)		283			601			349			331			81		1,645			175			749			383			250			105			1,662
New contracts ($)		6			110			124			116			34		390			124			603			251			175			81			1,234
Matured, expired or settled contracts ($)		(73	)		(218	)		(73	)		(66	)		68		(362	)		(49	)		(753	)		(274	)		(78	)		(105	)		(1,259	)
Notional amounts at September 30 ($)		216			493			400			381			183		1,673			250			599			360			347			81			1,637

Weighted average forward rate at September 30		1.29			1.17			1.28			113.85								1.28			1.20			1.32			108.59
Active contracts at September 30		77			69			92			96								96			89			89			99

Index

The following table summarizes the undesignated derivative financial instruments exercised and outstanding recognized in realized and unrealized gains, respectively, in Foreign Currency and Derivative Gains and Other Income, Net in the Consolidated Statements of Income (in millions, except for number of exercised contracts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Exercised contracts		42		55		163		124
Realized gains on the matured, expired or settled contracts	$	11	$	94	$	42	$	124
Unrealized gains on the change in fair value of outstanding contracts	$	29	$	48	$	9	$	151

Designated Derivative Financial Instruments

Changes in the fair value of derivatives that are designated as net investment hedges of our foreign operations and cash flow hedges are recorded in Accumulated Other Comprehensive Income (Loss) (“AOCI/L”) in the Consolidated Balance Sheets and reflected within the Other Comprehensive Income table below.

Foreign Currency Contracts

The following table summarizes the activity of our foreign currency contracts designated as net investment hedges for the nine months ended September 30 (in millions, except for weighted average forward rates and number of active contracts):


	2023												2022
	CAD			CNH			GBP			Total			BRL			CAD			GBP			Total
Notional amounts at January 1 ($)		534			-			440			974			-			535			432			967
New contracts ($)		350			100			218			668			44			599			317			960
Matured, expired or settled contracts ($)		(363	)		(100	)		(228	)		(691	)		(44	)		(535	)		(300	)		(879	)
Notional amounts at September 30 ($)		521			-			430			951			-			599			449			1,048

Weighted average forward rate at September 30		1.32			-			1.25						-			1.29			1.31
Active contracts at September 30		6			-			4						-			7			4

Interest Rate Swaps

The following table summarizes the activity of our interest rate swaps designated as cash flow hedges for the nine months ended September 30 (in millions):


	2023									2022
	EUR			USD			Total			EUR			USD			Total
Notional amounts at January 1 ($)		447			150			597			165			-			165
New contracts ($)		691			1,750			2,441			1,004			250			1,254
Matured, expired or settled contracts ($)		(859	)		(1,900	)		(2,759	)		(722	)		(250	)		(972	)
Notional amounts at September 30 ($)		279			-			279			447			-			447

Designated Nonderivative Financial Instruments

The following table summarizes our debt and accrued interest, designated as a hedge of our net investment in international subsidiaries at the quarter ended (in millions):


	September 30, 2023		December 31, 2022
British pound sterling	$	1,304	$	1,237
Canadian dollar	$	370	$	370

The following table summarizes the unrealized gains in Foreign Currency and Derivative Gains and Other Income, Net in the Consolidated Statements of Income on the remeasurement of the unhedged portion of our euro denominated debt and accrued interest (in millions):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Unrealized gains on the unhedged portion	$	10	$	36	$	7	$	85

Index

Other Comprehensive Income

The change in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income during the periods presented was due to the translation into U.S. dollars from the consolidation of the financial statements of our consolidated subsidiaries whose functional currency is not the U.S. dollar. The change in fair value of the effective portion of our derivative financial instruments that have been designated as net investment hedges and cash flow hedges and the translation of the hedged portion of our debt, as discussed above, are also included in Other Comprehensive Income.

The following table presents these changes in Other Comprehensive Income (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023			2022
Derivative net investment hedges (1)	$	29,679	$	74,341	$	6,846		$	134,798
Debt designated as nonderivative net investment hedges		50,149		105,726		(30,237	)		247,195
Cumulative translation adjustment		66,453		58,995		307,620			379,109
Total foreign currency translation gains, net	$	146,281	$	239,062	$	284,229		$	761,102

Cash flow hedges (1) (2)	$	632	$	16,818	$	(15,396	)	$	45,764
Our share of derivatives from unconsolidated co-investment ventures		3,070		8,084		(4,602	)		21,466
Total unrealized gains (losses) on derivative contracts, net	$	3,702	$	24,902	$	(19,998	)	$	67,230
Total change in other comprehensive income	$	149,983	$	263,964	$	264,231		$	828,332

(1)

The ending balance in AOCI/L in the Consolidated Balance Sheets for accumulated derivative gains on net investment hedges was $339.8 million and $333.0 million at September 30, 2023 and December 31, 2022 respectively. Additionally, the ending balance in AOCI/L for accumulated derivative gains on cash flow hedges was $17.3 million and $32.7 million at September 30, 2023 and December 31, 2022, respectively.

(2)

We estimate additional income of $2.7 million will be reclassified to Interest Expense in the Consolidated Statements of Income over the next 12 months from September 30, 2023, due to the amortization of previously settled derivatives designated as cash flow hedges.

Fair Value Measurements

There have been no significant changes in our policy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Fair Value Measurements on a Recurring Basis

At September 30, 2023 and December 31, 2022, other than the derivatives discussed previously, we had no significant financial assets or financial liabilities that were measured at fair value on a recurring basis in the Consolidated Financial Statements. All of our derivatives held at September 30, 2023 and December 31, 2022, were classified as Level 2 of the fair value hierarchy.

Fair Value Measurements on Nonrecurring Basis

Acquired properties and assets we expect to sell or contribute are significant nonfinancial assets that met the criteria to be measured at fair value on a nonrecurring basis. At September 30, 2023 and December 31, 2022, we estimated the fair value of our properties using Level 2 or Level 3 inputs from the fair value hierarchy. See more information on our acquired properties in Note 3 and assets held for sale or contribution in Note 5.

Fair Value of Financial Instruments

At September 30, 2023 and December 31, 2022, the carrying amounts of certain financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses were representative of their fair values.

The differences in the fair value of our debt from the carrying value in the table below were the result of differences in interest rates or borrowing spreads that were available to us at September 30, 2023 and December 31, 2022, as compared with those in effect when the debt was issued or assumed, including reduced borrowing spreads due to our credit ratings. See Note 6 for more information on our debt activity.

Index

The following table reflects the carrying amounts and estimated fair values of our debt (in thousands):


	September 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Credit facilities	$	212,748	$	212,748	$	1,538,461	$	1,538,461
Senior notes		24,741,952		20,891,413		19,786,253		16,604,241
Term loans and unsecured other		2,253,857		2,239,280		2,106,592		2,092,264
Secured mortgage		369,640		340,147		444,655		420,964
Total	$	27,578,197	$	23,683,588	$	23,875,961	$	20,655,930

NOTE 11. BUSINESS SEGMENTS

Our current business strategy includes two operating segments: Real Estate (Rental Operations and Development) and Strategic Capital. We generate revenues, earnings, net operating income and cash flows through our segments, as follows:

•

Real Estate Segment. This operating segment represents the ownership and development of operating properties and is the largest component of our revenue and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. The Real Estate Segment also includes development activities that lead to rental operations, including land held for development and properties currently under development, and other real estate investments. Within this line of business, we utilize the following: (i) our land bank; (ii) the development and leasing expertise of our local teams; and (iii) our customer relationships.

•

Strategic Capital Segment. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset management and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.

Below we present: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to Total Assets. Our chief operating decision makers rely principally on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of Total Revenues, Operating Income, Earnings Before Income Taxes and Total Assets in the Consolidated Financial Statements 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 not allocated but reflected as non-segment items.

Index

The following reportable business segment revenues, net operating income and assets are presented in thousands:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenues:
Real estate segment:
U.S.	$	1,705,656		$	1,102,418		$	4,866,508		$	3,187,756
Other Americas		29,442			23,774			81,576			69,136
Europe		29,101			13,437			69,368			37,145
Asia		13,617			16,511			46,186			43,147
Total real estate segment		1,777,816			1,156,140			5,063,638			3,337,184
Strategic capital segment:
U.S.		53,077			53,973			786,222			155,474
Other Americas		14,054			13,344			74,139			57,809
Europe		45,457			503,764			135,267			599,076
Asia		24,260			23,671			74,956			72,557
Total strategic capital segment		136,848			594,752			1,070,584			884,916

Total revenues		1,914,664			1,750,892			6,134,222			4,222,100

Segment net operating income: (1)
Real estate segment:
U.S. (2)		1,295,042			828,144			3,671,766			2,384,060
Other Americas		23,184			17,068			62,429			50,010
Europe		22,235			7,758			51,493			13,592
Asia		8,937			11,459			29,696			30,462
Total real estate segment		1,349,398			864,429			3,815,384			2,478,124
Strategic capital segment:
U.S. (2)		6,302			(16,055	)		622,802			33,930
Other Americas		7,147			7,410			53,962			43,657
Europe		27,187			461,701			53,288			528,323
Asia		12,143			11,141			33,848			39,588
Total strategic capital segment		52,779			464,197			763,900			645,498

Non-segment items:
General and administrative expenses		(96,673	)		(87,903	)		(292,097	)		(245,663	)
Depreciation and amortization expenses		(642,010	)		(401,450	)		(1,846,545	)		(1,200,410	)
Gains on dispositions of development properties and land, net		89,030			74,678			273,907			390,686
Gains on other dispositions of investments in real estate, net		129,584			1,019			158,392			585,854
Operating income		882,108			914,970			2,872,941			2,654,089

Earnings from unconsolidated entities, net		71,365			84,925			217,786			241,481
Interest expense		(181,053	)		(63,884	)		(466,882	)		(188,241	)
Foreign currency and derivative gains and other income, net		67,964			171,832			102,682			364,623
Gains (losses) on early extinguishment of debt, net		-			-			3,275			(18,895	)
Earnings before income taxes	$	840,384		$	1,107,843		$	2,729,802		$	3,053,057

Index


	September 30, 2023		December 31, 2022
Segment assets:
Real estate segment:
U.S.	$	75,749,288	$	71,858,560
Other Americas		1,873,732		1,831,956
Europe		2,280,004		1,952,160
Asia		697,222		1,031,135
Total real estate segment		80,600,246		76,673,811
Strategic capital segment: (3)
U.S.		10,499		10,817
Europe		25,280		25,280
Asia		192		231
Total strategic capital segment		35,971		36,328
Total segment assets		80,636,217		76,710,139

Non-segment items:
Investments in and advances to unconsolidated entities		9,091,824		9,698,898
Assets held for sale or contribution		797,758		531,257
Cash and cash equivalents		740,841		278,483
Other assets		682,769		678,671
Total non-segment items		11,313,192		11,187,309
Total assets	$	91,949,409	$	87,897,448

(1)

Net Operating Income ("NOI") from the Real Estate Segment is calculated directly from the Consolidated Financial Statements as Rental Revenues and Development Management and Other Revenues less Rental Expenses and Other Expenses. NOI from the Strategic Capital Segment is calculated directly from the Consolidated Financial Statements as Strategic Capital Revenues less Strategic Capital Expenses.

(2)

This includes compensation and personnel costs for employees who were located in the U.S. but also support other geographies.

(3)

Represents management contracts and goodwill recorded in connection with business combinations associated with the Strategic Capital Segment. Goodwill was $25.3 million at September 30, 2023 and December 31, 2022.

NOTE 12. SUPPLEMENTAL CASH FLOW INFORMATION

Our significant noncash investing and financing activities for the nine months ended September 30, 2023 and 2022 included the following:

•

We recognized lease right-of-use assets and lease liabilities related to leases in which we are the lessee within Other Assets and Other Liabilities on the Consolidated Balance Sheets, including any new leases, renewals and modifications of $29.0 million in 2023 and $150.4 million in 2022 for both assets and liabilities.

•

We capitalized $30.6 million and $26.5 million in 2023 and 2022, respectively, of equity-based compensation expense.

•

We issued 0.5 million and 0.2 million shares in 2023 and 2022, of the Parent’s common stock upon redemption of an equal number of common limited partnership units in the OP.

•

We increased our ownership in an unconsolidated co-investment venture in 2023 through the reinvestment of distributions from the venture of $11.6 million and receipt of $45.1 million of third-party investors' ownership in lieu of cash.

•

We received $393.2 million in 2022, of ownership interests in certain unconsolidated co-investment ventures as a portion of our proceeds from the contribution of properties to these entities, as disclosed in Note 4.

We paid $340.4 million and $188.9 million for interest, net of amounts capitalized, during the nine months ended September 30, 2023 and 2022, respectively.

We paid $122.2 million and $85.3 million for income taxes, net of refunds, during the nine months ended September 30, 2023 and 2022, respectively.

Index

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Prologis, Inc.:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Prologis, Inc. and subsidiaries (the Company) as of September 30, 2023, the related consolidated statements of income, comprehensive income, and equity for the three-month and nine-month periods ended September 30, 2023 and 2022, and the related consolidated statements of cash flows for the nine-month periods ended September 30, 2023 and 2022, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Denver, Colorado
October 27, 2023

Index

Report of Independent Registered Public Accounting Firm

To the Partners of Prologis, L.P. and the Board of Directors of Prologis, Inc.:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Prologis, L.P. and subsidiaries (the Operating Partnership) as of September 30, 2023, the related consolidated statements of income, comprehensive income, and capital for the three-month and nine-month periods ended September 30, 2023 and 2022, the related consolidated statements of cash flows for the nine-month periods ended September 30, 2023 and 2022, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Operating Partnership as of December 31, 2022, and the related consolidated statements of income, comprehensive income, capital, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Operating Partnership’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ KPMG LLP

Denver, Colorado
October 27, 2023

Index

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of this report and our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”).

The statements in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate as well as management’s beliefs and assumptions. Such statements involve uncertainties that could significantly impact our financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” and “estimates” including variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to rent and occupancy growth, acquisition and development activity, contribution and disposition activity, general conditions in the geographic areas where we operate, our debt, capital structure and financial position, our ability to earn revenues from co-investment ventures, form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and therefore actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) international, national, regional and local economic and political climates and conditions; (ii) changes in global financial markets, interest rates and foreign currency exchange rates; (iii) increased or unanticipated competition for our properties; (iv) risks associated with acquisitions, dispositions and development of properties, including the integration of the operations of significant real estate portfolios; (v) maintenance of Real Estate Investment Trust (“REIT”) status, tax structuring and changes in income tax laws and rates; (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings; (vii) risks related to our investments in our co-investment ventures, including our ability to establish new co-investment ventures; (viii) risks of doing business internationally, including currency risks; (ix) environmental uncertainties, including risks of natural disasters; (x) risks related to global pandemics; and (xi) those additional factors discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no duty to update any forward-looking statements appearing in this report except as may be required by law.

Prologis, Inc. is a self-administered and self-managed REIT and is the sole general partner of Prologis, L.P. through which it holds substantially all of its assets. We operate Prologis, Inc. and Prologis, L.P. as one enterprise and, therefore, our discussion and analysis refers to Prologis, Inc. and its consolidated subsidiaries, including Prologis, L.P. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We have a significant ownership interest in the co-investment ventures, which are either consolidated or unconsolidated based on our level of control of the entity.

We operate, manage and measure the operating performance of our properties on an owned and managed (“O&M”) basis. Our O&M portfolio includes our consolidated properties as well as properties owned by our unconsolidated co-investment ventures, which we manage. We make operating decisions based on our total O&M portfolio as we manage the properties without regard to their ownership. We also evaluate our results based on our proportionate economic ownership of each entity or property included in the O&M portfolio (“our share”), whether consolidated or unconsolidated, to reflect our share of the financial results of the O&M portfolio.

Included in our discussion below are references to funds from operations (“FFO”) and net operating income (“NOI”), neither of which are United States ("U.S.") generally accepted accounting principles (“GAAP”). See below for a reconciliation of Net Earnings Attributable to Common Stockholders/Unitholders in the Consolidated Statements of Income to our FFO measures and a reconciliation of NOI to Operating Income in the Consolidated Statements of Income, the most directly comparable GAAP measures.

MANAGEMENT'S OVERVIEW

Prologis is the global leader in logistics real estate with a focus on high-barrier, high growth markets. We own, manage and develop well-located, high-quality logistics facilities in 19 countries across four continents. Our portfolio focuses on the world’s most vibrant centers of commerce and our scale across these locations allows us to better serve our customers’ diverse logistics requirements.

The importance of logistics supply chains has increased dramatically to our customers and the global economy. The long-term trends of e-commerce adoption and supply chain resiliency continue to drive the need for increased warehouse space to store and distribute goods. This demand has translated into meaningful increases in rents and has resulted in low vacancy. We believe this demand is driven by three primary factors: (i) customer supply chains re-positioning to address the significant shift to e-commerce and heightened service expectations; (ii) overall consumption and household growth; and (iii) our customers’ desire for more supply chain resiliency. We believe these forces will keep demand strong over the long term.

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Our teams actively manage our portfolio by providing comprehensive real estate services, including leasing, property management, development, acquisitions and dispositions. We also invest significant capital into new logistics properties principally through our development activity and third-party acquisitions. Proceeds from the disposition of properties, generally the contribution of newly developed properties to our co-investment ventures and the sales of non-strategic properties to third parties, allow us to recycle capital back into our investment activities.

While the majority of our properties in the U.S. are wholly owned, we hold a significant ownership interest in properties both in the U.S. and internationally through our investment in the co-investment ventures. Partnering with the world’s largest institutional investors through co-investment ventures allows us to enhance and diversify our real estate returns as well as mitigate our exposure to foreign currency movements.

Our scale and customer-centric approach have compelled us to expand the services we are providing to our customers. Our 1.2 billion square foot portfolio provides a base upon which to build a platform of solutions to address challenges that our customers face in global fulfillment today. Through Prologis Essentials, we focus on innovative ways to meet our customers’ operations, energy and sustainability, mobility and workforce needs. Our customer experience teams, proprietary technology and strategic partnerships are foundational to Prologis Essentials and allow us to provide our customers with unique and actionable insights to drive greater efficiency in their operations.

Finally, our long-standing dedication to Environmental, Social and Governance (“ESG”) practices strengthens our relationships with our customers, investors, employees and the communities in which we do business. The principles of ESG are an important aspect of our business strategy that we believe delivers a strategic business advantage while positively impacting the environment.

Our Global Presence

At September 30, 2023, we owned or had investments in, on a wholly-owned basis or through co-investment ventures, properties and development projects expected to total approximately 1.2 billion square feet across the following geographies:

In October 2022, we completed the acquisition of Duke Realty Corporation and Duke Realty Limited Partnership (collectively “Duke”) through a merger transaction that we refer to as the “Duke Transaction” and is detailed in Note 2 to the Consolidated Financial Statements. The Duke portfolio was primarily comprised of logistics real estate assets, including 494 industrial operating properties, aggregating 144 million square feet. The total acquisition price, including transaction costs, was $23.2 billion and was funded through the issuance of equity and the assumption of debt.

Throughout this discussion, we reflect amounts in U.S. dollars, our reporting currency. Included in these amounts are consolidated and unconsolidated investments denominated in foreign currencies, principally the British pound sterling, Canadian dollar, euro and Japanese yen that are impacted by fluctuations in exchange rates when translated to U.S. dollars. We mitigate our exposure to foreign

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currency fluctuations by investing outside the U.S. through co-investment ventures, borrowing in the functional currency of our subsidiaries and utilizing derivative financial instruments.

Our business comprises two operating segments: Real Estate (Rental Operations and Development) and Strategic Capital.

Below is information summarizing consolidated activity within our segments (in millions):

(1)

NOI from the Real Estate Segment is calculated directly from the Consolidated Financial Statements as Rental Revenues and Development Management and Other Revenues less Rental Expenses and Other Expenses. NOI from the Strategic Capital Segment is calculated directly from the Consolidated Financial Statements as Strategic Capital Revenues less Strategic Capital Expenses.‌

(2)

A developed property moves into the operating portfolio when it meets our definition of stabilization, which is the earlier of when a property that was developed has been completed for one year, is contributed to a co-investment venture following completion or is 90% occupied. Amounts represent our total expected investment ("TEI") upon stabilization, which includes the estimated cost of development or expansion, including land, construction and leasing costs.

Real Estate Segment

Rental Operations. Rental operations comprises the largest component of our operating segments and generally contributes 85% to 90% of our consolidated revenues, earnings and FFO. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. For leases that commenced during the nine months ended September 30, 2023, within the consolidated operating portfolio, the weighted average lease term was 63 months. We expect to generate internal growth by increasing rents, maintaining high occupancy rates and controlling expenses. The primary driver of our revenue growth will be the rolling of in-place leases to current market rents when leases expire, as discussed further below. We believe our active portfolio management, combined with the skills of our property, leasing, maintenance, capital, energy, sustainability and risk management teams allow us to maximize NOI across our portfolio. Substantially all of our consolidated rental revenue, NOI and cash flows from rental operations are generated in the U.S.

Development. Given the scarcity of modern logistics facilities in our target markets, our development business provides the opportunity to build to the requirements of our customers while deepening our market presence. We believe we have a competitive advantage due to (i) the strategic locations of our global land bank and redevelopment sites; (ii) the development expertise of our local teams; (iii) the depth of our customer relationships; (iv) our ability to integrate sustainable design features that result in cost-savings and operational efficiencies for our customers; and (v) our procurement capabilities that allow us to secure high-demand construction materials at lower cost. Successful development and redevelopment efforts provide significant earnings growth as projects are leased, generate income and increase the value of our Real Estate Segment. Generally, we develop properties in the U.S. to hold for the long-term and outside the U.S. for contribution to our unconsolidated co-investment ventures.

Strategic Capital Segment

Our Strategic Capital Segment allows us to partner with many of the world’s largest institutional investors. The business is capitalized principally through private and public equity of which 93% is either in perpetual open ended or long-term ventures and two publicly traded vehicles (Nippon Prologis REIT, Inc. in Japan and FIBRA Prologis in Mexico). We align our interests with our partners by holding significant ownership interests in our nine unconsolidated co-investment ventures (ranging from 15% to 50%). This structure allows us to reduce our exposure to foreign currency movements for investments outside the U.S.

This segment produces durable, long-term cash flows and generally contributes 10% to 15% of our consolidated revenues, earnings and FFO, excluding promotes, all while requiring minimal capital other than our investment in the venture. We generate strategic capital revenues from our unconsolidated co-investment ventures, principally through asset management and property management services. Asset management fees are primarily driven by the quarterly valuation of the real estate properties owned by the respective ventures. We earn additional revenues by providing leasing, acquisition, construction management, development and disposition services. In certain ventures, we also have the ability to earn revenues through incentive fees (“promotes” or “promote revenues”) periodically during the life of a venture, upon liquidation of a venture or upon stabilization of individual venture assets based primarily on the total

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return of the investments over certain financial hurdles. We plan to grow this business and increase revenues by increasing our assets under management in existing or new ventures. The majority of the strategic capital revenues are generated outside the U.S. Promote revenues are recognized when earned at the end of the promote period for the specific co-investment ventures.

FUTURE GROWTH

We believe that the quality and scale of our portfolio, our ability to build out our land bank, our strategic capital business, the depth of our customer relationships and the strength of our balance sheet are differentiators that allow us to drive growth in revenues, NOI, earnings, FFO and cash flows.

(1)

Net effective rent ("NER") is calculated at the beginning of the lease using estimated total cash rent to be received over the term and annualized, and excludes amortization of fair value lease adjustments. Trailing NER change is based on the twelve months immediately prior to the period ended.

•

Rent Growth. We expect rents in our markets to continue to increase due to healthy demand combined with low vacancy. Due to strong market rent growth over the last several years, our in-place leases have considerable upside potential to drive future organic NOI growth. We estimate that our lease mark-to-market is approximately 62% (on an NER basis), which represents the growth rate from in-place rents to current market rents based on our share of the O&M portfolio at September 30, 2023. Therefore, even if there was no additional market rent growth in the future, we expect our lease renewals to translate into significant increases in future income. We have experienced positive rent change on rollover (comparing the NER of the new lease to the prior lease for the same space) in every quarter since 2013.

•

Value Creation from Development. The global nature of our development program provides a wide landscape of opportunities to pursue based on our judgment of market conditions, opportunities and risks. One of the ways in which we create value is through our focus on sourcing well-located land and redevelopment sites through acquisition opportunities, including our innovative approach with Covered Land Plays, which are income-producing assets acquired with the intention to redevelop for higher and better use as industrial properties. Based on our current estimates, our consolidated land, including options and Covered Land Plays, has the potential to support the development of $37.2 billion ($40.4 billion on an O&M basis) of TEI of new logistics space. We measure the estimated value creation of a development project as the stabilized value above our TEI. As properties are completed and leased, we expect to realize the value creation principally through gains realized through contributions of these properties to unconsolidated co-investment ventures and increases in the NOI of the consolidated portfolio.

•

Strategic Capital Advantages. We raise capital to support the long-term growth of the co-investment ventures while maintaining our own substantial investments in these vehicles. At September 30, 2023, the gross book value of the operating portfolio held by our nine unconsolidated co-investment ventures was $50.3 billion across 497 million square feet.

•

Balance Sheet Strength. At September 30, 2023, the weighted average remaining maturity of our consolidated debt was 10 years and the weighted average interest rate was 2.9%. Over the last several years prior to the current rising interest rate environment, we were able to take advantage of lower interest rates through our refinancing activities and substantially addressed our debt maturities until 2026. At September 30, 2023, we had total available liquidity of $6.9 billion. We continue to maintain low leverage as a percentage of our real estate investments and our market capitalization. As a result of our low leverage, available liquidity and investment capacity in the co-investment ventures, we have significant ability to capitalize on opportunistic value-added investments as they arise.

•

Economies of Scale from Growth. We have scalable systems and infrastructure in place to grow both our consolidated and O&M portfolios with limited incremental G&A expense. We believe we can continue to grow NOI and strategic capital revenues organically and through accretive development and acquisition activity while further reducing G&A as a percentage of our investments in real estate. The acquisition of the Duke portfolio in 2022 is a key example of this, where we increased our O&M portfolio significantly in the fourth quarter of 2022 and had minimal increases to G&A expenses, resulting in lower G&A expenses

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as a percentage of investments in real estate. While we plan to make future investments in our new lines of business through Prologis Essentials, we expect to maintain our operational efficiency.

•

Staying “Ahead of What’s Next™”. We are focused on creating value beyond real estate by enhancing our customers’ experience, leveraging our scale in procurement and innovating through data analytics and digitization efforts. This includes $193 million of investments, at September 30, 2023, in early and growth-stage companies that are focused on emerging technologies for the logistics sector. Through Prologis Essentials we support our customers through service and product offerings, including innovative solutions to operations, energy and sustainability, mobility and workforce that can make our customers' decision process easier and their enterprise more efficient.

SUMMARY OF THE NINE MONTHS ENDED SEPTEMBER 30, 2023

Our operating results were strong during the nine months ended September 30, 2023. Market rents continued to grow in most of the global logistics markets, which along with our existing lease mark-to-market, drove significant rent change on rollover and same-store growth in our O&M portfolio. Our O&M operating portfolio occupancy was 97.5% at September 30, 2023 and rent change on leases that commenced during the nine months ended September 30, 2023 was 77.2%, on a net effective basis based on our ownership share. We believe we are well positioned to organically grow earnings over the long-term given the cumulative growth in market rents over the last several years and our existing lease mark-to-market.

We completed the following significant activities in 2023, as described in the Notes to the Consolidated Financial Statements:

•

On June 29, 2023, we acquired a real estate portfolio comprised of 70 operating properties in the U.S., aggregating 14 million square feet, for cash consideration of $3.1 billion.

•

We generated net proceeds of $1.4 billion and realized net gains of $432 million, principally from the contribution of properties to our unconsolidated co-investment ventures in Japan and the sale of a U.S. portfolio of assets to a third party. This activity also includes the sale of our investment in an unconsolidated office joint venture.

•

In April 2023, we formed Prologis Japan Core Logistics Fund ("PJLF"), an unconsolidated co-investment venture, with two investors through the initial contribution of assets for which we received cash and equity ownership. We made additional contributions to PJLF in the third quarter of 2023. At September 30, 2023, our ownership interest was 16.3%.

•

We earned promotes aggregating $674 million ($523 million net of related strategic capital expenses), primarily during the second quarter from the third-party investors in Prologis Targeted U.S. Logistics Fund ("USLF") in the U.S.

•

At September 30, 2023, we had total available liquidity of $6.9 billion, including borrowing capacity on our credit facilities of $6.2 billion and unrestricted cash balances of $0.7 billion.

•

Our financing activities during the period included the following:

•

On April 5, 2023, we amended and restated our 2021 Global Facility as the 2023 Global Facility and upsized it by $1.0 billion and extended the initial maturity date to June 2027.

•

On August 25, 2023, we amended and restated the Yen Credit Facility and upsized its borrowing capacity for total commitments of ¥58.5 billion ($392 million at September 30, 2023) and extended the initial maturity date to August 2027.

•

In the third quarter of 2023, we entered into Chinese renminbi term loans totaling ¥1.7 billion ($239 million) with an issuance date weighted average interest rate of 3.5% maturing between September 2024 to 2026.

•

We issued $5.4 billion of senior notes with a weighted average interest rate of 4.7% and a weighted average remaining maturity of 14 years (principal in millions):


	Aggregate Principal				Issuance Date Weighted Average
Issuance Date	Borrowing Currency		USD (1)		Interest Rate	Years	Maturity Dates
January	€	1,250	$	1,354	4.1%	13.8	January 2030 – 2043
March	$	1,200	$	1,200	4.9%	17.7	June 2033 – 2053
May	€	750	$	809	4.6%	10.0	May 2033
June	$	2,000	$	2,000	5.1%	13.2	June 2028 – 2053
Total			$	5,363	4.7%	13.9

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(1) The exchange rate used to calculate into U.S. dollars was the spot rate at the settlement date.

RESULTS OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

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 the Consolidated Financial Statements and a reconciliation of NOI by segment to Operating Income per the Consolidated Financial Statements for the nine months ended September 30 (in millions):


	2023			2022
Real estate segment:
Rental revenues	$	5,063		$	3,322
Development management and other revenues		1			15
Rental expenses		(1,217	)		(831	)
Other expenses		(32	)		(28	)
Real Estate Segment – NOI		3,815			2,478

Strategic capital segment:
Strategic capital revenues		1,071			885
Strategic capital expenses		(307	)		(240	)
Strategic Capital Segment – NOI		764			645

General and administrative expenses		(292	)		(246	)
Depreciation and amortization expenses		(1,846	)		(1,200	)
Operating income before gains on real estate transactions, net		2,441			1,677
Gains on dispositions of development properties and land, net		274			391
Gains on other dispositions of investments in real estate, net		158			586
Operating income	$	2,873		$	2,654

See Note 11 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.

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, both in the Consolidated Financial Statements, 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 for the nine months ended September 30, derived directly from line items in the Consolidated Financial Statements (in millions):


	2023			2022
Rental revenues	$	5,063		$	3,322
Development management and other revenues		1			15
Rental expenses		(1,217	)		(831	)
Other expenses		(32	)		(28	)
Real Estate Segment – NOI	$	3,815		$	2,478

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The change in Real Estate Segment (“RES”) NOI for the nine months ended September 30, 2023 compared to the same period in 2022 of $1.3 billion was impacted by the following activities (in millions):

(1)

Acquisition activity is primarily due to the Duke Transaction on October 3, 2022 and also includes the U.S. real estate portfolio acquired on June 29, 2023. These amounts also include the amortization of fair value lease adjustments to rental revenues due to the acquisition of above and below market leases.

(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.

(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, 2022 through September 30, 2023.

(4)

The change is partially due to higher insurance costs from an unusually active storm season during the first quarter of 2023.

Below are key operating metrics of our consolidated operating portfolio, which exclude non-strategic industrial properties and non-industrial properties, both classified as other real estate investments within Investments in Real Estate Properties in the Consolidated Balance Sheets.

(1)

In October 2022, we completed the Duke Transaction, which increased our consolidated square feet.

(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.

(3)

Calculated using the trailing twelve months immediately prior to the period ended.

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Development Activity

The following table summarizes consolidated development activity for the nine months ended September 30 (dollars and square feet in millions):


	2023			2022
Starts:
Number of new development buildings during the period		17			75
Square feet		4			26
TEI (1)	$	1,335		$	3,838
Percentage of build-to-suits based on TEI		60.9	%		36.4	%

Stabilizations:
Number of development buildings stabilized during the period		43			52
Square feet		15			16
TEI	$	1,863		$	2,004
Percentage of build-to-suits based on TEI		36.3	%		46.8	%
Weighted average stabilized yield (2)		6.4	%		6.0	%
Estimated value at completion	$	2,505		$	3,159
Estimated weighted average margin (3)		34.5	%		57.6	%
Estimated value creation	$	642		$	1,155

(1)

Included in TEI were investments in data center projects that started during the third quarter of 2023 and incremental spend of $161 million related to a development start that was previously reported.

(2)

We calculate the weighted average stabilized yield as estimated NOI assuming stabilized occupancy divided by TEI.

(3)

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.

At September 30, 2023, the consolidated development portfolio, including properties under development and pre-stabilized properties, was expected to be completed before September 2025 with a TEI of $6.9 billion and was 41.0% leased. Our investment in the development portfolio was $4.4 billion at September 30, 2023, leaving $2.5 billion remaining to be spent. We expect our development activities to increase in the fourth quarter of 2023.

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 recurring capitalized expenditures, excluding development costs and non-recurring costs of our consolidated operating properties during each quarter:

Strategic Capital Segment

This operating segment includes revenues from asset management and property management services, transactional services for acquisition, disposition and leasing activity and promote revenue earned 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

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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, both in the Consolidated Financial Statements, 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 4 to the Consolidated Financial Statements.

Below are the components of Strategic Capital Segment NOI for the nine months ended September 30, derived directly from the line items in the Consolidated Financial Statements (in millions):


	2023			2022
Strategic capital revenues	$	1,071		$	885
Strategic capital expenses		(307	)		(240	)
Strategic Capital Segment – NOI	$	764		$	645

Below is additional detail of our Strategic Capital Segment revenues, expenses and NOI for the nine months ended September 30 (in millions):


	U.S. (1)						Other Americas						Europe						Asia (2)						Total
	2023			2022			2023			2022			2023			2022			2023			2022			2023			2022
Strategic capital revenues ($)
Recurring fees (3)		130			133			36			33			122			129			60			59			348			354
Transactional fees (4)		16			17			5			7			13			17			15			14			49			55
Promote revenue (5)		641			5			33			18			-			453			-			-			674			476
Total strategic capital revenues ($)		787			155			74			58			135			599			75			73			1,071			885
Strategic capital expenses ($) (5)		(164	)		(121	)		(20	)		(14	)		(82	)		(71	)		(41	)		(34	)		(307	)		(240	)
Strategic Capital Segment– NOI ($)		623			34			54			44			53			528			34			39			764			645

(1)

The U.S. expenses include compensation and personnel costs for employees who are based in the U.S. but also support other geographies.

(2)

In April 2023, we formed PJLF in Japan with two investors.

(3)

Recurring fees include asset management and property management fees.

(4)

Transactional fees include leasing commissions and acquisition, disposition, development and other fees.

(5)

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. Included in the above is promote revenue we earned primarily from USLF in the second quarter of 2023 and Prologis European Logistics Fund in the third quarter of 2022. Changes in asset valuations within the co-investment ventures during the promote period is one of the significant inputs into the calculation of promote revenues. The asset valuations are prepared by third-party valuation firms.

Up to 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 in the Consolidated Statements of Income, as vested.

G&A Expenses

G&A expenses were $292 million and $246 million for the nine months ended September 30, 2023 and 2022, respectively. G&A expenses increased in 2023 as compared to 2022, principally due to inflationary increases and higher compensation expenses based on our performance. 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 for the nine months ended September 30 (dollars in millions):


	2023			2022
Building and land development activities	$	96		$	79
Operating building improvements and other		39			32
Total capitalized G&A expenses	$	135		$	111
Capitalized compensation and related costs as a percentage of total		23.6	%		23.0	%

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Depreciation and Amortization Expenses

Depreciation and amortization expenses were $1.8 billion and $1.2 billion for the nine months ended September 30, 2023 and 2022, respectively.

The change in depreciation and amortization expenses during the nine months ended September 30, 2023 from the same period in 2022 of approximately $646 million was impacted by the following activities (in millions):

(1)

Included in acquisitions are the operating properties, other real estate properties and related lease intangibles acquired in the Duke Transaction.

Gains on Real Estate Transactions, Net

Gains on the disposition of development properties and land were $274 million and $391 million for the nine months ended September 30, 2023 and 2022, respectively, primarily from the contribution of properties we developed to our unconsolidated co-investment ventures in Japan during both periods and Europe in 2022. Gains on other dispositions of investments in real estate were $158 million and $586 million for the nine months ended September 30, 2023 and 2022, respectively, and primarily represented sales of U.S. non-strategic operating properties to third parties. Historically, we have utilized the proceeds from these transactions primarily to fund our acquisition and development activities. See Note 3 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 results in this way allows management to understand performance more broadly as we manage the properties without regard to their 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 that we consider non-strategic and 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 (square feet in millions):


	September 30, 2023							December 31, 2022
	Number of Properties		Square Feet		Percentage Occupied			Number of Properties		Square Feet		Percentage Occupied
Consolidated		2,935		624		97.8	%		2,812		595		98.3	%
Unconsolidated		2,213		497		97.1	%		2,177		488		98.1	%
Total		5,148		1,121		97.5	%		4,989		1,083		98.2	%

Index

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

(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 during these periods.

(2)

Calculated using the trailing twelve months immediately prior to the period ended.

(3)

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.

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 September 30, 2023 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, 2022 and owned throughout the same three-month period in both 2022 and 2023. 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 of the period (January 1, 2022) 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.

Index

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, as follows for the three months ended September 30 (dollars in millions):


							Percentage
	2023			2022			Change
Reconciliation of Consolidated Property NOI to Same Store Property NOI measures:

Rental revenues	$	1,777		$	1,152
Rental expenses		(416	)		(285	)
Consolidated Property NOI		1,361			867

Adjustments to derive same store results:
Property NOI from consolidated properties not included in same store portfolio and other adjustments (1)		(522	)		(105	)
Property NOI from unconsolidated co-investment ventures included in same store portfolio (1)(2)		707			672
Third parties' share of Property NOI from properties included in same store portfolio (1)(2)		(572	)		(543	)
Prologis Share of Same Store Property NOI – Net Effective (2)	$	974		$	891			9.3	%
Consolidated properties straight-line rent and fair value lease adjustments included in same store portfolio (3)		(20	)		(19	)
Unconsolidated co-investment ventures straight-line rent and fair value lease adjustments included in same store portfolio (3)		(12	)		(13	)
Third parties' share of straight-line rent and fair value lease adjustments included in same store portfolio (2)(3)		10			10
Prologis Share of Same Store Property NOI – Cash (2)(3)	$	952		$	869			9.5	%

(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’s rental revenues without regard to one-time items that are not indicative of the property’s 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.

(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’ underlying Property NOI for the same store portfolio and apply our ownership percentage at September 30, 2023 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’ share of both consolidated and unconsolidated co-investment ventures.

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.

(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 – Cash measure.

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.

Index

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 $218 million and $241 million for the nine months ended September 30, 2023 and 2022, respectively.

The earnings we recognize can be impacted by: (i) the size, rental rates and occupancy of the portfolio of properties owned by each venture; (ii) gains or losses from the dispositions of properties and extinguishment of debt; (iii) our ownership interest in each venture; (iv) other variances in revenues and expenses of 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 4 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 for the nine months ended September 30 (dollars in millions):


	2023			2022
Gross interest expense	$	490		$	223
Amortization of debt discount and debt issuance costs, net		56			6
Capitalized amounts		(79	)		(41	)
Net interest expense	$	467		$	188
Weighted average effective interest rate during the period		2.7	%		1.6	%

Interest expense increased during the nine months ended September 30, 2023, as compared to the same period in 2022, principally due to the issuance of senior notes, higher interest rates on our credit facilities and assuming $4.2 billion of debt which was marked to fair value in the Duke Transaction in October 2022. We issued $5.4 billion of senior notes during the nine months ended September 30, 2023 and $3.3 billion during the year ended December 31, 2022, with a weighted average interest rate of 4.7% and 2.3%, respectively, at the issuance date.

See Note 6 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 and Other Income, Net

We recognized foreign currency and derivative gains and other income, net, of $103 million and $365 million for the nine months ended September 30, 2023 and 2022, respectively. Included in 2023 was interest income earned on short-term investments of $35 million.

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 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, net for the nine months ended September 30 (in millions):


	2023		2022
Realized foreign currency and derivative gains, net:
Gains on the settlement of undesignated derivatives	$	42	$	124
Gains on the settlement of transactions with third parties		2		1
Total realized foreign currency and derivative gains, net		44		125

Unrealized foreign currency and derivative gains, net:
Gains on the change in fair value of undesignated derivatives and unhedged debt		16		235
Gains on remeasurement of certain assets and liabilities		6		5
Total unrealized foreign currency and derivative gains, net		22		240
Total foreign currency and derivative gains, net	$	66	$	365

Index

See Note 10 to the Consolidated Financial Statements for more information about our derivative and nonderivative transactions.

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 for the nine months ended September 30 (in millions):


	2023		2022
Current income tax expense:
Income tax expense	$	117	$	93
Income tax expense on dispositions		26		1
Total current income tax expense		143		94

Deferred income tax expense:
Income tax expense		10		24
Total deferred income tax expense		10		24
Total income tax expense	$	153	$	118

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 $149 million and $158 million for the nine months ended September 30, 2023 and 2022, respectively. Included in these amounts were $61 million and $78 million for the nine months ended September 30, 2023 and 2022, respectively, of net earnings attributable to the common limited partnership unitholders of Prologis, L.P.

See Note 7 to the Consolidated Financial Statements for further information on our noncontrolling interests.

Other Comprehensive Income (Loss)

The key driver of changes in Accumulated Other Comprehensive Income (Loss) (“AOCI/L”) in the Consolidated Financial Statements during the nine months ended September 30, 2023 and 2022, 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 10 to the Consolidated Financial Statements for more information on changes in other comprehensive income and about our derivative and nonderivative transactions.

RESULTS OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Except as separately discussed above, the changes in comprehensive income attributable to common stockholders and unitholders and its components for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, are similar to the changes for the nine-month periods ended on the same dates.

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.

Index

Near-Term Principal Cash Sources and Uses

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

•

completion of the development and leasing of the properties in our consolidated development portfolio (at September 30, 2023, 110 properties in our development portfolio were 41.0% leased with a current investment of $4.4 billion and a TEI of $6.9 billion when completed and leased, leaving $2.5 billion of estimated additional required investment);

•

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;

•

the acquisition of other real estate investments that we acquire with the intention of redeveloping into industrial properties;

•

capital expenditures and leasing costs on properties in our operating portfolio, including investments in solar panels and other renewable energy improvements;

•

repayment of debt and scheduled principal payments of $2 million in the remainder of 2023 and $514 million in 2024;

•

additional investments in current and future unconsolidated co-investment ventures and other ventures; and

•

the acquisition of operating properties or portfolios of operating properties (depending on market and other conditions), such as the real estate portfolio that we acquired in the second quarter of 2023, for direct, long-term investment in our consolidated portfolio (this might include acquisitions from our unconsolidated entities).

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

•

net cash flow from property operations;

•

fees earned for services performed on behalf of co-investment ventures;

•

distributions received from co-investment ventures;

•

proceeds from the contribution of properties to current or future co-investment ventures;

•

proceeds from the disposition of properties or other investments to third parties;

•

available unrestricted cash balances ($741 million at September 30, 2023);

•

borrowing capacity under our current credit facility arrangements ($6.2 billion available at September 30, 2023); and

•

proceeds from the issuance of debt.

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 through the sale of a portion of our investments in co-investment ventures.

Debt

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


	September 30, 2023								December 31, 2022
	Weighted Average Interest Rate			Amount Outstanding		% of Total			Weighted Average Interest Rate			Amount Outstanding		% of Total
British pound sterling		2.2	%	$	1,274		4.6	%		2.1	%	$	1,228		5.1	%
Canadian dollar		5.0	%		819		3.0	%		4.5	%		815		3.4	%
Chinese renminbi		3.7	%		239		0.9	%		-			-		-
Euro		2.0	%		9,736		35.3	%		1.3	%		7,991		33.5	%
Japanese yen		1.0	%		2,925		10.6	%		1.0	%		3,308		13.9	%
U.S. dollar		3.9	%		12,585		45.6	%		3.6	%		10,534		44.1	%
Total debt (1)		2.9	%	$	27,578		100.0	%		2.5	%	$	23,876		100.0	%

Index

(1)

The weighted average remaining maturity for total debt outstanding at September 30, 2023 and December 31, 2022 was 10 and 9 years, respectively.

Our credit ratings at September 30, 2023, were A and A3 from Standard & Poor's and Moody’s, respectively, each with a stable outlook. These ratings allow us to borrow at an advantageous interest rate in a broad number of capital markets around the world. 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 September 30, 2023, 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 6 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 September 30, 2023 (dollars in millions):


	Equity Commitments (1)
	Prologis		Venture Partners		Total		Expiration Date
Prologis Targeted U.S. Logistics Fund (2)	$	250	$	311	$	561	2024 – 2026 (3)
Prologis European Logistics Fund (2)		265		112		377	2025 – 2026 (3)
Prologis China Logistics Venture		238		1,272		1,510	2023 – 2028
Prologis Brazil Logistics Venture		46		182		228	2026
Prologis Japan Core Logistics Fund		95		490		585	2033
Total	$	894	$	2,367	$	3,261

(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 September 30, 2023.

(2)

We expect to fund our commitments to USLF in cash and Prologis European Logistics Fund through the contribution of properties in the fourth quarter of 2023.

(3)

Venture partners have the option to cancel their equity commitment starting 18 months after the initial commitment date.

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

Cash Flow Summary

The following table summarizes our cash flow activity for the nine months ended September 30 (in millions):


	2023			2022
Net cash provided by operating activities	$	4,299		$	2,849
Net cash used in investing activities	$	(5,212	)	$	(3,211	)
Net cash provided by financing activities	$	1,404		$	487
Net increase in cash and cash equivalents, including the effect of foreign currency exchange rates on cash	$	462		$	80

Operating Activities

Cash provided by and used in operating activities, exclusive of changes in receivables and payables, was impacted by the following significant activities during the nine months ended September 30, 2023 and 2022:

•

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 $467 million and $108 million in 2023 and 2022, respectively. The increase in straight-lined rents and amortization of above and below market leases in 2023 was driven primarily from the Duke acquisition.

Index

•

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 in the Consolidated Statements of Income are the promotes we earn from the third-party investors in our co-investment ventures, which are recognized in operating activities in the period the cash is received, generally the quarter after the revenue is recognized.

•

G&A expenses and equity-based compensation awards. We incurred $292 million and $246 million of G&A expenses in 2023 and 2022, respectively. We recognized equity-based, noncash compensation expenses of $210 million and $140 million in 2023 and 2022, respectively, which were recorded to Rental Expenses in the Real Estate Segment, Strategic Capital Expenses in the Strategic Capital Segment and G&A Expenses in the Consolidated Statements of Income.

•

Operating distributions from unconsolidated entities. We received $536 million and $316 million of distributions as a return on our investment from the cash flows generated from the operations of our unconsolidated entities in 2023 and 2022, respectively.

•

Cash paid for interest, net of amounts capitalized. We paid interest, net of amounts capitalized, of $340 million and $189 million in 2023 and 2022, respectively.

•

Cash paid for income taxes, net of refunds. We paid income taxes, net of refunds, of $122 million and $85 million in 2023 and 2022, respectively.

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 non-strategic operating properties. Cash used in investing activities is principally driven by our capital deployment activities of investing in real estate development, acquisitions and capital expenditures as discussed above. Acquisition activity includes real estate portfolios, land for future development, operating properties and other real estate assets. See Note 3 to the Consolidated Financial Statements for further information on these activities, including the $3.1 billion real estate portfolio we acquired in the second quarter of 2023. In addition, the following significant transactions also impacted our cash used in and provided by investing activities during the nine months ended September 30, 2023 and 2022:

•

Duke Transaction, net of cash acquired. We paid transaction costs of $28 million in 2023 that were accrued at the time of the Duke acquisition. The acquisition was financed through the issuance of equity and the assumption of debt in 2022. See Note 2 to the Consolidated Financial Statements for more information on this transaction.

•

Investments in and advances to our unconsolidated entities. We invested cash in our unconsolidated entities that represented our proportionate share, of $246 million and $192 million in 2023 and 2022, respectively. The ventures used the funds for the acquisition of properties, development and repayment of debt. See Note 4 to the Consolidated Financial Statements for more detail on our unconsolidated co-investment ventures.

•

Return of investment from unconsolidated entities. We received distributions from unconsolidated entities as a return of investment of $305 million and $59 million in 2023 and 2022, 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.

•

Net proceeds from (payments on) the settlement of net investment hedges. We received net proceeds of $31 million and $44 million for the settlement of net investment hedges in 2023 and 2022, respectively. See Note 10 to the Consolidated Financial Statements for further information on our derivative transactions.

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.

Index

Our repurchase of and payments on debt and proceeds from the issuance of debt consisted of the following activity for the nine months ended September 30 (in millions):


	2023		2022
Repurchase of and payments on debt (including extinguishment costs)
Regularly scheduled debt principal payments and payments at maturity	$	28	$	594
Secured mortgage debt		153		159
Senior notes		89		-
Term loans		-		134
Total	$	270	$	887

Proceeds from the issuance of debt
Secured mortgage debt	$	112	$	259
Senior notes		5,323		2,716
Term loans		312		419
Total	$	5,747	$	3,394

Unconsolidated Co-Investment Venture Debt

We had investments in and advances to our unconsolidated co-investment ventures of $8.0 billion at September 30, 2023. These ventures had total third-party debt of $14.3 billion at September 30, 2023 with a weighted average remaining maturity of 7 years and weighted average interest rate of 3.0%. The weighted average loan-to-value ratio for all unconsolidated co-investment ventures was 27.6% at September 30, 2023 based on gross book value. 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.

At September 30, 2023, we did not guarantee any third-party debt of the unconsolidated co-investment ventures.

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 Internal Revenue Code ("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 $0.87 and $0.79 per common share in each of the first three quarters of 2023 and 2022, 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 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 each of the first three quarters of 2023 and 2022.

At September 30, 2023, 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.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1 to the Consolidated Financial Statements.

Index

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:

•

deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;

•

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

•

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.

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:

•

gains or losses from the disposition of land and development properties that were developed with the intent to contribute or sell;

•

income tax expense related to the sale of investments in real estate;

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•

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;

•

gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and

•

expenses related to natural disasters.

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:

•

The current income tax expenses that are excluded from our modified FFO measures represent the taxes that are payable.

•

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.

•

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.

•

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.

•

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.

•

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.

•

The natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

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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 for nine months ended September 30 as follows (in millions):


	2023			2022
Reconciliation of net earnings attributable to common stockholders to FFO measures:
Net earnings attributable to common stockholders	$	2,424		$	2,773

Add (deduct) NAREIT defined adjustments:
Real estate related depreciation and amortization		1,811			1,163
Gains on other dispositions of investments in real estate, net of taxes		(156	)		(591	)
Reconciling items related to noncontrolling interests		(24	)		4
Our share of reconciling items included in earnings related to unconsolidated entities		342			241
NAREIT defined FFO attributable to common stockholders/unitholders		4,397			3,590

Add (deduct) our modified adjustments:
Unrealized foreign currency and derivative gains, net		(26	)		(232	)
Deferred income tax expense		10			24
Our share of reconciling items included in earnings related to unconsolidated entities		(6	)		(14	)
FFO, as modified by Prologis attributable to common stockholders/unitholders		4,375			3,368

Adjustments to arrive at Core FFO:
Gains on dispositions of development properties and land, net		(274	)		(391	)
Current income tax expense on dispositions		24			7
Losses (gains) on early extinguishment of debt, net		(3	)		19
Reconciling items related to noncontrolling interests		9			5
Our share of reconciling items included in earnings related to unconsolidated entities		1			2
Core FFO attributable to common stockholders/unitholders	$	4,132		$	3,010

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to the impact of foreign exchange-related variability and earnings volatility on our foreign investments and interest rate changes. See our risk factors in Part 1, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. See also Note 10 in the Consolidated Financial Statements in Item 1 for more information about our foreign operations and derivative financial instruments.

We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 10% adverse change in foreign currency exchange rates or interest rates at September 30, 2023. The results of the sensitivity analysis are summarized in the following sections. The sensitivity analysis is of limited predictive value. As a result, revenues and expenses, as well as our ultimate realized gains or losses with respect to foreign currency exchange rate and interest rate fluctuations will depend on the exposures that arise during a future period, hedging strategies at the time and the prevailing foreign currency exchange rates and interest rates.

Foreign Currency Risk

We are exposed to foreign currency exchange variability related to investments in and earnings from our foreign investments. Foreign currency market risk is the possibility that our results of operations or financial position could be better or worse than planned because of changes in foreign currency exchange rates. We primarily hedge our foreign currency risk by borrowing in the currencies in which we invest thereby providing a natural hedge. Additionally, we hedge our foreign currency risk by entering into derivative financial instruments that we designate as net investment hedges, as these amounts offset the translation adjustments on the underlying net assets of our foreign investments. At September 30, 2023, after consideration of our ability to borrow in the foreign currencies in which we invest and also derivative and nonderivative financial instruments as discussed in Note 10 to the Consolidated Financial Statements, we had minimal net equity denominated in a currency other than the U.S. dollar.

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For the nine months ended September 30, 2023, $411 million or 6.7% of our total consolidated revenue was denominated in foreign currencies. We enter into other foreign currency contracts, such as forwards, to reduce fluctuations in foreign currency associated with the translation of the future earnings of our international subsidiaries. We have forward contracts that were not designated as hedges, denominated principally in British pound sterling, Canadian dollar, euro and Japanese yen and have an aggregate notional amount of $1.7 billion to mitigate risk associated with the translation of the future earnings of our subsidiaries denominated in these currencies. The gain or loss on settlement of these contracts is included in our earnings and offsets the lower or higher translation of earnings from our investments denominated in currencies other than the U.S. dollar. Although the impact to net earnings is mitigated through higher translated U.S. dollar earnings from these currencies, a weakening of the U.S. dollar against these currencies by 10% could result in a $167 million cash payment on settlement of these contracts.

Interest Rate Risk

We are also exposed to the impact of interest rate changes on future earnings and cash flows. To mitigate that risk, we generally borrow with fixed rate debt and we may use derivative instruments to fix the interest rate on our variable rate debt. At September 30, 2023, $26.3 billion of our debt bore interest at fixed rates and therefore the fair value of these instruments was affected by changes in market interest rates. At September 30, 2023, $1.9 billion of our debt bore interest at variable rates. The following table summarizes the future repayment of debt and scheduled principal payments at September 30, 2023 (dollars in millions):


	2023			2024			2025			2026			Thereafter			Total			Fair Value
Fixed rate debt (1)	$	2		$	355		$	172		$	1,438		$	24,338		$	26,305		$	21,823
Weighted average interest rate (2)		3.9	%		2.0	%		3.2	%		3.3	%		2.8	%		2.9	%

Variable rate debt
Credit facilities	$	-		$	-		$	-		$	32		$	181		$	213		$	213
Secured mortgage debt		-			-			30			-			-			30			30
Senior notes		-			159			-			-			-			159			159
Term loans		-			-			723			570			167			1,460			1,459
Total variable rate debt	$	-		$	159		$	753		$	602		$	348		$	1,862		$	1,861

(1)

At September 30, 2023, we had one interest rate swap agreement to fix €150 million ($156 million) of our floating rate euro senior notes which is included in fixed rate debt.

(2)

The weighted average interest rates represent the effective interest rates (including amortization of debt issuance costs and noncash premiums and discounts) at September 30, 2023 for the debt outstanding and include the impact of designated interest rate swaps, which effectively fix the interest rate on certain variable rate debt.

At September 30, 2023, the weighted average effective interest rate on our variable rate debt was 3.6% which was calculated using an average balance on our credit facilities throughout the year and our other variable rate debt balances at September 30, 2023. Changes in interest rates can cause interest expense to fluctuate on our variable rate debt. On the basis of our sensitivity analysis, a 10% increase in interest rates on our average outstanding variable rate debt balances would result in additional annual interest expense of $7 million for the quarter ended September 30, 2023, which equates to a change in interest rates of 36 basis points on our average outstanding variable rate debt balances and 3 basis points on our average total debt portfolio balances.

ITEM 4. Controls and Procedures

Controls and Procedures (Prologis, Inc.)

Prologis, Inc. carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c)) under the Securities and Exchange Act of 1934 (the “Exchange Act”) at September 30, 2023. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Control over Financial Reporting

There have not been any changes in Prologis, Inc.’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, Prologis, Inc.’s internal control over financial reporting.

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Controls and Procedures (Prologis, L.P.)

Prologis, L.P. carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c)) under the Exchange Act at September 30, 2023. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Control over Financial Reporting

There have not been any changes in Prologis, L.P.’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, Prologis, L.P.’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Prologis and our unconsolidated entities are party to a variety of legal proceedings arising in the ordinary course of business. With respect to any such matters to which we are currently a party, the ultimate disposition of any such matters will not result in a material adverse effect on our business, financial position or results of operations.

ITEM 1A. Risk Factors

At September 30, 2023, no material changes had occurred in our risk factors as discussed in Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarterly period ended September 30, 2023, we issued 0.1 million shares of common stock of Prologis, Inc. in connection with the redemption of common units of Prologis, L.P. in reliance on the exemption from registration requirements of the Securities Act of 1933, as amended (the "Act"), afforded by Section 4(a)(2) thereof.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

During the quarterly period ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K under the Act).

ITEM 6. Exhibits

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

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INDEX TO EXHIBITS

Certain of the following documents are filed herewith. Certain other of the following documents that have been previously filed with the Securities and Exchange Commission (“SEC”) and, pursuant to Rule 12b-32, are incorporated herein by reference.


10.1	Seventh Amended and Restated Revolving Credit Agreement, dated as of August 25, 2023, among Prologis Marunouchi Finance Investment Limited Partnership, as initial borrower, Prologis, L.P., as guarantor, the lenders listed on the signature pages thereof, and Sumitomo Mitsui Banking Corporation, as Administrative Agent (incorporated by reference to Exhibit 10.1 to Prologis' Current Report Form 8-K filed on August 31, 2023).

10.2	Guaranty of Payment, dated as of August 25, 2023, between Prologis, L.P., as guarantor, and Sumitomo Mitsui Banking Corporation, as Administrative Agent, for the banks that are from time to time parties to the Seventh Amended and Restated Revolving Credit Agreement (incorporated by reference to Exhibit 10.2 to Prologis' Current Report Form 8-K filed on August 31, 2023).

15.1†	KPMG LLP Awareness Letter of Prologis, Inc.

15.2†	KPMG LLP Awareness Letter of Prologis, L.P.

22.1†	Subsidiary guarantors and issuers of guaranteed securities.

31.1†	Certification of Chief Executive Officer of Prologis, Inc.

31.2†	Certification of Chief Financial Officer of Prologis, Inc.

31.3†	Certification of Chief Executive Officer for Prologis, L.P.

31.4†	Certification of Chief Financial Officer for Prologis, L.P.

32.1†	Certification of Chief Executive Officer and Chief Financial Officer of Prologis, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2†	Certification of Chief Executive Officer and Chief Financial Officer for Prologis, L.P., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS†	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document.

101.SCH†	Inline XBRL Taxonomy Extension Schema

101.CAL†	Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF†	Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB†	Inline XBRL Taxonomy Extension Label Linkbase

101.PRE†	Inline XBRL Taxonomy Extension Presentation Linkbase

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

†	Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.


	PROLOGIS, INC.

	By:	/s/ Timothy D. Arndt
		Timothy D. Arndt
		Chief Financial Officer

	By:	/s/ Lori A. Palazzolo
		Lori A. Palazzolo
		Managing Director and Chief Accounting Officer

	PROLOGIS, L.P.

	By:	Prologis, Inc., its general partner

	By:	/s/ Timothy D. Arndt
		Timothy D. Arndt
		Chief Financial Officer

	By:	/s/ Lori A. Palazzolo
		Lori A. Palazzolo
		Managing Director and Chief Accounting Officer

Date: October 27, 2023