Prologis, Inc. | 2013 | FY |

12.	Noncontrolling Interests

Operating Partnership

We report noncontrolling interests related to several entities we consolidate but do not own 100% of the common 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 exchangeable into shares of our common stock (or cash), generally at a rate of one share of common stock to one unit. We evaluated the noncontrolling interests with redemption provisions that permit the issuer to settle in either cash or common stock at the option of the issuer to determine whether temporary or permanent equity classification on the balance sheet is appropriate, including the requirement to settle in unregistered shares, and determined that these units meet the requirements to qualify for presentation as permanent equity. We also consolidate several entities in which we do not own 100% and the units of the entity are not exchangeable into our common stock.

If we contribute a property to a consolidated co-investment venture, the property is still reflected in the Consolidated Financial Statements, but due to our ownership of less than 100%, there is an increase in noncontrolling interest related to the contributed properties, which represents the cash we receive from our partners.

In June 2013, we acquired our partners’ interest in Prologis Institutional Alliance Fund II (“Fund II”), a consolidated co-investment venture. In connection with this transaction, we paid $245.8 million and issued 804,734 limited partnership units worth $31.3 million in one of our limited partnerships based primarily on appraised values of the properties. These units are exchangeable into an equal number of shares of our common stock. The difference between the amount we paid and the noncontrolling interest balance at the time was not significant, but was adjusted through equity with no gain or loss recognized. As a result of this transaction, the assets and liabilities associated with this venture are now wholly owned in the Consolidated Balance Sheets.

In the second quarter of 2013, we earned a promote fee from Fund II, of $18.8 million from the fund, which was based on the venture’s cumulative returns to the investors over the life of the venture. Of that amount, $13.5 million represented the third party investors’ portion and is reflected as a component of Noncontrolling Interest in the Consolidated Statements of Operations. We also recognized $2.7 million of expense for the year ended December 31, 2013, in Investment Management Expenses in the Consolidated Statements of Operations, representing the associated cash bonus paid out to certain employees pursuant to the terms of the Prologis Promote Plan, previously referred to as the Private Capital Plan.

In December 2013, we announced the formation of a new co-investment venture, Prologis U.S. Logistics Venture (“USLV”). Prologis’ partner is NBIM, which is the same partner in our new European fund, PELP. On January 9, 2014, we contributed 66 properties to the fund. We own 55% of the equity and the venture is consolidated for accounting purposes due to the structure and voting rights of the venture.

REIT

The noncontrolling interest of the REIT includes the noncontrolling interests presented in the Operating Partnership, as well as the common limited partnership units in the Operating Partnership that are not owned by the REIT. As of December 31, 2013, the REIT owned 99.65% of the common partnership units of the Operating Partnership.

During 2013, net earnings attributable to noncontrolling interests was $10.1 million, of which $0.5 million was a loss from continuing operations and $10.6 million was income from discontinued operations. Amounts allocated to discontinued operations for 2012 and 2011 were not considered significant.

 

The following is a summary of the noncontrolling interest and the consolidated entity’s total investment in real estate and debt at December 31 (dollars in thousands):

 

		Our Ownership Percentage								Noncontrolling Interest								Total Investment In Real Estate								Debt
		2013				2012				2013				2012				2013				2012				2013				2012
Partnerships with exchangeable units (1)			various				various			$	75,532			$	44,476			$	783,052			$	826,605			$	-			$	-
Fund II (2)			N/A				28.2%				-				280,751				-				571,668				-				178,778
Mexico Fondo Logistico (AFORES) (3)			20.0%				20.0%				220,292				157,843				457,006				388,960				191,866				214,084
Brazil Fund (4)			50.0%				50.0%				65,006				66,494				-				-				-				-
Prologis AMS			38.5%				38.5%				24,791				59,631				58,575				160,649				17,063				63,749
Other consolidated entities			various				various				31,465				43,930				312,358				404,825				31,063				62,061
Operating Partnership noncontrolling interests											417,086				653,125				1,610,991				2,352,707				239,992				518,672
Limited partners in the Operating Partnership (5)											48,209				51,194				-				-				-				-
REIT noncontrolling interests										$	465,295			$	704,319			$	1,610,991			$	2,352,707			$	239,992			$	518,672

 

(1)

At December 31, 2013 and 2012, there were 1,948,608 and 1,173,571 limited partnership units, respectively, that were exchangeable into an equal number of shares of the REIT’s common stock. At December 31, 2013, this included the 804,734 units of one of our limited partnerships issued as part of the Prologis Institutional Alliance Fund II transaction. In 2013, 1,197 limited partnership units were redeemed for cash and 27,751 limited partnership units were redeemed for an equal number of common shares. All of these 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.

 

(2)	As disclosed above, we acquired our partners’ interest in June 2013.

 

(3)	In May 2013, we contributed land and five properties aggregating 0.7 million square feet to this entity for $52.1 million. As this entity is consolidated, we did not record a gain on this transaction.

 

(4)

We have a 50% ownership interest in and consolidate the Brazil Fund that in turn has investments in several joint ventures that are accounted for on the equity method. The Brazil Fund’s assets are primarily investments in unconsolidated entities of $152.0 million at December 31, 2013. For additional information on our unconsolidated investments, see Note 5.

 

(5)

At December 31, 2013 and December 31, 2012, there were 1,766,691 and 1,893,266 units respectively, that were associated with the limited partners in the Operating Partnership and were exchangeable into an equal number of shares of the REIT’s common stock. During 2013, 126,575 units were redeemed for cash. All of these outstanding limited partnership units receive quarterly cash distributions equal to the quarterly distributions paid on our common stock pursuant to the terms of the partnership agreement.