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

Management's Overview

At the time of the Merger, we established our key strategic priorities to guide our path through the end of 2013. These priorities were:

• to align our portfolio with our investment strategy while serving the needs of our customers;

• to strengthen our financial position and build one of the top balance sheets in the REIT industry;

• to streamline our private capital business and position it for substantial growth;

• to improve the utilization of our low yielding assets; and

• to build the most effective and efficient organization in the REIT industry and to become the employer of choice among top professionals interested in real estate as a career.

Align our Portfolio with our Investment Strategy

We have categorized our portfolio into three main segments - global, regional and other markets. By segmenting our markets in this manner, we were able to construct a plan that includes culling the portfolio for buildings and potentially submarkets that are no longer a strategic fit. We expect to use the proceeds from dispositions to pay down debt that is secured by the disposed assets, if any, repay other debt and to recycle capital into new development projects and/or strategic acquisitions.

Strengthen our Financial Position

We intend to further strengthen our financial position by lowering our financial risk and currency exposure and building one of the strongest balance sheets in the REIT industry. We expect to lower our financial risk by reducing leverage and maintaining staggered debt maturities, which will increase our financial flexibility and provide for continued access to capital markets. This financial flexibility will position us to capitalize on market opportunities across the entire business cycle as they arise. We expect to reduce our exposure to foreign currency exchange fluctuations by borrowing in local currency where appropriate, and utilizing derivative contracts to hedge our foreign denominated equity and swap U.S. dollar-denominated debt into obligations denominated in foreign currencies. We expect to also lower our foreign currency risk by holding assets outside the United States primarily in co-investment ventures in which we maintain an ownership interest and provide services generating private capital revenue. We will accomplish this through contributions and sales to our existing and newly formed co-investment ventures, including the new ventures in Europe and Japan discussed below. In addition, we expect that new development projects, particularly in those emerging markets such as Brazil, China and Mexico, will be done in conjunction with our private capital partners.

Streamline Private Capital Business

We are working with our private capital investors to rationalize certain of our co-investment ventures. Some of our legacy co-investment ventures have fee structures that do not adequately compensate us for the services we provide. Therefore, we have terminated or restructured certain of these co-investment ventures. In other cases, we may combine some co-investment ventures to gain operational efficiencies. In every case, however, we have and will continue to work very closely with our partners and venture investors who have been and will be active participants in these decisions. We expect to continue with these activities during 2013. We plan to grow our private capital business with the deployment of the private capital commitments we have already raised, formation of new co-investment ventures, including the new ventures in Europe and Japan, and raising incremental capital for our existing co-investment ventures.

Improve the Utilization of Our Low Yielding Assets

We plan to increase the value of our low yielding assets by stabilizing our operating portfolio to 95% leased, completing the build-out and lease-up of our development projects as well as monetizing our land through development or sale to third parties.

Build the most effective and efficient organization in the REIT industry and become the employer of choice among top professionals interested in real estate as a career

We realized more than $115 million of cost synergies on an annualized basis, compared to the combined expenses of AMB and ProLogis on a pre-Merger basis. These synergies included gross general and administrative savings, reduced global line of credit facility fees and lower amortization of non real estate assets. We will continue to look for and achieve additional savings opportunities. In addition, we implemented a new enterprise wide system that includes a property management/billing system (implemented in April 2012), a human resources system (implemented in July 2012), a general ledger and accounting system and a data warehouse (implemented in January 2013). In connection with this implementation, we are striving to utilize the most effective global business processes with the enhanced system functionality, and have also implemented several analytical tools to further empower and assist our regional and local teams. In early 2012, we implemented two new compensation plans that we believe will better align employees' compensation to our company performance. We believe these efforts and others will help us with the attainment of this objective.

Summary of 2012

• In support of our objective to streamline our private capital co-investment ventures, we successfully concluded five co-investment ventures (six since the Merger) and one other unconsolidated joint venture (further discussed in Notes 3 and 6 to our Consolidated Financial Statements in Item 8), as follows:

• During the third quarter, we completed the delisting of PEPR from two European stock exchanges and we acquired 100% of its assets and liabilities. We plan to contribute the majority of these properties to a new co-investment venture as discussed below.

• During the first quarter, we acquired our partner's interest in Prologis North America Fund II ("NAIF II") and dissolved Prologis California and divided the portfolio equally with our partner. In the fourth quarter, we dissolved Prologis North America Properties Fund I ("Fund I") and divided the portfolio according to the ownership of each partner. These three transactions increased our investment in real estate by $2.2 billion and our debt by $1.4 billion. We recognized net gains on acquisitions of real estate properties of $294.2 million as a result of adjusting our equity investment to fair value at the time of consolidation. We refer to these transactions collectively as "Co-Investment Venture Acquisitions".

• We concluded Prologis North American Properties Fund XI by disposing of the remaining asset in the co-investment venture during the third quarter.

• In the fourth quarter, we dissolved one of our other unconsolidated joint ventures and divided the portfolio according to the ownership of the partners.

• In December 2012, we announced our plan to form two new ventures in Japan and Europe:

• On December 12, we announced the approval from our Board to sponsor a Japanese REIT ("J-REIT") to serve as the long-term investment vehicle for our properties developed in Japan. In early 2013, we launched the initial public offering for Nippon Prologis REIT, Inc. ("NPR"). On February 14, 2013, NPR was listed on the Japan Stock Exchange and commenced trading. At that time, NPR acquired a portfolio of 12 properties from us for an aggregate purchase price of ¥173 billion ($1.9 billion), resulting in ¥153 billion ($1.7 billion at February 14, 2013) in net cash proceeds. We will retain at least a 15% equity ownership interest in NPR and will provide pipeline, operational and personnel assistance under a support agreement. As a result of this transaction, in the first quarter we will recognize a gain of approximately $300 million after the deferral of the gain related to our ongoing investment. We intend to use the proceeds primarily for the repayment of debt and future investment in Japan.

• On December 20, we signed a definitive agreement to form a euro-denominated co-investment venture, Prologis European Logistics Partners Sarl ("PELP"). Our partner is Norges Bank Investment Management, which is the manager of the Norwegian Government Pension Fund Global. PELP will be structured as a 50/50 joint venture. The venture has an initial term of 15 years, which may be extended for additional 15-year periods. We will have the ability to reduce our ownership to 20% following the second anniversary of closing. The venture will acquire a portfolio of high-quality properties currently owned by us in 11 target European global markets. We expect to contribute 195 properties for total estimated proceeds of approximately of €2.3 billion ($3.1 billion at December 31, 2012). As the expected proceeds were less than our carrying cost at December 31, 2012, we recognized an impairment charge of $135 million in the fourth quarter of 2012 related to the expected contribution in March 2013. This charge represented the loss on the entire portfolio of properties and was driven primarily by properties that we had developed during 2008 and 2009 at peak values.

• We increased our debt by $1.4 billion in connection with the Co-Investment Venture Acquisitions, as discussed above.

• We issued secured property-level debt on assets in Japan (known as TMK bonds) or increased existing TMK bonds for a combined amount of ¥49.0 billion ($569.0 million as of December 31, 2012).

• We entered into a €487.5 million ($648.5 million as of December 31, 2012) multi-currency senior term loan agreement and used the proceeds to pay off two outstanding term loans with the remainder used to pay down our credit facilities.

• We repaid $1.9 billion of debt with the proceeds from dispositions and contributions of properties. In 2013, we plan to significantly reduce debt with the proceeds received from contributions to the two co-investment ventures discussed above, along with other dispositions and contributions of properties as we align our portfolio with our investment strategy.

• In order to reduce our exposure to the risk of movements in exchange rates, we entered into derivative contracts with an aggregate notional amount of €1.0 billion to hedge our euro denominated net investment. These hedges qualify for hedge accounting. We plan to further reduce our currency risk by completing the contribution of real estate properties to co-investment ventures in Japan and Europe in which we maintain an ownership interest (as discussed above).

• We generated aggregate proceeds of $2.0 billion from the disposition of land, land subject to ground leases and 200 operating buildings to third parties and the contribution of 25 operating buildings to three unconsolidated co-investment ventures. We used the proceeds primarily to reduce our outstanding debt, acquire real estate properties and fund our development activities. We recognized net gains of $19.3 million in continuing operations and $65.9 million in discontinued operations as a result of these transactions.

• We commenced construction of 40 projects on an owned and managed basis aggregating 16.9 million square feet with a total expected investment of $1.6 billion (our share was $1.4 billion), including 20 projects (or 57% of the total expected investment) that were 100% leased prior to the start of development. We used $384.2 million of land we already owned for these projects. This represents an increase in development activity that we expect to further increase in 2013.

• We leased a total of 145.3 million square feet in our owned and managed portfolio and increased the occupancy of the total operating portfolio to 94.0% and 94.5% leased at December 31, 2012 as compared to 92.2% occupied and 92.5% leased at December 31, 2011.

• We increased the percentage of our total owned and managed portfolio that is in global markets to 84.5% (based on gross investment balance).

Operational Outlook

The recovery in industrial real estate markets continues around the world. We believe all signals point to a positive outlook for our sector. The International Monetary Fund is forecasting global trade growth at 3.8% for 2013 and approximately 5% for 2014. Improving industrial production and new goods orders also indicate strengthening economic growth. According to the United States Bureau of Economic Analysis, inventories in the United States have now been growing for the last 11 out of 12 quarters, and are almost back to their pre-crisis levels. We expect further rebuilding of inventories this year to levels that will surpass the previous peak. This increase in inventories is driven primarily by the fact that the United States population has grown by 12 million during that same timeframe.

Total net absorption during the fourth quarter was 56 million square feet according to CBRE, Inc., the strongest single quarter since 2006. The availability rate continues to fall (12.8% at December 31, 2012) and supply remains at historically low levels. Further, as the recovery broadens throughout the United States, demand should increase across more of the major tenant business sectors, further reducing vacancy spaces smaller than 100,000 square feet. This segment is closely tied to the recovery in the housing market and we expect demand to increase in the future. Thus, overall conditions in the United States industrial market should continue to improve and as such we are forecasting 150 million square feet of net absorption in 2013.

In Europe, net absorption continues to be positive, and has been, since we began collecting the data series, in the first quarter of 2011. The supply of class-A distribution space remains constrained in both Japan and China. We expect the supply chain reconfiguration in Japan and growing consumption in China to continue to drive demand for our product in the long-term. Demand for class-A facilities remains strong in Latin America. Brazil continues to be an underserved logistics market as growing GDP and increasing consumption is driving high levels of new requirements into the market. Demand momentum has been similarly positive in Mexico, benefitting from the economic recovery in the U.S. and increasingly frequent instances of 'near-shoring' of production activities. Net absorption has been positive for several years and market occupancy rates increased 80 basis points to 91.5 percent during 2012 across the six largest markets.

In our total owned and managed operating portfolio, we leased a record 145.3 million square feet of space in 2012. We ended the year with 94.0% occupancy in our owned and managed operating portfolio, up 180 basis points over year end 2011. The effective rental rates on leases signed during the fourth quarter of 2012 in our same store portfolio (as defined below) decreased by 2.4% when compared with the rental

rates on the previous leases on that same space. The decline was primarily attributed to regional markets in Europe where leases were signed at the high point of the prior cycle. Rent change is continuing its upward trend in our portfolio and we expect positive rollover in 2013. Tenant retention in the fourth quarter was 87.3%.

Due to the lack of supply of class-A facilities, high space utilization rates and decreasing vacancy rates, we expect development volume to increase in our markets. Our development business comprises speculative development, build-to-suit development, value-added conversions and redevelopment. We expect to develop directly and within our co-investment structures depending on location, market conditions, submarkets or building sites and availability of capital. In response to this increasing demand, we are actively pursuing various development opportunities, and we commenced development of 40 properties in our owned and managed portfolio during 2012.

Results of Operations

Summary

The following table illustrates the net operating income for each of our
segments, along with the reconciling items to Loss from Continuing Operations in
our Consolidated Statements of Operations for the years ended December 31 (in
thousands):



                                                     2012             2011              2010
Net operating income - Real Estate Operations
segment                                           $ 1,347,127      $   931,118      $     502,072
Net operating income - Private Capital segment         62,959           82,657             81,867
Other:
General and administrative expenses                 (228,068)        (195,161)          (165,981)
Merger, acquisition and other integration
expenses                                             (80,676)        (140,495)                  -
Impairment of real estate properties                (252,914)         (21,237)          (736,612)
Depreciation and amortization                       (739,981)        (552,849)          (294,867)
Earnings from unconsolidated entities, net             31,676           59,935             23,678
Interest expense                                    (507,484)        (468,072)          (461,166)
Impairment of goodwill and other assets              (16,135)        (126,432)          (412,745)
Interest and other income, net                         22,878           12,008             15,847
Gains on acquisitions and dispositions of
investments in real estate, net                       305,607          111,684             28,488
Foreign currency and derivative gains
(losses), net                                        (20,497)           41,172           (11,081)
Gain (loss) on early extinguishment of debt,
net                                                  (14,114)              258          (201,486)
Income tax benefit (expense)                          (3,580)          (1,776)             30,499

Loss from continuing operations                   $  (93,202)      $ (267,190)      $ (1,601,487)

See Note 22 to our Consolidated Financial Statements in Item 8 for additional information regarding our segments and a reconciliation of net operating income to Loss Before Income Taxes.

Real Estate Operations Segment

The net operating income of the Real Estate Operations segment consisted of rental income and rental expenses from industrial properties that we own and consolidate and is impacted by our capital deployment activities. This segment excludes amounts presented as Discontinued Operations in our Consolidated Financial Statements for all periods. The size and percentage of occupancy of our consolidated operating portfolio fluctuates due to the timing of acquisitions, development activity and contributions. Such fluctuations affect the net operating income we recognize in this segment in a particular period. Also included in this segment is revenue from land we own and lease to customers under ground leases and development management and other income, offset by acquisition, disposition and land holding costs. The net operating income from the Real Estate Operations segment for the years ended December 31 was as follows (in thousands):

                                                        2012             2011            2010
Rental and other income                              $ 1,879,182      $ 1,313,708      $ 717,626
Rental and other expenses                                532,055          382,590        215,554

Total net operating income - Real Estate
Operations segment                                   $ 1,347,127      $   931,118      $ 502,072

The increase in rental income and rental expense in 2012 from 2011 was due primarily to the impact of the Merger and the PEPR Acquisition in the second quarter of 2011, the Co-Investment Venture Acquisitions and other acquisitions in 2012 and increased occupancy in our consolidated operating properties (from 91.4% at December 31, 2011 to 93.7% at December 31, 2012), including the completion and stabilization of new development properties. The results for 2012 included rental income and expenses from properties acquired through the Merger and PEPR Acquisition of $834.0 million and $228.9 million, respectively, while 2011 included approximately seven months of rental income and expense of properties acquired through the Merger and PEPR Acquisition of $524.7 million and $142.5 million, respectively. In our consolidated portfolio, we leased 88.5 million square feet in 2012 compared to 63.4 million square feet in 2011.

The increase in net operating income in 2011 over 2010 was due primarily to the impact of the Merger and the PEPR Acquisition in the second quarter of 2011, increased occupancy in our consolidated operating properties (from 85.9% at December 2010 to 91.4% at December 2011) and the completion and stabilization of new development properties.

We calculate the change in effective rental rates on leases signed during the quarter as compared to the previous rent on that same space in our same store portfolio (as defined below). During 2012 (over the four quarters), the percentage change in rental rates ranged from a decrease of 3.9% to a decrease of 1.1%. During 2011 (over the four quarters), the percentage change in rental rates ranged from a decrease of 8.9% to a decrease of 4.5%. A decline in rental rates was due to: (i) leases turning that were put in place when market rents were at or near peak and (ii) decreased market rents.

Under the terms of our lease agreements, we are able to recover the majority of our rental expenses from customers. Rental expense recoveries, included in both rental income and rental expenses, were 74.0%, 73.7% and 75.6% of total rental expenses for the years ended December 31, 2012, 2011 and 2010, respectively.

Our consolidated operating properties as of December 31 were as follows (square feet in thousands):

                           Number of
                           Properties       Square Feet       Occupied %
                2012             1,853           316,347            93.7%
                2011(1)          1,797           291,051            91.4%
                2010               985           168,547            85.9%

(1) The amount at December 31, 2011 included 848 properties with 126.3 million square feet that were acquired through the Merger and PEPR Acquisition.

As discussed earlier, we have 207 operating properties aggregating approximately $5.0 billion that we have contributed in 2013 or expect to contribute to NPR and PELP. As a result, we expect to have decreased rental income and rental expenses in 2013 in this segment. We will account for our continuing ownership in the properties through our equity ownership in the ventures by recognizing our share of the net income or loss of the ventures. We will also recognize additional revenue in our Private Capital segment from the property management and asset management services we will provide.

Private Capital Segment

The net operating income of the Private Capital segment consisted of fees and incentives earned for services performed for our unconsolidated co-investment ventures and certain joint ventures and third parties, reduced by our direct costs of managing these entities and the properties they own.

The direct costs associated with our Private Capital segment totaled $63.8 million, $55.0 million and $40.7 million for the years ended December 31, 2012, 2011 and 2010, respectively, and are included in the line item Private Capital Expenses in our Consolidated Statements of Operations. These expenses include the direct expenses associated with the asset management of the unconsolidated co-investment ventures provided by our employees who are assigned to our Private Capital segment. In addition, in order to achieve efficiencies and economies of scale, all of our property management functions are provided by a team of professionals who are assigned to our Real Estate Operations segment. These individuals perform the property-level management of the properties in our owned and managed portfolio including properties we consolidate and the properties we manage that are owned by the unconsolidated entities. We allocate the costs of our property management function to the properties we consolidate (reported in Rental Expenses) and the properties owned by the unconsolidated entities (included in Private Capital Expenses), by using the square feet owned by the respective portfolios. The increase in Private Capital Expenses in 2012 is due to the increased private capital platform and infrastructure that was part of the Merger, offset partially with a decline in the portion of our property management expenses that are allocated to this segment due to the consolidation of PEPR in June 2011 and the Co-Investment Venture Acquisitions in 2012.

The net operating income from the Private Capital segment, representing fees earned reduced by private capital expenses, for the years ended December 31 was as follows (in thousands):

                                                         2012         2011         2010
Unconsolidated entities:
Americas (1)                                           $ 31,637     $ 42,644     $ 40,354
Europe (2)                                               21,699       30,708       41,200
Asia (3)                                                  9,623        9,305          313

Total net operating income - Private Capital segment   $ 62,959     $ 82,657     $ 81,867