Dear Fellow Shareholders,

At Prologis, 2015 was a banner year by virtually any measure of financial, operational or strategic progress. A high-quality portfolio, a proven strategy and strong execution paved the way for our financial outperformance last year. Favorable business conditions were the result of strong, broad-based demand and constrained supply, but the fact remains that 2015 was the best year in our history due in large part to the success of our investment strategy and the dedicated work of our employees. I want to thank our teams around the world for their extraordinary efforts in making it happen.

Key Accomplishments in 2015

While our stock underperformed in 2015 due to concerns about the global economy, I believe we have the right strategy for shareholders to be rewarded as we continue to deliver strong earnings in the coming year. Key accomplishments in 2015 include:

  • One of our primary operating performance metrics is core funds from operations (Core FFO), which is driven by occupancy, rents and fees. Core FFO in 2015 grew by 19% year over year (from $1.88 per share in 2014 to $2.33 per share in 2015). This growth follows the 14% increase in Core FFO we posted for 2014.
Portfolio Occupancy
at the End of 2015


  • At the end of 2015, our portfolio was 96.9% occupied, a record level for Prologis. We continue to focus on rental growth and increased rents during the year by an average of 13%, a testament to strong market conditions and the continued attractiveness of our brand of logistics real estate.
  • Core FFO, however, does not tell the whole valuation story at Prologis. We also created extraordinary value from our developments and value-added conversions. The results of these activities materially added to our net asset value. In 2015, this figure was $699 million, representing an additional $1.31 per share of NAV.
  • Through our joint venture with Norges Bank, we completed a landmark $5.9 billion acquisition of a high-quality portfolio from KTR Capital Partners. While this transaction contributed to our 2015 results, it is particularly noteworthy because the deal showcased our ability to grow the platform while incurring minimal incremental general and administrative costs and leveraging the strength of our operating partnership structure. We financed our portion of the deal without tapping the equity markets. By year-end, we had retired the majority of the short-term financing, using the proceeds from selling off non-strategic assets.
“2015 was the best year in our history.”
  • We raised more than $3.2 billion in our strategic capital business through private co-investment ventures and continue to enjoy strong investor support across our open-ended funds.
  • We finished 2015 with a strong balance sheet, leverage at 38%, and a debt-to-EBITDA ratio of 6.0x. We accessed foreign debt markets during the year at attractive terms, and we plan to fully retire our short-term borrowings to finance KTR by mid-2016.

Strategic Process

These proof points from 2015 highlight the substantial progress in each of the three strategic initiatives we introduced in 2014:

  1. 1. Capitalize on a recovering economy for rent growth
  2. 2. Realize value from our land bank, and
  3. 3. Use our scale to grow earnings.

When we began talking about these initiatives, we had a three-year timetable with some aggressive goals attached to each. We are two years into our three-year strategic plan and have already exceeded many of our 2016 targets. Each initiative contributed to our 2015 results, and each will continue to be important to Prologis as we move forward.

“We serve some of the most exciting, innovative and sophisticated companies in the world.”

We have the right strategy for logistics real estate. We serve some of the most exciting, innovative and sophisticated companies in the world, and they choose Prologis to simplify their supply chain logistics. Our portfolio is concentrated in the most vibrant markets for regional and global consumption. We have a strong presence in 20 countries that, collectively, tap into 70% of global GDP. These markets are active because they are in or near population and consumption centers. This is where we want to be. Looking ahead, we will focus on deepening our presence in these 20 countries.

Market Dynamics Fueling Demand

Global consumption is not the only driver of demand for our properties. Two other positive long-term trends are underway. The first is e‑commerce, which is growing around the world. For e‑commerce, the right facility in the right location is critical. In developed and developing economies alike, it is fueling strong demand for our modern facilities. The other key driver is supply chain modernization. This happens when customers consolidate from older buildings into more efficient facilities in more strategic locations. Many of our customers are either engaged in or considering remaking their supply chains as a way to squeeze out more efficiency. When companies are experiencing flat revenue growth, they must focus on lowering costs to grow earnings. Supply chain modernization is a key factor in making this happen. Our customers know that partnering with Prologis creates a competitive advantage. Because of e‑commerce and supply chain modernization trends, our business can expand even in a low growth environment.

Global Scale and Local Relationships

Our global presence and portfolio, combined with our strong relationships with customers around the world, represent huge competitive strengths for Prologis. We have a strategic land bank for future development. We have a strong balance sheet to help us take advantage of opportunities and weather short-term uncertainties. We have made strides in the sustainability of our buildings around the world. This is obviously good for the environment, but it’s also a positive for customers and shareholders.

“Our strong relationships with customers around the world represent huge competitive strengths for Prologis.”

We have the top real estate team in the business. Every colleague has an essential role in the success and enduring value of Prologis. Our people are the linchpin of our future, and my confidence in them is immense.

Well-Positioned for the Future

While many macroeconomic indicators tell a mixed story around the world today, those most correlated with our business all point to a continued favorable environment for Prologis in 2016. We are deeply embedded in the world’s most important markets, and we’ve got the scale to drive revenue without ratcheting up our cost structure. Most importantly, we’ve got the team to help us with execution, the daily work of doing business and the long-term strategic efforts of building an enduring global real estate enterprise.

“We are deeply embedded in the world’s most important markets.”

In the near term, we are focused on the strategic goals we’ve pursued so effectively in recent years. We’ll continue to focus on rental growth. Our proprietary customer and market data gives us confidence that we will see double-digit rental income growth again in 2016. We are particularly excited about opportunities in Europe, which is stronger than has been widely acknowledged. While some of the concerns about Asia are real, our business there is thriving largely due to our high-quality properties that differentiate us in this geography. We’ll continue to look for opportunities to monetize our land bank, and we’ll continue to make our balance sheet stronger and more flexible. Prologis has never been in better shape.

As we articulated in this year’s annual report, Prologis is “always forward-thinking.” I look forward to reporting on our progress in the years ahead.

Hamid R. Moghadam

Chairman and CEO