Business Segments

3 Months Ended

Mar. 31, 2013

Business Segments

13.     Business Segments

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

• Real Estate Operations – This represents the direct long-term ownership of industrial operating properties and is the primary source of our core revenue and earnings. We collect rent from our customers under operating leases, including reimbursements for the vast majority of our operating costs. Each operating property is considered to be an individual operating segment having similar economic characteristics that are combined within the reportable segment based upon geographic location. Our real estate operations segment also includes development and re-development activities. We develop and re-develop industrial properties primarily in global and regional markets to meet our customers’ needs. We provide additional value creation by utilizing: (i) the land that we currently own in global and regional markets; (ii) the development expertise of our local personnel; (iii) our global customer relationships; and (iv) the demand for high quality distribution facilities in key markets. Land held for development, properties currently under development and land we own and lease to customers under ground leases are also included in this segment.

We own real estate in the Americas (Canada, Mexico and the United States), Europe (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden and the United Kingdom) and Asia (China, Japan and Singapore).

• Private Capital – This represents the long-term management of unconsolidated co-investment ventures and other joint ventures. We have direct and long-standing relationships with a significant number of institutional investors. We tailor industrial portfolios to investors’ specific needs and deploy capital in both close-ended and open-ended venture structures and other joint ventures, while providing complete portfolio management and financial reporting services. We recognize fees and incentives earned for services performed on behalf of the unconsolidated entities and certain third parties.

We report the costs associated with our Private Capital segment for all periods presented in the line item Private Capital Expenses in our Consolidated Statements of Operations. These costs include the direct expenses associated with the asset management of the co-investment ventures provided by individuals who are assigned to our private capital segment. In addition, in order to achieve efficiencies and economies of scale, all of our property management functions are provided by a team of professionals who are assigned to our real estate operations segment. These individuals perform the property-level management of the properties we own and the properties we manage that are owned by the unconsolidated entities. We allocate the costs of our property management function to the properties we consolidate (reported in Rental Expenses) and the properties owned by the unconsolidated entities (included in Private Capital Expenses), by using the square feet owned by the respective portfolios. We are further reimbursed by the co-investment ventures for certain expenses associated with managing these co-investment ventures.

Each entity we manage is considered to be an individual operating segment having similar economic characteristics that are combined within the reportable segment based upon geographic location. Our operations in the Private Capital segment are in the Americas (Brazil, Canada, Mexico and the United States), Europe (Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden and the United Kingdom) and Asia (China and Japan).

We present the operations and net gains associated with properties sold to third parties or classified as held for sale as discontinued operations, which results in the restatement of prior year operating results to exclude the items presented as discontinued operations.

Reconciliations are presented below for: (i) each reportable business segment’s revenue from external customers to our Total Revenues; (ii) each reportable business segment’s net operating income from external customers to our Earnings before Income Taxes; and (iii) each reportable business segment’s assets to our Total Assets. Our chief operating decision makers rely primarily on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of our Total Revenues, Earnings before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain corporate income and expenses, are reflected as reconciling items. The following reconciliations are presented in thousands:

	Three Months Ended
	March 31,
	2013			2012
Revenues:
Real estate operations:
Americas	$	316,809		$	281,777
Europe		99,467			111,676
Asia		40,705			53,620
Total Real Estate Operations segment		456,981			447,073
Private capital:
Americas		16,187			18,354
Europe		10,613			9,137
Asia		6,835			4,866
Total Private Capital segment		33,635			32,357
Total revenues	$	490,616		$	479,430
Net operating income:
Real estate operations:
Americas	$	221,561		$	198,489
Europe		67,206			84,044
Asia		29,942			41,474
Total Real Estate Operations segment		318,709			324,007
Private capital:
Americas		2,883			7,947
Europe		6,871			5,384
Asia		3,972			2,145
Total Private Capital segment		13,726			15,476
Total segment net operating income		332,435			339,483
Reconciling items:
General and administrative expenses		(56,197	)		(60,159	)
Depreciation and amortization expense		(177,266	)		(180,280	)
Merger, acquisition and other integration expenses		—			(10,728	)
Impairment of real estate properties		—			(3,185	)
Earnings from unconsolidated entities, net		24,768			13,995
Interest expense		(115,028	)		(133,056	)
Interest and other income, net		11,627			5,101
Gains on acquisitions and dispositions of investments in real estate, net		338,845			267,771
Foreign currency and derivative gains (losses), net		884			(26,775	)
Gains (losses) on early extinguishment of debt, net		(17,351	)		5,419
Impairment of goodwill and other assets		—			(16,135	)
Total reconciling items		10,282			(138,032	)
Earnings before income taxes	$	342,717		$	201,451

	March 31,		December 31,
	2013		2012
Assets:
Real estate operations:
Americas	$	15,222,230	$	15,304,053
Europe		2,167,953		5,738,257
Asia		1,756,252		3,476,996
Total Real Estate Operations segment		19,146,435		24,519,306
Private capital (1):
Americas		24,035		24,373
Europe		59,777		61,266
Asia		5,043		6,108
Total Private Capital segment		88,855		91,747
Total segment assets		19,235,290		24,611,053
Reconciling items:
Investments in and advances to other unconsolidated entities		3,635,214		2,195,782
Notes receivable backed by real estate		188,000		188,000
Assets held for sale		25,391		26,027
Cash and cash equivalents		785,359		100,810
Other assets		206,045		188,473
Total reconciling items		4,840,009		2,699,092
Total assets	$	24,075,299	$	27,310,145

(1) Represents management contracts recorded in connection with business combinations and goodwill associated with the Private Capital segment.