13.

Business Segments

Our current business strategy includes two operating segments: Real Estate Operations and Strategic Capital Management. 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).

•

Strategic Capital Management – 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 Strategic Capital Management segment for all periods presented in the line item Investment Management 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 Investment Management 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 Investment Management 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 Strategic Capital Management 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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenues:
Real estate operations:
Americas	$	322,022		$	304,959		$	637,425		$	585,174
Europe		29,295			109,639			128,761			221,316
Asia		24,549			55,590			65,255			109,209

Total Real Estate Operations segment		375,866			470,188			831,441			915,699

Strategic capital management:
Americas		15,428			16,470			31,615			34,824
Europe		13,854			9,326			24,467			18,463
Asia		14,326			5,197			21,161			10,063

Total Strategic Capital Management segment		43,608			30,993			77,243			63,350

Total revenues	$	419,474		$	501,181		$	908,684		$	979,049

Net operating income:
Real estate operations:
Americas	$	220,996		$	210,748		$	441,744		$	408,172
Europe		18,492			83,011			85,699			167,055
Asia		17,026			43,284			46,967			84,759

Total Real Estate Operations segment		256,514			337,043			574,410			659,986

Strategic capital management:
Americas		361			7,798			3,244			15,745
Europe		7,530			5,418			14,401			10,802
Asia		10,711			2,702			14,683			4,847

Total Strategic Capital Management segment		18,602			15,918			32,328			31,394

Total segment net operating income		275,116			352,961			606,738			691,380
Reconciling items:
General and administrative expenses		(54,909	)		(51,415	)		(111,106	)		(111,574	)
Depreciation and amortization		(158,965	)		(178,756	)		(335,454	)		(358,315	)
Merger, acquisition and other integration expenses		—			(21,186	)		—			(31,914	)
Impairment of real estate properties		—			—			—			(3,185	)
Earnings from unconsolidated entities, net		8,421			3,889			33,189			17,884
Interest expense		(92,508	)		(127,582	)		(207,498	)		(260,551	)
Interest and other income, net		4,492			5,912			16,119			11,013
Gains on acquisitions and dispositions of investments in real estate, net		61,035			520			399,880			268,291
Foreign currency and derivative gains (losses), net		(7,744	)		12,753			(6,860	)		(14,022	)
Gains (losses) on early extinguishment of debt, net		(32,608	)		(500	)		(49,959	)		4,919
Impairment of other assets		—			—			—			(16,135	)

Total reconciling items		(272,786	)		(356,365	)		(261,689	)		(493,589	)

Earnings (loss) before income taxes	$	2,330		$	(3,404	)	$	345,049		$	197,791


	June 30, 2013		December 31, 2012
Assets:
Real estate operations:
Americas	$	15,217,342	$	15,304,053
Europe		2,173,011		5,738,257
Asia		1,866,825		3,476,996

Total Real Estate Operations segment		19,257,178		24,519,306

Strategic capital management (1):
Americas		23,657		24,373
Europe		58,974		61,266
Asia		4,309		6,108

Total Strategic Capital Management segment		86,940		91,747

Total segment assets		19,344,118		24,611,053

Reconciling items:
Investments in and advances to other unconsolidated entities		3,884,766		2,195,782
Notes receivable backed by real estate		189,636		188,000
Assets held for sale		25,330		26,027
Cash and cash equivalents		385,424		100,810
Other assets		208,294		188,473

Total reconciling items		4,693,450		2,699,092

Total assets	$	24,037,568	$	27,310,145

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