Debt

All debt is held directly or indirectly by the Operating Partnership. The REIT itself does not have any indebtedness, but guarantees the unsecured debt of the Operating Partnership. We generally do not guarantee the debt issued by non-wholly owned subsidiaries.

Our debt consisted of the following as of December 31 (dollars in thousands):


	2013				2012
	Weighted Average Interest Rate (1)		Amount Outstanding (2)		Weighted Average Interest Rate (1)		Amount Outstanding
Credit Facilities		1.2%	$	725,483		1.5%	$	888,966
Senior notes (3)		4.5%		5,357,933		5.6%		5,223,136
Exchangeable senior notes (4)		3.3%		438,481		4.6%		876,884
Secured mortgage debt (5)		5.6%		1,696,597		4.0%		3,625,908
Secured mortgage debt of consolidated entities (6)		4.7%		239,992		4.4%		450,923
Other debt of consolidated entities		-		-		4.8%		67,749
Term loan		1.7%		535,908		1.7%		639,636
Other debt (7)		6.2%		16,822		6.2%		17,592

Totals		4.2%	$	9,011,216		4.4%	$	11,790,794

(1)	The interest rates represent the effective interest rates (including amortization of the non-cash premiums or discount).

(2)	Included in the outstanding balances are borrowings denominated in non-U.S. dollars: euro ($1.5 billion) and Japanese yen ($0.4 billion).

(3)	Notes are due February 2015 to August 2023 and interest rates range from 2.8% to 9.3%.

(4)	The weighted average coupon interest rate was 3.3% and 2.8% as of December 31, 2013 and 2012, respectively. The effective interest rate in 2012 included the impact of the related amortization of the non-cash discount related to these notes.

(5)	Debt is due May 2014 to April 2025 and interest rates range from 0.5% to 7.6%. The debt is secured by 296 real estate properties with an aggregate undepreciated cost of $4.2 billion at December 31, 2013.

(6)	Debt is due December 2014 to December 2027 and interest rates range from 1.9% to 7.2%. The debt is secured by 36 real estate properties with an aggregate undepreciated cost of $0.5 billion at December 31, 2013.

(7)

Balance represents primarily assessment bonds with varying interest rates from 4.5% to 7.9% that are due February 2014 to September 2033. The assessment bonds are issued by municipalities and guaranteed by us as a means of financing infrastructure and secured by assessments (similar to property taxes) on various underlying real estate properties with an aggregate undepreciated cost of $838.4 million at December 31, 2013.

Credit Facilities

On July 11, 2013, we terminated our existing global senior credit facility and entered into a new facility (the “Global Facility”). Under the new facility, funds may be drawn in U.S. dollar, euro, Japanese yen, British pound sterling and Canadian dollar on a revolving basis up to $2.0 billion (subject to currency fluctuations). We may increase the Global Facility to $3.0 billion (subject to currency fluctuations and obtaining additional lender commitments). The Global Facility is scheduled to mature on July 11, 2017; however, we may extend the maturity date by six months twice, subject to satisfaction of certain conditions and payment of extension fees. Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based upon the public debt ratings of the Operating Partnership. The Global Facility contains customary representations, covenants and defaults (including a cross-acceleration to other recourse indebtedness of more than $50 million).

On August 14, 2013, we entered into a fourth amended and restated Japanese yen revolver (the “Revolver”). As a result, we increased our availability under the Revolver to ¥45.0 billion (approximately $428.8 million at December 31, 2013). The Revolver matures on May 14, 2018. We may increase availability under the Revolver to an amount not exceeding ¥56.5 billion (approximately $538.4 million at December 31, 2013) subject to obtaining additional lender commitments. Pricing under the Revolver was consistent with the Global Facility at December 31, 2013. The Revolver contains certain customary representations, covenants and defaults that are substantially the same as the corresponding provisions of the Global Facility.

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities.”

Commitments and availability under our Credit Facilities were as follows (dollars in millions):


	2013		2012		2011
For the years ended December 31:
Weighted average daily interest rate		1.7 %		1.6 %		2.7 %
Weighted average daily borrowings	$	789.1	$	815.2	$	870.9
Maximum borrowings outstanding at any month-end	$	1,325.4	$	1,633.9	$	2,368.1
As of December 31:
Aggregate borrowing capacity	$	2,450.9	$	2,118.3	$	2,184.6
Borrowings outstanding	$	725.5	$	888.9	$	934.9
Outstanding letters of credit	$	73.2	$	68.0	$	85.0
Aggregate remaining capacity available	$	1,652.2	$	1,161.4	$	1,164.7

In February 2013, we entered into a $500 million bridge loan under which we can borrow in U. S. dollar, euro or yen. We borrowed ¥20 billion ($215.7 million) under the bridge loan to make our initial cash investment in NPR. In connection with the contribution of properties to NPR, we paid the borrowings outstanding on this bridge loan and terminated the facility.

Senior Notes

The senior unsecured notes are issued by the Operating Partnership and guaranteed by the REIT. Our obligations under the senior notes are effectively subordinated in certain respects to any of our debt that is secured by a lien on real property, to the extent of the value of such real property. The senior notes require interest payments be made quarterly, semi-annually or annually. All of the senior and other notes are redeemable at any time at our option, subject to certain prepayment penalties. Such redemption and other terms are governed by the provisions of indenture agreements, various note purchase agreements and a trust deed.

In connection with the equity offering in April 2013 (see Note 10 for additional details), we repaid $202.3 million of outstanding senior notes at maturity and incurred $32.6 million of debt extinguishment costs, primarily due to the prepayment of $350.0 million of senior notes that were scheduled to mature in 2014.

In August 2013, we issued $1.25 billion of senior notes as follows: (i) $400.0 million at an interest rate of 2.75% maturing in 2019, at 99.97% of par value for an all-in rate of 2.76%; and (ii) $850.0 million at an interest rate of 4.25% maturing in 2023, at 99.74% of par value for an all-in rate of 4.28%. In connection with this issuance, we tendered for several series of debt maturing in 2018 through 2020. Pursuant to this tender, we acquired a principal amount of debt aggregating to $611.4 million and recognized a $114.1 million loss from the early extinguishment. We used the remaining proceeds of this issuance to repay borrowings on our Credit Facilities.

In November 2013, we issued $500.0 million of senior notes with an interest rate of 3.35% and maturing in 2021, at 99.98% of par value for an all-in rate of 3.35%. In connection with this issuance, we tendered for several series of debt maturing in 2018. Pursuant to this tender, we acquired a principal amount of debt aggregating to $299.0 million and recognized a $50.6 million loss from the early extinguishment. We used the remaining proceeds of this issuance to repay borrowings on our Credit Facilities.

In December 2013, we issued €700.0 million ($950.5 million) of senior notes at an interest rate of 3.00% and maturing in 2022, at 99.48% of par value for an all-in rate of 3.08%. In connection with this issuance, we repurchased €407.5 million ($562.0 million) of senior notes maturing in 2014, and recognized a $16.0 million loss from the early extinguishment. We used the remaining proceeds of this issuance to repay borrowings on our Credit Facilities.

During 2013, we also repurchased senior debt maturing in 2018 through 2020. As a result, we acquired a principal amount of debt aggregating $214.5 million and recognized a $43.2 million loss from early extinguishment.

Exchangeable Senior Notes

We issued three series of exchangeable senior notes in 2007 and 2008 and refer to them collectively as the “2007 and 2008 Exchangeable Notes.” The 2007 and 2008 Exchangeable Notes were senior obligations of Prologis and were exchangeable, under certain circumstances, for cash, our common stock or a combination of cash and our common stock, at our option. In April 2012, we redeemed $448.9 million of the exchangeable notes that were issued in March 2007, which was when the holders had the right to require us to repurchase their notes for cash. In January 2013, we redeemed $141.4 million of the exchangeable notes issued in November 2007. In May 2013, we redeemed $270.1 million of the exchangeable notes issued in May 2008. In June 2013, we redeemed the remainder of the 2007 and 2008 Exchangeable Notes for a total of $72.1 million.

Interest expense related to the 2007 and 2008 Exchangeable Notes for the years ended December 31 included the following components (dollars in thousands):


	2013		2012		2011
Coupon rate	$	3,655	$	14,312	$	24,810
Amortization of discount		4,169		18,425		32,393
Amortization of deferred loan costs		490		1,280		2,071

Interest expense	$	8,314	$	34,017	$	59,274

Effective interest rate		5.9 %		5.7 %		5.7 %

On March 16, 2010, we issued $460.0 million of 3.3% exchangeable senior notes maturing in 2015 (“2010 Exchangeable Notes”). The 2010 Exchangeable Notes are exchangeable at any time by holders at an initial conversion rate of 25.8244 shares per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $38.72 per share, subject to adjustment upon the occurrence of certain events. The holders of the notes have the right to require us to repurchase their notes for cash at any time on or prior to the maturity date upon a change in control or a termination of trading (each as defined in the notes). Based on current conversion rates, 11.9 million shares would be required to settle the principal amount in stock for the 2010 Exchangeable Notes. The conversion of the 2010 Exchangeable Notes into stock, and the corresponding adjustment to interest expense, are included in our computation of diluted earnings per share/unit, unless the impact is anti-dilutive. During 2013, 2012, and 2011, the impact of these notes was anti-dilutive.

The 2010 Exchangeable Notes are issued by the Operating Partnership and are exchangeable into common stock of the REIT. The accounting for the 2010 Exchangeable Notes required us to separate the fair value of the derivative instrument (exchange feature) from the debt instrument and account for it separately as a derivative contract beginning with the Merger date. At each reporting period, we adjust the derivative instrument to fair value with the resulting adjustment being recorded in earnings as Foreign Currency and Derivative Gains (Losses), Net. The fair value of the derivative associated with the 2010 Exchangeable Notes was a liability of $41.0 million and $39.8 million at December 31, 2013 and December 31, 2012, respectively. We recognized unrealized losses of $1.2 million and $22.3 million for the years ended December 31, 2013 and 2012, respectively and an unrealized gain of $45.0 million for the year ended December 31, 2011.

Secured Mortgage Debt

TMK bonds are a financing vehicle in Japan for special purpose companies known as TMKs. In 2013, we issued ¥10.6 billion ($106.4 million) of new TMK bonds with maturity dates ranging from August 2014 to October 2016 and interest rates ranging from 0.5% to 0.9%. Subsequently, we paid off or transferred substantially all of our outstanding TMKs. At December 31, 2013, we had one TMK bond outstanding for ¥1.5 billion ($14.3 million as of December 31, 2013) with an interest rate of 0.5% and a maturity date of October 2016. The remaining TMK bond is secured by one property with an undepreciated cost of $58.7 million at December 31, 2013.

In connection with a property acquisition and the acquisition of a controlling interest in certain of our co-investment ventures in 2013, we assumed secured mortgage debt of $190.4 million.

Term Loan

We have a senior term loan agreement where we may obtain loans in an aggregate amount not to exceed €487.5 million ($672.3 million at December 31, 2013). The loans can be obtained in U.S. dollar, euro, Japanese yen, and British pound sterling. We may increase the borrowings to approximately €987.5 million ($1.4 billion at December 31, 2013), subject to obtaining additional lender commitments. We fully drew the senior term loan and used the proceeds to pay off two term loans assumed in connection with the Merger and the remainder to pay down borrowings on our Credit Facilities. The loan agreement was scheduled to mature on February 2, 2014, with an option to extend the maturity date three times, in each case up to one year, subject to satisfaction of certain conditions and payment of extension fees. In January 2014, we extended the maturity to February 2015.

Debt Covenants

We have approximately $5.8 billion of senior notes and exchangeable senior notes outstanding as of December 31, 2013. The senior notes were issued under three separate indentures, as supplemented, and are subject to certain financial covenants. The exchangeable senior notes, as well as approximately $128.1 million of notes that were not exchanged for Prologis senior notes at the time of the Merger, are not subject to financial covenants.

We are also subject to financial covenants under our Credit Facilities and certain secured mortgage debt.

As of December 31, 2013, we were in compliance with all of our debt covenants.

Debt Maturities

Principal payments due on our consolidated debt during each of the years in the ten-year period ending December 31, 2023, and thereafter are as follows (in millions):


	Prologis
	Unsecured								Secured Mortgage Debt		Total		Consolidated Entities’ Debt		Total Consolidated Debt
	Senior		Exchangeable		Credit		Other
Maturity	Debt		Notes		Facilities (1)		Debt (2)
2014(3)	$	25	$	-	$	-	$	537	$	293	$	855	$	11	$	866
2015		175		460		-		1		134		770		9		779
2016		641		-		-		1		456		1,098		126		1,224
2017		438		-		456		1		226		1,121		4		1,125
2018		667		-		269		1		110		1,047		74		1,121
2019		693		-		-		1		285		979		2		981
2020		379		-		-		1		6		386		2		388
2021		500		-		-		-		6		506		2		508
2022		965		-		-		-		7		972		3		975
2023		850		-		-		-		7		857		1		858
Thereafter		-		-		-		10		130		140		5		145

Subtotal	$	5,333	$	460	$	725	$	553	$	1,660	$	8,731	$	239	$	8,970
Unamortized (discounts) premiums, net		25		(22)		-		-		37		40		1		41

Total	$	5,358	$	438	$	725	$	553	$	1,697	$	8,771	$	240	$	9,011

(1)	Included in Credit Facilities is our global senior credit facility which is set to mature in July 2017. We may extend the maturity date by six months, twice, subject to satisfaction of certain conditions and payment of an extension fee.

(2)	Included in other debt is a term loan that can be extended until 2017 (three times each at one year). As discussed above, in January 2014, we extended the maturity of this term loan to February 2015.

(3)	We expect to repay the amounts maturing in 2014 related to our wholly owned debt with cash generated from operations, proceeds from the disposition of wholly owned real estate properties and with borrowings on our Credit Facilities.

Interest Expense

Interest expense from continuing operations included the following components for the years ended December 31 (in thousands):


	2013		2012		2011
Gross interest expense	$	471,923	$	578,518	$	498,518
Amortization of discount (premium), net		(39,015)		(36,687)		228
Amortization of deferred loan costs		14,374		16,781		20,476

Interest expense before capitalization		447,282		558,612		519,222
Capitalized amounts		(67,955)		(53,397)		(52,651)

Net interest expense	$	379,327	$	505,215	$	466,571

Total cash paid for interest, net of amounts capitalized	$	426,528	$	546,627	$	467,400