Business Segments

3 Months Ended

Mar. 31, 2020

NOTE 12. BUSINESS SEGMENTS

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

•

Real Estate Operations. This operating segment represents the ownership and development of operating properties and is the largest component of our revenue and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. Our Real Estate Operations segment also includes development activities that lead to rental operations, including land held for development and properties currently under development. Within this line of business, we utilize the following: (i) our land bank; (ii) the development expertise of our local teams; and (iii) our customer relationships. Land we own and lease to customers under ground leases, along with land and buildings we lease, is also included in this segment.

•

Strategic Capital. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset management and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing, legal and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.

Reconciliations are presented below for: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to 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 Total Revenues, Operating Income, 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 not allocated but reflected as reconciling items.

The following reconciliations are presented in thousands:

	Three Months Ended March 31,
		2020			2019
Revenues:
Real estate operations segment:
U.S.	$	829,383		$	651,869
Other Americas		26,079			23,865
Europe		15,502			8,557
Asia		10,686			13,956
Total real estate operations segment		881,650			698,247
Strategic capital segment:
U.S.		34,342			20,268
Other Americas		9,111			7,900
Europe		32,590			28,838
Asia		20,548			16,799
Total strategic capital segment		96,591			73,805

Total revenues		978,241			772,052

Segment net operating income:
Real estate operations segment:
U.S. ⁽¹⁾		602,604			471,076
Other Americas		19,456			19,053
Europe		10,155			5,544
Asia		7,243			10,672
Total real estate operations segment		639,458			506,345
Strategic capital segment:
U.S. ⁽¹⁾		13,624			3,327
Other Americas		5,179			5,422
Europe		20,594			19,151
Asia		10,620			7,847
Total strategic capital segment		50,017			35,747

Total segment net operating income		689,475			542,092

Reconciling items:
General and administrative expenses		(69,689	)		(69,701	)
Depreciation and amortization expenses		(345,970	)		(284,009	)
Gains on dispositions of development properties and land, net		162,750			42,441
Gains on other dispositions of investments in real estate, net		31,491			145,767
Operating income		468,057			376,590

Earnings from unconsolidated entities, net		88,730			56,666
Interest expense		(75,642	)		(60,507	)
Interest and other income, net		370			7,910
Foreign currency and derivative gains, net		113,329			8,734
Losses on early extinguishment of debt, net		(42,767	)		(2,116	)
Earnings before income taxes	$	552,077		$	387,277

	March 31, 2020		December 31, 2019
Segment assets:
Real estate operations segment:
U.S.	$	41,487,331	$	27,999,868
Other Americas		1,286,433		1,332,237
Europe		1,474,343		1,379,579
Asia		706,421		879,072
Total real estate operations segment		44,954,528		31,590,756
Strategic capital segment: ⁽²⁾
U.S.		14,211		14,529
Europe		25,280		25,280
Asia		353		359
Total strategic capital segment		39,844		40,168
Total segment assets		44,994,372		31,630,924

Reconciling items:
Investments in and advances to unconsolidated entities		6,834,758		6,237,371
Assets held for sale or contribution		1,975,524		720,685
Lease right-of-use assets		115,270		111,439
Cash and cash equivalents		807,871		1,088,855
Other assets		279,452		242,576
Total reconciling items		10,012,875		8,400,926
Total assets	$	55,007,247	$	40,031,850

(1)	This includes compensation, personnel costs and Prologis Promote Plan awards for employees who were located in the U.S. but also support other geographies.

(2)	Represents management contracts and goodwill recorded in connection with business combinations associated with the Strategic Capital segment. Goodwill was $25.3 million at March 31, 2020 and December 31, 2019.