Prologis Reports Third Quarter 2019 Earnings Results

SAN FRANCISCO, Oct. 15, 2019 /PRNewswire/ -- Prologis, Inc. (NYSE: PLD), the global leader in logistics real estate, reported results for the third quarter of 2019.

Net earnings per diluted share was $0.71 for the quarter compared with $0.60 for the third quarter of 2018. Core funds from operations (Core FFO)* per diluted share was $0.97 for the quarter, including $0.18 of net promote income, compared with $0.72 for the same period in 2018, which did not include any promote income.

"Our third-quarter results were excellent—reflecting record rent increases and significant earnings from our Strategic Capital business," said Hamid R. Moghadam, chairman and CEO, Prologis. "Markets remain healthy, driven by customers who are prioritizing proximity to consumers to offset supply chain costs such as labor and transportation. Additionally, investor interest for our Strategic Capital ventures is exceptional, as evidenced by a record capital raise of more than $1.6 billion for our open-ended vehicles."

OPERATING PERFORMANCE

Owned & Managed

3Q19

3Q18

Notes

Period End Occupancy

96.5%

97.5%

Prioritizing rent over occupancy

Leases Commenced

38MSF

37MSF

 
 

Prologis Share

3Q19

3Q18

Notes

Net Effective Rent Change

37.0%

22.6%

Led by U.S. at 41.7%

Cash Rent Change

21.4%

11.6%

Led by U.S. at 24.9%

Cash Same Store NOI* Change

4.3%

5.9%

Prioritizing rent over occupancy

 

DEPLOYMENT ACTIVITY

Prologis Share

3Q19

Building Acquisitions

$191M

Weighted avg stabilized cap rate

4.3%

Development Stabilizations

$658M

Estimated weighted avg yield

6.1%

Estimated weighted avg margin

36.8%

Estimated value creation

$242M

Development Starts

$577M

Estimated weighted avg margin

22.0%

Estimated value creation

$127M

% Build-to-suit

63.6%

Total Dispositions and Contributions

$498M

Weighted avg stabilized cap rate (excluding land and other real estate)

4.8%

 

BALANCE SHEET STRENGTH
During the quarter, Prologis and its co-investment ventures issued $2.8 billion of debt, principally in euros, at a weighted average fixed interest rate of less than 1% and a weighted average term of more than 14 years. The company ended the third quarter with leverage of 18.4 percent on a market capitalization basis, debt-to-adjusted EBITDA* of 3.9x and $4.9 billion of liquidity.

"Our ability to source capital on a global basis, while naturally hedging our assets against foreign currency movements, is of tremendous strategic advantage," said Thomas S. Olinger, chief financial officer, Prologis. "This quarter's financing activity lowered our total weighted average interest rate by 10 basis points to 2.4% and lengthened our weighted average maturity by approximately 2 years to 7.7 years."

 

GUIDANCE MIDPOINT RAISED AND RANGE NARROWED FOR 20191

2019 GUIDANCE

 

Earnings (per diluted share) Previous Revised

Previous

Revised

Net Earnings

$2.38 to $2.46

$2.65 to $2.69

Core FFO*

$3.26 to $3.30

$3.30 to $3.32

Our guidance reflects the adoption of the new lease accounting standard. For a year-over-year comparison, our 2018 earnings results would have been reduced by approximately $0.04 per share.

 

Operations Previous Revised

Previous

Revised

Year-end occupancy

96.5% to 97.5%

96.5% to 97.0%

Cash Same Store NOI* Growth - Prologis share

4.5% to 5.0%

4.75% to 5.0%

     

Capital Deployment – Prologis Share (in millions) Previous Revised

Previous

Revised

Development stabilizations

$2,000 to $2,300

$2,200 to $2,400

Development starts

$1,900 to $2,300

$2,200 to $2,500

Building acquisitions

$500 to $700

$700 to $900

Building contributions

$1,200 to $1,500

$1,400 to $1,600

Building and land dispositions

$500 to $800

$600 to $800

Realized development gains

$350 to $450

$400 to $450

Net sources / (uses)

$(400)

$(650)

     

Strategic Capital (in millions) Previous Revised

Previous

Revised

Strategic capital revenue, excl promote revenue

$310 to $320

$315 to $320

Net promote income, incl in Core FFO* range

$105

$118

     

G&A (in millions) Previous Revised

Previous

Revised

General & administrative expenses

$250 to $260

$257 to $262

   

*

This is a non-GAAP financial measure. See the Notes and Definitions in our supplemental information for further explanation and a reconciliation to the most directly comparable GAAP measure.

1

Guidance for 2019 is not inclusive of the impact of the proposed acquisition of IPT.

The earnings guidance described above includes potential gains recognized from real estate transactions but excludes any foreign currency or derivative gains or losses as our guidance assumes constant foreign currency rates. In reconciling from net earnings to Core FFO*, Prologis makes certain adjustments, including but not limited to real estate depreciation and amortization expense, gains (losses) recognized from real estate transactions and early extinguishment of debt, impairment charges, deferred taxes and unrealized gains or losses on foreign currency or derivative activity. The difference between the company's Core FFO* and net earnings guidance for 2019 relates predominantly to these items. Please refer to our second quarter Supplemental Information, which is available on our Investor Relations website at http://ir.prologis.com and on the SEC's website at www.sec.gov for a definition of Core FFO* and other non-GAAP measures used by Prologis, along with reconciliations of these items to the closest GAAP measure for our results and guidance.

 

WEBCAST & CONFERENCE CALL INFORMATION
Prologis will host a live webcast and conference call to discuss quarterly results, current market conditions, recent transaction activity and its outlook. Here are the event details:

  • Tuesday, October 15, 2019, at 12 p.m. U.S. Eastern time.
  • Live webcast at http://ir.prologis.com by clicking Events and Presentations.
  • Dial in: +1 (877) 209-4258 (toll-free from the United States and Canada) or +1 (647) 689-5198 (from all other countries) and enter Passcode 8337209.

A telephonic replay will be available October 15-22 at +1 (800) 585-8367 (from the United States and Canada) or +1 (416) 621-4642 (from all other countries) using conference code 8337209. The webcast replay will be posted when available in the Investor Relations "Events & Presentations" section.

 

ABOUT PROLOGIS
Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of September 30, 2019, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 797 million square feet (74 million square meters) in 19 countries. Prologis leases modern logistics facilities to a diverse base of approximately 5,100 customers principally across two major categories: business-to-business and retail/online fulfillment.

 

FORWARD-LOOKING STATEMENTS
The statements in this document that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate as well as management's beliefs and assumptions. Such statements involve uncertainties that could significantly impact our financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," and "estimates," including variations of such words and similar expressions, are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to rent and occupancy growth, development activity, contribution and disposition activity, general conditions in the geographic areas where we operate, our debt, capital structure and financial position, our ability to form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and, therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic and political climates; (ii) changes in global financial markets, interest rates and foreign currency exchange rates; (iii) increased or unanticipated competition for our properties; (iv) risks associated with acquisitions, dispositions and development of properties; (v) maintenance of real estate investment trust status, tax structuring and changes in income tax laws and rates; (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings; (vii) risks related to our investments in our co-investment ventures, including our ability to establish new co-investment ventures; (viii) risks of doing business internationally, including currency risks; (ix) environmental uncertainties, including risks of natural disasters; and (x) those additional factors discussed in reports filed with the Securities and Exchange Commission by us under the heading "Risk Factors." We undertake no duty to update any forward-looking statements appearing in this document except as may be required by law.

 

dollars in millions, except per share/unit data

Three Months ended
September 30,

 

Nine Months ended
September 30,

         

2019

2018 (A)

 

2019

2018 (A)

 

Rental and other revenues

$ 712

$ 611

 

$2,112

$ 1,717

 

Strategic capital revenues(B)

230

71

 

393

280

   

Total revenues

942

682

 

2,505

1,997

 

Net earnings attributable to common stockholders

451

346

 

1,181

1,047

 

Core FFO attributable to common stockholders/unitholders*

632

427

 

1,613

1,262

 

AFFO attributable to common stockholders/unitholders*

590

462

 

1,677

1,424

 

Adjusted EBITDA attributable to common stockholders*

821

710

 

2,299

2,005

 

Estimated value creation from development stabilizations - Prologis Share

242

104

 

674

475

 

Common stock dividends and common limited partnership unit distributions

347

315

 

1,042

849

                   
 

Per common share - diluted:

         
   

Net earnings attributable to common stockholders

$0.71

$0.60

 

$ 1.86

$1.90

   

Core FFO attributable to common stockholders/unitholders*

0.97

0.72

 

2.46

2.22

   

Business line reporting:

         
     

Real estate operations*

0.73

0.67

 

2.11

1.96

     

Strategic capital*

0.24

0.05

 

0.35

0.26

     

Core FFO attributable to common stockholders/unitholders*

0.97

0.72

 

2.46

2.22

     

Realized development gains, net of taxes*

0.09

0.17

 

0.44

0.56

 

Dividends and distributions per common share/unit

0.53

0.48

 

1.59

1.44

   

*

This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation.

A.

In the third quarter 2018, Prologis completed the acquisition of DCT Industrial Trust (DCT). Therefore, 2018 includes results related to DCT from August 22, 2018.

B.

We recognized promote revenue of $148 million and $155 million for the three and nine months ended September 30, 2019, respectively, and $68 million for the nine months ended September 30, 2018.

   
   
   

 

 

in thousands

September 30, 2019

 

June 30, 2019

 

December 31, 2018

 

Assets:

         
   

Investments in real estate properties:

         
     

Operating properties

$ 31,023,668

 

$31,005,284

 

$ 30,632,155

     

Development portfolio

1,794,981

 

1,959,234

 

2,142,801

     

Land

1,204,110

 

1,156,846

 

1,192,220

     

Other real estate investments

888,891

 

773,687

 

619,811

           

34,911,650

 

34,895,051

 

34,586,987

     

Less accumulated depreciation

5,287,640

 

5,085,219

 

4,656,680

         

Net investments in real estate properties

29,624,010

 

29,809,832

 

29,930,307

   

Investments in and advances to unconsolidated entities

5,886,820

 

5,813,582

 

5,745,294

   

Assets held for sale or contribution

799,017

 

609,121

 

622,288

         

Net investments in real estate

36,309,847

 

36,232,535

 

36,297,889

                     
   

Cash and cash equivalents

1,024,994

 

401,190

 

343,856

   

Other assets (A)

2,113,344

 

2,073,025

 

1,775,919

         

Total assets

$ 39,448,185

 

$38,706,750

 

$ 38,417,664

                     
 

Liabilities and Equity:

         
   

Liabilities:

         
     

Debt

$ 11,459,223

 

$10,968,320

 

$ 11,089,815

     

Accounts payable, accrued expenses and other liabilities (A)

2,053,385

 

1,960,997

 

1,526,961

         

Total liabilities

13,512,608

 

12,929,317

 

12,616,776

                     
   

Equity:

         
     

Stockholders' equity

22,517,210

 

22,330,808

 

22,298,093

     

Noncontrolling interests

2,777,024

 

2,786,183

 

2,836,469

     

Noncontrolling interests - limited partnership unitholders

641,343

 

660,442

 

666,326

         

Total equity

25,935,577

 

25,777,433

 

25,800,888

                     
         

Total liabilities and equity

$ 39,448,185

 

$38,706,750

 

$ 38,417,664

   

A.

In connection with the adoption of the lease accounting standard, we recognized right of use assets of $393 million and lease liabilities of $400 million as of January 1, 2019.

   
   
   

 

 

Three Months Ended

 

Nine Months Ended

       

September 30,

 

September 30,

in thousands, except per share amounts

2019

2018

 

2019

2018

Revenues:

         
 

Rental

$710,465

$608,974

 

$2,107,961

$1,709,596

 

Strategic capital

230,467

71,142

 

393,416

279,800

 

Development management and other

1,249

2,316

 

3,228

7,968

   

Total revenues

942,181

682,432

 

2,504,605

1,997,364

Expenses:

         
 

Rental

180,864

147,184

 

550,070

423,454

 

Strategic capital

63,404

35,390

 

138,668

114,100

 

General and administrative

65,199

62,244

 

201,176

182,287

 

Depreciation and amortization

282,254

252,702

 

850,639

660,456

 

Other

2,294

3,391

 

9,643

11,145

   

Total expenses

594,015

500,911

 

1,750,196

1,391,442

                 

Operating income before gains

348,166

181,521

 

754,409

605,922

 

Gains on dispositions of development properties and land, net

63,935

108,049

 

303,317

329,286

 

Gains on real estate transactions, net (excluding development properties and land)

59,379

86,009

 

232,400

154,144

Operating income

471,480

375,579

 

1,290,126

1,089,352

Other income (expense):

         
 

Earnings from unconsolidated co-investment ventures, net

43,322

56,342

 

142,285

164,983

 

Earnings from other unconsolidated ventures, net

2,980

292

 

9,239

16,856

 

Interest expense

(60,244)

(64,186)

 

(179,873)

(166,761)

 

Foreign currency and derivative gains and interest and other income, net

60,146

23,404

 

83,143

75,309

 

Gains (losses) on early extinguishment of debt, net

(13,585)

(1,955)

 

(16,086)

(2,657)

   

Total other income (expense)

32,619

13,897

 

38,708

87,730

                 

Earnings before income taxes

504,099

389,476

 

1,328,834

1,177,082

 

Current income tax expense

(12,552)

(13,841)

 

(43,461)

(45,691)

 

Deferred income tax benefit (expense)

(534)

(115)

 

(9,769)

1,079

Consolidated net earnings

491,013

375,520

 

1,275,604

1,132,470

Net earnings attributable to noncontrolling interests

(25,509)

(17,264)

 

(54,018)

(50,204)

Net earnings attributable to noncontrolling interests - limited partnership units

(13,358)

(10,420)

 

(35,618)

(30,965)

Net earnings attributable to controlling interests

452,146

347,836

 

1,185,968

1,051,301

Preferred stock dividends

(1,507)

(1,491)

 

(4,498)

(4,443)

Net earnings attributable to common stockholders (A)

$450,639

$346,345

 

$1,181,470

$1,046,858

Weighted average common shares outstanding - Diluted

655,259

597,647

 

654,818

568,599

Net earnings per share attributable to common stockholders - Diluted

$ 0.71

$ 0.60

 

$ 1.86

$ 1.90

   

A.

In connection with the adoption of the new lease accounting standard, beginning in 2019, we expense internal leasing costs that were previously capitalized. Had we adopted in 2018, we would have expensed an additional $5 million and $16 million of such costs in the three and nine months ended September 30, 2018.

   
   
   

 

 

Three Months Ended

 

Nine Months Ended

       

September 30,

 

September 30,

in thousands

2019

2018

 

2019

2018

Net earnings attributable to common stockholders

$450,639

$346,345

 

1,181,470

1,046,858

Add (deduct) NAREIT defined adjustments:

         
 

Real estate related depreciation and amortization

271,986

244,475

 

822,616

634,804

 

Gains on real estate transactions, net (excluding development properties and land)

(59,379)

(86,009)

 

(232,400)

(154,144)

 

Reconciling items related to noncontrolling interests

292

(9,705)

 

(25,098)

(33,132)

 

Our share of reconciling items related to unconsolidated co-investment ventures

61,240

50,306

 

173,294

152,216

 

Our share of reconciling items related to other unconsolidated ventures

2,728

2,056

 

8,321

5,330

NAREIT defined FFO attributable to common stockholders/unitholders*

$727,506

$547,468

 

$1,928,203

$1,651,932

                 

Add (deduct) our defined adjustments:

         
 

Unrealized foreign currency and derivative losses (gains), net

(48,741)

(20,750)

 

(52,778)

(73,276)

 

Deferred income tax expense (benefit)

534

115

 

9,769

(1,079)

 

Current income tax expense on dispositions related to acquired tax assets

-

-

 

-

878

 

Reconciling items related to noncontrolling interests

(65)

74

 

(30)

118

 

Our share of reconciling items related to unconsolidated co-investment ventures

715

1,789

 

(2,174)

2,979

FFO, as modified by Prologis attributable to common stockholders/unitholders*

$679,949

$528,696

 

$1,882,990

$1,581,552

                 

Adjustments to arrive at Core FFO attributable to common stockholders/unitholders*:

         
 

Gains on dispositions of development properties and land, net

(63,935)

(108,049)

 

(303,317)

(329,286)

 

Current income tax expense on dispositions

2,866

3,162

 

12,910

13,581

 

Losses (gains) on early extinguishment of debt, net

13,585

1,955

 

16,086

2,657

 

Reconciling items related to noncontrolling interests

152

(153)

 

150

5,267

 

Our share of reconciling items related to unconsolidated co-investment ventures

(239)

495

 

3,999

1,223

 

Our share of reconciling items related to other unconsolidated ventures

-

1,378

 

7

(13,166)

Core FFO attributable to common stockholders/unitholders*

$632,378

$427,484

 

$1,612,825

$1,261,828

                 

Adjustments to arrive at Adjusted FFO ("AFFO") attributable to common stockholders/unitholders*, including our share of unconsolidated ventures less noncontrolling interest:

         
 

Gains on dispositions of development properties and land, net

63,935

108,049

 

303,317

329,286

 

Current income tax expense on dispositions

(2,866)

(3,162)

 

(12,910)

(13,581)

 

Straight-lined rents and amortization of lease intangibles

(27,110)

(19,003)

 

(82,061)

(45,372)

 

Property improvements

(47,117)

(28,888)

 

(81,449)

(59,862)

 

Turnover costs

(47,444)

(31,852)

 

(128,413)

(91,194)

 

Amortization of debt discount, financing costs and management contracts, net

4,542

2,879

 

13,597

9,684

 

Stock compensation expense

20,523

18,947

 

72,467

58,029

 

Reconciling items related to noncontrolling interests

10,403

7,346

 

21,371

14,478

 

Our share of reconciling items related to unconsolidated ventures

(17,476)

(20,236)

 

(41,984)

(39,236)

AFFO attributable to common stockholders/unitholders*

$589,768

$461,564

 

$1,676,760

$1,424,060

   

*

This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation.

   
   
   

 

 

Three Months Ended

 

Nine Months Ended

       

September 30,

 

September 30,

in thousands

2019

2018

 

2019

2018

Net earnings attributable to common stockholders

$ 450,639

$346,345

 

$ 1,181,470

$1,046,858

   

Gains on real estate transactions, net (excluding development properties and land)

(59,379)

(86,009)

 

(232,400)

(154,144)

   

Depreciation and amortization expenses

282,254

252,702

 

850,639

660,456

   

Interest expense

60,244

64,186

 

179,873

166,761

   

Losses on early extinguishment of debt, net

13,585

1,955

 

16,086

2,657

   

Current and deferred income tax expense, net

13,086

13,956

 

53,230

44,612

   

Net earnings attributable to noncontrolling interests - limited partnership unitholders

13,358

10,420

 

35,618

30,965

   

Pro forma adjustments

(118)

54,517

 

2,189

58,660

   

Preferred stock dividends

1,507

1,491

 

4,498

4,443

   

Unrealized foreign currency and derivative gains, net

(48,741)

(20,750)

 

(52,778)

(73,276)

   

Stock compensation expense

20,523

18,947

 

72,467

58,029

Adjusted EBITDA, consolidated*

$746,958

$657,760

 

$2,110,892

$1,846,021

                 
   

Reconciling items related to noncontrolling interests

(12,986)

(20,781)

 

(61,162)

(66,209)

   

Our share of reconciling items related to unconsolidated ventures

86,951

72,606

 

249,032

225,232

Adjusted EBITDA attributable to common stockholders/unitholders*

$820,923

$709,585

 

$2,298,762

$2,005,044

   

*

This is a non-GAAP financial measure. Please see our Notes and Definitions for further explanation.

   

Adjusted EBITDA. We use Adjusted EBITDA attributable to common stockholders/unitholders ("Adjusted EBITDA"), a non-GAAP financial measure, as a measure of our operating performance. The most directly comparable GAAP measure to Adjusted EBITDA is net earnings.

We calculate Adjusted EBITDA beginning with consolidated net earnings attributable to common stockholders and removing the effect of: interest expense, income taxes, depreciation and amortization, impairment charges, gains or losses from the disposition of investments in real estate (excluding development properties and land), gains from the revaluation of equity investments upon acquisition of a controlling interest, gains or losses on early extinguishment of debt and derivative contracts (including cash charges), similar adjustments we make to our FFO measures (see definition below), and other items, such as, stock based compensation and unrealized gains or losses on foreign currency and derivatives. We also include a pro forma adjustment to reflect a full period of NOI on the operating properties we acquire or stabilize during the quarter and to remove NOI on properties we dispose of during the quarter, assuming all transactions occurred at the beginning of the quarter. The pro forma adjustment also includes economic ownership changes in our ventures to reflect the full quarter at the new ownership percentage.

We believe Adjusted EBITDA provides investors relevant and useful information because it permits investors to view our operating performance, analyze our ability to meet interest payment obligations and make quarterly preferred stock dividends on an unleveraged basis before the effects of income tax, depreciation and amortization expense, gains and losses on the disposition of non-development properties and other items (outlined above), that affect comparability. While all items are not infrequent or unusual in nature, these items may result from market fluctuations that can have inconsistent effects on our results of operations. The economics underlying these items reflect market and financing conditions in the short-term but can obscure our performance and the value of our long-term investment decisions and strategies.

We calculate our Adjusted EBITDA, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our Adjusted EBITDA measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our Adjusted EBITDA measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

While we believe Adjusted EBITDA is an important measure, it should not be used alone because it excludes significant components of net earnings, such as our historical cash expenditures or future cash requirements for working capital, capital expenditures, distribution requirements, contractual commitments or interest and principal payments on our outstanding debt and is therefore limited as an analytical tool.

Our computation of Adjusted EBITDA may not be comparable to EBITDA reported by other companies in both the real estate industry and other industries. We compensate for the limitations of Adjusted EBITDA by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of Adjusted EBITDA and a reconciliation to Adjusted EBITDA from consolidated net earnings attributable to common stockholders.

Business Line Reporting is a non-GAAP financial measure. Core FFO and development gains are generated by our three lines of business: (i) real estate operations; (ii) strategic capital; and (iii) development. The real estate operations line of business represents total Prologis Core FFO, less the amount allocated to the Strategic Capital line of business. The amount of Core FFO allocated to the Strategic Capital line of business represents the third party share of asset management fees, Net Promotes and transactional fees that we earn from our consolidated and unconsolidated co-investment ventures less costs directly associated to our strategic capital group. Realized development gains include our share of gains on dispositions of development properties and land, net of taxes. To calculate the per share amount, the amount generated by each line of business is divided by the weighted average diluted common shares outstanding used in our Core FFO per share calculation. Management believes evaluating our results by line of business is a useful supplemental measure of our operating performance because it helps the investing public compare the operating performance of Prologis' respective businesses to other companies' comparable businesses. Prologis' computation of FFO by line of business may not be comparable to that reported by other real estate investment trusts as they may use different methodologies in computing such measures.

Calculation of Per Share Amounts

 

Three Months Ended

   

Nine Months Ended

 
 

Sep. 30,

   

Sep. 30,

 

in thousands, except per share amount

 

2019

   

2018

     

2019

   

2018

 

Net earnings

                         

Net earnings attributable to common stockholders

$

450,639

 

$

346,345

   

$

1,181,470

 

$

1,046,858

 

Noncontrolling interest attributable to exchangeable limited

partnership units

 

13,422

   

10,593

     

35,838

   

31,502

 

Adjusted net earnings attributable to common stockholders - Diluted

$

464,061

 

$

356,938

   

$

1,217,308

 

$

1,078,360

 

Weighted average common shares outstanding - Basic

 

630,929

   

574,520

     

630,356

   

546,612

 

Incremental weighted average effect on exchange of

limited partnership units

 

18,760

   

18,153

     

19,403

   

17,097

 

Incremental weighted average effect of equity awards

 

5,570

   

4,974

     

5,059

   

4,890

 

Weighted average common shares outstanding - Diluted

 

655,259

   

597,647

     

654,818

   

568,599

 

Net earnings per share - Basic

$

0.71

 

$

0.60

   

$

1.87

 

$

1.92

 

Net earnings per share - Diluted

$

0.71

 

$

0.60

   

$

1.86

 

$

1.90

 

Core FFO

                         

Core FFO attributable to common stockholders/unitholders

$

632,378

 

$

427,484

   

$

1,612,825

 

$

1,261,828

 

Noncontrolling interest attributable to exchangeable limited

partnership units

 

131

   

395

     

484

   

1,177

 

Core FFO attributable to common stockholders/unitholders - Diluted

$

632,509

 

$

427,879

   

$

1,613,309

 

$

1,263,005

 

Weighted average common shares outstanding - Basic

 

630,929

   

574,520

     

630,356

   

546,612

 

Incremental weighted average effect on exchange of

limited partnership units

 

18,760

   

18,153

     

19,403

   

17,097

 

Incremental weighted average effect of equity awards

 

5,570

   

4,974

     

5,059

   

4,890

 

Weighted average common shares outstanding - Diluted

 

655,259

   

597,647

     

654,818

   

568,599

 

Core FFO per share - Diluted

$

0.97

 

$

0.72

   

$

2.46

 

$

2.22

 

Estimated Value Creation represents the value that we expect to create through our development and leasing activities. We calculate Estimated Value Creation by estimating the Stabilized NOI that the property will generate and applying a stabilized capitalization rate applicable to that property. Estimated Value Creation is calculated as the amount by which the value exceeds our TEI and does not include any fees or promotes we may earn. Estimated Value Creation for our Value-Added Properties that are sold includes the realized economic gain.

Estimated Weighted Average Margin is calculated on development properties as Estimated Value Creation, less estimated closing costs and taxes, if any, on properties expected to be sold or contributed, divided by TEI.

Estimated Weighted Average Stabilized Yield is calculated on development properties as Stabilized NOI divided by TEI.

FFO, as modified by Prologis attributable to common stockholders/unitholders ("FFO, as modified by Prologis"); Core FFO attributable to common stockholders/unitholders ("Core FFO"); AFFO attributable to common stockholders/unitholders ("AFFO"); (collectively referred to as "FFO"). FFO is a non-GAAP financial measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings.

The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales, along with impairment charges, of previously depreciated properties. We also exclude the gains on revaluation of equity investments upon acquisition of a controlling interest and the gain recognized from a partial sale of our investment, as these are similar to gains from the sales of previously depreciated properties. We exclude similar adjustments from our unconsolidated entities and the third parties' share of our consolidated co-investment ventures.

Our FFO Measures

Our FFO measures begin with NAREIT's definition and we make certain adjustments to reflect our business and the way that management plans and executes our business strategy. While not infrequent or unusual, the additional items we adjust for in calculating FFO, as modified by Prologis, Core FFO and AFFO, as defined below, are subject to significant fluctuations from period to period. Although these items may have a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long term. These items have both positive and negative short-term effects on our results of operations in inconsistent and unpredictable directions that are not relevant to our long-term outlook.

We calculate our FFO measures, as defined below, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our FFO measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our FFO measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

These FFO measures are used by management as supplemental financial measures of operating performance and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

We analyze our operating performance principally by the rental revenues of our real estate and the revenues from our strategic capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities.

FFO, as modified by Prologis

To arrive at FFO, as modified by Prologis, we adjust the NAREIT defined FFO measure to exclude the impact of foreign currency related items and deferred tax, specifically:

(i)

deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;

(ii)

current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in earnings that is excluded from our defined FFO measure;

(iii)

unhedged foreign currency exchange gains and losses resulting from debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated entities;

(iv)

foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of our foreign consolidated and unconsolidated entities; and

(v)

mark-to-market adjustments associated with derivative financial instruments.

We use FFO, as modified by Prologis, so that management, analysts and investors are able to evaluate our performance against other REITs that do not have similar operations or operations in jurisdictions outside the U.S.

Core FFO

In addition to FFO, as modified by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as modified by Prologis, to exclude the following recurring and nonrecurring items that we recognized directly in FFO, as modified by Prologis:

(i)

gains or losses from the disposition of land and development properties that were developed with the intent to contribute or sell;

(ii)

income tax expense related to the sale of investments in real estate;

(iii)

impairment charges recognized related to our investments in real estate generally as a result of our change in intent to contribute or sell these properties;

(iv)

gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and

(v)

expenses related to natural disasters.

We use Core FFO, including by segment and region, to: (i) assess our operating performance as compared to other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (iii) evaluate the performance of our management; (iv) budget and forecast future results to assist in the allocation of resources; (v) provide guidance to the financial markets to understand our expected operating performance; and (vi) evaluate how a specific potential investment will impact our future results.

AFFO

To arrive at AFFO, we adjust Core FFO to include realized gains from the disposition of land and development properties and recurring capital expenditures and exclude the following items that we recognize directly in Core FFO:

(i)

straight-line rents;

(ii)

amortization of above- and below-market lease intangibles;

(iii)

amortization of management contracts;

(iv)

amortization of debt premiums and discounts and financing costs, net of amounts capitalized, and;

(v)

stock compensation expense.

We use AFFO to (i) assess our operating performance as compared to other real estate companies, (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods, (iii) evaluate the performance of our management, (iv) budget and forecast future results to assist in the allocation of resources, and (v) evaluate how a specific potential investment will impact our future results.

Limitations on the use of our FFO measures

While we believe our modified FFO measures are important supplemental measures, neither NAREIT's nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly, these are only a few of the many measures we use when analyzing our business. Some of the limitations are:

  • The current income tax expenses that are excluded from our modified FFO measures represent the taxes and transaction costs that are payable.
  • Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Furthermore, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of logistics facilities are not reflected in FFO.
  • Gains or losses from non-development property dispositions and impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of disposed properties arising from changes in market conditions.
  • The deferred income tax benefits and expenses that are excluded from our modified FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our modified FFO measures do not currently reflect any income or expense that may result from such settlement.
  • The foreign currency exchange gains and losses that are excluded from our modified FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.
  • The gains and losses on extinguishment of debt or preferred stock that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our obligation at less or more than our future obligation.
  • The natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete Consolidated Financial Statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our modified FFO measures to our net earnings computed under GAAP.

Guidance. The following is a reconciliation of our annual guided Net Earnings per share to our guided Core FFO per share:

 

Low

 

High

 

Net Earnings (a)

$

2.65

 

$

2.69

 

Our share of:

           

Depreciation and amortization

 

1.89

   

1.91

 

Net gains on real estate transactions, net of taxes

 

(1.20)

   

(1.24)

 

Unrealized foreign currency gains and other, net

 

(0.04)

   

(0.04)

 

Core FFO

$

3.30

 

$

3.32

 
   

(a)

Earnings guidance includes potential future gains recognized from real estate transactions, but excludes future foreign currency or derivative gains or losses as these items are difficult to predict.

Prologis Share represents our proportionate economic ownership of each entity included in our total owned and managed portfolio whether consolidated or unconsolidated.

Rent Change (Cash) represents the percentage change in starting rental rates per the lease agreement, on new and renewed leases, commenced during the period compared with the previous ending rental rates in that same space. This measure excludes any short-term leases of less than one-year, holdover payments, free rent periods and introductory (teaser rates) defined as 50% or less of the stabilized rate.

Rent Change (Net Effective) represents the percentage change in net effective rental rates (average rate over the lease term), on new and renewed leases, commenced during the period compared with the previous net effective rental rates in that same space. This measure excludes any short-term leases of less than one year and holdover payments.

Same Store. Our same store metrics are non-GAAP financial measures, which are commonly used in the real estate industry and expected from the financial community, on both a net effective and cash basis. We evaluate the performance of the operating properties we own and manage using a "same store" analysis because the population of properties in this analysis is consistent from period to period, which allows us and investors to analyze our ongoing business operations. We determine our same store metrics on property NOI, which is calculated as rental revenue less rental expense for the applicable properties in the same store population for both consolidated and unconsolidated properties based on our ownership interest, as further defined below.

We define our same store population for the three months ended September 30, 2019 as the properties in our Owned and Managed operating portfolio, including the property NOI for both consolidated properties and properties owned by the unconsolidated co-investment ventures at January 1, 2018 and owned throughout the same three-month period in both 2018 and 2019. We believe the drivers of property NOI for the consolidated portfolio are generally the same for the properties owned by the ventures in which we invest and therefore we evaluate the same store metrics of the Owned and Managed portfolio based on Prologis' ownership in the properties ("Prologis Share"). The same store population excludes properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period (January 1, 2018) and properties acquired or disposed of to third parties during the period. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the reported period-end exchange rate to translate from local currency into the U.S. dollar, for both periods.

As non-GAAP financial measures, the same store metrics have certain limitations as an analytical tool and may vary among real estate companies. As a result, we provide a reconciliation of Rental Revenues less Rental Expenses ("Property NOI") (from our Consolidated Financial Statements prepared in accordance with U.S. GAAP) to our Same Store Property NOI measures, as follows:

 

Three Months Ended

 
   

Sep. 30,

 

dollars in thousands

2019

 

2018

 

Change (%)

 

Reconciliation of Consolidated Property NOI to Same Store Property NOI measures:

                 

Rental revenues

$

710,465

 

$

608,974

       

Rental expenses

 

(180,864)

   

(147,184)

       

Consolidated Property NOI

$

529,601

 

$

461,790

       

Adjustments to derive same store results:

                 
 

Property NOI from consolidated properties not included in same

store portfolio and other adjustments (a)

 

(147,894)

   

(87,428)

       
 

Property NOI from unconsolidated co-investment ventures included

in same store portfolio (a)(b)

 

453,752

   

431,420

       
 

Third parties' share of Property NOI from properties included in

same store portfolio (a)(b)

 

(367,222)

   

(355,671)

       

Prologis Share of Same Store Property NOI – Net Effective (b)

$

468,237

 

$

450,111

   

4.0

%

 

Consolidated properties straight-line rent and fair value lease

adjustments included in the same store portfolio (c)

 

(6,676)

   

(5,893)

       
 

Unconsolidated co-investment ventures straight-line rent and fair

value lease adjustments included in the same store portfolio (c)

 

(2,719)

   

(7,719)

       
 

Third parties' share of straight-line rent and fair value lease

adjustments included in the same store portfolio (b)(c)

 

3,602

   

7,081

       

Prologis Share of Same Store Property NOI – Cash (b)(c)

$

462,444

 

$

443,580

   

4.3

%

   

(a)

We exclude properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period and properties acquired or disposed of to third parties during the period. We also exclude net termination and renegotiation fees to allow us to evaluate the growth or decline in each property's rental revenues without regard to one-time items that are not indicative of the property's recurring operating performance. Net termination and renegotiation fees represent the gross fee negotiated to allow a customer to terminate or renegotiate their lease, offset by the write-off of the asset recorded due to the adjustment to straight-line rents over the lease term. Same Store Property NOI is adjusted to include an allocation of property management expenses for our consolidated properties based on the property management services provided to each property (generally, based on a percentage of revenues). On consolidation, these amounts are eliminated and the actual costs of providing property management services are recognized as part of our consolidated rental expense.

(b)

We include the Property NOI for the same store portfolio for both consolidated properties and properties owned by the co-investment ventures based on our investment in the underlying properties. In order to calculate our share of Same Store Property NOI from the co-investment ventures in which we own less than 100%, we use the co-investment ventures' underlying Property NOI for the same store portfolio and apply our ownership percentage at September 30, 2019 to the Property NOI for both periods, including the properties contributed during the period. We adjust the total Property NOI from the same store portfolio of the co-investment ventures by subtracting the third parties' share of both consolidated and unconsolidated co-investment ventures.

 

During the periods presented, certain wholly owned properties were contributed to a co-investment venture and are included in the same store portfolio. Neither our consolidated results nor those of the co-investment ventures, when viewed individually, would be comparable on a same store basis because of the changes in composition of the respective portfolios from period to period (e.g. the results of a contributed property are included in our consolidated results through the contribution date and in the results of the venture subsequent to the contribution date based on our ownership interest at the end of the period). As a result, only line items labeled "Prologis Share of Same Store Property NOI" are comparable period over period.

(c)

We further remove certain noncash items (straight-line rent and amortization of fair value lease adjustments) included in the financial statements prepared in accordance with U.S. GAAP to reflect a Same Store Property NOI – Cash measure. We manage our business and compensate our executives based on the same store results of our Owned and Managed portfolio at 100% as we manage our portfolio on an ownership blind basis. We calculate those results by including 100% of the properties included in our same store portfolio.

Weighted Average Stabilized Capitalization ("Cap") Rate is calculated as Stabilized NOI divided by the Acquisition Price.

Prologis. (PRNewsFoto/Prologis, Inc.) (PRNewsFoto/Prologis, Inc.)

 

 

 

 

 

 

 

 

 

 

SOURCE Prologis, Inc.

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