SAN FRANCISCO, Jan. 27, 2015 /PRNewswire/ -- Prologis, Inc. (NYSE: PLD), the global leader in industrial real estate, today reported results for the fourth quarter and full year 2014.

Core funds from operations (Core FFO) per diluted share was $0.48 for the fourth quarter compared with $0.43 for the same period in 2013. For the full year 2014, Core FFO per diluted share was $1.88, an increase of 14 percent over 2013.

OPERATIONS OUTPERFORM EXPECTATIONS
"As we closed out the year, our global occupancies continued to climb and development leasing reached its highest level in seven years," said Hamid R. Moghadam, chairman and CEO, Prologis. "The outperformance is a direct result of our long-term strategy of operating in infill markets where global trade and consumption intersect."

Prologis ended the quarter with 96.1 percent occupancy in its operating portfolio, an increase of 100 basis points over the same period in 2013 and 110 basis points over the prior quarter. The quarterly increase was principally driven by a 160 basis point increase in spaces under 100,000 square feet and a 140 basis point increase in the company's European portfolio.

In the fourth quarter, the company leased 41.7 million square feet (3.9 million square meters) in its combined operating and development portfolios, which includes 8.9 million square feet (0.8 million square meters) of properties under development. Tenant retention was 85.5 percent.

Rent change on rollovers was positive for the eighth consecutive quarter, with GAAP rental rates on signed leases increasing 6.2 percent. In the Americas, GAAP rental rates on signed leases increased 11.5 percent.

During the fourth quarter, same store NOI for the owned and managed portfolio increased 4.1 percent on a GAAP basis, resulting in full year 2014 same store NOI growth of 3.7 percent. On a Prologis' share basis, same store NOI (GAAP) increased 4.9 percent during the fourth quarter.

CAPITAL DEPLOYMENT BENEFITS FROM GLOBAL REACH
In 2014, Prologis invested $4.3 billion ($3.1 billion Prologis' share) as the company deployed capital at attractive yields of 6.8 percent (Prologis' share).

"The global nature of our platform allows us to deploy capital where we see the highest risk-adjusted returns," adds Moghadam. "In the U.S., where market conditions are very strong and values are high, we were a net seller of non-strategic holdings. In Europe, the focus has been on net deployment where we acquired quality assets in target markets at a discount to replacement costs."

Value Creation and Development Starts
In 2014, Prologis generated an estimated $301.6 million ($272.6 million Prologis' share) of value creation from development stabilizations and through its value-added conversion program.

Development Stabilizations
In the fourth quarter, the company generated $55.4 million ($46.1 million Prologis' share) of estimated value creation from $247.4 million ($201.7 million Prologis' share) of development stabilizations at an estimated development margin of 22.4 percent. For the full year 2014, the company stabilized $1.1 billion ($955.2 million Prologis' share) of development projects with an estimated development margin of 23.0 percent, generating $254.5 million ($235.8 million Prologis' share) of estimated value creation.

Development Starts
During the quarter, Prologis started $725.2 million ($625.8 million Prologis' share) of new developments with an estimated weighted average yield upon stabilization of 7.3 percent and an estimated development margin of 21.0 percent. For the full year 2014, the company started $2.0 billion ($1.8 billion Prologis' share) of new developments with an estimated weighted average yield upon stabilization of 7.2 percent and an estimated development margin of 20.0 percent. Build-to-suits represented 49.6 percent of development starts in the fourth quarter and 32.6 percent for the full year 2014.

At year end, the book value of the company's land bank totaled $1.8 billion with an estimated build-out potential of $10.7 billion.

Acquisitions
In the fourth quarter, Prologis acquired $151.4 million ($48.2 million Prologis' share) of buildings through its co-investment ventures with a stabilized capitalization rate on Prologis' share of 6.5 percent. For the full year 2014, the company acquired $1.5 billion ($659.4 million Prologis' share) of buildings at a stabilized capitalization rate on Prologis' share of 6.4 percent. More than three-quarters of these buildings were in Europe, where the company purchased assets at a discount to replacement costs.

Equity Invested in Co-Investment Ventures
During the year, the company invested $679.0 million in the Prologis North American Industrial Fund, through a series of investments, at a weighted average stabilized capitalization rate of 6.1 percent. As a result, the company increased its ownership to 66.1 percent and consolidated the venture.

Contributions and Dispositions
During the fourth quarter, Prologis completed $213.2 million ($104.3 million Prologis' share) of contributions to its co-investment ventures and third-party building dispositions of non-strategic assets of $500.3 million ($406.8 million Prologis' share).  Prologis' share of contributions and dispositions had a stabilized capitalization rate of 5.9 percent.

During the full year, the company completed $1.7 billion ($948.7 million Prologis' share) of contributions at a weighted average stabilized capitalization rate (Prologis' share) of 5.8 percent, and $1.5 billion ($1.3 billion Prologis' share) of building dispositions at a weighted average stabilized capitalization rate (Prologis' share) of 6.4 percent.

FINANCIAL STRENGTH A TOP PRIORITY
Prologis completed more than $1.7 billion of capital markets activity in the quarter, including the previously announced issuance of a €600 million euro bond, as well as $356 million of equity issuance from the exercise of warrants related to the formation of its Prologis European Logistics Partners venture and through its At-the-Market equity program. In the full year, the company completed $7.0 billion of capital markets activity.

"We have effectively converted the currency composition of our balance sheet to U.S. dollars," said Tom Olinger, chief financial officer, Prologis. "At year end, our U.S. dollar net equity exposure was 89 percent—this allows us to operate globally with our earnings and net asset value insulated from movements in foreign currencies. We are also taking advantage of the low interest environment to enhance our debt stack, and maintaining significant liquidity to keep us nimble as opportunities arise."

In the strategic capital business, the company maintained a healthy investment queue and raised $2.5 billion through both private and public capital during the year.

NET EARNINGS
Net earnings per diluted share was $0.81 for the fourth quarter compared with $0.12 for the same period in 2013. For the full year 2014, net earnings per diluted share was $1.24 compared with $0.64 for the full year 2013.

GUIDANCE ESTABLISHED FOR 2015
Prologis established a full year 2015 Core FFO guidance range of $2.04 to $2.12 per diluted share, representing 11 percent growth at the midpoint compared with full year 2014. The company expects to recognize net earnings, for GAAP purposes, of $0.40 to $0.48 per share. This assumes (on an owned and managed basis):

  • Year-end occupancy between 95.5 and 96.5 percent
  • GAAP same store NOI growth between 3.5 and 4.5 percent
  • Development stabilizations between $1.7 and $1.9 billion
  • Development starts between $2.3 and $2.6 billion
  • Building acquisitions between $1.0 and $1.5 billion
  • Contributions to co-investment ventures between $1.3 and $1.8 billion
  • Third-party dispositions between $1.5 and $2.0 billion
  • Strategic capital revenue between $210 and $220 million
  • Net G&A between $238 and $248 million

The Core FFO and earnings guidance reflected above excludes any potential future gains (losses) recognized from real estate transactions. In reconciling from net earnings to Core FFO, Prologis makes certain adjustments including but not limited to real estate depreciation and amortization expenses, gains (losses) recognized from real estate transactions and early extinguishment of debt or redemption of preferred stock, 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 2015 predominantly relates to real estate depreciation.

WEBCAST & CONFERENCE CALL INFORMATION
Prologis will host a live webcast/conference call to discuss quarterly results, current market conditions and future outlook today, Jan. 27, at 12 p.m. U.S. Eastern time. Interested parties are encouraged to access the webcast by clicking the microphone icon located near the top of the opening page of the Prologis Investor Relations website (http://ir.prologis.com). Interested parties also can participate via conference call by dialing +1 877 256 7020 (toll-free from the U.S. and Canada) or +1 973 409 9692 (from all other countries) and entering conference code 48765486.

A telephonic replay will be available Jan. 27-Feb. 27 at +1 855 859 2056 (from the U.S. and Canada) or +1 404 537 3406 (from all other countries); please use conference code 48765486. The webcast replay will be posted when available in the "Events & Presentations" section of Investor Relations on the Prologis website.

ABOUT PROLOGIS
Prologis, Inc., is the global leader in industrial real estate. As of December 31, 2014, Prologis owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 590 million square feet (55 million square meters) in 21 countries. The company leases modern distribution facilities to more than 4,700 customers, including third-party logistics providers, transportation companies, retailers and manufacturers.

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 Prologis operates, management's beliefs and assumptions made by management.  Such statements involve uncertainties that could significantly impact Prologis' financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," 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 and changes in sales or contribution volume of properties, disposition activity, general conditions in the geographic areas where we operate, our debt 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 climates, (ii) changes in 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 ("REIT") status and tax structuring, (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 and funds, including our ability to establish new co-investment ventures and funds, (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 Prologis under the heading "Risk Factors." Prologis undertakes no duty to update any forward-looking statements appearing in this document.

   

Three months ended December 31,

   

Year ended December 31,

(dollars in thousands, except per share data)

 

2014

 

2013

   

2014

 

2013

 

Revenues

 

$        450,865

 

$        436,764

   

$ 1,760,787

 

$     1,750,486

 

Net earnings attributable to common stockholders

 

408,609

 

59,057

   

622,235

 

315,422

 

Core FFO

 

246,421

 

215,055

   

953,147

 

813,224

 

Core AFFO

 

189,985

 

147,554

   

753,475

 

580,844

 

Adjusted EBITDA

 

367,240

 

366,664

   

1,463,383

 

1,384,274

 

Value creation - Prologis share

 

46,138

 

125,184

   

235,784

 

372,378

 

Common stock dividends paid

 

168,261

 

141,127

   

668,286

 

554,242

                       
 

Per common share - diluted:

                 
   

Net earnings attributable to common stockholders

 

$              0.81

 

$              0.12

   

$          1.24

 

$              0.64

   

Core FFO

 

0.48

 

0.43

   

1.88

 

1.65

 

Dividends per share

 

0.33

 

0.28

   

1.32

 

1.12

                       

(in thousands)

December 31, 2014

 

September 30, 2014

 

December 31, 2013

Assets:

               
 

Investments in real estate properties:

               
   

Operating properties

 

$         18,635,452

   

$         16,155,668

   

$         17,801,064

   

Development portfolio

 

1,473,980

   

1,316,470

   

1,021,017

   

Land

 

1,577,786

   

1,533,590

   

1,516,166

   

Other real estate investments

 

502,927

   

458,290

   

486,230

           

22,190,145

   

19,464,018

   

20,824,477

   

Less accumulated depreciation

 

2,790,781

   

2,695,745

   

2,568,998

       

Net investments in real estate properties

 

19,399,364

   

16,768,273

   

18,255,479

 

Investments in and advances to unconsolidated entities

 

4,824,724

   

5,814,056

   

4,430,239

 

Assets held for sale and notes receivable backed by real estate

 

43,934

   

2,564

   

192,042

       

Net investments in real estate

 

24,268,022

   

22,584,893

   

22,877,760

                         
 

Cash and cash equivalents

 

350,692

   

311,879

   

491,129

 

Accounts receivable

 

103,445

   

132,464

   

107,955

 

Other assets

 

1,096,064

   

1,042,867

   

1,095,463

       

Total assets

 

$         25,818,223

   

$         24,072,103

   

$         24,572,307

                         

Liabilities and Equity:

               
 

Liabilities:

               
   

Debt 

 

$           9,380,199

   

$           8,822,952

   

$           9,011,216

   

Accounts payable, accrued expenses, and other liabilities

 

1,254,425

   

1,112,402

   

1,384,638

       

Total liabilities

 

10,634,624

   

9,935,354

   

10,395,854

                         
 

Equity:

               
   

Stockholders' equity:

               
     

Preferred stock

 

78,235

   

78,235

   

100,000

     

Common stock 

 

5,095

   

5,000

   

4,988

     

Additional paid-in capital 

 

18,467,009

   

18,081,751

   

17,974,509

     

Accumulated other comprehensive loss

 

(600,337)

   

(510,661)

   

(435,675)

     

Distributions in excess of net earnings

 

(3,974,493)

   

(4,214,224)

   

(3,932,664)

       

Total stockholders' equity

 

13,975,509

   

13,440,101

   

13,711,158

   

Noncontrolling interests

 

1,159,901

   

646,404

   

417,086

   

Noncontrolling interests - limited partnership unitholders

 

48,189

   

50,244

   

48,209

       

Total equity

 

15,183,599

   

14,136,749

   

14,176,453

       

Total liabilities and equity

 

$         25,818,223

   

$         24,072,103

   

$         24,572,307

                         
 

Three Months Ended

 

Twelve Months Ended

(in thousands, except per share amounts)

December 31,

 

December 31,

       

2014

2013

 

2014

2013

Revenues:

                 
 

Rental income

 

$              402,014

 

$              379,208

   

$           1,527,349

 

$           1,559,493

 

Strategic capital income

 

44,157

 

53,907

   

219,871

 

179,472

 

Development management and other income

 

4,694

 

3,649

   

13,567

 

11,521

   

 Total revenues 

 

450,865

 

436,764

   

1,760,787

 

1,750,486

                         

Expenses:

                 
 

Rental expenses

 

108,370

 

104,936

   

430,787

 

451,938

 

Strategic capital expenses

 

22,054

 

22,341

   

96,496

 

89,279

 

General and administrative expenses

 

65,987

 

63,067

   

247,768

 

229,207

 

Depreciation and amortization

 

171,402

 

165,453

   

642,461

 

648,668

 

Other expenses

 

8,096

 

9,488

   

23,467

 

26,982

   

Total expenses

 

375,909

 

365,285

   

1,440,979

 

1,446,074

                         

Operating income

 

74,956

 

71,479

   

319,808

 

304,412

                         

Other income (expense):

                 
 

Earnings from unconsolidated entities, net

 

54,877

 

37,666

   

134,288

 

97,220

 

Interest expense

 

(74,092)

 

(87,832)

   

(308,885)

 

(379,327)

 

Gains on dispositions of investments in real estate and revaluation of equity investments upon acquisition of a controlling interest, net

 

388,095

 

151,702

   

725,790

 

597,656

 

Foreign currency and derivative gains (losses), related amortization and interest and other income (expense), net

 

(14,527)

 

(28,472)

   

7,927

 

(6,685)

 

Losses on early extinguishment of debt, net

 

(1,939)

 

(112,859)

   

(165,300)

 

(277,014)

   

Total other income (expense)

 

352,414

 

(39,795)

   

393,820

 

31,850

                         

Earnings before income taxes

 

427,370

 

31,684

   

713,628

 

336,262

 

Income tax benefit (expense) - current and deferred

 

354

 

(22,199)

   

25,656

 

(106,733)

Earnings from continuing operations

 

427,724

 

9,485

   

739,284

 

229,529

Discontinued operations:

                 
 

Income attributable to disposed properties and assets held for sale

 

-

 

1,832

   

-

 

6,970

 

Net gains on dispositions, including taxes

 

-

 

56,952

   

-

 

116,550

   

Total discontinued operations

 

-

 

58,784

   

-

 

123,520

Consolidated net earnings

 

427,724

 

68,269

   

739,284

 

353,049

Net earnings attributable to noncontrolling interests

 

(17,437)

 

(7,077)

   

(103,101)

 

(10,128)

Net earnings attributable to controlling interests

 

410,287

 

61,192

   

636,183

 

342,921

Preferred stock dividends

 

(1,678)

 

(2,135)

   

(7,431)

 

(18,391)

Loss on preferred stock redemption

 

-

 

-

   

(6,517)

 

(9,108)

Net earnings attributable to common stockholders

 

$              408,609

 

$                59,057

   

$              622,235

 

$              315,422

Weighted average common shares outstanding - Diluted

 

507,896

 

503,760

   

506,391

 

491,546

Net earnings per share attributable to common stockholders - Diluted

 

$                    0.81

 

$                    0.12

   

$                    1.24

 

$                    0.64

 

Three Months Ended

 

Twelve Months Ended

(in thousands)

December 31,

 

December 31,

       

2014

2013

 

2014

2013

Reconciliation of net earnings to FFO

                 
                         

Net earnings attributable to common stockholders

 

$              408,609

 

$                59,057

   

$              622,235

 

$              315,422

Add (deduct) NAREIT defined adjustments:

                 
 

Real estate related depreciation and amortization

 

164,107

 

159,489

   

617,814

 

624,573

 

Gains on dispositions of non-development properties and revaluation of equity investments upon acquisition of a controlling interest, net

 

(341,924)

 

(76,751)

   

(553,298)

 

(271,315)

 

Reconciling items related to noncontrolling interests

 

(984)

 

(1,310)

   

47,939

 

(8,993)

 

Our share of reconciling items included in earnings from unconsolidated co-investment ventures

 

30,719

 

42,107

   

179,302

 

153,710

 

Our share of reconciling items included in earnings from other unconsolidated ventures

 

2,702

 

1,738

   

7,238

 

6,082

Subtotal-NAREIT defined FFO

 

263,229

 

184,330

   

921,230

 

819,479

                         

Add (deduct) our defined adjustments:

                 
 

Unrealized foreign currency and derivative losses (gains) and related amortization, net

 

19,887

 

33,457

   

18,984

 

32,870

 

Deferred income tax expense (benefit)

 

(2,647)

 

1,704

   

(56,720)

 

656

 

Our share of reconciling items included in earnings from unconsolidated co-investment ventures

 

3,728

 

(6,892)

   

4,015

 

2,168

FFO, as defined by Prologis

 

284,197

 

212,599

   

887,509

 

855,173

                         

Adjustments to arrive at Core FFO:

                 
 

Gains on dispositions of development properties and land, net

 

(43,906)

 

(117,887)

   

(152,798)

 

(336,815)

 

Losses on early extinguishment of debt and redemption of preferred stock, net

 

1,939

 

112,859

   

171,817

 

286,122

 

Our share of reconciling items from unconsolidated entities less third party share of consolidated entities

 

4,191

 

7,484

   

46,619

 

8,744

Core FFO

 

$              246,421

 

$              215,055

   

$              953,147

 

$              813,224

                         

Adjustments to arrive at Core Adjusted FFO ("Core AFFO"), including our share of unconsolidated entities less third party share of consolidated entities:

                 
 

Straight-lined rents and amortization of lease intangibles

 

(5,681)

 

(5,011)

   

(26,278)

 

(22,968)

 

Property improvements

 

(35,557)

 

(31,445)

   

(96,729)

 

(93,841)

 

Tenant improvements

 

(22,961)

 

(28,076)

   

(86,490)

 

(102,138)

 

Leasing commissions

 

(19,084)

 

(18,632)

   

(62,604)

 

(64,094)

 

Amortization of management contracts

 

1,101

 

1,332

   

4,943

 

5,726

 

Amortization of debt premiums and financing costs, net

 

(1,933)

 

(4,528)

   

(3,102)

 

(19,387)

 

Cash received on net investment hedges

 

13,243

 

1,804

   

13,110

 

7,848

 

Stock compensation expense

 

14,436

 

17,055

   

57,478

 

56,474

Core AFFO

 

$              189,985

 

$              147,554

   

$              753,475

 

$              580,844

                         

Common stock dividends

 

$              168,261

 

$              141,127

   

$              668,286

 

$              554,242

Calculation of Per Share Amounts is as follows (in thousands, except per share amounts):

 
 

Three Months Ended

 

Twelve Months Ended

 

December 31,

 

December 31,

 

2014

2013

 

2014

 

2013

Net earnings

           

Net earnings

$ 408,609

$ 59,057

 

$ 622,235

 

$ 315,422

Noncontrolling interest attributable to exchangeable partnership units

1,768

144

 

3,636

 

1,305

Adjusted net earnings - Diluted

$ 410,377

$ 59,201

 

$ 625,871

 

$ 316,727

             

Weighted average common shares outstanding - Basic

501,178

498,104

 

499,583

 

486,076

Incremental weighted average effect on exchange of limited partnership units

3,457

1,996

 

3,501

 

2,060

Incremental weighted average effect of stock awards

3,261

3,660

 

3,307

 

3,410

Weighted average common shares outstanding - Diluted

507,896

503,760

 

506,391

 

491,546

             

Net earnings per share - Basic

$ 0.82

$      0.12

 

$ 1.25

 

$ 0.65

             

Net earnings per share - Diluted

$ 0.81

$      0.12

 

$ 1.24

 

$ 0.64

             

Core FFO

           

Core FFO

$ 246,421

$ 215,055

 

$ 953,147

 

$ 813,224

Noncontrolling interest attributable to exchangeable limited partnership units

60

144

 

209

 

2,828

Interest expense on exchangeable debt assumed exchanged

4,246

4,235

 

16,984

 

16,940

Core FFO - Diluted

$ 250,727

$ 219,434

 

$ 970,340

 

$ 832,992

             

Weighted average common shares outstanding - Basic

501,178

498,104

 

499,583

 

486,076

Incremental weighted average effect on exchange of limited partnership units

1,964

1,996

 

1,964

 

3,411

Incremental weighted average effect of stock awards

3,261

3,660

 

3,307

 

3,410

Incremental weighted average effect on exchangeable debt assumed exchanged

11,879

11,879

 

11,879

 

11,879

Weighted average common shares outstanding - Diluted

518,282

515,639

 

516,733

 

504,776

             

Core FFO per share - Diluted

$ 0.48

$ 0.43

 

$ 1.88

 

$ 1.65

FFO, as defined by Prologis; Core FFO; Core AFFO (collectively referred to as "FFO"). FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings. Although the National Association of Real Estate Investment Trusts ("NAREIT") has published a definition of FFO, modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business.

FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We believe net earnings computed under GAAP remains the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings computed under GAAP. Further, we believe our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and our operating performance.

NAREIT's FFO measure adjusts net 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 agree that these NAREIT adjustments are useful to investors for the following reasons:

(i)    

historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on FFO "since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves." Consequently, NAREIT's definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.

(ii) 

REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT's definition of FFO, of gains and losses from the sales, along with impairment charges, of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT's activity and assists in comparing those operating results between periods. We include the gains and losses (including impairment charges) from dispositions of land and development properties, as well as our proportionate share of the gains and losses (including impairment charges) from dispositions of development properties recognized by our unconsolidated entities, in our definition of FFO.

Our FFO Measures

At the same time that NAREIT created and defined its FFO measure for the REIT industry, it also recognized that "management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community." We believe stockholders, potential investors and financial analysts who review our operating results are best served by a defined FFO measure that includes other adjustments to net earnings computed under GAAP in addition to those included in the NAREIT defined measure of FFO.  Our FFO measures are used by management in analyzing our business and the performance of our properties and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses.

We use these FFO measures, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) assess our performance as compared to similar real estate companies and the industry in general; and (v) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of short-term items that we do not expect to affect the underlying long-term performance of the properties. The long-term performance of our properties is principally driven by rental income. While not infrequent or unusual, these additional items we exclude in calculating FFO, as defined by Prologis, are subject to significant fluctuations from period to period that cause 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 use our FFO measures as supplemental financial measures of operating performance. 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.

FFO, as defined by Prologis

To arrive at FFO, as defined by Prologis, we adjust the NAREIT defined FFO measure to exclude:

(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 GAAP 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 subsidiaries and our foreign unconsolidated entities; and 

(v)  

mark-to-market adjustments and related amortization of debt discounts associated with derivative financial instruments.

We calculate FFO, as defined by Prologis for our unconsolidated entities on the same basis as we calculate our FFO, as defined by Prologis.

We believe investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy.

Core FFO

In addition to FFO, as defined by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as defined by Prologis, to exclude the following recurring and non-recurring items that we recognized directly or our share of these items recognized by our unconsolidated entities to the extent they are included in FFO, as defined by Prologis:

(i)

gains or losses from acquisition, contribution or sale of land or development properties;

(ii) 

income tax expense related to the sale of investments in real estate and third-party acquisition costs related to the acquisition of 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;

(v)

merger, acquisition and other integration expenses; and

(vi)

expenses related to natural disasters.

We believe it is appropriate to further adjust our FFO, as defined by Prologis for certain recurring items as they were driven by transactional activity and factors relating to the financial and real estate markets, rather than factors specific to the on-going operating performance of our properties or investments. The impairment charges we have recognized were primarily based on valuations of real estate, which had declined due to market conditions, that we no longer expected to hold for long-term investment. Over the last few years, we made it a priority to strengthen our financial position by reducing our debt, our investment in certain low yielding assets and our exposure to foreign currency exchange fluctuations.  As a result, we changed our intent to sell or contribute certain of our real estate properties and recorded impairment charges when we did not expect to recover the costs of our investment. Also, we purchased portions of our debt securities when we believed it was advantageous to do so, which was based on market conditions, and in an effort to lower our borrowing costs and extend our debt maturities. As a result, we have recognized net gains or losses on the early extinguishment of certain debt due to the financial market conditions at that time. In addition, we and our co-investment ventures make acquisitions of real estate and we believe the costs associated with these transactions are transaction based and not part of our core operations.

We analyze our operating performance primarily by the rental income of our real estate and the revenue driven by 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.  Although the adjustments we make to arrive at Core FFO have had 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.

We use Core FFO, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) provide guidance to the financial markets to understand our expected operating performance; (v) assess our operating performance as compared  to similar real estate companies and the industry in general; and (vi) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of items that we do not expect to affect the underlying long-term performance of the properties we own. As noted above, we believe the long-term performance of our properties is principally driven by rental income. We believe investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy. 

Core AFFO

To arrive at Core AFFO, we adjust Core FFO to further exclude our share of; (i) straight-line rents; (ii) amortization of above- and below-market lease intangibles; (iii) recurring capital expenditures; (iv) amortization of management contracts; (v) amortization of debt premiums and discounts and financing costs, net of amounts capitalized, and; (vi) stock compensation expense.

We believe Core AFFO provides a meaningful indicator of our ability to fund cash needs, including cash distributions to our stockholders.

Limitations on Use of our FFO Measures

While we believe our defined 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 these limitations are:

  • The current income tax expenses and acquisition costs that are excluded from our defined 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. Further, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of industrial properties are not reflected in FFO.
  • Gains or losses from property acquisitions and dispositions or 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 acquired or disposed properties arising from changes in market conditions.
  • The deferred income tax benefits and expenses that are excluded from our defined 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 defined 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 defined 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 that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our debt at less or more than our future obligation.
  • The merger, acquisition and other integration expenses and 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 defined FFO measures to our net earnings computed under GAAP.

Same Store. We evaluate the operating 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, thereby eliminating the effects of changes in the composition of the portfolio on performance measures. We include the properties included in our owned and managed portfolio that were in operation at January 1, 2013 and throughout the full periods in both 2013 and 2014. We have removed all properties that were disposed of to a third party from the population for both periods. We believe the factors that impact rental income, rental expenses and NOI in the Same Store portfolio are generally the same as for the total operating portfolio. In order to derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the current exchange rate to translate from local currency into U.S. dollars, for both periods.

Our same store measures are non-GAAP measures that are commonly used in the real estate industry and are calculated beginning with rental income and rental expenses from the financial statements prepared in accordance with GAAP. It is also common in the real estate industry and expected from the analyst and investor community that these numbers be further adjusted to remove certain non-cash items included in the financial statements prepared in accordance with GAAP to reflect a cash same store number. In order to clearly label these metrics, we call one Same Store NOI- GAAP and one Same Store NOI-Adjusted Cash. As these are non-GAAP measures they have certain limitations as an analytical tool and may vary among real estate companies. As a result, we provide a reconciliation from our financial statements prepared in accordance with GAAP to Same Store NOI-GAAP and then to Same Store NOI-Adjusted Cash with explanations of how these metrics are calculated and adjusted.

The following is a reconciliation of our consolidated rental income, rental expenses and NOI, as included in the Consolidated Statements of Operations, to the respective amounts in our Same Store portfolio analysis (dollars in thousands):

 

Three Months Ended

 

December 31,

 

2014

2013

Change (%)

Rental Income:

     

Per the Consolidated Statements of Operations

$ 402,014

$ 379,208

 

Properties not included and other adjustments (a)

(45,275)

(46,029)

 

Unconsolidated Co-Investment Ventures

412,873

402,185

 

Same Store - Rental Income

$ 769,612

$ 735,364

4.7%

       

Rental Expense:

     

Per the Consolidated Statements of Operations

$ 108,370

$ 104,936

 

Properties not included and other adjustments (b)

(3,560)

(9,166)

 

Unconsolidated Co-Investment Ventures

96,060

93,380

 

Same Store - Rental Expense

$ 200,870

$ 189,150

6.2%

       

NOI-GAAP:

     

Per the Consolidated Statements of Operations

$ 293,644

$ 274,272

 

Properties not included and other adjustments

(41,715)

(36,863)

 

Unconsolidated Co-Investment Ventures

316,813

308,805

 

Same Store - NOI - GAAP

$ 568,742

$ 546,214

4.1%

       

NOI-Adjusted Cash:

     

Same store- NOI - GAAP

$ 568,742

$ 546,214

 

Adjustments (c)

(3,805)

(5,025)

 

Same Store - NOI- Adjusted Cash

$ 564,937

$ 541,189

4.4%

(a)

To calculate Same Store rental income, we exclude the net termination and renegotiation fees to allow us to evaluate the growth or decline in each property's rental income without regard to items that are not indicative of the property's recurring operating performance.

(b)

To calculate Same Store rental expense, we include an allocation of the property management expenses for our consolidated properties based on the property management fee that is provided for in the individual management agreements under which our wholly owned management companies provide property management services (generally the fee is based on a percentage of revenue). On consolidation, the management fee income and expenses are eliminated and the actual cost of providing property management services is recognized.

(c)

In order to derive Same Store- NOI - Adjusted Cash, we adjust Same Store- NOI- GAAP to exclude non-cash items included in our rental income in our GAAP financial statements, including straight line rent adjustments and adjustments related to purchase accounts to reflect leases at fair value at the time of acquisition.

Value Creation represents the value that we will create through our development and leasing activities. We calculate value creation by estimating the NOI that the property will generate at Stabilization and applying an estimated stabilized capitalization rate applicable to that property. The value creation is calculated as the amount by which the estimated value exceeds our total expected investment and does not include any fees or promotes we may earn. This can also include realized economic gains from value-added conversion properties.

SOURCE Prologis, Inc.

Media contact & resources

Jennifer Nelson

VP, Head of Global Corporate Communications
+1 (415) 733 9409
[email protected]
San Francisco, California USA

Corporate Profile

Older Press Release
Prologis Named to Global 100 Most Sustainable Corporations in the World for Seventh Year Running
Park Grande, Building

LET'S GET STARTED

Every connection starts with a conversation. Our team is here to help.