July 15, 2019 - 7:45 PM EDT
Prologis Reports Second Quarter 2019 Earnings Results and Announces the Signing of a Definitive Agreement to Acquire IPT

Prologis Reports Second Quarter 2019 Earnings Results and Announces the Signing of a Definitive Agreement to Acquire IPT

SAN FRANCISCO, July 15, 2019 /PRNewswire/ -- Prologis, Inc. (NYSE: PLD), the global leader in logistics real estate, reported results for the second quarter of 2019 and announced that, subsequent to quarter end, it has signed a definitive merger agreement to acquire Industrial Property Trust Inc. (IPT).

Net earnings per diluted share was $0.60 for the quarter compared with $0.62 for the second quarter of 2018. Core funds from operations (Core FFO)* per diluted share was $0.77 for the quarter compared with $0.71 for the same period in 2018.

"We had a terrific quarter—our results reflect strong execution and the quality of our global portfolio," said Hamid R. Moghadam, chairman and CEO, Prologis. "We are off to an excellent start to the second half of the year as we've just entered into an agreement to acquire IPT. The acquisition of this high-quality portfolio will deliver additional shareholder value immediately upon close."

 

OPERATING PERFORMANCE

Owned & Managed

2Q19

2Q18

Notes

Period End Occupancy

96.8%

97.4%

Flat versus first quarter 2019

Leases Commenced

37MSF

39MSF






Prologis Share

2Q19

2Q18

Notes

Net Effective Rent Change

25.6%

20.6%

Led by U.S. at 30.1%

Cash Rent Change

12.3%

9.7%

Led by U.S. at 16.3%

Cash Same Store NOI* Change

4.6%

7.0%

  Led by Europe at 5.3%


 

DEPLOYMENT ACTIVITY

Prologis Share

2Q19

Building Acquisitions

$214M

Weighted avg stabilized cap rate

4.5%

Development Stabilizations

$493M

Estimated weighted avg yield

6.8%

Estimated weighted avg margin

45.1%

Estimated value creation

$223M

Development Starts

$324M

Estimated weighted avg margin

22.0%

Estimated value creation

$71M

% Build-to-suit

27.1%

Total Dispositions and Contributions

$607M

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

4.4%

 

ACQUISITION OF INDUSTRIAL PROPERTY TRUST INC.
Prologis will acquire IPT's wholly owned real estate assets for approximately $3.99 billion in a cash transaction, including the assumption and repayment of debt. The transaction, currently expected to close in the fourth quarter of 2019/first quarter of 2020, is subject to the approval of IPT stockholders and other customary closing conditions.

"This is a compelling opportunity to acquire a portfolio of excellent asset quality and submarket composition consistent with our U.S. investment strategy and footprint," said Eugene F. Reilly, chief investment officer, Prologis. "We expect to capture significant cost and revenue synergies, in addition to enhancing customer relationships and insights."

The 37.5 million square foot operating portfolio comprises 236 properties, 96 percent of which are in existing Prologis markets. Specifically, the transaction expands the company's position in Southern California, the San Francisco Bay Area, Chicago, Atlanta, Dallas, Seattle and New Jersey.

Following the closing, the company intends to hold the portfolio through either one or both of its U.S. co-investment ventures. The transaction is expected to be accretive to annual Core FFO* by approximately $0.05-0.061 per share, on a stabilized basis. The transaction is not expected to have a meaningful impact on the company's leverage. Further, Prologis does not expect to add any corporate overhead and, as a result, the transaction is expected to lower general and administrative expenses as a percentage of assets under management by approximately 4 percent.

"We have worked diligently to create a balance sheet that allows us to take advantage of opportunities such as this, and we remain committed to maintaining our financial strength," said Thomas S. Olinger, chief financial officer, Prologis. "This accretive transaction advances our strategy of using our scale to grow earnings with no incremental overhead."

 

BALANCE SHEET STRENGTH
The company ended the second quarter with leverage of 19.4 percent on a market capitalization basis, debt-to-adjusted EBITDA* of 4.1x and $4.2 billion of liquidity.

 

GUIDANCE MIDPOINT RAISED AND RANGE NARROWED FOR 20192
"We continue to see healthy market conditions, robust customer demand and rent growth that has exceeded our expectations," said Olinger. "As a result, we are increasing our Core FFO* guidance and now anticipate year-over-year growth without promotes of 9.5 percent."

2019 GUIDANCE  (Does not include any impact from the proposed acquisition of IPT)




Earnings (per diluted share)

Previous

Revised

Net Earnings

$2.08 to $2.18

$2.38 to $2.46

Core FFO*

$3.20 to $3.26

$3.26 to $3.30




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

Year-end occupancy

96.5% to 97.5%

96.5% to 97.5%

Cash Same Store NOI* Growth - Prologis share

4.3% to 5.0%

4.5% to 5.0%




Capital Deployment – Prologis Share (in millions)

Previous

Revised

Development stabilizations

$2,000 to $2,300

$2,000 to $2,300

Development starts

$1,800 to $2,200

$1,900 to $2,300

Building acquisitions

$500 to $700

$500 to $700

Building contributions

$1,100 to $1,400

$1,200 to $1,500

Building and land dispositions

$500 to $800

$500 to $800

  Realized development gains

$300 to $400

$350 to $450

  Net proceeds (uses)         

$(400)

$(400)




Strategic Capital (in millions)

Previous

Revised

Strategic capital revenue, excl promote revenue

$300 to $310

$310 to $320

Net promote income, incl in Core FFO* range

$90

$105




G&A (in millions)

Previous

Revised

General & administrative expenses

$245 to $255

$250 to $260




*

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

Due to the impact of non-cash depreciation, Prologis expects the acquisition to be dilutive to net earnings.

2

Guidance for 2019 does not include any impact from 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 https://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, July 16, 2019, at 12 p.m. U.S. Eastern time.
  • Live webcast at https://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 9797336.

A telephonic replay will be available July 16-23 at +1 (800) 585-8367 (from the United States and Canada) or +1 (416) 621-4642 (from all other countries) using conference code 9797336. 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 June 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 786 million square feet (73 million square meters) in 19 countries. Prologis leases modern distribution 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
June 30,


Six Months ended
June 30,






2019

2018 (A)


2019

2018 (A)


Rental and other revenues

$ 701

$    545


$1,399

$ 1,106


Strategic capital revenues (B)

89

76


163

209



Total revenues

790

621


1,562

1,315


Net earnings attributable to common stockholders

384

335


731

701


Core FFO attributable to common stockholders/unitholders*

506

391


980

834


AFFO attributable to common stockholders/unitholders*

620

399


1,087

962


Adjusted EBITDA attributable to common stockholders*

823

581


1,478

1,295


Estimated value creation from development stabilizations - Prologis Share

223

241


432

371


Common stock dividends and common limited partnership unit distributions

347

267


695

534












Per common share - diluted:








Net earnings attributable to common stockholders

$0.60

$0.62


$  1.15

$1.30



Core FFO attributable to common stockholders/unitholders*

0.77

0.71


1.50

1.51



Business line reporting:









Real estate operations* 

0.70

0.65


1.38

1.29




Strategic capital* 

0.07

0.06


0.12

0.22




Core FFO attributable to common stockholders/unitholders*

0.77

0.71


1.50

1.51




Realized development gains, net of taxes*

0.29

0.11


0.35

0.39


Dividends and distributions per common share/unit

0.53

0.48


1.06

0.96



*

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). The first quarter of 2018 excludes all 2018 amounts related to DCT.

B.

Strategic capital revenue for the first quarter of 2018 includes $62.5 million of promote revenue, from first quarter.

 

in thousands

June 30, 2019


March 31, 2019


December 31, 2018

Assets:







Investments in real estate properties:








Operating properties

$31,005,284


$30,667,227


$       30,632,155



Development portfolio

1,959,234


1,939,637


2,142,801



Land

1,156,846


1,143,294


1,192,220



Other real estate investments

773,687


645,540


619,811






34,895,051


34,395,698


34,586,987



Less accumulated depreciation

5,085,219


4,868,611


4,656,680





Net investments in real estate properties

29,809,832


29,527,087


29,930,307


Investments in and advances to unconsolidated entities

5,813,582


5,613,060


5,745,294


Assets held for sale or contribution

609,121


899,976


622,288





Net investments in real estate

36,232,535


36,040,123


36,297,889












Cash and cash equivalents

401,190


251,030


343,856


Other assets (A)

2,073,025


2,100,959


1,775,919





Total assets

$38,706,750


$38,392,112


$       38,417,664











Liabilities and Equity:







Liabilities:








Debt 

$10,968,320


$10,706,139


$       11,089,815



Accounts payable, accrued expenses and other liabilities (A)

1,960,997


1,861,912


1,526,961





Total liabilities

12,929,317


12,568,051


12,616,776












Equity:








Stockholders' equity

22,330,808


22,334,483


22,298,093



Noncontrolling interests

2,786,183


2,799,521


2,836,469



Noncontrolling interests - limited partnership unitholders

660,442


690,057


666,326





Total equity

25,777,433


25,824,061


25,800,888















Total liabilities and equity

$38,706,750


$38,392,112


$       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


Six Months Ended





June 30,


June 30,

in thousands, except per share amounts

2019

2018


2019

2018

Revenues:







Rental

$700,689

$544,679


$1,397,496

$1,100,622


Strategic capital 

89,144

75,697


162,949

208,658


Development management and other 

539

900


1,979

5,652


 Total revenues 

790,372

621,276


1,562,424

1,314,932

Expenses:







Rental 

181,138

133,329


369,206

276,270


Strategic capital 

37,206

34,850


75,264

78,710


General and administrative 

66,276

57,615


135,977

120,043


Depreciation and amortization

284,376

203,673


568,385

407,754


Other

3,515

4,515


7,349

7,754


Total expenses

572,511

433,982


1,156,181

890,531










Operating income before gains

217,861

187,294


406,243

424,401


Gains on dispositions of development properties and land, net

196,941

63,669


239,382

221,237


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

27,254

30,592


173,021

68,135

Operating income

442,056

281,555


818,646

713,773

Other income (expense):







Earnings from unconsolidated co-investment ventures, net

45,876

53,346


98,963

108,641


Earnings from other unconsolidated ventures, net

2,680

9,203


6,259

16,564


Interest expense

(59,122)

(56,314)


(119,629)

(102,575)


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

6,353

91,023


22,997

51,905


Gains (losses) on early extinguishment of debt, net

(385)

282


(2,501)

(702)


Total other income (expense)

(4,598)

97,540


6,089

73,833










Earnings before income taxes

437,458

379,095


824,735

787,606


Current income tax expense

(18,190)

(13,234)


(30,909)

(31,850)


Deferred income tax benefit (expense)

(8,442)

(870)


(9,235)

1,194

Consolidated net earnings

410,826

364,991


784,591

756,950

Net earnings attributable to noncontrolling interests

(13,864)

(18,882)


(28,509)

(32,940)

Net earnings attributable to noncontrolling interests - limited partnership units

(11,686)

(10,022)


(22,260)

(20,545)

Net earnings attributable to controlling interests

385,276

336,087


733,822

703,465

Preferred stock dividends

(1,492)

(1,476)


(2,991)

(2,952)

Net earnings attributable to common stockholders (A)

$383,784

$334,611


$   730,831

$   700,513

Weighted average common shares outstanding - Diluted

655,447

554,515


654,766

554,066

Net earnings per share attributable to common stockholders - Diluted

$      0.60

$      0.62


$         1.15

$         1.30



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 $5.1 million and $10.5 million of such costs in the three and six months ended June 30, 2018.

 


Three Months Ended


Six Months Ended





June 30,


June 30,

in thousands

2019

2018


2019

2018

Net earnings attributable to common stockholders

$383,784

$334,611


730,831

700,513

Add (deduct) NAREIT defined adjustments:







Real estate related depreciation and amortization

275,743

194,426


550,630

390,329


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

(27,254)

(30,592)


(173,021)

(68,135)


Reconciling items related to noncontrolling interests

(11,920)

(12,956)


(25,390)

(23,427)


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

58,354

50,425


112,054

101,910


Our share of reconciling items related to other unconsolidated ventures

2,581

1,514


5,593

3,274

NAREIT defined FFO attributable to common stockholders/unitholders*

$681,288

$537,428


$1,200,697

$1,104,464










Add (deduct) our defined adjustments:







Unrealized foreign currency and derivative losses (gains), net

3,451

(86,490)


(4,037)

(52,526)


Deferred income tax expense (benefit) 

8,442

870


9,235

(1,194)


Current income tax expense on dispositions related to acquired tax assets

-

-


-

878


Reconciling items related to noncontrolling interests

15

(56)


35

44


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

(1,745)

3,098


(2,889)

1,190

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

$691,451

$454,850


$1,203,041

$1,052,856










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







Gains on dispositions of development properties and land, net

(196,941)

(63,669)


(239,382)

(221,237)


Current income tax expense on dispositions

7,645

3,808


10,044

10,419


Losses (gains) on early extinguishment of debt, net

385

(282)


2,501

702


Reconciling items related to noncontrolling interests

(2)

6,020


(2)

5,420


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

3,654

(1,373)


4,238

728


Our share of reconciling items related to other unconsolidated ventures

4

(8,130)


7

(14,544)

Core FFO attributable to common stockholders/unitholders*

$506,196

$391,224


$   980,447

$   834,344










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

196,941

63,669


239,382

221,237


Current income tax expense on dispositions

(7,645)

(3,808)


(10,044)

(10,419)


Straight-lined rents and amortization of lease intangibles

(25,402)

(11,309)


(54,951)

(26,369)


Property improvements

(25,634)

(21,976)


(34,332)

(30,974)


Turnover costs

(40,631)

(31,315)


(80,969)

(59,342)


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

4,575

3,275


9,055

6,805


Stock compensation expense

20,186

19,086


51,944

39,082


Reconciling items related to noncontrolling interests

5,604

(311)


10,968

7,132


Our share of reconciling items related to unconsolidated ventures

(14,032)

(9,975)


(24,508)

(19,000)

AFFO attributable to common stockholders/unitholders*

$     620,158

$     398,560


$     1,086,992

$   962,496



*

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

 


Three Months Ended


Six Months Ended




June 30,


June 30,

in thousands

2019

2018


2019

2018

Net earnings attributable to common stockholders

$ 383,784

$334,611


$    730,831

$   700,513


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

(27,254)

(30,592)


(173,021)

(68,135)


Depreciation and amortization expenses

284,376

203,673


568,385

407,754


Interest expense 

59,122

56,314


119,629

102,575


Losses (gains) on early extinguishment of debt, net

385

(282)


2,501

702


Current and deferred income tax expense, net

26,632

14,104


40,144

30,656


Net earnings attributable to noncontrolling interests - limited partnership unitholders

11,686

10,022


22,260

20,545


Pro forma adjustments

(240)

5,110


2,307

4,143


Preferred stock dividends

1,492

1,476


2,991

2,952


Unrealized foreign currency and derivative losses (gains), net

3,451

(86,490)


(4,037)

(52,526)


Stock compensation expense

20,186

19,086


51,944

39,082

Adjusted EBITDA, consolidated*

$763,620

$527,032


$1,363,934

$1,188,261










Reconciling items related to noncontrolling interests

(24,005)

(23,636)


(48,176)

(45,428)


Our share of reconciling items related to unconsolidated ventures

83,811

77,244


162,078

152,626

Adjusted EBITDA attributable to common stockholders/unitholders*

$823,426

$580,640


$1,477,836

$1,295,459



*

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, 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



Six Months Ended



Jun. 30,



Jun. 30,


in thousands, except per share amount


2019



2018




2019



2018


Net earnings














Net earnings attributable to common stockholders

$

383,784


$

334,611



$

730,831


$

700,513


Noncontrolling interest attributable to exchangeable limited

 partnership units


11,759



10,216




22,416



20,909


Adjusted net earnings attributable to common stockholders - Diluted

$

395,543


$

344,827



$

753,247


$

721,422


Weighted average common shares outstanding - Basic


630,271



532,639




629,990



532,427


Incremental weighted average effect on exchange of

 limited partnership units


19,556



16,847




19,637



16,560


Incremental weighted average effect of equity awards


5,620



5,029




5,139



5,079


Weighted average common shares outstanding - Diluted


655,447



554,515




654,766



554,066


Net earnings per share - Basic

$

0.61


$

0.63



$

1.16


$

1.32


Net earnings per share - Diluted

$

0.60


$

0.62



$

1.15


$

1.30


Core FFO














Core FFO attributable to common stockholders/unitholders

$

506,196


$

391,224



$

980,447


$

834,344


Noncontrolling interest attributable to exchangeable limited

 partnership units


159



412




353



782


Core FFO attributable to common stockholders/unitholders - Diluted

$

506,355


$

391,636



$

980,800


$

835,126


Weighted average common shares outstanding - Basic


630,271



532,639




629,990



532,427


Incremental weighted average effect on exchange of

 limited partnership units


19,556



16,847




19,637



16,560


Incremental weighted average effect of equity awards


5,620



5,029




5,139



5,079


Weighted average common shares outstanding - Diluted


655,447



554,515




654,766



554,066


Core FFO per share - Diluted

$

0.77


$

0.71



$

1.50


$

1.51


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)

$

2.38


$

2.46


Our share of:







Depreciation and amortization


1.92



1.96


Net gains on real estate transactions, net of taxes


(1.05)



(1.13)


Unrealized foreign currency gains and other, net


0.01



0.01


Core FFO

$

3.26


$

3.30




(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 June 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




Jun. 30,


dollars in thousands

2019


2018


Change (%)


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










Rental revenues

$

700,689


$

544,679





Rental expenses


(181,138)



(133,329)





Consolidated Property NOI

$

519,551


$

411,350





Adjustments to derive same store results:











Property NOI from consolidated properties not included in same store portfolio and other adjustments (a)


(141,732)



(39,949)






Property NOI from unconsolidated co-investment ventures included in same store portfolio (a)(b)


454,433



434,230






Third parties' share of Property NOI from properties included in same store portfolio (a)(b)


(365,783)



(357,797)





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

$

466,469


$

447,834



4.2

%


Consolidated properties straight-line rent and fair value lease adjustments included in the same store portfolio (c)


(4,351)



(3,659)






Unconsolidated co-investment ventures straight-line rent and fair value lease adjustments included in the same store portfolio (c)


(2,750)



(8,768)






Third parties' share of straight-line rent and fair value lease adjustments included in the same store portfolio (b)(c)


2,965



6,706





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

$

462,333


$

442,113



4.6

%



(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 June 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.)

 

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/prologis-reports-second-quarter-2019-earnings-results-and-announces-the-signing-of-a-definitive-agreement-to-acquire-ipt-300885190.html

SOURCE Prologis, Inc.


Source: PR Newswire (July 15, 2019 - 7:45 PM EDT)