SAN FRANCISCO, April 19, 2015 /PRNewswire/ -- Prologis,
Inc. (NYSE: PLD), the global leader in industrial real estate,
today reported results for the first quarter 2015.
Core funds from operations (Core FFO) per diluted share was
$0.49 for the first quarter compared
with $0.43 for the same period in
2014.
"We had an excellent start to the year and we continue to
deliver growth across our three lines of business," said
Hamid R. Moghadam, chairman and CEO,
Prologis. "Generally, market conditions are in great shape, and the
scale, quality and diversification of our global platform, combined
with solid execution by teams throughout the world, are driving
strong financial results."
STRONG OPERATING PERFORMANCE RESULTING FROM FOCUSED
INVESTMENT STRATEGY
Prologis ended the quarter with 95.9 percent occupancy in its
operating portfolio, an increase of 140 basis points over the same
period in 2014. In the first quarter, the company leased 39.2
million square feet (3.6 million square meters) in its combined
operating and development portfolios, which includes 3.9 million
square feet (0.4 million square meters) of properties under
development. Tenant retention was 86.3 percent.
Rent change on rollovers was positive, with GAAP rental rates on
signed leases increasing 9.7 percent. In the U.S., GAAP rental
rates on signed leases increased 15.1 percent.
During the first quarter, same store NOI for the owned and
managed portfolio increased 3.5 percent on a GAAP basis and 3.9
percent on an adjusted cash basis. On a Prologis' share basis, same
store NOI increased 3.7 percent on a GAAP basis and 4.2 percent on
an adjusted cash basis.
PROFITABLE CAPITAL DEPLOYMENT
During the first quarter, Prologis invested $421.0 million ($278.6
million Prologis' share) at attractive yields.
Value Creation
The company generated $264.2
million ($259.3 million
Prologis' share) of estimated value creation during the
quarter. This includes $127.2
million ($122.3 million
Prologis' share) of estimated value creation from $358.2 million ($331.0
million Prologis' share) of development stabilizations at an
estimated development margin of 35.5 percent and $137.0 million (of which 100% is Prologis' share)
of value creation recognized through its value-added conversion
program.
"During the quarter we monetized one of our significant
value-added conversion projects," said Moghadam. "While these
projects are episodic, they produce meaningful gains and NAV
appreciation as we convert some of our infill industrial properties
higher and better use. Through the first quarter of 2015, we have
averaged approximately $50 million
annually in gains from our value-add efforts over the last nine
years."
Development Starts
The company started $280.1 million
($218.4 million Prologis' share) of
new developments with an estimated weighted average yield upon
stabilization of 7.1 percent and an estimated development margin of
20.5 percent. Build-to-suits represented 16.5 percent of
development starts in the first quarter.
At quarter end, the book value of the company's land bank
totaled $1.8 billion with an
estimated build-out potential of $11.1
billion.
Acquisitions
Prologis acquired $140.9 million
($60.2 million Prologis' share) of
buildings with a stabilized capitalization rate on Prologis' share
of 6.8 percent.
Dispositions and Contributions
Prologis completed $464.7 million
($461.6 million Prologis' share) of
third-party building dispositions, primarily through its
value-added conversion program, and contributions to its
co-investment ventures of $29.6
million ($20.4 million
Prologis' share). Prologis' share of dispositions and contributions
had a stabilized capitalization rate of 3.6 percent.
CAPITAL MARKETS ACTIVITY INSULATES EARNINGS AND NAV FROM MOVEMENTS
IN FOREIGN CURRENCIES
Prologis completed $405.2 million
of capital markets activity in the quarter and increased its U.S.
dollar net equity exposure to 91 percent.
"I am very pleased with our financial position, our balance
sheet and credit metrics are as strong as they have ever been,"
said Tom Olinger, chief financial
officer, Prologis. "Additionally, we have effectively hedged the
impact of foreign currency movements on our estimated 2015 Core
FFO, insulating our earnings and net asset value."
NET EARNINGS
Net earnings per diluted share was $0.65 for the first quarter compared with
$0.01 for the same period in
2014.
GUIDANCE NARROWED AND MIDPOINT RAISED FOR 2015
Guidance for 2015 does not include any impact from the KTR
Capital Partners transaction
Prologis narrowed its 2015 Core FFO guidance range to
$2.07 to $2.13 per diluted share from
$2.04 to $2.12 per diluted share
representing 12 percent growth at the midpoint compared with full
year 2014. The company expects to recognize net earnings, for GAAP
purposes, of $0.98 to $1.04 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 3.75 and 4.50 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 $2.1
billion and 2.5 billion
- Strategic capital revenue between $195
and $205 million
- Net G&A between $235 and $245
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 relates predominantly to real estate depreciation
and realized gains or losses on real estate transactions.
NEW WEBCAST & CONFERENCE CALL INFORMATION
Prologis will host a live webcast and conference call with
senior management to discuss first quarter results, current market
conditions and future outlook on April
20, at 8 a.m. U.S. Eastern
time. Interested parties are encouraged to access the webcast by
clicking on the Investor Events and Presentations section on 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
48765488.
A telephonic replay will be available April 20-May 20 at +1 855 859 2056 (from the U.S.
and Canada) or +1 404 537 3406
(from all other countries) using conference code 48765488. 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 March 31, 2015, Prologis owned
or had investments in, on a wholly owned basis or through
co-investment ventures, properties and development projects
expected to total approximately 594 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
March 31,
|
(dollars in
thousands, except per share data)
|
2015
|
|
2014
|
|
Revenues
|
$
462,847
|
|
$
434,682
|
|
Net earnings
attributable to common stockholders
|
345,206
|
|
4,666
|
|
Core FFO
|
254,379
|
|
217,555
|
|
AFFO
|
212,781
|
|
177,465
|
|
Adjusted
EBITDA
|
365,996
|
|
361,192
|
|
Value creation -
Prologis share
|
122,286
|
|
50,507
|
|
Common stock
dividends paid
|
188,915
|
|
166,689
|
|
|
|
|
|
|
|
Per common share -
diluted:
|
|
|
|
|
|
Net earnings
attributable to common stockholders
|
$
0.65
|
|
$
0.01
|
|
|
Core FFO
|
0.49
|
|
0.43
|
|
Dividends per
share
|
0.36
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
March 31,
2015
|
|
December 31,
2014
|
Assets:
|
|
|
|
|
|
|
Investments in real
estate properties:
|
|
|
|
|
|
|
|
Operating
properties
|
|
$
18,291,593
|
|
|
$
18,635,452
|
|
|
Development
portfolio
|
|
1,452,266
|
|
|
1,473,980
|
|
|
Land
|
|
1,535,622
|
|
|
1,577,786
|
|
|
Other real estate
investments
|
|
521,018
|
|
|
502,927
|
|
|
|
|
|
|
21,800,499
|
|
|
22,190,145
|
|
|
Less accumulated
depreciation
|
|
2,877,478
|
|
|
2,790,781
|
|
|
|
Net investments in
real estate properties
|
|
18,923,021
|
|
|
19,399,364
|
|
Investments in and
advances to unconsolidated entities
|
|
4,559,721
|
|
|
4,824,724
|
|
Assets held for
sale
|
|
337,229
|
|
|
43,934
|
|
Note receivable
backed by real estate
|
|
197,500
|
|
|
-
|
|
|
|
Net investments in
real estate
|
|
24,017,471
|
|
|
24,268,022
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
192,013
|
|
|
350,692
|
|
Other
assets
|
|
1,251,337
|
|
|
1,199,509
|
|
|
|
Total
assets
|
|
$
25,460,821
|
|
|
$
25,818,223
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity:
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Debt
|
|
$
8,641,421
|
|
|
$
9,380,199
|
|
|
Accounts payable,
accrued expenses, and other liabilities
|
|
1,026,593
|
|
|
1,254,425
|
|
|
|
Total
liabilities
|
|
9,668,014
|
|
|
10,634,624
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
78,235
|
|
|
78,235
|
|
|
|
Common
stock
|
|
5,240
|
|
|
5,095
|
|
|
|
Additional paid-in
capital
|
|
19,052,562
|
|
|
18,467,009
|
|
|
|
Accumulated other
comprehensive loss
|
|
(701,713)
|
|
|
(600,337)
|
|
|
|
Distributions in
excess of net earnings
|
|
(3,819,351)
|
|
|
(3,974,493)
|
|
|
|
|
Total stockholders'
equity
|
|
14,614,973
|
|
|
13,975,509
|
|
|
Noncontrolling
interests
|
|
1,122,001
|
|
|
1,159,901
|
|
|
Noncontrolling
interests - limited partnership unitholders
|
|
55,833
|
|
|
48,189
|
|
|
|
Total
equity
|
|
15,792,807
|
|
|
15,183,599
|
|
|
|
Total liabilities
and equity
|
|
$
25,460,821
|
|
|
$
25,818,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March
31,
|
(in thousands,
except per share amounts)
|
|
|
|
|
2015
|
2014
|
Revenues:
|
|
|
|
|
|
Rental
income
|
|
$
418,802
|
|
$
388,240
|
|
Strategic capital
income
|
|
42,025
|
|
45,310
|
|
Development
management and other income
|
|
2,020
|
|
1,132
|
|
Total
revenues
|
|
462,847
|
|
434,682
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Rental
expenses
|
|
126,934
|
|
110,517
|
|
Strategic capital
expenses
|
|
20,361
|
|
24,163
|
|
General and
administrative expenses
|
|
56,288
|
|
63,203
|
|
Depreciation and
amortization
|
|
169,808
|
|
160,280
|
|
Other
expenses
|
|
5,575
|
|
5,053
|
|
Total
expenses
|
|
378,966
|
|
363,216
|
|
|
|
|
|
|
|
|
Operating
income
|
|
83,881
|
|
71,466
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
Earnings from
unconsolidated entities, net
|
|
31,042
|
|
29,746
|
|
Interest
expense
|
|
(68,761)
|
|
(85,523)
|
|
Gains on
dispositions of development properties and land, net
|
|
831
|
|
7,510
|
|
Gains on dispositions
of other investments in real estate properties, net
|
|
276,884
|
|
9,545
|
|
Foreign currency and
derivative gains (losses), related amortization and interest
and other income (expense), net
|
|
45,615
|
|
(14,134)
|
|
Gains (losses) on
early extinguishment of debt, net
|
|
(16,289)
|
|
273
|
|
Total
other income (expense)
|
|
269,322
|
|
(52,583)
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
353,203
|
|
18,883
|
|
Income tax expense -
current and deferred
|
|
(1,891)
|
|
(6,880)
|
Consolidated net
earnings
|
|
351,312
|
|
12,003
|
Net earnings
attributable to noncontrolling interests
|
|
(4,436)
|
|
(5,202)
|
Net earnings
attributable to controlling interests
|
|
346,876
|
|
6,801
|
Preferred stock
dividends
|
|
(1,670)
|
|
(2,135)
|
Net earnings
attributable to common stockholders
|
|
$
345,206
|
|
$
4,666
|
Weighted average
common shares outstanding - Diluted
|
|
529,022
|
|
504,373
|
Net earnings per
share attributable to common stockholders - Diluted
|
|
$
0.65
|
|
$
0.01
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March
31,
|
(in
thousands)
|
|
|
|
|
2015
|
2014
|
Reconciliation of
net earnings to FFO
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
attributable to common stockholders
|
|
$
345,206
|
|
$
4,666
|
Add (deduct) NAREIT
defined adjustments:
|
|
|
|
|
|
Real estate related
depreciation and amortization
|
|
164,251
|
|
154,495
|
|
Gains on dispositions
of other investments in real estate properties, net
|
|
(276,884)
|
|
(9,545)
|
|
Reconciling items
related to noncontrolling interests
|
|
(11,512)
|
|
(6,201)
|
|
Our share of
reconciling items included in earnings from unconsolidated
co-investment ventures
|
|
47,372
|
|
41,716
|
|
Our share of
reconciling items included in earnings from other unconsolidated
ventures
|
|
1,721
|
|
1,350
|
Subtotal-NAREIT
defined FFO
|
|
270,154
|
|
186,481
|
|
|
|
|
|
|
|
|
Add (deduct) our
defined adjustments:
|
|
|
|
|
|
Unrealized foreign
currency and derivative losses (gains) and related amortization,
net
|
|
(32,860)
|
|
28,110
|
|
Deferred income tax
expense
|
|
1,052
|
|
1,031
|
|
Reconciling items
related to noncontrolling interests
|
|
(1,568)
|
|
-
|
|
Our share of
reconciling items included in earnings from unconsolidated
co-investment ventures
|
|
1,949
|
|
229
|
FFO, as defined by
Prologis
|
|
238,727
|
|
215,851
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at Core FFO:
|
|
|
|
|
|
Gains on dispositions
of development properties and land, net of taxes
|
|
(3,234)
|
|
(6,158)
|
|
Acquisition
expenses
|
|
1,304
|
|
500
|
|
Losses (gains) on
early extinguishment of debt, net
|
|
16,289
|
|
(273)
|
|
Reconciling items
related to noncontrolling interests
|
|
(2,029)
|
|
-
|
|
Our share of
reconciling items from unconsolidated ventures
|
|
3,322
|
|
7,635
|
Core
FFO
|
|
$
254,379
|
|
$
217,555
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at Adjusted FFO ("AFFO"), including our share of unconsolidated
ventures
less third party share of consolidated
entities:
|
|
|
|
|
|
Gains on dispositions
of development properties and land, net of taxes
|
|
4,249
|
|
6,112
|
|
Straight-lined rents
and amortization of lease intangibles
|
|
(7,885)
|
|
(8,576)
|
|
Property
improvements
|
|
(14,930)
|
|
(11,142)
|
|
Tenant
improvements
|
|
(20,393)
|
|
(20,072)
|
|
Leasing
commissions
|
|
(14,335)
|
|
(15,560)
|
|
Amortization of
management contracts
|
|
944
|
|
1,305
|
|
Amortization of debt
premiums and financing costs, net
|
|
(3,939)
|
|
(2,269)
|
|
Cash received (paid)
on net investment hedges
|
|
1,457
|
|
(5,126)
|
|
Stock compensation
expense
|
|
13,234
|
|
15,238
|
AFFO
|
|
|
|
$
212,781
|
|
$
177,465
|
|
|
|
|
|
|
|
|
Common stock
dividends
|
|
$
188,915
|
|
$
166,689
|
|
|
|
|
|
|
|
|
Calculation of Per
Share Amounts is as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
Three Months
Ended March
31,
|
|
|
2015
|
2014
|
Net
earnings
|
|
|
Net
earnings
|
$ 345,206
|
$ 4,666
|
Noncontrolling
interest attributable to exchangeable limited partnership
units
|
1,650
|
17
|
Gains, net of
expenses, associated with exchangeable debt assumed
exchanged
|
(1,614)
|
-
|
Adjusted net
earnings - Diluted
|
$ 345,242
|
$ 4,683
|
|
|
|
Weighted average
common shares outstanding - Basic
|
514,022
|
498,696
|
Incremental weighted
average effect on exchange of limited partnership units
|
3,794
|
1,767
|
Incremental weighted
average effect of stock awards
|
2,394
|
3,910
|
Incremental weighted
average effect on exchangeable debt assumed exchanged
(a)
|
8,812
|
-
|
Weighted average
common shares outstanding - Diluted
|
529,022
|
504,373
|
|
|
|
Net earnings per
share - Basic
|
$ 0.67
|
$ 0.01
|
|
|
|
Net earnings per
share - Diluted
|
$ 0.65
|
$ 0.01
|
|
|
|
Core
FFO
|
|
|
Core FFO
|
$ 254,379
|
$ 217,555
|
Noncontrolling
interest attributable to exchangeable limited partnership
units
|
881
|
207
|
Interest expense on
exchangeable debt assumed exchanged
|
3,506
|
4,246
|
Core FFO -
Diluted
|
$ 258,766
|
$ 222,008
|
|
|
|
Weighted average
common shares outstanding - Basic
|
514,022
|
498,696
|
Incremental weighted
average effect on exchange of limited partnership units
|
3,794
|
3,715
|
Incremental weighted
average effect of stock awards
|
2,394
|
3,910
|
Incremental weighted
average effect on exchangeable debt assumed exchanged
(a)
|
8,812
|
11,879
|
Weighted average
common shares outstanding - Diluted
|
529,022
|
518,200
|
|
|
|
Core FFO per share
- Diluted
|
$ 0.49
|
$ 0.43
|
(a) In March 2015, the
exchangeable debt was settled primarily through the issuance of
common stock. The adjustment in 2015 assumes the exchange occurred
on January 1, 2015.
FFO, as defined by Prologis; Core FFO; 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 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. We exclude the gain on revaluation of
equity investments upon acquisition of a controlling interest from
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, defined below, 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 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 and redemption and repurchase of preferred stock;
(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 these items discussed above 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.
AFFO
To arrive at AFFO, we adjust Core FFO to include realized gains
from the disposition of land and development properties and to
exclude our share of the impact 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 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 non-development 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, 2014 and throughout the full periods
in both 2014 and 2015. 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
|
|
March
31,
|
|
2015
|
2014
|
Change
(%)
|
Rental
Income:
|
|
|
|
Per the Consolidated
Statements of Operations
|
$ 418,802
|
$ 388,240
|
|
Properties not
included and other adjustments (a)
|
(37,028)
|
(47,052)
|
|
Unconsolidated
Co-Investment Ventures
|
415,666
|
422,070
|
|
Same Store -
Rental Income
|
$ 797,440
|
$ 763,258
|
4.5%
|
|
|
|
|
Rental
Expense:
|
|
|
|
Per the Consolidated
Statements of Operations
|
$ 126,934
|
$ 110,517
|
|
Properties not
included and other adjustments (b)
|
(5,521)
|
(7,138)
|
|
Unconsolidated
Co-Investment Ventures
|
97,385
|
101,053
|
|
Same Store -
Rental Expense
|
$ 218,798
|
$ 204,432
|
7.0%
|
|
|
|
|
NOI-GAAP:
|
|
|
|
Per the Consolidated
Statements of Operations
|
$ 291,868
|
$ 277,723
|
|
Properties not
included and other adjustments
|
(31,507)
|
(39,914)
|
|
Unconsolidated
Co-Investment Ventures
|
318,281
|
321,017
|
|
Same Store - NOI -
GAAP
|
$ 578,642
|
$ 558,826
|
3.5%
|
|
|
|
|
NOI-Adjusted
Cash:
|
|
|
|
Same store- NOI -
GAAP
|
$ 578,642
|
$ 558,826
|
|
Adjustments
(c)
|
(7,964)
|
(9,830)
|
|
Same Store - NOI-
Adjusted Cash
|
$ 570,678
|
$ 548,996
|
3.9%
|
(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.
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SOURCE Prologis, Inc.