SAN FRANCISCO, July 21, 2015 /PRNewswire/ -- Prologis, Inc.
(NYSE: PLD), the global leader in industrial real estate, today
reported results for the second quarter of 2015 and announced that
its Board of Directors has approved a quarterly dividend increase,
raising the company's annualized dividend level by 11 percent to
$1.60 per share of common stock.
Core funds from operations (Core FFO) per diluted share was
$0.52 for the second quarter compared
with $0.48 for the same period in
2014, an increase of 8 percent.
"The team delivered ahead of plan and our results reflect strong
underlying performance across all three lines of our business,"
said Hamid R. Moghadam, chairman and
CEO, Prologis. "We see significant earnings potential from
harvesting the gap between our in-place and market rents, the
profitable build-out of our land bank and the efficient scaling of
our global platform."
OPERATING FUNDAMENTALS GAIN MOMENTUM
Prologis ended
the quarter with 95.4 percent occupancy in its operating portfolio,
an increase of 80 basis points over the same period in 2014.
Excluding the KTR assets, the company ended the quarter with 95.6
percent occupancy in its operating portfolio. Prologis leased a
record 44.6 million square feet (4.1 million square meters) in its
combined operating and development portfolios. Tenant retention was
79.0 percent.
GAAP rental rates on signed leases during the quarter increased
a record 14.4 percent from prior rents. The Americas region led the
quarterly increase at 20.6 percent (U.S. at 21.9 percent), followed
by Europe at 4.4 percent and
Asia at 2.0 percent. Prologis'
share of same store NOI increased 5.9 percent on a GAAP basis and
5.2 percent on an adjusted cash basis.
CAPITAL DEPLOYMENT ACTIVITY ACCELERATES
New
investments in buildings during the second quarter totaled
$6.9 billion ($4.0 billion Prologis' share).
Development Stabilizations & Starts
In the
second quarter, on a Prologis share basis the company created
$179.1 million of estimated value
from its $578.2 million of
development stabilizations at an estimated development margin of
31.0 percent.
The company started $798.7 million
of new developments on a Prologis share basis with an estimated
weighted average yield upon stabilization of 7.3 percent and an
estimated development margin of 19.6 percent. Build-to-suit
activity remains robust, comprising 44 percent of starts volume in
the quarter and including multi-market customers such as BMW and
Kimberly-Clark.
At quarter end, the book value of the company's land bank was
$1.8 billion, with an estimated
build-out potential of $11.1
billion.
Acquisitions
As previously announced, Prologis
completed the acquisition of the real estate assets and operating
platform of KTR Capital Partners and its affiliates for
$5.9 billion ($3.2 billion Prologis' share) in the Prologis
U.S. Logistics Venture. Also during the quarter, the company
acquired $139.3 million of buildings
on a Prologis share basis. The stabilized capitalization rate on
total acquisitions in the quarter was 5.5 percent.
Contributions & Dispositions
The company
completed $453.6 million of
contributions and third-party dispositions on a Prologis share
basis with a stabilized capitalization rate of 5.9 percent.
CAPITAL MARKETS ACTIVITY BENEFITS FROM GLOBAL ACCESS
During the quarter, Prologis completed $3.1
billion of financings at a weighted average interest rate of
1.6 percent and a weighted average term of 5 years.
"We have access to foreign-denominated debt markets, which has
allowed us to take advantage of attractive pricing to further
strengthen our financial position and mitigate the impact of
foreign currency movements," said Tom
Olinger, chief financial officer, Prologis. "As a result of
our efforts, we currently have $2.4
billion in liquidity and we've addressed our unsecured debt
maturities until 2017. We have the ability to complete the
long-term funding of KTR and have the capital to support future
growth through asset recycling."
NET EARNINGS
Net earnings per diluted share was
$0.27 for the second quarter compared
with $0.13 for the same period in
2014.
GROWS ANNUALIZED DIVIDEND BY 11 PERCENT AND INCREASES 2015
CORE FFO GUIDANCE MIDPOINT
Dividend
The Prologis
Board of Directors declared a regular cash dividend for the quarter
ending September 30, 2015, on the
following securities:
- A dividend of $0.40 per share of
the company's common stock, representing an increase of 11 percent
over the June 2015 quarterly common
stock dividend, payable September 30,
2015, to common stockholders of record at the close of
business on September 18, 2015;
and
- A dividend of $1.0675 per share
of the company's 8.54 percent Series Q Cumulative Redeemable
Preferred Stock, payable September 30,
2015, to Series Q stockholders of record at the close of
business on September 18, 2015.
"This increase in our common stock dividend is the second this
year, and the combined impact results in a 21 percent increase over
the 2014 dividend level on a run rate basis," said Olinger. "The
growth in our dividend was driven by the cash flow accretion from
the KTR transaction and a stronger operations outlook."
Guidance
Prologis increased the midpoint of its
full-year 2015 Core FFO guidance and narrowed the range to
$2.18 to $2.22 per diluted share from
$2.16 to $2.22 per diluted share, representing expected
year-over-year growth of 17 percent. The company expects to
recognize net earnings, for GAAP purposes, of $1.12 to $1.16 per share.
The Core FFO and earnings guidance described 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 expense, gains (losses)
recognized from real estate transactions and early extinguishment
of debt, acquisition costs, 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 these
items.
WEBCAST & CONFERENCE CALL INFORMATION
Prologis
will host a live webcast/conference call to discuss quarterly
results, current market conditions and future outlook today,
July 21, at 11
a.m. U.S. Eastern Time. Interested parties are encouraged to
access the webcast by clicking on the Investor Events and
Presentations section 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 48765490.
A telephonic replay will be available July 21-Aug. 21 at +1 855-859-2056 (from the U.S.
and Canada) or +1 404-537-3406
(from all other countries); please use conference code 48765490.
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 June 30,
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 670 million
square feet (62 million square meters) in 21 countries. The company
leases modern distribution facilities to more than 5,200 customers,
including third-party logistics providers, transportation
companies, retailers and manufacturers.
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
June 30,
|
|
Six Months ended
June 30,
|
(dollars in
thousands, except per share data)
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
Revenues
|
|
$ 510,404
|
|
$ 460,089
|
|
$ 973,251
|
|
$ 894,771
|
|
Net earnings
attributable to common stockholders
|
|
140,240
|
|
72,715
|
|
485,446
|
|
77,381
|
|
Core FFO
|
|
273,885
|
|
244,275
|
|
528,264
|
|
461,830
|
|
AFFO
|
|
411,847
|
|
224,690
|
|
624,628
|
|
402,155
|
|
Adjusted
EBITDA
|
|
489,035
|
|
403,507
|
|
855,031
|
|
764,699
|
|
Value creation from
development stabilizations - Prologis share
|
|
179,098
|
|
82,218
|
|
301,384
|
|
132,725
|
|
Common stock
dividends paid
|
|
188,926
|
|
166,639
|
|
377,841
|
|
333,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share -
diluted:
|
|
|
|
|
|
|
|
|
|
|
Net earnings
attributable to common stockholders
|
|
$ 0.27
|
|
$ 0.13
|
|
$ 0.92
|
|
$ 0.15
|
|
|
Core FFO
|
|
0.52
|
|
0.48
|
|
1.01
|
|
0.91
|
|
|
Business line
reporting:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
operations
|
|
0.48
|
|
0.41
|
|
0.93
|
|
0.81
|
|
|
|
Strategic
capital
|
|
0.04
|
|
0.07
|
|
0.08
|
|
0.10
|
|
|
|
Core
FFO
|
|
0.52
|
|
0.48
|
|
1.01
|
|
0.91
|
|
|
|
Development
gains
|
|
0.14
|
|
0.05
|
|
0.15
|
|
0.06
|
|
Dividends per
share
|
|
0.36
|
|
0.33
|
|
0.72
|
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
June 30, 2015
(A)
|
|
March 31,
2015
|
|
December 31,
2014
|
Assets:
|
|
|
|
|
|
|
|
|
|
Investments in real
estate properties:
|
|
|
|
|
|
|
|
|
|
|
Operating
properties
|
|
$ 23,685,534
|
|
|
$ 18,291,593
|
|
|
$ 18,635,452
|
|
|
Development
portfolio
|
|
1,547,395
|
|
|
1,452,266
|
|
|
1,473,980
|
|
|
Land
|
|
1,597,802
|
|
|
1,535,622
|
|
|
1,577,786
|
|
|
Other real estate
investments
|
|
632,318
|
|
|
521,018
|
|
|
502,927
|
|
|
|
|
|
|
27,463,049
|
|
|
21,800,499
|
|
|
22,190,145
|
|
|
Less accumulated
depreciation
|
|
3,075,438
|
|
|
2,877,478
|
|
|
2,790,781
|
|
|
|
|
Net investments in
real estate properties
|
|
24,387,611
|
|
|
18,923,021
|
|
|
19,399,364
|
|
Investments in and
advances to unconsolidated entities
|
|
4,911,505
|
|
|
4,559,721
|
|
|
4,824,724
|
|
Assets held for
sale
|
|
514,752
|
|
|
337,229
|
|
|
43,934
|
|
Note receivable
backed by real estate
|
|
197,500
|
|
|
197,500
|
|
|
-
|
|
|
|
|
Net investments in
real estate
|
|
30,011,368
|
|
|
24,017,471
|
|
|
24,268,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
351,025
|
|
|
192,013
|
|
|
350,692
|
|
Other
assets
|
|
1,240,004
|
|
|
1,251,337
|
|
|
1,199,509
|
|
|
|
|
Total
assets
|
|
$ 31,602,397
|
|
|
$ 25,460,821
|
|
|
$ 25,818,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity:
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$ 12,121,305
|
|
|
$ 8,641,421
|
|
|
$ 9,380,199
|
|
|
Accounts payable,
accrued expenses, and other liabilities
|
|
1,127,068
|
|
|
1,026,593
|
|
|
1,254,425
|
|
|
|
|
Total
liabilities
|
|
13,248,373
|
|
|
9,668,014
|
|
|
10,634,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
78,235
|
|
|
78,235
|
|
|
78,235
|
|
|
|
Common
stock
|
|
5,241
|
|
|
5,240
|
|
|
5,095
|
|
|
|
Additional paid-in
capital
|
|
19,129,348
|
|
|
19,052,562
|
|
|
18,467,009
|
|
|
|
Accumulated other
comprehensive loss
|
|
(631,265)
|
|
|
(701,713)
|
|
|
(600,337)
|
|
|
|
Distributions in
excess of net earnings
|
|
(3,870,808)
|
|
|
(3,819,351)
|
|
|
(3,974,493)
|
|
|
|
|
Total stockholders'
equity
|
|
14,710,751
|
|
|
14,614,973
|
|
|
13,975,509
|
|
|
Noncontrolling
interests
|
|
3,461,450
|
|
|
1,122,001
|
|
|
1,159,901
|
|
|
Noncontrolling
interests - limited partnership unitholders
|
|
181,823
|
|
|
55,833
|
|
|
48,189
|
|
|
|
|
Total
equity
|
|
18,354,024
|
|
|
15,792,807
|
|
|
15,183,599
|
|
|
|
|
Total liabilities
and equity
|
|
$ 31,602,397
|
|
|
$ 25,460,821
|
|
|
$ 25,818,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
(in thousands,
except per share amounts)
|
June
30,
|
|
June
30,
|
|
|
|
|
2015
(A)
|
2014
|
|
2015
|
2014
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Rental
income
|
|
$ 461,444
|
|
$ 381,273
|
|
|
$ 880,246
|
|
$ 769,513
|
|
Strategic capital
income
|
|
47,046
|
|
76,334
|
|
|
89,071
|
|
121,644
|
|
Development
management and other income
|
|
1,914
|
|
2,482
|
|
|
3,934
|
|
3,614
|
|
|
Total
revenues
|
|
510,404
|
|
460,089
|
|
|
973,251
|
|
894,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Rental
expenses
|
|
125,599
|
|
109,576
|
|
|
252,533
|
|
220,093
|
|
Strategic capital
expenses
|
|
20,115
|
|
27,837
|
|
|
40,476
|
|
52,000
|
|
General and
administrative expenses
|
|
57,027
|
|
60,375
|
|
|
113,315
|
|
123,578
|
|
Depreciation and
amortization
|
|
190,188
|
|
161,577
|
|
|
359,996
|
|
321,857
|
|
Other
expenses
|
|
30,127
|
|
5,450
|
|
|
35,702
|
|
10,503
|
|
|
Total
expenses
|
|
423,056
|
|
364,815
|
|
|
802,022
|
|
728,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
87,348
|
|
95,274
|
|
|
171,229
|
|
166,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
|
Earnings from
unconsolidated entities, net
|
|
41,784
|
|
21,151
|
|
|
72,826
|
|
50,897
|
|
Interest
expense
|
|
(68,902)
|
|
(80,184)
|
|
|
(137,663)
|
|
(165,707)
|
|
Gains on dispositions
of development properties and land, net
|
|
74,236
|
|
29,541
|
|
|
75,067
|
|
37,051
|
|
Gains on dispositions
of other investments in real estate properties, net
|
|
34,546
|
|
140,042
|
|
|
311,430
|
|
149,587
|
|
Foreign currency and
derivative gains (losses), related amortization and
interest and other income (expense), net
|
|
(23,665)
|
|
15,246
|
|
|
21,950
|
|
1,112
|
|
Losses on early
extinguishment of debt, net
|
|
(236)
|
|
(77,558)
|
|
|
(16,525)
|
|
(77,285)
|
|
|
Total other income
(expense)
|
|
57,763
|
|
48,238
|
|
|
327,085
|
|
(4,345)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
145,111
|
|
143,512
|
|
|
498,314
|
|
162,395
|
|
Income tax expense
(benefit) - current and deferred
|
|
4,851
|
|
(8,918)
|
|
|
6,742
|
|
(2,038)
|
Consolidated net
earnings
|
|
140,260
|
|
152,430
|
|
|
491,572
|
|
164,433
|
Net loss (earnings)
loss attributable to noncontrolling interests
|
|
1,658
|
|
(71,250)
|
|
|
(2,778)
|
|
(76,452)
|
Net earnings
attributable to controlling interests
|
|
141,918
|
|
81,180
|
|
|
488,794
|
|
87,981
|
Preferred stock
dividends
|
|
(1,678)
|
|
(1,948)
|
|
|
(3,348)
|
|
(4,083)
|
Loss on preferred
stock repurchase
|
|
-
|
|
(6,517)
|
|
|
-
|
|
(6,517)
|
Net earnings
attributable to common stockholders
|
|
$ 140,240
|
|
$ 72,715
|
|
|
$ 485,446
|
|
$ 77,381
|
Weighted average
common shares outstanding - Diluted
|
|
530,640
|
|
516,619
|
|
|
529,827
|
|
504,560
|
Net earnings per
share attributable to common stockholders - Diluted
|
|
$ 0.27
|
|
$ 0.13
|
|
|
$ 0.92
|
|
$ 0.15
|
|
Three Months
Ended
|
|
Six Months
Ended
|
(in
thousands)
|
June
30,
|
|
June
30,
|
|
|
|
|
2015
|
2014
|
|
2015
|
2014
|
Reconciliation of
net earnings to FFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
attributable to common stockholders
|
|
$ 140,240
|
|
$ 72,715
|
|
|
$ 485,446
|
|
$ 77,381
|
Add (deduct) NAREIT
defined adjustments:
|
|
|
|
|
|
|
|
|
|
|
Real estate related
depreciation and amortization
|
|
183,237
|
|
155,842
|
|
|
347,488
|
|
310,337
|
|
Gains on dispositions
of other investments in real estate properties, net
|
|
(34,546)
|
|
(140,042)
|
|
|
(311,430)
|
|
(149,587)
|
|
Reconciling items
related to noncontrolling interests
|
|
(20,781)
|
|
59,945
|
|
|
(32,293)
|
|
53,744
|
|
Our share of
reconciling items included in earnings from unconsolidated
co-investment ventures
|
|
47,578
|
|
49,737
|
|
|
94,950
|
|
91,453
|
|
Our share of
reconciling items included in earnings from other unconsolidated
ventures
|
|
1,577
|
|
1,734
|
|
|
3,298
|
|
3,084
|
Subtotal-NAREIT
defined FFO
|
|
317,305
|
|
199,931
|
|
|
587,459
|
|
386,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct) our
defined adjustments:
|
|
|
|
|
|
|
|
|
|
|
Unrealized foreign
currency and derivative losses (gains) and related amortization,
net
|
|
29,354
|
|
(10,035)
|
|
|
(3,506)
|
|
18,075
|
|
Deferred income tax
expense (benefit)
|
|
145
|
|
(21,446)
|
|
|
1,197
|
|
(20,415)
|
|
Reconciling items
related to noncontrolling interests
|
|
776
|
|
-
|
|
|
(792)
|
|
-
|
|
Our share of
reconciling items included in earnings from unconsolidated
co-investment ventures
|
|
(15,836)
|
|
(4,089)
|
|
|
(13,887)
|
|
(3,860)
|
FFO, as defined by
Prologis
|
|
331,744
|
|
164,361
|
|
|
570,471
|
|
380,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive
at Core FFO:
|
|
|
|
|
|
|
|
|
|
|
Gains on dispositions
of development properties and land, net of taxes
|
|
(76,306)
|
|
(24,948)
|
|
|
(79,540)
|
|
(31,106)
|
|
Acquisition
expenses
|
|
26,130
|
|
1,703
|
|
|
27,434
|
|
2,203
|
|
Losses on early
extinguishment of debt and repurchase of preferred stock,
net
|
|
236
|
|
84,075
|
|
|
16,525
|
|
83,802
|
|
Reconciling items
related to noncontrolling interests
|
|
(10,198)
|
|
-
|
|
|
(12,227)
|
|
-
|
|
Our share of
reconciling related to unconsolidated co-investment
ventures
|
|
2,279
|
|
19,084
|
|
|
5,601
|
|
26,719
|
Core
FFO
|
|
$ 273,885
|
|
$ 244,275
|
|
|
$ 528,264
|
|
$ 461,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
76,358
|
|
25,028
|
|
|
80,607
|
|
31,140
|
|
Straight-lined rents
and amortization of lease intangibles
|
|
(12,568)
|
|
(6,483)
|
|
|
(20,453)
|
|
(15,059)
|
|
Property
improvements
|
|
(18,409)
|
|
(15,899)
|
|
|
(33,339)
|
|
(27,041)
|
|
Tenant
improvements
|
|
(20,419)
|
|
(20,707)
|
|
|
(40,812)
|
|
(40,779)
|
|
Leasing
commissions
|
|
(17,398)
|
|
(12,376)
|
|
|
(31,733)
|
|
(27,936)
|
|
Amortization of
management contracts
|
|
1,351
|
|
1,092
|
|
|
2,295
|
|
2,397
|
|
Amortization of debt
premiums and financing costs, net
|
|
(4,504)
|
|
(1,259)
|
|
|
(8,443)
|
|
(3,528)
|
|
Cash received (paid)
on net investment hedges
|
|
120,067
|
|
(2,729)
|
|
|
121,524
|
|
(7,855)
|
|
Stock compensation
expense
|
|
13,484
|
|
13,748
|
|
|
26,718
|
|
28,986
|
AFFO
|
|
|
|
$ 411,847
|
|
$ 224,690
|
|
|
$ 624,628
|
|
$ 402,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
dividends
|
|
$ 188,926
|
|
$ 166,639
|
|
|
$ 377,841
|
|
$ 333,328
|
Business Line Reporting. Core FFO and development gains
are generated by our three lines of business: (i) real estate
operations; (ii) strategic capital; and (iii) development.
Real estate operations 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 the asset management
related fees we earn from our co-investment ventures (both
consolidated and unconsolidated) less costs directly associated to
our strategic capital group, plus development management
income. 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 calculation of per share
amounts. 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 is as
follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2015
|
2014
|
|
2015
|
2014
|
Net
earnings
|
|
|
|
|
|
Net
earnings
|
$ 140,240
|
$ 72,715
|
|
$ 485,446
|
$ 77,381
|
Noncontrolling
interest attributable to exchangeable limited partnership
units
|
1,623
|
264
|
|
3,273
|
302
|
Gains, net of
expenses, associated with exchangeable debt assumed
exchanged
|
-
|
(7,498)
|
|
(1,614)
|
-
|
Adjusted net
earnings - Diluted
|
$ 141,863
|
$ 65,481
|
|
$ 487,105
|
$ 77,683
|
|
|
|
|
|
|
Weighted average
common shares outstanding - Basic
|
523,476
|
499,112
|
|
518,791
|
498,919
|
Incremental weighted
average effect on exchange of limited partnership units
|
5,431
|
1,964
|
|
4,617
|
1,964
|
Incremental weighted
average effect of stock awards
|
1,733
|
3,664
|
|
2,037
|
3,677
|
Incremental weighted
average effect on exchangeable debt assumed exchanged
(a)
|
-
|
11,879
|
|
4,382
|
-
|
Weighted average
common shares outstanding - Diluted
|
530,640
|
516,619
|
|
529,827
|
504,560
|
|
|
|
|
|
|
Net earnings per
share - Basic
|
$ 0.27
|
$ 0.15
|
|
$ 0.94
|
$ 0.16
|
|
|
|
|
|
|
Net earnings per
share - Diluted
|
$ 0.27
|
$ 0.13
|
|
$ 0.92
|
$ 0.15
|
|
|
|
|
|
|
Core
FFO
|
|
|
|
|
|
Core FFO
|
$ 273,885
|
$ 244,275
|
|
$ 528,264
|
$ 461,830
|
Noncontrolling
interest attributable to exchangeable limited partnership
units
|
902
|
35
|
|
1,782
|
57
|
Interest expense on
exchangeable debt assumed exchanged
|
-
|
4,246
|
|
3,506
|
8,492
|
Core FFO -
Diluted
|
$ 274,787
|
$ 248,556
|
|
$ 533,552
|
$ 470,379
|
|
|
|
|
|
|
Weighted average
common shares outstanding - Basic
|
523,476
|
499,112
|
|
518,791
|
498,919
|
Incremental weighted
average effect on exchange of limited partnership units
|
5,431
|
1,964
|
|
4,617
|
1,964
|
Incremental weighted
average effect of stock awards
|
1,733
|
3,664
|
|
2,037
|
3,677
|
Incremental weighted
average effect on exchangeable debt assumed exchanged
(a)
|
-
|
11,879
|
|
4,382
|
11,879
|
Weighted average
common shares outstanding - Diluted
|
530,640
|
516,619
|
|
529,827
|
516,439
|
|
|
|
|
|
|
Core FFO per share
- Diluted
|
$ 0.52
|
$ 0.48
|
|
$ 1.01
|
$ 0.91
|
|
|
(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 attributable to common
stockholders/unitholders ("FFO, as defined by Prologis"); Core FFO
attributable to common stockholders/unitholders ("Core FFO"); AFFO
(collectively referred to as "FFO"). FFO is a financial measure
that is not determined in accordance with GAAP, but is a 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. We exclude depreciation from our
unconsolidated entities and the third parties' share of our
consolidated ventures.
|
(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 and
consolidated 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 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 third party ownership
share of the applicable reconciling items based on average
ownership percentage for the applicable periods.
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 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 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.
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
|
|
June
30,
|
|
2015
|
2014
|
Change
(%)
|
Rental
Income:
|
|
|
|
Per the Consolidated
Statements of Operations
|
$ 461,444
|
$ 381,273
|
|
Properties not
included and other adjustments (a)
|
(76,633)
|
(50,548)
|
|
Unconsolidated
Co-Investment Ventures
|
406,189
|
428,155
|
|
Same Store -
Rental Income
|
$ 791,000
|
$ 758,880
|
4.2%
|
|
|
|
|
Rental
Expense:
|
|
|
|
Per the Consolidated
Statements of Operations
|
$ 125,599
|
$ 109,576
|
|
Properties not
included and other adjustments (b)
|
(12,343)
|
(12,098)
|
|
Unconsolidated
Co-Investment Ventures
|
92,909
|
101,955
|
|
Same Store -
Rental Expense
|
$ 206,165
|
$ 199,433
|
3.4%
|
|
|
|
|
NOI-GAAP:
|
|
|
|
Per the Consolidated
Statements of Operations
|
$ 335,845
|
$ 271,697
|
|
Properties not
included and other adjustments
|
(64,290)
|
(38,450)
|
|
Unconsolidated
Co-Investment Ventures
|
313,280
|
326,200
|
|
Same Store - NOI -
GAAP
|
$ 584,835
|
$ 559,447
|
4.5%
|
Same Store - NOI -
GAAP - Prologis Share (c)
|
$ 349,401
|
$ 329,981
|
5.9%
|
|
|
|
|
NOI-Adjusted
Cash:
|
|
|
|
Same store- NOI -
GAAP
|
$ 584,835
|
$ 559,447
|
|
Adjustments
(d)
|
(7,186)
|
(4,656)
|
|
Same Store - NOI-
Adjusted Cash
|
$ 577,649
|
$ 554,791
|
4.1%
|
Same Store - NOI-
Adjusted Cash - Prologis Share (c)
|
$ 345,507
|
$ 328,574
|
5.2%
|
|
|
(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)
|
Prologis share of
Same Store is calculated using the underlying building information
from the Same Store NOI GAAP and Adjusted Cash calculations and
applying our ownership percentage as of June 30, 2015 to the NOI of
each building for both periods.
|
(d)
|
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.