PROLOGIS, INC. SAN FRANCISCO, Oct. 20, 2016 /PRNewswire/ -- Prologis, Inc. (NYSE: PLD), the global leader in logistics real estate, today reported results for the third quarter of 2016.
Net earnings per share was $0.52 compared with $0.49 for the same period in 2015. The year-over-year increase is due primarily to improved operating performance and higher net promote income offset by lower gains from the disposition of real estate. Core funds from operations per diluted share* was $0.73 compared with $0.58 for the same period in 2015. The 26% year-over-year increase reflects improved operating performance and higher net promote income.
"This was another excellent quarter for Prologis, resulting from our well-located portfolio, favorable secular trends and the laser focus of the team," said Hamid R. Moghadam, chairman and CEO, Prologis. "Our portfolio and financial position have never been stronger and we are very confident in our prospects for earnings growth going forward."
Moghadam added: "Customers continue to invest in their supply chains to improve efficiencies. Their requirements for logistics facilities are matching up very well with our properties' locations and functional characteristics. In the third quarter, we saw broad-based demand across customer segments, led by e-commerce, automotive, consumer products and construction supplies."
OPERATING RESULTS STRONG ACROSS THE BOARD
Owned &
Managed 3Q16 3Q15 Notes
-------- ---- ---- -----
Period End
Occupancy 96.6% 96.0% Europe reached 96.1% occupancy
---------- ---- ---- ------------------------------
Leases 46MSF 42MSF Record operating leasing
Signed volume
------ ----- ----- -------------------------
Prologis Share 3Q16 3Q15 Notes
-------------- ---- ---- -----
Net Effective Rent Change 15.0% 12.0% Led by the U.S. at
23.3% and the U.K.
at 20.5%
------------------------- ---- ---- -------------------
Cash Rent Change 5.7% 3.6%
---------------- --- ---
Net Effective Same Store 5.6% 6.2% Led by the U.S. at
NOI* 6.9%
------------------------ --- --- -------------------
Cash Same Store NOI* 6.6% 4.5% Led by the U.S. at
8.6%
-------------------- --- --- -------------------
DEVELOPMENT STABILIZATION AND CAPITAL RECYCLING ACTIVITY ON TRACK FOR RECORD PERFORMANCE
Prologis Share 3Q16
-------------- ----
Building Acquisitions $17M
--------------------- ----
Weighted avg stabilized cap rate 5.4%
-------------------------------- ---
Development Stabilizations $392M
-------------------------- -----
Estimated weighted avg yield 7.2%
---------------------------- ---
Estimated weighted avg margin 31.8%
----------------------------- ----
Estimated value creation $125M
------------------------ -----
Development Starts $434M
------------------ -----
Estimated weighted avg margin 17.6%
----------------------------- ----
Estimated value creation $76M
------------------------ ----
% Build-to-suit 45.5%
--------------- ----
Total Dispositions and
Contributions $517M
---------------------- -----
Weighted avg stabilized cap rate
(excluding land and other real
estate) 6.2%
-------------------------------- ---
CAPITAL MARKETS ACTIVITY BENEFITS FROM ACCESS TO GLOBAL CAPITAL
Prologis ended the quarter with liquidity of $3.8 billion. During the third quarter, the company and its co-investment ventures completed $1.3 billion of financings, including a ¥120 billion loan.
"The $1.2 billion yen transaction we completed in the quarter to refinance three older loans is a great example of our ability to source capital globally at attractive rates," said Thomas S. Olinger, chief financial officer, Prologis. "This new facility has a current interest rate of 65 basis points and a term of approximately seven years."
GUIDANCE INCREASED FOR 2016
Net earnings guidance increased $0.13 at the midpoint, primarily a result of improved operations and higher gains from the disposition of real estate.
"Market fundamentals continued to exceed our expectations in the third quarter," Olinger said. "As a result of outperformance from operations we are increasing the midpoint of our full-year guidance ranges for earnings and net effective same store NOI*. The earnings increase reflects net earnings growth of 17 percent and Core FFO* growth of 15 percent including promotes and 11 percent excluding promotes. During this same period, we have further strengthened our balance sheet and increased liquidity."
KEY CHANGES TO GUIDANCE
Earnings (per diluted
share) Previous Revised
GAAP Net Earnings $1.70 to $1.90 $1.90 to $1.95
----------------- -------------- --------------
Core FFO* $2.52 to $2.58 $2.56 to $2.57
-------- -------------- --------------
Operations Previous Revised
Net Effective Same Store NOI -
Prologis share* 4.75% to 5.25% 5.50% to 5.80%
------------------------------ ------------- -------------
Other Assumptions (in millions) Previous Revised
Strategic capital revenue $190 to $200 $195 to $200
------------------------- ------------ ------------
Net promote income $75 to $85 $79 to $82
------------------ ---------- ----------
Realized development gains $200 to $250 $275 to $300
-------------------------- ------------ ------------
General & administrative expenses $218 to $228 $222 to $226
--------------------------------- ------------ ------------
Capital Deployment (in millions) Previous Revised
Development stabilizations (85%
Prologis share) $2,200 to $2,400 $2,400 to $2,600
------------------------------- ---------------- ----------------
Development starts (85% Prologis
share) $2,000 to $2,300 $2,100 to $2,300
-------------------------------- ---------------- ----------------
Building and land dispositions
(75% Prologis share) $2,000 to $2,300 $2,000 to $2,200
------------------------------ ---------------- ----------------
Building contributions (80%
Prologis share, net of retained
ownership) $1,100 to $1,400 $1,200 to $1,500
-------------------------------- ---------------- ----------------
The earnings guidance described above includes potential future gains (losses) recognized from real estate transactions but excludes any future foreign currency or derivative gains or losses as these items are difficult to predict. 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 2016 relates predominantly to these items. Please refer to our third quarter Supplemental Information, which is available on our Investor Relations website at www.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 and future outlook. Here are the event details:
-- Thursday, October 20, 2016, at 12 p.m. U.S. Eastern Time.
-- Live webcast at http://ir.prologis.com by clicking Investors>Investor
Events and Presentations.
-- Dial in: +1 877-256-7020 or +1 973-409-9692 and enter Passcode 81585906.
A telephonic replay will be available October 20-27 at +1 (855) 859-2056 (from the United States and Canada) or +1 (404) 537-3406 (from all other countries) using conference code 81585906. The webcast replay will be posted when available in the Investor Relations "Events & Presentations" section.
ABOUT PROLOGIS
Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of September 30, 2016, 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 665 million square feet (62 million square meters) in 20 countries. Prologis leases modern distribution facilities to a diverse base of approximately 5,200 customers 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," "estimates" and 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, 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 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 status, tax structuring and income tax 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 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 us under the heading "Risk Factors." We undertake no duty to update any forward-looking statements appearing in this document.
*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.
dollars
in
millions,
except
per
share/
unit
data Three Months ended Nine Months ended
September 30, September 30,
--- ------------- -------------
2016 2015 2016 2015
Revenues $705 $581 $1,913 $1,554
Net
earnings
attributable
to
common
stockholders 279 259 763 744
Core
FFO* 402 307 1,056 836
AFFO* 368 356 974 859
Adjusted
EBITDA* 573 567 1,582 1,422
Estimated
value
creation
from
development
starts
-
Prologis
share 76 63 198 265
Common
stock
dividends
and
common
limited
partnership
unit
distributions 231 210 692 588
Per common share - diluted:
Net
earnings
attributable
to
common
stockholders $0.52 $0.49 $1.44 $1.41
Core
FFO* 0.73 0.58 1.94 1.59
Business line reporting:
Real
estate
operations* 0.55 0.54 1.65 1.47
Strategic
capital* 0.18 0.04 0.29 0.12
---- ---- ---- ----
Core
FFO* 0.73 0.58 1.94 1.59
Realized
development
gains,
net
of
taxes 0.09 0.24 0.27 0.39
Dividends
and
distributions
per
common
share/
unit 0.42 0.40 1.26 1.12
* This is a non-GAAP financial measure, please see below for
further explanation.
in thousands September 30, 2016 June 30, 2016 December 31, 2015
------------ ------------------ ------------- -----------------
Assets:
Investments in real
estate properties:
Operating properties $23,876,290 $23,913,335 $23,735,745
Development
portfolio 1,809,002 1,770,771 1,872,903
Land 1,352,600 1,322,214 1,359,794
Other real estate
investments 532,812 550,090 552,926
------- ------- -------
27,570,704 27,556,410 27,521,368
Less accumulated
depreciation 3,638,688 3,521,198 3,274,284
--------- --------- ---------
Net investments in real estate
properties 23,932,016 24,035,212 24,247,084
Investments in and
advances to
unconsolidated entities 4,580,584 4,483,804 4,755,620
Assets held for sale 450,349 393,434 378,423
Notes receivable backed
by real estate 33,800 33,800 235,050
Net investments in real estate 28,996,749 28,946,250 29,616,177
Cash and cash
equivalents 375,120 332,221 264,080
Other assets 1,516,340 1,467,463 1,514,510
Total assets $30,888,209 $30,745,934 $31,394,767
Liabilities and Equity:
Liabilities:
Debt $11,256,997 $11,139,415 $11,626,831
Accounts payable,
accrued expenses
and other
liabilities 1,347,942 1,323,485 1,347,100
Total liabilities 12,604,939 12,462,900 12,973,931
---------- ---------- ----------
Equity:
Stockholders'
equity:
Preferred stock 78,235 78,235 78,235
Common stock 5,286 5,265 5,245
Additional paid-
in capital 19,433,001 19,361,787 19,302,367
Accumulated other
comprehensive
loss (889,223) (848,079) (791,429)
Distributions in
excess of net
earnings (3,828,132) (3,885,017) (3,926,483)
---------- ---------- ----------
Total stockholders' equity 14,799,167 14,712,191 14,667,935
Noncontrolling
interests 3,092,988 3,154,205 3,320,227
Noncontrolling
interests -limited
partnership
unitholders 391,115 416,638 432,674
------- ------- -------
Total equity 18,283,270 18,283,034 18,420,836
---------- ---------- ----------
Total liabilities and equity $30,888,209 $30,745,934 $31,394,767
in thousands, except per share amounts Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
Revenues:
Rental $560,277 $532,755 $1,660,524 $1,413,001
Strategic capital 140,577 44,176 241,565 133,247
Development management and
other 3,711 3,691 10,931 7,625
Total revenues 704,565 580,622 1,913,020 1,553,873
------- ------- --------- ---------
Expenses:
Rental 140,514 140,284 427,820 393,199
Strategic capital 44,624 26,532 97,783 76,661
General and administrative 58,157 54,178 165,634 157,458
Depreciation and amortization 224,867 247,471 705,249 607,467
Other 3,779 8,765 12,364 44,467
Total expenses 471,941 477,230 1,408,850 1,279,252
------- ------- --------- ---------
Operating income 232,624 103,392 504,170 274,621
Other income (expense):
Earnings from unconsolidated
co-investment ventures, net 44,547 32,617 132,673 103,704
Earnings from other
unconsolidated ventures, net 1,310 940 12,949 2,679
Interest expense (75,310) (81,035) (232,577) (218,698)
Gains on dispositions of
development properties and
land, net 53,717 135,043 160,001 210,110
Gains on dispositions of real
estate, net (excluding
development properties and
land) 63,579 133,748 301,962 445,178
Foreign currency and
derivative gains (losses)
and interest and other
income (expense), net 1,202 (3,191) (19,226) 18,759
Gains (losses) on early
extinguishment of debt, net 1,492 - 2,484 (16,525)
----------- ----- -----
Total other income 90,537 218,122 358,266 545,207
------ ------- ------- -------
Earnings before income taxes 323,161 321,514 862,436 819,828
Current income tax expense (13,054) (17,283) (38,335) (22,828)
Deferred income tax benefit
(expense) (2,865) 2,955 1,737 1,758
----------- ------ -----
Consolidated net earnings 307,242 307,186 825,838 798,758
Net earnings attributable to noncontrolling interests (18,629) (43,360) (35,865) (43,558)
Net earnings attributable to noncontrolling interests -limited
partnership units (7,687) (3,176) (22,238) (5,756)
------ ------ ------- ------
Net earnings attributable to controlling interests 280,926 260,650 767,735 749,444
Preferred stock dividends (1,671) (1,671) (5,056) (5,019)
Net earnings attributable to common stockholders $279,255 $258,979 $762,679 $744,425
Weighted average common shares outstanding - Diluted 547,200 532,073 545,230 531,121
Net earnings per share attributable to common stockholders - Diluted $0.52 $0.49 $1.44 $1.41
in thousands, except per share
amounts Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
Net earnings attributable to common
stockholders $279,255 $258,979 $762,679 $744,425
Add (deduct) NAREIT defined adjustments:
Real estate
related
depreciation
and
amortization 217,041 239,896 681,866 587,384
Gains on
dispositions
of real
estate, net
(excluding
development
properties
and land) (63,579) (133,748) (301,962) (445,178)
Reconciling
items related
to
noncontrolling
interests (23,028) (1,080) (87,318) (33,373)
Our share of
reconciling
items related
to
unconsolidated
co-
investment
ventures 36,794 49,349 116,821 144,299
Our share of
reconciling
items related
to other
unconsolidated
ventures 1,420 1,650 436 4,948
Subtotal-NAREIT defined FFO* $447,903 $415,046 $1,172,522 $1,002,505
Add (deduct) our defined adjustments:
Unrealized
foreign
currency and
derivative
losses
(gains), net (1,915) 12,362 21,864 8,856
Deferred
income tax
expense
(benefit) 2,865 (2,955) (1,737) (1,758)
Current income
tax expense
related to
acquired tax
liabilities - 3,497 - 3,497
Reconciling
items related
to
noncontrolling
interests (1,247) (375) 39 (1,167)
Our share of
reconciling
items related
to
unconsolidated
co-
investment
ventures 830 2,116 1,170 (11,771)
FFO, as modified by Prologis* $448,436 $429,691 $1,193,858 $1,000,162
Adjustments to arrive at Core FFO:
Gains on
dispositions
of
development
properties
and land, net (53,717) (135,043) (160,001) (210,110)
Current income
tax expense
on
dispositions 4,701 9,403 14,820 4,930
Acquisition
expenses 304 2,115 2,532 29,549
Losses (gains)
on early
extinguishment
of debt, net (1,492) - (2,484) 16,525
Reconciling
items related
to
noncontrolling
interests 3,242 (180) 4,298 (12,407)
Our share of
reconciling
items related
to
unconsolidated
co-
investment
ventures 1,364 1,282 4,683 6,883
Our share of
reconciling
items related
to other
unconsolidated
ventures (685) - (1,995) -
Core FFO* $402,153 $307,268 $1,055,711 $835,532
Adjustments to arrive at Adjusted FFO ("AFFO"), including our
share of unconsolidated co-investment ventures less
noncontrolling interests:
Gains on
dispositions
of
development
properties
and land, net 53,717 135,043 160,001 210,110
Current income
tax expense
on
dispositions (4,701) (9,403) (14,820) (4,930)
Straight-
lined rents
and
amortization
of lease
intangibles (31,551) (22,178) (85,942) (37,537)
Property
improvements (22,337) (19,583) (50,294) (45,540)
Tenant
improvements (18,659) (22,812) (65,540) (59,536)
Leasing
commissions (17,723) (20,473) (59,561) (49,086)
Amortization
of management
contracts 945 1,088 2,799 3,383
Amortization
of debt
premiums and
financing
costs, net (3,431) (7,161) (13,047) (21,547)
Stock
compensation
expense 14,446 13,406 43,658 40,124
Reconciling
items related
to
noncontrolling
interests 11,781 13,334 43,809 31,109
Our share of
reconciling
items related
to
unconsolidated
co-
investment
ventures (16,142) (12,895) (42,332) (43,344)
AFFO* $368,498 $355,634 $974,442 $858,738
* This is a non-GAAP financial measure, please see below for further explanation.
in thousands Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
Net earnings attributable to common
stockholders $279,255 $258,979 $762,679 $744,425
Gains on dispositions of real estate,
net (excluding development
properties and land) (63,579) (133,748) (301,962) (445,178)
Depreciation and amortization
expenses 224,867 247,471 705,249 607,467
Interest expense 75,310 81,035 232,577 218,698
Losses (gains) on early
extinguishment of debt, net (1,492) - (2,484) 16,525
Current and deferred income tax
expense, net 15,919 14,328 36,598 21,070
Net earnings attributable to
noncontrolling interests -limited
partnership unitholders 7,687 3,176 22,238 5,756
Pro forma adjustments (1,862) (664) (8,866) 28,751
Preferred stock dividends 1,671 1,671 5,056 5,019
Unrealized foreign currency and
derivative losses (gains), net (1,915) 12,362 21,864 8,856
Stock compensation expense 14,446 13,406 43,658 40,124
Acquisition expenses 304 2,115 2,532 29,549
Adjusted EBITDA, consolidated* $550,611 $500,131 $1,519,139 $1,281,062
Reconciling items related to
noncontrolling interests (37,410) (8,982) (117,942) (64,217)
Our share of reconciling items
related to unconsolidated co-
investment ventures 59,799 75,466 180,385 204,801
Adjusted EBITDA* $573,000 $566,615 $1,581,582 $1,421,646
* This is a non-GAAP financial measure, please see below for further explanation.
Adjusted EBITDA. We use Adjusted EBITDA, a non-Generally Accepted Accounting Principles ("GAAP") financial measure, as a measure of our operating performance. We calculate Adjusted EBITDA beginning with consolidated net earnings (loss) attributable to common stockholders and removing the effect of interest, income taxes, depreciation and amortization, impairment charges, third party acquisition expenses related to the acquisition of real estate, gains or losses from the acquisition or disposition of investments in real estate (other than from land and development properties), 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 derivative activity. We make adjustments to reflect our economic ownership in each entity in which we invest, whether consolidated or unconsolidated.
We consider Adjusted EBITDA to provide investors relevant and useful information because it permits investors to view our operating performance on an unleveraged basis before the effects of income tax, non-cash depreciation and amortization expense, gains and losses on the disposition of non-development properties and other items (outlined above), that affect comparability. We also include a pro forma adjustment in Adjusted EBITDA to reflect a full period of NOI on the operating properties we acquire and stabilize and to remove NOI on properties we dispose of during the quarter assuming the transaction occurred at the beginning of the quarter. By excluding interest expense, Adjusted EBITDA allows investors to measure our operating performance independent of our capital structure and indebtedness and, therefore, allows for a more meaningful comparison of our operating performance to that of other companies, both in the real estate industry and in other industries. Gains and losses on the early extinguishment of debt generally include the costs of repurchasing debt securities. While not infrequent or unusual in nature, these items 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 believe that Adjusted EBITDA helps investors to analyze our ability to meet interest payment obligations and to make quarterly preferred share dividends. We believe that investors should consider Adjusted EBITDA in conjunction with net earnings and the other GAAP measures of our performance to improve their understanding of our operating results, and to make more meaningful comparisons of our performance against other companies. By using Adjusted EBITDA, an investor is assessing the earnings generated by our operations but not taking into account the eliminated expenses or gains incurred in connection with such operations. As a result, Adjusted EBITDA has limitations as an analytical tool and should be used in conjunction with our GAAP presentations. Adjusted EBITDA does not reflect 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.
While EBITDA is a relevant and widely used measure of operating performance, it does not represent net income as defined by GAAP and it should not be considered as an alternative to those indicators in evaluating operating performance or liquidity. Further, our computation of Adjusted EBITDA may not be comparable to EBITDA reported by other companies. 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 of Adjusted EBITDA to consolidated net earnings (loss), a GAAP measurement.
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. 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
in thousands, except per share
amount Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
Net earnings
------------
Net earnings $279,255 $258,979 $762,679 $744,425
Noncontrolling interest
attributable to exchangeable
limited partnership units 7,713 3,203 24,479 7,331
Gains, net of expenses,
associated with exchangeable
debt assumed exchanged - - - (1,614)
Adjusted net earnings -Diluted $286,968 $262,182 $787,158 $750,142
======== ======== ======== ========
Weighted average common shares
outstanding -Basic 527,288 523,528 525,462 520,388
Incremental weighted average
effect on exchange of limited
partnership units 14,568 6,685 17,156 5,875
Incremental weighted average
effect of stock awards 5,344 1,860 2,610 1,953
Incremental weighted average
effect on exchangeable debt
assumed exchanged (a) - - - 2,905
--- --- --- -----
Weighted average common shares
outstanding -Diluted 547,200 532,073 545,228 531,121
======= ======= ======= =======
Net earnings per share - Basic $0.53 $0.49 $1.45 $1.43
===== ===== ===== =====
Net earnings per share -
Diluted $0.52 $0.49 $1.44 $1.41
===== ===== ===== =====
Core FFO
--------
Core FFO $402,153 $307,268 $1,055,711 $835,532
Noncontrolling interest
attributable to exchangeable
limited partnership units 1,088 48 3,282 160
Interest expense on
exchangeable debt assumed
exchanged - - - 3,506
--- --- --- -----
Core FFO - Diluted $403,241 $307,316 $1,058,993 $839,198
======== ======== ========== ========
Weighted average common shares
outstanding -Basic 527,288 523,528 525,462 520,388
Incremental weighted average
effect on exchange of limited
partnership units 16,233 6,685 17,156 4,201
Incremental weighted average
effect of stock awards 5,344 1,860 2,610 1,953
Incremental weighted average
effect on exchangeable debt
assumed exchanged (a) - - - 2,905
--- --- --- -----
Weighted average common shares
outstanding -Diluted 548,865 532,073 545,228 529,447
======= ======= ======= =======
Core FFO per share - Diluted $0.73 $0.58 $1.94 $1.59
---------------------------- ----- ----- ----- -----
(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 modified by Prologis attributable to common stockholders/unitholders ("FFO, as modified by Prologis"); Core FFO attributable to common stockholders/unitholders ("Core FFO"); 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. 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 that FFO is only meaningful when it is used in conjunction with net earnings computed under GAAP. Furthermore, we believe the consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition.
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 modified 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 noncontrolling interests 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 with 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 with 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 revenue. While not infrequent or unusual, these additional items we exclude in calculating FFO, as modified 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 modified by Prologis
To arrive at FFO, as modified 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
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 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 contribution or
sale of land or development
properties;
income tax expense related to the
sale of investments in real estate
and third-party acquisition costs
related to the acquisition of real
(ii) estate;
impairment charges recognized
related to our investments in real
estate generally as a result of our
change in intent to contribute or
(iii) 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.
AFFO
To arrive at AFFO, we adjust Core FFO to include realized gains from the disposition of land and development properties and our share of recurring capital expenditures and exclude our share of the impact of; (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 believe it is appropriate to further adjust our FFO, as modified 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 revenue 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 and AFFO, 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 revenue. 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.
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 these limitations are:
-- The current income tax expenses and acquisition costs 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 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
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 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 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 guided Net Earnings per share to our guided Core FFO per share:
Low High
Net Earnings $1.90 $1.95
Our share of:
Depreciation and amortization 1.71 1.72
Net gains of real estate
transactions, net of taxes (1.10) (1.15)
Unrealized foreign currency and
other 0.05 0.05
---- ----
Core FFO $2.56 $2.57
-------- ----- -----
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 change in rental rates per the lease agreement on new and renewed leases signed during the periods as compared with the previous rental rates in that same space. This measure excludes any free rent periods and teaser rates defined as 50% or less of the stabilized rate.
Rent Change (Net Effective) represents the change in net effective rental rates (average rate over the lease term) on new and renewed leases signed during the period as compared with the previous effective rental rates in that same space.
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 (including development properties that have been completed and available for lease) at January 1, 2015 and throughout the full periods in both 2015 and 2016. 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 financial 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 and one Same Store NOI - Cash. As these are non-GAAP financial 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 and then to Same Store NOI - 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
September 30,
-------------
2016 2015 Change (%)
Rental
Revenue:
Rental
Revenue $435,868 $418,116
Rental
Recoveries 124,409 114,639
------- -------
Per the
Consolidated
Statements
of
Operations 560,277 532,755
Properties
not
included
and
other
adjustments
(a) (165,655) (152,033)
Unconsolidated
Co-
Investment
Ventures 438,860 429,360
------- -------
Same
Store -
Rental
Income $833,482 $810,082 2.9%
-------- -------- -------- ---
Rental
Expense:
Per the
Consolidated
Statements
of
Operations $140,514 $140,284
Properties
not
included
and
other
adjustments
(b) (29,701) (30,685)
Unconsolidated
Co-
Investment
Ventures 90,710 94,937
------ ------
Same
Store -
Rental
Expense $201,523 $204,536 -1.5%
-------- -------- -------- ----
NOI:
Consolidated
NOI $419,763 $392,471
Properties
not
included
and
other
adjustments (135,954) (121,348)
Unconsolidated
Co-
Investment
Ventures 348,150 334,423
------- -------
Same
Store -
NOI $631,959 $605,546 4.4%
Same
Store -
NOI -
Prologis
Share
(c) $363,536 $344,112 5.6%
--------- -------- -------- ---
NOI-
Cash:
Same
store-
NOI $631,959 $605,546
Straight-
line
rent
adjustments
(d) $(11,716) $(14,701)
Fair
value
lease
adjustments
(d) (1,218) (312)
------ ----
Same
Store -
NOI-
Cash $619,025 $590,533 4.8%
Same
Store -
NOI-
Prologis
Share
(c) $356,807 $334,674 6.6%
---------- -------- -------- ---
(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 and NOI -Cash
calculations and applying our
ownership percentage as of September
30, 2016 to the NOI of each building
for both periods.
(d) In order to derive Same Store- NOI
- Cash, we adjust Same Store- NOI
to exclude non-cash items included
in our rental income in our
financial statements, including
straight line rent adjustments and
adjustments related to purchase
accounting 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 stabilized NOI that the property will generate and applying a stabilized capitalization rate applicable to that property. The value creation is calculated as the amount by which the value exceeds our total expected investment and does not include any fees or promotes we may earn. Value Creation for our value-added conversion properties includes the realized economic gain.
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SOURCE Prologis, Inc.
