SAN FRANCISCO, April 17, 2018 /PRNewswire/ — Prologis, Inc. (NYSE: PLD), the global leader in logistics real estate, today reported results for the first quarter of 2018.

Net earnings per diluted share was $0.68 compared with $0.38 for the same period in 2017. Core funds from operations* per diluted share was $0.80 compared with $0.63 for the same period in 2017. The company’s first quarter 2018 results included net promote income of $0.09 per diluted share.

“Earlier this year, we established sector-leading 2018 guidance, and our quarterly results reflect the first step in delivering on that plan,” said Hamid R. Moghadam, chairman and CEO, Prologis. “Market conditions remain extremely healthy and our strategy is set. Going forward, it’s all about execution.”

 

PORTFOLIO LOCATION CONTINUES TO DRIVE OUTPERFORMANCE

Owned & Managed

1Q18

1Q17

Notes

Period End Occupancy

96.8%

96.6%

Leases Commenced

33MSF

46MSF

Above-average lease roll led to
higher volume in Q1 2017

Prologis Share

1Q18

1Q17

Notes

Net Effective Rent Change

21.9%

18.5%

Led by the U.S. at 32.2%

Cash Rent Change

9.2%

7.7%

Cash Same Store NOI*

7.9%

6.3%

Led by the U.S. at 9.1%

 

DEPLOYMENT ACTIVITY

Prologis Share

1Q18

Building Acquisitions

$3M

     Weighted avg stabilized cap rate

6.1%

Development Stabilizations

$440M

     Estimated weighted avg yield

5.9%

     Estimated weighted avg margin

29.6%

     Estimated value creation

$130M

Development Starts

$409M

     Estimated weighted avg margin

18.0%

     Estimated value creation

$74M

      % Build-to-suit

63.4%

Total Dispositions and Contributions

$642M

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

5.2%

 

UNMATCHED ACCESS TO GLOBAL CAPITAL
The company ended the quarter with leverage of 24.1 percent on a market capitalization basis, debt-to-adjusted EBITDA* of 4.2x and more than $3.6 billion of liquidity.

“We continue to lower our weighted average cost of debt, which is now 2.8%,” said Thomas S. Olinger, chief financial officer, Prologis. “During the quarter, we issued a two-year €400 million note at an all-in effective rate of negative 10 basis points, demonstrating our ability to opportunistically source capital globally.”

 

GUIDANCE INCREASED FOR 2018
At the midpoint, guidance for net earnings per diluted share increased $0.38 and Core FFO* per diluted share increased $0.08.

“Our first quarter results exceeded our expectations,” added Olinger. “The combination of strong operations and higher net promote income has led us to raise the midpoint of our full-year guidance ranges for both earnings and same store NOI.”

2018 GUIDANCE (UPDATES TO PRIOR GUIDANCE ONLY)

Earnings (per diluted share)

Previous

Revised

Net Earnings

$2.10 to $2.25

$2.50 to $2.60

Core FFO*

$2.85 to $2.95

$2.95 to $3.01

Operations

Previous 

Revised

Year-end occupancy

96.0% to 97.0%

96.25% to 97.25%

Cash Same Store NOI* – Prologis share

5.0% to 6.0%

5.5% to 6.5%

Other Assumptions (in millions)

Previous 

Revised

Strategic capital revenue, excl promote revenue

$260 to $270

$270 to $280

Net promote income

$30 to $40

$60 to $72

Realized development gains

$300 to $400

$350 to $400

Prologis Share Capital Deployment (in millions)

Previous

Revised

Development starts

$2,000 to $2,300

$2,200 to $2,500

Building acquisitions

$300 to $500

$300 to $500

Building and land dispositions

$950 to $1,200

$1,400 to $1,700

Building contributions

$1,350 to $1,650

$1,350 to $1,650

Net Proceeds / (Uses)

($50) to $0

$250 to $350

The earnings guidance described above includes potential future gains 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, 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 2018 relates predominantly to these items. Please refer to our first 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:

  • Tuesday, April 17, 2018, 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 (866)-393-4306 or +1 (734)-385-2616 and enter Passcode 5768955.

A telephonic replay will be available April 17-24 at +1 (855) 859-2056 (from the United States and Canada) or +1 (404) 537-3406 (from all other countries) using conference code 5768955. 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 March 31, 2018, 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 683 million square feet (63 million square meters) in 19 countries. Prologis leases modern distribution facilities to a diverse base of approximately 5,000 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
March 31,

2018

2017

Rental and other revenues

$                561

$    572

Strategic capital revenues

133

57

Total revenues

694

629

Net earnings attributable to common stockholders

366

203

Core FFO attributable to common stockholders/unitholders*

443

347

AFFO attributable to common stockholders/unitholders*

564

320

Estimated value creation from development stabilizations – Prologis share

130

89

Common stock dividends and common limited partnership unit distributions

267

243

Per common share – diluted:

Net earnings attributable to common stockholders

$               0.68

$0.38

Core FFO attributable to common stockholders/unitholders*

0.80

0.63

Business line reporting:

Real estate operations* 

0.64

0.57

Strategic capital* 

0.16

0.06

Core FFO attributable to common stockholders/unitholders*

0.80

0.63

Realized development gains, net of taxes

0.28

0.06

Dividends and distributions per common share/unit

0.48

0.44

* This is a non-GAAP financial measure, please see below for further explanation.

 

in thousands

March 31, 2018

December 31, 2017

Assets:

Investments in real estate properties:

Operating properties

$ 22,421,633

$ 22,585,327

Development portfolio

1,697,487

1,593,489

Land

1,231,759

1,154,383

Other real estate investments

525,123

505,445

25,876,002

25,838,644

Less accumulated depreciation

4,199,159

4,059,348

Net investments in real estate properties

21,676,843

21,779,296

Investments in and advances to unconsolidated entities

5,675,999

5,496,450

Assets held for sale or contribution

473,154

342,060

Notes receivable backed by real estate

34,260

Net investments in real estate

27,825,996

27,652,066

Cash and cash equivalents

458,099

447,046

Other assets

1,387,390

1,381,963

Total assets

$ 29,671,485

$ 29,481,075

Liabilities and Equity:

Liabilities:

Debt 

$   9,460,177

$   9,412,631

Accounts payable, accrued expenses and other liabilities

1,423,188

1,362,703

Total liabilities

10,883,365

10,775,334

Equity:

Stockholders’ equity

15,680,075

15,631,158

Noncontrolling interests

2,643,034

2,660,242

Noncontrolling interests – limited partnership unitholders

465,011

414,341

Total equity

18,788,120

18,705,741

Total liabilities and equity

$ 29,671,485

$ 29,481,075

 

in thousands, except per share amounts

Three Months Ended

March 31,

2018

2017

Revenues:

Rental

$ 555,943

$ 566,933

Strategic capital 

132,961

57,045

Development management and other 

4,752

5,177

        Total revenues 

693,656

629,155

Expenses:

Rental 

142,941

152,656

Strategic capital 

43,860

31,799

General and administrative 

62,428

53,617

Depreciation and amortization

204,081

226,591

Other

3,239

2,606

        Total expenses

456,549

467,269

Operating income

237,107

161,886

Other income (expense):

Earnings from unconsolidated co-investment ventures, net

55,295

45,450

Earnings from other unconsolidated ventures, net

7,361

3,155

Interest expense

(47,245)

(72,912)

Gains on dispositions of development properties and land, net

157,568

29,800

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

37,543

67,525

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

(39,118)

(4,615)

        Total other income

171,404

68,403

Earnings before income taxes

408,511

230,289

Current income tax expense

(18,616)

(7,161)

Deferred income tax benefit (expense)

2,064

(2,439)

Consolidated net earnings

391,959

220,689

Net earnings attributable to noncontrolling interests

(14,058)

(10,137)

Net earnings attributable to noncontrolling interests – limited partnership units

(10,523)

(5,623)

Net earnings attributable to controlling interests

367,378

204,929

Preferred stock dividends

(1,476)

(1,674)

Net earnings attributable to common stockholders

$ 365,902

$ 203,255

Weighted average common shares outstanding – Diluted

554,123

550,010

Net earnings per share attributable to common stockholders – Diluted

$       0.68

$       0.38

 

in thousands

Three Months Ended

March 31,

2018

2017

Net earnings attributable to common stockholders

$ 365,902

$ 203,255

Add (deduct) NAREIT defined adjustments:

Real estate related depreciation and amortization

195,903

219,071

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

(37,543)

(67,525)

Reconciling items related to noncontrolling interests

(10,471)

(25,063)

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

51,485

32,059

Our share of reconciling items related to other unconsolidated ventures

1,760

1,614

Subtotal-NAREIT defined FFO attributable to common stockholders/unitholders*

$ 567,036

$ 363,411

Add (deduct) our defined adjustments:

Unrealized foreign currency and derivative losses (gains), net

33,964

12,203

Deferred income tax expense (benefit) 

(2,064)

2,439

Current income tax expense (benefit) on dispositions related to acquired tax assets

878

(1,270)

Reconciling items related to noncontrolling interests

100

(94)

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

(1,908)

1,063

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

$ 598,006

$ 377,752

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

Gains on dispositions of development properties and land, net

(157,568)

(29,800)

Current income tax expense (benefit) on dispositions

6,611

(1,086)

Loss on early extinguishment of debt, net

984

Reconciling items related to noncontrolling interests

(600)

(1,167)

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

2,101

974

Our share of reconciling items related to other unconsolidated ventures

(6,414)

79

Core FFO attributable to common stockholders/unitholders*

$ 443,120

$ 346,752

Adjustments to arrive at Adjusted FFO (“AFFO”)* attributable to common stockholders/unitholders

Gains on dispositions of development properties and land, net

157,568

29,800

Current income tax expense (benefit) on dispositions

(6,611)

1,086

Straight-lined rents and amortization of lease intangibles

(15,060)

(25,497)

Property improvements

(8,998)

(7,395)

Turnover costs

(28,027)

(40,278)

Amortization of debt discount (premium), financing costs and management contracts, net

3,530

(2,065)

Stock compensation expense

19,996

18,380

Reconciling items related to noncontrolling interests

7,443

13,378

Our share of reconciling items related to unconsolidated ventures

(9,025)

(14,404)

AFFO attributable to common stockholders/unitholders*

$ 563,936

$ 319,757

* This is a non-GAAP financial measure, please see below for further explanation.

 

in thousands

Three Months Ended

March 31,

2018

2017

Net earnings attributable to common stockholders

$  365,902

$ 203,255

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

(37,543)

(67,525)

Depreciation and amortization expenses

204,081

226,591

Interest expense 

47,245

72,912

Current and deferred income tax expense, net

16,552

9,600

Net earnings attributable to noncontrolling interests – limited partnership unitholders

10,523

5,623

Pro forma adjustments

(967)

10,379

Preferred stock dividends

1,476

1,674

Unrealized foreign currency and derivative losses (gains), net

33,964

12,203

Stock compensation expense

19,996

18,380

Adjusted EBITDA, consolidated*

$ 661,229

$ 493,092

Reconciling items related to noncontrolling interests

(21,792)

(34,496)

Our share of reconciling items related to unconsolidated ventures

75,382

53,070

Adjusted EBITDA attributable to common stockholders*

$ 714,819

$ 511,666

* This is a non-GAAP financial measure, please see below for further explanation.

 

Adjusted EBITDA. We use Adjusted EBITDA attributable to common stockholders/unitholders (“Adjusted EBITDA”), a non-GAAP financial measure, as a measure of our operating performance. The most directly comparable GAAP measure to Adjusted EBITDA is net earnings.

We calculate Adjusted EBITDA beginning with consolidated net earnings attributable to common stockholders and removing the effect of:  interest expense, income taxes, depreciation and amortization, impairment charges, gains or losses from the disposition of investments in real estate (excluding development properties and land), gains from the revaluation of equity investments upon acquisition of a controlling interest, gains or losses on early extinguishment of debt and derivative contracts (including cash charges), similar adjustments we make to our FFO measures (see definition below), and other items, such as, stock based compensation and unrealized gains or losses on foreign currency and derivatives. We also include a pro forma adjustment to reflect a full period of NOI on the operating properties we acquire or stabilize during the quarter and to remove NOI on properties we dispose of during the quarter, assuming all transactions occurred at the beginning of the quarter. The pro forma adjustment also includes economic ownership changes in our ventures to reflect the full quarter at the new ownership percentage.

We believe Adjusted EBITDA provides investors relevant and useful information because it permits investors to view our operating performance, analyze our ability to meet interest payment obligations and make quarterly preferred stock dividends on an unleveraged basis before the effects of income tax, depreciation and amortization expense, gains and losses on the disposition of non-development properties and other items (outlined above), that affect comparability. While all items are not infrequent or unusual in nature, these items may result from market fluctuations that can have inconsistent effects on our results of operations. The economics underlying these items reflect market and financing conditions in the short-term but can obscure our performance and the value of our long-term investment decisions and strategies.

We calculate our Adjusted EBITDA, based on our proportionate ownership share of both our unconsolidated and consolidated ventures.  We reflect our share of our Adjusted EBITDA measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis.  We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our Adjusted EBITDA measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

While we believe Adjusted EBITDA is an important measure, it should not be used alone because it excludes significant components of net earnings, such as our historical cash expenditures or future cash requirements for working capital, capital expenditures, distribution requirements, contractual commitments or interest and principal payments on our outstanding debt and is therefore limited as an analytical tool.

Our computation of Adjusted EBITDA may not be comparable to EBITDA reported by other companies in both the real estate industry and other industries. We compensate for the limitations of Adjusted EBITDA by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of Adjusted EBITDA and a reconciliation to Adjusted EBITDA from consolidated net earnings attributable to common stockholders.

Business Line Reporting is a non-GAAP financial measure. Core FFO and development gains are generated by our three lines of business: (i) real estate operations; (ii) strategic capital; and (iii) development.  The real estate operations line of business represents total Prologis Core FFO, less the amount allocated to the Strategic Capital line of business.  The amount of Core FFO allocated to the Strategic Capital line of business represents the third party share of asset management, Net Promotes and transactional fees that we earn from our consolidated and unconsolidated co-investment ventures less costs directly associated to our strategic capital group, plus development management income.  Realized development gains include our share of gains on dispositions of development properties and land, net of taxes. To calculate the per share amount, the amount generated by each line of business is divided by the weighted average diluted common shares outstanding used in our Core FFO per share calculation. Management believes evaluating our results by line of business is a useful supplemental measure of our operating performance because it helps the investing public compare the operating performance of Prologis’ respective businesses to other companies’ comparable businesses. Prologis’ computation of FFO by line of business may not be comparable to that reported by other real estate investment trusts as they may use different methodologies in computing such measures.

 

Calculation of Per Share Amounts

in thousands, except per share amount

Three Months Ended

Mar. 31,

2018

2017

Net earnings

Net earnings attributable to common stockholders

$

365,902

$

203,255

Noncontrolling interest attributable to exchangeable limited

 partnership units

10,693

5,967

Adjusted net earnings attributable to common stockholders – Diluted

$

376,595

$

209,222

Weighted average common shares outstanding – Basic

532,185

528,721

Incremental weighted average effect on exchange of

 limited partnership units

16,270

16,455

Incremental weighted average effect of equity awards

5,668

4,834

Weighted average common shares outstanding – Diluted

554,123

550,010

Net earnings per share – Basic

$

0.69

$

0.38

Net earnings per share – Diluted

$

0.68

$

0.38

Core FFO

Core FFO attributable to common stockholders/unitholders

$

443,120

$

346,752

Noncontrolling interest attributable to exchangeable limited

 partnership units

370

941

Core FFO attributable to common stockholders/unitholders – Diluted

$

443,490

$

347,693

Weighted average common shares outstanding – Basic

532,185

528,721

Incremental weighted average effect on exchange of

 limited partnership units

16,270

16,455

Incremental weighted average effect of equity awards

5,668

4,834

Weighted average common shares outstanding – Diluted

554,123

550,010

Core FFO per share – Diluted

$

0.80

$

0.63

 

Estimated Value Creation represents the value that we expect to create through our development and leasing activities. We calculate Estimated Value Creation by estimating the Stabilized NOI that the property will generate and applying a stabilized capitalization rate applicable to that property. Estimated Value Creation is calculated as the amount by which the value exceeds our TEI and does not include any fees or promotes we may earn. Estimated Value Creation for our Value-Added Properties that are sold includes the realized economic gain.

Estimated Weighted Average Margin is calculated on development properties as Estimated Value Creation, less estimated closing costs and taxes, if any, on properties expected to be sold or contributed, divided by TEI.

Estimated Weighted Average Stabilized Yield is calculated on development properties as Stabilized NOI divided by TEI.

FFO, as modified by Prologis attributable to common stockholders/unitholders (“FFO, as modified by Prologis”); Core FFO attributable to common stockholders/unitholders (“Core FFO”); AFFO attributable to common stockholders/unitholders; (collectively referred to as “FFO”). FFO is a non-GAAP financial measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings.

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales, along with impairment charges, of previously depreciated properties. We also exclude the gains on revaluation of equity investments upon acquisition of a controlling interest and the gain recognized from a partial sale of our investment, as these are similar to gains from the sales of previously depreciated properties. We exclude similar adjustments from our unconsolidated entities and the third parties’ share of our consolidated co-investment ventures.

Our FFO Measures

Our FFO measures begin with NAREIT’s definition and we make certain adjustments to reflect our business and the way that management plans and executes our business strategy.  While not infrequent or unusual, the additional items we adjust for in calculating FFO, as modified by Prologis, Core FFO and AFFO, as defined below, are subject to significant fluctuations from period to period. Although these items may have a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long term.  These items have both positive and negative short-term effects on our results of operations in inconsistent and unpredictable directions that are not relevant to our long-term outlook.

We calculate our FFO measures, as defined below, based on our proportionate ownership share of both our unconsolidated and consolidated ventures.  We reflect our share of our FFO measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis.  We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our FFO measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

These FFO measures are used by management as supplemental financial measures of operating performance and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

We analyze our operating performance primarily by the rental revenues of our real estate and the revenues from our strategic capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities. 

FFO, as modified by Prologis

To arrive at FFO, as modified by Prologis, we adjust the NAREIT defined FFO measure to exclude the impact of foreign currency related items and deferred tax, specifically:

(i)

deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;

(ii)

current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in earnings that is excluded from our defined FFO measure;

(iii)

unhedged foreign currency exchange gains and losses resulting from debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated entities;

(iv)

foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of our foreign consolidated and unconsolidated entities; and 

(v)

mark-to-market adjustments associated with derivative financial instruments.

We use FFO, as modified by Prologis, so that management, analysts and investors are able to evaluate our performance against other REITs that do not have similar operations or operations in jurisdictions outside the U.S.

Core FFO

In addition to FFO, as modified by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as modified by Prologis, to exclude the following recurring and nonrecurring items that we recognized directly in FFO, as modified by Prologis:

(i)

gains or losses from the disposition of land and development properties that were developed with the intent to contribute or sell;

(ii)

income tax expense related to the sale of investments in real estate;

(iii)

impairment charges recognized related to our investments in real estate generally as a result of our change in intent to contribute or sell these properties;

(iv)

gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and

(v)

expenses related to natural disasters.

We use Core FFO, including by segment and region, to: (i) assess our operating performance as compared to other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (iii) evaluate the performance of our management; (iv) budget and forecast future results to assist in the allocation of resources; (v) provide guidance to the financial markets to understand our expected operating performance; and (vi) evaluate how a specific potential investment will impact our future results.

AFFO

To arrive at AFFO, we adjust Core FFO to include realized gains from the disposition of land and development properties and recurring capital expenditures and exclude the following items that we recognize directly in Core FFO:

(i)

straight-line rents;

(ii)

amortization of above- and below-market lease intangibles;

(iii)

amortization of management contracts;

(iv)

amortization of debt premiums and discounts and financing costs, net of amounts capitalized, and;

(v)

stock compensation expense.

We use AFFO to (i) assess our operating performance as compared to other real estate companies, (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods, (iii) evaluate the performance of our management, (iv) budget and forecast future results to assist in the allocation of resources, and (v) evaluate how a specific potential investment will impact our future results.

Limitations on the use of our FFO measures

While we believe our modified FFO measures are important supplemental measures, neither NAREIT’s nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly, these are only a few of the many measures we use when analyzing our business.  Some of the limitations are:

  • The current income tax expenses that are excluded from our modified FFO measures represent the taxes and transaction costs that are payable.
  • Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Furthermore, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of logistics facilities are not reflected in FFO.
  • Gains or losses from non-development property dispositions and impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of disposed properties arising from changes in market conditions.
  • The deferred income tax benefits and expenses that are excluded from our modified FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our modified FFO measures do not currently reflect any income or expense that may result from such settlement.
  • The foreign currency exchange gains and losses that are excluded from our modified FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.
  • The gains and losses on extinguishment of debt or preferred stock that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our obligation at less or more than our future obligation.
  • The natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete Consolidated Financial Statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our modified FFO measures to our net earnings computed under GAAP.

Guidance. The following is a reconciliation of our annual guided Net Earnings per share to our guided Core FFO per share:

Low

High

Net Earnings

$

2.50

$

2.60

Our share of:

Depreciation and amortization

1.70

1.74

Net gains on real estate transactions, net of taxes

(1.31)

(1.39)

Unrealized foreign currency losses and other, net

0.06

0.06

Core FFO

$

2.95

$

3.01

 

Prologis Share represents our proportionate economic ownership of each entity included in our total owned and managed portfolio whether consolidated or unconsolidated.

Rent Change (Cash) represents the percentage change in starting rental rates per the lease agreement, on new and renewed leases, commenced during the periods compared with the previous ending rental rates in that same space. This measure excludes any short-term leases of less than one-year, holdover payments, free rent periods and introductory (teaser rates) defined as 50% or less of the stabilized rate.

Rent Change (Net Effective) represents the percentage change in net effective rental rates (average rate over the lease term), on new and renewed leases, commenced during the period compared with the previous net effective rental rates in that same space. This measure excludes any short-term leases of less than one year and holdover payments.

Same Store. Our same store metrics are non-GAAP financial measures, which are commonly used in the real estate industry and expected from the financial community, on both a net-effective and cash basis. We evaluate the performance of the operating properties we own and manage using a “same store” analysis because the population of properties in this analysis is consistent from period to period, which allows us to analyze our ongoing business operations.

We define our same store population for the three months ended March 31, 2018 as our owned and managed properties that were in the Operating Portfolio at January 1, 2017 and throughout the end of the same three month period in both 2018 and 2017. The same store population excludes development properties that were not stabilized at the beginning of the period and properties acquired or disposed of to third parties during the period. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the reported period end exchange rate to translate from local currency into the U.S. dollar, for both periods. We believe the factors that affect rental revenues, rental recoveries, rental expenses and NOI in the same store portfolio are generally the same as for our consolidated portfolio.

As our same store measures are non-GAAP financial measures, they have certain limitations as analytical tools and may vary among real estate companies. As a result, we provide a reconciliation of rental revenues, rental recoveries and rental expenses from our consolidated financial statements prepared in accordance with GAAP to same store property NOI with explanations of how these metrics are calculated. In addition, we further remove certain non-cash items (straight-line rent adjustments and amortization of lease intangibles) included in the financial statements prepared in accordance with GAAP to reflect a cash same store number. To clearly label these metrics, they are categorized as Same Store NOI – Net Effective and Same Store NOI – Cash.

The following is a reconciliation of our consolidated rental revenues, rental recoveries, rental expenses and property 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

Mar. 31,

2018

2017

Change      (%)

Rental revenues:

Rental revenues

$

427,901

$

439,884

Rental recoveries

128,042

127,049

Per the Consolidated Statements of Operations

555,943

566,933

Properties not included and other adjustments (a)

(48,533)

(48,260)

Unconsolidated co-investment ventures

567,236

508,992

Same Store – rental revenues – net effective

$

1,074,646

$

1,027,665

4.6

%

Straight-line rent adjustments

(17,616)

(29,849)

Fair value lease adjustments

138

(1,597)

Same Store – rental revenues – cash

$

1,057,168

$

996,219

6.1

%

Rental expenses:

Per the Consolidated Statements of Operations

$

142,941

$

152,656

Properties not included and other adjustments (b)

(3,516)

(5,161)

Unconsolidated co-investment ventures

129,905

108,685

Same Store – rental expenses – net effective and cash

$

269,330

$

256,180

5.1

%

Same Store – NOI – Net Effective

$

805,316

$

771,485

4.4

%

Same Store – NOI – Net Effective – Prologis Share (c)

$

459,054

$

435,973

5.3

%

Same Store – NOI – Cash

$

787,838

$

740,039

6.5

%

Same Store – NOI  – Cash – Prologis Share (c)

$

451,920

$

418,968

7.9

%

(a)

To calculate Same Store rental income, we exclude net termination and renegotiation fees to allow us to evaluate the growth or decline in each property’s rental income without regard to one-time 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)

Same Store- NOI- Prologis Share is calculated using the underlying building information from the Same Store NOI – Net Effective and NOI – Cash calculations and applying our ownership percentage as of March 31, 2018 to the NOI of each building for both periods.

Weighted Average Stabilized Capitalization (“Cap”) Rate is calculated as Stabilized NOI divided by the Acquisition Cost. 

Prologis. (PRNewsFoto/Prologis, Inc.) (PRNewsFoto/Prologis, Inc.)

 

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SOURCE Prologis, Inc.