PROLOGIS, INC. SAN FRANCISCO, Jan. 24, 2017 /PRNewswire/ -- Prologis, Inc. (NYSE: PLD), the global leader in logistics real estate, today reported results for the fourth quarter and full year 2016.
Net earnings per diluted share was $0.82 for the quarter and $2.27 for the year compared with $0.23 and $1.64 for the same period in 2015. The year-over-year increase is due primarily to improved operating conditions and higher net promote income. Core funds from operations per diluted share* was $0.63 for the quarter and $2.57 for the year compared with $0.64 and $2.23 for the same period in 2015. The 15 percent annual year-over-year increase reflects improved operating conditions and higher net promote income.
"The fourth quarter represented the culmination of Vision 2016 and our results are a testament to the strength of our global portfolio, setting a new high-water mark for performance," said Hamid R. Moghadam, chairman and CEO, Prologis. "The team delivered record occupancy with double-digit rent growth, above-average value creation and outsized promotes from our strategic capital ventures."
Moghadam added, "I believe we are now at the cusp of yet another important market transition to a phase for which Prologis is ideally positioned. We entered 2017 with significant embedded earnings potential from the combination of rolling in-place leases to market and building out our land bank in the world's premier consumption markets."
FOCUS ON QUALITY LOCATIONS DRIVES POWERFUL OPERATING PERFORMANCE
Owned
&
Managed 4Q16 4Q15 Notes
------- ---- ---- -----
Period Ended 2016 with record global
End occupancy
Occupancy 97.1% 96.9%
---------- ---- ---- ------------------------------
Leases 39MSF 40MSF More than 180MSF leased in
Signed 2016
------- ----- ----- ---------------------------
Customer
Retention 79.8% 85.9%
--------- ---- ----
Prologis
Share 4Q16 4Q15 Notes
-------- ---- ---- -----
Net
Effective
Rent
Change 16.0% 12.4% Led by the U.S. at 23.2%
--------- ---- ---- -----------------------
Cash
Rent
Change 7.0% 2.9%
------ --- ---
Net 5.6% for full-year 2016, led
Effective by the U.S. at 6.9%
Same
Store
NOI* 3.2% 6.6%
---------- --- --- -----------------------------
Cash
Same
Store
NOI* 4.4% 4.5%
----- --- ---
DEVELOPMENT BUSINESS CONTINUES TO ACHIEVE STRONG MARGINS
Prologis Share (Millions of $) 4Q16 2016
----------------------------- ---- ----
Building Acquisitions $127 $247
--------------------- ---- ----
Weighted avg stabilized cap rate 5.2% 5.7%
-------------------------------- --- ---
Development Stabilizations $674 $2,155
-------------------------- ---- ------
Estimated weighted avg yield 6.5% 6.8%
---------------------------- --- ---
Estimated weighted avg margin 23.9% 26.5%
----------------------------- ---- ----
Estimated value creation $161 $571
------------------------ ---- ----
Development Starts $717 $1,809
------------------ ---- ------
Estimated weighted avg margin 23.3% 20.2%
----------------------------- ---- ----
Estimated value creation $167 $365
------------------------ ---- ----
% Build-to-suit 34.3% 41.7%
--------------- ---- ----
Total Dispositions (Buildings and
Land) and Contributions $934 $2,626
--------------------------------- ---- ------
Weighted avg stabilized cap rate
(excluding land and other real
estate) 5.4% 5.8%
-------------------------------- --- ---
"We continue to allocate capital to profitable development projects on our strategic land bank," said Michael Curless, chief investment officer, Prologis. "Record low vacancies in most of our markets combined with the need for faster delivery times are resulting in strong demand for development product from our customers, who require well-located logistics space to fulfill their needs."
UPGRADE TO A-/A3 RATING UNDERSCORES FORTRESS BALANCE SHEET
During the fourth quarter, Moody's and S&P upgraded Prologis' credit rating to A3 and A-, respectively.
"These upgrades are an important achievement for our company," said Thomas S. Olinger, chief financial officer, Prologis. "They are an acknowledgement of the strength of our balance sheet and our prudent financial management. The upgrades also reflect the quality of our global portfolio, our industry-leading operating performance and our growth potential."
Olinger added, "We ended the year with the strongest balance sheet in the company's history and we have liquidity of more than $4 billion."
2017 GUIDANCE
Earnings (per diluted share)
---------------------------
Net Earnings $1.55 to $1.70
------------ --------------
Core FFO* $2.60 to $2.70
-------- --------------
Operations
----------
Year-end occupancy 95.5% to 96.5%
------------------ -------------
Net Effective Same Store NOI
- Prologis share* 4.0% to 5.0%
---------------------------- -----------
Other Assumptions (in millions)
------------------------------
Strategic capital revenues $205 to $215
-------------------------- ------------
Net promote income $35 to $45
------------------ ----------
General & administrative expenses $210 to $220
--------------------------------- ------------
Realized development gains $250 to $300
-------------------------- ------------
Capital Deployment (in
millions) Prologis Share Owned and Managed
---------------------- -------------- -----------------
Development stabilizations $1,600 to $2,000 $1,900 to $2,300
-------------------------- ---------------- ----------------
Development starts $1,600 to $1,900 $2,000 to $2,400
------------------ ---------------- ----------------
Building acquisitions $100 to $300 $200 to $500
--------------------- ------------ ------------
Building and land
dispositions $850 to $1,100 $1,300 to $1,700
----------------- -------------- ----------------
Building contributions $850 to $1,100 $1,000 to $1,300
---------------------- -------------- ----------------
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. 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 2017 relates predominantly to these items. Please refer to our fourth 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, January 24, 2017, at 12 p.m. U.S. Eastern Time.
-- Live webcast at http://ir.prologis.com by clicking Investors>Investor
Events and Presentations.
-- Dial in: +1 877-447-8218 or +1 973-409-9692 and enter Passcode 33699077.
A telephonic replay will be available January 24-January 31 at +1 (855) 859-2056 (from the United States and Canada) or +1 (404) 537-3406 (from all other countries) using conference code 33699077. 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 December 31, 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 676 million square feet (63 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 Twelve Months ended
December 31, December 31,
--- ------------ ------------
2016 2015 2016 2015
Revenues $620 $643 $2,533 $2,197
Net earnings
attributable to
common
stockholders 441 118 1,203 863
Core FFO* 345 346 1,400 1,181
AFFO* 431 301 1,405 1,160
Adjusted EBITDA* 641 515 2,223 1,936
Estimated value
creation from
development starts
-Prologis share 167 115 365 380
Common stock
dividends and
common limited
partnership unit
distributions 231 219 923 807
Per common share -
diluted:
Net earnings
attributable to
common
stockholders $0.82 $0.23 $2.27 $1.64
Core FFO* 0.63 0.64 2.57 2.23
Business line
reporting:
Real estate operations* 0.57 0.55 2.22 2.02
Strategic capital* 0.06 0.09 0.35 0.21
---- ---- ---- ----
Core FFO* 0.63 0.64 2.57 2.23
Realized development gains, net
of taxes 0.30 0.10 0.57 0.49
Dividends and
distributions per
common share/unit 0.42 0.40 1.68 1.52
* This is a non-GAAP financial measure, please see below for
further explanation.
in thousands December 31, 2016 September 30, 2016 December 31, 2015
------------ ----------------- ------------------ -----------------
Assets:
Investments in real
estate properties:
Operating
properties $23,943,457 $23,876,290 $23,735,745
Development
portfolio 1,432,082 1,809,002 1,872,903
Land 1,218,904 1,352,600 1,359,794
Other real estate
investments 524,887 532,812 552,926
------- ------- -------
27,119,330 27,570,704 27,521,368
Less accumulated
depreciation 3,758,372 3,638,688 3,274,284
--------- --------- ---------
Net investments in real estate
properties 23,360,958 23,932,016 24,247,084
Investments in and
advances to
unconsolidated
entities 4,230,429 4,580,584 4,755,620
Assets held for sale 322,139 450,349 378,423
Notes receivable
backed by real
estate 32,100 33,800 235,050
Net investments in real estate 27,945,626 28,996,749 29,616,177
Cash and cash
equivalents 807,316 375,120 264,080
Other assets 1,496,990 1,516,340 1,514,510
Total assets $30,249,932 $30,888,209 $31,394,767
Liabilities and Equity:
Liabilities:
Debt $10,608,294 $11,256,997 $11,626,831
Accounts payable,
accrued expenses
and other
liabilities 1,183,498 1,347,942 1,347,100
Total liabilities 11,791,792 12,604,939 12,973,931
---------- ---------- ----------
Equity:
Stockholders'
equity 14,991,081 14,799,167 14,667,935
Noncontrolling
interests 3,072,469 3,092,988 3,320,227
Noncontrolling
interests -
limited
partnership
unitholders 394,590 391,115 432,674
------- ------- -------
Total equity 18,458,140 18,283,270 18,420,836
---------- ---------- ----------
Total liabilities and equity $30,249,932 $30,888,209 $31,394,767
in thousands, except per share
amounts Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
Revenues:
Rental $559,885 $560,186 $2,220,409 $1,973,187
Strategic
capital 52,987 77,115 294,552 210,362
Development
management and
other 7,243 5,900 18,174 13,525
Total
revenues 620,115 643,201 2,533,135 2,197,074
------- ------- --------- ---------
Expenses:
Rental 141,050 150,983 568,870 544,182
Strategic
capital 30,723 31,761 128,506 108,422
General and
administrative 56,433 59,769 222,067 217,227
Depreciation
and
amortization 225,736 272,906 930,985 880,373
Other 1,965 22,231 14,329 66,698
Total
expenses 455,907 537,650 1,864,757 1,816,902
------- ------- --------- ---------
Operating income 164,208 105,551 668,378 380,172
Other income (expense):
Earnings from
unconsolidated
co-investment
ventures, net 59,204 51,669 191,877 155,373
Earnings from
other
unconsolidated
ventures, net 1,481 1,210 14,430 3,889
Interest
expense (70,569) (82,665) (303,146) (301,363)
Gains on
dispositions
of development
properties and
land, net 174,368 47,978 334,369 258,088
Gains on
dispositions
of real
estate, net
(excluding
development
properties and
land) 121,067 55,621 423,029 500,799
Foreign
currency and
derivative
gains and
interest and
other income,
net 34,909 19,191 15,683 37,950
Gains (losses)
on early
extinguishment
of debt, net - (69,778) 2,484 (86,303)
--------------- --------------- -----
Total other
income 320,460 23,226 678,726 568,433
------- ------ ------- -------
Earnings before income taxes 484,668 128,777 1,347,104 948,605
Current income
tax expense (21,754) (5,319) (60,089) (28,147)
Deferred income
tax benefit 3,788 3,299 5,525 5,057
----------- ----- -----
Consolidated net earnings 466,702 126,757 1,292,540 925,515
Net earnings attributable to
noncontrolling interests (12,442) (1,392) (48,307) (44,950)
Net earnings attributable to
noncontrolling interests -
limited partnership units (12,063) (5,370) (34,301) (11,126)
------- ------ ------- -------
Net earnings attributable to
controlling interests 442,197 119,995 1,209,932 869,439
Preferred stock dividends (1,658) (1,632) (6,714) (6,651)
Net earnings attributable to
common stockholders $440,539 $118,363 $1,203,218 $862,788
Weighted average common shares
outstanding -Diluted 550,885 542,435 546,666 533,944
Net earnings per share
attributable to common
stockholders -Diluted $0.82 $0.23 $2.27 $1.64
in thousands Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
Net earnings attributable to
common stockholders $440,539 $118,363 $1,203,218 $862,788
Add (deduct) NAREIT defined adjustments:
Real estate
related
depreciation
and
amortization 217,955 267,087 899,821 854,471
Gains on
dispositions
of real
estate, net
(excluding
development
properties and
land) (121,067) (55,621) (423,029) (500,799)
Reconciling
items related
to
noncontrolling
interests (17,514) (44,733) (104,832) (78,106)
Our share of
reconciling
items related
to
unconsolidated
co-investment
ventures 43,135 34,732 159,956 179,031
Our share of
reconciling
items related
to other
unconsolidated
ventures 1,718 1,637 2,154 6,585
Subtotal-NAREIT defined FFO* $564,766 $321,465 $1,737,288 $1,323,970
Add (deduct) our defined adjustments:
Unrealized
foreign
currency and
derivative
losses
(gains), net (29,369) (7,830) (7,505) 1,026
Deferred income
tax benefit (3,788) (3,299) (5,525) (5,057)
Current income
tax expense
related to
acquired tax
liabilities - - - 3,497
Reconciling
items related
to
noncontrolling
interests 643 (163) 682 (1,330)
Our share of
reconciling
items related
to
unconsolidated
co-investment
ventures (24,010) (1,793) (22,840) (13,564)
FFO, as modified by Prologis* $508,242 $308,380 $1,702,100 $1,308,542
Gains on
dispositions
of development
properties and
land, net (174,368) (47,978) (334,369) (258,088)
Current income
tax expense
(benefit) on
dispositions 9,332 (5,130) 24,152 (200)
Acquisition
expenses 2,075 17,485 4,607 47,034
Losses (gains)
on early
extinguishment
of debt, net - 69,778 (2,484) 86,303
Reconciling
items related
to
noncontrolling
interests 1 1,286 4,299 (11,121)
Our share of
reconciling
items related
to
unconsolidated
co-investment
ventures 929 1,937 5,612 8,820
Our share of
reconciling
items related
to other
unconsolidated
ventures (1,424) - (3,419) -
Core FFO* $344,787 $345,758 $1,400,498 $1,181,290
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 174,368 47,978 334,369 258,088
Current income
tax (expense)
benefit on
dispositions (9,332) 5,130 (24,152) 200
Straight-lined
rents and
amortization
of lease
intangibles (18,944) (22,082) (104,886) (59,619)
Property
improvements (28,451) (29,743) (78,745) (75,283)
Turnover costs (40,891) (45,902) (165,992) (154,524)
Amortization of
debt premiums,
financing
costs and
management
contracts, net (1,172) (7,666) (11,420) (25,830)
Stock
compensation
expense 16,683 13,541 60,341 53,665
Reconciling
items related
to
noncontrolling
interests 13,108 13,862 56,917 44,971
Our share of
reconciling
items related
to
unconsolidated
co-investment
ventures (19,591) (19,913) (61,923) (63,257)
AFFO* $430,565 $300,963 $1,405,007 $1,159,701
* This is a non-GAAP financial measure, please see below for further explanation.
in thousands Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
Net earnings attributable to
common stockholders $440,539 $118,363 $1,203,218 $862,788
Gains on
dispositions
of real
estate, net
(excluding
development
properties
and land) (121,067) (55,621) (423,029) (500,799)
Depreciation
and
amortization 225,736 272,906 930,985 880,373
Interest
expense 70,569 82,665 303,146 301,363
Losses (gains)
on early
extinguishment
of debt, net - 69,778 (2,484) 86,303
Current and
deferred
income tax
expense, net 17,966 2,020 54,564 23,090
Net earnings
attributable
to
noncontrolling
interests -
limited
partnership
unitholders 12,063 5,370 34,301 11,126
Pro forma
adjustments (1,382) (9,354) (10,248) 19,397
Preferred
stock
dividends 1,658 1,632 6,714 6,651
Unrealized
foreign
currency and
derivative
losses
(gains), net (29,369) (7,830) (7,505) 1,026
Stock
compensation
expense 16,683 13,541 60,341 53,665
Acquisition
expenses 2,075 17,485 4,607 47,034
Adjusted EBITDA, consolidated* $635,471 $510,955 $2,154,610 $1,792,017
Reconciling
items related
to
noncontrolling
interests (34,140) (53,600) (152,082) (117,817)
Our share of
reconciling
items related
to
unconsolidated
co-
investment
ventures 39,590 57,350 219,975 262,151
Adjusted EBITDA* $640,921 $514,705 $2,222,503 $1,936,351
* 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 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. 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 quarters, 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 to Adjusted EBITDA from consolidated net earnings, 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 Twelve Months Ended
Dec. 31, Dec. 31,
-------- --------
2016 2015 2016 2015
Net
earnings
---------
Net
earnings $440,539 $118,363 $1,203,218 $862,788
Noncontrolling
interest
attributable
to
exchangeable
limited
partnership
units 12,600 5,745 37,079 13,120
Gains,
net
of
expenses,
associated
with
exchangeable
debt
assumed
exchanged - - - (1,614)
--- --- --- ------
Adjusted
net
earnings
-
Diluted $453,139 $124,108 $1,240,297 $874,294
======== ======== ========== ========
Weighted
average
common
shares
outstanding
-
Basic 528,012 523,770 526,103 521,241
Incremental
weighted
average
effect
on
exchange
of
limited
partnership
units 15,869 16,393 16,833 8,569
Incremental
weighted
average
effect
of
equity
awards 7,004 2,272 3,730 1,961
Incremental
weighted
average
effect
on
exchangeable
debt
assumed
exchanged
(a) - - - 2,173
--- --- --- -----
Weighted
average
common
shares
outstanding
-
Diluted 550,885 542,435 546,666 533,944
======= ======= ======= =======
Net
earnings
per
share
-
Basic $0.83 $0.23 $2.29 $1.66
===== ===== ===== =====
Net
earnings
per
share
-
Diluted $0.82 $0.23 $2.27 $1.64
===== ===== ===== =====
Core
FFO
----
Core
FFO $344,787 $345,758 $1,400,498 $1,181,290
Noncontrolling
interest
attributable
to
exchangeable
limited
partnership
units 991 53 4,273 213
Interest
expense
on
exchangeable
debt
assumed
exchanged - - - 3,506
--- --- --- -----
Core
FFO
-
Diluted $345,778 $345,811 $1,404,771 $1,185,009
======== ======== ========== ==========
Weighted
average
common
shares
outstanding
-
Basic 528,012 523,770 526,103 521,241
Incremental
weighted
average
effect
on
exchange
of
limited
partnership
units 15,869 14,897 16,833 6,897
Incremental
weighted
average
effect
of
equity
awards 7,004 2,272 3,730 1,961
Incremental
weighted
average
effect
on
exchangeable
debt
assumed
exchanged
(a) - - - 2,173
--- --- --- -----
Weighted
average
common
shares
outstanding
-
Diluted 550,885 540,939 546,666 532,272
----------- ======= ======= ======= =======
Core
FFO
per
share
-
Diluted $0.63 $0.64 $2.57 $2.23
-------- ----- ----- ----- -----
(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.
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. We exclude similar adjustments from our unconsolidated entities and the third parties' share of our consolidated 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 contribution or
sale of land or 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
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; 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 similar real estate companies and the industry in general, (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods, relative to resource allocation decisions; (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 (v) 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 similar real estate companies and the industry in general, (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods, relative to resource allocation decisions, (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 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 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 $1.55 $1.70
Our share of:
Depreciation and amortization 1.65 1.70
Net gains of real estate
transactions, net of taxes (0.60) (0.70)
----- -----
Core FFO $2.60 $2.70
-------- ----- -----
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 starting rental rates per the lease agreement on new and renewed leases signed during the periods as compared with the previous ending 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 properties from our owned and managed portfolio in our same store analysis. We have defined the same store portfolio, for the three months ended December 31, 2016, as those properties that were in operation at January 1, 2015, and have been in operation throughout the same three-month periods in both 2016 and 2015 (including development properties that have been completed and available for lease). We have removed all properties that were disposed of to a third party or were classified as held for sale to a third party from the population for both periods. We believe the factors that affect rental revenues, rental expenses and NOI in the same store portfolio are generally the same as for the total operating portfolio. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the recent period end exchange rate to translate from local currency into the U.S. dollar, for both periods.
Same store is a commonly used measure in the real estate industry. Our same store measures are non-GAAP financial measures that are calculated beginning with rental revenues, rental recoveries 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 our same store measures 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 with explanations of how these metrics are calculated.
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
December 31,
------------
2016 2015 Change (%)
Rental
Revenue:
Rental
Revenue $435,722 $435,626
Rental
Recoveries 124,163 124,560
------- -------
Per the
Consolidated
Statements
of
Operations 559,885 560,186
Properties
not included
and other
adjustments
(a) (168,972) (177,920)
Unconsolidated
Co-
Investment
Ventures 436,500 423,065
------- -------
Same Store -
Rental
Revenue $827,413 $805,331 2.7%
------------ -------- -------- ---
Rental
Expense:
Per the
Consolidated
Statements
of
Operations $141,050 $150,983
Properties
not included
and other
adjustments
(b) (32,106) (44,394)
Unconsolidated
Co-
Investment
Ventures 99,212 96,511
------ ------
Same Store -
Rental
Expense $208,156 $203,100 2.5%
------------ -------- -------- ---
NOI:
Consolidated
NOI $418,835 $409,203
Properties
not included
and other
adjustments (136,866) (133,526)
Unconsolidated
Co-
Investment
Ventures 337,288 326,554
------- -------
Same Store -
NOI $619,257 $602,231 2.8%
Same Store -
NOI -
Prologis
Share (c) $355,837 $344,739 3.2%
------------ -------- -------- ---
NOI- Cash:
Same store-
NOI $619,257 $602,231
Straight-
line rent
adjustments
(d) $(8,783) $(14,539)
Fair value
lease
adjustments
(d) (1,203) (477)
------ ----
Same Store -
NOI- Cash $609,271 $587,215 3.8%
Same Store -
NOI-
Prologis
Share (c) $349,502 $334,697 4.4%
------------ -------- -------- ---
(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 December
31, 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 Properties that are sold includes the realized economic gain.
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/prologis-reports-fourth-quarter-and-full-year-2016-earnings-results-300395369.html
SOURCE Prologis, Inc.
