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Prologis (PLD)

Filed: 27 Oct 20, 8:00pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission File Number:  001-13545 (Prologis, Inc.)  001-14245 (Prologis, L.P.)

 

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)

 

Maryland (Prologis, Inc.)

Delaware (Prologis, L.P.)

 

94-3281941 (Prologis, Inc.)

94-3285362 (Prologis, L.P.)

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

Pier 1, Bay 1, San Francisco, California

 

94111

(Address or principal executive offices)

 

(Zip Code)

 

(415) 394-9000

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Prologis, Inc.

 

Common Stock, $0.01 par value

 

PLD

 

New York Stock Exchange

Prologis, L.P.

 

3.000% Notes due 2022

 

PLD/22

 

New York Stock Exchange

Prologis, L.P.

 

3.375% Notes due 2024

 

PLD/24

 

New York Stock Exchange

Prologis, L.P.

 

3.000% Notes due 2026

 

PLD/26

 

New York Stock Exchange

Prologis, L.P.

 

2.250% Notes due 2029

 

PLD/29

 

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

Prologis, Inc.

Yes

No

Prologis, L.P.

Yes

No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit such files).

Prologis, Inc.

Yes

No

Prologis, L.P.

Yes

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Prologis, Inc.:

 

 

 

 

Large accelerated filer   

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

Emerging growth company    

 

Prologis, L.P.:

 

 

 

 

Large accelerated filer   

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Prologis, Inc.

Yes

No

Prologis, L.P.

Yes

No

 

The number of shares of Prologis, Inc.’s common stock outstanding at October 23, 2020, was approximately 739,223,000.

 

 

 


 

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2020, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the OP collectively.

 

The Parent is a real estate investment trust (a “REIT”) and the general partner of the OP. At September 30, 2020, the Parent owned 97.30% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.70% common limited partnership interests are owned by unaffiliated investors and certain current and former directors and officers of the Parent.

 

We operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As sole general partner, the Parent has control of the OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates the OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

We believe combining the quarterly reports on Form 10-Q of the Parent and the OP into this single report results in the following benefits:

enhances investors’ understanding of the Parent and the OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminates duplicative disclosure and provides a more streamlined and readable presentation as a substantial portion of the Company’s disclosure applies to both the Parent and the OP; and

creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

 

It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

 

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

                

The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the OP and are presented as general partner’s capital within partners’ capital in the OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the OP’s consolidated financial statements.

                

To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of Prologis.

 

 

 


PROLOGIS

INDEX

 

 

 

 

 

Page

Number

 

PART I.

 

Financial Information

 

 

 

 

 

Item 1.

Financial Statements

 

1

 

 

 

            Prologis, Inc.:

 

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2020 and December 31, 2019

 

1

 

 

 

 

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2020 and 2019

 

2

 

 

 

 

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2020 and 2019

 

3

 

 

 

 

Consolidated Statements of Equity – Three and Nine Months Ended September 30, 2020 and 2019

 

4

 

 

 

 

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019

 

5

 

 

 

            Prologis, L.P.:

 

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2020 and December 31, 2019

 

6

 

 

 

 

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2020 and 2019

 

7

 

 

 

 

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2020 and 2019

 

8

 

 

 

 

Consolidated Statements of Capital – Three and Nine Months Ended September 30, 2020 and 2019

 

9

 

 

 

 

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019

 

10

 

 

 

            Prologis, Inc. and Prologis, L.P.:

 

 

 

 

 

 

Notes to the Consolidated Financial Statements

 

11

 

 

 

 

Note 1. General

 

11

 

 

 

 

Note 2. Liberty Transaction

 

12

 

 

 

 

Note 3. Real Estate

 

13

 

 

 

 

Note 4. Unconsolidated Entities

 

14

 

 

 

 

Note 5. Assets Held for Sale or Contribution

 

16

 

 

 

 

Note 6. Debt

 

16

 

 

 

 

Note 7. Stockholder's Equity of Prologis, Inc.

 

19

 

 

 

 

Note 8. Noncontrolling Interests

 

19

 

 

 

 

Note 9. Long-Term Compensation

 

20

 

 

 

 

Note 10. Earnings Per Common Share or Unit

 

21

 

 

 

 

Note 11. Financial Instruments and Fair Value Measurements

 

23

 

 

 

 

Note 12. Business Segments

 

26

 

 

 

 

Note 13. Supplemental Cash Flow Information

 

28

 

 

 

 

Reports of Independent Registered Public Accounting Firm

 

30

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

51

 

 

 

Item 4.

Controls and Procedures

 

52

 

PART II.

 

Other Information

 

 

 

 

 

Item 1.

Legal Proceedings

 

53

 

 

 

Item 1A.

Risk Factors

 

53

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

 

 

Item 3.

Defaults Upon Senior Securities

 

53

 

 

 

Item 4.

Mine Safety Disclosures

 

53

 

 

 

Item 5.

Other Information

 

53

 

 

 

Item 6.

Exhibits

 

53

 

 

 

 

 

 


PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

Investments in real estate properties

$

49,106,359

 

 

$

35,224,414

 

Less accumulated depreciation

 

6,229,744

 

 

 

5,437,662

 

Net investments in real estate properties

 

42,876,615

 

 

 

29,786,752

 

Investments in and advances to unconsolidated entities

 

7,310,960

 

 

 

6,237,371

 

Assets held for sale or contribution

 

1,757,187

 

 

 

720,685

 

Net investments in real estate

 

51,944,762

 

 

 

36,744,808

 

 

 

 

 

 

 

 

 

Lease right-of-use assets

 

455,704

 

 

 

486,330

 

Cash and cash equivalents

 

940,193

 

 

 

1,088,855

 

Other assets

 

2,418,939

 

 

 

1,711,857

 

Total assets

$

55,759,598

 

 

$

40,031,850

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Debt

$

16,518,126

 

 

$

11,905,877

 

Lease liabilities

 

448,534

 

 

 

471,634

 

Accounts payable and accrued expenses

 

1,119,124

 

 

 

704,954

 

Other liabilities

 

1,184,507

 

 

 

877,601

 

Total liabilities

 

19,270,291

 

 

 

13,960,066

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Prologis, Inc. stockholders’ equity:

 

 

 

 

 

 

 

Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value;

     1,279 and 1,379 shares issued and outstanding and 100,000 preferred shares authorized at

          September 30, 2020 and December 31, 2019, respectively

 

63,948

 

 

 

68,948

 

Common stock; $0.01 par value; 738,965 shares and 631,797 shares issued and outstanding at

     September 30, 2020 and December 31, 2019, respectively

 

7,390

 

 

 

6,318

 

Additional paid-in capital

 

35,456,223

 

 

 

25,719,427

 

Accumulated other comprehensive loss

 

(1,184,465

)

 

 

(990,398

)

Distributions in excess of net earnings

 

(2,245,921

)

 

 

(2,151,168

)

Total Prologis, Inc. stockholders’ equity

 

32,097,175

 

 

 

22,653,127

 

Noncontrolling interests

 

4,392,132

 

 

 

3,418,657

 

Total equity

 

36,489,307

 

 

 

26,071,784

 

Total liabilities and equity

$

55,759,598

 

 

$

40,031,850

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

1

 


PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

980,148

 

 

$

710,465

 

 

$

2,803,321

 

 

$

2,107,961

 

Strategic capital

 

 

98,993

 

 

 

230,467

 

 

 

516,242

 

 

 

393,416

 

Development management and other

 

 

3,632

 

 

 

1,249

 

 

 

7,575

 

 

 

3,228

 

Total revenues

 

 

1,082,773

 

 

 

942,181

 

 

 

3,327,138

 

 

 

2,504,605

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

 

245,490

 

 

 

180,864

 

 

 

705,217

 

 

 

550,070

 

Strategic capital

 

 

45,791

 

 

 

63,404

 

 

 

173,910

 

 

 

138,668

 

General and administrative

 

 

74,348

 

 

 

65,199

 

 

 

208,701

 

 

 

201,176

 

Depreciation and amortization

 

 

400,738

 

 

 

282,254

 

 

 

1,144,903

 

 

 

850,639

 

Other

 

 

3,020

 

 

 

2,294

 

 

 

25,573

 

 

 

9,643

 

Total expenses

 

 

769,387

 

 

 

594,015

 

 

 

2,258,304

 

 

 

1,750,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income before gains on real estate transactions, net

 

 

313,386

 

 

 

348,166

 

 

 

1,068,834

 

 

 

754,409

 

Gains on dispositions of development properties and land, net

 

 

134,207

 

 

 

63,935

 

 

 

383,373

 

 

 

303,317

 

Gains on other dispositions of investments in real estate, net

 

 

108,927

 

 

 

59,379

 

 

 

184,357

 

 

 

232,400

 

Operating income

 

 

556,520

 

 

 

471,480

 

 

 

1,636,564

 

 

 

1,290,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from unconsolidated entities, net

 

 

73,972

 

 

 

46,302

 

 

 

216,844

 

 

 

151,524

 

Interest expense

 

 

(80,711

)

 

 

(60,244

)

 

 

(237,651

)

 

 

(179,873

)

Interest and other income (expense), net

 

 

(5,866

)

 

 

654

 

 

 

(4,469

)

 

 

12,876

 

Foreign currency and derivative gains (losses), net

 

 

(100,974

)

 

 

59,492

 

 

 

(48,481

)

 

 

70,267

 

Losses on early extinguishment of debt, net

 

 

(98,266

)

 

 

(13,585

)

 

 

(164,606

)

 

 

(16,086

)

Total other income (expense)

 

 

(211,845

)

 

 

32,619

 

 

 

(238,363

)

 

 

38,708

 

Earnings before income taxes

 

 

344,675

 

 

 

504,099

 

 

 

1,398,201

 

 

 

1,328,834

 

Total income tax expense

 

 

12,154

 

 

 

13,086

 

 

 

89,578

 

 

 

53,230

 

Consolidated net earnings

 

 

332,521

 

 

 

491,013

 

 

 

1,308,623

 

 

 

1,275,604

 

Less net earnings attributable to noncontrolling interests

 

 

29,827

 

 

 

38,867

 

 

 

108,703

 

 

 

89,636

 

Net earnings attributable to controlling interests

 

 

302,694

 

 

 

452,146

 

 

 

1,199,920

 

 

 

1,185,968

 

Less preferred stock dividends

 

 

1,652

 

 

 

1,507

 

 

 

4,921

 

 

 

4,498

 

Loss on preferred stock repurchase

 

 

2,347

 

 

 

0

 

 

 

2,347

 

 

 

0

 

Net earnings attributable to common stockholders

 

$

298,695

 

 

$

450,639

 

 

$

1,192,652

 

 

$

1,181,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

738,194

 

 

 

630,929

 

 

 

724,876

 

 

 

630,356

 

Weighted average common shares outstanding – Diluted

 

 

764,619

 

 

 

655,259

 

 

 

750,971

 

 

 

654,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders – Basic

 

$

0.40

 

 

$

0.71

 

 

$

1.65

 

 

$

1.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders – Diluted

 

$

0.40

 

 

$

0.71

 

 

$

1.63

 

 

$

1.86

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

2

 


PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Consolidated net earnings

 

$

332,521

 

 

$

491,013

 

 

$

1,308,623

 

 

$

1,275,604

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses), net

 

 

(45,576

)

 

 

30,053

 

 

 

(180,162

)

 

 

42,471

 

Unrealized gains (losses) on derivative contracts, net

 

 

2,379

 

 

 

(616

)

 

 

(19,696

)

 

 

(6,974

)

Comprehensive income

 

 

289,324

 

 

 

520,450

 

 

 

1,108,765

 

 

 

1,311,101

 

Net earnings attributable to noncontrolling interests

 

 

(29,827

)

 

 

(38,867

)

 

 

(108,703

)

 

 

(89,636

)

Other comprehensive loss (income) attributable to noncontrolling interests

 

 

861

 

 

 

(574

)

 

 

5,791

 

 

 

(1,072

)

Comprehensive income attributable to common stockholders

 

$

260,358

 

 

$

481,009

 

 

$

1,005,853

 

 

$

1,220,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.


3

 


PROLOGIS, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

 

Three Months Ended September 30, 2020 and 2019

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

Additional

 

 

Other

 

 

in Excess of

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

of

 

 

Par

 

 

Paid-in

 

 

Comprehensive

 

 

Net

 

 

controlling

 

 

Total

 

 

Stock

 

 

Shares

 

 

Value

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Interests

 

 

Equity

 

Balance at July 1, 2020

$

68,948

 

 

 

738,732

 

 

$

7,387

 

 

$

35,424,401

 

 

$

(1,142,129

)

 

$

(2,115,679

)

 

$

4,503,281

 

 

$

36,746,209

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

302,694

 

 

 

29,827

 

 

 

332,521

 

Effect of equity compensation plans

 

-

 

 

 

9

 

 

 

1

 

 

 

14,274

 

 

 

-

 

 

 

-

 

 

 

20,905

 

 

 

35,180

 

Issuance of units related to acquisitions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,533

 

 

 

48,533

 

Repurchase of preferred stock

 

(5,000

)

 

 

-

 

 

 

-

 

 

 

147

 

 

 

-

 

 

 

(2,347

)

 

 

-

 

 

 

(7,200

)

Redemption of noncontrolling interests

 

-

 

 

 

224

 

 

 

2

 

 

 

9,698

 

 

 

-

 

 

 

-

 

 

 

(78,734

)

 

 

(69,034

)

Foreign currency translation losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,637

)

 

 

-

 

 

 

(939

)

 

 

(45,576

)

Unrealized gains on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,301

 

 

 

-

 

 

 

78

 

 

 

2,379

 

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

7,707

 

 

 

-

 

 

 

-

 

 

 

(7,707

)

 

 

-

 

Dividends ($0.58 per common share)

     and other distributions

 

-

 

 

 

-

 

 

 

-

 

 

 

(4

)

 

 

-

 

 

 

(430,589

)

 

 

(123,112

)

 

 

(553,705

)

Balance at September 30, 2020

$

63,948

 

 

 

738,965

 

 

$

7,390

 

 

$

35,456,223

 

 

$

(1,184,465

)

 

$

(2,245,921

)

 

$

4,392,132

 

 

$

36,489,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 1, 2019

$

68,948

 

 

 

631,054

 

 

$

6,311

 

 

$

25,651,666

 

 

$

(1,079,109

)

 

$

(2,317,008

)

 

$

3,446,625

 

 

$

25,777,433

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

452,146

 

 

 

38,867

 

 

 

491,013

 

Effect of equity compensation plans

 

-

 

 

 

51

 

 

 

1

 

 

 

11,938

 

 

 

-

 

 

 

-

 

 

 

14,261

 

 

 

26,200

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

5

 

Purchase of noncontrolling interests

 

-

 

 

 

-

 

 

 

-

 

 

 

2,557

 

 

 

-

 

 

 

-

 

 

 

(3,932

)

 

 

(1,375

)

Redemption of noncontrolling interests

 

-

 

 

 

638

 

 

 

5

 

 

 

22,158

 

 

 

-

 

 

 

-

 

 

 

(31,770

)

 

 

(9,607

)

Foreign currency translation gains, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29,469

 

 

 

-

 

 

 

584

 

 

 

30,053

 

Unrealized losses on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(606

)

 

 

-

 

 

 

(10

)

 

 

(616

)

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

5,333

 

 

 

-

 

 

 

-

 

 

 

(5,333

)

 

 

-

 

Dividends ($0.53 per common share)

    and other distributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(336,599

)

 

 

(40,930

)

 

 

(377,529

)

Balance at September 30, 2019

$

68,948

 

 

 

631,743

 

 

$

6,317

 

 

$

25,693,652

 

 

$

(1,050,246

)

 

$

(2,201,461

)

 

$

3,418,367

 

 

$

25,935,577

 

 

 

Nine Months Ended September 30, 2020 and 2019

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

Additional

 

 

Other

 

 

in Excess of

 

 

Non-

 

 

 

 

 

 

 

 

Preferred

 

 

of

 

 

Par

 

 

Paid-in

 

 

Comprehensive

 

 

Net

 

 

controlling

 

 

 

 

Total

 

 

Stock

 

 

Shares

 

 

Value

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Interests

 

 

 

 

Equity

 

Balance at January 1, 2020

$

68,948

 

 

 

631,797

 

 

$

6,318

 

 

$

25,719,427

 

 

$

(990,398

)

 

$

(2,151,168

)

 

$

3,418,657

 

 

 

 

$

26,071,784

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,199,920

 

 

 

108,703

 

 

 

 

 

1,308,623

 

Effect of equity compensation plans

 

-

 

 

 

655

 

 

 

7

 

 

 

21,096

 

 

 

-

 

 

 

-

 

 

 

63,905

 

 

 

 

 

85,008

 

Liberty Transaction, net of issuance costs

 

-

 

 

 

106,723

 

 

 

1,067

 

 

 

9,801,373

 

 

 

-

 

 

 

-

 

 

 

211,086

 

 

 

 

 

10,013,526

 

Issuance of units related to acquisitions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,533

 

 

 

 

 

48,533

 

Repurchase of common shares

 

-

 

 

 

(539

)

 

 

(5

)

 

 

(34,824

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

(34,829

)

Repurchase of preferred stock

 

(5,000

)

 

 

-

 

 

 

-

 

 

 

147

 

 

 

-

 

 

 

(2,347

)

 

 

-

 

 

 

 

 

(7,200

)

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

916,974

 

 

 

 

 

916,974

 

Redemption of noncontrolling interests

 

-

 

 

 

329

 

 

 

3

 

 

 

14,249

 

 

 

-

 

 

 

-

 

 

 

(126,029

)

 

 

 

 

(111,777

)

Foreign currency translation losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(174,903

)

 

 

-

 

 

 

(5,259

)

 

 

 

 

(180,162

)

Unrealized losses on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,164

)

 

 

-

 

 

 

(532

)

 

 

 

 

(19,696

)

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

(64,752

)

 

 

-

 

 

 

-

 

 

 

64,752

 

 

 

 

 

-

 

Dividends ($1.74 per common share)

     and other distributions

 

-

 

 

 

-

 

 

 

-

 

 

 

(493

)

 

 

-

 

 

 

(1,292,326

)

 

 

(308,658

)

 

-

 

 

(1,601,477

)

Balance at September 30, 2020

$

63,948

 

 

 

738,965

 

 

$

7,390

 

 

$

35,456,223

 

 

$

(1,184,465

)

 

$

(2,245,921

)

 

$

4,392,132

 

 

 

 

$

36,489,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

$

68,948

 

 

 

629,616

 

 

$

6,296

 

 

$

25,685,987

 

 

$

(1,084,671

)

 

$

(2,378,467

)

 

$

3,502,795

 

 

 

 

$

25,800,888

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,185,968

 

 

 

89,636

 

 

 

 

 

1,275,604

 

Effect of equity compensation plans

 

-

 

 

 

942

 

 

 

10

 

 

 

22,480

 

 

 

-

 

 

 

-

 

 

 

51,582

 

 

 

 

 

74,072

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,076

 

 

 

 

 

9,076

 

Purchase of noncontrolling interests

 

-

 

 

 

-

 

 

 

-

 

 

 

2,557

 

 

 

-

 

 

 

-

 

 

 

(3,932

)

 

 

 

 

(1,375

)

Redemption of noncontrolling interests

 

-

 

 

 

1,185

 

 

 

11

 

 

 

31,630

 

 

 

-

 

 

 

-

 

 

 

(137,132

)

 

 

 

 

(105,491

)

Contribution to Brazil venture

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,630

)

 

 

 

 

(12,630

)

Foreign currency translation gains, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41,206

 

 

 

-

 

 

 

1,265

 

 

 

 

 

42,471

 

Unrealized losses on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,781

)

 

 

-

 

 

 

(193

)

 

 

 

 

(6,974

)

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

(48,985

)

 

 

-

 

 

 

-

 

 

 

48,985

 

 

 

 

 

-

 

Dividends ($1.59 per common share)

     and other distributions

 

-

 

 

 

-

 

 

 

-

 

 

 

(17

)

 

 

-

 

 

 

(1,008,962

)

 

 

(131,085

)

 

 

 

 

(1,140,064

)

Balance at September 30, 2019

$

68,948

 

 

 

631,743

 

 

$

6,317

 

 

$

25,693,652

 

 

$

(1,050,246

)

 

$

(2,201,461

)

 

$

3,418,367

 

 

 

 

$

25,935,577

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

4

 


PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

1,308,623

 

 

$

1,275,604

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Straight-lined rents and amortization of above and below market leases

 

 

(88,637

)

 

 

(77,157

)

Equity-based compensation awards

 

 

86,360

 

 

 

72,467

 

Depreciation and amortization

 

 

1,144,903

 

 

 

850,639

 

Earnings from unconsolidated entities, net

 

 

(216,844

)

 

 

(151,524

)

Operating distributions from unconsolidated entities

 

 

355,395

 

 

 

269,992

 

Decrease (increase) in operating receivables from unconsolidated entities

 

 

71,979

 

 

 

(99,762

)

Amortization of debt discounts and debt issuance costs, net

 

 

5,568

 

 

 

12,642

 

Gains on dispositions of development properties and land, net

 

 

(383,373

)

 

 

(303,317

)

Gains on other dispositions of investments in real estate, net

 

 

(184,357

)

 

 

(232,400

)

Unrealized foreign currency and derivative losses (gains), net

 

 

58,645

 

 

 

(51,373

)

Losses on early extinguishment of debt, net

 

 

164,606

 

 

 

16,086

 

Deferred income tax expense (benefit)

 

 

(6,564

)

 

 

9,769

 

Increase in accounts receivable, lease right-of-use assets and other assets

 

 

(33,189

)

 

 

(25,849

)

Increase in accounts payable and accrued expenses, lease liabilities and other liabilities

 

 

50,220

 

 

 

81,843

 

Net cash provided by operating activities

 

 

2,333,335

 

 

 

1,647,660

 

Investing activities:

 

 

 

 

 

 

 

 

Real estate development

 

 

(1,501,089

)

 

 

(1,271,656

)

Real estate acquisitions

 

 

(700,793

)

 

 

(660,836

)

Liberty Transaction, net of cash acquired

 

 

(24,550

)

 

 

0

 

IPT Transaction, net of cash acquired

 

 

(1,665,359

)

 

 

0

 

Tenant improvements and lease commissions on previously leased space

 

 

(142,168

)

 

 

(128,413

)

Property improvements

 

 

(91,355

)

 

 

(89,132

)

Proceeds from dispositions and contributions of real estate properties

 

 

1,684,633

 

 

 

1,769,296

 

Investments in and advances to unconsolidated entities

 

 

(345,310

)

 

 

(256,727

)

Return of investment from unconsolidated entities

 

 

206,741

 

 

 

360,106

 

Proceeds from repayment of notes receivable backed by real estate

 

 

4,312

 

 

 

0

 

Proceeds from the settlement of net investment hedges

 

 

2,352

 

 

 

23,640

 

Payments on the settlement of net investment hedges

 

 

(7,236

)

 

 

(28,524

)

Net cash used in investing activities

 

 

(2,579,822

)

 

 

(282,246

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

1,869

 

 

 

5,899

 

Repurchase and retirement of common stock

 

 

(34,829

)

 

 

0

 

Repurchase of preferred stock

 

 

(7,200

)

 

 

0

 

Dividends paid on common and preferred stock

 

 

(1,292,326

)

 

 

(1,008,962

)

Noncontrolling interests contributions

 

 

916,974

 

 

 

9,076

 

Noncontrolling interests distributions

 

 

(308,658

)

 

 

(131,085

)

Settlement of noncontrolling interests

 

 

(111,777

)

 

 

(106,866

)

Tax paid with shares withheld

 

 

(23,227

)

 

 

(21,933

)

Debt and equity issuance costs paid

 

 

(51,723

)

 

 

(15,011

)

Net payments on credit facilities

 

 

(142,498

)

 

 

(56,452

)

Repurchase of and payments on debt

 

 

(6,156,328

)

 

 

(3,279,771

)

Proceeds from the issuance of debt

 

 

7,303,761

 

 

 

3,921,728

 

Net cash provided by (used in) financing activities

 

 

94,038

 

 

 

(683,377

)

 

 

 

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash

 

 

3,787

 

 

 

(899

)

Net increase (decrease) in cash and cash equivalents

 

 

(148,662

)

 

 

681,138

 

Cash and cash equivalents, beginning of period

 

 

1,088,855

 

 

 

343,856

 

Cash and cash equivalents, end of period

 

$

940,193

 

 

$

1,024,994

 

 

See Note 13 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

5

 


PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

Investments in real estate properties

$

49,106,359

 

 

$

35,224,414

 

Less accumulated depreciation

 

6,229,744

 

 

 

5,437,662

 

Net investments in real estate properties

 

42,876,615

 

 

 

29,786,752

 

Investments in and advances to unconsolidated entities

 

7,310,960

 

 

 

6,237,371

 

Assets held for sale or contribution

 

1,757,187

 

 

 

720,685

 

Net investments in real estate

 

51,944,762

 

 

 

36,744,808

 

 

 

 

 

 

 

 

 

Lease right-of-use assets

 

455,704

 

 

 

486,330

 

Cash and cash equivalents

 

940,193

 

 

 

1,088,855

 

Other assets

 

2,418,939

 

 

 

1,711,857

 

Total assets

$

55,759,598

 

 

$

40,031,850

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Debt

$

16,518,126

 

 

$

11,905,877

 

Lease liabilities

 

448,534

 

 

 

471,634

 

Accounts payable and accrued expenses

 

1,119,124

 

 

 

704,954

 

Other liabilities

 

1,184,507

 

 

 

877,601

 

Total liabilities

 

19,270,291

 

 

 

13,960,066

 

 

 

 

 

 

 

 

 

Capital:

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

General partner – preferred

 

63,948

 

 

 

68,948

 

General partner – common

 

32,033,227

 

 

 

22,584,179

 

Limited partners – common

 

541,626

 

 

 

355,076

 

Limited partners – Class A common

 

347,510

 

 

 

288,187

 

Total partners’ capital

 

32,986,311

 

 

 

23,296,390

 

Noncontrolling interests

 

3,502,996

 

 

 

2,775,394

 

Total capital

 

36,489,307

 

 

 

26,071,784

 

Total liabilities and capital

$

55,759,598

 

 

$

40,031,850

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

6

 


PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

980,148

 

 

$

710,465

 

 

$

2,803,321

 

 

$

2,107,961

 

Strategic capital

 

 

98,993

 

 

 

230,467

 

 

 

516,242

 

 

 

393,416

 

Development management and other

 

 

3,632

 

 

 

1,249

 

 

 

7,575

 

 

 

3,228

 

Total revenues

 

 

1,082,773

 

 

 

942,181

 

 

 

3,327,138

 

 

 

2,504,605

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

 

245,490

 

 

 

180,864

 

 

 

705,217

 

 

 

550,070

 

Strategic capital

 

 

45,791

 

 

 

63,404

 

 

 

173,910

 

 

 

138,668

 

General and administrative

 

 

74,348

 

 

 

65,199

 

 

 

208,701

 

 

 

201,176

 

Depreciation and amortization

 

 

400,738

 

 

 

282,254

 

 

 

1,144,903

 

 

 

850,639

 

Other

 

 

3,020

 

 

 

2,294

 

 

 

25,573

 

 

 

9,643

 

Total expenses

 

 

769,387

 

 

 

594,015

 

 

 

2,258,304

 

 

 

1,750,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income before gains on real estate transactions, net

 

 

313,386

 

 

 

348,166

 

 

 

1,068,834

 

 

 

754,409

 

Gains on dispositions of development properties and land, net

 

 

134,207

 

 

 

63,935

 

 

 

383,373

 

 

 

303,317

 

Gains on other dispositions of investments in real estate, net

 

 

108,927

 

 

 

59,379

 

 

 

184,357

 

 

 

232,400

 

Operating income

 

 

556,520

 

 

 

471,480

 

 

 

1,636,564

 

 

 

1,290,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from unconsolidated entities, net

 

 

73,972

 

 

 

46,302

 

 

 

216,844

 

 

 

151,524

 

Interest expense

 

 

(80,711

)

 

 

(60,244

)

 

 

(237,651

)

 

 

(179,873

)

Interest and other income (expense), net

 

 

(5,866

)

 

 

654

 

 

 

(4,469

)

 

 

12,876

 

Foreign currency and derivative gains (losses), net

 

 

(100,974

)

 

 

59,492

 

 

 

(48,481

)

 

 

70,267

 

Losses on early extinguishment of debt, net

 

 

(98,266

)

 

 

(13,585

)

 

 

(164,606

)

 

 

(16,086

)

Total other income (expense)

 

 

(211,845

)

 

 

32,619

 

 

 

(238,363

)

 

 

38,708

 

Earnings before income taxes

 

 

344,675

 

 

 

504,099

 

 

 

1,398,201

 

 

 

1,328,834

 

Total income tax expense

 

 

12,154

 

 

 

13,086

 

 

 

89,578

 

 

 

53,230

 

Consolidated net earnings

 

 

332,521

 

 

 

491,013

 

 

 

1,308,623

 

 

 

1,275,604

 

Less net earnings attributable to noncontrolling interests

 

 

21,453

 

 

 

25,509

 

 

 

74,709

 

 

 

54,018

 

Net earnings attributable to controlling interests

 

 

311,068

 

 

 

465,504

 

 

 

1,233,914

 

 

 

1,221,586

 

Less preferred unit distributions

 

 

1,652

 

 

 

1,507

 

 

 

4,921

 

 

 

4,498

 

Loss on preferred unit repurchase

 

 

2,347

 

 

 

0

 

 

 

2,347

 

 

 

0

 

Net earnings attributable to common unitholders

 

$

307,069

 

 

$

463,997

 

 

$

1,226,646

 

 

$

1,217,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common units outstanding – Basic

 

 

750,971

 

 

 

641,229

 

 

 

737,489

 

 

 

641,077

 

Weighted average common units outstanding – Diluted

 

 

764,619

 

 

 

655,259

 

 

 

750,971

 

 

 

654,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders – Basic

 

$

0.40

 

 

$

0.71

 

 

$

1.65

 

 

$

1.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders – Diluted

 

$

0.40

 

 

$

0.71

 

 

$

1.63

 

 

$

1.86

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

7

 


PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Consolidated net earnings

 

$

332,521

 

 

$

491,013

 

 

$

1,308,623

 

 

$

1,275,604

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses), net

 

 

(45,576

)

 

 

30,053

 

 

 

(180,162

)

 

 

42,471

 

Unrealized gains (losses) on derivative contracts, net

 

 

2,379

 

 

 

(616

)

 

 

(19,696

)

 

 

(6,974

)

Comprehensive income

 

 

289,324

 

 

 

520,450

 

 

 

1,108,765

 

 

 

1,311,101

 

Net earnings attributable to noncontrolling interests

 

 

(21,453

)

 

 

(25,509

)

 

 

(74,709

)

 

 

(54,018

)

Other comprehensive loss (income) attributable to noncontrolling interests

 

 

(217

)

 

 

245

 

 

 

405

 

 

 

(88

)

Comprehensive income attributable to common unitholders

 

$

267,654

 

 

$

495,186

 

 

$

1,034,461

 

 

$

1,256,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.


8

 


PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

(Unaudited)

(In thousands)

 

Three Months Ended September 30, 2020 and 2019

 

 

General Partner

 

 

Limited Partners

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Common

 

 

Class A Common

 

 

controlling

 

 

Total

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Interests

 

 

Capital

 

Balance at July 1, 2020

 

1,379

 

 

$

68,948

 

 

 

738,732

 

 

$

32,173,980

 

 

 

12,914

 

 

$

563,403

 

 

 

8,608

 

 

$

350,078

 

 

$

3,589,800

 

 

$

36,746,209

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

302,694

 

 

 

-

 

 

 

5,158

 

 

 

-

 

 

 

3,216

 

 

 

21,453

 

 

 

332,521

 

Effect of equity compensation plans

 

-

 

 

 

-

 

 

 

9

 

 

 

14,275

 

 

 

22

 

 

 

20,905

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,180

 

Issuance of units related to acquisitions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

461

 

 

 

48,533

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,533

 

Repurchase of preferred units

 

(100

)

 

 

(5,000

)

 

 

-

 

 

 

(2,200

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,200

)

Redemption of limited partners units

 

-

 

 

 

-

 

 

 

224

 

 

 

9,700

 

 

 

(903

)

 

 

(78,215

)

 

 

(13

)

 

 

(519

)

 

 

-

 

 

 

(69,034

)

Foreign currency translation gains (losses), net

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,637

)

 

 

-

 

 

 

(676

)

 

 

-

 

 

 

(480

)

 

 

217

 

 

 

(45,576

)

Unrealized gains on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

2,301

 

 

 

-

 

 

 

52

 

 

 

-

 

 

 

26

 

 

 

-

 

 

 

2,379

 

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

7,707

 

 

 

-

 

 

 

(8,454

)

 

 

-

 

 

 

747

 

 

 

-

 

 

 

-

 

Distributions ($0.58 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(430,593

)

 

 

-

 

 

 

(9,080

)

 

 

-

 

 

 

(5,558

)

 

 

(108,474

)

 

 

(553,705

)

Balance at September 30, 2020

 

1,279

 

 

$

63,948

 

 

 

738,965

 

 

$

32,033,227

 

 

 

12,494

 

 

$

541,626

 

 

 

8,595

 

 

$

347,510

 

 

$

3,502,996

 

 

$

36,489,307

 

 

Balance at July 1, 2019

 

1,379

 

 

$

68,948

 

 

 

631,054

 

 

$

22,261,860

 

 

 

10,402

 

 

$

366,960

 

 

 

8,849

 

 

$

293,482

 

 

$

2,786,183

 

 

$

25,777,433

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

452,146

 

 

 

-

 

 

 

7,518

 

 

 

-

 

 

 

5,840

 

 

 

25,509

 

 

 

491,013

 

Effect of equity compensation plans

 

-

 

 

 

-

 

 

 

51

 

 

 

11,939

 

 

 

35

 

 

 

14,261

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,200

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

5

 

Purchase of noncontrolling interests

 

-

 

 

 

-

 

 

 

-

 

 

 

2,557

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,932

)

 

 

(1,375

)

Redemption of noncontrolling interests

 

-

 

 

 

-

 

 

 

-

 

 

 

1,790

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,790

)

 

 

-

 

Redemption of limited partners units

 

-

 

 

 

-

 

 

 

638

 

 

 

20,373

 

 

 

(468

)

 

 

(22,092

)

 

 

(236

)

 

 

(7,888

)

 

 

-

 

 

 

(9,607

)

Foreign currency translation gains (losses), net

 

-

 

 

 

-

 

 

 

-

 

 

 

29,469

 

 

 

-

 

 

 

457

 

 

 

-

 

 

 

372

 

 

 

(245

)

 

 

30,053

 

Unrealized losses on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(606

)

 

 

-

 

 

 

(5

)

 

 

-

 

 

 

(5

)

 

 

-

 

 

 

(616

)

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

5,333

 

 

 

-

 

 

 

(6,199

)

 

 

-

 

 

 

866

 

 

 

-

 

 

 

-

 

Distributions ($0.53 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(336,599

)

 

 

-

 

 

 

(6,654

)

 

 

-

 

 

 

(5,570

)

 

 

(28,706

)

 

 

(377,529

)

Balance at September 30, 2019

 

1,379

 

 

$

68,948

 

 

 

631,743

 

 

$

22,448,262

 

 

 

9,969

 

 

$

354,246

 

 

 

8,613

 

 

$

287,097

 

 

$

2,777,024

 

 

$

25,935,577

 

 

 

Nine Months Ended September 30, 2020 and 2019

 

 

General Partner

 

 

Limited Partners

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Common

 

 

Class A Common

 

 

controlling

 

 

Total

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Interests

 

 

Capital

 

Balance at January 1, 2020

 

1,379

 

 

$

68,948

 

 

 

631,797

 

 

$

22,584,179

 

 

 

9,933

 

 

$

355,076

 

 

 

8,613

 

 

$

288,187

 

 

$

2,775,394

 

 

$

26,071,784

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

1,199,920

 

 

 

-

 

 

 

20,752

 

 

 

-

 

 

 

13,242

 

 

 

74,709

 

 

 

1,308,623

 

Effect of equity compensation plans

 

-

 

 

 

-

 

 

 

655

 

 

 

21,103

 

 

 

1,279

 

 

 

63,905

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

85,008

 

Liberty Transaction, net of issuance costs

 

-

 

 

 

-

 

 

 

106,723

 

 

 

9,802,440

 

 

 

2,288

 

 

 

210,190

 

 

 

-

 

 

 

-

 

 

 

896

 

 

 

10,013,526

 

Issuance of units related to acquisitions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

461

 

 

 

48,533

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,533

 

Repurchase of common units

 

-

 

 

 

-

 

 

 

(539

)

 

 

(34,829

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34,829

)

Repurchase of preferred units

 

(100

)

 

 

(5,000

)

 

 

-

 

 

 

(2,200

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,200

)

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

916,974

 

 

 

916,974

 

Redemption of limited partners units

 

-

 

 

 

-

 

 

 

329

 

 

 

14,252

 

 

 

(1,467

)

 

 

(125,307

)

 

 

(18

)

 

 

(722

)

 

 

-

 

 

 

(111,777

)

Foreign currency translation losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(174,903

)

 

 

-

 

 

 

(2,957

)

 

 

-

 

 

 

(1,897

)

 

 

(405

)

 

 

(180,162

)

Unrealized losses on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,164

)

 

 

-

 

 

 

(324

)

 

 

-

 

 

 

(208

)

 

 

-

 

 

 

(19,696

)

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

(64,752

)

 

 

-

 

 

 

(851

)

 

 

-

 

 

 

65,603

 

 

 

-

 

 

 

-

 

Distributions ($1.74 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,292,819

)

 

 

-

 

 

 

(27,391

)

 

 

-

 

 

 

(16,695

)

 

 

(264,572

)

 

 

(1,601,477

)

Balance at September 30, 2020

 

1,279

 

 

$

63,948

 

 

 

738,965

 

 

$

32,033,227

 

 

 

12,494

 

 

$

541,626

 

 

 

8,595

 

 

$

347,510

 

 

$

3,502,996

 

 

$

36,489,307

 

 

Balance at January 1, 2019

 

1,379

 

 

$

68,948

 

 

 

629,616

 

 

$

22,229,145

 

 

 

10,516

 

 

$

371,281

 

 

 

8,849

 

 

$

295,045

 

 

$

2,836,469

 

 

$

25,800,888

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

1,185,968

 

 

 

-

 

 

 

20,095

 

 

 

-

 

 

 

15,523

 

 

 

54,018

 

 

 

1,275,604

 

Effect of equity compensation plans

 

-

 

 

 

-

 

 

 

942

 

 

 

22,490

 

 

 

1,493

 

 

 

51,582

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

74,072

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

9,076

 

 

 

9,076

 

Purchase of noncontrolling interests

 

-

 

 

 

-

 

 

 

-

 

 

 

2,557

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,932

)

 

 

(1,375

)

Redemption of noncontrolling interests

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,045

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(13,048

)

 

 

(21,093

)

Redemption of limited partners units

 

-

 

 

 

-

 

 

 

1,185

 

 

 

39,686

 

 

 

(2,040

)

 

 

(116,196

)

 

 

(236

)

 

 

(7,888

)

 

 

-

 

 

 

(84,398

)

Contribution to Brazil venture

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,630

)

 

 

(12,630

)

Foreign currency translation gains, net

 

-

 

 

 

-

 

 

 

-

 

 

 

41,206

 

 

 

-

 

 

 

650

 

 

 

-

 

 

 

527

 

 

 

88

 

 

 

42,471

 

Unrealized losses on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,781

)

 

 

-

 

 

 

(106

)

 

 

-

 

 

 

(87

)

 

 

-

 

 

 

(6,974

)

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

(48,985

)

 

 

-

 

 

 

47,993

 

 

 

-

 

 

 

992

 

 

 

-

 

 

 

-

 

Distributions ($1.59 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,008,979

)

 

 

-

 

 

 

(21,053

)

 

 

-

 

 

 

(17,015

)

 

 

(93,017

)

 

 

(1,140,064

)

Balance at September 30, 2019

 

1,379

 

 

$

68,948

 

 

 

631,743

 

 

$

22,448,262

 

 

 

9,969

 

 

$

354,246

 

 

 

8,613

 

 

$

287,097

 

 

$

2,777,024

 

 

$

25,935,577

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

9

 


PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

1,308,623

 

 

$

1,275,604

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Straight-lined rents and amortization of above and below market leases

 

 

(88,637

)

 

 

(77,157

)

Equity-based compensation awards

 

 

86,360

 

 

 

72,467

 

Depreciation and amortization

 

 

1,144,903

 

 

 

850,639

 

Earnings from unconsolidated entities, net

 

 

(216,844

)

 

 

(151,524

)

Operating distributions from unconsolidated entities

 

 

355,395

 

 

 

269,992

 

Decrease (increase) in operating receivables from unconsolidated entities

 

 

71,979

 

 

 

(99,762

)

Amortization of debt discounts and debt issuance costs, net

 

 

5,568

 

 

 

12,642

 

Gains on dispositions of development properties and land, net

 

 

(383,373

)

 

 

(303,317

)

Gains on other dispositions of investments in real estate, net

 

 

(184,357

)

 

 

(232,400

)

Unrealized foreign currency and derivative losses (gains), net

 

 

58,645

 

 

 

(51,373

)

Losses on early extinguishment of debt, net

 

 

164,606

 

 

 

16,086

 

Deferred income tax expense (benefit)

 

 

(6,564

)

 

 

9,769

 

Increase in accounts receivable, lease right-of-use assets and other assets

 

 

(33,189

)

 

 

(25,849

)

Increase in accounts payable and accrued expenses, lease liabilities and other liabilities

 

 

50,220

 

 

 

81,843

 

Net cash provided by operating activities

 

 

2,333,335

 

 

 

1,647,660

 

Investing activities:

 

 

 

 

 

 

 

 

Real estate development

 

 

(1,501,089

)

 

 

(1,271,656

)

Real estate acquisitions

 

 

(700,793

)

 

 

(660,836

)

Liberty Transaction, net of cash acquired

 

 

(24,550

)

 

 

0

 

IPT Transaction, net of cash acquired

 

 

(1,665,359

)

 

 

0

 

Tenant improvements and lease commissions on previously leased space

 

 

(142,168

)

 

 

(128,413

)

Property improvements

 

 

(91,355

)

 

 

(89,132

)

Proceeds from dispositions and contributions of real estate properties

 

 

1,684,633

 

 

 

1,769,296

 

Investments in and advances to unconsolidated entities

 

 

(345,310

)

 

 

(256,727

)

Return of investment from unconsolidated entities

 

 

206,741

 

 

 

360,106

 

Proceeds from repayment of notes receivable backed by real estate

 

 

4,312

 

 

 

0

 

Proceeds from the settlement of net investment hedges

 

 

2,352

 

 

 

23,640

 

Payments on the settlement of net investment hedges

 

 

(7,236

)

 

 

(28,524

)

Net cash used in investing activities

 

 

(2,579,822

)

 

 

(282,246

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common partnership units in exchange for contributions from Prologis, Inc.

 

 

1,869

 

 

 

5,899

 

Repurchase and retirement of common units

 

 

(34,829

)

 

 

0

 

Repurchase of preferred units

 

 

(7,200

)

 

 

0

 

Distributions paid on common and preferred units

 

 

(1,336,412

)

 

 

(1,047,030

)

Noncontrolling interests contributions

 

 

916,974

 

 

 

9,076

 

Noncontrolling interests distributions

 

 

(264,572

)

 

 

(93,017

)

Settlement of noncontrolling interests

 

 

0

 

 

 

(22,468

)

Redemption of common limited partnership units

 

 

(111,777

)

 

 

(84,398

)

Tax paid with shares of the Parent withheld

 

 

(23,227

)

 

 

(21,933

)

Debt and equity issuance costs paid

 

 

(51,723

)

 

 

(15,011

)

Net payments on credit facilities

 

 

(142,498

)

 

 

(56,452

)

Repurchase of and payments on debt

 

 

(6,156,328

)

 

 

(3,279,771

)

Proceeds from the issuance of debt

 

 

7,303,761

 

 

 

3,921,728

 

Net cash provided by (used in) financing activities

 

 

94,038

 

 

 

(683,377

)

 

 

 

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash

 

 

3,787

 

 

 

(899

)

Net increase (decrease) in cash and cash equivalents

 

 

(148,662

)

 

 

681,138

 

Cash and cash equivalents, beginning of period

 

 

1,088,855

 

 

 

343,856

 

Cash and cash equivalents, end of period

 

$

940,193

 

 

$

1,024,994

 

 

See Note 13 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

10

 


 

PROLOGIS, INC. AND PROLOGIS, L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. GENERAL

 

Business. Prologis, Inc. (or the “Parent”) commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and believes the current organization and method of operation will enable it to maintain its status as a REIT. The Parent is the general partner of Prologis, L.P. (or the “Operating Partnership” or “OP”). Through the OP, we are engaged in the ownership, acquisition, development and management of logistics facilities with a focus on key markets in 19 countries on four continents. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity. Our current business strategy consists of 2 operating business segments: Real Estate Operations and Strategic Capital. Our Real Estate Operations segment represents the ownership and development of logistics properties. Our Strategic Capital segment represents the management of unconsolidated co-investment ventures and other ventures. See Note 12 for further discussion of our business segments. Unless otherwise indicated, the Notes to the Consolidated Financial Statements apply to both the Parent and the OP. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and OP collectively.

 

For each share of preferred or common stock the Parent issues, the OP issues a corresponding preferred or common partnership unit, as applicable, to the Parent in exchange for the contribution of the proceeds from the stock issuance. At September 30, 2020, the Parent owned a 97.30% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.70% common limited partnership interests, which include Class A common limited partnership units (“Class A Units”) in the OP, are owned by unaffiliated investors and certain current and former directors and officers of the Parent. Each partner’s percentage interest in the OP is determined based on the number of OP units held, including the number of OP units into which Class A Units are convertible, compared to total OP units outstanding at each period end and is used as the basis for the allocation of net income or loss to each partner. At the end of each reporting period, a capital adjustment is made in the OP to reflect the appropriate ownership interest for each of the common unitholders. These adjustments are reflected in the line items Reallocation of Equity in the Consolidated Statements of Equity of the Parent and Reallocation of Capital in the Consolidated Statements of Capital of the OP.

 

As the sole general partner of the OP, the Parent has complete responsibility and discretion in the day-to-day management and control of the OP and we operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As general partner with control of the OP, the Parent is the primary beneficiary and therefore consolidates the OP. Because the Parent’s only significant asset is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

 

Basis of Presentation. The accompanying Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are presented in our reporting currency, the U.S. dollar. All material intercompany transactions with consolidated entities have been eliminated.

 

The accompanying unaudited interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes that the disclosures presented in these financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for both the Parent and the OP for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC, and other public information.

 

New Accounting Pronouncements.

 

Accounting for Lease Concessions Related to the Effects of the Coronavirus (“COVID-19”) Pandemic. In April 2020, the Financial Accounting Standards Board (“FASB”) issued a Staff Question-and-Answer (“Q&A”) to clarify whether lease concessions related to the effects of COVID-19 require the application of the lease modification guidance under the new lease standard, which we adopted on January 1, 2019. For rent deferrals granted during the nine months ended September 30, 2020, we are allowing customers to defer rental payments until a later date, generally later in 2020 or early 2021, in exchange for a note receivable, and we are continuing to recognize rental revenue during the period. In accordance with the Q&A, we are electing to not apply the lease modification guidance to concessions that result in deferred rent as the total cash flows required by the modified lease agreements are materially the same as the cash flows required under the original lease and there are no substantive changes to the consideration. As of October 19, 2020, we have granted deferral requests of $21.0 million related to consolidated properties during 2020. If we grant concessions to a customer that modify the terms and significantly change the underlying cash flows of the original lease for the remaining term, we will account for these changes as a lease modification in accordance with U.S. GAAP.

 

11

 


 

Reference Rate Reform. In March 2020, the FASB issued an Accounting Standard Update (“ASU”) that provided practical expedients to address existing guidance on contract modifications and hedge accounting due to the expected market transition from the London Inter-bank Offered Rate (“LIBOR”) and other interbank offered rates (together “IBORs”) to alternative reference rates, such as the Secured Overnight Financing Rate. In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. We refer to this transition as “reference rate reform.”

 

The first practical expedient allows companies to elect to not apply certain modification accounting requirements to debt, derivative and lease contracts affected by reference rate reform if certain criteria are met. These criteria include the following: (i) the contract referenced an IBOR rate that is expected to be discontinued; (ii) the modified terms directly replace or have the potential to replace the IBOR rate that is expected to be discontinued; and (iii) any contemporaneous changes to other terms that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the IBOR rate. If the contract meets all three criteria, there is no requirement for remeasurement of the contract at the modification date or reassessment of the previous accounting determination.

 

The second practical expedient allows companies to change the reference rate and other critical terms related to the reference rate reform in derivative hedge documentation without having to dedesignate the hedging relationship. This allows for companies to continue applying hedge accounting to existing cash flow and net investment hedges.

 

The ASU was effective upon issuance on a prospective basis beginning January 1, 2020 and may be elected over time as reference rate reform activities occur. We have not modified any contracts to date, however, we will evaluate any debt, derivative and lease contracts that are modified in the future to ensure they are eligible for modification relief and apply the practical expedients as needed.

 

NOTE 2. LIBERTY TRANSACTION

 

On February 4, 2020, we acquired Liberty Property Trust and Liberty Property Limited Partnership (collectively “Liberty” or the “Liberty Transaction”).

 

The Liberty Transaction was completed for $13.0 billion through the issuance of equity based on the value of the Prologis common stock and units issued of $10.0 billion, the assumption of debt of $2.8 billion and transaction costs. In connection with the transaction, each issued and outstanding share or unit held by a Liberty stockholder or unitholder was converted automatically into 0.675 shares of Prologis common stock or common units of Prologis, L.P., respectively, including shares and units under Liberty’s equity incentive plan that became fully vested at closing.

 

Through the Liberty Transaction, we acquired a portfolio primarily comprised of logistics real estate assets, including 519 industrial operating properties, aggregating 99.6 million square feet, which are highly complementary to our U.S. portfolio in terms of product quality, location and growth potential in our key markets. There was approximately 34 million square feet of non-strategic industrial properties acquired in the Liberty Transaction that we do not intend to operate long-term. Depending on the expected hold period, these assets are either classified as Assets Held for Sale or Contribution or other real estate investments within Investments in Real Estate Properties in the Consolidated Balance Sheets. In addition, we acquired an ownership interest in 8 ventures that own industrial and office properties.

 

The aggregate equity consideration is calculated below (in millions, except price per share):

 

Number of Prologis shares and units issued upon conversion of Liberty shares and units at February 4, 2020

 

109.01

 

Multiplied by closing price of Prologis' common stock on February 3, 2020

$

91.87

 

Fair value of Prologis shares and units issued

$

10,015

 

 

We accounted for the Liberty Transaction as an asset acquisition and as a result, the transaction costs of $115.8 million were capitalized to the basis of the acquired properties. Transaction costs included investment banker advisory fees, legal fees and other costs.

 

Under acquisition accounting, the total purchase price was allocated as follows to the Liberty real estate properties and related lease intangibles on a relative fair value basis and all other assets and liabilities assumed at fair value (in millions):

 

Net investments in real estate

$

12,631

 

Intangible assets, net of intangible liabilities (1)

 

491

 

Cash and other assets

 

240

 

Debt

 

(2,845

)

Accounts payable, accrued expenses and other liabilities

 

(385

)

Noncontrolling interests

 

(1

)

Total purchase price, including transaction costs

$

10,131

 

 

12

 


 

(1)

Intangible assets of $640.5 million and intangible liabilities of $149.9 million were included within Other Assets and Other Liabilities, respectively, on the Consolidated Balance Sheets. The acquired lease intangibles from the Liberty Transaction will be amortized over the terms of the respective leases with a weighted average remaining lease term of 66 months.

 

NOTE 3. REAL ESTATE

 

Investments in real estate properties consisted of the following (dollars and square feet in thousands):

 

 

Square Feet

 

 

Number of Buildings

 

 

 

 

 

Sep 30,

 

 

Dec 31,

 

 

Sep 30,

 

 

Dec 31,

 

 

Sep 30,

 

Dec 31,

 

 

2020 (1)

 

 

2019

 

 

2020 (1)

 

 

2019

 

 

2020 (1)

 

2019

 

Operating properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings and improvements

 

437,501

 

 

 

354,297

 

 

 

2,249

 

 

 

1,876

 

 

$

30,931,497

 

$

23,067,625

 

Improved land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,692,392

 

 

8,220,208

 

Development portfolio, including

     land costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prestabilized

 

8,165

 

 

 

9,133

 

 

 

28

 

 

 

28

 

 

 

739,773

 

 

784,584

 

Properties under development

 

19,195

 

 

 

26,893

 

 

 

52

 

 

 

77

 

 

 

1,292,465

 

 

1,084,683

 

Land (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,754,583

 

 

1,101,646

 

Other real estate investments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,695,649

 

 

965,668

 

Total investments in real estate

     properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,106,359

 

 

35,224,414

 

Less accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,229,744

 

 

5,437,662

 

Net investments in real estate

     properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

42,876,615

 

$

29,786,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes the acquired real estate properties from the Liberty Transaction at September 30, 2020. See Note 2 for more information.

 

(2)

At September 30, 2020 and December 31, 2019, our land is comprised of 5,743 and 4,411 acres, respectively.

 

(3)

Included in other real estate investments were: (i) non-strategic real estate assets, including industrial and office, acquired in the Liberty Transaction that we do not intend to operate long-term; (ii) non-logistics real estate; (iii) land parcels that are ground leased to third parties; (iv) our corporate headquarters; (v) costs related to future development projects, including purchase options on land; (vi) earnest money deposits associated with potential acquisitions; and (vii) infrastructure costs related to projects we are developing on behalf of others.

 

Acquisitions

 

The following table summarizes our real estate acquisition activity, excluding the Liberty Transaction as discussed in Note 2 (dollars and square feet in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020 (1)

 

 

2019

 

Number of operating properties

 

 

2

 

 

 

2

 

 

 

140

 

 

 

15

 

Square feet

 

 

194

 

 

 

80

 

 

 

20,470

 

 

 

1,083

 

Acres of land

 

 

156

 

 

 

186

 

 

 

611

 

 

 

651

 

Acquisition cost of net investments in real estate

 

$

188,717

 

 

$

184,077

 

 

$

2,730,377

 

 

$

701,264

 

   

(1)

On January 8, 2020, our two U.S. co-investment ventures, Prologis Targeted U.S. Logistics Fund, L.P. (“USLF”) and Prologis U.S. Logistics Venture, LLC (“USLV”), acquired the wholly-owned real estate assets of Industrial Property Trust Inc. (“IPT”) for $2.0 billion each in a cash transaction, including transaction costs and the assumption and repayment of debt (the “IPT Transaction”). As USLV is a consolidated co-investment venture, the number of operating properties, square feet and acquisition cost are included in the consolidated acquisition activity. For further discussion on the acquisition by USLF, see Note 4, and by USLV, see Notes 6 and 8.

 

13

 


 

Dispositions

 

The following table summarizes our dispositions of net investments in real estate (dollars and square feet in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Dispositions of development properties and land, net (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of properties

 

 

12

 

 

 

5

 

 

 

32

 

 

 

17

 

Square feet

 

 

3,150

 

 

 

1,741

 

 

 

11,776

 

 

 

7,346

 

Net proceeds

 

$

410,398

 

 

$

212,398

 

 

$

1,384,227

 

 

$

1,067,808

 

Gains on contributions and dispositions, net

 

$

134,207

 

 

$

63,935

 

 

$

383,373

 

 

$

303,317

 

Total gains on dispositions of development properties and land, net

 

$

134,207

 

 

$

63,935

 

 

$

383,373

 

 

$

303,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other dispositions of investments in real estate, net (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of properties

 

 

15

 

 

 

29

 

 

 

38

 

 

 

46

 

Square feet

 

 

2,558

 

 

 

4,130

 

 

 

6,635

 

 

 

11,517

 

Net proceeds

 

$

409,303

 

 

$

351,264

 

 

$

763,615

 

 

$

1,037,103

 

Gains on contributions and dispositions, net

 

$

108,927

 

 

$

59,379

 

 

$

184,357

 

 

$

97,378

 

Gains on partial redemption of investment in an unconsolidated

     co-investment venture (3)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

135,022

 

Total gains on other dispositions of investments in real estate, net

 

$

108,927

 

 

$

59,379

 

 

$

184,357

 

 

$

232,400

 

 

(1)

The gains we recognize in Gains on the Dispositions of Development Properties and Land, Net are primarily driven by the contribution of newly developed properties to our unconsolidated co-investment ventures.

 

(2)

In January 2019, we formed Prologis Brazil Logistics Venture (“PBLV”), a Brazilian unconsolidated co-investment venture, with one partner. We contributed an initial portfolio of real estate properties to PBLV consisting of 14 operating properties totaling 6.9 million square feet and 371 acres of land. We received cash proceeds and units for our 20.0% equity interest.

 

(3)

In February 2019, we redeemed a portion of our investment in a European unconsolidated co-investment venture.

 

NOTE 4. UNCONSOLIDATED ENTITIES

 

Summary of Investments

 

We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with partners and investors and we provide asset and property management services to these entities, which we refer to as co-investment ventures. These entities may be consolidated or unconsolidated, depending on the structure, our partner’s participation and other rights and our level of control of the entity. This note details our investments in unconsolidated co-investment ventures, which are related parties and are accounted for using the equity method of accounting. See Note 8 for more detail regarding our consolidated investments that are not wholly owned.

 

We also have investments in other ventures, generally with one partner and that we do not manage, which we account for using the equity method. We refer to our investments in both unconsolidated co-investment ventures and other ventures, collectively, as unconsolidated entities.

 

The following table summarizes our investments in and advances to our unconsolidated entities (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Unconsolidated co-investment ventures

 

$

6,393,888

 

 

$

5,873,784

 

Other ventures (1)

 

 

917,072

 

 

 

363,587

 

Total

 

$

7,310,960

 

 

$

6,237,371

 

 

(1)

In February 2020, we completed the Liberty Transaction and acquired an equity method investment in 8 ventures.

 

14

 


 

Unconsolidated Co-Investment Ventures

 

 

The following table summarizes the Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to our unconsolidated co-investment ventures (in thousands):

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Recurring fees

 

$

80,403

 

 

$

67,888

 

 

$

231,263

 

 

$

195,542

 

Transactional fees

 

 

15,827

 

 

 

14,094

 

 

 

47,879

 

 

 

41,272

 

Promote revenue (1)

 

 

0

 

 

 

148,191

 

 

 

228,421

 

 

 

155,474

 

Total strategic capital revenues from unconsolidated

     co-investment ventures (2)

 

$

96,230

 

 

$

230,173

 

 

$

507,563

 

 

$

392,288

 

 

 

(1)

Includes promote revenue earned from our unconsolidated co-investment venture in the U.S. in June 2020 and in Europe in September 2019.

 

(2)

These amounts exclude strategic capital revenues from other ventures.

 

The following table summarizes the key property information, financial position and operating information of our unconsolidated co-investment ventures (not our proportionate share) and the amounts we recognized in the Consolidated Financial Statements related to these ventures (dollars and square feet in millions):

 

 

U.S.

 

 

Other Americas (2)

 

 

Europe

 

 

Asia

 

 

Total

 

As of:

Sep 30,

2020 (1)

 

 

Dec 31,

2019

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

Key property information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ventures

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

 

 

3

 

 

 

3

 

 

 

3

 

 

 

3

 

 

 

9

 

 

 

9

 

Operating properties

 

699

 

 

 

605

 

 

 

225

 

 

 

214

 

 

 

769

 

 

 

731

 

 

 

165

 

 

 

144

 

 

 

1,858

 

 

 

1,694

 

Square feet

 

116

 

 

 

99

 

 

 

49

 

 

 

44

 

 

 

185

 

 

 

176

 

 

 

67

 

 

 

59

 

 

 

417

 

 

 

378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets ($)

 

10,755

 

 

 

8,408

 

 

 

2,862

 

 

 

2,707

 

 

 

15,940

 

 

 

14,677

 

 

 

9,729

 

 

 

8,758

 

 

 

39,286

 

 

 

34,550

 

Third-party debt ($)

 

3,344

 

 

 

2,130

 

 

 

776

 

 

 

769

 

 

 

3,772

 

 

 

3,213

 

 

 

3,708

 

 

 

3,296

 

 

 

11,600

 

 

 

9,408

 

Total liabilities ($)

 

3,939

 

 

 

2,514

 

 

 

811

 

 

 

801

 

 

 

5,251

 

 

 

4,575

 

 

 

4,183

 

 

 

3,751

 

 

 

14,184

 

 

 

11,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our investment balance ($) (3)

 

1,889

 

 

 

1,728

 

 

 

794

 

 

 

658

 

 

 

2,935

 

 

 

2,800

 

 

 

776

 

 

 

688

 

 

 

6,394

 

 

 

5,874

 

Our weighted average ownership (4)

 

26.3

%

 

 

27.3

%

 

 

41.1

%

 

 

39.1

%

 

 

30.0

%

 

 

30.2

%

 

 

15.2

%

 

 

15.1

%

 

 

26.3

%

 

 

27.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

Other Americas (2)

 

 

Europe

 

 

Asia

 

 

Total

 

Operating Information:

Sep 30,

2020 (1)

 

 

Sep 30,

2019

 

 

Sep 30,

2020

 

 

Sep 30,

2019

 

 

Sep 30,

2020

 

 

Sep 30,

2019

 

 

Sep 30,

2020

 

 

Sep 30,

2019

 

 

Sep 30,

2020

 

 

Sep 30,

2019

 

For the three months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues ($)

 

237

 

 

 

187

 

 

 

70

 

 

 

66

 

 

 

303

 

 

 

276

 

 

 

148

 

 

 

134

 

 

 

758

 

 

 

663

 

Net earnings ($)

 

29

 

 

 

38

 

 

 

23

 

 

 

18

 

 

 

80

 

 

 

70

 

 

 

152

 

 

 

27

 

 

 

284

 

 

 

153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our earnings from unconsolidated

     co-investment ventures, net ($)

 

9

 

 

 

11

 

 

 

8

 

 

 

6

 

 

 

27

 

 

 

22

 

 

 

23

 

 

 

4

 

 

 

67

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues ($)

 

702

 

 

 

546

 

 

 

204

 

 

 

200

 

 

 

874

 

 

 

815

 

 

 

429

 

 

 

378

 

 

 

2,209

 

 

 

1,939

 

Net earnings ($)

 

103

 

 

 

90

 

 

 

69

 

 

 

73

 

 

 

230

 

 

 

225

 

 

 

210

 

 

 

89

 

 

 

612

 

 

 

477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our earnings from unconsolidated

     co-investment ventures, net ($)

 

28

 

 

 

27

 

 

 

26

 

 

 

27

 

 

 

75

 

 

 

74

 

 

 

32

 

 

 

14

 

 

 

161

 

 

 

142

 

 

(1)

In January 2020, USLF acquired a portfolio of 108 operating properties, aggregating 18.3 million square feet, in the IPT Transaction for cash consideration of $2.0 billion, including transaction costs and the assumption and repayment of debt.

 

(2)

PBLV and our other Brazilian joint ventures are combined as one venture for the purpose of this table.

 

(3)

Prologis’ investment balance is presented at our adjusted basis derived from the ventures’ U.S. GAAP information. The difference between our ownership interest of a venture’s equity and our investment balance at September 30, 2020 and December 31, 2019, results principally from four types of transactions: (i) deferred gains from the contribution of property to a venture prior to January 1, 2018; (ii) recording additional costs associated with our investment in the venture; (iii) receivables, principally for fees and promotes ($100.2 million and $152.0 million, respectively); and (iv) customer security deposits retained subsequent to property contributions to Nippon Prologis REIT, Inc.

 

15

 


 

(4)

Represents our weighted average ownership interest in all unconsolidated co-investment ventures based on each entity’s contribution of total assets before depreciation, net of other liabilities.

 

Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures

 

At September 30, 2020, our remaining equity commitments were $336.6 million, primarily for Prologis China Logistics Venture. Our equity commitments expire from 2021 to 2028.

 

NOTE 5. ASSETS HELD FOR SALE OR CONTRIBUTION

 

We have investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at September 30, 2020 and December 31, 2019. At the time of classification, these properties were expected to be sold to third parties or were recently stabilized and expected to be contributed to unconsolidated co-investment ventures within twelve months. The amounts included in Assets Held for Sale or Contribution represented real estate investment balances and the related assets and liabilities for each property.

 

Assets held for sale or contribution, including certain properties acquired through the Liberty Transaction and the IPT Transaction, consisted of the following (dollars and square feet in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Number of operating properties

 

 

141

 

 

 

28

 

Square feet

 

 

22,247

 

 

 

9,371

 

Total assets held for sale or contribution

 

$

1,757,187

 

 

$

720,685

 

Total liabilities associated with assets held for sale or contribution – included in Other Liabilities

 

$

35,473

 

 

$

41,994

 

 

NOTE 6. DEBT

 

All debt is incurred by the OP or its consolidated subsidiaries. The following table summarizes our debt (dollars in thousands):

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Weighted Average Interest Rate (1)

 

 

Amount

Outstanding (2)

 

 

Weighted Average Interest Rate (1)

 

 

Amount

Outstanding (2)

 

Credit facilities

 

 

0.4

%

 

$

39,733

 

 

 

0.4

%

 

$

184,255

 

Senior notes (3)

 

 

2.1

%

 

 

14,108,021

 

 

 

2.4

%

 

 

9,660,570

 

Term loans and unsecured other (3)

 

 

0.8

%

 

 

1,723,473

 

 

 

0.9

%

 

 

1,441,882

 

Secured mortgage (3)(4)

 

 

3.6

%

 

 

646,899

 

 

 

3.4

%

 

 

619,170

 

Total

 

 

2.0

%

 

$

16,518,126

 

 

 

2.2

%

 

$

11,905,877

 

 

(1)

The interest rates presented represent the effective interest rates (including amortization of debt issuance costs and the noncash premiums or discounts) at the end of the period for the debt outstanding and include the impact of designated interest rate swaps, which effectively fix the interest rate on certain variable rate debt.

 

(2)

We borrow in the functional currencies of the countries where we invest. Included in the outstanding balances were borrowings denominated in the following currencies:

 

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

Amount

Outstanding

 

 

% of Total

 

 

Amount

Outstanding

 

 

% of Total

 

 

British pound sterling

 

$

1,126,684

 

 

 

6.8

%

 

$

656,549

 

 

 

5.5

%

 

Canadian dollar

 

 

271,752

 

 

 

1.6

%

 

 

279,730

 

 

 

2.3

%

 

Euro

 

 

6,297,942

 

 

 

38.2

%

 

 

6,128,986

 

 

 

51.5

%

 

Japanese yen

 

 

2,695,105

 

 

 

16.3

%

 

 

2,329,381

 

 

 

19.6

%

 

U.S. dollar

 

 

6,126,643

 

 

 

37.1

%

 

 

2,511,231

 

 

 

21.1

%

 

Total

 

$

16,518,126

 

 

 

 

 

 

$

11,905,877

 

 

 

 

 

 

(3)

Through the Liberty Transaction, we assumed $2.5 billion of senior notes, $246.9 million of secured mortgage debt and a $100.1 million term loan with a weighted average stated interest rate of 3.8%. We subsequently paid down $1.8 billion of the assumed debt with senior notes we issued at lower rates in February 2020. See below for additional activity on debt assumed in the Liberty Transaction and the extinguishment of a significant portion of the debt subsequent to acquisition.

 

16

 


 

(4)

Through the IPT Transaction, USLV assumed $341.8 million of secured mortgage debt, all of which was paid down at closing. See below for the early extinguishment of debt in the IPT Transaction.

 

Credit Facilities

 

We have a global senior credit facility (the “Global Facility”) under which we may draw in British pounds sterling, Canadian dollars, euro, Japanese yen, Mexican pesos and U.S. dollars on a revolving basis up to $3.5 billion (subject to currency fluctuations). Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP. The Global Facility is scheduled to mature in January 2023; however, we may extend the maturity date for six months on two occasions, subject to the satisfaction of certain conditions and payment of extension fees. We have the ability to increase the Global Facility to $4.5 billion, subject to currency fluctuations and obtaining additional lender commitments.

 

We also have a Japanese yen revolver (the “Revolver”) that we upsized in July 2020 with total commitments of ¥55.0 billion ($520.3 million at September 30, 2020). We have the ability to increase the borrowing capacity of the Revolver to ¥75.0 billion ($709.5 million at September 30, 2020), subject to obtaining additional lender commitments. Pricing under the Revolver, including the spread over Yen LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP. At September 30, 2020, the Revolver was scheduled to mature in July 2024; however, we may extend the maturity date for one year, subject to the satisfaction of certain conditions and payment of extension fees.

 

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities.”

 

Senior Notes

 

The following table summarizes the issuances and redemptions of senior notes during the nine months ended September 30, 2020 (principal in thousands):

 

 

 

Aggregate Principal

 

 

 

 

 

 

 

Initial Borrowing Date

 

Borrowing Currency

 

 

USD (1)

 

 

Weighted Average Stated Interest Rate at the Issuance Date

 

 

Maturity Dates

February (2)(3)

 

1,350,000

 

 

$

1,485,405

 

 

0.6%

 

 

February 2022 – 2035

February (2)

 

$

2,200,000

 

 

$

2,200,000

 

 

2.4%

 

 

April 2027 – 2050

February

 

£

250,000

 

 

$

322,490

 

 

1.9%

 

 

February 2035

June (3)(4)

 

¥

41,200,000

 

 

$

386,314

 

 

1.0%

 

 

June 2027 – 2050

August (3)(5)

 

$

1,250,000

 

 

$

1,250,000

 

 

1.6%

 

 

October 2030 – 2050

September

 

¥

19,700,000

 

 

$

186,835

 

 

1.0%

 

 

September 2032 – 2040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Principal

 

 

 

 

 

 

 

Redemption Date

 

Borrowing Currency

 

 

USD (1)

 

 

Stated Interest Rate at the Redemption Date

 

 

Maturity Dates

January

 

400,000

 

 

$

445,880

 

 

0.0%

 

 

January 2020

March (2)

 

700,000

 

 

$

783,090

 

 

1.4%

 

 

May 2021

June (4)

 

212,598

 

 

$

238,067

 

 

3.0%

 

 

January 2022

June (4)

 

100,486

 

 

$

112,524

 

 

3.4%

 

 

February 2024

September (5)

 

$

850,000

 

 

$

850,000

 

 

4.3%

 

 

August 2023

 

(1)

The exchange rate used to calculate into U.S. dollars was the spot rate at the settlement date.

 

(2)

We utilized the proceeds from these issuances to redeem $1.8 billion of debt assumed in the Liberty Transaction, primarily senior notes as discussed above, and our €700.0 million ($783.1 million) senior notes due in May 2021. The remainder of the proceeds were used for the repayment of other debt and general corporate purposes.

 

(3)

Approximately $1.5 billion of the proceeds from the issuance of these notes are to fund sustainable and environmentally beneficial projects and buildings in accordance with our green bond framework.

 

(4)

We utilized the proceeds from the issuance of the Japanese yen senior notes to redeem €212.6 million ($238.1 million) and €100.5 million ($112.5 million) of the euro senior notes due in January 2022 and February 2024, respectively, through a tender offer.

 

(5)

We utilized the proceeds from this issuance to redeem $850.0 million of senior notes due in August 2023.

 

17

 


 

In February 2020, we completed an exchange offer for 2 series of Liberty’s senior notes for an aggregate amount of $750.0 million, with $689.8 million, or 92.0%, of the aggregate principal amount being validly tendered for exchange. These senior notes are in the aggregate principal amounts of $400.0 million due in October 2026 with an interest rate of 3.3% and $350.0 million due in February 2029 with an interest rate of 4.4%. The senior notes were exchanged for notes issued by a wholly owned subsidiary and guaranteed by the OP. As a result of the exchange offer, we have no separate remaining financial reporting obligations or financial covenants associated with the senior notes assumed in the Liberty Transaction. All other terms of the exchanged Liberty senior notes remained substantially the same.

 

Term Loans

 

During the nine months ended September 30, 2020, we extended the maturity of the multi-currency term loan (“2017 Term Loan”) by one year until May 2021. We may extend the maturity for one additional year, subject to the satisfaction of certain conditions and the payment of an extension fee. During the nine months ended September 30, 2020 and 2019, we borrowed a net $250.0 million and paid down a net $496.5 million on the 2017 Term Loan, respectively.

 

Liquidity

 

The following table summarizes information about our available liquidity at September 30, 2020 (in millions):

 

 

 

 

 

 

Aggregate lender commitments

 

 

 

 

Credit Facilities

 

$

4,052

 

Available term loans

 

 

250

 

Less:

 

 

 

 

Borrowings outstanding

 

 

40

 

Outstanding letters of credit

 

 

29

 

Current availability

 

 

4,233

 

Cash and cash equivalents

 

 

940

 

Total liquidity

 

$

5,173

 

 

Long-Term Debt Maturities

 

Scheduled principal payments due on our debt for the remainder of 2020 and for each year through the period ended December 31, 2024, and thereafter were as follows at September 30, 2020 (in thousands):

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

Credit

 

 

Senior

 

 

Term Loans

 

 

Secured

 

 

 

 

 

Maturity

 

Facilities

 

 

Notes

 

 

and Other

 

 

Mortgage

 

 

Total

 

2020 (1)

 

$

0

 

 

$

0

 

 

$

0

 

 

$

2,115

 

 

$

2,115

 

2021 (1)(2)

 

 

0

 

 

 

0

 

 

 

260,467

 

 

 

28,531

 

 

 

288,998

 

2022

 

 

0

 

 

 

743,535

 

 

 

0

 

 

 

11,919

 

 

 

755,454

 

2023

 

 

0

 

 

 

0

 

 

 

127,347

 

 

 

33,894

 

 

 

161,241

 

2024 (3)

 

 

39,733

 

 

 

701,911

 

 

 

0

 

 

 

265,753

 

 

 

1,007,397

 

Thereafter

 

 

0

 

 

 

12,721,675

 

 

 

1,343,354

 

 

 

304,100

 

 

 

14,369,129

 

Subtotal

 

 

39,733

 

 

 

14,167,121

 

 

 

1,731,168

 

 

 

646,312

 

 

 

16,584,334

 

Unamortized net premiums

 

 

0

 

 

 

11,935

 

 

 

0

 

 

 

2,645

 

 

 

14,580

 

Unamortized debt issuance costs

 

 

0

 

 

 

(71,035

)

 

 

(7,695

)

 

 

(2,058

)

 

 

(80,788

)

Total

 

$

39,733

 

 

$

14,108,021

 

 

$

1,723,473

 

 

$

646,899

 

 

$

16,518,126

 

 

(1)

We expect to repay the amounts maturing in the next twelve months with cash generated from operations, proceeds from dispositions of real estate properties, or as necessary, with borrowings on our Credit Facilities.

 

(2)

Included in the 2021 maturities is the 2017 Term Loan that can be extended until 2022.

 

(3)

Included in the 2024 maturities is the Revolver that can be extended until 2025.

 

18

 


 

Early Extinguishment of Debt

 

During the nine months ended September 30, 2020, we recognized $164.6 million of losses upon the redemption of higher interest rate euro and U.S. dollar senior notes prior to maturity as described above, and the extinguishment of debt assumed in the Liberty Transaction and the IPT Transaction, which represented the excess of the prepayment penalties over the premium recorded upon assumption of the debt. During the nine months ended September 30, 2019, we recognized $16.1 million in losses on early extinguishment of debt, primarily from the redemption of euro senior notes.

 

Financial Debt Covenants

 

We have $14.1 billion of senior notes and $1.7 billion of term loans outstanding at September 30, 2020 that were subject to certain financial covenants under their related indentures. We are also subject to financial covenants under our Credit Facilities and certain secured mortgage debt. At September 30, 2020, we were in compliance with all of our financial debt covenants.

 

Guarantee of Finance Subsidiary Debt

 

We have finance subsidiaries as part of our operations in Europe (Prologis Euro Finance LLC), Japan (Prologis Yen Finance LLC) and the U.K. (Prologis Sterling Finance LLC) in order to mitigate our foreign currency risk by borrowing in the currencies in which we invest. These entities are 100% indirectly owned by the OP and all unsecured debt issued or to be issued by each entity is or will be fully and unconditionally guaranteed by the OP. There are no restrictions or limits on the OP’s ability to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial statements of Prologis Euro Finance LLC, Prologis Yen Finance LLC and Prologis Sterling Finance LLC are not provided.

 

NOTE 7. STOCKHOLDER’S EQUITY OF PROLOGIS, INC.

 

Share Purchase Program

 

In March 2020, the Board of Directors authorized a new share purchase program for the repurchase of outstanding shares of our common stock on the open market or in privately negotiated transactions for an aggregate purchase price of up to $1.0 billion. In March 2020, we repurchased and retired 0.5 million shares of common stock for an aggregate price of $34.8 million at a weighted average price of $64.66 per share on the open market.

 

Shares Authorized

 

In April 2020, our stockholders approved an amendment to our Articles of Incorporation that increased the number of authorized shares from 1.0 billion to 2.0 billion shares of common stock.

 

Common Stock

 

In May 2020, we entered into a new at-the-market program that allows us to sell up to $1.5 billion in aggregate gross sales proceeds of shares of common stock through 20 designated agents. These agents earn a fee of up to 2% of the gross sales price per share of common stock as agreed to on a transaction-by-transaction basis. We have not issued any shares of common stock under this new program.

 

Preferred Stock

 

In August 2020, we repurchased 0.1 million shares of Series Q preferred stock and recognized a loss of $2.3 million, which primarily represented the difference between the repurchase price and the carrying value of the preferred stock, net of the original issuance costs.

 

NOTE 8. NONCONTROLLING INTERESTS

 

Prologis, L.P.

 

We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option, into shares of the Parent’s common stock, generally at a rate of one share of common stock to one limited partnership unit. We also consolidate certain entities in which we do not own 100% of the equity, but the equity of these entities is not exchangeable into our common stock.

 

19

 


 

Prologis, Inc.

 

The noncontrolling interests of the Parent include the noncontrolling interests described above for the OP, as well as the limited partnership units in the OP that are not owned by the Parent. The outstanding limited partnership units receive quarterly cash distributions equal to the quarterly dividends paid on our common stock pursuant to the terms of the applicable partnership agreements.

 

The following table summarizes our ownership percentages and noncontrolling interests and the consolidated entities’ total assets and liabilities (dollars in thousands):

 

 

Our Ownership Percentage

 

 

Noncontrolling Interests

 

 

Total Assets

 

 

Total Liabilities

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

 

Sep 30,

2020

 

 

Dec 31,

2019

 

Prologis U.S. Logistics Venture (1)

 

55.0

%

 

 

55.0

%

 

$

3,405,276

 

 

$

2,677,846

 

 

$

7,707,131

 

 

$

6,077,016

 

 

$

147,625

 

 

$

99,397

 

Other consolidated entities (2)

various

 

 

various

 

 

 

97,720

 

 

 

97,548

 

 

 

1,031,980

 

 

 

849,620

 

 

 

72,555

 

 

 

85,186

 

Prologis, L.P.

 

 

 

 

 

 

 

 

 

3,502,996

 

 

 

2,775,394

 

 

 

8,739,111

 

 

 

6,926,636

 

 

 

220,180

 

 

 

184,583

 

Limited partners in Prologis, L.P. (3)(4)

 

 

 

889,136

 

 

 

643,263

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Prologis, Inc.

 

 

 

 

 

 

 

 

$

4,392,132

 

 

$

3,418,657

 

 

$

8,739,111

 

 

$

6,926,636

 

 

$

220,180

 

 

$

184,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

As discussed in Note 3, in January 2020, USLV acquired a portfolio of 127 operating properties, aggregating 19.0 million square feet, in the IPT Transaction for $2.0 billion, including transaction costs and the assumption and repayment of debt. Our partner contributed their share of the purchase price to fund the acquisition.

 

(2)

Includes our two partnerships that have issued limited partnership units to third parties, as discussed above, along with various other consolidated entities. The limited partnership units outstanding at September 30, 2020 and December 31, 2019 were exchangeable into cash or, at our option, 0.3 million shares of the Parent’s common stock.

 

(3)

We had 8.6 million Class A Units that were convertible into 8.0 million and 8.1 million limited partnership units of the OP at September 30, 2020 and December 31, 2019, respectively.

 

(4)

At September 30, 2020 and December 31, 2019, excluding the Class A Units, there were limited partnership units in the OP that were exchangeable into cash or, at our option, 8.6 million and 6.2 million shares of the Parent’s common stock, respectively. We issued 2.3 million limited partnership units in the Liberty Transaction and 0.5 million limited partnership units as partial consideration for the acquisition of other properties in 2020. Also included are the vested OP Long-Term Incentive Plan Units associated with our long-term compensation plan. See further discussion of LTIP Units in Note 9.

 

NOTE 9. LONG-TERM COMPENSATION

 

Equity-Based Compensation Plans and Programs

 

2020 Long-Term Incentive Plan

 

In April 2020, our stockholders approved the 2020 Long-Term Incentive Plan (“2020 LTIP”), which replaced the 2012 Long-Term Incentive Plan (“2012 LTIP”). After approval of the 2020 LTIP, no further awards could be made under the 2012 LTIP and outstanding awards previously granted under the 2012 LTIP will remain outstanding in accordance with the awards’ terms.

 

The 2020 LTIP provides for grants of awards to officers, directors, employees and consultants of the Parent or its subsidiaries. Awards can be in the form of: full value awards, stock appreciation rights, and stock options (non-qualified options and incentive stock options). Full value awards generally consist of: (i) common stock; (ii) restricted stock units (“RSUs”); (iii) OP LTIP units (“LTIP Units”) and (iv) Prologis Outperformance Plan (“POP”) OP LTIP units (“POP LTIP Units”). The equity-based compensation plans and programs under which awards can be made were not changed under the 2020 LTIP. See the discussion below regarding these programs. Awards may be made under the 2020 LTIP until it is terminated by the Board or until the ten-year anniversary of the effective date of the plan.

 

Prologis Outperformance Plan (“POP”)

 

We allocate participation points or a percentage of the compensation pool to participants under our POP corresponding to three-year performance periods beginning every January 1. The fair value of the awards is measured at the grant date and amortized over the period from the grant date to the date at which the awards vest, which ranges from three to ten years. The performance hurdle (“Outperformance Hurdle”) at the end of the initial three-year performance period requires our three-year compound annualized total stockholder return (“TSR”) to exceed a threshold set at the three-year compound annualized TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points. If the Outperformance Hurdle is met, a compensation pool will be formed equal to 3% of the excess value created, subject to a maximum as defined for each performance period. Generally, POP awards cannot be paid at a time when our absolute TSR is negative in accordance with the terms of POP. Therefore, if after seven years our TSR has not been positive, the awards will be forfeited.  

20

 


 

 

We granted participation points for the 2020 – 2022 performance period in January 2020, with a fair value of $28.8 million using a Monte Carlo valuation model that assumed a risk-free interest rate of 1.7% and an expected volatility of 16.0%. The 2020 – 2022 performance period has an absolute maximum cap of $100 million. If an award is earned at the end of the initial three-year performance period, then 20% of the POP award is paid and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the three-year performance period is subject to an additional three-year holding requirement.      

 

The Outperformance Hurdle was met for the 2017 – 2019 performance period, which resulted in awards being earned at December 31, 2019. Initial awards of $75.0 million in aggregate were awarded in January 2020 in the form of 0.3 million shares of common stock and 0.5 million POP LTIP Units and LTIP Units. Participants are not able to sell or transfer equity awards received until three years after the end of the initial period. One-third of the remaining compensation pool in excess of the $75 million aggregate initial award amounts can be earned at the end of each of the three years following the end of the initial three-year performance period if our performance meets or exceeds the MSCI US REIT Index at the end of each of such three years. Vesting for the 2017 – 2019 performance period for our Named Executive Officers (“NEOs”) follows the construct of the 2020 – 2022 performance period as described above, such that 20% of any amounts earned were awarded in January 2020 subject to a three-year holding period, and 80% of amounts earned at December 31, 2019 will cliff vest at the end of the seventh year following the initial three-year performance period.

 

Other Equity-Based Compensation Plans and Programs

 

Our other equity-based compensation plans and programs include (i) the Prologis Promote Plan (“PPP”); (ii) the annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iii) the annual bonus exchange program. Awards under these plans and programs may be issued in the form of RSUs of the Parent or LTIP Units of the OP at the eligible participant’s election. RSUs and LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and the grant date value is charged to compensation expense over the service period.

 

Summary of Award Activity

 

RSUs

 

The following table summarizes the activity for RSUs for the nine months ended September 30, 2020 (units in thousands):

 

 

 

 

 

 

 

Weighted Average

 

 

 

Unvested RSUs

 

 

Grant Date Fair Value

 

Balance at January 1, 2020

 

 

1,165

 

 

$

68.44

 

Granted

 

 

482

 

 

 

94.76

 

Vested and distributed

 

 

(510

)

 

 

62.99

 

Forfeited

 

 

(63

)

 

 

77.80

 

Balance at September 30, 2020

 

 

1,074

 

 

$

80.52

 

 

 

 

 

 

 

 

 

 

LTIP Units

 

The following table summarizes the activity for LTIP Units for the nine months ended September 30, 2020 (units in thousands):

 

 

 

Vested

 

 

Unvested

 

 

Unvested Weighted Average

 

 

 

LTIP Units

 

 

LTIP Units

 

 

Grant Date Fair Value

 

Balance at January 1, 2020

 

 

3,714

 

 

 

2,678

 

 

$

60.06

 

Granted

 

 

-

 

 

 

1,087

 

 

 

96.59

 

Vested LTIP Units

 

 

976

 

 

 

(976

)

 

 

63.47

 

Vested POP LTIP Units (1)

 

 

303

 

 

 

0

 

 

N/A

 

Unvested POP LTIP Units (1)

 

 

0

 

 

 

345

 

 

 

19.03

 

Conversion to common limited partnership units

 

 

(1,110

)

 

 

-

 

 

N/A

 

Balance at September 30, 2020

 

 

3,883

 

 

 

3,134

 

 

$

67.09

 

 

(1)

Vested and unvested units were based on the POP performance criteria being met for the 2017 – 2019 performance period and represented the earned award amounts. Vested and unvested units are included in the award discussion above. These amounts also include awards earned for prior performance periods related to the compensation pool in excess of the initial award.

 

NOTE 10. EARNINGS PER COMMON SHARE OR UNIT

 

We determine basic earnings per share or unit based on the weighted average number of shares of common stock or units outstanding during the period. We compute diluted earnings per share or unit based on the weighted average number of shares or units outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.

 

21

 


 

The computation of our basic and diluted earnings per share and unit was as follows (in thousands, except per share and unit amounts):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

Prologis, Inc.

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net earnings attributable to common stockholders – Basic

 

$

298,695

 

 

$

450,639

 

 

$

1,192,652

 

 

$

1,181,470

 

Net earnings attributable to exchangeable limited partnership units (1)

 

 

8,440

 

 

 

13,422

 

 

 

34,252

 

 

 

35,838

 

Adjusted net earnings attributable to common stockholders – Diluted

 

$

307,135

 

 

$

464,061

 

 

$

1,226,904

 

 

$

1,217,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

738,194

 

 

 

630,929

 

 

 

724,876

 

 

 

630,356

 

Incremental weighted average effect on exchange of limited partnership units (1)

 

 

21,110

 

 

 

18,760

 

 

 

20,960

 

 

 

19,403

 

Incremental weighted average effect of equity awards

 

 

5,315

 

 

 

5,570

 

 

 

5,135

 

 

 

5,059

 

Weighted average common shares outstanding – Diluted (2)

 

 

764,619

 

 

 

655,259

 

 

 

750,971

 

 

 

654,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

 

$

0.71

 

 

$

1.65

 

 

$

1.87

 

Diluted

 

$

0.40

 

 

$

0.71

 

 

$

1.63

 

 

$

1.86

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

Prologis, L.P.

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net earnings attributable to common unitholders

 

$

307,069

 

 

$

463,997

 

 

$

1,226,646

 

 

$

1,217,088

 

Net earnings attributable to Class A Units

 

 

(3,216

)

 

 

(5,840

)

 

 

(13,242

)

 

 

(15,523

)

Net earnings attributable to common unitholders – Basic

 

 

303,853

 

 

 

458,157

 

 

 

1,213,404

 

 

 

1,201,565

 

Net earnings attributable to Class A Units

 

 

3,216

 

 

 

5,840

 

 

 

13,242

 

 

 

15,523

 

Net earnings attributable to exchangeable other limited partnership units

 

 

66

 

 

 

64

 

 

 

258

 

 

 

220

 

Adjusted net earnings attributable to common unitholders – Diluted

 

$

307,135

 

 

$

464,061

 

 

$

1,226,904

 

 

$

1,217,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common partnership units outstanding – Basic

 

 

750,971

 

 

 

641,229

 

 

 

737,489

 

 

 

641,077

 

Incremental weighted average effect on exchange of Class A Units

 

 

8,034

 

 

 

8,154

 

 

 

8,048

 

 

 

8,282

 

Incremental weighted average effect on exchange of other limited partnership units

 

 

299

 

 

 

306

 

 

 

299

 

 

 

400

 

Incremental weighted average effect of equity awards of Prologis, Inc.

 

 

5,315

 

 

 

5,570

 

 

 

5,135

 

 

 

5,059

 

Weighted average common units outstanding – Diluted (2)

 

 

764,619

 

 

 

655,259

 

 

 

750,971

 

 

 

654,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

 

$

0.71

 

 

$

1.65

 

 

$

1.87

 

Diluted

 

$

0.40

 

 

$

0.71

 

 

$

1.63

 

 

$

1.86

 

 

(1)

The exchangeable limited partnership units include the units as discussed in Note 8. Earnings allocated to the exchangeable OP units not held by the Parent have been included in the numerator and exchangeable common units have been included in the denominator for the purpose of computing diluted earnings per share for all periods as the per share and unit amount is the same.

 

(2)

Our total weighted average potentially dilutive shares and units outstanding consisted of the following:  

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Class A Units

 

 

8,034

 

 

 

8,154

 

 

 

8,048

 

 

 

8,282

 

 

Other limited partnership units

 

 

299

 

 

 

306

 

 

 

299

 

 

 

400

 

 

Equity awards

 

 

7,643

 

 

 

8,141

 

 

 

7,749

 

 

 

8,154

 

 

Prologis, L.P.

 

 

15,976

 

 

 

16,601

 

 

 

16,096

 

 

 

16,836

 

 

Common limited partnership units

 

 

12,777

 

 

 

10,300

 

 

 

12,613

 

 

 

10,721

 

 

Prologis, Inc.

 

 

28,753

 

 

 

26,901

 

 

 

28,709

 

 

 

27,557

 

 

 

22

 


 

NOTE 11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Derivative Financial Instruments

 

In the normal course of business, our operations are exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates. We may enter into derivative financial instruments to offset these underlying market risks. There have been no significant changes in our policy or strategy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

The following table presents the fair value of our derivative financial instruments recognized within Other Assets and Other Liabilities on the Consolidated Balance Sheets (in thousands):

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Asset

 

 

Liability

 

 

Asset

 

 

Liability

 

Undesignated derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Forwards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Brazilian real

 

$

1,717

 

 

$

0

 

 

$

181

 

 

$

49

 

          British pound sterling

 

 

3,156

 

 

 

457

 

 

 

731

 

 

 

3,823

 

          Canadian dollar

 

 

842

 

 

 

1,121

 

 

 

523

 

 

 

1,855

 

          Chinese renminbi

 

 

0

 

 

 

317

 

 

 

0

 

 

 

81

 

          Euro

 

 

769

 

 

 

6,828

 

 

 

7,135

 

 

 

2,034

 

          Japanese yen

 

 

3,623

 

 

 

135

 

 

 

3,889

 

 

 

97

 

          Swedish krona

 

 

31

 

 

 

1,824

 

 

 

0

 

 

 

797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Designated derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net investment hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          British pound sterling

 

 

5,433

 

 

 

0

 

 

 

807

 

 

 

13,189

 

          Canadian dollar

 

 

3,432

 

 

 

0

 

 

 

0

 

 

 

1,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Euro

 

 

11

 

 

 

0

 

 

 

0

 

 

 

0

 

          U.S. dollar

 

 

0

 

 

 

233

 

 

 

0

 

 

 

0

 

Total fair value of derivatives

 

$

19,014

 

 

$

10,915

 

 

$

13,266

 

 

$

23,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undesignated Derivative Financial Instruments

 

Foreign Currency Contracts

 

The following table summarizes the activity of our undesignated foreign currency contracts for the nine months ended September 30 (in millions, except for weighted average forward rates and number of active contracts):

 

 

2020

 

 

2019

 

 

CAD

 

 

EUR

 

 

GBP

 

 

JPY

 

 

SEK

 

 

Other

 

 

Total

 

 

BRL

 

 

CAD

 

 

EUR

 

 

GBP

 

 

JPY

 

 

MXN

 

 

SEK

 

 

Total

 

Notional amounts at January 1 ($)

 

120

 

 

 

581

 

 

 

178

 

 

 

182

 

 

 

31

 

 

 

15

 

 

 

1,107

 

 

 

5

 

 

 

55

 

 

 

314

 

 

 

118

 

 

 

177

 

 

 

0

 

 

 

0

 

 

 

669

 

New contracts ($)

 

29

 

 

 

845

 

 

 

294

 

 

 

82

 

 

 

10

 

 

 

32

 

 

 

1,292

 

 

 

493

 

 

 

150

 

 

 

470

 

 

 

1,045

 

 

 

54

 

 

 

9

 

 

 

26

 

 

 

2,247

 

Matured, expired or settled contracts ($)

 

(32

)

 

 

(1,099

)

 

 

(311

)

 

 

(66

)

 

 

(9

)

 

 

(31

)

 

 

(1,548

)

 

 

(496

)

 

 

(126

)

 

 

(228

)

 

 

(1,031

)

 

 

(60

)

 

 

(9

)

 

 

0

 

 

 

(1,950

)

Notional amounts at September 30 ($)

 

117

 

 

 

327

 

 

 

161

 

 

 

198

 

 

 

32

 

 

 

16

 

 

 

851

 

 

 

2

 

 

 

79

 

 

 

556

 

 

 

132

 

 

 

171

 

 

 

0

 

 

 

26

 

 

 

966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average forward rate at

     September 30

 

1.34

 

 

 

1.17

 

 

 

1.31

 

 

 

102.80

 

 

 

9.35

 

 

 

 

 

 

 

 

 

 

 

3.82

 

 

 

1.31

 

 

 

1.15

 

 

 

1.32

 

 

 

103.80

 

 

 

-

 

 

 

9.39

 

 

 

 

 

Active contracts at September 30

 

48

 

 

 

55

 

 

 

47

 

 

 

48

 

 

 

31

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

29

 

 

 

46

 

 

 

38

 

 

 

38

 

 

 

0

 

 

 

12

 

 

 

 

 

 

23

 


 

The following table summarizes the undesignated derivative financial instruments exercised and associated realized and unrealized gains (losses) in Foreign Currency and Derivative Gains (Losses), Net in the Consolidated Statements of Income (in millions, except for number of exercised contracts):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Exercised contracts

 

 

28

 

 

 

34

 

 

 

101

 

 

 

82

 

Realized gains on the matured, expired or settled contracts

 

$

1

 

 

$

11

 

 

$

11

 

 

$

18

 

Unrealized gains (losses) on the change in fair value of outstanding contracts

 

$

(27

)

 

$

9

 

 

$

7

 

 

$

13

 

 

Designated Derivative Financial Instruments

 

Foreign Currency Contracts

 

The following table summarizes the activity of our foreign currency contracts designated as net investment hedges for the nine months ended September 30 (in millions, except for weighted average forward rates and number of active contracts):

 

 

 

2020

 

 

2019

 

 

 

CAD

 

 

GBP

 

 

Total

 

 

BRL

 

 

CAD

 

 

EUR

 

 

GBP

 

 

Total

 

Notional amounts at January 1 ($)

 

 

97

 

 

 

387

 

 

 

484

 

 

 

460

 

 

 

100

 

 

 

0

 

 

 

127

 

 

 

687

 

New contracts ($)

 

 

298

 

 

 

324

 

 

 

622

 

 

 

489

 

 

 

97

 

 

420

 

 

 

515

 

 

 

1,521

 

Matured, expired or settled contracts ($)

 

 

(48

)

 

 

(576

)

 

 

(624

)

 

 

(949

)

 

 

(100

)

 

 

(420

)

 

 

(259

)

 

 

(1,728

)

Notional amounts at September 30 ($)

 

 

347

 

 

 

135

 

 

 

482

 

 

 

0

 

 

 

97

 

 

 

0

 

 

 

383

 

 

 

480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average forward rate at

     September 30

 

 

1.32

 

 

 

1.35

 

 

 

 

 

 

 

-

 

 

 

1.32

 

 

 

-

 

 

 

1.28

 

 

 

 

 

Active contracts at September 30

 

 

6

 

 

 

1

 

 

 

 

 

 

 

0

 

 

 

2

 

 

 

0

 

 

 

6

 

 

 

 

 

 

Interest Rate Swaps

 

The following table summarizes the activity of our interest rate swaps designated as cash flow hedges for the nine months ended September 30 (in millions):

 

 

 

2020

 

 

2019

 

 

 

EUR

 

 

USD

 

 

EUR

 

Notional amounts at January 1 ($)

 

 

0

 

 

 

0

 

 

 

500

 

New contracts ($) (1)(2)(3)(4)

 

 

165

 

 

 

1,500

 

 

 

0

 

Matured, expired or settled contracts ($) (2)(4)

 

 

0

 

 

 

(1,250

)

 

 

0

 

Notional amounts at September 30 ($)

 

 

165

 

 

 

250

 

 

 

500

 

 

(1)

During the first quarter of 2020, we entered into 1 interest rate swap contract with an aggregate notional amount of €150.0 million ($165.0 million) to effectively fix the interest rate on our euro senior notes bearing a floating rate of Euribor plus 0.3% issued in February 2020.

 

(2)

During the first quarter of 2020, we entered into 4 treasury lock contracts with an aggregate notional amount of $750.0 million to effectively fix the interest rate on the forecasted issuance of U.S. dollar senior notes, which were then issued in February 2020. Subsequent to issuance, we recorded a loss of $16.8 million associated with these derivatives that will be amortized out of Accumulated Other Comprehensive Income/Loss to Interest Expense, in accordance with our policy.

 

(3)

During the second quarter of 2020, we entered into 2 interest rate swap contracts with an aggregate notional amount of $250.0 million to effectively fix the interest rate on the outstanding balance of our 2017 Term Loan bearing a floating rate of 1-month USD LIBOR plus 0.9%.

 

(4)

During the third quarter of 2020, we entered into 2 treasury lock contracts with an aggregate notional amount of $500.0 million to effectively fix the interest rate on the forecasted issuance of U.S. dollar senior notes, which were then issued in August 2020. The loss associated with the settlement of the derivatives upon issuance of the senior notes was not significant.

 

24

 


 

Designated Nonderivative Financial Instruments

 

The following table summarizes our debt and accrued interest, designated as a hedge of our net investment in international subsidiaries (in millions):

 

 

 

September 30, 2020

 

 

December 31, 2019

 

British pound sterling

 

$

1,002

 

 

$

329

 

Euro

 

$

0

 

 

$

850

 

 

The following table summarizes the recognized unrealized gains (losses) in Foreign Currency and Derivative Gains (Losses), Net on the remeasurement of the unhedged portion of our debt and accrued interest (in millions):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Unrealized gains (losses) on the unhedged portion

 

$

(77

)

 

$

40

 

 

$

(51

)

 

$

41

 

 

Other Comprehensive Income (Loss)

 

The change in Other Comprehensive Income (Loss) in the Consolidated Statements of Comprehensive Income during the periods presented is due to the translation into U.S. dollars from the consolidation of the financial statements of our consolidated subsidiaries whose functional currency is not the U.S. dollar. The change in fair value of the effective portion of our derivative financial instruments that have been designated as net investment hedges and cash flow hedges and the translation of the hedged portion of our debt, as discussed above, are also included in Other Comprehensive Income (Loss).

 

The following table presents these changes in Other Comprehensive Income (Loss) (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Derivative net investment hedges

 

$

(4,234

)

 

$

15,642

 

 

$

18,290

 

 

$

4,654

 

Debt designated as nonderivative net investment hedges

 

 

(46,570

)

 

 

154,948

 

 

 

2,439

 

 

 

187,572

 

Cumulative translation adjustment

 

 

5,228

 

 

 

(140,537

)

 

 

(200,891

)

 

 

(149,755

)

Total foreign currency translation gains (losses), net

 

$

(45,576

)

 

$

30,053

 

 

$

(180,162

)

 

$

42,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges (1)(2)

 

$

1,581

 

 

$

1,206

 

 

$

(12,857

)

 

$

3,464

 

Our share of derivatives from unconsolidated co-investment ventures

 

 

798

 

 

 

(1,822

)

 

 

(6,839

)

 

 

(10,438

)

Total unrealized gains (losses) on derivative contracts, net

 

$

2,379

 

 

$

(616

)

 

$

(19,696

)

 

$

(6,974

)

Total change in other comprehensive income (loss)

 

$

(43,197

)

 

$

29,437

 

 

$

(199,858

)

 

$

35,497

 

 

 

(1)

We estimate an additional expense of $5.1 million will be reclassified to Interest Expense over the next 12 months from September 30, 2020, due to the amortization of previously settled derivatives designated as cash flow hedges.

 

 

(2)

Included in the nine months ended September 30, 2020 was $16.8 million in losses associated with the termination of the four treasury lock contracts.

 

Fair Value Measurements

 

There have been no significant changes in our policy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Fair Value Measurements on a Recurring Basis

 

At September 30, 2020 and December 31, 2019, other than the derivatives discussed previously, we did not have any significant financial assets or financial liabilities that were measured at fair value on a recurring basis in the Consolidated Financial Statements. All of our derivatives held at September 30, 2020 and December 31, 2019, were classified as Level 2 of the fair value hierarchy.

 

Fair Value Measurements on Nonrecurring Basis

 

Acquired properties and assets we expect to sell or contribute are significant nonfinancial assets that met the criteria to be measured at fair value on a nonrecurring basis. At September 30, 2020 and December 31, 2019, we estimated the fair value of our properties using Level 2 or Level 3 inputs from the fair value hierarchy. See more information on our acquired properties in Notes 2 and 3 and assets held for sale or contribution in Note 5.

25

 


 

 

Fair Value of Financial Instruments

 

At September 30, 2020 and December 31, 2019, the carrying amounts of certain financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses were representative of their fair values.

 

The differences in the fair value of our debt from the carrying value in the table below were the result of differences in interest rates or borrowing spreads that were available to us at September 30, 2020 and December 31, 2019, as compared with those in effect when the debt was issued or assumed, including low borrowing spreads due to our credit ratings. The senior notes and many of the issuances of secured mortgage debt contain prepayment penalties or yield maintenance provisions that could make the cost of refinancing the debt at lower rates exceed the benefit that would be derived from doing so.

 

The following table reflects the carrying amounts and estimated fair values of our debt (in thousands):