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PLD Prologis

Filed: 27 Apr 21, 4:15pm

Sol

 

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 March 31, 2021

 

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 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 April 23, 2021, was approximately 739,773,000.

 


 

 


EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2021, 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 March 31, 2021, the Parent owned 97.25% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.75% 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 – March 31, 2021 and December 31, 2020

 

1

 

 

 

 

Consolidated Statements of Income – Three Months Ended March 31, 2021 and 2020

 

2

 

 

 

 

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2021 and 2020

 

3

 

 

 

 

Consolidated Statements of Equity – Three Months Ended March 31, 2021 and 2020

 

4

 

 

 

 

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2021 and 2020

 

5

 

 

 

            Prologis, L.P.:

 

 

 

 

 

 

Consolidated Balance Sheets – March 31, 2021 and December 31, 2020

 

6

 

 

 

 

Consolidated Statements of Income – Three Months Ended March 31, 2021 and 2020

 

7

 

 

 

 

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2021 and 2020

 

8

 

 

 

 

Consolidated Statements of Capital – Three Months Ended March 31, 2021 and 2020

 

9

 

 

 

 

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2021 and 2020

 

10

 

 

 

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

 

 

 

 

 

 

Notes to the Consolidated Financial Statements

 

11

 

 

 

 

Note 1. General

 

11

 

 

 

 

Note 2. Liberty Transaction

 

11

 

 

 

 

Note 3. Real Estate

 

12

 

 

 

 

Note 4. Unconsolidated Entities

 

13

 

 

 

 

Note 5. Assets Held for Sale or Contribution

 

15

 

 

 

 

Note 6. Debt

 

15

 

 

 

 

Note 7. Noncontrolling Interests

 

18

 

 

 

 

Note 8. Long-Term Compensation

 

18

 

 

 

 

Note 9. Earnings Per Common Share or Unit

 

20

 

 

 

 

Note 10. Financial Instruments and Fair Value Measurements

 

21

 

 

 

 

Note 11. Business Segments

 

24

 

 

 

 

Note 12. Supplemental Cash Flow Information

 

26

 

 

 

 

Reports of Independent Registered Public Accounting Firm

 

27

 

 

 

Item 2.

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

 

29

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

47

 

 

 

Item 4.

Controls and Procedures

 

48

 

PART II.

 

Other Information

 

 

 

 

 

Item 1.

Legal Proceedings

 

49

 

 

 

Item 1A.

Risk Factors

 

49

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

Item 3.

Defaults Upon Senior Securities

 

49

 

 

 

Item 4.

Mine Safety Disclosures

 

49

 

 

 

Item 5.

Other Information

 

49

 

 

 

Item 6.

Exhibits

 

49

 

 

 

 

 

 


Index

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

Investments in real estate properties

$

50,459,365

 

 

$

50,384,328

 

Less accumulated depreciation

 

6,823,824

 

 

 

6,539,156

 

Net investments in real estate properties

 

43,635,541

 

 

 

43,845,172

 

Investments in and advances to unconsolidated entities

 

7,514,840

 

 

 

7,602,014

 

Assets held for sale or contribution

 

1,055,751

 

 

 

1,070,724

 

Net investments in real estate

 

52,206,132

 

 

 

52,517,910

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

676,074

 

 

 

598,086

 

Other assets

 

2,850,603

 

 

 

2,949,009

 

Total assets

$

55,732,809

 

 

$

56,065,005

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Debt

$

16,503,458

 

 

$

16,849,076

 

Accounts payable and accrued expenses

 

1,138,924

 

 

 

1,143,372

 

Other liabilities

 

1,705,224

 

 

 

1,747,977

 

Total liabilities

 

19,347,606

 

 

 

19,740,425

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Prologis, Inc. stockholders’ equity:

 

 

 

 

 

 

 

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

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

         March 31, 2021 and December 31, 2020

 

63,948

 

 

 

63,948

 

Common stock; $0.01 par value; 739,746 shares and 739,381 shares issued and outstanding at

     March 31, 2021 and December 31, 2020, respectively

 

7,397

 

 

 

7,394

 

Additional paid-in capital

 

35,454,066

 

 

 

35,488,634

 

Accumulated other comprehensive loss

 

(1,021,551

)

 

 

(1,193,739

)

Distributions in excess of net earnings

 

(2,495,343

)

 

 

(2,394,690

)

Total Prologis, Inc. stockholders’ equity

 

32,008,517

 

 

 

31,971,547

 

Noncontrolling interests

 

4,376,686

 

 

 

4,353,033

 

Total equity

 

36,385,203

 

 

 

36,324,580

 

Total liabilities and equity

$

55,732,809

 

 

$

56,065,005

 

 

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

1

 


Index

 

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

1,021,656

 

 

$

878,807

 

Strategic capital

 

 

119,961

 

 

 

96,591

 

Development management and other

 

 

6,699

 

 

 

2,843

 

Total revenues

 

 

1,148,316

 

 

 

978,241

 

Expenses:

 

 

 

 

 

 

 

 

Rental

 

 

277,884

 

 

 

227,618

 

Strategic capital

 

 

49,450

 

 

 

46,574

 

General and administrative

 

 

78,032

 

 

 

69,689

 

Depreciation and amortization

 

 

397,575

 

 

 

345,970

 

Other

 

 

3,444

 

 

 

14,574

 

Total expenses

 

 

806,385

 

 

 

704,425

 

 

 

 

 

 

 

 

 

 

Operating income before gains on real estate transactions, net

 

 

341,931

 

 

 

273,816

 

Gains on dispositions of development properties and land, net

 

 

173,643

 

 

 

162,750

 

Gains on other dispositions of investments in real estate, net

 

 

16,623

 

 

 

31,491

 

Operating income

 

 

532,197

 

 

 

468,057

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Earnings from unconsolidated entities, net

 

 

67,049

 

 

 

88,730

 

Interest expense

 

 

(71,281

)

 

 

(75,642

)

Interest and other income, net

 

 

4,746

 

 

 

370

 

Foreign currency and derivative gains, net

 

 

80,152

 

 

 

113,329

 

Losses on early extinguishment of debt, net

 

 

(187,453

)

 

 

(42,767

)

Total other income (expense)

 

 

(106,787

)

 

 

84,020

 

Earnings before income taxes

 

 

425,410

 

 

 

552,077

 

Total income tax expense

 

 

25,717

 

 

 

30,913

 

Consolidated net earnings

 

 

399,693

 

 

 

521,164

 

Less net earnings attributable to noncontrolling interests

 

 

32,346

 

 

 

30,111

 

Net earnings attributable to controlling interests

 

 

367,347

 

 

 

491,053

 

Less preferred stock dividends

 

 

1,532

 

 

 

1,635

 

Net earnings attributable to common stockholders

 

$

365,815

 

 

$

489,418

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

738,998

 

 

 

698,272

 

Weighted average common shares outstanding – Diluted

 

 

764,958

 

 

 

723,983

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders – Basic

 

$

0.50

 

 

$

0.70

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders – Diluted

 

$

0.49

 

 

$

0.70

 

 

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

2

 


Index

 

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Consolidated net earnings

 

$

399,693

 

 

$

521,164

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses), net

 

 

171,759

 

 

 

(133,533

)

Unrealized gains (losses) on derivative contracts, net

 

 

4,821

 

 

 

(23,448

)

Comprehensive income

 

 

576,273

 

 

 

364,183

 

Net earnings attributable to noncontrolling interests

 

 

(32,346

)

 

 

(30,111

)

Other comprehensive loss (income) attributable to noncontrolling interests

 

 

(4,392

)

 

 

5,027

 

Comprehensive income attributable to common stockholders

 

$

539,535

 

 

$

339,099

 

 

 

 

 

 

 

 

 

 

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


3

 


Index

 

PROLOGIS, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands)

 

 

 

 

 

 

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, 2021

$

63,948

 

 

 

739,381

 

 

$

7,394

 

 

$

35,488,634

 

 

$

(1,193,739

)

 

$

(2,394,690

)

 

$

4,353,033

 

 

$

36,324,580

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

367,347

 

 

 

32,346

 

 

 

399,693

 

Effect of equity compensation plans

 

-

 

 

 

360

 

 

 

3

 

 

 

4,039

 

 

 

-

 

 

 

-

 

 

 

27,298

 

 

 

31,340

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

120

 

 

 

120

 

Redemption of noncontrolling interests

 

-

 

 

 

5

 

 

 

-

 

 

 

233

 

 

 

-

 

 

 

-

 

 

 

(31,605

)

 

 

(31,372

)

Foreign currency translation gains, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

167,499

 

 

 

-

 

 

 

4,260

 

 

 

171,759

 

Unrealized gains on derivative

     contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,689

 

 

 

-

 

 

 

132

 

 

 

4,821

 

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

(38,816

)

 

 

-

 

 

 

-

 

 

 

38,816

 

 

 

-

 

Dividends ($0.63 per common share)

     and other distributions

 

-

 

 

 

-

 

 

 

-

 

 

 

(24

)

 

 

-

 

 

 

(468,000

)

 

 

(47,714

)

 

 

(515,738

)

Balance at March 31, 2021

$

63,948

 

 

 

739,746

 

 

$

7,397

 

 

$

35,454,066

 

 

$

(1,021,551

)

 

$

(2,495,343

)

 

$

4,376,686

 

 

$

36,385,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

Additional

 

 

Other

 

 

in Excess of

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

of

 

 

Par

 

 

Paid-in

 

 

Comprehensive

 

 

Net

 

 

controlling

 

 

Total

 

 

Stock

 

 

Shares

 

 

Value

 

 

Capital

 

 

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

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

491,053

 

 

 

30,111

 

 

 

521,164

 

Effect of equity compensation plans

 

-

 

 

 

518

 

 

 

5

 

 

 

(3,121

)

 

 

-

 

 

 

-

 

 

 

26,439

 

 

 

23,323

 

Liberty Transaction, net of issuance costs

 

-

 

 

 

106,723

 

 

 

1,067

 

 

 

9,801,412

 

 

 

-

 

 

 

-

 

 

 

211,567

 

 

 

10,014,046

 

Repurchases of common shares

 

-

 

 

 

(539

)

 

 

(5

)

 

 

(34,824

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34,829

)

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

916,974

 

 

 

916,974

 

Redemption of noncontrolling interests

 

-

 

 

 

64

 

 

 

1

 

 

 

2,783

 

 

 

-

 

 

 

-

 

 

 

(19,595

)

 

 

(16,811

)

Foreign currency translation losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(129,161

)

 

 

-

 

 

 

(4,372

)

 

 

(133,533

)

Unrealized losses on derivative

     contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,793

)

 

 

-

 

 

 

(655

)

 

 

(23,448

)

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

(69,327

)

 

 

-

 

 

 

-

 

 

 

69,327

 

 

 

-

 

Dividends ($0.58 per common share)

     and other distributions

 

-

 

 

 

-

 

 

 

-

 

 

 

(9

)

 

 

-

 

 

 

(430,766

)

 

 

(132,025

)

 

 

(562,800

)

Balance at March 31, 2020

$

68,948

 

 

 

738,563

 

 

$

7,386

 

 

$

35,416,341

 

 

$

(1,142,352

)

 

$

(2,090,881

)

 

$

4,516,428

 

 

$

36,775,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4

 


Index

 

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

399,693

 

 

$

521,164

 

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

 

 

 

 

 

 

 

 

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

 

 

(36,658

)

 

 

(23,738

)

Equity-based compensation awards

 

 

34,575

 

 

 

31,808

 

Depreciation and amortization

 

 

397,575

 

 

 

345,970

 

Earnings from unconsolidated entities, net

 

 

(67,049

)

 

 

(88,730

)

Operating distributions from unconsolidated entities

 

 

115,957

 

 

 

106,732

 

Decrease in operating receivables from unconsolidated entities

 

 

4,284

 

 

 

60,739

 

Amortization of debt discounts and debt issuance costs, net

 

 

2,091

 

 

 

1,175

 

Gains on dispositions of development properties and land, net

 

 

(173,643

)

 

 

(162,750

)

Gains on other dispositions of investments in real estate, net

 

 

(16,623

)

 

 

(31,491

)

Unrealized foreign currency and derivative gains, net

 

 

(81,726

)

 

 

(109,726

)

Losses on early extinguishment of debt, net

 

 

187,453

 

 

 

42,767

 

Deferred income tax expense

 

 

1,162

 

 

 

2,993

 

Decrease in accounts receivable and other assets

 

 

68,398

 

 

 

105,648

 

Decrease in accounts payable and accrued expenses and other liabilities

 

 

(18,795

)

 

 

(123,468

)

Net cash provided by operating activities

 

 

816,694

 

 

 

679,093

 

Investing activities:

 

 

 

 

 

 

 

 

Real estate development

 

 

(422,399

)

 

 

(443,044

)

Real estate acquisitions

 

 

(226,450

)

 

 

(439,059

)

Liberty Transaction, net of cash acquired

 

 

0

 

 

 

(22,659

)

IPT Transaction, net of cash acquired

 

 

0

 

 

 

(1,664,555

)

Tenant improvements and lease commissions on previously leased space

 

 

(71,140

)

 

 

(39,396

)

Property improvements

 

 

(8,071

)

 

 

(13,639

)

Proceeds from dispositions and contributions of real estate properties

 

 

727,609

 

 

 

723,887

 

Investments in and advances to unconsolidated entities

 

 

(141,764

)

 

 

(251,673

)

Return of investment from unconsolidated entities

 

 

37,632

 

 

 

139,900

 

Proceeds from repayment of notes receivable backed by real estate

 

 

0

 

 

 

4,312

 

Proceeds from the settlement of net investment hedges

 

 

0

 

 

 

2,352

 

Payments on the settlement of net investment hedges

 

 

(2,511

)

 

 

(5,599

)

Net cash used in investing activities

 

 

(107,094

)

 

 

(2,009,173

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

709

 

 

 

850

 

Repurchase and retirement of common stock

 

 

0

 

 

 

(34,829

)

Dividends paid on common and preferred stock

 

 

(468,000

)

 

 

(430,766

)

Noncontrolling interests contributions

 

 

120

 

 

 

916,974

 

Noncontrolling interests distributions

 

 

(47,714

)

 

 

(132,025

)

Settlement of noncontrolling interests

 

 

(31,372

)

 

 

(16,811

)

Tax paid with shares withheld

 

 

(16,955

)

 

 

(22,736

)

Debt and equity issuance costs paid

 

 

(11,661

)

 

 

(31,118

)

Net payments on credit facilities

 

 

(115,274

)

 

 

(125,166

)

Repurchase of and payments on debt

 

 

(1,931,983

)

 

 

(4,065,075

)

Proceeds from the issuance of debt

 

 

2,029,817

 

 

 

4,991,113

 

Net cash provided by (used in) financing activities

 

 

(592,313

)

 

 

1,050,411

 

 

 

 

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash

 

 

(39,299

)

 

 

(1,315

)

Net increase (decrease) in cash and cash equivalents

 

 

77,988

 

 

 

(280,984

)

Cash and cash equivalents, beginning of period

 

 

598,086

 

 

 

1,088,855

 

Cash and cash equivalents, end of period

 

$

676,074

 

 

$

807,871

 

 

See Note 12 for information on noncash investing and financing activities and other information.

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

 

 

5

 


Index

 

PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

Investments in real estate properties

$

50,459,365

 

 

$

50,384,328

 

Less accumulated depreciation

 

6,823,824

 

 

 

6,539,156

 

Net investments in real estate properties

 

43,635,541

 

 

 

43,845,172

 

Investments in and advances to unconsolidated entities

 

7,514,840

 

 

 

7,602,014

 

Assets held for sale or contribution

 

1,055,751

 

 

 

1,070,724

 

Net investments in real estate

 

52,206,132

 

 

 

52,517,910

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

676,074

 

 

 

598,086

 

Other assets

 

2,850,603

 

 

 

2,949,009

 

Total assets

$

55,732,809

 

 

$

56,065,005

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Debt

$

16,503,458

 

 

$

16,849,076

 

Accounts payable and accrued expenses

 

1,138,924

 

 

 

1,143,372

 

Other liabilities

 

1,705,224

 

 

 

1,747,977

 

Total liabilities

 

19,347,606

 

 

 

19,740,425

 

 

 

 

 

 

 

 

 

Capital:

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

General partner – preferred

 

63,948

 

 

 

63,948

 

General partner – common

 

31,944,569

 

 

 

31,907,599

 

Limited partners – common

 

555,176

 

 

 

523,954

 

Limited partners – Class A common

 

348,048

 

 

 

345,553

 

Total partners’ capital

 

32,911,741

 

 

 

32,841,054

 

Noncontrolling interests

 

3,473,462

 

 

 

3,483,526

 

Total capital

 

36,385,203

 

 

 

36,324,580

 

Total liabilities and capital

$

55,732,809

 

 

$

56,065,005

 

 

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

 

6

 


Index

 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

1,021,656

 

 

$

878,807

 

Strategic capital

 

 

119,961

 

 

 

96,591

 

Development management and other

 

 

6,699

 

 

 

2,843

 

Total revenues

 

 

1,148,316

 

 

 

978,241

 

Expenses:

 

 

 

 

 

 

 

 

Rental

 

 

277,884

 

 

 

227,618

 

Strategic capital

 

 

49,450

 

 

 

46,574

 

General and administrative

 

 

78,032

 

 

 

69,689

 

Depreciation and amortization

 

 

397,575

 

 

 

345,970

 

Other

 

 

3,444

 

 

 

14,574

 

Total expenses

 

 

806,385

 

 

 

704,425

 

 

 

 

 

 

 

 

 

 

Operating income before gains on real estate transactions, net

 

 

341,931

 

 

 

273,816

 

Gains on dispositions of development properties and land, net

 

 

173,643

 

 

 

162,750

 

Gains on other dispositions of investments in real estate, net

 

 

16,623

 

 

 

31,491

 

Operating income

 

 

532,197

 

 

 

468,057

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Earnings from unconsolidated entities, net

 

 

67,049

 

 

 

88,730

 

Interest expense

 

 

(71,281

)

 

 

(75,642

)

Interest and other income, net

 

 

4,746

 

 

 

370

 

Foreign currency and derivative gains, net

 

 

80,152

 

 

 

113,329

 

Losses on early extinguishment of debt, net

 

 

(187,453

)

 

 

(42,767

)

Total other income (expense)

 

 

(106,787

)

 

 

84,020

 

Earnings before income taxes

 

 

425,410

 

 

 

552,077

 

Total income tax expense

 

 

25,717

 

 

 

30,913

 

Consolidated net earnings

 

 

399,693

 

 

 

521,164

 

Less net earnings attributable to noncontrolling interests

 

 

22,078

 

 

 

16,141

 

Net earnings attributable to controlling interests

 

 

377,615

 

 

 

505,023

 

Less preferred unit distributions

 

 

1,532

 

 

 

1,635

 

Net earnings attributable to common unitholders

 

$

376,083

 

 

$

503,388

 

 

 

 

 

 

 

 

 

 

Weighted average common units outstanding – Basic

 

 

751,679

 

 

 

710,141

 

Weighted average common units outstanding – Diluted

 

 

764,958

 

 

 

723,983

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders – Basic

 

$

0.50

 

 

$

0.70

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders – Diluted

 

$

0.49

 

 

$

0.70

 

 

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

 

 

7

 


Index

 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Consolidated net earnings

 

$

399,693

 

 

$

521,164

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses), net

 

 

171,759

 

 

 

(133,533

)

Unrealized gains (losses) on derivative contracts, net

 

 

4,821

 

 

 

(23,448

)

Comprehensive income

 

 

576,273

 

 

 

364,183

 

Net earnings attributable to noncontrolling interests

 

 

(22,078

)

 

 

(16,141

)

Other comprehensive loss attributable to noncontrolling interests

 

 

476

 

 

 

663

 

Comprehensive income attributable to common unitholders

 

$

554,671

 

 

$

348,705

 

 

 

 

 

 

 

 

 

 

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


8

 


Index

 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

Three Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands)

 

 

 

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, 2021

 

1,279

 

 

$

63,948

 

 

 

739,381

 

 

$

31,907,599

 

 

 

12,142

 

 

$

523,954

 

 

 

8,595

 

 

$

345,553

 

 

$

3,483,526

 

 

$

36,324,580

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

367,347

 

 

 

-

 

 

 

6,277

 

 

 

-

 

 

 

3,991

 

 

 

22,078

 

 

 

399,693

 

Effect of equity compensation plans

 

-

 

 

 

-

 

 

 

360

 

 

 

4,042

 

 

 

1,055

 

 

 

27,298

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31,340

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

120

 

 

 

120

 

Redemption of limited partners units

 

-

 

 

 

-

 

 

 

5

 

 

 

233

 

 

 

(341

)

 

 

(31,605

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(31,372

)

Foreign currency translation gains (losses), net

 

-

 

 

 

-

 

 

 

-

 

 

 

167,499

 

 

 

-

 

 

 

2,911

 

 

 

-

 

 

 

1,825

 

 

 

(476

)

 

 

171,759

 

Unrealized gains on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

4,689

 

 

 

-

 

 

 

81

 

 

 

-

 

 

 

51

 

 

 

-

 

 

 

4,821

 

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

(38,816

)

 

 

-

 

 

 

36,630

 

 

 

-

 

 

 

2,186

 

 

 

-

 

 

 

-

 

Distributions ($0.63 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(468,024

)

 

 

-

 

 

 

(10,370

)

 

 

-

 

 

 

(5,558

)

 

 

(31,786

)

 

 

(515,738

)

Balance at March 31, 2021

 

1,279

 

 

$

63,948

 

 

 

739,746

 

 

$

31,944,569

 

 

 

12,856

 

 

$

555,176

 

 

 

8,595

 

 

$

348,048

 

 

$

3,473,462

 

 

$

36,385,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Partner

 

 

Limited Partners

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Common

 

 

Class A Common

 

 

controlling

 

 

 

 

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Interests

 

 

Total

 

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

 

-

 

 

 

-

 

 

 

-

 

 

 

491,053

 

 

 

-

 

 

 

8,319

 

 

 

-

 

 

 

5,651

 

 

 

16,141

 

 

 

521,164

 

Effect of equity compensation plans

 

-

 

 

 

-

 

 

 

518

 

 

 

(3,116

)

 

 

1,191

 

 

 

26,439

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,323

 

Liberty Transaction, net of issuance costs

 

-

 

 

 

-

 

 

 

106,723

 

 

 

9,802,479

 

 

 

2,288

 

 

 

210,190

 

 

 

-

 

 

 

-

 

 

 

1,377

 

 

 

10,014,046

 

Repurchases of common units

 

-

 

 

 

-

 

 

 

(539

)

 

 

(34,829

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34,829

)

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

916,974

 

 

 

916,974

 

Redemption of limited partners units

 

-

 

 

 

-

 

 

 

64

 

 

 

2,784

 

 

 

(254

)

 

 

(19,595

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,811

)

Foreign currency translation losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(129,161

)

 

 

-

 

 

 

(2,301

)

 

 

-

 

 

 

(1,408

)

 

 

(663

)

 

 

(133,533

)

Unrealized losses on derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,793

)

 

 

-

 

 

 

(406

)

 

 

-

 

 

 

(249

)

 

 

-

 

 

 

(23,448

)

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

(69,327

)

 

 

-

 

 

 

4,977

 

 

 

-

 

 

 

64,350

 

 

 

-

 

 

 

-

 

Distributions ($0.58 per common unit)

     and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(430,775

)

 

 

-

 

 

 

(9,218

)

 

 

-

 

 

 

(5,570

)

 

 

(117,237

)

 

 

(562,800

)

Balance at March 31, 2020

 

1,379

 

 

$

68,948

 

 

 

738,563

 

 

$

32,190,494

 

 

 

13,158

 

 

$

573,481

 

 

 

8,613

 

 

$

350,961

 

 

$

3,591,986

 

 

$

36,775,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

9

 


Index

 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

399,693

 

 

$

521,164

 

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

 

 

 

 

 

 

 

 

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

 

 

(36,658

)

 

 

(23,738

)

Equity-based compensation awards

 

 

34,575

 

 

 

31,808

 

Depreciation and amortization

 

 

397,575

 

 

 

345,970

 

Earnings from unconsolidated entities, net

 

 

(67,049

)

 

 

(88,730

)

Operating distributions from unconsolidated entities

 

 

115,957

 

 

 

106,732

 

Decrease in operating receivables from unconsolidated entities

 

 

4,284

 

 

 

60,739

 

Amortization of debt discounts and debt issuance costs, net

 

 

2,091

 

 

 

1,175

 

Gains on dispositions of development properties and land, net

 

 

(173,643

)

 

 

(162,750

)

Gains on other dispositions of investments in real estate, net

 

 

(16,623

)

 

 

(31,491

)

Unrealized foreign currency and derivative gains, net

 

 

(81,726

)

 

 

(109,726

)

Losses on early extinguishment of debt, net

 

 

187,453

 

 

 

42,767

 

Deferred income tax expense

 

 

1,162

 

 

 

2,993

 

Decrease in accounts receivable and other assets

 

 

68,398

 

 

 

105,648

 

Decrease in accounts payable and accrued expenses and other liabilities

 

 

(18,795

)

 

 

(123,468

)

Net cash provided by operating activities

 

 

816,694

 

 

 

679,093

 

Investing activities:

 

 

 

 

 

 

 

 

Real estate development

 

 

(422,399

)

 

 

(443,044

)

Real estate acquisitions

 

 

(226,450

)

 

 

(439,059

)

Liberty Transaction, net of cash acquired

 

 

0

 

 

 

(22,659

)

IPT Transaction, net of cash acquired

 

 

0

 

 

 

(1,664,555

)

Tenant improvements and lease commissions on previously leased space

 

 

(71,140

)

 

 

(39,396

)

Property improvements

 

 

(8,071

)

 

 

(13,639

)

Proceeds from dispositions and contributions of real estate properties

 

 

727,609

 

 

 

723,887

 

Investments in and advances to unconsolidated entities

 

 

(141,764

)

 

 

(251,673

)

Return of investment from unconsolidated entities

 

 

37,632

 

 

 

139,900

 

Proceeds from repayment of notes receivable backed by real estate

 

 

0

 

 

 

4,312

 

Proceeds from the settlement of net investment hedges

 

 

0

 

 

 

2,352

 

Payments on the settlement of net investment hedges

 

 

(2,511

)

 

 

(5,599

)

Net cash used in investing activities

 

 

(107,094

)

 

 

(2,009,173

)

Financing activities:

 

 

 

 

 

 

 

 

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

 

 

709

 

 

 

850

 

Repurchase and retirement of common units

 

 

0

 

 

 

(34,829

)

Distributions paid on common and preferred units

 

 

(483,928

)

 

 

(445,554

)

Noncontrolling interests contributions

 

 

120

 

 

 

916,974

 

Noncontrolling interests distributions

 

 

(31,786

)

 

 

(117,237

)

Redemption of common limited partnership units

 

 

(31,372

)

 

 

(16,811

)

Tax paid with shares of the Parent withheld

 

 

(16,955

)

 

 

(22,736

)

Debt and equity issuance costs paid

 

 

(11,661

)

 

 

(31,118

)

Net payments on credit facilities

 

 

(115,274

)

 

 

(125,166

)

Repurchase of and payments on debt

 

 

(1,931,983

)

 

 

(4,065,075

)

Proceeds from the issuance of debt

 

 

2,029,817

 

 

 

4,991,113

 

Net cash provided by (used in) financing activities

 

 

(592,313

)

 

 

1,050,411

 

 

 

 

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash

 

 

(39,299

)

 

 

(1,315

)

Net increase (decrease) in cash and cash equivalents

 

 

77,988

 

 

 

(280,984

)

Cash and cash equivalents, beginning of period

 

 

598,086

 

 

 

1,088,855

 

Cash and cash equivalents, end of period

 

$

676,074

 

 

$

807,871

 

 

See Note 12 for information on noncash investing and financing activities and other information.

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

 

 

10

 


Index

 

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” or “IRC”), 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 11 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 March 31, 2021, the Parent owned a 97.25% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.75% 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. 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, 2020, as filed with the SEC, and other public information.

 

Reclassifications. Lease right-of-use assets and lease liabilities have been reclassified in the Consolidated Financial Statements for 2020 to Other Assets and Other Liabilities, respectively, in order to conform to the 2021 financial statement presentation.

 

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.

11

 


Index

 

 

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.  

 

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 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 to the Liberty real estate properties and related lease intangibles on a relative fair value basis. All other assets acquired and liabilities assumed, including debt, and real estate assets that we do not intend to operate long-term are recorded at fair value as follows (in millions):

 

Net investments in real estate

$

12,636

 

Intangible assets, net of intangible liabilities

 

491

 

Cash and other assets

 

233

 

Debt

 

(2,845

)

Accounts payable, accrued expenses and other liabilities

 

(383

)

Noncontrolling interests

 

(1

)

Total purchase price, including transaction costs

$

10,131

 

 

NOTE 3. REAL ESTATE

 

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

 

 

Square Feet

 

 

Number of Buildings

 

 

 

 

 

Mar 31,

 

 

Dec 31,

 

 

Mar 31,

 

 

Dec 31,

 

 

Mar 31,

 

Dec 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

2020

 

Operating properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings and improvements

 

441,737

 

 

 

441,336

 

 

 

2,265

 

 

 

2,261

 

 

$

31,520,177

 

$

31,489,943

 

Improved land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,025,439

 

 

12,017,676

 

Development portfolio, including

     land costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prestabilized

 

5,572

 

 

 

6,076

 

 

 

18

 

 

 

24

 

 

 

480,918

 

 

553,266

 

Properties under development

 

22,990

 

 

 

22,004

 

 

 

62

 

 

 

61

 

 

 

1,550,798

 

 

1,329,345

 

Land (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,699,738

 

 

1,606,358

 

Other real estate investments (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,182,295

 

 

3,387,740

 

Total investments in real estate

     properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,459,365

 

 

50,384,328

 

Less accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,823,824

 

 

6,539,156

 

Net investments in real estate

     properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

43,635,541

 

$

43,845,172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

At March 31, 2021 and December 31, 2020, our land was comprised of 5,113 and 5,304 acres, respectively.

 

(2)

Included in other real estate investments were: (i) non-strategic real estate assets acquired in the Liberty Transaction that we do not intend to operate long-term; (ii) land parcels we own and lease to third parties; (iii) real estate assets that we intend to redevelop into industrial properties; and (iv) costs associated with potential acquisitions and future development projects, including purchase options on land.

12

 


Index

 

 

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

March 31,

 

 

 

2021

 

 

2020 (1)

 

Number of operating properties

 

 

1

 

 

 

137

 

Square feet

 

 

25

 

 

 

20,256

 

Acres of land

 

 

261

 

 

 

267

 

Acquisition cost of net investments in real estate

 

$

229,050

 

 

$

2,393,767

 

   

(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.

 

Dispositions

 

The following table summarizes our dispositions of net investments in real estate which include contributions to unconsolidated co-investment ventures and dispositions to third parties (dollars and square feet in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Dispositions of development properties and land, net (1)

 

 

 

 

 

 

 

 

Number of properties

 

 

8

 

 

 

11

 

Square feet

 

 

4,287

 

 

 

4,636

 

Net proceeds

 

$

769,813

 

 

$

633,563

 

Gains on dispositions of development properties and land, net

 

$

173,643

 

 

$

162,750

 

 

 

 

 

 

 

 

 

 

Other dispositions of investments in real estate, net

 

 

 

 

 

 

 

 

Number of properties

 

 

1

 

 

 

18

 

Square feet

 

 

476

 

 

 

2,305

 

Net proceeds

 

$

23,342

 

 

$

160,557

 

Gains on other dispositions of investments in real estate, net

 

$

16,623

 

 

$

31,491

 

 

(1)

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

 

Leases

 

We recognized lease right-of-use assets of $462.8 million and $492.8 million within Other Assets and lease liabilities of $458.7 million and $487.0 million within Other Liabilities, for land and office space leases in which we are the lessee, on the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020, respectively.

 

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 accounted for using the equity method of accounting. See Note 7 for more detail regarding our consolidated investments that are not wholly owned.

 

We also have investments in other ventures, generally with one partner, 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.

 

13

 


Index

 

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Unconsolidated co-investment ventures

 

$

6,594,263

 

 

$

6,685,567

 

Other ventures

 

 

920,577

 

 

 

916,447

 

Total

 

$

7,514,840

 

 

$

7,602,014

 

 

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

March 31,

 

 

 

2021

 

 

2020

 

Recurring fees

 

$

91,037

 

 

$

74,687

 

Transactional fees

 

 

20,878

 

 

 

19,960

 

Promote revenue

 

 

1,615

 

 

 

591

 

Total strategic capital revenues from unconsolidated co-investment ventures (1)

 

$

113,530

 

 

$

95,238

 

 

(1)

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 (1)

 

 

Europe

 

 

Asia

 

 

Total

 

As of:

Mar 31,

2021

 

 

Dec 31,

2020

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

Key property information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ventures

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

 

 

3

 

 

 

3

 

 

 

3

 

 

 

3

 

 

 

9

 

 

 

9

 

Operating properties

 

710

 

 

 

706

 

 

 

230

 

 

 

229

 

 

 

778

 

 

 

768

 

 

 

179

 

 

 

167

 

 

 

1,897

 

 

 

1,870

 

Square feet

 

118

 

 

 

117

 

 

 

51

 

 

 

51

 

 

 

187

 

 

 

185

 

 

 

72

 

 

 

67

 

 

 

428

 

 

 

420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets ($)

 

10,937

 

 

 

10,840

 

 

 

2,987

 

 

 

3,023

 

 

 

17,106

 

 

 

16,918

 

 

 

10,222

 

 

 

10,209

 

 

 

41,252

 

 

 

40,990

 

Third-party debt ($)

 

3,169

 

 

 

3,129

 

 

 

824

 

 

 

854

 

 

 

4,110

 

 

 

4,002

 

 

 

3,920

 

 

 

3,831

 

 

 

12,023

 

 

 

11,816

 

Total liabilities ($)

 

3,760

 

 

 

3,722

 

 

 

864

 

 

 

898

 

 

 

5,768

 

 

 

5,607

 

 

 

4,428

 

 

 

4,389

 

 

 

14,820

 

 

 

14,616

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our investment balance ($) (2)

 

1,892

 

 

 

1,886

 

 

 

810

 

 

 

811

 

 

 

3,065

 

 

 

3,152

 

 

 

827

 

 

 

837

 

 

 

6,594

 

 

 

6,686

 

Our weighted average ownership (3)

 

25.4

%

 

 

25.6

%

 

 

40.8

%

 

 

40.8

%

 

 

29.4

%

 

 

30.0

%

 

 

15.2

%

 

 

15.2

%

 

 

25.8

%

 

 

26.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

Other Americas (1)

 

 

Europe

 

 

Asia

 

 

Total

 

Operating Information:

Mar 31,

2021

 

 

Mar 31,

2020

 

 

Mar 31,

2021

 

 

Mar 31,

2020

 

 

Mar 31,

2021

 

 

Mar 31,

2020

 

 

Mar 31,

2021

 

 

Mar 31,

2020

 

 

Mar 31,

2021

 

 

Mar 31,

2020

 

For the three months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues ($)

 

254

 

 

 

233

 

 

 

75

 

 

 

68

 

 

 

338

 

 

 

290

 

 

 

159

 

 

 

138

 

 

 

826

 

 

 

729

 

Net earnings ($)

 

49

 

 

 

34

 

 

 

30

 

 

 

23

 

 

 

87

 

 

 

78

 

 

 

35

 

 

 

26

 

 

 

201

 

 

 

161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our earnings from unconsolidated

     co-investment ventures, net ($)

 

13

 

 

 

9

 

 

 

12

 

 

 

9

 

 

 

28

 

 

 

25

 

 

 

6

 

 

 

4

 

 

 

59

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

(2)

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 March 31, 2021 and December 31, 2020, resulted 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 ($143.7 million and $165.6 million, respectively); and (iv) customer security deposits retained subsequent to property contributions to Nippon Prologis REIT, Inc.

 

(3)

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.

14

 


Index

 

 

Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures

 

At March 31, 2021, our outstanding equity commitments were $341.2 million, principally for Prologis China Logistics Venture. The equity commitments expire from 2021 to 2028 if they have not been previously called.

 

NOTE 5. ASSETS HELD FOR SALE OR CONTRIBUTION

 

We had investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at March 31, 2021 and December 31, 2020. 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):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Number of operating properties

 

 

80

 

 

 

66

 

Square feet

 

 

13,756

 

 

 

12,923

 

Total assets held for sale or contribution

 

$

1,055,751

 

 

$

1,070,724

 

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

 

$

21,828

 

 

$

16,214

 

 

NOTE 6. DEBT

 

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

Weighted Average

 

 

Amount

 

 

Weighted Average

 

 

Amount

 

 

Interest Rate (1)

 

 

Term (2)

 

 

Outstanding (3)

 

 

Interest Rate (1)

 

 

Term (2)

 

 

Outstanding (3)

 

Credit facilities

0.4%

 

 

 

3.3

 

 

$

53,250

 

 

0.8%

 

 

 

2.0

 

 

$

171,794

 

Senior notes

1.7%

 

 

 

12.1

 

 

 

14,433,868

 

 

2.0%

 

 

 

11.2

 

 

 

14,275,870

 

Term loans and unsecured

     other

0.9%

 

 

 

5.3

 

 

 

1,670,556

 

 

0.9%

 

 

 

5.6

 

 

 

1,764,311

 

Secured mortgage

5.4%

 

 

 

3.7

 

 

 

345,784

 

 

3.1%

 

 

 

3.0

 

 

 

637,101

 

Total

1.7%

 

 

 

11.2

 

 

$

16,503,458

 

 

1.9%

 

 

 

10.2

 

 

$

16,849,076

 

 

(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)

The weighted average term represents the remaining maturity in years on the debt outstanding at period end.

 

(3)

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

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

 

Weighted Average Interest Rate

 

 

Amount Outstanding

 

 

% of Total

 

 

Weighted Average Interest Rate

 

 

Amount Outstanding

 

 

% of Total

 

 

British pound sterling

 

 

2.2

%

 

$

1,027,910

 

 

 

6.2

%

 

 

2.2

%

 

$

1,019,480

 

 

 

6.1

%

 

Canadian dollar

 

 

2.7

%

 

 

288,045

 

 

 

1.7

%

 

 

2.7

%

 

 

285,708

 

 

 

1.7

%

 

Euro

 

 

1.1

%

 

 

6,963,034

 

 

 

42.2

%

 

 

1.4

%

 

 

6,549,676

 

 

 

38.8

%

 

Japanese yen

 

 

0.8

%

 

 

2,460,056

 

 

 

14.9

%

 

 

0.8

%

 

 

2,877,247

 

 

 

17.1

%

 

U.S. dollar

 

 

2.6

%

 

 

5,764,413

 

 

 

35.0

%

 

 

2.8

%

 

 

6,116,965

 

 

 

36.3

%

 

Total

 

 

1.7

%

 

$

16,503,458

 

 

 

 

 

 

 

1.9

%

 

$

16,849,076

 

 

 

 

 

 

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

15

 


Index

 

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”) with total commitments of ¥55.0 billion ($496.4 million at March 31, 2021). We have the ability to increase the borrowing capacity of the Revolver to ¥75.0 billion ($676.9 million at March 31, 2021), subject to obtaining additional lender commitments. Pricing under the Revolver, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP. At March 31, 2021, 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.”

        

In April 2021, we entered into a second global senior credit facility under which we may draw in various currencies on a revolving basis in an aggregate amount up to $1.0 billion (subject to currency fluctuations). The second global senior credit facility is scheduled to mature in April 2024, subject to extension options.

 

Liquidity

 

The following table summarizes information about our available liquidity at March 31, 2021 (in millions):

 

 

 

 

 

Aggregate lender commitments

 

 

 

 

Credit Facilities

 

$

4,019

 

Less:

 

 

 

 

Borrowings outstanding

 

 

53

 

Outstanding letters of credit

 

 

19

 

Current availability

 

$

3,947

 

Available term loans

 

 

250

 

Cash and cash equivalents

 

 

676

 

Total liquidity

 

$

4,873

 

      

Senior Notes

 

The following table summarizes the issuances and redemptions of senior notes during the three months ended March 31, 2021 (principal in thousands):

 

 

 

Aggregate Principal

 

 

Issuance Date Weighted Average

 

 

 

Initial Borrowing Date

 

Borrowing Currency

 

 

USD (1)

 

 

Interest Rate (2)

 

 

Term (3)

 

 

Maturity Dates

February

 

1,350,000

 

 

$

1,639,305

 

 

0.7%

 

 

 

14.3

 

 

February 2032 – 2041

February

 

$

400,000

 

 

$

400,000

 

 

1.6%

 

 

 

10.1

 

 

March 2031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Principal

 

 

Redemption Date Weighted Average

 

 

 

Redemption Date

 

Borrowing Currency

 

 

USD (1)

 

 

Interest Rate (2)

 

 

Term (3)

 

 

Maturity Dates

March

 

599,514

 

 

$

715,700

 

 

3.4%

 

 

 

3.0

 

 

February 2024

March

 

$

750,000

 

 

$

750,000

 

 

3.8%

 

 

 

4.7

 

 

November 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

(2)

The interest rate represents the fixed or variable interest rate at the issuance or redemption date of the related debt.

 

(3)

The issuance date and redemption date weighted average term represent the remaining maturity in years on the related debt at the issuance or redemption date, respectively.

 

During the three months ended March 31, 2021, we used the net proceeds from the issuance of the senior notes to fund the senior note redemptions and for general corporate purposes.

 

16

 


Index

 

Early Extinguishment of Debt

 

During the three months ended March 31, 2021 and 2020, we recognized $187.5 million and $42.8 million of losses on the early extinguishment of debt, respectively. The losses during both periods were driven by the redemption of certain high interest rate senior notes before their stated maturity. We redeemed $1.5 billion of senior notes with stated maturities of 2024 and 2025, and $783.1 million of senior notes with a stated maturity of 2021, during the three months ended March 31, 2021 and 2020, respectively. The losses in 2020 included 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.

 

Term Loans

 

We did not borrow or pay down on the multi-currency term loan (“2017 Term Loan”) during the three months ended March 31, 2021. During the three months ended March 31, 2020, we borrowed a net $500.0 million.

 

Long-Term Debt Maturities

 

Scheduled principal payments due on our debt for the remainder of 2021 and for each year through the period ended December 31, 2025, and thereafter were as follows at March 31, 2021 (in thousands):

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

Credit

 

 

Senior

 

 

Term Loans

 

 

Secured

 

 

 

 

 

Maturity

 

Facilities

 

 

Notes

 

 

and Other

 

 

Mortgage

 

 

Total

 

2021 (1)(2)

 

$

0

 

 

$

0

 

 

$

260,135

 

 

$

21,355

 

 

$

281,490

 

2022 (1)

 

 

0

 

 

 

527,625

 

 

 

0

 

 

 

12,098

 

 

 

539,723

 

2023

 

 

0

 

 

 

0

 

 

 

135,244

 

 

 

34,072

 

 

 

169,316

 

2024 (3)

 

 

53,250

 

 

 

0

 

 

 

0

 

 

 

133,488

 

 

 

186,738

 

2025

 

 

0

 

 

 

45,127

 

 

 

0

 

 

 

143,766

 

 

 

188,893

 

Thereafter

 

 

0

 

 

 

13,931,343

 

 

 

1,281,618

 

 

 

2,468

 

 

 

15,215,429

 

Subtotal

 

 

53,250

 

 

 

14,504,095

 

 

 

1,676,997

 

 

 

347,247

 

 

 

16,581,589

 

Premiums (discounts), net

 

 

0

 

 

 

6,070

 

 

 

0

 

 

 

224

 

 

 

6,294

 

Debt issuance costs, net

 

 

0

 

 

 

(76,297

)

 

 

(6,441

)

 

 

(1,687

)

 

 

(84,425

)

Total

 

$

53,250

 

 

$

14,433,868

 

 

$

1,670,556

 

 

$

345,784

 

 

$

16,503,458

 

 

(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. In April 2021, the 2017 Term Loan was terminated and the interest rate swap contracts associated with the outstanding balance of $250.3 million were settled.

 

(3)

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

 

Financial Debt Covenants

 

We had $14.4 billion of senior notes and $1.7 billion of term loans outstanding at March 31, 2021 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 March 31, 2021, 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 13-01 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.

 

17

 


Index

 

NOTE 7. 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, 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.

 

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 these entities (dollars in thousands):

 

 

Our Ownership Percentage

 

 

Noncontrolling Interests

 

 

Total Assets

 

 

Total Liabilities

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

 

Mar 31,

2021

 

 

Dec 31,

2020

 

Prologis U.S. Logistics Venture

 

55.0

%

 

 

55.0

%

 

$

3,375,502

 

 

$

3,385,110

 

 

$

7,625,390

 

 

$

7,663,800

 

 

$

134,457

 

 

$

145,131

 

Other consolidated entities (1)

various

 

 

various

 

 

 

97,960

 

 

 

98,416

 

 

 

1,055,677

 

 

 

1,066,129

 

 

 

72,204

 

 

 

73,987

 

Prologis, L.P.

 

 

 

 

 

 

 

 

 

3,473,462

 

 

 

3,483,526

 

 

 

8,681,067

 

 

 

8,729,929

 

 

 

206,661

 

 

 

219,118

 

Limited partners in Prologis, L.P. (2)(3)

 

 

 

903,224

 

 

 

869,507

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Prologis, Inc.

 

 

 

 

 

 

 

 

$

4,376,686

 

 

$

4,353,033

 

 

$

8,681,067

 

 

$

8,729,929

 

 

$

206,661

 

 

$

219,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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 March 31, 2021 and December 31, 2020 were exchangeable into cash or, at our option, 0.3 million shares of the Parent’s common stock.

 

(2)

We had 8.6 million Class A Units that were convertible into 8.0 million limited partnership units of the OP at March 31, 2021 and December 31, 2020.

 

(3)

At March 31, 2021 and December 31, 2020, excluding the Class A Units, there were limited partnership units in the OP that were exchangeable into cash or, at our option, 8.2 million shares of the Parent’s common stock. Also included were the vested OP Long-Term Incentive Plan Units (“LTIP Units”) associated with our long-term compensation plan of 4.7 million at March 31, 2021 and 3.9 million at December 31, 2020. See further discussion of LTIP Units in Note 8.

 

NOTE 8. LONG-TERM COMPENSATION

 

Equity-Based Compensation Plans and Programs

 

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 by each performance period. POP awards cannot be paid at a time when we meet the outperformance hurdle yet our absolute TSR is negative. If after seven years our absolute TSR has not been positive, the awards will be forfeited.  

 

We granted participation points for the 2021 – 2023 performance period in January 2021, with a fair value of $30.3 million using a Monte Carlo valuation model that assumed a risk-free interest rate of 0.2% and an expected volatility of 30.5%. The 2021 – 2023 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 at the end of the initial performance period and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the initial three-year performance period is subject to an additional three-year holding requirement.    

 

18

 


Index

 

The Outperformance Hurdle was met for the 2018 – 2020 performance period, which resulted in awards being earned at December 31, 2020. Additionally, awards were earned at December 31, 2020 for prior performance periods related to the compensation pool in excess of the initial award based on the terms of the POP awards granted prior to 2018. Awards of $100.0 million for the 2018 – 2020 performance period and $35.7 million in the aggregate for the 2016 – 2018 and 2017 – 2019 performance periods were awarded in January 2021 in the form of common stock, restricted stock units, POP LTIP Units and LTIP Units. POP award activity is included in Summary of Award Activity below.

 

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 restricted stock units (“RSUs”) or LTIP Units at the 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 three months ended March 31, 2021 (units in thousands):

 

 

 

 

 

 

 

Weighted Average

 

 

 

Unvested RSUs

 

 

Grant Date Fair Value

 

Balance at January 1, 2021

 

 

986

 

 

$

80.32

 

Granted (1)

 

 

611

 

 

 

73.46

 

Vested and distributed

 

 

(337

)

 

 

75.98

 

Forfeited

 

 

(90

)

 

 

71.70

 

Balance at March 31, 2021

 

 

1,170

 

 

$

78.65

 

 

 

 

 

 

 

 

 

 

(1)

Included in granted are unvested units based on the POP performance criteria being met for the 2018 – 2020 performance period and represented the earned award amounts. 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.

 

LTIP Units

 

The following table summarizes the activity for LTIP Units for the three months ended March 31, 2021 (units in thousands):

 

 

 

Unvested

 

 

Unvested Weighted Average

 

 

 

LTIP Units

 

 

Grant Date Fair Value

 

Balance at January 1, 2021

 

 

3,052

 

 

$

66.50

 

Granted (1)

 

 

1,253

 

 

 

58.63

 

Forfeited

 

 

(23

)

 

 

31.80

 

Vested LTIP Units (2)

 

 

(791

)

 

 

76.98

 

Balance at March 31, 2021

 

 

3,491

 

 

$

61.53

 

 

(1)

Included in granted are unvested units based on the POP performance criteria being met for the 2018 – 2020 performance period and represented the earned award amounts. 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.

 

(2)

Vested LTIP Units include vested POP LTIP Units from prior performance periods.

 

19

 


Index

 

NOTE 9. 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.

 

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

 

 

 

March 31,

 

Prologis, Inc.

 

2021

 

 

2020

 

Net earnings attributable to common stockholders – Basic

 

$

365,815

 

 

$

489,418

 

Net earnings attributable to exchangeable limited partnership units (1)

 

 

10,320

 

 

 

14,049

 

Adjusted net earnings attributable to common stockholders – Diluted

 

$

376,135

 

 

$

503,467

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

738,998

 

 

 

698,272

 

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

 

 

21,042

 

 

 

20,230

 

Incremental weighted average effect of equity awards

 

 

4,918

 

 

 

5,481

 

Weighted average common shares outstanding – Diluted (2)

 

 

764,958

 

 

 

723,983

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.50

 

 

$

0.70

 

Diluted

 

$

0.49

 

 

$

0.70

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

Prologis, L.P.

 

2021

 

 

2020

 

Net earnings attributable to common unitholders

 

$

376,083

 

 

$

503,388

 

Net earnings attributable to Class A Units

 

 

(3,991

)

 

 

(5,651

)

Net earnings attributable to common unitholders – Basic

 

 

372,092

 

 

 

497,737

 

Net earnings attributable to Class A Units

 

 

3,991

 

 

 

5,651

 

Net earnings attributable to exchangeable other limited partnership units

 

 

52

 

 

 

79

 

Adjusted net earnings attributable to common unitholders – Diluted

 

$

376,135

 

 

$

503,467

 

 

 

 

 

 

 

 

 

 

Weighted average common partnership units outstanding – Basic

 

 

751,679

 

 

 

710,141

 

Incremental weighted average effect on exchange of Class A Units

 

 

8,062

 

 

 

8,062

 

Incremental weighted average effect on exchange of other limited partnership units

 

 

299

 

 

 

299

 

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

 

 

4,918

 

 

 

5,481

 

Weighted average common units outstanding – Diluted (2)

 

 

764,958

 

 

 

723,983

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.50

 

 

$

0.70

 

Diluted

 

$

0.49

 

 

$

0.70

 

 

(1)

The exchangeable limited partnership units include the units as discussed in Note 7. 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

 

 

 

 

March 31,

 

 

 

 

2021

 

 

2020

 

 

Class A Units

 

 

8,062

 

 

 

8,062

 

 

Other limited partnership units

 

 

299

 

 

 

299

 

 

Equity awards

 

 

7,179

 

 

 

7,709

 

 

Prologis, L.P.

 

 

15,540

 

 

 

16,070

 

 

Common limited partnership units

 

 

12,681

 

 

 

11,869

 

 

Prologis, Inc.

 

 

28,221

 

 

 

27,939

 

 

20

 


Index

 

NOTE 10. 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, 2020.

 

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):

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Asset

 

 

Liability

 

 

Asset

 

 

Liability

 

Undesignated derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Forwards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Brazilian real

 

$

826

 

 

$

0

 

 

$

620

 

 

$

66

 

          British pound sterling

 

 

71

 

 

 

8,735

 

 

 

174

 

 

 

7,589

 

          Canadian dollar

 

 

0

 

 

 

8,016

 

 

 

80

 

 

 

5,827

 

          Chinese renminbi

 

 

34

 

 

 

499

 

 

 

0

 

 

 

717

 

          Euro

 

 

16,096

 

 

 

287

 

 

 

73

 

 

 

6,247

 

          Japanese yen

 

 

16,096

 

 

 

0

 

 

 

720

 

 

 

1,604

 

          Swedish krona

 

 

1,214

 

 

 

868

 

 

 

0

 

 

 

2,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Designated derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net investment hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          British pound sterling

 

 

3,251

 

 

 

3,125

 

 

 

0

 

 

 

2,081

 

          Canadian dollar

 

 

0

 

 

 

14,799

 

 

 

0

 

 

 

9,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Euro

 

 

0

 

 

 

14

 

 

 

0

 

 

 

9

 

          U.S. dollar

 

 

0

 

 

 

28

 

 

 

0

 

 

 

140

 

Total fair value of derivatives

 

$

37,588

 

 

$

36,371

 

 

$

1,667

 

 

$

36,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undesignated Derivative Financial Instruments

 

Foreign Currency Contracts

 

The following table summarizes the activity of our undesignated foreign currency contracts for the three months ended March 31 (in millions, except for weighted average forward rates and number of active contracts):

 

 

2021

 

 

2020

 

 

CAD

 

 

EUR

 

 

GBP

 

 

JPY

 

 

SEK

 

 

Other

 

 

Total

 

 

CAD

 

 

EUR

 

 

GBP

 

 

JPY

 

 

SEK

 

 

Other

 

 

Total

 

Notional amounts at January 1 ($)

 

163

 

 

 

474

 

 

 

207

 

 

 

252

 

 

 

38

 

 

 

28

 

 

 

1,162

 

 

 

120

 

 

 

581

 

 

 

178

 

 

 

182

 

 

 

31

 

 

 

15

 

 

 

1,107

 

New contracts ($)

 

3

 

 

 

83

 

 

 

11

 

 

 

25

 

 

 

5

 

 

 

0

 

 

 

127

 

 

 

0

 

 

 

809

 

 

 

294

 

 

 

60

 

 

 

9

 

 

 

19

 

 

 

1,191

 

Matured, expired or settled contracts ($)

 

(11

)

 

 

(36

)

 

 

(16

)

 

 

(20

)

 

 

(4

)

 

 

(4

)

 

 

(91

)

 

 

(11

)

 

 

(1,003

)

 

 

(267

)

 

 

(15

)

 

 

(3

)

 

 

(23

)

 

 

(1,322

)

Notional amounts at March 31 ($)

 

155

 

 

 

521

 

 

 

202

 

 

 

257

 

 

 

39

 

 

 

24

 

 

 

1,198

 

 

 

109

 

 

 

387

 

 

 

205

 

 

 

227

 

 

 

37

 

 

 

11

 

 

 

976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average forward rate at

     March 31

 

1.32

 

 

 

1.23

 

 

 

1.33

 

 

 

102.66

 

 

 

8.59

 

 

 

 

 

 

 

 

 

 

 

1.32

 

 

 

1.16

 

 

 

1.77

 

 

 

103.08

 

 

 

9.41

 

 

 

 

 

 

 

 

 

Active contracts at March 31

 

58

 

 

 

74

 

 

 

53

 

 

 

68

 

 

 

51

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

61

 

 

 

64

 

 

 

53

 

 

 

32

 

 

 

 

 

 

 

 

 

 

21

 


Index

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Exercised contracts

 

 

25

 

 

 

33

 

Realized gains (losses) on the matured, expired or settled contracts

 

$

(1

)

 

$

4

 

Unrealized gains on the change in fair value of outstanding contracts

 

$

38

 

 

$

47

 

 

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 three months ended March 31 (in millions, except for weighted average forward rates and number of active contracts):

 

 

 

2021

 

 

2020

 

 

 

CAD

 

 

GBP

 

 

Total

 

 

CAD

 

 

GBP

 

 

Total

 

Notional amounts at January 1 ($)

 

 

377

 

 

 

135

 

 

 

512

 

 

 

97

 

 

 

387

 

 

 

484

 

New contracts ($)

 

 

250

 

 

 

300

 

 

 

550

 

 

 

0

 

 

 

324

 

 

 

324

 

Matured, expired or settled contracts ($)

 

 

(63

)

 

 

0

 

 

 

(63

)

 

 

0

 

 

 

(576

)

 

 

(576

)

Notional amounts at March 31 ($)

 

 

564

 

 

 

435

 

 

 

999

 

 

 

97

 

 

 

135

 

 

 

232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average forward rate at

     March 31

 

 

1.29

 

 

 

1.38

 

 

 

 

 

 

 

1.32

 

 

 

1.35

 

 

 

 

 

Active contracts at March 31

 

 

7

 

 

 

4

 

 

 

 

 

 

 

2

 

 

 

1

 

 

 

 

 

 

Interest Rate Swaps

 

The following table summarizes the activity of our interest rate swaps designated as cash flow hedges for the three months ended March 31 (in millions):

 

 

 

2021

 

 

2020

 

 

 

 

EUR (1)

 

 

USD (1)

 

 

Total

 

 

EUR

 

 

USD

 

 

Total

 

 

Notional amounts at January 1 ($)

 

 

165

 

 

 

250

 

 

 

415

 

 

 

0

 

 

 

0

 

 

 

0

 

 

New contracts ($)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

165

 

 

 

750

 

 

 

915

 

 

Matured, expired or settled contracts ($)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(750

)

 

 

(750

)

 

Notional amounts at March 31 ($)

 

 

165

 

 

 

250

 

 

 

415

 

 

 

165

 

 

 

0

 

 

 

165

 

 

 

(1)

During the year ended December 31, 2020, we entered into interest rate swap contracts to effectively fix the interest rate on our euro senior notes issued in February 2020 and the U.S. dollar outstanding balance on our 2017 Term Loan. In April 2021, the 2017 Term Loan was terminated and the interest rate swap contracts associated with the outstanding balance were settled.

 

Designated Nonderivative Financial Instruments

 

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

British pound sterling

 

$

956

 

 

$

842

 

   

The following table summarizes the unrealized gains in Foreign Currency and Derivative Gains, Net on the remeasurement of the unhedged portion of our debt and accrued interest for the three months ended March 31 (in millions):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Unrealized gains on the unhedged portion

 

$

46

 

 

$

82

 

22

 


Index

 

Other Comprehensive Income (Loss)

 

The change in Other Comprehensive Income (Loss) in the Consolidated Statements of Comprehensive Income during the periods presented was 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

March 31,

 

 

 

2021

 

 

2020

 

Derivative net investment hedges

 

$

(5,266

)

 

$

25,359

 

Debt designated as nonderivative net investment hedges

 

 

(6,402

)

 

 

32,750

 

Cumulative translation adjustment

 

 

183,427

 

 

 

(191,642

)

Total foreign currency translation gains (losses), net

 

$

171,759

 

 

$

(133,533

)

 

 

 

 

 

 

 

 

 

Cash flow hedges (1) (2)

 

$

1,371

 

 

$

(15,525

)

Our share of derivatives from unconsolidated co-investment ventures

 

 

3,450

 

 

 

(7,923

)

Total unrealized gains (losses) on derivative contracts, net

 

$

4,821

 

 

$

(23,448

)

Total change in other comprehensive income (loss)

 

$

176,580

 

 

$

(156,981

)

 

 

(1)

We estimate an additional expense of $4.4 million will be reclassified to Interest Expense over the next 12 months from March 31, 2021, due to the amortization of previously settled derivatives designated as cash flow hedges.

 

 

(2)

Included in the three months ended March 31, 2020 was $16.8 million in losses associated with the termination of four U.S. dollar treasury lock contracts with an aggregate notional amount of $750.0 million that fixed the interest rate on the forecasted issuance of U.S. dollar senior notes issued in February 2020.

 

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, 2020.

 

Fair Value Measurements on a Recurring Basis

 

At March 31, 2021 and December 31, 2020, other than the derivatives discussed previously, we had no 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 March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, 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.

 

Fair Value of Financial Instruments

 

At March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, as compared with those in effect when the debt was issued or assumed, including reduced borrowing spreads due to our improved credit ratings. The fair value of the senior notes decreased during the three months ended March 31, 2021 due to the increase in bond yields in the market as compared to the weighted average interest rates on our senior notes. 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. We evaluate this on an on-going basis and have taken the opportunity to refinance some of our debt at lower rates and longer maturities as discussed in Note 6.

 

23

 


Index

 

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Credit Facilities

 

$

53,250

 

 

$

53,250

 

 

$

171,794

 

 

$

171,794

 

Senior notes

 

 

14,433,868

 

 

 

14,598,729

 

 

 

14,275,870

 

 

 

15,452,381

 

Term loans and unsecured other

 

 

1,670,556

 

 

 

1,687,135

 

 

 

1,764,311

 

 

 

1,785,706

 

Secured mortgage

 

 

345,784

 

 

 

374,402

 

 

 

637,101

 

 

 

673,549

 

Total

 

$

16,503,458

 

 

$

16,713,516

 

 

$

16,849,076

 

 

$

18,083,430

 

 

NOTE 11. BUSINESS SEGMENTS

 

Our current business strategy includes 2operating segments: Real Estate Operations and Strategic Capital. We generate revenues, earnings, net operating income and cash flows through our segments, as follows:

 

Real Estate Operations. This operating segment represents the ownership and development of operating properties and is the largest component of our revenue and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. Our Real Estate Operations segment also includes development activities that lead to rental operations, including land held for development and properties currently under development, and other real estate investments. Within this line of business, we utilize the following: (i) our land bank; (ii) the development expertise of our local teams; and (iii) our customer relationships. Land we own and lease to customers under land leases, along with land and buildings we lease, is also included in this segment.

 

Strategic Capital. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset management and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.

 

Reconciliations are presented below for: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to Total Assets. Our chief operating decision makers rely primarily on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of Total Revenues, Operating Income, Earnings Before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain corporate income and expenses, are not allocated but reflected as reconciling items.

24

 


Index

 

The following reconciliations are presented in thousands:

 

 

 

Three Months Ended

March 31,

 

 

 

 

2021

 

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Real estate operations segment:

 

 

 

 

 

 

 

 

U.S.

 

$

975,083

 

 

$

829,383

 

Other Americas

 

 

23,893

 

 

 

26,079

 

Europe

 

 

18,856

 

 

 

15,502

 

Asia

 

 

10,523

 

 

 

10,686

 

Total real estate operations segment

 

 

1,028,355

 

 

 

881,650

 

Strategic capital segment:

 

 

 

 

 

 

 

 

U.S.

 

 

33,983

 

 

 

34,342

 

Other Americas

 

 

10,663

 

 

 

9,111

 

Europe

 

 

43,429

 

 

 

32,590

 

Asia

 

 

31,886

 

 

 

20,548

 

Total strategic capital segment

 

 

119,961

 

 

 

96,591

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

1,148,316

 

 

 

978,241

 

 

 

 

 

 

 

 

 

 

Segment net operating income:

 

 

 

 

 

 

 

 

Real estate operations segment:

 

 

 

 

 

 

 

 

U.S. (1)

 

 

709,303

 

 

 

602,604

 

Other Americas

 

 

17,595

 

 

 

19,456

 

Europe

 

 

13,191

 

 

 

10,155

 

Asia

 

 

6,938

 

 

 

7,243

 

Total real estate operations segment

 

 

747,027

 

 

 

639,458

 

Strategic capital segment:

 

 

 

 

 

 

 

 

U.S. (1)

 

 

8,302

 

 

 

13,624

 

Other Americas

 

 

7,906

 

 

 

5,179

 

Europe

 

 

32,171

 

 

 

20,594

 

Asia

 

 

22,132

 

 

 

10,620

 

Total strategic capital segment

 

 

70,511

 

 

 

50,017

 

 

 

 

 

 

 

 

 

 

Total segment net operating income

 

 

817,538

 

 

 

689,475

 

 

 

 

 

 

 

 

 

 

Reconciling items:

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

(78,032

)

 

 

(69,689

)

Depreciation and amortization expenses

 

 

(397,575

)

 

 

(345,970

)

Gains on dispositions of development properties and land, net

 

 

173,643

 

 

 

162,750

 

Gains on other dispositions of investments in real estate, net

 

 

16,623

 

 

 

31,491

 

Operating income

 

 

532,197

 

 

 

468,057

 

 

 

 

 

 

 

 

 

 

Earnings from unconsolidated entities, net

 

 

67,049

 

 

 

88,730

 

Interest expense

 

 

(71,281

)

 

 

(75,642

)

Interest and other income, net

 

 

4,746

 

 

 

370

 

Foreign currency and derivative gains, net

 

 

80,152

 

 

 

113,329

 

Losses on early extinguishment of debt, net

 

 

(187,453

)

 

 

(42,767

)

Earnings before income taxes

 

$

425,410

 

 

$

552,077

 

 

25

 


Index

 

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Segment assets:

 

 

 

 

 

 

 

 

Real estate operations segment:

 

 

 

 

 

 

 

 

U.S.

 

$

42,337,749

 

 

$

42,559,023

 

Other Americas

 

 

1,168,322

 

 

 

1,145,699

 

Europe

 

 

1,634,170

 

 

 

1,604,393

 

Asia

 

 

905,369

 

 

 

1,081,876

 

Total real estate operations segment

 

 

46,045,610

 

 

 

46,390,991

 

Strategic capital segment: (2)

 

 

 

 

 

 

 

 

U.S.

 

 

12,939

 

 

 

13,257

 

Europe

 

 

25,280

 

 

 

25,280

 

Asia

 

 

324

 

 

 

354

 

Total strategic capital segment

 

 

38,543

 

 

 

38,891

 

Total segment assets

 

 

46,084,153

 

 

 

46,429,882

 

 

 

 

 

 

 

 

 

 

Reconciling items:

 

 

 

 

 

 

 

 

Investments in and advances to unconsolidated entities

 

 

7,514,840

 

 

 

7,602,014

 

Assets held for sale or contribution

 

 

1,055,751

 

 

 

1,070,724

 

Cash and cash equivalents

 

 

676,074

 

 

 

598,086

 

Other assets

 

 

401,991

 

 

 

364,299

 

Total reconciling items

 

 

9,648,656

 

 

 

9,635,123

 

Total assets

 

$

55,732,809

 

 

$

56,065,005

 

 

(1)

This includes compensation, personnel costs and PPP awards for employees who were located in the U.S. but also support other geographies.

 

(2)

Represents management contracts and goodwill recorded in connection with business combinations associated with the Strategic Capital segment. Goodwill was $25.3 million at March 31, 2021 and December 31, 2020.

 

NOTE 12. SUPPLEMENTAL CASH FLOW INFORMATION

 

Our significant noncash investing and financing activities for the three months ended March 31, 2021 and 2020 included the following:

 

We recognized lease right-of-use assets and lease liabilities related to leases in which we are the lessee within Other Assets and Other Liabilities on the Consolidated Balance Sheets, including any new leases, renewals and modifications of $4.6 million in 2021 and $3.8 million in 2020 for both assets and liabilities.

 

We capitalized $8.5 million and $8.3 million in 2021 and 2020, respectively, of equity-based compensation expense.  

 

We received $39.1 million and $57.1 million in 2021 and 2020, respectively, of ownership interests in certain unconsolidated co-investment ventures as a portion of our proceeds from the contribution of properties to these entities, as disclosed in Note 4.

 

We issued less than 0.1 million shares in 2021 and 0.1 million shares in 2020 of the Parent’s common stock upon redemption of an equal number of common limited partnership units in the OP.

 

We completed the Liberty Transaction on February 4, 2020 for $13.0 billion through the issuance of equity and the assumption of debt. See Note 2 for more information on this transaction.

 

We paid $89.5 million and $110.5 million for interest, net of amounts capitalized, for the three months ended March 31, 2021 and 2020, respectively.

 

We paid $35.8 million and $21.7 million for income taxes, net of refunds, for the three months ended March 31, 2021 and 2020, respectively.

 

 

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Report of Independent Registered Public Accounting Firm

 

To the Stockholders and Board of Directors
Prologis, Inc.:

Results of Review of Interim Financial Information

 

We have reviewed the consolidated balance sheet of Prologis, Inc. and subsidiaries (the Company) as of March 31, 2021 the related consolidated statements of income, comprehensive income, and equity for the three-month periods ended March 31, 2021 and 2020, the related consolidated statements of cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 10, 2021, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

/s/ KPMG LLP

Denver, Colorado
April 27, 2021

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Report of Independent Registered Public Accounting Firm

 

To the Partners of Prologis, L.P. and the Board of Directors of Prologis, Inc.:

Results of Review of Interim Financial Information

 

We have reviewed the consolidated balance sheet of Prologis, L.P. and subsidiaries (the Operating Partnership) as of March 31, 2021, the related consolidated statements of income, comprehensive income, and capital for the three-month periods ended March 31, 2021 and 2020, the related consolidated statements of cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Operating Partnership as of December 31, 2020, and the related consolidated statements of income, comprehensive income, capital, and cash flows for the year then ended (not presented herein); and in our report dated February 10, 2021, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

Basis for Review Results

 

This consolidated interim financial information is the responsibility of the Operating Partnership’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

/s/ KPMG LLP

Denver, Colorado
April 27, 2021

 

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of this report and our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”).

 

The statements in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate as well as management’s beliefs and assumptions. Such statements involve uncertainties that could significantly impact our financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” and “estimates” including variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to rent and occupancy growth, acquisition and development activity, contribution and disposition activity, general conditions in the geographic areas where we operate, our debt, capital structure and financial position, our ability to form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and therefore actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) international, national, regional and local economic and political climates and conditions; (ii) changes in global financial markets, interest rates and foreign currency exchange rates; (iii) increased or unanticipated competition for our properties; (iv) risks associated with acquisitions, dispositions and development of properties; (v) maintenance of Real Estate Investment Trust (“REIT”) status, tax structuring and changes in income tax laws and rates; (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings; (vii) risks related to our investments in our co-investment ventures, including our ability to establish new co-investment ventures; (viii) risks of doing business internationally, including currency risks; (ix) environmental uncertainties, including risks of natural disasters; (x) risks related to the coronavirus (“COVID-19”) pandemic; and (xi) those additional factors discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020. We undertake no duty to update any forward-looking statements appearing in this report except as may be required by law.

 

Prologis, Inc. is a self-administered and self-managed REIT and is the sole general partner of Prologis, L.P. through which it holds substantially all of its assets. We operate Prologis, Inc. and Prologis, L.P. as one enterprise and, therefore, our discussion and analysis refers to Prologis, Inc. and its consolidated subsidiaries, including Prologis, L.P. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We have a significant ownership interest in the co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity.

 

We operate and manage our business on an owned and managed (“O&M”) basis and therefore evaluate the operating performance of the properties for our O&M portfolio, which includes our consolidated properties and properties owned by our unconsolidated co-investment ventures, which we manage. We make operating decisions based on our total O&M portfolio, as we manage the properties similarly regardless of ownership. We also evaluate our results based on our proportionate economic ownership of each property included in the O&M portfolio (“our share”) to reflect our share of the financial results of the O&M portfolio.

 

Included in our discussion below are references to funds from operations (“FFO”) and net operating income (“NOI”), neither of which are U.S. generally accepted accounting principles (“GAAP”). See below for a reconciliation of Net Earnings Attributable to Common Stockholders/Unitholders in the Consolidated Statements of Income to our FFO measures and a reconciliation of NOI to Operating Income, the most directly comparable GAAP measures.

 

MANAGEMENT’S OVERVIEW

 

We are the global leader in logistics real estate with a focus on high-barrier, high-growth markets. We own, manage and develop well-located, high-quality logistics facilities in 19 countries across four continents. Our local teams actively manage our portfolio, which encompasses leasing, property management, capital deployment and opportunistic dispositions. Our disposition activities allow us to recycle capital and largely self-fund our development and acquisition activities. The majority of our properties in the United States (“U.S.”) are wholly owned, while our international properties are primarily held in our co-investment ventures, which has the benefit of mitigating our exposure to foreign currency movements.

 

Our portfolio is focused on the world’s most vibrant centers of commerce and our scale allows us to respond to our customers’ needs for the highest-quality buildings across these locations. There is an emergence of two new structural demand drivers for our real estate: (i) the need for more inventory as supply chains emphasize resilience over efficiency and (ii) the acceleration of e-commerce adoption.

 

As service time increasingly moves to the forefront of the global supply chain, it drives demand for logistics real estate close to the end-consumer. We have invested in properties located within infill and urban areas in our largest global markets with same day access (defined as Last Touch®) and next day access (defined as city distribution), to the consumer population. This positioning gives us the

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Index

 

unique ability to provide our customers with the right real estate solutions for their supply chains that, in turn, allows them to meet end-consumer delivery expectations.

 

As we look to the future of logistics real estate, we are focused on solving our customers’ pain points, innovating in pursuit of creative solutions and operational excellence. We are listening and responding to our customers’ needs for skilled labor through initiatives to create community workforce programs to develop their talent pool, utilize our proprietary data and analytics to ensure efficient distribution solutions and leverage our scale to negotiate better pricing on common products and services that our customers need. Our customers turn to us because they know that a strategic partnership with Prologis is a competitive advantage. We accomplish all of this by employing individuals who continue to grow, embrace change and draw strength from inclusion and diversity.

 

At March 31, 2021, our total O&M portfolio at 100%, including properties and development projects (based on gross book value and total expected investment (“TEI”)), totaled $97.7 billion across 990 million square feet (92 million square meters) and four continents. Our share of the total O&M portfolio was $61.4 billion. We lease modern logistics facilities to a diverse base of approximately 5,500 customers.

 

Our business comprises two operating segments: Real Estate Operations and Strategic Capital.

 

Below is information summarizing consolidated activity within our segments (in millions):

 

 

(1)  

NOI from Real Estate Operations is calculated directly from our Consolidated Financial Statements as Rental Revenues and Development Management and Other Revenues less Rental Expenses and Other Expenses.

 

(2)

A developed property moves into the operating portfolio when it meets our definition of stabilization, which is the earlier of one year after completion or 90% occupancy. Amounts represent our TEI, which includes the estimated cost of development or expansion, land, construction and leasing costs.

 

Real Estate Operations

 

Rental. Rental operations comprise the largest component of our operating segments and generally contribute 85% to 90% of our consolidated revenues, earnings and FFO. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. We expect to generate internal growth by increasing rents, maintaining high occupancy rates and controlling expenses. The primary driver of our revenue growth will be rolling in-place leases to current market rents as leases expire. We believe our active portfolio management, combined with the skills of our property, leasing, maintenance, capital, energy, sustainability and risk management teams allow us to maximize NOI across our portfolio. A majority of our consolidated rental revenue, NOI and cash flows are generated in the U.S.

 

Development. Given the scarcity of modern logistics facilities in our target markets, our development business provides us the opportunity to build what our customers need. We develop properties to meet these needs, deepen our market presence and maintain a modern portfolio. We believe we have a competitive advantage due to (i) the strategic locations of our land bank and redevelopment sites; (ii) the development expertise of our local teams; and (iii) the depth of our customer relationships. Successful development and redevelopment efforts provide significant earnings growth as projects are leased, generate income and increase the net asset value of our Real Estate Operations segment. Based on our current estimates, our consolidated land, including options, has the potential to support the development of $12.0 billion of TEI of new logistics space. In addition to our land portfolio, we have also made investments in other properties that have the potential to be redeveloped to increase value. Generally, we develop properties in the U.S. for long-term hold and outside the U.S. for contribution to our unconsolidated co-investment ventures.

 

Strategic Capital

 

Our strategic capital segment allows us to partner with many of the world’s largest institutional investors and capitalize our business through private equity, principally perpetual open-ended or long-term ventures. We also access capital in this segment through two publicly traded vehicles: Nippon Prologis REIT, Inc. in Japan and FIBRA Prologis in Mexico. We align our interests with our partners by holding significant ownership interests in all of our 9 unconsolidated co-investment ventures (ranging from 15% to 50%), which allows us to reduce our exposure to foreign currency movements for investments outside the U.S.

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This segment produces stable, long-term cash flows and generally contributes 10% to 15% of our recurring consolidated revenues, earnings and FFO. We generate strategic capital revenues from our unconsolidated co-investment ventures, principally through asset and property management services. We earn additional revenues by providing leasing, acquisition, construction, development, financing, legal and disposition services. In certain ventures, we also have the ability to earn revenues through incentive fees (“promotes” or “promote revenues”) periodically during the life of a venture or upon liquidation. We plan to profitably grow this business by increasing our assets under management in existing or new ventures. Most of the strategic capital revenues are generated outside the U.S. NOI in this segment is calculated directly from our Consolidated Financial Statements as Strategic Capital Revenues less Strategic Capital Expenses and excludes property-related NOI.

 

FUTURE GROWTH

 

We believe the quality and scale of our global portfolio, the expertise of our team, the depth of our customer relationships and the strength of our balance sheet give us unique competitive advantages to grow revenues, NOI, earnings, FFO and cash flows.

 

  

 

(1)

Calculated using the trailing twelve months immediately prior to the period ended.

 

(2)

General and Administrative (“G&A”) Expenses is a line item in the Consolidated Financial Statements. Adjusted G&A expenses is calculated from our Consolidated Financial Statements as G&A Expenses and Strategic Capital Expenses, less expenses under the Prologis Promote Plan (“PPP”) and property-level management expenses for the properties owned by the ventures. Annualized 2021 represents G&A and adjusted G&A expenses for the year ended December 31, 2021 based on the three months ended March 31, 2021.

 

Rent Growth. Due to the demand for the location and quality of our properties, we expect rents in our markets to increase. In addition, due to strong market rent growth over the last several years, our in-place leases have considerable upside potential. We estimated that the rental rates of our leases are 13.6% below current market on the basis of our weighted average ownership at March 31, 2021. Therefore, even if market rent growth is flat, a lease renewal will likely translate into increased future rental income, on a consolidated basis or through the earnings we recognize from our unconsolidated co-investment ventures based on our ownership. We have experienced positive rent change on rollover (comparing the net effective rent (“NER”) of the new lease to the prior lease for the same space) in every quarter since 2013. We expect this trend to continue for several more years due to our current in-place rents being below market. We also expect future growth in market rents to further contribute to increased rental income.

 

Value Creation from Development. A successful development and redevelopment program involves maintaining control of well-located and entitled land and redevelopment sites. We believe that the carrying value of our land bank is below its current fair value. Due to the strategic nature of our land bank, development expertise of our teams and strength of our customer relationships, we expect to create value as we build new properties. We measure the estimated value creation of a development project as the margin above our anticipated cost to develop. As properties stabilize, we expect to realize the value creation principally through contributions to unconsolidated co-investment ventures and increases in NOI.

 

Balance Sheet Strength. We have continued to seek and execute on opportunities to refinance debt at historically low rates, as we did during the first quarter. At March 31, 2021, we had total available liquidity of $4.9 billion and continue to maintain low leverage as a percentage of our real estate investments and our market capitalization. As a result of our low leverage, available liquidity and investment capacity in the co-investment ventures, we have significant capacity to capitalize on value-added investment opportunities that will translate into future earnings growth.

 

Economies of Scale from Growth. We use adjusted G&A expenses as a percentage of the O&M portfolio to measure and evaluate our overhead costs. We have scalable systems and infrastructure in place to grow both our consolidated and O&M portfolios with limited incremental G&A expense. We believe we can continue to grow NOI and strategic capital revenues organically and through accretive development and acquisition activity while further reducing G&A as a percentage of our investments in real estate. As noted in the graph above, the acquisitions of Liberty Property Trust and Liberty Property Limited Partnership (collectively “Liberty” or the “Liberty Transaction”) and Industrial Property Trust Inc. (“IPT” or the “IPT Transaction”) in

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the first quarter of 2020 are key examples of this effort, where we increased our investments in real estate in the O&M portfolio by over 20% and had minimal increases to G&A expenses, which resulted in lower G&A expenses as a percentage of investments in real estate.

 

Staying “Ahead of What’s Next™”. We are working on initiatives to create value beyond the real estate by enhancing our customers’ experience, utilizing our scale to streamline our procurement activities and negotiating better pricing on products and services for us and our customers, as well as delivering improvements to our business through innovation, data analytics and digitization efforts. Underlying our future strategy for growth is our ongoing commitment to, and initiatives in, environmental stewardship, social responsibility and governance.

 

SUMMARY OF 2021

 

Our financial condition and operating results remain strong in the COVID-19 environment and the positive momentum from the fourth quarter of 2020 has carried into 2021, as evidenced by our operating results, profitable deployment activities and solid outlook. While we do not expect significant impacts to our business, financial condition and operating results, we cannot fully predict negative trends due to the continued uncertainty of COVID-19 across the globe.

 

Based on the demand we see in our proprietary data, strong rent collections and in dialogue with our customers, we expect operating conditions in our portfolio to continue to strengthen during 2021. E-commerce continues to grow well above its historical average and customers negatively impacted by the current economy represent a minimal percentage of our annual rent. Leasing activity accelerated for the O&M portfolio during the three months ended March 31, 2021, as discussed below.

 

Overall, our business continuity, communication plans and technology are allowing all functions of our business to continue to work smoothly during this time. Generally, our employees have continued working remotely or in certain locations in our offices under protocols to keep a safe working environment.

 

During the three months ended March 31, 2021, we generated net proceeds of $793 million and realized net gains of $190 million, primarily from the contribution of properties to our unconsolidated co-investment ventures in Japan and Europe and dispositions to third parties in the U.S.

 

We completed the following consolidated financing activities that included the issuance of $2.0 billion and redemption of $1.5 billion of senior notes, with aggregate principal amounts in U.S. dollars. This resulted in extending our consolidated weighted average remaining maturity to 11 years and lowering our weighted average effective interest rate to 1.7% (principal in millions):

 

 

 

 

Aggregate Principal

 

 

Issuance Date Weighted Average

 

 

 

 

Initial Borrowing Date

 

Borrowing Currency

 

 

USD (1)

 

 

Interest Rate (2)

 

 

Term (3)

 

 

Maturity Dates

 

February

 

1,350

 

 

$

1,639

 

 

0.7%

 

 

 

14.3

 

 

February 2032 - 2041

 

February

 

$

400

 

 

$

400

 

 

1.6%

 

 

 

10.1

 

 

March 2031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Principal

 

 

Redemption Date Weighted Average

 

 

 

 

Redemption Date

 

Borrowing Currency

 

 

USD (1)

 

 

Interest Rate (2)

 

 

Term (3)

 

 

Maturity Date

 

March

 

600

 

 

$

716

 

 

3.4%

 

 

 

3.0

 

 

February 2024

 

March

 

$

750

 

 

$

750

 

 

3.8%

 

 

 

4.7

 

 

November 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

 

(2)

The interest rate represents the fixed or variable interest rate at the issuance or redemption date of the related debt.

 

 

(3)

The issuance date and redemption date weighted average term represent the remaining maturity in years on the related debt at the issuance or redemption date, respectively.

 

At March 31, 2021, we had total available liquidity of $4.9 billion, principally due to aggregate availability under our credit facilities of $3.9 billion and unrestricted cash balances of $676 million. In April 2021, we increased our available liquidity by entering into a second global senior credit facility with an available borrowing capacity of $1.0 billion and terminating the $500 million multi-currency term loan.

 

Throughout this discussion, we reflect amounts in U.S. dollars, our reporting currency. Included in these amounts are consolidated and unconsolidated investments denominated in foreign currencies, principally the British pound sterling, euro and Japanese yen that are impacted by fluctuations in exchange rates when translated to U.S. dollars. We mitigate our exposure to foreign currency fluctuations by investing outside the U.S. through co-investment ventures, borrowing in the functional currency of our subsidiaries and utilizing derivative financial instruments.

 

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RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2021 AND 2020

 

We evaluate our business operations based on the NOI of our two operating segments: Real Estate Operations and Strategic Capital. NOI by segment is a non-GAAP performance measure that is calculated using revenues and expenses directly from our financial statements. We consider NOI by segment to be an appropriate supplemental measure of our performance because it helps management and investors understand our operating results.

 

Below is a reconciliation of our NOI by segment to Operating Income per the Consolidated Financial Statements for the three months ended March 31 (in millions). Each segment’s NOI is reconciled to line items in the Consolidated Financial Statements as provided in the related discussion below.

 

 

 

2021

 

 

2020

 

Real Estate Operations – NOI

 

$

747

 

 

$

639

 

Strategic Capital – NOI

 

 

71

 

 

 

50

 

General and administrative expenses

 

 

(78

)

 

 

(69

)

Depreciation and amortization expenses

 

 

(398

)

 

 

(346

)

Operating income before gains on real estate transactions, net

 

 

342

 

 

 

274

 

Gains on dispositions of development properties and land, net

 

 

174

 

 

 

163

 

Gains on other dispositions of investments in real estate, net

 

 

16

 

 

 

31

 

Operating income

 

$

532

 

 

$

468

 

 

See Note 11 to the Consolidated Financial Statements for more information on our segments and a reconciliation of each business segment’s NOI to Operating Income and Earnings Before Income Taxes.

 

Real Estate Operations

 

This operating segment principally includes rental revenue and rental expenses recognized from our consolidated properties. We allocate the costs of our property management and leasing functions to the Real Estate Operations segment through Rental Expenses and the Strategic Capital segment through Strategic Capital Expenses based on the square footage of the relative portfolios. In addition, this segment is impacted by our development, acquisition and disposition activities.

 

Below are the components of Real Estate Operations NOI for the three months ended March 31, derived directly from line items in the Consolidated Financial Statements (in millions):  

 

 

 

2021

 

 

2020

 

Rental revenues

 

$

1,022

 

 

$

879

 

Development management and other revenues

 

 

6

 

 

 

3

 

Rental expenses

 

 

(278

)

 

 

(228

)

Other expenses

 

 

(3

)

 

 

(15

)

Real Estate Operations – NOI

 

$

747

 

 

$

639

 

 

 

 

 

 

 

 

 

 

The change in Real Estate Operations NOI for the three months ended March 31, 2021 from the same period in 2020, was impacted by the following items (in millions):

 

(1)

Acquisition activity increased NOI in 2021, compared to 2020, primarily due to the Liberty Transaction on February 4, 2020. We acquired 519 industrial operating properties, aggregating 100 million square feet, and increased our consolidated investments in real estate by approximately $13 billion.

 

(2)

During both periods, we experienced positive rental rate growth. Rental rate growth is a combination of higher rental rates on rollover of leases (or rent change) and contractual rent increases on existing leases. If a lease has a contractual rent increase

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driven by a metric that is not known at the time the lease commences, such as the consumer price index or a similar metric, the rent increase is not included in rent leveling and therefore, impacts the rental revenue we recognize. Significant rent change during both periods continues to be a key driver in increasing rental income. See below for key metrics on rent change on rollover and occupancy for the consolidated operating portfolio.

 

(3)

We calculate changes in NOI from development completions period over period by comparing the change in NOI generated on the pool of developments that completed on or after January 1, 2020 through March 31, 2021.

 

Below are key operating metrics of our consolidated operating portfolio, which excludes non-strategic industrial properties.

 

 

(1)

Consolidated square feet of leases commenced and weighted average net effective rent change were calculated for leases with initial terms of one year or greater.

 

(2)

Calculated using the trailing twelve months immediately prior to the period ended.  

 

Development Activity

 

The following table summarizes consolidated development activity for the three months ended March 31 (dollars and square feet in millions):

 

 

2021

 

 

2020

 

Starts:

 

 

 

 

 

 

 

 

Number of new development projects during the period

 

 

13

 

 

 

4

 

Square feet

 

 

5

 

 

 

2

 

TEI (1)

 

$

556

 

 

$

299

 

Percentage of build-to-suits based on TEI

 

 

59.9

%

 

 

16.6

%

 

 

 

 

 

 

 

 

 

Stabilizations:

 

 

 

 

 

 

 

 

Number of development projects stabilized during the period

 

 

13

 

 

 

19

 

Square feet

 

 

4

 

 

 

6

 

TEI (1)

 

$

372

 

 

$

673

 

Percentage of build-to-suits based on TEI

 

 

15.8

%

 

 

24.7

%

Weighted average stabilized yield (2)

 

 

5.8

%

 

 

6.3

%

Estimated value at completion

 

$

533

 

 

$

941

 

Estimated weighted average margin

 

 

43.2

%

 

 

39.8

%

 

(1)

TEI also includes development starts on yards and parking lots that will be included in other real estate investments upon completion.

 

(2)

We calculate the weighted average stabilized yield as estimated NOI assuming stabilized occupancy divided by TEI.

 

During the first quarter of 2020, we suspended several recently started speculative development projects for the short term based on the market conditions at that time and government restrictions due to COVID-19. By the fourth quarter of 2020, most suspended projects were restarted and at March 31, 2021, the entire development portfolio consisted of active projects. At March 31, 2021, the consolidated development portfolio, including properties under development and prestabilized properties, was expected to be completed before August 2022 with a TEI of $3.7 billion, leaving $1.7 billion remaining to be spent and was 61.8% leased. We expect our development activities to continue to accelerate in 2021.

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Capital Expenditures

 

We capitalize costs incurred in renovating, improving and leasing our operating properties as part of the investment basis or within other assets. The following graph summarizes capital expenditures, excluding development costs, and property improvements per average square foot of our consolidated operating properties during each quarter:

 

 

Strategic Capital

 

This operating segment includes revenues from asset and property management services performed, transactional services for acquisition, disposition and leasing activity and promote revenue earned from the unconsolidated entities. Revenues associated with the Strategic Capital segment fluctuate because of changes in the size of the portfolios through acquisitions and dispositions, the fair value of the properties and other transactional activity including foreign currency exchange rates and timing of promotes. These revenues are reduced by the direct costs associated with the asset and property-level management expenses for the properties owned by these ventures. We allocate the costs of our property management and leasing functions to the Strategic Capital segment through Strategic Capital Expenses and to the Real Estate Operations segment through Rental Expenses based on the square footage of the relative portfolios. For further details regarding the key property information and summarized financial condition and operating results of our unconsolidated co-investment ventures, refer to Note 4 to the Consolidated Financial Statements.

 

Below are the components of Strategic Capital revenues, expenses and NOI for the three months ended March 31, derived directly from the line items in the Consolidated Financial Statements (in millions):

 

 

 

2021

 

 

2020

 

Strategic capital revenues

 

$

120

 

 

$

97

 

Strategic capital expenses

 

 

(49

)

 

 

(47

)

Strategic Capital – NOI

 

$

71

 

 

$

50

 

 

Below is additional detail of our Strategic Capital revenues, expenses and NOI for the three months ended March 31 (in millions):

 

 

 

U.S. (1)

 

 

Other Americas

 

 

Europe

 

 

Asia

 

 

Total

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Strategic capital revenues ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring fees (2)

 

 

30

 

 

 

25

 

 

 

9

 

 

 

8

 

 

 

36

 

 

 

28

 

 

 

19

 

 

 

15

 

 

 

94

 

 

 

76

 

Transactional fees (3)

 

 

4

 

 

 

9

 

 

 

2

 

 

 

1

 

 

 

5

 

 

 

4

 

 

 

13

 

 

 

6

 

 

 

24

 

 

 

20

 

Promote revenue (4)

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

1

 

Total strategic capital revenues ($)

 

 

34

 

 

 

34

 

 

 

11

 

 

 

9

 

 

 

43

 

 

 

33

 

 

 

32

 

 

 

21

 

 

 

120

 

 

 

97

 

Strategic capital expenses ($)

 

 

(25

)

 

 

(20

)

 

 

(3

)

 

 

(4

)

 

 

(11

)

 

 

(13

)

 

 

(10

)

 

 

(10

)

 

 

(49

)

 

 

(47

)

Strategic Capital – NOI ($)

 

 

9

 

 

 

14

 

 

 

8

 

 

 

5

 

 

 

32

 

 

 

20

 

 

 

22

 

 

 

11

 

 

 

71

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The U.S. expenses include compensation, personnel costs and PPP awards for employees who are based in the U.S. but also support other geographies.

 

(2)

Recurring fees include asset and property management fees. The increase in fees is due to larger portfolios and increases in the fair value of the portfolios.

 

(3)

Transactional fees include leasing commissions and acquisition, disposition, development and other fees.

 

(4)

We generally earn promote revenue directly from third-party investors in the co-investment ventures based on cumulative returns over a three-year period or based on development returns. Approximately 40% of the promote earned by us is paid to our

35

 


Index

 

employees as a combination of cash and stock awards pursuant to the terms of the PPP and expensed through Strategic Capital Expenses, as vested.

 

G&A Expenses

 

G&A expenses were $78 million and $69 million for the three months ended March 31, 2021 and 2020, respectively. G&A expenses increased in 2021 as compared to 2020, due to higher compensation expenses based largely on the increase in our share price. We capitalize certain internal costs, including salaries and related expenses, directly related to our development activities. For discussion on our long-term incentive plans refer to the proxy statement for our 2021 annual meeting of stockholders.

 

The following table summarizes capitalized G&A for the three months ended March 31 (dollars in millions):  

 

 

 

2021

 

 

2020

 

Building and land development activities

 

$

25

 

 

$

22

 

Operating building improvements and other

 

 

7

 

 

 

6

 

Total capitalized G&A expenses

 

$

32

 

 

$

28

 

Capitalized salaries and related costs as a percent of total salaries and related costs

 

 

21.1

%

 

 

21.8

%

 

Depreciation and Amortization Expenses

 

Depreciation and amortization expenses were $398 million and $346 million for the three months ended March 31, 2021 and 2020, respectively.

 

The following table highlights the key changes in depreciation and amortization expenses during the three months ended March 31, 2021 from the same period in 2020 (in millions):

 

 

(1)

Included in acquisitions are the operating properties and related intangible assets acquired in the Liberty Transaction.

 

Gains on Real Estate Transactions, Net

 

Gains on the disposition of development properties and land were $174 million and $163 million for the three months ended March 31, 2021 and 2020, respectively, and primarily included gains from the contribution of properties we developed to our unconsolidated co-investment ventures. Gains on other dispositions of investments in real estate were $16 million and $31 million for the three months ended March 31, 2021 and 2020, respectively, which included sales of operating properties and other real estate transactions. We utilized the proceeds from these transactions primarily to fund our development activities during both periods. See Note 3 to the Consolidated Financial Statements for further information on these transactions.

 

Our Owned and Managed (“O&M”) Operating Portfolio

 

We manage our business and review our operating fundamentals on an O&M basis, which includes our consolidated properties and properties owned by our unconsolidated co-investment ventures. We believe reviewing the fundamentals this way allows management to understand the entire impact to the financial statements, as it will affect both the Real Estate Operations and Strategic Capital segments, as well as the net earnings we recognize from our unconsolidated co-investment ventures based on our ownership. We do not control the unconsolidated co-investment ventures for purposes of GAAP and the presentation of the ventures’ operating information does not represent a legal claim.

 

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Index

 

Our O&M operating portfolio does not include our development portfolio, value-added properties, non-industrial properties or properties we do not have the intent to hold long-term that are classified as either held for sale or within other real estate investments. Value-added properties are properties that are expected to be repurposed or redeveloped to a higher and better use and recently acquired properties that present opportunities to create greater value. See below for information on our O&M operating portfolio (square feet in millions):

 

 

March 31, 2021

 

 

December 31, 2020

 

 

Number of Properties

 

 

Square

Feet

 

 

Percentage Occupied

 

 

Number of Properties

 

 

Square

Feet

 

 

Percentage Occupied

 

Consolidated

 

2,260

 

 

 

442

 

 

 

95.9

%

 

 

2,252

 

 

 

441

 

 

 

96.6

%

Unconsolidated

 

1,877

 

 

 

424

 

 

 

95.3

%

 

 

1,849

 

 

 

416

 

 

 

95.9

%

Total

 

4,137

 

 

 

866

 

 

 

95.6

%

 

 

4,101

 

 

 

857

 

 

 

96.2

%

 

Below are the key operating metrics summarizing the leasing activity of our O&M operating portfolio.

 

 

(1)

Square feet of leases commenced and weighted average net effective rent change were calculated for leases with initial terms of one year or greater. We retained approximately 70% of our customers, based on the total square feet of leases commenced during these periods.

 

(2)

Calculated using the trailing twelve months immediately prior to the period ended.

 

(3)

Turnover costs include external leasing commissions and tenant improvements and represent the obligations incurred in connection with the lease commencement for leases greater than one year. As leasing commissions are based on the contractual rent we receive over the lease term, we experienced increases in commissions due to higher rents on leases that commenced during the three months ended March 31, 2021.

 

Same Store Analysis

 

Our same store metrics are non-GAAP financial measures, which are commonly used in the real estate industry and expected from the financial community, on both a net effective and cash basis. We evaluate the performance of the operating properties we own and manage using a “same store” analysis because the population of properties in this analysis is consistent from period to period, which allows us and investors to analyze our ongoing business operations. We determine our same store metrics on property NOI, which is calculated as rental revenue less rental expense for the applicable properties in the same store population for both consolidated and unconsolidated properties based on our ownership interest, as further defined below.

 

We define our same store population for the three months ended March 31, 2021 as the properties in our O&M operating portfolio, including the property NOI for both consolidated properties and properties owned by the unconsolidated co-investment ventures at January 1, 2020 and owned throughout the same three-month period in both 2020 and 2021. We believe the drivers of property NOI for the consolidated portfolio are generally the same for the properties owned by the ventures in which we invest and therefore we evaluate the same store metrics of the O&M portfolio based on Prologis’ ownership in the properties (“Prologis Share”). The same store population excludes properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period (January 1, 2020) and properties acquired or disposed of to third parties during the period. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the reported period-end exchange rate to translate from local currency into the U.S. dollar, for both periods.

 

37

 


Index

 

As non-GAAP financial measures, the same store metrics have certain limitations as an analytical tool and may vary among real estate companies. As a result, we provide a reconciliation of Rental Revenues less Rental Expenses (“Property NOI”) (from our Consolidated Financial Statements prepared in accordance with U.S. GAAP) to our Same Store Property NOI measures, as follows for the three months ended March 31 (dollars in millions):

 

 

 

 

 

 

 

 

 

 

Percentage

 

 

2021

 

 

2020

 

 

Change

 

Reconciliation of Consolidated Property NOI to Same Store Property NOI measures:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenues

$

1,022

 

 

$

879

 

 

 

 

 

Rental expenses

 

(278

)

 

 

(228

)

 

 

 

 

Consolidated Property NOI

 

744

 

 

 

651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to derive same store results:

 

 

 

 

 

 

 

 

 

 

 

Property NOI from consolidated properties not included in same store portfolio and

     other adjustments (1)

 

(219

)

 

 

(139

)

 

 

 

 

Property NOI from unconsolidated co-investment ventures included in same store

     portfolio (1)(2)

 

566

 

 

 

542

 

 

 

 

 

Third parties' share of Property NOI from properties included in same store

     portfolio (1)(2)

 

(457

)

 

 

(446

)

 

 

 

 

Prologis Share of Same Store Property NOI – Net Effective (2)

$

634

 

 

$

608

 

 

 

4.2

%

Consolidated properties straight-line rent and fair value lease adjustments

     included in same store portfolio (3)

 

(12

)

 

 

(13

)

 

 

 

 

Unconsolidated co-investment ventures straight-line rent and fair value lease

     adjustments included in same store portfolio (3)

 

(13

)

 

 

(12

)

 

 

 

 

Third parties' share of straight-line rent and fair value lease adjustments included

     in same store portfolio (2)(3)

 

10

 

 

 

10

 

 

 

 

 

Prologis Share of Same Store Property NOI – Cash (2)(3)

$

619

 

 

$

593

 

 

 

4.5

%

 

 

(1)

We exclude properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period and properties acquired or disposed of to third parties during the period. We also exclude net termination and renegotiation fees to allow us to evaluate the growth or decline in each property’s rental revenues without regard to one-time items that are not indicative of the property’s recurring operating performance. Net termination and renegotiation fees represent the gross fee negotiated to allow a customer to terminate or renegotiate their lease, offset by the write-off of the asset recorded due to the adjustment to straight-line rents over the lease term. Same Store Property NOI is adjusted to include an allocation of property management expenses for our consolidated properties based on the property management services provided to each property (generally, based on a percentage of revenues). On consolidation, these amounts are eliminated and the actual costs of providing property management services are recognized as part of our consolidated rental expense.

 

 

(2)

We include the Property NOI for the same store portfolio for both consolidated properties and properties owned by the co-investment ventures based on our investment in the underlying properties. In order to calculate our share of Same Store Property NOI from the co-investment ventures in which we own less than 100%, we use the co-investment ventures’ underlying Property NOI for the same store portfolio and apply our ownership percentage at March 31, 2021 to the Property NOI for both periods, including the properties contributed during the period. We adjust the total Property NOI from the same store portfolio of the co-investment ventures by subtracting the third parties’ share of both consolidated and unconsolidated co-investment ventures.

 

During the periods presented, certain wholly owned properties were contributed to a co-investment venture and are included in the same store portfolio. Neither our consolidated results nor those of the co-investment ventures, when viewed individually, would be comparable on a same store basis because of the changes in composition of the respective portfolios from period to period (e.g. the results of a contributed property are included in our consolidated results through the contribution date and in the results of the venture subsequent to the contribution date based on our ownership interest at the end of the period). As a result, only line items labeled “Prologis Share of Same Store Property NOI” are comparable period over period.

 

 

(3)

We further remove certain noncash items (straight-line rent and amortization of fair value lease adjustments) included in the financial statements prepared in accordance with U.S. GAAP to reflect a Same Store Property NOI – Cash measure.

 

We manage our business and compensate our executives based on the same store results of our O&M portfolio at 100% as we manage our portfolio on an ownership blind basis. We calculate those results by including 100% of the properties included in our same store portfolio.

 

 

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Index

 

Other Components of Income (Expense)

 

Earnings from Unconsolidated Entities, Net

 

We recognized net earnings from unconsolidated entities, which are accounted for using the equity method, of $67 million and $89 million for the three months ended March 31, 2021 and 2020, respectively. The earnings we recognize can be impacted by: (i) variances in revenues and expenses of each venture; (ii) the size and occupancy rate of the portfolio of properties owned by each venture; (iii) gains or losses from the dispositions of properties and extinguishment of debt; (iv) our ownership interest in each venture; and (v) fluctuations in foreign currency exchange rates used to translate our share of net earnings to U.S. dollars.

 

See the discussion of our unconsolidated entities above in the Strategic Capital segment discussion and in Note 4 to the Consolidated Financial Statements for a further breakdown of our share of net earnings recognized.

 

Interest Expense

 

The following table details our net interest expense for the three months ended March 31 (dollars in millions):

 

 

 

2021

 

 

2020

 

Gross interest expense

 

$

79

 

 

$

85

 

Amortization of debt discount and debt issuance costs, net

 

 

2

 

 

 

2

 

Capitalized amounts

 

 

(10

)

 

 

(11

)

Net interest expense

 

$

71

 

 

$

76

 

Weighted average effective interest rate during the period

 

 

1.8

%

 

 

2.3

%

 

Interest expense decreased during the three months ended March 31, 2021 as compared to the same period in 2020 principally due to the use of proceeds from the issuance of senior notes throughout 2020 and during the first quarter of 2021 to early redeem higher interest rate senior notes. As a result of our refinancing activities, we lowered the consolidated weighted average effective interest rate on our senior notes by over 60 basis points from January 1, 2020 to March 31, 2021.

 

See Note 6 to the Consolidated Financial Statements and the Liquidity and Capital Resources section below, for further discussion of our debt and borrowing costs.

 

Foreign Currency and Derivative Gains, Net

 

We are exposed to foreign currency exchange risk related to investments in and earnings from our foreign investments. We may use derivative financial instruments to manage foreign currency exchange rate risk related to our earnings. We recognize the change in fair value of the undesignated derivative contracts in unrealized gains and losses. Upon settlement of these transactions, we recognize realized gains or losses.

 

We primarily hedge our foreign currency risk related to our investments by borrowing in the currencies in which we invest thereby providing a natural hedge. We have issued debt in a currency that is not the same functional currency of the borrowing entity and have designated a portion of the debt as a nonderivative net investment hedge. We recognize the remeasurement and settlement of the unhedged portion of the debt and accrued interest in unrealized gains or losses.

 

The following table details our foreign currency and derivative gains, net for the three months ended March 31 (in millions):

 

 

 

2021

 

 

2020

 

Realized foreign currency and derivative gains (losses), net:

 

 

 

 

 

 

 

 

Gains (losses) on the settlement of undesignated derivatives

 

$

(1

)

 

$

4

 

 

 

 

 

 

 

 

 

 

Unrealized foreign currency and derivative gains (losses), net:

 

 

 

 

 

 

 

 

Gains on the change in fair value of undesignated derivatives and unhedged debt

 

 

84

 

 

 

129

 

Losses on remeasurement of certain assets and liabilities

 

 

(3

)

 

 

(20

)

Total unrealized foreign currency and derivative gains, net

 

 

81

 

 

 

109

 

Total foreign currency and derivative gains, net

 

$

80

 

 

$

113

 

 

 

 

 

 

 

 

 

 

See Note 10 to the Consolidated Financial Statements for more information about our derivative and nonderivative transactions.

 

Losses on Early Extinguishment of Debt, Net

 

During the three months ended March 31, 2021 and 2020, we recognized $187 million and $43 million of losses on the early extinguishment of debt, respectively. The losses during both periods were driven by the redemption of certain high interest rate senior

39

 


Index

 

notes before their stated maturity.  We redeemed $1.5 billion of senior notes with stated maturities of 2024 and 2025, and $783 million of senior notes with a stated maturity of 2021, during the three months ended March 31, 2021 and 2020, respectively. The losses in 2020 included 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. See Note 6 to the Consolidated Financial Statements and the Liquidity and Capital Resources section, for more information regarding our debt repurchases.

 

Income Tax Expense

 

We recognize income tax expense related to our taxable REIT subsidiaries and in the local, state and foreign jurisdictions in which we operate. Our current income tax expense fluctuates from period to period based primarily on the timing of our taxable income, including gains on the disposition of properties and fees earned from the co-investment ventures. Deferred income tax expense (benefit) is generally a function of the period’s temporary differences and the utilization of net operating losses generated in prior years that had been previously recognized as deferred income tax assets in taxable subsidiaries.

 

The following table summarizes our income tax expense (benefit) for the three months ended March 31 (in millions):

 

 

 

2021

 

 

2020

 

Current income tax expense:

 

 

 

 

 

 

 

 

Income tax expense

 

$

14

 

 

$

21

 

Income tax expense on dispositions

 

 

8

 

 

 

7

 

Income tax expense on dispositions related to acquired tax liabilities

 

 

3

 

 

 

-

 

Total current income tax expense

 

 

25

 

 

 

28

 

 

 

 

 

 

 

 

 

 

Deferred income tax expense:

 

 

 

 

 

 

 

 

Income tax expense

 

 

4

 

 

 

3

 

Income tax benefit on dispositions related to acquired tax liabilities

 

 

(3

)

 

 

-

 

Total deferred income tax expense

 

 

1

 

 

 

3

 

Total income tax expense

 

$

26

 

 

$

31

 

 

 

 

 

 

 

 

 

 

Net Earnings Attributable to Noncontrolling Interests

 

This amount represents the third-party investors’ share of the earnings generated in consolidated entities in which we do not own 100% of the equity, reduced by the third-party share of fees or promotes payable to us and earned during the period. We had net earnings attributable to noncontrolling interests of $32 million and $30 million for the three months ended March 31, 2021 and 2020, respectively. Included in these amounts were $10 million and $14 million for the three months ended March 31, 2021 and 2020, of net earnings attributable to the common limited partnership unitholders of Prologis, L.P.

 

See Note 7 to the Consolidated Financial Statements for further information on our noncontrolling interests.

 

Other Comprehensive Income (Loss)

 

The key driver of changes in Accumulated Other Comprehensive Income (Loss) (“AOCI/L”) during the three months ended March 31, 2021 and 2020, was the currency translation adjustment derived from changes in exchange rates during both periods primarily on our net investments in real estate outside the U.S. and the borrowings we issue in the functional currencies of the countries where we invest. These borrowings serve as a natural hedge of our foreign investments. In addition, we use derivative financial instruments, such as foreign currency forward and option contracts to manage foreign currency exchange rate risk related to our foreign investments, that when designated the change in fair value is included in AOCI/L.

 

See Note 10 to the Consolidated Financial Statements for more information on changes in other comprehensive income (loss) and about our derivative and nonderivative transactions.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Overview

 

We consider our ability to generate cash from operating activities, distributions from our co-investment ventures, contributions and dispositions of properties and available financing sources to be adequate to meet our anticipated future development, acquisition, operating, debt service, dividend and distribution requirements.

 

Near-Term Principal Cash Sources and Uses

 

In addition to dividends and distributions, we expect our primary cash needs will consist of the following:

 

40

 


Index

 

completion of the development and leasing of the properties in our consolidated development portfolio (at March 31, 2021, 80 properties in our development portfolio were 61.8% leased with a current investment of $2.0 billion and a TEI of $3.7 billion when completed and leased, leaving $1.7 billion of estimated additional required investment);

 

development of new properties that we may hold for long-term investment or subsequently contribute to unconsolidated co-investment ventures, including the acquisition of land in certain markets;

 

capital expenditures and leasing costs on properties in our operating portfolio;

 

repayment of debt and scheduled principal payments of $281 million in 2021;

 

additional investments in current and future unconsolidated co-investment ventures and other ventures;

 

acquisition of operating properties or portfolios of operating properties (depending on market and other conditions) for direct, long-term investment in our consolidated portfolio (this might include acquisitions from our co-investment ventures); and

 

repurchase of our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise.

 

We expect to fund our cash needs principally from the following sources (subject to market conditions):

 

net cash flow from property operations;

 

fees earned for services performed on behalf of co-investment ventures, including promotes;

 

distributions received from co-investment ventures;

 

proceeds from disposition of properties, land parcels or other investments to third parties;

 

proceeds from the contributions of properties to current or future co-investment ventures;

 

available unrestricted cash balances ($676 million at March 31, 2021);

 

borrowing capacity under our current credit facility arrangements ($3.9 billion available at March 31, 2021); and in April 2021 we entered into a second global senior credit facility, as described in Note 6 to the Consolidated Financial Statements;

 

proceeds from the issuance of debt; and

 

proceeds from the sale of a portion of our investments in co-investment ventures to achieve long-term ownership targets.

 

We may also generate proceeds from the issuance of equity securities, subject to market conditions.

 

Debt

 

The following table summarizes information about our consolidated debt by currency (dollars in millions):

 

 

 

March 31, 2021

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

Weighted Average

Interest Rate

 

 

Amount

Outstanding

 

 

% of Total

 

 

Weighted Average

Interest Rate

 

 

Amount

Outstanding

 

 

% of Total

 

British pound sterling

 

 

2.2

%

 

$

1,028

 

 

 

6.2

%

 

 

2.2

%

 

$

1,019

 

 

 

6.1

%

Canadian dollar

 

 

2.7

%

 

 

288

 

 

 

1.7

%

 

 

2.7

%

 

 

286

 

 

 

1.7

%

Euro

 

 

1.1

%

 

 

6,963

 

 

 

42.2

%

 

 

1.4

%

 

 

6,550

 

 

 

38.8

%

Japanese yen

 

 

0.8

%