Prologis, Inc. and Prologis, L.P. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Prologis is a global logistics real estate owner, developer and manager operating in 19 countries. The filing combines the Parent and Operating Partnership, which are managed and operated as one enterprise.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $1,148 million | $978 million | Up 17% |
| Operating income before real estate gains | $342 million | $274 million | Up 25% |
| Operating income, including disposition gains | $532 million | $468 million | Up 14% |
| Consolidated net earnings | $400 million | $521 million | Down 23% |
| Net earnings attributable to common stockholders | $366 million | $489 million | Down 25% |
| Diluted earnings per share | $0.49 | $0.70 | Down 30% |
| Operating cash flow | $817 million | $679 million | Up 20% |
| Core FFO attributable to common stockholders/unitholders | $742 million | $599 million | Up 24% |
Rental revenue rose to $1,022 million from $879 million, while strategic capital revenue increased to $120 million from $97 million. Segment NOI was $747 million for Real Estate Operations (up from $639 million) and $71 million for Strategic Capital (up from $50 million). Operating income before real estate gains was approximately 29.8% of revenue, versus 28.0% a year earlier.
Net earnings were reduced by $187 million of losses on early debt extinguishment, compared with $43 million in Q1 2020. Other notable items included $190 million of net real estate disposition gains, $80 million of foreign currency and derivative gains, and $67 million of earnings from unconsolidated entities. Core FFO excludes certain items, including disposition gains and debt extinguishment losses; it is a non-GAAP measure and should not be viewed as a substitute for GAAP earnings or cash flow.
Cash and cash equivalents were $676 million at March 31, 2021, versus $598 million at year-end. Total assets were $55.7 billion and total liabilities were $19.3 billion. Debt was $16.5 billion, down from $16.8 billion at December 31, 2020; its weighted-average effective interest rate was 1.7%, with an 11.2-year weighted-average remaining term. Total liquidity was $4.9 billion, including $3.9 billion of current credit-facility availability, $250 million of available term loans and cash.
Operating cash flow was $817 million; investing activities used $107 million, and financing activities used $592 million. Development spending was $422 million, acquisitions were $226 million, and proceeds from property dispositions and contributions were $728 million. Common dividends were $0.63 per share for the quarter, compared with $0.58 a year earlier.
Material changes and business developments
- Revenue and both segment NOI measures increased. Management attributed Real Estate Operations growth principally to the Liberty acquisition completed in February 2020, rent growth and development completions. Strategic Capital benefited from larger venture portfolios and higher recurring fees.
- Occupancy across the owned-and-managed portfolio was 95.6% at quarter-end, down from 96.2% at December 31, 2020. Same-store property NOI increased 4.2% on a net-effective basis and 4.5% on a cash basis.
- Prologis started 13 development projects with total expected investment of $556 million. Its consolidated development portfolio was 61.8% leased, had $3.7 billion of expected total investment and $1.7 billion of estimated remaining spend. Management said all projects previously suspended due to COVID-19 had restarted and expected development activity to accelerate in 2021.
- The company issued $2.0 billion of senior notes and redeemed $1.5 billion during the quarter, extending weighted-average debt maturity and lowering the reported weighted-average effective interest rate. Debt-refinancing activity generated the significant early-extinguishment loss.
Outlook, risks and contingencies
Management said operating results remained strong in the COVID-19 environment and expected portfolio conditions to strengthen during 2021, citing leasing activity, rent collections and customer discussions. It highlighted e-commerce growth, demand for supply-chain resilience, and in-place rents estimated to be 13.6% below market as potential drivers of future growth. The filing does not provide a clear numerical full-year earnings or FFO guidance value.
Management stated it did not expect significant COVID-19 impacts but could not fully predict effects amid continuing global uncertainty. Forward-looking risks include economic and political conditions, interest and foreign-exchange movements, competition, acquisitions and development execution, financing availability and credit ratings, co-investment venture risks, international operations, environmental events and COVID-19. The company reported compliance with debt covenants and $281 million of scheduled debt principal payments for the remainder of 2021. It had $341 million of outstanding equity commitments, principally related to a China venture. Prologis reported no guarantees of third-party debt of unconsolidated co-investment ventures. Routine legal proceedings were not expected to have a material adverse effect, and the filing reported no material change to the prior annual report’s risk factors.
In April 2021, after quarter-end, Prologis entered into a new $1.0 billion global revolving credit facility and terminated its $500 million multi-currency term loan. The company also stated that disclosure controls and procedures were effective; the interim financial information was reviewed by KPMG, which reported it was not aware of material modifications needed for GAAP conformity.
Important facts for investors to verify
- Separate recurring operating growth from acquisition effects, property disposition gains and other nonrecurring or volatile items when assessing earnings and FFO.
- Track occupancy, rent change on lease rollover, same-store NOI and the conversion of development projects into stabilized, leased properties.
- Review refinancing costs and debt maturity, currency exposure and the availability of liquidity, including the impact of post-quarter-end financing transactions.
- Monitor COVID-19-related operating conditions, co-investment venture commitments and market conditions that could affect development, leasing, dispositions and capital access.