Prologis, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are with December 31, 2018. Prologis is a global logistics real estate REIT operating in 19 countries. The filing combines Prologis, Inc. and Prologis, L.P.; the parent owns 96.99% of the operating partnership.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Total revenue | $772 million | $694 million |
| Rental revenue | $697 million | $556 million |
| Strategic capital revenue | $74 million | $133 million |
| Operating income | $377 million | $432 million |
| Net earnings attributable to common stockholders | $347 million | $366 million |
| Diluted earnings per share | $0.55 | $0.68 |
| Net cash from operating activities | $495 million | $349 million |
| Core FFO | $474 million | $443 million |
| Debt | $10.7 billion | $11.1 billion |
| Cash and cash equivalents | $251 million | $344 million |
| Total assets / total equity | $38.4 billion / $25.8 billion | $38.4 billion / $25.8 billion |
Amounts are rounded. FFO and Core FFO are non-GAAP measures. Q1 cash used in financing was $749 million; investing activities provided $160 million. Prologis paid a $0.53-per-share common dividend.
Material changes and operating performance
- Revenue increased 11%, led by rental revenue, which rose 25%. Real Estate Operations NOI increased to $506 million from $415 million, reflecting acquisition activity, including DCT, and rent growth.
- Strategic Capital NOI declined to $36 million from $89 million. Q1 2018 included $63 million of promote revenue; none was recorded in Q1 2019. Recurring strategic capital fees rose to $62 million from $55 million.
- Operating income and common earnings declined despite higher revenue. Real estate transaction gains were $188 million versus $195 million; Q1 2019 included a $135 million gain on partial redemption of the investment in Prologis European Logistics Fund (PELF). Common diluted EPS also reflects a larger weighted-average share count following the 2018 DCT acquisition.
- Same-store portfolio NOI increased 3.2% on a net-effective basis and 4.8% on a cash basis. Owned-and-managed portfolio occupancy was 96.8%, versus 97.5% at December 31, 2018.
- Depreciation and amortization rose to $284 million from $204 million, primarily reflecting acquired properties and related intangibles. Net interest expense increased to $61 million from $47 million.
- At March 31, net real estate investments were $36.0 billion and assets held for sale or contribution were $900 million. Lease liabilities of $392 million were recognized following adoption of the new lease standard.
Liquidity, debt and capital
- Debt had a 2.6% weighted-average effective interest rate and a 79-month weighted-average maturity. Prologis reported $3.9 billion of available borrowing capacity under its credit facilities and $251 million of unrestricted cash.
- Debt maturities included $253 million for the remainder of 2019 and $1.15 billion in 2020. Management expects near-term maturities to be funded through operating cash, property dispositions or credit facilities. The company reported compliance with all financial debt covenants.
- Q1 financing included a $3.5 billion global credit facility, new yen term loans and a ¥10 billion senior-note placement due 2039. Prologis repaid its ¥100 billion 2016 yen term loan, primarily using proceeds from a new yen term loan.
- Development portfolio: 99 properties were 47.9% leased, with $2.0 billion invested and an estimated $1.2 billion of additional investment required to complete and lease them. Remaining company equity commitments to ventures were $283 million.
Outlook, commentary and risks
- Management said operating fundamentals remained strong and expected market rents to continue growing. It estimated in-place leases were more than 15% below current market rents and expected positive rent change on rollover to continue for several years.
- Management cited development, acquisitions, dispositions and venture contributions as tools for portfolio growth and capital recycling. No specific full-year earnings or FFO guidance is provided in the supplied filing text.
- Key disclosed risks include economic and political conditions, interest and foreign-exchange movements, competition, acquisition and development execution, access to capital and credit ratings, REIT qualification, venture investments, international operations, and environmental events. A hypothetical 10% weakening of the U.S. dollar against relevant currencies would result in a $69 million cash payment on settlement of certain forward contracts; management reported minimal net non-U.S.-dollar equity exposure after hedging.
- Ordinary-course legal proceedings were not expected to have a material adverse effect. The filing reported no material change to the 2018 Form 10-K risk factors. Interim financial statements received an independent accountant’s review, not an audit; the reviewers reported no material modifications needed for GAAP conformity.
Important facts for investors to verify
- How much of rental and NOI growth reflects same-store performance versus DCT acquisition effects and portfolio changes.
- The drivers and repeatability of the $135 million PELF redemption gain, and the absence of promote revenue compared with Q1 2018.
- Development leasing progress, remaining capital needs, and occupancy and rent trends in the owned-and-managed portfolio.
- Debt refinancing and maturity plans, foreign-currency exposure, and the effect of future interest-rate changes.
- Whether the company’s expected rent growth, leasing spreads and access to venture capital persist; these are forward-looking expectations, not guarantees.