Prologis, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY2022. Prologis is a global logistics real estate REIT operating through Prologis, L.P. Its two segments are Real Estate (rental operations and development) and Strategic Capital (management of co-investment ventures). The filing combines both registrants’ reports.
Financial and operating performance
| Metric | FY2023 / year-end 2023 | FY2022 / year-end 2022 |
|---|---|---|
| Total revenue | $8.02 billion | $5.97 billion |
| Real Estate Segment NOI | $5.15 billion | $3.69 billion |
| Strategic Capital Segment NOI | $815 million | $736 million |
| Operating income | $3.71 billion | $3.47 billion |
| Net earnings attributable to common stockholders | $3.05 billion; diluted EPS $3.29 | $3.36 billion; diluted EPS $4.25 |
| FFO, as modified by Prologis (non-GAAP) | $5.76 billion | $4.74 billion |
| Core FFO (non-GAAP) | $5.33 billion | $4.19 billion |
| Net cash provided by operating activities | $5.37 billion | $4.13 billion |
| Net cash used in investing activities | $6.42 billion | $4.50 billion |
| Net cash provided by financing activities | $1.32 billion | $116 million |
| Consolidated debt | $29.00 billion; 3.0% weighted-average rate and 9-year average remaining maturity | $23.88 billion; 2.5% rate and 9-year maturity |
| Available liquidity | $6.0 billion, including $5.5 billion of facility availability and $530 million cash | $4.1 billion |
Revenue and Real Estate NOI rose substantially, reflecting the full-year contribution of the 2022 Duke acquisition, the 2023 acquisition, and rental growth. Earnings attributable to common stockholders and diluted EPS declined despite higher operating income; 2023 also had higher interest expense and lower gains on real estate dispositions than 2022. Core FFO increased 27% year over year, while modified FFO increased 21%.
The owned-and-managed portfolio totaled 1.14 billion square feet and was 97.6% occupied at year-end, versus 1.08 billion square feet and 98.2% occupancy in 2022. Rent change on leases commenced during 2023 was 76.4% on a net-effective basis. Fourth-quarter same-store NOI increased 7.8% net-effective and 8.5% cash basis year over year. The filing’s segment NOI and same-store measures are non-GAAP measures.
Material changes and notable items
- On June 29, 2023, Prologis acquired 70 U.S. operating properties totaling about 14 million square feet for $3.1 billion.
- Prologis generated $2.1 billion of net proceeds and recognized $623 million of net gains, principally from property contributions to co-investment ventures and third-party sales.
- Strategic Capital revenue included $675 million of promote revenue, primarily earned from U.S. investors in the second quarter. Management reported no significant promote opportunities for 2024.
- Interest expense increased to $641 million from $309 million. Prologis issued $5.4 billion of senior notes during 2023 at a 4.7% weighted-average issuance rate.
- At year-end, the development portfolio had $7.8 billion of total expected investment, was 37.9% leased, and required an estimated $3.4 billion of additional investment. Development starts declined to 55 buildings and 13 million square feet from 91 buildings and 31 million square feet in 2022.
- Common dividends paid were $3.48 per share in 2023, up from $3.16 in 2022. The Board determines future dividends based on conditions at the time; the filing does not provide a specific dividend forecast.
Outlook, risks and contingencies
Management expects long-term organic growth from lease rollovers and continued market rent growth, citing an estimated 57% lease mark-to-market at year-end. It also cites development capacity from its land bank and expects to fund investment needs through property operations, venture distributions, contributions and sales, and financing. The filing provides no quantified 2024 earnings or FFO guidance. Subsequent to year-end, the company issued senior notes in January and February 2024.
Key risks include economic weakness, elevated interest rates and refinancing costs; logistics-space supply or demand changes; customer defaults or less favorable lease renewals; construction cost, permitting and development risks; real estate valuation and impairment assumptions; foreign exchange and geopolitical exposure; geographic concentration, particularly California; co-investment partner and venture risks; climate events, insurance limits, and cybersecurity threats. Prologis reported compliance with its debt covenants and A/A3 credit ratings with stable outlooks at year-end. It reported no legal proceedings expected to have a material adverse effect and no known environmental liabilities expected to be material. Off-balance-sheet performance and similar arrangements totaled $499 million at year-end.
KPMG issued unqualified opinions on the financial statements and, for Prologis, Inc., internal control over financial reporting. The auditor identified assessment of the expected holding period for operating properties as a critical audit matter because a shortened holding period can trigger impairment testing.
Investor verification priorities
- Separate recurring leasing and property performance from acquisition effects, disposition gains, and the $675 million of promote revenue; review the reconciliation of GAAP earnings to Core FFO and modified FFO.
- Validate the durability of rent growth and the 57% lease mark-to-market against renewal activity, occupancy trends, and local market conditions.
- Assess the development pipeline’s leasing, completion timing, remaining $3.4 billion funding need, and sensitivity to construction costs and property valuations.
- Review debt maturities, refinancing costs, variable-rate exposure, liquidity, and the effects of the 2023 debt issuance on interest expense.
- Evaluate California and other market concentrations, customer exposure, co-investment venture debt and commitments, and the potential effects of foreign exchange, climate and insurance risks.