Prologis, Inc. and Prologis, L.P. — Q2 2022 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2022. Prologis owns, develops and manages logistics real estate in 19 countries, with Real Estate Operations and Strategic Capital segments. Prologis, Inc. is the REIT parent and controls Prologis, L.P.; the filing presents them as one enterprise. Financial amounts below are in U.S. dollars.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $1,252 million | $1,151 million | $2,471 million | $2,299 million |
| Operating income before real estate gains | $428 million | $386 million | $838 million | $728 million |
| Operating income | $533 million | $701 million | $1,739 million | $1,233 million |
| Net earnings attributable to common stockholders | $610 million | $599 million | $1,759 million | $964 million |
| Diluted earnings per share | $0.82 | $0.81 | $2.36 | $1.30 |
- Q2 revenue increased about 9% year over year. Rental revenue rose to $1,093 million from $1,015 million; strategic capital revenue rose to $156 million from $129 million.
- Q2 operating income was lower year over year because real estate disposition gains were lower: $106 million from development properties and land, with no gains on other dispositions, versus $187 million and $127 million, respectively, in Q2 2021. Pre-gain operating income increased.
- First-half net earnings benefited from $585 million of gains on other real estate dispositions, compared with $144 million in 2021. Foreign currency and derivative gains were $186 million versus $74 million. These items make GAAP earnings less indicative of recurring operations.
- First-half segment NOI was $1,614 million for Real Estate Operations, up from $1,516 million, and $181 million for Strategic Capital, up from $155 million. Same-store property NOI attributable to Prologis grew 7.6% on a net-effective basis and 8.2% on a cash basis in Q2.
- First-half operating cash flow was $1,645 million, versus $1,466 million. Investing cash use increased to $1,959 million from $516 million, reflecting higher development and acquisition outlays. Financing provided $229 million, compared with $915 million used in the prior-year period. Cash declined by $119 million to $438 million.
- At June 30, total assets were $59.8 billion, debt was $18.0 billion and equity was $38.9 billion. Debt was $17.7 billion at year-end 2021. The weighted-average debt rate was 1.6%, with a 10.1-year weighted-average remaining term.
- Available liquidity was $5.2 billion: $4.7 billion of credit facility availability and $438 million of cash. Prologis reported compliance with all financial debt covenants.
- O&M portfolio occupancy was 97.7% across 920 million square feet. Management reported an estimated 56% net effective lease mark-to-market and about 179 million square feet of leases commenced over the trailing 12 months.
Material changes, outlook and risks
- Duke Realty transaction: Prologis agreed in June 2022 to acquire Duke Realty in a stock-for-stock transaction, estimated at approximately $25.5 billion including assumed debt. The transaction was subject to shareholder approvals and other closing conditions and was expected to close in Q4 2022.
- Capital deployment: First-half real estate development spending was $1,462 million and acquisitions were $1,869 million, both higher than in the comparable 2021 period. Development starts had total expected investment of $2,728 million; the development portfolio was 49% leased, with $2.7 billion estimated remaining to spend.
- Management outlook: Management described customer demand as robust, cited limited downtime and expected market-rent growth and profitable deployment activity to support results for the remainder of 2022. The filing provides no clear numeric full-year earnings or FFO guidance in the supplied text.
- Liquidity and commitments: Management expected operating cash flow, venture distributions, property contributions and dispositions, cash, and borrowing capacity to meet anticipated needs. Scheduled principal payments were $325 million for the remainder of 2022 and $319 million in 2023. Prologis had $290 million of outstanding equity commitments to ventures, principally in China.
- Risks and contingencies: Management highlighted macroeconomic uncertainty, interest rates, foreign exchange, financing availability and credit ratings, competition, development and acquisition execution, international operations, co-investment venture risks, REIT status, environmental and natural-disaster risks, and COVID-19. It reported no material change to the risk factors in its 2021 Form 10-K. Ordinary-course legal matters were not expected to have a material adverse effect.
- Other notable items: Prologis recast and expanded its global credit facilities, including replacing U.S. dollar LIBOR with SOFR. It announced a commitment to net-zero value-chain emissions by 2040, with interim targets. The interim financial statements received an independent accountant’s review, not an audit.
Important facts for investors to verify
- Whether the Duke Realty merger closed on expected terms and how the transaction affected debt, leverage and share count.
- Whether high occupancy, lease renewal spreads and the stated 56% mark-to-market translated into sustained rental and same-store NOI growth.
- Development leasing, completion costs and remaining funding needs, particularly against the $2.7 billion estimated spend still required.
- Recurring operating performance apart from property disposition gains, foreign currency and derivative movements, and other nonrecurring items; review the company’s FFO and Core FFO reconciliations alongside GAAP results.
- Debt refinancing needs, interest-rate and currency exposures, credit facility availability, and the ability to maintain covenant compliance as investment and acquisition activity expands.