Prologis, Inc. and Prologis, L.P. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also reports fourth-quarter results; the Duke Realty acquisition closed October 3, 2022, so fourth-quarter results include Duke only after closing. Prologis is a global logistics real estate REIT operating in 19 countries, with Real Estate and Strategic Capital segments.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $5.974 billion | $4.759 billion |
| Net earnings attributable to common stockholders | $3.359 billion; $4.28 per diluted share | $2.934 billion; $3.94 per diluted share |
| Real Estate segment NOI | $3.688 billion | $3.105 billion |
| Strategic Capital segment NOI | $736 million | $384 million |
| Core FFO attributable to common stockholders/unitholders | $4.188 billion | $3.172 billion |
| Cash provided by operating activities | $4.126 billion | $2.996 billion |
| Cash used in investing activities | $4.499 billion | $1.990 billion |
| Consolidated debt at year-end | $23.876 billion; 2.5% weighted-average rate | $17.715 billion; 1.6% weighted-average rate |
- Fourth-quarter total revenue was $1.752 billion and net earnings attributable to common stockholders were $586 million, or $0.63 per diluted share.
- Same-store property NOI for Prologis’s share rose 7.7% on a net-effective basis and 9.1% on a cash basis in the fourth quarter year over year. Owned-and-managed occupancy was 98.2% at year-end, versus 97.7% a year earlier.
- Leases commenced in 2022 generated 48.0% net-effective rent change on rollover, based on Prologis’s ownership share. Management estimated the lease mark-to-market at approximately 67% at year-end.
- Year-end liquidity was $4.1 billion: $3.9 billion of available credit-facility capacity and $278 million of unrestricted cash. Debt had a 9.2-year weighted-average remaining maturity; $3.3 billion was variable-rate.
Material changes and unusual items
- Duke Realty acquisition: Acquired for $23.2 billion through $18.8 billion of equity consideration, assumed debt and transaction costs. The portfolio included 494 industrial operating properties totaling approximately 144 million square feet. Prologis assumed $4.2 billion of debt and later repaid Duke’s $745 million credit-line balance.
- Consolidated assets increased to $87.9 billion from $58.5 billion, and debt increased to $23.9 billion from $17.7 billion, reflecting the acquisition and other activity. Common shares outstanding rose to 923.1 million from 739.8 million.
- Revenue and segment NOI growth reflected the Duke acquisition, rent growth and other portfolio changes. Strategic Capital revenue included $505 million of promote revenue, principally from PELF; $386 million remained after related Strategic Capital expenses.
- Real estate disposition gains were $1.187 billion in 2022, down from $1.590 billion in 2021. Core FFO excludes specified items, including gains on development-property and land dispositions; it is a non-GAAP measure and should be considered alongside GAAP earnings.
- Net interest expense increased to $309 million from $266 million. The company recorded $20 million of early debt-extinguishment losses, versus $187 million in 2021. Foreign-currency and derivative gains were $242 million, compared with $165 million in 2021.
Outlook, risks and contingencies
- Management expected some decline in asset valuations in 2023 and said it would be cautious on capital deployment, emphasizing build-to-suit developments and pausing contributions into open-ended funds in the near term. No numerical 2023 earnings or FFO guidance is stated in the provided filing text.
- Management cited inflation, sharply rising interest rates, capital-market headwinds, and the war and energy crisis in Europe as pressures on the global economy. It nevertheless expected organic revenue growth supported by high occupancy and the rent gap between in-place and market rents.
- The development portfolio had $7.5 billion of total expected investment, was 45.2% leased, and required an estimated additional $3.3 billion to complete. Approximately 72% was expected to be completed before year-end 2023; timing and costs remain subject to market and construction conditions.
- Key risks include logistics-sector and regional downturns, tenant defaults or weaker renewal terms, falling property values, higher financing costs and refinancing risk, foreign-exchange exposure, development and acquisition execution, and limits on insurance coverage. California represented 33.0% of consolidated operating-property NOI.
- Unconsolidated co-investment ventures had $13.5 billion of third-party debt, generally non-recourse to Prologis; Prologis reported no guarantees of that debt. The company was in compliance with its financial debt covenants at year-end.
- Environmental liabilities were recorded, but management reported no known environmental matter expected to have a material adverse effect. Ordinary-course litigation was not expected to be material. KPMG issued unqualified opinions on the financial statements and, for Prologis, Inc., internal control over financial reporting.
Investor verification checklist
- Separate recurring rental and same-store growth from Duke’s partial-year contribution, promote revenue, foreign-currency gains and real estate disposition gains.
- Review Duke’s purchase-price allocation and acquired lease intangibles, including the assumptions for market rents and capitalization rates identified as a critical audit matter.
- Assess debt maturity and interest-rate exposure, liquidity availability, refinancing needs and the effect of higher rates on variable-rate borrowings and property valuations.
- Track occupancy, rent change on rollover, lease expirations and customer concentration; Amazon represented 7.0% of consolidated net effective rent.
- Monitor development leasing, remaining project spending, asset-value changes and management’s planned pause in open-ended-fund contributions.
- Compare GAAP earnings with Core FFO and operating cash flow, noting that FFO is non-GAAP and does not capture all capital and replacement costs.