Prologis, Inc. and Prologis, L.P. — Q3 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2021. Prologis is a REIT focused on owning, developing and managing logistics facilities in 19 countries. It reports Real Estate Operations and Strategic Capital; the parent and operating partnership are managed as one enterprise.
Financial performance and position
- Third quarter: Revenue was $1.183 billion, up 9% year over year. Net earnings attributable to common stockholders were $722 million, or $0.98 per basic share ($0.97 diluted), versus $299 million, or $0.40 per basic and diluted share, in Q3 2020.
- Nine months: Revenue was $3.482 billion, up 5%; common-stockholder net earnings were $1.686 billion, or $2.28 basic per share ($2.27 diluted), versus $1.193 billion, or $1.65 basic ($1.63 diluted), in 2020. Core FFO was $2.312 billion, up from $2.141 billion; FFO as modified by Prologis was $2.589 billion, up from $2.352 billion.
- Operating trends: Nine-month Real Estate Operations NOI rose to $2.297 billion from $2.080 billion. Strategic Capital NOI fell to $244 million from $342 million, primarily reflecting lower promote revenue. Q3 same-store property NOI increased 6.2% on a net-effective basis and 6.7% on a cash basis. The owned-and-managed portfolio was 97.1% occupied, versus 96.2% at year-end 2020; management estimated in-place rents were 21.9% below market.
- Cash flow: Nine-month operating cash flow was $2.280 billion, compared with $2.333 billion. Investing cash use was $897 million, versus $2.580 billion; financing cash use was $1.359 billion, versus $94 million of cash provided. Cash declined $13 million to $585 million.
- Debt and liquidity: Debt was $17.136 billion, compared with $16.849 billion at December 31, 2020. Weighted-average effective interest rate was 1.6%, and weighted-average remaining maturity was about 11 years. Available liquidity was $5.461 billion, including $4.876 billion of credit-facility availability and $585 million cash. The company reported compliance with all debt covenants.
Material changes and unusual items
- Q3 operating income included $139 million of gains on development-property and land dispositions and $214 million of gains on other real-estate dispositions. For the nine months, those gains were $500 million and $358 million, respectively.
- Q3 foreign-currency and derivative results swung to a $64 million gain from a $101 million loss in the prior-year quarter. The nine-month result was a $138 million gain versus a $48 million loss.
- Nine-month results included $187 million of losses on early debt extinguishment, versus $165 million in 2020. No such loss was recorded in Q3 2021; Q3 2020 included $98 million.
- Development activity accelerated: 57 projects totaling $2.576 billion of total expected investment began in the first nine months, versus 15 projects and $708 million in 2020. The development portfolio was 58.8% leased, with $2.0 billion estimated remaining investment.
Outlook, commentary and risks
Management described demand for logistics space as robust, citing e-commerce growth and supply-chain resilience needs. It expected market-rent and asset-value growth, leasing and profitable deployment activity to support results for the remainder of 2021, but provided no specific numerical earnings or revenue guidance in the supplied filing text. Management cautioned that COVID-19 uncertainty remained and that actual results could differ from forward-looking statements. Other disclosed risks include economic and political conditions, interest and foreign-exchange rates, competition, acquisition and development execution, financing access, co-investment ventures, REIT qualification, international operations and environmental events.
Management said it expected to fund development, acquisitions, debt service and distributions through operating cash flow, venture distributions, property contributions and dispositions, cash and borrowing capacity. The board retains discretion over future dividends. The filing reported no material change to previously disclosed risk factors and no legal proceedings expected to have a material adverse effect. KPMG reviewed the interim statements; this was a review, not an audit.
Important facts for investors to verify
- How much reported earnings growth reflects recurring property operations versus disposition gains and foreign-currency movements; compare GAAP earnings with Core FFO and cash flow.
- Whether rent rollovers convert the stated 21.9% in-place-to-market rent gap into sustained same-store growth while occupancy remains high.
- Development leasing, completion costs and remaining funding needs, particularly given the $2.0 billion estimated spend remaining.
- Debt maturities, refinancing costs, foreign-currency exposure and the availability of credit facilities and venture capital.
- Strategic Capital fee and promote trends, and the effect of venture-level debt and equity commitments on future cash flows.