Prologis, Inc. and Prologis, L.P. — FY 2020 Form 10-K
Period: Year ended December 31, 2020; the filing also reports fourth-quarter results. Prologis is a global logistics real estate REIT operating in 19 countries. The combined filing reports the Parent and Operating Partnership as one enterprise; their consolidated assets and liabilities are the same.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $4.44 billion | $3.33 billion |
| Operating income | $2.12 billion | $1.85 billion |
| Net earnings attributable to common stockholders | $1.47 billion | $1.57 billion |
| Diluted earnings per share | $2.01 | $2.46 |
| Net cash from operating activities | $2.94 billion | $2.26 billion |
| Net cash used in investing activities | $3.07 billion | $0.69 billion |
| Net cash used in financing activities | $0.37 billion | $0.84 billion |
| Debt at year-end | $16.85 billion | $11.91 billion |
- Revenue growth reflected acquisitions, including Liberty and IPT, as well as higher strategic capital revenue. Rental revenue rose to $3.79 billion from $2.83 billion; strategic capital revenue rose to $637 million from $492 million.
- Real Estate Operations NOI was $2.82 billion, up from $2.09 billion; Strategic Capital NOI was $419 million, up from $307 million. These are non-GAAP measures.
- Net earnings declined despite higher revenue and operating income, with increased depreciation, interest expense, foreign currency and derivative losses, and $188 million of debt-extinguishment losses weighing on results. Prologis reported Core FFO of $2.86 billion, versus $2.16 billion in 2019; this is a non-GAAP measure.
- At year-end, cash was $598 million and reported available liquidity was approximately $4.8 billion. The weighted-average interest rate on consolidated debt was 1.9%, and weighted-average debt maturity was 10.2 years. Scheduled 2021 principal payments were $376 million.
- The owned-and-managed portfolio totaled 857 million square feet and was 96.2% occupied, compared with 735 million square feet and 96.5% occupancy in 2019. Same-store property NOI increased 3.5% on a net-effective basis and 3.0% on a cash basis in Q4 year over year.
Material changes and unusual items
- Prologis completed the approximately $13 billion Liberty acquisition in February 2020, issuing equity and assuming debt; it also acquired IPT assets through two U.S. co-investment ventures for approximately $4 billion in total. The company reported that the acquired portfolios were integrated with limited incremental overhead.
- The acquisitions materially expanded the balance sheet and contributed to higher debt and depreciation. Prologis issued $6.2 billion of senior notes and redeemed $3.0 billion, extending maturities and reducing its weighted-average effective interest rate.
- Prologis generated $3.0 billion of net proceeds and $717 million of net gains from contributions and dispositions. It also recognized $241 million of promotes, primarily from a U.S. venture.
- Foreign currency and derivative losses were $167 million, versus $42 million in 2019. Cash dividends on common stock were $2.32 per share for 2020, up from $2.12.
- For Q4 2020, total revenue was $1.11 billion and net earnings attributable to common stockholders were $280 million, or $0.38 per diluted share. Q4 2019 figures were $826 million, $385 million, and $0.61, respectively.
Outlook, risks, and contingencies
- Management said operating conditions and its outlook were improving into early 2021, expected market rents to continue increasing, and anticipated development activity to accelerate. It did not provide a numerical earnings or FFO forecast in the supplied filing text.
- Leases were estimated to be 13% below market at year-end, and 2020 rent change on rollover was 21.3% for the owned-and-managed portfolio. Management cited e-commerce growth, supply-chain resilience needs, and portfolio location and quality as demand supports.
- COVID-19 had limited reported operating impact in 2020, but management could not predict its future effects. The company deferred $45 million of rental payments on an owned-and-managed basis; it reported collecting 98% of amounts due at December 31 by January 25, 2021.
- Key risks include pandemic-related disruption, customer defaults or weaker leasing conditions, economic and market concentration (including California), foreign-exchange exposure, natural disasters and insurance limitations, development and acquisition execution, co-investment venture risks, refinancing and interest-rate exposure, and maintaining REIT status.
- Prologis reported $4.9 billion of remaining equity commitments to co-investment ventures, including $346 million attributable to Prologis and $4.6 billion to venture partners. Venture debt of $11.8 billion was non-recourse to Prologis, and the company reported no guarantees of that debt.
- Management and KPMG reported effective internal control over financial reporting for Prologis, Inc.; KPMG issued unqualified opinions on the consolidated financial statements. The filing says current legal proceedings are not expected to have a material adverse effect.
Important facts for investors to verify
- Separate acquisition-driven growth from same-store growth, and assess the ongoing contribution and integration costs of Liberty and IPT.
- Review the reconciliation and recurring quality of Core FFO, promotes, disposition gains, and other non-GAAP measures.
- Check rent collections, occupancy, lease rollover, concessions, and customer exposure as pandemic effects evolve.
- Assess debt maturities, refinancing needs, liquidity, interest-rate and currency hedging, and the financial commitments of co-investment ventures.
- Confirm the scale and timing of the development pipeline, expected investment requirements, leasing progress, and management’s 2021 outlook against subsequent disclosures.