Prologis, Inc. (PLD) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet figures are as of March 31, 2020. Prologis is a global logistics real estate REIT operating in 19 countries through Real Estate Operations and Strategic Capital. The filing combines Prologis, Inc. and Prologis, L.P.; their consolidated assets and liabilities are substantially the same.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $978.2 million | $772.1 million; up 26.7% |
| Net earnings attributable to common stockholders | $489.4 million; $0.70 per diluted share | $347.0 million; $0.55 per diluted share |
| Operating income before real estate disposition gains | $273.8 million | $188.4 million |
| Segment NOI | Real Estate Operations: $639 million; Strategic Capital: $50 million | $506 million and $36 million, respectively |
| Core FFO attributable to common stockholders/unitholders | $599 million | $474 million |
| Net cash from operating activities | $679.1 million | $494.9 million |
| Cash and cash equivalents | $807.9 million | $1.09 billion at December 31, 2019 |
| Total debt | $15.68 billion; weighted-average effective rate 2.2% | $11.91 billion at December 31, 2019 |
- Investing activities used $2.01 billion, chiefly reflecting the IPT acquisition, development, and property acquisitions. Financing activities provided $1.05 billion; cash declined by $281 million during the quarter.
- Available liquidity was $4.6 billion, including $3.8 billion of credit-facility availability and $808 million of unrestricted cash. Credit-facility availability was $3.83 billion. Prologis reported compliance with all debt covenants.
- Debt weighted-average maturity was 115 months. Management reported no significant debt maturities until 2022 if it extends a $500 million term loan. Ratings were A3 from Moody’s and A− from S&P, both with stable outlook.
- Same-store property NOI attributable to Prologis increased 2.8% on a net-effective basis and 4.6% on a cash basis. Owned-and-managed portfolio occupancy was 95.5%, versus 96.5% at year-end 2019.
Material changes and notable items
- The February 4 Liberty acquisition was completed for approximately $13.0 billion, primarily through $10.0 billion of equity and assumption of debt. It added 519 industrial properties totaling about 99.6 million square feet. The acquisition materially increased assets, debt, shares outstanding, depreciation, and rental revenue.
- Prologis’s co-investment ventures acquired Industrial Property Trust assets in January for approximately $2.0 billion each. Prologis reported its aggregate investment in the acquisitions as $1.6 billion.
- Common diluted EPS rose to $0.70 from $0.55, while common-share net earnings increased to $489 million from $347 million. Results included $194 million of net gains on real estate transactions and $113 million of foreign-currency and derivative gains; they also included $42.8 million of losses on early debt extinguishment.
- Debt increased primarily in connection with Liberty and related financing. Prologis issued debt and used proceeds in part to refinance or repay assumed and existing borrowings; management reported a 2.2% effective rate and a 10-year weighted-average remaining maturity after the quarter’s financing activity.
Outlook, risks, and contingencies
- Management expected market rents to remain flat for the remainder of 2020, but estimated in-place leases were about 15% below market rents, supporting potential rent gains as leases renew. No quantified full-year earnings or FFO guidance is provided in the supplied filing text.
- COVID-19 had not meaningfully affected first-quarter operating fundamentals, according to management, but effects were uncertain. As of April 27, Prologis reported receiving 89% of April rent and expected bad debt to increase during the rest of the year. Some customer rent deferrals were granted; the filing gives inconsistent totals: $8.6 million in Note 1 and $19 million for 405 customers in the MD&A. Verify the correct figure and scope.
- Some construction was delayed by government restrictions, and several recently started speculative projects with $311 million of total expected investment were suspended short term. Management said it would continue build-to-suit development and restart speculative projects as market conditions warrant.
- Management cited risks from economic disruption, customer ability to pay or lease, construction and leasing delays, workforce constraints, capital-market access, foreign exchange, and real estate transaction conditions. It stated that the ultimate impact of the pandemic could not be predicted.
- Two putative class actions related to Liberty’s transaction disclosures sought, among other relief, rescission or damages. Prologis considered the claims without merit and intended to defend them. The filing also reports $366.7 million of remaining Prologis equity commitments to unconsolidated ventures.
- Prologis authorized a $1.0 billion share repurchase program and repurchased $34.8 million of shares in the quarter. KPMG reviewed the interim financial statements; its review was not an audit.
Investor verification priorities
- Reconcile the COVID-19 rent-deferral amounts of $8.6 million and $19 million reported in different sections, including their dates and definitions.
- Assess the contribution of Liberty, IPT, disposition gains, and foreign-currency gains to reported growth versus recurring rental and same-store NOI performance.
- Verify post-quarter rent collection, delinquency, bad-debt, occupancy, and leasing trends as pandemic impacts developed.
- Review the debt and liquidity implications of acquisitions, upcoming maturities, extension assumptions, and future development spending.
- Monitor suspended projects, planned dispositions and contributions, Liberty-related litigation, and the use of the share-repurchase authorization.