Prologis, Inc. and Prologis, L.P. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Prologis is a global logistics real estate owner, developer and manager operating in 19 countries. Its two segments are Real Estate and Strategic Capital. The filing combines the Parent and Operating Partnership; their assets and liabilities are substantially the same.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1.915 billion | $1.751 billion | $6.134 billion | $4.222 billion |
| Operating income | $882 million | $915 million | $2.873 billion | $2.654 billion |
| Net earnings attributable to common stockholders | $746 million | $1.014 billion | $2.424 billion | $2.773 billion |
| Diluted earnings per share | $0.80 | $1.36 | $2.61 | $3.72 |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $4.299 billion | $2.849 billion |
- Q3 rental revenue was $1.777 billion versus $1.152 billion; nine-month rental revenue was $5.063 billion versus $3.322 billion. Growth reflects the Duke Realty acquisition completed in October 2022 and portfolio growth.
- Q3 strategic capital revenue was $137 million, down from $595 million, primarily because prior-year revenue included substantial promote revenue. Nine-month strategic capital revenue rose to $1.071 billion from $885 million, including $674 million of promote revenue, mainly from USLF.
- Q3 interest expense increased to $181 million from $64 million. Nine-month net interest expense was $467 million versus $188 million, reflecting new debt, higher facility rates and debt assumed in the Duke transaction.
- Q3 same-store property NOI increased 9.3% on a net-effective basis and 9.5% on a cash basis. Owned-and-managed portfolio occupancy was 97.5% at September 30, down from 98.2% at December 31, 2022; rent change on leases commenced in the first nine months was 77.2% on a net-effective basis.
- Core FFO for the first nine months was $4.132 billion, up from $3.010 billion; modified FFO was $4.375 billion versus $3.368 billion. These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
Balance sheet, liquidity and cash flow
- Total assets were $91.949 billion at September 30, 2023, versus $87.897 billion at December 31, 2022. Debt was $27.578 billion, up from $23.876 billion; total equity was $58.261 billion.
- Cash and cash equivalents were $741 million. Available credit capacity was $6.120 billion, for total liquidity of $6.861 billion.
- For the nine months, operating cash flow of $4.299 billion was below investing cash outflow of $5.212 billion. Financing provided $1.404 billion, and cash increased by $462 million to $741 million.
- Debt had a 2.9% weighted-average interest rate and 9.8-year weighted-average remaining maturity, compared with 2.5% and 9.2 years at year-end 2022. The company issued approximately $5.36 billion of senior notes during the period, at a weighted-average issuance rate of 4.7%. It reported compliance with all financial debt covenants.
- Scheduled principal maturities were $2 million for the remainder of 2023 and $514 million in 2024. Management expects to meet these from operating cash, dispositions or additional borrowing as needed.
Material developments, outlook and risks
- The October 2022 Duke transaction materially expanded the portfolio, including 494 industrial properties totaling 144.4 million square feet. In June 2023, Prologis acquired 70 U.S. operating properties totaling 13.8 million square feet for $3.1 billion.
- Management cited continued market rent growth, low vacancy, supply-chain resilience and e-commerce as long-term demand drivers. It estimated a 62% lease mark-to-market and expects development activity to increase in Q4 2023; the filing does not provide a specific earnings or revenue forecast.
- At quarter-end, the consolidated development portfolio had $6.9 billion of total expected investment, was 41.0% leased, and had $2.5 billion of estimated remaining spend. Nine-month development starts were lower than in 2022: $1.335 billion of expected investment versus $3.838 billion.
- Outstanding commitments to fund unconsolidated ventures were $894 million for Prologis; total commitments including venture partners were $3.261 billion. These commitments primarily support future development and acquisitions.
- Key risks identified include economic and political conditions, interest and foreign-exchange rate changes, financing access and credit ratings, competition, acquisition and development execution, co-investment venture risks, international operations, environmental events and REIT qualification. Management reported no material change to the risk factors in its 2022 Form 10-K.
- Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect. KPMG conducted interim reviews, not audits, and reported no material modifications needed for GAAP conformity. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- How much of rental growth and reported revenue reflects ongoing same-property performance versus acquisitions, especially Duke.
- The durability and timing of promote revenue, which materially fluctuates and supported nine-month Strategic Capital results.
- Whether occupancy, rent mark-to-market and lease rollover gains persist amid changing logistics demand and interest-rate conditions.
- Funding needs for the development pipeline and venture commitments, alongside elevated debt and higher borrowing costs.
- The full-year outlook and any updated guidance, which are not clearly quantified in this filing.