Prologis, Inc. and Prologis, L.P. — Q1 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2022, with comparisons to Q1 2021. Prologis is a global logistics real estate owner, developer and manager operating in 19 countries. Its two segments are Real Estate Operations and Strategic Capital. The Parent and Operating Partnership are managed as one enterprise; figures below are consolidated unless noted.
Key financial results
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $1.219 billion | $1.148 billion; up 6.2% |
| Net earnings attributable to common stockholders | $1.149 billion; $1.55 basic EPS and $1.54 diluted EPS | $366 million; $0.50 basic EPS and $0.49 diluted EPS |
| Operating income before real estate disposition gains | $411 million | $342 million |
| Core FFO, a non-GAAP measure | $834 million | $742 million |
| Net cash from operating activities | $842 million | $817 million |
| Net cash from investing activities | $283 million provided | $107 million used |
| Cash and cash equivalents | $1.913 billion at quarter-end | $556 million at December 31, 2021 |
| Total debt | $18.369 billion; 1.5% weighted average effective rate and 10.4-year weighted average term | $17.715 billion at December 31, 2021 |
| Total available liquidity | $6.763 billion, including $4.850 billion of facility availability | — |
Reported earnings rose sharply, principally because gains on real estate dispositions increased to $795 million ($210 million on development properties and land, plus $585 million on other real estate dispositions), from $190 million in Q1 2021. These gains are not equivalent to recurring operating earnings. Core FFO increased about 12%; it is a company-defined non-GAAP measure and should be considered alongside GAAP results.
Segment net operating income (NOI) was $882 million, up from $818 million. Real Estate Operations NOI was $800 million versus $747 million; Strategic Capital NOI was $82 million versus $71 million. Prologis-share same-store property NOI increased 7.1% on a net-effective basis and 8.7% on a cash basis.
Operations and changes versus prior period
- Total owned-and-managed portfolio occupancy was 97.4% at March 31, 2022, versus 97.7% at year-end; consolidated portfolio occupancy was 97.7% versus 98.2%.
- Approximately 49 million square feet of leases commenced in Q1. Management estimated net effective lease mark-to-market at approximately 47%, indicating a substantial gap between in-place and market rents.
- Development starts increased to 31 buildings totaling about 7 million square feet and $1.041 billion of total expected investment, versus 13 buildings, 5 million square feet and $556 million a year earlier. The development portfolio had $5.5 billion of expected investment at completion, was 51.2% leased, and had $2.2 billion of estimated remaining spend.
- Real estate disposition and contribution proceeds were $1.707 billion, compared with $793 million in Q1 2021. The company said proceeds were used primarily to fund development activity.
- Debt increased by about $653 million from year-end. Prologis issued approximately $1.849 billion of senior notes at a weighted average issuance rate of 1.1%; cash flows also included debt repayments and credit facility payments.
- The quarterly common dividend was $0.79 per share, compared with $0.63 in Q1 2021.
Outlook, risks and other notable items
- Management described demand for logistics space as robust and expected further rent growth, higher asset valuations and profitable investment deployment during 2022. No specific full-year financial guidance figures are provided in the supplied filing text.
- Management cited e-commerce, supply-chain repositioning and inventory rebuilding as demand drivers. It reported no business impact to date from the war in Ukraine, while saying it continued to monitor the conflict and other global events.
- Management noted that construction costs had continued rising into Q1 2022, although procurement capabilities had helped limit the effect; it said development margins remained high.
- Debt covenants were reported in compliance. Scheduled principal payments were $792 million for the remainder of 2022 and $165 million in 2023. The company stated that near-term maturities are expected to be funded with operating cash, dispositions or additional borrowings as needed.
- Foreign currency and interest-rate movements remain risks. A 10% weakening of the U.S. dollar against relevant currencies could result in a $187 million cash payment on settlement of outstanding foreign-exchange contracts. Management estimated a 10% increase in rates on average variable-rate debt would add about $1 million of annual interest expense.
- Outstanding Prologis equity commitments to unconsolidated ventures were $319 million, principally for the China Logistics Venture. Unconsolidated ventures also had $12.0 billion of third-party debt; Prologis reported no guarantees of that debt.
- Management reported no material change in risk factors from the 2021 Form 10-K. Ordinary-course legal proceedings were not expected to have a material adverse effect. KPMG’s interim review reported no material modifications needed for GAAP conformity; this was a review, not an audit.
Most important facts for investors to verify
- How much of the earnings increase reflects recurring property and fee growth versus the $795 million of real estate disposition gains; compare GAAP earnings with Core FFO and cash flow.
- Whether the 47% estimated rent mark-to-market translates into realized rent increases, while monitoring occupancy, renewals and same-store NOI.
- Development completion, leasing, remaining investment and cost trends for the $5.5 billion pipeline, including the $2.2 billion estimated remaining spend.
- Debt refinancing, interest-rate exposure, currency impacts and maintenance of liquidity and covenant compliance.
- Whether management’s positive 2022 outlook is borne out by subsequent operating results and any formal guidance in later filings.