Prologis, Inc. - FORM 10-Q

Attached files

file	filename
EX-15.2 - EX-15.2 - Prologis, Inc.	pld-ex152_201506307.htm
EX-12.2 - EX-12.2 - Prologis, Inc.	pld-ex122_201506309.htm
EX-15.1 - EX-15.1 - Prologis, Inc.	pld-ex151_201506306.htm
EX-31.1 - EX-31.1 - Prologis, Inc.	pld-ex311_2015063014.htm
EX-12.1 - EX-12.1 - Prologis, Inc.	pld-ex121_2015063013.htm
EX-31.4 - EX-31.4 - Prologis, Inc.	pld-ex314_2015063017.htm
EX-32.2 - EX-32.2 - Prologis, Inc.	pld-ex322_2015063015.htm
EX-32.1 - EX-32.1 - Prologis, Inc.	pld-ex321_2015063016.htm
EX-31.3 - EX-31.3 - Prologis, Inc.	pld-ex313_2015063012.htm
EX-31.2 - EX-31.2 - Prologis, Inc.	pld-ex312_201506308.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-13545 (Prologis, Inc.) 001-14245 (Prologis, L.P.)

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)

Maryland (Prologis, Inc.) Delaware (Prologis, L.P.)		94-3281941 (Prologis, Inc.) 94-3285362 (Prologis, L.P.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Pier 1, Bay 1, San Francisco, California		94111
(Address or principal executive offices)		(Zip Code)

(415) 394-9000

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

Prologis, Inc.	Yes	T	No	£
Prologis, L.P.	Yes	T	No	£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website; if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit and post such files).

Prologis, Inc.	Yes	T	No	£
Prologis, L.P.	Yes	T	No	£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Prologis, Inc.:
Large accelerated filer T	Accelerated filer £	Non-accelerated filer £	Smaller reporting company £
	(Do not check if a smaller reporting company)

Prologis, L.P.:
Large accelerated filer £	Accelerated filer £	Non-accelerated filer T	Smaller reporting company £
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Prologis, Inc.	Yes	£	No	T
Prologis, L.P.	Yes	£	No	T

The number of shares of Prologis, Inc.’s common stock outstanding at July 27, 2015, was approximately 524,127,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2015, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means Prologis, Inc. and the Operating Partnership collectively.

Prologis, Inc. is a real estate investment trust (“REIT”) and the general partner of the Operating Partnership. At June 30, 2015, Prologis, Inc. owned an approximate 98.77% common general partnership interest in the Operating Partnership and 100% of the preferred units in the Operating Partnership. The remaining approximate 1.23% common limited partnership interests are owned by non-affiliated investors and certain current and former directors and officers of Prologis, Inc. As the sole general partner of the Operating Partnership, Prologis, Inc. has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.

We operate Prologis, Inc. and the Operating Partnership as one enterprise. The management of Prologis, Inc. consists of the same members as the management of the Operating Partnership. These members are officers of Prologis, Inc. and employees of the Operating Partnership or one of its subsidiaries. As general partner with control of the Operating Partnership, Prologis, Inc. consolidates the Operating Partnership for financial reporting purposes. Because the only significant asset of Prologis, Inc. is its investment in the Operating Partnership, the assets and liabilities of Prologis, Inc. and the Operating Partnership are the same on their respective financial statements.

We believe combining the quarterly reports on Form 10-Q of Prologis, Inc. and the Operating Partnership into this single report results in the following benefits:

·	enhances investors’ understanding of Prologis, Inc. and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

·	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the Company’s disclosure applies to both Prologis, Inc. and the Operating Partnership; and

·	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

It is important to understand the few differences between Prologis, Inc. and the Operating Partnership in the context of how we operate the Company. Prologis, Inc. does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. Prologis, Inc. itself does not incur any indebtedness, but guarantees the unsecured debt of the Operating Partnership. The Operating Partnership holds substantially all the assets of the business, directly or indirectly, and holds the ownership interests in the Company’s investment in certain entities. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by Prologis, Inc., which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates capital required by the business through the Operating Partnership’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

Noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of Prologis, Inc. and those of the Operating Partnership. The noncontrolling interests in the Operating Partnership’s financial statements include the interests in consolidated entities not owned by the Operating Partnership. The noncontrolling interests in Prologis, Inc.’s financial statements include the same noncontrolling interests at the Operating Partnership level, as well as the common limited partnership interests in the Operating Partnership, not owned by Prologis, Inc., which are accounted for as partners’ capital by the Operating Partnership.

To highlight the differences between Prologis, Inc. and the Operating Partnership, there are separate sections in this report, as applicable, that separately discuss Prologis, Inc. and the Operating Partnership, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of Prologis, Inc. and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of Prologis.

PROLOGIS

INDEX

			Page Number
PART I.	Financial Information
	Item 1.	Financial Statements
	Prologis, Inc.:
		Consolidated Balance Sheets – June 30, 2015, and December 31, 2014		1
		Consolidated Statements of Operations – Three and Six Months Ended June 30, 2015 and 2014		2
		Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2015 and 2014		3
		Consolidated Statement of Equity – Six Months Ended June 30, 2015		3
		Consolidated Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014		4
	Prologis, L.P.:
		Consolidated Balance Sheets – June 30, 2015, and December 31, 2014		5
		Consolidated Statements of Operations – Three and Six Months Ended June 30, 2015 and 2014		6
		Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2015 and 2014		7
		Consolidated Statement of Capital – Six Months Ended June 30, 2015		7
		Consolidated Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014		8
	Prologis, Inc. and Prologis, L.P.:
		Notes to Consolidated Financial Statements		9
		Reports of Independent Registered Public Accounting Firm		24
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38
	Item 4.	Controls and Procedures		39
PART II.	Other Information
	Item 1.	Legal Proceedings		39
	Item 1A.	Risk Factors		39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39
	Item 3.	Defaults Upon Senior Securities		39
	Item 4.	Mine Safety Disclosures		39
	Item 5.	Other Information		39
	Item 6.	Exhibits		39

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	June 30,
	2015			December 31,
	(Unaudited)			2014
ASSETS
Investments in real estate properties	$	27,463,049		$	22,190,145
Less accumulated depreciation		3,075,438			2,790,781
Net investments in real estate properties		24,387,611			19,399,364
Investments in and advances to unconsolidated entities		4,911,505			4,824,724
Assets held for sale		514,752			43,934
Note receivable backed by real estate		197,500			-
Net investments in real estate		30,011,368			24,268,022

Cash and cash equivalents		351,025			350,692
Other assets		1,240,004			1,199,509
Total assets	$	31,602,397		$	25,818,223

LIABILITIES AND EQUITY
Liabilities:
Debt	$	12,121,305		$	9,380,199
Accounts payable and accrued expenses		537,432			627,999
Other liabilities		589,636			626,426
Total liabilities		13,248,373			10,634,624

Equity:
Prologis, Inc. stockholders' equity:
Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,565 shares issued and outstanding and 100,000 preferred shares authorized at June 30, 2015, and December 31, 2014		78,235			78,235
Common stock; $0.01 par value; 524,122 shares and 509,498 shares issued and outstanding at June 30, 2015, and December 31, 2014, respectively		5,241			5,095
Additional paid-in capital		19,129,348			18,467,009
Accumulated other comprehensive loss		(631,265	)		(600,337	)
Distributions in excess of net earnings		(3,870,808	)		(3,974,493	)
Total Prologis, Inc. stockholders' equity		14,710,751			13,975,509
Noncontrolling interests		3,643,273			1,208,090
Total equity		18,354,024			15,183,599
Total liabilities and equity	$	31,602,397		$	25,818,223

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenues:
Rental income	$	357,828		$	294,461		$	682,375		$	595,339
Rental recoveries		103,616			86,812			197,871			174,174
Strategic capital income		47,046			76,334			89,071			121,644
Development management and other income		1,914			2,482			3,934			3,614
Total revenues		510,404			460,089			973,251			894,771
Expenses:
Rental expenses		125,599			109,576			252,533			220,093
Strategic capital expenses		20,115			27,837			40,476			52,000
General and administrative expenses		57,027			60,375			113,315			123,578
Depreciation and amortization		190,188			161,577			359,996			321,857
Other expenses		30,127			5,450			35,702			10,503
Total expenses		423,056			364,815			802,022			728,031

Operating income		87,348			95,274			171,229			166,740

Other income (expense):
Earnings from unconsolidated entities, net		41,784			21,151			72,826			50,897
Interest expense		(68,902	)		(80,184	)		(137,663	)		(165,707	)
Interest and other income, net		1,847			5,116			12,896			19,166
Gains on dispositions of investments in real estate, net		108,782			169,583			386,497			186,638
Foreign currency and derivative gains (losses) and related amortization, net		(25,512	)		10,130			9,054			(18,054	)
Losses on early extinguishment of debt, net		(236	)		(77,558	)		(16,525	)		(77,285	)
Total other income (expense)		57,763			48,238			327,085			(4,345	)
Earnings before income taxes		145,111			143,512			498,314			162,395
Current income tax expense		4,706			43,050			5,545			48,898
Deferred income tax expense (benefit)		145			(51,968	)		1,197			(50,936	)
Total income tax expense (benefit)		4,851			(8,918	)		6,742			(2,038	)
Consolidated net earnings		140,260			152,430			491,572			164,433
Net loss (earnings) attributable to noncontrolling interests		1,658			(71,250	)		(2,778	)		(76,452	)
Net earnings attributable to controlling interests		141,918			81,180			488,794			87,981
Less preferred stock dividends		1,678			1,948			3,348			4,083
Loss on preferred stock repurchase		-			6,517			-			6,517
Net earnings attributable to common stockholders	$	140,240		$	72,715		$	485,446		$	77,381
Weighted average common shares outstanding – Basic		523,476			499,112			518,791			498,919
Weighted average common shares outstanding – Diluted		530,640			516,619			529,827			504,560

Net earnings per share attributable to common stockholders – Basic	$	0.27		$	0.15		$	0.94		$	0.16

Net earnings per share attributable to common stockholders – Diluted	$	0.27		$	0.13		$	0.92		$	0.15

Dividends per common share	$	0.36		$	0.33		$	0.72		$	0.66

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Consolidated net earnings	$	140,260		$	152,430		$	491,572		$	164,433
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		74,937			63,464			(49,342	)		58,741
Unrealized gains (losses) and amortization on derivative contracts, net		(462	)		(2,164	)		3,347			(3,425	)
Comprehensive income		214,735			213,730			445,577			219,749
Net loss (earnings) attributable to noncontrolling interests		1,658			(71,250	)		(2,778	)		(76,452	)
Other comprehensive loss (income) attributable to noncontrolling interest		(4,027	)		(1,954	)		15,067			(4,889	)
Comprehensive income attributable to common stockholders	$	212,366		$	140,526		$	457,866		$	138,408

PROLOGIS, INC.

CONSOLIDATED STATEMENT OF EQUITY

Six Months Ended June 30, 2015

(Unaudited)

(In thousands)

			Common Stock						Accumulated			Distributions
			Number				Additional		Other			in Excess of			Non-
	Preferred		of		Par		Paid-in		Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital		Income (Loss)			Earnings			interests			Equity
Balance at January 1, 2015	$	78,235		509,498	$	5,095	$	18,467,009	$	(600,337	)	$	(3,974,493	)	$	1,208,090		$	15,183,599
Consolidated net earnings		-		-		-		-		-			488,794			2,778			491,572
Effect of equity compensation plans		-		1,085		11		20,679		-			-			16,689			37,379
Issuance of stock in at-the-market program, net of issuance costs		-		1,662		16		71,651		-			-			-			71,667
Issuance of stock upon conversion of exchangeable debt		-		11,872		119		502,613		-			-			-			502,732
Issuance of units related to KTR acquisition		-		-		-		-		-			-			181,170			181,170
Capital contributions		-		-		-		-		-			-			2,354,697			2,354,697
Foreign currency translation losses, net		-		-		-		-		(34,234	)		-			(15,108	)		(49,342	)
Unrealized gains and amortization on derivative contracts, net		-		-		-		-		3,306			-			41			3,347
Distributions, allocations and other		-		5		-		67,396		-			(385,109	)		(105,084	)		(422,797	)
Balance at June 30, 2015	$	78,235		524,122	$	5,241	$	19,129,348	$	(631,265	)	$	(3,870,808	)	$	3,643,273		$	18,354,024

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended
	June 30,
	2015			2014
Operating activities:
Consolidated net earnings	$	491,572		$	164,433
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents		(24,488	)		(24,004	)
Equity-based compensation awards		26,718			28,986
Depreciation and amortization		359,996			321,857
Earnings from unconsolidated entities, net		(72,826	)		(50,897	)
Distributions and net changes in operating receivables from unconsolidated entities		51,562			10,392
Amortization of debt and lease intangibles		(5,257	)		11,646
Gains on dispositions of investments in real estate, net		(386,497	)		(186,638	)
Losses on early extinguishment of debt, net		16,525			77,285
Unrealized foreign currency and derivative losses (gains) and related amortization, net		(4,506	)		21,418
Deferred income tax expense (benefit)		1,197			(50,936	)
Increase in accounts receivable and other assets		(14,629	)		(35,234	)
Increase (decrease) in accounts payable and accrued expenses and other liabilities		(83,478	)		17,558
Net cash provided by operating activities		355,889			305,866
Investing activities:
Real estate development activity		(670,517	)		(445,101	)
Real estate acquisitions		(293,556	)		(182,252	)
KTR acquisition, net of cash received		(4,809,499	)		-
Tenant improvements and lease commissions on previously leased space		(65,377	)		(63,140	)
Non-development capital expenditures		(26,089	)		(19,666	)
Proceeds from dispositions and contributions of real estate properties		926,833			869,373
Investments in and advances to unconsolidated entities		(340,841	)		(656,352	)
Return of investment from unconsolidated entities		67,036			127,379
Proceeds from repayment of note receivable		9,866			188,000
Proceeds from the settlement of net investment hedges		122,505			5,656
Payments on the settlement of net investment hedges		(981	)		(13,511	)
Net cash used in investing activities		(5,080,620	)		(189,614	)
Financing activities:
Proceeds from issuance of common stock		83,362			11,501
Dividends paid on common and preferred stock		(381,189	)		(336,245	)
Repurchase of preferred stock		-			(27,643	)
Noncontrolling interest contributions		2,354,468			464,497
Noncontrolling interest distributions		(38,068	)		(260,159	)
Purchase of noncontrolling interest		(2,163	)		-
Debt and equity issuance costs paid		(11,494	)		(18,098	)
Net proceeds from (payments on) credit facilities		435,450			(689,702	)
Repurchase and payments of debt		(908,474	)		(2,980,909	)
Proceeds from issuance of debt		3,199,538			3,485,864
Net cash provided by (used in) financing activities		4,731,430			(350,894	)

Effect of foreign currency exchange rate changes on cash		(6,366	)		10,940
Net increase (decrease) in cash and cash equivalents		333			(223,702	)
Cash and cash equivalents, beginning of period		350,692			491,129
Cash and cash equivalents, end of period	$	351,025		$	267,427

See Note 14 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	June 30,
	2015		December 31,
	(Unaudited)		2014
ASSETS
Investments in real estate properties	$	27,463,049	$	22,190,145
Less accumulated depreciation		3,075,438		2,790,781
Net investments in real estate properties		24,387,611		19,399,364
Investments in and advances to unconsolidated entities		4,911,505		4,824,724
Assets held for sale		514,752		43,934
Note receivable backed by real estate		197,500		-
Net investments in real estate		30,011,368		24,268,022

Cash and cash equivalents		351,025		350,692
Other assets		1,240,004		1,199,509
Total assets	$	31,602,397	$	25,818,223

LIABILITIES AND CAPITAL
Liabilities:
Debt	$	12,121,305	$	9,380,199
Accounts payable and accrued expenses		537,432		627,999
Other liabilities		589,636		626,426

Prologis, Inc. - FORM 10-Q - July 31, 2015

Attached files