Prologis, Inc. - FORM 10-Q - October 30, 2015

Attached files

file	filename
EX-12.2 - EX-12.2 - Prologis, Inc.	pld-ex122_9.htm
EX-15.2 - EX-15.2 - Prologis, Inc.	pld-ex152_10.htm
EX-31.4 - EX-31.4 - Prologis, Inc.	pld-ex314_11.htm
EX-32.1 - EX-32.1 - Prologis, Inc.	pld-ex321_12.htm
EX-12.1 - EX-12.1 - Prologis, Inc.	pld-ex121_8.htm
EX-31.3 - EX-31.3 - Prologis, Inc.	pld-ex313_6.htm
EX-15.1 - EX-15.1 - Prologis, Inc.	pld-ex151_7.htm
EX-32.2 - EX-32.2 - Prologis, Inc.	pld-ex322_15.htm
EX-31.1 - EX-31.1 - Prologis, Inc.	pld-ex311_14.htm
EX-31.2 - EX-31.2 - Prologis, Inc.	pld-ex312_13.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 September 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 October 27, 2015, was approximately 524,311,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 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 September 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 nonaffiliated investors and certain current and former directors and officers of Prologis, Inc. As the sole general partner of the Operating Partnership, Prologis, Inc. has 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 consolidated financial statements include the interests in consolidated entities not owned by the Operating Partnership. The noncontrolling interests in Prologis, Inc.’s consolidated 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		1
	Prologis, Inc.:
		Consolidated Balance Sheets – September 30, 2015, and December 31, 2014		1
		Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2015, and 2014		2
		Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2015, and 2014		3
		Consolidated Statement of Equity – Nine Months Ended September 30, 2015		3
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2015, and 2014		4
	Prologis, L.P.:
		Consolidated Balance Sheets – September 30, 2015, and December 31, 2014		5
		Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2015, and 2014		6
		Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2015, and 2014		7
		Consolidated Statement of Capital – Nine Months Ended September 30, 2015		7
		Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2015, and 2014		8
	Prologis, Inc. and Prologis, L.P.:
		Notes to the Consolidated Financial Statements		9
		Reports of Independent Registered Public Accounting Firm		25
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		40
	Item 4.	Controls and Procedures		41
PART II.	Other Information
	Item 1.	Legal Proceedings		41
	Item 1A.	Risk Factors		41
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		41
	Item 3.	Defaults Upon Senior Securities		41
	Item 4.	Mine Safety Disclosures		41
	Item 5.	Other Information		41
	Item 6.	Exhibits		41

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	September 30,
	2015			December 31,
	(Unaudited)			2014
ASSETS
Investments in real estate properties	$	27,269,358		$	22,190,145
Less accumulated depreciation		3,156,445			2,790,781
Net investments in real estate properties		24,112,913			19,399,364
Investments in and advances to unconsolidated entities		4,841,225			4,824,724
Assets held for sale		369,382			43,934
Note receivable backed by real estate		197,500			-
Net investments in real estate		29,521,020			24,268,022

Cash and cash equivalents		310,433			350,692
Other assets		1,587,901			1,199,509
Total assets	$	31,419,354		$	25,818,223

LIABILITIES AND EQUITY
Liabilities:
Debt	$	11,934,355		$	9,380,199
Accounts payable and accrued expenses		697,860			627,999
Other liabilities		602,168			626,426
Total liabilities		13,234,383			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 September 30, 2015, and December 31, 2014		78,235			78,235
Common stock: $0.01 par value; 524,186 shares and 509,498 shares issued and outstanding at September 30, 2015, and December 31, 2014, respectively		5,242			5,095
Additional paid-in capital		19,150,336			18,467,009
Accumulated other comprehensive loss		(776,570	)		(600,337	)
Distributions in excess of net earnings		(3,825,673	)		(3,974,493	)
Total Prologis, Inc. stockholders’ equity		14,631,570			13,975,509
Noncontrolling interests		3,553,401			1,208,090
Total equity		18,184,971			15,183,599
Total liabilities and equity	$	31,419,354		$	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						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Revenues:
Rental income	$	418,116		$	275,686		$	1,100,491		$	871,025
Rental recoveries		114,639			80,136			312,510			254,310
Strategic capital income		44,176			54,070			133,247			175,714
Development management and other income		3,691			5,259			7,625			8,873
Total revenues		580,622			415,151			1,553,873			1,309,922
Expenses:
Rental expenses		139,905			102,324			392,438			322,417
Strategic capital expenses		21,714			22,442			62,190			74,442
General and administrative expenses		59,375			58,203			172,690			181,781
Depreciation and amortization		247,471			149,202			607,467			471,059
Other expenses		8,765			4,868			44,467			15,371
Total expenses		477,230			337,039			1,279,252			1,065,070

Operating income		103,392			78,112			274,621			244,852

Other income (expense):
Earnings from unconsolidated entities, net		33,557			28,514			106,383			79,411
Interest expense		(81,035	)		(69,086	)		(218,698	)		(234,793	)
Interest and other income, net		6,237			550			19,133			19,716
Gains on dispositions of investments in real estate, net		268,791			151,057			655,288			337,695
Foreign currency and derivative gains (losses) and related amortization, net		(9,428	)		20,792			(374	)		2,738
Losses on early extinguishment of debt, net		-			(86,076	)		(16,525	)		(163,361	)
Total other income		218,122			45,751			545,207			41,406
Earnings before income taxes		321,514			123,863			819,828			286,258
Current income tax expense		17,283			10,394			22,828			59,292
Deferred income tax benefit		(2,955	)		(33,658	)		(1,758	)		(84,594	)
Total income tax expense (benefit)		14,328			(23,264	)		21,070			(25,302	)
Consolidated net earnings		307,186			147,127			798,758			311,560
Net earnings attributable to noncontrolling interests		(46,536	)		(9,212	)		(49,314	)		(85,664	)
Net earnings attributable to controlling interests		260,650			137,915			749,444			225,896
Less preferred stock dividends		1,671			1,670			5,019			5,753
Loss on preferred stock repurchase		-			-			-			6,517
Net earnings attributable to common stockholders	$	258,979		$	136,245		$	744,425		$	213,626
Weighted average common shares outstanding – Basic		523,528			499,292			520,388			499,045
Weighted average common shares outstanding – Diluted		532,073			516,088			531,121			504,211

Net earnings per share attributable to common stockholders – Basic	$	0.49		$	0.27		$	1.43		$	0.43

Net earnings per share attributable to common stockholders – Diluted	$	0.49		$	0.23		$	1.41		$	0.43

Dividends per common share	$	0.40		$	0.33		$	1.12		$	0.99

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						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Consolidated net earnings	$	307,186		$	147,127		$	798,758		$	311,560
Other comprehensive income (loss):
Foreign currency translation losses, net		(148,570	)		(130,763	)		(197,912	)		(72,022	)
Unrealized losses and amortization on derivative contracts, net		(15,660	)		(4,359	)		(12,313	)		(7,784	)
Comprehensive income		142,956			12,005			588,533			231,754
Net earnings attributable to noncontrolling interests		(46,536	)		(9,212	)		(49,314	)		(85,664	)
Other comprehensive loss attributable to noncontrolling interest		18,925			9,709			33,992			4,820
Comprehensive income attributable to common stockholders	$	115,345		$	12,502		$	573,211		$	150,910

PROLOGIS, INC.

CONSOLIDATED STATEMENT OF EQUITY

Nine Months Ended September 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		-		-		-		-		-			749,444			49,314			798,758
Effect of equity compensation plans		-		1,149		12		36,410		-			-			21,203			57,625
Issuance of stock in at-the-market program, net of issuance costs		-		1,662		16		71,604		-			-			-			71,620
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 from our partners		-		-		-		-		-			-			2,354,697			2,354,697
Foreign currency translation losses, net		-		-		-		-		(164,072	)		-			(33,840	)		(197,912	)
Unrealized losses and amortization on derivative contracts, net		-		-		-		-		(12,161	)		-			(152	)		(12,313	)
Allocation from the limited partners		-		-		-		71,740		-			-			(71,740	)		-
Distributions and other		-		5		-		960		-			(600,624	)		(155,341	)		(755,005	)
Balance at September 30, 2015	$	78,235		524,186	$	5,242	$	19,150,336	$	(776,570	)	$	(3,825,673	)	$	3,553,401		$	18,184,971

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

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2015			2014
Operating activities:
Consolidated net earnings	$	798,758		$	311,560
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(37,537	)		(11,213	)
Equity-based compensation awards		40,124			43,042
Depreciation and amortization		607,467			471,059
Earnings from unconsolidated entities, net		(106,383	)		(79,411	)
Distributions and net changes in operating receivables from unconsolidated entities		91,328			78,702
Amortization of debt intangibles and deferred financing costs		(22,271	)		(2,091	)
Gains on dispositions of investments in real estate, net		(655,288	)		(337,695	)
Losses on early extinguishment of debt, net		16,525			163,361
Unrealized foreign currency and derivative losses and related amortization, net		6,931			1,993
Deferred income tax benefit		(1,758	)		(84,594	)
Increase in accounts receivable and other assets		(68,243	)		(20,688	)
Decrease in accounts payable and accrued expenses and other liabilities		(19,838	)		(83,238	)
Net cash provided by operating activities		649,815			450,787
Investing activities:
Real estate development activity		(950,199	)		(776,237	)
Real estate acquisitions		(571,368	)		(389,818	)
KTR acquisition, net of cash received		(4,809,499	)		-
Tenant improvements and lease commissions on previously leased space		(108,662	)		(95,812	)
Non-development capital expenditures		(51,374	)		(47,915	)
Proceeds from dispositions and contributions of real estate properties		1,814,532			1,654,554
Investments in and advances to unconsolidated entities		(438,964	)		(1,324,530	)
Return of investment from unconsolidated entities		109,359			188,507
Proceeds from repayment of note receivable		9,866			188,000
Proceeds from the settlement of net investment hedges		122,505			14,487
Payments on the settlement of net investment hedges		(981	)		(14,691	)
Net cash used in investing activities		(4,874,785	)		(603,455	)
Financing activities:
Proceeds from issuance of common stock		84,112			15,085
Dividends paid on common and preferred stock		(592,795	)		(502,259	)
Repurchase of preferred stock		-			(27,643	)
Noncontrolling interests contributions		2,354,468			467,016
Noncontrolling interests distributions		(157,517	)		(269,400	)
Purchase of noncontrolling interests		(2,560	)		(2,440	)
Debt and equity issuance costs paid		(18,476	)		(19,318	)
Net proceeds from credit facilities		199,958			22,076
Repurchase and payments of debt		(913,178	)		(3,731,044	)
Proceeds from issuance of debt		3,239,261			4,024,785
Net cash provided by (used in) financing activities		4,193,273			(23,142	)

Effect of foreign currency exchange rate changes on cash		(8,562	)		(3,440	)
Net decrease in cash and cash equivalents		(40,259	)		(179,250	)
Cash and cash equivalents, beginning of period		350,692			491,129
Cash and cash equivalents, end of period	$	310,433		$	311,879

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)

	September 30,
	2015		December 31,
	(Unaudited)		2014
ASSETS
Investments in real estate properties	$	27,269,358	$	22,190,145
Less accumulated depreciation		3,156,445		2,790,781
Net investments in real estate properties		24,112,913		19,399,364
Investments in and advances to unconsolidated entities		4,841,225		4,824,724
Assets held for sale		369,382		43,934
Note receivable backed by real estate		197,500		-
Net investments in real estate		29,521,020		24,268,022

Cash and cash equivalents