Prologis, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - EX-32.1 - Prologis, Inc.	pld-ex321_12.htm
EX-32.2 - EX-32.2 - Prologis, Inc.	pld-ex322_14.htm
EX-31.4 - EX-31.4 - Prologis, Inc.	pld-ex314_10.htm
EX-31.3 - EX-31.3 - Prologis, Inc.	pld-ex313_9.htm
EX-31.2 - EX-31.2 - Prologis, Inc.	pld-ex312_11.htm
EX-31.1 - EX-31.1 - Prologis, Inc.	pld-ex311_8.htm
EX-15.2 - EX-15.2 - Prologis, Inc.	pld-ex152_6.htm
EX-15.1 - EX-15.1 - Prologis, Inc.	pld-ex151_7.htm
EX-12.2 - EX-12.2 - Prologis, Inc.	pld-ex122_15.htm
EX-12.1 - EX-12.1 - Prologis, Inc.	pld-ex121_13.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2017

☐	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	☒	No	☐
Prologis, L.P.	Yes	☒	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	☒	No	☐
Prologis, L.P.	Yes	☒	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, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Prologis, Inc.:
Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐
	(Do not check if a smaller reporting company)

Prologis, L.P.:
Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐	Emerging growth company ☐
	(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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	☒
Prologis, L.P.	Yes	☐	No	☒

The number of shares of Prologis, Inc.’s common stock outstanding at July 24, 2017, was approximately 531,863,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2017, 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 the Parent and the Operating Partnership collectively.

The Parent is a real estate investment trust (“REIT”) and the general partner of the Operating Partnership. At June 30, 2017, the Parent owned an approximate 97.33% common general partnership interest in the Operating Partnership and 100% of the preferred units in the Operating Partnership. The remaining approximate 2.67% common limited partnership interests are owned by nonaffiliated investors and certain current and former directors and officers of the Parent. As the sole general partner of the Operating Partnership, the Parent has complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.

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

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

•	enhances investors’ understanding of the Parent 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 as a substantial portion of the Company’s disclosure applies to both the Parent 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 the Parent and the Operating Partnership in the context of how we operate the Company. The Parent 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. The Parent itself does not incur any indebtedness, but it 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 the Parent, 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.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the Operating Partnership. The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive loss and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the Operating Partnership and are presented as general partner’s capital within partners’ capital in the Operating Partnership’s consolidated financial statements. The common limited partnership interests held by the limited partners in the Operating Partnership are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the Operating Partnership’s consolidated financial statements. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances at the Parent and Operating Partnership levels.

To highlight the differences between the Parent and the Operating Partnership, separate sections in this report, as applicable, individually discuss the Parent and the Operating Partnership, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent 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 – June 30, 2017, and December 31, 2016		1
		Consolidated Statements of Income – Three and Six Months Ended June 30, 2017, and 2016		2
		Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2017, and 2016		3
		Consolidated Statement of Equity – Six Months Ended June 30, 2017		3
		Consolidated Statements of Cash Flows – Six Months Ended June 30, 2017, and 2016		4
	Prologis, L.P.:
		Consolidated Balance Sheets – June 30, 2017, and December 31, 2016		5
		Consolidated Statements of Income – Three and Six Months Ended June 30, 2017, and 2016		6
		Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2017, and 2016		7
		Consolidated Statement of Capital – Six Months Ended June 30, 2017		7
		Consolidated Statements of Cash Flows – Six Months Ended June 30, 2017, and 2016		8
	Prologis, Inc. and Prologis, L.P.:
		Notes to the Consolidated Financial Statements		9
		Note 1. General		9
		Note 2. Real Estate		11
		Note 3. Unconsolidated Entities		12
		Note 4. Assets Held for Sale or Contribution		15
		Note 5. Debt		15
		Note 6. Noncontrolling Interests		17
		Note 7. Long-Term Compensation		18
		Note 8. Earnings Per Common Share or Unit		19
		Note 9. Financial Instruments and Fair Value Measurements		20
		Note 10. Business Segments		24
		Note 11. Supplemental Cash Flow Information		26
		Reports of Independent Registered Public Accounting Firm		27
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		47
	Item 4.	Controls and Procedures		48
PART II.	Other Information
	Item 1.	Legal Proceedings		48
	Item 1A.	Risk Factors		48
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48
	Item 3.	Defaults Upon Senior Securities		48
	Item 4.	Mine Safety Disclosures		48
	Item 5.	Other Information		49
	Item 6.	Exhibits		49

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	June 30, 2017			December 31,
	(Unaudited)			2016
ASSETS
Investments in real estate properties	$	27,501,284		$	27,119,330
Less accumulated depreciation		4,026,369			3,758,372
Net investments in real estate properties		23,474,915			23,360,958
Investments in and advances to unconsolidated entities		4,617,724			4,230,429
Assets held for sale or contribution		350,987			322,139
Notes receivable backed by real estate		19,536			32,100
Net investments in real estate		28,463,162			27,945,626

Cash and cash equivalents		271,354			807,316
Other assets		1,415,879			1,496,990
Total assets	$	30,150,395		$	30,249,932

LIABILITIES AND EQUITY
Liabilities:
Debt	$	11,081,922		$	10,608,294
Accounts payable and accrued expenses		554,775			556,179
Other liabilities		653,460			627,319
Total liabilities		12,290,157			11,791,792

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, 2017, and December 31, 2016		78,235			78,235
Common stock: $0.01 par value; 531,338 shares and 528,671 shares issued and outstanding at June 30, 2017, and December 31, 2016, respectively		5,313			5,287
Additional paid-in capital		19,305,197			19,455,039
Accumulated other comprehensive loss		(934,196	)		(937,473	)
Distributions in excess of net earnings		(3,607,253	)		(3,610,007	)
Total Prologis, Inc. stockholders’ equity		14,847,296			14,991,081
Noncontrolling interests		3,012,942			3,467,059
Total equity		17,860,238			18,458,140
Total liabilities and equity	$	30,150,395		$	30,249,932

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

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Revenues:
Rental	$	447,960		$	426,150		$	887,844		$	863,254
Rental recoveries		128,417			119,981			255,466			236,993
Strategic capital		180,654			53,535			237,699			104,538
Development management and other		9,152			2,489			14,329			3,670
Total revenues		766,183			602,155			1,395,338			1,208,455
Expenses:
Rental		147,794			140,725			300,450			287,306
Strategic capital		51,986			27,866			83,785			53,159
General and administrative		60,077			56,934			113,694			107,477
Depreciation and amortization		228,145			230,382			454,736			480,382
Other		2,909			3,900			5,515			8,585
Total expenses		490,911			459,807			958,180			936,909

Operating income		275,272			142,348			437,158			271,546

Other income (expense):
Earnings from unconsolidated entities, net		68,596			41,454			117,201			99,765
Interest expense		(75,354	)		(76,455	)		(148,266	)		(157,267	)
Interest and other income, net		1,892			1,527			4,677			4,118
Gains on dispositions of investments in real estate, net		83,006			200,350			180,331			344,667
Foreign currency and derivative losses, net		(20,055	)		(10,335	)		(27,455	)		(24,546	)
Gains (losses) on early extinguishment of debt, net		(30,596	)		2,044			(30,596	)		992
Total other income		27,489			158,585			95,892			267,729
Earnings before income taxes		302,761			300,933			533,050			539,275
Total income tax expense		14,781			5,142			24,381			20,679
Consolidated net earnings		287,980			295,791			508,669			518,596
Less net earnings attributable to noncontrolling interests		19,363			18,712			35,123			31,787
Net earnings attributable to controlling interests		268,617			277,079			473,546			486,809
Less preferred stock dividends		1,674			1,696			3,348			3,385
Net earnings attributable to common stockholders	$	266,943		$	275,383		$	470,198		$	483,424

Weighted average common shares outstanding – Basic		530,040			524,842			529,400			524,540
Weighted average common shares outstanding – Diluted		552,114			545,388			550,512			544,293

Net earnings per share attributable to common stockholders – Basic	$	0.50		$	0.52		$	0.89		$	0.92

Net earnings per share attributable to common stockholders – Diluted	$	0.50		$	0.52		$	0.88		$	0.92

Dividends per common share	$	0.44		$	0.42		$	0.88		$	0.84

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

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Consolidated net earnings	$	287,980		$	295,791		$	508,669		$	518,596
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		3,162			(23,061	)		42,829			(21,600	)
Unrealized gains (losses) on derivative contracts, net		6,735			(5,926	)		9,366			(21,818	)
Comprehensive income		297,877			266,804			560,864			475,178
Net earnings attributable to noncontrolling interests		(19,363	)		(18,712	)		(35,123	)		(31,787	)
Other comprehensive income attributable to noncontrolling interests		(811	)		(5,192	)		(48,918	)		(13,232	)
Comprehensive income attributable to common stockholders	$	277,703		$	242,900		$	476,823		$	430,159

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

PROLOGIS, INC.

CONSOLIDATED STATEMENT OF EQUITY

Six Months Ended June 30, 2017

(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			Loss			Earnings			Interests			Equity
Balance at January 1, 2017	$	78,235		528,671	$	5,287	$	19,455,039		$	(937,473	)	$	(3,610,007	)	$	3,467,059		$	18,458,140
Consolidated net earnings		-		-		-		-			-			473,546			35,123			508,669
Effect of equity compensation plans		-		1,714		17		39,879			-			-			18,889			58,785
Capital contributions		-		-		-		-			-			-			135,857			135,857
Settlement of noncontrolling interests		-		-		-		(201,620	)		-			-			(588,006	)		(789,626	)
Conversion of noncontrolling interests		-		953		9		28,429			-			-			(28,438	)		-
Foreign currency translation gains (losses), net		-		-		-		-			(5,839	)		-			48,668			42,829
Unrealized gains on derivative contracts, net		-		-		-		-			9,116			-			250			9,366
Reallocation of equity		-		-		-		(16,501	)		-			-			16,501			-
Distributions and other		-		-		-		(29	)		-			(470,792	)		(92,961	)		(563,782	)
Balance at June 30, 2017	$	78,235		531,338	$	5,313	$	19,305,197		$	(934,196	)	$	(3,607,253	)	$	3,012,942		$	17,860,238

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,
	2017			2016
Operating activities:
Consolidated net earnings	$	508,669		$	518,596
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(48,920	)		(43,113	)
Equity-based compensation awards		37,604			29,212
Depreciation and amortization		454,736			480,382
Earnings from unconsolidated entities, net		(117,201	)		(99,765	)
Distributions from unconsolidated entities		141,256			147,155
Net changes in operating receivables from unconsolidated entities		(117,675	)		22,896
Amortization of debt premiums, net of debt issuance costs		(4,445	)		(9,616	)
Gains on dispositions of investments in real estate, net		(180,331	)		(344,667	)
Unrealized foreign currency and derivative losses, net		35,266			23,386
Losses (gains) on early extinguishment of debt, net		30,596			(992	)
Deferred income tax expense (benefit)		2,268			(4,602	)
Decrease in accounts receivable and other assets		61,452			14,327
Decrease in accounts payable and accrued expenses and other liabilities		(58,115	)		(99,539	)
Net cash provided by operating activities		745,160			633,660
Investing activities:
Real estate development		(715,294	)		(775,545	)
Real estate acquisitions		(202,088	)		(136,107	)
Tenant improvements and lease commissions on previously leased space		(75,342	)		(88,659	)
Nondevelopment capital expenditures		(37,253	)		(30,096	)
Proceeds from dispositions and contributions of real estate properties		836,107			1,284,126
Investments in and advances to unconsolidated entities		(144,894	)		(145,287	)
Return of investment from unconsolidated entities		133,677			533,333
Proceeds from repayment of notes receivable backed by real estate		32,100			201,250
Proceeds from the settlement of net investment hedges		7,541			16,768
Payments on the settlement of net investment hedges		(5,058	)		-
Net cash provided by (used in) investing activities		(170,504	)		859,783
Financing activities:
Proceeds from issuance of common stock		25,374			10,354
Dividends paid on common and preferred stock		(470,792	)		(445,343	)
Noncontrolling interests contributions		135,857			825
Noncontrolling interests distributions		(99,896	)		(214,263	)
Purchase of noncontrolling interests		(789,626	)		(2,979	)
Tax paid for shares withheld		(18,894	)		(7,301	)
Debt and equity issuance costs paid		(6,151	)		(14,865	)
Net payments on credit facilities		(33,745	)		(3,515	)
Repurchase and payments of debt		(2,002,519	)		(1,277,311	)
Proceeds from issuance of debt		2,134,041			517,045
Net cash used in financing activities		(1,126,351	)		(1,437,353	)

Effect of foreign currency exchange rate changes on cash		15,733			12,051
Net increase (decrease) in cash and cash equivalents		(535,962	)		68,141
Cash and cash equivalents, beginning of period		807,316			264,080
Cash and cash equivalents, end of period	$	271,354		$	332,221

See Note 11 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, 2017		December 31,
	(Unaudited)		2016
ASSETS
Investments in real estate properties	$	27,501,284	$	27,119,330
Less accumulated depreciation		4,026,369		3,758,372
Net investments in real estate properties		23,474,915		23,360,958
Investments in and advances to unconsolidated entities		4,617,724		4,230,429
Assets held for sale or contribution		350,987		322,139
Notes receivable backed by real estate		19,536		32,100
Net investments in real estate		28,463,162		27,945,626

Cash and cash equivalents		271,354		807,316
Other assets		1,415,879		1,496,990
Total assets	$	30,150,395	$	30,249,932

Prologis, Inc. - FORM 10-Q - July 26, 2017

Attached files