01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
Prologis, Inc. (PLD) closed fiscal 2011 as the leading global industrial REIT, but the year was dominated by the June 3, 2011 merger of AMB Property Corporation and ProLogis (accounting acquirer ProLogis) and the May 2011 consolidation of ProLogis European Properties (PEPR).
Because the merger and PEPR results are included for only about seven months, year-over-year comparisons are distorted. Total revenues rose to $1.53 billiona from $885 million, and the company reported a net loss attributable to common shares of $188 million ($0.51 per share), versus a $1.30 billion loss in 2010 that was driven by heavy impairments. Core FFO attributable to common shares rose to $594 million from $237 million, and FFO as defined by Prologis was $412 million, which is the more useful gauge of underlying operating performance.
Management reported 92.2% occupancy across the owned and managed portfolio at year-end, up from 89.0%, and identified more than $115 millionb of annualized merger synergies, about 90% of which were already realized. Balance sheet deleveraging was a central theme. Total debt fell to $11.4 billion at year-end from $12.1 billion at June 30, 2011, funded largely by property dispositions, and a $1.1 billion equity offering in June 2011 supported the transaction.
Total assets were $27.7 billionc, with about 43.5% of assets denominated in non-U.S. currencies, which exposes the company to euro, yen and sterling movements. Management expects roughly $1.2 billion of 2012 debt maturities to be covered by disposition proceeds and credit facility availability, and the company had $1.2 billion of credit facility availability at year-end. The quarterly dividend was held at $0.28 per common share, unchanged through 2011.
Key risks for investors include continued softness in rents (same-store rental rates on Q4 2011 leases fell 4.5%), a concentration of assets in California (about 23% of consolidated operating properties by investment), currency translation losses of $171 milliond in other comprehensive income, $1.2 billion of debt maturing in 2012, and a pending $200 million claim by Cisco related to the Pacific Commons development, which management believes is without merit and has not accrued. The company also expects to consolidate the Prologis NAIF II venture after acquiring its partner's 63% interest in February 2012 for about $335 million.
02—Key points
Key Highlights
- Merger-driven scale: AMB and ProLogis merged June 3, 2011, creating a portfolio of about 600 million square feet across 22 countries with $43.8 billion of assets under management; 2011 results include only about seven months of the merger and PEPR consolidation.
- Revenue growth: total revenues increased to $1.53 billion in 2011 from $885 million in 2010, reflecting the merger, PEPR consolidation and higher occupancy.
- Improved core earnings: Core FFO attributable to common shares was $594 million ($237 million in 2010), and FFO as defined by Prologis was $412 million versus a $974 million loss in 2010 driven by impairments.
- Net loss narrowed: net loss attributable to common shares was $188 million ($0.51 per share) versus $1.30 billion ($5.90 per share) in 2010, as impairment charges fell from $1.15 billion to $271 million.
- Occupancy recovery: total owned and managed portfolio occupancy rose to 92.2% at December 31, 2011 from 89.0% a year earlier, and existing customers renewed 74.7% of leases versus 79.5% in 2010.
- Deleveraging progress: debt declined to $11.4 billion at year-end from $12.1 billion at June 30, 2011, supported by $1.6 billion of disposition proceeds and a $1.1 billion equity offering.
- Dividend held steady: the common dividend remained at $0.28 per quarter ($1.06 for 2011), with a $0.28 first-quarter 2012 distribution declared February 22, 2012.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Operating Expenses | $1.33B$1.45B | −8.7% |
| Operating Income | $94.78M-$613.52M | +115.4% |
| Interest Expense | $466.57M$461.17M | +1.2% |
| Net Income | -$153.41M-$1.27B | +87.9% |
| EPS (Basic) | $-0.51$-5.90 | +91.4% |
| EPS (Diluted) | $-0.51$-5.90 | +91.4% |
| Shares Outstanding (Basic) | 370.53M219.51M | +68.8% |
| Shares Outstanding (Diluted) | 371.73M219.51M | +69.3% |
05—Questions
Frequently Asked Questions
Why are the 2011 results hard to compare with prior years?
The June 3, 2011 merger with AMB was accounted for with ProLogis as the accounting acquirer, and PEPR was consolidated in May 2011. 2011 therefore includes only about seven months of the acquired operations, while prior years reflect only legacy ProLogis. Management itself states that period-to-period comparisons may not be meaningful, so investors should focus on FFO, Core FFO and same-store metrics rather than raw GAAP line items.
What is the difference between FFO as defined by Prologis and Core FFO, and which should investors use?
FFO as defined by Prologis adjusts NAREIT FFO for items such as deferred taxes and foreign currency and derivative gains or losses. Core FFO further excludes gains and losses from land and development sales, impairments, debt extinguishment gains or losses, merger and integration expenses and natural disaster costs. For 2011, FFO attributable to common shares was $412 million and Core FFO was $594 million. Core FFO better reflects recurring operating performance, but management acknowledges that FFO measures are non-GAAP and should be used alongside GAAP net earnings, which were a loss of $188 million.
How exposed is Prologis to currency and debt-refinancing risk?
About 43.5% of total assets ($12.1 billion) were denominated in currencies other than the U.S. dollar, mainly the euro, yen and pound sterling, and 2011 translation losses in other comprehensive income were $171 million. Debt of $11.4 billion carried a weighted average effective rate of 5.58%. Scheduled 2012 maturities total about $1.2 billion, which management expects to repay from property disposition proceeds and credit facility borrowings, with $1.2 billion of availability at year-end. Investors should watch refinancing execution and the company's ability to keep selling non-core assets.
What are the main legal and concentration risks?
Cisco Technology is seeking roughly $200 million in damages and declaratory relief over the Pacific Commons development, with arbitration hearings beginning in December 2011. Management believes the claims are without merit and has recorded no liability because it believes the low end of the loss range is zero. Geographically, about 23% of consolidated operating properties by investment are in California, and the company has significant concentrations in Chicago, Dallas/Fort Worth, New Jersey/New York, Japan, France and the UK. Downturns in those markets could materially affect results.
What drove the improvement in rental and occupancy performance, and what are the remaining headwinds?
Consolidated operating portfolio occupancy rose to 91.4% from 85.9% at the end of 2010, largely through the merger and new development completions, and rental income reached $1.38 billion. Same-store net operating income grew 0.4% in Q4 2011 on a same-store basis, and same-store rental income grew 0.9%. However, effective rents on Q4 2011 leases fell 4.5% versus prior rents, and 2010 rent declines ranged from 8.5% to 15.7%, indicating that rent recovery has not yet arrived. Continued improvement depends on U.S. net absorption, which management expects to reach 150 to 175 million square feet in 2012.
06—Continue