01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Prologis, Inc. (NYSE: PLD) and its operating partnership, Prologis, L.P., report results for fiscal 2012 in this combined 10-K, filed February 28, 2013 (auditor's report dated February 27, 2013).
The company is the leading global owner, operator and developer of industrial real estate, managing 554 million square feet across 21 countries, with 94.0% occupancy in its operating portfolio. Results were mixed: total revenues rose to $2.0 billiona (from $1.45 billion), but the company still posted a net loss attributable to common stockholders of $(80.9) million, or $(0.18) per share, driven largely by $252.9 million of real estate impairments and $283.5 million of total impairment charges. Management highlighted Core FFO of $813.9 million, up from $593.9 million in 2011, though much of the year-over-year improvement reflects the full-year effect of the 2011 merger of AMB and ProLogis.
The strategic story centers on balance sheet repair and portfolio recycling. Prologis sold or contributed about $2.0 billionb of assets and repaid $1.9 billion of debt, yet total debt rose to $11.8 billion at year-end because of $1.4 billion of co-investment venture acquisitions. Management plans to reduce debt in 2013 using proceeds from two new co-investment ventures: Nippon Prologis REIT in Japan (about $1.9 billion, closed February 14, 2013, with a gain of roughly $300 million expected in Q1 2013) and Prologis European Logistics Partners (about $3.1 billion of expected proceeds, with a $135 million impairment already taken in Q4 2012).
Expected 2013 scheduled debt principal payments are $1.5 billionc. Weighted average borrowing cost fell to 4.6% from 5.6%, and the company declared a $0.28 quarterly dividend for Q1 2013. For investors, the key trade-off is between a healthier, de-levering strategy and continued earnings pressure.
The 2013 outlook depends on the successful closing and deployment of these ventures, the pace of asset dispositions, and an improving industrial market: management cites record Q4 2012 leasing of 145.3 million square feet for the year and a forecast of 150 million square feet of U.S. net absorption in 2013. Risks include foreign currency exposure (about 40.6%d of total assets are non-dollar denominated), California concentration (25.1% of consolidated operating properties), and dependence on co-investment venture fundraising.
02—Key points
Key Highlights
- Revenue growth: Total revenues rose to $2,006 million in 2012 from $1,451 million in 2011, largely reflecting the full-year impact of the June 2011 AMB/ProLogis merger and PEPR acquisition.
- Net loss narrowed in its wider context: Net loss attributable to common stockholders was $(80.9) million, or $(0.18) per share, versus $(188.1) million, or $(0.51) per share, in 2011, with $283.5 million of total impairment charges in 2012.
- Core FFO increased to $813.9 million from $593.9 million, a non-GAAP measure management emphasizes; Core FFO excludes impairments, merger costs and gains on dispositions.
- Portfolio: 554 million sq ft owned and managed across 21 countries; operating portfolio 94.0% occupied, up from 92.2% a year earlier; 2012 leasing of 145.3 million sq ft.
- Deleveraging plan: Total debt rose to $11.8 billion from $11.4 billion, but management expects to reduce debt in 2013 using proceeds from the Japan REIT (NPR, about $1.9 billion) and European venture (PELP, about 2.3 billion euros) contributions.
- Cost of capital improved: Weighted average effective borrowing cost fell to 4.6% from 5.6%, and $1.2 billion of credit facility capacity was available at year-end.
- Dividend: Common dividend held at $0.28 per quarter ($1.12 annualized) for 2012 and declared for Q1 2013; cash from operations ($463.5 million) did not fully cover common and preferred dividends ($104.3 million shortfall), funded by disposition proceeds.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Operating Expenses | $1.87B$1.33B | +40.7% |
| Operating Income | $92.98M$94.78M | −1.9% |
| Interest Expense | $505.21M$466.57M | +8.3% |
| Net Income | -$39.72M-$153.41M | +74.1% |
| EPS (Basic) | $-0.18$-0.51 | +64.7% |
| EPS (Diluted) | $-0.18$-0.51 | +64.7% |
| Shares Outstanding (Basic) | 459.89M370.53M | +24.1% |
| Shares Outstanding (Diluted) | 461.85M371.73M | +24.2% |
05—Questions
Frequently Asked Questions
Why did Prologis report a net loss in 2012 despite revenue growth?
The net loss attributable to common stockholders of $(80.9) million reflects several non-cash and one-time charges, including $252.9 million of real estate impairments in continuing operations (mainly land and assets planned for contribution to the European venture), $16.1 million of goodwill and other asset impairments, $80.7 million of merger and integration expenses, and $14.1 million of debt extinguishment losses. Depreciation and amortization of $740.0 million and interest expense of $507.5 million also weighed on earnings, partly offset by $305.6 million of gains on acquisitions and dispositions.
What are the Japan and European co-investment ventures and why do they matter?
Nippon Prologis REIT (NPR) listed on the Japan Stock Exchange on February 14, 2013, after Prologis contributed 12 properties for about $1.9 billion (¥173 billion), receiving about $1.7 billion in net cash. Prologis retains at least a 15% stake and expects a gain of roughly $300 million in Q1 2013. Prologis European Logistics Partners (PELP) is a 50/50 venture with Norges Bank Investment Management, expected to take 195 properties for about €2.3 billion ($3.1 billion), with Prologis able to reduce its stake to 20% after two years. Both are central to management's plan to reduce debt, lower currency exposure, and shift toward a fee-based private capital model.
How exposed is Prologis to currency and geographic concentration risk?
About 41.8% of 2012 revenue ($838.6 million) came from outside the United States, and approximately 40.6% of total assets ($11.1 billion) were denominated in non-dollar currencies, mainly the euro, British pound and Japanese yen. Prologis uses local-currency borrowing and derivatives, including €1.0 billion of euro forward contracts expiring in April and May 2013, to hedge net investments. Separately, about 25.1% of consolidated operating properties by investment value are in California, so a California downturn could materially affect results.
Is the dividend covered by cash flow, and could it change?
Net cash from operating activities was $463.5 million in 2012, below the $567.9 million of common and preferred dividends paid, so the shortfall ($104.3 million) was funded from disposition proceeds (about $2.0 billion in 2012). The Board declared a $0.28 common dividend for Q1 2013 and sets future distributions based on financial condition, operating results and REIT distribution requirements, so the dividend could be adjusted. Preferred dividends must be fully paid before common dividends can be declared.
What is management's outlook for 2013?
Management expects continued industrial market recovery, citing the strongest quarter of net absorption since 2006 in Q4 2012, a U.S. availability rate of 12.8%, and a forecast of 150 million square feet of U.S. net absorption in 2013. It expects development volume to increase, having started 40 projects totaling 16.9 million square feet in 2012, and expects lower rental income and expenses in its Real Estate Operations segment as properties move into the new ventures, offset partly by higher Private Capital segment fees and equity earnings. Management has not provided quantitative earnings guidance in this filing.
06—Continue