01—Abstract
Summary
Summary of the 10-K filed February 25, 2015. Cited figures are marked; the original filing is the authoritative source.
Prologis, Inc. (NYSE: PLD) and its operating partnership, Prologis, L.P., report FY2014 results as the global leader in industrial real estate, with roughly 590 million square feet owned or invested across 21 countries and an expected investment of $45.6 billiona on an owned and managed basis.
The company's consolidated operating portfolio was 96.1% occupied at year-end, and its rent-change on rollovers was positive for eight consecutive quarters, ranging from 6.2% to 9.7% in 2014. Net earnings attributable to common stockholders rose to $622.2 millionb ($1.24 diluted EPS) from $315.4 million in 2013, driven largely by $725.8 million of gains on dispositions and revaluations, while Core FFO increased to $953.1 million from $813.2 million. The balance sheet strengthened during the year.
Total debt was $9.38 billionc with a weighted average effective interest rate of 4.2% and weighted average maturity of 70 months, and the company repurchased about $1.8 billion of higher-cost notes and mortgage debt using proceeds from euro-denominated senior notes and new term loans. Credit ratings were Baa1 (Moody's) and BBB+ (S&P), both stable, and the company had $2.7 billion of credit facility availability at year-end. Strategic Capital income rose to $219.9 million, supported by a $42.1 million promote from the Prologis Targeted U.S. Logistics Fund and by the FIBRA Prologis IPO in Mexico.
Key risks include concentration in California (33.6% of consolidated operating properties by investment), foreign currency exposure (about $6.4 billiond, or 24.9% of total assets, held in non-dollar currencies), and reliance on co-investment ventures and capital markets for growth. The company also faces a $460 million exchangeable note maturity in March 2015 and remains dependent on external capital to fund its development pipeline, which had $1.0 billion of remaining expected spend.
02—Key points
Key Highlights
- Core FFO rose to $953.1 million in 2014 from $813.2 million in 2013, a gain of roughly 17%, while FFO as defined by Prologis reached $887.5 million.
- Real Estate Operations NOI was flat at $1.09 billion, with average occupancy up 90 basis points to 94.5% and same-store NOI growth of 3.65% for the full year (4.1% in Q4).
- Net earnings to common stockholders were $622.2 million ($1.24 diluted EPS), boosted by $725.8 million of gains on dispositions and revaluation of equity investments, including a $201.3 million gain on the NAIF consolidation.
- Debt reduced to $9.38 billion at a 3.6% weighted average rate (down from 4.2%), with $1.3 billion of 2015–2022 senior notes repurchased and a $1.8 billion euro-denominated issuance completed in 2014.
- Development portfolio of $2.5 billion total expected investment, with $1.0 billion left to spend, and an expected 23% margin over book value on $1.1 billion of stabilized projects.
- Dividend increased to $0.33 per quarter ($1.32 annualized) from $0.28 in 2013, with 2014 distributions paid entirely in cash.
- Land bank supports roughly 180 million square feet of additional development potential, which management believes is carried below current fair value.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 25, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Operating Expenses | $1.44B$1.45B | −0.4% |
| Operating Income | $319.81M$304.41M | +5.1% |
| Interest Expense | $308.88M$379.33M | −18.6% |
| Net Income | $636.18M$342.92M | +85.5% |
| EPS (Basic) | $1.25$0.65 | +92.3% |
| EPS (Diluted) | $1.24$0.64 | +93.8% |
| Shares Outstanding (Basic) | 499.58M486.08M | +2.8% |
| Shares Outstanding (Diluted) | 506.39M491.55M | +3.0% |
05—Questions
Frequently Asked Questions
How did Prologis perform on its core operating metrics in 2014?
Core FFO grew to $953.1 million from $813.2 million, and same-store NOI rose 3.65% for the year. Average occupancy in consolidated operating properties increased to 94.5%, and year-end occupancy reached 96.3%. Rent change on rollovers was positive in every quarter, ranging from 6.2% to 9.7%, which points to continuing rental growth as leases signed during the post-crisis period roll over.
Why did reported net earnings rise so sharply in 2014?
Net earnings attributable to common stockholders were $622.2 million versus $315.4 million in 2013. Much of the increase came from non-recurring items, including $725.8 million of gains on dispositions and revaluation of equity investments, such as a $201.3 million gain from consolidating NAIF and $336.2 million of gains on third-party dispositions. Investors often prefer Core FFO for comparing operating performance because it strips out these transactional gains.
How exposed is Prologis to California and foreign currency risk?
About 33.6% of consolidated operating properties by investment are in California, which makes the company sensitive to the state's economy and real estate conditions. Roughly $6.4 billion, or 24.9% of total assets, is invested in non-dollar currencies, mainly the euro, British pound and yen. A 10% weakening of the dollar would reduce cash flows on hedge settlements by about $105 million, and the company uses net investment hedges and foreign currency options to partly offset this exposure.
What near-term debt and liquidity obligations should investors watch?
Scheduled 2015 principal payments total $599 million, including $460 million of 3.25% exchangeable senior notes due March 15, 2015, convertible at about $38.72 per share. The company had $350.7 million of unrestricted cash and $2.7 billion of available credit facility capacity at year-end, and it was in compliance with all debt covenants. Prologis has also established a new $750 million at-the-market equity program, which can supplement funding if needed.
How does the Strategic Capital business contribute to earnings?
Strategic Capital NOI rose to $123.4 million from $90.2 million, supported by a $42.1 million promote from the Prologis Targeted U.S. Logistics Fund and by the FIBRA Prologis Mexican REIT IPO, which gave Prologis a 45% interest accounted for under the equity method. The company manages about $22.7 billion of assets through co-investment ventures and expects to grow this business mainly through existing ventures. Promote income can be lumpy, so investors should view it as a variable contributor to earnings.
06—Continue