Exhibit 99.2

 

LOGO

Unaudited Pro Forma Condensed Combined Financial Statements of Prologis, Inc. and Prologis, L.P. as of September 30, 2022, for the nine months ended September 30, 2022 and for the year ended December  31, 2021

Table of Contents

 

     Page
Number
 

Prologis, Inc.:

  

Pro Forma Condensed Combined Balance Sheet as of September  30, 2022 (Unaudited)

     4  

Pro Forma Condensed Combined Statement of Income for the nine months ended September 30, 2022 (Unaudited)

     5  

Pro Forma Condensed Combined Statement of Income for the year ended December 31, 2021 (Unaudited)

     6  

Prologis, L.P.:

  

Pro Forma Condensed Combined Balance Sheet as of September  30, 2022 (Unaudited)

     7  

Pro Forma Condensed Combined Statement of Income for the nine months ended September 30, 2022 (Unaudited)

     8  

Pro Forma Condensed Combined Statement of Income for the year ended December 31, 2021 (Unaudited)

     9  

Prologis, Inc. and Prologis, L.P:

  

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

     10  

 

1


UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Introduction

On June 11, 2022, Prologis, Inc., Prologis, L.P. (“Prologis OP” and, together with Prologis, Inc., “Prologis,” “we,” “our” or “us”), Compton Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Prologis, Inc. (“Prologis Merger Sub”) and Compton Merger Sub OP LLC, a Delaware limited liability company and wholly owned subsidiary of Prologis OP (“Prologis OP Merger Sub”) entered into an Agreement and Plan of Merger (the “merger agreement”) with Duke Realty Corporation, an Indiana corporation (“Duke Realty”), and Duke Realty Limited Partnership, an Indiana limited partnership (“Duke Realty OP”). On October 3, 2022, the merger agreement was consummated, and subject to the terms and conditions set forth therein: (i) Duke Realty merged with and into Prologis Merger Sub, with Prologis Merger Sub continuing as the surviving entity and a wholly owned subsidiary of Prologis, Inc. (the “company merger”); (ii) thereafter, Prologis, Inc. caused all of the outstanding equity interests of Prologis Merger Sub to be contributed to Prologis OP in exchange for the issuance by Prologis OP of Prologis OP common units to Prologis, Inc. and/or its subsidiaries as directed by Prologis, Inc.; and (iii) thereafter, Prologis OP Merger Sub merged with and into Duke Realty OP, with Duke Realty OP surviving the merger and becoming a wholly owned subsidiary of Prologis OP (the “partnership merger” and, together with the company merger, the “mergers”).

Under the terms of the merger agreement, at the effective time of the company merger, each issued and outstanding share of common stock, par value $0.01 per share, of Duke Realty (“Duke Realty common stock”), as of immediately prior to the company merger was automatically converted into the right to receive 0.475 of a newly issued share of common stock, par value $0.01 per share, of Prologis, Inc. (“Prologis common stock”), without interest, plus the right, if any, to receive cash in lieu of fractional shares of Prologis common stock into which such shares of Duke Realty common stock would have been converted pursuant to the merger agreement. At the effective time of the partnership merger, each issued and outstanding common unit of Duke Realty OP as of immediately prior to the partnership merger was converted into 0.475 of a newly issued common unit of Prologis OP. The 0.475 exchange ratio was fixed and was not adjusted to reflect changes in the stock prices of Prologis common stock or Duke Realty common stock prior to closing. Changes in the price of Prologis common stock prior to the mergers affected the market value of the merger consideration that Duke Realty shareholders and Duke Realty OP unitholders were entitled to receive upon the closing of the mergers.

On October 3, 2022, we acquired Duke Realty and Duke Realty OP for approximately $23 billion through the issuance of equity based on the value of the Prologis, Inc. common stock issued using the closing price on September 30, 2022 and the assumption of debt.

After consideration of all applicable factors pursuant to the business combination accounting rules, we accounted for the mergers as an asset acquisition under United States Generally Accepted Accounting Principles and as a result the transaction costs will be capitalized to the basis of the acquired properties.

Description of Presentation

Prologis, Inc. is a real estate investment trust (a “REIT”) and the general partner of Prologis OP. We operate Prologis, Inc. and Prologis OP as one enterprise. The management of Prologis, Inc. consists of the same members as the management of Prologis OP. As sole general partner, Prologis, Inc. has control of Prologis OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates Prologis OP for financial reporting purposes. Because the only significant asset of Prologis, Inc. is its investment in Prologis OP, the assets and liabilities of Prologis, Inc. and Prologis OP are the same on their respective financial statements. Prologis OP holds substantially all the assets of the business, directly or indirectly.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of Prologis, Inc. and those of Prologis OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in Prologis, Inc. and Prologis OP. Unless otherwise indicated the Notes to the Unaudited Pro Forma Condensed Combined Financial Statements apply to both Prologis, Inc. and Prologis OP.

Pro Forma Information

The following Unaudited Pro Forma Condensed Combined Financial Statements combine the historical consolidated financial statements of Prologis and Duke Realty, including Pro Forma Balance Sheets and Statements of Income, which we refer to as the “Pro Forma Financial Statements”.

The accompanying Pro Forma Balance Sheets at September 30, 2022 have been prepared as if the mergers had occurred as of September 30, 2022. The accompanying Pro Forma Statements of Income for the nine months ended September 30, 2022 and the year ended December 31, 2021 have been prepared as if the mergers had occurred as of January 1, 2021.

During the period from January 1, 2021 to September 30, 2022, Prologis and Duke Realty acquired and disposed of various real estate assets. None of the assets acquired and disposed of by the respective companies during this period, individually or in the aggregate, or acquisitions and dispositions considered probable of closing as of the date of the Pro Forma Financial Statements, exceeded the significance level that requires the presentation of pro forma financial information pursuant to Regulation S-X, Article 11. As such, the following Pro Forma Statements of Income for the nine months ended September 30, 2022 and the year ended December 31, 2021 do not include pro forma adjustments to present the impact of these insignificant acquisitions and dispositions as if they occurred on January 1, 2021.

 

2


Pro forma adjustments, and the assumptions on which they are based, are described in the accompanying Notes to Pro Forma Financial Statements, which are referred to in this section as the accompanying notes.

The pro forma adjustments and the purchase price allocation as presented are based on estimates and certain information that is currently available. Under acquisition accounting, the total cost or total consideration exchanged is allocated to the real estate properties and related lease intangibles on a relative fair value basis. All other assets acquired and liabilities assumed, including debt, and real estate assets that we do not intend to operate long-term are recorded at fair value. The total consideration and assignment of fair values to Duke Realty’s assets and liabilities has not been finalized and is subject to change and the actual amounts could vary from the Pro Forma Financial Statements.

The Pro Forma Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant adjustments that can be factually supported, are directly attributable to the mergers and are expected to have a continuing impact within the SEC regulations covering the preparation of the Pro Forma Financial Statements, have been made. The Pro Forma Financial Statements are presented for illustrative purposes only and are not necessarily indicative of the combined operating results or financial position that would have occurred if such transactions had been consummated on the dates and in accordance with the assumptions described herein, nor are they necessarily indicative of future operating results or financial position. We expect that the mergers will create significant corporate general and administrative as well as property operating cost savings. There can be no assurance that we will be successful in achieving these anticipated cost savings. Therefore, the Pro Forma Financial Statements included herein do not give effect to any synergies, potential cost reductions or other operating efficiencies that we expect to result from the mergers based on management’s plans or intent after the mergers.

You are urged to read the Pro Forma Financial Statements below together with Prologis’ and Duke Realty’s publicly available historical consolidated financial statements and accompanying notes.

Merger Consideration

For purposes of the Pro Forma Financial Statements, Prologis has assumed a total purchase price of $23.2 billion through the issuance of equity based on the value of Prologis common stock and units issued of $18.8 billion, the assumption of debt of $4.2 billion and transaction costs. The aggregate equity consideration consists of shares of Prologis common stock and Prologis OP common units issued in exchange for shares of Duke Realty common stock and Duke Realty OP common units and is calculated as follows (in millions, except price per share/unit):

 

Number of shares of Prologis common stock and Prologis OP common units issued upon conversion of shares of Duke Realty common stock and Duke Realty OP common units at September 30, 2022 (1)

     184.80  

Multiplied by price of Prologis common stock on September 30, 2022 (2)

   $ 101.60  
  

 

 

 

Estimated fair value of shares of Prologis common stock and Prologis OP common units to be issued

   $ 18,776  

Estimated transaction costs (3)

     240  
  

 

 

 

Estimated aggregate consideration

   $ 19,016  
  

 

 

 

 

(1)

Duke Realty shareholders and Duke Realty OP unitholders received 0.475 of a newly issued share of Prologis common stock or 0.475 of a newly issued Prologis OP common unit, respectively, for each share of Duke Realty common stock or Duke Realty OP common unit, respectively, that they owned as of immediately prior to the consummation of the mergers.

 

 

(2)

Pursuant to accounting rules, the purchase price was based on the price of the Prologis common stock on September 30, 2022, with the consummation of the mergers before the market opened on October 3, 2022.

 

 

(3)

For purposes of the Pro Forma Financial Statements, estimated transaction costs for the mergers include the direct costs incurred to acquire the real estate assets. These costs were capitalized by Prologis. Termination and severance costs for the acceleration of unvested Duke Realty equity awards and Duke Realty OP LTIP units under Duke Realty’s equity incentive plans that were fully vested at closing are included in the estimated fair value of Prologis common stock and Prologis OP common units to be issued.

The Pro Forma Financial Statements included herein do not give effect to any synergies, potential cost reductions or other operating efficiencies that we expect to result from the mergers based on management’s plans or intent after the mergers.

 

3


PROLOGIS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

September 30, 2022

(In thousands)

 

     Historical (A)     Transaction
Accounting
          Pro Forma  
     Prologis     Duke Realty     Adjustments           Combined  

ASSETS

          

Investments in real estate properties

   $ 55,954,870     $ 12,194,182     $ 12,069,774       (B   $ 80,218,826  

Less accumulated depreciation

     8,558,576       1,865,947       (1,865,947     (C     8,558,576  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net investments in real estate properties

     47,396,294       10,328,235       13,935,721         71,660,250  

Investments in and advances to unconsolidated entities

     8,659,129       209,939       373,933       (D     9,243,001  

Assets held for sale or contribution

     614,356       —         —         (E     614,356  
  

 

 

   

 

 

   

 

 

     

 

 

 

Net investments in real estate

     56,669,779       10,538,174       14,309,654         81,517,607  

Cash and cash equivalents

     636,282       93,621       —           729,903  

Other assets

     3,639,468       954,840       169,750       (F     4,764,058  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

   $ 60,945,529     $ 11,586,635     $ 14,479,404       $ 87,011,568  
  

 

 

   

 

 

   

 

 

     

 

 

 
          

LIABILITIES AND EQUITY

          

Liabilities:

          

Debt

   $ 18,139,299     $ 4,633,393     $ (455,521     (G   $ 22,317,171  

Accounts payable and accrued expenses

     1,318,378       281,938       —           1,600,316  

Other liabilities

     1,881,531       379,582       2,208,666       (H     4,469,779  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

     21,339,208       5,294,913       1,753,145         28,387,266  
  

 

 

   

 

 

   

 

 

     

 

 

 
          

Equity:

          

Stockholders’ equity:

          

Series Q preferred shares

     63,948       —         —           63,948  

Common stock

     7,404       3,850       (2,023     (I     9,231  

Additional paid-in capital

     35,606,319       6,266,959       12,526,594       (I     54,399,872  

Accumulated other comprehensive loss

     (71,626     (25,343     25,343       (I     (71,626

Distributions in excess of net earnings

     (312,945     (53,683     53,683       (I     (312,945
  

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

     35,293,100       6,191,783       12,603,597         54,088,480  

Noncontrolling interests

     3,323,541       4,385       (1,945     (J     3,325,981  

Limited partnership unitholders

     989,680       95,554       124,607       (I     1,209,841  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total equity

     39,606,321       6,291,722       12,726,259         58,624,302  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and equity

   $ 60,945,529     $ 11,586,635     $ 14,479,404       $ 87,011,568  
  

 

 

   

 

 

   

 

 

     

 

 

 

 

4


PROLOGIS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

For the nine months ended September 30, 2022

(In thousands, except per share data)

 

     Historical (A)     Transaction
Accounting
          Pro Forma        
     Prologis     Duke Realty     Adjustments           Combined        

Revenues:

            

Rental

   $ 3,322,159     $ 866,824     $ 243,909       (K   $ 4,432,892    

Strategic capital

     884,916       3,602       —           888,518    

Development management and other

     15,025       1,521       —           16,546    
  

 

 

   

 

 

   

 

 

     

 

 

   

Total revenues

     4,222,100       871,947       243,909         5,337,956    
  

 

 

   

 

 

   

 

 

     

 

 

   

Expenses:

            

Rental

     830,846       227,614       —         (L     1,058,460    

Strategic capital

     239,418       3,277       —           242,695    

General and administrative

     245,663       174,744       —         (L     420,407    

Depreciation and amortization

     1,200,410       285,409       261,205       (M     1,747,024    

Other

     28,214       2,966       —           31,180    
  

 

 

   

 

 

   

 

 

     

 

 

   

Total expenses

     2,544,551       694,010       261,205         3,499,766    
  

 

 

   

 

 

   

 

 

     

 

 

   
            

Operating income before gains on real estate transactions, net

     1,677,549       177,937       (17,296       1,838,190    

Gains on dispositions of development properties and land, net

     390,686       3,117       —           393,803    

Gains on other dispositions of investments in real estate, net

     585,854       242,637       —           828,491    
  

 

 

   

 

 

   

 

 

     

 

 

   

Operating income

     2,654,089       423,691       (17,296       3,060,484    
            

Other income (expense):

            

Earnings from unconsolidated entities, net

     241,481       13,900       (8,150     (N     247,231    

Interest expense

     (188,241     (62,113     (23,317     (O     (273,671  

Foreign currency and derivative gains and interest and other income, net

     364,623       2,816       —           367,439    

Losses on early extinguishment of debt, net

     (18,895     (21,948     —           (40,843  
  

 

 

   

 

 

   

 

 

     

 

 

   

Total other income (expense)

     398,968       (67,345     (31,467       300,156    
  

 

 

   

 

 

   

 

 

     

 

 

   

Earnings before income taxes

     3,053,057       356,346       (48,763       3,360,640    

Total income tax expense

     (117,725     (7,371     —           (125,096  
  

 

 

   

 

 

   

 

 

     

 

 

   

Consolidated net earnings

     2,935,332       348,975       (48,763       3,235,544    

Less net earnings attributable to noncontrolling interests

     157,690       3,826       (462     (P     161,054    
  

 

 

   

 

 

   

 

 

     

 

 

   

Net earnings attributable to controlling interests

     2,777,642       345,149       (48,301       3,074,490    

Less preferred stock dividends

     4,600       —         —           4,600    
  

 

 

   

 

 

   

 

 

     

 

 

   

Net earnings attributable to common stockholders

   $ 2,773,042     $ 345,149     $ (48,301     $ 3,069,890    
            

Weighted average common shares outstanding – Basic

     740,585       384,066           923,246       (Q
  

 

 

   

 

 

       

 

 

   

Weighted average common shares outstanding – Diluted

     766,019       389,539           950,820       (Q
  

 

 

   

 

 

       

 

 

   
            

Net earnings per share attributable to common stockholders – Basic

   $ 3.74     $ 0.90         $ 3.33    
            

Net earnings per share attributable to common stockholders – Diluted

   $ 3.72     $ 0.90         $ 3.32    

 

5


PROLOGIS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

For the year ended December 31, 2021

(In thousands, except per share data)

 

    Historical (A)     Transaction
Accounting
          Pro Forma        
    Prologis     Duke Realty     Adjustments           Combined        

Revenues:

           

Rental

  $ 4,147,994     $ 1,096,635     $ 401,181       (K   $ 5,645,810    

Strategic capital

    590,750       3,206       —           593,956    

Development management and other

    20,696       6,082       —           26,778    
 

 

 

   

 

 

   

 

 

     

 

 

   

Total revenues

    4,759,440       1,105,923       401,181         6,266,544    
 

 

 

   

 

 

   

 

 

     

 

 

   

Expenses:

           

Rental

    1,041,316       320,566       —         (L     1,361,882    

Strategic capital

    207,171       2,399       —           209,570    

General and administrative

    293,167       69,554       —         (L     362,721    

Depreciation and amortization

    1,577,942       362,148       441,077       (M     2,381,167    

Other

    22,435       7,424       —           29,859    
 

 

 

   

 

 

   

 

 

     

 

 

   

Total expenses

    3,142,031       762,091       441,077         4,345,199    
           

Operating income before gains on real estate transactions, net

    1,617,409       343,832       (39,896       1,921,345    

Gains on dispositions of development properties and land, net

    817,017       12,917       —           829,934    

Gains on other dispositions of investments in real estate, net

    772,570       585,685       —           1,358,255    
 

 

 

   

 

 

   

 

 

     

 

 

   

Operating income

    3,206,996       942,434       (39,896       4,109,534    
           

Other income (expense):

           

Earnings from unconsolidated entities, net

    404,255       32,804       (13,062     (N     423,997    

Interest expense

    (266,228     (84,843     (32,639     (O     (383,710  

Foreign currency and derivative gains and interest and other income, net

    165,278       7,673       —           172,951    

Losses on early extinguishment of debt, net

    (187,453     (17,901     —           (205,354  
 

 

 

   

 

 

   

 

 

     

 

 

   

Total other income (expense)

    115,852       (62,267     (45,701       7,884    
 

 

 

   

 

 

   

 

 

     

 

 

   

Earnings before income taxes

    3,322,848       880,167       (85,597       4,117,418    

Total income tax expense

    (174,258     (18,549     —           (192,807  
 

 

 

   

 

 

   

 

 

       

Consolidated net earnings

    3,148,590       861,618       (85,597       3,924,611    

Less net earnings attributable to noncontrolling interests

    208,867       8,723       (854     (P     216,736    
 

 

 

   

 

 

   

 

 

     

 

 

   

Net earnings attributable to controlling interests

    2,939,723       852,895       (84,743       3,707,875    

Less preferred stock dividends

    6,152       —         —           6,152    
           

Net earnings attributable to common stockholders

  $ 2,933,571     $ 852,895     $ (84,743     $ 3,701,723    
 

 

 

   

 

 

   

 

 

     

 

 

   

Weighted average common shares outstanding – Basic

    739,363       377,673           922,024       (Q
 

 

 

   

 

 

       

 

 

   

Weighted average common shares outstanding – Diluted

    764,762       383,476           949,563       (Q
           

Net earnings per share attributable to common stockholders –Basic

  $ 3.97     $ 2.25         $ 4.01    
           

Net earnings per share attributable to common stockholders – Diluted

  $ 3.94     $ 2.25         $ 3.99    

 

6


PROLOGIS, L.P.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

September 30, 2022

(In thousands)

 

     Historical (A)      Transaction
Accounting
          Pro Forma  
     Prologis      Duke Realty      Adjustments           Combined  

ASSETS

            

Investments in real estate properties

   $ 55,954,870      $ 12,194,182      $ 12,069,774       (B   $ 80,218,826  

Less accumulated depreciation

     8,558,576        1,865,947        (1,865,947     (C     8,558,576  
  

 

 

    

 

 

    

 

 

     

 

 

 

Net investments in real estate properties

     47,396,294        10,328,235        13,935,721         71,660,250  

Investments in and advances to unconsolidated entities

     8,659,129        209,939        373,933       (D     9,243,001  

Assets held for sale or contribution

     614,356        —          —         (E     614,356  
  

 

 

    

 

 

    

 

 

     

 

 

 

Net investments in real estate

     56,669,779        10,538,174        14,309,654         81,517,607  

Cash and cash equivalents

     636,282        93,621        —           729,903  

Other assets

     3,639,468        954,840        169,750       (F     4,764,058  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total assets

   $ 60,945,529      $ 11,586,635      $ 14,479,404       $ 87,011,568  
  

 

 

    

 

 

    

 

 

     

 

 

 
            

LIABILITIES AND CAPITAL

            

Liabilities:

            

Debt

   $ 18,139,299      $ 4,633,393      $ (455,521     (G   $ 22,317,171  

Accounts payable and accrued expenses

     1,318,378        281,938        —           1,600,316  

Other liabilities

     1,881,531        379,582        2,208,666       (H     4,469,779  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total liabilities

     21,339,208        5,294,913        1,753,145         28,387,266  
  

 

 

    

 

 

    

 

 

     

 

 

 
            

Capital:

            

Partners’ capital

     36,282,780        6,287,337        12,728,204       (I     55,298,321  

Noncontrolling interests

     3,323,541        4,385        (1,945     (J     3,325,981  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total capital

     39,606,321        6,291,722        12,726,259         58,624,302  
  

 

 

    

 

 

    

 

 

     

 

 

 

Total liabilities and capital

   $ 60,945,529      $ 11,586,635      $ 14,479,404       $ 87,011,568  
  

 

 

    

 

 

    

 

 

     

 

 

 

 

7


PROLOGIS, L.P.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

For the nine months ended September 30, 2022

(In thousands, except per unit data)

 

     Historical (A)     Transaction
Accounting
          Pro Forma        
     Prologis     Duke Realty     Adjustments           Combined        

Revenues:

            

Rental

   $ 3,322,159     $ 866,824     $ 243,909       (K   $ 4,432,892    

Strategic capital

     884,916       3,602       —           888,518    

Development management and other

     15,025       1,521       —           16,546    
  

 

 

   

 

 

   

 

 

     

 

 

   

Total revenues

     4,222,100       871,947       243,909         5,337,956    
  

 

 

   

 

 

   

 

 

     

 

 

   

Expenses:

            

Rental

     830,846       227,614       —         (L     1,058,460    

Strategic capital

     239,418       3,277       —           242,695    

General and administrative

     245,663       174,744       —         (L     420,407    

Depreciation and amortization

     1,200,410       285,409       261,205       (M     1,747,024    

Other

     28,214       2,966       —           31,180    
  

 

 

   

 

 

   

 

 

     

 

 

   

Total expenses

     2,544,551       694,010       261,205         3,499,766    
  

 

 

   

 

 

   

 

 

     

 

 

   
            

Operating income before gains on real estate transactions, net

     1,677,549       177,937       (17,296       1,838,190    

Gains on dispositions of development properties and land, net

     390,686       3,117       —           393,803    

Gains on other dispositions of investments in real estate, net

     585,854       242,637       —           828,491    
  

 

 

   

 

 

   

 

 

     

 

 

   

Operating income

     2,654,089       423,691       (17,296       3,060,484    
            

Other income (expense):

            

Earnings from unconsolidated entities, net

     241,481       13,900       (8,150     (N     247,231    

Interest expense

     (188,241     (62,113     (23,317     (O     (273,671  

Foreign currency and derivative gains and interest and other income, net

     364,623       2,816       —           367,439    

Losses on early extinguishment of debt, net

     (18,895     (21,948     —           (40,843  
  

 

 

   

 

 

   

 

 

     

 

 

   

Total other income (expense)

     398,968       (67,345     (31,467       300,156    
  

 

 

   

 

 

   

 

 

     

 

 

   

Earnings before income taxes

     3,053,057       356,346       (48,763       3,360,640    

Total income tax expense

     (117,725     (7,371     —           (125,096  
  

 

 

   

 

 

   

 

 

     

 

 

   

Consolidated net earnings

     2,935,332       348,975       (48,763       3,235,544    

Less net earnings attributable to noncontrolling interests

     79,257       269       103       (P     79,629    
  

 

 

   

 

 

   

 

 

     

 

 

   

Net earnings attributable to controlling interests

     2,856,075       348,706       (48,866       3,155,915    

Less preferred unit distributions

     4,600       —         —           4,600    
  

 

 

   

 

 

   

 

 

     

 

 

   

Net earnings attributable to common unitholders

   $ 2,851,475     $ 348,706     $ (48,866     $ 3,151,315    
  

 

 

   

 

 

   

 

 

     

 

 

   
            

Weighted average common units outstanding – Basic

     753,515       388,005           938,316       (Q
  

 

 

   

 

 

       

 

 

   

Weighted average common units outstanding – Diluted

     766,019       389,539           950,820       (Q
  

 

 

   

 

 

       

 

 

   
            

Net earnings per unit attributable to common unitholders – Basic

   $ 3.74     $ 0.90         $ 3.33    
            

Net earnings per unit attributable to common unitholders – Diluted

   $ 3.72     $ 0.90         $ 3.32    

 

8


PROLOGIS, L.P.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

For the year ended December 31, 2021

(In thousands, except per unit data)

 

     Historical (A)     Transaction
Accounting
          Pro Forma        
     Prologis     Duke Realty     Adjustments           Combined        

Revenues:

            

Rental

   $ 4,147,994     $ 1,096,635     $ 401,181       (K   $ 5,645,810    

Strategic capital

     590,750       3,206       —           593,956    

Development management and other

     20,696       6,082       —           26,778    
  

 

 

   

 

 

   

 

 

     

 

 

   

Total revenues

     4,759,440       1,105,923       401,181         6,266,544    
  

 

 

   

 

 

   

 

 

     

 

 

   

Expenses:

            

Rental

     1,041,316       320,566       —         (L     1,361,882    

Strategic capital

     207,171       2,399       —           209,570    

General and administrative

     293,167       69,554       —         (L     362,721    

Depreciation and amortization

     1,577,942       362,148       441,077       (M     2,381,167    

Other

     22,435       7,424       —           29,859    
  

 

 

   

 

 

   

 

 

     

 

 

   

Total expenses

     3,142,031       762,091       441,077         4,345,199    
  

 

 

   

 

 

   

 

 

     

 

 

   
            

Operating income before gains on real estate transactions, net

     1,617,409       343,832       (39,896       1,921,345    

Gains on dispositions of development properties and land, net

     817,017       12,917       —           829,934    

Gains on other dispositions of investments in real estate, net

     772,570       585,685       —           1,358,255    
  

 

 

   

 

 

   

 

 

     

 

 

   

Operating income

     3,206,996       942,434       (39,896       4,109,534    
            

Other income (expense):

            

Earnings from unconsolidated entities, net

     404,255       32,804       (13,062     (N     423,997    

Interest expense

     (266,228     (84,843     (32,639     (O     (383,710  

Foreign currency and derivative gains and interest and other income, net

     165,278       7,673       —           172,951    

Losses on early extinguishment of debt, net

     (187,453     (17,901     —           (205,354  
  

 

 

   

 

 

   

 

 

     

 

 

   

Total other income (expense)

     115,852       (62,267     (45,701       7,884    
  

 

 

   

 

 

   

 

 

     

 

 

   

Earnings before income taxes

     3,322,848       880,167       (85,597       4,117,418    

Total income tax expense

     (174,258     (18,549     —           (192,807  
  

 

 

   

 

 

   

 

 

     

 

 

   

Consolidated net earnings

     3,148,590       861,618       (85,597       3,924,611    

Less net earnings attributable to noncontrolling interests

     127,075       369       137       (P     127,581    
  

 

 

   

 

 

   

 

 

     

 

 

   

Net earnings attributable to controlling interests

     3,021,515       861,249       (85,734       3,797,030    

Less preferred unit distributions

     6,152       —         —           6,152    
  

 

 

   

 

 

   

 

 

     

 

 

   
            

Net earnings attributable to common unitholders

   $ 3,015,363     $ 861,249     $ (85,734     $ 3,790,878    
  

 

 

   

 

 

   

 

 

     

 

 

   
            

Weighted average common units outstanding – Basic

     751,973       381,381           936,774       (Q
  

 

 

   

 

 

       

 

 

   

Weighted average common units outstanding – Diluted

     764,762       383,476           949,563       (Q
  

 

 

   

 

 

       

 

 

   
            

Net earnings per unit attributable to common unitholders – Basic

   $ 3.97     $ 2.25         $ 4.01    
            

Net earnings per unit attributable to common unitholders – Diluted

   $ 3.94     $ 2.25         $ 3.99    

 

9


Notes to the Pro Forma Financial Statements

(1) Preliminary Purchase Price Allocation

The following allocation of the purchase price of Duke Realty is based on the estimate of the fair value of the tangible and intangible assets and liabilities of Duke Realty at September 30, 2022. The allocation of the purchase price was based on the fair value of such assets and liabilities as of the actual consummation date of the mergers. The final allocation of the purchase price may be different from the estimates used in the Pro Forma Financial Statements.

The purchase price of Duke Realty of $19.0 billion (as calculated in the manner described above) is allocated to the tangible and intangible assets acquired and assumed liabilities based on the following preliminary basis at September 30, 2022 (dollar amounts in thousands):

 

Investments in real estate properties, net

   $ 24,263,956  

Investments in and advances to unconsolidated entities

     583,872  

Cash and other assets, including lease intangible assets

     1,218,211  

Debt

     (4,177,872

Accounts payable, accrued expenses and other liabilities, including lease intangible liabilities

     (2,870,186

Noncontrolling interests

     (2,440
  

 

 

 

Total estimated purchase price, including transaction costs

   $ 19,015,541  
  

 

 

 

(2) Historical Financial Statements

 

(A)

In order to conform to the current Prologis presentation, we condensed and reclassified certain amounts presented in the historical financial statements of Prologis and Duke Realty.

(3) Duke Realty Transaction Accounting Adjustments

Adjustments for Pro Forma Condensed Combined Balance Sheets:

Unless otherwise indicated, the pro forma adjustments apply to both Prologis, Inc. and Prologis OP.

 

(B)

Duke Realty’s real estate assets have been adjusted to their estimated fair value at September 30, 2022. We estimated the fair value of each property generally by applying a capitalization rate to the estimated net operating income. As the fair value of the properties acquired exceeded the estimated purchase price, we allocated the excess amount at a property-level based on the relative fair value of the property in comparison to the total portfolio. We determined the capitalization rates that were appropriate by market, based on recent appraisals, transactions or other market data. The fair value of land is generally based on relevant market data, such as a comparison of the subject site to similar parcels that have recently been sold or are currently being offered on the market for sale.

 

(C)

Duke Realty’s historical accumulated depreciation balance was eliminated.

 

(D)

Duke Realty’s investments in and advances to unconsolidated entities have been adjusted to their estimated fair value at September 30, 2022. The fair values for the investments were calculated using similar valuation methods as those used for consolidated real estate assets and debt.

 

(E)

At September 30, 2022, Duke Realty had no properties that were classified as held for sale. Prologis intends to dispose of certain of the acquired real estate assets from Duke Realty. There was no pro forma adjustment made to reflect Prologis’ future intent to sell these properties.

 

(F)

Adjustments to Duke Realty’s historical balance of other assets are as follows (in thousands):

 

Elimination of straight-line rent receivable

   $ (206,742

Elimination of previously acquired lease intangible assets and goodwill

     (440,621

Elimination of lease right-of-use assets

     (71,730

Elimination of deferred financing costs

     (4,946

Recognition of value of acquired lease intangible assets (1)

     818,963  

Recognition of value of acquired lease right-of-use assets (2)

     74,826  
  

 

 

 

Total

   $ 169,750  
  

 

 

 

 

  (1)

The fair value of acquired lease intangible assets includes leasing commissions, foregone rent and above market leases. We recognize an asset for leasing commissions based on our estimate of the cost to lease space in the applicable markets. Foregone rents include the value of the revenue and recovery of costs foregone during a reasonable lease-up period, as if the space was vacant, in each of the applicable markets. An asset was recognized for acquired leases with in-place rents that are higher than our best estimate of current market rents in each of the applicable markets.

 

10


  (2)

Duke Realty’s lease right-of-use assets for ground and office space leases, in which Duke Realty is the lessee, were adjusted to their estimated value at September 30, 2022. We estimated the value of each lease by calculating the present value of the future minimum rental payments at September 30, 2022 using Prologis’ weighted average incremental borrowing rate of 5.2%. The weighted average remaining lease term for these leases was forty-four years at September 30, 2022.

 

(G)

Duke Realty’s debt balances have been adjusted to their estimated fair value at September 30, 2022. Fair value was estimated based on contractual future cash flows discounted using borrowing spreads and market interest rates that would have been available to us for the issuance of debt with similar terms and remaining maturities.

 

(H)

Adjustments to Duke Realty’s historical balance of other liabilities are as follows (in thousands):

 

Elimination of deferred revenue

   $ (50,136

Elimination of previously acquired lease intangible liabilities

     (85,709

Elimination of lease liabilities

     (79,434

Recognition of value of acquired lease intangible liabilities (1)

     2,349,119  

Recognition of value of acquired lease liabilities (2)

     74,826  
  

 

 

 

Total

   $ 2,208,666  
  

 

 

 

 

  (1)

The fair value of acquired lease intangible liabilities includes a liability for acquired leases with in-place rents that are lower than our best estimate of current market rents in each of the applicable markets.

 

  (2)

Duke Realty’s lease liabilities for ground and office space leases, in which Duke Realty is the lessee, were adjusted to their estimated value at September 30, 2022. We estimated the value of each lease by calculating the present value of the future minimum rental payments at September 30, 2022 using Prologis’ weighted average incremental borrowing rate of 5.2%. The weighted average remaining lease term for these leases was forty-four years at September 30, 2022.

 

(I)

Adjustments represent the elimination of historical Duke Realty balances and the issuance of Prologis common stock and Prologis OP common units in exchange for shares of Duke Realty common stock and Duke Realty OP common units, respectively, in the mergers. The adjustment for the Duke Realty OP unitholders is based on the Duke Realty OP unitholders’ share of the total net asset pro forma adjustments at September 30, 2022. This adjustment reflected the Duke Realty OP unitholders’ ownership percentage of 1.2% at September 30, 2022.

 

(J)

The adjustment for noncontrolling interests in the consolidated ventures at September 30, 2022 is based on the noncontrolling interests’ share in the fair value adjustments for real estate and debt as described above.

Adjustments for Pro Forma Condensed Combined Statements of Income:

The pro forma adjustments to the Pro Forma Condensed Combined Statements of Income assume that a purchase price allocation done as of January 1, 2021 was equivalent to amounts assigned based on the estimated purchase price allocation done at September 30, 2022 and reflected in the Pro Forma Condensed Combined Balance Sheets.

 

(K)

Rental revenue is adjusted to remove Duke Realty’s historical straight-line rent and amortization of the net below market lease intangible liability of $37.0 million and $7.0 million, respectively, for the nine months ended September 30, 2022, and $41.0 million and $4.4 million, respectively, for the year ended December 31, 2021. Rental revenue is further adjusted to recognize acquired leases on a straight-line basis and the amortization of the net below market lease intangible liability of $26.6 million and $261.3 million, respectively, for the nine months ended September 30, 2022, and $56.4 million and $390.2 million, respectively, for the year ended December 31, 2021. For purposes of the above or below market rent adjustments, we estimated a weighted average remaining lease term associated with these leases of five years.

 

(L)

We expect that the mergers will create significant corporate general and administrative as well as property operating cost savings. There can be no assurance that we will be successful in achieving these anticipated cost savings. Therefore, the Pro Forma Financial Statements included herein do not give effect to any synergies, potential cost reductions or other operating efficiencies that we expect to result from the mergers based on management’s plans or intent after the mergers.

 

(M)

Depreciation and amortization expense is adjusted to remove $285.4 million and $362.2 million of Duke Realty’s historical depreciation and amortization expense and recognize $546.6 million and $803.3 million of depreciation and amortization expense for the nine months ended September 30, 2022, and the year ended December 31, 2021, respectively. For purposes of this adjustment, we estimated the various components of the real estate acquired and used an estimated average useful life of 30 years for operating properties and an estimated weighted average remaining lease term associated with in-place leases at September 30, 2022 that approximated five years.

 

(N)

We adjusted Duke Realty’s investment in unconsolidated entities to fair value. As a result, we adjusted the equity in earnings that Duke Realty recognized from these entities to reflect the impact the amortization of these fair value adjustments would have had on earnings from these unconsolidated entities.

 

11


(O)

We adjusted Duke Realty’s interest expense based on the fair value of debt. The adjustment to interest expense includes the removal of Duke Realty’s historical interest expense, including amortization of deferred financing costs and debt premiums and discounts, and calculation of interest expense based on the estimated fair value of acquired debt, net of amounts capitalized. The weighted average interest rate associated with the debt at fair value was 4.9% at September 30, 2022 (see note G).

 

(P)

An adjustment was made to reflect the income allocated to noncontrolling interests in the ventures that Duke Realty consolidates to reflect the impact the amortization of these fair value adjustments would have had on the earnings of the noncontrolling interests or third parties. In addition, an adjustment was made to reflect the Duke Realty OP unitholders’ ownership percentage of 1.2% in all of the pro forma adjustments described above.

(4) Combined Pro Forma Adjustments

 

(Q)

The unaudited pro forma adjustments to shares or units outstanding used in the calculation of basic earnings per share or unit attributable to common stockholders or unitholders and diluted earnings per share attributable to common stockholders or unitholders, after giving effect to the exchange ratios for the mergers, were as follows (in thousands):

 

Prologis, Inc.    Nine Months Ended
September 30, 2022
     Year Ended
December 31, 2021
 

Prologis weighted average common shares outstanding – Basic

     740,585        739,363  

Shares issued to Duke Realty shareholders – pro forma basis (1)

     182,661        182,661  
  

 

 

    

 

 

 

Weighted average common shares outstanding – Basic

     923,246        922,024  
  

 

 

    

 

 

 
     

Prologis weighted average common shares outstanding – Diluted

     766,019        764,762  

Shares issued to Duke Realty shareholders, including exchange of Duke Realty OP units – pro forma basis (1)

     184,801        184,801  
  

 

 

    

 

 

 

Weighted average common shares outstanding – Diluted

     950,820        949,563  
  

 

 

    

 

 

 
     

Prologis, L.P.

     

Prologis weighted average common units outstanding – Basic

     753,515        751,973  

Units issued to Duke Realty OP unitholders – pro forma basis (1)

     184,801        184,801  
  

 

 

    

 

 

 

Weighted average common units outstanding – Basic

     938,316        936,774  
  

 

 

    

 

 

 
     

Prologis weighted average common units outstanding – Diluted

     766,019        764,762  

Units issued to Duke Realty OP unitholders – pro forma basis (1)

     184,801        184,801  
  

 

 

    

 

 

 

Weighted average common units outstanding – Diluted

     950,820        949,563  
  

 

 

    

 

 

 

 

  (1)

The pro forma weighted average shares or units outstanding assumes the issuance of shares of Prologis common stock and Prologis OP common units in connection with the mergers throughout all periods presented.

 

12