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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, 2019

 

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)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Prologis, Inc.

 

Common Stock, $0.01 par value

 

PLD

 

New York Stock Exchange

Prologis, L.P.

 

1.375% Notes due 2020

 

PLD/20A

 

New York Stock Exchange

Prologis, L.P.

 

1.375% Notes due 2021

 

PLD/21

 

New York Stock Exchange

Prologis, L.P.

 

3.000% Notes due 2022

 

PLD/22

 

New York Stock Exchange

Prologis, L.P.

 

3.375% Notes due 2024

 

PLD/24

 

New York Stock Exchange

Prologis, L.P.

 

3.000% Notes due 2026

 

PLD/26

 

New York Stock Exchange

Prologis, L.P.

 

2.250% Notes due 2029

 

PLD/29

 

New York Stock Exchange

Prologis, L.P.

 

Floating Rate Notes due 2020

 

PLD/20B

 

New York Stock Exchange

 

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 every Interactive Data File required to be submitted 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 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Prologis, Inc.:

 

 

 

 

 

Large accelerated filer   

 

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

Emerging growth company    

 

Prologis, L.P.:

 

 

 

 

 

Large accelerated filer   

 

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

Emerging growth 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 17, 2019, was approximately 631,129,000.

 

 

 


 

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2019, 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” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the OP collectively.

 

The Parent is a real estate investment trust (a “REIT”) and the general partner of the OP. At June 30, 2019, the Parent owned 97.12% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.88% common limited partnership interests are owned by unaffiliated investors and certain current and former directors and officers of the Parent.

 

We operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As sole general partner, the Parent has control of the OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates the OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

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

enhances investors’ understanding of the Parent and the OP 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 OP; 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 OP 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 OP and issuing public equity from time to time. The OP holds substantially all the assets of the business, directly or indirectly. The OP 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 OP in exchange for partnership units, the OP generates capital required by the business through the OP’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 OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

                

The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (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 OP and are presented as general partner’s capital within partners’ capital in the OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the OP’s consolidated financial statements.

                

To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, 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, 2019 and December 31, 2018

 

1

 

 

 

 

Consolidated Statements of Income – Three and Six Months Ended June 30, 2019 and 2018

 

2

 

 

 

 

Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2019 and 2018

 

3

 

 

 

 

Consolidated Statements of Equity – Three and Six Months Ended June 30, 2019 and 2018

 

4

 

 

 

 

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2019 and 2018

 

5

 

 

 

            Prologis, L.P.:

 

 

 

 

 

 

Consolidated Balance Sheets – June 30, 2019 and December 31, 2018

 

6

 

 

 

 

Consolidated Statements of Income – Three and Six Months Ended June 30, 2019 and 2018

 

7

 

 

 

 

Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2019 and 2018

 

8

 

 

 

 

Consolidated Statements of Capital – Three and Six Months Ended June 30, 2019 and 2018

 

9

 

 

 

 

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2019 and 2018

 

10

 

 

 

            Prologis, Inc. and Prologis, L.P.:

 

 

 

 

 

 

Notes to the Consolidated Financial Statements

 

11

 

 

 

 

Note 1. General

 

11

 

 

 

 

Note 2. DCT Transaction

 

12

 

 

 

 

Note 3. Real Estate

 

13

 

 

 

 

Note 4. Unconsolidated Entities

 

15

 

 

 

 

Note 5. Assets Held for Sale or Contribution

 

17

 

 

 

 

Note 6. Debt

 

17

 

 

 

 

Note 7. Noncontrolling Interests

 

19

 

 

 

 

Note 8. Long-Term Compensation

 

19

 

 

 

 

Note 9. Earnings Per Common Share or Unit

 

21

 

 

 

 

Note 10. Financial Instruments and Fair Value Measurements

 

22

 

 

 

 

Note 11. Business Segments

 

25

 

 

 

 

Note 12. Supplemental Cash Flow Information

 

27

 

 

 

 

Reports of Independent Registered Public Accounting Firm

 

28

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

47

 

 

 

Item 4.

Controls and Procedures

 

48

 

PART II.

 

Other Information

 

 

 

 

 

Item 1.

Legal Proceedings

 

49

 

 

 

Item 1A.

Risk Factors

 

49

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

Item 3.

Defaults Upon Senior Securities

 

49

 

 

 

Item 4.

Mine Safety Disclosures

 

49

 

 

 

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, 2019

 

 

December 31,

 

 

(Unaudited)

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

Investments in real estate properties

$

34,895,051

 

 

$

34,586,987

 

Less accumulated depreciation

 

5,085,219

 

 

 

4,656,680

 

Net investments in real estate properties

 

29,809,832

 

 

 

29,930,307

 

Investments in and advances to unconsolidated entities

 

5,813,582

 

 

 

5,745,294

 

Assets held for sale or contribution

 

609,121

 

 

 

622,288

 

Net investments in real estate

 

36,232,535

 

 

 

36,297,889

 

 

 

 

 

 

 

 

 

Lease right-of-use assets

 

394,603

 

 

 

-

 

Cash and cash equivalents

 

401,190

 

 

 

343,856

 

Other assets

 

1,678,422

 

 

 

1,775,919

 

Total assets

$

38,706,750

 

 

$

38,417,664

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Debt

$

10,968,320

 

 

$

11,089,815

 

Lease liabilities

 

403,170

 

 

 

-

 

Accounts payable and accrued expenses

 

740,941

 

 

 

760,515

 

Other liabilities

 

816,886

 

 

 

766,446

 

Total liabilities

 

12,929,317

 

 

 

12,616,776

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Prologis, Inc. stockholders’ equity:

 

 

 

 

 

 

 

Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,379

     shares issued and outstanding and 100,000 preferred shares authorized at June 30, 2019 and

          December 31, 2018

 

68,948

 

 

 

68,948

 

Common stock; $0.01 par value; 631,054 shares and 629,616 shares issued and outstanding at

     June 30, 2019 and December 31, 2018, respectively

 

6,311

 

 

 

6,296

 

Additional paid-in capital

 

25,651,666

 

 

 

25,685,987

 

Accumulated other comprehensive loss

 

(1,079,109

)

 

 

(1,084,671

)

Distributions in excess of net earnings

 

(2,317,008

)

 

 

(2,378,467

)

Total Prologis, Inc. stockholders’ equity

 

22,330,808

 

 

 

22,298,093

 

Noncontrolling interests

 

3,446,625

 

 

 

3,502,795

 

Total equity

 

25,777,433

 

 

 

25,800,888

 

Total liabilities and equity

$

38,706,750

 

 

$

38,417,664

 

 

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

 

 

 

1

 


 

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

700,689

 

 

$

544,679

 

 

$

1,397,496

 

 

$

1,100,622

 

Strategic capital

 

 

89,144

 

 

 

75,697

 

 

 

162,949

 

 

 

208,658

 

Development management and other

 

 

539

 

 

 

900

 

 

 

1,979

 

 

 

5,652

 

Total revenues

 

 

790,372

 

 

 

621,276

 

 

 

1,562,424

 

 

 

1,314,932

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

 

181,138

 

 

 

133,329

 

 

 

369,206

 

 

 

276,270

 

Strategic capital

 

 

37,206

 

 

 

34,850

 

 

 

75,264

 

 

 

78,710

 

General and administrative

 

 

66,276

 

 

 

57,615

 

 

 

135,977

 

 

 

120,043

 

Depreciation and amortization

 

 

284,376

 

 

 

203,673

 

 

 

568,385

 

 

 

407,754

 

Other

 

 

3,515

 

 

 

4,515

 

 

 

7,349

 

 

 

7,754

 

Total expenses

 

 

572,511

 

 

 

433,982

 

 

 

1,156,181

 

 

 

890,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income before gains on real estate transactions, net

 

 

217,861

 

 

 

187,294

 

 

 

406,243

 

 

 

424,401

 

Gains on real estate transactions, net

 

 

224,195

 

 

 

94,261

 

 

 

412,403

 

 

 

289,372

 

Operating income

 

 

442,056

 

 

 

281,555

 

 

 

818,646

 

 

 

713,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from unconsolidated entities, net

 

 

48,556

 

 

 

62,549

 

 

 

105,222

 

 

 

125,205

 

Interest expense

 

 

(59,122

)

 

 

(56,314

)

 

 

(119,629

)

 

 

(102,575

)

Interest and other income, net

 

 

4,312

 

 

 

5,641

 

 

 

12,222

 

 

 

7,617

 

Foreign currency and derivative gains, net

 

 

2,041

 

 

 

85,382

 

 

 

10,775

 

 

 

44,288

 

Gains (losses) on early extinguishment of debt, net

 

 

(385

)

 

 

282

 

 

 

(2,501

)

 

 

(702

)

Total other income (expense)

 

 

(4,598

)

 

 

97,540

 

 

 

6,089

 

 

 

73,833

 

Earnings before income taxes

 

 

437,458

 

 

 

379,095

 

 

 

824,735

 

 

 

787,606

 

Total income tax expense

 

 

26,632

 

 

 

14,104

 

 

 

40,144

 

 

 

30,656

 

Consolidated net earnings

 

 

410,826

 

 

 

364,991

 

 

 

784,591

 

 

 

756,950

 

Less net earnings attributable to noncontrolling interests

 

 

25,550

 

 

 

28,904

 

 

 

50,769

 

 

 

53,485

 

Net earnings attributable to controlling interests

 

 

385,276

 

 

 

336,087

 

 

 

733,822

 

 

 

703,465

 

Less preferred stock dividends

 

 

1,492

 

 

 

1,476

 

 

 

2,991

 

 

 

2,952

 

Net earnings attributable to common stockholders

 

$

383,784

 

 

$

334,611

 

 

$

730,831

 

 

$

700,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

630,271

 

 

 

532,639

 

 

 

629,990

 

 

 

532,427

 

Weighted average common shares outstanding – Diluted

 

 

655,447

 

 

 

554,515

 

 

 

654,766

 

 

 

554,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders – Basic

 

$

0.61

 

 

$

0.63

 

 

$

1.16

 

 

$

1.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders – Diluted

 

$

0.60

 

 

$

0.62

 

 

$

1.15

 

 

$

1.30

 

 

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

 

2

 


 

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Consolidated net earnings

 

$

410,826

 

 

$

364,991

 

 

$

784,591

 

 

$

756,950

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses), net

 

 

(47,662

)

 

 

(147,813

)

 

 

12,418

 

 

 

(143,043

)

Unrealized gains (losses) on derivative contracts, net

 

 

(3,725

)

 

 

2,131

 

 

 

(6,358

)

 

 

(4,156

)

Comprehensive income

 

 

359,439

 

 

 

219,309

 

 

 

790,651

 

 

 

609,751

 

Net earnings attributable to noncontrolling interests

 

 

(25,550

)

 

 

(28,904

)

 

 

(50,769

)

 

 

(53,485

)

Other comprehensive loss (income) attributable to noncontrolling interests

 

 

1,484

 

 

 

7,539

 

 

 

(498

)

 

 

7,371

 

Comprehensive income attributable to common stockholders

 

$

335,373

 

 

$

197,944

 

 

$

739,384

 

 

$

563,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


3

 


 

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

 

Three Months Ended June 30, 2019 and 2018

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

Additional

 

 

Other

 

 

in Excess of

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

of

 

 

Par

 

 

Paid-in

 

 

Comprehensive

 

 

Net

 

 

controlling

 

 

Total

 

 

Stock

 

 

Shares

 

 

Value

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Interests

 

 

Equity

 

Balance at April 1, 2019

$

68,948

 

 

 

630,743

 

 

$

6,307

 

 

$

25,654,449

 

 

$

(1,029,206

)

 

$

(2,366,015

)

 

$

3,489,578

 

 

$

25,824,061

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

385,276

 

 

 

25,550

 

 

 

410,826

 

Effect of equity compensation

     plans

 

-

 

 

 

127

 

 

 

2

 

 

 

11,740

 

 

 

-

 

 

 

-

 

 

 

14,101

 

 

 

25,843

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,533

 

 

 

2,533

 

Redemption of noncontrolling

     interests

 

-

 

 

 

184

 

 

 

2

 

 

 

6,492

 

 

 

-

 

 

 

-

 

 

 

(62,155

)

 

 

(55,661

)

Foreign currency translation

     losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,282

)

 

 

-

 

 

 

(1,380

)

 

 

(47,662

)

Unrealized losses on derivative

     contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,621

)

 

 

-

 

 

 

(104

)

 

 

(3,725

)

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

(21,014

)

 

 

-

 

 

 

-

 

 

 

21,014

 

 

 

-

 

Dividends ($0.53 per common share)

     and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

(336,269

)

 

 

(42,512

)

 

 

(378,782

)

Balance at June 30, 2019

$

68,948

 

 

 

631,054

 

 

$

6,311

 

 

$

25,651,666

 

 

$

(1,079,109

)

 

$

(2,317,008

)

 

$

3,446,625

 

 

$

25,777,433

 

 

Balance at April 1, 2018

$

68,948

 

 

 

533,107

 

 

$

5,331

 

 

$

19,303,909

 

 

$

(903,343

)

 

$

(2,794,770

)

 

$

3,108,045

 

 

$

18,788,120

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

336,087

 

 

 

28,904

 

 

 

364,991

 

Effect of equity compensation

     plans

 

-

 

 

 

196

 

 

 

2

 

 

 

14,192

 

 

 

-

 

 

 

-

 

 

 

13,430

 

 

 

27,624

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,124

 

 

 

37,124

 

Redemption of noncontrolling

     interests

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,661

)

 

 

-

 

 

 

-

 

 

 

(6,331

)

 

 

(7,992

)

Foreign currency translation

     losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(140,213

)

 

 

-

 

 

 

(7,600

)

 

 

(147,813

)

Unrealized gains on derivative

     contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,070

 

 

 

-

 

 

 

61

 

 

 

2,131

 

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

5,578

 

 

 

-

 

 

 

-

 

 

 

(5,578

)

 

 

-

 

Dividends ($0.48 per common share)

     and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(257,558

)

 

 

(80,122

)

 

 

(337,682

)

Balance at June 30, 2018

$

68,948

 

 

 

533,303

 

 

$

5,333

 

 

$

19,322,016

 

 

$

(1,041,486

)

 

$

(2,716,241

)

 

$

3,087,933

 

 

$

18,726,503

 

 

Six Months Ended June 30, 2019 and 2018

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

Additional

 

 

Other

 

 

in Excess of

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

of

 

 

Par

 

 

Paid-in

 

 

Comprehensive

 

 

Net

 

 

controlling

 

 

Total

 

 

Stock

 

 

Shares

 

 

Value

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Interests

 

 

Equity

 

Balance at January 1, 2019

$

68,948

 

 

 

629,616

 

 

$

6,296

 

 

$

25,685,987

 

 

$

(1,084,671

)

 

$

(2,378,467

)

 

$

3,502,795

 

 

$

25,800,888

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

733,822

 

 

 

50,769

 

 

 

784,591

 

Effect of equity compensation

     plans

 

-

 

 

 

891

 

 

 

9

 

 

 

10,542

 

 

 

-

 

 

 

-

 

 

 

37,321

 

 

 

47,872

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,071

 

 

 

9,071

 

Redemption of noncontrolling

     interests

 

-

 

 

 

547

 

 

 

6

 

 

 

9,472

 

 

 

-

 

 

 

-

 

 

 

(105,362

)

 

 

(95,884

)

Contribution to Brazil venture

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,630

)

 

 

(12,630

)

Foreign currency translation

     gains, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11,737

 

 

 

-

 

 

 

681

 

 

 

12,418

 

Unrealized losses on derivative

     contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,175

)

 

 

-

 

 

 

(183

)

 

 

(6,358

)

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

(54,318

)

 

 

-

 

 

 

-

 

 

 

54,318

 

 

 

-

 

Dividends ($1.06 per common share)

     and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(17

)

 

 

-

 

 

 

(672,363

)

 

 

(90,155

)

 

 

(762,535

)

Balance at June 30, 2019

$

68,948

 

 

 

631,054

 

 

$

6,311

 

 

$

25,651,666

 

 

$

(1,079,109

)

 

$

(2,317,008

)

 

$

3,446,625

 

 

$

25,777,433

 

 

Balance at January 1, 2018

$

68,948

 

 

 

532,186

 

 

$

5,322

 

 

$

19,363,007

 

 

$

(901,658

)

 

$

(2,904,461

)

 

$

3,074,583

 

 

$

18,705,741

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

703,465

 

 

 

53,485

 

 

 

756,950

 

Effect of equity compensation

     plans

 

-

 

 

 

1,117

 

 

 

11

 

 

 

8,835

 

 

 

-

 

 

 

-

 

 

 

24,835

 

 

 

33,681

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,974

 

 

 

37,974

 

Redemption of noncontrolling

     interests

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,792

)

 

 

-

 

 

 

-

 

 

 

(20,976

)

 

 

(23,768

)

Foreign currency translation

     losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(135,793

)

 

 

-

 

 

 

(7,250

)

 

 

(143,043

)

Unrealized losses on derivative

     contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,035

)

 

 

-

 

 

 

(121

)

 

 

(4,156

)

Reallocation of equity

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,927

)

 

 

-

 

 

 

-

 

 

 

46,927

 

 

 

-

 

Dividends ($0.96 per common share)

     and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(107

)

 

 

-

 

 

 

(515,245

)

 

 

(121,524

)

 

 

(636,876

)

Balance at June 30, 2018

$

68,948

 

 

 

533,303

 

 

$

5,333

 

 

$

19,322,016

 

 

$

(1,041,486

)

 

$

(2,716,241

)

 

$

3,087,933

 

 

$

18,726,503

 

 

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

4

 


 

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

784,591

 

 

$

756,950

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Straight-lined rents and amortization of above and below market leases

 

 

(51,925

)

 

 

(26,369

)

Equity-based compensation awards

 

 

51,944

 

 

 

39,082

 

Depreciation and amortization

 

 

568,385

 

 

 

407,754

 

Earnings from unconsolidated entities, net

 

 

(105,222

)

 

 

(125,205

)

Operating distributions from unconsolidated entities

 

 

179,913

 

 

 

175,960

 

Decrease in operating receivables from unconsolidated entities

 

 

27,952

 

 

 

6,589

 

Amortization of debt discounts, net and debt issuance costs

 

 

8,419

 

 

 

5,971

 

Gains on real estate transactions, net

 

 

(412,403

)

 

 

(289,372

)

Unrealized foreign currency and derivative gains, net

 

 

(3,836

)

 

 

(52,595

)

Losses on early extinguishment of debt, net

 

 

2,501

 

 

 

702

 

Deferred income tax expense (benefit)

 

 

9,235

 

 

 

(1,194

)

Increase in accounts receivable, lease right-of-use assets and other assets

 

 

(11,740

)

 

 

(35,756

)

Decrease in accounts payable and accrued expenses, lease liabilities and other liabilities

 

 

(44,293

)

 

 

(89,293

)

Net cash provided by operating activities

 

 

1,003,521

 

 

 

773,224

 

Investing activities:

 

 

 

 

 

 

 

 

Real estate development

 

 

(755,588

)

 

 

(788,604

)

Real estate acquisitions

 

 

(468,796

)

 

 

(289,031

)

Tenant improvements and lease commissions on previously leased space

 

 

(80,969

)

 

 

(59,342

)

Property improvements

 

 

(42,015

)

 

 

(33,289

)

Proceeds from dispositions and contributions of real estate properties

 

 

1,272,298

 

 

 

901,808

 

Investments in and advances to unconsolidated entities

 

 

(186,179

)

 

 

(83,250

)

Return of investment from unconsolidated entities

 

 

359,306

 

 

 

134,640

 

Proceeds from repayment of notes receivable backed by real estate

 

 

-

 

 

 

34,260

 

Proceeds from the settlement of net investment hedges

 

 

12,240

 

 

 

-

 

Payments on the settlement of net investment hedges

 

 

(28,524

)

 

 

(3,966

)

Net cash provided by (used in) investing activities

 

 

81,773

 

 

 

(186,774

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

4,372

 

 

 

4,322

 

Dividends paid on common and preferred stock

 

 

(672,363

)

 

 

(515,245

)

Noncontrolling interests contributions

 

 

9,071

 

 

 

26,174

 

Noncontrolling interests distributions

 

 

(90,155

)

 

 

(121,524

)

Settlement of noncontrolling interests

 

 

(95,884

)

 

 

(23,768

)

Tax paid for shares withheld

 

 

(21,859

)

 

 

(26,694

)

Debt issuance costs paid

 

 

(14,912

)

 

 

(6,386

)

Net proceeds from (payments on) credit facilities

 

 

58,974

 

 

 

(307,086

)

Repurchase of and payments on debt

 

 

(2,108,889

)

 

 

(1,251,830

)

Proceeds from the issuance of debt

 

 

1,897,745

 

 

 

1,721,793

 

Net cash used in financing activities

 

 

(1,033,900

)

 

 

(500,244

)

 

 

 

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash

 

 

5,940

 

 

 

(5,422

)

Net increase in cash and cash equivalents

 

 

57,334

 

 

 

80,784

 

Cash and cash equivalents, beginning of period

 

 

343,856

 

 

 

447,046

 

Cash and cash equivalents, end of period

 

$

401,190

 

 

$

527,830

 

 

See Note 12 for information on noncash investing and financing activities and other information.

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

 

 

5

 


 

PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

December 31,

 

 

(Unaudited)

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

Investments in real estate properties

$

34,895,051

 

 

$

34,586,987

 

Less accumulated depreciation

 

5,085,219

 

 

 

4,656,680

 

Net investments in real estate properties

 

29,809,832

 

 

 

29,930,307

 

Investments in and advances to unconsolidated entities

 

5,813,582

 

 

 

5,745,294

 

Assets held for sale or contribution

 

609,121

 

 

 

622,288

 

Net investments in real estate

 

36,232,535

 

 

 

36,297,889

 

 

 

 

 

 

 

 

 

Lease right-of-use assets

 

394,603

 

 

 

-

 

Cash and cash equivalents

 

401,190

 

 

 

343,856

 

Other assets

 

1,678,422

 

 

 

1,775,919

 

Total assets

$

38,706,750

 

 

$

38,417,664

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Debt

$

10,968,320

 

 

$

11,089,815

 

Lease liabilities

 

403,170

 

 

 

-

 

Accounts payable and accrued expenses

 

740,941

 

 

 

760,515

 

Other liabilities

 

816,886

 

 

 

766,446

 

Total liabilities

 

12,929,317

 

 

 

12,616,776

 

 

 

 

 

 

 

 

 

Capital:

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

General partner – preferred

 

68,948

 

 

 

68,948

 

General partner – common

 

22,261,860

 

 

 

22,229,145

 

Limited partners – common

 

366,960

 

 

 

371,281

 

Limited partners – Class A common

 

293,482

 

 

 

295,045

 

Total partners’ capital

 

22,991,250

 

 

 

22,964,419

 

Noncontrolling interests

 

2,786,183

 

 

 

2,836,469

 

Total capital

 

25,777,433

 

 

 

25,800,888

 

Total liabilities and capital

$

38,706,750

 

 

$

38,417,664

 

 

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

 

 

 

6

 


 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

700,689

 

 

$

544,679

 

 

$

1,397,496

 

 

$

1,100,622

 

Strategic capital

 

 

89,144

 

 

 

75,697

 

 

 

162,949

 

 

 

208,658

 

Development management and other

 

 

539

 

 

 

900

 

 

 

1,979

 

 

 

5,652

 

Total revenues

 

 

790,372

 

 

 

621,276

 

 

 

1,562,424

 

 

 

1,314,932

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

 

181,138

 

 

 

133,329

 

 

 

369,206

 

 

 

276,270

 

Strategic capital

 

 

37,206

 

 

 

34,850

 

 

 

75,264

 

 

 

78,710

 

General and administrative

 

 

66,276

 

 

 

57,615

 

 

 

135,977

 

 

 

120,043

 

Depreciation and amortization

 

 

284,376

 

 

 

203,673

 

 

 

568,385

 

 

 

407,754

 

Other

 

 

3,515

 

 

 

4,515

 

 

 

7,349

 

 

 

7,754

 

Total expenses

 

 

572,511

 

 

 

433,982

 

 

 

1,156,181

 

 

 

890,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income before gains on real estate transactions, net

 

 

217,861

 

 

 

187,294

 

 

 

406,243

 

 

 

424,401

 

Gains on real estate transactions, net

 

 

224,195

 

 

 

94,261

 

 

 

412,403

 

 

 

289,372

 

Operating income

 

 

442,056

 

 

 

281,555

 

 

 

818,646

 

 

 

713,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from unconsolidated entities, net

 

 

48,556

 

 

 

62,549

 

 

 

105,222

 

 

 

125,205

 

Interest expense

 

 

(59,122

)

 

 

(56,314

)

 

 

(119,629

)

 

 

(102,575

)

Interest and other income, net

 

 

4,312

 

 

 

5,641

 

 

 

12,222

 

 

 

7,617

 

Foreign currency and derivative gains, net

 

 

2,041

 

 

 

85,382

 

 

 

10,775

 

 

 

44,288

 

Gains (losses) on early extinguishment of debt, net

 

 

(385

)

 

 

282

 

 

 

(2,501

)

 

 

(702

)

Total other income (expense)

 

 

(4,598

)

 

 

97,540

 

 

 

6,089

 

 

 

73,833

 

Earnings before income taxes

 

 

437,458

 

 

 

379,095

 

 

 

824,735

 

 

 

787,606

 

Total income tax expense

 

 

26,632

 

 

 

14,104

 

 

 

40,144

 

 

 

30,656

 

Consolidated net earnings

 

 

410,826

 

 

 

364,991

 

 

 

784,591

 

 

 

756,950

 

Less net earnings attributable to noncontrolling interests

 

 

13,864

 

 

 

18,882

 

 

 

28,509

 

 

 

32,940

 

Net earnings attributable to controlling interests

 

 

396,962

 

 

 

346,109

 

 

 

756,082

 

 

 

724,010

 

Less preferred unit distributions

 

 

1,492

 

 

 

1,476

 

 

 

2,991

 

 

 

2,952

 

Net earnings attributable to common unitholders

 

$

395,470

 

 

$

344,633

 

 

$

753,091

 

 

$

721,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common units outstanding – Basic

 

 

641,127

 

 

 

540,084

 

 

 

640,832

 

 

 

539,547

 

Weighted average common units outstanding – Diluted

 

 

655,447

 

 

 

554,515

 

 

 

654,766

 

 

 

554,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders – Basic

 

$

0.61

 

 

$

0.63

 

 

$

1.16

 

 

$

1.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders – Diluted

 

$

0.60

 

 

$

0.62

 

 

$

1.15

 

 

$

1.30

 

 

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

 

 

 

7

 


 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Consolidated net earnings

 

$

410,826

 

 

$

364,991

 

 

$

784,591

 

 

$

756,950

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses), net

 

 

(47,662

)

 

 

(147,813

)

 

 

12,418

 

 

 

(143,043

)

Unrealized gains (losses) on derivative contracts, net

 

 

(3,725

)

 

 

2,131

 

 

 

(6,358

)

 

 

(4,156

)

Comprehensive income

 

 

359,439

 

 

 

219,309

 

 

 

790,651

 

 

 

609,751

 

Net earnings attributable to noncontrolling interests

 

 

(13,864

)

 

 

(18,882

)

 

 

(28,509

)

 

 

(32,940

)

Other comprehensive loss (income) attributable to noncontrolling interests

 

 

(70

)

 

 

3,424

 

 

 

(333

)

 

 

3,205

 

Comprehensive income attributable to common unitholders

 

$

345,505

 

 

$

203,851

 

 

$

761,809

 

 

$

580,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


8

 


 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

(Unaudited)

(In thousands)

 

Three Months Ended June 30, 2019 and 2018

 

 

General Partner

 

 

Limited Partners

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Common

 

 

Class A Common

 

 

controlling

 

 

 

 

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Interests

 

 

Total

 

Balance at April 1, 2019

 

1,379

 

 

$

68,948

 

 

 

630,743

 

 

$

22,265,535

 

 

 

11,210

 

 

$

395,726

 

 

 

8,849

 

 

$

294,331

 

 

$

2,799,521

 

 

$

25,824,061

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

385,276

 

 

 

-

 

 

 

6,609

 

 

 

-

 

 

 

5,077

 

 

 

13,864

 

 

 

410,826

 

Effect of equity compensation

     plans

 

-

 

 

 

-

 

 

 

127

 

 

 

11,742

 

 

 

103

 

 

 

14,101

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,843

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,533

 

 

 

2,533

 

Redemption of limited partners

     units

 

-

 

 

 

-

 

 

 

184

 

 

 

6,494

 

 

 

(911

)

 

 

(62,155

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(55,661

)

Foreign currency translation

      gains (losses), net

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,282

)

 

 

-

 

 

 

(838

)

 

 

-

 

 

 

(612

)

 

 

70

 

 

 

(47,662

)

Unrealized losses on

     derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,621

)

 

 

-

 

 

 

(56

)

 

 

-

 

 

 

(48

)

 

 

-

 

 

 

(3,725

)

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

(21,014

)

 

 

-

 

 

 

20,558

 

 

 

-

 

 

 

456

 

 

 

-

 

 

 

-

 

Distributions ($0.53 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(336,270

)

 

 

-

 

 

 

(6,985

)

 

 

-

 

 

 

(5,722

)

 

 

(29,805

)

 

 

(378,782

)

Balance at June 30, 2019

 

1,379

 

 

$

68,948

 

 

 

631,054

 

 

$

22,261,860

 

 

 

10,402

 

 

$

366,960

 

 

 

8,849

 

 

$

293,482

 

 

$

2,786,183

 

 

$

25,777,433

 

 

 

Balance at April 1, 2018

 

1,379

 

 

$

68,948

 

 

 

533,107

 

 

$

15,611,127

 

 

 

7,396

 

 

$

216,575

 

 

 

8,894

 

 

$

248,436

 

 

$

2,643,034

 

 

$

18,788,120

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

336,087

 

 

 

-

 

 

 

4,698

 

 

 

-

 

 

 

5,324

 

 

 

18,882

 

 

 

364,991

 

Effect of equity compensation

     plans

 

-

 

 

 

-

 

 

 

196

 

 

 

14,194

 

 

 

104

 

 

 

13,430

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

27,624

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,124

 

 

 

37,124

 

Redemption of noncontrolling

     interests

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,661

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,768

)

 

 

(3,429

)

Redemption of limited partners

     units

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(27

)

 

 

(1,761

)

 

 

(45

)

 

 

(2,802

)

 

 

-

 

 

 

(4,563

)

Foreign currency translation

      losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(140,213

)

 

 

-

 

 

 

(1,964

)

 

 

-

 

 

 

(2,212

)

 

 

(3,424

)

 

 

(147,813

)

Unrealized gains on

     derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

2,070

 

 

 

-

 

 

 

28

 

 

 

-

 

 

 

33

 

 

 

-

 

 

 

2,131

 

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

5,578

 

 

 

-

 

 

 

(8,147

)

 

 

-

 

 

 

2,569

 

 

 

-

 

 

 

-

 

Distributions ($0.48 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(257,560

)

 

 

-

 

 

 

(4,697

)

 

 

-

 

 

 

(5,752

)

 

 

(69,673

)

 

 

(337,682

)

Balance at June 30, 2018

 

1,379

 

 

$

68,948

 

 

 

533,303

 

 

$

15,569,622

 

 

 

7,473

 

 

$

218,162

 

 

 

8,849

 

 

$

245,596

 

 

$

2,624,175

 

 

$

18,726,503

 

 

 

Six Months Ended June 30, 2019 and 2018

 

 

General Partner

 

 

Limited Partners

 

 

Non-

 

 

 

 

 

 

Preferred

 

 

Common

 

 

Common

 

 

Class A Common

 

 

controlling

 

 

 

 

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Interests

 

 

Total

 

Balance at January 1, 2019

 

1,379

 

 

$

68,948

 

 

 

629,616

 

 

$

22,229,145

 

 

 

10,516

 

 

$

371,281

 

 

 

8,849

 

 

$

295,045

 

 

$

2,836,469

 

 

$

25,800,888

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

733,822

 

 

 

-

 

 

 

12,577

 

 

 

-

 

 

 

9,683

 

 

 

28,509

 

 

 

784,591

 

Effect of equity compensation

     plans

 

-

 

 

 

-

 

 

 

891

 

 

 

10,551

 

 

 

1,458

 

 

 

37,321

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

47,872

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,071

 

 

 

9,071

 

Redemption of noncontrolling

     interests

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,835

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(11,258

)

 

 

(21,093

)

Redemption of limited partners

     units

 

-

 

 

 

-

 

 

 

547

 

 

 

19,313

 

 

 

(1,572

)

 

 

(94,104

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(74,791

)

Contribution to Brazil venture

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,630

)

 

 

(12,630

)

Foreign currency translation

      gains, net

 

-

 

 

 

-

 

 

 

-

 

 

 

11,737

 

 

 

-

 

 

 

193

 

 

 

-

 

 

 

155

 

 

 

333

 

 

 

12,418

 

Unrealized losses on

     derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,175

)

 

 

-

 

 

 

(101

)

 

 

-

 

 

 

(82

)

 

 

-

 

 

 

(6,358

)

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

(54,318

)

 

 

-

 

 

 

54,192

 

 

 

-

 

 

 

126

 

 

 

-

 

 

 

-

 

Distributions ($1.06 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(672,380

)

 

 

-

 

 

 

(14,399

)

 

 

-

 

 

 

(11,445

)

 

 

(64,311

)

 

 

(762,535

)

Balance at June 30, 2019

 

1,379

 

 

$

68,948

 

 

 

631,054

 

 

$

22,261,860

 

 

 

10,402

 

 

$

366,960

 

 

 

8,849

 

 

$

293,482

 

 

$

2,786,183

 

 

$

25,777,433

 

 

 

Balance at January 1, 2018

 

1,379

 

 

$

68,948

 

 

 

532,186

 

 

$

15,562,210

 

 

 

5,656

 

 

$

165,401

 

 

 

8,894

 

 

$

248,940

 

 

$

2,660,242

 

 

$

18,705,741

 

Consolidated net earnings

 

-

 

 

 

-

 

 

 

-

 

 

 

703,465

 

 

 

-

 

 

 

9,368

 

 

 

-

 

 

 

11,177

 

 

 

32,940

 

 

 

756,950

 

Effect of equity compensation

     plans

 

-

 

 

 

-

 

 

 

1,117

 

 

 

8,846

 

 

 

2,057

 

 

 

24,835

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33,681

 

Capital contributions

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37,974

 

 

 

37,974

 

Redemption of noncontrolling

     interests

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,792

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,157

)

 

 

(5,949

)

Redemption of limited partners

     units

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(240

)

 

 

(15,017

)

 

 

(45

)

 

 

(2,802

)

 

 

-

 

 

 

(17,819

)

Foreign currency translation

      losses, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(135,793

)

 

 

-

 

 

 

(1,903

)

 

 

-

 

 

 

(2,142

)

 

 

(3,205

)

 

 

(143,043

)

Unrealized losses on

     derivative contracts, net

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,035

)

 

 

-

 

 

 

(57

)

 

 

-

 

 

 

(64

)

 

 

-

 

 

 

(4,156

)

Reallocation of capital

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,927

)

 

 

-

 

 

 

44,937

 

 

 

-

 

 

 

1,990

 

 

 

-

 

 

 

-

 

Distributions ($0.96 per common unit) and other

 

-

 

 

 

-

 

 

 

-

 

 

 

(515,352

)

 

 

-

 

 

 

(9,402

)

 

 

-

 

 

 

(11,503

)

 

 

(100,619

)

 

 

(636,876

)

Balance at June 30, 2018

 

1,379

 

 

$

68,948

 

 

 

533,303

 

 

$

15,569,622

 

 

 

7,473

 

 

$

218,162

 

 

 

8,849

 

 

$

245,596

 

 

$

2,624,175

 

 

$

18,726,503

 

 

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

9

 


 

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Consolidated net earnings

 

$

784,591

 

 

$

756,950

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Straight-lined rents and amortization of above and below market leases

 

 

(51,925

)

 

 

(26,369

)

Equity-based compensation awards

 

 

51,944

 

 

 

39,082

 

Depreciation and amortization

 

 

568,385

 

 

 

407,754

 

Earnings from unconsolidated entities, net

 

 

(105,222

)

 

 

(125,205

)

Operating distributions from unconsolidated entities

 

 

179,913

 

 

 

175,960

 

Decrease in operating receivables from unconsolidated entities

 

 

27,952

 

 

 

6,589

 

Amortization of debt discounts, net and debt issuance costs

 

 

8,419

 

 

 

5,971

 

Gains on real estate transactions, net

 

 

(412,403

)

 

 

(289,372

)

Unrealized foreign currency and derivative gains, net

 

 

(3,836

)

 

 

(52,595

)

Losses on early extinguishment of debt, net

 

 

2,501

 

 

 

702

 

Deferred income tax expense (benefit)

 

 

9,235

 

 

 

(1,194

)

Increase in accounts receivable, lease right-of-use assets and other assets

 

 

(11,740

)

 

 

(35,756

)

Decrease in accounts payable and accrued expenses, lease liabilities and other liabilities

 

 

(44,293

)

 

 

(89,293

)

Net cash provided by operating activities

 

 

1,003,521

 

 

 

773,224

 

Investing activities:

 

 

 

 

 

 

 

 

Real estate development

 

 

(755,588

)

 

 

(788,604

)

Real estate acquisitions

 

 

(468,796

)

 

 

(289,031

)

Tenant improvements and lease commissions on previously leased space

 

 

(80,969

)

 

 

(59,342

)

Property improvements

 

 

(42,015

)

 

 

(33,289

)

Proceeds from dispositions and contributions of real estate properties

 

 

1,272,298

 

 

 

901,808

 

Investments in and advances to unconsolidated entities

 

 

(186,179

)

 

 

(83,250

)

Return of investment from unconsolidated entities

 

 

359,306

 

 

 

134,640

 

Proceeds from repayment of notes receivable backed by real estate

 

 

-

 

 

 

34,260

 

Proceeds from the settlement of net investment hedges

 

 

12,240

 

 

 

-

 

Payments on the settlement of net investment hedges

 

 

(28,524

)

 

 

(3,966

)

Net cash provided by (used in) investing activities

 

 

81,773

 

 

 

(186,774

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common partnership units in exchange for contributions from Prologis, Inc.

 

 

4,372

 

 

 

4,322

 

Distributions paid on common and preferred units

 

 

(698,207

)

 

 

(536,150

)

Noncontrolling interests contributions

 

 

9,071

 

 

 

26,174

 

Noncontrolling interests distributions

 

 

(64,311

)

 

 

(100,619

)

Settlement of noncontrolling interests

 

 

(21,093

)

 

 

(5,949

)

Redemption of common limited partnership units

 

 

(74,791

)

 

 

(17,819

)

Tax paid for shares of the Parent withheld

 

 

(21,859

)

 

 

(26,694

)

Debt issuance costs paid

 

 

(14,912

)

 

 

(6,386

)

Net proceeds from (payments on) credit facilities

 

 

58,974

 

 

 

(307,086

)

Repurchase of and payments on debt

 

 

(2,108,889

)

 

 

(1,251,830

)

Proceeds from the issuance of debt

 

 

1,897,745

 

 

 

1,721,793

 

Net cash used in financing activities

 

 

(1,033,900

)

 

 

(500,244

)

 

 

 

 

 

 

 

 

 

Effect of foreign currency exchange rate changes on cash

 

 

5,940

 

 

 

(5,422

)

Net increase in cash and cash equivalents

 

 

57,334

 

 

 

80,784

 

Cash and cash equivalents, beginning of period

 

 

343,856

 

 

 

447,046

 

Cash and cash equivalents, end of period

 

$

401,190

 

 

$

527,830

 

 

See Note 12 for information on noncash investing and financing activities and other information.

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

 

 

 

10

 


 

PROLOGIS, INC. AND PROLOGIS, L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1. GENERAL

 

Business. Prologis, Inc. (or the “Parent”) commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and believes the current organization and method of operation will enable it to maintain its status as a REIT. The Parent is the general partner of Prologis, L.P. (or the “Operating Partnership” or “OP”). Through the OP, we are engaged in the ownership, acquisition, development and management of logistics facilities with a focus on key markets in 19 countries on four continents. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity. Our current business strategy consists of two operating business segments: Real Estate Operations and Strategic Capital. Our Real Estate Operations segment represents the ownership and development of logistics properties. Our Strategic Capital segment represents the management of unconsolidated co-investment ventures and other ventures. See Note 11 for further discussion of our business segments. Unless otherwise indicated, the Notes to the Consolidated Financial Statements apply to both the Parent and the OP. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and OP collectively. 

 

For each share of preferred or common stock the Parent issues, the OP issues a corresponding preferred or common partnership unit, as applicable, to the Parent in exchange for the contribution of the proceeds from the stock issuance. At June 30, 2019, the Parent owned a 97.12% common general partnership interest in the OP and 100% of the preferred units in the OP. The remaining 2.88% common limited partnership interests, which include 8.8 million Class A common limited partnership units (“Class A Units”) in the OP, are owned by unaffiliated investors and certain current and former directors and officers of the Parent. Each partner’s percentage interest in the OP is determined based on the number of OP units held, including the number of OP units into which Class A Units are convertible, compared to total OP units outstanding at each period end and is used as the basis for the allocation of net income or loss to each partner. At the end of each reporting period, a capital adjustment is made in the OP to reflect the appropriate ownership interest for each of the common unitholders. These adjustments are reflected in the line items Reallocation of Equity in the Consolidated Statements of Equity of the Parent and Reallocation of Capital in the Consolidated Statements of Capital of the OP.

 

As the sole general partner of the OP, the Parent has complete responsibility and discretion in the day-to-day management and control of the OP and we operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As general partner with control of the OP, the Parent is the primary beneficiary and therefore consolidates the OP. Because the Parent’s only significant asset is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.

 

Basis of Presentation. The accompanying Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are presented in our reporting currency, the U.S. dollar. References herein to the translation of activity for significant nonrecurring transactions are at the rate in effect at the date of the transaction. All material intercompany transactions with consolidated entities have been eliminated.

 

The accompanying unaudited interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes that the disclosures presented in these financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for both the Parent and the OP for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC, and other public information.

 

Reclassifications. Upon adoption of the new lease standard, rental recoveries for 2018 have been reclassified to Rental Revenues in the Consolidated Statements of Income to conform to the 2019 financial statement presentation.

 

New Accounting Pronouncements.

 

New Accounting Standards Adopted

                            

Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) that provided the principles for the recognition, measurement, presentation and disclosure of leases. The guidance amended the existing accounting standards, including the requirement that lessees recognize right-of-use assets and lease liabilities for leases with terms greater than twelve months in the Consolidated Balance Sheets. Additional guidance and targeted improvements to the February 2016 ASU were made through the issuance of supplementary ASUs in July 2018, December 2018 and March 2019. We refer to all three ASUs collectively as the “new lease standard.”

11

 


 

 

We adopted the new lease standard on January 1, 2019 and applied it to leases that were in place on the effective date. Results for reporting periods beginning January 1, 2019 are presented under the new lease standard.

 

We elected the package of practical expedients and were not required to reassess the following upon adoption: (i) whether an expired or existing contract met the definition of a lease; (ii) the lease classification at January 1, 2019 for existing leases; and (iii) whether leasing costs previously capitalized as initial direct costs would continue to be amortized. This allowed us to continue to account for our

existing ground and office space leases as operating leases, however, any new or renewed ground leases after January 1, 2019 may be classified as financing leases unless they meet certain conditions to be considered a lease involving land owned by a government unit or authority. Upon adoption, we did not have an adjustment to the opening balance of retained earnings due to the election of these practical expedients.

 

As a lessor. The new lease standard required that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Initial direct costs include the salaries and related costs for employees directly working on leasing activities. Prior to January 1, 2019, these costs were capitalizable in Other Assets and therefore the new lease standard resulted in certain of these costs being expensed as incurred through Rental Expenses. During the three and six months ended June 30, 2018, we capitalized $5.1 million and $10.5 million, respectively, of internal costs related to our leasing activities. We will continue to amortize initial direct costs capitalized prior to January 1, 2019.

 

We adopted the practical expedient that allowed us to not separate expenses reimbursed by our customers (“rental recoveries”) from the associated rental revenue if certain criteria were met. We assessed these criteria and concluded that the timing and straight-line pattern of transfer to the lessee for rental revenue and the associated rental recoveries are the same and as our leases qualify as operating leases, we accounted for and presented rental revenue and rental recoveries as a single component under Rental Revenues in our Consolidated Statements of Income for the three and six months ended June 30, 2019. As a result of our adoption of this practical expedient, we also presented $426.6 million and $854.5 million of rental revenue and $118.2 million and $246.2 million of rental recoveries as a single component in the Consolidated Statements of Income for the three and six months ended June 30, 2018, respectively for both rental revenue and rental recoveries, to conform to the 2019 new presentation.   

 

As a lessee. At January 1, 2019 we recognized Lease Right-of-Use (“ROU”) Assets and Lease Liabilities, principally for our ground and office space leases, in which we are the lessee, on the Consolidated Balance Sheets.

 

See Note 3 for further disclosure around our adoption of the new lease standard.

 

Derivatives and Hedging. In August 2017, the FASB issued an ASU that simplified the application of hedge accounting guidance in current GAAP and improved the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its consolidated financial statements. Among the simplification updates, the ASU eliminated the requirement in current GAAP to separately recognize periodic hedge ineffectiveness. Mismatches between the changes in value of the hedged item and hedging instrument may still occur but they will no longer be separately reported. The ASU required the presentation of the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. We adopted the ASU on January 1, 2019 on a modified retrospective basis and there was no adjustment to the opening balance of retained earnings.

 

NOTE 2. DCT TRANSACTION

 

We acquired DCT Industrial Trust Inc. and DCT Industrial Operating Partnership LP (collectively “DCT”) on August 22, 2018 (“DCT Transaction”).

 

The DCT Transaction was completed for $8.5 billion through the issuance of equity based on the closing price of Prologis’ common stock on August 21, 2018 and the assumption of debt. In connection with the transaction, each issued and outstanding share or unit held by a DCT stockholder or unitholder was converted automatically into 1.02 shares of Prologis common stock or common units of Prologis, L.P., respectively, including shares and units under DCT’s equity incentive plan that became fully vested at closing.  

 

Through the DCT Transaction, we acquired a portfolio of logistics real estate assets that consisted of 408 operating properties, aggregating 68.0 million square feet, 10 properties under development, aggregating 2.8 million square feet and 305 acres of land with build-out potential of 4.5 million square feet.

 

The aggregate equity consideration of approximately $6.6 billion is calculated below (in millions, except price per share):

 

Number of Prologis shares and units issued upon conversion of DCT shares and units at August 21, 2018

 

99.73

 

Multiplied by price of Prologis' common stock on August 21, 2018

$

65.75

 

Fair value of Prologis shares and units issued

$

6,557

 

 

12

 


 

We accounted for the DCT Transaction as an asset acquisition and as a result the transaction costs of $50.0 million were capitalized to the basis of the acquired properties. Transaction costs include investment banker advisory fees, legal fees and other costs.

 

Under acquisition accounting, the total purchase price was allocated to the DCT net tangible and identifiable intangible assets acquired and liabilities assumed based on their relative fair values as follows (in millions):    

 

Net investments in real estate

$

8,362

 

Intangible assets, net of intangible liabilities

 

292

 

Cash and other assets

 

24

 

Debt

 

(1,863

)

Accounts payable, accrued expenses and other liabilities

 

(143

)

Noncontrolling interests

 

(65

)

Total purchase price, including transaction costs

$

6,607

 

 

NOTE 3. REAL ESTATE

 

Investments in real estate properties consisted of the following (dollars and square feet in thousands):

 

 

Square Feet

 

 

Number of Buildings

 

 

 

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

December 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

2018

 

Operating properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings and improvements

 

354,320

 

 

 

354,762

 

 

 

1,879

 

 

 

1,858

 

 

$

22,822,198

 

$

22,587,267

 

Improved land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,183,086

 

 

8,044,888

 

Development portfolio, including

     land costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prestabilized

 

8,312

 

 

 

8,709

 

 

 

34

 

 

 

30

 

 

 

696,843

 

 

828,064

 

Properties under development

 

21,859

 

 

 

27,715

 

 

 

59

 

 

 

70

 

 

 

1,262,391

 

 

1,314,737

 

Land (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,156,846

 

 

1,192,220

 

Other real estate investments (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

773,687

 

 

619,811

 

Total investments in real estate

     properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34,895,051

 

 

34,586,987

 

Less accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,085,219

 

 

4,656,680

 

Net investments in real estate

     properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

29,809,832

 

$

29,930,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

At June 30, 2019 and December 31, 2018, our land is comprised of 4,710 and 4,929 acres, respectively.

 

(2)

Included in other real estate investments were: (i) non-logistics real estate; (ii) land parcels that are ground leased to third parties; (iii) our corporate headquarters; (iv) costs related to future development projects, including purchase options on land; (v) earnest money deposits associated with potential acquisitions; and (vi) infrastructure costs related to projects we are developing on behalf of others.

 

Acquisitions

 

The following table summarizes our real estate acquisition activity (dollars and square feet in thousands, except for acres of land):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Number of operating properties

 

 

1

 

 

 

3

 

 

 

13

 

 

 

3

 

Square feet of operating properties

 

 

36

 

 

 

883

 

 

 

1,003

 

 

 

883

 

Acres of land

 

 

277

 

 

 

429

 

 

 

465

 

 

 

808

 

Acquisition cost of net investments in real estate properties (1)

 

$

204,935

 

 

$

179,358

 

 

$

517,187

 

 

$

314,299

 

   

(1)

Includes the acquisition cost of properties classified in other real estate investments of $137.2 million for the three and six months ended June 30, 2019. We did not acquire any properties classified in other real estate investments during the three and six months ended June 30, 2018.

 

On July 15, 2019, we entered into a merger agreement to acquire the wholly-owned real estate assets of Industrial Property Trust Inc. (“IPT”) for approximately $4.0 billion in a cash transaction, including the assumption and repayment of debt. The transaction, currently expected to close in the fourth quarter of 2019 or first quarter of 2020, is subject to the approval of IPT stockholders and other

13

 


 

customary closing conditions. Following the closing, we intend to hold the portfolio through either one or both of our U.S. co-investment ventures.

 

Dispositions

 

The following table summarizes our gains on real estate transactions, net (dollars and square feet in thousands):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Contributions to unconsolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of properties

 

 

8

 

 

 

3

 

 

 

27

 

 

 

11

 

Square feet

 

 

4,173

 

 

 

1,164

 

 

 

12,322

 

 

 

4,242

 

Net proceeds (1) (2)

 

$

742,544

 

 

$

125,917

 

 

$

1,486,709

 

 

$

665,739

 

Gains on contributions, net (1) (2)

 

$

221,552

 

 

$

33,527

 

 

$

258,690

 

 

$

201,253

 

Dispositions to third parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of properties

 

 

-

 

 

 

7

 

 

 

2

 

 

 

18

 

Square feet

 

 

-

 

 

 

4,139

 

 

 

670

 

 

 

5,442

 

Net proceeds (1)

 

$

2,516

 

 

$

314,141

 

 

$

54,540

 

 

$

402,122

 

Gains on dispositions, net (1)

 

$

2,643

 

 

$

60,734

 

 

$

18,691

 

 

$

88,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gains on contributions and dispositions, net

 

$

224,195

 

 

$

94,261

 

 

$

277,381

 

 

$

289,372

 

Gain on partial redemption of investment in an unconsolidated

     co-investment venture (3)

 

 

-

 

 

 

-

 

 

 

135,022

 

 

 

-

 

Total gains on real estate transactions, net

 

$

224,195

 

 

$

94,261

 

 

$

412,403

 

 

$

289,372

 

 

(1)

Includes the contribution and disposition of land parcels.   

 

(2)

In January 2019, we formed Prologis Brazil Logistics Venture (“PBLV”), a Brazilian unconsolidated co-investment venture, with one partner. We contributed an initial portfolio of real estate properties to PBLV consisting of 14 operating properties totaling 6.9 million square feet and 371 acres of land. We received cash proceeds and units for our 20% equity interest.

 

(3)

See Note 4 for more information on this transaction.

 

Leases

 

As a Lessor

 

We lease our operating properties to customers under agreements that are classified as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Generally, under the terms of our leases, the majority of our rental expenses, including common area maintenance, real estate taxes and insurance, are recovered from our customers. We record amounts reimbursed by customers in the period that the applicable expenses are incurred, which is generally ratably throughout the term of the lease. The reimbursements are recognized in Rental Revenues in the Consolidated Statements of Income as we are the primary obligor with respect to purchasing and selecting goods and services from third-party vendors and bearing the associated credit risk. We perform credit analyses of our customers prior to the execution of our leases and continue these analyses on an ongoing basis in order to ensure the collectability of rental revenue.

 

The following table summarizes the minimum lease payments due from our customers on leases with lease periods greater than one year for space in our operating properties, prestabilized and under development properties, leases of land subject to ground leases and assets held for sale or contribution at June 30, 2019 (in thousands):

 

2019

 

$

1,025,461

 

2020

 

 

2,011,029

 

2021

 

 

1,745,388

 

2022

 

 

1,424,837

 

2023

 

 

1,135,391

 

Thereafter

 

 

3,652,444

 

Total

 

$

10,994,550

 

 

These amounts do not reflect future rental revenue from the renewal or replacement of existing leases and exclude reimbursements of operating expenses and rental increases that are not fixed.

 

14

 


 

As a Lessee

 

We have approximately 125 ground and office space leases, which qualify as operating leases, with remaining lease terms of 1 to 89 years at June 30, 2019.

 

The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by our incremental borrowing rates to calculate the lease liabilities of our operating leases in which we are the lessee and for which the lease has commenced (in thousands):

 

 

 

June 30, 2019

 

 

December 31, 2018

 

2019

 

$

22,898

 

 

$

38,769

 

2020

 

 

45,277

 

 

 

38,267

 

2021

 

 

45,697

 

 

 

34,307

 

2022

 

 

38,659

 

 

 

32,312

 

2023

 

 

32,979

 

 

 

30,180

 

Thereafter

 

 

678,569

 

 

 

670,147

 

Total undiscounted rental payments

 

 

864,079

 

 

$

843,982

 

Less imputed interest

 

 

460,909

 

 

 

 

 

Total lease liabilities

 

$

403,170

 

 

 

 

 

 

The weighted average remaining lease term for our operating leases was 32 and 28 years at June 30, 2019 and December 31, 2018, respectively. We do not include renewal options in the lease term for calculating the lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to exercise the option. The weighted average incremental borrowing rate was 3.9% at June 30, 2019. We assigned a collateralized interest rate to each lease based on the term of the lease and the currency in which the lease is denominated.

 

NOTE 4. UNCONSOLIDATED ENTITIES

 

Summary of Investments

 

We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with partners and investors and we provide asset and property management services to these entities, which we refer to as co-investment ventures. These entities may be consolidated or unconsolidated, depending on the structure, our partner’s participation and other rights and our level of control of the entity. This note details our investments in unconsolidated co-investment ventures, which are related parties and are accounted for using the equity method of accounting. See Note 7 for more detail regarding our consolidated investments that are not wholly owned.

 

We also have other ventures, generally with one partner and that we do not manage, which we account for using the equity method. We refer to our investments in all entities accounted for using the equity method, both unconsolidated co-investment ventures and other ventures, collectively, as unconsolidated entities.

 

The following table summarizes our investments in and advances to our unconsolidated entities (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Unconsolidated co-investment ventures

 

$

5,459,973

 

 

$

5,407,838

 

Other ventures

 

 

353,609

 

 

 

337,456

 

Total

 

$

5,813,582

 

 

$

5,745,294

 

 

 

Unconsolidated Co-Investment Ventures

 

 

The following table summarizes the Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to our unconsolidated co-investment ventures (in thousands):

 

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Recurring fees

 

$

65,537

 

 

$

57,918

 

 

$

127,654

 

 

$

112,562

 

Transactional fees

 

 

15,830

 

 

 

11,828

 

 

 

27,178

 

 

 

27,452

 

Promote revenue

 

 

7,283

 

 

 

5,674

 

 

 

7,283

 

 

 

68,218

 

Total strategic capital revenues from unconsolidated

     co-investment ventures (1)

 

$

88,650

 

 

$

75,420

 

 

$

162,115

 

 

$

208,232

 

 

15

 


 

 

(1)

These amounts exclude strategic capital revenues from other ventures.

 

 

The following table summarizes the key property information, financial position and operating information of our unconsolidated co-investment ventures (not our proportionate share) and the amounts we recognized in the Consolidated Financial Statements related to our unconsolidated co-investment ventures (dollars and square feet in millions):

 

 

U.S.

 

 

Other Americas

 

 

Europe

 

 

Asia

 

 

Total

 

As of:

Jun 30,

2019

 

 

Dec 31,

2018

 

 

Jun 30,

2019 (1)

 

 

Dec 31,

2018

 

 

Jun 30,

2019

 

 

Dec 31,

2018

 

 

Jun 30,

2019

 

 

Dec 31,

2018

 

 

Jun 30,

2019

 

 

Dec 31,

2018

 

Key property information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ventures

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

 

 

3

 

 

 

3

 

 

 

2

 

 

 

2

 

 

 

8

 

 

 

8

 

Operating properties

 

585

 

 

 

566

 

 

 

213

 

 

 

209

 

 

 

698

 

 

 

669

 

 

 

138

 

 

 

125

 

 

 

1,634

 

 

 

1,569

 

Square feet

 

93

 

 

 

91

 

 

 

44

 

 

 

39

 

 

 

168

 

 

 

159

 

 

 

58

 

 

 

51

 

 

 

363

 

 

 

340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets ($)

 

7,464

 

 

 

7,303

 

 

 

2,751

 

 

 

2,137

 

 

 

13,948

 

 

 

13,028

 

 

 

7,941

 

 

 

7,089

 

 

 

32,104

 

 

 

29,557

 

Third-party debt ($)

 

2,109

 

 

 

2,094

 

 

 

768

 

 

 

838

 

 

 

2,712

 

 

 

2,548

 

 

 

3,182

 

 

 

2,668

 

 

 

8,771

 

 

 

8,148

 

Total liabilities ($)

 

2,420

 

 

 

2,350

 

 

 

821

 

 

 

862

 

 

 

4,034

 

 

 

3,615

 

 

 

3,550

 

 

 

3,006

 

 

 

10,825

 

 

 

9,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our investment balance ($) (2)

 

1,433

 

 

 

1,457

 

 

 

670

 

 

 

554

 

 

 

2,672

 

 

 

2,784

 

 

 

685

 

 

 

613

 

 

 

5,460

 

 

 

5,408

 

Our weighted average ownership (3) (4)

 

26.8

%

 

 

27.4

%

 

 

38.7

%

 

 

44.4

%

 

 

30.2

%

 

 

33.2

%

 

 

15.1

%

 

 

15.1

%

 

 

26.5

%

 

 

28.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

Other Americas

 

 

Europe

 

 

Asia

 

 

Total

 

Operating Information:

Jun 30,

2019

 

 

Jun 30,

2018

 

 

Jun 30,

2019 (1)

 

 

Jun 30,

2018

 

 

Jun 30,

2019

 

 

Jun 30,

2018

 

 

Jun 30,

2019

 

 

Jun 30,

2018

 

 

Jun 30,

2019

 

 

Jun 30,

2018

 

For the three months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues ($)

 

180

 

 

 

168

 

 

 

67

 

 

 

55

 

 

 

268

 

 

 

272

 

 

 

124

 

 

 

114

 

 

 

639

 

 

 

609

 

Net earnings ($)

 

23

 

 

 

24

 

 

 

21

 

 

 

19

 

 

 

84

 

 

 

110

 

 

 

25

 

 

 

6

 

 

 

153

 

 

 

159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our earnings from unconsolidated

     co-investment ventures, net ($)

 

7

 

 

 

7

 

 

 

8

 

 

 

8

 

 

 

27

 

 

 

37

 

 

 

4

 

 

 

2

 

 

 

46

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues ($)

 

359

 

 

 

336

 

 

 

134

 

 

 

108

 

 

 

539

 

 

 

560

 

 

 

244

 

 

 

222

 

 

 

1,276

 

 

 

1,226

 

Net earnings ($)

 

52

 

 

 

37

 

 

 

55

 

 

 

33

 

 

 

155

 

 

 

203

 

 

 

62

 

 

 

48

 

 

 

324

 

 

 

321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our earnings from unconsolidated

     co-investment ventures, net ($)

 

16

 

 

 

12

 

 

 

21

 

 

 

14

 

 

 

52

 

 

 

74

 

 

 

10

 

 

 

9

 

 

 

99

 

 

 

109

 

 

(1)

PBLV and our other Brazilian joint ventures are combined as one venture for the purpose of this table.

 

(2)

Prologis’ investment balance is presented at our adjusted basis derived from the ventures’ U.S. GAAP information. The difference between our ownership interest of a venture’s equity and our investment balance at June 30, 2019 and December 31, 2018, results principally from four types of transactions: (i) deferred gains from the contribution of property to a venture prior to January 1, 2018 ($618.1 million and $635.9 million, respectively); (ii) recording additional costs associated with our investment in the venture ($91.1 million and $94.4 million, respectively); (iii) receivables, principally for fees and promotes ($132.0 million and $166.7 million, respectively); and (iv) customer security deposits retained subsequent to property contributions to Nippon Prologis REIT, Inc. (“NPR”) ($136.3 million and $122.0 million, respectively). These customer security deposits originated through a leasing company owned by us and we have a corresponding payable to NPR’s customers in Other Liabilities. These amounts are repaid to us as the leases turn over.

 

(3)

Represents our weighted average ownership interest based on each entity’s contribution of total assets, before depreciation, net of other liabilities.

 

(4)

In February 2019, we redeemed a portion of our investment in Prologis European Logistics Fund (“PELF”) for 278.2 million ($313.3 million). 

 

Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures

 

At June 30, 2019, our remaining equity commitments were $276.7 million, principally for Prologis China Logistics Venture and PBLV. The equity commitments expire from 2020 to 2026.  

 

16

 


 

NOTE 5. ASSETS HELD FOR SALE OR CONTRIBUTION

 

We have investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at June 30, 2019 and December 31, 2018. At the time of classification, these properties were expected to be sold to third parties or were recently stabilized and expected to be contributed to unconsolidated co-investment ventures within twelve months. The amounts included in Assets Held for Sale or Contribution represented real estate investment balances and the related assets and liabilities for each property.

 

Assets held for sale or contribution consisted of the following (dollars and square feet in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Number of operating properties

 

 

51

 

 

 

57

 

Square feet

 

 

8,223

 

 

 

8,236

 

Total assets held for sale or contribution

 

$

609,121

 

 

$

622,288

 

Total liabilities associated with assets held for sale or contribution – included in Other Liabilities

 

$

13,741

 

 

$

12,972

 

 

NOTE 6. DEBT

 

All debt is incurred by the OP or its consolidated subsidiaries.

 

The following table summarizes our debt (dollars in thousands):

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Weighted Average Interest Rate (1)

 

 

Amount

Outstanding (2)

 

 

Weighted Average Interest Rate (1)

 

 

Amount

Outstanding (2)

 

Credit facilities

 

 

1.8

%

 

$

112,906

 

 

 

3.4

%

 

$

50,500

 

Senior notes

 

 

2.7

%

 

 

8,375,716

 

 

 

2.7

%

 

 

8,304,147

 

Term loans and unsecured other

 

 

1.4

%

 

 

1,891,032

 

 

 

1.8

%

 

 

1,921,428

 

Secured mortgage

 

 

3.7

%

 

 

588,666

 

 

 

5.1

%

 

 

813,740

 

Total

 

 

2.5

%

 

$

10,968,320

 

 

 

2.7

%

 

$

11,089,815

 

 

(1)

The interest rates presented represent the effective interest rates (including amortization of debt issuance costs and the noncash premiums or discounts) at the end of the period for the debt outstanding and include the impact of undesignated and designated interest rate swaps, which effectively fix the interest rate on our variable rate debt.

 

(2)

We borrow in the functional currencies of the countries where we invest. Included in the outstanding balances were borrowings denominated in the following currencies:

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

 

Amount

Outstanding

 

 

% of Total

 

 

Amount

Outstanding

 

 

% of Total

 

 

British pound sterling

 

$

656,208

 

 

 

6.0

%

 

$

635,972

 

 

 

5.8

%

 

Canadian dollar

 

 

277,564

 

 

 

2.5

%

 

 

266,337

 

 

 

2.4

%

 

Euro

 

 

5,003,393

 

 

 

45.6

%

 

 

4,893,693

 

 

 

44.1

%

 

Japanese yen

 

 

2,113,373

 

 

 

19.3

%

 

 

1,951,844

 

 

 

17.6

%

 

U.S. dollar

 

 

2,917,782

 

 

 

26.6

%

 

 

3,341,969

 

 

 

30.1

%

 

Total

 

$

10,968,320

 

 

 

 

 

 

$

11,089,815

 

 

 

 

 

                   

Credit Facilities

 

In January 2019, we recast our global senior credit facility (the “Global Facility”), under which we may draw in British pounds sterling, Canadian dollars, euro, Japanese yen, Mexican pesos and U.S. dollars on a revolving basis up to $3.5 billion (subject to currency fluctuations). Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP. The Global Facility is scheduled to mature in January 2023; however, we may extend the maturity date for six months on two occasions, subject to the satisfaction of certain conditions and payment of extension fees. We have the ability to increase the Global Facility to $4.5 billion, subject to currency fluctuations and obtaining additional lender commitments.

 

We also have a Japanese yen revolver (the “Revolver”) with availability of ¥50.0 billion ($464.1 million at June 30, 2019). We have the ability to increase the Revolver to ¥65.0 billion ($603.3 million at June 30, 2019), subject to obtaining additional lender commitments. Pricing under the Revolver, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt

17

 


 

ratings of the OP. The Revolver is scheduled to mature in February 2021; however, we may extend the maturity date for one year, subject to the satisfaction of certain conditions and payment of extension fees.

        

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities.”

 

The following table summarizes information about our Credit Facilities at June 30, 2019 (in millions):

 

 

 

 

 

Aggregate lender commitments

 

$

3,963

 

Less:

 

 

 

 

Borrowings outstanding

 

 

113

 

Outstanding letters of credit

 

 

30

 

Current availability

 

$

3,820

 

      

Senior Notes

 

In March 2019, we completed a private placement for ¥10.0 billion ($90.5 million) of senior notes with a stated interest rate of 1.2%, maturing in March 2039.

 

Term Loans     

 

In January 2019, we entered into two unsecured Japanese yen term loans for a total of ¥15.0 billion ($137.1 million) that bear interest of Yen LIBOR plus 0.5% to 0.6% and are scheduled to mature in January 2028 and 2030.  

 

In March 2019, we entered into an unsecured Japanese yen term loan agreement (the “March 2019 Yen Term Loan”) under which we can draw Japanese yen in an aggregate amount not to exceed ¥85.0 billion ($789.0 million at June 30, 2019). The March 2019 Yen Term Loan currently bears interest at Yen LIBOR plus 0.4% and is scheduled to mature in March 2026. We have the ability to increase the March 2019 Yen Term Loan to ¥120.0 billion ($1.1 billion at June 30, 2019), subject to obtaining additional lender commitments. Pricing under the March 2019 Yen Term Loan, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the OP.

 

We repaid the outstanding balance of ¥100.0 billion ($897.4 million) on our 2016 Japanese yen term loan (“2016 Yen Term Loan”), primarily with the proceeds from the 2019 Yen Term Loan during the first quarter of 2019. The 2016 Yen Term Loan bore a floating rate of Yen LIBOR plus 0.7% and had two separate tranches of debt scheduled to mature in August 2022 and 2023.

 

During the six months ended June 30, 2019 and 2018, we paid down $775.0 million and $1.0 billion, and reborrowed $716.0 million and $500.0 million, respectively, on our multi-currency term loan (the “2017 Term Loan”).

 

Long-Term Debt Maturities

 

Principal payments due on our debt for the remainder of 2019 and for each year through the period ended December 31, 2023, and thereafter were as follows at June 30, 2019 (in thousands):

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

Credit

 

 

Senior

 

 

Term Loans

 

 

Secured

 

 

 

 

 

Maturity

 

Facilities

 

 

Notes

 

 

and Other

 

 

Mortgage

 

 

Total

 

2019 (1)

 

$

-

 

 

$

-

 

 

$

11,209

 

 

$

4,418

 

 

$

15,627

 

2020 (1) (2)

 

 

-

 

 

 

1,138,000

 

 

 

441,040

 

 

 

34,370

 

 

 

1,613,410

 

2021

 

 

-

 

 

 

796,600

 

 

 

-

 

 

 

96,330

 

 

 

892,930

 

2022

 

 

-

 

 

 

796,600

 

 

 

-

 

 

 

12,216

 

 

 

808,816

 

2023 (3)

 

 

112,906

 

 

 

850,000

 

 

 

130,287

 

 

 

39,377

 

 

 

1,132,570

 

Thereafter

 

 

-

 

 

 

4,851,127

 

 

 

1,318,075

 

 

 

404,339

 

 

 

6,573,541

 

Subtotal

 

 

112,906

 

 

 

8,432,327

 

 

 

1,900,611

 

 

 

591,050

 

 

 

11,036,894

 

Premiums (discounts), net

 

 

-

 

 

 

(24,166

)

 

 

-

 

 

 

720

 

 

 

(23,446

)

Debt issuance costs, net

 

 

-

 

 

 

(32,445

)

 

 

(9,579

)

 

 

(3,104

)

 

 

(45,128

)

Total

 

$

112,906

 

 

$

8,375,716

 

 

$

1,891,032

 

 

$

588,666

 

 

$

10,968,320

 

 

(1)

We expect to repay the amounts maturing in the next twelve months with cash generated from operations, proceeds from dispositions of real estate properties, or as necessary, with additional borrowings.

 

(2)

Included in the 2020 maturities was the 2017 Term Loan that can be extended until 2022.

 

(3)

Included in the 2023 maturities was the Global Facility that can be extended until 2024.

 

18

 


 

Financial Debt Covenants

 

We have $8.4 billion of senior notes and $1.9 billion of term loans outstanding at June 30, 2019 that were subject to certain financial covenants under their related indentures. We are also subject to financial covenants under our Credit Facilities and certain secured mortgage debt. At June 30, 2019, we were in compliance with all of our financial debt covenants.

 

Guarantee of Finance Subsidiary Debt

  

In 2018, we formed finance subsidiaries as part of our operations in Europe (Prologis Euro Finance LLC), Japan (Prologis Yen Finance LLC) and the United Kingdom (Prologis Sterling Finance LLC).

 

These entities are 100% indirectly owned by the OP and all unsecured debt issued or to be issued by each entity is or will be fully and unconditionally guaranteed by the OP. There are no restrictions or limits on the OP’s ability to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial statements of Prologis Euro Finance LLC, Prologis Yen Finance LLC and Prologis Sterling Finance LLC are not provided.

 

NOTE 7. NONCONTROLLING INTERESTS

 

Prologis, L.P.

 

We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option, into shares of the Parent’s common stock, generally at a rate of one share of common stock to one limited partnership unit. We also consolidate certain entities in which we do not own 100% of the equity but the equity of these entities is not exchangeable into our common stock.

 

Prologis, Inc.

 

The noncontrolling interests of the Parent include the noncontrolling interests described above for the OP, as well as the limited partnership units in the OP that are not owned by the Parent.

 

The following table summarizes our ownership percentages and noncontrolling interests and the consolidated entities’ total assets and total liabilities (dollars in thousands):

 

 

Our Ownership Percentage

 

 

Noncontrolling Interests

 

 

Total Assets

 

 

Total Liabilities

 

 

Jun 30,

2019

 

 

Dec 31,

2018

 

 

Jun 30,

2019

 

 

Dec 31,

2018

 

 

Jun 30,

2019

 

 

Dec 31,

2018

 

 

Jun 30,

2019

 

 

Dec 31,

2018

 

Prologis U.S. Logistics Venture

 

55.0

%

 

 

55.0

%

 

$

2,670,699

 

 

$

2,697,095

 

 

$

6,021,777

 

 

$

6,072,087

 

 

$

96,881

 

 

$

92,782

 

Other consolidated entities (1)

various

 

 

various

 

 

 

115,484

 

 

 

139,374

 

 

 

1,036,819

 

 

 

1,045,202

 

 

 

95,612

 

 

 

53,145

 

Prologis, L.P.

 

 

 

 

 

 

 

 

 

2,786,183

 

 

 

2,836,469

 

 

 

7,058,596

 

 

 

7,117,289

 

 

 

192,493

 

 

 

145,927

 

Limited partners in Prologis, L.P. (2) (3)

 

 

 

660,442

 

 

 

666,326

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Prologis, Inc.

 

 

 

 

 

 

 

 

$

3,446,625

 

 

$

3,502,795

 

 

$

7,058,596

 

 

$

7,117,289

 

 

$

192,493

 

 

$

145,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes our two partnerships that have issued limited partnership units to third parties, as discussed above, along with various other consolidated entities. The limited partnership units outstanding at June 30, 2019 and December 31, 2018 were exchangeable into cash or, at our option, 0.4 million and 0.7 million shares of the Parent’s common stock, respectively.

 

(2)

We had 8.8 million Class A Units that were convertible into 8.3 million and 8.4 million limited partnership units of the OP at June 30, 2019 and December 31, 2018, respectively.

 

(3)

At June 30, 2019 and December 31, 2018, excluding the Class A Units, there were limited partnership units in the OP that were exchangeable into cash or, at our option, 6.6 million and 7.2 million shares of the Parent’s common stock, respectively. Also included are the vested OP Long-Term Incentive Plan Units (“LTIP Units”) associated with our long-term compensation plan. See further discussion of LTIP Units in Note 8.

 

NOTE 8. LONG-TERM COMPENSATION

 

Equity-Based Compensation Plans and Programs

 

Prologis Outperformance Plan (“POP”)

 

We allocate participation points to participants under our POP corresponding to three-year performance periods beginning every January 1. The fair value of the awards is measured at the grant date and amortized over the period from the grant date to the date at

19

 


 

which the awards vest, which ranges from three to ten years. The performance hurdle (“Outperformance Hurdle”) at the end of the initial three-year performance period requires our three-year compound annualized total stockholder return (“TSR”) to exceed a threshold set at the three-year compound annualized TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points. If the Outperformance Hurdle is met, a compensation pool will be formed equal to 3% of the excess value created, subject to a maximum as defined for each performance period. POP awards cannot be paid at a time when our absolute TSR is negative. If after seven years our absolute TSR has not been positive, the awards will be forfeited.  

 

We granted participation points for the 2019 – 2021 performance period in January 2019, with a fair value of $21.2 million using a Monte Carlo valuation model that assumed a risk-free interest rate of 2.6% and an expected volatility of 20.0%. The 2019 – 2021 performance period has an absolute maximum cap of $100 million. If an award is earned at the end of the initial three-year performance period, then 20% of the POP award is paid and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the three-year performance period is subject to an additional three-year holding requirement.      

 

The Outperformance Hurdle was met for the 2016 – 2018 performance period, which resulted in awards being earned at December 31, 2018. Initial awards of $75.0 million in aggregate were awarded in January 2019 in the form of 0.4 million shares of common stock and 0.8 million POP LTIP Units and LTIP Units. Participants are not able to sell or transfer equity awards received until three years after the end of the initial period. One-third of the remaining compensation pool in excess of the $75.0 million aggregate initial award amounts can be earned at the end of each of the three years following the end of the initial three-year performance period if our performance meets or exceeds the MSCI US REIT Index. Vesting for the 2016 – 2018 performance period for our Named Executive Officers (“NEOs”) follows the construct of the 2019 – 2021 performance period as described above, such that 20% of any amounts earned were awarded subject to a three-year holding period, and 80% of any amounts earned will cliff vest at the end of the seventh year following the initial three-year performance period. At June 30, 2019, there were 0.4 million unvested POP LTIP Units associated with the 2016 – 2018 performance period.

 

Other Equity-Based Compensation Plans and Programs

 

Our other equity-based compensation plans and programs include (i) the Prologis Promote Plan (“PPP”); (ii) the annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iii) the annual bonus exchange program. Awards under these plans and programs may be issued in the form of restricted stock units (“RSUs”) or LTIP Units at the participant’s election. RSUs and LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and the grant date value is charged to compensation expense over the service period, which beginning in February 2018 was lengthened from three to four years for PPP and Annual LTI Awards and three years for bonus exchange awards offering a premium upon exchange. As our NEOs do not receive a bonus exchange premium for participating in the bonus exchange program, the equity they receive upon exchange for their cash bonuses does not have a vesting period.

 

Summary of Award Activity

 

RSUs

 

The following table summarizes the activity for RSUs for the six months ended June 30, 2019 (units in thousands):

 

 

 

 

 

 

 

Weighted Average

 

 

 

Unvested RSUs

 

 

Grant Date Fair Value

 

Balance at January 1, 2019

 

 

1,255

 

 

$

54.48

 

Granted

 

 

537

 

 

 

71.37

 

Vested and distributed

 

 

(656

)

 

 

51.49

 

Forfeited

 

 

(26

)

 

 

60.91

 

Balance at June 30, 2019

 

 

1,110

 

 

$

64.28

 

 

 

 

 

 

 

 

 

 

LTIP Units

 

The following table summarizes the activity for LTIP Units for the six months ended June 30, 2019 (units in thousands):

 

 

 

Vested

 

 

Unvested

 

 

Unvested Weighted Average

 

 

 

LTIP Units

 

 

LTIP Units

 

 

Grant Date Fair Value

 

Balance at January 1, 2019

 

 

3,293

 

 

 

2,177

 

 

$

56.05

 

Granted

 

 

-

 

 

 

911

 

 

 

70.87

 

Vested LTIP Units

 

 

1,067

 

 

 

(1,067

)

 

 

54.04

 

Vested POP LTIP Units (1)

 

 

391

 

 

 

-

 

 

N/A

 

Conversion to common limited partnership units

 

 

(951

)

 

 

-

 

 

N/A

 

Balance at June 30, 2019

 

 

3,800

 

 

 

2,021

 

 

$

63.79

 

20

 


 

 

(1)

Vested units were based on the POP performance criteria being met for the 2016 – 2018 performance period and represented the earned award amount. See above for further discussion on the POP.

 

NOTE 9. EARNINGS PER COMMON SHARE OR UNIT

 

We determine basic earnings per share or unit based on the weighted average number of shares of common stock or units outstanding during the period. We compute diluted earnings per share or unit based on the weighted average number of shares or units outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.

 

The computation of our basic and diluted earnings per share and unit was as follows (in thousands, except per share and unit amounts):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

Prologis, Inc.

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net earnings attributable to common stockholders – Basic

 

$

383,784

 

 

$

334,611

 

 

$

730,831

 

 

$

700,513

 

Net earnings attributable to exchangeable limited partnership units (1)

 

 

11,759

 

 

 

10,216

 

 

 

22,416

 

 

 

20,909

 

Adjusted net earnings attributable to common stockholders – Diluted

 

$

395,543

 

 

$

344,827

 

 

$

753,247

 

 

$

721,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

630,271

 

 

 

532,639

 

 

 

629,990

 

 

 

532,427

 

Incremental weighted average effect on exchange of limited partnership units (1)

 

 

19,556

 

 

 

16,847

 

 

 

19,637

 

 

 

16,560

 

Incremental weighted average effect of equity awards

 

 

5,620

 

 

 

5,029

 

 

 

5,139

 

 

 

5,079

 

Weighted average common shares outstanding – Diluted (2)

 

 

655,447

 

 

 

554,515

 

 

 

654,766

 

 

 

554,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.63

 

 

$

1.16

 

 

$

1.32

 

Diluted

 

$

0.60

 

 

$

0.62

 

 

$

1.15

 

 

$

1.30

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

Prologis, L.P.

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net earnings attributable to common unitholders

 

$

395,470

 

 

$

344,633

 

 

$

753,091

 

 

$

721,058

 

Net earnings attributable to Class A Units

 

 

(5,077

)

 

 

(5,324

)

 

 

(9,683

)

 

 

(11,177

)

Net earnings attributable to common unitholders – Basic

 

 

390,393

 

 

 

339,309

 

 

 

743,408

 

 

 

709,881

 

Net earnings attributable to Class A Units

 

 

5,077

 

 

 

5,324

 

 

 

9,683

 

 

 

11,177

 

Net earnings attributable to exchangeable other limited partnership units

 

 

73

 

 

 

194

 

 

 

156

 

 

 

364

 

Adjusted net earnings attributable to common unitholders – Diluted

 

$

395,543

 

 

$

344,827

 

 

$

753,247

 

 

$

721,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common partnership units outstanding – Basic

 

 

641,127

 

 

 

540,084

 

 

 

640,832

 

 

 

539,547

 

Incremental weighted average effect on exchange of Class A Units

 

 

8,337

 

 

 

8,477

 

 

 

8,347

 

 

 

8,495

 

Incremental weighted average effect on exchange of other limited partnership units

 

 

363

 

 

 

925

 

 

 

448

 

 

 

945

 

Incremental weighted average effect of equity awards of Prologis, Inc.

 

 

5,620

 

 

 

5,029

 

 

 

5,139

 

 

 

5,079

 

Weighted average common units outstanding – Diluted (2)

 

 

655,447

 

 

 

554,515

 

 

 

654,766

 

 

 

554,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per unit attributable to common unitholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.63

 

 

$

1.16

 

 

$

1.32

 

Diluted

 

$

0.60

 

 

$

0.62

 

 

$

1.15

 

 

$

1.30

 

 

(1)

The exchangeable limited partnership units include the units as discussed in Note 7. Earnings allocated to the exchangeable OP units not held by the Parent have been included in the numerator and exchangeable common units have been included in the denominator for the purpose of computing diluted earnings per share for all periods as the per share and unit amount is the same.

 

21

 


 

(2)

Our total weighted average potentially dilutive shares and units outstanding consisted of the following:  

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Class A Units

 

 

8,337

 

 

 

8,477

 

 

 

8,347

 

 

 

8,495

 

 

Other limited partnership units

 

 

363

 

 

 

925

 

 

 

448

 

 

 

945

 

 

Equity awards

 

 

8,589

 

 

 

8,432

 

 

 

8,161

 

 

 

8,391

 

 

Prologis, L.P.

 

 

17,289

 

 

 

17,834

 

 

 

16,956

 

 

 

17,831

 

 

Common limited partnership units

 

 

10,856

 

 

 

7,445

 

 

 

10,842

 

 

 

7,120

 

 

Prologis, Inc.

 

 

28,145

 

 

 

25,279

 

 

 

27,798

 

 

 

24,951

 

 

 

NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Derivative Financial Instruments

 

In the normal course of business, our operations are exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates. We may enter into derivative financial instruments to offset these underlying market risks. There have been no significant changes in our policy or strategy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

The following table presents the fair value of our derivative financial instruments recognized within Other Assets and Other Liabilities on the Consolidated Balance Sheets (in thousands):

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Asset

 

 

Liability

 

 

Asset

 

 

Liability

 

Undesignated derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Forwards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Brazilian real

 

$

-

 

 

$

-

 

 

$

80

 

 

$

-

 

          British pound sterling

 

 

7,805

 

 

 

90

 

 

 

2,266

 

 

 

324

 

          Canadian dollar

 

 

1,185

 

 

 

941

 

 

 

3,336

 

 

 

53

 

          Euro

 

 

12,315

 

 

 

560

 

 

 

7,895

 

 

 

1,922

 

          Japanese yen

 

 

1,680

 

 

 

923

 

 

 

3,334

 

 

 

1,318

 

          Mexican peso

 

 

-

 

 

 

-

 

 

 

159

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  U.S. dollar

 

 

-

 

 

 

152

 

 

 

27

 

 

 

-