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Exhibit 99.1
THIRD QUARTER 2014
Earnings Release and Supplemental Information
UNAUDITED
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Table of Contents
Prologis Park Ichikawa, Chiba, Japan
Prologis Ports Jersey City, Jersey City, New Jersey
Prologis Isle D’abeau, Lyon, France
Cover: Prologis Park Jirny, Prague, Czech Republic
Overview
Press Release 1
Highlights
Company Profile 4
Company Performance 5
Operating Performance 7
Guidance 8
Financial Information
Consolidated Balance Sheets 9
Pro-rata Balance Sheet Information 10
Consolidated Statements of Operations 11
Reconciliation of Net Earnings (Loss) to FFO 12
Pro-rata Operating Information and Reconciliation to FFO 13
EBITDA Reconciliation 14
Strategic Capital
Summary and Financial Highlights 15
Operating and Balance Sheet Information 16
Operations Overview
Operating Metrics 17
Operating Portfolio 19
Customer Information 22
Capital Deployment
Overview 23
Value Creation from Development Stabilization 24
Development Starts 25
Development Portfolio 26
Third Party Building Acquisitions and Equity Invested in
Co-Investment Ventures 27
Dispositions and Contributions 28
Land Portfolio 29
Capitalization
Overview 31
Debt Summary 32
Debt Covenants and Other Metrics 33
Net Asset Value
Components 34
Notes and Definitions (A) 36
Supplemental 3Q 2014
(A) Terms used throughout document are defined in the Notes and Definitions
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Prologis, Inc. Announces Third Quarter 2014 Earnings Results
Core Funds From Operations Increased 18 Percent Year over Year
Rent Change on Rollovers Increased 9.7 Percent
SAN FRANCISCO (Oct. 23, 2014) – Prologis, Inc. (NYSE: PLD), the global leader in Development Starts & Stabilizations industrial real estate, today reported results for third quarter 2014. Core funds from During the quarter, Prologis started $697.5 million ($615.6 million Prologis’ share) of operations (Core FFO) per fully diluted share was $0.48 for the third quarter new developments, with an estimated weighted average yield upon stabilization of compared with $0.41 for the same period in 2013, a year over year increase of 18 7.1 percent and an estimated development margin of 19.1 percent. percent.
The company stabilized $222.7 million ($219.4 million Prologis’ share) in development “I am very pleased with our quarterly performance,” said Hamid R. Moghadam, projects, principally in the U.S. and Mexico, with an estimated development margin of chairman and CEO, Prologis. “Our results were led by operations with global 25.7 percent, generating $56.9 million (Prologis’ share) of estimated value creation. occupancy ending at 95 percent and rent change reaching the highest level in many years. We are raising the midpoint for our full year 2014 Core FFO guidance due to “Margins remain above average and we are poised to create value for years to come,” our performance to date and expectations for continued growth.” said Mike Curless, chief investment officer, Prologis. “Our land bank is well positioned for the next generation of development activity. Approximately 90 percent is located OPERATING RESULTS STRENGTHEN ACROSS THE GLOBE in major metropolitan areas where we see accelerating demand.” Prologis ended the quarter with 95.0 percent occupancy in its operating portfolio, an increase of 110 basis points over the same period in 2013 and 40 basis points over the At quarter end, the book value of the company’s land bank totaled $1.8 billion with an prior quarter. The quarterly increase was driven by a 110 basis point increase in estimated build out potential of $10.8 billion. spaces under 100,000 square feet and a 90 basis point increase in the company’s European portfolio. Acquisitions Prologis acquired $883.8 million ($367.4 million Prologis’ share) of buildings, In the third quarter, the company leased 40.8 million square feet (3.8 million square principally in Europe through its co investment ventures. The stabilized capitalization meters) in its combined operating and development portfolios. Tenant retention was rate on Prologis’ share of building acquisitions was 6.1 percent.
83.9 percent.
The company invested $357.5 million in its North American Industrial Fund, increasing GAAP rental rates on signed leases during the quarter increased 9.7 percent from Prologis’ ownership interest to 63.3 percent. prior rents, led by the U.S. at 15.5 percent and followed by Asia at 10.2 percent and
Europe at 0.2 percent. Contributions & Dispositions
Prologis completed $442.6 million ($376.2 million Prologis’ share) of contributions to During the third quarter, same store NOI increased 3.7 percent on a GAAP basis and Nippon Prologis REIT and third party dispositions of non strategic assets of $398.0 4.0 percent on an adjusted cash basis. million ($390.3 million Prologis’ share). Prologis’ share of contributions and building dispositions had a stabilized capitalization rate of 6.0 percent.
CAPITAL DEPLOYMENT ACTIVITY CAPTURES DEMAND FOR CLASS A PRODUCT
New investments totaled $1.9 billion ($1.3 billion Prologis share) in the third quarter, STRONG FINANCIAL POSITION as the company continued to deploy capital at attractive yields. Prologis completed $478 million of capital markets activity and increased its U.S. dollar net equity exposure to 89 percent.
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As previously announced and subsequent to quarter end, the company completed a A telephonic replay will be available Oct. 23 Nov. 23 at +1 855 859 2056 (from the €600 million bond offering at an annual coupon rate of 1.375 percent with a 2020 U.S. and Canada) or +1 404 537 3406 (from all other countries); please use maturity. Prologis has limited debt maturities until 2017. conference code 48765485. The webcast replay will be posted when available in the “Events & Presentations” section of Investor Relations on the Prologis website. “We continue to seek opportunities to secure long term capital at today’s cost to enhance the composition of our debt portfolio and liquidity,” said Tom Olinger, chief ABOUT PROLOGIS financial officer, Prologis. “We are very pleased with our progress toward significantly Prologis, Inc., is the global leader in industrial real estate. As of September 30, 2014, minimizing the impact of foreign currency movements on our earnings and net asset Prologis owned or had investments in, on a wholly owned basis or through co value.” investment ventures, properties and development projects expected to total approximately 585 million square feet (54 million square meters) in 21 countries. The NET EARNINGS company leases modern distribution facilities to more than 4,700 customers, including Net earnings per fully diluted share was $0.23 for the third quarter compared with a manufacturers, retailers, transportation companies, and third party logistics net loss per share of $0.02 for the same period in 2013. providers.
GUIDANCE MIDPOINT INCREASED FOR 2014 The statements in this document that are not historical facts are forward looking Prologis increased the midpoint of its full year 2014 Core FFO guidance, narrowing the statements within the meaning of Section 27A of the Securities Act of 1933, as range to $1.85 to $1.86 per diluted share from $1.82 to $1.86 per diluted share. The amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These company expects to recognize net earnings, for GAAP purposes, of $0.49 to $0.50 per forward looking statements are based on current expectations, estimates and share. projections about the industry and markets in which Prologis operates, management’s beliefs and assumptions made by management. Such statements involve The Core FFO and earnings guidance reflected above excludes any potential future uncertainties that could significantly impact Prologis’ financial results. Words such as gains (losses) recognized from real estate transactions. In reconciling from net “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” earnings to Core FFO, Prologis makes certain adjustments, including but not limited to variations of such words and similar expressions are intended to identify such real estate depreciation and amortization expense, gains (losses) recognized from real forward looking statements, which generally are not historical in nature. All estate transactions and early extinguishment of debt or redemption of preferred statements that address operating performance, events or developments that we stock, impairment charges, deferred taxes and unrealized gains or losses on foreign expect or anticipate will occur in the future — including statements relating to rent currency or derivative activity. and occupancy growth, development activity and changes in sales or contribution volume of properties, disposition activity, general conditions in the geographic areas The difference between the company’s Core FFO and net earnings guidance for 2014 where we operate, our debt and financial position, our ability to form new co predominantly relates to real estate depreciation and recognized gains or losses on investment ventures and the availability of capital in existing or new co investment real estate transactions and early extinguishment of debt. ventures — are forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are WEBCAST & CONFERENCE CALL INFORMATION difficult to predict. Although we believe the expectations reflected in any forward Prologis will host a live webcast/conference call to discuss quarterly results, current looking statements are based on reasonable assumptions, we can give no assurance market conditions and future outlook today, Oct. 23, at 12 p.m. U.S. Eastern Time. that our expectations will be attained and therefore, actual outcomes and results may Interested parties are encouraged to access the webcast by clicking the microphone differ materially from what is expressed or forecasted in such forward looking icon located near the top of the opening page of the Prologis Investor Relations statements. Some of the factors that may affect outcomes and results include, but are website (http://ir.prologis.com). Interested parties also can participate via conference not limited to: (i) national, international, regional and local economic climates, (ii) call by dialing +1 877 256 7020 (toll free from the U.S. and Canada) or +1 973 409 changes in financial markets, interest rates and foreign currency exchange rates, (iii) 9692 (from all other countries) and entering conference code 48765485. increased or unanticipated competition for our properties, (iv) risks associated with
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acquisitions, dispositions and development of properties, (v) maintenance of real estate investment trust (“REIT”) status and tax structuring, (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings, (vii) risks related to our investments in our co investment ventures and funds, including our ability to establish new co investment ventures and funds, (viii) risks of doing business internationally, including currency risks, (ix) environmental uncertainties, including risks of natural disasters, and (x) those additional factors discussed in reports filed with the Securities and Exchange Commission by Prologis under the heading “Risk Factors.” Prologis undertakes no duty to update any forward looking statements appearing in this document.
MEDIA CONTACTS
Tracy Ward, Tel: +1 415 733 9565, tward@prologis.com, San Francisco Nina Beizai, Tel: +1 415 733 9493, nbeizai@prologis.com, San Francisco
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Highlights
Supplemental 3Q 2014
Prologis, Inc. is the global leader in industrial real estate. As of September 30, 2014, Prologis owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects totaling 585 million square feet (54 million square meters) in 21 countries. The company leases modern distribution facilities to more than 4,700 customers, including manufacturers, retailers, transportation companies and third-party logistics providers.
AMERICAS (4 countries) EUROPE (14 countries) ASIA (3 countries) TOTAL
Number of operating portfolio buildings 2,152 653 67 2,872
Operating Portfolio (msf) 354 152 30 536
Development Portfolio (msf) 18 5 12 35
Other (msf) (A) 7 6 1 14
Total (msf) 379 163 43 585
Development portfolio TEI (millions) $1,197 $514 $1,115 $2,826
Land (acres) 6,839 2,965 231 10,035
Land book value (millions) $981 $667 $126 $1,774
(A) Generally represents properties in which Prologis has an ownership interest but does not manage (6 msf) and other properties owned by Prologis (8 msf), which includes value added properties (7 msf).
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Highlights
Company Performance
Supplemental 3Q 2014
Three months ended September 30, Nine months ended September 30,
(dollars in thousands, except per share data) 2014 2013 2014 2013
Revenues $ 415,151 $ 423,058 $ 1,309,922 $ 1,313,722
Net earnings (loss) attributable to common stockholders 136,245 (7,534) 213,626 256,365
Core FFO 244,896 206,895 706,726 598,169
Core AFFO 192,475 145,000 563,490 433,290
Adjusted EBITDA 368,011 356,072 1,096,143 1,038,398
Value creation—Prologis share 56,921 164,888 189,646 247,194
Common stock dividends paid 166,697 141,279 500,025 413,115
Per common share—diluted:
Net earnings (loss) attributable to common stockholders $ 0.23 $ (0.02) $ 0.43 $ 0.53
Core FFO 0.48 0.41 1.39 1.22
Dividends per share 0.33 0.28 0.99 0.84
Core FFO and Value Creation (A)
(in millions)
$500
$400 $372
$340
$326 $302
$300 $268
$200
$100
$-
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Core FFO Value Creation—Prologis Share
Adjusted EBITDA
(in millions)
$500
$400 $356 $367 $354 $374 $368
$300
$200
$100
$-
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
(A) Includes value creation from stabilized buildings and value-added conversions.
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Highlights
Company Performance
(in millions)
Supplemental 3Q 2014
Core FFO
$900 $814 $813
$707
$594
$600
$300
$-
2011 2012 2013 YTD 2014
Adjusted EBITDA
$1,600 $1,514 $1,485
$1,384
$1,200 $1,096
$800
$400
$-
2011 2012 2013 YTD 2014
Value Creation (A)
$400 $ 372
$- $14 $159
2011 2012 2013 YTD2014
$200, $190
Net Promote (B)
$32
$27
$24
$15
$16
$8
$- $-
$-
2011 2012 2013 YTD 2014
Prologis share. Includes value creation from stabilized buildings and value-added conversions.
Net promote includes actual promote earned from third party investors during the period, net of related cash expenses.
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Highlights
Operating Performance – Owned and Managed
Supplemental 3Q 2014
Occupancy
96%
95.1 95.0
94.5 94.6 94.6
93.9 94.3 94.2 94.2
93.4
93%
90%
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Period End Average
Weighted Average Customer Retention
90% 86.8
84.6 84.8 83.9
80.8 80% 70% 60%
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Net Effective Rent Change (GAAP)
10% 9.7 7.0 6.6 6.1 5.9 5% 0%
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Same Store NOI Change Over Prior Year
6% 5.3
5%
4.1 4.0
4% 3.8 3.7
2.7 3.0 3.0
3%
1.8
2%
1.4
1%
0%
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
NOI- GAAP NOI- Adjusted Cash
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Highlights
Guidance
(dollars in millions, except per share) Supplemental 3Q 2014
2014 Guidance
Low High
Net earnings (A) $0.49 $0.50
Core FFO (A) $1.85 $1.86
Operations
Year-end occupancy 95.5% 96.0%
Same store NOI - GAAP increase 3.50% 3.70%
Capital Deployment
Development starts (85% Prologis share) $2,000 $2,200
Building acquisitions (50% Prologis share) $1,500 $1,700
Building and land dispositions (85% Prologis share) $1,400 $1,600
Building contributions (55% Prologis share) $1,600 $1,800
Strategic Capital
Strategic capital income $215 $220
Strategic capital expenses $95 $100
Other Assumptions
General & administrative expenses $240 $244
Annualized third quarter 2014 dividend $1.32
Euro exchange rate ($/€) 1.28
Yen exchange rate (¥/$) 110
(A) The difference between Core FFO and Net Earnings predominately relates to real estate depreciation and gains or losses on real estate transactions and early extinguishment of debt. See the Notes and
Definitions for more information.
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Financial Information
Consolidated Balance Sheets
(in thousands) Supplemental 3Q 2014
September 30, 2014 June 30, 2014 December 31, 2013
Assets:
Investments in real estate assets:
Operating properties $ 16,155,668 $ 16,629,000 $ 17,801,064
Development portfolio 1,316,470 1,119,075 1,021,017
Land 1,533,590 1,579,737 1,516,166
Other real estate investments 460,854 454,111 486,230
19,466,582 19,781,923 20,824,477
Less accumulated depreciation 2,695,745 2,648,866 2,568,998
Net investments in properties 16,770,837 17,133,057 18,255,479
Investments in and advances to unconsolidated entities 5,814,056 5,575,423 4,430,239
Notes receivable backed by real estate and other assets - - 192,042
Net investments in real estate 22,584,893 22,708,480 22,877,760
Cash and cash equivalents 311,879 267,427 491,129
Accounts receivable 132,464 123,961 128,196
Other assets 1,042,867 1,031,694 1,075,222
Total assets $ 24,072,103 $ 24,131,562 $ 24,572,307
Liabilities and Equity:
Liabilities:
Debt $ 8,822,952 $ 8,529,453 $ 9,011,216
Accounts payable, accrued expenses, and other liabilities 1,112,402 1,325,259 1,384,638
Total liabilities 9,935,354 9,854,712 10,395,854
Equity:
Stockholders’ equity:
Preferred stock 78,235 78,235 100,000
Common stock 5,000 4,998 4,988
Additional paid-in capital 18,081,751 18,062,370 17,974,509
Accumulated other comprehensive loss (510,661) (385,248) (435,675)
Distributions in excess of net earnings (4,214,224) (4,188,611) (3,932,664)
Total stockholders’ equity 13,440,101 13,571,744 13,711,158
Noncontrolling interests 646,404 657,411 417,086
Noncontrolling interests - limited partnership unitholders 50,244 47,695 48,209
Total equity 14,136,749 14,276,850 14,176,453
Total liabilities and equity $ 24,072,103 $ 24,131,562 $ 24,572,307
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Financial Information
Pro-rata Balance Sheet Information
(in thousands) Supplemental 3Q 2014
Plus Prologis Investors’ Share of
Less Non Share of
Prologis Prologis Total Total Owned
Controlling Unconsolidated
Consolidated Share Unconsolidated Consolidated and Managed
Pro-rata Balance Sheet Information as of Interest Co-Investment Ventures Ventures
September 30, 2014 Ventures
Assets:
Investments in real estate assets:
Operating properties $ 16,155,668 $ (510,060) $ 9,004,033 $ 24,649,641 $ 16,490,609 $ 510,060 $ 41,650,310
Other real estate 3,310,914 (17,848) 154,019 3,447,085 398,586 17,848 3,863,519
Accumulated depreciation (2,695,745) 12,615 (810,152) (3,493,282) (1,195,604) (12,615) (4,701,501)
Net investments in properties 16,770,837 (515,293) 8,347,900 24,603,444 15,693,591 515,293 40,812,328
Investments in unconsolidated co-investment ventures 5,640,525 (74,456) (5,566,069) — — 74,456 74,456
Investments in other unconsolidated ventures 173,531 (4,259) — 169,272 — 4,259 173,531
Other assets 1,487,210 (114,281) 348,778 1,721,707 1,137,207 114,281 2,973,195
Total assets $ 24,072,103 $ (708,289) $ 3,130,609 $ 26,494,423 $ 16,830,798 $ 708,289 $ 44,033,510
Liabilities and Equity:
Liabilities:
Debt $ 8,822,952 $ (8,575) $ 2,604,014 $ 11,418,391 $ 5,261,066 $ 8,575 $ 16,688,032
Other liabilities 1,112,402 (3,066) 526,595 1,635,931 899,540 3,066 2,538,537
Total liabilities 9,935,354 (11,641) 3,130,609 13,054,322 6,160,606 11,641 19,226,569
Equity:
Stockholders’ / partners’ equity 13,440,101 — — 13,440,101 10,670,192 696,648 24,806,941
Noncontrolling interests 696,648 (696,648) — — — — -
Total equity 14,136,749 (696,648) — 13,440,101 10,670,192 696,648 24,806,941
Total liabilities and equity $ 24,072,103 $ (708,289) $ 3,130,609 $ 26,494,423 $ 16,830,798 $ 708,289 $ 44,033,510
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Financial Information
Consolidated Statements of Operations
(in thousands, except per share amounts) Supplemental 3Q 2014
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Revenues:
Rental income $ 355,822 $ 372,185 $ 1,125,335 $ 1,180,285
Strategic capital income 54,070 48,322 175,714 125,565
Development management and other income 5,259 2,551 8,873 7,872
Total revenues 415,151 423,058 1,309,922 1,313,722
Expenses:
Rental expenses 102,324 106,811 322,417 347,002
Strategic capital expenses 22,442 22,023 74,442 66,938
General and administrative expenses 58,203 55,034 181,781 166,140
Depreciation and amortization 149,202 155,439 471,059 483,215
Other expenses 4,868 6,370 15,371 17,494
Total expenses 337,039 345,677 1,065,070 1,080,789
Operating income 78,112 77,381 244,852 232,933
Other income (expense):
Earnings from unconsolidated entities, net 28,514 26,365 79,411 59,554
Interest expense (69,086) (84,642) (234,793) (291,496)
Gains on acquisitions and dispositions of investments in real estate, net 151,057 46,074 337,695 445,954
Foreign currency and derivative gains (losses), related amortization and interest
and other income (expense), net 21,342 12,528 22,454 21,787
Losses on early extinguishment of debt, net (86,076) (114,196) (163,361) (164,155)
Total other income (expense) 45,751 (113,871) 41,406 71,644
Earnings (loss) before income taxes 123,863 (36,490) 286,258 304,577
Income tax expense (benefit)—current and deferred (23,264) 12,180 (25,302) 84,534
Earnings (loss) from continuing operations 147,127 (48,670) 311,560 220,043
Discontinued operations:
Income attributable to disposed properties and assets held for sale — 1,206 — 5,139
Net gains on dispositions, including taxes — 40,297 — 59,598
Total discontinued operations — 41,503 — 64,737
Consolidated net earnings (loss) 147,127 (7,167) 311,560 284,780
Net loss (earnings) attributable to noncontrolling interests (9,212) 1,768 (85,664) (3,051)
Net earnings (loss) attributable to controlling interests 137,915 (5,399) 225,896 281,729
Preferred stock dividends (1,670) (2,135) (5,753) (16,256)
Loss on preferred stock redemption — — (6,517) (9,108)
Net earnings (loss) attributable to common stockholders $ 136,245 $ (7,534) $ 213,626 $ 256,365
Weighted average common shares outstanding—Diluted 516,088 499,848 504,211 488,409
Net earnings (loss) per share attributable to common stockholders—Diluted $ 0.23 $ (0.02) $ 0.43 $ 0.53
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Financial Information
Reconciliations of Net Earnings (Loss) to FFO
(in thousands) Supplemental 3Q 2014
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Reconciliation of net earnings (loss) to FFO
Net earnings (loss) attributable to common stockholders $ 136,245 $ (7,534) $ 213,626 $ 256,365
Add (deduct) NAREIT defined adjustments:
Real estate related depreciation and amortization 143,370 149,293 453,707 465,084
Net gains on non-FFO acquisitions and dispositions (61,787) (92,552) (211,374) (194,564)
Reconciling items related to noncontrolling interests (4,821) (4,023) 48,923 (7,683)
Our share of reconciling items included in earnings from unconsolidated co-investment ventures 57,130 51,155 148,583 111,603
Our share of reconciling items included in earnings from other unconsolidated ventures 1,452 1,378 4,536 4,344
Subtotal-NAREIT defined FFO 271,589 97,717 658,001 635,149
Add (deduct) our defined adjustments:
Unrealized foreign currency and derivative losses (gains) and related amortization, net (18,978) (8,082) (903) (587)
Deferred income tax expense (benefit) (33,658) 1,168 (54,073) (1,048)
Our share of reconciling items included in earnings from unconsolidated co-investment ventures 4,147 (8,267) 287 9,060
FFO, as defined by Prologis 223,100 82,536 603,312 642,574
Adjustments to arrive at Core FFO:
Net losses (gains) on acquisitions and dispositions of investments in real estate, net of expenses (79,989) 7,294 (108,892) (218,928)
Losses on early extinguishment of debt and redemption of preferred stock, net 86,076 114,196 169,878 173,263
Our share of reconciling items from unconsolidated entities less third party share of consolidated entities 15,709 2,869 42,428 1,260
Core FFO $ 244,896 $ 206,895 $ 706,726 $ 598,169
Adjustments to arrive at Core Adjusted FFO (“Core AFFO”), including our share of unconsolidated entities
less third party share of consolidated entities:
Straight-lined rents and amortization of lease intangibles (5,538) (5,167) (20,597) (17,957)
Property improvements (34,131) (28,790) (61,172) (62,396)
Tenant improvements (22,750) (26,321) (63,529) (74,062)
Leasing commissions (15,584) (12,838) (43,520) (45,462)
Amortization of management contracts 1,445 1,386 3,842 4,394
Amortization of debt discounts (premiums) and financing costs 2,359 (4,018) (1,169) (14,859)
Cash received (paid) on net investment hedges 7,722 1,733 (133) 6,044
Stock compensation expense 14,056 12,120 43,042 39,419
Core AFFO $ 192,475 $ 145,000 $ 563,490 $ 433,290
Common stock dividends $ 166,697 $ 141,279 $ 500,025 $ 413,115
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Financial Information
Pro-rata Operating Information and Reconciliation to FFO
(in thousands) Supplemental 3Q 2014
Plus Prologis
Less Non Share of Investors’ Share of Total
Prologis Prologis
Controlling Unconsolidated Owned and
Consolidated Total Share
Pro-rata Operating Information for Interest Co-Investment Unconsolidated Consolidated Managed
Three Months Ended September 30, 2014 Ventures Ventures Ventures
Revenues:
Rental income $ 355,822 $ (10,344) $ 179,888 $ 525,366 $ 345,783 $ 10,344 $ 881,493
Strategic capital income 54,070 — 434 54,504 434 — 54,938
Development management and other income 5,259 (99) 226 5,386 472 99 5,957
Total revenues 415,151 (10,443) 180,548 585,256 346,689 10,443 942,388
Expenses:
Rental expenses 102,324 (2,508) 39,930 139,746 77,714 2,508 219,968
Strategic capital expenses 22,442 — — 22,442 — — 22,442
General and administrative expenses 58,203 (1,364) 10,701 67,540 21,800 1,364 90,704
Depreciation and amortization 149,202 (4,666) 57,931 202,467 112,585 4,666 319,718
Other expenses 4,868 874 12,891 18,633 16,264 (874) 34,023
Total expenses 337,039 (7,664) 121,453 450,828 228,363 7,664 686,855
Operating income 78,112 (2,779) 59,095 134,428 118,326 2,779 255,533
Earnings from unconsolidated co-investment ventures, net 27,194 (961) (26,233) —— 961 961
Earnings from other unconsolidated joint ventures, net 1,320 — — 1,320 — — 1,320
Interest expense (69,086) 254 (24,492) (93,324) (48,542) (254) (142,120)
Gains on acquisitions and dispositions of investments in real estate, net 151,057 (6,730) 1,061 145,388 1,339 6,730 153,457
Foreign currency and derivative gains (losses), related amortization
and other income (expense), net 21,342 357 (4,615) 17,084 (5,338) (357) 11,389
Losses on early extinguishment of debt, net (86,076) — — (86,076) — — (86,076)
Income tax benefit (expense) 23,264 647 (4,816) 19,095 (6,568) (647) 11,880
Consolidated net earnings 147,127 (9,212) — 137,915 59,217 9,212 206,344
Net earnings attributable to noncontrolling interests (9,212) 9,212 ——— — -
Preferred stock dividends (1,670) — — (1,670) — — (1,670)
Net earnings attributable to common stockholders 136,245 — — 136,245 59,217 9,212 204,674
Add (deduct) adjustments to arrive at FFO, as defined by Prologis:
Real estate related depreciation and amortization 143,370 (4,666) 57,931 196,635 112,585 4,666 313,886
Net gains on non-FFO acquisitions and dispositions (61,787) (129) (801) (62,717) (1,078) 129 (63,666)
Unrealized foreign currency and derivative losses (gains) and related amortization, net (18,978) (26) 4,147 (14,857) 4,377 26 (10,454)
Deferred income tax benefit (33,658) — — (33,658) — — (33,658)
Reconciling items related to noncontrolling interests (4,821) 4,821 ——— — -
Our share of reconciling items included in earnings from
unconsolidated co-investment ventures 61,277 — (61,277) —— — -
Our share of reconciling items included in earnings from other unconsolidated ventures 1,452 — — 1,452 — — 1,452
FFO, as defined by Prologis 223,100 — — 223,100 175,101 14,033 412,234
Adjustments to arrive at Core FFO:
Net gains on acquisitions and dispositions of
investments in real estate, net of expenses (79,989) 6,903 8,806 (64,280) 11,930 (6,903) (59,253)
Losses on early extinguishment of debt and redemption of preferred stock, net 86,076 — — 86,076 — — 86,076
Our share of reconciling items from unconsolidated entities
less third party share of consolidated entities 15,709 (6,903) (8,806) —— — -
Core FFO $ 244,896 $ — $ — $ 244,896 $ 187,031 $ 7,130 $ 439,057
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Financial Information
EBITDA Reconciliation
(in thousands) Supplemental 3Q 2014
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Reconciliation of net earnings (loss) to Adjusted EBITDA
Net earnings (loss) attributable to common stockholders $ 136,245 $ (7,534) $ 213,626 $ 256,365
Net gains on acquisitions and dispositions of investments in real estate, net (151,057) (86,371) (337,695) (505,552)
Depreciation and amortization 149,202 155,439 471,059 483,215
Interest expense 69,086 84,642 234,793 291,496
Losses on early extinguishment of debt 86,076 114,196 163,361 164,155
Current and deferred income tax expense (benefit), net (23,264) 12,180 (25,302) 84,534
Pro forma adjustments 1,967 5,251 (2,008) (10,551)
Net earnings (loss) attributable to noncontrolling interest — (1,768) — 3,051
Preferred stock dividends and loss on preferred stock redemption 1,670 2,135 12,270 25,364
Unrealized foreign currency and derivative losses (gains) and related amortization, net (18,978) (8,082) (903) (587)
Stock compensation expense 14,056 12,120 43,042 42,419
Acquisition expenses 413 — 2,616 -
Adjusted EBITDA, consolidated 265,416 282,208 774,859 833,909
Our share of reconciling items from unconsolidated entities less third party share of consolidated entities:
Net losses (gains) on dispositions of investments in real estate, net 5,669 (675) 47,775 (8,959)
Depreciation and amortization 54,717 53,122 148,495 122,682
Interest expense 24,668 24,878 63,159 70,083
Losses on early extinguishment of debt — 607 221 1,136
Current income tax expense 4,403 4,199 14,298 10,487
Unrealized losses (gains), derivative losses (gains) and deferred income tax expense (benefit), net 4,121 (8,267) 11,794 9,060
Acquisition expenses 9,017 — 35,542 -
Adjusted EBITDA $ 368,011 $ 356,072 $ 1,096,143 $ 1,038,398
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Strategic Capital
Summary and Financial Highlights
Supplemental 3Q 2014
Accounting Next Promote
Co-Investment Ventures (A) Type Established Method Region Ownership Structure Opportunity
Americas:
Prologis U.S. Logistics Venture Core 2014 Consolidated US 55.0% Open end Q4 2016 (B)
Prologis Targeted U.S. Logistics Fund Core 2004 Unconsolidated US 24.8% Open end Q2 2017 (B)
Prologis North American Industrial Fund Core 2006 Unconsolidated US 63.3% Open end Q1 2015 (B)
FIBRA Prologis Core 2014 Unconsolidated Mexico 45.0% Public, Mexican Exchange Q2 2015 (C)
Brazil Fund and joint ventures (D) Development 2010 Unconsolidated Brazil various Closed end Q4 2017 (E)
Europe:
Prologis Targeted Europe Logistics Fund Core 2007 Unconsolidated Europe 43.3% Open end Q3 2016 (B)
Prologis European Properties Fund II Core 2007 Unconsolidated Europe 31.1% Open end Q3 2016 (B)
Europe Logistics Venture 1 Core 2011 Unconsolidated Europe 15.0% Open end Q4 2015 (B)
Prologis European Logistics Partners Core 2013 Unconsolidated Europe 50.0% Open end Q4 2015 (B)
Asia:
Nippon Prologis REIT Core 2013 Unconsolidated Japan 15.2% Public, Tokyo Exchange n/a
Prologis China Logistics Venture Core/Development 2011 Unconsolidated China 15.0% Closed end Q1 2018
Unconsolidated Co-Investment Ventures (F): Prologis Share
GBV of Operating Net Tangible Prologis
(in thousands) Sq Ft Bldgs Debt Debt Other Assets Investment
Prologis Targeted U.S. Logistics Fund 50,318 $ 4,616,303 $ 1,611,230 $ 399,585 $ 3,369 $ 714,110
Prologis North American Industrial Fund 45,663 2,823,058 1,110,654 703,266 43,306 819,729
FIBRA Prologis (G) 29,806 1,585,551 587,499 264,257 79,250 589,736
Brazil Fund and joint ventures 4,689 398,342 — — 15,769 247,798
Americas 130,476 9,423,254 3,309,383 1,367,108 141,694 2,371,373
Prologis Targeted Europe Logistics Fund 15,167 1,845,415 486,064 210,223 24,115 484,151
Prologis European Properties Fund II 67,678 5,640,568 2,095,208 652,238 6,911 503,638
Europe Logistics Venture I 5,257 419,700 — — 1,271 58,264
Prologis European Logistics Partners 57,230 4,178,205 216,461 108,231 33,494 1,847,522
Europe 145,332 12,083,888 2,797,733 970,692 65,791 2,893,575
Nippon Prologis REIT (G) 20,898 3,691,574 1,481,859 224,798 6,193 326,992
Prologis China Logistics Venture 5,045 295,926 276,105 41,416 11,440 48,585
Asia 25,943 3,987,500 1,757,964 266,214 17,633 375,577
Total 301,751 $ 25,494,642 $ 7,865,080 $ 2,604,014 $ 225,118 $ 5,640,525
(A) The information presented excludes the co-investment ventures Prologis DFS Fund I and Prologis Mexico Fondo Logistico, due to the investment size of these ventures.
(B) Promote opportunity is every three years.
(C) Promote opportunity is every year.
(D) We have a 50% ownership interest in Prologis Brazil Logistics Partners Fund I (“Brazil Fund”), a consolidated co-investment venture. The Brazil Fund in turn has an ownership interest in various joint ventures that are accounted
for on the equity method. We also have other Brazil joint ventures that we account for using the equity method. Prologis share in these Brazil entities is reflected at our effective economic ownership.
(E) We have an opportunity to earn a promote based on the performance of the Brazil Fund only. We don’t have a promote opportunity in any of the Brazil joint ventures.
(F) Values represent Prologis’ adjusted basis and may not be comparable to values reflected in the entities’ stand alone financial statements calculated on a different basis.
(G) Throughout this document, we use the most recent public information for these co-investment ventures.
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Strategic Capital
Operating and Balance Sheet Information
(dollars in thousands) Supplemental 3Q 2014
Americas Europe Asia Total
FFO and Net Earnings (Loss) of the Unconsolidated Co-Investment Ventures, Aggregated (A)(B) For the Three Months Ended September 30, 2014
Rental income $ 204,225 $ 250,477 $ 70,969 $ 525,671
Rental expenses (49,810) (52,466) (15,368) (117,644)
Net operating income from properties 154,415 198,011 55,601 408,027
Other income (expense), net (1,438) (4,645) (1,678) (7,761)
General and administrative expenses (10,564) (13,982) (7,955) (32,501)
Interest expense (39,334) (27,102) (6,598) (73,034)
Current income tax expense (1,774) (9,106) (504) (11,384)
Core FFO 101,305 143,176 38,866 283,347
Acquisition expenses, gains(losses) on dispositions of investments in real estate and early extinguishment of debt, net (440) (20,283) (13) (20,736)
FFO, as defined by Prologis 100,865 122,893 38,853 262,611
Real estate related depreciation and amortization (70,840) (83,113) (16,563) (170,516)
Foreign currency exchange and derivative gains (losses), net (7,542) (1,072) 90 (8,524)
Gains (losses) on dispositions of investments in real estate, net 1,879 — — 1,879
Net earnings (loss) $ 24,362 $ 38,708 $ 22,380 $ 85,450
Prologis’ Share of Core FFO and Net Earnings (Loss) of the Unconsolidated Co-Investment Ventures (A) For the Three Months Ended September 30, 2014
Core FFO, from unconsolidated co-investment ventures, net $ 35,343 $ 56,187 $ 5,747 $ 97,277
Fees earned by Prologis 18,449 24,713 10,603 53,765
Total Core FFO recognized by Prologis, net $ 53,792 $ 80,900 $ 16,350 $ 151,042
Prologis’ share of the unconsolidated co-investment ventures’ net earnings (loss) $ 8,863 $ 14,653 $ 3,678 $ 27,194
Fees earned by Prologis 18,449 24,713 10,603 53,765
Total earnings recognized by Prologis, net $ 27,312 $ 39,366 $ 14,281 $ 80,959
Condensed Balance Sheet of the Unconsolidated Co-Investment Ventures, Aggregated (A)(B) As of September 30, 2014
Operating industrial properties, before depreciation $ 9,423,254 $ 12,083,888 $ 3,987,500 $ 25,494,642
Accumulated depreciation (977,860) (932,990) (94,906) (2,005,756)
Properties under development and land 281,738 29,493 241,374 552,605
Other assets 668,768 771,358 232,318 1,672,444
Total assets $ 9,395,900 $ 11,951,749 $ 4,366,286 $ 25,713,935
Third party debt $ 3,309,383 $ 2,797,733 $ 1,757,964 $ 7,865,080
Other liabilities 203,901 1,024,824 197,410 1,426,135
Total liabilities $ 3,513,284 $ 3,822,557 $ 1,955,374 $ 9,291,215
Weighted average ownership 40.2% 38.8% 15.0% 35.4%
(A) Includes the unconsolidated co-investment ventures listed on the previous page.
(B) Represents the entire entity, not our proportionate share.
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Operations Overview
Operating Metrics – Owned and Managed
Supplemental 3Q 2014
Period Ending Occupancy by Division (%)
95.5 95.2 95.4 95.6
94.2
Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
Americas
93.1 93.6 92.6 93.5
92.3
Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
Europe
95.1 96.7 96.3 95.6 95.2
Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
Asia
93.9 95.1 94.5 94.6 95.0
Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
Total
Leasing Activity
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Square feet of leases signed:
Operating portfolio:
Renewals 23,355 27,422 23,307 20,108 24,596
New leases 7,483 11,551 8,292 8,908 12,254
Total operating portfolio 30,838 38,973 31,599 29,016 36,850
Properties under development 5,253 4,763 2,130 2,352 3,938
Total square feet of leases signed 36,091 43,736 33,729 31,368 40,788
Average term of leases signed (months) 59 44 40 45 45
Operating Portfolio:
Trailing four quarters - leases signed 133,450 135,734 135,271 130,426 136,438
Trailing four quarters - % of average portfolio 25.4% 25.9% 25.7% 24.6% 25.7%
Net effective rent change (GAAP) 6.1% 5.9% 7.0% 6.6% 9.7%
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Operations Overview
Operating Metrics – Owned and Managed
(in thousands, except for percentages and per square foot) Supplemental 3Q 2014
Capital Expenditures Incurred
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Property improvements $ 35,668 $ 44,020 $ 19,347 $ 25,690 $ 45,615
Tenant improvements 32,213 36,116 27,208 28,570 30,589
Leasing commissions 17,992 26,450 20,378 19,143 22,162
Total turnover costs 50,205 62,566 47,586 47,713 52,751
Total capital expenditures $ 85,873 $ 106,586 $ 66,933 $ 73,403 $ 98,366
Trailing four quarters—% of gross NOI 14.9% 14.5% 14.4% 13.5% 13.7%
Weighted average ownership percent 79.1% 73.3% 69.9% 66.7% 73.7%
Prologis share $ 67,949 $ 78,153 $ 46,774 $ 48,982 $ 72,465
Same Store Information
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Square feet of population 494,941 489,808 505,644 496,858 490,614
Average occupancy 93.5% 94.3% 94.1% 94.2% 94.7%
Percentage change:
Rental income 1.9% 0.8% 1.5% 3.1% 2.9%
Rental expenses 3.2% (4.2%) (2.1%) 1.3% 0.9%
NOI—GAAP 1.4% 2.7% 3.0% 3.8% 3.7%
NOI—Adjusted Cash 1.8% 3.0% 4.1% 5.3% 4.0%
Average occupancy 0.9% 0.7% 1.3% 1.1% 1.2%
Turnover Costs: per Square Foot ($) and per Value of Lease (%)
$1.80 9.0% 9.3% 10%
8.2% 8.1%
$1.60 6.9% $1.57 8%
$1.48 $1.48 6% $1.41 $1.40 $1.26 4% $1.20 2%
$1.00 0% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Property Improvements per Square Foot
$0.09 $0.09 $0.08 $0.07 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06
$0.05
$0.04
$0.03
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
$ per square foot trailing four quarters
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Operations Overview
Operating Portfolio – Square Feet, Occupied and Leased
(square feet in thousands) Supplemental 3Q 2014
# o f Buildings Square Feet Occupied % Leased %
Owned and Owned and Prologis Share % of Owned and Prologis Owned and Prologis
Managed Managed Sq Ft (%) Total Managed Share Managed Share
Global Markets U.S. Atlanta 108 14,343 11,785 82.2 3.4 92.0 93.3 94.9 96.5
Baltimore/Washington 70 8,322 6,128 73.6 1.8 97.8 97.2 97.8 97.2
Central Valley 25 10,197 9,241 90.6 2.7 98.3 98.8 98.3 98.8
Central & Eastern PA 30 14,925 11,180 74.9 3.2 95.4 93.9 95.4 93.9
Chicago 210 35,453 28,973 81.7 8.3 96.6 96.7 97.2 97.4
Dallas/Ft. Worth 154 24,405 20,711 84.9 6.0 93.8 93.3 93.8 93.3
Houston 98 12,373 8,875 71.7 2.6 97.8 98.1 98.7 98.6
New Jersey/New York City 139 21,926 16,878 77.0 4.9 95.8 95.6 96.4 95.9
San Francisco Bay Area 232 19,021 15,770 82.9 4.5 96.1 95.7 96.4 96.0
Seattle 81 10,892 5,381 49.4 1.5 94.5 95.4 94.5 95.4
South Florida 91 10,679 7,659 71.7 2.2 95.9 94.8 96.3 95.3
Southern California 304 58,069 47,784 82.3 13.7 95.1 95.1 96.1 95.6
Canada 19 6,384 5,762 90.3 1.7 99.0 98.9 99.0 98.9
Mexico Guadalajara 27 5,872 2,826 48.1 0.8 98.8 98.9 98.8 98.9
Mexico City 46 10,762 5,252 48.8 1.5 96.6 96.9 96.6 96.9
Monterrey 22 3,413 1,535 45.0 0.4 92.7 92.7 92.7 92.7
Brazil 13 4,689 644 13.7 0.2 97.8 96.0 97.8 96.0
Americas total 1,669 271,725 206,384 76.0 59.4 95.7 95.6 96.3 96.1
Belgium 12 2,497 1,251 50.1 0.4 96.6 93.2 96.6 93.2
Czech Republic 38 7,737 3,452 44.6 1.0 93.1 94.4 95.8 96.3
France 131 32,006 14,193 44.3 4.1 93.5 92.0 93.7 92.2
Germany 95 20,320 7,797 38.4 2.2 97.3 96.8 97.4 96.9
Italy 28 8,813 4,762 54.0 1.4 87.7 79.7 87.7 79.7
Netherlands 64 13,748 5,327 38.7 1.5 95.9 96.0 97.4 96.9
Poland 101 22,341 9,643 43.2 2.8 91.0 90.3 92.9 92.5
Spain 29 7,993 3,912 48.9 1.1 85.3 86.9 85.3 86.9
United Kingdom 89 20,943 8,919 42.6 2.5 97.6 95.4 97.6 95.4
Europe total 587 136,398 59,256 43.4 17.0 93.7 92.1 94.4 92 .7
China 31 7,239 2,951 40.8 0.8 93.9 89.8 95.3 90.4
Japan 31 22,113 4,385 19.8 1.3 95.5 86.9 96.1 87.8
Singapore 5 959 959 100.0 0.3 100.0 100.0 100.0 100.0
Asia total 67 30,311 8,295 27.4 2.4 95.2 89.4 96.0 90.1
Total global markets 2,323 438,434 273,935 62.5 78.8 95.1 94.7 95.7 95.2
Regional markets (A ) Columbus 27 8,545 7,608 89.0 2.2 97.6 97.3 99.1 99.0
Denver 27 4,491 4,156 92.5 1.2 100.0 100.0 100.0 100.0
Orlando 33 3,895 3,291 84.5 0.9 95.7 94.9 96.2 95.5
San Antonio 50 5,606 4,929 87.9 1.4 97.9 98.2 99.1 99.1
Cincinnati 23 5,899 4,692 79.5 1.3 99.4 99.3 99.4 99.3
Remaining other regional (15 markets) 323 57,637 39,144 67.9 11.3 94.1 94.0 94.8 94.7
Regional markets total 483 86,073 63,820 74.1 18.3 95.4 95.5 96.2 96.3
Other markets (11 markets) 66 11,435 10,004 87.5 2.9 88.4 89.4 89.6 90.5
Total operating portfolio—owned and managed 2,872 535,942 347,759 64 .9 100 .0 95 .0 94 .7 95 .6 95 .2
(A) Selected and ordered by Prologis share of Gross Book Value ($).
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Operations Overview
Operating Portfolio – NOI and Gross Book Value
(dollars in thousands) Supplemental 3Q 2014
Third Quarter NOI Gross Book Value
Owned and Prologis Share (A) % of Owned and Prologis Share % o f
Managed ($) (%) Total Managed ($) (%) T o t al
Global Markets
U.S. Atlanta $ 9,939 $ 7,970 80.2 2.1 $ 664,161 $ 518,679 78.1 2.1
Baltimore/Washington 12,906 9,664 74.9 2.6 709,757 514,970 72.6 2.1
Central Valley 9,335 8,618 92.3 2.3 572,825 518,852 90.6 2.1
Central & Eastern PA 15,354 11,144 72.6 3.0 911,954 667,655 73.2 2.7
Chicago 27,170 21,225 78.1 5.7 2,166,831 1,693,690 78.2 6.9
Dallas/Ft. Worth 18,322 14,740 80.4 3.9 1,232,244 980,824 79.6 4.0
Houston 12,414 8,808 71.0 2.4 769,458 481,977 62.6 2.0
New Jersey/New York City 29,537 21,033 71.2 5.6 1,967,463 1,373,592 69.8 5.6
San Francisco Bay Area 29,419 23,660 80.4 6.3 1,950,905 1,610,256 82.5 6.6
Seattle 12,986 6,308 48.6 1.7 1,038,287 510,847 49.2 2.1
South Florida 14,961 10,712 71.6 2.9 1,065,547 797,897 74.9 3.3
Southern California 64,392 51,857 80.5 13.9 5,214,474 4,229,984 81.1 17.3
Canada 8,254 7,426 90.0 2.0 578,395 520,749 90.0 2.1
Mexico
Guadalajara 6,984 3,368 48.2 0.9 302,000 147,060 48.7 0.6
Mexico City 12,337 5,774 46.8 1.5 680,627 332,308 48.8 1.4
Monterrey 3,980 1,790 45.0 0.5 190,889 85,862 45.0 0.3
Brazil 12,168 1,633 13.4 0.4 398,342 47,376 11.9 0.2
Americas total 300,458 215,730 71.8 57.7 20,414,159 15,032,578 73.6 61.4
Belgium 3,834 1,947 50.8 0.5 185,244 93,145 50.3 0.4
Czech Republic 8,530 3,827 44.9 1.0 533,254 227,642 42.7 0.9
France 40,221 16,936 42.1 4.5 2,427,569 1,039,868 42.8 4.3
Germany 30,839 11,611 37.7 3.1 1,712,004 645,564 37.7 2.6
Italy 8,543 4,263 49.9 1.1 518,007 278,613 53.8 1.1
Netherlands 21,161 8,190 38.7 2.2 1,187,233 466,025 39.3 1.9
Poland 21,393 9,059 42.3 2.4 1,430,197 578,551 40.5 2.4
Spain 8,624 4,380 50.8 1.2 592,627 296,731 50.1 1.2
United Kingdom 45,312 18,599 41.0 5.0 2,850,529 1,201,751 42.2 4.9
Europe total 188,457 78,812 41.8 21.0 11,436,664 4,827,890 42.2 19.7
China 6,449 1,743 27.0 0.5 369,467 117,930 31.9 0.5
Japan 54,999 12,545 22.8 3.3 3,887,768 756,206 19.5 3.1
Singapore 2,487 2,487 100.0 0.7 145,307 145,307 100.0 0.6
Asia total 63,935 16,775 26.2 4.5 4,402,542 1,019,443 23.2 4 .2
Total global markets 552,850 311,317 56.3 83.2 36,253,365 20,879,911 57.68 5.3
Regional markets ( B )
Columbus 4,526 3,900 86.2 1.0 325,195 284,146 87.4 1.2
Denver 4,310 4,003 92.9 1.1 269,217 250,674 93.1 1.0
Orlando 3,623 2,946 81.3 0.8 273,894 229,299 83.7 1.0
San Antonio 5,375 4,814 89.6 1.3 262,222 226,247 86.3 0.9
Cincinnati 4,790 3,735 78.0 1.0 252,339 195,150 77.3 0.8
Remaining other regional (15 markets) 54,542 34,706 63.6 9.3 2,998,975 1,911,832 63.7 7.8
Regional markets t o t al 77,166 54,104 70.1 14.5 4,381,842 3,097,348 70.7 12 .7
Other markets ( 11 markets) 10,318 8,567 83.0 2.3 616,992 496,784 80.5 2 .0
Total operating portfolio-owned and managed $ 640,334 $ 373,988 58.4 100.0 $ 41,252 ,199 $ 24,474,043 59.3 100.0
(A) Prologis share of NOI for the properties that were contributed to the co-investment ventures includes 100% of the NOI until the contribution date and then Prologis share subsequent to the contribution. (B) Selected and ordered by Prologis share of Gross Book Value ($).
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Operations Overview
Operating Portfolio – Summary by Division
(square feet and dollars in thousands) Supplemental 3Q 2014
# of Buildings Square Feet Occupied % Leased %
Owned and Owned and Prologis Share % of Owned and Prologis Owned and Prologis
Managed Managed Sq F t % Total Managed Share Managed Share
Consolidated
Americas 1,344 224,013 217,420 97.1 62.5 95.5 95.5 96.0 95.9
Europe 51 11,658 11,658 100.0 3.3 77.1 77.1 79.9 79.9
Asia 16 4,368 4,368 100.0 1.3 82.3 82.3 82.9 82.9
Total operating portfolio—consolidated 1,411 240,039 233,446 97.3 67.1 94.4 94.3 95.0 94.9
Unconsolidated
Americas 808 129,489 55,187 42.6 15.9 95.7 95.9 96.4 96.5
Europe 602 140,471 55,199 39.3 15.9 94.9 94.6 95.6 95.3
Asia 51 25,943 3,927 15.1 1.1 97.4 97.4 98.2 98.2
Total operating portfolio—unconsolidated 1,461 295,903 114,313 38.6 32.9 95.4 95.3 96.2 95.9
Total
Americas 2,152 353,502 272,607 77.1 78.4 95.6 95.6 96.1 96.1
Europe 653 152,129 66,857 43.9 19.2 93.5 91.6 94.4 92.6
Asia 67 30,311 8,295 27.4 2.4 95.2 89.4 96.0 90.1
Total operating portfolio—owned and managed 2,872 535,942 347,759 64.9 100.0 95.0 94.7 95.6 95.2
Value added properties—consolidated 4 1,065 1,065 100.0 21.9 21.9 50.4 50.4
Value added properties—unconsolidated 33 5,848 2,096 35.8 46.2 46.6 51.8 52.7
Total owned and managed 2,909 542,855 350,920 64.6 94.3 94.2 95.1 94.9
Third Quarter N OI Gross B o o k Value
Owned and Prologis Share (A ) % of Owned and Prologis Share % o f
Managed Total Managed Total
$ % $ %
Consolidated
Americas $219,479 $211,539 96.4 56.6 $14,971,566 $14,461,506 96.6 59.1
Europe 10,520 10,520 100.0 2.8 715,216 715,216 100.0 2.9
Asia 4,277 4,277 100.0 1.1 415,042 415,042 100.0 1.7
Total operating portfolio—consolidated $234,276 $226,336 96.6 60.5 $16,101,824 $15,591,764 96.8 63.7
Unconsolidated
Americas $150,391 $58,776 39.1 15.7 $9,367,638 $3,678,601 39.3 15.0
Europe 196,009 76,378 39.0 20.4 11,795,237 4,599,277 39.0 18.8
Asia 59,658 12,498 20.9 3.4 3,987,500 604,401 15.2 2.5
Total operating portfolio—unconsolidated $406,058 $147,652 36.4 39.5 $25,150,375 $8,882,279 35.3 36.3
Total
Americas $369,870 $270,315 73.1 72.3 $24,339,204 $18,140,107 74.5 74.1
Europe 206,529 86,898 42.1 23.2 12,510,453 5,314,493 42.5 21.7
Asia 63,935 16,775 26.2 4.5 4,402,542 1,019,443 23.2 4.2
Total operating portfolio—owned and managed $640,334 $373,988 58.4 100.0 $41,252,199 $24,474,043 59.3 100.0
Value added properties—consolidated 192 192 100.0 53,844 53,844 100.0
Value added properties—unconsolidated 1,586 583 36.8 344,267 121,754 35.4
Total owned and managed $642,112 $374,763 58.4 $41,650,310 $24,649,641 59.2
(A) Prologis share of NOI for the properties that were contributed to the co-investment ventures includes 100% of the NOI until the contribution date and then Prologis share subsequent to the contribution.
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Supplemental 3Q 2014
Operations Overview
Customer Information – Owned and Managed
(square feet and dollars in thousands)
1 DHL 1 .9 10,272 2014 remaining
2 CEVA Logistics 1 .3 6,814 2015
3 Kuehne + Nagel 1 2 5 951 2016
Top Customers Lease Expirations - Operating Portfolio - Owned and Managed
% of Annual Year
Base Rent
Net Effective Rent
% of Total $ Per Sq Ft
18 8
5 .16
4 .87
4 82
1 6.8
Total
Square Feet
Occupied
Sq Ft $
8 ,793
8 9,000
$ 45,415
433,185
1 .8
1.2 5,951 101 175 487 760
4 Geodis 1 .2 5,974 2017
5 Wal-Mart Stores 0 .9 4,852 2018
6 Amazon.com 0 .9 4,440 Thereafter
7 Nippon Express Group 0 .9 2,869 499,589 100.0 5.18
8 Home Depot 0 .8 4,177 Month to month
9 FedEx Corporation 0 .8 2,461 Total 509,055
$ 2,585,666
5 .27
5 .61
1 7.9
1 2.9
3 1.8
9 ,466
18.8
5 .12
4.82
461,730
334,750
822,826
1 01,175 487,760
1 46,797
9 0,258
6 3,566
10 United States Government 0 .7 1,417
1 0.6 49,227
11 Tesco 0 .7 3,172
12 Hitachi 0 .7 2,062
13 PepsiCo 0 .6 4,076 2014 remaining 5 ,057
14 DB Schenker 0 .6 3,213 2015 57,993
15 ND 0 5 2 900 2016 65 645
Lease Expirations - Operating Portfolio - Prologis Share
Net Effective Rent
$ $ Per Sq Ft
Top 10 Customers
% of Total
1 .5
1 7.1
18 8
4 .75
4 .53
4 40
Year
Occupied
Sq Ft
$ 24,004
262,631
Logistics 0.5 2,900 6 5,645 288 570
16 Panalpina 0 .5 2,075 2017 58,420
17 Ingram Micro 0 .5 2,840 2018 41,022
18 Bayerische Motoren Werke AG (BMW) 0 .5 2,273 Thereafter 94,279
19 UPS 0 .4 2,314 322,416 4 .77
20 LG 0 .4 2,540 Month to month 6,826
21 La Poste 0.4 1,619 Total 329,242
$ 1,536,473 1 00.0
1 3.2
3 1.6
4 .93
5 .15
18.8
1 7.8 4 .69
4.40
485,340
202,140
288,570
273,788
, ,
22 Con-Way (Menlo Worldw ide Logistics) 0 .4 2,651
23 Schneider Electric 0 .4 1,487
24 UTi 0 .4 2,048
25 Rhenus AG & CO KG 0 .4 1,869
Top 25 Customers 1 8.0 86,366
22 Copyright © 2014 Prologis
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Capital Deployment
Overview – Owned and Managed
(in millions) Supplemental 3Q 2014
Development Starts (TEI)
$2,000
$1,771
$1,600 $1,553
$1,308
$1,200
$1,017
$800
$400
$-
2011 2012 2013 YTD 2014
Development Stabilizations
$2,000
$1,600
$1,401
$1,200
$858
$800 $772
$400 $280
$-
2011 2012 2013 YTD 2014
Value Creation $26 $184 $426 $199
Building Acquisitions
$1,600 $1,391 $1,200
Land Portfolio
$800 $400 $- $311 $544 $1,053
2011 2012 2013 YTD 2014
$2,500
$2,040
$2,000 $1,894
$1,774
$1,585
$1,500
$1,000
$500
$-
12/31/2011 12/31/2012 12/31/2013 9/30/14
Americas Europe Asia
Copyright © 2014 Prologis
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Capital Deployment
Value Creation from Development Stabilization
(square feet and dollars in thousands) Supplemental 3Q 2014
Q3 2014 YTD 2014
TEI TEI
Leased % at Owned and Prologis Prologis Leased % at Owned and Prologis Prologis
Square Feet Start Managed Share ($) Share (%) Square Feet Start Managed Share ($) Share (%)
Americas
U.S.
Central 767 100.0 $ 28,161 $ 28,161 100.0 3,643 74.3 $ 150,211 $ 150,211 100.0
East 1,036 86.5 120,626 117,398 97.3 1,326 89.5 150,762 147,534 97.9
Northwest 348 30.7 29,985 29,985 100.0 348 30.7 29,985 29,985 100.0
Southwest ————— 1,613 20.2 100,523 100,523 100.0
Canada ————————— -
Mexico 387 0.0 26,688 26,688 100.0 1,141 0.0 71,844 63,374 88.2
Brazil ————— 665 0.0 61,431 22,806 37.1
Americas total 2,538 69.7 205,460 202,232 98.4 8,736 49.5 564,756 514,433 91.1
Europe
Northern ————— 120 100.0 9,590 3,048 31.8
Southern ————— 1,192 81.6 70,750 54,804 77.5
Central 271 100.0 15,151 15,151 100.0 885 73.1 54,617 54,617 100.0
United Kingdom ————— 336 100.0 39,787 39,787 100.0
Europe total 271 100.0 15,151 15,151 100.0 2,533 81.9 174,744 152,256 87.1
Asia
Japan ————— 619 27.0 79,145 79,145 100.0
China ————— 660 68.4 37,321 5,598 15.0
Singapore 17 100.0 2,048 2,048 100.0 17 100.0 2,048 2,048 100.0
Asia total 17 100.0 2,048 2,048 100.0 1,296 49.1 118,514 86,791 73.2
Total 2,826 72.8 $ 222,659 $ 219,431 98.6 12,565 56.0 $ 858,014 $ 753,480 87.8
Weighted average estimated stabilized yield 7.0% 7.6%
Pro forma NOI $15,620 $64,830
Weighted average estimated cap rate at stabilization 5.7% 6.1%
Estimated value creation $57,128 $199,110
Estimated development margin 25.7% 23.2%
Prologis share of estimated value creation ($) $56,921 $189,646
Prologis share of estimated value creation (%) 99.6% 95.2%
Copyright © 2014 Prologis
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Capital Deployment
Development Starts
(square feet and dollars in thousands) Supplemental 3Q 2014
Q3 2014 YTD 2014
TEI TEI
Leased % at Owned and Prologis Prologis Leased % at Owned and Prologis Prologis
Square Feet Start Managed Share ($) Share (%) Square Feet Start Managed Share ($) Share (%)
Americas
U.S.
Central 596 47.0 $ 36,741 $ 36,741 100.0 1,783 19.2 $ 99,567 $ 99,567 100.0
East 2,110 100.0 97,369 97,369 100.0 3,429 61.5 183,193 183,193 100.0
Northwest —— ——— 707 15.1 50,333 50,333 100.0
Southwest 1,141 0.0 75,134 75,134 100.0 1,141 0.0 75,134 75,134 100.0
Canada 154 0.0 13,291 13,291 100.0 154 0.0 13,291 13,291 100.0
Mexico 925 0.0 62,060 62,060 100.0 1,426 35.1 93,360 93,360 100.0
Brazil —— ——————— -
Americas total 4,926 48.5 284,595 284,595 100.0 8,640 35.4 514,878 514,878 100.0
Europe
Northern 657 40.5 47,810 47,810 100.0 735 36.2 55,038 50,084 91.0
Southern 139 100.0 16,734 16,734 100.0 139 100.0 16,734 16,734 100.0
Central —— ——— 1,265 23.6 83,580 83,580 100.0
United Kingdom 341 0.0 42,883 42,883 100.0 704 31.8 113,799 113,799 100.0
Europe total 1,137 35.6 107,427 107,427 100.0 2,843 32.6 269,151 264,197 98.2
Asia
Japan 1,425 19.7 209,072 209,072 100.0 2,476 11.3 362,518 362,518 100.0
China 1,569 0.0 96,454 14,468 15.0 2,765 15.1 161,825 24,274 15.0
Singapore —— ——————— -
Asia total 2,994 9.4 305,526 223,540 73.2 5,241 13.3 524,343 386,792 73.8
Total 9,057 34.0 $ 697,548 $ 615,562 88.2 16,724 28.0 $ 1,308,372 $ 1,165,867 89.1
Weighted average estimated stabilized yield 7.1% 7.2%
Pro forma NOI $49,518 $94,036
Weighted average estimated cap rate at stabilization 5.9% 6.0%
Estimated value creation $133,424 $254,067
Estimated development margin 19.1% 19.4%
Prologis share of estimated value creation ($) $116,902 $225,756
Prologis share of estimated value creation (%) 87.6% 88.9%
% BTS (based on Prologis share) 28.8% 23.5%
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Capital Deployment
Development Portfolio
(square feet and dollars in thousands) Supplemental 3Q 2014
Under Development
2014 2015 and Thereafter
Pre-Stabilized Developments Expected Completion Expected Completion Total Development Portfolio
T E I T E I T E I T E I
Leased Owned and Prologis Owned and Prologis Owned and Prologis Leased Owned and Prologis Prologis
Sq Ft % Managed Share Sq Ft Managed Share Sq Ft Managed Share Sq Ft % Managed Share ($) Share (%)
Americas
U.S.
Central 144 26.4 $9,070 $9,070 2,648 $117,983 $ 117,983 927 $56,620 $56,620 3,719 63.6 $183,673 $183,673 100.0
East 1,817 24.7 176,004 176,004 136 15,012 15,012 3,544 192,683 192,683 5,497 49.0 383,699 383,699 100.0
Northwest 402 64.1 22,715 22,715 208 14,087 14,087 392 23,648 23,648 1,002 25.7 60,450 60,450 100.0
Southwest 427 0.0 27,163 27,163 954 69,053 69,053 1,141 75,134 75,134 2,522 1.8 171,350 171,350 100.0
Canada 378 100.0 39,831 39,831 532 56,829 56,829 154 13,291 13,291 1,064 35.6 109,951 109,951 100.0
Mexico 232 0.0 13,779 13,779 570 36,097 36,097 1,427 93,572 93,572 2,229 22.5 143,448 143,448 100.0
Brazil 1,540 34.6 143,878 43,067 — — ———— 1,540 34.6 143,878 43,067 29.9
Americas total 4,940 33.5 432,440 331,629 5,048 309,061 309,061 7,585 454,948 454,948 17,573 38.5 1,196,449 1,095,638 91.6
Europe
Northern ———— 242 25,156 20,616 657 47,810 47,810 899 29.6 72,966 68,426 93.8
Southern ———— 262 17,951 8,976 488 43,199 43,199 750 100.0 61,150 52,175 85.3
Central 289 76.6 14,852 14,852 533 34,021 34,021 322 21,453 21,453 1,144 44.1 70,326 70,326 100.0
United Kingdom 537 42.2 64,272 64,272 139 33,840 33,840 1,559 211,563 211,563 2,235 64.6 309,675 309,675 100.0
Europe total 826 54.3 79,124 79,124 1,176 110,968 97,453 3,026 324,025 324,025 5,028 59.0 514,117 500,602 97.4
Asia
Japan 747 20.3 84,025 84,025 396 44,901 44,901 4,267 591,794 591,794 5,410 23.0 720,720 720,720 100.0
China 560 10.7 28,110 9,003 — — — 6,146 366,278 54,942 6,706 7.1 394,388 63,945 16.2
Singapore ————— — ————— ——— -
Asia total 1,307 16.2 112,135 93,028 396 44,901 44,901 10,413 958,072 646,736 12,116 14.2 1,115,108 784,665 70.4
Total 7,073 32.7 $623,699 $503,781 6,620 $464,930 $ 451,415 21,024 $1,737,045 $1,425,709 34,717 33.0 $2,825,674 $2,380,905 84.3
Cost to complete $ 68,742 $ 53,150 $ 93,469 $ 90,310 $ 964,548 $ 790,033 $ 1,126,759 $ 933,493
Percent build to suit (based on Prologis share) 0.0% 23.3% 32.0% 23.6%
Weighted average estimated stabilized yield
Americas 7.9% 6.8% 7.3% 7.4%
Europe 8.4% 8.1% 7.0% 7.4%
Asia 6.9% 6.9% 6.9% 6.9%
Total 7.8% 7.1% 7.0% 7.2%
Pro forma NOI $ 202,908
Weighted average estimated cap rate at stabilization 5.9%
Estimated value creation $ 586,113
Estimated development margin 20.7%
Prologis share of estimated value creation $ 515,139
Prologis share of estimated value creation 87.9%
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Capital Deployment
Third Party Building Acquisitions and Equity Invested in Co-Investment Ventures
(square feet and dollars in thousands) Supplemental 3Q 2014
Q3 2014 YTD 2014
Owned and Prologis Share of Prologis Share of Owned and Prologis Share of Prologis Share of
Square Prologis Share Square Prologis Share
Managed Acquisition Acquisition Managed Acquisition Acquisition
Feet of Square Feet Feet of Square Feet
Acquisition Cost Cost ($) Cost (%) Acquisition Cost Cost ($) Cost (%)
Third Party Building Acquisitions
Americas
Prologis wholly owned 448 448 $ 39,774 $ 39,774 100.0 1,004 1,004 $ 84,595 $ 84,595 100.0
Prologis Targeted U.S. Logistics Fund 1,659 411 107,100 26,560 24.8 2,492 627 164,466 41,350 25.1
FIBRA Prologis 57 26 2,805 1,262 45.0 57 26 2,805 1,262 45.0
Total Americas 2,164 885 149,679 67,596 45.2 3,553 1,657 251,866 127,207 50.5
Europe
Prologis Targeted Europe Logistics Fund 964 417 124,900 54,020 43.3 1,166 505 171,320 74,148 43.3
Prologis European Properties Fund II 4,046 1,260 292,634 91,126 31.1 5,197 1,626 377,144 117,983 31.3
Prologis Europe Logistics Venture 1 180 27 10,305 1,546 15.0 180 27 10,305 1,546 15.0
Prologis European Logistics Partners 2,341 1,171 306,259 153,130 50.0 6,029 3,015 580,671 290,336 50.0
Total Europe 7,531 2,875 734,098 299,822 40.8 12,572 5,173 1,139,440 484,013 42.5
Asia —— — ———— — — -
Total Third Party Building Acquisitions 9,695 3,760 $ 883,777 $ 367,418 41.6 16,125 6,830 $ 1,391,306 $ 611,220 43.9
Weighted average stabilized cap rate 6.1% 6.4%
Q3 2014 YTD 2014
Ownership Ownership
Before After Total Equity Invested Before After Total Equity Invested
Equity Invested in Co-Investment Ventures
Prologis North American Industrial Fund 41.9% 63.3% $ 357,470 23.1% 63.3% $ 632,136
Total Equity Invested in Co-Investment Ventures $ 357,470 $ 632,135
Copyright © 2014 Prologis
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Capital Deployment
Dispositions and Contributions
(square feet and dollars in thousands) Supplemental 3Q 2014
Q3 2014 YTD 2014
Prologis Owned and Prologis Share of Prologis Owned and Prologis Share of
Square Prologis Share Square Prologis Share
Share of Managed Total Proceeds Share of Managed Total Proceeds
Feet of Proceeds ($) Feet of Proceeds ($)
Square Feet Proceeds (%) (A) Square Feet Proceeds (%) (A)
Third Party Building Dispositions
Americas
Prologis wholly owned 4,960 4,960 $ 213,580 $ 213,580 100.0 12,637 12,637 $ 577,057 $ 577,057 100.0
Prologis AMS (B) —— — —— 748 288 64,501 24,868 38.6
Prologis Targeted U.S. Logistics Fund —— — —— 708 182 52,316 13,478 25.8
Prologis North American Industrial Fund 239 100 13,300 5,571 41.9 838 325 42,720 16,709 39.1
Total Americas 5,199 5,060 226,880 219,151 96.6 14,931 13,432 736,594 632,112 85.8
Europe
Prologis Targeted Europe Logistics Fund —— — —— 33 14 4,155 1,802 43.4
Prologis European Logistics Partners —— — —— 594 297 56,925 28,462 50.0
Total Europe —— — —— 627 311 61,080 30,264 49.5
Asia
Prologis wholly owned 895 895 133,047 133,047 100.0 1,278 1,278 183,310 183,310 100.0
Total Asia 895 895 133,047 133,047 100.0 1,278 1,278 183,310 183,310 100.0
Total Third Party Building Dispositions 6,094 5,955 $ 359,927 $ 352,198 97.9 16,836 15,021 $ 980,984 $ 845,686 86.2
Building Contributions to Co-Investment Ventures
Americas (C)
Prologis U.S. Logistics Venture (B) —— $ — $ —— 12,797 12,797 $ 1,008,310 $ 453,366 45.0
Total Americas —— — —— 12,797 12,797 1,008,310 453,366 45.0
Europe
Prologis Targeted Europe Logistics Fund —— — —— 167 167 26,257 14,872 56.6
Total Europe —— — —— 167 167 26,257 14,872 56.6
Asia
Nippon Prologis REIT 2,390 2,390 442,554 376,171 85.0 2,390 2,390 442,554 376,171 85.0
Total Asia 2,390 2,390 442,554 376,171 85.0 2,390 2,390 442,554 376,171 85.0
Total Contributions to Co-Investment Ventures 2,390 2,390 $ 442,554 $ 376,171 85.0 15,354 15,354 $ 1,477,121 $ 844,409 57.2
Total Building Dispositions and Contributions 8,484 8,345 $ 802,481 $ 728,369 90.8 32,190 30,375 $ 2,458,105 $ 1,690,095 68.8
Land dispositions 38,084 38,084 100.0 98,458 97,728 99.3
Other real estate dispositions — —— 46,513 46,513 100.0
Grand Total Dispositions and Contributions $ 840,565 $ 766,453 91.2 $ 2,603,076 $ 1,834,336 70.5
Weighted average stabilized cap rate on building dispositions and contributions 6.0% 6.3%
(A) For contributions, this amount reflects cash proceeds to Prologis, net of units received for partial consideration. (B) This is a consolidated co-investment venture.
(C) In June 2014, we completed the initial public offering for FIBRA Prologis, a Mexican real estate investment trust, on the Mexican Stock Exchange. We received equity units of FIBRA Prologis in exchange for our investment in 177 properties aggregating 29.7 million square feet. The portfolio of properties was purchased by FIBRA Prologis from us and two of our co-investment ventures (Mexico Fondo Logistico, a consolidated venture, and Prologis Mexico Industrial Fund, an unconsolidated venture). Our ownership in FIBRA Prologis is approximately 45%.
Copyright © 2014 Prologis
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Capital Deployment
Land Portfolio – Owned and Managed
(square feet and dollars in thousands) Supplemental 3Q 2014
Land by Market Acres Current Book Value
Prologis Share Prologis Share % of
Owned and Estimated Build Owned and
Managed Acres (%) Out (sqf t) Managed ($) (%) Total
Global markets
U.S.
Atlanta 567 567 100.0 7,910 $ 26,644 $ 26,644 100.0 1.6
Baltimore/Washington 39 39 100.0 400 1,581 1,581 100.0 0.1
Central Valley 1,144 1,144 100.0 20,560 49,752 49,752 100.0 3.1
Central & Eastern PA 222 222 100.0 2,958 28,305 28,305 100.0 1.8
Chicago 510 510 100.0 9,479 37,179 37,179 100.0 2.3
Dallas/Ft. Worth 591 591 100.0 10,058 49,366 49,366 100.0 3.1
Houston 70 70 100.0 1,112 8,471 8,471 100.0 0.5
New Jersey/New York City 148 148 100.0 2,356 65,213 65,213 100.0 4.0
South Florida 316 316 100.0 5,629 156,732 156,732 100.0 9.7
Southern California 670 670 100.0 13,232 121,170 121,170 100.0 7.5
Canada 196 196 100.0 3,764 60,151 60,151 100.0 3.7
Mexico
Guadalajara 50 50 100.0 1,066 12,818 12,818 100.0 0.8
Mexico City 97 97 100.0 1,816 44,892 44,892 100.0 2.8
Monterrey 156 156 100.0 2,869 32,982 32,982 100.0 2.0
Brazil 573 217 37.9 9,452 162,885 68,667 42.2 4.2
Americas total 5,349 4,993 93.3 92,661 858,141 763,923 89.0 47.2
Belgium 27 27 100.0 526 9,818 9,818 100.0 0.6
Czech Republic 258 258 100.0 4,303 53,923 53,923 100.0 3.3
France 449 449 100.0 8,012 73,808 73,808 100.0 4.6
Germany 70 70 100.0 1,443 17,251 17,251 100.0 1.1
Italy 107 107 100.0 2,451 31,122 31,122 100.0 1.9
Netherlands 56 56 100.0 1,538 49,315 49,315 100.0 3.0
Poland 665 665 100.0 12,922 77,419 77,419 100.0 4.8
Spain 137 119 86.9 2,871 26,758 21,666 81.0 1.4
United Kingdom 645 645 100.0 10,101 254,372 254,372 100.0 15.7
Europe total 2,414 2,396 99.3 44,167 593,786 588,694 99.1 36.4
China 198 45 22.7 5,419 73,757 18,516 25.1 1.1
Japan 33 33 100.0 1,307 52,461 52,461 100.0 3.3
Asia total 231 78 33.8 6,726 126,218 70,977 56.2 4.4
Total global markets 7,994 7,467 93.4 143,554 1,578,145 1,423,594 90.2 88.0
Regional markets (A)
Hungary 335 335 100.0 5,604 36,491 36,491 100.0 2.3
Central Florida 122 122 100.0 1,768 25,959 25,959 100.0 1.6
Juarez 148 148 100.0 2,759 15,214 15,214 100.0 0.9
Slovakia 97 84 86.6 2,121 16,241 14,480 89.2 0.9
Reynosa 196 196 100.0 3,460 12,220 12,220 100.0 0.8
Remaining other regional (10 markets) 468 468 100.0 8,011 32,627 32,627 100.0 2.0
Total regional markets 1,366 1,353 99.0 23,723 138,752 136,991 98.7 8.5
Total other markets (7 markets) 675 675 100.0 11,205 57,310 57,310 100.0 3.5
Total land portfolio—owned and managed 10,035 9,495 94.6 178,482 $ 1,774,207 $ 1,617,895 91.2 100.0
Original Cost Basis $ 2,581,537 $ 2,438,209
(A) Ordered by our share of current book value.
Copyright © 2014 Prologis
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Supplemental 3Q 2014
Capital Deployment
Land Portfolio – Summary and Roll Forward
(dollars in thousands)
Owned and
Managed
Prologis
Share
% of
Total
Owned and
Managed
Prologis
Share
% of
Total
Central 1,462 1,462 15.4 $ 106,706 $ 106,706 6.6
East 1,829 1,829 19.2 336,061 336,061 20.8
Acres Current Book Value
Land Portfolio Summary
U.S.
Americas
Northw est 1,336 1,336 14.1 61,637 61,637 3.8
Southwest 762 762 8.0 129,833 129,833 8.0
Canada 196 196 2.1 60,151 60,151 3.7
681 681 7.2 123,849 123,849 7.7
Brazil 573 217 2.3 162,885 68,667 4.2
Total Americas 6,839 6,483 68.3 981,122 886,904 54.8
Europe
Mexico
Central 1,445 1,432 15.1 190,792 189,031 11.7
Northern 182 182 1.9 90,015 90,015 5.6
Southern 693 675 7.1 131,688 126,596 7.8
United Kingdom 645 645 6.8 254,372 254,372 15.7
2,965 2,934 30.9 666,867 660,014 40.8
198 45 0 5 73 757 18 516 1 1
Total Europe
Asia
China
0.5 73,757 18,516 1.1
Japan 33 33 0.3 52,461 52,461 3.3
Total Asia 231 78 0.8 126,218 70,977 4.4
10,035 9,495 100.0 $ 1,774,207 $ 1,617,895 100.0
Estimated Build Out (in TEI) $ 1 0,800,000
Americas Europe Asia Total
Total land portfolio - owned and managed
Land Roll Forward - Owned and Managed
$ 9 80,162 $ 6 20,104 $ 152,792 $ 1 ,753,058
Acquisitions 93,951 120,455 32,087 246,493
Dispositions (34,586) - - (34,586)
Development starts (65,743) (37,029) (52,874) (155,646)
Infrastructure costs 29,990 7,281 1,616 38,887
Effect of changes in foreign exchange rates and other ( 22,652) ( 43,944) ( 7,403) ( 73,999)
As of June 30, 2014
Copyright © 2014 Prologis
As of September 30, 2014 $ 9 81,122 $ 6 66,867 $ 126,218 $ 1 ,774,207
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Capitalization
Overview
Assets Under Management
(in millions)
$30,484 $50,179 $50,179 $19,066
$60,000
Investment Capacity
$3,260
$50,000
Asia
12.8%
Investors’ share
$40,000 AUM Strategic of ventures Europe
Capital $29,139 $16,435 26.6%
$30,000 Prologis share
of ventures
Debt
$11,418 $9,444 Total
Enterprise Other
$20,000 Value Yen 2.6%
Direct owned $30,484 Americas 1.2%
and other Euro
Equity $21,040 60.6% 7.2%
$19,066
$10,000 U.S. Dollar
89.0%
$-
Total Enterprise Value Assets Under Management Total AUM by Division Net Equity
Debt Metrics (A)
2014 2014
Third Quarter Second Quarter
Debt as % of gross real estate assets 38.7% 37.5%
Secured debt as % of gross real estate assets 10.4% 10.4%
Unencumbered gross real estate assets to unsecured debt 255.7% 267.7%
Fixed charge coverage ratio 3.42x 3.02x
Fixed charge coverage ratio, including development gains 4.01x 3.35x
Debt/Adjusted EBITDA 7.25X 7.35X
Debt/Adjusted EBITDA, including development gains 6.19x 6.61x
Debt/Adjusted EBITDA (adjusted for development) 6.21x 6.16x
Investment Ratings at September 30, 2014 (B)
Moody’s Baa1 (Outlook Stable)
Standard & Poor’s BBB+ (Outlook Stable)
(A) These calculations are included in the Notes and Definitions section, and are not calculated in accordance with the applicable SEC rules.
(B) A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization.
Unsecured 74%
Fixed vs. Floating
Fixed 85%
Unencumbered Assets-Prologis Share
(in billions)
CIP and Other
Land $3.0 $0.4
Operating
Properties
$18.2
Secured & Unsecured Debt-Prologis Share
Secured
26%
Floating
15%
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Capitalization
Debt Summary
(dollars in millions) Supplemental 3Q 2014
Prologis
Unsecured Prologis Share
Credit Wtd. A vg.
Other Secured Consolidated Total Unconsolidated % of Debt
Senior Exchangeable Facilities Total Total Interest
(A) Mortgage Entities Consolidated Entities ($) Maturing
Maturity (A) Rate (B)
2014 $— $— $— $1 $16 $17 $2 $19 $47 $66 $33 0.3 2.8%
2015 — 460 — 1 10 471 4 475 861 1,336 721 6.3 3.7%
2016 ——— 1 311 312 3 315 1,483 1,798 950 8.3 5.1%
2017 377 —— 1 227 605 1 606 628 1,234 893 7.8 5.0%
2018 262 — 742 1 111 1,116 1 1,117 1,428 2,545 1,563 13.7 2.7%
2019 693 —— 629 285 1,607 2 1,609 744 2,353 1,833 16.2 3.3%
2020 375 —— 1 6 382 2 384 924 1,308 682 6.0 5.4%
2021 500 —— 373 11 884 2 886 1,007 1,893 1,137 10.0 2.9%
2022 881 —— 1 7 889 3 892 571 1,463 1,050 9.2 3.1%
2023 850 —— 1 7 858 1 859 127 986 878 7.7 4.2%
2024 881 —— 1 128 1,010 1 1,011 — 1,011 1,011 8.9 3.9%
Thereafter 629 —— 7 — 636 4 640 — 640 640 5.6 3.0%
Subtotal 5,448 460 742 1,018 1,119 8,787 26 8,813 7,820 16,633 11,391 100.0
Unamortized net premiums (discounts) (5) (8) —— 23 10 — 10 45 55 27
Subtotal 5,443 452 742 1,018 1,142 8,797 26 8,823 7,865 16,688 $11,418 3.7 %
Third party share of debt —————— (9) (9) (5,261) (5,270)
Prologis share of debt $5,443 $452 $742 $1,018 $1,142 $8,797 $17 $8,814 $2,604 $11,418
Prologis share of debt by local currency (C)
Dollars $2,979 $452 $480 $16 $1,128 $5,055 $13 $5,068 $1,496 $6,564
Euro 2,372 — 157 629 14 3,172 4 3,176 588 3,764
GBP —— 105 —— 105 — 105 283 388
Yen 92 —— 373 — 465 — 465 225 690
Other ———————— 12 12
Prologis share of debt $ 5,443 $452 $742 $1,018 $1,142 $8,797 $17 $8,814 $2,604 $11,418
Weighted average GAAP interest rate (D) 3.9% 3.3% 1.1% 1.3% 5.9% 3.6% 4.0% 3.6% 4.2% 3.7%
Weighted average remaining maturity in years 7.4 0.5 3.8 5.6 4.1 6.1 9.3 6.1 3.8 5.6
Prologis Share Wtd Avg
Near Term Maturities of Debt Interest Rate
Q4 2014 $33 2.8%
Q1 2015 474 3.2%
Q2 2015 75 4.6%
Q3 2015 97 5.3%
Total next 12 months $679 3.7%
Liquidity
Aggregate lender commitments- credit facilities $2,840
Less:
Borrowings outstanding 742
Outstanding letters of credit 45
Current availability- credit facilities $2,053
Multi-currency term loan net availability
Unrestricted cash 312
Total liquidity $2,365
(A) The maturity date for the global senior credit facility and multi-currency term loan is reflected at the extended maturity date.
(B) Interest rate is based on the effective rate (which includes the amortization of related premiums and discounts) assuming the net premiums (discounts) associated with the respective debt were included in the maturities by year.
(C) We hedge the net assets of certain international subsidiaries using foreign currency forward contracts (net investment hedges) to offset economic exposure by locking in forward exchange rates. As of September 30, 2014 we had contracts with a notional amount of €600.0 million ($800.0 million), ¥24.1 billion ($250 million) and £237.8 million ($400.0 million), scheduled to mature in 2015 through 2018.
(D) Interest rate is based on the effective rate and weighted based on borrowings outstanding.
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Capitalization
Debt Covenants and Other Metrics
(dollars in thousands) Supplemental 3Q 2014
Covenants as of September 30, 2014 (A)
Indenture (B) Global Line
Covenant Actual Covenant Actual
Leverage ratio <60% 32.9% <60% 33.0%
Fixed charge coverage ratio >1.5x 4.55x >1.5x 4.14x
Secured debt leverage ratio <40% 4.3% < 40% 4.3%
Unencumbered asset to unsecured debt ratio >150% 237.0% N/A N/A
Unencumbered debt service coverage ratio N/A N/A >150% 523.0%
Encumbrances as of September 30, 2014
Unencumbered Encumbered Total
Consolidated operating properties $ 13,315,262 $2,840,406 $ 16,155,668
Consolidated development portfolio and land 2,834,491 15,569 2,850,060
Consolidated other investments in real estate 445,888 14,966 460,854
Total consolidated 16,595,641 2,870,941 19,466,582
Less: third party share of investments in real estate 492,457 35,451 527,908
Total consolidated—Prologis share 16,103,184 2,835,490 18,938,674
Unconsolidated operating properties—Prologis share 5,384,525 3,619,508 9,004,033
Unconsolidated development portfolio and land—Prologis share 147,511 6,508 154,019
Gross real estate assets—Prologis share $ 21,635,220 $ 6,461,506 $ 28,096,726
Secured and Unsecured Debt as of September 30, 2014
Unsecured Secured
Debt Mortgage Debt Total
Prologis debt $ 7,668,037 $ 1,118,989 $ 8,787,026
Consolidated entities debt — 26,059 26,059
Our share of unconsolidated entities debt 791,852 1,794,948 2,586,800
Total debt—at par 8,459,889 2,939,996 11,399,885
Less: third party share of consolidated debt — (8,575) (8,575)
Total Prologis share of debt—at par 8,459,889 2,931,421 11,391,310
Premium (discount)—consolidated (12,921) 22,788 9,867
Less: third party share of consolidated debt discount (premium) — — —
Our share of premium (discount)—unconsolidated — 17,214 17,214
Total Prologis share of debt, net of premium (discount) $ 8,446,968 $ 2,971,423 $ 11,418,391
(A) These calculations are made in accordance with the respective debt agreements, may be different than other covenants or metrics presented and are not calculated in accordance with the applicable SEC rules. Please refer to the respective agreements for full financial covenant descriptions and calculation methods.
(B) These covenants are calculated in accordance with the Indenture dated June 8, 2011 and its supplemental indentures, including the Fifth Supplemental Indenture dated August 15, 2013.
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Net Asset Value
Components
(in thousands, except for percentages and per square foot) Supplemental 3Q 2014
Operating
Third Quarter Third Quarter Annualized
Gross Book GBV per Adjusted Cash Adjusted Cash Adjusted Cash Percent
Square Feet Value Sq Ft NOI (Actual) NOI (Pro Forma) NOI Occupied
CONSOLIDATED OPERATING PORT FOLIO (Prologis Share)
Prologis interest in consolidated operating portfolio
Americas 217,420 $ 14,461,506 $ 67 $ 220,051 $ 220,051 $ 880,204 95.5%
Europe 11,658 715,216 61 11,639 11,639 46,556 77.1%
Asia 4,368 415,042 95 3,883 3,883 15,532 82.3%
Pro forma adjustment for mid-quarter acquisitions/development completions 1,232 4,928
Prologis share of consolidated operating portfolio 233,446 $ 15,591, 764 $ 67 $ 235,573 $ 236,805 $ 947,220 94.3 %
UNCONSOLIDATED OPERATING PORT FOLIO (Prologis Share)
Prologis interest in unconsolidated operating portfolio
Americas 55,187 $ 3,678,601 $ 67 $ 59,246 $ 59,246 $ 236,984 95.9%
Europe 55,199 4,599,277 83 79,101 79,101 316,404 94.6%
Asia 3,927 604,401 154 8,339 8,339 33,356 97.4%
Pro forma adjustment for mid-quarter acquisitions/development completions 987 3,948
Prologis share of unconsolidated operating portfolio 114,313 $8,882,279 $78 $146,686 $147,673 $590,692 95.3 %
Total operating portfolio 347,759 $24,474,043 $70 $382,259 $384,478 $1,537,912 94.7 %
Development
Investment Annualized Pro Percent
Square Feet Balance TEI TEI per Sq Ft Forma NOI Occupied
CONSOLIDATED (Prologis Share) Prestabilized Americas 3,401 $ 241,227 $ 288,562 $ 85 $ 19,259 18.2%
Europe 826 64,305 79,124 96 6,669 26.8% Asia 878 85,523 89,656 102 5,987 17.3% 19.4 %
Properties under development
Americas 12,633 392,092 764,008 60 54,062
Europe 3,862 258,197 410,449 106 29,659
Asia 4,663 275,126 636,695 137 40,125
Prologis share of consolidated development portfolio 26,263 $1,316,470 $2,268,494 $86 $155,761
UNCONSOLIDAT ED (Prologis Share)
Prologis interest in unconsolidated development portfolio
Americas 463 $ 36,050 $ 43,068 $ 93 $ 4,380
Europe 155 7,290 11,029 71 892
Asia 986 26,374 58,314 59 4,574
Prologis share of unconsolidated development portfolio 1,604 $69,714 $112,411 $70 $9,846
Total development portfolio 27,867 $1,386,184 $2,38 0,905 $85 $165,607
Prologis share of estimated value creation (see Capital Deployment—Development Portfolio) 515 , 139
Total development portfolio, including estimated value creation $ 1, 9 0 1, 3 2 3
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Net Asset Value
Components—Continued
(in thousands) Supplemental 3Q 2014
Balance Sheet and Other Items
As of September 30,
2014
CONSOLIDATED
Other assets
Cash and cash equivalents $ 311,879
Restricted cash 4,306
Deposits, prepaid assets and other tangible assets 650,005
Other real estate investments 460,854
Prologis share of value added operating properties 175,598
Accounts receivable 132,464
Prologis receivable from unconsolidated co-investment ventures 132,364
Investments in and advances to other unconsolidated joint ventures 173,531
Less: third party share of other assets (118,540)
Total other assets—Prologis share $ 1,922,461
Other liabilities
Accounts payable and other current liabilities $ 556,965
Deferred income taxes 77,696
Value added tax and other tax liabilities 32,607
Tenant security deposits 166,822
Other liabilities 278,312
Less: third party share of other liabilities (3,066)
Total liabilities and noncontrolling interests—Prologis share $ 1,109,336
UNCONSOLIDATED
Prologis share of net assets (liabilities) $ 225,118
Land
Investment Balance
Prologis share of original land basis $ 2,438,209
Current book value of land $ 1,551,438
Less: third party share of the current book value of land (17,848)
Prologis share of book value of land in unconsolidated entities 84,305
Total $ 1,617,895
Strategic Capital / Development Management
Third Quarter Annualized
Strategic Capital
Strategic capital income—property and asset management fees $ 41,450 $ $ 165,800
Strategic capital income—leasing commissions, administrative and other transactional fees (trailing 12 months) 12,620 39,184
Strategic capital expenses (A) (24,460) (97,840)
Strategic capital income, net of expenses, from consolidated co-investment ventures 1,331 5,324
Strategic capital NOI $ 30,941 $ 112,468
Promotes earned in last 12 months, net of cash expenses $ 33,478
Development management income $ 5,259 $ 21,036
Debt (at par) and Preferred Stock
As of September 30,
2014
Prologis debt $ 8,787,026
Consolidated entities debt 26,059
Less: third party share of consolidated debt (8,575)
Prologis share of unconsolidated debt 2,586,800
Subtotal debt 11,391,310
Preferred stock 78,235
Total debt and preferred stock $ 11,469,545
Outstanding shares of common stock 499,953
(A) Excludes adjustment related to the promote earned during the second quarter of 2014.
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Notes and Definitions
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Notes and Definitions
Please refer to our annual and quarterly financial statements filed with the Securities and Exchange Commission on Forms 10-K and 10-Q and other public reports for further information about us and our business. Certain amounts from previous periods presented in the Supplemental Information have been reclassified to conform to the current presentation.
Acquisition cost, as presented for building acquisitions, represents the economic cost and not necessarily what is capitalized. It includes the initial purchase price; the effects of marking assumed debt to market; if applicable, all due diligence and lease intangibles; and estimated acquisition capital expenditures including leasing costs to achieve stabilization.
Adjusted EBITDA. We use Adjusted EBITDA to measure both our operating performance and liquidity. We calculate Adjusted EBITDA beginning with consolidated net earnings (loss) attributable to common stockholders and removing the effect of interest, income taxes, depreciation and amortization, impairment charges, third party acquisition expenses related to the acquisition of real estate, gains or losses from the acquisition or disposition of investments in real estate, gains or losses on early extinguishment of debt and derivative contracts (including cash charges), similar adjustments we make to our FFO measures (see definition below), and other non-cash charges or gains (such as stock based compensation amortization and unrealized gains or losses on foreign currency and derivative activity and related amortization). We make adjustments to reflect our economic ownership in each entity, whether consolidated or unconsolidated.
We consider Adjusted EBITDA to provide investors relevant and useful information because it permits investors to view income from operations on an unleveraged basis before the effects of income tax, non-cash depreciation and amortization expense and other items (including stock-based compensation amortization and certain unrealized gains and losses), gains or losses from the acquisition or disposition of investments in real estate, items that affect comparability, and other significant non-cash items. We also include a pro forma adjustment in Adjusted EBITDA to reflect a full period of NOI on the operating properties we acquire, stabilize or dispose of during the quarter assuming the transaction occurred at the beginning of the quarter. By excluding interest expense, Adjusted EBITDA allows investors to measure our operating performance independent of our capital structure and indebtedness and, therefore, allows for a more meaningful comparison of our operating performance to that of other companies, both in the real estate industry and in other industries. Gains and losses on the early extinguishment of debt generally include the costs of repurchasing debt securities. While not infrequent or unusual in nature, these items result from market fluctuations that can have inconsistent effects on our results of operations. The economics underlying these items reflect market and financing conditions in the short-term but can obscure our performance and the value of our long-term investment decisions and strategies.
We believe that Adjusted EBITDA helps investors to analyze our ability to meet interest payment obligations and to make quarterly preferred share dividends. We believe that investors should consider Adjusted EBITDA in conjunction with net earnings (the primary measure of our performance) and the other required Generally Accepted Accounting Principles (“GAAP”) measures of our performance and liquidity, to improve their understanding of our operating results and liquidity, and to make more meaningful comparisons of our performance against other companies. By using Adjusted EBITDA, an investor is assessing the earnings generated by our operations but not taking into account the eliminated expenses or gains incurred in connection with such operations. As a result, Adjusted EBITDA has limitations as an analytical tool and should be used in conjunction with our required GAAP presentations. Adjusted EBITDA does not reflect our historical cash expenditures or future cash requirements for working capital, capital expenditures, distribution requirements or contractual commitments. Adjusted EBITDA, also does not reflect the cash required to make interest and principal payments on our outstanding debt.
While EBITDA is a relevant and widely used measure of operating performance, it does not represent net income or cash flow from operations as defined by GAAP and it should not be considered as an alternative to those indicators in evaluating operating performance or liquidity. Further, our computation of Adjusted EBITDA may not be comparable to EBITDA reported by other companies. We compensate for the limitations of Adjusted EBITDA by providing investors with
financial statements prepared according to GAAP, along with this detailed discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to consolidated net earnings (loss), a GAAP measurement.
Adjusted Cash NOI (Actual). A reconciliation of our rental income and rental expenses included in our Statement of Operations to adjusted cash NOI for the consolidated operating portfolio for purposes of the Net Asset Value calculation is as follows (in thousands):
Rental income $ 355,822
Rental expenses (102,324)
NOI 253,498
Net termination fees and adjustments (a) (1,755)
Less: actual NOI for development portfolio and other (10,608)
Less: properties contributed or sold (b) (6,963)
Less: third party share of NOI (7,836)
Adjusted NOI for consolidated operating portfolio owned at September 30, 2014 226,336
Straight-lined rents (c) (8,412)
Free rent (c) 11,565
Amortization of lease intangibles (c) 6,620
Less: third party share (536)
Third Quarter Adjusted Cash NOI (Actual) $ 235,573
(a) Net termination fees generally represent the gross fee negotiated at the time a customer is allowed to terminate its lease agreement offset by that customer’s rent leveling asset or liability, if any, that has been previously recognized. Removing the net termination fees from rental income allows for the calculation of Adjusted Cash NOI (Pro forma) to include only rental income that is indicative of the property’s recurring operating performance.
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The actual NOI for properties that were contributed or sold during the three-month period is removed. |
(c) Straight-lined rents, free rent amount, and amortization of lease intangibles (above and below market leases) are removed from rental income for the Operating Portfolio to allow for the calculation of a cash yield.
Adjusted Cash NOI (Pro forma) consists of Adjusted Cash NOI (Actual) for the properties in our Operating Portfolio adjusted to reflect NOI for a full quarter for operating properties that were acquired or stabilized during the quarter. Adjusted Cash NOI (Pro forma) for the properties in our Development Portfolio is based on current Total Expected Investment and an estimated stabilized yield.
Assets Under Management (“AUM”) represents the estimated value of the real estate we own or manage through both our consolidated and unconsolidated entities. We calculate AUM by adding the third party investors’ share of the estimated fair value of the assets in the co-investment ventures to our share of total market capitalization (calculated using the market price of our equity plus our share of total debt).
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Notes and Definitions
(continued)
Supplemental 3Q 2014
Calculation of Per Share Amounts is as follows (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Net earnings (loss)
Net earnings (loss) $ 136,245 $ (7,534) $ 213,626 $ 256,365
Noncontrolling interest attributable to exchangeable partnership units 493 (47) 767 1,446
Gains, net of expenses, associated with exchangeable debt assumed
exchanged (18,658) —— -
Adjusted net earnings (loss)—Diluted $ 118,080 $ (7,581) $ 214,393 $ 257,811
Weighted average common shares outstanding—Basic 499,292 497,989 499,045 482,007
Incremental weighted average effect on exchange of limited partnership
units 1,843 1,859 1,792 3,099
Incremental weighted average effect of stock awards 3,074 — 3,374 3,303
Incremental weighted average effect on exchangeable debt assumed
exchanged 11,879 —— -
Weighted average common shares outstanding—Diluted 516,088 499,848 504,211 488,409
Net earnings (loss) per share—Basic $ 0.27 ($0.02) $ 0.43 $ 0.53
Net earnings (loss) per share—Diluted $ 0.23 ($0.02) $ 0.43 $ 0.53
Core FFO
Core FFO $ 244,896 $ 206,895 $ 706,726 $ 598,169
Noncontrolling interest attributable to exchangeable limited partnership
units 92 — 149 1,598
Interest expense on exchangeable debt assumed exchanged 4,246 4,235 12,738 12,705
Core FFO—Diluted $ 249,234 $ 211,130 $ 719,613 $ 612,472
Weighted average common shares outstanding—Basic 499,292 497,989 499,045 482,007
Incremental weighted average effect on exchange of limited partnership
units 2,040 3,809 1,990 3,299
Incremental weighted average effect of stock awards 3,074 3,285 3,374 3,303
Incremental weighted average effect on exchangeable debt assumed
exchanged 11,879 11,879 11,879 11,879
Weighted average common shares outstanding—Diluted 516,285 516,962 516,288 500,488
Core FFO per share—Diluted $ 0.48 $ 0.41 $ 1.39 $ 1.22
Debt Metrics. See below for the detailed calculations for the respective period (dollars in thousands):
Three Months Ended
Sept. 30 June 30
2014 2014
Debt as a % of gross real estate assets:
Total Prologis share of debt—at par $ 11,391,310 $ 10,869,428
Less: consolidated cash and cash equivalents—Prologis share (310,416) (225,598)
Less: unconsolidated entities cash—Prologis share (219,864) (192,006)
Total Prologis share of debt, net of adjustments $ 10,861,030 $ 10,451,824
Gross real estate assets—Prologis share $ 28,096,726 $ 27,864,671
Debt as a % of gross real estate assets 38.7% 37.5%
Secured debt as a % of gross real estate assets:
Prologis share of secured debt—at par $ 2,931,421 $ 2,895,152
Gross real estate assets—Prologis share $ 28,096,726 $ 27,864,671
Secured debt as a % of gross real estate assets 10.4% 10.4%
Unencumbered gross real estate assets to unsecured debt:
Unencumbered gross real estate assets—Prologis share $ 21,635,220 $ 21,347,053
Prologis share of unsecured debt—at par $ 8,459,889 $ 7,974,276
Unencumbered gross real estate assets to unsecured debt 255.7% 267.7%
Fixed Charge Coverage ratio:
Adjusted EBITDA $ 368,011 $ 374,039
Pro forma adjustment for mid-quarter activity and NOI from disposed
properties (1,967) 4,467
Adjusted EBITDA, including adjustment for NOI from disposed properties $ 366,044 $ 378,506
Adjusted EBITDA, including adjustment for NOI from disposed
properties, annualized (a) $ 1,489,582 $ 1,440,016
Add: Prologis share of gains on dispositions of development properties
for the twelve months ended 257,115 158,998
Adjusted EBITDA, including adjustment for NOI from disposed properties
and gains on dispositions, annualized $ 1,746,697 $ 1,599,014
Interest expense $ 69,086 $ 80,184
Amortization and write-off of deferred loan costs (3,827) (3,152)
Amortization of debt premium (discount), net 2,590 4,113
Capitalized interest 15,021 15,731
Preferred stock dividends 1,670 1,948
Third party share of fixed charges from consolidated entities (199) (1,450)
Our share of fixed charges from unconsolidated entities 24,492 22,000
Total fixed charges $ 108,833 $ 119,374
Total fixed charges, annualized $ 435,332 $ 477,496
Fixed charge coverage ratio 3.42x 3.02x
Fixed charge coverage ratio, including development gains 4.01x 3.35x
Debt to Adjusted EBITDA:
Total Prologis share of debt, net of adjustments $ 10,861,030 $ 10,451,824
Adjusted EBITDA-annualized (a) $ 1,497,450 $ 1,422,148
Add: Prologis share of gains on dispositions of development properties
for the twelve months ended 257,115 158,998
Adjusted EBITDA-annualized (a), including gains on dispositions $ 1,754,565 $ 1,581,146
Debt to Adjusted EBITDA ratio 7.25x 7.35x
Debt to Adjusted EBITDA ratio, including development gains 6.19x 6.61x
Debt to Adjusted EBITDA (adjusted for development):
Total Prologis share of debt, net of adjustments $ 10,861,030 $ 10,451,824
Add: costs to complete—Prologis share 933,493 821,887
Less: current book value of land—Prologis share (1,617,895) (1,636,861)
$ 10,176,628 $ 9,636,850
Adjusted EBITDA-annualized (a) $ 1,497,450 $ 1,422,148
Add: annualized proforma NOI development portfolio—Prologis share 165,507 143,523
1,662,957 1,565,671
Debt to Adjusted EBITDA (adjusted for development) ratio 6.12x 6.16x
(a) Actual promote revenue and related cash expenses for the quarter, if any, are removed from the EBITDA amount for the quarter before annualizing, then the actual promote revenue and related expenses for the previous twelve months are added to the annualized number. For the three months ended September 30, 2014 and June 30, 2014, actual promote revenue, net of related cash expenses, for the previous twelve months was $33.5 million and $31.5 million, respectively.
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Notes and Definitions
(continued)
Supplemental 3Q 2014
Development Margin is calculated on developed properties as the estimated value at Stabilization minus estimated total investment, before closing costs, the impact of any deferred rents, taxes or third party promotes net of deferred amounts on contributions, divided by the estimated total investment.
Development Portfolio includes industrial properties that are under development and properties that are developed but have not met Stabilization.
Discontinued Operations. In April 2014, the FASB issued a standard updating the accounting and disclosure regarding discontinued operations. Early adoption on a prospective basis is allowed, therefore, we have adopted this standard as of January 1, 2014. As a result, none of our property dispositions in 2014 met the criteria to be classified as discontinued operations. The operations of the properties that were disposed of to third parties during 2013 that met the criteria for discontinued operations, including the aggregate net gains or losses recognized upon their disposition, are presented as discontinued operations in our Consolidated Statements of Operations. The income attributable to these properties was as follows (in thousands):
Three Months Ended Nine Months Ended
June 30, 2013 June 30, 2013
Rental income $ 7,928 $ 28,620
Rental expenses (2,677) (9,638)
Depreciation and amortization (3,802) (12,868)
Interest expense (243) (975)
Income attributable to disposed properties and assets held
for sale $ 1,206 $ 5,139
Estimated Build Out (TEI and sq ft)- represents the estimated TEI and finished square feet available for rent upon completion of an industrial building on existing parcels of land.
FFO, as defined by Prologis; Core FFO; Core AFFO (collectively referred to as “FFO”). FFO is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings. Although the National Association of Real Estate Investment Trusts (“NAREIT”) has published a definition of FFO, modifications to the NAREIT calculation of FFO are common among REITs, as companies seek to provide financial measures that meaningfully reflect their business.
FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We believe net earnings computed under GAAP remains the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings computed under GAAP. Further, we believe our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and our operating performance.
NAREIT’s FFO measure adjusts net earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales, along with impairment charges, of previously depreciated properties. We agree that these NAREIT adjustments are useful to investors for the following reasons: (i) historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time.
NAREIT stated in its White Paper on FFO “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.
(ii) REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales, along with impairment charges, of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods. We include the gains and losses (including impairment charges) from dispositions of land and development properties, as well as our proportionate share of the gains and losses (including impairment charges) from dispositions of development properties recognized by our unconsolidated entities, in our definition of FFO.
Our FFO Measures
At the same time that NAREIT created and defined its FFO measure for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe stockholders, potential investors and financial analysts who review our operating results are best served by a defined FFO measure that includes other adjustments to net earnings computed under GAAP in addition to those included in the NAREIT defined measure of FFO. Our FFO measures are used by management in analyzing our business and the performance of our properties and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses.
We use these FFO measures, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) assess our performance as compared to similar real estate companies and the industry in general; and (v) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of short-term items that we do not expect to affect the underlying long-term performance of the properties. The long-term performance of our properties is principally driven by rental income. While not infrequent or unusual, these additional items we exclude in calculating FFO, as defined by Prologis, are subject to significant fluctuations from period to period that cause both positive and negative short-term effects on our results of operations in inconsistent and unpredictable directions that are not relevant to our long-term outlook.
We use our FFO measures as supplemental financial measures of operating performance. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.
FFO, as defined by Prologis
To arrive at FFO, as defined by Prologis, we adjust the NAREIT defined FFO measure to exclude: (i) deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries; (ii) current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in GAAP earnings that is excluded from our defined FFO measure; (iii) foreign currency exchange gains and losses resulting from debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated entities; (iv) foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain third party debt of our foreign consolidated subsidiaries and our foreign unconsolidated entities; and (v) mark-to-market adjustments and related amortization of debt discounts associated with derivative financial instruments.
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We calculate FFO, as defined by Prologis for our unconsolidated entities on the same basis as we calculate our FFO, as defined by Prologis.
We believe investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy.
Core FFO
In addition to FFO, as defined by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as defined by Prologis, to exclude the following recurring and non-recurring items that we recognized directly or our share of these items recognized by our unconsolidated entities to the extent they are included in FFO, as defined by Prologis:
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gains or losses from acquisition, contribution or sale of land or development properties; |
(ii) income tax expense related to the sale of investments in real estate and third-party acquisition costs related to the acquisition of real estate; (iii) impairment charges recognized related to our investments in real estate generally as a result of our change in intent to contribute or sell these properties; (iv) gains or losses from the early extinguishment of debt; (v) merger, acquisition and other integration expenses; and (vi) expenses related to natural disasters.
We believe it is appropriate to further adjust our FFO, as defined by Prologis for certain recurring items as they were driven by transactional activity and factors relating to the financial and real estate markets, rather than factors specific to the on-going operating performance of our properties or investments. The impairment charges we have recognized were primarily based on valuations of real estate, which had declined due to market conditions, that we no longer expected to hold for long-term investment. Over the last few years, we made it a priority to strengthen our financial position by reducing our debt, our investment in certain low yielding assets and our exposure to foreign currency exchange fluctuations. As a result, we changed our intent to sell or contribute certain of our real estate properties and recorded impairment charges when we did not expect to recover the costs of our investment. Also, we have purchased portions of our debt securities when we believed it was advantageous to do so, which was based on market conditions, and in an effort to lower our borrowing costs and extend our debt maturities. As a result, we have recognized net gains or losses on the early extinguishment of certain debt due to the financial market conditions at that time. In addition, we and our co-investment ventures make acquisitions of real estate and we believe the costs associated with these transactions are transaction based and not part of our core operations.
We analyze our operating performance primarily by the rental income of our real estate and the revenue driven by our strategic capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities. As a result, although these items have had a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long-term.
We use Core FFO, including by segment and region, to: (i) evaluate our performance and the performance of our properties in comparison to expected results and results of previous periods, relative to resource allocation decisions; (ii) evaluate the performance of our management; (iii) budget and forecast future results to assist in the allocation of resources; (iv) provide guidance to the financial markets to understand our expected operating performance; (v) assess our operating performance as compared to similar real estate companies and the industry in general; and (vi) evaluate how a specific potential investment will impact our future results. Because we make decisions with regard to our performance with a long-term outlook, we believe it is appropriate to remove the effects of items that we do not expect to affect the underlying long-term performance of the properties we own. As noted above, we believe the long-term performance of our properties is principally driven by rental income. We believe investors are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in planning and executing our business strategy.
Core AFFO
To arrive at Core AFFO, we adjust Core FFO to further exclude our share of; (i) straight-line rents; (ii) amortization of above- and below-market lease intangibles; (iii) recurring capital expenditures; (iv) amortization of management contracts; (v) amortization of debt premiums and discounts, net of amounts capitalized, and; (vi) stock compensation expense.
We believe Core AFFO provides a meaningful indicator of our ability to fund cash needs, including cash distributions to our stockholders.
Limitations on Use of our FFO Measures
While we believe our defined FFO measures are important supplemental measures, neither
NAREIT’s nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly, these are only a few of the many measures we use when analyzing our business. Some of these limitations are: The current income tax expenses and acquisition costs that are excluded from our defined FFO measures represent the taxes and transaction costs that are payable.
Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Further, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of industrial properties are not reflected in FFO.
Gains or losses from property acquisitions and dispositions or impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of acquired or disposed properties arising from changes in market conditions.
The deferred income tax benefits and expenses that are excluded from our defined FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our defined FFO measures do not currently reflect any income or expense that may result from such settlement.
The foreign currency exchange gains and losses that are excluded from our defined FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.
The gains and losses on extinguishment of debt that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our debt at less or more than our future obligation.
The merger, acquisition and other integration expenses and the natural disaster expenses that we exclude from Core FFO are costs that we have incurred.
We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete consolidated financial statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our defined FFO measures to our net earnings computed under GAAP.
Supplemental 3Q 2014
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Fixed Charge Coverage is defined as Adjusted EBITDA divided by total fixed charges. Fixed charges consist of net interest expense adjusted for amortization of finance costs and debt discount (premium), capitalized interest, and preferred stock dividends. We use fixed charge coverage to measure our liquidity. We believe that fixed charge coverage is relevant and useful to investors because it allows fixed income investors to measure our ability to make interest payments on outstanding debt and make distributions/dividends to preferred unitholders/stockholders. Our computation of fixed charge coverage is not calculated in accordance with applicable SEC rules and may not be comparable to fixed charge coverage reported by other companies.
General and Administrative Expenses (“G&A”) were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Gross overhead $ 109,485 $ 105,893 $ 344,669 $ 322,360
Less: rental expenses (7,141) (7,982) (22,761) (24,679)
Less: strategic capital expenses (22,442) (22,023) (74,442) (66,938)
Capitalized amounts (21,699) (20,854) (65,685) (64,603)
G&A $ 58,203 $ 55,034 $ 181,781 $ 166,140
We capitalize certain costs directly related to our development and leasing activities. Capitalized G&A expenses include salaries and related costs as well as other G&A costs. The capitalized costs were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Development activities $ 17,058 $ 16,602 $ 51,322 $ 49,454
Leasing activities 4,296 4,104 13,418 14,179
Costs related to internally developed software 345 148 945 970
Total capitalized G&A $ 21,699 $ 20,854 $ 65,685 $ 64,603
G&A as a percent of Assets Under Management (in thousands):
Net G&A—midpoint of 2014 guidance range (a) $ 242,000
Add: Strategic capital expenses- midpoint of 2014 guidance range (a) 97,500
Adjusted G&A, using 2014 guidance (a) $ 339,500
Carrying value at period end:
Operating properties $ 41,650,310
Development portfolio—TEI 2,825,674
Land portfolio 1,774,207
Other real estate investments 460,854
Total Assets Under Management $ 46,711,045
G&A as % of Assets Under Management 0.73%
G&A as a percent of Assets Under Management – Prologis Share (in thousands):
Net G&A—midpoint of 2014 guidance range (a) $ 242,000
Less: strategic capital income-midpoint of 2014 guidance range (a) (217,500)
Add: strategic capital expenses- midpoint of 2014 guidance range (a) 97,500
Adjusted G&A, using 2014 guidance (a) $ 122,000
Carrying value at period end:
Operating properties—Prologis share $ 24,649,641
Development portfolio—Prologis share of TEI 2,380,905
Land portfolio—Prologis share 1,617,895
Other real estate investments 460,854
Total Assets Under Management—Prologis share $ 29,109,295
G&A as % of Assets Under Management—Prologis share 0.42%
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These amounts represent the midpoint of the 2014 guidance provided in this Supplemental Package. |
Interest Expense consisted of the following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Gross interest expense $ 82,870 $ 110,005 $ 282,209 $ 361,650
Amortization of discount (premium), net (2,590) (9,123) (12,538) (30,514)
Amortization of deferred loan costs 3,827 2,887 10,447 10,466
Interest expense before capitalization 84,107 103,769 280,118 341,602
Capitalized amounts (15,021) (19,127) (45,325) (50,106)
Interest expense $ 69,086 $ 84,642 $ 234,793 $ 291,496
Investment Capacity is our estimate of the gross real estate, which could be acquired by our co-investment ventures through the use of existing equity commitments from us and our partners up to the ventures maximum leverage limits.
Market Classification
Global Markets feature large population centers with high per-capita consumption and are located near major seaports, airports, and ground transportation systems.
Regional Markets benefit from large population centers but typically are not as tied to the global supply chain, but rather serve local consumption and are often less supply constrained. Markets included as regional markets include: Austin, Charlotte, Cincinnati, Columbus, Denver, Hungary, Indianapolis, Juarez, Las Vegas, Louisville, Memphis, Nashville, Orlando, Phoenix, Portland, Reynosa, San Antonio, Slovakia, Sweden and Tijuana.
Other Markets represent a small portion of our portfolio that is located outside global and regional markets. These markets include: Austria, Boston, El Paso, Jacksonville, Kansas City, Norfolk, Reno, Romania, Salt Lake City, Savannah and St Louis.
Net Asset Value (“NAV”). We consider NAV to be a useful supplemental measure of our operating performance because it enables both management and investors to estimate the fair value of our business. The assessment of the fair value of a particular segment of our business is subjective in that it involves estimates and can be calculated using various methods. Therefore, we have presented the financial results and investments related to our business segments that we
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Notes and Definitions
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believe are important in calculating our NAV but have not presented any specific methodology nor provided any guidance on the assumptions or estimates that should be used in the calculation.
The components of NAV do not consider the potential changes in rental and fee income streams or the franchise value associated with our global operating platform, strategic capital platform, or development platform.
Net Effective Rent is calculated at the beginning of the lease using the estimated total cash to be received over the term of the lease (including base rent and expense reimbursements) and annualized. The per square foot number is calculated by dividing the annualized net effective rent by the occupied square feet of the lease.
Net Effective Rent Change (GAAP) represents the change on operating portfolio properties in net effective rental rates (average rate over the lease term) on new and renewed leases signed during the period as compared with the previous effective rental rates in that same space.
Net Operating Income (“NOI”) represents rental income less rental expenses.
Noncontrolling Interest. The following table includes information for each entity we consolidate and in which we own less than 100% (dollars in thousands):
Ownership Noncontrolling
Percentage Interest Real Estate Debt
Brazil Fund 50.0% 72,908 — —
Prologis U.S. Logistics Venture 55.0% 431,929 1,004,753 —
Other consolidated entities various 141,567 1,048,312 26,064
Limited partners in the Operating Partnership 50,244 — —
Noncontrolling interests $ 696,648 $ 2,053,065 $ 26,064
Operating Portfolio includes stabilized industrial properties in our owned and managed portfolio. A developed property moves into the Operating Portfolio when it meets Stabilization.
Pro-Rata Balance Sheet and Operating Information. The consolidated amounts shown are derived from and prepared on a consistent basis with our consolidated financial statements and are adjusted to remove the amounts attributable to non-controlling interests. The Prologis share of unconsolidated co-investment ventures column was derived on an entity-by-entity basis by applying our ownership percentage to each line item to calculate our share of that line item. For purposes of balance sheet data, we used our ownership percentage at the end of the period and for operating information, we used our average ownership percentage for the period, consistent with how we calculate our share of net earnings (loss) during the period. We used a similar calculation to derive the noncontrolling interests’ share of each line item. In order to present the total owned and managed portfolio, we added our investors’ share of each line item in the unconsolidated co-investment ventures and the noncontrolling interests share of each line item to the Prologis Total Share.
Prologis Share represents our proportionate economic ownership of each entity included in our total owned and managed portfolio.
Supplemental 3Q 2014
Rental Income included the following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Rental income $ 273,503 $ 289,728 $ 859,812 $ 915,842
Amortization of lease intangibles (6,803) (8,366) (21,777) (26,315)
Rental expense recoveries 80,136 80,564 254,310 253,937
Straight-lined rents 8,986 10,259 32,990 36,821
$ 355,822 $ 372,185 $ 1,125,335 $ 1,180,285
Same Store. We evaluate the operating performance of the operating properties we own and manage using a “Same Store” analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of changes in the composition of the portfolio on performance measures. We include the properties included in our owned and managed portfolio that were in operation at January 1, 2013 and throughout the full periods in both 2013 and 2014. We have removed all properties that were disposed of to a third party from the population for both periods. We believe the factors that impact rental income, rental expenses and NOI in the Same Store portfolio are generally the same as for the total operating portfolio. In order to derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the current exchange rate to translate from local currency into U.S. dollars, for both periods.
Our same store measures are non-GAAP measures that are commonly used in the real estate industry and are calculated beginning with rental income and rental expenses from the financial statements prepared in accordance with GAAP. It is also common in the real estate industry and expected from the analyst and investor community that these numbers be further adjusted to remove certain non-cash items included in the financial statements prepared in accordance with GAAP to reflect a cash same store number. In order to clearly label these metrics, we call one Same Store NOI- GAAP and one Same Store NOI-Adjusted Cash. As these are non-GAAP measures they have certain limitations as an analytical tool and may vary among real estate companies. As a result, we provide a reconciliation from our financial statements prepared in accordance with GAAP to Same Store NOI-GAAP and then to Same Store NOI-Adjusted Cash with explanations of how these metrics are calculated and adjusted.
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Supplemental 3Q 2014
The following is a reconciliation of our consolidated rental income, rental expenses and NOI, as included in the Consolidated Statements of Operations, to the respective amounts in our Same Store portfolio analysis (dollars in thousands):
Three Months Ended
September 30,
Change
2014 2013 (%)
Rental Income:
Per the Consolidated Statements of Operations $ 355,822 $ 372,185
Properties not included and other adjustments (a) (42,485) (34,474)
Unconsolidated Co-Investment Ventures 471,618 424,793
Same Store-Rental Income $ 784,955 $ 762,504 2.9%
Rental Expense:
Per the Consolidated Statements of Operations $ 102,324 $ 106,811
Properties not included and other adjustments (b) (7,865) (5,534)
Unconsolidated Co-Investment Ventures 108,584 99,957
Same Store-Rental Expense $ 203,043 $ 201,234 0.9%
NOI-GAAP:
Per the Consolidated Statements of Operations $ 253,498 $ 265,374
Properties not included and other adjustments (34,620) (28,940)
Unconsolidated Co-Investment Ventures 363,034 324,836
Same Store-NOI-GAAP $ 581,912 $ 561,270 3.7%
NOI-Adjusted Cash:
Same store- NOI-GAAP $ 581,912 $ 561,270
Adjustments (c) (3,799) (5,543)
Same Store-NOI- Adjusted Cash $ 578,113 $ 555,727 4.0%
(a) To calculate Same Store rental income, we exclude the net termination and renegotiation fees to allow us to evaluate the growth or decline in each property’s rental income without regard to items that are not indicative of the property’s recurring operating performance.
(b) To calculate Same Store rental expense, we include an allocation of the property management expenses for our consolidated properties based on the property management fee that is provided for in the individual management agreements under which our wholly owned management companies provide property management services (generally the fee is based on a percentage of revenue). On consolidation, the management fee income and expenses are eliminated and the actual cost of providing property management services is recognized.
(c) In order to derive Same Store- NOI-Adjusted Cash, we adjust Same Store- NOI- GAAP to exclude non-cash items included in our rental income in our GAAP financial statements, including straight line rent adjustments and adjustments related to purchase accounts to reflect leases at fair value at the time of acquisition.
Same Store Average Occupancy represents the average occupied percentage of the Same Store portfolio for the period.
Stabilization is defined when a property that was developed has been completed for one year or is 90% occupied. Upon stabilization, a property is moved into our Operating Portfolio.
Strategic Capital NOI represents strategic capital income less strategic capital expenses.
Tenant Retention is the square footage of all leases rented by existing tenants divided by the square footage of all expiring and rented leases during the reporting period, excluding the square
footage of tenants that default or buy-out prior to expiration of their lease, short-term tenants and the square footage of month-to-month leases.
Total Expected Investment (“TEI”) represents total estimated cost of development or expansion, including land, development and leasing costs. TEI is based on current projections and is subject to change. Non-U.S. dollar investments are translated to U.S. dollars using the exchange rate at period end or the date of development start for purposes of calculating development starts in any period.
Turnover Costs represent the costs incurred in connection with the signing of a lease, including leasing commissions and tenant improvements. Tenant improvements include costs to prepare a space for a new tenant and for a lease renewal with the same tenant. It excludes costs to prepare a space that is being leased for the first time (i.e. in a new development property).
Value-Added Acquisitions are properties we acquire for which we believe the discount in pricing attributed to the operating challenges could provide greater returns post-stabilization than the returns of stabilized properties that are not Value-Added Acquisitions. Value Added Acquisitions must have one or more of the following characteristics: (i) existing vacancy in excess of 20%; (ii) short term lease roll-over, typically during the first two years of ownership; (iii) significant capital improvement requirements in excess of 10% of the purchase price and must be invested within the first two years of ownership.
Value-Added Conversions represent the repurposing of industrial properties to a higher and better use, including office, residential, retail, research and development, data center, self storage or manufacturing with the intent to ultimately sell the property once repositioned. Activities required to prepare the property for conversion to a higher and better use may include such activities as re-zoning, re-designing, re-constructing, and re-tenanting. The economic gain on sales of value added conversions represents the amount by which the sales proceeds exceeds the amount included in NAV for the disposed property.
Value Creation represents the value that we will create through our development and leasing activities. We calculate value creation by estimating the NOI that the property will generate at Stabilization and applying an estimated stabilized capitalization rate applicable to that property. The value creation is calculated as the amount by which the estimated value exceeds our total expected investment and does not include any fees or promotes we may earn. This can also include realized economic gains from value-added conversion properties.
Weighted Average Estimated Stabilized Yield is calculated as NOI assuming stabilized occupancy divided by Acquisition Cost or TEI, as applicable.
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