- Core FFO of $0.43 per fully diluted share
- 35 million square feet of leasing in its combined operating and development portfolios
- Company increases low end of full year guidance
SAN FRANCISCO, July 26, 2012 — Prologis, Inc. (NYSE: PLD), the leading global owner, operator and developer of industrial real estate, today reported results for the second quarter of 2012.
Core funds from operations (Core FFO) per fully diluted share was $0.43 for the second quarter 2012 compared to $0.35 for the same period in 2011. Funds from operations (FFO) as defined by Prologis per fully diluted share was $0.37 for the second quarter 2012 compared to $0.03 for the same period in 2011. The difference between Core FFO and FFO in the second quarter 2012 primarily relates to merger integration expenses. Net loss per share was $(0.02) for the second quarter 2012 compared to a net loss of $(0.49) for the same period in 2011. The second quarter 2011 comparative results reflect two months of stand-alone legacy ProLogis and approximately one month of results for the combined company. Therefore, they are not directly comparable to the 2012 reported results.
“We delivered solid results for the second quarter despite forecasts of slower economic growth,” said Hamid R. Moghadam, chairman and co-chief executive officer, Prologis. “We continue to make excellent progress on our priorities, increasing occupancy in our operating and development portfolios. We also received unitholder and regulatory approval to liquidate Prologis European Properties. While we will continue to exercise a patient and deliberate approach to achieving our strategic goals by the end of 2013, Prologis is well positioned to remain opportunistic, flexible and laser-focused on taking advantage of growth opportunities around the world.”
Operating Portfolio Metrics
During the quarter, the company leased a total of 35.0 million square feet (3.3 million square meters) in its combined operating and development portfolios. Prologis ended the quarter above plan with 92.4 percent occupancy in its operating portfolio, up 10 basis points over the prior quarter. Tenant retention in the quarter was 82.4 percent, with renewals totaling 20.2 million square feet (1.9 million square meters).
Same-store net operating income (NOI) in the second quarter of 2012 increased 0.4 percent over the second quarter 2011 on a GAAP basis, compared to an increase of 1.7 percent in the first quarter of 2012. Rental rates on leases signed in the second quarter same-store pool decreased by 3.9 percent from in-place rents, as compared to a decrease of 1.1 percent in the first quarter 2012.
“Building on the momentum from last quarter, the team delivered another strong quarter of leasing volume across our global portfolio, and we completed the majority of our lease expirations for the balance of the year,” said Walter C. Rakowich, co-chief executive officer, Prologis. “While the strongest demand continues to be for large, Class-A facilities, we saw a notable improvement in our facilities that are less than 100,000 square feet, and occupancy in Europe continues to hold. Customers have new requirements for e-commerce facilities and remain focused on improving supply chain efficiencies. Given continued supply constraints, our customers with targeted requirements are increasingly pursuing build-to-suits, which we are able to readily accommodate with our strategic land portfolio.”
Dispositions and Contributions
During the quarter, the company completed approximately $228 million in building and land dispositions and contributions, of which $191 million was Prologis’ share. The building sales and contributions reflect a weighted average stabilized capitalization rate of 7.6 percent.
Development Starts & Building Acquisitions
Capital deployed or committed during the second quarter 2012 totaled approximately $313 million, of which $277 million was Prologis’ share, including:
- Development starts of $229 million totaling 3.7 million square feet (343,740 square meters) in nine projects, which monetized $52 million of land. Of the total expected investment, 70 percent was in build-to-suit projects. The estimated value creation on development starts in the second quarter is $33 million with a stabilized yield of 7.2 percent and a margin of approximately 14 percent.
- Building acquisitions of $85 million in 13 logistics facilities totaling approximately 1.5 million square feet (139,350 square meters) with a stabilized capitalization rate of 7.2 percent. Of the total acquisitions, $48 million was Prologis’ share.
At quarter end, Prologis’ global development portfolio comprised 13.5 million square feet (1.3 million square meters), with a total expected investment of $1.3 billion of which Prologis’ share is $1 billion. The estimated value creation at stabilization is expected to be $228 million with a stabilized yield of 7.8 percent and a margin of approximately 18 percent.
Private Capital Activity
During the quarter, Prologis raised $163 million in new third-party equity for the Prologis Targeted U.S. Logistics Fund and the Prologis Targeted Europe Logistics Fund. In addition, ProLogis European Properties’ (PEPR) unitholders approved the liquidation of the fund during its annual meeting held on June 27, 2012. Prologis currently owns 99.5 percent of the ordinary units and 98.6 percent of the preferred units of PEPR.
“We had a strong quarter of capital raising for our open-end funds from a diverse mix of new and existing investors,” said Guy F. Jaquier, chief executive officer, Prologis Private Capital. “This level of activity is demonstrative of the continued demand for high-quality industrial real estate around the globe. In Japan, we continue to move forward with our development fund and to evaluate the optimal structure for our operating assets. In Europe we are pleased to be winding up PEPR ahead of schedule and recapitalizing PEPR’s high-quality assets over the next several quarters.”
Prologis completed $1.2 billion of debt financings, re-financings and pay-downs, with approximately $989 million related to the REIT and $176 million on behalf of our property funds during the quarter.
Significant financing activity during the second quarter included the following:
- Repayment of $449 million of its 2.25 percent convertible notes and $59 million of senior unsecured notes at maturity in the second quarter, as previously announced;
- Financings of three TMK bonds of 25.4 billion yen (USD 332 million) with a weighted average term of 6.6 years and weighted average rate of 1.21 percent; and
- Subsequent to quarter end, Prologis closed two transactions for Prologis European Properties Fund II, a 40 million pounds sterling (USD 63 million) secured facility and a 145 million euro (USD 184 million) senior unsecured term loan.
“We continue to have access to capital markets at attractive rates globally, demonstrating the quality of our assets and strength of our global platform,” said Thomas S. Olinger, chief financial officer, Prologis. “Excluding the impact of fund rationalization activity, we have reduced our share of debt by $2.3 billion since the merger.”
Guidance for 2012
Prologis increased the low end of its full-year 2012 Core FFO guidance range to $1.64 to $1.70 per diluted share, up from $1.60 to $1.70 per diluted share. The company also expects to recognize net earnings, for GAAP purposes, of $0.22 to $0.28 per share. The difference between the company’s Core FFO and net earnings guidance for 2012 predominantly relates to real estate depreciation, recognized gains on real estate transactions and merger-related expenses.
The Core FFO and earnings guidance reflected above excludes any potential future gains (losses) recognized from real estate transactions. In reconciling from net earnings to Core FFO, Prologis makes certain adjustments, including but not limited to real estate depreciation and amortization expense, impairment charges, deferred taxes, and unrealized gains or losses on foreign currency or derivative activity, as well as transaction and merger costs.
Webcast and Conference Call Information
The company will host a webcast /conference call to discuss quarterly results, current market conditions and future outlook today, July 26, 2012, at 12:00 p.m. U.S. Eastern Time. Interested parties are encouraged to access the live webcast by clicking the microphone icon located near the top of the opening page of the Prologis Investor Relations website (http://ir.prologis.com). Interested parties also can participate via conference call by dialing 877-256-7020 from the United States and Canada or (+1) 973-409-9692 internationally with reservation code 93137132.
A telephonic replay will be available from July 27, 2012, through August 27, 2012, at 855-859-2056 (from the United States and Canada) or (+1) 404-537-3406 (from all other countries), with the reservation code 93137132. The webcast and podcast replay will be posted when available in the “Financial Information” section of the Prologis Investor Relations website.
Prologis, Inc., is the leading owner, operator and developer of industrial real estate, focused on global and regional markets across the Americas, Europe and Asia. As of June 30, 2012, Prologis owned or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects expected to total approximately 569 million square feet (52.9 million square meters) in 21 countries. The company leases modern distribution facilities to more than 4,500 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises.