UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 001-13545 (Prologis, Inc.) 001-14245 (Prologis, L.P.)
Prologis, Inc.
Prologis, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Prologis, Inc.)
Delaware (Prologis, L.P.)
94-3281941 (Prologis, Inc.)
94-3285362 (Prologis, L.P.)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Pier 1, Bay 1, San Francisco, California
94111
(Address or principal executive offices)
(Zip Code)
(415) 394-9000
(Registrants’ telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
PLD
New York Stock Exchange
3.000% Notes due 2026
PLD/26
2.250% Notes due 2029
PLD/29
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Prologis, Inc.:
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
Prologis, L.P.:
Large accelerated filer ☐
Non-accelerated filer ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
The number of shares of Prologis, Inc.’s common stock outstanding at July 24, 2023, was approximately 923,862,000.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2023, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the OP collectively.
The Parent is a real estate investment trust (a “REIT”) and the general partner of the OP. At June 30, 2023, the Parent owned a 97.61% common general partnership interest in the OP and substantially all of the preferred units in the OP. The remaining 2.39% common limited partnership interests are owned by unaffiliated investors and certain current and former directors and officers of the Parent.
We operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As sole general partner, the Parent has control of the OP through complete responsibility and discretion in the day-to-day management and therefore, consolidates the OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.
We believe combining the quarterly reports on Form 10-Q of the Parent and the OP into this single report results in the following benefits:
It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.
The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.
The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the OP and are presented as general partner’s capital within partners’ capital in the OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the OP’s consolidated financial statements.
To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of Prologis.
PROLOGIS
INDEX
Page
Number
PART I.
Financial Information
Item 1.
Financial Statements
1
Consolidated Balance Sheets – June 30, 2023 and December 31, 2022
Consolidated Statements of Income – Three and Six Months Ended June 30, 2023 and 2022
2
Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2023 and 2022
3
Consolidated Statements of Equity – Three and Six Months Ended June 30, 2023 and 2022
4
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2023 and 2022
5
6
7
8
Consolidated Statements of Capital – Three and Six Months Ended June 30, 2023 and 2022
9
10
Prologis, Inc. and Prologis, L.P.:
Notes to the Consolidated Financial Statements
11
Note 1. General
Note 2. Duke Transaction
Note 3. Real Estate
12
Note 4. Unconsolidated Entities
13
Note 5. Assets Held for Sale or Contribution
15
Note 6. Debt
Note 7. Noncontrolling Interests
17
Note 8. Long-Term Compensation
18
Note 9. Earnings Per Common Share or Unit
19
Note 10. Financial Instruments and Fair Value Measurements
20
Note 11. Business Segments
24
Note 12. Supplemental Cash Flow Information
26
Reports of Independent Registered Public Accounting Firm
27
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
49
Item 4.
Controls and Procedures
50
PART II.
Other Information
Legal Proceedings
51
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Item 6.
Exhibits
Index
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
PROLOGIS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
June 30, 2023
December 31, 2022
ASSETS
Investments in real estate properties
$
86,550,420
81,623,396
Less accumulated depreciation
9,977,207
9,036,085
Net investments in real estate properties
76,573,213
72,587,311
Investments in and advances to unconsolidated entities
9,931,261
9,698,898
Assets held for sale or contribution
616,571
531,257
Net investments in real estate
87,121,045
82,817,466
Cash and cash equivalents
531,110
278,483
Other assets
4,739,886
4,801,499
Total assets
92,392,041
87,897,448
LIABILITIES AND EQUITY
Liabilities:
Debt
28,129,473
23,875,961
Accounts payable and accrued expenses
1,582,205
1,711,885
Other liabilities
4,602,539
4,446,509
Total liabilities
34,314,217
30,034,355
Equity:
Prologis, Inc. stockholders’ equity:
Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,279 shares issued and outstanding and 100,000 preferred shares authorized at June 30, 2023 and December 31, 2022
63,948
Common stock; $0.01 par value; 923,861 shares and 923,142 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
9,239
9,231
Additional paid-in capital
54,115,592
54,065,407
Accumulated other comprehensive loss
(332,370
)
(443,609
Distributions in excess of net earnings
(390,779
(457,695
Total Prologis, Inc. stockholders’ equity
53,465,630
53,237,282
Noncontrolling interests
4,612,194
4,625,811
Total equity
58,077,824
57,863,093
Total liabilities and equity
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended
Six Months Ended
June 30,
2023
2022
Revenues:
Rental
1,651,454
1,093,452
3,285,224
2,170,313
Strategic capital
799,035
156,239
933,736
290,164
Development management and other
482
2,389
598
10,731
Total revenues
2,450,971
1,252,080
4,219,558
2,471,208
Expenses:
387,938
270,465
800,492
546,139
150,906
57,052
222,615
108,863
General and administrative
95,647
83,114
195,424
157,760
Depreciation and amortization
602,168
402,313
1,204,535
798,960
Other
12,160
11,621
19,344
21,210
Total expenses
1,248,819
824,565
2,442,410
1,632,932
Operating income before gains on real estate transactions, net
1,202,152
427,515
1,777,148
838,276
Gains on dispositions of development properties and land, net
184,877
105,802
316,008
Gains on other dispositions of investments in real estate, net
24,761
-
28,808
584,835
Operating income
1,411,790
533,317
1,990,833
1,739,119
Other income (expense):
Earnings from unconsolidated entities, net
70,642
79,594
146,421
156,556
Interest expense
(149,818
(60,293
(285,829
(124,357
Foreign currency and derivative gains and other income, net
26,104
144,382
34,718
192,791
Gains (losses) on early extinguishment of debt, net
(730
3,275
(18,895
Total other income (expense)
(53,072
162,953
(101,415
206,095
Earnings before income taxes
1,358,718
696,270
1,889,418
1,945,214
Income tax expense
(79,227
(49,834
(111,298
(79,056
Consolidated net earnings
1,279,491
646,436
1,778,120
1,866,158
Less net earnings attributable to noncontrolling interests
63,463
35,043
97,469
103,980
Net earnings attributable to controlling interests
1,216,028
611,393
1,680,651
1,762,178
Less preferred stock dividends
1,475
1,538
2,928
3,069
Net earnings attributable to common stockholders
1,214,553
609,855
1,677,723
1,759,109
Weighted average common shares outstanding – Basic
924,191
740,637
924,087
740,506
Weighted average common shares outstanding – Diluted
951,706
766,074
951,638
765,859
Net earnings per share attributable to common stockholders – Basic
1.31
0.82
1.82
2.38
Net earnings per share attributable to common stockholders – Diluted
1.81
2.36
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Other comprehensive income:
Foreign currency translation gains, net
166,049
332,517
137,948
522,040
Unrealized gains (losses) on derivative contracts, net
2,153
28,979
(23,700
42,328
Comprehensive income
1,447,693
1,007,932
1,892,368
2,430,526
Net earnings attributable to noncontrolling interests
(63,463
(35,043
(97,469
(103,980
Other comprehensive income attributable to noncontrolling interests
(4,148
(9,137
(3,009
(14,876
Comprehensive income attributable to common stockholders
1,380,082
963,752
1,791,890
2,311,670
CONSOLIDATED STATEMENTS OF EQUITY
Three Months Ended June 30, 2023 and 2022
Common Stock
Accumulated
Distributions
Additional
in Excess of
Non-
Preferred
of
Par
Paid-in
Comprehensive
Net
controlling
Total
Stock
Shares
Value
Capital
Income (Loss)
Earnings
Interests
Equity
Balance at April 1, 2023
923,453
9,235
54,058,036
(496,424
(799,577
4,630,011
57,465,229
Effect of equity compensation plans
36
21,687
32,410
54,097
Capital contributions
1,698
Redemption of noncontrolling interests
372
21,494
(45,698
(24,200
161,967
4,082
Unrealized gains on derivative contracts, net
2,087
66
Reallocation of equity
14,378
(14,378
Dividends ($0.87 per common share) and other distributions
(3
(807,230
(59,460
(866,693
Balance at June 30, 2023
923,861
Balance at April 1, 2022
740,189
7,402
35,546,263
(681,120
(764,425
4,290,134
38,462,202
16,900
24,452
41,353
10,649
135
6,272
(29,992
(23,719
324,163
8,354
28,196
783
4,505
(4,505
Dividends ($0.79 per common share) and other distributions
(587,732
(36,747
(624,479
Balance at June 30, 2022
740,360
7,404
35,573,940
(328,761
(740,764
4,298,171
38,873,938
Six Months Ended June 30, 2023 and 2022
Balance at January 1, 2023
923,142
324
35,155
83,826
118,985
395
22,798
(89,271
(66,469
134,372
3,576
Unrealized losses on derivative contracts, net
(23,133
(567
(7,765
7,765
Dividends ($1.74 per common share) and other distributions
(1,613,735
(118,113
(1,731,851
Balance at January 1, 2022
739,827
7,398
35,561,608
(878,253
(1,327,828
4,315,337
37,742,210
326
21,117
60,399
81,520
11,083
207
9,572
(59,562
(49,988
508,315
13,725
41,177
1,151
(18,347
18,347
Dividends ($1.58 per common share) and other distributions
(10
(1,175,114
(166,289
(1,341,413
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases
(292,799
(72,666
Equity-based compensation awards
152,774
78,352
(146,421
(156,556
Operating distributions from unconsolidated entities
235,656
192,210
Increase in operating receivables from unconsolidated entities
(625,211
(34,951
Amortization of debt discounts and debt issuance costs, net
35,755
4,275
(184,877
(316,008
(28,808
(584,835
Unrealized foreign currency and derivative losses (gains), net
12,023
(154,965
Losses (gains) on early extinguishment of debt, net
(3,275
18,895
Deferred income tax expense
5,295
17,557
Decrease in other assets
122,475
99,859
Increase (decrease) in accounts payable and accrued expenses and other liabilities
64,193
(110,808
Net cash provided by operating activities
2,329,435
1,645,477
Investing activities:
Real estate development
(1,711,632
(1,462,010
Real estate acquisitions
(3,449,083
(1,869,426
Duke Transaction, net of cash acquired
(22,132
Tenant improvements and lease commissions on previously leased space
(168,054
(175,480
Property improvements
(73,800
(55,816
Proceeds from dispositions and contributions of real estate
774,625
1,653,597
(172,843
(112,848
Return of investment from unconsolidated entities
288,501
37,252
Proceeds from the settlement of net investment hedges
21,231
26,487
Payments on the settlement of net investment hedges
(771
Net cash used in investing activities
(4,513,187
(1,959,015
Financing activities:
Dividends paid on common and preferred stock
Noncontrolling interests contributions
Noncontrolling interests distributions
Settlement of noncontrolling interests
Tax paid with shares withheld
(18,477
(23,970
Debt and equity issuance costs paid
(51,619
(28,119
Net proceeds from (payments on) credit facilities
(917,985
127,454
Repurchase of and payments on debt
(268,576
(751,114
Proceeds from the issuance of debt
5,505,222
2,285,021
Net cash provided by financing activities
2,451,946
228,964
Effect of foreign currency exchange rate changes on cash
(15,567
(34,028
Net increase (decrease) in cash and cash equivalents
252,627
(118,602
Cash and cash equivalents, beginning of period
556,117
Cash and cash equivalents, end of period
437,515
See Note 12 for information on noncash investing and financing activities and other information.
PROLOGIS, L.P.
LIABILITIES AND CAPITAL
Capital:
Partners’ capital:
General partner – preferred
General partner – common
53,401,682
53,173,334
Limited partners – common
840,369
843,263
Limited partners – Class A common
469,424
464,781
Total partners’ capital
54,775,423
54,545,326
3,302,401
3,317,767
Total capital
Total liabilities and capital
(In thousands, except per unit amounts)
32,863
17,612
55,220
54,278
1,246,628
628,824
1,722,900
1,811,880
Less preferred unit distributions
Net earnings attributable to common unitholders
1,245,153
627,286
1,719,972
1,808,811
Weighted average common units outstanding – Basic
939,250
753,610
939,276
753,420
Weighted average common units outstanding – Diluted
Net earnings per unit attributable to common unitholders – Basic
Net earnings per unit attributable to common unitholders – Diluted
(32,863
(17,612
(55,220
(54,278
Other comprehensive loss (income) attributable to noncontrolling interests
(93
640
(280
485
Comprehensive income attributable to common unitholders
1,414,737
990,960
1,836,868
2,376,733
CONSOLIDATED STATEMENTS OF CAPITAL
General Partner
Limited Partners
Common
Class A Common
Units
Amount
1,279
52,771,270
15,097
862,734
8,595
462,634
3,304,643
19,971
10,629
Redemption of limited partners units
21,498
(559
2,566
1,423
93
48
Reallocation of capital
(14,656
278
Distributions ($0.87 per common unit) and other
(807,233
(17,006
(5,558
(36,896
14,538
34,108,120
12,949
596,682
369,402
3,324,050
10,823
6,608
16,901
6,273
(288
Foreign currency translation gains (losses), net
5,472
3,522
(640
477
306
(4,752
247
Distributions ($0.79 per common unit) and other
(12,938
(5,559
(18,250
34,511,819
12,662
590,224
374,526
3,333,421
14,640
27,575
14,674
35,159
843
22,802
(945
2,115
1,181
280
(364
(203
7,657
108
Distributions ($1.74 per common unit) and other
(1,613,738
(34,432
(11,117
(72,564
33,362,925
12,354
557,097
360,702
3,397,538
30,679
19,023
21,121
838
9,574
(530
8,694
5,516
(485
704
447
18,392
(45
Distributions ($1.58 per common unit) and other
(1,175,124
(26,179
(128,993
Distributions paid on common and preferred units
(1,659,284
(1,212,410
Redemption of common limited partnership units
Tax paid with shares of the Parent withheld
PROLOGIS, INC. AND PROLOGIS, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
Business. Prologis, Inc. (or the “Parent”) commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or “IRC”), and believes the current organization and method of operation will enable it to maintain its status as a REIT. The Parent is the general partner of Prologis, L.P. (or the “Operating Partnership” or “OP”). Through the OP, we are engaged in the ownership, acquisition, development and management of logistics facilities with a focus on key markets in 19 countries on four continents. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity. Our current business strategy consists of two operating business segments: Real Estate (Rental Operations and Development) and Strategic Capital. Our Real Estate Segment represents the ownership, leasing and development of logistics properties. Our Strategic Capital Segment represents the management of properties owned by our unconsolidated co-investment ventures and other ventures. See Note 11 for further discussion of our business segments. Unless otherwise indicated, the Notes to the Consolidated Financial Statements apply to both the Parent and the OP. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and OP collectively.
For each share of preferred or common stock the Parent issues, the OP issues a corresponding preferred or common partnership unit, as applicable, to the Parent in exchange for the contribution of the proceeds from the stock issuance. At June 30, 2023, the Parent owned a 97.61% common general partnership interest in the OP and substantially all of the preferred units in the OP. The remaining 2.39% common limited partnership interests, which include Class A common limited partnership units (“Class A Units”) in the OP, are owned by unaffiliated investors and certain current and former directors and officers of the Parent. Each partner’s percentage interest in the OP is determined based on the number of OP units held, including the number of OP units into which Class A Units are convertible, compared to total OP units outstanding at each period end and is used as the basis for the allocation of net income or loss to each partner. At the end of each reporting period, a capital adjustment is made in the OP to reflect the appropriate ownership interest for each of the common unitholders. These adjustments are reflected in the line items Reallocation of Equity in the Consolidated Statements of Equity of the Parent and Reallocation of Capital in the Consolidated Statements of Capital of the OP.
As the sole general partner of the OP, the Parent has complete responsibility and discretion in the day-to-day management and control of the OP and we operate the Parent and the OP as one enterprise. The management of the Parent consists of the same members as the management of the OP. These members are officers of the Parent and employees of the OP or one of its subsidiaries. As general partner with control of the OP, the Parent is the primary beneficiary and therefore consolidates the OP. Because the Parent’s only significant asset is its investment in the OP, the assets and liabilities of the Parent and the OP are the same on their respective financial statements.
Basis of Presentation. The accompanying Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are presented in our reporting currency, the U.S. dollar. Intercompany transactions with consolidated entities have been eliminated.
The accompanying unaudited interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes that the disclosures presented in these financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for both the Parent and the OP for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited interim financial information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, and other public information.
NOTE 2. DUKE TRANSACTION
On October 3, 2022, we acquired Duke Realty Corporation and Duke Realty Limited Partnership (collectively “Duke” or the “Duke Transaction”). Through the Duke Transaction, we acquired a portfolio primarily comprised of logistics real estate assets, including 494 industrial operating properties, aggregating 144.4 million square feet, which are highly complementary to our U.S. portfolio in terms of product quality, location and growth potential in our key markets. There was approximately 15 million square feet of non-strategic industrial operating properties acquired in the Duke Transaction for which our intent is not to operate these properties long term. These assets are classified as other real estate investments within Investments in Real Estate Properties in the Consolidated Balance Sheets. The portfolio also included properties under development, land for future development and investments in other ventures.
The Duke Transaction was completed for $23.2 billion through the issuance of equity based on the value of the Prologis common stock and units issued of $18.8 billion, the assumption of debt of $4.2 billion and transaction costs. In connection with the transaction, each issued and outstanding share or unit held by a Duke shareholder or unitholder was converted automatically into 0.475 shares of Prologis common stock or common units of Prologis, L.P., respectively, including shares and units under Duke’s equity incentive plan that became fully vested at closing.
The aggregate equity consideration is calculated below (in millions, except price per share):
Number of Prologis shares and units issued upon conversion of Duke's shares and units at October 3, 2022
184.80
Multiplied by price of Prologis' common stock on September 30, 2022
101.60
Fair value of Prologis shares and units issued
18,776
We accounted for the Duke Transaction as an asset acquisition and as a result, the transaction costs of $239.8 million were capitalized to the basis of the acquired properties. Transaction costs included the direct costs incurred to acquire the real estate assets.
Under acquisition accounting, the total cost or total consideration exchanged is allocated to the real estate properties and related lease intangibles on a relative fair value basis. As the fair value of the properties acquired exceeded the purchase price, we allocated the bargain consideration at a property-level based on the relative fair value of the property in comparison to the total portfolio. All other assets acquired and liabilities assumed, including debt, and real estate assets that we intend to sell in the next twelve months were recorded at fair value. The total purchase price, including transaction costs, was allocated as follows (in millions):
24,915
Cash and other assets
441
(4,162
Intangible liabilities, net of intangible assets (1)
(1,457
Accounts payable, accrued expenses and other liabilities
(719
(2
Total purchase price, including transaction costs
19,016
NOTE 3. REAL ESTATE
Investments in real estate properties consisted of the following (dollars and square feet in thousands):
Square Feet
Number of Buildings
Jun 30,
Dec 31,
Operating properties:
Buildings and improvements
619,526
597,362
2,926
2,825
51,200,167
48,650,334
Improved land
22,343,052
20,388,461
Development portfolio, including land costs:
Prestabilized
12,050
4,874
33
1,460,258
597,553
Properties under development
27,603
44,011
82
121
2,759,500
3,614,601
Land (1)
3,620,821
3,338,121
Other real estate investments (2)
5,166,622
5,034,326
Total investments in real estate properties
Acquisitions
The following table summarizes our real estate acquisition activity (dollars and square feet in thousands):
Three Months EndedJune 30,
Six Months EndedJune 30,
2023 (1)
Number of operating properties
76
Square feet
14,941
1,491
1,794
Acres of land
118
628
238
1,206
Acquisition cost of net investments in real estate, excluding other real estate investments
3,470,086
983,741
3,510,560
1,248,226
Acquisition cost of other real estate investments
34,096
379,803
40,281
603,214
Dispositions
The following table summarizes our dispositions of net investments in real estate that include contributions to unconsolidated co-investment ventures and dispositions to third parties (dollars and square feet in thousands):
Dispositions of development properties and land, net (1)
Number of properties
2,122
1,180
3,763
Net proceeds
465,957
235,194
677,749
Other dispositions of investments in real estate, net (2)
102
360
8,676
314,565
371,573
1,264,280
Leases
We recognized lease right-of-use assets of $726.1 million and $735.4 million within Other Assets and lease liabilities of $637.3 million and $638.8 million within Other Liabilities, for land and office space leases in which we are the lessee, on the Consolidated Balance Sheets at June 30, 2023 and December 31, 2022, respectively.
NOTE 4. UNCONSOLIDATED ENTITIES
Summary of Investments
We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with partners and investors and we provide asset management and property management services to these entities, which we refer to as co-investment ventures. These entities may be consolidated or unconsolidated depending on the structure, our partner’s participation and other rights and our level of control of the entity. This note details our investments in unconsolidated co-investment ventures, which are related parties and accounted for using the equity method of accounting. See Note 7 for more detail regarding our consolidated investments that are not wholly owned.
We also have investments in other ventures, generally with one partner, which we account for using the equity method. We refer to our investments in both unconsolidated co-investment ventures and other ventures, collectively, as unconsolidated entities.
The following table summarizes our investments in and advances to unconsolidated entities (in thousands):
December 31,
Unconsolidated co-investment ventures
8,795,399
8,073,927
Other ventures (1)
1,135,862
1,624,971
Unconsolidated Co-Investment Ventures
The following table summarizes the Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to our unconsolidated co-investment ventures (in thousands):
Recurring fees
113,338
115,806
226,895
229,043
Transactional fees
13,522
17,519
28,602
34,748
Promote revenue (1)
669,352
19,514
669,672
Total strategic capital revenues from unconsolidated co-investment ventures (2)
796,212
152,839
925,169
283,305
The following table summarizes the key property information, financial position and operating information of our unconsolidated co-investment ventures on a U.S. GAAP basis (not our proportionate share) and the amounts we recognized in the Consolidated Financial Statements related to these ventures (dollars and square feet in millions):
U.S.
Other Americas (1)
Europe
Asia (2)
At:
Jun 30,2023
Dec 31, 2022
Key property information:
Ventures
Operating properties
739
264
260
994
989
223
217
2,220
2,205
123
61
60
220
219
92
89
496
491
Financial position:
Total assets ($)
12,804
12,617
4,190
3,744
22,958
22,502
9,729
9,964
49,681
48,827
Third-party debt ($)
3,718
3,468
918
919
5,587
5,315
3,836
3,811
14,059
13,513
Total liabilities ($)
5,075
4,143
1,056
1,011
7,602
7,292
4,244
4,279
17,977
16,725
Our investment balance ($) (3)
2,990
2,398
1,145
1,070
3,868
3,786
792
820
8,795
8,074
Our weighted average ownership (4)
26.2
%
39.1
41.0
31.3
31.0
15.2
27.5
27.4
Asia
Operating Information:
Jun 30, 2022
For the three months ended:
Total revenues ($)
329
291
96
412
354
162
157
1,005
898
Net earnings ($)
75
68
47
31
91
127
32
214
258
Our earnings from unconsolidated co-investment ventures, net ($)
30
39
73
For the six months ended:
653
577
205
185
826
710
327
2,011
1,798
176
140
90
64
160
231
28
454
501
38
22
70
134
141
14
Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures
At June 30, 2023, our outstanding equity commitments were $399.7 million, principally for Prologis China Logistics Venture and PJLF. The equity commitments expire from 2023 to 2033 if they have not been previously called. Typically, equity commitments are used for future development and acquisitions in the unconsolidated co-investment ventures.
NOTE 5. ASSETS HELD FOR SALE OR CONTRIBUTION
We had investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at June 30, 2023 and December 31, 2022. At the time of classification, these properties were expected to be sold to third parties or were recently stabilized and expected to be contributed to unconsolidated co-investment ventures within twelve months. The amounts included in Assets Held for Sale or Contribution represented real estate investment balances and the related assets and liabilities.
Assets held for sale or contribution consisted of the following (dollars and square feet in thousands):
21
5,619
4,061
Total assets held for sale or contribution
Total liabilities associated with assets held for sale or contribution – included in Other Liabilities
15,060
4,536
NOTE 6. DEBT
All debt is incurred by the OP or its consolidated subsidiaries. The following table summarizes our debt (dollars in thousands):
Weighted Average
Interest Rate (1)
Years (2)
Outstanding (3)
Credit facilities
5.4%
3.0
629,512
4.2%
2.8
1,538,461
Senior notes
2.9%
10.7
25,073,147
2.3%
10.3
19,786,253
Term loans and unsecured other
2.6%
4.4
2,058,732
4.9
2,106,592
Secured mortgage
3.7%
4.0
368,082
3.0%
4.3
444,655
10.0
2.5%
9.2
Weighted Average Interest Rate
Amount Outstanding
% of Total
British pound sterling
2.1
1,293,757
4.6
1,228,483
5.1
Canadian dollar
830,034
2.9
4.5
814,491
3.4
Euro
2.0
9,891,790
35.2
1.3
7,991,301
33.5
Japanese yen
1.0
3,034,906
10.8
3,308,009
13.9
U.S. dollar
13,078,986
46.5
3.6
10,533,677
44.1
100.0
2.5
Credit Facilities
The following table summarizes information about our available liquidity at June 30, 2023 (in millions):
Aggregate lender commitments
6,500
Less:
Borrowings outstanding
630
Outstanding letters of credit
37
Current availability
5,833
531
Total liquidity
6,364
We have a global senior credit facility (the “2022 Global Facility”) with a borrowing capacity of $3.0 billion (subject to currency fluctuations). On April 5, 2023, we amended and restated our other global senior credit facility (the “2021 Global Facility”) as the 2023 Global Facility and upsized its borrowing capacity to $3.0 billion (subject to currency fluctuations). We may draw on both facilities in British pounds sterling, Canadian dollars, euro, Japanese yen, Mexican pesos and U.S. dollars on a revolving basis. The 2022 Global Facility is scheduled to initially mature in June 2026 and the 2023 Global Facility in June 2027; however, we can extend the maturity date for each facility by six months on two occasions, subject to the payment of extension fees. We also have the ability to increase each credit facility to $4.0 billion, subject to currency fluctuations and obtaining additional lender commitments.
We also have a Japanese yen revolver (the “Yen Credit Facility”) with total commitments of ¥55.0 billion ($380.3 million at June 30, 2023). We have the ability to increase the borrowing capacity of the Yen Credit Facility to ¥75.0 billion ($518.5 million at June 30, 2023), subject to obtaining additional lender commitments. The Yen Credit Facility is initially scheduled to mature in July 2024; however, we may extend the maturity date for one year, subject to the payment of extension fees.
We refer to the 2022 Global Facility, the 2023 Global Facility and the Yen Credit Facility, collectively, as our “Credit Facilities.” Pricing for the Credit Facilities, including the spread over the applicable benchmark and the rates applicable to facility fees and letter of credit fees, varies based on the public debt ratings of the OP.
Senior Notes
The following table summarizes the issuances of senior notes during the six months ended June 30, 2023 (principal in thousands):
Aggregate Principal
Issuance Date Weighted Average
Issuance Date
Borrowing Currency
USD (1)
Interest Rate
Years
Maturity Dates
January
€
1,250,000
1,354,125
4.1%
13.8
January 2030 – 2043
March
1,200,000
4.9%
17.7
June 2033 – 2053
May
750,000
808,425
4.6%
May 2033
June
2,000,000
5.1%
13.2
June 2028 – 2053
5,362,550
4.7%
16
Long-Term Debt Maturities
Scheduled principal payments due on our debt for the remainder of 2023 and for each year through the period ended December 31, 2027, and thereafter were as follows at June 30, 2023 (in thousands):
Unsecured
Credit
Senior
Term Loans
Secured
Maturity
Facilities
Notes
and Other
Mortgage
3,409
2024 (1) (2)
17,285
325,980
97,254
440,519
2025 (3)
34,570
727,097
163,012
924,679
2026 (2)
563,330
1,308,468
587,746
3,980
2,463,524
2027 (2)
48,897
1,727,445
49,477
4,156
1,829,975
Thereafter
22,283,329
697,784
89,135
23,070,248
Subtotal
25,679,792
2,062,104
360,946
28,732,354
Unamortized premiums (discounts), net
(492,085
828
8,335
(482,922
Unamortized debt issuance costs, net
(114,560
(4,200
(1,199
(119,959
Financial Debt Covenants
Our senior notes, term loans and Credit Facilities outstanding at June 30, 2023 were subject to certain financial covenants under their related documents. At June 30, 2023, we were in compliance with all of our financial debt covenants.
Guarantee of Finance Subsidiary Debt
We have finance subsidiaries as part of our operations in Europe (Prologis Euro Finance LLC), Japan (Prologis Yen Finance LLC) and the U.K. (Prologis Sterling Finance LLC) in order to mitigate our foreign currency risk by borrowing in the currencies in which we invest. These entities are 100% indirectly owned by the OP and all unsecured debt issued or to be issued by each entity is or will be fully and unconditionally guaranteed by the OP. There are no restrictions or limits on the OP’s ability to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 13-01 of Regulation S-X, the separate financial statements of Prologis Euro Finance LLC, Prologis Yen Finance LLC and Prologis Sterling Finance LLC are not provided.
NOTE 7. NONCONTROLLING INTERESTS
We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option, shares of the Parent’s common stock, generally at a rate of one share of common stock to one limited partnership unit. We also consolidate certain entities in which we do not own 100% of the equity but the equity of these entities is not exchangeable into our common stock.
The noncontrolling interests of the Parent include the noncontrolling interests described above for the OP, as well as the limited partnership units in the OP that are not owned by the Parent. The outstanding limited partnership units receive quarterly cash distributions equal to the quarterly dividends paid on our common stock pursuant to the terms of the applicable partnership agreements.
The following table summarizes these entities (dollars in thousands):
Our Ownership Percentage
Noncontrolling Interests
Total Assets
Total Liabilities
Dec 31,2022
Prologis U.S. Logistics Venture
55.0
3,156,855
3,182,858
7,158,428
7,225,438
151,335
158,453
Other consolidated entities (1)
various
145,546
134,909
1,865,798
1,737,311
255,965
259,524
9,024,226
8,962,749
407,300
417,977
Limited partners in Prologis, L.P. (2)(3)
1,309,793
1,308,044
NOTE 8. LONG-TERM COMPENSATION
Equity-Based Compensation Plans and Programs
Prologis Outperformance Plan (“POP”)
We have allocated participation points or a percentage of the compensation pool to participants under our POP corresponding to three-year performance periods beginning every January 1. The fair value of the awards is measured at the grant date and amortized over the period from the grant date to the date at which the awards vest, which ranges from three to ten years. The performance hurdle (“Outperformance Hurdle”) at the end of the initial three-year performance period requires our three-year compound annualized total stockholder return (“TSR”) to exceed a threshold set at the three-year compound annualized TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points. If the Outperformance Hurdle is met, a compensation pool will be formed equal to 3% of the excess value created, subject to a maximum as defined by each performance period. POP awards cannot be paid at a time when we meet the outperformance hurdle yet our absolute TSR is negative. If after seven years our absolute TSR has not been positive, the awards will be forfeited.
We granted participation points for the 2023 – 2025 performance period in January 2023, with a fair value of $28.3 million using a Monte Carlo valuation model that assumed a risk-free interest rate of 4.2% and an expected volatility of 35.0% for Prologis and 31.0% for the MSCI US REIT Index. The 2023 – 2025 performance period has an absolute maximum cap of $100.0 million. If an award is earned at the end of the initial three-year performance period, then 20% of the POP award is paid at the end of the initial performance period and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the initial three-year performance period is subject to an additional three-year holding requirement. Awards are in the form of common stock, restricted stock units, POP LTIP Units and LTIP Units.
The Outperformance Hurdle was met for the 2020 – 2022 performance period, which resulted in awards of $100.0 million being earned at December 31, 2022 and awarded in January 2023. Additionally, awards of $22.4 million were earned at December 31, 2022 and awarded in January 2023 for prior performance periods related to the compensation pool in excess of the initial award based on the terms of the POP awards granted prior to 2018. The tables below include POP awards that were earned but are unvested, while any vested awards are reflected within the Consolidated Statements of Equity and Capital. The initial grant date fair value derived using a Monte Carlo valuation model was used in determining the grant date fair value per unit in the tables below.
Other Equity-Based Compensation Plans and Programs
Our other equity-based compensation plans and programs include (i) the Prologis Promote Plan (“PPP”); (ii) the annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iii) the annual bonus exchange program. Awards under these plans and programs may be issued in the form of restricted stock units (“RSUs”) or LTIP Units at the participant’s election. RSUs and LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and the grant date value is charged to compensation expense over the service period.
Summary of Award Activity
RSUs
The following table summarizes the activity for RSUs for the six months ended June 30, 2023 (units in thousands):
Unvested RSUs
Grant Date Fair Value
1,533
100.59
Granted
808
97.86
Vested and distributed
(372
117.38
Forfeited
(31
108.84
1,938
96.10
LTIP Units
The following table summarizes the activity for LTIP Units for the six months ended June 30, 2023 (units in thousands):
Unvested
4,214
73.31
1,355
81.06
Vested LTIP Units
(688
106.00
4,881
70.86
NOTE 9. EARNINGS PER COMMON SHARE OR UNIT
We determine basic earnings per share or unit based on the weighted average number of shares of common stock or units outstanding during the period. We compute diluted earnings per share or unit based on the weighted average number of shares or units outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.
The computation of our basic and diluted earnings per share and unit was as follows (in thousands, except per share and unit amounts):
Net earnings attributable to common stockholders – Basic
Net earnings attributable to exchangeable limited partnership units (1)
30,700
17,518
42,443
49,856
Adjusted net earnings attributable to common stockholders – Diluted
1,245,253
627,373
1,720,166
1,808,965
Incremental weighted average effect on exchange of limited partnership units (1)
23,453
21,289
23,570
21,221
Incremental weighted average effect of equity awards
4,062
4,148
3,981
4,132
Weighted average common shares outstanding – Diluted (2)
Net earnings per share attributable to common stockholders:
Basic
Diluted
Net earnings attributable to Class A Units
(10,629
(6,608
(14,674
(19,023
Net earnings attributable to common unitholders – Basic
1,234,524
620,678
1,705,298
1,789,788
Net earnings attributable to exchangeable other limited partnership units
100
87
194
154
Adjusted net earnings attributable to common unitholders – Diluted
Weighted average common partnership units outstanding – Basic
Incremental weighted average effect on exchange of Class A Units
8,095
8,017
8,082
8,008
Incremental weighted average effect on exchange of other limited partnership units
299
Incremental weighted average effect of equity awards of Prologis, Inc.
Weighted average common units outstanding – Diluted (2)
Net earnings per unit attributable to common unitholders:
Class A Units
Other limited partnership units
Equity awards
7,360
6,353
7,486
6,219
15,754
14,669
15,867
14,526
Common limited partnership units
15,058
12,973
15,188
12,914
30,812
27,642
31,055
27,440
NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Derivative Financial Instruments
In the normal course of business, our operations are exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates. We may enter into derivative financial instruments to offset these underlying market risks. There have been no significant changes in our policy and strategy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
The following table presents the fair value of our derivative financial instruments recognized within Other Assets and Other Liabilities on the Consolidated Balance Sheets (in thousands):
Asset
Liability
Undesignated derivatives
Foreign currency contracts
Forwards
Brazilian real
940
35
494
15,227
2,329
29,187
648
5,092
699
12,074
Chinese renminbi
1,949
41
657
364
32,710
3,415
51,317
2,801
49,415
196
34,022
2,344
Swedish krona
6,699
6,292
Designated derivatives
Net investment hedges
5,501
7,206
23,534
2,339
2,608
24,552
5,118
Interest rate swaps
Cash flow hedges
2,929
44,982
584
Total fair value of derivatives
126,979
17,434
227,236
6,682
Undesignated Derivative Financial Instruments
Foreign Currency Contracts
The following table summarizes the activity of our undesignated foreign currency contracts for the six months ended June 30 (in millions, except for weighted average forward rates and number of active contracts):
CAD
EUR
GBP
JPY
Notional amounts at January 1 ($)
283
601
349
331
81
1,645
175
749
383
250
105
1,662
New contracts ($)
124
239
604
161
113
1,020
Matured, expired or settled contracts ($)
(63
(186
(48
(16
(358
(34
(230
(50
(19
(317
Notional amounts at June 30 ($)
226
456
425
313
106
1,526
202
1,123
560
167
2,365
Weighted average forward rate at June 30
1.29
1.17
110.35
1.27
1.11
106.59
Active contracts at June 30
83
88
85
107
97
The following table summarizes the undesignated derivative financial instruments exercised and outstanding recognized in realized and unrealized gains (losses), respectively, in Foreign Currency and Derivative Gains and Other Income, Net in the Consolidated Statements of Income (in millions, except for number of exercised contracts):
Exercised contracts
69
Realized gains on the matured, expired or settled contracts
Unrealized gains (losses) on the change in fair value of outstanding contracts
(6
(20
103
Designated Derivative Financial Instruments
Changes in the fair value of derivatives that are designated as net investment hedges of our foreign operations and cash flow hedges are recorded in Accumulated Other Comprehensive Income (Loss) (“AOCI/L”) and reflected within the Other Comprehensive Income table below.
The following table summarizes the activity of our foreign currency contracts designated as net investment hedges for the six months ended June 30 (in millions, except for weighted average forward rates and number of active contracts):
CNH
BRL
534
440
974
535
432
967
288
125
513
44
488
317
849
(301
(132
(433
(44
(419
(200
(663
521
433
1,054
549
1,153
1.32
6.72
1.26
1.28
Interest Rate Swaps
The following table summarizes the activity of our interest rate swaps designated as cash flow hedges for the six months ended June 30 (in millions):
USD
150
597
165
1,750
2,334
1,004
(859
(1,900
(2,759
(722
172
Designated Nonderivative Financial Instruments
The following table summarizes our debt and accrued interest, designated as a hedge of our net investment in international subsidiaries at the quarter ended (in millions):
1,282
1,237
370
The following table summarizes the unrealized gains (losses) in Foreign Currency and Derivative Gains and Other Income, Net on the remeasurement of the unhedged portion of our euro denominated debt and accrued interest (in millions):
Unrealized gains (losses) on the unhedged portion
34
Other Comprehensive Income
The change in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income during the periods presented was due to the translation into U.S. dollars from the consolidation of the financial statements of our consolidated subsidiaries whose functional currency is not the U.S. dollar. The change in fair value of the effective portion of our derivative financial instruments that have been designated as net investment hedges and cash flow hedges and the translation of the hedged portion of our debt, as discussed above, are also included in Other Comprehensive Income.
The following table presents these changes in Other Comprehensive Income (in thousands):
Derivative net investment hedges (1)
(14,670
56,364
(22,833
60,457
Debt designated as nonderivative net investment hedges
(38,887
107,872
(80,386
141,469
Cumulative translation adjustment
219,606
168,281
241,167
320,114
Total foreign currency translation gains, net
Cash flow hedges (1) (2)
3,299
24,524
(16,028
28,946
Our share of derivatives from unconsolidated co-investment ventures
(1,146
4,455
(7,672
13,382
Total unrealized gains (losses) on derivative contracts, net
Total change in other comprehensive income
168,202
361,496
114,248
564,368
Fair Value Measurements
There have been no significant changes in our policy from what was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Fair Value Measurements on a Recurring Basis
At June 30, 2023 and December 31, 2022, other than the derivatives discussed previously, we had no significant financial assets or financial liabilities that were measured at fair value on a recurring basis in the Consolidated Financial Statements. All of our derivatives held at June 30, 2023 and December 31, 2022, were classified as Level 2 of the fair value hierarchy.
Fair Value Measurements on Nonrecurring Basis
Acquired properties and assets we expect to sell or contribute are significant nonfinancial assets that met the criteria to be measured at fair value on a nonrecurring basis. At June 30, 2023 and December 31, 2022, we estimated the fair value of our properties using Level 2 or Level 3 inputs from the fair value hierarchy. See more information on our acquired properties in Note 3 and assets held for sale or contribution in Note 5.
Fair Value of Financial Instruments
At June 30, 2023 and December 31, 2022, the carrying amounts of certain financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses were representative of their fair values.
The differences in the fair value of our debt from the carrying value in the table below were the result of differences in interest rates or borrowing spreads that were available to us at June 30, 2023 and December 31, 2022, as compared with those in effect when the debt was issued or assumed, including reduced borrowing spreads due to our improved credit ratings. The senior notes and many of the issuances of secured mortgage debt contain prepayment penalties or yield maintenance provisions that could make the cost of refinancing the debt at lower rates exceed the benefit that would be derived from doing so. We evaluate this on an on-going basis and take the opportunity to refinance our debt at lower rates and longer maturities based on market conditions and other factors. See Note 6 for more information on our debt activity.
The following table reflects the carrying amounts and estimated fair values of our debt (in thousands):
Carrying Value
Fair Value
629,527
21,860,652
16,604,241
2,040,084
2,092,264
341,664
420,964
24,871,927
20,655,930
23
NOTE 11. BUSINESS SEGMENTS
Our current business strategy includes two operating segments: Real Estate (Rental Operations and Development) and Strategic Capital. We generate revenues, earnings, net operating income and cash flows through our segments, as follows:
Below we present: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to Total Assets. Our chief operating decision makers rely principally on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of Total Revenues, Operating Income, Earnings Before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain corporate income and expenses, are not allocated but reflected as non-segment items.
The following reportable business segment revenues, net operating income and assets are presented in thousands:
Real estate segment:
1,586,285
1,046,347
3,160,852
2,085,338
Other Americas
26,562
23,171
52,134
45,362
21,111
11,700
40,267
23,708
17,978
14,623
32,569
26,636
Total real estate segment
1,651,936
1,095,841
3,285,822
2,181,044
Strategic capital segment:
679,449
50,866
733,145
101,501
45,890
32,812
60,085
44,465
46,277
49,116
89,810
95,312
27,419
23,445
50,696
48,886
Total strategic capital segment
Segment net operating income: (1)
U.S. (2)
1,204,741
784,706
2,376,724
1,555,916
20,067
16,835
39,245
32,942
15,048
1,864
29,258
5,834
11,982
10,350
20,759
19,003
1,251,838
813,755
2,465,986
1,613,695
594,933
22,308
616,500
49,985
37,873
28,873
46,815
36,247
3,497
34,159
26,101
66,622
11,826
13,847
21,705
28,447
648,129
99,187
711,121
181,301
Non-segment items:
General and administrative expenses
(95,647
(83,114
(195,424
(157,760
Depreciation and amortization expenses
(602,168
(402,313
(1,204,535
(798,960
25
Segment assets:
75,590,664
71,858,560
1,896,447
1,831,956
2,547,068
1,952,160
658,530
1,031,135
80,692,709
76,673,811
Strategic capital segment: (3)
10,499
10,817
25,280
35,981
36,328
Total segment assets
80,728,690
76,710,139
584,409
678,671
Total non-segment items
11,663,351
11,187,309
NOTE 12. SUPPLEMENTAL CASH FLOW INFORMATION
Our significant noncash investing and financing activities for the six months ended June 30, 2023 and 2022 included the following:
We paid $244.8 million and $142.2 million for interest, net of amounts capitalized, during the six months ended June 30, 2023 and 2022, respectively.
We paid $81.5 million and $68.4 million for income taxes, net of refunds, during the six months ended June 30, 2023 and 2022, respectively.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Results of Review of Interim Financial Information
We have reviewed the consolidated balance sheet of Prologis, Inc. and subsidiaries (the Company) as of June 30, 2023, the related consolidated statements of income, comprehensive income, equity, and cash flows for the three-month and six-month periods ended June 30, 2023 and 2022, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ KPMG LLP
Denver, ColoradoJuly 26, 2023
To the Partners of Prologis, L.P. and the Board of Directors of Prologis, Inc.:
We have reviewed the consolidated balance sheet of Prologis, L.P. and subsidiaries (the Operating Partnership) as of June 30, 2023, the related consolidated statements of income, comprehensive income, capital, and cash flows for the three-month and six-month periods ended June 30, 2023 and 2022, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Operating Partnership as of December 31, 2022, and the related consolidated statements of income, comprehensive income, capital, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
This consolidated interim financial information is the responsibility of the Operating Partnership’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of this report and our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”).
The statements in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate as well as management’s beliefs and assumptions. Such statements involve uncertainties that could significantly impact our financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” and “estimates” including variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to rent and occupancy growth, acquisition and development activity, contribution and disposition activity, general conditions in the geographic areas where we operate, our debt, capital structure and financial position, our ability to earn revenues from co-investment ventures, form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and therefore actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) international, national, regional and local economic and political climates and conditions; (ii) changes in global financial markets, interest rates and foreign currency exchange rates; (iii) increased or unanticipated competition for our properties; (iv) risks associated with acquisitions, dispositions and development of properties, including the integration of the operations of significant real estate portfolios; (v) maintenance of Real Estate Investment Trust (“REIT”) status, tax structuring and changes in income tax laws and rates; (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, including our ability to establish new co-investment ventures; (viii) risks of doing business internationally, including currency risks; (ix) environmental uncertainties, including risks of natural disasters; (x) risks related to global pandemics; and (xi) those additional factors discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no duty to update any forward-looking statements appearing in this report except as may be required by law.
Prologis, Inc. is a self-administered and self-managed REIT and is the sole general partner of Prologis, L.P. through which it holds substantially all of its assets. We operate Prologis, Inc. and Prologis, L.P. as one enterprise and, therefore, our discussion and analysis refers to Prologis, Inc. and its consolidated subsidiaries, including Prologis, L.P. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We have a significant ownership interest in the co-investment ventures, which are either consolidated or unconsolidated based on our level of control of the entity.
We operate, manage and measure the operating performance of our properties on an owned and managed (“O&M”) basis. Our O&M portfolio includes our consolidated properties as well as properties owned by our unconsolidated co-investment ventures, which we manage. We make operating decisions based on our total O&M portfolio as we manage the properties without regard to their ownership. We also evaluate our results based on our proportionate economic ownership of each entity or property included in the O&M portfolio (“our share”), whether consolidated or unconsolidated, to reflect our share of the financial results of the O&M portfolio.
Included in our discussion below are references to funds from operations (“FFO”) and net operating income (“NOI”), neither of which are United States ("U.S.") generally accepted accounting principles (“GAAP”). See below for a reconciliation of Net Earnings Attributable to Common Stockholders/Unitholders in the Consolidated Statements of Income to our FFO measures and a reconciliation of NOI to Operating Income, the most directly comparable GAAP measures.
MANAGEMENT'S OVERVIEW
Prologis is the global leader in logistics real estate with a focus on high-barrier, high growth markets. We own, manage and develop well-located, high-quality logistics facilities in 19 countries across four continents. Our portfolio focuses on the world’s most vibrant centers of commerce and our scale across these locations allows us to better serve our customers’ diverse logistics requirements.
The importance of logistics supply chains has increased dramatically to our customers and the global economy. The long-term trends of e-commerce adoption and supply chain resiliency continue to drive the need for increased warehouse space to store and distribute goods. This demand has translated into meaningful increases in rents and has resulted in low vacancy. We believe this demand is driven by three primary factors: (i) customer supply chains re-positioning to address the significant shift to e-commerce and heightened service expectations; (ii) overall consumption and household growth; and (iii) our customers’ desire for more supply chain resiliency. We believe these forces will keep demand strong for the long term.
Our teams actively manage our portfolio and provide comprehensive real estate services, including leasing, property management, development, acquisitions and dispositions. We also invest significant capital into new logistics properties principally through our development activity and third-party acquisitions. The contribution of newly developed properties to our co-investment ventures and the sale of non-strategic properties to third parties allows us to recycle capital back into our investment activities.
While the majority of our properties in the U.S. are wholly owned, we hold a significant ownership interest in properties both in the U.S. and internationally through our investment in the co-investment ventures. Partnering with the world’s largest institutional investors through co-investment ventures allows us to enhance and diversify our real estate returns as well as mitigate our exposure to foreign currency movements.
The nature of the services we are providing to our customers is expanding. The scale of our 1.2 billion square foot portfolio allows us to provide a platform of solutions to address challenges that companies face in global fulfillment today. Through Prologis Essentials, we focus on innovative ways to meet our customers’ operations, energy and sustainability, mobility and workforce needs. Our customer experience teams, proprietary technology and strategic partnerships are foundational to Prologis Essentials and allow us to provide our customers with unique and actionable insights to drive greater efficiency in their operations.
Our long-standing dedication to Environmental, Social and Governance (“ESG”) practices strengthens our relationships with our customers, investors, employees and the communities in which we do business. The principles of ESG are an important aspect of our business strategy that we believe delivers a strategic business advantage while positively impacting the environment.
Our Global Presence
At June 30, 2023, we owned or had investments in, on a wholly-owned basis or through co-investment ventures, properties and development projects expected to total approximately 1.2 billion square feet across the following geographies:
In October 2022, we completed the acquisition of Duke Realty Corporation and Duke Realty Limited Partnership (collectively “Duke”) through a merger transaction that we refer to as the “Duke Transaction” and is detailed in Note 2 to the Consolidated Financial Statements. The Duke portfolio was primarily comprised of logistics real estate assets, including 494 industrial operating properties, aggregating 144 million square feet. The total acquisition price, including transaction costs, was $23.2 billion and was funded through the issuance of equity and the assumption of debt.
Throughout this discussion, we reflect amounts in U.S. dollars, our reporting currency. Included in these amounts are consolidated and unconsolidated investments denominated in foreign currencies, principally the British pound sterling, Canadian dollar, euro and Japanese yen that are impacted by fluctuations in exchange rates when translated to U.S. dollars. We mitigate our exposure to foreign currency fluctuations by investing outside the U.S. through co-investment ventures, borrowing in the functional currency of our subsidiaries and utilizing derivative financial instruments.
Our business comprises two operating segments: Real Estate (Rental Operations and Development) and Strategic Capital.
Below is information summarizing consolidated activity within our segments (in millions):
Real Estate Segment
Rental Operations. Rental operations comprises the largest component of our operating segments and generally contributes 85% to 90% of our consolidated revenues, earnings and FFO. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. For leases that commenced during the six months ended June 30, 2023, within the consolidated operating portfolio, the weighted average lease term was 61 months. We expect to generate internal growth by increasing rents, maintaining high occupancy rates and controlling expenses. The primary driver of our revenue growth will be the rolling of in-place leases to current market rents when leases expire, as discussed further below. We believe our active portfolio management, combined with the skills of our property, leasing, maintenance, capital, energy, sustainability and risk management teams allow us to maximize NOI across our portfolio. Substantially all of our consolidated rental revenue, NOI and cash flows from rental operations are generated in the U.S.
Development. Given the scarcity of modern logistics facilities in our target markets, our development business provides the opportunity to build to the requirements of our customers while deepening our market presence. We believe we have a competitive advantage due to (i) the strategic locations of our global land bank and redevelopment sites; (ii) the development expertise of our local teams; (iii) the depth of our customer relationships; (iv) our ability to integrate sustainable design features that result in cost-savings and operational efficiencies for our customers; and (v) our procurement capabilities that allow us to secure high-demand construction materials at lower cost. Successful development and redevelopment efforts provide significant earnings growth as projects are leased, generate income and increase the value of our Real Estate Segment. Generally, we develop properties in the U.S. for long- term hold and outside the U.S. for contribution to our unconsolidated co-investment ventures.
Strategic Capital Segment
Our Strategic Capital Segment allows us to partner with many of the world’s largest institutional investors. The business is capitalized principally through private and public equity of which 93% is either in perpetual open ended or long-term ventures and two publicly traded vehicles (Nippon Prologis REIT, Inc. in Japan and FIBRA Prologis in Mexico). We align our interests with our partners by holding significant ownership interests in all of our nine unconsolidated co-investment ventures (ranging from 15% to 50%). This structure allows us to reduce our exposure to foreign currency movements for investments outside the U.S.
This segment produces durable, long-term cash flows and generally contributes 10% to 15% of our recurring consolidated revenues, earnings and FFO, all while requiring minimal capital other than our investment in the venture. We generate strategic capital revenues from our unconsolidated co-investment ventures, principally through asset management and property management services. Asset management fees are primarily driven by the quarterly valuation of the real estate properties owned by the respective ventures. We earn additional revenues by providing leasing, acquisition, construction management, development and disposition services. In certain ventures, we also have the ability to earn revenues through incentive fees (“promotes” or “promote revenues”) periodically during the life of a venture, upon liquidation of a venture or upon stabilization of individual venture assets based primarily on the total return of the investments over certain financial hurdles. We plan to grow this business and increase revenues by increasing our assets under
management in existing or new ventures. The majority of the recurring strategic capital revenues are generated outside the U.S. Promote revenues are recognized when earned at the end of the promote period for the specific co-investment ventures.
FUTURE GROWTH
We believe that the quality and scale of our portfolio, our ability to build out our land bank, our strategic capital business, the expertise of our team, the depth of our customer relationships and the strength of our balance sheet are differentiators that allow us to drive growth in revenues, NOI, earnings, FFO and cash flows.
SUMMARY OF THE SIX MONTHS ENDED JUNE 30, 2023
Our operating results were strong during the six months ended June 30, 2023. Consistent demand and low vacancy in the global logistics markets drove overall increases in market rents, which along with our high lease mark-to-market, translated into significant rent change on rollover and same-store growth in our O&M portfolio. Our O&M operating portfolio occupancy was 97.2% at June 30, 2023 and rent change on leases that commenced during the six months ended June 30, 2023 was 73.4%, on a net effective basis based on our ownership share. We believe we are well-positioned to organically grow revenues over the long term given the cumulative growth in market rents over the last several years and our high lease mark-to-market.
We completed the following significant activities in 2023, as described in the Notes to the Consolidated Financial Statements:
1,250
1,354
1,200
750
809
2,000
5,363
RESULTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2023 AND 2022
We evaluate our business operations based on the NOI of our two operating segments: Real Estate (Rental Operations and Development) and Strategic Capital. NOI by segment is a non-GAAP performance measure that is calculated using revenues and expenses directly from our financial statements. We consider NOI by segment to be an appropriate supplemental measure of our performance because it helps management and investors understand our operating results.
Below is our NOI by segment per our Consolidated Financial Statements and a reconciliation of NOI by segment to Operating Income per the Consolidated Financial Statements for the six months ended June 30 (in millions).
Rental revenues
3,285
2,170
Development management and other revenues
Rental expenses
(800
(546
Other expenses
(21
Real Estate Segment – NOI
2,466
1,614
Strategic capital revenues
934
290
Strategic capital expenses
(223
(109
Strategic Capital Segment– NOI
711
181
(195
(158
(1,205
(799
1,777
316
585
1,991
1,739
See Note 11 to the Consolidated Financial Statements for more information on our segments and a reconciliation of each business segment’s NOI to Operating Income and Earnings Before Income Taxes.
This operating segment principally includes rental revenue and rental expenses recognized from our consolidated properties. We allocate the costs of our property management and leasing functions to the Real Estate Segment through Rental Expenses and the Strategic Capital Segment through Strategic Capital Expenses based on the square footage of the relative portfolios. In addition, this segment is impacted by our development, acquisition and disposition activities.
Below are the components of Real Estate Segment NOI for the six months ended June 30, derived directly from line items in the Consolidated Financial Statements (in millions):
The change in Real Estate Segment (“RES”) NOI for the six months ended June 30, 2023 compared to the same period in 2022 of $852 million was impacted by the following activities (in millions):
Below are key operating metrics of our consolidated operating portfolio, which excludes non-strategic industrial properties.
Development Activity
The following table summarizes consolidated development activity for the six months ended June 30 (dollars and square feet in millions):
Starts:
Number of new development buildings during the period
58
TEI
403
2,728
Percentage of build-to-suits based on TEI
28.5
29.3
Stabilizations:
Number of development buildings stabilized during the period
1,413
998
44.5
32.7
Weighted average stabilized yield (1)
6.4
6.0
Estimated value at completion
1,932
1,761
Estimated weighted average margin (2)
36.7
76.5
Estimated value creation
519
763
At June 30, 2023, the consolidated development portfolio, including properties under development and pre-stabilized properties, was expected to be completed before April 2025 with a TEI of $6.4 billion and was 39.5% leased. Our investment in the development portfolio was $4.2 billion at June 30, 2023, leaving $2.2 billion remaining to be spent.
Capital Expenditures
We capitalize costs incurred in improving and leasing our operating properties as part of the investment basis or within other assets. The following graph summarizes capitalized expenditures, excluding development costs of our consolidated operating properties during each quarter:
This operating segment includes revenues from asset management and property management services, transactional services for acquisition, disposition and leasing activity and promote revenue earned primarily from the unconsolidated co-investment ventures. Revenues associated with the Strategic Capital Segment fluctuate because of changes in the size of the portfolios through acquisitions and dispositions, the fair value of the properties and other transactional activity including foreign currency exchange rates and timing of promotes. These revenues are reduced by the direct costs associated with the asset and property-level management expenses for the properties owned by these ventures. We allocate the costs of our property management and leasing functions to the Strategic Capital Segment through Strategic Capital Expenses and to the Real Estate Segment through Rental Expenses based on the square footage of the relative portfolios. For further details regarding the key property information and summarized financial condition and operating results of our unconsolidated co-investment ventures, refer to Note 4 to the Consolidated Financial Statements.
Below are the components of Strategic Capital Segment NOI for the six months ended June 30, derived directly from the line items in the Consolidated Financial Statements (in millions):
Strategic Capital Segment – NOI
Below is additional detail of our Strategic Capital Segment revenues, expenses and NOI for the six months ended June 30 (in millions):
U.S. (1)
Strategic capital revenues ($)
Recurring fees (3)
86
40
234
235
Transactional fees (4)
Promote revenue (5)
637
670
Total strategic capital revenues ($)
733
95
Strategic capital expenses ($) (5)
(117
(52
(13
(8
(64
(28
(29
Strategic Capital Segment– NOI ($)
616
67
Approximately 40% of the promote earned by us from the co-investment ventures is paid to our employees as a combination of cash and stock-based awards pursuant to the terms of the PPP and expensed through Strategic Capital Expenses, as vested.
G&A Expenses
G&A expenses were $195 million and $158 million for the six months ended June 30, 2023 and 2022, respectively. G&A expenses increased in 2023 as compared to 2022, principally due to inflationary increases and higher compensation expenses based on our performance. We capitalize certain internal costs that are incremental and directly related to our development and building improvement activities.
The following table summarizes capitalized G&A for the six months ended June 30 (dollars in millions):
Building and land development activities
Operating building improvements and other
Total capitalized G&A expenses
94
72
Capitalized compensation and related costs as a percentage of total
24.0
23.1
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $1,205 million and $799 million for the six months ended June 30, 2023 and 2022.
The change in depreciation and amortization expenses during the six months ended June 30, 2023 from the same period in 2022 of approximately $406 million was impacted by the following activities (in millions):
Gains on Real Estate Transactions, Net
Gains on the disposition of development properties and land were $185 million and $316 million for the six months ended June 30, 2023 and 2022, respectively, primarily from the contribution of properties we developed to our unconsolidated co-investment ventures in Japan during both periods and Europe in 2022. Gains on other dispositions of investments in real estate were $29 million and $585 million for the six months ended June 30, 2023 and 2022, respectively, and 2022 included sales of non-strategic operating properties to third parties in the first quarter. Historically, we have utilized the proceeds from these transactions primarily to fund our development activities. See Note 3 to the Consolidated Financial Statements for further information on these transactions.
Our Owned and Managed (“O&M”) Operating Portfolio
We manage our business and review our operating fundamentals on an O&M basis, which includes our consolidated properties and properties owned by our unconsolidated co-investment ventures. We believe reviewing the results in this way allows management to understand performance more broadly as we manage the properties without regard to their ownership. We do not control the unconsolidated co-investment ventures for purposes of GAAP and the presentation of the ventures’ operating information does not represent a legal claim.
Our O&M operating portfolio does not include our development portfolio, value-added properties, non-industrial properties or properties that we consider non-strategic and do not have the intent to hold long term that are classified as either held for sale or within other real estate investments. Value-added properties are properties we have either acquired at a discount and believe we could provide greater returns post-stabilization or properties we expect to repurpose to a higher and better use. See below for information on our O&M operating portfolio (square feet in millions):
Number of Properties
SquareFeet
Percentage Occupied
Consolidated
2,921
621
97.3
2,812
595
98.3
Unconsolidated
2,207
495
97.1
2,177
98.1
5,128
1,116
97.2
4,989
1,083
98.2
Below are the key leasing metrics of our O&M operating portfolio.
Same Store Analysis
Our same store metrics are non-GAAP financial measures, which are commonly used in the real estate industry and expected from the financial community, on both a net effective and cash basis. We evaluate the 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, which allows us and investors to analyze our ongoing business operations. We determine our same store metrics on property NOI, which is calculated as rental revenue less rental expense for the applicable properties in the same store population for both consolidated and unconsolidated properties based on our ownership interest, as further defined below.
We define our same store population for the three months ended June 30, 2023 as the properties in our O&M operating portfolio, including the property NOI for both consolidated properties and properties owned by the unconsolidated co-investment ventures, at January 1, 2022 and owned throughout the same three-month period in both 2022 and 2023. We believe the drivers of property NOI for the consolidated portfolio are generally the same for the properties owned by the ventures in which we invest and therefore we evaluate the same store metrics of the O&M portfolio based on Prologis’ ownership in the properties (“Prologis Share”). The same store population excludes properties held for sale to third parties, along with development properties that were not stabilized at the beginning of the period (January 1, 2022) and properties acquired or disposed of to third parties during the period. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the reported period-end exchange rate to translate from local currency into the U.S. dollar for both periods.
As non-GAAP financial measures, the same store metrics have certain limitations as analytical tools and may vary among real estate companies. As a result, we provide a reconciliation of Rental Revenues less Rental Expenses (“Property NOI”) (from our Consolidated Financial Statements prepared in accordance with U.S. GAAP) to our Same Store Property NOI measures, as follows for the three months ended June 30 (dollars in millions):
Percentage
Change
Reconciliation of Consolidated Property NOI to Same Store Property NOI measures:
1,652
1,093
(388
(270
Consolidated Property NOI
1,264
823
Adjustments to derive same store results:
Property NOI from consolidated properties not included in same store portfolio and other adjustments (1)
(449
(77
Property NOI from unconsolidated co-investment ventures included in same store portfolio (1)(2)
705
660
Third parties' share of Property NOI from properties included in same store portfolio (1)(2)
(572
(536
Prologis Share of Same Store Property NOI – Net Effective (2)
948
870
8.9
Consolidated properties straight-line rent and fair value lease adjustments included in same store portfolio (3)
(27
Unconsolidated co-investment ventures straight-line rent and fair value lease adjustments included in same store portfolio (3)
(23
Third parties' share of straight-line rent and fair value lease adjustments included in same store portfolio (2)(3)
Prologis Share of Same Store Property NOI – Cash (2)(3)
929
839
During the periods presented, certain wholly owned properties were contributed to a co-investment venture and are included in the same store portfolio. Neither our consolidated results nor those of the co-investment ventures, when viewed individually, would be comparable on a same store basis because of the changes in composition of the respective portfolios from period to period (e.g. the results of a contributed property are included in our consolidated results through the contribution date and in the results of the venture subsequent to the contribution date based on our ownership interest at the end of the period). As a result, only line items labeled “Prologis Share of Same Store Property NOI” are comparable period over period.
We manage our business and compensate our executives based on the same store results of our O&M portfolio at 100% as we manage our portfolio on an ownership blind basis. We calculate those results by including 100% of the properties included in our same store portfolio.
Other Components of Income (Expense)
Earnings from Unconsolidated Entities, Net
We recognized net earnings from unconsolidated entities, which are accounted for using the equity method, of $146 million and $157 million for the six months ended June 30, 2023 and 2022, respectively.
The earnings we recognize can be impacted by: (i) variances in revenues and expenses of each venture; (ii) the size and occupancy rate of the portfolio of properties owned by each venture; (iii) gains or losses from the dispositions of properties and extinguishment of debt; (iv) our ownership interest in each venture; and (v) fluctuations in foreign currency exchange rates used to translate our share of net earnings to U.S. dollars.
See the discussion of our unconsolidated entities above in the Strategic Capital Segment discussion and in Note 4 to the Consolidated Financial Statements for a further breakdown of our share of net earnings recognized.
Interest Expense
The following table details our net interest expense for the six months ended June 30 (dollars in millions):
Gross interest expense
298
147
Amortization of debt discount and debt issuance costs, net
Capitalized amounts
Net interest expense
286
Weighted average effective interest rate during the period
2.7
1.6
Interest expense increased during the six months ended June 30, 2023, as compared to the same period in 2022, principally due to the issuance of senior notes and assuming $4.2 billion of debt in the Duke Transaction with a weighted average interest rate at fair value of 4.9% in October 2022. We issued $5.4 billion of senior notes during the six months ended June 30, 2023 and $3.3 billion during the year ended December 31, 2022, with a weighted average interest rate of 4.7% and 2.3%, respectively, at the issuance date.
See Note 6 to the Consolidated Financial Statements and the Liquidity and Capital Resources section below, for further discussion of our debt and borrowing costs.
Foreign Currency and Derivative Gains and Other Income, Net
We recognized foreign currency and derivative gains and other income, net, of $35 million and $193 million for the six months ended June 30, 2023 and 2022, respectively.
We are exposed to foreign currency exchange risk related to investments in and earnings from our foreign investments. We primarily hedge our foreign currency risk related to our investments by borrowing in the currencies in which we invest thereby providing a natural hedge. We have issued debt in a currency that is not the same functional currency of the borrowing entity and have designated a portion of the debt as a nonderivative net investment hedge. We recognize the remeasurement and settlement of the translation adjustment on the unhedged portion of the debt and accrued interest in unrealized gains or losses. We may use derivative financial instruments to manage foreign currency exchange rate risk related to our earnings. We recognize the change in fair value of the undesignated derivative contracts in unrealized gains and losses. Upon settlement of these transactions, we recognize realized gains or losses.
The following table details our foreign currency and derivative gains (losses), net for the six months ended June 30 (in millions):
Realized foreign currency and derivative gains, net:
Gains on the settlement of undesignated derivatives
Gains on the settlement of transactions with third parties
Total realized foreign currency and derivative gains, net
Unrealized foreign currency and derivative gains (losses), net:
Gains (losses) on the change in fair value of undesignated derivatives and unhedged debt
152
Gains on remeasurement of certain assets and liabilities
Total unrealized foreign currency and derivative gains (losses), net
(12
155
Total foreign currency and derivative gains, net
186
See Note 10 to the Consolidated Financial Statements for more information about our derivative and nonderivative transactions.
Income Tax Expense
We recognize income tax expense related to our taxable REIT subsidiaries and in the local, state and foreign jurisdictions in which we operate. Our current income tax expense (benefit) fluctuates from period to period based primarily on the timing of our taxable income, including gains on the disposition of properties and fees earned from the co-investment ventures. Deferred income tax expense (benefit) is generally a function of the period’s temporary differences and the utilization of net operating losses generated in prior years that had been previously recognized as deferred income tax assets in taxable subsidiaries.
The following table summarizes our income tax expense for the six months ended June 30 (in millions):
Current income tax expense:
Income tax expense on dispositions
Total current income tax expense
Deferred income tax expense:
Total deferred income tax expense
Total income tax expense
111
79
Net Earnings Attributable to Noncontrolling Interests
This amount represents the third-party investors’ share of the earnings generated in consolidated entities in which we do not own 100% of the equity, reduced by the third-party share of fees or promotes payable to us and earned during the period. We had net earnings attributable to noncontrolling interests of $97 million and $104 million for the six months ended June 30, 2023 and 2022, respectively. Included in these amounts were $42 million and $50 million for the six months ended June 30, 2023 and 2022, of net earnings attributable to the common limited partnership unitholders of Prologis, L.P.
See Note 7 to the Consolidated Financial Statements for further information on our noncontrolling interests.
Other Comprehensive Income (Loss)
The key driver of changes in Accumulated Other Comprehensive Income (Loss) (“AOCI/L”) during the six months ended June 30, 2023 and 2022, was the currency translation adjustment derived from changes in exchange rates during both periods primarily on our net investments in real estate outside the U.S. and the borrowings we issue in the functional currencies of the countries where we invest. These borrowings serve as a natural hedge of our foreign investments. In addition, we use derivative financial instruments, such as foreign currency forward and option contracts to manage foreign currency exchange rate risk related to our foreign investments and interest rate swaps to manage interest rate risk, that when designated the change in fair value is included in AOCI/L.
See Note 10 to the Consolidated Financial Statements for more information on changes in other comprehensive income and about our derivative and nonderivative transactions.
RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2023 AND 2022
Except as separately discussed above, the changes in comprehensive income attributable to common stockholders and unitholders and its components for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, are similar to the changes for the six-month periods ended on the same dates.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We consider our ability to generate cash from operating activities, distributions from our co-investment ventures, contributions and dispositions of properties and available financing sources to be adequate to meet our anticipated future development, acquisition, operating, debt service, dividend and distribution requirements.
Near-Term Principal Cash Sources and Uses
In addition to dividends and distributions, we expect our primary cash needs will consist of the following:
42
We expect to fund our cash needs principally from the following sources (subject to market conditions):
Long-term, we may also voluntarily repurchase our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or otherwise. We may also fund our cash needs from the issuance of equity securities, subject to market conditions, and through the sale of a portion of our investments in co-investment ventures.
The following table summarizes information about our consolidated debt by currency (dollars in millions):
1,294
1,228
830
815
9,891
7,991
3,035
3,308
13,079
10,534
Total debt (1)
28,129
23,876
43
Our credit ratings at June 30, 2023, were A3 from Moody’s with a stable outlook and A from Standard & Poor’s with a stable outlook. These ratings allow us to borrow at an advantageous interest rate in a broad number of capital markets around the world. Adverse changes in our credit ratings could negatively impact our business and, in particular, our refinancing and other capital market activities, our ability to manage debt maturities, our future growth and our development and acquisition activity. 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.
At June 30, 2023, we were in compliance with all of our financial debt covenants. These covenants include a number of customary financial covenants, such as maintaining debt service coverage ratios, leverage ratios and fixed charge coverage ratios.
See Note 6 to the Consolidated Financial Statements for further discussion on our debt.
Equity Commitments Related to Certain Co-Investment Ventures
Certain co-investment ventures have equity commitments from us and our venture partners. Our venture partners fulfill their equity commitment with cash. We may fulfill our equity commitment through contributions of properties or cash.
The following table summarizes the remaining equity commitments at June 30, 2023 (dollars in millions):
Equity Commitments (1)
Prologis
Venture Partners
Expiration Date
Prologis Targeted U.S. Logistics Fund
2024 – 2026 (2)
Prologis European Logistics Fund
Prologis China Logistics Venture
248
1,542
2023 – 2028
Prologis Brazil Logistics Venture
136
170
2026
Prologis Japan Core Logistics Fund
607
725
2033
400
3,189
3,589
Our venture partners may submit redemption requests on previously committed and called equity. During 2023, we received redemption requests in our open ended funds, principally concentrated in USLF and Prologis China Core Logistics Fund.
See the Cash Flow Summary below for more information about our investment activity in our co-investment ventures.
Cash Flow Summary
The following table summarizes our cash flow activity for the six months ended June 30 (in millions):
(4,513
(1,959
2,452
229
Net increase (decrease) in cash and cash equivalents, including the effect of foreign currency exchange rates on cash
253
(119
Operating Activities
Cash provided by and used in operating activities, exclusive of changes in receivables and payables, was impacted by the following significant activities during the six months ended June 30, 2023 and 2022:
Investing Activities
Cash provided by investing activities is driven by proceeds from the sale of real estate assets that include the contribution of properties we developed to our unconsolidated co-investment ventures as well as the sale of non-strategic operating properties. Cash used in investing activities is principally driven by our capital deployment activities of investing in real estate development, acquisitions and capital expenditures as discussed above. Acquisition activity includes real estate portfolios, land for future development, operating properties and other real estate assets. See Note 3 to the Consolidated Financial Statements for further information on these activities, including the $3.1 billion real estate portfolio we acquired in the second quarter of 2023. In addition, the following significant transactions also impacted our cash used in and provided by investing activities during the six months ended June 30, 2023 and 2022:
Financing Activities
Cash provided by and used in financing activities is principally driven by proceeds from and payments on credit facilities and other debt, along with dividends paid on common and preferred stock and noncontrolling interest contributions and distributions.
45
Our repurchase of and payments on debt and proceeds from the issuance of debt consisted of the following activity for the six months ended June 30 (in millions):
Repurchase of and payments on debt (including extinguishment costs)
Regularly scheduled debt principal payments and payments at maturity
592
Secured mortgage debt
153
159
269
751
259
5,323
1,841
Term loans
5,505
2,285
Unconsolidated Co-Investment Venture Debt
We had investments in and advances to our unconsolidated co-investment ventures of $8.8 billion at June 30, 2023. These ventures had total third-party debt of $14.1 billion at June 30, 2023 with a weighted average remaining maturity of 7 years and weighted average interest rate of 2.9%. The weighted average loan-to-value ratio for all unconsolidated co-investment ventures was 26.9% at June 30, 2023 based on gross book value. Loan-to-value, a non-GAAP measure, was calculated as the percentage of total third-party debt to the gross book value of real estate for each venture and weighted based on the cumulative gross book value of all unconsolidated co-investment ventures.
At June 30, 2023, we did not guarantee any third-party debt of the unconsolidated co-investment ventures.
Dividend and Distribution Requirements
Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we will meet the dividend requirements of the Internal Revenue Code ("IRC"), relative to maintaining our REIT status, while still allowing us to retain cash to fund our capital deployment and other investment activities.
Under the IRC, REITs may be subject to certain federal income and excise taxes on undistributed taxable income.
We paid quarterly cash dividends of $0.87 and $0.79 per common share in each of the first two quarters of 2023 and 2022, respectively. Our future common stock dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition, operating results and REIT distribution requirements, and may be adjusted at the discretion of the Board during the year.
We make distributions on the common limited partnership units outstanding at the same per unit amount as our common stock dividend. The Class A Units in the OP are entitled to a quarterly distribution equal to $0.64665 per unit so long as the common units receive a quarterly distribution of at least $0.40 per unit. We paid a quarterly cash distribution of $0.64665 per Class A Unit in each of the first two quarters of 2023 and 2022.
At June 30, 2023, our Series Q preferred stock had an annual dividend rate of 8.54% per share and the dividends are payable quarterly in arrears.
Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock have been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.
Other Commitments
On an ongoing basis, we are engaged in various stages of negotiations for the acquisition or disposition of individual properties or portfolios of properties.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to the Consolidated Financial Statements.
46
FUNDS FROM OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS/UNITHOLDERS (“FFO”)
FFO is a non-GAAP financial measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings.
The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales net of any related tax, along with impairment charges, of previously depreciated properties. We also exclude the gains on revaluation of equity investments upon acquisition of a controlling interest and the gain recognized from a partial sale of our investment, as these are similar to gains from the sales of previously depreciated properties. We exclude similar adjustments from our unconsolidated entities and the third parties’ share of our consolidated co-investment ventures.
Our FFO Measures
Our FFO measures begin with NAREIT’s definition and we make certain adjustments to reflect our business and the way that management plans and executes our business strategy. While not infrequent or unusual, the additional items we adjust for in calculating FFO, as modified by Prologis and Core FFO, both as defined below, are subject to significant fluctuations from period to period. Although these items may have 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. These items have 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 calculate our FFO measures, as defined below, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our FFO measures for unconsolidated ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our FFO measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.
These FFO measures are used by management as supplemental financial measures of operating performance and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses. 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.
We analyze our operating performance principally by the rental revenue of our real estate and the revenues from 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.
FFO, as modified by Prologis attributable to common stockholders/unitholders (“FFO, as modified by Prologis”)
To arrive at FFO, as modified by Prologis, we adjust the NAREIT defined FFO measure to exclude the impact of foreign currency related items and deferred tax, specifically:
We use FFO, as modified by Prologis, so that management, analysts and investors are able to evaluate our performance against other REITs that do not have similar operations or operations in jurisdictions outside the U.S.
Core FFO attributable to common stockholders/unitholders (“Core FFO”)
In addition to FFO, as modified by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as modified by Prologis, to exclude the following recurring and nonrecurring items that we recognize directly in FFO, as modified by Prologis:
We use Core FFO, including by segment and region, to: (i) assess our operating performance as compared to other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (iii) evaluate the performance of our management; (iv) budget and forecast future results to assist in the allocation of resources; (v) provide guidance to the financial markets to understand our expected operating performance; and (vi) evaluate how a specific potential investment will impact our future results.
Limitations on the use of our FFO measures
While we believe our modified 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 the limitations are:
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 modified FFO measures to our net earnings computed under GAAP for six months ended June 30 as follows (in millions):
Reconciliation of net earnings attributable to common stockholders to FFO measures:
1,678
1,759
Add (deduct) NAREIT defined adjustments:
Real estate related depreciation and amortization
774
Gains on other dispositions of investments in real estate, net of taxes
(590
Reconciling items related to noncontrolling interests
Our share of reconciling items included in earnings related to unconsolidated entities
230
156
NAREIT defined FFO attributable to common stockholders/unitholders
3,043
2,104
Add (deduct) our modified adjustments:
(155
FFO, as modified by Prologis attributable to common stockholders/unitholders
3,053
1,968
Adjustments to arrive at Core FFO:
(185
(316
Current income tax expense on dispositions
Core FFO attributable to common stockholders/unitholders
2,894
1,681
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the impact of foreign exchange-related variability and earnings volatility on our foreign investments and interest rate changes. See our risk factors in Part 1, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. See also Note 10 in the Consolidated Financial Statements in Item 1 for more information about our foreign operations and derivative financial instruments.
We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 10% adverse change in foreign currency exchange rates or interest rates at June 30, 2023. The results of the sensitivity analysis are summarized in the following sections. The sensitivity analysis is of limited predictive value. As a result, revenues and expenses, as well as our ultimate realized gains or losses with respect to foreign currency exchange rate and interest rate fluctuations will depend on the exposures that arise during a future period, hedging strategies at the time and the prevailing foreign currency exchange rates and interest rates.
Foreign Currency Risk
We are exposed to foreign currency exchange variability related to investments in and earnings from our foreign investments. Foreign currency market risk is the possibility that our results of operations or financial position could be better or worse than planned because of changes in foreign currency exchange rates. We primarily hedge our foreign currency risk by borrowing in the currencies in which we invest thereby providing a natural hedge. Additionally, we hedge our foreign currency risk by entering into derivative financial instruments that we designate as net investment hedges, as these amounts offset the translation adjustments on the underlying net assets of our foreign investments. At June 30, 2023, after consideration of our ability to borrow in the foreign currencies in which we invest and also derivative and nonderivative financial instruments as discussed in Note 10 to the Consolidated Financial Statements, we had minimal net equity denominated in a currency other than the U.S. dollar.
For the six months ended June 30, 2023, $269 million or 6.4% of our total consolidated revenue was denominated in foreign currencies. We enter into other foreign currency contracts, such as forwards, to reduce fluctuations in foreign currency associated with the translation of the future earnings of our international subsidiaries. We have forward contracts that were not designated as hedges, denominated principally in British pound sterling, Canadian dollar, euro and Japanese yen and have an aggregate notional amount of $1.5 billion to mitigate risk associated with the translation of the future earnings of our subsidiaries denominated in these currencies. The gain or loss on settlement of these contracts is included in our earnings and offsets the lower or higher translation of earnings from our investments denominated in currencies other than the U.S. dollar. Although the impact to net earnings is mitigated through higher translated U.S. dollar earnings from these currencies, a weakening of the U.S. dollar against these currencies by 10% could result in a $153 million cash payment on settlement of these contracts.
Interest Rate Risk
We are also exposed to the impact of interest rate changes on future earnings and cash flows. To mitigate that risk, we generally borrow with fixed rate debt and we may use derivative instruments to fix the interest rate on our variable rate debt. At June 30, 2023, $26.4 billion of our debt bore interest at fixed rates and therefore the fair value of these instruments was affected by changes in market interest rates. At June 30, 2023, $2.3 billion of our debt bore interest at variable rates. The following table summarizes the future repayment of debt and scheduled principal payments at June 30, 2023 (dollars in millions):
2024
2025
Fixed rate debt (1)
1,313
24,678
26,429
22,575
Weighted average interest rate (2)
1.4
3.2
3.3
Variable rate debt
563
629
163
726
588
173
1,487
1,481
Total variable rate debt
180
222
2,303
2,297
At June 30, 2023, the weighted average effective interest rate on our variable rate debt was 3.4% which was calculated using an average balance on our credit facilities throughout the year and our other variable rate debt balances at June 30, 2023. Changes in interest rates can cause interest expense to fluctuate on our variable rate debt. On the basis of our sensitivity analysis, a 10% increase in interest rates on our average outstanding variable rate debt balances would result in additional annual interest expense of $6 million for the quarter ended June 30, 2023, which equates to a change in interest rates of 34 basis points on our average outstanding variable rate debt balances and 2 basis points on our average total debt portfolio balances.
ITEM 4. Controls and Procedures
Controls and Procedures (Prologis, Inc.)
Prologis, Inc. carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c)) under the Securities and Exchange Act of 1934 (the “Exchange Act”) at June 30, 2023. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
Changes in Internal Control over Financial Reporting
There have not been any changes in Prologis, Inc.’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, Prologis, Inc.’s internal control over financial reporting.
Controls and Procedures (Prologis, L.P.)
Prologis, L.P. carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c)) under the Exchange Act at June 30, 2023. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
There have not been any changes in Prologis, L.P.’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, Prologis, L.P.’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Prologis and our unconsolidated entities are party to a variety of legal proceedings arising in the ordinary course of business. With respect to any such matters to which we are currently a party, the ultimate disposition of any such matters will not result in a material adverse effect on our business, financial position or results of operations.
ITEM 1A. Risk Factors
At June 30, 2023, no material changes had occurred in our risk factors as discussed in Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarterly period ended June 30, 2023, we issued 0.4 million shares of common stock of Prologis, Inc. in connection with the redemption of common units of Prologis, L.P. in reliance on the exemption from registration requirements of the Securities Act of 1933, as amended (the "Act"), afforded by Section 4(a)(2) thereof.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not Applicable.
ITEM 5. Other Information
During the quarterly period ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K under the Act).
ITEM 6. Exhibits
The exhibits required by this item are set forth on the Exhibit Index attached hereto.
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the following documents that have been previously filed with the Securities and Exchange Commission (“SEC”) and, pursuant to Rule 12b-32, are incorporated herein by reference.
4.1
Form of Officers’ Certificate related to the 4.625% Notes due 2033 (incorporated by reference to Exhibit 4.1 to Prologis' Current Report Form 8-K filed on May 23, 2023).
4.2
Form of 4.625% Notes due 2033 (incorporated by reference to Exhibit 4.2 to Prologis' Current Report Form 8-K filed on May 23, 2023).
Form of Officers’ Certificate related to the 4.875% Notes due 2028 (incorporated by reference to Exhibit 4.1 to Prologis' Current Report Form 8-K filed on June 28, 2023).
Form of 4.875% Notes due 2028 (incorporated by reference to Exhibit 4.2 to Prologis' Current Report Form 8-K filed on June 28, 2023).
Form of Officers’ Certificate related to the 5.125% Notes due 2034 (incorporated by reference to Exhibit 4.3 to Prologis' Current Report Form 8-K filed on June 28, 2023).
Form of 5.125% Notes due 2034 (incorporated by reference to Exhibit 4.4 to Prologis' Current Report Form 8-K filed on June 28, 2023).
4.7
Form of Officers’ Certificate related to the 5.250% Notes due 2053 (incorporated by reference to Exhibit 4.5 to Prologis' Current Report Form 8-K filed on June 28, 2023).
4.8
Form of 5.250% Notes due 2053 (incorporated by reference to Exhibit 4.6 to Prologis' Current Report Form 8-K filed on June 28, 2023).
10.1
Amended and Restated Global Senior Credit Agreement dated as of April 5, 2023 among Prologis, L.P., various affiliates of Prologis, L.P., various lenders and agents, and Bank of America, N.A., as Global Administrative Agent (incorporated by reference to Exhibit 10.1 Prologis' Current Report Form 8-K filed on April 7, 2023).
10.2†*
Amended Agreement Relating to Retirement Eligibility and Vesting of Equity-Based Awards of Prologis, L.P., dated May 3, 2023.
10.3†*
Fourth Amended and Restated Prologis Promote Plan, dated June 30, 2023.
15.1†
KPMG LLP Awareness Letter of Prologis, Inc.
15.2†
KPMG LLP Awareness Letter of Prologis, L.P.
22.1†
Subsidiary guarantors and issuers of guaranteed securities.
31.1†
Certification of Chief Executive Officer of Prologis, Inc.
31.2†
Certification of Chief Financial Officer of Prologis, Inc.
31.3†
Certification of Chief Executive Officer for Prologis, L.P.
31.4†
Certification of Chief Financial Officer for Prologis, L.P.
32.1†
Certification of Chief Executive Officer and Chief Financial Officer of Prologis, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†
Certification of Chief Executive Officer and Chief Financial Officer for Prologis, L.P., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS†
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document.
101.SCH†
Inline XBRL Taxonomy Extension Schema
101.CAL†
Inline XBRL Taxonomy Extension Calculation Linkbase
52
101.DEF†
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB†
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE†
Inline XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
†
Filed herewith
*
Management contract or Compensatory Plan or Arrangement
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
By:
/s/ Timothy D. Arndt
Timothy D. Arndt
Chief Financial Officer
/s/ Lori A. Palazzolo
Lori A. Palazzolo
Managing Director and Chief Accounting Officer
Prologis, Inc., its general partner
Date: July 26, 2023
54